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t
X-1530
FEDERAL RESERVE BOARD ANJ:WUNCEMENT
WEEK ENDED JULY l. 1927.
CHAUGES IN STATE :BANK i.lEMBERSHIP ~
Da.te
Dist •
Admitted to Membership:
None.
Consolidated *ith Nutiona1 Bonk:
l
The Fitchburg B!1llk & Trust Co., Fitchburg, l~ss.,
has consolidated with the Uerchants National BM.nk,
WOrcester, Mass., under title of Worcester County
N~tional Bmlk, Worcester, M:>.ss.
6-27-27
P.ERM[SSION GRhNTED TO EXERCISE TRUST POWERS:
1
3
7
MechanicksNt:.·,tional ::Be.nk, Concord, N. H.(Supplementa.l) 6-28-27
First National ~Jnk, Conshohocken, Penna.
6-28-27
First Na.tional Bank, Flint, Mich. (Supplemental)
6-28-27
X-1530
FEDERAL RFSERVE BOARD ANHOUNCEJ,1ENT
WEEK ENDED JULY 8, 192 7.
CHANGES IN STATE BANK
~vffiERSHIP:
Dist.
~
Dc;;.te
Admitted to YJembei-shJ..P:
None.
Converted to
6
12
N~xional
Bank:
The Merchants Bank, Mobile, Alabama, has converted
into the lTerchants National Be.nk of Ala'bama.
The Central:ia.State Bs.nk, Centralia, Washington, has
converted into the First National Bank of Centralia.
6-21-27
7- 1-27
Absorbed by National Bank:
12
Orange County Trmt & St~vings Bank, Santa Ana, Ct:o.lif.,
has been absorbed by the Bank of Italy N~tional Tl~t &
Savings Bank, San Francisco, C~lif.
6-18-27
PEIDUSSIOU GRA.lifTED TO EXERCISE TRUST POWERS;
1
2
3
3
4
7
Citizens N&tiona1 Bank, Tilton, N. H. (Supplemental)
Grams. tan National B&nk, Br onx.v ille , N. Y.
First N3otiona.l Bank, Philadelphia, Pu.
First N~tiona1 ~k, Se.yre, Pa..
First National Bc.nk & Trust Co., Siiringfield, Ohio
{Confirmatory)
La. Sc.lla Na-tional Bank, li.:. Sti.lle, Ill. (Supplemental)
7- 5-27
7- 7-27
7- 5-27
7- 1-27
7- 5-27
7- 5-27
X-1530
:liEDERA.L RESERVE :SOARD ANNOUNCEMENT
V~K ENDED JULY 15, 1927.
CHANGES IN STATE BANK :MElJIBERSHIP:
Dist.
No.
Date
Merger of State
2
~fumber
Banks:
The City Trust Company, Newark, N. J., and the
Ironbo1ll1.d Trust Company, Newark, N. J., both members,
have merged with and 1ll1.der the title of the Fidelity
Union Trust Company, Newark, N. J., a member.
6-29-27
Consolidation with National Bank:
6
The American Trust & Sa.vings Bank, Birmingham, Ala.,
a member, has consolidated with the Traders National Bank,
Birmingham, Ala., under title of American Traders National
Bank, Birmingham, Ala.
7-11-27
Absorbed b:V Nonmember Bank:
8
The Jonesboro Trust Co., Jonesboro, Ark., a member,
has been absorbed by the American Trust Co., Jonesboro,
Ark., a nonmember.
PERMISSION GRANTED TO EXERCISE T.RUST
1
2
2
2
4
6
7
8
8
10
PO~~S:
Worcester Co1ll1.ty National Bank, Worcester, Mass.
Mechanics National Bank, Bayonne; N.J.
Caldwell National Ba.nk:, Caldwell, N. J.
Hanover National Bank, New York, N. Y. (Supplemental)
Citizens· National Bank, Harlan, xy.
Merchants National Bank, Mobile, Ala.
Second National Bank, llic~ond, Ind.
(Supplemental)
First National Bank, lfdison, Ind.
Boone County National $ank, Columbia, Mo.{Supplemental}
First National Bank, Florence, Colo.
7-13-27
5-27-27
7-12-27
7-12-27
7-12-27
7-12-27
6-30-27
7-12-27
7-12-27
7-12-27
7-12-27
4
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
vi'EEK ENDED JULY 22, 1927.
CHANGES IN ST. \TE
.
BANK ME1'IBERSHIP:
Dist.
No.
Date
Admitted to Membership:
None.
Absorption of National Bank:
9
The State :Ba.nk of ~delia, Madelia, Mitm., a. member,
has absorbed the First National Bank of lvMelia..
7-15-27
PERMISSION GRANTED TO EXERCISE TRUST POVIERS:
3
3
4
6
7
10
12
First N&tiona.1 :B~k, Princeton, N. J. (Supplemental)
First National Bank, Ashley, Pa..
(Supplemental)
Second National Bank, Warren, Ohio
Third National Bank, Nashville, Tenn.
City National ~. Clinton, Iowa
(Supplemental)
Na.tioJ,lB.l B&nk of Commerce, Tu.lsa, Okla.
United States National Bank, Los Angeles, Calif.
7-21-27
7-21-27
7-21-27
7-21-27
7-21-27
7-21-27
7-21-27
5
X-1530
FEDERAL RESERVE BO!.RD A.NUOUUCEMENT
\~C ENDED JULY 29, 1927.
CHANGES IN STATE BANK JI;IEJviBERSHIP:
Adrni tted to
Dist.
No.
2
Columbus Trust Co.,
Newark, N. J,
:V~mber ship:
ca~ital
Surplus
$200,000
$100,000
Total
resources
$320,000
Date
7-23-27
PERMISSION GRANTED TO EXERCISE TRUST POWERS:
1
1
2
4
7
8
9
12
Nation8.l Tr&desmens Blink and Tru.st Co., New Haven, Conn.
(Supplemental)
Blackstone Canal National Bank, Providence, R. I.
Columbus Nationn.l :Bank, Paterson, N. J.
Ma.honing National Bank, Youngstown, Ohio (Supplemental)
{Supplemental)
First National Bank, Janesviile, Wis.
First Nationnl Bank, Belleville, Ill.
(Supplemental)
Union National Bank, Eo.u Claire, VIis.
First Natio~l Trast and Savings Bank, Whittier, Calif.
( Confirmt:.tor;y)
7-28-27
7-28-27
7-28-27
7-28-27
7-28-27
7-28-27
7-28-27
7-28-27
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
VJEEK ENDED AUGUST G, 1927.
CH.ANGES IN STATE BANK 11EMBERSHIP:
Dist.
No.
D;;;.te
Admitted to Membership:
None.
Consolidated with National
6
The :Sank and Trust Company, Talladega., Ala., has
consolidated vdth the Tf'.lladega National B~-nk.
~onverted
11
B~:nk:
to National
8- 1-27
B~k:
The Peoples State Brnk, Tyler, Tox~s, has converted into the Peoples Nu.tional Bc.nk of T;::1er.
7-30-27
PERMISSION GRllNTED TO EXERCISE TRUST POWERS:
10
10
12
EJ~change
Nc:.t iono.1 Bonk, Hutchinson, Kens •
.Aner ican Nr-:iiional B<.:~nk., Ol:rm.l.lgee, O~de..
First N·~tiona1 :&.nk, Los Angeles, Calif.
7-25-27
8- 2-27
7-29-27
.
FEDERAL RESERW BOABD ~'JfflOUNCEMElJT
Vi.EEK ENDED AUGUST 12., 1927
CHANGES IlJ
STi~.TE :B~~NIC
1/iEf;f.BERSHIP:
Admitted to Membership:
Dht.
No.
3
7
11
12
12
Capital
Surplus
Miners Deposit Bank and
Trust Company, Lykens, Pa. $135.,000
Peoples State Bank.,
Shannon, Illinois
Bank.,
San lilltonio, Texas
Total
resources
Date
$115,000
~1,446,000
40,000
9,000
262,190
8-8-27
300,000
300,000
5,472,495
8-5-27
500,000
100,000
7,899,740
8-12-27
8-10-27
Guar~nty St~te
Peoples Bank and Trust Co.
Senttle, Washington
Conunercial Bank of Turlock, Turlock Californir..
8-5-27
MERGER OF ST..~TE ]:IEMBER BlJfKS
2
The Commonwealth Bank of the City of New York, New York
and the ];Tanufacturers Trust Company ll<::.ve merged under the
title of the ~~nufacturcrs Trust Company, New York.
7-29-27
2
The Standard Bank, New York, lJew York c.nd the 1:ianufacturers
Trust Company have mer god under the title of the
:Manufacturers Trust Compa:rilly, New York.
7-29-27
CONSOLIDL.TION WITH STl..TE
7
B~\NK.
The Conunercial Stc.te Savings Bank, Detro it, :Michigan, has
conso.lidAted with the Commonwealth Federal Savings :Bc.nk,
Detroit, Michigan.
6-27-27
PEREISSION GR!JfTED TO EXERCISE TRUST POWERS.
2
2
3
3
3
3
3
4
5
5
Franklin Natioml Bnnk, Nutley, Hew Jersey.
First Natior~l Bank, Rockville Center, New York.
Merchants National Bank, Shenandoah, Penn.
Tioga National Bank, Philadelphia, Penn.
Broad Street National Brunk, Philndelphic {Supplemental)
Audubon Nc.tioMl Bc.nk, Audubon, New Jersey
First Camden Natioml Br.nk and Trust Co., Ccmden, N. J.
Commercial National :Bank, Coshocto.n, Ohio {Supplemento.l)
Empire Nc.tiono.l B~:m.k, Clo.rksbu.rg,. W. Va. { Supplomentc.l)
First l:btioMl Bonk, Thomasville, N. C.
8-10-27
8-10-27
8-10-27
8-10-27
8-10-27
8-10-27
8-10-27
8-11-27
8-10-27
8-10-27
,
8
Fedcr~1
Reserve Board
i~nounccmont
Ph'.....Rl.aSSION
6
7
8
10
10
wack ended
GR~NTED
~ugust
TO EXERCISE TRUST POVERS
Nn.tiona1 City B<1nk, RomG, Georgia..
First Nction<1l Br~k, Bcrv~, Illinois.
Peoples N~tion~l Bank, Washington, Indian~.
First Ho.tionc.l R".nk in . .':..da, i~dc., Oklahoma..
Okcmr:.h 1:-Tr.tiono~ B:-nk, Okemah, Okln.hom:.•
12, (continued)
8-11-27
8-10-27
8-11-27
8-10-2?
8-10-27
9
X-1530
:FEDERAL RESERVE BOARD ANN"01JNCEJ11JENT
\'i'EEK ID.'DED AUGUST 19, 1927
CHANGES IN STATE B.AlJ1{ MEMBERSHIP:
Admitted to Membership:
Date
Dist.
None.
Succeeded by State Member:
The Miners Deposit Bank, Lykens, Pa., a. member,
has been succeeded by the Miners Deposit Bank &
Trust Co., Lykens, P&., a. member.
7- 1-27
Closed:
7
Ma.lco1n Savings Bank,
Malcom; Iowa
8-12-27
Voluntary Liquidation:
7
Wakefield
St~te
Bank, Morenci, Mich.
8-16-27
PERMISSION GRANTED TO EXERCISE TRUST POWERS;
2
2
5
8
First No.tiona.l Bank, Highland Po.rk, N. J.
First National Bank, Bny Shore, N. Y.
Waynesboro Nntional Bank, Waynesboro, Va.
First NE',tionn.l Bank, lbyfield, Ky. (Supplemental)
8-17-27
8-17-27
8-17-27
8-17-27
n
••. ¥
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED AUGUST 26, 1927.
CHANGES IN STATE BANK MEMBERSHIP:
Date
Dist.
No.
Admitted to Membership:
None.
Converted to National Bank:
9
Columbia State Bank, Columbia Heights, lfinn.
8-15-27
PERMISSION GRANTED TO EXERCISE TRUST POWERS:
2
2
2
6
7,
8
11
12
Labor National Bank, Newark, N. J.
8-24-27
Prospect National Bank of Brooklyn in New York, N. Y.
8-24-27
Valley Stream National Bank, Valley Stream, .New York.
B-24-27
Isbell National Bc.n.k, Talladega, AJ.o..
8-24-27
National Bank of Decatur, Decatur, Ill. (Supplemental)
6-24-27
Peoples National Bank, Paducah, KY·
8-24-27
Fort Worth National Bnnk, Fort Worth, Texa.s.(Confirmatory)e-24-27
Citizens Nr·.tiono.l Bank .. Riverside, Calif.
8-24-27
1.1
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED SEPTE1ffiER 2, 1927.
CHANGES IN STATE BANK 1EMBERSHIP ~
· Dute
Dis~.
Admitted to :Membership:
Capital
7 Fordson State Bank;
Fordson, Mich.
Surplus
$40,000
Total
resources
$841,964
9- 1-27
N..erged With Nonmember :
3
The West Side Trust Co., Kingston, Pa~, ~member, has
merged with the Kingston Bank & Trust Co., Kingstorlj ~a., a
nonmember.
9- 1-27
Consoiidated with National Bankl
12
The Pacific Southwest Trust & Savings Bank, Los Angeles,
Calif., a member, has consolidated with the First National
Bank of Los Angeles.
PERMISSION
2
3
3
4
5
5
6
6
7
7
11
GR/~ED
TO EXERCISE TRUST POVmffiS:
First National Bank, Cranbury, N. J.
(Supplemental)
First National Bank, Barnegct, N. J.
National Bank of Olney in Philadelphia, Pa.
Montgomery National Bank, :Mount Sterling, Ky.
Farmers ~d 1~chanics National Bank, Westminster, 1a.
Farmers nnd NJercmnts N:o,tiono.l Bank, Radford, vc...
Centr~l N~tional Bank, Albany, Ale...
.Americll!l.-Trruiers Nr,tionn.l Bank, BirminghD.m, .Aln..
(Confirmc..tory)
First N~tionnl R~, Lc Porte, Ind.
(Supplemental)
First N~tionAl Bank, Red O~k, Io•~
(Supplemental)
Citizens Nationn.l Bank~ Tyler, Texas
(Su.pplementc..l)
9- l-27
8-30-27
8-30-27
8-30-27
9- 1-27
9- 2-27
8-30-27
9- 2-27
8-30-27
9- 2-27
8-30-27
8-30-27
t.2
X-15:50
FEDERAL P.ESERVE BOARD ANNOUNCEIVIENT
WEEK ENDED SEPTEMBER 9 , 19 2 7 •
CHANGES IN STATE :BANK ]i!EMB:ERSHIP:
Date
Dist.
.A.d.m~tted
to Membership:
None.
Voluntary Withdra>roUs:
7
6
Columbia State Savings Bank, Chicago, Ill.
American Trust Company, Jacksonville, Fla.
9- 6-27
9- 3-27
PERMISSION GR . .\NTED TO EXERCISE TRUST POWERS:
2
6
Peoples National Bank, Irvington, N. J.
First Nntionul Bank, Perry, Fla.
9- 8-27
9- 6-27
X-1530
FEDERAL RESERVE :BOARD ANNOUNCFJ.1ENT
\VEEK ENDED SEPTEMBER 16, 1927.
CHANGES IN STATE BliNK ]llEMBERSHIP ;
Dist.
Date
Admitted to Membership:
None.
Closed:
4
6
7
Farmers State Bonk, Eldorado, Ohio
Farmers & N.~erch.a.nts :Bank, Girard, Ga.
Farmers State Bank, Vail, Iowa
9-13-27
9-13-27
9-14-27
Voluntary Withdrawal:
7
Farmers & Merchants
~USSION
2
Nation~l
S~vings
Bank, Tipton, !own
9-12-27
GRANTED TO EXERCISE TRUST POWERS:
Bank of Skaneateles, Skaneateles, N. Y.
9-14-27
•
•
:14.
X-1530
FEDERAL :::tESERVE :SOA.."'ID l1JNOlJ1ICE1JENT
'\i:JEEK ENDED S:E!PTE!.3li:B. 23, 1927
.P..dmi tted to
'
l~embership:
Date
Dist.
None.
Absorption of Nonrrember:
.
2
.
The Newark Trust Co., Newark, N. J., a nonmember,
has merged with the Merchants Trust Co., Uewru-k, N.J •..
a member, under title of the l\'Iercha:1ts and Newark Trust
Compe.ny.
9-17-27
Voluntary Wi thdrav.~~:
9
Bradley Bank, Toma.h.o.wk, Wis •
9-12-27
Closed:
10
Home State Bc.nk~ imthony, Ke-ns.
9-19-27
PERiviiSSION' GR~~TED TO .EXERCISE TRUST POWERS:
1
1
4
7
7
7
7
lz1
8
11
11
Snnfard Hc.tiom:·.l BruJ.k, SLn:t'ord, :arc~ine
First N~~tiono.l B<:.nk, Springfield, Vt. ( SupplementL~l)
Atlas. Nc.tiono.l Bc.nk, Cincinnati, Ohio( Supplementc.l)
Sterling Nc.tion~l Bank, Starling, Ill•
Citizens Nationc.l Bo.nk, Chc.rles City, Iowo.
Louiso. County Nr..tiohc.l funk, Columbus Junction.Ic..
Central N:l.tionc..l Bo.nk, B4'.ttlo Creek,I~iich.
(Supplemental)
First liL:tional Bc.nk, Prince tun, Ky. ( Supplementc~l)
F.:-.rmers Nn.tionD.l B4'.!11c, GlC.sgow, Ky. ( Supp::.ementc..l)
Fc.rmers & Mcrchn.nts Nn.tioric.l R1.nk, l:..bilene, Texr.s
lliTr:.rshall N;:,tio:rw.l B~nk, l'hrsh11ll, Texr.;s
(Supplemont<.l)
9-20-27
9-20-27
9-20-27
9-23-27
9-23-27
9-20-27
9-23-27
9-20-27
9-20-27
9-23-27
9-23-27
X-1530
FEDERAL RESERVE BO.b.RD i~iNOu'NCEMENT
YIDK ENDED SEPTE1'i:BER 30, 192 7.
CHANGES IN ST.":..TE :BlJUC
:MEMBERSHIP~
Date
Dist.
l~itted
to Membership:
Capital
Surplus
2
3
Trust Company of Orange,
orange, N. J.
Dollar State Bank & Trust
Co., Scranton, Pa.
Resources
$700,000
$250,000
fZ,587,0l&
9-30-27
196,950
40,370
1,273,162
9-30-27
Voluntary Wi thdra.wal:
6
Evangeline Bank & Trust Co., Ville .Platte, IA.
9-28-27
.L'JJTHORIZED rro ACC:EPT DRi~FTS MID BILlS OF EXCIL.\NGE .,.
UP TO 100 PER -CENT OF C.~.\PITIU. ..:'.ND SURPLUS
l
Rhode Island Hospital Trust Co., Providence, R. I.
9-20-27
PERMISSION G!UU1TED TO EXERCISE TRUST POVreRS:
l
6
9
Second National Bank, 1-J'e.shw., N. H.
(SupplementqJ.)
Talladega National Bank, Talladega, Ala. (Oonfirm&tory)
First National Bank, Cnlumet, Mich.
9-27-27
9-27-27
9-27-27
X-1530
FEDERAL RESERVE BOARD .ANNOUNCEMENT
VIEEK ENDED OCTOBER 7, 1927.
CHANGES IN STATE BANK lVlEMBERSHIP:
Date
Dist.
Admitted to Membership:
None.
Merger between
2
St~te 1~mbers:
The Springfield J~..venue Trust Co., N"ewa.rk, N. J., has
merged vdth and under the title of the Federal Trust Co.,
Newark, N. J.
9-30-27
Wi thdrctwal:
11
First St~te Bank, Seminole, Texcs
{on account of expiration of Stnte charter)
10- 1-27
PERMISSION GRANTED TO EXERCISE TRUST POWERS:
3
2
2
4
6
7
7
7
9
10
11
Peoples National Bank, Pemberton, N. J.
First Nr.tiono.l B::onk, West New York, N. J.
First National Bcnk, St. Johnsville, N. Y.
First National Bank & Trust Co., Covington, Ky.
{SUpplemental)
First N:-,tionn.l Bnnk, Fayette, Ala.
First N~·.tional Bc.nk, Joliet, Ill. {Supplemento.l)
Citizens National Bank, Tipton, Ind. {Supplemental)
United States No.tio~~l Bunk, Kenosha, Wis.
First Nc.;tiono.l B!?.nk, Laurium, 1\,fich.
iunericn.n Nntional Bnnk, Bristow, Okla.
First National B~k, Bonhrum, Texas (Supplementfll)
8- 3-27
10- 5-27
10- 5-27
1010101010101010-
5-27
5-27
5-27
7-27
7-27
5-27
5-27
5-27
X-1530
FEDERAL R"E:SERVE J30A...'ID .&NNOUNCEl.IENT
WEEK ENDED OCTOBER 14, 1927.
CHANGES IN STATE BANK liEl'lBERSHIP:
Date
Dist.
Admitted to JJ:embership:
None.
Closed:
6
Wartrace Bank
&
Trust do., Wartrace, Tenn.
Chart~
8
3
6
9
qf Ti t,le :
The City Trust Co., St. Louis, l\lo., has ch.s.nged its title
to Fidelity Bank & Trust Co.
PERifliSSION"
GR..U~TED
10-11-27
TO EXERCISE r.i:RUST PO\'JERS;
Second National Bank, Altoona, Pn.
First National Bank, Statesboro, Ga.
First National Bank in Minneepolis, liinn.
10-11-27
10-12-27
10-12-27
10-12-27
X-1530
FEDERAL
RESERVE BOARD A.NNOUNCE1viENT
'.VEEK EliDED OCTOBER 21, 1927.
CHANGES IN STATE BANK ]/lEMBERSHIP:
Ad.mi tted to Member ship:
Date
Dist.
No.
None.
PERMISSION GR..:'..NTED TO EXERCISE TRUST
2
7
POWERS~
Little Falls National Bank, Little Falls, N. J.
& Commercial National Bank, Chicago, Ill.
Contin~ntal
10-20-27
10-18-27
1. 9
X-1530
FEDERAL RESERVE BOARD ANNOUNCEHENT
~1.EEK ENDED OCTOBER 28, 1927
CHANGES IN STATE BANK :MEMBERSHIP :
Date
Dist.
Admitted to :Membership:
None.
Converted to National Bank:
2
lntual Bank, New York, N. Y. (converted to MUtual National
Bank of the City of New York).
10-22-27
Absorption of Nonmember:
3
The Camden Safe Deposit & Trust Co., Camden, N. J., a
member lank, has absorbed the Central Trust Co., Camien,
N. J., a nonmember.
9-30-27
Change of Title:
8
The Bc.nk of :rr~ap lewood, Maplewood, :Mo • , has changed its
title to Bank of ~plewood ond Trust Com~.
10-18-27
Absorbed by Nonmember:
11
First State Bank & Trust Co., Hereford, Texas, a member,
has been ~bsorbed by First State Bank, Hereford, Tex~s, a
nonmember.
10-24-27
Absorption of National Bo.nk:
11
The Junction State Bank, Junction, Texas, a member, has
absorbed the First Nationnl Bank of Junction, Texas.
9-29-27
PERMISSION GRANTED TO EXERCJSE TRUST POVr.ERS:
4
First National Bcmk a.nd Trust Co., Wcynesburg, p:-,.
10-24-27
X-1530
FEDERAL RESERVE :BOARD :J.nJO:..TtTCZl-/IEHT
WEEK ENDED NOVEHBER 4, 1927.
CH:\NG:E:S IN STAT:S B.d.NK 1iJElJ3EBSHIP:
D:J.te
Dist.
::..dmi tted to Membership:
12
Americnn Exchange Bank,
Port land, Oreg.
Capita~
Surplus
Total
resources
:)200,000
$50,000
$3,234,651
10-29-27
Reopened:
4
The Farmers State
B~~.
10-29-27
Eldorado, Ohio.
Closed:
7
County
S:.~vings
10-29-27
Bt:.nk, Algona., Iowa.
Withdrawal:
11
The First State Bank, Normangee, Texas, ho.s withdrawn on
account of expiration of its Sta·te charter.
PERNuSSION GRlillTED TO EXERCISE TRUST
1
2
3
3
7
8
8
12
12
10-29-27
PO~VERS:
10-31-27
Berlin National Bank, Berlin, N. H.
11- 4-27
M:.:.tteo.wan Nr:.t ional Bank, Beacon, N. Y.
11- 4-27
Nn:t ionl'.l Security Bn.nk, Philc.de lphi!'., Po..
11- 4-27
Nr.tionnl Bank or' S~hwenksville, Penna..
11- 4-27
First lb tiona.l Ba"'lk, Lu.uington, llich.
11- 4-27
Lee County N~tional Bcnk, l~i~, Ark. {Supplement~!)
10-31-27
Security Nctio~l Bn.nk, Jackson, Tenn.
Los tmgeles-First N~t. Trust & Savings Bn.nk, Los Anuclos, Cr:.l.ll- 4-27
( Confir:mn.tory)
11- 4-27
First N:~t ionnl Bc.-.nk, O~;clon, Utc.h.
X-1530
FEDERAL RESERVE :BO.AR:D .A.NNOUNCE!vlENT
VJEEK ENDED N'OV:EMBER 11, 1927.
CH~GES
HT STATE BliNK MEMBERSHIP:
Date
D&llt.
Admitted to Membership:
None.
Absorption of National Banks:
2
7
The Hamil ton Trust Co. , Paterson, N. J., a member, has
absorbed the Totowa national Bank, Paterson, N. J.
11- 1-27
The .American Commercial & Savings Bank, Davenport, Ia.,
a member, has absorbed the Iowa NationAl Bank, Davenport,In. 10-31-27
Voluntory Withdrcwnls:
1
9
9
Merrill Trust Co., Bo.ngor, },tl.ine.
Fo.rmers State Bank, H(\yfield, Minn.
State Bonk of New Richland, Uew RichlDnd, 1vlinn.
11- 9-27
10-31-27
7-14-27
Voluntr~y Li~dation:
11
11- 2-27
First Sto.te Bank, Trenton, Texo.s.
AUTHORIZED TO ACCEPT DRAFTS .li.ND BILLS OF .EXCWillGE
UP TO 100 PER CENT OF Cll.PITJ..L .t..ND SURPLUS:
12
Citizens National Bank, Los Angeles, Cclif'.
11-10-27
PE!ll:IISSION GR.:.NTED TO ElCERCISE TRUST POY!ERS.
2
Broad & lfnrket Nut iona.1
2
Oeni•rJ:
Bt.~nk
& Trust Co., Newnrk, N. J.
( Confirmo.tory)
2
5
·!nnk.;·· llew Rochelle, .11. Y.
MAnufacturers Nationo.l Bnnk, Troy, N. Y'. ( ConfiJ"Ini.tory}
Libert7 NottoD4l :sene~·. 'aah1Dit0n, ]). c ..
N::-.lion~.l
11111111-
8-27
8-27
8-27
8-27
X-1530
FEDERAL RESERVE :BOARD .ANNOUNCEl\I.ENT
VIEEK ENDED NOVEMBER 18, 1927.
CIDU~GES
IN STATE :Bl~ 1~ffiERSHIP:
~ttted
to
}~mbership:
Dist.
Uone. ·
Voluntary Withdrawal;
7
Cicero Trust & Savings :Bank, Cicero, Ill.
ll-14-27
Closed:
7
First Trust & Savings :BanK, Rock Island, Ill.
ll-18-27
PERMISSION GRANTED TO EXERCISE TRUST POVJERS:
2
5
7
7
12
First National :Bnnk, Northport, N. Y.
Peoples National :Bank, Chester, S. c.
First N~tional :Bank, 1/iishawa.lca., Ind. (Supplemental)
First National :Bank, Russiaville, Ind.(Supplementa1)
First Nn.tional Trust & Savings :Bank, Sa.n Diego,
Calif. (Confirmatory)
ll-17-27
11-17-27
ll-17-27
11-17-27
11-17-27
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
"t.VEEK ENDED NOfflilBER 25, 1927.
CHANGES IN STATE BANK :ME1viBERSHIP:
Dist.
No.
De.te
Admitted to Membership:
None.
Converted to N.::tional Bank;
8
Exchange Bank, Jefferson City, MO.
ll- 8-27
Succeeded by a Nonmember:
l2
Security Trust Co., Bakersfield, Calif.
11-21-27
PERMISSION GRANTED TO EXERCISE TRUST POIVERS:
1
2
2
Liberty National Bank, Ellsworth, N~ine
National B~nk of Niagara & Trust Co., Niagara
Fn.lls, N.Y. (Confirmatory)
Ce.yut;a County N·.:tional Bank, Auburn, N. Y.
(Supplemental)
11-21-27
11-25-27
11-25-27
X-1530
FEDERAL RESFRVE BOARD ANNOUNC:6}.GNT
\'VEEK ENDED DECETh'IBER 2, 1927.
CHANGES IN STATE BANK MEMBERSHIP:
Dist.
No.
Date
Admitted to Membership:
lfone.
Voluntary Withdrawal:
9
Bank of Boulder, Boulder, Mont.
PERMISSION
2
3
3
6
8
10
12
GR.~TED
TO EXERCISE TRUST POvVERS:
Mount Prospect National Bank, Newark, N. J,
National Bank of Sha1nokin, Shamokin, Pa.
Swarthmore National Bank, Svi$,rthmore, Pa.
Houston National Bank, Dothan, Ala,(Supplemental)
First National Bank, Greer-NClcld: IIUss. (Supplemental)
Rubey National Bru1k, Golden, Colo.
First National Bank, Orange, C.c.lif.
11-25-27
11-26-27
11-30-27
11-30-27
11-26-27
11-26-27
11-26-27
11-26-27
25
X-1530
FEDERAL RESERVE BOARD J...NNOti'NCEMENT
WEEK ENDED DECEMBER ;; , b~7.
CHANGES IN STATE BANK 1,JE}ffirRSHIP:
----------.....-.:·----·--
Dist.
No.
Ds.te
A.dmi tted to
:Membership:~
__
.,...__
Surp\l.us
10
S~:wings Ste.te Bc..nk,
Topeka., Kcms •
Totc..l
resources
Fidelity
$200' 000
$4·0, 000
12- 5-27
· Chant.:e of Title:
G
The Encineers Bank & Trust Company, Birl::irv_;har.i, Ale., has
changed its title to Southern Ba.nk & Trust Comp::o.ny.
ll-22-27
Closed:
ll
Aver;.; St&.te Bank,
Avery, Texas.
Ba.nk of Locust Grove, Locuat .Grove, Ga.
12- 6-27
12- 8-27
Absorbed by nonmember:_
ll
First Guaranty Stute Bank, Tioga, Texas, a member, has been
absorbed by the First State Bv.nk, Tioea., Text>.s, e. nonmember.
12- 2-27
PERliTSSION GRiiNTED TO EXERCISE TRUST PO\VERS:
3
6
7
7
8
Lewisburg National Br...:nk, Lewis1:mrt;, P•~.
Merchc1.nts No.tiona.l Bank, Vicks·OU.l·g, Miss.
N~tional Builders Bank,
Chicaeo, Ill.
First Nr..tionul B~nk, Paris, Ill.
1fuDs.niel National Bank, Springfield., 1'Io.
lZ1212121.2-
6-27
6-27
8-27
5-27
5-27
X-1530
:)i'EDERAI, RESERVE BOARD ANNOUNCEMENT
WEEK ENDED DECEJilffiER 16, 1927
Dist.
No.
Date
None.
PEID.:ISS ION GRJJ:fTED TO EXERCISE TRUST POWERS:
l
l
4
4
4
4
4
7
ll
Commercial Security National Bank, Boston, Mass.
National Grand Bank, Jviarblehead, 1v'fass.
First National Bank, Pikeville, KY·
First National Bank, Bellaire, Ohio
(Supplemental)
Merchants National Bank & Trust Co., Dayton, Ohio
(Supplemental)
First National Bank & ~rust Co., Hamilton, ~hio (Sup.)
Exchange National Bank, Pittsburgh, Pa.
Continental National Bank & Trust Co., Chicago, Ill.
(Confirmatory)
Citizens National Bank, Waco, Texas
12-14-27
12-14-27
12-16-27
12-16-27
12-16-27
12-16-27
12-16-27
12-16-27
12-14-27
27
X-1530
FEDERAL RES.ERVE BOARD ANNOUNCElltlENT
Vi.EEK ENDED DECEMBER 23, 1927 •
· CHANGES IN STATE BANK l1EMBERSHIP:
Dist.
No.
Capital
Total
resources
Date
$150,000
12-19-27
613,999
12-21-27
2,576,334
12-20-27
Surplus
Admitted to Membership:
2
2
10
People's Trust Co.,
Dunellen, N. J.
The Cohocton State Bank,
Cohocton, N. Y.
First Security Bank,
Rock Springs, V~o.
$100,000
50,000
100,000
$50,000
25,000
100,000
yoluntary Withdrawal:
8
Planters Bank & Trust Co., Ruleville, Miss.
12-20-27
Absorbed by National Bank:
ll
First State Bank, Richland, Texas
(absorbed b,y First N~tional Bank of Richland, Tex.)
11-11-27
PERliiSSION GRANTED TO EXERCISE TRUST PO\v.ERS:
2
2
2
3
6
6
6
7
Irvington National Bank, Irvington, N. J.
No.tiono.l Bank of Cortland, Cortland, N. Y.
Wheatley Hills Nntion~l B~k, Westbury,_N. Y.
Drovers & Mechanics National Bank, York, Pn.
First National Bnnk, Mobile, Ala. (Supplemental)
National Bank of Gulfport, Gulfport, 1liss.
Fn.rmers National Bank, Winchester, Tenn.
Farmers ~d First NGtional Bank, New Castle, Ind.
(Confirmatory)
12-20-27
12-20-27
12-20-27
12-20-27
12-20-27
12-22-27
12-20-27
12-22-27
28
::;~-1530
FEDERAL RESERVE BOARD MlliOUNCE:D:IENT
VI'EEE El-IDED DECEl'IBER 30, 1927
CHA..~GES
IN STATE BANK MEMBERSHIP:
Dist.
---·No.
Date
Admitted to Membership:
None.
Succeeded by Nonmember:
11
ll
First State Benk, Denton, Texas
(succeeded by First State Bank of Denton)
First State Bank, Wolfe City, Texas
(succeeded by First State Bank of Wolfe City)
12-13-27
12-24-27
PEillviTSSION GRANTED TO EXERCISE TRUST POWERS:
7
ll
First National Bank, Dysart, Iowa.
Commercial National Bank, Shreveport, Ln.
( Supp:emental)
12-29-27
12-29-27
c
0 p
y
X-4897
No. 110
In the Supreme Court of Arkansas, Juno 27, 1927
The Hicks ··company, Ltd., vs. Federal Reserve :Bank": of St. ~ouis
MEHA.FFY, J.
The appellant, plaintiff below, filud tee
11
follo~7ing
complo.int:
The plaintiff, for its cause of action against the defendant,
alleges:
"First: That the plai:rltiff is a cor-poration orga...'Ylized
existing under and Qy virtue of the laws of the State of
ar~d
Louisiar~,
and is engaged in the wholesale grocer business in said State, with
its
princip~
Minden,
office in Shreveport, Louisiana, and branch office at
Louisi~~.
"Second: Tho dofenda.J.t is a banking corporation orgar.ized
and existing under
~d
by virtue of the
le~s
of tho United States
with its principal office in St. Louis, Missouri, ru1d was at all times
hereinafter mentioned and is now under
anc.
b;.r virtue of the lawz o:
the United States operating a branch barik kno;1n as the Little
3o~~
:Branch Federal Reserve :Sank of St. Louis, in Li tt1e Rock, Arka."lsas.
"Third: That on or about the - - - - - day of December, 1923,
H. ·T. Dickens of Bussey, Columbia CO'IL"lty, Arkansas, was indebted
to
the plaintiff upon account in the sUD of $897.44, and mailed his check
drawn on the :Bank of Taylor, of Taylor, Columbia
Cou.nt~r, ~kansas,
for the sum of $897.44, in settleme:nt of said account; that said
check was mailed by the said H. T. Dickens at Bussey, Arkansas, to
the plaintiff at Minden, Louisiana, and was received and the amount
credited to the account of H. T. Dickens by the plaintiff on or
:HJ
110- 2
X-4897
about the - - - - - day of Decer..ber, 1923.
"Fourth: That on or about the G. W. :Brown, of Taylor, Colunbin
-
Cou_~ty,
~r
of December, 1923,
Arkansas was indebted to the
Plaintiff upon account in tho sum of $806.47, and mailed his check
drawn on the Bank of
Ta~'lor,
of Taylor, Columbia County, Arka:1sc.s,
for the s~ of $806.47 in settleuent of said accou..~t; t~t said cho~:
was mailed
qy
the said G. W. Brown at Taylor, Arkansas, to the
Plaintiff at Minden, Louisiana, and was recaived and the aoount crodi ted to the account of G . W. :Brovm by the plaint iff
o~J.
or about the
_ _ _ day of December, 1923.
"Fifth; Tr...a.t on or about the
--- day
of Decon:bor, 1923, as
soon as said checks wer0 received by the plaintiff, it deposited said
checks in the Banlc of Minden, of Minden, Louisiana, for collection;
that the First National Baruc of Shreveport
~~ediately
indorsed and
tranSQitted said che¢ks for collection to the defendant at Little
Rock, .Arkansas; that on or about the _ _ _ dr".y of Decomber, 1923, tho
defendant transmitted the aforesaid checks, together
to the Bank of Taylor, Taylor,
"Sixth: That on the
Ark£u~sas,
~~th
other checks
for collection a11d return.
day of Decenber, 1923, the said Ea.'1k:
of Taylor received eaid checks drawn on it as aforesaid a:.1d s tan.~ed
said checks
11 Paid11
and charged to the accounts of H. T. Dickens and
G. W. Brown, the said Dickens and Brown each having more to their
credit in the Bank of '1aylor than the
amou..~t
of each of said checks,
and on the same day the said Bar.ik of Taylor transn::.i tted to the
defendant its draft on the Bankers Trust Coopany of Little Rock,
!rkansas, for the aggregate amount of the checks, including the two
checks sued on herein; that the defendant, ionediately upon its
110 ... 3
rece~:Pti
X-489'7
presented said chocks tv the :Bar.Jz\.irs Trust Co::l_Pa."'lY of I..i ttle
Rock, .Arkansas, for payr;1ent, a:1d payrlent was refused., the Ba.'l1lc of
T~lor
having been placed in the hc.."l.J.s of the State Ba.il.c Cor.:::1issic1er,
Cor.:tpan~r;
notice of which had been recei "Ved by":. the Bankers Trust
the plaintiff does not know whether the
p~ent
That
of saiC. chocks was
refused on account of insufficient funds or whether it was on account of
l~ving
received notice that
sai~ ba.~
charge of by the State Bank Comndssioner.
has been
~1at
the
~ron
defe~~"lt
in
there-
after charged the acount of said Choc~s to its ~Jodiato correspondent, First National. :&.nk of Sl1re7eport, a.ml the First National
Ba.r.ll':: of Shreveport wnoc:iatel~- cr..are;ed the a.':"!ount of said checks
back to the Bank of llii:lclC:J., who in turn charged t!lo auount of said
chocks back to
t~is
plaintiff.
"Seventh: Plaintiff alleges that the clefenCa:nt was negligent
i:i.1 not requiring tho :Ba...""lk of Te.ylor to pay t:'le onount of said checks
in money and in acceptir.g in payn.ent of said
chec~::s
on the :Bankers Trust
.Ar':ar~sas,
Coop~
of Li ttlc; Rock,
a draft Jrawn
v.:1ich prcved.
to be worthless; that the plaintiff by reason of said negligence
suffered daoages in the
SUD
of $1,703.91, the ai:lOU-"lt of said checks.
"Wherefore, pretll.ses considered, plaintiff prays
ju~ent
against said defendant fer its dar.ages cioresaid in the
Sl]C
of
$1, '703.91. toget'her Tii th interest, cost, and all other ani proper
relief."
Appellee,
~efen~~t belo~,
filei
d~.rurrer ~"ld ar~swer w~~ch
are
as follows:
11 The
defenda.:."lt de:cr!lrs to the cor.1plaint herein because the sane
does not state a cause of action, and in no wise waiving said de
110 - 4
X-4897
:32
r.ro.trer bu.t specially reserving and. standing upon the sane, defendant, bj·
leave of court, ansuers and says:
11
1.
Dofer..da...-·1t is not liable to the
the cheCks in question were
forwarde~
plai:.~tiff
by the
because at the tine
defen~t
to the
~~
of Taylor, upon which thev were draw by E. T. Di&-ens and G. W. Brown,
the said
11
2.
~k
Tho
of Taylor was insolvent.
dcfer:~t
G.enies that it is liable to tho plaintiff and
says that it has no contractual relations with the plaintiff; that
there is no privity of contract between the plaintiff and G.efendant,
as the defenda."lt received such chocks thr·:JU£;!1 tho Federal Reaerve
~~
of Dallas, such checlcs bein& direct routoG. to the defend&nt by
tho First National BaLk of Shreveport by the consent only of the
Federal Reserve
BroL~
of Dallas, irlth directions to defendant to
transnit the proceeds of tbe checks, if collectei, to the Federal
Reserve Bank of n1llas,
Defon~"lt
is responsible, therefore, if
liable at all, which it denies, o1uy to the Foreral Reserve Bark of
Dallas.
11
3.
Defendant is I).Ot liable i11 D.J."V eve:r:.t
becau~e
between the First National Bank of Shreveport and the
it ";,res agreed
Fe~oral
Reserve
:Ba..·1.k of Dallas that all checks for collection, S"olch as those involved
in this action,night be forwarded to the drawee
accepted therefor in pa.yne:nt.
ban.~
and a bank draft
That the Federal Reserve Bank of Dallas
published a notice to this effect to all of its corrcsponde:nt ani
oOI:lber ba:;.lks, i::.'lcll.:\.di:J.g the First National :Be.nk of Shrove)ort, which
directly assented. thereto anu wc.s bou..."'l.d by such regulation,
&'li
all the
cm.stOI:lers of the First National :Bank of Shreveport, forwarding checks
for collection through the Federal Reserve Bank of Dallas and, by its
110- 5
X-4897
pcrt:ti s s ion,. direct routing checks to its correspondent banks,
wer~
bound by such regulation.
That the defena.aD.t, on its own part, had.
given notice to all of its correspondents, including the Federal
'e'
servo Bank of Dallas, that it would forward chocks for collection to
the drawee bank and accept in pa,yDent therefor a
the Federal Reserve
Bar~
b~-lk
draft, and that
of Dallas, the First National Bank of Shreve-
port, and all bonks for whon defendant undertook to collect cheCks,
assented to and were bound by snch notice.
11 4.
Defendant saving and reserving all of its defenses hereto-
foro sot up,
s~s
that it is not liable to the plaintiff in any event
on account of the alleged negligent act cooplained of, because after
such checks had been forwarded to the :Ba.r..k of Teylor, and after the
Bank of Tcylor had ro:::J.i tted to
p~
the saoe by a bank draft drawn on
the Ba;nkers Trust Conpany of Little Rock, and after such draft was
dishonored by the Bankers Trust Cor.:pany of Li ttl a Rock because of'
the insolvency of the Bank of Taylor, and after notice of such fact
had cooe to the knowledge of the plaintiff, the plaintiff elected to
T~lor
hold the Bank of
filing
T~lor,
bank.
cla~
and ratified the act of the defenda."lt by
with the State Bank Cacoissioner against the Bank of
seckir~
to collect the proceeds of such checks froo such drawee
The defendant pleads such ratification in bar of the plaizttiff 's
claio herounier. 11
Thereafter the defendant filed the following aoendr.lent to i't;s
'
answer:
11
Tho defend.o.n t only undertook to collect checks or forw¥"d
the sar1e for collection u.mler the lawful conditions set forth by
regulations published by the Federal Reserve Board and in force and
effect at the tiDe of the transactions conplained of,.
particular~y
110- 6
X-4897
:~~l
regulation J. Series of 1920, nnd tho conditions and taros for the
collection of checks set forth in Circular No. 6, Series of 1922, dated
Decer:.bor 20, 1922,
la~fully
published by the defendant, and the terns
and conditions in Circular No. 19, Series of 1923, dated Septeobcr 24,
1923, lawfully published by the Federal Reserve :Bank: of Dallas, all of
whiCh regulations,
ten~s,
and conditions fully bound the plaintiff and
by which it is proviC:.ed that checks received by the defendant night be
forwarded for collection to the drawee bank and an exchange
draf~
cepted therefor and the chec..l<:s released to the drawee bank,
rul
ac-
of
which the defendant pleads in defense of the plaintiff's cause o:f
action. 11
This case was suboi tted upon an agreed. statooent of facts and
certain evidence.
The agreed stataoent of facts is as follows:
"Tho following stateoent is agreed upon as the facts upon \7llich
this
case~
be
suboit~ed.
{In the event of an e;ppeal by
eithe~
party,
only relevant portions of the publications and circulars attached as
exhibits hereto will be aorried into the record; such relevant portions will be indicated by underscoring those parts of such
do~ents
as are read in eVidence by either party at the trial hereof.)
"!I.he plaintiff, the l3ank of :Minden and the First National Bank
of Shreveport, are dooicUed in the district of the Federill Reserve
Bank of Dallas.
The First National
~nk
of Shreveport is a meml;ler
bank of the Federal Reserve Systeo, Dallas District.
The Bank of
Minden is not a I:loober.
"If forwarded for collection through a. Federal Reserve Bank,
the checks involved in this action would have been cleared through
t}J.e l)all'-11 :Bank, unless under regulations pu.blished to mecber am.d
110 -
'1
x-4897
non-oaober ba:iks, poroission had been obtained froo the Dallas
B~~
for
direct fornording through a FedGJral Reserve :Bank of another district.
In which latter event, the proceeds
uo~d
be cleared
throu&~
the
Dallas Barlt and the collection wade under ter.as and conditions governing the clearance and collection of checks published br.r the Dallas
bank.
"The Ban..lc of Taylor was in the district of the Federal Reserve
Bank of St. Louis.
Tho checks involYed in this action were sent direct
to the Little Roclt Branch of the Federal Reserve
~~
of St. Louis by
pemission obtained by the First National Bank of Shreveport froi:J.
the Federal Reserve Banl-c of Dallas.
Tho Federal Reserve Bank of
St. Louis and the Federal Reserve Banlt of Del.la.s had published regulations governing tho teros and conditions upon whicl'l either of them
would collect checks or forward the sor.::.e for collection.
These regu-
lations were known to the First National Bank of Shreveport, and no
collection business
wa~
accepted by either of the Federal Reserve
Banks, or any branch thereof, except subject to the conditions of such
regulations.
The officers of the Bank of Minden would testify that
these regulations were unknown to then.
"A copy of the regulations in force by the St. Louis Bank,
designated as Circular No. ·6, Series of 1922, dated Decaober 20, 1922,
is attached and Dade a part of this agreeoont as :EJ.:hi bit 1, and a
copy of the regulations in force by the Dallas :Bank, designated as
Circular No. 10, series of 1923, dated Septeober 24, 1923, is attached
and r.1ade a part of this a.greeoent as Exhibit 2.
A copy of the regu-
lations adopted by the Federal Reserve Board, Series of 1920, is
attached and made a part of this agreet1cnt as Exhibit 3.
110- 8
11
X-4897
Aftor tho failure of tho Bonk of Teylor. dcfonda....""lt ·ivas authorized
by the Fcdcro.l Reserve Barllc of Dallas to file clains
~i th
of the fnilod batik in behalf of its
authorization
includ.ed the
SU.':l
indo~scrs,
~hich
clai:J.eC. by Hicks Cotrpapy, Ltd •. ,
the rccei ver
A copy of this
authorization,
~~tci
February 27, 1924, is attached to this
as Exhibit 4.
The items of $806.47 and $897.44 representing the chpc1:s
which had been deposito! for collection by the ylaintiff
Bank of Minden and forwarded by that
baP~
agrocme~t
~ith
the
to the First Nationnl
~
of Shreveport, a member bank of the Dallas Federal Reserve District.
11
The First National Ba..''lk of Shreveport was authorized by the
Bank of Minden to file a claim with the receiver of the failed bank
as to the above two items.
This was by letter dated
Feb~r
8, 1924,
as shoun by letter of the First National Barik of Shreveport, dated
September 17, 1925, attached hereto as EXhibit 5.
11
Correspondonce between Hicks Compo.cy. Ltd., and the defendant
occurred as shown by letters
hereto as Exhibits 6, 7 and
11
dated~
12, 13, anC. 14, 1924, attached
a.
Direct forwarding of checks for collection from booits in the
Dallas District to the Federal Reserve Bank of St. Louis was authorized
by the Dallas Bank, April 20, 1922, as shown by letters attached hereto as Exhibits 9 and 10.
11 A
claim on behalf of 1 tS indorsers was fil ad with the receiver
of the !a.:nk of Taylor by the defend.a...'"lt, copy of which is attached
as Exhibit 11,· the claim of Hicks Company,- Ltd., being covered by the
two items sho\vn on the list attached to the claim in the
amount of the c.."I'J.ec..lts •·
respect~ve
110 .... 9
X-41397
ti!fu_o form of doposi t tickot in use ·oy :Ba.nl: of Ta:rlor and used
by Hicks Company, Ltd., in
deposi~ing
the two checks in attachocl
hereto as Exhibit 12.
"The Bo.11Jc of Taylor forwnrded a bank draft drawn on its balance
at the Bankers Trust Company, Little Rock, which was not paid beca:use
of insufficient funds.
The balance of the Bar-k of Taylor with the
Bar~ers Trust Co~any on December 13, 1923, was $1,582.43.
"The defendant hns ma.d.e :peymonts to tho plaintiff cut of proceeds
it received from the Bank Comnissioncr in the liquidation of the assets
of tho Bank of Taylor, as fellows:
September 3, 1925 •
Septonber 28, 1925
• • • $164.30
•
154.41
...
154.41
..
.........
February 27, 1926
Total.
.• ...•
11 Tho
$473.12
Bailk of Teylor was the onl;r bank at
Ta~rlor,
nearest other barik being at Staops, about ten wiles
The last :published sta.tencnt of tho Barl: of
with as EXhibit No.
~lo::.·
.Arkansas, the
c~sU4~t
fro.o Taylor.
i.;; exhil)itod here-
"
!hulbers of exhibits r.ere introduced, incluaing circulars, letters
and
co~ies
of regulations, which we do not thiruc necosscry to set out
llere.
W. A.. Hicks testified in substance as follows:
11
:S:o is vico-prcside:J.t of the .A.tlorican Southern Trust Cccpar.y of
Little Rock, \Jhich is onge.g0d in gonoro.l. conr;:orcial banking
His bank does business
of
busine~s
genero.ll~r
busino~!Js.
all over ArkDnsa.s, and a large a.t:lOunt
over tho United States; does a gonoral coooorcial
barik~ng
X-4897
110 - 10
business, the collobtion 6f ~hacks, drafts and itor..~s of that character.
The capital of the ba..."lk is one oillion dclla.rs, and a surplus of tuC?
huri~ed thousand. dollars.
lion dollars.
The average dC")OSi t is about sixteen mit-
Witness has been in the
for 15 years.
b~iking ~siness
Until its merger with certain other
was the largest bank in Arkansas.
in Little RQdk
bar~s,
bar~
this
I am familiar with the U.."liversal
C"J.stom of Federal banks in t"his Federal Reserve District and in t!le
United States in collecting cheCks
dra~
on ort•of
to~
bonks.
Tho
gonernl custom is to send tho checks direct to the paying banks.
It
is the custom to BCcapt drafts dra'W:l by the drawee ba.."'lk on their correspondent, which is usu.aJ.ly located in the town in which the sending
bei~
is located.
It is not tho custom to damand currency from the
drawee bar..k for checks baing colloctod.
OROS~BXAUIN.A.TIOU
This has been the custom since I have boon in the
ness.
It is not
go~orally
ba..~:ing
the custom to ascortnin tho
condition of tho bank before sendir;.g.
busi-
fir~"lcial
If it should be brought to our
direct attention that tho bank is in an insolvent condition we woul'd
route our items to apother
bam~.
We
gation as to tho condition of a bank.
neve~
make auf special investi-
We do not make any investi-
gat ion as to tho 8l'll0Unt of the ca:r>i tal stock or the size of tho
"ba.nf•
Every State bank is required to publish a statement, and our bank
receives those statancnts.
in Ark.."lllsas.
We rocoivc ste.temants from every bank
iie I:!Dke it our srecial "business to get. them, to keep
in touch with the situation, and. to find out whether or not the
bar~
is getting along all right if it is doing business with us in a bollrowing way.
!the published statement of the bank does not indicate .
X-4E97
110 - 11
its condition as being solvent.
be solvent and in good
A
baru~
may be over-extended, and may.
to the published statement •
conditio~ accor~ing
. It is very hard to toll from tho published statement as. to whether tho
bank should be considered as being in a shaky condition.
':i.he published
statement might indicate that it is in an over-extended condition,
but not that it was ins)lvcnt.
and a half thousond
surplus, $2,250.
doll~rs
~~divided
If tho bank showed that it had twelve
capital stoCk, sevon and a half thousand
?refits, deposits of about $54,000. loans
for moro tha.Tl $130,000, a."'ld loa.::s o.nd discounts and bills payable
of $53,000, I would
~ot
call it in
but I would not call it in an
~bsolutely
insolv~nt
first-class condition,
condition.
It depends
entirely upon tho assets in tho way of bills receivable.
If tho
assets werG worth dollar for dollar just J.ikc it stated, and a'bsolutcly good, it would not be insolvent,
~~t
if the assets wore not
worth that much :money, which is u::rJ.a.lly the case, it wc1J.l d not show
a very good report, "bu.t that is e. thi:r..g that co·uld be O.etermined only
by
~Tl.
intensive examination of its assets.
In 1921
~1d
1922 our
b~~ •
. known as the Germa.Tl. National :Ba.."'lk, had deposits of $6,900.00 and we
were borrowing seven and one-half million dollars, and our bills
receivable were twelve oillion dollars.
We were not insolvent, but
our stato.ment indicated that we were rather in
dition.
In the year 1923
ovor-cxtonded cc:1ili.ticn.
n~
~
over-extended con-
bnclts in Arkansas were still in an
ito have hacl less bankruptcies of bar..ks in
Arlr..ansas than h. a:r.:y State surroundir..g us over a period of fi vo yoars,
but I ao not
sign.
sayi~
that this
over-exte~dod
condition was a very good
As I stated before, it depends on the value of tho assets of
the bank and the assets cannot be detcnJinod
~thout
an extensive
llO- 12
X-4897
o:xmrtination by one \7ho knows tho' value of their raper.
th~t
It is possible
their cash oay be low today and collections tooorrow bring up
their resources.
It does not indicate entirely that the
solvent, but in&icatcs
cot:l!:iiU:'4.t;r a:.1.d :W.s
tr~t
~etten
tho bank is
t~·ing
be~
is in-
to take care of its
itself i!l tho.t condi tio:il during hard tioos
and has not yet 'been o.blc to recover.
When we loan nancy to countey
banks we do not require individual i::dorsenent of Cirectcrs, 'but we
require colla.terl:'.l - that is, the rledging of their bills recei va'ble in sene
~~ses
we require
indiviL~
indorseoont.
RE ..;; DI3ECT
EW~INATION
I oxacinod tho ,u:lishod stat0oent stipulated in the agreed
stat~ont
of facts in this case, and we see nothing in the stateoent
that uould koop us fron oending i tcr:s direct to tho 'banlt of
~lor
for collection.
BE - CROSS EXAMINATION
~oro
is
nothir~
in t}le statonont to indicate t:mt r.o would not
send items for nora than $~,000. direct to the batik.
The stateoent
shows that the entire capital stock was tekan up in barking house,
furni t'ill'e and fixtures, banking house and other real estate was $12,000,
the ca.r>ital stock $12,500, the surplus $7,500, the undivided profits
$2,234, r:clcing approxinatoly $10,000 r:.orgin in their capital stock 1
surplus and undi vide G. profits ·above their furniture a..."ld fixtures,
banking house ani other real estate.
It is reasonable to expect
~n
analyzing a statecent of this character that the banking house,
furni 'tiu'e and :fixtures are of sor.:e ve.l·ll.E!.
That would have to be do-
4-0
X-4897
110 - 13
terr.:ined, of course,
011
a sale of the assets.
In r:..y way of analyzin£
this stntcoEmt I \7buld decrease that 50 per cent, bru12-::ing house,
furniture and fixtures, and other real estate worth a9proxioately
~6,000,
r·l1ich added to tho surplus, capital stock a.nC. undiviC.od
profits would r:1akc a net a:.:1ount of better than $6, 000..
hesitate to scnQ itens direct to the
~~
of Taylor for collection.
They :lid owe the $53,000 and the $130,000.
the
~aper,
We would not
~Ict
lmor.ring the value of
I cannot soy uhothcr subtracting tho loan $53,000 and the
$130,000 fror.1 the loans and discounts the usual anount of 'bad paper,
unothcr that would loave tho baclc insolvent.
I will say that this
statew.ent LlC.icatod tl:at tho bark was in a very extended condition,
but tho over-extended condition docs not indicate insolvency.
oignt be insolvent
a-~d
It
it ni£ht not - that depGnds entirely on its
assets."
F. A. Coe testified in
"I am
I:lllilagCr
su~stance
as follous:
of the Li tt;te Rock: Clearing House Association,
which is an association of the 'bariks of Little Rock for
~:ing
settlements on Little RoCk cheCks, and in addition we run a country
department for the collection of some out-of-town checks.
I have
been secretary of this association since August last year.. I was
with the Little Rock
Bra...~ch
of the Federal Reserve Bank of St •. Louis
since January·l, 1919, until August 1, 1923.
I am acquainted with
the universal custom of bail$ ha.11dling chccksdrawn on out-of-tovm
banks for collection.. I understand tho -u.r.r.ivorso.l custom to be as
stated by Mr •. Hicks •. whose testimony I have heard.
L11
110 - 14
X-4897
CROSS-EXAMINATION
! was b.ssistant cashier of the Fcdcrn.l Rescrv-o Barik at this
place wh-en tho i toms in question woro .sent to the :&.:ik of "Toylor:,
Mr. A. F .. J3o.ilcy tvas in charge.
custom to send c11ccks to t..""lose
Ho is not
coun~
tigation <>f t!10ir f'ir..ancial condition..
h(..'l"~
lt is the u:nive:rsul
bariks without making invosTh.c "]o;r..k of
T~rlor
is not a
mombor o:f tho Federal Rosm-ve :Broik or the Federnl .Reserve Syst0m.
It was the custom cf tne :Fadorcl liesorve :Btulk to send these i tc::1s to
nonmember nD.Illts l7ithout making a:rry investigation as to their fi:nanc ial standing..
It is also t...1.e custom of the Little Roclt Clearing House Assoelation to do tn.e same thing.
This is a co:t:Jme:rciaJ. ctl.Btom wnich is
the outgrowth of business conditions..
The above was all the evidenea introduced and t11o court., a.ftei!
hearing the evidence., foUild tho law a.<'1d facts i:r. fe.vor of' the defondant and rendered jud@nent accordingly.
!'he plaintiff savf.}d its exceptions 1 filed its m.?ticn for a new
trial which was by the .court overruled, prayed. a..'"l appeal to the
Suprwe Court., which was grturteC..
The
appella.r~t1s
contention is that he has a :right to sue tho
Federal Rosorve l3nnk
the Federal Eeservo
a.nc.
E~~
that it is not bouna
A~poll~'"lt
alleges
b~-
the regulations of
t~at
the Fcdcrnl Reserve
l3a.nk wa.s negligent in acccptir..g tho draft o:f tho Bank of Taylor and
that because of that negligence it is liable in this case.
110 ... 15
X-4897
The Bank of Taylor, to whom the
were sent, was the payee
ch~cks
pa.nk and this court had, prior to tho Act of tr. . e General Asser.:.bly of
.
l92l, held that it was negligent to send a cheCk for collectior. to
\
the payee bank.
char~od
that that act
~ct
But after the passage
the
~ule
and, in
of the Legislature, the court said
r;,f
that act this court held
t~e
decision construing the
t~at
there are two conflicti:q.g
Jl.inos of decisions; one originating in New York and the other in
~ssachusetts.
Under tho first rule a bank was responsible for all
\
of the correspondent banks through whose hands the choCk passed for
collection, unless there was an express contract to tho contrary between the custOI:ler and the initial bank.
And the other rule holding
that the correspondent baalks were agents of the customer and the
initial
ba~
is not responsible for their negligence.
The Act of the Legislature of 1921 is sot out in full in the
case of Farmers and Merchants Bank V. Rey 170 .Ark. 293. Tho Court in
that case said:
11
The evidence in this case was sufficient to warrant
the jury in finding that appel,lant was not guilty of &"lY negligence
in the selection of its
~ tself
corro~pondents
and that it was not negligent
in forwarding the check :tor collection. 11
The case relied on chiefly by appellant is tho case of Federal
Reserve Bank V. Malloy, 31 A. L. R., 1261.
That case not only announces
the two rules, the Now York rule and tho MassaChusetts rule, but tho
case o.nnotated and Iriany ati.thori ties are collected.
Aoong other things
it announces as one of tho roasons for its decision, that the choCks were
delivered to a banlt in Florida for collection and stated that tho x:elation of the payee to tho initial batik Of deposit was controlled by
43
X-4897
110 - 16
the Florid...'\ Stn.t"G.tc with rcsrect tc-
wr~ich
it 1:mst 'be prcs-..lr.1<;.;d they
dealt ui th onch other and tho.t this stat1;.te J:'1.a.d tho effect of ir.l;iOrling
tho Massachusetts rule intc tho contro.ct uitJ:-. tl:c result thnt tho initial bank ha.i ir.:plied n"G.thori t;r to i:1trust the collection of tho chock
to a· sub-agent
~1d
of any
or ncglicencc on their part rested on tho
dcf~ult
that tho sub-agent in turn to another and the risk
In that case it wa.s urged that
t...~o
o~ors.
accCj_)ta.nco of thu d:re.wee 1 s
draft instead of money was justified by custom.
.And the United States
Supreme Court said, with reference to the custom:
11
The bu.siness of check collecting is hanelecl by the Federal
Reserve :Bank in a wa;y very siMilar to that in which it is handled "uy
collecting batiks
throu~~out
the country.
When one barik receives
checks on anothe:.- in a dista..."'lt city, it usv.ally sends them to the
bank on which they arc drar.n, or to some ether bank in that city, and
receives settlement by moans of an oxchl'_ngc d:rof't
d.rt'.''in.l
by tho bank
to which the checks arc sent upon some one of its ccrr.:>spondonts.
When checks arc sent with the expectation that the
thom will remit at ouco, we call it
scndi~
for
ba~ roccivil~
cclloc~ion
and return.
Whe11 this is dOna. tho bo.r.ik upon u-hich tho chocks arc dratm is expected to cancel tho chocks and charge thotl to tho accounts of tho
dra.uors, a."li to remit by rqoans of its exchange draft, or by a. shipment ·of
than
curro~cy.
An oxcho...."'lgc era.ft is used. more frequently
a shipoont of curroncy.
The court thon so.id, after quc.til'lg the ebovo ovidc:-:..co;
"It
thus appoers that the custom, if otherwise established, docs not fix
a defini to and uniform method of romi ttanco.
\ihon checks arv sent
110 ... 17
X-48D7
for collection and. return, tho bm1k is ox-:occted
t:::
cancel the check
and charge them to tho account of the 2'.ra.wors, and rc~it
of its exchange draft, or by a
shi:p~ont
of currency,
11
11
:8'1; means
tho former
being usod more frequently than the latter.
Whether the choice of
mett.ods is at the elocti0n of the
or tho collecting
dr~weo b&~
b~~
do os not appear. "
The Court then stated that the custom was not kno·.vn to ple.intiff
and all others reasons aside, by its uncertainty ar.d laCk of
unifo~
ity, it furnishes no definite standard by which tho terms of tho
implied consent sought to be established thereb.f can be determined.
j
The
o~urt
11
continuing, said:
It furaishes no rule "by which it can be ascertained 'When an
exchange draft sl'.all be romi tted and. when currency shell be required,
or who is to exercise the right of election.
in
li~~
of tithes is good; but to
times,- 3 ponce, as the
taiaty. * * *
oc~~pior
11 ~
?~~ somet~2es
custom to pay Z pence
Z ~once,
and somo-
of the land pleases, is bed for uncer-
* * A ~~stom to do
a thing in either one or tho other
of two modes, as the person relying upon it
r.~y
choose, can furnish
no basis for an implication that the )Orson sought to be bound
had in oind one oodo rather than. the other.u
~J
it
Federal Reserve :Bank v.
Malloy, 31 A. L. R., 1261.
It will be observed that the testir.'tony in tl">.at case showed t:1e
custom to be to send either a draft or cash.
this case
s~ows
that it is tho
u.~ivorsal
]Ut the testimony in
custom to send the checks
diroct to the payee banks and that it was tho custoc to acc6!Jt drafts
45
110
~
18
JC-4897
drawn by the draii6e bank o_n their
corr~spondentf
the town in which the sending bar..k is
located~
which is usually in
It is not the custom
to demand currency from the d:rawee bank for the checks being collected.
Tho above was the testimony of Mr .•
w.
S. Hicks, Vice President
of the Am.cricro1. Sou thorn Trust Co. and lU-. F. A. Coo tos tificd that ho
was the
m~~or
of tho Little Rock Clearing House Association and ac-
quainted with the uni vorsal custom of banks handling chocks drawn on out
of town banks for collectiOll, Dnd he understood the universal custom
to be as stated by Mr. Hicks, i7hoso tustimony he had hGard.
The difference between the case relied· on by appellant and the
case at bar is, as to custom, that in tho case of Federal Reserve Bank
V. 1/ial.loy, the testimony showed the custom was to receive either money
or drafts; one or the other.
the
~~stem
The
testimo~~
in this case shows that
was to receive drafts and not money, so there was no
uncertainty about it.
It is contended that the appellee was negligent in sending to
the payee bank and negligent in recci ving a draft instead of money.
But tho allegation in the complaint is that it was negligo::1t in not
requiring the Bank of Taylor to pay the said chocks in money, and in
accepting in payment a draft dravm on the :Bankers Truot Coiiifaily.
This
is tho only act of nogligence.alleged.
As we have alrcaay said, the statute itself authorized the
a:ppeJ,lee to send tho
chccJ.~
could not be nogligonco
to tho Bank of Taylor,
~~d
And hence this
the appellant, in its complaint, alleges
that the appellee received the cheCks, transmitted
th~u
to the
Bank
of Toylor, Taylor, Arkansas, and that the Bank of Taylor received the
110 - 19
X-4897
47
.... ~. llii
chocks, stanpod them :paid n.ne..
and Brown.
cr~gcd
them to the accou.'lt of Dickens
Ani that on tho same d!>.y, tho sni d. 13a.rlt
ot. 1'~lo~
ti-tan~""
mi ttod to the defendant its draft on the Bo.:nkerc Trust Conpo.ny of
Little Rock £U1d that tho Defendant, appellee
ho~e,
iwocdintely pro-
sontod said checks to the Bankers Trust Coopany.
According to tho allegations in the cocplaint and tho proof in
the case, the
ap~olloe
was not negligent, in forwarding tho check
fo1· collection, nor »as it guilty of any necligence in e:n:y other wcy.
And, under the rule announced by this court since the Act of 1921,
Federal Rosorvo Bank, the appellee here, was not neGligent.
~he
Seo Bank
of Hunter v. Gros, Manuscript Opinion, Oct. 11, 1926; Rainwater,
Bar~
Cor:JOissioner v. Federal Reserve Bank of St. Louis, Manuscript Opinion,
Ja:n:uary 24, 1927; Tho Federal
Land
'Bank of St. Louis v. Goodtla.n,
Manuscript Opinion, April 4, 1927; Bru:k cf Y.eo v.
~~
of Cabot,
Manuscript Opinion, May 9, 1927.
In the view that we bave taken of this case, it is unnecessary
to discuss the other questions contior.ed in tho briefs of counsel.
We have roached the conclusion that tho appellee was not
~
g~ilty
of
negligence and the caso must therefore be affir.ced.
McKAY and SMITH • • • • • • • • • For kP,Poll£U1t
Je~es
General
G.
M~Conkey,
Co-~<.nsol
Fodoral Reserve :Ba.'lk, St. Louis, Missouri.
Ashley CoCkrill,
Henry M. Arcistead,
Li ttlo Rock, .Arkansas • • • • For Appell eo.
c 0 :? y
No. 260
X-4896
Hul t, J..
Honno,;pip, County ·
Tr~1sccntinental
Oil
Cor~ar~,
Eniorsod
.Appellant
Filed July 1, 1927 ~
vs.
26054
Grace F. Kaercher, Clerk.
Federal Reserve
Earu~
of
!iiinneapoli~,
Respondent.
Defendant received fror.i. the First !rational Bank: of
Chicago, a
o~ber
barik of the Federal Reserve Bark of.that city,
two cashier 1 s checks issued by a barik of South Dakota, a oernber bank
of defendant.
The checks bore the u.TU"estricted indorsement of
plaintiff, the payee.
Chicago
b~~s
Under the arranganent existing between tho
and defendant, as expressed in Regulation J. Series,
1917, of the Federal Reserve :Soard and defendant's Circulnr lio. 193,
defendant acco,pted the collection of the checks upon tho toms that
it might forward the S/llDe to the payer bank with instruction to rem.i t by draft upon a Minneapolis bank.
~ne
statute of South
Da~ota
authorized the collecting barik, doing business in that state, to
send the checks direct to the payer bank.
And the court found an
established general banking custo:o, existing in Minnesota ar.:.d South
Dakota, to forward i teos for collection direct
instructions to reoit by draft.
to :payer ba.rik with
It is hold:
Dcfenda.."'l.t wa.s not 6"1lil ty of negligence in scn;'.ling the
checks direct to the payor bank.
Nor in instructing the payer bo.nk to rOI;li t by draft en
bank in Minneapolis.
- - - - - - - - - - - - - - - - - - Affil'tled.
- -- -
~
~
~
~
~
•·
... 2-
X-4898
OPINIOl-T
-------
AlJ:;eal fro1:1 an order denying plaintiff 1 s notion for ar.1ended
f!Jldings or a new trial.
The action is one to recover damages of
defen~~t,
the
Federal Reserve Bark of the Ninth Reserve District; located at
Minneapolis, this state, for negligence in the collection of two
cashier 1 s checks, issued by the First National Bank of Eureka, South
Dakota, both dated August 2, 1920, payable to plaintiff and transmitted to its office in Chicago, Illinois.
the checks was $2, 670.35.
The aggregate aoount of
Plaintiff endorsed them by unrestricted
endorsement and deposited the same on August 5, 1920, in the First
National Bank of Chicago, the ar.1ount being credited to plaintiff 1 s
checking account and entered on its pass book which contained a provision that the bank in so receiving such checks acted only for
plaintiff as agent to collect the same and assumed no responsibility
beyond care in selecting agents at other points to whom to forward
such checks.
The Chicago l3a.nk was a meober bank of the Federal
Reserve Bank of Chicago, and the Eureka Bank was a mecber bank of
defendant at this time.
The general supervision and control of the
Federal Reserve banks is lodged in the Federal Reserve Board.
(#9785- 9805, U. S. Coop~ Stat. 1916)·.
This Board prooulgated
Regulation J. Series of 1917, which governed the Reserve ba.:i.1ks in
1920, and contained these provisions:
11
In ha."1dlir.g i ter:!S for
meober banks a Federal Reserve Bal'lk will act as agent only.
Board will require that each nenber
****
*"'**
The
bank authorize· its Federal
·*-
3
X-4898
-
Reserve Bark to send chocks for collection to
b~~s
on which checl:s
are drawn, and, except for ncglige:-.i.ce, such Federal Reserve :Sank will
assu.r.::e no liability.
A."l:'J' further rcquiror.:ents that the :Soard rJ.a;y
deem necessarJ will be set forth by the Federal Reserve
letters of i:l.structions to their mel!'lber
****
Reserve Barik will also promulgate rules and
banks.
EarJ~s
in their
Each Federal
regulatio~s
6overning
tho details of its operations as a clearing house, such rules and
regulations to be binding on all member
through tho Federal Reserve Barik. 11
defenda.:at issued Check
Cl~~:+rinr.
****
ba."ll-.:s which are clearing
Pursuant to authority thus given
ar.Q. Collection CircuJ:a.r l'To. 193,
which was in force during .August 1920, and which had prior to that
month been received by tho First J:Jationa.l :Ba...'"lk of Chicago, a:1d the
Federal Reserve :Bank of Chicago, the here I!laterial part reading:
Re~erve
"Checks received by the Federal
Ea.l'lk drai'l:n
Ol':
its menber
ba..'1ks will be forwarded direct to such wC!:l'bor bar.iks and arc to be
rew.i tted for by the member banks on day of recci;;t if :_1ossi blo, by
their draft on the Federal Reserve J3a.l".k provided
the~~
:::.ave a bal-
ance in excoss 'Of their required reserve, or by their draft on a
bank in Minneapolis or St. Paul.
Member banks are required by the
Fedorol Reserve :Board to provide funds to cover at par all cheCks
received from or for account of, their Federal Reserve :Ba...""lk.
In
handling items for member banks, the Federal Reserve Ea....'"ll;: of
It is understood that each mcmben
Minneapolis acts as agent only"'
ba11k authorizes it to send
check~
on which checks are drawn,
a.~d
Reserve
BruL~
for collection direct to banks
except for negligence the Federal
of Minneapolis assumes no liability until funds are
r:-o·
~~..)
r::·1 .
~J-
X-4898
4 -
actually in its hands, and is authorized to charge
f~r
baci~ ~~r
item
which it has not recui vod final peyuent, including iteus lost
iJt trn.:nsit. 11
itaws for
Member brull-:s of the Federal Reserve Ba::Jks
clearar~ce a~d
se::-~d
their
collections to the Reserve Batik of which
they are members; ou.t to save time end work there existed. an arra:r.gement, in August 1920,
bet~oe~
the First National Bank of Chicago,
the Federal Reserve Bank of Chicago a:J.d the defend8.nt whereb:l t:t.e
former mig.'lt sond direct to dcfonda.'!.t for collection i terns upon ba:·.ks
within its district, the proceeds of such items so routed
bcir~
crcdi ted by defendant to the Federal Reserve Ba..."il;: of Chicago, it
being agreed by a::.. d between all these barJ:s that their rights a..J.d
liabilities should in all respects be the $ame as if iteJs so routed
had been first derosi ted by tho First National Bv..'Jk of Chicago, with
the Federal Reserve Banl:: there and by the
lcction with defendant.
lat'~€.r
do:_Josi tee. fvr col-
The two cashier's cheCks wore uu1der this
arr•angonont sent directly to defendant "Jy the First National :Bank of
Chicago,
ly
~~d
e~d
were received by
defen~J.t
on August 6 end 7 respective-
imcediatoly forwarded with other similar itemu, totalling
$8,277.30, direct to tho Eureka Bank with instructions to reoit for
the same by draft on a Minneapolis or St •. Paul bark..
On .A.ugust 10
the Eureka Ba.nk at to::!) ted to ret1i t to defendant f;;r said checks and
the other i tor.:s
cy c,rawing its draft in tho sum of $8,277.30 upon
tho First & Security 2Ia.ti.:::na1 BarJ.l: of ML:.neapolis, which draft was
recoi vcd by defendant oi ther after ba.nldng hours or. the 11 t::: or
early on the 12th of August, and on that day presor-ted to the First
& Security National BarJ: for
p~1:ent,
but payment was refused for
5 .,..
X-4898
lack of funds to tho credit of the Eureka Bark.
Eureka
Banr~
On August 11
t~e
sus?endod paycent and a receiver was appointed for said
barik by the Comptroller of Currency.
~e
draft has never been
paid~
The court fou.:ld that i:f the checks hai beenpresented separately
over the
to the
co~Lnter
~arcl:a
Bank at
a~ ~ice
between
t~e
7 ar.d
11 of August there would have been sufficient money on ha11d to pay
them, but not e1;1ough to have paid all the i tows forwarded et the
one time stated.
August 1920
a.~d
mhe trial court also found the existence during
of·~~
established, general, uniforc and certain usage
custom anong ban.'!.cing institutions in Min,nesota and South Dakota
in accordance with which defendant was authorized to send the checks
direct to the Eureka :BanJ.::: and to direct that bank to reoi t b"'J its
draft upon a bw..k in Minneapolis or St. Paul.
tablished custoo, nor the
arra.~geoents
Nei thor this es-
between the Chicago batiks
and defendant, nor the contents of Regulation J. Series 1917, nor
of aefendants Clearing and Collection Circular No. 193 were known
to plaintiff.
There was an.otll.er bank at Eureka besides the one
here involved.
The .Ao.erican Railway Express
Cocyar~
also t:J.aintained
an office at Eureka with an agent authorized to collect noney on
checks and drafts on banks there and r&.:li t the saoe for a consideration.
A statute of South Dakota was in forco in 1920
readir~:
"Ani bank, banker or tru.st compa.r..y, hereinafter callect barJt, organ...
ized under the laws of, or doing business in this state, receiving
for collection or deposit, any check, note or other negotiable
instruoent drawn upon or peyable at al'JY other bank, located in
another city or town whether within or wi t.~out this state, r::JaY for-
!-4298
ward such
inst~~ent
for collection directly tc the barik on which
it is drawn or at •1hich it is ::1aC..o payable ll..."'!d such DOthod of forward.ins
d.i:;.~oct
to tho :.'ayor, shall be
C.oor.~c·i
duo diliGence o...-·1d tho
failure of such payer bank, because of its insolvency or other
dcfaul t, to accou..."'lt for the 1)l'Oceods t::.ercof, shall not render the
I
forwarding
b~~
liable therefor, provided however, such forwarding
bar..k shall have used. C.uo dilieenco ir. other res?octo in connection
with the collection of r>uch instrur.wnt. 11
Because of tho agreenent between
Natio1~l
Barik of Chicago, stated in
pl~intiff
plaintiff~s
a11C.. the First
pass book, that
bank was neroly tho ageat to select a sub-age4t for tho collection
of tho choCks, so that the Now York rule will not shield
fron accou."ltabili ty to :plai:-1tiff.
whether the facts founC.. show
We then
actior~ble
claios negligence in two respects only.
cor.~e
dofe~~:t
to the :proposition
negli6ence.
First, in
Plaintiff
forwardir~
the
chocks direct to the payer bam:, and second in a"L:cthorizing that
ba.""lk
to rooi t by draft on a Mi:nnoa:polis or St. Pa.v.l ba.ril:: i:1stoad of
by cash.
It is contended that the South Dakota statute has no application to the first proposition because defendant is not a ba:ik
in that state.
But South
Dcl~ota
is a part of the Reserve district
in which by act of Congress defendar.t is required to and does do
businesz.
T.he checks in quC:lstion were there drawn and payable.
And it seer.1s to us tha.t "IJlaintiff cnnnot be heard to say that
handling the collection of checks so
is~~ed
and payable in that
state, in accordance with provisions of its statute, is negligence.
53
....
7
...
X-4898
Fa.rr:ler t s & Me:·dht,::'lt 1 s :Sanl: v. Federal Reserve
]an}>;:
of Biohoond
262 U. S. 649, cited. by plaintiff, holc:!.s th.J.t this provision of
the statute is a:)plicable.
Of ccurse, if th.Jro were n.llogaticn a:1d.
proof that defendant k:i.1E:w; of the failing condition of the ba."'ll-c it
r.:liQ1 t be net;l icence to io r:ha t the law peroi ts, na-::1ely ser:d the
checks direct 'so the :"'"'-/Or b.::G:J:.
The clai!:J. is
siL~J 1.:,' t1"'~.:;
B'..1t there is no claio of that sort.
t!1e sole circunstancc tl:at the chec!cs were
forwarded. to the :1a;ycr Jc:·rc:': establishes ncglige::1ce.
:But
a~id.e
froo
the statute and the established custom of bar..king, we think, the
contract of ero::>loyment of dcfenda,j_1t absolves it fro::J. liability on
the facts found both as to the sm1cing
~~d
tho authorization to
remit by draft.
Defendant was employed by Dlaintiff 1 s authorized agent,
the First National
Th4~
of Chicago, to collect tile cheCks.
Such
agent knew that the only te:r"L:s and conditions upo:::1 whicl1 defe::..da.nt
would accept such employcccut were those of Regulation J. Series
1917 and the Cleuring and Collection Circular No. 193, fU:..d
forc m..1st be held to have consented
~~d
t~era
agreed in behalf of plain-
tiff that not only the checks might be sent directly to the peyer
b~ik
for collection, but also
ant by draft upon a barili: in
tr~t
such banl: might remit to defend-
l~in:;.1eapolis.
by law to collect cbccks or drafts for its
ber batiks of other
Fedcre~
Reserve Eanks.
Defendant is not
m~~bor baru~s
c~~elled
or for
mem~
It is authorized to
render such service under terms and conditions established by
Federal Reserve EoarQ and by its
01~1
rcgulationa communicated to
banking institutions who see fit to r0quest tho service.
As ex-
fi4
X-4898
pressed in Fergus County v. Federal Reserve
s~pra,
lect checks.
75 Mont. 582,
& Merchants Bank v. Federal Reserve Bank
it was settled in Farmer 1 s
of Richmond,
Balli~,
that defendant was not compelled by law to col-
The Montnna court there ap;lied this quotation from
6 California Juris-;;n1..1denco 117:
11
It is a fuJ.1damontal rule of law,
however, that what one r.:.ay refuse to do
such terms as he :pleas::;s.
entirel~r
ho may agree to on
Hence, one person being u.nder no legal
duty to perform certain services for another, may, upon agreeing
to perform suc...'l services, cxe::1pt hinself from liability for his
o>vn negligence,
providi~
***
there is no attem?t to
exo~t h~
self fron res;?onsi bili ty from any fraud or willful injury to the
other person or his property, or to exerupt hil:lself from responsibili ty from
a...v
violation of the law either willful or negligent. 11
We do not need to go to this extent in this case, for there is no
attempt to exempt defendant fron negligence.
?nere is cerely a
proposition that if the collection of checks or drafts is entrusted to defendant it will be dop.e by forwarding the sar.:e to the
payer ba11k direct with authorization to re.oit by draft on a bark
in Mim1eapolis or St. Paul.
It only exeopts itself froc liability
for the default of the payer bank.
going bank will honor its OW11 checks
draft.
It is to be prosur.:ed that a
~d
renit only with a good
There is no law Vi'hich forbids eo: bank frco naking pay::.ent
otherwise tlan
b~'
cash.
In fact, we know that the banking business
could not be conducted without extraordinary and neeaJ.ess e:x--pense
to the public, or at all, perhaps, if in the
colloctio~
of cot:Jnercial paper only currency wa.s to be used.
not be said
and clearance
It can therefore
that. the conditions upon which defendant undertook the
56
9 ..,
X-4898
collection of these cheCks as expressed in Regulation J and Circular
1-To. 193; r>ernit negligence or exer.:J:pt therefron, but on the contrary
prescribed that the established, general
a.~d
custonary banking
~ethod
in use in the states of Minnesota and South Dakota as found by the court
should be ei:QloyeC..
canner
~'
It is trn. e, t:1at an act C.one in the
custor::~c~y
nevertheless, be found negligently done, and that cus-
tom oay not overrule a settled rule of law.·
Minneapolis Sash &
Door Co. v. Metropolitan BarJ(, 76 Minn. 136; Stein v. Shapiro, 145 Minn.
60.
Bnt it oust also be recognized that
w~en
in the comnercial and
b&'lking business there has grvwn up a.n established, general, uniforn
and certain usage a..-:.d custotl to send checks direct to a. distant payer
barik with authorization to renit by draft, a barik.acting as a collec-
tion agent ought not to be held to have been negligent in following
that general
cust~,
especially where, as
~ere,
as such collection agent it was done upon tho
in consenting to act
ex~ress
condition
that perforcance of the services and responsibilities therefor were
to be in accordance with Regulation J and Circular No. 193.
Of course,
as alreaczy said, if plaintiff had alleged and proved tnat defendant
had knowledge of some risk in pursuing the ordinary course or tho
course agreed upon in atte!:lpting to cake t.'le collection, proper care
night have required a deviation therefroo.
sort is
c~ged
Bnt nothing of that
against defendant.
Plaintiff confidently relies on Federal Reserve Earik of
Ricboond v. lJa].loy 264 U. S. 160. As we read that case it accepts
the trial courtts conclusion that the Reserve Boar:d 1 s regulation
si~ilar
to Regulation J Series 1917 herein
authori~ed
defendant to
h7
X·-4&3e .)
10 -
send. tl1e checks direct to the payer ba."1k so that
be clained on that score.
:10
negligence r.:ay
This is nade verJ clear in the decision
of th,e trial court, Halloy v. Federal Reserve J3anlr of Ricr..nond,
281 Fed. 997.
As to the second point that it was negligence to
authorize rer....:i ttance other than. in ::.1oney the decisior.. recognizes
"that the obligation tne lau i!.lposes to collect only i:1 cone:,r r..m.y
be varied by a regulation, clearly and
posit~vely
though in terms, it relates only to the
consent of his subagent."
inter so, upon the
ba.~:s
ground. that the omler of the checl: is bound
Bu.t U.."lC-er the
so providing, al-
the knowledge and
b~r
there inYol vcd,
regulo.tio~'l
sir.1ila.r to RegJ.laticn J here, it was held. that authori t~· to pcy ":Jy
draft was not to be ir:1plied frDr.:: the r.1ere autl1ori ty to forward the
check to tho payer baru:
di~cct,
and that the custor.:: there proven
was cqui vocal, since reni ttarJ.ce could be
draft or by shipoent of currency. 11
11 b;7
oeans of exchange
It is true, the Supre:J.e Court
in the quotation above r.acio ft-or:. tho Malloy decision ass'l.Jl:led the
principle stated therein to be the law ccrely for that decision.
Here
Byt why should it not be good law generally?
dcfon~"lt
rc-
coives in tho usual course of business checks for collection fro:r.:.
a banlc.
Tho chocks bear tho u..'1I'estricted
enctorser::~ent
There is nothing to advise defendant of the
ten~s
pass book of the payee to tho effect that the
age:1t of the payee to select a
subaGO~lt
should not defendant ha.vo the right to
~al1k
of tl'le lJayee.
contained in the
is nerely the
to oake collection.
cor.~.sid.or
Why
tho bJ.nk the owner
of the checks and hence hold it to the teres of Circular No. 193;
or else consider that the bank has authority fror:: the cwnor to
..,
~
X...4998
11 -
0~loy
defendant to collect such checl:s upon such terns and condi-
tions as d.ef.)ndant is willing to unc.ertake the service, or, if
you please, upon the terns and conditions inposed by the established,
certain and uniforr.: barJdng custor:.1 and usage in the states \7here the
service is to be rendered?
sane as the
barJ:ir~ custo~
In this case tho Circular Uo. 193 is the
on the ?reposition in question.
It ap-
peals to us that the principle of law ass'llr.1ed to exist by Mr• Justice
Sutherland in the Malloy opinion is-:GOUl'l<l and leads to an affimance.
The First llationaJ. Bank knew the terns upon which defendant would
undertake the collection when the checks wore forwarded to it.
Defendant followed
t~oso ten~s
to_the letter.
Wnen an agent pursues
the oethod agreed upon for the discharge of his duties as agent,
the principal ir.. all justice should not be perni tted to say that
the agent was negligent.
The case of HorJOerberg v. State
Be~
of Slayton, 212 N. W. 16, does not help appellant, neither an
agreenent nor a banking custoo was fou.."'ld t·J ezcuse tho acceptance
of a worthless draft fran the payer bark.
On the contrary, that
decision recognizes that by agreenent an agent for collection of
checks nay lir.1i t the responsibility established rules of law place
lJ±:lOn hin.
And the authorities seeo to agree tr.at such rules r:.ay "t;le
lioi ted or varied by agreeoent.
So:oi:-..gson v. Stockyards Nat. ::&w."1l:,
162 Minn. 424; Farr.1er 1 s State Ba..."Jk v. Union 1Tat. Bl;l.nk, 42 N. Dak.
449~
Closter Nat. Baril.: v. Federal Reserve Bar.l:, 285 Fed. 138, (certiorari
denied 261
u.
S. 613).
An
86Te~ent
that
~~e
collection of
paper may be nade in a certain canner t!Ust be held to be as
a shield to the charge of negligence
co~~ercial
cffect~vo
as an instruction how to pro-
-~.
1:::!
ceod.
X:-4898
-
The latter freed fron the charge 6f negligence a
bar~ ~hich
recci ved a check fron a sub-agent ba..'Jk 11i th instruction to send the
sru~e
for collection direct to the payer bank.
First Nat. Baclc of
Chicago v. Citizens Savings Bank of Detroit, :).23 Mi9h. 336, and the
sace check involved in First
Whittier, 221 Ill. 319.
Nat~
:cx.k of Chipago v. Bank of
If the established rule that it is negli-
gence to send an iten to the :payer ba...'Jk dircc:t, oay be abrogated
by directions or instructions to the forwarding bank, it should
follow that likewise way the rule that the
r~i tta.nce
r:ru.st be in
currency.
~ne
rules of law invoked in this case seen to be slipping
away froo the established custoo and usage of present day banking,
S~okane
Valley State Batik v. Lutes 133 Wash. 66.
So we find that
the legislatures of different states have seen fit by statute to
effect a. change.
By Chapter 138 L. 1927, both
r~les
were rendered
ineffective to establish negligence in this state.
Other grounds are urged by respondent for en affiroance
which ue need not consider in view of the conclusion stated.
Such
grou...'1.ds aoong others are: no daoages resulted, since the Eureka
Bank was not in condition to reoit for all the iteos forNarded at
the BaL1e time that plaintiff's were, and since the only one liable
on the checks is now liable on the draft nothing was lost to plaintiff by the substitution of the latter for the for.oer.
cla.ioed by respondsnt
tr~t
the
Et~eka
It is also
Bank becane a collecting bank
for plaintiff when it received the checks and issued the draft; that
13
plaintiff
sta~ds
...
.in the shoes of one or the other of the
fiO
X-4898
Chic~;o
bm1ks; that plab.tiffts unrestricted endorser.1ent gave defendant the
right to consider tho First National :Bar..k cf Chicago the owner of
the checks; and
was never
t~1at
acco~tod b~i
to be so:1t.
tho ror:1ittance draft sent by tho Eureka Bank
defo:J.d.ant a.nd wns not one wl:ich it a-...::.thorized
We thi:.ll;: tl1e findings of fact as to tl1e agroe:r::ent under
which defendc.wt accepted the collection of these checks as well o.s
the established ge:1eral baru:ing
~~st~n
in the states of Minnesota
and South Dakota arc sustained by the evidence, and these fi:.1dings
justify the conclusion that no negligence was proven without aid
of the other grounds
adv~~cos
by resJondont.
The order is affirced.
X-4899
6l
TREASURY DEPARTliiEIT:::
Office of the Socrc'.:;~'.ry
WASHINGTON
July 8, 1927.
T'.ae Governor,
Federal Reserve Board.
Sir~
You are hereby advised that the De~artment 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 25, 1927, to June 30, 1927, amounting to $24,558.60, as follows:
Federal Reserve Notes, Series 1914
~5
Boston
New York
Philadelphia
Cleveland
Atlanta
Chicago
Minneapolis
Kl:msas City
Dallas
Se..n Francisco
31,000
48:,000
63,000
2,000
77,000
46,000
77,000
344,000
$2e
$10
78,000
39,000
50,000
118,000
25,000
6,000
11,000
296,000
671,000 sheets
@
Total
31,000
126,000
39,000
75,000
181,000
8,000
77,000
46,000
77,000
11,000
·----671,000
----·---------31,000
$36.60 per M
$24,558.60
The charges against the several l!'edera.l :lle;;;erve Banks are as follows:
Boston
New York
Philadelphia
Cleveland
Atlanta
Chicago
Minneapolis
K::.nsas City
D'-'-llas
Sc..n Francisco
!il 1,134.60
4,611.60
1,427.40
2,745.00
6,624.60
292.80
2,818.20
1,683.60
2,818.20
402.60
·~
:jj>.24, 558.60
Tlle Bureau G.p:propriations will be reimbursed in the above runount from the
indefinite c.ppropriation "Preparation and Issue of Federc.l Reserve Notes, Reimbursable", and it is requested that your board CllUSe such indefinite c.ppropriation to be reimbursed in like amount.
Respectfully,
s. R. Jacobs,
Acting Commissioner.
FEDERAL RESERVE BOARD
X-4902
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE SOARD
July 18, 1927.
SUBJECT:
Holiday, Denver Branch,
August 1, 1927.
Dear Sir:
The Denver Branch of the Federal Reserve
Bank of Kansas City will be closed on Monday,
August lst, in observance of Colorado Day, and
will not participate in either the regular Gold
Fund Clearing or the Federal Reserve Note Clearing of that date.
Please include your cr:iits of August 1st
for the Denver Branch, with those of the following business day, in the Gold Fund Clearing.
Very truly yours,
J. c. Noell,
Assistant Secretary.
TO GOVERNORS OF AIL FEDERAL RESmtVE BAI'JI:S.
FEDERAL RESERVE BOARD
X-4903
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
July 18, 19274
SUBJECT:
Reduction in Insurance Rates.
Dear Sir:
For your ihfo~tion there is enclosed here~
With a copy of a letter received f:rom the Treasury_
Department advising that the,insurance rates cover~
ing shipments of currency, etc., by registered mail
under insurance policies held by the Treasury Department have been reduced effective July 1, 1927. The
net rate per $1,000 on general shipments is now 4-1/5¢
and the net rate per $1,000 on rotary locked pouch
shipments is 2-2/p¢.
- It will h.lso be noted that Marsh & McLennan, in
submitting monthly statements, will indicate thereon
the amount to be paid to each of the underwriting
companies.
Very truly yours,
J. C. Noell,
A$sistant Secretary.
(Enclosures)
TO GOVERNORS OF .ALL F. R. B.ANKS.
FEDERAL RESERVE BOARD
WASHINGTON
:•
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
July 21, 1927.
SUBJECT:
Expense, Main Line, Leased Wire System,
June, 1927.
Dear Sir:
Enclosed herewith you wili find two mUneograph statements, X-4905-a and X-4905-b, covering in
detail operations of the main line, Leased Wire System, during the month of June, 1927.
Please credit the amount PS\Yable 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 lUnd 11 , LeaJ:led Wire System, sending duplicate C/D to the Federal Reserve Board.
Yours very tzuly,
Fiscal Agent.
!inclosures.
TO GOVE...tmORS OF ALL F. R, BJNXS EXCEPT CHICAGO.
X-4905
64.
•
•
X-4905-a
REPORT SHOWING CLASSIFICATIOn _t\N.D NUMBER OF WORDS TRANSMITTED OVER MAIN LIUE
OF THE FEDER..4L BESERVE LEASED WIRE SYSTEM :FOR THE MONTH OF JUlm, 1927.
:Business
reported
by banks
From
:Boston
How York
Philadelphia
Cleveland
Ricb.mond
AUanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
Sen J'c~~·nei sco
-----·4-'~·
33,511
156,153
46,059
32,423
46,677
63,509
113,995
82,703
36,366
79,953
63,245
113,134
Total
922,773
F. R. :Board
Total
Per cent of total
(*) These
Words sent
by :t-Tew York
chargeable
to other
F. R. Banks( 1)
2,370
a,202
3,317
4,093
5,351
3,998
3,953
3,905
4,061
6,777
4,4o4
44,936
Total
40,351
156,153
43,261
35,740
50,770
69,360
117,993
36,661
4o, 271
34,014
70,022
117,535
Treasury
Department
Business
6,903
14,463
6,637
7,371
7,199
10,199
10,331
3,04o
4,962
8,113
5,711
War Finance Net Federal Per cent of
Corporation Reserve Bank total bank
Business(*)
Business
Business
28
11.631
967' 714
4l9z251
102,612
1,337,271
1oo.oo%
243.536
17.56%
ll-k')~}±
32
33,978
141,636
41,624
77,869
43,571
59,161
107,112
78,621
35,281
75,901
64,311
105,952
3.93
16.37
4.51
9.oo
5.04
6.54
12.33
9.09
4.08
8.77
7.44
12,25
865,020
273.283
100.00
~rcentages
accom~anying
used in calculating the pro rata share of leased wire expense as Shown on the
statement (X-4905-b).
(1) Number of words sent by New York to other F. R. :Bariks for their sole benefit charged to banks
indicated in accordance with action taken at Governors' Conference November 2 - 4; 1925.
.
v
•
•
x..q.3c _:- b
REPORT OF EXPENSE MAIN LINE
FEDERAL RESERVE LEASED WIRE SYSTEM, JUNE,
Name
of Bank
Boston
York
Philadelphia
Clevelar...d
Ric[l..mond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dalle.s
San Fl'ancisco
Federal Reserve Board
New
Total
Operators'
Salaries
$ 260.00
.1,02).14
225.00
296.66
190.00
270.00
4,036.59(#)
337.00
265.53
275.64
251.00
370.00
_ _ __
Operators'
Overtime
Wire
Rental
1.00
·75
$15.359.83
$1.75
$15,359.53
1927
Total
Expenses
260.00
1,020.14
225.00
296.66
190.00
270.00
4,037-59
337.00
265.S3
275.64
251.75
370.00
15,359.83
Pro Rata
Share of
Total
Expenses
Credits
Payable to
Federal
Reserve
Board
490.28
2,105.08
693.28
1,421.54
976.36(&)
1,035.54
1,674.11(*)
1,3915.39
513.09
1,395.65
1,165.63
1,96S.67
$
$
750.28
3,125.22
918.25
1,715.20
962.19
1,305.S4
2,363.48
1,735-39
775.92
1,674.29
1,420.38
2,335.67
$ 260.00
1,020.14
225.00
296.66
190.00
270.00
4,037·59
337.00
265.83
275.64
251.75
370.00
$
$23, 1~9.!+4
~_Q.f~i ._lQ (a)
$19,091.14
$7,799.61
$13,170.31
1 1 614.ll(b)
$11,496.20
$19,091.14
{&) Includes $204.67 for branch line business over main line cirauit.
{#) Includes salaries of Washington operators.
(*) Credit
(a) Received $4,066.48 from Treasury Department and $1.52 from War Finance Corporation covering business for the
month of June, 1927.
(b) Amount reimbursable to Chicago.
X-4908
FEDERAL RESERVE BOARD
ST~~l.ENT
FOR THE PRESS
For immediate release.
July 21, 1927.
The supply of bills in the acceptance market during the period ftom
June 16 to July 13 showed a slight seasonal decline and dealers' purchases
were smaller than in recent months.
Cotton exports and silk, coffee, and
sugar imports formed the basis of the majority of the bills bought.
The
demand was affected by firmer money conditions toward the end of the half
year, and ratAs on 90 day bills were advanced by most dealers on the 20th
of June.
Early in July, however, large purchases of acceptances were again
made in New York for foreign account and this increase in demand resulted
in a reduction of 90 day bill rates to their former level.
New York dealere
reported smaller portfolios on July 13 than at any time since last September.
Dealers in other cities, however, reported a slack demand throughout the
period for any but short bills.
The following table shows the
nk~ket
rates
on bills of various maturities as they stood both at the beginning ani at
the end of the period:
Acceptance rates in the New York market
Maturity
30 days
6o
II
90
120
180
II
II
II
Bid
Asked
3 5/8
3 3/4
3 3/4
7/8
3 1/2
3 5/8
3 5/8
3 3/4
3 7/8
a
..
..
X-4909
FEDERAL
RESERVE
:SOARD
ST.A.TID.':EI!T FOR THE PRESS
For release in ~£orning Papers,
Thursday, July 28, 1927.
The following is a suzrJnary of general business and
financial conditions throughout the several Federal
Reserve Districts, based upon utatistics for the
·
m-:mths of J1me and July, as contained in the forthcoming issue of the Federal Reserve :Bulletin.
The output of industry decli red substantially in June to a level
close to that of a year ago, reflecting reduced activity both in minas
and in Lwter-ies.: '!'he value of building contracts awarded was the largest for
any month on record.
The general level of prices remained practic.ally un-
changed.
Production.-
Production of iron and steel and automobiles declined
considerably in June and curtailment in these industries continued during
the early part of July.
There were also decreases in June in silk de-
liveries,/sugar refining, and production of lumber, copper and anthracite
coal.
Cotton and woolen mills continued active for this season of the
'
year, and consumption
of raw cotton was larger than in any previous
I'
June on record.
Meat packing, shoe production, and the :ranufacture
of building materials showed increases.
1
Production of manufactures,
as a group, was slightly larger in June than in the same month of 1926,
but output of minerals, owing largely to decreased production of coal, was
in smaller volume than a year ago.
The value of building contracts
awarded in June was larger than in any previous month on record, owing
chiefly to the steady increase within recent months of contracts for
public works and public utilities.
Awards were particularly large, as
compared with previous months of this year and with
J~~e
of last year,
• •
X-4909
I
in the New York and. Chi'tago tedeta:l. resiif'<tll dist~!dtsi
.
bon.tracts were
i
amp.lodo<i during the first hiU:f Of July in practically the S&le VOlUI:le ;;is
~
•
the corresponding period of last year.
On the basis of cond.i tions on July 1 forecasts of the
Depar~r.1ent
of Agriculture indicate increases as coopared with the 1926 harvested
praduction in the output of wheat, oats, barley, rye, hay and potatoes,
~~d
and decreases in corn, tobacco,
for which no production
est~te
Cotto~
the principal fruit crops.
was given, shows a decrease of 12 per
cent in acreage planted, while the total area planted to all crops shqws
a reduction of 2 per cent.
A reduction of 371,000,000 bushels in the
estimated production of corn, compared with 1926, indicates the
soall~st
crop since 1901.
Trade. -
Wholesale trads in oost leading lines increased slightly
between May and June, while retail trade showed less than the
seasonal d.ecline.
Sales of departoent stores were in about the
voluoe as a year ago
were larger.
sn~ler
~hile
s~c
those of oail order houses and chain store$
Sales of meat, dry goods, and hardware at wholesale were.
than in June of last year, while sales of groceries, Shoes, and
drugs were about the sar.:J.e in voluoe.
d~clined
custo~y
Inventories of department stores
further ,.to a level. about 3 per cent. below that of June, 1926,
.
Stjocks carried by wholesale firos showed no change for the oonth and
w~re
smaller than a year ago.
Daily-average freigh'lrocar loadings failed to Show the custoxpary
s~sonal increase between
lLa7
and June and were in s.':laller voluoe froo
e41"1Y in Mat to the oiddle of July than during the corresponding period
of last year.
Shipoent~
of almost all groups of coomcdities have been
.
..,
X-4909
soallor than a year ago.
of coal and
Tho largest Qeclines Occurred ·in the shipoents
coke~
Prices ......
Tho general
according to the Bureau of Labor
le~el
bf
Statist~cs
~holesale co~odity
index, continued practically
the saoe in June as in the two preceding oonths.
c~odities
The prices of agricultural
as a group declined slightly while the average for the non-
agricultural group rer-..ained practically unchanged.
bet~een
prices,
There were declines
May and June in the prices of silk, iron and steel, nonferrous
r.1etals, building oa.terials and rubber and advances in grains, cotton,
hides and skins, and anthracite coal.
July prices of wheat,
bi~~inous
During the first three weeks of
coal, iron and steel, and rubber declined
while those of livestock, cotton, wool, copper, and hides advanced.
Bank credit. -
The deoand for oeober bank credit decreased froo
the ·latter part of Juno to the oiddle of July and on July 20th the loans
and invostnents of oeober banka in leading cities were noro than
$200,00~000
lower than a oonth before.
Tho decline was principally in
the banks 1 inve.stnent holdings and in loans secured by stocks and bonds.
Loans :tor cor.n:rercial, agricultural, and industrial purposes decreased,. by
about $45,000,000.
Demand for reserve bank credit in connectio.n with settleoents
at the end of the fiscal year and increased currency requiraoents over the
hOlliday period. carried total d.if!counts for neober banks on July 6 to the
highest level since the first Qf the year.
Thereafter, largely in
consequence of the return flow of currency frao circulation, there was
.
..
~·1
,J _.·
f'
4 -
JC-4909
a decreased dar-and for oaober barik accoooodation and on July 20 total
discounts were in scnewhat soaller voluoo than four weeks earlier.
Hold-
ings Q.L.Uni ted States securities showed a slight increase during July.
'eondi tions in the ooney oarket, after seasonal fironess at the
end of June were easier in July.
X-4910
(REVISED DlWT)
REGULA:TIO!~
K. SERIES OF 1927
·COLLECTION OF ?I.ATURIUG NOTES AND :BILLS
SECTION I. STATUTORY PROVISIONS.
~
Section 13 of the Federal Reserve Act authorites Federal reserve banks
to receive from their 1nember banks and non-member clearing banks, for collection, matuxing notes and bills and to receive
fro~
other Federal reserve
banks for collection maturing notes and bills.payable
the Federa.l reserve bank receiving such items.
such items for collection includes
tne
~ithin
the district of
The authority to receive
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 li. DEFINIT!O!:lS.
(a)
~turing ~iotts
andJ3ills •.
The term 11mturing notes and bills" is,
for the purposes of this r.egu.lation, hereby c".efined to include the follow-
.
ing classes of items payable within the continental United States:
1. Waturing notes, drafts, b"ills of
exc~ge,
accepta.."'l.ces, bA.nkers'
acceptances, and certificates of deposit;
2. Drafts on sa.vinga accounts with pass-books attached;
dr~fts and other cash itdms which have previously been
dishonored or on which special advice of p~ment or dishonor
i<;; required.;
3. Checks,
4. Maturing bonds and coupons; and
5. All other evidenca of indebtedness except chocks c~d bank drafts
which ca.:mot be collected at pa.r in funds acceptable to the collecting Federal reserve bank; :;?rovided th::~.t a.r.y Federal reserve
bank may require ~•Y depositing member bank to show to such Federal reserve bank's satisfaction that special conditions exist
which make it :!;)ro!)er for said 1ed.ora.l reserve bank to handle
as collection items of the character normally colle~ted by
the Federal reserve bank as cash items.
X-4910
- 2 ..
(b)
NOI~-iAEMBER
CLE.ARIKG
BA.~.
is defined to mean a non-member
the Federal reserve
•
b~~k
~ne
b~uti::
term "non-member clearing
b~
or trust company which maintains with
of tho district in which it is located a balance
sufficient to qualify it under Section 13 o£ the
Fod~ral
Reserve Act to send
cash i terns to the Federal reserve bank for purposes of excha.nge or collection
under Regulation J.
(c)
C.A.SH ITS:.m.
Tl't..e term
11
cash items" is defined to men.n checks,
·drafts, and other items which are collectible pursuant to the terms of Regulation J.
(d) COLLECTIQ}.T ITFJS.
The term "collection i tams" is defined to :nean
I
maturing notes and bills which are collectible pursua...llt to the terms of Rogulation K.
SECTION I I I.
The
GEN'ER.AL REQUIREMENTS.
Federal Reserve Board, desiring to afford to the public and to the
various banks of the country a direct, expeditious, and econorndcal system for
t4e collection of maturing notes and bills, has
arrru~ge~
to have all Federal
reserve banks collect maturing notes and bills en a 1.miform -oasis
3!~ ;J:·;
the
terms a.nd conditions hereinafter prescribed.
SECTION IV. ITEMS RECEIVED FOR COLLECTION.
(a)
Each Federal reserve bank will receive from its member
b~~ a~d
from non-member clearing banks in its district for collection maturing notas
and bills payable in the continental United States.
(b)
Each Federal reserve ballk will receive
fro~
other Federal reserve
panks for collection maturiag notes and bills payable r.ithin its own district!
(c)
.
In order to eliminate unnecessary delay and expense and further to
j.ncrea.se the efficiency of the collection service herein provided, each Fed'ral reserve
bank will authotize all merr.ber banks and non-member clf)aring
X-4910
.... 3 -
banY~
in its district to send
ti~turing
~.1,11
; ~Jl.
notes and bills for its account direct
to the Federal. reserve bank of the district in
~hiCh
such items are payable;
a.Jid each Federal reserire bank will receive from -:...};:;ber banks and non-mot:bcr
cleari:1g banks in other districts maturing notes and bills payable within its
OW!1
dist.:i ct, for collection and credit to the account of the Fedcrn.l roscrve
ba.n~c
of thi3 district in
(d)
~o
w·.J.c~
the sendin_.; b=u'lk is located.
Federal reserve bank shall receive for collection
~~
chock
or bank dr<ut dravrn on or pa;rable by a non-member bank which cannot be collqcted at par in funds. acceptable to the Federal reserve banlt: of the district
in which such non-member bank is located, or any item
pay~ble
outside of the
continental United Stetes.
SECTIOl\l' V.
T:ER:iS OF COLLECTIOn.
'The :Federal Reserve :Board hereby authorizes the Federal reservE!
banks to handle such
~aturing
notes and bills subject to the
followi~g
terms and conditions; and each member bank and n·:m-membe r clearing bank
which sends maturing notes and bills to
collection shall by such action be
a~r
dee~d:
Federal reserve bank for
(a) to have agreed to all the
terms ond conditions of this regulation; (b) to have ua.rr.<J.uted to the Federal reserve banks that it has authority to empower the Federal reserve
banks to handle such items in the manner hereinafter provided; (c) to have
~greed
to indemnif7 any Federal reserve bank for any loss resulting from the
failure of such sending b:.mlt to lv."l.ve such .t.P.li::·:ori tj'"; and (d) to have guar~teed
~nty
all prior endorsements on such items whether or not n specific guar-
is incorporated in the endorseillent of the sending bank.
t-4910
- 4 -
:2edcral reserve banks will act. only as the collecting agents of thG
1.
sending banks and will be responsible only for due "'..iligence and care in forw~rdi~
or presenting such i terns and for its guaranty of prior e:n.dorse:nents.
2.
Federal reserve banks may present or forward such items direct to
the banks on which they are drawn, at which they are pa.;ntble, or through
which they are collectible, for payment in cash, bank d.raft, or solvent
credits; or present them direct to the ?erson, firm or cor?oration on which
they are drawn, for payment in cash or check; or, if the i tern is not payable
in a city i:1 which there is a Federal reserve ban:: or a bra.:.:ch of a Federal
reserve bank, then
they~.
in their discretion, forward them to another
agent witlt the same authority that
-the~?
have to present or forward t:tem for
payment.
3.
Items payable in
a~other
district will be fonvarded for collec-
tion to tho Federal reserve bank of such district or to a branch of such
Federal reserve bank; except that i tams with
1'1
defi:d te maturi t~r, peyable
in another district, may bo forna.rded direct to the place of payment in such
other district when it is necessary to do so in orJer to reach the place of
payment by maturity, and sigltt or den:and dr.g,fte with docu':':cnts atto.clted, peyable in another district, rJay bo forwarded direct to the place of
pa~~ent
when tho collecting Federal reserve bank is specifically requested to do so •
.All such items will be h.:ll'lC".lef.'.. on the terms ar.1d conditions herein prescribed.
4.
Except as
~eroin provi~ed,
Federal reserve
bn~ks
shall be held
liable only when thay have receiyed tJctu'll payrne nt ir- cr-.sh or in the final
proceeds of P..11Y bm·Jc dro.ft or c:1eck recei vad ir. rc::.i tt mce.
SECTION VI. CREDIT FOR PROCEEDS.
No Federal reserve bank
sh~ll
credit
t~e
reserve
acco~~t
of any
:' _
JC-4910
- 5-
cleari~"lg '.:lnnk
merr,ber bnnk or tho acco-:..mt of n.ny non-me:::ber
or x.-..y other Fed-
eral reserve bank with the amount of any mD.turing note or bill until payment
in
act~2lly
nnd finally collected funds has been received by the collecting
Feder."l.l reserve b."J.J.""lk.
SECTION VII. CHARGES FOR COLLECTION.
(a) CF.ARG]:S i3Y FEDERAL
R~SERVE
3A17..S.
t~c
service
r-erfo~od
Federal reserve bank for
~~o
charge shall be ;:.;ade 'Jy any
ty it in the collection of
maturing notes and bills, except t3:-..at:
charged to the
~nk
fron which such i
ter.~s
nerc rccei vec1
or shall be do.::.ucted ar.C:. credit given for the a.ctua.l net
proceeds;
2.
The actual
~xp0nsc
of rcsistration,
insur~tcc,
tation of i:'laturi!'_g notes a:J.d
":~ills
points for cclluctior. :>:ay 'b8
~L'-"l:·.:,;ed
which such i toms were rocei Yed or
or trans,or-
forwarded to ot::.cr
to t!1e 1J::-.nk fro:w
~<J.~~ ~e
deducted a.'ld
credit given for the acturu net ?rocecis;
3.
All
tclcgr~ph
and tole)honc charges in
~on~cction
collection of mat1.tri::Jg !lOtes 'l.nd 1:;ills n1ay be
with the
cb:~.rg')d
to
tho b,'lllk fror: which cuc:1 iterr.s ware re:ceivoc.; Dnd
4.
A sorvico charge of fiftoon cents p0r item 'm tlll 1r:aturing
notes :•.n:l ":>ills returned. unpdll a.:'ld. u.:J.p:::-otGstcd. shell 'Je
c.:.:.r.;cd. to tho :Jor..k fro:'!
for collection.
that
~1r0
\7hic~
suer: i t3:-ns uero rccei ved
T::..is ch':l.rGo s:1all _1ot be r:;ai(i. on items
protested.
•.
X-4910
- 6 -
(J) CHARGES BY COLLECTING ~GENTS.
.~
member
ba1~
or non-Eerrber
bank selected by a Federal reserve bank as an agent to collect maturing
notes and bills received under the
•reasonable
exce~t
ten~s
of this regulation, may make a
charge for its service in handling such maturing notes
that no such charge shall be made for handling checks and
SECTION VIII. OTHER RULES AND
All Federal reserve banlm shall also
tion~
a~d
b~~
bills;
drafts.
REGULATIO~S.
pro~~gate
rules and regula-
identical in terms, not inconsistent with the provisions of the
la~
Qr of this regulation, governing the details of the collection of maturing
note~
ond bills by such Federal reserve banks •
Such rules and regula-
t~on~
shall be-binding upon any member or
send~
maturing notes and bills to its Federal reserve bank or any other
no~-member
clearing bank which
Federal reserve bank for account of its Federal reserve
b~.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
·'
July 28, 1927.
CONFID:BNTI.AL
SUBJECT:
'
X-4912
Code word to be used by Federal Reserve Bank of New York
in advices re Investments in Sterling Bills.
Dear Sir:
In order to reduce the length of telegrams between the Federal Reserve Bank of New York and other Federal reserve banks in connection with participation in the Bank of England account, it has been
sugge.ted that an additional code word be supplied from the Federal
Reserve Telegraph Code,
The Board has approved this suggestion, an.d effective at once,
the. following code word will be used between the Federal Reserve Bank of
New York and other Federal reserve banks in connection with these transactions:
KLI CKED: Please make following entries for investment in Sterling bills made for our account
by the Bank of England: Debit "Investments
through foreign banks" $
with
corresponding credit to "Due from foreign
banks-:Bank of England". In addition to daily
accrual our telegram
we credit you
your
through sett~ement today $
share earnings u:p to and including today.
We will credit you tomorrow and daily until
further notice $
your share of
daily accrual.
This code word should be inserted in the Federal Reserve
Telegraph Code following the supplemental code word 11 XLIC~ 1 at the
bottom of page 131.
There are enclosed herewith a sufficient number of extra
copies of thio letter to enable you to insert this code word in all
of the code books in the possession of your bank.
Very truly yours,
J. C. ·Noell,
Assistant Secretary.
To Governors of all F. R. Banks.
X-4913
FEDERAL RESERVE BOARD
STATEMENT FOR THE PRESS
For immediate release.
July 28, 1927.
4:00 o 1 clock p.m.
The Federal Reserve Board announces that it has approved
an application of the Federal Reserve Bank of Kansas City for
permission to establish a rediscount rate of 3 1/2 per cent on
all classes of paper of all maturities, effective July 29, 1927.
(c0
p
y)
CONFIDENTIAL
Date:
Subject:
To
X-4915
.August 3, 1927.
Rovicion of Board's Regulations.
The Law Committee
From Mr. Wyatt - General Co'J.Dsel •
.A..fter.careful consideration of the comments and suggestions submitted
by the Governors and Chairmen of the Federal reserve banks pursuant to the
Board's letter of June 21, 1927 (X-4878), I respectfully recommend that the
revised draft of the regulations which was approved tentatively by thu Board
on June 21, 1927, be finally approved and promulgated at the earliest possible
date with the changes recommended below .•
REGLJL.ATION A.
Section IV(b) - Financial Statem0nts.
I respectfully recommend that subdivision 2 of this subsection
(i.e., next to the last paragraph on page 3) be restored to the form in which
it appeared in the 1924 regulations.
In tho draft tentatively approved by the :Board on Juno 21st, it was
proposed to change this paragraph so as to require financial statements in all
cases where the aggregate obligations of the borrower discounted and offered
for rediscount at a Federal reserve bank by a
to $1,000 or more.
parti~ar
member bank amounts
Several of the Federal reserve banks object seriously to
this change and argue that it would cause unnecessary and unjustifiable inconvenience to them and to their member banks, while other Federal reserve banks
favor the change.
The regulations of 1924 expre..jtly provide that,
11
A Federal
reserve bank may, in a.ll cases, require the financial statement of the borrower
to be filed with ito 11
Under this provision of the old regulations, those
Federal reserve barlks which desire fina.J.cial statements with reference to all
borrowings amounting to $500 or $1000 have a perfect right to require such
statements, and 1 t would seem unnecessary for the :Board to compel t!1e other
S1.
2
Federal reserve balik:s to require fir-ancial
statono~:ts
UJlder such cirC11Dsta:1ces
11hen they consider it unnecessary and ir.rpracticablc to do so.
The replies to the :Eoard 1 s letter of June 21, 1927, contain no
serious objections to the other proposed changes in Regulation A, except
that tho Federal Reserve ::Sar.J:s of Richmond and Dalle.s object to po.ragraphs
(c) and (d) of tho proposed new Section IX regarding the redisC014'"1t of paper
acquired froo non-monbor banks.
The Federal Reserve Bank of RichrJond objects
to paragraph (c) on tho ground that it "will furthar add to tho r.:1any services
which we pcrfonn, directly or indirectly for non-:neraber bru1ks, which havG the
effect of keeping then cut of the System and can only do han.1 and not good";
while the Federal Reserve Ea11k of Dallas expresses the opinion that it is not
essential and detracts fron the dignity of the regulations.
Both object to
paragraph (d) on the ground tl;at the Federal Renervo Act expressly authorizes
Federal reserve banks to rediscount eligible paper for Federal Inter1:1eW.ate
Credit :Sanks.
However, it does not authorize then to rediscount for nenber
banks paper bearing the signature or endorsenent of Fcderru. Intornediate
Credit Baru~s, which arc technically non-necbcr b~ru~s.
253 of the 1926 Bulletin).
(See ruling on page
:Both paragraphs (c) and (d) could be onitted if
the Board so desires.
REGULATION B.
It is not proposed to make any changes in thi$
reg~lation.
REGULATION C.
It is not proposed to nOke
~'"'lY
changes in this
r~~+ation.
<
REGULATION D.
~ion II(§.) - P9fini tion of Savings Accounts.
I respectfully roco:r::uaend that this section be restored to the foro
X-4915
3 -
in
~hich
it appeared in tho Regulaticns of 1924. ·
My reasons for this recoiJDondation r:.;a.y be sur:. .~1arizod briefly as
follo~s:
(1)
forc~1ent
T.he suggested
CQ~nges
are not necessary, since a strict en-
of the old regulation would enable the Board to check, if not end
altogether, the existing tendency to evade the reserve requirements throu&l
the device of classifying as "savings accounts" deposits which arc subject to
check or for any other reason are not bona fide savings deposits.
(2)
By ruling on each question as it arises, the Board can build
up gradually a series of administrative rulings which would accomplish the
purpose of the proposed changes without the shock to the member banks which
might result from drastic changes in the regulations without previous notice
to the member banks and an opportunity
(3)
to-~
be heard.
Such a method of correcting the existing abuses would give the
:Soard the advantage of such further information on this general subject as
might be obtained as a result of the study being made by the Federal reserve
banks, tho Federal Reserve lgents and the Federal Advisory Council pursuant
to the Board's circular letter of June 24,-1927
(4)
{~4888).
Such a gradual a~d orderly method of correcting the existing
abuses would be obviously fair and less likely to prejudice
~he
Board's case
in the courts, if the Board's rulings should be tested there.
(5)
In any test suit which might arise out of f specific rulir~ in
an individual case the complainont would naturally be a ban,"!{: which was attempting to evade the requirements of the law a.::.1d this woulq, give the Board
a distinct tactical advantage.
(6)
The uxisting definition of
11
sa.vi:::1gs ucccu..'lts 11 has been in force
83
4 fer over twelve yonrs end uould st<..nd o. mu.c:1 bvttur cr.o_·•ce of beln&; u.p:101d
by the courts than a new
dcfir~i tion
recantly adopted.
An ir:.terpretatior. of
the law by an administrative officer or body of tllc Govcrr..::1unt whicl1 h3.S
long been in force and has been generally
acco~tcd
by
t~1e
publ:.c will be u:;:-
held by the courts unless it is clearly orroLoou.s.
(7)
The enforcement of a regulation or rulinb classifying as de-
mand deposits the so-called.
11 spccial
savings
accow~.ts"
prove.lcnt in California
would so seriously affect tho oa.r:1ir:.gs of several of the larger
Califor~•ia
banks that it would be only fair to notify them a.'1d give them an opportunity
to be heard 'tlefore adopting such a ref,'1llation or l"l::ling.
(8)
Moreover, such b~cs would be almost certain to test· the le-
gali ty of such a rulint; or regulation in thr_; courts; and it is exceedingly
important for the Board to bo in the best possible tactical
posit~on
when it
undertokes to enforce such a regt;.lation or ruling.
The proposed substitute definition of "savings accounts" ?reparod
at the direction of the Beard ru•d tra'1smittod to tho Federal reserve
baP~s
21, 1927,
cc~tomplatod ~uc~
drastic
is of such doubtful locality thnt it is
stror~ly objoctc~
to by most of tho
in the Board's letter of
Federal roserve
uaru~s.
JU-'10
upon further reflection and
that the proposed restrictions on the chara.ctor of
stu~,
~no
ch~'1ge
ru1d
I am of the opinion
depositors and t!le
size of the deposits waul:. exceed tho :Board's lawful powers end could. not bo
sustained in the courts.
Section II( e) - ~~nj ti:m of Time Ceillfi.£?•.t.2~_f Dcpos:i.ts.
I respectfully roc'Jmrr.cnd that this section be rcstcroC. to the fori!!.
in which it appeared in the Regulations of 1924.
Tho reasons for this rocor..mond.:"l.tionoro tho sar:·h:: as t:1oso given
- 5 -
Section III(a)- Paragraph P..e&9!din.>?; Trust Fund~.
In order to :makG the lar..gu.El.ge of th.: s .:;ectio:!'l conform more
:1en~·ly
to that of otl1er portions of the regul.,.,,ti')n, I rosp0ctfully rccorr.mend that
the word
11
cha.'lged to
cc:,rry11 be changed to
11
main tai::1.ed11
11
mai:tltain" and that the word •:carried 11 be
•
Section IV-Penalties for Deficiencies. in Tiescrvos.
.
I respectfully
recom.r:~end
that this section be changed to r"e:o.d
:LS
follows:
11
SECTION IV.
P:::NA11'I:SS
:?0~
DE?ICIEXJIES Ill RjjSE:tVES
I!las::1uch as it is essential thet tho law with respect to the
main tana:1ce by mombe:::- banks of the required minimurn resorvc b~Llances
be strictly comrlied with, tho Fod.or::\1 Reserve Board, under auti::ority
vested in it by Section 19 of the Fe:ier'll :!teserve Act, hereby pre- ·
scribes t:r.e following rules goverrling p,mal tics for <ioficiencies in
reserves.
11
"(a) 3Mks in ci tie:; ':rl>::;ro :F'cdoral reeerve ba'l:'::s or
bra.1chos thereof arc located.
11 1.
Deficim:cies in reserve balc1cos of member barJcs in
cities where FeCi.eral reserve ba."lks or branches tncrcof ar8 located
will be computed on the basis of avere,go dr..:.ily net dep::Jsi ~ balances
covering se:ni-weokly periods. Such compu ta tio:..s ~hall 1:. e mad.:.: as
at th'-' close of busbcss on days to be fixed by the Fedornl r;:;se:cvo
ba11ks Y:i th the approvnl of tho FederC1l ~eserve Board.
11 2.
Penalties for such Ci.efici.:mcies will be assessed.
011 the basis of aver~,ge daily deficie::.cies during each of
tho somi-wcekly poriads e~ding in the preceding calendar month.
mo·~:~ tnly
St;.ch pc::alties sl:all -be assessed at a basic rate of
2 per cent ~e.r a:1:1u..'TI a:oove the Federal reserve bank discount rate
011 ninety day con.:ne rcial paper b
effect on the first day of the
calendar mOl1 th in which the d.e:ficie~1cies occurred.
11
3.
114,
V!hen a r::ember bank in a city whore a Federal reserve
b.al1k or branch thereof is located has an aver'1ge dE:ficiency in reserves for twelve consccuti·:o semi-weekly periods, there shall be
,..
-
0
X-4915
-
assessed, i::-" ad.di tiJ.::. to thu po;:~'ll ty a.t th0 b.1.si.:: rate, a progressi vc
:m semi-woekly d.efici J!1cies oc::::urr iLg thereafter, U..J. til suc}1
member bank has main tr.J.i::od the re'"!llired :;.veragc reserve for eight
consecutive semi-wcekJ.y periods. Such prJ,::;re:.;sivo ;JGnOtlty shall be
at tho rate of l per cent p;:;r rnn-:.J.n· :for tl10 first cale11dar month L'1
wnich same iiS effective,a..1.d shall increa.se at the rate of l per ce::1t
per an.nurr. for each cons8cutive calendar r::onth thereafter in which the
b~k 1 s reserve deficiencies &re subject to the progressive penalty;
provided that the r.:JaXir:r..m penalty cl1arged shall not exct;ed 10 per cent
p c r a~:n:q.rl1.
pe~1al ty
11
(b) :Sa,.J.ks in r...::scrvo cities w:i1ero there are
ros::Jrvo b::1nks or brar:chcs.
•10
Federal
1. Deficie::;cics in resGrve bala:::.ces of r.H::m;ber ba.J. 1:es L1 r.:;sorvc
ci tics where thoro arc no Fndcral re::;er-:e banks or bra:·1ches tneroof
will be co:..puted o;:-~ tho basis of uve':cage daily not de"?osi t bala:1cos
covering weekl~r periods. Such cor.rputa.tlo:J.s shall be r.:ado a.s at the
close of business on days to be fixed by the Fod.oral reserve ban:~s
with the approval of tha Federal Resorv0 :Board.
11
11 2.
Pe~altios for such cleficioncies will be assoosccl mont~1ly
on the basis of aver!lge daily deficiencies during each of tho ·:. eel:ly
periods ending in the preceding calend;u- month.
11 3.
Such penalties shall be assessed at a basic rate of 2 per
cent per annum 2:bove the Federal reserve b ?,nk discount rate o:i :1inety
day cor.m1ercic:J. paper, L1 effect or-, the fir;.;t day of the cale::1dar
month L.1 whic:h the d.ei'iciencies occurred.
11 4.
Then a member ba..'1k in a reserve city where ti:ere is no
Federal :reserve ban}~ or br.:.J..:1ch tl1ereof has an average deficiency in ,
reserves for six consecutive weekly periods, there shall be assessed,
in addition to the penalty at the basic rate, a progressive penalty
on weekly deficiencies occurri:Gg thereafter, l.L"ltil such member ba.n~c
has maintained the required average reserve for four consecutive
weokly periods. Such progressive penalty shall be at the rate of
1 per cent per a.-:.1um for tl1e first calendar month in w::ich 'same is
effective, and shall increase at the rate of 1 per cent per an:tum
for each consecutive cale:ndnr mor: th theroafter in whicl1 t~e bnnk' s
reserve deficiencies are subject to the progressive penalty; provided
that the maximum penalty charged shall not exceed 10 per con t p or
annum.
11
(c) All o thor member 'ba:J.ks.
11 1.
Deficiencies b reserve balances of otl1er member ba.J.ks
will be computed o::. the oasis of avornge daily net deposit balances
coverbg semi-:Jonthly periods.
Such co,:-,puto.tions shall be made as
X-4915
- 7 n.t th"l close of busL10ss 0~1 d!lJS Lo ·oe fixvd by tl:e Fcder3.l reserve bn.."'lks with the a:pproval Jf tre FeJPral Reserve :Board.
2. Penal ties for s~:..~1. deficie::1cics v;ill be assessed mo~1 thly on the basis of avcrat;e daily dcfici:;::cios J.urh;g each of the
semi-monthly peri'ods ending in the preceding calendar ;nonth.
11
11 3.
Such pe~1alties shall be assessed at a basic rate of 2
per cent per ~1num ab6Ve the Federal reserve bank discount rate on
ninety day commercial paper, in effect on the first day of the
calendc.:r month in which tho deficiencies occurred.
11 4.
When a member o&J.:~ of this class has an average deficiency in reserve for three consecutive sami-mJnthly periods1
there shall be assessed, in addition to the penalty at the basic
rate, a progr:ssive penalty on semi-monthly reserve deficiencies
occurring thereafter, U.'1til such member ba:1k has main tair..ed the required avera6e reserve for two co~secutive semi-monthly periods.
Such progressive penalty shall be ~.t the rate of 1 per con t per ar~nuw
for the first calendar month in w!'lich sane is effective a.'1d shall
incre.o:tse at the rate of 1 per cent per annu::n Ln: eacl1 consecutive
calendar no~th thereafter i~ w~ich the bank's roserv~ .deficie~cies
are subject to the progressive pe~al ty; provided tta t the maximum
penalty charged shall not exceed 10 per cent per annum.
11
(d)
Waiver of Penalty.
T:le Federal ::tesorve Board reserves the right to wai v0 t:·w progressive penalty herein prescrij8d in any specific case when in its
discretion it c:::msiders it advisable to do so, up::m the recom::endation
of the Federal reserve bank of the district in which the particular
member bank affected is located.
11
11
(e)
Continu8d Deficiencies.
W'henever arJ.y mer:f}er bank is subject to the na.ximum pe~alty
of 10 per cent, tho Federal Reserve Agent shall promptly report t:'le
fact to the Federal Reserve Board with a reco::-c.ond.a~ion as to wl:ether
or not the :Board should:
11
11 1.
In the case of a National bar:.k. direct ~he Cor::ptroll')r of
the Currency to bring suit to forfeit the charter of such Hati:mal
b~1k pursuant to Section 2 of the Federal Reserve Act; or
I
2. In the case of a State rr,e:r::ber tank, insti tu.to 1)r-:>ceedings
to require such bank to surrender its stJck in the Federal reserve
ba...'1k an.d to forfeit all rights and privileges of :nembership pursUcl.at
to Section 9 of the Federal Reserve Act; or
11
11 3.
In either case, take such other action as the. Federal
Reserve Agent Eay recoL~end or the Federal aeserve Board r.~y consider
advisable.
X-4915
- 8 -
87
I recommend this, because i t is su"bst:m tially tne draft at:re8d '-'-:?Jr.
informally at a cunference following tne meeting of th<:'! O:?en 1iarket Committee
on July 27th, at which five
~~~bers
of the FeJeral Reserve BJard ru1d repre-
sentatives of some seven or eight Federal reserve bar.ks were }?resent, 2nd because it is believed to be a c:Jmpromise which will correct the q,buses which
the :Board has in mind and at the same time meet with the least OF90si".;io:: en
the part of the Federal reserve banks and the rr;ember banks.
On this subject, the varying opinions and shades of opinion are
almost as numerous as the Federal reserve banks.
Some favor the provisions
contained in the tentative draft of the regulations v:i th varying modificatior.s;
some favor the alternative draft enclosed in the Board's letter of June 21st,
with varying modifications; and some favor a draft along the general lines of
that
~~oted
above.
No two agree on all details.
If I may be permit ted to record oy own persortal views, I will say
that I prefer the draft contained in the tentative draft of the retSUlations
submitted with my memorandum of June 15, 1927; because I believe it is entirely
wo(k:able and is most nearly in accordance with the in tent of the law.
In view of the broad power and discretiop vested in the :Board in
the matter of prescribing regulations and penalties regarding deficiencies in
reserves, however, I am of the opinion that it is entirely within the Board's
lawful power to adopt any one of the three a1 ternati ve drafts of this section
now before the Board or to leave this section of the regulations in the form
contained ll1 the edition of 1924.
The question involved is really a question
of policy, and the ultimate responsibility rests with the Federal Resarve lbard. ·
X-·1Sl5
t~:e c~bo-:e
s;.;ction in·..J.odiately n,fter sc;..bsccti::m (d) of
11
:lre.ft of Scctio:1 IV:
(e) .Hotice '.:;o :Jn:;cbrs of :Llcnks &:.b,jcct to p ...~cg.cessiva
Pcna::. ty.
.As s:)or. as crr:y 1::a.nk hr.s ·beer:. continuously :ieficiont ir.
its reserves for a sufficient length of time to subject it to the
:progressive :;--e:~v-,_lty, the }'e:icral ::\cservo Agent shall address a
let·tcr to e.ach :liroctor Jf such b:JI1k c2.lli:ag attention to tho
situation and. advising him -::>f -;;he rcquirerr.ents of the lav. aLd of
this regulation rego.rding the m:-inte:1''l1Ce of rc;sorves a:1d the
personal liability of the directors perrrli tting vblo.tio:1s of the
law".
11
matter of correcting continuous deficiencies in rt:;s-:;rves, but also v;·ould be
t1c::lpfnl i.n prevc:1tiag the insolvt":::Lcy of bx.ks by gi•;ing t:lC J.irectors timely
notice of ti:e c-:.ovclo)me::t oi '::lad situ.a.tio:1s.
I did r.::>t incor:r;-::>rc-te it in the
above draft of Sectior: IV, 'because it is an e-:--,tirel;r new sug,;est:i.on e.nd had
not bee:1 subrr.i ttcd to the ::;'e;dorel reGervo
'Ja.~::s.
G0ve:.:no:::· Crissinger, however,
has tclebra_phc_: all :Fed0ral R.:;se:..·vc .Agents for their views on this sug:;estior:;
a:1d I recomme:1d thct it to inserted. in the
:ct.eser'Te
At:;e~1ts
Reculc~.tion,
unles::; the Fedornl
r·aise valid. objections to it.
sub-section is ii:..serted
ir~
Sectio11 IV, s--.:b-
section (e) of the above d.r~ft sl1oul(i be redesignE,ted
3-S
sub-sectio~~ (f).
I£ tl1e abo·1e
'-l,~oted
Saction V-I.Dans and Di vid.end.s While Reserves are
l'eficie~
I respectfully recornrnend that the last sentence of thiJ
s~ction
as
c:mt:1ined L-1 the Regulations of 1924 be restored, with ap:;>ropd'.:lt6 chanres in
phraseology, unless tl1e draft of 3ectio£• IV contai:;.ed. in the tentative draft
of the regulatlons submitted wi t:1 ey memora:--'durr: of Jcme 16th ::.c <:l.dopted.
The elimination of t'I:is sente':'.ce was
origir.all~l
sugcestod in order
to harmonize th:i.s sectior• with the prop.Jsal to assess 1)or"al tics for defichl1Cies
10
X-4915
in reserves of all member banks on an actual daily bacis inotead of nr.
average weekly or semi-mor.thly ba.s:.s; and it should. be restored. unless that
proposal is adopted.
I also recommend that the new language proposed to be addeJ at
t~e
end of this section be retained.
REGULATION E.
It is not proposed to make any changes in this regulationo
REGU1A.TION F.
Section VIII - FuLds Awaiting Investment or
~istribution.
In order to correct certain clerical errors, I recommend that the
following changes be made in this section:
( 1)
Transfer the footnote appearing at the bot tom of page 26-a to
the bottom of page 26;
(2)
Transfer the reference to said footnote from the end of sub-
section (c) to the end of subsection (b);
(3)
11
In thG eighth line of subsection (c), change the reference from
Subsection (a) 11 to
11
Subsection (b) 11 •
Theso arc the only changes which I recommend in the entire regulation.
I desire to call attention to the fact,
ho~ever,
that the Federal
Reserve Banks of Boston, Philadelphia, and Cleveland object to subsection (c)
of Section VIII, which would require banks depositing trust funds in other
banks to obtain from. such other batiks a
d~osit
of securities to protect the
trust estates.
Mr. Carrick of tho Federal Resorvo Bank of Boston calls attention
to the fact that it would ir.rpose upon national ba..."lks a condition which docs not
11
X.... 4915
appl;y to trust cornpo.nics, ob.er corporate fiduciaries, or to personal fi-
duciaries.
The FodEJrn.l Reserve ::Sar.k of Philadolphia objects
this provision, on the ground
t~at
'TOry
strongly to
it would be burdensome to national banks
in Pennsylvania to comply with this provision, in view of the fact that the
rules prescribed by the Commissioner of ::Sarlking in that State require all uninvested trust fllllds to be deposited with other banl::s, and Pennsylvania trust
companies are not required to obtain a deposit of securities to protect the
trust estates.
The Federal Reserve Ear1k of Philadelphia feels so strongly
about this that it has requested a hearing before the :Soard or the Law Committee
before this provision of the regulations is adopted.
I respectfully recommend
that tho hearing be grar.ted, but, that this section of the
Tho Federal Reserve
Bar~
of
Clevcla~d
rcs~lation
be adopted.
objects to subsection (c), on
tho ground that, notwithstanding the rules of the Commissioner of Barking of
the State of Pennsylvania, natio:wl banks should not be permitted to deposit
uninvested trust
f~nds
in other bnnks but should be re1Uired to coTIPlY strictly
with the provisions of Section ll(k), which, in the opinion of the Federal Reserve Ba11k of Cleveland, affords greater protection to the trust estate than the
proposed subsection (c) or the rules promulgated by the State Bnr.king Department.
REGULATION G.
I have heretofore recommended, and the Board has tentatively approved,
the complete elimination of old Regulation G dealing vnth loans by national
ba..'1lcs on farm land and other r·cal estate; sinco this is a matter within the
jurisdictio~
of the Comptroller of the Currency.
I now recommend that old Regulation K governing Edge corporations be
redesignated as Regulation G
a~d
inserted at this place, and that the designa-
tion and location of old Regulation M be permitted to
rerr~in
ur.changed.
91.
12
UEGtJLA.'l1IOiJ 3:.
Soction I - Ba1'11cs Eligi "blo fJr 11cr.:borship.
In order to avoid conf1.1sion, I rcs:Joctfully
rccor..;:::or~d
that the
l1UI:1burL1g of the first tr'J p'll"cgraphti- of tl:is section be restored to tho forr-'.
existing in th$ 1924 Regulations.
Section IV- Conditions of Meubership.
::~.s
I respectfully recor.lr.1end. that this ocction be cha:n-€;;ed to read
follO?is:
11
SECTION IV.
CONDITIO:s
o·.
MEli:::BERSHI?
11 Purs'..1.a.'1t to the authority contained in tho first paragraph of Section 9 of the Federal Reserve Act, nhich provides that
the Federal Reserve Board may penait applying bm1ks to becone cenboro
of the Federal Rescrv~ Systen 1 suoject to the provisions of this Act
and to sucl: co:::J.di ticns of ne!:'.bership as it :;my prcscri be pursuant
thereto•, the Fedcral Reserve Board ~ill proscribe for oach bank or
trust coop~r hereafter applying for aili~ission to the Federal Reserve Syste~ such conditions of nonbcrship purs~ca.nt to the provisions
of the Federal Reserve Act as the Board r~y consider necessary or
advisable in the particular case, and such bu:nl..: or trust cor.:pany
will be required to agree to such conditions of nar.&ership prier to
its adnission to the Federal Reserve Syster.::. 11
This follows substantially tho fern of the corresponding paragraph
of every edition of the Board's regulations on this subject prior to the
oditio~
of 1924 B.J.J.d gives the Board exactly the sa:.10 power ·;1ith respect to prescribing
conditions of nenbership as it has under the corresponding provision of tho
Regulations of 1924, except to the extent that such power has been restricted
by the
GQcnfu~onts contai~ed
in tho McFadden Act.
The incorporation in tho Regulations of 1924 of the taxt of tlw conditions of r.1coborship oost usually prescribed was greatly :cisund.erstoc1l aad re;
sul ted in ouch cri ticisr.::. on the part of the National Association of Supervisors
of State Bffi1ks, which criticisr.::. in turn led to the restriction of the Board's
X-4915
13
povor by tho ar.1endr.:ent ~ c0:1taincd i.a the
o~:
pe:.1ra11ce of these conditions
!i.cFa•l(...e~:
r::.x:bcrs>J.i::; in
tr::;
Act.
Tn.'" c:..nt::..nuc<i np-
Ioar.J 1 s
rcQl].::v~io:ts
was
again tho subject of cri ti-2is:::-. c1_uring ti1o ccetir"g of ti1e N"ltior..al Association
of
Supcrviso:.~s
of State BanJ:cs recontly hwld in Rich:::und;
!Ud
I
a;:J.
ccr:vlncod
that it would be highly desirable for the :Soard to o:tiDir.ate fr.Jc the regulations the text of these conditions of r::wnborsnip.
Such co:::..G.ltions or' ::1'-nbcr-
ship could be set out in circular letters add.ressE.;d t.o the Federal res•;;rvc.:
banks and in this r.ay r.ade available to. ony
bD.rJ~:s
contor:;,:;latins api>lying for
adnission to the Federal Reserve Syston.
Section V - Per.cission necessary prior to
functions.
t~e
changes in assets or scone of
I resycctfully roco::nond that this section be
e~1tiroly
olici:natcd
from tho regulation and that the following sections be renuobcred accordingly.
Tho elinination of this section uould :1ot dc::_JriYe tho Beare" of any
power which it now has under tile so-ca.lled general condition of nenbershi}J• and
would oaterially reduce the niSU11dorstanding and criticise of the Eoard 1 s
con~itions
practice in prescribing
of neocorship.
I believe the theory of this soction to be sound; but, in view of
the Board's
er~erience
in
to enforce it since 1924, I
atto~ting
that it is iopracticablc ani
c~~ot
there is everything to be gained
be enforced.
~'1d
In
r.~
e~ co~vi~cod
o,inion, therefore,
nothing to be lost by eliuinating this
section from the regulation.>
Section VIII -
Exar~inations
and Ronorts.
I respectfully recco:end that the second
be restored in tho
forr~
para£Ta~h
in which it appeared in tho
of this section
Rog~lations
of 1924, unless
~14-
X-4915
· t.end s t,o re,.pu:·e
·
th
. e ] oar d ~n
~
.'ef~·.uB.:'
StntG
1· t 1.cns
·
,., ·o e r ".,aru.s
exRr.;Lt1P.
o f' al1ll1 mc.m
at some time in the near future.
Heretofore I have suggested the elimi!lation )f this ua.ragraph
from the regulation; because I understoocl tl:at the Fcd8r8.1 Reserve Board
was contemplating a drastic change in the manner of ex"lminin.g Stc.;.te membe:;:banks.
No such change has beeE made, however, and, in view of the fact that
se·:eral of the Feder:1.l reserve
b.~tnks
continued to object seriously to the
elimination of this paragraph, I think it should. be rete..ined.; unless the
Board intends to ma..1<:e an early change in the matter of 8xarnining State mer.1ber
banks.
R2GL'!4TION I.
Sections I(e) and II(e)-Ce_rtifying Increa~s 2nd Decre'"tses of Federal Reserve
Banl: Stock.
In order to make the regu.lation conform to the present practice, as
estgblishe1 by the :So0rd 1 s letter of January
9. 1925 (X-4239),
I respectfully
reconunend that, in both Sectior. I(e) and Section II(e), the sentence roe.ciir..t;
as follows:
11 Such
certifications shall be made q-s.arterly cl.S of the
last de.ys of December, March, Ju.."YJ.e nnd Septer:,ber of
eP.ch year"
be changed to read:
"Such certificP..tions shRll be m..,do semi-an::mally <J.S of
the last days of June n.nd December of each ye~.r 11 •
REGULATION J.
I recommend no cha::;ges in ReguJ.at ion J excnpt the slight change
incorporated in the drAft of the regulations tsntn.tively apuroved by the
Bo~.rd
on June 21st.
OlD REGtlLATIOlJ K.
I respectfully recommt:md that the designation of old Regulation K
dealing with Edg~ corpor'1.tions be changed to ReguJ..qtion G ®d that tb.is
-15-
which is to be
disco~tinued.
I also respectfull;r rocorr..:;1end t:'l<\t, ::ofc.r•:; fi:l:->1
revised_ drRft of
me~t
re ;-GL·tim,
t:~,is
th~
P~~ro'l"ll
of ·the
.Boa·td £:ivc ccnsiie;r"'.tion to tho ::uY.ond-
to Section XI r0q"U.3Sted by th<' :C,ir;;t
Fecior~l
Foreign !nvP-stmcnt Trust i:>..,
e letter .o.ddresscd to the :Board by Mr. B. F. C· stle under cln.t-.:: of J-;J.ly 29, "':"cl.
subrni tted to thv Bo<>rcl in my
momor~m:lum
mmv
of Auzust l.
REG~}·ATIOiJ
K.
I respectfully rococnrnon:l thl',.t there be inst:•rtud at this place the
proposed nmrv regul,..·ticn K dc:p,ling with YJ.or:-cnsh coll<;ctions.
0"ring to the fn.ct
tl'l<"'~.t
the tent.qtive drr'.ft of t:'lis regulation sent
to th<> Foder<>.l reser'Te b"n.:?.:s in the
ily prcp"l.red on very
~~hort
With the very mro.teri.<J1
Bo~.rc1 1
s letter· of
J~me
21st :-•.<1~1 been hgst-
sssist~nce
of Mr. H. F.
Str~1.tcr,
Ch..o.irr.JPn of the Stn.ncl-
ing Committee of Collections "..nd other officers of the Fed•)ra1
Clevelend, I :b.oc.·we :prcrpp.red
·~ot?.ils.
notice, the "b"l:r1::s critichc:l ill'"'YlY of its
~.
corr.plete new
ir~.ft
of
t~liS
R<~servc
Bank of
regulatior.., '.'•hich I be-
lieve will rneet practicqlJy .all of the criticisms exc,3pt those
::J.~Jie
by G-overnor
Young.
The propose1 new drp,ft of the rog-u.lp;;;iqr. o: .. :nor-cgs:1 collsctio:1s is
att13.ched hereto, ru:td I r,:;sp.:.-ctfully rec.)r:c;. ..;nG. tb,_t it be nO..opt-s.i i::1 thf; fo::.·r:t
no"Y submi ttod.
Governor Young, ho1.vever, has very S•""Jrious ob,j e::ct io:1s to cort,-,.i.n featuros of this new regula tiD!:; :,n·i I respectfully rcco::-:-:on:i thl'\.t, before finally
Adopting it, tl1e Board give special
reply thereto whic!:.
:n~.s
consiJ.er~.tion
to
'":..is criticis:r:s, and to a
by0n prepared. by Mr. F. J. Zurli:Jdon,
Governor of the FeC:.eral ?.osc;rve Bnnk of Clov.:.:l,r..l.
I'e-o1.:.t~1
Ir. uy opi;lior:., Gov-
ernor Young's obj.3ctions are not valid.; but, i:t view of hL1 er1.rnost i:lSjstence upor.
them, I fenl they should be given cor.s J. .ierP..tio:n by the
Bo~>rd.
-16-
It is not proposed. to r..<J.lre p_ny chn.nr;os i::" t-::is ro2x.ln.tior.;.,
REGULATION M•.
It is not proposed to J::'lal:c "nY ch'1ng·;s in
that it
W3.S
origin'tlly proposorl to ro;J.esignnte it
~s
t"-i~
ret::,uln.tion, oxcopt
Rcgul<1.tion G <:.'li insert it
in the plA-ce fornerly occupiecl by t:r.e old Regulat ic·n G, >rhicl: is to be iiscor..t inued.
I no;r rccor.mend th::tt the origin'"l des it:;nP.t ion of Rugulr>t ion M bo .m-
changed <md thP.t the regulation be incorpor'3.tGd in the cor.1plde oclitic'n of the
:Board's Regulations
i~:r,wiiately
0.fter Regul.<1tion 1.
CONCLUSIQIT.
For the :Board 1 s further inforr..1<1.+. ion, I respectfully su.bmi t
the replies of the Governors l:ln:..'L Chtdn::en of all
F~;derp,l
her~.n"li th
reserve bn.nks to the
BoArd's letter of June 21, 1927, submitting the drR.ft of the regu.latbns tentatively approved on th<;o.t :late for their further cri ticisn :md.. co>J::-ccnt.
In tliis
momorMdUI:1, I have nttempted to call attention to -..11 importl"r•t criticim:J.s which
woulG. not be :::.1et by tl:o changes horein recornr:1ond..ed; but I have not attmapted to
call attention to
~.11
minor criticisns or no·"'T suggestions subnittecl at t:1is lnte
d:1.te.
I am firoly convinced that, with the chanros herein
irR.ft of the reguh.tions tentatively approved by the
:Bo~ri
a set of regulations and will prove to be n.s satisfqctory
ul~tions
recon~endei,
the
on June 21 is gs good
qs any sot of reg-
which could be proC.ucei q,fter another six months of sU;:;gestions,
cott:1ent s, cri t icisns, and revisi:ms.
It will require the test
::>f
0xpori0nca
resulting from actuA-l opor::ttion to pro.iuce further 1:1aterial inproverant s in
X-4915
-17 . .
this iraft of the re:';tt111.tions,
In conclusion, I
~.ttention
ng"l.:i.r~
take the lioorty of c.qllinc the EoP.,rd.' s
to tho irnortanco of rl!-::tcnling the regulations so
conforo to the nmondnents
nossi'ole date.
conk~incl
in the Mc:Fr..ilen Act
The 'ieL.-.y in loin,2; this
h~s
~t
PS
to r1<U:::e then
the e,.,rl ic st
'O!lreR-d.y brought unon tho Board
serious criticism cluring the recent meetin.; of the Nation..,.l Association of
Supervisors of
St~te
Be>.nl:s, <>,nC. "'· furtllor '..c=:lny is •rery likely to briCJg
further criticism.
Rospectfull~r,
Walt.:>r WJratt,
Gener?.l Counsel.
WW MD
X-4?15-n
(P..EVISED DRAFT)
REGULATIOlJ K, SEB.IES OF 1927
·COLLECTIOlJ OF :·t.A.TTJRING NOTES AliD BILLS
I. STATUTORY PROVISIONS.
S~CTION
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 authoroity 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 rec.sonably incidental to the collection of such
items.
SECTION II.
(a)
_¥aturing liotes and :Sills.
.....
DEFilHTIO~TS.
The term
11 rraturing
notes and bills" is,
;,·
for the purposes of this ;egulation, hereby (efined to include the following classes of i toms pa;j'able within the continental United States:
1. :W:a.turing notes, dra.fts, bills of exc:b.ange, acceptances, bankers'
acceptances, and certificates of deposit;
2. Drafts on S."!.Vbgs accounts with pass-books attached;
3, Checks, dr'3.fts and other cash items which have pr&!viously been
dishonored or on which special advice of prwment or dishonor
i<;; required;
4. Maturing bonds and coupons; and
5. All ot~c.o:;; C7idr)~lC0 of i::-"dcbtc:\ness exco;;t checks and bank drafts
wnicb cannot be collected at par in fw!ds acceptable to the collecting Federal reserve ba'1k; provided that any Federal reserve
ba'1k 1nay require ~1y depJsiting member bank to s~ow to such Federal reserve b8llk 1 s satisf.e.ctiJn that specic::1 co::1di tions exist
which make i.t proper for said Federal reserve bank tJ handle
as a collectio11 item eEy i te:r., of the character normally hB..:1dled
by the Federal reserve bank as a casi1 i tern.
(·~, (,.~1
- 2 (b)
NON-:·EEM!3ER CI2l.AR:EG- B.A~Jh.
"'""-J
The term
11
nc::1-rr:ernber clearing
bank'~
is defined to mean a non-me•nbe:c bar'.k or tr·u~ t co;~»a::y which mc"l:i.r.ttains with
the Federal reserve bar.£ cf thJ district in wh::.ch it is located a bala...J.ce
sufficient to qualify it u_n.:ler Section lZ· ):f t:nc ?cdoral Reserve Act to san<l
cash i terns to the Federal reser'."e ba...."lk fnr :;;uncses of exch&ngc or cc.ll0ction
under
Re~1lation
(c)
Ci..SH
J.
r·r:::;:;s.
drafts, and. other items which are collectible !Ju.rs"l!.a..."Ylt to t:he ter:ns of
:?,eg~<lc.-
tio:r. J.
(d) COI:_LZCTIOl\T IT:!ili:S.
Tne term
11 ccllt~ction.
itnms 11 is d.Pfined. to ::.ea.r.
me.turing notes and bills 'Hllich are collactible !:,ursua:nt to the terms of Rog,ulation K.
~he
Federo.l Reserve Board, desiring to afford to the public and to the
various banks of the country a d.ir8ct, expeii tious, and
e~onomical
system for
the collection of ·1m.t'.1I'b.g notes and oills, has arran,;;ed. to [.:ovc ull ::'ecleral
reserve banks collect maturins notes and bills en a
u:~iforrc
-basis
-~~\-1..
..:.c. tho
terms and con::li tions hc::reinafter prescribed.
SECTIOlT IV. ITEI/;S FCCEIVED FOR
(a)
COLL~C'I'_ICN:.
Each F8deral reserve bank will receive from its :ner:::ber
ba:-,~.;:s a::d.
from no:1-mombcr clearL1g ba;;.ks in its district for ccllection maturing notes
and bills payable in the continental United. States.
(b)
Each Federal reserve bank will receive frc:r.. c.ther Federal reservs
banks f:Jr collec ticn
(c)
rrab.ri:~g
notes and bills payable v:i thin its
In ord8r to e1i:ninate
un~1ecessar7
011:::.
district.
de l3.y U...'J.d expense and further tu
increase the efficienc;v of the collection service herein provid.ed, each FAd.era1 reserve bai;k will a-c.thori7e '3.11 me:nber b:=u"''=s and. non-r:le"'l"..:Jer clearing
- 3
banks in its district to so1:d
to the Fedel·al reserve
and aa.ch Federal
b~UJ.k
r:~sor.re
"~l!ltlA.I'i::J.g ..1ot.;~
o.nd bills fer its a.ccour.t c!.ir('ct
of the district in t1hich such i tams 3.re payGa.blc;
ba:-.k 7lill receive from
·.·.c~ber bt~.nks
and noll-m.... ~bcr
clearing banks in other distri..::ts i''aturing notes ood bills :payable within ·its
own diet:o:i ct, for colla .::tion and credit to the account of the Fedcr.'tl res':lrvr.>
'.:Ia~;:
of
tl~e
(d)
district in w::uch the sendin..:;
"J~u"!k
is
loc~t~i;d.
]"o Fec'.Grel res('\rye bP.nk sl1.qll rccEJi,re for collection a:ny chock
or bank drc>...ft drawn on or
p~·able
by a ncn-member bank
'"ihi~h
cannot be
~cl-
lected at par b. :rands a·:!Ceptable to the Federal reservi::l bank of th.:l district
in wbich
S1.1ch
continen~a.l
noJ:.-member. banJ.- h
located, or any i tern payable outside of t" Le
TJni ted States.
SECTIO:~
V.
T"BF.:.m OF
CO!:LECTIOl~.
The· Federal Reserve Board. hereby autho1·izes the Federnl reserve
banks to handle such rraturing notes and bills subject to the following
terms and conditions; ar.d each member bank ;.md non-member clearing ba.nk
which sends maturing notes
an~
bills to any Fed0ral reserve bank for
collection shall by such action be deelll:ld: {a) to have o.greed to all the
terms and conditions of this rog-..Uation; (b) to r...o.ve
rrarra.nt~d
to the Fed-
eral reserve banks that it has authority to empower the Federal reserve
banks to handle such items in the manner hereinafter provided; (c) to ~ave
ae,.:reed to indemnify rmy Federcl reserve b'll'l{ for a.ny loss resul till6 from the
f:3-ilure of su.ch sending bn."'lk to have such. :·~,.:::G:·.:ority; and (d) to have guaranteed all prior. endorser:.snts on such items whether .or not o. specific guaranty is incorporated in the
e~dorse:nent
of the St3nding bank.
~oc
..\.'.~
X-4915-a
- 4 -
jj'edoral reser•re ha.."l 1CS i7ill act
1.
a.s tho::: collt:ctlng
Olil~r
of thE')
Ag<:~nts
sending banks and will .0e .L'es_ponsible only for d.,.w ·:ilibence and care ·in for-
2.
Fede::-al reaerye banks -:nay preseni; or forward such i tams direct tc
the banks
O.Ll
wni c:1 they ar0
d:..~F.>wn,
at .vhich they arl3 pa.yable, or through
which they are collectible, for p?..ymcnt in
credits; or prr-lsent the-n direct to the
ca~h,
:..>er~:;o~.
ba:1.k lraft, or solvent
firn: or co0ort-1tion on which
they are drawn, for pay::1ent i.::1 cash or cJ::.ac}:; ur, if the item is not :pE"..yable
in. a city- in
w~1ic!1 t~1ere
reserve bank, then
thE:~y
:?ed~ral
is a
rose!'ve ba!lk 0r
::l.
bra.r.cll of
::l.
Federal
lllay, in their disc1·etlon, forw..l.rd tham to ancthar
agent with 'the sa:":le authority that they l':avc.:. to present or fo!'Ward. the!l". for
payment.
3.
Items
p~able
tion to the Federal
ir. another district will be forwarded for collec-
res~rve
bank of such district or to a
Federal reserve ba:,k; ex-:e2t
in another distl·ict, may be
t~t
items with
forw~rdecl
r-t
br~ch
of such
defi:1ite mat11ri ty,
peya~le
direct to the place of paJmCnt in such
other diatrict whan it is :1eccsr:ar.r to do so i:r., order to reach t!1e place of
psyr;ent by ma.turi t:r, n."ld siL;ht or de!}".a,nd drafts with docu"!lcm ts at tache d., PDYable in
nr~other
district, l'!'.a. y bo forwarded diroct to the ple.ce of payment
wh;:m the collecting Federal
roscrv~
bcnk is spccific<..lly requ0sted to do so •
.Ul such i ter::s ".'Till be h'llldleG. on the terms an..i condi tiona berei!l
4.
J:;rescrio~d.
Exce-,t as horcin proYi~ad, Federal reser·:e 'hn.::ll:s shall be helC.
liabla O!lly W:i.len th..::.y 'J:'.t2:ro r.:::cei ved a.~tuJ.l ::;>c.y:-:.e nt in cn. sh or in th'3 final
proceeds of !'::J.Y b.!mk d.roft 0r
~~e cl:: receive~
il-.. rmd ·~t ~mce.
§ECTIOlT VI. CREDIT FOR P?OCii;F:DS.
No Federal reserve
b~~k sl~~ll
credit
t~?. r~sorve
accoU-"lt of
.~1y
~l01.
X-491D-<1
- 5-
:ner:ber brnk or the R.t;Co'\:'.nt of r.n;r
eral reserve "'>a.nlc wi tl~
tt·~
non-~~~e~jer
cmo1:.nt of
cl32.ri:.1g
'l.."l;· rar·tu=int~
in actu.l.lly a..:1d firu.\lly collectcrt fu.r.iis h:1.s ':)acn
Federr~
reserve
:t,ed-
·<:!...!..'<= :>1· 1..~? .,)t~'l..::r
.1·:. t3 cr bill '1LtU
re~ehe~
by th••
~£Gnt
cJll~:Jct!n€·
b~nk.
SIDCT!OF v!I. CHARGES Faa
CO~,t]0~IOK.
{a) JP..ARG:IDS BY liEDERAI. RESERV"m ~'!KS. · :~o. cha.4~ s!-~:.11 1Je n·a:e 'Jy any
Federal rescrye bank for
mtl.tu.rin,~
t~-:o
service p)rf?l'r.: ·iu. ...W it in t.:.1e cr. l..Le ciiion cf
notes and 1>ills, iJ:T.cert t!ut:
1.
A.i''lj
cba.rb8 4.ado
c'ha.rged to t!l.e
a:...ot:1.,r colle :.ti--+ 9(.:o;.1t :::r..alJ. ?e
'J~~
~k
fror1 wl:.tch St;..J.n 1 tE-::s 7ter·:;;
or shall 'Je dciucted ar.d crec.i t gi,c;n ior
:r.-:.e a.ct1;.al e>.'"Penso of ret;ist!"atior.,
tetion of
ma:im.ri~
points for
cre~it ~iven
~h.'"tr~.:d
bf;
wore recoi7ad or
for tbr. actuvl
~Y
to thoC) bE'.:lk :tro·:1
be ded11cted and
All tulor;rA:Jih c:;nd. tele:;.>::onc. char.;os in co:J.ncction wi t!l t:w
~d
bills ''laY
A s'lrvicu cr.:.O.r€;a vf fiftoa:l cer.ts r.,_1r !tE'\·:,
l'lOt9S
1-~ c'-:~;.r::~::.J.
'::"!
to
.'\ll :r.at".l.l"inG
:>n:i bills r~turnocl ur:pf',id ~nO. 'U.:'l!'TOtOsted Snc"'ll be
fer colloctio:!.
or tra..ns:_:)or-
~~t ?roce~~s;
col:!.octio::'l of re.aturi!lg :10tes
4.
~::lsur&"\Ce,
notes s.:::.i bills fo:rnard.cd tc ot:..3r
:~ollocti:.;n !.'.Sy
whi~h su~h ite~s
3.
R.Ct•uil. uet
tl-w
,
proce-::d.s;
2.
~ec".ll ved
T:1is charge shall not b0 rr..:l.\i(i
o~
itame
•
-
-
')
X-4915-1.
("'J) CHARGES BY COLLECTH!G AGEl\'!':S!.. k::y r.eci;or ba..:.k ·or aon···r::e.::.:bor
bar.k selected by. a Federal reaor·.,re
ban.~
as an D_;er..t to collect
notes a..'ld bills roceiveci under tlw ter1:,s of this
""reasonable
s~rvice
cr.arge for its
except that no such charge
sh~l
in
l~dlins
be made for
rogu.l.~.tion,
such
o~.1nturi.1g
nay m::l.ke
~~turing ~ot9s
h~.ndliD.G
checks
~:nd
and
a
~ills;
bank drafts.
SECTION VIII. C'T:a:F:R R'CLES A1"U REGCLATIO!;S.
JU.l FeJer~.l reserve ba.."iks shal.l also pror..:·ilgate rules .~.::. ree;;ulations id.:-ntical i!l terms,
or of this regula.tio11,
~ot
incol'!sistent ui th ·ch(? provisions of the law
gov~rning
notes and bills by such
~edoral
tions shall be binding u.pon any
the details of tr.e collectior.o. of m.r.:.turine;
reserve ba'lks •
merr~ber
Sue~
riles and
re~ila-
or nO'l-rr.err:ber clearing ba.rJc which
sends rraturil'!g notes 3nd bills to its Federal reserve bank or any other
Feder~l
reserve bank for
acco~'lt
of its Federal
rescrv~ b~nk.
X-4915
EXCERPT FRO!e: MEMOBA.."'DUM FROH
COUNSEL OF FEDERAL RESERVE BOARD
August 3,
1927.
REGULATIO!~
D.
Section II(d) - Definition of Savings Accounts.
I resnectfully recommend that this section be restored to the
form in which it a~neared in the Regulations of
My
1924.
reasons for this recommendation may be su;nmarized briefly
as follows:
(1)
The suggested changes are not necessary, since a strict
enforcement of the old regula,tion ,.ou1d enable the Board to check, if
not, end altogether, the existing tc:r..donc;r to evade the reserve requirements through the device of classifying as "savings accounts" deposits
which are
su~ject
to check or for any other reason are not bona fide
savings deposits.
(2)
By,ruling on each question as it arises, the Board can
'
build up gradually a series of administrative rulings which would accomplish the purpose of the proposed changes without the shock to the
member batiks whicn might result from drastic changes in, the regulations
without previous notice to the member banks and an opportunity to be
heard.
•
1J}1.
x-4915
-2-
(3)
Such a method of correcting the existing abuses
would give the Board the advantag3 of such further information on
this p,:eneral subject as might be obtained an e. result of the study
be in,£?; made by the Federal reserve bar"ks, the Federal Reserve Agents
and the Federal Advisory Council pursuant to tho Board's circular
letter of June 24, 1927 (X-4888).
(4)
Such a gradual e.nd orderly nethod of correcting the
existing abuses would be obviously fair .<'nd less likely to prejudice
the Board's case in the cour.ts, if tho Bo<:!.rd 1 s rulings should be
tested thore.
(5)
In any test suit which might arise out of a specific
ruling in an individual case the com:plnine.nt would naturally be a
bank which was attempting to evade tlw requirements of the law and
this would give the Bonrd a distinct
(6)
t!:~ct icP.l .::td.v~ntage.
The existing definition of
11
·
savings accounts" has been
in force for over twelve years and would stand a much better chance
of being uphold by tho courts than a ne'!!' definition recently adopted.
An interl?rct"ttion of the law by an administrative officer or.body of
the Government '""hich has long been in force P.nd has been generally
acce!)tod by the public will be upheld by the courts tmless it is
clearly erroneous.
x-4915
-3-
(7)
The enforcement of a
re~~lation
or ruling classifying
as demand deposits the so-called "special savings accounts" prevalent
in California would so seriously affect the earnings of several of
the larger California banks that it would be only fe:.ir to notify them
and give them an opportunity to be hoard before adopting such a regulation or ruling.
(8)
Moreover, such banks would be almost certain to test
the legality of such a ruling or regulation in the courts;
a..'id it is
exceedingly im-portant for the Board to be in the best possible tactical -oosition vrhen it undertakes to enforce such a regulation or ruling.
The proposed substitute defir.i tion of
11
savings accounts"
prepared at thedirection of the Board and transmitted to the Federal
reserve banks in the Board's letter of June
21, 1927, contemplated
such drastic change and is of such doubtful legality that it is
strongly. objected to b:r most of the Feder:tl reserve banks.
Upon
further reflection and study, I. am of the opinion that the proposed
restrictions on the character of the
deposits would
.,
~xceed
de~ositors
the Eoard 1 s lawful
po~ers
end the size of the
and could not be sus-
tained in the courts.
Section II(e) - Definition of Time Certificates of Deposits.
I respectfully recommend that this section be restored to
the form in which it apueared in the Regulations of
1924.
The reasons for this reconnnendation are the same as those give:1
'
-4-
fJ.r the recOliliJend<ltior. r.:g<1rdir.g the defini tLn
'T
11
se:·.Inc~
q.ccounts 11
•
Section III(a)- Paragtaph Rcbarding Trust ~~ds.
In order to mal:e the la--:gun.ge of th: s .:;ection conform rnore :'1en.1·ly
to that of other portio:::1s of the regulati:m, I respectfully recommend that
the W.)rd "carrjt•
chwgnd to
11
oe
chan£:od to
11 ~naintain 11
and that the word t\carried11 be
r:1ain tained11 •
Section !V-Penalties for Deficiencies in Reserves.
I respectfully recorr.c:1end that this section ba changed to ree.d .:r.s
follows:
11
SECTION IV.
PZNALT!ES FOR DEFICIE:WIES IN P.ESERVES
Inas:!l.uch as i t is essential that tho lt1w with respect to tne
maintano..'1ce b;:r momber bonks of the required minimum reserv-e bal.'l..'lces
be strictly corr.plied with, the Fcdct~:;.l Reserv-e Board, under aut:-10r i ty
vested in it by Sectio:::l 19 of the Feder31 Reaerve Act, hereby prescribes t:r~e i'ollowhl6 rules governing penal ties for deficiencies in
rcserve3.
11
11
(a) 3.<Jnks in ci tiGt> ;-;~:Jro Fed:or'll reserve ba::ks or
brx,ches thoroo:f arc located.
;t
1. Deficiencies in reserve balo.:1cus of member ·b::mks in
cities where ~edQ):al reserve ba'lks or branches thereof ar3 located
will be computed on tho basis of average fu~ily net d~p~sit balances
covering semi-woolcly periods. Such computr~tic:;;~s shall be mad0 as
at tlk close of busL:oss or1 d:;-.;ys to be fixed by the Federal roservo
bx;ks with the approval of tho Federal Reserve Board.
11
11 2.
Penalties for such deficiencies will be assessed
on the basis of ~werage daily deficie~!cios during eact. of
tnc serd-woekly p.Jriods c;::ding b the preceding calcndal· month .•
m:y_-~ t.1ly
3. Such po::::alties shall be assessed at a basic rate of
2 per cent per a:.1::~um A:oove the Federal reserve bank discount rate
on ninety da;:.r com.rre rc5 al paper b effect ·:>n the first day of the
cale:!dar rr.on th in w:·:dch the deficie:J.cies occurred..
11
Them a r::e:nber c.o::w."1k in a city where a Federal reserve
balk or branch t'horeJf is loc•.J.ted has an average deficiency in reserves for twelve c::msccutiYc somi-weekl;;.r periods. there shall be
11 4.
X-4915
assessed, i::J. addi tb::'l to tho :po::::.alty ~.t tho basi:: rato, a pr.:>gressivc
.:m semi-\toel:ly iefici3~1cies occUl·ri::-~g thereafter, U..'1 til such
member bank has maintn.b.od the retJUired a·veragc reserve for eight
consecutive semi-weekly periodc. ·Such prJjre3sivc ~enalty shall be
at the rate of l per cent per ;:1Ilmm for the first calen·dar rr.on th in
which same is effective,and shall incre~se at the rate of 1 per cent
per a'1n1lm for each consecutive c.alendar r::onth thereafter in which the
bai.1ki s reserve deficiencies are subject to the" progressive penalty;'
provided that the·~i~~ p8nalty charged shall not excued 10 per cent
per a·rr:.u.-n.
pe~1al ty
11
(b) :9eirJ.ks in ruserve cities wi.1ero there are no Federal
roserv.a banks or bra..."lches.
11 1.
Deficie:1.cies in reserve balances of men1ber banks L1 ruservc
ci tics where there arc no F11dcral reserve banks or branches thereof
will bt: cor:pi..i.ted O>."l the basis of average daily net deposit bala:1cos
covering weekly periods. Such cm:routa.tlons shall be r::adc as at the
close of business on days to be fixed by tho Fodoral reser:~c bail%s
with the approval of the Federal Resorvo Poard.
11 2.
Per..alties for such deficiencies will be assoosed mont:'lly
on the basis of average daily deficiencies du:ing each of the ·:.eer..ly
periods ending in t11e preceding calendar rr.o:1th.
11 3.
Such penal ties shall be assessed at a basic rate of 2 per
cent per OJ."lrlum above the :E'ederal reserve ba.11.k discount rate o:1 ainety
dey cor:JinerciW. paper, L1 effect or~ the first day of the cale!ld.P...r
month in which the 1.eficienci~.s occ>.ll"red.
11 4.
~en a. member bnnk in a reserve city where there is no
Federal reserve bank pr br~.ch thereof has an average deficiency in
reserves for six ccnrikcutivs weekly periods, there shall be assessed,
b addition to the p~nalty at the basic rate, a progressive penalty
on weekly deficienci•s occurring there:rl'ter, until such member ba.~k
has rrk~intained the required average reserve for four consecutive
weekly periods. Such progressive penalty shall be at the rate of
1 per cent per ~~~um for the first calendar month in w~ich same is
effective. a.'1d shall incre:,se at the rate of l per cent per annum
for each consecutive cal0ndar mo~th theroafter in which the bank's
reserve deficiencies ara subject to the progressive penalty; provided
that the mC'!.ximum penalty charged shall not exceed 10 per cont per
annum.
n (c) All other. member ba::lks.
11 1.
Deficiencies b reserve beJanc<JS of other member ba.'1ks
will be computed o;:.. the basis of a.vcro.ge d::l.ily net deposit balances
coverbg semi-::~onthly periods.
Such co.:;putatio:ls shall be made as
.... 6-
X-4915
n.t th-:: close of busb.;;ss 0~1 dl'l:/S to oo fix.;d oy the Federal reserve bn.."lks with the a:pproval )f t}H:; Fedoral Roserva :Board.
11 2..
Penal ties for suc..'ll deficiencies v.-ill be assessed mo·.1 thly on the basis of average daily doficic1:cics during each of the
semi-man thly periods ending in the preceding calendar ;no:r. th.
11 3.
Such :penalties shall be assessed at a basic rate of 2
per cent per a11num above the Federal reserve bank discount rate :m
ninety day commercial paper, in effect on the first day of the
calendar month in wcich the deficiencies· occurred •.
4 •. When a member bank of tl1is class has an average deficiency in reserve for three consecutive semi-monthly periods,
there shall be assessed, in addi ti::m to the penalty at the basic
rate, a :progr:ssive penalty on semi.:..monthly reserve deficiencies
occurring thereafter, ur1til such member ba~k has maintained the required average reserve for two consecutive semi-mo:J.thly periods.
Such progressive penalty shall be at the rate of 1 per cent per ar~num
for the f ir.s t calendar month in which SD.ne is effcc t i ve a..'"ld shall
increase at the rate of 1 per cent per annu..'11 foz: each consecutive
calendar month thereafter in which tho bank's roserve deficiencies
are subject to the :progressive penalty; provided that the maximum
penalty char god shall not exceed 10 per cent per a.'"l!lum •.
11
11
(d)
Waiver of Penalty.
11 T!'le Federal Reserve B.:>ard reserves the right to waive the pr='gressive penalty herein prescri'ced in any specific case when in its
discretion it considers it advisable to do so, u:;pn the recomr::.eudation
of t:1e Federal reserve ba.."lk of the district in which the particular
ine::~ber bank affected is located •.
11
(e)
Continjad Deficiencies.
11 \T."lenever any mem')er bank is subject to the r.la.Ximum penalty
of 10 per cent, tho federal Reserve Agent shall promptly report the
fact to the Federal ·:teserve Board with a recorr.:cndation as to whether
or not the Board snould:.
l. 'In the case of a National bank, direct the Cor.:ptrollor of
the Currency to bring suit to forfeit the charter .:>f such 1-Tatbnal
bank pursuant to So.ction 2 of the Federal Reserve Act; or
11
2. In the case of a State rr,er.:ber bank, institute proceedings
to require such ba..."lk to surrender its stJck in the Federal reserve
ba.."l.k a."ld to forfeit all rights a.."l.d :privileges of membership pursuant
to Section 9 of the Federal ~eserve Act; or
11
11 3.
In either case, take such -Jther action as the Federal
Reserve Agent r;,ay recor:nend or the Federal rteserve Board raay consider
advisable.
-7-
t09
X-4915
I recommend this, because it
i~
substsntially tne drait abreed
informally at a conference following the meeting of
th~
~?or.
O?en Market Committee
on July 27th, at which five .nembers of the Federal Reserve :SJard and representatives of some seven or eight Federal reserve bar.ks were present,
cause it is believed to be a C:'lmpromise which will correct the
~buses
~nd
be-
which
..-'
the Board has in mind and at the same time meet with the least opposition on
the part of the Federal reserve banks and the member banks.
On this subject, the varying opinions and shades of opinion are
almost as numerous as the Federal reserve banks.
Some favor the provisions
contained in the tentative draft of the regulations with varying modifications;
some favor the alternative draft enclosed in the Board's letter of June 21st,
with varying modifications; and some favor a draft along the general lines of
that quoted above.
No two ·agree on all details.
If I may be permitted to record my own personal views, I will say
that I prefer the draft contained in the tentative draft of the re5Ulations
submitted with my memorandum of June 16, 1927; because I believe it is entirely
workable and is most nearly in accordance with the intent of the law.
In view of the broad power and discretion vested. in the :Soard in
the matter of prescribing
r~gulations
reserves, however, I am of
~he
_and penalties regarding deficiencies in
opinion that it is entirely within the Board's
lawful power to adopt any one of the three alternative drafts of this section
now before the :Soard or to le~ve this section of the regulations in tho form
contained in the edition of 1924.
The question involved is really a question
of policy, and the ultimate responsibility rests with the Federal Reserve Jbard.
-8-
tJJ)
X-·1:915
!.ir. Smead ims SU6C:'C3tcJ. tho inscrtior:. of
t~w
following new sub-
soctior. ir.J..<lcdiately g£ter subsection (d) of the n.bove draft of Sect.i.o:l IV:
11
(e) 1Totice to Directors of 13cnks SUbject to Progressive
Penalty.
.As soon as any bank has been continuously deficient in
its reserves for a sufficient length of time to subject it to the
progressive p6n~lty, the Federal Reserve Agent shall addr&ss a
letter to each director of such bank calling atta.J.t ion to the
situation and advising him of the requirements of the lav; ru:d of
this regulation regarding the mnin te:1ru:1ce of reserves a'1d the
pcrso:1al liability of the directors permitting violations of the
law 11 •
11
I believe that tl"lis provision not only r:ould accomplish much in the
matter of correcting continuou::; deficiencies in reserves, but also woD.ld be
:::1elpful in preventing the
insolver~cy
of
bar.~.ks
notice of t::.e development of bad situt:ltions.
above draft of Section
rv,
by giving the directors timely
I did not incorporate it in the
because it is ru1 entirely new suggestion and had
not been submitted to the Federal reserve -ba.J.:{:s.
has
tt:lle~;rapho.J..
Governor Crissinger, l1owcver,
all Fed&ral Ruservc .Agents for their views on this SU€,gestion;
ru1d I recommend thnt it be inserted in the Rogalation, unless the
Fedcr~l
rteserve Agents raise valid objections to it.
If the above quoted sub-section is inserted in Section IV, SD.bsection (e) of the above draft snould be redesigr.ated as sub-section (f).
Section
V-Lo&~s
and Dividends While Reserves are Deficient.
I respectfully rea0mmend that the last sentence of this saction as
c:mt:1ined in the Regulations of 1924 be restored, with appropriate changes in
phraseology, m1less the draft of Section IV contai:1ed in the tentative draft
of the regulations submitted with my memorandum of June 16th ic adopted.
The elimination of this sentence was originally suggested in order
to harmonize this section with the proposal to assess penalties for deficiencies
X-4915
in reserves of all member ba.,."lks on· an actual daily basis instead of an
average weekly o.r
semi~monthly
ba.S'is; and it shoul<i be restored unless that
proposal is adopted.
I also recommend that the new language proposed to be added at the
end of this section be retained.
(Excerpt )1J.2
X-4915
EXCERPT
FRO~
MEMORANDUM FROM
COli'NSEL OF FED'F..RAL BESERVE BOARD
A:llgust 3, 1927.
BEGULATI ON H.
Section 1 - Banks Eligible for Membership.
In order to avoid confusion, I respectfully recommend that the
numbering of the first two
existing in the 1924
~aragraphs
of this section be restored to the form
Reg~lations.
Section IV - Conditions cf_ !1\e~bership.
I respectfully recornruend. that this section be Changed. to read as
follow~:
11
SECTIOU IV.
COliDITIONS OF :MEMBERSHIP
1•Pursuant
to the authority contained in the first ·paragraph of Section 9 of the Federal Reserv&·Act, which provides that
the Federal Reserve Board~ 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 company
will be required to agree to such conditions of membership prior to
its admission to the Federal Reserve System. 11
This follows substantially the form of the corresponding paragraph
of every edition of the Board's regulations on this subject prior to the edition
of 1924 and gives the Board exactly the same power With respect to prescribing
conditions of membership as it has under the corresJOnding provision of the
~egulations
of 1924, except to the extent that such power has been restricted
by the amendments contained in the !acFadden Act.
The incorporation in the Regulations of 1924 of the text of the conditions of membership most usually prescribed was greatly miSllnderstood andresulted in much criticism on the part of the National Association of Supervisors
(Excerpt )11_:.3
X-4915.
- 2-
of State Banks, which criticism in turn lead to the restriction of tho Board's
power by the amendments contained in the IlcFadden Act.
The continued ap-
pearance of these conditions of membership in the Board's regulations was
again the subject of cri tici[.~ during th<J meeting of the National Association
of Supervisors of State Barks recently held in Richmond; and I am convinced
that it would be highly desirable for the Board to eliminate from the regulations the text of thes·c conditions of membership.
Such conditions of member-
ship could be set out in circular letters addressed to tho Federal reserve
banks and in this wey made available to any banks contemplating applying for
admission to the Federal Reserve System.
Section V - Permission necessary prior to make changes .in asse;s or scope of
functions.
I respectfully recommend that this section be entirely eliminated
from the regulation and that the following sections be renumbered accordingly.
The elimination of this section would not deprive the Board of any
power which it now has under the so-called general condition of membership,
and would materially reduce the misunderstanding and criticism of the Board's
practice in prescribing conditions of membership.
I believe the theory of thi.s section to be sound; but, in view of
the Board's experience in attempting to enforce it since 1924, I am convinced
that it is impracticable and cannot be enforced.
In my opinion, therefore,
there is everything to be gained and nothing to be lost by eliminating this
section from the regulation.
Section VIII- Examinations and Reports.
I respectfully reconmond that the second paragraph of this section
·-il.., ?~ ..t"l
~'I
- 3 -
·''i~
(Excerpt') "·- _.,_
X-4915
be restored in the form in which it appeared in the Regulations of 1924, unless
the Board intends to require regular examinations of all State member banks
at some time in the near future.
Heretofore I have suggested the elimination of this paragraph
from the regulation; because I understood that the Federal Reserve Board
was contemplating a drastic change in the manner of examining State member
batiks.
·No such change has been made, however, and, in view of the fact. that
several of the Federal reserve batiks continued to object seriously to the
elimination of this paragraph, I think it should be retaimd, unless the
Board intends to make a11 early change in the matter of examining State member
banks. ·
X-4916
FEDERAL RESERvE
r: iillD
STATEhENT FOR THE PRESS.
For immediate release.
August 3, 1927.
3:00 o'clock p.m.
'The Federal Reserve Board announces that it has approved
an application of the Federal Reserve Ba•lk of St. Louis for
permission to establish a rediscount rate of 3 1/2 per cent
on all classes of paper of all maturities, effective August
4, 1927.
x-4919
'
October 5, 1926.
T~
MF..RITS OF PAR CL"BARANCB.
The par clearance of checks by Federal reserve banks is conducted
pursuant to the express provisions of the Federal Reserve Act, which have
been construed by the Supreme Court of the United States to mean that (1) Federal reserve banks are required by law to receive
and collect at par all checks drawn upon member banks
of the Federal Reserve System;
(2) Federal reserve banks are authorized to receive and
collect checks drawn upon nonmember banks, if such
checks can be collected a.t par;
(3) Member banks are required by law to remit at par for
checks drawn upon themselves Bnd presented to them
for pP.yment by Federal reserve banks;
(4) If nonmember banks remit at P..ll for checks forwl3.rded
to tliem by Federal reserve banks they must remit at
par; and
(5) Federal reserve banks are prohibited by law from paying
exchange.
The above principles are definitely established by the decisians
in the cases of American Bank & Trust Co. v. Federal Reserve Bank of Atlanta,
262 U. S. 643; Farmers
&
MerchA.nts Bank v. Federc:.l Reserve Be.nk of Richmond,
B~~
262 U. S. 649, and Pascagoula National Bank v. Federal Reserve
le.nta, 3 Fed. (2nd) 465, 11 Fed. (2nd) 866, 46 Sup. Ct. 637.
Federal Reserve 'oard nor the Federal
option in the matter
~d
reserv~ be~s.
of At-
Neither the
therefore, have any
cannot permit banks to deduct exchange when remit-
ting for checks presented by Federal
~eserve
banks.
TRADITIONAL POLICY OF TEE UNITED
When Congress pP.ssed the Feder81
'R~serve
STAT~S.
Act and Amendments
thereto authorizing Federal reserve banks to collect checks at pA.r, its
action was bf'!.sed upon a policy of the United States goverTh"llent ,'Thich had
been thoroughly tested by experience and had been found to be sound, namely,
X-4919
-2-
the policy of the
Govern~ent
to secure at all times acceptability at par
for all forms of money or recognized
~ubstitutes
therefor.
This policy he.d its ince-ption at the time of the
United States cmd }1as been e.dhered to since that time.
~ormation
of the
OVIing to the confusion
arising from the V8.rious kinds of currency in use and the varying discount
at which many of them circulated at the time the Union was formed by the
several States, the States surrendered to the United States under the Co.nstitution the sole
of vnlue.
rig~t
to coin money c>nd to provide a uniform standard
:By p:p-propriate legislation United States
irmnediately became everywhere acceptable at
Again, in
f.<:~.ce
coin~ge
we.s cre;:oted ?.nd
value.
1863 the confusion that hP.d long prevp.iled in our bank
note:currency, then an importr>.nt mea.iur.a of exchange, C8USed Congress to legislate on the subject.
One of the difficulties with this currency was that
most notes issued by country banks did not circulate at par because the issuing banks deducted exchange in paying them when sent for
banks.
The NationP..l Bank Acts of
redem~tion
by city
1863-65 cured this difficulty by trocing
out of existence notes of the State banks and by cre:1ting nat ion<>,l ba.r..k:
notes which every national b!"nk was required to receive nt pF:.r ::md which
were, therefore, everywT.ere accepted at face value.
Fifty years later, in
1913, when the Federal Reserve Act
consideration, the use of checks as a
enormously.
and debts
mediu~
~as
under
of pxchange had increased
Indeed, the ease and economy with w}lich funds can be transferred
settle~-
by checks has been a large factor in the rapid growth of
American business and banking.
Congress, therefore, in establishing a new
Rnd country-wide bnnking organization followed the traditional "POlicy of
the United States and mP...de provisions whereby checks might be paid at par,
thereby insuring a wider acco'Ptability for such checks.
X-4919
-3Ninety-seven per cent of nll uayments in this country
·~ith
checks
~nd
tho demands of
~ sm~ll
and towns that they be permitted to
of corrunerco" through the
ch~ging
~re
now
m~de
number of bqnks in the smaller cities
m~intain
their
11
toll gates on the high1)')'ays
of exch1=1.nge on checks sent them for col-
lection by Fedor::>.l reser.re banks, is diAmetric-;] ly opposed to the national
:oolicy of securing the free circulp.tion ".t
recognized substitutes therefor.
tJ?.!'
of :01.ll forms of money or
If heeded, it would greatly discourage
the m:lintenance of de1)osits in banks which T>ersist in making such charges.
BENEFITS OF PAR CLEARANCE TO THE PUBLIC.
The benefits r.hich accrue to business men and to the public generally under the par cleArance system as conducted by the Federal reserve banks
m8y be summarized briefly as follows:
(1) It enables the business man to get 100 per cent payment
of his invoices in the r.1ost convenient ~.nd expeditious
~.nner.
This means that whon he receives a $100 check
for a $100 invoice he gets $100 for it, not less.
(2) It has made the check of the business man, be he merchant, manufacturer, or farmer, a much more satisfactory and ncceptable means of p~;~.yment for all purchases,
even in distant cities. It has relieved him from having
to purchnse drP.fts or c~.rry bank balP..nces at dist~.nt
places in order to make distant ~~ents.
(3) It h~.s reduced to a nini:r.nm t!1e time required to collect
checks, tcoreby making the proceeds of a check available
to its owner much sooner than fo~merly.
(4) It results in "'· much more expedi tiO\l.S handling of checks,
thus :providing prompt advice and return of dishonored checks,
:md minimi :dng the chance of loss through bank failures ..
EVOLUTION OF THE USE OF CHECKS.
In the earlier
~d
more primitive days, cccnercial
tr~nsactions
were conducted through barter or the exchange of one kind of goods for
another.
When money came into use it was necessary for a purchaser of
goods to transport the money with which to settle his oblig1.tions
X-4919
- 4 -
to the place of payment or to have it transported by the primitive methods
then available.
Later, owing to•the hazard and expense of the physical
shipment of money by an individual, banking institutions undertook, for
a consideration, to provide the purchaser of goods with a draft drawn upon
a banking institution in a financial center which would be acceptable to
the seller of the goods in lieu of cash.
To compensate his bank or banker
for the expense and hazard of establishing a credit ba.lance in New Yorlt or
some other financial center the purchaser paid a stipulated sum of money
for the draft in addition to its face value.
At this stage of banking practice checks were practically worthless as media for settlement of obligations except within the
community
where the drawee bank was located, because there was no satisfactory means
of collecting such checks.
Banks and bankers made some profit from the sale of drafts to
be used in payment of debts; but they observed that, in order to avoid the
expense of purchasing exchange drafts, the public continued in a large
mea.sure to pay its debts in cash, and that this practice caused large
amovnts of money to be hoarded and not deposited in banks.
:Sanks and bankers
also observed that if the use of Checks became general they could greatly
increase their own deposits and, through the
~se
of checks drruvn on banks
in other places, could build up balances in euch places without the expense
of shipping currency.
took to
encour~
The
ba~ks,
throughout the country, therefore, under-
the public to deposit its money in banks nnd to use bank
checks in payment of debts.
They taught the public that checks of individuals,
firms, and corporations could be used as a means of discharging their obligations everywhere in a manner convenient to themselves and satisfactory
to their creditors.
Bank checks, therefore, originated, as instruments
X-4919
- 5 -
designed for the
their oun
be~efit
oper~tions,
of bnnks; since their use enabled
baru~s
to facilitate
to escape the cost of currency transfers, and to obtain
vast :::unounts of deposits uhich
~1.'J.d
hitherto been hoarded.
Finally, under the encouragement of banks and·bankers, the practice
developed of using checks upon the local bank in settlement of transactions
with .non-residents.
At first this practice uas confined to settlements uith
residents of nearby communities; but gradually the practice spread until
the check became the almost universal medium of settlement, regardless of
the distance betueen the parties to the transactiofi.
At the present time,
in this country, 97% of ali payments are mnde by means of bank checks.
QRIGlN o~ u:mxcHANG:l£ cH.AnGEs. ''
Up to the tirne rrhen the use of bank
abandoned for the use
of
dr~.fts
vras in most instances
checks, the cost of t:he draft was borne by the
purchaser of the draft and not by the person to whom it was sent.
checks came into general use,
revenue from the
s~le
ba~king
When
institutions whicb had formerly secured
of drafts to their customers, reversed the process
and deducted so-called "exchange charges" when remitting to out of tmm
banks for checks drawn on themselves.
And they did this in spite of the
fact that they had the use of their depositorls money during the additional
time when his check ffas travelling to
t4~
payee in a distance place and
back to the drawee bank for payment.
When a
b~~k
receives a generol deposit from one of its customers
it receives a loan, either uithout interest or at a very low rate of interest;
and, if the purpose of the deposit is to create or maintain a checking account,
t:he bank, in return for the use of its custocer 1 s money, undertakes to honor
checks drawn against such deposit as and when presented.
Under the common
*-4919
- 6 -
law it is obligatoJ to pny such checks in
c~sh
uhen presented at the bank,
but not tr. rer:lit tho ]?rocoeds to dist[lnt pb.cos.
W~en
chocks rmre sent in
through tho 1:1.tdls fro:::t distant places, t'horefore, the bnnJ..cs claimed that
in renitting the proceeds to such places they porforned a service
~hich
they nero not oblig.Gted. to perfom nnd that they were entitled to cornpensation therefor.
~o-co.lled
for this alleged service that they deducted the
ol~l
nnl :nore pri:-1i ti ve C..e.ys of banking there uas some justi-
for this chccrge, 1:ecD.use it 11as so:setimes necessary for banks to
fic-:t.tio~1
c~sh
ho~ever,
u~s
"exchange c1w.rge. n
In the
ship
It
in payc1ent of such checks.
As the
b~~ing
this necessity uas avoided through the
correspondent banks against Ylhich
such checks.
The
bar~s,
dr~fts
business developed,
~~intenance
could be
~raun
of accounts in
in payment of
however, continued to iopose exchange charges,
attenpting to justify this practice on the theory that it was still necessary
for the paying bunk to incur expense in shipping currency from its vaults
to ;:1tdntain its balance vlith its correspondent banks. At one time this was
soon
true, but a moans was/found to avoid this necessity. The rural banks adopted
the practice of establishing credit balances in recognized financial centers
by depositing drafts on other institutions in which they had credit balances
or by sending to the finnncial center tht checks which l1ad come to theffi on
banks in the finru1cial centers or nearby places.
centers
beco~e
in effect clearing
house~
The banks in the financial
for the country banks, and
their transactions with the country banks uere largely, if not wholly,
confined to paper items in lieu of
~~rrency.
X-4919
- 7 nExCHANGE CHARGES"
no
LONGER
.rusTIFIED
At this stn:-;e of t':le clevclo:pnent, practically the only necessity
for ship:-:,ent of currency Has between b.:mks in U..e fino.ncial centers, a.11d
the cost of these shipnents u:::.s not chnrged to the country banks n.s such,
but Yn:ts absorbed as part of the operating expense. of the banking insti tu.tions
in the finn.nci['.l centers.
As the practice existed even prior to the
passage of the Feclerc..l Reserve Act, therefore, the necessity for a
country bank to make currency shipments had practically
disappe~recl,
and
if its operations resulted in its correspondents in financial centers
being required to make currency shipments, no part of the expense incurred
by such correspondents was charged as such to
tr~
country bnnk4
After these ioprovenents and econonies wore adopted it was
actually less expensive for a bn."lk to remit by draft for checks drawn
on i t than i t was to pay such checks in cash over the counter.
They
were required to aaintnin less idle cash on hand., and the writing and
mailing of remi ttoncc. drafts involved ::m.ch le,ss actU<.<tl labor than the
counting out and paying of cash over the
co~"ll~r,
number of checks could be remitted for \7i th a
especially since a
~ingle
draft.
The exchange charge was, therefore, no longer justified but
it still persisted as a sort of petty graft
bas~(!.
upon o.n obsolete practice.
X-4919
- 8 CHECK COLLECTIONS tJW.OER FEDERAL RESERVE SYSTEM •.
Upon the establishcent of. the Federal reserve banks, even the
necessity of currency
shi~uents
by
the Jnrlcs in financial centers at their
own expense was elicino.ted, for the reason that :c'!Ost of the barJd.ng institutions
locntei in the financial centers
bec~JB ne~bers
of the Federal Reserve System
nnd were entitled to ::Kl.k:e settleoent through the Federal reserve bank in their
district with a..TJ.Y bn."rlking institution in tho U!li ted Sta.tes wherever located
by
of what is known as the Gold Settlement Fund.
~2ans
by having en.ch Federal reserve bank deposit gold at
This fund was created
t~J.e TreE~.sury
Departr.lSnt
ir. We.shington, receiving therefor o. book credit to which is debited or
the
credited at/close of each d~'s business, upo~ telegraphic o.dvice fro~ the
Federal reserve batiks, the net balances due to or froo each other Federal
reserve
ba~ks,
bar~.
By this cenns the
transactions between Federal reserve
d~ily
both on their own nccount and for the account of their member banks,
are settled by a oere book
shipnent
tr~sfer
of title to gold, without the physical
thereof~
It is not overstating the fact, therefore, to
and hazard foroerly incurred by private
to distant points for checks drawn on
nated.
b~ing
th~cselves
S~Jr
t!w.t all expense
institutions in
re~itting
have been virtually
elimi~
Even the expense of r.Ja.king reoi ttances to the Federal reserve bank
is largely, if not wholly, absorbed by the Federal reserve bar.k, which
furnishes drawee banks with
to reci t exchange drafts'.
st~~ped,
self-addressed envelopes in which
Where drawee ba.'"lks elect to remit in cash,
rather than by excha.'"lge draft,
t~~
Federal reserve
and pay all expenses of such s!:ipr.13nt s'.
b~~s ass~~
all risk
X-4919
- 9 -
LESS EXPENSIVE TO RKZ!T FOR OUT OF TOWN C3.ECKS THAN
TO PAY CEECKS AC20SS COUNTER.
Not only has the expense of making remittances been eliminated,
but, through the centralization of the collecting functions in the Federal
reserve banks, certain further economies have been effected.
Under the
old system each bank received every day numerous cash letters from other
banks containing checks on it sent for payment.
For each cash letter
tho drawee b&"'lk had to write a separate remittance draft a..l'ld mail same
to the sending bank.
Since the establishment of the Federal Reserve Col-
lection System practically all of the checks coming to a bank which remits
at par come through tho Federal reserve bank in a single cash letter and
can be paid with a single remittance draft drawn either against funds
which the bank is required by law to maintain on deposit with the Fedoral reserve bank as reserves or against funds which it maintains with
other banks for other purposes.
In this
1'/ay
the actual labor of pay-
ing checks received through the mails has been reduced to an absolute
minimum and is much less than the labor and er}ense of paying them in
cash across the counter, as the bank contracts to do when it opens a
checking account for one of its customers.
It is perfectly obvious, therefore, that ba.."1ks no lor.ger
incur expenses or perform valuable services
w~en
sent to them through the mails, but they actually
ligations to their customers with less lapor
a~d
they remit for checks
discr~ge
less expense to them-
selves than when they pay such checks acr,:>ss the counter.
their ob-
X-4919
FETTER TO REMIT THROUGH FEDER.li.L RESERVE SYSTEM THAN THROUGH
OTHER CHA1iJNELS.
That it is better from the baP..k 1 s own standpoint to remit at par
througb the Federe.l Reserve System than to r··mi t through other cha::mcls
has boen recognized nnd frankly admitt•Jd by some nonmember country banks
which hn.ve tried both
systems~
as appeA.rs froiYt letters rec'oived by Fed-
etal reserve banks.
One such country bank,
h~ving ~ c~pital
of $20,000 and located in a tov:rn with
;:t
of $30,000 and a
sur~lus
populevtion of 1075 people. wrote
to its Federal reserve bank requesting that its name be restored to the
par list,
s~ying:
11
Beginning this date, ',7e ·1ill par all i terns on our bank
and will ask you to plt>..ce us on the -par list again,
as we find the extra trouble v.re have is worth more
than the exchange we have been getting. 11
Another small bank with a
$33.720, and located in a
capit~ll
of
$25,000 and a surplus of
to~n ~ith a population of
516 people, wrote as
follows, to its Federal reserve bank requcstlng th.<>.t it 13gain be placed on
the par list:
"We are again teking up the mP.tte:r with you in reference
to handling at pP..r i terns received by you dr.q''ln on this
bank, and in that connection we find that the chP..~1ge we
m~.de has created gui te A.n e.ddi¥fonal amount of, work on
tHe employees of our b1=:1.nl::, ~nd in view of the fPct that
our business is rapidly incre1.sing vre have decided to
par all i terns sent us by you d.r~,wn on this bank, and
until further notified by us we will remit at p~:tr to
you for all i terns sent us from the Federal Reserve :BaPk. n
Still another snu:.ll bank VJith a capital of $25,000 and a surplus
of
$14,000 and located in ;::,
to~vn with
rt
populnt ion of
that i t P..gain be placed on the par list sc:..ys:
500 in requesting
X-4919
- 11 11
Please place us back on t::w ·;;>ar list. After trying out
the par proposition aJ.1d r-::E:hing so many cash letters
frJm all over the c~untry, I thir~ the par system much
better. 11
These letters wore u:1solicited
resp;mde~1ce
~~d
of Federc•-1 reserve bar..ks.
were taken from the
r~utinc
cor-
Further illustrations could be
produced in great nuobers; but the ab?vo are sufficient to indicate the
trend of enlightened banking thought.
NO NET PROFIT IN EXCHANGE CHARGES.
In order that a profit might be made out of
exch~J.ge
charges under
the old systehl of collecting checks it was necessary for country banks
to avoid the p~nent of exchange on checks deposited with them for coilcction by their customers; for if the country b~1k haJ to pay exchange on
these iten1s the amount they would have to pay would offset the amount they
would collect. · Country banks could not ordinarily charge back to a
customer exchange charges which they had to pay, because when they endeavored to gain his account they assured hir-1 that he could deposit his
checks for collection and that the bank wo1.:.ld replace them to his credit
without any charge for making the
collectio~.
In order, therefore, to effect a system whereby they could charge
exchange but would be relieved from paying exchaJ.1ge, cQuntry banks entered
into agreeoents with banks located in the financial centers under which
the country banks were peroitted to charge exchange on all checks drawn
on the::1 and the banks in the fina..'lcial center agreed to collect all
checks sent to them by the country banks without charging the country banks
exchange.
The country banks were able to effect such an arrangement with
t
- 12 bnnks in f_inancial centers only by n.greeine; to mu.intn.in with their city
correspondent balances sufficiently large to co8pensate the city banks
for the following i terns:
1. Interest allowed to the country banks on the account.
2.
Excha~ge
paid on the checks collected by the city banks.
3• The actual expense of handling the account and collecting the checks.
4. A profit sufficient to ~~e the business worth while to
the city correspondent.
It is very doubtful, therefore, whethe;· the country ba.."lks ever
derived a not urofi t from such an
arr.'1:le;,;c:~,c:-:t.
The exchange charges a::;>"?enred
as a profit on their books; but this was offset by the loss of the use of
the funds maintained on deposit with the city correspondent.
True, the
city correspondent paid interest on this deposit at a low rate - say 2~ but by investing or lending this money themselves the country banks could
have earned much more than the exchange
by the city correspondent.
ch~ges
plus the interest paid
Otherwise there would have been no profit in
the transaction for the city correspondent•
CIRCUITOUS ROUTING Alfn.DELAY IN
MAKING COLLECTIONS. ·
In order to collect checks which country banks sent them the
city
ba~ks
had to pay exchange charges in some instances; but they en-
deavored by every possible means to avoid the po.ymont of such charges.
In endeavoring to av.;id the payment Jf exchange charges the
city banks entered into reciprocal relations with other banks whereby
they remitted to each other at par without charging exchange; but such relations were not uni versa! a11d banks were C):1stantly getting checks on
-~ f)~f
- 13 -
X-4919
other banks with which they had no such relations.
w:~en
checks they did not send them direct to the drawee
barJ~s
'" ,,._,
they received such
but sent them to
other ba;.1ks with which they had reciprocP-.1 relaticms, hoping that such .Jther
ba..'"Llts would be able to find a me&J.s whereby t!le checks could be collected
without the payment of exchange charged.
This led to the circui tJus routing
of checks with all of its attendant evils, including tho risk and delay resuiting from the fact that such checks often would float a·oout the c:n.L.J. try
for weeks before they were finally presented for payment.
It was partly to
eliminate these evils that Congress authorized Federal reserve banks to
institute the Federal reserve check collectiJn system, the benefits of
which have been recognized by the overwhelming Qajority of banks.
It is not probable that there is any country bank which desires to return to the old circuitous routing of checks, to the resulting
delay in the collection of chocks, and to the necessity of maintaining large
balances with city correspondents in order that it may not have to pcy exchange.
It is now universally recog:aized by inforr..:ed country bankers t}lat
these old methods and devices of avoiding the payment ;:;f exchange are iJ.ore
costly to the country bank than the loss of the rumunt which it derives from
charging exchange.
If, on the other
ha~d,
checks continued to be collected
exchange chargfs were
thrJu~~
per~itted
and
the Fodera! reserve baJ.ks, all
banks would charge excha;.1ge on checks drav:n upl)n thensel ves and would. be
forced to pn0r exc!lange on checks w:t.ich t:-:oy receive for collectiJn.
result in general would be that no bank w.Juld r.1DJ:::c
exchange charges, since tho ar.:Du."lt a
ba::l~
charges would approxinatcly balEW.'1Ce the
charges.
would
W:l:)un t
n..J.~r
~1avo
T:1c
profit out of
to pay in exchange
which it received from such
The bnnks oight attempt to pass t£.e exchange charges back to
X-4919
-14their depositors; but if they did they would.
s~on
hear from their de-
posi tors, 'ilho r. ..,.ve greatly benefited by the :!)ar collection of checks
and have strongl;y resisted every attempt to go back to the old -practice.
C 0 N C L U S I 0 W.
There are in operation in this country at the uresent
time
27,485 banks exclusive of mutual savings bank. Out of this number
23,584 remit at par and without the deduction of an exchange charge for
<;:hecks drawn upon themselves,
23,584 banks which now remit at par,
Of the
14,207 are not members of the Federal Reserve System and they remit at par
voluntarily and not under compulsion of law.
This is rurtple evidence of the
extent to which enlightened bankers have recognized the advantages of the
Federal Reserve Par Collection System.
The practical question whether nonmember country bariks
should charge exchqnge on checks really comes to this:
Do the country
banks prefer to cling to Pn antiquated banking practice which seems to produce a small revenue, but actually results in a net operating loss, "or are
they runong the forward-looking
the par
clear~nce
b~nkers
8 .. s
the old conditions of chaos, delay
.<=~.long
that
system is efficient, econon1.ical and profitable, and for
the best interests of the cou.11try
other steps
of the country who recognize
a whole?
~nd
One path le!"'.ds backward to
expense in check cle!'l.rances.
The
with progress and modern banking conditions and provides
a means whereby checks, which play such a prodominA.llt part in paying the
accounts <l.nd adjusting the bal."lnces of the whole cou:o.try, mP.y be collected
quickly, safely :"'.nd economically, with a resultant bellefit to every user
of checks of incalculable value and
R
corresponding benefit to banks.
X-4920
FEDERAL RESERVE
BOARD
STAT:EMEUT FOR THE PRESS.
For inmediate release.
August 4, 1927.
2:30 o'clock p.~.
The Federal Reserve Board announces that it has
approved applications of the Federal Reserve Banks of Boston
and New York for permission to establish a rediscount rate at
each of the ba~~s na~ed of 3 1/2 per cent on all classes of
p~per
of Pll maturities, effective August
5, 1927.
x-4921
FEDERAL ··m:SERVE :SOARD
STATEMENT FOR THE PRESS
For immediate release.
August 5, 1927.
3:00 o'clock p.m.
The Federal Reserve :Soard announces that it has approved
an application of the Federal Reserve :San.: of Cleveland for
pe~ission to establish a rediscount rate of
3 1/2 per cent on
all classes of paper of all maturities, effective August 6, 1927.
X-4:922
TREASURY DEPART!lENT
Office of the Secretary
WASHINGTON
August 5, 1927.
~e
Governor,
Federal Reserve Board.
Sir:
You are here§.y advised that the Department has referred to the Disbursing
Clerk, Treasury Department, for payment, the account of the Bla-eau of Engraving
and Printing for preparing Federal reserve notes during the period July 1, 1927,
to July 31, 1927, amounting to $119,280.00, as follows:
Federal Reserve Notes, Series 1914
$5
Boston
New York
Philadelphia
Cleveland
Chicago
St. Louis
Minneapolis
K~nsas City
San Frc.ncisco
100,000
600,000
300,000
100,000
250,000
100,000
100,000
100,000
150,000
1,800,.000
3,360,000
$10
$20
$50
350,000
100,000
300,000
100,000
150,000
50,000
150,000
75,000
50,000
25,000
25,000
25,000
1~,000
1,050,000
4:50,000
50,000
100,000
5,000 . ·1,130,000
475,000
555,000
5,000
425,000
100,000
100,000
175,000
300,000
3,360,000
101000
&
sheets @ $35.50 per M • • •
The chc.rges against the several Feder.:-.1 Reserve
Total·
$100
...
• "'119,280.00
B[~nks
are as follows:
$ 3,550,00
Boston
New York
Philadelphia
Cleveland
Chicago
St. Louis
Minneapolis
Ka.nsas City
San Francisco
4:0,115.00
16,862.50
19,702.50
15,087.50
3' 550.00
3,550.00
6,212.50
10,650.00
$119,280.00
The Bureau appropriations will be reimbursed in the o.bove o.mount from the
indefinite a.pproprio.tion "Prepo.ration Md Issue of Federo.l Reserve Notes, Reimbursable", o.nd it is reQ_uested that your boo.rd CC'..USe such indefinite c..ppropriation to be reimbursed in like amount.
Respectfully,
(signed)
s. R. Jacobs
Deputy Commissioner.
X-4924~
FEDERAL
RESERVE
EOARD
STATEMENT FOR THE PRESS
August 11, 1927.
4:00 o'clock p. m.
For immediate release.
/
The Federal Reserve
~oard
announces that it has
approved an application of the Federal Reserve
~ank
of Dallas
for permission to establish a rediscount rate of 3 1/2 per cent
on all classes of paper of all maturities, effective August 12,
1927.
X-4925
FEDERAL RESERVE EOARD
STA'I'Eli.?.JnT FOR TH:8
For immediate release.
PP.:SS~
August 12, 1927.
3:00 o'clock p.m~
The Federal Reserve Board announces that it
~as
approved an application of the Federal Reserve Eank of Atlanta
for permission to establish a rediscount rate of 3 1/2 per cent
on all classes of paper of all maturities, effective August 13,
1927.
x-4926
FEJJERAL
RES~RVE
BOARD
STATEMEUT FOR T~ PRESS
For immediate release.
August 15, 1q27.
2:00 o'clock p.m.
The Federal Reserve 'Board announces tha.t it has apnroved
an application of the Federal Reserve Bank of Richmond for permission to establish a rediscount rate of 3 1/2 per cent on all
classes of paper of all maturities, effective August 16, 1927.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-4927
Aug. 16, 1927.
Su:BJECT:
Expense, Main Line, Leased Wire System,
July, 1927.
Dear Sir:
Enclosed herewith you will find two mimeograph statements, X-4927-a and X-4927-b, covering in
detail operations of the main line, Leased Wire System, duri_ng the month of July, 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 troly,
Jiscal .Agent.
Enclosures.
TO GOVERNORS OF .ALL F.• R. BA-NKS EXCEPT CHICAGO.
X-4927-a
-REPORT SHOWING CLASSIFICATION .AND NUMBER OF WOIIDS TRAnSMITTED OVER MAIN LINE
OF THE FEDERAL RESERVE LEASED WIRE SYSTEM FOR THE MONTH OF JULY, 1927.
Bu.sinoss
repo.rtod
by banks
From
Words sent
by Now York
chargeable
to other
F. R. Banks(l)
Total
Treasury
War Finance Not Federal
Department Corporation Reserve Bank
Business
Business
Business
2,5115
Boston
34,n4s
36,366
3,989
6,447
131,520
York
131~520
Philadelphia.
3.360
41,432
2,539
3o,S93
Clovela.nd
70,36g
3,390
74,805
3.563
4,121
nicbmond
-44,617
46,930
3,515
4,117
62,320
Atlanta
56,563
5.757
102.,141
4,071
Chicn.go
106,212
5.673
78,322
4,219
St. Louis
3,929
74,S93
Minneapolis
34,666
3,390
30,576
2,349
52,312
5,236
Kansas City
]S" 329
3.9Sa
D3.llas
6,13
66,964
2,650
60,330
·1
.
.04,
416
S_:.t;} ]'ranct_sco
4.069
=~-=-¥-z-'7=---~~Y-------=1~0~15 485_____2~.~05 -----44,574
Total
3}~441
8[1,315
51,650
Boo.rd
319,370
49.100
1,200,535
100,830
Hew
I
1oo.oo%
32,377
125,073
33,072
74,473
45,123
515,203
100,539
74,603
36,227
77' 576
64,314
102,~30
Per cent of
total bank
Business ( *)
3.96
15.07
4.59
3.93
5.44
7.02
12.12
3.99
4.37
9·35
7·75
12.36
100.00
s.4o%
(*) These percentages used in calculating tho pro rata share of leased wire expense as shown on the
accompanying statement (X-4927-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 Governors' Conference November 2- 4, 1925·
~-~:~-~
,c,
,..._
·-~.J
.
e._J
·,
x-4927-b
REPORT OF EXPENSE MAIN LINE
FEDERAL :RESERVE LEASED WIRE SYSTEM, JULY,
Wire
Opera. tors t
Salaries
Name of :Sank
Opern:tors'
Overtime
.Rental
Total
Expenses
· :$15·.,35·2. ~u
1,130-97
225.00
296.66
232.00
270.00
4,249.51
217 .oo
206.86
275.64
251.00
370.00
15.352.38
$260~00
~260.00
:Boston
'New York
· Phila.ddphia
Cleveland
Richmond
AtlDnta
Chicago
St~Louis
Minneapolis
Kansas City
Dallas
San Jra.nci sco
Federal Resorve Board
Total
1,130.97
225.00
296.66
232.00
270.00
4,249.51(=1/:)
217.00
206.s6
275--64
251.00
370.00
$7,964.64
1927
Pro .Rata
Share of
Total
Expenses
Credits
$S46.56
3,221.62
9ol.24
1,919-72
1,162.95
1,500.71
2,590.98
1,921.85
934.21
1,998.81
1,656.77
2,642.28
$260.00
1,130,97
225.00
296.66
232.00
270.00
4,249.51
217.00
206.86
275.64
251.00
370.00
$15,352.63 $23,337·52
$21,377·70
1 1 95C}.S2(a)
$21,377-70
$7.934.64
(&) Includes $204.. 67 for branch line business over main line circuit.
(I) Includes salurios of Washington operators.
(•) Credit
(a) Received $1,959.g2 from the Treasury.Department covering business for the month of July, 1927
(b) Amount reimbursable to Chicago.
\
..
.
Payable to
Federal
Reserve
Board·
$586.56
2,090.65
756.24
1,623 •.o6
1 ,135.62(&)
1,23Q. 71
1 ,658.53( •)
1,704.85
727-35
1, 723.17
1,4o5.77
2,272.26
$15, 256· •.26
l,65S~b)
$13,597.73 .
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
x-4928
August
SUBJECT:
16, 1927.
Annual Election of Officers and Approval of
Their Salaries.
Dear Sir:
The Federal Reserve Board requests that all Federal
reserve banks whose by-laws do not set a, time for the annual
election of officers or do not provide for the election of officers a.t the first meeting of the new 'J)oard of directors held
after January 1 each year, amend their ~-laws so that the practice of electing officers and fixing their salaries at the first
meeting of the new board of directors held after January 1 each
year will be uniform throughout the System~
The Board requests that all salary adjustments of e~
ployees of the Federal reserve banks be submitted to it, as heretofore, in time for it to act thereon during the month of Dece~
ber and tha.t adjustments in the salaries of officers of the Federal reserve banks be submitted to it immediately following the
first meetings in January of the boards of directors at which the
directors fix such salaries, subject to the ~pproval of the Bo~rd.
It is to be understood th~t salaries ~pproved by the Board for
officers of the reserve b~s will be effective as of January 1.
The Federal reserve banks will be advised each year of
the form in which the Board will desire salary adjustments submitted to it.
Ey direction of the Federal Reserve Board.
Very truly yours,
D. R. Crissinger,
Governor.
TO CHAIRMEN OF ALL FEDERAL RESERVE BANKS.
c0
p
x-4929
y
(House Bill No. 353)
AN ACT
To expedite and stm~lify the payment of checks and to
provide for return of unpaid checks drawn on
closed banks organized under the laws of Ohio
and unincorporated banks which have transacted
business in the state of Ohio.
BE IT ENACTED BY THm GENERAL ASSEMBLY OF
SECTION 1.
That when
an~
~
STATE OF OHIO:
bank incorporated under the laws of this
state or any unincorporated bank transacting business in this state Shall
have presented to it for collection and payment any check drawn upon it
by a depositor in such bank or unincorporated bank, who at the time such
check is presented for collection and payment has on deposit an amount
equal to such check, if before such check is charged to such depositor's
account, such bank or unincorporated bank shall be closed for business
by the superintendent of banks of Ohio or by action of its board of directors or by other proper legal action, the superintendent of banks of
Ohio or any one who shall at or after the closing of such bank be legally
authorized to take charge of the liquidation thereof, Shall upon taking
charge of the affairs of such closed bank return such check to the person
or banking institution by which it was presented to such closed bank for
collection and payment.
SECTION 2.
In any case where any bank incorporated under the laws
of this state or any unincorporated bank doing business in this state,
shall have had presented to it for collection and payment a check drawn
by a depositor in such bank or unincorporated bank who at the time of the
presentation thereof for collection and payment has on deposit a sum equal
"
X-4929
•
-2-
to the amount of such check, if such bank or unincorporated bank shall
charge to the account of such depositor the amount of such check but shall
thereafter be closed for business by the superintendent of banks of Ohio
or by action of its boa.rd of directors or by any other proper legal action
before payment
sh~l
have been
~Ae
of such check, the charging of such
check to such depositor's account shall constitute an appropriation by
such bank_or unintorporated
b~nk
of the assets of such bank or unincorp-
orated bank to the payment thereof and
sh~.ll
impress such assets with tt
trust ih behp,lf of the owner of such check and entitle such owner to payment there6f upon liquidation of the assets of such failed ba.nk e.s a
preferred claim.
SECTION
3.
In any case where any bank incorporated under the laws
of this state or any unincorporated bank doing business within this state
shall have presented to it for collection and
a depositor in such
b~
pe~ent,
or unincorporated bank
~ho
a check drawn by
at the time such
check is presented to it for collection and payment hAs on deposit
e~
amount equal to such check, if after the receipt thereof such bank or
unincorporated
b~.nk
shall charge the account of such depositor with the
amount thereof and sh1=1ll in
t>~yment
thereof draw a draft upon another
banking institution, which draft shall
rem.<~.in
unpaid at the time that
such bank drawing S?Jrie is closed by the superintendent of banksof Ohio
o:r by action of its board of directors or other proper legal action, in
such event the assets of such closed bank shall be impressed with a trust
for the payment of such draft, and the superintendent of b.t!.nks of Ohio or
any one legally
c~rged
with the liquidation of such closed bank, shall
4
,
X-4929
-3:p~y
such draft as a preferred cl?.im out of the assets of such failed ba."l.k.
SECTION 4. ·In l'l,ny case where any
,,
··.,
b~nk
incorporated under the laws
of this state or any unincorporated bank doing business within this state,
shall have in its
any
time
~ossession
the proceeds realized from the collection of
negotiable instrument by it or by any other collecting agency, at the
th:~.t
such bank is closed by the superintendent of banks of Ohio or by
action of its board of directors or by Rny other proper lega.l action, or
in any case
~here
lection dtaw
any such bank shall in 'Payment of such proceeds of col-
a draft
~pon ~nother
banking institution which draft shall
at the time such bank drawing
s~e
is closed, as aforesaid,
assets of such bank so closed shall be impressed with a trust in behalf of the owner of the negotiable instrurr1ent the proceeds of which are
held by such bank so closed or payment of such proceeds has been attempted
by such batik so closed by
dr~wing
a draft as aforesaid, Pnd the owner of
the negotiable instrument shall be entitled to payment upon liquidation
of the P.ssets of such ba.TJ.k:
P.S
a preferred clr-dm.
Spe.~er
0. C. GRAY,
of the House of Representatives.
EARL D. :BLOOM,
President of the Senate.
Passed April 21, 1927.
Approved May 2, 1927.
VIC DONAHEY,
Governor.
Filed in the office of Secretary of Stt:\te May 4, 1927.
I hereby certify that the foregoing is a true copy of the engrossed bill.
CLAR'ID!JCE J. :BRO~
Secretary of State.
FEDERAL RESERVE BOARD
X-4931
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
.August 18, 1927.
Su:BJECT:
Holidays, September, 1927.
Dear Sir:
On Monday, September 5th, Labor Day, there will be no Gold
Settlement Fund nor Federal Reserve note clearing, and the books
of the Board will be closed.
In addition to the holiday mentioned above, the following
Federal Reserve Banks and Branches will observe holidays during
the month of September on the days specified:
Friday, September 9
San Francisco
Los Angeles
(Admission Day
(in California
Monday, September 12
Baltimore
(Defenders' Day
(in M:l.ryland
Therefore, on the dates indicated, the banks affected will
not participate in either the regular Gold Fund Clearing or the
Federal Reserve note clearing. Please include your credits for
the banks affected on eac~J. of the holidays with your credits for
the following business d:-:y in your Gold Fund clearing telegrams,
and make no shipment of ;ederal Reserve notes, fit or u_~fit, for
account of the Federal R3serve Bank of San Francisco on September
9th.
Kindly notify branches.
Very truly yours,
E. M. McClelland,
Assistant Secretary.
TO GOVERNORS
OF .ALL FEDERAL RESERVE BANKS.
X-4932 •
•
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
Su:BJECT:
August 23, 1927.
Par Clearance Suit Against Federal Reserve Bank
of Minneapolis.
Dear Sir:
In 1925 the First State Bank of Hugo, Minnesota, a nonmember bank, instituted suit in the State court against the Federal Reserve Bank of Minneapolis for damages alleged to have been
sustained by reason of the action of the Federal Reserve Bank in
attempting to collect at par cheCks drawn on the plaintiff. The
complaint alleged in substance that the Federal Reserve Bank, in
order to coerce the plaintiff to remit at par during the year 1920,
presented checks over the counter by means of an agent until the
plaintiff finally surrendered and agreed to rami t at par. which
it continued to do until October 1, 1924. In May of this year
the case came to trial and a verdict was rendered by the jury
against the Federal Reserve Bank in the sum of $1,229.99. The
Federal Reserve Bank is now preparing to file a brief in support
of a motion for judgment in its favor notwithstanding the verdict
of the jur~ or, in the alternative, for a new trial.
As a result of the verdict rendered in this case a collection agency is soliCiting from other banks in the Ninth District
claims against the Federal Reserve Bank of Minneapolis growing out
of the par collection of checks by the Federal Reserve Bank. For
your information a copy of the circular which is being sent out
by the collection agency in this connection is enclosed herewith.
Very truly yours,
Walter L. Eddy,
Secretary.
Enclosures.
TO GOVERNORS AND FEDERAL RESERVE AGENTS OF ALL FR~
•
(c
•
0
p
y)
I
X-4932-a
Harry F. Hart
Collection Agency.
May 27, 1927.
Gentlemen:
I am taking the liberty of addressing this letter to you
personally, as it pertains to the interest of your bank as well as
to your own interests.
Recently our attention was called to the methods the Ninth
District Federal Reserve Bank of Minneapolis used against certain
State Banks, regarding an exchange fee that these certain State :Banks
were entitled to charge on checks drawn on them thru other banks.
They requested all checks to be cleared thru them at par.
upon the failure of certain State Banks to acquiesce to
this request, the Federal Bank proceeded to use pressure to collect
all its checks daily at the bank's counter. This method could be
carried out with groat expense to the Federal Reserve Bank. by them
forwarding the checks drawn on your bank, to some agent in your town,
they generally using the Express Agent, who would take the checks to
the ba.Dk and present them for collection, demanding p~ent at a par
rate in cash. This practice was characterized by certain banks as
coercive, and as a measure intended solely to force no~~ember banks
to accede to the federal bank's regulations and deli18llds, 11 no matter
how expensive."
Such procedure on the part of the Federal Reserve Bank, we
believe was unlawful, and it has deprived certain banks of profits
annually which they were entitled to. We know of a great number of
banks who have been deprived of such profits, and we are at this
time making a complete survey of all banks located in the Ninth
District, for the purpose of knowing who are interested in recovering their unjust losses, caused by requests and demands of the
Federal Reserve Bank.
·
If your bank is interested, ~ving been deprived of fees
and profits caused by such acts and de.,nds of the Federal Reserve
Bank, kindly answer the enclosed questions and return them to me
at once.
·
Yours very truly,
(signed) Harry F. Hart
P. S.
As you·will notice, we are a bond~d Agency, and will give you
protection and service, if permitted to handle your claim.
X-4932-b
I
( C 0 P Y)
Kindly answer the following questions.
and return them, as it is to your interests.
1.
Are you a member of the Ninth District
Federal Reserve ~ of Minneapolis?
2.
If so, how long have you been a member? _____________
3.
Do you clear checks thru. the Federal
Resene :Bank?
4.
How long have you cleared checks thru
the Federal Reserve Bank?
5.
Has the Federal Reserve Bank ever dema."lded that your checks be cleared
thru them at par?
6•
Has the Federal Reserve 13ank ever used
any drastic or embarrassing methods
in clearing your checks, other than
used by other corresponding bariks?
7•
Has the Federal Reserve Bank ever collected your checks over the counter
at par, by sending them to an Express
Agent, or someone else in your toun
for collection, demanding cash for
than?
a.
If your checks were cleared by the Federal Reserve Bank at par, at their
request, what do you estimate your
losses have been each year for
clearing checks at their request?
9.
Did you approve of the regulations,
methods and demands the Federal
Reserve Board used in clearing
your checks?
10.
If your bank has been deprived of
fees and profits caused by such
acts and demands of the Federal
Reserve :Bank, would you be interested in having your claim collected on a contingent arrangement, without any cost to you?
(If you are not a mat.1ber of the Federal Reserve Bank and have cleared
your checks thru theo at their request o.nd der.Jand, kindly ans'.7er all
the above questiont.)
FEDERAL RESERVE BOARD
X-4933
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
August 24, 1927.
SUBJECT:
Further Amendment to Regulation K.
Dear Sir:
This is to advise you that the Federal Reserve Board
has voted that Section XI of Regulation K, as amended June 8,
1927, (X-4868) be further amended by changing the second paragraph conmencing on page 11 which formerly read as follows:
"B. Certifying that at the time of such substitution
or change the additional 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."
so that said paragraph will hereafter read as follows:
11 B. Certifying that such substitution or change has
not resulted in a reduction of the aggregate market value
of the collateral to an amount below one hu.~dred and ten
per cent of the aggregate principal amount of the obligations issued or to be issued against suc!h securities."
By order of the Fede:t'al Reserve Board.
Very truly yours,
Walter L! Eddy,
Secretary.
TO GOVERNORS Ai"'D CHAIRMEN OF ALL FEDERAL RESERVE BANKS.
t4-8
/
X-4934
FEDERAL
RES~RV"P.
:BOARD
STATEMENT FOR TEE PRESS
August
For release Thursday, August
24, 1927 ~
25, 1927.
The Federal Reserve Board has announced the names of the
directors a;ptlointed for the branch of the Federal
Rese~ve
Bank
of Richmond soon to be established at Charlotte, North Carolina,
as follows:
A~~ointed
Mr.
Mr.
Mr.
Mr,
by the Federal Reserve Bank of Richmond:
Hugh Leach, Managing Director.
W. H. Wood.
Charlotte, N. C.
W. J. Roddey, Sr.
Columbia, S. C.
Robert Gage.
Chester, s. C.
.A.priointed by the Federal Reserve Board:
Mr. John L. Morehead.
Mr. Charles A. Cannon.
Hr. John A. LP.,W.
Chl.'ll'lotte, N, C.
Concord, N. C.
Sparta.nburg, S. C.
x-4936
FEDERAL RES'mRVE :BO.AID
STATEMENT FOR THll: PRESS
.August 25, 1927.
For _Umaediate release.
CONDITION OF THE .ACCEPT.A1JC-w, MARKET
July 14, 1927 to Aug. 17, 1927
New bills were scarce in the New York acceptance
m~rket
during the early
part of the reporting period, from July 14 to August 17, and market rates were
generally reduced toward the end of July.
The supply increased from that
time, accompanying a series of reductions in rates in August both in the market and at the reser'Ve banks. and dealers'
purch~ses
whole were considerably h.rger on the average
weeks.
th~.n
during the period as a
during the preceding fom·
The demand was active, chiefly on account of foreign orders for the
purchase of 90 day bills, but dealers' portfolios nevertheless increased to
the
l~rgest
total of the year.
Sales to the Federal Reserve System from all
markets were smaller tM.n r:'.t ~ny time since 1924. The :Boston market was redull
ported/throughout the period, ·but with a tempor.~.ry increase of activity
around the first of August.
ChicP~o.
The following
t~ble
There
w~.s
little movement in Phih.delphia or
shows the New York
m~rket
rates on bills of
various maturities at the beginning and end of the reporting period.
Acceptance Rates in the New York Market
Maturity
30 days
60 "
90 "
120 II
180 "
:Bid
July 14
Asked
3-1/2
3-5/8
3-5/8
3-3/4
3-7/8
:Bid
August 17
Asked
3-1/4
3-1/4
3-1/8
3-1/8
3-1/4
3-3/8
3-5/8
3-1/8
3-1/4
3-1/2
....
F E D E R .\.
t
R E S E R V E
ST...\.TEii~lJ"T
B C : .. R D
FOR THE PRESS
For roloo.so i:1 Morning P:l)CrJ,
Mondo.y, August 29, 1927.
Tho follo•aL.g is :1 su:nm:..Lry of go:1or::.l busL1oss :.'lld
fil::1:1ci::J. co ildi tio•1s thro,lghout tho scvcr~'.l Fcdor~tl
Reserve Districts, bused upo:1 stc..tistics for t:1o
months of Jul;)' :::::·1d .August, e:.s co:1t:::.L:od i:: the forthcomLlg issue of tho Fcdor:::..l Rcs...:rvc :BullotL1.
Industrio.l prod-..lCtion doclL1od L: July to
:1
level bolo'.7 tho.t of ::.
yo~1.r
o.go, uhilc the Dopa.rtmont of L"..bor• s index of 1rholos:.:.lo prices ::.dv::~:1ccd for
tho first time siilco la.st
autum::~.
Dor.::-:11d for
bn:..1~~
credit shorrod :::. so:1soa:::..l
L1crcnsc, lut cn.sy co ~1ditio;1s ·)rOV:'.ilcd ii"l tho mo•1c:,r m::.rkot.
Production.
Output of m.:t:luf·-.cturers dccli::od i:::. Jul;;r n:1d
volume ns n ye··r :1go, :'!ld tl1o ··?roductio:l of
71:1.s
mi--wr~J.s,
ir: ')r:::'.ctic,'".ll;;,r tho some
·,7;1ich Yr:::.s
furt~1er
reduced
during the month, ":7:J.S ::-.t t:1o lo·..·est level since.: cr;.rly i.:1 1926, :-r:10:1 tho n.:1thr:::.cito
strike •;ro.s L1 T,)rogross. Iro
1
::.:J.d stool "1roductio:1 i:1 Jul:J· vrc.s i:1 tho sm:::.llcst
volume since 1925, o.:1d co:,tinucd. o.t
··Jr:~ctic~ll~·
tho
S:':r.c
lovol duri -:.g the first
three Vl'eeks of August. Automobile out-.JUt for JulJr c.:1d tl10 o::-crlJr >7eo:cs of Augu.st
'.7:ts co :1sidor::cbl;;r belo•;r tho.t of tho corroSJ?Ondb.g moCJ.tll of l::tst ye::.r; production
of rubber tires, nonferirous ¢-ct:>.ls ::md food products
wcl"o smn.llor in July thn.n in the prccedir:.g
n:o~1th.
~;,:1d
Cottot.
c:.ctivity of
·;:oolo~•
consumption was smaller
thn.n in June, but continued UllUSU:llly large for this sc:..:.so;.1 oft:C:.e
yo~;.r.
duction of lo::.thor, shoos, o.nd lur.1ber L1crec:.scd i:-.. July o.s compn.red "ilith
F.:1ctory employment n.nd pa.:t' rolls shov1cd
soo.son:~l
oills
ProJu~10.
decre:1sos in July o.nd ucro
smeller thal1 in n.ny month since 1924. Employocnt in coa.l minL1g hn.s been reduced in recent months, lllld reports indicnto sOi::o unonplo;y'T.'lcnt ·in cert.:1in of tho
building tra.des owing to tho decline in tho construction of houses.
Building
contract awards in July ru1d in the first three weeks of August continued larger
- 2 than a year ago, the increase reflecting chiefly a growth in
a~ards fo~
engineering projects.
The August 1 cotton report of the De11artment of Agriculture indicated
a production of 13,492,000 bales or 25 per cent less than the record
of last year.
The indicated ;?roductio:1 of corn, though considerably
than the eryectation
in
July~
was 262,000,000 bushels lower than the
yiel~
le~';e:t
~ar-
vested crop of 1926.
The August estimate of 851,000,000 bushels of w:1eat
bushels
indicated an increase of 18,000,000/over the 1926 crop yield.
Trade.
Distribution of merchandise at wholesale and retail showed about
usual seasonal decline in July.
de:?a.l~tment
firms and
Compared with a year
~o
sales of
t~e
w~1olosalo
stores wore slightly smaller, owing largely to tho fe.ct
that t!1.:;1•e was one loss business day in July of this yee:r than in July, 19?3.
Sales of ma,il order houses end chein stores were somewhat larger than a yce::..·
ago.
Inventories of department stores continued to decline in July ro1d at
tho ond of tho month wore
sli~l1tly
smaller than a year ago; and wholesale
stocks also continued smnllor than last year.
S!1ipmcnts of commodities 'Jy
,
freight
d~crcnscd,
contrary to the usual
sc~sonal
trend, and wore smaller
in July and in the first two weeks of August thDn in tho same period of
last ycru·.
Pricos.
The Bureau of Labor Statistics index of wholesale prices advQnccd
in July, reflecting chiefly
incro~.sos
slib~tly
in the prices of corn. livestock, cotton,
and lco.thcr, while :;>rices of whoo.t, silk, metals, and building mo,teri3.ls declincd.
Since the latter part of July pricoo of corn, cotton, 1nd cnttlo lvvo
continued upward m1d thoso of whcnt, nonferrous metals,
adva;.1cod, while hogs, l'lliiiber and hides hwc declined.
~d
rubber
ho.v~
clso
x-493.,
--3-
lc~di11g
ci tics bot;rccn July 2rj
the cro·:)-m.ovil1g
so::,so:~1.
~uc:
.A:u.gast 17,
~s
is
us'.l~cl ~.t
th,; boginni:1g of
Lo::'.ns o:1 socu.ritics, :i.s '.:ell ::,,:; com>:ncrci:--.1
lo·:-~1s,
L1-
crc::\scd, •;rhilo invcstmo·.1t hold.ii.1.;s docli::cd, ::;.::J.d. tot:-..1 lo::.:1s c:1d in.1restmo ts
vrorc nbout ~60,000,000 brgor thee:: ~:. mo:,tJ.l o:~rlior.
Tot:.::l "borrowings of rr.omcor b::-.::l<:s ::..t the reserve b::t::.ks i:1:::rc:•scd. sligl1tly
bctuoc:1 July 20 ::md ~'l.ugust 24; thoro wets
3.
grorrth of di scou~1ts :J.t the Fodor::tl
Reserve Bank of Non York, p::,rtly offset by docli:!l.cs L1 other districts. T:::.orc
was li ttlc chDJ.1go L1tho systom 1 s holdings of
portfolio of
U~itcd
c.ccopt:~nccs ~nd
States securities.
Monoyro.tos o:a all cl:J.ssos of paper L1 the
in August, ru1d wore a.t ::t lor;or level tho11
<:::.
o~,on
yonr ago.
market dcclL.od sh<:l.Fl)ly
Discount r::ttos c..t eight
Fodcr::-,1 r cscrvo b::trik:s ·;wrc reduced fro:.1 4 to 3~· per cent.
::t gro·:rth L1 tho
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
X-4939
September l, 1927.
SUBJECT:
Reports of Criminal Violations of Law.
Dear Sir:
Under the Board's letter of April 4, 1923,
(X-4683) all Federal Reserve Agents have been forwarding
to the Board two copies of reports made by them to local
United States District Attorneys covering aypa~ent violations of the criminal provisions of Section 22 of the Federal Reserve Act a..."ld Sections 5208 and 5209 of the Revised
Statutes.
In each case one copy of the report has been
forwarded by the Board to w.~e Department of Justice. The
Department now requests that hereafter t•,vo co'?ies of such
reports be furnished it, and you are~ therefore, requested
in future cases to make your reports to the Board in triplicate.
Very truly yours,
J. C. Noell,
Assistant Secretary.
To all Federal Reserve Agents.
X-4940
\
FEDERAL
-------
RESERVE
-------
BOARD
---
STATEMENT .FOR THE PRESS
September 6, 1927.
3:30 o'clock p.m.
For immediate release.
The
Feder~l
Reserve Board announces that a rediscount
rate of 3 1/2 per cent has been established for the Federal Reserve Bank of Chicago on all classes of paper of all maturities,
effective
So~tember
7, 1927.
t5.5
X-4942
FEDERAL
RESERVE
BOARD
STME1-iENT FOR THE PRESS
For
~ediate
Septanber 7, 1927.
2 o'clock p.m.
release:
The Federal Reserve Board
anno~nces
that it has
a~proved
an a'?')lication of the Federal Reserve B:mk of Philadelphia for permission to establish a rediscount rate of 3 1/2 per cent on all classes
of paper of all maturities effective September 3,
1927~
X-4944
-FEDE3.AL
- - - - -·- -RESERVE
- - - - - - :SOARD
-- - -STATEY~TT
For irm:n.Gdia.t.El
FOR T?.E PRESS
release:
September 9, 1927.
Tb.e Federal :Reserve :Soard announces t:1at it has a:Ylroved
a..."'l
application of the Federal Reserve :Sa"'lk of San Francisco for permission
to establish a
redisc~unt
rate of 3 1/2 per cent on all classes of paper
of all maturities, effective September 10, 1927.
(Copy)
•
DeJamber
X-4945
(See X-3107a)
4~
1919.
Dear Mr • .Attorney-General:
I am attaching a copy of an opinion of M. C. Elliott, Consul ting Counsel of the Federal Reserve Board. c.:>ncerning the powers of the
Board with respect to discou.."lt rates, with a view to e.sking you to investigate the question and to let me have y.:>ur O/inion on the subject as
.Attorney-General.
I m..,ry say that, while I concur fully with the opinion of Mr. Elliott
as far as it gpes, I think it could have been made even stronger had he
known the facts as I know them.
My recollection is especially clear in
regard to all of the circumstances connect.ed
'·, "-,with this feature of the
Federal Reserve .Act and there can be no question of the intention of Con§,Te;: ..,
to give the Federal Reserve Board complete power in the matter of fixir.g
the rate of rediscount.
Since the rate was. not necessarily to be uniform throughout the
country, the right to initiate and propose rates was given to the regional
banks respectively upon the presumption that each bank would have intimate
knowledge of usages and conditions'in its own territory; but it was also
intended that the Federal Reserve Board should have complete jurisdiction
over the whole subject of rates, as it was realized by the proponents of
the act that
rate-IDEL~ing mi&~t.
and frequently
and industry of the entire country.
w~uld,
affect the
comr~erce
As originally drawn, the Federal Reserve
Bill, enumerating the powers of the Federal reserve banks (subsection (d),
Section 14), made rediscount rates
Board.
11
subject to review" by the Federal Reserve
This term was thought by some members of the committee to be broad
2.
~he
X-4945
Attorney-General.
(See X-3107a)
enough in that dcfini tion of Webster's Dictionary, which says:
11
?..evicw---;,
looking over or examination ;vith a view to ame:rdhnent or im_;;>roveme<1t. 11
some
mcrr~ers
But
of tho committee contended that the power of the Board should
be stated as even mre explicit and final; hence we.added the words
11 ffi1d
determination, 11 so as to make the subsection read:
11 To establish from time to time, subject to review and
determination of t~1.:; Federal RosE,rve Board, rates of diocount
to be charged by tho Federal reserve benk Tryr each class of
paper, which shall be fixed with a viow of accommodating
commerce and busilc.0ss .11
In my re_Jort to Co:1grcss on the :Bill itself (H. R. 7837) I said, in
elucidating this power of tho Federal Reserve Board:
Tho :power granted in subsection (d) to fix a rate of discount is an obvious incident of the existence of tho reserve
banks, but tho power has boon vested in the Federal Reserve
:Soard to review this rate of discount when fixed by the local
reserve bank at its discretion. This is intended to provide
against tho possibility that tho local bank might be establishing
a dangerously low rate of interest, which tho reserve board,
familiar as it would be with credit conditions throughout tnc
country, would deom best to raise."
11
If the Federal Reserve :Soard has th;; power to alter a rate of discount proposed by a Federal reserve bank for the reason that it mig..l-J.t
co
a
dangerously low rate, it would, by tho samo token, have authority to reduce
the discount rate for the reason that it might be dru1gerously high •
.Furthermore, in subsection (b) of Section 11 the Act confers even
greater power upon the Federal Reserve :Soard
th~~
that of reviewing and
determining the discount rate of the Federal reserve banks.
It authorizes
the :Soard:
"To pe:;::-mit, or, on the affirmative vote of at least five
members of the reserve board, to reauire Federal reserve
banks to rediscount the discounted paper of other Federal
reserve banks at rates of interest to be fixed by the
Federal Reserve Boar-d. 11
It is inconceivable that a board having complete authority to
X-4945
(See X-310':"-~ ·
3. The Attorney-Gener,?1.
regulate the rediscount rates between Federal res2rve banks themselves should.
not have the lesser :1uthority to regulate the discount rates to.ntatively
fix~"~
e.nd proposed by Federal reserve b::'nks.
e\;ain ir. ·9aragra.ph 2 of Section 12 of tho Federal Reserve Act it vrill
be noted tlnt :..:;.mong the authorize»d functions of the Federal Advisory Council
is power "(3) to CFI.ll for information and to make recommendations in ragard
to discount rates, rediscou."l.t business, note issues, etc. 11
Reserve
:Boc1~d
If tho Fodoral
is not authorized to alter and a'nond and finally determine dis-
cou.:."lt raks, r;rhy should the Fcd.oral Advisory Council have been errrpowored
11
to
make recommendations in regard to cliscount rates 11 to the Federal Reserve
Board?
HoF. idle it would be for the Federal Advisory Council to be
recommendations to a board.
w~1ici1
rr~king
has no authority to apply or car!"'J into
effect tho roco.nmendations thus madel
It will be obsorvGd that tho Federal
Reserve Council is not authorized. to make rocommend.a.tions as to discount
rates or anything else to Federal reserve banks, but only to tho Federal
Resarv0 Board.
Section 14 of the Act, dealing with open markGt operations, authorizos Federal reserve banks, in accordance with rules and regulations prescribed by tho Federal Reserve :Board, to engage in a variety of business
transo.ctions, the purpose being to enable these regional ba.."'lks, by tho
~)or-
mission or u.11dor tho C..iroction of tho Fcdor.::\1 Reserve Board, to oxorciso o,
powor on
~"..iscount r~t0s
throU£;!1out tho various regions or throue;hout tho
country tanta::1ount to tho l)O'\"/Gr oxercisod over tho money mrrkot by the
of England when it goes
in·~o
tho open ;nc..rkot to enforce
Finally, in Section 13 o:t' tho .Act, it is lli'oviC:.od:
i·~s
B~1'*
discou.at rates.
1~n
'-· .... "-"
X-4945
(See X-:m07-a)
4. The Att·orney-Gcneral
"The discount Nld rediscount &"1d the purchasE:l and sn.le by
any Fcder~l rcsorve bank of any bills receivable and of domestic
anJ. foreign bills of oxchm1go and of acceptances authorized by
this act sh~ll bo subject to such restrictions, limitations and
regulations as IllD.y be imposed by tho Fcdor.'11 Reserve Board."
Thus all through tha Act this complete power of review and dctcrmination and regulation of discount and rediscount rates is oxplicity and implicity given tho
Fedor~l
Reserve Board.
Without it tho Board would be
pouorloss to control operations of any regional
might engngc in
trans~ctions
b~k
in the system which
perilous to tho entire system and to the
com~0rcc
and industry of tho country.
I would bEl obliged if you would. carefully consider the matter and
give me your conclusion at as ec.rly a day as possible.
Sincerely yours,
(s) Carter Glass,
Secretary of the Treasury.
The Honorable,
The Attorney General,
Washington, D. c.
X-494~-a
(Copy)
-· .(!!
(See X-~107-a - Dec. 9, 1919 JYll;-; trfi
October 30, 1919.
My dear George:
I have yovr memorandum of the 29th, which refers to the rig..lJ.t of t~1e
Federal Rese:.:ve Board to initiate and control discount rates of Federal reserve
banks, and note that the Board desires my opinion on this subject:
The determination of this auestion involves an interpretation of
that part of Section 14 which reads as follows:
11
Every Federal reserve bank shall have power ****(d) to establish from time to time, subject to review and determination of the Federal Reserve Board,
rates of discount to be charged by the Federal reserve
bank for each class of paper which has been fixed with
a view of accommodating commerce and busi:1.ess. 11
It is, of course, clear from this that any rate established by :t Feder;::l
reserve bank is subject to review and determination of the Federal Reserve :Board,
but the question you have under consideration is whether the Board, on its o·.7l'l
motion, mD;y initiate or ostablish discount rates for Federal resarvc bru1ks, o::: if
a rate has been established, reviewed a;.'1d ~Jproved by the Board, .,,;hethej_' the Boa.."'d
subseque:1tly may require the bank to change this rate. This involves a consi deration of the relative powers of the Federal Reserve Board a~d of the board of directors of a Federal reserve ba.1k to control and supervise the operations of the
b3.Ilk. Sectio11 4 of the Feder<:1 Reserve Act provides in pr.trt as follows:
11
Every Federal reserve bru1k sh.ul be co;.1ducted under supervision and control of a Bonrd of Directors. The Board of
Directors shnll perform the duties usually appertaining to
the office of directors of bruiking associ~tions, ~1d nll
such duties as are prescribed by law. Said board shall
admi~ister the affairs of said b3rik fairly and impartially
a::ld '.vi thout discretion in· favor of or a€;-ainst any member
b~1k or banks, nnd shall, subject to the )revisions of law
ru1d the orders of tho Federal Reserve Board, extend to e~ch
member bank such discounts, advanceme~ts and ~ccommodntions
as may be safely tmd rcnsono.bl~· m~:.dc, wi ifh due regard for
the claims and dcmk..'U1ds of other banks."
Section 11 of the Fcdcrnl Reserve Act, which deals with tho powers of
the Federal ::tcsorvc :Board, provides i:i.1 part n.s follo·.;•s:
11
T'.ne Federal Reserve Board shn.ll bo authorized nnd empo'?:ered
*****(j) to exercise general supervision over sn.id Federal
reserve bonks."
Considering these two provisions of tha Act w~ich relate to the supervision ~nd control of the operations of tho Federal reserve ba.~ks, it a~n>en.rs
that the directors of the bonk are intrusted with the operatio~s or m~1o.gemcnt
of the bank's affairs; that they arc vested with the power to perform the usual
ordinary duties of bank directors. In the exorcise of these powers, however,
they are subject to the orders and to the general supervision of tha Federal Ro
X-4945-t.£
(See X-3107-~ - Dea.9,1919)
-2-
serve Board. Considering the co;.1text and the general :pur::loses of the Act, it may
be assuined that Congress did not intend th:'lt the Federal Reserve Board s~1ould ::erform the functions usually perforr.:ed by the -ooard of -directors of a beJ.1:k. C)"'-b:·c::s
however, did give the Federal Reserve Board very broad general pov;crs to s~?c:r
vise the operations of a bank and to see tho.t these operations are co:.1ductcd in
strict accord~>ce with tho provisions of tho Act and with those regulatio~~ ro1n
rulings vn1ich the Federal Reserve Board, under the terms of the Act, io ~utb
orized to make ond enforce.
It i::; hardlr necess:.:try to call attention to the various provisions in tho
.Act which sust:~.in the theory, but to illustrate the extent of tho control over
the bonk's operations that is vcst(~d in the Federal Reserve Board, it ''''ill be
recalled that one of tho pow0rs enumerated in Section 11, is tho powo:t 11 to suspc:~a
or remove nny officer or director of any Federal Reserve Bonk, tho cause of such
romov:::t1 to b-:J forthv:i th communicated in. writing to the Federal Reserve :So,:.:td, to
tl1e removed off'icor, or director, ,wd to said bank. 11
To sum up briefly the rolative povTCrs of tho Fodcr:tl Rosorvo Bon.rd ['.:.1d of
the Board of Directors of a bank, it appears(a) Tho.t the Board of directors of a b:.mk mo.y sup~rvise and
control the operations of tho bank so long as its aff~irs
arc conducted in ::>.ccordance with tho provisions of law,
tho regulations of the :Board authorized by lavr, -md such
orders issu;;d b;r tho Board as the Bonrd is authorized by
la\'V to is sue;
(b) That th8 Fodera! Rosorve Board is vested with power to
sec th0.t tho oper~tions of tho bnnk arc conducted in strict
accordance with the law, its authorized regulations Dnd orders,
to impose penal tics for violations of the law, even to the
extent of removing offending officers and directors.
Coming now to consider the particular provision of tho Act involved in the
Jending question, it is necessary to determine first to what extent and subj oct
to whc.t limitations the Board of Directors of a bonk is given controi over t£10
establishment of di;;count rates.
Sec.4, w~1ich proscribes tho goneral corporate povmrs of tho b.".nk, co::tains among others, the following
S.::vcr. th.- To ,exorcise by its board of directors, or duly authorized officers or agents, all powers specifically granted by
the provisions of this Act, ~1d such incident~! powers as sho.ll
be necessary to carry on tho business of b£\Ilking within tho
limi tatio11s proscribed by this Act."
If no limitations '.7crc prescribed by tho Act ·'l.>d no specific rcforc:lcc
had been made to tho fixing of discount rn.tes, it would seem to be clco..r th~t
the Board of Directors v:ould hC:.ve povror from time to tim3 to osto.blish discou...'1t
rates as an incidento.l power ncccssD.I'y to cru-ry o.:1 tho business of b~1kil:e;
within the limitations prcscribGd by the Act.
X..... 4945---E:.
(Soc X-3107-E:.-
De~.9
-3-
l91SJ
-j-..)c.,
f'lf)
If r.o limitntions ~ere prescribed by tnc Act ~nd no specific rcfore~ce
had boon made to the fixing of discount r~tes, it would seem to be cle~ th~t
the Bonrd of DirGctors ·.<ould hc.vo power from time to time to estc.blish discount
rates c.s ru.1 incidcnt~l power nccess:::1.ry to C'l.rry on the business of b:mking ',7ithin
the, limitations prescribed by tho Act.
Section 14, however, ~·:hicn enumerates ccrt::l.in spocb.1 poY-'ors of th..::
Federal reserve b~.nks, imposes t'::o limitc.tions or restrictions on th<.: :!.Jo·:ror to
fix discount rates. It provides in terms that r::ttcs so established by th::; b:mk
(a) shall be subject to rovie~ and determination of tho
Federal Reserve Board.
(b) chnll be fixed with a view of
and businezs •
accommoCk~ting
commerce
.Any r.:1te established IIIllat, therefore, conform to those two conditions ond if the directors of the bonk fix a rata whiCh fails to conform to
either of these conditions, the establishment of such rate becomes a violation
of tho provisions of the act and the ]bard under its su:!_)ervisory power may
clearly require the readjustment or reestablishment of such rate. In other.
words, whenever in tho opinion of the Board, an established rate docs not
accommodate commerce and businoss,it may require the directors of the bnnk
to chango the rate so as to moot this requirement.
It may be argued that the discretion is vested in tho board of directors of the bank to determine whether or not & rate fixed is fixed with
a view of accommodating commerce and busil1e ss.
Considering, however, the context nnd general purposes of the Act it
is not believed thnt this view can be maintained. Congress clearly intended
this discretion to be vested in the Federnl Reserve Bonrd. To assist the Board
in the control of this ~~d other matters, it created by Section 12, tho Federal
Advisory Council, and authorized th::..t Council 11 to confer directly ·.•i th tho
Federal Reserve Board on general business conditions * * *; to call for 'il~orma
tion a..."ld to mn...~e recommendations in regard to discou.'lt rates~' A centralized
control of the discount rates is fundrume~tal to tho purposes of the Act ~"ld
:provision was accordingly made to furnish tho Federal Reserve Board with tho
best possible information to enable it to exorcise a. proper discretior~ in this
important matter. It is hardly necessary to emphasize the importru1ce of this
control. It affects international as v.cll as our domestic banking ~1d trc.de
relations.
My conclusio~s. therefore, arc, first, that the discretion is vested
in the Federal Reserve Boc.rd to determine whether ~ny discount rate of a Federal
reserve bnrik accommodates commerce and business; second, that the po~er to
review and determine discoUJ.J.t rates is a continuing povrer, which may bo exorcised at m1y time. It necessarily follows from this that tho Board of its
own motion may re~iro a Federal reserve bank to change an existing rate at
e~y time, if in the opinion of the Board such rate does not meet the re~iro
roents of the statute.
Very sincerely yours,
Mr. George L. Harrison,
Fcdor<\l
rounccl,
.
.
Reoorvo Board.
(Signed) M.C.:!:lliott
CO'PY.
X-3107a
DEDf<llTVJENT OF JUSTICF'
W.A S"INGTON.
December
9, 1919.
Dear Mr. Secretary:
In response to your
re~uest
for my opinion
concerning the powers of the Federal Reserve Board to regulate discount rates of the several reserve banks, I reply as
follows:
By section lLL of the Act of Congress, desiE_nated by the
short title
11
F6der3l Reserve Act" (Act of Dec. 23, 1913, 33
Stat. 251), it is pr ::>vided that "every Federal reserve bank
shall have power" (d)to establish from time to time, subject to review and
determination of the Federal Reserve Board, rates of
discount to be charged by the Federal reserve baclr for
. ·each class of paper which shall be fixed with a vievv
of accorrmodating commerce and business.
By section 4 of said act each Federal reserve oank is
under the supervision and control of its
o~~
board of direc-
tors, subject, however, to the provision of section 11 of
said act which provides, in part, that
The Federal Reserve Board shall be authorized and
empowered* * * (j) to exercise general supervision
over said Federal reserve bar£s.
-2-
X-3l07a
Sa.id Federal Reserve Board is also further authorized and empowered to examine at its discretion the
accounts, booc,s and affairs of each Federal reserve
bank * * *and to require such statements and reports
as it may leew necessary.
(Sec.ll. subdiv.a.)
By section 12 there is also craated a Federal Advisory
Council composed of representatives chosen in the manner prescribed
in said section, which is to confer directly with the Federal Reserve Board.
Among its powers it is authorized to "call for infor-
mation, to nake recommendations in rega.rd to discount rates, rediscount business 11 1 etc.
The question for determiDation is whether, b.king into
consideration the language of section 14 (d), givint the power
to the Federal reserve ~anks to establish from time to time rates
of discount, "subjec>:. to review and determination of the Federal
Reserve Board", and the further power of the Federal Reserve Board
to exercise general supervision over said Federal reserve banks,
the power of the Federal Reserve Doard is limited to reviewing and
aprroving or disapproving rates of discount made by such banks, or
whether said Board may, in the exercise of its powers 1 from time
to time review the rates of discount in use and direct specific
changes and alterations thereof.
The legislative history of the act shC\iS that as originally
drawn section 14, subsec. (d) conferred the power upon the Federal
reserve banks to make discount rates "subject to review" by the
Federal Reserve Board, and that said section was amended in commi ttee by adding the words nand determina tionu after the word
"reviewu, so as to make said section read as noYr enacted.
-3-
X- 31 07a
l t is quite evident that if the Federal Reserve Board is con-
fined to the power to review and approve or disapprove rates of
discount made by the Federal reserve banks, and is without pov.'er to
itself direct specific changes, the words "and determination" are
wholly without signific::~.nce.
The very signification of the word
"detennirution" used Li. s:.:ch a connection, carries with it the right
to pa.ss upon and to dec~ de and fix, and thus determine what should be
done.
Coupling this with the power given the Federal Reserve Board
to supervise the business of each
Federal reserve bank, taking 3.1 so
into consideration the recommendations contemplated by
th~
Advisory
Council to the Federal Reserve Board in reglrd to discount rates,
such po>ver would be futile if such Federal Reserve Board could not,
if
::~.greeing
to such recommendations, direct them to be carried out.
I think it is quite clear that the Federal Reserve Board is the ultim3.te
authority in reg::~.rd to rediscount rates to be charged by tne several
Federal reserve banks and may prescribe suCh rates.
This is in all cases necess::~.rily a review of rates e.dsting at
the time in the bank, and tnerefore strictly calls for the exercise
of this power; the determination reached by the Bo.:1rd carries with it
the exercise of the power of determination specified in sec. 14,
subdiv. (d); and also exercises the power of supervision granted in
sec. 11, subdiv. (j).
The scheme of the entire act is to have Feder::~.l reserve banks in
different parts of the country so that their operations may be
accommodated to the business needs of each section, and to vest fiv3l
-4-
X-3107a
power in the Federal Reserve Board, sc as to insure a conduct of
I
business by each bank which will not· be detrimental to the carrying
out of the entire plan.
Tha powers of the Federal Reserve Board
are therefore to be eAercised in regard to each reserve bank as
the conditions surrounding said bank may dicbte, keeping in view
the general purpose and plan of the Federal Reserve Act.
Bearing
in mind such general purpose, I am of the opinion that the Federal
Reserve Board has the right under the powers conferred by the
Federal Reserve Act, to determine what rates of discount should be
charged from time to time by a Federal reserve bank, and under their
powers of review and supervision, to require sucll rates to be put
into effect by such bank.
Very res:t:-ectfully,
(Sig0ed) Ale£. C. King
ActL>i Attoruay S:eneral.
Hon. Carter Glass,
The Secretary of the Treasury,
Washington, D. C.
11
FEDERAL RESERVE BOARD
WASHINGTON
X-4946
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
September 10, 1927.
Subject:
Topic
for Governors' Conference.
Dear Sir:
There are enclosed herewith co~ies of a letter from
the Deputy Governor of the Federal Reserve :Bank of Minneapolis
and a memorand1Jm from the :Board 1 s Counsel vTi th reference to
the question whether Section IV of the :Board 1 s Regulation 11 A11
should be interpreted to require tb,at a member bank offering
for rediscount the paper of a corporation having subsidiaries,
shall have in its files recent copies of separate ·financial
statements of the subsidiary corporations, when there have
been filed with the Federal ~eserve bank copies of the corporation's consolidated financial statement and tho individual
financial statements of all subsidiar.y corporations.
The :Board has voted to refer this question to the
forthcoming Conference of Governors for consideration and an
expression of its views.
Ver.y truly yours,
J. C. Noell,
Assistant Secretary.
TO .ALL GOV:.&RTC:{S OF FEDERAL. RESER".r:E 3.A.:rrLS •
..
September 1,
To - Federal Reserve Board
Subject:
From - Mr. Wingfield, Assistant Counsel.
1927.
X-4946-~
Financial statements rc·
quired by Section IV,
Regulation A, of the
Board's Regulations.
There is attached hereto a letter from the Deputy Governor of the
Federal Reserve Bank of Minneapolis in which it is stated that tho Washburn
Crosby Co~any of Minneapolis files with the Federal Reserve Bank of Minneapolis and the other •Jlovcn Federal reserve banks a copy of its consolidated
financial statement, and, ir. . addition, a copy of tho individual financial
statements of all of its snosidiary corporations. ~ne individual statements
of the subsidi·ary companies however, arc not filed With the "individual banks
which buy the paper of the Washburn Crosby Company. These subsidiary companics are 100% owned by tho Washburn Crosby Company and all the borrowing is
done by that company.
The question is raised as to whether Section IV of
Regulation A requires that the member barik offering paper of the Washburn
Crosby Company for rediscount shall have in its files a recent copy of the
separate financial statements of the subsidiary corporations.
Section IV of Regulation A contains the following requirement
this subject:
~n
A recent financial statement of the borrower must be on file
with the member bank in all cases, unless the note was discounted
by a member bank for a depositor (other than a bank) or for enothor
member ba...."1k, and 11
*
*
*
*
*
*
"Whenever the borrower has closely affiliated or subsidiary corporations or firms, the borrower's financial statement shall be accompanied by separate financial statements of such effiliated or
subsidiary corporations or firms, unless the statement of the borrower clearly indicates that such note is both eligible from a legal
standpoint and acceptable from a credit standpoint. * * *11
Thoro is no doubt that this provision absolutely requires that
whene ':or a borrower has closely affiliated or subsidiary corporations or
firms tho separate financial statements of such affiliated or subsidiary
corporations or firms must be on file with the member bank in all cases unless the note falls within one of tho 04ccptions mentioned in the regulation or unless the statement of tho borrower clearly indicates that such
note is both eligible from a legal standpoint and acceptable from a credit
standpoint.
Thoro is nothing in tho law, however, which requires such
financial statements to be filed either with tho member barik or with the
FedorDl reserve barik and thjs requirement is purely a matter of reguls.tion
which the Board may waive or modify at its discretion. In this cor~oction
it may be stated that the requirement with reference to the filing of separate statements by subsidiary corporations was added to the Board's Regulation A in order that Fodoral reserve banks might have more complete information regarding the conditions of borrowers having closely affiliated or
subsidiary corporations or firms, and also that they might d.otermino whcthcJ.
•
•
X-4946-a
2
tho paper of such borrowers is desirable a:lcl oligiblo for rcdiscount. In
view of this fact it vould hardly seem necessary for so~aratc financial
statements of the subsidiar:r corporations to be on..~filc with tho m.ambor
bank offering a note of the parent corporation for redisco1.:..."'lt if tht;y nro
on file with the Federal reserve bank. As indicated above, however, t:1.e
question whether the Board should amend the provision of its regulation
with reference to the_ filing of statements of subsidiary corporations or
waive a strict cor~liance with it is purely a question of policy for the
Board's deteroination.
A somewhat similar case arose in 1924. In that ca.se a borrower
filed a financial statement with the Federal Reserve Bank of l~ew York and
the Federal Reserve Bruik of Boston but no financial statru~cnt was filed
with tho r,1ember banks who offered the company's paper to tllo Federal Reserve
Banks for rediscotu1t. Tho Federal Reserve Baruc of Boston took the position
that under the provision of Section IV of Rogulation A a copy of tho finc;.1.cial statement should be filed with the 1:1er.1ber bank while the Federal Reserve Bank of New York was of the opinion that it was sufficient if the
financial statement was on file with the Fe~eral Reserve Bar~. This office
held that the provision. of the regulation clearly required that the financial statement be on file with the member baPJc but that the Board could if
it so desired ar.1end the r8g.tle.tion or waive con;,;l:te.nce "iii tl1 it in those
cases where the financial stater:ent was filed Tii th the Federal Reserve Bank.
The Board at the suggostior: of the Federal Reserve Bar.k of lTew York subni tted
the question to the Goverr..crs 1 Conference for disc"t:.ssion. \then the Governors' Conference net, ho·.vevor, the question had becor.:e acader:1ic since the
case which gave rise to tlw question had ceased. to exist a."ld the question
was passed over by the Governors' Conference.
~~e 3oard nay wish to refer
the present question to the next conference of Governors for discussion.
Respectfully,
( s) B. M. Wingfi·ald,
Assista.Y'.t Cou."l.sel.
Letter attached.
..
(\
X-4946-b
FEDER.A1
0F
RESERVE
MI
~
::SA lLK
N E .A P 0 L I S
.August 29, 1927.
Federal Reserve :Soard,
Washington, D. C.
Gentlecen:
The Washburn Crosby Company of this cit~· files with
us and the other eleven Federal reserve bar~s a copy of its
consolidated stateoent, and in addition a copy of the individual statenents of all its subsidiary corporations, all certified to by Peat, Marwick, l:!itchell & Co.
These subsidiary
companies are all 100% owned b~r the parent conpa.ny, and none
of then ask credit in any way outside of an occasional rent
and stationery bill. In other words, all the borroTiing is
done by the parent coc:_Ja:ny. The~; do not, however, file these
individual stateoents with their brokers, and with the individual banks which buy their paper.
Is it the intention of Section 4 of Regulation A,
that in order to be eligible fer redisccu:nt, the bank offering
the paper for rediscot4~t should have in its files a recent copy
of the separate st~tcr~ents?
Yours
res~ectfully,
(s) W. :S. Geery,
Deputy Governor.
X-4947
TREASURY DEP}..RTlllENT
Office of the Secretary
WASHINGTON
Sept. 7, 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 August l,
1927, to August 31, 1927, amounting to $132,770, ~s follows:
Federal Reserve Notes, Series 1914
L''5
Boston
New York
Philadelphia
Cleveland
Richmond
Chicago
St. Louis
Minneapolis
D&.lln.s
Se..n Francisco
100,000
600,000
200,000
200,000
50,000
350,000
50,000
100,000
100,000
200,000
1,9.50,000
----
$10
$20
150,000
250,000
200,000
200,000
150,000
100,000
150,000
100,000
250,000
950,000
50,000
100,000
750,000
3,740,000 sheets@ $35.50 perM
The charges against the several
Feder~l
TOTL.L
$50
50,000
10,000
10,000
10,000
70,000
5,000
5,000
20,000
~
450,000
1,050,000
310,000
560,000
50,000
350,000
50,000
100,000
255,000
565,000
3,740,000
$132,770.00
Reserve Brmks are as follows:
·- $ 15,975.00
Boston 37,275.00
New York
ll,005.00
Philadelphia
Cleveland
- - - 19,880.00
1,775.00
Richmond 12,425.00
Chicago
- - - 1,775.00
St. Louis
3,550.00
Minneo.polis
9,052.50
Dallas
- - - S:m Pr:mc if3eo
- - - 20,057.50
:'"'- ·."w·..•
132,770.00
The Bureau c.ppro:pri:.:~tions v•ill be reimbursed in tho above c.rnount from the
indefinite approprir~tion "Prcpr-"ro.tion e.nd Issue of Foderc:.l Reserve Notes, Reimbursable", o.nd it is roq_uost"Jd th(~t your bo;'..rd c::"use such indefinite appropriD.tion to be reimbursed in like nmount.
Respectfully,
s. R. Jt.J.Cobs,
Deputy Commissioner.
X-4948
FEDERAL RESERVE
BOARD
ST.ATE:,®NT FOR THE PRESS
For immediate release.
September 12, 1927.
The Federal Reserve Boaxd announces that it has approved an
application of the Federal Reserve Bank of Minneapolis for permission
to establish a rediscount rate of 3 1/2 per cent on all classes of
paper of all maturities, effective September 13, 1927.
c
0
p
y
X-4949
FEDERAL
RESERVE
BOARD
WASHINGTON
July 15, 1927.
Mr. E. W. Stearns,
Deputy Comptroll~r of the Currency,
Washington, D. c.
Dear Sir:
Receipt is acknowledged of your letter of June 7th
in which .rou request advice from the Board whether a national
bank located in Nebraska which has receivedper.mission f~o.m
the Board under the provisions of Section ll(k) of the Federal
Reserve Act to exercise trast po~ers may exercise such powers
in Nebraska.
The :Board is of the opinion that a national bank •
located in Nebraska which has received permission from the
Board to exercise t:n~.st powers may exercise these :powers in tl»'t
Stato. The reasonsfor the Board's conclusion may bo more
fully set out as follows:
Under tho provisiorls of Section ll(k) of the Federal
Reserve .A.ct as originally enacted, the Federal Reserve Board
was authorized
"To Fant by spacial permit to national
'ballks a:ppl,-ing therefor, when not in contravention of Stato or ~ocal law, tho right to
. act as trusteo, oxoautor, administrator, or
registrar of stocks ~d bonds undor such rulos
and rogulat:l,ons as the said board_.- proscribe."
By an Act which took effect on Soptanbor 26, 1918,
Congress amondod Soction ll(k) of tho Fodoral Roservo Act in
a mmi'9or of partiCillars. Undor tho provisions of this Section
as ~ndod tho Fodoral Reserve Board is authorized
"To grant by spoc.ial parmi t to national
banks applying therefor, when not in contravention of State or local le~, tho right to
•
-
2 -
X-4949
act as trustoc, oxocutor, administrator,
registrar of stocks and bondS, guardian of
estates, assignoo, rcooivor, coJimittoo of
estates of lunatics, or in ~ other fiduciary
capacity in which State bo.Dlts, trust companies,
or other corporations which come into competition with national banks are permitted to act
under the laws ·of the State in vhich the national
bank is located.
"Whenever the laws of such State authorize
or permit the ezerciae of amr or ell of the foregoing powers b7 State bapks, trust campanies, or
other c9rp0rations which compete with national
banks, the granting to and the exercise of such
powers bl natiopal bapka !hall not be deemed to
be in contrnvention of State or local law within
the meaning of this .A.c t. 11
It has been contended-that the provisions of Sect~on ll(k)
above quoted are unconstitutional and that Congress had no ~thority
to confer trust powers upon natioDal banks. !rile ·Supreme eov,rt of ·
the United States, however, in the casos of First Bational Bank v.
Union Trust Comp&JV, 244 U. S. 416, and J3u.rns National l3uk:. v.
Dlmcan, 265 u. S. 17, has held that those provisio~s. are. c.o~stitu
tiollal and that Congress did have the pofler to confer trust powers
upon national banks. l;n view of these decisions there can be no
daub\ of tho right of national banks to exercise trust powers. It
is only nocesaary to determine whether the exercise of such, powers
'b7 a national barik in a particular State contravenes the laws of
that State,
Under the provisions of Section ll(k) of the Federal Reserve .A.ct, set out above, a national barik which has received permission fro.m the Eoard to exerciQe fidnciary powers ~- exercise ·
these powers if to do JO is not in contravention of the l&B8
of the State in which the national bank is loQated. When C()llgt'ess
originally enacted SecUon:.ll(k) of the Federal Reserve Act it did
not lq down 8XfT i"Ule as to what should be deemed to be in "contravention of State or local law" and in the amendment of September
26, 1918, 1 t only par-tially defined this phrase. It is obvious,
however, that if there is no law of the State which either expressly or b,v necessary implication forbids the exercise of trust
powers b,v a national bank, then the exercise of these powers b,y
a national bank would not contravene the laws of the State.
This construction of the provisions of Section ll(k) has
been upheld by th• court" in a case which arose in Michi~ prior
to the amendment of September 26, 1918, First National Bank v. Unio:>
Trust Comp&D1', 159, B. I. 335. Under the laws of Michigan, trust
companies were not permi ttod to engage in the business of commercial
-
3 -
banking, and con:n:lercial banks organized under the laws of Michigan
were not authorized to transact the business of trust compan~es;
but there was no statu~e in Michigan which either expressly or by
necessary implication prohibited national banks from exercis~ng
fidnciary powers. A ~tional barik was grantedper.mission b,y the
:Board to ~ercise trust powers and upon its undertaking to exercise one of the powers granted to it a suit was instituted by the
Michigan authorities to tost its right to so act. In this s~it
it was contended that the exercise of trust powers by national banks
was in contrayention of t~e laws of Michigan, and that Section ll(k)
was unconsti tu.tional. The SuprEICle Court of Michigan held that a
national bank should not be considered as a.cti11g in contravention
of State law in tho absence of some law of the State which prohibitel
national banks from exercising trust powers and that such national
bank was not acting in contravention of State law mer0ly because
that law placod certain requirecents on State institutions exercisi :...£
trust powers Which were not applicable to national banks. In its
cc.nsideration of this point the Supreme Court of Michigan at page
339 said:
No state law is contravened - opposed,
into conflict with- because a corporation
exorcises the indicatedpowers, nor by the act
of Congress creating national barLs. The Legislature has not declared that national banks in
this state shall not have the right 1 to act as
trustee, executor, administrator, or registrar
of stoCks and bonds.• U.S. Co~. Stat. 1913,
Soc. 9794(k). And I do not find. in :Brother
BROOKE'S opinion reference to ~~ state law that
will ge contravened if respondent continues to
act 1~ the indicated capacities. To say that
because the Legislature has required certain
things of a domestic corporation as a condition
to ~~e exercise of the right, and cannot require
the sace or similar things frotl national banks,
therefore the exercise of the right b.y national
banks will be in contravention of state law, seem~
to oe to be an unsound argur::tent."
11
c~e
When tho Supreco Court of the United States coniji~ored
tho case of tho First National Bank v. Union Trust CoDpaey, 244 U.;; •
416, it was not necessary for it ·to deterc.ine Whether the exercise
of trust powers by the national ba.r.k was in contravention of the
laws of Michigan but it accepted the d.eci~ion of the Suprer.1e Court
of Michigan on this point.
-
4 -
X-4949
Since the decision of this case it has been clear that the Board
wa, authorized to grant fiduciary powers to national banks in ~ State
th' laws of which did not either expressly or by necessary implication
fo,rbid the exercise of trust powers by national banks. The :SOard has
bet~n advised that there was no law of Nebraska which either oxpressly
or by necessary implication prohibited national banks from exercising
trust powers in that State. Accor.dincJ.y, tho Board, as you know, has
gr-.nted to a number of national ba:Dks in Nebraska tho right to oxorcise
ti"flBt powers. !l!b.o Board understands that at tho present time there is
no law of Bebra~.which either expressly or by nocessar,v implication
forbids a national bank to oxorcise trust powers.· !l!b.e Board is, t11erafore,
of tho opinion that a. national bank in Nobraako. which bas received permi~sion from the Board to exorciso trust powors ~ lawfully exorcise such
powers.
'l'ho :Board is further of the opinion that oven if there were a
law of Nebraska which by its terms purported to forbid national banks to
ex~rcise fi~eiary powers, a national batik located in NebraSka which had
receiv·ed permission fran the :Board wuld be legally entitled to exerc~se
the trust powere which Nebraska trust companies are authorized to exercise.
When section ll(k) of the Federal Reser.,e .Act vras amended by· the
AQt of September 26, 1918, it was provided that whenever the laws of a .
State authorize or perci t the exercise of arf3 or all of the fiduciary
powers enumerated in section ll(k) by State banks, trust companies, o~
ot}lor corporations which compote with natio1'lal banks, the granting to and
the exercise of such powers by national banks shall not be deemed to pe
i~ contravention of the State law. Since tho enactment of the amendment
of September 26, 1918, it has been quito generally recognized by tho
State courts that national banks IJJq lawfully tra."lsact a trust business
and that tho States can not directly or indirectlY" prevent thom f'roc d.Oi~ so if tho Stato laws authorize tho exorcise of trust powers by State
cqrporations which cocpoto m th national banks.
In Hacilton v. State, 110 Atl. 54, tho Connocticnt Supreme Court
_of Error~ hold that, rogar~oss of State legislation forbidding tho ~
e*ciso of trust powers by ~tional batiks or tho absonco of State legisl•tion expressly sanctioning the o:a:orciso of such powers by thee, nationa+ panks having tho nocossary porci t froc tho Federal Rosorvo Board may
apt in any fiduciary capacities in Which cocpeting State corporations
are authorized to act by State law. See also Carpenter v • .A.quidneclt
· N$-tiOnal Bank, 46 R. I. 152, 125 .A.t1. 358; In re '.1\U:oner 'a Estate, a27
· P~. 110, 120 Atl. 701; Stanchfield's Estate, 171 Wise. 553, 1?8 N. W~
310; Re lviollineaux, 179 N.Y. S. 90·; and Fidelity National Batik and
T~st Cat:pa.ny v. Er..right, 264 Fed. 236.
The right of national batiks to exercise trust powers in a State
in which Cotlpeting State corporations are authorized to exercise suclt
powers regardless of Whether or not the State law by its tems prohibits
the exercise of su.ch powers by national banks has also beet).. def.1n11i~ly
.. s deter.mined b.1 the Supreme Court of the United States. In the case qf
State of Missouri, ex rel Eurnes Nat~onal Eank v. Duncan, 265 U. s.
17, the :Burnes National Bank of St. :Joseph, Missouri, was appointed
executor under the Will of a citize~ of Missouri.
~e Bank applie~
to the Probate Court for letters testamentary but was denied appointment on the ground that ey tho laws of Missouri national banks
were not anthorized to act as executors. Thereupon the national bank
applied to the Supreme Court of the State for a writ of mandamu.s c~
palling the Probate Court to appoint the national bank as executor.
The Supreme Court of Missouri ruled tllat the Probate Court could not
be compelled to appoint the national ba:Dk executor. An appeal was
·taken to the Supreme Court of the United States which reversed the judgment of the Supreme Court of Uissouri and held that the national bapk ·
:!Dllst be appointed executor regardless of the provisions of the Usseuri
law. In so holding, the Supr~~ Court of the United States said:
"By the Act of September 26, 1918, c. 177, sec. 2, 40
Stat. 9.67, 968, amending sec. ll(k) of the Federal Reserve Act,
the Federal Reserve Board was eJ:JpOWered 'To grant by special
permit to national banks applying therefor, when not ·in
contravention of State or local law, the right to act as
trustee, executor, administrator • . • or in ~ other fiduciary capacity in whiCh State banks, trust companies, or other
corporations which come into competition with national banks
are permitted to act under the laws of the State in which the
national barik is located.'
If the section stopped there the
decision of the State Court might be final, but it adds the
folloWing paragraph, 'Whenever the laws of such ~tate anthorize
or permit the exe·rcise of art3' or all of the foregoiDg powers
by State banks, trust companies, or other corporations which
compete with national b-s, the fganting to and the exercise
of such powers by natioziel. banks shall not be deemed to be in
contravention of St~te or· local law within the meaning of
this Act.•
This sqs in a roundabout a.Tld polite ba.t unmis~ble war that whatever ~ be the state law, national
banks having the permit of the Federal Reserve Board 1IIEl1' act
as executors if trust companies competing with them have
tllat power.
The relator has the permit, competing trust
companies can act as executors in Missouri, the importance
of the power to the sustaining of competition in the bank. ing business is so well known and has been explained so fully
heretofore that it does not need to be emphasized, and thus
the llllked question presented is whether Congress had the
power to do what it tried to do.
'·
-
\
6
-
X-4949
"The question is pretty nearly answered by the decision
and fully answered by the reasoning in First National Bank
of Baf City v. Fellows, q44 U. s. 416. That case was decided before the amendment to the Federal Reserve Act that
we have quoted and cmne here on the single issue of the
power of Congress when the state law was not contravened.
It was hold that the pouer •was to be tested by the right
to create the ~ank and the authority to attach to it that
which was relevant in tha judgment of Congress to make the
business of the bank successful.' 244 U. S. 420. The
power was asserted and it was added that '~is excluded the
power of the State in such case, although it might ,assess
in a general sense authority to regulate such business, to
use that authority to prohibit suCh business from being
·united by Congress with the banking function.• 244 U.S. 425.
Jow that Congress. has expressed its paramount will this
language is more lpposite than ever.
The States cannot
use their most characteristic powers to reach unconstitutional results. Western Union Telegraph Co. v. Kansas,
216 U. S. 1. Pul~an Co. v. Kansas, 216 U. S. 56. Western
Union Telegraph Co. v. Foster, 247 U. S. 105, 114. There
is nothing over which a State has more exclusive authority
than the jurisdiction of its courts, but it cannot escape
its constitntional obligations by the device of denying
jurisdiction to courts otherwise competent. Kenney v. Suprace Lodge of the World, 252 U. S. 411, 415. So herethe State cannot lay hold of its general control of administration to ~prive national banks of their powers to
compete that Congress is authorized to sustain.
"Tha fact that laissouri has regulations to secure the
safety of trust funds in the hands of 1ts trust companies
does not affect the C$.se. The power given by the act of
Congress purports to be general and independent of that
cirCUJ:lstance and the act provides its own safegucrds. The
authority of Congressis equally independent, as otherwise
the State could Dake it nugatory. Since the decision in
First National Bank of ~ City v. Fellows, 244 u. S. 416,
it generally has heen recognized that the law now is as
the relator contends. Turner's Estate, 277 Pa. St. 110,
116. Estate of Stanchfield, 171 Wis. 553. Hamilton v.
State, 94 Conn. 648. People v. Russel, 283 Ill. 520, 524.
In re Mollineaux, 179 N. Y. S.90, Fidelity National Bank
& Trust Co. v. E'nright, 264 Fed. 236."
•
180
-
X-4949
7 -
The :Board understands that trust COJ:Ipanies organized
under the provi111ions of the laws of Nebraska are authorized to
exercise certain enumerated fiduciary- powers and are forbidden
to do a banking bu.siness as defined by the laws of Nebraska.
It.. sppears,. however. that under the provisions of section 8068
of the Compiled Statutes of Nebraska of 1922 these trust co:cpanies
are authorized to loan money upon real estate and upon 'Collateral
security. National banks are authorized to cake sicilar loans
and. therefore, Nebraska. trust companies are co:opeti t6rs of
national banks to this extent.
The :Board is accordi~ly of the
opinion that in view of the provisions of section ll(k) of the ·
Federal Reserve .A.ct and the decision of the Supreme Court of the
United States in the Burnes National ::Barik: case, it is clear that
even if there 'were a Nebraska law which by its ·teres prohlbi ted
national banks froc exeraising trust powers a national barik located
in Nebr$.Ska which bad received ::>ertlission froc the :Board would be
legally anti tled to exercise the trust powers that Nebraska trust
CO!ilpanies are authorized to exerciae.
S'lliJOing up ·briefly the conclusions of the Board it tUq be
stated that the :Board is <>f the opinion that since it appears that
there is no la.w in the State of Nebraska Which either expressly or
by necessar;y :loplication f'orbids :national banlts to exercise trust
powers in tbat.State a natio~ bank Which has received pemission
from the :Board to do so .'t!JaY' exercise trust powers in Nebraska.
The :Board is further of' the opinion that even if there were a Nebrasr..a law which by ita tams prohibite.d national ballks froo. exercising tru.st powers in that State a national bank located in
Nebraska which has received permission frOI:l the Board would be
entitled to exercise the trust powers that Nebraska. trust cacpanies
are authorized to exercise.
Very truly yours,
(s) D. R. Crissinger,
Governor.
•
....
FEDERAL RESERVE BOARD x-4951
WASHINGTON
ADDRESS OFFICIAL CORRESPoNDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
September 16, 1927.
Expense, Main Line, Leased Wire System,
August, 1927.
Dear Sir:
Enclosed herewith you will find two mimeograph statements, x-4951-a and x-4951-b, covering in
detail opsrat.ions of the main line, Leased Wire System, during the month of August, 1927.
Please credit the amount payabie by your
bank in th~ general account, Treasurer, U. S., on
your books, and issue C/D Form l, National Banks,
for account of "Salaries and 'Expenses, Federal Reserve :hoard.+ Special Fund", Leased. Wire System, sending duplicate C/D to the Fedeta1 Reserve Board.
Yours very truly,
Fiscal Agent.
Enclosures.
TO GOVERNORS OF .ALL F. R. BANKS EXCEPT CHICAGO.
•
SITCWING CLASSIFICATION AND NUMBER OF WORDS TRANSMITTED 0~}1 ~~.:~.n; LINE
OF THE FEDERAL RESERVE LEASED WIRE SYSTEM :roR THE MONTH OF AUGUST, 1927 •
REFO:t~T
From
:Business
reported
b~ banks
Words sent
by New York
chargeable
to other
F. R. :Ba.""lks( 1)
3,018
:Boston
lTew Yolk
Phi1ade1nhia
Cleveland
Richmond
.Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Da1l:=ts
San_l'rancisco
32,082
139,197
40,967
80,098
47,688
60,115
106,793
79,176
33,100
77' 886
64,910
107,781
2,4o4
3,383
4,163
5,642
3, 774
3,812
3,639
a·712
,889
3,672
Tota.l
:Board
869,793
42,108
Total
35,100
139,197
43.371
83,481
51,851
65,757
110,567
82,988
36,739
81,598
Treasury
War Finance Net Federal
Department Corporation Reserve :Bank
:Business
:Business
:Business
Per cent of
total bank
:Business(*)
111,453
3.792
7,083
3,406
3,524
3,234
3.958
6,251
4,201
2,343
4, 6J..9
2,456
5,766
31,308
132,114
39,965
79,957
48,617
61,799
104,316
78,787
34,396
76,979
67,343
105,687
3.64
15.34
4.64
9.28
5.64
7.18
12.11
9.15
3.99
8.94
7.82
12.27
911,901
}22!148
1,235,049
50,633
"33,891.:·
-;rr--;:-;:;g ~. :><: 7
861,268
282.254
1,150,522
100.00
69,79~
100.0~
6.84~
93~16~
(*) These percentages used in calculating the pro rata share of leased wire expense as shown on the
accompanying statement (X-4951-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 Governors' Conference November 2 - 4, 1925.
•
FEDERAL
1I£me of :Bank
Operators'
Salaries
:Boston
$260.00
Nevi York
1,136.97
Phil qdeluhi ~225.00
Cleveland
296.66
Richmond
190.00
.A.tbnta
270.00
4,0f:~5.26(#) .
Chicago
St. Louis
205.00
Mi:nne::tpo 1 is
207.98
Kansas City
275.64
Dallas
251.00
San Fr~cis0o
~70.00
;I!'ederal Reserve ]on_rd
Total
$7' 773.51
RK JRT 0?' EXPENSE MAIN LINE
LEASED WIR"E SYSTEM, AUGUST, 1927
R"ESERV~
Operators'
Overtime
Wire
Rental
~l5z35}.48
$15.353.48
Pro Rata
Share of
Total
Ex1)enses
Total
~xpenses
Credits
$260.00
1,136.97
225.00
296.66
190.00
270.00
4,085.26
205.00
207.98
275.64
$260.00
$784.21
1,136.97
3,304.88
225.00
999.65
296.66
1,999.30
190.00
1,215.09
270.00
1,5u6.s7
4,085.26
2,609.00
205.00
1, 971.29
207.98
859.61
1,926.05
275.64
251.00
1,684.75
370.00
2,643.47
l2z323!48
$23,126.99
$21,544.17
1, 282. 82 (a)
25}-.00
370.00
$7.773.51
(8~)
$15,451.59
r~4z6.26(b)
$13,975.33
Includes $204.67 for branch line business transmitted over rna.in line circuit.
Includes salaries of WA.shington operators.
Credit.
Received $1,582.82 from Treasury Department covering business for the month of August, 1927.
Amount reimbursable to Chicago.
•
$524.21
2,167.91
774.65
1,702.64
1,229. 76(&)
1,276.87
1,476.26(*)
1,766.29
651.63
1,650.41
1,433.75
2,273.47
.
~21,544.17
( #)
(*)
(a)
(b)
Payable to
Federal
Reserve
:Board
•
FEDERAL RESERVE BOARD
t84:
X-4952
WASHINGTON
Se~tember
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
19, 1927.
Holidays during October, 1927.
Dear Sir:
On Wednesday, October 12th, there will be neither
Gold Settlement Fund nor Federal Reserve note clearing on account of the observance of Columbus Day, and the books of the
Federal Reserve Board's Gold Settlement Division.will be closed.
For your info~mation, the offices of the Board a~d
the following banks and branches will be open for business as
usual:
•
Richmond
st. Louis
Little Rock
Memphis
Atlanta
Birmingham
Minneapolis
Nashville
Jacksonville
Kansas City
Denver
Detroit
Oklahoma City
In addition to the holiday mentioned above, the following branches of the Federal Reserve Bank of Atlanta will be closed
on the dates specified:
Tuesday
Friday
October ll
October 14
Birmingham
Jacksonville
Fraternal Day
Farmers' Day
Kindly 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-4954
September 20, 1927.
SUBJECT:
Holiday, Detroit Branch,
Tuesday, October 11th.
Dear Sir:
Su:Tplementing our letter X-4952 of September
19, 1927, subject, 11 Holidays during October 11 the
Board is now advised that the Detroit Branch of the
Federal Reserve Bank of Chicago will be closed on
~uesday, October 11th, Primary Election Day in Detroit,
and will not participate in either th~ Gold Settlement
~xnd or the Federal Reserve note clearing of that date.
Please inc:~de your credits of October 11th for
Detroit Branch with those of Thursday; October 13th,
in the Gold Fur.td Clearing.
Kindly notify branches.
Very truly yours,
J. C. Noell,
ASsistant Secretary.
'IO GOVERNORS OF .ALL F. R. B1U1XS.
•
186
x-4955
FEDERAL
RESERVE
:BOARD
STA.T'EHE1TT FOR TRF PRESS
Se-ptember
For immediate release.
20, 1927.
COli!DITI01T OF THE ACCEPT.AlTC~ HAF.KET
August 18, 1927 to September 14, 1927
·The New York
acce~tance
market was somew:lt'l.t more active during the last
half of August and the first he.lf of September than during the preceding re-porting period, as indicated by
of dealers.
~n
increase in both the purchases and 1Sales
Bills bought were based chiefly on imports of silk, coffee, and
sugar, exports of cotton, e.nd storage of cotton, sugar, and tobacco.
Market
sales of longer biils were ma.dc chiefly to banks for the account of foreign
purch~sers,
but there was a good local demand for tho shorter maturities.
Sales to the rese.-ve bank, though larger thP.n in July, mere in moderate volume and dealers' portfolios remained near the high levels reached in tho
middle of August.
A reduction in the buying rate on
reserve bank on August 22 WA..s followed by a
ket ra.tes.
30
day bills a.t t!te
correspondin~
reduction in mar-
The following table shows the IllPrkct rates on bills of various
maturities at the beginning and end of the reporting period.
·Acceptance Rates in the New York
Ma.turtty
30
60
90
days
days
days
120 days
180 dE'!yS
August
Bid
3l.
31
3!3-3/8
3-5/8
18
Asked
3-1/8
3-1/8
3-:JS
3l.
. 3t
r::
M~rket
September 14
Asked
:Bid
3-1/8
~
3-3/8
3-5/8
3
3-1/8
3-1/8
3J..
3;
FEDERAL RESERVE BOARD
x-4957
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
September
SUBJECT:
23, 1927.
Tonic for Governors' Conference.
Doar Sir:
U::1dcr de,tc of June 24, 1927 (X-4887), the
Federal Reserve Board advised the Governors of all
Federal reserve banks that it was not in ha~nony ~ith
the view exuressed by the Governors' Conference held
last Suring that 11 in principle, the Federal Reserve
Be.nks should be reimbursed for services uerformed for
Government agencies other than the Treasury, when the
exuense involved is sufficient to justify the banks
asking for reimburse:nent 11 •
In ackno"'led.ging the "8o?~.rd 1 s letter, the
Governor of the Fed.eral Reserve }Je.nk of Philadelphia,
who had acted afO' a co:nmittee of one for the confereYJ.ce
in connection with the matter referred to, suggested
the.t the question might be given further consideration
at the next conference. The Board concurred with this
suggestion and accordingly the question of' reimbursement
of the Federal reserve banks for exuenses of services
rendered for Government agencies is resubmitted for further discussion at the time of the forthcoming conference.
Very truly yours,
'jijdmund Platt,
Vice Governor.
TO
i.:.-:
GOVERNORS
~C"SPT
PHILAD'ELP'TI A.
1.88
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-4958
se,tember 23, 1927.
\
S1JJ3JECT:
Togic. for Governors' Conference.
Dea.r Sir:
The Federal Advisory Council at a meeting held
on September 17, 1926, called attention to the fact that
the various Federal reserve banks have different practices
and requirements as to the form and character of credit
statements, and eryressed the O?inion that the requirements and statements should be standardized. This recommendation was discussed at tho Governors' Conference following the CoU11cil mooting but no action was taken nor was
tho matter referred to any committee for re?ort at a later
conference.
The Federal Advisory Coa~cil at its last meeting
renewed its recomnendo. tion and the B:<c.rd w:mld like to have
the question o..gain considered by tile GJvernors' Conference
and to receive a recomnend...1.tion o.s to the advis::cbility of
attempting unif.;:,rmi ty in the matter of credit statements.
Very truly yours,
Edmund Platt,
Vice Governor.
To the Governors of all
Federal reserve banks.
-- --
....
.FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
Se~tember
SUBJ~CT:
23, 1927.
Topic for Governors' Conference.
Dear Sir:
The Board h3s received from one of the Federal
reeerve banks and has voted to refer to the forthcoming
Conference of !}overnors and Federal Rcsorve Agents, an
inauiry as to '"l:ether deposits in r:J.embor banks by building and loan associations and mutual savings banks should
be classed as amounts "Due to Banks:', w:i. thin the meaning
of Section 19 of the Federal "Reserve Act, or should be
tlassed as d~and or time dc"!')osits, against which amounts
"Due from Banks" can not bo a-pulied ir. a.>:riving at the
basis for ascerte.inint~ required reserves. The Board would
like to be advised whether in tho oninion of the !}ovcrnors'
Conf 0 rence the same rule shoulQ be extended to include
denosits in member banks by cooperative b~mks, crndit
unions and Horris Plan banks.
Very truly yours,
Edmund Platt,
Vice !}ovcrnor.
To the Governors of all
Federal reserve banks.
X-4960
!~12~!1!~
~~~~!LY~
~~!~12
STATEMENT FOR THE PiiESS
For releas.e in ~iiorning Papers,
Wednesday, September 28, 1927.
Tho following is a su.r:Jjno.ry of general business and
financial conditions throughout the several Federal
Reserve Districts, be-sed upon statistics for the
months of August and September, as contained in the
forthcoming issue of the Federal Reserve Bulletin.
Industrial production increased in August, reflecting a growth in the
o~~t
of mines, m1d the distribution of commodities, both at wholesale and at retail, increased by more than the usual seasonal amount.
The general level of wholesale
commodity prices rose about one per cent, owing chiefly to advances in the prices
of farm
~roducts.
Production.
Production of anthracite and bituminous coal, which showed a considerable decline earlier in the season, increased sharply in August and the early weeks of
September, and this rise was reflected in an advance in the Board's index of mineral
output from 98 per cent of the 1923-1925 average in July, to 106 per cent in August.
The index of manufactures as a whole showed practically no change for the month.
The iron and steel industry
con~inued
during August ru1d September with little change
in demand or in production, and tho output of newsprint, lumber, and cement showed
only customary seasonal
ch~~get
in August.
Consumption of cotton remained
~~usually
large for this season of the year, and there was an increase in the production of
automobiles, which, howevor, remained below th:J output of August of last year.
Out-
put of shoes and rubber tires b.crcr·scd from July to August b;,r less than the customary seasonal amount.
Factory :·;;Yploy;.l~:•t was in practically the samJ volume in
August as in July, and both
em~?loyment
and production were smaller than a year ago.
The volume of huilding contracts awarded in August was smaller than in August, 1926,
which was a month of unusually large awards.
The largest decreases, as compared
with last year, were in the Boston, New York, and Chicago Federal reserve districv ..
• •
X-4960
- 2 -
In the first half of Se-ptem"ber awords were in practic&lly the srune volume as in the
corresponding :period of lnst
ye~;r.
The Department of Agriculture's estimate of cor:::. >):r-oduction on t}J.e basis of
Septe~ber
1 condition was 2,457,000,000 bushels, compared with 2,647,000,000 har-
vested in 1926.
Ti1e totnl yield of V'heat is expected to be sor:1ewho.t lo.:-ge1· t:1a.n a.
year ago.
The forecast of the ;.,·ield of cotton vras 12,692,000 bales, reJ?rese:1ting
of
a reduction of 800,000 b<:tles from the August estir;1nte ru"'.d/over 5,000,000 b<:tles
from L1st year's crop.
Trade.
Distribution of merchondise at wholesale and retail incre'l.sed more th'lll is
usual in August, a'1d sales were generally lo..rE;er than in August of L1st year.
Sales of wholcsnle firrns in most leading lines were larger tha.'"l a year ago.
ven tories of dcpartmea t s to :res showed less them tnc usual
se:::~.sonal
I:-:-
b.cr.::lasc b
August
~.nd
ago.
Stocks carried "oy v:holcsa.le firms co::tL:IUcd in August generc.lly sr.1aller
o.t the e::1d of the month were in about the some dollar -.rolumo ns
[1.
year
thaa l::•s t year.
Freight car lo::J.di:lgs of ne<:trly c.ll types of cor:unodi ties h1croased c'nsiderc.bly
in Aug0-st [.1Ild the early part of September, but, with the exception of grains o.nd
1niscella...'1.eous products, loa.di::gEJ for nll groups co:1 ti11ued i::L smaller vo lu::1o t:'1nn i::
the srunc period of last year.
Prices.
Yiholesnlo cor:unodi ty prices, ::s nen.surod by the index of tho :Bureau of Labor
Statistics, bcreo..sed fro:n 14& in July to 147 in August.
Tl1.ore were lo:rgc in-
creo.ses in the prices of fo:rm products o...."ld of clothing m'J.terials, v:l1.ilo most of the
other groups showed only slight· cha:1ges.
The -'Jricc of raw cotton advo:c.cod from
17 1/2 cents a pound on A;~gust l to over 23 cents on September 8, but since that
date has declined by about three
and sugar
hogs,
ce~ts
a polli'"ld.
Prices of cotton goods, cattle,
also increased duri11g August and the first three weeks of September,
.
.
X-4960
-: 3 -
while those of gr<"'.insdocli:.1od; rcco:1tly thor::: ho.vo
bce~1
reductions ili tho prices
of some iron nnd stool products.
Bank Crodi t.
\ 'Iok1l loo..ns nnd investments of T,icmbor b::mks in lending cities botvroon Au€,ust
incro~scd
17 o.:1d Soptorabor 21
Thoro -r:cro
i:1crc~ocs
by $400,000,000 to tho lflrgost figure on r::;cord.
i11 lom1s 0:1 socuri ties n..."1d ir-1 inves t:!lcn ts '1.S w·ell ~-s the usual
sc:•.so:::.o.l growth in lon;::.s for .'1.griculturnl nnd com.":lcrcial pur"Qoses.
The volur,1o of reserve bc.c.1k crodi t incre.:::.scd d.uri:1g tho non t~1 cndi:1g Sel)tcraber
21, r:cfloctiLg tho
so.~so::r,.l
Th,:; bcror-.so was oc.: tiroly L.
tics,
~.s
gro>vtll L. tho do,::::t::d for cu.rrcr:.t
t~1c
::~.nd
r.r. export of gold.
holdir..gs of acccpta:-:.ces n.."1d United StCl. tos socuri-
t11oro v.·o.s li ttlc ch:::ngc in tho discour... ts for r;1o;:.bor bF>nks.
I:a tho ope:: :.1oi:.cy cr:u·k:ctn, ro.tos on socuri ty lo::J.:1S incro·csod sligl1tly during
Sopto;:1bcr, while rates o:1 cor.~.:orcic-.1 l)U"9or '"'.l."ld 90-d:::cy bo.:1kcrs' nccoptoncos rc.:1nb.od
u:.1chn;.1t;:::d ut tho lowest lcvols of tho :roDX.
Discou.."1t ro.tos at the Fcdero.l reserve
bo.:.1ks of Philo..dolphio.., C:iico.go, S~"l Frcc:1cisco, ::_"ld Mi:1::.oo..polis wore reduced during
Sc_9tonbor fro; .• 4 to 3 1/2 per cc:1t, t:1o ro.to provniling i:::1 the ot:1.cr cig:1t districts.
"
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAl. CORRESPONDENCE TO
THE FEDERAl. RESERVE BOARD
X-4961
September 28, 1927.
SUl3JECT:
Election of Class
11
AI 1 and "B11 Directors.
Dear Sir:
This will confirm the telegram sent you yesterday,
advising that the Federal Reserve :Board has designated
November 15, 1927, as the date for o~ening the polls in
the forthcoming elections of Class "An and "B" directors,
and advising also that no change has been made in the
group classifications which for the past several years
have governed in these elections.
Ver~r
truly yours,
Walter L. Edd.y,
Secretary.
To the Chairmen of all
Federal Reserve Banks.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-4963
September 29, 1927.
SUBJECT:
Amendment to Election Procedure.
Dear Sir:
The election procedure adopted with the approval of
the Federal Reserve Board following the conference of Federal
Reserve Agents last year, provides among other things that following the election the Chairmen of the Federal reserve banks
shall notify each member bank whose ballot was invalidated of
the reason for such rejection. This procedure would be possible
in the case of member banks whose ballots are invalidated because
of errors in thoir certificates authorizing ce~tain officers to
cast tho ballots. Howc.vcr, it has boen called to the attention
of the :Board that it would be im-Jracticable to advise all banks
whose ballots were; L1validated for the reason that many such ballots would be rendered illegal because of the failu~e of tho me~ber
ban~c casting tho '!:H:,,llot to :properly indicate its choico of candidates, which f::.c.ct wo-ctld not be discovered, of course, until the
O})ening of the sealed ballots, at which time it would be impossible
to determine the name of the voting ba."lk, Accordingly, the Board
has voted to revoke this particular requirement of the election
procedure and to suggest instead that the Chairmcm of ea.cl1 Fedel~al
reserve ba."lk, following the election, address a general letter to
all voting member bonks stating that d'J.e to the secrecy of the bc..llot, it is impossible to tell who cast the respective ballots which
under the law could not be counted, on account of their being incorr0ctly marked, and indicating the number of ballots w11ich were
not counted and some of the ree.sons for their being declared invalid.
~estion has also been raised as to the authority of
the Chairmen to edit biographical sketches of nominees, which,
unde:c the election procedure, are to be secured from the nominees
themselves. In the absence of such editorial power, there would
undoubtedly be a great and undesirable lack of uniformity in the
length of the statements and in the material included. It is the
opinion of the Board that the Chairmen of the Federal reserve banks
should be given editori~l power in connectio~ with these biographical
X-4963
- 2 -
sietches end it would appear to be proper for the Chairmen to
advise the nominees that the sketches they are requested to
furnish should be limited to a certain number of words and
should follow a suggested outlino.
Very truly yours,
Edmund Platt,
Acting Governor.
'IO ALL CHAI3MEN.
IN TEE SUPRM OOURT OF TEE STATE OF UTAH.
Chicago, Milwaukee &
St •. Paul Railway Co.
.
Ap9ellant,
X-4964
1H6
Dey, Hoppaugh, Mark & Johnson,
Salt Lake City, Utah,
Attorneys for Appellant,
v.
Federal Reserve Bank
of San Francisco
Respondent.
Albert C. Agnew,
San Francisco, California,
Pierce, Critchlow & Marr,
Salt Lake City, Utah,
Attorneys for Respondent.
GIDJ!X)N, J.
~1e Chicago, Milwaukee & St. Paul Railway Co. instituted this action
against defendant Federal Reserve Bank of San Francisco in the District Court
of Salt Lake County to recover the sum of $459.99 alleged to be the amount of a
check drawn to its order upon the Citizens State Bank of Buhl, Idaho. The case
was tried to the court sitting without a jury and resulted in a judgment in favor of defendant. From that judgment this appeal is prosecuted.
A stipulation of facts was entered into 'bv the parties. Testimony
was given on issues not covered by the stipulation. There is, however, little,
if any, dispute as to the facts. The court made findings on all rraterial issues
presented by the pleadings.
By the assignment of errors
as being contrary to the evidence and
other facts found by the court.
The
that the judgment of the cour1; is not
thereto.
certain findings of the court are assailed
also contrary to and inconsistent with
main contention of plaintiff, however, is
supported by the findings but is contrary
From the court's findings the following facts appear:
~~at on November f?, 1921, at Tomah, in the State of Wisconsin, plaintiff received from one E. E. Beeman of Buhl, Idaho, a cheCk in the sum named
drawn on the Citizens State Bank of Buhl; that the check was endorsed in blank
by plaintiff and deposited in the Bank of Tomah; that on the date when deposited
th~ amount of the check was credited to plaintiff's account and a draft drawn in
favor of plaintiff on the Tomah bank's correspondent in Chicago; that in due
course the check was forwarded by the bank at Tomah to the Marine National :Bank
of Milwaukee, for collection and remittance: that the l£ilwau.kee bank forwarded
the check to defendant, Federal Reserve Ba..'1k of San Francisco, Salt Lake City
branch, for collection and credit; that on November 25, 1921, defendant received
the check and forwarded it direct to t:he Citizens State Bank of Buhl, the drawee
bank, for collection and remittance; that the check was received by the drawee
bank on November 25th and was charged to the account of the drawer, Mr. Beeman;
that the check was marked paid a..'1d thereafter the cancelled check was delivered
to the drawer and the amount of the check charged to his account; that the Citizens State Bank of Buhl, on the date of the receipt of the check, issued and
mailed to defendant at Sal·t Lake City a draft U})On its correspondent, the First
National Bank of Twin Falls, Idaho, in payment of this particular check and
other i terns sent to it by defendant, that the draft was received by defendant
at Salt Lake City and was, in regular course, forwarded to the First National
Bank of Twin Falls, and the same was received by the last named bank on December
2nd; that the Citizens State Bank of Buhl had been closed by the Commissioner of
Finance of the State of Idaho and did not open for business on December 2, 1921;
that thEl First National Bank of Twin Falls refused payment and the draft was returned to defendant; that thereupon defendant charged the amount of the cneck,
through the Federal Reserve Bank of Chicagp, against the account of the Marine
National Bank of Milwaukee and that bank in turn charged the amount of the check
against the Bank of Tomah and the last named bank charged plaintiff's account
with the amount; that the Bank of Tomah, in accepting said check from the plaintiff, did so under the following agreement; "This bank in receiving out of town
checks and other collections acts only as your agent and does.not assum~ any responsibility beyond due diligence on its part the sa."l!e as on its own paper; 11
that the Marine National Bank in accepting said check from the Bank of Tomah
did so under the following agreement: 11 In accepting items payable outside of
Milwau.kee this bank acts only as your agent and beyond due diligence assumes no
responsibility until final returns are received. The right is reserved to forward i terns direct to drawee bank." Other findings of the court will be noted
in the course of this opinion.
Two gTounds of negligence are relied upon by plaintiff as stated in
its brief: 11 (1) That the defendant sent the check direct to the drawee bank for
collection; (2) that it accepted in absolute payment of said check something
other than cash, to wit, a draft drawn upon r..nother bank, and by so doing it
made that draft its own, became responsible for the amount thereof, and assumed
all risk of collection of that draft."
In the briefs both parties have discussed the right of plaintiff to
maintain this action against defendant. The contention of defendant is that
there is no privy of contract shown between plaintiff nnd defendant and hence
no basis for any complaint against it for negligence. It is plaintiff's contention, and that is the theory upon which the suit was instituted, that the negligence resulting in the loss was tht negligence of its agent, the defendant, and
hence the defendant is liable for ~y negligence which resulted in loss to plaintiff.
It is conceded by both part~es that the authorities are not uniform
respecting this particular question. · There are two lines of authorities recognized by the parties referred to iq the cases cited. One is known as the
New York rule and the other as'the Ma-sachusetts rule. The federal cases follow the New York rule.
The Circuit Court of Appeals, Eighth Circuit, in First National Bank
of Denver v. Federal Reserve Bank of Kansas City, Mo., 6 F(2d), at page 341, has
this to say respecting thes~ two lines of authority:
There exist two rules among the state courts touching the
responsibility of banks undertaking collections at a distance. One,
known as the New York rule, i$ that, where a bank undertakes to collect a check or other bill of exchange, it is liable for neglect of
duty in its collection arising from the default either of its own
officers or any subagent employed to assist in collecting the paper,
in the absence of contract or statute varying auch liability. T'.ae
other
rule, known as the Massachusetts rule, is that the initial bank
11
- 3-
X-4964
is liable only for the selection of a suitable local agent with whom
to entrust the collection and for the transmission of the pa?er to
such agent with proper instructions."
The trial court overruled defendant's argument on this phase of the
case by denying its motion for nonsuit and by overruling its demurrer. Whether
the court based its findings upon the allegations of the facts respecting the
conditions under which the Bank of Tomah received the check in controversy for
collection or by reason of the rule of law announced in the decision of the Su~
preme Court of Wisconsin, or upon other grounds, does not a:·,Y·?ear in the record.
It only aplJears that the court overruled the contentions of defendant in that rc:gard. vVe are not called upon to, neither do we in this opinion, determine whether
the so-called New York rule or the so-called Massachusetts rule should become the
law of this jurisdiction. :tlTor are we dotc:r::::.iningwhether the conditions upon
which the initial bank received the check for collection would import into the
contract between the parties the duties imoosed by the so-called Massachusetts
rule. Concededly the trial court had juri~diction of the parties and of the
subject-matter involved in this controversy. Hence any ruling of the trial court
would not involve the question of jurisdiction. Naturally, plaintiff is not complaining of the court's rulings either with respect to the overruling of the
demurrer or the denial of the motion for nonsuit. Those rulings were in plaintiff's favor. Defendant has assigned no cross-errors, nor is there any error
assigned in any way with respect to the rulings on the demurrer and on the motion
for nonsuit. For the defendant to have had the rulings of the court in overruling the demurret and denying the motion for nonsuit reviewed it should have assigned cross-errors. Otherwise this court has no authority to review such
rulings.
Plaintiff in the main relies on the generally accepted rule tl~t a
collecting agent is without authority to accept for tne debt of his principal
anything other than that which the law declares to be legal tender. Such is the
rule announced by the great weight of authority, if not by universal authority.
The authorities, however, all recognize that this generally accepted rule may be
changed or modified either by contract or by some general usage or custom prevailing in the community where the collection is made. That is to say, the
authorities recognize that the general rule or custom is incorporated into the
contract by which the agent assumes and undertakes to perform the duties required
of him.
It is insisted that the defendant bank received a perfectly good c}wc~:
made payable to the plaintiff and surrendered it to the drawee bank without receiving legal tender or any substitute or other paper from which legal ter.der
could be realized. N~erous authorities are cited and quoted from by plaintiff
announcing and adhering to the general rule, namely, that it is the duty of a
bank or other collecting agent to take in return for a check or other paper entrusted to it for collection only what the law declares to be legal tender.
It is alleged in the answer a.o a."l affirmative defense, and the court
found, that under a regulation issued by the Federal Reserve Board having general control over Federal reserve banks, it is not negligence for a Federal reserve bank, such as defendant, to forward a check or other negotiable instrument
direct to the drawee bank for collection and remittance. The undisputed testimony is that that was the universal custom in Utah and Idaho prior to and since
the adoption of the regulation issued by the Federal Reserve Board. The existence
of this regulation controlling Federal reserve banks and the unifotm custom·
- 4-
X-4964
1
q{)
't .. ·~. J -:.r_.:f
of banks in this ,and adjoining states is not seriously controverted by plaintiff,
but it is contended that by reason of the failure of a number of banks in Ida...1.o
a...~d the general weakness of the ba~ks in that state at this particular time it
was negligence on the part of the defendant, regardless of th.a custom and regardlesE! of the regulations prescribed for the control of banks such as defe!'ldant. We shall refer later to this claim of plaintiff.
The weight of authority, while recognizing the rule of law contended
for by :plaintiff respecting the duty of a collecting bank, in considering and
determining the negligence of such banks also recognizes that if a collecting
bank follows an established reasonable custom or usage of banks in the locality
where the collecting bank is situated, in the absence of contract or special
instruc~ions such collecting ba~k is not chargeable with negligence.
Iri that
regard the trial court in substance found that at the date of the de_)osit and
of forwarding the check to defenda~t bank it was and prior thereto had been
the usage and custom of Fad.eral reserve banks, including the defendant, to forward checks for collection and remittance direct to the banks U~}on which/~1\~Bks
were drawn and to receive in pa~nent either money or exchange subject to payment
drawn by the bank or banks on which the chec'Is were drawn, at the o-ption of the
drawee bank. The trial court also fo,.md that this practice and custom is and
was uniform and continuous and consistent with the best banking practices and
necessary and reasonable in the collection of exchange~ at par in the volume
and to the extent that Federal
banks are required to handle business in
carrying on and conducting the r.ormal banking transactions of the United States;
also that such custom and practice was well known to and recognized b~r. the banks
of the cou.~try and by the Bank of Tomah and by the Marine National Bank of Milwaukee in particular. The further findL1g is made that at the time the defen.;;
dant received the check in question, a'ld for a long time prior thereto, the defendant held out and represented to the :9ublic and to remitting banks that it
would receive for collection and undertake to collect checks only upon the condition, among ot~ers, that the remitting bank authorizes the defendant ru1d its
subagents to forward such checks direct to the banks on w~ich the same were
drawn and that the remitting bankf' assumed all responsibility or liability occasioned by or as a result of sucrh direct routing of checks and that the remitting banks authorized the defen~t to charge back any item for which it did
~ot receive final payment; also that at the time the c~eck in ~~estion was for>''nl~ded to the defendant by the Milwaukee bank the conditions upon which the defendant agreed to receive the check for collection were well known to the Mal~ine
National Ba...* and were accepted by it as the conditions and terms upon wl1.ich tho
defendant agreed and undertook the collection of such check. ~1e 23d, 24th,
25th and 26th findings of the court are as follows:
23. "That at the time of the transactions herein referred
to and for a long time prior thereto it was and has been a...1d is now
the custom and :practice of all banks and bankers in the states of
Utah and Idaho to issue and accept in settlement of collection items
forwarded to or received by them from banks in other cities or to~~s
exchange upon correspondent banks and that the plaintiff's agents in
forwarding the check referred to herein to the defendant for collection did so with full knowledge and notice of the existence of such
custom and practice. That said practice a~d custom was and is
nniform and continuous a~d consistent with the best banking :practices and was and is n~cessary and reasonable in the collection of
exchru1ge in the volume and to the extent that commercial banks are
required to handle such business in the dispatch of the normal commercial and banking transactions of the states of Utah and Idaho.
- 5 ...
X-4954
24. 11 That at the time defendant received said check for coliection it had knowledge that banks in southern Idaho, and ~articu
larly the banks at Buhl, Idaho, and vicinity, were in an extended
condition, and that fifteen banks had already failed in Idaho, in
.'200
1921.
25. 11 That at the time defendant received said check for
collection defendant knew that an unusual and unprecedented si tuation existed in Idaho with respect to the financial condition of
banks doing business therein, which financial condition threatened
the solvency of said ~anks.
26. 11 That the Citizens State Bank of Buhl was not a member
bank of the Federal Reserve system and that the defendant had not
examined said ba..Tlk and had under the law no right to examine said
·oank and that the defendant had no direct or personal knowledge of
its condition; or any knowledge other tnan of the condition of banks
in Idaho generally. n
T'nese findings of the court are amply supported by the testimony in
the record. It would serve no good purpose to review the testimony, especially
in view of the fact that the testimony offered by the defendant in that regard
is not disputed by any testimony on the ~art of the plaintiff.
court, to
The third and fourth headnotes, which reflect the opinion of the
~okane Valley State Ban..lt v. Lutes, 233 Pac. 308, are:
Where the evidence showed that there was a general custom
among banks to ~end draft :for collection throu~~ federal reserve
banks rather than directly to the bank upon which it was drawn,
neld that owner of certificate of deuosit was bound thereby,
althou~1 such custom was not known to him at the time he placed
certificate with bank for collection.w
11
11 Acceptance of a ,lraft i:ustead of cash, in exchange for certificate of deposit, ~id not constitute negligence, where evidence
s:1owed that it was cuftom of banks to make remittance by draft and
not by shipment of ca~h. 11
11
In Morse on Ban~s and Banking, 5th Ed. Sec. 220, in discussing
What Law and Usage Shall Govern Collection, 11 it is said:
11 The collecting bank must be governed in all matters concerning the time and ~ode of presentment, demand, and notice
by the laws and customs which prevail in the place of its own
situation. If the paper has been transmitted from a distant
place, where the laws and customs are different, the tra..Tlsmitting party, if he wishes these to be conformed to, must
send special instructions to that effect. In that case the
collecting bank, if it undertakes the collection, will be
bound, at its own.peril, not to deviate from the course thus
prescribed; though in the absence of express directions it
would not be bound to inquire into, nor probably would it even
have the right to recognize, if it knew, the laws or usages of
&!y other place than its own. The understanding, which is
assumed to be mutual and to enter into the contract of the
... 6 -
X-4964
parties, is that the bank shall perform the various acts which
are embraced in the business of collection in every respect according to the method which it is wont to pursue, in accordance
with the local law, rules, and regulations."
:?O:l
In Capital Grain and Feed Co. v. Federal Reserve Bank, 3 Fed (2nd)
614, th~ District Court of the Northern Division of Georgia, in considering a
question similar to the one under review here, at page 615, says:
"While t);le relationship between plaintiffs and the collecting bank. is controlled by the law and the contract at the place
of deposit, as has just been ruled, the duty of the correspondent
b~ is primarily regulated by the law and the customs of banking
at the place where it does its business, and may be affected likewise by special instructions given to it or agreements made. 11
The second headnote to Farmers' Bank
38, reads as follows:
& Tr. Co. v. Newland 31 S. W.
"Where one delivers a ceJ. tificate of deposit to a bank to be
collected from a bank in another place, without any inquiry as to
the methods of collection, there is an implied understanding that
the established usage in IDEL~ing collections will be followed; and
if the bank to which it is delivered, acting accordingly and in
the exercise of due care, mails the certificate to the payor bank,
and receives the latter's check on a bank in a third place, it will
not be liable to the ovmer of the certificate if the payor bank
becomes insolvent before presentation of the check."
The fourth headnote to Hilsinger v. Trickett, 99 !r. W. 308 is as
follows:
11 Usage of banks prevalent in the vicinity, and generally
followed, are presumed to be r•asonable, and the burden of showing them ~reasonable is upon the one who assails them; the
question being, not is the custom reasonable, but has it been
shown to be unreasonable. 11
Numerous other cases are cited to the same effect.
The foregoing headnotes not only reflect the opinions of the courts
in the :?articular cases, but, in our judgment, they express the weight of author ....
ity on the particular question now under revi·ew. To demand and receive currency
for checks transmitted by b~s for collection would greatly hamper the commercial business of the country if not render it practically impossible to conduct
the volume of business now known to pass through the clearing houses of the
country. There was no effort made to show that this system or usage in vogue
in the banking world, and :Jarticularly among the banks in Utah and Idaho, is
not reasonable or that any better system had been or could be devised for hand~
ling the commercial business of the country. The court was therefore ful~
justified, in our jud@Ilent, in finding that the practices a11.d usages of the
banks in making these collections in the manner in which the defendant made
the collection in this case 11 was and is necessary and reasonable in the collection of exchange at par in the volume and·to the extent that said Federal
reserve banks are required to handle such business in the dispatch of the normal commercial o.nd banking transactions of the United States."
- 7 -
X-4964
20~~
Plain tiff, while not conceding the reasonableness or necessity of the
rule interposed as a defense in this action, contends that, granting such custom and usage could ordinarily be employea by a collecting bank without incurring liability, nevertheless, by reason of the condition of banks in Idaho at
the date in question, it was negligence on the part ~f defendant to surrender the
check in question without receiving currency in exchange there.fo.:·. True, the
court found that at the time in question an unprecedented situation existed in
Idaho with respect to the financial condition of bruL~, which condition threatened the solvency of the banks. It nevertheless found that the defendant had
no means of ascertaining the condition of the Citizens State Bank of Buhl and
had no d~rect or personal knowledge of its condition or any knowledge other
than the :<nowledge of the general condition of banks in the State of Idaho. We
are unable to conclude that the l<nowledge of the general banking conditions in
Idaho would require the defendant to depart from the usual custom of collecting
checks drawn upon the Citizens State Bank of Buhl in the absence of any knowledge as to its financial responsibility or in the absence of any special directions as to the method to pursue in collecting the check in controversy. The
testimony and the findings of the court are all to the effect that the defendant
bank, in its efforts to collect the check forwarded it through the bank of deposit, pursued the ordinary and usual method pursued by banks in this comnnmity.
In doing so it cannot be charged with negligence.
There are ~ther questions discussed in the briefs of counsel, but we
are of the opinion that plaintiff must fail on the ground noted and hence it
becomes unnecessary to consider such other questions.
Judgment affirmed with costs.
We concur:
Thurman, C. .J~ - - · - - - - - Cherry, J.
STRAUP,
~.
(Concurring)
The proper disposi~ion ef the case, in some particulars at least, is
dependent upon the findings of the court below of which m complaint is made.
The court, by finding 15, found:
11 •15. That when said check was deposited by plaintiff in
the Bank of Tomah said bank issued and delivered to plaintiff in
payment thereof.its draft drawn upon a Chicago correspondent.n
The court further found:
"17. That the Bank of Tomah in accepting said check from
the plaintiff did so under the following agreement,
'This bank in receiving out of town checks and other collections acts only as your agent and does not assume a.ny responsibility beyond due diligence •n its part the sa;.w as on
~
8 -
:i.ts OWn paper. t II
11 18. That the Marine National J3ank in accepting said check
from the J3ank of Tomah did so under t!le following agree:rent,
1 In accepting i terns pa;ya ble outside of Milwaukee this bank acts
only as your agent and beyond due diligence assumes no responsibility until final returns are received. The right is reserved
to forward i terns direct to the drawee bank •. ' 11
X-4964
~oa
Substantially the same kind of a finding was made as to the defendant
bank by finding 22, and·wherein the court further found
''That the remitting bank authorized the defendant and
its subagents to forward such checks lirect to the banks on which
the same were drawn for collection and remittance, that such remitting bank ass~ued full responsibility and liability for any
loss through or occasioned by or as a result of such direct routing
of ~becks and that such remitting bank authorized the defendant to
charge back a.'1y item for which it did not receive final pa;yment. 11
Upon the fact as found in finding 15 I think it clear that the plaintiff had no cause of action against the defendant. Upon that finding there was
no relation of agency between the plaintiff and the To!llah bank nor between plairtiff and defendant. Such finding shows that the title to the check passed fro~
plaintiff to the Tomah bank when plaintiff endorsed the check over to the Tomah
bank and received its draft "in pa.y.n:;nt 11 thereof, and that the relation between
them W8.S tha.t only of endorser and endorsee. In such case if because of negligence of the Tomah bank or any of its transmitting agents the check was not presented in due course and as the result thereof was not paid, or if the failure ..
of its collection was due to negligence of the Tom~b bank or of any of its transmitting agents, such negligence in no sense was chArgeable to plaintiff, and
the Tomah bank had no legal right to charge the loss to plaintiff; and the fact
that the loss was chcrged to plaintiff gave it no right to hold defendant liable for alleged negligence on its part. In such ca.se its rights in the premises were to resist the action of the Toma.~ bank chg.rgL1g the loss to plaintiff.
When plaintiff received the draft direct from the Tomah bank 11 in payment" of
the check endorsed over to it . by plaintiff, the plaintiff no longer had any
interest in the check. Its ooncern after that was only with respect to its
liability in case of dishono~ of the check on due presentation. In such view
the judgment in favor of the court below in favor of defendant was right.
J3ut finding 17 is somewhat in discord with finding 15. I do not well
see how both may be true. ~owever, no complaint is made of either finding.
Thus, what princi :·le J)f la·.v. should be applied to findings 17, 18 and 22, assum-.
ing them to be uninfluenced by finding 15, or as though the fact as found by
finding 15 was not in the case? Finding 17 shows, not that the title to the
check passed to the Toma.l1. b.mk, not that it became its property, not tha.t anything was given 11 in p~:nent 11 of it, but that the Tomah bank received the check
only as an agent of plaintiff for collection and to be responsible to the plaintiff for a want of diligence, or for negligence, or for breach of duty, in acting for plaintiff in the collection of it. Upon about the same terms and under
about the same conditions the Marine Ne.tional J3ank received the check from the
Tomah bank and the defendant bank from the Marine National Bank. In such case,
if the loss of the check was occl'l.Sioned through negligence or want of diligence
of the Tomah bank, or of the Harine National Bank, or of the defendant bank,
I think plaintiff had a cause of action against the Tomah bank, unless its
agreement with plaintiff restricted its liability merely to its own person,
- 9 -
X-4964
~~o-1
and exclusive of any b1puted negligence, or 11.gainst · oi thor·:.of the ather banks
._
where negligence occasionedthe loss. Whether the agreement as found between
plaintiff and the Tomah bnnk so restricted tho latter's liability I need not
consider as the action is not against it. Thus because of the relation found,
if the defendant bank was negligent which negligence f'CC!'tsioned the loss, I
think the action was maintainable against the defendant bank. On such theory,
the question then is whether or not on the f:>.cts as found the defendant br-.nk
was so clearly guilty ef negligence which occasioned or caused the loss a~) to rs~
quire a finding or conclusion to the contrary to be vacated or disapproved as
being not sufficiently supported. Mr. Justice Gideon has considered
the case from tfr~t viewpoint a.nd reached the conclusion that en the facts
as found by the court below the defendant bank was not so clen.rly or cenclusi vel·'
guilty of negligence or want of diligence ~s to require a finding to the contrary to be vacated. In that vie\V and in th..9.t result I concur.
A::s pobted out, it is claimed th,..t the defendant bank WP.S negligent
in two particulA.rs: (1) In presenting the check direct to the drn.wee bank, the
C~tizens StPte Bank of Buhl; and (2) in not de~~nding money in payment thereof
aiid accepting a draft or exchange on the Twin Falls bank.
As to the first, it is enough to say th~t, as found by the court
bhlow, the defendant bank received the check for collection on the condition
th~.t the check could be or w.~s to be presented direct to the dr[l.wee b:mk.
Tha.t was the, defendant's contract. In receiving the check for collection it
had the undoubted right to impose such condition.
As to the second, the m.':l.tter is not s" clear. The court below
found that the defend:mt bn.nk w,.,.s not negligent in such particular. We are
asked to overthrow such finding chiefly on the ground t~~t the defendant bank,
in payment of the check, was unauthorized to nccept anything but money, nnd
when it a.ccepted the dr11.ft on the Twin Falls bank in p"'yment thereof it did so
at its peril, and in such respect W9.S especially guilty of negligence because
of its knowledge, as found by the court, thn.t the b:-tnks in southern Idnho, and
particularly the banks at Buhl and vicinity, were in an extended condition, that
fifteen banks had failed in Idaho in 1921, and that an unusual and unprecedented
situation existed in Idaho with respect to the financial condition of banks doing business therein; but that the defen4ant bnnk had no knowledge as to the
financial condition of the Citizens. StA.t, Bank of Buhl. However, also as
pointed out by Mr. Justice Gideon, the 5furt further found that there was a
well established, prevalent, uniform and;t continuous custom a.'ld usage in banking business in Utah and Idaho, of which· the plaintiff hc.'\d knowledge, that in
such case, as here, instead of demanding and accepting only money, to take
drafts or exchange upon correspondent banks and th..~t banking business in making
collections could not well be conducted on any other basis; th:-tt to .have pursuec..
e~y other course would have aggravated the banking conditions in Southern Idaho
inasmuch as it w::~.s not usual nor custom:u-y, nor the pr.,.ctice of banks, to carry
in their vaults eash to meet out-of-town collections ~'ld in such respect keep
reserves or make provisions with ~orrespondent bunks for such purpose. That
such custom or us~ is unreasonable or repugnant to law, or to the terms of
any shown contrn.ct, nk'\Y not suecessfully be asserted. iVhen I say repugnant to
or inconsistent with ln:11, I men.n something more th"ll a mere rule •r doctrine of
l~w, for customs and us~es sometimes of necessity ~re repugnant to mere rules
or doctrines of lau, nevertheless for such re~son are not reg~rded as invalid
or unreasonn.ble. While nn D.gent ~cting for his princip:ll in collecting a note
or check, in the ~bsence of evidence te the con tr~ry, is not nuthorized to ac'cept in payment of the note er eheck anything but legal tender ~d thereby
- io . .
bind the princip.'ll, as is contended by the plaintiff, yet, such gener!llly is a
mere rule or doctrine of law ~hich by .~reement ~ be modified or unived; atict
too, may it be modified or wnived by a v.:-.lid ren.sor""'lble n.nd relevnnt custom er
us~ge known to the parties concerned or of such notoriety as to presume knowledge. Valid and re'lsonable customs and usages concerning the subject-matter
C'f a contr~~.ct of which the parties are chn.rgeable with knonledge are by implication incorporated therein, unless expressly or impliedly excluded, of course, net
t. contradict, add to, er take from the contract, cr to 'Vary its terms, but on
the theory tha.t the usage or custom forms a part of the contract when not in
conflict with it. As applied to negligence, the commission or emission of a~
act, or the doing of it in a particular way, in accordance with a general and
usual ~1stom or us~ge, may not be conclusive against a charge of negligence, fer
the test in such case is the doing or failure to do what prudent men under similar circumstances would do. The custom or usage may itself not be prudent,
hence the doing of an act in accordance therewith may nevertheless constitute
negligence. So, while the doing of an act in accordance with custom and usage,
doing it as such an act under the same or similar circumsta~ces usually and
generally --customarily---is done by those skilled and experienced in the business, is in most jurisdictions not conclusive against a charge of negligence,
nevertheless when so performed has great evidentiary or probative value against
a ch"l.rge th 1 t the act as so done was negligence.
An act performed in a way
that it generally and usually is performed by those skilled and experienced in
the business at least is prima facie er some prtof that such was not a negligent
way,and sufficient to support a finding against negligence. And then the findin~
as tr> ·the defendant !bank 1 s knewledge as to the financial condition of banks in ·
Idaho and the claim mad.e that by reason thereof due care required the defendant
bank to demand and accept only money in p~ent of the chock, are, to some extent at least, minimized by the further finding that banking business in making
out-of-tewn collections could not well be conducted in such way and that t~
have here pursued such a course would have aggravated the banking condition in
southern Idah~ for the reason stated in such further findings. I therefore
think the finding ~r conclusion against negligence is sufficiently supported.
I deem it proper to say wbat I have lest it bo assumed that the affirmance ef the judgment on the ground stated in tho main opinion implies a
holding that the actien was maintainable by the plaintiff, if the defendant
bank was guilty of negligence even though the facts be ;.s; founC.. i~ fi:.1C'..L1g 15.
September 20, 1927.
X-4966
n Senate
Bill No. 55
(Passed March 10, 1927.
By Mr. Marsden
Approved March 14, 1927.
In effect May 10, 1927)
PREFERENCE TO CLAIMS BASED ON CHECKS, ETC., ON COLLECTION ITEMS
OF INSOLVENT B.ANK.
An Act giving preference to all claims based on checks, drafts and other
instruments issued by any bank or trust company in settlement of items
for collection in the event of the insolvency of such bank or trust
company.
Be it enacted by the Legislature of the State of Utah:
Section l.
Insolvent banks - claims on checks, etc.
Claims
based on checks, drafts, authorizations to correspondents to charge account •.
or other instruments, issued by any bank or trust company, in exchange for,
or in settlement of any bills, notes, checks, orders, drafts, bonds, warrants,
coupons or other evidences of indebtedness (including any such obligations
drawn upon such issuing bank or trust company) received by it for collection
and remittance or payment, and not for deposit, shall upon the insolvency
of such issuing bank or trust company, be entitled to payment in full in
preference to and before any payment shall be made upon the claims of depositors and other general creditors of suCh bank or trust company.
Ap_)roved March 14, 1927 ~ ''
(Chapter 49, Laws of Utah, 1927)
X-4967
TIU:ASli'RY ::.JEP.AB.TI,JE1"'T
Office of the SGcretary
Washington
October 6, 19.27.
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 September 1, 1927, to September 50, 1927, amounting to $121,942.50, as follows:
Federal Reserve Notes, Series 1914
$5
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta.
Chicago
Kansas City
Dallas
San Francisco
$10
200,000
150,000
600,000
200,000
150,000
250,000
150,000
100,000
75,000
50,000
:350,000
200,000
100,000
50,000
150,000
50,000
150,000 _50,000
2,100,000
925,000
('i20
50,000
50,000
50,000
75,000
25,000
400,000
850,000
200,000
485,000
200,000
50,000
650,000
150,000
200,000
250,000
3,435,000
10,000
100,000
50,000
400,000
3,435,.000 sheets (, $35.50 per M
The
Total
$50
10,000
$121,942.50
charges against the several Federal Reserve Banks are as follows:
Boston • • • • • • • • • • • $ 14,200 .. 00
New York • • • • • • • • • .
30,175.00
Philadelphia •
7,100c00
Clevebnd
• • • • 17,217.50
Richmond
7,100.00
• • 1, 775.00
Atlanta
Chicago
23,075.00
Kanso.s City
5,325.00
Dallas • • • •
7,100.00
8,875.00
San Francisco
$121,942.50
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 boa.rd cause such indefinite appropriation to be reimbursed in like amount.
Respectfully,
R. w. Barr,
Acting Deputy Commissioner.
-.
FEDERAL RESERVE BOARD
WASHINGTON
October 12,
ADDRESS OFFtCIAL. CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
SUBJECT:
1927~
Exnense of Special Counsel in Connection With Checks
Stamped Not Payable Through Federal Reserve Bank.
·,·
Dear Sir:
The Federal Reserve Board has received from Honorable Newton D.
Baker the enclosed statement in the amo~~t of $2,515, covering services
and expenses in connection with the effort of certain banks in the Sixth
Federal Reserve District to prevent the par collection of checks drawn
on themselves by stamping such checks "Not payable through the Federal
Reserve Bank of .Atlanta." This statement has been· approved by the
Federal Reserve Board and forwarded to the Federal Reserve Bank of
Atlanta for payment.
Inasmuch as Mr. Baker's services in this connection were authorized by the Board as a System matter, it is requested that each Federal
reserve bank remit to the Federal Reserve Bank of Atlanta its pro rata
share of the expense (based on capital and surplus as of October 5,
1927), as follows:
Boston
New York
Philadelpnia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
$ 189.19
707.52
241.07
263.36
128.99
10). 24
343.90
106.44
73-57
92.57
87.33
177.82
$2,515.00
By direction of the Federal Reserve Board.
Very truly yours,
TO ALL
~"'..OVERNORS,
(Enclosure)
EXCEPT
A.~LANTA.
Walter t. Eddy,
Secretary.
~·
COPY
x-4969-a
:BAKER, HOSTETLER & S IDLO
Counsellors at Law,
Union Trust Building,
Cleveland.
The Federal Reserve Bank
of Atlanta..
To- Newtnn D. Baker, Dr.
August 18, 1927.
To professional sorvices in connection with endorsement by
Hartford and other banks on cashiers' and ·other checks
attempting to restrict clearance of such through Federal
• $2,500.00
Reserve Ran.ks. • . • . • • • • • • • • . • • . • . • • , . •
May
9
Expenses in Washi~gton in connection with par clearance
mat tars. . . . . . . . . . . . . . . . . . . . . •
•
'
!
•
'
15.00
$2,515.00
FEDERAL RESERVE BOARD
WASHINGTON
X-4971
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
October 14, 1927.
SUBJECT:
Deductions in Com?uting Reserves of r:;ember :Sanks.
Dear Sir:
Pursuant to the action taken by the last Go~ernors 1 Confere~ce
the Federal Reserve :Board has given careful reconsideration to its
ruling contained in the last paragraph of the :Soard's letter of March
24, 1927, (X-4816). In this ruling, which had to do with items such
as coupons, checks drawn on themselves by corporations other tha~
banks, bill of lading drafts, etc., it was held that where there is an
agreement between the fprwarding bank and the corres:pondent bank by
the terms of which creQit is given to tho forwarding bank immediately
upon receipt by the correspond.ent, i terns of thiE• kind rna.,v be dedacted
. from due to bank balances by the forwarding bank in compu.tihg its
reserves as soon as these items have been placed in the mails and
charged to the account of the corres.:_)ondent bank, regardless of whether
or not the forwarding bank has given credit to its own depositor.
~1e las~ Governors' Conference took the position that this ruling would have the effect, if generally adopted as a practice by member
ba11.ks, 11 of reducing very· considerably the liability in tho i te"l t due to
bfu~s', u~on which the reserve calculation is made, which appears to be
unjustifiable."
The question whether certain items should be consid0red as a-·
mounts "due from" bar..ks is separate a...""l.d distinct from the question whether
such i terns constitute dcposi t liabilities against which r0serves should
be maintained. The two questions are independent and th0 a:1swer to one of
them does not necessarily depend upon tho determination of the other. For
instance, i terns rec~i vod by the forwarding bark in payment of debts due
it or i t~;.;:ns othervdse actually owned -o~r thL rorwarding bar.k are d-:;d.ucti ble from 11 due to" be.nk bala'1.ces when forwarded for collection and charged to tho account of the correspondent ba;."J.k, notwi thsta:1ding that there
is no corresponding de::~osi t liabili t~r. The rig~·~t to deduct amounts
from balances due to ba!'..ks does not depend undel.' the le.w, on wl1ether or
not there is a corresponding de~osit liab~lity out on whether the amounts
proposed to be deducted may -properly be considered 11 duo from other bar..ks . 11
In the :Board's 1~ling on this subject of March 24, l927,(X~4816)
the gu.estion under consideration was whether i terns of the kinP. d.escri bed
might be deducted as 11 due from bank balances" w::orc t~cre was an agreement by the correspondent barik to give imrnodiate credit to the forwarding
bank for such items. In the :Beard's opinion as set forth in that ruling,
when there is an agreement between the:: forwarding bank and tl:e correspondm:t bank by tl1e terms of ;:hich credit ~s given to tl-:.c forwarding
-.
-2-
X-4971
bank inmcdiatcly upon receipt by tho corrcs"?ondcnt, such non-cash items
when placed in the mails and charged to tho account of tho correspondent
bm'lk may be deducted by the forwarding bm'lk in computing its reserves,
rogardlcss of whether or not tho forv:arding bank has given credit to its
o..-m doposi tor. In tho absence of such an agreement tho deduction may
not be made until tho items have actually been colloctod and placed to
tho crcdit of the for;:·arding baiLl{.
Upon consideration of the other phase of this matter, it is tho
Board's o~Jinion the.t ;.hon thoro is an agroJm...::::J.t by tho correspond(mt ba11k
to gi vc credit to a forwardi~lg ba~ immediately U:)On rocei"?t, i terns such
as coupons, checks dra:wn on thomst::lvcs by corporations other than ba..,TJ.ks,
bill of_ lading drafts, etc., which have be10n: placed in th0 mails and
charged to tho accou:1t of tho correspondent bar..k in accordance with the
existing agreement, should be considered doposi t liabilities of the forwarding bank e.gainst r:hich reserves should bo computed. 'Whore i toms of
this kind are forv1ardcd by a bank to its correspondent under an agreement for immediate credit by tho latter, thoy nro in effect being treated
as checks or other cash i terns. Cash items, however, while deductible as
11 due from bank balances" v:hen placed in the rnails and charged to the aceount of the correspondent bank, also constitute deposit liabilities
against "iihich reserves should be maintained by the forwarding bank.
Accordingly, such non~aash items should, when the conditions described
exist, be included in deposit liabilities against which reserves must
be naintained.
By direction of the Federal Reserve Board.
Walter L. Edd,y,
S e c r e t a r y.
TO .ALL CHAIRkElJ Al1D GOVZBNORS
OF F. R . B.AJIKS •
C)l
,<:,;
FEDERAL RESERVE BOARD
WASHINGTON
X-4972
ADDRESS OFFICIAL. CORRESPONDENCE TO
THE FEDERAL. RESERVE BOARD
OctGbcr 15, 1927.
SU'J3JJ:::CT:
Topic for Governors• ConforenccRevision of ~egulation D.
Fro~osed
Dee,r Sir:
The Federal Reserve Board has voted to place on the progra::1 for
discussion at the forthc01:1ing Governors 1 Confcrcnco tho pro·9oscd reviaion of its Rugu.lation D dealing with reserves of r.1.-:.;::.bcr baP..ks.
In this connecticn thoro arc onclosod for your information the
following docur~cnts:
1. A copy of a murr.crandur..1 addressed to tho Board by
it;p General Counsel under dat..; of August 3~ El27 (X-"'.::915) containing his final recommendations r~garding tho regulations.
Regulation_ D is discussed on r,>agos 2 to 10, inclusive, of th.is
Ii1Cr.l.orandwn.
2. Copi-:;s of c-:::rtain letters c:ddrosscd to tht:: Board
by members cf tho Exccuti vo Cor;mi ttco 0f the Federal Aclvi sory
Council expressing their views with regard to tho proposed revision of Section IV of Regulation D dealing with the subject
of penalties for deficiencies in reserves.
Ycu will rcnor.:bcr that, under dat0 ;)f April 23, 1927 (X-4830),
tho Board so;.·"t tJ tho G,~v..:rnor of Dach Fodi.!ral reserve bank a co:w cf
th.:; first tuntati vo dro.ft of the revised regulations a::d, m:.dcr date
cf Ju.::e 21, 1927 thu B.:n.rd se:1t to tho Gov~rn,:r of oach Fodoral reserve
barlk o. revised draft of tho rce;ulaticrls in the fcm in which thoy had
bcGn a-pprov.;;d tentatively by the Bco.rd en that dat..:, togcth..::r 'iii th an
clte;rna.ti vc re:vision of Scctbn IV of Rc.sulation D. Upc.n r~ccipt c,f
this lott.:;r, thcrcfcrc, ycu 'Nill hai!c in ycur poscossion not only the
draft cf Regulation D which is now u:1dcr ccp.sidcrution but also ccpios
~f all tho ~roc0ding drafts.
J5y diroetion ::;f tho Fodoro.l R0sorvc Beard.
~io.l tcr
L. Eddy,
Secretary.
TO GOVERNORS OF .ALL F. R. BA1lKS •
Encl.:,suros.
(COPY)
:::-4S72-a
FEDERAL ADVISORY
COU:~CIL
38 Sot;.t'c. Der:.rborn Street
Chicago,
Dear
lv~r.
October 4, 1S27.
?lat t:
l-iir.
~Vetmore ~1.!:1.s
Executive Comni ttee of the
receiv'3(. from members of the
Fa,~_a:;.~···l
Advisory Cou::.cil
vnricu.'~ co:c:l~l..:.:J.:i.Cl'!. dolls
of which l1e ~1as iils tru.cted !Zle
to send ;vm.c co:)ies.
P-li~
Mr.
:~2t;.e
I
not sending anything from
since !1e C.id :lot. a·-::.d.
. cation to uri
;;·hi~~:
1:.1~"thing
in his communi-
':.c did not send to you under date of
Se;')tember 29.
Very truly yours,
(Signed) Walter Lichto.1stein
S€cretary
Acting Governor Edmund Pla.tt,
Fede::.·al R.::.cervo :Soard,
Washing:.on, D~ C.
(CO"Y)
September 88, 1927.
Dear lv1r. '.tet:nore:
I have reed ved from r•.tr·. Lichtenstein as
Secretary of ~he !ederal AQvisory CotL~cil a draft
of tl:.e propo sud new regt::.lations for figt:;.ring reserves; also a cvpy of his p0rsonal letter of thL24th instant to l1.r. :Ed.ml.:nd Platt, ACting Governcr,
which quotes yoar telegram of the 23rd instant to
Iir. Platt •
.All of the~e '()apers hStve l;t- .:m. ~or.sid·ar~::d by
the Vice Preside11t handling oar :r.eJerv8 ?Osition, who
tells me that he can adjust our o-perations to the new
regul~tions without much difficulty, ~t that he is
not syrr:.yathetic with the cha.nge, a.s the weekly a.ver.?g.:'J
has gen<3rally ....-orked well, and thinln some method
might be devised for dealing with the fc~ banks v;hote
dealings with res~ect to reserves are out of harmo~~
with the spirit of the regulations.
If, as I understand, the Federal Ruserve
Board is all ready to issue these new regulations, I
~arsonally think it might be as well that they be
given a trial.
Sincerely yours,
(Signed) J. S. Alexander.
(cony)
Septe;r,ber 00, 1927.
Dear
~~.
Lichtenstein:
I am in recei-')t of your letter of the 29th with
cmclosur<Js as stated -- copies of recommendations made by
the Federal F.eserve Council. Also acknowledge receipt of
your telegram ycstorday with reference to the proposed
c::,.ange in regulation D, Section Four by the Federal Reserve
Board in connection ~~ith figuring resbrve requir;;;ments. I
have sent a telegram today to lv'.r. Platt, Acting Gov._.:rnor of
thu Federal Reserve Board in ';~ashington, copy of which is
enclosed. I have also had a conforance with Gov. Fancher
on the 3t:.bj<::ct and I get thEo ir:1prossion that some of the
banks in the larger cities are tho chronic offenders and I
have been taking the position that the ?ro,osed changes
aro disturting and should be handled by regulations and
penal ties exacted of the chronic offenders only. I am inclir-ed to the belief, however, that the Federal Resarve
Board at Washington are determined and the governors are
supporting t:tem in the -orouo sed change. I concur in !,,:r.
Wetmore's telegram to Er. Platt.
Very truly yours,
(Signed)
:Iarris
Crco:;c~1.
(CoDy)
X-497;=:-J.
SeptL,mber 30, 1927.
Dco.r
~.~r.
Lichtenstuin:
Referring to your lctt~;r of Sopt.:::mb0r 24th, in r~:;gc.rd to the
proposed draft of no•• r.:.gulations for figuring th0 r-.;scrvt)s.
In going over the situation here in St. Louis I
consider the follov•ing circu.'!lstances.
Dlil
lecd to
As far DS the member-banks in the City of St. Louis are concerned, I believe it ·,-,·ould be contrary to their interest to have the
')r01JO sed regulations requiring a semi-,,·eekly settlement put into effect. ro·:: the banks adjust their bt'la.nces to meet reserve requirements before t1:o o 1 clock eDch da~: and they mny get \·>ire instrudtions
for tro.nsfe:r;s from other ci tics in ver;r l~rge nmounts too late to get
credit for them, cr to adjust thdr bf'll...,nces to fit the situation that
day.
Moreov0r, I understand the Federal Reserve :BD:ik will not give
member b.onks heru credit for c.ir mail remi ttE>.nces except for certain
number of days, for instance, Ne" York - two d.Dys. Yet, if it turns out
that the remittance on tb.c'\ t dLy gets to N..;·,; York, ..-:-_d tha mcmbor b~.nk
gets credit next morning, the Fcdera.l Rosorvo :Bc.nk in St. Louis •:ill adjust this matter and g:.vo tho mombcr br:.ni;;: here crodi t r:s of tho time tho
mono~- was nctually rccwi vod in 1~err York.
Th-~t lc'J.VCS tho me:r::ber b~.r.k
here in tho position Y:hcr0 it cMnot definitely toll just ;·Jhc.t its balance for the dey is, nnd if th0y make t\,o settlarJGnts in a '\"Wok there
is just triicD as much chanco for th<: mcmb~.:.r baf'.k horc to 0i thor h"..VC excess 'iiithout inturest or be pcnalizvd ~.hen thoy did not intend to have
eith-..::r.
If thu mL.:mb..:r bunks heru h.:1d a voice in tho matt·:r I
they v.ould oppose th'- cha:-"g0 nnd at pr-::sor.t tho.t is my view.
&l
sure
I am dictating this lettur to r~ry confid . mtia.l secretary, l1lr.
Duvwnport, and will not r;ai t for it to be Y:ri tten and v;ill leave hirr. to
sign it for Be.
Ver'/ truly yours 1
(Signed)
:Breckinridge Jon0s.
( COFY)
=·~ -4S'72-0
So"'Jt. 27, 1927.
Dear I :r. '.'.' ~ tmore:
I havo a lottor fro·::1 I'r. Lichtenstein dated tho 24th,
onclosin{: ;Jro:Josod draft of rcfula.tions covoring ros..;rvos of merr;bt.::r ba:iks, also co:J~' of his l<.:ttcr to Lr.
Ple.tt, acting Governor, federn1 Reserve Board, beering
same date. I agree ·:;i th your telegrams to !,:r. Platt on
this subject.
There is no "Orovision of the Federal Reserve Act so
un"!JO mlar Yii th the ;:nember banks as the question of
reserves, a:1d I think it unfortunate for the Board to
render it ar..;r :r.:oro ur..:Jo-yulcr by ,"JdO::>ti:.l.g regulations
more dra::otic than those no·;; in forco. Thore may be a
few member banks thn.t are seeking to side sten their
rcs-ponsi bili ties, o.nd they should bo don.l t with individuall~r by the exccuti vc officors of the Fod~;;ral R"~
sorvc Bar.ks ro.th0r than GUbjecting all of the member
bar.Jcs to undue 00nal tics.
va th
bost rcg:ll'ds,
Yours truly,
(Signed)
JFB/P
J. l!'. Bruton.
( COPY )
THE PHI.LA:CELPHIA-GL.'=t.ARD r:A1·ICJRAL E.Al'IT.:.
Office of the
Chairman of the Board
September 29, 1927.
Mr. Edmund Platt, Acting Governor,
Federal Reserve Board,
Washinbton, D.C.
Dear :Jr. Platt:-
Mr. Lichtenstein's letter of September 24th. enclosing
'
proposed draft X:rf. new regulations
for figuring the reserves of member
banks, together with copy of Mr. Lichtenstein's letter to you of the saoe
date, is received. I hava received today Mr. Lichtenstein's wire asking
me to send as soon as possible any suge:estions or comments.
The proposed regulations reclassHy into two divisions,-the
banks in central reserve and reserve cities, and provide that member banks
in cities having a Federal Reserve Bank or a branch of a Federal Reserve 3ank
shall comyute average reserves upon a semi-weekly ·oasis instead of a w-eekly
basis as at present. The basis of penalty for deficient reserves in ell
classes of membe1· banks is :provided also and there are two additional p1~o
visions at the end, which would seem desirable.
It has seemed to me that the present weekly basis of averaging reserves by member blli1ks in the cities having a Federal Reserve ~ank
or a br;:mch of the Federal ~cLorvc :,;a.."lk has worked very satisfactorily and
I believe the change is q:.::.i te unde:;;irable. It is ;?ossiole that bere have
been abuses in some quarters, but my feeling is that the a"Juses should be
controlled a.'ld that all member ba.nks should not be penalized by having greater and inelastic restrictions im::>osed u9on them. The de)osi ts of a ban!.: l;.ave
certain fluctuations and the rise and fall very generally occur on the same
da.ys each week. A ban:-: officer handling a reserve beco::1es accustomed to
these fluctuations a.'1d can a11ticipate them to some extent; not always, of
course. If the reserve pel~iod is divided into S8ii1i-weekly ueriods, tl1e conditions will become quite inelastic, necessitating more freque:1 t borrowings
and payme;.1 ts at Federal Reserve Banks, and t~1ereby multiplying work for all
cone erned. Deposits of a bcu1k must necessarily fluctuate and rlsserve balances
must p1·ovide the payment of the de:osi ts wi t:1drawn. Under tha present s;ystc:-.G,
a deficient reserve may be repaired by collection of maturing bills or cu.lling of demand loans.
If a bru1k is on a weekly reserve basis tl1ere is
greater elasticity in meeting the condition and, as stated previously, a
semi-weekly ~~eserve ;)eriod makes for an inelastic condition.
!vir. Wetmore su.6gests in lieu of the proposed semi-;vee:.d.y
period a penalty when deficie~t reserves exceed 10%. Eis principle is GOllild.
I think, but the pe~"centage of deficiency is too low~ in my opinion.
I should J.l'der to have t1H' :present r$e8ffj /basis continued
and have abuses coutrolled.
The pro·;)osed L:crease in the rate to be charged on deficient
reserves, the right to the Federal Reserve ]oe.rd to waive the penalty
and the :QlD!l of d.ealin;; ·.-rith t.:1e c:rronic offer.ders, I believe, are sound.
Very truly yours,
(Signed) L. L. Ru.e.
C.C.to Mr.F.
0. Wetmore, Co;.'ltinental & Commercial Ha.tional Bank, C:.1icn.go.
( OOPY )
T E
L E
G R
'
!.·
X-4972-;:;
Cleveland, Ohio.
Septer.c.ber 30th, 1927.
Edmm1d Plo.tt, Actbg J.overnor,
Federal :a.eserve Board,
Was~ington,
D.C.
Have 'oee::1 e;ivbz some thought to :pro:;:>osed regulation D Section
Four with refere~.;.ce to change in figuring reserve requirements. Stop.
Proposed change will have an U..."lstable effect on money. requiring bari!cCs
to call loans oftener, require bru1ks in large centers to do o.ddi tional
work a.nd adjust their balances oftener than those in smnller citi~s. Sto;?
Believe chronic offenders can bo hc~dled by regulation exacting penalties
that do not disturb the methods of tho entire membership 0~1 c.ccount of
actions.of a smnll minority.
Harris Creech.
( COPY )
X-4972-h
THE CLEVEL.Al:TD TRUST 00.
Cleveland, Ohio.
HARRIS CREEC3:
}?.:osiden t.
September 30th, 1927.
Dear l,Ir. Platt:As stated in the enclosed copy of telegram,
I have been giving a little thought to tho proDosed change in
fi~1 ing
reserves and unless there is a large number of banks
that arc chronic offenders, it seems to me that regulation by
the Federal Reserve Board would be preferable in exacting
penalties of the chronic offenders than to change the method
of figuring reserves for the entire system.
The changes which
are proposed make it more difficult for those banks that endeavor
to live up to the rules of the Faderal Reserve Board, and I would
not favor the changes unless in your opinion, you feel it is absolutely necessary to maintain required reserves.
Very truly yours,
(Signed) Harris Creech
Edmund Platt, Acting Governor,
Federal Reserve :Soard,
Washin~ton,
D.C.
( COPY )
X-497G-i
Walter Lichtenstein
Executive Secretary.
T~J,E
FIRST NATIONAL BAliK
OF CHICAGO
September 24, 1927.
Dear Mr. Platt:
In J~r. Wetmore's a·csonce, I beg to confirm the following wire
sent to you by ;:r. Wetmo:-e before leaving the office last night.
"Referring proposed regulation D section four in my opinion
a:.1y shortening of present period wi 11 lead to sr...arp expansions
and contractions of loanable and reserve :unds as any two periods in to wh.ich week might be divided a:·e ·quite unlikely to run
uniformly Stop As this is a?rarently a regulatory measure covering practices which are the oxceptian and not the rule additional penalties could be imposed upon offenders in some other way
Stop Sue;gest leaving periods for figuring reserves as they now
txist but issue regulation to the effect that ~~y member bank
short on any day over ten per cent of its balance in Federal
Reserve Bank for that ~ay b~ assessed a penalty for that particular excess shortage the amount of penalty to be fixed by
the Board in its discretion Stop This would not interfere with
' the weekly averaging of the reserves which should continue as
before to be intact for the period with now existing penalties
for deficiencies Stop I submit this fo:r your eonsideration. 11
lvly underGtanding is that Mr. Wetmore feels that any shortening
of the present period fo~ figuring reserves will make it more difficult
for the ban~ to estimate hew much they will require of funds at the end
o! any giTen period. In order, therefore, to be on the safe side banks
will be compell~d at times ~~necessarily to call in their loans.
This
will lead to more violent fluctuations than at :present.
Mr. Wetmore,
of course, realizea that as always some bann have abused their :privilege
by having large shortages at the end of every day except at the close of
the period. Nevertheless, it does not seem fair to penalize unnecessarily
large numbers of banks which have tried their best to live up to tho lJttor
and spirit of the regulations of the Federal Resorve Board. It is with
this situe.tion in mind that Mr. Wctm0re has made the suggestion contained
in his wire •
.A.s I have indicated, Mr. Wetmore is mt in tho office today and,
therefore, this explanation of his views is to be regarded as an entirely
unofficial expression from me.
Sinc:::.rel..y YO'.:cl"'r;,
Mr. Edmund Platt, Actiug Governor,
Federal Reserve Board~
Washin6ton, D.C.
( COPY )
x-4972-j
T E L
~:.'
167 J:TL
Chica~o. Illinois
113 'Y
~
G B.
A M
Sept. 23, 1927.
Edmund Platt,
Acting Gover~or, Federal
~eserve 3oard,
Washbgt:m, D.C.
Referrbg ;~ro)osed reGUlation D section four in my op~nlOn any shortening
of p1·esent period will lead to sharp ex-;;>nnsions a."ld contractions of loa11able
and reserve funds as a:.-.y two pe.dods in to w:1ich Welek might be divided are
quite unlikely to run uniformly Stop
As bis is a.pparen tly a regulatory
measure covering practices which arc the exception and not the rule
additional :penal ties could be i:ir;:;o sed upon offe::::ders in some other way
St0p
SUgbest leaving periods for figuring reserves as they now exist
but issue rcg_._lation to tl1e cff ..;ct that a:..1y m8mbcr bank short on any day
over t(:Jn :.K.rcont of its b;;.la;.lce in Federal Reserve Bank for that day be
asscss:;d a p.:malty for that particular excess shortage the ar.:.:>ur:.t of
penal tJT to b0 fixed by tho Board in its discretion Stop Tnis would not
interfc:.c with the weekly averaging of the r;:;sorvcs which sh:>Uld continuo
as befo:ce to be intact for the period Yii th now existing penalties for
deficiencies Stop
I submit this for your cm1sid.era tion.
F. 0. r:'l'etrnore
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
X—4975
THE FEDERAL RESERVE BOARD
October 18, 1927.
SUBJECT:
Topic f o r Governors' Conference.
Dear S i r :
The Governor of the Federal Reserve Bank of
Dallas has advised the Board that he has forwarded to the
Governor of each other Federal reserve "batik, copy of an
opinion rendered "by Counsel f o r that tank with r e s p e c t to
the e f f e c t upon the n e g o t i a b i l i t y of backers' acceptances
of c e r t a i n language contained i n the standard form of endorsement p l a c e d thereon "by the accepting hanks to show
the e l i g i b i l i t y of the acceptances f o r rediscount at
Federal reserve hanks.
I t i s understood that t h i s question w i l l "be
given c o n s i d e r a t i o n a t the forthcoming conference of
Governors. The question has heen r e f e r r e d to Counsel f o r
the Federal Reserve Board and the Board has approved a
recommendation Wade "by him that the conference he requested
to consider c e r t a i n , suggestions s e t out i n a memorandum addressed to the Board* copy Of which i s enclosed herewith*
d i r e c t i o n of the f e d e r a l Reserve Board.
Walter L. Eddy,
Secretary.
TO! GOVERNORS OF ALL F»R. BAMS EXCEPT DALLAS.
.
X-4975-a
. ( COPY )
i
October 7 , 1927.
F e d e r a l Reserve Board
*
>
Mr. Vest - A s s i s t a n t Counsel.
OO/S
n e g o t i a b i l i t y of c e r t a i n
forms of bankers f a c c e p t a n c e s .
The a t t a c h e d l e t t e r from Governor T a l l e y of the F e d e r a l Reserve
Bank of D a l l a s s u g g e s t s t h a t t h e language c o n t a i n e d in t h e s t a n d a r d
form of endorsement p l a c e d on b a n k e r s 1 a c c e p t a n c e s by t h e a c c e n t i n g
banks to show e l i g i b i l i t y f o r r e d i s c o u n t in accordance w i t h t h e
Board*s r e g u l a t i o n s may render such acceptances n o n n e g o t i a b l e .
He
e n c l o s e s a copy of an o p i n i o n of Counsel f o r the F e d e r a l Reserve
Bank of D a l l a s to t h e e f f e c t t h a t the f o l l o w i n g language would r e n d e r
bankers* a c c e p t a n c e s n o n n e g o t i a b l e ;
" T h i s a c c e p t a n c e a r i s e s from the domestic s t o r a g e
of c o t t o n and was secured a t the time of a c c e p t a n c e by
documents s e c u r i n g and conveying t i t l e to
bales
and w i l l remain so s e c u r e d throughout t h e l i f e of t h i s a c ceptance,"
This c o n c l u s i o n i s b a s e d on two grounds (1) t h a t t h e language
u s e d comes w i t h i n t h e r e c e n t Texas d e c i s i o n of Lane Company v. Crum
in which a t r a d e a c c e p t a n c e was h e l d to be n o n n e g o t i a b l e , and (2)
t h a t an a c c e p t a n c e h a v i n g t h i s language c o n t a i n s a promise to do
an a c t i n a d d i t i o n to t h e payment of money.
The f o l l o w i n g a r e t h e forms of c e r t i f i c a t i o n of a c c e p t a n c e approved
by t h e Board in 1921 f o r u s e on the s e v e r a l types of bankers* a c c e p t a n c e s :
i
"Domestic Snipments;
>
'At time of a c c e p t a n c e , t h i s "bill was
accompanied by s h i p p i n g documents e v i dencing t h e domestic shipment of (name
of commodity) f r o m ( p o i n t of shipment)
to ( p l a c e of d e s t i n a t i o n ) .
(Name of A c c e p t o r ) 1
"Import and Export T r a n s a c t i o n s ;
' T h i s a c c e p t a n c e a r i s e s out of a t r a n s a c t i o n i n v o l v i n g ( i m p o r t a t i o n ) o f (name
(exportation^
of commodity) from ( p o i n t of shipment)
to ( p l a c e of d e s t i n a t i o n ) .
(Fame of A c c e p t o r ) 1
"Warehouse Secured C r e d i t ;
' T h i s b i l l was secured a t the time of
a c c e p t a n c e by independent warehouse,
t e r m i n a l , or o t h e r s i m i l a r r e c e i p t conveying s e c u r i t y t i t l e to (name of r e a d i l y marketable s t a p l e ) stored i n (country
where s t o r e d ) and t h e a c c e p t o r w i l l remain
secured throughout t h e l i f e of t h e b i l l .
(Name of A c c e p t o r ) 1 "
X-4S75-a
I t w i l l be n o t e d t h a t t h e l a s t tv:o of t h e d e r t i f i c r . t o s above quoted
c o n t a i n language s u b s t a n t i a l l y t h e some as c e r t a i n p a r t s of t h e endorsement
c o n s i d e r e d 'oy Counsel f o r the D a l l a s F e d e r a l Reserve Bank to r e n d e r a c ceptances nonncgotiable.
In t h e c a s e of Lane Company v. Crun, the Su orerne Court of Texas h o l d
that
the f o l l o w i n g language i n a t r a d e acceptance r e n d e r e d i t nonnegotiable:
"The o b l i g a t i o n of the a c c e p t o r h e r e o f a r i s e s out
of the p u r c h a s e of goods from t h e drawer, m a t u r i t y b e i n g i n c o n f o r m i t y w i t h the o r i g i n a l terms of p u r c h a s e . "
In o r d e r to meet t h i s d e c i s i o n t h e F e d e r a l Heserve Board recommended
a change i n t h e s t a n d a r d form of t r a d e a c c e p t a n c e so a s t o e l i m i n a t e
t h e r e f r o m t h e c l a u r e quoted and to i n s e r t i n l i e u t h e r e o f t h e f o l l o w i n g : "The t r a n s a c t i o n which g i v e s r i s e to t h i s i n s t r u m e n t i s the p u r chase of goods by t h e c c c e p t o r from the drawer. 11
I can see no e s s e n t i a l d i f f e r e n c e between t h i s p r o v i s i o n recomnended to overcor.e t h e d e c i s i o n i n Lane Company v . C r m , and t h e s t a t e m e n t
"This a c c e p t a n c e a r i s e s from t h e domestic s t o r a g e of c o t t o n * * *, " v.hich
was c o n s i d e r e d by Counsel f o r the F e d e r a l Heserve Bank of D a l l a s to cone
w i t h i n t h i s Texas d e c i s i o n . I f h i s c o n c l u s i o n i s c o r r e c t , t h e new -qrev i s i o n of t h e s t a n d a r d form cf t r a d e a c c e p t a n c e would seen t o be i n e f f e c t i v e t o accomplish t h e d e s i r e d r e s u l t .
In my o p i n i o n , however, the language, "This a c c e p t a n c e a r i s e s
from t h e domestic s t o r a g e of c o t t o n * * *" does not come w i t h i n
t h e Lane Company d e c i s i o n and does not render an ncccpfcance n o n n e g o t i a b l e .
I t w i l l be. observed t h a t t h e 1angaage j u s t quoted does not c o n t a i n the
words " t h e o b l i g a t i o n of the a c c e p t o r " found i n the language c o n s i d e r e d
i n t h e Lane Company c a s e . The o p i n i o n i n t h a t case i n d i c a t e s t h a t t h e s e
words were the b a s i s of the d e c i s i o n , on t h e t h e o r y t h a t t h e o b l i g a t i o n
of t h e a c c e p t o r a r o s e not from t h e i n s t r u m e n t but from c o l l a t e r a l t r a n s a c t i o n s . The absence of t h e s e Words i n my o p i n i o n t r k e s the language
out of t h e Lane Company e a s e . The N e g o t i a b l e I n s t r u m e n t s Act, which has
been u n i f o r m l y adopted, e x p r e s s l y p r o v i d e s t h a t a n e g o t i a b l e i n s t r u m e n t
nay c o n t a i n a s t a t e m e n t of t h e t r a n s a c t i o n which g i v e s r i s e t o t h e i n s t r u m e n t . I t would seem t h a t t h e c l a u s e , "This a c c e p t a n c e a r i s e s from
the domestic s t o r a g e of c o t t o n * * *" as '..ell a s the now p r e v i s i o n i n
t h e s t a n d a r d form of t r a d e a c c e p t a n c e cones c l e a r l y w i t h i n t h i s p r o v i s i o n
of t h e N e g o t i a b l e I n s t r u m e n t s A c t . The s&::o may be s a i d a l s o cf t h e
form of c e r t i f i c a t e f o r a c c e p t a n c e s a r i s i n g out cf import and export t r a n s a c t i o n s approved by t h e Board i n 1921 and quoted above.
The second r e a s o n f o r t h e c o n c l u s i o n r e a c h e d by Counsel f o r t h e
F e d e r a l Reserve Bank of D a l l a s i s t h a t t h e n r e v i s i o n t h a t t h e a c c e p t ance " w i l l remain sc s e c u r e d throughout the l i f e cf t h i s a c c e p t a n c e " i s
a p r o n i s e t o do an a c t i n a d d i t i o n to t h e payment of money. S i m i l a r
language i s found i n t h e form of c e r t i f i c a t e of a c c e p t a n c e approved
by t h e Board i n 1921 f o r acceptances c o v e r i n g t h e s t o r a g e of r e a d i l y
marketable s t a p l e s .
X-4975-a
9^
A3.though the N e g o t i a b l e I n s t r u m e n t s Act p r o v i d e s "An i n s t r u ment which c o n t a i n s an o r d e r or promise to do an a c t i n a d d i t i o n
t o t h e payment of money i s not n e g o t i a b l e " , t h e b e t t e r r u l e seems
to be t h a t an a d d i t i o n a l promise which does not impair the o b l i g a t i o n
to pay t h e . c e r t a i n amount of money, but which t e n d s t o f a c i l i t a t e r a t h e r
t h a n t o impede i t s c o l l e c t i o n , does not a f f e c t n e g o t i a b i l i t y . 8 Corpus
J u r i s , page 125. The $r,a.ne r u l e i s s t a t e d i n s u b s t a n t i a l l y t h e same
language i n 1 Daniel on N e g o t i a b l e I n s t r u m e n t s , page 80. Thus, i n
t h e case of Farmer v . F i r s t N a t i o n a l Bank, ( A r k . ) 115 S.W. 1141, a
n o t e c o n t a i n i n g a s t i p u l a t i o n by the maker to have t h e p r o p e r t y s e c u r i n g
t h e same i n s u r e d was h e l d to be n e v e r t h e l e s s n e g o t i a b l e . The Court s a i d
"Here t h e r e c i t a l s of t h e f a c t of t h e mortgage as a
c o l l a t e r a l t o t h e n o t e and of t h e promise t o have the p r o p e r t y i n s u r e d a s an a d d i t i o n a l s e c u r i t y do not i n any wise imp a i r t h e o b l i g a t i o n t o pay the c e r t a i n amount i n money named.
I t does not t e n d to impede, but r a t h e r to f a c i l i t a t e , i t s c o l l e c t i o n . The promise to pay a c e r t a i n sum of money a t a c e r t a i n
time remains a b s o l u t e . The c o l l a t e r a l c o n t r a c t does not a f f e c t
t h e p r i n c i p a l o b l i g a t i o n except to a i d i n i t s f u l f i l l m e n t . The
n o t e t h e r e f o r e remains a 1 c o u r i e r w i t h o u t luggage.*
In the case of C h e r r y v . Spra^u.e, (Mass,) 72 EM). 4 5 7 t h e
Court s a i d " I t i s s e t t l e d , t h a t the i n c o r p o r a t i o n i n t o an i n s t r u m e n t
which c o n t a i n s an u n c o n d i t i o n a l promise to pay a d e f i n i t e sum of
money of a d d i t i o n a l s t i p u l a t i o n s does not of i t s e l f n e c e s s a r i l y dep r i v e t h e i n s t r u m e n t of the c h a r a c t e r of a promissory note * * *
I f t h e a d d i t i o n a l s t i p u l a t i o n r e l a t e s to the manner i n which t h e u n c o n d i t i o n a l promise to pay a d e f i n i t e sum may be e n f o r c e d , and does
not change t h e promise from one to pay t h a t sum a b s o l u t e l y and a t
a l l e v e n t s , or change the g e n e r a l n a t u r e of the whole c o n t r a c t , the
i n s t r u m e n t i s a promissory n o t e , n o t w i t h s t a n d i n g a d d i t i o n a l s t i p u l a t i o n s r e l a t i n g t o t h e manner of enforcement of t h e promise i f i t
s h a l l be b r o k e n . "
There a r e one or two; c a s e s which a t f i r s t glance appear t o
be c o n t r a r y to t h e a u t h o r i t i e s above c i t e d on t h i s question* Thus,
i n t h e c a s e of E j ^ i r ^ a n d v . N a t i o n a l S a l t Company, (iT J , ) 81 A t l .
828, a p r o v i s i o n by wMch the maker promised to keep t h e p r o p e r t y
s e c u r i n g t h e xnstrumfrn t / f r o m encumbrances and of the same v a l u e as
when i t was p l e d g e d was h e l d to be a promise t o do an a c t i n a d d i t i o n
t o t h e payment of money and, t h e r e f o r e , the i n s t r u m e n t was c o n s i d e r e d
n o n n e g o t i a o l e . In t h a t c a s e , however, the maker of t h e i n s t r u m e n t
had a g r e e d to do c e r t a i n o t h e r t h i n g s b e s i d e s k e e p i n g the p r o p e r t y
f r e e fi om encumbrances, and t h e r e wore o t h e r grounds which t h e c o u r t
a l s o c o n s i d e r e d i n r e a c h i n g the c o n c l u s i o n t h a t the i n s t r u m e n t was
no nnego t i a b l e. I n the case of B r i g h t v . Of f i e l d , (Wash,) 143 P a c . 159,
i t was h e l d t h a t a p r o v i s i o n to t h e e f f e c t t h a t i f the maker should
p e r m i t t h e t a x e s on mortgaged p r o p e r t y to become d e l i n q u e n t t h e whole
amount of the i n s t r u m e n t should become a t once due and p a y a b l e , was i n
e f f e c t a promise t o pay t a x e s on the mortgaged p r o p e r t y , t h u s making
t h e amount of the n o t e u n c e r t a i n because of the u n c e r t a i n t y a s to the
amount of t a x e s , and the note no nnego t i a b l e . The c o u r t r e a c h e d t h i s
c o n c l u s i o n , however, p r i m a r i l y on the ground t h a t t h i s p r o v i s i o n was i n
X-4975
-4effect
/ a c o n d i t i o n a l promise t o pay an u n c e r t a i n sum of money.
In the case under c o n s i d e r a t i o n t h e a c c e p t o r of the b i l l a g r e e s
t o pay a c e r t a i n sum of money 4 in accordance w i t h the terms of t h e
b i l l . I n a d d i t i o n he s t a t e s t h a t ho w i l l remain s e c u r e d throughout
t h e l i f e of t h e " b i l l . This p r o v i s i o n , however, does not i n any way
r e n d e r c o n d i t i o n a l h i s promise to pay or render the amount t o he
p a i d u n c e r t a i n . I t does not impede the c o l l e c t i o n of the i n s t r u m e n t
i n any way; i f a n y t h i n g i t f a c i l i t a t e s i t s c o l l e c t i o n . Applying the
above a u t h o r i t i e s to t h e p r e s e n t c a s e , t h e r e f o r e , i t would seem t h a t
under the b e t t e r r u l e a p r o v i s i o n to t h e e f f e c t t h a t the a c c e p t a n c e
or t h e a c c e p t o r w i l l remain s e c u r e d throughout t h e l i f e of the
a c c e p t a n c e would not a f f e c t the n e g o t i a b i l i t y of t h e i n s t r u m e n t •
In my o p i n i o n t h i s i s the c o n c l u s i o n which the c o u r t s of most j u r i s d i c t i o n s would r e a c h on t h i s q u e s t i o n , a l t h o u g h t h e r e may be &omc
doubt a s to whether t h i s view would be t a k e n i n a l l j u r i s d i c t i o n s .
CONCLUSIONS.
My c o n c l u s i o n s may be summarized b r i e f l y a s f o l l o w s : The
forms of a c c e p t a n c e approved by the Board i n 1321 f o r a c c e p t a n c e s
a r i s i n g out of domestic shipments and f o r a c c e p t a n c e s a r i s i n g out
of import and e x p o r t t r a n s a c t i o n s c o n t a i n no p r o v i s i o n s which would
r e n d e r t h e a c c e p t a n c e s n o n n e g o t i a b l e . The form approved f o r u s e i n
case of a c c e p t a n c e s s e c u r e d by r e a d i l y m a r k e t a b l e s t a p l e s c o n t a i n s
no p r o v i s i o n which under t h e b e t t e r r u l e , would r e n d e r t h e a c c e p t ances n o n n e g o t i a b l e , but inasmuch a s i t c o n t a i n s t h e c l a u s e . n t h e
a c c e p t o r w i l l remain s e c u r e d throughout the l i f e of the b i l l " , t h e r e
may be a few j u r i s d i c t i o n s i n which such a c c e p t a n c e s would not be
considered negotiable.
I u n d e r s t a n d from Governor T a l l e y ! s l e t t e r t h a t t h i s m a t t e r
i s to be on t h e urogram f o r the forthcoming Governors* Conference,
presumably to g i v e c o n s i d e r a t i o n t o some p l a n whereby such p a r t s
of t h e c e r t i f i c a t e s which have been approved by the Board f o r
u s e i n a c c e p t i n g b i l l s a s make t h e i n s t r u m e n t s n o n n e g o t i a b l e nay
be e l i m i n a t e d . I f d e s i r e d , t h e p o s s i b l e e f f e c t on n e g o t i a b i l i t y
of the c l a u s e M the a c c e p t o r w i l l remain s e c u r e d throughout the l i f e
of t h e b i l l " may be avoided by having the a c c e p t i n g bank p l a c e t h e
agreement t o remain s e c u r e d throughout t h e l i f e of t h e b i l l i n an
i n s t r u m e n t s e p a r a t e and a p a r t from t h e a c c e p t a n c e i t s e l f and submit t h e same to t h e member bank which d i s c o u n t s t h e a c c e p t a n c e s
or d i r e c t l y to t h e F e d e r a l r e s e r v e bank, only i n c a s e of r e d i s c o u n t
of the a c c e p t a n c e by t h e F e d e r a l r e s e r v e bank. I t i s d o u b t f u l , however, whether t h i s course i s d e s i r a b l e a s a p r a c t i c a l m a t t e r , and i n
•Kiew of t h e c o n c l u s i o n above reached t h a t the c l a u s e mentioned would
r e n d e r an i n s t r u m e n t n o n n e g o t i a b l e i n few j u r i s d i c t i o n s , i f indeed,
i n any, i t may be a d v i s a b l e to l e a v e t h e forms of c e r t i f i c a t i o n of
a c c e p t a n c e s j u s t a s they have been s i n c e 1921,
Respectfully,
GBV—sad
George B. Vest
A s s i s t a n t Counsel
X-4975--a
3 8 8
I
on parinod-pXe Mr- Veet * 6 li*gal
b e l i e v B
c o n c l u s i o n s
a r e sound.; "bat I f e a r t h a t , i n view of the d e c i s i o n i n Lane Company
v . Crum, some of t h e c o u r t s might h o l d t h a t a c c e p t a n c e s "bearing t h e
second and t h i r d c e r t i f i c a t e s a r e n p n - n e g o t i a b l e .
t h e d e c i s i o n i n Lane Company
In my o p i n i o n ,
v . Crum was wrong; Tout, n e v e r t h e l e s s ,
i t e s t a b l i s h e s the law i n t h e S t a t e of Texas and may "be f o l l o w e d i n
other j u r i s d i c t i o n s .
The same c o u r t which decided t h e Crum c a s e
i n c o r r e c t l y , and any c o u r t s which might be i n c l i n e d to f o l l o w the
d e c i s i o n i n t h e Crum c a s e , would "be l i k e l y to h o l d t h a t such a c c e p t ances a r e n o n - n e g o t i a b l e .
I t i s h i g h l y important t h a t t h e r e should "bo no q u e s t i o n
i n any j u r i s d i c t i o n as to the n e g o t i a b i l i t y of t h e s t a n d a r d forms
of a c c e p t a n c e s .
I believe, t h e r e f o r e , t h a t , as a p r a c t i c a l matter,
i t would be d e s i r a b l e to change t h e second and t h i r d c e r t i f i c a t e s
quoted above i n such a way a s to e l i m i n a t e a l l p o s s i b l e doubt of
the n e g o t i a b i l i t y of a c c e p t a n c e s c o n t a i n i n g such c e r t i f i c a t i o n s .
No doubt h a s been c a s t upon t h e n e g o t i a b i l i t y of a c c e p t a n c e s b e a r ing t h e f i r s t c e r t i f i c a t e quoted above.
EECOmrnNDATIOES:
I r e s p e c t f u l l y recommend, t h e r e f o r e , t h a t t h e Governors 1
Conference be r e q u e s t e d t o c o n s i d e r t h e f o l l o w i n g s u g g e s t i o n s :
1.
That no change be made i n t h e form of c e r t i f i c a t e t o
be u s e d on a c c e p t a n c e s c o v e r i n g domestic shipments.
2.
ances c o v e r i n g
That the form of c e r t i f i c a t e to be u s e d on a c c e p t import and export t r a n s a c t i o n s be changed to r e a d
as follows:
11
The t r a n s a c t i o n which g i v e s r i s e to t h i s i n s t r u ment i s t h e ( i m p o r t a t i o n ) of (name of commodity) from
(exportation)
4
X-4975~a
( p o i n t of shipment) t o ( p l a c e of d e s t i n a t i o n ) .
Home of A c c e p t o r . "
3.
That t h o c e r t i f i c a t e
he e l i m i n a t e d e n t i r e l y from
t h e f a c e s of a c c e p t a n c e s s e c u r e d by warehouse, t e r m i n a l or o t h e r
s i m i l a r r e c e i p t s ; and t h a t the f o l l o w i n g form of c e r t i f i c a t e he
p r i n t e d on a s e p a r a t e p i e c e of p a p e r to accompany t h e a c c e p t a n c e :
11
This c e r t i f i e s t h a t a c e r t a i n b i l l drawn hy
(Name of drawer) on the u n d e r s i g n e d f o r $
dated
, and a c c e p t e d by the u n d e r s i g n e d ,
was s e c u r e d a t the time of acceptance by independent
warehouse, t e r m i n a l or o t h e r s i m i l a r r e c e i p t conveyi n g s e c u r i t y t i t l e to (name of r e a d i l y marketable
s t a p l e ) s t o r e d i n ( c o u n t r y where s t o r e d ) and t h a t
the a c c e p t o r w i l l remain s e c u r e d throughout t h e l i f e
of t h e b i l l .
Name of A c c e p t o r . "
This may be l e s s convenient
t h a n a c e r t i f i c a t e on the
f a c e of the a c c e p t a n c e but i s much s a f e r and i s no more cumbersome
than an a c c e p t a n c e with a b i l l of l a d i n g or warehouse r e c e i p t
attached.
I a l s o recommend t h a t a copy of t h i s memorandum and the
a t t a c h e d correspondence be s e n t to a l l Federal r e s e r v e banks f o r
t h e i r i n f o r m a t i o n i n c o n n e c t i o n w i t h t h e d i s c u s s i o n of t h i s t o p i c
a t the Governors' Conference,
Respectfully,
Walter Wyatt,
General Counsel.
m
WLH 10-8-27
FEDERAL RESERVE BOARD
WASHINGTON
X-H97S
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
Oc tube.: 13. 192J.
SUBJECT:
Topic f o r Governors' Conference,
Dear S i r :
The r i g h t of a F e d e r a l r e s e r v e bank to charge to
t h e r e s e r v e account of an i n s o l v e n t member bank checks r e c e i v e d by t h e F e d e r a l r e s e r v e bank f o r c o l l e c t i o n and t r a n s m i t t e d to t h e member bank f o r payment p r i o r to i n s o l v e n c y ,
has been q u e s t i o n e d by t h e r e c e i v e r of an i n s o l v e n t n a t i o n a l
bank as t h e r e s u l t of such a charge made by t h e F e d e r a l Res e r v e Bank of Richmond. The m a t t e r has been t h e s u b j e c t of
correspondence between t h e F e d e r a l Reserve Bank of Richmond
and Counsel f o r t h e F e d e r a l Reserve Board, who has a l s o t ak en
i t ut> w i t h Honorable Newton D. Baker.
The Board has voted to r e f e r t h e s u b j e c t to t h e
forthcoming Conference of Governors and a c c o r d i n g l y t h e r e i s
enclosed h e r e w i t h copy of a memorandum r e l a t i v e t h e r e t o , add r e s s e d to t h e Board by i t s General Counsel, t o g e t h e r w i t h
c o p i e s of v a r i o u s communications on t h e s u b j e c t .
By d i r e c t i o n of the F e d e r a l Reserve Board.
Walter L, Eddy,
Secretary.
TO GOVERNORS OF ALL F. R. BANKS
COPY
X-42 7 6 - a
Date - O c t o b e r 8, 1937.
To - The F e d e r a l Reserve Board
From - k r . vi/yatt - General Counsel
S u b j e c t : E i g h t of F e d e r a l Heserve
Lank t o charge t o t h e a c c o u n t of an
i n s o l v e n t member bank checks r e c e i v ed by t h e F e d e r a l R e s e r v e Bank f o r
c o l l e c t i o n and t r a n s m i t t e d t o such
member bank f o r -payment p r i o r t o i n solvency.
I r e s p e c t f u l l y submit h e r e w i t h f o r the B o a r d ' s i n f o r m a t i o n
a copy of c e r t a i n c o r r e s p o n d e n c e between t h i s o f f i c e and Mr. M.S.
W a l l a c e , Counsel t o the F e d e r a l Reserve Bank of Richmond, on t h e above
s u b j e c t . I am c a l l i n g t h i s t o t h e B o a r d ' s a t t e n t i o n b e c a u s e of t h e
f a c t t h a t i t i n v o l v e s , a c o n t r o v e r s y which i s about to he made t h e b a s i s
of a t e s t s u i t i n v o l v i n g l e g a l q u e s t i o n s of i n t e r e s t t o . t h e e n t i r e
F e d e r a l R e s e r v e System, and i t h a s o c c u r r e d to me t h a t i t mcy be a d v i s a b l e to make t h i s a t o p i c f o r d i s c u s s i o n a t t h e G o v e r n o r s ' C o n f e r e n c e .
The f a c t s may be summarized b r i e f l y , a s f o l l o w s : The Fede r a l R e s e r v e Bank of Richmond r e c e i v e d c e r t a i n checks f o r c o l l e c t i o n
p u r s u a n t to t h e terms of R e g u l a t i o n J and f o r w a r d e d them t o t h e drawee
bank f o r payment. A f t e r such checks had been r e c e i v e d by t h e drawee
bank and c h a r g e d t o t h e drawers 1 a c c o u n t s , b u t b e f o r e t h e time f o r p a y ment s t i p u l a t e d i n t h e time s c h e d u l e h a d e l a p s e d , t h e drawee bank f a i l e d
and a r e c e i v e r was a p p o i n t e d . Subsequent to t h e i n s o l v e n c y of t h e drawee
bank t h e F e d e r a l R e s e r v e Bank of Richmond c h a r g e d t h e auouiit of such
checks t o t h e r e s e r v e a c c o u n t of t h e drawee bank and c r e d i t e d same t o
t h e banks from which t h e y h a d been r e c e i v e d . S u b s e q u e n t l y , t h e r e c e i v e r q u e s t i o n e d t h e r i g h t of t h a F e d e r a l Reserve Bank to c h a r g e such
checks to t h e i n s o l v e n t h a n k ' s r e s e r v e a c c o u n t and demanded t h a t t h e
F e d e r a l R e s e r v e Bank a c c o u n t t o Jhim f o r t h e r e s e r v e b a l a n c e of t h e i n s o l v e n t bank w i t h o u t d e d u c t i n g t h e amount of such c h e c k s . The F e d e r a l
Reserve Bank t h e r e u p o n n o t i f i e d t h e banks f r o m which t h e checks were
r e c e i v e d of t h e p o s i t i o n t a k e n "by t h e r e c e i v e r and a d v i s e d such br.nks
t h a t i f t h e F e d e r a l R e s e r v e Bank was r e q u i r e d to r e f u n d t h e amount of
such checks to t h e r e c e i v e r , i t would c h a r g e same to t h e a c c o u n t of
t h e banks from which t h e checks h a d been r e c e i v e d . Some of t h e banks
from which t h e s e checks h a d been r e c e i v e d t h e n n o t i f i e d t h e F e d e r a l
Reserve Bank t h a t t h e y would n o t p e r m i t the F e d e r a l R e s e r v e Bank t o
charge such checks "back t c t h e i r a c c o u n t s , b u t would h o l d t h e F e d e r a l
R e s e r v e Bank r e s p o n s i b l e f o r the amounts t h e r e o f on t h e ground t h s t
t h e c h e c k s h a d been c o l l e c t e d .
The r e c e i v e r t o k o s t h e p o s i t i o n t h a t , inasmuch as t h e Fede r a l R e s e r v e Bank was a c t i n g m e r e l y a s a g e n t i n c o l l e c t i n g such c h e c k s ,
i t had no r i g h t to o f f s e t t h e amount t h e r e o f a g a i n s t t h e r e s e r v e
a c c o u n t of the drawee bank. P u r e l y a s a q u e s t i o n of o f f s e t , t h i s p o s i t i o n i s sound, b e c a u s e t h e a c c o u n t s wore n o t mutual and no o f f s e t i s
t o m i s s i b l e u n d e r such c i r c u m s t a n c e s .
X-4976-a
The F e d e r a l Eeserve Ban?:, however, r e l i e s upon the p r o v i s i o n s
of i t s check c o l l e c t i o n c i r c u l a r wherein i t r e s e r v e s the r i g h t " t o
charge a cash l e t t e r to t h e r e s e r v e account of the member benk a t any
time when i n any p a r t i c u l a r c a s e i t deems i t n e c e s s a r y to do s c . "
This p r o v i s i o n v<as i n s e r t e d i n the check c o l l e c t i o n c i r c u l a r of t h e
F e d e r a l Reserve Bank of Richmond p u r s u a n t to t h e a u t h o r i t y c o n t a i n e d
i n S e c t i o n V(4) of R e g u l a t i o n J , which p r o v i d e s t h a t :
"Any F e d e r a l r e s e r v e "bank may r e s e r v e t h e r i g h t
i n i t s check c o l l e c t i o n c i r c u l a r to charge such items
t o t h e r e s e r v e account or c l e a r i n g account of any such
bank a t any time when i n any p a r t i c u l a r c a s e the Fede r a l r e s e r v e bank deems i t n e c e s s a r y to do s o . "
The l e g a l i t y of the above quoted p r o v i s i o n of t h e B o a r d ' s
r e g u l a t i o n s and of t h e F e d e r a l Reserve Bank's check c o l l e c t i o n c i r c u l a r h a s n e v e r been t e s t e d i n t h e c o u r t s and i s somewhat d o u b t f u l .
I s e r i o u s l y doubt t h a t t h e F e d e r a l Reserve Board o r t h e F e d e r a l Reserve
Tank has t h e r i g h t to compel a member bank to pay a chock which t h e
F e d e r a l Reserve Bank does not own but is h a n d l i n g merely a s a g e n t by
p e r m i t t i n g sam3 t o be charged to t h e drav/ee b a n k ' s a c c o u n t , u n l e s s the
drawee bank c o n s e n t s to such c h a r g e . This p r o v i s i o n was i n s e r t e d i n
R e g u l a t i o n J on tho t h e o r y t h a t , by f o r w a r d i n g checks to F e d e r a l Reserve
Banks f o r col]pc£3,£n undor t h e terms of R e g u l a t i o n J , and oy r e m i t t i n g
to t h e Federal/ iBan&s'for chocks under the terms of R e g u l a t i o n J , the
member banks would be h e l d to have a c q u i e s c e d i n t h e terms cf t h a t
r e g u l a t i o n and to have a u t h o r i z e d t h e F e d e r a l Reserve Banks to charge
such checks to t h e i r r e s e r v e a c c o u n t s . Such a u t h o r i z a t i o n s would be
c o n t i n u o u s ; but i t ma" be argued w i t h much f o r c o t h a t t n e a,utiior_ty
t h u s given would bo revoked a u t o m a t i c a l l y upon t h e i n s o l v e n c y of t h e
drawee bank and t h a t , t h e r e f o r e , the F e d e r a l Reserve Bank h a s no right,
to charge checks t o the dra.wee b a n k ' s account a f t e r t h e drawee oank
becomes i n s o l v e n t .
I f t h e c o u r t should merely r u l e t h a t the F e d e r a l Reserve
Bank h a s no r i g h t to charge a check to the r e s e r v e account of an
i n s o l v e n t member bank, I do n o t believe- t h e d e c i s i o n would do much
harm; but t h e r e i s a danger t h a t t h e court might go much f u r t h e r by
way of dictum and say t h a t the F e d e r a l Reserve Bank h a s no r i g h t
under any c i r c u m s t a n c e s to cherge a check to the r e s e r v e ac coUj.it of
tho drawee bank u n l e s s t h e drawee bank a u t h o r i z e s the c h a r g e . <»hile
such a dictum would not be a b s o l u t e l y b i n d i n g upon the F e d e r a l ^ R e s e r v e
Bank, i t would r a i s e such s e r i o u s doubts a s to the l e g a l i t y of the
above quoted p r o v i s i o n of t h e B o a r d ' s R e g u l a t i o n s and of tne check
c o l l e c t i o n c i r c u l a r s a s to g r e a t l y i m p a i r , i f not u t t e r l y d e s t r o y ,
t h e i r u s e f u l n e s s , and I t h i n k t h i s would be q u i t e u n f o r t u n a t e .
-3X-4976-a
I n view cf a l l those c i r c m s t a r c ^ s , I "believe i fc
T<ould "be a d v i s a b l e to p l a c e t h i s s u b j e c t on t h e urogram f o r
d i s c u s s i o n a t t h e next Governors' Conference, i n o r d e r t h a t
t h e Governors might d i s c u s s v/ith Kr. Seay t h e a d v i s a b i l i t y
of making a t e s t s u i t on t h i s rruestion and might a l s o d i s cuss the p r a c t i c a l problems involved i n connection r-ith
t h e c h a r g i n g of checks to the accounts of drawee "banks.
He s-pect f u l l y ,
Vinlter ?,'yatt
Genero.l Counsel,
P aper s a t t a c h e d
TO OMC
^ , •* r j
C c t o b j r 18, 1537.
Ivir. C-eorga J . Secy, Governor,
F e d e r a l Reserve Bank,
Richmond, V i r g i n i a .
Dear Governor Seay:
I have r e c e i v e d your l e t t e r of October 14th v i t h r e f e r e n c e
to the c o n t r o v e r s y "between t h e F e d e r a l Reserve Bank of Richmond and
t h e Receiver of t h e Farmers & Merchants Bank of Lake C i t y and have
a l r e a d y s u b m i t t e d your l e t t e r to t h e F e d e r a l Reserve Board and
c a l l e d i t p e r s o n a l l y to the a t t e n t i o n of Governor Young.
You s t a t e t h a t you u n d e r s t a n d my viev; to "be t h a t the q u e s t i o n
i n v o l v e d i n t h i s c a s e ' . . i l l only become a System m a t t e r i n c a s e the
Judge should i n t r o d u c e some dictum not n e c e s s a r y to a d e c i s i o n . That
i s not e x a c t l y my v i e v . Inasmuch a s the p o i n t of la",, which w i l l
a c t u a l l y "be decided i n t h i s case w i l l n e c e s s a r i l y a f f e c t a l l the
F e d e r a l r e s e r v e "banks, I t h i n k t h e c a s e i s i n h e r e n t l y one of such a
n a t u r e t h a t i t should he c a l l e d to t h e a t t e n t i o n of a l l F e d e r a l
r e s e r v e "banks, and t h a t t h e Governors' Conference s h o u l d have an opp o r t u n i t y to d e c i d e whether or not i t d e s i r e s to have the case cade
a System c a s e . I f e e l , however, t h a t the r i g h t to charge checks to
the drawee "bank's account subsequent to i n s o l v e n c y i s r e l a t i v e l y unimportant and t h a t i t vould not do much harm i f t h a t q u e s t i o n i s dec i d e d a d v e r s e l y to t h e F e d e r a l r e s e r v e benks. On the o t h e r hand, I
f e e l t h a t the q u e s t i o n of the r i g h t to charge checks to t h e drawee
b a n k ' s account p r i o r to i n s o l v e n c y , which might be a f f e c t e d by a
dictum i n t h i s c a s e , i s of much more importance and t h a t i t would be
u n f o r t u n a t e i f i n d e c i d i n g t h i s c a s e t h e Court should i n d u l g e i n a
dictum which would r a i s e doubts a s to the r i g h t of a Federal r e s e r v e
bank to charge checks to the account of the drawee bank p r i o r to i n solvency.
I am not i n c l i n e d t o recommend t h r t t U t s cose be s e t t l e d
out of c o u r t or t h a t the F e d e r a l Reserve Bank of Richmond s u r r e n d e r
i t s r i g h t s i n t h e p r e m i s e s . The O f f i c e of tb® Comptroller of the Currency a p p a r e n t l y i s determined to have t h i s q u e s t i o n s e t t l e d by a
t e s t s u i t ; and, so f a r a s I have been a b l e to a s c e r t a i n , the c a s e
which you have pending i s f r e e of any c o m p l i c a t i o n s and should make
a good t e s t c a s e . The only p o s s i b l e advantage to be d e r i v e d from the
s e t t l e m e n t of t h i s c a s e out of c o u r t and the consequent s u r r e n d e r by
the F e d e r a l r e s e r v e banks of t h e i r r i g h t to charge checks to t h e
x-,,s76-b
3 3 5
drawee ba,rk subsequent t o i n s o l v e n c y would, be to a v o i d the p o s s i b i l i t y
of a dictum c a s t i n g a doubt upon t h e i r r i g h t to charge checks to t h e
drafcoe b o n k ' s account n r i c r t c i n s o l v e n c y ; and I doubt t h a t t h i s a d vantage i s s u f f i c i e n t to j u s t i f y a l l t h e F e d e r a l r e s e r v e banks i n s u r r e n d e r i n g v.hat m. ay of them c o n s i d e r an i m p o r t a n t l e g a l r i g h t and i n
asking the F e d e r a l Reserve Bank of Richmond to s u f f e r a s e r i o u s f i n a n c i a l
l o s s . I f e e l , t h e r e f o r e , t h a t i t i s j u s t as 'well to t r y the case you
have pending; but I c o n s i d e r i t my duty t o c a l l i t to the a t t e n t i o n of
the F e d e r a l Reserve Borrd and the o t h e r F e d e r a l r e s e r v e banks, because i t
i s i n the n a t u r e of a t e s t case on a c u e s t i o n of law which v i l l a f f e c t
a l l of the F e d e r a l r e s e r v e banks.
I s i n c e r e l y t r u s t t h a t t h i s l e t t e r w i l l s e r v e to irake my
p o s i t i o n e n t i r e l y c l e a r and t h a t you and Ivir. 7* a l l ace w i l l a g r e e t h a t
I have done t h e r i g h t t h i n g i n recommending to the Board t h a t t h i s
case be o u t on the program f o r d i s c u s r i o n a t the Governors' Conference.
I a g r e e w i t h you t h a t the q u e s t i o n s of law could be d i s c u s s e d more app r o p r i a t e l y by the Counsel of t h e v a r i o u s F e d e r a l r e s e r v e banks than
by the Governors; but t h e r e a r e c e r t a i n p r a c t i c a l q u e s t i o n s which I
t h i n k should be c o n s i d e r e d by the Governors. I b e l i e v e t h a t p l a c i n g .
t h e s u b j e c t on t h e program f o r d i s c u s s i o n a t the Governors' Conference
w i l l serve a double p u r p o s e , s i n c e the Governors can d i s c u s s t h e p r a c t i c a l
q u e s t i o n s involved and undoubtedly each Governor w i l l ask h i s own Counsel
f o r an o p i n i o n on the q u e s t i o n of law.
If the Governors decide to have t h i s q u e s t i o n c o n s i d e r e d i n
more d e t a i l by the Counsel to the F e d e r a l r e s e r v e banks I s h a l l be very
g l a d , w i t h t h e approval of the F e d e r a l Reserve Board, to a r r a n g e f o r a
j o i n t c o n f e r e n c e of Counsel of a l l t h e F e d e r a l r e s e r v e banks t o d i s c u s s
t h i s and o t h e r l e g a l m a t t e r s of System i n t e r e s t . %e have h e l d two such
c o n f e r e n c e s h e r e t o f o r e and i t seems to be t h e unanimous o p i n i o n of Couns e l t h a t they have been very h e l p f u l .
u i t h k i n d e s t p e r s o n a l r e g a r d s , I an:
Sincerely yours,
'v
v-alter Wyatt,
General Counsel.
WW sad
COPY
x -4 9 7 6 -c
FEISLrUL kLS_EiV... B.-JiK OF itICHkCIiD.
October 14, 1S-27.
"'to. Walter "iyatt, General Counsel,
F e d e r a l Reserve Board,
Washington, D. C.
Dear Mr. Wyatt:
Mr. Wallace h a s shov.n itie your l e t t e r to him of
October 8 r e l a t i n g to a c o n t r o v e r s y "betweeii t h i s hank and
t h e r e c e i v e r of the Farmers
Merchants 6ank of Lake C i t y ,
accompanied hy a copy of your l e t t e r to the F e d e r a l Reserve
Board, i n which you recommend t h a t the m a t t e r he p l a c e d on
the urogram f o r d i s c u s s i o n a t the next Governors 1 Conference.
I have reviewed the c a s e and a l l of the c o r r e s p o n d ence which h a s massed between you and our Counsel, Mr. Wallace,
and i t seems to me t h a t the s u b j e c t i s e n t i t l e d to much more
c o n s i d e r a t i o n , i n d e t a i l , than i t i s u s u a l l y p r a c t i c a b l e to
give a t t h e s e c o n f e r e n c e s of g o v e r n o r s . As a r u l e , a m a t t e r
of t h i s k i n d would, I t h i n k , be r e f e r r e d by each governor to
the counsel of h i s bank f o r study and o p i n i o n . In o r d e r to get
the m e r i t s of the case f u l l y b e f o r e t h e c o n f e r e n c e , a s t a t e m e n t
of a l l the f a c t s should be p r e s e n t e d , and I t h i n k i t would be
d e s i r a b l e , i f not n e c e s s a r y , to r e a d
. a t l e n g t h from the c o r respondence which h a s p a s s e d between you and our Counsel, i n o r der to develop t h e n i c e t i e s of the c a s e .
There seems to be, i n some measure, d i f f e r e n c e s of
o p i n i o n between y o u r s e l f and Mr. Newton D. Baker a s to whether
t h i s c a s e i s l i k e l y to become a System m a t t e r . As I u n d e r s t a n d
your p o i n t of view, i t w i l l only become a System m a t t e r i n case
the Judge should i n t r o d u c e some d i c t u m / n e c e s s a r y to a d e c i s i o n i n
the c a s e , and w h i l e no one can say how g r e a t t h a t danger may be,
you have f e a r of i t and i t must be r e g a r d e d a s a p o s s i b i l i t y .
I t h a r d l y seems to me t h a t the danger of t h a t p o s s i b i l i t y would
j u s t i f y t h i s bank i n withdrawing from t h e case and assuming the
l o s s which would e n s u e . The amount involved i n t h e c a s e of t h e
Lake C i t y bank i s covered by two r e m i t t a n c e # , a g g r e g a t i n g about
$34,000; the amount i n v o l v e d i n a s i m i l a r ca§e w i t h r e s p e c t to
the F a y e t t e v i l l e bank i s , I b e l i e v e , i n the neighborhood of
$20,000, making t h e t o t a l sum involved approximately $54,000.
As an o f f s e t , we would r e c e i v e t h e d i v i d e n d s pfiid by the
r e c e i v e r s of the r e s p e c t i v e banks, which i n t h e case of the
Lake C i t y bank we a r e l e d to b e l i e v e w i l l be very s u b s t a n t i a l ,
but which i n t h e c a s e of the F a y e t t e v i l l e bank cannot even be
a-roroximated a t the p r e s e n t t i m e ,
X-4976-c
Mr. Walter Wyatt, General Counsel, Pg. 2 .
October 14, 1927.
The Conference of Governors, i t seems to me, would
be l i k e l y to take one of only two c o u r s e s : e i t h e r recommend t h a t
the Federal Reserve Bank: of Richmond withdraw from i t s p o s i t i o n and
assume the l o s s ; or recommend t h a t the matter be r e f e r r e d to the
counsel of the s e v e r a l banks f o r an opinion as to whether the
p o s s i b l e danger to the System vrcmld seem to make i t a d v i s a b l e
f o r the Richmond bank to withdraw. We should hardly be w i l l i n g
to take the f i r s t course upon the s u g g e s t i o n of the Conference
because, i n the nature of the c a s e , we b e l i e v e i t c o u l d only be
s u p e r f i c i a l l y c o n s i d e r e d i n a general d i s c u s s i o n w i t h i n the time
a v a i l a b l e ; but we might be w i l l i n g to f o l l o w the recommendation
of t h e counsel of the s e v e r a l banks should there be any uniform
concurronce of o p i n i o n among them, and i f the other banks adopted
the o p i n i o n of c o u n s e l .
In one of Mr. W a l l a c e ' s l e t t e r s to you, he sugg e s t e d t h a t a statement o f the f a c t s be submitted to the counsel
of the s e v e r a l banks f o r c o n s i d e r a t i o n and e x p r e s s i o n of o p i n i o n .
This course, i n my judgment, would be p r e f e r a b l e t o d i s c u s s i o n
a t the Conference. Whether Mr. Baker had reviewed the e n t i r e case
when he wrote the l e t t e r to you on June 18, I do not know, bu.t i f
not t h e same matter
submitted to the counsel of the banks might,
a l s o , be submitted to Mr. Baker, should the Board think i t a d v i s a b l e .
In c o n s i d e r i n g the e f f e c t of an embarrassing court d e c i s i o n upon
the System, i t i s w e l l to bear i n mind that only two of the Fede r a l Reserve Banks, P h i l a d e l p h i a and Richmond, pursue the d e f e r r e d
charge p r a c t i c e ; the r e s t have the remittance p l a n .
I am w r i t i n g t h i s l e t t e r d i r e c t l y to you r a t h e r
than to the Board because t h i s course seems t o me to o f f e r t h e most
convenient manner of p l a c i n g the matter b e f o r e the Board, and I sugg e s t that you b r i n g the l e t t e r to the a t t e n t i o n of the Board a l o n g
w i t h your communication to the Board of October 8 .
Very t r u l y y o u r s ,
(Sgd.)
GJS
CCP
Geo. J . Eeay,
Governor.
X-4S76-a
October 8, 1527.
Jir. l«i. G. Wallace, Counsel,
F e d e r a l Reserve Bank of Richmond,
Eichnond, V i r g i n i a .
Dear Mr. Wallace:
I have r e c e i v e d your l e t t e r of August
20th w i t h f u r t h e r r e f e r e n c e to the c o n t r o v e r s y "between
your t a n k and the r e c e i v e r of the Farmers & Merchants
N a t i o n a l Bank of Lake C i t y , but have not r e p l i e d more
promptly "because I have "been a b s e n t from t h e o f f i c e
much of the time and have "been e x c e e d i n g l y "busy d u r i n g
t h e time I have "been i n the o f f i c e .
A f t e r r e a d i n g your l e t t e r I can r e a l i z e
t h a t you f i n d y o u r s e l f ""between t h e d e v i l and t h e deep
b l u e sea" and t h a t you a r e p r a c t i c a l l y f o r c e d to t r y a
law s u i t on t h i s q u e s t i o n e i t h e r w i t h the r e c e i v e r or
w i t h t h e member banks from which you r e c e i v e d the checks
i n q u e s t i o n , u n l e s s the F e d e r a l Reserve Bank of Richmond
wishes to s e t t l e t h e case and a b s o r b t h e n e c e s s a r y f i n a n c i a l l o s s which I judge the bank i s u n w i l l i n g to do.
In view of the f a c t t h a t the l e g a l quest i o n i n v o l v e d i n t h i s c a s e w i l l a f f e c t a l l of t h e F e d e r a l
r e s e r v e banks, I an c a l l i n g t h i s m a t t e r t o t h e a t t e n t i o n
of t h e F e d e r a l Reserve Board w i t h t h e s u g g e s t i o n t h a t i t
p u t t h e s u b j e c t on t h e program f o r d i s c u s s i o n a t t h e
f o r t h c o m i n g Governors' Conference. If t h e Board a d o p t s
t h i s s u g g e s t i o n , i t w i l l g i v e t h e Governors sua o p p o r t u n i t y
to d i s c u s s the m a t t e r from a System s t a n d p o i n t ai|& to cons i d e r t h e p r a c t i c a l a s r a i l a s the l e g a l questioqis i n v o l v e d .
With a l l b e s t wishes, I am,
Cordially yours,
P.S.
Walter # y a t t ,
General Counsel.
For your i n f o r m a t i o n I e n c l o s e a copy of t h e memorandum
which I am s u b m i t t i n g t o tho Board.
COPY
r*0
.£>0
X-4276-e
F3IE2AL RESERVE 3 * H CI
RICHUOKQ
August 20, 1S27.
F e d e r a l Reserve Board,
Washington, D. C.
ATT22TTI0H OF fcR. WADT3W V.YATT General Counsel.
My dear Mr. Wyatt:
I have your l e t t e r of August 17th w i t h r e f e r e n c e •
to t h e c o n t r o v e r s y "between t h i s bank and the Receiver of the
Farmers & Merchants H a t i o n a l Bank of Lake C i t y .
I have, of c o u r s e , c o n s i d e r e d your l e t t e r c a r e f u l l y ,
and have d i s c u s s e d i t w i t h t h e o f f i c e r s of t h i s bank. I am
r a t h e r i n c l i n e d tti Agree w i t h k r , Baker i n t h i n k i n g t h a t the
q u e s t i o n i n v o l v e d i n t h i s c o n t r o v e r s y i s so remote from t h e
q u e s t i o n i n v o l v e d i n the A t l a n t a d i s t r i c t t h a t t h e r e i s l i t t l e
chance t h a t a d e c i s i o n i n one case w i l l have any b e a r i n g upon
t h e o t h e r , b u t , of c o u r s e , none o f u s can f o r e s e e what some Judge
may u n d e r t a k e to say by way of o b i t e r d i c t a .
In my case t h e r e c o u l d be no doubt of our r i g h t to
charge t h e r e s e r v e account of t h e member bank i f i t remained
s o l v e n t . The s o l e q u e s t i o n i n v o l v e d would bo whether or n o t t h e
i n s o l v e n c y of t h e member bank revokes t h e a u t h o r i t y which i t has
g i v e n to u s to charge i t s account, and, i f so, whether or not the
r e v o c a t i o n o p e r a t e s w i t h r e s p e c t to charge which c o u l d have boon
made b e f o r e the c l o s i n g of t h e bank, but i n f a c t were not so made.
In the A t l a n t a c a s e t h e q u e s t i o n i s whether or not tho member bank
may evade t h e s p i r i t of the F e d e r a l Reserve Act by r e f u s i n g to p r y
chocks p r e s e n t e d through t h e F e d e r a l Reserve Bank i f t h e drawer h a s
d i r e c t e d t h a t sr.ch checks shal,l not be p a i d to t h e F e d e r a l Reserve
Bank.
In any e v e n t , I see l i t t l e chance of our a v o i d i n g i
s e t t l e m e n t by l i t i g a t i o n of t h e p o i n t i n c o n t r o v e r s y . As you know,
our claim i n v o l v e s two l e t t e r s . The f i r s t of t h e s e l e t t e r s was
s e n t to t h e Farmers & Merchants N a t i o n a l Bank of Lake City on
October 7 t h , and under our time schedule was c h a r g e a b l e t o i t s
r e s e r v e account on Monday, October 1 1 t h . The check® "ip t h e l e t t e r
were c a n c e l l e d on October 8 t h . The bank was c l o s e d or. S a t u r d a y ,
October 9 t h . On October 11th the r e s e r v e aoco-mt was adequate to
meet t h i s l e t t e r , and we a c c o r d i n g l y charged the l e t t e r to t h e
r e s e r v e account and c r e d i t e d the banks from which the checks had
been r e c e i v e d .
r*
X-4975-e
-6-
We sent to t h e Receiver a statement showing t h a t t h i s
l e t t e r had "been charged to the r e s e r v e a c c o u n t , and no o b j e c t i o n
was made, and indeed the Receiver t r e a t e d the charge a s p r o p e r
u n t i l some time i n Lay when a demand was made upon u s f o r the amount
of t h i s l e t t e r . As soon a s the demand was made, we n o t i f i e d t h e
member "banks concerned t h a t i f t h e c o n t e n t i o n of the Receiver was
s u s t a i n e d , wo would charge them w i t h t h e amount of the chocks v/hich
had been, c o n t a i n e d i n t h i s l e t t e r . S e v e r a l of t h e member banks
n o t i f i e d u s t h a t they would not s t a n d the charge, but would l i t i g a t e
the q u e s t i o n v d t h u s r e g a r d l e s s of the r e s u l t of t h e l i t i g a t i o n between
o u r s e l v e s and the R e c e i v e r . I f e e l sure t h a t i f v.c u n d e r t o o k to
charge them v i t h t h e amounts of t h e i r checks i n t h i s l e t t e r t h e y would
l i t i g a t e t h e q u e s t i o n . , Of c o u r s e , we could accede to the demand of
t h e R e c e i v e r and not charge our member banks, t a k i n g t h e l o s s
o u r s e l v e s , bat even i f we d i d t h i s , I t h i n k the seine q u e s t i o n would
a r i s e i n f u t u r e c a s e s , and w i t h r e s p e c t t o t h e second l e t t e r of t h e
Farmers & Merchants N a t i o n a l Bank of Lake C i t y .
The second l e t t e r was sent to the Farmers & Merchants
N a t i o n a l Bank of Lake-City on October 8 t h , and t h e checks i n i t were
charged to the a c c o u n t s of t h e drawers on October S t h b e f o r e the c l o s i n g
of t h e bank. This l e t t e r was i n o r d i n a r y c o u r s e c h a r g e a b l e to the
f a i l e d bank on October 1 3 t h , but a f t e r c h a r g i n g t h e l e t t e r of October
7 t h , we had a b a l a n c e amounting to only approximately $7,000.00, and
the l e t t e r was approximately $30,000.00. We charged back t h e e n t i r e
amount of t h e checks c o n t a i n e d i n t h i s second l e t t e r and h e l d t h e
b a l a n c e i n o r d e r t h a t I might endeavor to decide a s t o whether o r not
i t should bo d i s t r i b u t e d as a -oart payment on account of the l e t t e r
or n o t . S e v e r a l member banks wrote to u s a s k i n g f o r i n f o r m a t i o n as
to t h e amount of t h e r e s e r v e b a l a n c e . On b e i n g n o t i f i e d of t h e s i t u a t i o n they claimed t h a t t h e r e s e r v e b a l a n c e should be e g p l i e d to t h e cash
l e t t e r , and n o t i f i e d u s t h a t they would h o l d u s l i a b l e i f we s u r r e n d e r e d
i t to t h e R e c e i v e r . The amount of checks r e c e i v e d froip t h e banks which
took t h i s p o s i t i o n i s s u f f i c i e n t to j u s t i f y them i n th$ e f f o r t to t e s t
t h e i r r i g h t s , and i f we abandoned our p o s i t i o n i n our c o n t r o v e r s y
w i t h t h e R e c e i v e r , I f e e l s u r e t h a t some of t h e s e banks would endeavor
to p r e s s t h e q u e s t i o n t o a s e t t l e m e n t .
Since t h i s q u e s t i o n h a s been under d i s c u s s i o n a n o t h e r member
bank- t h a t i s to say t h e N a t i o n a l Bank of F a y e t t e v i l l o h a s been closed*
In the case of t h e l a t t e r bank t h e r e a r c two l e t t e r s which were h a n d l e d
by i t j u s t b e f o r e i t s f a i l u r e , and which had not been a c t u a l l y charged
to i t s r e s e r v e account on t h e day of t h e f a i l u r e . We n o t i f i e d t h e member
banks concerned t h a t t h e Comptroller. d i s p u t e d our r i g h t to charge t h e s e
cash l e t t e r s t o t h e r e s e r v e a c c o u n t , and t h a t c o n s e q u e n t l y we c r e d i t e d
them w i t h t h e amount of t h e i r checks upon t h e c o n d i t i o n t h a t i f t h e
Comptroller 1 s p o s i t i o n v;as s u s t a i n e d wo would bo compelled to charge
back the amount of t h e i r checks.
X-4976-e
-3-
If we acceded to the contention of the Receiver i n the
case of the Farmers & Merchants l l a t i o n - l Bank of Lake City we
would be compelled to accede to i t i n the case of the National
Bank of F a y e t t e v i l l e , and i n a l l subsequent cases, and I f e e l
reasonably c e r t a i n that sooner or l a t e r a member back would
f o r c e a d e c i s i o n of the question;.
In the Lake City case ?/e had no r e d i s c o u n t s . In the
F a y e t t e v i l l e case we have quite a largo l i n e of rediscounts, and
i f we undertook to charge back cash l e t t e r s upon tho ground that
they were unpaid, and to apply the reserve balance to the r e discounts, i t would create an impression that we are endeavoring
to p r o t e c t o u r s e l v e s at tho expense of member banks, .and t h i s
a t t i t u d e would, I think, create a most unfavorable impression
upon the member banks. For the reasons s t a t e d , the o f f i c e r s of
t h i s bank and myself f e e l that we are almost compelled to s e t t l e
the question which has been r a i s e d , but, of course, we would consider c a r e f u l l y any suggestions, which other Federal Deserve Banks
or t h e i r Counsel wished to make. If you think that the matter i s
of s u f f i c i e n t importance to j u s t i f y requesting- the Counsel f o r
other banks to meet f o r a conference. I should, of course, be del i g h t e d to have auch a conference, bnt i t seems to me that t h e
question i s s c a r c e l y broad enough to j u s t i f y the trouble and expense which the conference would e n t a i l , and that perhaps i t
might be s u f f i c i e n t to send a copy of the statement of f a c t s to
each of the other Counsel and i n v i t e t h e i r c r i t i c i s m .
I em very glad to say that I nm j u s t back from a very
enjoyable vacation at V i r g i n i a Beach, and I hope that you w i l l
soon be o f f upon yours, and w i l l come back f e e l i n g as f r e s h '
as I do. I have never quite given up hope t h a | you and Mrs.
Wyatt w i l l f i n d your way to Richmond some day.
The time for applying the c e r t i o r a r i i n the case of
Craven Chemical Company v. Federal Reserve Bank of Richmond
has expired, so I imagine that my opponents never thought of
r a i s i n g the j u r i s d i c t i o n a l question which we discussed i n
our former correspondence.
Very t r u l y yours,
M.Gr. Wallace,
Counsel.
CCPY
X-4976-f
3
August 17, 19P7.
Mr. M.G-. Wallace, Counsel,
F e d e r a l Reserve Ban!":,
Richmond, V i r g i n i a .
My dear Mr. Wallace:
R e f e r r i n g to your l e t t e r . - o f June 14th w i t h r e g a r d to t h e
claim made r g a i n s t your bank "by the r e c e i v e r of the. Farmers and Merc h a n t s N a t i o n a l Bank of Lake C i t y , I e n c l o s e f o r your i n f o r m a t i o n
a l e t t e r from Mr. Baker e x p r e s s i n g h i s views a s to t h e e f f e c t of
such l i t i g a t i o n on t h e t e s t ca.se wo have "been e x p e c t i n g or- t h e
l e g a l i t y of the a c t i o n cf c e r t a i n Alabama b a r k s i n stamping t h e i r
checks "not p a y a b l e through t h e F e d e r a l Reserve Bank of A t l a n t a . "
I d i s a g r e e v i t h Mr. B a k e r ' s views t h a t your case i s
not one of System importance, bocause I f e a r t h a t , i n d e c i d i n g
t h e r e a l n e t t e r a t i s s u e i n your c a s e , t h e Court i s v e r y l i k e l y
to go so f a r a s t o say t h a t a F e d e r a l r e s e r v e bank lias no r i g h t
under any c i r c u m s t a n c e s t o charge to the a c c o u n t s of drawee banks
checks which i t does not own but which i t i s merely h a n d l i n g under
R e g u l a t i o n J a s t h e agent of the banks from which they were r e c e i v e d
Such a r u l i n g would be a s e r i o u s blow to R e g u l a t i o n J and t o t h e
p r e s e n t check c o l l e c t i o n system, and I should r e g r e t very much to
see i t .
I have d i s c u s s e d with counsel of s e v e r a l of the o t h e r
F e d e r a l r e s e r v e banks the q u e s t i o n s i n v o l v e d i n t h i s case and a l l
of those^ w i t h whom I have d i s c u s s e d t h e q u e s t i o n e x p r e s s e d s e r i o u s
doubt a s to t h e r i g h t of a Federal r e s e r v e bank t o charge t o the
account of an i n s o l v e n t bank checks which a r e not owned a b s o l u t e l y
by t h e F e d e r a l r e s e r v e bank i t s e l f . H e r e t o f o r e I hfive r e f r a i n e d
from e x p r e s s i n g any views on t h i s m a t t e r , but I nojf f e e l t h a t I
should t e l l you t h a t I p e r s o n a l l y b e l i e v e t h a t thg C o m p t r o l l e r ' s
O f f i c e i s r i g h t and t h a t you a r e wrong i n t h i s p a r t i c u l a r cont r o v e r s y , and I f e a r t h a t i f you t r y a t e s t s u i t you w i l l l o s e i t .
The l o s s of such a s u i t would not d i s t u r b me very much, u n l e s s the
Court should r u l e , or say by way of dictum, t h a t the F e d e r a l r e s e r v e
bank has no r i g h t under any circumstances to charge t o the account
of the drawee bank a check which i t does not own i n i t s own r i g h t
but which i t merely h a n d l e s a s t h e agent of a n o t h e r bank from which
such chock was r e c e i v e d . In view of t h i s danger, I s i n c e r e l y hope
t h a t you w i l l r e c o n s i d e r t h e a d v i s a b i l i t y of t r y i n g such a t e s t case
and w i l l a d v i s e me of your f u r t h e r views i n t h e p r e m i s e s .
You w i l l u n d e r s t a n d , of c o u r s e , t h a t t h i s i s merely an
expression of my o?.n personal views and not the views of the
Federal Reserve Board. Moreover, I hope you w i l l understand
very c l e a r l y that I have no desire to interfere^ with your
handling of any l i t i g a t i o n f o r the Federal Reserve Bank of
Richmond. I merely suggest the danger p o i n t e d out above,
in order that you may weigh the mettor and reach a conclusion
i n your own mind as to whether i t would he "better for your
hank to y i e l d to the Comptroller of the Currency i n t h i s part i c u l a r i n s t a n c e rather than to jeopardize the i n t e r e s t s of
the e n t i r e Federal Reserve System "by going to s u i t on a doubtful
question which may involve the l e g a l i t y of a very important prov i s i o n of Regulation J. If you have any doubts about the matter,
would i t not be b e t t e r to d i s c u s s t h i s question at a conference
of Counsel to a l l Federal reserve banks before t e s t i n g such a
question i n the courts?
I s i n c e r e l y hope that yen have not been as busy as
I have been t h i s summer and that you have been able to take a
l i t t l e v a c a t i o n . I am beginning to f e e l the need of one very
badly and hope to go away from the o f f i c e i n a few days.
With a l l best wishes, i am,
Cordially yours,
Walter Wyatt,
General Counsel,
WW MD
X-4576-g
COPY
244.
BIKES, H03T3TL3R & SIIIO
C0LW3FLL0H3 AT LAT
TJI'IC" TRUST BUILDINGCLEYLLAITD
June 18, 1927.
Dear Mr. TTyatt:
A f t e r s e v e r a l days of absence I r e t u r n t h i s morning and f i n d
your l e t t e r of June n i n t h , w i t h t h e correspondence s e n t by Mr. M. G.
Wallace of t h e F e d e r a l Reserve Bank of Richmond c o v e r i n g t r a n s a c t i o n s w i t h t h e Farmers and Merchants n a t i o n a l Bank of Lake C i t y .
In view cf the f a c t t h a t t h e r e does n o t seem to be a present
means of r a i s i n g our c o n t r o v e r s y in vbe A t l a n t a D i s t r i c t , I am
i n c l i n e d to b e l i e v e t h a t Mr. Wallace should g e t up h i s t e s t c a s e a s
soon a s he can and g a t t h e m a t t e r p r e s e n t e d to a F e d e r a l Court f o r
d e c i s i o n . Of c o u r s e t h i s does r a i s e some q u e s t i o n a s to t h e r i g h t
of F e d e r a l .Reserve b a n k s g e n e r a l l y to make c h a r g e s a g a i n s t t h e
r e s e r v e b a l a n c e s of members, b u t i t i s a s p e c i a l c a s e , and an adv e r s e d e c i s i o n on t h e f a c t s i n t h e s e two i u s t n c e s would not n e c e s s a r i l y conclude F e d e r a l Reserve banks from mazing c h a r g e s a g a i n s t
r e s e r v e b a l a n c e s of s o l v e n t banks or of banks a s to which t h e y had
no n o t i c e of s u s p e n s i o n .
In p r e s e n t i n g t h i s m a t t e r I hope Mr. Wallace w i l l do whatever he can to narrow t h e i s s u e to t h e f a c t s of h i s c a s e , so t h a t t h e
Court may not by i n a d v e r t e n c e express an o p i n i o n which would be
h e l d to conclude t h e l a r g e r q u e s t i o n , That i s to s a y , i f t h e f a c t
of t h e b a n k ' s suspension and t h e n o t i c e of i t should be h e l d by
t h e Court to t e r m i n a t e t h e r i g h t of t h e F e d e r a l Reserve bank to charge
t h e r e s e r v e b a l a n c e , . . I ' would b : s o r r y to have the Court go on and
e x p r e s s o b i t e r any doubt a s to t h e r i g h t to make such changes under
other conditions.
In view of the f a c t s of t h e s e c a s e s I am i n c l i n e d to a g r e e
w i t h I,ir. Wallace t h a t t h i s i s not a system m a t t e r , p a r t i c u l a r l y
s i n c e the c o n t r o v e r s y i s between the F e d e r a l r e s e r v e bank and t h e
Comptroller's o f f i c e .
Cordially yours,
(Signdd) S.e?'toa D. Baker
Mr. "."alter Wyatt,
O f f i c e of t h e General Counsel,
F e d e r a l Eeservo Bank,
Washington, D.C,
COPY
X-4976-h
FEDERAL RESERVE B M OF RICHMOND
June 14, 1927.
F e d e r a l Reserve Board,
Washington, B.C.
A t t e n t i o n of Mr. Walter Wyatt, General Counsel.
Dear S i r s ;
I have your l e t t e r of June 9 t h , and am very
g l a d to know t h a t you have forwarded to Mr. Baker c o p i e s
of my l e t t e r s r e l a t i n g to t h e claim made a g a i n s t t h i s bank
oy the R e c e i v e r of t h e Farmers & Merchants N a t i o n a l Bank of
Lake C i t y .
The R e c e i v e r and myself a r e endeavoring t o a g r e e
upon a s t a t e m e n t of f a c t s hoping to avoid any u n n e c e s s a r y
expense, or d e l a y , in t h e s e t t l e m e n t of t h i s q u e s t i o n .
I
have p r e p a r e d a d r a f t of such a s t a t e m e n t and forwarded i t to
t h e R e c e i v e r f o r h i s c o n s i d e r a t i o n . I e n c l o s e you a copy
t h i n k i n g t h a t Mr. Baker may d e s i r e to c o n s i d e r i t , nnd, to
s u g g e s t changes i n i t , o r a d d i t i o n s to i t . N a t u r a l l y , I should
welcome any s u g g e s t i o n s from him, or from y o u r s e l f .
I r e a d w i t h much i n t e r e s t the correspondence
"between t h e F e d e r a l Reserve Board and t h e F e d e r a l Reserve Bank
of A t l a n t a , and your o p i n i o n upon the s u b j e c t .
I remain,
Very t r u l y y o u r s ,
(Signed) M.0.Wallace
Counsel.
MOW:IB
2 4 5
COPY
X-49°6~i
FEDERAL RESERVE 3A2"< OF HlCHMOlD,
RICHMOED, YA.
Gentlemen:
The u n d e r s i g n e d member bank hereby acknowledges receipt- of
C i r c u l a r Fo. 143, cf t h e F e d e r a l Reserve Bank of Richmond, r e g a r d ing t h e " C o l l e c t i o n of Checks," e f f e c t i v e J u l y 1, 1925, s e t t i n g
f o r t h t h e terms and c o n d i t i o n s under which c a s h items a s s p e c i f i e d
in the c i r c u l a r w i l l be r e c e i v e d f o r c o l l e c t i o n from t h e u n d e r signed member by t h e F e d e r a l Reserve Sank of Richmond o r by
a n o t h e r F e d e r a l r e s e r v e bank f o r i t s a c c o u n t , which c i r c u l a r s u p e r sedes C i r c u l a r l'o. 131 of Juno 15, 1223.
Yours very t r u l y ,
Farmers & Merchants Nat Bank
Bank
Lake C i t y , 5. C
Location
2/3/23
Bate
By R. H. McEireen
P e e s i d e a t er Cashier ( Q f f i e i a l
COPY
£-497 o -J
June 14, 1927.
STATK/ISTT OF FACTS
1. The F e d e r a l Reserve Bank of Richmond, i s and was a t a l l times
h e r e i n a f t e r mentioned a t a n k i n g c o r p o r a t i o n , duly o r g a n i z e d under t h e jjederal
Reserve Act, h a v i n g i t s chief o f f i c e in Richmond, V i r g i n i a , and the d i s t r i c t ,
or t e r r i t o r y , a s s i g n e d to i t i n c l u d e d t h e S t a t e oi South C a r o l i n a .
2 . The Farmers & Merchants N a t i o n a l Bank of Lake City r a s a t a l l
times h e r o i n mentioned a N a t i o n a l banking a s s o c i a t i o n duly o r g a n i z e d under t i e
n a t i o n a l Bank Act, and had i t s o f f i c e in Laics C i t y , South C a r o l i n a , u n t i l i t
was c l o s e d and p l a c e d in l i q u i d a t i o n a s s t a t e d h e r e i n .
3. The F e d e r a l Reserve Bank of Richmond had f o r sometime p r i o r to the
c l o s i n g of t h e Farmers 3c Merchants N a t i o n a l Bank cf Lake C i t y r e c e i v e d on dep o s i t , or f o r c o l l e c t i o n , from banks which were members of t h e F e d e r a l Reserve
System and o+har F e d e r a l Reserve Banks, cnucka drawn upon t h e Farmors & Merc h a n t s n a t i o n a l Bar-k of Lake C i t y .
A l l of t n e s a i d cnccks v'erc r e c e i v e d xn
accordance w i t h , and s u b j e c t to t h e terms of R e g u l a t i o n J , s e r i e s of 19..4,
duly made and promulgated by t h e F e d e r a l Reserve Board, a copy of wnicn i s
h e r e t o a t t a c h e d and made a p a r t h e r e o f , and w i t h c i r c u l a r Mo. 143 i s s u e d by the
F e d e r a l Reserve Bank of Richmond, a copy of which i s h e r e t o a t t a c h e d , nnd made
a r>art h e r e o f , and w i t h the time schedule i s s u e d by t h e F e d e r a l Reserve rank
of Richmond, a copy of which i s h e r e t o -attached and made a p a r t h e r e o f .
4. A. copy of t h e s a i d c i r c u l a r 1-To. 143 had T^en s e n t to t n e Far.uei s
& Merchants N a t i o n a l Bank of Lake C i t y , and r e c e i p t t h e r e o f had been acknowledged by the Farmers & Merchants n a t i o n a l Bonk of £ako C i t y o o f o r e t h e times
h e r e i n a f t e r mentioned, a copy of which acknowledgment i s n o r e t o a t t a c h e d , and
made a p a r t h e r e o f .
5. I t had been the p r a c t i c e of the F e d e r a l Reserve Brnk of Richmond
to send on oach b u s i n e s s day to t h e Farmers & Merchants N a t i o n a l Bank of Lake
City checks drawn m e n i t , v h i c h had been r e c e i v e d by the f e d e r a l "'eserve Bank
of Richmond, a s above s t a t e d , and Then t h r e e b u s i n e s s days had e l a p s e d a f t e r
the d i s p a t c h of a l e t t e r c o n t a i n t a g such checks to charge t h e
amount t h e r e o f
to t h e r e s e r v e account m a i n t a i n e d by t h e F a r u e r s & Merchants n a t i o n a l Bank of
Lake C i t y w i t h the F e d e r a l Reserve Bank of Hichraond.
If the Farmers 1 Merchants
n a t i o n a l Bank of Lake C i t y was w i l l i n g to a c c e p t and pay such checks i t r e t a i n e d
them and charged then to the a c c o u n t s of t h e drawers.
If i t was u n w i l l i n g to
pay any, or a l l of such checks, i t r e t u r n e d such of them a s i t was w i l l i n g to
pay a f t e r c a u s i n g them to be duly p r o t e s t e d , i f p r o t e s t was r e q u e s t e d , and the
amount of a l l checks so r e t u r n e d was c r e d i t e d to t h e account of t h e Farmers &
Merchants n a t i o n a l Bank of Lake C i t y .
6. In t h e c o u r s e of conducting b u s i n e s s , a s s t a t e d above, t h e F e d e r a l
Reserve Bank of Richmond, d i d not d i s c l o s e to t h e Farmers & Merchants IT&tional
Bank of Lake C i t y t h e nair.es of p e r s o n s from whom the checks had been r e c e i v e d
except i n s o f a r a s t h i s knowledge could be o b t a i n e d from endorsements a p p e a r i n g
upon t h e checks.
The amount of a l l checks s e n t to t h e Farmers & Merchants
N a t i o n a l Bank of Lake C i t y was charged by t h e F e d e r a l E e s e r v e Bank of Richmond
to i t , in accordance w i t h t h e p r a c t i c e above s e t o u t , and c r e d i t e d by t h e
Farmers & Merchants n a t i o n a l Bank of Lake Ci by v6 t h e F e d e r a l Reserve Bank of
Richmond a s s t a t e d above, and a l l checks which were r e t u r n e d u n p a i d were r e t u r n e d by t h e Farmers & Merchants n a t i o n a l Bank of Lake City to the F e d e r a l Reservo Bank of Richmond, and when r e c o i v e d by the F e d q r a l Reserve Bank of Richmond were c r e d i t e d to t h e Farmers & Merchants n a t i o n a l Bank of Lake C i t y a s
above s e t o u t .
7 . On Thursday, October 7, 1326, t h e F e d e r a l Reserve Bank of R i c h mond s e n t to t h e Farmers & Merchants n a t i o n a l Bank of Lake C i t y a l e t t e r c o n t a i n ing checks drawn upon t h e l a t t e r amounting to $14,934.1-2.
ter i s hereto
attached.
A copy of s a i d l e t -
The s a i d l e t t e r and checks were r e c e i v e d by t h e Farm-
-3-
X-4975-J
e r s & Merchants n a t i o n a l Bank of Lake C i t y on October 8, 1926, and t h e s i i n or
r e c e i p t a t t a c h e d to such l e t t e r was mailed by t h e Farmers & Merchants R a t i o n a l
Bank of LaJ.ce C i t y to t h e F e d e r a l He serve Bank of Richmond on October 8 t h .
copy of s a i d s l i p , or r e c e i p t , i s h e r o t o a t t a c h e d .
the Farmers
On October
.
A
, 1923,
Me: c h a n t s N a t i o n a l Bank c a n c e l l e d checks c o n t a i n e d in t h e s a i d
l e t t e r amounting to Fourteen Thousand F i n e Hundred D o l l a r s and S i x t y - t w o Cents
( § 1 4 , 8 0 0 . 5 2 ) , and charged them to the a c c o u n t s of the drawers and r e t u r n e d unp a i d checks amounting to T h i r t y - t h r e e D o l l a r s and F i f t y Cents ( $ 3 3 . 5 0 ) .
On
October 11, 1925, t h e F e d e r a l Heserve Bank of Richmond charged t h e r e s e r v e a c count of t h e Farmers & Merchants N a t i o n a l Bank of Lake C i t y w i t h t h e amount of
a l l checks c o n t a i n e d i n t h e above mentioned l e t t e r of October 7 t h , and on t h a t
day c r e d i t e d t n e amount of sucn checks to t h e banks from which t h e y had been r e ceived f o r c o l l e c t i o n .
Later checks, t o t a l l i n g T h i r t y - t h r e e D o l l a r s and F i f t y
said
Cents ( s 3 3 . 5 0 ) , which had been s e a t in t h e / l e t t e r were r e t u r n e d u n p a i d to t h e
F e d e r a l Reserve Bank of Richmond, and the amount of such checks was c r e d i t e d to
the Farmers 6 Merchants N a t i o n a l Bank of Lake City and charged to t h e bonks from
which t h e y had been r e c e i v e d .
8. At the opening of b u s i n e s s on October 1 1 t h t h e F e d e r a l Reserve
Bank of Richmond had to the c r e d i t of the Farmers & Merchants N a t i o n a l Bank of
Lake C i t y the sum of Twenty-two Thousand and E i g h t y - f i v e D o l l a r s and F i f t y - t w o
Cents (^22,085.52) and a f t e r c h a r g i n g t h e amount of t h e l e t t e r of October 7 t h
and c r e d i t i n g t h e amount of c e r t a i n c h e c k s , which wore r e t u r n e d u n p a i d , t h e r e
remained a t t h e c l o s e of b u s i n e s s on October 11th a b a l a n c e i n t h e r e s e r v e account of the Farmers & Merchants N a t i o n a l Bank of Seven Thousand Two Hundred
and T h i r t y - f i v o D o l l a r s and Six Cents ( $ 7 , 2 3 5 . 0 5 ) .
2. On F r i d a y , the 8 t h day of October, 1925, the F e d e r a l Reserve
Bank of Richmond s e n t to t h e Farmers & Merchants N a t i o n a l Bank of Lake City a
l e t t e r c o n t a i n i n g checks amounting to Twenty-one Thousand and F o r t y - o n e D o l l a r s
-4-
X-4976-j
350
and Two Cents ( $ 2 1 , 0 4 1 . 0 2 ) , a c o i y of which l e t t e r i s h e r e t o a t t a c h e d .
This
l e t t e r was r e c e i v e d 07 the Farmers i Merchants I f a t i o n a l Bank of Lake C i t y on the
9 t h day of October, 1923, and upon t h a t day t h e Farmers x y e r c h a n t s N a t i o n a l Sank
of Lace City r e t u r n e d to t h e F e d e r a l Reserve Bank of "Richmond t h e s l i p , or
r e c e i p t , a copy of which i s h e r e t o a t t a c h e d , and on t h e
day of Octohor,
1926 c a n c e l l e d and charged 00 t h e accounts of the drawers checks c o n t a i n e d in
the s a i d l e t t e r amounting to Twenty Thousand, Cno Hundred and Seventy D o l l a r s
and Seventy-one Cents ($20,170.71) (were cancellcci and charged to t h e accounts of
the drawers t h e r e o f by t h e Farmers & Merchants N a t i o n a l Bank of Lake C i t y ) , and
checks amounting to S i g h t Hundred and Seventy D o l l a r s and T h i r t y - o n e Cents
($870.31) were r e t u r n e d a s u n p a i d to t h e F e d e r a l Reserve Bank of
Richmond.
10. On Tuesday, the 12th day of October, 1326, the F e d e r a l Reserve
Bank of Richmond charged the amount of t h e checks c o n t a i n e d i n t h e l e t t e r of
October 8 t h to t h e account of t h e Farmers & Merchants N a t i o n a l Bank of Lake
C i t y , and l a t e r c r e d i t e d i t with a l l checks c o n t a i n e d i n such l e t t e r which were
returned unpaid.
On October 12, 1926
t h e r e appeared to t h e c r e d i t of t h e
Farmers & Merchants n a t i o n a l Bank of Lake C i t y in i t s r e s e r v e account on t h e
books of the F e d e r a l Reserve Bank of Richmond a b a l a n c e of Seven Thousand Two
Hundred and T h i r t y - f i v e D o l l a r s and Six Cents ( $ 7 , 2 3 5 . 0 6 ) .
11. The F e d e r a l Reserve Bank of Richmond charged t h e f u l l amount of
each of t h e checks c o n t a i n e d in i t s l e t t e r of October 8 t h back to the banks
from which t h e same had been r e c e i v e d f o r c o l l e c t i o n , and a d v i s e d such banks
t h a t a c t u a l and f i n a l payment f o r such checks had not been r e c e i v e d from the
Farmers & Merchants N a t i o n a l Bank of Lake C i t y , and l a t e r t h e F e d e r a l Reserve
Bank of Richmond n o t i f i e d such banks to which such checks had boon charged t h a t
i t was h o l d i n g t h e sum of Seven Thousand One Hundred and E i g h t y - s e v e n D o l l a r s
and S i g h t y - s i x Cents ( $ 7 , 1 8 7 . 8 6 ) , which appeared to the c r e d i t of t h e Farmers
& Merchants National Bank of Lake City in i t s reserve account, and that i t v/ould
d i s t r i b u t e the said sum as a *oart pa^-mont on account of the checks contained in
the l e t t e r of October 8th i f i t ao.?oared that such sum %as .applicable as a part
payment on account of the cheeks contained in the l e t t e r of October 8th
mentioned above.
The said sum i s s t i l l held by the Federal He serve Bank of
Richmond pending the determination of t h i s case.
The d i f f e r e n c e between the
sum mentioned in t h i s paragraph and the balance mentioned in the paragraph next
preceding i s due to c e r t a i n e n t r i e s properly made in the reserve account of the
I'ermers J; LIerchants National Bank of Lake City denoting proper charges and
c r e d i t s concerning matters not involved in t h i s controversy.
12. On Saturday, October 9, 1926, a f t e r the c l o s e of b u s i n e s s the
d i r e c t o r s of the Farmers & 1.1 or chants r a t i o n a l Bank of Lake City r e s o l v e d to
c l o s e the bank, and on Sunday, October 10th, Mr. P. H. Arrowsmith, Attorney f o r
the Farmers & Her chants National Bank of Lake City, sent to the Federal Reserve
Bank of Richmond a telegram reading as f o l l o w s :
"Farmers & Merchants National L&].ce City c l o s e d
l a s t night t r y i n g to reorganise Monday morning w i l l you
send us Garrett to help."
This telegram was r e c e i v e d a t the o f f i c e of the Federal Reserve Bank
of Richmond at about 11:30 A. II. Sunday, October 10th, and the c o n t e n t s thereof
were immediately communicated to Mr. John T. Garrett, Manager of the Bank Rel a t i o n s Department of the Federal Reserve Bank of Richmond who l e f t Richmond
that night f o r Lake City, and arrived there on the morning of October 11th.
telegram was i n the hands of the proper o f f i c e r s of the f e d e r a l Reserve Bank
at the opening of b u s i n e s s on October 11th.
The Farmers & Merchants Rational
Bank of Lake City was not reorganised, or reopened, and on the
day of
» the Comptroller of the Currency appointed Thos. A. Early
The
-5-
X--4976-
as Receiver f o r the Farmers & Merchants National Bank of Lake City upon the
ground that the "bank was i n s o l v e n t .
13. On
, 1925, the Federal Reserve
Bank of Richmond sent to the r e c e i v e r a statement showing that i t had
transferred the balance of $7,187.06 mentioned above .to a suspense account,
and was holding the same, and the attached l e t t e r s exchanged between the
r e c e i v e r and the Federal Reserve Bonk of Richmond.
On May 11th, 1927 the
r e c e i v e r f o r tho f i r s t time demanded that the Federal Reserve Sank of Richmond
pay over to him the amount charged to the reserve account of the Farmers &
Merchants National Bank of Lake City on account of checks covt«ine-l in the
l e t t e r of October ?th.
14. The Farmers & Merchants National Bank of Lake City was a member
of the Federal Reserve System and had subscribed f o r and been a l l o t t e d 78
shares of the stock of the Federal Reserve Bank of Richmond, and had paid in
on s a i d subscription the sum of Thirty-nine Hundred Dollars ( $ 3 , 9 0 0 . 0 0 ) , and
dividends at the rate of 6$ from June 30, 1926 have accruod theyeon and are
unpaid.
The Receiver has surrendered to the Federal Reserve Bank of Richmond
the above Mentioned stock, and has demanded the surrender valy.3 t h e r e o f .
15. Any pa ty hereto may r e f e r to, or r e l y upon, any r e g u l a t i o n of
the Federal Reserve Board duly promulgated at the times mentioned above, and
a l l of such r e g u l a t i o n s so far as arc in any way a p p l i c a b l e to the abovj mentioned t r a n s a c t i o n s s h a l l be deemed a part of t h i s s t i p u l a t i o n .
X-497S
COPY
June 3, 1927.
Hon. Hewton D. Baker,
Union Trust Building,
Cleveland,
Ohio.
My dear Mr. Baker;
I cnclose f o r your information c o p i e s of certain correspondence between t h i s o f f i c e and Mr. M. G. Wallace,
Counsel f o r the Federal Reserve Bank of Richmond, regarding a
dispute "between that bank and tho Receiver of the Farmers & Merchants n a t i o n a l Bank of Lake City, which very l i k e l y w i l l l e a d to
l i t i g a t i o n over the r i g h t of Federal reserve banks to charge chocks
to the reserve accounts of member banks a f t e r such member banks
have been placed i n the hands of r e c e i v e r s .
I t occurs to me that t h i s may open up the whole
question of the r i g h t of Federal reserve banks, to charge checks
to the reserve accounts of member banks and that Mr. Wallace's
l i t i g a t i o n should e i t h e r be postponed or should be coordinated
with the l i t i g a t i o n which may a r i s e over member banks stamping
t h e i r checks "Hot payable through Federal reserve banks."
I
s h a l l appreciate i t very much indeed i f you w i l l k i n d l y l e t me
have your views about t h i s matter.
With a l l b e s t wishes, I am.
Cordially yours,
(Signed) Walter Wyatt,
General Counsel.
Enclosure:
COPY
X-4976-1
June 9 , 1327.
Mr. M. G-. Wallace, Counsel,
Federal Reserve Bank,
Richmond, Virginia*
My dear Mr. Wallace:
I have r e c e i v e d your l e t t e r of May 85th with f u r ther r e f e r e n c e to the controversy "between the Federal Reserve Bank
of Richmond and the Receiver of the Farmers & Merchants National
Bank of Lake City and have read same with much i n t e r e s t .
As you probably know, the Federal Reserve System
i s now threatened with l i t i g a t i o n over the question whether a member bank can d e f e a t the purposes of the par clearance system by
stamping on i t s checks the words M3Tot payable through Federal r e serve banks1'; and such l i t i g a t i o n i s very l i k e l y to i n v o l v e the quest i o n whether the Federal r e s e r v e banks may l a w f u l l y charge checks to
the reserve accounts of t h e i r member banks. In view of t h i s s i t u a t i o n , a court d e c i s i o n growing out of your controversy with the Compt r o l l e r of the Currency might a f f e c t the handling of t h i s other and
much more important question. I am, t h e r e f o r e , taking the l i b e r t y of
forwarding a copy of your l e t t e r s to Mr. Baker f o r h i s information
and am requesting suggestions from him as to the proper coordination
of your l i t i g a t i o n with that in which he may be involved on behalf
of the e n t i r e Federal Reserve System.
In order that you may know what t h i s i s a l l about,
I enclose f o r your information c o p i e s of c e r t a i n memoranda and
correspondence with r e f e r e n c e to member banks stamping t h e i r checks
"Hot payable through Federal reserve banks."
With a l l b e s t wishes, I am,
Cordially yours,
(Signed) Walter Wyatt,
General Counsel.
Enclosure:
WW:sad
X-4975-ir,
COPY
FZDE3AL RESERVE 3A1TK
OF RICHMOND
May 25, 1927.
Federal Reserve Board,
Washington, D. C.
Attention of Mr. Walter Wyatt, General Counsel.
My dear Mr. Wyatt:
Under date of March 1 s t , I wrote you g i v i n g you the f a c t s in a
controversy, which has a r i s e n between t h i s bank and the Farmers & Merchants
National Bank of Lake City.
The Comptroller of the Currency has r a i s e d another question
in connection with t h i s same bank. Under date of October 7th, we
sent to the Farmers & Merchants Rational Ban].: of Lake City a l e t t e r
containing checks aggregating $14,934.12. . These checks were r e c e i v e d
by the member bank on October 8th, and r e c e i p t was duly acknowledged.
The bank charged to the accounts of the drawers checks t o t a l l i n g $14,900.62
and returned checks t o t a l l i n g $33.50.
Under our time schedule, the amount of t h i s l e t t e r was chargeable
to the reserve account of the Farmers & Merchants Rational Bank on
October 11th.
On the night of Saturday, October 9th, the d i r e c t o r s
of the Farmers & Merchant's National Bank being threatened with a run on
the bank c l o s e d i t , and n o t i f i e d us that thoy had c l o s e d i t .
This
telegram was r e c e i v e d on Sunday, October 10th.
On Monday, October 11th,
there appeared to the c r c d i t of the f a i l e d bank a sum exceeding the amount
of the cash l e t t e r of October 7th, which was chargeable on October 11th.
We accordingly charged the amount of t h i s l e t t e r to the reserve account,
and c r e d i t e d the member banks from whom the checks i n the l e t t e r had been
r e c e i v e d . We have, of course, from time to time rendered statements
to the Receiver showing that t h i s charge was made. The Receiver did not
p r o t e s t a g a i n s t our a c t i o n u n t i l r e c e n t l y when a c t i n g under the d i r e c t i o n
of the Comptroller of the Currency, he n o t i f i e d us that he would demand
payment from us of the f u l l amount of the reserve balance of the f a i l e d
bank as i t stood at the opening of b u s i n e s s on October 11th. The Receiver
contends that we could not charge a cash l e t t e r to the reserve account of
the f a i l e d bank a f t e r r e c e i v i n g n o t i c e of i t s c l o s i n g , even though the l e t t e r
had been r e c e i v e d , and the checks in the l e t t e r c a n c e l l e d p r i o r to the
c l o s i n g . We, have, of course, r e f u s e d the R e c e i v e r ' s demand, and the Attorney
f o r the Receiver and myself are endeavoring to make up an agreed statement
of f a c t s upon which this' question and the other questions mentioned in
my l e t t e r of March 1st may be submitted to the Federal c o u r t s f o r determination.
Yours very truly,(signed) 1.1. G-. Wallace,
M. G. Wallace,
Counsel. •
o py
COPY
X-4976-n
April 7, 1927.
Mr. M. G. Wallace, Counsel,
Federal Reserve Bank,
Richmond, V i r g i n i a .
My dear Mr. Wallace:
I have r e c e i v e d and should have acknowledged more
promptly your l e t t e r of March 1st with r e f e r e n c e to the r i g h t of
a Federal reserve hank to charge to the account of an i n s o l v e n t
n a t i o n a l hank the amount of cash l e t t e r s forwarded to such bank
but not paid before i n s o l v e n c y .
As suggested in your l e t t e r t h i s o f f i c e would d e s i r e
to remain neutral on t h i s question f o r the present at l e a s t s i n c e
i t i s a controversy between the Comptroller of the Currency and
the Federal Reserve 3ank. I am very nruch i n t e r e s t e d , however,
and appreciate your c a l l i n g i t to my a t t e n t i o n . I s h a l l a l s o
appreciate i t i f you w i l l k i n d l y keep me advised as to the f u r t h e r
developments in t h i s c a s e .
With a l l b e s t wishes, I am,
Cordially yours,
Walter Wyatt,
General Counsel.
COPY
X-497o-o
o.r-iy
f e d e r a l 3 f $ 3 r v 2 bank of richmond.
March 1, 1927.
Federal Reserve Board,
Washington, B.C.
A t t e n t i o n of Mr. Walter
w
y a t t , General Counsel.
My dear Mr. Wyatt:
Under date of October 8, 19HC, t h i s oank sent to the
Farmers & Merchants National Bank of Lake City, South Carolina, a cash
l e t t e r c o n t a i n i n g checks aggregating $20,170.71. These checks were
r e c e i v e d by the Farmers & Merchants National Bank of Lake City on the
f o l l o w i n g day, and were c a n c e l l e d and charged to the accounts of the
drawers. Under our time schedule, the amount of t h i s cash l e t t e r was
normally chargeable to the reserve balance of the Farmers & Merchants
National Bank of Lake City on October 11th, but o n October 10th that
bank was c l o s e d by order of the Comptroller of the Currency upon
the ground that i t was i n s o l v e n t .
At the time of i t s c l o s i n g , i t had in our hands a n e t reserve
balance of $7,187.86. We charged back the amount of the checks contained
in our l e t t e r of October 8th to the several member banks from which
they had been r e c e i v e d , but at the same time we n o t i f i e d them, or some
of them, that we were holding the reserve balance, which we thought was
a p p l i c a b l e as a part payment on the cash l e t t e r .
We f i l e d our claim with the Receiver, but the o f f i c e of the
Comptroller of the Currency has h e l d that we are not e n t i t l e d to apply
the reserve b a l a n c e upon the cash l e t t e r .
I r e a l i z e that your o f f i c e would probably d e s i r e to be neutral
in the case of a controversy between the Comptroller of the Currency,
and a Federal Reserve Bank, e s p e c i a l l y as I b e l i e v e , i t i n v o l v e s , an
i n t e r p r e t a t i o n of the Regulations, but I am w r i t i n g you the f a c t s in
order that you may have them before you.
As you know, paragraph 4, s e c t i o n 5 of Regulation J reads in
part as f o l l o w s :
X
"Checks r e c e i v e d by a Federal reserve bank on i t s
member or nonmember c l e a r i n g banks w i l l o r d i n a r i l y be f o r warded or presented d i r e c t to such banks, and such banks w i l l
be required to remit or pay t h e r e f o r at par in cash or bank
d r a f t acceptable to the c o l l e c t i n g Federal reserve "ban1-, or
at the option of such Federal reserve bpnk to authorize such
Federal reserve bank to charge t h e i r r e s e r v e accounts or
c l e a r i n g accounts; provided, however, that any Federal
reserve bank may reserve the r i g h t i n i t s check c o l l e c t i o n
c i r c u l a r to charge such iten.s to the reserve account or
c l e a r i n g account of any such bank at any time when in any
p a r t i c u l a r case the Federal r e s e r v e bank deems i t necessary
to do so."
- 2 -
follows:
X-4976-c
We had i s s u e d our c i r c u l a r No. 143, which read in part as
"Checks r e c e i v e d by us drawn on our member banks w i l l
be forwarded i n cash l e t t e r s d i r e c t to such banks and each
member bank w i l l be required e i t h e r to remit therefor in
immediately a v a i l a b l e funds or to provide funds a v a i l a b l e
to us to meet such cash l e t t e r s within the agreed t r a n s i t time
to and from the member bank. Therefore, the amount of any cash
l e t t e r to a member bank i s chargeable against a v a i l a b l e funds
in the reserve account of such member at the e x p i r a t i o n of
such t r a n s i t t i n e , which date w i l l be shown on each cash
l e t t e r . The r i g h t i s reserved, however, to charge a cash
l e t t e r to the reserve account of a member bank at any time
when in any p a r t i c u l a r case we deem i t necessary to do so."
The p o s i t i o n taken by the Comptroller of the Currency i s
that the reserve balance i s not a proper o f f s e t on t h e amount of
the cash l e t t e r because with respect to the cash l e t t e r , we were
a c t i n g as agents o n l y , and the amount due upon i t i s due to the
member banks, whereas the amcunt due to the f a i l e d bank on account of
i t s r e s e r v e balance i s due from us in our own r i g h t to the e s t a t e of
the f a i l e d bank. I b e l i e v e t h i s p o s i t i o n would have much strength
i f i t were not f o r the p r o v i s i o n s of the Regulations, and of the
c i r c u l a r , but my p o s i t i o n i s that the Regulations, and the c i r c u l a r ,
operate as a contract between o u r s e l v e s and the f a i l e d bank, and
under t h i s c o n t r a c t , the reserve balance was e x p r e s s l y a p p l i c a b l e
to payment f o r cash l e t t e r s .
If the reserve balance had equalled, or exceed, the cash
l e t t e r the mere f a c t that the bank had been c l o s e d by the Comptroller
of the Currency b e f o r e we had e x e r c i s e d our r i g h t to charge the amount
of the cash l e t t e r against the reserve balance would not a l t e r the
f a c t that the amount of the cash l e t t e r was a b s o l u t e l y chargeable against
the reserve balance, and i f the amount of the cash l e t t e r was chargeable
against the reserve balance, the f a c t that the reserve balance did not
equal to the amount of the cash l e t t e r could not a l t e r our r i g h t , or
the r i g h t s of member banks. In other words, the Receiver standing in
the shoes of the f a i l e d bank can take no advantage from the f a c t that
the f a i l e d bank should have placed us in funds s u f f i c i e n t to cover
the e n t i r e cash l e t t e r , and claim that we l o s e our r i g h t to a part
because the f a i l e d bank did not p l a c e in our hands s u f f i c i e n t funds
to discharge the whole o b l i g a t i o n .
I t seems to me that the p o s i t i o n of the Comptroller of the
Currency draws i n t o question the r i g h t and duty of a Federal Reserve
Bank in every case in which there i s a f a i l u r e of a member bank a f t e r
the checks in a cash l e t t e r are c a n c e l l e d , and b e f o r e the e l a p s e of the timp
allowed f,or remittance, or f o r charging the cajfe. l e t t e r to the account of
359
X-4976-o
the f a i l i n g bank. I t , therefore, seems to me that i t i s important that we
reach some s e t t l e m e n t , and I have advised the o f f i c e r s of the "bank that I
think we should frame a t e i t case, and they have authorized me to n o t i f y
the Comptroller of the Currency that we s h a l l i n s i s t upon the a p p l i c a t i o n
of the reserve balance, or, in any event, refuse to pay i t over u n t i l the
r i g h t s of the e s t a t e of the f a i l e d bank and of the member banks whose items
Were in the cash l e t t e r Lave been j u d i c i o u s l y determined.
In view of the f a c t that the question i s one which concerns
p r i m a r i l y Federal Reserve Banks who do not employ the remittance system in
d e a l i n g w i t h member banks, the matter i s probably not of s u f f i c i e n t importance
to be c a l l e d a "System matter", but as I s t a t e d above, I am reporting i t
to you in order that .you may know what we are doing, and, of course, i f
you wish to give us any suggestions or advice, wo should be d e l i g h t e d .
With b e s t personal regards, I remain,
Very t r u l y yours,
(SGD.) M. G. Wallace,
Counsel
mow ib
FEDERAL RESERVE BOARD
x-
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
THE FEDERAL RESERVE BOARD
October 19, 1927.
SUBJECT:
Holidays during November, 1927-
Dear Sir:
On Tuesday, November 1 s t , the Mew Orleans Branch and the
Havana, Agency of the Federal "Reserve Bank of Atlanta w i l l be c l o s e d
in observance of All Saints' Day. P l e a s e include c r e d i t s of November
1st f o r New Orleans Branch in the Gold Fund c l e a r i n g of November 2nd.
On Tuesday, November 8th, the f o l l o w i n g banks and branches
w i l l be c l o s e d on account of E l e c t i o n Dsy i n t h e i r r e s p e c t i v e S t a t e s :
New York
Buffalo
Richmond
Detroit
Philadelphia
Cleveland
( l / 2 day.
Cincinnati ( l / 2 day)
Pittsburgh
Will p a r t i c i p a t e in c l e a r i n g s )
On Friday, November 11th, Armistice Day, and Thursday, November 24th, Thanksgiving Day, there w i l l be neither Gold Settlement
Fund nor Federal Reserve Note c l e a r i n g , and the books of the Board's
Gold Settlement D i v i s i o n w i l l be c l o s e d .
For your information, the o f f i c e s of the Federal Reserve
Board and the f o l l o w i n g banks and branches w i l l be open f o r business
on Friday, November 11th:
Boston
Atlanta
New York
Buffalo
Detroit.
Please n o t i f y Branches.
Very t r u l y yours,
j . c . Noell,
A s s i s t a n t Secretary.
TO GOVERNORS OF AIL FEDERAL RESERVE BANKS.
copy
'3G1
f e d e r a l e z s l e v 2 ba1ik
Of
ka2tsas c i t y
X-4978
October 8, 1927.
\
Hon, Walter "Wyatt, General Counsel,
Federal Reserve Board,
Washington, B.C.
My dear Mr. Wyatt:
There i s sent you herewith, copy of opinion which
was r e c e n t l y handed, down "by the Supreme Court of Kansas i n
the case of Colorado and Southern Railroad Company v s .
William Docking, Receiver of the American State Bank, et a l ,
I knew nothing of t h i s case u n t i l I came across
i t i n the advance sheets of the Kansas Reports. I t announced
a conclusion of law which i s of some importance, at l e a s t
i n s o f a r as the Federal Reserve Bank of Kansas City i s concerned.
I consider the d e c i s i o n erroneousj and am i now planning to
have the question again presented tb the ddurt i n a case i n
which the whole matter can he thoroughly gone into*
You w i l l observe that the coufct h e l d that a request
to remit by draft which accompanied B cftfch l e t t e r forwarded
by the Federal Reserve Bank of Kansas City to a c o l l e c t i n g
bank, changed the r e l a t i o n s h i p of p r i n c i p a l and agent which
would otherwise have e x i s t e d between the Federal Reserve Bank
and the c o l l e c t i n g bank, to that of c r e d i t o r and debtor.
The a c t i o n was by the owner « f an item which was i n
the cash l e t t e r , to e s t a b l i s h a p r e f e r r e d claim a g a i n s t the
c o l l e c t i n g bank, which had f a i l e d wi^iout accounting f o r the
item i n actual funds. The preference was denied by reason
of the d i r e c t i o n to remit by d r a f t , which, i n the opinion of
the court, destroyed the f i d u c i a r y r e l a t i o n s h i p necessary f o r
the e x i s t e n c e of a p r e f e r e n c e .
In view of t h i s d e c i s i o n , the Federal Reserve Bank
of Kansas City has now eliminated d i r e c t i o n s Of t h i s kind from
i t s cash and c o l l e c t i o n l e t t e r s .
Yours very t r u l y ,
HGL:CR.
(Sgd.) H.G. Leedy.
X-4978-a
COPY
SUPREME COURT OF KANSAS.
'No. 27, 350.
THE COLORADO & SOUTHS RAILWAY COMPANY, Appellee, v . WILLIAM DOCKING,
REC2IVER OF THE AiiERICAN STATE BANK, and THE RESERVE STATE BANK, Appellants.
Syllabus by The Court.
1.
BANKS and. BANKING—Insolvency—Preferred Claim—Cashier's Check
Covering C o l l e c t i o n . Where a bank received a d r a f t for c o l l e c t i o n and
return with i n s t r u c t i o n s to remit by draft on Kansas City, makes the
c o l l e c t i o n the same day through a l o c a l c l e a r i n g house and immediately
sends the bank the c o l l e c t i o n item, a c a s h i e r ' s check covering the same,
and the c o l l e c t i n g bank f a i l s the same day and the check i s returned
to the r e c e i v e r of such bank, the r e l a t i o n of the c o l l e c t i n g bank to
the owner of the c o l l e c t i o n item i s that of debtor and c r e d i t o r and
the item i s not a t r u s t fund.
2.
SAME—Insolvency—Preferred Claims—Transactions Made With Knowledge
of Insolvency. Where the above t r a n s a c t i o n took p l a c e while the bank
was i n an i n s o l v e n t condition, being one of many other similar transa c t i o n s taking p l a c e at the same time and as a usual and ordinary l i n e
of banking b u s i n e s s , i t i s not such a fraudulent t r a n s a c t i o n as to make
the c o l l e c t e d item a t r u s t fund, even i f the o f f i c e r s of the bank knew
of i t s i n s o l v e n t c o n d i t i o n .
Appeal from Sedgwick d i s t r i c t court, d i v i s i o n No. 1; J. EVERETT
ALEXANDER, judge. Opinion f i l e d July 9, 1927; Reversed.
C.H. Brooks, Willard Brooks and Howar<| T. Fleeson, a l l of Wichita,
f o r the a p p e l l a n t s .
Chester I . Long, J.D. Houston, Austin M. Cowan, Claude I . Depew,
James Gr. Norton and W . E . Stanley, a l l ' of Wichita, f o r the a p p e l l e e ;
J.L. Rice and E.B. Evans, both of Denver, Colo., of counsel.
The opinion of the court was -delivered by
HUTCHISON, J; This a c t i o n was brought by the p l a i n t i f f a f t e r the
f a i l u r e of the American S t a t e Bank i n Wichita and the appointment of a,
r e c e i v e r , to e s t a b l i s h a preferential- claim against the r e c e i v e r and against
the Reserve State Bank, which purchased from the r e c e i v e r some of the a s s e t s
of the American S t a t e Bank. The only defense in the case by the r e c e i v e r
and the Reserve S t a t e Bank was on the question of tho claim being preferred,
i t being admitted that the p l a i n t i f f had a common claim a g a i n s t the r e c e i v e r
X-4978-a
-2-
'363
in the amount a l l e g e d . A jury was empaneled, "bat upon making the admission
j u s t mentioned, during the course of the t r i a l the jury was discharged and
the case was t r i e d to the court, who made extensive f i n d i n g s of f a c t and
concluded the claim to he a p r e f e r e n t i a l one and rendered judgment accordingly
i n favor of the p l a i n t i f f and a g a i n s t the defendant r e c e i v e r and the Reserve
State Bank, from which judgment the r e c e i v e r and the Reserve S t a t e Bank appeal.
In June, 1923, the Kansas City, Mexico & Orient Railway company
was indebted to the Colorado & Southern Railway Company in 'the sum of $1,501,
for which indebtedness the Colorado & Southern Railway Company drew i t s
draft on the Orient railway company and deposited the draft i n the Colorado
National Bank, of Denver, Colo., for c o l l e c t i o n and c r e d i t . The deposit s l i v
i s s u e d "by the Denver "bank showed that c r e d i t was given to the p l a i n t i f f cond i t i o n a l l y , the bank reserving the r i g h t to charge back to the depositor
a l l unpaid items or returns. The Colorado bank on the same day i n due course
of business forwarded the item to the New England National Bank, of Kansaa City,
k o . , for c o l l e c t i o n and c r e d i t , which bank i n due course forwarded the item
to the Federal Reserve Bank, of Kansas City, Mo., f o r c o l l e c t i o n and c r e d i t .
On June 16, 1923, the Federal Reserve Bank i n due course forwarded t h i s item
to the American S t a t e Bank, of Wichita, for c o l l e c t i o n s and r e t u r n s . Some
of the i n s t r u c t i o n s given i n the l e t t e r of transmittal were the f o l l o w i n g :
11
Do not remit f o r t h i s c o l l e c t i o n u n l e s s i t i s a c t u a l l y paid. 11 "Please remit
by draft on Kansas City" . The draft was duly r e c e i v e d by the American State
Bank on June 18, 1923, and a t 11 o ' c l o c k that day the s a i d bank presented
i t at the meeting of the Wichita c l e a r i n g house, together with other items,
and was given c r e d i t f o r the f u l l amount thereof on the settlement sheet
of the c l e a r i n g house, i t being by previous arrangement of the Orient
Railway Company cared f o r by the Fourth National Bank, of Wichita, and i n such
settlement the American State Bank was required to 11 put up11 a d i f f e r e n c e of over
$17,000, the amount of i t s d e b i t s exceeding the amount of t h i s and other
c r e d i t s by that amount i n that day* s b u s i n e s s . Upon r e c e i v i n g c r e d i t for
t h i s draft i n t h i s manner on June 18 at 11 o ' c l o c k , the cashier of the American
S t a t e Bank immediately drew a cashier 1 s check on i t s e l f payable to "ourselves"
for the sum of more than $18*000 i n payment of c o l l e c t i o n s which i t had received that day from the Federal Reserve Bank, which included the draft i n
question of $1,501. The American State Bank c l o s e d i t s doors a t 3 o ' c l o c k
on the afternoon of that day and never reopened. The c a s h i e r ' s check for
more than $18,000 sent to the Federal Reserve Bank, not being indorsed by any
of the o f f i c e r s of the American S t a t e Bank and the bank having f a i l e d before
the check could be presented f o r payment, was returned to the deputy bank
commissioner i n charge of the American State Bank on June I S , and the r e c e i v e r
of s a i d bank had s a i d check i n h i s "berrtds a t the tjoae of the t r i a l . A l a r g e '
share of the a s s e t s of the American State Bank were s o l d to the Reserve State
Bank when i t was organized. In the t r i a l of the i a s e i t was admitted that
the American State Bank was i n s o l v e n t on Juno 18, 1923, and had been insolvent
f o r one week prior t h e r e t o . Two of the f i n d i n g s of the court on t h i s question
are as f o l l o w s :
"13.
On June 18, 1523, The American State Bank was i n s o l v e n t and had
been i n an i n s o l v e n t condition f o r one week prior t h e r e t o . "
"15. That the insolvency of the American S t a t e Bank was known to
the o f f i c e r s of s a i d bank on June 18, 1923, at the time i t
X-4978-c.
-3accepted, the draft in question for c o l l e c t i o n . "
There i s only one question here for determination, and
th^t i s whether the $1,501 item so c o l l e c t e d by the American S t a t e Bank
an_4 attempted to be remitted to the Federal Reserve Bank by the c a s h i e r ' s
check was a p r e f e r r e d claim a g a i n s t the a s s e t s of the American S t a t e Bank
and i t s r e c e i v e r . Our court has frequently h e l d that there are two d i s t i n c t steps to be taken i n reaching a d e c i s i o n as to whether a claim a g a i n s t the a s s e t s of an i n s o l v e n t bank i s e n t i t l e d to be p r e f e r r e d ;
"Before a claim can bo allowed as a p r e f e r r e d claim ag a i n s t the r e c e i v o r of an i n s o l v e n t bonk, i t i s necessary to e s t a b l i s h , f i r s t , that the claim i n question i s a t r u s t fund; and,
second, that the fund i n some form was a part of the a s s e t s of
the bank which passed i n t o the hands of the r e c e i v e r . " ( S t a t e
Bank v. S t a t e Bank, 114 Kan. 463, s y l . 1, 218 Pac. 1000. See,
a l s o , Nelson v. Paxton, Receiver, 113 Kan. 394, 214 Pac. 7 8 4 . )
The same two stops arc necessary whore the fund become^
a t r u s t fund on account of fraud or fraudulent inducement. (Investment
Co. v. Bank, 98 Kan. 412, 158 Pac. 68; Kirby v. Wait, 120 Kan. 400, 243
Pac. 1080.) A fund w i l l not n e c e s s a r i l y become a t r u s t fund simply because the a s s e t s reaching the hands of the receiver have been augmented
by the t r a n s a c t i o n . This i s simply a f e a t u r e to be considered separately
and apart from the f i r s t e s s e n t i a l as to nrofcrence and a f t e r i t has f i r s t
been determined that the fund i s a sacred rr t r u s t fund, c i t h e r on account
of the r e l a t i o n s h i p of the o a r t i e s to the t r a n s a c t i o n as p r i n c i p a l and a gent, debtor and c r e d i t o r , or t r u s t e e and c e s t u i que t r u s t , or on account
of the fraudulent conduct of the o f f i c e r s of the bank. Then i n proper
sequence a r i s e s the second question, Did the t r a n s a c t i o n augment the a s s e t s
reaching the hands of the receiver? I t can r e a d i l y be seen that many a
t r u s t fund w i l l f a i l of preference because i t does not augment the a s s e t s
reaching the hands of the r e c e i v e r , and, on the other hand, many a case can
e x i s t where there i s no question about the a s s e t s being augmented; but that
can a v a i l nothing toward a preference u n l e s s i t has already been found to
be a t r u s t fund. In nearly a l l of the e a r l i e r cases c i t e d in t h i s connection only one of these elements was involved or considered, the t r u s t
fund feature was conceded, agency admitted, e t c . Such capes a f f o r d only
comparative help, whereas in t h i s both elements are c o n t e s t e d .
The d r a f t i n question i n making i t s t r i p from Denver to
Wichita v i a Kansas City, Mo., passed through several banlfs f o r c o l l e c t i o n and
c r e d i t , and undoubtedly the r e l a t i o n of one to the other, up to and including
the American S t a t e Bank, i n turn was that of p r i n c i p a l 'ind agent, and that
r e l a t i o n might s t i l l have been maintained had i t not been f o r the order of
the Federal Reserve Bank requiring remittance to be by draft on Kansas City.
This interrupted that r e l a t i o n s h i p by making the Wichita bank a debtor.
This d i r e c t i o n was disregarded to the extent of u s i n g a c a s h i e r ' s check
i n s t e a d of d r a f t on Kansas City, which made the s i t u a t i o n no b e t t e r .
Immediately, of n e c e s s i t y , the funds c o l l e c t e d became a part of the funds
o f the c o l l e c t i n g bank and wore mixed with i t s funds, thus l o s i n g for them
any claim of being a s p e c i a l fund.
a- 'V: T'8-r
>
-4—
"The general rule i s that the t i t l e to comir.crci.al paper received
f o r c o l l e c t i o n "by a bank and forwarded to i t s correspondent i n the
usual course of "business docs not vest in such correspondent. The
r e l a t i o n "between the two banks, as between the depositor and the f o r warding bank, i s thrt of principal a:xd agent merely. The correspondent
bank r e c e i v e s such paper as an agert for c o l l e c t i o n , and the t i t l e door,
not p a s s . When, however, the paper has once been c o l l e c t e d by the
correspondent bank, and i t has received the proceeds t h e r e f o r , the
r e l a t i o n between the r e m i t t i n g bank and i t s e l f i s changed from that of
p r i n c i p a l and agent to that of debtor ana c r e d i t o r , and the t i t l e to
such proceeds w i l l , in the absence of an agreement to the contrary,
v e s t i n the correspondent bank. The bonks are presumed to contract in
view of the well-known and e s t a b l i s h e d custom of banks, when a c t i n g as
c o l l e c t i n g agents f o r other banks, or, indeed, f o r any customer, to
put a l l c o l l e c t i o n s made by them into the general fund of the bank,
u n l e s s d i r e c t e d to make of them a s p e c i a l d e p o s i t , and use them from
hour to hour and from day to day in the transaction of t h e i r current
business."
(3 E. C. L 6 3 6 . )
"As a general r u l e , the proceeds of paper c o l l e c t e d by a bank
becomes the property of the bank and a part of i t s general fund, and
the bank becomes a debtor to the owner of the paper f o r the amount
c o l l e c t e d , l e s s the charges f o r c o l l e c t i o n ; and i t f o l l o w s that, on
the insolvency of the c o l l e c t i n g bank, there i s no preference in favor
of the owner of the paper or of a forwarding bank with respect to the
proceeds. 1 1 (7 C. J. 6 1 6 . )
Both the t e x t s s t a t e the r u l e i n subsequent paragraphs to those
above quoted as being d i f f e r e n t where the paper i s deposited f o r c o l l e c t i o n only or f o r c o l l e c t i o n under express d i r e c t i o n s to c o l l e c t and
remit. Such express d i r e c t i o n s are.more or l e s s common where the bank
i s suspected of being i n f a i l i n g condition, and they u s u a l l y designate
remittance i n currency.
"Any agreement or understanding or course of dealing whereby
the bank i s to use the i d e n t i c a l moneys c o l l e c t e d and s u b s t i t u t e i t s
own o b l i g a t i o n in i t s stead, destroys a l l idea o f ' t r u s t . 1 1
(Akin v. Jones, 93 Tenn. 353, 3 6 2 . )
This t r a n s a c t i o n was handled in the usuf.1 and ordinary way of
making c o l l e c t i o n s through banks, with the r e l a t i o n s h i p of p r i n c i p a l and
agent e x i s t i n g u n t i l the c o l l e c t i o n was made; then the bank by i t s own
o b l i g a t i o n i n the form of a c a s h i e r ' s check acknowledged i t s e l f to be
indebted to the Kansas City correspondent f o r the bdftpfit of the p l a i n t i f f
h e r e i n and the r e l a t i o n of debtor and c r e d i t o r arose, which i s i n c o n s i s t e n t
with the idea of the c o l l e c t i o n being a t r u s t fund.
"Where a bank r e c e i v e s payment of a note placed with i t by
the owner for c o l l e c t i o n , and upon request of tho owner d e l i v e r s him
a c a s h i e r 1 s check f o r the amount, there being then cash on hand s u f f i c i e n t to meet i t , tho p o s i t i o n of the owner, becomes that of a
r
X-4978-a
c r e d i t o r of the "bank, e n t i t l e d to no 'oreiercr.ce over ordinary c r e d i t ors upon the f a i l u r e of the bank l e a v i n g unpaid a d r a f t , which wargiven by i t on presentation of the check." (Massey-Harris Harvester
Co. v. F i r s t S t a t e Bank, 122 Kan. 483, s y l . , 252 Pac. 2 4 7 . )
The same or similar views are expressed in. the' f o l l o w i n g rocent
Kansas c a s e s : Clark v. Bank, 72 Kan. 1, 82 Pac. 582; S t a t e Bank. v. State
Bank, supra; El Dorado Nat'1 Bank v. Butler County State Bank, 120 Kan. 109,
242 pac. 475; Guymon-Petro Mercantile Co. v. Farmers State Bank, 120 Kan. 233,
243 Pac. 321; F i r s t Nat'1 Bank. v. Farmers State Bank, 120 Kan. 706, 244 Pac.
1038.
I t was admitted in the t r i a l of the case that the bank was
insplvent at the time t h i s transaction occurred, and had been i n s o l v e n t f o r
a week p r i o r t h e r e t o , and the court found that the insolvency of the bank
was known to i t s o f f i c e r s p r i o r to the acceptance of the draft f o r c o l l e c t i o n .
Thepre i s considerable controversy as to the s u f f i c i e n c y of proof f o r t h i s
f i n d i n g . I t i s claimed that the only evidence that was introduced on that
subject was an u n v e r i f i e d pleading from the f i l e s of the d i s t r i c t court f i l e d
p r i o r to the t r a n s a c t i o n a l l e g i n g the bank to be i n s o l v e n t and that such was
inadmissible. Without attempting to decide the question of the a d m i s s i b i l i t y
of t h i s testimony and the weight that should be given to i t , we think that
t h i s being a usual and ordinary d a i l y t r a n s a c t i o n of a bank and the f a c t that
the check was sent immediately a f t e r and on the same day the draft was r e c e i v e d and paid, goes to show with or without the knowledge of insolvency that
the o f f i c e r s of the bank wore t r y i n g to keep i t going, and the s i t u a t i o n i s
very d i f f e r e n t from that where a deposit i s r e c e i v e d when the bank i s known t o
the o f f i c e r s to b e ' i n s o l v e n t . This t r a n s a c t i o n , i f consummated, would not
have enriched or b e n e f i t e d the condition of tho bank, whereas a deposit would
be wholly onc-sidecL and without any immediate o b l i g a t i o n s whatever except to
meet the checks of the d e p o s i t o r . In the case of F i r s t National Bank v„
Farpers S t a t e Bank, 119 Kan. 198, 237 Pac. 652, the i n s o l v e n t bank asked a
neighboring bank f o r $1,000 in currency because i t was short on currency, end
gave i t s c a s h i e r ' s check, with the understanding that i t would be paid in four
or f i v e days. In the meantime the bank f a i l e d . The court h e l d t h i s was not
of a f i d u c i a r y or t r u s t character, and therefore was not a t r u s t fund l i a b l e
to p. ^reference because of the fraudulent conduct of the o f f i c e r s of the f a i l ing bank.
"A bank i s g u i l t y of fraud, on a general depositor i n accepting
h i s deposit a f t e r the bank has become h o p e l e s s l y i n s o l v e n t and has
committed an a c t of insolvency, and the depositor yay recover from the
r e c e i v e r of the bank to the extent the deposit augmented the funds
coming into tho hands of the r e c e i v e r / ' (Eime v. |»add, 112 Kan. 603,
s y l . , 211 Pac. 6 2 8 . )
11
The general r u l e i s to the e f f e c t that acceptance of general
d e p o s i t s by a bank which i s h o p e l e s s l y insolvent to the knowledge
of i t s o f f i c e r s c o n s t i t u t e s such a fraud as w i l l e n t i t l e the unsusp e c t i n g depositor to r e s c i n d and recover back the money, or give
him a p r e f e r e n t i a l claim, or create a t r u s t ex m a l e f i c i o , provided
other c o n d i t i o n s sometimes h e l d e s s e n t i a l to a recovery, such as
X-4978-a
-6-
367
augmentation of a s s e t s , i d e n t i f i c a t i o n s , e t c . , can "be s a t i s f i e d . 1 1
(20 A- L. E. 1206. See, a l s o , City of Spring H i l l v. Paxton,
Receiver, 115 Kan. 412, 223 Pac. 2 8 3 . )
The record hero shows that t h i s was one of many s i m i l a r transa c t i o n s the same day, and that the check sent out was f o r $18,000, a l l
of which would tend to show that i t was being done in the usual and
ordinary course of "business and not with a plan or design to fraudulently
acquire the "benefit of t h i s c o l l e c t i o n . 16-e t h e r e f o r e conclude that the
r e l a t i o n of the p a r t i e s i s that of debtor and c r e d i t o r and not t r u s t e e
and c e s t u i que t r u s t , and that the fund in question was not a t r u s t fund.
This conclusion makes i t unnecessary f o r us to consider the
second element as hereinbefore described i n f i n d i n g a claim to be p r e f e r i n t i a l , v i z . , whether or not the funds i n question reached the hands of
the r e c e i v e r .
With reference to the question of i n t e r e s t , the p l a i n t i f f i s
e n t i t l e d to i n t e r e s t on i t s common claim from the date the bank c o l l e c t e d
the claim. R. S. 41-101 provides:
"Creditors s h a l l be allowed to r e c e i v e i n t e r e s t at the r a t e of
s i x per cent per annum, when no other rate of i n t e r e s t i s agreed upon,
f o r any money a f t e r it'becomes due; f o r money l e n t or money due on
settlement of account, from the day of l i q u i d a t i n g the same and a s c e r t a i n i n g the balance."
In the case of Turner v. Otis, 30 Kan. 1, 1 Pac. 19, i t was
h e l d i n the d i s s o l u t i o n of a partnership:
"Where a settlement i s corrected by charging the defendant
with a c e r t a i n amount which he had wrongfully c o l l e c t e d and withheld,
such amount should carry i n t e r e s t from the time of c o l l e c t i o n . "
( S y l . 2, See, a l s o , City of Spring H i l l v. Paxton, Receiver, supra;
Honer v . S t a t e Bank, 114 Kan. 123, 216 Pag. 8 2 2 . )
The judgment of the d i s t r i c t court i s reversed and the cause remanded, with i n s t r u c t i o n s to render judgment in favor of the p l a i n t i f f for
$1,501 and i n t e r e s t thereon, but that such claim s h a l l not be e n t i t l e d to
preference i n the d i s t r i b u t i o n of the a s s e t s or e n t i t l e d to any p r i o r i t y
with reference to the a s s e t s purchased from the r e c e i v e r of the American
State Bank by the Reserve State Bank..
*
* (Confidential)
% 4980
October 20 , 1927.
To:
The Federal Reserve Board,
From:Mr. Wyatt- General Counsel•
Subject:
The Board* s power over foreign
transactions of Federal Reserve Banks.
\
The Board has requested an opinion with r e s p e c t to what
r e g u l a t i o n s , l i m i t a t i o n s and r e s t r i c t i o n s i t i s authorized to prescribe
as to f o r e i g n or i n t e r n a t i o n a l t r a n s a c t i o n s of Federal reserve banks,
and as to i t s general authority over such t r a n s a c t i o n s .
I understand
that the Board d e s i r e s to have the f o l l o w i n g p o i n t s covered in t h i s
opinion:
(1)
Whether the Board has power to r e g u l a t e , l i m i t ,
or r e s t r i c t t r a n s a c t i o n s i n v o l v i n g the opening of accounts, the appointment of correspondents, or the establishment of agencies in f o r e i g n
countries;
(2)
Whether the Board has power to r e g u l a t e , l i m i t ,
or r e s t r i c t dealings in b i l l s of exchange and bankers 1 acceptances
between Federal reserve banks and f o r e i g n central banks;
(3)
Whether the Board has power to r e g u l a t e , l i m i t ,
or r e s t r i c t dealings in gold between Federal reserve banks and f o r e i g n
c e n t r a l banks; and
(4)
Whether the Federal reserve banks may l a w f u l l y
charge a commission or f e e in connection with such f o r e i g n t r a n s a c t i o n s .
CONCLUSIONS-.
A f t e r c a r e f u l consideration of these questions, I have reached
the f o l l o w i n g conclusions;
(1)
Under the s p e c i f i c terms of s e c t i o n 14(e) of the
Federal Reserve Act, no Federal reserve bank may l a w f u l l y open or main-
t a i n accounts, appoint correspondents, or e s t a b l i s h agencies in f o r e i g n
c o u n t r i e s without f i r s t obtaining the consent of the Federal Reserve
Board; and the opening and maintenance of such accounts, the appointment
of such correspondents, the establishment of such agencies and the conduct through such correspondents or agencies of "any transaction"
auth-
o r i z e d by s e c t i o n 14 of the Federal Reserve Act f o r or on behalf of
other Federal reserve banks i s expressly made subject to such r u l e s and
r e g u l a t i o n s as the Federal Reserve Board may p r e s c r i b e .
In a d d i t i o n , the
Board has the power to order or d i r e c t Federal reserve banks to open and
maintain accounts, appoint correspondents and e s t a b l i s h agencies in
foreign countries.
(2) By v i r t u e of s p e c i f i c p r o v i s i o n s of the Federal Reserve Act, the Federal Reserve Board i s authorized and empowered to pres c r i b e r e g u l a t i o n s , r e s t r i c t i o n s and l i m i t a t i o n s governing d e a l i n g s in
b i l l s of exchange between Federal reserve banks and f o r e i g n c e n t r a l
banks.
(3) By v i r t u e of i t s r i g h t to e x e r c i s e general superv i s i o n over Federal reserve banks, and by v i r t u e of c e r t a i n other powers
s p e c i f i c a l l y granted in the Federal Reserve Act, the Federal Reserve
Board i s authorized to r e g u l a t e , l i m i t or r e s t r i c t important dealings
in gold i n v o l v i n g large amounts between Federal r e s e r v e banks and
f o r e i g n c e n t r a l banks under s e c t i o n 14(a) of the Federal Reserve Act,
(4) Whenever the Federal reserve banks enter into any
lawful transaction i n v o l v i n g the extension of c r e d i t t o , or the performance of any s e r v i c e f o r , a f o r e i g n central bank, they may l a w f u l l y charge
a reasonable commission or f e e f o r the extension of such c r e d i t or the
r e n d i t i o n of such s e r v i c e s .
-•
( - 3 - )
--2ZQ
X-4980
DISCUSSION.
The only one of these questions which presents any d i f f i c u l t y
i s the question whether the Board has the power to r e g u l a t e , l i m i t or
r e s t r i c t d e a l i n g s in gold between Federal reserve banks and f o r e i g n
c e n t r a l banks.
I s h a l l , t h e r e f o r e , d i s c u s s the other questions f i r s t
and take up t h i s more d i f f i c u l t question l a s t ,
FOREIGN ACCOUNTS, CORRESPONDENTS MP AGENCIES.
The a u t h o r i t y f o r Federal reserve banks to open and maintain
accounts,
appoint correspondents, and e s t a b l i s h a g en ci es in f o r e i g n
c o u n t r i e s i s conferred by the f o l l o w i n g language of Section 14:
"Every Federal reserve bank s h a l l have power:
11
(e) To e s t a b l i s h accounts with other Federal r e s e r v e
banks f o r exchange purposes and, with the consent or
upon the order and d i r e c t i o n of the Federal Reserve
Board and under r e g u l a t i o n s to be -prescribed by s a i d
board, to open and maintain accounts in f o r e i g n count r i e s , appoint correspondents, and e s t a b l i s h a g en ci es
in such countries wheresoever i t may be deemed b e s t
f o r the purpose of purchasing, s e l l i n g , and c o l l e c t i n g
b i l l s of exchange, and to buy and s e l l , with or without
i t s indorsement, through such correspondents or a g e n c i e s ,
b i l l s of exchange (or acceptances) a r i s i n g out of a c t u a l
commercial t r a n s a c t i o n s which have not more than n i n e t y
days to run, e x c l u s i v e of days of grace, and which bear
the signature of two or more responsible p a r t i e s , and,
with the consent of the Federal Reserve Board, to open
and maintain banking accounts f o r such f o r e i g n c o r r e s pondents or a g e n c i e s . Whenever any such account has
been opened or agency or correspondent has been appointed
by a Federal reserve bank, with the consent of or under
the order and d i r e c t i o n of the Federal Reserve Board,
any other Federal reserve bank may, with the cons ont
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 t h i s s e c t i o n
under r u l e s and r e g u l a t i o n s to be p r e s c r i b e d bv fhe hoard."
X-4980
. < - * - )
,j
7
J
From a mere reading of t h i s language i t i s obvious that the
Federal Reserve Board i s given f u l l control of a l l t r a n s a c t i o n s conducted thereunder.
Ho Federal r e s e r v e bank may open or maintain accounts,
appoint correspondents, or e s t a b l i s h agencies in f o r e i g n c o u n t r i e s
except with the consent and subject to the r e g u l a t i o n s of the Federal
Reserve Board; and any Federal reserve bank must open and maintain
accounts, appoint correspondents, or e s t a b l i s h agencies in f o r e i g n
countries i f ordered or d i r e c t e d to do so by the Federal Reserve Board.
The opening and maintaining of such accounts, the appointment of such
correspondents, and the establishment of such a g en ci es i s e x p r e s s l y
made subject to " r e g u l a t i o n s to be prescribed by s a i d board."
No Fed-
e r a l reserve bank may open and maintain banking accounts through such
f o r e i g n correspondents or agencies without the consent of the Federal
Reserve Board.
Other Federal reserve banks may p a r t i c i p a t e in such
t r a n s a c t i o n s only with the consent and approval of the Federal Reserve
Board.
And a l l t r a n s a c t i o n s through such correspondents or a g en ci es
in which other Federal reserve banks p a r t i c i p a t e must be conducted
"under r u l e s and r e g u l a t i o n s to be prescribed by the Board."
This g i v e s the Board the f u l l e s t p o s s i b l e measure of c o n t r o l ,
and i t i s important to note that the r u l e s and r e g u l a t i o n s which may be
p r e s c r i b e d by the Board governing t r a n s a c t i o n s in which other of the
Federal reserve banks p a r t i c i p a t e p e r t a i n to a l l t r a n s a c t i o n s authorized
by
mny part of S e c t i o n . 1 4 , and i s not l i m i t e d to t r a n s a c t i o n s under
subdivision ( e ) .
DEALINGS IN BILLS OF EXCHANGE AND ACCEPTANCES.
The power of the Federal reserve banks to deal on the open
market in b i l l s of exchange and bankers' acceptances i s conferred by the
( - 5 - )
X-4-980
f i r s t paragraph of s e c t i o n 14, which reads as f o l l o w s ;
"Sec. 14. Any Federal reserve bank may, under r u l e s
and r e g u l a t i o n s prescribed by the Federal Reserve Board,
purchase and s e l l in the open market, at home or abroad,
e i t h e r from or to domestic or f o r e i g n banks, f i r m s , corp o r a t i o n s , or i n d i v i d u a l s , cable t r a n s f e r s and bankers'
acceptances and b i l l s of exchange of the kinds and maturi t i e s by t h i s Act made e l i g i b l e f o r r e d i s c o u n t , with or
without the indorsement of a member bank.11
I t i s obvious that a l l transactions conducted under authority
of t h i s paragraph are e x p r e s s l y made subject to "rules and r e g u l a t i o n s
p r e s c r i b e d by the Federal Reserve Board."
Further and more complete authority to control such transa c t i o n s i s conferred upon tho Federal Reserve Board by the f o l l o w i n g
paragraph of s e c t i o n 13:
"The discount and rediscount and the purchase and
~ c a l e by any Federal reserve bank of any b i l l s r e c e i v a b l e
and of domestic and f o r e i g n b i l l s of exchange, a i d of
acceptances authorized by t h i s Act, s h a l l bo subject to
such r e s t r i c t i o n s , l i m i t a t i o n s , and r e g u l a t i o n s as may be
imposed by tho Federal Reserve Board."
I t has been suggested that t h i s paragraph p e r t a i n s only to
domestic t r a n s a c t i o n s and g i v e s the Board no power over t r a n s a c t i o n s
in f o r e i g n countries; but, the broad language used by Congress i s not
subject to any such r e s t r i c t e d i n t e r p r e t a t i o n .
I t w i l l be noted that
i t a p p l i e s not only to the discount and rediscount but a l s o to the
purchase and
uale by any Federal reserve banks of any b i l l s r e c e i v a b l e
and of domestic and f o r e i g n b i l l s of exchange and of acceptances autho r i z e d by t h i s Act.
I t i s not l i m i t e d in terms to domestic t r a n s a c t i o n s
but i s couched in the broadest p o s s i b l e language and i s o b v i o u s l y
intended to include a l l purchases and s a l e s by any Federal r e s e r v e bank
of any b i l l s r e c e i v a b l e , domestic and f o r e i g n b i l l s of exchange, or
acceptances authorized by the Federal Reserve Act.
( - 5 - )
X-4980
3 7 3
I t has been suggested that i t was intended to apply only to
t r a n s a c t i o n s under s e c t i o n 13 and does not apply to d e a l i n g s under
s e c t i o n 14.
A glance at the l e g i s l a t i v e h i s t o r y of t h i s p r o v i s i o n ,
however, shows that i t could not p o s s i b l y have been intended to apply
only to s e c t i o n 13.
As contained in the o r i g i n a l Federal Heserve Act,
t h i s p r o v i s i o n applied only to rediscounts but i t was amended by the
Act of September 7, 1916, so as to apply also to purchases and s a l e s .
At th&t t i n e s e c t i o n 13 did not authorize Federal r e s e r v e banks to
purchase and s e l l b i l l s r e c e i v a b l e , b i l l s of exchange or bankers'
acceptances but d e a l t with discounts arid rediscounts and the only
a u t h o r i t y f o r the purchase and s a l e of b i l l s of exchange and acceptances by Federal r e s e r v e banks was contained in s e c t i o n 14.
Even at
t h i s l a t e date, the only authority in s e c t i o n 13 to purchase and s e l l
b i l l s of exchange i s the authority added by the A g r i c u l t u r a l Credits
Act of March 4, 1923, to purchase and s e l l b i l l s of exchange payable
at s i g h t or on demand which are drawn to f i n a n c e the domestic shipment
of nonperishable r e a d i l y marketable s t a p l e a g r i c u l t u r a l products.
I t i s obvious, t h e r e f o r e , that the a u t h o r i t y conferred upon
the Federal Reserve Board by the above quoted p r o v i s i o n of s e c t i o n 13
i s intended to apply to the purchase and s a l e of b i l l s of exchange and
bankers' acceptances by Federal reserve banks at home or abroad under
s e c t i o n 14.
In my opinion, t h e r e f o r e , the s p e c i f i c p r o v i s i o n s of the Federal Reserve Act authorize and empower the Federal Reserve Board to pres c r i b e r e g u l a t i o n s , r e s t r i c t i o n * , and l i m i t a t i o n s covering d e a l i n g s in
b i l l s of exchange .and bankers' acceptances between Federal r e s e r v e banks
and f o r e i g n c e n t r a l banks.
( - 7 - )
X-4980
r i g h t of f e d e r a l r e s e r v e s a m s t o iame a r e a s o n a b l e
chargb iii connection w i t h f o r e i g n t r a n s a c t i o n s .
Assuming that Federal reserve banks have power to engage in
t r a n s a c t i o n s whereby they s e l l or lend gold to f o r e i g n banks, purchase
b i l l s f o r the account of f o r e i g n banks or extend c r e d i t in any way to
f o r e i g n banks, have the Federal reserve banks the r i g h t to charge a
reasonable commission or f e e f o r to doir:g1
In my opinion i t i s an i n c i d e n t a l power of Federal reserve
banks to make a reasonable charge f o r any s e r v i c e l a w f u l l y rendered by
them, u n l e s s such charge i s p r o h i b i t e d by s t a t u t e or i s contrary to
public policy.
There i s no s t a t u t e p r o h i b i t i n g the making of charges by
Federal reserve banks in connection with dealings in gold or b i l l s of
exchange with f o r e i g n central banks, nor i s there anything in the Federal
Reserve Act to i n d i c a t e that such a charge should be considered contrary
to p u b l i c p o l i c y .
Assuming that the Federal r e s e r v e banks have power
to engage in these f o r e i g n t r a n s a c t i o n s , I am of the opinion, t h e r e f o r e ,
that they are l e g a l l y authorized to make a reasonable charge f o r the
s e r v i c e s which they render in that connection.
gold t r a n s a c t i o n s .
Section 14(a) authorizes and empowers the Federal reserve banks:
"(a) To deal in gold coin and b u l l i o n a t home or abroad, to
make loans thereon, exchange Federal r e s e r v e n o t e s f o r gold,
gold c o i n , or gold c e r t i f i c a t e s , and to contract f o r loans
of gold coin or b u l l i o n , g i v i n g t h e r e f o r , when necessary,
acceptable s e c u r i t y , including the hypothecation of United
S t a t e s bonds or other s e c u r i t i e s which Federal r e s e r v e banks
axe authorized to hold;"
This s e c t i o n does not e x p r e s s l y authorize the Federal Reserve
Board to r e g u l a t e , l i m i t or r e s t r i c t the e x e r c i s e of the powers conferred
thereby; but I am of the opinion that such a u t h o r i t y i s to be found e l s e
( - 8 - )
X-4980
3"
where in the Act,
I am not f a m i l i a r with the d e t a i l s of the arrangements between
the Federal Reserve Bank of Hew York and the various c e n t r a l banks of
f o r e i g n countries; but i t i c ray understanding t h a t , whenever the Fede r a l Reserve Banks have undertaken to enter into t r a n s a c t i o n s with
f o r e i g n c e n t r a l banks i n v o l v i n g the purchase and s a l e of b i l l s of exchange or d e a l i n g s in gold, the Federal Reserve Bank of New York has
f i r s t entered into mutual arrangements with such c e n t r a l banks whereby
each bank appoints the other i t s correspondent or agent, and that the
t r a n s a c t i o n s which take p l a c e under these arrangements are conducted
by the Federal Reserve Bank of Hew York on behalf of a l l Federal Reserve Banks on a pro r a t a b a s i s .
Where t h i s i s done there can be
no doubt of the Board's power to p r e s c r i b e r u l e s and r e g u l a t i o n s governing a l l such t r a n s a c t i o n s which are authorized by any part of Section 14;
because the l a s t sentence of Section 14(e) provides that;
"Whenever any such account has been opened or
agency or correspondent has been appointed by a Fede r a l reserve bank, with the consent of or under the
order and d i r e c t i o n of the Federal Reserve Board,
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 r e s e r v e
bank opening such account or appointing such agency
or correspondent, any transaction authorized by t h i s
s e c t i o n under r u l e s and r e g u l a t i o n s to be p r e s c r i b e d
by the board."
I t has been suggested that the words "any transactions" as used
here r e f e r only to the purchasing, c e l l i n g and c o l l e c t i n g of b i l l s of
exchange under a u t h o r i t y of subdivision (e) of Section 14; but, in
my opinion, no such r e s t r i c t e d i n t e r p r e t a t i o n can properly be given
to these words.
The words "any t r a n s a c t i o n authorized by t h i s section"
( - 9 - )
X-4980
are very broad in t h e i r scope and c l e a r l y include every transaction
authorized "by any part of Section 14, including the power granted by
Subdivision (a) to deal in gold coin and b u l l i o n at home or abroad.
In my opinion, t h e r e f o r e , t h i s p r o v i s i o n of s u b d i v i s i o n (e) of Section
14 s p e c i f i c a l l y authorizes the Board to p r e s c r i b e r u l e s and r e g u l a t i o n s
governing any and a l l t r a n s a c t i o n s in gold between a Federal r e serve bank and a f o r e i g n central bank which has been appointed as
the agent or correspondent of such Federal r e s e r v e bank, i f other
Federal reserve banks p a r t i c i p a t e in such t r a n s a c t i o n s .
Independently of the power conferred by s e c t i o n 1 4 ( e ) , however,
I am f u r the r of the opinion that the Federal Reserve Board i s authorized
to r e g u l a t e , l i m i t or r e s t r i c t i n t e r n a t i o n a l gold t r a n s a c t i o n s of the
Federal reserve bamcs, even when such t r a n s a c t i o n s are not conducted
through correspondents or agencies opened or e s t a b l i s h e d pursuant to
section 14(d).
This power in my opinion i s included in the power con-
f e r r e d by s e c t i o n 1 1 ( j ) "to e x e r c i s e general supervision over s a i d
Federal reserve banks" and the power conferred by Section l l ( i )
to
"perform the d u t i e s , f u n c t i o n s , or s e r v i c e s s p e c i f i e d in t h i s Act, and
make a l l r u l e s and r e g u l a t i o n s necessary to enable s a i d Board e f f e c t i v e l y to perform the same.
In view of the great importance of t h i s question, I s h a l l d i s cuss at length the nature and extent of the Board's power of general
supervision, the l e g i s l a t i v e h i s t o r y of the open market powers of
the Federal reserve banks, the r e s p e c t i v e f u n c t i o n s of the Federal
r e s e r v e banks and the Federal Reserve Board in the Federal Reserve
System and the r e l a t i o n of i n t e r n a t i o n a l gold t r a n s a c t i o n s to other
( - 10 - )
X-4980
t r a n s a c t i o n s over which the Board has been given s p e c i f i c powers.
Before
entering upon such a lengthy d i s c u s s i o n , however, I s h a l l s t a t e b r i e f l y
my reasons f o r the above conclusion.
'
1. I t has long been recognized that banking i s a b u s i n e s s a f f e c t e d with the p u b l i c i n t e r e s t and that banks are subject to r e g u l a t i o n
under the p o l i c e rower f o r the p r o t e c t i o n of the general w e l f a r e of
the people.
2. Because of their very nature and because of the f a r - r e a c h i n g
e f f e c t s of t h e i r p o l i c i e s .and transactions on the general w e l f a r e of
the people, t h i s i s e s p e c i a l l y true of Federal reserve banks.
3. Federal reserve banks are i n s t r u m e n t a l i t i e s of the Federal
government created f o r p u b l i c purposes and are at a l l times and in a l l
r e s p e c t s subject to the paramount authority of the Federal government.
4 . The Federal Reserve Board i s an arm of the Federal government
created f o r the purpose of administering the Federal Reserve Act and
e x e r c i s i n g general supervision over the Federal reserve banks, to the
end that they may f u n c t i o n in a manner b e s t c a l c u l a t e d to carry out
the purposes of the Federal Reserve Act, to serve the p u b l i c p o l i c y
of the United S t a t e s , and to b e n e f i t the people .of the United S t a t e s .
5.
The Board's general power of supervision includes the power
to sec that the Federal Reserve banks preserve.and p r o t e c t the banking
r e s e r v e s of the country with which they are entrusted, that they do
nothing which may endanger the solvency or soundness of t h e i r currency, that they carry out f a i t h f u l l y the purposes of the Federal
Reserve Act and that they comply in a l l r e s p e c t s with both the l e t t e r
and the s p i r i t of the law.
This power c a r r i e s with i t the power to
9 7 8
( - 11 - )
X-4980
require the Federal r e s e r v e "banks to cease doing anything which i s u l t r a v i r e s or which might d e f e a t the purposes of the Federal Reserve Act or
which might be detrimental to the p u b l i c i n t e r e s t .
Moreover, t h i s power
i s to be construed l i b e r a l l y so as to enable the Board e f f e c t i v e l y to
safeguard the great p u b l i c i n t e r e s t s confided to i t .
6.
From an examination of the Committee reports and l e g i s l a t i v e
debates on the Federal Reserve Act i t i s p e r f e c t l y c l e a r that the power
of carrying on the regular routine everyday b u s i n e s s of the Federal r e serve banks and the power of determining l o c a l p o l i c i e s was entrusted
to t h e i r r e s p e c t i v e board of d i r e c t o r s , but the Federal Reserve Board
was created as "a general board of management" entrusted with the power
to overlook and d i r e c t the general f u n c t i o n s of the banks in order that
the Board, on behalf of the government, might r e t a i n some power over
the e x e r c i s e of the "broader banking functions" a f f e c t i n g the country
as a whole.
7.
To t h i s end, the Board was given power, among other t h i n g s ,
to review and determine the r a t e s of discount to be f i x e d by each
Federal r e s e r v e bank from time to time, to r e g u l a t e the open market
t r a n s a c t i o n s of the Federal reserve banks, to e x e r c i s e general superv i s i o n over the Federal reserve banks, and to make a l l r u l e s and
r e g u l a t i o n s necessary to enable the Board to perform the d u t i e s , funct i o n s or s e r v i c e s s p e c i f i e d in the Federal Reserve Act.
8.
The power to purchase and s e l l b i l l s of exchange and bankers'
acceptances in the open market was conferred upon the Federal r e s e r v e
banks in order to enable them to make t h e i r rediscount r a t e s e f f e c t i v e
and to p r o t e c t t h e i r gold r e s e r v e s , but t h i s power was subjected to
X-4980
( - 12 - )
2 3 9
r e g u l a t i o n by the Federal Reserve Board in order that the Board might have
some control over the reserve p o s i t i o n s of the banks, the r e d i s c o u n t
r a t e s , and general c r e d i t conditions throughout the country.
9.
For the same reason, the Board was ~aven a great measure of
control over the other open market operations of the Federal reserve
banks, over their power to appoint correspondents, open accounts and
e s t a b l i s h agencies abroad, and over the transactions which might oe
conducted through such f o r e i g n correspondents and a g e n c i e s .
10.
The e f f e c t i v e n e s s of the powers thus conferred upon the
Board would be s e r i o u s l y impaired and the Board 1 s a b i l i t y to e x e r c i s e some
control over the rediscount r a t e s , open market operations and f o r e i g n
t r a n s a c t i o n s of the Federal reserve banks with a view to p r o t e c t i n g the
general c r e d i t s i t u a t i o n and overseeing the
11
broader banking functions"
a f f e c t i n g the country as a whole might be rendered nugatory i f the
Federal reserve banks could enter into transactions with f o r e i g n banks
i n v o l v i n g the purchase and s a l e , lending, borrowing and earmarking of
gold, thereby moving ^rcat q u a n t i t i e s of gold into or out of the
country, without being subject to any regulation or check by the Federal
Reserve Board.
11.
Any s t a t u t e must be construed as a whole and in such a
way as to carry out the i n t e n t of the l e g i s l a t u r e .
The i n t e n t of the
l e g i s l a t u r e must be obtained by reading the act as a whole and not by
construing i s o l a t e d provisions of the same witnout any r e f e r e n c e to
t h e i r r e l a t i o n to the other p r o v i s i o n s of the act or the e f f e c t of
such construction upon other p r o v i s i o n s of the a c t .
To construe the Board's powers
51
to e x e r c i s e general super-
v i s i o n over t h e Federal reserve banks n and
11
to perform tne d u t i e s ,
12.
( - 13 - )
X-4980
f u n c t i o n s or s e r v i c e s s p e c i f i e d in t h i s act and to make a l l r u l e s and
r e g u l a t i o n s necossary to enable said Board e f f e c t i v e l y to perform the
same" s t r i c t l y and in such a way as not to include the power to e x e r c i s e
some control over i n t e r n a t i o n a l gold t r a n s a c t i o n s , would c l e a r l y defeat
the broad purposes of the Federal Reserve Act and g r e a t l y impair the
Board's f u n c t i o n as a
11
general board of management11 entrusted with the
power to overlook and d i r e c t the general f u n c t i o n s of the banks in order
that the Board, on behalf of the government, might r e t a i n some power over
the e x e r c i s e of the ^broader banking functions" a f f e c t i n g the country as
a whole.
13.
Dealings in gold between the Federal r e s e r v e banks and f o r e i g n
c e n t r a l banks are t r a n s a c t i o n s of importance to the e n t i r e Federal Heserve System and to the public i n t e r e s t s of the United S t a t e s as a whole,.
Normally large amounts are involved in these d e a l i n g s .
Frequently i n
such t r a n s a c t i o n s the funds of the Federal reserve banks are i n v e s t e d
in or represented by a s s e t s l o c a t e d in f o r e i g n c o u n t r i e s .
This use of large
amounts of the funds of the Federal Reserve System mignt cause a s e r i o u s
r e s t r i c t i o n upon the amount of funds a v a i l a b l e f o r use in t h i s country
and harmful r o s u i t s upon the Federal Reserve System or upon the business
i n t e r e s t s of t h i s country might ensue.
I t could s e r i o u s l y a f f e c t the
gold r e s e r v e s of the country and the e f f e c t i v e n e s s of the rediscount
rate.
14.
Under t h e s e circumstances, the question whether and to what
extent Federal reserve banks should engage in t r a n s a c t i o n s of t h i s kind
i s an important question of p o l i c y to the Federal Reserve System as
a whole.
The p r a c t i c a l r e s p o n s i b i l i t y of such t r a n s a c t i o n s i s one
( -
14 -
)
X-49S0
? 8 i
which in the l a s t a n a l y s i s , must r e s t upon the Federal Reserve Board.
If the Federal Reserve Board's power of general supervision over Federal reserve banks i s to have any p r a c t i c a l e f f e c t or i s to "be given any
s u b s t a n t i a l meaning, i t must be considered to extend to and include the
r e g u l a t i o n or r e s t r i c t i o n of such important a c t i v i t i e s of Federal r e s e r v e
banks as these i n t e r n a t i o n a l d e a l i n g s in gold, which may impair the e f f e c t i v e n e s s of the rediscount r a t e and the open market t r a n s a c t i o n s over
which the Board i s e x p r e s s l y given a large measure of c o n t r o l .
I am of the opinion, t h e r e f o r e , that by v i r t u e of i t s r i g h t to exe r c i s e general supervision over Federal reserve banks the Federal Reserve
Board i s empowered and authorized to r e s t r i c t or r e g u l a t e important d e a l i n g s in gold i n v o l v i n g s u b s t a n t i a l amounts between Federal r e s e r v e banks
and f o r e i g n c e n t r a l banks under s e c t i o n 14(a) of the Federal Reserve Act
and that accordingly the Federal Reserve Board may, i f i t so d e s i r e s ,
require Federal reserve banks to obtain i t s approval b e f o r e entering into
such t r a n s a c t i o n s .
. FURTHER DISCUSSION MP CITATION OF AUTHORITIES.
The above i s only a summary of the reasons f o r my conclusions
regarding the Board's power to e x e r c i s e supervision and control over
i n t e r n a t i o n a l gold t r a n s a c t i o n s .
In view of the vast importance of t h i s
subject, I have made a very lengthy and complete study and f e e l that I
should submit below f o r f u t u r e r e f e r e n c e the r e s u l t s of that study and
the c i t a t i o n s of such a u t h o r i t i e s as I have found.
GENERAL SUPERVISORY POWER.
I have made a c a r e f u l and thorough study of the Board's general
supervisory power and of the l e g a l a u t h o r i t i e s regarding the general
supervisory or v i s i t a t o r i a l powers in general.
I submit the f o l l o w i n g
d i s c u s s i o n of that subject f o r the Board's f u r t h e r information.
o&r
X-4980
( — 15 — )
I t i s customary in American law to vest in some board, commission,
or o f f i c e r , the power to e x e r c i s e general supervision over c e r t a i n types
of corporations such as common c a r r i e r s , insurance companies, and banks,
which are a f f e c t e d with a p u b l i c i n t e r e s t .
Furthermore, under American
law a l l corporations are chartered by the Government and have only such
powers as are e x p r e s s l y granted in t h e i r charters or in the laws under
which they are incorporated and such i n c i d e n t a l powers as are necessary
to the e x e r c i s e of the powers e x p r e s s l y granted.
I t i s w e l l s e t t l e d that
by i m p l i c a t i o n they are forbidden to e x e r c i s e any other powers.
The Stat*
t h e r e f o r e , i s i n t e r e s t e d in any attempt by a corporation to exceed i t s
corporate powers and i t i s w e l l s e t t l e d that the State i s the one to comp l a i n of any u l t r a v i r e s a c t s of a corporation and i s the only one which
can i n s t i t u t e quo warranto proceedings to compel a corporation to cease
performing u l t r a v i r e s a c t s .
The d u t i e s of boards, commissions or
o f f i c e r s charged with general supervision over corporations a f f e c t e d
with a public i n t e r e s t , t h e r e f o r e , are primarily to see that such corp o r a t i o n s do not exceed t h e i r lawful powers and that they carry out the
purposes of t h e i r organization in such a way as to b e n e f i t rather than
injure the p u b l i c , and to prevent or check any abuses of any character.
This power, in i t s general nature and purpose i s quite similar to,
i f not the same as, the common law power of v i s i t a t i o n .
A d i s c u s s i o n of
the a u t h o r i t i e s on the subject of v i s i t a t o r i a l powers, t h e r e f o r e , may
throw some l i g h t on the extent of the Board*s d u t i e s and powers in the
premises.
The v i s i t o r s of eleemosynary and e c c l e s i a s t i c a l corporations at
common law, however, f r e q u e n t l y performed a l l the f u n c t i o n s and p o s s e s s e d
a l l the powers which are now divided between the d i r e c t o r s of banks and
*
the governmental a u t h o r i t i e s having supervision over them; and i t i s im
"383
(
-
15 -
)
X-4960
portant to koop t h i s in mind while reading the a u t h o r i t i e s quoted "below;
B o u v i c r ' s Law Dictionary, (p. 3404) d i s c u s s e s t h i s subject as f o l l o w s :
" V i s i t a t i o n . The act of examining into the a f f a i r s of a
corpora-
tion.
"The power of v i s i t a t i o n i s a p p l i c a b l e only to e c c l e s i a s t i c a l
and eleemosynary corporations. 1 Bla. Com. 480. The v i s i t a t i o n of c i v i l
corporations i s by the government i t s e l f , through the medium of the
courts of j u s t i c e . See 2 Kent, 240. In the United S t a t e s , the l e g i s l a t u r e
i s the v i s i t o r of a l l corporations founded by i t f o r p u b l i c pviposos;
Dartmouth College v. Woodward, 4 Wheat. (U.S.) 518 4 L. Ed. 629.
*
*
*
*
*
*
*
*
*
*
*
*
"All eleemosynary corporations who are .to r e c e i v e the c h a r i t y
of the founder have v i s i t o r s i f they are e c c l e s i a s t i c a l corporations;
and i f a p a r t i c u l a r v i s i t o r i s not provided by the founder, then the
Ordinary of the p l a c e i s the v i s i t o r ; i f they are l a y corporations,
the founder and h i s h e i r s are perpetual v i s i t o r s ; 5 Mod. 404. I t i s a
necessary incident of an eleemosynary corporation; 1 Mod. 82; "a power
to correct abuses and to enforce due observance of the s t a t u t e s of the
c h a r i t y , but not a power to revoke the g i f t s , to change u s e s or d i v e s t
r i g h t s ; " Allen v. McKean 1 Sunn. 275, Fed. Cas. Mo. 229, per Story, J.
"A v i s i t o r has the r i g h t of i n s p e c t i n g the a f f a i r s of the
corporation, and superintending a l l o f f i c e r s who have charge of them
according to the s t a t u t e s of the founder, without any control or r e v i s i o n
of any other person or body, except the j u d i c i a l t r i b u n a l s , by whose
a u t h o r i t y and j u r i s d i c t i o n he may be r e s t r a i n e d and kept within the l i m i t
of the granted powers, and made to regard the general laws of the land;
in r e Murdock, 24 Mass. 303. Ho. appeal lay from a v i s i t o r u n l e s s he
v i s i t s qua Ordinary, when an appeal lay to the Crown in Chancery. I t was
baid by Lord Camden that v i s i t a t i o n i s despotism u n c o n t r o l l e d and without
appeal; Grant, Corp. 534. See, g e n e r a l l y , Tudor, Charitable Trusts;
Stephens, S t a t u t e s Relating to E c c l e s i a s t i c a l , e t c . , I n s t i t u t i o n s ; Report
of Oxford Commission (1852); 7 Com. Dig. 545; 21 Viner, Abr. 587. See 34
L. Mag. and Rev. 40, as to Oxford and Cambridge U n i v e r s i t i e s .
"In Massachusetts i t i s h e l d that the v i s i t a t i o n of eleemopynary
corporations according to the common law i s in f o r c e except as a l t e r e d by
s t a t u t e ; In re Murdock, 24 Mass. 303; such s t a t u t e s may v e s t v i s i t a t o r i a l
power in the c o u r t s , in the absence of a personal v i s i t o r , or even where
there i s one; In re Taylor Orphan Asylum, 36 Wis. 534; but where v i s i t a t o r i a l power i s conferred on c e r t a i n p u b l i c o f f i c e r s , the courts may not
i n t e r f e r e u n l e s s such v i s i t o r s should act contrary to law; Nelson v.
Cashing, 2 Cush. (56 Mass.) 519.
"Even where a t e s t a t o r , in founding a h o s p i t a l , d i r e c t e d that the
t r u s t e e s should annually report t h e i r a c t s to the court and give bonds,
i t was h e l d that the court had no v i s i t a t o r i a l power or other supervision
X-4980
n
i
( -17- )
Jenkins v . Berry, :!IP Ky. 350, S3 S . f . 594.
"The v i s i t a t o r i a l power of a court over a cemetery a s s o c i a t i o n does
not a u t h o r i z e i t to s u b s t i t u t e i t s own "business judgment f o r t h a t of t h e
a s s o c i a t i o n ; Roanoke Cemetery Co, v . Goodwin, 101 Va. 605, 44 S.E. jSS•
"Under t h e v i s i t a t o r i a l powers of a s t a t e over c o r p o r a t i o n s doing
b u s i n e s s w i t h i n i t s borders, i t i s competent f o r i t to compel such corporat i o n s to -produce t h e i r books and papers f o r i n v e s t i g a t i o n and to require the
testimony of t h e i r o f f i c e r s and employees to a s c e r t a i n whether i t s laws
have been complied with, and this power extends to the production of books
and papers kept o u t s i d e of the s t a t e , and a s t a t u t e r e q u i r i n g such production
does not amount to an unreasonable search or s e i z u r e or a d e n i a l of due
p r o c e s s of law; Consolidated R. Co. v . Vermont, 207 U. S. 5 4 l , 28 Sup. Ct.
17S, 52 L. Ed. 327, 12 Ann. Cas. 658; Hammond P. Co. v . Arkansas, 212 U.S.
322, 29 Sup. Ct. 370, 53 1 . Ed. 530, 15 Ann. Cas. 645. A c o r p o r a t i o n , b e i n g
the c r e a t u r e of t h e s t a t e , has not the c o n s t i t u t i o n a l r i g h t to r e f u s e to
submit i t s books and papers f o r an examination a t the s u i t of t h e s t a t e , and
an o f f i c e r of a c o r p o r a t i o n charged w i t h criminal v i o l a t i o n of a s t a t u t e
cannot p l e a d the c r i m i n a l i t y of the c o r p o r a t i o n as a r e f u s a l to -produce i t s
books; Hale v . Hezikel, 201 U. S. 43, 26 Sun. Ct. 370, 50 L. Ed. 6^2. A c o r p o r a t i o n i s bound to f u r n i s h information when c a l l e d f o r by the s t a t e , so
f a r as reasonably p o s s i b l e , and s t a t e the f a c t s which excuse them from answering more f u l l y ; S t a t e v . Express Co., 81 Minn. 87, 83 H.W. 465, 50 I . E . A .
667, 83 Am. S t . Rep. 366; by s t a t u t e the r i g h t e x i s t s i n Kansas; See Western
U. T e l . Co. v . A u s t i n , 67 Kan. 208, J2 Pac. 85O.
"It may be considered t h a t , to a c e r t a i n e x t e n t , r a i l r o a d comm i s s i o n s are t h e machinery c r e a t e d by law f o r the e x e r c i s e of v i s i t a t o r i a l
•power.
"This power does not include the common law r i g h t of the shareholder
to i n s p e c t the books of the corporation; G-uthrie v . Harkness, 199 U.S.
148, 26 Sup. Ct. 4, 50 L. Ed. 130, 4 Ailn. Cas. 433."
In the famous Dartmouth College Case, 17 U.S. (4 Wheat) 517, 672,
Mr. J u s t i c e S t o r y d i s c u s s e s the s u b j e c t of v i s i t o r s of eleemosynary corpora t i o n s as f o l l o w s :
"To a l l eleemosynary c o r p o r a t i o n s , a v i s i t a t o r i a l power
a t t a c h e s , as a n e c e s s a r y i n c i d e n t ; f o r t h e s e c o r p o r a t i o n s b e i n g
composed of i n d i v i d u a l s , s u b j e c t to human i n f i r m i t i e s , are l i a b l e ,
as w e l l as p r i v a t e p e r s o n s , to d e v i a t e from the end of t h e i r i n s t i t u t i o n . The law, t h e r e f o r e , has provided, that there s h a l l somewhere
e x i s t a power to v i s i t , inquire i n t o , and c o r r e c t a l l i r r e g u l a r i t i e s
and abuses i n such c o r p o r a t i o n s , and to compel the o r i g i n a l purposes
of c h a r i t y to be f a i t h f u l l y f u l f i l l e d . 1 31. Com. 480. The nature and e x t e n t of t h i s v i s i t a t o r i a l power has been expounded w i t h
admirable f u l n e s s and accuracy by Lord Holt i n one of h i s most c e l e brated judgments. P h i l l i p s v . Bury, 1 Ld. Raym. 5; s . c . 2 T.R. 3^6.
And of common r i g h t , by the d o t a t i o n , the founder and h i s h e i r s are the
l e g a l v i s i t o r s , u n l e s s the founder has appointed and a s s i g n e d another pej>son to be v i s i t o r . For t h e founder may, i f he p l e a s e , a t t h e time of the
( -IS- )
X-4980
endowment, part w i t h h i s v i s i t a t o r i a l power, and the
person to whom i t i s a s s i g n e d w i l l , i n that c a s e , p o s s e s s
i t i n e x c l u s i o n of the f o u n d e r ' s h e i r s . 1. B l . Com. 482.
*** But where t r u s t e e s or governors are incorporated
to manage the c h a r i t y , the v i s i t a t o r i a l power i s deemed
to b e l o n g t ° them i n t h e i r corporate c h a r a c t e r . P h i l i p s
v . Bury, 1 Ld. Haym. 5? s . c . 2 T.R. 346; Green v . Rutherforth,
1 Ves. 472; Attorney-General v . Middleton, 2 I t i d . 3 2 7 ;
Case of Sutton H o s p i t a l , 10 Co. 2 3 , 3 1 . "
That the power to s u p e r v i s e and examine "banks i s a v i s i t o r i a l
power i s i n d i c a t e d "by the f o l l o w i n g passage i n Morse on Banks and
Banking (5 Ed.) Vol 1, p . 4 4 :
"A s t a t e may i n v e s t the s u p e r v i s i o n of banks i n a bank
commissioner or other examiner, and grant to him v i s i t o r i a l
powers over banks and impose upon him the duty of examination
of banks, the i n v e s t i g a t i o n of t h e i r s o l v e n c y , and the winding
up of t h e i r a f f a i r s i f the p r o t e c t i o n of the d e p o s i t o r s demands
such a c t i o n . He may examine the records of the bank, change
the p e r s o n n e l of the board of d i r e c t o r s , and e s t a b l i s h r u l e s
f o r the proper d i s c h a r g e of h i s duty. His power should not be
unduly narrowed by c o n s t r u c t i o n , nor can he be removed by the
governor."
In Guthrie v . Harkness, 199 U.S. 148, a stockholder i n a n a t i o n a l bank
a p p l i e d f o r l e a v e to i n s p e c t the books, accounts and l o a n s of the bank f o r
the purpose of a s c e r t a i n i n g the v a l u e of h i s s t o c k . Upon r e f u s a l to a l l o w
proceedings
such i n s p e c t i o n , he i n s t i t u t e d / t o compel the o f f i c e r s of the bank to permit
him to examine t h e books.
One of the d e f e n s e s made on b e h a l f of t h e
o f f i c e r s was that the common law r i g h t of t h e s t o c k h o l d e r to i n s p e c t
the books of a c o r p o r a t i o n i s cut o f f as to s t o c k h o l d e r s of n a t i o n a l
banks by S e c t i o n 5241 of the Revised S t a t u t e s , which p r o v i d e s
that
"Ho a s s o c i a t i o n s h a l l be s u b j e c t to any v i s i t o r i a l powers other than
such as are authorized by t h i s t i t l e or are v e s t e d i n the courts of
justice.11
The court h e l d that the stockholder was e n t i t l e d to examine
the books of the bank and that the o f f i c e r s t h e r e o f must permit him
to do s o .
Mr. J u s t i c e Day s a i d :
X-4980
•rs
( -19- )
36
"But, i t id s a i d , the r i g h t of the shareholder t o i n s p e c t
the "books i s cut o f f "by s e c t i o n ^2kl, p r o v i d i n g 1 no a s s o c i a t i o n
s h a l l be s u b j e c t to any v i s i t o r i a l powers other than such as are
a u t h o r i z e d by t h i s T i t l e , or are v e s t e d i n the c o u r t s of j u s t i c e .
•We are unable to f i n d any d e f i n i t i o n of ' v i s i t o r i a l powers* which
can be h e l d to i n c l u d e the common law r i g h t of the shareholder to
i n s p e c t the books of t h e corporation * * *.
*
*
*
*
*
*
*
*
*
*
*
"The meaning of t h i s s e c t i o n was b e f o r e Judge Baxter i n the
c a s e of F i r s t Nat. Bank of Youngstown v . Hughes, 6 Fed. Rep. 737»
and of the meaning of the term ' v i s i t o r i a l powers', as used i n
s e c t i o n 5241, that learned judge s a i d :
' V i s i t a t i o n , i n law, i s the a c t of a superior or superi n t e n d i n g o f f i c e r , who v i s i t s a c o r p o r a t i o n t o examine i n t o
i t s manner of conducting b u s i n e s s , and e n f o r c e an observance
of i t s laws and r e g u l a t i o n s . B u r r i l l d e f i n e s the word to mean
" i n s p e c t i o n ; superintendence; d i r e c t i o n ; r e g u l a t i o n . " 1
"At common law the r i g h t of v i s i t a t i o n was e x e r c i s e d by the King
as to c i v i l c o r p o r a t i o n s and as t o eleemosynary ones by the founder
or donor. 1 Cooley's Blackstone, 481.
' I n the United S t a t e s the l e g i s l a t u r e i s the v i s i t o r of a l l corporations c r e a t e d by i t , where there
i s no i n d i v i d u a l founder or donor, and may d i r e c t j u d i c i a l proceedings a g a i n s t such c o r p o r a t i o n s f o r such abuses or n e g l e c t s as would
at common law cause f o r f e i t u r e of t h e i r c h a r t e r s . ' 1 C o o l e y ' s Blackstone, 482,note.
"In the case b e f o r e us the Supreme Court of Utah quotes from
M e r r i l l on Mandamus as f o l l o w s :
' V i s i t o r s of c o r p o r a t i o n s have power to keep them
w i t h i n the l e g i t i m a t e sphere of t h e i r o p e r a t i o n s , and to
c o r r e c t a l l abuses of a u t h o r i t y , and to n u l l i f y a l l i r r e g u l a r "Proceedings. In America there are very few c o r p o r a t i o n s which have -private v i s i t o r s , and i n the absence
of such, the S t a t e i s the v i s i t o r of a l l c o r p o r a t i o n s . '
"In no case or a u t h o r i t y that ""e have been able to f i n d has
there been a d e f i n i t i o n of t h i s r i g h t , which would i n c l u d e the
p r i v a t e r i g h t of the shareholder to have an examination of the b u s i ness i n which he i n t e r e s t e d , and the r i g h t of d i s c o v e r y of the
methods and means by which the agents of the c o r p o r a t i o n are cond u c t i n g i t s a f f a i r s . T h e r i g h t of v i s i t a t i o n b e i n g a p u b l i c r i g h t ,
e x i s t i n g i n the S t a t e f o r the purpose of examining i n t o the conduct
of the corporation w i t h a view to keeping i t w i t h i n i t s l e g a l powers,
Congress had i n mind i n p a s s i n g t h i s s e c t i o n that i n other s e c t i o n s
of the law i t had made f u l l and complete p r o v i s i o n f o r i n v e s t i g a t i o n
by the Comptroller of the Currency and examiners appointed by him,
and, a u t h o r ! z i n g the appointment of a r e c e i v e r , t o take p o s s e s s i o n
of the b u s i n e s s with a view to winding up the a f f a i r s of the bank,
i t was the i n t e n t i o n that t h i s s t a t u t e should c o n t a i n a f u l l code of
2 - 7
(
-20-
)
X-4980
"provisions upon the subject, and that no s t a t e law or enactment
should undertake to e x e r c i s e the r i g h t of v i s i t a t i o n over a nat i o n a l corporation. Except i n so far as such corporation was l i a b l e
to control i n the courts of .justice, t h i s a c t was to he the f u l l
measure of v i s i t o r i a l power.11
The Board's power to e x e r c i s e general supervision over Federal reserve "hanks and examine i n t o t h e i r a f f a i r s i s quite s i m i l a r to the corresponding
power of the Comptroller of the Currency over n a t i o n a l banks, and i t would seem
that the nature and purpose of the Board's power must be p r a c t i c a l l y the same as
that of the Comptroller's.
In the case of State v. Morehead, (Nebr.) 155 U. W. 879, the court i n
d i s c u s s i n g the r i g h t of the State Banking Board to r e f u s e to i s s u e a charter to
a savings bank s a i d :
"When the general r u l e of statutory c o n s t r u c t i o n i s applied
and s e c t i o n 16 i s considered in connection with the other p r o v i s i o n s , i t must be h e l d that the board i s v e s t e d with a u t h o r i t y not
only to c o r r e c t e v i l s that may creep into the management of an e x i s t ing bank, but to guard against dangers, that may threaten i n s t i t u t i o n s
about to be formed.
" "The power to compel,beforehand, co-operation,
and thus, i t i s b e l i e v e d , to make a f a i l u r e u n l i k e l y and
a general panic almost impossible, mast be recognized, i f
government i s to do i t s proper work, u n l e s s we can say
that the means have no reasonable r e l a t i o n to the end. Noble
State Bank v. Haskell, 219 U.S. 104, 112, 31 Sup. Ct. 186,
188 (55 L. Ed. 112, 32 L . R . A . ( F . S . ) 1062, Am. Cas. 1912A,487).'
" * * * V«e think the i n t e n t i o n of the L e g i s l a t u r e was to v e s t
the banking board with general control and w i t h authority to do a l l
things reasonably necessary for the p r o t e c t i o n of depositors throughout the s t a t e . The Board a l s o stands i n t h e nature of a t r u s t e e f o r
t h i s guarantee
fund, and i t i s i t s duty to take such precautions as
may be necessary to p r o t e c t i t s i n t e g r i t y . The terms 'general superv i s i o n and c o n t r o l 1 v e s t the banking board with d u t i e s of a very high
order, and they are not to be p e r f u n c t o r i l y discharged, but to be adm i n i s t e r e d with the h i g h e s t degree of i n t e l l i g e n c e and d i s c r e t i o n .
"It i s customary f o r L e g i s l a t u r e s to grant to a d m i n i s t r a t i v e
bodies of t h i s character the power to adopt r u l e s , t y - l a w s , and
r e g u l a t i o n s reasonably necessary to carry out the purpose for which
they are created, and t h i s grant i s not an improper d e l e g a t i o n
( --21-
X-498.d:?S8
)
;,
of authority* Blue v* Beach, 155 Ind. * 121, 56 N.E. 89*
50 L.R.A. 64, 80 AM. S t . Rep.. 195 and Gases cited* Thia
i s h e l d g e n e r a l l y to he the rule i n matters comiiig w i t h i n
the p o l i c e pdwer of the s t a t e .
that the "banking business
comes w i t h i n that power i s no longer an open question.
"'The p o l i c e power extends to a l l the great p u b l i c needs
(Cornfield v. United S t a t e s , 167 U.o. 518, (17 Sup. Ct. 864,
42 L. Ed. 260) and i n c l u d e s the enforcement of commercial
conditions such as the p r o t e c t i o n o f bank d e p o s i t s and checks
drawn a g a i n s t them by compelling; cooperation so as to prevent
f a i l u r e and p a n i c . ' (Noble State Bank v. Haskell, 219 U. S. 104)
"The b u s i n e s s of banking coming within the p o l i c e power of
the s t a t e , the same rule of construction may be applied to banking
a c t s and to r u l e s and r e g u l a t i o n s e s t a b l i s h e d by banking boards as
a p p l i e s to a c t s c r e a t i n g other administrative bodies coming w i t h i n
the p o l i c e power. The Supreme Court of Judicature of Indiana, i n
d i s c u s s i n g t h i s phase of the question, in Blue v. Beach, supra,
says:
" 'While i t i s true that the character or nature of
such boards i s administrative only, s t i l l the powers
conferred upon them by the L e g i s l a t u r e , i n view of the
great p u b l i c i n t e r e s t s confided to them, have always
r e c e i v e d from the courts a l i b e r a l construction, and
the right of the L e g i s l a t u r e to confer upon them the
power to make reasonable r u l e s , by-laws, and regulat i o n s , i s g e n e r a l l y recognized by the a u t h o r i t i e s . 1,1
The case of Great Northern Railway Company v. Snohomish County»
48 lash*. 478, 93 Pac. 924, involved the construction of a S t a t e s t a t u t e r e quiring the State Board of Tax Commissioners to e x e r c i s e "general supervision"
over a s s e s s o r s and county boards of e q u a l i z a t i o n and the assessment of t a x able property i n order to secure e q u a l i t y i n t a x a t i o n .
'The case turned upon
the proper meaning of the term "general supervision" - whether i t authorized
the Commissioners to act merely i n an advisory capacity or whether i t authorized
them to c l a s s i f y i n t e r - c o u n t y r a i l r o a d s and f i x the value thereof f o r the
purpose of t a x a t i o n .
The court h e l d that the s t a t u t e authorized the Com-
missioners to c l a s s i f y i n t e r - c o u n t y r a i l r o a d s and f i x the value thereof f o r
purposes of t a x a t i o n ; that the words "general supervision"imply something
(
)
X-4980
more than a mere power to advise and. suggest; that they confer authority
to oversee and review the a c t s and correct errors of those over whom the
right of supervision i s granted.
In the course of the opinion the court s a i d
h
^ h i l e these several -revisions "bear more or l e s s d i r e c t l y
on t h e question under consideration, the case turns p r i n c i p a l l y
on tile meaning of the term * general s u p e r v i s i o n ' i n the act def i n i n g the powers and duties of the s t a t e "board of tax commiss i o n e r s . * * * The s t a t e hoard of tax commissioners i s given
general s u p e r v i s i o n over a s s e s s o r s and county "boards of e q u a l i zation, to the end that a l l taxable property s h a l l "be placed on
the assessment r o l l s and equalized as "between the d i f f e r e n t count i e s and m u n i c i p a l i t i e s , so that e q u a l i t y of t a x a t i o n s h a l l "be s e cured according to the provisions of law. What i s meant by 'general supervision 1 ? Counsel f o r respondents contend that i t means
to confer with, to a d v i s e , and that the "board a c t s i n an a d v i s ory capacity only. We cannot "believe that the L e g i s l a t u r e went
through the i d l e formality, of c r e a t i n g a "board thus impotent. Def i n i n g the term 1 general supervision 1 in Vantongeren v. Hefferman, 5
Dak. 180, 38 N.W. 53, the court s a i d : * The Secretary of the Int e r i o r , and under h i s d i r e c t i o n , the Commissioner of the General
Land O f f i c e , has a general "supervision over a l l p u b l i c business
r e l a t i n g to the p u b l i c l a n d s . n %hat i s meant by "supervision"?
Webster says, supervision means "to oversee for d i r e c t i o n ; to
superintend; to i n s p e c t ; as to supervise the p r e s s f o r correction."
And, used i n i t s general and accepted meaning, the Secretary has the power to oversee a l l the a c t s of the l o c a l o f f i c e r s for t h e i r d i r e c t i o n , or, as i l l u s t r a t e d by Mr* Webster, he
has the power to supervise t h e i r a c t s for the purpose of c o r r e c t ing the same; and the same power i s e x e r c i s e d by the Commissioner under the Secretary of the I n t e r i o r .
I t i s c l e a r , then, t h a t
a f a i r c o n s t r u c t i o n of the s t a t u t e g i v e s the Secretary of the
I n t e r i o r , and under h i s d i r e c t i o n , the Commissioner of the General Land O f f i c e , the power to review a l l the a c t s of the l o c a l
o f f i c e r s , and to c o r r e c t , or d i r e c t a c o r r e c t i o n o f , any errors
committed by them.
Any l e s s power than t h i s would make the
"supervision" an i d l e act - a mere overlooking without power of
c o r r e c t i o n or s u g g e s t i o n . 1
Defining the l i k e term i n State v.
F.E, & M.V. R,R. Co., 22 Hebr. 313, 35 IT.W, 118, the court
said;
'Webster d e f i n e s the word "supervision" to be "the act of
overseeing; i n s p e c t i o n ; superintending." The board t h e r e f o r e i s
c l o t h e d with the power of overseeing, i n s p e c t i n g , and superintending the railways within the s t a t e , f o r the purpose of carrying i n t o e f f e c t the p r o v i s i o n s of t h i s a c t , and they are
c l o t h e d with the -power to -prevent unjust discrimination
against e i t h e r persons or p l a c e s . 1 I t seems to us that the term
•general supervision 1 i s c o r r e c t l y d e f i n e d i n these c a s e s . Cert a i n l y a person or o f f i c e r who can only advise or suggest to
another has no general supervision over him, h i s a c t s or h i s conduct."
S i m i l a r l y , i t would seem that the Board 1 s power to e x e r c i s e "general
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X-4980
supervision" over the Federal reserve banks would include the power to
require the Federal reserve 'banks to carry out the purposes of the Act
and to check any p r a c t i c e s which would be detrimental to the p u b l i c i n t e r e s t or i n c o n s i s t e n t with the purposes of the Act.
Certainly, the Board's
power of general supervision should not be construed i n such a way as to
"make the ' s u p e r v i s i o n ' an i d l e act - a mere overlooking without power
of c o r r e c t i o n or suggestion."
On the other hand, there are some c a s e s i n d i c a t i n g the l i m i t a t i o n s
on t h i s power of general s u p e r v i s i o n .
One of such c a s e s i s that of State v . Bronson, (Mo.) 21 S.W.1125.
The c o n s t i t u t i o n of Missouri provides that "She supervision of i n s t r u c t i o n
i n the p u b l i c schools s h a l l be v e s t e d i n a board of education whose powers
and duties s h a l l be p r e s c r i b e d by law."
The l e g i s l a t u r e passed a law
creating a commission to purchase the books necessary f o r use i n the s c h o o l s .
This law was objected to by the d i r e c t o r s of a school d i s t r i c t as being
u n c o n s t i t u t i o n a l on the ground that i t was i n v i o l a t i o n of the powers
v e s t e d i n the board of education "ty the c o n s t i t u t i o n .
The court h e l d that the s e l e c t i o n and purchase of the school
books docs not come within the f a i r meaning of the words "the supervision
of instruction" and the law does not v i o l a t e the c o n s t i t u t i o n a l p r o v i sion,
In so holding the court said:
"With such a general system of p u b l i c schools i t
mast be evident that when the c o n s t i t u t i o n says the superv i s i o n of i n s t r u c t i o n s h a l l be v e s t e d i n the s t a t e board
of education, i t does not mean that t h i s board s h a l l enter
into the d e t a i l s of g i v i n g i n s t r u c t i o n or carrying on the
schools.
All t h i s i s and may be l e f t to subordinate o f f i c e r s .
I t means no more than a general oversight over the matter of
instruction."
( -24- )
X-4S80
f
. <esj' ?,J- ......
In the case o f Roanoke Cemetery Co. v. Goodwin, 101 Va. 605,
44 S.E. 769, the lower court had reviewed the reasonableness of reg u l a t i o n s p r e s c r i b e d by the cemetery a s s o c i a t i o n f o r the conduct of i t s
business and the f e e s charged for opening graves and had i s s u e d a decree whereby the court undertook to p r e s c r i b e i t s own r u l e s and reg u l a t i o n s f o r the management of the a f f a i r s of the company, even going to
the extent of determining the fund out of which the salary of the superintendent should be paid.
that the decree-
The Supreme Court of Appeals i n V i r g i n i a h e l d
exceeded the power of the court and s a i d :
"It i s not permissible f o r a court to thus subs t i t u t e i t s own business d i s c r e t i o n and judgment f o r
that of the company; i t s v i s i t o r i a l powers have no
such scope. 1 Clark & Marshall, p. 547. 11
S i m i l a r l y , i t might be said that the authority to e x e r c i s e general s u p e r v i s i o n over the Federal reserve banks does not carry with i t
the duty to enter i n t o the d e t a i l s of operating the banks nor the authori t y f o r the Federal Reserve Board to s u b s t i t u t e i t s own business judgment and d i s c r e t i o n f o r that of the d i r e c t o r s .
Without attempting to l a y down a p r e c i s e d e f i n i t i o n of the Board's
power of general supervision, i t may be s a i d that g e n e r a l l y i t includes
the power and c a r r i e s with i t the duty to see that Federal reserve
banks do not exceed t h e i r corporate powers; that they do not discriminate i n favor of or a g a i n s t any c l a s s of the p u b l i c or any member
banks; that they preserve and p r o t e c t the banking reserves of the country with which they are entrusted; that they do not do anything which
may endanger t h e i r solvency or the soundness of t h e i r currency; that
they carry out f a i t h f u l l y the purposes of the Federal Reserve Act; and
that they comply i n a l l r e s p e c t s with both the l e t t e r and
s p i r i t ' of
(
the law.
-25-
)
X-4980
I am f u r t h e r of the opinion that t h i s power c a r r i e s with i t the
o q
power to require the Federal reserve "banks to cease doing anything which
i s u l t r a v i r e s which might defeat the purposes of the Federal Reserve
Act or which might be detrimental to the p u b l i c i n t e r e s t .
Lore over, t h i s power i s to "be construed l i t e r a l l y so as to enable
the Board e f f e c t i v e l y to safeguard the great p u b l i c i n t e r e s t s
it.
Blue v. Beach, 155 Ind. 121, 45 N.E. 89.
confided to
As s t a t e d i n State v. Moreland,
supra, "The terms 'general supervision and c o n t r o l 1 v e s t the banking board
with d u t i e s of a very high order, and they are not to be p e r f u n c t o r i l y
discharged, but to be administered with the h i g h e s t degree of i n t e l l i g e n c e
and d i s c r e t i o n . "
On the other hand, I am of the opinion that t h i s power does not
carry with i t e i t h e r the duty or the power to i n t e r f e r e in the d e t a i l s
of the operation of the Federal reserve banks or to s u b s t i t u t e the Board's
own business judgment and d i s c r e t i o n f o r that of the d i r e c t o r s of the
Federal reserve banks.
I t does, however, include the power to check any a c t i o n s on
the part of the Federal reserve banks which would n u l l i f y or impair the
e f f e c t i v e e x e r c i s e of any lawful powers of the Federal Reserve Board
or which would c o n s t i t u t e an evasion of any c o n t r o l which the Federal
Reserve Board i s authorized to e x e r c i s e over the general c r e d i t p o l i c i e s
of the System as a whole.
Vtithin t h i s c l a s s of a c t i o n s which a r e subject
to r e g u l a t i o n under the Board's general supervisory po»»er would c l e a r l y
be included i n t e r n a t i o n a l d e a l i n g s i n gold, which might tend to a f f e c t
or impair the e f f e c t i v e n e s s of the rediscount r a t e , which i s e x p r e s s l y
made subject to review and determination by the Federal Reserve Board, or
which would n u l l i f y the e f f e c t of the Board's r e s t r i c t i o n s on the open
market operations of the banks.
THE RELATIVE FU1ICTI0KS OF THE BOARD AND TEE BALQCS
AS SSQviK BY LEGISLATIVE HISTORY.
That these views, based, upon a purely l e g a l i n t e r p r e t a t i o n of the
Board's powers, are i n accordance with the i n t e n t of Congress at the time i t
enacted the Federal Reserve Act appears from the f o l l o w i n g passages i n the r e port on the o r i g i n a l Federal Reserve Act submitted to the House of Representat i v e s "by Mr. Glass, on "behalf of the Banking and Currency Committee,
under
date of September 9, 1913 (pages 16, 18, 19, 42 and 4 6 ) :
''In order that the banks may be e f f e c t i v e l y inspected,
and i n order that they may pursue a banking p o l i c y which
s h a l l be uniform and harmonious f o r the country as a whole, the
committee proposes a general board of management i n t r u s t e d with
the power to overlook and d i r e c t the general f u n c t i o n s of the
banks r e f e r r e d t o . To t h i s i t a s s i g n s the t i t l e of 1 The Federal
reserve board.'"
*
*
*
*
*
*
*
"The only f a c t o r of c e n t r a l i z a t i o n which has been provided
i n the committee's plan i s found in the Federal reserve board,
which i s to be a s t r i c t l y Government organization created f o r
the purpose of i n s p e c t i n g e x i s t i n g banking i n s t i t u t i o n s and of
r e g u l a t i n g r e l a t i o n s h i p s between Federal r e s e r v e banks and between
them and the Government i t s e l f . Careful study of the elements of
the problem has convinced the committee that every element of advantage found to e x i s t i n cooperative or central banks abroad can
be r e a l i z e d by the degree of cooperation which w i l l be secured
through the reserve-bank plan recommended, while many dangers and
p o s s i b i l i t i e s of undue control of the resources of one s e c t i o n by another w i l l be avoided. Local control of banking, l o c a l a p p l i c a t i o n
of resources to n e c e s s i t i e s , combined with Federal supervision, and
l i m i t e d by Federal authority to compel the .joint a p p l i c a t i o n of bank
resource^ to the r e l i e f of dangerous or s t r i n g e n t c o n d i t i o n s i n any
l o c a l i t y are the c h a r a c t e r i s t i c f e a t u r e s of the p l a n as now put
forward. The l i m i t a t i o n of business which i s proposed i n the s e c t i o n s governing r e d i s c o u n t s , and the maintenance of a l l operations
upon a f o o t i n g of r e l a t i v e l y short time w i l l keep the a s s e t s
of the proposed i n s t i t u t i o n s i n a s t r i c t l y f l u i d and a v a i l a b l e
condition, and w i l l insure the presence of the means c f accommodat i o n when banks apply f o r loans to enable them to extend to t h e i r
c l i e n t s l a r g e r degrees of a s s i s t a n c e i n b u s i n e s s . I t i s proposed
that the Government s h a l l r e t a i n a s u f f i c i e n t power over the r e s e r v e
banks to enable i t to e x e r c i s e a d i r e c t i n g a u t h o r i t y when necessary
to do so, but that i t s h a l l i n no way attempt to carry on through i t s
own mechanism the routine operations of banking which require d e t a i l e d
( -27- )
X-4980
%
knowledge of l o c a l and individual c r e d i t s and which determine
the a c t u a l use of the funds of the community i n any given
i n s t a n c e . In other words, the reserve-"bank plan r e t a i n s to
the Government power over the exercise of the "broader "banking
f u n c t i o n s , while i t l e a v e s to i n d i v i d u a l s and p r i v a t e l y owned
i n s t i t u t i o n s the a c t u a l d i r e c t i o n of r o u t i n e . "
*
*
*
*
*
*
*
"In t h i s s e c t i o n p r o v i s i o n has "been made f o r the
c r e a t i o n of a general board of control a c t i n g on behalf of
the n a t i o n a l Government f o r the purpose of o v e r - s e e i n g the
reserve "banks and of a d j u s t i n g the banking t r a n s a c t i o n s of one
p o r t i o n of the country, as well as the Government deposits t h e r e in, to those of other p o r t i o n s . u
"(e) In paragraphs(e), ( f ) , ( g ) , (h), and ( i ) are conveyed powers which are l a r g e l y s e l f - e x p l a n a t o r y and about which
there can be l i t t l e or no question, granting the general idea of
e f f e c t i v e Government oversight through a Federal r e s e r v e board
or some similar o r g a n i z a t i o n . "
The power of carrying on the reg u l a r routine every-day business of
the Federal reserve banks, t h e r e f o r e , and of determining the l o c a l p o l i c i e s
was entrusted to t h e i r r e s p e c t i v e boards of d i r e c t o r s , but the Federal Reserve
Board was c r e a t e d as "a general board of managementM entrusted with the power
to overlook and d i r e c t the general functions of the banks in order that the
Board, on behalf of the Government, might r e t a i n some power over the e x e r c i s e
of the
11
broader banking functions" a f f e c t i n g the country a s a whole.
That the open market operations of the Federal r e s e r v e banks and
t h e i r t r a n s a c t i o n s with f o r e i g n central banks i n gold, c r e d i t s and b i l l s of
exchange i s a f u n c t i o n a f f e c t i n g the country as a whole, seems p e r f e c t l y obvious, and i t would seem to f o l l o w that the Board was intended to have a
control over a l l such operations.
This w i l l appear more c l e a r l y from a con-
s i d e r a t i o n of the h i s t o r y and nature of such t r a n s a c t i o n s .
( -28- )
X-4S80
h i s t o r y and t t a t u h s OF OPEN market f u i t c t j o n s .
The report of the House Banking and Currency Committee (pp. 52 and 53)
d i s c u s s e s s e c t i o n 15 of the o r i g i n a l Federal Reserve B i l l , which l a t e r became
s e c t i o n 14 of the Federal Reserve Act as f o l l o w s :
"Section 15.
"It w i l l have been observed that the t r a n s a c t i o n s aut h o r i z e d i n s e c t i o n 14 (now s e c t i o n 13 of the Federal Reserve Act)
were e n t i r e l y o f a nature o r i g i n a t i n g with member banks and i n v o l v i n g a rediscount o p e r a t i o n . I t i s c l e a r l y n e c e s s a r y t o extend the p e r m i t t e d t r a n s a c t i o n s of t h e Federal r e s e r v e banks
beyond t h i s very narrow scope f o r two reasons:
H
1• The d e s i r a b i l i t y of enabling Federal r e s e r v e banks
to make t h e i r r a t e o f discount e f f e c t i v e i n the general market
at those times and under those c o n d i t i o n s when r e d i s c o u n t s were
s l a c k and when t h e r e f o r e there might have been accumulation of
funds i n the r e s e r v e banks without any motive on the p a r t o;f
member banks to apply f o r r e d i s c o u n t s or perhaps with a strong
motive on t h e i r p a r t not to do s o .
"2. The d e s i r a b i l i t y of opening an o u t l e t through which
the funds of Federal r e s e r v e banks might be p r o f i t a b l y u s e d a t
times when i t was sought to f a c i l i t a t e t r a n s a c t i o n s i n f o r e i g n
exchange or t o r e g u l a t e gold movements.
"In order to a t t a i n t h e s e ends i t i s deemed w i s e to a l l o w
a r e s e r v e bank, f i r s t of a l l , to buy and s e l l from anyone whom i t
chooses the c l a s s e s of b i l l s which i t i s a u t h o r i z e d to r e d i s c o u n t .
The r e s e r v e bank e v i d e n t l y would not do t h i s u n l e s s i t should be
i n a p o s i t i o n which, as already s t a t e d , f u r n i s h e d a s t r o n g motive
f o r so doing. Outright purchases i n the open market would of
course r e q u i r e the payment of the f a c e of the paper l e s s d i s c o u n t ,
whereas r e d i s c o u n t o p e r a t i o n s would r e q u i r e simply the h o l d i n g of
a r e s e r v e of 33 l / 3 per cent behind the n o t e s i s s u e d or d e p o s i t
accounts c r e a t e d i n t h e course of the r e d i s c o u n t o p e r a t i o n . Apart
from t h i s fundamental permission, i t was deemed w i s e to allow the
banks to buy c o i n and b u l l i o n and borrow or l o a n thereon and to
deal i n Government bonds. The power granted i n s u b s e c t i o n (d) to
f i x a r a t e of discount i s an obvious i n c i d e n t to the e x i s t e n c e of
the r e s e r v e banks, but the -power has been v e s t e d i n t h e Federal
r e s e r v e board to review t h i s r a t e of discount when f i x e d by the
l o c a l r e s e r v e bank at i t s d i s c r e t i o n , This i s intended to provide
a g a i n s t the p o s s i b i l i t y that the l o c a l bank might be e s t a b l i s h ing a dangerously low r a t e of i n t e r e s t , which the reserve board,
(
-29-
)
X-4980
f a m i l i a r as i t would "be with credit conditions throughout the
country, would deem best to r a i s e .
"The f i n a l power to open and maintain "banking
accounts i n f o r e i g n c o u n t r i e s for the puroose of dealing
i n exchange and of buying f o r e i g n "bills i s necessary in
order to enable a reserve bank to e x e r c i s e i t s f u l l power in
c o n t r o l l i n g g o l d movements and i n f a c i l i t a t i n g payments and
c o l l e c t i o n s abroad."
The open market powers granted to Federal reserve banks under Sect i o n 14, t h e r e f o r e , were designed primarily to enable the Federal reserve
banks to make t h e i r discount
r a t e s e f f e c t i v e , to f a c i l i t a t e t r a n s a c t i o n s
i n f o r e i g n exchange, and to regulate and control gold movements.
The
banks were g i v e n power to f i x discount r a t e s subject to review and determination by the Federal Reserve Board, and i t was explained that the
power to review discount r a t e s was v e s t e d i n the Federal Reserve Board
i n order to provide against the p o s s i b i l i t y that a Federal reserve bank
might e s t a b l i s h a dangerously low r a t e which the Federal Reserve Board, in
view of general c r e d i t conditions throughout the country, might consider
inadvisable.
Having the power to review and determine rediscount r a t e s i t
would seem necessary that the Federal Reserve Board should a l s o have power
to review, r e g u l a t e , and r e s t r i c t any t r a n s a c t i o n s which might have a bearing on the e f f e c t i v e n e s s of the rediscount r a t e .
Obviously, the investment of Federal r e s e r v e funds abroad would
have a bearing on the e f f e c t i v e n e s s of the rediscount r a t e and the Federal
Reserve Board was given s p e c i f i c power to r e g u l a t e , l i m i t and r e s t r i c t
the purchase and s a l e of b i l l s of exchange.
While no s p e c i f i c power to
control g o l d movements was given to the Federal Reserve Board, i t vvould
seem c l e a r that the Federal Reserve Board was intended, i n the e x e r c i s e
oct'
( -30- )
of i t s general supervisory power, to have some control over gold t r a n s a c t i o n s which might have a hearing on the e f f e c t i v e n e s s of the r e d i s count r a t e or which might a f f e c t general c r e d i t conditions i n t h i s
country.
This i s e n t i r e l y c o n s i s t e n t with the theory that the Boards
of Directors of t h e Federal reserve "banks are intended to manage the
l o c a l t r a n s a c t i o n s of the Federal reserve "banks, out that the Federal Reserve Board i s given power to control any t r a n s a c t i o n s which
might have a "bearing on general c r e d i t c o n d i t i o n s i n t h i s country,
or i n the p o s i t i o n of t h i s country i n t h e i n t e r n a t i o n a l money market.
RELATIONS BETWEEN OPEN MARKET TRANSACTIONS. REDISCOUNT
RATES AND GOLD RESERVES.
The intimate r e l a t i o n "between open market t r a n s a c t i o n s , the
rediscount r a t e and i n t e r n a t i o n a l gold movements i s f u r t h e r i l l u s t r a t e d "by a report submitted to the Federal Reserve Board under date
of October 12, 1915, "by Messrs. Warburg and Delano.
The Board at
that time had "been g i v i n g very careful study to a proposal made "by
Mr. McAdoo, Secretary of the Treasury, to have the Federal reserve
"banks e s t a b l i s h branches or agencies i n latin-American c o u n t r i e s ;
and the above mentioned report d i s c u s s e d the open market powers of
the Federal reserve banks i n great d e t a i l , p o i n t e d out the proper
scope and purpose of such t r a n s a c t i o n s , and the disadvantage of having too l a r g e a proportion of the Federal reserve banks' funds i n vested in foreign countries.
This e n t i r e report i s very i l l u m i n a t i n g
and the f o l l o w i n g passage i s of e s p e c i a l i n t e r e s t in t h i s connection:
X-4980 2 9 8
(-31-)
"The Federal Reserve Bnnks have "been organized, as
custodians and conservators of the reserve money of the
c e n t e r brinks. T^e law permits c e n t e r tanks t o count as
part of t h e i r reserve the t a l a n c e s kept t y then w i t h
t h e s e Federal Reserve Banks, and i t i s the f i r s t duty
of the Federal Reserve Banks to maintain t h e i r funds in
a c o n d i t i o n so l i q u i d that t h e i r nomtcr tanks "ray c o n f i d e n t l y r e l y upon the a t i l i t y of the Reserve Banks to provide <30Id and c r e d i t when required. This f u n c t i o n of
the Federal Reserve Banks i s at no t i r e to to considered
l i g h t l y , and in t i n e s of s t r e s s i n v o l v e s grave r e s p o n s i b i l i t i e s and d i f f i c u l t i e s . I t i s fron t h i s p o i n t
of view that t h e law has imposed very d i s t i n c t r e s t r i c t i o n s
as to the character of the investments which nsiy t e made
t y the Federal Reserve Banks, permitting only a c e r t a i n
proportion of t h e i r funds to t e normally invested and
r e q u i r i n g that such investments as are cade t e e s s e n t i a l l y
of a s e l f - l i q u i d a t i n g character, and of a sho£t maturity.
I t would t e unsafe and would shake the foundations of
confidence on the part of the c e n t e r tanks as w e l l as
of other nations should Federal Reserve Banks use a subs t a n t i a l p o r t i o n of t h e i r resources f o r investment i n
Latin Arerican c r e d i t s .
"Such procedure would run counter to a l l tanking
p r a c t i c e i n those countries where banks of the character
of the Federal Reserve Banks have been i n s u c c e s s f u l
o p e r a t i o n f o r g e n e r a t i o n s , n e i t h e r the Bank of England,
the German Reichstank, the Ban que of France, nor any
other of the government banks of the l e s s important
c o u n t r i e s has ever adopted such a p o l i c y . The operations
of those banks are primarily confined to t r a n s a c t i o n s at
home, and f o r e i g n exchange t r a n s a c t i o n s are engaged in only
as f a r ..as they may be considered necessary f o r the p r o t e c t i o n
of the gold holdings of these government tanks• The leading
government tanks normally maintain a s u b s t a n t i a l holding
of ninety-day b i l l s on such f o r e i g n c o u n t r i e s as
are apt
to become important c r e d i t o r nations from t i n e to t i n e ,
t u t these t i l l s are drawn only on such c o u n t r i e s as have
a w e l l - e s t a b l i s h e d gold standard, well-developed discount
f a c i l i t i e s , and a broad market where these b i l l s can be
promptly r e s o l d . The object of these f o r e i g n holdings
can b e s t t e i l l u s t r a t e d by a concrete case, e . g . ,
should the Bank of the Netherlands f i n d that exchange on
London advanced to a point where gold began to move f r o n
Holland to England, i t would o f f e r f o r s a l e d r a f t s on London
i n order to counteract t h i s movement. When i t s E n g l i s h cash
balance had been exhausted, the BnJik of the Netherlands
would rediscount in London the long b i l l s that i t might
p r e v i o u s l y have accumulated and thus create new balances
w i t h which to stop the outflow of g o l d .
(-32-)
X-4980
"Such foreign, b i l l s arc t a k e n , o:ily on the fevz f o r e most f i n a n c i a l powers. I t i s to be expected that Assprican
bankers' acceptances w i l l in the f u t u r e , when peace s h a l l
have been restored., be cone one of the p r i v i l e g e d i n v e s t ments of these government b-jiks. In order to rziintain
t h e i r ' p o s i t i o n ' in the foreign exchange market, i t i s
n e c e s s a r y f o r government banks to renew from t i n e to t i n s
t h e i r f o r e i g n paper as i t natures, and i t i s f o r t h i s
"purpose that they use accounts with correspondents i n those
few c o u n t r i e s , none but the strongest f i r n s being s e l e c t e d
to a c t i n t h i s c a p a c i t y , These f i r n s or banks are permitted
to buy only f i r s t c l a s s banking paper, and they endorse
t h i s paper to the government banks so that such government .
banks do not run any r i s k of l o s s of c a p i t a l in the t r a n s a c t i o n s and so that the government banks hold only paper
which can at any time be resold i n the open market or to
the f o r e i g n government banks i f need b e .
"It was t h i s f u n c t i o n of f o r e i g n correspondents or
agents t h a t the w r i t e r s of the Federal Reserve Act had in
mind when they provided that Federal Reserve Banks should
have the r i g h t , with the consent of the f e d e r a l Reserve
Board,
» ito open and maintain banking accounts in f o r e i g n
c o u n t r i e s , appoint correspondents, and e s t a b l i s h
agenc ie s in such countries wheresoever i t may deen
b e s t f o r the purpose of purchasing, s e l l i n g , and c o l l e c t i n g b i l l s of exchange, and to buy and s e l l w i t h
or without i t s indorsement, through such correspondents
or a g e n c i e s , b i l l s of exchange a r i s i n g out of actual
commercial t r a n s a c t i o n s which have not more than
n i n e t y days to run and which bear the .signature of
two or mare responsible p a r t i e s . '
"For operations as above described the powers granted by
the Act w i l l no doubt be a v a i l e d of to good advantage, when
normal c o n d i t i o n s s h a l l have been restored i n the important f o r e i g n
exchange markets.
"Your committee wishes t o emphasize the f a c t that the
purpose of t h i s paragraph was to g i v e t o the %deral Reserve
Banks a greater s t r e n g t h and a d d i t i o n a l l i q u i d i t y by enabling
them to maintain a secondary gold reserve and to p o s s e s s
themselves of a s s e t s upon which the Federal Reserve Banks
could r e a l i z e i n case of need without being forced to cont r a c t the c r e d i t f a c i l i t i e s granted at hone - the l i q u i d
element of these f o r e i g n investments and the a d d i t i o n a l
p r o t e c t i o n that they would give t o the Federal Reserve
System being the e s s e n t i a l ground f o r permitting Federal
Reserve Banks to e n t e r a f o r e i g n f i e l d . "
X-4930
(-33-)
The f o l l o w i n g passage from a preliminary report on t h i s subject p r e pared by Mr. Warburg under date of October 4, 1915, a l s o throws much l i g h t
on the h i s t o r y and purpose of Section 14 of the Federal Reserve a c t :
"When d e a l i n g with i n t e r p r e t a t i o n s of the Act, a great
d e a l has o f t e n been s a i d concerning the 1 i n t e n t i o n of the
w r i t e r s of the l a w ' . Inasnuch as paragraph (e) of Section 14
has been b o d i l y taken over from the Aldrich Plan, we have to
go beyond the w r i t e r s of the Federal Heserve Act i n order t o
f i n d the true i n t e n t of t h i s paragraph, and inasnuch as Senator
Aldrich consulted r.b concerning t h i s p a r t i c u l a r phase of the
intended act» and inasnuch as I suggested to Senator Aldrich
the i n s e r t i o n of t h i s very paragraph, I r:ay be pardoned f o r
venturing to e x p l a i n what i t s o r i g i n a l i n t e n t i o n was.
"The two paragraphs read as f o l l o w s :
S e c t i o n 14(e) of the Federal
Reserve Act provides that every
Federal Reserve Bank s h a l l have
power;
"with the consent of the Federal
Reserve Board, t o open and maint a i n banking accounts i n f o r e i g n
c o u n t r i e s , appoint corresponde n t s , and e s t a b l i s h agencies in
such c o u n t r i e s wheresoever i t
may deem b e s t .
f o r t h e purpose of purchasing,
s e l l i n g , and c o l l e c t i n g b i l l s of
exchange, and to buy and s e l l ,
w i t h or without i t s indorsement,
through such correspondents or
a g e n c i e s , b i l l s of exchange a r i s i n g out of a c t u a l commercial
t r a n s a c t i o n s which have not .-sore
than n i n e t y days t o run and which
bear the signature of two or nore
responsible p a r t i e s . '
Section 36 oJ the Aldrich Plan
reads:
"National Reserve A s s o c i a t i o n
to have power
to open and maintain banking
accounts in f o r e i g n c o u n t r i e s ;
to e s t a b l i s h agencies in f o r eign c o u n t r i e s f o r t h e purpose
of purchasing, s e l l i n g and c o l l e c t i n g f o r e i g n b i l l s of e x change; to buy and s e l l , w i t h or
without i t s indorsement, throu^a
such correspondents or a g e n c i e s ,
checks or prime f o r e i g n b i l l s
a r i s i n g out of coi-Efircial t r a n s a c t i o n s having not exceeding 90
days to run and bearing the s i g nature of two or more r e s p o n s i ble p a r t i e s . '
"It w i l l be seen that the only s u b s t a n t i a l change was the i n s e r t i o n of the words ' b i l l of exchange' where the Aldrich Plan
read ' f o r e i g n b i l l s of exchange' and 'prime f o r e i g n b i l l s ' .
"From a c t u a l operation (having been a c t i v e in s e v e r a l banks
X-4980
(-34-)
11
in f o r e i g n c o u n t r i e s a c t i n g as correspondents or agents f o r
government banks i n other countries) I was in a p o s i t i o n to app r e c i a t e from my own experience the importance of the f u n c t i o n s
of f o r e i g n correspondents or agents, and was anxious to secure
the advantages of such connections for our future f i n a n c i a l
system. The operations of these f o r e i g n agents f o r t h e i r government banks are s u b s t a n t i a l l y as f o l l o w s !
"Let me choose the Bank of the Netherlands as ail i l l u s t r a t i o n , though p r a c t i c a l l y a l l important government banks have
been operating on s i m i l a r l i n e s ,
"There w i l l be c e r t a i n times when, f o r economic reasons,
through the movement of products from or to the Netherlands i n t o
or from other c o u n t r i e s , or f o r extraordinary reasons, exchange
on Holland w i l l move up to the gold exporting point or down to
the gold importing p o i n t . When the point i s reached where gold
may leave the country, the Bank of the Netherlands has two main
means of p r o t e c t i n g i t s e l f ; one i s by increasing the discount
r a t e , which measure w i l l r e s u l t in higher i n t e r e s t r a t e s apt
to a t t r a c t f o r e i g n money into Holland and thereby to counteract
the flow of money from the country. The other i s to s e l l from
i t s p o r t f o l i o b i l l s on f o r e i g n c o u n t r i e s in order to create
balances in those c o u n t r i e s and thereby provide means of payment without shipping the yellow metal. I t , t h e r e f o r e , has
been the p o l i c y of f o r e i g n government banks to acquire f o r e i g n
b i l l s of exchange on such countries as are apt to be c r e d i t o r
n a t i o n s from time to time and such countries only as have s a f e
gold standards and enjoy f i r s t c l a s s banking c r e d i t . Tiiese
purchases of f o r e i g n exchange on such c o u n t r i e s are being
c a r r i e d on whenever exchange i s low or when i n t e r e s t r a t e s
in the home country are so low that i t would seem prudent f o r
the government bank to withdraw i t s funds from a c t i v e employment at home and i n v e s t the funds thus withdrawn in f o r e i g n
c o u n t r i e s , whence they can be c a l l e d back whenever r a t e s become
a c t i v e at home and whenever the i n f l u e n c e of the government bank
may be used to advantage i n preventing home r a t e s from becoming
burdensome to the borrowing community.
"When acquiring a ninety day d r a f t on a B r i t i s h bank,
the Bank of the Netherlands w i l l draw i n t e r e s t on t h i s b i l l
at the discount r a t e ; but when the b i l l matures or i f the
Bank of the Netherlands acquires checks on London, i t c r e a t e s
a balance which needs to be converted into an i n t e r e s t bearing
investment. These balances w i l l then be employed by the c o r respondents or a g e n c i e s (whichever name we may give to them)
f o r the purchase of other ninety day d r a f t s on London. According to i t s requirements, the Bank of the Netherlands w i l l
renew from time to time i t s f o r e i g n investments. The Bank
"
(-35-)
X-4980
of the Netherlands considers these f o r e i g n holdings as a secondary gold reserve and continues them almost perpetually* with
such casual i n t e r r u p t i o n s as may become necessary f o r the prot e c t i o n of i t s own g o l d h o l d i n g s .
"It was the consideration of these c o n d i t i o n s t h a t l e d
to the i n s e r t i o n i n the Aldrich d r a f t of the clause above
quoted, and i t w i l l now become apparent what was meant when
i t was provided that the National Reserve A s s o c i a t i o n - or the
Federal Reserve Banks - should have power to 'open and maintain
banking accounts in f o r e i g n countries * * *, e s t a b l i s h agencies
i n such countries * * * f o r the purpose of purchasing, s e l l i n g
and c o l l e c t i n g b i l l s of exchange 1 and that they should be able
to 'buy and s e l l with or without i t s indorsement, through such
correspondents or a g e n c i e s , b i l l s of exchange * *
In case
of a 'pinch5, the Bank of the Netherlands was to be i n a p o s i t i o n of ordering i t s correspondent to rediscount with the Bank
of England or in the open market m i l l i o n s of i t s holdings of
B r i t i s h acceptances so as to enable the Bank of the Netherlands
to draw a check a g a i n s t the balance so produced and so t o p r o t e c t
i t s g o l d . That i s why i t was s t i p u l a t e d that the b i l l s to be purchased by these agents should be 'prime b i l l s ' and should not run
beyond ninety days and should bear the signature of two or more
r e s p o n s i b l e p a r t i e s , so that these b i l l s should be current b i l l s
that the correspondents should be able to s e l l f r e e l y at a l l times
and b i l l s on which a l o s s should p r a c t i c a l l y be excluded.
"It ought to be s t a t e d that the f o r e i g n governments
s e l e c t the s t r o n g e s t p o s s i b l e firms in f o r e i g n c o u n t r i e s to
a c t for them as a g e n t s , and that they invariably buy these b i l l s
w i t h the indorsement of t h e i r agent (or correspondent) so that
they could l o s e only in case, not only the f o r e i g n correspondent
or agent should f a i l , but a l s o the two a d d i t i o n a l signatures on
the b i l l .
"I am w e l l aware of the f a c t that these banking h a b i t s
have developed as a p r o t e c t i o n in times of peace but that in
times of. war these large f o r e i g n balances may be a source of some
a n x i e t y . I t must be borne in mind, however, that government
banks normally work in times of peace and that t h e s e methods of
p r o t e c t i n g t h e i r country against acute gold withdrawals or
a g a i n s t the tendency of too low r a t e s of i n t e r e s t have e f f e c t u a l l y
met many an acute emergency, and furthermore that even in times of
war these balances have e v e n t u a l l y been paid. I might draw a t t e n t i o n to the f a c t that a year ago, when we were c a l l e d upon
to meet our large debts abroad,, i t would have been a great prot e c t i o n f o r us i f at that time balances could have been made
a v a i l a b l e in London to meet t h i s f i r s t onrush.
303
X-4980
(-s6-)
"My object in reviewing the 'origin and o r i g i n a l i n t e n t
of t h i s paragraph i s to show that t h i s clause was i n s e r t e d
f o r the s o l e purpose of providing an a d d i t i o n a l p i e c e of machinery f o r the p r o t e c t i o n of the Federal Reserve System. Clearl y , no other i n t e n t i o n was underlying t h i s s e c t i o n l "
The question whether the Federal reserve "banks should e s t a b l i s h
branches or a ge ncies in Latin American c o u n t r i e s was submitted to the
Governors' Conference, the Conference of Federal Reserve Agents and the
Federal Advisory Council, and, a f t e r obtaining the views of these three
d i f f e r e n t b o d i e s , a further report was submitted to the Federal Reserve
Board under date of January 8, 1916, by a committee c o n s i s t i n g of
Governor Harding and Messrs. Delano and Warburg.
This f i n a l report
reads i n part as f o l l o w s :
"Your Committee i s happy to report that complete agreement was found to e x i s t i n a l l three bodies with the p r i n c i p l e s
expressed by the Board at i t s meeting on October 27th, the
substance of which was published on that day in a n o t i c e
(Mimeograph 385) of which a copy i s appended h e r e t o . * * *
I t i s the f i r s t duty of the Federal reserve banks t o maintain
t h e i r funds in a c o n d i t i o n so l i q u i d that t h e i r member banks
may c o n f i d e n t l y r e l y upon the a b i l i t y of the Federal reserve
banks to provide gold and c r e d i t when required. This f u n c t i o n
of the Federal reserve banks i s at no time to be considered
l i g h t l y and in times of s t r e s s i n v o l v e s grave r e s p o n s i b i l i t i e s
and d i f f i c u l t i e s . * * * I t would be unsafe and would shake
the foundation of confidence on the part of the member banks
as w e l l as of other n a t i o n s , should Federal reserve banks
use a . s u b s t a n t i a l p o r t i o n of t h e i r resources f o r investment in
Latin-American c r e d i t . Such procedure would run counter to a l l
banking p r a c t i c e s i n those countries where banks of the cnara c t e r of the Federal reserve banks have been s u c c e s s f u l l y operated for generations * * *. The operations of these banks
are primarily confined to t r a n s a c t i o n s at home,and f o r e i g n
exchange t r a n s a c t i o n s are engaged in only as f a r as t h e y may
be considered necessary f o r the p r o t e c t i o n of the gold h o l d ings of these Government banks. * * * (Discussion of operat i o n s of European Central banks). In order to maintain t h e i r
' p o s i t i o n ' in the f o r e i g n exchange market, i t w i l l be n e c e s sary f o r Government banks to renew from time to time t h e i r
f o r e i g n paper as i t matures, and i t i s f o r t h i s purpose
304
<-37-)
5-4980
t h a t they -use a c c o u n t s w i t h correspondents i n t h o s e f o r e i g n
c o u n t r i e s , none but the s t r o n g e s t f i r m s b e i n g s e l e c t e d
to a c t i n t h i s c a p a c i t y . * * * I t was t h i s f u n c t i o n o f f o r e i g n
c o r r e s p o n d e n t s or a g e n c i e s t h a t your committee i s c o n f i d e n t
the w r i t e r s of t h e Federal Reserve Act had i n mind when they
p r o v i d e d t h a t the F e d e r a l r e s e r v e "banks should have the r i g h t ,
w i t h the consent of the Federal Reserve Board, t o e x e r c i s e
the powers c o n f e r r e d under S e c t i o n 14 ( e ) * * * . Your committ e e has- no doubt t h a t the purpose of t h i s paragraph was to g i v e
to the F e d e r a l r e s e r v e "banks g r e a t e r s t r e n g t h and a d d i t i o n a l
l i q u i d i t y by e n a b l i n g them to m a i n t a i n a secondary g o l d r e s e r v e rod t o p o s s e s s themselves of a s s e t s upon w h i c h the Fede r a l r o s o r v e banks c o u l d r e a l i z e i n case of need w i t h o u t b e i n g f o r c e d to c o n t r a c t the c r e d i t f a c i l i t i e s granted, a t home the l i q u i d element of t h e s e f o r e i g n i n v e s t m e n t s and the a d d i t i o n a l p r o t e c t i o n t h a t they would g i v e to the Federal Res e r v e System b e i n g the e s s e n t i a l ground f o r p e r m i t t i n g Fede r a l r e s e r v e banks to e n t e r a f o r e i g n f i e l d . * * * Should
F e d e r a l r e s e r v e banks be empowered t o l e n d to f o r e i g n
Governments n o t w i t h s t a n d i n g the law ' d i s t i n c t l y p r o v i d e s that
F e d e r a l r e s e r v e banks can now purcha.se only U n i t e d S t a t e s
Government s e c u r i t i e s and warrants of United S t a t e s m u n i c i p a l i t i e s , c a r e f u l l y circumscribed and h a v i n g a m a t u r i t y of not
e x c e e d i n g s i x months ? * * * Should Federal r e s e r v e banks
be a l l o w e d to embarrass the Government by b e i n g t h e m s e l v e s
important c r e d i t o r s of f o r e i g n Governments i n case of war
w i t h , or r e v o l u t i o n i n , such c o u n t r i e s ? Your committee i s
v e r y p o s i t i v e i n i t s view t h a t such e n l a r g e d powers should n o t
be g r a n t e d ; * * * 11
While t h e s e r e p o r t s arose out of a c o n t r o v e r s y e n t i r e l y
d i f f e r e n t from, and e x t r a n e o u s t o ,
the q u e s t i o n now under c o n s i d e r a t i o n ,
they serve to.show the i n t i m a t e c o n n e c t i o n between the open market powers
of the F e d e r a l r e s e r v e banks, the e f f e c t i v e n e s s of the r e d i s c o u n t r a t e , and
the p r o t e c t i o n o f the g o l d r e s e r v e s of the Federal Reserve System*
They show c l e a r l y that one of the most important purposes o f
the r e d i s c o u n t r a t e and the open market purchase of b i l l s of exchange i s t o
p r o t e c t the g o l d r e s e r v e s of the Federal Reserve System.
Over the r e -
d i s c o u n t r a t e s and t h e open market t r a n s a c t i o n s the F e d e r a l Reserve
30
X
( - 3 8 - )
Board i s given a great measure of c o n t r o l .
-
4 9 1
To say that the Federal
Reserve Board could e x e r c i s e t h i s control over rediscount r a t e s and
open market t r a n s a c t i o n s with a view of p r o t e c t i n g the gold
reserves
of^the Federal Reserve System but that i t could do nothing to prevent
the Federal reserve banks from engaging in i n t e r n a t i o n a l t r a n s a c t i o n s
in gold in such a way as to impair the gold reserves would be to g i v e
the Federal Reserve Act an i n t e r p r e t a t i o n which c l e a r l y would d e f e a t
the w i l l of Congress,
Respectfully,
Walter Wyatt
General Counsel
Wl-WLH-OMC-SAD
FEDERAL RESERVE BOARD
WASHINGTON
X-U°Sl
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
October 22, 1927
SUBJECT:
Expense, Main Line, Leased Wire System,
September, 1927.
Dear S i r :
Enclosed, herewith yon w i l l find, two mimeograph s t a t e m e n t s , X - 4 9 8 l - a and. X-UgSl-b, covering i n
d e t a i l o p e r a t i o n s of the main l i n e , Leased Wire System,
d u r i n g t h e month of September, 192%.
P l e a s e c r e d i t t h e amount payable by your
bank i n the general account, Treasurer, U. S . , . o n your
books, and i s s u e c/D Form 1, National Banks, f o r account
of " S a l a r i e s and Expenses, Federal Reserve Board, S p e c i a l
Fund", Leased Wire System, sending d u p l i c a t e c/D to t h e
Federal "Reserve Board.
Yours very t r u l y ,
F i s c a l Agent.
TO GOVERNORS OF ALL F.R.BANKS EXCEPT CHICAGO.
Enclosures:
J
*
X-l49Sl-a
REPORT SHOWING- CLASSIFICATION AND NUMBER OF WORDS TRANSMITTED OYER MAIN LINE
OF THE FEDERAL RESERVE LEASED WIRE SYSTEM FOR THE MONTH OF SEPTEMBER, 192?.
From
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
S t . Louis
Minneapolis
Kansas C i t y
Dallas
San Francisco
Total
Board
Business
reported
"by banks
35,464
156,254
42,42"
82,230
Us,705
64,808
111,777
80,342
37,069
81,413
71,668
ios,_892_
921,052
Words sent
by New York
chargeable
to other
F.R.Banks (1)
2,4l4
2,353
3,353
4,711
3,948
3,669
3,280
3,813
3,878
7,007
lAU
4i,904
Total
Treasury
Department
Business
37,878
156,254
44,781
85,583
53,416
68,756
115,446
83,622
40,882
85,291
78,675
112,372
6,159
11,114
5,942
7,523
7,037
8,944
10,734
7,694
4,568
8,329
962,956
398,148
l,36l:l04
ioo.oo<
94,351
119,711
214,062
15.73^
5,120
War Finance
Corporation
Business
Net Federal
Reserve Bank
Business
Per cent of
t o t a l bank
B u s i n e s s (*)
31,719
145,i4c
38,839
78,060
46,379
59,812
3.65
16,71
4.47
8.99
5.34
6.89
12.05
8.74
4.18
104,712
75,928
36,314
76,962
73,555
101,185
5.47
_ilil.
868,605
100.00
8.86
278,437
1,147,042
84.27^
(*) These p e r c e n t a g e s used i n c a l c u l a t i n g the pro r a t a share of l e a s e d w i r e expense as shown on t h e
accompanying statement (X-49ul-b)
( l ) Number of vsords sent by New York t o other F, R. Banks f o r t h e i r s o l e b e n e f i t charged to banks
i n d i c a t e d i n accordance w i t h a c t i o n taken a t Governors' Conference November 2 - 4, 1925.
o
*
X-4981-b
*
REPORT OF EXPENSE MAIN LIKE
FEDERAL RESERVE LEASED WIRE SYSTEM, SEPTEMBER,
Fane 0 f Bank
Operators 1
Salaries
Boston
$2o0.00
New York
1,070.97
Philadelphia
225.00
Cleveland
296.66
Richmond
232.00
Atlanta
270.00
Chicago
4,062.6S(#).
S t . Louis
205.00
Minneapolis
193.73
Kansas City
275-64
Dallas
250.00
San Francisco
370.00
Federal Reserve Board
Total
$7,711-62
(&)
(#)
(*)
(a)
(b)
Operators '
Overtime
$1.00
1.00
Wi re
Rental
-
-
-
-
-
-
—
-
-
-
-
-
-
-
-
-
-
-
$2.00
-
$15,343.60
$15,343.60
Total
Exoenses
1927.
Pro Rata
Share of
Total
Exoenses
Credits
Payable to
Federal
Reserve
Board
$261.00
$261.00
$442.23
$709.23
2,174.96
1,071.97
1,071.97
3,246.93
225.00
225.00
262.57
643-57
296.66
296.66
1,746.25
1,450.19
1,010.29(4)
232.00
232.OO
1,037.62
1,06s.SO
270.00
270.00
1,332.20
4,062.62
4,o62.6s
1,721.24(*)
2,341.44
205.00
205.00
1,692.27
1,493.27
812.22
618.49
193-73
193.73
275-64
275-64
1,445.95
1,721.59
1,645.SI
250.00
250.00
1,395.SI
2,263.71
370'.'00"
370.00
1,293.71
15,343.60
$19,431.04 ' $7,713.68 $13,643.27
$23,057.28
3,626-24(a)
l,721.24(b)
$19,431.04
$11,922.03
Includes $204.67 f o r branch l i n e e a s i n e s s transmitted over main l i n e c i r c u i t .
Includes s a l a r i e s of Washington Operators.
Credit
Received $ 3 , 6 2 6 . 2 4 from Treasury Department covering b u s i n e s s f o r t h e month of September, 1927•
Amount reimbursable to Chicago.
ww
x-4gs2
F % D ^ R A I
H 1! S ^ R T 1
3 0 9
BOARD
STATEMENT FOR TIF' PRESS
For r e l e a s e in morning papers,
Friday, October 28, 1927.
The f o l l o w i n g i s a summary of general b u s i n e s s and
f i n a n c i a l c o n d i t i o n s throughout the s e v e r a l Federal
Reserve D i s t r i c t s , based upon s t a t i s t i c s f o r the
months of September and October, as contained i n
the forthcoming i s s u e of the Federal Reserve B u l l e t i n .
I n d u s t r i a l and trade a c t i v i t y i n c r e a s e d l e s s i n September than i s usual
at t h i s season of the year and continued to be i n s m a l l e r volume than a year
ago.
The g e n e r a l l e v e l of wholesale commodity p r i c e s showed a f u r t h e r r i s e ,
r e f l e c t i n g c h i e f l y p r i c e advances f o r a g r i c u l t u r a l commodities.
Production.
The Federal Reserve Board's indexes of both manufacturing and mineral
production, i n which allowance i s made f o r usual s e a s o n a l v a r i a t i o n s , d e creased between August and September.
Production of i r o n and s t e e l was i n
smaller volume i n September than i n any month s i n c e 1925 •
There were a l s o
d e c r e a s e s from August to September in the output of nonferrous m e t a l s ,
automobiles, and rubber t i r e s , w h i l e t h e . t e x t i l e and shoe and l e a t h e r i n d u s t r i e s continued a c t i v e .
The production of bituminous coal showed about
the usual s e a s o n a l i n c r e a s e i n September and October, but continued i n
smaller volume than during the same p e r i o d of other r e c e n t y e a r s .
The o u t -
put of a n t h r a c i t e was c o n s i d e r a b l y reduced during September and the f i r s t
h a l f of October, f o l l o w i n g an i n c r e a s e i n August, and the weekly output of
crude petroleum has decreased s l i g h t l y s i n c e the e a r l y part of August.
The
v a l u e of b u i l d i n g c o n t r a c t s awarded continued somewhat s m a l l e r during
September and t h e f i r s t t h r e e weeks of October than during the correspondi n g p e r i o d of 1925 or 1926;
d e c l i n e s occurred i n c o n t r a c t s f o r r e s i d e n t i '
commercial, i n d u s t r i a l , and educational b u i l d i n g s , while c o n t r a c t s f o r put-
,
X-U9S2
.2.
310
l i e works and p u b l i c u t i l i t i e s were l a r g e r i n September than i n the corre ponding month of any p r e v i o u s y e a r .
Crop c o n d i t i o n s improved i n September and t h e Department of A g r i c u l grain
t u r e ' s e s t i m a t e s f o r October 1 i n d i c a t e l a r g e r y e i l d s of most/ crops than
was
were expected a month e a r l i e r . The e s t i m a t e f o r the corn crop/ i n c r e a s e d
by 1 4 6 , 0 0 0 , 0 0 0 b u s h e l s and was only 4 3 , 0 0 0 , 0 0 0 b u s h e l s s m a l l e r than the
y i e l d i n 1926.
Wheat production i s expected to be
000,000 bushels l a r -
ger than l a s t year, w h i l e the estimated c o t t o n crop of 1 2 , 6 7 8 , 0 0 0 b a l e s i s
more than 5 , 0 0 0 , 0 0 0 b a l e s below l a s t y e a r ' s y i e l d .
Distribution.
Trade of w h o l e s a l e and r e t a i l firms i n c r e a s e d i n September by somewhat l e s s than the usual seasonal amount.
Compared w i t h a year ago, s a l e s
of w h o l e s a l e firms i n n e a r l y a l l l i n e s , except shoes and drugs, were
smaller.
S a l e s of department s t o r e s were i n about the same volume, and
those of mail order houses and chain s t o r e s were somewhat l a r g e r .
Inven-
t o r i e s of merchandise c a r r i e d by r e p o r t i n g wholesale f i r m s i n l e a d i n g
l i n e s were reduced i n September and continued smaller than l a s t y e a r .
Stocks of department s t o r e s , on the other hand, i n c r e a s e d s l i g h t l y more
than i s u s u a l i n September and at the end of the month were somewhat l a r ger than a year ago.
Fr e i g ht car l o a d i n g s were i n smaller volume during September and the
f i r s t week of October than i n the corresponding p e r i o d of l a s t year f o r
a l l groups of commodities, except g r a i n and g r a i n products, of which l o a d ings were l a r g e r than in the same period of any p r e v i o u s year s i n c e 1924.
Prices.
• Wholesale commodity p r i c e s advanced i n September f o r the f o u r t h cons e c u t i v e month, and the Bureau of Labor S t a t i s t i c s a l l - c o m m o d i t i e s index
x-U982
.flj 1
-3r o s e t o t h e h i g h e s t l e v e l s i n c e l a s t January.
There were l a r g e increase::
"between August and September i n the p r i c e s o f . l i v e s t o c k , meats, and c o t t ,
,
and small advances i n t h e p r i c e s of l e a t h e r , c o a l , and c h e m i c a l s , w h i l e
p r i c e s of g r a i n s , "building m a t e r i a l s , and rubber d e c l i n e d .
During t h e
f i r s t t h r e e weeks i n October the p r i c e s of s p r i n g wheat, corn, c o t t o n ,
c o a l , and i r o n and s t e e l d e c l i n e d , w h i l e p r i c e s of l i v e s t o c k , raw wool,
and rubber advanced.
Bank C r e d i t .
T o t a l l o a n s and i n v e s t m e n t s of member banks i n l e a d i n g c i t i e s showed
a f u r t h e r i n c r e a s e f o r the f o u r weeks ending October 19 and on that d a t e
were about $ 6 6 0 , 0 0 0 , 0 0 0 l a r g e r than i n mid-summer.
Of t h i s growth i n mem-
ber bank c r e d i t about $3^5,000,000 r e p r e s e n t e d an i n c r e a s e i n commercial
l o a n s , a c o n s i d e r a b l y s m a l l e r i n c r e a s e than f o r the same p e r i o d l a s t y e a r ,
and about $335»000,000 an i n c r e a s e i n investments and l o a n s on s e c u r i t i e s .
At t h e r e s e r v e banks t o t a l b i l l s and s e c u r i t i e s i n c r e a s e d during t h e
f o u r weeks ending October 19, as i s u s u a l a t t h i s s e a s o n , but were on the
average about $ 6 0 , 0 0 0 , 0 0 0 below the l e v e l of the corresponding p e r i o d l a s t
year.
The i n c r e a s e , which was l a r g e l y i n the form of a d d i t i o n s t o the
banks' h o l d i n g s of a c c e p t a n c e s , r e f l e c t e d c h i e f l y an i n c r e a s e i n member
bank r e s e r v e requirements and an export demand f o r g o l d .
Some s e a s o n a l f i r m n e s s i n the money market i n October was r e f l e c t e d
i n an i n c r e a s e from 3 l / 8 to 3 l / U per c e n t i n r a t e s on 90-day bankers'
acceptances.
The r a t e on commercial paper remained unchanged at 4 p e r cent
X-4983
c r e d i t ' mature
of
collection
3 1 8
1tbms.
( A r t i c l e i n 13 V i r g i n i a Law R e g i s t e r , U . S . , 2 9 6 )
In an a b l e a r t i c l e appearing in the May, 1927 i s s u e of the Virg i n i a Law R e g i s t e r , Mr. George Bryan c o n s i d e r s the t r u s t nature of
the proceeds of c o l l e c t i o n of items sent by one bank to another f o r
c o l l e c t i o n , and without attempting to c o n s i d e r a t l e n g t h the reason
and p r i n c i p l e of the q u e s t i o n , concludes that the c o u r t s o f V i r g i n i a ,
among o t h e r s , s t r o n g l y favor the t r u s t theory, w h i l e in North and South
Carolina tho items are considered a simple debt.
This a r t i c l e , without at t empting c i t a t i o n of supporting a u t h o r i t y
a t l e n g t h w i l l attempt a c o n s i d e r a t i o n of t h e r e a s o n and p r i n c i p l e
c o n t r o l l i n g the q u e s t i o n .
two
methods.
In general there are two methods u t i l i z e d between banks f o r the
c o l l e c t i o n of checks, known as the r e c i p r o c a l accounts method and the
r e m i t t a n c e method.
In the r e c i p r o c a l accounts method the sendee bank, upon c o l l e c t i o n ,
c r e d i t s the forwarding bank, and b a l a n c e s between the two are s e t t l e d
from time to time on demand.
In the remittance method, the sendee bank, upon c o l l e c t i o n , i s
Required to make immediate r e m i t t a n c e .
By banking p r a c t i c e ' t h i s r e -
mittance u s u a l l y takes the form of an evidence of i n d e b t e d n e s s .
A check
or d r a f t may be drawn by the sendee bank on i t s e l f and t r a n s m i t t e d to
the forwarding bank, or the sendee may draw a check or d r a f t payable
- 2 -
X-4S83
3 1 3
to the forwarding "bank and draw on funds on d e p o s i t by the sendee w i t h
some t h i r d bank more c o n v e n i e n t l y l o c a t e d to the forwarding bank and to
which the forwarding bank can more c o n v e n i e n t l y p r e s e n t f o r payment.
r e l a t i o n b e f o r e c o l l e c t i o n i n b o t h methods.
Mo d i f f i c u l t y can a r i s e in e i t h e r the r e c i p r o c a l accounts or remittance
method of c o l l e c t i o n as to the r e l a t i o n of the forwarding and sendee banks
up to the moment of c o l l e c t i o n by the l a t t e r of the forwarded i t e m s .
The
c o u r t s w i t h some u n i f o r m i t y hold that the r e l a t i o n i s that of P r i n c i p a l and
Agent.
This was o f d e c i s i o n in the case of F i r s t N a t i o n a l Bank v. Payne,
85 Va. 890
and i s r e c o g n i s e d in the l a t e case of Federal Reserve Bank v .
P e t e r s , 139 7a. 45.
r e c i p r o c a l ACCOUNTS method, r e l a t i o n a f t e r c o l l e c t i o n .
In the r e c i p r o c a l accounts method no e s p e c i a l d i f f i c u l t y can a r i s e
as to the r e l a t i o n of forwarding and sendee banks a f t e r c o l l e c t i o n by the
l a t t e r of the forwarded i t e m s .
The sendee bank c o l l e c t s the i t e m s , de-
p o s i t s the p r o c e e d s w i t h i t s general a s s e t s and c r e d i t s the forwarding bank.
The word
11
credit" g i v e s the keynote; the proceeds of c o l l e c t i o n have
become a debt due to the forwarding bank as c l e a r l y as are the funds of any
other d e p o s i t o r , and the r e l a t i o n of P r i n c i p a l and Agent between t h e two
banks has become that of Creditor and Debitor.
This i s hornbook law.
i t i s founded?
What i s the reason and p r i n c i p l e upon which
I t i s submitted that the elemental and d i s t i n g u i s h i n g c h a r a c t e r -
i s t i c between t h e r e l a t i o n of debtor and c r e d i t o r and a f i d u c i a r y r e l a t i o n s h i p
i s , i n i t s l a s t a n a l y s i s , the question whether c r e d i t has been g i v e n or whether no c r e d i t has been given and, by agreement or requirement of law, the
b e n e f i c i a l ownership of the funds c o n t i n u e s in the person who o t h e r w i s e would
- 3 <-
X-4983
"?-a.L
-= -
be a c r e d i t o r of the second.
The d i s t i n g u i s h i n g c h a r a c t e r i s t i c of t h e true t r u s t character of funds
i s the p r o t e c t i o n of such funds imposed "by law.
The d i s t i n g u i s h i n g charac-
t e r i s t i c of the f i d u c i a r y character of funds in the hands of an a g e n t , s e r vant, or l i k e character i s the p r o t e c t i o n of such funds imposed "by law and
contract.
This p r o t e c t i o n to the c e s t u i que t r u s t i s the c o n t i n u i n g
s e c u r i t y and i d e n t i t y of such funds, the requirement that such funds must be
kept separate and apart by the f i d u c i a r y , from t h o s e o f h i s own.
By keeping
the funds separate they are n e c e s s a r i l y funds and not a c r e d i t extended by
the c e s t u i que t r u s t to the f i d u c i a r y and a debt due by the l a t t e r to t h e
former,
CONSTRUCTIVE TRUSTS - IMPRESSING- 3WDS WITH A TRUST.
This requirement that t r u s t funds be kept s e p a r a t e and apart from per^
sonal a s s e t s i s an elemental l e g a l duty in the f i d u c i a r y and i t s breach i s
a v i o l a t i o n of t h a t duty f o r which e q u i t y g i v e s remedy by means of i t s
maxim that "Equity regards, that done which ought to have been done."
If
the f i d u c i a r y has mingled f i d u c i a r y funds w i t h h i s own, has f a i l e d to keep
such funds separate and a p a r t , e q u i t y a p p l i e s the maxim and s e c u r e s the prof
t e c t i o n to the c e s t u i que t r u s t of i d e n t i t y and s e c u r i t y , of such funds by
impressing t h e commingled a s s e t s w i t h a t r u s t .
From t h e bare statement of t h e maxim, i t i s obvious that f a i l u r e to keep
the funds separate and apart must be a l e g a l or c o n t r a c t duty to g i v e e q u i t y
j u r i s d i c t i o n , a n d that where the funds are commingled by agreement, e q u i t y
has no j u r i s d i c t i o n , in the absence of o t h e r f a c t s , to impress the commingled
a s s e t s with a trust.
Equity cannot do so because t h e r e i s no t r u s t , a debt
has come i n t o b e i n g i n s t e a d .
g i v e remedy.
have been done,
There i s no v i o l a t i o n of duty f o r which to
Equity cannot impress a t r u s t to cause that done which should
because the commingling of the funds by t h e once f i d u c i a r y
— 4 —
*-4983
-115
was the doing of e x a c t l y that which he should have done. I t was the execution
of h i s agreement with the former c e s t u i que t r u s t , and by the execution of
h i s agreement the funds have l o s t their f i d u c i a r y character, the p a r t i e s
their f i d u c i a r y r e l a t i o n s h i p and the r e l a t i o n s h i p has
become that of
debtor and creditor*
Pom. 2q. J u r i s .
(3rd Ed.) Par. 1044
it* * *
exhaustive a n a l y s i s would show, I think, t h a t a l l i n stances of c o n s t r u c t i v e t r u s t s properly, so c a l l e d may be r e f e r r e d
to what equity denominates fraud, e i t h e r a c t u a l or c o n s t r u c t i v e ,
as an e s s e n t i a l element, and as t h e i r f i n a l source.
Even in
that s i n g l e c l a s s where equity proceeds upon the maxim that an
i n t e n t i o n to f u l f i l l an o b l i g a t i o n should be imputed, and assumes
that the purchaser intended to a c t in pursuance of h i s f i d u c i a r y
duty, the notion of fraud i s not involved simply because i t i s
not a b s o l u t e l y necessary -under the circumstances; the e x i s t e n c e
of the trust in a l l c a s e s of t h i s c l a s s might be r e f e r r e d to cons t r u c t i v e fraud. Certain s p e c i e s of c o n s t r u c t i v e t r u s t s a r i s e
from a c t u a l fraud; many others from the v i o l a t i o n of some posi t i v e duty ( i t a l i c s supplied); in a l l the remaining i n s t a n c e s
there i s , l a t e n t perhaps, but none the l e s s r e a l , the necessary
element of that unconscientious conduct which equity c a l l s fraud.
Courts of e q u i t y , by thus extending the fundamental p r i n c i p a l of
t r u s t s - that i s , the p r i n c i p a l of the l e g a l e s t a t e in one and the
equitable e s t a t e in another - to a l l c a s e s of a l l c a s e s of a c t u a l
or c o n s t r u c t i v e fraud and breaches of good f a i t h , are enabled to
w i e l d a remedial power of tremendous e f f i c a c y in p r o t e c t i n g the
r i g h t s of property; they can f o l l o w the r e a l owner's s p e c i f i c
property and preserve h i s r e a l ownership * *
Thus i t i s submitted, there can be no f i d u c i a r y r e l a t i o n s h i p to a s s e t s
commingled by agreement, to a s s e t s commingled not i n v i o l a t i o n of a l e g a l or
duty or contract
contract duty but i n s t e a d commingled pursuant to a c o n t r a c t / r i g h t . I t i s
submitted that the a c i d t e s t in c a s e s of c o l l e c t i o n by one bank f o r another
i s whether the sendee bank has, by agreement, express or implied, the r i g h t
to commingle the proceeds of c o l l e c t i o n with i t s ovm a s s e t s , or d i f f e r e n t l y
phrased - s i n c e the r e l a t i o n s h i p of debtor and c r e d i t o r i s d i a m e t r i c a l l y
opposed to the f i d u c i a r y r e l a t i o n s h i p - whether the transaction c r e a t e s
r i g h t f u l l y a debt due by the sendee to the forwarding bank.
- 5 -
x-49'83
31
REMITTANCE METHOD*
In the so c a l l e d remittance method of c o l l e c t i o n the sendee "bank may "be
required to remit the proceeds of c o l l e c t i o n "by shipment of cash or currency,
or "by transmission of a check or draft drawn on i t s e l f or on some t h i r d bank
at which i t has funds on d e p o s i t , or by e i t h e r method in i t s e l e c t i o n .
.r.S$HMTCS S t
CASH,
In the case of remit r a r e e required to be made by shipment of cash or
currency, i t i s obvious t h a t the agreement does not contemplate any commingl i n g of the c o l l e c t e d items with the general a s s e t s of the sendee, but i n
f a c t s p e c i f i c a l l y provides against i t .
The agreement does not contemplate
a s u b s t i t u t i o n of c r e d i t f o r cash, but s p e c i f i c a l l y provides that the remittance be money.
In short the agreement secures to the forwarding bank the pro-
t e c t i o n s of i d e n t i t y and s e c u r i t y of the c o l l e c t e d funds f the hallmark of the
f i d u c i a r y r e l a t i o n , thereby preserving the i n i t i a l r e l a t i o n s h i p of P r i n c i p a l
and Agent throughout the t r a n s a c t i o n .
REMITTANCE BY CHECK OR DRAFT.
Checks and d r a f t s are evidences of debt, and i n the absence of a s p e c i a l
s t i p u l a t i o n to the contrary, the sendee bank would be authorized to draw such
check or d r a f t a g a i n s t i t s general a s s e t s .
The transaction thus contemplates
the issuance of an evidence of indebtedness against the general a s s e t s of the
bank - the c r e a t i o n of ^ debt against i t s general a s s e t s due by the sendee to
the forwarding bank.
Correspondingly the sendee bank would be impliedly
authorized to deposit the proceeds of c o l l e c t i o n with i t s own general a s s e t s
to o f f - s e t or balance the debt created against such a s s e t s by the check or
draft.
The commingly
of a s s e t s r i g h t f u l l y , the creation of a debt be-
tween the p a r t i e s , the abandonment of the r i g h t of the c e s t u i que t r u s t to
the s e c u r i t y and i d e n t i t y of s e p a r a t e l y kept funds are not the badges of a
- 5 -
3 1 7
X-4983
t r u s t or f i d u c i a r y r e l a t i o n ; they are the l i v e r y of debtor and c r e d i t o r .
In f a c t there i s l i t t l e to d i s t i n g u i s h the general depositor of the
sendee bank fror.; the forwarding bank in t h e i r r e l a t i o n s with the sendee.
The depositor e n t r u s t s h i s funds to the sendee bank of d e p o s i t , consenting
that such funds be commingled with the sendee bank's general a s s e t s , becoming i t s c r e d i t o r and accepting i n l i e u of the p r o t e c t i o n of s e c u r i t y and
i d e n t i t y of a s s e t s s e p a r a t e l y kept, the debt from the bank to him.
The forwarding bank p l a c e s evidences of debt in the hands of the sendee
bank, the l a t t e r c o l l e c t s them, and the forwarding bank consents that they
be commingled with the general a s s e t s of the sendee bank, d i r e c t i n g that in
l i e u of the s e c u r i t y and i d e n t i t y of the proceeds of c o l l e c t i o n s e p a r a t e l y
kept, an evidence of indebtedness against the general a s s e t s of the sendee
bank be transmitted to i t , d i r e c t i n g that a debt to i t be c r e a t e d out of the
general a s s e t s of the sendee bank.
pseubo DISTINCTION.
The d i s t i n c t i o n between the two c a s e s which suggests i t s e l f i s that a
bank depositor has consented that the bank become h i s debtor f o r an i n d e f i n i t e
time while the forwarding bank, s t i p u l a t i n g f o r an immediate transmission of
check or d r a f t , at b e s t has consented that the proceeds of c o l l e c t i o n take
the form of an evidence of debt only f o r a short and determinable period that required f o r .the check or d r a f t to be transmitted to i t and by i t presented.
Again the forwarding contract suggests that the c r e d i t extended to
the sendee f o r t h i s i n t e r v a l i s conditioned on the due payment o f the paper;
that the paper i s not a payment u n t i l honored, and i f dishonored, the part i e s r e v e r t to t h e i r o r i g i n a l f i d u c i a r y r e l a t i o n s h i p .
The argument, in short, i s that a c e s t u i que t r u s t can, by agreement,
waive h i s r i g h t to the p r e s e r v a t i o n of the f i d u c i a r y a s s e t s separate and
x 4983
~
318
apart from the personal a s s e t s of the f i d u c i a r y and pro tern become a simple
c r e d i t o r of the f i d u c i a r y , but r e a s s e r t i n g the f i d u c i a r y r e l a t i o n s h i p and
converting the debtor into a f i d u c i a r y again in the event of the l a t t e r 1 s
f a i l u r e to pay the debt.
The argument makes the mere f a i l u r e of a debtor to
pay a debt, by agreement, r e v i v i f y or r e - c r e a t e a t r u s t r e l a t i o n s h i p .
It
invokes the doctrine of e q u i t y 1 s presumption that that was done which should
have been done, and asks equity to impress a t r u s t on the commingled a s s e t s
to preserve an e q u i t a b l e f i c t i o n that the funds have not been commingled,
when that 'Mich was a c t u a l l y done with such a s s e t s - t h e i r corjmingling - was
r i g h t f u l l y done pursuant to agreement and consent, and that which a c t u a l l y
was done which should not have bsen done was the f a i l u r e j f a debtor to pay
a*debt, at a time "hen the debtor was a debtor and nothing e l s e , was without
a v e s t i g e of the character of a f i d u c i a r y .
The argument needs no comment.
If i t i s the law, reason has forsaken the law.
THE VIRCHMIA CASES.
Overseers of the Poor, Etc. v. Bank of Virginia,, 2 Gratt.544.
An a t t o r n e y , r e c e i v i n g payment of a c l i e n t ' s judgment by check, deposited
i t to h i s general bonk account f o r c o l l e c t i o n and died with h i s account some
few d o l l a r s overdrawn.
On the question whether the c l i e n t was e n t i t l e d to a
p r e f e r e n t i a l claim on the d e p o s i t , Held;
The deposit i s impressed with a t r u s t .
Since the- attorney, in the absence of an agreement to the contrary, owed
h i s c l i e n t the duty, a r i s i n g from the f i d u c i a r y r e l a t i o n , of preserving h i s
c l i e n t ' s funds separate and apart from h i s own, h i s f a i l u r e to do so c r e a t e d
a c o n s t r u c t i v e t r u s t , founded on the v i o l a t i o n of h i s duty, and the d e c i s i o n
is clearly ri^it.
I t i s submitted that the d e c i s i o n has not the s l i g h t e s t a p p l i c a t i o n to
the case where t h e coiuningling of a s s e t s i s not the v i o l a t i o n of a t r u s t or
— 8 —
X—49 83 "t-*s
f i d u c i a r y duty, out i s , instead, the exact performance of an agreement between
the p a r t i e s .
F i r s t National B-ank of Alexandria v. Payne, 85 Va.890,
By agreement the forwarding and sendee banks c o l l e c t e d f o r and c r e d i t e d
to each other the proceeds of c o l l e c t i o n items, s e t t l i n g balances between thems e l v e s from time to time.
The sendee bank was a partnership.
items f o r c o l l e c t i o n , thereupon one partner died
It received
and the surviving partner
c o l l e c t e d the i t e ^ s and c r e d i t e d the forwarding bank.
On i n s o l v e n c y , Held;
claim of the forwarding bank i s p r e f e r e n t i a l .
A c a r e f u l reading of the opinion w i l l demonstrate that the d e c i s i o n i s
based on the l o g i c of the f o l l o w i n g chain;
(1)
Before c o l l e c t i o n of the items the sendee bank was an agent of the
forwarding bank.
(2)
Had c o l l e c t i o n and d i s p o s i t i o n of the proceeds been made pursuant to
and by a u t h o r i t y of the agreement, t h e r e l a t i o n between the two banks
would have become thereupon that of debtor and c r e d i t o r .
(3)
By the p a r t n e r ' s death b e f o r e c o l l e c t i o n , the f i r m was d i s s o l v e d , and
i t s a u t h o r i t y to proceed with the c o l l e c t i o n and d i s p o s i t i o n of the
proceeds was at an end.
(4)
The a c t of the surviving partner in so doing was hence without a u t h o r i t y .
(5)
Being without a u t h o r i t y i t did not operate to terminate the i n i t i a l r e l a t i o n of P r i n c i p a l and Agent and s u b s t i t u t e that of Debtor and Creditor
(6)
The r e l a t i o n of P r i n c i p a l and Agent continuing, the Agent was under the
duty to preserve h i s P r i n c i p a l ' s funds apart from h i s own.
(7)
His f a i l u r e to do so was a v i o l a t i o n of f i d u c i a r y duty, and equity,
t r e a t i n g that done which should have been done, w i l l impress a t r u s t
on the commingled a s s e t s .
I t w i l l be n o t i c e d t h a t the e n t i r e d e c i s i o n hinges on the v i o l a t i o n of a
f i d u c i a r y duty by a f i d u c i a r y , ( a g e n t ) at a time when he was a f i d u c i a r y - the
commingling of f i d u c i a r y funds with personal a s s e t s and without a u t h o r i t y from
the c e s t u i que t r u s t .
I t i s submitted that the d e c i s i o n has no a p p l i c a t i o n
to the case where the agreement to mingle t r u s t a s s e t s with individual a s s e t s
- 9 i s i n force and operative at the time such commingling takes p l a c e .
X-4983
In
such case there i s no v i o l a t i o n of duty, no grounds f o r e q u i t y ' s j u r i s d i c t i o n
to a t t a c h .
The next case to he c i t e d i s s t a t e d "by Mr. Bryan in the a r t i c l e bn- him
heretofore mentioned, to be the leading case i n V i r g i n i a and the opinion i s
by him c h a r a c t e r i z e d as an informing and w e l l reasoned d i s c u s s i o n of the
law in p o i n t .
I t i s c e r t a i n l y informing and p r e s e n t s i n t e r e s t i n g c o n t r a s t s
to the r a t i o n a l e of the foregoing d i s c u s s i o n , and i s indeed a landmark i n the
law of the subject i n V i r g i n i a , i n carrying and applying the c o n s t r u c t i v e
t r u s t theory to a case where, i t i s submitted, i t i s not p o s s i b l e to d i s cover a V i o l a t i o n of t r u s t duty..
Federal Reserve Bank v. P e t e r s , 139 Va. 45.
The forwarding bank, in sending checks drawn on the sendee bank f o r c o l l e c t i o n , s t i p u l a t e d that a l l c o l l e c t i o n s of such items made by the sendee
should be r e m i t t e d immediately to the forwarding bank by one of two methods;
By
( l ) shipment of money of currency, or
(2) by means of a d r a f t drawn by the sendee bank on some t h i r d bank
with which i t had funds on d e o o s i t .
In making remittance of c o l l e c t i o n s the sendee e l e c t e d to do so by the
second method above, by means of a draft on a t h i r d bank l o c a t e d near the
forwarding bank and a t which i t had ample funds on d e p o s i t to pay the d r a f t .
The sendee f a i l e d b e f o r e the draft could be presented, and on the question
whether the proceeds of c o l l e c t i o n c o n s t i t u t e d a t r u s t fund, Held: claim of
forwarding bank i s p r e f e r e n t i a l .
Had the sendee employed the f i r s t method of remittance given i t by
contract - by shipment o f money or currency - the case would have been one
i n which the hallmark of the t r u s t r e l a t i o n s h i p was p r e s e n t throughout the
e n t i r e t r a n s a c t i o n and c l e a r l y the d e c i s i o n would have been r i g h t .
- 10 -
X-4983
9«
The sendee bank, however, adopted the second e l e c t i o n given i t by express• 1
contract with the forwarding "bank, and made or attempted to make remittance by
a draft drawn by i t on a t h i r d bank.
I t i s submitted that by so doing pursuant
to agreement the sendee thereby terminated i t s r e l a t i o n o f agent to t h e forwarding bank and i n s t e a d became the l e t t e r ' s debtor.
I t i s submitted t h a t , having
once become the l a t t e r ' s debtor, the mere f a i l u r e of the l a t t e r to pay the
debt did not and could not r e v i v i f y the t r u s t r e l a t i o n s h i p i n i t i a l l y e x i s t i n g
between the two banks, nor charge the dead body of an i n s o l v e n t ' s debt with
the l i f e b l o o d of a t r u s t .
The sendee bank, having become the forwarding bank's
debtor, remained i t s debtor.
The court i n i t s opinion avoids t h i s conclusion by premising t h a t , under
the remittance method of c o l l e c t i o n , the sendee a c t s throughout the t r a n s a c t i o n
as the s p e c i a l agent of the forwarding bank.
This being true i t n e c e s s a r i l y
f o l l o w s t h a t as soon as the c o l l e c t i o n s are made they become the property of
the forwarding bank; the sendee has no implied or express authority to l e n d
or otherwise dispose of the proceeds of c o l l e c t i o n ;
the d r a f t i n payment of
c o l l e c t i o n s i s not payment u n t i l honored, and hence the draft did not upset
the t r u s t .
So reasons the court from i t s o r i g i n a l promise.
THE BASIC FALLACY OF THE DECISION.
I t i s submitted that the b a s i c fallacy, of the d e c i s i o n l i e s i n i t s
threshhold holding t h a t , under the s o - c a l l e d remittance p l a n of c o l l e c t i o n
the sendee continues i n a f i d u c i a r y capacity (agent 1 ) throughout the transaction.
As has been e a r l i e r noticed, t h i s i s true only where the remittance
i s made i n cash.
Actually where the remittance i s made i n evidences of i n -
debtedness pursuant t o contract, c r e d i t , at l e a s t pro tea, i s granted, and
the d e s i g n a t i o n of the plan of c o l l e c t i o n as a remittance plan i s somewhat
a misnomer.
In i t s c r e d i t feature the plan i s , i n i t s l e g a l a t t r i b u t e s ,
more c l o s e l y a l l i e d to the r e c i p r o c a l accounts method than to the method of
- 11 -
X-4983
3 2
transmission of proceeds of c o l l e c t i o n by shipment of cash.
I t i s submitted that hed the court approached the question, not by determining the r e l a t i o n between the two "banks as a premise, hut had examined
the contract "between the two "banks and the mechanics and e s s e n t i a l i n c i d e n t s
of the whole t r a n s a c t i o n with a view to determining from those f a c t o r s the
color and character of the r e l a t i o n s h i p created "by the p a r t i e s themselves "by
t h e i r contract, the d e c i s i o n would have "been otherwise.
In t h i s c a s e the sendee "bank had the r i g h t "by contract to remit "by d r a f t ,
and did transmit such d r a f t to the forwarding "bank.
The d r a f t was drawn on
a t h i r d "bankat which i t had ample funds on deposit to pay the d r a f t .
These
funds or c r e d i t s were a part of the general a s s e t s of the sendee bank and in
drawing a g a i n s t such general a s s e t s in the exact manner i n which the forwarding
bank had s t i p u l a t e d ,
the sendee created a debit against such general a s s e t s .
The items forwarded
for c o l l e c t i o n c o n s i s t e d
of
checks drawn by thr
depositors of the sendee bank a g a i n s t t h e i r r e s p e c t i v e deposits with such
bank.
C o l l e c t i o n c o n s i s t e d of debiting
amount of such checks by him drawn.
i n the hands of the sendee bank.
credit?
each d e p o s i t o r ' s Balance with the
The t o t a l of such debits was a c r e d i t
What was i t s duty with r e l a t i o n to t h i s
7;as i t required t o segregate s p e c i f i c money i n l i k e amount and hold
i t i n a separate fund u n t i l the draft i n process of transmission to the f o r warding "bank had been received, presented, and honored, and the sendee so
notified?
The contract between the two banks did not so s p e c i f y .
It i s
d i f f i c u l t to see how such a term might be w r i t t e n i n t o the contract by
implication.
The draft was against the general a s s e t s of the sendee.
It
was a g a i n s t funds or c r e d i t s c o n s t i t u t i n g part of the general a s s e t s of the
sendee by the s p e c i f i c d i r e c t i o n s of the forwarding bank that transmission
be by d r a f t , i f the sendee so e l e c t .
form of c r e d i t s
The sendee had a fund in hand in the
withdrawn from the accounts of depositors whose checks
-
c o n s t i t u t e d the items f o r c o l l e c t i o n .
l& -
X-4983
This fund was i n the exact amount of
the draft transmitted, the g e n e s i s of the d r a f t a g a i n s t the sendee's general
assets.
The conclusion i s unescapable that the contract between the two
hanks contemplated that the d r a f t against the general a s s e t s of the sendee bank
was intended to he o f f - s e t or balanced by a t r a n s f e r to such general a s s e t s of
the various c r e d i t s r e s u l t i n g from c o l l e c t i o n .
Any other would he a f o r c e d
one, without foundation i n the contract of c o l l e c t i o n between the two banks,
and v i o l a t i v e of bookkeeping p r a c t i c e .
I t i s submitted that i f the contract of c o l l e c t i o n contemplated that the
proceeds of c o l l e c t i o n should be p l a c e d with the general a s s e t s of the sendee
bank and with such a s s e t s commingled, t h i s f a c t , together with t h e f a c t that
the sendee bank should become, at l e a s t "pro tem, a debtor of the forwarding
bank, demonstrates beyond question that the i n i t i a l r e l a t i o n of P r i n c i p a l
and Agent was terminated and the r e l a t i o n of Debtor and Creditor came i n t o
being.
As has been o u t l i n e d i n the e a r l i e r part of t h i s a r t i c l e , i f such r e l a t i o n came into being, the mere f a i l u r e of the debtor sendee bank to pay
i t s debt to the forwarding c r e d i t o r bank did not and could not operate to
revive the t r u s t r e l a t i o n .
As an i l l u s t r a t i o n of the d i f f i c u l t y the court met i n r e c o n c i l i n g i t s
d e c i s i o n with the f a c t s and contract of the case, i t i s only necessary further
to n o t i c e the c o u r t ' s holding with r e f e r e n c e to the sendee bank's a c t i n
debiting i t s account with the t h i r d bank on which i t drew the d r a f t .
As
soon as the sendee drew a g a i n s t such funds, i t debited on i t s own books,
i t s account with the drawee i n the amount of the d r a f t .
The court i n i t s opinion h e l d that t h i s act demonstrated that the
sendee bank intended to s e t apart such a balance as would be required to
meet the d r a f t , and s i n c e equity regards that done which ought to have been
- 13 -
X-4983
'vm.
do tie, the entry of t h i s debit on the books of the sendee "bank amounted to
an equitable assignment and created a t r u s t fund.
The f a l l a c y "becomes apparent i f the reasoning i s applied t o the r e c i p r o - '
cal accounts method of c o l l e c t i o n .
I t s a p p l i c a t i o n to such method makes the
sendee a f t e r c o l l e c t i o n a f i d u c i a r y i n the r e c i p r o c a l accounts method of c o l lection.
In that method to sendee a f t e r c o l l e c t i o n d e p o s i t s the proceeds
with i t s general a s s e t s and c r e d i t s the forwarding'"bank's account, n e c e s s a r i l y
debiting i t s general a s s e t s to balance.
This debiting of i t s general a s s e t s
and c r e d i t i n g the forwarding bank's account are only the n e c e s s i t i e s of bookkeeping, as was the debit i n the i n s t a n t case, and i n cases a r i s i n g out of
the reciprocal accounts method of c o l l e c t i o n there i s probably no case which
construes the a c t of such debiting as the c r e a t i o n of a c o n s t r u c t i v e t r u s t .
I t i s submitted that the Peters case i s contrary to the reason and
p r i n c i p l e of our law.
Richmond, Va.
August, 12, 1927.
HARDIN HAERIS.
X-4984 *3 f
c
0
p
Y
t r u s t n a t u r e of c o l l e c t i o n it2ms.
( A r t i c l e i n 13 V i r g i n i a Law R e g i s t e r , U.S., L)
Upon no "branch of the law of banks and "banking has there "been of l a t e a
wider d i v e r s i t y of opinion and r u l i n g among American courts, s t a t e and f e d e r a l ,
than upon that concerning the t r u s t or preference nature of i t ens sent "by one
"bank to another f o r c o l l e c t i o n and remittance of proceeds.
I t seems timely,
t h e r e f o r e , to g i v e a resume of recent d e c i s i o n s i n point - c e r t a i n l y those of
Virginia and i t s neighboring S t a t e s .
The l e a d i n g case i n V i r g i n i a i s Federal Reserve Bank v . P e t e r s . 139 Va.
45, 123 S. E, 379, f o l l o w e d and approved i n Federal Reserve Bank v. Bohannon,
141 Va. 285, 127 S. E. 151, the l a t t e r case being pronounced by the court to be
"on a l l f o u r s (with the former) i n nearly every p a r t i c u l a r . "
The opinion i n
the P e t e r s case was d e l i v e r e d by Judge West and i s an informing and w e l l reasoned d i s c u s s i o n of the law i n p o i n t .
The f o l l o w i n g e x t r a c t s p r e s e n t both the e s -
s e n t i a l f e a t u r e s of the p r a c t i c e and custom of banks i n the matter of c o l l e c t i o n s ,
an a n a l y s i s and c l a s s i f i c a t i o n of c o l l e c t i o n methods and an ascertainment of
the law with regard to each, c e r t a i n l y so far as l i t i g a t i o n i n the courts of
Virginia i s concerned.
Rulings of other courts w i l l bo considered l a t e r h e r e i n .
The court, i n the P e t e r s case, h e l d as f o l l o w s :
"In order to make c o l l e c t i o n s o f checks handled by them, banks u s u a l l y
adopt one of two methods - r e c i p r o c a l accounts, or remittances. Under
the r e c i p r o c a l accounts method, the c o l l e c t i n g bank, upon r e c e i p t of payment of the checks, g i v e s c r e d i t upon i t s books to the forwarding bank,
and the forwarding bank charges the c o l l e c t i n g bank upon i t s books. They
s e t t l e from time to time according as the balance accumulates, with the
one or the other. Under t h i s method, as soon as the c o l l e c t i o n i s made
the r e l a t i o n of the banks i s that of c r e d i t o r and debtor. Under the
remittance method the forwarding bank sends the chocks to the c o l l e c t i n g
bank with i n s t r u c t i o n s to c o l l e c t them and remit immediately. The c o l -
-2•
X—4984
i> >
•
l o o t i n g "bank i s not authorized to r e t a i n tho proceeds i n i t s hands,
and therefore a c t s only as agent for the forwarding bank.
"In the i n s t a n t case the f e d e r a l Reserve Bank of Richmond was authorized
to r e c e i v e and did r e c e i v e from various mpmber banks and other persons
checks and d r a f t s drawn upon and payable by the Prince Edward-Lunenburg
County Bank. In order to c o l l e c t the amount of such d r a f t s , tho Federal
Reserve Bank had agreed with the Prince Edward-Lunenburg County Bank
that a l l such checks and d r a f t s should be sent by the Federal Reserve
Bank, by mail, to tho Prince Edward-Lunenburg County Bank* and that the
Prince Edward-Lunenburg County Bank, when the checks and d r a f t s were
r e c e i v e d , would present or cause them to be presented to i t s e l f , and
would pay such as were good and i t d e s i r e d to pay, and would return
properly p r o t e s t e d such as i t was u n w i l l i n g to pay, and would immediately
remit the amount of chocks which i t p a i d by means of a shipment of currency or money to the Federal Reserve Bank of Richmond or by means of a
draft drawn by the Prince Edward-Lunenburg County Bank upon some other
bank with which i t had funds upon d e p o s i t .
"Held: That i t was manifest that the remittance method of c o l l e c t i o n was
the one used by the Federal Reserve Bank of Richmond i n the i n s t a n t
case, and t h a t the r e l a t i o n of the banks was not that o f debtor and
c r e d i t o r , but t h a t the Prince Edward-Lunenburg County Bank a c t e d as a gent f o r the Federal Reserve Bank.
"Where the r e l a t i o n of t r u s t e e and c e s t u i que t r u s t i s e s t a b l i s h e d the
mingling of the t r u s t fund with the general fund i n the hands of the
t r u s t e e does not destroy the t r u s t , but serves to extend the t r u s t or
l i e n to the whole mass of money.
"Equity regards that as done which ought to have been done. Thus, where
a c o l l e c t i n g bank i s authorized to remit the amount of c o l l e c t i o n s to
a forwarding bank, or to send the forwarding bank a d r a f t on another
bank f o r such amount, such draft by the c o l l e c t i n g bank i s an equitable
assignment of the funds so drawn upon.
"Where the r e l a t i o n of t r u s t e e and c e s t u i due t r u s t i s e s t a b l i s h e d the
mingling of the t r u s t fund with the general fund i n the hands of the
t r u s t e e does not destroy the t r u s t , but serves to extend the t r u s t or
l i e n to the whole mass of money.
"In determining whether or not an i n s o l v e n t bank i s a debtor or a t r u s t e e ,
the court may w e l l look to the i n t e n t i o n of the p a r t i e s . If the f o r warding bank intends to l e a v e the money i n the hands of the c o l l e c t i n g
bank, to be used by i t in i t s usual course of b u s i n e s s , i t intends to
become a general depositor, and accepts the bank as a debtor. I f , on
the other hand, the forwarding bank, as i n the i n s t a n t case, does not
intend i t to be so used, and demands that the proceeds of the chocks be
immediately returned to i t , i t does not become a depositor, but simply
i n t r u s t s the bank with the money f o r a s p e c i a l purpose, and tho c o l l e c t ing bank becomes a t r u s t e e , and a court of equity w i l l impress with a
t r u s t the general funds i n which the t r u s t fund i s included."
On the threshold, i t i s w e l l to c a l l a t t e n t i o n to a d i s t i n c t i o n suggested
i n the f i r s t paragraph from the r u l i n g i n the P e t e r s case, supra, namely, that
the present inquiry concerns only items forwarded f o r c o l l e c t i o n and remittance,
'not those f o r c o l l e c t i o n and remittance,
/ not those f o r c o l l e c t i o n and c r e d i t , As to the l a t t e r , the r e l a t i o n of debtor
and c r e d i t o r r e s u l t s ; as to the former, that of p r i n c i p a l and agent, b a i l o r or
-3"bailee, or c e s t u i que t r u s t and t r u s t e e .
X—4984
I t may a l s o "be noted here that the d i s -
cussion i s , of course, p r e d i c a t e d upon and a r i s e s from the insolvency of the
sendee-hank.
The "basal case i n V i r g i n i a , c i t e d i n the Peters case, i s F i r s t National Bank
of Alexandria v . Payne. 85 7a. 890, 9 S. E. 153, 3 L. E. A. 384, decided i n 1889.
In that case the F i r s t National Bank sent Payne & Company, p r i v a t e "bankers, doing
"business i n Warrenton, V i r g i n i a , a l e t t e r containing checks drawn by various
depositors i n Payne & Company upon that banking firm and requested Payne & Company
to c r e d i t the account of the F i r s t National Bank of Alexandria with the proceeds
of the checks.
A c l e r k i n the o f f i c e of Payne & Company accordingly canceled the
checks and charged them to the accounts of the depositors and c r e d i t e d the amount
of the checks to the F i r s t National Bank of Alexandria.
On the day upon which the
l e t t e r was r e c e i v e d by Payne & Company and the above mentioned e n t r i e s made i n
the accounts, Payne & Company were d i s s o l v e d by the death of one of i t s p a r t n e r s .
The proceeds of the checks r e c e i v e d were never p a i d over to the F i r s t National Bank
of Alexandria, and i t was discovered that the firm was i n s o l v e n t and an assignment
was made f o r t h e b e n e f i t of i t s c r e d i t o r s .
The Alexandria bank f i l e d a p e t i t i o n
praying that the e n t i r e amount of the checks sent by i t to Payne & Company be paid
over to i t upon the theory that the proceeds of the checks were a t r u s t fund which
did not pass to the a s s i g n e e .
The court sustained t h i s contention and ordered
that the f u l l amount of the claim of the F i r s t National Bank of Alexandria be paid.
In that e a r l y day of the law of the subject, Judge Lacy, w r i t i n g w i t h charact e r i s t i c c l e a r n e s s , a f t e r having f i r s t c o r r e c t l y analyzed a somewhat complicated
transaction, said:
"Whether the t r a n s a c t i o n was h u r t f u l or b e n e f i c i a l i s immaterial. I f i t be
true that Payne & Co. could not be charged with t h i s as a n o n - e x i s t e n t
firm, how does the case stand? The surviving partner r e c e i v e d t h i s sum
of money d e s t i n e d f o r Payne & Co., and he was unable to apply i t as d i r e c t ed. I t was then a sua of money or a l o t of evidences of debt i n h i s hands
belonging to the F i r s t National Bank of Alexandria, with whose i n s t r u c t i o n s
he could not comply. He was bound to obtain fu rth er i n s t r u c t i o n s from h i s
p r i n c i p a l , or return the remittance. He had no authority to apply i t other-
-4—
X-4984
wise than as d i r e c t e d . I t was not the property of the l a t e firm. I t
—
was not a debt due the l a t e firm. I t could not he r e c e i v e d or paid out
on account of the partnership. I t was in no wise connected with the l a t e
firm. I t never came into thdir hands at a l l . Ke could not undertake to
deal with i t as partnership property, and, i f he r e c e i v e d i t and disposed
of i t , i t would in no wise doncern the a f f a i r s of the l a t e firm, and the
deceased p a r t n e r ' s e s t a t e could not be h e l d bound f o r i t . He did not r e turn i t , however, a s ' h a s been s a i d , but conveyed i t in t r u s t to secure
the debts of the d i s s o l v e d partnership. This he could not do, because, as
we have s a i d , i t was not the property of the l a t e firm, and could not be
bound f o r the debts of tiie deceased partner any more than h i s e s t a t e
could be h e l d l i a b l e f o r i t .
11
Having passed, then, a c t u a l l y , but u n l a w f u l l y , and without any a u t h o r i t y ,
express or implied, from the r e a l owners into the hands of a p p e l l e e t r u s t e e s , can i t be reclaimed? I t appears to be e a s i l y and c l e a r l y traceable
upon the books of the l a t e concern, placed there a f t e r there was no such
firm; no checks have been drawn against i t ; i t has remained unchanged in
any r e s p e c t , and there i s no d i f f i c u l t y in t r a c i n g and i d e n t i f y i n g i t .
I t does not belong to the a s s i g n e e s , because i t did not belong to the
firm. I t was not in the power of /the s u r v i v i n g partner to convey i t . I t
did not pass by the deed, and the a s s i g n e e s have no r i g h t to i t whatever,
but, a c t u a l l y holding i t , they can not use i t f o r the purposes of the
firm, but ought, in j u s t i c e to return i t to the owner, the F i r s t Nationa l Bank of Alexandria."
The only V i r g i n i a d e c i s i o n c i t e d by Judge Lacy was Overseers v. Bank of
V i r g i n i a , 2 G-ratt. 547 (1848), which c l e a r l y foreshadowed the r u l i n g in the
Payne c a s e . An attorney had c o l l e c t e d a judgment f o r a c l i e n t and had placed
the check to h i s ( t h e a t t o r n e y ' s ) c r e d i t in bank. The bank a s s e r t e d a r i g h t
of o f f - s e t a g a i n s t the deposit f o r a debt due i t by the attorney.
Per STMDAED, J . :
"The w e l l s e t t l e d p r i n c i p l e s of law e n t i t l e a p r i n c i p a l , in a l l cases where
he can trace h i s property, whether i t be in the hands of the agent, or of
h i s r e p r e s e n t a t i v e s , or a s s i g n e e s , to reclaim i t , u n l e s s i t has been transf e r r e d bona f i d e to a purchaser of i t , or a s s i g n e e f o r value, without
n o t i c e . In such c a s e s , i t i s wholly immaterial whether the property be in
i t s o r i g i n a l s t a t e , or has been converted into money, s e c u r i t i e s , n e g o t i able instruments or other property; i f i t be d i s t i n g u i s h a b l e , and separable from the other property or a s s e t s ; and has an earmark, or other app r o p r i a t e i d e n t i t y . The product, or s u b s t i t u t e of the o r i g i n a l thing,
has the nature of the o r i g i n a l thing i t s e l f imparted to i t , as long as i t
can be a s c e r t a i n e d to be such product, or s u b s t i t u t e ; and the r i g h t of
the p r i n c i p a l thereto c e a s e s only when the means of ascertainment f a i l ;
and t h i s i s the c a s e when the subject i s turned into money, and i s mixed
and confounded in a general mass of the same d e s c r i p t i o n , and becomes incapable of being d i s t i n g u i s h e d from the mass of the money of the agent."
Such was the law of the subject in V i r g i n i a down to 1924, when the court,
in the Peters case, applying i t to modern banking methods, approved and confirmed i t . I t may not be without i n t e r e s t to note in p a s s i n g that before the
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X-4S84
d e c i s i o n of the P e t e r s case, i n at l e a s t three c i r c u i t c o u r t s of V i r g i n i a ,
charged w i t h the a d m i n i s t r a t i o n of a f f a i r s of i n s o l v e n t hanks, the Payne case
had been f o l l o w e d and i n each a p e t i t i o n of an i n t e r v e n e r , a l l e g i n g the t r u s t
nature of the c o l l e c t i o n item, was granted, the r e c e i v e r "being d i r e c t e d to pay
the money f o r t h w i t h , without r e f e r e n c e to claims of d e p o s i t o r s .
Ho anneal was
taken i n any of the three c a s e s .
We s h a l l l a t e r h e r e i n consider c e r t a i n d e c i s i o n s i n n e a r l y j u r i s d i c t i o n s i n
which a c o n c l u s i o n d i r e c t l y opposite to that of the V i r g i n i a cases, supra, was
reached; s t i l l l a t e r , c e r t a i n recent c a s e s from f e d e r a l c o u r t s .
Aside from these -
indeed, as an o r i g i n a l p r o p o s i t i o n - i t i s submitted that the reason o f the law
i s with the V i r g i n i a r u l i n g ; that the truo nature of the t r a n s a c t i o n between the
forwarding bank and the c o l l e c t i n g bank was that of bailment or quasi-bailmcnt,
a mere l o c a t i o , a d e l i v e r y of a chock or checks f o r the s i n g l e purpose of c o l l e c t i o n and immediate remittance of the proceeds - the sender saying to the
sendee, in e f f e c t , "X send you t h i s item, not f o r deposit or c r e d i t of my account,
but f o r c o l l e c t i o n and immediate remittance, i t s proceeds not to go i n t o your
keeping along w i t h your a s s e t s ; i t i s not to i n c r e a s e your accounts or d e p o s i t
or debts due other banks, but i t s proceeds are to be sent me at once."
The sendee
accepts the item with t h i s understanding, charges i t to the account of the drawer, sends t o the p r i n c i p a l i t s check f o r the proceeds - and f a i l s overnight, i t s
remittance check being dishonored and p r o t e s t e d upon p r e s e n t a t i o n .
I t i s sub-
m i t t e d , we r e p e a t , that i n such a r e l a t i o n , the element of t r u s t or s p e c i a l
property i s inherent, c o n s t i t u e n t and c o n t r o l l i n g , w h i l e that of debtor and
c r e d i t o r i s f o r e i g n and incongruous.
So much f o r V i r g i n i a .
In Alleman v . Sayre. 81 S. E. 805 (1917), the Supreme
Court of Appeals of West V i r g i n i a considered the s u b j e c t upon the f o l l o w i n g f a c t s ;
At about twenty minutes b e f o r e noon of May 14, 1915, the p l a i n t i f f s d e p o s i t ed i n the Bank of Ravenswood t h e i r c e r t i f i e d check f o r $750, drawn on the F i r s t
n a t i o n a l Bank of
Parkersburg, i n favor of a member of t h e i r firm, a i d at t h e
330
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X-4984
sane time obtained a c e r t i f i e d , check from the Bank of Eavenswood for $575.35,
drawn "by themselves, i n favor of the town of Eavenswood, and, on the next day,
May 15, 1915, at about eight o'clock a. m., an assistant state "banking commissioner took f u l l charge and control of the bank and closed i t , because of i t s
insolvency, and i r r e g u l a r i t i e s i n the management thereof.
The occasion of the
deposit of the l a r g e r check and procurement of the smaller one was the purpose
of the depositors, Alleman and Alleman, of Parkersburg, West V i r g i n i a , to f i l b
the l a t t e r w i t h t h e i r b i d f o r the contract f o r the construction of c e r t a i n sewers
for the town of Eavenswood.
The contract having been 1-st to seme other person
or f i r m , the chock they f i l e d with the c i t y a u t h o r i t i e s was returned to them.
The assistant banking coianissionor, f i n d i n g the check of Alleman and Alleman
for $750 among the other papers of tho bank, indorsed i t , c o l l e c t e d i t through
tho Jackson County Bank, and p a i d i t to T.J. Sayre, receiver of tho Bank of
Eavenswood, appointed by the state banking commissioner.
On June 7, 1915, A l -
leman and Alleman returned t h e i r chock on the Bank of Bavenawood to the receiver
thereof, f o r cancellation, and i t was canceled by him and returned to them,
June 11, 1915.
A 35 per cent, dividend was d i s t r i b u t e d among the creditors of
the bank, January 18, 1916, i n which Alleman and Alleman shared to the extent
of $187.50, which was credited on t h e i r claim of $750.
These f a c t s , i t w i l l be perceived, do not present the case of an item sent
by one bank to another f o r c o l l e c t i o n and remittance, but of an actual deposit
by a depositor f o r which he immediately received a c e r t i f i e d check.
The r u l i n g
o^f the appellate court was as follows:
"Entries made by a bank o f f i c e r , on the deposit of a check, d r a f t or similar
y.'-pot* importing creation of the r e l a t i o n of debtor and creditor between
the bank, and the depositor,prove, i n the absence of evidence to the cont r a r y , an assignment of the instrument deposited to the bank; but they
are p r o v i s i o n a l , and such assignment i s subject to the r i g h t of reciccion,
i n the abaonce of circumstances precluding exercise thereof, and the
r e l a t i o n of debtor and creditor i s not irrevocably established u n t i l the .
money for which the deposited paper c a l l s has been a c t u a l l y c o l l e c t e d . "
" I f , "before such c o l l e c t i o n has "been made, the "bank f a i l s and c l o s e s i t s
doors to "business, i t i s deemed i n law to have "been the agent of the
depositor f o r c o l l e c t i o n of the money evidenced "by the deposited paper,
i n the absence of circumstances precluding r e s t o r a t i o n of the s t a t u s
quo "by the depositor, and the l a t t e r , on making such r e s t o r a t i o n , i s
e n t i t l e d to have the paper returned to him, on demand t h e r e f o r before
c o l l e c t i o n "by the r e c e i v e r , and to have the f u l l amount c o l l e c t e d thereon, i f the r o c e i v o r has c o l l e c t e d i t "before such demand i s made."
Per Poffenbarger, J . :
"It i s h e l d "by the great weight of authority, that the r e l a t i o n of debtor
and c r e d i t o r i s not e f f e c t e d u n t i l the deposited check, d r a f t , or note
has been c o l l e c t e d , and that i f the c o l l e c t i o n was not made before the
bank was c l o s e d , the r e l a t i o n at the date of insolvency was that of
p r i n c i p a l and agent for c o l l e c t i o n . Armstrong. Receiver v. Bank. SO Ky.
431, 14 S. W. 411, 9 L. R. A. 5%3; Commercial Bank v . Armstrong. 148 U.
S. 50, 13 Sup. Ct. 533, 37 L. Ea. 363; Bank v . Bank. 2 Wall. 252, 17 L.
Ed. 785; Jones v. Kilbroth. 49 Ohio S t . 401, 31 N. E. 345; Levi v . National Bank. 5 D i l l . 104, Fed. Cas. Ho. 8,289; Richardson v . Coffee Co.. 102
Fed. 785, 43 C. C. A. 583; Bank v . Strauss. 66 Miss. 479, 5 South. 232,
14 Ara. S t . Rep. 579; Guignon v . Bank. 22 Mont. 140, 55 Pac. 1051, 1097;
Higgins v . Hay don. 53 Neb. 61, 73 N. W. 280; Bloke v. BrvrJc. 12 Wash. 619,
41 Pac. 909; B o l l e s , Modern Banking, p . 194; Michie, Banking, pp. 1417,
1420.
" P l a i n t i f f s had power to r e s t o r e the s t a t u s quo* and did s o . They returned
the check drawn on the i n s o l v e n t bank. Indeed, i t was drawn f o r a temporary purpose, and with no i n t e n t i o n that i t should ever be p a i d . One of
the p l a i n t i f f s says i t would have been returned on the day of i t s i s s u e ,
and the whole t r a n s a c t i o n with the bank then terminated, bat f o r an acc i d e n t , and t h a t f a i l u r e of the bank on the next day prevented the s e t tlement.
"The r i g h t of recovery a s s e r t e d here i s unembarrassed by the d i f f i c u l t y
u s u a l l y found i n e f f o r t s to recover money c o l l e c t e d by the bank before
i t c l o s e d . In that c l a s s of c a s e s , i t i s sometimes impossible f o r the
depositor to prove the presence of h i s money i n the bank at the date of
the f a i l u r e , and, i n order to recover, he must do t h a t . Michie, Banking,
p . 1428; B o l l e s , Modern Law, Banking, pp. 188, 193. That the money
represented by the check deposited by the p l a i n t i f f s was c o l l e c t e d a f t e r
the bank had f a i l e d and went i n t o the a s s e t s i n the hands of the rec e i v e r are admitted f a c t s . Right of recovery does not depend upon the
p l a i n t i f f s ' a b i l i t y to prove p o s s e s s i o n of the i d e n t i c a l money c o l l e c t e d .
I t i s only necessary to show that the money went i n t o the hands of the
r e c e i v e r , or was i n the bank when i t c l o s e d . That being done, there may
be a judgment or decree f o r an equivalent sum."
I t i s i n t e r e s t i n g to note that the court a l s o h e l d that the acceptance of
the 25 per c e n t , dividend from the r e c e i v e r , while the p l a i n t i f f s were i n s i s t i n g
upon payment of t h e i r claim as one e n t i t l e d to p r e f e r e n c e , was not a waiver of
the r i g h t of p r e f e r e n c e and did not estop p l a i n t i f f s from the a s s e r t i o n t h e r e o f ,
the court saying;
"No element of waiver or estoppel i s found i n the acceptance of the dividend.
the r e c e i p t given t h e r e f o r makes no express r e s e r v a t i o n of r i g h t ,
Though
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X-4S84
i t r e f e r s to the claim the p l a i n t i f f s had f i l e d , and i t was f i l e d as a
p r e f e r r e d claim. The right of preference was i n s i s t e d upon strenuously
from the "beginning. As p l a i n t i f f s were e n t i t l e d to payment of t h e i r
claim i n f u l l , acceptance of a p a r t i a l payment m a n i f e s t l y injured no
one. Importers' and Traders' Bank v. P e t e r s , 123 IT. Y. 272, 25 N. E.
319."
In the Missouri case of Federal Reserve Bank of S t . Louis v . Millspaugh,
282 S. W. 706, the r u l i n g was s u b s t a n t i a l l y i d e n t i c a l with that of the Supreme
Court of Appeals of V i r g i n i a i n the Peters case, supra, which i s c i t e d i n the
opinion.
Said the court:
"The f a c t s d i s c l o s e that no r e c i p r o c a l accounts were kept "between these
"banks, the respondent and the a p p e l l a n t . Where a note, a check or a
draft i s forwarded by one bank to another, "bearing a r e s t r i c t i v e i n dorsement 1 f o r c o l l e c t i o n and remittance, under d i r e c t i o n s to c o l l e c t
and forward the proceeds to the sender, the r e l a t i o n of p r i n c i p a l and
agent i s created and not that of debtor and c r e d i t o r . The funds thus
c o l l e c t e d are h e l d to c o n s t i t u t e a t r u s t fund, and e n t i t l e d to a p r e f e r ence over the claims of general c r e d i t o r s . When the r e l a t i o n e x i s t i n g
between two banks, as i n the case at bar, i s that of p r i n c i p a l and a gent, the funds c o l l e c t e d by the c o l l e c t i n g bank f o r the forwarding bank
become impressed w i t h a trust i n favor o f the owner of the item c o l l e c t e d .
This i s true, although the item c o l l e c t e d be one drawn on the c o l l e c t i n g
bank, and i t i s c o l l e c t e d by charging the item against the drawer's account, or i f i t be an item payable at the c o l l e c t i n g bank and i t i s c o l l e c t e d by a check drawn on i t . The trust i n e i t h e r case f o l l o w s the
funds i n t o the hands of the r e c e i v e r - in t h i s i n s t a n c e , the finance
commissioner - although the c o l l e c t i n g bank may f a i l before remitting
the proceeds c o l l e c t e d , provided the f o l l o w i n g conditions e x i s t : ( l )
That the item was forwarded for c o l l e c t i o n and remittance of the c o l l e c t e d proceeds; (2) that the drawer of the check had a s u f f i c i e n t
balance with the c o l l e c t i n g bank to authorize the charging of the item
to h i s account; (3) that at the time the charge was made the c o l l e c t i n g
bank had s u f f i c i e n t funds a v a i l a b l e to honor the check; (4) that the
bank which f a i l e d had at the time the r e c e i v e r took charge of same s u f f i c i e n t funds on hand to pay the amount i t had c o l l e c t e d . "
The Missouri case quotes with approval the f o l l o w i n g paragraph from the
opinion i n the P e t e r s case:
"A check i s not payment u n t i l the check i s paid, and the drawing of a draft
by the Prince Edward-Lunenburg County Bank to the order of the Federal
Reserve Bank of Richmond and mailing the same to the last-mentioned bank
i n no way a f f e c t e d the t r u s t already impressed. While the check was not
an assignment of the fund against which i t was drawn, as between the
drawer of the check and the person who gave value f o r i t , i t was an
e q u i t a b l e assignment of the fund pro t a n t o . Daniel on Negotiable Instruments, Par.. 1643, p . 1852."
We next take up c e r t a i n d e c i s i o n s i n which a conclusion d i r e c t l y opposite
to that of the
foregoing c a s e s was reached.
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X-4934
333
In North Carolina Corporation Commission v. Bar.li (1905), 167 H.C. 697, 50
S. E. 308, the f a c t s were s u b s t a n t i a l l y those in the P e t e r s case, .supra, and are
s e t f o r t h i n d e t a i l i n the opinion.
Concerning the request of an intervener that
i t he adjudged i n the administration of the a s s e t s o:? an i n s o l v e n t bank, upon a
draft with b i l l of l a d i n g attached, forwarded for c o l l e c t i o n , the court said:
"We are asked to s u s t a i n t h i s demand on the idea that the proceeds of t h i s
c o l l e c t i o n c o n s t i t u t e d a t r u s t fund, and, when traced i n t o the general a s s e t s o f the hank, a r i g h t to p r i o r i t y of payment a r i s e s i n favor of the
claimant; and we are r e f e r r e d to the case of Mcleod v . Evans, 66 Wis.
401, 28 N. W. 173, 214, 57 Am. Hep. 287, and other a u t h o r i t i e s , i n support of t h i s p o s i t i o n . The proceeds were a t r u s t fund, and would "be so
dealt with as l o n g as the same were kept separate and could "be f o l l o w e d
or i d e n t i f i e d ; "but a f t e r c o l l e c t i o n made, and the fund were mingled with
the general a s s e t s of the bank, i t s character as a t r u s t fund ceased by
that a c t , and a new o b l i g a t i o n arose - the o b l i g a t i o n of the c o l l e c t i n g
bank to pay or remit, not the s p e c i f i c money c o l l e c t o d , but out of i t s
general funds, most u s u a l l y by check on some other p o r t i o n of i t s a s s e t s .
The bank committed no breach of t r u s t i n so mingling the proceeds of t h i s
c o l l e c t i o n with i t s general a s s e t s . That was the general custom of banks
i n dealing with such c o l l e c t i o n s , and the claimant w i l l be h e l d to have
forwarded h i s d r a f t with t h i s custom i n mind. The bank had a r i g h t to
mingle t h i s fund with i t s general a s s e t s . I t s character as a t r u s t fund
thereby ceased, and the default a l l e g e d against the bank i s not, theref o r e , a breach of t r u s t , but a f a i l u r e to pay a debt, and the holder of suc&
a claim can only share pro rata as one of the general c r e d i t o r s . I t i s
t h i s mingling of the a s s e t s according to the custom of bank's, and of r i g h t ,
i n pursuance of i t s contract f o r c o l l e c t i o n , expressed or implied, that
d i s t i n g u i s h e s c a s e s of t h i s character from any of those c i t e d by counsel.
They were, i n the main, cases of individual t r u s t e e s , with the d u t i e s of
t r u s t e e s s t i l l upon them, and while t h e i r o b l i g a t i o n s as such i n reference
to the t r u s t funds were s t i l l e x i s t e n t . Here the character of t r u s t fund
had ceased. The bank was under no o b l i g a t i o n , as t r u s t e e , to keep t h i s
fund separate. On the contrary i n carrying the proceeds of t h i s c o l l e c t i o n
into i t s general a s s e t s , the bank acted according to the general custom of
banks, and as both p a r t i e s contemplated i t would a c t . There was t h e r e f o r e
no breach of t r u s t , and the only o b l i g a t i o n r e s t i n g on the bank was to
remit when c a l l e d on, or i n the usual course of business, out of i t s gene r a l funds. The case of Mcleod v . Evans, supra, i s to the e f f e c t contended f o r by the appellant; but t h i s case was overruled by a d e c i s i o n of the
same court i n S i l k Co. v . Flanders, 87 Wis. 237, 58 E. W. 383, and the
general tenor of t h i s l a s t opinion would seem to show that t h i s able court
i s i n accord with the p r i n c i p l e here declared. As s a i d i n Bank v . Bank,
148 Mass. 333, 20 H.. E. 193,*2 L. H. A. 699, 12 Am. S t . Rep. 598: 'Upon
the c o l l e c t i o n of a draft or check, the F i d e l i t y Bank was not required to
keep the proceeds by i t s e l f as the p l a i n t i f f ' s property, but might mingle
i t with i t s own money, and make i t s e l f the p l a i n t i f f ' s debtor f o r the a mount r e c e i v e d . As soon as the proceeds became a part of the funds of the
F i d e l i t y Bank under t h i s arrangement, the p l a i n t i f f ' s r i g h t to control i t
as s p e c i f i c property was gone, and the p l a i n t i f f had i n s t e a d , a r i g h t to
recover a corresponding sum of money. 1
—10—
X-4984 >
,
i
"We are not inadvertent to the f a c t that the hank i s s a i d tc have heen i n an
i n s o l v e n t c o n d i t i o n . While the bank was open and doing "business, and i n
the absence of any a l l e g a t i o n or suggestion of fraud or c o l l u s i o n between
the bank and the debtor, the t r a n s a c t i o n was a payment, and the same
r e s u l t s would f o l l o w vrhether the bank was ..solvent or i n s o l v e n t . It i s
not s t a t e d that the o f f i c e r s of the bank were aware of i t s insolvency,
and we are not d i s c u s s i n g here t h e e f f e c t of fraudulent conduct on the
individual o f f i c e r s of the bank. We are seeking to l a y down a f a i r and
j u s t r u l e f o r the d i s p o s i t i o n of the property of an i n s o l v e n t among i t s
c r e d i t o r s . As to them, while the bank was a going concern, i t had a
r i g h t to make the c o l l e c t i o n , and the same r i g h t to f o l l o w the general
custom of banks and carry the proceeds into i t s general a s s e t s . The
claimant gave t h i s authority and took that r i s k when he sent h i s paper
f o r c o l l e c t i o n , and we do not think the f a c t that he has s e l e c t e d a
f a i t h l e s s agent g i v e s him any r i g h t to p r i o r i t y over other c r e d i t o r s ,
when he can no longer i d e n t i f y h i s property. Of course, a f t e r a bank
has suspended business and c l o s e d i t s doors, a d i f f e r e n t r u l e p r e v a i l s .
But the f a c t s of t h i s case do not require that this, r u l e should be dwelt
upon.
"We are of opinion t h a t , on p r i n c i p l e and authority, the claimant can only
share the a s s e t s pro r a t a as one of the general c r e d i t o r s , and the judgment of the court below i s affirmed.
A t t e n t i o n should be c a l l e d , before l e a v i n g t h i s case, to the f o l l o w i n g
language.:
"Of course, i f the -proceeds of such c o l l e c t i o n could be i d e n t i f i e d or trace<|
i n t o some s p e c i f i c -property, a d i f f e r e n t p r i n c i p l e would p r e v a i l , bat no
such f a c t s e x i s t e d h e r e . I t i s e x p r e s s l y s t a t e d that the proceeds of t h i s
c o l l e c t i o n were mingled with general funds of the bank, and i t i s not
claimed that any part of such c o l l e c t i o n can be i d e n t i f i e d or traced i n t o
such s p e c i f i c property or investments."
In North Carolina Corporation Commission v . Bank of Hamlet, 135 S. E. 342
(Nov. 17, 1926), the Supreme Court of North Carolina, in a b r i e f per curiam
opinion adhered to i t s r u l i n g i n Commission v. Bank, supra, holding that a
s h i pp er's claim a g a i n s t a bank i n r e c e i v e r s h i p f o r amount of unpaid c a u M e r ' s
checks f o r proceeds of d r a f t s sent f o r c o l l e c t i o n only was not e n t i t l e d to
preference over bank's general c r e d i t o r s .
The f i r s t - m e n t i o n e d opinion of the North Carolina court p r e s e n t s quite
f u l l y the view of those who d i f f e r d i a m e t r i c a l l y from the thought underlying the
P e t e r s and s i m i l a r d e c i s i o n s .
h i s i n a b i l i t y to agree that
11
The writer of t h i s a r t i c l e , however, c o n f e s s e s
the f a i r and j u s t d i s p o s i t i o n of the property of an
i n s o l v e n t among i t s c r e d i t o r s " i s that i n d i c a t e d .
the claim of
A s u f f i c i e n t o b j e c t i o n to
f a i r n e s s and j u s t i c e would seem to be that the c o l l e c t i o n item un~
x-49bp35
—11—
der c o n s i d e r a t i o n by the court never was "the property of the i n s o l v e n t . "
At
most, the i n s o l v e n t had only a s p e c i a l or q u a l i f i e d or "bailee's or a g e n t ' s or
t r u s t e e ' s property i n i t which i t i s n e i t h e r accurate nor f a i r nor j u s t to
enlarge i n t e a s u b s t a n t i a l and "beneficial property.
In C i t i z e n s Bank of Pinewood v . Bradley. 134 S. E. 510 (Sept. 20, 1926),
the Supreme Court of South Carolina considered the subject and reached a conc l u s i o n , Watts, J . , d i s s e n t i n g i n p a r t , i n consonance w i t h that of the Supreme
Court of Horth Carolina i n the two c a s e s l a s t mentioned.
The opinion was de-
l i v e r e d "by Cothran, J . , and i t s f i r s t paragraphs are as f o l l o w s :
"This court mast take j u d i c i a l n o t i c e of the unprecedented c l a s h e s of
f i n a n c i a l i n s t i t u t i o n s and p r i v a t e e n t e r p r i s e s r e c e n t l y occurring, which
have shocked the s t a t e , and must a n t i c i p a t e i n t h e i r wake the p r e s e n t a t i o n
of innumerable problems f o r i t s determination. I regard t h i s , t h e r e f o r e ,
as a most c r i t i c a l p e r i o d i n the j u d i c i a l h i s t o r y of t h i s s t a t e , and f e e l
the deepest r e s p o n s i b i l i t y i n deciding the question a s they a r i s e , upon
the most p a i n s t a k i n g c o n s i d e r a t i o n , l e s t an erroneous d e c i s i o n w i l l be
'drawn i n t o a precedent' fraught with d i s a s t e r .
"The C i t i z e n s Bank of Pine wood has gone upon t h e rocks, and the c o n t r o versy i s over t h e s a l v a g e . Certain c r e d i t o r s of the bank claim p r e f e r ences i n t h e d i s t r i b u t i o n of the a s s e t s of the defunct i n s t i t u t i o n , which
claims to p r e f e r e n c e axe r e s i s t e d by the s t a t e bank examiner and the
l i q u i d a t i n g committee r e p r e s e n t i n g a l l of the c r e d i t o r s , i n c l u d i n g the
d e p o s i t o r s . The amounts are small, the p r i n c i p l e i n v o l v e d i s of vast
consequence i n i t s a p p l i c a t i o n to numerous other i n s t i t u t i o n s i n p r o c e s s
of l i q u i d a t i o n . "
The r u l i n g of the court was that the owner of a draft sent f o r c o l l e c t i o n
and remittance and a c o l l e c t i n g bank before c o l l e c t i o n bore to each other the
r e l a t i o n of p r i n c i p a l and agent, but a f t e r c o l l e c t i o n , the r e l a t i o n of c r e d i t o r
and debtor; f u r t h e r , that a claim by the former a r i s i n g i n the circumstances i n d i c a t e d i s not e n t i t l e d to p r i o r i t y .
This opinion a l s o may be p r o f i t a b l y con-
s u l t e d by those who are i n t e r e s t e d i n the s u b j e c t .
The opinion c i t e s White v. Bank, 60 S. C. 122, 38 S. S . 453, which i t says
i s " i n t e r e s t i n g i n t h i s connection."
In the White case, the court s a i d , among
other t h i n g s , "To e n t i t l e him ( a party who had transmitted d r a f t s f o r c o l l e c t i o n
to a bank which became i n s o l v e n t before r e m i t t i n g proceeds) to such p r i o r i t y ,
he must show that h i s s o - c a l l e d t r u s t fund, i n some form, has gone i n t o the a s -
—1.2""
X—4984
*
s e t s of the "bank now i n the hands of the r e c e i v e r ; and t h i s he has f a i l e d to do,"
etc.
This i s a c l e a r statement "by i m p l i c a t i o n that i f the required showing could
have "been made, which i n many c a s e s i s f a r from impossible, p r i o r i t y would have
"been decreed.
As a matter of f a c t , the sendee-hank i n that case was unusually
i n s o l v e n t , the court saying that "the r e c e i v e r had only r e c e i v e d $5.00 i n cash
a s s e t s of the bank, and there was no fund which could p o s s i b l y c o n s t i t u t e the ' r e s '
of a trust" - a condition, i t may be added, which must have been p a i n f u l to the
r e c e i v e r as w e l l as to general c r e d i t o r s .
But the opinion i n the Bank of Pine wood ease does not even c i t e the recent
d e c i s i o n of the same court i n Y e l a e l l v . Peoples Bank. 118 S. C. 442, 110 S. E.
789 (1922), i n the opinion i n which Cothran, J . , .concurred.
In that case, i t was
hel d that:
S e c u r i t i e s turned over to a bank f o r c o l l e c t i o n are impressed with a t r u s t
i n the hands of t r u s t e e s subsequently appointed when the bank became
f i n a n c i a l l y involved, so f a r as they can be traced; but i t matters not in
what form, d i f f e r e n t from t h e o r i g i n a l form, the s e c u r i t i e s may be in,
so long as they can be a s c e r t a i n e d to be t h e property i n t r u s t e d ; and
the r i g h t c e a s e s only when the means of ascertainment f a i l , or the property
has come i n t o the hands of a bona f i d e purchaser f o r value and without
notice.
The Supreme Court of South Carolina adopted as i t s own the opinion of the
judge of the lower court, Hon. Frank B. Gary, from which the f o l l o w i n g paragraph
i s taken:
"As I understand the law as recognized and f o l l o w e d by the courts of South
Carolina, although other j u r i s d i c t i o n s have f o l l o w e d d i f f e r e n t l i n e s , i t
i s t h i s : ' I f any property, in i t s o r i g i n a l s t a t e and form, i s covered
with a t r u s t i n favor of the p r i n c i p a l , no change of that s t a t e and form
can d i v e s t i t of such t r u s t , or give the agent or t r u s t e e converting i t ,
or those who represent him i n r i g h t (not being bona f i d e purchasers f o r
a valuable consideration without n o t i c e ) , any more v a l i d claim i n respect
to i t than they r e s p e c t i v e l y had before such change. * * * I t matters
not * * * i n t o whatever form, d i f f e r e n t from the o r i g i n a l , the change
may have been made, * * * f o r the product of a s u b s t i t u t e f o r the o r i g i n a l
thing s t i l l f o l l o w s the nature of the thing i t s e l f , so long as i t can be
a s c e r t a i n e d to be such. The r i g h t ceases only when the means of a s c e r t a i n
ment f a i l . ' * * * In f o l l o w i n g a t r u s t fund, i t i s not necessary to
trace the i d e n t i c a l c o i n s or b i l l s of which i t i s composed. Substantial
i d e n t i t y i s a l l that need be prove ck and therefore a c e s t u i que t r u s t
may pursue and recover a t r u s t fund o r i g i n a l l y r e c e i v e d by the t r u s t e e
i n the form of money, so long as i t s i d e n t i t y can be a s c e r t a i n e d , a l though he may be unable to t r a c e the i d e n t i c a l c o i n s or bank b i l l s i n
-13-
X-4984
which such money was o r i g i n a l l y paid to the t r u s t e e . * * *
While
the c e s t u i que t r u s t may f o l l o w a t r u s t fund through any number of
transmutations, and i n t o the hands of any person except a "bona f i d e
purchaser f o r a valuable consideration without n o t i c e , so l o n g as he
can c l e a r l y i d e n t i f y i t (meaning, as i s shown, * * * s u b s t a n t i a l
i d e n t i f i c a t i o n ) , i t i s w e l l s e t t l e d that h i s r i g h t to so pursue i t
f a i l s , when the means of a s c e r t a i n i n g i t s i d e n t i t y f a i l s . 1 This s t a t e ment of the law was quoted with aporoval "by our court i n the case of
White v . Bank. 60 S. C. 127, 38 S.E. 455."
While i t i s true t h a t the f a c t s of the Bank of Pine woo d case were not i n a l l
p a r t i c u l a r s i d e n t i c a l with those of the Yel d e l l case, there seems at l e a s t
a
s u f f i c i e n t l y c l e a r resemblance "between the r e s p e c t i v e d e c l a r a t i o n s i n the two
cases of the law i n p o i n t to have j u s t i f i e d , i f not n e c e s s i t a t e d , a c i t a t i o n of
the last-mentioned d e c i s i o n i n the opinion of the former, and an i n d i c a t i o n of
the s u b s t a n t i a l d i f f e r e n c e s , i f any.
wood case. Cothran, J . , says:
Concerning the f a c t s of the Bank of P i n e -
"I think, too, that even i f the r e l a t i o n "be con-
s i d e r e d a t r u s t , the claimant has u t t e r l y f a i l e d to trace i n t o the hands of the •
l i q u i d a t i n g committee any money, the ' r e s 1 upon which a t r u s t could he imposed."
Granting t h i s , i t i s submitted with respect that the Yel.de 11 case should have
"been at l e a s t commented upon opinion i n C i t i z e n s Bank of Pinewood v. Bradley.
We come i n conclusion to the consideration of c e r t a i n recent cases i n the
federal courts.
This a r t i c l e i s already longer than was a n t i c i p a t e d , hut length
of treatment i s always necessary to an adequate p r e s e n t a t i o n of the law of an important s u b j e c t upon which j u d i c i a l opinion d i f f e r s as widely as i t does i n the
present i n s t a n c e .
In Larahee Flour M i l l s v . F i r s t National Bank of Henryetta.
Oklahoma, 13 Fed. (3d) 330, decided June 12, 1926, "by the Circuit Court of App e a l s f o r the JJighth C i r c u i t , the same d i v e r s i t y of opinion i s shown, one of the
three judges of the a p p e l l a t e court d i s s e n t i n g emphatically from a decree
r e v e r s i n g the decree of the lower court which had allowed a p r e f e r e n c e .
The c o l -
l e c t i o n item was not a check of a depositor upon the sendee-hank, "but a d r a f t
sent to the Henryetta Bank f o r c o l l e c t i o n and remittance of proceeds, which draft
the Henryetta Bank presented to the payee, a produce company, the produce company
i v i n g i t s check
Digitized forgFRASER
on the Henryetta Bank i n payment, the "bank "balance "being s u f -
~
ficient.
1 4
"
x
~
4 9 8 4
The bank accepted the check, charged the amount to the account of
the produce company and mailed i t s draft f o r the proceeds; on the same day,
however, i t was c l o s e d by the Comptroller of the Currency and placed i n the
hands of a r e c e i v e r -
Dae majority r u l i n g was as f o l l o w s :
A draft sent to hank f o r c o l l e c t i o n on having been taken up by drawee,
depositor i n the bank, by h i s check on i t , so that no a d d i t i o n a l funds
wefe brought i n t o i t , bat there was a mere s h i f t i n g of c r e d i t s on i t s
books, drawer was not e n t i t l e d to preference, on f a i l u r e of bank bef o r e making payment on account of c o l l e c t i o n .
The majority opinion was d e l i v e r e d by Lewis, Circuit Judge, and i s f a i r l y
r e f l e c t e d i n the f o l l o w i n g paragraphs:
"The r e a l i s s u e i n each case i s between the p r e f e r e n c e claimant and
general c r e d i t o r s of the bank. They w i l l get l e s s i f the preference i s
allowed. Each claimant a s s o r t e d an equity, that t h e a s s e t s taken over
by the Comptroller are t r u s t funds in'which i t i s a p r e f e r r e d b e n e f i c i a r y .
I t i s d i f f i c u l t to explain or understand by what equitable r i g h t one who
has not contributed to the c r e a t i o n of a fund should be given a s p e c i a l
and superior i n t e r e s t therein, though some of the s t a t e courts seem to
so hold. The c o l l e c t i n g banks a c t e d as agents, Commercial Bank v .
Armstrong, 148 U. S. 50, 13 S . ' C t . 533, 37 L. Ed.. 363, and had they c o l l e c t e d and r e t a i n e d the funds c a l l e d f o r by the d r a f t s , as was t h e i r duty
on account of insolvency, the e q u i t i e s of claimants would be p l a i n ; but
i n s t e a d of doing so, they merely s h i f t e d c r e d i t s on t h e i r books and
records. Ho part of the funds i n the;banks when they f a i l e d was p l a c e d
there by claimants or by any one for them. In each case the d r a f t was
p a i d by check on the i n s o l v e n t . No a d d i t i o n a l funds were brought into
the bank by e i t h e r t r a n s a c t i o n . If the d r a f t s which they h e l d f o r c o l l e c t i o n had been paid i n currency or by check on some other bank, the
i n s o l v e n t s 1 a s s e t s would have been increased that much when, t h e r e a f t e r
t h e i r remittance d r a f t s were dishonored; and i n that event equity would
have regarded the c o l l e c t i o n s as trust funds, f o l l o w e d them i n t o the i n creased a s s e t s , and, t o the extent of the increase a p p l i e d them f i r s t
i n discharge of these claims• This i s our conception of the r u l e and
the reason f o r i t , a p p l i e d i n the f e d e r a l c o u r t s . I t has boon repeatedly
announced by t h i s c o u r t . In the course of the opinion of t h i s court i n
Beard v. Independent D i s t . of P e l l a City, 88 Fed. 35, 31 C. C. A. 562,
which p r e s e n t e d the same i s s u e we have here, on l i k e c o n t r o l l i n g f a c t s ,
i t i s said:
11
'Unless i t appears that the fund or e s t a t e coming i n t o p o s s e s s i o n of the
r e c e i v e r has been augmented or b e n e f i t e d by the wrongful use of the trust
fund, no reason e x i s t s f o r g i v i n g the owner of the t r u s t fund a p r e f e r ence over the general c r e d i t o r s , * * * and to assume ( t h e p o s i t i o n )
of the owner of a t r u s t fund, and as such to a s s e r t a p r e f e r e n t i a l right
to payment i n f u l l o f the cash fund coming i n t o the hands of the r e c e i v e r , to the detriment of the general c r e d i t o r s , i t (claimant) ought
to be h e l d to s a t i s f a c t o r y proof of the f a c t upon which the r i g h t to a
p r e f e r e n c e r e s t s , t o - w i t , that the fund corning i n t o the r e c e i v e r ' s hands
has been augmented and increased by the a d d i t i o n thereto of the t r u s t
money, not as a matter of i n f e r e n c e , nor as a r e s u l t of mere e n t r i e s on
books of account, but because the fund or property a g a i n s t which the
6
-15-
X-4984
>:?a
p r e f e r e n c e i s sought to "be enforced has "been i n f a c t augmented or "benef i t e d "by the a d d i t i o n of the t r u s t f u n d . '
"That rule was re-announced by t h i s court i n Empire S t a t e Surety Co. v .
Carroll County, 194 F. 593, 606, 114 C. C. A. 435, and again i n Mechanics
and Metals National Bank v . Buchanan. 12 F. (2d) 891, opinion f i l e d April
28, 1926. The F i f t h Circuit announced the same p r i n c i p l e i n AnheuserBusch Brewing A s s ' n v . Clayton. 55 F. 759, 6 C. C. A. 108; the S i x t h
Circuit i n City Bank of Hopkins?!lie v. Blackmore, 75 F. 771, 21 C. C. A.
514; and the Second Circuit i n American Can Co. v. Williams, 178 F. 420,
101 C. C. A. 634. See a l s o Boone County Bank v . Latimer (C. C.) 67 F. 27;
Nyssa-Arcadia Drainage D i s t . v . F i r s t National Bank of Vale (D. C . ) , 3 F.
(2d) 648."
Faris, D i s t r i c t Judge, d i s s e n t e d .
He s a i d among other t h i n g s :
"I r e g r e t that I am unable to concur with the view taken by the majority of
the court i n t h e s e c a s e s . Discursive d i s s e n t s serve, I concede, no u s e f u l
purpose, but o r d i n a r i l y only conduce to keep a l i v e controversy about quest i o n s of law which i t were b e t t e r , perhaps, t o s e t t l e erroneously, rather
than not to s e t t l e at a l l .
"The d e c i s i o n s of the courts are, upon the above question (statement of
f a c t s ) , u t t e r l y at variance. Both the s t a t e courts and the f e d e r a l courts
quite g e n e r a l l y agree that a bank, which takes a d r a f t f o r c o l l e c t i o n when
the drawer i s not a depositor of such bank already, becomes an agent and a
t r u s t e e f o r the drawer; that i t i s the duty of such bank to remit to the
drawer i n money; that i t can not, absent s p e c i f i c i n s t r u c t i o n s , become the
debtor or depository of the drawer, without h i s consent, and impliedly
a g a i n s t h i s i n s t r u c t i o n s , by the mere expedient of mingling the c o l l e c t e d
funds w i t h i t s own a s s e t s , or by r e m i t t i n g i n other form than money; and
t h a t , as a c o r o l l a r y to the l a s t p r o p o s i t i o n , i f such a fund be commingled
with the bank's funds, i t may y e t b;e followed, even though i t has no clear-?
l y i d e n t i f y i n g earmarks. In p a s s i n g , I think the l a s t question i s not
i n the case here, because there! was., segregation of the funds a r i s i n g
from t h i s d r a f t , when the bank urew i t s c a s h i e r ' s check f o r the proceeds
of the d r a f t , and pat that check i n the mail, p r i o r to the r e c e i v e r s h i p ,
as i s admitted.
"But the s t a t e courts quite g e n e r a l l y h o l d t h a t , when a bank r e c e i v e s a
draft f o r c o l l e c t i o n and remittance, and, of course, from a stranger,
who i s not a depositor of the c o l l e c t i n g bank, and a c c e p t s i n payment
f o r such draft a check drawn on i t s e l f , a t r u s t fund i n favor of
the
drawer i s thereby created, which fund may be f o l l o w e d and recovered
i n f u l l from the r e c e i v e r of such bank, i f the l a t t e r s h a l l become i n s o l v e n t . Hawaiian Pineapple Co. v. Browne, 69 Mont. 140, 220 Pac, 1114;
State National Bank v. F i r s t National Bank, 124 Ark* 531, 187 S. W, 673;
Goodyear Tire & Rubber Co. v. Bank. 109 Kan. 772, 204 P. 992, 21 A. L. R.
677; Bank of Poplar B l u f f v. Millspaugh (Mo. Sup.), 281 S. W. 733.
"On the other hand, the f e d e r a l courts quite g e n e r a l l y hold that the t e s t of
recovery as a p r e f e r r e d claim i s whether by the t r a n s a c t i o n the a s s e t s
of the i n s o l v e n t bank, p a s s i n g into the hands of the r e c e i v e r , are i n creased; and they reach the conclusion that payment of such d r a f t by a dexp o s i t o r of the c o l l e c t i n g bank, by a check of such depositor on h i s account in the c o l l e c t i n g bank, does not serve to increase the a s s e t s coming
into the r e c e i v e r ' s hands, but merely operates to make the drawer the
c r e d i t o r of the bank i n s t e a d of the drawee,
" That the l a t t e r view i s obviously sound when the drawer i s already a de p o s i t o r - that i s , a c r e d i t o r of the c o l l e c t i n g bank - i s borne out , .
-16-
X-4984 ,
both by reason and a u t h o r i t y . For, when a depositor of a "beak drav;s
a d r a f t and d e p o s i t s i t for c o l l e c t i o n and c r e d i t , the r e l a t i o n of
debtor and c r e d i t o r i s created between such a drawer and the c o l l e c t ing bank, and the t i t l e of the proceeds of the d r a f t p a s s e s to the bonk.
Thereafter the matter i s one of ordinary debt, and such a debt i s not
a p r e f e r r e d claim. But, rhen a stranger draws a d r a f t f o r c o l l e c t i o n
and remittance of the proceeds to the drawer, no such r e l a t i o n of
debtor and c r e d i t o r i s created, and the t i t l e to the proceeds of the
d r a f t does not pass to the bank. Hyssa-Arcadia Drainage D i s t . v. F i r s t
National Bank (D. C.), 3 F. (2d) 648; Commercial Bank v. Armstrong, 148
U. S. 50, 13~S. Cti 533, 37 L. 3d. 363; Sweeney v. Easter, 1 Wall. 156,
17 L. Ed. 681. On the contrary the c a s e s seem to hold that the bank
becomes an agent and t r u s t e e f o r the drawer, and in such r e l a t i o n i t
takes and holds the proceeds of the d r a f t . I f without t i t l e and ag a i n s t the w i l l of the drawer, who i s i t s p r i n c i p a l and c e s t u i que t r u s t ,
the bank may pocket t h i s t r u s t fund and pass i t on to i t s c r e d i t o r s ;
the s i t u a t i o n would seem novel and anomalous, and Opposed to a l l gene r a l p r i n c i p l e s covering agency and t r u s t e e s h i p . Holder v. Western
German Bank. 136 F. 90, 68 C. C. A. 554.
A great majority of the c a s e s wherein the f e d e r a l court doctrine i s l a i d
down are cases in which the r e l a t i o n of debtor and c r e d i t o r , as between
the drawer and the c o l l e c t i n g bank, already e x i s t e d , yet many of these
c a s e s u n n e c e s s a r i l y lay down the doctrine of the n e c e s s i t y of an augmentation of a s s e t s . Beard v. Independent, e t c . , D i s t r i c t , 88 F. 875,
31 C. C. A. 562; Clark, e t c . , Co. v. American Bank, 230 F. 738; City
Bank v. Blackmore, 75 F. 771, 21 C. C. A. 514; Uyssa, e t c . , D i s t r i c t v.
Sank ( D . C . ) , 3 F. (2d) 648; Franklin, e t c . , Bank v. Beal (C. C . ) , 48
F. 506; Jewett v. Yardley (C. C . ) , 81 F. 920.
I t i s conceded that the great weight of a u t h o r i t y in the f e d e r a l courts,
even disregarding what I may c a l l debtor and c r e d i t o r c a s e s , which I do
not regard as in p o i n t , i s in favor of the r u l e that recovery depends
on whether there has occurred augmentation of a s s e t s through the transa c t i o n which occurred, and that when a d r a f t h e l d by a bank f o r c o l l e c t i o n i s paid by the drawee with a check on the c o l l e c t i n g bank there
i s no such augmentation of a s s e t s , but a mere switching of c r e d i t s . But
I am not able to see how t h i s f a c t has any such l e g a l relevancy as to
put the e q u i t i e s in favor of the strange drawer on a p a r i t y with those
of the ordinary d e p o s i t o r s of the bank. The l a t t e r became the w i l l i n g
c r e d i t o r s of the bank, the former, i f he does
. become a c r e d i t o r , b e comes such without his consent and a g a i n s t h i s expressed i n t e n t . Many
f a i r l y w e l l s e t t l e d p r i n c i p l e s announced in the very c a s e s which require
such augmentation, and in many others b e s i d e s , seem u t t e r l y at variance
with the above r u l e . Some of these p r i n c i p l e s , so at variance, are: (a)
That in case of a d r a f t deposited f o r c o l l e c t i o n and return no t i t l e
ever p a s s e s to the c o l l e c t i n g bank (ffyssa, e t c . , D i s t r i c t v. Bank,
supra); (b) that the bank takes the c o l l e c t i o n as an agent f o r the drawer (American Can Co. v. Williams. 178 F. 420, 101 C. C. A. 634, Clark,
e t c . , Co. v. Bank ( D . C . ) , 230 F. 738; ( c ) that i t takes the c o l l e c t i o n
as the t r u s t e e of the drawer (Holder v. Bank, 136 Fed. 90, 68 C. C. A.
554); (d) that the c o l l e c t i n g bank i s bound to accept o n l y l e g a l tender,
t o - w i t , money, in payment of such a d r a f t (Bank v . Fed. Reserve Bank
(C.C.A.), 6 F. (2d) 339; Fed. Reserve Bank v. Mailory, 264 U.S. 155, 44
S. Ct. 296, 68 L. Ed. 61, 31 A. L. B. 1261; Bradley Lumber Co. v. Bank
(C.C.A.), 206 F. 41, and (e) t h a t , i f i t mingles such a fund with i t s
own funds, the proceeds may y e t be f o l l o w e d ( P e t e r s v. Bain, 133 U.S.
670, 10 S. Ct. 354, 33 L. Ed. 696), and, c e t e r i s paribus, recovered.
I
am
l e d to b e l i e v e that the error ( i f i t i s an error, and I cannot see
-17-
X-4984
0
,
j;"U:
J...
i t otherwise) has a r i s e n from too c l o s e l y f o l l o w i n g debtor and, c r e d i t o r
c a s e s , in which the doctrine requiring augmentation of a s s e t s was
earl;/, but u n n e c e s s a r i l y announced, and 07 the l a y i n g down of an erroneous i n i t i a l premise, even i f , auguendo, the c o r r e c t n e s s of t h e
l e g a l conclusion that there must "be an augmentation of a s s e t s , he conceded."
The same a p p e l l a t e court l a t e r considered the subject in the case of
Farmers n a t i o n a l Bank v. F r i b b l e , 15 Fed. (2(1) 175, and reached s u b s t a n t i a l l y
the same conclusions as in the Larabee K i l l case.
A s i n g l e e x t r a c t from i t s
opinion must s u f f i c e here:
"It i s c l e a r that counsel f o r the p l a i n t i f f v/erc- familar w i t h and probably
had b e f o r e them when they drew t h i s complaint the e s t a b l i s h e d r u l e in
the f e d e r a l courts p r e s c r i b i n g the f a c t s r e q u i s i t e to e s t a b l i s h a
cause of a c t i o n by a c e s t u i que t r u s t to recover from the r e c e i v e r
of the property of an insolvent corporation the payment in f u l l of a
t r u s t . f u n d in h i s p o s s e s s i o n in preference to the payment of anything
to i t s general c r e d i t o r s , f o r they pleaded and s e t f o r t h such f a c t s
in the complaint as s t a t e d a p e r f e c t cause of a c t i o n in accordance
with that r u l e , which i s :
"•'It i s indispensable to the maintainance by a c e s t u i que t r u s t of a claim
to p r e f e r e n t i a l payment (by a r e c e i v e r ) out of the proceeds of the est a t e of an i n s o l v e n t that c l e a r proof be made that the t r u s t property
or i t s proceeds went into a s p e c i f i c fund or into a s p e c i f i c i d e n t i f i e d p i e c e of property which came to the hands of the r e c e i v e r , and
then the claim can be sustained to that fund or property only, and
only to the extent that the t r u s t property or i t s proceeds went into
it.
I t i s not s u f f i c i e n t to prove that the t r u s t property or i t s proceeds went i n t o the general a s s e t s of the i n s o l v e n t e s t a t e and i n creased the amount and value thereof which came to the hands of the
r e c e i v e r . ' Empire S t a t e Surety Co. v. Carroll County,, 194
553, 114
C. C. A. 435; and c a s e s there c i t e d ; Beard v. Independent School Dist r i c t , 83 F. 375, 31 C. C. A. 562; In r e Seven Corners Bank, 58 Minn.
5, 59 IT. W. 633; American Can Co v. Williams (C. C.), 176 F. 816; Willoughby v. Weinberger, 15 Okl. 226, 79 P. 777; Macy v. Roedenbeck, 227
. F. 347, 356, 142 C. C. A. 42, L. R. A. 1916C, 12; Central T^ust Co. v.
Chicago, A. & IT. Ry. Co. (D.C.), 232 F. 936, 934; S t a t e Bank of T7inx'ield v. Alva Security Bank, 232 F. 847 , 849, 147 C. C. A. 41; Titlow
v. McCormick, 236 F. 209, 149 C. C. A. 399; Zenor v. McFarlin, 238 F.
721, 725, 151 C. C. A. 571; S c u l l i n S t e e l Co. v. north American Co.,
255 F. 945, 947, 167 C. C. A. 237; Mechanics & Metals g a t . Bank v .
Buchanan (C. C. A.) 12 F. (2d) 891."
The court h e l d that while counsel f o r p l a i n t i f f had made a l l a l l e g a t i o n s
necessary to bring t h e i r c l i e n t ' s case within the
11
e s t a b l i s h e d r u l e in the f e d -
e r a l courts," they had (doubtless n e c e s s a r i l y ) come f a r short of s u s t a i n i n g
t h e i r a l l e g a t i o n s with proof,
A decree of the lower court in favor of p l a i n t i f f
was, t h e r e f o r e , reversed and h i s b i l l dismissed.
_18-
•
X-4984.
f m o
Varying phases of the law of the subject were presented and adjudicated
by the United S t a t e s D i s t r i c t Court f o r the Eastern D i s t r i c t of Worth Carolina
in four cases growing out of the f a i l u r e of the Commercial National Banx of
Wilmington, north Carolina, namely, Poisson v . Williams, Receiver, 15 Fed. (2d)
58S, Marshburn v. Same, 15 Id. 539,
F i r s t Rational jank of Ventura, Cal. v .
Same, 15 Id. 585, and Smith Reduction Co. v . Same, 15 Id. 870, a l l decided in
October and November, 1925, Circuit Judge Parker d e l i v e r i n g the o p i n i o n s .
Ho
appeal has been taken i n any of the c a s e s .
In the Poiss6tt c a s e , the complainant sought to recover a fund h e l d by the
Commercial Bank as t r u s t e e f o r bondholders and to have passed into the hands of
the r e c e i v e r impressed w i t h the t r u s t .
The fund was the cash proceeds of a s a l e
of a r a i l r o a d and i t s equipment and passed into the v a u l t s of the Commercial
Bank, an entry being made on i t s books, "Bond Account.
Not subject to checks."
I t was shown that the amount of cash i n the v a u l t s of the bank had never f a l l e n
below the t o t a l amount of t r u s t funds held by the bank s i n c e the fund was deposited.
Held, that complainant was e n t i t l e d to recover the fund in the hands
of the bank's r e c e i v e r , but not to i n t e r e s t .
In the Marshburn case i t was h e l d , that proceeds of bonds converted by a
bank by p l a c i n g them to i t s c r e d i t i n another bank, mingling them with other dep o s i t s t h e r e i n , were i n e x t r i c a b l y intermingled with other a s s e t s of the converting bank, so that the s t a t u s of the owner was that of general c r e d i t o r ,
priority
was denied, the court d i s t i n g u i s h i n g the Poisson case upon the ground that under
the f a c t s o f that case payments by the trustee-bank should be presumed to nave
been made from other funds, and that no such presumption could a r i s e in the c i r cumstances of the Marshburn c a s e .
In the F i r s t National Bank of Ventura case the f o l l o w i n g p r o p o s i t i o n s
were enunciated;
-13-
X-4S§!
^
One who has forwarded a d r a f t to tank f o r c o l l e c t i o n may recover proceeds,
i f they can "be traced or i d e n t i f i e d , where c o l l e c t i n g bank was i n s o l v e n t
to the knowledge of o f f i c e r s at the time of c o l l e c t i o n .
Where a bank, with knowledge of insolvency, mingles proceeds of d r a f t sent
to i t f o r c o l l e c t i o n with i t s money, the whole may be h e l d in t r u s t t i l l
e q u i t a b l e separation i s made f o r defrauded party, provided bank's funds
were increased by such proceeds.
Bank's c o l l e c t i o n of d r a f t , which brought check, which was used in c l e a r ance to pay checks drawn on i t , held not to p l a c e any cash in bank, so as
to create a t r u s t fund f o r the amount of the d r a f t ; such check b e i n g used
to reduce l i a b i l i t i e s , not to increase a s s e t s .
The opinion of Judge Parker i s a valuable compendium of the f e d e r a l authori t i e s in p o i n t .
His a t t e n t i o n does not seem to have been c a l l e d by counsel to
the c a s e of North Carolina Corp. Com, v . Bradley, supra, f o r i t i s not c i t e d .
The Smith Reduction Company Case i s e s p e c i a l l y i n t e r e s t i n g , p r i o r i t y being
denied as to one item and decreed as to another, the court c i t i n g in support
of i t s r u l i n g s the Foisson and Ventura c a s e s , r e s p e c t i v e l y .
I t s r u l i n g was as f o l l o w s :
Where
d r a f t l e f t by p l a i n t i f f with bank f o r c o l l e c t i o n was p a i d by check
on another bank, which check with others and cash, was used in c l e a r i n g with
other bank, h e l d t h a t , s i n c e check did not bring cash into bank, p l a i n t i f f
was not e n t i t l e d to have t r u s t declared a g a i n s t bank's r e c e i v e r t h e r e f o r , but
was e n t i t l e d to r i g h t s of general c r e d i t o r o n l y .
Where bank's r e c e i v e r admitted that proceeds of c o l l e c t i o n of d r a f t were in
bank's v a u l t s as t r u s t funds when i t f a i l e d , and were p a r t of a s s e t s in h i s
hands, owner of d r a f t was e n t i t l e d to recover proceeds, without i n t e r e s t ,
and without b e i n g required to wait u n t i l e s t a t e was s e t t l e d .
The four d e c i s i o n s j u s t mentioned present in comparatively small compass
the p r a c t i c a l f e a t u r e s of the subject and the f e d e r a l law concerning them.
We conclude here t h i s p r e s e n t a t i o n of the s u b j e c t , expressing r e g r e t at
but not an apology f o r i t s length.
We have e s t a b l i s h e d the c o r r e c t n e s s of the
statement in the f i r s t paragraph, supra, that upon no important branch of the
law of banks and banking i s there as much d i v e r s i t y of j u d i c i a l opinion, and that
f a c t alone j u s t i f i e s , i f i t does not demand, f u l l n e s s of treatment.
Those seek-
ing an even f u l l e r p r e s e n t a t i o n of ( c o n f l i c t i n g ) a u t h o r i t i e s may f i n d them in
extenso i n F i r s t and Second Decennial D i g e s t , T i t l e Bank and Banking, Key Humber
8 0 ( 7 ) , 166(1) and ( 2 ) ; Trusts, 3 7 2 ( 1 ) .
term, a p a r t i a l
What may be c a l l e d , f o r want of a b e t t e r
j u r i s d i c t i o n a l summary of the law in p o i n t may be thus stated*
-20-
X-4984
In V i r g i n i a , Missouri and, probably, West V i r g i n i a , the c o u r t s s t r o n g l y
favor a p r e f e r e n c e of one c l a i m i n g to have sent an item f o r c o l l e c t i o n and
remittance to a bank which c o l l e c t s and immediately f a i l s .
In North and
South Carolina, the p r e s e n t view i s , g e n e r a l l y , the o p p o s i t e .
In the f e d e r a l
c o u r t s , p r i o r i t y w i l l be decreed i f , f i r s t , t h e proceeds of c o l l e c t i o n can be
t r a c e d into or i d e n t i f i e d a s funds which have come into the hands of the r e c e i v e r ; second, i f the funds of the i n s o l v e n t bank have been a c t u a l l y augmented :by the p r o c e e d s , and not used in c l e a r a n c e to pay checks drawn upon i t .
In the absence of t h e s e c o n d i t i o n s , p r i o r i t y w i l l be denied.
Further, the
f e d e r a l c o u r t s w i l l go as f a r as any to f o l l o w the p r o c e e d s of the conversion
of an express t r u s t fund into the hands of a * r e c e i v e r and to stamp and r e c l a i m
them a s the o r i g i n a l t r u s t - s u b j e c t in another form.
In the c o n d i t i o n of the law of the s u b j e c t , shown above, the f e d e r a l
judges themselves h o l d i n g w i d e l y divergent views of the nature and a p p l i c a t i o n
of the " e s t a b l i s h e d r u l e in the f e d e r a l c o u r t s , " i t seems most d e s i r a b l e that
the s u b j e c t be c o n s i d e r e d in an appropriate c a s e by the f e d e r a l Supreme Court
to the end t h a t , so f a r as humanly p o s s i b l e , the l a s t word may be spoken by i t
and a t l e a s t approximate u n i f o r m i t y s u b s t i t u t e d f o r the e x i s t i n g v a r i e t y of
j u d i c i a l treatment.
Richmond, Va.
George Bryan.
FEDERAL
RESERVE
BOARD
X-4986
STATEMENT FOR THE PRESS
For immediate r e l e a s e :
October 2 7 , . 1 9 2 ? ^
COmiTION OF ACCEPTANCE MARKET
September 15, 1927, to October 11, 1927.
A c t i v i t y i n the a c c e p t a n c e market i n New York i n c r e a s e d s e a s o n a l l y
during the f o u r weeks ending October 11, both su.oily and demand showing modera t e i n c r e a s e s over pre'cedi::.? p e r i o d s .
and g r a i n predominated.
Drawings a g a i n s t cot to n, s i l k ,
coffee,
The t o t a l suoply was somewhat g r e a t e r than demand,
however, and s a l e s to t h e r e s e r v e bonks b o t h by d e a l e r s and banks were substantial.
T o t a l p u rch a s es by d e a l e r s during t f e p e r i o d were i n t h e l a r g e s t
volume s i n c e l a s t w i n t e r , purchases from e n d o r s e r s be irg r e l a t i v e l y heavy
while t h o s e from a c c e p t o r s showed l i t t l e change.
S a l e s to banks c o n t i n u e d
i n about the same volume as i n the preceding p e r i o d , but o t h e r s a l e s i n c r e a s e d
The t o t a l volume o f b i l l s i n t h e hand.s of d e a l e r s a t the end o f the p e r i o d
continued l a r g e .
At the end of the f i r s t week i n October r a t e s on t h e
1 onger m a t u r i t i e s were advanced.
Moderate a c t i v i t y c h a r a c t e r i z e d the b i l l
markets i n Boston and Chicago during the p e r i o d .
The f o l l o w i n g t a b l e shows
the New York market r a t e s on b i l l s o f v a r i o u s m a t u r i t i e s a t the b e g i n n i n g
and end of the r e p o r t i r g p e r i o d .
ACCEPTANCE RATES IN THE NEW YORK MARKET
Maturity
30 days
60 "
9° "
120
"
1 5 0
"
September 15
Bid
Asked
3
3
3
3
3
l/g
1/4
1/4
3/8
5/8
3
3
3
3
3
l/g
1/8
1/4
1/2
October 11
Bid
Asked
3 l/g
3 l/U
3 3/8
3 3/8-3'1/2
3 5/8-3 3/4
2
3
3
3
3
l/g
1/4
1/4-3 3/8
1/2-3 5/8
X-4987
REGULATION H, SEHIE'S OF 1927
(Superseding Regulation H of 1924)
MEMBERSHIP OF STATE BAMS AND TRUST COMPANIES
(As T e n t a t i v e l y Approved "by Federal
Reserve Board on June 21, 1927.)
,
SECTION I .
BANKS ELIGIBLE FOR MEMBERSHIP
(a) I n c o r p o r a t i o n . - In order to be e l i g i b l e f o r membership i n a
Federal r e s e r v e bank, a S t a t e bank or t r u s t company must have been incorporat e d under a s p e c i a l or general law of the S t a t e or d i s t r i c t i n which i t i s
located.
(b) C a p i t a l s t o c k . - Under the terms of s e c t i o n 9 of the Federal r e s e r v e
a c t as amended, no applying bank can be admitted to membership i n a Federal
r e s e r v e bank u n l e s s (a) I t p o s s e s s e s a paid-up, unimpaired c a p i t a l s u f f i c i e n t to e n t i t l e
i t to become a n a t i o n a l banking a s s o c i a t i o n i n the p l a c e where i t i s s i t u ated, under the p r o v i s i o n s of the n a t i o n a l bank a c t , or
( t ) I t p o s s e s s e s a paid-up, unimpaired c a p i t a l of at l e a s t 60 per cent
of such amount, and, under p e n a l t y of l o s s of membership, complies w i t h the
r u l e s And r e g u l a t i o n s h e r e i n p r e s c r i b e d by the Federal Reserve Board f i x i n g
the time w i t h i n which and the method by which the unimpaired c a p i t a l of such
bank s h a l l be i n c r e a s e d out of net income to equal the c a p i t a l required under
(a).
In order to become a member of the Federal r e s e r v e system, t h e r e f o r e ,
any S t a t e bank or t r u s t company must have a minimum paid-up c a p i t a l s t o c k
at the time i t becomes a member, as f o l l o w s :
I f l o c a t e d i n a c i t y or town w i t h a p o p u l a t i o n
Minimum
capital
i f admitted under
clause (a)
Minimum
capital
i f admitt e d under
c l a u s e (b)
Not exceeding 3>000 i n h a b i t a n t s
.;
Exceeding 3 , 0 0 0 but not exceeding 6 , 0 0 0 i n h a b i t a n t s
Exceeding 6 , 0 0 0 but not exceeding ^ 0 , 0 0 0 i n h a b i t a n t s
Exceeding 5 0 , 0 0 0 i n h a b i t a n t s ( e x c e p t as s t a t e d below)
In an o u t l y i n g d i s t r i c t (*) of a c i t y w i t h a popul a t i o n exceeding 5 0 , 0 0 0 i n h a b i t a n t s ; provided S t a t e
law permits o r g a n i z a t i o n of S t a t e banks i n such l o c a t i o n w i t h a c a p i t a l of $100,000 or l e s s
$25,000
50,000
100,000
200,000
$15,000
30,000
60,000
120,000
100,000
60,000
(*) The term " o u t l y i n g d i s t r i c t " i s construed to mean that p o r t i o n of a c i t y
which i s l o c a t e d o u t s i d e o f , and a t a c o n s i d e r a b l e d i s t a n c e from, the
recognized b u s i n e s s ?md f i n a n c i a l c e n t e r of such c i t y , and i n c l u d e s a l l
suburban d i s t r i c t s .
X-4987
*
Any bank admitted to membership under clause (b) must a l s o , as a condition
of membership, the v i o l a t i o n of which w i l l subject i t to expulsion from the
Federal r e s e r v e system, increase i t s paid-up and unimpaired c a p i t a l within
f i v e years a f t e r the approval of i t s a p p l i c a t i o n by the Federal Reserve Board
to the amount required under ( a ) . For the purpose of providing f o r such increase, every such bank s h a l l s e t a s i d e each year in a fund e x c l u s i v e l y app l i c a b l e to such c a p i t a l increase not l e s s than 50 per cent of i t s n e t earnings
f o r the preceding year p r i o r to the payment of dividends, and i f such net
earnings exceed 12 per cent of the paid-up c a p i t a l of such bank, then a l l net
earnings in e x c e s s of 6 per cent of the paid-up c a p i t a l s h a l l be c a r r i e d to
such fund, u n t i l such fund i s large enough to provide f o r the necessary i n crease in c a p i t a l . Whenever such fund s h a l l be large enough to provide f o r the
necessary increase in c a p i t a l , or at such other time as the Federal Reserve
Board may r e q u i r e , such fund or as much thereof as may be necessary s h a l l be
converted into c a p i t a l by a stock dividend or used in any other manner p e r mitted by S t a t e law to increase the c a p i t a l of such bank to the amount required
under (a): Provided, however. That such bank may be excused in whole or in
part from compliance with the terms of t h i s paragraph i f i t i n c r e a s e s i t s
c a p i t a l through the s a l e of a d d i t i o n a l stock: Provided? f u r t h e r , That nothing
herein contained s h a l l be construed as requiring any such bank to v i o l a t e any
p r o v i s i o n of S t a t e law, and in any case in which the requirements of t h i s paragraph arc i n c o n s i s t e n t with the requirements of State law the requirements of
t h i s paragraph may be waived and the subject covered by a s p e c i a l condition
of membership to be p r e s c r i b e d by the Federal Reserve Board.
(c) Branches. - In order to be e l i g i b l e f o r membership in a Federal r e serve bank, a S t a t e bank or t r u s t company must r e l i n q u i s h any branch or branches
e s t a b l i s h e d by i t a f t e r February 25, 1927, beyond the corporate l i m i t s of the
c i t y , town or v i l l a g e in which the parent bank i s s i t u a t e d .
SECTION I I . APPLICATION FOR MEMBERSHIP
Any e l i g i b l e S t a t e bank or t r u s t company may make a p p l i c a t i o n on F. R. B.
Form 83a, made a part of t h i s r e g u l a t i o n , to the Federal Reserve Board f o r an
amount of c a p i t a l stock i n the Federal Reserve bank of i t s d i s t r i c t equal to
6 per cent of the paid-up c a p i t a l stock and surplus of such S t a t e bank or
t r u s t company. This a p p l i c a t i o n must be forwarded d i r e c t to the Federal r e serve agent of the d i s t r i c t in which the applying bank or t r u s t company i s l o cated and must be accompanied by Exhibits I , I I , and I I I , r e f e r r e d to on page 1
of the a p p l i c a t i o n blank.
SECTION I I I . APPROVAL OF APPLICATION
In p a s s i n g upon an a p p l i c a t i o n the Federal Reserve Board w i l l consider
especially (1) The f i n a n c i a l condition of the applying bank or t r u s t company and
the general character of i t s management;
(2) Whether the corporate powers e x e r c i s e d by the applying bank or
t r u s t company are c o n s i s t e n t with the purposes of the Federal reserve act;
and
(3) Whether the laws of the State or d i s t r i c t in which the applying
bank or t r u s t company i s l o c a t e d contain p r o v i s i o n s l i k e l y to prevent proper
compliance with the p r o v i s i o n s of the Federal r e s e r v e a c t and the r e g u l a t i o n s
of the Federal Reserve Board made in conformity therewith.
^
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X-4587
I f , i n the judgnent of the Federal Reserve Board, an applying bank or
trust company conforms to a l l the requirements of the Federal reserve a c t
and these r e g u l a t i o n s , and i s otherwise q u a l i f i e d f o r membership, the board
w i l l approve the a p p l i c a t i o n subject tcpfeonditions as i t may p r e s c r i b e pursuant to the p r o v i s i o n s of the Federal reserve a c t . When the c o n d i t i o n s imposed by the board have been accepted by the applying bank or t r u s t conroany
the board w i l l i s s u e a c e r t i f i c a t e of approval, whereupon the applying bank
or t r u s t company s h a l l make a payment to the Federal r e s e r v e bank of i t s
d i s t r i c t of one-half of the amount of i t s s u b s c r i p t i o n , i . e . , 3 per cent
of the amount of i t s paid-up c a p i t a l and surplus, and upon r e c e i p t of t h i s
payment the appropriate c e r t i f i c a t e of stock w i l l be i s s u e d by the Federal
reserve bankj. The remaining half of i t s subscription s h a l l be subject to
c a l l when deemed necessary by the Federal Reserve Board.
SECTION IV., CONDITIONS OF MEMBERSHIP
Pursuant to the a u t h o r i t y contained in the f i r s t paragraph of s e c t i o n 9
of the Federal reserve a c t , which provides that the Federal Reserve Board
may permit applying banks to become members of the Federal 'reserve s y s t e m
"subject to the p r o v i s i o n s of t h i s Act and to such c o n d i t i o n s as i t may
p r e s c r i b e pursuant thereto", the Federal Reserve Board w i l l p r e s c r i b e the
f o l l o w i n g c o n d i t i o n s of membership f o r each bank or t r u s t company h e r e a f t e r
applying f o r admission to the Federal r e s e r v e system, in a d d i t i o n to such
other c o n d i t i o n s as the board may consider necessary or a d v i s a b l e in the
p a r t i c u l a r case (1) Except with the permission of the Federal Reserve Board, such bank
or t r u s t company s h a l l not cause or permit any change to be made in the general character of i t s a s s e t s or in the scope of the f u n c t i o n s e x e r c i s e d by i t
at the time of admission to membership, such as w i l l tend to a f f e c t m a t e r i a l l y
the standard maintained a t the time of i t s admission to the Federal reserve
system and required as a condition of membership.
(2) Such bank or t r u s t company s h a l l at a l l times conduct i t s b u s i n e s s
and e x e r c i s e i t s powers with due regard to the s a f e t y of i t s customers.
(3) Such bank or t r u s t company s h a l l reduce t o , and maintain w i t h i n , the
l i m i t s p r e s c r i b e d by the laws of the S t a t e in which i t i s l o c a t e d , any loan
which may be in e x c e s s of such l i m i t s .
(4) Such bank or t r u s t company s h a l l reduce to an amount equal to 10
per cent of i t s c a p i t a l and surplus a l l balances in e x c e s s t h e r e o f , i f any,
which are c a r r i e d with banks or t r u s t companies which are not members o f
the Federal r e s e r v e system, and s h a l l at a l l times maintain such balances
w i t h i n such l i m i t s .
(5) Such bank or t r u s t company may accept d r a f t s and b i l l s of exchange
drawn upon i t of any character permitted by the laws of the S t a t e of i t s
incorporation; but the aggregate amount of a l l acceptances outstanding at
any one time s h a l l not exceed the l i m i t a t i o n s imposed by S e c t i o n 13 of the
Federal r e s e r v e a c t , that i s , the aggregate amount of acceptances outstanding
at any one time which are drawn f o r the purpose of f u r n i s h i n g d o l l a r exchange
in countries s p e c i f i e d by the Federal Reserve Board s h a l l not exceed 50 per
cent of i t s c a p i t a l and surplus, and the aggregate amount of a l l other acceptances, whether domestic or f o r e i g n , outstanding at any one time s h a l l not
exceed 50 per cent of i t s c a p i t a l and surplus, except that the Federal Reserve
Board, upon the a p p l i c a t i o n of such bank or t r u s t company, may increase t h i s
l i m i t from 50 per cent to 100 per cent of i t s c a p i t a l and surplus: provided,
however, That in no event s h a l l the aggregate amount of domestic accoptances
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X-4987
*3 ^ m
outstanding at any one timp exceed 50 per cent of the c a p i t a l and surplus
of such bank or t r u s t company.
(6) The board of d i r e c t o r s of said bank or t r u s t company s h a l l adopt
a r e s o l u t i o n authorizing the interchange of reports and information between
the Federal r e s e r v e bank of the d i s t r i c t in which such bank or t r u s t company
i s l o c a t e d and the banking a u t h o r i t i e s of the S t a t e in which such bank i s
located.
Each bank or t r u s t company applying for membership h e r e a f t e r w i l l be r e quired to agree to the above conditions and any other c o n d i t i o n s which the
board may p r e s c r i b e pursuant to the p r o v i s i o n s of the Federal r e s e r v e a c t
prior to the admission of such bank or t r u s t company to the Federal r e s e r v e
system.
SECTION V. PERMISSION NECESSARY PRIOR TO MAKING CHANGES IN ASS3TS OH
SCOPE OF FUNCTIONS
Each bank or t r u s t company h e r e a f t e r admitted to the Federal r e s e r v e
system and each bank or t r u s t company which has h e r e t o f o r e been admitted subj e c t to condition No. 1 of Section IV or subject
any s i m i l a r condition
s h a l l , through the Federal r e s e r v e agent, request the permission of the Fede r a l Reserve Board p r i o r to taking any a c t i o n which may r e s u l t in a change
i n the general character of i t s a s s e t s or in the scope of the f u n c t i o n s exe r c i s e d by i t at the time of admission to membership, such as w i l l tend to
a f f e c t m a t e r i a l l y the standard maintained at the time of i t s admission to
the Federal r e s e r v e system and required as a condition of membership.
The board considers that among the a c t i o n s which may r e s u l t in changes of
the kind r e f e r r e d to in t h i s s e c t i o n arc c o n s o l i d a t i o n s or mergers with, or
purchases of the a s s e t s of other banks or branch banks.
SECTION VI. ESTABLISHMENT OH MAINTENANCE OF BRANCHES.
Every S t a t e bank which i s , or h e r e a f t e r becomes, a member of the Federal
Reserve System w i l l be required to comply s t r i c t l y with the f o l l o w i n g provision
of Section 9 of the Federal Reserve Act as amended by the Act of February 25,
1927:
Any such S t a t e bank which, at the date of the approval of t h i s
-4ct, has e s t a b l i s h e d and i s operating a branch or branches in conformity
with the State law, may r e t a i n and operate the same w h i l e remaining or
upon becoming a stockholder of such Federal reserve bank; but no such
State bank may r e t a i n or acquire stock in a Federal r e s e r v e bank except
upon relinquishment of any branch or branches e s t a b l i s h e d a f t e r the date
of tjie approval of t h i s Act beyond the l i m i t s of the c i t y , town, or
v i l l a g e in which the parent bank i s s i t u a t e d .
This has been i n t e r p r e t e d to mean that:
1.
Any S t a t e member bank which, on February 25, 1927, had e s t a b l i s h e d
and was a c t u a l l y operating a branch or branches in conformity w i t h the State
law i s permitted to r e t a i n and operate the same while remaining a member of
the Federal Reserve System, r e g a r d l e s s of the l o c a t i o n of such branch or
branches.
2.
Any nonmember State bank which, on February 25, 1927, had e s t a b l i s h e d
*>;> a
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X-4987
and was a c t u a l l y o p e r a t i n g a branch or t r a n c h e s in conformity w i t h S t a t e law
may, i f o t h e r w i s e e l i g i b l e , become a member of the Federal Reserve System and
r e t a i n and o p e r a t e such branches, r e g a r d l e s s of t h e i r l o c a t i o n .
3. In order to remain a member of the Federal Reserve System, every S t a t e
member bank must r e l i n q u i s h any branch or branches e s t a b l i s h e d a f t e r February
25, 1927, beyond the corporate l i m i t s of the c i t y , town or v i l l a g e in which
the parent bank i s s i t u a t e d .
4 . Any S t a t e member bank which e s t a b l i s h e s any branch or branches a f t e r
February 2 5 , 1927, beyond the corporate l i m i t s of the c i t y , town or v i l l a g e
in which the parent bank i s s i t u a t e d must e i t h e r ( a ) r e l i n q u i s h such branch
or branches or (b) f o r f e i t a l l r i g h t s and p r i v i l e g e s of membership and surrender i t s stock in the Federal r e s e r v e bank.
5 . Ho S t a t e bank which has e s t a b l i s h e d any branches subsequent to February 25, 1927, beyond the corporate l i m i t s of the c i t y , town or v i l l a g e
i n which the parent bank i s s i t u a t e d may become a member of the Federal
Reserve System except upon relinquishment of every such branch.
6 . S t a t e member banks may e s t a b l i s h branches w i t h i n the c o r p o r a t e l i m i t s
of the c i t y , town or v i l l a g e i n which the parent bank i s s i t u a t e d without
o b t a i n i n g permission of the Federal Reserve Board.
SECTION VII. POWERS AND RESTRICTIONS
Every S t a t e bank or t r u s t company w h i l e a member of the Federal r e s e r v e
system ( 1 ) S h a l l r e t a i n i t s f u l l charter and s t a t u t o r y r i g h t s as a S t a t e
bank or t r u s t company, s u b j e c t to the p r o v i s i o n s of the Federal r e serve a c t , to the r e g u l a t i o n s of the Federal Reserve Board, and to
the c o n d i t i o n s p r e s c r i b e d by the Federal Reserve Board and agreed to
by such S t a t e bank or t r u s t company p r i o r to i t s admission;
(2) S h a l l maintain such improvements and changes i n i t s banking
p r a c t i c e as may have been s p e c i f i c a l l y required of i t by the Federal
Reserve Board as a c o n d i t i o n of i t s admission and s h a l l not lower the
standard of banking then required of i t ;
(3) S h a l l enjoy a l l the p r i v i l e g e s and observe a l l t h o s e r e q u i r e ments of the Federal r e s e r v e a c t and of the r e g u l a t i o n s of the Federal
Reserve Board made in conformity t h e r e w i t h which are a p p l i c a b l e to
S t a t e banks and t r u s t companies which have become member banks; and
( 4 ) S h a l l comply a t a l l times w i t h any and a l l c o n d i t i o n s of memb e r s h i p p r e s c r i b e d by the Federal Reserve Board a t the time of the
admission of such member bank to the Federal r e s e r v e system.
SECTION V I I I . EXAMINATIONS AND REPORTS
Every S t a t e bank or t r u s t company, w h i l e a member of the Federal r e s e r v e
system, s h a l l be s u b j e c t to examinations made by d i r e c t i o n of the Federal
Reserve Board or of the Federal r e s e r v e bank by examiners s e l e c t e d or approved by the Federal Reserve Board.
Every S t a t e bank or t r u s t company, w h i l e a member of the Federal r e s e r v e
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X-4987
system, s h a l l be required to make i n each year not l e s s than t h r e e r e p o r t s
of c o n d i t i o n on F. R. B. Form 105, Such r e p o r t s s h a l l "be made to the
Federal r e s e r v e "bank of i t s d i s t r i c t on c a l l of such bank, on d a t e s to be
f i x e d by the Federal Reserve Board. They s h a l l a l s o make semiannual r e p o r t s of earnings and dividends on F. R. B. Form 107. F. R. B. Forms
105 and 107 are made a part of t h i s r e g u l a t i o n .
X-4988
REGULATION D, SERIES OP 1527
(Superseding R e g u l a t i o n D of 1924)
RESERVES OF MEMBER BASICS
(As T e n t a t i v e l y Approved by Federal
Reserve Board on June 31, 1 9 2 7 . )
SECTION I . STATUTORY PROVISIONS
S e c t i o n 19 o f the F e d e r a l r e s e r v e a c t p r o v i d e s , in p a r t , as f o l l o w s :
BANK RESERVES
shall
Sec. 19. Demand d e p o s i t s w i t h i n the meaning of t h i s a c t / c o m p r i s e a l l de
p o s i t s p a y a b l e w i t h i n t h i r t y days, and time d e p o s i t s s h a l l comprise a l l
d e p o s i t s p a y a b l e a f t e r t h i r t y days, a l l s a v i n g s accounts and c e r t i f i c a t e s
of d e p o s i t which are s u b j e c t to n o t l e s s than t h i r t y days' n o t i c e b e f o r e
payment, and a l l p o s t a l s a v i n g s d e p o s i t s .
Every bank, banking a s s o c i a t i o n , or t r u s t company which i s or which becomes a member of any Federal r e s e r v e bank s h a l l e s t a b l i s h and m a i n t a i n
r e s e r v e b a l a n c e s w i t h i t s Federal r e s e r v e bank as f o l l o w s :
(a) I f not i n a r e s e r v e or c e n t r a l r e s e r v e c i t y , as no? or h e r e a f t e r de
f i n e d , i t s h a l l h o l d and maintain w i t h the Federal r e s e r v e bank of i t s d i s
t r i c t an a c t u a l n e t b a l a n c e equal to not l e s s than seven per centum of the
a g g r e g a t e amount o f i t s demand d e p o s i t s and t h r e e per centum of i t s time
deposits.
(b) I f i n a r e s e r v e c i t y , as now or h e r e a f t e r d e f i n e d , i t sha.ll h o l d
and maintain w i t h the Federal r e s e r v e bank of i t s d i s t r i c t an a c t u a l n e t
b alan ce equal to not l e s s than ten per centum of the a g g r e g a t e amount of
i t s demand d e p o s i t s and t h r e e per centum of i t s time d e p o s i t s : P r o v i de d,
however, That i f l o c a t e d in the o u t l y i n g d i s t r i c t s of a r e s e r v e c i t y or
in t e r r i t o r y added to such a c i t y by the e x t e n s i o n of i t s c o r p o r a t e charte
i t may, upon the a f f i r m a t i v e v o t e of f i v e members of the F e d e r a l Reserve
Board, h o l d and maintain the r e s e r v e b a l a n c e s s p e c i f i e d in paragraph ( a )
hereof.
( c ) I f in a c e n t r a l r e s e r v e c i t y , as now or h e r e a f t e r d e f i n e d , i t s h a l l
h o l d and maintain w i t h the Federal r e s e r v e bank of i t s d i s t r i c t an a c t u a l
n e t b a l a n c e equal to not l e s s than t h i r t e e n per centum of the a g g r e g a t e
amount of i t s demand d e p o s i t s and three per centum of i t s time d e p o s i t s :
Provided, however, That i f l o c a t e d in the o u t l y i n g d i s t r i c t s of a c e n t r a l
r e s e r v e c i t y or i n t e r r i t o r y added to such c i t y by the e x t e n s i o n o f i t s
c o r p o r a t e c h a r t e r , i t may, upon the a f f i r m a t i v e v o t e of f i v e members of
the Federal Reserve Board, h o l d and maintain the r e s e r v e b a l a n c e s s p e c i f i e d in paragraphs ( a ) or (b) t h e r e o f .
*
*
#
*
*
*
*
The r e q u i r e d "balance c a r r i e d by a member bank with, a Federal r e s e r v e
bank may, under the r e g u l a t i o n s and s u b j e c t to such p e n a l t i e s a s may be
p r e s c r i b e d by the Federal Reserve Board, be checked a g a i n s t and withdrawn
"by such member bank f o r the purpose of meeting e x i s t i n g l i a b i l i t i e s : Prov i d e d , however, That no bank s h a l l a t any time make new l o a n s or s h a l l
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X-4988
pay any dividends u n l e s s and "until the t o t a l balance required by law i s
f u l l y restored.
In e s t i m a t i n g the balances required by t h i s a c t , the net d i f f e r e n c e
of amounts due to and from other banks s h a l l be taken a s the b a s i s f o r
a s c e r t a i n i n g the d e p o s i t s against which required balances w i t h Federal
reserve banks s h a l l be determined.
The various Liberty bond a c t s ( a c t of April 24, 1917, s e c . 7; a c t of
September 24, 1917, s e c . 8; act of April 4, 1918, s e c . 8) provide, in
p a r t , as f o l l o w s :
That the p r o v i s i o n s * * * with r e f e r e n c e to the r e s e r v e s required to be
kept by n a t i o n a l banking a s s o c i a t i o n s and other member banks of the Federal
Reserve System, s h a l l not apply -co d e p o s i t s of public moneys by the United
S t a t e s in designated d e p o s i t a r i e s .
SECTIOIT I I .
DEFINITIONS
(a) Demand d e p o s i t s . - The term 11 demand deposits" s h a l l include a l l dep o s i t s which are payable within 30 days except "savings accounts," 11 time
c e r t i f i c a t e s of deposit," and "postal savings d e p o s i t s , " as d e f i n e d below.
(o) Time d e p o s i t s . - The term "time deposits" s h a l l include a l l "time
d e p o s i t s , open accounts," a l l "savings accounts," a l l "time c e r t i f i c a t e s of
deposit," and a l l "postal savings d e p o s i t s , " as d e f i n e d below.
(c) Time d e p o s i t s , open accounts. - The term 11 time d e p o s i t s , open accounts" s h a l l mean d e p o s i t s not evidenced by c e r t i f i c a t e s of deposit or
savings p a s s books, in r e s p e c t to which a w r i t t e n contract i s entered into
with the depositor at the time the deposit i s made that n e i t h e r the whole
nor any part of such deposit may be withdrawn, by check or otherwise, except on a given date, not l e s s than 30 days a f t e r the date of the d e p o s i t ,
or on w r i t t e n n o t i c e which must be given by the depositor a c e r t a i n s p e c i f i e d number of days in advance, in no case l e s s than 30 days.
(d) Savings accounts. - The term "savings accounts" s h a l l mean those
d e p o s i t s in r e s p e c t to which s S ^ r S i a i n e ^ k " ' c e r t i f i c a t e , or other similar form of r e c e i p t d e l i v e r ed/by the depositor must a c t u a l l y be presented to the bank whenever a withdrawal i s made,
(2) The depositor may at any time be required by the bank to g i v e n o t i c e
of an intended withdrawal not l e s s than 30 days b e f o r e a withdrawal i s made,
and
(3) The bank's printed r e g u l a t i o n s , accepted by the depositor at the
time the account i s opened, include the above requirements.
Deposits which are permitted to be withdrawn by check or otherwise,
without the a c t u a l p r e s e n t a t i o n of the pass-book, c e r t i f i c a t e , or other simi
l a r form of r e c e i p t whenever a withdrawal i s made, s h a l l not be considered
"savings accounts" w i t h i n the meaning of t h i s r e g u l a t i o n . The r e t e n t i o n of
the pass-book, c e r t i f i c a t e , or other similar form of r e c e i p t , or a duplicat
of same, by the bank and the p r e s e n t a t i o n of same by the bank to i t s e l f i s
not an "actual presentation" within the meaning of t h i s r e g u l a t i o n .
Deposits of one bank in another s h a l l not in any case be considered
"savings accounts" within the meaning of t h i s r e g u l a t i o n .
( e ) Time c e r t i f i c a t e s of d e p o s i t . - A "time c e r t i f i c a t e of deposit" i s
d e f i n e d as a w r i t t e n instrument d e l i v e r e d to and r e t a i n e d by the depositor
evidencing the deposit xrith a bank, e i t h e r with or without i n t e r e s t , of a
c e r t a i n sum s p e c i f i e d on the f a c e of the c e r t i f i c a t e payable in whole or in
part to the depositor or on h i s order
.
-3-
X-4983
(1) On a c e r t a i n date, s p e c i f i e d on the c e r t i f i c a t e , not l e s s
than 30 days a f t e r the date of the d e p o s i t , or
(2) After the lapse of a c e r t a i n s p e c i f i e d t i n e subsequent to
the date of the c e r t i f i c a t e , in no case less, than 30 dp.ys, or
(3) Upon w r i t t e n n o t i c e , which the bank may at Sb option require
to be given a c e r t a i n s p e c i f i e d number of days, not l e s s than 30 days,
before the date of repayment, and
(4) In a l l cases only upon actual p r e s e n t a t i o n of the c e r t i f i c a t e
at each, withdrawal for proper indorsement of surrender.
The r e t e n t i o n of the c e r t i f i c a t e , or a duplicate of same, by the bank
and the p r e s e n t a t i o n of same by the bank to i t s e l f i s not an "actual p r e s entation" w i t h i n the meaning of t h i s r e g u l a t i o n .
A c e r t i f i c a t e of deposit which i s o r i g i n a l l y a time deposit w i t h i n the
meaning of t h i s r e g u l a t i o n becomes a demand deposit when i t s a c t u a l maturity becomes l e s s than 30 days.
' ( f ) P o s t a l savings d e p o s i t s . - The term "postal savings deposits" s h a l l
mean d e p o s i t s of p d s t a l savings funds in banks under1 the terms of the post a l savings a c t , approved June 25, IS10, as amended.
(g) Government deposits* - the term "Government deposits" s h a l l mean
d e p o s i t s of p u b l i c moneys by the United States in designated d e p o s i t a r i e s . ?
f
*
Deposits made by United S t a t e s postmasters of Government funds, other
than p o s t a l savings deposits, r e c e i v e d by them in t h e i r o f f i c i a l c a p a c i t y ,
c o n s t i t u t e "Government deposits" within the meaning of t h i s r e g u l a t i o n and,
when made in designated d e p o s i t a r i e s , are exempt from the r e s e r v e r e q u i r e ments of s e c t i o n 19. The f o l l o w i n g c l a s s e s of d e p o s i t s , however, are not
"Government deposits" within such meaning and are not exempt from r e s e r v e
requirements:
(1) Deposits of P h i l i p p i n e funds made by the P h i l i p p i n e Government and
carried under the t i t l e "Treasurer of the P h i l i p p i n e I s l a n d s cufrency r e serve fund account."
(2) Deposits of Porto Rican funds made by the Porto Bican Government.
(3) Deposits of Indian funds under the control of the Department of the
Interior.
(4) Deposits of S t a t e s , c o u n t i e s ^ or m u n i c i p a l i t i e s .
(5) Deposits of the United S t a t e s Shipping Board and the Emergency
F l e e t Corporation.
I
-4section. i i i .
X-4988
coliputatiok of r e s e r v e s
(&) Amounts of r e s e r v e s to be maintained., - -Every member bank of
the Federal reserve system i s required by law to maintain on d e p o s i t
with the Federal reserve bank of i t s d i s t r i c t an actual net balance
equal to 3 per cent of i t s time d e p o s i t s p l u s Seven per cent of i t s demand d e p o s i t s i f not in a r e s e r v e or
central r e s e r v e c i t y .
Ten per cent of i t s demand d e p o s i t s i f in a. r e s e r v e c i t y , except that i f l o c a t e d in an o u t l y i n g d i s t r i c t ® of a r e s e r v e c i t y , or
in t e r r i t o r y added to- such c i t y by the extension of the c i t y ' s corporate l i m i t s such bank may, upon the a f f i r m a t i v e vote of f i v e
members of the Federal Reserve Board, be permitted to maintain 7 per
cont r e s e r v e s against i t s demand d e p o s i t s .
Thirteen per cent of its demand d e p o s i t s i f l o c a t e d in a c e n t r a l
r e s e r v e c i t y , except that i f l o c a t e d in an o u t l y i n g d i s t r i c t of a
c e n t r a l reserve c i t y or in t e r r i t o r y added to such c i t y by the extension of the c i t y ' s corporate l i m i t s , such bank may, upon the
a f f i r m a t i v e vote of f i v e members of the Federal Reserve Board, be
permitted to maintain 7 per cent or 10 per cent r e s e r v e s a g a i n s t
i t s demand d e p o s i t s .
Ho r e s e r v e s are required to be maintained against Government dep o s i t s as d e f i n e d above.
A member bank e x e r c i s i n g t r u s t powers need not carry r e s e r v e s a g a i n s t t r u s t funds which i t keeps segregated and apart from i t s general
a s s e t s or which i t d e p o s i t s in another i n s t i t u t i o n to the c r e d i t of i t s e l f as t r u s t e e or other f i d u c i a r y . I f , however, such funds are mingled
with the general a s s e t s of the bank, as permitted to n a t i o n a l banks under authority of Section l l ( k ) of the Federal Reserve Act, a d e p o s i t
l i a b i l i t y thereby a r i s e s against which r e s e r v e s must be c a r r i e d . In, computing r e s e r v e requirements, t r u s t funds deposited in a member bank/oahK to" 6
the c r e d i t of such other bank as t r u s t e e or other f i d u c i a r y must be
c l a s s i f i e d by the member bank as individual d e p o s i t s rather than bank deposits..
(b) Deductions allowed in computing r e s e r v e s . - Member banks i n determining the amount against which r e s e r v e s must be c a r r i e d may deduct:
The term "outlying d i s t r i c t " i s construed to mean that p o r t i o n of
a c i t y which i s l o c a t e d o u t s i d e o f , and at a considerable d i s t a n c e from,
the recognized b u s i n e s s and f i n a n c i a l center of such c i t y , and includes
a l l suburban d i s t r i c t s .
x-4988
3 5 6
(1) from
gross demand deposits, a l l Government deposits as defined
above.
(2) From the amount of balances das to other banks, the amount of
balances duo from other beaks (except federal reserve banks and foreign,
banks), including i n the amount due to other banks c e r t i f i e d , cashiers',
and treasurers' checks outstanding, and including i n the amount due from
other banks out of town items placed in the mail and charged to the account of correspondent banks, items w i t h a f e d e r a l reserve bank in
process of c o l l e c t i o n , checks drawn on banks located i n the same c i t y , and
exchanges for clearing houses.
(c) A v a i l a b i l i t y of checks &a reserve. - Checks forwarded to a Federal
reserve bank for collection or credit can not be counted as p a r t of the minimum reserve balance to be carried by a member bank with i t s Federal reserve
bank u n t i l such timp as may be specified in the appropriate time schedule
r e f e r r e d to in Section IV of Regulation J. I f aunember bank draw against
checks before such time, the d r a f t w i l l be charged against i t s reserve b a l ance i f Such balance be s u f f i c i e n t in amount to pay i t ; but any r e s u l t i n g
impairment of reserve balances w i l l be subject # a l l the penalties provided
by the a c t , and by t h i s Regulation.
SBCTIOH IV. F w m i m fOH BSFICIMCISS
bf wssmm
Inasmuch as i t i s essential that the law in respect to the maintenance by
member banks of the required minimum reserve balance s h a l l be s t r i c t l y comp l i e d w i t h , the Federal Reserve Board, under authority vested i n i t by section 19 of the Federal Reserve Act, hereby prescribes the following rules
governing deficiencies i n reserves:
1, Deficiencies in reserve balances of a l l member banks w i l l be computed
on the basis of actual not deposit balances, tho required reserve balance
of each member bank at the close of business each day being based on i t s
net deposit balances at the close of business on the preceding business day;
3# Penalties f o r such deficiencies w i l l be assessed monthly on the basis
of actual d a i l y deficiencies during the preceding month;
3 . Such penalties s h a l l be assessed a t a basic r a t e of 2$ per annum above the Federal reserve bank discount r a t e on commercial paper;
4. When a member bank has an actual deficiency i n reserves for f i f t e e n
or more days i n any month,: there shall be assessed, i n addition to the
penalty at the basic r a t e , a progressive penalty on d a i l y reserve deficiencies,
u n t i l such member bank has maintained the required reserves every day for a
month. Such progressive penalty shall be at the r a t e of 1$6 f o r the f i r s t
month and shall increase at the r a t e of 1# for each subsequent month therea f t e r in which the bank's actual reserves have been d eficien t for f i f t e e n days
or more; provided that the maximum penalty charged s h a l l not exceed 10$;
5. Whenever any member bank i s subject to the maximum penalty of 10$,
tho Federal Bo serve Agent s h a l l promptly report tho f a c t to the Federal Reserve
Board with a recommendation as to whether or not the Board should;
(a^ I n the case Of a national bank, diroct the Comptroller of thd Currency
to brj^g suit to f o r f e i t the charter of such national bank under He "provisions
of Section 2 of the Federal Reserve Act; or
(b) I n tho case of a State member bank, i n s t i t u t e proceedings to require
such bqnk to surrender i t s stock in the Federal reserve bank end to f o r f e i t a l l
f i g h t s and p r i v i l e g e s of membership, pursuant to the provisions of Section 9 of
the Federal Reserve Act; or
(c) I n either case, to take such other action as the Federal Reserve A
geaat may recommend or the f e d e r a l Beserre Board may consider advisable.
X-4988
SECTION V. IOANS MB DIVIDENDS WHILE
RESERVES ARE DEFICIENT
I t i s unlawful f o r any member "bank the r e s e r v e s of which are at anytime d e f i c i e n t to make any new loans or pay any dividends u n l e s s and
•until the t o t a l r e s e r v e s required by law are f u l l y r e s t o r e d , and the
payment of p e n a l t i e s f o r d e f i c i e n c i e s in r e s e r v e s does not exempt member banks from t h i s p r o h i b i t i o n of law.
The Federal Reserve Agent in each D i s t r i c t s h a l l promptly report
to the Federal Reserve Board any w i l f u l disregard of t h i s p r o h i b i t i o n
by member banks in h i s D i s t r i c t and s h a l l in each case recommend whether
or not the Board should:
(a) In the case of a n a t i o n a l bank, d i r e c t the Comptroller of the
Currency to bring s u i t to f o r f e i t the charter of such n a t i o n a l bank
under theprovisions of Section 2 of the Federal Reserve Act; or
(b) In the case of a S t a t e member bank, i n s t i t u t e proceedings to
require such bank to surrender i t s stock i n the Federal r e s e r v e bank and
to f o r f e i t a l l r i g h t s and p r i v i l e g e s of membership pursuant to the prov i s i o n s of Section 9 of the Federal Reserve Act; or
(c) In e i t h e r c a s e take such other a c t i o n as the Federal Reserve Agent
may recommend or the Federal Reserve Board may consider a d v i s a b l e .
' * '
358
v.
FEDERAL RESERVE BOARD
X-4989
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
November 2» 1927 <
.
SUBJECT:
<
Amendment to Regulation K.
*
Dear S i r ;
-
*
This is to advise you that the Federal Reserve Board has
voted, that Section IX of Regulation K as adopted June 8 , 1927,
(X-4868) be amended so as to read as follows:
"
'
*
SBGTIOIT IX. INVESTMENTS IN THE STOCK
OF OTHER CORPORATIONS.
" I t i s contemplated by the law that a Corporation s h a l l
conduct i t s business abroad either d i r e c t l y or i n d i r e c t l y
through the ownership or control of corporations, and accordingly the Federal Reserve Board hereby consents that a Corporat i o n may invest i n the stock, or c e r t i f i c a t e s of ownership, of
any other corporation organized (a) Under the provisions of section 25(a) of the Federal
Reserve Act;
(b) Under the laws of any foreign country or a co3SI#
or dependency thereof;
(c) Under the laws of any State, dependency, or insular
possession of the United States;
*
i
provided, f i r s t , that such other corporation i s not engaged i n
the general business of buying or s e l l i n g goods, wares, merchandise, or commodities in the United States; and second,
that i t i s not transacting any business i n the United States
except such as i s incidental to i t s i n t e r n a t i o n a l or foreign
business.
"Except w i t h the approval of the Federal Reserve Board,
no Corporation s h a l l invest an amount i n excess of 15 per cent
of i t s c a p i t a l and surplus i n the stock of any corporation engaged i n the business of banking, or an amount i n excess of 10
per cent of i t s c a p i t a l and surplus i n the stock of any other
kind of corporation.
"No Corporation s h a l l purchase any stock i n any other
—• 2
X-4989
corporation organized, under the terms of section 25(a) or
under the laws of any State, which i s i n substantial comp e t i t i o n therewith, or which holds stock or c e r t i f i c a t e s of
ownership i n corporations which are i n substantial corepetit i o n w i t h the purchasing Corporation. This r e s t r i c t i o n ,
however, does not apply to corporations organized under
foreign laws."
By d i r e c t i o n of the Federal Reserve Board.
Walter j . Eddy,
Secretary.
m oovmsoss u r n m t m m or AH. s M . s j i s s .
359
360
FEDERAL RESERVE BOARD
WASHINGTON
X-4990
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL. RESERVE BOARD
November 5, 1927.
Dear S i r :
Through the courtesy of Governor G-eery, of the Federal Reserve Bank of Minneapolis,
I enclose f o r your information a cOpy of
an unpublished, opinion rendered Ih 1918 "by the U.S, D i s t r i c t Court
f o r the D i s t r i c t of Minnesota in the case of Keyes V. Federal Reserve
Bank of Minneapolis, wherein that court upheld the r i g h t of a Federal
reserve bank to charge checks to the account of a drawee bank subsequent to insolvency even i f i t was handling such checks as agent of
the banks from which i t had r e c e i v e d them.
I never heard of t h i s d e c i s i o n u n t i l Governor Gocry c a l l e d
i t to my a t t e n t i o n during the Governors' Conference,
P l e a s e do not take the trouble to acknowledge r e c e i p t of
t h i s l e t t e r or any s i m i l a r l e t t e r s transmitting f o r your information
copies of opinions, b r i e f s , e t c . , u n l e s s you wish to comment on same.
Very t r u l y yours,
Walter Wyatt
General Counsel
Enclosure.
X-4990-A -v ; -
COPY
Iff TEE UNITED STATES DISTRICT COURT,
DISTRICT OF MINNESOTA,
FOURTH DIVISION.
PAUL C. KEYES, as Receiver of the
F i r s t National Bank of C l a r k f i e l d ,
Minnesota,
Plaintiff,
vs.
REBERAL RESERVE BAM OF MINNEAPOLIS,
a corporation,
Defendant.
This cause came on to he heard at Minneapolis, on the 9th and
11th days of October, 1918, J. N. Johnson, Esq., appearing on "behalf of
the p l a i n t i f f , and A. Ueland, Esq., appearing on behalf of the defendant.
The s t i p u l a t i o n s and testimony having been taken, and each side
having r e s t e d , by agreement between Court and Counsel, b r i e f s were f u r n i s h e d to the Court and exchanged between Counsel, and t h e r e a f t e r , on the
21st day of October, 1918, the case was o r a l l y argued by Counsel.
And now the Court, having duly considered the same,
I t i s ADJUDGED, ORDERED and DECREED, That the p l a i n t i f f take
nothing i n t h i s a c t i o n , and that the defendant has a r i g h t to a claim
a g a i n s t the Receiver f o r $462.06, which he may f i l e i n the Receivership
proceedings, and that defendant have judgment f o r i t s c o s t s and disbursements, to be taxed by the c l e r k .
By the Court,
(Signed)
Pago Morris
Judge.
X-49S0-A
—
m e m o r a n d u m .
At a l l times mentioned h e r e i n the F i r s t National Bank of
C l a r k f i e l d , Minnesota, was a national "banking a s s o c i a t i o n duly i n corporated under and pursuant to the hanking laws of the United S t a t e s ,
and up to the 18th of September, 1917, conducted business as a n a t i o n a l
hank at C l a r k f i e l d , Minnesota.
At a l l times mentioned h e r e i n the defendant was a corporation
duly organized and e x i s t i n g under and pursuant to an act of Congress of
the United S t a t e s e n t i t l e d "Federal Reserve Act, 11 approved December 23d,
1913, and conducting the "business of a Federal Reserve Bank at Minneapolis,
Minnesota.
The p l a i n t i f f ' s i n s o l v e n t , F i r s t national Bank of Clarkf i e l d ,
Minnesota, was on the 18th day of September, 1917, i n s o l v e n t , and was on
that day c l o s e d by order of the Comptroller of th.j Currency under and by
v i r t u e of the power and authority conferred upon him by the banking laws
of the United S t a t e s , and by v i r t u e of the same power and a u t h o r i t y the
p l a i n t i f f was appointed the Receiver thereof and on the 4th day of October,
1917, duly q u a l i f i e d as such Receiver.
Said F i r s t National Bank of Clark-
f i e l d was a member bank of the defendant under the p r o v i s i o n s of the
Federal Reserve Act.
Pursuant to the p r o v i s i o n s of the Federal Reserve Act
the Federal Reserve Board, i n the month of Juno, 1916, e s t a b l i s h e d a c o l l e c t i o n and c l e a r i n g system by r u l e s and r e g u l a t i o n s which have s i n c e been i n
f o r c e and e f f e c t , and prior to the transactions h e r e i n involved the defendant had become a part of such c o l l e c t i o n and c l e a r i n g system, under such
r u l e s and r e g u l a t i o n s .
The r u l e s and r e g u l a t i o n s of the Federal Reserve
Board provide, under the heading "Check Clearing and Collecting", as f o l l o w s ?
X-4990-A.
•>
• •
3 6 3
,
( E x h i b i t «C»):
Bach F e d e r a l Reserve Bank s h a l l e x e r c i s e t h e f u n c t i o n s of a c l e a r i n g
house under t h e f o l l o w i n g g e n e r a l terms *nd c o n d i t i o n s :
,
( 1 ) Each F e d e r a l Reserve Bank w i l l r e c e i v e a t p a r from i t s member
"banks and from non-member banks i n i t s d i s t r i c t * d c h ha v e become c l e a r i n g members
checks drawn on a l l member and c l e a r i n g member baulks and on a l l other nonmember
banks which a g r e e t o remit a t par through t h e F e d e r a l Reserve l a n k o f t h e i r
,
district;
( 2 ) Each F e d e r a l r e s e r v e bank w i l l r e c e i v e a t par from o t h e r Federal
Reservf Banks and w i l l r e c e i v e a t par from a l l meofoer and c l e a r i n g member banks,
regardless of t h e i r l o c a t i o n , f o r the c r e d i t of t h e i r accounts with t h e i r
r e s p e c t i v e F e d e r a l R e s e r v e Beaks, checks drawn upon a l l member and. c l e a r i n g member*
banks ft i t s d i s t r i c t and tq>on a l l o t h e r nonmember banks o f i t s d i s t r i c t whose
checks c a n be c o l l e c t e d a t p a r by t h e Federal Reserve Bank. She F e d e r a l Reserve
Banks t r i l l p r e p a r e a par l i s t of a l l nonmember banks t o be r e v i s e d from time t o
time, which w i l l be f u r n i s h e d t o member and c l e a r i n g member banks.
( 3 ) Immediate c r e d i t e n t r y upon r e c e i p t s u b j e c t t o f i n a l payment w i l l
be made f o r a l l such i t e m s upon t h e books e f the F e d e r a l Reserve Bank a t f u l l f a c e
v a l u e , but t h e p r o c e e d s w i l l not b e c o u n t e d a s p a r t o f the minimum r e s e r v e nor
become A v a i l a b l e t o meet checks drawn u n t i l a c t u a l l y c o l l e c t e d , i n accordance
w i t h t h e b e e t p r a c t i c e now p r e v a i l i n g .
Qft Checks r e c e i v e d by a Federal Reserve Bank on i t s member or d e a r - ,
i n g member banks w i l l be forwarded d i r e c t t o such banks and w i l l n o t be charged t o
t h e i r a c c o u n t s u n t i l s u f f i c i e n t time h a s e l a p s e d w i t h i n which t o r e c e i v e a d v i c e
o f payment.
( 5 ) I n t h e s e l e c t i o n o f c o l l e c t i n g a g e n t s f o r h a n d l i n g checks on non«?
member banks, Which have n o t become c l e a r i n g members, member banks w i l l be g i v e n
the preference.
( 6 ) Under t h i s p l a n each F e d e r a l Reserve Bank w i l l r e c e i v e a t par
from i t s member and c l e a r i n g member banks checks on a l l member and c l e a r i n g member
banks and on a l l o t h e r nonmember banks whose checks can be c o l l e c t e d a t par by any
Federal Reserve Bank. Member and c l e a r i n g member banks w i l l be r e q u i r e d by t h e
Federal Reserve Board t o p r o v i d e funds t o cover a t par a l l checks r e c e i v e d from
or f o r the account o f t h e i r F e d e r a l Reserve Banks, p r o v i d e d , however* 3hat a
member or c l e a r i n g member bank may s h i p currency or s p e c i e from i t s own v a u l t s
a t t h e expense of i t s F e d e r a l Reserve Bank t o cover any d e f i c i e n c y which nay
a r i s e because of and o n l y i n t h e c a s e o f i n a b i l i t y t o p r o v i d e i t e m s t o o f f s e t
checks r e c e i v e d from or f o r t h e account of i t s Federal R e s e r v e Bank.
( 7 ) S e c t i o n 19 o f t h e FedAral Reserve Act p r o v i d e s t h a t —
The r e q u i r e d b a l a n c e c a r r i e d by a camber bade w i t h a F e d e r a l Reserve
Bank may, under t h e r e g u l a t i o n s and s u b j e c t t o such p e n a l t i e s a s c a y be p r e s c r i b e < |
by the F e d e r a l Reserve Board, be checked a g a i n s t and withdrawn by such member barilf
f o r t h e purpose o f m e e t i n g e x i s t i n g l i a b i l i t i e s : P r o v i d e d , howewer. B i a t no bank
s h a l l a t any time aakji now l o a n s or s h a l l pay any d i v i d e n d s u n l e s s and u n t i l the
t o t a l b a l a n c e r e q u i r e d by lag* i s f o l l y r e s t o r e d .
I t i s m a n i f e s t t h a t items i n p r o c e s s of c o l l e c t i o n can n o t l a w f u l l y >e
counted a s p a r t of t h e mis i r s © r e s e r v e b a l a n c e t o be c a r r i e d by a member bank
w i t h i t s F e d e r a l R e s e r y e Batik. S h e r e f o r e , s h o u l d a member beak draw a g a i n s t such
i t e m s t h e d r a f t would m eharged ag&inst i t s r e s e r v e bsOaace i f such b a l a n c e
were s u f f i c i e n t i n ampemt t o pay i t ; b a t any r e s u l t ! * * impairment o f r e s e r v e
b a l a n c e s would be s u b j e c t t o a l l t h e p e n a l t i e s provided by t h e A c t .
X—4990—A
f
I n as nach as i t i s essential that the law i n respect to the maintenance "by member "batiks of the required minimum reserve "balance s h a l l be s t r i c t l y comp l i e d with, the Federal Reserve Board, under authority vested i n i t "by section 19
of the Act, hereby prescribes as the penalty for any deficiency i n reserves a
sum equivalent to an i n t e r e s t charge on the amount of the deficiency of 2 per cent,
per annum above the ninety day discount rate of the Federal Reserve Bank of the
d i s t r i c t i n which the member bank i s located. The Board reserves the r i g h t to
increase this penalty whenever conditions require i t .
For the purpose of keeping t h e i r reserve balances i n t a c t member banks
may at a l l t i n e s have recourse to the rediscount f a c i l i t i e s o f f e r e d by t h e i r respective Federal Reserve Banks.
( 8 ) Each Federal Reserve Bank w i l l determine by analysis the amounts
of uncollected funds appearing on i t s books to the c r e d i t of each member bank.
Such analysis w i l l show the true status of the reserve h e l d by the Federal Reserve
Bank for each member bank and w i l l enable i t to apply the penalty for impairment
of reserve.
A schedule of the time required w i t h i n which to c o l l e c t checks w i l l bg
furnished to each bank to enable i t to determine the time at which any item
sent to i t s Federal Reserve Bank w i l l be counted as reserve and become a v a i l a b l e
to meet any checks drawn.
( 9 ) I n handling items for center and clearing member banks, a Federal Reserve Bank w i l l act as agent only. The Board w i l l require t h a t each member and clearing member bank authorize i t s Federal Reserve Bank to send checks
for c o l l e c t i o n to banks on which checks arc drawn, and, except for negligence,
such Federal Reserve Bank w i l l assume no l i a b i l i t y . Any further requirements that
the Board may deem necessary w i l l be set f o r t h by the Federal Reserve Banks i n
t h e i r l e t t e r s of i n s t r u c t i o n to t h e i r member and clearing member banks. Each
Federal Reserve Bank w i l l also promulgate rules and regulations governing the
details of i t s operations as a clearing house, such rules and regulations to be
binding upon a l l member and nonmember banks which are clearing through the
Federal Reserve Bank.
And the rules and regulations governing the d e t a i l s of i t s operations
as a clearing house promulgated by defendant provide, under the heading "Check
Clearing and Collecting, 1 1 as follows, (Exhibit "B"):
1.
The Federal Reserve Bank of Minneapolis w i l l discontinue i t s
present c o l l e c t i o n system on July 15, 1916, i n accordance with Federal
Reserve Board Circular 1, Series of 1916, already sent you, and w i l l
t h e r e a f t e r , u n t i l further notice, receive from i t s member banks for immediate
c r e d i t at par, chefks drawn on a l l member banks i n the United States and on
such non-member bapks as can be collected at p a r .
A par l i s t of a l l non-member banks w i l l be prepared, to be revised from
time to time, which w i l l be furnished meaber bank.
A l l such checks, except those drawn on Minneapolis and S t . Paul banks,
received by the Federal Reserve Bank by 3:00 P.M., except Saturday, when
the hour w i l l be 12:00 o'clock noon, w i l l be credited subject to f i n a l payment a t f u l l face value upon day of r e c e i p t , .Those received l a t e r than these
~4-
X-4990-kA.
hours w i l l "be c r e d i t e d upon the f o l l o w i n g business day* The proceeds, however. w i l l not "be counted as reserve, nor "become a v a i l a b l e to meet checks
drawn.,until a c t u a l l y c o l l e c t e d . Owing to the c l e a r i n g hour, checks drawn on
Minneapolis and S t . Paul barks r e c e i v e d a f t e r 10:30 A.M., w i l l not be c r e d i t ed nor proceeds become a v a i l a b l e u n t i l the f o l l o w i n g business day; those r e c e i v e d before that hour w i l l be c r e d i t e d on day of r e c e i p t and proceeds w i l l
be a v a i l a b l e that day,
3..
Checks r e c e i v e d by the Federal Reserve Bank, drawn on i t s member banks, w i l l be forwarded d i r e c t to such member banks, and w i l l be charged
to t h e i r accounts on the date which,, under usual c o n d i t i o n s , advice of payment may be expected. Member banks should c r e d i t a l l remittances r e c e i v e d
from the Federal Reserve Bank upon day of r e c e i p t , a d v i s i n g the Federal Reserve Bank, and should not remit t h e i r d r a f t s in payment. Member banks are
required by the Federal Reserve Board to provide funds to cover at par, a l l
checks r e c e i v e d from, or f o r the account o f . t h e i r Federal Reserve Bank#
S e c t i o n 19 of the Federal Reserve Act provides t h a t :
"The reserve c a r r i e d by a member bank with a Federal Reserve Bank may,
under the r e g u l a t i o n s , subject to such p e n a l t i e s as nay be orescribed by
the Federal Reserve Board, be checked against and withdrawn by such member
baijk f o r the purpose of meeting e x i s t i n g l i a b i l i t i e s : Provided, however,.
that no bank s h a l l at any time make new loans or s h a l l pay any dividends unl e s s and u n t i l the t o t a l reserve required by law i s f u l l y restored. 1 1
(7. In handling items f o r member banks, the Federal Reserve Bank of
Minneapolis a c t s as agent only. I t i s understood that each member bank
authorizes i t to send checks f o r c o l l e c t i o n d i r e c t to banks on which checks
are drawn, and except f o r negligence the Federal Reserve Bank of Minneapolis
assumes no l i a b i l i t y u n t i l funds are a c t u a l l y i n i t s hands.
In September, 1917, there was and s t i l l i s at C l a r k f i e l d , Minnesota*
where the F i r s t National Bank of Clarkf i e l d was l o c a t e d and doing business,, a
bank organized under the laws of Minnesota c a l l e d the Clarkf i e l d S t a t e Bank;,
and during a l l of s a i d month t h i s bank was a non-member bank of defendant
upon which defendant could c o l l e c t checks at par; and s a i d bank was on the
par l i s t of non-member banks prepared by defendant and furnished to i t s member banks i n accordance
i t h s a i d r u l e s and r e g u l a t i o n s .
On the 17th of September, 1917, checks payable on p r e s e n t a t i o n
amounting to $1998.21 were deposited with defendant.
These checks to the
amount of $1943.96 were on s a i d C l a r k f i e l d S t a t e Bank and to the amount of
i'
$54.25 dn s a i d F i r s t National Banlc of C l a r k f i e l d .
X-4990-A 3 6 3
These checks to the am-
ount of $548.49 were so deposited by the Northwestern National Bank of
Minneapolis, Minnesota, a member bank of defendant; and to the amount of
$555.21 by the Merchants National Bank of S t . Paul, Minnesota, a member
bank of defendant; and to the amount of $218.30 by the Peoples Bank of
S t . Paul, Minnesota, a member banlc of defendant; and one check f o r $570.86
by the F i r s t National Bank of Chicago, I l l i n o i s , a national banking a s s o c i a t i o n , and as such a member of the Federal Reserve Bank; and one check f o r
$5.35 by the Corn Exchange National Bank of Chicago, I l l i n o i s , a n a t i o n a l
banking a s s o c i a t i o n , and as such a menber of the Federal Reserve Bank; and
one chock f o r $100. by the Des Moines National Bank of Dos Moines, Iowa, a
national banking a s s o c i a t i o n , and as such a member of the Federal Reserve
Bank.
Each check when deposited with defendant contained on the back there-
of the u n r e s t r i c t e d and unconditional endorsements i n blank of the payee
thereof and of the bank d e p o s i t i n g the sane with defendant and c r e d i t was
on that day given by defendant at par to the bank d e p o s i t i n g the same.
A f t e r s a i d chocks were deposited with defendant and c r e d i t given
for them as a f o r e s a i d , and on s a i d 17th day of September, 1917, defendant
forwarded a l l s a i d checks by mail to s a i d F i r s t National Bank of C l a r k f i e l d ,
for payment and c r e d i t as to the checks f o r $54.25 on s a i d bank, and f o r
c o l l e c t i o n and c r e d i t as to the checks f o r $1943.96 on the C l a r k f i e l d State
Bank, and a l l s a i d checks were r e c e i v e d by s a i d F i r s t National Bank of Clarkf i e l d on the 18th of September, 1917.
On s a i d 18th of September, 1917, the F i r s t National Bank of Clarkf i e l d c l e a r e d with s a i d C l a r k f i e l d State Bank checks which each then h e l d
a g a i n s t the other, and in t h i s c l e a r i n g the F i r s t National Bank of Clark
X-4990-A
—6—
f i e l d used a l l the checks on the S t a t e Bank of C l a r k f i e l d r e c e i v e d from defendant as a f o r e s a i d and r e c e i v e d c r e d i t for the same from s a i d C l a r k f i e l d State
Bank, "but r e c e i v e d no money..
In s a i d c l e a r i n g the F i r s t n a t i o n a l Bank of
C l a r k f i e l d surrendered and d e l i v e r e d to the C l a r k f i e l d S t a t e Bank as f u l l y
p a i d and c a n c e l l e d , a l l the checks on the l a t t e r bank which i t had r e c e i v e d
from defendant, and the F i r s t National Bank of C l a r k f i e l d thereupon and on
s a i d 18th of September, 1517, and "before i t was c l o s e d or a r e c e i v e r appointed f o r i t , gave defendant c r e d i t on i t s books f o r a l l the checks which i t
received from defendant on that day as a f o r e s a i d , to w i t : f o r the sum of
$1998. 21.
The checks f o r $54.25 on the F i r s t National Bank of C l a r k f i e l d
were returned by s a i d bank or the p l a i n t i f f to the various drapers t h e r e o f ,
and the checks f o r $1943.96 on the C l a r k f i e l d S t a t e Bank were returned by i t
to the various drawers t h e r e o f , by reason wheruof a more p a r t i c u l a r descript i o n of any of s a i d checks can not be g i v e n .
No remittance or payment was ever made to defendant or any of the
payees or endorsers of any of the above mentioned checks f o r or on account of
such checks, or f o r or on account of the c r e d i t which defendant r e c e i v e d on
the books of s a i d F i r s t National Bank of C l a r k f i e l d f o r s a i d checks.
Thereafter, and on the 16th of October, 1917, defendant charged
back s e v e r e l y to the various banks which had deposited the checks a f o r e s a i d ,
amounting %o $1998.21, the amount of said checks which had been so deposited
by each of s a i d banks.
And t h e r e a f t e r , and on the 14th day of May, 1918,
t h i s a c t i o n was brought. .
On the 18th of September, 1917, the F i r s t National Bank of Clarkf i e l d had a balance to i t s c r e d i t on the books of defendant of $8647.04.
-7-
X-4990-A
365
On the 25th of January, 1918, upon an accounting "between p l a i n t i f f and defendant i t was found that s a i d bank was e n t i t l e d to a c r e d i t f o r the amount of
i t s stock i n defendant with dividends accrued thereon to September 1, 1917,
of $963., and to a further c r e d i t f o r unearned discounts on notes due Liarch 1,
1918, of $21.90, making i n a l l $9631.94, and that defendant had a r i g h t to
deduct therefrom the amount of c e r t a i n forged notes, the forgery having been
discovered a f t e r the c l o s i n g of the bank f o r insolvency with i n t e r e s t , which
had been discounted by s a i d bank with defendant p r i o r to the 18th of September,
1917, f o r the purpose of r e p l e n i s h i n g the reserve of s a i d bank with defendant
and the proceeds of which forged notes c o n s t i t u t e d a part of s a i d balance of
$8647.04.
After making these c r e d i t s and deductions a balance of $1536.15
was found to be due from defendant to s a i d bank u n l e s s defendant has the r i g h t
to s e t o f f a g a i n s t t h i s balance the amount of the a f o r e s a i d checks f o r $1998.21
On s a i d 18th of September, 1917, and f o r some time p r i o r thereto ,
s a i d F i r s t National Bank of C l a r k f i e l d was i n s o l v e n t and was known by i t s cashi e r and one of i t s d i r e c t o r s to be i n s o l v e n t .
The s o l e contention and question to be decided here i s as to whether'
or not the defendant i s e n t i t l e d to o f f s e t against the a f o r e s a i d balance of
$1536.15, the amount of the a f o r e s a i d checks, $1998.21, the p l a i n t i f f contending t h a t i t has not the r i g h t to do so and the defendant that i t h a s .
Under the pleadings and proofs here whether the o f f s e t be l e g a l or
equitable i n i t s nature the r i g h t to i t s allowance can be determined i n t h i s
a c t i o n TJ. S. Coiap. S t a t u t e s , Sec, 1251-b, ( J u d i c i a l Code 247-b, as amended by
Act of March, 1915, Ch. 90, 38 U. S. S t a t u t e s at largo, 9 5 6 . )
That defendant handled s a i d checks as a c l e a r i n g house, f o r the pur-
X-4990-A
3 6 9
pose of c o l l e c t i o n and c l e a r i n g , and f o r no other purpose i s mutually conceded "by counsel.
Considering the matter then as a c l e a r i n g house t r a n s a c t i o n i |
seems to me c l e a r t h a t , i f the F i r s t National Bank of C l a r k f i e l d and the Clar#f i e l d State Bank had "been "banks doing "business in Minneapolis and the c l e a r i n g
had t e e n had there on the 18th of September, 1917, upon f i n d i n g that the $1988.21
was due from the F i r s t National Bank of C l a r k f i e l d to defendant, the defendant
would have had the r i g h t to immediate payment thereof to i t "by that "bank e i t h e r
in money or "by check on i t s "balance with defendant, or to charge s a i d amount
to s a i d "bank's account and have s a i d "bank give i t c r e d i t t h e r e f o r , and that
"being done the t r a n s a c t i o n would have "been completely c l o s e d .
But the defend-
ant was the c l e a r i n g house f o r "banks i n a wide t e r r i t o r y , embracing the whole
s t a t e of Minnesota, and was the c l e a r i n g house f o r these two C l a r k f i e l d "banks,
and these checks had to "be forwarded "by mail and the clearance had at Clarkfield.
Is i t not apparent that upon the clearance "being had "between the Clark-
f i e l d "banks defendant had the r i g h t to a c r e d i t with the F i r s t National Bank
of C l a r k f i e l d f o r t h i s amount and to charge the same to the account of s a i d
"bank?
That c r e d i t was given, "but the charge was not made.
I t seems to me that
defendant then had a r i g h t o* a c t i o n against that "bank f o r s a i d amount i n i t s
own name and in i t s own r i g h t .
And. i f t h i s i s true i t i s c l e a r i t has had
that r i g h t ever s i n c e , and therefore has the r i g h t of s e t o f f .
The Receiver,
the p l a i n t i f f here, took the a s s e t s of the "bank as a mere t r u s t e e f o r c r e d i t o r s , and not f o r value and without n o t i c e , and, i n the absence of s t a t u t e to
the contrary, subject to a l l claims and defences that might have been i n t e r posed as a g a i n s t the i n s o l v e n t bank.
The subsequent charging back of the checks
by defendant or the subsequent statements of counsel f o r the defendant i n h i s
l e t t e r s would not i n any way a f f e c t the conclusion.
The recovery of the s e t
o f f here w i l l f u l l y p r o t e c t the p l a i n t i f f and he has no i n t e r e s t in, and i s not
concerned to inquire i n t o , what was done between defendant and the hanks depositing these checks or what advice has been given to defendant by i t s counsel. Elmquist V. Market., 45 Minn. 305.
Vanstrum V* Liljengren, 37 Minn. 191 •
But l e t us consider the matter not as a c l e a r i n g house t r a n s a c t i o n
but as one of an agency f o r c o l l e c t i o n .
The whole argument of p l a i n t i f f * s
counsel r e s t s upon the p r o p o s i t i o n that as at the time the s u i t was brought
the defendant was not the owner of the checks, they having, on the 16th of
October, 1917, been charged back to the banks which had deposited them with
defendant f o r c o l l e c t i o n , defendant has now no r i g h t of s e t o f f .
He a l s o
quotes from l e t t e r s w r i t t e n by defendant 1 s counsel subsequent to the c l o s i n g
of the bank which he contends supports h i s p r o p o s i t i o n , and he claims that these
l e t t e r s and the charging back of the checks work an estoppel against the defends
ant*s now a s s e r t i n g the right of set o f f .
I t does not seem t o me that these
statements of counsel and the charging back of the checks i n any way a f f e c t
the r i g h t s of the p a r t i e s h e r e .
As to the claim of estoppel i t may be s a i d
that the most e s s e n t i a l element of an estoppel i s absent.
In the charging
back of the checks and the statements of counsel for defendant there has been
no a c t , r e p r e s e n t a t i o n or concealment upon which p l a i n t i f f or h i s insolvent
has been induced to a c t , nor has there been any a c t i o n by p l a i n t i f f or h i s i n solvent i n r e l i a n c e thereon of a character to r e s u l t in s u b s t a n t i a l p r e j u d i c e
to him or to h i s i n s o l v e n t or to the c r e d i t o r s for whom as r e c e i v e r he i s t r u s t ee of the a s s e t s of the insolvent*
I t seems to me that the r i g h t s of the p a r t i e s
became f i x e d as of the time of the c l o s i n g of the bank,
146 U . S . , 499-t511«
S c o t t v. Armstrong,
At that time defendant had a right of a c t i o n against p l a i n -
X-4990-A
-10-
t i f f ' s i n s o l v e n t f o r the amount of the checks, whether or not they were only
r e c e i v e d by i t as an agent f o r c o l l e c t i o n and. conditional c r e d i t , and whether
or not the endorsements thereon were r e s t r i c t e d or u n i n r e s t r i c t e d .
Statutes of Minnesota 1913, S e c t i o n 5848 and 5849.
of the checks i s unimportant.
General
The subsequent ownership
There was no defense as to the checks and no
defense as to the c r e d i t a r i s i n g therefrom on the "books of the i n s o l v e n t
bank.
The p l a i n t i f f has no standing to inquire into the r e l a t i o n s between
defendant and i t s d e p o s i t i n g banks.
Neither the i n s o l v e n t nor i t s r e c e i v e r
has any concern with the question of the ownership of the checks, u n l e s s
a defense be shown as a g a i n s t the endorsers or drawers t h e r e o f , or that defendant became the holder thereof a f t e r the c l o s i n g of the bank f o r i n s o l v e n cy, or a f t e r knowledge of i t s i n s o l v e n c y .
the contrary the opposite appears.
There i s no such showing, and on
Farmers Deposit National Bank v Penn.
Bank, 123 Pa. 283, Penn. Bank v. Farmers Deposit National Bank, 130 Pa. 209.
P l a i n t i f f ' s counsel contends that the allowance of the O f f s e t would
work a p r e f e r e n c e contrary to the p r o v i s i o n s of s e c t i o n s 5234, 5236 and 5242,
Revised S t a t u t e s of the U. S . , 1878, (the National Banking A c t ) .
This conten-
t i o n i s , I think d u l l y disposed of adversely thereto by the d e c i s i o n of the
Supreme Court in the case of S c o t t v . Armstrong, supra.
I am t h e r e f o r e of the opinion that defendant i s l e g a l l y e n t i t l e d to
the s e t o f f in question.
And i f I am i n error as to t h a t , I s t i l l think that
under a l l the f a c t s and circumstances of t h i s case i t i s equitably e n t i t l e d
thereto.
S c o t t v . Armstrong, supra.
I t must be remembered that the i n s o l v e n t
bank and i t s c r e d i t o r s r e c e i v e d the f u l l b e n e f i t of the amount of the checks.
I f the doctrine of estoppel can be invoked at a l l here, i t would be to prevent
the r e c e i v e r from o b j e c t i n g to the s e t o f f , at l e a s t to the amount of $1943.96,
r-ll-
X-4990-A
the amount of the checks drawn on the State Bank of C l a r ^ f i e l d .
Plaintiff's
i n s o l v e n t , was, on the 18th of September, 1917, and f o r some time p r i o r t h e r e to, i n s o l v e n t , and known to be s o "by i t s c h i e f managing o f f i c e r .
Notwithstand-
ing that f a c t i t h e l d i t s e l f out to "be s o l v e n t , and r e c e i v e d and handled these
checks as above s e t f o r t h .
Relying on i t s solvency and induced by i t s holding
i t s e l f out to be so, defendant forwarded these chucks to i t when i t might have
forwarded them d i r e c t to tho S t a t e Bank of C l a r k f i e l d , which of course was to
the s u b s t a n t i a l p r e j u d i c e of defendant.
The r e s u l t i s , that the balance of $1531.78 i s wiped out, and defendant
has the r i g h t to a claim a g a i n s t the r e c e i v e r f o r tho d i f f e r e n c e between that
amount and $1998.21, the amount of tho checks, t o - w i t , $462.06.
(Signed)
Page Morris
Judge.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
THE FEDERAL RESERVE BOARD
i
X-4991
November 7, 1927.
SUBJECT: Stocks of Unissued. IV B. Notes.
Dear S i r :
You are requested to prepare and submit to
the Federal Reserve Board, not l a t e r than December
1, 1927, an estimate of the amount of each denominat i o n of the Federal reserve notes of your "bank you
may "be c a l l e d upon to i s s u e during the calendar year
1928* This information i s desired for the purpose
of r e g u l a t i n g the produdtion of Federal reserve notes
during the coining y e a r .
Yours very t r u l y ,
J.C. N o e l l ,
A s s i s t a n t Secretary.
TO ALL F, E. AGENTS.
FEDERAL RESERVE BOARD
WASHINGTON
X-U992
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
November 8, 1927-
SUBJECT:
Code Word to cover new Issue of C e r t i f i c a t e s of Indebtedness, Series TJ-1928,
in Telegraphic Transactions.
Dear Sir:
In connection with t e l e g r a p h i c t r a n s a c t i o n s
in Government s e c u r i t i e s between Federal reserve
banks, the code word "BESTIR" has been designated
to cover the new issue of Treasury C e r t i f i c a t e s of Indebtedness, dated November 1R, 1927, Series TJ-1928.
This word should be i n s e r t e d in the Federal
Reserve Telegraphic Code 3oo}c f o l l o w i n g the supplement a l code.word "BESTIAL" at the bottom of page 26.
Very truly yours,
J . C. N o e l l ,
A s s i s t a n t Secretary.
TO GOVERNORS OF ALL F.R. BANKS.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
November 14, 1927.
SUBJECT:
Complimentary Copies of Federal
Reserve B u l l e t i n for State Bank
Examiners.
Dear S i r :
The Federal Reserve Board, as heretofore,
w i l l furnish State bank examiners with a complimentary copy of the Federal Reserve B u l l e t i n , and
you are requested to furnish this o f f i c e , not l a t e r
than December 15th, with a l i s t of the names of such
examiners i n your d i s t r i c t to whom a complimentary
copy should be sent during the year 1928.
Yours very t r u l y ,
J* C» Noell,
Assistant Secretary.
TO ALL FEDERAL RESERVE AGENTS.
X-4993
X-4995
TREASURY DEPARTMENT
O f f i c e of the Secretary
Washington
November 7, 1927.
The Governor,
Federal Reserve Board.
Sir:
.
You are hereby advised that the Department has r e f e r r e d t o the Disbursing
Clerk, Treasury Department, for payment, the account of the Bureau of Engraving
and P r i n t i n g for preparing Federal reserve notes during the period October 1,
1927, to October 31, 1927, amounting to ^138,450, as f o l l o w s :
Federal Reserve Notes, S e r i e s 1914
|5
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
S t . Louis
Kansas City
Dallas
San Francisco
200,000
650,000
200,000
300,000
200,000
100,000
250,000
100,000
100,000
100,000
100,000
2,300,000
|10
150,000
250,000
100,000
100,000
150,000
50,000
250,000
50,000
-
50,000
-
1, 150,000
#20
$50
50,000
' —
.
-
-
50,000
100,000
25,000
—
50,000
50,000
25,000
25,000
25,000
50,000
425,000
-
-
-
25,000
Total
400,000
900,000
350,000
525,000
350,000
200,000
550,000
175,000
125,000
175,000
150,000
3,900,000
3,900,000 sheets @ $35.50 per M . . . .
The charges a g a i n s t the several Federal Reserve Banks are as f o l l o w s J
Boston . . . .
Philadelphia .
Cleveland . .
Richmond . . .
Atlanta . . .
Chicago . . .
S t . Louis. . .
Kansas City
Dallas . . . .
San Francisco.
. $14,200.00
. 31,950.00
. 12,425.00
. 18,637.50
. 12,425.00
7,100.00
. 19,525.00
6,212.50
4,437.50
6,212.50
5,325.00
$138,450.00
The Bureau appropriations w i l l be reimbursed i n the above amount from the
i n d e f i n i t e appropriation "Preparation and Issue of Federal Reserve Notes, Reimbursable", and i t i s requested t h a t your board cause such i n d e f i n i t e approp r i a t i o n t o be reimbursed i n l i k e amount.
Respectfully,
S. R. Jacobs,
Do.yuty C o m m i s s i o n e r .
COPY
X-4996
To: Federal Reserve Board
March 24, 1927•
From: Mr. % a t t - General Counsel.
Subject: Power to P r e s c r i b e Conditions of
Membership f o r S t a t e Banks under S e c t i o n
9 as amended by McFadden Act.
B e f o r e admitting any more S t a t e banks to membership i n the Federal
Reserve System, i t w i l l be necessary f o r the Board t o d e c i d e the most
important q u e s t i o n p r e s e n t e d f o r i t s c o n s i d e r a t i o n by the amendments cont a i n e d i n the McFadden Act, - - i . e . , what c o n d i t i o n s of membership may
the Board l e g a l l y and n r o o e r l y p r e s c r i b e i n admitting S t a t e banks to the
Federal Reserve System under the p r o v i s i o n s of S e c t i o n 9 of the Federal
Reserve Act a s amended by the '"cFadden Act?
The f i r s t naragraoh o f S e c t i o n 9 of the Federal Reserve Act as amended by the McFadden Act o f February 25, 1927, reads as f o l l o w s , the words
u n d e r l i n e d having been i n s e r t e d by the McFadden Act:
"Sec. 9- Any bank incorporated by s p e c i a l law of any S t a t e ,
or organized under the general lews of any S t a t e or of the United
S t a t e s , d e s i r i n g to become a member of t h e Federal r e s e r v e system,
may make a p p l i c a t i o n to the Federal Reserve Board, under s u c h r u l e s
and r e g u l a t i o n s as i t may p r e s c r i b e , f o r the r i g h t to subscribe to
the s t o c k of the Federal r e s e r v e bank organized w i t h i n the d i s t r i c t
i n which the a p p l y i n g batik i s l o c a t e d . Such a p p l i c a t i o n s h a l l be
f o r the sane amount of s t o c k that the applying bank would be r e q u i r e d
to subscribe to as a n a t i o n a l bank. The Federal Reserve Board, subj e c t to the p r o v i s i o n s of t h i s Act and to such c o n d i t i o n s a s i t may
p r e s c r i b e pursuant thereto, may permit the applying bank to become
a s t o c k h o l d e r of such Federal r e s e r v e bank."
Upon a p l a i n ' r e a d i n g of the Act, i t
would
seem that the Board may i n
i t s d i s c r e t i o n p r e s c r i b e any reasonable c o n d i t i o n s which are "pursuant to"
p r o v i s i o n s of the Federal Reserve Act.
The q u e s t i o n a r i s e s , however, what
c o n d i t i o n s may be aaid to be pursuant to the
provisions
of the Federal Re-
serve Act?
WEAT CONDIT101*S ARE "PURSUANT TO" TEE ACT?
I t may be argued t h a t ,
t e c h n i c a l l y , any c o n d i t i o n of membership which
the Board might p r e s c r i b e would oc "pursuant to" the l a s t sentence of the
_2_
.
X-4996 '
f i r s t paragraph of & c t i o n 9, '"hich authorizes the Board to prescribe cond i t i o n s of membership ~iursuant to the p r o v i s i o n s of the Federal Reserve
Act.
Such a c o n s t r u c t i o n , however, m i l d not be j u s t i f i e d because i t
wduld
g i v e no e f f e c t whatever t o the amendment adding to t h i s sentence the
words "pursuant thereto".•
I t i s a w e l l - r e c o g n i z e d rule of statutory-
construction that where the l e g i s l a t u r e amends a s t a t u t e by adding c e r t a i n
new language i t i s presumed to have intended to make some change i n the
law, and some e f f e c t must be given to the new language added by the amendment.
I an of the opinion, t h e r e f o r e , that the Act as amended must be conrstrued as authorizing the Board to prescribe only such c o n d i t i o n s of
membership a s are "pursuant to" other p r o v i s i o n s of the Federal Reserve
Act.
The question then a r i s e s what c o n d i t i o n s of membership may be s a i d
to be pursuant to p r o v i s i o n s of the Federal Reserve Act other than the
l a s t sentence of the f i r s t paragraph of S e c t i o n 9?
CONDITIONS "PURSUANT TO" SPECIFIC PROVISIONS OF THE ACT.
Conditions
of
specific provisions
membership which merely
n
siat:
or
carry out c e r t a i n
f the Federal Reserve Act obviously are c o n d i t i o n s
made mrsuant to the p r o v i s i o n s of the
Federal
Reserve Act w i t h i n the
meaning of the Act as amended.
Within t h i s
class
would obviously be included the %th and 8th
conditions of membership s e t f o r t h i n
Scctxcn
3V
of
Regulation H.
The
7th c o n d i t i o n i s merely designed to carry out that p r o v i s i o n of Section
19 which f o r b i d s any member bank to keep on deposit with any State bank
or t r u s t company which i s not a member bank a sum in e x c e s s of 10% of i t s
own paid-up c a p i t a l and surplus; and the 8th c o n d i t i o n merely s e t s f o r t h
the substance
of the p r o v i s i o n s of Sectien.13; r e s p e c t i n g the power of
^3*
X-4996
S t a t e member banks to i s s u e bankers' acceptances.
*"»'
Likewise, i t may be s a i d that the 9th condition of membership s e t
f o r t h i n Section IV of Regulation H, which provides that:
"The Board of d i r e c t o r s of s a i d bank or t r u s t company
s h a l l adopt a r e s o l u t i o n authorizing the interchange of r e p o r t s and information between the Federal Reserve Bank of
the d i s t r i c t i n which subh bank or t r u s t company i s l o c a t e d
and the banking a u t h o r i t i e s of the S t a t e in which such bank
i s l o c a t e d ",
i s p r e s c r i b e d pursuant to tho p r o v i s i o n of Soction 9 of the Federal Reserve
Act which authorizes Federal reserve banks to accent examinations and r e p o r t s made by the S t a t e a u t h o r i t i e s in lieu, of examinations made by examiners s e l e c t e d or approved by the Federal Reserve Board.
The S t a t e
a u t h o r i t i e s might w e l l h e s i t a t e to d i s c l o s e reports of examinations of
State banks to Federal reserve banks u n l e s s authorized to do so by the
banks examined.
Hence, i t may be s a i d that the power to require S t a t e
member banks to authorize the S t a t e a u t h o r i t i e s to furnish reports of examinations to the Federal reserve banks i s i n c i d e n t a l to the s p e c i f i c
s t a t u t o r y a u t h o r i t y f o r the Federal reserve banks to accept S t a t e examinations i n l i e u of examinations made by Federal Reserve Examiners.
The s t a t u t e does not e x p r e s s l y authorize Federal reserve banks to furnish
the S t a t e a u t h o r i t i e s with copies of reports of examinations of S t a t e
banks made by Federal Reserve Examiners; but the S t a t e a u t h o r i t i e s might
r e f u s e to f u r n i s h copies of t h e i r examinations to the Federal r e s e r v e
banks u n l e s s the Federal reserve banks furnish them with reports of
Federal reserve examinations of S t a t e banks.
Hence, i t may be s a i d that
the power to require S t a t e member banks to authorize the Federal r e s e r v e
banks to f u r n i s h the S t a t e a u t h o r i t i e s with copies of reports of examinat i o n s of such S t a t e banks made by the Federal Reserve Examiners i s n e c e s s a r i l y i n c i d e n t a l to the s t a t u t o r y authority f o r the Federal reserve banks
to accept S t a t e examinations in l i e u of Federal reserve examinations.
Moreover, t h i s i s an obviously reasonable condition to which no one could
object.
I t may be argued that; the 3rd condition of membershin s e t f o r t h i n
Section IV of Regulation H, which n r o v i d e s that:
"Such bank or t r u s t company s h a l l not reduce i t s
c a p i t a l stock except with the permission of the Federal
Reserve Board",
i s pursuant to that p r o v i s i o n of S e c t i o n 9 of the Federal Reserve Act vhich
provides that:
"All banks admitted to membership under authority of
t h i s s e c t i o n s h a l l be required to comply with the reserve
and c a p i t a l requirements of t h i s Act and to conform to
those p r o v i s i o n s of law imposed on n a t i o n a l banks which nroh i b i t such banks from lending on or purchasing t h e i r own
s t o c k , which r e l a t e to the withdrawal or impairment of t h e i r
c a p i t a l s t o c k , and which r e l a t e s to the payment of unearned
dividends 11.
A reduction of the c a p i t a l s t o c k , however, does not n e c e s s a r i l y i n v o l v e a
withdrawal or impairment of the c a p i t a l stock nor reduce the c a p i t a l below
the c a p i t a l requirements prescribed by the Federal Reserve Act.
This con-
d i t i o n of membership, t h e r e f o r e , goes beyond the above quoted p r o v i s i o n of
the Federal Reserve Act and cannot pronerly be s a i d to be "pursuant theretd',
For t h i s reason, I am of the opinion that the Board may no longer p r e s c r i b e
this c o n d i t i o n .
CONDITIONS RE BRANCHES.
The 4tli and 5th conditions s e t f o r t h in S e c t i o n IV of Regulation H,
which deal with the establishment of branches by S t a t e member banks and
the absorption o f , or the a c q u i s i t i o n of an i n t e r e s t i n , other banks f o r
the purpose of converting such other banks i n t o branches, are superseded by
the f o l l o w i n g p r o v i s i o n , of law, which was i n s e r t e d i n S e c t i o n 9 of the
Federal Reserve Act by an amendment contained i n the McFadden Act:
x-i+996
-5-
"Any such State bank which, at the date of the approval
of t h i s Act, has e s t a b l i s h e d . a n d i s operating a branch or
branches in conformity with the State law, may r e t a i n and
operate the same while remaining or upon becoming a stockholder
of such Federal reserve bank? but ho feuch Stbte bank may r e t a i n
or acquire stock in a Federal reserve bank except upon r e l i n q u i s h ment of any branch or branches e s t a b l i s h e d a f t e r the date of the
approval of t h i s Act beyond the l i m i t s of the c i t y , town, or
v i l l a g e in which the parent bank i s s i t u a t e d " .
By enacting t h i s p r o v i s i o n , Congress undoubtedly intended to deal
completely with the subject of branches of State member banks.
I am of
the opinion, t h e r e f o r e , that the Board no longer has power to prescribe
any conditions r e s p e c t i n g branches o f State member banks.
C0IEDIT10ITS EE FINANCIAL COKDITIOH OR MAITA&EM5NT •
The remaining conditions s e t f o r t h in Section IV of Regulation H
( i . e . , the 1 s t , 2nd and 6th c o n d i t i o n s ) present more d i f f i c u l t y .
These
conditions read as f o l l o w s :
" ( l ) Except with the permission of the Federal Reserve Board,
such bank or t r u s t company s h a l l not cause or permit any
change to be made in the general character of i t s a s s e t s or i n
the scope of the f u n c t i o n s e x e r c i s e d by i t at the time of admission to membership, such as w i l l tend to a f f e c t m a t e r i a l l y
the standard maintained at the time of i t s admission to the
Federal reserve system and required as a c o n d i t i o n of membership.
"(2) Such bank or t r u s t company s h a l l at a l l times conduct
i t s business and e x e r c i s e i t s powers with due regard to the
s a f e t y of i t s customers.
"(3) Such bank or t r u s t company s h a l l reduce to, and maintain
within, the l i m i t s prescribed by t h e laws of the State i n
which i t i s l o c a t e d , any loan which may be i n excess of such
limits".
I know of no p r o v i s i o n of the Federal Reserve Act to which these
conditions may be s a i d to be pursuant u n l e s s i t be that p r o v i s i o n of Sect i o n 9 which provides t h a t , in a c t i n g upon a p p l i c a t i o n s of S t a t e banks
f o r membership in the Federal Reserve System:
" * * * the Federal Reserve Board s h a l l consider the
f i n a n c i a l c o n d i t i o n of the applying bank, the general character
of i t s management, and "Aiether or not the corporate powers e x e r c i s e d
-53 8 3
are c o n s i s t e n t with the purposes of t h i s Act".
I s a condition of membership which has a "bearing upon the f i n a n c i a l
condition of the applying hank, the general character of i t s management
or upon the question whether the corporate powers e x e r c i s e d by such benk
are c o n s i s t e n t with the purposes of the Federal Reserve Act a condition
p r e s c r i b e d "pursuant to" a p r o v i s i o n of the Federal Reserve Act?
The above quoted p r o v i s i o n of S e c t i o n 9 does not require the performance of any p a r t i c u l a r a c t s by member banks nor does i t f o r b i d the -,erformance of any p a r t i c u l a r act by member banks.. I t does, however, imoose
a mandatory duty upon the Federal Reserve Board which must be discharged
by the Board i n a c t i n g upon every a p p l i c a t i o n of a S t a t e bank f o r membership i n the Federal Reserve S y s t e a . .
When a bank a p p l i e s for. membership iii the Federal Reserve System,.
the Board, i n i t s d i s c r e t i o n , may disapprove such a p p l i c a t i o n , or i t may
approve such a p p l i c a t i o n subject to the p r o v i s i o n s of the Federal Beserve
Act and such conditions of membership as the Board may p r e s c r i b e pursuant
thereto; and the law provides that,, in acting upon such a p p l i c a t i o n , the
Board "shall" ( i . e . , mast) consider the f i n a n c i a l condition of the applying
bank, the general character of i t s management, and whether or not the
corporate powers e x e r c i s e d are c o n s i s t e n t with the purposes of the Federal
Reserve Act.
What i s the purpose of t h i s requirement and what p r a c t i c a l a p p l i c a t i o n
should be given to i t ?
Reading the e n t i r e Act together and g i v i n g i t a p r a c t i c a l i n t e r p r e t a t i o n ,
i t would seem to contemplate that i f the Boord i s d i s s a t i s f i e d with the
f i n a n c i a l condition of the applying bank or the general character of i t s
management or f e e l s t h a t the corporate powers e x e r c i s e d by i t are not con
-7-
s i s tent with the purposes of the Fedorel Reserve Act, thv Board should,
e i t h e r (a) disapprove the a p p l i c a t i o n in toto o.nd deny the bank the
p r i v i l e g e s of membership in the Federal Reserve System, or (b) admit the
bank to membership subject to conditions designed to correct the matters
found, to be u n s a t i s f a c t o r y .
This has always been the Board 1 s p r a c t i c e , and the l e g i s l a t i v e
h i s t o r y of t h i s p r o v i s i o n of the Federal Reserve Act (which i s s e t f o r t h
on pages 5 to 9 of a l e t t e r attached hereto) demonstrates beyond any
p o s s i b i l i t y of doubt that when Congress wrote t h i s p r o v i s i o n i n t o the
Federal Reserve Afct (by the amendment of June 21, 1917), i t thereby
sanctioned such p r a c t i c e .
Moreover, Congress d i d not by the amendment
contained i n the McFadden B i l l c l e a r l y i n d i c a t e an i n t e n t to p r o h i b i t such
practice.
On the contrary, as w i l l h e r e i n a f t e r be shown, i t r e j e c t e d a
s p e c i f i c amendment which would have stopped such p r a c t i c e .
i am of the opinion, t h e r e f o r e , that a condition of membership designed to correct an u n s a t i s f a c t o r y f i n a n c i a l condition of the applying baik
oiy anything u n s a t i s f a c t o r y in the general character of i t s management, or
designed to r e s t r i c t the bank to the e x e r c i s e of such corporate powers
as are c o n s i s t e n t with the purposes of the Federal Reserve Act i s a cond i t i o n prescribed pursuant to the above quoted p r o v i s i o n of the Federal
Reserve Act.
I am a l s o of the opinion that any condition of membership designed
to preserve a s a t i s f a c t o r y f i n a n c i a l condition or s a t i s f a c t o r y management
for the applying bank or to keep the corporate powers e x e r c i s e d by the
applying bank c o n s i s t e n t with the purposes of the Federal Reserve Act i s
l i k e w i s e a condition prescribed pursuant to t h i s p r o v i s i o n of the Federal
Reserve Act.
X-4996
—8-
In deciding whetheir or not to admit a p a r t i c u l a r bank to membership
in the Federal Reserve System and i f so what conditions of membership
should be orescribed, the Board i s required by law to consider the
f i n a n c i a l condition of such bank, the character of i t s management, and
whether or not the corporate powers exercised by i t are c o n s i s t e n t
with the purposes of the Federal Reserve Act.
*t would be f u t i l e f o r
the Board to assure i t s e l f that the f i n a n c i a l c o n d i t i o n and management
of the bank are s a t i s f a c t o r y and that i t s corporate powers are c o n s i s t e n t
with the purposes of the Federal Reserve Act before admitting such bank
to the Federal Reserve System i f , on the very day a f t e r i t i s admitted
to the System, such bank could m a t e r i a l l y impair i t s f i n a n c i a l c o n d i t i o n ,
lower the character of i t s management, and assume corporate powers i n c o n s i s t e n t with membership in the Federal Reserve System.
I t would seem,
t h e r e f o r e , that the Board i s c l e a r l y j u s t i f i e d i n p r e s c r i b i n g a condition
of membership designed to require a bank to maintain the standard on the
b a s i s of which i t was admitted to membership.
Condition Mo. 1, quoted above, i s a condition designed to preserve
a s a t i s f a c t o r y f i n a n c i a l condition of the applying bank and to keep i t
within the scope of t h e . f u n c t i o n s e x e r c i s e d by i t at the time i t was admitted to membership and which served as a b a s i s f o r the Board's d e c i s i o n
as to whether the corporate powers e x e r c i s e d by the bank were at that
time c o n s i s t e n t with the purposes of the Federal Reserve A c t .
For t h i s
reason, I am of the opinion that condition no. 1 i s a condition p r e s c r i b e d
"pursuant to" the p r o v i s i o n s of the Federal Reserve Act.
Conditions Nos. 2 and 6 a l s o r e l a t e to the f i n a n c i a l condition of
the applying bank and the general character of i t s management and are designed to preserve f o r such bank a s a t i s f a c t o r y f i n a n c i a l condition and
s a t i s f a c t o r y management. . Any bank which e x e r c i s e s i t s powers without due
o
X-4996
-9-
3 3
regard to the s a f e t y of i t s easterners i s obviously mismanaged and i s very
l i k e l y to g e t i n t o a "bad f i n a n c i a l condition.
And any bank which v i o l a t e s
the loan l i m i t a t i o n s prescribed by the State laws i s obviously mismanaged and i s l i k e l y to get i n t o a bad f i n a n c i a l condition.
I am of the
opinion, t h e r e f o r e , that conditions no, 2 and 6 are conditions prescribed
"pursuant; to" the provisions of the Federal Reserve Act.
For the reasons s e t f o r t h above, X am a l s o of the opinion that s p e c i a l
conditions of membership prescribed from time to time which require
p a r t i c u l a r banks upon being admitted to the Federal Reserve System to a gree to charge o f f worthless a s s e t s , to reduce c e r t a i n l i n e s of c r e d i t ,
or to make other adjustments which are necessary to improve the f i n a n c i a l
condition or management of the bank are conditions prescribed "pursuant to"
the above quoted p r o v i s i o n of the Act.
COITDITIQUS RESTRICTING EX5RCIS5 OF CORPORATE POWERS.
For the reasons s e t f o r t h above, I am a l s o of the opinion that
s p e c i a l conditions of membership prescribed by the Board from time to
time r e s t r i c t i n g or p r o h i b i t i n g the e x e r c i s e by p a r t i c u l a r banks of
s p e c i f i c corporate powers which the Board considers i n c o n s i s t e n t with
the purposes of the Federal Reserve Act are conditions prescribed "pursuant to" the above quoted p r o v i s i o n of the Federal Reserve Act.
Owing to c e r t a i n f a c t o r s i n the l e g i s l a t i v e h i s t o r y of the amendment
contained i n the McFadden B i l l i n s e r t i n g the words "pursuant thereto" i n
the l a s t sentence of the f i r s t paragraph of S e c t i o n 9 of the Federal Reserve A c t , however,, i t may be argued that t h i s amendment was intended to
have the e f f e c t of -orohibiting the Federal Reserve Board from p r e s c r i b i n g
any conditions, of membership which r e s t r i c t i n any way the e x e r c i s e by State
member banks of the corporate powers granted to them by the S t a t e s of t h e i r
X-4996
—10—
*IC
creation.
I t i s a fundamental rule of s t a t u t o r y construction that the i n t e n t i o n
of the l e g i s l a t u r e i s to "be sought f i r s t i n the language of the statute,,
and i f that language i s clear and
unambiguous i t i s improper to seek e l s e
where for the i n t e n t of the l e g i s l a t u r e or to have recourse to the debates
or other extraneous matters for that purpose.
"If the language of the s t a t u t e i s p l a i n and f r e e from
ambiguity, and expresses a s i n g l e , d e f i n i t e , and s e n s i b l e
meaning, that meaning i s c o n c l u s i v e l y presumed to be the
meaning which the l e g i s l a t u r e intended to convey. In other
words, the s t a t u t e must be interpreted l i t e r a l l y . Even
though the court should be convinced that some other meaning
was r e a l l y intended by the law-making power, and even though
the l i t e r a l i n t e r p r e t a t i o n should d e f e a t the very purposes
of the enactment, s t i l l the e x p l i c i t d e c l a r a t i o n of the
l e g i s l a t u r e i s the law, and the courts must not depart from
i t " . - Black, I n t e r p r e t a t i o n of laws, (2 e d ) , p . 45.
While opinions on t h i s subject may d i f f e r , i t i s my opinion that
the language of t h i s amendment i s s u f f i c i e n t l y c l e a r to exclude any cons i d e r a t i o n of i t s l e g i s l a t i v e h i s t o r y from a s t r i c t l y l e g a l construction
of the s t a t u t e .
I t i s not improper, however, i n administering a s t a t u t e f o r an adm i n i s t r a t i v e body to consider the l e g i s l a t i v e h i s t o r y of the s t a t u t e or
any other relevant f a c t s and to have a due regard to such considerations
i n formulating i t s administrative p o l i c y with r e s p e c t to matters as t o
which i t s powers are d i s c r e t i o n a r y .
For t h i s reason i t i s important to
consider the l e g i s l a t i v e h i s t o r y of that p r o v i s i o n of the McFadden B i l l
which i n s e r t e d the words "pursuant thereto" in S e c t i o n 9 of the Federal
Reserve Act.
I n c i d e n t a l l y , a consideration of such l e g i s l a t i v e h i s t o r y
w i l l demonstrate that i t was not the i n t e n t of Congress as a whole to
f o r b i d the Board to p r e s c r i b e conditions of membership r e s t r i c t i n g the
e x e r c i s e of corporate powers i n c o n s i s t e n t with membership.; but, on the
.11,
X-4996
- jyl
c o n t r a r y * C o n g r e s s r e j e c t e d , a p r o p o s e d . amendnjsnt ~ ' h i c h " o u l d h a v e h a d
this effect.
LEGISLATIVE HISTORY OF THIS AMETOMMT.
Inasmuch as i t "as a t the instance of Senator Glass that t h i s amendment was added to the McFadden B i l l , i t i s appropriate to consider f i r s t
of a l l the i n d i v i d u a l views of Senator Glass on t h i s s u b j e c t .
I t may be r e c a l l e d t h a t , during the hearings conducted by the J o i n t
Congressional Committee appointed under Section 506 of the A g r i c u l t u r a l
Credits Act of 1923 f o r thd purpose of i n v e s t i g a t i n g the reasons why
S t a t e banks f a i l to become members of the Federal Reserve System* t h i s
question was d i s c u s s e d a t a hearing held by the Committee a t which
s e v e r a l members of the Federal Reserve Board were p r e s e n t .
Senator Glass,
who was a member of the Committee, Questioned the Board's right to pres c r i b e conditions of membership r e s t r i c t i n g the establishment of branches.
He contended that the Board had no r i g h t to p r e s c r i b e any conditions of
membership except such as were -pursuant to s p e c i f i c p r o v i s i o n s of the
Federal Reserve Act.
He based h i s contention upon the f o l l o w i n g p r o v i s i o n
of S e c t i o n 9:
"Subject to the p r o v i s i o n s of t h i s Act and to the r e g u l a t i o n s
of the Board made pursuant t h e r e t o , any bank becoming a member
of the Federal Reserve System s h a l l r e t a i n i t s f u l l charter and
s t a t u t o r y r i g h t s as a S t a t e bank or t r u s t company, and may continue
to e x e r c i s e a l l corporate powers granted i t by the S t a t e in which
i t was created, and s h a l l be e n t i t l e d to a l l p r i v i l e g e s of member
banks".
In reply to Senator Glass 1 contention, I p o i n t e d out that one of the
p r o v i s i o n s of the Federal Reserve Act to which the r i g h t s of S t a t e member
banks were subjected was the p r o v i s i o n of S e c t i o n 9 ?hich at that time authorised the Board to p r e s c r i b e conditions of membership vri.thout any
s p e c i f i c l i m i t a t i o n as to the conditions that might be p r e s c r i b e d .
X-499
- 1 2 -
Senator Glass, however, continued to maintain the view that the i n t e n t
of Congress was to permit State banks to e x e r c i s e unimpaired the r i g h t s
granted to them under State l a w e x c e p t where the e x e r c i s e of such
\
r i g h t s ^as i n c o n f l i c t with s p e c i f i c provisions of the Federal Reserve
Act,
The f o l l o w i n g statement made by Senator Glass on the f l o o r of the
Senate (id age 3933 of the Congressional Record for February 16, 1927) i s
also pertinent:
"Then, i n another very important resoect* I d i r e c t
the a t t e n t i o n of the Senator from Montana to the b i l l as
i t came from the House. I t was a shocking invasion of the
r i g h t s of the S t a t e banks of the country*11
11
Mr. WHEELER. t I t i s strange how many S t a t e banks
wanted the b i l l with Hull GmendoienW, i f the Senator i s
co?te6t.
H
Mr. GLASS. • So much so that the S t a t e banks
were u t t e r l y opposed to the b i l l u n t i l the Senate made a
s a t i s f a c t o r y adjustment of that controverted p o i n t , ' In other
words, i n some way of which I have no knowledge* a t some time,
there were dropped out of the o r i g i n a l Federal reserve a c t
c e r t a i n words which c o n s t i t u t e d a guarantee to the State banks
throughout the country that t h e i r charter r i g h t s might not
be invaded; and the Federal Reserve Board, assuming l e g i s l a t i v e
functions which i t had no r i g h t to do, made r e g u l a t i o n s for the
admission of S t a t e banks to the Federal reserve system ?;hich
were not authorized by the a c t i t s e l f and were made under an
i n t e r p r e t a t i o n of an exceedingly r e f i n e d and dubious nature. The
Senate committee, i n the b i l l now before u s , had restored those
words, making regulations by the Federal Reserve Board s u b j e c t
to the p r o v i s i o n s of the act i t s e l f * Mot u n t i l these words were
r e s t o r e d did the National A s s o c i a t i o n of State Bank Superintendents come here and advocate the passage of the b i l l as
amended by the Senate committee. So when i t comes to r e s p e c t ing the r i g h t s of the S t a t e s , when i t comes to the question of
preserving the charter i n t e g r i t y of State banks, the Senate b i l l
i s i n f i n i t e l y superior to the b i l l which the Senator from Montana i s advocating." .
From t h i s i t would appear that Senator Glass was of the opinion
that Congress intended by t h i s amendment to prevent the Board from
p r e s c r i b i n g any conditions of membership r e s t r i c t i n g the e x e r c i s e by
S t a t e banks of the corporate powers granted, to them by'the S t a t e s of
-13-
X-4995
3
their creation,
I f such was the l e g i s l a t i v e i n t e n t , i t i s my opinion
that Congress f a i l e d to use language adequate to carry out that i n t e n t .
(See the above quotation from Black on I n t e r p r e t a t i o n of Laws.)
Moreover, Congress r e j e c t e d a proposed amendment which would have
s p e c i f i c a l l y forbidden the Federal Reserve Board to promulgate any
"conditions or r a l e s or regulations" which would " l i m i t or impair the
charter or s t a t u t o r y r i g h t s and powers of such banks", thus i n d i c a t i n g
that Congress as a whole did not intend the amendment a c t u a l l y
adopted
to have such e f f e c t .
While the McFadden B i l l was being considered by the Banking and
Currency Committee of the House, r e p r e s e n t a t i v e s of the National Ass o c i a t i o n of Supervisors of S t a t e Banks appeared before the Committee
and urged i t to i n s e r t i n t o the McFadden B i l l an amendment which would
change the l a s t sentence of the f i r s t paragraph of S e c t i o n 9 of the
Federal Keserve Act to read as f o l l o w s ; the words underlined being added:
"The Federal Reserve Board, subject to the -provisions of
t h i s Act and to such conditions as i t may p r e s c r i b e pursuant
t h e r e t o , may permit the applying bank to become a stockholder of
such Federal Reserve Bank; Provided, horever. that such cond i t i o n s or r u l e s or r e g u l a t i o n s prescribed s h a l l not l i m i t or
impair the charter or s t a t u t o r y r i g h t s and powers of such banks
nor s h a l l the Federal Reserve Board impose any conditions or
r e s t r i c t i o n s other than those under which n a t i o n a l banks s h a l l
operate."
Being somewhat dubious as to the a d v i s a b i l i t y of adopting such an
amendment* Congressman McFadden, Chairman of the Banking and Currency
Committee of the House, arranged a conference between the r e p r e s e n t a t i v e s
of the n a t i o n a l A s s o c i a t i o n of Supervisors of S t a t e Banks and the Federal
Reserve Board.
The conference took p l a c e in the o f f i c e s of the Federal
Reserve Board on December 30, 1925, with Congressman McFadden p r e s e n t ,
and t h i s s u b j e c t was f u l l y d i s c u s s e d .
The d i s c u s s i o n developed the f a c t
X-49S
""•x4r~
that the c r i t i c i s m s of the Board's Regulations and p r a c t i c e s which gave
r i s e to t h i s suggested amendment were based upon a misapprehension of
the f a c t s and were t o t a l l y -unfounded.
Subsequently, Congressman Mc-
Fadden asked the Board for a w r i t t e n statement of i t s views with
reference to t h i s proposed amendment and such a statement was f u r n i s h ed in a l e t t e r addressed to him by the Boai^d, tindeir date of February 2,
1926, Which was published in the report of the hearings held by the
Senate Committee on Banking and Currency on February 16, 17, 18 and 24,
1926, pages 38 e t seq# A copy of that l e t t e r i s attached hereto f o r the
Board's further information.
As a r e s u l t of t h i s conference with the Federal Reserve Board, and
of the l e t t e r addressed to Mr. McFadden by the Board, the House Committee r e j e c t e d the amendment proposed by the n a t i o n a l A s s o c i a t i o n of
Supervisors of S t a t e Banks.
This appears from the following statement
made by Gongressunanj McFadden during a hearing conducted by the Banking
and Currency Committee of the Senate on February IS, 1926.
(page 20 of
the r e p o r t ) :
"Since t h i s b i l l has been before Congress there has
been a p e r s i s t e n t attempt by Mr. Sims, v i c e p r e s i d e n t of the
Hibernia Trust & Savings Bank, of New Orleans, and a l s o s e c r e t a r y
of the National A s s o c i a t i o n of Supervisors of S t a t e Banks, to i n s e r t an amendment which would deprive the Federal Reserve Board
of a l l d i s c r e t i o n a r y authority to impose any condition of membership upon S t a t e banks which would in any way l i m i t the e x e r c i s e
of t h e i r charter powers. In other words, i f a S t a t e bank under
the S t a t e laws p o s s e s s e d the charter powers to engage i n the
insurance
b u s i n e s s , or the warehouse b u s i n e s s , the p u b l i c
u t i l i t y b u s i n e s s , or the automobile b u s i n e s s , the Board would
have to permit them as Federal reserve members to continue to
carry on these e n t e r p r i s e s , although they can not be s a i d to
c o n s t i t u t e the banking b u s i n e s s . As chairman of the House Comm i t t e e , I had a conference with Mr. Sims and two o f - h i s a s s o c i a t e s
and arranged for a s p e c i a l hearing before the Federal Reserve
Board# In the meantime there was i n s e r t e d in the b i l l an amendment appearing as a new s e c t i o n 10, designed to meet t h i s s i t u a t i o n . This language, however, proved to be u n s a t i s f a c t o r y to Mr.
x—x9„5
391
Sims. Upon consideration of the M i l i n committee, t h i s s e c t i o n
Was s t r i c k e n out "by a committee amendment, and the House s u s tained the committee and d e c l i n e d to approve the language d e s i r ed by Mr. Sims. In the meantime, on February 2 , 1926, I r e c e i v e d
a l e t t e r from the Federal Reserve Board, in ^hich they s e t f o r t h
at lengtr. thoir views in opposition to the s o - c a l l e d Sims amendment, a copy of t h i s l e t t e r I herewith s u M i t as a T>art of my
remarks."
In s p i t e of the r e j e c t i o n of t h i s amendment by thfe Committee,
Congressman Celler of New York o f f e r e d the amendment on the f l o o r of the
House when the b i l l was under consideration t h e r e , and the amendment was
r e j e c t e d without a record Vote.
This appears from the f o l l o w i n g quota-
tion from the Congressional Record of February 3, 1926, nages 2937 and
2938:
"Mr. CELLER. Mr. Chairman, I o f f e r an amendment.
"The CHAIRMAN. The gentleman from Mew York o f f e r s
an amendment, which the Clerk w i l l report.
"The Clerk read as f o l l o w s :
"Amendment o f f e r e d by Mr. Celler: Page 15, l i n e 25,
a f t e r the word 'Board 1 , i n s e r t :
"'And provided f u r t h e r , The Federal Reserve Board,
subject to the p r o v i s i o n s of t h i s act and to such condit i o n s as i t may p r e s c r i b e pursuant t h e r e t o , may permit
the applying bank to become a stockholder of such Federal
reserve bank; Provided, however, That such c o n d i t i o n s
or r u l e s or r e g u l a t i o n s prescribed s h a l l not l i m i t or
impair the charter or s t a t u t o r y r i g h t s and powers of
such banks, nor s h a l l the Federal Reserve Board impose
any c o n d i t i o n s or r e s t r i c t i o n s other than those under
which n a t i o n a l banks s h a l l o p e r a t e . "
"(Cries of 'Vote!'
'Tote.')
"Mr. CELLER. Mr. Chairman and gentlemen o f the
committee, I w i l l only keep you a few seconds to explain
that t h i s amendment has been suggested by the n a t i o n a l
A s s o c i a t i o n of Supervisors of Banks and i s very similar
to the amendment I o f f e r e d previously in the debate. I t
seeks to put the national banks and State banks upon a
p a r i t y with reference to r e g u l a t i o n s which might be p r e s c r i b e d
f o r the opening of branches by the Federal Reserve Board, and
f o r that reason I o f f e r i t and urge i t s adoption.
"Mr. BRAND of Georgia.
Will the gentleman y i e l d ?
"Mr. C3LLER. Yesi
"Mr. BRAND of Georgia.
the Sims amendment?
"Mr., CELLER.
I s not this what i s knowri as
That i s c o r r e c t .
"Mr. $$ejTADDEN. Mr. Chairman, I think there i s a
l i t t l e time remaining, and I want to say to the Members
of the House that t h i s i s a p r o p o s i t i o n which the Federal
Reserve Board very strenuously op-nose.. I t would take
a l l d i s c r e t i o n a r y poorer away from the Federal Reserve
Board, and i n my opinion the amendment should not he
adopted..
"The CHAIRMAN. The question i s on the amendment
o f f e r e d by the gentleman from New York (Mr. C e l l e r ) .
"The amendment was r e j e c t e d . "
I have been unable to a s c e r t a i n whether t h i s amendment was formally
presented to the Banking and Currency Committee of the Senate; but I do
know that the above f a c t s were explained to the Banking and Currency
Committee of the Senate by Congressman McFadden during the hearing held
by that Committee on February 16, 1926 (page 20) and that a copy of the
Board's l e t t e r quoting t h i s proposed amendment and explaining i t s objections thereto was incorporated in the reports of that hearing., (Pages
38 to 4 5 ) . .
In s p i t e of the f a c t that t h i s very s p e c i f i c amendment was thus
c a l l e d to i t s a t t e n t i o n , the Senate Committee did not adopt i t or
recommend any other amendment rrhich would s p e c i f i c a l l y and c l e a r l y
forbid the Federal Reserve Board to -prescribe any c o n d i t i o n s , r u l e s or
r e g u l a t i o n s which would
11
l i m i t or impair the charter or s t a t u t o r y r i g h t s
and powers of such banks"., On the contrary, the Senate Committee i n s e r t e d i n t o the McFadden B i l l only the f i r s t part of the amendment recommended by the National A s s o c i a t i o n of Supervisors of State banks, which
<30/3
merely amended S e c t i o n 9 so as to provide that the conditions of membership prescribed by the Federal Reserve Board mast be "pursuant to" the
p r o v i s i o n s of the Federal Reserve Act.
This apparently was intended as a compromise between the extreme
demands of the National A s s o c i a t i o n of Supervisors of S t a t e Banks and
the view of the House of Representatives that no r e s t r i c t i o n whatever
should be placed upon the power of the Federal Reserve Board to p r e s c r i b e
conditions of membership; and t h i s compromise was u l t i m a t e l y adopted
by both houses and incorporated into the McFadden Act.
Thus, both houses of Congress r e j e c t e d an amendment which would
s p e c i f i c a l l y have forbidden the Federal Reserve Board to p r e s c r i b e
any " c o n d i t i o n s , r u l e s or r e g u l a t i o n s " which would " l i m i t or imoair
the charter »r s t a t u t o r y r i g h t s and powers of such banks," and, i n l i e u
t h e r e o f , adopted an amendment which merely provided that the conditions
of membership p r e s c r i b e d by the Federal Resetve Board most be "pursuant
to" the p r o v i s i o n s of the Federal Reserve Act.
Regardless of the personal i n t e n t i o n of Senator Glass or the i n d i v i d u a l views which he might hold as to the purpose or e f f e c t of t h i s amendment, the f a c t that Congress r e j e c t e d the s p e c i f i c language proposed by
the National A s s o c i a t i o n of Supervisors of S t a t e Banks shows c l e a r l y
that Congress as a whole did not intend to prevent the Federal Reserve
Board from p r e s c r i b i n g any conditions of membership, r e s t r i c t i n g the
e x e r c i s e of corporate powers i n c o n s i s t e n t with the purposes of the Federal
Reserve Act.
In my opinion, t h e r e f o r e . Congress did not intend to impose
any such r e s t r i c t i o n on the Federal Reserve Board; and to construe the
amendment which Congress did adopt as having t h i s e f f e c t would be to g i v e
the amendment a c t u a l l y adopted an e f f e c t which Congress intended i t not to
X-49S6
-18-
have.
QUESTION OF POLICY.
The question remains, however, whether the Board, as a matter
of p o l i c y , should comply with the views of Senator Glass and the
views of the National A s s o c i a t i o n of Supervisors of S t a t e Banks i n
'
t h i s matter and discontinue the p r a c t i c e of p r e s c r i b i n g conditions
of membership r e s t r i c t i n g the e x e r c i s e of p a r t i c u l a r corporate powers
by S t a t e member banks.
This i s a question of p o l i c y for the Board's
determination.
In t h i s connection, I r e s p e c t f u l l y suggest that i t would not be
inappropriate f o r the Board to d i s c u s s t h i s question frankly with
Senator Glass and a s c e r t a i n h i s views as to That conditions of membership the Board should p r e s c r i b e . If t h i s matter i s d i s c u s s e d with
Senator Glass * i t i s highly important that he should be acquainted with
the p r a c t i c a l d i f f i c u l t y confronting the Board when a d e s i r a b l e S t a t e
bank a p p l i e s for membership in the Federal Reserve System, and the Board
f i n d s that such bank has the corporate power to w r i t e surety bonds, to
insure t i t l e s to r e a l e s t a t e , to w r i t e f i d e l i t y insurance or to do
anything e l s e which i n the Board's opinion i s i n c o n s i s t e n t with the purposes of the Federal Heserve Act.
In such a case, i f the Board can not
properly p r e s c r i b e a condition of membership r e s t r i c t i n g the e x e r c i s e of
such inappropriate power by the applying bank,the Board must adopt one of
two very undesirable a l t e r n a t i v e s ;
I t must e i t h e r exclude the bank from
membership a l t o g e t h e r or permit i t to come i n t o the Federal Reserve System
with the u n r e s t r i c t e d r i g h t to e x e r c i s e powers which may endanger the bank's
solvency and which the Board considers i n c o n s i s t e n t with the purposes of
3t
-19-
"4"6
"!9
the Federal Reserve Act.
Such a case was r e c e n t l y pending before the Board.
A national
hank in Hew J e r s e y , which had long been a member of the Federal Reserve System, the f i n a n c i a l condition of which appeared to be sound,
which appeared to be properly managed, and which had resources aggregating approximately $20,000,000. was about to "convert" i n t o a
State t r u s t company, and a p p l i c a t i o n for membership in the Federal
Reserve System had been made on behalf of the proposed new t r u s t company.
Under the laws of New Jersey, however, t h i s t r u s t company would
have the corporate power to examine and guarantee t i t l e d to r e a l e s t a t e , to write surety bonds, and to insure the f a i t h f u l performance of
their d u t i e s by any persons holding p o s i t i o n s of p u b l i c or p r i v a t e t r u s t .
If t h i s t r u s t coifipany were admitted to membership i n the Federal Reserve
System without any conditions r e s t r i c t i n g the e x e r c i s e of these powers^
i t could incur l i a b i l i t i e s of t h i s character in amounts e q u a l l i n g many
times the amount of i t s deposit l i a b i l i t i e s .
This might s e r i o u s l y en-
danger the solvency of the i n s t i t u t i o n and the i n t e r e s t s of i t s dep o s i t o r s , and the Federal Reserve Board would be powerless to prevent
i t or even to expel the bank from the Federal Reserve System.
was the Board to do?
What, then,
I t must adont one of these three a l t e r n a t i v e s :
1.
Refuse to admit the bank to the Federal Reserve System;
2.
Admit i t to the System with the u n r e s t r i c t e d r i g h t to ex-
o r c i s e these powers which the Board has always considered i n c o n s i s t e n t
with membership i n the Federal Reserve System; or
3.
Admit i t to the System subject to a condition of. member-
ship p r o h i b i t i n g the e x e r c i s e of these powers or r e s t r i c t i n g i t to
reasonable and s a f e l i m i t s •
-20-
X-4996
*1c
'-
I f the Board d e c i d e s to d i s c u s s t h i s s u b j e c t r/ith Senator
G l a s s , I r e s p e c t f u l l y s u g g e s t t h a t i t l a y t h i s a c t u a l case b e f o r e him
and r e que st h i s views as to what should be done i n such a c a s e .
CONCLUSION..
\
This s u b j e c t i s one which cannot s a f e l y be reduced to a "rule of
thumb".
Each c o n d i t i o n of membership mast be considered i n d i v i d u a l l y and
i n the l i g h t of the p r o v i s i o n s of the Federal Reserve Act, the purpose
of such p r o v i s i o n s , and the s p i r i t and purpose
of the Act as a whole.
Moreover, the problem i s of such a nature that n e i t h e r the l e g a l p r i n c i p l e s i n v o l v e d nor the q u e s t i o n s of p o l i c y i n v o l v e d can be a d e q u a t e l y
comprehended without some f a m i l i a r i t y w i t h the l e g i s l a t i v e h i s t o r y of
t h i s s u b j e c t , the p r a c t i c a l s i t u a t i o n , and the v a r i o u s other c o n s i d e r a t i o n s discussed, above.
For the convenience of the Board, however, I s h a l l
summarize as b r i e f l y as p o s s i b l e my c o n c l u s i o n s .
I.
In g e n e r a l , i t may be s a i d that the Board may no l o n g e r
p r e s c r i b e any c o n d i t i o n s of membership except such as are "pursuant to"
p r o v i s i o n s of the Federal Reserve Act other than the p r o v i s i o n
authoriz-
ing the Board to p r e s c r i b e c o n d i t i o n s .
I I , As to the n i n e c o n d i t i o n s s e t f o r t h i n S e c t i o n IV of R e g u l a t i o n
H, my c o n c l u s i o n s are as f o l l o w s ;
1.
The Board may continue to p r e s c r i b e Condition No. 1 , which
r e l a t e s to changes i n the character of the bank's a s s e t s or
the scope o f the powers e x e r c i s e d by i t ,
such as would tend to
a f f e c t m a t e r i a l l y the standard required as a c o n d i t i o n of members h i p ; because such c o n d i t i o n i s pursuant to that p r o v i s i o n of
S e c t i o n 9 which r e q u i r e s the Board i n admitting a bank to membership to c o n s i d e r the f i n a n c i a l c o n d i t i o n of the applying bank,
X-4996
-21-
the character of i t s management, and whether or not the corporate
powers e x e r c i s e d are c o n s i s t e n t with the purposes of the Federal
Reserve Act.
2,
The Board may continue to p r e s c r i b e Condition Ho. 2 , which r e -
quires the bank to conduct i t s business with a due regard to the
s a f e t y of i t s customers, because such condition i s pursuant to
that p r o v i s i o n of the Federal Reserve Act which requires the Board
i n a c t i n g Upon a p p l i c a t i o n s for membership to consider the financial
condition Of the applying bank and the general character of i t s
management.
. 3.
The Board may no longer p r e s c r i b e Condition Ho. 3, forbidding
the bank to reduce i t s c a p i t a l without the Board.'s permission;
because t h i s goes beyond those p r o v i s i o n s of the Federal Reserve
Act which p e r t a i n to the c a p i t a l of S t a t e member banks.
. 4.
The Board may no longer p r e s c r i b e Condition No. 4, r e s t r i c t -
ing the establishment of branches; because Congress has d e a l t
completely with t h i s subject by an amendment contained i n the
McFadden B i l l and such amendment supersedes such c o n d i t i o n s .
• 5.
The Board may no longer p r e s c r i b e Condition Ho, 5, forbidding
c o n s o l i d a t i o n s , e t c . , for the purpose of acquiring branches;
because Congress has completely d e a l t with the subject of branches
by the amendment contained i n the McFadden Act and t h i s amendment
supersedes such condition.
6.
The Board may continue to prescribe Condition Ho. 6, requiring
the bank to reduce a l l loans in excess of the l i m i t s p r e s c r i b e d
by State law; because such condition i s pursuant to that p r o v i s i o n
X-4996
-22-
of the f e d e r a l Reserve Act which requires the Board in a c t ing upon a p p l i c a t i o n s for membership to consider the f i n a n c i a l
condition of the applying bank and the general character of
i t s management.
7.
The Board may continue to prescribe Condition Ho. 7, which requires the bank to reduce tb aft amount equal to 10$ of i t s
c a p i t a l and surplus a l l balances in excess thereof carried
with nonmember banks; because t h i s merely s t a t e s the substance
of the s p e c i f i c p r o v i s i o n of Section 19 on t h i s s u b j e c t .
8.
The Board may continue to -orescribe Condition Ho. 8; because
such condition merely s e t s f o r t h the substance of the p r o v i s i o n s of S e c t i o n 13 regarding the issuance of bankers' a c c e p t ances by member banks.
9.
The Board may continue to prescribe Condition Ho. 9, r e quiring such banks to adopt r e s o l u t i o n s authorizing the i n terchange of reports and information between the Federal r e serve bank and the S t a t e a u t h o r i t i e s ; because t h i s i s n e c e s s a r i l y i n c i d e n t a l to that p r o v i s i o n of the Federal Reserve
Act which authorizes Federal reserve banks to accept reports
of examinations made by S t a t e a u t h o r i t i e s i n l i e u of examinations made by Federal reserve examiners.
III.
The Board may continue to prescribe s p e c i a l conditions of member-
ship requiring p a r t i c u l a r banks upon being admitted to the Federal Reserve
System to agree to charge o f f worthless a s s e t s , to reduce c e r t a i n l i n e s of
c r e d i t , or to make other adjustments which are necessary to improve the
f i n a n c i a l condition or management of such tjaafc; because such conditions are
pursuant to that p r o v i s i o n of the Federal Reserve Act which requires the
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X-4996
Board i n a c t i n g upon a p p l i c a t i o n s f o r membership to consider the f i n a n c i a l
condition and management of the applying bank.
IV.
The Board may continue to proscribe c o n d i t i o n s of membership
r e s t r i c t i n g the e x e r c i s e of corporate powers i n c o n s i s t e n t with the purposes
of the Federal Reserve Act; because such conditions are pursuant to that
p r o v i s i o n of the Federal Reserve Act which requires the Board i n a c t i n g
upon a p p l i c a t i o n s f o r membership to consider whether the corporate powers
e x e r c i s e d by the applying bank are c o n s i s t e n t with the purposes of the
Federal Reserve Act.
V.
The l e g i s l a t i v e h i s t o r y of t h i s amendment i n d i c a t e s that Senator
Glass f e l t that i t would prevent the Board from p r e s c r i b i n g any conditions
of membership r e s t r i c t i n g the e x e r c i s e by State banks of the corporate
powers granted to them by the S t a t e s .
Congress, however, did not express
any such i n t e n t ; but on the contrary, r e j e c t e d an amendment which would
s p e c i f i c a l l y have done s o .
VI.
The views of Senator Glass may properly be taken into considera-
t i o n by the Board i n determining i t s a d m i n i s t r a t i v e p o l i c y ; and i t would
not be inappropriate f o r the Board to d i s c u s s t h i s subject with Senator
Glass.
VII.
I f t h i s s u b j e c t i s d i s c u s s e d with Senator Glass, I r e s p e c t f u l -
l y suggest that the Board lay b e f o r e him an actual case i l l u s t r a t i n g the
importance of t h i s power to the Board and ask h i s views as to what should
be done in such a c a s e .
Respectfully,
(S)
WW-md-sad
Walter Ifyatt.
General Counsel.
X-4997
<"11 >f >
J>
REGULATION D. SECTION 17.
( E e - d r a f t to conform to recommendations of Governors 1 Conference)
"SECTION IT. PENALTIES FOR DEFICIENCIES Iff RESERVES
11
Inasmuch as i t i s e s s e n t i a l that the law w i t h r e s p e c t to the
maintenance by member franks of the required minimum r e s e r v e b a l a n c e s
be s t r i c t l y complied w i t h , the Federal Reserve Board, under a u t h o r i t y
v e s t e d i n i t by S e c t i o n 19 of the Federal Reserve Act, hereby p r e s c r i b e s
the f o l l o w i n g r u l e s governing p e n a l t i e s f o r d e f i c i e n c i e s i n r e s e r v e s .
(a)
Basic penalty.
1. D e f i c i e n c i e s i n r e s e r v e b a l a n c e s of member banks i n
c i t i e s where Federal r e s e r v e banks or branches thereof are l o c a t e d w i l l
be computed on the b a s i s of average d a i l y n e t d e p o s i t b a l a n c e s c o v e r i n g
semi-weekly p e r i o d s . D e f i c i e n c i e s i n r e s e r v e b a l a n c e s of member banks
i n r e s e r v e c i t i e s where there are no Federal r e s e r v e banks or branches
thereof w i l l be computed on the b a s i s of average d a i l y n e t d e p o s i t b a l ances c o v e r i n g weekly p e r i o d s . D e f i c i e n c i e s i n r e s e r v e b a l a n c e s of
other member banks w i l l be computed on the b a s i s of average d a i l y n e t
d e p o s i t b a l a n c e s covering semi-monthly p e r i o d s .
2 . Such computations s h a l l be made a s a t the c l o s e of b u s i n e s s on days t o . b e f i x e d by the Federal r e s e r v e banks w i t h the approval
of the Federal Reserve Board.
3 . P e n a l t i e s f o r such d e f i c i e n c i e s w i l l be a s s e s s e d monthly
on the b a s i s o f . a v e r a g e d a i l y d e f i c i e n c i e s during each of the semimonthly p e r i o d s ending in tfye preceding calendar month.
4 . Such p e n a l t i e s s h a l l be a s s e s s e d a t a b a s i c r a t e of 2 per
cent per annum above the Federal r e s e r v e bank d i s c o u n t r a t e on n i n e t y
day commercial paper, in e f f e c t oh the f i r s t day of the calendar month
in which the d e f i c i e n c i e s opcurred.
(b) P r o g r e s s i v e p e n a l t y .
The Federal Reserve Board w i l l
a l s o p r e s c r i b e f o r any Federal r e s e r v e d i s t r i c t , upon the a p p l i c a t i o n
of the Federal r e s e r v e bank of t h a t d i s t r i c t , an a d d i t i o n a l p r o g r e s s i v e
p e n a l t y f o r continued d e f i c i e n c i e s i n r e s e r v e s , in accordance w i t h the
following rules:
1. When a member bank in a c i t y where a Federal r e s e r v e bank
or branch thereof i s l o c a t e d has an average d e f i c i e n c y i n r e s e r v e s f o r
twelve c o n s e c u t i v e semi-weekly p e r i o d s , there s h a l l be a s s e s s e d , i n addit i o n to the p e n a l t y a t t h e b a s i c r a t e , a p r o g r e s s i v e p e n a l t y on semiweekly d e f i c i e n c i e s o c c u r r i n g t h e r e a f t e r , u n t i l such member bank has maint a i n e d the r e q u i r e d average r e s e r v e f o r e i g h t c o n s e c u t i v e semi-weekly
periods.
- 2 -
x-499?01
2. When a member bank in a reserve c i t y where there i s no
Federal reserve bank or branch thereof has an average d e f i c i e n c y in
r e s e r v e s f o r s i x consecutive weekly p e r i o d s , there s h a l l be a s s e s s e d ,
in a d d i t i o n to the p e n a l t y at the b a s i c r a t e , a p r o g r e s s i v e p e n a l t y
on weekly d e f i c i e n c i e s occurring t h e r e a f t e r , u n t i l such member bank
has maintained the required average reserve f o r four c o n s e c u t i v e weekl y periods.
3. When any other member bank has an average d e f i c i e n c y in
reserve f o r three consecutive semi-monthly p e r i o d s , there s h a l l be
a s s e s s e d , in addition to the penalty at the b a s i c r a t e , a p r o g r e s s i v e
p e n a l t y on semi-monthly r e s e r v e d e f i c i e n c i e s occurring t h e r e a f t e r , unt i l such member bank has maintained the required average r e s e r v e f o r two
consecutive semi-monthly p e r i o d s .
4 . Such p r o g r e s s i v e p e n a l t y s h a l l be at the r a t e of 1 per
cent per annum f o r the f i r s t calendar month in which same, i s e f f e c t i v e
and s h a l l increase a t the r a t e of 1 per cent per annum f o r each consecut i v e calendar month t h e r e a f t e r in which the bank's reserve d e f i c i e n c i e s
are subject to the p r o g r e s s i v e penalty; provided that the maximum p e n a l t y
charged s h a l l not exceed 10 per cent per annum.
(c)
Continued D e f i c i e n c i e s .
Whenever any member bank has an average d e f i c i e n c y in r e s e r v e s
f o r each r e s e r v e computation period during s i x consecutive months, the
Federal Reserve Agent s h a l l promptly report the f a c t to the Federal Reserve Board with a recommendation as to whether or not the Board should:
1. In the case of a National bank, d i r e c t the Comptroller of
the Currency to bring s u i t to f o r f e i t the charter of such National bank
pursuant to Section 2 of the Federal Reserve Act; or
2 . In the case of a State member bank, i n s t i t u t e proceedings
to require such bank to surrender i t s stock in the Federal r e s e r v e bank
and to f o r f e i t a l l r i g h t s and p r i v i l e g e s of membership pursuant to Sect i o n 9 of the Federal Reserve Act; or
3. In e i t h e r c a s e , take such other a c t i o n a s the Federal Reserve Agent may recommend or the Federal Reserve Board may consider
advisable.
OFFICE
To
COEESSPOMDEl-TCr
COPY
Federal Reserve
Board
Federal Reserve Board
X-4999
Date November 1. 1927.
Subject: Acceptances Growing Out of
Transactions Involving the Importation
or a s p o r t a t i o n of Goods.
From Mr. Wyatt - General Counsel
The attached report addressed to the Federal Reserve Board
under date o f October 21, 1927, by the Sub-Committec of the General
Acceptance Committee reconsncnds that:
"That the Board revoke i t s previous rulings to the
e f f e c t that a b i l l cannot be e l i g i b l e f o r acceptance by
a member bank or f o r rediscount or purchase by a Federal
reserve bank as a b i l l growing out of the importation or
exportation of goods i f i t i s accepted a f t e r the goods
have reached t h e i r d e s t i n a t i o n , and rule in l i e u thereof:
"That bankers acceptance may properly be considered
as growing out of transactions i n v o l v i n g the importation
or exportation of goods when given for the purpose of
f i n a n c i n g the s a l e and d i s t r i b u t i o n on usual c r e d i t terms
of imported or exported goods i n t o the channels of trade,
whether or not the b i l l s are accepted a f t e r the p h y s i c a l
importation or exportation has been completed."
GPIITI01T.
In order for the Board to adopt t h i s recommendation i t w i l l
be necessary f o r i t to reverse c e r t a i n of i t s w e l l e s t a b l i s h e d r u l i n g s
to the e f f e c t that a b i l l cannot be e l i g i b l e for acceptance by a member
bank or f o r rediscount or purchase by a Federal reserve bank as a b i l l
growing out of the importation or exportation of goods i f i t i s accepted
a f t e r the goods have reached t h e i r d e s t i n a t i o n .
I am of the opinion,
however, that the language of the law i s broad enough to j u s t i f y a r u l ing such as that recommended i n the attached report and that the Board
may l e g a l l y promulgate such a r u l i n g i f i t so d e s i r e s .
RECOMMSHHATIOIT.
B e l i e v i n g that a r u l i n g such as that recommended i n the a t tached report i s e n t i r e l y c o n s i s t e n t with the purposes of the Federal
Reserve Act and would be h e l p f u l in the promotion of our f o r e i g n trade,
-2-
X-4999
I concur in the recommendation of the Sub-Committee of the General
Acceptance Committee,
A proposed d r a f t of a r u l i n g along the l i n e s
recommended "by the Committee i s r e s p e c t f u l l y submitted .herewith.
DISCUSSION.
The question whether the Board may properly make such a
r u l i n g depends upon the proper construction of the f o l l o w i n g provision
of Section 13 of the Federal Reserve Act:
"Any member bank may accept d r a f t s or b i l l s of exchange
drawn upon i t * * * which grow out of t r a n s a c t i o n s i n v o l v i n g the importation or exportation of goods."
This language i s very broad and i n d e f i n i t e and i s s u s c e p t i b l e of d i f f e r e n t c o n s t r u c t i o n s .
The Board has h e r e t o f o r e taken
the p o s i t i o n that Congress intended that the d r a f t s in question
should be drawn f o r the purpose of financing the importation or exp o r t a t i o n of goods, and on t h i s theory i t has ruled that a b i l l
may not be considered e l i g i b l e for acceptance by a member bank or
for rediscount or purchase by a Federal reserve bank as a b i l l
growing out of the importation or exportation of goods i f i t i s accepted a f t e r the goods have reached t h e i r d e s t i n a t i o n .
I t was
argued that when the goods reach t h e i r d e s t i n a t i o n the import or
export t r a n s a c t i o n i s completed and i t s f i n a n c i n g has n e c e s s a r i l y
been accomplished.
This p r i n c i p l e t however, was adopted by the Board a t a
time when the acceptance business was new to American banks and
the Board was e x e r c i s i n g great care to r e s t r i c t i t w i t h i n narrow
and very s a f e l i m i t s .
In l a t e r years the Board has broadened to some
extent i t s r u l i n g s regarding bankers 1 acceptances and p a r t i c u l a r l y
or exportation
those growing out of the importation/of goods, on the theory that
-3-
X-4999
the acceptance business has develoned to a p o i n t where
>I<
greater"lati-
tude may s a f e l y "be permitted and the a c c e n t i n g banks may be g i v e n
a broader d i s c r e t i o n in determining the p r o p r i e t y of i s s u i n g bankers'
acceptances under varying circumstances.
(See p r i n t e d l e t t e r trans-
m i t t i n g Regulation A as amended March 29, 1922, page 433, April
1922 B u l l e t i n ) .
The promulgation of a r u l i n g along the l i n e of
that recommended above would be a further a p p l i c a t i o n of t h i s theory.
The theory h e r e t o f o r e followed by the Board that by acceptances "which grow out of transactions i n v o l v i n g the importation or
exportation of goods" Congress meant acceptances drawn f o r the purpose of f i n a n c i n g the importation or exportation of goods i s ent i r e l y p l a u s i b l e and has the added weight of being the accepted
i n t e r p r e t a t i o n which the Board has placed upon t h i s p r o v i s i o n of
the Act for s e v e r a l years and was made the b a s i s for s e v e r a l rulings
on t h i s s u b j e c t .
The words "which grow out of t r a n s a c t i o n s i n v o l v i n g the
importation or exportation of goods," however, are c l e a r l y s u s c e p t i b l e of a broader i n t e r p r e t a t i o n and in my opinion are broad enough
to include acceptances a r i s i n g out of t r a n s a c t i o n s i n v o l v i n g imported
or exported goods a f t e r such goods reach t h e i r d e s t i n a t i o n ; provided
that there i s some reasonable connection between such t r a n s a c t i o n s
and the importation or exportation.
Thus, where an American exporter of cotton ships cotton to
Germany and s t o r e s i t i n h i s own warehouse i n Germany and l a t e r s e l l s
i t from that warehouse to a German spinner, i t seems c l e a r that the s a l e
from the warehouse to the German spinner "grows orat of" the exportation
of cotton from the United S t a t e s to Germany.
The s a l e of the American
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X-4999
cotton to the German spinner from the warehouse could not take
p l a c e i f the cotton had not f i r s t "been exported from the United
S t a t e s and p l a c e d i n the warehouse.
Moreover, i t i s but a con-
t i n u a t i o n and consummtion of the export t r a n s a c t i o n .
S i m i l a r l y , where an American importer "buys f o r e i g n goods
and, a f t e r t h e i r a r r i v a l in the United S t a t e s , r e s e l l s them, i t
would seem t h a t such r e s a l e grows out of the importation of goods
within the "broad meaning of the Act, and that a d r a f t drawn to
finance such r e s a l e of the goods might properly "be s a i d to grow
out of the importation of the goods.
On the other hand, i t would seem necessary to p l a c e
some r e s t r i c t i o n upon t h i s i n t e r p r e t a t i o n ; for otherwise i t might
"be argued that a l l dealings in imported or exported goods, no matter
how remote from the o r i g i n a l importation or exportation, could "be
said to grow out of the importation or exportation and thus the
p r i n c i p l e might "be reduced to an absurd!ty.
I t was with t h i s
thought that the Committee recommended that t h i s p r i n c i p l e should
be r e s t r i c t e d to acceptances "given for the purpose of f i n a n c i n g
the s a l e and d i s t r i b u t i o n on usual c r e d i t terms of imported or exported goods i n t o the channels of trade".
This would seem to con-
f i n e the f i n a n c i n g of the s a l e and d i s t r i b u t i o n of the goods i n t o
the channels of trade and would seem to e l i m i n a t e the carrying of
the goods f o r unusually long p e r i o d s , the manufacture of the goods,
or t h e i r r e s a l e subsequent to manufacture.
In a r u l i n g published on page 854 of the 1926 B u l l e t i n ,
, the Board reversed a ruling published on page 610 of the B u l l e t i n
f o r June, 1920, to the e f f e c t that "no bank which has purchased
a f o r e i g n documentary d r a f t may refinance i t s e l f by drawing a d r a f t
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X-4999
on a member "bank secured by the documentary draft" and r u l e d i n
l i e u thereof that "such acceptances may be s a i d to come within
the broad terms of the p r o v i s i o n s of s e c t i o n 13 of the Federal Reserve Act which authorize member banks to accept d r a f t s drawn
upon them 'which grow out of transactions i n v o l v i n g the importation
or exportation of goods 1 . -provided that such d r a f t s are drawn b e f o r e the underlying export transaction i s completed."
In so r u l i n g ,
the Board s t a t e d that i t had c a r e f u l l y considered t h i s question
and was of the opinion that i t s previous rulings on t h i s s u b j e c t
contained an u n n e c e s s a r i l y s t r i c t i n t e r p r e t a t i o n of the law.
This
i n i t s e l f was a material broadening of the i n t e r p r e t a t i o n which the
Board had p r e v i o u s l y p l a c e d upon t h i s p r o v i s i o n of the Act and was
a departure from the s t r i c t a p p l i c a t i o n of the p r i n c i p l e that such
acceptances must be drawn f o r the purpose of financing the import
or export t r a n s a c t i o n , s i n c e the import or export t r a n s a c t i o n had
been financed by means of a documentary d r a f t and the purpose of
the acceptance was merely to r e f i n a n c e the bank which had purchased
the documentary d r a f t .
Before making that r u l i n g the Board had
the s u b j e c t under consideration for many months and had been adv i s e d by t h i s o f f i c e that such a change i n i t s r u l i n g s would l e a d
t o a change i n i t s fundamental construction of that p r o v i s i o n of
the Act which authorizes member banks to accept d r a f t s drawn upon
them "which grow out of transactions i n v o l v i n g the importation or
exportation of goods."-
The Board, t h e r e f o r e , acted v i t h f u l l know-
ledge of the e f f e c t of t h i s a c t i o n and c l e a r l y intended to broaden
the s t r i c t i n t e r p r e t a t i o n which i t had t h e r e t o f o r e p l a c e d upon t h i s
p r o v i s i o n of the Act.,
I t did n o t , however, abandon the p r i n c i p l e
:|;|)Q
-5-
X-4999
that in order for an acceptance to "be considered ozie which grotfs out
of a transaction involving the importation or exportation of goods
i t mast "be drawn before the underlying import or export t r a n s a c t i o n
i s completed.
On the contrary, i t ruled t h a t , "national banks may
not l e g a l l y accept d r a f t s drawn upon them "by other "banks a g a i n s t
the s e c u r i t y of import or export b i l l s of exchange p r e v i o u s l y d i s counted by such other banks when such d r a f t s are drawn.after the
underlying import or export transactions are completed. 11
To adopt the attached recommendation of the Committee on
Acceptances would be a further broadening of the Board's r u l i n g s
on t h i s s u b j e c t , but i n my opinion would be one which could be
much more e a s i l y j u s t i f i e d than the r u l i n g published on page 854 of
the 1926 B u l l e t i n .
There a b i l l i s drawn for the purpose of financing
the s a l e and d i s t r i b u t i o n of imported or exported goods i n t o the
channels of trade, i t i s , i n my opinion, much more c l e a r l y a b i l l
which grows out of a t r a n s a c t i o n i n v o l v i n g the importation or exportat i o n of goods than i s a b i l l drawn by the bank against the s e c u r i t y
of a documentary d r a f t for the purpose of r e f i n a n c i n g the bank which
has purchased the documentary d r a f t .
CONCLUSION1.
In my opinion, t h e r e f o r e , the law i s broad enough to justijjr
the Board i n reversing i t s previous rulings on t h i s subject and promulgating the r u l i n g recommended i n the attached report.
Among the published r u l i n g s which would be reversed, i n
whole or i n p a r t , by the promulgation of such a new r u l i n g are the
following:
4 0 8
-7-
X-49S9
1915 B u l l e t i n , page 276
1917 B u l l e t i n , page
30
1918 B u l l e t i n , page 435
1921 B u l l e t i n , page 699
1924 B u l l e t i n , page 638
1926 B u l l e t i n , page 854
Respectfully,
Walter Wyatt,
General Counsel.
WW MD OMC
-
x-49s9(proposed huli1tg- of f e d e r a l r e s e r v e b o a r d . )
Acceptances growing out of transactions involving the imoortat a t i o n or exportation of goods.
In a number of rulings published h e r e t o f o r e , the Federal Reserve Board has ruled in e f f e c t that a b i l l cannot be e l i g i b l e for
acceptance by a member bank or for rediscount or purchase by a
Federal reserve bank as a banker's acceptance growing out of the im-
portation or exportation of goods i f i t i s accepted a f t e r the goods
have reached t h e i r d e s t i n a t i o n .
A f t e r careful reconsideration of t h i s question, the Board
i s of the opinion that such rulings contain an u n n e c e s s a r i l y s t r i c t
i n t e r p r e t a t i o n of that provision of the Federal Reserve Act which
authorizes member banks to accept d r a f t s drawn upon them "which grow
out o f transactions involving the importation or exportation of goods"
and which authorizes Federal reserve banks to rediscount such acceptances .
The Board i s no*? of the opinion that the broad language
of t h i s p r o v i s i o n of the Act i s c l e a r l y s u s c e p t i b l e of a more
l i b e r a l i n t e r p r e t a t i o n which v7ould f a c i l i t a t e the financing of our
foreign trade and p a r t i c u l a r l y the s a l e of American goods abroad
under circumstances similar to those described in the ruling published on page 638 of the Federal Reserve B u l l e t i n for August, 1924.
The Board, therefore, rules that bankers' acceptances may
properly be considered as growing out of transactions involving the
importation or exportation of goods when drawn for the purpose of
financing the s a l e and d i s t r i b u t i o n on usual c r e d i t terms of imported
or exported goods i n t o the channels of trade, whether or not the b i l l s
4->
X-4999
are accepted a f t e r the p h y s i c a l importation or exportation has been
completed.
A l l previous r u l i n g s in c o n f l i c t with t h i s r u l i n g are
hereby reversed i n so far as they c o n f l i c t with t h i s r u l i n g .
November 1, 1927.
i l l
COPY
X-4999-b
3spoht of
THE SUB-COMMITTEE OF THE GENERAL ACCEPTANCE
COMMITTEE TO THE FEDERAL EESEHVE BOARD
OCTOBER 21, 1937..
The Sub-Committee of the General Acceptance Committee held
a meeting i n New York on October 21, a t which the f o l l o w i n g were
present:
Messrs. Zurlinden, Paddock, McKay and Wyatt, Mr. Kenzel
chairman, and Mr. O'Hara, secretary
Consideration was given to a proposal to recommend to the
Federal Reserve Board c e r t a i n m o d i f i c a t i o n s of i t s e x i s t i n g r u l i n g s
with r e f e r e n c e to acceptances growing out of the importation and exp o r t a t i o n of goods which w i l l make i t p o s s i b l e f o r .American banks to
accept b i l l s drawn upon them for the purpose of f i n a n c i n g such t r a n s a c t i o n s where i t i s necessary f o r such b i l l s to be drawn a f t e r the goods
have reached t h e i r d e s t i n a t i o n , in order to conform to u s u a l commercial
and c r e d i t p r a c t i c e s .
After f u l l d i s c u s s i o n of the subject and consideration o f . a
statement of f a c t s r e l a t e d by the Chairman s u b s t a n t i a l l y as expressed
in the accompanying memorandum i t was unanimously voted by the Committee
to recommend to the Board as f o l l o w s :
That the Board revoke i t s previous rulings to the e f f e c t that
a b i l l cannot be e l i g i b l e f o r acceptance by a member bank or f o r r e d i s count or purchase by a Federal reserve bank as a b i l l growing out of the
importation or exportation of goods i f i t i s accepted a f t e r the goods
have reached t h e i r d e s t i n a t i o n , and rule i n l i e u thereof:
That bankers acceptance may properly be considered as growing
out of t r a n s a c t i o n s i n v o l v i n g the importation or e x p o r t a t i o n of goods
when given f o r the purpose of financing the s a l e and d i s t r i b u t i o n on
- 2 -
X-4999-"b
usual c r e d i t terms of imported or exported goods i n t o the channels of
trade, whether or not the "bills are accepted a f t e r the p h y s i c a l imp o r t a t i o n or exportation has "been completed.
113
COPY
. X-4999-c
MEMORANDUM OF STAT3m2TT BY TES CHAIR..IAII OF THS SUB-OOXII TIES OF THS
SSiJUILiL ^OCZPT.fCZ COIIilTT^ mDZ aT -a USTIHG OF THU CO:: IITTZC IS
EJ1 YORK Oil OCT. 3 1 . 1927
The q u e s t i o n o f the manner and e x t e n t to vzhich u s e of
American acceptance c r e d i t vras hindered i n competition vzith f o r e i g n
c r e d i t i n f i n a n c i n g f o r e i g n trade vras the s u b j e c t of i n q u i r y r e c e n t l y
- made "by the Federal Reserve Board of your Chairman.
On a v i s i t to Washington l a s t week, your Chairman e x p l a i n e d
to Governor Young and to the Federal Reserve Board t h a t , according to
h i s o b s e r v a t i o n s aai£. from information gained from i n t e r v i e w s w i t h maiy
bankers from England, Holland, S w i t z e r l a n d , Germany, France and I t a l y ,
the o n l y p r a c t i c a l o b s t a c l e s l a y i n r u l i n g s of the Board which had
the e f f e c t o f p r o h i b i t i n g b i l l s from being a c c e p t e d a t a l l by n a t i o n a l
banks or as e l i g i b l e by other banks and bankers a f t e r the p h y s i c a l
e x p o r t a t i o n or importation of goods was completed.
He s t a t e d that t h e s e f o r e i g n bankers had t o l d him that
Indus t r y i n the i n d u s t r i a l c o u n t r i e s of the Continent had always had
t o l o o k to f o r e i g n c r e d i t f o r the purchase of imported raw m a t e r i a l s
and i n the export of f i n i s h e d goods; that due t o v a r i o u s c a u s e s ,
such c r e d i t was required f o r longer p e r i o d s than was customary i n
the United S t a t e s . Among the causes named were l a c k of working
c a p i t a l i n the American s e n s e , 6low t r a n s p o r t a t i o n , the c l o s i n g of
r i v e r n a v i g a t i o n during the cold months, and the economic i m p r a c t i c a b i l i t y of i n d u s t r i e s c l o s i n g down temporarily or f o r l o n g e r p e r i o d s ,
as i s f r e q u e n t l y done i n the United S t a t e s without s e r i o u s economic
consequences. The combined e f f e c t of t h e s e c o n d i t i o n s r e q u i r e s
manufacturers s e a s o n a l l y to carry raw m a t e r i a l s f o r s i x months of
o p e r a t i o n and they, a c c o r d i n g l y , require c r e d i t up to s i x months w i t h
r e s p e c t to a c o n s i d e r a b l e p o r t i o n of t h e i r p u r c h a s e s .
The f a c t that banks on the Continent are much more c l o s e l y
i d e n t i f i e d w i t h the i n d u s t r i e s than i s the g e n e r a l case i n America
normally p e r m i t t e d them to d i s c o u n t f r e e l y f o r t h e i r manufacturing
c l i e n t s and a l s o t o procure f o r them from abroad the a d d i t i o n a l f o r e i g n
c r e d i t that they r e q u i r e d . England, Holland, S w i t z e r l a n d , and to some
e x t e n t , France, were normally the c r e d i t o r c o u n t r i e s and the f i r s t
three continue a t the p r e s e n t time to e x t e n d the kinds o f c r e d i t s
f o r the time required to the Continental i n d u s t r i e s ; g e n e r a l l y through
the medium of Continental banks.
I t was explained t h a t , owing to the higher p r i c e l e v e l s
a t the p res en t time as compared with pre-war, the volume of domestic
b i l l s i n Germany and other i n d u s t r i a l s e c t i o n s of the Continent repr e s e n t e d a p h y s i c a l volume of goods c o n s i d e r a b l y l e s s , perhaps 75%
of the q u a n t i t y of goods, than would have been r e p r e s e n t e d by an equal
amount of b i l l s pre-war, and t h a t , a c c o r d i n g l y , the r i s e i n the p r i c e
l e v e l r e q u i r e d r e l a t i v e l y g r e a t e r recourse to f o r e i g n c r e d i t than b e f o r e the war.
X-4999-c
I t was explained that both before and. s i n c e the war i t
was the p r a c t i c e of London banks, and. bankers to extend commercial
acceptance c r e d i t for the b e n e f i t of Continental industry and trade
f r e e l y and that the r e s t r i c t i o n s i n the American p r a c t i c e had doubtl e s s caused a g r e a t deal of financing to go to London that otherwise
would have come to New York on account of the a b i l i t y of America
to create c r e d i t and the lower American discount r a t e s .
The c u t t i n g of acceptance commissions by London banks f o r
Continental banks to a t t r a c t t h i s kind of business to London was
a l s o r e f e r r e d to as c o n s t i t u t i n g a s u b s t a n t i a l competition but one
which would not be so serious i f American banks could g i v e the credits
that tho Continental trade requires on terms otherwise equal with
London.
Since your Chairman advised the Board in these r e s p e c t s , he
has conferred with a considerable number of prominent New York bankers
who create the l a r g e bulk of American acceptances to inquire of them
what i n t h e i r experience had prevented them from g i v i n g acceptance
c r e d i t s abroad such as London bankers h a b i t u a l l y grant, and he was
informed by cach of them that the rule a g a i n s t accepting a f t e r goods
had arrived i n the country of import and the r u l e a g a i n s t permitting
customers to redraw a f t e r goods had arrived i n the country of import were the only two p o i n t s upon which they f e l t t h e i r d i s a b i l i t y
depended.
They f e l t that they would not wish to extend c r e d i t s i n
Europe for p u r e l y domestic purposes, e x p l a i n i n g that by that they
meant the purchase of goods of domestic o r i g i n , the f a b r i c a t i o n of
such goods and i t s s a l e for domestic consumption within any European
country, but that they did f e e l that they should be permitted to
finance through acceptance c r e d i t s the s a l e within European countries
of goods of o r i g i n f o r e i g n to those c o u n t r i e s , and the f a b r i c a t i o n
and s a l e of goods for export. Many of them c i t e d the f a m i l i a r problem
of American c o t t o n which i s now sent so l a r g e l y to European countries
on consignment by American shippers and i s s o l d to European spinners
out of warehouses i n Europe. Spinners require c r e d i t of n i n e t y days
or more. Under the present r u l e s , American banks can g i v e such c r e d i t s
where the cotton crosses a f r o n t i e r i n Europe, that i s , where i t i s
exported from one European country to another, but they cannot g i v e
such c r e d i t s i f the cotton i s s o l d to spinners l o c a t e d i n the same
European country i n which i t i s stored pending s a l e . A s i m i l a r
negative p o s i t i o n a r i s e s with r e s p e c t to cotton which i s s o l d and s h i p ped from America on terms that have become quite "usual, i . e . , that at
the buyer 1 s option he may pay cash on a r r i v a l or g i v e n i n e t y days
bankers c r e d i t . I t frequently happens that the cotton has a r r i v e d
and so the p h y s i c a l export completed before the buyer e l e c t s how- he
s h a l l pay. If he e l e c t s to g i v e ninety days bankers c r e d i t the banker
may not accept the b i l l i f the cotton has arrived at the f o r e i g n dest i n a t i o n named i n the shipping documents.
4:
-3-
X-4999
The American "bankers consulted f e l t that the time has
c e r t a i n l y a r r i v e d i n the development of American acceptance b u s i n e s s
when American accepting "bankers should he permitted the f r e e e x e r c i s e
of t h e i r d i s c r e t i o n within the law and r e g u l a t i o n s and t h a t , w i t h i n
those l i m i t s , f u l l l a t i t u d e should be granted them i n the accommodat i o n of b u s i n e s s as i t i s done in f o r e i g n c o u n t r i e s . They s t r e s s e d
p a r t i c u l a r l y the p o i n t that they regarded i t as preferable.: to - g i v e
a three months c r e d i t with a renewal f o r a further p e r i o d , i f i t
were found that a renewal were required a t the e x p i r a t i o n of the
o r i g i n a l p e r i o d , than to grant the c r e d i t o r i g i n a l l y f o r a p e r i o d of
s i x months, and that i f the r u l e a g a i n s t accepting a b i l l a f t e r the
goods had a r r i v e d were rescinded, the end sought would be p r a c t i c a l l y
accomplished without a s p e c i f i c ruling in favor of renewal b i l l s .
I t was p o i n t e d out that from the bankers' p o i n t of view i t was p r e f erable to be a b l e to review c r e d i t s a t more frequent i n t e r v a l s than
i s the case when c r e d i t s up to s i x months are being i n s i s t e d upon
by the borrower as a precaution a g a i n s t being unable to redraw a t the
end of a s h o r t e r p e r i o d i n case of need even f o r a small p a r t of the
credit.
X-5001
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
November 18, 1927.
SUBJECT?
Expense, Main Line, Leased Wire System,
October, 1927.
Dear S i r :
Enclosed herewith you w i l l f i n d two mimeograph statements, X5001-a and X-5001-b, covering in
d e t a i l operations of the main l i n e , Leased Wire
System, during the month of October, 1927.
P l e a s e c r e d i t the anount payable by your
bank in the general account, Treasurer, U. S . , on
your books, and i s s u e C/D Form 1, National Banks,
f o r account of "Salaries and Expenses, Federal Reserve
Board, S p e c i a l Fund", Leased Wire System, sending
d u p l i c a t e C/D to the Federal Reserve Board.
Yours very t r u l y ,
F i s c a l Agent*
TO GOVERNORS OF ALL F.R. BANKS EXCEPT CHICAGO.
Enclosures:
X-5001-a
REPORT SHOWING- CLASSIFICATION AMD NUMBER OF WORDS TRANSMITTED OVER MAIN LINE
OF THE FEDERAL RESERVE LEASED WIRE SYSTEM FOR THE MONTH OF OCTOBER, 1927.
Business
reported
by banks
From
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total
Words sent
by New York
chargeable
to other
F.R.Banks ( l )
37,230
154,902
44,205
81,385
49,803
64,6o4
115,169
22,326
36,144
80,490
74,935
111,177
2,04g
932,370
37,517
-
1,880
3,065
4,190
2,992
3,153
3,104
3,548
3,674
6,809
3,054
Total
Treasury
Department
Business
Net Federal
Reserve Bank
Business
Per cent of
t o t a l bank
Business (*)
39,278
154,902
46,085
84,450
53,993
67,596
118,122
85,430
39,692
84,164
81,744
114,231
5,506
12,418
4,475
5,722
5,552
6,539
9,784
6,115
3,272
6,999
3,957
7,006
3^,772
142,484
41,610
78,728
48,441
61,057
108,538
79,315
36,420
77,165
77,7^7
107,225
3.78
15.97
4,66
8.82
5.43
6.84
12.16
8.89
4.08
8.65
8.71
12.01
969,887
377,025
1,346,912
100.00^
77,375
95,33%
172,713
12.82^
592,512
281,687
1,174,199
87.18*%
100.00
(*)
These percentages used in c a l c u l a t i n g the pro rata share of l e a s e d wire expense as shown an the
accompanying statement (X-5001-b)
(l)
Number of words sent by New York to other F.R. Banks f o r t h e i r s o l e b e n e f i t charged to banks
i n d i c a t e d in accordance with a c t i o n taken at Governors' Conference November 2 - 4 , 1925.
X-5001-b
REPORT OF EXPENSE MAIN LINE
FEDERAL RESERVE LEASED WIRE SYSTEM, OCTOBER,
Name of Bank
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
S t . Louis
Minneapolis
Kansas CityDallas
San Francisco
Federal Reserve Board
Total
(&)
(#)
(*)
(a)
(h)
Operators'
Salaries
Operators'
Overtime
$260.00.
974.97
225.00
296.66
190.00
270.00
3,924.79(f)
204.06
193.73
275.64
251.00
370.00
$7,435.85
-
Wire
Rental
$15,338.51
$15,336.51
Total
Expenses
4:260. 00
974. 97
225. 00
296. 66
• I P O . 00
270. 00
3 , 5 2 4 . 79
204. Ob
193. 73
275. 64
251. 00
370. 00
15,338. 5 1
$22,774 36
2,920 J i ( a )
$19,854, 03
192?.
Pro Rata
Share of
Total
Expenses
$750.48
3,170.69
925.20
1,751.13
1.07S.07
1,353.02
2,414.25
1,765.02
810.04
1,717.37
1,729.29
2,384.47
Credits
$260.00
974.97
225.OO
296.66
190.00
270.00
3,924.79
204.06
193.73
275-64
251.00
370.00
Payable to
Federal
Reserve
Board
$490. 48
2 , 1 9 5 . 72
700. 20
1 , 4 5 4 . 47
1 , 0 9 2 . ?4(&)
1,088. 02
1 , 5 1 0 . 54(*)
1,560. 96
6l6. 31
1 , 4 4 1 . 73
1 , 4 7 8 . 29
2 , 0 1 4 . 47
$ 1 9 , 8 5 4 . 0 3 $ 7 , 4 3 5 . 3 5 $14,133-39
1.510.54(h)
$12,622.85
Includes .*204.67 f o r branch l i n e b u s i n e s s transmitted over main l i n e c i r c u i t .
Includes s a l a r i e s of Washington Operators.
Credit.
Received $ 2 , 9 2 0 . 3 3 from Treasury Department covering b u s i n e s s f o r the month of October, 192"
Amount reimbursable to Chicago.
pss&i
rr,
419
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-5002
November 18, 1927.
SUBJECT:
Change i n I n t e r - D i s t r i c t Time Schedule
Uoon Opening of Charlotte Branch.
Dear Sir:
There i s enclosed herewith I n t e r - D i s t r i c t
Time Schedule between Richmond, Baltimore and
CharlHtte and the other Federal 'reserve "banks and
branches, which has been approved by the Federal
Reserve Board, e f f e c t i v e upon the opening of the
Charlotte Branch on December 1, 1927. The Board
has been advised by the Richmond bank that t h i s
schedule, which i s applicable both ways between
the p o i n t s named, has been agreed to by a l l other
Federal reserve banks.
Very t r u l y yours,
Walter L. Eddy,
Secretary.
(Enclosure)
TO GOVERNORS OF
F.R. BAMS
4 2 0
X-5002-a
Richmond
Baltimore
2
2
2
1
2.
1
1
2
2
Philadelphia
1
1
2
Cleveland
Cincinnati . . . . . .
Pittsburgh . . . . .
2
2
2
2
2
1
2
2
2
2
3
2
2
2
2
3
2
2
2
1
2
2
2
2
Chicago
Detroit
2
2
2
2
2
2
St. Louis
Louisville
Memphis
L i t t l e Hock
2
2
2
3
2
2
2
3
2
2
2
2
Minneapolis.
Helena
3
5
2
4-
3
5
Kansas City
Omaha
Denver
Oklahoma City
3
3
4
3
2
3
3
3
3
3
3
3
Dallas
31 Paso
Houston
San An ton io .
3
4
3
3
3
4
3
3
3
4
3
3
5
5
5
5
4
5
5
4
4
4
4
5
5
5
5
5
5
5
Boston . . . . . . .
New York
buffalo
Atlanta'
Few Orleans
Birmingham
Jacksonville
Nashville
San Francisco
Seattle
Spokane
Portland
S a l t Lake City
Los Angeles
.
.
.
i
.
Charlotte
4 2 1
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
X-5OO3
November 1?, 1927.
Subject:
Code Word Designating
Charlotte Branch,
Dear S i r : The Board has been advised by the
Federal Reserve Bank of Richmond that i t s
Charlotte Branch w i l l be opened f o r b u s i n e s s
on Thursday, December 1, 1927»
Accordingly, the code word "DRAINWELL"
has been designated to i n d i c a t e the Charlotte
Branch of the Federal Reserve Bank of Richmond,
which word should be i n s e r t e d in Page fS of the
Federal Reserve Telegraph Code.
Very t r u l y yours,
J. C. N o e l l ,
A s s i s t a n t Secretary.
TO GOVERNORS OF ALL F. R. BANKS
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
X-5004
November 19, 1927.
SUBJECT:
Bank Salary Recommendations.
Dear S i r :
Will you kindly have prepared and forwarded to
the Board, on or before December 10, the recommendation
of your Board of Directors for the January 1, 1928, adjustments i n the s a l a r i e s of employees of your "bank.
The salary schedules submitted should be prepared i n
accordance with the sanple forms attached h e r e t o , which
are the same as those used l a s t year. As i n the p a s t ,
the recommendations should cover a l l employees on the
bank's p a y r o l l , including those whose s a l a r i e s are r e imbursable to the bank e i t h e r i n whole or i n part from
notary f e e s , c a f e t e r i a r e c e i p t s , e t c . The recommendat i o n s should be accompanied with a statement showing
the t o t a l s a l a r y payments to employees during 1927
(December estimated) and the estimated s a l a r y r e q u i r e ments for employees during 1928, c l a s s i f i e d by functions
i n accordance with the enclosed form.
In accordance with the Board's l e t t e r X-4928 of
August 16, 1927, Subject - Annual E l e c t i o n of O f f i c e r s
and Approval of Their S a l a r i e s , the recommendation f o r
the January 1, 1928, adjustments i n the s a l a r i e s of
o f f i c e r s of the bank should be submitted immediately f o l lowing the f i r s t meeting in January, 1928 of the Board
of D i r e c t o r s a t which the s a l a r i e s of o f f i c e r s are f i x e d
s u b j e c t to the approval of the Federal Reserve Board.
The s a l a r y recommendation f o r o f f i c e r s should be submitted i n accordance with the attached form. If the
bank's counsel i s not an o f f i c e r (does not devote h i s
e n t i r e time to the bank), a separate recommendation should
4 2 2
-*2**
X-5004
be made c o v e r i n g the annual r e t a i n e r f e e t o be p a i d and
any a d d i t i o n a l condensation f o r c l e r k h i r e or o t h e r a s sistance.
*
The recommendations f o r adjustments i n the
s a l a r i e s of o f f i c e r s should be accompanied with, a; d e t a i l ed statement o f the budget approved f o r the bank (and f o r
each breach, i f any) f o r the calendar year 1 9 9 8 , or f o r
t h e f i r s t h a l f o f 1928 i n case the budget i # prepared on
a steal-annual b a s i s . I t i s the understanding o f t h e
Board t h a t I n the c a s e o f n e s t banks the budget lis p r e pared on t h e b a s i s o f the batik*s departmental o r g a n i s a t i o n a i d , i f s o , i t should be submitted an t h a t b a s i s ,
r e g a r d l e s s o f A e t h e r or n o t the bank's o r g a n i z a t i o n
correspond# w i t h the g r e e t i n g s i n the
exoense
r e p o r t . She badget statement a s submit WLHbo the Board
• h o u l d show a c t u a l expend! W e e during t h e y e a r VM7 by
departments and d t v i e l o n e o r other c p e r a t t n g u n i t e and
e s t i m a t e d e # e n # l W r e e tearing 1938 { o r expenses f o r the
f i r s t h a l f o f 1907 as compared w i t h the budget f o r the
f i r s t h a l f o f 1 9 8 6 ) , t h e f i g u r e s t o be i n t h e same d e t a i l as approved by the baak r s budget committee.
Very t r u l y y o u r s ,
J• C* B o e l l ,
Assistant Secretary.
(Snslesures)
20 CHaIBIOI 02 hJuL jQaJUJ, Ei&iiKVB BaHKb.
433
X-5004-a
MAKES AUD SALARIES OF OFFICERS, IEC3I.3ER 31, 1927, iKD AS PROPOSED FOB 1928.
Federal Reserve Bank - Branch
Name
Functions
supervised
Title
Total,
officers
Annual Salary
Proposed
Dec. 31.1927
for' 1928
X—5004— D
NAMES AND SALARIES OF EivtPLOYEES RECEIVING MORE THAN" $2,500 PER AMUM.
(Employees recommended for s a l a r i e s in excess of $2,500 should
a l s o "be included in t h i s report)
Federal Reserve Bank - Branch
Name
Title
. Dec. 1, 1927.
Functions to
which assigned
Total,
Present
annual
salary
employees
Proposed s a l a r y
Jan. 1. 1928.
^ £i
X-5004-c
NAMES AND SALARIES OF EMPLOYEES RECEIVING $2,500 OR LESS PER ANNUM.
(Employees recommended for s a l a r i e s i n excess of $2,500 should
not be included i n t h i s r e p o r t ) .
Federal Reserve Bank - Branch
Name
Title
, Dec. 1, 1927.
Salary on
Proposed s a l a r y
Jan. 1. 1927* Jan. 1. 1928
fane t i on
Total,
employees
NOTE: Emoloyees should he grouped according to the f u n c t i o n s given i n the funct i o n a l expense report, form E, and t o t a l s shown f o r a l l f u n c t i o n s . An employee assigned to more than one f u n c t i o n should he l i s t e d i n the f u n c t i o n to which he devotes the greater part of h i s time, with a note i n d i c a t i n g i n what other functions
he i s employed. The report should not include e x t r a help or temporary employees,
but i t should include a l l regular employees whose s a l a r i e s are reimbursable to the
bank e i t h e r in whole or in p a r t . In the case of employees who are en a per diem
or hourly b a s i s , the estimated t o t a l annual compensation should a l s o be shown.
*If h i r e d during 1927, p l e a s e show the i n i t i a l s a l a r y .
x-5004-a 427
SALARIES* PAID EMPLOYEES DURING' 1927 AND ESTINTED PAYMENTS DURING 1928
Federal Reserve Bank (including branches)
Functions
(Form E c l a s s i f i c a t i o n )
;
Paid during 1927
(December estimated)
;
General Overhead
Provision of Space
provision of Personnel
General Service
Failed Banks
Jioans, Rediscounts and Acceptances
Securities
Currency and coin
Check c o l l e c t i o n s
Non-cash c o l l e c t i o n s
Accounting
F i s c a l Agency
Legal
Auditing
Bank Relations
Federal Reserve Note I s s u e s
Bank Examination
S t a t i s t i c a l and A n a l y t i c a l
Total
*Includes e x t r a h e l p , overtime and supper moniy.
Estimated payments
during 1928
4 2 8
FEDERAL RESERVE BOARD
WASHINGTON
X-5007
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
November 25, 1927.
SUBJECTa
I n t e r - D i s t r i c t Time Schedule Upon Ooening of
Charlotte Branch.
Dear S i r :
Confirming the advice contained in the Board's t e l e gram of November 22nd (No. 838), the Board has been informed
by the Federal Reserve Bank of Richmond that the time schedule
transmitted with the Board's l e t t e r of November 18, 1827
(X-5002), between Richmond, Baltimore and Charlotte and other
Federal reserve banks and branches, to be e f f e c t i v e upon the
opening of the Charlotte Branch on December 1, 1927, was i n tended to apply only one way, namely, from the F i f t h Federal
Reserve D i s t r i c t to the other Federal reserve p o i n t s .
As requested in the Board's telegram of November 22nd,
a l l Federal reserve banks have submitted and the Board has
approved time from t h e i r o f f i c e s to Charlotte as shown i n
the enclosed schedule. None of the Federal reserve banks
have suggested changes i n t h e i r e x i s t i n g schedule to Richmond and Baltimore.
Very t r u l y yours,
'J. C. N o e l l ,
A s s i s t a n t Secretary.
TO ALL governors
(Enclosure)
X-5007-a -
FROM
TO CHARLOTTE
Soston
2
Hew York
Buffalo
2
2
Philadelphia
2
Cleveland
Cincinnati
Pittsburgh
2
2
2
Atlanta
New Orleans
Birmingham
Jacksonville
Nashville
1
2
2
2
2
Chicago
Detroit
2
3
S t . Louis
Louisville
Memphis
L i t t l e Rock
2
2
2
3
Minneapolis
Helena
3
5
Kansas City
Omaha
Denver
Oklahoma City
3
3
4
3
Dallas
El Paso
Houston
San. Antonio
3
4
3
3
San Francisco
Seattle
Spokane
Portland
S a l t Lake City
Los Angeles
g
g
5
g
5
5
Richmond
Baltimore
1
1
X-5008
FEDERAL
B E S E S T S
>1
BOARD
STATEMENT FOR THE PRESS
For r e l e a s e i n morning papers,
Monday, November 2 8 , 1927.
The f o l l o w i n g i s a summary of g e n e r a l "business and f i n a n c i a l c o n d i t i o n s throughout the s e v e r a l Federal
Reserve D i s t r i c t s , ba?ed upon s t a t i s t i c s 1 or the
months of October and November* as contained i n
the forthcoming i s s u e of the Fedaral Reserve B u l l e t i n .
Industry and trade were l e s s a c t i v e i n October than i n the preceding
month and were i n smaller volume than a year ago.
The g e n e r a l l e v e l of
w h o l e s a l e commodity p r i c e s showed a f u r t h e r s l i g h t advance.
Production
Production of manufactures d e c l i n e d i n October, contrary to the
u s u a l s e a s o n a l tendency, while the output of minerals remained i n
p r a c t i c a l l y the same volume as i n September.
In October and November,
a c t i v i t y of i r o n and s t e e l m i l l s and of automobile p l a n t s was s m a l l e r
than a t any -previous p e r i o d of the y e a r .
There were a l s o d e c r e a s e s dur-
ing October i n c o t t o n consumption and i n the production of b u i l d i n g
m a t e r i a l s , crude petroleum, and boots and s h o e s .
The output of bituminous
coal and the number of hogs and c a t t l e s l a u g h t e r e d i n c r e a s e d by l e s s than
the u s u a l seasonal amount.
Production of f l o u r , copper, and a n t h r a c i t e
coal showed i n c r e a s e s i n October.
Building c o n t r a c t s awarded i n c r e a s e d
considerably owing to u n u s u a l l y l a r g e awards i n ITcw York and Chicago i n
the l a s t week of the month.
The i n c r e a s e s were l a r g e s t i n c o n t r a c t s
f o r r e s i d e n t i a l and commercial b u i l d i n g s .
Unusually f a v o r a b l e weather during October i n a g r i c u l t u r a l s t a t e s
r e s u l t e d i n i n c r e a s e d y i e l d for l a t e f a l l crops.
The i n d i c a t e d production
of corn, according to the November crop report of the Department of
-2-
X-5008
.Agriculture, was placed at 2 , 7 5 3 , 0 0 0 , 0 0 0 b u s h e l s , an increase of 150,000,
000 bushels over the estimate of the previous month and 106,000,000
bushels over the y i e l d a year ago.
Larger y i e l d s , as compared with
the previous month's estimates were a l s o i n d i c a t e d f o r c o t t o n , tobacco,
and p o t a t o e s .
Trade
Trade at wholesale and r e t a i l showed l e s s than the usual seasonal
increase i n October.
Compared with October a year ago wholesale trade
in a l l leading l i n e s , except meats and drugs, was smaller.
Department
s t o r e s a l e s were approximately 3 per cent smaller than in October, 1926,
while those of mail order houses and chain s t o r e s were somewhat l a r g e r .
Inventories of merchandise carried by wholesale firms were smaller i n
a l l reporting l i n e s at the end of the month than in September.
Com-
pared with a year ago, stocks were smaller i n a l l l i n e s except drugs.
Stocks of department s t o r e s increased in October in a l l l i n e s except
drugs.
Stocks of department s t o r e s increased in October in a n t i c i p a -
t i o n of the growth in s a l e s that u s u a l l y occurs in November and December, but at the end of the month they were no larger than a year ago.
Freight car loadings d e c l i n e d i n October and the f i r s t part of
November, and were smaller than in the corresponding period of l a s t
year for a l l c l a s s e s of f r e i g h t except grain and grain products.
Prices
Wholesale commodity p r i c e s increased s l i g h t l y in October, continuing the advance which began e a r l y in the summer, and the Bureau of Labor
S t a t i s t i c s index f o r October was higher than for any previous month of
t h i s year.
The advance i n the average for a l l commodities from September
to October r e f l e c t e d increases in the p r i c e s of l i v e s t o c k , meats, and
dairy products.
P r i c e s of corn, cotton, c o a l , metals, p a i n t m a t e r i a l s ,
-3and automobile t i r e s , on the other hand, d e c l i n e d .
X-5008
Daring the f i r s t
three weeks i n November there were i n c r e a s e s i n the p r i c e s of g r a i n s ,
c a t t l e , cooper, h i d e s , and rubber, and d e c r e a s e s i n hogs, c o t t o n ,
s i l k , c o a l , petroleum, and iron and s t e e l .
Bank c r e d i t
Total loans and investments of member banks in l e a d i n g c i t i e s
i n c r e a s e d by n e a r l y $300,000,000 during the l a t t e r p a r t of October and
the f i r s t h a l f of November, and on November 16 were the h i g h e s t ever
reported.
Investments i n c r e a s e d by more than $ 2 0 0 , 0 0 0 , 0 0 0 , r e f l e c t i n g
i n l a r g e part purchases of Treasury c e r t i f i c a t e s i s s u e d on November 15,
and loans on s e c u r i t i e s i n c r e a s e d by about $ 1 2 5 , 0 0 0 , 0 0 0 .
f o r commercial and a g r i c u l t u r a l purposes d e c l i n e d
Loans c h i e f l y
during the p e r i o d
from the s e a s o n a l peak reached e a r l y i n October.
There was a continued i n c r e a s e i n the demand f o r reserve bank
c r e d i t between October 19 and November 23, a r i s i n g c h i e f l y out of f u r t h e r
exports of g o l d . Discounts from member banks d e c l i n e d somewhat, w h i l e
acceptances and h o l d i n g s of United S t a t e s Government s e c u r i t i e s i n c r e a s e d .
Conditions i n the money market remained moderately e a s y i n November.
Call loan r a t e s remained a t the l e v a l reached i n the l a t t e r p a r t of
October, and r a t e s on prime commercial paper and bankers 1 acceptances
were unchanged.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
X-5009
November 2 6 , 1927.
SUBJECT;
Dear
Holidays during
December, 1927.
Sir:
The H a v a n a A g e n c y o f t h e F e d e r a l R e s e r v e
B a n k o f A t l a n t a w i l l b e c l o s e d on W e d n e s d a y ,
D e c e m b e r 7 t h , Cuban M e m o r i a l Day.
On M o n d a y , D e c e m b e r 2 6 t h , i n o b s e r v a n c e
of C h r i s t m a s , the o f f i c e s of the F e d e r a l Reserve Board and a l l Federal reserve banks and
branches w i l l be c l o s e d .
Very
truly
yours,
J . C- N o e l l ,
Assistant Secretary.
TO GOVERNORS OF a l l
F.
R.
BANKS.
X-5G10
434
FEDERAL
RESERVE
BOARD
STATEMENT FOR THE PRESS
For immediate release:
November 26, 1927.
CONDITION OF ACCEPTANCE "MARKET
October 13, 1927, to November 16, 1927.
The acceptance market i n New York was exceptionally active during the
f i v e weeks ending November 16, with b i l l s i n larger supply than i n any other
period i n recent years.
The increase i n the supply was especially marked
i n new b i l l s drawn p r i n c i p a l l y against cotton, g r a i n , coffee, and s i l k .
De-
mand was also l a r g e , but unequal to the supply during the early p a r t of the
period, with the r e s u l t that on November 2 dealers' p o rtfo lio s stood a t the
highest point since the middle of May, 1926.
During the succeeding week,
demand improved, however, and a t the end of the period the volume of b i l l s
i n the ViiWfll of dealers was considerably reduced.
Purchases of b i l l s by banks
both for their own account and f o r account of foreign correspondents were
especially heavy during the period.
Rates were steady throughout the period
with the exception of the f i r s t few days when quotations on b i l l s of the longer
maturities were s l i g h t l y i r r e g u l a r .
Increased a c t i v i t y also character-
ized the b i l l markets i n Boston and Chicago,
The following table shows rates
i n the New York market on b i l l s of various m a t u r i t i e s - a t the beginning and
end of the reporting period.
ACCEPTANCE BATES IN THE EEW YORK MARKET
Maturity
11
October 13
Bid
Asked
November 16
Bid
As^ed
« = «=,: 1
hi
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-5012.
December 2 , 1927.
SUBJECT:
Acceptances growing out of transactions
involving the importation or exportation
of goods.
Dear S i r :
There i s enclosed for your information a
copy of a ruling on the above subject which was
adopted "by the Federal Reserve Board on November
28, 1927.
By Order of the Federal Reserve Board.
Walter 1 . Eddy,
Secretary;
Enclosure-.
TO THE GOVERNORS AND CHAIRMEN OF ALL FEDERAL RESERVE BAMS.
435
436
X-5012-a
RULING ADOPTED BY IfflffiAL RESERVE BOARD BOVSiiBSR 28. 1937,
Acceptances growing oat of transactions .Involving the importation
or exportation of goods.
I n a number of rulings Dublished heretofore, the Federal Beserve
Board has ruled i n e f f e c t t h a t ' a M i l cannot he e l i g i b l e for acceptance
by a member bank or f o r rediscount or purchase by a Federal reserve bank
as a banker's acceptance growing out of the importation of exportation
of goods i f i t i s accepted a f t e r the goods have
reached t h e i r destination.
A f t e r careful reconsideration of this question, the Board i s of the
opinion that such rulings contain an unnecessarily s t r i c t i n t e r p r e t a t i o n
of that provision of the Federal Beserve Act which authorizes member
banks to accept d r a f t s d r a w upon them "which grow out of transactions
involving the importation or exportation of goods" and which authorizes
Federal reserve banks to rediscount such acceptances. The Board i s
now of the opinion that the broad language of t h i s provision of the
Act i s c l e a r l y susceptible of a more l i b e r a l i n t e r p r e t a t i o n -rhich would
f a c i l i t a t e the financing of our foreign trade and p a r t i c u l a r l y the salo
of American goods abroad under circumstances similar to those described
I n the r u l i n g published, on page 638 of the Federal Reserve B u l l e t i n f o r
August, 1924.
The Board, therefore, rules that bankers' acceptances may properly
be considered as growing out of transactions involving the importation
or exportation of goods when drawn f o r the purpose of financing the sale
and d i s t r i b u t i o n on usual credit terms of imported or exported goods into
the channels of trade, whether or not the b i l l s are accepted a f t e r the
physical importation or exportation has been completed.
Due care should be observed, however, to prevent a duplication of
financing; and a second acceptance a r i s i n g out of the same transaction
or series of transactions involving the same goods should be i n e f f e c t
merely an extension of an already e x i s t i n g c r e d i t . Thus, i f one acceptance i s issued to finance the shipment of goods to a foreign country
and a second acceptance i s issued to finance the d i s t r i b u t i o n of such
goods i n t o the channels of trade, the proceeds of the second acceptance
should be used to r e t i r e the f i r s t acceptance. Under no circumstances
should there be outstanding at any time more than one acceptance against
the same goods.
A l l previous ruling# i n c o n f l i c t with this r u l i n g are hereby r e versed i n so f a r as they c o n f l i c t w i t h this r u l i n g .
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-5014
December 8, 1927.
SUBJECT;
CodBjFord'to cover new I s s u e o f C e r t i f i c a t e s of Indebtedness, S e r i e s TD-1928,
i n Telegraphic T r a n s a c t i o n s .
Dear S i r : In c o n n e c t i o n w i t h t e l e g r a p h i c t r a n s a c t i o n s
i n Government s e c u r i t i e s "between Federal r e s e r v e "banks,
the code word "BESTIRRED" has "been d e s i g n a t e d t o cover
the new i s s u e of Treasury C e r t i f i c a t e s of Indebtedness,
dated December 15, 1927, S e r i e s TD-1928.
This word should be i n s e r t e d i n the Federal
Reserve Telegraohic Code Book f o l l o w i n g the supplement a l code word "BESTIR" a t the bottom of page 2 6 .
Very t r u l y yours,
J . C. N o e l l ,
Assistant Secretary.
TO GOVERNORS OF ALL F. R. BAHKS.
437
X-5016
TREASURY DEPARTMENT
Office of the Secretary
WASHINGTON
4S8
December 7, 1927.
The Governor,
Federal Reservp Bottird.
Sir:
You are hereby advised that the Department has r e f e r r e d to the Disbursing
Clerk, Treasury Department, for payment, the account of the Bureau of Engraving
and P r i n t i n g for preparing Federal reserve notes during the period November 1,
1989, to November 30, 1987, amounting to $132,060, as follows:
Federal Reserve Notes, Series 1914
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
S t . Louis
Minneapolis
Kansas City
Dallas
S&n Francisco
is
250,000
600,000
100,000
200,000
200,000
100,000
200,000
150,000
50,000
1,650,000
jio
^0
100,000
250,000
50,000
25,000
100,000
100*,000
150,000
50,000
200,000
50,000
300,000
100,000
25,000
100,000
25,000
50,000
50,000 • 50,000
50,000
1,460,000
375,000
j>50
10,000
25,000
5,000
-
#100
5,000
- '
-
Total
355,000
850,000
165,000
425,000
400,000
350,000
500,000
275,000
125,000
50,000
105,000
100,000
40,000
5,000
3,720,000
3,720,000 sheets @ #35.50 per M . . . . .
. #132,060
The charges against the several Federal Reserve Bonks are as follows:
Boston . .
New York
Philadelphia
Cleveland .
Richmond . . .
Atlanta . . .
Chicago . . .
S t , Louie .
Minneapolis .
ICunsc-s City
Delias
Sun Frincisco
. . . . .
. . . . .
. . . . .
. . . . .
. . . .
. . , .
§12,602.50
30,175.00
6,567.50
15,067.50
14,200.00
12,425.00
17,750.00
9,762.50
4,437.50
1,775.00
3,727.50
.
3,550.00
$132,060.00
The Bureau erp^ropriations w i l l be reimbursed- i n the above amount from
the i n d e f i n i t e appropriation "Preparation and Iaaye of Federal Reserve Notes,
Reimbursable" t and i t is requested that your board cause such i n d e f i n i t e appropriation to be reimbursed i n l i k e amount.
Respectfully,
S. R. J; cobs
Deputy Commissioner.
FEDERAL RESERVE BOARDX-5018
439
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
December 14, 1927.
Dear S i r :
• Through the courtesy of Messrs. Locke, Locke, Stroud and.
Randolph, I enclose for your information a copy of an opinion rendered.
November 23rd by the Supreme Court of Texas i n the caae of Odle v . Barnes.
You w i l l r e c a l l that t h i s was a case involving the alleged, negligence of the Federal Reserve Bank of Dallas i n connection with the coll e c t i o n of a check drawn on the F i r s t National Bank of Morgan, Texas r now
closed. I have previously forwarded to you a copy of the opinion d e l i v e r ed by the court of c i v i l appeals, (X-4824).
The opinion of the court of c i v i l appeals s e t t l e d a l l issues as
to the l i a b i l i t y of the Federal Reserve Bank, "but thereafter, upon motion
of the p l a i n t i f f , Odle, certain questions were c e r t i f i e d to the supreme
court concerning the l i a b i l i t y of the F i r s t National Bank'of F t . Worth,
the bank which forwarded the item to the Federal Reserve Batik of Dallas
for collection and also the bank upon which the remittance d r a f t taken i n
settlement of the cash l e t t e r to the Morgan bank was drawn. The questions
are contained i n tho opinion, and as you w i l l see, were based upon tho theory that perhaps the facts i n the case were of such a nature that the act
of the Morgan bank i n drawing the draft on the F t . Worth bank constituted
an equitable assignment of the funds to i t s credit w i t h the F t . Worth bank*
The supreme court answered a l l of tho questions favorably to the F i r s t
National Bank of F t . Worth.
Very t r u l y yours,
v
Walter Wyatt,
General Counsel.
Enclosure.
LETTER TO COUNSEL OF ALL FEDERAL RESERVE BANKS.
X-5018-a
COPY
1 4 0
No. 807-4863,
COMMISSION OF APPEALS,
SECTION B.
J\ S. ODLE,
APPELLANT,
FROM BOSQUE COUNTY,
vs.
TENTH DISTRICT.
S.C. BARNES, e t a l ,
APPELLELS.
CERTIFIED QUESTION.
The c e r t i f i c a t e of the c h i e f j u s t i c e of the
Court of C i v i l Appeals f o r the Tenth D i s t r i c t , "by which
we acquire j u r i s d i c t i o n of t h i s case i s as f o l l o w s :
"Appellant J. S. Odle i n s t i t u t e d t h i s s u i t against
a p p e l l e e s S. C. Barnes, Farmers Guaranty State Bank of
Meridian, h e r e i n a f t e r c a l l e d Meridian hank, the F i r s t
National Bank of Fort; Worth, h e r e i n c a l l e d Fort Worth
bank, and the Federal Reserve Bank of Dallas, h e r e i n
c a l l e d Reserve hank, to recover the sum of $345.00. The
case was t r i e d i n the County Court of Bosque County and
judgment rendered f o r a l l the defendants. J. S. Odle p e r f e c t e d an appeal to t h i s court, and upon hearing of s a i d
appeal the judgment of the County court was a f f i r m e d . The
case i s "before u s on a p p e l l a n t ' s motion f o r rehearing. A
b r i e f statement of the pleadings and the f i n d i n g s of f a c t
by t h i s court arc s e t out i n the opinion of t h i s court, a
c e r t i f i e d copy of which w i l l accompany t h i s c e r t i f i c a t e and
s h a l l be considered as incorporated h e r e i n f o r a l l proper
purposes.
"Appellant i n h i s motion f o r rehearing concedes that
the d r a f t drawn by the Morgan bank upon the Fort'j Worth bank
i n favor of the Reserve bank f o r $1850.77 in payment of
checks p r e s e n t e d to the Morgan bank for payment by s a i d Reserve bank, among which was included the Barnes check upon
which t h i s s u i t i s based, did not i n i t s e l f c o n s t i t u t e an
assignment of any of the funds on deposit i n s a i d Fort Worth
bank, but ho contends that the drawing of s a i d d r a f t , under
the f a c t s of t h i s case, c o n s t i t u t e d as between the Morgan
bank, the bank examiner and the r e c e i v e r of s a i d bank on
one hand, and appellant and the banks a c t i n g as h i s agents
4
•1-
&*30l8*a
i h the c o l l e c t i o n of said Barnes check on the other1 hand,
kn equitable assignment of s u f f i c i e n t of the funds on deposit
i n the Fort Worth bank to the c r e d i t of the Morgan bank to
discharge the same, or sS l e a s t that the same constituted an
equitable assignment of s u f f i c i e n t of said funds to pay the
amount due him as proceeds of the c o l l e c t i o n of said Barnes
feheck. He further contends that by v i r t u e of such equitable
assignment he "became the owner of a s u f f i c i e n t amount of the
funds on deposit i n tho Fort Worth bank to the c r e d i t of the
Morgan bank to pay him the amount of said chock, t o - w i t ,
$45.00. He f u r t h e r contends that i t became the dutjy of the
Fort Worth
to remit said amount to him as proceeds of
the c o l l e c t i o n of h i s said check. His s a i d contentions are
more f o l l y set out i a h i e motion for rehi&ring, which i s
ordered transmitted herewith and made a p a r t hereof. The
t r a n s c r i p t and statement of f a c t s i n t h i s case are also
transmitted herewith for such uso as your Honorable Court
may see f i t to make of the same. Since i t i s not clear
that appellant can secure a review of our a c t i o n on h i s
motion by a p p l i c a t i o n for w r i t of e r r o r , we deem i t
expedient to c e r t i f y to your Honorable Court for detcrminart i o n tho issues of law so presented, as f o l l o w ;
"FIRST QUESTION.
"Did the act of the Jforgen bank i n drawing i t s
d r a f t on the Fort Worth bank i n favor of the Reserve baric,
constitute, under tho f a c t s of t h i s case, an equitable
assignment of s u f f i c i e n t of the funds to i t s c r e d i t i n
the hands of said Fort Worth batik to pay the same or to
•oay the amount due appellant a* the proceeds of the
c o l l e c t i o n of the Barnes check, which proceeds were i n cluded i n s a i d draft?
"SEC01TB QUESTION.
"Was i t the l e g a l duty of the Fort Worth bank,
under tho f a c t s i n t h i s case, to hold i n i t s hand# a
s u f f i c i e n t amount of the funds on deposit w i t h i t tjo the
c r e d i t of the Morgan beak to pay the amount doe appellant
as the proceeds of the c o l l e c t i o n of said check, and to
remit the- saite to him as such?
"THIRD QUESTION.
"Should appellant have had judgment against the
Fort Worth >»*•>*• i n the t r i a l court under h i s pleading# and
tho evidence adduced for the amount of said check, less
such dividends as had beon remitted end p a i d to him by
appellees on account of such collection?"
^
I t i s conceded by a l l parties* as indeed i t must
bo, that tho drawing of i t s d r a f t by the Morgan basl: on the
441
X-5018-a
M 2
Fort Worth Bank i n favor of the Federal Reserve Bank: did not
of i t s e l f constitute an assignment of * n y p o r t i o n of the
funds of the Morgan hank on deposit i n the Fort Wotth Baric.
The contention of appellant i s that under the circumstances
surrounding t h i s transaction the drawing of such d r a f t cons t i t u t e d an equi table assignment of such fund# i n the Fort
Worth "bank, a t l e a s t to the extent of the balance due a f t e r
deducting the payments received from the defunct bank.
There i s nothing shown i n the c e r t i f i c a t e that would
t a k e t h i s case out of the ordinary transaction to constitute
the d r a f t an equitable assigopient of any p o r t i o n of the Morgan
bank deposit w i t h the Fort Worth bank.
Indeed, the opinion
rendered by the Court of C i v i l Appeals, which i s made a f a r t
of the c e r t i f i c a t e , contains t h i s language:
"The evidence discloses with reasonable c e r t a i n t y
that said d r a f t was received by the Fort Worth bank a f t e r
the order from the bank examiner stopping payment thereon.
There i s no evidence that the Fort Worth bank was advised
a t the time i t received or returned said d r a f t t h a t the same
represented i n p a r t the oroceds o f the Barnes cjhaclc."
The f i r s t f a c t t h i s found by the Court of C i v i l
Appeals discloses a s i t u a t i o n that negatives any inference
of actual payment by i t of the Morgan bank d r a f t , and l i k e wise negatives any r i g h t , ranch. less duty, to pay We d r a f t ,
since a t the time of i t s receipt the order f o r payment bad boon
countermanded by tho agent i n change of the Morgan bank.
ment V
Pay-
i t a f t e r such payment had been stopped would have been
a breach of duty by i t , and the circumstances therefore did
not j u s t i f y the holding that i n equity there had been a p a y * * # .
-5n
worn*
Bat t h e c o n t e n t i o n o f a p p e l l a n t i e n e t t e c h n i c a l l y a n o t i o n a l
payment, "but r a t h e r t h a t h e s h o u l d be p r o t e c t e d upon the theory
of e q u i t a b l e a s s i g n m e n t .
Whether or not t h e r e was an a s s i g n -
ment pro t a n t o o f the funds would, dopend upon the t r a n s a c t i o n
between a p p e l l a n t and t h e Morgan hank I n drawing i t s d r a f t , and
not upon a n y t h i n g the T o r t f o r t h bank d i d or d i d n o t do.
The
a s s i g n m e n t , I f any was e f f e c t e d i n l a * o r e q u i t y , was t h e a c t
of the Itorgan bezfic.
There i s n o t h i n g i n the r e c o r d t o show
t h a t t h e r e was a n y t h i n g o a t of t h e o r d i n a r y i n t h e drawing of
t h i s d r a f t a g a i n s t f u n d s on d e p o s i t i n t h e f o r t Worth Bank.
There i s n o t h i n g t o i n d i c a t e any i n t e n t i o n whatever on t h e p a r t
o f t h e Morgan beak t h a t t h e r e s h o u l d be each an e e e t g a m e n t .
I t doee n o t appear t o have c o v e r e d a s p e c i f i c d e p o s i t , ( a s i n
H a t l e y v . West # % a s S a t ' l Bank, 284. S , W. 5 4 0 ) , o r a l l Of t h e
g e n e r a l d e p o s i t * nor i s t h e r e any o t h e r c i r c u m s t a n c e t o t a k e i t
out o f t h e o r d i n a r y t r a n s a c t i o n , and to s a v e t h e c a s e from
t h e s t a t u t e , ( A r t . $947, S e c . 18®) t o t h e e f f e c t t h a t a chock
o f i t s e l f does n o t o p e r a t e a s an assignment o f any p a r t o f
the funds t o t h e c r e d i t of t h e drearer w i t h t h e bank.
Appellant s t r e s s e s the incongruity, as well as the
h a r d s h i p , o f h o l d i n g m a t Barnes< check upon t h e Morgan bank
g i v e n i n payment o f h i s v e n d o r ' s l i e n n o t e h e l d by a p p e l l a n t ,
we® p a i d , and y e t , t h a t h e , a p p e l l a n t , i f h e l d t o have no
'• •
I
'
:
'
'
• • V.
•
"
•
dominant rlg&t i n t h e p r o c e e d s of s u c h payment.
Ait this
c o n s l d o r a i i o n can h a v e no i n f l u e n c e upon our answer t o t h e
questions c w t i f l o d .
l o t h i n g i s before us except the questions
o f I m # # # propounded, and we o f course i n d i c a t e no o&mAm
X-5018-a
upon the q u e s t i o n of payment "by Barnes or any other q u e s t i o n
than the ones here s p e c i f i c a l l y answered.
Our c o n c l u s i o n s are not i n f l u e n c e d i n any w i s e "by
a c o n s i d e r a t i o n of the opposing r u l e s of agency f o r c o l l e c t i o n
of checks and d r a f t s , i l l u s t r a t e d on the one hand "by Tillman
County Bank v. Behringer, 113 Tex., 415, 257 S. W. 206, and
on the Ather hand by Douglas v. Federal Reserve Bank of D a l l a s ,
(U. S . ) 70 L. Ed., 1051.
Whether each succeeding c o l l e c t i n g
hank i s to "be t r e a t e d a s the agent of the payee or as the agent
only of i t s immediate forwarder, the r e s u l t would "be the same
in either instance in t h i s case.
Prom what we have s a i d i t f o l l o w s t h a t each of the
q u e s t i o n s propounded should ho answered i n the n e g a t i v e , and
we a c c o r d i n g l y so recommend.
OCIE SPEER,
Judge.
The o p i n i o n of the Commission of Appeals answering
c e r t i f i e d q u e s t i o n s i s adopted and ordered c e r t i f i e d , to the
Court o f C i v i l Appeals.
THOS B. GREENWOOD,
Associate Justice.
Wm PISRSON,
Associate Justice.
Chief J u s t i c e Cureton not s i t t i n g .
November 23, 1927
444
FEDERAL RESERVE BOARD
c o r e l ct3d copy
WASHINGTON
X-5021
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
December 17, 1927.
SUBJECT:
Holidays during January, 1928.
Dear S i r :
On Monday, January 2, 1928, in observance of Hew
Year's Day, there w i l l be no Gold Settlement Fund nor
Federal reserve note c l e a r i n g , and the o f f i c e s of the
Federal Reserve Board w i l l be c l o s e d .
On fbursday, January 19th, the anniversary of the
birthday of General Eobert E. Lee, the f o l l o w i n g Fede r a l reserve banks and branches w i l l be c l o s e d :
Bi chmond
Charlotte
Atlanta
Birmingham
Nashville
Jacksonville
Louisville
Memnhis
P l e a s e include your c r e d i t s of January 19th f o r
the banks a f f e c t e d with your c r e d i t s f o r the f o l l o w ing business day in the Gold Fund c l e a r i n g , and make
no shipment of Federal reserve n o t e s , f i t or u n f i t ,
for account of the Federal Reserve Banks o f Richmond
or Atlanta on January 19th.
On Saturday, January 28th, the Havana Agency of
the Federal Reserve Bank of Atlanta w i l l be closed on
account of h o l i d a y .
P l e a s e n o t i f y branches.
Very t r u l y yours
J. C. N o e l l ,
A s s i s t a n t Secretary
TO GOVERNORS OF ALL F. R. BAMS.
1:
-
''
FEDERAL RESERVE BOARD
.
m.g
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-5022
December I f , 1927.
SUBJECT:
Expense, Main Line, Leased Wire System,
November, 1927.
Dear S i r :
Enclosed, herewith you w i l l f i n d two mimeograph statements, X-5022-a and X-5022-b, covering i n
d e t a i l operations of the main l i n e , Leased Wire
System, during the month of November, 1927.
P l e a s e c r e d i t the amount payable by your
bank i n the general account, Treasurer, U. S . , on
your books, and i s s u e C/D Form 1, National Banks,
f o r account of "Salaries and Expenses, Federal Reserve
Board, Special Fund", Leased Wire System, sending
duplicate C/D to the Federal Reserve Board.
Yours very t r u l y ,
F i s c a l Agent.
TO GOVERNORS OF ALL F.R. BANKS EXCEPT CHICAGO.
Enclosures:
x
1
X-5022-&
REPORT SHOWING CLASSIFICATION AND NUMBER OFTOEDS TRANSMITTED OVER MAIN LINE
OF THE FEDERAL RESERVE LEASED WIRE SYSTEM FOR THE MONTH OF NOVEMBER, 1927.
From
Boston
New York
P h i l a d e l ">h.ia
Cleveland
Richmond
Atlanta
Chicago
S t . Louis
Minneapolis
Kansas City
Dallas
5sn Francisco
Total
Words sent
by New York
chargeable
to other
F.R.Banks ( l )
Business
reported
by banks
37,051
147,T30
43,671
78,760
50,495
60,009 .
112,216
83,597
36,378
83,995
77,281
112,340
923,523
1,407
1,187
2,051
2,777
2,090
3,079
2,691
2,839
2,792
6,817
2,272
•
30,002
Total
Treasury
Department
Bus ine s s
38,45S
147,730
44,858
80,811
53,272
62,099
115,295
86,288
39,217
86,787
84,098
114,612
6,563
12,126
5,904
7,437
6,351
9,039
13,016
7,820
4,389
8,320
5,824
9,409
953,525
433,066
1,386,591
100.00£
96,19s
160,42s
256,626
18.51%
War Finance
Corporation
Business
218
218
.01$
Net Federal
Reserve Bank
Business
31,895
135,386
38,954
73,374
46, 921
53,060
102,279
78,46s
34,82878,467
78,274
105,203
.
857,109
272,638
1,129,747
81.48#
(*) These p e r c e n t a g e s used in c a l c u l a t i n g the pro r a t a share of l e a s e d wire expense as shown on the
accompanying statement (X-5022-"b)
( l ) Number of words sent by New York to other F.R. Banks f o r t h e i r s o l e b e n e f i t charged to banks
i n d i c a t e d i n accordance with a c t i o n taken a t Governors 1 Conference November 2 - 4, 1925.
Per cent of
t o t a l bank
Business (*)
3-72
15.80
4.55
8.56
5.47
6.19
11-93
9.16
4.06
9.16
Q.13
12.27
100.00
X-5022-b
R~~0RT OF EXPENSE :\M7. LUTE
FEDERAL RESERVE LEASED TIES SYSTEM, NOVEMBER, 192?.
Name of Bank
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
S t . Louis
Minneapolis
Kansas City
Dallas
San Francisco
Federal Reserve Board
Total
("&)
(#)
(*)
(a)
Ooerato rs 1
Salaries
$2b0.00
947.97
225.00
296.66
190.00
270.00
3 , 9 1 2 . 7 5 (#)
203.00
199.73
275-64
251.00
370.00
$7,401.75
Operators 1
Overtime
$
2.00
-
—
-
,
1.00
-
13.13
2.25
-
$15.38
Wire
Rental
Total
Expenses
Pro Rata
Share o f
Total
Exoenses
$260.00
$690.28
2,931.26
949.97
—
844.30
225.00
1,588.40
296.06
1,015.02
190.00
1,145.62
270.00
2,213.74
3,913.75
203.00
1,699.74
199.73
753.32
1,699.74
288.77
1,694.17
253.25
2,276.33
370.00
$ 1 5 , 3 5 3 . 3 5 15353.35
$15,353-35322773.48
$18,556.08
4217.40 ( a )
$18556.08
-
Credits
Payable to
Federal
Reserve
Board
$260.00
949.97
225.00
29S.66
190.00
270.00
3,913.75
203.00
199.73
288.77
253.25
370.00
$430.28
1.981.89
619.30
1,291.74
1 , 0 2 9 . 0 9 (&)
878.62
1,700.01 (*)
1,496.74
553.65
1,410.97
1,440.92
1,906.83
$7,420.13
$13,040.63
_ 1 , 7 0 0 . 0 1 (b)
$11,340.62
Includes $204.67 f o r branch l i n e "business transmitted over main l i n e c i r c u i t .
Includes s a l a r i e s of Washington Operators.
,
Credit.
Received $ 4 , 2 1 4 . 8 5 from Treasury Department and $2.55 from War Finance Corporation c o v e r i n g b u s i n e s s f o r the
month of November, 1327.
(b) Amount reimbursable to Chicago.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
X-5024
December 21, 1927.
SUBJECT:
ASSESSMENT FOB GENERAL e x p e n s e s OF THE FEDERAL RESERVE
BOARD, JANUARY 1 TO JUNE 30, 1928.
Dear S i r ;
Confirming t e l e g r a p h i c a d v i c e , there i s enclosed, herewith
copy of a r e s o l u t i o n adopted "by the Federal Reserve Board l e v y i n g
an assessment upon the s e v e r a l Federal reserve "banks of an amount
equal to e i g h t hundred twenty-two ten-thousandths of one per cent
(.000822) of the t o t a l p a i d - i n c a p i t a l siopk and surplus of such
"banks at c l o s e of "business December 31, 1927, t o defray the e s t i mated general expenses of the Board from January 1 t o June 30, 1928.
Kindly d e p o s i t one-half of the amount of your assessment
i n the General Account, Treasurer> U. S i , on your "books January 1,
1928, and one-half March 1, 1928, in each instance i s s u i n g a C/D
for c r e d i t of " S a l a r i e s and Expenses, Federal Reserve Board, S p e c i a l
Fund", assessment f o r general expended, and sending d u p l i c a t e C/D
t o the Federal Reserve Board.
Also p l e a s e f u r n i s h a statement of
your c a p i t a l and surplus used aM a "basis for the assessment.
Very t r u l y yours,
Enclosure.
F i s c a l Agent.
(Sent to Chairman o f each Federal Reserve Bank)
X-5024,
RESOLUTION LEVYING ASSESSMENT
WHEREAS, under S e c t i o n 10 of the act approved
December 23, 1913, and known as the Federal Reserve Act, t h e
Federal Reserve Board i s empowered to levy semi-annually upon
the Federal reserve "banks i n proportion t o t h e i r c a p i t a l stock
and surplus an assessment s u f f i c i e n t to pay i t s estimated e x penses, including the s a l a r i e s of i t s members, a s s i s t a n t s , a t torneys, experts and employees f o r the h a l f - y e a r succeeding
the l e v y i n g of such assessment, together with any d e f i c i t c a r r i e d forward from the preceding h a l f - y e a r ; and
WHEREAS, i t appears from estimates submitted and
considered that i t i s necessary t h a t a fond equal t o e i ^ i t
hundred twenty-two t e n thousandths of one per cent of the t o t a l
p a i d - i n c a p i t a l stock and surplus of the F c d e r . l reserve "banks
be c r e a t e d f o r the purpose hereinbefore described, e x c l u s i v e
of the cost o f engraving and p r i n t i n g of Federal reserve n o t e s ;
Now, t h e r e f o r e ,
BE IT RESOLVED, That pursuant t o the a u t h o r i t y
v e s t e d i n i t "by law, the Federal Reserve Board hereby l e v i e s
an assessment upon t h e several Federal reserve "banks of an
.-mount equal t o e i g h t hundred twenty-two t e n thousandths of
one per cent of t h e t o t a l p a i d - i n c a p i t a l and surplus of such
"banks as of December 31, 1927, and the F i s c a l Agent of the
Board i s hereby authorized t o c o l l e c t from s a i d banks such
assessment and e x e c u t e , in the name of the Board, r e c e i p t s
f o r payments made. Such assessments w i l l be c o l l e c t e d i n two
i n s t a l l m e n t s of one-half each; the f i r s t installment t o be
paid on January 1, 1928, and the second h a l f on March 1, 1928.
X-50^2 7
45
FSB 3 R a L B 3 S 3 a VB
B 0 *. B D
bTAI^NT FOB THii PB3SS
For immediate r e l e a s e :
'
December 23, 1927.
CONDITION OF ACCEPTANCE UARK3T
November 17, 1927, to December 14, 1927.
The acceptance market in New York continued a c t i v e during the four weeks
ending November 16, but did not maintain the exceptional turnover which
characterized the preceding p e r i o d .
With the exception of that period, how-
ever, the supply was the l a r g e s t i n recent years, with drawings against
cotton, s i l k , copper, sugar, and grain predominating.
Demand f o r b i l l s f o r
the investment of f o r e i g n balances h e l d i n t h i s market was heavy during the
period, and r e l a t e d c h i e f l y to longer m a t u r i t i e s while domestic demand was
moderate and confined c h i d f l y to short b i l l s .
sold to tho reserve banks in large volume.
out the p e r i o d .
Short m a t u r i t i e s wore a l s o
Bates remained uncHarfgod through-
The b i l l market in Boston continued a c t i v e , in contrast to
Philadelphia and Chicago where a quieter tone p r e v a i l e d .
The f o l l o w i n g t r b l e
shows r a t e s i n the New York market on b i l l s of various m a t u r i t i e s at' the begin
;.iing and end of the reporting period.
ACC3PTiu?CS BjiTiiS IN THsi lUh YOBK kuBE^T
Maturity
Bid
30
60
9«
120
130
days
days
deys
days
days
3
3
3
3
3
l/8
l/4
3/8
l/2
5/8
November 17
Asked
3
3
3
3
3
l/8
l/4
3/8
l/2
December 14
Bid
Asked
3
3
3
3
3
l/8
l/4
3/8
l/2
5/8
3
3
3
3
3
l/8
l/4
3/8
l/2
X-5028
f e d e r a l
r e s e r v e
b o a r d
STATEMENT FOR THE PRESS
For r e l e a s e in Morning P a p e r s ,
Tuesday, December 27, 1927.
The f o l l o w i n g i s a summary of g e n e r a l b u s i n e s s and
f i n a n c i a l c o n d i t i o n s throughout the s e v e r a l Federal
R e s e t v e D i s t r i c t s , b a s e d upon s t a t i s t i c s f o r t h e
months of November and December, a s c o n t a i n e d i n t h e
f o r t h c o m i n g i s s u e of t h e F e d e r a l R e s e r v e B u l l e t i n .
I n d u s t r i a l a c t i v i t y and f r e i g h t c a r l o a d i n g s d e c l i n e d f u r t h e r i n November,
w h i l e r e t a i l t r a d e showed more t h a n t h e u s u a l s e a s o n a l i n c r e a s e .
The g e n e r a l
l e v e l of w h o l e s a l e commodity p r i c e s a f t e r advancing f o r f o u r months remained
p r a c t i c a l l y unchanged i n October and November.
Production.
Output of m a n u f a c t u r e s and m i n e r a l s Was r e d u c e d in November, and t h e combined
Index of p r o d u c t i o n , a f t e r a d j u s t m e n t s f o r customary s e a s o n a l v a r i a t i o n s , f e l l
below t h e 1923-1925 a v e r a g e f o r t h e f i r s t time s i n c e 1624*
The l a r g e s t d e c l i n e
was in t h e o u t p u t of a u t o m o b i l e s owing l a r g e l y to p r e p a r a t i o n f o r p r o d u c t i o n of
new models.
I r o n and s t e e l p r o d u c t i o n h a s a l s o d e c l i n e d f u r t h e r and in November
iron
was t h e l o w e s t s i n c e 1924. In December, however, i n q u i r i e s f o r / a n d s t e e l i n creased.
T e x t i l e m i l l a c t i v i t y was s l i g h t l y c u r t a i l e d in November b u t c o n t i n u e d
a t a h i g h e r l e v e l than i n p r e v i o u s y e a r s .
There were d e c r e a s e s in t h e p r o d u c t i o n
of c o a l , b u i l d i n g m a t e r i a l s , and l e a t h e r and s h o e s .
B u i l d i n g c o n t r a c t awards
showed s e a s o n a l d e c l i n e s in November and t h e f i r s t two weeks o f December and
were s l i g h t l y s m a l l e r than in t h e c o r r e s p o n d i n g p e r i o d of l a s t y e a r .
The t o t a l v a l u e of about f i f t y c r o p s i n 1927 i s e s t i m a t e d by t h e Department
o f - A g r i c u l t u r e a t $ 8 , 4 3 0 , 0 0 0 , 0 0 0 , an i n c r e a s e of $635,000,000 over 1926.
The
g r e a t e s t i n c r e a s e s i n v a l u e were shown f o r c o t t o n , c o r n , b a r l e y , and o a t s , w h i l e
t h e l a r g e s t d e c r e a s e f o r any i n d i v i d u a l c r o p was shown f o r p o t a t o e s .
The
p h y s i c a l q u a n t i t y of p r o d u c t i o n of the s e v e n t e e n p r i n c i p a l crops was about 2
per - e o : v f c - ± l a a n last- year
but
3 per- cont
above
the
average
of
the
last
ten
years.
Trade.
2,etail trade increased
with
a year
stores
ago,retail
was
in n e a r l y
larger,
all
and
in
for
the past
of
tne
t^'ade of
while
reporting
early part
lines.
of
is
than
department
wholesale
usual
stores,
trade continued
Freight
mail
in
carloadings
December were
years.
four
s l i g h t l y more
smaller
There were l a r g e
in November,
Compered
order
and
houses,
slightly
declined
than
in.the
decreases
in
smaller
chain
volume
d u r i n g November
corresponding period
loadings
of
all
classes
commodities.
Prices.
of
The g e n e r a l
level
of
the Bureau of
Lao o r
Statistics,
summer,
remained at
practically
Changes wore r e l a t i v e l y
hides
and
leather,
materials.
In
cotton,
pig
iron,
:>ods,
hides,
;
the
and
wholesale
and
small
and
after
the
in
decreases
first
commodity p r i c e s ,
all
groups,
advance
i n November
increases
in farm products,
two w e e k s o f
leather
continuous
same l e v e l
softwood lumber
sole
a
as measured by
as
in
December p r i c e s
of
declined,
those
in
fuels,
wheat,
index
early
in
the
October.
occurring
textiles,
while
since
the
foods,
and
and b u i l d i n g
cattle,
hogs,
of
silk,
woolen
December
total
loans
advanced.
Bank C r e d i t .
Between
investments
reflecting
banics1
the middle of
of
member b a n k s
continued
investment
purposes,
growth
holdings.
which reached
decline.
November
a
and
in
leading
in
the
In
the
seasonal
the middle
cities
volume of
showed a c o n s i d e r a b l e
loans
same p e r i o d
peak
in
of
on s e c u r i t i e s
loans
October,
chiefly for
and
and
increase,
in
the
commercial
showed a f u r t h e r
slight
At Federal r e s e r v e tanks the seasonal i n c r e a s e in currency requirements and
the continued demand f o r gold f o r export during the four weeks ending December
21 were r e f l e c t e d in a growth in member bank borrowing,
At the end of t h i s
p e r i o d the t o t a l volume of r e s e r v e bank c r e d i t i n use wns l a r g e r than on any
other date in the p a s t s i x y e a r s .
Somewhat firmer c o n d i t i o n s in the money market in December were r e f l e c t e d in
increased r a t e s on c a l l money.
Hates on prime commercial paper and bankers
acceptances remained unchanged during: the month.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-5029
December 27, 1927,
SUBJECT:
Correction in Inter-District
Time S c h e d u l e ,
Dear S i r :
At the r e q u e s t of the Federal Reserve
Bank of M i n n e a p o l i s , the F e d e r a l Reserve
Board has approved a change in the t r a n s i t
time from Minneapolis to Baltimore from
t h r e e d a y s t o two d a y s .
Very t r u l y y o u r s ,
e . m. M c C l e l l a n d ,
Assistant Secretary.
TO ALL GOVERNORS.
/
FEDERAL RESERVE BOARD.
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
August 24, 1926.
S t . 5063.
Dear S i r :
The head o f f i c e s of a l l the Federal r e s e r v e banks
having now been in t h e i r own b u i l d i n g s for a year or more,
the Board's Committee on S a l a r i e s and Expenditures has had
a t a b l e prepared showing the c o s t of maintaining the P r o v i s i o n
of Space f u n c t i o n at the head o f f i c e of each Federal reserve
bank f o r the year ending June 30, 1926. This statement has
been prepared i n more d e t a i l than i s shov/n i n the semi-annual
f u n c t i o n a l expense e x h i b i t in order that the Board could have
a b e t t e r comparison between the Federal reserve banks of the
cost of maintaining the f u n c t i o n .
As i t occurs to us that you and the o f f i c e r s and
d i r e c t o r s of your bank might be i n t e r e s t e d in comparing the
d e t a i l e d c o s t s shov/n f o r your bank w i t h those shown f o r other
Federal r e s e r v e banks, wo are e n c l o s i n g herewith three c o p i e s
of the statement. I t should be understood, of course, that
t h i s statement does not include such expense's as d e p r e c i a t i o n
or i n t e r e s t on money invested i n land and b u i l d i n g s .
Very t r u l y yours,
Geo. E. James, Chairman,
Committee on S a l a r i e s
and Expenditures.
l e t t e r TO a i l chairmen.
4 :56
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
Jul""
st.
SUBJECT:
1 2 ,
19 2 7
543s
Bank Suspensions.
Dear S i r :
There i s enclosed herewith a l i s t of
member and nonmenber "b-.nks reporter, to the Bo?rd
as having suspended operations during the month
of June, and of t e a k s p r e v i o u s l y suspended which
resumed "business during the same month. The
statement a l s o includes any c o r r e c t i o n s made in
the l i s t s p r e v i o u s l y sent to you.
I t n i l l be appreciated i f you w i l l
k i n d l y check the da,ta p e r t a i n i n g to your d i s t r i c t
against your records and advise the Board on or
"before July 25, "by telegraph i f necessary, whether
or not eay c o r r e c t i o n s or a d d i t i o n s arc necessary
t h e r e i n , i n order that correct summaries "by d i s t r i c t s may "be published in the Federal Reserve
Bulletin.
Very t r u l y yours,
Tfe.lter L. 3ddy,
Secretary.
Enclosure.
LITTER TO ALL F3DZ5AL EESEE73 _10-"TTS*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
July l 4 , 1927.
St.5442
SUBJECT:
Reports of Condition of State
Banks and Trust Companies
Dear S i r :
I t w i l l b e g r e a t l y appreciated i f i n accordance with your usual p r a c t i c e you w i l l k i n d l y f u r n i s h
the Federal Reserve Board, a s soon as a v a i l a b l e , with
a copy of the a b s t r a c t of reports of c o n d i t i o n of
s t a t e banks and t r u s t companies in your s t a t e on
June 30, 1927, or other recent date in case you did
not i s s u e a c a l l f o r reports of condition as of
June 30.
In submitting the above mentioned date, i t i s
requested that the number of bpnks be s t a t e d and thr-.t
separate f i g u r e s be furnished f o r mutual savings b^nks
providing there are any such banks operating i n your
state.
A freaked and s e l f - a d d r e s s e d envelope, r e quiring no postage, i s enclosed f o r use in transmitt i n g the data requested.
Very t r u l y yours,
J . C. iToell,
A s s i s t a n t Secretary.
Enclosure.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
July l 4 , 1927
s t . 5443
SUBJECT:
Reports of Condition of S t a t e
Banks and Trust Companies.
Dear S i r :
I t w i l l be g r e a t l y appreciated i f i n accordance
with your usual p r a c t i c e you w i l l k i n d l y f u r n i s h the
Federal Reserve Board, as soon as a v a i l a b l e , w i t h a copy
of the a b s t r a c t of r e p o r t s of c o n d i t i o n of s t a t e banks
and t r u s t companies i n your s t a t e on June 30, 1927, or
other r e c e n t date in c a s e you did not i s s u e a c a l l f o r
r e p o r t s of c o n d i t i o n as of June 30.
In submitting the above mentioned data i t i s
r e q u e s t e d t h a t the number of banks be s t a t e d and t h a t
separate f i g u r e s be f u r n i s h e d f o r mutual s a v i n g s banks
p r o v i d i n g there are any such banks operating i n your
s t a t e , a l s o that the f i g u r e s be s e g r e g a t e d by Federal
reserve d i s t r i c t s .
A franked and s e l f - a d d r e s s e d envelope, r e q u i r i n g no p o s t a g e , i s e n c l o s e d f o r use i n t r a n s m i t t i n g
the data requested.
Very t r u l y yours,
J . C. N o e l l ,
Assistant Secretary.
Enclosure.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
August 16, 1927
st.
SUBJ3GT:
5465
F u n c t i o n - ! Expenses,
F i r s t Half, 1927.
Dear S i r :
There are e n c l o s e d . h e r e w i t h
conies
of the c o n s o l i d a t e d Functional Expense e x h i b i t f o r
the h a l f ye-~r ending J ^ e JO, 1927.
A copy of
the e x h i b i t i s a l s o "bein6 mailed to the Governor
of the "bank.
Very t r u l y yours,
E. L. Smead, C h i e f ,
D i v i s i o n of Barfc: Operations.
Enclosure.
L5T"T. TO CHAIR CA2T OF EACH FEDERAL EESTRV? EA'TK*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
August- l 6 , 1927.
st.
SUBJECT:
5475
Bank Suspensions.
Dear S i r :
There i s e n c l o s e d herewith a l i s t of member
and nonmenber banks reported to t h e Board a s having
suspended o p e r a t i o n s during the month of J u l y , end of
banks p r e v i o u s l y suspended which resumed b u s i n e s s
during the same month. The statement a l s o i n c l u d e s
any c o r r e c t i o n s ina.de i n the l i s t s p r e v i o u s l y sent to
you.-,
I t w i l l be a p p r e c i a t e d i f you w i l l k i n d l y
check the data p e r t a i n i n g to your d i s t r i c t a g a i n s t
your r e c o r d s and a d v i s e the Board on or b e f o r e August
26, by t e l e g r a p h i f n e c e s s a r y , whether or not gny
c o r r e c t i o n s or a d d i t i o n s are n e c e s s a r y t h e r e i n , i n
order that c o r r e c t summaries by d i s t r i c t s aay be
p u b l i s h e d i n the Federal Reserve B u l l e t i n .
Very t r u l y yours,
Walter L. Eddy,
Secretary.
3nclo sure.
LETTER
TO ALL FEDERAL RESERVE AGISTS*
C0 N F I DS N T I A L
Not f o r publication
Name of bank
St.
BA1H SUSPENSIONS DURING JULY 192?
Location
4 Fayette City
Fayette City : at. Banlc
DISTRICT :io. 6
Cleveland
Farmers & Merchants Bank
Aclasis
Bank of Adams
Erin
Bank of Erin
DISTRICT NO. 7 Grabill
Grab i l l State Bank
Kirklin
Farmers State 3 .ink
Alburnett
Alburnett Savings Bank
Arion
Arion State Bank
Neola
State Bank of Neola
Rodney
Rodney Savings Bank
Walker Savings Bank
Walker
Lafayette County St. Bank
Darlington
DISTRICT NO. 8 Arkansas City
Desha Bank & Trust Co.
Watson
Desha County Banlc
Dresden
Dresden Banlc
DISTRICT NO. q E. Grand Forks
F i r s t National Bank
Cobden
State Bank of Cob den
Crookston S t a t e Banlc
Crookston
Farmers State B a n l c
Gatzke
Mapleton S t a t e Bank
Mapleton
M i l l e r v i l l e S t a t e Bank
Millerville
Tabor State Bank
Tabor
Mountrail Co. State Bank
Lostwood
Far. & Merchants Bank
Manitou
American State Bank
Burke
State Bank of Grover
Grover
State Bank of Cyclon
Cyclon
Wheeler S t a t e Bank
Wheeler
T
Angola State Bank
Horace State Banlc
Commercial State Bank of
Mt. Washington
Bridgeport Bank
Hinatare Bank
P l a t t e Valley State Bank
American State Bank
Deposit Guaranty St. Bank
Data
Capital
jlotiod
CL'VZIAND
Pr\
Inly 7
ATLANTA
Ga. July 2
Tenn.July 2^
Tenn.July 14
CHICAGO
Ind. July 11
Ind. July 28
Iowa July 8
I owa July 28
lov.-a July 15
Mich.July 18
I ova July 15
ifis. July 13
ST. LOUIS
Ark. July 21
Ark. July 27
Tenn.July 18
MINNEAPOLIS
Minn. July 23
Minn. July 21
Minn. July 15
Minn. July 9
Minn. July 5
Minn. July 23
Minn. July i o
N.D. July 18
N.D. July 19
S. D. July 20
S. D. July 30
Wis. July 2
.71 s. July 5
DISTRICT NO. 10 - KANSAS CITY
Kans.July 14
Angola
Horace
itan s . J u l y 9
Fai mount
Bridgeport
Minatare
N. P l a t t e
Scotts Bluff
Ponca City
Mo. July
Neb. July
Net. July
Not. July
Nob. July
Okla.July
22
13
15
29
29
8
Class
Deposits* of "bank
675,000 $1,975,000
15,000
10,000
25,000
30,000
30,000
20,000
25,000
30,000
10,000
20,000
25,000
103,000
18,000
35,000
50,000
10,000
40,000
10,000
15,000
10,000
10,000
10,000
10,000
40,000
Nat.
92,000
85,000
100,000
Nonmem.
n
ii
170,000
Nonmem.
39,000
345,000
40,000
l6l,000
253,000
"
"
Non.Prvi
Nonmem.
"
642,000
Nonmem.
663,000
123,000
540,000
44,000
Nat.
Nonmem.
"
"
93,000
74,000
50,000
"
"
"
106,000
161,000
66,000
178,000
292,000
"
"
"
"
" '
38,000
"
257,000
"
15,000
10,000
20,000
102,000
45,000
173,000
"
"
10,000
10,000
81,000
Nonmem.
10,000
71,000
!!
H
52,000
"
Not a v a i l a b l e
25,000
243,000
Not a v a i l a b l e
50,000 1,000,000
25,000
350,000
TOTAL FOR ALL DISTRICTS - 3b Batiks - Capital $851,000 - Deposits $8,704,000
Digitized•Latest
for FRASERa v a i l a b l e f i g u r e s , taken from Form X-4401, i f r e c e i v e d ,
http://fraser.stlouisfed.org/
Rand McNally Bankerfe Directory or condition reports.
Federal Reserve Bank of St. Louis
otherwise from
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CONFIDENTIAL
Not f o r publication
st.5475b
SUSPENDED BAITS REOPENED DURING- JULY 1927
F. R.
District
number
J
Name end l o c a t i o n of bank
Vero Beach
Date
closed
7- 2-27*
Class
of
br-nk
Non.
6
Fg.rmers Bank & Tr. Co,
7
Louisa County National Bk, Columbus Junction l a , 6 - 1 0 - 2 7 7- 9-27
Nat'l.
9
Borgerding State Bank
Security State Bank
Non.
11
Melrose
DoIsold
Fla. 1-27-27
Date
Reopened
Minn. 2-23-27 7-26-27
S, D. 8-10-26 7-15-27
•Reopened as Fa,rmers Bank of Vero Beach.
- CORRECTIONS TO 35 itAJDE IN PREVIOUS LISTS SHOWING- BANK SUSPENSIONS
OR OF SUSPENDED BAMS REOPENED
June l i s t of "bank suspensions
To be added, to the l i s t :
Cooperative Banking A s s ' n . , Marmaduke, Ark., - D i s t r i c t No. 8 - nonmember,
c a p i t a l $25,000, deposits $23,000,
Closed June l 6 , 1927.
June l i s t of banks reopened
To be added to the l i s t ;
Lewis County Exchange Bank, Lewistown, Mo., D i s t r i c t No. 8 - nonmeniber,
c l o s e d Iiay l 4 , 1927, reopened June 16, 1927.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
August 19, 1927
s t . 5U79.
SUBJ3CT:
Condition of Member Banks
as of June 30, 2-927.
Dear S i r :
For your information there i s enclosed
herewith
a preliminary statement regarding the
c o n d i t i o n of a l l member "banks combined as of
June 30» 1927.
The Board's Member Bank Cgll
Heport (Ho. 36) showing d e t a i l e d f i g u r e s f o r a l l
member banks and f o r State bank members w i l l "be
ready f o r d i s t r i b u t i o n in the near f u t u r e .
Very t r u l y yours,
S. M. McClelland,
A s s i s t a n t Secretary
Enclosure.
L3-T3R. TO ALL 3FEDTRAL H3S3HV3 AGS'IS*
&G5
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
Septe.HOG T 9 ,
g t .
^ 4 9 2
SUBJECT:
1 9 ^ 7 •
Member Bank Call Report showing
Condition of All Member Banks on
June 30, 1927.
Dear S i r :
We are forwarding to you under separate
cover
c o p i e s of the Board's Member 3a.nk Call
Report No. 36, showing the condition of e l l member
banks on June J>0, 1927.
Please forward a copy to
each member bank in your d i s t r i c t that has expressed
a d e s i r e to r e c e i v e c o p i e s of c a l l reports as i s s u e d .
Very t r u l y yours,
J . C. IToell,
A s s i s t a n t Secretary.
LETT3R TO ALL 3\ R. AC-3NTS*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
September 12, 1927
s t . 5502
SUBJECT:
Reports of Deposits of ""ember
Banks, Form St. 35^1.
Dear S i r :
On May 11, 1923, the Board in i t s l e t t e r St. 3502 asked
the Federal reserve agents t o submit monthly reports (on form
St. 3501) of d e p o s i t s of member banks in each s t a t e in t h e i r d i s t r i c t s , c l a s s i f i e d according to c e r t a i n population groups. The
Board's l e t t e r on t h i s subject s t a t e d that in the compilation of
the data c i t i e s and towns should be grouped in accordance with
a l i s t enclosed therewith, which was based on the l a t e s t census
f i g u r e s and showed a l l c i t i e s and towns with a population of
5,000 or over. I t i s assumed that the reports f o r a l l d i s t r i c t s
are s t i l l being compiled in accordance with t h i s population .
c l a s s i f i c a t i o n , even though some of the c i t i e s may have moved
i n t o a d i f f e r e n t population group.
The question has a r i s e n as to whether or not r e v i s i o n s
in the grouping of c i t i e s should be made c u r r e n t l y when a c i t y
moves fror: one population group to another, or trhen a d j o i n i n g
towns are c o n s o l i d a t e d with larger c i t i e s , ps f o r i n s t a n c e , the
c o n s o l i d a t i o n of the towns of Hollywood, San Pedro, Sawtelle,
and Venice, with Los Angeles. If the f i g u r e s f o r p l a c e s that
have h e r e t o f o r e been included in the smaller population groups
should be added to the f i g u r e s in the other groups, the comparab i l i t y of tho f i g u r e s f o r the smaller population groups might
be s e r i o u s l ^ a f f e c t e d , and f o r t h i s reason the Board p r e f e r s
to h».ve such changes made only at rather l o n g i n t e r v a l s , probably
a f t e r each decennial census.
Very truly yours,
Walter L. Eddy,
Secretary.
LETTER TO ALL F. R. AGENTS*
/% CI
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
September l 4 ,
St.5504.
SUBJECT:
1927.
Hor.t c a r r i e d "by the Federal
Reserve Banks.
Dear S i r :
The Board has under c o n s i d e r a t i o n the f l o a t c a r r i e d by the system
as a r e s u l t of the operation of the check c o l l e c t i o n f u n c t i o n and in t h i s
connection i s desirous of obtaining information, f i r s t as to the s t a t e s or
parts of s t a t e s on which the reserve "banks are carrying f l o a t , and second,
as to the groups of banks which are "being "benefited therety. Such information seems necessary to a thorough understanding of the f l o a t problem as
i t now e x i s t s and accordingly forms have been prepared with a view to
making p o s s i b l e such an a n a l y s i s of the f l o a t f o r a period of one week. I t
w i l l be appreciated i f your bank w i l l keep the necessary records during
t h i s period to enable i t to f u r n i s h the Board with the f i g u r e s c a l l e d f o r
by the forms.
While i t i s p r e f e r a b l e to have the a n a l y s i s based on the d a t e s
of a v a i l a b i l i t y of items, i . e . , the dates on which c r e d i t i s given by the
reserve bank, and the enclosed sample forms A, B, C, D, and S were drawn
up on that b a s i s , i t i s recognized that i t may be d i f f i c u l t f o r some of the
banks to compile the information on t h i s b a s i s . In case, t h e r e f o r e , a bank
f i n d s that the work involved would be reduced m a t e r i a l l y by compiling the
f i g u r e s on the b a s i s of i t s sendings each day i n s t e a d of i t s t o t a l c r e d i t s
each day, i t may render reports f o r the head o f f i c e and i t s branches, i f
any, on the b a s i s of d a i l y sendiags, but in that event the week September
26 to October 1 must be s u b s t i t u t e d in place of tho week October 3 to 2
shown on the forms. Also the words " a v a i l a b i l i t y da.to" in the heading over
the f i r s t column must be changed to "date sent" and the words "Total amount
credited" in the heading over the second column must be changed to "Total
amount s e n t . "
You w i l l note that forris A, 3, and C r e l a t e to c-asli items sent
e i t h e r by your own bank or by d i r e c t - s e n d i n g banks in your d i s t r i c t to
other Federal reserve banks and t h e i r branches. I t w i l l be necessary to
use a separate sheet of each of these forms f o r each other Federal reserve
bank and branch ( i n c l u d i n g own head o f f i c e or branches) to which items are
sent.
Forms D and E r e l a t e to cash items drawn on member and nonmember
banks in your own d i s t r i c t . A separate sheet should be used f o r reporting
items drawn on banks i n each. Federal reserve "bank and branch c i t y , and f o r
checks drawn on a l l other "banks i n each s t a t e within the t e r r i t o r y assigned
to the Federal reserve "bank or "branch. These forms a l s o provide f o r showing (as a memorandum at the bottom) the amount of f l o a t the bank or branch i s
carrying a s a r e s u l t of accepting remittances not immediately a v a i l a b l e i n
settlement f o r cash l e t t e r s .
Form F i s designed to show the source from which a l l items handled
by each Federal reserve bank or branch arc received. I t w i l l be noted that
form F i s to be compiled on the b a s i s of the dates the items are r e c e i v e d
by the reserve bank r e g a r d l e s s of whether or not forms A, B, C, D, and E,
are prepared on the b a s i s of the dates c r e d i t i s given by the reserve bank
or the dates i t r e c e i v e s the items.
In the preparation of the enclosed forms we have consulted with
r e p r e s e n t a t i v e s of three of the reserve banks with the object of having
the forms prepared in such a way as to be e a s i l y understood by those in
charge of the t r a n s i t departments and of keeping the a d d i t i o n a l work i n volved i n compiling the data down to a minimum.
Return items and non-cash c o l l e c t i o n items should be disregarded
in the preparation of the reports.
In view of the d i f f e r e n t methods of accounting f o l l o w e d i n connection with the operation of branches, i t i s l i k e l y that some branches w i l l
be unable to compile a part of the data c a l l e d f o r by forms A, B, and C.
Reports on these forms f o r i n t e r - d i s t r i c t items may be omitted, t h e r e f o r e ,
by such branches, provided the t r a n s a c t i o n s of the branches are included in
the r e p o r t s of the head o f f i c e ; and reports on these forms on i n t r a - d i s t r i c t
items may be omitted by both head o f f i c e and branches, provided the c o l l e c t ing o f f i c e takes up such items on forms D and E according to the date c r e d i t
was a c t u a l l y given to the member bank.
The Board understands the Standing Committee on C o l l e c t i o n s i s a t
work upon a r e v i s e d time schedule which may be presented at the next Gov<ernors 1 conference i n October. I t i s thought that the information requested
above may be h e l p f u l in a study of t h i s problem, and i t i s requested, theref o r e , that the information be compiled and the reports forwarded to t h i s
o f f i c e as promptly a f t e r October 8 as p o s s i b l e . Your kind cooperation in
compiling t h i s information w i l l be g r e a t l y appreciated.
Very truly yours,
E. L. Smead, Chief,
D i v i s i o n of Bank Operations.
LETTER TO GOVERNOR OF EACH FEDERAL RESERVE BALuC*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
September l 4 , 1927*
~st. 5505.
SUBJECT:
Bank Suspensions.
Dear Sir:
There i s e n c l o s e d herewith a l i s t of member
and. nonmerriber "banks reported to the Board as having
suspended o p e r a t i o n s during the month of August, and
of banks p r e v i o u s l y suspended which resumed b u s i n e s s
during the same month. The statement a l s o i n c l u d e s
any c o r r e c t i o n s made i n the l i s t s p r e v i o u s l y sent t o
you.
I t w i l l be a p p r e c i a t e d i f you " i l l k i n d l y
chock the data p e r t a i n i n g to your d i s t r i c t against
your records and advise the Board on or b e f o r e September 2o, by t e l e g r a p h i f n e c e s s a r y , whether or not
any c o r r e c t i o n s or a d d i t i o n s are n e c e s s a r y t h e r e i n ,
i,n order that c o r r e c t summaries by d i s t r i c t s may be
p u b l i s h e d i n the Federal Reserve B u l l e t i n .
Very t r u l y yours,
Walter L. Eu.0--,
Secretary.
Enclosure.
LETTER TO ALL FEDERAL RESERVE AGENTS*
'*59
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
October 11, 192J
s t . 5523
^
v
Condition Reports of S t a t e Member banks,
Form 105.
Dear S i r :
There a r e being forwarded to you today under separate
cover
c o p i e s of form IO5. P l e a s e mail three c o p i e s of
the form to each S t a t e Bank and Trust Company member i n your
d i s t r i c t with i n s t r u c t i o n s to h o l d the blank forms pending r e c e i p t of a c a l l f o r c o n d i t i o n r e p o r t s . Upon r e c e i p t of n o t i c e
from the Board of the c a l l f o r c o n d i t i o n r e p o r t s , k i n d l y n o t i f y
the banks thereof by mail and request them to f i l l out the r e p o r t s and mail them to you promptly - i n no c a s e l a t e r than
10 days a f t e r r e c e i p t of the c a l l .
In order that the c o m p i l a t i o n of the Board's member
bank c a l l report may not be unduly delayed, i t i s r e q u e s t e d
that the c o n d i t i o n r e p o r t s be forwarded to the Board a s soon
as p r a c t i c a b l e a f t e r they are r e c e i v e d by the Federal r e s e r v e
bank. If i t i s n e c e s s a r y to communicate with a. bank regarding
apparent e r r o r s i n i t s report, a note to that e f f e c t should be
made on the report i t s e l f b e f o r e i t i s mailed to the Board,
and the Board should be a d v i s e d of the n e c e s s a r y c o r r e c t i o n s
when the d e s i r e d information i s r e c e i v e d from the member bank.
I t i s important that t h e s e r e p o r t s be c o m p l e t e l y
f i l l e d out i n a l l c a s e s and p a r t i c u l a r a t t e n t i o n i s i n v i t e d to
the requirement t h a t the r e p o r t i n g bank i n s e r t an amount or
the word "none" a g a i n s t each item both on the f a c e and on the
r e v e r s e s i d e of the r e p o r t . • In case a bank f a i l s to comply
with t h i s requirement, i t i s requested that i t be asked f o r the
information n e c e s s a r y to complete the r e p o r t and that such i n formation be f u r n i s h e d the Board.
Very t r u l y y o u r s ,
Walter L. Eddy,
Secretary.
-H1
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
THE FEDERAL RESERVE BOARD
October l 4 , 1927,
St. 5538.
SUBJECT: . Bank Suspensions.
Dear Sir:
There i s e n c l o s e d herewith a l i s t of member
and nonmoribor "banks reported to the Board as having
suspended operations during tho month of September,
and of banks p r e v i o u s l y suspended which resumed b u s i ness during the same month. The statement a l s o i n cludes any c o r r e c t i o n s made i n the l i s t s p r e v i o u s l y
sent to you.
I t w i l l be appreciated i f you w i l l k i n d l y
check the data p e r t a i n i n g to your d i s t r i c t against
your records and advise the Board on or before October 2b, by telegraph i f necessary, whether or not
any c o r r e c t i o n s or a d d i t i o n s are necessary t h e r e i n ,
i n order that correct summaries by d i s t r i c t s may be
published i n the Federal Reserve B u l l e t i n .
Very t r u l y yours,
Walter L. Eddy,
Secretary.
Enclosure
LETTER TO ALL FEDERAL RESERVE ASSETS*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
October 26, 1927,
St. 5546.
Reports of Condition of S t a t e
Banks and Trust Companies.
Dear S i r :
I t w i l l "be g r e a t l y appreciated i f i n a c c o r dance with your usual p r a c t i c e you w i l l k i n d l y f u r n i s h
the Federal Reserve Boait}., as soon as a v a i l a b l e , with
a copy of the a b s t r a c t of reports of condition of
s t a t e banks and t r u s t companies in your s t a t e on
October 10, 1927, or other recent date i n c a s e you did
not i s s u e a c a l l f o r reports of c o n d i t i o n as of
October 10.
In submitting the above mentioned data i t i s
requested that the number of banks, e x c l u s i v e of branch
banks, be s t a t e d and that separate f i g u r e s be f u r nished f o r mutual savings banks providing there are
any such banks operating in your s t a t e .
A franked and s e l f - a d d r e s s e d envelope, r e quiring no postage, i s enclosed f o r use in transmiting the data requested.
Very t r u l y yours,
J. C. N o e l l ,
A s s i s t a n t Secretary.
Enclosure.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
October 20, 192J,
T H E FEDERAL RESERVE BOARD
s t . 5547.
SUBJECT:
Reports of Condition of S t a t e
Banks and Trust Companies.
Dear S i r ;
I t w i l l "be g r e a t l y a p p r e c i a t e d i f i n accordance
with your usual p r a c t i c e you w i l l k i n d l y f u r n i s h the
Federal Reserve Board, as soon as a v a i l a b l e , with a copy
of the a b s t r a c t of r e p o r t s of c o n d i t i o n of s t a t e banks
and t r u s t companies i n your s t a t e on October 10, 1927,
or o t h e r r e c e n t date i n c a s e you d i d not i s s u e a c a l l
f o r r e p o r t s of c o n d i t i o n a s of October 10.
In submitting the above mentioned data i t i s
r e q u e s t e d t h a t the number of banks, e x c l u s i v e of branch
banks, be s t a t e d and t h a t separate f i g u r e s be f u r n i s h e d
f o r mutual s a v i n g s banks p r o v i d i n g there are any such
banks o p e r a t i n g i n your s t a t e , a l s o that the f i g u r e s be
s e g r e g a t e d by Federal r e s e r v e d i s t r i c t s .
A franked and s e l f - a d d r e s s e d envelope, r e q u i r i n g no p o s t a g e , i s e n c l o s e d f o r use i n t r a n s m i t t i n g
the data r e q u e s t e d .
Very t r u l y yours,
J . 0. IJoell,
Assistant Secretary.
Enclosure.
4"/3
FEDERAL RESERVE BOARDKovember 2, 1927,
St. 5556.
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
Forms f o r use during 1 9 2 8 .
Dear Sir:
I t w i l l "be appreciated i f you w i l l k i n d l y advise the Board
at your e a r l y convenience the number of c o p i e s of the forms l i s t e d
"below t h a t w i l l be required by your bank £ i n c l u d i n g branches, i f any)
during the Calendar year 1928.
Form Uumber
34
F. R. A. - 5
Title
Daily balance sheet. Please s t a t e the number
required f o r the head o f f i c e and each branch
separately and a l s o give any s p e c i a l punching
that may be desired.
Daily statement of Federal reserve agent.
E
Semi-annual f u n c t i o n a l expense r e p o r t .
38
C l a s s i f i c a t i o n of discounted and purchased
b i l l s h e l d at the end of the month.
95
Monthly report of earnings.
96
Monthly report of current expenses.
97
Monthly report of income and expense Other real e s t a t e .
171
Monthly report of average d a i l y h o l d i n g s of
b i l l s and s e c u r i t i e s , earnings thereon, and
annual r a t e s of earnings.
In accordance with the recommendation of one of the
Federal reserve banks i t i s proposed to eliminate the double columns
f o r f i g u r e s provided on the present form 34 and to widen the spaces
between the v e r t i c a l l i n e s so that an adding machine may be used to
i n s e r t f i g u r e s on the new forms. Advice w i l l be appreciated whether
t h i s change would adversely a f f e c t the preparation of the forms at
your bank.
LETTER
Very t r u l y yours,
E. L. Smead, C h i e f ,
D i v i s i o n of Bank Operations.
TO ALL FEDERAL RESERVE AGENTS*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
November 15,
1927
s t . 5570
SUBJECT:
Bank S u s p e n s i o n s .
Dear S i r :
T h e r e i s e n c l o s e d h e r e w i t h a l i s t o f member
a n d nonmember h e n k s r e p o r t e d t o t h e B o a r d a s h a v i n g
s u s p e n d e d o p e r a t i o n s d u r i n g the month of October,
a n d o f "banks p r e v i o u s l y s u s p e n d e d w h i c h r e s u m e d b u s i n e s s d u r i n g t h e same m o n t h .
The s t a t e m e n t a l s o i n c l u d e s a n y c o r r e c t i o n s made i n t h e l i s t s p r e v i o u s l y
sent to you.
I t w i l l be a p p r e c i a t e d i f y o u w i l l k i n d l y
check the data p e r t a i n i n g to your d i s t r i c t against
y o u r r e c o r d s a n d a d v i s e t h e Board on o r b e f o r e November
2 6 , lay t e l e g r a p h i f n e c e s s a r y , w h e t h e r o r n o t a n y c o r r e c t i o n s or a d d i t i o n s are necessary t h e r e i n , i n order
t h a t c o r r e c t s u m m a r i e s b y d i s t r i c t s may b e p u b l i s h e d
in the Federal Reserve B u l l e t i n .
Very t r u l y y o u r s ,
W a l t e r L.
Eddy,
Secretary.
Enclosure.
LET-TIB CO ILL JETSEttl
T-SSWVZ
AGENTS*
FEDERAL RESERVE BOARD
476
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
NOVEHLBET
^
SUBJECT:
l 6 ,
1 J 2 J
#
Bank Premises Accounting and
Functional Expense Reports.
Dear S i r :
On June 29 the Board forwarded to the Governor of each
Federal reserve bank, f o r comment- and recommendations, a report on
"bank premises accounting and f uxictional expense reports submitted •byr e p r e s e n t a t i v e s of s i x Federal reserve b anks, who met with a repres e n t a t i v e of the Board a t Chicago on June 2 and 3 . 192%. After caref u l l y considering the r e p l i e s of the Governors, the Board has decided
to approve the report, a copy of which i s enclosed herewith, as submitted with the exception of recommendation 2A - A l t e r a t i o n s for
tenants. In l i e u of recommendation 2A, the Board has approved the
f o l l o w i n g : "The c o s t of repairs and a l t e r a t i o n s made f o r the use of
tenants should be amortized against earnings (rent received) over the
period of the l e a s e f o r the premises a f f e c t e d , unless the amount i n volved i s r e l a t i v e l y small, in which case the c o s t may be charged d i rectly against rent received. Rental commissions should be amortized
over the period of the l e a s e , unless paid monthly or of a r e l a t i v e l y
small amount, when they may be charged d i r e c t l y against rent received. 1 1
I t w i l l be appreciated i f , before the c l o s i n g of books a t
the end of the year, your bank w i l l make any adjustments in i t s accounts
which may be necessary in order that they may conform to the recommendations contained in the enclosed report as modified by the above-quoted
s u b s t i t u t e f o r s e c t i o n 2A. I t i s a l s o requested that the c o s t of a l l
a l t e r a t i o n s f o r tenants made during the present calendar year be handled
in accordance with the above s u b s t i t u t e f o r recommendation 2A.
Very truly yours,
Walter L. Eddy,
Secretary.
Enclosure.
LETTER TO GOVERNORS OF ALL F R BAMS
4 7 7
St, 5424,
The C o m m i t t e e a p p o i n t e d , t o d i s c u s s c e r t a i n q u e s t i o n s i n c o n n e c t i o n
V t m a c c o u n t i n g of bank p r e m i s e s and f u n c t i o n a l expense r e p o r t s , met a t t h e
f e d e r a l R e s e r v e Bank of C h i c a g o on June 2nd and ] r d , 1 9 2 7 .
The m e m b e r s o f t h e
{lommit t e e p r e s e n t
were!
SU
L,
M.
J,
J.
T.
J,
.
L*
R.
J.
S.
H.
C.
W*
Smead,
Rounds,
Fleming,
Walden, J r . ,
Dillard,
Dunlop,
*
White,
Federal
Federal
Federal
Federal
Federal
Federal
Federal
Reserve
Reserve
Reserve
Reserve
Reserve
Reserve
Reserve
Board
Bank o f New York
Bank of C l e v e l a n d
Bank o f Richmond
Bank of C h i c a g o
Bank of M i n n e a p o l i s
Bank of S t . L o u i s
T h e m e e t M g w a s a l s o a t t e n d e d b y G, H . W a g n e r a n d A . C . B l a c k ,
the Federal Reserve Banks of Cleveland and Chicago, r e s p e c t i v e l y .
of
Previous to the d i s c u s s i o n of the s p e c i f i c t o p i c s r e f e r r e d t o the
C o m m i t t e e , Mr. J a m e s o f t h e F e d e r a l R e s e r v e B o a r d , a n d M e s s r s , H e a t h , B l a i r
a n d McKay o f t h e F e d e r a l R e s e r v e B a n k o f C h i c a g o , d i s c u s s e d i n a g e n e r a l w a y
the s u b j e c t s to be considered by the conference, and expressed the i f opinions
regarding v a r i o u s p h a s e s of bank p r e m i s e s a c c o u n t i n g .
After this
questions*
1,
informal
discussion
the Committee c o n s i d e r e d the
following
Should the annual d e p r e c i a t i o n a l l o w a n c e s on bank b u i l d i n g s
and on f i x e d machinery and equipment be s e t up a s d e p r e c i a t i o n
r e s e r v e or should they be a c t u a l l y charged o f f ?
I t was the c o n s e n s u s o f o p i n i o n t h a t the p r e s e n t p r o c e d u r e o f
c a r r y i n g t h e a n n u a l d e p r e c i a t i o n a l l o w a n c e s on b u i l d i n g s a n d o n f i x e d m a c h i n e r y *
equipment as a r e s e r v e bs c o n t i n u e d .
The n e t r e s u l t ' s o b t a i n e d u n d e r t h a t
p l a n or t h a t of a c t u a l l y r e d o i n g the b u i l d i n g s and f i x e d machinery and
equipment a c c o u n t s e a c h y e a r a r e p r a c t i c a l l y the same, b u t i t was thougjjl
v
advisable t o p r e s e r v e t h e r e p l a c e m e n t c o s t o f b u i l d i n g s a n d t h e c o s t o f T f i x e d
m a c h i n e r y a n d equipment on the d a i l y ^ a l a n c e s h e e t of each bank, and d e d u c t
the r e s e r v e c a r r i e d a g a i n s t each account showing the net r e s u l t .
2,
What s h o i & d b e t h e a c c o u n t i n g p r o c e d u r e w i t h r e f e r e n c e
r e p l a c e m e n t s of f i x e d machinery and equipment?
to
I t was d e c i d e d t o c o n t i n u e c r e d i t i n g t o the r e s e r v e a c c o u n t t h e
tynyiifi d e p r e c i a t i o n a l l o w a n c e s o n f i x e d m a c h i n e r y a n d e q u i p m e n t , a n d t o c h a r g e
t h e c o s t of r e p l a c e m e n t s l e e s
if any, to t h i s reserve account.
Should
t h e c o s t of r e p l a c e m e n t s m a t e r i @ l # p * x c e e d the c o s t of o r i g i n a l equipment c o n s i d e r a t i o n should be g i v e n to th# # # K * a b i l i t y of charging the e x c e s s c o s t td
f i x e d machinery and equipment.
% e n purchases of equipment not i n c l u d e d in
t h e o r i g i n a l i n s t a l l a t i o n a r e made t h e c o s t o f s u c h i t e m s s h o u l d b e c h a r g e d
to f i x e d machinery and equipment account.
-
2
-
St.5^24.
When the use of any f i x e d machinery and equipment i s discontinued
and i s not replaced hut sold f o r salvage, the o r i g i n a l c o s t should he c r e d i t e d
to f i x e d machinery and equipment account, and the d i f f e r e n c e between the
o r i g i n a l coat and the amount of salvage obtained should he charged to reserve
f o r depreciation account* .
Under ordinary c o n d i t i o n s some of the Federal Reserve Banks w i l l
accumulate within the next ten years a reserve account equal to f i x e d machinery
and equipment account. TJhan they equal each other depreciation allowances
should he discontinued u n t i l an increase in the f i x e d machinery and equipment
account or a decrease in the reserve f o r depreciation account occurs. Prov i s i o n should then he made f o r annual d e p r e c i a t i o n allowances in order to i n crease or r e s t o r e the reserve account upon a, f a i r d e p r e c i a t i o n b a s i s .
The c l a s s i f i c a t i o n of c e r t a i n items as replacements or as r e p a i r s
and a l t e r a t i o n s was thoroughly d i s c u s s e d . The Committee appreciated the f a c t
that the amount involved o f t e n a f f e c t s to a great extent the c l a s s i f i c a t i o n
determined, but i t was the consensus of opinion that i f a whole u n i t i s r e placed, such an item should u s u a l l y be considered as a replacement even though
the amount involved may seem small. Similar c l a s s i f i c a t i o n should be given
to the replacement of part of a u n i t i f the amount involved i s l a r g e .
2 A - A l t e r a t i o n s f o r tenants.
I t was the consensus of opinion that the c o s t of r e p a i r s and a l t e r a t i o n s made f o r the use of tenants should be amortized over the period of the
l e a s e f o r the premises a f f e c t e d , as provided in the f u n c t i o n a l expense manual.
Mr. D i l l a r d did not concur in t h i s opinion, hut recommended, in view
of the f a c t / t h e ' c o s t of repairs and a l t e r a t i o n s f o r tenants does not add to
the v&lue of the b u i l d i n g , that the c o s t of these items he cha.rged to current
expense, p a r t i c u l a r l y i f the amount i s r e l a t i v e l y small when compared with
the amount of rent to be received; or i f the expense incurred i n making re-•
p a i r s and a l t e r a t i o n s f o r a tenant i s large enough to m a t e r i a l l y a f f e c t the
current expense account from a comparative standpoint, that t h i s item be
c a r r i e d in a s p e c i a l account and charged d i r e c t to p r o f i t and l o s s at the
end of the current year in the same manner that we now charge f u r n i t u r e and
fixtures.
3,
How much, i f any, of the data shown in the f u n c t i o n a l expense
reports i s i t advisable to make public?
I t was the opinion of the Committee that i t i s not advisable to
publish data with regard t o f u n c t i o n a l expense reports, but the Committee
appreciated the f a c t that t h i s subject i s a matter of p o l i c y , and makes no
recommendation.
4a
Are the i n d i c e s shown in Memorandum St. 5359 dated May 7» 1927.
from the Federal Reserve Board a s a t i s f a c t o r y means of measuring
the trend i n operating e f f i c i e n c y of the Federal reserve banks?
St. 5U2U.
-
3
-
The Committed thought that the i n d i c e s presented showed a f a i r l y
good p i c t u r e of the trend of expenses i n the individual Federal r e s e r v e "banks
and that i t would "be worth while to prepare such information p e r i o d i c a l l y .
It was thought i n a d v i s a b l e to p u b l i s h f i g u r e s similar to those shown in the
memorandum, "but that the memorandum may be used as a "basis f o r general d i s cussion of the System's operating e f f i c i e n c y .
The suggestion to discontinue or s i m p l i f y f u n c t i o n a l expense report
Form E was presented to the Committee, and t h i s subject was thoroughly
discussed.
I t was the opinion of each member of the Committee that the f u n c t i o n a l
expense plan had undoubtedly accomplished many b e n e f i c i a l r e s u l t s , and although
additional b e n e f i t s 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 a s i t has been for the past few years.
All of the Federal reserve banks now have in operation a budget f o r
expenses, and i n some banks the budget plan has been i n operation f o r some
time with the r e s u l t that a s f a r as those individual banks are concerned the
information obtained from the budget i s adequate, but i t was agreed that the
system of budgeting expenses could not be s u b s t i t u t e d f o r the f u n c t i o n a l expense plan at t h i s time.
I t was a l s o agreed that the work necessary f o r the preparation of
Form E i s a n e g l i g i b l e item and i t s s i m p l i f i c a t i o n would not provide much
of a . s a v i n g in labor.
I t was l i k e w i s e thought advisable to continue some form of f u n c t i o n a l
expense report and, t h e r e f o r e , the Committee agreed that f o r the present the
f u n c t i o n a l expense plan now in operation should be continued.
R e s p e c t f u l l y submitted,
(signed) M.
L.
J.
F,
J.
J.
J.
E.
H.
C.
W.
S.
Fleming
Rounds
Dillard
Dunlop
White
Walden, J r .
480
FEDERAL RESERVE BOARD
WASHINGTON
November 1 9 , 1927
St,
5577»
on December 3 1 ,
1927.
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
C l o s i n g of Books
Dear Sir:
. In accordance with the usual, custom i t w i l l be appreciated
i f the r e s o l u t i o n of your Board, of Directors f o r the payment of the
seni-annual dividend and requests f o r authority to charge earnings
with depreciation allowances, reserves f o r probable l o s s e s , e t c . ,
are received at the Board's o f f i c e s not l a t e r than December 10,
1927, and are accompanied with the f o l l o w i n g information:
1. Estimated g r o s s e a r n i n g s , c u r r e n t expenses, a d d i t i o n s
to and proposed deductions from c u r r e n t n e t e a r n i n g s , and n e t e a r n ings a v a i l a b l e f o r s u r o l u s and f r a n c h i s e t a x f o r the c a l e n d a r y e a r
1927.
2. Unpaid indebtedness of f a i l e d hanks to the Federal reserve "bank, giving the names of the banks, indebtedness of each on
November ]0, character of s e c u r i t y , i f any, and probable l o s s in the
case of oach bank.
3. Indebtedness to Federal r e s e r v e bank of member banks
c o n s i d e r e d to be in an u n s a f e c o n d i t i o n , g i v i n g the names of the
banks, i n d e b t e d n e s s of each on November 30, c h a r a c t e r of s e c u r i t y ,
if any, and e s t i m a t e d l o s s i n the case of each bank.
The general procedure followed i n the past with reference
to c h a r g e - o f f s , depreciation and other reserves, t r a n s f e r s to surplus account and payment of franchise tax, which i s covered by the
attached memorandum, w i l l be followed at the end of t h i s year.
Very t r u l y yours,
J. C. N o s l l ,
As s i staut- Secret-ry.
Enclosure.
LETTER TO
ALL CHAIRMEN
f e d e r a l Reserve Board,
November 19, l$2j
,^
-4t5-
K
GEMERAL PRACTICE OF FSDSAL RESERVS BOARD flSiliBfllM DEFRSClAflOli ESSWD6 05F BAN*
PREMISES, RESERVES FOR LOSSES 05? W S R dF FAILED fiAUKS, MD OlKW CHARGES TO
CURRENT 3T5T EARNINGS, A2TD '.STHOD OF DEtSRMl!#HQFRANCHISE TAXES TO BE PAID BY FEDERAL RESERVE BAMS
1. Bank Premises, (a) Land. No charges a g a i n s t current net earnings w i l l
be authorized "by the Board to cover depreciation on l a n d where the estimated
market value of the land i s equal to or in excess of i t s net book value.
(b) B u i l d i n g s . Hie Board w i l l in general authorize the
banks to charge current net earnings each year with a depreciation reserve on
$ank b u i l d i n g s , including v a u l t s but excluding f i x e d machinery and equipment, of
not exceeding 2 per cant of t h e i r estimated replacement c o s t , such replacement
post to be determined in a manner approved by the Board. Where the book value of
a building i s in e x c e s s of replacement c o s t , the Board w i l l consider a request f o r
permission to charge o f f an amount s u f f i c i e n t to reduce the book value to
estimated replacement c o s t .
( c ) Fixed machinery and equipment. The Board w i l l
authorize the banks to charge current net earnings each year with a depreciation
reserve of not to -exceed 10 per cent of the c o s t of f i x e d machinery and equipment,
such as b o i l e r s , engines, dynamos, motors, power pumps, e l e v a t o r s , h e a t i n g , plumbing, l i g h t i n g , and v e n t i l a t i n g systems, pneumatic tubes, r e f r i g e r a t i o n p l a n t ,
automatic f i r e sprinkler equipment, and vacuum c l e a n e r s .
2. Reserves f o r l o s s e s on paper of suspended banks and banks in an overextended c o n d i t i o n . Authorizations to s e t a s i d e reserves to cover l o s s e s on paper
of suspended banks or banks in an over-extended c o n d i t i o n w i l l be l i m i t e d to such
actual l o s s e s , in e x c e s s of r e s e r v e s already carried, as the bank may reasonably
be expected to s u s t a i n on such papor.
3. Furniture and equipment. I t w i l l be the general p r a c t i c e of the Board
tjo authorize the banks to charge off at the end of the year a l l f u r n i t u r e and
equipment purchased during the current year.
4. Other charges to current net earnings. Where a bank d e s i r e s to s e t up
any reserve other than those mentioned above or to make any other unusual charge
against current earnings a.t the end of the ^e?r, f u l l and complete information
should be furnished the Board regarding the n e c e s s i t y f o r such charge.
5. Surplus and f r a n c h i s e taxes. A f t e r a l l current expenses, dividends,
depreciation and other r e s e r v e s , and c h a r g e - o f f s authorized by the Board have
been provided f o r , any remaining net earnings s h a l l be d i s t r i b u t e d "0 f o l l o w s :
(a) Transfer to surplus account a l l net earnings u n l e s s such transf e r w i l l r e s u l t in the bank's surplus account being in e x c e s s of i t s subscribed
c a p i t a l , in which case only such amount should be t r a n s f e r r e d as i s necessary to
increase the surplus account to an amount equal to the subscribed c a p i t a l .
f
(b) D i s t r i b u t e a l l a v a i l a b l e net earnings a f t e r the bank's surplus
account i s equal to i t s subscribed c a p i t a l as f o l l o w s :
(1) Transfer 10 per cent to surplus account.
(2) Pay 90 per cent to United S t a t e s Government
as a f r a n c h i s e tax.
St.5577a
#
482
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
THE FEDERAL RESERVE BOARD
November 22,
1927
St. 5578.
SUBJECT:
Float
C a r r i e d "by F e d e r a l
Reserve Banks.
Dear S i r :
There
is
enclosed herewith a report
c a r r i e d "by t h e F e d e r a l
reserve hanks,
d a t a on c h e c k c o l l e c t i o n s
accordance with
After
the
officials,
the
letter
report has been
the Board w i l l
regard thereto
of
its
float
as
will
compiled from the
submitted to
St.
on f l o a t
550** o f
the Board i n
September l 4 ;
studied by your t r a n s i t
appreciate
be helpful
in
such comments i n
its
consideration
problem.
Very t r u l y y o u r s ,
,
Enclosure
TO GOVERNORS OF ALL F R BANKS*
W a l t e r L. Eddy,
Secretary.
FEDERAL RESERVE BOARD
WASHINGTON
483
November 2 3 , 1 9 2 7 ,
S t . 5579
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
W e e k l y Member B a n k C o n d i t i o n
Reports.
Dear S i r :
During the recent conference of Federal reserve a g e n t s the subj e c t o f m e m b e r "bank c o n d i t i o n r e p o r t s , b o t h t h e c a l l r e p o r t , f o r m 1 0 5 , a n d
t h e w e e k l y r e p o r t s , f o r m S t . 5 1 , w a s d i s c u s s e d i n seme d e t a i l a n d t h e f a c t
w a s "brought o u t t h a t a number o f s t a t e h a n k members a r e r e p o r t i n g m o r t g a g e s
and m o r t g a g e l o a n s among i n v e s t m e n t s i n t h e w e e k l y r e p o r t s and among l o a n s
and d i s c o u n t s i n t h e q u a r t e r l y c a l l r e p o r t s .
F r o m i n f o r m a t i o n o b t a i n e d f r o m t h e M a r c h 2 3 , 15)27 c o n d i t i o n r e p o r t s a n d t h e weekljr r e p o r t s o f t h e same d a t e , i t a p p e a r s t h a t a b o u t 4 o
s t a t e banks a r e r e p o r t i n g a p p r o x i m a t e l y $ 3 5 0 , 0 0 0 , 0 0 0 of m o r t g a g e s and
mortgage l o a n s i n i n v e s t m e n t s i n the weekly r e p o r t s end i n l o a n s and d i s counts i n the quarterly c a l l reports.
A v a i l a b l e i n f o r m a t i o n d o e s n o t show
t o what e x t e n t , i f a n y , t h e same p r a c t i c e i s f o f l o w e d by n a t i o n a l b a n k s o r
whether any banks are r e p o r t i n g mortgages and mortgage l o a n s i n investments
in both reports.
I n a c c o r d a n c e w i t h t h e t e r m s o f t h e McFad.den A c t a n d t h e
C o m p t r o l l e r ' s r e g u l a t i o n s thereunder, a l l r e a l e s t a t e mortgages and mortgage l o a n s w i l l be r e p o r t e d by n a t i o n a l banks i n l o a n s and d i s c o u n t s i n
t h e i r q u a r t e r l y c a l l r e p o r t s , and c o n s e q u e n t l y i t i s proposed t o r e q u e s t
a l l w e e k l y r e p o r t i n g member b a n k s t o i n c l u d e m o r t g a g e s a n d m o r t g a g e l o a n s
i n l o a n s and d i s c o u n t s .
While i t would b e d e s i r a b l e t o have a l l banks r e p o r t on t h i s b a s i s b e g i n n i n g w i t h J a n u a r y 1 9 2 8 , t o do so w o u l d s a c r i f i c e
t h e c o m p a r a b i l i t y of b o t h the l o a n and d i s c o u n t e n d t h e i n v e s t m e n t f i g u r e s
w i t h t h o s e now b e i n g r e p o r t e d .
As i t i s e s p e c i a l l y d e s i r a b l e t o a v o i d
t h i s i t w i l l be appreciated i f i n accordance with the plan outlined to you
a t t h e r e c e n t c o n f e r e n c e , y o u w i l l some t i m e b e t w e e n now a n d D e c e m b e r 1 0
a s c e r t a i n f r o m e a c h r e p o r t i n g member batik i n y o u r d i s t r i c t w h e r e i t i s r e p o r t i n g mortgages and mortgage loans, and i f i t i s found that they are
b e i n g r e p o r t e d i n i n v e s t m e n t s , p l e a s e - o b t a i n t h e amount o f s u c h m o r t g a g e s
and mortgage l o a n s so i n c l u d e d a s of one of t h e c u r r e n t r e p o r t d a t e s , p r e f e r a b l y November 3 0 .
I t i s our t h o u g h t t h a t t h e r e w i l l n o t b e more t h a n 50 or 6 0 b a n k s
w h i c h a r e c a r r y i n g any a p p r e c i a b l e amount o f m o r t g a g e s a n d m o r t g a g e l o a n s
i n i n v e s t m e n t s , a n d i f t h a t p r o v e s t o b e t h e c a s e we w i l l p r o b a b l y w a n t t o
h a v e t h e g # . 5 0 o r 6 0 b a n k s s u b d i v i d e the i t e m "Other b o n d s , s t o c k s and s e c u r i t i e s " i s t h e w e e k l y r e p o r t s , t o b e s u b m i t t e d d u r i n g 1 9 2 8 , s o a s t o show
mortgages and mortgage l o a n s s e p a r a t e l y from other bonds, s t o c k s and s e c u rities.
Ehe t w o i t e m s w o u l d b e c o m b i n e d a n d shown i n our w e e k l y p r e s s
s t a t e m e n t s d u r i n g t h e y e a r 1928 a g a i n s t t h e c a p t i o n "Other b o n d s , s t o c k s ,
and s e c u r i t i e s " as i s the p r e s e n t p r a c t i c e .
Beginning with January 1,
1 9 2 9 , h o w e v e r , a l l r e p o r t i n g member b a n k s w o u l d b e a s k e d t o i n c l u d e m o r t g a g e s and mortgage l o a n s i n l o a n s and d i s c o u n t s and the f i g u r e s f o r t h e
c a l e n d a r y e a r 1 9 2 8 w o u l d b e r e v i s e d , i n o r d e r t o make them c o m p a r a b l e w i t h
484
- 2 -
# » current f i g u r e 8 i n the 1929 weekly statemente.
This procedure would
enable u e t o have comparable f i g u r e s oyer a p e r i o d of a year and would a f f o r d
a basis for
estimates for
earlier years.
I n o r d e r t h a t t h e g a t h e r i n g o f t h e a b o v e i n f o r m a t i o n may h e d o n e
w i t h a s l i t t l e d i s t u r b a n c e a s p o s s i b l e t o t h e r e p o r t i n g member "banks, i t i s
b e l i e v e d t h a t e a c h w e e k l y r e p o r t i n g b a n k i n F e d e r a l r e s e r v e "bank a n d b r a n c h
c i t i e s and i n other c i t i e s mithin a reasonable d i s t a n c e of f e d e r a l reserve
bank and branch c i t i e s should be v i s i t e d by a r e p r e s e n t a t i v e , of the Federal
r e s e r v e bank and i n f o r m a t i o n o b t a i n e d a s t o how t h e y have b e e n r e p o r t i n g
t h e i r mortgages and mortgage l o a n s .
I n t h e c a s e o f t o w n s l o c a t e d some d i s tance from a Federal reserve bank or branch c i t y , i t w i l l probably be n e c e s sary f o r you t o write the banks a short l e t t e r t o the e f f e c t that you have
bees m a k i n g a c o m p a r i s o n o f t h e f i g u r e s i n t h e w e e k l y r e p o r t s w i t h t h o s e I n
t h e c a l l r e p o r t s and would a p p r e c i a t e advice a s t o whether t h e y have i n cluded any mortgages or mortgage l o a n s with investments i n t h e weekly r e p o r t s , and i f s o , t h e amounts i n c l u d e d on November 3 0 .
I t i s e s s e n t i a l that t h i s information be available at the Board's
o f f i c e s n o t l a t e r t h a n December 20 i n o r d e r t h a t t h e b a n k s f r o m w h i c h we may
w i s h t o o b t a i n s p e c i a l r e p o r t s d u r i n g t h e f o r t h c o m i n g y e a r may b e d e t e r m i n e d
u p o n and p r o v i s i o n made t o h a v e s u c h b a n k s f u r n i s h e d w i t h a s p e c i a l f o r m o f
r e p o r t s o f a r a s t h e i t e m "Other b o n d s , s t o c k s a n d s e c u r i t i e s " i s c o n c e r n e d .
In the
above,
n o r e f e r e n c e h a s b e e n made t o
investment
securities
i n the form of mortgage bonds or p a r t i c i p a t i o n c e r t i f i c a t e s i s s u e d against
mortgages e i t h e r by mortgage-bond houses or by banks doing a mortgage-bond
business.
When y o u r r e p r e s e n t a t i v e c a l l s u p o n t h e l o c a l b a n k s t o a s c e r t a i n
h o w t h e y h a v e b e e n r e p o r t i n g m o r t g a g e s a n d m o r t g a g e l o a n s , we s h a l l a p p r e c i a t e
i t i f y o u w i l l a l s o f i n d out whether such b a n k s do purchase mortgage bonds
o r p a r t i c i p a t i o n c e r t i f i c a t e s , and i f s o , how t h e y h a v e b e e n r e p o r t i n g them
l a t h e i r weekly and q u a r t e r l y c o n d i t i o n r e p o r t s .
I t w i l l not be necessary,
h o w e v e r , t o matr* t h i s i n q u i r y o f a n y o f t h e b a n k s l o c a t e d s o m e d i s t a n c e f r o m
the head o f f i c e , to which you write with reference t o t h e i r method of reporti n g mortgages and mortgage l o a n s .
Regardless of Hhether or not the banks i n
yoeur l o c a l i t y m a y b e h o l d i n g m o r t g a g e b o n d s a n d p a r t i c i p a t i o n c e r t i f i c a t e s ,
s h o u l d Ulg* t o h a v e yotir recommendation a s t o where t h e y s h o u l d b e i n cluded i n condition reports.
Your k i n d c o o p e r a t i o n i n t h e g a t h e r i n g of
will be
the above information
greatly appreciated.
Very t r u l y y o u r s ,
Walter L. Eddy,
Secretary.
to m
msattt w m m
m m *
485
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
November 26,
St.
<
SUBJECT:
1927.
5527
Condition of Member Banks
a s of October 10, 1927.
Dear S i r ;
For your information there i s e n c l o s e d
herewith a preliminary statement regarding the
c o n d i t i o n of a l l member banks combined as of
October 10, 1927.
The Board's Member Bank Call
Report (No. 37) showing d e t a i l e d f i g u r e s f o r a l l
member banks and f o r S t a t e bank members w i l l be
ready f o r d i s t r i b u t i o n in the near f u t u r e .
Very t r u l y yours,
E. M. McClelland,
A s s i s t a n t Secretary.
Enclosure.
LETTER TO ALL FSBS5RAL RESERVE AGENTS*
486
CONDITION Of MEMBER BANKS A S OF OCTOBER 1 0 ,
1927,
St.
55Sfe
L o a n s and. i n v e s t m e n t s o f a l l m e m b e r banks o n October 10 a t t a i n e d t h e n e w p e a k
t o t a l o f $ 3 3 , * + 5 1 . 0 0 0 , 0 0 0 , s h o w i n g an i n c r e a s e of $ 4 & 4 > 0 0 0 , 0 0 0 since J u n e 3 0 , t h e
preceding c a l l date.
C e n t r a l r e s e r v e c i t y hanks reported, an increase o f $ 3 2 , 0 0 0 , 0 0 0
i n l o a n s a n d i n v e s t m e n t s , r e s e r v e c i t y h a n k s an increase of $ 2 2 9 , 0 0 0 , 0 0 0 , a n d c o u n t r y banks of $223,000,000.
L o a n s a n d d i s c o u n t s including o v e r d r a f t s t o t a l e d
1 2 3 , 4 9 2 , 0 0 0 , 0 0 0 , a n i n c r e a s e o f $ 3 ^ 3 , 0 0 0 , 0 0 0 since June 30 and o f $ 5 8 5 , 0 0 0 , 0 0 0 s i n c e
December 3 1 , 1 9 2 6 .
T h e p r i n c i p a l c h a n g e s i n t h i s item s i n c e J u n e 3 0 w e r e i n c r e a s e s
$ 1 3 2 , 0 0 0 , 0 0 0 , $ 4 5 , 0 0 0 , 0 0 9 , a n d $ 3 5 , 0 0 0 , 0 0 0 i n t h e N e w Yojrk, B o s t o n a n d D a l l a s
d i s t r i c t s , r e s p e c t i v e l y , and a d e c r e a s e of $ 6 , 0 0 0 , 0 0 0 i n t h e San F r a n c i s c o d i s t r i c t .
I n v e s t m e n t s i n U n i t e d S t a t e s s e c u r i t i e s were $ 6 0 , 0 0 0 , 0 0 0 more a n d i n o t h e r s e c u r i t i e s $ 8 1 , 0 0 0 , 0 0 0 more t h a n on June 3 0 , a d e c r e a s e of $ 1 4 3 , 0 0 0 , 0 0 0 i n s e c u r i t y h o l d i n g s b e i n g r e p o r t e d by b a n k s i n c e n t r a l r e s e r v e c i t i e s , and i n c r e a s e s of $ 1 2 3 , 0 0 0 , 0 0 0
$ y banks i n r e s e r v e c i t i e s and of $ l 6 l , 0 0 0 , 0 0 0 by c o u n t r y banks.
;
Total d e p o s i t s aggregated $35,^50,000,000, an i n c r e a s e of $ 9 9 , 0 0 0 , 0 0 0 s i n c e
jutte 30 and of $ 9 4 2 , 0 0 0 , 0 0 0 s i n c e December 3 1 . 1 9 2 6 .
Demand d e p o s i t s d e c r e a s e d
$ 3 6 1 , 0 0 0 , 0 0 0 s i n c e J u n e 3 0 , a d e c r e a s e o f $ 5 4 6 , 0 0 0 , 0 0 0 i n t h e New Y o r k d i s t r i c t a n d
pf $ 2 6 , 0 0 0 , 0 0 0 i n the C l e v e l a n d d i s t r i c t b e i n g l a r g e l y o f f s e t b y i n c r e a s e s i n ' o t h v r
d i s t r i c t s , of which the l a r g e s t were $ 5 4 , 0 0 0 , 0 0 0 i n the D a l l a s d i s t r i c t and
$41,000,000 i n the Minneapolis d i s t r i c t .
The d e c l i n e o f $ 3 6 1 , 0 0 0 , 0 0 0 i n demand d e p o s i t s i s a t t r i b u t a b l e i n p a r t t o a d e c r e a s e i n t h e amount o f f l o a t c a r r i e d b y memb e r banks, u n c o l l e c t e d i t e m s h a v i n g d e c r e a s e d $ 3 4 9 , 0 0 0 , 0 0 0 , p r a c t i c a l l y a l l of
i t h i c h w a s i n e x c h a n g e s f o r c l e a r i n g h o u s e and c h e c k s o n o t h e r b a n k s i n same p l a c e .
Time d e p o s i t s i n c r e a s e d $ 2 4 9 , 0 0 0 , 0 0 0 b e t w e e n June 3 0 and O c t o b e r 1 0 , t h e p r i n c i p a l
Increases by Federal reserve d i s t r i c t s being:
New Y o r k v $ 9 4 , 0 0 0 , 0 0 0 , C l e v e l a n d
$ 4 5 , 0 0 0 , 0 0 0 , and B o s t o n $ 3 2 , 0 0 0 , 0 0 0 .
Amounts due t o b a n k s and b a n k e r s were
$ 7 9 , 0 0 0 , 0 0 0 more t h a n o n June 3 0 , 1 9 2 7 .
In the attached t a b l e s are
b e r banks and System f i g u r e s f o r
f i g u r e s by Federal reserve d i s t r i c t s f o r a l l
s t a t e bank members and f o r n a t i o n a l b a n k s .
mem-
Changes i n t h e p r i n c i p a l r e s o u r c e s and l i a b i l i t i e s a s compared w i t h f i g u r e s
f o r June 3 0 , 1 9 2 7 , and December 3 1 , 1 9 2 6 . were a s f o l l o w s :
Increase
Oct.
Loans & d i s c o u n t s ( i n c l . o v e r d r a f t s )
;United States s e c u r i t i e s
:Other b o n d s , s t o c k s and s e c u r i t i e s
.
5
T o t a l l o a n s and i n v e s t m e n t s
. . .
Demand d e p o s i t s
.
Time d e p o s i t s
Government d e p o s i t s
Due t o b a n k s a n d b a n k e r s
. . .
C e r t i f i e d and c a s h i e r s ' c h e c k s
Acceptances outstanding , . .
B i l l s payable and r e d i s c o u n t s .
1 0 . 1 9 2 7 June
$23,492,000,000
3,856,000,000
6,103,000,000
33,451,000,000
17,374,000,000
12,459,000,000
436,000,000
4,203,000,000
978,000,000
(+) decrease ( - )
since
30.1927
D e c . 3 1 , jqgfr
+ $ 3 4 3 , 0 0 0 , 0 0 0 +$ 5 8 5 , 0 0 0 , 0 0 0
+ 60,000,000 +
467,000,000
+ 81,000,000 +
503,000,000
+ 484,000,000 +1,555,000,000
-*361,000,000 265,000,000
+ 249,000,000 +1,019,000,000
+ 218,000,000 +
202,000,000
+
79.000,000 + 149,000,000
87,000,000 163,000,000
602,000,000 +
66,000,000 +
528,000,000 - 13,000,000 -
51,000,000
232,000,000
•Demand d e p o s i t s p l u s c e r t i f i e d a n d c a s h i e r s ' c h e c k s o u t s t a n d i n g a n ^ l e s s
exchanges and o t h e r u n c o l l e c t e d i t e m s d e c r e a s e d $ 9 6 , 0 0 0 , 0 0 0 .
C.
mm
ALL-:
30, 1927
St.5587b
RESOURCES
Loans and d i s c o u n t s ( i n c l u d i n g o v e r d r a f t s )
XJ. S . s e c u r i t i e s
O t h e r "bonds, s t o c k s a n d s e c u r i t i e s
Ibtel
loans and investments
Caab
In v a u l t
B a e e r v e w i t h F . R. B a n k s
I t e m s w i t h F e d e r a l r e s e r v e "banks i n
process of collection
torn trrm b a n k s a n d b a n k e r s
f o r c l e a r i n g house, and checks
cm o t h e r "banks i n s s m e p l a c e
*11
other
resources
Total
resources
I
j
State
October 10
[
$9,115,955,000
1,183,685,000
2,153,71:.000
12,463,353,000
danosits
f l e e toposits
U. S . d e p o s i t s
C e r t i f i e d and c a s h i e r s 1 checks
See to banks and bankers
Total
M i l s
deposits
payable and rediscounts
see outstanding
Stock paid in
# B # s s fund
Ml
other l i a b i l i t i e s
June 30
$9,188,930,000
1,203,233,000
2,227/01,000
National
October 10
Banks
Jxyie 3 0
$14,375,565,000
2,672,464,000
3,93:,4f'6,000
$13,959,796,000
2»593,11^,000
3,794,926,000
12,619,164,000
20,987,435,000
20,347,8#,000
905,944,000
174,699,000
874,387.000
374,194,000
1,413,792,000
1,406,052,000
237,835,000
493,204,000
243,900,000
502,036,000
496,916,000
499,282,000
1,584,237,000
1,469,044,000
687,920,000
8S4,123,000
876,876,000
i,buc, 319,000
968,129,000
16,243,684,000
1,460,721,000
1,434,684,000
27,199,291,000
26,566,508,000
10,918,564,000
469,419,000
1,195,632,000
6,818,585,000
4,896,689,000
79,693,000
525,800,000
1,267,980,000
252,726,000
508,525,000
3,007,043,000
10,916,659,000
7,313.145,000
137.929,000
538,805,000
2.855,673,000
13,174,478,000
13,588,747,000
22,275,290,000
21,762,211,000
211,885,000
173,206,000
267,100,000
316,130,000
297 >11,000
368,042,000
^68,537,000
800,364,000
1,498,584,000
164,943,000
1,003,228,000
15.956,427,000
mgnjWB
Pwnand
Batiks
6,455,862,000
4,870,816,000
* 182,749,000
304,300,000
806,124,000
777,151,000
682,489,000
774,252,000
64o.oi5.ooo
7,588,432,000
1,272,174,000
1,539,502,000
363,157,000
1,473,373.000
1,256,090,000
1,438,255,000
FEDERAL RESERVE BOARD.
WASHINGTON
December 2, 1927
S t . 559*+
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
Revision of Forms FRA-5 and
34 f o r 1928.
Dear S i r :
The Public P r i n t e r has advised us t h a t the 1928
e d i t i o n s of forms FRA.-5 and 3U w i l l be ready f o r d e l i v e r y
about the middle of December, when they w i l l be promptly
forwarded to your bank.
On the d a i l y statement of the F e d e r a l r e s e r v e a g e n t ,
form FRA-5, the item "Gold b u l l i o n and c o i n " h a s been
d i v i d e d i n t o "U. S. Gold coin" and "Gold b u l l i o n and f o r e i g n
c o i n , " and the item " E l i g i b l e paper" i n t o "Discounted b i l l s "
and "Purchased b i l l s . "
On the d a i l y balance s h e e t , form 34, the item "Gold
b u l l i o n and coin" h a s l i k e w i s e been d i v i d e d i n t o "U. S.
gold coin" and "Gold b u l l i o n and f o r e i g n c o i n , " and the
item " S u b s i d i a r y s i l v e r , n i c k e l s and c e n t s " i n t o " S u b s i d i a r y
s i l v e r " and "Nickels and c e n t s . "
Very t r u l y yours,
E. L. Smead, C h i e f ,
D i v i s i o n of Bank O p e r a t i o n s .
LETTER TO ALL F R AGENTS *
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
December 6, 1927.
St. 5597.
SUBJECT:
E a r n i n g s , Expenses, and Dividends
Reports of State Bank Members.
Dear S i r :
There a r e "being forwarded t o you today
under s e p a r a t e cover
c o p i e s of form 107. r e v i s e d i n October 1926, f o r t h e u s e of s t a t e hank
members i n s u b m i t t i n g t h e i r r e p o r t s of e a r n i n g s ,
expenses, and dividend payments f o r t h e s i x months
ending December 31. 1927•
I n submitting t h e i r June 30, 1927 r e p o r t s
some of t h e "banks f a i l e d t o f u r n i s h t h e d e t a i l e d
i n f o r m a t i o n i n r e g a r d t o i n t e r e s t , which i s c a l l e d
f o r "by t h e form. P l e a s e c a l l t h e a t t e n t i o n of t h e s e
"banks t o t h e omission and ask them t o use p a r t i c u l a r
c a r e to see t h a t a l l the i n f o r m a t i o n c a l l e d f o r "by
the form i s supplied i n the December 1927 and subsequent r e p o r t s . The word ''none" should "be w r i t t e n
or stamped i n each space where t h e r e i s n o t h i n g to
report.
Very t r u l y y o u r s ,
Walter L. Eddy,
Secretary;
LETTER TO ALL F. R. AGENTS. *
489
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
December 10, 192%,
st. 560U.
SUBJECT:
Form F , n . A . - 5 , Daily Statement
of Federal Reserve Agent.
Dear S i r :
There i s enclosed herewith a copy of
the 1928 e d i t i o n of form F.R.A.-5, Daily S t a t e ment of Federal Reserve Agent, a supply of
which i s b e i n g sent t o you today under separate
cover "by r e g i s t e r e d mail.
Very t r u l y yours,
E. L. Smead, Chief,
Division of Bank Operations.
Enclosure.
TO ALL ZEHSBAL RESERVE AGE1TTS*
4.90
491
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
December l 4 ,
SUBJECT?
Dear
1927,
St. 5608,
Condition Reports of
Form 1 0 5 .
State
Member B a n k s ,
Sir:
T h e r e a r e "being f o r w a r d e d t o y o u t o d a y u n d e r s e p a r a t e
cover
c o p i e s of form 105*
Please mail three copies of
t h e f o r m t o e a c h S t a t e B a n k a n d T r u s t Company member i n y o u r
d i s t r i c t w i t h i n s t r u c t i o n s t o h o l d t h e "blank f o r m s p e n d i n g r e ceipt of a c a l l for condition reports.
Upon r e c e i p t o f n o t i c e from the Board of the c a l l f o r c o n d i t i o n r e p o r t s , k i n d l y
n o t i f y t h e "banks t h e r e o f "by m a i l a n d r e q u e s t ' t h e m t o f i l l o u t
t h e r e p o r t s and m a i l them t o y o u promptly - i n no c a s e l a t e r
than 10 days a f t e r r e c e i p t of the c a l l .
I n o r d e r t h a t t h e c o m p i l a t i o n o f t h e B o a r d ' s member
"bank c a l l r e p o r t m a y n o t "be u n d u l y d e l a y e d , i t i s r e q u e s t e d
t h a t t h e c o n d i t i o n r e p o r t s "be f o r w a r d e d t o t h e B o a r d a s s o o n
a s p r a c t i c a b l e a f t e r t h e y a r e r e c e i v e d "by t h e F e d e r a l r e s e r v e
hank.
I f i t i s n e c e s s a r y t o c o m m u n i c a t e w i t h a "bank r e g a r d i n g
apparent errors i n i t s report, a note to that e f f e c t should
"be m a d e o n t h e r e p o r t i t s e l f b e f o r e i t i s m a i l e d t o t h e B o a r d ,
and t h e Board s h o u l d b e a d v i s e d of the n e c e s s a r y c o r r e c t i o n s
w h e n t h e d e s i r e d i n f o r m a t i o n i s r e c e i v e d f r o m t h e member b a n k .
I t i s important that t h e s e r e p o r t s be c o m p l e t e l y
f i l l e d out i n a l l c a s e s and p a r t i c u l a r a t t e n t i o n i s i n v i t e d
t o t h e r e q u i r e m e n t t h a t t h e r e p o r t i n g bank i n s e r t an amount
or t h e word "none" a g a i n s t e a c h i t e m b o t h o n t h e f a c e , and on
the reverse side of the report.
In case a bank f a i l s to comply
w i t h t h i s r e q u i r e m e n t , i t i s r e q u e s t e d t h a t "it b e a s k e d f o r
the information necessary to complete the
information be furnished the Board.
report
and t h a t
Very t r u l y y o u r s ,
Walter L. Eddy,
Secretary.
LETTER TO ALL F .
R* AGENTS*
such
492
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
December l 4 , 1927
st.5609 .
SUBJECT:
Bank Suspensions.
Dear S i r :
There i i enclosed h e r e w i t h a l i s t of member
and nonmember banks r e p o r t e d to the Bo?rd a s h a v i n g
suspended o p e r a t i o n s during the month of llovember,
and of banks p r e v i o u s ! ^ suspended which resumed
b u s i n e s s during the same month. The statement a l s o
i n c l u d e s any c o r r e c t i o n s made in the l i s t s p r e v i o u s l y
sent to you.
I t ? i l l be a p p r e c i a t e d i f j^ou w i l l k i n d l y
check the data p e r t a i n i n g to your d i s t r i c t a g a i n s t
your r e c o r d s and advise the Board on or b e f o r e December
27, by t e l e g r a p h i f n e c e s s a r y , whether or not any c o r r e c t i o n s or a d d i t i o n s a r e n e c e s s a r y t h e r e i n , i n order
t h a t c o r r e c t summaries by d i s t r i c t s may be p u b l i s h e d
in the F e d e r a l Reserve B u l l e t i n .
Very t r u l y yours,
'
Walter L. Eddy,
Secretary.
Enclosure.
LETTISH TO ALL ? ! M : I RESERVE AC-EFTS*
493
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
December 19, 1927
S t . 5612.
SUBJECT:
Reports cf Earnings, Expenses,
Dividends, and Franchise T6x
Payments f o r 1927.
Dear Sir:
In order ths t the Board may have i n f o r m a t i o n r e g a r d i n g
the f i n a n c i a l r e s u l t s of o p e r a t i o n s of Federal r e s e r v e hanks during the p r e s e n t c a l e n d a r y e a r a s soon a s p r a c t i c a b l e a f t e r January
1, i t i s r e q u e s t e d t h a t s statement he t e l e g r a p h e d or mailed in
time to reach the b o a r d ' s o f f i c e s on Tuesday morning, January- 3,
1928, showing the f o l l o w i n g i n f o r m a t i o n :
(Code)
EACH - Gross e a r n i n g s
$
IADS - Current expenses
EARN Current n e t e a r n i n g s
ELBA - Additions to Current n e t e a r n i n g s .
ENID - Deductions f r o n Current n e t e a r n i n g s
Net a d d i t i o n s to or deductions
from c u r r e n t net e a r n i n g s
EAST - Net e a r n i n g s a v a i l a b l e f o r d i v i d e n d s ,
f r a n c h i s e t a x , and s u r p l u s
EYRE - Dividends p a i d
EMET - P a i d to Government a s f r a n c h i s e t a x . .
EVEN - Transferred, t o s u r p l u s account
Total ( t o a g r e e with item EAST)
CAPP - Subscribed c a p i t a l January 1, 1928
CEDE - Surplus January 1, 1928
$
494
- 2 It
is
Plso
requested thst
the
regular
monthly r e p o r t s
o f e a r n i n g s and. e x p e n s e s o n f o r m e 9 5 , 9& a n d 9 7
accompanied
with an i t e m i z e d s t a t e m e n t showing i n d e t a i l a l l a d d i t i o n s t o
and. d e d u c t i o n s f r o m c u r r e n t n e t e a r n i n g s ( P r o f i t e n d L o s s a c c o u n t )
d u r i n g t h e y e a r , a n d t h a t i n a d d i t i o n t o t h e r e g u l a r "balance s h e e t
form 34 f o r the l a s t day of the year r e p r e s e n t i n g the c o n d i t i o n
o f t h e "bank a f t e r f i n a l c l o s i n g o f t h e " b o o k s , a f o r m 3 ^
subm i t t e d s h o w i n g t h e c o n d i t i o n o f t h e "bank a t c l o s e o f " b u s i n e s s h u t
p r i o r t o t h e m a k i n g o f amy a d j u s t i n g o r c l o s i n g e n t r i e s .
Very t r u l y yours,
B* L . S o s a d , C h i e f ,
fiividlbia
of Bank Q u o t a t i o n s .
TO SOVEBirOES 0? ALL FEDERAL E3SESV3 B«W$*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
DO CeHlbe P 22, 192%
THE FEDERAL RESERVE BOARD
st. 561s
SUBJECT:
"ember Bank C"ll Report shoeing
Condition of All Member Banks on
October 10, 1927.
De-i.r S i r :
1e are forwarding to you under separate
cover
copies of the Board's Member Bank C.?.ll
Report Mo. 3 7 . shoiTing the condition of a l l member
banlcs on October 10, 1927.
Please forward n copy
to er.ch member bank in your d i s t r i c t that has expressed a desire to receive copies of c s l l reports
as issued.
Very truly yours,
v. L. S.nead, Chief,
Division of Bank Operations.
TO ALL FEDERAL RESJEHVE AGINTS*
X.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
December 23, 1927,
st. 5620.
SUBJECT:
Branches of Member and
Efonmember Banks.
Dear S i r :
With r e f e r e n c e to the next t o the l a s t
paragraph of t h e B o a r d ' s l e t t e r St. 5120 of October
l 4 , 1926, i n which you were r e q u e s t e d t o submit a
r e p o r t on changes i n branch banking semi-annually,
you a r e a d v i s e d t h a t h e r e a f t e r t h i s r e p o r t need be
submitted a s of June 30 of each y e a r only.
Ho r e -
p o r t need be submitted as of December 31. 192T.
You are a l s o a d v i s e d t h a t i t w i l l not be n e c e s s a r y ,
i n f u t u r e r e p o r t s , t o d i s t i n g u i s h between f u l l f l e d g e d b r a n c h e s and s o - c a l l e d t e l l e r ' s windows.
Very t r u l y y o u r s ,
Walter L. Eddy,
Secretary.
TO ALL ZSDEEAL HI SEE W AG-BITS EXCEPT SM FRANCISCO*
496
@FedFRASER