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X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED JULY 1, 1932
CHANGES IN STATE BANK- MEMBERSHIPS
District
Capital
Date
Admitted to Membership:
2
Ontario County Trust Co., Canandaigua, N« Y., . *' < . $300,000
6-29-32
7
I l l i n o i s Bank & Trust Co., Rockford, 111*,
200,000
7- 1-32
Anglo-California tfrust Co#, San Ifr&ntii&co, C a l i f . ,
1,500,000
Anglo & London Paris National Bank, * .
10,000,000
Consolidated under charter of l a t t e t and t i t l e of
Anglo California National Bank of San Francisco,. < 10,400,000
6*30-32
* . » . .
Consolidation!
12
NATIONAL BANKS GRANTED TRUST POWERS:
None.
2
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED JULY 8, 1952
CHANGES IN STATE BANK MEMBERSHIP:
District
Capital
Date
^55,000
6 - 8-32
Admitted t o I.Ieabership:
6
Merchants & Farmers Bank of Greene County,
But aw, Ala.
NATIONAL BANKS GRANTED TRUST POWERS:
None.
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED JULY 15, 1932
CHANGES IN STATE BANK IlffiBERSHIP:
District
Capital
Date
Admitted to Membership:
None.
Absorption of Nonrnember:
State Bank of Schuylkill Haven, Pa., nonmember,
Absorbed j o i n t l y ."by Schuylkill Haven Trust Co.,
(member)
and the First National Bank & Trust Co., . . .
$60,500
125,000
7 - 5-32
125,000
Absorbed by Nonmember:
Dime Savings & Trust Co., Allentown, Pa.,member,
Absorbed by Lehigh Valley Trust Co., nonraember,
500,000
500,000
7- 2-32
Consolidation with Nonmaaber;
Lock Haven Trust Co., Lock Haven, Pa., member,
250,000
Clinton Trust Co., nonmember,
200,000
Consolidated to form the Lock Haven Trust Co.
Berks County Trust Co., Beading, Pa., amber,
1,000,000
Colonial-Northeastern Trust Co., nonmember,
1,500,000
Consolidated to form the Berks County Trust Co., 1,500,000
6-11-32
6-30-32
Absorbed by National Bank:
Union Savings Bank & Trust Co., Wilkes-Barre, Pa. 500,000
Absorbed by the Wyoming National Bank (1-26-32)
500,000
(Membership terminated 7- 1-32 through voluntary
withdrawal, liquidation not having been completed).
NATIONAL BANKS GRANTED TRUST PQ?ERS:
None.
7- 1-32
3
4
X-1530
FEDERAL EE SERVE BOARD ANNOUNCEMENT
WEEK ENDED JULY 22, 1932
CHANGES IN STACE BANK MEMBERSHIP:
District
Capital
Pat e
400,000
1,000,006
7-16-32
Admitted to Man~bersh.jp:
None.
Absorbed "by National Bank:
3
Penn Trust Company, Allentown, Pa., manber,
Absorbed by Allentown National Bank, . . . .
$
Change of T i t l e :
8
The Jefferson Bank, St. Louis, Mo., has changed
i t s t i t l e to Jefferson Bank & Trust Co.
6- 9-32
NATIONAL BANKS GRANTED TMJST POWERS:
5
7
11
Planters National Bank in Fredericks "burg, Va.( Full powers) 7-19-32
First National Bank i n Sioux City, lorn
(Full powers) 7-19-32
First National Bank, Port Arthur, Texas(Supplemental powers) 7-20-32
X-1530
FEDERAL HESEEVE BOARD ANNOUNCEMENT
WEEK ENDED JULY 29, 1932
CHANGES IN STATE BAM MEMBERSHIP:
District
Capital
Date
#40,000
7-25-52
Admitted to Membership:
10
Wahoo State Bank,
Wahoo, Nebr.,
. . . . . .
NATIONAL BANKS GRANTED TRUST POWERS:
None.
6
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED AUGUST 5, 1932
CHANGES IN STATE BANK MEMBERSHIP;
Dis —
trict
Capital
Date
Admitted to Membership:
None.
Absorbed "by National Bank:
Liberty Trust Company, Allentown, Pa., manber, $653,150
Absorbed by Lehigh Valley Trust Co.,nonmanber 500,000
7-30-32
NATIONAL BANKS GRANTED TRUST POWERS:
5
9
10
10
11
First National Bank, Morgantown, N. C.
(Pull powers)
Midland National Bank & Trust Co., Minneapolis, Minn.
(Additional powers)
City National Bank & Trust Co., Oklahoma City, Okla.
(Additional powers)
First National Bank, Kemmerer, lSyo. (Additional powers)
First National Bank, Shreveport, La.(Additional powers)
7-29-32
8- 4-32
7-30-32
8 - 2-32
7-29-32
7
X-1530
FEDERAL RESERVE BOARD AMOUNCHVIENT
WEHC ENDED AUGUST 12, 1932
CHARGES IN STATE BANK MEMBERSHIP:
District
Capital
Date
$25,OOO
8-10-32
Admitted to Membership:
9
Burke State Bank, Burke> S. Dak*
NATIONAL BANKS GRANTED TRUST POWERS:
7
First National Bank, Savanna, 111.
(Additional papers)
8 - 9-32
8
Exchange National Bank, Columbia, Mo.
{Additional powers )
8—10—32
8
Peoples National Bank, Warrenstmrg, Mo. (limited powers)
8 - 8-32
10
American National Bank, S t . Joseph, Mo. (Additional powers)
8 - 6-32
10
Rawlins National Bank, Rawlins, Wyo.
8 - 9-32
(Additional powers)
,v, . »tv,
^
8
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED AUGUST 19, 1932
CHANGES IN STATE BANK MEMBERSHIP;
District
Capital
Date
$50,000
8-15-32
Citizens Trust Company * Adams, N. Y., member,
150,000
has absorbed the Farmers National Bank of Adams, 100,000
and changed i t s t i t l e to "Citizens and Farmers
Trust Company", a member.
8-16-32
Admitted to Membership:
11
Eden State Bank, Eden, Texas
Absorption of National Bank:
Closed Bank Reopened:
12
Farmers and Merchants Bank, Erovo, Utah, member,
NATIONAL BANKS GRANTED TRUST POWERS:
None.
100,000
8-16-32
9
X-1530
FEDERAL RESERVE BOARD ANNOUNCE-,1ENT
WEEK ENDED AUGUST 26, 1932
CHANGES IN STATE BA38K MEMBERSHIP;
District
Capital
Date
$75,000
8-15-32
Admitted to Membership;
None.
Voluntary Withdrawal;
11
Citizens State Bank, Memphis, Texas
TRUST POWERS GRANTED TO NATIONAL BANKS:
7
11
Third National Bank, Rockf card, 111 * (Additional powers )
First National Bank, Seguin, Texas (Full powers)
8-24-32
8-16-32
FEDERAL RESERVE BOARD ANNOUNCEMEKT
WEEK ENDED SEPTH1BER 2, 1932
CHANGES IN STATE BANK MEMBERSHIP:
Admitted to Membership:
None.
NATIONAL BANKS GRAMDED TRUST POWERS:
None.
11
X-1530
FEDERAL RESERVE BOARD ANNOUNCBIBNT
WEEK ENDED SEFPEI.ZBER 9, 1932
CHiNGES IN STATE BANK MEMBERSHIP:
District
Admitted to Membership:
Date
None.
NATIONAL BANKS GRANTED TRUST POWERS:
7
First National Bank, Neenah, Wisconsin (Pull powers)
9- 3-32
I
/
12
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED SEPTEMBER 16, 1932
CHANGES IN STATUE BAM MEMBERSHIP:
DiS"
triot
Date
Admitted to Membership:
None.
NATIONAL BANKS GRANTED TRUST POWERS:
8
Morg&nfield National Bank, Morganfield, Ky. (additional powers) 9- 9-32
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED SEPTEMBER 23, 1932
CHANGES IN STATE BANK MEtiBERSHIP:
Admitted to Ileinbership:
None.
NATIONAL B^NKS GRANTED TBUST PO,?EBS:
None.
14
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED SEPTEMBER 30, 1932
CHANGES IN STATE BANK IIELBERSHIP:
District
Capital
Date
Admitted to Man"bership:
None.
Change of Title;
2
The Hibernia Trust Company, New York, N. Y., has
changed i t s t i t l e to Colonial Trust Company.
6-27-32
Absorption of Nonmeaber:
4
The Cleveland Trust Company, Cleveland, 0 . , .
a member, has absorbed:
Peoples Savings Bank, Lorain, 0 . , nonmember,
§13,800,000
9-21-32
100,000
NATIONAL BANKS GRANTED TRUST POWERS:
Newton National Bank, Newton, Iowa (Full powers)
9-28-32
15
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED OCTOBER 7, 1932
CHANGES IN STATE BANK MEMBERSHIP:
District
Capital
Date
Admitted to Membership:
11
Citizens State Bank, Dalhart, Texas
$50,000
10- 6-32
Absorption of Nonmem'ber:
St. Joseph Loan & Trust Co., South Be id , Ind.
$800,000
Assumed the savings deposit l i a b i l i t y of
Mishawaka-St. Joseph Loan & Trust Co.,
Mishawaka, Ind., nonmem'ber
100,000
(Commercial deposits assumed "by the First National
Bank of Mishawaka, Ind.)
9-19-32
Converted to National Bankt
8
Bank of Eastern Arkansas, Forrest City, Ark.
Converted into
The National Bank of Eastern Arkansas.
$50,000
10- 1-32
§825,000
10- 3-32
Reopened:
2
Federation Bank & Trust Co., New York, N. Y.
NATIONAL BANKS GRANTED TRUST POWERS
7
City National Bank & Trust Cp., Chicago, 111. (Full powers)
10- 5-32
16
X-1530
FEDERAL RESERVE BOARD ANNOUNCmiENT
WEEK ENDED OCTOBER 14, 1932
CHANGES IN STATE BAM MEMBERSHIP:
District
Capital
Date
Admitted to Membership:
None.
Voluntary Withdrawal:
11
First State Bank, Bishop, Texas
$25,000
NATIONAL BAMS GRANTED TRUST POWERS:
None •
9-24-32
17
X-15S0
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK; ENDED OCTOBER 2 1 , 1 9 3 2
CHANGES IN STATE BaNE MEMBERSHIP;
District
Capital
Date
Admitted to Membership:
None.
C0averted to National Bank;
7
Continental I l l i n o i s Bank & Trust Co.,
Chicago, 111., a member,
Converted into the Continental I l l i n o i s
National Bank & Trust Co.
'J75,000,000
10-15-32
NATIONAL BANKS GRANTED TRUST POWERS:
7
Continental I l l i n o i s National Bank & Trust Co.,
Chicago, 111. (Pall powers)
10-15-52
18
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED OCTOBER 28, 1932
CHANGES IN STATE BANK MEMBERSHIP:
Dis —
triet
Capit al
Date
Admitted to Membership:
None.
Voluntary Withdrawal:
7.
Central Republic Bank & Trust Co.,
Chicago, I l l i n o i s
$14,000,000
NATIONAL BANKS GRANTED TRUST POWERS:
None.
10-26-32
19
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED NOVEMBER 4, 1932
CHANGES IN STATE BANK MEMBERSHIP:
Dis —
trict
Capital
Date
Admitted to Membership:
None.
Voluntary Withdrawal:
Hinsdale Slate Bank, Hinsdale, 111.
$100,000
(Absorbed "by the First National Bank of Hinsdale )
8-13-32
Succeeded by Nonmember:
8
11
Guaranty Bank & Trust Co., St. Louis, Mo.
$200,000 10-22-32
(Succeeded by Guaranty Plaza Trust Co., nonmember)
Junction State Bank, Junction, Texas
#100,000 11- 2-32
(Succeeded by State Bank of Jurat tion, nonmember)
NATIONAL BANKS GRANTED TRUST POWERS t
9
American National Bank & Trust Co., Eau Claire, Wis.
(Full powers)
10—28—32
S O
X-1530
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED NOVEMBER 11, 1932
CHANGES IN STATE BANK MEMBERSHIP;
District
Capital
Date
Admitted to Membership:
None.
Voluntary Withdrawali
6
Exchange Bank, Tallahassee, Flat
NATIONAL BANKS GRANTED TRUST POWERS:
None.
$50,000
11- 5-32
21
.-1530
EEDERAL RESERVE BOARD ANNOUNCaiENT
\ffiEK ENDED NCVELIBER 18, 1932
CHANGES IN STATE BAM UMBERS HIP;
Dis~
trict
Capital
Date
$125,000
11-18-32
Admitted to Manhership:
2
Center Moriches Bank, Center Moriches, N. Y.
NATIONAL BANKS GRANTED TRUST POWERS:
None.
FEDERAL RESERVE BOARD ANNOUNCEMENT
WEEK ENDED NOVEMBER 25, 1932
CHANGES IN STATE BANK MEMBERSHIP:
Admitted to Membership:
None.
NATIONAL BANKS GRANTED TRUST POWERS
None.
X-1550
FEDERAL RESERVE BOARD ANNOUNCEIIIENT
WEEK ENDED DECEMBER 2 , 1 9 3 2
CHANGES IN STATE BANK MEMBERSHIP:
District
Capital
Date
Admitted to Membership
2
President and Directors of the Manhattan Company,
New York, N. Y.
$20,000,000
11-26-32
Absorbed by State Member
2
4
Bank of Manhattan Trust Co., New York, N. Y.
Absorbed by President and Directors of the Manhattan Company, New York, N. Y.
First-City Savings Bank, Barberton, Ohio, member
Absorbed by First Central Trust Co., Akron, Ohio,
member.
22,250,000
11-26-32
100,000
10-31-32
Drovers State Bank, South St. Paul, Minn., member
100,000
Merged with Exchange State Bank, nonmember, under new
charter and t i t l e of Drovers Exchange State Bank,
nonmember.
11-21-32
First State Bank, Rochester, Texas, member
Succeeded by Home State Bank, nonmember.
25,000
11-28-32
50,000
11-29-32
Succeeded by Nonmember
9
11
Voluntary Withdrawal
12
Live Stock State Bank, North Portland, Oreg.
NATIONAL BANKS GRANTED TRUST POWERS:
12
First National Bank, Eugene, Oreg. (Additional powers)
11-21-32
AUTHORIZED TO ACCEPT DRAFTS AND BILLS OF EXCHANGE
UP TO 100 PER CENT OF CAPITAL AND SURPLUS
2
President and Directors of the Manhattan Company, New York, N.Y. 11-26-32
34
X-1530
FEDERAL RESERVE BOARD AimOUI\CJi J5MT
WEEK ENDED DECHIBEE 9, 1932
CHANGES IN STATE BAM IiIELIBERSHIP:
District
Capital
Date
Admitted to Membership;
5
9
Lock Haven Trust Co., Lock Haven, Pa.
Farmers and Eerchants Bank, Huron, S« Dak.
$375,000
100,000
12- 5-32
12- 8-32
NATIONAL BMK GRANTED TRUST POWERS:
10
First National Bank in Bartlesville, Olcla. (Additional powers)
12- 8-32
25
X-1530
FEDERAL RESERVE BOAED ANNOUNCE! IENT
WEEK ENDED DECEMBER 16, 1932
CHANGES IN STATS BANK MEMBERSHIP:
District
Capital
Date
Admitted to Membership
None.
A"bs<r "bed "by Nonmemter
8
Farmers State Bank, New Athens, 111.
'425,000
• A*bso rbed "by State Bank of New Athens» nonmem"ber.
12-10-32
NATIONAL BANK GRANTED TRUST POV/ERS:
3
First National Bank, Woodstown, N. J. (Full powers)
12- 5-32
26
X-1530
FEDERAL RESERVE BOARD ANNOUNCELIENT
WEEK ENDED DECEI.1BER 23, 1932
CHANGES IN STATE BANK MEMBERSHIP:
District
Capital
Date
Admitted to Membership:
None.
Consolidated with National Bank:
3
Dime Trust and Safe Deposit Co., Shamokin, Pa.
$125,000
Consolidated with National Bank of Shamokin under
t i t l e of National-Dime Bank of Shamokin.
325,000
12-14-32
Converted to National Bank:
7
I l l i n o i s Bank and Trust Co., Rockford, 111.
Converted into The I l l i n o i s National Bank
and Trust Company of Rockford.
$200,000
12-19-32
200,000
Voluntary Withdrawals:
8
8
Farmers and Traders Bank, Iberia, Ho.
First State Bank, Brownsville, Tenn.
$ 25,000
100,000
12-20-32
12-20-32
NATIONAL BANKS GRANTED TRUST POWERS:
7
I l l i n o i s National Bank and Trust Co., Roclcford, 111.
(Full powers)
12-19-32
^7
X-1530
E3DERAL RESERVE BOARD MNOUNC3MENT
WEEK ENDED DECEMBER 30, 1932
CHANGES IN STATE BANK MEMBERSHIP:
Pistricit
Capital
Date
Admitted to Membership:
Fanners Bank of Clinch Valley, Tazewell, Va.
$200,000
12-29-32
§30,000
12-20-32
Absorbed by National Bank:
Citizens Bank, Claxton, Ga.
Absorbed by First National Bank of Claxton.
NATIONAL BANKS GRANTED TRUST POWERS:
3
11
Market Street National Bank, Philadelphia, Pa.
(Additional powers )
Commercial National Bank in Shreveport, La. (Full powers)
12-21-32
12-23-32
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7194
July 1, 1932.
SUBJECT: Reimbursement of Par Remitting Banks for Tax on
Remittance Drafts.
Dear Sir:
There are inclosed a confirmation of a telegram on the above
subject which the Board i s sending today to the Governor of each Federal reserve "bank and a summary of the replies received from the vari
ous Federal reserve banks as a result of the Board's telegram of June
23, 1932, on this subject.
It appears that the Governors of one or two Federal reserve
banks expect that the Federal Reserve Board w i l l issue a regulation
on this subject; but this i s not believed to be necessary, as the
subject of par collections i s adequately covered by the provisions of
Regulation J (especially the last paragraphs of Sections II and III)
and the fact that the tax i s levied on the drawers and not on the
payees of checks and drafts clearly appears from the provisions of
Section 751 of the Revenue Act of 1932 and Chapter IV of Regulations
42 of the Bureau of Internal Revenue.
It i s not believed that any public announcement on this sub-
X-7194
-2—
ject i s desirable; but i t i s suggested that the matter "be taken
up individually with each bank which attempts to deduct the amount
of the tax from i t s remittance drafts or which requests the Federal
reserve bank to reimburse i t for the amount of the tax and that the
Board's position on the subject be explained to i t .
If any bank
i n s i s t s on deducting the amount of the tax from i t s remittance drafts
after the Federal reserve bank has exhausted every reasonable means
of persuading i t to desist from doing so, the matter should be reported to the Federal Reserve Board, i f the bank i s a member bank,
or the bank should be removed from the par l i s t , i f i t i s a nonmember bank.
In the light of the experience which various Federal reserve
banks have had in recent years in connection with the removal of nonmember banks from the par l i s t , i t i s not believed that the policy
outlined i n the Board's telegram w i l l result in any material impairment of the par collection system.
Very truly yours,
Chester Morrill,
Secretary.
Inclosures.
TO GOVERNORS OF ALL F. R. BANKS.
30
X-7194-a
COPY
July 1, 1932
YOUNG
BOSTON
HARRISON
NEW YORK
NORRIS
PHILADELPHIA
EANCHER
CLEVELAND
SEAY
RICHMOND
BLACK
ATLANTA
McDOUGAL
CHICAGO
MARTIN
ST. LOUIS
GEERY
MINNEAPOLIS
HAMILTON
KANSAS CITY
McKINNEY
DALLAS
CALKINS
SAN ERANCISCO
Replies to Board's wire June 23 re absorbing tax on remittance
drafts for cash l e t t e r s discloses that seven reserve banks oppose the
absorption of such taxes, three favor i t , and the positions of two are
doubtful.
Board i s of opinion that, as matter of System policy, reserve
banks should not reimburse remitting banks for tax on remittance drafts.
Tax levied on drawers of drafts and should not be absorbed by Reserve Banks
for same reasons that they should not absorb any other taxes levied on
member or nonmember banks.
In view of reasonableness of this position and
fact that amount involved for each remitting bank i s very small, believe
no great d i f f i c u l t i e s should be encountered and that very few, i f any,
withdrawals from par l i s t should result i f situation i s explained properly
to -banks raising the question.
Experience of one reserve bank of which
we have already been advised supports this b e l i e f .
Law and regulations
require member banks to remit at par for checks forwarded to them for
collection by reserve banks and latter are forbidden to receive for
collection checks on nonmember banks which cannot be collected at par. Deduction of tax from remittance drafts i s not par remittance. Letter follows.
WW/ go
MORRILL
31
X-7194-b
SUMMARY OF VIEWS OF FEDERAL RESERVE BANKS EE ABSORPTION
OF TAX ON REMITTANCE DRAFTS FOB CASH LETTERS.
The following i s a summary of the replies of the various Federal
reserve banks to the Board1 s telegram of June 23, 1932, inquiring whether,
in view of the unifoim practice of the Federal reserve "banks absorbing
certain costs in connection with the par collection of checks, such as those
involved in shipments of cash by member banks in settlement of cash l e t t e r s ,
the Federal reserve banks, as a matter of system policy, would now be j u s t i f i e d in reimbursing member and nonmember banks for the 2^ tax on drafts sent
in remittance for checks and drafts forwarded to them for collection or payment by the Federal reserve banks under Regulation J ,
BOSTON
Ho
NEW YORK
Ho
PHILADELPHIA
Ho.
Would be i l l o g i c a l and would establish bad precedent.
In view of p o s s i b i l i t y of withdrawals from par l i s t ,
suggest that no announcement of policy be made "until
a f t e r regulations have been issued and subject clarified",
CLEVELAND
Yes,
Strongly recommends adoption of uniform system policy
of absorbing tax on a l l remittance drafts.
Refusal to do
so would encourage removal of nonmember banks from par
l i s t , thus impairing e f f i c i e n c y of check collection
system.
Many member banks have requested Federal re-
serve bank to accept their advice of credit as payment
*
X-7194-T3
&
for cash l e t t e r s in order to escape tax and t h i s would
"be a step backward "because of tendency to change agency
relationship which a l l Federal reserve "banks have t r i e d
to strengthen and preserve.
If reserve "banks absorb tax
on remittance d r a f t s , a l l incentive to adopt subterfuges
to avoid the tax w i l l be removed and e f f i c i e n c y of check
c o l l e c t i o n system preserved.
RICHMOND,
No.
Do not believe i t good policy to absorb any kind of
tax and i t i s not correct in p r i n c i p l e .
.
ATLANTA.
Doubtful.
Amount involved in absorbing tax by reserve
bank of Atlanta would be small - only about $3750 per year.
As matter of policy would be e n t i r e l y w i l l i n g to absorb t h i s
cost.
Doubt remains as to whether as matter of policy we
should pay t h i s tax for member and nonmember banks* since
under federal He serve Act we are exempt from Federal taxes
and i t might be bad policy in the face of such exemption
f o r us to voluntarily absorb any taxes.
My personal opinion
in view of t h i s doubt i s that tax probably should not be
absorbed.
However i f system policy i s adopted of absorbing
such taxes t h i s bank w i l l readily acquiesce.
CHICAGO.
No.
ST. LOUIS.
Yes, i f matter develops so as to jeopardize par l i s t .
Drawer of checks should pay tax on remittance d r a f t s .
Re-
quests so f a r in Eighth D i s t r i c t not s u f f i c i e n t to j u s t i f y
serious consideration from standpoint of e f f e c t on par
list.
Uniform action throughout System e s s e n t i a l .
4 m
83
*
MINNEAPOLIS.
Yes.
X-7194~b
$ »
Inclined to think i t would make better f e e l i n g among
banks, especially nonmembers, i f we were to absorb the
tax.
If we do not some nonmember banks w i l l withdraw
from par l i s t .
Already assume shipping charges on cur-
rency and wire costs on transfers and 2$ additional
would be small item.
KANSAS CITY.
No.
If reimbursement
were made to member banks i t would
serve to diminish Federal revenue by reducing amount of
franchise tax paid by reserve banks.
DALLAS.
No,
Congress has attempted in the new tax b i l l to make an
equitable distribution of the tax burden, basing i t upon
business a c t i v i t y and other considerations and has s p e c i f i cally provided that the maker or drawer of a check or draft
should pay the tax thereon and i t i s our thought we should
no more absorb that item than we should a portion of a member banks other taxes.
If we should reimburse the banks
the expense would be absorbed out of funds that might
otherwise be paid to treasury as franchise tax at end of
year and thus the very purpose of the Revenue Act to that
extent would be defeated.
Aside from t h i s , we are render-
ing very substantial amount of free service to member banks
and we do not believe that in a l l fairness we are warranted at t h i s time in increasing the amount of expense absorbed
by u s .
We have not had and do not anticipate having any
34
- 4 •»
X-7194-b
(Dallas* continued)
serious d i f f i c u l t y in this connection.
A few "banks de-
ducted the tax from their f i r s t remittances "but, upon our
advising them with reference to the law, they readily agreed
with oui> position and have not repeated the deduction.
This
i s true of both member and nonmember "banks.
SAtT FRANCISCO. Position doubtful.
Telegram of June 20 said Federal Reserve
Bank of San Francisco would not absorb tax, but telegram
of June 33 says,
He serve bank i s now in receipt of drafts
issued by member fend non-4nember banks in settlement cash
l e t t e r s sent to them from which remitting bank has deducted
2 cent tax on covering draft,
It would seem that absorption
of this charge by Reserve Bank would ultimately come out of
public treasury through lessening of p r o f i t s which may herea f t e r inure to government.
Any ruling by commissioner In-
ternal Revenue to e f f e c t that deduction of tax by remitting
bank would n u l l i f y law and therefore prohibited would cause
banks having accounts with reserve bank to discontinue use
settlement drafts and adopt practice of giving credit advices.
From standpoint check collections, use of credit ad-
vices i s extremely dangerous; because i t would set up debtor
and creditor relationship which System has taken great pains
to avoid.
Counsel of opinion that Commissioner Internal
Revenue may rule that drafts issued to Reserve Banks in
settlement cash l e t t e r s not subject to tax.
If nonmember
X-7194-b
"banks i n s i s t upon deducting tax, reserve banks have
no alternative but to pay or open wide whole par
collection question.
WW/sad
6 29 32
36
X-7195
STATEMENT OF BUREAU OF ENGRAVING AND PRINTING
Federal Reserve Notesj Series 1928*
June 21 to 30, 1932*
|10
$20
£50
#100
#500
#1000
Total
Sheets
Amount
54j000
54,000
32,000
54,000
9,950
7,500
211,450
#19,559.13
-
-
5,000
5,000
-
-
10,000
925.00
54,000
54,000
37,000
59,000
9,950
7,500
221,450
$20,484.13
221,450 sheets, © $92.50 per M,
#20,484.13
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7196
July 7, 1932.
SUBJECT: Hew Issue Treasury B i l l s .
Dear Sir;
In connection with telegraphic transactions in
Government securities "between Federal reserve "banks, the
code word "2T0XDEJ3CT" has been designated to cover a new
issue of Treasury B i l l s , dated July 13, 1932, and maturing
October 11, 1932.
This word should be inserted in the Federal reserve telegraph code book, following the supplemental code
word "N0XDEG-2AD" on page 172.
Very truly yours,
J. C. IToell,
Assistant Secretary.
TO GOVZSHOaS OF ALL F. a. BABES.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7200
July 15, 1932.
SUBJECT! -.New Issue Treasury B i l l s .
Dear Sir: :
In connection with telegraphic transactions in
Government securities "between Federal reserve banks, the
code word "NOXDEMON" has been designated to cover a new
issue of Treasury B i l l s , • dated- July 20, 1932, and maturing
October 19, 1932.
This word should be inserted in the Federal reserve telegraph code book, following the supplemental code
word "NOXBEJECT" on page 172. •
Very truly yours,
J» C. IToell,
Assistant Secretary, .
TO GOVERNORS OS1 A I M . R. BANKS. .
:
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7202
July 18, 1932.
SUBJECT:
Shipments of Canceled Currency
Under New Postal Regulations.
Dear Sir:
An inquiry has been received as to the e f f e c t of the
new rates on registered mail upon shipments of canceled currency to Washington.
Since the matter a f f e c t s the Treasury
Department, advice from that Department has been requested.
A copy of the reply signed by Under Secretary Ballantine i s
inclosed, and your attention i s directed to the statement in
the l e t t e r that such currency "no longer possesses money
value".
In the circumstances i t would seem unnecessary to
declare a value upon such shipments which would make them
subject to the surcharges prescribed by the new regulations.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO ALL F. R. AGENTS.
39
COPY
X-7203-a
TREASURY DEPARTMENT
WASHINGTON
July 13 1932
Dear Mr. McClelland:
Referring to your communication of the 7th to the
Commissioner of the Public Debt, with which you enclosed a
copy of a wire from the Federal Reserve Bank of Dallas, I
think i t w i l l be appropriate for you to advise that bank,
and any other banks, that paper currency which has been
redeemed, canceled, and cut in halves no longer possesses
money value.
Of course, the canceled halves are important
as vouchers, but under the procedure in e f f e c t - the second
halves not being forwarded u n t i l receipt of the f i r s t halves
i s acknowledged by the Treasury - there i s almost no chance
of l o s s .
Very truly yours,
(S)
A. A. BALLAST1MB
Under Secretary of the Treasury
E. M. McClelland, Esq.,
Assistant Secretary,
Federal Reserve Board.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7203
July 25, 1932,
SUBJECT: Tax on Checks, and Other Questions
Arising under the Revenue Act of 1932,
Dear Sir:
Inclosed are three copies of a letter addressed to the
Secretary of the Treasury dated July 16, 1932, signed by Governor
Meyer asking numerous questions arising under the Revenue Act of
1932.
The questions deal principally with the tax on checks im-»
posed by Section 751a,
Questions arising under other sections of
the Act are also covered and will be found on pages 3 and 25 of
the inclosed l e t t e r .
The l e t t e r was prepared in order to f a c i l i t a t e and expedite
consideration by the Treasury Department by eliminating duplications
and by re-grouping and rearranging the questions and inclosures
contained in the l e t t e r s received from the reserve banks.
Confer-
ences were had with the Treasury o f f i c i a l s both before and after
July 16.
It now appears that the reply of the Secretary of the
Treasury w i l l not be received for a day or two, although i t had
originally been hoped that the reply would be received before the
X-7203
— 2 —
end of l a s t week.
Accordingly, a copy of the l e t t e r of July 16 i s "being
sent to you at t h i s time in order that you may, i f you so desire,
familiarize yourself with i t s contents and thus shorten the time
required for the examination of the answer of the Secretary of
the Treasury, and also in order that this o f f i c e may telegraph to
you, i f necessary, a summary of the reply of the Secretary of the
Treasury, with references to the questions by number, without
having to repeat the questions in the telegram.
Very truly yours,
Chester Moriill,
Secretary.
Inclosures.
TO tmiRMEN AMD GOVERNORS OF ALL F. B. BANKS.
43
COPY
X-7203-a
July 16, 1932.
Honorable Ogden L. Mills,
Secretary of the Treasury,
Washington, D. C.
SIR:
On behalf of the Federal reserve "banks, rulings
by your Department are respectfully requested ion the questions
set forth below, a l l of which arise under the Revenue Act of
1932 out of transactions incident to the conduct of the business
of the Federal reserve banks.
The various Federal reserve banks have addressed
separate l e t t e r s and telegrams to the Federal Reserve Board
stating the questions upon which they desire rulings and submitting sample copies of the forms used in the transactions
referred to; but, in order to eliminate duplications and to
f a c i l i t a t e consideration by your Department, the various
questions have been assembled in this l e t t e r and grouped according to the types of transactions out of which they a r i s e ,
excepting the f i r s t group which consists of questions a l l of
which are believed to be governed by the same legal principles
and precedents.
44
x-7203-a
-2-
Numerous different questions which apparently involve the
same general principles are "being presented at the request of the
reserve "banks; because the practices of various Federal reserve
"banks are not uniform and, even at the same Federal reserve "bank,
the same type of transaction may assume a number of different forms;
and i t would "be helpful to the Federal reserve "banks to have spec i f i c rulings on each of the questions presented.
The answers to
some of the questions may appear to be obvious; but the Federal reserve banks have s p e c i f i c a l l y asked that rulings on such questions
be obtained from your Department.
Specimens of a l l of the forms submitted by the Federal
reserve banks are inclosed herewith in two separate groups.
Those
in the group marked "Appendix A" are s p e c i f i c a l l y referred to in
this l e t t e r as i l l u s t r a t i v e of the transactions described.
Those
in the group marked "Appendix B" are not s p e c i f i c a l l y referred to
in this l e t t e r , but are submitted for the inspection of your Department.
•
X-7203-a
-3I
1.
TAXABILITY OF FEDERAL RESERVE BAMS.
Does the tax imposed by Section 751(a) apply to checks
drawn on Federal reserve banks by their own o f f i c e r s acting in their
o f f i c i a l capacities?
2.
Does the tax imposed by Section 701(a) (2) apply to
leased telephone and telegraph service contracted for, used and paid
for by the Federal reserve banks?
3.
Does the tax imposed by 701(a) (1) apply to telegraph,
telephone, cable and radio messages sent by the reserve banks or
sent to them c o l l e c t , which are paid for by the reserve banks and
for which no reimbursement i s received by them?
(instances of the
latter sort" are described in Exhibits 1 and 2).
4.
Does the tax imposed by Section 701(a) ( l ) apply to
messages paid for by the reserve banks bat for which they are later
reimbursed by other banks, such as messages sent by the reserve banks
in performing services for other banks?
5.
Is e l e c t r i c a l energy furnished to Federal reserve banks
for their own use subject to the tax imposed by Section 616(a)?
6.
Do the taxes on fuel o i l and other a r t i c l e s of merchan-
dise imposed in A r t i c l e IV of the Revenue Act of 1932 apply when
such a r t i c l e s are purchased by the reserve banks for their own use?
COMMENTS.
In connection with the above questions, reference i s made
to the following:
45
X-720S-a
-4Federal Reserve Act (Act of December 23, 1913; 38 Stat. 251,
Chap. 6), section 7:
it* * $ federal reserve "banks, Including the capital
stock and surplus therein, and the income derived therefrom
shall be exempt from federal, State, and local taxation,
except taxes upon real estate."
Opinion of the Attorney General of the TJti.ted States
addressed to the Secretary of the Treasury under date of March 10, 1916,
holding that the above-quoted provision of the Federal Reserve Act
exempted Federal reserve banks from the provisions of the Act of
October 22, 1914 (38 Stat. 759) imposing, in general terms, a stamp
tax on stock c e r t i f i c a t e s .
(30 Op. Atty. Gen. 511.)
A l e t t e r from the Commissioner of Internal Revenue, addressed to the General Counsel of the Federal Reserve Board under
date of November 8, 1917, and referred to at page 921 of the 1917
Federal Reserve Bulletin.
The body of the l e t t e r i s quoted below:
"Referring to your l e t t e r of the 3d instant,
I have to advise you that i t i s the opinion of this
o f f i c e that Federal Reserve Banks are not subject to
the tax upon payments for telephone, telegraph and
express service when such payments f a l l d i r e c t l y
upon the banks. n
•:
47
X-7203-a
-5II.
VARIOUS POEMS OF REMITTANCES OR SETTLEMENTS FOR
CHECKS AND COLLECTION ITEMS.
Pursuant to the provisions of Sections 13 and 16 of the Federal
Reserve Act and Regulation J of the Federal Reserve Board, a copy of
which i s inclosed herewith, the Federal reserve "banks act as clearing
houses, and collect checks for their member "banks, which maintain deposit "balances with the Federal reserve banks as their legal reserves,
and for non-member "banks which establish deposit balances with the Federal reserve banks for the purpose.
The Board's regulations on t h i s sub-
ject are supplemented by circulars issued by the Federal reserve banks,
copies of which are attached (Exhibits 3 and 4 ) .
Each Federal reserve
bank receives each day numerous checks drawn upon banks in i t s d i s t r i c t
and forwards them to the drawee banks for payment.
The usual procedure
i s to said a l l the checks received during each day drawn on a particular
bank to that bank, with one covering l e t t e r .
known as a "cash l e t t e r " .
The covering l e t t e r i s
The total amount of the checks thus trans-
mitted i s accounted for to the Reserve bank in any one of several ways,
the principal ones being, (a) by authorizing the Federal reserve bank
to debit the amount to the deposit balance of the remitting bank on
the books of the Federal reserve bank, and (b) by sending the Federal
reserve bank a check or draft drawn upon the remitting bank's deposit
with the Federal reserve bank or a correspondent bank.
The reply to
the cash l e t t e r w i l l also state the amount, i f any, of the items which are
returned to the reserve bank (because not collected or for some other reason),
X-7203-a
-6-
and this amount i s accordingly deducted from the total stated in the
cash l e t t e r .
The transaction i s illustrated by Exhibit 5, which i s
a detachable portion of the cash l e t t e r sent by one reserve bank,
and Exhibit 6, which i s a form furnished by another reserve bank.
The Federal reserve banks also collect for their member
banks promissory notes, b i l l s of exchange and other similar items
and the procedure in forwarding and accounting for such items i s
similar, so far as the questions here presented are concerned to
that followed i n connection with the collection of checks, except
for differences in detail which are indicated in Questions 8 to 11
below.
For convenience, such items are commonly referred to as
"non-cash items", in order to distinguish them from checks and similar
items payable on demand at banks, which are comnonly referred to as
"cash items".
1.
Is a tax payable in the event that a member bank, in
response to the cash l e t t e r , authorizes the Federal reserve bank to
debit the amount to i t s deposit balance with the Federal reserve bank,
(a) by a s p e c i f i c authorization in the form indicated in Exhibits
5 and 6; or (b) by returning to the Federal reserve bank a memorandum
s l i p (Exhibit 7) merely stamped "debit" or "paid", which has by custom
the e f f e c t of such authorization?
2.
In some cases the reserve bank i s given a continuing
authorization to charge the account of the member bank with the
net amount of each "cadi letter" sent to that bank.
Is such authori-
49
X-7203-a
zation taxable?
If so, i s i t taxable once, or each time an entry
i s made2
3.
Is the tax payable in the event that the bank makes
remittance of the amount called for by i t s reply to the cash l e t t e r ,
by means of a draft or check, (a) drawn against i t s deposit balance
with the Federal reserve bank? or (b) drawn against a deposit in a
correspondent bank?
4.
In one instance the cash l e t t e r has a detachable por-
tion which performs the same functions as those contained in
Exhibits 5 and 6 but which i s in the form of a draft and which
i s marked "Settlement draft 11 .
This "Settlement draft* i s not
dealt with as an ordinary draft in that i t i s never returned to the
drawer, but, like the forms in Exhibits 5 and 6, i s held by the reserve
bank as a part of i t s records.
Is such a "Settlement draft" taxable?
(See Exhibit 8)
5.
In the event that any of the transactions described in
the preceding questions i s taxable, i s only one tax imposed, or i s
the tax payable with regard to each separate item inclosed with the
cash l e t t e r , when a single settlement i s made for the t o t a l amount
of such items?
6.
It sometimes occurs that, in i t s response to a cash
l e t t e r , the member bank w i l l incorrectly state the amount chargeable against i t s reserve account, usually because i t has f a i l e d for
some reason to return and deduct an item which should have been
returned and deducted because uncollectible or for some other reason.
X-7203»a
u&i*
In that event, i t communicates again with the reserve bank advising i t
of the correcting book entry to be made.
7.
Is such a transaction taxable?
In certain reserve d i s t r i c t s , in order to achieve greater
promptness in settlement, where drafts are sent in settlement of cash
l e t t e r s , the drafts are required to be on certain member banks which
have previously agreed that such drafts may be immediately charged
against their accounts by the reserve bank, without waiting for the
draft to be sent to the drawee bank.
After such a charge i s made,, the
reserve bank n o t i f i e s the bank upon which the draft i s drawn so that
i t may keep i t s books in order and forwards the draft to i t .
form of such n o t i f i c a t i o n , see Exhibit 9)
8.
(For a
Is such n o t i f i c a t i o n taxable?
In connection with non-cash items, a printed s l i p i s often
attached to each item when i t i s forwarded for collection by the Federal
reserve bank, such s l i p taking the place of a l e t t e r of transmittal.
Acknowledgment of receipt of the item, acknowledgment that payment has
been received, and authorization to the reserve bank to charge i t s
account i s made by the bank receiving i t , by returning a carbon copy
of the s l i p stamped "paid" or "debit™.
returned s l i p , taxable?
9.
Is this transaction, or the
(Exhibit 10 i s an example)
Is the result different i f the collecting bank merely
advises the reserve bank that i t has credited the latter*s account,
which i s an implied authorization to the l a t t e r to make a corresponding
entry on i t s books?
10.
(Exhibit 11)
Promissory notes, b i l l s of exchange and other non-cash
collection items which are payable by persons located in the same c i t y
. 51
X-7203-a
-9as the Federal reserve tank or i t s branch are sodkbti&eb presented
by the Federal reserve bank directly to the persons by whom they are
payable, and such persons give the Federal reserve banks in payment for
such items checks drawn on manber banks in the same c i t y .
In such
cases the Reserve bank immediately presents such checks by messenger to
the banks on which they are drawn and the drawee banks give the Federal
reserve bank drafts against their deposit balances with the Federal
reserve bank.
11.
Are such drafts subject to the tax?
In the circumstances described in the preceding question,
the bank, instead of sending a draft, sometimes authorizes the reserve
bank to charge i t s account.
Is this transaction taxable?
COMMENTS.
I t has been suggested that, under the language of the
statute, the tax i s levied on "instruments", and not on transactions
or on debits or credits; that, in order for an "instrument" to be
taxable, i t mast be "presented for payment" and must be a check,
draft or order "for the payment of money"; and that, therefore, a
mere authorization to debit the account of a bank on the books of
the Federal reserve bank i s not an order "for the payment of money",
i s never "presented for payment", and i s not taxable under the statute.
The argument has also been made by some of the Federal reserve
banks that the imposition of any tax on these transactions results
in pyramiding the tax, since the tax has already been paid upon the
checks or drafts for which payment or settlement i s made by the transactions described above.
-10III.
X-7203-a
CLEARING toJSj TRANSACTIONS.
The questions under this heading involve the settlement
of balances resulting from exchange of checks "between "banks.
The
settlement of "balances resulting from the exchange of checks through
the Newark Clearing House Association, Newark, New Jersey, w i l l
i l l u s t r a t e this type of transaction.
Bach "business day each bank
in the Clearing House Association takes to the o f f i c e of the association checks deposited with such bank drawn on other banks in the
association, and messengers representing the respective banks in the
association c a l l for and receive the checks drawn on their banks.
Each bank i s credited with the amount of the checks drawn on the
other banks which i t brings to the clearing house and i s debited
with the amount of the checks drawn on i t which other banks bring.
There i s a net credit or debit balance in favor of or against each
bank as a result of the day's exchanges, and the aggregate of the
net credit balance
must, of course, be exactly equal to the aggregate
of the net debit balances.
The amounts of the net credit and debit
balances to a l l banks are written on the clearing house statement
for that day and t h i s statement, signed by an o f f i c e r of the Clearing House Association, i s sent by messenger to the Federal Reserve
Bank of1 New York, and the balances as shown on the statement are
settled on the books of the Federal reserve bank by credits and
debits to accounts of member banks.
The balances in favor of or
against banks which are members of the Federal Reserve Bank are
credited or debited to the accounts of such banks on the books
of the Federal reserve bank.
The balances for or against other
banks, i . e* banks which are not members of, and therefore have
no account with, the Federal reserve bank are, by arrangement between the banks concerned, credited or debited to the accounts of
designated banks in New York City which are members of the Federal
reserve bank#
These credits and debits are made by the Federal re-
serve bank pursuant to continuing l e t t e r s of authorization on f i l e
with i t signed by the various banks.
Copies of the three forms of
l e t t e r of authorization used for this purpose are hereto attached
and marked Exhibits 12, 13 and 14, and a copy of the form of Newark Clearing House Association statement furnished each day to the
Federal reserve bank i s also attached and marked Exhibit 15.
The questions asked in this connection are:
1.
Are any of the above-described transactions which consist
merely in book entries, taxable?
2«
Is the clearing house statement above referred to (Exhibit
15) subject to the tax?
3.
Are the l e t t e r s of authorization (Exhibits 12, 13 and 14)
subject to tax?
If so, are they taxable once, or each time an
entry i s made, or as to each item covered by each entry?
4.
In some instances the clearing house issues c e r t i f i c a t e s
showing the net balances.
Such a c e r t i f i c a t e i s issued to a creditor
bank called upon a debtor bank to pay the creditor bank the amount
KL2~
stated therein.
X-7203-a
No accounts are carried in any of the clearing house
banks in the name of the manager for the purpose of e f f e c t i n g s e t tlement pursuant to the c e r t i f i c a t e s , and these c e r t i f i c a t e s are
issued "by the clearing house manager merely as memoranda to f a c i l i tate the settlement of balances between the members of the clearing
house association.
The Federal reserve bank participates in the
clearings and c e r t i f i c a t e s issued in i t s favor against member banks
are charged against their deposit balances on the books of the Federal reserve bank pursuant to standing authorizations.
Are such
c e r t i f i c a t e s subject to the tax?
5.
*
In some instances (particularly where banks are so l o -
cated as not to be in communication by messenger with the Federal
reserve bank) a group of banks adopt, by agreement, the procedure
of forwarding each day to each member of the group a l l the items
they receive that are payable by or through that member of the group,
forwarding to the reserve bank a form on which are l i s t e d the names
of a l l the other members of the group together with the amount of
the. items that i t has forwarded to each.
When received by the reserve
bank, this form i s used as an authorization to make the appropriate
entries in the accounts of the banks in the group.
In practice, how-
ever, instead of making several entries, the reserve bank strikes
the balance from the advices sent by a l l the members of the group
and makes each day only one entry in each of their accounts, representing the net balance for the particular bank.
Examples of
these forms are attached hereto, marked Exhibits 16 and 17.
X-7203-a
-13-
Is the use of these forms in the manner above-described taxable?
6.
Are the resultant book entries made by the reserve bank
7.
In certain instances, the Federal reserve bank i t s e l f
taxable?
acts as a clearing house, receiving the checks from the various banks,
striking the balance and making the appropriate entries in the accounts of the various banks.
8.
Are these transactions taxable?
In certain instances the Federal reserve bank performs
these services even for banks which have no account with i t ( i . e . ,
banks not members of the Federal Reserve System).
Where such banks
are located in the same city as the reserve bank, the method adopted
i s for the drawee bank to send a messenger to the reserve bank to
get the checks drawn on i t which have been forwarded to the reserve
bank for c o l l e c t i o n .
The checks are immediately charged to the
account of a member bank which has authorized the reserve bank to
do so, and credited to the bank which forwarded them.
In the event
that the check i s l a t e r dishonored, the book entries are reversed.
Exhibits 18, 19 and 20 are copies of such authorizations.
such authorizations taxable ?
Are
-14-.
fllfciiftjafo
IV.
X-7203H9,
mirnmcY
fsou reserve
binks.
A member bank desiring currency usually obtains i t from
the Federal reserve bank, and the amount usually i s debited on the
books of the Federal reserve bank to the deposit balance maintained
by the member bank with the Federal reserve bank as the legal reserve
of the member bank.
Such requests for currency and the authorizations
to debit the reserve balances assume a variety of forms and give rise
to the following questions:
1.
Is such a request by & member bank for the shipment of
currency to i t taxable when made by telephone and not confirmed in
writing?
2.
If such a request is made by telephone but confirmed
in writing a f t e r the shipment of the currency, i s i t taxable?
3.
If a messenger sent to the Federal reserve bank delivers
merely a receipt for the currency and receives the currency, i s the
transaction taxable? (Exhibit 21)
4.
If the messenger in such a case delivers a check or
draft drawn on the Federal reserve bank for the amount of the currency,
i s the transaction taxable?
5.
If a written request for currency i s accompanied by a
check or draft, are both the check and the request taxable?
6.
When the transaction i s completed, the reserve bank
frequently sends a confirmation on a printed fozm to the member bank,
(See Exhibit 22)
Is this document taxable, whether or not any other
part of the transaction i s taxable ?
57
X-7203-a
COMMENTS.
In this connection, reference has been made to the language
of the court in Haverty Furniture Co. v. United States, 286 Fed. 985986, which indicates that a mere receipt for currency delivered
across the counter was not taxable under a similar provision of the
Revenue Act of 1898.
This principle i s adopted in Article 36 of
Regulation 42, dealing with Section 751 ( a ) .
~16±V.
X-7203-a
TRANSACTIONS EJCISBNT TO REDISCOUNTS MP ADVANCES
BY FEDERAL RESERVE BANKS.
1,
Federal reserve banks extend credit accommodations to
their member banks: (a) By rediscounting, on the indorsement of
their member banks, the commercial, industrial and agricultural paper
acquired by them from their customers; and (b) by making advances to
their member banks on their promissory notes secured in the manner
prescribed by law.
In either event, the proceeds usually are made
available to the member bank by crediting the amount to the deposit
balance of the member bank on the books of the Federal reserve bank.
Are such credit entries taxable ?
2.
At the maturity of the rediscounted paper or the promissory
notes of the member banks, the Federal reserve banks, pursuant to
agreements or regulations previously made, return the rediscounted
paper or promissory notes to the member banks and debit the amounts
due thereon to the deposit balances of the member banks on the books
of the Federal reserve banks.
3e
Are these transactions taxable?
The member bank frequently desires to have i t s promissory
notes or rediscounted paper returned to i t prior to the time when i t
would be returned in due course as described above.
I t s reason for so
desiring may be, for instance, that the maker of the instrument desires
to pay i t before maturity, or i t may be that the member bank desires
to decrease the t o t a l amount of the paper rediscounted for i t by the
59
X-7203-a
reserve bank.
In such case the member "bank communicates with the
Reserve Bank by l e t t e r or by telegram, requesting that the item
be returned to i t , and, either impliedly or actually in words,
authorizing the reserve bank to debit i t s deposit balance on the
books of the reserve bank with the amount due thereon.
Are these
transactions, ( i . e . , the book entries, the transmission of the instruments, or the communications requesting the return of the instruments
and authorizing the book entries) taxable?
(See Exhibits 23 and 24, being a circular l e t t e r describing
the transaction, and a printed memorandum s l i p in two parts, one of
which i s called "debit ticket".
See Exhibits 25 and 26 being examples of a
form of l e t t e r and a telegram asking for a change in the usual procedure.)
COMMENTS.
I am advised that i t has been held by the courts that the
indorsement and rediscount of commercial paper by a member bank with
a Federal reserve bank results in an indebtedness owing by the member
bank to the Federal reserve bank (see Federal Reserve Bank of Minneapolis
v. First National Bank. 277 Fed. 300), and, of course, this i s true
where the member bank gives i t s own promissory note to the Federal reserve
bank for money borrowed*
It has been suggested, therefore, that,
where a member bank authorizes a Federal reserve bank to debit i t s
deposit balance
with the amount due on rediscounted paper or on the
promissory note of the member bank, whether due or not, the transaction
i s a mere o f f s e t of indebtedness between mutual creditors and that the
transaction i s not taxable.
-18<
VI.
X-7203-a
IKTER-BANK TRANSEBBS OF FUNDS.
One of the important functions of the Federal Reserve
System i s to f a c i l i t a t e the transfer of funds between banks.
This
function i s performed (with unimportant exceptions) free of charge for members of the System,
It i s done as far as possible without resorting
to shipments of currency.
Transfers between member banks in the same Federal Reserve
District are made merely by means of entries on the books of the
Reserve bank.
The steps involved in such transaction are: ( l ) A
member bank requests the reserve bank to transfer an amount on i t s
books from the reserve account of the requesting bank to the account
of another bank, (2) the reserve bank makes the transfer on i t s books, and
(3) the bank to whose account the transfer i s made i s n o t i f i e d .
If the
bank to which the transfer i s made i s located in another D i s t r i c t , the
second step must consist in (a) a transfer from the account of the
requesting bank to the account of the reserve bank for the D i s t r i c t
in which i s located the bank to which the transfer i s made, and (b) a transfer by that reserve bank to the account of the l a t t e r .
If the l a t t e r has
no account with the reserve bank, the reserve bank transfers to the
account of a bank which has and which i s a correspondent of the bank to
which the transfer i s made.
For the purpose of e f f e c t i n g transfers
between two Federal reserve banks (where the transfer i s from one District
to another), the Gold Settlement Fund i s maintained in Washington,
This
fund was created by a deposit of gold Thy each Federal reserve bank with
the Treasurer of the United States to the credit of the Federal Reserve
61
- 19 Board, which maintains
bank.
bo'oki
X-7203-a
8}idWing t h e amount due t o e a c h F e d e r a l r e s e r v e
The F e d e r a l r e s e r v e b a n k s e a c h own an u n d i v i d e d i n t e r e s t i n t h i s f u n d
and a d v i s e t h e F e d e r a l R e s e r v e B o a r d e a c h d a y o f t h e t r a n s f e r s made t o e a c h
other.
The B o a r d makes a p p r o p r i a t e b o o k e n t r i e s t r a n s f e r r i n g i n t e r e s t s i n
t h e Fund e q u i v a l e n t t o t h e t r a n s f e r s o f f u n d s made b e t w e e n t h e F e d e r a l r e s e r v e
banks.
Member b a n k s make t h e i r r e q u e s t s f o r t r a n s f e r s i n many w a y s : - b y
l e t t e r , ( E x h i b i t 2 7 ) , t e l e g r a m , ( E x h i b i t 2 8 ) t e l a u t o g r a p h , and t e l e p h o n e .
A f t e r t h e t r a n s f e r h a s b e e n made, t h e F e d e r a l r e s e r v e bank s e n d s a memorandum o f t h e t r a n s a c t i o n t o t h e member b a n k , a n d e x e c u t e s a p p r o p r i a t e v o u c h e r s ,
a n d makes a p p r o p r i a t e e n t r i e s on i t s b o o k s .
E x h i b i t 29 a t t a c h e d h e r e t o
c o n s i s t s of a c i r c u l a r l e t t e r of the Federal R e s e r v e Sank o f P h i l a d e l p h i a
d e a l i n g w i t h s u c h t r a n s f e r s and v a r i o u s p r i n t e d memorandum s l i p s u s e d i n
connection therewith.
(1)
See a l s o E x h i b i t 2.
Are such t r a n s f e r s of f u n d s by one F e d e r a l r e s e r v e bank to
a n o t h e r a t t h e r e q u e s t o f a member b a n k , made b y means o f a t e l e g r a m o r
l e t t e r s e n t b y o n e F e d e r a l r e s e r v e bank t o a n o t h e r , t a x a b l e ?
(2)
I s a r e q u e s t f o r s u c h a t r a n s f e r , made b y t h e member b a n k ,
t a x a b l e i f made b y t e l e p h o n e and n o t c o n f i r m e d i n w r i t i n g ?
(3)
I s s u c h a r e q u e s t t a x a b l e i f made b y t e l e p h o n e and c o n f i r m e d
i n w r i t i n g a f t e r t h e t r a n s f e r h a s b e e n made?
(4)
I f made b y t e l a u t o g r a p h o r t e l e g r a m a n d n o t c o n f i r m e d i n w r i t i n g ?
(5)
I f made b y t e l a u t o g r a p h o r t e l e g r a m and s u b s e q u e n t l y c o n f i r m e d
in writing?
(6)
I f made b y l e t t e r ?
p r i n t e d form f o r such r e q u e s t ) .
( E x h i b i t 3 0 , S e e a l s o E x h i b i t 31 b e i n g a
- 80 (7)
%-7203-a
I f s u c h r e q u e s t s a r e t a x a b l e i f made b y t e l e p h o n e , t h e n when
a number o f s u c h r e q u e s t s a r e made i n t h e c o u r s e o f o n e day a n d t h e F e d e r a l
r e s e r v e b a n k makes o n l y o n e b o o k e n t r y f o r t h e t o t a l amount a t t h e c o n c l u s i o n
o f the day, i s one t a x o n l y imposed or i s each s e p a r a t e r e q u e s t t a x a b l e ?
(8)
In t h e e v e n t t h a t a r e q u e s t f o r t r a n s f e r o f f u n d s made b y
l e t t e r is taxable, is a l e t t e r containing a request for several transfers
s u b j e c t t o t a x a t i o n o n c e , o r s e v e r a l t i m e s d e p e n d i n g upon t h e number o f
t r a n s f e r s requested in the l e t t e r ?
(In t h i s connection i t has been sug-
g e s t e d t h a t , i f t a x a b l e a t a l l , such r e q u e s t s are s u b j e c t to o n l y one tax
s i n c e t h e y a r e c o n t a i n e d i n o n e l e t t e r o r memorandum).
(9)
R e q u e s t s f o r such t r a n s f e r s a r e sometimes accompanied by a
d r a f t f o r t h e amount t o b e t r a n s f e r r e d .
(10)
I s such draft taxable?
I f s o , i s t h e l e t t e r t r a n s m i t t i n g t h e d r a f t and making the
request also taxable?
(11)
I s a r e c e i p t or acknowledgment on a p r i n t e d form s e n t b y the
r e s e r v e b a n k t o t h e member b a n k i n r e s p o n s e t o a l e t t e r s u c h a s i s d e s c r i b e d
i n t h e p r e c e d i n g q u e s t i o n ( E x h i b i t s 3 2 , 3 3 , 3 4 and 3 5 ) a l s o t a x a b l e ?
(12)
When $ bank l o c a t e d i n o n e F e d e r a l R e s e r v e D i s t r i c t r e q u e s t s
t h a t a t r a n s f e r b e made t o a b a n k l o c a t e d i n a n o t h e r D i s t r i c t ,
the steps
incident to completing the t r a n s a c t i o n include a t r a n s f e r by the Federal
r e s e r v e bank of t h e D i s t r i c t i n which t h e r e q u e s t i n g bank i s l o c a t e d to
tlie F e d e r a l r e s e r v e bank of the D i s t r i c t i n which the t r a n s f e r e e bank i s
l o c a t e d and a t r a n s f e r f r o m t h e l a t t e r r e s e r v e bank t o t h e t r a n s f e r e e
63
X-7203-a
-
21
-
t a n k , b o t h t r a n s f e r s b e i n g a c c o m p l i s h e d b y means o f b o o k e n t r i e s i n
the accounts of the r e s p e c t i v e banks.
(13)
Is the l a t t e r transfer taxable?
T r a n s f e r s a r e a l s o made b y F e d e r a l r e s e r v e b a n k s b e -
t w e e n two member b a n k s l o c a t e d i n i t s d i s t r i c t .
Bequests for such
t r a n s f e r s t a k e t h e same f o r m s a s t h e t r a n s f e r s d e s c r i b e d a b o v e , b u t
s u c h t r a n s f e r s a r e a c c o m p l i s h e d m e r e l y b y means o f b o o k e n t r i e s i n
t h e r e s e r v e a c c o u n t s o f t h e two b a n k s i n v o l v e d .
Are such t r a n s f e r s
t a x a b l e when t h e r e q u e s t s a r e made i n a n y o f t h e d i f f e r e n t w a y s d e s c r i b e d a b o v e , ( i n c l u d i n g m e s s e n g e r , t e l e p h o n e , w r i t t e n memorandum,
etc.)?
X-l7203-a
— 22 **
vii.
transfers to 6# surflfrltlog fund. war loan deposit
account MP H5C0:TST?.TJCTI0IJ finance corporation.
N a t i o n a l b a n k s i s s u i n g n a t i o n a l bank n o t e s a r e r e q u i r e d b y s t a t u t e
t o m a i n t a i n w i t h t h e T r e a s u r e r o f t h e U n i t e d S t a t e s a R e d e m p t i o n Fund equal
to 5$ o f t h e i r n o t e s i n c i r c u l a t i o n .
When n e c e s s a r y , a n a t i o n a l bank w i l l
i n most i n s t a n c e s make a d d i t i o n s to i t s 5$ R e d e m p t i o n Fund b y r e q u e s t i n g
t h e F e d e r a l R e s e r v e Bank o f i t s d i s t r i c t t o t r a n s f e r t h e r e q u i r e d amount
to the account of the Treasurer of the U n i t e d S t a t e s .
made s u b s t a n t i a l l y i n t h e f o l l o w i n g form;
Such r e q u e s t s a r e
"Please charge our account $
and c r e d i t t h e T r e a s u r e r o f t h e U n i t e d S t a t e s f o r t h e a c c o u n t o f o u r 5$
R e d e m p t i o n Fund".
The r e s e r v e b a n k s p r e p a r e " d e b i t t i c k e t s " c o v e r i n g t h e
n e c e s s a r y b o o k e n t r i e s and s e n d c o p i e s , or s i m i l a r s l i p s , t o t h e member
banks f o r t h e i r r e c o r d s .
Samples o f s u c h f o r m s a r e a t t a c h e d , marked
E x h i b i t s 37 and 3 8 .
1.
I s such a request taxable?
2.
S o m e t i m e s s u c h a r e q u e s t i s a c c o m p a n i e d by a d r a f t .
Is
the d r a f t or the w r i t t e n r e q u e s t taxable?
I t h a s b e e n c o n t e n d e d b y some o f t h e r e s e r v e b a n k s t h a t s u c h
t r a n s f e r s to o f f i c e r s of t h e United S t a t e s are not t a x a b l e in any event.
3.
S i m i l a r q u e s t i o n s are a l s o r a i s e d with regard to t r a n s f e r s
from t h e r e s e r v e a c c o u n t o f a member bank t o t h e T r e a s u r e r o f t h e U n i t e d
S t a t e s a s p a y m e n t s o n t h e War Loan d e p o s i t o f t h e bank g i v i n g t h $ d i r e c t i o n
( r e p r e s e n t i n g i t s s u b s c r i p t i o a to U n i t e d S t a t e s s e c u r i t i e s . )
65
X-7203-a
- 23 -
4.
From t i m e t o t i m e b o r r o w i n g i n s t i t u t i o n s r e p a y on a d v a n c e s
made b y t h e R e c o n s t r u c t i o n F i n a n c e C o r p o r a t i o n , d o i n g so
( a ) b y means
o f i n s t r u c t i o n s to the R e s e r v e bank to charge t h e borrowing b a n k ' s a c c o u n t and t o c r e d i t t h e T r e a s u r e r o f t h e U n i t e d S t a t e s f o r a c c o u n t o f t h e
R e c o n s t r u c t i o n F i n a n c e C o r p o r a t i o n , and
(b)
b y means o f d r a f t s .
Debit
t i c k e t s a r e p r e p a r e d b y t h e r e s e r v e b a n k and s i m i l a r s l i p s a r e f o r w a r d e d t o
the r e q u e s t i n g bank f o r i t s r e c o r d s .
( E x h i b i t 39)
Are e i t h e r t h e
i n s t r u c t i o n s , t h e d e b i t t i c k e t s and s l i p s , o r t h e d r a f t s t a x a b l e ?
66
X-7203-a
4 24 -
VIII.
MIS CELL ANBOUS T3ANSACTIOHS.
P u r c h a s e o f S e c u r i t i e s b y R e s e r v e Banks o n B e h a l f o f Member B a n k s .
Member b a n k s f r e q u e n t l y r e q u e s t r e s e r v e b a n k s t o p u r c h a s e
Government o r o t h e r s e c u r i t i e s , o r b a n k e r s ' a c c e p t a n c e s f o r them,
a u t h o r i z i n g t h e r e s e r v e bank, e i t h e r i m p l i e d l y or s p e c i f i c a l l y ,
to charge t h e i r r e s e r v e account w i t h the c o s t .
Such r e q u e s t s a r e
made i n a v a r i e t y o f w a y s .
1.
I s s u c h r e q u e s t t a x a b l e i f made b y t e l e p h o n e and n o t
confirmed in writing?
2.
I f made b y t e l e p h o n e and s u b s e q u e n t l y c o n f i r m e d i n w r i t i n g ?
3.
I f made b y l e t t e r n o t s p e c i f i c a l l y a u t h o r i z i n g t h e r e s e r v e
b a n k t o c h a r g e t h e a c c o u n t o f t h e r e q u e s t i n g member b a n k ?
4.
If t h e request described in the preceding question contains
a s p e c i f i c a u t h o r i z a t i o n t o c h a r g e t h e member b a n k ' s a c c o u n t ?
5.
I f t h e r e s e r v e b a n k , when t h e t r a n s a c t i o n i s c o m p l e t e d ,
s e n d s t o t h e member b a n k a nemorandum c o n f i r m i n g t h e t r a n s a c t i o n
and s t a t i n g t h e amount o f t h e c h a r g e , i s s u c h c o n f i r m a t i o n t a x a b l e ?
(Exhibit 40).
Incidental Expenses, Telephone Calls, etc.
6.
In connection with t r a n s a c t i o n s of t h i s type as well as
numerous o t h e r s , t h e r e s e r v e b a n k s h a v e o c c a s i o n t o c h a r g e t h e
a c c o u n t s o f member b a n k s , w i t h o u t s p e c i f i c a u t h o r i z a t i o n , w i t h
67
X-7203-ta
—
•*
expenses incurred in connection with telephone, telegraph, shipping
c h a r g e s on. s e c u r i t i e s , e t c .
The member b a n k i s n o t i f i e d b y s e n d i n g
t o i t a c o p y o f t h e " d e b i t t i c k e t " made o u t b y t h e o p e r a t i n g d e p a r t ment w h i c h i n c u r r e d t h e e x p e n s e , o r e l s e a l i s t o f t h e e x p e n s e s w h i c h
h a v e b e e n c h a r g e d t o i t s a c c o u n t i s s e n t t o t h e member b a n k a t t h e
end o f t h e month.
Are s u c h
11
d e b i t t i c k e t s " , b o o k e n t r i e s o r memor-
anda t a x a b l e ?
7.
Are t e l e p h o n e c a l l s and t e l e g r a m s s u b j e c t t o a t a x when t h e y
p e r t a i n to F i s c a l Agency or R e c o n s t r u c t i o n Finance Corporation
b u s i n e s s when t h e c o s t f a l l s d i r e c t l y on t h e T r e a s u r y D e p a r t m e n t o r
the Reconstruction Finance Corporation?
Member Bank S u b s c r i p t i o n s t o S t o c k o f F e d e r a l R e s e r v e B a n k s .
8.
A l l b a n k s w h i c h a r e members o f t h e F e d e r a l R e s e r v e S y s t e m
are required to subscribe to the c a p i t a l s t o c k of the Federal r e s e r v e
b a n k i n an amount e q u a l t o 6% o f t h e i r own u n i m p a i r e d c a p i t a l and
surplus.
As a member b a n k ' s c a p i t a l a n d s u r p l u s a c c o u n t s a r e i n c r e a s -
ed i t i s n e c e s s a r y to s u b s c r i b e f o r a p r o p o r t i o n a t e i n c r e a s e i n i t s
h o l d i n g s of F e d e r a l r e s e r v e bank s t o c k .
Infrequently, drafts are
drawn i n f a v o r o f t h e F e d e r a l r e s e r v e b a n k f o r t h e s e p a y m e n t s .
U s u a l l y when s u b s c r i b i n g f o r t h i s a d d i t i o n a l s t o c k t h e member b a n k
authorizes a charge to i t s account.
(See Exhibit 41).
In the l a t t e r
case, i s the transaction taxable?
Correction Entries.
9.
Member a n d nonmember b a n k s make d e p o s i t s o f c o i n o r c u r r e n c y
w i t h the r e s e r v e bank, r e c e i v i n g immediate c r e d i t s u b j e c t to
X-7203-a
*
verification.
26
-
O c c a s i o n a l l y in process of v e r i f i c a t i o n the Reserve
Bank f i n d s c o u n t e r f e i t s a n d s h o r t a g e s f o r w h i c h a d e b i t i s p r e p a r e d
( E x h i b i t 42) and charged to t h e d e p o s i t i n g b a n k ' s a c c o u n t .
Are s u c h
entries taxable?
10.
A similar question i s raiued with regard to maturing
c o u p o n s d e p o s i t e d w i t h t h e r e s e r v e bank.
When m u t i l a t e d o r u n m a t u r e d
coupons are d i s c o v e r e d , t h e coupons are r e t u r n e d to the d e p o s i t i n g
b a n k a n d c h a r g e made t o i t s a c c o u n t .
( E x h i b i t 43)
Are s u c h t r a n s -
actions taxable?
Penalty for I n s u f f i c i e n t Reserves.
A t p e r i o d i c i n t e r v a l s an a n a l y s i s i s made o f e a c h member
bank* s r e s e r v e a c c o u n t t o d e t e r m i n e w h e t h e r a d e q u a t e r e s e r v e s h a v e
been c a r r i e d during t h e p e r i o d , as r e q u i r e d by the Federal Reserve
Act.
If the reserves have not been properly maintained, a pen-
a l t y i s a s s e s s e d pursuant to the Federal Reserve Act and the regul a t i o n s o f t h e Federal R e s e r v e Board.
The p e n a l t y i s c h a r g e d t o
t h e r e s e r v e a c c o u n t o f t h e member b a n k b y t h e R e s e r v e b a n k i t s e l f .
(Exhibit 44).
I s such a chargc taxable?
R u l i n g s a t t h e e a r l y c o n v e n i e n c e of your Department on t h e
the q u e s t i o n s h e r e i n p r e s e n t e d w i l l be g r e a t l y a p p r e c i a t e d .
If
f u r t h e r i n f o r m a t i o n i s d e s i r e d r e s p e c t i n g any of the t r a n s a c t i o n s
d e s c r i b e d in t h i s l e t t e r i t w i l l be f u r n i s h e d promptly on request;
and, i f c o n f e r e n c e s w i t h the B o a r d ' s General Counsel or w i t h
X-7203-a
- 27 -
o f f i c e r s or counsel of the Federal r e s e r v e banks are d e s i r e d , they
c a n b e a r r a n g e d on s h o r t n o t i c e *
Very t r u l y yours,
(Signed)
E u g e n e Meyer.
Eugene Meyer
Governor
G-HC /WV/gc/omc/mw
FEDERAL RESERVE BOARD
WASHINGTON
X-7204
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
j u l y 18, 1932,
SUBJECT:
Holidays during August, 1932.
Dear S i r :
The F e d e r a l r e s e r v e "banks and "branches l i s t e d "below
w i l l "be c l o s e d on t h e d a t e s s p e c i f i e d d u r i n g t h e month o f
A u g u s t , on a c c o u n t of h o l i d a y s :
Monday A u g u s t
1
Denver
C o l o r a d o Day
Tuesday
"
2
St. Louis
Kansas C i t y
Primary E l e c t i o n
11
"
Thursday
"
4
Nashville
Memphis
n
Tuesday
"
30
$an F r a n c i s c o
Los A n g e l e s
M
"
"
"
"
"
"
On t h e d a t e s i n d i c a t e d t h e o f f i c e s a f f e c t e d w i l l n o t
p a r t i c i p a t e i n e i t h e r t h e Gold Fund or t h e F e d e r a l r e s e r v e
note clearing.
P l e a s e include c r e d i t s for the o f f i c e s a f -
f e c t e d on e a c h o f t h e h o l i d a y s w i t h y o u r c r e d i t s f o r t h e
f o l l o w i n g b u s i n e s s day i n t h e Gold Fund c l e a r i n g and make no
shipments of F e d e r a l r e s e r v e n o t e : f o r account of the head
o f f i c e s a f f e c t e d on t h e h o l i d a y s m e n t i o n e d .
TO GOVERNORS
Very t r u l y y o u r s ,
J . C. N o e l l ,
Assistant Secretary.
OF ALL F. R. B A M S .
71.
FEDERAL RESERVE BOARD
X-7205
WASHINGTON
J u l y 18, 1932.
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
SUBJECT:
T a x a b i l i t y of Checks and D r a f t s Used
i n Remitting f o r Items Payable t o
O f f i c i a l s o f t h e Government..
Dear S i r :
Under d a t e of J u l y 2 , 1 9 3 2 , t h e F e d e r a l R e s e r v e Board
addressed a l e t t e r to the S e c r e t a r y of the Treasury r e q u e s t i n g
a r u l i n g of t h e T r e a s u r y Department on c e r t a i n q u e s t i o n s w i t h
r e g a r d t o t h e a p p l i c a t i o n of t h e t a x imposed by S e c t i o n 7 5 1 o f
t h e Revenue A c t of 1 9 3 2 t o c h e c k s and d r a f t s drawn b y b a n k s on
t h e i r c o r r e s p o n d e n t banks i n r e m i t t i n g t o t h e F e d e r a l r e s e r v e
b a n k s f o r c h e c k s a n d d r a f t s drawn on t h e m s e l v e s p a y a b l e t o C o l l e c t o r s of I n t e r n a l R e v e n u e , C o l l e c t o r s o f Customs, and o t h e r
o f f i c i a l s of t h e Government i n t h e i r o f f i c i a l c a p a c i t i e s and
s e n t t o t h e drawee banks b y t h e F e d e r a l r e s e r v e banks f o r c o l lection.
The B o a r d h a s now r e c e i v e d a l e t t e r f r o m t h e A c t i n g
S e c r e t a r y of t h e T r e a s u r y a n s w e r i n g t h e q u e s t i o n s u b m i t t e d ;
and I i n c l o s e h e r e w i t h f o r y o u r i n f o r m a t i o n a copy o f t h e
B o a r d ' s l e t t e r and of the r e p l y t h e r e t o .
Very t r u l y y o u r s ,
Chester M o r r i l l ,
Secretary.
Inclosures.
TO GOVERNORS
OF ALL F . R. BASKS.
COPY
X-7205-a
J u l 2 - 1932
H o n o r a b l e Ogden L. M i l l s ,
S e c r e t a r y of t h e Treasury,
W a s h i n g t o n , D. C.
D e a r Mr. S e c r e t a r y :
Under t h e p r o v i s i o n s o f S e c t i o n 2 2 o f T r e a s u r y D e p a r t m e n t
C i r c u l a r Ho. 1 7 6 , t h e F e d e r a l R e s e r v e B a n k s , a s y o u know, r e c e i v e
c h e c k s and d r a f t s f r o m C o l l e c t o r s o f I n t e r n a l R e v e n u e , C o l l e c t o r s
o f C u s t o m s , and o t h e r d e p o s i t o r s o f p u b l i c money f o r c o l l e c t i o n and
c r e d i t to the Treasurer of the United S t a t e s .
Many o f t h e s e c h e c k s
and d r a f t s a r e drawn on "banks w h i c h a r e n o t members o f t h e F e d e r a l
R e s e r v e S y s t e m ; a n d t h e F e d e r a l R e s e r v e Bank o f A t l a n t a a d v i s e s t h a t ,
w h i l e c e r t a i n o f t h e nonmanber b a n k s i n i t s d i s t r i c t a r e w i l l i n g t o
r e m i t a t p a r f o r s u c h c h e c k s and d r a f t s , t h e y a r e u n w i l l i n g t o p a y
t h e F e d e r a l t a x on t h e i r own c h e c k s and d r a f t s s e n t t o t h e F e d e r a l
R e s e r v e Bank i n payment f o r s u c h i t e m s and a r e d e d u c t i n g two c e n t s
f o r e a c h r e m i t t a n c e t o r e i m b u r s e them f o r t h e t a x .
In t h e s e circum-
s t a n c e s , r u l i n g s from your Department w i l l be a p p r e c i a t e d on t h e
following questions:
1.
Whether t h e t a x i m p o s e d b y S e c t i o n 7 5 1 of t h e R e v e n u e
A c t of 1 9 3 2 a p p l i e s t o c h e c k s and d r a f t s drawn b y b a n k s on t h e i r c o r respondent banks i n r e m i t t i n g t o t h e F e d e r a l R e s e r v e Banks f o r checks
and d r a f t s drawn on t h e m s e l v e s p a y a b l e t o C o l l e c t o r s o f I n t e r n a l R e v e n u e , C o l l e c t o r s o f Customs, and o t h e r o f f i c i a l s o f t h e Government
i n t h e i r o f f i c i a l c a p a c i t i e s and s e n t t o t h e d r a w e e b a n k s b y t h e
X-7205-a
H o n o r a b l e Ogden L. M i l l s
-2-
F e d e r a l R e s e r v e Banks f o r c o l l e c t i o n ;
2.
I f s o , w h e t h e r t h e i s s u i n g "banks may d e d u c t two c e n t s
from each r e m i t t a n c e to reimburse themselves f o r t h e t a x ; and
3.
If s o , whether the Treasurer of the United S t a t e s w i l l
a c c e p t c r e d i t on t h e h o o k s o f t h e F e d e r a l R e s e r v e Bank f o r t h e amount
o f t h e c h e c k s and d r a f t s c o v e r e d "by e a c h r e m i t t a n c e m i n u s t h e two
c e n t t a x on t h e r e m i t t a n c e c h e c k or d r a f t .
For your f u r t h e r i n f o r m a t i o n i n t h i s c o n n e c t i o n , t h e r e i s
q u o t e d "below a n e x t r a c t f r o m a n o p i n i o n a d d r e s s e d t o t h e C a s h i e r o f
t h e F e d e r a l R e s e r v e Bank o f A t l a n t a "by t h e G e n e r a l C o u n s e l o f t h a t
"bank u n d e r d a t e o f J u n e 2 3 , 1 9 3 2 .
"You s t a t e t h a t y o u r e c e i v e a v e r y l a r g e number
of checks from t h e U n i t e d S t a t e s government d i s b u r s i n g
o f f i c e r s o r d e p a r t m e n t s , drawn on n o n - p a r ( a n d , o f c o u r s e ,
non-member) h a n k s l o c a t e d i n t h i s and o t h e r d i s t r i c t s . You
s e n d t h e s e i t e m s f o r payment t o t h e "banks o n w h i c h t h e y a r e
drawn, i f l o c a t e d i n t h i s d i s t r i c t . Your c a s h l e t t e r s e n c l o s
i n g s u c h items c o n t a i n i n s t r u c t i o n s t o the drawee t o remit to
y o u a t p a r or t o r e t u r n t h e i t e m s i f t h e y a r e u n w i l l i n g t o
r e m i t a t p a r . T h e s e non-member "banks a r e now d e d u c t i n g two
c e n t s from the r e m i t t a n c e s , r e p r e s e n t i n g the t a x they have to
p a y on t h e i r own r e m i t t a n c e c h e c k s . You s t a t e t h a t , i n y o u r
o p i n i o n , such remittance checks should not he s u b j e c t to the
t a x b e c a u s e t h e y a r e i s s u e d i n payment o f c h e c k s r e p r e s e n t i n g
m o n i e s p a i d t o t h e Government.
"I am i n c l i n e d t o b e l i e v e t h a t t h e c h e c k s a r e s u b j e c t t o t h e t a x . I t was n o t t h e p u r p o s e o f t h e A c t t o t a x
c h e c k s , d r a f t s or o r d e r s drawn b y t h e o f f i c e r s o f t h e U n i t e d
States i n their o f f i c i a l capacities against public funds
s t a n d i n g t o t h e i r o f f i c i a l c r e d i t . I do n o t t h i n k , h o w e v e r ,
t h a t t h e Act i n t e n d e d t o p r o v i d e any immunity from t a x a t i o n
i n f a v o r of a p r i v a t e c i t i z e n merely b e c a u s e he might happen
t o u t i l i z e a p e r s o n a l c h e c k a s a medium f o r t h e s a t i s f a c t i o n
o f a n o b l i g a t i o n t o t h e U n i t e d S t a t e s . Upon s i m i l a r p r i n c i p l e s , t h e d r a w e e b a n k , i n r e m i t t i n g f o r t h e i t e m s b y i t s own
c h e c k , rrould n o t b e exempt f r o m t a x a t i o n t h e r e o n . I do n o t
t h i n k t h a t t h e non-member bank w o u l d h a v e a n y r i g h t t o " p a s s
on" i t s t a x l i a b i l i t y t o t h e F e d e r a l B e s e r v e Bank b y t h e
X-720S-a
H o n o r a b l e Ogden L. M i l l s
-3'
s i m p l e e x p e d i e n t of r e d u c i n g t h e r e m i t t a n c e d r a f t "by two
c e n t s . The non-member b a n k w o u l d d o u b t l e s s a r g u e , h o w e v e r ,
t h a t i t s o b l i g a t i o n i s t o p a y c h e c k s a t i t s own c o u n t e r
a n d t h a t i f , f o r t h e c o n v e n i e n c e of t h e h o l d e r , w h e t h e r
t h e U n i t e d S t a t e s T r e a s u r y or i t s f i s c a l a g e n t , t h e F e d e r a l R e s e r v e Bank, i t s e e s f i t t o s e n d a c h e c k drawn o n i t s
correspondent, i t should be accorded the r i g h t to reimb u r s e i t s e l f f o r the t a x l i a b i l i t y o c c a s i o n e d by such
remittance."
The F e d e r a l R e s e r v e B o a r d h a s r e c e i v e d numerous o t h e r r e q u e s t s f o r r u l i n g s on q u e s t i o n s a r i s i n g u n d e r S e c t i o n 7 5 1 o f t h e
R e v e n u e A c t o f 1 9 3 2 and i s a s s e m b l i n g t h a n f o r p r e s e n t a t i o n t o y o u r
Department i n due c o u r s e ; but t h e q u e s t i o n s r a i s e d i n t h i s l e t t e r
a r e b e i n g s u b m i t t e d s e p a r a t e l y , b e c a u s e i t i s b e l i e v e d t h a t a prompt
d e c i s i o n i s d e s i r a b l e i n t h e i n t e r e s t o f b o t h t h e Government a n d t h e
Federal Reserve Banks.
Very t r u l y y o u r s ,
Eugene Meyer,
Governor.
Copy
X-7205-b
The S e c r e t a r y o f The T r e a s u r y
Washington
J u l y 18, 1932.
Honorable Eugene Meyer,
Governor, F e d e r a l Reserve Board,
W a s h i n g t o n , D. C.
My d e a r G o v e r n o r :
I n y o u r l e t t e r t o me o f J u l y 2 , 1 9 3 2 , y o u r e f e r t o t h e
p r a c t i c e u n d e r w h i c h the F e d e r a l Reserve Banks r e c e i v e c h e c k s
and d r a f t s from c o l l e c t o r s of i n t e r n a l revenue, c o l l e c t o r s of
c u s t o m s , a n d o t h e r d e p o s i t o r s o f p u b l i c money f o r c o l l e c t i o n a n d
c r e d i t to t h e Treasurer of the U n i t e d S t a t e s , and s t a t e t h a t c e r t a i n non-member b a n k s o f the F e d e r a l R e s e r v e S y s t e m , upon w h i c h
t h e s e checks and d r a f t s are drawn, have i n d i c a t e d an u n w i l l i n g n e s s t o p a y t h e F e d e r a l t a x o n t h e i r own c h e c k s a n d d r a f t s u s e d
i n making r e m i t t a n c e s to the F e d e r a l Reserve Banks i n payment f o r
s u c h i t e m s , a n d a r e d e d u c t i n g two c e n t s f o r e a c h r e m i t t a n c e t o
r e i m b u r s e them f o r the t a x . Under t h e s e c i r c u m s t a n c e s y o u r e q u e s t
a r u l i n g o f t h e T r e a s u r y D e p a r t m e n t on t h e f o l l o w i n g q u e s t i o n s :
1 . Whether the t a x imposed by s e c t i o n 751 o f the
Revenue A c t o f 1932 a p p l i e s t o c h e c k s and d r a f t s drawn
by banks on t h e i r c o r r e s p o n d e n t banks i n r e m i t t i n g t o
t h e F e d e r a l R e s e r v e Banks f o r c h e c k s and d r a f t s drawn
on t h e m s e l v e s p a y a b l e t o C o l l e c t o r s o f I n t e r n a l R e v e n u e ,
C o l l e c t o r s o f C u s t o m s , a n d o t h e r o f f i c i a l s o f t h e Govern-?
m e n t i n t h e i r o f f i c i a l c a p a c i t i e s and s e n t t o t h e d r a w e e
banks b y t h e F e d e r a l R e s e r v e Banks f o r c o l l e c t i o n ;
2 . I f s o , w h e t h e r t h e i s s u i n g b a n k s may d e d u c t two
cents from each remittance to reimburse themselves f o r
the t a x ; and
3 . I f so, whether the Treasurer of the United S t a t e s
w i l l a c c e p t c r e d i t on t h e books of the F e d e r a l Reserve
Bank f o r t h e amount o f t h e c h e c k s a n d d r a f t s c o v e r e d b y
e a c h r e m i t t a n c e m i n u s t h e two c e n t t a x o n t h e r e m i t t a n c e
check or d r a f t ,
-
2 ~
X-7205-b
In the o p i n i o n o f t h i s Department the r e m i t t a n c e checks
and d r a f t s g i v e n -under t h e c i r c u m s t a n c e s r e f e r r e d t o a r e t a x a b l e u n d e r s e c t i o n 7 5 1 o f t h e R e v e n u e A c t o f 1 9 3 2 . Such c h e c k s
a n d d r a f t s a r e c l e a r l y i n c l u d e d among t h e i n s t r u m e n t s d e s c r i b e d
i n t h a t s e c t i o n upon which the Federal check t a x i s imposed.
W h i l e c h e c k s and d r a f t s drawn b y o f f i c e r s o f t h e U n i t e d S t a t e s
or of a S t a t e , c o u n t y , or m u n i c i p a l i t y , or of a f o r e i g n Government, i n t h e i r o f f i c i a l c a p a c i t i e s , a g a i n s t p u b l i c funds s t a n d i n g t o t h e i r o f f i c i a l c r e d i t and i n f u r t h e r a n c e o f d u t i e s i m p o s e d
u p o n them b y l a w , a r e n o t s u b j e c t t o t h e t a x , t h a t e x e m p t i o n c a n
h a v e no a p p l i c a t i o n t o a p e r s o n who i n a p r i v a t e c a p a c i t y d r a w s
a c h e c k o r d r a f t a s a medium f o r t h e s a t i s f a c t i o n o f a n o b l i g a t i o n
t o t h e U n i t e d S t a t e s . I n p r i n c i p l e , a drawee b a n k i n r e m i t t i n g
b y i t s own c h e c k o r d r a f t t o t h e F e d e r a l R e s e r v e Bank i n p a y m e n t
o f c h e c k s a n d d r a f t s drawn on i t s e l f s t a n d s i n t h e same p o s i t i o n
a s such a p e r s o n and must pay the F e d e r a l t a x imposed upon c h e c k s
and d r a f t s drawn b y i t t o make s u c h p a y m e n t . The b a n k ' s d e c i s i o n
t o r e m i t b y c h e c k o r d r a f t i s w i t h i n i t s d i s c r e t i o n and i s n o t
due t o a n y r e q u i r e m e n t o f t h e U n i t e d S t a t e s . The T r e a s u r y D e p a r t • ment has a l w a y s t a k e n the p o s i t i o n t h a t a c h e c k or d r a f t i s n o t
p a i d b y t h e b a n k o n w h i c h i t i s drawn u n t i l t h e p r o c e e d s t h e r e o f
h a v e b e e n r e c e i v e d i n a c t u a l l y and f i n a l l y c o l l e c t e d f u n d s * Checks
o r d r a f t s i n p a y m e n t o f o b l i g a t i o n s t o t h e U n i t e d S t a t e s Government
w o u l d n o t b e a c c e p t a b l e u n l e s s t h e amount o f t h e i n s t r u m e n t s w a s
t o be p a i d t o t h e U n i t e d S t a t e s o r t o t h e F e d e r a l R e s e r v e Bank a s
i t s f i s c a l agent w i t h o u t any d e d u c t i o n therefrom and w i t h o u t expense
t o t h e G o v e r n m e n t . There i s n o w a r r a n t i n l a w f o r a n y t a x e s o r
e x p e n s e s i n c u r r e d b y a b a n k i n m a k i n g payment o f c h e c k s o r d r a f t s
drawn on i t s e l f b e i n g p a s s e d on t o t h e f i s c a l a g e n t o f t h e U n i t e d
S t a t e s or by i t to the U n i t e d S t a t e s .
For the r e a s o n s s t a t e d , the f i r s t q u e s t i o n propounded by y o u
i s a n s w e r e d i n t h e a f f i r m a t i v e and t h e s e c o n d a n d t h i r d q u e s t i o n s
in the n e g a t i v e .
Very t r u l y y o u r s ,
(Signed) A. A. B a l l a n t i n e ,
A c t i n g S e c r e t a r y of the Treasury
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
x-7306
J l l l y 20 , 1 9 3 2 •
Federal Reserve Exhibit at
Chicago World's F a i r i n 1933.
Dear S i r :
R e f e r r i n g t o t h e B o a r d ' s l e t t e r o f September 2 , 1 9 3 1 ,
N o . X - 6 9 5 6 , 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 s u g g e s t t o t h e
B o a r d a t y o u r e a r l i e s t c o n v e n i e n c e t h e name o f a n y member o f y o u r
o r g a n i z a t i o n who w o u l d b e d e s i r a b l e and a v a i l a b l e f o r s e r v i c e on
a system committee t o arrange f o r an e x h i b i t at t h e I n t e r n a t i o n a l
E x p o s i t i o n a t Chicago i n 1933.
I t would a l s o b e a p p r e c i a t e d i f
y o u w o u l d d e s c r i b e any m a t e r i a l t h a t y o u may h a v e t h a t w o u l d b e
h e l p f u l to t h i s committee, p a r t i c u l a r l y material accumulated i n
c o n n e c t i o n w i t h e x h i b i t s h e l d a t m e e t i n g s of t h e A m e r i c a n B a n k e r s
A s s o c i a t i o n and e l s e w h e r e .
In view of the f a c t t h a t the plans
f o r t h e E x p o s i t i o n have p r o g r e s s e d q u i t e f a r , i t would b e d e s i r a b l e t o h a v e s u c h a c o m m i t t e e a t work a s p r o m p t l y a s p o s s i b l e ,
a n d i t w i l l b e a p p r e c i a t e d i f y o u w i l l s e n d i n t h e names and t h e
m a t e r i a l at your early convenience.
Very t r u l y y o u r s .
Chester M o r r i l l ,
Secretary.
t o a l l f . r . agents.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-7209
J u l y 22, 1932.
SUBJECT:
Hew I s s u e T r e a s u r y B i l l s - .
Dear S i r :
In connection with telegraphic transactions i n
Government s e c u r i t i e s "between F e d e r a l r e s e r v e h a n k s , t h e
c o d e word "UOXDBPOSS" h a s t e e n d e s i g n a t e d t o c o v e r a new
i s s u e o f T r e a s u r y B i l l s , d a t e d J u l y 27., 1 9 3 2 , and m a t u r i n g October 2 6 , 1932.
T h i s word s h o u l d h e i n s e r t e d i n t h e F e d e r a l r e s e r v e t e l e g r a p h code hock, f o l l o w i n g t h e supplemental code
word "NOXDEMON" on p a g e 1 7 2 .
Very t r u l y y o u r s ,
J . C• H o e l l ,
Assistant Secretary.
TO GOVERNORS OP ALL F . R. B A M S .
FEDERAL RESERVE BOARD
WASHINGTON
X-7210
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
J u l y 22, 1932.
SUBJECT:
A u d i t o f R e s e r v e S t o c k of I n c o m p l e t e
Federal Reserve Notes.
Dear S i r :
For y o u r i n f o r m a t i o n t h e r e i s i n c l o s e d a c o p y o f t h e
r e c a p i t u l a t i o n o f a n a u d i t of t h e s t o c k o f i n c o m p l e t e F e d e r a l
r e s e r v e n o t e s o f t h e F e d e r a l r e s e r v e "banks h e l d a t t h e B u r e a u
o f E n g r a v i n g a n d P r i n t i n g a s o f c l o s e of b u s i n e s s J u n e 3 0 ,
1 9 3 2 , f o r w a r d e d t o t h e S e c r e t a r y o f t h e T r e a s u r y "by Mr. M. R.
l o a f man, C h i e f , D i v i s i o n of P u b l i c Debt A c c o u n t s and A u d i t .
I n a c c o r d a n c e w i t h a r r a n g e m e n t s made "between t h e T r e a s u r y
D e p a r t m e n t a n d t h e F e d e r a l R e s e r v e Board a r e p r e s e n t a t i v e o f
t h e Board was p r e s e n t d u r i n g t h e p r o c e s s o f t h e a u d i t .
In h i s l e t t e r forwarding the report of the audit to
t h e S e c r e t a r y o f t h e T r e a s u r y , Mr. Loafman s t a t e d t h a t :
"The a u d i t e x t e n d e d f r o m J u l y 1 t o 7 , i n c l u s i v e , and c o n s i s t e d o f a p i e c e c o u n t of t h e e n t i r e s t o c k o f F e d e r a l r e s e r v e
n o t e f a c e s and a p a c k a g e count of t h e u n i f o r m "backs a l l o c a t e d
to Federal reserve notes.
In v i e w of the f a c t t h a t a r e c e n t
p i e c e c o u n t h a s b e e n made b y t h i s o f f i c e o f t h e e n t i r e s t o c k
X-7210
— 2
—
o f e a c h d e n o m i n a t i o n o f u n i f o r m "backs on hand i n t h e B u r e a u ,
a p a c k a g e i n s p e c t i o n o f t h e u n i f o r m "backs a l l o c a t e d t o F e d e r a l
r e s e r v e n o t e s w a s deemed s u f f i c i e n t a t t h i s t i m e .
The t o t a l
f a c e s and "backs a u d i t e d w a s f o u n d t o "be i n e x c e s s o f t h e r e quired r e s e r v e of 4 , 2 5 0 , 0 0 0 s h e e t s of incomplete n o t e s , f a c e s
and "backs a s a u t h o r i z e d i n t h e l e t t e r o f t h e G o v e r n o r o f t h e
F e d e r a l R e s e r v e B o a r d t o t h e Under S e c r e t a r y o f t h e T r e a s u r y
u n d e r d a t e o f December 2 , 1 9 2 9 .
* * *
With r e s p e c t t o t h e
t o t a l f a c e s a n d "backs o f t h e $ 5 0 d e n o m i n a t i o n , i t w i l l b e
n o t e d t h a t t h e f a c e s a r e g r e a t e r a n d t h e "backs f e w e r i n p r o p o r t i o n t h a n t h e q u a n t i t i e s s p e c i f i e d t o "be h e l d i n r e s e r v e .
T h i s c o n d i t i o n was c a u s e d "by t h e w i t h d r a w a l o f "backs f o r
p r i n t i n g f a c e s f o r t h e F e d e r a l R e s e r v e Bank o f C h i c a g o , i n
accordance w i t h supplemental p r i n t i n g orders dated June 23
a n d 2 5 , 1 9 3 2 , a n d t h e a p p a r e n t s h o r t a g e i n $ 5 0 "backs i s more
t h a n o f f s e t "by t h e e x c e s s q u a n t i t y i n $ 5 0 f a c e s on h a n d . "
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.
Inclosure.
TO ALL F. R. AGENTS.
X-7211
F E D E R A L
R E S E R V E
81
BOARD
STATEMENT FOR THE PRESS
For r e l e a s e i n M o r n i n g P a p e r s ,
Monday, J u l y 2 5 , 1 9 3 2 .
The f o l l o w i n g summary o f 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 i n t h e
U n i t e d S t a t e s , based upon s t a t i s t i c s
f o r t h e m o n t h s o f J u n e and J u l y , w i l l
appear i n the forthcoming i s s u e of the
F e d e r a l R e s e r v e B u l l e t i n and i n t h e
monthly reviews of t h e Federal r e s e r v e
"banks.
I n d u s t r i a l a c t i v i t y d e c r e a s e d f u r t h e r f r o m May t o J u n e "by somewhat
more t h a n t h e u s u a l s e a s o n a l amount a n d t h e r e was a c o n s i d e r a b l e r e d u c t i o n
i n f a c t o r y employment and p a y r o l l s .
The g e n e r a l l e v e l o f commodity p r i c e s
a d v a n c e d b e t w e e n t h e m i d d l e o f J u n e and t h e m i d d l e o f J u l y , r e f l e c t i n g
c h i e f l y a r i s e i n t h e p r i c e s o f l i v e s t o c k and m e a t s .
P r o d u c t i o n a n d Employment - Volume o f i n d u s t r i a l p r o d u c t i o n , a s m e a s u r e d
by t h e B o a r d ' s s e a s o n a l l y a d j u s t e d i n d e x , d e c l i n e d from 60 per c e n t of the
1 9 2 3 - 1 9 2 5 a v e r a g e i n May t o 59 p e r c e n t i n J u n e .
There were l a r g e decreases
i n o u t p u t i n t h e s t e e l , c o a l , and m e a t - p a c k i n g i n d u s t r i e s , w h i l e a t a u t o m o b i l e f a c t o r i e s d a i l y a v e r a g e p r o d u c t i o n showed a s m a l l e r d e c l i n e t h a n i s
u s u a l a t t h i s s e a s o n , and a t woolen m i l l s a c t i v i t y i n c r e a s e d c o n t r a r y t o
seasonal tendency.
Consumption of c o t t o n by d o m e s t i c m i l l s showed t h e u s u a l
seasonal decline.
A t m a n u f a c t u r i n g e s t a b l i s h m e n t s t h e r e was a f u r t h e r r e d u c t i o n o f 3 . 6
p e r c e n t i n number o f e m p l o y e e s and o f 7 . 8 p e r c e n t i n e a r n i n g s b e t w e e n t h e
m i d d l e o f May and t h e m i d d l e o f J u n e .
D e c r e a s e s i n employment w e r e g e n e r a l ,
w i t h t h e e x c e p t i o n of t h e a u t o m o b i l e and tobacco i n d u s t r i e s and of s e a s o n a l l y
a c t i v e i n d u s t r i e s , s u c h a s v e g e t a b l e and f r u i t c a n n i n g and t h e manufacture
of i c e cream.
The l a r g e s t d e c r e a s e s w e r e i n t h e s t e e l , t e x t i l e , c h e m i c a l a n d
m a c h i n e r y i n d u s t r i e s and a t r a i l w a y r e p a i r s h o p s .
X-7211
-
2 -
D a i l y a v e r a g e v a l u e o f "building c o n t r a c t s a w a r d e d , a s r e p o r t e d b y
t h e F . W. B o d g e C o r p o r a t i o n , d e c l i n e d i n J u n e b u t i n c r e a s e d i n t h e f i r s t
h a l f of J u l y .
Department of A g r i c u l t u r e e s t i m a t e s a s of J u l y 1 i n d i c a t e a c o r n crop
of 3 , 0 0 0 , 0 0 0 , 0 0 0 "bushels, t h e l a r g e s t s i n c e 1923; a w i n t e r wheat crop of
4 3 2 , 0 0 0 , 0 0 0 " b u s h e l s , 4 5 p e r c e n t s m a l l e r t h a n l a s t y e a r and 2 1 p e r c e n t l e s s
than t h e f i v e - y e a r a v e r a g e ; a s p r i n g wheat crop of 3 0 5 , 0 0 0 , 0 0 0 "bushels, t h r e e
t i m e s a s l a r g e a s l a s t y e a r a n d s l i g h t l y l a r g e r t h a n t h e a v e r a g e ; and a
tobacco crop o n e - f i f t h smaller than u s u a l .
D i s t r i b u t i o n - Volume of r a i l r o a d f r e i g h t t r a f f i c d e c l i n e d somewhat
f u r t h e r i n J u n e and v a l u e o f m e r c h a n d i s e s o l d b y d e p a r t m e n t s t o r e s d e c r e a s e d
b y more t h a n t h e u s u a l s e a s o n a l amount.
W h o l e s a l e P r i c e s - The l e v e l o f p r i c e s i n w h o l e s a l e m a r k e t s , a f t e r
d e c l i n i n g s t e a d i l y d u r i n g May, was r e l a t i v e l y s t a b l e e a r l y i n J u n e , and a f t e r
t h e m i d d l e o f t h e m o n t h t h e r e was a n a d v a n c e v.hi c h c o n t i n u e d t h r o u g h t h e
second week i n J u l y .
P r i c e s of s e v e r a l leading commodities, i n c l u d i n g l i v e -
s t o c k a n d m e a t s , c o t t o n , and s u g a r , i n c r e a s e d c o n s i d e r a b l y d u r i n g J u n e and
t h e f i r s t h a l f o f J u l y , b u t l a t e r showed some r e c e s s i o n .
P r i c e s of wheat
d e c l i n e d t o u n u s u a l l y low l e v e l s and markets f o r copper and l e a d c o n t i n u e d
weak.
Bank C r e d i t - Volume o f r e s e r v e b a n k c r e d i t c o n t i n u e d t o i n c r e a s e b e t w e e n t h e m i d d l e of J u n e and t h e m i d d l e o f J u l y , r e f l e c t i n g p r i n c i p a l l y
f u r t h e r p u r c h a s e s o f U n i t e d S t a t e s Government s e c u r i t i e s b y t h e r e s e r v e
banks.
I n a d d i t i o n , member b a n k s o b t a i n e d r e s e r v e b a n k f u n d s t h r o u g h a n
i n c r e a s e i n the monetary s t o c k of g o l d and a d e c l i n e i n d e p o s i t s h e l d w i t h
the r e s e r v e banks by f o r e i g n c e n t r a l banks.
Funds r e l e a s e d from t h e s e
X-7211
8 3
- 3 s o u r c e s w e r e absorbed, b y an i n c r e a s e i n t h e demand f o r c u r r e n c y w h i c h a l s o
c a u s e d t h e member b a n k s t o draw on t h e i r b a l a n c e s w i t h t h e r e s e r v e b a n k s
and t o i n c r e a s e t h e i r d i s c o u n t s somewhat.
The demand f o r c u r r e n c y w h i c h
f o r t h e p e r i o d a m o u n t e d t o $ 2 7 0 , 0 0 0 , 0 0 0 , was c a u s e d b y b a n k i n g d i s t u r b a n c e s ,
l a r g e l y i n - t h e Chicago d i s t r i c t , by s e a s o n a l requirements a t t h e t u r n of t h e
month and t h e F o u r t h of J u l y h o l i d a y , and b y i n c r e a s e d u s e o f c a s h t o a v o i d
t h e t a x on c h e c k s .
Loans and i n v e s t m e n t s o f r e p o r t i n g member b a n k s , a f t e r f l u c t u a t i n g
w i d e l y d u r i n g J u n e , d e c l i n e d i n t h e f i r s t two w e e k s o f J u l y , a n d on J u l y 13
t o t a l e d $ 1 8 , 4 7 5 , 0 0 0 , 0 0 0 , a b o u t $ 5 4 0 , 0 0 0 , 0 0 0 l e s s t h a n on J u n e 1 .
T h e r e was
a further decline i n loans, while the banks' investments i n United States
Government s e c u r i t i e s , a f t e r i n c r e a s i n g s u b s t a n t i a l l y d u r i n g t h e p e r i o d o f
Treasury f i n a n c i n g i n mid-June, d e c l i n e d g r a d u a l l y , but on J u l y 13 were s t i l l
$ 9 0 , 0 0 0 , 0 0 0 l a r g e r t h a n s i x weeks e a r l i e r .
Money r a t e s i n t h e o p e n - m a r k e t d e c l i n e d f u r t h e r d u r i n g J u n e and t h e
f i r s t h a l f of J u l y .
A t t h e F e d e r a l R e s e r v e Bank of Mew York b u y i n g r a t e s
f o r b a n k e r s ' a c c e p t a n c e s m a t u r i n g w i t h i n 90 d a y s w e r e r e d u c e d f r o m 2 l / 2 t o
1 p e r c e n t on J u n e 2 4 .
On t h e same day t h e bank l o w e r e d i t s d i s c o u n t r a t e
f r o m 3 p e r c e n t t o 2 l / 2 p e r c e n t , a n d on t h e f o l l o w i n g d a y t h e r a t e a t t h e
Chicago bank was r e d u c e d from 3 l / 2 p e r c e n t t o 2 l / 2 p e r c e n t .
X-7212
J u l y 25, 1932.
To:
F e d e r a l R e s e r v e Board
Prom:
Messrs. Harrison, Morrill,
G r d d e n w e i s e r , Smead, S i ems
and Wyatt.
Subject:
84:
Discounts for individuals,
p a r t n e r s h i p s and c o r p o r a t i o n s .
We r e s p e c t f u l l y recommend t h a t t h e p r o p o s e d c i r c u l a r on
t h e a b o v e s u b j e c t h e a p p r o v e d "by t h e Board i n t h e r e v i s e d f o r m
attached hereto.
E s p e c i a l a t t e n t i o n i s i n v i t e d to the r e v i s e d Sections ii
and i i i
and t o t h e f a c t t h a t t h e proposed s e c t i o n r e g a r d i n g t h e r a t e
of discount has been omitted.
I n t h e e a r l i e r d r a f t s of S e c t i o n i t , i t was p r o p o s e d t o
r e q u i r e F e d e r a l r e s e r v e batiks t o a p p l y f br t h e B o a r d ' s p e r m i s s i o n t o
d i s c o u n t e l i g i b l e p a p e r f o r i n d i v i d u a l s , p a r t n e r s h i p s and c o r p o r a *
t i o n s and t o s t a t e t h e u n u s u a l and e x i g e n t c i r c u m s t a n c e s w h i c h , i n
the judgment of t h e i r d i r e c t o r s , j u s t i f y s u c h a c t i o n .
It is believed,
however, t h a t t h e Board i s a l r e a d y i n p o s s e s s i o n of s u f f i c i e n t i n f o r m a t i o n t o enable i t t o r e a c h the c o n c l u s i o n t h a t unusual and
e x i g e n t c i r c u m s t a n c e s e x i s t i n a l l F e d e r a l R e s e r v e D i s t r i c t s , and
i t w o u l d s i m p l i f y t h e p r o c e d u r e and e x p e d i t e m a t t e r s i f t h e B o a r d
would a u t h o r i z e a l l F e d e r a l r e s e r v e banks g e n e r a l l y f o r a p e r i o d of
s i x months t o d i s c o u n t e l i g i b l e paper f o r i n d i v i d u a l s , p a r t n e r s h i p s
and c o r p o r a t i o n s .
S e c t i o n I I I has b e e n r e v i s e d so a s to p r o v i d e t h a t a Federal
r e s e r v e b a n k may d i s c o u n t f o r i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s
( a ) n o t e s , d r a f t s , or b i l l s of exchange, w h i c h a r e t h e o b l i g a t i o n s of
o t h e r p a r t i e s a c t u a l l y owned b y s u c h i n d i v i d u a l s , p a r t n e r s h i p s or
c o r p o r a t i o n s a n d i n d o r s e d b y t h e m , or ( b ) t h e p r o m i s s o r y n o t e s of s u c h
X-7212
—• 2 •-*
i n d i v i d u a l s , p a r t n e r s h i p s o r c o r p o r a t i o n s i n d o r s e d "by o t h e r p a r t i e s w h o s e
indorsements are s a t i s f a c t o r y to the Federal reserve bank.
This construes
t h e l a w a s p e r m i t t i n g d i r e c t a d v a n c e s t o i n d i v i d u a l s , p a r t n e r s h i p s and
c o r p o r a t i o n s on t h e i r own p r o m i s s o r y n o t e s .
at a l l clear.
On t h i s p o i n t , t h e l a w i s n o t
T e c h n i c a l l y , i t c o u l d "be c o n s t r u e d a s a u t h o r i z i n g t h e
Federal reserve banks to d i s c o u n t only e l i g i b l e paper c o n s i s t i n g of o b l i g a t i o n s o f o t h e r p a r t i e s a c t u a l l y owned b y s u c h
i n d i v i d u a l s , p a r t n e r s h i p s or
c o r p o r a t i o n s ; but i t i s b e l i e v e d t h a t , i n view of the remedial character of
t h e l e g i s l a t i o n , i t s h o u l d b e g i v e n t h e more l i b e r a l i n t e r p r e t a t i o n , w h i c h
would permit d i r e c t advances.
O t h e r w i s e , t h e b e n e f i t s e f t h e amendment
would be g r e a t l y r e s t r i c t e d .
The p r o p o s e d s e c t i o n r e g a r d i n g d i s c o u n t r a t e s h a s b e e n o m i t t e d
e n t i r e l y from t h i s d r a f t of the c i r c u l a r ; b e c a u s e i t i s n o t b e l i e v e d to be
n e c e s s a r y and b e c a u s e i t i s b e l i e v e d t h a t t h i s s u b j e c t can be d e a l t w i t h
b e t t e r when i t a r i s e s , i n t h e l i g h t o f t h e c i r c u m s t a n c e s e x i s t i n g i n e a c h
F e d e r a l Reserve D i s t r i c t , and e s p e c i a l l y i n the l i g h t of the r a t e s
c u s t o m a r i l y c h a r g e d b y c o m m e r c i a l b a n k s i n e a c h d i s t r i c t on s i m i l a r c l a s s e s
of paper.
Respectfully,
(S)
W a l t e r Wyatt
Chester Morrill
L. A . A . S i e m s
E . L. Smead
WW;raw
E . A. G o l d e n w e i s e r
(Revised Draft.)
X?720.3
July 25, 1932.
SUBJECT:
DISCOUNTS FOB INDIVIDUALS, PARTNERSHIPS AND
CORPORATIONS.
TO ALL FEDERAL RESERVE BAMS:
The t h i r d p a r a g r a p h o f S e c t i o n 13 o f t h e F e d e r a l R e s e r v e
A c t , a s amended "by t h e A c t of J u l y
21
, 1932, provides as f o l l o w s :
"In u n u s u a l and e x i g e n t c i r c u m s t a n c e s , t h e
F e d e r a l R e s e r v e B o a r d , by t h e a f f i r m a t i v e v o t e o f n o t
l e s s t h a n f i v e members, may a u t h o r i z e any F e d e r a l r e s e r v e
h a n k , d u r i n g s u c h p e r i o d s a s t h e s a i d h o a r d may d e t e r m i n e ,
a t r a t e s e s t a b l i s h e d i n accordance with the p r o v i s i o n s of
s e c t i o n 1 4 , s u b d i v i s i o n ( d ) , of t h i s A c t , t o d i s c o u n t f o r
a n y i n d i v i d u a l , p a r t n e r s h i p , or c o r p o r a t i o n , n o t e s , d r a f t s ,
and b i l l s of e x c h a n g e o f t h e k i n d s and m a t u r i t i e s made
e l i g i b l e f o r d i s c o u n t f o r member banks u n d e r o t h e r p r o v i s i o n s o f t h i s A c t when s u c h n o t e s , d r a f t s , and b i l l s o f
e x c h a n g e a r e i n d o r s e d and o t h e r w i s e s e c u r e d t o t h e s a t i s f a c t i o n o f t h e F e d e r a l r e s e r v e b a n k : P r o v i d e d , That b e f o r e
d i s c o u n t i n g any s u c h n o t e , d r a f t , or b i l l of e x c h a n g e f o r a n
i n d i v i d u a l or a p a r t n e r s h i p or c o r p o r a t i o n t h e F e d e r a l r e s e r v e bank s h a l l o b t a i n e v i d e n c e t h a t s u c h i n d i v i d u a l ,
p a r t n e r s h i p , or corporation i s unable to secure adequate
c r e d i t a c c o m m o d a t i o n s from o t h e r b a n k i n g i n s t i t u t i o n s . A l l
s u c h d i s c o u n t s f o r i n d i v i d u a l s , p a r t n e r s h i p s , or c o r p o r a t i o n s
s h a l l b e s u b j e c t t o s u c h l i m i t a t i o n s , r e s t r i c t i o n s , and
r e g u l a t i o n s a s t h e F e d e r a l R e s e r v e Board may p r e s c r i b e . "
I n v i e w o f t h e f a c t t h a t t h e power c o n f e r r e d b y t h i s p r o v i s i o n
c a n b e e x e r c i s e d o n l y i n "unusual and e x i g e n t c i r c u m s t a n c e s " , t h e F e d e r a l R e s e r v e Board h a s n o t p r e s c r i b e d any f o r m a l r e g u l a t i o n s g o v e r n i n g
t h e e x e r c i s e o f t h i s p o w e r ; b u t t h e r e q u i r e m e n t s o f t h e l a w and t h e
procedure which t h e F e d e r a l Reserve Board w i l l expect t o b e f o l l o w e d
a r e o u t l i n e d b e l o w f o r t h e i n f o r m a t i o n of t h e F e d e r a l r e s e r v e b a n k s and
any i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s t h a t may c o n t e m p l a t e
a p p l y i n g t o them f o r d i s c o u n t s
X-72L2
-
2
-
i . l e g a l requirements.
I t w i l l be observed t h a t , by the express terms of t h e law:
1.
The power c o n f e r r e d u p o n t h e F e d e r a l R e s e r v e Board t o
a u t h o r i z e F e d e r a l r e s e r v e banks t o d i s c o u n t e l i g i b l e paper f o r i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s may b e e x e r c i s e d o n l y :
(a)
I n u n u s u a l and e x i g e n t c i r c u m s t a n c e s ,
(b)
By t h e a f f i r m a t i v e v o t e of n o t l e s s t h a n f i v e members
o f t h e F e d e r a l R e s e r v e B o a r d , and
(c)
F o r s u c h p e r i o d s a s t h e F e d e r a l R e s e r v e B o a r d may
determine,
2.
When s o a u t h o r i z e d , a F e d e r a l R e s e r v e Bank may d i s c o u n t f o r
i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s o n l y n o t e s , d r a f t s and b i l l s o f
e x c h a n g e o f t h e k i n d s and m a t u r i t i e s made e l i g i b l e f o r d i s c o u n t f o r member
b a n k s , u n d e r o t h e r p r o v i s i o n s ( S e c t i o n s 13 and 1 3 a )
Act.
of the Federal Reserve
( S u c h paper e inus'f, , coinply w i t h t h e a p p l i c a b l e r e q u i r e m e n t s o f R e g u l a t i o n
A of t h e F e d e r a l R e s e r v e Board),..
3.
P a p e r d i s c o u n t e d f o r i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s
mast b e b o t h ( a ) i n d o r s e d and ( b ) o t h e r w i s e s e c u r e d t o t h e s a t i s f a c t i o n
of t h e F e d e r a l r e s e r v e b a n k .
4.
B e f o r e d i s c o u n t i n g p a p e r f o r any i n d i v i d u a l , p a r t n e r s h i p
or c o r p o r a t i o n , a F e d e r a l r e s e r v e bank must o b t a i n e v i d e n c e t h a t s u c h
i n d i v i d u a l , p a r t n e r s h i p or c o r p o r a t i o n i s u n a b l e t o s e c u r e a d e q u a t e
c r e d i t accommodations f r o m o t h e r b a n k i n g i n s t i t u t i o n s ,
5.
Such d i s c o u n t s may b e made o n l y a t r a t e s e s t a b l i s h e d by t h e
F e d e r a l r e s e r v e b a n k s , s u b j e c t t o r e v i e w and d e t e r m i n a t i o n b y t h e F e d e r a l
Reserve Board;.-
X-7212
mm
6.
88
3 "*•
A l l d i s c o u n t s f o r i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s
are s u b j e c t to such l i m i t a t i o n s , r e s t r i c t i o n s , and r e g u l a t i o n s a s the
F e d e r a l R e s e r v e B o a r d may p r e s c r i b e .
II.
AUTHORIZATION BY THE FEDERAL RESERVE BOARD
The F e d e r a l H e s e r v e B o a r d , b e i n g s a t i s f i e d t h a t t h e r e a r e i n a l l
Federal r e s e r v e d i s t r i c t s unusual and e x i g e n t circumstances which j u s t i f y
such a c t i o n , hereby a u t h o r i z e s a l l Federal r e s e r v e banks f o r a p e r i o d of
s i x months f r o m t h e d a t e o f t h i s l e t t e r t o d i s c o u n t e l i g i b l e j i o t e s ,
d r a f t s and b i l l s o f e x c h a n g e f o r i n d i v i d u a l s , p a r t n e r s h i p s and c o r p o r a t i o n s , s u b j e c t to the p r o v i s i o n s of the law, the Board's r e g u l a t i o n s , and
this circular.
III.
FOE WHOM PAPER MAY BE DISCOUNTED.
A F e d e r a l r e s e r v e b a n k may d i s c o u n t f o r i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s n o t e s , d r a f t s or b i l l s of exchange, w h i c h
a r e t h e o b l i g a t i o n s o f o t h e r p a r t i e s a c t u a l l y owned b y s u c h i n d i v i d u a l s ,
p a r t n e r s h i p s o r c o r p o r a t i o n s a n d i n d o r s e d b y t h e m , or t h e p r o m i s s o r y
n o t e s of such i n d i v i d u a l s , p a r t n e r s h i p s , or c o r p o r a t i o n s i n d o r s e d by
o t h e r p a r t i e s whose indorsements are s a t i s f a c t o r y to the F e d e r a l r e serve bank.
Within the meaning of t h i s c i r c u l a r , the term "corporations"
does not include banks.
X-7212
- 4 iv.
applications f o r discount.
E a c h a p p l i c a t i o n of a n i n d i v i d u a l , p a r t n e r s h i p or c o r p o r a t i o n
f o r t h e d i s c o u n t o f e l i g i b l e p a p e r "by t h e F e d e r a l r e s e r v e "bank must b e
a d d r e s s e d t o t h e F e d e r a l R e s e r v e Bank of t h e D i s t r i c t i n w h i c h t h e
p r i n c i p a l p l a c e of b u s i n e s s of t h e a p p l i c a n t i s l o c a t e d , must b e made
i n w r i t i n g on a f o r m f u r n i s h e d f o r t h a t p u r p o s e b y t h e F e d e r a l r e s e r v e
bank and must c o n t a i n , or b e a c c o m p a n i e d b y , t h e f o l l o w i n g :
1.
A s t a t e m e n t of t h e c i r c u m s t a n c e s g i v i n g r i s e t o t h e a p p l i c a -
t i o n and of t h e p u r p o s e s f o r w h i c h t h e p r o c e e d s of t h e d i s c o u n t a r e t o b e
used;
2.
E v i d e n c e s u f f i c i e n t t o s a t i s f y t h e F e d e r a l r e s e r v e bank a s
t o (a) the l e g a l e l i g i b i l i t y of the paper o f f e r e d f o r d i s c o u n t under
S e c t i o n 13 or S e c t i o n 1 3 ( a ) o f t h e F e d e r a l R e s e r v e A c t and R e g u l a t i o n A
o f t h e F e d e r a l R e s e r v e Board and ( b ) i t s a c c e p t a b i l i t y f r o m a c r e d i t
standpoint;
3.
A s t a t e m e n t o f t h e e f f o r t s made b y t h e a p p l i c a n t t o o b t a i n
a d e q u a t e c r e d i t a c c o m m o d a t i o n s from o t h e r b a n k i n g i n s t i t u t i o n s , i n c l u d i n g
t h e names and a d d r e s s e e of a l l o t h e r b a n k i n g i n s t i t u t i o n s t o w h i c h a p p l i c a t i o n s f o r s u c h c r e d i t a c c o m m o d a t i o n s w e r e made, t h e d a t e s u p o n w h i c h s u c h
a p p l i c a t i o n s were made, whether such a p p l i c a t i o n s were d e f i n i t e l y r e f u s e d
and t h e r e a s o n s , i f a n y , g i v e n f o r s u c h r e f u s a l ;
4.
A l i s t s h o w i n g e a c h bank w i t h w h i c h t h e a p p l i c a n t h a s h a d
b a n k i n g r e l a t i o n s , e i t h e r a s a d e p o s i t o r or a s a b o r r o w e r , d u r i n g t h e
p r e c e d i n g y e a r , w i t h t h e approximate d a t e upon which s u c h banking r e l a t i o n s
commenced a n d , i f s u c h b a n k i n g r e l a t i o n s h a v e b e e n t e r m i n a t e d , t h e a p p r o x i mate d a t e o f t h e i r t e r m i n a t i o n ;
89
X-7212
* b 5.
Complete c r e d i t data r e g a r d i n g the f i n a n c i a l c o n d i t i o n of
t h e p r i n c i p a l o b l i g o r s and i n d o r s e r s o n t h e p a p e r o f f e r e d f o r d i s c o u n t ;
6.
A l i s t and d e s c r i p t i o n o f t h e c o l l a t e r a l or o t h e r s e c u r i t y
o f f e r e d "by t h e a p p l i c a n t ;
7.
A w a i v e r "by t h e a p p l i c a n t o f demand, n o t i c e and p r o t e s t
a s t o a p p l i c a n t ' s o b l i g a t i o n on a l l p a p e r d i s c o u n t e d "by t h e F e d e r a l r e s e r v e "bank or h e l d b y t h e F e d e r a l r e s e r v e b a n k a s s e c u r i t y ; and
8.
An a g r e e m e n t b y t h e a p p l i c a n t , i n f o r m s a t i s f a c t o r y t o t h e
Federal r e s e r v e bank, (a) t o f u r n i s h a d d i t i o n a l c r e d i t i n f o r m a t i o n to the
F e d e r a l r e s e r v e b a n k , when r e q u e s t e d , ( b ) t o s u b m i t t o a u d i t s , c r e d i t
i n v e s t i g a t i o n s or e x a m i n a t i o n s b y r e p r e s e n t a t i v e s o f t h e F e d e r a l r e s e r v e
bank a t t h e e x p e n s e o f t h e a p p l i c a n t , w h e n e v e r r e q u e s t e d b y t h e F e d e r a l
r e s e r v e bank, and ( c ) t o f u r n i s h a d d i t i o n a l s e c u r i t y whenever r e q u e s t e d t o
do s o b y t h e F e d e r a l R e s e r v e B a n k .
V.
GRANT OR REFUSAL OF APPLICATION.
B e f o r e d i s c o u n t i n g n o t e s , d r a f t s , or b i l l s o f e x c h a n g e f o r a n y
i n d i v i d u a l , p a r t n e r s h i p or c o r p o r a t i o n , t h e F e d e r a l r e s e r v e b a n k s h a l l
a s c e r t a i n t o i t s s a t i s f a c t i o n b y s u c h means a s i t may deem a p p r o p r i a t e :
1.
T h a t t h e f i n a n c i a l c o n d i t i o n and c r e d i t s t a n d i n g o f t h e
a p p l i c a n t j u s t i f y t h e g r a n t i n g of such c r e d i t accommodations;
2.
That t h e p a p e r o f f e r e d f o r d i s c o u n t i s a c c e p t a b l e f r o m a
c r e d i t s t a n d p o i n t and e l i g i b l e from a l e g a l s t a n d p o i n t ;
3.
That t h e s e c u r i t y o f f e r e d i s a d e q u a t e t o p r o t e c t t h e F e d e r a l
r e s e r v e bank a g a i n s t l o s s ;
4.
t i o n s ; and
That t h e r e i s a r e a s o n a b l e n e e d f o r s u c h c r e d i t accommoda^-
X-7212
-
5.
6 -
That t h e a p p l i c a n t i s unable t e o b t a i n a d e q u a t e c r e d i t
accommodations from o t h e r t a n k i n g i n s t i t u t i o n s .
A s p e c i a l e f f o r t s h o u l d "be made t o d e t e r m i n e w h e t h e r t h e
"banking i n s t i t u t i o n s w i t h w h i c h t h e a p p l i c a n t o r d i n a r i l y t r a n s a c t s h i s
"banking "business o r a n y o t h e r b a n k i n g i n s t i t u t i o n t o w h i c h t h e a p p l i c a n t
o r d i n a r i l y would have a c c e s s i s w i l l i n g to grant such c r e d i t accommodations
A F e d e r a l r e s e r v e bank s h o u l d n o t d i s c o u n t s u c h p a p e r u n l e s s i t
appears that the proceeds ef such d i s c o u n t s w i l l be used to f i n a n c e current
b u s i n e s s o p e r a t i o n s and n o t f o r s p e c u l a t i v e p u r p o s e s , f o r p e r m a n e n t o r
f i x e d i n v e s t m e n t s , or f o r any o t h e r c a p i t a l p u r p o s e s .
Except w i t h the
p e r m i s s i o n of t h e F e d e r a l R e s e r v e Board, no s u c h paper s h o u l d b e d i s c o u n t e d
i f i t appears that the proceeds w i l l be used f o r the purpose of paying o f f
e x i s t i n g indebtedness to other banking i n s t i t u t i o n s .
In d i s c o u n t i n g paper f o r i n d i v i d u a l s , p a r t n e r s h i p s or corporat i o n s , a F e d e r a l r e s e r v e b a n k s h o u l d n o t make a n y commitment t o r e n e w or
extend s u c h paper or t o grant f u r t h e r or a d d i t i o n a l d i s c o u n t s .
VI.
LIMITATIONS.
E x c e p t w i t h t h e p e r m i s s i o n r f t h e F e d e r a l R e s e r v e B o a r d , no
F e d e r a l r e s e r v e b a n k s h a l l d i s c o u n t f o r a n y one i n d i v i d u a l , p a r t n e r s h i p
or c o r p o r a t i o n p a p e r a m o u n t i n g i n t h e a g g r e g a t e t o more t h a n o n e p e r
c e n t o f t h e p a i d - i n c a p i t a l s t o c k and s u r p l u s of s u c h F e d e r a l r e s e r v e b a n k ,
VII.
ADDITIONAL REQUIREMENTS.
Any F e d e r a l r e s e r v e b a n k may p r e s c r i b e s u c h a d d i t i o n a l r e q u i r e m e n t s and p r o c e d u r e r e s p e c t i n g d i s c o u n t s h e r e u n d e r a s i t may deem n e c e s s a r y
or a d v i s a b l e ; p r o v i d e d t h a t s u c h r e q u i r e m e n t s a n d p r o c e d u r e a r e c o n s i s t e n t
w i t h t h e p r o v i s i o n s of t h e law, t h e B o a r d ' s r e g u l a t i o n s and t h e terms of
this circular.
x-7212
- 7 -
By o r d e r of t h e F e d e r a l R e s e r v e B o a r d .
Chester M o r r i l l ,
Secretary.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-7213
J u l y 26, 1932.
SUBJECT:
S u g g e s t e d Form of A p p l i c a t i o n f o r D i s c o u n t
"by a n I n d i v i d u a l , P a r t n e r s h i p or C o r p o r a t i o n .
Dear S i r :
There a r e i n c l o s e d f o u r c o p i e s of a s u g g e s t e d form of
application for use i n connection with discounts for individuals,
p a r t n e r s h i p s or c o r p o r a t i o n s u n d e r t h e p r o v i s i o n s of S e c t i o n 13
o f t h e F e d e r a l R e s e r v e A c t a s amended b y t h e A c t a p p r o v e d J u l y
2 1 , 1 9 3 2 , i f and when t h e F e d e r a l R e s e r v e Board a u t h o r i z e s d i s c o u n t s f o r i n d i v i d u a l s , p a r t n e r s h i p s and c o r p o r a t i o n s u n d e r t h e
p r o v i s i o n s o f t h a t s e c t i o n a s amended.
There a r e a l s o i n c l o s e d
f o u r c o p i e s of a form o f r e s o l u t i o n t o h e a d o p t e d b y t h e b o a r d
o f d i r e c t o r s of t h e c o r p o r a t i o n when t h e a p p l i c a n t f o r d i s c o u n t
i s a corporationi
The i n c l o s e d f o r m s h a v e n o t b e e n c o n s i d e r e d b y t h e
F e d e r a l R e s e r v e Board and a r e n o t p r e s c r i b e d b y t h e B o a r d ; b u t
they have been prepared f o r the a s s i s t a n c e of t h e F e d e r a l r e s e r v e
banks i n p r e p a r i n g forms of a p p l i c a t i o n i n t h i s c o n n e c t i o n and i n
order to o b t a i n u n i f o r m i t y i n such a p p l i c a t i o n s i n so f a r as
possible.
I t i s s u g g e s t e d t h a t y o u submit t h e s e f o r m s t o y o u r
X-7213
— 2
—
%
C o u n s e l f o r c a r e f u l c o n s i d e r a t i o n , i n a s m u c h a s i t may b e
d e s i r a b l e or n e c e s s a r y t o make amendments or a d d i t i o n s i n
o r d e r t o meet c o n d i t i o n s e x i s t i n g i n y o u r D i s t r i c t .
When
t h e f o r m s h a v e b e e n r e v i s e d and a p p r o v e d b y y o u r C o u n s e l ,
p l e a s e s e n d u s f i v e s e t s f o r t h e i n f o r m a t i o n and r e c o r d s
of the Board.
Very t r u l y y o u r s ,
Chester Morrill,
Secretary.
Inclosures.
P.S.
Since the preparation of these forms, i t has been
s u g g e s t e d t h a t an i t e m be added t o t h e form of a p p l i c a t i o n
as follows:
"The a p p l i c a n t h e r e b y w a i v e s demand, n o t i c e
and p r o t e s t a s t o a p p l i c a n t ' s o b l i g a t i o n on a l l
p a p e r d i s c o u n t e d b y t h e F e d e r a l r e s e r v e b a n k or
h e l d by t h e F e d e r a l r e s e r v e bank a s s e c u r i t y . "
This i t e m might a p p r o p r i a t e l y be i n s e r t e d i n t h e
i n c l o s e d form of a p p l i c a t i o n immediately a f t e r the f i r s t
l i n e on p a g e 8 t h e r e o f .
TO GOVERNORS OF ALL F. R. BANKS.
X-7208
APPLICATION FOB DISCOUNT B # AN INDIVIDUAL,
PARTNERSHIP OR CORPORATION.
To t h e F e d e r a l R e s e r v e Bank o f
A p p l i c a t i o n i s h e r e b y m a d e , on t h i s
193
, t o t h e F e d e r a l R e s e r v e Bank o f
,
.
"by
day of
_»
.
(name a n d a d d r e s s
f o r the discount of the
of a p p l i c a n t )
commercial, i n d u s t r i a l or a g r i c u l t u r a l paper d e s c r i b e d i n Schedule A attached
h e r e t o , a n d s u c h s c h e d u l e i s h e r e b y made a p a r t o f t h i s a p p l i c a t i o n .
The a p p l i c a n t h e r e b y c e r t i f i e s t h a t a l l o f t h e n o t e s , d r a f t s o r
b i l l s o f e x c h a n g e f o r t h e d i s c o u n t o f w h i c h a p p l i c a t i o n i s h e r e i n made a r e
n o t e s , d r a f t s or b i l l s o f exchange w h i c h have b e e n i s s u e d or drawn, or t h e
p r o c e e d s of w h i c h h a v e b e e n u s e d or a r e t o b e u s e d i n t h e f i r s t i n s t a n c e , i n
p r o d u c i n g , p u r c h a s i n g , c a r r y i n g or m a r k e t i n g g o o d s i n o n e o r more o f t h e s t e p s
of t h e p r o c e s s of p r o d u c t i o n , manufacture, or d i s t r i b u t i o n , or f o r t h e purpose
o f c a r r y i n g o r t r a d i n g i n d i r e c t o b l i g a t i o n s o f t h e Government o f t h e U n i t e d
States.
I t i s f u r t h e r c e r t i f i e d t h a t n o n e o f s u c h n o t e s , d r a f t s or b i l l s o f
e x c h a n g e was a c q u i r e d f r o m a b a n k .
The a p p l i c a n t f u r t h e r a g r e e s t h a t t h e p r o c e e d s o f t h e d i s c o u n t f o r
w h i c h a p p l i c a t i o n i s h e r e i n made s h a l l b e u s e d b y t h e a p p l i c a n t t o f i n a n c e
c u r r e n t o p e r a t i o n s and s h a l l n o t b e u s e d f o r s p e c u l a t i v e p u r p o s e s , f o r p e r manent o r f i x e d i n v e s t m e n t s , f o r a n y o t h e r c a p i t a l p u r p o s e , n o r f o r t h e
purpose of paying o f f e x i s t i n g indebtedness t o other f i n a n c i a l i n s t i t u t i o n s .
96
X-7208
-2—
The c i r c u m s t a n c e s g i v i n g r i s e t o t h i s a p p l i c a t i o n and t h e p u r p o s e s
for which the proceeds of the discount are to be used are as f o l l o w s :
The a p p l i c a n t h e r e b y c e r t i f i e s t h a t e v e r y r e a s o n a b l e e f f o r t h a s
b e e n made t o o b t a i n a d e q u a t e c r e d i t a c c o m m o d a t i o n s f r o m o t h e r b a n k i n g i n s t i t u t i o n s and submits t h e f o l l o w i n g i n f o r m a t i o n d e s c r i b i n g s u c h e f f o r t s .
The b a n k s t o w h i c h a p p l i c a t i o n s f o r c r e d i t a c c o m m o d a t i o n s h a v e b e e n
made and o t h e r i n f o r m a t i o n w i t h r e g a r d t h e r e t o a r e a s f o l l o w s :
Name and A d d r e s s o f Bank : D a t e o f : Was a p p l i c a t i o n : R e a s o n s g i v e n f o r r e f u s a l
: Appli- : definitely re- :
: c a t i o n : f u s e d ? ( Y e s or n o )
The f o l l o w i n g i n f o r m a t i o n i s s u b m i t t e d w i t h r e g a r d t o a l l b a n k s w i t h
which the a p p l i c a n t has had banking r e l a t i o n s , e i t h e r a s a d e p o s i t o r or a s a
borrower, during the l a s t preceding y e a r .
X-7208
•3—
Same and A d d r e s s o f
Bank
Depositor
or borrower ( I n d i cate by D
or B ) .
Date banking relat i o n s commenced.
Date banking relations terminated.
Amount o f
l i n e of
credit
granted.
Amount o f
l i n e of
credit
availed
of at
present time.
F i n a n c i a l s t a t e m e n t s o f t h e m a k e r s and o f t h e e n d o r s e r s o n t h e p a p e r
o f f e r e d f o r d i s c o u n t ( i n c l u d i n g a f i n a n c i a l statement of each of t h e p a r t n e r s
when t h e a p p l i c a n t i s a p a r t n e r s h i p ) a r e a t t a c h e d h e r e t o , a n d t h e a p p l i c a n t
h e r e b y c e r t i f i e s t h a t t o t h e b e s t o f h i s k n o w l e d g e and i n f o r m a t i o n e a c h o f s u c h
s t a t e m e n t s c o n t a i n s a t r u e , complete and c o r r e c t s t a t e m e n t of t h e f i n a n c i a l
c o n d i t i o n o f t h e maker t h e r e o f .
The a p p l i c a n t h e r e b y o f f e r s t o t h e F e d e r a l R e s e r v e b a n k t h e f o l l o w i n g d e s c r i b e d c o l l a t e r a l o r o t h e r s e c u r i t y t o s e c u r e t h e payment o f a n y o r a l l
of t h e n o t e s , d r a f t s and b i l l s of exchange f o r t h e d i s c o u n t o f which t h e a p p l i cant has h e r e i n a p p l i e d :
The a p p l i c a n t h e r e b y a g r e e s ( a ) t o f u r n i s h t h e F e d e r a l r e s e r v e b a n k
such a d d i t i o n a l f i n a n c i a l s t a t e m e n t s , c o p i e s of r e c e n t a u d i t o r s ' r e p o r t s and
other c r e d i t information as are requested by the Federal r e s e r v e bank, (b)
X-7208
t o submit t o a u d i t s , c r e d i t i n v e s t i g a t i o n s o r examinations by r e p r e s e n t a t i v e s o f t h e F e d e r a l r e s e r v e b a n k when t h e F e d e r a l r e s e r v e b a n k s h a l l s o
d e s i r e , and ( c ) t o f u r n i s h any a d d i t i o n a l i n f o r m a t i o n , c o l l a t e r a l , f u r t h e r
assurances or s e c u r i t y which the Federal r e s e r v e bank, i n i t s d i s c r e t i o n ,
may r e q u i r e .
Any s u c h a d d i t i o n a l s t a t e m e n t s , c o p i e s o f a u d i t o r s ' s r e -
ports , information, collateral, assurances, security, audits, credit
i n v e s t i g a t i o n s , o r e x a m i n a t i o n s s h a l l b e f u r n i s h e d or made a t t h e e x p e n s e
of the a p p l i c a n t .
The F e d e r a l r e s e r v e b a n k , a t i t s d i s c r e t i o n , may c o l l e c t
and a t t h e e x p e n s e a n d i n t h e name o f t h e a p p l i c a n t , o r o t h e r w i s e ,
e n f o r c e t h e payment when d u e o f a n y n o t e , d r a f t o r b i l l o f e x c h a n g e
d i s c o u n t e d f o r t h e a p p l i c a n t o r o f a n y or a l l c o l l a t e r a l o r o t h e r
s e c u r i t y h e l d h e r e u n d e r , b y s u i t o r o t h e r w i s e , may s u r r e n d e r , c o m p r o m i s e , r e l e a s e , r e n e w , e x t e n d , o r e x c h a n g e a l l o r a n y t h e r e o f , and
may a p p l y t h e n e t p r o c e e d s t h e r e o f t o t h e payment o f a n y o b l i g a t i o n
of the applicant to i t .
The a p p l i c a n t w i l l p a y o r c a u s e t o b e
p a i d t o t h e F e d e r a l r e s e r v e bank a l l e x p e n s e w h i c h t h e F e d e r a l
r e s e r v e b a n k may i n c u r i n c o n n e c t i o n w i t h t h e c o l l e c t i o n a n d / o r
enforcement of any n o t e s , d r a f t s or b i l l s of exchange d i s c o u n t e d f o r
the a p p l i c a n t , and any s e c u r i t y or s u b s t i t u t i o n t h e r e f o r , even though
no f o r e c l o s u r e or o t h e r l e g a l a c t i o n
takes place.
The a p p l i c a n t
w i l l p a y or c a u s e t o b e p a i d p r o m p t l y when due a l l t a x e s , i n s u r a n c e
p r e m i u m s , w a r e h o u s e c h a r g e s , t r a n s p o r t a t i o n c o s t s , and o t h e r e x p e n s e s
n e c e s s a r y f o r t h e enforcement, p r e s e r v a t i o n , and/or p r o t e c t i o n of any
s e c u r i t y p l e d g e d h e r e u n d e r , i n c l u d i n g t h e e n f o r c e m e n t o f a n y g u a r a n t y which the
-5k
X-7208
F e d e r a l r e s e r v e 'bank may h o l d h e r e u n d e r , a n d i n c l u d i n g f e e s f o r
f i l i n g and r e c o r d i n g mortgages and the l i k e , o r a s s i g n m e n t s
t h e r e o f , required by the Federal reserve tank.
I f the applicant
f a i l t o make a n y p a y m e n t r e q u i r e d i n t h e p r e c e d i n g p r o v i s i o n s o f
t h i s p a r a g r a p h , t h e F e d e r a l r e s e r v e b a n k i s a u t h o r i z e d t o do s o
and s h a l l have a l i e n upon a l l c o l l a t e r a l h e l d by i t u n t i l i t
s h a l l h a v e b e e n f u l l y r e i m b u r s e d f o r a n y a d v a n c e w h i c h i t may
h a v e made i n p a y m e n t o f a n y s u c h i t e m s , t o g e t h e r w i t h i n t e r e s t
thereon a t the r a t e of
# p e r annum.
Any c h e c k o r d r a f t r e c e i v e d b y o r f o r t h e F e d e r a l r e s e r v e b a n k f o r t h e a c c o u n t o f t h e a p p l i c a n t may b e p r e s e n t e d f o r
payment or f o r w a r d e d f o r c o l l e c t i o n d i r e c t t o the bank upon w h i c h
drawn o r a t w h i c h p a y a b l e #
Cash, bank d r a f t s , t r a n s f e r s of f u n d s
o r b a n k c r e d i t s , o r a n y o t h e r f o r m s o f payment o r r e m i t t a n c e may
be a c c e p t e d b y the F e d e r a l r e s e r v e bank i n payment o f or r e m i t tance f o r any such check or d r a f t , but the a p p l i c a n t s h a l l not be
e n t i t l e d t o c r e d i t on a c c o u n t o f a n y s u c h c h e c k o r d r a f t u n t i l
t h e F e d e r a l r e s e r v e b a n k s h a l l h a v e r e c e i v e d t h e amount t h e r e o f
i n a c t u a l l y a n d f i n a l l y c o l l e c t e d f u n d s , a n d t h e amount o f a n y
s u c h c h e c k o r d r a f t c r e d i t e d b y t h e F e d e r a l r e s e r v e b a n k may b e
charged back to the a p p l i c a n t notwithstanding the check or d r a f t
i t s e l f cannot be returned.
Upon a n y f a i l u r e o f t h e a p p l i c a n t t o c o m p l y w i t h a n y p r o
v i s i o n o f t h i s a p p l i c a t i o n or upon any d e f a u l t i n the payment o f
X-7208
-> 9 ^
O b l i g a t i o n t o t h e F e d e r a l r e s e r v e "bank o r i n c a s e a r e c e i v e r
or l i q u i d a t o r i s appointed f o r the a p p l i c a n t or any of i t s
p r o p e r t y , or i n c a s e of a d j u d i c a t i o n of i n s o l v e n c y , or a s s i g n ment f o r b e n e f i t o f c r e d i t o r s , t h e F e d e r a l r e s e r v e b a n k i s a u t h o r i z e d to d e c l a r e any or a l l o b l i g a t i o n s of the a p p l i c a n t to
t h e F e d e r a l r e s e r v e b a n k due a n d p a y a b l e f o r t h w i t h , and t h e same
s h a l l t h e r e u p o n b e c o m e so due and p a y a b l e .
,&id i n c a s e o f a n y
such d e f a u l t , t h e Federal r e s e r v e bank i s a u t h o r i z e d to s e l l , a s s i g n , and d e l i v e r
t h e whole or any p a r t of t h e c o l l a t e r a l h e l d
h e r e u n d e r a n d a n y s u b s t i t u t e s t h e r e f o r o r a d d i t i o n s t h e r e t o , and
any guaranty h e l d by the F e d e r a l • r e s e r v e bank i n c o n n e c t i o n w i t h
t h e a p p l i c a n t ' s o b l i g a t i o n s , a t any p u b l i c or p r i v a t e s a l e w i t h o u t
demand, a d v e r t i s e m e n t , o r n o t i c e o f t h e t i m e o r p l a c e o f s a l e o r
a d j o u r n m e n t t h e r e o f , f o r s u c h p r i c e a s i t may deem f a i r , t h e
a p p l i c a n t h e r e b y w a i v i n g a n y and a l l e q u i t y o r r i g h t o f r e d e m p t i o n
whether b e f o r e or a f t e r s a l e hereunder, and, upon such s a l e , t h e
F e d e r a l r e s e r v e b a n k may become t h e p u r c h a s e r o f t h e w h o l e o r a n y
p a r t o f s u c h s e c u r i t y f r e e f r o m a n y s u c h r i g h t o r e q u i t y o f redemption,
I n c a s e o f any s u c h s a l e , a f t e r d e d u c t i n g a l l c o s t s , a t t o r n e y s '
f e e s , and o t h e r e x p e n s e s o f c o l l e c t i o n , t h e F e d e r a l r e s e r v e b a n k may
apply the r e s i d u e of the p r o c e e d s of such s a l e or s a l e s to the p a y ment o f a n y o r a l l o b l i g a t i o n s o f t h e a p p l i c a n t t o t h e F e d e r a l r e s e r v e bank, whether due or n o t , a s the F e d e r a l r e s e r v e bank s h a l l
deem p r o p e r , a n d a n y b a l a n c e r e m a i n i n g s h a l l b e p a i d t o t h e a p p l i c a n t .
101
X—7208
i 7 -
Without l i m i t i n g or a f f e c t i n g such r i g h t s of the Federal r e s e r v e "bank s o t o s e l l a p a r t o r a l l o f s u c h s e c u r i t y , t h e F e d e r a l r e s e r v e bank i s f u r t h e r a u t h o r i z e d a t i t s o p t i o n and i n i t s d i s c r e t i o n
t o c o l l e c t o r c a u s e t o "be c o l l e c t e d o r o t h e r w i s e c o n v e r t e d i n t o moneya l l o r a n y p a r t o f t h e s e c u r i t y h e l d h e r e u n d e r , "by s u i t o r o t h e r w i s e ,
and i s a u t h o r i z e d i n s u c h c a s e t o s u r r e n d e r , c o m p r o m i s e , r e l e a s e ,
renew, extend, or exchange any o f such s e c u r i t y w i t h o u t p r i o r n o t i c e
or consent of the applicant.
P r o c e e d s o f c o l l e c t i o n s so made, a f t e r
f i r s t deducting c o s t s , a t t o r n e y s ' f e e s and expenses of c o l l e c t i o n ,
may b e a p p l i e d t o t h e p a y m e n t o f a n y o r a l l o b l i g a t i o n s o f t h e a p p l i c a n t t o t h e F e d e r a l r e s e r v e b a n k , w h e t h e r due o r n o t .
In the
e v e n t o f a n y l e g a l p r o c e e d i n g s , a l l c o s t s and r e a s o n a b l e a t t o r n e y s *
f e e s i n c u r r e d b y t h e F e d e r a l r e s e r v e b a n k s h a l l become p a r t o f t h e
o b l i g a t i o n o f t h e a p p l i c a n t to the Federal r e s e r v e bank c o v e r e d by
the provisions hereof.
Upon a n y t r a n s f e r o r p l e d g e o f a n y o b l i g a t i o n o f t h e
a p p l i c a n t , t h e F e d e r a l r e s e r v e b a n k may d e l i v e r t h e c o l l a t e r a l o r
a n y p a r t t h e r e o f o r i n t e r e s t t h e r e i n o r a n y g u a r a n t y o r o t h e r document
h e l d hereunder in connection with the a p p l i c a n t ' s o b l i g a t i o n s
t o t h e F e d e r a l r e s e r v e b a n k t o t h e t r a n s f e r e e o r p l e d g e e , who
s h a l l t h e r e u p o n b e c o m e v e s t e d w i t h a l l t h e p o w e r s and r i g h t s
h e r e i n g i v e n a n d s h a l l h a v e t h e same r e m e d i e s a s i f o r i g i n a l l y
named h e r e i n .
The F e d e r a l r e s e r v e b a n k s h a l l b e p r o t e c t e d i n a c t i n g upon
any n o t i c e , r e q u e s t , c o n s e n t , c e r t i f i c a t e , w r i t i n g , r e s o l u t i o n or
o t h e r p a p e r o r document b e l i e v e d b y i t t o b e g e n u i n e and t o h a v e
X-7208
—B
been s i g n e d , executed, p a s s e d , or p r e s e n t e d by the proper p a r t i e s .
The a p p l i c a n t a g r e e s t o b e a n d r e m a i n b o u n d f o r t h e p a y m e n t
o f a l l o b l i g a t i o n s t o t h e F e d e r a l r e s e r v e b a n k p u r s u a n t h e r e t o and
t h a t t h e l i e n h e r e o f and a n y p l e d g e o r p l e d g e s h e r e u n d e r s h a l l r e main u n d i s t u r b e d n o t w i t h s t a n d i n g any d e l a y , e x t e n s i o n o f t i m e , subs t i t u t i o n o f s e c u r i t y , renewal, or o t h e r indulgence g r a n t e d by the
F e d e r a l r e s e r v e bank i n c o n n e c t i o n w i t h any n o t e , d r a f t or b i l l o f
exchange d i s c o u n t e d f o r t h e a p p l i c a n t or s e c u r i t y h e l d hereunder,
hereby waiving a l l n o t i c e of such delay, extension, s u b s t i t u t i o n ,
renewal, or other indulgence.
The a p p l i c a n t e x p r e s s l y r e s e r v e s t h e
r i g h t to a n t i c i p a t e t h e payment of any o b l i g a t i o n to t h e F e d e r a l r e s e r v e bank under t h i s or any o t h e r a p p l i c a t i o n , but a g r e e s t h a t any
p a y m e n t so made b y i t may b e a p p l i e d on a n y o f i t s o b l i g a t i o n s to
t h e F e d e r a l r e s e r v e b a n k , w h e t h e r due o r n o t , i n s u c h o r d e r a s t h e
F e d e r a l r e s e r v e b a n k may e l e c t .
The a p p l i c a n t h e r e b y a g r e e s t h a t w h e r e v e r t h e o b l i g a t i o n
of the applicant i s referred to herein, i t includes the a p p l i c a n t ' s
o b l i g a t i o n to t h e F e d e r a l r e s e r v e bank a s maker, drawer, a c c e p t o r ,
indorser or guarantor o f any n e g o t i a b l e or n o n n e g o t i a b l e i n s t r u ment, or i n any o t h e r manner.
(S ignature)'
HOTE:
When made b y a n i n d i v i d u a l , t h e a p p l i c a t i o n f o r d i s c o u n t o f
n o t e s , d r a f t s o r b i l l s o f exchange s h o u l d be s i g n e d by t h e i n d i v i d u a l .
103
- 9 When made b y a p a r t n e r s h i p , t h e a p p l i c a t i o n should, b e
s i g n e d b y o n e o f t h e members o f t h e p a r t n e r s h i p and s h o u l d b e
accompanied by a c e r t i f i e d copy of the p a r t n e r s h i p agreement,
i f a n y , a s amended t o t h e d a t e o f t h e a p p l i c a t i o n .
When made b y a c o r p o r a t i o n , t h e a p p l i c a t i o n s h o u l d b e
s i g n e d b y o n e o f i t s d u l y a u t h o r i z e d o f f i c e r s and s h o u l d b e a c companied by a c e r t i f i e d copy o f t h e r e s o l u t i o n of i t s board of
d i r e c t o r s a u t h o r i z i n g s u c h o f f i c e r t o make t h e a p p l i c a t i o n o n
b e h a l f o f t h e c o r p o r a t i o n . Such a p p l i c a t i o n s h o u l d a l s o b e a c companied by a c e r t i f i e d copy of the c o r p o r a t i o n ' s A r t i c l e s o f
A s s o c i a t i o n or Charter and of the b y - l a w s of the c o r p o r a t i o n , a s
amended t o t h e d a t e o f t h e a p p l i c a t i o n .
X-7208
X-7208-a
""
RESOLUTION OF 30&RD OF DIRECTORS Of i P P L I C M T CORPORATION
RESOLVED, That
and
the
(name)
_________
(name)
" the
(office)
(office)
o f t h i s c o r p o r a t i o n , o r e i t h e r of them, h e , and t h e y are h e r e b y ,
a u t h o r i z e d a n d empowered f o r and i n t h e name a n d o n "behalf o f t h i s
c o r p o r a t i o n t o e x e c u t e a n d / o r d e l i v e r t o t h e F e d e r a l R e s e r v e Bank o f
„
the f o l l o w i n g papers and documents:
(1)
A p p l i c a t i o n f o r the discount of any n o t e s , d r a f t s or b i l l s
o f e x c h a n g e owned "by t h i s c o r p o r a t i o n , s u c h d i s c o u n t t o "be a t t h e r a t e
o f i n t e r e s t p r e s c r i b e d "by t h e F e d e r a l r e s e r v e h a n k w i t h t h e a p p r o v a l o f
t h e F e d e r a l He s e r v e B o a r d , on a f o r m p r e s c r i b e d o r a p p r o v e d b y t h e
F e d e r a l r e s e r v e bank, which form has been submitted t o the Board o f
D i r e c t o r s of t h i s corporation.
(2)
The n o t e s , d r a f t s o r b i l l s o f e x c h a n g e c o v e r e d b y s u c h
a p p l i c a t i o n a n d m a d e , a c c e p t e d o r i n d o r s e d i n t h e name o f t h i s c o r p o r a t i o n by such o f f i c e r s or e i t h e r of them.
BE IT FURTHER RESOLVED, That i n o r d e r t o s e c u r e t h e p a y m e n t o f
any or a l l of such n o t e s , d r a f t s or b i l l s of exchange d i s c o u n t e d by
the Federal r e s e r v e bank f o r t h i s c o r p o r a t i o n and to guarantee the
f a i t h f u l performance of any contract entered i n t o w i t h the Federal
r e s e r v e b a n k , t h e s a i d o f f i c e r s o f t h i s c o r p o r a t i o n b e , and e a c h o f
them i s h e r e b y , a u t h o r i z e d a n d empowered i n t h e i r d i s c r e t i o n t o p l e d g e
a n d h y p o t h e c a t e w i t h t h e F e d e r a l r e s e r v e b a n k a n y c o l l a t e r a l Or p r o p e r t y
M
X-7208-a
2 te
i 0 5
• b e l o n g i n g t o t h i s c o r p o r a t i o n a n d a n y c o l l a t e r a l o r p r o p e r t y w h i c h t h e y may
i n t h e i r d i s c r e t i o n , from time t o t i m e , s u b s t i t u t e t h e r e f o r , and any
c o l l a t e r a l o r p r o p e r t y w h i c h may be r e q u i r e d f r o m t i m e t o t i m e a s a d d i t i o n a l
s e c u r i t y f o ? t h e payment o f any s u c h n o t e s , d r a f t s or b i l l s o f e x c h a n g e .
S u c h o f f i c e r s a n d e a c h o f them a r e f u r t h e r a u t h o r i z e d and empowered t o do
s u c h a c t s and t o e x e c u t e s u c h a d d i t i o n a l a g r e e m e n t s o r i n s t r u m e n t s i n t h e
name and on b e h a l f o f t h i s c o r p o r a t i o n a s may h e n e c e s s a r y o r d e s i r a b l e t o
meet the requirements of the Federal reserve bank.
BE IT FURTHER RESOLVED, That
the _ _ _ _ _ _ _ _ _ _
cers)
(name o f o f f i (offices)
o f t h i s c o r p o r a t i o n , a n d e a c h o f t h e m , b e , and i s h e r e b y , a u t h o r i z e d and
empowered t o r e c e i v e on b e h a l f o f t h i s c o r p o r a t i o n t h e p r o c e e d s o f a n y s u c h
d i s c o u n t a n d t o i n d o r s e i n t h e name a n d on b e h a l f o f t h i s c o r p o r a t i o n a n y
checks or d r a f t s r e p r e s e n t i n g the proceeds of any such d i s c o u n t .
CERTIFICATE
I h e r e b y c e r t i f y t h a t t h e f o r e g o i n g i s a t r u e and c o r r e c t copy o f
a r e s o l u t i o n r e g u l a r l y adopted by the Board of D i r e c t o r s o f the
(name o f a p p l i c a n t )
on the
day o f
193
, a t which
m e e t i n g a quorum w a s p r e s e n t a n d v o t e d .
(Corporate Seal)
Secretary.
SCHEDULE A.
The f o l l o w i n g i s a l i s t o f t h e c o m m e r c i a l , i n d u s t r i a l o r a g r i c u l t u r a l p a p e r f o r t h e
3
5
d i s c o u n t o f w h i c h a p p l i c a t i o n was made by
(Name and a d d r e s s o f a p p l i c a n t )
t o t h e F e d e r a l R e s e r v e Bank o f
day o f
Number
from
1 up.
, 19
Name and A d d r e s s
Indorser
Maker or
Acceptor
on t h e
, and t h i s s c h e d u l e c o n s t i t u t e s a p a r t o f t h a t a p p l i c a t i o n .
Business (Indicate
purpose f o r which
p a p e r was i s s u e d
or proceeds u s e d . )
Maturity
date
Bate
of
Interest
Mount
Security.
Jwaa
Q
cn
•
: .
... • i
•. '
FEDERAL RESERVE BOARD
WASHINGTON
X-7214
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
July 26, 1932.
SUBJECT:
New I s s u e s o f T r e a s u r y N o t e s .
Dear S i r :
I n 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 "between
F e d e r a l r e s e r v e b a n k s c o v e r i n g Government s e c u r i t i e s , t h e
f o l l o w i n g c o d e words h a v e b e e n d e s i g n a t e d t o c o v e r new
i s s u e s of Treasury Notes:
"NOWHUNCH"
2 l / 8 $ Treasury Notes, S e r i e s B-1934,
to he dated August 1, 1932, maturing
August 1, 1934.
"NOWHUNGr"
3 1/456 T r e a s u r y N o t e s , S e r i e s A - 1 9 3 G ,
t c "be d a t e d A u g u s t 1 , 1 9 3 2 , m a t u r i n g
August 1, 1936.
T h e s e c o d e words s h o u l d b e i n s e r t e d i n t h e F e d e r a l
R e s e r v e T e l e g r a p h Code book, f o l l o w i n g t h e s u p p l e m e n t a l
c o d e word "NOWHTJLK" on p a g e 1 7 2 .
Very t r u l y y o u r s ,
J . C. N o e l l ,
Assistant Secretary.
TO GOVERNORS OF ALL F. R. BANKS.
• . *. * •
"I tvy
v
FEDERAL RESERVE BOARD
WASHINGTON
x-7215
July 26,
1932.
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
SUBJECT:
Discounts for Individuals, Partners h i p s and C o r p o r a t i o n s .
Dear S i r :
T h e r e i s i n c l o s e d a copy of a c i r c u l a r on t h e a b o v e
s u b j e c t w h i c h was a p p r o v e d by t h e F e d e r a l R e s e r v e Board t o d a y ,
Your a t t e n t i o n i s i n v i t e d t o t h e f a c t t h a t , i n S e c t i o n I I
t h e r e o f , t h e Board h a s a u t h o r i z e d a l l F e d e r a l r e s e r v e b a n k s ,
f o r a p e r i o d o f s i x months b e g i n n i n g A u g u s t 1 , 1 9 3 2 , t o d i s c o u n t e l i g i b l e n o t e s , d r a f t s and b i l l s o f e x c h a n g e f o r i n d i v i d u a l s , p a r t n e r s h i p s and c o r p o r a t i o n s , s u b j e c t t o t h e p r o v i s i o n s
of t h e l a w , t h e B o a r d ' s R e g u l a t i o n A and t h e i n c l o s e d c i r c u l a r .
C o p i e s o f t h i s c i r c u l a r w i l l b e g i v e n t o t h e p r e s s on
S a t u r d a y , J u l y 3 0 , f o r r e l e a s e on Monday, A u g u s t 1 , 1 9 3 2 , a n d
should be t r e a t e d as c o n f i d e n t i a l u n t i l the l a t t e r d a t e .
You a r e a t l i b e r t y t o h a v e t h e i n c l o s e d c i r c u l a r p r i n t e d
and, b e g i n n i n g August 1 , 1932, t o g i v e c o p i e s t h e r e o f t o p e r s o n s
making i n q u i r i e s r e g a r d i n g t h i s s u b j e c t , t o g e t h e r w i t h c o p i e s o f
t h e B o a r d ' s R e g u l a t i o n A and of any s u p p l e m e n t a l c i r c u l a r and any
f o r m s w h i c h y o u r b a n k may a d o p t w i t h t h e a p p r o v a l o f y o u r C o u n s e l .
Very t r u l y y o u r s ,
Chester M o r r i l l ,
Secretary.
Inclosure.
TO GOVERNORS
AND CHAIRMEN OF ALL F . R. BANKS.
109
FEDERAL RESERVE BOARD
WASHINGTON
X-7215-a
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E TEDERAL RESERVE BOARD
SUBJECT:
J
u
l
y
2 6
,
1 9 3 2 .
DISCOUNTS FOR INDIVIDUALS. PARTNERSHIPS AMD CORPORATIONS.
TO ALL FEDERAL RESERVE BANKS:
The t h i r d p a r a g r a p h o f S e c t i o n 13 of t h e F e d e r a l R e s e r v e A c t ,
a s amended "by t h e A c t o f J u l y 2 1 , 1 9 3 2 , p r o v i d e s a s f o l l o w s :
"In u n u s u a l and e x i g e n t c i r c u m s t a n c e s , t h e
F e d e r a l R e s e r v e B o a r d , by t h e a f f i r m a t i v e v o t e o f n o t
l e s s t h a n f i v e members, may a u t h o r i z e a n y F e d e r a l r e s e r v e
b a n k , d u r i n g s u c h p e r i o d s a s t h e s a i d b o a r d may d e t e r m i n e ,
at r a t e s e s t a b l i s h e d i n accordance with the p r o v i s i o n s of
s e c t i o n 14, s u b d i v i s i o n ( d ) , of t h i s A c t , t o d i s c o u n t f o r
any i n d i v i d u a l , p a r t n e r s h i p , or c o r p o r a t i o n , n o t e s , d r a f t s ,
and b i l l s o f e x c h a n g e o f t h e k i n d s and m a t u r i t i e s made
e l i g i b l e f o r d i s c o u n t f o r member b a n k s u n d e r o t h e r p r o v i s i o n s of t h i s A c t when s u c h n o t e s , d r a f t s , and b i l l s of
exchange a r e i n d o r s e d and o t h e r w i s e s e c u r e d t o t h e s a t i s f a c t i o n o f t h e F e d e r a l r e s e r v e b a n k : P r o v i d e d , That b e f o r e
d i s c o u n t i n g a n y s u c h n o t e , d r a f t , or b i l l of e x c h a n g e f o r a n
i n d i v i d u a l or a p a r t n e r s h i p or c o r p o r a t i o n t h e F e d e r a l r e s e r v e bank s h a l l o b t a i n e v i d e n c e t h a t s u c h i n d i v i d u a l ,
p a r t n e r s h i p , or c o r p o r a t i o n i s u n a b l e t o s e c u r e a d e q u a t e
c r e d i t accommodations from other banking i n s t i t u t i o n s . A l l
s u c h d i s c o u n t s f o r i n d i v i d u a l s , p a r t n e r s h i p s , or c o r p o r a t i o n s
s h a l l be s u b j e c t t o such l i m i t a t i o n s , r e s t r i c t i o n s , and
r e g u l a t i o n s a s t h e F e d e r a l R e s e r v e Board may p r e s c r i b e . "
I n v i e w o f t h e f a c t t h a t t h e power c o n f e r r e d b y t h i s p r o v i s i o n
can b e e x e r c i s e d o n l y i n "unusual and e x i g e n t c i r c u m s t a n c e s " , t h e F e d e r a l R e s e r v e Board h a s n o t p r e s c r i b e d any f o r m a l r e g u l a t i o n s g o v e r n i n g
t h e e x e r c i s e o f t h i s p o w e r ; b u t t h e r e q u i r e m e n t s o f t h e l a w and t h e
p r o c e d u r e w h i c h t h e F e d e r a l R e s e r v e Board w i l l e x p e c t t o b e f o l l o w e d
a r e o u t l i n e d b e l o w f o r t h e i n f o r m a t i o n o f t h e F e d e r a l r e s e r v e b a n k s and
any i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s t h a t may c o n t e m p l a t e
a p p l y i n g t o them f o r d i s c o u n t s .
X-7215-6
«« 2 **
I . LEQ-A1 REgCJIREMENTS.
I t w i l l be o b s e r v e d t h a t , b y t h e e x p r e s s t e r m s o f t h e l a w :
1.
The p o w e r c o n f e r r e d upon t h e F e d e r a l R e s e r v e B o a r d t o
a u t h o r i z e F e d e r a l r e s e r v e banks to discount e l i g i b l e paper f o r i n d i v i d u a l s , p a r t n e r s h i p s o r c o r p o r a t i o n s may be e x e r c i s e d o n l y :
(a)
I n -unusual a n d e x i g e n t c i r c u m s t a n c e s ,
(b)
By t h e a f f i r m a t i v e v o t e o f n o t l e s s t h a n f i v e members
o f t h e F e d e r a l Be s e r v e B o a r d , a n d
(c)
F o r s u c h p e r i o d s a s t h e F e d e r a l He s e r v e B o a r d may
determine.
2.
When s o a u t h o r i z e d , a F e d e r a l R e s e r v e Bank may d i s c o u n t f o r
i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s o n l y n o t e s , d r a f t s and b i l l s of
e x c h a n g e o f t h e k i n d s and m a t u r i t i e s made e l i g i b l e f o r d i s c o u n t f o r member
b a n k s , u n d e r o t h e r p r o v i s i o n s ( S e c t i o n s 1 3 and 1 3 a ) o f t h e F e d e r a l R e s e r v e
Act.
( S u c h p a p e r m u s t , t h e r e f o r e , comply w i t h t h e a p p l i c a b l e r e q u i r e m e n t s
of Regulation A of the Federal Reserve Board).
3.
Paper discounted f o r i n d i v i d u a l s , partnerships or corporations
m a s t be b o t h ( a ) i n d o r s e d a n d ( b ) o t h e r w i s e s e c u r e d t o t h e s a t i s f a c t i o n
of the Federal reserve bank.
4.
B e f o r e d i s c o u n t i n g paper f o r any i n d i v i d u a l , p a r t n e r s h i p
or c o r p o r a t i o n , a Federal r e s e r v e bank mast o b t a i n e v i d e n c e t h a t such
i n d i v i d u a l , p a r t n e r s h i p or c o r p o r a t i o n i s unable t o secure adequate
c r e d i t accommodations from o t h e r banking i n s t i t u t i o n s .
5.
S u c h d i s c o u n t s may b e made o n l y a t r a t e s e s t a b l i s h e d by t h e
F e d e r a l r e s e r v e b a n k s , s u b j e c t t o r e v i e w and d e t e r m i n a t i o n b y t h e F e d e r a l
Reserve Board.
X-7215-a
- 3 6.
A l l d i s c o u n t s f o r i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s
a r e s u b j e c t t o s u c h l i m i t a t i o n s , r e s t r i c t i o n s , and r e g u l a t i o n s a s t h e
F e d e r a l R e s e r v e B o a r d may p r e s c r i b e .
II.
AUTHORIZATION BY THE FEDERAL RESERVE BOARD.
The F e d e r a l R e s e r v e B o a r d , p u r s u a n t t o t h e p o w e r c o n f e r r e d
upon i t "by t h e amendment h e r e i n b e f o r e g u o t e d , h e r e b y a u t h o r i z e s a l l
F e d e r a l r e s e r v e b a n k s , f o r a p e r i o d o f s i x months b e g i n n i n g A u g u s t 1 ,
1 9 3 2 , t o d i s c o u n t e l i g i b l e n o t e s , d r a f t s and b i l l s o f e x c h a n g e f o r
i n d i v i d u a l s , p a r t n e r s h i p s and c o r p o r a t i o n s , s u b j e c t t o t h e p r o v i s i o n s
o f t h e l a w , t h e B o a r d ' s r e g u l a t i o n s , and t h i s c i r c u l a r .
III.
FOR WHOM PAPER MAY BE DISCOUNTED.
A F e d e r a l r e s e r v e b a n k may d i s c o u n t f o r i n d i v i d u a l s , p a r t n e r s h i p s o r c o r p o r a t i o n s n o t e s , d r a f t s or b i l l s o f e x c h a n g e , w h i c h a r e t h e
o b l i g a t i o n s o f o t h e r p a r t i e s a c t u a l l y owned b y s u c h i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s a n d i n d o r s e d b y t h e m , or t h e p r o m i s s o r y n o t e s o f
s u c h i n d i v i d u a l s , p a r t n e r s h i p s , or c o r p o r a t i o n s i n d o r s e d b y o t h e r p a r t i e s
whose i n d o r s e m e n t s a r e s a t i s f a c t o r y t o t h e F e d e r a l r e s e r v e bank.
Within t h e meaning of t h i s c i r c u l a r , t h e term "corporations"
does not i n c l u d e banks.
X-7215-a^^
•• 4 "•
IV.
APPLICATIONS FOR DISCOUNT.
Bach a p p l i c a t i o n of an i n d i v i d u a l , p a r t n e r s h i p or c o r p o r a t i o n
f o r t h e d i s c o u n t o f e l i g i b l e p a p e r "by t h e F e d e r a l r e s e r v e "bank m u s t b e
a d d r e s s e d t o t h e F e d e r a l R e s e r v e Bank o f t h e D i s t r i c t i n w h i c h t h e
p r i n c i p a l p l a c e o f b u s i n e s s of t h e a p p l i c a n t i s l o c a t e d , must b e made
i n w r i t i n g on a f o r m f u r n i s h e d f o r t h a t p u r p o s e b y t h e F e d e r a l r e s e r v e
b a n k and m u s t c o n t a i n , o r b e a c c o m p a n i e d b y , t h e f o l l o w i n g :
1.
A s t a t e m e n t of t h e c i r c u m s t a n c e s g i v i n g r i s e t o t h e a p p l i c a -
t i o n and o f t h e p u r p o s e s f o r w h i c h t h e p r o c e e d s o f t h e d i s c o u n t a r e t o b e
used;
2.
E v i d e n c e s u f f i c i e n t t o s a t i s f y t h e F e d e r a l r e s e r v e bank a s
to (a) the l e g a l e l i g i b i l i t y of the paper o f f e r e d f o r discount under
S e c t i o n 1 3 o r S e c t i o n 1 3 ( a ) o f t h e F e d e r a l R e s e r v e A c t and R e g u l a t i o n A
o f t h e F e d e r a l R e s e r v e Board and ( b ) i t s a c c e p t a b i l i t y f r o m a c r e d i t
standpoint;
3.
A s t a t e m e n t o f t h e e f f o r t s made b y t h e a p p l i c a n t t o o b t a i n
adequate c r e d i t accommodations from other banking i n s t i t u t i o n s , i n c l u d i n g
t h e names a n d a d d r e s s e s o f a l l o t h e r b a n k i n g i n s t i t u t i o n s t o w h i c h a p p l i c a t i o n s f o r s u c h c r e d i t a c c o m m o d a t i o n s w e r e made, t h e d a t e s u p o n w h i c h s u c h
a p p l i c a t i o n s were made, whether such a p p l i c a t i o n s were d e f i n i t e l y r e f u s e d
and t h e r e a s o n s , i f a n y , g i v e n f o r s u c h r e f u s a l ;
4.
A l i s t showing each bank w i t h which t h e a p p l i c a n t h a s had
banking r e l a t i o n s , e i t h e r a s a d e p o s i t o r or a s a b o r r o w e r , d u r i n g t h e
p r e c e d i n g y e a r , w i t h t h e approximate d a t e upon which s u c h banking r e l a t i o n s
commenced a n d , i f s u c h b a n k i n g r e l a t i o n s h a v e b e e n t e r m i n a t e d , t h e a p p r o x i mate d a t e of
their termination;
X-721fHt
11
- 5 5.
Complete c r e d i t data r e g a r d i n g the f i n a n c i a l c o n d i t i o n of
t h e p r i n c i p a l o b l i g o r s and i n d o r s e r e o n t h e p a p e r o f f e r e d f o r d i s c o u n t ;
6i
A l i s t and d e s c r i p t i o n o f t h e c o l l a t e r a l or o t h e r s e c u r i t y
o f f e r e d "by t h e a p p l i c a n t ;
7.
A w a i v e r "by t h e a p p l i c a n t
of demand, n o t i c e a n d p r o t e s t
a s t o a p p l i c a n t ' s o b l i g a t i o n on a l l p a p e r d i s c o u n t e d "by t h e F e d e r a l r e s e r v e "bank or h e l d b y t h e F e d e r a l r e s e r v e b a n k a s s e c u r i t y ; and
8.
An a g r e e m e n t b y t h e a p p l i c a n t , i n f o r m s a t i s f a c t o r y t o t h e
Federal r e s e r v e bank, (a) to f u r n i s h a d d i t i o n a l c r e d i t information to the
F e d e r a l r e s e r v e b a n k , when r e q u e s t e d , ( b ) t o s u b m i t t o a u d i t s , c r e d i t
i n v e s t i g a t i o n s or e x a m i n a t i o n s b y r e p r e s e n t a t i v e s o f t h e F e d e r a l r e s e r v e
bank a t t h e e x p e n s e o f t h e a p p l i c a n t , w h e n e v e r r e q u e s t e d b y t h e F e d e r a l
r e s e r v e b a n k , and ( c ) t o f u r n i s h a d d i t i o n a l s e c u r i t y w h e n e v e r r e q u e s t e d t o
do s o b y t h e F e d e r a l R e s e r v e Bank.
V.
GRANT OR REFUSAL OF APPLICATION.
B e f o r e d i s c o u n t i n g n o t e s , d r a f t s , or b i l l s o f e x c h a n g e f o r a n y
i n d i v i d u a l , p a r t n e r s h i p or c o r p o r a t i o n , t h e F e d e r a l r e s e r v e b a n k s h a l l
a s c e r t a i n t o i t s s a t i s f a c t i o n by s u c h means a s i t may deem a p p r o p r i a t e :
1.
T h a t t h e f i n a n c i a l c o n d i t i o n and c r e d i t s t a n d i n g o f t h e
a p p l i c a n t j u s t i f y t h e g r a n t i n g of such c r e d i t accommodations;
2.
That t h e p a p e r o f f e r e d f o r d i s c o u n t i s a c c e p t a b l e f r o m a
c r e d i t s t a n d p o i n t and e l i g i b l e from a l e g a l s t a n d p o i n t ;
3.
That t h e s e c u r i t y o f f e r e d i s a d e q u a t e t o p r o t e c t t h e F e d e r a l
r e s e r v e bank a g a i n s t l o s s *
4.
t i o n s ; and
That t h e r e i s a r e a s o n a b l e n e e d f o r s u c h c r e d i t accommoda^-
SC-7215-a
mm
5.
0
114
mm
That t h e a p p l i c a n t i s u n a b l e t o o b t a i n a d e q u a t e c r e d i t
accommodations from o t h e r banking i n s t i t u t i o n s .
A s p e c i a l e f f o r t s h o u l d b e made t o d e t e r m i n e w h e t h e r t h e
banking i n s t i t u t i o n w i t h which the a p p l i c a n t o r d i n a r i l y t r a n s a c t s h i s
banking b u s i n e s s or any other banking i n s t i t u t i o n to which the a p p l i c a n t
o r d i n a r i l y would have a c c e s s i s w i l l i n g to grant such c r e d i t a c c o m o d a t i o n s .
A F e d e r a l r e s e r v e bank should not d i s c o u n t such paper u n l e s s i t
appears t h a t the p r o c e e d s of such d i s c o u n t s w i l l be u s e d t o f i n a n c e current
b u s i n e s s o p e r a t i o n s and not f o r s p e c u l a t i v e p u r p o s e s , f o r permanent or
f i x e d i n v e s t m e n t s , or f o r any o t h e r c a p i t a l p u r p o s e s .
Except w i t h the
p e r m i s s i o n o f t h e F e d e r a l R e s e r v e B o a r d , no s u c h p a p e r s h o u l d b e d i s c o u n t e d
i f i t appears t h a t the p r o c e e d s w i l l be u s e d f o r the purpose o f p a y i n g o f f
e x i s t i n g indebtedness to other banking i n s t i t u t i o n s .
In discounting paper f o r i n d i v i d u a l s , partnerships or corpora**
t i o n s , a F e d e r a l r e s e r v e b a n k s h o u l d n o t make a n y commitment t o r e n e w o r
e x t e n d such paper or t o g r a n t f u r t h e r or a d d i t i o n a l d i s c o u n t s .
VI.
LIMITATIONS.
E x c e p t w i t h t h e p e r m i s s i o n o f t h e F e d e r a l R e s e r v e B o a r d , no
F e d e r a l r e s e r v e b a n k s h a l l d i s c o u n t f o r a n y one i n d i v i d u a l , p a r t n e r s h i p
o r c o r p o r a t i o n p a p e r a m o u n t i n g i n t h e a g g r e g a t e t o more t h a n o n e p e r
cent of the p a i d - i n c a p i t a l s t o c k and surplus of such Federal r e s e r v e bank,
V I I . . ADDITIONAL HEQUIRTtOTNIS.
Any F e d e r a l r e s e r v e b a n k may p r e s c r i b e s u c h a d d i t i o n a l r e q u i r e m e n t s a n d p r o c e d u r e r e s p e c t i n g d i s c o u n t s h e r e u n d e r a s i t may d e e m n e c e s s a r y
o r a d v i s a b l e ; p r o v i d e d t h a t s u c h r e q u i r e m e n t s and p r o c e d u r e a r e c o n s i s t e n t
115
4# %
X-7si8-e
—7 —
w i t h t h e p r o v i s i o n s o f t h e l a w , t h e B o a r d ' s r e g u l a t i o n s and. t h e t e r m s o f
this circular.
By o r d e r o f t h e F e d e r a l R e s e r v e B o a r d .
Chester Morrill,
Secretary.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL. CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-7216
July 27, 1932.
SUBJECT:
E x p e n s e , Main L i n e s , L e a s e d Wire S y s t e m ,
June, 1932.
Dear S i r :
E n c l o s e d h e r e w i t h y o u w i l l f i n d two mimeographed
s t a t e m e n t s , X - 7 2 1 6 - a and X-7216-t>, c o v e r i n g i n d e t a i l
o p e r a t i o n s o f t h e m a i n l i n e s , L e a s e d Wire S y s t e m , d u r i n g
t h e month of J u n e , 1932.
P l e a s e c r e d i t t h e amount p a y a b l e b y y o u r b a n k i n
t h e g e n e r a l a c c o u n t , T r e a s u r e r , U. S . , on y o u r b o o k s , and
i s s u e C/D Form 1 , N a t i o n a l B a n k s , f o r a c c o u n t o f " S a l a r i e s
a n d E x p e n s e s , F e d e r a l R e s e r v e B o a r d , S p e c i a l Fund", L e a s e d
Wire S y s t e m , s e n d i n g d u p l i c a t e C/D t o t h e F e d e r a l R e s e r v e
Board.
Very t r u l y y o u r s ,
F i s c a l Agent.
Enclosures,
TO GOVERNORS CP ALL F . R. BANKS,
X-7216-a
REPORT SHOWING- CLASSIFICATION AMD BOMBER OF WORDS TRANSMITTED OVER MAIN LINES
OF THE FEDERAL RESERVE LEASED WIRE SYSTEM FOR THE MONTH OF JUNE, 1 9 3 2 .
Business
reported
by banks
From
Boston
Hew York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
S t . Louis
Minneapolis
Kansas City
Dallas
"San Francisco
Total
Words sent by
New York chargeable to other
F. R. Banks ( l )
Net Federal
reserve
bank
business
Percent of t o t a l
bank business (*)
3,173
33,927
154,431
33,483
71,017
61,033
63,611
109,562
73,812
35,549
74,494
64,188
115.032
890,139
3.81
17.35
3.76
7-98
6.86
7.15
12.31
8.29
3.99
8.37
7.21
12.92
100.00
30,754
154,431
29,714
67,795
58,469
54,913
103,701
69,898
32,707
71,810
58,884
110,462
843,538
-
3,769
3,222
2,564
8,698
5,861
3,914
2,842
2,684
5,304
4.570
46,601
T- R. Board business
286,454
Beimbursable "business Incoming and Outgoing
Total words transmitted over main l i n e s
(*)
These percentages 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-72l6-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 indicated in accordance with a c t i o n taken at Governors' Conference
November 2 - 4 , 1925.
1,176,593
420,855
1,597,448
REPORT OF EXPENSE MAIN LINES
FEDERAL RESERVE LEASED WIRE SYSTEM, JUNE, 1 9 3 2 .
Name o f b a n k
Boston
New Y o r k
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas U i t y
Dallas
San"Francisco
Federal Reserve Board
Total
Operators'
salaries
$260.00
1.13U.15
225.00
306.66
190.00
270.00
3,842.99 (#)
195.00
226.51
287.50
251.00
380.00
—•
$7,563.81
Operators'
overtime
Wire
rental
$
$260.00
1,141.15
—
—
225.00
306.66
2 3 0 . 0 0 (&)
420.00
—
270.00
11.00
3,853-99
3.00
198.00
226.51
287.50
251.00
—
380.00
15.722.10
15.728.10
$ 21.00 $15,958.10
$23,547.91
$
7.00
Reimbursable charges:
Treasury Department
$2,958.20
Reconstruction Finance Corporation . 3,097*71
F e d e r a l Farm L o a n B o a r d . . . . . .
23.23
F e d e r a l Farm B o a r d
.
71*63
C o m p t . o f C u r r e n c y , I n s o l v . Bank D i v .
53.04
Less: reimbursable charges
(&)
(#)
(*)
(a)
Main l i n e r e n t a l , R i c h m o n d - W a s h i n g t o n .
I n c l u d e s s a l a r i e s of Washington o p e r a t o r s .
Credit.
Amount r e i m b u r s a b l e t o C h i c a g o .
Total
expenses
-
6,203.81
$17,3W.10
Pro r a t a
share of
total
expenses
Credits
$660.81
3,009.20
652.14
1,384.06
1,159.80
1,240.10
2,135.06
1,437.83
692.03
1,451.70
1,250.51
2,240.86
$260.00
1,141.15
225.00
306.66
420.00
270.00
3,853-99
198.00
226.51
287-50
251.00
380.00
—
$17,344.10
Payable to
Federal
Reserve
Board
$400.81
1,868.05
427.14
1,077-40
7&9.80
970.10
1,718.93 (*
1,239.83
465.52
1,164.20
999.51
1,860.86
—
$7,819.81
$11,243.22
1.718.93 (a)
$ 9,524.29
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7217
July 28, 1932.
SUBJECT 8 Change i n I n t e r - D i s t r i c t
Time S c h e d u l e .
Dear S i r :
I n a c c o r d a n c e w i t h a r e q u e s t of t h e F e d e r a l
R e s e r v e Bank of M i n n e a p o l i s , t h e F e d e r a l R e s e r v e
Bank o f San F r a n c i s c o h a v i n g a g r e e d t h e r e t o , t h e
F e d e r a l Reserve Board has approved a change i n the
i n t e r - d i s t r i c t time s c h e d u l e of a v a i l a b i l i t y items
f r o m H e l e n a t o Spokane f r o m one day t o two d a y s .
Very t r u l y y o u r s ,
Chester Morrill,
Secretary.
TO GOVERNORS OF ALL F . R. BASKS.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
THE FEDERAL RESERVE BOARD
X-7218
SUBJECT:
Tax on Checks and Other T a x e s
Imposed b y t h e Revenue A c t o f
1932.
Dear S i r ;
I n c l o s e d a r e f i v e c o p i e s of a l e t t e r r e c e i v e d t o d a y f r o m t h e S e c r e t a r y of t h e T r e a s u r y ,
w h i c h c o n t a i n s r u l i n g s on t h e q u e s t i o n s p r e s e n t e d
i n our l e t t e r o f J u l y 1 6 , 1 9 3 2 on t h e a b o v e s u b j e c t ,
c o p i e s of which were forwarded t o you under d a t e of
J u l y 25, 1932.
Very t r u l y y o u r s ,
Chester Morrill,
Secretary.
Inclosures.
TO CHA.IBMEN AMD GOVERNORS OF ALL F . R. BANKS.
X-7220
c fiix
Honorable Eugene Meyer,
Governor, F e d e r a l R e s e r v e Board,
W a s h i n g t o n , D. C.
My d e a r G o v e r n o r :
I n y o u r l e t t e r o f J u l y 1 6 , 1 9 3 2 , r e q u e s t i s made f o r r u l i n g s
u p o n a number o f s t a t e d q u e s t i o n s a r i s i n g u n d e r t h e R e v e n u e A c t
of 1932 out of t r a n s a c t i o n s i n c i d e n t to the o p e r a t i o n s of the
Federal Reserve system. These questions appear t o f a l l g e n e r a l l y
i n t o two c l a s s e s , t h o s e r e l a t i n g t o t h e a p p l i c a t i o n o f a number
o f t h e e x c i s e t a x e s t o t h e F e d e r a l r e s e r v e "banks t h e m s e l v e s
( P a r t I ) and t h o s e r e l a t i n g t o t h e a p p l i c a t i o n o f t h e t a x on
c h e c k s , e t c . , p r o v i d e d i n S e c t i o n 751 of t h e A c t , t o a g r e a t
v a r i e t y o f t r a n s a c t i o n s i n v o l v i n g t h e t r a n s f e r o f f u n d s and t h e
s e t t l e m e n t of a c c o u n t s between banks i n t h e c o u r s e of t h e o p e r a t i o n s of t h e F e d e r a l Reserve system ( P a r t s II t o V I I I ) .
The q u e s t i o n s s t a t e d i n P a r t I , i n v o l v i n g t h e e x t e n t t o w h i c h
the Federal r e s e r v e banks themselves are subject to the v a r i o u s
e x c i s e t a x e s , a r e g o v e r n e d i i n a l a r g e p a r t by S e c t i o n 7 of t h e
Federal Reserve Act ( S e c t i o n 531, T i t l e 12, U . S . C . ) , which p r o v i d e s :
" * * * Federal reserve banks, including
t h e c a p i t a l s t o c k a n d s u r p l u s t h e r e i n , and t h e
i n c o m e d e r i v e d t h e r e f r o m s h a l l b e exempt f r o m
F e d e r a l , S t a t e , and l o c a l t a x a t i o n , e x c e p t t a x e s
upon r e a l e s t a t e , "
Under t h e s e p r o v i s i o n s no e x c i s e t a x may b e c o l l e c t e d i n r e s p e c t
of a t r a n s a c t i o n t o w h i c h a F e d e r a l r e s e r v e bank i s a p a r t y i n i t s
own r i g h t , i f , u n d e r t h e t a x i n g A c t , t h e t a x a s s u c h w o u l d b e p a y a b l e
b y t h e r e s e r v e b a n k . The t a x on c h e c k s , e t c . , u n d e r S e c t i o n 7 5 1 ,
i s i m p o s e d u p o n t h e maker or drawer o f t h e i n s t r u m e n t . The t a x e s
on t e l e p h o n e , t e l e g r a p h , e t c . , f a c i l i t i e s , p r o v i d e d i n S e c t i o n
7 0 1 , a n d on e l e c t r i c a l e n e r g y , p r o v i d e d i n S e c t i o n 6 1 6 , a r e i m p o s e d
i n e a c h c a s e u p o n t h e p e r s o n who makes payment f o r t h e f a c i l i t y
123
x~*seo
2 —
t o t h e company w h i c h f u r n i s h e d i t . The t a x e s on s a l e s o f
miscellaneous a r t i c l e s (other than e l e c t r i c a l energy), prov i d e d i n T i t l e IV o f t h e A c t , a r e i m p o s e d i n e a c h c a s e u p o n
the person s e l l i n g the a r t i c l e .
,
Q u e s t i o n s i n P a r t I of y o u r l e t t e r a r e a c c o r d i n g l y a n s w e r e d
as follows;
I.
TAXABILITY OF FEDERAL RESERVE B A M S .
1 . Q. D o e s t h e t a x i m p o s e d b y S e c t i o n 7 5 1 ( a ) a p p l y t o
c h e c k s drawn o n F e d e r a l r e s e r v e "banks b y t h e i r own o f f i c e r s
acting in their o f f i c i a l capacities?
A.
No.
2 . Q. D o e s t h e t a x i m p o s e d b y S e c t i o n 7 0 1 ( a ) ( 2 ) a p p l y
t o l e a s e d t e l e p h o n e and t e l e g r a p h s e r v i c e c o n t r a c t e d f o r , u s e d ,
and p a i d f o r b y t h e F e d e r a l r e s e r v e b a n k s ?
A.
No.
3 . Q. D o e s t h e t a x i m p o s e d b y S e c t i o n 7 0 1 ( a ) ( 1 ) a p p l y
t o t e l e g r a p h , t e l e p h o n e , c a b l e , and r a d i o m e s s a g e s s e n t b y t h e
r e s e r v e b a n k s or s e n t t o them c o l l e c t , w h i c h a r e p a i d f o r b y t h e
r e s e r v e b a n k s a n d f o r w h i c h no r e i m b u r s e m e n t i s r e c e i v e d b y
them?
A.
No.
4 . Q. D o e s t h e t a x i m p o s e d b y S e c t i o n 7 0 1 ( a ) ( 1 ) a p p l y
to messages p a i d f o r by the r e s e r v e banks but f o r which t h e y
are l a t e r reimbursed by other banks, such as messages s e n t by
t h e r e s e r v e banks i n performing s e r v i c e s f o r other banks?
A.
Yes.
1 3 3
X-7230
- 3 -
5 . Q. I s e l e c t r i c a l e n e r g y f u r n i s h e d t o F e d e r a l
r e s e r v e b a n k s f o r t h e i r own u s e s u b j e c t t o t h e t a x i m p o s e d
by S e c t i o n 6 1 6 ( a ) ?
A.
No.
6 . Q. Do t h e t a x e s on f u e l o i l and o t h e r a r t i c l e s o f
m e r c h a n d i s e i m p o s e d i n A r t i c l e IV o f t h e R e v e n u e A c t o f 1 9 3 2
a p p l y when s u c h a r t i c l e s a r e p u r c h a s e d b y t h e r e s e r v e b a n k s
f o r t h e i r own u s e ?
seller.
A.
Yes.
The t a x e s a s s u c h a r e p a y a b l e b y t h e
The q u e s t i o n s w h i c h a r e s t a t e d i n P a r t s I I t o V I I I o f
y o u r l e t t e r a r e i n t e n d e d t o c o v e r t h e more common f o r m s o f
t r a n s a c t i o n s b y w h i c h t r a n s f e r s o f f u n d s or s e t t l e m e n t s of
b a l a n c e s a r e e f f e c t e d b e t w e e n b a n k s . I t w o u l d seem d e s i r a b l e
to s e t f o r t h a g e n e r a l statement of the b a s i s f o r the r u l i n g s
on t h e s e q u e s t i o n s , s o t h a t t h e s c o p e o f t h e r u l i n g s w i l l b e
u n d e r s t o o d when a p p l i e d t o c a s e s w h e r e t h e r e may b e some l o c a l
v a r i a t i o n s i n t h e f o r m o f a g i v e n t r a n s a c t i o n . To g i v e a s e p a r a t e
e x p l a n a t i o n o f t h e b a s i s o f t h e r u l i n g on e a c h q u e s t i o n i n y o u r
l e t t e r i s b e l i e v e d to be unnecessary, s i n c e i t i s apparent that
a g r e a t many o f t h e t r a n s a c t i o n s c o v e r e d by y o u r l e t t e r , a l t h o u g h
f a l l i n g i n t o d i f f e r e n t c l a s s e s and g r o u p e d s e p a r a t e l y , h a v e c e r t a i n
e l e m e n t s i n common, s o f a r a s t h e a p p l i c a t i o n of t h e t a x i s c o n c e r n e d . A g e n e r a l s t a t e m e n t a s t o t h e c h a r a c t e r and f o r m o f t h e
instruments which are subject to the tax w i l l serve to explain
t h e r u l i n g s on a m a j o r i t y o f t h e q u e s t i o n s s t a t e d , and w i l l
p e r m i t more o r l e s s c a t e g o r i c a l a n s w e r s t o b e made t o t h e
s p e c i f i c q u e s t i o n s , e x c e p t i n t h o s e c a s e s where an a d d i t i o n a l
s t a t e m e n t a s t o t h e b a s i s o f t h e r u l i n g may b e n e c e s s a r y .
Jt-rSaAi
X-7220
. 4 «•
The t a x u n d e r S e c t i o n 7 5 1 i s i m p o s e d upon c e r t a i n " i n s t r u m e n t s p r e s e n t e d f o r p a y m e n t " , n a m e l y , " c h e c k s , d r a f t s , or o r d e r s
f o r t h e payment o f money" drawn u p o n a b a n k , "banker., or t r u s t
company. "Checks" and " d r a f t s " a r e t e r m s w h i c h h a v e a w e l l - e s t a b l i s h e d m e a n i n g . . "Orders f o r t h e payment o f money", i n t e n d e d t o b e
t a x e d u n d e r t h i s s e c t i o n , a r e s u c h a s h a v e some s i m i l a r i t y t o
"checks" and " d r a f t s " , a t l e a s t t o t h e e x t e n t t h a t t h e y must be
c a p a b l e o f b e i n g c h a r a c t e r i z e d a s " i n s t r u m e n t s " and o f b e i n g " p r e s e n t e d f o r p a y m e n t . " The p h r a s e " p r e s e n t e d f o r p a y m e n t " i m p l i e s
that the instrument must be capable of having a h o l d e r , t h a t i s ,
a p e r s o n who b y r e a s o n o f h i s p o s s e s s i o n o f t h e i n s t r u m e n t i s
e n t i t l e d t o r e c e i v e p a y m e n t of t h e sum o f money s p e c i f i e d t h e r e i n .
M o r e o v e r , t h e i n s t r u m e n t m a s t a c c o r d i n g t o i t s t e r m s or e f f e c t
c a l l f o r t h e payment o f money; a n o r d e r or a u t h o r i z a t i o n m e r e l y
to charge a book account does not c o n s t i t u t e such an order a s i s
s u b j e c t t o t h e t a x . Of c o u r s e , i f t h e i n s t r u m e n t i s i n f a c t
a n o r d e r f o r t h e p a y m e n t o f money, i t i s none t h e l e s s t a x a b l e
b e c a u s e t h e payment o f money may, i n a p a r t i c u l a r c a s e or e v e n
i n a number o f c a s e s , b e a c c o m p l i s h e d t h r o u g h a b o o k e n t r y .
A g r e a t number o f t h e t r a n s f e r s of f u n d s or s e t t l e m e n t s
mentioned i n your l e t t e r are accomplished through w r i t t e n orders
o r a u t h o r i z a t i o n s , u s u a l l y on s t a n d a r d f o r m s , b y w h i c h t h e
addressee i s d i r e c t e d or a u t h o r i z e d to charge the account of the
p e r s o n g i v i n g s u c h o r d e r or a u t h o r i z a t i o n or t o make a n o f f s e t
a g a i n s t a b a l a n c e s t a n d i n g t o t h e c r e d i t of s u c h p e r s o n . I n some
i n s t a n c e s the w r i t i n g does not i n e x p r e s s terms c o n t a i n such an
o r d e r or a u t h o r i z a t i o n b u t n i 6 r e l y s t a t e s t h e s u b s t a n c e o f t h e t r a n s a c t i o n , and t h e order or d i r e c t i o n t o t h e a d d r e s s e e i s i m p l i e d from
t h e c o u r s e o f d e a l i n g b e t w e e n t h e p a r t i e s or h a s b e e n s e p a r a t e l y
p r o v i d e d f o r b y p r i o r a g r e e m e n t » Some o f t h e o r d e r s or a u t h o r i z a t i o n s c a l l f o r t h e d e l i v e r y or s h i p m e n t of c u r r e n c y or c o i n t o
t h e p e r s o n g i v i n g s u c h o r d e r or a u t h o r i z a t i o n . O r d e r s , a u t h o r i z a t i o n s , or i n s t r u c t i o n s o f t h e n a t u r e m e n t i o n e d , w h e t h e r o r a l or
w r i t t e n , sire n o t s u b j e c t t o t h e t a x . •
. Some o f t h e t r a n s a c t i o n s r e f e r r e d t o i n y o u r l e t t e r i n v o l v e
t r a n s f e r s o f f u n d s b e l o n g i n g t o or d u e t o t h e U n i t e d S t a t e s . I f t h e
135
iwese
- 5 t r a n s f e r i s e f f e c t e d b y or
such c h a r a c t e r and form as
c o l l e c t e d , a s no e x e m p t i o n
funds of the U n i t e d S t a t e s
through an instrument which i s of
t o be s u b j e c t t o t a x , the t a x must b e
a t t a c h e s by r e a s o n of t h e f a c t t h a t
are involved*
The d e t a i l e d q u e s t i o n s s t a t e d i n y o u r l e t t e r , w i t h s u c h
changes i n p h r a s e o l o g y a s a r e n e c e s s i t a t e d by o m i t t i n g r e f e r e n c e s
t o e x h i b i t s , and the answers t h e r e t o a r e a s f o l l o w s :
II.
VARIOUS FORMS OF REMITTANCES OR
SETTLEMENTS FOR CHECKS AMD
COLLECTION ITEMS.
P u r s u a n t t o t h e p r o v i s i o n s o f S e c t i o n s 13 and 1 6 o f t h e F e d e r a l R e s e r v e A c t and R e g u l a t i o n J of t h e F e d e r a l R e s e r v e B o a r d , t h e
F e d e r a l r e s e r v e b a n k s a c t a s c l e a r i n g h o u s e s and c o l l e c t c h e c k s f o r
t h e i r member b a n k s , w h i c h m a i n t a i n d e p o s i t b a l a n c e s w i t h t h e F e d e r a l r e s e r v e b a n k s a s t h e i r l e g a l r e s e r v e s , and f o r non-member b a n k s
which e s t a b l i s h d e p o s i t balances w i t h t h e Federal r e s e r v e banks f o r
t h e p u r p o s e . The B o a r d ' s r e g u l a t i o n s on t h i s s u b j e c t a r e s u p p l e m e n t e d
by c i r c u l a r s i s s u e d by t h e F e d e r a l r e s e r v e banks. Each F e d e r a l r e s e r v e b a n k r e c e i v e s e a c h d a y numerous c h e c k s drawn u p o n b a n k s i n i t s
d i s t r i c t a n d f o r w a r d s them t o t h e drawee b a n k s f o r p a y m e n t . The
u s u a l procedure i s t o send a l l t h e checks r e c e i v e d d u r i n g each day
drawn on a p a r t i c u l a r b a n k t o t h a t b a n k , w i t h one c o v e r i n g l e t t e r .
The c o v e r i n g l e t t e r i s known a s a " c a s h l e t t e r " . The t o t a l amount
of t h e checks thus t r a n s m i t t e d i s a c c o u n t e d f o r t o t h e R e s e r v e bank
i n a n y one o f s e v e r a l w a y s , t h e p r i n c i p a l o n e s b e i n g , ( a ) b y a u t h o r i z i n g t h e F e d e r a l r e s e r v e b a n k t o d e b i t t h e amount t o t h e d e p o s i t
b a l a n c e o f t h e r e m i t t i n g bank on t h e b o o k s o f t h e F e d e r a l r e s e r v e
b a n k , and ( b ) b y s e n d i n g t h e F e d e r a l r e s e r v e b a n k a c h e c k or d r a f t
drawn u p o n t h e r e m i t t i n g b a n k ' s d e p o s i t w i t h t h e F e d e r a l r e s e r v e
bank or a c o r r e s p o n d e n t bank* The r e p l y t o t h e c a s h l e t t e r w i l l
a l s o s t a t e t h e a m o u n t , i f a n y , of t h e i t e m s w h i c h a r e r e t u r n e d t o
t h e r e s e r v e b a n k ( b e c a u s e n o t c o l l e c t e d or f o r some o t h e r r e a s o n ) ,
and t h i s amount i s a c c o r d i n g l y d e d u c t e d f r o m t h e t o t a l s t a t e d i n
the cash l e t t e r .
The F e d e r a l r e s e r v e b a n k s a l s o c o l l e c t f o r t h e i r member b a n k s
p r o m i s s o r y n o t e s , b i l l s o f e x c h a n g e a n d o t h e r s i m i l a r i t e m s and t h e
p r o c e d u r e i n f o r w a r d i n g and a c c o u n t i n g f o r s u c h i t e m s i s s i m i l a r , s o
far as the questions here presented are concerned, t o that followed
i n c o n n e c t i o n w i t h t h e c o l l e c t i o n of c h e c k s , extiept f o r d i f f e r e n c e s
i n d e t a i l w h i c h a r e i n d i c a t e d I n Q u e s t i o n s 8 t o 11 b e l o w . F o r c o n v e n i e n c e , s u c h i t e m s a r e commonly r e f e r r e d t o a s " n o n - c a s h i t e m s " ,
i n o r d e r t o d i s t i n g u i s h them f r o m c h e c k s a n d s i m i l a r i t e m s p a y a b l e
on demand a t b a n k s * r h i c h a r e commonly r e f e r r e d t o a s " c a s h i t e m s " .
Xt72B®
— 6
-
1 . Q,. I s a t a x p a y a b l e i n t h e e v e n t t h a t a member h a n k , i n
r e s p o n s e t o the c a s h l e t t e r , a u t h o r i z e s the F e d e r a l r e s e r v e bank
t o d e b i t t h e amount t o i t s d e p o s i t b a l a n c e w i t h t h e F e d e r a l r e serve bank, (a) by a s p e c i f i c a u t h o r i z a t i o n i n the form used f o r
t h a t p u r p o s e ; or ( b ) b y r e t u r n i n g t o t h e F e d e r a l r e s e r v e b a n k a
memorandum s l i p m e r e l y s t a m p e d " d e b i t " o r " p a i d " , w h i c h h a s b y
custom t h e e f f e c t of such a u t h o r i z a t i o n ?
A,
(a)
Ho.,
(b)
So.
2 . Q,. I n some c a s e s t h e r e s e r v e b a n k i s g i v e n a c o n t i n u i n g
a u t h o r i z a t i o n t o c h a r g e t h e a c c o u n t o f t h e member b a n k w i t h t h e n e t
amount o f e a c h " c a s h l e t t e r " s e n t t o t h a t b a n k . I s s u c h a u t h o r i z a t i o n t a x a b l e ? I f s o , i s i t t a x a b l e o n c e , or e a c h t i m e an e n t r y i s
made?
A. N e i t h e r t h e c o n t i n u i n g a u t h o r i z a t i o n nor t h e s e p a r a t e
e n t r i e s made p u r s u a n t t h e r e t o a r e t a x a b l e .
3 . Q. I s t h e t a x p a y a b l e i n t h e e v e n t t h a t t h e b a n k m a k e s r e m i t t a n c e o f t h e amount c a l l e d f o r b y i t s r e p l y t o t h e c a s h l e t t e r ,
b y means o f a d r a f t o r c h e c k , ( a ) drawn a g a i n s t i t s d e p o s i t b a l a n c e
w i t h t h e F e d e r a l r e s e r v e bank, or ( b ) drawn a g a i n s t a d e p o s i t i n a
correspondent bank?
A . The c h e c k o r d r a f t , w h e t h e r drawn a g a i n s t a d e p o s i t
w i t h a F e d e r a l r e s e r v e b a n k or a g a i n s t a d e p o s i t i n a c o r r e s p o n d e n t
bank, i s t a x a b l e ,
4 . Q. I n o n e i n s t a n c e t h e c a s h l e t t e r h a s a d e t a c h a b l e p o r t i o n w h i c h i s i n t h e f o r m o f a d r a f t and w h i c h i s marked " S e t t l e m e n t
d r a f t " . This "Settlement d r a f t " i s i n t h e u s u a l form of a d r a f t ; i t
i s drawn by t h e r e m i t t i n g bank on, and p a y a b l e t o t h e o r d e r o f , t h e
Federal r e s e r v e bank. I t i s not d e a l t w i t h as an ordinary d r a f t i n
that i t i s never r e t u r n e d t o the drawer, but i s h e l d by the r e s e r v e
bank a s a p a r t o f i t s r e c o r d s . I s s u c h a " S e t t l e m e n t d r a f t " t a x a b l e ?
A, Y e s , The ' S e t t l e m e n t d r a f t " i s c l e a r l y of a c h a r a c t e r
a n d f o r m w h i c h make i t s u b j e c t t o t a x ; a n d t h e f a c t t h a t a f t e r p a y ment i t i s n o t r e t u r n e d t o t h e d r a w e r d o e s n o t a f f e c t t h e t a x a b i l i t y
of the instrument.
5 . Q., I n t h e e v e n t t h a t a n y o f t h e t r a n s a c t i o n s d e s c r i b e d i n
t h e p r e c e d i n g q u e s t i o n s i s t a x a b l e , i s o n l y one t a x i m p o s e d , or i s
the t a x payable w i t h regard to each separate item i n c l o s e d w i t h the
c a s h l e t t e r , when a s i n g l e s e t t l e m e n t i s made f o r t h e t o t a l amount
of such items?
1 3 7
X-7220
- 7 A . The t a x a b i l i t y o f t h e i n s t r u m e n t s m e n t i o n e d i n
t h e p r e c e d i n g q u e s t i o n s w h i c h a r e h e l d t o "be t a x a b l e i s n o t a f f e c t e d "by t h e f a c t t h a t s u c h i n s t r u m e n t s a r e g i v e n i n s e t t l e m e n t
o f a g r e a t many s e p a r a t e i t e m s , e a c h o f w h i c h may l i k e w i s e b e
s u b j e c t t o t h e t a x ; o n l y one t a x i s p a y a b l e i n r e s p e c t o f e a c h
instrument.
6 . Q. I t s o m e t i m e s o c c u r s t h a t , i n i t s r e s p o n s e t o a c a s h
l e t t e r , t h e member b a n k w i l l i n c o r r e c t l y s t a t e t h e amount c h a r g e able a g a i n s t i t s r e s e r v e account, u s u a l l y because i t has f a i l e d
f o r some r e a s o n t o r e t u r n and d e d u c t a n i t e m which s h o u l d h a v e
b e e n r e t u r n e d a n d d e d u c t e d b e c a u s e u n c o l l e c t i b l e or f o r some o t h e r
r e a s o n . In t h a t e v e n t , i t communicates a g a i n w i t h the r e s e r v e
bank a d v i s i n g i t o f t h e c o r r e c t i n g b o o k e n t r y t o b e made. I s s u c h
a transaction taxable?
A.
No.
7 . Q. I n c e r t a i n r e s e r v e d i s t r i c t s , i n o r d e r t o a c h i e v e
g r e a t e r promptness i n s e t t l e m e n t , where d r a f t s a r e s e n t i n s e t t l e ment o f c a s h l e t t e r s , t h e d r a f t s a r e r e q u i r e d t o b e on c e r t a i n
member b a n k s w h i c h h a v e p r e v i o u s l y a g r e e d t h a t s u c h d r a f t s may b e
immediately charged a g a i n s t t h e i r a c c o u n t s by the r e s e r v e bank,
without w a i t i n g f o r t h e d r a f t t o be s e n t t o t h e drawee bank. A f t e r
s u c h a charge i s made, t h e r e s e r v e bank n o t i f i e s t h e bank upon
w h i c h t h e d r a f t i s drawn so t h a t i t may k e e p i t s b o o k s i n o r d e r
and f o r w a r d s t h e d r a f t t o i t . I s s u c h n o t i f i c a t i o n t a x a b l e ?
A.
No.
8 . Q. I n c o n n e c t i o n w i t h n o n - c a s h i t e n s , a p r i n t e d s l i p i s
o f t e n a t t a c h e d t o e a c h i t e m when i t i s f o r w a r d e d f o r c o l l e c t i o n by
the Federal r e s e r v e bank, such s l i p taking the p l a c e of a l e t t e r of
t r a n s m i t t a l . Acknowledgment of r e c e i p t of the i t e m , acknowledgment
t h a t payment h a s b e e n r e c e i v e d , a n d a u t h o r i z a t i o n t o t h e r e s e r v e
bank t o c h a r g e i t s a c c o u n t i s made b y t h e bank r e c e i v i n g i t , b y r e t u r n i n g a c a r b o n c o p y o f t h e s l i p s t a m p e d " p a i d " or " d e b i t " . I s
t h i s t r a n s a c t i o n , or t h e returned s l i p , t a x a b l e ?
A.
9.
advises
which i s
ponding
Ho.
Q. I s t h e r e s u l t d i f f e r e n t i f t h e c o l l e c t i n g b a n k m e r e l y
t h e r e s e r v e bank that i t has c r e d i t e d the l a t t e r ' s a c c o u n t ,
a n i m p l i e d a u t h o r i z a t i o n t o t h e l a t t e r t o make a c o r r e s e n t r y on i t s books?
A.
No
X
XV? 220
-
8
-
1 0 . Q,. P r o m i s s o r y n o t e s , " b i l l s o f e x c h a n g e and o t h e r n o n c a s h c o l l e c t i o n i t e m s which a r e p a y a b l e by p e r s o n s l o c a t e d i n
t h e same c i t y a s t h e F e d e r a l r e s e r v e "bank o r i t s b r a n c h a r e s o m e t i m e s p r e s e n t e d b y t h e F e d e r a l r e s e r v e bank d i r e c t l y t o t h e p e r s o n s b y whom t h e y a r e p a y a b l e , and s u c h p e r s o n s g i v e t h e F e d e r a l
r e s e r v e b a n k s i n payment f o r s u c h i t e m s c h e c k s drawn on member
b a n k s i n t h e same c i t y . I n s u c h c a s e s t h e R e s e r v e b a n k i m m e d i a t e l y p r e s e n t s s u c h c h e c k s b y m e s s e n g e r t o t h e b a n k s on w h i c h t h e y
a r e drawn and t h e d r a w e e b a n k s g i v e t h e F e d e r a l r e s e r v e b a n k d r a f t s
a g a i n s t t h e i r d e p o s i t b a l a n c e s w i t h t h e Federal r e s e r v e bank. Are
such d r a f t s subject to the tax?
A.
Yes.
1 1 . Q. I n t h e c i r c u m s t a n c e s d e s c r i b e d i n t h e p r e c e d i n g q u e s t i o n , the bank, i n s t e a d of sending a d r a f t , sometimes a u t h o r i z e s the
r e s e r v e bank t o charge i t s a c c o u n t . I s t h i s t r a n s a c t i o n t a x a b l e ?
A.
No.
III.
CLEARING- HOUSE TRANSACTIONS.
The q u e s t i o n s u n d e r t h i s h e a d i n g i n v o l v e t h e s e t t l e m e n t o f
b a l a n c e s r e s u l t i n g f r o m e x c h a n g e o f c h e c k s b e t w e e n b a n k s . The
s e t t l e m e n t of b a l a n c e s r e s u l t i n g from the exchange of checks through
t h e Newark C l e a r i n g H o u s e A s s o c i a t i o n , Newark, New J e r s e y , w i l l i l l u s t r a t e t h i s t y p e o f t r a n s a c t i o n . E a c h b u s i n e s s d a y each, b a n k
i n t h e C l e a r i n g House A s s o c i a t i o n t a k e s t o t h e o f f i c e o f t h e a s s o c i a t i o n c h e c k s d e p o s i t e d w i t h s u c h b a n k drawn on o t h e r b a n k s i n t h e
a s s o c i a t i o n , and m e s s e n g e r s r e p r e s e n t i n g t h e r e s p e c t i v e b a n k s i n
t h e a s s o c i a t i o n c a l l f o r and r e c e i v e t h e c h e c k s drawn on t h e i r b a n k s .
B a c h bank i s c r e d i t e d w i t h t h e amount o f t h e c h e c k s drawn on t h e o t h e r
banks w h i c h i t b r i n g s t o t h e c l e a r i n g h o u s e and i s d e b i t e d w i t h t h e
amount of t h e c h e c k s drawn on i t rrhich o t h e r b a n k s b r i n g . T h e r e i s
a n e t c r e d i t or d e b i t b a l a n c e i n f a v o r o f or a g a i n s t e a c h b a n k a s
a r e s u l t o f t h e d a y ' s e x c h a n g e s , and t h e a g g r e g a t e o f t h e n e t c r e d i t
b a l a n c e nrust, o f c o u r s e , b e e x a c t l y e q u a l t o t h e a g g r e g a t e o f t h e
n e t d e b i t b a l a n c e s . The amounts o f t h e n e t c r e d i t a n d d e b i t b a l a n c e s
t o a l l b a n k s a r e w r i t t e n on t h e c l e a r i n g h o u s e s t a t e m e n t f o r t h a t
day and t h i s s t a t e m e n t , s i g n e d b y a n o f f i c e r o f t h e C l e a r i n g House
A s s o c i a t i o n , i s s e n t b y m e s s e n g e r t o t h e F e d e r a l R e s e r v e Bank o f
New Y o r k , and t h e b a l a n c e s a s shown on t h e s t a t e m e n t a r e s e t t l e d
on t h e b o o k s o f t h e F e d e r a l r e s e r v e b a n k b y c r e d i t s and d e b i t s t o
a c c o u n t s o f member b a n k s . The b a l a n c e s i n f a v o r of or a g a i n s t
banks w h i c h a r e members o f t h e F e d e r a l R e s e r v e Bank a r e c r e d i t e d or
X-7220
- 9 d e b i t e d t o t h e a c c o u n t s o f s u c h b a n k s on t h e "books o f t h e F e d e r a l
r e s e r v e t a n k . The b a l a n c e s f o r o r a g a i n s t o t h e r t a n k s , i . e . , b a n k s
w h i c h a r e n o t members o f , and t h e r e f o r e h a v e no a c c o u n t w i t h , t h e
F e d e r a l r e s e r v e bank a r e , by arrangement between t h e banks c o n c e r n e d ,
c r e d i t e d or d e b i t e d t o t h e a c c o u n t s of d e s i g n a t e d b a n k s i n New York C i t y
w h i c h a r e members o f t h e F e d e r a l r e s e r v e b a n k . T h e s e c r e d i t s and d e b i t s
a r e made b y t h e F e d e r a l r e s e r v e bank p u r s u a n t t o c o n t i n u i n g l e t t e r s o f
a u t h o r i z a t i o n on f i l e w i t h i t s i g n e d by t h e v a r i o u s b a n k s . The q u e s t i o n s a s k e d i n t h i s c o n n e c t i o n a r e :
1 . Q,. A r e a n y o f t h e a b o v e - d e s c r i b e d t r a n s a c t i o n s w h i c h c o n s i s t
merely i n book e n t r i e s , t a x a b l e ?
A.
2 . Q,.
the tax?
A.
No.
Is the c l e a r i n g house statement above r e f e r r e d t o s u b j e c t to
No.
3 . Q. A r e t h e l e t t e r s o f a u t h o r i z a t i o n s u b j e c t t o t a x ? I f s o , a r e
t h e y t a x a b l e o n c e , o r e a c h t i m e an e n t r y i s m a d e , o r a s t o e a c h i t e m c o v e r e d
by each entry?
A.
Such l e t t e r s o f a u t h o r i z a t i o n a r e n o t s u b j e c t t o t a x .
4 . Q. I n some i n s t a n c e s t h e c l e a r i n g h o u s e i s s u e s c e r t i f i c a t e s s h o w i n g
the net b a l a n c e s . Such a c e r t i f i c a t e i s i s s u e d t o a c r e d i t o r bank c a l l i n g
u p o n a d e b t o r b a n k t o p a y t h e c r e d i t o r b a n k t h e amount s t a t e d t h e r e i n .
No a c c o u n t s a r e c a r r i e d i n a n y of t h e c l e a r i n g h o u s e b a n k s i n t h e name
o f t h e manager f o r t h e p u r p o s e of e f f e c t i n g s e t t l e m e n t p u r s u a n t t o t h e
c e r t i f i c a t e s , and t h e s e c e r t i f i c a t e s a r e i s s u e d b y t h e c l e a r i n g h o u s e
manager m e r e l y a s memoranda t o f a c i l i t a t e t h e s e t t l e m e n t o f b a l a n c e b e t w e e n t h e members o f t h e c l e a r i n g h o u s e a s s o c i a t i o n . The F e d e r a l r e s e r v e
bank p a r t i c i p a t e s i n t h e c l e a r i n g s and c e r t i f i c a t e s i s s u e d i n i t s f a v o r
a g a i n s t member b a n k s a r e c h a r g e d a g a i n s t t h e i r d e p o s i t b a l a n c e s on t h e b o o k s
o f t h e F e d e r a l r e s e r v e bank p u r s u a n t t o s t a n d i n g a u t h o r i z a t i o n s . A r e s u c h
c e r t i f i c a t e s subject t o the tax?
A.
No.
5 . Q. . I n some i n s t a n c e s ( p a r t i c u l a r l y w h e r e b a n k s a r e s o l o c a t e d a s
not to be i n communication by messenger w i t h t h e Federal r e s e r v e bank) a
g r o u p of b a n k s a d o p t , b y a g r e e m e n t , t h e p r o c e d u r e of f o r w a r d i n g e a c h d a y t o
e a c h member o f t h e g r o u p a l l o f t h e i t e m s t h e y r e c e i v e t h a t a r e p a y a b l e b y or
X - 7 2M.
— 10 —
t h r o u g h t h a t member o f t h e g r o u p , f o r w a r d i n g t o t h e r e s e r v e t a n k a f o r m
on w h i c h a r e l i s t e d t h e names o f a l l t h e o t h e r members o f t h e g r o u p t o g e t h e r w i t h t h e amount o f t h e i t e m s t h a t i t h a s f o r w a r d e d t o e a c h . TShen
r e c e i v e d by the r e s e r v e bank, t h i s form i s u s e d a s an a u t h o r i z a t i o n to
make t h e a p p r o p r i a t e e n t r i e s i n t h e a c c o u n t s o f t h e b a n k s i n t h e g r o u p .
In p r a c t i c e , however, i n s t e a d o f making s e v e r a l e n t r i e s , the r e s e r v e bank
s t r i k e s t h e b a l a n c e f r o m t h e a d v i c e s s e n t b y a l l t h e members o f t h e
g r o u p and makes e a c h d a y o n l y one e n t r y i n e a c h o f t h e i r a c c o u n t s , r e p r e s e n t i n g the n e t b a l a n c e f o r the p a r t i c u l a r bank. I s the use of t h e s e
f o r m s i n t h e manner a b o v e d e s c r i b e d t a x a b l e ?
able?
6.
A.
No.
%.
Are t h e r e s u l t a n t b o o k e n t r i e s made b y t h e r e s e r v e b a n k t a x -
A.
No..
7 . %. I n c e r t a i n i n s t a n c e s , t h e F e d e r a l r e s e r v e b a n k i t s e l f a c t s
a s a c l e a r i n g house, r e c e i v i n g the checks from the v a r i o u s banks, s t r i k i n g the b a l a n c e and making t h e a p p r o p r i a t e e n t r i e s i n t h e a c c o u n t s o f
t h e v a r i o u s b a n k s . Are t h e s e t r a n s a c t i o n s t a x a b l e ?
A.
No.
8 . Q, I n c e r t a i n i n s t a n c e s t h e F e d e r a l r e s e r v e b a n k p e r f o r m s t h e s e
s e r v i c e s e v e n f o r b a n k s w h i c h h a v e no a c c o u n t w i t h i t ( i . e . , b a n k s n o t
members o f t h e F e d e r a l R e s e r v e S y s t e m ) . Where s u c h b a n k s a r e l o c a t e d i n
t h e same c i t y a s t h e r e s e r v e b a n k , t h e m e t h o d a d o p t e d i s f o r t h e drawee
b a n k t o s e n d a m e s s e n g e r t o t h e r e s e r v e b a n k t o g e t t h e c h e c k s drawn on
i t w h i c h h a v e b e e n f o r w a r d e d to t h e r e s e r v e b a n k f o r c o l l e c t i o n . The
c h e c k s a r e i m m e d i a t e l y c h a r g e d t o t h e a c c o u n t o f a member b a n k w h i c h h a s
a u t h o r i z e d t h e r e s e r v e b a n k t o do s o , and c r e d i t e d t o t h e b a n k w h i c h f o r warded t h e m . I n t h e e v e n t t h a t t h e c h e c k i s l a t e r d i s h o n o r e d , t h e b o o k
e n t r i e s a r e r e v e r s e d . Are s u c h a u t h o r i z a t i o n s t a x a b l e ?
A,
IV.
No.
MEMBER BANKS OBTAINING- CUBRENCY FROM RESERVE BANKS.
A member b a n k d e s i r i n g c u r r e n c y u s u a l l y o b t a i n s i t f r o m t h e F e d e r a l
r e s e r v e b a n k , a n d t h e amount u s u a l l y i s d e b i t e d on t h e b o o k s o f t h e F e d e r a l r e s e r v e b a n k t o t h e d e p o s i t b a l a n c e m a i n t a i n e d b y t h e member b a n k
w i t h t h e F e d e r a l r e s e r v e b a n k a s t h e l e g a l r e s e r v e o f t h e member b a n k .
Such r e q u e s t s f o r c u r r e n c y a n d t h e a u t h o r i z a t i o n s t o d e b i t t h e r e s e r v e
b a l a n c e s a s s u m e a v a r i e t y o f f o r m s and g i v e r i s e t o t h e f o l l o w i n g q u e s tions:
X-7220
-
11 -
1 . Q. I s s u c h a r e q u e s t "by a member b a n k f o r t h e s h i p m e n t
o f c u r r e n c y t o i t t a x a b l e when made b y t e l e p h o n e and n o t c o n firmed in writing?
A.
No..
2 . Q. I f s u c h a r e q u e s t i s made b y t e l e p h o n e b u t c o n f i r m e d
in w r i t i n g a f t e r the shipment of the currency, i s i t taxable?
A.
Ho.
3 . Q. I f a m e s s e n g e r s e n t t o t h e F e d e r a l r e s e r v e b a n k d e l i v e r s
merely a r e c e i p t f o r t h e currency and r e c e i v e s the c u r r e n c y , i s the
transaction taxable?
A.
Ho.
4 . Q. I f t h e m e s s e n g e r i n s u c h a c a s e d e l i v e r s a c h e c k o r
d r a f t drawn on t h e F e d e r a l r e s e r v e b a n k f o r t h e amount o f t h e c u r rency, i s the transaction taxable?
A«
The c h e c k o r d r a f t i s t a x a b l e .
5 . Q. I f a w r i t t e n r e q u e s t f o r c u r r e n c y i s a c c o m p a n i e d b y a
check or d r a f t , a r e b o t h the check and t h e r e q u e s t t a x a b l e ?
taxable.
A.
Only the check or d r a f t and not t h e w r i t t e n r e q u e s t i s
6 . Q. When t h e t r a n s a c t i o n i s c o m p l e t e d , t h e r e s e r v e b a n k
f r e q u e n t l y s e n d s a c o n f i r m a t i o n on a p r i n t e d f o r m t o t h e member b a n k .
I s t h i s document t a x a b l e , w h e t h e r or not any o t h e r p a r t of the t r a n s action i s taxable?
A. The c o n f i r m a t i o n i s n o t t a x a b l e , w h e t h e r o r n o t a n y o t h e r
part of the t r a n s a c t i o n i s t a x a b l e .
V,
TRANSACTIONS INCIDENT TO REDISCOUNTS AND ADVANCES
BY FEDERAL RESERVE BANKS.
1 . Q, F e d e r a l r e s e r v e b a n k s e x t e n d c r e d i t a c c o m m o d a t i o n s t o
t h e i r member banks-: ( a ) By r e d i s c o u n t i n g , on t h e i n d o r s e m e n t o f t h e i r
member b a n k s , t h e c o m m e r c i a l , i n d u s t r i a l a n d a g r i c u l t u r a l p a p e r a c q u i r e d b y them f r o m t h e i r c u s t o m e r s ; and ( b ) b y m a k i n g a d v a n c e s t o •
t J 3 «*
X-7286
t h e i r member "banks on t h e i r p r o m i s s o r y n o t e s s e c u r e d i n t h e manner
p r e s c r i b e d b y l a w . , I n e i t h e r e v e n t , t h e p r o c e e d s u s u a l l y a r e made
a v a i l a b l e t o t h e member b a n k b y c r e d i t i n g t h e amount t o t h e d e p o s i t b a l a n c e o f t h e member b a n k on t h e b o o k s o f t h e F e d e r a l r e s e r v e
b a n k . Are s u c h c r e d i t e n t r i e s t a x a b l e ?
A.
No.
2.
Q. A t t h e m a t u r i t y o f t h e r e d i s c o u n t e d p a p e r o r t h e p r o m i s s o r y n o t e s o f t h e member b a n k s , t h e F e d e r a l r e s e r v e b a n k s , p u r s u a n t
t o a g r e e m e n t s o r r e g u l a t i o n s p r e v i o u s l y made, r e t u r n t h e r e d i s c o u n t e d
p a p e r o r p r o m i s s o r y n o t e s t o t h e member b a n k s a n d d e b i t t h e a m o u n t s
due t h e r e o n t o t h e d e p o s i t b a l a n c e s o f t h e member b a n k s on t h e b o o k s
o f t h e F e d e r a l r e s e r v e b a n k s . Are t h e s e t r a n s a c t i o n s t a x a b l e ?
A.. Ho.
3 , . Qe • The member b a n k f r e q u e n t l y d e s i r e s t o h a v e i t s p r o m i s s o r y n o t e s o r r e d i s c o u n t e d p a p e r r e t u r n e d t o i t p r i o r t o t h e t i m e when
i t w o u l d b e r e t u r n e d i n due c o u r s e a s d e s c r i b e d a b o v e . I t s r e a s o n
f o r s o d e s i r i n g may b e , f o r i n s t a n c e , t h a t t h e maker o f t h e i n s t r u ment d e s i r e s t o p a y i t b e f o r e m a t u r i t y , o r i t may b e t h a t t h e member
b a n k d e s i r e s t o d e c r e a s e t h e t o t a l amount o f t h e p a p e r r e d i s c o u n t e d
f o r i t b y t h e r e s e r v e b a n k . I n s u c h c a s e t h e member b a n k c o m m u n i c a t e s
w i t h t h e R e s e r v e Bank b y l e t t e r o r b y t e l e g r a m , r e q u e s t i n g t h a t t h e
i t e m be r e t u r n e d t o i t , a n d , e i t h e r i m p l i e d l y o r a c t u a l l y i n w o r d s ,
a u t h o r i z i n g t h e r e s e r v e b a n k t o d e b i t i t s d e p o s i t b a l a n c e on t h e b o o k s
o f t h e r e s e r v e b a n k w i t h t h e amount d u e t h e r e o n . Are t h e s e t r a n s a c t i o n s ( i . e . , . the book e n t r i e s , the transmission of the instruments,
o r t h e c o m m u n i c a t i o n s r e q u e s t i n g t h e r e t u r n o f t h e i n s t r u m e n t s and
authorizing the book e n t r i e s ) taxable?
A. N e i t h e r the b o o k e n t r i e s , the t r a n s m i s s i o n of the i n s t r u ments, nor the communications r e q u e s t i n g the r e t u r n of the instruments
and a u t h o r i z i n g the book e n t r i e s are t a x a b l e .
V I . • INTER-BANK TRANSFERS OF FUNIS.
One o f t h e i m p o r t a n t f u n c t i o n s o f t h e F e d e r a l R e s e r v e S y s t e m i s
to f a c i l i t a t e the t r a n s f e r of funds between banks. This f u n c t i o n i s
p e r f o r m e d ( w i t h u n i m p o r t a n t e x c e p t i o n s ) f r e e o f c h a r g e f o r members o f
t h e S y s t e m . I t i s done a s f a r a s p o s s i b l e w i t h o u t r e s o r t i n g t o s h i p ments of currency.
T r a n s f e r s b e t w e e n member b a n k s i n t h e same F e d e r a l R e s e r v e D i s t r i c t a r e made m e r e l y b y means o f e n t r i e s on t h e b o o k s o f t h e R e s e r v e
b a n k . The s t e p s i n v o l v e d i n s u c h t r a n s a c t i o n a r e : ( 1 ) A member
rlfu
K-7030
b a n k r e q u e s t s t h e r e s e r v e "bank t o t r a n s f e r a n amount on i t s b o o k s
from t h e r e s e r v e a c c o u n t o f t h e r e q u e s t i n g t a n k t o t h e a c c o u n t o f
a n o t h e r "bank, ( 2 ) t h e r e s e r v e "bank makes t h e t r a n s f e r on i t s b o o k s ,
and ( 3 ) t h e bank t o whose a c c o u n t t h e t r a n s f e r i s made i s n o t i f i e d .
I f t h e bank t o w h i c h t h e t r a n s f e r i s made i s l o c a t e d i n a n o t h e r
D i s t r i c t , t h e s e c o n d s t e p must c o n s i s t i n ( a ) a t r a n s f e r f r o m t h e
a c c o u n t o f t h e r e q u e s t i n g bank t o t h e a c c o u n t of t h e r e s e r v e bank
f o r t h e D i s t r i c t i n w h i c h i s l o c a t e d t h e bank t o w h i c h t h e t r a n s f e r
i s made, and ( b ) a t r a n s f e r b y t h a t r e s e r v e bank t o t h e a c c o u n t o f
t h e l a t t e r , I f t h e l a t t e r h a s no a c c o u n t w i t h the r e s e r v e b a n k ,
t h e r e s e r v e b a n k t r a n s f e r s t o t h e a c c o u n t o f a b a n k Tthich h a s and
w h i c h i s a c o r r e s p o n d e n t o f t h e b a n k to w h i c h t h e t r a n s f e r i s made.
For t h e p u r p o s e o f e f f e c t i n g t r a n s f e r s b e t w e e n two F e d e r a l r e s e r v e
banks (where t h e t r a n s f e r i s f r o m one D i s t r i c t t o a n o t h e r ) , t h e
Gold S e t t l e m e n t Fund i s m a i n t a i n e d i n W a s h i n g t o n . T h i s f u n d w a s
c r e a t e d by a d e p o s i t o f g o l d by e a c h Federal r e s e r v e bank w i t h the
Treasurer of the United S t a t e s to the c r e d i t of the Federal Reserve
B o a r d , w h i c h m a i n t a i n s b o o k s s h o w i n g t h e amount d u e t o e a c h F e d e r a l
r e s e r v e b a n k . The F e d e r a l r e s e r v e banks e a c h own a n u n d i v i d e d i n t e r e s t i n t h i s f u n d and a d v i s e t h e F e d e r a l R e s e r v e Board e a c h day o f
t h e t r a n s f e r s made t o e a c h o t h e r . The B o a r d makes a p p r o p r i a t e b o o k
e n t r i e s t r a n s f e r r i n g i n t e r e s t s i n t h e Fund e q u i v a l e n t to t h e t r a n s f e r s o f f u n d s made b e t w e e n t h e F e d e r a l r e s e r v e b a n k s .
Member b a n k s make t h e i r r e q u e s t s f o r t r a n s f e r s i n m a y . w a y s : by l e t t e r , t e l e g r a m , t e l a u t o g r a p h , and t e l e p h o n e . A f t e r t h e t r a n s f e r h a s b e e n made, t h e F e d e r a l r e s e r v e bank s e n d s a memorandum o f
t h e t r a n s a c t i o n t o t h e member b a n k , and e x e c u t e s a p p r o p r i a t e v o u c h e r s , and makes a p p r o p r i a t e e n t r i e s on i t s b o o k s .
( 1 ) Q. Are s u c h t r a n s f e r s o f f u n d s b y one F e d e r a l r e s e r v e bank
t o a n o t h e r a t t h e r e q u e s t o f a member b a n k , made b y means o f a t e l e gram or l e t t e r s e n t b y one F e d e r a l r e s e r v e bank t o a n o t h e r , t a x a b l e ?
A.
No.
( 2 ) Q. I s a r e q u e s t f o r s u c h a t r a n s f e r , made b y t h e member
b a n k , t a x a b l e i f made b y t e l e p h o n e and n o t c o n f i r m e d i n w r i t i n g ?
A.
Ho.
(3)
I s s u c h a r e q u e s t t a x a b l e i f made b y t e l e p h o n e a n d c o n f i r m e d i n w r i t i n g a f t e r t h e t r a n s f e r h a s b e e n made?
A.
( 4 ) %.
in writing?
A.
No*
I f . made b y t e l a u t o g r a p h o r t e l e g r a m and n o t c o n f i r m e d
No.
134
X-7320
( 5 ) Q,. I f made "by t e l a u t o g r a p h or t e l e g r a m and s u b s e q u e n t l y c o n firmed in writing?
(6)
A.
Ho.
Q.
I f made b y l e t t e r ?
A.
No..
( 7 ) %. I f s u c h r e q u e s t s a r e t a x a b l e i f made b y t e l e p h o n e , t h e n
when a number o f s u c h r e q u e s t s a r e made i n t h e c o u r s e o f one d a y and t h e
F e d e r a l r e s e r v e b a n k makes o n l y one b o o k e n t r y f o r t h e t o t a l amount a t
t h e c o n c l u s i o n o f t h e d a y , i s one t a x o n l y i m p o s e d o r i s e a c h s e p a r a t e
request taxable?
A.
is taxable,
N e i t h e r the s e p a r a t e r e q u e s t s nor the c o v e r i n g book e n t r y
( 8 ) %. I n t h e e v e n t t h a t a r e q u e s t f o r t r a n s f e r o f f u n d s made by
l e t t e r is taxable, i s a l e t t e r containing a request for several transf e r s s u b j e c t t o t a x a t i o n o n c e , o r s e v e r a l t i m e s d e p e n d i n g u p o n t h e number of t r a n s f e r s requested in the l e t t e r ? (In t h i s connection i t has
been s u g g e s t e d that', i f t a x a b l e a t a l l , such r e q u e s t s are s u b j e c t to
o n l y one t a x s i n c e t h e y a r e c o n t a i n e d i n one l e t t e r o r memorandum.)
A.
Such a r e q u e s t i s not t a x a b l e .
( 9 ) %. R e q u e s t s f o r s u c h t r a n s f e r s a r e s o m e t i m e s a c c o m p a n i e d b y
a d r a f t f o r t h e amount t o b e t r a n s f e r r e d . I s s u c h d r a f t t a x a b l e ?
A.
Yes,
( 1 0 ) Q, I f s o , i s t h e l e t t e r t r a n s m i t t i n g t h e d r a f t a n d mairing
the request a l s o taxable?
A.
Up,
( 1 1 ) Q, I s a r e c e i p t o r a c k n o w l e d g m e n t on a p r i n t e d f o r m s e n t b y
t h e r e s e r v e b a n k t o t h e member b a n k i n r e s p o n s e t o a l e t t e r s u c h a s i s
described in the preceding question also taxable?
A.
No.
( 1 2 ) Q. When a b a n k l o c a t e d i n one F e d e r a l R e s e r v e D i s t r i c t r e q u e s t s t h a t a t r a n s f e r b e made t o a b a n k l o c a t e d i n a n o t h e r D i s t r i c t , t h e
s t e p s i n c i d e n t t o completing the t r a n s a c t i o n include a t r a n s f e r by the
Federal r e s e r v e bank of the D i s t r i c t in which the r e q u e s t i n g bank i s
l o c a t e d to the F e d e r a l r e s e r v e bank of the D i s t r i c t i n which the t r a n s f e r e e b a n k i s l o c a t e d and a t r a n s f e r f r o m t h e l a t t e r r e s e r v e b a n k t o
t h e t r a n s f e r e e b a n k , b o t h t r a n s f e r s b e i n g a c c o m p l i s h e d b y means o f b o o k
e n t r i e s in the accounts of the r e s p e c t i v e banks. I s the l a t t e r t r a n s f e r
taxable?
A.
No.
X-7220
» 15 ( 1 3 ) Q. T r a n s f e r s a r e a l s o made "by F e d e r a l r e s e r v e "banks "bet w e e n two member "banks l o c a t e d i n i t s d i s t r i c t . B e q u e s t s f o r s u c h
t r a n s f e r s t a k e t h e same f o r m s a s t h e t r a n s f e r s d e s c r i b e d a b o v e r "but
s u c h t r a n s f e r s a r e a c c o m p l i s h e d m e r e l y "by m e a n s o f "book e n t r i e s i n
t h e r e s e r v e a c c o u n t s o f t h e two "banks i n v o l v e d . Are s u c h t r a n s f e r s
t a x a b l e when t h e r e q u e s t s a r e made i n a n y o f t h e d i f f e r e n t w a y s d e s c r i b e d a b o v e ( i n c l u d i n g m e s s e n g e r , t e l e p h o n e , w r i t t e n memorandum,
etc.)?
A.
VII.
No.
TRANSFERS TO 5 # REDEMPTION FOND. WAR LOAN DEPOSIT
ACCOUNT M P RECONSTRUCTION FINANCE CORPORATION.
N a t i o n a l banks i s s u i n g n a t i o n a l bank n o t e s a r e r e q u i r e d by
s t a t u t e t o m a i n t a i n w i t h t h e T r e a s u r e r o f t h e U n i t e d S t a t e s a Redempt i o n Fund e q u a l t o 5 $ o f t h e i r n o t e s i n c i r c u l a t i o n . When n e c e s s a r y ,
a n a t i o n a l b a n k w i l l i n m o s t i n s t a n c e s make a d d i t i o n s t o i t s 5 $ Redempt i o n Fund b y r e q u e s t i n g t h e F e d e r a l R e s e r v e Bank o f i t s d i s t r i c t t o
t r a n s f e r t h e r e q u i r e d amount t o t h e a c c o u n t o f t h e T r e a s u r e r o f t h e
U n i t e d S t a t e s . Such r e q u e s t s a r e made s u b s t a n t i a l l y i n t h e f o l l o w i n g
f o r m : " P l e a s e tdiarge o u r a c c o u n t $
and c r e d i t the T r e a s u r e r o f
t h e U n i t e d S t a t e s f o r t h e a c c o u n t d f our 5 $ R e d e m p t i o n Fund". The
r e s e r v e banks prepare "debit t i c k e t s " covering the n e c e s s a r y book
e n t r i e s and s e n d c o p i e s , o r s i m i l a r s l i p s , t o t h e member b a n k s f o r
their records.
1.
Q.
Is such a request taxable?
A.
No.
2 . Q. S o m e t i m e s s u c h a r e q u e s t i s a c c o m p a n i e d b y a d r a f t .
the d r a f t or t h e w r i t t e n r e q u e s t t a x a b l e ?
Is
I t h a s b e e n c o n t e n d e d b y some o f t h e r e s e r v e b a n k s t h a t s u c h
t r a n s f e r s to o f f i c e r s of the U n i t e d S t a t e s are n o t t a x a b l e i n any
event,
A.
The d r a f t i s t a x a b l e .
3 . Q. S i m i l a r q u e s t i o n s a r e a l s o r a i s e d w i t h r e g a r d t o
f r o m t h e r e s e r v e a c c o u n t o f a member b a n k t o t h e T r e a s u r e r o f
U n i t e d S t a t e s a s p a y m e n t s on t h e War Loan d e p o s i t o f t h e b a n k
the d i r e c t i o n ( r e p r e s e n t i n g i t s s u b s c r i p t i o n to U n i t e d S t a t e s
ties).
transfers
the
giving
securi-
16 -
X-7220
186
A. B e q u e s t s t o c h a r g e t h e r e s e r v e a c c o u n t o f & t a n k t o c o v e r
s u b s c r i p t i o n s to U n i t e d S t a t e s s e c u r i t i e s are not t a x a b l e t but d r a f t s
drawn f o r t h i s p u r p o s e a r e t a x a b l e .
4 , %. From t i m e t o t i m e b o r r o w i n g i n s t i t u t i o n s r e p a y on a d v a n c e s
made b y t h e R e c o n s t r u c t i o n F i n a n c e C o r p o r a t i o n , d o i n g s o ( a ) b y means
o f i n s t r u c t i o n s t o the Reserve bank to charge the borrowing b a n k ' s a c c o u n t and t o c r e d i t t h e T r e a s u r e r o f t h e U n i t e d S t a t e s f o r a c c o u n t o f
t h e R e c o n s t r u c t i o n F i n a n c e C o r p o r a t i o n , , and ( b ) b y means o f d r a f t s .
D e b i t t i c k e t s a r e p r e p a r e d by the r e s e r v e bank and s i m i l a r s l i p s a r e
f o r w a r d e d t o t h e r e q u e s t i n g b a n k f o r i t s r e c o r d s . Are e i t h e r t h e i n s t r u c t i o n s , the d e b i t t i c k e t s and s l i p s , or the d r a f t s t a x a b l e ?
A. N e i t h e r t h e i n s t r u c t i o n s n o r t h e d e b i t t i c k e t s o r s l i p s
are taxable, but the d r a f t s are taxable.
VIII.
(a)
MISCELLANEOUS TRANSACTIONS.
P u r c h a s e o f S e c u r i t i e s b y R e s e r v e Banks on B e h a l f o f Member B a n k s .
Member b a n k s f r e q u e n t l y r e q u e s t r e s e r v e b a n k s t o p u r c h a s e
Government o r o t h e r s e c u r i t i e s , or b a n k e r s ' a c c e p t a n c e s f o r t h e m ,
a u t h o r i z i n g t h e r e s e r v e b a n k , e i t h e r i m p l i e d l y or s p e c i f i c a l l y ,
t o c h a r g e t h e i r r e s e r v e a c c o u n t w i t h t h e c o s t . Such r e q u e s t s a r e
made i n a v a r i e t y o f w a y s .
1 , %. I s s u c h r e q u e s t t a x a b l e i f made b y t e l e p h o n e and n o t
confirmed in writing?
A.
2 , Q.
writing?
A.
No.
I f made b y t e l e p h o n e and s u b s e q u e n t l y c o n f i r m e d i n
No.
3,
I f made b y l e t t e r n o t s p e c i f i c a l l y a u t h o r i z i n g t h e r e s e r v e b a n k t o c h a r g e t h e a c c o u n t o f t h e r e q u e s t i n g member bank?
A.
No.
4 , Q. I f t h e r e q u e s t d e s c r i b e d i n t h e p r e c e d i n g q u e s t i o n c o n t a i n s a s p e c i f i c a u t h o r i z a t i o n t o c h a r g e t h e member b a n k ' s a c c o u n t ?
A.
No.
5 , Q. I f t h e r e s e r v e b a n k , when t h e t r a n s a c t i o n i s c o m p l e t e d ,
s e n d s t o t h e member b a n k a memorandum c o n f i r m i n g t h e t r a n s a c t i o n
a n d s t a t i n g t h e amount o f t h e c h a r g e , i s s u c h c o n f i r m a t i o n t a x a b l e ?
A.
No
M 19 -r
X->7820
I n c i d e n t a l E x p e n s e s . Tele-phone C a l l s , e t c .
6 . q. In c o n n e c t i o n w i t h t r a n s a c t i o n s o f t h i s type a s
w e l l a s numerous o t h e r s , t h e r e s e r v e h a n k s h a v e o c c a s i o n t o
c h a r g e t h e a c c o u n t s o f member h a n k s , w i t h o u t s p e c i f i c a u t h o r i zation, with expenses incurred in connection with telephone,
t e l e g r a p h , s h i p p i n g c h a r g e s on s e c u r i t i e s , e t c . The member
hank i s n o t i f i e d by s e n d i n g t o i t a copy of t h e "debit t i c k e t "
made o u t b y t h e o p e r a t i n g d e p a r t m e n t w h i c h i n c u r r e d t h e e x p e n s e , or e l s e a l i s t of the expenses which have been charged
t o i t s a c c o u n t i s s e n t t o t h e member b a n k a t t h e e n d o f t h e
m o n t h . Are s u c h " d e b i t t i c k e t s " , b o o k e n t r i e s o r memoranda
taxable?
A.
No«
7 . Q. Are t e l e p h o n e c a l l s and t e l e g r a m s s u b j e c t t o a t a x
when t h e y p e r t a i n t o F i s c a l A g e n c y o r R e c o n s t r u c t i o n F i n a n c e
Corporation b u s i n e s s when the c o s t f a l l s d i r e c t l y on the Treasury
Department or t h e R e c o n s t r u c t i o n Finance Corporation?
A . As a l r e a d y p o i n t e d o u t , a F e d e r a l r e s e r v e b a n k
i s exempt f r o m t a x i n c a s e s where t h e c h a r g e s f o r such m e s s a g e s s e n t on i t s own a c c o u n t a r e p a y a b l e b y i t . Where* h o w e v e r *
the charge f o r the telephone or t e l e g r a p h message i s p a i d by a
member b a n k , t h e t a x m u s t be c o l l e c t e d , n o t w i t h s t a n d i n g t h e
m e s s a g e may h a v e r e l a t e d t o m a t t e r s i n v o l v i n g t h e T r e a s u r y
D e p a r t m e n t o r t h e R e c o n s t r u c t i o n F i n a n c e C o r p o r a t i o n * Where
the charges f o r such messages are paid by the Treasury Department o r t h e R e c o n s t r u c t i o n F i n a n c e C o r p o r a t i o n , no t a x i s d u e ;
t h e T r e a s u r y D e p a r t m e n t i s exempt b y r e a s o n o f s e c t i o n 7 0 1 ( b )
o f the Revenue A c t , and t h e R e c o n s t r u c t i o n Finance C o r p o r a t i o n
i s exempt b y r e a s o n o f s e c t i o n 1 0 o f t h e a c t c r e a t i n g i t ( A c t
o f J a n u a r y 2 2 , 1 9 3 2 , P u b l i c N o . 2 , - 72d C o n g r e s s ) * w h i c h h a s
p r o v i s i o n s almost i d e n t i c a l with those of Section 7 of the
Federal Reserve Act.
Member Bank S u b s c r i p t i o n s t o S t o c k o f F e d e r a l R e s e r v e B a n k s .
8 . Q. A l l b a n k s w h i c h a r e members o f t h e F e d e r a l R e s e r v e
System a r e r e q u i r e d to s u b s c r i b e to the c a p i t a l s t o c k of t h e Fede r a l r e s e r v e b a n k i n a n amount e q u a l t o 6% o f t h e i r corn u n i m p a i r e d
c a p i t a l a n d s u r p l u s . As a member b a n k ' s c a p i t a l a n d s u r p l u s a c counts are increased i t i s necessary to subscribe for a proport i o n a t e i n c r e a s e i n i t s h o l d i n g s of Federal r e s e r v e bank s t o c k .
I n f r e q u e n t l y , d r a f t s a r e drawn i n f a v o r o f t h e F e d e r a l r e s e r v e
b a n k f o r t h e s e p a y m e n t s . U s u a l l y when s u b s c r i b i n g f o r t h i s a d d i t i o n a l s t o c k t h e member b a n k a u t h o r i z e s a c h a r g e t o i t s a c c o u n t .
In the l a t t e r c a s e , i s the t r a n s a c t i o n t a x a b l e ?
A* The a u t h o r i z a t i o n t o c h a r g e t h e r e s e r v e a c c o u n t o f
t h e member b a n k i s n o t t a x a b l e , b u t t h e d r a f t i s t a x a b l e •
138
X-7220
-
(d)
18
-
Correction Entries.
9 . Q. Member and nonmember "banks make d e p o s i t s o f
c o i n or c u r r e n c y w i t h t h e r e s e r v e bank, r e c e i v i n g immediate credit subject to verification. Occasionally in
p r o c e s s o f v e r i f i c a t i o n t h e R e s e r v e Bank f i n d s c o u n t e r f e i t s
and s h o r t a g e s f o r which a d e b i t i s p r e p a r e d and charged t o
t h e d e p o s i t i n g b a n k ' s a c c o u n t . Are such e n t r i e s t a x a b l e !
A.
No.
1 0 . Q. A s i m i l a r q u e s t i o n i s r a i s e d w i t h r e g a r d t o
m a t u r i n g c o u p o n s d e p o s i t e d w i t h t h e r e s e r v e b a n k . When
m u t i l a t e d or unmatured coupons a r e d i s c o v e r e d , t h e coupons
a r e r e t u r n e d t o t h e d e p o s i t i n g bank a n d c h a r g e made t o i t s
account. Are such t r a n s a c t i o n s taxable?
A.
(e)
No.
Penalty for Insufficient Reserves.
Q. A t p e r i o d i c i n t e r v a l s a n a n a l y s i s i s made o f
e a c h member b a n k ' s r e s e r v e a c c o u n t t o d e t e r m i n e w h e t h e r
adequate r e s e r v e s have been carried during the p e r i o d ,
as required by the Federal Reserve Act. If the reserves
have not b e e n p r o p e r l y maintained, a p e n a l t y i s a s s e s s e d
p u r s u a n t t o t h e F e d e r a l R e s e r v e A c t and t h e r e g u l a t i o n s
o f t h e F e d e r a l R e s e r v e B o a r d . The p e n a l t y i s c h a r g e d t o
t h e r e s e r v e a c c o u n t o f t h e member bank b y t h e R e s e r v e
bank i t s e l f . I s s u c h a c h a r g e t a x a b l e ?
A.
No.
Very t r u l y y o u r s ,
( S i g n e d ) Qgden L. M i l l s ,
Secretary of the Treasury.
FEDERAL RESERVE BOARD
WASHINGTON
X-7219
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
J u l y 28, 1932.
Dear S i r :
A p p a r e n t l y some l o c a l p o s t m a s t e r s a r e n o t f u l l y a d v i s e d
r e g a r d i n g t h e new r e g i s t r y f e e s a n d s u r c h a r g e s o n c u r r e n c y
shipments.
One q u e s t i o n i n p a r t i c u l a r a p p e a r s t o h a v e c a u s e d
d i f f i c u l t y , namely, whether i t i s p e r m i s s i b l e i n connection
w i t h s u c h s h i p m e n t s t o p a y t h e minimum r e g i s t r y f e e o f 1 5 ^
which c a r r i e s a n indemnity not e x c e e d i n g $ 5 . 0 0 and t o pay t h e
s u r c h a r g e on t h e e x c e s s of t h e d e c l a r e d v a l u e a b o v e $ 5 . 0 0 ,
i n s t e a d of b e i n g required t o pay a r e g i s t r y f e e of $1.00 f o r
t h e maximum i n d e m n i t y o f $ 1 , 0 0 0 a n d t o p a y t h e s u r c h a r g e o n
the e x c e s s of the declared v a l u e above $ 1 , 0 0 0 .
I n c l o s e d i s a c o p y o f The P o s t a l B u l l e t i n f o r J u n e 3 0 ,
1 9 3 2 , w h i c h c o n t a i n s on p a g e 2 I n s t r u c t i o n s o f t h e P o s t o f f i c e
Department i n t h i s c o n n e c t i o n .
T h e s e i n s t r u c t i o n s , and
p a r t i c u l a r l y t h e e x a m p l e i n p a r a g r a p h ( i ) s e e m t o make i t
reasonably c l e a r that the mailer has the option of paying f o r
a n y i n d e m n i t y w h i c h h e may c h o o s e w i t h i n t h e s t a t u t o r y l i m i t
of $ 1 , 0 0 0 , and t h a t h e i s r e q u i r e d t o p a y s u r c h a r g e s on t h e
X-7219
—3 —
e x c e s s of the d e c l a r e d v a l u e above the indemnity p a i d f o r ,
t h e r e s u l t "being t h a t h e h a s t h e o p t i o n o f p a y i n g t h e
minimum r e g i s t r y f e e o f 1 5 ^ , i f h e s o d e s i r e s , b e i n g r e q u i r e d i n t h a t c a s e t o p a y a s u r c h a r g e u p o n a n amount e q u a l
t o t h e d i f f e r e n c e "between t h e d e c l a r e d v a l u e and t h e r e g i s t r y
indemnity of $ 5 . 0 0 for which he has p a i d .
Very t r u l y y o u r s ,
Chester Morrill,
Secretary.
Inclosure.
TO GOVERNORS OF ALL F . R . BANKS.
FEDERAL RESERVE BOARD
X-7221
WASHINGTON
J u l y 30, 1932.
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
Discounts for Individuals, Partnerships
and Corporations.
Dear S i r :
I n o r d e r t h a t t h e B o a r d may h a v e a d e q u a t e i n f o r m a t i o n w i t h
r e s p e c t t o n o t e s , d r a f t s a n d " b i l l s of e x c h a n g e d i s c o u n t e d "by F e d e r a l
r e s e r v e banks f o r i n d i v i d u a l s , p a r t n e r s h i p s and c o r p o r a t i o n s under
t h e p r o v i s i o n s o f t h e t h i r d p a r a g r a p h of S e c t i o n 13 of t h e F e d e r a l
R e s e r v e A c t , -as amended on J u l y 2 1 , 1 9 3 2 , i t i s r e q u e s t e d t h a t t h e
BD-4 s c h e d u l e s s u b m i t t e d t o t h e F e d e r a l R e s e r v e B o a r d c o v e r i n g s u c h
d i s c o u n t s s h o w t h e f o l l o w i n g i n f o r m a t i o n a s t o e a c h n o t e , d r a f t or
b i l l of exchange d i s c o u n t e d :
1.
Name, b u s i n e s s a n d p r i n c i p a l p l a c e o f b u s i n e s s o f t h e
i n d i v i d u a l , p a r t n e r s h i p or c o r p o r a t i o n f o r w h i c h t h e p a p e r i s d i s counted.
2.
Name, b u s i n e s s and p r i n c i p a l p l a c e of b u s i n e s s o f e a c h
party l i a b l e thereon, including indorsers (other than the i n d i v i d u a l ,
p a r t n e r s h i p or c o r p o r a t i o n f o r which t h e paper i s d i s c o u n t e d ) .
3.
Rate a t w h i c h d i s c o u n t e d by F e d e r a l r e s e r v e bank.
4.
R a t e a t w h i c h p r e v i o u s l y d i s c o u n t e d or r a t e c h a r g e d
principal obligor.
5.
F a c e amount ( m a t u r i t y v a l u e ) .
X-7221
-
2 -
X'
6.
D a t e of n o t e , d r a f t or M i l of e x c h a n g e .
7.
Date of m a t u r i t y .
8.
Collateral security:
k i n d , a g g r e g a t e f a c e v a l u e , and
approximate aggregate v a l u e as c o l l a t e r a l .
Each s c h e d u l e s h o u l d a l s o show: '
1.
Purpose f o r which t h e p r o c e e d s of the d i s c o u n t by t h e F e d e r a l
reserve tank are to be used.
2.
Reasons f o r i n a b i l i t y of applicant t o o b t a i n c r e d i t from other
banking i n s t i t u t i o n s .
3.
Kind, a g g r e g a t e f a c e v a l u e , and approximate a g g r e g a t e v a l u e
a s c o l l a t e r a l , o f m a r g i n a l or a d d i t i o n a l c o l l a t e r a l , i f a n y , p l e d g e d w i t h
the Federal reserve bank.
I n o r d e r t h a t t h e Board may a l s o h a v e c u r r e n t i n f o r m a t i o n r e g a r d i n g
d e f i n i t e a p p l i c a t i o n s f o r d i s c o u n t s ( n o t mere i n q u i r i e s ) u n d e r t h e a b o v e mentioned p r o v i s i o n o f t h e A c t which a r e not g r a n t e d by t h e F e d e r a l r e s e r v e
bank, 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 submit a r e p o r t t o t h e Board a s
a t t h e c l o s e of b u s i n e s s each Saturday l i s t i n g a l l s u c h a p p l i c a t i o n s ,
s h o w i n g i n e a c h c a s e t h e name and a d d r e s s o f t h e i n d i v i d u a l , p a r t n e r s h i p
o r c o r p o r a t i o n t h a t a p p l i e d f o r d i s c o u n t a c c o m m o d a t i o n , t h e amount o f t h e
a p p l i c a t i o n , and t h e r e a s o n t h e F e d e r a l r e s e r v e bank d i d n o t make t h e
discount.
The r e a s o n s h o u l d b e s t a t e d b r i e f l y , a s , f o r e x a m p l e , " P l a c e d
with
Digitized for
TOFRASER
GOVERNORS OF
b a n k " , " I n e l i g i b l e " , "Hot s a t i s f a c t o r i l y s e c u r e d " , e t c .
Very t r u l y y o u r s ,
Chester Morrill,
Secretary.
ALL F . R . BASKS.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7223
August 1, 1932.
Dear S i r :
There i s i n c l o s e d h e r e w i t h f o r your
i n f o r m a t i o n , a copy of t h e r e v i s e d r e g u l a t i o n s
of t h e Treasury Department d e a l i n g w i t h the t a x
on c h e c k s , e t c . , b e i n g T r e a s u r y D e c i s i o n No.
4 3 4 4 a m e n d i n g C h a p t e r IV o f R e g u l a t i o n s 4 2 ,
made p u r s u a n t t o S e c t i o n 7 5 1 o f t h e R e v e n u e A c t
of 1932.
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.
InclosureTO GOVERNORS OF ALL P . R. B A M S .
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
THE FEDERAL RESERVE BOARD
- X-7223-c
August 6, 1932.
SUBJECT:
S u g g e s t e d Form o f A p p l i c a t i o n
f o r Discount by an I n d i v i d u a l ,
P a r t n e r s h i p or C o r p o r a t i o n .
Dear S i r :
There a r e i n c l o s e d f o r your i n f o r m a t i o n and
a s s i s t a n c e two c o p i e s o f a l e t t e r a n d i n c l o s u r e s
t h e r e w i t h r e c e i v e d from the Counsel f o r t h e F e d e r a l
R e s e r v e Bank o f A t l a n t a , c o n t a i n i n g s u g g e s t i o n s w i t h
r e g a r d t o t h e f o r m of a p p l i c a t i o n f o r d i s c o u n t b y a n
i n d i v i d u a l , p a r t n e r s h i p or c o r p o r a t i o n i n c l o s e d i n
t h e Board's l e t t e r of J u l y 26, 1932, ( X - 7 2 1 3 ) .
Very t r u l y yours,
E . M. M c C l e l l a n d ,
Assistant Secretary.
Inclosures.
TO GOVERNORS OF ALL F . R. BANKS EXCEPT ATLANTA.
COPY
X-7223
145
COLQUITT, PARKER, TROUTMAN & ARKWRIGHT
A t t o r n e y s a t Law
S u i t e 1607 W i l l i a m O l i v e r B l d g .
Atlanta
August 2, 1932.
SUBJECT:
Suggested form of A p p l i c a t i o n f o r D i s count by an I n d i v i d u a l , p a r t n e r s h i p
or C o r p o r a t i o n .
Mr. C h e s t e r M o r r i l l , S e c r e t a r y ,
Federal Reserve Board,
W a s h i n g t o n , D. C.
D e a r Mr. M o r r i l l :
I d u l y r e c e i v e d a copy of t h e B o a r d ' s l e t t e r of J u l y
2 6 t h ( X - 7 2 1 3 ) , w i t h w h i c h t h e r e was e n c l o s e d a c o p y o f a s u g g e s t e d form of a p p l i c a t i o n f o r u s e i n connection w i t h d i s c o u n t s f o r i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s under t h e
p r o v i s i o n s o f S e c t i o n 1 3 o f t h e F e d e r a l R e s e r v e A c t a s amended
"by t h e A c t a p p r o v e d J u l y 2 1 , 1 9 3 2 , e t c .
T h i s f o r m o f a p p l i c a t i o n seemed t o me t o 'be e x c e l l e n t .
So f a r a s c o n c e r n s i t s u s e i n t h e S i x t h F e d e r a l R e s e r v e D i s t r i c t
b u t One c h a n g e o f a n y i m p o r t a n c e s u g g e s t e d i t s e l f t o me.
I n F l o r i d a , where powers of s a l e upon d e f a u l t have always b e e n
r e g a r d e d w i t h d i s f a v o r , a s t a t u t e p r o v i d e s t h a t c o l l a t e r a l may
not be s o l d a f t e r default unless a prescribed n o t i c e be given
by advertisement. I have, t h e r e f o r e , suggested to the Federal
R e s e r v e Bank t h a t t h e a p p l i c a t i o n p r e p a r e d f o r u s e h e r e c o n t a i n
a p r o v i s o , i n s e r t e d a f t e r t h e power o f s a l e , t o t h e e f f e c t
t h a t " i n a n y c a s e w h e r e some p r o v i s i o n o f a p p l i c a b l e l a w may
r e q u i r e a d v e r t i s e m e n t or other n o t i c e a s a c o n d i t i o n t o t h e
e x e r c i s e o f a p o w e r o f s a l e , s u c h a s i s h e r e i n g i v e n and
g r a n t e d , a n y s a l e made p u r s u a n t t o | ^ i i s power s h a l l b e h a d
a f t e r compliance w i t h such provisions of law."
I n o t e f r o m t h e B o a r d ' s C i r c u l a r (X-7215-A). t h a t a
F e d e r a l R e s e r v e Bank may d i s c o u n t f o r i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s not only n o t e s , e t c . , which are the
o b l i g a t i o n s o f o t h e r p a r t i e s a c t u a l l y owned b y s u c h i n d i v i d u a l s ,
p a r t n e r s h i p s or c o r p o r a t i o n s and endorsed by them, but a l s o
t h e p r o m i s s o r y n o t e s o f s u c h i n d i v i d u a l s , p a r t n e r s h i p s or
c o r p o r a t i o n s endorsed by o t h e r p a r t i e s , whose endorsements a r e
s a t i s f a c t o r y t o t h e F e d e r a l R e s e r v e B a n k . I t s e e m e d t o me t h a t ,
X-7223
14(5
8—3—32 •
kr, Chester Morrill - #2.
i n c a s e s w h e r e t h e d i r e c t n o t e s o f a n a p p l i c a n t a r e t o "be d i s c o u n t e d , t h e e n d o r s e r s s h o u l d h e made t o a s s e n t t o t h e t e r m s
and c o n d i t i o n s o f t h e a p p l i c a t i o n , w h i c h i n c l u d e i m p o r t a n t
ana s u b s t a n t i a l r i g h t s touching the handling, c o l l e c t i o n , subs t i t u t i o n , c o m p r o m i s e , r e n e w a l , e x t e n s i o n and s a l e o f c o l l a t e r a l s . I have, a c c o r d i n g l y , d r a f t e d a form of consent t o
b e s i g n e d by s u c h e n d o r s e r s and e n c l o s e a copy f o r your i n formation.
Of c o u r s e , i n c a s e s T h e r e t h e p r o m i s s o r y n o t e s o f t h e
a p p l i c a n t , duly endorsed, are discounted, the note i t s e l f w i l l
b e drawn u p o n t h e F e d e r a l R e s e r v e B a n k ' s f o r m and w i l l c o n t a i n
p o w e r s o f s u b s t a n t i a l l y t h e same t e n o r a s t h o s e s e t o u t i n t h e
a p p l i c a t i o n . I t seemed a d v i s a b l e t o me, h o w e v e r , t h a t t h e
endorsers s p e c i f i c a l l y assent to the discount of the paper
u p o n t h e t e r m s s e t out i n t h e a p p l i c a t i o n .
Mr. J o h n s , D e p u t y G o v e r n o r , a f t e r r e v i e w i n g t h e s u g g e s t e d f o r m o f a p p l i c a t i o n , made a n o t h e r s u g g e s t i o n , n a m e l y ,
t h a t t h e a p p l i c a t i o n c o n t a i n a p r o v i s i o n under which t h e
F e d e r a l R e s e r v e Bank c o u l d h o l d a n y c o l l a t e r a l a c q u i r e d a s
s e c u r i t y f o r t h e d i s c o u n t e d o b l i g a t i o n s f o r t h e payment of any
o t h e r p a p e r o f t h e a p p l i c a n t h e l d b y t h e R e s e r v e B a n k . Mr.
Johns s t a t e d t h a t i t might happen t h a t t h e bank would r e c e i v e
a p p l i c a t i o n s from i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s
w h o s e p a p e r i t h e l d u n d e r r e d i s c o u n t f r o m member b a n k s . I t
was n o t e n t i r e l y c l e a r t o him w h e t h e r , i n s u c h c a s e s , t h e
c o l l a t e r a l taken i n connection with the "direct" loans could
be u t i l i z e d as s e c u r i t y f o r the paper taken under rediscount
f r o m member b a n k s . I n o r d e r t o r e m o v e a n y d o u b t a b o u t t h i s
q u e s t i o n I h a v e d r a f t e d a p a r a g r a p h w h i c h may b e p u t i n o u r
form of a p p l i c a t i o n immediately above the a p p l i c a n t ' s s i g n a t u r e . A copy of t h e paragraph proposed f o r i n s e r t i o n i s
also enclosed.
The F e d e r a l R e s e r v e Bank w i l l , o f c o u r s e , s e n d y o u
c o p i e s o f t h e a p p l i c a t i o n when t h e same h a s b e e n p u t i n f i n a l
f o r m a n d p r i n t e d , b u t , i n t h e m e a n t i m e , I am s e n d i n g y o u t h e s e
s u g g e s t i o n s f o r w h a t e v e r t h e y may b e w o r t h t o t h e o t h e r F e d e r a l
Reserve Banks.
Very t r u l y y o u r s ,
(S)
Robt. S. P a r k e r .
RSP/w.
Copy t o J
Mr. W a l t e r W y a t t , G e n e r a l C o u n s e l ,
Federal Reserve Board.
147
Cow
X-7223-a
CONSENT Or EHBORSEB.
The u n d e r s i g n e d , b e i n g e n d o r s e r o r e n d o r s e r s o f c e r t a i n
commercial, i n d u s t r i a l or a g r i c u l t u r a l paper o f f e r e d f o r d i s c o u n t to
F e d e r a l B e s e r v e Bank o f A t l a n t a b y
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ u n d e r an a p p l i c a t i o n d a t e d _____ d a y o f
. 193
, a n d more p a r t i c u l a r l y d e s c r i b e d i n S c h e d u l e A
attached to s a i d a p p l i c a t i o n , hereby agree
and a s s e n t
to the discount
b y s a i d F e d e r a l H e s e r v e Bank o f t h e s a i d p a p e r u p o n t h e t e r m s a n d u n d e r
the c o n d i t i o n s i n s a i d a p p l i c a t i o n s e t f o r t h .
The u n d e r s i g n e d r e q u e s t
s a i d F e d e r a l B e s e r v e Bank t o
d i s c o u n t s a i d paper and e x p r e s s l y agree
that, in consideration of such
d i s c o u n t , h i s , i t s or t h e i r l i a b i l i t y a s e n d o r s e r or e n d o r s e r s s h a l l be
a n d r e m a i n u n i m p a i r e d and u n a f f e c t e d b y t h e e x e r c i s e b y t h e F e d e r a l R e s e r v e Bank o f a n y o f t h e r i g h t s , p o w e r s o r p r i v i l e g e s i n s a i d a p p l i c a t i o n
s e t f o r t h , i n c l u d i n g r i g h t s , powers or p r i v i l e g e s touching or concerning
t h e h a n d l i n g , c o l l e c t i o n , s u b s t i t u t i o n , c o m p r o m i s e , r e n e w a l , e x t e n s i o n and
s a l e of any of the c o l l a t e r a l s a t any time h e l d f o r the payment of the
o b l i g a t i o n s u p o n w h i c h t h e u n d e r s i g n e d i s o r a r e o r may b e l i a b l e a s e n dorser or endorsers.
WITNESS t h e hand
the
day o f
and s e a l
, 193
of the undersigned, this
.
(SEAL)
(SEAL)
(SEAL)
Co-p.v
<•
X-7223-Id
•
INSERT BEFORE THE SIGNATURE
LIME OH PAGE 8 .
The a p p l i c a n t f u r t h e r e x p r e s s l y a g r e e s t h a t a n y c o l l a t e r a l
or s e c u r i t y o f any kind or c h a r a c t e r a t any time h e l d by the Federal Reserve
B a n k \ f o r t h e payment o f t h e c o m m e r c i a l , i n f l u x t i 1^1 o r a g r i c u l t u r a l p a p e r
d e s c r i b e d i n S c h e d u l e A z he r e t o a t t a c h e d may be h e l d and u t i l i z e d b y
t h e F e d e r a l R e s e r v e Bank n o t o n l y f o r t h e payment o f s a i d p a p e r a n d / o r
any renewals, in whole or i n p a r t , or any e x t e n s i o n s t h e r e o f , but a l s o
f o r the payment o f any o t h e r o b l i g a t i o n s of the a p p l i c a n t to t h e F e d e r a l
R e s e r v e B a n k , w h e t h e r a c q u i r e d d i r e c t l y f r o m t h e a p p l i c a n t o r f r o m some
t h i r d p a r t y or otherwise acquired; i t b e i n g the i n t e n t i o n hereof to
p r o v i d e t h a t a n y i n d e b t e d n e s s o r o b l i g a t i o n due b y t h e a p p l i c a n t t o
t h e F e d e r a l R e s e r v e Bank s h a l l b e s e c u r e d b y t h e s a i d c o l l a t e r a l s a n d
s e c u r i t i e s l i s t e d on S c h e d u l e A, t h e F e d e r a l R e s e r v e Bank t o h a v e t h e
r i g h t to a p p l y the p r o c e e d s o f any c o l l a t e r a l s upon any o f s u c h o b l i g a t i o n s a s t h e F e d e r a l R e s e r v e Bank may d e t e r m i n e .
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7224
August 4 , 1932.
SUBJECT:
L o a n s t o V e t e r a n s on A d j u s t e d
Service Certificates.
Dear S i r :
There i s i n c l o s e d h e r e w i t h , f o r your i n f o r m a t i o n , a
c o p y o f P u b l i c A c t No. 3 0 3 , 7 2 n d C o n g r e s s , a p p r o v e d J u l y 2 1 ,
1932, t o g e t h e r w i t h f o u r c o p i e s of an e x t r a c t of r e v i s e d
r e g u l a t i o n s of t h e V e t e r a n s ' A d m i n i s t r a t i o n w i t h r e g a r d to
l o a n s b y b a n k s on v e t e r a n s ' a d j u s t e d s e r v i c e c e r t i f i c a t e s
u n d e r s e c t i o n 5 0 2 o f t h e World War A d j u s t e d C o m p e n s a t i o n
A c t a s amended b y t h e A c t o f J u l y 2 1 , 1 9 3 2 .
The c h a n g e s made b y t h i s A c t a f f e c t i n g t h e r e d i s c o u n t
of n o t e s r e p r e s e n t i n g such l o a n s a r e ,
( 1 ) a l o a n may b e made
a t any t i m e a f t e r t h e d a t e of t h e a d j u s t e d s e r v i c e c e r t i f i c a t e
i n s t e a d of o n l y a f t e r two y e a r s f r o m t h e d a t e t h e r e o f , and ( 2 )
except as t o i n t e r e s t accrued p r i o r t o J u l y 21, 1932, the r a t e
o f i n t e r e s t on s u c h l o a n s s h a l l n o t e x c e e d 3 l / 2 $ p e r annum,
compounded a n n u a l l y .
You w i l l n o t e t h a t t h e V e t e r a n s ' A d -
m i n i s t r a t i o n , i n i t s r e v i s e d r e g u l a t i o n s , has i n t e r p r e t e d t h i s
l a t t e r p r o v i s i o n o f t h e A c t o f J u l y 2 1 , 1 9 3 2 , t o mean t h a t t h e
X-7224
150
—2 —
l i m i t a t i o n o f t h e r a t e o f i n t e r e s t s u c h a l o a n may b e a r t o
3 l / 2 $ p e r annum compounded, a n n u a l l y , i s a p p l i c a b l e o n l y t o
l o a n s or e x t e n s i o n s of l o a n s made on or a f t e r J u l y 2 1 , 1 9 3 2 .
Should you d e s i r e a d d i t i o n a l c o p i e s of the e x t r a c t
of r e g u l a t i o n s of the Veterans' A d m i n i s t r a t i o n , t h e Board
w i l l "be g l a d t o f o r w a r d them t o y o u .
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.
Inclosures.
$ 0 GOVERNORS OP ALL F. E. B A M S .
FEDERAL RESERVE BOARD
15'j
WASHINGTON
X—7225
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
August 6, 1932.
Dear S i r :
An i n q u i r y h a s b e e n r e c e i v e d a s t o t h e a p p l i c a b i l i t y
o f t h e t a x on c h e c k s , e t c . , i m p o s e d b y t h e R e v e n u e A c t o f
1 9 3 2 t o c h e c k s , d r a f t s or o r d e r s f o r t h e p a y m e n t o f money
u s e d t o remit government f u n d s , p a r t i c u l a r l y t o t h o s e u s e d
by postmasters f o r the purpose of r e m i t t i n g money-order funds
or o t h e r m o n e y s i n t h e p e r f o r m a n c e o f t h e i r o f f i c i a l d u t i e s .
A l e t t e r was a d d r e s s e d t o the S e c r e t a r y of t h e Treasury a s k i n g
f o r a r u l i n g , a n d t h e l e t t e r was r e f e r r e d t o t h e C o m m i s s i o n e r
of I n t e r n a l Revenue.
F i v e c o p i e s of t h e r e p l y , which c o n t a i n s t h e r u l i n g
of t h e Bureau of I n t e r n a l Revenue, a r e i n c l o s e d h e r e w i t h f o r
your information.
Your a t t e n t i o n i s i n v i t e d p a r t i c u l a r l y t o
the next to the l a s t paragraph of the r e p l y .
Very t r u l y yours ,
E . M. M c C l e l l a n d ,
Assistant Secretary.
Inclosures.
TO GOVERNORS OF ALL F . R. BANKS.
flppy
X-7225-a
Treasury department
Washington
Office of
Commissioner o f I n t e r n a l Revenue
July 30, 1932.
MT:ST:WJH
The f e d e r a l R e s e r v e B o a r d ,
W a s h i n g t o n , D. 0 ,
Gentlemen:
Your l e t t e r o f J u l y 1 9 , 1 9 3 2 , a d d r e s s e d t o t h e S e c r e t a r y o f
t h e T r e a s u r y , h a s b e e n r e f e r r e d t o t h i s o f f i c e f o r r e p l y . You i n c l o s e d a copy o f a communication addressed t o the P o s t m a s t e r ,
E n d i c o t t , New Y o r k , b y t h e P o s t O f f i c e D e p a r t m e n t , r e l a t i v e t o t h e
t a x imposed b y s e c t i o n 7 5 1 ( a ) o f t h e Revenue A c t o f 1 9 3 2 , on c h e c k s ,
d r a f t s , o r o r d e r s f o r t h e payment o f money, drawn upon a n y b a n k ,
b a n k e r , o r t r u s t company.
C h e c k s , d r a f t s , o r o r d e r s drawn by o f f i c e r s o f t h e U n i t e d S t a t e s ,
or of a S t a t e or p o l i t i c a l s u b d i v i s i o n t h e r e o f , i n t h e i r o f f i c i a l
c a p a c i t i e s a g a i n s t p u b l i c funds standing to t h e i r o f f i c i a l c r e d i t and
i n f u r t h e r a n c e o f d u t i e s i m p o s e d upon them b y l a w , a r e n o t s u b j e c t t o
the t a x .
I t i s h e l d t h a t c h e c k s drawn b y p o s t m a s t e r s a g a i n s t f u n d s s t a n d ing to t h e i r o f f i c i a l c r e d i t are not subject to t a x .
C a s h i e r ' s checks or d r a f t s i s s u e d to a p o s t m a s t e r by a bank a r e
s u b j e c t t o t a x . The q u e s t i o n o f w h e t h e r t h e b a n k may r e q u i r e t h e
p o s t m a s t e r t o r e i m b u r s e i t f o r a n amount e q u a l t o t h e t a x i s one
a f f e c t i n g t h e p a r t i e s t o t h e t r a n s a c t i o n o v e r w h i c h t h e B u r e a u of
I n t e r n a l Revenue h a s no j u r i s d i c t i o n . The s t a t u t e c l e a r l y i m p o s e s
the tax upon the p e r s o n drawing the check, d r a f t or o r d e r , which, i n
t h i s case i s the bank,
A copy o f t h e c o m m u n i c a t i o n s u b m i t t e d b y y o u i s r e t u r n e d , a n
a d d i t i o n a l c o p y h a v i n g "been made and r e t a i n e d f o r t h e f i l e s o f t h i s
office.
Very t r u l y y o u r s
MBCiRl
Incl«-302
(Signed) David Burnet,
Commissioner
152
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7226
August 5, 1932.
SUBJECT:
New I s s u e T r e a s u r y B i l l s .
Dear S i r :
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 i n
Government s e c u r i t i e s b e t w e e n F e d e r a l r e s e r v e h a n k s , t h e
c o d e w o r d "HCXDEPEBSS" h a s "been d e s i g n a t e d t o c o v e r a new
i s s u e of T r e a s u r y B i l l s , d a t e d August 10, 1 9 3 2 , and m a t u r i n g November 9 , 1 9 3 2 .
T h i s word s h o u l d h e i n s e r t e d i n t h e F e d e r a l r e s e r v e t e l e g r a p h code hook, f o l l o w i n g the supplemental code
word "NOXDEPOSE" o n p a g e 1 7 2 .
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 GOVERNORS OF ALL F . B. B A M S .
1 5 4
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7227
August 11, 1932.
SUBJECT:
C o l l e c t i o n o f D r a f t s Drawn "by B u s i n e s s
C o n c e r n s on T h e m s e l v e s Which a r e Not
P a y a b l e a t cr Through D e s i g n a t e d Banks.
Dear S i r :
T h e r e i s i n c l o s e d f o r y o u r i n f o r m a t i o n , a summary o f
t h e t e l e g r a m s r e c e i v e d i n r e s p o n s e t o our t e l e g r a m o f A u g u s t
1 , 1 9 3 2 , i n q u i r i n g on b e h a l f o f t h e T r e a s u r y D e p a r t m e n t w h a t
t h e a t t i t u d e o f t h e F e d e r a l r e s e r v e "banks w o u l d b e a s t o
h a n d l i n g c h e c k s drawn b y b u s i n e s s c o n c e r n s on t h e m s e l v e s w h i c h
a r e n o t p a y a b l e a t or t h r o u g h d e s i g n a t e d b a n k s , e s p e c i a l l y i n
t h e l i g h t of t h e t h i r d paragraph of A r t i c l e 36 o f R e g u l a t i o n s
N o . 4 2 o f t h e B u r e a u o f I n t e r n a l R e v e n u e , a s amended b y T r e a s u r y
D e c i s i o n N o . 4 3 4 4 on J u l y 2 9 , 1 9 3 2 .
Notwithstanding the a c t i o n of the r e c e n t Conference of
G o v e r n o r s i n a p p r o v i n g t h e r e p o r t on t h i s s u b j e c t r e n d e r e d
J u l y 1 4 , 1 9 3 2 , b y t h e S t a n d i n g C o m m i t t e e on C o l l e c t i o n s a n d i n
v o t i n g that the p r a c t i c e regarding t h i s subject should be
uniform throughout the Federal Reserve System, you w i l l note
t h a t t h e p r a c t i c e s 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 a s
X-7227
—2 —
d e s c r i b e d , i n t h e i r t e l e g r a m s t o t h e Board a r e n o t a t a l l u n i f o r m .
A t t e n t i o n i s i n v i t e d t o the t e l e g r a m from Governor
C a l k i n s , q u o t e d a t t h e end o f t h e summary, s u g g e s t i n g t h a t t h i s
s u b j e c t s h o u l d a g a i n b e r e v i e w e d w i t h t h e thought of r e v e r s i n g
t h e a c t i o n o f t h e C o n f e r e n c e ; and t h e r e a r e i n c l o s e d f o r y o u r
f u r t h e r i n f o r m a t i o n a c o p y o f a n o t h e r t e l e g r a m on t h i s s u b j e c t
a d d r e s s e d t o t h e B o a r d b y Governor C a l k i n s on A u g u s t 8 and a
c o p y o f our r e p l y .
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.
Inclosures.
TO GOVERNORS OF ALL F . R. B A M S .
I 5 5
COPY
X-7227-a
August 4 , 1932.
SUMMARY OF TELEGRAMS FROM FEDERAL RESERVE BANKS
BE COLLECTION OF DRAFTS DRAM BY BUSINESS CONCERNS ON THEMSELVES WHICH ARE NOT PAYABLE AT OR
THROUGH DESIGNATED B A M S .
BOSTON:
Our v o l u m e o f d r a f t s drawn "by "business c o n c e r n s u p o n
themselves which a r e not payable a t or through a d e s i g n a t e d
t a n k h a s n o t "been l a r g e a n d we h a v e b e e n a b l e t o h a n d l e s u c h
drafts as collection items.
However, i f v o l u m e o f s u c h i t e m s
s h o u l d i n c r e a s e t o a p p r e c i a b l e e x t e n t i t i s our f e e l i n g t h a t
we s h o u l d d e c l i n e t o h a n d l e them i n a n y w a y .
NEW YORK:
I t i s t h e p r a c t i c e of t h i s bank t o a c c e p t and h a n d l e c h e c k s
drawn b y b u s i n e s s c o n c e r n s u p o n t h e m s e l v e s w h i c h a r e n o t p a y a b l e
a t or through a d e s i g n a t e d bank i n t h i s d i s t r i c t o n l y a s c a s h
i t e m s and o n l y w h e r e we h a v e r e c e i v e d a d v i c e f r o m a b a n k t h a t
i t w i l l remit to us f o r such checks at par.
We w i l l n o t r e c e i v e
s u c h i t e m s f r o m New Y o r k C i t y B a n k s e i t h e r a s c a s h o r n o n c a s h
when p a y a b l e i n o t h e r d i s t r i c t s .
At p r e s e n t f o r c o n v e n i e n c e
o c c a s i o n a l i t e m s o f t h i s c h a r a c t e r r e c e i v e d f r o m o u r own o u t o f
t e w n member b a n k s p a y a b l e i n o t h e r d i s t r i c t s a r e c h a r g e d b a c k
and e n t e r e d f o r c o l l e c t i o n .
I f volume of such items p a y a b l e
i n other d i s t r i c t s should m a t e r i a l l y i n c r e a s e w i l l r e f u s e to
h a n d l e them o n a n y b a s i s .
PHILADELPHIA:
We w i l l h a n d l e c h e c k s drawn b y b u s i n e s s c o n c e r n s u p o n
t h e m s e l v e s w h i c h a r e n o t p a y a b l e a t or t h r o u g h a d e s i g n a t e d bank
a s non c a s h c o l l e c t i o n i t e m s .
X-7227-&
f 2—
When we a r e a u t h o r i z e d b y b a n k s t o i n c l u d e s u c h
GLEVELuHD:
i t e m s r e f e r r e d t o i n c a s h l e t t e r and t h a t t h e y w i l l
b e r e m i t t e d f o r a t p a r and w i t h o u t d e l a y we w i l l h a n d l e
as cash items;
RICHMOND:
Our g e n e r a l a t t i t u d e i s t h a t we w i l l n o t h a n d l e i t e m s
drawn b y b u s i n e s s c o n c e r n s u p o n t h e m s e l v e s Which a f e n o t
p a y a b l e a t or through a d e s i g n a t e d bank.
ATLA2JTA:
F o r s e v e r a l y e a r s we h a v e h a n d l e d f o r c o l l e c t i o n a t p a r
d r a f t s drawn b y c o r p o r a t i o n s on t h e m s e l v e s or t h e i r o f f i c i a l s .
This has b e e n done p r i n c i p a l l y through banks i n c l e a r i n g
house c i t i e s .
T h i s a r r a n g e m e n t may b e e x t e n d e d f u r t h e r
p r o v i d e d member b a n k s or p a r r e m i t t i n g b a n k s w i l l p e r m i t
u s t o f o r w a r d them a s c a s h i t e m s a n d r e m i t t o u s a t p a r .
CHICAGO:
R e p l y i n g y o u r w i r e y e s t e r d a y i n q u i r i n g what our a t t i t u d e
w i l l b e a s t o h a n d l i n g c h e c k s drawn b y b u s i n e s s c o n c e r n s
upon t h e m s e l v e s which a r e n o t p a y a b l e a t or through a
d e s i g n a t e d b a n k we h a v e b e e n h a n d l i n g s u c h i t e m s s i n c e
e f f e c t i v e d a t e of t a x as c a s h i t e m s where t h e y can be c o l l e c t e d a t par i n a c c e p t a b l e funds where t h e y cannot be so
c o l l e c t e d we d e c l i n e t o h a f t d l e a t a l l t h i s p o l i c y h a s p r o v e d
s a t i s f a c t o r y and i t d o e s n o t s e e m n e c e s s a r y t o c h a n g e i t a t
this time.
ST. LOUIS:
We b e l i e v e i t i n t h e b e s t i n t e r e s t s of t h e b a n k c o l l e c t i o n
s y s t e m and o f b e i n g o f s e r v i c e t o member b a n k s t h a t c h e c k s
drawn b y b u s i n e s s c o n c e r n s upon t h e m s e l v e s w h i c h a r e n o t
158
X-7227-a
—3—
p a y a b l e a t or t h r o u g h a d e s i g n a t e d bank b e h a n d l e d a s
c a s h i n a l l i n s t a n c e s , where by e x p e r i e n c e i t d e v e l o p s
t h a t t h e c o l l e c t i n g a g e n t w i l l so h a n d l e t h e m .
MIEMEAPOLISi
We w i l l h a v e t o h a n d l e c h e c k s d e s c r i b e d a s n o n c a s h
items but think that p r a c t i c e should be uniform i n a l l
r e s e r v e b a n k s and p r e f e r t o h a v e b o a r d i s s u e r e g u l a t i o n s
b i n d i n g on a l l b a n k s c o v e r i n g t h i s p o i n t .
KANSAS CITY:
F o l l o w i n g c o n f e r e n c e of Governors i n Washington l a s t
m o n t h t h i s b a n k , c o n t r a r y t o i t s f o r m e r p o l i c y and b e l i e f
a s t o p r o p e r method o f h a n d l i n g d r a f t s drawn b y t h e m a k e r s
on t h e m s e l v e s a d o p t e d t h e p r o c e d u r e recommended b y s t a n d i n g
c o m m i t t e e on c o l l e c t i o n s and a p p r o v e d by G o v e r n o r s C o n f e r e n c e
and a c c o r d i n g l y i s s u e d c i r c u l a r l e t t e r t o member b a n k s u n d e r
d a t e o f J u l y 1 9 s t a t i n g t h a t we would u n t i l f u r t h e r n o t i c e
h a n d l e a s c a s h i t e m s d r a f t s drawn by makers on t h e m s e l v e s
w i t h o u t d e s i g n a t i n g t h e bank t h r o u g h w h i c h p a y a b l e w h e r e
s a t i s f a c t o r y a r r a n g e m e n t s h a v e p r e v i o u s l y b e e n made f o r t h e
p a y m e n t s o f s u c h d r a f t s t h r o u g h c e r t a i n b a n k s and t h a t s u c h
d r a f t s would not h e r e a f t e r be handled a s non c a s h c o l l e c t i o n s .
We v o l u n t e e r e d t h e f a r t h e r o b s e r v a t i o n t h a t member b a n k s
should d i s c o u r a g e t h e making of arrangements o f t h i s n a t u r e
w h e r e t h e name o f t h e bank t h r o u g h w h i c h t h e i t e m s a r e t o b e
handled i s not designated.
A f t e r c o n s i d e r a t i o n o f amended
t r e a s u r y r e g u l a t i o n , we s e e no r e a s o n t o c h a n g e t h i s p r o c e d u r e .
159
X-7227-a
-4DALIAS:
I t e m s drawn d i r e c t l y on t h e maker w i t h o u t d e s i g n a t i o n
o f "bank t h r o u g h w h i c h p a y a b l e h a v e b e e n i n e x i s t e n c e i n t h i s
d i s t r i c t f o r a number o f y e a r s .
Among o t h e r u s e s , i t i s
p r a c t i c e o f r e p r e s e n t a t i v e s o f f i r m s p u r c h a s i n g c o t t o n and
o t h e r c o m m o d i t i e s t o draw on t h e i r c o m p a n i e s or t h e i r
o f f i c e r s w i t h o u t , i n many c a s e s , d e s i g n a t i n g name o f bank
where p a y a b l e .
We h a v e h a n d l e d t h e s e and s i m i l a r i t e n s
a s non c a s h c o l l e c t i o n s f o r a number o f y e a r s .
I f we s h o u l d
attempt t o d i s c o n t i n u e h a n d l i n g items where t h e r e i s an
a p p a r e n t e f f o r t t o e v a d e t h e t a x , we w o u l d b e c o n f r o n t e d
with considerable d i f f i c u l t y in attempting to segregate
them f r o m t h o s e o f t h e k i n d m e n t i o n e d a b o v e , w h i c h m a n i f e s t l y
we s h o u l d n o t d i s c o n t i n u e h a n d l i n g .
We t h e r e f o r e b e l i e v e
i t w o u l d b e d e s i r a b l e t o h a n d l e c h e c k s drawn b y b u s i n e s s c o n c e r n s u p o n t h e m s e l v e s w h i c h a r e n o t p a y a b l e a t or t h r o u g h
a d e s i g n a t e d b a n k a s non c a s h i t e m s .
SAIT FRANCISCO:
T h i s bank would not c o n s i d e r h a n d l i n g a s c a s h i t e m s d r a f t s
drawn b y b u s i n e s s c o n c e r n s on t h e m s e l v e s w h i c h a r e n o t p a y a b l e
a t or through a designated bank.
We f u r t h e r f e e l t h a t R e s e r v e
Banks s h o u l d not a c c e p t a s c a s h i t e m s d r a f t s on b u s i n e s s conc e r n s p a y a b l e t h r o u g h Banks ( a s d i s t i n g u i s h e d f r o m d r a f t s p a y a b l e
at banks).
These non-bank d r a f t s i n c r e a s e the expense of handling
t o a l l b a n k s a n d a f i r m p o l i c y on t h e p a r t o f F e d e r a l R e s e r v e
B a n k s i n r e f u s i n g t o a c c e p t a s c a s h i t e m s would u n d o u b t e d l y a i d
i n d i s c o u r a g i n g growth of p r a c t i c e .
Our e x p e r i e n c e i n d i c a t e s
160
X-7227-a
-5i m p o s s i b l e t o know w h i c h i t e m s marked p a y a b l e t h r o u g h
a "bank w i l l b e handled, a s c a s h .
E v e n i t e m s on same
d r a w e e a r e h a n d l e d b y same bank i n d i f f e r e n t manner on
different occasions.
P r o b l e m o f F e d e r a l R e s e r v e Bank i s
aggravated.when items r e c e i v e d from d i s t a n t d i s t r i c t s .
B e l i e v e s u b j e c t should a g a i n be reviewed w i t h thought of
r e v e r s i n g a c t i o n of c o n f e r e n c e .
COPY
X-7227-t
I E I E 6 B A M
FEDERAL RESERVE SYSTEM
( L e a s e d Wire S e r v i c e )
R e c e i v e d a t W a s h i n g t o n , D. C.
20gmr
San F r a n c i s c o 513p Aug 8 / 9
Board,
Washington.
R e f e r r i n g B o a r d ' s w i r e A u g u s t f i r s t , our r e p l y s e c o n d , w o u l d
a p p r e c i a t e knowing whether Board has approved s y s t e m p o l i c y
a c c e p t a n c e a s c a s h i t e m s b y r e s e r v e "banks o f d r a f t s drawn on
i n d i v i d u a l s f i r m s or c o r p o r a t i o n s marked " C o l l e c t i b l e t h r o u g h "
" P a y a b l e t h r o u g h " e t c . , a d e s i g n a t e d t a n k we h a v e n o t "been
a c c e p t i n g t h e s e i t e m s "but f i n d o u r s e l v e s c o n f r o n t e d w i t h
demands t o do s o b r o u g h t a b o u t b y c i r c u l a r s o f o t h e r f e d e r a l
r e s e r v e b a n k s s t a t i n g s u c h d r a f t s a c c e p t e d on b a s i s p o l i c y
agreed to by governors a t recent conference.
Question herein
r a i s e d d o e s n o t r e f e r t o h a n d l i n g d r a f t s drawn p a y a b l e " a t "
a b a n k i n a s m u c h a s bank d e s i g n a t e d i n s u c h c i r c u m s t a n c e s may
l e g a l l y p a y or r e j e c t t h e i t e m u p o n p r e s e n t a t i o n w i t h o u t
a n y f u r t h e r a c t i o n o f drawee i n d i v i d u a l f i r m o f c o r p o r a t i o n .
Please wire reply*
Calkins
833a
QOPY
X-7227-c
August 10, 1932.
Calkins,
San F r a n c i s c o .
R e f e r r i n g your w i r e August 8 s t o p I t has not t e e n Board's
p r a c t i c e to r e g u l a t e c o l l e c t i o n by Federal r e s e r v e tanks
o f i t e m s o t h e r t h a n c h e c k s and d r a f t s a s d e f i n e d i n R e g u l a t i o n J or to approve or d i s a p p r o v e System p o l i c i e s
r e g a r d i n g c o l l e c t i o n o f n o n - c a s h i t e m s ; and B o a r d h a s
t a k e n no a c t i o n on S y s t e m p o l i c y a d o p t e d a t c o n f e r e n c e o f
J u l y 1 5 , 1 9 3 2 , r e h a n d l i n g d r a f t s drawn b y b u s i n e s s c o n c e r n s on t h e m s e l v e s s t o p I n v i e w o f amendment t o T r e a s u r y
r e g u l a t i o n s a s t o t a x a b i l i t y o f s u c h i t e m s and c o n s i d e r a t i o n s ,
s t a t e d i n y o u r w i r e A u g u s t 2 , i t w o u l d seem a p p r o p r i a t e f o r
y o u , a s Chairman o f G o v e r n o r s ' C o n f e r e n c e , t o a r r a n g e f o r
r e c o n s i d e r a t i o n of S y s t e m p o l i c y b y a l l F e d e r a l r e s e r v e
banks s t o p R e p l i e s to Board's w i r e August 1 d i s c l o s e l a c k
o f u n i f o r m i t y i n p r a c t i c e s o f F e d e r a l r e s e r v e b a n k s and
summaries a r e b e i n g m a i l e d t o a l l G o v e r n o r s f o r t h e i r
information.
MC CLELIAHD
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7228
August 13, 1932.
SUBJECT.:
ITew I s s u e T r e a s u r y B i l l s .
Dear S i r :
In connection with telegraphic 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 F e d e r a l r e s e r v e "banks, t h e
c o d e w o r d "MOXDRIVE" h a s b e e n d e s i g n a t e d t o c o v e r a new
i s s u e of Treasury B i l l s , dated August 17, 1932, and maturi n g November 16, 1 9 3 2 .
T h i s word s h o u l d b e i n s e r t e d i n t h e F e d e r a l r e s e r v e t e l e g r a p h code book, f o l l o w i n g the supplemental code
w o r d "NOXBEPEESS" on p a g e 1 7 2 .
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 GOVEBUOES OF ALL F . R. BANKS
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7229
August 16, 1932.
SUBJECT:
W e e k l y r e p o r t s on d i r e c t l o a n s .
Dear S i r :
There a r e i n c l o s e d h e r e w i t h , f o r your i n f o r m a t i o n , c o p i e s of l e t t e r s which the Federal Reserve Board
h a s e x c h a n g e d w i t h t h e F e d e r a l R e s e r v e Bank o f Hew Y o r k
w i t h regard to the weekly r e p o r t s r e q u e s t e d i n the Board's
l e t t e r of J u l y 30, 1932, X-7221, r e l a t i v e to a p p l i c a t i o n s
f o r d i s c o u n t s r e c e i v e d from i n d i v i d u a l s , p a r t n e r s h i p s
and c o r p o r a t i o n s , under the p r o v i s i o n s o f the r e c e n t amendment t o s e c t i o n 13 o f the F e d e r a l R e s e r v e A c t .
Very t r u l y y o u r s ,
Inclosures.
TO ALL GOVERNORS.
Chester M o r r i l l ,
Secretary.
X-7229-a
August 15, 1932.
Mr. L. R. R o u n d s , D e p u t y G o v e r n o r ,
F e d e r a l R e s e r v e Bank o f New York,
New York C i t y , New York.
Dear Mr. Rounds:
This w i l l acknowledge r e c e i p t of your l e t t e r of August
2 , and i n r e p l y y o u a r e a d v i s e d t h a t t h e B o a r d wou^.d l i k e t o
have the r e p o r t r e q u e s t e d i n the l a s t paragraph o f i t s l e t t e r ,
X-7221, of J u l y 30, cover a l l formal a p p l i c a t i o n s f o r d i s c o u n t s
by i n d i v i d u a l s , p a r t n e r s h i p s and c o r p o r a t i o n s w h i c h a r e n o t
g r a n t e d "by t h e F e d e r a l r e s e r v e h a n k and a l l i n f o r m a l a p p l i c a t i o n s where t h e p a p e r i s p l a c e d w i t h a n o t h e r bank or t h e
a p p l i c a n t i s d e f i n i t e l y a d v i s e d in w r i t i n g , t h a t the d i s c o u n t
w i l l n o t b e made b y t h e F e d e r a l r e s e r v e b a n k .
I t i s n o t e d from the second paragraph o f y o u r l e t t e r t h a t
y o u may n o t p e r m i t t h e f i l i n g o f f o r m a l a p p l i c a t i o n s e x c e p t i n
c a s e s where t h e r e a p p e a r s t o b e f a i r r e a s o n t o a s s u m e a l o a n
might be g r a n t e d .
The B o a r d u n d e r s t a n d s f r o m y o u r l e t t e r t h a t
b e f o r e a n y a t t e m p t i s made t o d i s c o u r a g e t h e s u b m i s s i o n o f a f o r mal a p p l i c a t i o n , s u f f i c i e n t i n f o r m a t i o n w i l l be o b t a i n e d from t h e
p r o s p e c t i v e a p p l i c a n t t o e n a b l e y o u t o d e t e r m i n e w i t h some
c e r t a i n t y that the paper which the a p p l i c a n t proposes to o f f e r
X-7229— 2
i s n o t e l i g i b l e and a c c e p t a b l e .
—
It is requested that f o r the
time b e i n g y o u f u r n i s h the Board a r e p o r t c o v e r i n g a l l c a s e s
where an a p p l i c a n t i s a d v i s e d i n w r i t i n g n o t t o submit a formal
a p p l i c a t i o n , or where o t h e r than a r o u t i n e examination of t h e
i n q u i r y was n e c e s s a r y t o d e t e r m i n e the f a c t s upon which the
d e c i s i o n o f t h e F e d e r a l r e s e r v e b a n k was b a s e d .
Very t r u l y y o u r s ,
( S i g n e d ) 5 . M. M c C l e l l a n d ,
Assistant Secretary.
167
Co~py
X-7229-b
F e d e r a l R e s e r v e Bank
o f New York
August 2, 1932.
Federal Heserve Board
W a s h i n g t o n , D. C.
A t t e n t i o n o f Mr* C h e s t e r M o r r i l l , S e c r e t a r y Dear S i r s :
This w i l l acknowledge r e c e i p t of your l e t t e r X-7221
d a t e d J u l y 3 0 , 1 9 3 2 . We s h a l l b e g o v e r n e d a c c o r d i n g l y i n t h e p r e p a r a t i o n o f BD-4 s c h e d u l e s c o v e r i n g d i s c o u n t s g r a n t e d t o i n d i v i d u a l s ,
p a r t n e r s h i p s and c o r p o r a t i o n s .
In the l a s t paragraph of your l e t t e r you have a s k e d f o r
current information regarding d e f i n i t e applications f o r discounts
( n o t mere i n q u i r i e s ) « I t i s a s s u m e d t h a t i t i s y o u r w i s h t o r e c e i v e
reports only w i t h regard to loans f o r which a c t u a l signed a p p l i c a t i o n s
a r e m a d e . J u d g i n g f r o m p r e s e n t i n d i c a t i o n s many o f o u r a p p l i c a t i o n s
w i l l b e i n f o r m a l a n d w i l l be d i s p o s e d o f b y i n t e r v i e w , a n d we b e l i e v e
the Board would n o t d e s i r e i n f o r m a t i o n w i t h r e s p e c t t o such a p p l i c a t i o n s . I t a p p e a r s , h o w e v e r , t h a t we a r e a l s o l i k e l y t o r e c e i v e a numb e r o f i n f o r m a l a p p l i c a t i o n s w i t h r e g a r d t o w h a t m i g h t be c o n s i d e r e d
b o r d e r - l i n e c a s e s and which, a f t e r i n v e s t i g a t i o n , would be i n f e r n a l l y
t u r n e d down e i t h e r b e c a u s e i t a p p e a r e d t h e p a p e r w o u l d b e i n e l i g i b l e
or f o r c r e d i t r e a s o n s . I t seems q u i t e l i k e l y from our e x p e r i e n c e thus
f a r t h a t we may n o t p e r m i t t h e f i l i n g o f d e f i n i t e a p p l i c a t i o n s e x c e p t
i n c a s e s where t h e r e appears to be f a i r r e a s o n to assume a l o a n might
be g r a n t e d .
S i n c e some o f t h e c a s e s t h u s t u r n e d down m i g h t a t l e a s t
h a v e t h e a p p e a r a n c e o f e l i g i b i l i t y and m i g h t n o t d i f f e r g r e a t l y f r o m
those f o r w h i c h formal a p p l i c a t i o n s would be r e c e i v e d , I have thought
b e s t t o c a l l t h e m a t t e r t o y o u r a t t e n t i o n and t o i n q u i r e w h e t h e r o r
n o t t h e B o a r d w o u l d c a r e t o be i n f o r m e d c o n c e r n i n g s u c h a p p l i c a t i o n s .
Very t r u l y y o u r s ,
lal
( S i g n e d ) L. R. R o u n d s ,
Deputy Governor,
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
THE FEDERAL RESERVE BOARD
X-7230
August 17, 1932.
SUBJECT:
Holidays During September, 1932,
Dear S i r :
On M o n d a y , S e p t e m b e r 5 t h , l a b o r D a y , t h e r e w i l l b e
n e i t h e r G o l d Fund n o r F e d e r a l R e s e r v e N o t e c l e a r i n g , a n d
the books of the Board w i l l be c l o s e d .
I n a d d i t i o n t o t h e l a b o r Day h o l i d a y , t h e f o l l o w i n g
Banks and b r a n c h e s w i l l o b s e r v e h o l i d a y s d u r i n g the month
of September:
Friday,
Monday,
September
"
9 , San F r a n c i s c o
los Angeles
12, Baltimore
(Admission
(
Day
Defenders'
Day
T h e r e f o r e , on t h e d a t e s i n d i c a t e d t h e o f f i c e s a f f e c t e d
w i l l not p a r t i c i p a t e i n e i t h e r of the c l e a r i n g s . P l e a s e i n c l u d e y o u r c r e d i t s f o r t h e B a n k s a f f e c t e d on e a c h o f t h e
h o l i d a y s w i t h your c r e d i t s f o r the f o l l o w i n g b u s i n e s s day in
t h e G o l d Fund C l e a r i n g , a n d make no s h i p m e n t o f F e d e r a l
r e s e r v e n o t e s f o r a c c o u n t o f t h e F e d e r a l R e s e r v e Bank o f San
F r a n c i s c o on F r i d a y , September 9 t h .
Please n o t i f y Branches.
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 GOVERNORS OF A H F . R. BANKS.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
THE FEDERAL RESERVE BOARD
X-7231
August 19, 1932.
SUBJECT:
Copies of Regulations of Veterans
Administration
Dear S i r :
There i s i n c l o s e d h e r e w i t h copy o f a l e t t e r r e c e i v e d from the D i r e c t o r of Finance of the Veterans Adm i n i s t r a t i o n , from which i t w i l l be n o t e d t h a t the Admini s t r a t i o n has only a l i m i t e d supply of i t s r e c e n t l y r e v i s e d r e g u l a t i o n s c o n c e r n i n g l o a n s "by b a n k s on a d j u s t e d
s e r v i c e c e r t i f i c a t e s , and w o u l d a p p r e c i a t e t h e c o o p e r a t i o n
o f t h e F e d e r a l r e s e r v e b a n k s i n m a k i n g no u n n e c e s s a r y
d i s t r i b u t i o n of the r e g u l a t i o n 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.
Inclosure.
TO GOVERNORS OF ALL F. R . BANKS.
*
170
*
COPY
X-7231-a
VETERANS ADMINISTRATION
Washington
August 16, 1932
Mr. E . M. M c C l e l l a n d ,
Assistant Secretary,
Federal Reserve Board,
W a s h i n g t o n , D. C.
Dear S i r s
*
This has r e f e r e n c e to your l e t t e r of August
i n g a r e q u e s t 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 B o a r d
R e s e r v e Bank o f M i n n e a p o l i s f o r 2 , 5 0 0 c o p i e s o f t h e
regulations of t h i s Administration concerning loans
service certificates.
8, 1932,
from the
recently
by banks
concernFederal
revised
on a d j u s t e d
A p p r o x i m a t e l y 500 c o p i e s o f t h i s e x t r a c t of the r e g u l a t i o n s a l r e a d y h a v e b e e n f u r n i s h e d t o t h e F e d e r a l R e s e r v e B o a r d ; h o w e v e r , due
t o t h e f a c t t h a t t h e a p p r o p r i a t i o n made t o t h i s A d m i n i s t r a t i o n b y Cong r e s s f o r p r i n t i n g h a s b e e n c u r t a i l e d e x t r e m e l y , i t w i l l n o t be p o s s i b l e
t o s u p p l y o r d e r s o f t h i s s i z e . O n l y a b o u t 1 0 0 c o p i e s can b e s u p p l i e d t o
a n y F e d e r a l R e s e r v e Bank f o r g e n e r a l d i s t r i b u t i o n t o member b a n k s a n d o t h e r s
and i t w i l l b e a p p r e c i a t e d i f a l l F e d e r a l R e s e r v e B a n k s c a n be r e q u e s t e d
t o u s e f e w e r t h a n t h i s i f p o s s i b l e , s e n d i n g them o n l y t o b a n k s a c t u a l l y
i n t e r e s t e d , and o n l y a s i n g l e copy to e a c h bank.
One h u n d r e d c o p i e s a r e b e i n g s h i p p e d d i r e c t l y t o t h e F e d e r a l
R e s e r v e Bank o f M i n n e a p o l i s , a n d y o u r c o o p e r a t i o n i n t h i s w i l l b e g r e a t l y
appreciated.
Respectfully,
(Signed)
M, C o l l i n s
Director of Finance,
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
THE FEDERAL RESERVE BOARD
X-7232
August 19, 1932.
SUBJECT;
New I s s u e T r e a s u r y B i l l 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 b e t w e e n F e d e r a l r e s e r v e b a n k s , t h e
c o d e w o r d "NOXBETEST" h a s b e e n d e s i g n a t e d t o c o v e r a new
i s s u e o f T r e a s u r y B i l l s , d a t e d A u g u s t 2 4 , 1 9 3 2 , and m a t u r i n g November 2 3 , 1 9 3 2 ,
T h i s word s h o u l d be i n s e r t e d i n the F e d e r a l r e s e r v e t e l e g r a p h c o d e book* f o l l o w i n g t h e s u p p l e m e n t a l c o d e
w o r d "NOXERIVE" on p a g e 1 7 2 .
Very t r u l y y o u r s ,
J . C. N o e l l ,
Assistant Secretary.
TO GOVERNORS OF ALL F . H. BANKS.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7233
August 25, 1932.
SUBJECT;
''
Expense, Main Lines, Leased Wire System,
July, 1932.
Dear Sir:
Enclosed herewith you w i l l f i n d two mimeographed
statements, X-7233- a a nd X-7235-b, covering in d e t a i l
operations of the main l i n e s , Leased Wire System, during
the month of July, 1932.
P l e a s e c r e d i t the amount 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 Exoenses, Federal Reserve Board, Snecial Fund", Leased
Wire System, sending duplicate C/D to the Federal Reserve
Board.
Very truly yours,
F i s c a l Agent.
Enclosures.
TO GOVERNORS OF ALL F. R. BAMS.
X-7233-a
REPORT SHOWING CLASSIFICATION At© NUMBER OF WORDS TRANSMITTED OVER MAIN LINES
OF THE FEDERAL RESERVE LEASED WISE SYSTEM FOR THE MONTH OF JULY, 1 9 3 2 .
1
Business
reported
by banks
Frcm
Boston
New Y o r k
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Total
Words s e n t by
New Y o r k c h a r g e able tc other
F . R. Banks ( l )
28,029
142,668
28,372
60,830
60,275
55,283
92,734
63,960
33,H7
72,753
58,772
97,601
794,394
2,082
—
1,754
1,567
1,665
5,631
2,4i4
2,323
1,534
1,696
2,413
3.700
26,779
F . R. B o a r d b u s i n e s s
Net Federal
reserve
bank
business
30,111
142,668
30,126
62,397
61,940
60,914
95,148
66,283
34,651
74,449
61,185
101,301
821,173
P e r c e n t of t o t a l
bank t u s i n e s s ( * )
3.67
17.37
3.67
7.60
7.54
7.42
11.59
8.07
4.22
9.07
7.45
12.33
100.00
299.322
R e i m b u r s a b l e b u s i n e s s Incoming and Outgoing
T o t a l words t r a n s m i t t e d o v e r main l i n e s
(*)
T h e s e p e r c e n t a g e s u s e d i n c a l c u l a t i n g t h e p r o r a t a s h a r e of l e a s e d w i r e e x p e n s e a s shown
on the accompanying s t a t e m e n t ( X - 7 2 3 3 - b ) .
(l)
Number o f w o r d s s e n t by New Y o r k t o e t h e r F . R. B a n k s f o r t h e i r s o l e b e n e f i t c h a r g e d t o
banks i n d i c a t e d i n accordance with a c t i o n taken at Governors' Conference
November 2 - 4 , 1925•
1,120,495
Hog.637
1,529,132
H6
Cv
a
*
X-7233-b
REPORT OF EXPENSE MAIN LINES
FEDERAL RESERVE LEASED FIHE SYSTEM, JULY, 1 9 3 2 .
Name o f "bank
Boston
New Y o r k
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
K a n s a s CityDallas
San F r a n c i s c o
Federal Reserve Board
Total
Operators'
salaries
$260.00
1,239.15
225.00
306.66
226.00
270.00
4 , 0 9 5 . 3 2 (#)
195.00
234.37
287-50
251.00
Operators'
overtime
$ 2.00
230.00 (&)
12.00
380.00
$7,970.00
15.648.83
$ 21.00 $ 1 5 , 8 7 8 . 8 3
Main l i n e r e n t a l , R i c h m o n d - W a s h i n g t o n .
I n c l u d e s s a l a r i e s of Washington o p e r a t o r s .
Credit.
Amount r e i m b u r s a b l e t o C h i c a g o .
Total
exoenses
$262.00
7.00
Reimbursable charges:
T r e a s u r y D e p a r t m e n t . .. . . . . . . . $ 2 , 7 2 1 . 8 5
Reconstruction Finance Corporation . 3 , 5 3 3 . 7 1
33.33
FederalFann Loan Board .
F e d e r a l Farm B o a r d . . . . . . . . .
54.62
Compt. o f C u r r e n c y , I n s o l v . Bank P i v .
35.34
Less: Reimbursable charges. „ •
(&)
(#)
(*)
(a)
Wire
rental
1,246.15
225.00
306.66
456.00
270.00
4,107.32
195.00
234.37
287.50
251.00
380.00
15.648.83
$23,869.83
6.378.85
$17,490.98
Pro r a t a
share of
total
exoenses
$641.92
3,038.18
641.92
1,329.32
1,318.82
1,297.S3
2,027.21
1,411.52
738.12
1,586.43
1,303.08
2,156.63
$17,490.98
Credits
$262.00
1,246.15
225.00
306.66
456.00
270.00
4,107.32
195.00
234.37
287.50
251.00
380.00
$8,221.00
Payable to
Federal
Reserve
Board
$379.92
1,792.03
416.92
1,022.66
862.82
1,027.83
2,080.11 (*)
1,216.52
503.75
1,298.93
1,052.08
1,776.63
$11,350.09
2,080.11 (a)
$ 9,269.98
Z i D BE A L B E S E B ! i
BOARD
STATEMENT FOB THE PBESS
For r e l e a s e i n Morning P a p e r s
Thursday, August 25, 1932,
The f o l l o w i n g summary o f 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 i n
U n i t e d S t a t e s , b a s e d upon s t a t i s t i c s
f o r the months o f J u l y and August, w i l l
a p p e a r i n the f o r t h c o m i n g i s s u e o f t h e
Federal Beserve B u l l e t i n and i n the
monthly reviews of the Federal reserve
"banks.
Volume o f i n d u s t r i a l o u t p u t d e c l i n e d s e a s o n a l l y f r o m J u n e t o J u l y w h i l e
f a c t o r y employment a n d p a y r o l l s d e c r e a s e d b y more t h a n t h e u s u a l s e a s o n a l amount.
I n J u l y t h e g e n e r a l l e v e l o f w h o l e s a l e p r i c e s was a b o u t 1 p e r c e n t h i g h e r t h a n
i n J u n e , a n d i n t h e f i r s t h a l f o f A u g u s t p r i c e s o f many l e a d i n g c o m m o d i t i e s
advanced c o n s i d e r a b l y .
B e s e r v e b a n k c r e d i t d e c l i n e d somewhat i n t h e f o u r
weeks
ending August 17, r e f l e c t i n g c h i e f l y a s u b s t a n t i a l growth in the c o u n t r y ' s s t o c k
of monetary g o l d .
P r o d u c t i o n a n d Employment - I n d u s t r i a l p r o d u c t i o n d e c l i n e d b y a b o u t t h e
u s u a l s e a s o n a l amount i n J u l y and t h e Board? s i n d e x , w h i c h i s a d j u s t e d t o a l l o w
f o r the u s u a l s e a s o n a l v a r i a t i o n s , remained unchanged a t 59 p e r c e n t o f t h e
1923-1925 average.
A c t i v i t y decreased s e a s o n a l l y in the s t e e l industry; by
s l i g h t l y more t h a n t h e u s u a l s e a s o n a l amount i n t h e l u m b e r , c e m e n t , n e w s p r i n t ,
and m e a t p a c k i n g i n d u s t r i e s ; a n d b y s u b s t a n t i a l l y more t h a n t h e s e a s o n a l amount
i n the automobile and l e a d i n d u s t r i e s .
increases in July, declined.
Output o f s h o e s , w h i c h o r d i n a r i l y
At w o o l e n m i l l s a c t i v i t y i n c r e a s e d b y a s u b s t a n t i a l
a m o u n t , and a t s i l k m i l l s t h e r e w a s a s e a s o n a l i n c r e a s e i n p r o d u c t i o n .
Activity
a t c o t t o n m i l l s d e c r e a s e d , a s i s u s u a l i n J u l y , w h i l e s a l e s of c o t t o n c l o t h by
manufacturers increased considerably.
level prevailing in June.
Output o f c o a l i n c r e a s e d f r o m t h e l o w
X-7234
— 2
—
R e p o r t s on t h e v o l u m e o f f a c t o r y employment a n d p a y r o l l s showed s u b s t a n t i a l
d e c l i n e s from the middle of June to the middle o f J u l y .
In the machinery,
women's c l o t h i n g , a n d h o s i e r y i n d u s t r i e s , and a t r a i l r o a d r e p a i r s h o p s , t h e
number e m p l o y e d d e c r e a s e d b y c o n s i d e r a b l y more t h a n t h e u s u a l s e a s o n a l amount,
and a t s h o e f a c t o r i e s t h e i n c r e a s e r e p o r t e d was s m a l l e r t h a n u s u a l .
In the
w o o l e n g o o d s i n d u s t r y a s u b s t a n t i a l i n c r e a s e i n employment w a s r e p o r t e d .
V a l u e o f b u i l d i n g c o n t r a c t s a w a r d e d , a s r e p o r t e d b y t h e P . W. ifoflge
Corporation, c o n t i n u e d a t a low l e v e l during J u l y and the f i r s t h a l f of August.
P r d s p e c t s f o r many l e a d i n g c r o p s , i n c l u d i n g c o m , s p r i n g w h e a t , p o t a t o e s ,
and t o b a c c o , w e r e r e d u c e d somewhat d u r i n g J u l y , a c c o r d i n g t o t h e D e p a r t m e n t o f
Agriculture.
The e s t i m a t e d t o t a l w h e a t c r o p , b a s e d on A u g u s t 1 c o n d i t i o n s , i s
7 2 3 , 0 0 0 , 0 0 0 b u s h e l s , a d e c r e a s e o f about 1 7 5 , 0 0 0 , 0 0 0 b u s h e l s from l a s t y e a r ' s
l a r g e crop, r e f l e c t i n g a r e d u c t i o n o f 3 5 0 , 0 0 0 , 0 0 0 b u s h e l s i n the w i n t e r wheat
crop, o f f s e t i n p a r t by an e s t i m a t e d i n c r e a s e of 1 7 5 , 0 0 0 , 0 0 0 i n the s p r i n g wheat
crop*
The f i r s t o f f i c i a l c o t t o n e s t i m a t e , a s o f A u g u s t 1 , was 1 1 , 3 0 0 , 0 0 0 b a l e s ,
a s compared w i t h c r o p s o f 1 7 , 1 0 0 , 0 0 0 l a s t s e a s o n and 1 3 , 9 0 0 , 0 0 0 t h e y e a r b e f o r e .
The i n d i c a t e d p r o d u c t i o n o f c o r n i s 2 , 8 2 0 , 0 0 0 , 0 0 0 b u s h e l s , s u b s t a n t i a l l y l a r g e r
t h a n t h e c r o p s o f t h e l a s t two s e a s o n s and s l i g h t l y l a r g e r t h a n t h e f i v e - y e a r
average.
D i s t r i b u t i o n - Volume o f f r e i g h t t r a f f i c d e c r e a s e d somewhat f r o m June t o
J u l y , and v a l u e o f d e p a r t m e n t s t o r e s a l e s was s u b s t a n t i a l l y r e d u c e d .
W h o l e s a l e P r i c e s - The g e n e r a l l e v e l o f w h o l e s a l e p r i c e s , a s m e a s u r e d "by the
m o n t h l y i n d e x o f t h e B u r e a u o f Labor S t a t i s t i c s , a d v a n c e d f r o m 6 3 . 9 p e r c e n t o f
the 1926 average i n June t o 6 4 . 5 p e r c e n t in J u l y .
Between the middle o f J u l y
and t h e t h i r d w e e k o f A u g u s t p r i c e s o f l i v e s t o c k and m e a t s , w h i c h h a d p r e v i o u s l y
a d v a n c e d c o n s i d e r a b l y , d e c l i n e d somewhat, w h i l e p r i c e i n c r e a s e s w e r e
177
X-7234
—3 —
/
r e p o r t e d f o r many o t h e r l e a d i n g c o m m o d i t i e s , i n c l u d i n g w h e a t , t e x t i l e raw
m a t e r i a l s a n d f i n i s h e d p r o d u c t s , n o n f e r r o u s m e t a l s , h i d e s , s u g a r , c o f f e e , and
rubber.
Bank C r e d i t - The t o t a l volume o f r e s e r v e b a n k c r e d i t o u t s t a n d i n g , w h i c h had
i n c r e a s e d b y $ 8 5 0 , 0 0 0 , 0 0 0 b e t w e e n t h e e n d o f March a n d t h e t h i r d w e e k o f J u l y ,
i
d e c l i n e d b y $ 9 5 , 0 0 0 , 0 0 0 i n t h e f o u r w e e k s t o A u g u s t 1 7 , and i n t h e same p e r i o d
member b a n k s i n c r e a s e d t h e i r r e s e r v e b a l a n c e s b y $ 4 5 , 0 0 0 , 0 0 0 .
These changes
r e f l e c t e d c h i e f l y the a d d i t i o n o f $ 9 5 , 0 0 0 , 0 0 0 to the c o u n t r y ' s s t o c k of monetary
g o l d and an i n f l o w to the banks of $ 3 0 , 0 0 0 , 0 0 0 i n currency,
f o t a l l o a n s a n d i n v e s t m e n t s o f r e p o r t i n g member b a n k s i n l e a d i n g c i t i e s w e r e
$ 2 5 0 , 0 0 0 , 0 0 0 l a r g e r on A u g u s t 17 t h a n f o u r w e e k s e a r l i e r .
Total loans of these
banks c o n t i n u e d to d e c l i n e throughout the p e r i o d , w h i l e t h e i r i n v e s t m e n t s i n c r e a s e d s u b s t a n t i a l l y , r e f l e c t i n g an i n c r e a s e i n h o l d i n g s of U n i t e d S t a t e s
Government s e c u r i t i e s i n c o n n e c t i o n w i t h T r e a s u r y f i n a n c i n g o p e r a t i o n s .
Time
d e p o s i t s i n c r e a s e d b y $ 9 5 , 0 0 0 , 0 0 0 and n e t demand d e p o s i t s b y $ 8 5 , 0 0 0 , 0 0 0 .
Money r a t e s i n t h e o p e n m a r k e t r e m a i n e d a t l o w l e v e l s .
Successive
r e d u c t i o n s b r o u g h t t h e p r e v a i l i n g r a t e s on p r i m e c o m m e r c i a l p a p e r t o a r a n g e o f
2 - 2
l / 4 per cent in the f i r s t part of August.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7235
August 26, 1932.
SUBJECT:
New I s s u e T r e a s u r y B i l l s .
Dear S i r :
In connection with telegraphic transactions i n
Government s e c u r i t i e s "between F e d e r a l r e s e r v e "banks, t h e
c o d e w o r d "NOXDETORT" h a s "been d e s i g n a t e d t o c o v e r a new
i s s u e of Treasury B i l l s , dated August 31, 1932, and maturi n g November 3 0 , 1 9 3 2 .
T h i s w o r d s h o u l d "be i n s e r t e d i n t h e F e d e r a l r e s e r v e t e l e g r a p h c o d e "book, f o l l o w i n g t h e s u p p l e m e n t a l c o d e
w o r d "NOXDETEST" o n p a g e 1 7 2 .
Very t r u l y y o u r s ,
J . C. N o e l l ,
Assistant Secretary,
TO GOVERNORS OF ALL F . R. BANKS.
FEDERAL RESERVE BOARD
WASHINGTON
X-7236
ADDRESS OFFICIAL CORRESPONDENCE T O
THE FEDERAL RESERVE BOARD
SUBJECT:
September 1, 1932.
Charge f o r P r i n t i n g F e d e r a l R e s e r v e
N o t e s During F i s c a l Year 1 9 3 3 .
Dear S i r :
R e f e r r i n g t o the telegrams which were addressed to a l l
F e d e r a l r e s e r v e t a n k s under d a t e of J u l y 3 0 , 1 9 3 2 , and August
9, 1932, you are advised that the charge f o r p r i n t i n g Federal
r e s e r v e n o t e s d u r i n g t h e m o n t h o f J u l y was a t t h e r a t e o f $ 9 0 . 5 0
p e r one thousand s h e e t s , a r e d u c t i o n of $ 2 . 0 0 per one thousand
sheets from the charge during the f i s c a l year 1932.
The B u r e a u
of Engraving and P r i n t i n g a d v i s e s t h a t t h i s r e d u c t i o n i s t h e
r e s u l t o f s a v i n g s e f f e c t e d i n t h e c o s t of m a t e r i a l s u s e d f o r t h e
p r i n t i n g of t h e n o t e s *
The B u r e a u a l s o e s t i m a t e s t h a t a much l a r g e r s a v i n g i n
t h e c o s t o f p r i n t i n g F e d e r a l r e s e r v e n o t e s w i l l b e made d u r i n g t h e
p r e s e n t f i s c a l y e a r b y v i r t u e o f t h e f u r l o u g h w i t h o u t p a y o f emp l o y e e s o f t h e B u r e a u u n d e r t h e p r o v i s i o n s o f t h e Economy A c t . The
Comptroller General of t h e United S t a t e s has r u l e d , however, that
t h e amounts w i t h h e l d from t h e c o m p e n s a t i o n of e m p l o y e e s engaged i n
t h e p r i n t i n g of F e d e r a l r e s e r v e n o t e s and o t h e r s o - c a l l e d r e p a y work
b y r e a s o n o f t h e o p e r a t i o n o f t h e Economy A c t m u s t b e i m p o u n d e d , a n d
X-7336
— 2
—
t h a t t h e f a c t t h a t t h e c o m p e n s a t i o n a c t u a l l y paid, s u c h e m p l o y e e s
h a s b e e n r e d u c e d "by t h e o p e r a t i o n o f t h e s t a t u t e d o e s n o t a u t h o r - ,
i z e a n y r e d u c t i o n i n t h e c h a r g e made a g a i n s t F e d e r a l r e s e r v e "banks
f o r t h e p r i n t i n g o f F e d e r a l r e s e r v e n o t e s or t h e c h a r g e f o r o t h e r
s o - c a l l e d r e p a y w o r k w h i c h i s t o h e r e i m b u r s e d "by o t h e r a g e n c i e s .
However, t h e r e i s under c o n s i d e r a t i o n a p r o p o s e d r e q u e s t
to the Comptroller General t o r e c o n s i d e r h i s d e c i s i o n .
If the
o p i n i o n of t h e Comptroller 1 G e n e r a l s h o u l d "be r e v e r s e d a f u r t h e r
r e d u c t i o n w i l l h e made i n t h e c h a r g e a g a i n s t t h e F e d e r a l r e s e r v e
t a n k s f o r p r i n t i n g F e d e r a l r e s e r v e n o t e s ; i f n o t , t h e c h a r g e of
$ 9 0 . 5 0 p e r one t h o u s a n d s h e e t s w i l l c o n t i n u e d u r i n g t h e f i s c a l
year 1933.
Very t r u l y y o u r s ,
Chester Morrill,
Secretary,
TO GOVEBHOBS OF ALL F . B . B A M S .
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X ~ 7 2 3 7
September 6, 1 9 3 2 .
SUBJECT:
New I s s u e s o f T r e a s u r y C e r t i f i c a t e s
of I n d e b t e d n e s s and Treasury N o t e s .
Dear S i r :
In connection with telegraphic transactions between
F e d e r a l r e s e r v e b a n k s c o v e r i n g Government s e c u r i t i e s , t h e
f o l l o w i n g c o d e w o r d s h a v e b e e n d e s i g n a t e d t o c o v e r new i s s u e s
o f T r e a s u r y C e r t i f i c a t e s of I n d e b t e d n e s s a n d T r e a s u r y N o t e s :
"NOWHOBBY"
Treasury C e r t i f i c a t e s of I n d e b t e d n e s s ,
S e r i e s TS-1933,
dated September 15,
1 9 3 2 , due September 1 5 , 1933;
"NOWHURL"
3 - ^ Treasury Notes, S e r i e s A-1937, to
be dated September 15, 1932, due September
15, 1937,
These code words s h o u l d be i n s e r t e d i n t h e F e d e r a l H e s e r v e
T e l e g r a p h Code b o o k , o n p a g e 1 7 2 .
Very t r u l y y o u r s ,
J • C• N o e l 1 ,
Assistant Secretary.
TO GOVERNORS OF ALL F . R. BANKS.
X-7239
FEDERAL EESERVE SYSTEM
The F e d e r a l R e s e r v e S y s t e m was e s t a b l i s h e d p u r s u a n t t o a u t h o r i t y
c o n t a i n e d i n t h e A c t o f December 2 3 , 1 9 1 3 , known a s t h e F e d e r a l R e s e r v e A c t ,
t h e p u r p o s e s of w h i c h , a s s t a t e d i n t h e p r e a m b l e , a r e "To p r o v i d e f o r t h e
establishment of F e d e r a l r e s e r v e banks, to f u r n i s h an e l a s t i c currency, to
a f f o r d means o f r e d i s c o u n t i n g c o m m e r c i a l p a p e r , t o e s t a b l i s h a more e f f e c t i v e s u p e r v i s i o n of banking i n t h e U n i t e d S t a t e s , and f o r o t h e r p u r p o s e s . "
The S y s t e m c o m p r i s e s t h e F e d e r a l R e s e r v e B o a r d , w h i c h e x e r c i s e s s u p e r v i s o r y
f u n c t i o n s , the Federal Advisory Council, which a c t s i n an advisory capacity
t o t h e F e d e r a l R e s e r v e Board, t h e t w e l v e F e d e r a l r e s e r v e banks s i t u a t e d i n
d i f f e r e n t s e c t i o n s o f t h e U n i t e d S t a t e s , a n d t h e member b a n k s , w h i c h i n c l u d e
a l l n a t i o n a l banks and such S t a t e banks and t r u s t companies a s h a v e v o l u n t a r i l y a p p l i e d t o t h e F e d e r a l R e s e r v e B o a r d f o r m e m b e r s h i p and h a v e b e e n
admitted to the System.
The F e d e r a l r e s e r v e b a n k s a r e l o c a t e d i n B o s t o n , Hew Y o r k ,
P h i l a d e l p h i a , C l e v e l a n d , Richmond, A t l a n t a , C h i c a g o , S t . L o u i s , M i n n e a p o l i s ,
Kansas C i t y , D a l l a s a n d San F r a n c i s c o .
There a r e a l s o i n o p e r a t i o n twenty-
f i v e b r a n c h e s and two a g e n c i e s of t h e F e d e r a l r e s e r v e b a n k s , a l l o f w h i c h
a r e l o c a t e d i n o t h e r c i t i e s of the U n i t e d S t a t e s , e x c e p t one a g e n c y i n
Havana, Cuba.
The c a p i t a l s t o c k o f t h e F e d e r a l r e s e r v e b a n k s i s e n t i r e l y owned
b y t h e member b a n k s a n d may n o t b e t r a n s f e r r e d or h y p o t h e c a t e d .
Every
n a t i o n a l bank i n e x i s t e n c e a t t h e time of t h e e s t a b l i s h m e n t of t h e F e d e r a l
R e s e r v e S y s t e m was r e q u i r e d t o s u b s c r i b e t o t h e c a p i t a l s t o c k o f t h e F e d e r a l
X-7239
— 2
^ 8 3
—
r e s e r v e b a n k o f i t s d i s t r i c t i n a n amount e q u a l t o s i x p e r c e n t o f t h e
s u b s c r i b i n g b a n k ' s c a p i t a l and s u r p l u s .
A l i k e amount o f F e d e r a l r e s e r v e
bank s t o c k mast b e s u b s c r i b e d f o r by e v e r y n a t i o n a l bank o r g a n i z e d s i n c e
t h a t t i m e and b y e v e r y S t a t e b a n k or t r u s t company u p o n b e c o m i n g a member
o f t h e F e d e r a l R e s e r v e S y s t e m ; a n d , when a member b a n k i n c r e a s e s i t s
c a p i t a l or s u r p l u s , i t i s r e q u i r e d t o s u b s c r i b e f o r a d d i t i o n a l s t o c k i n
t h e same p r o p o r t i o n .
One h a l f o f e a c h s u b s c r i p t i o n must b e f u l l y p a i d and
the remainder i s s u b j e c t to c a l l by the Federal Reserve Board; but c a l l f o r
payment of t h e r e m a i n d e r h a s n e v e r b e e n made.
A f t e r a l l n e c e s s a r y expenses of a F e d e r a l r e s e r v e bank have been
p a i d o r p r o v i d e d f o r , t h e s t o c k h o l d i n g member b a n k s a r e e n t i t l e d t o r e c e i v e
a n a n n u a l d i v i d e n d o f s i x p e r c e n t on t h e
dividend i s cumulative.
p a i d - i n c a p i t a l stock, which
A f t e r these dividend claims have been f u l l y met,
t h e n e t e a r n i n g s a r e p a i d i n t o a s u r p l u s f u n d , u n t i l i t amounts t o 100 p e r
c e n t of t h e s u b s c r i b e d c a p i t a l o f t h e b a n k .
T h e r e a f t e r 10 per cent of such
e a r n i n g s i s p a i d i n t o t h e s u r p l u s , and t h e remaining n e t e a r n i n g s a r e p a i d
to the United S t a t e s as a f r a n c h i s e tax.
Federal reserve banks, including
t h e c a p i t a l s t o c k a n d s u r p l u s t h e r e i n and t h e i n c o m e d e r i v e d t h e r e f r o m , a r e
exempt f r o m F e d e r a l , S t a t e and l o c a l t a x a t i o n , e x c e p t t a x e s u p o n r e a l e s t a t e .
The b o a r d o f d i r e c t o r s of e a c h F e d e r a l r e s e r v e bank i s composed of
n i n e members, e q u a l l y d i v i d e d i n t o t h r e e c l a s s e s , d e s i g n a t e d C l a s s A , C l a s s
B and C l a s s C.
member b a n k s .
D i r e c t o r s of Class A are r e p r e s e n t a t i v e o f the s t o c k h o l d i n g
D i r e c t o r s of C l a s s B must b e a c t i v e l y e n g a g e d i n t h e i r
d i s t r i c t i n commerce, a g r i c u l t u r e or some o t h e r i n d u s t r i a l p u r s u i t , and may
n o t b e o f f i c e r s , d i r e c t o r s or e m p l o y e e s o f a n y b a n k .
C l a s s C d i r e c t o r s may
X-7239
- 3 n o t b e o f f i c e r s , d i r e c t o r s , e m p l o y e e s , or s t o c k h o l d e r s o f a n y b a n k .
S i x of
t h e n i n e d i r e c t o r s , t h o s e of C l a s s A and Class B, a r e e l e c t e d by t h e s t o c k h o l d i n g member b a n k s , w h i l e t h e F e d e r a l R e s e r v e B o a r d a p p o i n t s t h e t h r e e
Class C d i r e c t o r s .
The t e r m o f o f f i c e of e a c h d i r e c t o r i s t h r e e y e a r s , s o
arranged t h a t t h e term of one d i r e c t o r of each c l a s s e x p i r e s each y e a r .
One o f t h e C l a s s C d i r e c t o r s a p p o i n t e d b y t h e B o a r d i s d e s i g n a t e d
a s chairman of t h e board of d i r e c t o r s o f t h e F e d e r a l r e s e r v e bank and a s
Federal r e s e r v e a g e n t , and i n the l a t t e r c a p a c i t y he i s r e q u i r e d t o m a i n t a i n
a l o c a l o f f i c e o f t h e F e d e r a l R e s e r v e B o a r d on t h e p r e m i s e s o f t h e F e d e r a l
r e s e r v e bank.
Another C l a s s C d i r e c t o r i s a p p o i n t e d by t h e F e d e r a l R e s e r v e
Board a s deputy chairman.
F e d e r a l r e s e r v e b a n k s a r e a u t h o r i z e d , among o t h e r t h i n g s , t o d i s c o u n t f o r t h e i r member b a n k s n o t e s , d r a f t s , b i l l s o f e x c h a n g e and b a n k e r s '
a c c e p t a n c e s o f s h o r t m a t u r i t i e s a r i s i n g o u t o f c o m m e r c i a l and a g r i c u l t u r a l
t r a n s a c t i o n s , and s h o r t term paper s e c u r e d by o b l i g a t i o n s of t h e U n i t e d
S t a t e s ; t o make a d v a n c e s t o t h e i r member b a n k s f o r p e r i o d s n o t e x c e e d i n g
f i f t e e n days upon c o l l a t e r a l s e c u r i t y of c e r t a i n p r e s c r i b e d c l a s s e s ; i n
c e r t a i n e x c e p t i o n a l c i r c u m s t a n c e s and under c e r t a i n p r e s c r i b e d c o n d i t i o n s ,
when a u t h o r i z e d b y a t l e a s f f i v e members o f t h e F e d e r a l R e s e r v e B o a r d , t o
make a d v a n c e s t o g r o u p s o f member b a n k s (and u n t i l March 3 , 1 9 3 3 , t o i n d i v i d u a l member b a n k s ) u p o n o t h e r k i n d s o f s e c u r i t y ; i n u n u s u a l and e x i g e n t
c i r c u m s t a n c e s when a u t h o r i t y h a s b e e n g r a n t e d b y a t l e a s t f i v e members o f
the Federal Reserve Board, t o discount f o r i n d i v i d u a l s , p a r t n e r s h i p s or
c o r p o r a t i o n s , under c e r t a i n p r e s c r i b e d c o n d i t i o n s , n o t e s , d r a f t s and b i l l s
o f e x c h a n g e o f t h e k i n d s and m a t u r i t i e s nia&e e l i g i b l e f o r d i s c o u n t f o r member
S>7239
l
8
- 4 "banks; t o p u r c h a s e and. s e l l i n t h e o p e n market "bankers * a c c e p t a n c e s and
" b i l l s o f e x c h a n g e o f t h e k i n d s and m a t u r i t i e s e l i g i b l e f o r d i s c o u n t , a n d
o b l i g a t i o n s of t h e U n i t e d S t a t e s ; t o deal i n g o l d c o i n and b u l l i o n ; t o
r e c e i v e and h o l d o n d e p o s i t t h e r e s e r v e b a l a n c e s o f member b a n k s ; t o i s s u e
F e d e r a l r e s e r v e n o t e s ; t o a c t a s c l e a r i n g h o u s e s and a s c o l l e c t i n g a g e n t s
f o r t h e i r member b a n k s , and u n d e r c e r t a i n c o n d i t i o n s f o r nonmember b a n k s ,
i n t h e c o l l e c t i o n o f c h e c k s and o t h e r i n s t r u m e n t s ; t o a c t a s d e p o s i t a r i e s
and f i s c a l a g e n t s of t h e Tfiiited S t a t e s ; and t o e x e r c i s e o t h e r b a n k i n g
functions s p e c i f i e d i n the Federal Reserve Act.
F e d e r a l r e s e r v e n o t e s a r e a f i r s t a n d paramount l i e n on a l l t h e
a s s e t s o f t h e F e d e r a l r e s e r v e b a n k s t h r o u g h rrhich t h e y a r e i s s u e d and a r e
also obligations of the United States.
They c o n s t i t u t e a t p r e s e n t n e a r l y o n e
h a l f o f t h e t o t a l money i n a c t u a l c i r c u l a t i o n i n t h e U n i t e d S t a t e s o u t s i d e
of t h e Treasury Department and t h e F e d e r a l r e s e r v e b a n k s .
They a r e i s s u e d
a g a i n s t t h e s e c u r i t y o f g o l d and of commercial and a g r i c u l t u r a l paper d i s c o u n t e d o r p u r c h a s e d b y F e d e r a l r e s e r v e b a n k s , and u n t i l March 3 , 1 9 3 3 , when
a u t h o r i z e d b y t h e F e d e r a l R e s e r v e B o a r d , may a l s o b e s e c u r e d b y d i r e c t
obligations of the United States.
Every Federal r e s e r v e bank
i s required
t o m a i n t a i n r e s e r v e s i n g o l d of n o t l e s s t h a n 4 0 p e r c e n t a g a i n s t i t s
F e d e r a l r e s e r v e n o t e s i n a c t u a l c i r c u l a t i o n and i s a l s o r e q u i r e d t o m a i n t a i n
r e s e r v e s i n g o l d o r l a w f u l money o f n o t l e s s t h a n 3 5 p e r c e n t a g a i n s t i t s
deposits.
Broad s u p e r v i s o r y powers a r e v e s t e d i n t h e F e d e r a l R e s e r v e Board,
which has i t s o f f i c e s i n Washington.
The l a w d e s i g n a t e s t h e S e c r e t a r y o f t h e
T r e a s u r y a n d t h e C o m p t r o l l e r o f t h e C u r r e n c y a s e x - o f f i c i o members, a c d
g
X-7239
. 5 _
186
p r o v i d e s f o r t h e a p p o i n t m e n t of s i x members b y t h e P r e s i d e n t w i t h t h e
a d v i c e and c o n s e n t o f t h e S e n a t e .
I n s e l e c t i n g t h e s e s i x members, t h e
P r e s i d e n t i s r e q u i r e d to have a due r e g a r d to a f a i r r e p r e s e n t a t i o n of
t h e f i n a n c i a l , a g r i c u l t u r a l , i n d u s t r i a l and c o m m e r c i a l i n t e r e s t s , a n d
g e o g r a p h i c a l d i v i s i o n s of the country.
No two a p p o i n t i v e members may b e
f r o m t h e same F e d e r a l r e s e r v e d i s t r i c t .
Among t h e more i m p o r t a n t d u t i e s o f t h e F e d e r a l R e s e r v e B o a r d
a r e t h e r e v i e w and d e t e r m i n a t i o n of d i s c o u n t r a t e s charged by t h e F e d e r a l
r e s e r v e b a n k s o n t h e i r l o a n s t o member b a n k s and t h e a p p r o v a l o r d i s a p p r o v a l
o f t h e o p e n m a r k e t o p e r a t i o n s of t h e F e d e r a l r e s e r v e b a n k s .
In connection
w i t h i t s s u p e r v i s i o n of F e d e r a l r e s e r v e banks t h e Board i s a l s o a u t h o r i z e d
t o make e x a m i n a t i o n s o f s u c h b a n k s ; t o r e q u i r e s t a t e m e n t s and r e p o r t s f r o m
such banks; t o r e q u i r e t h e e s t a b l i s h m e n t or d i s c o n t i n u a n c e of branches
o f s u c h b a n k s ; t o s u p e r v i s e t h e i s s u e and r e t i r e m e n t o f F e d e r a l r e s e r v e
n o t e s ; and t o s u p e r v i s e t h e . f o r e i g n o p e r a t i o n s o f t h e F e d e r a l r e s e r v e b a n k s .
The F e d e r a l R e s e r v e B o a r d a l s o p a s s e s on t h e a d m i s s i o n o f S t a t e
b a n k s and t r u s t c o m p a n i e s t o membership i n t h e F e d e r a l R e s e r v e S y s t e m and
on t h e t e r m i n a t i o n o f membership of s u c h b a n k s ; i t h a s t h e p o w e r t o e x a m i n e
member b a n k s e i t h e r t h r o u g h i t s own p e r s o n n e l o r i n c o o p e r a t i o n w i t h n a t i o n a l
and S t a t e b a n k i n g a u t h o r i t i e s ; i t r e c e i v e s c o n d i t i o n r e p o r t s f r o m member
banks; i t p a s s e s on a p p l i c a t i o n s of n a t i o n a l banks f o r a u t h o r i t y t o e x e r c i s e
t r u s t p o w e r s or t o a c t i n f i d u c i a r y c a p a c i t i e s ; i t may g r a n t a u t h o r i t y t o
n a t i o n a l banks t o e s t a b l i s h b r a n c h e s i n f o r e i g n c o u n t r i e s o r d e p e n d e n c i e s
o r i n s u l a r p o s s e s s i o n s o f t h e U n i t e d S t a t e s , or t o i n v e s t i n t h e s t o c k o f
banks or c o r p o r a t i o n s engaged i n i n t e r n a t i o n a l or f o r e i g n b a n k i n g ; i t
s u p e r v i s e s t h e o r g a n i z a t i o n and a c t i v i t i e s o f c o r p o r a t i o n s o r g a n i z e d u n d e r
X-7239
u 6 u
F e d e r a l law t o engage i n i n t e r n a t i o n a l or f o r e i g n banking; and i t i s s u e s
p e r m i t s u n d e r t h e a u t h o r i t y g r a n t e d "by t h e p r o v i s i o n s o f t h e C l a y t o n
A n t i t r u s t Act r e l a t i n g t o i n t e r l o c k i n g bank d i r e c t o r a t e s .
Another f u n c t i o n
of the Board i s t h e o p e r a t i o n of the g o l d s e t t l e m e n t f u n d , by which b a l a n c e s
due t o and f r o m t h e v a r i o u s F e d e r a l r e s e r v e b a n k s a r i s i n g o u t o f t h e i r orn
t r a n s a c t i o n s or t h o s e o f t h e i r member b a n k s a x e s e t t l e d i n W a s h i n g t o n
without p h y s i c a l shipments of gold.
In e x e r c i s i n g i t s s u p e r v i s o r y f u n c t i o n s over the F e d e r a l r e s e r v e
b a n k s and member b a n k s , t h e F e d e r a l R e s e r v e B o a r d p r o m u l g a t e s r e g u l a t i o n s ,
pursuant t o a u t h o r i t y granted by the Federal Reserve A c t , governing c e r t a i n
o f t h e a b o v e - m e n t i o n e d a c t i v i t i e s o f F e d e r a l r e s e r v e b a n k s and member b a n k s .
To m e e t i t s e x p e n s e s a n d t o p a y t h e s a l a r i e s o f i t s members and i t s
e m p l o y e e s , t h e B o a r d makes s e m i - a n n u a l a s s e s s m e n t s u p o n t h e F e d e r a l r e s s r v e
b a n k s i n p r o p o r t i o n t o t h e i r c a p i t a l s t o c k and s u r p l u s .
A n n u a l r e p o r t s of
t h e o p e r a t i o n s o f t h e B o a r d a r e made t o t h e S p e a k e r o f t h e House o f
R e p r e s e n t a t i v e s f o r t h e i n f o r m a t i o n of C o n g r e s s a s r e q u i r e d b y l a w .
The F e d e r a l A d v i s o r y C o u n c i l a c t s i n an a d v i s o r y c a p a c i t y , c o n f e r r i n g w i t h t h e F e d e r a l R e s e r v e B o a r d on g e n e r a l b u s i n e s s c o n d i t i o n s and
making r e c o m m e n d a t i o n s c o n c e r n i n g m a t t e r s w i t h i n t h e B o a r d ' s j u r i s d i c t i o n
and t h e g e n e r a l a f f a i r s o f t h e F e d e r a l R e s e r v e S y s t e m .
The C o u n c i l i s
composed of t w e l v e m e m b e r s , one f r o m e a c h F e d e r a l r e s e r v e d i s t r i c t b e i n g
s e l e c t e d a n n u a l l y by t h e board of d i r e c t o r s of t h e F e d e r a l r e s e r v e bank
of the d i s t r i c t .
The C o u n c i l i s r e q u i r e d t o meet i n W a s h i n g t o n a t l e a s t
f o u r times each y e a r and o f t oner i f c a l l e d by t h e F e d e r a l R e s e r v e Board.
188
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7240
September 13, 1932.
SUBJECT:
S u r c h a r g e s on. R e g i s t e r e d . M a i l
Shipments of Currency.
Dear S i r :
There a r e i n c l o s e d f o r your i n f o r m a t i o n a copy of a l e t t e r
o n t h e a b o v e s u b j e c t w h i c h G o v e r n o r Meyer a d d r e s s e d t o t h e P o s t m a s t e r General under d a t e of August 1 2 , 1932, and a copy of t h e
P o s t m a s t e r G e n e r a l ' s r e p l y of September 3 , 1932, i n c l o s i n g a
memorandum a d d r e s s e d t o h i m b y t h e T h i r d A s s i s t a n t P o s t m a s t e r
General.
In view of the p o s i t i o n taken by the Post O f f i c e Department,
i t would seem a d v i s a b l e f o r a s u i t a b l e committee r e p r e s e n t i n g a l l
o f t h e F e d e r a l r e s e r v e "banks t o c o n s i d e r what c h a n g e s , i f a n y ,
s h o u l d b e made i n t h e p r a c t i c e s r e g a r d i n g s h i p m e n t s o f c u r r e n c y
and what o t h e r s t e p s , i f a n y , s h o u l d b e t a k e n .
The B o a r d w o u l d
a l s o b e g l a d t o r e c e i v e a n y comments o r s u g g e s t i o n s r e g a r d i n g t h i s
m a t t e r w h i c h y o u may c a r e t o m a k e .
In t h i s connection you are advised that the n e g o t i a t i o n s
w h i c h w e r e c o n d u c t e d b y t h e F e d e r a l R e s e r v e Bank o f Hew Y o r k w i t h
t h e A m e r i c a n R a i l w a y E x p r e s s Company r e s u l t e d i n a d e c i s i o n b y
t h a t company t o make no c h a n g e i n t h e t a r i f f r a t e s f o r F e d e r a l
X-7240
-2-
r e s e r v e b a n k s on c u r r e n c y or s e c u r i t y s h i p m e n t s .
The company a d -
v i s e d t h e F e d e r a l R e s e r v e Bank o f New York t h a t i t c o u l d n o t s e e
i t s way c l e a r t o r e d u c e r a t e s t o t h e p o i n t w h e r e i t w o u l d b e
a d v a n t a g e o u s f o r t h e F e d e r a l r e s e r v e "banks t o u s e t h e e x p r e s s
s e r v i c e i n preference to the p o s t a l s e r v i c e .
Very t r u l y y o u r s ,
Chester Morrill,
Secretary.
Enclosures.
TO GOVEEHORS OF ALL F . R. B A M S .
COPY
X-7240-a
August 12, 1932.
H o n o r a b l e W a l t e r F . Brown,
The P o s t m a s t e r G e n e r a l ,
W a s h i n g t o n , D. C.
S I R :
The F e d e r a l R e s e r v e S y s t e m i s "being r e q u i r e d u n d e r t h e
A c t o f J u n e 2 8 , 1 9 3 2 , a s i t i s now "being a d m i n i s t e r e d b y t h e P o s t o f f i c e D e p a r t m e n t , t o p a y r e g i s t r y s u r c h a r g e s on c u r r e n c y s h i p m e n t s ,
w h i c h w i l l h a v e t h e e f f e c t o f i n c r e a s i n g b y some $ 7 5 0 , 0 0 0 a n n u a l l y
t h e c o s t t o t h e S y s t e m o f s u p p l y i n g t h e b a n k s of t h e c o u n t r y w i t h
currency.
S i n c e t h i s l a r g e a d d i t i o n a l c o s t w i l l add m a t e r i a l l y t o
t h e b u r d e n o f e x p e n s e of o p e r a t i o n o f t h e F e d e r a l R e s e r v e S y s t e m
i n t h e p e r f o r m a n c e o f one o f i t s m o s t i m p o r t a n t f u n c t i o n s , y o u a r e
r e s p e c t f u l l y r e q u e s t e d t o p r e s c r i b e , under t h e p r o v i s i o n s of S e c t i o n
2 o f t h e A c t o f J u n e 2 8 , 1 9 3 2 , w h i c h I am a d v i s e d g i v e y o u t h e power
t o do s o , r e g u l a t i o n s r e l i e v i n g s u c h s h i p m e n t s o f c u r r e n c y f r o m t h e
requirement that t h e i r f u l l value be declared f o r the purpose of
r e g i s t r a t i o n , thus r e l i e v i n g the System of t h i s a d d i t i o n a l burden.
Federal r e s e r v e n o t e s , which c o n s t i t u t e about h a l f t h e
c u r r e n c y i n c i r c u l a t i o n , and which a r e o b l i g a t i o n s o f t h e U n i t e d
S t a t e s , a r e d i s t r i b u t e d b y means o f s h i p m e n t s b y t h e C o m p t r o l l e r o f
t h e Currency a t t h e d i r e c t i o n of the F e d e r a l R e s e r v e Board t o t h e
v a r i o u s F e d e r a l R e s e r v e A g e n t s , who a r e t h e l o c a l r e p r e s e n t a t i v 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 and who i s s u e s u c h n o t e s t o t h e F e d e r a l r e s e r v e banks t o meet t h e r e q u i r e m e n t s of t h o s e i n s t i t u t i o n s
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H o n o r a b l e W a l t e r 5 \ Brown — - 2
and of the S t a t e and n a t i o n a l banks.
The F e d e r a l r e s e r v e "banks
a l s o handle t h e d i s t r i b u t i o n of United S t a t e s currency i s s u e s f o r w a r d e d t o them "by t h e T r e a s u r e r o f t h e U n i t e d S t a t e s .
The S y s t e m
i s , t h e r e f o r e , p e r f o r m i n g t h e f u n c t i o n s f o r m e r l y p e r f o r m e d "by, a n d
i s b e a r i n g t h e e x p e n s e f o r m e r l y "borne b y , t h e U n i t e d S t a t e s when
c u r r e n c y was d i s t r i b u t e d b y means o f s h i p m e n t s t o t h e S u b t r e a s u r i e s
and m i n t s .
S u c h s h i p m e n t s by t h e B o a r d now a g g r e g a t e a b o u t
$ 2 , 2 5 0 , 0 0 0 , 0 0 0 y e a r l y , and m o s t o f them a r e i n l a r g e a m o u n t s r u n n i n g
to m i l l i o n s of d o l l a r s .
S h i p m e n t s "between the r e s e r v e "banks a n d
S t a t e and n a t i o n a l "banks, e x c l u d i n g t h o s e t h e c o s t o f w h i c h i s n o t
b o r n e b y t h e r e s e r v e "banks, a g g r e g a t e a b o u t $ 5 , 7 5 0 , 0 0 0 , 0 0 0 y e a r l y .
The new r e g i s t r y s u r c h a r g e s a r e on a " s t r a i g h t l i n e "
b a s i s ; t h a t i s , t h e y a r e one hundred t i m e s as g r e a t f o r a shipment
of $ 1 0 , 0 0 0 , 0 0 0 a s f o r one of $ 1 0 0 , 0 0 0 .
The e l e m e n t s e n t e r i n g i n t o
t h e c o s t of c a r r y i n g currency a r e the t r a n s p o r t a t i o n , t h e i n s u r a n c e
and t h e p h y s i c a l p r o t e c t i o n f u r n i s h e d .
The c o s t o f t h e a c t u a l
t r a n s p o r t a t i o n v a r i e s with the weight, which i s r e f l e c t e d i n the
p o s t a g e c h a r g e , "but w h i c h w o u l d n o t b e a f f e c t e d b y t h e v a l u e o f
the shipment.
The i n s u r a n c e or i n d e m n i t y f u r n i s h e d b y t h e P o s t -
o f f i c e D e p a r t m e n t , "being l i m i t e d t o $ 1 , 0 0 0 i s o f no v a l u e i n c o n n e c t i o n w i t h t h e s e s h i p m e n t s , and t h e b a n k s h a v e a l w a y s f o u n d i t n e c e s s a r y t o i n s u r e thorn w i t h c o m m e r c i a l i n s u r a n c e c o m p a n i e s .
The o n l y
e l e m e n t o f c o s t u p o n w h i c h t h e s u r c h a r g e s o f c u r r e n c y c o u l d "be
j u s t i f i e d i s , t h e r e f o r e , t h e c o s t of t h e p h y s i c a l p r o t e c t i o n f u r n i s h e d .
I t seems v e r y improbable t h a t t h a t c o s t i n c r e a s e s a t a r a t e compar
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a b l e to the i n c r e a s e i n surcharges above r e f e r r e d t o .
Manifestly,
a h u n d r e d t i m e s a s many g u a r d s w o u l d n o t b e n e c e s s a r y t o p r o t e c t a
$ 1 0 , 0 0 0 , 0 0 0 shipment as a r e n e c e s s a r y to a f f o r d adequate p r o t e c t i o n
to a $100,000 shipment.
The c o n c l u s i o n c a n h a r d l y b e a v o i d e d t h a t
t h e s u r c h a r g e s o n t h e s e s h i p m e n t s o f c u r r e n c y a r e much g r e a t e r t h a n
e i t h e r t h e c o s t or t h e v a l u e of t h e s e r v i c e r e n d e r e d , and t h a t t h e y
c o u l d o n l y b e j u s t i f i e d on t h e t h e o r y t h a t , a s a m a t t e r o f p u b l i c
p o l i c y , shipments of great v a l u e should bear the brunt of the burden
of making u p t h e d e f i c i t i n t h e R e g i s t r y S e r v i c e a s a w h o l e .
It is
r e s p e c t f u l l y s u b m i t t e d t h a t s u c h a t h e o r y i s u n s o u n d when a p p l i e d t o
t h e F e d e r a l R e s e r v e System i n the performance of a q u a s i - g o v e r n m e n t a l
function.
The F e d e r a l R e s e r v e S y s t e m was c r e a t e d f o r t h e p u r p o s e o f
g i v i n g t o t h e banking system of t h e country g r e a t e r e l a s t i c i t y and
s t r e n g t h , and of p r o v i d i n g a c u r r e n c y s u f f i c i e n t l y f l e x i b l e t o meet
varying needs.
The r e s u l t h a s b e e n t o r e n d e r i t u n n e c e s s a r y f o r t h e
b a n k s t o k e e p on h a n d a t a l l t i m e s a s u f f i c i e n t amount o f c u r r e n c y t o
m e e t p e a k r e q u i r e m e n t s , b e c a u s e means a r e a f f o r d e d w h e r e b y t h e y may s e c u r e c u r r e n c y t o m e e t r u n s or o t h e r e m e r g e n c i e s p r o m p t l y a n d i n a n y
q u a n t i t y w h i c h t h e i r c o n d i t i o n may j u s t i f y .
The n e e d o f f o s t e r i n g t h e
f r e e movement o f s h i p m e n t s of c u r r e n c y f o r s u c h p u r p o s e i s t o o o b v i o u s
t o r e q u i r e more t h a n mere s t a t e m e n t .
Among o t h e r t h i n g s , i t h a s i n -
f l u e n c e d the Federal Reserve System to absorb p r a c t i c a l l y a l l expenses
i n c o n n e c t i o n w i t h shipments of F e d e r a l r e s e r v e n o t e s between the r e s e r v e b a n k s a n d c o m m e r c i a l b a n k s , b o t h n a t i o n a l and S t a t e .
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4
The e f f e c t of t h e new s u r c h a r g e s a l o n e i s t o i n c r e a s e "by
f u l l y 1 0 0 p e r c e n t t h e p o s t a l c h a r g e s on s u c h s h i p m e n t s , and t h e r e
i s a d i s t i n c t p o s s i b i l i t y t h a t , u n l e s s the F e d e r a l r e s e r v e banks
can a v o i d t h i s added expense, e i t h e r through the p r e s c r i b i n g
o f d i f f e r e n t r u l e s b y y o u r D e p a r t m e n t or b y a r r a n g i n g f o r t r a n s p o r t a t i o n o t h e r w i s e than by m a i l , they w i l l f i n d i t n e c e s s a r y t o d i s c o n t i n u e
absorbing these charges.
In t h a t e v e n t , t h e S t a t e and n a t i o n a l banks
m i g h t s e e k t o a v o i d some of t h e a d d e d e x p e n s e b y c u r t a i l i n g s u c h
currency shipments, w i t h the r e s u l t that they might e i t h e r accumulate
a s u p p l y of c u r r e n c y more t h a n s u f f i c i e n t f o r t h e i r n o r m a l n e e d s or
w o u l d h e s i t a t e t o a s k f o r a s much c u r r e n c y a s c a u t i o n a n d p r u d e n c e
might r e q u i r e .
The f i r s t c o u r s e w o u l d t e n d t o d e f e a t t h e e f f o r t s
of t h e S y s t e m a n d of t h e Government t o d e c r e a s e t h e v o l u m e o f c u r r e n c y o u t s t a n d i n g but u n a v a i l a b l e as a b a s i s of c r e d i t .
In t h i s
connection, i t i s important to observe that surplus currency i n the
v a u l t s of b a n k s h a s t h e same e f f e c t a s h o a r d e d c u r r e n c y .
The s e c o n d
c o u r s e would b e a t t e n d e d by t h e danger t h a t runs and o t h e r emergencies
might f i n d t h e banks unprepared t o meet them.
I n v i e w of t h e quasi-governmental n a t u r e of t h e f u n c t i o n of
d i s t r i b u t i n g c u r r e n c y , and p a r t i c u l a r l y i n v i e w of t h e c o n d i t i o n s
which have e x i s t e d i n the banking system during the past few y e a r s ,
t h e r e a r e s t r o n g r e a s o n s of p u b l i c p o l i c y i n f a v o r o f n o t c a s t i n g
u p o n t h e S y s t e m a n y undue b u r d e n i n i t s e f f o r t s t o a s s i s t t h e b a n k s i n
d e a l i n g w i t h t h e e x i s t i n g s i t u a t i o n , and i n f a v o r o f p e r m i t t i n g t h e s e
s h i p m e n t s o f c u r r e n c y t o move w i t h t h e g r e a t e s t p o s s i b l e f r e e d o m .
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5
I t i s , therefore, r e s p e c t f u l l y requested that you i s s u e
r e g u l a t i o n s o r i n s t r u c t i o n s i n s u c h f o r m a s y o u may deem a p p r o p r i a t e
and p r o p e r , p r o v i d i n g t h a t shipments of currency e i t h e r t o or from
any F e d e r a l r e s e r v e hank s h a l l h e a c c e p t e d hy a l l p o s t m a s t e r s f o r
r e g i s t r a t i o n (or f o r i n s u r a n c e i f the shipment i s i n s u r e d m a i l t r e a t e d
as r e g i s t e r e d mail) without the mailer being required to declare a
value i n excess of $1,000.
T h e r e i s i n c l o s e d f o r y o u r i n f o r m a t i o n a memorandum p r e p a r e d
h y t n e B o a r d ' s C o u n s e l d i s c u s s i n g t h e q u e s t i o n w h e t h e r y o u may l a w f u l l y
m o d i f y t h e r e g u l a t i o n s o f y o u r D e p a r t m e n t i n t h e manner s u g g e s t e d h e r e i n
Very t r u l y y o u r s ,
Eugene Meyer,
Governor.
Inclosure
COPY
X-7340-"b
THE POSTMASTER GENEBAL
mSHHG-TOH
September 3 , 1932.
Hon. E u g e n e Meyer,
Governor, Federal Reserve Board,
W a s h i n g t o n , D. C.
My d e a r G o v e r n o r :
Your l e t t e r of A u g u s t 1 2 , r e q u e s t i n g t h a t t h e
F e d e r a l R e s e r v e S y s t e m h e exempted f r o m s u r c h a r g e s on
r e g i s t e r e d mail shipments, has been g i v e n p a i n s t a k i n g
consideration.
The v i e w s of t h e D e p a r t m e n t w i t h r e s p e c t
t o t h i s m a t t e r a r e s e t out i n d e t a i l i n a memorandum
from the Third A s s i s t a n t Postmaster General, which i s
enclosed herewith.
I r e g r e t t o i n f o r m y o u t h a t i n my j u d g m e n t
the request should he denied.
Sincerely yours,
(s)
W a l t e r P . Brown
Copy
X-7240-c
-|_g0
P o s t O f f i c e Department
Third A s s i s t a n t Postmaster General
Washington
August 30, 1932.
Memorandum f o r t h e P o s t m a s t e r G e n e r a l :
S u b j e c t : L e t t e r f r o m t h e G o v e r n o r , F e d e r a l R e s e r v e B o a r d , W a s h i n g t o n , D. C , ,
dated August 12, 1932, a s k i n g the Postmaster General to p r e s c r i b e r e g u l a t i o n s
r e l i e v i n g Federal Reserve shipments of currency from s u r c h a r g e s , r e f e r e n c e b e i n g
made t o S e c t i o n 2 o f t h e A c t o f June 2 8 , 1 9 3 2 ( e f f e c t i v e J u l y 1 , 1 9 3 2 ) , w h i c h
p r o v i d e s t h a t "The f u l l v a l u e o f a l l r e g i s t e r e d m a i l o r i n s u r e d m a i l t r e a t e d a s
r e g i s t e r e d m a i l s h a l l be d e c l a r e d by the m a i l e r a t the time o f m a i l i n g u n l e s s
o t h e r w i s e p r e s c r i b e d b y t h e P o s t m a s t e r G e n e r a l * * *"
The Governor o f t h e F e d e r a l R e s e r v e Board c a l l e d a t t e n t i o n t o t h e w o r d i n g
and l a c k o f p u n c t u a t i o n i n f l u e n c i n g t h e i n t e r p r e t a t i o n t h a t may b e p l a c e d upon
t h e law i n p a r a g r a p h 2 o f t h e A c t o f June 2 8 , 1 9 3 2 , i n v o l v i n g t h e r e q u i r e m e n t
t h a t t h e f u l l v a l u e o f a l l r e g i s t e r e d m a i l or i n s u r e d m a i l t r e a t e d a s r e g i s t e r e d
m a i l s h a l l be d e c l a r e d b y t h e m a i l e r a t t h e t i m e o f m a i l i n g u n l e s s o t h e r w i s e p r e s c r i b e d by t h e P o s t m a s t e r G e n e r a l ,
He a r g u e s t h a t t h e P o s t m a s t e r G e n e r a l h a s
a u t h o r i t y t o exempt F e d e r a l R e s e r v e s h i p m e n t s from s u r c h a r g e s on r e g i s t e r e d m a i l
and r e q u e s t s t h a t t h e a u t h o r i t y g i v e n i n t h e law f o r t h e P o s t m a s t e r G e n e r a l t o do
so b e e x e r c i s e d i n F e d e r a l R e s e r v e s h i p m e n t s .
There i s no i n t e n t i o n on t h e p a r t o f t h e P o s t O f f i c e Department t o a v a i l
i t s e l f of the t e c h n i c a l i t y a r i s i n g from the implied amission of p u n c t u a t i o n .
It
i s conceded t h a t p r a c t i c a l l y c o n s t r u e d the phrase "unless o t h e r w i s e p r e s c r i b e d by
the P o s t m a s t e r General" m o d i f i e s the s e n t e n c e " s h a l l be d e c l a r e d " r a t h e r than the
p h r a s e "at t h e t i m e o f m a i l i n g .
While i t may b e t r u e t h a t t h e l a w p e r m i t s t h e P o s t m a s t e r G e n e r a l t o exempt
F e d e r a l R e s e r v e s h i p m e n t s from s u r c h a r g e s , i t m i g h t be a l s o a r g u e d and e q u a l l y
a d m i t t e d t h a t he had a u t h o r i t y t o exempt a l l r e g i s t e r e d m a i l o r i n s u r e d m a i l
t r e a t e d a s r e g i s t e r e d m a i l from s u r c h a r g e s a n d t h u s n u l l i f y t h e i n t e n t i o n o f t h e
A c t i t s e l f w h i c h p r e s c r i b e s t h e r e g i s t r y f e e s and s u r c h a r g e s .
o lFRASER
ves i t s e l f into
Digitizedsfor
The q u e s t i o n r e -
whether or not the Postmaster General i s j u s t i f i e d i n
197
•—5*™*
X-7240-c
e x e m p t i n g F e d e r a l R e s e r v e s h i p m e n t s f r o m s u r c h a r g e s b e c a u s e he h a s a u t h o r i t y t o
do s o .
The p h r a s e " u n l e s s o t h e r w i s e p r e s c r i b e d b y t h e P o s t m a s t e r G e n e r a l " i n
S e c t i o n 2 o f t h e A c t o f J u n e 2 8 , 1 9 3 2 , was recommended b y t h e P o s t O f f i c e D e p a r t ment i n t h e d r a f t f a r l e g i s l a t i o n p r e p a r e d b y t h e Department and a s i t w a s
e n a c t e d by C o n g r e s s .
The i n t e n t i o n o f t h e Department i n i n s e r t i n g t h e s e w o r d s
was p a r t i c u l a r l y t o p e r m i t t h e P o s t m a s t e r G e n e r a l t o r e l i e v e f r o m s u r c h a r g e s
m a t t e r w h i c h was e n t i t l e d t o f r e e r e g i s t r a t i o n u n d e r a l r e a d y e x i s t i n g s t a t u t e s ,
and, i n c i d e n t a l l y , o t h e r matter not e n t i t l e d to f r e e r e g i s t r a t i o n which f o r good
and s u f f i c i e n t r e a s o n s , i n t h e o p i n i o n o f t h e P o s t m a s t e r G e n e r a l , s h o u l d be
exempted from r e g i s t r y s u r c h a r g e s .
Matter which i s e n t i t l e d to f r e e r e g i s t r a t i o n has b e e n exempted from
registry surcharges.
In a d d i t i o n to the exemption from r e g i s t r y s u r c h a r g e s of
matter e n t i t l e d to f r e e r e g i s t r a t i o n , r e g i s t e r e d a r t i c l e s which contain e x c l u s i v e l y c h e c k s , d r a f t s a n d o t h e r w r i t t e n o r p r i n t e d m a t t e r h a v i n g no i n t r i n s i c v a l u e
w h i c h may be d u p l i c a t e d w i t h o u t e x p e n s e o r a t a n o m i n a l c o s t , a s w e l l a s n o n n e g o t i a b l e s e c u r i t i e s w h i c h c a n b e d u p l i c a t e d u n l e s s t h e known o r e s t i m a t e d c o s t
o f d u p l i c a t i o n i n c a s e o f l o s s w i l l e x c e e d t h e maximum i n d e m n i t y p r o v i d e d f o r t h e
amount o f r e g i s t r y f e e p a i d , h a v e a l s o b e e n e x e m p t e d f r o m r e g i s t r y s u r c h a r g e s .
The f a c t t h a t t h e F e d e r a l H e s e r v e S y s t e m i s " p e r f o r m i n g t h e f u n c t i o n s
formerly performed by, and i s b e a r i n g the expense formerly borne by, the United
S t a t e s when c u r r e n c y was d i s t r i b u t e d b y means r f s h i p m e n t s t o t h e S u b t r e a s u r i e s
and m i n t s " , d o e s n o t i n d i c a t e p e r s e t h a t the F e d e r a l R e s e r v e s h i p m e n t s o f
r e g i s t e r e d m a i l s h o u l d be e x e m p t e d f r o m s u r c h a r g e s
m i n t s were n o t e n t i t l e d t o f r e e r e g i s t r a t i o n .
b e c a u s e t h e S u b t r e a s u r i e s and
The m i n t s a n d a s s a y o f f i c e s now
in e x i s t e n c e are required to pay r e g i s t r y surcharges.
198
X - 7 240™ c
-*3*»
No m a t t e r w h i c h i s n o t e n t i t l e d t o f r e e r e g i s t r a t i o n h a s b e e n e x e m p t e d f r o m
s u r c h a r g e s e x c e p t s u c h a s come w i t h i n t h e c a t e g o r y o f t h e e x c e p t i o n s s t a t e d .
The G o v e r n o r o f t h e F e d e r a l R e s e r v e Board s t a t e s "The new r e g i s t r y s u r c h a r g e s
a r e on a ' s t r a i g h t l i n e * b a s i s ; t h a t i s , t h e y a r e one h u n d r e d t i m e s a s g r e a t f o r
a s h i p m e n t o f $ 1 0 , 0 0 0 , 0 0 0 a s f o r one o f $ 1 0 0 , 0 0 0 . "
The o b j e c t o f t h e A c t o f
Congress approved June 2 8 , 1932, was to p r o v i d e such a d d i t i o n a l revenue a s might
b e n e c e s s a r y t o make t h e r e g i s t r y s e r v i c e s e l f - s u p p o r t i n g .
The C o s t A s c e r t a i n m e n t R e p o r t o f t h e P o s t O f f i c e D e p a r t m e n t f o r t h e f i s c a l
y e a r 1 9 3 1 showed a d e f i c i t on p a i d r e g i s t r a t i o n s o f $ 8 , 5 1 6 , 3 8 7 . 5 2 .
The b a s i s m e t h o d o f p r e s c r i b i n g r e g i s t r y s u r c h a r g e s on t h e v a l u e a n d l e n g t h
c f h a u l o f the a r t i c l e i n v o l v e d i s c o n s i d e r e d by the P o s t O f f i c e Department to
be b o t h r e a s o n a b l e a n d e q u i t a b l e .
The f i x i n g o f t a r i f f s and r a t e s a c c o r d i n g t o t h e p r i n c i p l e o f "what t h e
t r a f f i c w o u l d b e a r " i s n o t a new o n e .
I t i s r e c o g n i z e d i n a l l r a t e making
r e l a t i n g to t r a n s p o r t a t i o n .
To h a v e i n c r e a s e d t h e r a t e s u n i f o r m l y o r h o r i z o n t a l l y f o r a l l a r t i c l e s would
have r e s u l t e d i n d i s c o u r a g i n g the m a i l i n g of l e t t e r s and a r t i c l e s o f s m a l l v a l u e ,
t h e r e b y r e d u c i n g t h e r e v e n u e s i n t h e amount c f t h e i n c r e a s e d f e e s .
Therefore,
the p r i n c i p l e of c h a r g e s b a s e d upon the measure of d e l i v e r e d s e r v i c e , t h a t i s ,
v a l u e a n d d i s t a n c e , was r e s o r t e d t o .
While u n i f o r m s a f e g u a r d s a r e a c c o r d e d t o
a l l m a t t e r , r e g i s t e r e d m a i l , known o r s u p p o s e d t o be o f l a r g e v a l u e , r e q u i r e s i n
p o s t o f f i c e s and t e r m i n a l s s p e c i a l p r e c a u t i o n s a n d s a f e g u a r d s i n c l u d i n g armed
guards and armored t r u c k s .
H e r e t o f o r e m a i l e r s of shipments of l a r g e v a l u e have
a v a i l e d t h e m s e l v e s o f t h e minimum r e g i s t r a t i o n f e e c f 15^ r e g a r d l e s s o f t h e v a l u e
contained i n the shipment.
The s u r c h a r g e s were a d o p t e d , t h e r e f o r e , t o p r o v i d e
a d d i t i o n a l revenue i n connection w i t h r e g i s t e r e d a r t i c l e s c o n t a i n i n g matter of
-4-
X-7240-c
l a r g e v a l u e and t h e a m o u n t s o f t h e s u r c h a r g e s w e r e f i x e d w i t h t h e i d e a o f p r o v i d i n g t h e a d d i t i o n a l r e v e n u e r e q u i r e d t o make t h e r e g i s t r y s e r v i c e s e l f - s u p p o r t ing.
I f t h e r a t e s a s now f i x e d b y l a w a r e f o u n d t o h e t o o h i g h i n t h a t r e s p e c t ,
t h e D e p a r t m e n t w i l l move t o h a v e them r e d u c e d *
R e p r e s e n t a t i v e s o f the insurance companies h a n d l i n g t h i s b u s i n e s s have
s t a t e d i n h e a r i n g s b e f o r e t h e P o s t O f f i c e and P o s t Roads Committee o f t h e House
o f R e p r e s e n t a t i v e s t h a t t h e y have b e e n a b l e to reduce t h e i r r a t e s from time to
time because of the i n c r e a s e d p r o t e c t i o n a f f o r d e d by the P o s t O f f i c e Department.
The s h i p p e r s , t h e r e f o r e , h a v e f o r y e a r s had t h e b e n e f i t o f t h e s e r v i c e w h i c h h a s
been performed c o n s i s t e n t l y a t g r e a t l o s s to the Department.
The Governor o f t h e F e d e r a l R e s e r v e Board s t a t e s t h a t t h e A c t o f J u n e 2 8 ,
1 9 3 2 , " w i l l h a v e t h e e f f e c t o f i n c r e a s i n g b y some $ 7 5 0 , 0 0 0 a n n u a l l y t h e c o s t t o
the System of s u p p l y i n g the banks of the country w i t h currency."
T h i s amount
d o e s n o t a p p e a r t o t h e P o s t O f f i c e D e p a r t m e n t t o b e e x c e s s i v e when c o n s i d e r e d and
compared w i t h t h e c o s t a n d d e f i c i t o f t h e r e g i s t r y s e r v i c e , t h e e x p e n s e f o r
t r a n s p o r t a t i o n o f s i m i l a r a m o u n t s b y o t h e r a g e n c i e s who c o n d u c t t h e i r b u s i n e s s
f o r p r o f i t , and t h e f a c t t h a t t h e P o s t O f f i c e D e p a r t m e n t m e r e l y d e s i r e s t h e
r e g i s t r y s e r v i c e t o b e made s e l f - s u s t a i n i n g i n s t e a d o f c o n t i n u i n g t o b e c o n d u c t e d
at a loss.
I f t h e $ 7 5 0 , 0 0 0 s u r c h a r g e s r e c e i v e d f r o m t h e F e d e r a l R e s e r v e S y s t e m were
d e d u c t e d f r o m t h e d e f i c i t on p a i d r e g i s t r a t i o n s , t h e r e w o u l d s t i l l b e o v e r
$ 7 , 0 0 0 , 0 0 0 d e f i c i t i n t h e r e g i s t r y s e r v i c e t o be c o l l e c t e d f r o m o t h e r f i n a n c i a l
i n s t i t u t i o n s and t h e g e n e r a l p u b l i c t o o f f s e t t h e d e f i c i e n c y .
I t i s u n d e r s t o o d t h a t the accumulated surplus c r e d i t e d to the F e d e r a l
Reserve System amounts to a p p r o x i m a t e l y $ 2 7 5 , 0 0 0 , 0 0 0 .
I f t h i s be true i t does
n o t a p p e a r t h a t $ 7 5 0 , 0 0 0 a l l o t e d t o s u r c h a r g e s on r e g i s t r y s h i p m e n t s i s more t h a n
8 0 0
-5-
X—7240—c
t h e S y s t e m c a n r e a s o n a b l y b e a r n o r i n e x c e s s o f i t s p r o p o r t i o n a t e amount o f
r e q u i r e d s u r c h a r g e s , p a r t i c u l a r l y "because t h e F e d e r a l R e s e r v e s u r p l u s d o u b t l e s s
h a s b e e n a u g m e n t e d t o some e x t e n t a t l e a s t b y t h e p a s t p e r f o r m a n c e s o f t h e
r e g i s t r y s e r v i c e conducted a t l e s s than the c o s t of the s e r v i c e rendered.
To exempt F e d e r a l Be s e r v e s h i p m e n t s f r o m t h e payment o f s u r c h a r g e s , e v e n i f
the law were c o n s t r u e d t o p e r m i t s u c h a c t i o n by the P o s t m a s t e r General, would,
i n my o p i n i o n , e s t a b l i s h a n i l l - a d v i s e d p r e c e d e n t w h i c h w o u l d d o u b t l e s s be t h e
b a s i s of o t h e r s i m i l a r r e q u e s t s f o r exemption from o t h e r f i n a n c i a l i n s t i t u t i o n s
which might a l s o claim to be performing a "quasi-governmental" f u n c t i o n .
The P o s t a l S a v i n g s S y s t e m i s d i s t i n c t l y a P o s t O f f i c e D e p a r t m e n t f e a t u r e ,
n o t w i t h s t a n d i n g i t s i n t i m a t e connection w i t h the Treasury Department.
The b a n k s
throughout the country which o b t a i n d e p o s i t s of p o s t a l savings funds a r e required
to h y p o t h e c a t e s e c u r i t i e s w i t h the Treasury Department f o r t h a t p u r p o s e .
The
shipments of these s e c u r i t i e s by r e g i s t e r e d mail to secure loans of p o s t a l
savings funds are s u b j e c t to surcharges.
The T r e a s u r y D e p a r t m e n t makes v a l u a b l e r e g i s t r y s h i p m e n t s o f n a t i o n a l b a n k
c u r r e n c y w h i c h a r e s u b j e c t t o r e g i s t r y f e e s and r e g i s t r y s u r c h a r g e s .
The f i e l d Loan A g e n c i e s o f t h e R e c o n s t r u c t i o n F i n a n c e C o r p o r a t i o n w h i c h do
n o t h a v e t h e r i g h t t o f r e e r e g i s t r a t i o n a r e a l s o r e q u i r e d t o p a y s u r c h a r g e s on
registered mail.
The A t t o r n e y G e n e r a l o f t h e U n i t e d S t a t e s , i n h i s o p i n i o n t o t h e P o s t m a s t e r
General dated October 5, 1915, copy of which i s a t t a c h e d h e r e t o , s t a t e d :
"Numerous o t h e r p r o v i s i o n s o f t h e A c t ( F e d e r a l R e s e r v e A c t ) , n o t n e c e s s a r y t o b e
here s e t f o r t h i n d e t a i l , m a n i f e s t the purpose of Congress to impose upon the
b a n k s a l l e x p e n s e s c o n n e c t e d w i t h i t s a d m i n i s t r a t i o n " and "* * * t h a t t h e s e n o t e s
( F e d e r a l R e s e r v e n o t e s ) do n o t r e l a t e ' e x c l u s i v e l y t o t h e b i s i n e s s o f t h e U n i t e d
S t a t e s , 1 and t h e r e f o r e , r e g a r d l e s s o f the F e d e r a l Reserve A c t , c o u l d not e n j o y
201
-6-
X-7240-c
t h e " b e n e f i t o f t h e f r e e c a r r i a g e p r o v i s i o n o f t h e A c t o f March 3 , 1 8 7 7 , ( 1 9 S t a t .
319, 3 3 5 ) . "
The r i g h t t o f r e e p o s t a g e d o e s n o t n e c e s s a r i l y c a r r y w i t h i t t h e r i g h t t o
f r e e r e g i s t r a t i o n a n d t h e r e f o r e t h e r e a r e i n s t a n c e s w h e r e t h e r e g i s t r y f e e s and
t h e s u r c h a r g e s a r e r e q u i r e d where p o s t a g e i s n o t r e q u i r e d "but I know o f no
i n s t a n c e where t h e r i g h t t o f r e e r e g i s t r a t i o n i s g i v e n i n w h i c h t h e r i g h t t o f r e e
postage i s not also l e g a l i z e d .
I n c o n c l u s i o n , i t i s my o p i n i o n t h a t t h e F e d e r a l R e s e r v e s h i p m e n t s s h o u l d
n o t "be e x e m p t e d f r o m t h e payment o f s u r c h a r g e s on r e g i s t e r e d m a i l w h i c h n a t u r a l l y
c a r r i e s w i t h i t the r e q u i r e d d e c l a r a t i o n of v a l u e s a t the time of m a i l i n g .
The F e d e r a l R e s e r v e B o a r d may h a v e some c h a n g e s t o s u g g e s t i n c o n n e c t i o n
w i t h t h e r e g i s t r y f e e s a n d s u r c h a r g e s and i f so t h e P o s t O f f i c e D e p a r t m e n t would
w e l c o m e , a n d g i v e c o n s i d e r a t i o n t o , a n y s u g g e s t i o n s made w h i c h w i l l r e s u l t i n
o f f s e t t i n g the r e g i s t r y d e f i c i t of $ 8 , 5 1 6 , 3 8 7 . 5 2 reported in paid r e g i s t r a t i o n s
f o r the f i s c a l y e a r 1931.
There i s i n c l o s e d h e r e w i t h a copy o f t h e C o s t
A s c e r t a i n m e n t R e p o r t and R e p o r t o f t h e P o s t m a s t e r G e n e r a l f o r t h e f i s c a l y e a r
1 9 3 1 , p a r t i c u l a r r e f e r e n c e "being made i n t h e C o s t A s c e r t a i n m e n t R e p o r t t o T a b l e
A, p a g e 1 0 , a n d i n t h e P o s t m a s t e r G e n e r a l ' s R e p o r t t o p a g e s 8 and 4 9 and t o T a b l e
Ho. 16 b e g i n n i n g on p a g e 98*
As a m a t t e r o f i n t e r e s t i n c o n n e c t i o n w i t h t h i s
s u b j e c t I am a l s o i n c l o s i n g a c o p y o f t h e H e a r i n g s b e f o r e S u b c o m m i t t e e Ho. 5 o f
t h e Committee on t h e P o s t O f f i c e a n d P o s t R o a d s , House o f R e p r e s e n t a t i v e s ,
F e b r u a r y 1 8 , 1 9 3 0 , on B i l l H. R. 8 5 7 3 ( 7 1 s t C o n g r e s s 2d S e s s i o n ) t o a u t h o r i z e t h e
P o s t m a s t e r G e n e r a l t o p a y i n d e m n i t y f o r t h e a c t u a l v a l u e o f r e g i s t e r e d m a i l and
to f i x the f e e s f o r the r i s k s assumed.
A f t e r t h e s e Hearings were h e l d a n o t h e r
b i l l was s u b s t i t u t e d (H. R. 1 0 2 4 4 , 72d C o n g r e s s 1 s t S e s s i o n ) i n w h i c h r e g i s t r y
-7-
X-7240-c
f e e s and s u r c h a r g e s w e r e f i x e d b y C o n g r e s s and w h i c h was p a s s e d "by b o t h H o u s e s
o f C o n g r e s s , and a p p r o v e d b y t h e P r e s i d e n t June 2 8 , 1 9 3 2 ,
This l a t e r b i l l
(H. R. 1 0 2 4 4 ) i s t h e s u b j e c t o f t h i s memorandum.
( S ) F . A. T i l t o n ,
Third A s s i s t a n t Postmaster General.
COPY
X-7240-d
THE DEPARTMENT OP JUSTICE
WASHINGTON.
October 5, 1915.
The H o n o r a b l e ,
The P o s t m a s t e r G e n e r a l .
Sir?
I have the honor t o acknowledge your l e t t e r o f August 24,
1 9 1 5 , w h e r e i n y o u r e q u e s t my o p i n i o n a s t o w h e t h e r F e d e r a l r e s e r v e n o t e s can b e s e n t t h r o u g h t h e m a i l s "under p e n a l t y e n v e l o p e s
o r l a b e l s b y t h e members o f t h e F e d e r a l R e s e r v e B o a r d .
The s o l u t i o n o f t h e q u e s t i o n d e p e n d s a l o n e u p o n t h e c o r r e c t
i n t e r p r e t a t i o n o f t h e A c t o f December 2 3 , 1 9 1 3 ( U n i t e d S t a t e s
S t a t u t e s a t L a r g e ; Advance P a m p h l e t , p . 2 5 1 ) , commonly r e f e r r e d
to a s the F e d e r a l Reserve Act, the m a t e r i a l p o r t i o n whereof r e a d s :
When s u c h ( F e d e r a l r e s e r v e ) n o t e s h a v e b e e n
p r e p a r e d , t h e y s h a l l be d e p o s i t e d i n the Treasury,
or i n the s u b t r e a s u r y or mint of the U n i t e d S t a t e s
n e a r e s t the p l a c e of b u s i n e s s of each Federal reserve
b a n k a n d s h a l l be h e l d f o r t h e u s e o f s u c h b a n k s u b j e c t t o the o r d e r of t h e Comptroller of the Currency
f o r t h e i r d e l i v e r y , a s provided by t h i s a c t . ******,
and t h e e x p e n s e s n e c e s s a r i l y i n c u r r e d i n e x e c u t i n g the
laws r e l a t i n g t o the p r o c u r i n g o f such n o t e s , and a l l
o t h e r e x p e n s e s i n c i d e n t a l to t h e i r i s s u e and r e t i r e ment, s h a l l be p a i d by the F e d e r a l r e s e r v e banks, and
the F e d e r a l Reserve Board s h a l l include i n i t s e s t i mate o f e x p e n s e s l e v i e d a g a i n s t the F e d e r a l r e s e r v e
b a n k s a s u f f i c i e n t amount t o c o v e r t h e e x p e n s e s h e r e i n
provided f o r .
204
X-7240-d
— 2 -*
The l a n g u a g e p l a i n l y i m p o s e s upon t h e F e d e r a l r e s e r v e
banks a l l expenses i n v o l v e d i n the procurement, i s s u a n c e
and r e t i r e m e n t of F e d e r a l r e s e r v e n o t e s .
As t h e s h i p m e n t
o f t h e s e n o t e s t o t h e s u b t r e a s u r y , e t c . , and u l t i m a t e l y t o
t h e b a n k a p p l y i n g f o r them, i s n e c e s s a r i l y a s t e p p r e c e d e n t
to t h e i r i s s u a n c e , i t f o l l o w s that the expense of such s h i p ment i s one " i n c i d e n t a l t o t h e i r ( t h e n o t e s ) i s s u e j,'" and
u n d e r t h e t e r m s o f t h e a c t m u s t b e "borne- b y t h e b a n k s .
Numerous o t h e r p r o v i s i o n s o f t h e a c t , n o t n e c e s s a r y t o
be h e r e s e t f o r t h i n d e t a i l , m a n i f e s t t h e p u r p o s e o f C o n g r e s s
to impose upon the banks a l l e x p e n s e s c o n n e c t e d w i t h i t s a d ministration.
Having reached the c o n c l u s i o n that the Federal Reserve
A c t i m p o s e s t h e e x p e n s e o f s h i p m e n t upon t h e r e s e r v e b a n k s ,
I deem i t u n n e c e s s a r y t o p a s s upon t h e a d d i t i o n a l r e a s o n
a s s i g n e d b y y o u r S o l i c i t o r , v i z : t h a t t h e s e n o t e s do n o t
r e l a t e " e x c l u s i v e l y to the b u s i n e s s of the U n i t e d S t a t e s , "
and t h e r e f o r e , r e g a r d l e s s o f t h e F e d e r a l R e s e r v e A c t , c o u l d
not e n j o y the b e n e f i t of the f r e e carriage p r o v i s i o n of the
A c t o f March 3 , 1 8 7 7 ( 1 9 S t a t . 3 1 9 , 3 3 5 ) .
Respectfully,
( S i g n e d ) T. T . GREGORY.
Attorney General.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7241
September 1 4 , 1932.
SUBJECT:
R e s e r v e s A g a i n s t Funds C o l l e c t e d
"by B a n k s u n d e r R e v e n u e A c t .
Dear S i r :
There i s i n c l o s e d h e r e w i t h , f o r your i n f o r m a t i o n ,
c o p y o f a l e t t e r a d d r e s s e d "by t h e B o a r d t o t h e F e d e r a l
R e s e r v e A g e n t a t San F r a n c i s c o i n r e s p o n s e t o a n i n q u i r y
a s t o whether funds c o l l e c t e d by banks pursuant t o t h e
r e q u i r e m e n t s of S e c t i o n 751 of t h e Revenue A c t of 1932,
and h e l d f o r r e m i t t a n c e t o t h e C o l l e c t o r of I n t e r n a l
Revenue, are subject to r e s e r v e .
Very t r u l y y o u r s ,
Cheater M o r r i l l ,
Secretary.
Inclosure.
TO GOVERNORS OF ALL F . R. B A M S .
COPT
X-7241-a
Sep 3 1 9 3 2
Mr. I s a a c B . N e w t o n ,
Federal Reserve Agent,
F e d e r a l R e s e r v e Bank o f San F r a n c i s c o ,
San F r a n c i s c o , C a l i f o r n i a .
Dear Mr. N e w t o n :
R e f e r e n c e i s made t o y o u r l e t t e r o f A u g u s t 1 3 , 1 9 3 2 ,
i n which y o u i n q u i r e whether f u n d s c o l l e c t e d by t a n k s under t h e
R e v e n u e A c t and h e l d f o r r e m i t t a n c e t o t h e C o l l e c t o r o f I n t e r n a l
Revenue a r e s u b j e c t t o r e s e r v e .
I t i s assumed t h a t y o u r e f e r t o
amounts c o l l e c t e d pursuant t o the r e q u i r e m e n t s of S e c t i o n 751 of
the Revenue Act of 1932, which c o n t a i n s t h e p r o v i s i o n s w i t h r e s p e c t t o t h e t a x on c h e c k s , d r a f t s o r o r d e r s f o r t h e payment o f
money.
Upon c o n s i d e r a t i o n of t h i s q u e s t i o n , i t i s t h e
o p i n i o n o f t h e F e d e r a l R e s e r v e Board t h a t amounts c o l l e c t e d by
member b a n k s a n d h e l d p e n d i n g payment t o t h e C o l l e c t o r i n a c c o r d a n c e w i t h t h e p r o v i s i o n s of t h e s t a t u t e i n q u e s t i o n do n o t c o n s t !
t u t e d e p o s i t s w i t h i n t h e m e a n i n g of S e c t i o n 19 o f t h e F e d e r a l R e s e r v e Act and, a c c o r d i n g l y , a r e not s u b j e c t t o t h e r e s e r v e r e q u i r e m e n t s of t h a t s e c t i o n .
Very t r u l y y o u r s ,
(s)
Chester M o r r i l l ,
Secretary.
X-7242
(
LIST OF DOCUMENTS PERTAINING TO THE "CASHING" OF
GOVERNMENT WARRANTS AND C|BCKS BY FEDERAL RESERVE BANKS WHICH
HAVE BEEN SENT TO COUNSEL TO THE VARIOUS FEDERAL RESERVE BABES,
Memorandum a d d r e s s e d b y Mr. T%yatt t o t h e F e d e r a l
R e s e r v e Board under d a t e of A p r i l 1 7 , 1931, (X-6867) and
documents a t t a c h e d t h e r e t o as e x h i b i t s ( X - 6 8 6 7 - a ) ;
L e t t e r a d d r e s s e d t o t h e Board under d a t e of A p r i l 23,
1 9 3 1 , "by t h e Under S e c r e t a r y o f t h e T r e a s u r y ( X - 6 8 8 0 ) t r a n s m i t t i n g copy of an o p i n i o n of t h e A t t o r n e y General of t h e U n i t e d
S t a t e s r e n d e r e d May 2 7 , 1 9 2 5 , ( X - 6 8 8 0 - a ) ;
L e t t e r a d d r e s s e d "by t h e B o a r d t o t h e G o v e r n o r s o f a l l
F e d e r a l r e s e r v e b a n k s a n d t o members o f t h e S t a n d i n g C o m m i t t e e
o n C o l l e c t i o n s u n d e r d a t e o f May 6 , 1 9 3 1 , ( X - 6 8 8 1 ) ;
Copy o f t h e r e p o r t r e n d e r e d u n d e r d a t e o f A u g u s t 1 0 ,
1 9 3 1 , b y t h e S t a n d i n g C o m m i t t e e on C o l l e c t i o n s on t h i s s u b j e c t #
L e t t e r d a t e d A u g u s t 1 3 , 1 9 3 1 , a d d r e s s e d b y Mr. Tfratt
t o Mr. J o h n S« Walden* J r . , Chairman o f t h e S t a n d i n g Committee
on C o l l e c t i o n s , d i s c u s s i n g t h e C o m m i t t e e ' s r e p o r t on t h i s s u b j e c t (X-6944);
L e t t e r d a t e d A u g u s t 1 9 , 1 9 3 1 , f r o m Mr. R o b e r t S .
P a r k e r , C o u n s e l t o t h e F e d e r a l R e s e r v e Bank o f A t l a n t a , d i s c u s s i n g
t h e l e t t e r Mr. H y a t t a d d r e s s e d t o Mr. I f e l d e n u n d e r d a t e o f A u g u s t
13, 1931, (X-7169-a);
L e t t e r d a t e d S e p t e m b e r 1 1 , 1 9 3 1 , f r o m Mr. A . C. Agnew,
C o u n s e l t o t h e F e d e r a l R e s e r v e Bank o f San F r a n c i s c o , a l s o
d i s c u s s i n g t h e l e t t e r of A u g u s t 1 3 , 1 9 3 1 , a b o v e r e f e r r e d t o
(X-7169-b);
X-7242
-
2 -
L e t t e r d a t e d November 2 8 , 1 9 3 1 , f r o m Mr. James G-.
McConkey, C o u n s e l t o t h e F e d e r a l R e s e r v e Bank o f S t . L o u i s ,
i n c l o s i n g a memorandum w h i c h h e had p r e p a r e d d i s c u s s i n g t h e
r e p o r t r e n d e r e d b y t h e S t a n d i n g Committee o n C o l l e c t i o n s a n d
the l e t t e r of August 13, 1931, above r e f e r r e d t o (X-7169~c
and X - 7 1 6 9 - c - l ) ;
L e t t e r d a t e d December 1 4 , 1 9 3 1 , a d d r e s s e d b y Mr.
I f y a t t t o Mr. McConkey i n r e s p o n s e t o h i s l e t t e r o f November
28, 1931, (X-7169-d);
L e t t e r d a t e d J a n u a r y 6 , 1 9 3 2 , f r o m Mr. J . P . D r e i b e l b i s
o f t h e f i r m o f L o c k e , L o c k e , S t r o u d and R a n d o l p h , C o u n s e l t o t h e
F e d e r a l R e s e r v e Bank of D a l l a s , i n c l o s i n g a f i l e o f c o r r e s p o n d e n c e
c o n c e r n i n g Treasury checks which were i n v o l v e d i n t h e f a i l u r e of
a n a t i o n a l b a n k i n T e x a s ( X - 7 1 6 9 - e ) and X - 7 1 6 9 - e - l t o X - 7 1 6 9 - e - 2 5 ) ;
L e t t e r d a t e d J u n e 1 , 1 9 3 2 , f r o m Mr. J . S . Walden, J r . ,
Chairman o f t h e S t a n d i n g Committee on C o l l e c t i o n s , d i s c u s s i n g t h e
p o s s i b i l i t y o f h o l d i n g a c o n f e r e n c e on t h i s s u b j e c t ( X - 7 1 6 9 - g ) ; and
R e p l y o f Mr.
flyatt
d a t e d June 2 , 1932, ( X - 7 1 6 9 ~ f ) f
X-7342-a ^
L i s t of documents t f a n a m i t t e d to the Counsel to the
yariofos
A p e i h r e 'Banks r e g a r d i n g t h e l e g a l
a n d p r a c t i c a l p r o b l e m s a r i s i n g u n d e r t h e Bank
C o l l e c t i o n Code.
*****
1.
L e t t e r d a t e d March 2 6 , 1 9 3 1 , f r o m Mr. W a l t e r S , L o g a n ,
D e p u t y Governor and G e n e r a l C o u n s e l o f t h e F e d e r a l R e s e r v e Bank o f New
Y o r k , t o Mr. Tftratt ( X - 6 8 5 1 - a ) ;
2.
R e p l y o f Mr. W y a t t , d a t e d March 3 1 , 1 9 3 1 ( X - 6 8 5 1 ) ;
3.
L e t t e r s w r i t t e n by Counsel t o t h e v a r i o u s Federal Reserve
Banks d i s c u s s i n g q u e s t i o n s p r e s e n t e d i n c o r r e s p o n d e n c e a b o v e r e f e r r e d
to (X-6910 to X - 6 9 1 0 - i ) ;
4.
Copy o f a n o p i n i o n of t h e Supreme Court o f New York i n t h e
c a s e of I n r e J a y n e & Mason, P r i v a t e B a n k e r s , and c o p y o f Mr. L o g a n ' s
memorandum o f a u t h o r i t i e s i n t h a t c a s e ;
5.
U n d a t e d memorandum a d d r e s s e d t o Mr. I t y a t t b y Mr. F . G,
A w a i t , Deputy Comptroller of t h e Currency, i n c l o s i n g c o p i e s of
t e l e g r a p h i c c o r r e s p o n d e n c e b e t w e e n him and t h e F e d e r a l R e s e r v e Bank o f
San F r a n c i s c o ( X - 7 0 0 8 - a t o X - 7 0 0 8 - a - 6 ) ;
6.
L e t t e r , w i t h i n c l o s u r e s , a d d r e s s e d t o Mr. Wyatt u n d e r d a t e
o f J u n e 1 1 , 1 9 3 1 , b y Mr. W a l t e r S . L o g a n , D e p u t y G o v e r n o r and G e n e r a l
C o u n s e l o f t h e F e d e r a l R e s e r v e Bank o f New York ( X - 7 0 0 8 - b t o X - 7 0 0 8 - b ~ 4 ) ;
7.
L e t t e r a d d r e s s e d t o Mr. w y a t t u n d e r d a t e of J u n e 1 5 , 1 9 3 1 b y
Mr, A, C. Agnew, C o u n s e l t o t h e F e d e r a l R e s e r v e Bank cf S a n F r a n c i s c o
(X-7008-c);
8.
L e t t e r a d d r e s s e d t o Mr. Wyatt b y Mr. M. G. W a l l a c e , C o u n s e l
t o t h e F e d e r a l R e s e r v e Bank o f Richmond u n d e r d a t e o f J u n e 1 7 , 1 9 3 1
( X - 7 0 0 8 - d ) , i n c l o s i n g c o p y o f l e t t e r a d d r e s s e d t o Mr. Logon on t h e same
X-7242-a
2 d a t e w i t h R e f e r e n c e t o t h e d e c i s i o n o f t h e Supreme Court o f S o u t h
C a r o l i n a i n t h e c a s e o f Ex P a r t e Wachovia Bank and T r u s t Company,
158 S . E . 214; ( X - 7 0 0 8 - d - l ) ;
9.
L e t t e r a d d r e s s e d t o Mr. %ratt b y Mr. W a l l a c e d a t e d
J u l y 1 7 , 1 9 3 1 ( X - 7 0 0 8 - e ) i n c l o s i n g c o p y of a memorandum t o t h e E x e c u t i v e
Committee o f t h e F e d e r a l R e s e r v e Bank o f Richmond ( X - 7 0 0 8 - e - l t o X - 7 0 0 8 6-5);
10.
L e t t e r a d d r e s s e d t o Mr. %ratt b y Mr. L o g a n , d a t e d S e p t e m b e r
3 0 , 1 9 3 1 ( X — 7 0 0 8 - f ) i n c l o s i n g c o p y of a l e t t e r a n d i n c l o s u r e a d d r e s s e d
t o t h e Comptroller of t h e Currency ( X - 7 0 0 8 - f - l and X - 7 0 0 8 - f - 2 ) ;
11.
L e t t e r a d d r e s s e d t o Mr. Wyatt b y Mr. L o g a n , d a t e d O c t o b e r
6, 1931 ( X - 7 0 0 8 - g ) i n c l o s i n g copy of l e t t e r t o t h e Comptroller o f t h e
C u r r e n c y r e g a r d i n g c h e c k s on P e o p l e s N a t i o n a l Bank o f P u l a s k i ,
Hew
York ( X - 7 0 0 8 - g - l a n d X - 7 0 0 8 - - g - 2 ) ;
12.
L e t t e r o f November 9 , 1 9 3 1 , f r o m Mr. R o b e r t S . P a r k e r ,
C o u n s e l t o t h e F e d e r a l R e s e r v e Bank o f A t l a n t a ( X - 7 1 0 8 — f ) ;
13.
L e t t e r d a t e d November 2 1 , 1 9 3 1 , f r o m Mr. W a l l a c e , C o u n s e l
t o t h e F e d e r a l R e s e r v e Bank o f Richmond, t o Mr. Wyatt ( X - 7 0 4 3 - a ) ;
14.
L e t t e r q u o t i n g t e l e g r a m w h i c h Mr. F . G. A w a i t , D e p u t y
Comptroller of t h e Currency, s e n t t o the r e c e i v e r of t h e P e o p l e s
N a t i o n a l Bank o f P u l a s k i , New Y o r k , on December 2 , 1 9 3 1 ( X - 7 0 4 3 ) ;
15*
L e t t e r o f December 3 0 , 1 9 3 1 , and i n c l o s u r e s , f r o m Mr.
M.G-. W a l l a c e , C o u n s e l t o t h e F e d e r a l R e s e r v e Bank o f Richmond (X-7108—a
and X - 7 1 0 8 - a ^ l t o X - 7 1 0 8 - a - 9 ) ;
16.
L e t t e r o f December 1 6 , 1 9 3 1 , f r o m Mr. H. 0 . L e e d y , C o u n s e l
t o t h e F e d e r a l R e s e r v e Bank of K a n s a s C i t y ( X - 7 1 0 8 - b ) ;
^JLO
X—7243-a
—3—
17,
T h r e e l e t t e r s , one w i t h a n i n c l o s u r e , f r o m Mr. A. C.
Agnew, C o u n s e l t o t h e F e d e r a l R e s e r v e Bank o f San F r a n c i s c o , d a t e d
December 2 2 , 1 9 3 1 , J a n u a r y 5 , 1 9 3 2 , a n d J a n u a r y 2 2 , 1 9 3 2 ( X - 7 1 0 8 - e ,
X-7108-d, X-7108-c and X - 7 1 0 8 - c - l ) .
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
the federal reserve board
SUBJECT:
X-7243
September 1 6 , 1932.
Holidays during October, 1932.
Dear S i r i
On W e d n e s d a y , O c t o b e r 1 2 t h , i n o b s e r v a n c e o f Columbus
D a y , t h e r e w i l l b e n e i t h e r G o l d S e t t l e m e n t Fund n o r F e d e r a l
r e s e r v e n o t e c l e a r i n g , and t h e "books o f t h e F e d e r a l R e s e r v e
B o a r d ' s G o l d S e t t l e m e n t Fund w i l l b e c l o s e d . The o f f i c e s o f
the Board, and t h e f o l l o w i n g F e d e r a l R e s e r v e Banks and Branches
w i l l be open f o r b u s i n e s s as u s u a l :
Ri chmond
Charlotte
S t . Loui s
L i t t l e Rock
Memphis
Atlanta
Birmingham
Nashville
Jacksonville
Minneapolis
Kansas C i t y
Denver
Oklahoma C i t y
Detroit
In a d d i t i o n to t h e h o l i d a y mentioned above, t h e f o l l o w i n g B r a n c h e s o f t h e F e d e r a l R e s e r v e Bank of A t l a n t a w i l l b e
c l o s e d on the d a t e s i n d i c a t e d :
Monday
October 10
Havana A g e n c y
R e v o l u t i o n of Yara
Tuesday
October 11
Birmingham
F r a t e r n a l Day
Friday
October 14
Jacksonville
F a r m e r s 1 Day
Please n o t i f y branches.
Very t r u l y y o u r s ,
J . C. N o e l l ,
Assistant Secretary.
TO GOVERNORS OF ALL F . R . BANKS.
FEDERAL RESERVE BOARD
WASHINGTON
X-7247
address official correspondence t o
the federal reserve board
SUBJECT:
September 20, 1932
D e c i s i o n of C o m p t r o l l e r General r e
c o s t of Federal r e s e r v e n o t e s .
Dear S i r :
R e f e r e n c e i s made t o t h e B o a r d ' s l e t t e r o f S e p t e m b e r 1 , 1 9 3 2 ,
X - 7 2 3 6 , o n t h e s u b j e c t o f t h e "Charge f o r p r i n t i n g F e d e r a l r e s e r v e
n o t e s d u r i n g f i s c a l y e a r 1 9 3 3 , " and t h e r e i s i n c l o s e d h e r e w i t h , f o r
your i n f o r m a t i o n , copy of a l e t t e r addressed t o t h e S e c r e t a r y of t h e
Treasury by the Comptroller General of the U n i t e d S t a t e s , under d a t e
of September 13, 1932, which quotes and r e p l i e s t o a l e t t e r which t h e
S e c r e t a r y a d d r e s s e d t o t h e C o m p t r o l l e r G e n e r a l on S e p t e m b e r 1 , 1 9 3 2 ,
r e q u e s t i n g a r e c o n s i d e r a t i o n o f t h e d e c i s i o n t h a t no r e d u c t i o n i n t h e
c h a r g e made a g a i n s t F e d e r a l r e s e r v e b a n k s f o r t h e p r i n t i n g o f F e d e r a l
r e s e r v e n o t e s may b e made a s a r e s u l t o f t h e r e d u c t i o n i n t h e c o m p e n s a t i o n of employees engaged i n t h e p r i n t i n g of s u c h n o t e s by t h e
o p e r a t i o n o f t h e Economy A c t o f 1 9 3 2 .
In view of t h e Comptroller General's a f f i r m a t i o n of h i s
p r e v i o u s d e c i s i o n , t h e charge a g a i n s t the Federal r e s e r v e banks f o r the
p r i n t i n g of F e d e r a l r e s e r v e n o t e s during the f i s c a l y e a r 1933 w i l l be
a t t h e r a t e of $ 9 0 . 5 0 p e r one thousand s h e e t s .
Very t r u l y y o u r s ,
Chester Morrill,
Secretary.
Inclosure.
TO GOVERNORS
OF ALL F . R. B A M S .
X-7247-a
COPY
COMPTROLLER GENERAL OF THE UNITED STATES
mSHIUGTOU
A-43585
September 1 3 , 1 9 3 2 .
The H o n o r a b l e ,
The S e c r e t a r y o f t h e T r e a s u r y .
Sir:
T h e r e h a s "been r e c e i v e d y o u r l e t t e r o f S e p t e m b e r 1 , 1 9 3 2 ,
as follows:
" R e f e r e n c e i s made t o y o u r l e t t e r o f A u g u s t 5 , 1 9 3 2 ( A - 4 3 5 8 5 )
i n w h i c h y o u h e l d i n r e s p o n s e t o q u e s t i o n Ho. 5 s e t f o r t h i n my
l e t t e r of J u l y 22, 1932, t h a t employees of t h e Bureau of Engraving
and P r i n t i n g e n g a g e d u p o n r e p a y work a r e s u b j e c t t o t h e p r o v i s i o n s
of s e c t i o n 1 0 1 o f t h e Economy A c t , t h a t t h e a m o u n t s w i t h h e l d f r o m
t h e c o m p e n s a t i o n o f s u c h e m p l o y e e s by r e a s o n o f t h e o p e r a t i o n o f
t h i s s t a t u t e m a s t b e impounded, a n d t h a t t h e f a c t t h a t t h e convp e n s a t i o n a c t u a l l y p a i d such employees has been reduced by the
o p e r a t i o n o f t h e Econony Act does not a u t h o r i z e any r e d u c t i o n i n
t h e amount o f t h e c o s t o f p r i n t i n g F e d e r a l R e s e r v e n o t e s and p o s t a g e s t a m p s w h i c h i s t o b e r e i m b u r s e d t o t h e Government b y o t h e r
agencies.
"The F e d e r a l R e s e r v e Board h a s i n v i t e d my a t t e n t i o n t o t h e
f a c t t h a t i n making t h i s r u l i n g y o u a p p a r e n t l y d i d n o t have b e f o r e you s e c t i o n 16 of the Federal Reserve Act, which p r o v i d e s
f o r t h e payment b y t h e F e d e r a l R e s e r v e B a n k s o f t h e e x p e n s e s
n e c e s s a r i l y i n c u r r e d i n c o n n e c t i o n w i t h the p r i n t i n g and i s s u e
of F e d e r a l r e s e r v e n o t e s ; and, a c c o r d i n g l y , a t t h e i n s t a n c e of
t h e B o a r d , I am a g a i n p r e s e n t i n g t h i s m a t t e r t o y o u w i t h t h e
request that i t be given reconsideration i n the l i g h t of the
p r o v i s i o n s of t h i s s t a t u t e .
" S e c t i o n 16 of t h e F e d e r a l Reserve Act c o n t a i n s the f o l l o w i n g p r o v i s i o n s on t h i s s u b j e c t :
" 'The p l a t e s and d y e s t o b e p r o c u r e d b y t h e C o m p t r o l l e r
of t h e Currency f o r t h e p r i n t i n g of such c i r c u l a t i n g n o t e s s h a l l
r e m a i n u n d e r h i s c o n t r o l and d i r e c t i o n , and t h e e x p e n s e s n e c e s s a r i l y incurred i n executing the laws r e l a t i n g to the procuring
o f s u c h n o t e s , and a l l o t h e r e x p e n s e s i n c i d e n t a l t o t h e i r i s s u e
215
X-7247-a
A-43585
-2~
and r e t i r e m e n t , s h a l l b e p a i d "by t h e F e d e r a l r e s e r v e "banks, a n d
the F e d e r a l R e s e r v e Board s h a l l i n c l u d e i n i t s e s t i m a t e of e x p e n s e s l e v i e d a g a i n s t t h e F e d e r a l R e s e r v e Banks a s u f f i c i e n t
amount t o c o v e r t h e e x p e n s e s h e r e i n p r o v i d e d f o r ,
ii
t *
*
*
11
'Any a p p r o p r i a t i o n h e r e t o f o r e made o u t o f t h e g e n e r a l
f u n d s o f t h e T r e a s u r y f o r e n g r a v i n g p l a t e s and d i e s , t h e p u r c h a s e
o f d i s t i n c t i v e p a p e r , or t o c o v e r a n y o t h e r e x p e n s e i n c o n n e c t i o n
w i t h t h e p r i n t i n g o f n a t i o n a l - h a n k n o t e s or n o t e s p r o v i d e d f o r "by
t h o a c t o f May t h i r t i e t h , n i n e t e e n h u n d r e d and e i g h t , a n d a n y d i s t i n c t i v e p a p e r t h a t may "be on hand a t t h e t i n e o f t h e p a s s a g e o f
t h i s A c t may "be u s e d i n t h e d i s c r e t i o n o f t h e S e c r e t a r y f o r t h o
p u r p o s e s o f t h i s A c t , and s h o u l d t h e a p p r o p r i a t i o n s h e r e t o f o r e
made "be i n s u f f i c i e n t t o m e e t t h e r e q u i r e m e n t s o f t h i s A c t i n
a d d i t i o n t o c i r c u l a t i n g n o t e s p r o v i d e d f o r "by e x i s t i n g l a w , t h e
S e c r e t a r y i s h e r e b y a u t h o r i z e d t o u s e s o much o f a n y f u n d s i n
the Treasury not o t h e r w i s e appropriated f o r the purpose of f u r n i s h i n g t h e n o t e s a f o r e s a i d : P r o v i d e d , h o w e v e r , That n o t h i n g
i n t h i s s e c t i o n contained s h a l l be construed as exemption n a t i o n a l b a n k s o r F e d e r a l r e s e r v e banks f r o m t h e i r l i a b i l i t y t o r e i m b u r s e the U n i t e d S t a t e s f o r any expenses i n c u r r e d i n p r i n t i n g
and i s s u i n g c i r c u l a t i n g n o t e s . '
"Under t h e s e p r o v i s i o n s o f t h e s t a t u t e , t h e F e d e r a l r e s e r v e
b a n k s a r e a u t h o r i z e d and r e q u i r e d t o p a y t h e n e c e s s a r y e x p e n s e s
o f p r i n t i n g and i s s u i n g F e d e r a l r e s e r v e n o t e s ; and t h e y h a v e n o
a u t h o r i t y to i n c l u d e i n t h e i r payments c o v e r i n g such expenses
amounts w h i c h a r e t o b e u s e d f o r o t h e r p u r p o s e s . Amounts i m p o u n d ed i n t h e T r e a s u r y o f t h e U n i t e d S t a t e s u n d e r t h e p r o v i s i o n s o f
t h e Economy A c t c l e a r l y do n o t c o n s t i t u t e a n y p a r t of t h e e x p e n s e s
of p r i n t i n g or i s s u i n g F e d e r a l r e s e r v e n o t e s . I t i s r e s p e c t f u l l y
submitted, t h e r e f o r e , that s i n c e the law governing the p r i n t i n g
and i s s u e o f t h e s e n o t e s s p e c i f i c a l l y p r e s c r i b e s t h e "oasis o f
r e i m b u r s e m e n t o f t h e T r e a s u r y b y t h e F e d e r a l r e s e r v e "banks t h e r e
may n o t l a w f u l l y b e i n c l u d e d i n t h e amounts w h i c h t h e F e d e r a l
r e s e r v e b a n k s a r e a s k e d t o p a y a d d i t i o n a l sums w h i c h a r e t o b e
impounded i n t h e T r e a s u r y o f t h e U n i t e d S t a t e s .
"Moreover, I am a d v i s e d t h a t t h e a p p r o p r i a t i o n b y C o n g r e s s
f o r t h e B u r e a u o f E n g r a v i n g and P r i n t i n g d o e s n o t i n c l u d e a n y
amount f o r t h e e x p e n s e s o f ' r e p a y w o r k ' , i . e . , w o r k a s t o w h i c h
tho expenses are repaid by other a g e n c i e s , but the only approp r i a t i o n f o r t h e B u r e a u i s f o r . work ' e x c l u s i v e o f r e p a y w o r k . '
I t i s t h o p r a c t i c e o f t h e B u r e a u t o make p a y m e n t s o f t h e s a l a r i e s
of i t s e m p l o y e e s e n g a g e d c i t h e r i n r e p a y work or i n n o n - r e p a y work
X-7247-a
A-43585
-3-
o u t o f t h e f u n d t h u s a p p r o p r i a t e d "by C o n g r e s s , "but t h a t p a r t o f
t h e c o m p e n s a t i o n o f e m p l o y e e s w h i c h i s a p p l i c a b l e t o r e p a y work
i s reimbursed t o t h e Bureau from time t o time by t h e a g e n c i e s f o r
w h i c h t h e work i s p e r f o r m e d . I n t h e c a s e o f F e d e r a l r e s e r v e n o t e s ,
s u c h r e i m b u r s e m e n t i s made b y t h e F e d e r a l R e s e r v e B o a r d f r o m a s s e s s ments l e v i e d upon t h e Federal r e s e r v e banks, and t h e amounts obt a i n e d through such reimbursements are p l a c e d t o the c r e d i t of tho
a p p r o p r i a t i o n made b y C o n g r e s s f o r t h e e x p e n s e s o f t h e B u r e a u f o r
non-repay work.
"Inasmuch a s t h e o n l y a p p r o p r i a t i o n b y C o n g r e s s f o r t h e
B u r e a u o f E n g r a v i n g and P r i n t i n g i s f o r t h e work o f t h e B u r e a u
• e x c l u s i v e of repay w o r k , ' i t i s submitted t h a t s e c t i o n 110 of
t h e Economy A c t p r o v i d i n g t h a t ' T h e a p p r o p r i a t i o n s o r p o r t i o n s
of a p p r o p r i a t i o n s unexpended by r e a s o n of t h e o p e r a t i o n of t h i s
t i t l e s h a l l n o t b e u s e d f o r a n y p u r p o s e , b u t s h a l l b e impounded
and r e t u r n e d t o t h e T r e a s u r y * i s n o t a p p l i c a b l e i n t h e c a s e o f
amounts w i t h h e l d f r o m t h e c o m p e n s a t i o n o f t h e e m p l o y e e s o f t h e
B u r e a u w h i c h i s a p p l i c a b l e t o r e p a y w o r k . T h e r e i s no a p p r o p r i a t i o n c o v e r i n g s u c h c o m p e n s a t i o n a n d , t h e r e f o r e , no amount t o
w h i c h t h e t e r m s o f t h e impounding p r o v i s i o n a r e a p p l i c a b l e . The
p a r t o f t h e a p p r o p r i a t i o n f o r t h e c o m p e n s a t i o n of e m p l o y e e s o f t h e
B u r e a u e n g a g e d i n n o n - r e p a y work w h i c h i s u n e x p e n d e d b y r e a s o n o f
T i t l e 1 o f t h e Economy A c t i s , o f c o u r s e , s u b j e c t t o t h o i m p o u n d i n g p r o v i s i o n ; b u t i t w o u l d seem c l e a r l y i m p r o p e r t o impound a n
a d d i t i o n a l amount e q u a l t o a p o r t i o n o f t h e c o m p e n s a t i o n p a i d
employees f o r repay wcrk which i s not i n c l u d e d i n t h e a p p r o p r i a t i o n
by Congress f o r non-repay work.
"For t h e r e a s o n s s t a t e d , i t i s r e s p e c t f u l l y s u b m i t t e d t h a t
amounts u n e x p e n d e d b y r e a s o n o f t h e o p e r a t i o n of T i t l e 1 o f t h e
Economy A c t u p o n t h e c o m p e n s a t i o n o f E m p l o y e e s o f t h e B u r e a u w h i c h
i s a p p l i c a b l e t o r e p a y work a r e n o t p r o p e r l y s u b j e c t t o t h e in>p o u n d i n g p r o v i s i o n o f t h e Economy A c t , b e c a u s e n o t d e r i v e d f r o m
a n a p p r o p r i a t i o n b y C o n g r e s s ; and f u r t h e r , t h a t , n o t w i t h s t a n d i n g
t h e i m p o u n d i n g p r o v i s i o n o f t h e Economy A c t , t h e F e d e r a l R e s e r v e
A c t d o e s n o t o b l i g a t e or empower t h e F e d e r a l r e s e r v e b a n k s t o p a y
t h e B u r e a u o f E n g r a v i n g and P r i n t i n g amounts w h i c h a r e n o t t o b e
u s e d f o r t h e e x p e n s e s o f p r i n t i n g and i s s u i n g F e d e r a l r e s e r v e n o t e s ,
b u t a r e t o b e impounded i n t h e T r e a s u r y o f t h e U n i t e d S t a t e s , a n d
c o n s e q u e n t l y t h e T r e a s u r y cannot i n c l u d e s u c h amounts i n i t s c h a r g e s
against the banks."
I t w i l l b e n o t e d t h a t t h e d e c i s i o n t o y o u of A u g u s t 5 , 1 9 3 2 ,
d i d n o t r e q u i r e a n y r e d u c t i o n i n c o m p e n s a t i o n or a n y i m p o u n d i n g
w i t h r e s p e c t t o employees, i f such t h e r e be, whose compensation
X-7347-a
A-43585
-4-
2 1 7
i s p a i d e n t i r e l y f r o m f u n d s c o l l e c t e d "by a s s e s s m e n t a g a i n s t t h e
f e d e r a l r e s e r v e b a n k s and t h a t , a s t o s u c h e m p l o y e e s , t h e g r o s s
amount o f t h e i r c o m p e n s a t i o n w o u l d , o f c o u r s e , b e c h a r g e d a g a i n s t
t h e "banks.
Your p r e s e n t s u b m i s s i o n , h o w e v e r , a p p e a r s t o b e c o n -
c e r n e d w i t h t h o s e e m p l o y e e s whose c o m p e n s a t i o n i s n o t e n t i r e l y
p a i d f r o m a s s e s s m e n t s , b u t who a r e e n g a g e d more or l e s s u p o n r e p a y
work.
S e c t i o n 1 0 4 o f T i t l e 1 o f t h e Economy A c t o f J u n e 3 0 , 1 9 3 2 ,
47 S t a t . , 4 0 0 , e x c e p t s from t h e d e f i n i t i o n of " o f f i c e r s " and
" e m p l o y e e s " a s u s e d i n t h a t t i t l e " p u b l i c o f f i c i a l s and e m p l o y e e s
w h o s e c o m p e n s a t i o n i s d e r i v e d f r o m a s s e s s m e n t s on b a n k s a n d / o r i s
not p a i d from t h e Federal Treasury".
I f the compensation of p a r -
t i c u l a r employees i s not p a i d e n t i r e l y from a s s e s s m e n t s on banks
t h e y do n o t come w i t h i n t h e e x c e p t i o n and t h e r e d u c t i o n i n comp e n s a t i o n and t h e impounding r e q u i r e d e i t h e r by s e c t i o n 101 ( a ) ,
s e c t i o n 1 0 1 ( b ) , o r s e c t i o n 1 0 5 ( d ) , o f t h e Economy A c t i s compulsory.
As t h e a p p r o p r i a t i o n s f o r t h e Bureau of P r i n t i n g and
E n g r a v i n g a r e s p e c i f i c a l l y " e x c l u s i v e o f r e p a y work" t h e amount
o f s u c h r e d u c t i o n and i m p o u n d i n g , i f n o t i n c l u d e d i n t h e c o s t o f
r e p a y w o r k , w o u l d r e s u l t i n r e d u c i n g t h e amount a v a i l a b l e f o r t h e
o t h e r work of t h e b u r e a u .
S e c t i o n 8 0 3 o f t h e Economy A c t , 4 7 S t a t . 4 1 9 .
expressly
makes a l l a p p r o p r i a t i o n s f o r t h e f i s c a l y e a r 1 9 3 3 s u b j e c t t o
t h e p r o v i s i o n s of t h a t a c t .
A s s e c t i o n 16 o f t h e F e d e r a l R e s e r v e
A c t , w h i l e a u t h o r i z i n g expenses i n v o l v e d i n the p r o d u c t i o n of
X-7247-a
A-43585
-5-
F e d e r a l r e s e r v e n o t e s t o "be a s s e s s e d a g a i n s t t h e "banks, d o e s
n o t d e f i n e s u c h e x p e n s e s , and i n v i e w o f t h e e x p r e s s p r o v i s i o n s
o f t h e Economy A c t , s a i d s e c t i o n 1 6 may "be c o n s i d e r e d a s m o d i f i e d
o r a m p l i f i e d "by t h e l a t e r a c t i n s o f a r a s n o t s p e c i f i c a l l y e x cepted therefrom.
The Economy A c t was n o t e n a c t e d i n a i d o f t h e F e d e r a l r e s e r v e
"banks b u t f o r t h e p u r p o s e o f e f f e c t i n g s a v i n g s d u r i n g t h e f i s c a l
y e a r 1 9 3 3 and b a l a n c i n g t h e F e d e r a l b u d g e t a n d , i n e f f e c t r e q u i r e s
t h e o f f i c e r s a n d e m p l o y e e s t o whom i t s p r o v i s i o n s a r e a p p l i c a b l e
to c o n t r i b u t e a p a r t of t h e i r earnings f o r t h a t purpose.
If the
amount o f s u c h c o n t r i b u t i o n s w e r e t o b e p a s s e d on t o t h e b a n k s ,
the purpose of t h e a c t would to t h a t e x t e n t be d e f e a t e d .
Careful c o n s i d e r a t i o n has boon g i v e n to t h e arguments advanced
i n your s u b m i s s i o n , but i n v i e w of t h e e v i d e n t i n t e n t and p u r p o s e
o f t h e Economy A c t , I am c o n s t r a i n e d t o a d h e r e t o t h e p r e v i o u s
d e c i s i o n t h a t t h e amount r e q u i r e d t o b e w i t h h e l d and impounded f r o m
the compensation of employees p a i d o n l y i n part from a s s e s s e d funds
i s t o b e i n c l u d e d a s a p a r t of t h e c o s t t o b e r e i m b u r s e d b y F e d e r a l
reserve banks; i n other words, that the cost to bo reimbursed i s
n o t t o b o r e d u c e d b y t h e o p e r a t i o n o f s e c t i o n s 1 0 1 or 1 0 5 o f t h e
Economy A c t .
Respectfully,
Comptroller General
of the United S t a t e s .
g f g
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence to
the federal reserve board
X-7248
September 21, 1932.
SUBJECT:
E x p e n s e , Main L i n e s , L e a s e d Wire S y s t e m ,
August, 1932.
Dear S i r :
Enclosed, h e r e w i t h y o u w i l l f i n d two mimeographed
s t a t e m e n t s , X - 7 2 4 8 - a and X-7248-b, c o v e r i n g i n d e t a i l
o p e r a t i o n s o f t h e m a i n l i n e s , L e a s e d Wire S y s t e m , d u r i n g
t h e month of A u g u s t , 1932.
P l e a s e c r e d i t t h e amount p a y a b l e "by y o u r "bank i n
t h e g e n e r a l a c c o u n t , T r e a s u r e r , U . S. , o n y o u r "books, a n d
i s s u e C/D Form 1 , N a t i o n a l B a n k s , f o r a c c o u n t o f " S a l a r i e s
and E x p e n s e s , F e d e r a l R e s e r v e Board, S p e c i a l Fund", L e a s e d
Wire S y s t e m , s e n d i n g d u p l i c a t e C/D t o t h e F e d e r a l R e s e r v e
Board.
Very t r u l y y o u r s ,
Fiscal Agent.
Enclosures.
TO GOVERNORS OF ALL F . R . BANKS.
X-7248-a
REPORT SHOWING CLASSIFICATION AND NUMBER OF WORDS TRANSMITTED OVER MAIN LINES
OF THE FEDERAL RESERVE LEASED WIRE SYSTEM FOR THE MONTH OF AUGUST, 1 9 3 2 .
Business
reported
by b a n k s
From
Boston
New Y o r k
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San F r a n c i s c o
Total
Words s e n t by
New York c h a r g e able to other
F . R. Banks ( l )
28,218
158,071
29,016
61,673
58,048
53,475
91,589
65,989
34,483
68,574
58,482
99,400
807,018
2,736
-
2,265
2,050
2,142
1,969
2,599
2,867
2,072
2,241
3,165
4,086
28,192
F . R. B o a r d b u s i n e s s *
Net Federal
reserve
bank
business
30,954
158,071
31,281
63,723
60,190
55,444
94,188
68,856
36,555
70,815
61,647
103.486
835,210
Percent of t o t a l
bank b u s i n e s s ( * )
3.71
18.92
3.74
7.63
7-21
6.64
11.28
8.24
4.38
8.48
7.3S
12.39
100.00
308.450
R e i m b u r s a b l e b u s i n e s s I n c o m i n g and O u t g o i n g
T o t a l words t r a n s m i t t e d over main l i n e s
(*)
T h e s e p e r c e n t a g e s u s e d i n c a l c u l a t i n g t h e p r o r a t a s h a r e o f l e a s e d w i r e e x p e n s e a s shown
on t h e accompanying s t a t e m e n t ( X - 7 2 4 8 - b ) .
(l)
Number o f w o r d s s e n t hy New Y o r k t o o t h e r F . R. B a n k s f o r t h e i r s o l e b e n e f i t c h a r g e d t o
banks i n d i c a t e d i n accordance with a c t i o n t a k e n at Governors' Conference
November 2 - 4 , 1 9 2 5 .
*
1,143,660
.
361,589
1,505,249
A
>
x-724g-b
REPORT OF EXPENSE MAIN LINES
FEDERAL RESERVE LEASED WERE SYSTEM, AUGUST, 1 9 3 2 .
Name o f b a n k
Operators'
overtime
$ -
$260.00
1,134.15
225.00
306.66
190.00
270.00
4,090.36 ( # )
195.00
200.00
287.50
251.00
380.00
1.00
•
$
$260.00
_
—
—
-
—
5.00
—
—
—
—
—
—
—
—
—
—
15,615.29
6.00 $15,845.29
$
Main l i n e r e n t a l , Richmond-Washington.
I n c l u d e s s a l a r i e s of W a s h i n g t o n o p e r a t o r s .
Credit.
JJmount r e i m b u r s a b l e t o C h i c a g o .
-
-
Reimbursable charges:
T r e a s u r y Department
$2,172.61
R e c o n s t r u c t i o n F i n a n c e C o r p o r a t i o n . 3,335• 71
F e d e r a l Farm L o a n B o a r d .
33*80
F e d e r a l Farm B o a r d
54.63
Compt. o f C u r r e n c y , I n s o l v . Bank D i v .
82.25
Less: Reimbursable charges
(&)
(#)
(*)
(a)
Total
expensed
1,135.15
—
$7,789-67
Wire
rental
0
0
0
CU
Boston
New Y o r k
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San F r a n c i s c o
Federal. Reserve Board
Total
Operators'
salaries
225.00
306.66
420.00
270.00
4,095.36
195.00
200.00
227.50
251.00
380.00
15.615.29
$23,640.96
Pro r a t a
share of
total
expenses
Credits
$666.39
3,398.40
671.78
1,370.50
1.295.06
1,192.67
2,026.11
1.480.07
786.73
1,523.17
1,325.59
2,225.49
$260.00
1,135.15
225.00
306.66
420.00
270.00
4,095.36
195.00
200.00
287-50
251.00
$17,961.96
$8,025.67
380.00
Payable to
Federal
Reserve
Board
$406.39
2,263.25
446.78
1,063.84
875-06
922.67
2,069.25 ( * )
1,225.07
586.73
1,235.67
1,074.59
1,845.49
$12,005.5%
2.069.25 (a)
$ 9,936.29
., 5 . 6 7 9 . 0 0
$17,961.96
10
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence to
the federal reserve board
X-7249
September 2 2 , 1 9 3 2 .
SUBJECT:
New I s s u e T r e a s u r y B i l l s .
Dear S i r :
I n c o n n e c t i o n with, 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 b e t w e e n F e d e r a l r e s e r v e "banks, t h e
c o d e word "NOXDIAL" h a s "been d e s i g n a t e d t o c o v e r a new
i s s u e of T r e a s u r y B i l l s , d a t e d September 2 8 , 1 9 3 2 , and
m a t u r i n g December 2 8 , 1 9 3 2 .
T h i s word s h o u l d b e i n s e r t e d i n t h e F e d e r a l r e s e r v e t e l e g r a p h code book, f o l l o w i n g the supplemental
c o d e word "NOXDETOET" on p a g e 1 7 2 .
Very t r u l y y o u r s ,
J. 0# Hoell,
Assistant Secretary.
TO GOVERNORS OF ALL F . E . BAMS.
X-7251
F e d e r a l R e s e r v e N o t e s , S e r i e s 1928 , f o r t h e F e d e r a l R e s e r v e Board, from J u l y 1 t o 29, 1 9 3 2 .
$5000
Total
Sheets
Amount
-
-
77,000
<6,968.50
-
600
-
74,600
6,751.30
—
-
-
-
130,000
11,765.00
— .
—
2,000
200
33,200
3,004.60
-
—
—
-
-
24,000
2,172.00
291,000
122,000
-
798,400
72,255.20
-
—
—
-
-
-
35,000
3,167.50
$20
37,000
20,000
20,000
—
-
-
30,000
34,000
10,000
—
—
Cleveland
74,000
36,000
20,000
—
•Richmond,
10,000
20,000
-
Atlanta
14,000
10,000
#5
-
299,000
$50
$100
$500
$10
65,000
$1000
1,000
-
15,400 10,000
St. Louis,
21,000
14,000
Minneapolis,
10,000
20,000
12,000
—
—
-
-
-
42,000
3,801.00
15,000
15,000
—
—
-
150
-
30,150
2,728.58
58,000
25,000
22,000
115,000
10,407.50
254,000
493,000
390,000
1 ,359,350
$123,021.18
Kansas Ci t y ,
San ^ r a n c i s c o , . . . .
-
1,359,350 s h e e t s © f 9 0 . 5 0
10,000
122,000
75,000
—
—
—
15,400 11,750
200
,18.
22
X-7252
Federal Reserve b o t e s f o r Federal Reserve Board,
S e r i e s 1928
August 1 to 31, 1 9 3 2 .
("5
Cio
#20
. 37,000
20,000
20,000
Philadelphia,. . 30,000
34,000
2 0 , 0 0 0 14 ,000
.100,000
20,000
20,000
. 10,000
20,000
Atlanta,
. 20,000
10,000
Chicago
.
18,000
. 21,000
Boston,
f , 50
-
#100
—
10,000
Total
Sheets
Amount
77,000
$6,968.50
108,000
9,774.00
-
-
140,000
12,670.00
-
-
-
30,000
2,715.00
-
-
-
30,000
2,715.00
10,000
-
-
23,000
2,534.00
14,000
10,000
-
-
45,000
4,072.50
Minneapolis,,.
20,000
13,000
-
-
33,000
2,986.50
Kansas C i t y , . . . 1 0 , 0 0 0
15,000
15,000
-
-
40,000
3,620.00
San F r a u d s c o , . 5 8 , 0 0 0
25,000
24,000
—
-
107,000
9,683.50
638,000
#57,739.00
286,000 196,000
1 3 2 , 0 0 0 14 , 0 0 0
638,000 s h e e t s @ £90.50 per K , . .
10,000
.<•57,739.00
X-7253
F E D E R A L
R E S E R V E
BOARD
STATEl,™ FOR THE PRESS
For r e l e a s e i n Morning P a p e r s ,
Satur&ay, September 24, 1932.
The f o l l o w i n g summary o f 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 i n t h e
United S t a t e s , based upon s t a t i s t i c s
f o r t h e m o n t h s o f A u g u s t and S e p t e m b e r ,
w i l l appear i n t h e forthcoming i s s u e
o f 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 and i n
the monthly reviews of t h e F e d e r a l
r e s e r v e banks.
Volume o f i n d u s t r i a l p r o d u c t i o n i n c r e a s e d f r o m J u l y t o A u g u s t b y
c o n s i d e r a b l y more t h a n t h e u s u a l s e a s o n a l amount, r e f l e c t i n g c h i e f l y
expansion i n a c t i v i t y at t e x t i l e m i l l s .
Wholesale p r i c e s advanced during
A u g u s t and t h e g e n e r a l l e v e l p r e v a i l i n g i n t h e f i r s t t h r e e w e e k s o f S e p tember was somewhat h i g h e r t h a n i n o t h e r r e c e n t m o n t h s .
T h e r e was a f u r t h e r
g r o w t h i n t h e c o u n t r y ' s s t o c k o f m o n e t a r y g o l d and a n o n - s e a s o n a l r e t u r n
flow of currency to the reserve banks.
P r o d u c t i o n and employment - I n d u s t r i a l o u t p u t i n c r e a s e d s u b s t a n t i a l l y
i n A u g u s t and t h e B o a r d ' s s e a s o n a l l y a d j u s t e d i n d e x showed a n a d v a n c e f r o m
58 t o 60 p e r c e n t o f t h e 1 9 2 3 - 2 5 a v e r a g e .
A c t i v i t y at cotton, woolen, s i l k ,
and r a y o n m i l l s i n c r e a s e d f r o m t h e l o w l e v e l o f o t h e r r e c e n t m o n t h s b y
c o n s i d e r a b l y more t h a n t h e u s u a l s e a s o n a l a m o u n t , and t h e r e was a l s o a
s u b s t a n t i a l i n c r e a s e i n a c t i v i t y at shoe f a c t o r i e s .
Output o f a u t o m o b i l e s ,
h o w e v e r , d e c l i n e d f u r t h e r and p r o d u c t i o n i n t h e s t e e l a n d l u m b e r i n d u s t r i e s
showed n o n e o f t h e u s u a l s e a s o n a l i n c r e a s e i n A u g u s t .
During the f i r s t
t h r e e w e e k s o f S e p t e m b e r t h e r e was a s l i g h t a d v a n c e i n s t e e l o u t p u t .
Employment a t f a c t o r i e s i n c r e a s e d s l i g h t l y more t h a n i s u s u a l a t t h i s
season.
There were l a r g e a d d i t i o n s t o working f o r c e s i n t h e t e x t i l e ,
c l o t h i n g , a n d l e a t h e r i n d u s t r i e s , w h i l e i n t h e a u t o m o b i l e , t i r e , and
!
X-7253 2 ^ 6
— 2 —
m a c h i n e r y i n d u s t r i e s a n d a t c a r - b u i l d i n g s h o p s t h e number e m p l o y e d d e creased further.
A g g r e g a t e wage p a y m e n t s i n c r e a s e d l e s s t h a n s e a s o n a l l y .
B u i l d i n g c o n t r a c t s awarded up t o S e p t e m b e r 1 5 , a s r e p o r t e d b y t h e
F . W. Dodge C o r p o r a t i o n , i n d i c a t e t h a t f o r t h e t h i r d q u a r t e r t h e t o t a l
v a l u e o f c o n t r a c t s w i l l b e a b o u t t h e same a s f o r t h e s e c o n d q u a r t e r , w h e r e a s
u s u a l l y awards f o r t h e t h i r d quarter a r e s m a l l e r .
Currently, contracts
f o r p u b l i c works a r e a c o n s i d e r a b l y l a r g e r p a r t o f t h e t o t a l t h a n t h e y were
a t t h e b e g i n n i n g o f t h e y e a r and r e s i d e n t i a l c o n t r a c t s a r e a s m a l l e r p a r t .
D e p a r t m e n t o f A g r i c u l t u r e c r o p e s t i m a t e s b a s e d on S e p t e m b e r 1 c o n d i t i o n s i n d i c a t e l i t t l e change i n p r o s p e c t s during August.
Indicated crops
o f w h e a t and t o b a c c o a r e c o n s i d e r a b l y s m a l l e r t h a n i n o t h e r r e c e n t y e a r s ,
while the corn crop i s the l a r g e s t s i n c e 1925.
The c o t t o n c r o p i s e s t i m a t e d
a t 1 1 , 3 0 0 , 0 0 0 , a d e c r e a s e of about 6 , 0 0 0 , 0 0 0 b a l e s from t h e l a r g e crop of
a year ago.
D i s t r i b u t i o n - Volume o f m e r c h a n d i s e and o t h e r f r e i g h t h a n d l e d b y t h e
railroads increased s e a s o n a l l y during August, while during the corresponding
p e r i o d a y e a r a g o no i n c r e a s e was r e p o r t e d .
Department s t o r e s a l e s of
m e r c h a n d i s e i n c r e a s e d f r o m J u l y t o A u g u s t b y somewhat l e s s t h a n t h e u s u a l
s e a s o n a l amount.
Wholesale p r i c e s - Wholesale
commodity p r i c e s a d v a n c e d f r o m 6 4 . 5 p e r
cent of t h e 1926 a v e r a g e i n J u l y t o 6 5 . 2 p e r c e n t i n A u g u s t , a c c o r d i n g t o
t h e m o n t h l y i n d e x o f t h e B u r e a u o f Labor S t a t i s t i c s .
During August p r i c e s
of many l e a d i n g c o m m o d i t i e s i n c l u d i n g t e x t i l e raw m a t e r i a l s a n d f i n i s h e d
p r o d u c t s , wheat, h i d e s , n o n f e r r o u s m e t a l s , s u g a r , r u b b e r , and c o f f e e ,
increased substantially.
I n t h e f i r s t h a l f of September t h e r e were d e c l i n e s
X-7253
•* 3 *•
i n t h e p r i c e s o f many o f t h e s e c o m m o d i t i e s , w h i l e p r i c e s o f w o o l and w o o l e n
goods, c a t t l e , and h i d e s advanced.
Bank c r e d i t - D u r i n g r e c e n t w e e k s f u r t h e r g r o w t h i n m o n e t a r y g o l d
s t o c k , a r e t u r n f l o w o f c u r r e n c y f r o m h o a r d s , and new i s s u e s o f n a t i o n a l
hank n o t e s h a v e r e s u l t e d i n a d d i t i o n s t o t h e r e s e r v e f u n d s o f member "banks.
These hanks have employed a p a r t of t h e funds i n f u r t h e r r e d u c i n g t h e i r
b o r r o w i n g s a t t h e r e s e r v e h a n k s , and h a v e a c c u m u l a t e d a p a r t a s r e s e r v e
b a l a n c e s , w h i c h a t t h e p r e s e n t t i m e a r e more t h a n $ 3 0 0 , 0 0 0 , 0 0 0 i n e x c e s s
of required r e s e r v e s .
R e s e r v e bank h o l d i n g s o f U n i t e d S t a t e s Government
s e c u r i t i e s and o f a c c e p t a n c e s r e m a i n e d p r a c t i c a l l y u n c h a n g e d d u r i n g t h e
f o u r weeks ending September 1 4 , w h i l e t h e t o t a l of r e s e r v e bank c r e d i t
d e c l i n e d b y $ 4 3 , 0 0 0 , 0 0 0 t h r o u g h t h e r e d u c t i o n o f d i s c o u n t s f o r member b a n k s .
L o a n s a n d i n v e s t m e n t s o f r e p o r t i n g member b a n k s i n l e a d i n g c i t i e s showed
l i t t l e c h a n g e b e t w e e n t h e m i d d l e o f A u g u s t and t h e m i d d l e o f S e p t e m b e r .
A
f u r t h e r d e c l i n e o f more t h a n $ 1 5 0 , 0 0 0 , 0 0 0 i n l o a n s b y b a n k s o u t s i d e New
York C i t y d u r i n g t h e p a s t f o u r w e e k s was o f f s e t i n l a r g e p a r t b y c o n t i n u e d
i n c r e a s e i n i n v e s t m e n t h o l d i n g s , c h i e f l y a t member b a n k s i n Mew York C i t y .
T h e r e was a c o n s i d e r a b l e g r o w t h i n d e p o s i t s o f r e p o r t i n g member b a n k s ,
r e f l e c t i n g i n p a r t l a r g e r b a l a n c e s h e l d by c i t y banks f o r t h e account of
other banks.
Money r a t e s i n t h e o p e n market r e m a i n e d u n c h a n g e d a t l o w l e v e l s d u r i n g
A u g u s t and t h e f i r s t h a l f o f September#
I
F E D E R A L RESERVE: B O A R D
WASHINGTON
address official correspondence to
the federal reserve board
X-7254
September 2 3 , 1 9 3 2 .
SUBJECT:
Insurance P o l i c i e s .
Dear S i r :
F o r t h e i n f o r m a t i o n and f i l e s of t h e F e d e r a l
Reserve Board, i t w i l l he appreciated i f you w i l l
f o r w a r d p h o t o s t a t i c c o p i e s o f t h e p o l i c i e s now i n
e f f e c t w h i c h p r o v i d e f i d e l i t y or b u r g l a r y i n s u r a n c e
f o r y o u r h a n k , i n c l u d i n g t h e h a n k e r s 1 b l a n k e t "bond,
and w h i c h p r o v i d e i n s u r a n c e a g a i n s t l o s s i n c u r r e d i n
t h e s h i p m e n t of c u r r e n c y or s e c u r i t i e s .
Very t r u l y y o u r s ,
Chester Morrill,
Secretary.
TO GOVERNORS OF ALL F . R. BASES.
229
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence to
the federal reserve board
X-7255
September 24, 1932.
SUBJECT:
Warehouse R e c e i p t s S e c u r i n g
Bankers* A c c e p t a n c e s ,
Dear S i r :
I i n c l o s e h e r e w i t h f o r youx i n f o r m a t i o n a copy of a
l e t t e r which t h e Board i s a d d r e s s i n g to t h e e x e c u t i v e v i c e
p r e s i d e n t o f t h e L a w r e n c e W a r e h o u s e Company o f San F r a n c i s c o
w i t h r e f e r e n c e to the question whether c e r t a i n warehouse r e c e i p t s p r o p o s e d t o h e i s s u e d "by t h a t company f o r g o o d s s t o r e d
i n c e r t a i n warehouses l e a s e d from t h e Southern Idaho Bean
Growers C o o p e r a t i v e A s s o c i a t i o n would comply w i t h t h e r e q u i r e ments o f t h e F e d e r a l R e s e r v e A c t and t h e B o a r d ' s R e g u l a t i o n s
w i t h r e s p e c t t o w a r e h o u s e r e c e i p t s s e c u r i n g "bankers' a c c e p t a n c e s
drawn t o f i n a n c e t h e s t o r a g e of r e a d i l y m a r k e t a b l e s t a p l e s ,
t o g e t h e r w i t h a copy of an o p i n i o n rendered by t h e Board's Counsel
i n t h i s c o n n e c t i o n under date of August 4 , 1931.
The d e s i r a b i l i t y o f p u b l i s h i n g a r u l i n g o n t h i s q u e s t i o n
i n 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 , which would r e c i t e the f a c t s upon
which the c o n c l u s i o n s of the Board a r e based but would not mention the
name o f t h e w a r e h o u s e company i n q u e s t i o n , i s now u n d e r c o n s i d e r a t i o n by t h e Board.
In t h i s connection, you are requested to advise
X-7255
w
2 •*
t h e Board, w h e t h e r , a c c o r d i n g t o y o u r i n f o r m a t i o n , member b a n k s i n
y o u r d i s t r i c t a r e e n g a g e d i n g r a n t i n g a c c e p t a n c e c r e d i t s on t h e
"basis o f w a r e h o u s e r e c e i p t s i s s u e d u n d e r c i r c u m s t a n c e s s i m i l a r t o
t h o s e d e s c r i b e d i n t h e i n c l o s e d o p i n i o n o f C o u n s e l ; and t h e B o a r d
would a l s o a p p r e c i a t e an e x p r e s s i o n of your v i e w s a s t o t h e
a d v i s a b i l i t y o f p u b l i s h i n g a r u l i n g on t h i s s u b j e c t i n t h e F e d e r a l
Reserve B u l l e t i n .
Very t r u l y y o u r s ,
Chester Morrill,
Secretary.
Inclosures.
TO ALL FEDERAL RESERVE ^JEIJTS.
2 3 0
23:1
X-7255-a
September 2 3 , 1952.
Mr. J . Van G a r t m e l l , E x e c u t i v e V i c e P r e s i d e n t ,
L a w r e n c e W a r e h o u s e Company,
1 North L a S a l l e S t r e e t ,
Chicago, I l l i n o i s .
Dear S i r :
R e f e r e n c e i s made t o t h e B o a r d ' s l e t t e r o f November 2 5 ,
1931, w i t h r e s p e c t to the q u e s t i o n p r e s e n t e d t o i t b y t h e Department
of A g r i c u l t u r e a s t o whether c e r t a i n warehouse r e c e i p t s proposed t o
b e i s s u e d b y y o u r company f o r g o o d s s t o r e d i n c e r t a i n w a r e h o u s e s
l e a s e d f r o m t h e S o u t h e r n I d a h o B e a n Growers C o o p e r a t i v e A s s o c i a t i o n
w o u l d c o m p l y w i t h t h e r e q u i r e m e n t s o f t h e F e d e r a l R e s e r v e A c t and
the Board's r e g u l a t i o n s with r e f e r e n c e t o warehouse r e c e i p t s s e c u r i n g b a n k e r s ' a c c e p t a n c e s drawn t o f i n a n c e t h e s t o r a g e o f r e a d i l y
marketable s t a p l e s .
As y o u w e r e a d v i s e d i n t h a t l e t t e r , n o t w i t h s t a n d i n g t h e
f a c t t h a t y o u r company h a s w i t h d r a w n i t s r e q u e s t f o r a r e c o n s i d e r a t i o n by t h e Department of A g r i c u l t u r e of c e r t a i n q u e s t i o n s p e r t a i n i n g t o i t s o p e r a t i o n s , t h e Board has c o n t i n u e d i t s c o n s i d e r a t i o n of
the q u e s t i o n w h e t h e r such warehouse r e c e i p t s comply w i t h the r e q u i r e m e n t s o f t h e F e d e r a l R e s e r v e A c t and t h e B o a r d ' s r e g u l a t i o n s , b e c a u s e i t a p p e a r s t h a t some o f t h e F e d e r a l r e s e r v e b a n k s may h a v e
discounted or purchased bankers' acceptances secured by r e c e i p t s
i s s u e d u n d e r s i m i l a r c i r c u m s t a n c e s and t h a t y o u r company h a s a d v e r t i s e d t h a t " C r e d i t s b a s e d on L a w r e n c e Warehouse Company f i e l d w a r e house r e c e i p t s are e l i g i b l e f o r rediscount a t Federal reserve banks."
Mr. J , Van O a f t m e l l
X-7255-a
In c o n n e c t i o n w i t h i t s i n v e s t i g a t i o n of t h i s matter tho
F e d e r a l Reserve Board has c o n s u l t e d w i t h s e v e r a l of the F e d e r a l r e s e r v e b a n k s and h a s c a r e f u l l y c o n s i d e r e d t h e i n f o r m a t i o n f u r n i s h e d
b y y o u r company and i t s a t t o r n e y s and t h e a r g u m e n t s made b y them
t o g e t h e r with information r e c e i v e d from other s o u r c e s .
After
s t u d y i n g a l l i n f o r m a t i o n r e c e i v e d on t h i s s u b j e c t , t h e F e d e r a l
Reserve Board i s of t h e o p i n i o n t h a t b a n k e r s ' a c c e p t a n c e s i s s u e d
a g a i n s t r e c e i p t s s u c h a s t h o s e p r o p o s e d t o b e i s s u e d i n t h e name
o f y o u r company u n d e r t h e a r r a n g e m e n t e n t e r e d i n t o b e t w e e n y o u r
company and t h e S o u t h e r n I d a h o B e a n G r o w e r s ' C o o p e r a t i v e A s s o c i a t i o n are not e l i g i b l e for rediscount at Federal reserve banks;
b e c a u s e i t i s d o u b t f u l whether such r e c e i p t s comply w i t h the r e q u i r e ment o f S e c t i o n 1 3 o f t h e F e d e r a l R e s e r v e A c t t h a t w a r e h o u s e r e c e i p t s
s e c u r i n g b a n k e r s ' a c c e p t a n c e s drawn t o f i n a n c e t h e s t o r a g e o f r e a d i l y marketable s t a p l e s must convey or s e c u r e t i t l e t o such s t a p l e s
and b e c a u s e s u c h r e c e i p t s do n o t , i n t h e B o a r d ' s j u d g m e n t , comply
w i t h t h e requirement of S e c t i o n XI of the B o a r d ' s R e g u l a t i o n A
t h a t w a r e h o u s e r e c e i p t s s e c u r i n g s u c h b a n k e r s ' a c c e p t a n c e s must b e
" i s s u e d by a p a r t y independent o f tho customer."
In g i v i n g e x p r e s s i o n t o t h i s o p i n i o n , the Board i s n o t
u n d e r t a k i n g t o p a s s upon t h e m e r i t s of f i e l d warehousing i n g e n e r a l ,
e i t h e r a s c o n d u c t e d b y y o u r company o r a s c o n d u c t e d b y a n y o t h e r
company, and t h e B o a r d ' s o p i n i o n r e l a t e s s o l e l y t o w a r e h o u s e r e -
X-7255'
Mr. J . Van C a r t m e l l
c e i p t s such a s t h o s e proposed t o bo i s s u e d under the arrangement
e n t e r e d i n t o b e t w e e n y o u r company and t h e S o u t h e r n I d a h o B e a n
Growers C o o p e r a t i v e A s s o c i a t i o n .
Very t r u l y y o u r s ,
Chester Morrill,
Secretary.
c o :: zr 1 d 2
t i n
fiCAED
To
The F e d e r a l R e s e r v e B o a r d
gran
Mr. Tftyatt, G e n e r a l C o u n s e l
X-7255-b
Date
August 4 , 1931.
S u b J e c t : Warehouse r e c e i p t s i s s u e d "by
L a w r e n c e Warehouse Company
o f San F r a n c i s c o .
On J u n e 1 0 , 1 9 3 1 , a l e t t e r was r e c e i v e d f r o m t h e D e p a r t m e n t
of A g r i c u l t u r e i n q u i r i n g whether c e r t a i n warehouse r e c e i p t s a r i s i n g
out o f f i e l d w a r e h o u s i n g arrangements o f t h e Lawrence Warehouse
Company o f S a n F r a n c i s c o w o u l d m e e t t h e B o a r d ' s r e q u i r e m e n t t h a t
hankers' a c c e p t a n c e s i s s u e d a g a i n s t the s t o r a g e of r e a d i l y marketable
s t a p l e s tie s e c u r e d "by w a r e h o u s e r e c e i p t s i s s u e d b y a p a r t y i n d e p e n d e n t
of the customer.
She Lawrence Warehouse Company h a s a p p l i e d t o t h e
D e p a r t m e n t o f A g r i c u l t u r e f o r l i c e n c e s u n d e r t h e U n i t e d S t a t e s Warehouse
A c t ; t h e D e p a r t m e n t h a s d e n i e d t h e l i c e n s e s on t h e g r o u n d t h a t t h e p l a n
d o e s n o t p r o v i d e d i s i n t e r e s t e d c u s t o d i a n s h i p ; t h e m a t t e r i s now "before
t h e D e p a r t m e n t u p o n a r e q u e s t f o r r e c o n s i d e r a t i o n ; a n d t h e Lawrence
Warehouse Company h a s t o l d t h e D e p a r t m e n t t h a t i t s w a r e h o u s e r e c e i p t s
i s s u e d u n d e r s i m i l a r c i r c u m s t a n c e s a r e a c c e p t e d w i t h o u t q u e s t i o n tgr
t h e F e d e r a l R e s e r v e Bank o f San F r a n c i s c o .
The l e t t e r f r o m t h e D e p a r t m e n t s t a t e s t h a t , i n a d m i n i s t e r i n g
t h e Warehouse A c t , t h e D e p a r t m e n t h a s c o n s i s t e n t l y e n d e a v o r e d t o h a v e
w a r e h o u s i n g a r r a n g e m e n t s a p p r o v e * b y i t comply w i t h t h e F e d e r a l R e s e r v e
Board's r e g u l a t i o n s w i t h r e f e r e n c e to bankers' acceptances i s s u e d
a g a i n s t w a r e h o u s e r e c e i p t s ; and i t i s on t h i s g r o u n d t h a t a r u l i n g b y
t h e F e d e r a l R e s e r v e Board i s r e q u e s t e d .
The B o a r d t r a n s m i t t e d c o p i e s o f t h e D e p a r t m e n t ' s l e t t e r t o
Governor C a l k i n s o f t h e F e d e r a l R e s e r v e Bank o f San F r a n c i s c o a n d t o
Mr. E . R. K e n z e l , D e p u t y Governor o f t h e F e d e r a l R e s e r v e Bank o f New
5.725W)
- £ *York a n d Chairman o f t h e S t a n d i n g C o m n i t t e e on B a n k e r s ' A c c e p t a n c e s ,
w i t h a r e q u e s t f o r t h e i r v i e w s ; a n d "both o f t h e m e x p r e s s e d t h e v i e w
t h a t s u c h warehouse r e c e i p t s comply w i t h t h e B o a r d ' s r e g u l a t i o n s .
As a r e s u l t of r e q u e s t s f o r a d d i t i o n a l i n f o r m a t i o n w h i c h I
made o f Mr. A . C. Agnew, C o u n s e l f o r t h e F e d e r a l R e s e r v e Bank o f San
F r a n c i s c o , t h e La-wrence Warehouse Company l e a r n e d t h a t t h e B o a r d was
c o n s i d e r i n g t h i s q u e s t i o n a n d Mr. J . Van C a r t m o l l , E x e c u t i v e V i c e
P r e s i d e n t o f t h a t Company, c o n f e r r e d a t l e n g t h w i t h Mr. V e s t and t h e
u n d e r s i g n e d a n d s u b m i t t e d l e n g t h y d o c u m e n t s d e s c r i b i n g i n d e t a i l and
d e f e n d i n g t h e warehouse company's methods of o p e r a t i o n .
Mr. Van C a r t m e l l h a s a l s o s e n t a t e l e g r a m t o t h e B o a r d
r e q u e s t i n g t h a t , b e f o r e i s s u i n g any r u l i n g a d v e r s e t o the Lawrence
Warehouse Company, t h e B o a r d g r a n t h i m a h e a r i n g .
I n a l e t t e r a d d r e s s e d t o me u n d e r d a t e o f J u l y 3 1 , 1 9 3 1 ,
Mr. R o b e r t H. B e a n , E x e c u t i v e S e c r e t a r y o f t h e A m e r i c a n A c c e p t a n c e
Council, said:
understand t h a t t h e Board has i n d i c a t e d i t s
I n t e n t i o n o f h o l d i n g a h e a r i n g on t h i s m a t t e r s o m e t i m e
t h i s F a l l . I am s u r e y o u u n d e r s t a n d t h e C o u n c i l ' s d e e p
i n t e r e s t i n ' t h i s m a t t e r and I a s k t h a t y o u w i l l k e e p
me i n f o r m e d a s t o t h e d a t e o f t h e h e a r i n g s o t h a t we
can a t t e n d and be of any a s s i s t a n c e t o t h e Board i n
getting this question d e f i n i t e l y adjusted."
Under d a t e o f J u l y 1 7 , 1 9 3 1 , Mr. W i l s o n V. L i t t l e , E x e c u t i v e
S e c r e t a r y o f t h e A m e r i c a n Warehousemen's A s s o c i a t i o n , a l s o a d d r e s s e d
a l e t t e r t o me e x p r e s s i n g a g r e a t i n t e r e s t i n t h i s s u b j e c t and e x p r e s s i n g t h e hope t h a t I would "concur w i t h o t h e r n o t e d c o u n s e l i n r e a f f i r m i n g the e l i g i b i l i t y of p r o p e r l y i s s u e d f i e l d warehouse r e c e i p t s f o r
purposes of r e d i s c o u n t by the F e d e r a l Reserve Banks.'1
X-7255-Wt>
*- 3 W
p A s T I O N PRESENTED.
The q u e s t i o n p r e s e n t e d f o r t h e B o a r d ' s c o n s i d e r a t i o n may b e
s t a t e d c o n c i s e l y a s f o l l o w s : Whether w a r e h o u s e r e c e i p t s i s s u e d i n t h e
name o f a n i n d e p e n d e n t w a r e h o u s e company f o r g o o d s s t o r e d on t h e
^ p r e m i s e s o f t h e "bailor l e a s e d t o t h e w a r e h o u s e company, t h e s o l e
c u s t o d i a n o f w h i c h i s a n e m p l o y e e o f t h e " b a i l o r , who h a s "been t r a n s f e r r e d t e m p o r a r i l y t o t h e e m p l o y o f t h e w a r e h o u s e company a n d e x p e c t s
t o "be e m p l o y e d a g a i n "by t h e " b a i l o r , a r e w a r e h o u s e r e c e i p t s " c o n v e y i n g
or s e c u r i n g t i t l e | f
w i t h i n t h e meaning of S e c t i o n 13 of t h o F e d e r a l
R e s e r v e A c t , a n d a r e " i s s u e d "by a p a r t y i n d e p e n d e n t o f t h e c u s t o m e r , "
w i t h i n t h e m e a n i n g o f S e c t i o n XI o f t h e B o a r d ' s R e g u l a t i o n A J s o t h a t
"bankers * a c c e p t a n c e s s e c u r e d "by s u c h w a r e h o u s e r e c e i p t s w i l l "be
e l i g i b l e f o r a c c e p t a n c e "by member "banks a n d f o r r e d i s c o u n t "by F e d e r a l
r e s e r v e "banks.
OPINION.
I h a v e r e a d e v e r y word of e v e r y document i n t h e a t t a c h e d f i l e ; I
h a v e g i v e n t h i s s u b j e c t t h o r o u g h , c a r e f u l and i m p a r t i a l c o n s i d e r a t i o n ;
while I have not attempted to read every case ever decided, I have
s t u d i e d e n o u g h o f tlip r e c e n t c a s e s t o s a t i s f y me a s t o t h e p r e s e n t
s t a t u s of t h e l a w on t h i s s u b j e c t ; and I am o f t h e o p i n i o n t h a t :
(1)
The d e c i s i o n s on t h i s s u b j e c t a r e i n s u c h c o n f l i c t t h a t
t h e r e i s no c e r t a i n t y t h a t t h e v a l i d i t y of any l i e n a t t e m p t e d t o be
c r e a t e d by t h e p l e d g e of s u c h warehouse r e c e i p t s w i l l bo s u s t a i n e d by
t h e c o u r t s ; a n d i t c a n n o t bo s a i d w i t h c e r t a i n t y t h a t t h e s e w a r e h o u s e
r o c o i p t s comply w i t h t h e requirement of S e c t i o n 13 o f t h e F e d e r a l
Reserve Act t h a t warehouse r e c e i p t s securing bankers' acceptances
drawn t o
f i n a n c e t h e s t o r a g e of r e a d i l y m a r k e t a b l e s t a p l e s must
X-725&*b
- 4 -
A
"convey or s e c u r e t i t l e " t o such s t a p l e s ; and
(2)
telle
tile
a r e i s s u e d i n t h e name o f a w a r e -
h o u s e company w h i c h i s i n d e p e n d e n t o f t h e "borrower, t h e a c t u a l
c u s t o d i a n o f t h e g o o d s and t h e p e r s o n u p o n w h o s e c e r t i f i c a t i o n t h e
r e c e i p t s a r e i s s u e d i s s o much u n d e r t h e i n f l u e n c e o f t h e b o r r o w e r
t h a t t h e s e warehouse r e c e i p t s can not he s a i d to he " i s s u e d by a
p a r t y i n d e p e n d e n t o f t h e c u s t o m e r " w i t h i n t h e m e a n i n g o f S e c t i o n XI
of the Board's R e g u l a t i o n A.
EECOMMMDATI PITS.
B e f o r e t h e B o a r d r u l e s on t h i s s u b j e c t , howeveir, I r e s p e c t f u l l y recommend:
(1)
T h a t t h e r e p r e s e n t a t i v e s o f t h e L a w r e n c e Warehouse
Company b e g i v e n a h e a r i n g on t h i s s u b j e c t ;
(2)
That Mr. H . S . Yohe and Mr. C.W. K i t c h e n o f t h e D e p a r t -
ment o f A g r i c u l t u r e , Mr. R o b e r t H. B e a n , E x e c u t i v e S e c r e t a r y o f t h e
A m e r i c a n A c c e p t a n c e C o u n c i l , a n d Mr. W i l s o n V. L i t t l e , E x e c u t i v e
S e c r e t a r y o f t h e A m e r i c a n Warehousemen's A s s o c i a t i o n , b o n o t i f i e d o f
t h e h e a r i n g a n d i n v i t e d i;o a t t e n d ; q-nd
(3)
T h a t c o p i e s of t h i s o p i n i o n b e s e n t t o G o v e r n o r C a l k i n s
and Mr. K e n z o l and t h a t t h e y b e i n v i t e d t o s u b m i t t h e i r comments i n
w r i t i n g a n d t o a t t e n d , or h a v e a r e p r e s e n t a t i v e a t t e n d , t h e h e a r i n g ,
i f t h e y c a r e t o do s o .
Proposed l e t t e r s t o oach of t h e s e i n t e r e s t e d p a r t i e s a r e
r e s p e c t f u l l y submitted herewith.
THE FACTS.
The f o l l o w i n g a r e t h e f a c t s a s s t a t e d i n t h e l e t t e r f r o m t h e
Department of A g r i c u l t u r e :
X-725&-13
"The Lawrence 7 a r $ i o u a e Coapitny o f San F r a n c i s c o h a s
a p p l i e d t o t i l l s d e p a r t m e n t ioi 1 l i c e n s e u n d e r t h e Warehouse A c t
f o r t h e o p e r a t i o n o f s e v e r a l w a r e h o u s e s owned "by t h e S o u t h e r n
I d a h o B e a n G r o w e r s ' C o o p e r a t i v e A s s o c i a t i o n , Twin F a l l s , I d a h o .
These houses are located at f i v e d i f f e r e n t p o i n t s i n southern
I d a h o . The w a r e h o u s e s a r e l e a s e d t o t h e L a w r e n c e W a r e h o u s e Comp a n y f o r t h e p u r p o s e o f s t o r i n g t h e a s s o c i a t i o n ' s "beans. I n
t h o o p e r a t i o n o f t h e s e w a r e h o u s e s t h e w a r e h o u s e company w i l l
n o t s e n d m?n f r o m i t s home o f f i c e t o t a k e c h a r g e o f t h e l e a s e d
premises hut w i l l t r a n s f e r t o i t s p a y r o l l present employees of
t h e c o o p e r a t i v e a s s o c i a t i o n , p a y i n g them t h e same s a l a r y a s t h e y
a r e now r e c e i v i n g f r o m t h e a s s o c i a t i o n ; The e x p e c t a t i o n i s
t h a t t h e s e e m p l o y e e s w i l l "be r e - e m p l o y e d "by t h e a s s o c i a t i o n a t
t h e c l o s e o f t h e s t o r a g e s e a s o n or when t h e b e a n s h a v e "been r e moved f r o m s t o r a g e . T h i s p e r i o d of employment w i l l n a t u r a l l y
v a r y irlth t h e time r e q u i r e d t o market t h e c r o p . Except f o r
s u c h l o c a l e m p l o y e e s who w i l l s e r v e a s r e p r e s e n t a t i v e s o f t h e
L a w r e n c e Warehouse Company t h e warehouseman w i l l h a v e no o n e
i n charge of the premises, hut representativ3S of i t s d i s t r i c t
o f f i c e which i s located at Portland w i l l v i s i t the premises for
p e r i o d i c a u d i t s . Those warehouses a r e l e a s e d from t h e a s s o c i a t i o n a t a n o m i n a l r e n t a l and t h e a s s o c i a t i o n r e i m b u r s e s t h e
w a r e h o u s e company u n d e r c o n t r a c t r i t h t h e company f o r a l l e x p e n s e s i n c l u d i n g s a l a r y o f c u s t o d i a n , c o s t o f "bonds, s a l a r i e s
and e x p e n s e s o f a u d i t o r s , and a l s o pays a monthly s t o r a g e f e e ,
"This arrangement i s s o l e l y f o r t h e purpose of o b t a i n i n g c r e d i t f o r t h e c o o p e r a t i v e a s s o c i a t i o n w i t h a minimum o f
i n t e r f e r e n c e w i t h the u s u a l o p e r a t i o n s of the a s s o c i a t i o n . "
Governor C a l k i n s r e p o r t s , i n p a r t , a s f o l l o w s :
"We " b e l i e v e t h e s t a t e m e n t s c o n t a i n e d i n t h e l e t t e r o f
t h o Department of A g r i c u l t u r e a r e c o r r e c t i n s o f a r a s tliey e x p l a i n t h e s i t u a t i o n , "but a r e p r o b a b l y somewhat i n c o m p l e t e . T h e r e
i s no q u e s t i o n i n our m i n d s t h a t t h e l e a s e s e x e c u t e d b y t h e
Lawrence W a r e h o u s e Company u n d e r i t s f i e l d w a r e h o u s i n g p l a n a r e
bona f i d e l e a s e s , and t h a t a l l t h e n e c e s s a r y p r e c a u t i o n s a r e
t a k e n t o i s o l a t e t h e goods a c c e p t e d i n s t o r a g e and t o m a i n t a i n
p h y s i c a l c o n t r o l t h e r e o f . W h i l e i t i s t r u e t h a t t h e men p l a c e d
i n c h a r g e o f t h i s o p e r a t i o n a r e , i n some c a s e s , f o r m e r e m p l o y e e s
o f t h e a s s o c i a t i o n o r company i n q u e s t i o n , t h e y b e c o m e b o n a f i d e
e m p l o y e e s o f t h e Lawronco Warehouse Company a n d a r c p l a c e d u n d e r
bond b y t h i s company o f a t l e a s t $ 5 , 0 0 0 , a n d a r e a l s o c o v e r e d
u n d e r a s u p e r i m p o s e d b l a n k e t b o n d o f $ 1 0 0 , 0 0 0 . An employment
c o n t r a c t i s e n t e r e d i n t o w h i c h g i v e s t h e L a w r e n c e Warehouse
Company t h e r i g h t t o d i s p e n s e w i t h t h e i r s e r v i c e s a t a n y t i m e .
T h e i r c o m p e n s a t i o n i n s u r a n c e i s p a i d b y t h o Warehouse Company,
and t h o Warehouse Company i s r e s p o n s i b l e f o r t h e i r s a l a r y r e g a r d l e s s of a n y a g r e e m e n t b e t w e e n t h o w a r e h o u s i n g company a n d
the a s s o c i a t i o n .
"A f u r t h e r i m p o r t a n t p o i n t i n t h e i r o p e r a t i o n , a s we v i e w
i t , i s the f a c t that such employees are not permitted t o i s s u e wareh o u s e r e c e i p t s nor t o a u t h o r i z e r e l e a s e s , t h i s o p e r a t i o n b e i n g
c a r r i e d o n i n a c e n t r a l o f f i c e o f t h e Warehouse Company b y
•» 5 —
e x e c u t i v e s o f t h e Company.
2 3 9
" I t i s , o f c o u r s e , , t r u e t h a t t h r o u g h c o l l u s i o n "between
t h e r e p r e s e n t a t i v e o f t!he W r e l i o u S 6 Company a n d t h e owner o f
t h e p l a n t » t h e g o o d s titight "be a b s t r a c t e d , o r f a l s e r e p o r t s made
concerning t h e goods i n s t o r a g e . This r i s k i s p r e s e n t i n any
f o r m o f w a r e h o u s i n g a n d , i n our o p i n i o n , i s n o more a p t t o o c c u r
u n d e r t h e L a w r e n c e Warehouse Company's p l a n t h a n i n a n y o t h e r p l a n .
T h i s company m a i n t a i n s a c o m p l e t e a u d i t i n g s y s t e m o f t h e i r own and
conducts p e r i o d i c a l checks of a l l i t s a g e n t s , which not only check
u p a n d v e r i f y t h e g o o d s s t o r e d , b u t a l s o c h e c k u p and m a i n t a i n a
u n i f o r m l y h i g h standard of o p e r a t i o n throughout a l l of t h e i r wareh o u s e s . The Lawrence Warehouse Company h a s t e e n o p e r a t i n g u n d e r
t h i s p l a n f o r a number o f y e a r s and h a s "built u p a c o n s i d e r a b l e
b u s i n e s s . A l l our d e a l i n g s w i t h them h a v e i n d i c a t e d t h a t t h e y a r e
f u l l y c o n v e r s a n t w i t h t h e o b l i g a t i o n s and d u t i e s o f a warehouseman
and f u l l y r e a l i z e t h a t s u c c e s s i n t h e i r b u s i n e s s i s dependent upon
t h e i r s t r i c t adherence to proper warehousing e t h i c s .
"We h a v e n o t h e s i t a t e d t o a c c e p t t h e i r r e c e i p t s a s c o l l a t e r a l i n connection with notes o f f e r e d f o r rediscount and, while
we w o u l d n o t n o r m a l l y know w h o s e w a r e h o u s e r e c e i p t s w e r e h e l d b y a
bank a c c e p t i n g d r a f t s a g a i n s t r e a d i l y m a r k e t a b l e s t a p l e s i n s t o r a g e ,
we do know t h a t a g o o d many o f our P a c i f i c C o a s t b a n k s i s s u e a c ceptances against their r e c e i p t s . "
From f u r t h e r i n f o r m a t i o n I h a v e o b t a i n e d f r o m Mr. Agnew, C o u n s e l t o the.
F e d e r a l R e s e r v e B a n k o f San F r a n c i s c o and. f r o m Mr. J . Van C a r t m e l l , E x e c u t i v e V i c e P r e s i d e n t o f t h e Lawrence Warehouse Corapnay, h o w e v e r , i t a p p e a r s
that :
1.
The b o n d s c o v e r i n g t h e c u s t o d i a n a r e o r d i n a r y f i d e l i t y b o n d s
i s s u e d t o p r o t e c t t h e w a r e h o u s e company a g a i n s t a n y l o s s e s r e s u l t i n g t o i t
f r o m t h e w r o n g f u l a c t s o f i t s e m p l o y e e s and do n o t g i v e a r i g h t o f a c t i o n
a g a i n s t t h e b o n d i n g company t o t h e h o l d e r s o f w a r e h o u s e r e c e i p t s who may
suffer similar losses;
2.
The L a w r e n c e Warehouse Company o p e r a t e s a b o u t 5 0 0 f i e l d
warehouses i n t h e S t a t e s o f C a l i f o r n i a , Oregon, Washington, Michigan,
I d a h o , W i s c o n s i n , I o w a , M i s s o u r i , A r k a n s a s , P e n n s y l v a n i a , Hew Y o r k , a n d
Maryland, although, o n l y 250 t o 300 o f t h e s e warehouses a r e i n a c t u a l
o p e r a t i o n at any one time;
3.
The f i n a n c i a l s t a t e m e n t o f t h e Lawrence Warehouse Company
X-7255-b
- 7-
240
i n d i c a t e s o n l y a b o u t $ 3 0 0 , 0 0 0 riot w d r t h l ahd t h e e l i m i n a t i o n o f c e r t a i n
q u e s t i o n a b l e i t e m s would ldfove t h e Company v e r y l i t t l e , i f a n y , a c t u a l
n e t Worth $ a n d
4.
W h i l e t h e w a r e h o u s e r e c e i p t s a r e i s s u e d "by a "branch o f f i c e
o f t h e Warehouse Company i n a n o t h e r c i t y , t h e "branch m a n a g e r s r e l y u p o n
w r i t t e n s t a t e m e n t s s i g n e d "by t h e manager o f t h e c o o p e r a t i v e a s s o c i a t i o n
a n d b y t h e l o c a l c u s t o d i a n o f t h e w a r e h o u s e , who i s a f o r m e r e m p l o y e e o f
t h e c o o p e r a t i v e a s s o c i a t i o n and may s t i l l b e p e r f o r m i n g s e r v i c e s f o r t h e
cooperative association.
From s t a t e m e n t s s u b m i t t e d on b e h a l f o f t h e Lawrence Warehouse
Company, i t a p p e a r s t h a t i t s p l a n o f o p e r a t i o n c o n t e m p l a t e s t h a t t h e g o o d s
w i l l be p h y s i c a l l y s e g r e g a t e d i n s e p a r a t e b u i l d i n g s or i n p o r t i o n of b u i l d i n g s p a r t i t i o n e d o f f f o r t h a t p u r p o s e and l o c k e d w i t h t h e w a r e h o u s e comp a n y ' s own l o c k s ; t h a t c o n s p i c u o u s s i g n s s h o w i n g t h a t t h e w a r e h o u s e company i s i n charge of the premises w i l l b e p l a c e d b o t h o u t s i d e and i n s i d e
of tho p r e m i s e s ; t h a t the warehouse company's s t a c k cards w i l l b e p l a c e d
u p o n e v e r y s t a c k o f g o o d s ; a n d t h a t a l l p r e c a u t i o n s w i l l b o t a k e n t o comp l y w i t h t h e l e g a l requirement t h a t t h e warehoused goods bo p h y s i c a l l y
s e g r e g a t e d f r o m o t h e r g o o d s and s u f f i c i e n t l y p l a c a r d e d t o g i v e n o t i c e t o
tho world t h a t t h e y a r e i n tho p o s s e s s i o n of t h e warehouse and not i n t h o
p o s s e s s i o n of the d e p o s i t o r .
There i s reason t o b e l i e v e , however, t h a t
those p r e c a u t i o n s a r e not always s t r i c t l y adhered t o .
For f u r t h e r d e t a i l s , t h e Board's a t t e n t i o n i s i n v i t e d t o the
s t a t e m e n t s i n t h e a t t a c h e d f i l e s u b m i t t e d b y Mr. J . V a n C a r t m e l l , E x e c u t i v e
V i c e P r e s i d e n t o f t h e J a w r e n c e Warehouse Company, d e s c r i b i n g i n d e t a i l
t h e g e n e r a l m e t h o d s o f f i e l d w a r e h o u s i n g a d o p t e d b y t h a t company a n d i t s
X-7255-Td p
mm
0
mm
s p e c i f i c a r r a n g e m e n t f o r w a r e h o u s i n g t h e "beans o f t h e S o u t h e r n I d a h o B e a n
Growers' A s s o c i a t i o n *
T h e s e d o c u m e n t s w i l l b e d i s c u s s e d i n more d e t a i l
e l s e w h e r e i n t h i s memorandum.
THE BOARD'S JURISDICTION.
The f i f t h and s i x t h p a r a g r a p h s o f S e c t i o n 1 3 o f t h e F e d e r a l R e s e r v e A c t p r o v i d e , i n s u b s t a n c e > t h a t F e d e r a l r e s e r v e b a n k s may d i s c o u n t
b a n k e r s ' a c c e p t a n c e s "which a r e s e c u r e d a t t h e t i m e o f a c c e p t a n c e b y a
w a r e h o u s e r e c e i p t o r o t h e r s u c h d o c u m e n t s c o n v e y i n g or s e c u r i n g t i t l e
c o v e r i n g r e a d i l y m a r k e t a b l e s t a p l e s " ; and t h e s e c o n d p a r a g r a p h o f S e c t i o n
1 3 a u t h o r i z e s t h e F e d e r a l R e s e r v e B o a r d "to d e t e r m i n e or d e f i n e t h e c h a r a c t e r of paper t h u s e l i g i b l e f o r d i s c o u n t , w i t h i n t h e meaning of t h i s A c t .
S e c t i o n XI o f t h e B o a r d ' s R e g u l a t i o n A p r o v i d e s , i n s u b s t a n c e ,
t h a t , i n o r d e r t o b e e l i g i b l e f o r d i s c o u n t b y a F e d e r a l r e s e r v e bank,- a
b a n k e r s ' a c c e p t a n c e drawn t o f i n a n c e t h e s t o r a g e o f r e a d i l y m a r k e t a b l e
s t a p l e s m u s t b e s e c u r e d a t t h e t i m e o f a c c e p t a n c e "by a w a r e h o u s e ,
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 , c o n v e y i n g s e c u r i t y t i t l e t o s u c h
s t a p l e s , i s s u e d b y a part.v i n d e p e n d e n t o f t h e c u s t o m e r . "
Under t h o s e p r o v i s i o n s o f t h e l a w a n d t h e B o a r d ' s r e g u l a t i o n s ,
t h e B o a r d lias p u b l i s h e d a number o f r u l i n g s on t h e q u e s t i o n w h e t h e r b a n k ers ' acccptancos secured by warehouse r e c e i p t s i s s u e d under v a r i o u s c i r c u m s t a n c e s a r c e l i g i b l e f o r r e d i s c o u n t b y F e d e r a l r e s e r v e b a n k s , and on
February 17, 1931, a d v i s e d t h e Department of A g r i c u l t u r e t h a t warehouse
r e c e i p t s i s s u e d under circumstances very similar to those presented i n thi
c a s e do n o t m e e t t h e r e q u i r e m e n t s o f t h e B o a r d ' s r e g u l a t i o n .
I t i s c l e a r t h a t , under the u s u a l a u t h o r i t y of a d m i n i s t r a t i v e of
f i c e r s of t h e Government t o c o n s t r u e t h e a c t w h i c h t h e y a d m i n i s t e r and t h e
X-7255-*b 2 4 2
w g L&
r e g u l a t i o n s which t h e y have p r o s c r i b e d pursuant t h e r e t o , t h e F e d e r a l Ros e r v e B o a r d h a s t h o r i g h t t o i s s u e a d m i n i s t r a t i v e r u l i n g s on t h i s q u e s t i o n .
E v e n i n t h e a b s e n c e of s u c h p o w e r , t h e r i g h t o f t h e F e d e r a l R e s e r v e B o a r d
t o e x p r e s s i t s v i e w s on t h i s s u b j e c t T7h.cn r e q u e s t e d b y a d e p a r t m e n t o f t h e
Government c o u l d n o t b o q u e s t i o n e d .
ADVISABILITY OF RULING- BY FEDERAL
RESERVE BOARD.
B e c a u s e of the f a c t t h a t the r e q u e s t of t h e Department o f
A g r i c u l t u r e f a r a n e x p r e s s i o n o f t h e B o a r d ' s v i e w s on t h i s q u e s t i o n a p p a r e n t l y a r i s e s out of a c o n t r o v e r s y between t h e Department of A g r i c u l t u r e
and t h e L a u r e n c e Warehouse Company o v e r t h e q u e s t i o n w h e t h e r t h e Warehouse
Company s h o u l d b e l i c e n s e d u n d e r t h e U n i t e d S t a t e s Warehouse A c t , some q u e s t i o n may b e r a i s e d a s t o w h e t h e r i t i s a d v i s a b l e or a p p r o p r i a t e f o r t h e
F e d e r a l R e s e r v e B o a r d t o make a r u l i n g on t h i s q u e s t i o n , e s p e c i a l l y i n v i e w
o f t h e f a c t t h a t no a c t u a l c a s e i s p r e s e n t e d i n v o l v i n g a n a c t u a l b a n k e r s '
acceptance secured by such r e c e i p t s which i s o f f e r e d to a Federal r e s e r v e
bank f o r r e d i s c o u n t .
I n v i e w o f t h e f o l l o w i n g f a c t s , h o w e v e r , i t w o u l d scorn d i f f i c u l t f o r t h e Board t o j u s t i f y a r e f u s a l to g i v e t h e Department of A g r i c u l t u r e an e x p r e s s i o n o f i t s v i o w s on t h i s q u e s t i o n :
1.
B o t h t h e D e p a r t m e n t o f A g r i c u l t u r e and t h o F e d e r a l R e s e r v e
B o a r d h a v e b o o n e n d e a v o r i n g f o r many y e a r s t o r a i s e t h e s t a n d a r d o f w a r e house r e c e i p t s which arc used as c o l l a t e r a l i n o b t a i n i n g c r e d i t from banks
and e s p e c i a l l y t o o b t a i n a d h o r c n c c t o t h e p r i n c i p l e o f i n d e p e n d e n t c u s t o d ianship*
2 4 3
X-7255-b
>4 1 0 —
2»
The D e p a r t m e n t o f A g r i c u l t u r e h a s a l w a y s e n d e a v o r e d t o
r e q u i r e t h e w a r e h o u s e s l i c e n s e d "by i t t o c o n f o r m t o t h e B o a r d l e r e g u l a t i o n r e q u i r i n g t h e w a r e h o u s e t o "be i n d e p e n d e n t of t h e "borrower,
3.
The D e p a r t m e n t o f A g r i c u l t u r e h a s d e n i e d t h e l i c e n s e a p -
p l i e d f o r "by t h e Lawrence Warehouse Company, on t h e g r o u n d t h a t t h o p r o p o s o d a r r a n g e m e n t d o c s n o t p r o v i d e d i s i n t e r e s t e d c u s t o d i a n s h i p ; and
4,
In a p p l y i n g f o r a r e c o n s i d e r a t i o n of i t s A p p l i c a t i o n f o r
a l i c e n s e , t h o L a w r e n c e Warehouse Company h a s r e p r e s e n t e d t h a t F e d e r a l
r e s e r v e "banks a c c e p t t h e i r w a r e h o u s e r e c e i p t s w i t h o u t q u e s t i o n .
M o r e o v e r , i t a p p e a r s t h a t c o m m e r c i a l "banks a r c a c c e p t i n g
such warehouse r e c e i p t s i n l a r g e q u a n t i t i e s as c o l l a t e r a l f o r loans
and a c c e p t a n c e c r e d i t s ; t h a t t h o F e d e r a l r e s e r v e "banks t a k e them
w i t h o u t q u e s t i o n ; a n d t h a t t h e Lawrence Warehouse Company i s a d v e r t i s i n g t h a t , " C r e d i t s "based on Lawrence Warehouse Company f i e l d w a r e h o u s e
r e c e i p t s a r e e l i g i b l e f o r r e d i s c o u n t a t F e d e r a l r e s e r v e "banks."
I f , t h e r e f o r e , t h e B o a r d c o n c u r s i n my v i e w t h a t t h e
v a l i d i t y a n d e f f e c t i v e n e s s o f l i e n s a t t e m p t e d t o h e c r e a t e d "by t h e
p l e d g e o f s u c h r e c e i p t s a r e v e r y d o u b t f u l , i t w o u l d seem a p p r o p r i a t e
f o r t h e B o a r d t o p u b l i s h a r u l i n g on t h i s s u b j e c t f o r t h e g u i d a n c e
a n d p r o t e c t i o n o f member "banks and F e d e r a l . r e s e r v e "banks.
Such a r u l -
i n g , h o w e v e r , s h o u l d n o t name t h e Lawrence Warehouse Company "but s h o u l d
merely d e s c r i b e the circumstances under which the warehouse r e c e i p t s
arc issued.
244
X-7255wt>
w 11 Mr. Tolio o f t h e D e p a r t m e n t o f Agriculture a l s o a d v i s e s t h a t t h e
Lawrcnce Warehouse Company p r o p o s e s t o expand i t s "business "by e n t e r i n g
i n t o s i m i l a r a r r a n g e m e n t s f o r f i e l d w a r e h o u s i n g i n many p a r t s of t h e c o u n t r y
an,d
that
i t i s a n x i o u s t o o b t a i n some G o v e r n m e n t a l a p p r o v a l o f
i t s plan.
[Phis c a s e may, t h e r e f o r e , b e r e g a r d e d a s a t o s t c a s e and t h e
B o a r d ' s d e c i s i o n may h a v e a n i m p o r t a n t or f a r - r e a c h i n g r e s u l t .
Under
t h e s e c i r c u m s t a n c e s , i t w o u l d seem t h a t t h e F e d e r a l R e s e r v e B o a r d s h o u l d
bo u n u s u a l l y c a r e f u l not t o approve any p l a n o f w a r e h o u s i n g , t h e r e l i a b i l i t y and l e g a l i t y o f w h i c h i s s u b j e c t t o d o u b t and t h e a p p r o v a l o f
w h i c h m i g h t e n c o u r a g e u n s o u n d p r a c t i c e s or m i g h t m i s l e a d member b a n k s t o
their injury.
I t w o u l d seem t h a t a l l d o u b t s a b o u t t h i s p l a n s h o u l d b e
r e s o l v e d on t h e s i d e o f c o n s e r v a t i s m and c a u t i o n .
FIELD TuiHEHOUSTITGr IIT GENERAL
The g e n e r a l s u b j e c t of f i e l d w a r e h o u s i n g i s n o t on t r i a l h e r e ,
and I b e l i e v e t h a t t h e B o a r d s h o u l d c a r e f u l l y a v o i d i s s u i n g a n y s t a t e m e n t
which would d i s c o u r a g e the development of f i e l d warehouses a l o n g sound
l i n e s ; b e c a u s e I b e l i e v e t h a t t h e p r a c t i c e i s of g r e a t e c o n o m i c v a l u e .
I n P h i l a d e l p h i a Warehouse Co. v . W i n c h e s t e r , 1 5 6 F e d . 6 0 0 ,
( d e c i d e d S e p t e m b e r 5 , 1 9 0 7 ) , t h e a d v a n t a g e s of f i e l d w a r e h o u s i n g w e r e
stated as follows:
'•The s y s t e m o f ' f i e l d s t o r a g e ' u n d e r w h i c h t h e w a r e h o u s e
company l a r g e l y , i f n o t w h o l l y , c o n d u c t s i t s b u s i n e s s ,
h a s much t o commend i t , i f c a r e b o t a k e n n o t t o m i s l e a d
t h e p u b l i c . I t i s b o t h c o n v e n i e n t and e c o n o m i c a l . I t
i s p r o m o t i v e o f t h e w e l f a r e o f m a n u f a c t u r i n g a n d commerc i a l industry. It avoids a l l necessity for unreasonably
X-7255-t)
-
12 -
m o v i n g f r o m p l a c e t o p l a c e h e a v y and b u l k y m a t e r i a l .
Sound i n d u s t r i a l p o l i c y r e q u i r e s t h a t when c o n d u c t e d
with reasonable safeguards for the p u b l i c , i t should
b e e n c o u r a g e d , and n o t d i s c o u n t e n a n c e d . "
An e x a m i n a t i o n of c e r t a i n c i r c u l a r s i s s u e d b y t h e D e p a r t m e n t
of Agriculture which are i n the attached f i l e d i s c l o s e s that the Department i s i n c l i n e d t o e n c o u r a g e f i e l d w a r e h o u s i n g - a n d t o p r e f e r i t t o
subsidiary warehousing.
Moreover, t h e r e i s a l e t t e r i n t h e a t t a c h e d f i l e
l i s t i n g no l e s s t h a n 8 2 f i e l d w a r e h o u s e s a c t u a l l y l i c e n s e d a t t h e p r e s e n t
time by t h e Department of A g r i c u l t u r e .
The p r a c t i c e o f f i e l d w a r e h o u s e s , h o w e v e r , i s c o m p a r a t i v e l y new;
t h e l a w on t h i s s u b j e c t i s n o t a t a l l s e t t l e d ; t h e c o u r t d e c i s i o n s a f f e c t i n g i t a r e i n h o p e l e s s c o n f l i c t ; t h e d e c i s i o n i n e a c h i n d i v i d u a l c a s e seems
to depend q u i t e l a r g e l y upon t h e apparent good f a i t h or l a c k of good f a i t h
o f the p a r t i e s a n d u p o n t h e c o u r t ' s f e e l i n g a s t o w h e t h e r a g r e a t e r i n j u s t i c e w i l l be done i n that p a r t i c u l a r c a s e by upholding the v a l i d i t y of
t h e w a r e h o u s e r e c e i p t s or b y h o l d i n g t h a t t h e y a r e n o t v a l i d ; a n d , i n many
of the c a s e s , t h e v a l i d i t y of t h e warehouse r e c e i p t s has depended upon t h e
f i n d i n g s of a j u r y or a master as to the p a r t i c u l a r f a c t s i n t h a t c a s e .
Under t h e s e c i r c u m s t a n c e s , i t i s i m p o r t a n t t h a t t h e B o a r d n o t i s s u e a n y
r u l i n g w h i c h w i l l e n c o u r a g e t h e d e v e l o p m e n t of u n s o u n d or d a n g e r o u s p r a c tices.
I n a d e c i s i o n r e n d e r e d November 1 0 , 1 9 3 0 , i n t h e c a s e o f M c G a f f e y
Canning Co. v . Bank o f A m e r i c a , 2 9 4 P a c i f i c 4 5 , w h i c h i n v o l v e s t h e w a r e h o u s e r e c e i p t s o f t h e Lawrence Warehouse Company i t s e l f , t h e C a l i f o r n i a
D i s t r i c t Court o f A p p e a l s , sums up t h e s i t u a t i o n a s f o l l o w s :
°46
X-7255-tf"
«. 13
h
W a r e h o u s i n g o n t h e p r e m i s e s o f t h e owner p r o p o s i n g t o
p l e d g e h i s m e r c h a n d i s e i s e f f e c t i v e when d o n e i n o b e d i e n c e t o l e g a l r e q u i r e m e n t s ; "but when d o n e o n l y f a r e n o u g h
t o g e t t h e g o o d s r e p r e s e n t e d "by d o c u m e n t s w i t h o u t r e a l l y
g e t t i n g t h e m s t o r e d , t h e d o c u m e n t s a r e "but s c r a p s o f p a p e r .
The t e r m " f i e l d w a r e h o u s i n g " i s n o t a t a l i s m a n t o g i v e
d o m i n i o n "by e n c h a n t m e n t . T a t i n g e x c l u s i v e n e s s o f p o s s e s s i o n and c o n t r o l a s t h e c r i t e r i o n , we f i n d now a n d t h e n a
c a s e w h e r e i t may "be s a i d a s a m a t t e r o f l a w t h a t , t h r o u g h
the f i e l d warehouse, open, e x c l u s i v e , and u n e q u i v o c a l
p o s s e s s i o n p a s s e d c o n s t r u c t i v e l y t o a p l e d g e e ; and t h e n
a g a i n i n o t h e r c a s e s we f i n d t h a t a s a m a t t e r o f l a w t h e
p o s s e s s i o n o f t h e warehouseman " t a p e r s away" t o n o t h i n g n e s s .
B e t w e e n t h e s e two e x t r e m e s l i e s t h e a g g r e g a t i o n o f c a s e s i n
w h i c h t h e f a c t s a r e s u c h t h a t d i f f e r e n t men may w i t h r e a s o n
r e a c h o p p o s i n g c o n c l u s i o n s . C a s e s o f t h a t c h a r a c t e r , when
t r i e d "by a j u r y , must "be a l l o w e d t o g o u n d e r p r o p e r i n s t r u c t i o n s to t h e j u r y f o r t h e i r determination of the f a c t s i n
controversy."
I n t h i s o p i n i o n I s h a l l not endeavor t o d i s c u s s a l l of the
c a s e s d e a l i n g w i t h t h e l e g a l i t y o f f i e l d w a r e h o u s e s i n g e n e r a l "but s h a l l
d i s c u s s o n l y t h o s e c a s e s h a v i n g a d i r e c t "bearing u p o n t h e p r e c i s e
question presented for the Board's consideration.
For the Board's a d d i -
t i o n a l i n f o r m a t i o n on t h i s g e n e r a l s u b j e c t , h o w e v e r , I r e s p e c t f u l l y
submit w i t h t h e a t t a c h e d f i l e t h e f o l l o w i n g documents:
1.
A copy of t h e important p o r t i o n s of t h e o p i n i o n o f t h e
C a l i f o r n i a Court o f A p p e a l s i n t h e c a s e o f M c G a f f e y C a n n i n g Co. v s . Bank
o f A m e r i c a , w h i c h c o n t a i n s t h e "best d i s c u s s i o n o f t h e d e c i d e d c a s e s on
t h i s s u b j e c t which I have been a b l e t o f i n d anywhere;
2.
A memorandum e n t i t l e d , " D e c i d e d C a s e s a s t o V a l i d i t y o f
Warehouse R e c e i p t s " , w h i c h was p r e p a r e d b y Mr. V e s t u n d e r d a t e o f J u n e 3 0 ,
1 9 3 1 ; and
3.
A 92 page "Abstract of Cases I n v o l v i n g F i e l d Warehousing",
w h i c h was l o a n e d t o me b y Mr. Yohe and w h i c h h e s a i d was p r e p a r e d b y
X~725S-b
- 14 -
2 4 7
'
c o u n s e l f o r t h e f e d e r a l i n t e r m e d i a t e C r e d i t Bank a t B e r k e l e y , C a l i f o r n i a .
TEE HEQ.UIKSI 'EiITS OF THE LA.T7 M P BEG-ULA.1I0ITS.
I n o r d e r f o r a b a n k e r s > a c c e p t a n c e drawn t o f i n a n c e t h e d o m e s t i c
s t o r a g e of r e a d i l y marketable s t a p l e s to be e l i g i b l e f o r r e d i s c o u n t by
Federal reserve banks:
(1)
S e c t i o n 13 of the F e d e r a l R e s e r v e Act r e q u i r e s t h a t i t be
" s e c u r e d a t t h e t i m e o f a c c e p t a n c e b y a w a r e h o u s e r e c e i p t or o t h e r s u c h
document c o n v e y i n g or s e c u r i n g t i t l e
covering readily marketable staples";
and
(2)
S e c t i o n XI o f t h e B o a r d ' s R e g u l a t i o n A r e q u i r e s t h a t i t b e
" s e c u r e d a t t h e t i m e o f a c c e p t a n c e b y a w a r e h o u s e , 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 , c o n v e y i n g s e c u r i t y t i t l e to such s t a p l e s , i s s u e d by a
p a r t y independent of the customer."
The r e q u i r e m e n t o f t h e l a w t h a t s u c h w a r e h o u s e r e c e i p t s must
c o n v e y or s e c u r e t i t l e t o r e a d i l y m a r k e t a b l e s t a p l e s o b v i o u s l y c o n t e m p l a t e s t h a t t h e a c c e p t i n g bank s h a l l h a v e a l i e n on s u c h s t a p l e s w h i c h
i s v a l i d and e n f o r c e a b l e a g a i n s t g e n e r a l c r e d i t o r s o f t h e p e r s o n f o r
whose b e n e f i t such a c c e p t a n c e c r e d i t i s g r a n t e d .
The r e q u i r e m e n t o f t h e B o a r d ' s r e g u l a t i o n s t h a t s u c h w a r e h o u s e
r e c e i p t s b e i s s u e d b y a p a r t y i n d e p e n d e n t of t h e c u s t o m e r o b v i o u s l y i s
i n t e n d e d t o r e q u i r e t h a t the a c t u a l custody of the goods be m a i n t a i n e d
by an independent and d i s i n t e r e s t e d p a r t y , so t h a t t h e bank h o l d i n g t h e
w a r e h o u s e r e c e i p t may b e a b l e t o i d e n t i f y and o b t a i n p o s s e s s i o n o f them
.
248
X-7255-b
- 15 and t h u s e n f o r c e i t s l i e n , w i t h o u t a n y d i f f i c u l t y .
A l i e n on p e r s o n a l
p r o p e r t y i s o f no p r a c t i c a l v a l u e u n l e s s s u c h p r o p e r t y c a n "be f o u n d a n d
i d e n t i f i e d when i t "becomes n e c e s s a r y t o e n f o r c e t h e l i e n ; a n d , i f c u s t o d y
o f t h i g o o d s i s n o t m a i n t a i n e d "by a d i s i n t e r e s t e d p a r t y , t h e r e i s d a n g e r
t h a t t h e g o o d s may "be i m p r o p e r l y r e l e a s e d or d i s p o s e d o f .
B o t h t h e r e q u i r e m e n t s o f t h e l a w and t h e r e q u i r e m e n t o f t h e
B o a r d ' s r e g u l a t i o n s , t h e r e f o r e , a r e i n t e n d e d f o r t h e p r o t e c t i o n of t h e
a c c e p t i n g "banks; t h e y a r e o f g r e a t p r a c t i c a l i m p o r t a n c e ; a n d a n y u n s o u n d
i n t e r p r e t a t i o n t h e r e o f b y t h e F e d e r a l R e s e r v e B o a r d w o u l d "be l i k e l y t o
m i s l e a d member "banks t o t h e i r i n j u r y .
VALIDITY OF LIEUS GIVEN BY WAREHOUSE RECEIPTS.
I t i s my c o n c l u s i o n , a f t e r a n e x a m i n a t i o n of c a s e s d e c i d e d on
somewhat s i m i l a r f a c t s , t h a t no d e f i n i t e s t a t e m e n t may b e made a s t o t h e
v a l i d i t y or i n v a l i d i t y o f t h e l i e n a f f o r d e d b y a p l e d g e of t h e w a r e h o u s e
r e c e i p t s i s s u e d b y t h e Lawrence W a r e h o u s i n g Company u n d e r t h e f a c t s
s t a t e d ; b u t t h e q u e s t i o n i d one u p o n w h i c h t h e r e i s s e r i o u s d o u b t a n d
r e a s o n a b l e p r e c a u t i o n w o u l d seem t o demand t h a t s u c h r e c e i p t s s h o u l d n o t
be a c c e p t e d by banks which w i s h t o be assured beyond q u e s t i o n of t h e
s a f e t y of t h e i r l o a n s .
Whether t h e l i e n - g i v e n b y t h e r e c e i p t w i l l b e h e l d v a l i d d e p e n d s i n a l a r g e m e a s u r e on t h e f a c t s w h i c h a r e p r e s e n t e d i n t h e p a r t i c u l a r
c a s e w h i c h r e a c h e s t h e c o u r t s and t o some e x t e n t a l s o p e r h a p s on t h e
j u r i s d i c t i o n i n which the question a r i s e s .
While t h e e s s e n t i a l requirements f o r the c r e a t i o n of a v a l i d
l i e n through the p l e d g e of warehouse r e c e i p t s have been p r e s c r i b e d i n
249
X-7255-h
-
16 -
d i f f e r e n t ways h y s t a t u t e s i n d i f f e r e n t S t a t e s a n d a p p a r e n t l y h a v e n e v e r
"been u n i f o r m l y s t a t e d "by t h e c o u r t s , t h o s e g e n e r a l l y r e c o g n i z e d may h e
summarized a s f o l l o w s :
1.
The w a r e h o u s e r e c e i p t s must h e i s s u e d "by a p e r s o n , f i r m or
c o r p o r a t i o n r e g u l a r l y e n g a g e d i n t h e "business o f s t o r i n g t h e g o o d s of
others;
2.
The warehouseman must t a k e a n d m a i n t a i n a c t u a l p h y s i c a l
p o s s e s s i o n of the goods;
3.
The p o s s e s s i o n o f t h e warehouseman m u s t h e e x c l u s i v e and
unequivocal;
4.
The w a r e h o u s e d g o o d s must be s e g r e g a t e d f r o m o t h e r g o o d s
of t h e owner w h i c h a x e n o t w a r e h o u s e d ; and
5.
The p o s s e s s i o n of t h e warehouseman must h e o p e n a n d n o t o r i o u s
s o a s n o t t o m i s l e a d o t h e r c r e d i t o r s o f t h e owners o f t h e g o o d s .
A m e r i c a n Can Co. v , E r i e P r e s e r v i n g Co. ( C . C . A . ) 1 8 3 F e d . 9 6 , 98
( D e c i d e d Nov. 1 4 , 1 9 1 0 ) ;
I n r e Rodgers ( C . C . A . ) 1 2 5 F e d , 169 ( D e c i d e d A p r i l 2 2 , 1 9 0 3 ) ;
MacDonald v . A e t n a I n d e m n i t y C o . , 9 0 Conn. 4 1 5 , 9 7 A t l * 3 3 2
(Decided April 19, 1916);
S e c u r i t y W a r e h o u s i n g Co. v . Hand, 2 0 6 U . S . 4 1 5 , 27 S u p . C t . 7 2 0 ,
51 L . E d . 1 1 1 7 , 11 Ann. C a s e s 789 ( D e c i d e d May 2 7 , 1 9 0 7 ) ;
M c G a f f e y Canning Co. v . Bank o f A m e r i c a ( C a l i f ) 2 9 4 P a c , 4 5 , 53
( D e c i d e d November 1 0 , 13?0).
I n S e c u r i t y W a r e h o u s i n g Company v . Hand ( C . C . A . ) 1 4 3 F e d . 3 2 , 4 1 ,
( D e c i d e d J a n u a r y 2 , 1 9 0 6 ) a f f i r m e d 2 0 6 U . S . 4 1 5 , 27 S u p . C t . 7 2 0 , t h e
C i r c u i t Court o f A p p e a l s s a i d :
X-7255-b
250
- 17 • ' D e l i v e r y o f p o s s e s s i o n i s t h e v e r y l i f e o f a p l e d g e . ITo m e r e
a g r e e m e n t s r e s p e c t i n g p o s s e s s i o n c a n c r e a t e i t . The c o n t r a c t
of p l e d g e cannot e x i s t o u t s i d e of the f a c t of change o f p o s s e s s i o n . The p l e d g o r m a s t d i s p o s s e s s h i m s e l f o p e n l y , comp l e t e l y , u n e q u i v o c a l l y and 'without d e c e p t i v e combinations
which lead third persons into error as to t h e r e a l possessor
o f t h e t h i n g 1 . And t h e p l e d g e e must t a k e a n d m a i n t a i n a n
o p e n , e x c l u s i v e and u n e q u i v o c a l p o s s e s s i o n . "
I n t h e c a s e o f I n Re R o d g e r s , 1 2 5 F e d . 1 6 9 , 1 7 9 ( d e c i d e d A p r i l
2 2 , 1 9 0 3 and r e v e r s e d o n o t h e r g r o u n d s "by t h e Supreme Court o f t h e U n i t e d
S t a t e s ) t h e C i r c u i t Court o f A p p e a l s s a i d :
"Actual or symbolical p o s s e s s i o n of p e r s o n a l p r o p e r t y i n t h e
p l e d g e e i s e s s e n t i a l t o i t s p l e d g e . I t i s t r u e t h a t when
t h e a c t u a l d e l i v e r y i s t o a c a r r i e r or w a r e h o u s e m a n , and
b i l l o f l a d i n g or w a r e h o u s e r e c e i p t i s g i v e n t h e r e f o r , t h e
t r a n s f e r of t h e instrument and i t s d e l i v e r y t o t h e p l e d g e e
i s r e g a r d e d i n t h e law a s d e l i v e r y of p o s s e s s i o n t o t h e
p l e d g e e o f t h e p r o p e r t y r e p r e s e n t e d "by t h e i n s t r u m e n t ; b u t
i t i s a n e c e s s a r y c o n d i t i o n t o t h e e x i s t e n c e of s u c h s y m b o l i c a l p o s s e s s i o n b y t h e p l e d g e e t h a t t h e p r o p e r t y i t s e l f "be i n
t h e p o s s e s s i o n o f some p e r s o n o t h e r t h a n t h e p l e d g o r . Two
d i f f e r e n t p e r s o n s c a n n o t "be i n t h e a c t u a l a d v e r s e p o s s e s s i o n
o f t h e same p r o p e r t y o r p r e m i s e s a t t h e same t i m e , * *
I n M c G a f f e y Canning Company v s . Bank o f A m e r i c a , 2 9 4 P a c i f i c ,
4 5 , 5 0 , 5 3 , ( d e c i d e d November 1 0 , 1 9 2 3 ) , a w e l l c o n s i d e r e d c a s e i n v o l v i n g r e c e i p t s o f t h e Lawrence Warehouse Company, t h e C a l i f o r n i a D i s t r i c t
Court o f A p p e a l s s a i d :
"When t h e r e i s a c t u a l d e l i v e r y o f m e r c h a n d i s e t o a w a r e h o u s e man, w i t h a c t u a l a n d e x p l i c i t c h a n g e o f p o s s e s s i o n , a n d a
w a r e h o u s e r e c e i p t i s i s s u e d and d e l i v e r e d t o o n e l e n d i n g
money on t h e s e c u r i t y o f t h e m e r c h a n d i s e i n s t o r e , t h e
d e l i v e r y of the warehouse r e c e i p t i s t h e l e g a l e q u i v a l e n t
of the d e l i v e r y of the merchandise i t s e l f ; but such symbolic
p o s s e s s i o n by the p l e d g e e i s dependent f o r i t s e f f i c a c y upon
c o m p l e t e a n d a c t u a l , a s d i s t i n g u i s h e d f r o m m e r e l y f o r m a l or
c o l o r a b l e , r e l i n q u i s h m e n t of p o s s e s s i o n and c o n t r o l by t h e
pledgor."
* * * * * * * * * *
<1 fX
36-7256-1) «^0.
- 18 -
^Merely c o l o r a b l e or c o n s t r u c t i v e c h a n g e o f p o s s e s s i o n
a c c o m p l i s h e s n o t h i n g i n f a v o r of a p l e d g e e . T h e r e must
h e open, v i s i b l e , unequivocable change of p o s s e s s i o n ,
m a n i f e s t e d by s u c h s u b s t a n t i a l outward s i g n s a s t o make
i t e v i d e n t t o t h e w o r l d t h a t t h e c o n t r o l o f t h e owner
h a s w h o l l y c e a s e d , and t h a t a n o t h e r h a s a c q u i r e d , a n d
i s openly e x e r c i s i n g , the e x c l u s i v e dominion over the
property."
I t may b e assumed . f o r t h e purpose of t h e d i s c u s s i o n of t h i s
p a r t i c u l a r p o i n t t h a t t h e Lawrence Warehouse Co. i s r e g u l a r l y e n g a g e d
i n t h e b u s i n e s s of s t o r i n g goods of o t h e r s ; t h a t t h e goods a r e p l a c e d
e i t h e r i n s e p a r a t e b u i l d i n g s or i n p o r t i o n s o f b u i l d i n g s w h i c h a r e
p a r t i t i o n e d o f f f r o m t h e o t h e r p o r t i o n s of s u c h b u i l d i n g s ; t h a t a l l e n t r a n c e s t o s u c h b u i l d i n g s or t h e p o r t i o n s t h e r e o f u s e d a s w a r e h o u s e s
a r e s e c u r e l y l o c k e d w i t h t h e w a r e h o u s e m a n ' s own l o c k s ; t h a t t h e w a r e housed goods a r e c o m p l e t e l y s e g r e g a t e d from a l l other goods of t h e
d e p o s i t o r ; and t h a t t h e p r e m i s e s a r e s u f f i c i e n t l y d e s i g n a t e d w i t h l a r g e
and c o n s p i c u o u s s i g n s s o p l a c e d a s t o g i v e a d e q u a t e n o t i c e t o a l l t h e
w o r l d t h a t t h e p r e m i s e s and t h e g o o d s t h e r e i n a r e i n t h e c u s t o d y o f t h e
warehouseman and n o t i n t h e c u s t o d y of t h e d e p o s i t o r .
(There a r e i n d i c a -
t i o n s that sometimes t h e s e p r e c a u t i o n s are not s t r i c t l y adhered t o by the
Lawrence Warehouse Company i n a c t u a l p r a c t i c e ; b u t i t may b e assumed t h a t
they a r e f o r t h e purpose of t h i s d i s c u s s i o n . )
The D e p a r t m e n t o f A g r i c u l t u r e h a s q u e s t i o n e d t h e method o f t h e
Lawrence Warehouse Company, h o w e v e r , b e c a u s e t h e s o l e c u s t o d i a n o f the
w a r e h o u s e d g o o d s i s a p e r s o n t r a n s f e r r e d f r o m t h e employ o f t h e d e p o s i t o r
t o t h e employ o f t h e w a r e h o u s e company, who e x p e c t s t o b e r e e m p l o y e d by
t h e d e p o s i t o r and may c o n t i n u e t o p e r f o r m c e r t a i n s e r v i c e s f o r t h e d e p o s i t o r during t h e p e r i o d of warehousing. This r a i s e s the f o l l o w i n g l e g a l
questions:
X-7255-b
- 19 -
1.
Whether i t c a n b e s a i d t h a t t h e warehouseman t a k e s and
m a i n t a i n s a c t u a l p h y s i c a l p o s s e s s i o n of t h e goods, i n view of the
f a c t that such p o s s e s s i o n i s maintained by a person so c l o s e l y
i d e n t i f i e d w i t h , a n d s o much u n d e r t h e i n f l u e n c e o f , t h e d e p o s i t o r ,
i . e . , w h e t h e r t h e p o s s e s s i o n of s u c h c u s t o d i a n i s t h e p o s s e s s i o n
o f t h e w a r e h o u s e company or t h e p o s s e s s i o n of t h e d e p o s i t o r .
2.
W h e t h e r t h e p o s s e s s i o n o f t h e warehouseman c a n b e
s a i d t o b e e x c l u s i v e , when t h e a c t u a l c u s t o d i a n c a n n o t r e a s o n a b l y
b e e x p e c t e d t o r e f u s e t o p e r m i t h i s f o r m e r e m p l o y e r and t h e p e r s o n
t o whom he l o o k s f o r f u t u r e employment t o h a v e a c c e s s t o t h e p r e m i s e s
w h e n e v e r r e q u e s t e d ; and
3.
W h e t h e r t h e p o s s e s s i o n o f t h e w a r e h o u s e company c a n b e
s a i d t o b e u n e q u i v o c a l Khen i t i s e x e r c i s e d b y a c u s t o d i a n whom t h e
d e p o s i t o r and h i s c r e d i t o r s may r e g a r d a s t h e e m p l o y e e o f t h e d e p o s i t o r r a t h e r t h a n o f t h e warehouseman.
I
252
•» 2 0 —
Ofr<)
^ O o
X-7255-b
On t h e s e p o i n t s , and on t h e e n t i r e s u b j e c t o f t h e v a l i d i t y o f w a r e h o u s e r e c e i p t s a r i s i n g o u t of f i e l d w a r e h o u s i n g , t h e law i s i n a v e r y u n s e t t l e d s t a t e ; t h e d e c i s i o n s o f t h e c o u r t s a r e i n c o n f l i c t ; and n o d e f i n i t e
c o n c l u s i o n can be e x p r e s s e d w i t h any r e a l a s s u r a n c e t h a t i t w i l l be s u s t a i n e d
by the c o u r t s i n any g i v e n c a s e .
The c a s e o f U n i o n T r u s t Co. v . W i l s o n , 1 9 8 U.S» 5 3 0 ; 2 5 S u p . C t .
7 6 6 , ( d e c i d e d May 2 9 , 1 9 0 5 ) i s o f t e n c i t e d a s a c a s e i n w h i c h t h e Supreme
Court o f t h e U n i t e d S t a t e s s u s t a i n e d t h e l e g a i l i t y o f f i e l d w a r e h o u s i n g .
The
q u e s t i o n p r e s e n t e d h e r e was not p r e s e n t i n t h a t c a s e , however, because t h e
w a r e h o u s e company i t s e l f a c t u a l l y h e l d t h e o n l y k e y s t o t h e w a r e h o u s e a n d ,
w h e n e v e r t h e owner d e s i r e d a c c e s s t o t h e g o o d s , t h e w a r e h o u s e company h a d t o
s e n d a man t o u n l o c k t h e w a r e h o u s e .
Moreover, three of t h e j u s t i c e s of the
Supreme Court d i s s e n t e d f r o m t h e m a j o r i t y o p i n i o n s u s t a i n i n g t h e v a l i d i t y
of t h e w a r e h o u s e r e c e i p t s ; and Mr. J u s t i c e H o l m e s , who w r o t e t h e m a j o r i t y
opinion, qualified i t as follows:
"We d e a l w i t h t h e c a s e b e f o r e u s o n l y . Ifo d o u b t
t h e r e a r e o t h e r c a s e s i n which the e x c l u s i v e power of
t h e s o - c a l l e d b a i l e e g r a d u a l l y t a p e r s away u n t i l we
reach t h o s e i n u h i c h the c o u r t s have hold as matter
o f l a w t h a t t h e r e was n o a d e q u a t e b a i l m e n t . "
The f o l l o w i n g l a n g u a g e of t h e C i r c u i t Court of A p p e a l s i n t h e c a s e
o f I n r e C i n c i n n a t i I r o n S t o r e Company, 1 6 7 F e d . 4 8 6 , 4 9 2 ,
(decided Febru-
ary 2 2 , 1909) i s f r e q u e n t l y c i t e d i n support of t h e p r o p o s i t i o n t h a t a
f i e l d warehouseman may u t i l i z e a n e m p l o y e e o f t h e owner o f t h e g o o d s f o r
his custodian:
"Nor i s t h e f a c t t h a t t h e c u s t o d i a n was a n e m p l o y e
o f t h e b r i d g e company, and i n i t s s o l e p a y , n e c e s s a r i l y i n c o n s i s t e n t w i t h h i s l a w f u l l y and e f f e c t u a l l y a c t i n g a s t h e
r e p r e s e n t a t i v e o f t h e b a n k , ana w i t h h i s p o s s e s s i o n b e i n g
regarded i n law as t h a t of the bank."
T h a t , h o w e v e r , w a s a c a s e i n w h i c h t h e C i r c u i t Court o f A p p e a l s
* 21 -
X-7255-T)
s u s t a i n e d the v a l i d i t y of c e r t a i n p r e f e r e n t i a l claims o f a bank a g a i n s t a
b a n k r u p t b r i d g e company, b a s e d p a r t l y u p o n t h e w r i t t e n a s s i g n m e n t o f moneys
due t h e b r i d g e company u n d e r i t s c o n t r a c t f o r t h e c o n s t r u c t i o n o f t h e b r i d g e
and p a r t l y u p o n a p l e d g e o f c e r t a i n s t r u c t u r a l i r o n w h i c h was s e t a s i d e ,
e a r m a r k e d , and p l a c e d u n d e r t h e c u s t o d y o f o n e o f t h e b r i d g e c o m p a n y ' s emp l o y e e s , a p p o i n t e d b y t h e bank a s i t s c u s t o d i a n .
I t was. n o t a e a s e i n v o l v -
ing warehouse r e c e i p t s but i n v o l v e d an attempt t o p l e d g e t h e goods t h e n s e l v e s d i r e c t t o the bank.
Moreover, the court s a i d :
"A c h a n g e o f p o s s e s s i o n t o t h e e x t e n t o f f u r n i s h i n g
n o t i c e t o t h i r d persons becomes immaterial, a s no r i g h t s
of such t h i r d persons have intervened."
I n t h e c a s e o f Love v . E x p o r t S t o r a g e Co. ( 0 . 0 . A . ) 1 4 5 F e d . 1 , ( d e c i d e d F e b r u a r y 1 , 1 9 0 6 ) a l u m b e r company l e a s e d i t s p r e m i s e s t o a w a r e h o u s e
company and t h e w a r e h o u s e company i s s u e d r e c e i p t s a g a i n s t t h e l u m b e r s t o r e d
on t h e p r o m i s e s .
The w a r e h o u s e company w a s e n g a g e d i n w a r e h o u s i n g b u s i n e s s
t h r o u g h o u t s e v e r a l s t a t e s b u t h a d n o w a r e h o u s e o f i t s own.
In arranging
f o r warehousing of t h e lumber i n q u e s t i o n i t s e n t i t s S t a t e a g e n t t o t h e
p r e m i s e s t e m p o r a r i l y , and p i l e s o f l u m b e r wore numbered, d e s i g n a t e d and
p l a c a r d e d b y t h i s a g e n t and b y a n e m p l o y o o o f t h e l u m b e r company.
This
e m p l o y e e w a s d e s i g n a t e d a s c u s t o d i a n f o r t h e w a r e h o u s e company and i t w a s
p r o v i d e d b y c o n t r a c t t h a t h o s h o u l d bo p a i d § 1 p e r month f o r h i s s e r v i c e .
He a c t u a l l y r e c e i v e d n o t n i n g , h o w e v e r , e x c e p t h i s w a g e s f r o m t h e l u m b e r
company.
The c u s t o d i a n w a s b o n d e d i n t h e amount o f $ 5 , 0 0 0 .
The l u m b e r
company was r e q u i r e d t o p a y c o m p e n s a t i o n f o r s t o r a g e o f t h o l u m b e r , and
t o r e i m b u r s e t h e s t o r a g e company f o r a l l e x p e n s e s c o n n e c t e d w i t h t h e s t o r age.
The c u s t o d i a n w a s s t i l l s u b j e c t t o i n s t r u c t i o n s f r o m h i s s u p e r i o r on
t h e p r e m i s e s , b u t n o r e g u l a r b u s i n e s s o f t h o company v a c t r a n s a c t e d t h e r e
a f t e r the s t o r a g e c o n t r a c t was e n t e r e d i n t o .
The w a r e h o u s e r e c e i p t s
22 w e r e p l e d g e d with, t h e b a n k a s s e c u r i t y f o r a l o a n .
X-7255-b
After the bankruptcy of
t h e l u m b e r company i t b e c a m e m a t e r i a l t o d e t e r m i n e t h e v a l i d i t y Of t h e w a r e h o u s i n g a r r a n g e m e n t and o f t h e l i e n c r e a t e d b y t h e r e c e i p t s .
The c o u r t u p -
h e l d the v a l i d i t y of t h e l i e n , t a k i n g the p o s i t i o n t h a t t h e r e had b e e n a
s u f f i c i e n t d e s i g n a t i o n o f t h e s t o r e d l u m b e r , and s a i d :
" I t i s unimportant t h a t a t the t i m e of h i s appointment
d s c u s t o d i a n h e w a s t h e s e r v a n t o f t h e hardwood company
and c o n t i n u e d s u c h a f t e r h i s a p p o i n t m e n t and r e c e i v e d n o
o t h e r p a y t h a n t h e w a g e s p a i d h i m b y t h e hardwood company
* • ' * . I t i s w e l l s e t t l e d i n c a s e s of t h i s s o r t t h a t t h e
w a r e h o u s e m a n may a c q u i r e and h o l d e x c l u s i v e c o n t r o l and
p o s s e s s i o n o f t h e g o o d s i n s u c h a way and u n d e r s u c h c i r cumstances."
T h a t c a s e was d e c i d e d i n 1 9 0 6 , h o w e v e r , and o t h e r c a s e s d e c i d e d s i n c e
t h a t d a t e show c l e a r l y t h a t t h e l a w on t h i s p o i n t i s n o t w e l l s e t t l e d .
I n t h e c a s e o f Dunn v . T r a i n , 125 F e d . 2 2 1 , 2 2 4 , ( d e c i d e d S e p t e m b e r
2 9 , 1903) t h e C i r c u i t Court of Appeals s a i d :
"We a r e n o t aware o f a n y a b s o l u t e r u l e o f l a w w h i c h
w o u l d r e n d e r a c t u a l p o s s e s s i o n and d o m i n i o n i n o p e r a t i v e ,
and a p l e d g e i n v a l i d b e c a u s e t h e k e e p e r s e l e c t e d t o p r o t e c t t h e p r o p e r t y was i n the employ of t h e p l e d g o r . "
T h i s , h o w e v e r , was a n o t h e r c a s e i n v o l v i n g a p l e d g e o f g o o d s t h e m s e l v e s
d i r e c t t o t h e c r e d i t o r ; and jao w a r e h o u s e r e c e i p t s w e r e i n v o l v e d .
I n t h e c a s e o f P h i l a d e l p h i a Warehouse Co. v . W i n c h e s t e r , 1 5 6 F e d ,
6 0 0 , ( d e c i d e d S e p t e m b e r 5 , 1 9 0 7 ) w h e r e a f i e l d w a r e h o u s i n g a r r a n g e m e n t was
e n t e r e d i n t o and a d e q u a t e p r e c a u t i o n s w e r e t a k e n t o p u t t h e p u b l i c on n o t i c e
t h a t t h e g o o d s w o r e i n t h e p o s s e s s i o n of a warehouseman b u t t h e a c t u a l
c u s t o d i a n o f t h e g o o d s was t h e t r e a s u r e r of t h e p l e d g o r company, t h e c o u r t
d e f i n i t e l y h e l d t h a t the law does not render an o f f i c e r or agent of t h e
pledgor incompetent t o be the c u s t o d i a n of t h e p l e d g e d p r o p e r t y , where t h e
p a r t i e s s o a g r e e ; b u t t h i s was a d e c i s i o n o f a t r i a l c o u r t , n o a p p e a l was
- 25 -
X-7255-b
t a k e n , and t h e d e c i s i o n i s not o f any g r e a t v a l u e a s a p r e c e d e n t .
The c a s e o f A m e r i c a n Can Co. v . E r i e P r e s e r v i n g C o . , 1 7 1 F e d . 5 4 0 ,
5 4 8 , ( D e c i d e d F e b r u a r y 2 0 , 1 9 0 9 ) , 1 8 3 F e d . 9 6 , ( D e c i d e d November 1 4 , 1 9 1 0 )
w h i c h a p p a r e n t l y i s r e l i e d u p o n v e r y s t r o n g l y b y t h e L a w r e n c e Warehouse Comp a n y as s u s t a i n i n g t h e v a l i d i t y o f i t s r e c e i p t s , i s a l s o o f v e r y d o u b t f u l
value as a precedent.
I t was r e a l l y a combination of s e v e r a l c a s e s .
I n one o f t h e s e c a s e s ( 1 7 1 F e d . 5 4 8 ) , w h e r e g o o d s o n t h e p r e m i s e s
o f t h e P r e s e r v i n g Company w e r e c o n s p i c u o u s l y marked a s b e l o n g i n g t o a bank
and t h e b a n k e m p l o y e d an e m p l o y e e o f t h e P r e s e r v i n g Company a s i t s c u s t o d i a n
and t h r o u g h h i m e x e r c i s e d e x c l u s i v e d o m i n i o n and c o n t r o l o v e r t h e p r o p e r t y ,
t h e t r i a l c o u r t s u s t a i n e d t h e v a l i d i t y o f t h e p l e d g e , and s a i d t h a t , "There
was no l e g a l o b j e c t i o n t o t h e employment o f Wode b y t h e b a n k a s c u s t o d i a n
o f t h e p r o p e r t y o r t o t h e s t o r i n g of t h e p r o p e r t y i n t h e d e f e n d a n t ' s w a r e house."
I n a n o t h e r o f t h e s e c a s e s ( 1 7 1 F e d . 5 4 0 ) , where a w a r e h o u s e company u n d e r t o o k t o w a r e h o u s e g o o d s on p r e m i s e s l e a s e d f r o m t h e P r e s e r v i n g
Company, e m p l o y e d t h e P r e s e r v i n g Company's s u p e r i n t e n d e n t t o a c t a s i t s
c u s t o d i a n , a n d f a i l e d t o s e g r e g a t e and earmark t h e g o o d s , t h e t r i a l c o u r t
h e l d t h a t no v a l i d p l e d g e was c r e a t e d , s i n c e t h e p l e d g o r n e v e r p a r t e d w i t h
t h e p o s s e s s i o n of t h e p r o p e r t y ; but s a i d t h a t , "It i s n o t i n t e n d e d t o hold
t h a t t h e p r o p e r t y p l e d g e d a s c o l l a t e r a l s e c u r i t y may n o t b e s t o r e d b y t h e
p l e d g e e a t s u c h p l a c e a s h e s e l e c t s , or t h a t t h e w a r e h o u s i n g company c a n n o t
d e s i g n a t e as c u s t o d i a n an employee of the p l e d g o r . "
On a p p e a l , b o t h c a s e s w e r e c o n s i d e r e d t o g e t h e r and b o t h d e c i - t
s i o n s were a f f i r m e d (185 Fed. 9 6 ) .
The C i r c u i t Court o f A p p e a l s , h o w e v e r ,
did not e x p r e s s l y adopt the view of the t r i a l court t h a t t h e r e i s no l e g a l
o b j e c t i o n t o t h e employment o f an e m p l o y e e o f t h e p l e d g o r a s t h e c u s t o d i a n
257
~ 24 -
X-7255-b
o f t h e p l e d g e e o r o f t h o warehouseman w h o s e r e c e i p t s a r o p l e d g e d .
On t h e
contrary, the court said:
"Warehouse r e c e i p t s w o u l d g i v e c o n s t r u c t i v e
p o s s e s s i o n of goods a c t u a l l y warehoused; b u t i t i s
p l a i n t h a t t h e w a r e h o u s i n g company d i d n o t m a i n t a i n a
warehouse i n any proper s e n s e , b e c a u s e i t had no e x c l u s i v e and u n e q u i v o c a l p o s s e s s i o n . There i s n o p r e t e n s e
t h a t e i t h e r S h e r i d a n o r Wode wore w a r e h o u s e m e n a t a l l .
Y e n n i v . McNamee, 4 5 II.Y. 6 1 4 . T h e r e f o r e t h e h o l d e r s o f
t h e s e r e c e i p t s who had n o a c t u a l p o s s e s s i o n had n o c o n s t r u c t i v e p o s s e s s i o n e i t h e r . The Bank o f N o r t h C o l l i n s
h a s , however, b e e n found both by the s p e c i a l master and
t h e j u d g e o f t h o C i r c u i t Court t o h a v e a c t u a l l y s e t a p a r t
and marked and k e p t i n i t s own c u s t o d y t h e g o o d s d e s c r i b e d
i n i t s r e c e i p t s w h i c h r e m a i n e d u n d i s t u r b e d down t o t h o t i m e
r e c e i v e r s w e r e a p p o i n t e d . Wo w i l l a d o p t t h e c o n c l u s i o n o f
the court below as t o i t s claim a l s o because i t did have
a c t u a l p o s s e s s i o n and a v a l i d l i e n . "
I n S e c u r i t y W a r e h o u s i n g Co. v . Hand ( C . C . A . ) 145 F e d . 3 2 , ( d e c i d e d
*
J a n u a r y 2 , 1 9 0 6 ) a f f i r m e d 8 0 6 U . S . 4 5 , 27 S u p . C t . 720 (May 2 7 , 1 9 0 7 ) , a
k n i t t i n g company l e a s e d a p o r t i o n of i t s p r e m i s e s t o a w a r e h o u s e company and
t h e l a t t e r * i s s u e d w a r e h o u s e r e c e i p t s a g a i n s t t h e g o o d s o f t h e k n i t t i n g comp a n y s t o r e d on s u c h l e a s e d p r e m i s e s .
The l e a s e d p r e m i s e s w o r e s e p a r a t e d f r o m
the remainder of t h e b u i l d i n g b y a s l a t t e d e n c l o s u r e p r o v i d e d w i t h a door which
was l o c k e d w i t h a p a d l o c k on w h i c h was s t a m p e d , i n s m a l l l e t t e r s , t h e f a c t
t h a t t h o p r e m i s e s w e r e t h o s e o f t h e w a r e h o u s e company.
T h e r e w a s , howc-vcr, no
adequate d e s i g n a t i o n or marking of t h e goods nor of t h e l e a s e d p r e m i s e s showi n g t h a t t h e w a r e h o u s e company had p o s s e s s i o n .
The c u s t o d i a n s i n c h a r g e o f
t h e w a r e h o u s e g o o d s w e r e e m p l o y e e s o f t h e k n i t t i n g company.
All expenses
i n c i d e n t t o t h e s t o r i n g a r r a n g e m e n t wore c o l l e c t e d f r o m t h e k n i t t i n g company.
The l e a s e was f o r a n o m i n a l sum o n l y .
The c u s t o d i a n T s s a l a r y up t o $ 5 p e r
month was r e i m b u r s e d b y t h e k n i t t i n g company.
The k e y t o t h e s l a t t e d e n -
c l o s u r e was k e p t b y t h e c a s h i e r of t h e k n i t t i n g company, t h e c u s t o d i a n , on
a r i n g w i t h o t h e r k e y s u s e d i n t h e b u s i n e s s of t h e k n i t t i n g company; t h i s
258
» 25 -
X-7255-b
bunch o f k e y s was a c c e s s i b l e t o t h e manager o f t h e k n i t t i n g company d u r i n g
the c a s h i e r ' s absence.
The C i r c u i t C o u r t o f A p p e a l s h e l d t h a t t h i s w a s n o t a p u b l i c w a r e h o u s e w i t h i n t h e m e a n i n g o f t h e W i s c o n s i n l a n and f u r t h e r t h a t t h e a r r a n g e m e n t
d i d not g i v e a v a l i d p l e d g e to t h e h o l d e r s of t h e r e c e i p t s .
The c o u r t s a i d :
"So f a r f r o m t h e s e c u r i t y c o m p a n y ' s m a i n t a i n i n g an o p e n ,
e x c l u s i v e , u n e q u i v o c a l p o s s e s s i o n d u r i n g t h e two y e a r s t h i s a r r a n g e m e n t w a s c a r r i e d o n , i t s e e m s t o u s t h a t t h e s e c u r i t y comp a n y m i g h t a s w e l l h a v e b e e n e l i m i n a t e d , a n d t h e k n i t t i n g company
h a v e e m p l o y e d i t s own s t o c k k e e p e r s and s h i p p i n g c l e r k s a s c u s t o d i a n s
f o r i n t e n d i n g l e n d e r s , d i r e c t l y , i n s t e a d of i n d i r e c t l y through t h e
s e c u r i t y company."
I n a f f i r m i n g t h e d e c i s i o n o f t h e C i r c u i t Court o f A p p e a l s , t h e S u preme C o u r t o f t h e U n i t e d S t a t e s s a i d :
»* * * T h e r e was s c a r c e l y a s e m b l a n c e o f an a t t e m p t
a t s u c h c h a n g e o f p o s s e s s i o n f r o m t h e h a n d s o f t h e k n i t t i n g comp a n y t o t h e h a n d s o f t h e w a r e h o u s i n g company. A c t u a l p o s s e s s i o n
o f t h e p r o p e r t y i n q u e s t i o n w a s e x e r c i s e d b y and e x i s t e d w i t h t h e
k n i t t i n g company s u b s t a n t i a l l y t h e same a f t e r t h e i s s u i n g o f t h e
r e c e i p t s as b e f o r e . I t i s a t r i f l i n g w i t h words t o c a l l the
v a r i o u s t r a n s a c t i o n s b e t w e e n t h e k n i t t i n g company and t h e w a r e h o u s i n g company a t r a n s f e r o f p o s s e s s i o n f r o m t h e f o r m e r t o t h e l a t t e r .
T h e r e was r e a l l y j\q d e l i v e r y , and no c h a n g e o f p o s s e s s i o n , c o n t i n u o u s o r o t h e r w i s e . The a l l e g e d c h a n g e w a s a mere p r e t e n s e , a
sham."
I n M c G a f f e y Canning Co. v . Bank o f A m e r i c a , 2 9 4 P a c . 4 5 , 5 3 , ( d e c i d e d November 1 0 , 1 9 3 0 ) a c a s e i n v o l v i n g t h e Lawrence Warehouse Company i t s e l f , t h e C a l i f o r n i a D i s t r i c t Court of A p p e a l s s a i d :
"The a p p o i n t m e n t o f t h e owner, o r o n e o f h i s s t a f f ,
a s a w a r e h o u s e m a n ' s c u s t o d i a n of g o o d s s t o r e d , , w h i l e n o t
conclusively i n e f f e c t u a l , is nevertheless a circumstance to
g i v e p a u s e , and m u s t b e c a r e f u l l y w e i g h e d i n c o n n e c t i o n w i t h
the other f a c t s i n evidence."
I n t h e c a s e o f MacPonald v . A e t n a I n d e m n i t y C o . , 90 Conn. 4 1 5 ,
97 A t l . 3 3 2 , 3 3 4 , ( d e c i d e d A p r i l 1 9 , 1 9 1 6 ) a w a r e h o u s e company was e n g a g e d i n
t h e b u s i n e s s of f i e l d warehousing; i t warehoused t h e goods of the b a i l o r
259
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X-7255-b
upon premises l e a s e d from the b a i l o r and issued warehouse r e c e i p t s t o the
b a i l o r , who pledged thorn as c o l l a t e r a l s e c u r i t y f o r c r e d i t obtained by
him.
Apparently t h e b a i l o r continued i n c o n t r o l of t h e premises and goods
t h e r e i n with the r i g h t to s e l l the goods, provided he continued ready t o
meet the demand of t h e holder of the r e c e i p t ; b u t , j u s t b e f o r e the a p p o i n t ment of a r e c e i v e r , t h e warehouse company entered and took a c t u a l possession
of t h e goods.
Because the warehouse company had taken a c t u a l possession of
the goods, the court upheld the v a l i d i t y of the l i e n c r e a t e d by t h e pledge
of the warehouse r e c e i p t ; b u t , i n d i s c u s s i n g the s i t u a t i o n e x i s t i n g p r i o r
to the t a k i n g of a c t u a l possession by the warehouse company, t h e Supreme
Court of Connecticut s a i d :
"The custodian remained an employe of t h e pledgor,
and any p o s s e s s i o n he nay have had was t h a t of h i s
employer; the repayment to h i s employer of the comp e n s a t i o n paid him as custodian i n d i c a t e s t h i s . "
Likewise, in any case i n which t h e Lawrence Warehouse Company employs
as i t s custodian an employee of the cooperative marketing a s s o c i a t i o n , t h e
courts may hold t h a t the warehouse company had no e x c l u s i v e and unequivocal
possession of t h e goods and t h a t , t h e r e f o r e , the pledge of i t s warehouse r e ceipt does not c r e a t e a v a l i d l i e n , e s p e c i a l l y in view of the f a c t t h a t t h e
Lawrence Warehouse Company r e q u i r e s t h e cooperative marketing a s s o c i a t i o n
to reimburse i t f o r the s a l a r y paid t o t h e custodian.
There i s no c e r t a i n t y t h a t the c o u r t s w i l l adopt t h i s view; but
there i s such a grave danger of i t t h a t i t would seem i n a d v i s a b l e f o r the
Federal Reserve Board t o approve of such warehouse r e c e i p t s as complying with
the requirements of t h e F e d e r a l Resorve Act and t h e Board's r e g u l a t i o n s .
most the Board can do i s t o guess a t what the c o u r t s may hold; and i f i t
guesses wrong, i t may mislead member banks t o t h e i r i n j u r y .
The
- 27 -
X-7255-b
.
PRACTICAL QUESTION AS TO INDEPENDENCE OF CUSTODIAN.
Even i f i t could bo said without question t h a t the warehouse
r e c e i p t s issued by t h e Lawrence Warehouse Corapany under t h e circumstances
described above convey or secure t i t l e to thu goods covered thereby and,
t h e r e f o r e , ccciply with the requirement of Section 15 of t h e Federal Reserve Act, I am c l e a r l y of the opinion t h a t they do not comply with the
requirement of t h e Board's r e g u l a t i o n s t h a t warehouse r e c e i p t s securing
bankers' acceptances drawn t o f i n a n c e the storage of r e a d i l y marketable
s t a p l e s must be "issued by a p a r t y independent of the customer."
I t i s t r u e t h a t they a r e issued i n the name of the Lawrence
Warehouse Company which i s supposedly independent of the borrower; but
the a c t u a l custodian of the goods i s so much under t h e i n f l u e n c e of the
borrower t h a t t h e purpose of the r e g u l a t i o n i s d e f e a t e d ,
This requirement of the r e g u l a t i o n i s based upon the f a c t t h a t
a l i e n on p e r s o n a l p r o p e r t y i s of no p r a c t i c a l value u n l e s s i t i s poss i b l e t o i d e n t i f y and s e i z e t h e goods whenever i t becomes necessary t o
enforce t h e l i e n ; and, u n l e s s the goods a r e in t h e hands of a p a r t y
independent of the borrower, they ray be d i s s i p a t e d or wrongfully d i s posed of and i t may be impossible t o enforce the l i e n .
While nominally on the pay r o l l of t h e warehouse company, the
custodian of the goods i s a former employee of t h e cooperative a s s o c i a t i o n ;
he expects to be placed again on the pay r o l l of the cooperative a s s o c i a t i o n as soon as the s t o r a g e season c l o s e s ; and, while he may draw his. pay
from the warehouse company, he knows t h a t i t w i l l be reimbursed by t h e
cooperative.
I t i s n a t u r a l f o r him to continue to regard t h e cooperative
2m
261
— 28 —
X—7255—b
a s s o c i a t i o n as h i s r e a l employer and as t h e one to whom h i s a l l e g i a n c e and
r e s p o n s i b i l i t y a r e due.
Under such circumstances, he would n a t u r a l l y be i n c l i n e d t o
accommodate the cooperative a s s o c i a t i o n i n any emergency, and, i f the
o f f i c e r s of t h e a s s o c i a t i o n should request the r e l e a s e of c e r t a i n goods,
urging t h a t the custodian could get t h e r e c e i p t s covering t h e goods a t
a l a t e r d a t e , i t i s not u n l i k e l y t h a t in many cases the custodian would
comply; and the r e c e i p t s might or might not be forthcoming l a t e r .
His
f u t u r e means of l i v e l i h o o d would depend upon r e t a i n i n g the good w i l l of
the manager of t h e cooperative marketing a s s o c i a t i o n and he could not
reasonably be expected t o be as independent nor as s t r i c t i n h i s p e r formance of h i s d u t i e s t o the warehouse company and the h o l d e r s of the
warehouse r e c e i p t s as could be a person not so s i t u a t e d ,
Whatever may be the t h e o r e t i c a l requirements of the arrangement
as t o the complete c o n t r o l and custody of the goods by the warehouseman,
t h e r e f o r e , i t i s obvious t h a t in f a c t the cooperative a s s o c i a t i o n w i l l
be i n a p o s i t i o n t o e x e r c i s e c o n t r o l over the goods through c o n t r o l of
i t s former employee, and t h a t the a s s o c i a t i o n i n such cases may have
unlimited access to t h e goods i n s t o r a g e .
Under such circumstances, i t
i s apparent t h a t the warehouseman w i l l not a c t u a l l y be independent of the
cooperative a s s o c i a t i o n ; because the warehouse company must r e l y upon i t s
l o c a l custodian, and he i s not independent of the a s s o c i a t i o n .
Both Governor Calkins and the Laurence Warehouse Company argue
t h a t the r i s k t h a t t h e goods w i l l bo a b s t r a c t e d or a f a l s e r e p o r t made
concerning the goods i n s t o r a g e always e x i s t s and t h a t t h i s may always
262
- 29 -
X-7255-b
be accomplished through c o l l u s i o n between, the r e p r e s e n t a t i v e of the
warehouse company and t h e owner of t h e goods; but i t i s obvious t h a t
t h i s i s not so l i k e l y t o happen when the custodian of the goods i s a
t r u l y independent person as i t i s where the custodian of the goods i s
so much under the i n f l u e n c e of the borrower.
As was s a i d by Mr. Wilbert Ward, A s s i s t a n t Vice P r e s i d e n t of
the n a t i o n a l City Bank of New York, i n an address b e f o r e the Association
of Reserve City Bankers, a t New Orleans, L a . , March 15, 1928:
"No b a r r i e r of l e g a l s o p h i s t r y w i l l prevent the servant
from hearing h i s paymaster's v o i c e " .
This p r i n c i p l e has been recognized r e p e a t e d l y by the c o u r t s in
cases d e a l i n g with t r u s t e e s h i p ; but I s h a l l quote only two s h o r t passages
from the c o u r t ' s opinions as i l l u s t r a t i n g the p o i n t .
In Michoud v . Girod, 4 How. 505, The Sup,, Ct. of t h e U.S. s a i d :
" I n t h i s c o n f l i c t of i n t e r e s t s , the law wisely i n t e r p o s e s . I t
a c t s not on the p o s s i b i l i t y , t h a t , i n some cases, the sense
of t h a t duty may p r e v a i l over the motives of s e l f - i n t e r e s t ,
but i t provides against the p r o b a b i l i t y i n many c a s e s , and
the danger i n a l l c a s e s , t h a t the d i c t a t e s of s e l f - i n t e r e s t ,
w i l l e x e r c i s e a predominate i n f l u e n c e , and supercede t h a t of
duty."
In S t a a t s v. Bergen, 17 E . J . Equity 554, Chief J u s t i c e Beasley s a i d :
"So j e a l o u s i s the law upon t h i s p o i n t , t h a t a t r u s t e e nay not
put himself i n a p o s i t i o n i n which t o be honest must be a s t r a i n
on him."
When the custodian of the goods depends f o r h i s f u t u r e employment
and h i s means of l i v e l i h o o d upon t h e good w i l l of t h e borrower and knows t h a t
the s a l a r y paid t o him by the warehouse company i s being reimbursed by the
borrower, t h e r e i s a r e a l danger t h a t i t would be too much of a s t r a i n on
X-7255-1
— 30
him t o r e f u s e a r e q u e s t of the borrower t o r e l e a s e the goods on a promise
t h a t the warehouse r e c e i p t s m i l l be presented i n a few -lays.
The Department of A g r i c u l t u r e advises t h a t , as a m a t t e r of f a c t ,
the requirements of the Lawrence Warehouse Company arrangement are not
always s t r i c t l y observed; and t h a t , i n one case which came t o the Department* s a t t e n t i o n , i t was found
t h a t goods warehoused by t h i s company had
been withdrawn from s t o r a g e without the surrender of the warehouse r e c e i p t s
covering them.
Viewing t h i s warehousing plan from the standpoint of the cooperat i v e a s s o c i a t i o n whose goods are warehoused, i t appears t h a t , i n substance,
the warehouse company does not propose a c t u a l l y t o operate the warehouse
i t s e l f but proposes to lend i t s name or endorsement t o these warehousing
o p e r a t i o n s , a c c e p t i n g the l e g a l r e s p o n s i b i l i t y f o r the s a f e custody of
the goods s t o r e d t h e r e i n and providing supervision and i n s p e c t i o n of the
warehoused goods from a d i s t a n c e , but leaving the a c t u a l o p e r a t i o n of the
warehouse t o persons who, while t e c h n i c a l l y i n the employ of the warehouse,
are a c t u a l l y s u b j e c t to the i n f l u e n c e of the cooperative a s s o c i a t i o n whose
goods are s t o r e d .
Much emphasis i s l a i d upon the f a c t t h a t the custodian of the
goods i s bonded i n each case i n the amount of $5,000 and t h a t t h e r e i s a
superimposed blanket bond of $100,000.
These bonds, however, are f o r the
p r o t e c t i o n of the warehouse company i t s e l f and do not of themselves p r o t e c t
the holders of the warehouse r e c e i p t s f o r any l o s s e s which they may s u f f e r .
The holders would have no r i g h t of a c t i o n against the bonding company f o r
l o s s e s i n c u r r e d , and i t i s conceivable t h a t i n emergencies the warehouse
company might permit the bonds to lapse or the bonding company might
Digitizedpfor
o sFRASER
s i b l y cancel
the bonds.
X-7255-Td
- 31 The f a c t i s a l s o emphasized t h a t warehouse r e c e i p t s a r e not
issued by the l o c a l custodian but by the r e g i o n a l o f f i c e s of the company
and t h a t withdrawals may be e f f e c t e d only upon i n s t r u c t i o n s from a
regional o f f i c e .
The r e g i o n a l o f f i c e , however, i s s u e s warehouse r e c e i p t s
upon the b a s i s of a statement from the owner and a r e p o r t from the l o c a l
custodian as t o the goods which have been received i n s t o r a g e .
Accordingly,
the f a c t t h a t the r e g i o n a l o f f i c e a c t u a l l y i s s u e s the r e c e i p t s i s of l i t t l e
importance so f a r as 1?he question under c o n s i d e r a t i o n i s concerned; because the company must n e v e r t h e l e s s r e l y upon the honesty and good f a i t h of
the l o c a l c u s t o d i a n .
While the Lawrence Warehouse Company claims t h a t i t w i l l not
employ as i t s custodian the manager or any r e s p o n s i b l e o f f i c e r or even a
large stockholder or r e l a t i v e of an o f f i c e r or stockholder of the d e p o s i t o r ,
the f a c t i s t h a t i n the only two decided cases we have d e a l i n g with t h e
t r a n s a c t i o n s of t h a t company, McGafYey Canning Co. v . Bank of America and
the Topper-Rnewbow c a s e , the s o - c a l l e d custodian of the Lawrence Warehouse
Company, remained i n the employ of the d e p o s i t o r .
I n one case he was the
manager of the d e p o s i t o r company and i n the other case he was the nephew of
the owner of the d e p o s i t o r company.
Moreover, one of the chief advantages
claimed by the Lawrence Warehouse Company f o r i t s system of f i e l d warehouses i s t h a t i t i n t e r f e r e s as l i t t l e as p o s s i b l e with the a c t i v i t i e s of
the d e p o s i t o r .
EXCUSES FOR FAILURE TO HAVE INDEPENDENT CUSTODIAN.
I asked Mr. J . Van Cartmell, Executive Vice P r e s i d e n t of the
265
X-7255-t
-*> 32 -*•
Lawrence Warehouse Company, why t h a t company does not place i n charge of
i t s f i e l d warehouses i t s own employees who would be independent of the
depositor.
He r e p l i e d , (1) t h a t i t would i n t e r f e r e too much with the op-
e r a t i o n s of the d e p o s i t o r , (2) t h a t i t would add too much expense to the plan,
and (3) t h a t i t i s d i f f i c u l t to f i n d independent custodians s u f f i c i e n t l y
f a m i l i a r with the b u s i n e s s of the canneries and cooperative marketing a s s o c i a t i o n s and of the grade and q u a l i t i e s of the goods s t o r e d .
In a telephone conversation which I had with him on t h i s s u b j e c t ,
on J u l y 24, 1931, Mr. Ralph M e r r i t t argued t h a t i t would be impossible t o comply with the Board*s requirements regarding independent custodianship i n so
f a r as the R a i s i n Growers* Association i s concerned; because t h e r e are about
35 f i e l d warehouses s t o r i n g r a i s i n s and t h e r e are no men who know the grades
of r a i s i n s except the men i n the employ of the R a i s i n Growers* A s s o c i a t i o n .
I n other words, he s a i d t h a t the r a i s i n growers have i n t h e i r own employ a l l
the men who have any knowledge of t h i s s u b j e c t .
The answer t o these arguments i s t h a t the problem of f i n d i n g
competent men t o conduct t h i s business on behalf of the warehouse company i s
a business problem which the warehouse company must solve f o r i t s e l f ; and
the f a c t t h a t i t may be a d i f f i c u l t business problem i s no reason why the
Federal Reserve Board should s a c r i f i c e an important p r o v i s i o n of i t s r e g u l a t i o n s designed f o r the p r o t e c t i o n of i t s member banks.
A mimeographed c i r c u l a r e n t i t l e d "Acceptable ' F i e l d * or •Custodian*
Set-ups f o r Warehousemen l i c e n s e d or Applying f o r Licenses under the United
S t a t e s Warehouse A c t , * issued by the Department of A g r i c u l t u r e under date of
March 21, 1928, which i s i n the a t t a c h e d f i l e , contains the following r e quirement on t h i s s u b j e c t :
366
- 33 -
X-7255-b
"7.
A c u s t o d i a n o r manager o f t h e w a r e h o u s e s h a l l
n o t r e c e i v e a n y p a r t o f h i s s a l a r y o r w a g e s f r o m any p e r s o n
d e p o s i t i n g goods i n t h e warehouse, nor s h a l l he be s u b j e c t
t o r e c e i v i n g i n s t r u c t i o n s from anyone c o n c e r n i n g t h e b u s i n e s s
o f t h e w a r e h o u s e e x c e p t f r o m t h e warehouseman. He n e e d n o t b e
a f u l l - t i m e e m p l o y e e "of t h e warehouseman b u t h e s h a l l n o t b e a
p a r t o r a f u l l - t i m e e m p l o y e e o f any d e p o s i t o r who owns o r i s
i n t e r e s t e d i n a n y o f t h e g o o d s i n t h e w a r e h o u s e . He c a n n o t
perform any s e r v i c e s f o r such d e p o s i t o r e i t h e r f o r compensat i o n o r o t h e r w i s e . I n o t h e r w o r d s , t h e c u s t o d i a n o r manager
must b e a b s o l u t e l y i n d e p e n d e n t o f e v e r y d e p o s i t o r . A t e m p o r a r y i n d e p e n d e n c e c a n n o t b e c o n s i d e r e d ; t h a t i s , an e m p l o y e e
o f a d e p o s i t o r may n o t b e e n g a g e d f o r t h e p e r i o d o f t h e l e a s e
and t h e n t h e r e a f t e r r e t u r n t o t h e employ o f t h e d e p o s i t o r . "
Notwithstanding t h i s requirement, which I b e l i e v e i s s t r i c t l y e n f o r c e d ,
t h e r e i s e n c l o s e d i n t h e a t t a c h e d f i l e a l e t t e r a d d r e s s e d t o me by Mr. Yohe
u n d e r d a t e o f J u l y 2 5 , 1 9 3 1 , l i s t i n g 8 2 f i e l d w a r e h o u s e s w h i c h a r e now l i c e n s e d and d o i n g b u s i n e s s u n d e r t h e U n i t e d S t a t e s W a r e h o u s e A c t .
T h i s would
seem t o d e m o n s t r a t e t h a t i t i s n o t i m p o s s i b l e t o c o m p l y w i t h t h e r e q u i r e m e n t
of the Board's r e g u l a t i o n t h a t warehouse r e c e i p t s u n d e r l y i n g bankers' accepta n c e s m u s t be i s s u e d b y p a r t i e s i n d e p e n d e n t o f t h e b o r r o w e r .
STATEMENT SUBMITTED BY LAWRENCE WAREHOUSE COMPANY.
Mr. J . Van Cartmell, Executive Vice President of t h e Lawrence Warehouse
Company, has f i l e d with me s e v e r a l l e t t e r s d e s c r i b i n g t h e f i e l d warehouse
o p e r a t i o n s of t h e Lawrence Warehouse Company in general and the plan proposed
t o be operated f o r t h e Southern Idaho Bean Growers' Association in p a r t i c u l a r .
A l l of t h e s e l e t t e r s a r e r e s p e c t f u l l y submitted herewith f o r the Board's
information.
He e m p h a s i z e s t h e s t a t e m e n t t h a t t h e Lawrence W a r e h o u s e Company i s
an i n d e p e n d e n t p u b l i c warehouseman w h i c h h a s s u c c e s s f u l l y c o n d u c t e d f i e l d
w a r e h o u s i n g o p e r a t i o n s f o r a number o f y e a r s ; t h a t t h e p r e m i s e s t o b e u s e d
a s w a r e h o u s e s w i l l b e l e a s e d f r o m t h e Bean Growers' A s s o c i a t i o n u n d e r b o n a
3 6 7
- 34 -
X-7255-b
f i d e l e a s e s which are duly recorded? t h a t they w i l l be completely p a r t i t i o n e d
off from o t h e r p a r t s of the b u i l d i n g in which they are l o c a t e d ; t h a t Lawrence
Warehouse Company signs w i l l be conspicuously placed on t h e outside of t h e
b u i l d i n g s and on t h e i n s i d e of the buildings5 'that the Lawrence Warehouse
Company locks w i l l be placed on a l l doors t o the premises used f o r warehouse
purposes; t h a t a l l commodities warehoused f o r t h i s account w i l l be conspicuous!,
placarded with t h e Lawrence Warehouse Company's stack cards; and t h a t any
person approaching t h e premises or the commodities can r e a d i l y see t h a t the
goods are warehoused and are n o t i n the possession of the cooperative a s s o c i ation .
I f f a i t h f u l l y adhered t o , t h e s e p r e c a u t i o n s a r e s u f f i c i e n t t o s a t i s f y
the u s u a l l e g a l requirements t h a t t h e warehouseman's possession must be open
and notorious and s u f f i c i e n t t o p l a c e c r e d i t o r s upon n o t i c e t h a t the goods are
in t h e possession of a warehouseman and not i n t h e possession of t h e d e p o s i t o r .
The p r i n c i p a l question b e f o r e the Board, however, i s whether the
a c t u a l custodian of the goods i s independent of t h e d e p o s i t o r who d e s i r e s t o
borrow a g a i n s t t h e warehouse r e c e i p t s .
On t h i s question, Mr. Van Cartmell say..
"The Lav/rence Warehouse Company has not d e f i n i t e l y decided
who i t w i l l employ as i t s Bonded F i e l d Warehouse Custodian
(Bonded Agent) a t each of the f i v e l o c a t i o n s r e f e r r e d t o ,
but a n t i c i p a t e s employing one of the former employees a t
each l o c a t i o n of the s u b s i d i a r y warehouse company of
the Southern Idaho Bean Growers' A s s o c i a t i o n , which
i s now o p e r a t i n g the warehouses. However, The Lawrence
7/arehouse Company w i l l n o t employ the p r e s e n t manager
of the s u b s i d i a r y warehouse company, as we are advised he i s an o f f i c e r and d i r e c t o r of t h e Southern
Idaho Bean Growers' A s s o c i a t i o n , and The Lawrence
Warehouse Company does n o t employ as a F i e l d Warehouse Custodian (Bonded Agent) or a F i e l d Warehouse
Watchman, an o f f i c e r , d i r e c t o r or stockholder of t h e
d e p o s i t o r of commodities."
From the
d e s c r i p t i o n of the Lawrence Warehouse Company's method of
268
- 35 u.
X-725C-b
operating f i e l d warehouses f u r n i s h e d to Die by IJr. Van Cartmell, i t would
seem t h a t ; i f the plan i s r i g i d l y adhered to i n a l l r e s p e c t s , t h e r e would
be no l e g a l o r p r a c t i c a l o b j e c t i o n to i t , except f o r the f a c t t h a t the
a c t u a l custodian of the goods i s not s u f f i c i e n t l y independent of the d e p o s i t o r
who proposes t o borrow money a g a i n s t the r e c e i p t s issued by the Lawrence
Warehouse Company.
This i s a very important exception, however, and i n my
opinion i t r e n d e r s such warehouse r e c e i p t s u n r e l i a b l e as c o l l a t e r a l both from
a l e g a l standpoint and from a p r a c t i c a l s t a n d p o i n t .
The Lawrence Warehouse Company places g r e a t emphasis upon the f a c t
t h a t i t s r e c e i p t s are accepted as c o l l a t e r a l by numerous l a r g e commercial
banks.
I t i s p o s s i b l e , however, t h a t these banks do not know t h a t the a c t u a l
custodian of the goods i s a former employee of the d e p o s i t o r who pledges
the warehouse r e c e i p t s as c o l l a t e r a l and the banks, without making t h e i r own
independent i n q u i r i e s , may be r e l y i n g upon statements by the company t o the
e f f e c t t h a t , "The Lawrence Warehouse Company places each of i t s f i e l d warehouses i n the custody of a "bpnded Laurence Warehouse Company employee."
Moreover, from the f a c t s s t a t e d by the c o u r t s i n the McG-affey
Canning Company case and the Topper Khewbow case, which are discussed e l s e where i n t h i s memorandum, i t appears t h a t the Lawrence Warehouse Company
does not always f a i t h f u l l y adhere t o the course of business described i n i t s
c i r c u l a r s and i n t h e b r i e f s submitted to me by Mr. Van Cartmell.
OPINIONS OF COUNSEL FOR LAWRENCE WAREHOUSE COMPANY.
The a d v e r t i s i n g c i r c u l a r s of the Lawrence Warehouse Company quote
the conclusions expressed by counsel r e t a i n e d by the warehouse company f o r
the purpose of giving advisory opinions t o the warehouse company as t o the
l e g a l i t y of i t s methods and v a l i d i t y of the warehouse r e c e i p t s i s s u e d by i t ,
and, of course, a l l of the opinions quoted are f a v o r a b l e t o the warehouse
\\
269
36 -
company;
X-7255-b
As u s u a l i n such opinions, however, i t may be assumed t h a t they
a r e based upon h y p o t h e t i c a l statements of f a c t submitted to counsel by the
warehouse company„ which d e s c r i b e i t s system of warehousing i n i t s most
favorable l i g h t .
One of t h e s e opinions was by Hon. Owen J . Roberts, now an Associate
J u s t i c e of the Supreme Court of the United S t a t e s , and a copy of h i s opinion
i s i n the a t t a c h e d f i l e .
I t i s based upon a h y p o t h e t i c a l statement of f a c t s
and upon the f o l l o w i n g statement r e g a r d i n g the custodians of the warehouses:
ii* * * 'if the bonded agent be a former employee of
the manufacturer oo? s t o r e r of the goods, he i s t r a n s f e r r e d to the pay r o l l s of your company, i s p a i d a subs t a n t i a l s a l a r y by your company, and i s under the cont r o l and supervision of your company only."
In the case now under c o n s i d e r a t i o n , however, i t appears t h a t the
custodians w i l l not be under the c o n t r o l and supervision of t h e warehouse company only, but w i l l continue to perform s e r v i c e s f o r the cooperative a s s o c i a t i o n and w i l l look to i t f o r f u t u r e employment.
CASES INVOLVING THE LA.WRSKCS WAREHOUSE COMPAHY.
While the Board i s not c a l l e d upon to pass upon the m e r i t s of the
e n t i r e p l a n of o p e r a t i o n of the Lawrence Warehouse Company, t h e r e p r e s e n t a t i v e s of t h a t company have f i l e d lengthy documents s e t t i n g f o r t h i n d e t a i l
the a l l e g e d m e r i t s and advantages of t h i s plan; and, i f they a r e granted a
h e a r i n g , they undoubtedly w i l l e l a b o r a t e on t h i s s u b j e c t a t g r e a t l e n g t h .
The Board should^not l o s e s i g h t of the f a c t t h a t the sole questions presented f o r i t s consideration are:
1.
Whether, on the f a c t s submitted by the Department of A g r i c u l -
t u r e , t h e warehouse r e c e i p t s of the Lawrence Warehouse Company may be said
t o convoy or secure t i t l e , a s r e q u i r e d by Section 13 of the Federal Reserve
Act; and
270
- 37 2.
X-7255-b
Whether t h e y may be s a i d t o b e i s s u e d b y a p a r t y i n d e p e n d e n t o f t h e
b o r r o w e r , a s r e q u i r e d b y S e c t i o n XI o f t h e B o a r d ' s R e g u l a t i o n A.
As a m a t t e r o f g e n e r a l i n f o r m a t i o n , h o w e v e r , i t no d o u b t w i l l b e o f
i n t e r e s t t o t h e B o a r d t o know s o m e t h i n g a b o u t t h e d e c i d e d c a s e s a f f e c t i n g t h e
Lawrence Warehouse Company i t s e l f #
THE MC GAZFSY CAMING- COMPANY CASE.
I n t h e c a s e o f M c G a f f e y Canning Co. v . Bank o f A m e r i c a , 2 9 4 P a c . 4 5 ,
d e c i d e d November 1 0 , 1 9 3 0 , b y the C a l i f o r n i a D i s t r i c t Court o f A p p e a l ,
a
c r e d i t o r s o u g h t t o a t t a c h c e r t a i n g o o d s i n one o f t h e f i e l d w a r e h o u s e s o f t h e
Lawrence Warehouse Company; t h e Bank o f A m e r i c a , w h i c h h e l d w a r e h o u s e r e c e i p t s
f o r s u c h g o o d s , i n t e r v e n e d ; t h e S h e r i f f r e l e a s e d t h e g o o d s t o t h e Bank o f
A m e r i c a when t h e a t t a c h i n g c r e d i t o r r e f u s e d t o f u r n i s h h i m a n i n d e m n i t y bond;
t h e Bank o f A m e r i c a s o l d t h e g o o d s and a p p l i e d t h e p r o c e e d s i n l i q u i d a t i o n o f
i t s l o a n ; a n d t h e a t t a c h i n g c r e d i t o r b r o u g h t s u i t a g a i n s t t h e Bank o f A m e r i c a ,
t h e Lawsence Warehouse Company and t h e S h e r i f f , f o r c o n v e r s i o n .
The t r i a l Court g r a n t e d a n o n - s u i t ( i . e . , d i s m i s s e d t h e c a s e )
and a n a p p e a l was t a k e n t o t h e C a l i f o r n i a D i s t r i c t Court o f A p p e a l , w h i c h
h e l d t h a t t h e r e was jaot s u c h a t r a n s f e r o f p o s s e s s i o n f r o m t h e C a n n i n g Comp a n y t o t h e w a r e h o u s e eorapany t h a t i t c o u l d b e s a i d a b s o l u t e l y a s a m a t t e r
o f l a w t h a t t h e r e was a n a c t u a l , o p e n , v i s i b l e , a n d u n e q u i v o c a l c h a n g e o f
p o s s e s s i o n and t h a t , t h e r e f o r e , t h e d e c i s i o n o f t h e t r i a l c o u r t m u s t b e r e v e r s e d
and t h e c a s e remanded f o r a t r i a l b e f o r e a j u r y .
The d e f e n d a n t s s o u g h t a
r e v i e w o f t h e d e c i s i o n o f t h e c o u r t o f a p p e a l s ; b u t t h e Supreme Court o f
California denied i t .
I u n d e r s t a n d t h a t t h e c a s e i s now p e n d i n g t r i a l on
t h e m e r i t s and p r o b a b l y w i l l b e t r i e d a g a i n d u r i n g S e p t e m b e r , 1 9 3 1 , u n l e s s
i t i s s e t t l e d out of c o u r t .
- 38 -
X-7255~b
The c o u r t d e s c r i b e d t h e w a r e h o u s i n g t r a n s a c t i o n a s f o l l o w s :
"In c o n s i d e r i n g t h i s q u e s t i o n i t w i l l be n e c e s s a r y
t o h a v e i n mind t h e c i r c u m s t a n c e s s u r r o u n d i n g t h e d e a l i n g s b e t w e e n t h e p a r t i e s . , The c a n n i n g b u s i n e s s o f t h e
V e n t u r a County Canning Company was c a r r i e d on i n a w o r k s h o p
or f a c t o r y a t Camarillo, r e n t e d from the C a l i f o r n i a F r u i t
C o n f e c t i o n Company, w h i c h c o n d u c t e d i t s b u s i n e s s on t h e o t h e r
s i d e o f a wooden p a r t i t i o n i n t h e same b u i l d i n g . The r e n t
p a y a b l e b y t h e c a n n i n g company was 12^ c e n t s p e r c a s e , and i t s
o u t p u t f o r t h e c a n n i n g s e a s o n was a b o u t 5 0 , 0 0 0 c a s e s . A man
named P a c e , e m p l o y e d b y t h e c a n n i n g company, s e r v e d a s i t s
cookroom f o r e m a n and s u p e r i n t e n d e d t h e c a n n i n g o p e r a t i o n s , a t
a s a l a r y o f $60 p e r week,
"With t h e c o n s o n t o f i t s l a n d l o r d , t h e c a n n i n g company,
on J u n e 2 8 , 1 9 2 3 , s u b l e t i t s e n t i r e s h o p , on a month t o month
t e n a n c y , t o t h e Lawrence Warehouse Company, a t a r e n t o f $ 1
p e r m o n t h , f o r w a r e h o u s e p u r p o s e s . T h i s l e a s e was r e c o r d e d
July 28, 1923.
" N o t w i t h s t a n d i n g t h i s s u b l e a s e t h e c a n n i n g company c o n t i n u e d t o c o n d u c t i t s b u s i n e s s i n t h e shop a s b e f o r e , u s i n g d u r i n g
t h e a p r i c o t s e a s o n 150 t o 200 e m p l o y e e s . Pace c o n t i n u e d t o a c t
a s c o o k r o o m f o r e m a n ; and a t t h e same t i m e h e a c t e d a l s o a s t h e
s o l e r e p r e s e n t a t i v e o f t h e Lawrence Warehouse Company on t h e
p r e m i s e s . I n f a c t , h e drew h i s s a l a r y o f $ 6 0 a w e e k f r o m t h e
w a r e h o u s e company, a n d t h a t company t h e n r e n d e r e d a b i l l f o r t h e
amount t o t h e c a n n i n g company. P r a c t i c a l l y a l l P a c e ' s t i m e was
g i v e n t o s u p e r i n t e n d e n c e of the canning p r o c e s s e s . At n i g h t an
e m p l o y e e o f t h e c a n n i n g company s l e p t on a c o t i n a c u b b y - h o l e
above a small o f f i c e p a r t i t i o n e d o f f from the shop, and during
t h e n i g h t t h e p r e m i s e s w i t h i t s c o n t e n t s were i n h i s caa?e.
"When t h e qans had b e e n f i l l e d and were r e a d y f o r s t a c k i n g , t h e y w e r e moved on t r u c k s t o a n o t h e r p a r t o f t h e shop a n d
s t a c k e d b y s k i l l e d e m p l o y e e s o f t h e c a n n i n g company, i n r o w s
s e t a b o u t f o u r and a h a l f f e e t a p a r t , a n d r e a c h i n g t o t h e c e i l i n g . At the time of t h e attachment t h e r e were t h r e e or f o u r such
s t a c k s i n p l a c e . Frames made o f s l a t s were p l a c e d a r o u n d t h e
s e v e r a l s t a c k s f o r t h e p u r p o s e o f s e p a r a t i n g t h e m and s i m p l i f y i n g t h e c o u n t . The c a n n i n g w a s d o n e a t t h e n o r t h end o f t h e
s h o p and t h e s t o r a g e a t t h e s o u t h e n d . There was n o t h i n g t o
s e p a r a t e the canning department from the s t o r a g e department e x c e p t an i n t e r v e n i n g space about f i f t e e n f e e t i n w i d t h ,
"As t h e c a s e s w e r e s t a c k e d , t h e y w e r e i n v e n t o r i e d b y P a c e
who k e p t t h e r e c o r d s . He t h e n i s s u e d n o n n e g o t i a b l e w a r e h o u s e
r e c e i p t s f o r t h e Lawrence Warehouse Company. The f o r m u s e d
was a n a c k n o w l e d g m e n t o f r e c e i p t f o r s t o r a g e ' f o r a c c o u n t o f ,
and t o b e d e l i v e r e d upon t h e w r i t t e n o r d e r , w i t h o u t s u r r e n d e r
o f t h i s r e c e i p t , t o Bank o f A m e r i c a , Los A n g e l e s . *
" R e f e r r i n g t o t h e s e r e c e i p t s , Heck* o n e o f t h e p a r t n e r s
i n t e r e s t e d i n t h e c a n n e r y , s a i d i n h i s t e s t i m o n y * 'We jumped i n
t h e c a r , a s s o o n a s we g o t them, and w e n t t o L o s A n g e l e s , and
— 3 9 •»
X-7255-b
" t o t h e Bank o f A m e r i c a , a n d g o t a l l t h e money we c o u l d . 1
"As r e c e i p t s w e r e i s s u e d , s t a c k c a r d s o f t h e
Lawrence Warehouse Company were p l a c e d on t h e s t a c k s , a h o u t
s i x f e e t from the f l o o r , each s p e c i f y i n g the a i s l e , , stack,
a n d mark, and g i v i n g t h e d a t e , l o t number, and q u a n t i t y .
T h e s e c a r d s b o r e , a l s o , t h e s t a t e m e n t , , ' W a r e h o u s e d t o Bank
of America.'
"When f r u i t was t o "be m a r k e t e d , a r e l e a s e w a s
i s s u e d f r o m t h e Los A n g e l e s o f f i c e o f t h e Lawrence Warehouse
Company on o r d e r o f t h e Bank o f A m e r i c a ; a n d , upon d e l i v e r y
o f t h e r e l e a s e t o P a c e , w i t h d r a w a l of t h e q u a n t i t y d e s i g n a t e d
f o l l o w e d . The c a n s v/ere t h e n l a b e l e d , p a c k e d i n c a s e s , a n d
s h i p p e d b y t h e c a n n i n g company t o f i l l o r d e r s o b t a i n e d
t h r o u g h b r o k e r s , who a p p e a r t o h a v e a s s u m e d r e s p o n s i b i l i t y
to the bank f o r the proceeds of s a l e .
"The c a n n i n g company r e a l l y p a i d P a c e ' s s a l a r y ;
and t h o u g h t h e w a r e h o u s e company, a c c o r d i n g t o t h e
s u b l e a s e , was c h a r g e d t h e n o m i n a l r e n t o f $ 1 p e r m o n t h ,
t h e r e was a n a c c o m p a n y i n g a g r e e m e n t o b l i g a t i n g t h e c a n n i n g company t o p a y t h e w a r e h o u s e company f o r i s s u i n g r e c e i p t s t h r e e c e n t s p e r c a s e f o r the f i r s t 5 0 , 0 0 0 c a s e s and
l e s s e r amounts f o r a d d i t i o n a l q u a n t i t i e s .
"No s i g n o f t h e V e n t u r a County Canning Company
s e e m s t o h a v e b e e n d i s p l a y e d on t h e b u i l d i n g . T h e r e w a s
a s i g n o f t h e C a l i f o r n i a F r u i t C o n f e c t i o n Company on t h e
o u t s i d e , a n d a s i g n o f t h e Lawrence Warehouse Company i n s i d e t h e s h o p n e a r t h e s o u t h e n d . While Mr. Heck s a i d t h e
w a r e h o u s e company h a d two o f i t s s i g n s on t h e o u t s i d e , h i s
c o - p a r t n e r , Mr. C l a r k e , s a i d t h e r e was n o n e on t h e o u t s i d e
t o h i s knowledge. For purposes of n o n s u i t the t e s t i m o n y
o f Heck on t h i s p o i n t m a s t b e d i s r e g a r d e d . " ,
The Court t h e n s t a t e d t h e p o i n t u p o n w h i c h i t s d e c i s i o n t u r n e ,
follows:
" I f , under t h e f a c t s of t h i s c a s e , t h e r e was a
t r a n s f e r o f p o s s e s s i o n f r o m t h e c a n n i n g company t o t h e
w a r e h o u s e company o f s u c h e x c l u s i v e c h a r a c t e r t h a t i t m u s t
b e d e c l a r e d , a s a m a t t e r o f l a w , t h a t t h e r e was i n d i s p u t a b l e
c o m p l i a n c e w i t h t h e r e q u i r e m e n t s o f s e c t i o n 3 4 4 0 , C i v i l Code,
t h e n t h e j u d g m e n t o f n o n s u i t was p r o p e r l y e n t e r e d ; b u t i f a
c o n t r a r y c o n c l u s i o n was r e a s o n a b l y d e d u c i b l e f r o m t h e e v i d e n c e ,
t h e c a s e s h o u l d have b e e n a l l o w e d t o go t o the j u r y a s the
t r i e r s of the f a c t s . "
t '••••yo
(<»• i O
, 40 *
X-7255-b
A f t e r i n d u l g i n g i n t h e b e s t d i s c u s s i o n o f t h e d e c i d e d c a s e s on t h i s
s u b j e c t w h i c h I h a v e "been a b l e t o f i n d a n y w h e r e , t h e c o u r t c o n c l u d e d a s
follows:
" I n t h e d i s u c s s i o n i n w h i c h we h a v e i n d u l g e d ,
we a r e n o t Ibe b e u n d e r s t o o d a s i n t i m a t i n g a r y o p i n i o n u p o n
t h e q u e s t i o n w h e t h e r t h e c i r c u m s t a n c e s i n e v i d e n c e d o , o r do
n o t , show a c h a n g e o f p o s s e s s i o n s a t i s f y i n g t h e l a w . As
i s s a i d i n B y r n e s v . Moore, 9 3 C a l . 3 9 3 , 3 9 4 , 2 9 P . 7 0 ; ' E v e r y
c a s e o f t h e k i n d h e r e i n v o l v e d h a s i t s own p e c u l i a r f e a t u r e s ,
and must b e d e t e r m i n e d on t h e p a r t i c u l a r f a c t s w h i c h s u r r o u n d
t h e g i v e n t r a n s a c t i o n or t r a n s f e r . ' We h o l d m e r e l y t h a t t h e
c i r c u m s t a n c e s a r e n o t such t h a t i t can be s a i d a b s o l u t e l y a s
a m a t t e r o f l a w t h a t t h e r e was an a c t u a l , o p e n , v i s i b l e , and
• u n e q u i v o c a l c h a n g e o f p o s s e s s i o n . The p l a i n t i f f was t h e r e f o r e
e n t i t l e d to the submission of the f a c t s to the j u r y f o r t h e i r
v e r d i c t on t h i s p o i n t u n d e r a p p r o p r i a t e i n s t r u c t i o n s a s t o t h e
r u l e s of law by which they should be guided."
While the m a t t e r i s thus l e f t to be t r i e d by a j u r y , under p r o p e r
i n s t r u c t i o n s i n the court, the f o l l o w i n g passages from the opinion of the
D i s t r i c t Court o f A p p e a l s i n d i c a t e q u i t e c l e a r l y t h e c h a r a c t e r o f t h e
i n s t r u c t i o n s which should be given to the jury:
"Whether w a r e h o u s i n g i s c a l l e d ' f i e l d w a r e h o u s i n g ' o r b y a n y o t h e r name, i t c a n n o t be e f f e c t i v e l y c o n d u c t e d
i n t h i s s t a t e without compliance with the law a s d e c l a r e d i n
s e c t i o n 3 4 4 0 o f t h e C i v i l Code. M e r e l y c o l o r a b l e c o n s t r u c t i v e
change of p o s s e s s i o n accomplishes n o t h i n g i n f a v o r of a p l e d g e e .
T h e r e must b e o p e n , v i s i b l e , u n e q u i v o c a l c h a n g e o f p o s s e s s i o n ,
m a n i f e s t e d b y s u c h s u b s t a n t i a l outward s i g n s a s t o make i t
e v i d e n t t o t h e w o r l d t h a t t h e c o n t r o l o f t h e owner h a s w h o l l y
c e a s e d , and t h a t a n o t h e r h a s a c q u i r e d , and i s o p e n l y e x e r c i s i n g ,
the e x c l u s i v e dominion over the p r o p e r t y . * * *
" A c t u a l c h a n g e o f p o s s e s s i o n means e x i s t i n g
i n a c t , and t r u l y a n d a b s o l u t e l y c a r r i e d o u t , a s o p p o s e d
to f o r m a l , p o t e n t i a l , v i r t u a l , or t h e o r e t i c a l change. * * *
The p r o o f r e q u i r e d t o show a c t u a l c h a n g e o f p o s s e s s i o n
i s n o t measured by any f i x e d s e t of r u l e s . Dependence
must b e p l a c e d ujpon t h e f a c t s and c i r c u m s t a n c e s o f e a c h
p a r t i c u l a r c a s e ; and u s u a l l y t h e d e t e r m i n a t i o n must r e s t
upon t h e f i n d i n g o f t h e c o u r t o r t h e j u r y a f t e r h e a r i n g
- 41 -
X-7255-b
"The e v i d e n c e a d d u c e d on b o t h s i d e s . * * *
"The a p p o i n t m e n t o f t h e owner, o r one o f h i s s t a f f ,
a s a warehouseman's c u s t o d i a n of goods s t o r e d , w h i l e not
conclusively i n e f f e c t u a l , i s nevertheless a circumstance
t o g i v e p a u s e , and m a s t b e c a r e f u l l y w e i g h e d i n c o n n e c t i o n
with the other f a c t s in evidence. * * *
"In t h i s case a f o r e i g n element i s introduced
"by t h e i n t e r j e c t i o n o f t h e w a r e h o u s e company b e t w e e n
the p l e d g o r and t h e p l e d g e e . I f the l o a n s had been
made w i t h o u t r e s o r t t o w a r e h o u s e r e c e i p t s , and t h e f r u i t h a d
b e e n s t a c k e d a n d k e p t on t h e p r e m i s e s a s shown i n t h e
evidence, w i t h Pace as custodian f o r the bank,
t h e r e would t h e n have been the simple q u e s t i o n whether
the p l e d g e e had been p l a c e d i n a c t u a l e x c l u s i v e
p o s s e s s i o n and c o n t r o l . I n s t e a d of a c t u a l p o s s e s s i o n
the bank c l a i m s to have o b t a i n e d symbolic p o s s e s s i o n
by v i r t u e of the warehouse r e c e i p t s ; b u t t h e s e r e c e i p t s c a n h a v e no v i r t u e , u n l e s s t h e w a r e h o u s e comr
p a n y h a d t h e same a c t u a l and e x c l u s i v e p o s s e s s i o n
and dominion which would have boon e s s e n t i a l t o the
p r o t e c t i o n of t h e bank, i f i t had a c t e d i n d e p e n d e n t l y
i n r e l i a n c e on t h e g o o d s i n s t e a d o f on t h e r e c e i p t s . "
As a p p l i e d t o t h e q u e s t i o n now b e f o r e t h e B o a r d , two c o n c l u s i o n s
may b e r e a c h e d w i t h r e f e r e n c e t o t h e w a r e h o u s e r e c e i p t s i n v o l v e d i n t h e
M c G a f f e y Canning Company c a s e :
(1)
That the v a l i d i t y of any l i e n c r e a t e d b y the
p l e d g e o f s u c h r e c e i p t s i s e x t r e m e l y d o u b t f u l ; and
(2)
That t h e r e was no s e m b l a n c e o f i n d e p e n d e n t
custodianship.
The Lawrence Warehouse Company s t a t e s t h a t t h e M c G a f f e y
27
X»7255-4)
42 -
c a s e a r o s e u n d e r t h e p r o c e d u r e f o l l o w e d "by t h a t company d u r i n g t h e y e a r
1 9 2 3 and t h a t , s i n c e t h a t t i m e t h e company, h a s a d o p t e d many a d d i t i o n a l
s a f e g u a r d s and r e f i n e m e n t s i n f i e l d w a r e h o u s i n g w h i c h o f f e r much g r e a t e r
s a f e g u a r d s to the p a r t i e s concerned than under i t s former p r o c e d u r e .
The p r o c e d u r e d e s c r i b e d i n t h e u n p u b l i s h e d f i n d i n g s o f t h e s p e c i a l
m a s t e r i n t h e r e c e n t c a s e o f W i l l i a m H. Moore, J r . , T r u s t e e i n B a n k r u p t c y o f Topper-Knewbow v . P a c i f i c F i n a n c e C o r p o r a t i o n and Lawrence
Warehouse Company, c o p i e s o f w h i c h a r e i n t h e a t t a c h e d f i l e , h o w e v e r , was
j u s t a s b a d i n my o p i n i o n a s t h e p r o c e d u r e a d o p t e d i n t h e M c G a f f e y c a s e ,
e x c e p t t h a t t h e r e was a b e t t e r s e g r e g a t i o n of the g o o d s .
Both cases are
a l i k e i n t h a t t h e a c t u a l c u s t o d i a n o f t h e g o o d s was a p e r s o n who r e m a i n e d i n t h e e m p l o y o f t h e d e p o s i t o r and who was more u n d e r t h e i n f l u e n c e o f t h e d e p o s i t o r t h a n u n d e r t h e i n f l u e n c e o f t h e w a r e h o u s e company.
TEE TO??ER~KNEWBOW CASE.
The Topper-Knewbow c a s e a r o s e i n 1 9 3 0 a n d may p r o p e r l y b e
t a k e n a s a n e x a m p l e o f t h e m e t h o d s a c t u a l l y u s e d b y t h e L a w r e n c e Wareh o u s e Company a t t h e p r e s e n t t i m e .
The w a r e h o u s i n g a r r a n g e m e n t was s e t
up J u n e 1 0 , 1 9 2 9 ; t h e Topper-Knewbow Company w e n t i n t o b a n k r u p t c y dueli n g t h e month o f March, 1 9 3 0 ; a n d t h e s p e c i a l m a s t e r ' s r e p o r t was
r e n d e r e d December 1 1 , 1 9 3 0 .
276
r 43
X-fSBSr*
n
The f i n d i n g s o f t h e s p e c i a l m a s t e r may b e summarized a s
follows:
The Topper-Knewbow Company a p p l i e d t o t h e P a c i f i c F i n a n c e C o r p o r a -
t i o n f o r a l o a n o f $ 2 0 , 0 0 0 and was t o l d t h a t i t m a s t p l e d g e w a r e h o u s e r e c e i p t s f o r $30,000 worth of merchandise.
The Topper-Knewbow Company t h e n r e -
moved c e r t a i n w o o l e n g o o d s f r o m i t s workrooms on t h e f o u r t h a n d f i f t h f l o o r s
o f t h e b u i l d i n g w h i c h i t o c c u p i e d w i t h o t h e r t e n a n t s t o a room on t h e t h i r d
floor.
I t l e a s e d t o t h e Lawrence Warehouse Company t h e room i n w h i c h t h e s e
g o o d s were p l a c e d a n d t h e Lawrence Warehouse Company p l a c e d i t s l o c k
and s i g n on t h e o n l y d o o r t h e r e t o .
The Lawrence Warehouse Company
e m p l o y e d a s i t s c u s t o d i a n , one Hat K l i t n i c k , a n e m p l o y e e o f t h e T o p p e r Knewbow Company r and t u r n e d t h e k e y s o v e r t o h i m .
The L a w r e n c e
Warehouse
Company i s s u e d w a r e h o u s e r e c e i p t s f o r t h e g o o d s and t h e P a c i f i c F i n a n c e
C o r p o r a t i o n made a l o a n t o t h e Topper-Knewbow Company a g a i n s t t h e p l e d g e
of such r e c e i p t s .
Goods w e r e f r e q u e n t l y removed t o t h e c u t t i n g room o f
t h e Topper-Knewbow Company and c l o t h i n g was m a n u f a c t u r e d t h e r e f r o m , b u t
i t appears t h a t o t h e r goods were s u b s t i t u t e d f o r the goods so removed.
( I t d o e s n o t a p p e a r w h e t h e r t h e c o n s e n t o f t h e w a r e h o u s e company t o s u c h
r e m o v a l s and s u b s t i t u t i o n was o b t a i n e d ; b u t Mr. Van C a r t m e l l t o l d me t h a t
t h e w a r e h o u s e company h a d t o p a y t h e f i n a n c e company $ 3 2 0 0 f o r g o o d s w h i c h
were m i s s i n g * and o b t a i n e d r e i m b u r s e m e n t f r o m t h e b o n d i n g c o m p a n y . )
The
Warehouse Company p a i d K l i t n i c k $ 8 0 p e r month b u t h e c o n t i n u e d t o work
f o r t h e Topper-Knewbow Company and e n d o r s e d h i s p a y c h e c k e a c h month o v e r
t o t h e Topper-Knewbow Company w h i c h d e p o s i t e d i t t o i t s own a c c o u n t , a l t h o u g h t h i s was n o t known t o t h e Lawrence Warehouse Company.
Klitnick
s o m e t i m e s d e l e g a t e d h i s a u t h o r i t y and p e r m i t t e d o t h e r e m p l o y e e s o f t h e
277
> 44 ~
X-7255-b
Topper-Knewbow Company t o h a v e a c c e s s t o t h e w a r e h o u s e .
The s p e c i a l m a s t e r c o n c l u d e d t h a t t h i s was a p u b l i c warehouse;
t h a t t h e w a r e h o u s e company t o o k a c t u a l p h y s i c a l p o s s e s s i o n o f t h e g o o d s ;
t h a t s u c h p o s s e s s i o n was o p e n , n o t o r i o u s and e x c l u s i v e ; and t h a t t h e w a r e house r e c e i p t s were v a l i d .
T h e r e f o r e , when t h e Topper-Knewbow Company
w e n t i n t o b a n k r u p t c y and l i t i g a t i o n e n s u e d b e t w e e n t h e t r u s t e e s r e p r e s e n t i n g
t h e g e n e r a l c r e d i t o r s and t h e P a c i f i c F i n a n c e Company w h i c h h e l d t h e w a r e h o u s e r e c e i p t s , t h e m a s t e r h e l d t h a t t h e P a c i f i c F i n a n c e Company h a d a v a l i d
l i e n and was e n t i t l e d t o t h e g o o d s a n d t h e U n i t e d S t a t e s D i s t r i c t Court
approved t h i s f i n d i n g .
The l e g a l i t y o f t h e l i e n was t h u s s u s t a i n e d ; b u t i t a p p e a r s
t h a t p a r t of the goods were not t h e r e ; and, under the p r a c t i c e p e r m i t t e d , i t
i s e n t i r e l y p o s s i b l e t h a t none o f them w o u l d b e t h e r e .
Moreover, i t i s
pe2>-
f e c t l y o b v i o u s t h a t i n t h i s c a s e , i t c o u l d n o t be s a i d t h a t t h e r e was any
r e a l independent c u s t o d i a n s h i p of the warehoused g o o d s .
FINANCIAL RESPONSIBILITY OF LAWRENCE WAREHOUSE COMPAUY.
I t may b e c o n t e n d e d t h a t , s i n c e t h e Lawrence Warehouse
Company i s i n d e p e n d e n t o f t h e b o r r o w e r and a c c e p t s f u l l l e g a l r e s p o n s i b i l i t y
f o r the goods r e p r e s e n t e d by i t s warehouse r e c e i p t s , the f a c t t h a t the a c t u a l
c u s t o d i a n o f t h e g o o d s i s n o t i n d e p e n d e n t of t h e b o r r o w e r i s u n i m p o r t a n t ;
b e c a u s e t h e Lawrence Warehouse Company w o u l d b e l i a b l e t o t h e h o l d e r o f
a n y w a r e h o u s e r e c e i p t who i s damaged b y a f a i l u r e t o d e l i v e r t h e g o o d s
t o h i m upon p r e s e n t a t i o n o f t h e r e c e i p t ,
The v a l u e o f t h e l e g a l r e s p o n s i -
b i l i t y o f t h e Lawrence Warehouse Company, h o w e v e r , d e p e n d s u p o n i t s
financial responsibility*
278
w 45 «
X-7255-b
On t h i s s u b j e c t a b a l a n c e s h e e t o f t h e Lawrence Warehouse Company
a s o f December 3 1 , 1 9 3 0 , f u r n i s h e d , t o Mr. Agnew b y t h a t company a n d e n c l o s e d
i n t h e a t t a c h e d f i l e , w o u l d seem t o s p e a k f o r i t s e l f .
It l i s t s the follow-
i n g a s s e t s and l i a b i l i t i e s :
LAJTBEIICE WAREHOUSE COMPAFT.
BALANCE SHEET
DECEMBER 31 1 9 5 0
A S S E T S :
Cash
Notes Receivable
Accounts Receivable
Supplies
Equipment
Real E s t a t e & Improvements
Stocks & Misc. Investments
Prepayments
• B r a n c h D e v e l o p m e n t Cost
•Leaseholds
•Good W i l l
$
14
5
166
12
149
21
5
59
129
77
50
061
608
956
743
481
373
238
474
439
500
000
79
44
54
06
59
29
00
38
53
00
00
90
60
7
127
000
024
211
390
240
141
000
000
868
00
92
00
93
CO
01
00
00
76
$ 6 9 1 6 7 6 62
L I A B I L I T I E S :
Motes Payable
Audited Vouchers & A c c t g . Payable
Deferred L i a b i l i t i e s
A c c o u n t s w i t h A f f i l i a t e d Cos.
D e f e r r e d Revenue C r e d i t s
Reserve f o r Depreciation
*Common S t o c k O u t s t a n d i n g
•Preferred Stock Outstanding
•Surplus
$
105
100
100
101
$ 6 9 1 8 7 6 62
A t t e n t i o n i s i n v i t e d t o t h e s o - c a l l e d a s s e t s marked w i t h a s t e r i s k s .
279
ta 46 -
X~7255~b
With t h e s e o b v i o u s l y q u e s t i o n a b l e a s s e t s e l i m i n a t e d , the s t a t e m e n t would
i n d i c a t e an a c t u a l n e t worth of only $ 4 4 , 9 2 9 , even i f the o t h e r a s s e t s ,
s u c h a s n o t e s and a c c o u n t s r e c e i v a b l e , a r e a c c e p t e d w i t h o u t q u e s t i o n .
I n t h i s c o n n e c t i o n i t must b e remembered t h a t t h e Lawrence Warehouse
Company o p e r a t e s a p p r o x i m a t e l y 500 f i e l d w a r e h o u s e s , a l t h o u g h o n l y 2 5 0
t o 3 0 0 a r e i n a c t m l o p e r a t i o n a t a n y one t i m e .
A l t h o u g h t h e Lawrence Warehouse Company w o u l d b e l e g a l l y l i a b l e
t o a n y p e r s o n h o l d i n g a n e g o t i a b l e warehouse r e c e i p t i s s u e d b y i t ,
if
t h e g o o d s a r e n o t f a i t h f u l l y k e p t and d e l i v e r e d t o s u c h h o l d e r , i t s f i n a n c i a l
r e s p o n s i b i l i t y , or r a t h e r i t s f i n a n c i a l a b i l i t y to d i s c h a r g e such l e g a l
l i a b i l i t y , i s questionable.
I t p l a c e s much e m p h a s i s upon t h e f a c t t h a t e a c h o f i t s c u s t o d i a n s
i s b o n d e d i n t h e sum o f $ 5 , 0 0 0 and t h a t t h e r e i s a b l a n k e t b o n d of $ 1 0 0 , 0 0 0
s u p e r i m p o s e d upon s u c h i n d i v i d u a l b o n d s .
A l l of t h e s e bonds, however, are
m e r e l y f i d e l i t y b o n d s t o p r o t e c t t h e Lawrence Warehouse Company a g a i n s t
l o s s e s r e s u l t i n g f r o m t h e f r a u d u l e n t o r d i s h o n e s t a c t s o f i t s own e m p l o y e e s
a n d t h e y w o u l d g i v e t h e h o l d e r o f t h e w a r e h o u s e r e c e i p t s no r i g h t o f a c t i o n
a g a i n s t t h e b o n d i n g company.
I t may b e a r g u e d t h a t t h i s p r o t e c t i o n w o u l d
e n a b l e t h e Lawrence Warehouse Company t o p r o t e c t i t s c u s t o m e r s ; b u t , i f
t h e Lawrence Warehouse Company s h o u l d g e t i n t o f i n a n c i a l d i f f i c u l t i e s , i t
m i g h t f a i l t o p a y t h e premiums on t h e s e b o n d s o r t h e b o n d s m i g h t b e c a n celled.
The L a w r e n c e Warehouse Company i s owned and c o n t r o l l e d b y t h e
Lawrence Warehouse C o r p o r a t i o n , a h o l d i n g c o r p o r a t i o n w h i c h a l s o owns
s e v e r a l o t h e r c o m p a n i e s i n C a l i f o r n i a ; and t h i s h o l d i n g company h a s
n o t i f i e d R. G> Dunn & C o . , t h e m e r c a n t i l e c r e d i t a g e n c y , t h a t i t s b o a r d
280
fc»
4ft H
X-7S5Ms
of d i r e c t o r s h a s a d o p t e d a r e s o l u t i o n t o t h e e f f e c t t h a t t h e c o r p o r a t i o n
i s r e s p o n s i b l e f o r t h e i n d e b t e d n e s s o f t h e Lawrence Warehouse Company
contracted in the usual course of b u s i n e s s .
I t i s v e r y d o u b t f u l , how-
e v e r , w h e t h e r t h i s a c t i o n o f t h e d i r e c t o r s of t h e Lawrence Warehouse
C o r p o r a t i o n would g i v e r i s e t o a v a l i d l e g a l c l a i m a g a i n s t t h e c o r p o r a t i o n i n f a v o r o f c r e d i t o r s o f t h e Lawrence Warehouse Company*
d i f f i c u l t y of compliance with it. S . warehouse a c t .
I t a p p e a r s t h a t t h e p r o p o s e d a r r a n g e m e n t b e t w e e n t h e Lawrence
Warehouse Company and t h e Idaho Bean Growers r C o o p e r a t i v e A s s o c i a t i o n
contemplates that the cooperative a s s o c i a t i o n w i l l not only pay the
w a r e h o u s e company a m o n t h l y s t o r a g e f e e , b u t w i l l a l s o r e i m b u r s e t h e
w a r e h o u s e company u n d e r c o n t r a c t f o r a l l e x p e n s e s , i n c l u d i n g s a l a r y o f
c u s t o d i a n , c o s t o f b o n d , s a l a r i e s and e x p e n s e s of a u d i t o r s .
S e c t i o n 13 o f t h e U. S. Warehouse A c t p r o v i d e s a s f o l l o w s :
"That e v e r y warehouseman c o n d u c t i n g a w a r e h o u s e l i c e n s e d u n d e r
t h i s Act s h a l l r e c e i v e f o r storage t h e r e i n , so f a r as i t s
c a p a c i t y p e r m i t s , any a g r i c u l t u r a l p r o d u c t o f t h e k i n d
c u s t o m a r i l y s t o r e d t h e r e i n b y h i m w h i c h may b e t e n d e r e d t o
him i n a s u i t a b l e c o n d i t i o n f o r w a r e h o u s i n g , i n t h e u s u a l
manner i n t h e o r d i n a r y and u s u a l c o u r s e o f b u s i n e s s , w i t h o u t
making a n y d i s c r i m i n a t i o n b e t w e e n p e r s o n s d e s i r i n g t o a v a i l
t h e m s e l v e s of warehouse f a c i l i t i e s . "
I f , t h e r e f o r e , any p e r s o n o t h e r t h a n t h e Idaho Bean Growers
C o o p e r a t i v e A s s o c i a t i o n s h o u l d demand i t , t h e Lawrence Warehouse Company
would be r e q u i r e d t o r e c e i v e b e a n s f o r s t o r a g e f r o m s u c h o t h e r p e r s o n s ;
and i t would be e x t r e m e l y d i f f i c u l t t o work o u t a n y measure o f c o m p e n s a t i o n f o r s u c h s t o r a g e s e r v i c e r e n d e r e d t o p e r s o n s o t h e r than t h e c o o p e r a t i v e
~ 48 -
X-7255-b
a s s o c i a t i o n which would not v i o l a t e the p r o h i b i t i o n a g a i n s t d i s c r i m i n a t i o n .
I f s u c h o t h e r p e r s o n s a r e c h a r g e d a s t o r a g e f e e o n l y , i t w o u l d amount t o
a d i s c r i m i n a t i o n a g a i n s t the c o o p e r a t i v e a s s o c i a t i o n ; and, i f such o t h e r
p e r s o n s a r e r e q u i r e d t o p a y a m o n t h l y s t o r a g e f e e and a l s o t o r e i m b u r s e
t h e w a r e h o u s e company f o r a l l e x p e n s e s i n c l u d i n g s a l a r y o f c u s t o d i a n ,
c o s t o f b o n d , s a l a r i e s and e x p e n s e s o f a u d i t o r s , e t c . , t h e n t h e c h a r g e s
w o u l d seem t o b e e x o r b i t a n t . .
In t h i s c o n n e c t i o n , a t t e n t i o n i s i n v i t e d to the f a c t t h a t S e c t i o n
2 5 o f t h e U. S . Warehouse
Act a u t h o r i z e s the S e c r e t a r y of A g r i c u l t u r e to
r e v o k e t h e l i c e n s e o f a n y warehouseman "upon t h e g r o u n d t h a t u n r e a s o n a b l e
o r e x o r b i t a n t c h a r g e s h a v e b e e n made f o r s e r v i c e s r e n d e r e d . "
ADVISABILITY OF CONDUCTING A HEARING- OH THIS SUBJECT.
On J u l y 2 4 , 1 9 3 1 , t h e B o a r d r e c e i v e d t h e f o l l o w i n g t e l e g r a m f r o m
Mr. J . Van C a r t m e l l , E x e c u t i v e V i c e P r e s i d e n t o f t h e Lawrence Warehouse
Company:
"Understand t h a t the F e d e r a l Reserve Board has been asked f o r
a n o p i n i o n on c e r t a i n p h a s e s o f F i e l d Warehouse p r o c e d u r e I
d e s i r e to a s k t h a t i n e v e n t any r u l i n g s of the Board would
a p p e a r t o b e a d v e r s e t o t h e Lawrence S y s t e m o f f i e l d w a r e h o u s i n g a s o p e r a t e d b y t h e Lawrence Warehouse Company t h a t
the Board would a l l o w u s to appear a t h e a r i n g p r i o r to
p r o m u l g a t i o n o f new r u l i n g and would a p p r e c i a t e b e i n g n o t i f i e d b y w i r e c a r e o f our C h i c a g o o f f i c e o f t i m e o f h e a r i n g . "
A l t h o u g h Mr. V e s t and t h e u n d e r s i g n e d h a v e d i s c u s s e d t h i s s u b j e c t
a t g r e a t l e n g t h - w i t h Mr. Van C a r t m e l l and a l t h o u g h h e h a s s u b m i t t e d l e n g t h y
documents which are i n the a t t a c h e d f i l e d e s c r i b i n g the methods of the
Lawrence Warehouse Company and s u b m i t t i n g a r g u m e n t s i n s u p p o r t o f s u c h
m e t h o d s , i t w o u l d seem a d v i s a b l e t o g r a n t t h i s r e q u e s t , i n o r d e r t o f o r e s t a l l
^ 8 3
l|fcj U
X-7255-b
a n y p o s s i b i l i t y o f a n i n j u s t i c e or c h a r g e s o f i n j u s t i c e .
Inasmuch a s t h e F e d e r a l B e s e r v e Banks o f New York and. San F r a n c i s c o
h a v e h e r e t o f o r e a c c e p t e d t h e f i e l d w a r e h o u s e r e c e i p t s o f t h e l a w r e n c e Wareh o u s e Company w i t h o u t q u e s t i o n , and h a v e w r i t t e n t h e Board t h a t t h e y c o n s i d e r
t h e s e r e c e i p t s u n o b j e c t i o n a b l e . , i t w o u l d seem a d v i s a b l e f o r t h e B o a r d e i t h e r
t o g r a n t them a h e a r i n g on t h i s s u b j e c t o r t o s u b m i t t h i s memorandum t o them
w i t h a r e q u e s t f o r a f u r t h e r e x p r e s s i o n of t h e i r v i e w s .
I f t h e B o a r d d e c i d e s t o c o n d u c t a h e a r i n g on t h i s s u b j e c t , i t
w o u l d a l s o seem a p p r o p r i a t e t o i n v i t e Mr. C. W. K i t c h e n and Mr. H. S . Yohe
of the Department of A g r i c u l t u r e to a t t e n d the h e a r i n g a s o b s e r v e r s .
I
do n o t t h i n k , h o w e v e r , t h a t t h e s e g e n t l e m e n w o u l d c a r e t o t e s t i f y a t a n
open h e a r i n g or t o p a r t i c i p a t e i n any d e b a t e w i t h t h e r e p r e s e n t a t i v e s of
t h e Lawrence Warehouse Company.
In view of the i n t e r e s t which they have m a n i f e s t e d i n t h i s
q u e s t i o n , i t w o u l d a l s o s e e m a d v i s a b l e t o i n v i t e Mr. B o b e r t H. B e a n ,
E x e c u t i v e S e c r e t a r y o f t h e A m e r i c a n A c c e p t a n c e C o u n c i l , a n d Mr. W i l s o n
V, L i t t l e , E x e c u t i v e ^Secretary o f t h e A m e r i c a n Warehousemen 1 s A s s o c i a t i o n ,
to a t t e n d such h e a r i n g ,
PRACTICE OF FEDERAL 3ESEBYE BANKS AS TO CHECKING
WAREHOUSE RECEIPTS IDDE3LYING ACCEPTANCE CREDITS.
I t i s s u r p r i s i n g that warehouse r e c e i p t s i s s u e d under t h i s p l a n
h a v e b e e n a c c e p t e d and a p p r o v e d b y a t l e a s t two o f t h e F e d e r a l B e s e r v e Banks
w i t h o u t c o n s u l t a t i o n w i t h t h e F e d e r a l B e s e r v e B o a r d ; and I b e l i e v e t h a t i t
would be a d v i s a b l e to i n q u i r e i n t o the q u e s t i o n whether t h e Board i s p r o v i d i n g
283
- 50 -
X-7255-b
a s u f f i c i e n t c h e c k u p o n t h e d e c i s i o n s made b y t h e F e d e r a l R e s e r v e Banks
on t h i s s u b j e c t and w h e t h e r t h e F e d e r a l R e s e r v e Banks a r e i n q u i r i n g w i t h
s u f f i c i e n t care i n t o the c h a r a c t e r of warehouse r e c e i p t s a g a i n s t which
b a n k e r s 1 a c c e p t a n c e s p u r c h a s e d o r d i s c o u n t e d b y them a r e i s s u e d .
S i n c e "bankers 1 a c c e p t a n c e s drawn t o f i n a n c e t h e s t o r a g e o f
r e a d i l y marketable s t a p l e s are not e l i g i b l e f o r r e d i s c o u n t by Federal
r e s e r v e banks u n l e s s t h e y are secured a t the time of a c c e p t a n c e by wareh o u s e r e c e i p t s c o n v e y i n g g o o d s e c u r i t y t i t l e and i s s u e d b y p a r t i e s i n d e p e n d e n t o f t h e b o r r o w e r s , i t w o u l d seem t h a t , b e f o r e p u r c h a s i n g o r r e d i s c o u n t i n g bankers1 a c c e p t a n c e s secured by warehouse r e c e i p t s , Federal
r e s e r v e banks should i n q u i r e a s to the c h a r a c t e r of the u n d e r l y i n g warehouse r e c e i p t s .
T h i s would not n e c e s s a r i l y i n v o l v e a s e p a r a t e i n q u i r y
a s t o e a c h a c c e p t a n c e , b u t t h e F e d e r a l R e s e r v e Bank o f t h e d i s t r i c t i n
which the a c c e p t i n g bank i s l o c a t e d could o b t a i n the n e c e s s a r y i n f o r m a t i o n
a s t o e a c h a c c e p t a n c e c r e d i t g r a n t e d and c o u l d p a s s t h e i n f o r m a t i o n a l o n g
t o the o t h e r F e d e r a l r e s e r v e banks.
T h i s q u e s t i o n c o u l d v e r y w e l l b e r e f e r r e d t o t h e G e n e r a l Committee
on B a n k e r s * A c c e p t a n c e s f o r s t u d y and r e p o r t .
That Committee c o n s i s t s o f
t h e o f f i c e r s o f 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 who p u r c h a s e a c c e p t a n c e s
f o r them and p a s s u p o n a l l p r o b l e m s p e r t a i n i n g t o t h i s s u b j e c t .
The conn
m i t t e e ' s a c t i v i t i e s , a s a whole, s e t the standard of the acceptance p r a c t i c e s
of a l l banks in t h i s country.
I f t h e members o f t h i s Committee w i l l n o t
purchase the a c c e p t a n c e s of p a r t i c u l a r banks, or a c c e p t a n c e s of a p a r t i c u l a r
i s s u e , s u c h a c c e p t a n c e s a r e d i s c r i m i n a t e d a g a i n s t i n t h e m a r k e t and t h e r e i s
2 8 4
- si #
x-tsss-b
l i t t l e i f a n y a d v a n t a g e i s u s i n g them a s a means o f p r o v i d i n g b a n k c r e d i t .
T h a t Committee a n d i t s i n d i v i d u a l members, t h e r e f o r e , h o l d t h e
k e y t o t h e p r a c t i c a l a d m i n i s t r a t i o n o f t h i s p a r t i c u l a r p r o b l e m ; a n d I be**
l i e v e t h a t i t w o u l d b e w e l l w o r t h .while f o r i t t o h a v e a m e e t i n g f o r t h e
p u r p o s e o f d i s c u s s i n g and g i v i n g t h o r o u g h r e c o n s i d e r a t i o n t o :
(1)
The c h a r a c t e r o f w a r e h o u s e r e c e i p t s w h i c h s h o u l d b e deemed
a c c e p t a b l e a s a b a s i s f o r b a n k e r s ' a c c e p t a n c e c r e d i t s , and
(2)
The s t e p s w h i c h s h o u l d b e t a k e n b y t h e F e d e r a l R e s e r v e
Banks to a s s u r e t h e m s e l v e s t h a t t h e warehouse r e c e i p t s u n d e r l y i n g d o m e s t i c
s t o r a g e a c c e p t a n c e c r e d i t s a r e p r o p e r w a r e h o u s e r e c e i p t s and c o m p l y f u l l y
w i t h t h e B o a r d ' s r e g u l a t i o n s and r u l i n g s .
I do n o t b e l i e v e t h a t t h e B o a r d ' s c o n s i d e r a t i o n o f t h i s p a r t i c u l a r case should be postponed u n t i l a f t e r such a meeting, because t h a t
w o u l d c a u s e t o o much d e l a y ; b u t
I do b e l i e v e t h a t t h i s g e n e r a l s u b j e c t
s h o u l d b e t h o r o u g h l y c o n s i d e r e d b y t h a t Committee i n t h e n e a r " f u t u r e .
CONCLUSION.
I a g r e e w i t h t h e o f f i c e r s o f t h e F e d e r a l He s e r v e B a n k s t h a t f i e l d
w a r e h o u s i n g a c t u a l l y c o n d u c t e d b y b o n a f i d e warehousemen r e g u l a r l y e n g a g e d
i n p u b l i c w a r e h o u s i n g i s mu,ch p r e f e r a b l e t o s u b s i d i a r y w a r e h o u s i n g and I
t h i n k i t i s much more l i k e l y t o b e s u s t a i n e d b y t h e c o u r t s .
As t h i s
p a r t i c u l a r p l a n i s proposed to be operated, however, I t h i n k i t i s f a t a l l y
d e f e c t i v e ; b e c a u s e o f t h e f a c t t h a t t h e man a c t u a l l y i n c h a r g e o f t h e
w a r e h o u s e i s t a k e n i m m e d i a t e l y f r o m t h e employ o f t h e p e r s o n w h o s e g o o d s
a r e s t o r e d and e x p e c t s t o b e r e e m p l o y e d , b y t h a t p e r s o n a t t h e t e r m i n a t i o n
o f t h e w a r e h o u s e s e a s o n , , and,, t h e r e f o r e , i s n o t i n f a c t i n d e p e n d e n t b u t
i s t o o much s u b j e c t t o t h e i n f l u e n c e o f t h e p e r s o n whose g o o d s a r e s t o r e d .
285
~ 52 »
X-7255-b
T h i s company, h o w e v e r , h a s worked o u t many i m p o r t a n t s a f e g u a r d s
f o r f i e l d w a r e h o u s e s ; on p a p e r , i t s p l a n l o o k s v e r y g o o d e x c e p t f o r t h e
f a c t t h a t i t d o e s n o t employ independent c u s t o d i a n s owing a l l e g i a n c e s o l e l y
t o t h e w a r e h o u s e company; a n d I am i n c l i n e d t o b e l i e v e t h a t t h e p l a n w o u l d
b e s o u n d , t h e company w o u l d r e n d e r a v a l u a b l e s e r v i c e , a n d t h e r e w o u l d b e
no o b j e c t i o n t o i t s w a r e h o u s e r e c e i p t s , i f :
(1)
The w a r e h o u s e company w o u l d p l a c e i n c h a r g e o f e a c h f i e l d
w a r e h o u s e i t s own i n d e p e n d e n t c u s t o d i a n o w i n g a l l e g i a n c e s o l e l y t o t h e
w a r e h o u s e company;
(2)
The w a r e h o u s e company h a d a n a d e q u a t e n e t f i n a n c i a l w o r t h
t o s u p p o r t t h e l a r g e number o f f i e l d w a r e h o u s e s f o r w h i c h i t a c c e p t s t h e
l e g a l r e s p o n s i b i l i t y ; and
(3)
I t would a c t u a l l y operate a l l of t h e s e warehouses i n s t r i c t
c o n f o r m i t y w i t h t h e p l a n w h i c h i t h a s o u t l i n e d on p a p e r .
From a c a r e f u l s t u d y o f a l l t h e d o c u m e n t s i n t h e a t t a c h e d f i l e
and a l l o t h e r i n f o r m a t i o n I h a v e b e e n a b l e t o f i n d a b o u t t h i s company, howe v e r , I b e l i e v e t h a t i t s w a r e h o u s e r e c e i p t s a r e n o t now r e l i a b l e c o l l a t e r a l
f o r banks and t h a t i t would be i n a d v i s a b l e f o r t h e Board t o i s s u e any r u l i n g
which c o u l d be u s e d by t h a t
company a s a b a s i s f o r t h e s t a t e m e n t t h a t t h e
F e d e r a l R e s e r v e B o a r d h a s a p p r o v e d i t s p l a n or i t s w a r e h o u s e r e c e i p t s , e s p e c i a l l y i n v i e w o f t h e f a c t t h a t bhe company a p p e a r s t o b e a m b i t i o u s t o
expand i t s o p e r a t i o n s a l l over the U n i t e d S t a t e s .
Respectfully,
(Signed)
Walter l y a t t
Walter Wyatt,
General Counsel.
X-7258
DIGEST OF STATS LAWS RELATING TO THE PURCHASE
OR OWNERSHIP OF BANK STOCK BY HOLDING
CORPORATIONS.
(Superseding X-6392)
T h e r e i s g i v e n "below a d i g e s t o f t h e l a w s o f
t h e s e v e r a l S t a t e s r e l a t i n g t o t h e p u r c h a s e or o w n e r s h i p
o f t h e s t o c k o f h a n k s "by h o l d i n g c o r p o r a t i o n s .
This
d i g e s t h a s "been p r e p a r e d "by t h e O f f i c e o f t h e G e n e r a l
Counsel t o the Federal Reserve Board, w i t h t h e a s s i s t a n c e
of the Counsel t o t h e v a r i o u s Federal r e s e r v e banks, and
shows t h e s t a t u s o f t h e S t a t e l e g i s l a t i o n d e a l i n g w i t h
t h i s s u b j e c t a s of August 1 , 1932.
The S t a t e s n o t m e n t i o n e d i n t h i s d i g e s t a p p a r e n t l y h a v e no l e g i s l a t i o n a f f e c t i n g t h i s s u b j e c t
d i r e c t l y or i n d i r e c t l y .
287
X-7258
-2-
ALABAMA.
T h e r e d o e s n o t a p p e a r t o "be a n y l e g i s l a t i o n i n t h i s S t a t e
s p e c i f i c a l l y a u t h o r i z i n g a h o l d i n g c o r p o r a t i o n t o p u r c h a s e o r own
b a n k s t o c k s ; "but S e c t i o n 7 0 1 5 ( 1 0 ) o f t h e Code o f A l a b a m a , w h i c h r e l a t e s t o t h e p o w e r s , r i g h t s and d u t i e s o f c o r p o r a t i o n s i n g e n e r a l ,
a u t h o r i z e s a c o r p o r a t i o n "to s u b s c r i b e f o r , a c q u i r e , h o l d , and d i s p o s e of t h e s t o c k , bonds or o t h e r e v i d e n c e of i n d e b t e d n e s s of any
other c o r p o r a t i o n of t h i s or any o t h e r S t a t e or f o r e i g n c o u n t r i e s ,
a n d w h i l e owner t h e r e o f t o e x e r c i s e t h e r i g h t s , p r i v i l e g e s , a n d
powers of o w n e r s h i p , i n c l u d i n g t h e r i g h t t o v o t e , s u b j e c t t o t h e
l i m i t a t i o n s of s u c h r i g h t s i n t h i s chapter c o n t a i n e d ; * * * . "
ARIZONA.*
There do not appear t o b e any s t a t u t e s i n t h i s S t a t e
specifically dealing with this subject.
In these circumstances, i t
may b e t h a t h o l d i n g c o r p o r a t i o n s a r e a u t h o r i z e d t o p u r c h a s e b a n k
s t o c k s u n d e r t h e p r o v i s i o n s o f S e c t i o n 5 7 9 o f t h e 1 9 2 8 R e v i s e d Code
o f A r i z o n a , w h i c h b e c a m e e f f e c t i v e J u l y 1", 1 9 2 9 .
This s e c t i o n r e l a t e s
t o c o r p o r a t i o n s i n g e n e r a l and p r o v i d e s t h a t any c o r p o r a t i o n s h a l l
h a v e p o w e r " t o make c o n t r a c t s , a c q u i r e a n d t r a n s f e r p r o p e r t y , p o s s e s s i n g t h e s a m e p o w e r s i n s u c h r e s p e c t a s p r i v a t e i n d i v i d u a l s now e n j o y .
X-7358
-3AKKAHSAS.
T h e r e do n o t a p p e a r t o b e a n y s t a t u t e s i n t h i s s t a t e s p e c i f i c a l l y a u t h o r i z i n g or f o r b i d d i n g a h o l d i n g c o r p o r a t i o n t o p u r c h a s e or own "bank s t o c k , h u t S e c t i o n 3 o f A c t N o . - 2 5 2 o f t h e 1 9 3 1
A c t s o f A r k a n s a s , a p p r o v e d March 3 1 , 1 9 3 1 , p r o v i d e s t h a t "any
p e r s o n or p e r s o n s , a n d / o r a n y company, c o - p a r t n e r s h i p , c o r p o r a t i o n
o r o t h e r l e g a l e n t i t y i n w h i c h s u c h p e r s o n or p e r s o n s own o r c o n t r o l
a s u b s t a n t i a l i n t e r e s t , • o w n i n g e i t h e r s i n g l y or j o i n t l y a n a g g r e g a t e
o f f i f t y ( 5 0 ) p e r c e n t or more o f t h e c a p i t a l s t o c k o f t h r e e o r more
"banks a n d / o r t r u s t c o m p a n i e s , t h u s f o r m i n g a c h a i n o r g r o u p o f b a n k s
a n d / o r t r u s t c o m p a n i e s , s h a l l "be, and a r e h e r e b y p r o h i b i t e d f r o m
borrowing from, or becoming i n d e b t e d t o , such banks a n d / o r t r u s t
c o m p a n i e s ,• t h u s owned a n d c o n t r o l l e d , i n a n y amount o r i n a n y mann e r " ; and t h i s w o u l d s e e m t o r e c o g n i z e b y i m p l i c a t i o n t h e r i g h t o f
h o l d i n g c o r p o r a t i o n s t o own bank s t o c k s .
CALIFORNIA.
There d o e s not appear t o be any s t a t u t e i n t h i s S t a t e
which s p e c i f i c a l l y authorizes a h o l d i n g corporation to purchase
or own b a n k s t o c k s .
H o w e v e r , t h e G e n e r a l C o r p o r a t i o n Law e n a c t e d
by t h e 1931 L e g i s l a t u r e of t h i s S t a t e (C.C, 3 4 1 ) , p r o v i d e s t h a t
"Every c o r p o r a t i o n h e r e t o f o r e or h e r e a f t e r o r g a n i z e d h a s p o w e r
* * * ( 1 0 ) To a c q u i r e , s u b s c r i b e f o r , h o l d , own, p l e d g e a n d o t h e r w i s e d i s p o s e of and v o t e s h a r e s o f s t o c k , bonds and s e c u r i t i e s o f
any o t h e r c o r p o r a t i o n , d o m e s t i c or f o r e i g n . "
•
2 8 8
X-7258
-4IDAHO
T h e r e d o e s n o t a p p e a r t o "be a n y s t a t u t e i n t h i s S t a t e
s p e c i f i c a l l y d e a l i n g w i t h t h e p u r c h a s e or ownership of hank s t o c k
"by h o l d i n g c o r p o r a t i o n s ; h u t S e c t i o n 1 0 o f C h a p t e r 2 6 2 o f t h e 1 9 2 9
laws p r o v i d e s t h a t a c o r p o r a t i o n formed under the g e n e r a l c o r p o r a t i o n l a w may " a c q u i r e , p u r c h a s e , g u a r a n t e e , h o l d , m o r t g a g e , own,
v o t e , s e l l , p l e d g e a n d / o r o t h e r w i s e d i s p o s e of and d e a l i n s h a r e s
* * * o f o t h e r c o r p o r a t i o n s , d o m e s t i c or f o r e i g n " .
T h e r e i s a l s o no d o u b l e l i a b i l i t y a g a i n s t s t o c k h o l d e r s
o f S t a t e "banks i n t h i s S t a t e , b u t t h e b a n k i n g l a w r e q u i r e s t h a t
s t o c k h o l d e r s a t t h e time of t h e o r g a n i z a t i o n of s u c h banks must
produce s a t i s f a c t o r y evidence that they have a net worth over
and above a l l l i a b i l i t i e s and exemptions of a t l e a s t t h r e e t i m e s
t h e amount o f t h e c a p i t a l s t o c k t a k e n b y them i n t h e p r o c e s s o f
such organization.
( S e c . 1 2 ( e ) , Bank A c t o f 1 9 2 5 ) .
ILLINOIS.
The G e n e r a l C o r p o r a t i o n Law o f t h i s S t a t e p r o v i d e s t h a t
c o r p o r a t i o n s o r g a n i z e d t h e r e u n d e r may "own, p u r c h a s e or o t h e r w i s e
a c q u i r e * * * s t o c k s , * * of a n y c o r p o r a t i o n , d o m e s t i c o r f o r e i g n . "
The s t a t u t e c o n t a i n s some r e s t r i c t i o n s , s u c h a s f o r b i d d i n g t h e
h o l d i n g o f s t o c k i n a b u i l d i n g c o r p o r a t i o n , b u t t h e r e i s no e x p r e s s
p r o h i b i t i o n t h e r e i n u p o n t h e r i g h t o f a c o r p o r a t i o n t o own s t o c k i n
a b a n k , a l t h o u g h t h e r e may b e a n i m p l i c a t i o n t o t h a t e f f e c t .
(See
S e c t i o n 2, page 7 4 3 , of the I l l i n o i s Revised S t a t u t e s of 1931, (Smith
a n d Hurd) p r o h i b i t i n g t h e o r g a n i z a t i o n o f a c o r p o r a t i o n u n d e r t h e
*T7B58
-5( I l l i n o i s - continued)
p r o v i s i o n s of t h e g e n e r a l c o r p o r a t i o n law f o r t h e purpose of engaging
i n a "banking " b u s i n e s s and t h e c a s e o f C e n t r a l L i f e S e c u r i t i e s Company
v . Smith, 236 Fed* 1 7 0 ) ,
Moreover, S e c t i o n 6 of t h e I l l i n o i s Banking
A c t , "by r e f e r r i n g t o s t o c k h o l d e r s of "banks "by t h e u s e o f t h e p r o nouns. "he" or " s h e " , may c r e a t e t h e i m p l i c a t i o n t h a t i t was i n t e n d e d
t h a t s u c h s t o c k h o l d e r s s h o u l d "be n a t u r a l and n o t a r t i f i c i a l p e r s o n s .
IMP m m .
T h e r e d o n o t a p p e a r t o "be a n y s t a t u t e s i n t h i s S t a t e
s p e c i f i c a l l y a u t h o r i z i n g or f o r b i d d i n g c o r p o r a t i o n s t o own "bank
s t o c k s ; "but s e c t i o n 4 o f a n a c t o f t h e I n d i a n a L e g i s l a t u r e a p p r o v e d
March 2 , 1 9 3 1 , p r o v i d e s i n p a r t t h a t , "The s h a r e h o l d e r s i n a n y
c o r p o r a t i o n formed under t h e p r o v i s i o n s of any law of t h i s S t a t e
f o r any purpose w h a t s o e v e r , and t h e s h a r e h o l d e r s i n any c o r p o r a t i o n
f o r m e d u n d e r t h e l a w s o f a n y o t h e r S t a t e or c o u n t r y a n d a d m i t t e d t o
do " b u s i n e s s i n t h i s s t a t e , s h a l l "be h e l d i n d i v i d u a l l y r e s p o n s i b l e
f o r a l l c o n t r a c t s , d e b t s and engagements of any bank, t h e s h a r e s of
w h i c h a r e h e l d b y a n y s u c h c o r p o r a t i o n , e a c h t o t h e amount w h i c h t h e
said shareholder's i n t e r e s t s i n said corporation, as represented
b y h i s s h a r e s o f c a p i t a l s t o c k i n t h e same, b e a r s t o t h e t o t a l
amount n e c e s s a r y t o b e c o l l e c t e d f r o m t h e h o l d e r s o f s h a r e s o f
s t o c k i n any such bank, * *
and t h i s would seem t o r e c o g n i z e
b y i m p l i c a t i o n t h e r i g h t o f h o l d i n g c o r p o r a t i o n s t o own b a n k s t o c k .
On t h e o t h e r h a n d , s e c t i o n 2 o f c h a p t e r 2 1 5 o f t h e 1 9 2 9
iA»6^
X
"7258
^
(Indiana - continued)
A c t s of I n d i a n a p r o v i d e s t h a t , " c o r p o r a t i o n s may "be o r g a n i z e d f o r
p e c u n i a r y p r o f i t u n d e r t h i s a c t f o r a n y l a w f u l b u s i n e s s p u r p o s e or
p u r p o s e s , e x c e p t * * * c o r p o r a t i o n s f o r t h e c o n d u c t o f a "banking, * * ,
trust * * * business".
S e c t i o n 3 of t h i s chapter a l s o a u t h o r i z e s such
c o r p o r a t i o n s "to a c q u i r e , g u a r a n t e e , h o l d , own and v o t e and t o s e l l ,
a s s i g n , t r a n s f e r , m o r t g a g e , p l e d g e or o t h e r w i s e d i s p o s e o f t h e c a p i t a l
s t o c k , "bonds, s e c u r i t i e s or e v i d e n c e s o f i n d e b t e d n e s s o f a n y o t h e r
c o r p o r a t i o n s , d o m e s t i c or f o r e i g n , " "but p r o v i d e s t h a t , "Ho c o r p o r a t i o n
s h a l l , "by any i m p l i c a t i o n or c o n s t r u c t i o n , "be deemed t o p o s s e s s t h e
power o f c a r r y i n g on t h e "business o f r e c e i v i n g d e p o s i t s of money,
b u l l i o n or f o r e i g n c o i n s , or o f i s s u i n g b i l l s , n o t e s o r o t h e r e v i d e n c e s of d e b t f o r c i r c u l a t i o n a s m o n e y . "
I t t h u s appears t h a t t h e p r o v i s i o n s o f t h e 1929 s t a t u t e p r o h i b i t
t h e o r g a n i z a t i o n a n d o p e r a t i o n t h e r e u n d e r o f a c o r p o r a t i o n t o do a
banking b u s i n e s s ; and, i n t h e s e circumstances, the p r o v i s i o n s might
be c o n s t r u e d as p r o h i b i t i n g a h o l d i n g c o r p o r a t i o n from owning a cont r o l l i n g i n t e r e s t i n t h e s t o c k of a bank, s i n c e such an i n t e r e s t
would p e r m i t t h e c o r p o r a t i o n t o c o n t r o l t h e o p e r a t i o n o f t h e bank and
t h e r e b y e n a b l e i t t o a c c o m p l i s h i n d i r e c t l y what t h e l a w p r o h i b i t s i t
from doing d i r e c t l y .
iowa..
S e c t i o n 7940 o f t h e 1 9 2 7 Iowa Code, w h i c h a u t h o r i z e s c o r p o r a t i o n s t o h o l d s t o c k i n r a i l w a y c o r p o r a t i o n s , and S e c t i o n 8 4 3 4 o f
t h i s Code, w h i c h r e c o g n i z e s t h e r i g h t o f h o l d i n g c o r p o r a t i o n s t o own
s t o c k i n a p u b l i c u t i l i t y , c o n t a i n t h e o n l y p r o v i s i o n s o f t h e Iowa Laws
r e l a t i n g t o t h e ownership by c o r p o r a t i o n s of s t o c k i n o t h e r c o r p o r a t i o n s .
However, S e c t i o n 9 o f A r t i c l e V I I I o f t h e Iowa C o n s t i t u t i o n , w h i c h f i x e s
X-7258
*7-
^
(Iowa - c o n t i n u e d )
t h e l i a b i l i t y o f s t o c k h o l d e r s o f "banjos a n d r e f e r s t o s u c h s t o c k h o l d e r s
b y u s i n g t h e p r o n o u n s "he" or " s h e " , may "by i m p l i c a t i o n r e q u i r e s t o c k h o l d e r s i n b a n k s t o h e n a t u r a l and n o t a r t i f i c i a l p e r s o n s .
KANSAS.
There d o e s not appear to be any l e g i s l a t i o n i n t h i s S t a t e
e x p r e s s l y a u t h o r i z i n g or f o r b i d d i n g a h o l d i n g c o r p o r a t i o n t o own b a n k
s t o c k ; b u t i t w o u l d seem t h a t t h e r i g h t o f c o r p o r a t i o n s t o own b a n k
s t o c k i s r e c o g n i z e d by i m p l i c a t i o n by r e a s o n of a s t a t u t e e n a c t e d i n
t h e y e a r 1 9 3 1 (Laws o f 1 9 3 1 , c h . 8 3 ) .
This s t a t u t e authorizes the
bank c o m m i s s i o n e r or h i s a s s i s t a n t s t o e x a m i n e "any i n v e s t m e n t o r
h o l d i n g company o r c o r p o r a t i o n w h i c h i s a f f i l i a t e d w i t h a n y b a n k o r
t r u s t company".
The b a n k c o m m i s s i o n e r i s a l s o a u t h o r i z e d " t o exann
i n e a n y c o p a r t n e r s h i p , c o r p o r a t i o n or a s s o c i a t i o n " , d o m e s t i c o r f o r e i g n , " h o l d i n g a s much a s t w e n t y - f i v e p e r c e n t o f t h e c a p i t a l s t o c k
o f a n y b a n k or t r u s t company d o i n g b u s i n e s s i n K a n s a s :
P r o v i d e d , That
t h e b a n k c o m m i s s i o n e r may r e q u i r e t h e d e p o s i t o f b o n d s o f t h e U n i t e d
S t a t e s , s t a t e o f K a n s a s , or o f some c o u n t y , s c h o o l d i s t r i c t o r m u n i c i p a l i t y of the s t a t e of Kansas, w i t h the s t a t e t r e a s u r e r to secure
t h e s h a r e h o l d e r s 1 l i a b i l i t y on s a i d s t o c k h e l d b y i t :
And p r o v i d e d
f u r t h e r , T h a t i f a n y s u c h c o p a r t n e r s h i p , c o r p o r a t i o n or a s s o c i a t i o n
s h a l l f a i l or r e f u s e to s e c u r e such s h a r e h o l d e r s ' l i a b i l i t y as r e q u i r e d
of i t by t h e bank commissioner, s a i d c o p a r t n e r s h i p , c o r p o r a t i o n or
a s s o c i a t i o n s h a l l h a v e no power t o v o t e i t s s t o c k a t a s h a r e h o l d e r s '
m e e t i n g n o r c a n s a i d s t o c k t h e r e a f t e r b e r e p r e s e n t e d on t h e b o a r d o f
d i r e c t o r s o f s a i d bank o r t r u s t company".
There
KENTUCKY.
i s no l a w i n t h i s S t a t e l i m i t i n g t h e power o f c o r -
X-7258
"6"
.
(Kentucky - c o n t i n u e d )
^
p o r a t i o n s t o h o l d "baric s t o c k u n l e s s i t b e S e c t i o n 5 6 7 o f C a r r o l l ' s
Kentuclqy S t a t u t e s , w h i c h r e a d a s f o l l o w s i
"Hor s h a l l a n y c o r p o r a t i o n d i r e c t l y
o r i n d i r e c t l y , e n g a g e i n or c a r r y on i n a n y
way t h e "business o f "banking, o r i n s u r a n c e o f
a n y k i n d , u n l e s s i t h a s "become o r g a n i z e d
u n d e r t h e l a w s r e l a t i n g t o "baaldLng and i n s u r ance * *
A d o u b l e l i a b i l i t y i s i m p o s e d u p o n s t o c k h o l d e r s o f "banks
f o r a l l c o n t r a c t s and l i a b i l i t i e s of such banks by S e c t i o n 595 of
C a r r o l l ' s Kentucky S t a t u t e d .
LOUISIANA.
T h e r e a r e no l a w s i n t h i s S t a t e d e a l i n g s p e c i f i c a l l y
with this subject.
Although s u b d i v i s i o n II (e) of S e c t i o n 12, (P. 417),
A c t Ho. 2 5 0 o f t h e 1 9 2 8 A c t s of t h e L o u i s i a n a R e g u l a r S e s s i o n , p e r m i t s c o r p o r a t i o n s " t o a c q u i r e * * * and t o h o l d , * * * s h a r e s * * * o f
a n y o t h e r c o r p o r a t i o n , d o m e s t i c or f o r e i g n " , i t i s n o t c l e a r w h e t h e r
t h i s s u b d i v i s i o n i s em a u t h o r i z a t i o n t o h o l d i n g c o r p o r a t i o n s t o a c q u i r e
or h o l d shares of banking i n s t i t u t i o n s i n view of c e r t a i n o t h e r subd i v i s i o n s o f S e c t i o n 1 2 , n a m e l y , I and I I , S e c t i o n s 1 ( P . 4 0 9 ) a n d
2 ( P . 4 1 1 ) o f t h e a f o r e s a i d 1 9 2 8 A c t s and S e c t i o n s 1 ( P . 1 1 9 6 ) a n d
S
5 ( P . 1 2 0 3 ) o f Volume 2 o f t h e 1 9 2 0 C o n s t i t u t i o n a n d S t a t u t e s o f
Louisiana.
MICHIGAN.
There do not appear t o be any laws i n t h i s S t a t e s p e c i f i c a l l y
a u t h o r i z i n g a h o l d i n g c o r p o r a t i o n t o p u r c h a s e o r own b a n k s t o c k s ; b u t
S e c t i o n 1 0 o f A c t No. 3 2 7 o f t h e 1 9 3 1 P u b l i c A c t s a u t h o r i z e s c o r p o r a t i o n s i n g e n e r a l "to g u a r a n t e e , p u r c h a s e , h o l d , s e l l , a s s i g n , t r a n s f e r ,
mortgage, p l e d g e or o t h e r w i s e d i s p o s e o f , t h e s h a r e s of t h e c a p i t a l
s t o c k o f , or any bonds, s e c u r i t i e s or e v i d e n c e of i n d e b t e d n e s s c r e a t e d
—9—
X-7258
(Michigan- - c o n t i n u e d )
"by, a n y o t h e r c o r p o r a t i o n or c o r p o r a t i o n s o f t h i s s t a t e o r a n y o t h e r
s t a t e , c o u n t r y , n a t i o n or g o v e r n m e n t , and w h i l e t h e owner o f t h e
same, t o e x e r c i s e a l l t h e r i g h t s , powers and p r i v i l e g e s of ownership
i n c l u d i n g t h e r i g h t t o v o t e t h e r e o n i f s u c h r i g h t "be a n i n c i d e n t o f
t h e same: * * *"
S e c t i o n 9 9 6 8 o f t h e 1 9 2 9 C o m p i l e d Laws o f M i c h i g a n a l s o
p r o v i d e s t h a t a c o r p o r a t i o n " s h a l l h a v e power i n f u r t h e r a n c e o f t h e
o b j e c t s o f i t s e x i s t e n c e , t o p u r c h a s e and h o l d s h a r e s o f s t o c k o r
m e m b e r s h i p s o f i t s own or o t h e r c o r p o r a t i o n s o r g a n i z e d u n d e r t h e l a w s
o f t h i s or a n y o t h e r s t a t e ( j u r i s d i c t i o n or s o v e r e i g n t y ) " ; a n d s e c t i o n
9 9 6 9 o f t h e s e - l a w s p r o v i d e s t h a t "when a n y s u c h c o r p o r a t i o n s h a l l "be
a stockholder i n any other corporation, as i n t h i s s u b d i v i s i o n prov i d e d , i t s p r e s i d e n t and o t h e r o f f i c e r s or a n y o f i t s d i r e c t o r s s h a l l
h e e l i g i b l e t o t h e o f f i c e o f d i r e c t o r o f s u c h c o r p o r a t i o n , t h e same
a s i f t h e y w e r e i n d i v i d u a l l y s t o c k h o l d e r s t h e r e i n , and t h e c o r p o r a t i o n
h o l d i n g s u c h s t o c k s h a l l p o s s e s s and e x e r c i s e i n r e s p e c t t h e r e o f , a l l
t h e r i g h t s , p o w e r s , p r i v i l e g e s and l i a b i l i t i e s of i n d i v i d u a l owners
or h o l d e r s of s u c h stock".
MIMESOTA.
T h e r e do n o t a p p e a r t o b e a n y l a w s i n t h i s S t a t e d e a l i n g
specifically with this subject.
With r e f e r e n c e t o t h e l i a b i l i t y of a
s t o c k h o l d e r i n a c o r p o r a t i o n , S e c t i o n 1 of c h a p t e r 210 o f a n a c t
approved A p r i l 1 8 , 1931 (Mason's Minnesota S t a t u t e s , 1931 Supplement,
S e c t i o n 7465-1) provides that "except as provided by S e c t i o n 7465,
M a s o n ' s M i n n e s o t a S t a t u t e s o f 1 9 2 7 , no s t o c k h o l d e r o r member o f a n y
c o r p o r a t i o n or of any c o o p e r a t i v e c o r p o r a t i o n or a s s o c i a t i o n , however
or whenever o r g a n i z e d , e x c e p t a s t o c k h o l d e r i n a banking or t r u s t
X-7258
-10-
(Miilnesota - continued)
c o r p o r a t i o n o r a s s o c i a t i o n , s h a l l "be l i a b l e f o r a n y d e b t o f s a i d
c o r p o r a t i o n , c o o p e r a t i v e c o r p o r a t i o n or a s s o c i a t i o n 1 * .
S e c t i o n 7465 of
Mason's Minnesota S t a t u t e s of 1927 to which the a c t of A p r i l 1 8 , 1931,
r e f e r s , p r o v i d e s t h a t "Every s t o c k h o l d e r s h a l l h e p e r s o n a l l y l i a b l e f o r
corporate debts i n the following cases:
1.
For a l l unpaid i n s t a l l m e n t s
o n s t o c k owned b y h i m o r t r a n s f e r r e d f o r t h e p u r p o s e o f d e f r a u d i n g
creditors.
2.
For f a i l u r e by t h e c o r p o r a t i o n t o comply s u b s t a n t i a l l y
w i t h t h e p r o v i s i o n s a s t o o r g a n i z a t i o n and p u b l i c i t y .
3.
For p e r -
s o n a l l y v i o l a t i n g any of such p r o v i s i o n s i n the t r a n s a c t i o n of any corp o r a t e b u s i n e s s a s o f f i c e r . , d i r e c t o r , or member, a n d f o r f r a u d u l e n t o r
d i s h o n e s t conduct i n the d i s c h a r g e of any o f f i c i a l duty**
MISSOURI.
There do not appear t o be any laws i n t h i s S t a t e r e l a t i n g
s p e c i f i c a l l y to t h i s s u b j e c t , a l t h o u g h t r u s t c o m p a n i e s may p u r c h a s e o r
h o l d s t o c k i n o t h e r banks or t r u s t companies,
(Paragraph 9, Section
5429 of t h e 1929 R e v i s e d S t a t u t e s of M i s s o u r i . )
NEVADA..
There does not appear t o be any s t a t u t e i n t h i s S t a t e r e l a t i n g
d i r e c t l y to the subject of t h i s d i g e s t ; but the General Corporation
Law (Comp. Laws o f 1 9 2 9 , S e c . 1 6 0 8 , a s amended b y t h e Laws o f 1 9 3 1 ,
Ch. 2 2 4 , s e c . 6 ) p r o v i d e s t h a t e v e r y c o r p o r a t i o n s h a l l h a v e p o w e r
"to g u a r a n t e e , p u r c h a s e , h o l d , s e l l , assign,, t r a n s f e r , m o r t g a g e ,
296
faevada
w continued)
•»!!-
X-7239
p l e d g e or o t h e r w i s e d i s p o s e o f t h e s h a r e s o f t h e c a p i t a l s t o c k o f
* * * any o t h e r c o r p o r a t i o n or c o r p o r a t i o n s of t h i s s t a t e , or any
other s t a t e or government * *
HEW JERSEY.
T h e r e d o e s n o t a p p e a r t o "be a n y s t a t u t e i n t h i s S t a t e
p r o h i b i t i n g a b s o l u t e l y t h e o w n e r s h i p o f "bank s t o c k b y h o l d i n g
corporations..
However, s e c t i o n 3 of Chapter 273 o f t h e 1928
l a w s p r o h i b i t s c o r p o r a t i o n s t h a t own more t h a n t e n p e r c e n t o f t h e
s t o c k o f a n y b a n k or t r u s t company i n t h e S t a t e f r o m p u r c h a s i n g a f t e r
t h e d a t e t h e s t a t u t e became e f f e c t i v e more t h a n t e n p e r c e n t of. t h e
s t o c k o f a n y o t h e r bank o r t r u s t company d o i n g b u s i n e s s i n t h e S t a t e * .
This s t a t u t e d o e s not r e q u i r e c o r p o r a t i o n s t o d i s p o s e o f any bank s t o c k
t h a t t h e y may h a v e owned b e f o r e t h e l a w became e f f e c t i v e a n d c e r t a i n
i n s t i t u t i o n s (enumerated i n S e c t i o n 14 of t h e laws above r e f e r r e d t o )
a r e s p e c i f i c a l l y exempted by S e c t i o n 3 from i t s p r o v i s i o n s , , S e c t i o n , 3
reads as follows:.
w
3 . Any c o r p o r a t i o n , o t h e r t h a n c o r p o r a t i o n s
s p e c i f i c a l l y exempted from t h e p r o v i s i o n s of t h i s
a c t , w h i c h now o r h e r e a f t e r owns more t h a n t e n
p e r c e n t u m o f t h e number o f s h a r e s o f t h e c a p i t a l
s t o c k now or h e r e a f t e r a t a n y t i m e i s s u e d a n d o u t s t a n d i n g o f a n y b a n k o r t r u s t company o r n a t i o n a l
bank,, now or h e r e a f t e r d o i n g b u s i n e s s i n t h i s
S t a t e , s h a l l n o t p u r c h a s e more t h a n t e n p e r c e n tum o f t h e number o f s h a r e s o f c a p i t a l s t o c k a t
a n y t i m e i s s u e d and. o u t s t a n d i n g of a n y o t h e r b a n k
o r t r u s t company o r n a t i o n a l b a n k , now o r h e r e a f t e r doing business i n t h i s State.."
X-7258
—IS-*
(New J e r s e y - c o n t i n u e d )
S e c t i o n 1 4 , which, e n u m e r a t e s t h e s p e c i f i c a l l y e x e m p t e d i n s t i tutions referred to in Section 3, reads as follows!
" 1 4 . The p r o v i s i o n s of t h i s A c t and t h e p e n a l t i e s thereof s h a l l not apply to the following corp o r a t i o n s , v i z . . : Banks and t r u s t companies o r g a n i z e d
u n d e r t h e l a w s o f t h i s S t a t e a n d n a t i o n a l "banks d o i n g b u s i n e s s i n t h i s S t a t e , n o r t o s u c h "banks, T r u s t
c o m p a n i e s and n a t i o n a l b a n k s w h i l e a c t i n g i n a f i d u c i a r y c a p a c i t y r e p r e s e n t i n g any i n d i v i d u a l or
i n d i v i d u a l s or t h e e s t a t e of any i n d i v i d u a l ; nor
t o any o t h e r c o r p o r a t i o n t h e e n t i r e c a p i t a l s t o c k
o f w h i c h i s owned b y or h e l d i n t r u s t f o r t h e ....
s h a r e h o l d e r s o f a n y b a n k o r t r u s t company organ-*
i z e d u n d e r t h e l a w s of t h i s S t a t e o r a n y n a t i o n a l
b a n k d o i n g b u s i n e s s i n t h i s S t a t e , i n t h e same r e l a t i v e proportion as the s t o c k h e l d ifi s a i d bank, t r u s t
company o r n a t i o n a l bank. 1 1
Under t h e l a w s o f New J e r s e y , s t o c k h o l d e r s o f New J e r s e y
banks and t r u s t companies a r e n o t s u b j e c t t o a d o u b l e l i a b i l i t y ,
a s a r e s t o c k h o l d e r s o f n a t i o n a l b a n k s and o f b a n k s a n d t r u s t c o m p a n i e s
i n o t h e r S t a t e s ; n o r do t h e s e l a w s i m p o s e s u c h a l i a b i l i t y u p o n
s t o c k h o l d e r s of h o l d i n g c o r p o r a t i o n s .
NEW MEXICO.
There a p p a r e n t l y a r e no laws i n t h i s S t a t e d e a l i n g s p e c i f i c a l l y w i t h t h e s u b j e c t of t h i s d i g e s t ; but S e c t i o n 3 2 - 3 0 1 of t h e 1939
A n n o t a t e d S t a t u t e s o f New M e x i c o a u t h o r i z e s c o r p o r a t i o n s i n g e n e r a l
to "purchase, h o l d , * * * the c a p i t a l s t o c k o f , * * * any other c o r p o r a t i o n o r c o r p o r a t i o n s , o f t h i s or a n y o t h e r t e r r i t o r y o r s t a t e
* * * ", a n d no l i m i t a t i o n i s p l a c e d u p o n t h e amount o f s u c h s t o c k
t h a t may b e s o p u r c h a s e d o r h e l d .
X-7258
-13-
1I0RTK DAKOTA.
T h e r e do n o t a p p e a r t o b e a n y s t a t u t e s i n t h i s S t a t e
e x p r e s s l y a u t h o r i z i n g or f o r b i d d i n g a h o l d i n g c o r p o r a t i o n t o p u r c h a s e
o r own b a n k s t o c k ; b u t s e c t i o n 21 o f C h a p t e r 9 6 o f t h e 1 9 3 1 S e s s i o n
Laws, w h i c h , among o t h e r t h i n g s , p e r t a i n s t o t h e t r a n s f e r o f t h e
c a p i t a l s t o c k of a S t a t e bank, r e c o g n i z e s that a s t o c k h o l d e r i n such
a b a n k may b e a c o r p o r a t i o n a s w e l l a s a n a t u r a l p e r s o n .
This s e c t i o n
p r o v i d e s t h a t " e v e r y p e r s o n o r c o r p o r a t i o n ^becoming a s h a r e h o l d e r b y
such transfer s h a l l i n proportion t o h i s shares succeed to a l l r i g h t s
and l i a b i l i t i e s o f p r i o r h o l d e r s of such s h a r e s e x i s t i n g by r e a s o n o f
ownership t h e r e o f . "
A double l i a b i l i t y i s a l s o imposed upon s t o c k h o l d -
e r s i n banks by s e c t i o n 22 of t h e s e l a w s .
OHIO.
There do not appear t o b e any laws i n t h i s S t a t e d e a l i n g
s p e c i f i c a l l y w i t h t h i s subject. Stockholders i n banking corporations
a r e s u b j e c t e d t o d o u b l e l i a b i l i t i e s f o r d e b t s of t h e b a n k ( G e n e r a l
Code of O h i o , S e c t i o n 7 1 0 - 7 5 ) .
- 14 -
X-7258
oklahoma.*
There do n o t a p p e a r td b e any l a w s i n t h i s S t a t e d e a l i n g s p e c i f i c a l l y w i t h t h i s s u b j e c t and i t may b e t h a t h o l d i n g c o r p o r a t i o n s
may p u r c h a s e and h o l d s t o c k i n b a n k i n g i n s t i t u t i o n s .
S e c t i o n 9 7 2 5 o f t h e 1 9 3 1 Oklahoma s t a t u t e s p r o v i d e s t h a t
" A l l c o r p o r a t i o n s o r g a n i z e d f o r any o f t h e p u r p o s e s a u t h o r i z e d b y
t h i s s e c t i o n s h a l l h a v e t h e power t o own and h o l d s t o c k o f o t h e r
corporations* e x c e p t a s p r o h i b i t e d by the C o n s t i t u t i o n of t h i s S t a t e " .
S e c t i o n 4 1 , A r t i c l e 9 o f t h e C o n s t i t u t i o n o f Oklahoma,
f o r b i d s c o r p o r a t i o n s t o own or h o l d s t o c k i n o t h e r c o m p e t i t i v e
c o r p o r a t i o n s e n g a g e d i n t h e same k i n d o f b u s i n e s s and b a n k s o r
t r u s t c o m p a n i e s t o own or h o l d s t o c k i n o t h e r b a n k s o r t r u s t comp a n i e s * e x c e p t i n t h o s e c a s e s where s u c h c o r p o r a t i o n s o r b a n k s o r
t r u s t c o m p a n i e s h a v e a c q u i r e d s u c h s t o c k t o s e c u r e or s a t i s f y a
b o n a f i d e i n d e b t e d n e s s * and i n s u c h c a s e s t h e s t o c k must b e d i s p o s e d
o f w i t h i n t w e l v e months*
S e c t i o n 1 2 8 0 2 o f t h e 1 9 3 1 Oklahoma S t a t u t e s makes i t
u n l a w f u l f o r c o r p o r a t i o n s t o combine t o p l a c e t h e c o n t r o l o f
c o r p o r a t i o n s izi t h e h a n d s o f a t r u s t e e or a h o l d i n g c o r p o r a t i o n *
i f t h e i n t e n t and p u r p o s e Of s u c h c o m b i n a t i o n i s t o r e s t r i c t o r
r e s t r a i n trade*
In view of the above quoted p r o v i s i o n of S e c t i o n 9725
o f t h e 1 9 3 1 Oklahoma S t a t u t e s , and s i n c e n e i t h e r t h e p r o h i b i t i o n s
of the C o n s t i t u t i o n r e f e r r e d to therein* nor the p r o v i s i o n s
Xr*7258
w 15 Oklahoma, c o n t i n u e d
o f S e c t i o n 1 2 8 0 2 o f t h e 1 9 3 1 Oklahoma S t a t u t e s a p p e a r t o b e
s p e c i f i c a l l y a p p l i c a b l e , in that the Constitution p r o h i b i t s
o n l y banks or t r u s t companies from owning or h o l d i n g s t o c k i n
o t h e r b a n k s o r t r u s t c o m p a n i e s and d o e s n o t p u r p o r t t o p r o h i b i t c o r p o r a t i o n s i n g e n e r a l from owning or h o l d i n g s t o c k
i n other c o r p o r a t i o n s , i f the l a t t e r are not engaged i n the
same k i n d o f b u s i n e s s a s , and do n o t c o m p e t e w i t h , t h e p u r c h a s i n g c o r p o r a t i o n s , and S e c t i o n 1 2 8 0 2 o f t h e s t a t u t e s o n l y
a f f e c t s c o m b i n a t i o n s i n r e s t r a i n t o f t r a d e , i t may b e t h a t
h o l d i n g c o r p o r a t i o n s may p u r c h a s e and h o l d s t o c k i n b a n k i n g
institutions.
OBEGOIT.
Under t h e p r o v i s i o n s o f a n A c t o f t h i s S t a t e a p p r o v e d
March 9 , 1 9 2 9
( C h a p t e r 4 4 4 , G e n e r a l Laws o f O r e g o n , 1 9 2 9 ;
Oregon Code, 1 9 3 0 , s e c . 2 5 - 5 0 2 )
any c o r p o r a t i o n
"now o r h e r e -
a f t e r o r g a n i z e d i n t h i s s t a t e , o r l i c e n s e d t o do b u s i n e s s h e r e in"
may own, h o l d o r c o n t r o l t h e s t o c k o f a n y b a n k o r t r u s t
company and w h i l e s o o w n i n g , h o l d i n g o r c o n t r o l l i n g s u c h s t o c k
the corporation ig subject to the following r e s t r i c t i o n s :
( l ) I t s h a l l n o t b o r r o w money o r o t h e r w i s e
s e c u r e c r e d i t d i r e c t l y or i n d i r e c t l y , from such
b a n k o r t r u s t company, u n l e s s t h e l o a n o r c r e d i t
i s a d e q u a t e l y secured by c o l l a t e r a l other than
s t o c k or e v i d e n c e s of i n d e b t e d n e s s of any c o r p o r a t i o n which i t c o n t r o l s .
X-7258
— 16 —
Oregon, c o n t i n u e d
( 2 ) I t s h a l l not s e l l any s t o c k , s e c u r i t i e s or o t h e r e v i d e n c e s of i n d e b t e d n e s s of any
o t h e r c o r p o r a t i o n w h i c h i t c o n t r o l s , t o o r through.
t h e "bank o r t r u s t company i n w h i c h i t owns o r h o l d s
s t o c k ; n o r c a n i t u s e s u c h b a n k o r t r u s t company
a s an agent f o r the purpose of s e l l i n g or o t h e r wise d i s p o s i n g of such s t o c k , s e c u r i t i e s or other
evidences of indebtedness without f i r s t obtaining
p e r m i s s i o n f r o m t h e Oregon C o r p o r a t i o n C o m m i s s i o n e r .
( 3 ) I t s h a l l n o t c a r r y a s an a s s e t a n y e x p e n s e s i n c i d e n t t o o r g a n i z a t i o n or t o the s a l e of
stock after organization.
P e n a l t i e s are p r e s c r i b e d f o r v i o l a t i o n s of t h i s a c t by
c o r p o r a t i o n s o r t h e i r o f f i c e r s o r e m p l o y e e s , and a l l c o r p o r a t i o n s h e r e t o f o r e o r g a n i z e d u n d e r t h e l a w s o f Oregon o r l i c e n s e d
t o do b u s i n e s s t h e r e i n m u s t b r i n g t h e m s e l v e s w i t h i n t h e p r o v i s i o n s
o f t h i s a c t w i t h i n s i x m o n t h s a f t e r t h e d a t e i t became e f f e c t i v e .
T h e r e i s no p r o v i s i o n i n t h i s a c t i m p o s i n g upon t h e
s t o c k h o l d e r s of c o r p o r a t i o n s owning or h o l d i n g s t o c k i n banks or
t r u s t c o m p a n i e s t h e l i a b i l i t y i m p o s e d upon t h e s t o c k h o l d e r s o f
such banks or t r u s t companies.
PEM1TSYLVAITIA.
T h e r e do n o t a p p e a r t o b e a n y p r o v i s i o n s i n t h e s t a t u t e s
of t h i s S t a t e s p e c i f i c a l l y c o v e r i n g the purchase or ownership
of s t o c k i n i n s t i t u t i o n s engaged i n a banking b u s i n e s s .
under S e c t i o n 1 of an Act of J u l y 2 , 1901
amended b y a n A c t o f A p r i l 1 8 , 1 9 2 9 ) ,
However,
( P . L. 6 0 3 , a s
and S e c t i o n XX o f p a r a g r a p h
5 5 9 8 o f W e s t ' s 1 9 2 0 P e n n s y l v a n i a S t a t u t e Law, i t m i g h t b e h e l d
X-7258
- 17 Pennsylvania, continued.
that corporations are authorized to e x e r c i s e t h i s power.
S e c t i o n 1 o f a n A c t o f J u l y 2 , 1 9 0 1 ( P . L. 6 0 3 , a s
amended b y a n A c t o f A p r i l 1 8 , 1 9 2 9 ) ,
p r o v i d e s that " * * * any
c o r p o r a t i o n c r e a t e d "by g e n e r a l o r s p e c i a l l a w s , may p u r c h a s e *
hold,
* * * the shares of the c a p i t a l s t o c k of
* * * any other cor-
p o r a t i o n o r c o r p o r a t i o n s o f t h i s o r a n y o t h e r S t a t e , and w h i l e t h e
owner o f s a i d s t o c k may e x e r c i s e a l l t h e r i g h t s , p o w e r s and p r i v i l eges of ownership, * * *. "
S e c t i o n XX o f p a r a g r a p h 5 5 9 8 o f W e s t ' s 1 9 2 0 P e n n s y l v a n i a
S t a t u t e Law p r o v i d e s t h a t a c o r p o r a t i o n may b e f o r m e d
"For a n y
l a w f u l purpose not s p e c i f i c a l l y d e s i g n a t e d by law, a s the p u r p o s e f o r w h i c h a c o r p o r a t i o n may b e f o r m e d . "
T h e r e dotes n o t a p p e a r t o b e a n y s t a t u t e i n t h i s S t a t e
e x p r e s s l y p r o v i d i n g t h a t s t o c k h o l d e r s of c o r p o r a t i o n s owning s t o c k
i n banks are s u b j e c t to a s t o c k h o l d e r s '
l i a b i l i t y s i m i l a r to the
l i a b i l i t y imposed upon s t o c k h o l d e r s of banks.
S e c t i o n 1184 of the
P e n n s y l v a n i a S t a t u t e s imposes a d o u b l e l i a b i l i t y upon s t o c k h o l d e r s
o f b a n k s and i t h a s b e e n h e l d t h a t s t o c k h o l d e r s o f t r u s t c o m p a n i e s
are not subject to a double l i a b i l i t y .
Pratt,
(1909),
7 2 A t l , 1 0 6 8 , 2 2 3 P e m i . 6 3 3 , and
of Banking v, l i n n e b e r g e r , (1932)
( S e e c a s e s o f DeHaven
v.
Gordon, S e c r e t a r y
1 6 D i s t r i c t and County 5 0 6 ) .
X-7338
-f 1 8
-
>
TENHESSEE..
T h e r e do n o t a p p e a r t o "be a n y p r o v i s i o n s i n t h e s t a t u t e s o f
t h i s S t a t e d i r e c t l y c o v e r i n g the purchase or ownership of s t o c k i n
banking i n s t i t u t i o n s by holding corporations; but
s e c t i o n 4084
o f t h e new Code o f T e n n e s s e e , w h i c h became e f f e c t i v e J a n u a r y 1 , 1 9 3 2 ,
provides that
"All p r i v a t e c o r p o r a t i o n s f o r p r o f i t organized under the
laws of Tennessee f o r the t r a n s a c t i o n of any l a w f u l b u s i n e s s , or to
p r o m o t e o r c o n d u c t a n y l e g i t i m a t e o b j e c t or p u r p o s e , s h a l l h a v e t h e
r i g h t , p o w e r , p r i v i l e g e , and i m m u n i t y t o p u r c h a s e , h o l d , own, s e l l ,
t r a n s f e r , a s s i g n , v o t e , mortgage, p l e d g e , and o t h e r w i s e d e a l i n s t o c k s ,
b o n d s , o r e v i d e n c e o f i n d e b t e d n e s s o f o t h e r c o r p o r a t i o n s i n t h e same
manner and w i t h a l l t h e r i g h t s , p o w e r s , p r i v i l e g e s , and i m m u n i t i e s o f
i n d i v i d u a l o w n e r s , e x c e p t t h a t t h i s s t a t u t e s h a l l i n no way b e c o n s t r u e d
t o g i v e c o r p o r a t i o n s power t o c r e a t e u n l a w f u l monopolies,, t r u s t s o r
combinations i n r e s t r a i n t of trade".
TEXAS.
T h e r e do n o t a p p e a r t o b e a n y s t a t u t e s i n t h i s S t a t e deal**
i n g s p e c i f i c a l l y w i t h t h i s s u b j e c t ; and, i n view of t h e f o l l o w i n g , i t
i s n o t c l e a r w h e t h e r o r n o t h o l d i n g c o r p o r a t i o n s may p u r c h a s e and hold'
stock in banking i n s t i t u t i o n s .
A r t i c l e 513 of the 1925 R e v i s e d S t a t u t e s f o r b i d s banks
o r t r u s t c o m p a n i e s " t o own more t h a n t e n p e r c e n t o f t h e c a p i t a l
s t o c k of any o t h e r banking c o r p o r a t i o n ^
* * * " u n l e s s the ownership
3()3
.
19
.
*-7258
Texas, continued
of such excess s t o c k
" s h a l l he n e c e s s a r y t o p r e v e n t l o s s upon a
debt p r e v i o u s l y c o n t r a c t e d i n good f a i t h ;
* * * " , and i n s u c h
c a s e s t h e s t o c k m u s t n o t h e owned f o r a l o n g e r p e r i o d t h a n s i x
months.
A r t i c l e 1302 of the 1925 Revised S t a t u t e s p e r m i t s
p r i v a t e corporations to "purchase, * * * hold,
of c a p i t a l stock,
* * •
own, * * * s h a r e s
of f o r e i g n or domestic c o r p o r a t i o n s
n o t c o m p e t i n g w i t h e a c h o t h e r i n t h e same l i n e o f " b u s i n e s s ;
p r o v i d e d t h e p o w e r s and a u t h o r i t y
* * * c o n f e r r e d s h a l l i n no
way a f f e c t a n y p r o v i s i o n o f t h e a n t i - t r u s t l a w s o f t h i s S t a t e " .
A r t i c l e 7426 of the 1925 Hevised S t a t u t e s
t r u s t to he
"a combination of c a p i t a l ,
persons, firms, corporations, *
*
* :
defines a
* * * b y two o r more
To c r e a t e , o r w h i c h may
t e n d t o c r e a t e , o r c a r r y o u t r e s t r i c t i o n s i n t r a d e o r commerce
*
*
*
or to c r e a t e or c a r r y out r e s t r i c t i o n s i n the f r e e p u r -
s u i t of any b u s i n e s s a u t h o r i z e d or p e r m i t t e d by laws of t h i s
State"
merce, *
o r "To p r e v e n t o r l e s s e n c o m p e t i t i o n i n a i d s t o com*
* . "
A r t i c l e 7427 of the 1925 H e v i s e d S t a t u t e s
states
t h a t a m o n o p o l y e x i s t s when two o r more c o r p o r a t i o n s combine
or c o n s o l i d a t e to b r i n g the
" d i r e c t i o n of the a f f a i r s "
of
s u c h c o r p o r a t i o n s " u n d e r t h e same management o r c o n t r o l f o r
g
0 4
X-7258
— 20 —
.
Texas, continued.
t h e p u r p o s e o f p r o d u c i n g , o r where s u c h common management o r c o n t r o l t e n d s t o c r e a t e a t r u s t " , o r where " a n y c o r p o r a t i o n a c q u i r e s
the shares * * * of s t o c k
* * * of any o t h e r c o r p o r a t i o n or c o r -
p o r a t i o n s , f o r t h e p u r p o s e o f p r e v e n t i n g o r l e s s e n i n g , o r where
the e f f e c t of such a c q u i s i t i o n tends to a f f e c t or l e s s e n competitii
whether such a c q u i s i t i o n i s accomplished d i r e c t l y or through the
i n s t r u m e n t a l i t y of t r u s t e e s or otherwise!1.
UTAH.
There do n o t appear t o he any laws i n t h i s S t a t e d e a l i n g
s p e c i f i c a l l y w i t h t h i s s u b j e c t and i t may h e t h a t h o l d i n g c o r p o r a t i o n s a r e a u t h o r i z e d t o p u r c h a s e and own h a n k s t o c k s u n d e r t h e
a u t h o r i t y g r a n t e d to c o r p o r a t i o n s i n g e n e r a l by S e c t i o n 869 of
t h e 1 9 1 7 C o m p i l e d Laws.
This s e c t i o n provides that
p o r a t i o n * * * s h a l l have power t o * * * b y y ,
"the cor-
use, mortgage, s e l l
or o t h e r w i s e d i s p o s e of p e r s o n a l p r o p e r t y * * *".
VERMONT.
T h e r e a r e no l a w s i n t h i s S t a t e e x p r e s s l y p r o h i b i t i n g
the ownership by h o l d i n g companies of the s t o c k of banks but
t h e r e i s a p r o v i s i o n p r o h i b i t i n g h o l d i n g companies from h o l d i n g
or a c q u i r i n g s t o c k i n other c o r p o r a t i o n s .
Section 4925 of the
1 9 1 7 G e n e r a l Laws o f Vermont c o n t a i n s t h i s p r o h i b i t i o n a n d r e a d s
as follows:
X-7258
Vermont, continued.
3()5
— 21 —
"The c o r p o r a t i o n s h a l l n o t "be p e r m i t t e d t o
a c q u i r e or h o l d s t o c k i n other c o r p o r a t i o n s to
s u c h a n e x t e n t t h a t i t s p r i m a r y "business i s t h e
h o l d i n g of such s t o c k . A v i o l a t i o n of t h i s p r o v i s i o n s h a l l be cause f o r the d i s s o l u t i o n of
t h e c o r p o r a t i o n under the p r o v i s i o n s of S e c t i o n
4944." *
T h e r e a r e no l a w s i n t h i s S t a t e i m p o s i n g u p o n s t o c k h o l d e r s
or h o l d i n g companies a s t o c k h o l d e r s ' l i a b i l i t y s i m i l a r to t h a t
imposed upon h o l d e r s of hank s t o c k .
WASHINGTON.
T h e r e do n o t a p p e a r ' t o h e a n y p r o v i s i o n s i n t h e l a w s o f
t h i s S t a t e e x p r e s s l y a u t h o r i z i n g the purchase or ownership of
b a n k s t o c k s b y h o l d i n g c o r p o r a t i o n s ; b u t s e c t i o n 3 8 1 0 o f Reming?.
t o n ' s 1 9 2 2 Compiled S t a t u t e s p r o v i d e s t h a t
"any c o r p o r a t i o n h e r e -
t o f o r e or h e r e a f t e r organized under the laws of t h i s s t a t e or of
a n y o t h e r s t a t e o r t e r r i t o r y o f t h e U n i t e d S t a t e s and d o i n g b u s i n e s s
i n t h i s s t a t e s h a l l h a v e p o w e r and a u t h o r i t y t o s u b s c r i b e f o r , a c q u i r e
by purchase or otherwise
and t o own, h o l d , s e l l , a s s i g n and
t r a n s f e r shares of the c a p i t a l s t o c k of any other c o r p o r a t i o n * *
During t h e 1929 Regular S e s s i o n of t h e L e g i s l a t u r e of t h i s
S t a t e , a b i l l known a s " S u b s t i t u t e House 33,11 lTo„ 72" w a s i n t r o d u c e d
t o r e s t r i c t t h e o w n e r s h i p o f b a n k o r t r u s t company s t o c k b y c o r p o r a t i o n s , to twenty per c e n t of the c a p i t a l s t o c k of such bank
o r t r u s t company; b u t t h i s b i l l d i d n o t p a s s .
X-7258
-
22 -
307
WEST VIRGINIA.
Under d a t e o f F e b r u a r y 2 8 , 1 9 2 9 , a n A c t was p a s s e d "by t h e
L e g i s l a t u r e of t h i s S t a t e a f f e c t i n g the purchase or ownership of
s t o c k i n b a n k i n g i n s t i t u t i o n s by f i r m s , a s s o c i a t i o n s or c o r p o r a t i o n s #
( S e c t i o n 9 , Chapter 2 3 , A c t s of 1 9 2 9 ) .
S e c t i o n 9 of t h i s Act p r o -
^ vides in part as follows:
" I t s h a l l be u n l a w f u l f o r any f i r m , a s s o c i a t i o n or
c o r p o r a t i o n t o p u r c h a s e and h o l d s t o c k i n a n y b a n k i n g
i n s t i t u t i o n organized or authorized to transact b u s i n e s s
hereunder f o r the purpose of s e l l i n g , n e g o t i a t i n g or
t r a d i n g p a r t i c i p a t i o n i n the ownership t h e r e o f e i t h e r
f o r t h e p u r p o s e o f p e r f e c t i n g c o n t r o l o f one o r more
such banking i n s t i t u t i o n s or f o r the purpose of inducing
o t h e r p e r s o n s , f i r m s or c o r p o r a t i o n s or the g e n e r a l publ i c t o become p a r t i c i p a t i n g o w n e r s t h e r e i n . N o t h i n g
h e r e i n s h a l l p r e v e n t the ownership of s t o c k s i n any s u c h
b a n k i n g i n s t i t u t i o n by any c o r p o r a t i o n f o r i n v e s t m e n t
purposes.'1
W i t h r e f e r e n c e t o t h e l i a b i l i t y i m p o s e d upon s t o c k h o l d e r s
in banks, Section 9 provides as follows:
"Each s t o c k h o l d e r o f a n y b a n k i n g i n s t i t u t i o n o r g a n i z e d
under the laws of t h i s s t a t e , i n a d d i t i o n to the l i a b i l i t y
imposed upon him a s s t o c k h o l d e r of a c o r p o r a t i o n under the
p r o v i s i o n s of the general corporation laws s h a l l be l i a b l e
t o t h e c r e d i t o r s o f t h e b a n k i n g i n s t i t u t i o n , on o b l i g a t i o n s
a c c r u i n g w h i l e h e i s a s h a r e h o l d e r , t o a n amount e q u a l t o
t h e p a r v a l u e o f t h e s h a r e s o f s t o c k h e l d b y him. 1 1
WISCONSIN.
I n 1 9 2 9 l e g i s l a t i o n was e n a c t e d i n t h i s S t a t e r e g u l a t i n g t h e
o w n e r s h i p o f s t o c k i n b a n k s and t r u s t c o m p a n i e s .
(Chapter 445,
W i s c o n s i n Laws o f 1 9 2 9 - P u b l i s h e d , A u g u s t 3 0 , 1 9 2 9 ) .
Relevant
p r o v i s i o n s o f t h i s a c t a r e summarized b r i e f l y a s f o l l o w s :
No c o r p o r a t i o n o r g a n i z e d u n d e r t h e l a w s o f W i s c o n s i n i s p e r m i t t e d t o h o l d more t h a n t e n p e r c e n t o f t h e s t o c k o f a n y b a n k o r
t r u s t connany, u n l e s s s e v e n t y - f i v e per c e n t of the s t o c k h o l d e r s of
both corporations vote in favor thereof at a meeting e s p e c i a l l y
- 23 -
KrVSSB 308
Wisconsin, continued.
c a l l e d for that purpose. Ho S t a t e t a n k or t r u s t company may v o t e t o a u t h o r i z e a f o r e i g n
c o r p o r a t i o n t o p u r c h a s e s t o c k i n s u c h S t a t e "bank or t r u s t company, u n l e s s s u c h f o r e i g n c o r p o r a t i o n s h a l l h a v e q u a l i f i e d t o do b u s i n e s s i n
Wisconsin.
Whenever t h e o w n e r s h i p o r c o n t r o l o f a m a j o r i t y o f t h e s t o c k
of any S t a t e or n a t i o n a l bank doing b u s i n e s s i n Wisconsin i s h e l d by
a n y f o r e i g n c o r p o r a t i o n w h i c h h a s n o t q u a l i f i e d t o do b u s i n e s s i n
t h e S t a t e , s u c h bank s h a l l be d i s q u a l i f i e d to a c t a s a d e p o s i t a r y
f o r any p u b l i c f u n d s of the S t a t e or any s u b d i v i s i o n t h e r e o f , or
a s a d e p o s i t a r y f o r r e s e r v e funds of S t a t e banks u n t i l such f o r e i g n
c o r p o r a t i o n s h a l l h a v e q u a l i f i e d t o do b u s i n e s s i n t h e S t a t e .
D o m e s t i c c o r p o r a t i o n s and f o r e i g n c o r p o r a t i o n s a u t h o r i z e d
t o do b u s i n e s s i n t h e S t a t e w h i c h own o r c o n t r o l t h e s t o c k o f a
S t a t e bank or t r u s t conpany s h a l l be h e l d l i a b l e f o r any a s s e s s m e n t
made a g a i n s t t h e s t o c k h o l d e r s o f s u c h b a n k o r t r u s t company t o t h e p a r
v a l u e o f t h e s t o c k s o owned o r c o n t r o l l e d ; and s u c h h o l d i n g c o r p o r a t i o n s
are required to deposit with the State Treasurer s e c u r i t i e s equal to
f i f t y per cent of the par value of the stocks of S t a t e banks or t r u s t
c o m p a n i e s owned o r c o n t r o l l e d b y s u c h h o l d i n g c o m p a n i e s , e x c e p t t h a t
t h e a g g r e g a t e amount o f s u c h s e c u r i t i e s s h a l l n o t e x c e e d t h e l a r g e s t
amount r e q u i r e d t o b e d e p o s i t e d b y W i s c o n s i n t r u s t c o m p a n i e s .
I f t h e s t o c k h o l d e r s ' ' l i a b i l i t y o f a n y s u c h h o l d i n g company i s
n o t f u l l y p a i d , t h e s t o c k h o l d e r s o f s u c h h o l d i n g company a r e l i a b l e f o r
an assessment s u f f i c i e n t t o cover the d e f i c i t .
309
X-7259
DIGEST OF STATE LAWS RELATING TO THE PURCHASE OF CORPORATE
STOCKS BY BAMS A1ID TRUST COMPANIES.
(Superseding X-6608)
On p a g e 4 5 6 o f 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 f o r J u l y , 1 9 3 0 ,
t h e r e was p u b l i s h e d a~ d i g e s t o f S t a t e l a w s r e l a t i n g t o t h e p o w e r
o f "banks and t r u s t c o m p a n i e s t o i n v e s t i n or p u r c h a s e s t o c k s o f
o t h e r c o r p o r a t i o n s , i n c l u d i n g s t o c k s of o t h e r "banks a n d t r u s t comp a n i e s , w h i c h was p r e p a r e d "by t h e C o u n s e l ' s o f f i c e o f t h e F e d e r a l
R e s e r v e B o a r d w i t h t h e a s s i s t a n c e of t h e C o u n s e l t o 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, a n d w h i c h showed t h e s t a t u s o f t h e S t a t e
l e g i s l a t i o n d e a l i n g w i t h t h i s s u b j e c t a s o f March 1 , 1 9 3 0 .
The
f o l l o w i n g d i g e s t of t h e l a w s of t h e s e v e r a l s t a t e s , w h i c h was a l s o
p r e p a r e d "by t h e o f f i c e o f t h e B o a r d ' s C o u n s e l w i t h t h e a s s i s t a n c e
o f t h e C o u n s e l t o 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, s u p e r s e d e s t h e
d i g e s t published i n the Federal Reserve B u l l e t i n for J u l y , 1930,
a n d shows t h e s t a t u s o f t h e S t a t e l e g i s l a t i o n d e a l i n g w i t h t h e p u r c h a s e o f o r i n v e s t m e n t i n c o r p o r a t e s t o c k s "by "banks and t r u s t c o m p a n i e s
a s of A u g u s t 1 , 1 9 3 2 .
The d i g e s t d o e s n o t c o v e r p e r m i s s i o n g r a n t e d
t o "banks a n d t r u s t c o m p a n i e s t o i n v e s t i n or p u r c h a s e s t o c k i n m u n i c i p a l or o t h e r p u b l i c c o r p o r a t i o n s , F e d e r a l r e s e r v e b a n k s , j o i n t
s t o c k land banks, corporations engaged p r i n c i p a l l y i n f o r e i g n banki n g o p e r a t i o n s , s a f e d e p o s i t c o m p a n i e s , or s i m i l a r i n s t i t u t i o n s a f f i l i a t e d i n some r e s p e c t s w i t h t h e b u s i n e s s of b a n k i n g .
X-7259
r» S —
SUMMARY OF LEGISLATION IN VARIOUS STATES
S t a t e s l i v i n g L e g i s l a t i o n P e r m i t t i n g P u r c h a s e Of C o r p o r a t e S t o c k s .
By Commercial B a n k s
Alabama ( 1 )
Arizona
C a l i f o r n i a (2)
Connecticut (3)
Delaware (3)
Louisiana
Hew J e r s e y
North Carolina (3)
Pennsylvania
South Carolina
Tennessee (11)
Texas ( l )
Utah
Vermont ( 1 2 )
Virginia
Total...15
(1)
By T r u s t Companies
By S a v i n g s B a n k s .
Alabama ( 1 ) ( l a )
Arizona
Arkansas
Colorado
Connecticut (3)
Delaware (3)
Florida (4)
Georgia (13)
Kansas ( 1 )
Louisiana
Maryland
M a s s a c h u s e t t s (6)
Missouri (3)
Montana
Nebraska
New Hampshire ( 3 )
New J e r s e y
New York ( 3 )
Ohio ( 8 )
Oklahoma ( 9 )
Pennsylvania
South Carolina (3)
Tennessee (11)
Texas (1)
Utah
Vermont ( 1 2 )
Virginia
Arizona
Connecticut (3)
Delaware (3)
F l o r i d a (4)
Louisiana
Maine ( 5 )
Massachusetts (7)
New H a m p s h i r e ( 3 )
North Carolina (3)
Ohio ( 8 )
Ehode I s l a n d ( 1 0 )
South Carolina
Tennessee (11)
Utah
Vermont ( 1 2 )
Virginia
T o t a l . . . 27
Total . . . 1 6
Amount o f s t o c k i n o t h e r h a n k s l i m i t e d . .
( l a ) Only t r u s t c o m p a n i e s d o i n g a h a n k i n g b u s i n e s s i n c l u d e d .
(2)
S t o c k o f o n l y one t r u s t company may h e p u r c h a s e d .
(3)
L i m i t a t i o n p l a c e d on amount o f s t o c k may h e p u r c h a s e d .
(4)
Apparent c o n f l i c t i n laws of t h i s S t a t e . Other p r o v i s i o n s
p r o h i b i t p u r c h a s e of c o r p o r a t e s t o c k s .
(5)
L i m i t e d amount may h e i n v e s t e d i n s t o c k s o f Maine c o r p o r a t i o n s o t h e r t h a n hanks..
. X-7259
- 3 S t a t e s Having L e g i s l a t i o n P e r m i t t i n g Purchase of Corporate Stocks (Continued)
(6)
Amount o f s t o c k i n a n o t h e r t r u s t company l i m i t e d .
(7)
I n v e s t m e n t and amount o f i n v e s t m e n t l i m i t e d t o s t o c k s o f c e r t a i n
t r u s t c o m p a n i e s and n a t i o n a l "banks.
(8)
Purchase of tank stocks p r o h i b i t e d .
(9)
P u r c h a s e of b a n k or t r u s t company s t o c k s p r o h i b i t e d .
( 1 0 ) S t o c k s o f "banks and t r u s t c o m p a n i e s and c e r t a i n s t e a m r a i l r o a d s
may b e p u r c h a s e d . S i m i l a r a u t h o r i t y i s g r a n t e d t o s a v i n g s
d e p a r t m e n t s o f b a n k s and t r u s t c o m p a n i e s .
(11)
Authorized t o "deal in" s t o c k s .
(12)
S t o c k s i n c e r t a i n b a n k s o n l y may b e p u r c h a s e d .
(13)
Only t r u s t c o m p a n i e s " o p e r a t i n g a s i n v e s t m e n t b a n k e r s " i n c l u d e d .
S t a t e s Having L e g i s l a t i o n P r o h i b i t i n g Purchase of Corporate S t o c k s .
By Commercial Banks
Colorado
F l o r i d a (1)
Georgia
Idaho (2)
Kansas
Mississippi (2)
Montana
Nebraska
Nevada
North Dakota
Oklahoma
Oregon
South Dakota
Washington
Wyoming
Total . . . 15
By T r u s t Companies
By S a v i n g s Banks
California
Florida (1)
Idaho ( 2 )
M i s s i s s i p p i (2)
Nevada
Oregon
South Dakota
Washington
Florida (1)
Georgia
Kansas
M i s s i s s i p p i (2)
Montana
Nebraska
Nevada
North Dakota
Oklahoma
South Dakota
Washington
Wisconsin (3)
Wyoming
Total . . . 8
Total . . . 1 3
(1)
Apparent c o n f l i c t i n laws of t h i s S t a t e . Other p r o v i s i o n s a u t h o r i z e
s a v i n g s banks and t r u s t companies t o p u r c h a s e c o r p o r a t e s t o c k s .
(.2)
S p e c i f i c p r o h i b i t i o n i s a g a i n s t p u r c h a s e o f bank s t o c k .
(3)
S p e c i f i c p r o h i b i t i o n i s a g a i n s t Mutual S a v i n g s Banks p u r c h a s i n g
stocks.
312
X-7259
S t a t e s H a v i n g Ho L e g i s l a t i o n . S p e c i f i c a l l y A p p l i c a b l e t o
n e r c i a l Banks
Arkansas
Illinois
Indiana
Iowa
Kentucky
Maine
Maryland
Massachusetts
Michigan
Minnesota
Missouri
Hew H a m p s h i r e
New M e x i c o
New York
Ohio
Rhode I s l a n d
West V i r g i n i a
Wisconsin
Total . . . 1 8
(1)
T r u s t Companies
Illinois
Iowa
Indiana
KentuckyMaine
Michigan
Minnesota
New M e x i c o
North Carolina
North Dakota
Rhode I s l a n d
West V i r g i n i a
Wisconsin
looming
Total . . . 1 4
S a v i n g s Banks
Alabama
Arkansas
California
Colorado
Idaho
Illinois
Indiana
Iowa
KentuckyMaryland
Michigan
Minnesota
Missouri
New J e r s e y
New M e x i c o
New York
Oregon
Pennsylvania (1)
Texas
West V i r g i n i a
Total . . . 2 0
P r o v i s i o n p e r m i t t i n g c o m m e r c i a l "banks and t r u s t c o m p a n i e s t o
p u r c h a s e c o r p o r a t e s t o c k s h a s "been c o n s i d e r e d n o t t o
a p p l y t o s a v i n g s banks..
X-7259
~ 5 A1ABAHA.
Basics and t r u s t c o m p a n i e s d o i n g a b a n k i n g "business - P u r c h a s e
o f s t o c k s p e r m i t t e d , "but amount o f s t o c k i n "bank l i m i t e d . .
The l a w s o f t h i s S t a t e p r o v i d e t h a t b a n k s and t r u s t
c o m p a n i e s d o i n g a "banking "business "may * * * "buy and s e l l * * *
bonds, stock, * * *."
( C i v i l Code o f A l a b a m a , s e c . 6 3 6 5 ; Com-
b i n e d B a n k i n g Laws o f A l a b a m a , 1 9 2 8 , s e c . 6 3 6 5 , p . 2 9 ) ,
However,
"Ho bank s h a l l s u b s c r i b e f o r or own e x c e e d i n g t e n p e r c e n t o f
t h e c a p i t a l s t o c k o f a n y o t h e r b a n k , or i n v e s t or h a v e i n v e s t e d
a n amount e x c e e d i n g i n t h e a g g r e g a t e 2 5 p e r c e n t o f i t s own p a i d
i n c a p i t a l s t o c k i n t h e c a p i t a l s t o c k o f a n y o t h e r b a n k or b a n k s .
Any bank a c q u i r i n g c a p i t a l s t o c k i n a n y o t h e r b a n k i n t h e u s u a l
c o u r s e o f b u s i n e s s i n payment o f a n i n d e b t e d n e s s o w i n g t o i t ,
mast s e l l such p o r t i o n of s a i d s t o c k a s i s i n e x c e s s of t h e
amount w h i c h i t i s p e r m i t t e d t o h o l d and own a s h e r e i n p r o v i d e d
w i t h i n one y e a r f r o m t h e t i m e t h e same i s a c q u i r e d . "
(Civil
Code o f A l a b a m a , s e c . 6 3 5 5 ; Combined B a n k i n g Laws o f A l a b a m a ,
1928, s e c . 6355,. p . 2 5 . )
ARIZONA..
Purchase of c o r p o r a t e s t o c k s p e r m i t t e d .
Under t h e l a w s of t h i s s t a t e , "No b a n k , t r u s t company o r
l o a n a s s o c i a t i o n , may p u r c h a s e , own, h o l d , or s e l l or o t h e r w i s e
d i s p o s e o f t h e s h a r e s of t h e c a p i t a l s t o c k o f a n y o t h e r c o r p o r a t i o n , u n l e s s , s u c h purchase s h a l l be a u t h o r i z e d by t h e e x e c u t i v e c o m m i t t e e o r a p p r o v e d b y t h e b o a r d o f d i r e c t o r s ; and i f
t h e p u r c h a s e i s of s t o c k i n a bank t h e approval of s a i d p u r c h a s e
must a l s o be had from the s u p e r i n t e n d e n t . n
3 1 3
X-7259
—6 —
( R e v i s e d Code* 1 9 2 8 , s e c . 1 3 2 4 ) .
The t e r m "tank" a s u s e d a b o v e i n c l u d e s s a v i n g s b a n k s
( R e v . Code of 1 9 2 8 , s e c . 2 0 9 ) ; b u t , i n a n o t h e r p r o v i s i o n
of the laws
o f t h i s S t a t e w h i c h e n u m e r a t e s i n v e s t m e n t s t h a t may h e made "by s a v i n g s banks, i t i s p r o v i d e d t h a t "It s h a l l he u n l a w f u l f o r any s a v i n g s b a n k t o i n v e s t or l o a n a n y o f i t s c a p i t a l or a n y o f t h e money
o f i t s d e p o s i t o r s , i n t h e s h a r e s , s t o c k s o r b o n d s o f a n y m i n e or
m i n i n g company or o i l company * *
(Laws of 1 9 2 9 , c h . 3 2 . )
ARKANSAS.
Banks - no s p e c i f i c s t a t u t o r y p r o v i s i o n s .
T h e r e a r e no s t a t u t e s i n t h i s S t a t e s p e c i f i c a l l y a u t h o r i z i n g banks t o purchase the k i n d s of corporate s t o c k s covered by
this digest.
H o w e v e r , "no b a n k s h a l l employ i t s m o n e y s , d i r e c t l y
or i n d i r e c t l y , i n t r a d e or commerce b y b u y i n g a n d s e l l i n g g o o d s ,
c h a t t e l s , w a r e s a n d m e r c h a n d i s e , n o r b e t h e p u r c h a s e r or h o l d e r o f
i t s own c a p i t a l s t o c k , u n l e s s s u c h s e c u r i t y or p u r c h a s e s h a l l b e
n e c e s s a r y t o p r e v e n t l o s s upon a d e b t p r e v i o u s l y c o n t r a c t e d i n
g o o d f a i t h ; a n d s t o c k s c p u r c h a s e d or a c q u i r e d s h a l l , w i t h i n t w e l v e
m o n t h s o f i t s p u r c h a s e , b e s o l d or d i s p o s e d of a t p r i v a t e s a l e ;
*
a f t or t h e e x p i r a t i o n o f s a i d t w e l v e m o n t h s a n y s u c h s t o c k s h a l l n o t
b e c o n s i d e r e d a s p a r t of t h e a s s e t s of any b a n k .
Provided, that
i t may h o l d and s e l l a l l k i n d s o f p r o p e r t y t h a t may come i n t o i t s
p o s s e s s i o n a s c o l l a t e r a l s e c u r i t y f o r l o a n s or a n y o r d i n a r y c o l l e c t i o n or d e b t s , i n t h e manner p r o v i d e d b y l a w .
Provided, further
X-7259
- 7 t h a t a n y g o o d s or c h a t t e l s coming i n t o i t s p o s s e s s i o n a s a f o r e s a i d s h a l l h e d i s p o s e d o f a s s o o n a s p o s s i b l e , and a f t e r t w e l v e
months from t h e d a t e of acquirement s h a l l c e a s e t o h e r e c k o n e d
a s a p a r t o f i t s a s s e t s . " ( C . & M. D i g . , s e c . 6 9 5 ; B a n k i n g L a w s ,
1929, s e c . 26, p. 1 8 . )
T r u s t Companies - P u r c h a s e o f s t o c k s p e r m i t t e d .
T r u s t c o m p a n i e s a r e a u t h o r i z e d " t o b u y and s e l l a l l
k i n d s of * * * s t o c k s , and o t h e r i n v e s t m e n t s e c u r i t i e s . " (Act
o f A p r i l 1 3 , 1 9 0 3 , s e c . 2 , p . 2 2 8 , a s amended "by A c t s of 1 9 2 3 ,
A c t 6 2 7 , s e c . 1 0 ; B a n k i n g Laws, 1 9 2 9 , s e c . 1 3 5 , ( 9 ) , p . 1 0 2 ) .
CALIFORNIA,
Banks — General power to purchase c o r p o r a t e s t o c k s d e n i e d .
The Bank A c t o f C a l i f o r n i a p r o v i d e s t h a t "No b a n k s h a l l ,
e x c e p t a s o t h e r w i s e p r o v i d e d i n t h i s a c t , p u r c h a s e or i n v e s t i t s
c a p i t a l or s u r p l u s or money o f i t s d e p o s i t o r s , or a n y p a r t of
e i t h e r , i n the c a p i t a l s t o c k of any c o r p o r a t i o n u n l e s s t h e purchase
or a c q u i s i t i o n
of such c a p i t a l s t o c k s h a l l be n e c e s s a r y t o p r e -
v e n t l o s s t o t h e b a n k on a n o b l i g a t i o n owned or on a d e b t p r e v i o u s l y c o n t r a c t e d i n good f a i t h .
Any c a p i t a l s t o c k s o p u r c h a s e d
or a c q u i r e d s h a l l b e s o l d b y s u c h b a n k w i t h i n s i x m o n t h s t h e r e a f t e r i f i t c a n b e s o l d f o r t h e amount o f t h e c l a i m o f s u c h b a n k
a g a i n s t i t ; and a l l c a p i t a l s t o c k t h u s p u r c h a s e d or a c q u i r e d m a s t
be s o l d f o r t h e b e s t p r i c e o b t a i n a b l e by s a i d bank w i t h i n t h r e e
X-7259
•-*
8
-
y e a r s a f t e r s u c h p u r c h a s e or a c q u i s i t i o n u n l e s s t h e s u p e r i n t e n d e n t o f "banks s h a l l e x t e n d t h e t i m e o f i t s s a l e f o r a p e r i o d n o t
t o e x c e e d two y e a r s .
( C a l i f o r n i a Bank A c t , 1 9 3 1 , s e c . 3 7 . )
E x c e p t i o n - S t o c k i n one t r u s t company.
However, w i t h the p r e v i o u s w r i t t e n c o n s e n t of t h e s u p e r i n t e n d e n t o f b a n k s , a c o m m e r c i a l h a n k "may p u r c h a s e or o t h e r w i s e
a c q u i r e and h o l d t h e w h o l e or a n y p a r t o f t h e c a p i t a l s t o c k o f
n o t more t h a n one t r u s t company o r g a n i z e d a n d e x i s t i n g u n d e r t h e
l a w s o f t h i s s t a t e , and d o i n g b u s i n e s s i n t h e same c o u n t y i n w h i c h
t h e p r i n c i p a l p l a c e o f b u s i n e s s o f s u c h bank i s l o c a t e d ; p r o v i d e d ,
h o w e v e r , t h a t n o t more t h a n a n amount e q u a l t o t w e n t y - f i v e p e r
c e n t u m o f t h e c a p i t a l and s u r p l u s o f a n y s u c h b a n k may b e a t a n y
o n e t i m e i n v e s t e d i n t h e c a p i t a l s t o c k o f s u c h t r u s t company o r
such other corporation."
( C a l i f o r n i a Bank A c t , 1 9 3 1 , s e c . 3 7 . ) .
S a v i n g s b a n k s a r e a u t h o r i z e d t o make i n v e s t m e n t s o f t h e i r
funds only i n such s t o c k s as a r e enumerated i n t h e C a l i f o r n i a
Bank A c t , and t h e r e i s n o t i n c l u d e d i n t h i s enumeration t h e k i n d s
of c o r p o r a t e s t o c k s c o n t e m p l a t e d b y t h i s d i g e s t ,
( C a l i f o r n i a Bank
A c t , 1 9 3 1 , s e e s . 6 1 , 6 2 and 1 4 5 . )
Trust companies - Investment i n corporate s t o c k s p r o h i b i t e d .
Trust companies are not a u t h o r i z e d t o purchase corporate
s t o c k s of t h e k i n d s contemplated by t h i s d i g e s t f o r t h e r e a s o n
t h a t i n v e s t m e n t s o f t h e i r f u n d s a r e made s u b j e c t t o t h e p r o v i s i o n s
X-7259
9 g o v e r n i n g t h e i n v e s t m e n t o f f u n d s b y s a v i n g s "banks.
The C a l i f o r n i a
Bank A c t p r o v i d e s t h a t " e v e r y t r u s t company s h a l l i n v e s t i t s c a p i t a l
and s u r p l u s
* * *, i n accordance w i t h the laws r e l a t i v e to the
i n v e s t m e n t * * * o f f u n d s d e p o s i t e d w i t h s a v i n g s "banks, * *
( C a l i f o r n i a Bank A c t , 1 9 3 1 , s e c . 1 0 5 . )
COLORADO.
Banks may n o t p u r c h a s e c o r p o r a t e s t o c k s .
The l a w s o f t h i s S t a t e p r o h i b i t a "bank f r o m p u r c h a s i n g
" t h e s t o c k o f a n y o t h e r c o r p o r a t i o n , e x c e p t s u c h a s i t may n e c e s s a r i l y a c q u i r e i n t h e p r o t e c t i o n or s a t i s f a c t i o n o f p r e v i o u s l y
e x i s t i n g l o a n s made i n g o o d f a i t h .
Any s t o c k s o a c q u i r e d s h a l l
b e s o l d b y t h e b a n k w i t h i n t h r e e y e a r s . , and s o o n e r i f i t c a n b e
done w i t h o u t i m p a i r i n g t h e b a n k ' s i n v e s t m e n t i n t h e s a m e . "
(Com-
p i l e d Laws o f C o l o r a d o , 1 9 2 1 , s e c . 2 6 8 3 ; B a n k i n g L a w s , 1 9 2 8 ,
s e c . 33., p.. 1 9 . )
S a v i n g s b a n k s a r e a u t h o r i z e d t o make c e r t a i n i n v e s t m e n t s ,
but c o r p o r a t e s t o c k s of t h e k i n d s contemplated by t h i s d i g e s t
a r e not i n c l u d e d i n t h e c l a s s e s of a u t h o r i z e d i n v e s t m e n t s .
(Com-
p i l e d Laws o f C o l o r a d o , s e c , . 2 6 8 5 ; B a n k i n g Laws, 1 9 2 8 , s e c . 3 5 ,
p. 20).
T r u s t Companies a u t h o r i z e d t o b u y and s e l l s t o c k s , .
Trust companies *!incorporated under t h e p r o v i s i o n s of
t h i s a c t a r e d u l y a u t h o r i z e d : * * * To p u r c h a s e , i n v e s t i n
and s e l l s t o c k s * * * 1 .
( C o m p i l e d Laws o f C o l o r a d o , 1 9 2 1 ,
sec.. 2765; Banking l a w s , 1928, s e c . 128, p . 6 6 . )
X-7259
-
10
-
COmECTICUT.
P u r c h a s e o f c o r p o r a t e s t o c k s p e r m i t t e d up t o c e r t a i n a m o u n t .
Banks a n d t r u s t c o m p a n i e s , u n d e r t h e l a w s o f t h i s S t a t e ,
"may p u r c h a s e and h o l d c o r p o r a t e s e c u r i t i e s o f a n y d e s c r i p t i o n , p r o v i d e d t h e t o t a l amount of t h e p u r c h a s e p r i c e i n v e s t e d i n c o r p o r a t e
s t o c k s s h a l l a t no t i m e e x c e e d t e n p e r centum o f i t s c o m b i n e d
c a p i t a l , s u r p l u s a n d u n d i v i d e d p r o f i t s , and p r o v i d e d i t s i n v e s t m e n t
i n t h e s t o c k of any one c o r p o r a t i o n s h a l l exceed n e i t h e r f i v e p e r centum of t h e s t o c k of t h a t c o r p o r a t i o n nor t h r e e p e r centum of
such combined c a p i t a l , s u r p l u s , and u n d i v i d e d p r o f i t s , e x c e p t t h a t
s u c h c o r p o r a t e s t o c k s a s w e r e owned on A p r i l 1 , 1 9 3 1 , may b e r e tained * * *.°
( G e n e r a l S t a t u t e s o f C o n n . , s e c . 3 8 8 5 , a s amended
"by P . A . 1 9 3 1 , c h . 5 0 8 a ; B a n k i n g L a w s , 1 9 3 1 , s e c . 3 8 8 5 , p . 1 7 . )
S a v i n g s "banks a n d b a n k s and t r u s t c o m p a n i e s m a i n t a i n i n g
s a v i n g s d e p a r t m e n t s , may make l i m i t e d i n v e s t m e n t s o f t h e i r s a v i n g s
d e p o s i t s i n t h e s t o c k of c e r t a i n b a n k s and t r u s t c o m p a n i e s l o c a t e d
i n t h e S t a t e o f C o n n e c t i c u t and c e r t a i n c i t i e s i n o t h e r S t a t e s .
(General S t a t u t e s of Conn., R e v i s i o n of 1930, s e c . 3908; and s e c .
3 9 9 5 ( 2 6 ) ; B a n k i n g L a w s , 1 9 3 1 , s e c . 3 9 0 8 , p . 2 8 ; and s e c . 3 9 9 5
(26) p . 7 7 . )
^
31
X-7259
-
11 -
rmwAKB.
Banks and Trust Companies m y purchase stocks.
The l a w s of D e l a w a r e p r o v i d e t h a t "No hank or t r u s t comp a n y s h a l l i n v e s t more t h a n t w e n t y - f i v e p e r centum o f i t s t o t a l
c a p i t a l , s u r p l u s a n d u n d i v i d e d p r o f i t s i n t h e s t o c k , "bonds or
o t h e r o b l i g a t i o n s o f a n y one c o r p o r a t i o n or p o l i t i c a l e n t i t y or
p o l i t i c a l d i v i s i o n e x c e p t "bonds o r o t h e r o b l i g a t i o n s o f t h e U n i t e d
S t a t e s „ of t h e S t a t e o f D e l a w a r e , or o f a n y c o u n t y , c i t y , town
or s c h o o l d i s t r i c t i n t h i s S t a t e . " ( A c t o f March 3 1 , 1 9 2 1 , s e c . ,
13;• B a n k i n g Laws,. 1 9 2 9 , . p., 2 6 . )
The t e r m ""bark11 a s u s e d i n t h e a b o v e e x c e r p t f r o m t h e
l a w s o f D e l a w a r e i n c l u d e s s a v i n g s "banks.
( A c t o f March 3 1 , 1 9 2 1 ,
s e c . 1; Banking Laws, 1929, s e c . 1 , p . 1 4 . )
FLORIDA.
Banks and Trust Companies may not purchase stocks.
I t i s u n l a w f u l " f o r a n y "bank or t r u s t company o r g a n i z e d
u n d e r t h e l a w s o f t h i s S t a t e and d o i n g b u s i n e s s i n t h i s S t a t e , t o
d i r e c t l y or i n d i r e c t l y i n v e s t a n y o f t h e f u n d s o f s a i d b a n k o r t r u s t
company i n s t o c k o f a n y i n c o r p o r a t e d company i n t h i s S t a t e or e l s e where * *
" ( C o m p i l e d G e n e r a l Laws o f F l o r i d a , 1 9 3 0 S u p p . , s e c . 6 0 8 4 )
S a v i n g s Banks may p u r c h a s e b a n k s t o c k s .
The c a p i t a l and d e p o s i t s of a s a v i n g s b a n k a n d t h e i n c o m e
d e r i v e d t h e r e f r o m may b e i n v e s t e d " i n t h e s t o c k o f a n y b a n k i n c o r -
X-7259
— 12
p o r a t e d u n d e r t h e a u t h o r i t y o f t h i s S t a t e , or t h e s t o c k o f a n y b a n k ing a s s o c i a t i o n i n c o r p o r a t e d under the a u t h o r i t y of t h e U n i t e d S t a t e s
* * *».
( C o m p i l e d G e n e r a l Laws of F l o r i d a , 1 9 2 7 , s e c . 6 1 2 0 ; B a n k i n g
Laws, 1 9 2 6 , p . 3 0 . )
T r u s t Companies may p u r c h a s e s t o c k s .
A t r u s t company i n t h i s s t a t e " s h a l l h a v e p o w e r : * * *
t o p u r c h a s e , i n v e s t i n and s e l l s t o c k s , * *
(Compiled General
laws of F l o r i d a , 1930 Supp., s e c . 6126 ( 1 0 ) )
NOTE;
I t w i l l he observed that t h e r e i s an apparent
c o n f l i c t i n t h o l a w s of t h i s S t a t e and i t i s u n d e r s t o o d that none of the s t a t u t e s above r e f e r r e d t o has
received judicial construction.
GEORGIA.
Banks may n o t p u r c h a s e s t o c k s .
Under t h e l a w s of t h i s S t a t e "Ho b a n k s h a l l s u b s c r i b e f o r ,
p u r c h a s e , or h o l d s t o c k i n any other bank * * * nor i n any o t h e r c o r p o r a t i o n u n l e s s t h e same s h a l l h a v e b e e n t r a n s f e r r e d t o i t i n s a t i s f a c t i o n of a d e b t p r e v i o u s l y c o n t r a c t e d , or s h a l l h a v e b e e n p u r c h a s e d
a t a s a l e under a power c o n t a i n e d i n a n o t e or o t h e r instrument by
w h i c h i t was p l e d g e d t o t h e b a n k or u n d e r a j u d g m e n t o r d e c r e e i n i t s
f a v o r , a n d a l l s u c h s t o c k s h a l l b e d i s p o s e d of b y t h e bank w i t h i n s i x
m o n t h s , u n l e s s t h e S u p e r i n t e n d e n t o f Banks s h a l l e x t e n d t h e t i m e f o r
good cause shown."
(Amendments t o B a n k i n g A c t o f G e o r g i a a p p r o v e d
August 25, 1927, s e c . 10)
The t e r m "bank% a s u s e d i n t h e l a w s o f G e o r g i a i n c l u d e s
.
X-7259
- 13 s a v i n g s Panics.
( B a n k i n g A c t o f G e o r g i a , 1 9 1 9 , a s amended, 1 9 2 5 ,
A r t i c l e 1, sec. 1 . )
T r u s t Companies o p e r a t i n g a s i n v e s t m e n t b a n k e r s may d e a l i n s t o c k s
and "bonds.
"Trust c o m p a n i e s , o p e r a t i n g a s i n v e s t m e n t "bankers,
and m a i n t a i n i n g d e p a r t m e n t s f o r t h e p u r c h a s e and s a l e of s e c u r i t i e s ,
may p u r c h a s e f o r r e s a l e w h o l e i s s u e s or p a r t s o f i s s u e s o f s t o c k s ,
"bonds and d e b e n t u r e s o f i n d u s t r i a l , r a i l r o a d and p u b l i c s e r v i c e c o r p o r a t i o n s and o t h e r i n v e s t m e n t s e c u r i t i e s , and may r e s e l l and d e a l
i n t h e s a m e , u n d e r s u c h r e g u l a t i o n s a s may b e p r e s c r i b e d b y t h e
S u p e r i n t e n d e n t o f b a n k s . " ( T r u s t Company A c t o f 1 9 2 7 , s e c . 5A.)
IDAHO.
Purchase of bank s t o c k s p r o h i b i t e d .
"No b a n k s h a l l * * * p u r c h a s e a n y s h a r e s o f * * * a n y
o t h e r b a n k w h e r e v e r o r g a n i z e d , or s i t u a t e d * * * u n l e s s s u c h * * *
p u r c h a s e s h a l l b e n e c e s s a r y t o p r e v e n t l o s s upon a debt p r e v i o u s l y
c o n t r a c t e d i n g o o d f a i t h ; and s t o c k s o p u r c h a s e d * * * s h a l l w i t h i n
s i x m o n t h s f r o m t h e d a t e o f a c q u i r e m e n t b e s o l d or d i s p o s e d o f a t
p u b l i c or p r i v a t e s a l e ; a f t e r t h e e x p i r a t i o n o f s i x m o n t h s a n y s u c h
s t o c k s h a l l n o t b e c o n s i d e r e d a s a p a r t of t h e a s s e t s o f s u c h baxjk."
(Laws o f 1 9 2 5 , c h . 1 3 3 , s e c . 2 9 ; Bank Code, 1 9 2 5 , s e c . 2 9 , p . 1 8 . )
S a v i n g s b a n k s a r e empowered t o make c e r t a i n i n v e s t m e n t s
o f t h e i r f u n d s , b u t t h e y do n o t h a v e t h e power t o i n v e s t i n t h e
k i n d s of c o r p o r a t e s t o c k s contemplated by t h i s d i g e s t .
(Laws o f
1 9 2 5 , c h . 2 3 0 , s e c . 2 , a s amended b y Laws o f 1 9 2 9 , c h . 5 4 , p . 7 3 . )
321
322
X-7259
- 14 The t e r m "'bank « a s u s e d i n t h e Idaho l a w s i n c l u d e s t r u s t
companies.
(Laws o f 1 9 2 9 , ch* 1 9 2 , p . 3 5 3 , a m e n d i n g s e c . 2 , c h .
1 3 3 , Laws o f 1 9 2 5 ) .
There i s a l s o an express p r o v i s i o n p r o v i d -
i n g that t r u s t companies are a u t h o r i z e d t o purchase, i n v e s t i n
a n d s e l l s u c h s e c u r i t i e s a s a r e p e r m i t t e d i n t h e c a s e o f commercial tanks.
(Laws of 1 9 2 9 , c h . 1 9 2 , s e c . 2 , a m e n d i n g l a w s o f
1925, ch.133, sec. 5.)
ILLINOIS.
No s t a t u t o r y p r o v i s i o n s .
The s t a t u t e s o f I l l i n o i s c o n t a i n no p r o v i s i o n s a u t h o r i z i n g or p r o h i b i t i n g b a n k s o r t r u s t c o m p a n i e s t o p u r c h a s e c o r p o r a t e
stocks.
imum..
Commercial "banks or t r u s t c o m p a n i e s - No s p e c i f i c s t a t u t o r y p r o v i s i o n s »
The s t a t u t e s o f I n d i a n a c o n t a i n no p r o v i s i o n s s p e c i f i c a l l y
a u t h o r i z i n g o r p r o h i b i t i n g c o m m e r c i a l b a n k s or t r u s t c o m p a n i e s t o
purchase corporate stocks.
S a v i n g s "banks n o t p e r m i t t e d t o p u r c h a s e c o r p o r a t e s t o c k s c o n t e m p l a t e d by t h i s d i g e s t .
S a v i n g s t a n k s may " i n v e s t t h e money d e p o s i t e d t h e r e i n " o n l y
i n s u c h t o u d s , n o t e s , e t c . , a s a r e s p e c i f i c a l l y e n u m e r a t e d , and t h e r e
i s not i n c l u d e d i n t h i s enumeration any c o r p o r a t e s t o c k s of t h e k i n d s
contemplated t y t h i s d i g e s t .
( A c t s of E x t r a S e s s i o n o f 1 8 6 9 , p . 1 0 4 ,
•*
s e c . 1 9 , a s amended h y A c t s o f 1 8 7 5 , p . 1 2 9 , A c t s o f 1 8 9 3 , p . 2 7 3 , A c t s
of 1 9 0 3 , p . 211 a n d A c t s of 1 9 1 7 , p . 4 1 6 . )
X-7259 3 3 3
- 15IOli.
I n v e s t m e n t , i n c o r p o r a t e s t o c k s of t h e l a n d s c o n t e m p l a t e d , "by t h i s
digest prohibited.
The l a w s o f Iowa p r o v i d e t h a t "banks a n d t r u s t c o m p a n i e s
s h a l l i n v e s t o n l y i n s u c h s t o c k s , "bonds, a n d s e c u r i t i e s a s a r e s p e c i f i c a l l y e n u m e r a t e d t h e r e i n , and t h e r e i s n o t i n c l u d e d i n t h i s
e n u m e r a t i o n a n y s t o c k s o f t h e k i n d s c o n t e m p l a t e d "by t h i s d i g e s t .
( B a n k i n g Laws, 1 9 2 9 , c h . 4 1 3 ; s e e s . 9 1 8 3 , 9 1 8 3 - C 1 ; c h . 4 1 5 , s e e s .
9269, 9271; ch. 4 1 6 , s e c . 9284; ch. 416-A1, s e c . 1 2 7 7 2 ) .
These laws
a l s o p r o v i d e t h a t "No s t a t e b a n k , s a v i n g s b a n k , or t r u s t company
s h a l l m a k e a n y l o a n o r d i s c o u n t on t h e s e c u r i t y o f t h e s h a r e s o f
i t s own c a p i t a l s t o c k , or b e t h e p u r c h a s e r or h o l d e r o f a n y s h a r e s ,
u n l e s s s u c h s e c u r i t y or p u r c h a s e s h a l l b e n e c e s s a r y t o p r e v e n t l o s s
u p o n a d e b t p r e v i o u s l y c o n t r a c t e d i n g o o d f a i t h ; and s t o c k s o p u r c h a s e d or a c q u i r e d s h a l l b e s o l d a t p u b l i c or p r i v a t e s a l e , or
o t h e r w i s e d i s p o s e d o f , w i t h i n one (1) year from t h e t i m e of i t s
p u r c h a s e or a c q u i s i t i o n u n l e s s t h e t i m e i s e x t e n d e d b y t h e s u p e r i n t e n d e n t of b a n k i n g . " (Banking Laws, 1929,
ch. 413,
sec. 9184).
KANSAS.
Banks may n o t p u r c h a s e C o r p o r a t e S t o c k s .
A b a n k " s h a l l n o t i n v e s t a n y of i t s f u n d s i n t h e s t o c k
o f a n y o t h e r b a n k or c o r p o r a t i o n * * * . «
( S e s s i o n Laws o f K a n s a s ,
1 9 2 7 , p . 1 2 6 ; B a n k i n g Laws, 1 9 2 9 , s e c . 1 1 , p . 6 . )
324
X-7259
-
16
-
The t e r m ""bank" a s used, i n t h e a b o v e e x c e r p t f r o m t h e l a w s
o f K a n s a s i n c l u d e s s a v i n g s "banks.
(Laws o f 1 8 9 7 , c h . 4 7 , s e c . 3 5 ,
a s amended "by Laws o f 1 9 0 7 , c h . 6 4 , s e c . 1 ; B a n k i n g L a w s , 1 9 2 9 ,
sec. 36, p. 14.)
T r u s t Companies a u t h o r i z e d t o p u r c h a s e s t o c k s .
A t r u s t company i n t h i s S t a t e may ^buy and s e l l a l l k i n d s
o f * * * s e c u r i t i e s and s t o c k s : P r o v i d e d , that t h e t o t a l investment o f
a n y s u c h t r u s t company i n "bank s t o c k s h a l l a t no t i m e e x c e e d o n e - f o u r t h
i t s paid—up c a p i t a l s t o c k ; * * * P r o v i d e d , t h a t t h e t o t a l i n v e s t m e n t i n
t a n k s t o c k h e l d b y a n y t r u s t company i n e x c e s s of o n e - f o u r t h o f i t s
c a p i t a l s h a l l "be d i s p o s e d o f w i t h i n two y e a r s f r o m t h e p a s s a g e o f t h i s a c t ^,f
( R e v i s e d . S t a t u t e s of K a n s a s , 1 9 2 3 , s e c . 17 - 2 0 0 2 ; B a n k i n g L a w s , 1 9 2 9 ,
s e c . 2 , p p . 3 8 and 3 9 . )
KENTUCKY.
Ho s t a t u t o r y P r o v i s i o n s .
The l a w s o f K e n t u c k y c o n t a i n no s p e c i f i c p r o v i s i o n s w i t h
r e f e r e n c e t o t h e p u r c h a s e o f c o r p o r a t e s t o c k s "by "banks or t r u s t
companies.
W i t h r e f e r e n c e t o "banks, t h e l a w d o e s p r o v i d e t h a t n o
"bank s h a l l employ i t s m o n e y s , d i r e c t l y or i n d i r e c t l y , i n a n y e n t e r p r i s e o r " b u s i n e s s e x c e p t a s a u t h o r i z e d "by l a w ; h u t t h e r i g h t t o p u r c h a s e c o r p o r a t e s t o c k s d o e s n o t a p p e a r t o "be a u t h o r i z e d "by l a w .
r o l l ' s K e n t u c k y S t a t u t e s , 1 9 3 0 , s e e s . 5 7 9 , and 5 8 2 ; B a n k i n g Laws,
1 9 2 6 , s e e s . 579 a n d 5 8 2 . )
(Car-
X-7259
- 17 Trust companies are not a u t h o r i z e d e x p r e s s l y t o purchase
c o r p o r a t e s t o c k s , "but t h e l a w d o e s p r o v i d e t h a t " t h e c a p i t a l s t o c k
o f a t r u s t company, a n d t h e f u n d s i n i t s p o s s e s s i o n , n o t h e l d i n
a f i d u c i a r y c a p a c i t y , may "be i n v e s t e d i n s u c h manner a s t h e d i r e c t o r s deem p r u d e n t and s a f e ; * *
( C a r r o l l ' s Kentucky S t a t -
u t e s , 1 9 3 0 , s e e s . 6 0 6 and 6 1 4 ; B a n k i n g Laws, 1 9 2 6 , s e e s . 6 0 6 a n d 6 1 4 )
IQUISI&m.
Purchase of any Corporate Stocks P e r m i t t e d .
B a n k s and t r u s t c o m p a n i e s a r e empowered "to r e c e i v e , h o l d ,
p u r c h a s e , a c q u i r e a n d c o n v e y , b y and u n d e r t h e i r c o r p o r a t e name,
such p r o p e r t y , r e a l and p e r s o n a l , i n c l u d i n g bonds, s t o c k s and s e c u r i t i e s , o f t h e U n i t e d S t a t e s , o r of a n y of t h e U n i t e d S t a t e s , o r
o f a n y c o r p o r a t i o n , b o a r d or b o d y , p u b l i c or p r i v a t e t h e r e o f , a s
may b e n e c e s s a r y , p r o p e r o r c o n v e n i e n t t o t h e o b j e c t s o f t h e a s s o c i a t i o n , and t o e x e r c i s e i n r e l a t i o n t h e r e t o , a l l t h e d i r e c t a n d
i n c i d e n t a l r i g h t s of ownership. "
(Laws o f 1 9 0 2 , A c t . N o . 4 5 ,
s e c . 1 ( 2 ) and s e c . 7 , a s amended b y A c t N o . . 2 3 8 o f 1 9 1 0 , a n d A c t
No. 1 7 9 , a s amended; B a n k i n g Laws, 1 9 2 8 , s e c . . 1 ( 2 ) , p . 2 6 , s e c . 7 ,
p. 30, s e e s . 1 - 3 2 , pp. 3-21)
MAINE.
"Trust and b a n k i n g c o m p a n i e s " - No s p e c i f i c s t a t u t o r y p r o v i s i o n s .
The l a w s o f Maine do n o t c o n t a i n a n y p r o v i s i o n s e x p r e s s l y
a u t h o r i z i n g " t r u s t and banking companies" t o p u r c h a s e c o r p o r a t e
X-7259
—• 1 8
—
s t o c k s , "but t h e l a w s do g i v e s u c h c o m p a n i e s t h e p o w e r " t o h o l d a n d
e n j o y a l l s u c h e s t a t e , r e a l , p e r s o n a l and m i x e d , a s may b e o b t a i n e d
b y t h e i n v e s t m e n t o f i t s c a p i t a l s t o c k or a n y o t h e r moneys a n d f u n d s
t h a t may come i n t o i t s p o s s e s s i o n i n t h e c o u r s e o f i t s b u s i n e s s and
d e a l i n g s , a n d t h e same s e l l , g r a n t and d i s p o s e o f ; * *
(Pub-
l i c l a w s , 1 9 2 3 , c h . 1 4 4 , s e c . 6 1 ; B a n k i n g Laws, 1 9 2 7 , s e c . 6 1 , p . 4 1 . )
S a v i n g s b a n k s may i n v e s t i n s t o c k of Maine c o r p o r a t i o n s o t h e r t h a n
b a n k i n g c o r p o r a t i o n s - Amount of i n v e s t m e n t l i m i t e d .
" S a v i n g s b a n k s and i n s t i t u t i o n s f o r s a v i n g s may h e r e a f t e r i n v e s t t h e i r f u n d s as f o l l o w s , and not o t h e r w i s e :
* * * * * * *
"(a)
* * * * * * * * * * *
* * *
I n t h e s t o c k o f a n y Maine c o r p o r a t i o n , o t h e r t h a n a
banking corporation, a c t u a l l y conducting i n t h i s s t a t e the
b u s i n e s s f o r w h i c h s u c h c o r p o r a t i o n was c r e a t e d , p r o v i d e d s u c h
corporation has for a period of three years next preceding
t h e i n v e s t m e n t e a r n e d a n d r e c e i v e d an a v e r a g e n e t i n c o m e
e q u i v a l e n t to a t l e a s t s i x per cent upon the e n t i r e o u t s t a n d i n g i s s u e of the s t o c k i n q u e s t i o n .
"(b)
The a g g r e g a t e o f a l l i n v e s t m e n t s made b y a n y b a n k i n
s t o c k s h a l l a t no t i m e e x c e e d f i v e per c e n t of i t s d e p o s i t s ,
a n d n o t more t h a n one p e r c e n t o f t h e d e p o s i t s o f s u c h b a n k
s h a l l b e i n v e s t e d i n the s t o c k of any s i n g l e c o r p o r a t i o n .
Ho s u c h b a n k s h a l l h o l d b y way o f i n v e s t m e n t or a s s e c u r i t y
f o r l o a n s , or b o t h , more t h a n o n e - f i f t h o f t h e c a p i t a l s t o c k
X-7259
- 19 "of a n y c o r p o r a t i o n ; "but t h i s l i m i t a t i o n s h a l l n o t
a p p l y t o a s s e t s a c q u i r e d i n good f a i t h upon judgments
f o r d e b t s or i n s e t t l e m e n t s t o s e c u r e d e b t s . "
(Public
Laws, 1 9 2 3 , c h . 1 4 4 , a s amended, s e c . 2 7 ; B a n k i n g
Laws, 1 9 2 7 , s e c . 2 7 , p p . 1 2 and 2 2 . )
MARYLAND.
Purchase of Corporate Stocks p e r m i t t e d t o Trust Companies.
T r u s t c o m p a n i e s a r e g i v e n t h e power " t o e x e r c i s e , "by i t s
d i r e c t o r s , . d u l y a u t h o r i z e d o f f i c e r s or a g e n t s , a l l s u c h p o w e r s a s
s h a l l h e u s u a l i n c a r r y i n g on t h e "business o f "banking * * * "by
p u r c h a s i n g , , i n v e s t i n g i n and s e l l i n g s t o c k s , * * * a n d o t h e r s e c u r i t i e s * * *".
( B a g b y ' s Code, A r t i c l e 11,
s e c . 4 6 ; Banking Laws,
1927, sec.. 46 ( 9 ) , p . 2 3 . )
B a n k s -» No s p e c i f i c s t a t u t o r y p r o v i s i o n s .
T h e r e do n o t a p p e a r t o "be a n y p r o v i s i o n s i n t h e l a w s o f
Maryland s p e c i f i c a l l y ( a u t h o r i z i n g o r p r o h i b i t i n g "banks t o p u r c h a s e
corporate stocks.
MASSACHUSETTS.
P u r c h a s e o f C o r p o r a t e S t o c k s "by T r u s t Companies p e r m i t t e d .
A t r u s t company may " i n v e s t i t s money or c r e d i t s , w h e t h e r
c a p i t a l or g e n e r a l d e p o s i t s , i n t h e s t o c k s , "bonds or o t h e r e v i d e n c e s o f i n d e b t e d n e s s o f c o r p o r a t i o n s or of a s s o c i a t i o n s or
t r u s t s , * * *" ( G e n e r a l Laws, Ch. 1 7 2 , s e c . 3 3 ; T r u s t Company
Pamphlet Laws, s e c * 3 3 , p . 2 1 . )
328
X-7259
-
20 -
L i m i t a t i o n upon Purchase of Stocks i n other t r u s t Companies.
The l a w s p r o v i d e , h o w e v e r , t h a t "Ho t r u s t company s h a l l
h o l d more t h a n t e n p e r c e n t o f t h e c a p i t a l s t o c k o f a n y o t h e r
t r u s t company".
( G e n e r a l Laws, Ch. 1 7 2 , s e c . 4 3 ; T r u s t Company
P a m p h l e t Laws, s e c . 4 3 , p . 2 3 . )
S a v i n g s Banks may P u r c h a s e C e r t a i n Bank and T r u s t Company S t o c k s Amount l i m i t e d .
S a v i n g s b a n k s may i n v e s t t h e i r d e p o s i t s and i n c o m e d e r i v e d t h e r e f r o m " I n t h e s t o c k of a t r u s t company i n c o r p o r a t e d u n d e r
t h e l a w s o f a n d d o i n g "business w i t h i n t h i s commonwealthj or i n t h e
s t o c k o f a n a t i o n a l b a n k i n g a s s o c i a t i o n l o c a t e d i n t h e New E n g l a n d
S t a t e s and i n c o r p o r a t e d u n d e r t h e a u t h o r i t y o f t h e U n i t e d S t a t e s ,
w h i c h h a s p a i d d i v i d e n d s of not l e s s t h a n f o u r p e r c e n t t h e r e i n i n
c a s h i n e a c h of t h e f i v e y e a r s n e x t p r e c e d i n g t h e d a t e o f s u c h i n v e s t m e n t s a n d t h e amount o f whose s u r p l u s i s a t l e a s t e q u a l t o f i f t y
p e r c e n t o f i t s c a p i t a l ; b u t a s a v i n g s bank s h a l l n o t h o l d , b o t h
b y way o f i n v e s t m e n t and a s s e c u r i t y f o r l o a n s , more t h a n t w e n t y f i v e p e r c e n t o f t h e s t o c k o f a n y o n e s u c h company o r a s s o c i a t i o n , '
n o r s h a l l i t h o l d b y way o f i n v e s t m e n t s t o c k o f s u c h c o m p a n i e s
and a s s o c i a t i o n s h a v i n g a n a g g r e g a t e i n i t i a l c o s t i n e x c e s s o f
f i f t e e n p e r c e n t o f t h e d e p o s i t s o f s u c h s a v i n g s b a n k , or s t o c k o f
ajiy one s u c h company or a s s o c i a t i o n h a v i n g a n i n i t i a l c o s t i n e x c e s s
o f one p e r c e n t o f t h e d e p o s i t s a f o r e s a i d . "
(General Laws, c h . 1 6 8 ,
s e c . 5 4 , ( 7 t h ) , a s amended b y A c t s o f 1 9 2 9 , c h . 3 1 5 , s e c . 1 ; S a v i n g s
Banks P a m p h l e t L a w s , s e c . 5 4 ( 7 t h ) , p . 3 9 . )
329
X-7259
— 21
—
MICHIGAN.
P u r c h a s e p r o h i b i t e d , o f h i n d s of c o r p o r a t e s t o c k s c o n t e m p l a t e d b y
this digest.
The l a w s o f M i c h i g a n p r o v i d e t h a t b a n k s and t r u s t
c o m p a n i e s may o n l y p u r c h a s e c e r t a i n s p e c i f i c a l l y e n u m e r a t e d s t o c k s ,
b o n d s and o t h e r s e c u r i t i e s , and t h i s e n u m e r a t i o n d o e s n o t i n c l u d e a n y
of the stocks contemplated by t h i s d i g e s t .
(Laws o f 1 9 1 9 , A c t . Ho.
9 4 , s e c . 1 ; Laws o f 1 9 2 9 , A c t N o . 6 8 , s e c . 4 and A c t N o . 6 7 , s e c .
2 4 ; Laws o f 1 9 3 1 , A c t s N o . 1 4 and N o . 2 3 8 . )
MINNESOTA.
Purchase of c o r p o r a t e s t o c k s contemplated by t h i s d i g e s t not p e r m i t t e d .
The s t a t u t e s o f M i n n e s o t a p r o v i d e t h a t b a n k s and t r u s t
c o m p a n i e s may o n l y p u r c h a s e or i n v e s t i n s u c h s t o c k s , b o n d s , e t c . ,
a s a r e s p e c i f i c a l l y e n u m e r a t e d , and t h e r e i s n o t i n c l u d e d i n t h i s
enumeration any of t h e s t o c k s contemplated by t h i s d i g e s t .
(G-.S.
1 9 2 3 , s e e s . 7 6 4 9 , 7 6 6 3 and 7 7 1 4 , a s amended b y Laws o f 1 9 2 7 , c h ,
3 6 8 and c h , 4 2 2 , a n d b y Laws o f 1 9 3 1 , c h . 2 9 6 , and s e e s . 7 7 1 6 , 7 7 3 5 ,
7 7 3 8 , 7 7 4 0 and 7 8 1 0 ) .
MISSISSIPPI.
Purchase of bank s t o c k s p r o h i b i t e d .
The l a w s of t h i s S t a t e p r o v i d e t h a t "No p a r t o f t h e s t o c k
o f a n y b a n k * * * s h a l l b e owned b y a n y bank u n d e r t h e p r o v i s i o n s
of t h i s a c t .
Any s u c h s t o c k owned by a n y bank a t t h e t i m e t h i s a c t
3:30
X-7259
"•
22
—
t a k e s e f f e c t s h a l l be d i s p o s e d of w i t h i n t w e l v e months a f t e r such
time.
I n c a s e s where such s t o c k i s t a k e n as c o l l a t e r a l and t h e
p u r c h a s e t h e r e o f s h a l l "be n e c e s s a r y t o p r e v e n t l o s s u p o n a
debt p r e v i o u s l y c o n t r a c t e d i n good f a i t h , t h e n i n s u c h c a s e s
s u c h s t o c k s h a l l he s o l d by t h e bank w i t h i n t w e l v e months from t h e
t i m e t h a t i t was r e q u i r e d . 1 1
(Laws o f M i s s i s s i p p i , 1 9 2 2 , Chap. 1 7 2 ,
s e c . 4 9 ; B r o w n ' s 1 9 2 5 M i s s , and F e d e r a l S t a t u t e s p e r t a i n i n g t o
Banks and B a n k i n g , P . 7 1 . )
The t e r m "bank" a s u s e d i n t h e l a w s o f M i s s i s s i p p i i n c l u d e s t r u s t c o m p a n i e s and s a v i n g s b a n k s .
(Laws o f M i s s i s s i p p i , 1 9 1 4 ,
c h a p . 1 2 4 , s e c . 6 6 ; B r o w n ' s 1 9 2 5 M i s s , and F e d e r a l S t a t u t e s p e r t a i n i n g t o Banks and Banking, p . 7 2 . ) .
MISSOURI.
P u r c h a s e b y T r u s t Companies o f C o r p o r a t e S t o c k s L i m i t e d .
A t r u s t company " s h a l l n o t i n v e s t o r k e e p i n v e s t e d i n t h e s t o c k
o f a n y p r i v a t e c o r p o r a t i o n a n amount i n e x c e s s o f f i f t e e n p e r c e n t u m
o f t h e c a p i t a l a n d s u r p l u s f u n d of s u c h t r u s t company; n o r s h a l l i t
p u r c h a s e or c o n t i n u e t o h o l d s t o c k o f a n o t h e r bank o r t r u s t company
i f by such p u r c h a s e or continued i n v e s t m e n t t h e t o t a l s t o c k of such
o t h e r b a n k or t r u s t company owned a n d h e l d b y i t a s c o l l a t e r a l w i l l
e x c e e d f i f t e e n p e r centum o f t h e s t o c k o f s u c h o t h e r b a n k or t r u s t
company:
Provided, however, that t h i s l i m i t a t i o n s h a l l not apply
* * * t o t h e o w n e r s h i p b y s u c h t r u s t company or i t s s t o c k h o l d e r s o f
a p a r t or a l l o f t h e c a p i t a l s t o c k o f o n e bank o r g a n i z e d u n d e r t h e
l a w s o f t h e U n i t e d S t a t e s or o f t h i s S t a t e . "
Rev. S t a t s , of Mo., 1929)
(Paragraph 9, s e c . 5429,
3 3
X-7259
— 23 —
There a r e no s t a t u t o r y p r o v i s i o n s i n t h i s S t a t e g o v e r n i n g t h e
p u r c h a s e of c o r p o r a t e s t o c k s "by "banks; and t h e M i s s o u r i c o u r t s h a v e h e l d
t h a t , i n t h e a b s e n c e of e x p r e s s a u t h o r i t y , o n e "bank c a n n o t p u r c h a s e t h e
s h a r e s of s t o c k o f a n o t h e r b a n k .
Momm.
Banks p r o h i b i t e d from p u r c h a s i n g s t o c k s .
A c o m m e r c i a l or s a v i n g s b a n k i s p r o h i b i t e d f r o m p u r c h a s i n g
or i n v e s t i n g " i n t h e c a p i t a l s t o c k o f a n y c o r p o r a t i o n , u n l e s s t h e
p u r c h a s e or a c q u i s i t i o n of such c a p i t a l s t o c k s h a l l b e n e c e s s a r y t o
p r e v e n t l o s s t o t h e b a n k on a d e b t p r e v i o u s l y c o n t r a c t e d i n g o o d f a i t h .
Any c a p i t a l s t o c k s o p u r c h a s e d or a c q u i r e d s h a l l b e s o l d b y s u c h b a n k
w i t h i n s i x m o n t h s t h e r e a f t e r , i f i t can b e s o l d f o r t h e amount o f t h e
c l a i m o f s u c h b a n k a g a i n s t i t ; and a l l c a p i t a l s t o c k t h u s p u r c h a s e d or
a c q u i r e d must b e s o l d f o r t h e b e s t p r i c e o b t a i n a b l e by s a i d bank w i t h i n
one y e a r a f t e r s u c h p u r c h a s e or a c q u i s i t i o n . "
(Laws o f M o n t a n a , 1 9 2 7 ,
Chap. 8 9 , s e c . 3 9 ; B a n k i n g Laws, 1 9 2 7 , S e c . 3 9 , p . 3 2 . )
T r u s t Companies a u t h o r i z e d t o p u r c h a s e s t o c k s .
The l a w s o f Montana a u t h o r i z e t h e o r g a n i z a t i o n of t r u s t
c o m p a n i e s w h i c h may i n v e s t i n c o r p o r a t e s t o c k s a n d o t h e r s e c u r i t i e s ,
and a l s o p r o v i d e a s f o l l o w s :
"The b o a r d o f d i r e c t o r s o f a n y
s u c h c o r p o r a t i o n ( t r u s t company) i s a u t h o r i z e d t o i n v e s t t h e c a p i t a l
and a s s e t s o f s a i d c o r p o r a t i o n * * * i n
porations * * *.»
* * s t o c k s and b o n d s o f c o r -
(Laws o f Montana, 1 9 2 7 , Chap; 8 9 , s e c . 4 ( c ) ( 8 ) ,
and s e c . 2 6 ; B a n k i n g Laws, 1 9 2 7 , s e c . 4 ( c ) ( 8 ) , a n d s e c . 2 6 . )
X-7359
332
24 "
I n v e s t m e n t Companies m y p u r c h a s e s t o c k s .
The l a w s o f Montana a u t h o r i z e t h e f o r m a t i o n o f i n v e s t m e n t
companies w i t h t h e power t o r e c e i v e d e p o s i t s .
These companies a r e
a u t h o r i z e d t o "buy and s e l l s t o c k s a s w e l l a s o t h e r s e c u r i t i e s .
(Laws o f Montana, 1 9 2 7 , Chap.' 8 9 , s e c . 4 ( d ) ; B a n k i n g Laws, 1 9 2 7 ,
sec. 4(d).)
imB2ASK&.
Banks - Purchase of Corporate s t o c k s p r o h i b i t e d .
The l a w s o f t h i s S t a t e p r o v i d e t h a t no h a n k " s h a l l * * *
h e the p u r c h a s e r or h o l d e r of * * * the s h a r e s of any c o r p o r a t i o n , unless
such * * * purchase s h a l l be n e c e s s a r y to p r e v e n t l o s s upon
a d e b t p r e v i o u s l y c o n t r a c t e d i n g o o d f a i t h ; and s u c h s t o c k s o p u r c h a s e d o r a c q u i r e d s h a l l , w i t h i n s i x months f r o m t h e t i m e o f i t s
purchase be s o l d or d i s p o s e d of a t p u b l i c or p r i v a t e s a l e ; or i n
d e f a u l t t h e r e o f , a r e c e i v e r may b e a p p o i n t e d t o c l o s e up t h e b u s i n e s s
of t h e bank:
P r o v i d e d , i n no c a s e s h a l l t h e amount o f s t o c k s o
h e l d exceed ten p e r cent of the paid-up c a p i t a l of such hank."
(Comp. S t a t s , o f N e b r a s k a , 1 9 2 9 , s e c . 8 - 1 3 7 ; B a n k i n g Laws, 1 9 2 9 ,
sec. 8006, p. 1 2 . )
Savings banks are not permitted to purchase corporate s t o c k s .
(Comp. S t a t s , o f N e b r a s k a , 1 9 2 9 , s e c . 8 - 1 5 5 ; B a n k i n g Laws, 1 9 2 9 ,
sec. 8016, p. 1 8 . )
X-7259
« 25 T r u s t Companies ~ P u r c h a s e o f c o r p o r a t e s t o c k s p e r m i t t e d .
T r u s t c o m p a n i e s h a v e t h e power " t o "buy, h o l d and own and s e l l
* * * s t o c k s , * * * and o t h e r i n v e s t m e n t s e c u r i t i e s " . .
(Comp. S t a t s ,
of Nebraska, 1929, sec. 8 - 2 0 6 . )
NEVADA.
Purchase of corporate s t o c k s p r o h i b i t e d .
Under t h e l a w s o f t h i s S t a t e , "Ho "bank s h a l l * * * i n v e s t
a n y o f i t s f u n d s i n t h e s t o c k o f a n y b a n k o r t r u s t company o r
corporation, * * * . "
(Comp. Laws o f 1 9 2 9 , s e c . 6 6 2 . )
The word "bank" a s u s e d i n t h e b a n k i n g l a w o f Nevada i n c l u d e s s a v i n g s b a n k s and t r u s t c o m p a n i e s . (Comp. Laws o f 1 9 2 9 ,
sec. 724)
NEW HAMPSHIRE.
Purchase of Corporate ptocks p e r m i t t e d .
T r u s t c o m p a n i e s &re a u t h o r i z e d and empowered " t o n e g o t i a t e ,
p u r c h a s e and s e l l s t o c k s , b o n d s a n d o t h e r e v i d e n c e s o f d e b t ; t o d o
a g e n e r a l b a n k i n g b u s i n e s s ; and t o c o n d u c t a s a v i n g s d e p a r t m e n t . "
( P u b l i c Laws, c h . 2 6 5 , s e c . 3 1 ; B a n k i n g Laws, 1 9 2 9 , s e c . 3 1 , p . 4 l . ) ,
L i m i t a t i o n upon such /ourchase.
The l a w s o f t h i s S t a t e p r o v i d e , h o w e v e r , t h a t "The t o t a l
l i a b i l i t i e s of a p e r s o n , f i r m or c o r p o r a t i o n , i n c l u d i n g i n the
l i a b i l i t i e s o f a f i r m t h e l i a b i l i t i e s of i t s s e v e r a l members,
f o r money b o r r o w e d o f t h e c o m m e r c i a l d e p a r t m e n t o f a t r u s t com-
3 3 3
X-7259
^ 36 p&ny o r o t h e r c o r p o r a t i o n b t a, s i m i l a r c h a r a c t e r , w h e t h e r o r g a n i z e d
u n d e r t h e p r o v i s i o n s o f t h i s c h a p t e r o r o t h e r w i s e , s h a l l a t no t i m e
e x c e e d t e n p e r c e n t o f i t s c a p i t a l s t o c k a c t u a l l y p a i d i n and s u r p l u s , n o r s h a l l s u c h c o r p o r a t i o n p u r c h a s e o r h o l d , "by way o f i n v e s t m e n t , t h e s t o c k s and "bonds o f a n y c o r p o r a t i o n t o a n amount i n e x c e s s
of s a i d ten per c e n t " .
( P u b l i c Laws, c h . 2 5 5 , s e c . 3 7 ; B a n k i n g
Laws, 1 9 2 9 , s e c . 3 7 , p . 4 2 . )
S a v i n g s Banks a n d S a v i n g s D e p a r t m e n t s o f Banks and T r u s t C o m p a n i e s .
S u b j e c t t o c e r t a i n l i m i t a t i o n s , s a v i n g s banks and s a v i n g s
d e p a r t m e n t s o f b a n k i n g and t r u s t c o m p a n i e s may i n v e s t i n t h e c a p i t a l
s t o c k o f b a n k s , t r u s t c o m p a n i e s and c e r t a i n o t h e r c o r p o r a t i o n s .
However, s u c h i n v e s t m e n t s a r e l i m i t e d , i n t h e c a s e o f a n y one c o r p o r a t i o n , t o 5'jo o f t h e d e p o s i t s o f t h e p u r c h a s i n g s a v i n g s b a n k s o r
s a v i n g s d e p a r t m e n t s o f b a n k i n g and t r u s t c o m p a n i e s .
( P u b l i c Laws,
ch. 260, s e c . 16, ch. 262, s e e s . 1, 7 , 8 , % 12, 13, 14, 15; Banki n g Laws, 1 9 2 9 , s e c . 1 6 , p . 7 , s e e s . 1 , 7 , 8 , 9 , 1 2 , 1 3 , 1 4 , 1 5
and p p . 2 0 , 2 3 - 2 9 . )
HEW JERSEY.
B a n k s ( o t h e r t h a n s a v i n g s b a n k s ) and T r u s t Companies a u t h o r i z e d t o
purchase Corporate Stocks.
Banks ( o t h e r than s a v i n g s banks) " i n a d d i t i o n t o t h e power
and a u t h o r i t y now c o n f e r r e d upon them, s h a l l b e a u t h o r i z e d t o
p u r c h a s e , i n v e s t i n and s e l l s t o c k s o f c o r p o r a t i o n s " .
1927, ch. 12; Banking L a w s , . 1 9 3 0 , s e c . 1 0 , p . 5 9 , )
(Laws o f
835
X-7259
w, 27 Trust companies are authorized "to purchase, i n v e s t i n
and s e l l s t o c k s * * * and o t h e r s e c u r i t i e s ; * * * " .
(laws of
1 8 9 9 , e h . 1 7 4 , s e c , 6 ( 1 0 ) ; B a n k i n g Laws, 1 9 3 0 , s e c . 6 ( 1 0 ) ,
p. 75.)
S a v i n g s b a n k s may o n l y i n v e s t i n c e r t a i n s p e c i f i c a l l y
e n u m e r a t e d s e c u r i t i e s , and t h e r e i s n o t i n c l u d e d i n t h i s e n u m e r a t i o n any of the corporate s t o c k s contemplated by t h i s d i g e s t .
(Laws o f 1 9 3 1 , 1 6 7 . )
NEW MEXICO.
Commercial b a n k s and t r u s t c o m p a n i e s - Ho e x p r e s s s t a t u t o r y p r o v i s i o n s .
T h e r e do n o t a p p e a r t o b e a n y p r o v i s i o n s i n t h e l a w s o f
Hew M e x i c o e x p r e s s l y p e r m i t t i n g o r p r o h i b i t i n g c o m m e r c i a l b a n k s
and t r u s t companies t o purchase s t o c k s i n o t h e r c o r p o r a t i o n s .
T r u s t c o m p a n i e s , h o w e v e r , a r e a u t h o r i z e d "* * * t o p u r c h a s e ,
i n v e s t i n and s e l l a l l k i n d s o f * * * i n v e s t m e n t s e c u r i t i e s " .
( 1 9 2 9 Hew M e x i c o S t a t u t e s A n n o t a t e d , s e c . 1 3 - 3 0 3 , p a r a g r a p h 7 ;
Bank Code, 1 9 2 9 , s e c . 6 0 ( 7 ) , p . 2 2 ) ;
and, w i t h r e f e r e n c e to
c o m m e r c i a l b a n k s , t h e l a w s o f Hew M e x i c o p r o v i d e t h a t
" * * *
no b a n k s h a l l a t a n y t i m e h a v e . i n v e s t e d more t h a n t h i r t y p e r
c e n t o f i t s u n i m p a i r e d c a p i t a l and s u r p l u s i n t h e n o t e s , b o n d s ,
or o t h e r s e c u r i t i e s of any p e r s o n , f i r m or c o r p o r a t i o n * * *".
( 1 9 2 9 Hew M e x i c o S t a t u t e s A n n o t a t e d , , s e c . 1 3 - 1 3 7 ; Bank Code,
1929, s e c . 36, p . 1 5 . )
S a v i n g s b a n k s may o n l y i n v e s t t h e i r d e p o s i t s i n c e r t a i n
s p e c i f i c a l l y e n u m e r a t e d s e c u r i t i e s , and t h e r e i s n o t i n c l u d e d
X-7259
28-
i n t h i s e n u m e r a t i o n a n y o f t h e c o r p o r a t e s t o c k s c o n t e m p l a t e d "by
this digest.
( 1 9 2 9 New M e x i c o S t a t u t e s A n n o t a t e d , s e c . 1 3 - 2 0 1 ;
Bank Code, 1 9 2 9 , s e c . 5 6 , p . 2 0 . )
TOT Y03K.
Trust companies p e r m i t t e d to purchase s t o c k s .
T r u s t c o m p a n i e s h a v e t h e povrer " t o p u r c h a s e , i n v e s t i n
and s e l l s t o c k s * * * and o t h e r s e c u r i t i e s ; * * * " .
(Banking
Law, s e c . 1 8 5 ( 9 ) . )
L i m i t a t i o n upon p u r c h a s e o f c o r p o r a t e s t o c k s .
A t r u s t company " S h a l l n o t i n v e s t o r k e e p i n v e s t e d i n t h e
s t o c k o f a n y p r i v a t e c o r p o r a t i o n an amount i n e x c e s s o f t e n p e r c e n t
turn o f t h e c a p i t a l and s u r p l u s o f s u c h t r u s t company; n o r s h a l l
i t p u r c h a s e or c o n t i n u e t o h o l d s t o c k o f a n o t h e r moneyed c o r p o r a t i o n i f "by s u c h p u r c h a s e o r c o n t i n u e d i n v e s t m e n t t h e t o t a l
s t o c k o f s u c h o t h e r moneyed c o r p o r a t i o n owned and h e l d "by i t
a s ^ c o l l a t e r a l w i l l e x c e e d t e n p e r centum o f t h e s t o c k o f s u c h
o t h e r moneyed c o r p o r a t i o n , * * * " .
( B a n k i n g Law, s e c . 1 9 0 ( 9 ) . )
B a n k s - Ho„ s t a t u t o r y p r o v i s i o n s , b u t p u r c h a s e g e n e r a l l y o f
corporate stocks held prohibited.
B a n k s p r o p e r and s a v i n g s b a n k s a r e p e r m i t t e d t o p u r c h a s e
c e r t a i n c l a s s e s o f c o r p o r a t e s t o c k s , b u t none o f t h e g e s t o c k s
i s of the type contemplated by t h i s d i g e s t .
1 0 6 and 2 3 9 . )
( B a n k i n g Law, s e e s .
3 3 6
X-7259
— 29 —
The "banking d e p a r t m e n t o f t h e S t a t e o f New York h a s h e l d
t h a t b a n k s h a v e no. a u t h o r i t y t o b u y s t o c k s o t h e r t h a n t h o s e
c l a s s e s a b o v e r e f e r r e d t o , and t h e c o u r t s i n t h i s S t a t e h a v e
r e n d e r e d d e c i s i o n s t o t h e e f f e c t t h a t "banks c a n n o t p u r c h a s e
s t o c k s of other c o r p o r a t i o n s f o r the purpose of s e l l i n g a t a
p r o f i t * c a n n o t "become s t o c k h o l d e r s i n a r a i l r o a d c o r p o r a t i o n ,
and c a n n o t p u r c h a s e S t a t e s t o c k s t o s e l l a t a p r o f i t .
NORTH CAROLINA.
P u r c h a s e o f C o r p o r a t e S t o c k s p e r m i t t e d , b u t amount o f p u r c h a s e
limited.
"
"Ho b a n k s h a l l make a n y i n v e s t m e n t i n t h e c a p i t a l s t o c k
o f a n y o t h e r S t a t e or N a t i o n a l b a n k ;
Provided, that nothing
h e r e i n s h a l l be c o n s t r u e d to p r e v e n t the s u b s c r i b i n g t o or p u r c h a s i n g of the c a p i t a l s t o c k of * * * c e n t r a l r e s e r v e banks,
h a v i n g a c a p i t a l s t o c k o f more t h a n one m i l l i o n d o l l a r s ; b y
b a n k s d o i n g b u s i n e s s u n d e r t h i s c h a p t e r , upon s u c h t e r m s a s may
be agreed upon,
To c o n s t i t u t e a c e n t r a l r e s e r v e b a n k a s c o n -
templated by t h i s chapter, a t l e a s t f i f t y per cent of the
c a p i t a l s t o c k o f s u c h b a n k s h a l l b e owned b y o t h e r banks#-**
(Dode o f N o r t h C a r o l i n a , 1 9 3 1 , s e c . 2 2 0 ( c ) ; B a n k i n g Laws,
1931, sec. 2 2 0 ( c ) , p. 2 0 . )
L i m i t a t i o n s upon P u r c h a s e of S t o c k s .
11
The i n v e s t m e n t o f a n y b a n k i n t h e c a p i t a l s t o c k o f
s u c h c e n t r a l r e s e r v e b a n k * * * , s h a l l a t no t i m e e x c e e d t e n
'
X-7259
« 30 p e r c e n t o f t h e p a i d - i n c a p i t a l and p e r m a n e n t s u r p l u s o f t h e
"bank m a k i n g same.
Uo b a n k s h a l l i n v e s t more t h a n f i f t y p e r
c e n t of i t s permanent surplus i n the s t o c k s of o t h e r c o r p o r a t i o n s , f i r m s , p a r t n e r s h i p , or companies, u n l e s s such s t o c k i s
purchased t o p r o t e c t t h e hank from l o s s .
Any s t o c k s owned o r
h e r e a f t e r a c q u i r e d i n e x c e s s of the l i m i t a t i o n s h e r e i n imposed
s h a l l he d i s p o s e d of a t p u b l i c or p r i v a t e s a l e w i t h i n s i x
m o n t h s a f t e r t h e d a t e o f a c q u i r i n g t h e same, and i f n o t s o d i s p o s e d o f s h a l l b e c h a r g e d t o p r o f i t and l o s s a c c o u n t , and no
l o n g e r c a r r i e d on t h e b o o k s a s a n a s s e t .
The l i m i t o f t i m e i n
which such s t o c k s s h a l l be d i s p o s e d of or charged o f f the books
o f t h e b a n k may b e e x t e n d e d b y t h e c o m m i s s i o n e r o f b a n k s i f i n
h i s judgment i t i s f o r the b e s t i n t e r e s t of the bank that such
e x t e n s i o n be granted."
(Code o f H o r t h C a r o l i n a , 1 9 3 1 , s e c .
2 2 0 ( c ) ; B a n k i n g Laws, 1 9 3 1 , s e c . 2 2 0 ( c ) p . 2 0 . )
C o m m i s s i o n e r o f b a n k s may s u s p e n d l i m i t a t i o n s on amount may p u r c h a s e .
"The b o a r d o f d i r e c t o r s o f a n y b a n k may, b y r e s o l u t i o n
duly passed at a meeting of the board, request the commissioner
o f b a n k s t o t e m p o r a r i l y s u s p e n d t h e l i m i t a t i o n s on l o a n s and
i n v e s t m e n t s a s same may a p p l y t o a n y p a r t i c u l a r l o a n o r i n v e s t m e n t , w h i c h s a i d b a n k d e s i r e s t o make i n e x c e s s o f t h e p r o v i s i o n s
of s e c t i o n s 2 2 0 ( b ) , 2 2 0 ( c ) , * * * .
Upon r e c e i p t o f a d u l y
c e r t i f i e d copy of such r e s o l u t i o n , the commissioner of banks
may, i n h i s d i s c r e t i o n , s u s p e n d t h e l i m i t a t i o n s on l o a n s and
i n v e s t m e n t s i n so f a r a s i t would a p p l y to the l o a n or investment
X-7259
839
— 3 1 -•
which s u c h bank d e s i r e s t o mice.11
(Code of N o r t h C a r o l i n a , 1 9 3 1 ,
s e c . 2 2 0 ( e ) ; B a n k i n g Laws, 1 9 3 1 , s e c . 2 2 0 ( e ) , p . 2 1 . )
P u r c h a s e o f S t o c k o f C o r p o r a t i o n Owning Land o r B u i l d i n g u s e d b y B a n k .
A b a n k may i n v e s t " f i f t y p e r c e n t o f i t s u n i m p a i r e d c a p i t a l
and p e r m a n e n t s u r p l u s i n t h e s t o c k or b o n d s o f a c o r p o r a t i o n o w n i n g
the l a n d , b u i l d i n g or b u i l d i n g s occupied by such bank a s 1 i t s banki n g home" and a b a n k may n o t b e c o m p e l l e d " t o s u r r e n d e r o r d i s p o s e
o f a n y i n v e s t m e n t i n t h e s t o c k or b o n d s o f a c o r p o r a t i o n o w n i n g
t h e l a n d s or b u i l d i n g s o c c u p i e d by such bank a s i t s b a n k i n g home, •
i f such s t o c k s or bonds were l a w f u l l y a c q u i r e d p r i o r t o the r a t i f i c a t i o n of t h i s Act;
P r o v i d e d f u r t h e r , h o w e v e r , t h a t t h e com-
m i s s i o n e r o f b a n k s may, i n h i s d i s c r e t i o n , a u t h o r i z e b a n k s l o c a t e d
i n c i t i e s h a v i n g a p o p u l a t i o n o f more t h a n f i v e t h o u s a n d , a c c o r d i n g t o t h e l a t e s t U n i t e d S t a t e s c e n s u s , t o i n v e s t a n amount
g r e a t e r t h a n f i f t y p e r c e n t o f i t s u n i m p a i r e d c a p i t a l and p e r manent s u r p l u s i n t h e s t o c k s o r b o n d s o f a c o r p o r a t i o n o w n i n g
the l a n d , b u i l d i n g or b u i l d i n g s occupied by such bank a s i t s
b a n k i n g home."
(Code o f N o r t h C a r o l i n a , 1 9 3 1 , s e c . 2 2 0 ( b ) ;
B a n k i n g Laws, 1 9 3 1 , s e c . 2 2 0 ( o ) , p . 1 9 . )
D e f i n i t i o n of t e r m "bank",
"The t e r m ' b a n k ' s h a l l b e c o n s t r u e d t o mean a n y c o r p o r a t i o n ,
p a r t n e r s h i p , f i r m , or i n d i v i d u a l r e c e i v i n g , s o l i c i t i n g , or a c c e p t i n g money o r i t s e q u i v a l e n t on d e p o s i t a s a b u s i n e s s :
Provided,
however, t h i s d e f i n i t i o n s h a l l not be construed to include b u i l d i n g and l o a n a s s o c i a t i o n s , M o r r i s p l a n c o m p a n i e s , i n d u s t r i a l b a n k s
X-7259
k- 3 2 o r t r u s t c o m p a n i e s n o t r e c e i v i n g money on d e p o s i t . "
(Code o f
F o r t h C a r o l i n a , 1 9 3 1 , s e c . 2 1 6 ( a ) ; B a n k i n g Laws, 1 9 3 1 , s e c . 2 1 6
(a), p. 3 . )
ITOHTH DAKOTA.;
P u r c h a s e o f C o r p o r a t e S t o c k s b y Banks p r o h i b i t e d .
"No b a n k e x c e p t a s i n t h i s s e c t i o n s p e c i f i c a l l y a u t h o r i z e d , s h a l l * * * e m p l o y o r i n v e s t a n y o f i t s a s s e t s or f u n d s i n
the s t o c k of any c o r p o r a t i o n , bank, p a r t n e r s h i p , f i r m or a s s o c i a t i o n , . n o r s h a l l i t i n v e s t any o f i t s a s s e t s i n s p e c u l a t i v e m a r g i n s
of s t o c k s , bonds, * * *."
(Laws o f 1 9 3 1 , c h . 9 6 , s e c . 3 3 , p . - 1 4 5 . )
The a b o v e p r o h i b i t i o n i s e x p r e s s l y made a p p l i c a b l e t o s a v ings banks.
(Laws o f 1 9 3 1 , c h . 9 6 , s e c . 4 9 ( i ) , p . 1 5 9 . )
OHIO.
Banks ( o t h e r than s a v i n g s banks) n o t p e r m i t t e d to purchase
c o r p o r a t e s t o c k s of k i n d s c o v e r e d b y t h i s d i g e s t .
B a n k s , o t h e r t h a n s a v i n g s b a n k s , a r e a u t h o r i z e d t o make
c e r t a i n investments of t h e i r c a p i t a l , s u r p l u s , undivided p r o f i t s
a n d d e p o s i t s i n c e r t a i n s e c u r i t i e s , s t o c k s and b o n d s , b u t a p p a r e n t l y t h e y a r e n o t a u t h o r i z e d t o make i n v e s t m e n t s i n t h e k i n d s
of c o r p o r a t e s t o c k s contemplated by t h i s d i g e s t .
(Throckmorton's
Code o f 1 9 2 9 , s e e s . 7 1 0 - 1 1 1 , 7 1 0 - 1 1 1 a , 7 1 0 - 1 2 1 ; B a n k i n g Laws,
1928, s e e s . 710-111, 7 1 0 - l l l a , 710-121.)
Savings banks — p u r c h a s e of bank s t o c k s f o r b i d d e n , but " s t o c k s
o f c o m p a n i e s " may b e p u r c h a s e d .
A s a v i n g s b a n k i s empowered t o i n v e s t i t s f u n d s i n
" s t o c k s of
c o m p a n i e s , upon w h i c h or t h e c o n s t i t u e n t c o m p a n i e s
X-7259
— 33 T
c o m p r i s i n g t h e same, d i v i d e n d s h a v e b e e n e a r n e d and p a i d f o r f i v e '
c o n s e c u t i v e y e a r s n e x t p r i o r t o t h e i n v e s t m e n t and s t o c k s o f comp a n i e s t a k e n on a r e f i n a n c i n g p l a n i n v o l v i n g an o r i g i n a l i n v e s t m e n t , w h i c h was l e g a l a t t h e t i m e i t was made:
provided, every
s u c h i n v e s t m e n t s h a l l be a u t h o r i z e d b y an a f f i r m a t i v e v o t e o f a
m a j o r i t y o f t h e b o a r d o f d i r e c t o r s o f s u c h s a v i n g s b a n t i ' ; b u t "No
purchase or investment s h a l l be i n the s t o c k of any o t h e r c o r p o r a t i o n o r g a n i z e d or d o i n g b u s i n e s s under the p r o v i s i o n s of S e c t i o n
7 1 0 - 4 1 ( c o n c e r n i n g i n c o r p o r a t i o n o f c o m m e r c i a l and s a v i n g s b a n k s
and t r u s t c o m p a n i e s ) o r S e c t i o n 7 1 0 - 1 8 0 ( c o n c e r n i n g s p e c i a l p l a n
b a n k s ) o f t h e G e n e r a l Code o r o f t h e N a t i o n a l B a n k i n g A c t o f t h e
United States".
( 1 1 4 Ohio Laws, p . 1 5 3 , s e c . 1 , a m e n d i n g T h r o c k -
m o r t o n ' s Code o f 1 9 3 0 , s e c . 7 1 0 - 1 4 0 ( b ) . )
T r u s t Companies — P u r c h a s e o f b a n k s t o c k s p r o h i b i t e d , b u t o t h e r c o r p o r a t e s t o c k s may b e p u r c h a s e d .
"A t r u s t company may i n v e s t i n * * * s t o c k s and b o n d s o f c o r p o r a t i o n s when a u t h o r i z e d b y t h e a f f i r m a t i v e v o t e o f t h e b o a r d o f
d i r e c t o r s , or o f t h e e x e c u t i v e c o m m i t t e e of s u c h t r u s t company" b u t
the p r o h i b i t i o n a g a i n s t s a v i n g s banks p u r c h a s i n g bank s t o c k s i s a l s o
imposed upon t r u s t companies.
( T h r o c k m o r t o n ' s Code o f 1 9 2 9 , s e c .
7 1 0 - 1 6 5 ; B a n k i n g Laws, 1 9 2 8 , s e c . 7 1 0 - 1 6 6 , p . 6 4 . )
OKLAHOMA.
Banks - P u r c h a s e of any k i n d of c o r p o r a t e s t o c k s p r o h i b i t e d .
A bank " s h a l l n o t i n v e s t any of i t s f u n d s i n the s t o c k of
any o t h e r bank or c o r p o r a t i o n * * * , "
(Oklahoma S t a t u t e s , 1 9 3 1 ,
X-7259
<- 3 4
s e c . 9 1 3 5 ; B a n k i n g Laws, 1 9 2 6 , s e c . 1 1 , p . 1 5 . )
The C o n s t i t u t i o n
o f Oklahoma a l s o p r o v i d e s t h a t "ETo t r u s t company, o r h a n k o r h a n k i n g company s h a l l own, h o l d o r c o n t r o l i n a n y manner w h a t e v e r , t h e
s t o c k o f a n y o t h e r t r u s t company o r h a n k or b a n k i n g company, e x c e p t
s u c h s t o c k a s may h e p l e d g e d i n g o o d f a i t h t o s e c u r e b o n a f i d e
i n d e b t e d n e s s , a c q u i r e d upon f o r e c l o s u r e , e x e c u t i o n s a l e , or o t h e r w i s e f o r t h e s a t i s f a c t i o n o f d e b t ; and s u c h s t o c k s h a l l b e d i s p o s e d
o f i n t h e t i m e and manner h e r e i n b e f o r e p r o v i d e d . "
months from the d a t e of a c q u i s i t i o n ) .
(within twelve
( C o n s t i t u t i o n o f Oklahoma,
A r t i c l e 9, s e c . 4 1 . )
T r u s t Companies - May p u r c h a s e a n y k i n d of s t o c k s , e x c e p t i n a
b a n k or i n a n o t h e r t r u s t company.
T r u s t c o m p a n i e s a r e g i v e n t h e power " t o b u y and s e l l * * *
a l l k i n d s o f * * * s t o c k s , and o t h e r i n v e s t m e n t s e c u r i t i e s " .
(Oklahoma S t a t u t e s , 1 9 3 1 , s e c . 9 2 0 6 ; B a n k i n g Laws, 1 9 2 6 , s e c , .
119(9), 9. 64.)
I n v i e w o f t h e a b o v e p r o v i s i o n o f t h e Oklahoma C o n s t i t u t i o n
p r o h i b i t i n g a t r u s t company t o "hold, o r c o n t r o l i n a n y manner
w h a t e v e r , t h e s t o c k o f a n y o t h e r t r u s t company or t a n k o r b a n k i n g
company" , i t w o u l d seem t h a t t h e power g i v e n t o t r u s t c o m p a n i e s t o
"buy and s e l l * * * a l l k i n d s o f * * * s t o c k s , and o t h e r i n v e s t m e n t
s e c u r i t i e s " , i s r e s t r i c t e d i n so f a r a s t h e p r o v i s i o n s o f t h e
Oklahoma C o n s t i t u t i o n a r e a p p l i c a b l e *
OHECm.
Purchase of corporate s t o c k s p r o h i b i t e d .
Except f o r the a u t h o r i t y to purchase c e r t a i n c l a s s e s of
X-7259
35
c o r p o r a t e s t o c k s n o t c o n t e m p l a t e d "by t h i s d i g e s t , t h e l a w s o f
Oregon p r o v i d e t h a t
11
H e r e a f t e r no b a n k or t r u s t company s h a l l i n -
v e s t any of i t s a s s e t s i n the c a p i t a l s t o c k of any o t h e r c o r poration11 •
In c a s e s t o c k i s purchased or a c q u i r e d to save l o s s
on a p r e e x i s t i n g d e b t , s u c h s t o c k must b e s o l d
M
w i t h i n 12 months
of the d a t e a c q u i r e d or p u r c h a s e d , or w i t h i n such f u r t h e r time
a s may b e g r a n t e d b y t h e . s u p e r i n t e n d e n t o f b a n k s V .
( O r e g o n Code,
1930, sec. 2 2 - 9 1 1 . )
S a v i n g s b a n k s and s a v i n g s d e p a r t m e n t s o f b a n k s o r t r u s t
companies are n o t a u t h o r i z e d to i n v e s t funds i n the k i n d s of
c o r p o r a t e s t o c k s contemplated by t h i s d i g e s t ,
(Oregon Code, 1 9 3 0 ,
s e c . 2 2 - 1 1 0 9 , a s amended b y Laws o f 1 9 3 1 , c h . 2 7 8 , p . 4 5 4 , )
PEWSYLVMIA.
B a n k s ( o t h e r t h a n s a v i n g s b a n k s ) and t r u s t c o m p a n i e s p e r m i t t e d
to purchase corporate stocks.
The l a w s o f P e n n s y l v a n i a p r o v i d e t h a t
11
any c o r p o r a t i o n
c r e a t e d b y g e n e r a l o r s p e c i a l l a w s , may p u r c h a s e , h o l d , s e l l ,
a s s i g n , t r a n s f e r , mortgage, p l e d g e , or otherwise d i s p o s e o f , the
shares of the c a p i t a l s t o c k of * *
*
an
y other corporation or
c o r p o r a t i o n s , p u b l i c o r p r i v a t e , o f t h i s or a n y o t h e r S t a t e and
w h i l e t h e owner o f s a i d s t o c k may e x e r c i s e a l l t h e r i g h t s , p o w e r s ,
and p r i v i l e g e s o f o w n e r s h i p , i n c l u d i n g t h e r i g h t t o v o t e t h e r e o n " •
( A c t o f J u l y 2 , 1 9 0 1 , P u b l i c Laws, p . 6 0 3 ( W e s t * s P e n n a . S t a t u t e s ,
1 9 2 0 , s e c . 5 7 8 5 ) , a s amended b y A c t s o f March 2 7 , 1 9 2 9 , P u b l i c
Laws, p . 7 4 , and A p r i l 1 8 , 1 9 2 9 , P u b l i c Laws, p . 5 4 4 . )
£-7259
»» 3 6 —
T h e r e a r e no s t a t u t o r y l i m i t a t i o n s i n P e n n s y l v a n i a u p o n t h e
r i g h t o f S t a t e b a n k s , o t h e r t h a n s a v i n g s h a n k s , and t r u s t c o m p a n i e s
t o p u r c h a s e s t o c k s o f o t h e r c o r p o r a t i o n s , and i t h a s b e e n c o n s i d e r ed t h a t such i n s t i t u t i o n s have the r i g h t , under the p r o v i s i o n s of
t h e A c t o f J u l y 2 , 1 9 0 1 , a s amended, t o p u r c h a s e c o r p o r a t e s t o c k s .
S a v i n g s b a n k s , however, do n o t p o s s e s s t h e r i g h t
t h e i r f u n d s i n s h a r e s of s t o c k of o t h e r c o r p o r a t i o n s .
in invest
Such b a n k s ,
b y t h e p r o v i s i o n s o f S e c t i o n 17 o f t h e A c t o f May 2 0 , 1 8 8 9 , P . L.
246 (West's Penna. Statutes., 1920, sec. 19770), are permitted to
i n v e s t money d e r i v e d f r o m d e p o s i t s o n l y a s s p e c i f i e d i n t h e .Act
o f May 20., 1 8 8 9 , and a s t h e r e a r e no p r o v i s i o n s i n t h i s a c t o r
i n amendments t h e r e t o ( A c t o f J u n e 2 8 , 1 9 2 3 , P . L. 8 8 4 , a n d A c t
o f June 2 2 , 1 9 3 1 , P . L. 6 0 0 ) p e r m i t t i n g s u c h b a n k s t o i n v e s t
t h e i r f u n d s i n s t o c k s of o t h e r c o r p o r a t i o n s , i t h a s b e e n c o n s i d e r e d t h a t t h e y are without t h i s power.
RHODE ISLAND.
B a n k s p r o p e r and t r u s t c o m p a n i e s - Ho s t a t u t o r y p r o v i s i o n s .
The l a w s o f Bhode I s l a n d do n o t c o n t a i n a n y e x p r e s s a u t h o r i t y
f o r b a n k s p r o p e r and t r u s t c o m p a n i e s t o p u r c h a s e c o r p o r a t e s t o c k s ,
b u t a t r u s t company i s a u t h o r i z e d " * * * t o i n v e s t i t s c a p i t a l
s t o c k and moneys i n i t s h a n d s i n s u c h bonds., o b l i g a t i o n s , o r p r o p e r t y ,
r e a l , p e r s o n a l , o r m i x e d , a s i t may deem p r u d e n t , * * * "
(General
Laws, 1 9 2 3 , c h . 2 7 1 , s e c . 4 ; B a n k i n g Laws, 1 9 2 9 , s e c . 4 , p . 1 6 ) .
X-7259
- 37 w
S a v i n g s t a n k s and "banks and. t r u s t c o m p a n i e s r e c e i v i n g s a v i n g s
d e p o s i t s - p u r c h a s e of s t e a m r a i l r o a d a n d b a n k s t o c k s p e r m i t t e d .
D e p o s i t s i n s a v i n g s b a n k s and i n t h e s a v i n g s d e p a r t m e n t s
o f b a n k s and t r u s t c o m p a n i e s , a n d , i n t h e c a s e o f s a v i n g s b a n k s ,
t h e i n c o m e d e r i v e d f r o m i n v e s t m e n t s h e l d , may b e i n v e s t e d , s u b j e c t t o d e t a i l e d l i m i t a t i o n s , i n t h e c a p i t a l s t o c k o f b a n k s and
t r u s t c o m p a n i e s and c e r t a i n s t e a m r a i l r o a d c o m p a n i e s .
(General
Laws, 1 9 2 3 , s e c . 1 , C l a u s e IV, C l a u s e V I I , a s amended b y Laws
o f 1 9 2 7 , Ch. 1 0 3 4 , C l a u s e XIV, C l a u s e XV, a s amended b y Laws o f
1 9 2 5 , Ch. 6 5 3 ; B a n k i n g Laws, s e c . 1 , p . 2 2 , C l a u s e IV, p . 3 0 ,
C l a u s e V I I , p . 3 7 , C l a u s e XIV, p . 4 3 , C l a u s e XV, p p . 4 4 - 4 5 . )
SOUTH CAROL I M .
B a n k i n g C o r p o r a t i o n s may d e a l i n c o r p o r a t e s t o c k s .
11
E v e r y b a n k i n g c o r p o r a t i o n may * * * d e a l i n * * * p u b l i c
and o t h e r s e c u r i t i e s , and s t o c k s o f o t h e r c o r p o r a t i o n s ; * * *
may p u r c h a s e and h o l d s u c h * * * p e r s o n a l p r o p e r t y a s may b e c o n v e y e d t o i t t o s e c u r e d e b t s t o t h e c o r p o r a t i o n , o r may b e s o l d
u n d e r e x e c u t i o n t o s a t i s f y d e b t s due i n w h o l e o r i n p a r t t o t h e
c o r p o r a t i o n , and a s may b e deemed n e c e s s a r y o r c o n v e n i e n t f o r t h e
t r a n s a c t i o n o f i t s b u s i n e s s , and may s e l l and d i s p o s e o f t h e
same a t p l e a s u r e ; * *
(Code o f 1 9 2 2 , s e c . 3 9 9 2 ; B a n k i n g
Laws, 1 9 2 8 , s e c . 6 2 , p . 2 9 . )
Trust companies a u t h o r i z e d to purchase corporate s t o c k s , but
amount l i m i t e d .
Trust companies are a u t h o r i z e d "to buy, u n d e r w r i t e , i n -
—* 38 —
X-7259
v e s t i n and s e l l a l l k i n d s * * * o f s t o c k s or o t h e r i n v e s t m e n t
securities.,f
( B a n k i n g Laws, 1 9 2 8 , s e c . 9(10), p . 1 1 7 . )
L i m i t a t i o n on amount may i n v e s t i n a n y one c o r p o r a t i o n .
A t r u s t company, h o w e v e r , " S h a l l n o t i n v e s t o r k e e p i n v e s t e d
i n t h e s t o c k o f a n y one p r i v a t e c o r p o r a t i o n a n amount i n e x c e s s
o f t w e n t y - f i v e p e r c e n t u m ( 2 5 f o ) o f t h e c a p i t a l and s u r p l u s f u n d
o f s u c h t r u s t company; n o r s h a l l i t p u r c h a s e o r c o n t i n u e t o h o l d
s t o c k o f a n o t h e r b a n k o r t r u s t company i f "by s u c h p u r c h a s e o r c o n t i n u e d i n v e s t m e n t t h e t o t a l s t o c k o f s u c h o t h e r b a n k o r t r u s t comp a n y owned or h e l d b y i t a s c o l l a t e r a l w i l l e x c e e d t w e n t y - f i v e
p e r c e n t u m ( 2 5 $ ) o f t h e s t o c k o f s u c h o t h e r b a n k o r t r u s t company:
P r o v i d e d , h o w e v e r , That t h i s l i m i t a t i o n s h a l l n o t a p p l y t o t h e * * *
o w n e r s h i p b y s u c h t r u s t company, o r i t s s t o c k h o l d e r s , o f a p a r t
o r a l l o f t h e c a p i t a l s t o c k o f one b a n k o r g a n i z e d u n d e r t h e l a w s
of the U n i t e d S t a t e s or of t h i s S t a t e , nor to the ownership of
a p a r t o r a l l o f t h e c a p i t a l of one c o r p o r a t i o n , o r g a n i z e d u n d e r
the laws of t h i s S t a t e , f o r the p r i n c i p a l purpose of r e c e i v i n g
savings deposits."
( B a n k i n g Laws, 1 9 2 8 , s e c . 1 2 ( 7 ) , p . 1 2 2 . )
SOUTH DAKOTA.
Banks p r o h i b i t e d from p u r c h a s i n g c o r p o r a t e s t o c k s .
iTo b a n k s h a l l " i n v e s t a n y of i t s f u n d s i n t h e s t o c k o f
a n y o t h e r b a n k o r c o r p o r a t i o n , n o r make l o a n s o r d i s c o u n t s on
t h e s e c u r i t y o f t h e s h a r e s o f i t s own c a p i t a l s t o c k , n o r b e t h e
X-7259
- 39 p u r c h a s e r o r h o l d e r o f a n y s u c h s h a r e s u n l e s s s u c h s e c u r i t y or
p u r c h a s e s h a l l "be n e c e s s a r y t o p r e v e n t l o s s u p o n a d e b t p r e v i o u s l y c o n t r a c t e d i n good f a i t h ; s t o c k s so purchased or a c q u i r e d
s h a l l , w i t h i n s i x m o n t h s o f t h e t i m e o f i t s p u r c h a s e , "be s o l d or
d i s p o s e d o f a t p u b l i c or p r i v a t e s a l e ; and a f t e r t h e e x p i r a t i o n
o f s i x months a n y s u c h s t o c k s h a l l n o t b e c o n s i d e r e d a s p a r t o f
the a s s e t s of such bank."
( S e s s i o n Laws o f S o u t h D a k o t a , 1 9 1 9 ,
c h . 1 2 5 ; B a n k i n g Laws, 1 9 2 7 , s e c . 8 9 8 3 , p . 2 7 . )
T r u s t Companies p r o h i b i t e d f r o m P u r c h a s i n g C o r p o r a t e S t o c k s .
H o t r u s t company s h a l l " i n v e s t a n y of i t s f u n d s i n t h e
s t o c k o f a n y o t h e r t r u s t company o r c o r p o r a t i o n , n o r make a n y
l o a n s o r d i s c o u n t s on t h e s e c u r i t y o f t h e s h a r e s o f i t s own
c a p i t a l s t o c k , n o r b e t h e p u r c h a s e r or h o l d e r o f a n y s h a r e s
u n l e s s s u c h s e c u r i t y or p u r c h a s e s h a l l b e n e c e s s a r y t o p r e v e n t
l o s s upon a d e b t p r e v i o u s l y c o n t r a c t e d i n good f a i t h ; and s t o c k
s o p u r c h a s e d or a c q u i r e d s h a l l , w i t h i n s i x months o f t h e t i m e
of i t s p u r c h a s e , be s o l d or d i s p o s e d of a t p u b l i c or p r i v a t e
s a l e ; and a f t e r t h e e x p i r a t i o n o f s i x months a n y s u c h s t o c k s h a l l
n o t b e c o n s i d e r e d a s a p a r t o f t h e a s s e t s o f a n y t r u s t company."
( S o u t h D a k o t a Code, 1 9 1 9 , s e c . 9 0 5 0 ; B a n k i n g Laws, 1 9 2 7 , s e c .
9050, p. 58.)
- 40
X-7259
TEMESSEE.
B a n k s and t r u s t c o m p a n i e s a u t h o r i z e d , t o d e a l i n s t o c k s .
S e c t i o n 3 8 8 7 o f t h e new Code of T e n n e s s e e , w h i c h became
e f f e c t i v e J a n u a r y 1 , 1 9 3 2 , a u t h o r i z e s b a n k s and t r u s t c o m p a n i e s
t o " d e a l i n * * * b o n d s , s t o c k s , or o t h e r s e c u r i t i e s g e n e r a l l y ,
* * * and h a v e and p o s s e s s a l l o t h e r r i g h t s w h i c h a p p e r t a i n and
b e l o n g to a b a n k i n g i n s t i t u t i o n , e x c e p t the power t o i s s u e n o t e s
f o r t h e p u r p o s e s o f c u r r e n c y , w h i c h power i s w i t h h e l d . "
TEXAS.
Purchase of Corporate Stocks P e r m i t t e d .
B a n k s ( o t h e r t h a n s a v i n g s b a n k s ) and t r u s t c o m p a n i e s
may p u r c h a s e , i n v e s t I n , and s e l l s t o c k s and o t h e r s e c u r i t i e s .
( 3 e v . S t a t . , 1 9 2 5 , A r t i c l e s 3 9 6 , ( 9 ) and 1 5 1 3 ; B a n k i n g Laws,
1929, A r t i c l e 396
( 9 ) , p . 1 8 , and A r t i c l e 1 5 1 3 , p . 7 6 . )
L i m i t a t i o n upon p u r c h a s e o f b a n k s t o c k s .
I t i s u n l a w f u l f o r a n y S t a t e b a n k o r t r u s t company
" t o own more t h a n t e n p e r c e n t o f t h e c a p i t a l s t o c k o f a n y o t h e r
b a n k i n g c o r p o r a t i o n , o r t o make a l o a n s e c u r e d b y t h e s t o c k o f
a n y o t h e r b a n k i n g c o r p o r a t i o n , i f b y t h e making o f s u c h l o a n
the t o t a l stock of such other banking corporation held by i t as
c o l l a t e r a l w i l l e x c e e d , i n the a g g r e g a t e , t e n p e r cent of the
c a p i t a l s t o c k of such o t h e r banking c o r p o r a t i o n , u n l e s s the
ownership or the talcing of a g r e a t e r p e r c e n t a g e of such c a p i t a l
s t o c k a s c o l l a t e r a l s h a l l b e n e c e s s a r y t o p r e v e n t l o s s upon a
X-7259
- 4 1 d e b t p r e v i o u s l y c o n t r a c t e d i n good f a i t h ; and a n y s u c h e x c e s s s o
t a k e n a s c o l l a t e r a l o r owned b y s u c h bank s h a l l n o t b e h e l d a s
c o l l a t e r a l n o r owned b y i t f o r a l o n g e r p e r i o d t h a n s i x m o n t h s . "
( R e v , S t a t . , 1 9 2 5 , A r t i c l e 5 1 3 ; B a n k i n g Laws, 1 9 2 5 , A r t i c l e 5 1 3 ,
p• 4 4 . )
S a v i n g s b a n k s may o n l y i n v e s t t h e i r d e p o s i t s i n c e r t a i n
s p e c i f i c a l l y e n u m e r a t e d s e c u r i t i e s , and t h e r e i s n o t i n c l u d e d
i n t h i s enumeration any of the c o r p o r a t e s t o c k s contemplated
by t h i s d i g e s t .
( R e v . S t a t . , 1 9 2 5 , A r t i c l e 4 1 6 ; B a n k i n g Laws,
1929, A r t i c l e 416, p. 2 3 . )
UTAH.
Purchase of corporate s t o c k s p e r m i t t e d .
Any S t a t e b a n k o r t r u s t company "may p u r c h a s e , own, h o l d ,
and s e l l o r o t h e r w i s e d i s p o s e o f a n y o f t h e s h a r e s o f t h e c a p i t a l
s t o c k o f a n y o t h e r b a n k , l o a n , t r u s t , and g u a r a n t y a s s o c i a t i o n o r
o t h e r c o r p o r a t i o n ; p r o v i d e d , s u c h p u r c h a s e s h a l l be a u t h o r i z e d b y
t h e e x e c u t i v e c o m m i t t e e and a p p r o v e d b y t h e b o a r d o f d i r e c t o r s ;
and i n c a s e the p u r c h a s e i s of s t o c k i n any o t h e r b a n k i n g c o r p o r a t i o n t h e a p p r o v a l o f s a i d p u r c h a s e m u s t a l s o b e had f r o m t h e
s t a t e b a n k c o m m i s s i o n e r ; and p r o v i d e d , f u r t h e r , t h a t n o t h i n g i n
t h i s s e c t i o n s h a l l b e so c o n s t r u e d a s t o p e r m i t t h e e s t a b l i s h ment, m a i n t e n a n c e , or c o n t r o l or any branch bank or l o a n , t r u s t ,
o r g u a r a n t y company i n t h e S t a t e .
A l l a c t s or p a r t s of a c t s i n
c o n f l i c t with t h i s s e c t i o n are hereby repealed to the extent of
such c o n f l i c t . "
( C o m p i l e d Laws o f 1 9 1 7 , s e c . 9 8 6 , p* 2 9 9 ; B a n k -
i n g Laws, 1 9 2 7 , s e c . 9 8 6 , p . 8 . )
3 5 0
X-7259
- 42 The a b o v e - q u o t e d p r o v i s i o n o f t h e l a w s o f U t a h i s made
a p p l i c a b l e to savings banks.
( C o m p i l e d Laws o f 1 9 1 7 , s e c . 1 0 1 6 ;
B a n k i n g Laws, 1 9 2 7 , s e c . 1 0 1 6 , p . 1 5 . )
V M ® .
P u r c h a s e o f h a n k o r t r u s t company s t o c k s p e r m i t t e d .
B a n k s o f a l l k i n d s and t r u s t c o m p a n i e s a r e empowered t o i n v e s t t h e i r a s s e t s " i n t h e s t o c k o f a n y n a t i o n a l b a n k i n t h e Hew
E n g l a n d S t a t e s o r t h e s t a t e o f Hew York, or i n t h e s t o c k o f a n y
b a n k i n g a s s o c i a t i o n o r t r u s t company i n c o r p o r a t e d u n d e r t h e
a u t h o r i t y o f and l o c a t e d i n s u c h s t a t e s , or i n t h e s t o c k o f a n y
b a n k i n c o r p o r a t e d u n d e r t h e a u t h o r i t y o f and l o c a t e d i n t h e
D o m i n i o n o f Canada; b u t a t&nk s h a l l n o t h o l d b a n k s t o c k b o t h
b y t h e way o f i n v e s t m e n t and a s s e c u r i t y f o r l o a n s i n e x c e s s o f
t e n p e r c e n t o f i t s a s s e t s , n o r , i n a n y one b a n k , mbre t h a n f i v e
p e r c e n t o f i t s a s s e t s , o r more t h a n two h u n d r e d t h o u s a n d d o l l a r s , o r more t h a n t e n p e r c e n t o f t h e c a p i t a l s t o c k o f a n y one
bank",
( G e n e r a l Laws, s e c . 5 3 6 3 , p a r , ( a ) , s u b d i v i d i o n VI, a s
amended b y A c t s o f 1 9 2 9 , A c t Ho. 9 0 , s e c . 5 . )
VIBG-IITIA.
Purchase of corporate s t o c k s p e r m i t t e d .
A l l b a n k s and t r u s t c o m p a n i e s a r e empowered t o p u r c h a s e and
s e l l " a l l s t o c k s and bonds".
( A c t s o f 1 9 2 8 , c h . 5 0 7 , s e e s . 1 and
1 2 ; B a n k i n g Laws, 1 9 2 9 , s e e s . 4 1 4 9 ( l ) , 4 1 4 9 ( 1 3 ) , p p . 2 4 and 3 0 . )
351
X-7259
- 43 WASHINGTON.
Purchase of corporate s t o c k s p r o h i b i t e d .
The Laws o f t h i s S t a t e p r o v i d e t h a t a "bank or t r u s t company s h a l l not " s u b s c r i b e f o r or purchase the s t o c k of any o t h e r
b a n k i n g h o u s e o r t r u s t company, o r o f a n y d o m e s t i c or f o r e i g n
c o r p o r a t i o n of any c h a r a c t e r , * * *;
P r o v i d e d , That s u c h bank
a n d / o r t r u s t company may p u r c h a s e , a c q u i r e and h o l d s h a r e s o f
s t o c k i n any o t h e r c o r p o r a t i o n which shares have been p r e v i o u s l y
p l e d g e d a s s e c u r i t y t o a n y l o a n or d i s c o u n t made i n g o o d f a i t h
and such p u r c h a s e s h a l l be n e c e s s a r y to p r e v e n t l o s s upon a debt
p r e v i o u s l y c o n t r a c t e d i n good f a i t h and s t o c k s o p u r c h a s e d o r
acquired s h a l l be s o l d a t p u b l i c or p r i v a t e s a l e or otherwise
d i s p o s e d o f w i t h i n two y e a r s f r o m t h e t i m e o f i t s p u r c h a s e o r
acquisition".
(Laws o f 1 9 2 9 , s e c . 5 , p . 1 0 1 ; B a n k i n g Laws,
1929, s e c . 46, p. 2 6 . ) .
The l a w s a l s o p r o v i d e t h a t c o r p o r a t i o n s
d o i n g a t r u s t b u s i n e s s may n o t i n v e s t t r u s t f u n d s i n c o r p o r a t e
stocks.
( L a v s o f 1 9 2 9 , c h . 2 0 6 ; B a n k i n g Laws, 1 9 2 9 , s e c . 7 7 ,
p. 37.)
S a v i n g s b a n k s a r e c o v e r e d b y t h e a b o v e e x c e r p t f r o m the
laws of Washington.
(Laws o f 1 9 1 7 , s e c . 1 4 , p . 2 7 5 ; B a n k i n g
Laws, 1 9 2 9 , s e c . 2 4 , p . 1 1 . )
X-7259
- 44 W e s t vir.ciniA.
Ho S t a t u t o r y P r o v i s i o n s .
There do n o t a p p e a r t o b e any p r o v i s i o n s i n t h e l a w s o f
t h e S t a t e o f West V i r g i n i a a u t h o r i z i n g "banking i n s t i t u t i o n s ,
which term i n c l u d e s t r u s t companies, to purchase c o r p o r a t e
stocks.
WISCONSIN.
Mutual s a v i n g s b a n k s p r o h i b i t e d f r o m p u r c h a s i n g c o r p o r a t e
s t o c k s - No s t a t u t o r y p r o v i s i o n s c o v e r i n g o t h e r b a n k i n g
institutions.
E x c e p t f o r mutual s a v i n g s b a n k s , t h e s t a t u t e s of W i s c o n s i n
c o n t a i n no p r o v i s i o n s w i t h r e f e r e n c e t o t h e p u r c h a s e of c o r p o r a t e
s t o c k s b y b a n k s and t r u s t c o m p a n i e s .
The p r o v i s i o n w i t h r e f e r e n c e
t o mutual s a v i n g s b a n k s p r o v i d e s t h a t
" * * * no mutual s a v i n g s
b a n k s h a l l i n v e s t a n y p a r t of i t s d e p o s i t s i n t h e s t o c k of a n y
corporation * *
(Wisconsin S t a t u t e s , 1929, sec. 2 2 2 . 1 3 , as
amended b y Laws o f 1 9 3 1 , c h . 2 7 , p . 4 2 . )
WYOMING-.
Purchase of corporate stocks prohibited.
" H e r e a f t e r no S t a t e bank s h a l l i n v e s t a n y of i t s a s s e t s i n
t h e c a p i t a l s t o c k o f any o t h e r c o r p o r a t i o n * * * , and e x c e p t s u c h
a s i t may a c q u i r e or p u r c h a s e t o s a v e a l o s s on a p r e - e x i s t i n g
d e b t , a n d s t o c k s so a c q u i r e d or p u r c h a s e d s h a l l b e s o l d w i t h i n
t w e l v e months f r o m t h e d a t e a c q u i r e d o r p u r c h a s e d ; p r o v i d e d , t h a t
X-7259
45 a f u r t h e r t i m e may b e g r a n t e d b y t h e S t a t e E x a m i n e r . "
(1931
Wyoming R e v i s e d S t a t u t e s , s e c . 1 0 - 1 3 3 . )
The t e r m " S t a t e bank' 1 a s u s e d i n t h e a b o v e e x c e r p t f r o m
t h e l a w s o f Wyoming i n c l u d e s e v e r y i n d i v i d u a l , f i r m or c o r p o r a t i o n d o i n g a b a n k i n g b u s i n e s s , and a b a n k i n g b u s i n e s s i s e n gaged i n
"where c r e d i t s a r e o p e n e d b y t h e d e p o s i t or c o l l e c -
t i o n o f money o r c u r r e n c y or n e g o t i a b l e p a p e r s u b j e c t t o b e
p a i d or r e m i t t e d u p o n d r a f t , r e c e i p t , c h e c k o r o r d e r " .
(1931
Wyoming R e v i s e d S t a t u t e s , s e c . 1 0 - 1 1 0 . )
The s t a t u t e s of Wyoming c o n t a i n nc p r o v i s i o n s a u t h o r i z i n g
t r u s t companies not doing a banking b u s i n e s s to purchase c o r porate stocks.
*J ft
s
FEDERAL RESERVE
BOARD
WASHINGTON
X-"7260
A D D R E S S OFFICIAL. C O R R E S P O N D E N C E T O
T H E FEDERAL RESERVE BOARD
October 3 , 1932.
SUBJECT:
Grading S e r v i c e of U n i t e d S t a t e s
Department of A g r i c u l t u r e .
Dear S i r :
T h e r e i s i n c l o s e d h e r e w i t h copy o f a l e t t e r r e c e i v e d
by t h e G o v e r n o r o f t h e F e d e r a l R e s e r v e B o a r d f r o m t h e C h i e f
of t h e Bureau of A g r i c u l t u r a l Economics of t h e U n i t e d S t a t e s
Department o f A g r i c u l t u r e , a d v i s i n g of t h e e x t e n s i o n of t h a t
b u r e a u ' s commercial grading s e r v i c e t o i n c l u d e canned f r u i t s
and v e g e t a b l e s .
A copy of t h e sample grade c e r t i f i c a t e r e -
f e r r e d to i n the l e t t e r i s a l s o i n c l o s e d f o r your information.
Should y o u d e s i r e a d d i t i o n a l i n f o r m a t i o n r e g a r d i n g t h i s
s e r v i c e , t h e Board w i l l be g l a d t o t r a n s m i t any r e q u e s t w h i c h
y o u may make t o t h e B u r e a u o f A g r i c u l t u r a l E c o n o m i c s .
Very t r u l y y o u r s ,
Chester M o r r i l l ,
Secretary.
Inclosures.
TO GOVERNORS OF ALL F . R. B A M S .
COPY
X-7260-a
355
UNITED STATES DEPARTMENT OP AGRICULTURE
Bureau of A g r i c u l t u r a l Economics
W a s h i n g t o n , D. C.
September 28, 1932.
Mr. E u g e n e M e y e r ,
Chairman, F e d e r a l R e s e r v e B o a r d ,
Washington, B.C.
D e a r Mr. Meyer:
The a t t e n t i o n o f t h i s B u r e a u h a s "been drawn a t v a r i o u s t i m e s
t o t h e d i f f i c u l t y e x p e r i e n c e d b y c a n n e r s and o t h e r s i n f i n a n c i n g
t h e i r o p e r a t i o n s . Bankers have a l s o i n d i c a t e d t o t h e Bureau a t times
t h e i r l a c k of i n t e r e s t i n canned f o o d s paper owing t o t h e i r l a c k of
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 g r a d e and v a l u e of t h e p r o d u c t s
offered as c o l l a t e r a l .
R e a l i z i n g t h e i n t e r e s t of the F e d e r a l R e s e r v e Board i n t h e
c h a r a c t e r o f a g r i c u l t u r a l p a p e r s u p p o r t i n g d i s c o u n t s and a c c e p t a n c e s ,
I am t a k i n g t h e l i b e r t y o f m e n t i o n i n g t o y o u o n e o f t h e s e r v i c e s o f
t h i s Bureau.
F o r a number o f y e a r s t h i s B u r e a u h a s m a i n t a i n e d a c o m m e r c i a l
g r a d i n g s e r v i c e t h r o u g h which o f f i c i a l c e r t i f i c a t e s o f grade and cond i t i o n on l o t s o f a g r i c u l t u r a l p r o d u c t s , s u c h a s f r e s h f r u i t s a n d
v e g e t a b l e s , p o u l t r y , m e a t s , h a y , e t c . , may b e had b y f i n a n c i a l l y i n terested parties.
It has not been u n t i l r e c e n t l y that the Bureau has
h a d a u t h o r i t y t o c e r t i f i c a t e t h e g r a d e of c a n n e d f r u i t s and v e g e t a b l e s .
T h i s a d d i t i o n a l a u t h o r i t y was i n c l u d e d i n a r e c e n t a p p r o p r i a t i o n b i l l .
The c e r t i f i c a t e s a r e i s s u e d o n l y by e m p l o y e e s o f t h i s D e p a r t m e n t .
A small f e e i s charged f o r the s e r v i c e . A specimen c e r t i f i c a t e i s enc l o s e d f o r your i n f o r m a t i o n . Should you d e s i r e a d d i t i o n a l c o p i e s f o r
t h e v a r i o u s F e d e r a l Reserve banks, or c o p i e s of t h e r e g u l a t i o n s g o v e r n i n g t h e s e r v i c e , and w i l l a d v i s e me, I w i l l s e e t h a t t h e y a r e f u r n i s h e d
you.
The p u r p o s e o f t h i s l e t t e r i s m e r e l y t o a d v i s e y o u t h a t t h e
s e r v i c e s m e n t i o n e d a r e now a v a i l a b l e . I t i s our d e s i r e t o b e o f e v e r y
s e r v i c e p o s s i b l e i n t h e h a n d l i n g and m a r k e t i n g o f t h e s e p r o d u c t s .
Enclosure
Sincerely yours,
(s)
N i l s A. Olsen
Chief of Bureau.
I k £ M . - 63a
Ga £ I
X-7260-b
UNITED STATSS DEPARTMENT OF AGRICULTURE
BUREAU OF AGRICULTURAL ECONOMICS
CANNED FRUIT A13D VEGETABLE GRADE CERTIFICATE
No 55
This c e r t i f i c a t e i s admissible
f a c i e evidence of t h e t r u t h
c e r t i f i c a t e does not excuse
laws e n f o r c e d by t h e United
856
in. a l l c o u r t s o f t h e U n i t e d S t a t e s a s p r i m a
of the s t a t e m e n t t h e r e i n c o n t a i n e d . This
f a i l u r e t o comply w i t h a n y o f t h e r e g u l a t o r y
S t a t e s Department of A g r i c u l t u r e .
Date
To
Sept. 23, 1932
Hour
Canners N a t i o n a l Bank
(Applicant)
S h i p p e r or S e l l e r M e r c h a n t s Warehouse Corp.
Address
Chicago, I l l i n o i s
Address
Cannersville, Wisconsin
R e c e i v e r or B u y e r
Address
I c e r t i f y t h a t i n compliance w i t h t h e r e g u l a t i o n s of t h e S e c r e t a r y of A g r i c u l t u r e
g o v e r n i n g t h e i n s p e c t i o n a n d g r a d i n g o f c a n n e d f r u i t s and v e g e t a b l e s , p u r s u a n t t o
t h e a c t making a p p r o p r i a t i o n s f o r t h e U n i t e d S t a t e s Department of A g r i c u l t u r e , I
p e r s o n a l l y drew a t random a n d g r a d e d s a m p l e s of t h e l o t o f c a n n e d f r u i t s or v e g e t a b l e s d e s c r i b e d b e l o w and t h a t t h e q u a l i t y and c o n d i t i o n a s shown b y t h e s a m p l e s
on a b o v e d a t e w e r e a s s t a t e d b e l o w :
Where
M e r c h a n t s Warehouse C, Compartment
Lot or
Located No. 4 , 1200 South S t . , C a n n e r s v i l l e ,
Car Number
55
(Wis.
Number, s i z e , and
1000 c a s e s each c o n - •
P r o d u c t g r a d e d Canned P e a s
k i n d of c o n t a i n e r s t a i n i n g 24 No. 2 s i z e t i n s .
Code or o t h e r i d e n t i f i c a t i o n marks on c a n s
WI C 3
P r i n c i p a l t i t l e of
Label ( i f any) F i n e W i s c o n s i n Sweet P e a s .
Small S i z e .
Vacuum R e a d i n g s - 4 t o 6 i n c h e s
D r a i n e d Weight i n O z s . - 1 3 j t o 1 4
Grade:
U. S . GRADE A ( F a n c y )
Score:
92 t o 94 p o i n t s .
Remarks:
Lot s t a c k e d i n b l o c k s 3 x 4 c a s e s , 11 c a s e s h i g h . Packed i n s a n i t a r y ,
e n a m e l e d t i n s , n e a t l y l a b e l l e d . Check s a m p l e s r e t a i n e d .
(SEAL)
Fee
$5.00
J . W. P e t r i e
Expenses 1 . 2 3
Total
$6.23
O f f i c i a l Grader.
Address
PLEASE REFER TO THIS CERTIFICATE BY NUMBER AND MARKET
U .for
S .FRASER
Government P r i n t i n g
Digitized
O f f i c e : 1931
8-7762
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7262
October 4, 1932.
SUBJECT:
New Issue Treasury Bills,
Dear Sir:
In connection with telegraphic transactions in Government securities between Federal reserve banks, the
code word
tT
NOXDICTED,! has been designated, to cover a new
issue of Treasury Bills, dated October 11, 1932, and
maturing January 11, 1933.
This word should be inserted in the Federal reserve
telegraph code book, following the supplemental code word
"NOXDIAL" on page 172.
Very truly yours,
J. C. Nooll,
Assistant Secretary.
TO GOVERNORS OF ALL F. R. BANKS.
FEDERAL RESERVE
BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
THE FEDERAL RESERVE BOARD
X-7263
October 6, 1932.
SUBJECT:
Hew I s s u e o f T r e a s u r y N o t e s .
Dear S i r :
In connection w i t h t e l e g r a p h i c t r a n s a c t i o n s bet w e e n F e d e r a l r e s e r v e "banks c o v e r i n g Government s e c u r i t i e s ,
t h e f o l l o w i n g c o d e word h a s "been d e s i g n a t e d t o c o v e r a new
i s s u e of Treasury N o t e s :
"NOTiJHURT"
3$ Treasury Notes, S e r i e s B-1937,
t o "be d a t e d O c t o b e r 1 5 , 1 9 3 2 ,
maturing A p r i l 15, 1937.
T h i s c o d e word s h o u l d b e i n s e r t e d i n t h e F e d e r a l
R e s e r v e T e l e g r a p h Code b o o k , f o l l o w i n g t h e s u p p l e m e n t a l
c o d e word "NOWHUEL" on p a g e 1 7 2 .
Very t r u l y y o u r s ,
J . C. I T o e l l ,
Assistant Secretary.
TO GOVERNORS OF ALL F . R. BANES.
FEDERAL RESERVE
BOARD
WASHINGTON
X-7264
ADDRESS OFFICIAL CORRESPONDENCE T O
THE FEDERAL RESERVE BOARD
October 7, 1932.
SUBJECT:
New Code Word C o v e r i n g Hew I s s u e of
3$ Treasury Motes, S e r i e s B-1967.
Dear S i r :
R e f e r r i n g t o t h e B o a r d ' s l e t t e r of October 6, 1932,
X - 7 2 6 3 , p l e a s e s u b s t i t u t e t h e c o d e word "NOWHYDEO" f o r t h e
c o d e word "UOWHURT", t o c o v e r a new i s s u e of Zf0 T r e a s u r y
N o t e s , S e r i e s B - 1 9 3 7 , t o be d a t e d October 15, 1932, maturing
A p r i l 15, 1937.
This s u b s t i t u t i o n i s n e c e s s a r y because of
t h e c o n f u s i o n w h i c h m i g h t r e s u l t f r o m s i m i l a r i t y of t e l e g r a p h i c s y m b o l s b e t w e e n t h e w o r d s "NOWHURL" and "NOWHUBT".
T h i s new c o d e word s h o u l d b e i n s e r t e d i n t h e
F e d e r a l R e s e r v e T e l e g r a p h Code b o o k , f o l l o w i n g t h e s u p p l e m e n t a l c o d e word "NOWHURL" on p a g e 1 7 2 .
Very t r u l y y o u r s ,
J • C. N o e l l ,
Assistant Secretary.
TO GOVERNORS OF AKL F . R. BANKS.
X-7265
QUESTIONS TO BE CONSIDERED BY JOINT CONFERENCE
OF COUNSEL OF ALL FEDERAL. RESERVE BANKS
AND STANDING- COMMITTEE ON COLLECTIONS,
OCTOBER 1 0 , 1 9 3 2 .
QUESTIONS RELATING- TO THE RIGHTS, DUTIES A3D LIABILITIES OF
THE FEDERAL RESERVE BANKS IN "CASHING" GOVERNMENT CHECKS AND
WARRANTS.
1.
Is i t preferable for the Federal reserve tanks, in
c a s h i n g Government c h e c k s and. w a r r a n t s , t o a c t :
(a)
As f i s c a l a g e n t s of t h e Government, i n w h i c h
c a s e t h e y a r e l i a b l e o n l y f o r t h e i r own n e g l i g e n c e o r
f o r exceeding the scope of t h e i r authority?
(t>)
A s d e p o s i t a r i e s , i n w h i c h e a s e t h e y s h o u l d "be
furnished with f u l l information, including facsimiles
of s i g n a t u r e s , the current balances i n r e s p e c t i v e a c c o u n t s , e t c . , payment b y them i n s u c h c a s e b e i n g
f i n a l p a y m e n t ? or
(c)
*
Only a s a g e n t s f o r t h e b a n k s f r o m w h i c h t h e y
r e c e i v e such item?
(d)
Jn t h e l a t t e r e v e n t , s h o u l d t h e T r e a s u r y D e -
partment be requested to e l i m i n a t e a l l r e f e r e n c e t o
" f i s c a l a g e n t " and " d e p o s i t a r y " f r o m T r e a s u r y C i r cular 176?
2.
(a)
I s t h e c r e d i t g i v e n t o member b a n k s f o r s u c h
items merely provisional?
(b)
I s t h e r e any d i f f e r e n c e i n t h e r e s u l t i f t h e
F e d e r a l r e s e r v e bank:
(1)
A c t u a l l y pays out cash to d i s b u r s i n g agents
or banks? or
(2)
M e r e l y d e b i t s t h e T r e a s u r e r ' s a c c o u n t and
c r e d i t s t h e a c c o u n t o f a member bank?
3.
4.
Should such items be s u b j e c t :
(a)
To i m m e d i a t e c r e d i t ;
(b)
To c r e d i t a c c o r d i n g t o t h e u s u a l t i m e s c h e d u l e ; o r
(c)
To credit upon "final payment" by the Treasurer?
Should such items b e s u b j e c t to immediate withdrawal or
o n l y a f t e r " f i n a l payment"?
5.
W i t h i n what t i m e must t h e T r e a s u r y D e p a r t m e n t a s c e r t a i n
whether s i g n a t u r e s are forged or whether the items contain
a n y o t h e r d e f e c t s , and n o t i f y t h e F e d e r a l r e s e r v e b a n k o f
any s u c h d e f e c t s ?
6.
Should the Treasurer be r e q u e s t e d to wire a d v i c e of nonpayment o f a l l items o v e r $500?
7.
When a r e s u c h i t e m s f i n a l l y p a i d ?
8.
S h o u l d t h e T r e a s u r y D e p a r t m e n t b e r e q u e s t e d t o amend
C i r c u l a r 1 7 6 so a s t o d e f i n e " f i n a l payment"?
9.
S h o u l d t h e T r e a s u r e r "be r e q u e s t e d t o d i s c o n t i n u e t h e
p r a c t i c e o f a t t e m p t i n g to s t o p payment on such i t e m s
m e r e l y i n o r d e r t o p r o t e c t t h e i n t e r e s t s o f p a y e e s who
have d e p o s i t e d t h e checks i n banks about to f a i l ?
10.
S h o u l d t h e T r e a s u r e r b e r e q u e s t e d t o amend C i r c u l a r
176 so a s to p r o v i d e s p e c i f i c a l l y t h a t the T r e a s u r e r
w i l l n o t s t o p payment o r r e f u s e f i n a l payment on any
i t e m b e f o r e c o n s u l t i n g t h e r e s e r v e bank t o s e e i f i t
h a s p a s s e d c r e d i t , and i f s o , whether i t can o b t a i n
reimbursement?
11.
S h o u l d t h e argument b e made t o t h e T r e a s u r y o f f i -
c i a l s t h a t Government w a r r a n t s a r c i n e f f e c t b i l l s
t h e d r a w e r and drawee o f w h i c h a r e t h e same, so t h a t ,
under t h e Uniform n e g o t i a b l e Instruments Act, the r e s e r v e b a n k may, a t i t s o p t i o n , t r e a t t h e i n s t r u m e n t s
a s p r o m i s s o r y n o t e s u p o n w h i c h payment c a n n o t b e
stopped?
12.
To what e x t e n t i s a F e d e r a l r e s e r v e b a n k r e s p o n s i b l e
f o r o b t a i n i n g reimbursement f o r t h e Treasury Department
from t h e banks from which i t r e c e i v e s such items?
13.
(a)
I f t h e F e d e r a l r e s e r v e bank h a s a l l o w e d t h e
c r e d i t t o be withdrawn, does i t become a h o l d e r i n due
c o u r s e and a c c o r d i n g l y h a v e t h e r i g h t o f r e i m b u r s e m e n t
f r o m t h e Government?
(b)
As a p r a c t i c a l m a t t e r can i t o b t a i n such r e i n w
bursement?
363
X-7265
- 4 14.
A r e t h e F e d e r a l r e s e r v e "banks a u t h o r i z e d t o c a s h
Government c h e c k s and w a r r a n t s when p r e s e n t e d t h r o u g h
c l e a r i n g h o u s e s o r o n l y when p r e s e n t e d d i r e c t b y member
b a n k s o r b y Government d i s b u r s i n g o f f i c e r s ?
15.
Should t h e F e d e r a l r e s e r v e banks r e c e i v e such i t e m s
o n l y f r o m member b a n k s ?
16.
Should t h e e x p r e s s i o n " r e s p o n s i b l e i n c o r p o r a t e d banks
and t r u s t c o m p a n i e s " b e e l i m i n a t e d f r o m t h e T r e a s u r y
circular?
17.
18.
S h o u l d t h e word " c a s h " b e e l i m i n a t e d ?
What i s t h e l e g a l s i g n i f i c a n c e o f c a s h i n g a Government
warrant or check?
19.
(a)
Should t h e F e d e r a l r e s e r v e bank u s e t h e r e s e r v e
b a l a n c e t o r e i m b u r s e i t s e l f when i t e m s a r e r e t u r n e d b y
t h e Treasury a f t e r t h e s e n d i n g bank has f a i l e d ?
(b)
S h o u l d i t do s o , e v e n i f t h e r e s e r v e b a l a n c e
d o e s n o t c o n t a i n a s u f f i c i e n t , amount a r i s i n g s o l e l y
from c o l l e c t e d items?
20.
I s t h e F e d e r a l r e s e r v e b a n k ' s l i e n on t h e r e s e r v e b a l ance superior to the Treasury's r i g h t t o reimbursement?
21.
S h o u l d t h e p r o v i s i o n s o f t h e Check C o l l e c t i o n C i r c u l a r s
r e g a r d i n g Government c h e c k s and w a r r a n t s b e r e v i s e d ?
22.
E x a c t l y what c h a n g e s s h o u l d b o made i n t h e t e x t o f
S e c t i o n s 3 2 and 3 4 o f Treasury C i r c u l a r Ho. 176?
*. 5 *
23.
X-7265
(Sf2
I n what manner s h o u l d t h i s s u b j e c t "be t a k e n u p w i t h
t h e Treasury Department — by t h e e n t i r e c o n f e r e n c e or
by a small committee appointed f o r the purpose?
QUESTIONS ARISING- IJIIDER THE UNIFORM B A H COLLECTION CODE.
1.
A p p l i c a b i l i t y o f t h e Code t o n a t i o n a l b a n k s ;
(a)
I s i t unanimously agreed t h a t S e c t i o n 11
o f t h e Code ( g i v i n g a n e l e c t i o n t o t r e a t a s d i s honored) a p p l i e s i n t h e case of f a i l e d n a t i o n a l banks?
(b)
Is i t unanimously agreed t h a t S e c t i o n 13 ( g i v -
i n g a p r e f e r r e d c l a i m ) d o e s n o t a p p l y i n t h e c a s e of
f a i l e d n a t i o n a l banks?
2.
f
S h o u l d t h e f o r w a r d i n g F e d e r a l r e s e r v e b a n k make t h e
e l e c t i o n t o t r e a t a s d i s h o n o r e d or t o f i l e a c l a i m , w i t h o u t c o n s u l t i n g t h e i n d o r s i n g bank?
3.
4.
If so, which course should i t e l e c t :
(a)
In the case of n a t i o n a l banks?
(b)
I n t h e c a s e o f S t a t e barito?
Can one c o u r s e b e a d o p t e d a s t o a p a r t o f t h e i t e m s
c o v e r e d by one r e m i t t a n c e d r a f t , and t h e o t h e r c o u r s e
as to the remaining part?
5.
If the indorsers are not c o n s u l t e d , w i l l the Federal
r e s e r v e bank be l i a b l e t o i t s i n d o r s e r s f o r l o s s e s
r e s u l t i n g from a f a i l u r e t o e l e c t t h e c o u r s e which would
r e s u l t i n the l a r g e s t recovery?
6.
I f t h e F e d e r a l r e s e r v e bank c o n s u l t s t h e i n d o r s e r s ,
s h o u l d i t ( a ) s e t a time l i m i t w i t h i n w h i c h i t must
r e c e i v e a r e p l y , and ( b ) i n d i c a t e t h e c o u r s e w h i c h i t w i l l
i* 6 *
X-7265
e l e c t i f no r e p l y i s r e c e i v e d w i t h i n t h e t i m e s e t ?
V.
I f the i n d o r s e r s are c o n s u l t e d , w i l l the r e s u l t i n g d e l a y
a f f e c t t h e q u e s t i o n of whether the e l e c t i o n to t r e a t as d i s honored has been e x e r c i s e d w i t h the "reasonable diligence"
r e q u i r e d "by t h e Code?
8.
If the indorsers are consulted, should the r e c e i v e r or
examiner or Comptroller he n o t i f i e d of the f a c t ?
9#
S h o u l d a n a t t e m p t b e made b y t h e F e d e r a l r e s e r v e b a n k t o
obtain p o s s e s s i o n of a l l the items?
1 0 . I f n o t , w h i c h i t e m s , i f any?
11.
When s h o u l d t h e r e q u e s t f o r t h e i t e m s b e made, i n v i e w o f
t h e f a c t t h a t r e c e i v e r s o f t e n r e t u r n checks to drawers and
may do s o b e f o r e a r e q u e s t i s made b y t h e r e s e r v e bank?
12.
(a)
Should the Federal reserve banks permit the blanket
a u t h o r i z a t i o n s to f i l e c l a i m s which wore exchanged i n 1922
to remain in e f f e c t ?
13.
Cb.)
Should t h e y bo renewed?
(c)
Should they bo modified?
S h o u l d t h e Check C o l l e c t i o n C i r c u l a r s o f t h e r e s e r v e b a n k s
b e amended, so a s t o p r o v i d e f o r a u n i f o r m p r o c e d u r e i n
S t a t e s w h e r e t h e Code i s i n e f f e c t ?
14.
I f s o , how s h o u l d t h e p r o v i s i o n b o worded?
I I I . ACCEPTANCE OF ADVICES OF CREDIT BY FEDERAL RESERVE 3AITKS.
Should F e d e r a l r e s e r v e banks i n any c i r c u m s t a n c e s a c c e p t
a d v i c e s of c r e d i t in e i t h e r cash or non-cash c o l l e c t i o n
transactions?
366
X-7265
- 7 ~
17,
METHOD OF HANDLING PROTESTED OH DISHONORED CHECKS.
1.
S h o u l d c h e c k s w h i c h h a v e p r e v i o u s l y "been p r e -
s e n t e d and d i s h o n o r e d or p r o t e s t e d h e h a n d l e d a s c a s h i t e m s
or as c o l l e c t i o n i t e m s hy t h e F e d e r a l r e s e r v e banks?
2.
May t h e f o r w a r d i n g bank .make a c h a r g e f o r
p a y m e n t o r c o l l e c t i o n and r e m i t t a n c e ?
V,
DECISION IN MIAMI v . FIRST NATIONAL BAM OF ST. PETERSBURG.
I n v i e w o f t h e d e c i s i o n o f t h e C i r c u i t Court o f
A p p e a l s f o r t h e F i f t h C i r c u i t i n t h e c a s e o f C i t y o f Miami
v . F i r s t N a t i o n a l Bank o f S t . P e t e r s b u r g , F l o r i d a , s h o u l d
t h e F e d e r a l r e s e r v e b a n k s ( a ) make f o r m a l demand f o r a
p r e f e r e n c e , and ( b ) a c c e p t d i v i d e n d s p a y a b l e t o g e n e r a l
c r e d i t o r s "without p r e j u d i c e " t o t h e p r e f e r r e d claim?
VI.
DECISION IN FEDERAL RESERVE BANK OF ATLA.NIA v . ANDERSON. RECEIVER.
I n v i e w o f t h e d e c i s i o n of t h e U n i t e d S t a t e s D i s t r i c t
C o u r t i n t h e c a s e o f F e d e r a l R e s e r v e Bank o f A t l a n t a v .
A n d e r s o n . R e c e i v e r o f C e n t r a l N a t i o n a l Bank a n d T r u s t Company
o f S t . P e t e r s b u r g . F l o r i d a , what s t e p s , i f a n y , s h o u l d b e
t a k e n t o p r o t e c t the i n t e r e s t s of t h e F e d e r a l r e s e r v e banks?
VII.
SUBSTITUTION OF NOTE FOR REDISCOUNT LIABILITY OF NATIONAL BANK
BEFORE ITS SUSPENSION.
1.
I f a F e d e r a l r e s e r v e bank t a k e s t h e n o t e of a
n a t i o n a l b a n k , f o r t h e a g g r e g a t e amount o f t h e n a t i o n a l b a n k ' s
X-7265
— 8
367
—
r e d i s c o u n t l i a b i l i t y , s e c u r e d "by p a p e r a l r e a d y h e l d u n d e r r e d i s c o u n t o r a s a d d i t i o n a l c o l l a t e r a l , a n d t h e n a t i o n a l bank
i s c l o s e d s h o r t l y t h e r e a f t e r , ( a ) may t h e r e s e r v e "bank p r o v e
a c l a i m b a s e d on t h e n o t e , or ( b ) i s s u c h c l a i m b a r r e d a s
being a preference e i t h e r w i t h i n the p r o v i s i o n s of S e c t i o n
5 2 4 2 o f t h e R e v i s e d S t a t u t e s , or u n d e r t h e common l a w , w i t h
t h e r e s u l t t h a t t h e F e d e r a l r e s e r v e b a n k must b a s e i t s c l a i m
upon the r e d i s c o u n t e d paper?
VIII.
INTERLOCKING- BAM DIRECTORATES UEDER CLAYTON ACT.
A d v i s a b i l i t y of Counsel d i s c u s s i n g w i t h F e d e r a l Res e r v e A g e n t s q u e s t i o n s o f law and p o l i c y i n c o n n e c t i o n w i t h
i n t e r l o c k i n g bank d i r e c t o r a t e s u n d e r S e c t i o n 8 o f t h e C l a y t o n
A c t , a s amended.
X-7266
Federal Reserve Notes, S e r i e s 1928,
For F e d e r a l R e s e r v e B o a r d ,
1932
- $>5
Sept. 1 t o 29,
Philadelphia,.
Total
Sheets
Amount
67,000
$6,063.50
15,000
119,000
10,769.50
-
-
130,000
11,765.00
$10
#20
37,000
20,000
10,000
50,000
34,000
10,000 10,000
74,000
36,000
20,000
10,000
14,000
L
4
$50
-
$100
-
20,000
-
-
-
30,000
2,715.00
10,000
-
-
-
24,000
2,172.00
20,000
10,000
-
-
30,000
2,715.00
21,000
14,000
5,000
-
-
40,000
3,620.00
Minneapolis,..
5,000
20,000
-
-
25,000
2,262.50
Kansas C i t y , . .
10,000
10,000
10,000
-
-
30,000
2,715.00
San F r a n c i s c o ,
58,000
25,000
24,000
—
—
107,000
9,683.50
279,000
209,000
89,000
10,000
602,000
$54,481.00
-
-
15,000
6 0 2 , 0 0 0 s h e e t s , © # 9 0 . 5 0 p e r M, . . . 5 5 4 , 4 8 1 , 0 0
369
X-7267
EXECUTIVE ORDER
CONTINUING TEMPORARILY THE PRESENT STANDARDIZED
GOVERNMENT TRAVEL REGULATIONS, SUBJECT TO
CERTAIN MODIFICATIONS
P a r t I I , s e c t i o n s 207 and 2 0 8 , o f t h e a c t e n t i t l e d "AN
ACT Making a p p r o p r i a t i o n s f o r t h e l e g i s l a t i v e Branch o f t h e G o v e r n ment f o r t h e f i s c a l y e a r e n d i n g June 3 0 , 1 9 3 3 , and f o r o t h e r
p u r p o s e s , " a p p r o v e d June 3 0 , 1 9 3 2 , amends t h e S u b s i s t e n c e E x p e n s e
A c t o f 1926 ( 4 4 S t a t , 6 8 8 , 6 8 9 ) b y a m e n d i n g s e c t i o n s 3 and 7
t h e r e o f , and r e p e a l i n g s e c t i o n s 4 , 5 , and 6 t h e r e o f , e f f e c t i v e
J u l y 1, 1932.
The S t a n d a r d i z e d Government T r a v e l R e g u l a t i o n s , a s amended
e f f e c t i v e J u l y 1, 1931, approved by t h e P r e s i d e n t A p r i l 21, 1931,
s h a l l c o n t i n u e i n e f f e c t f r o m and i n c l u d i n g J u l y 1 , 1 9 3 2 , u n t i l s u c h
t i m e a s amended s t a n d a r d i z e d r e g u l a t i o n s a r e a p p r o v e d , s u b j e c t t o
the following conditions, viz:
(1) A l l p r o v i s i o n s r e l a t i n g t o reimbursement of a c t u a l
expenses f o r s u b s i s t e n c e are revoked,
( 2 ) Per diem i n l i e u of a c t u a l e x p e n s e s f o r s u b s i s t e n c e
may be a l l o w e d n o t t o e x c e e d t h e r a t e o f 55 w i t h i n t h e
l i m i t s o f c o n t i n e n t a l U n i t e d S t a t e s , and n o t t o e x c e e d a n
a v e r a g e o f $6 b e y o n d t h e l i m i t s o f c o n t i n e n t a l U n i t e d S t a t e s .
(3) Reimbursable t r a n s p o r t a t i o n charges w i l l not
i n c l u d e g r a t u i t o u s f e e s or t i p s o f a n y k i n d .
The r a t e s o f t h e p e r diem i n l i e u o f a c t u a l e x p e n s e s f o r s u b s i s t e n c e a u t h o r i z e d b y t h e a m e n d a t o r y l a w and w h i c h a r e s e t f o r t h
a b o v e r e p r e s e n t t h e maximum a l l o w a b l e , n o t t h e minimum* I t i s t h e
r e s p o n s i b i l i t y o f t h e h e a d s o f t h e d e p a r t m e n t s and e s t a b l i s h m e n t s
t o s e e t h a t t r a v e l orders a u t h o r i z e o n l y such per diem r a t e s a s are
j u s t i f i e d by t h e nature of t h e t r a v e l .
HERBERT HOOVER
The 'Vhite H o u s e ,
June 3 0 , 1 9 3 2 ,
3 7 0
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
October 11$ 1932.
T H E FEDERAL RESERVE BOARD
SUBJECT:
X-7269
Meeting of Governors and F e d e r a l R e s e r v e A g e n t s .
Dear S i r :
A m e e t i n g of t h e F e d e r a l R e s e r v e A g e n t s and Governors o f t h e
F e d e r a l r e s e r v e "banks w i t h t h e F e d e r a l R e s e r v e B o a r d , i n W a s h i n g t o n ,
i s h e r e b y c a l l e d , " b e g i n n i n g o n Monday, November 1 4 , 1 9 3 2 , a n d e x t e n d i n g o v e r s u c h p e r i o d a s may "be deemed n e c e s s a r y a t t h e t i m e .
I t i s u n d e r s t o o d t h a t t h e Chairmen o f t h e G o v e r n o r s ' C o n f e r e n c e
and t h e C o n f e r e n c e o f F e d e r a l R e s e r v e A g e n t s w i l l submit s u g g e s t i o n s a s
to the program f o r t h i s meeting, a f t e r c o n s u l t a t i o n w i t h t h e v a r i o u s
G o v e r n o r s a n d F e d e r a l R e s e r v e A g e n t s , and t h e F e d e r a l R e s e r v e B o a r d
w i l l s u p p l e m e n t t h e p r o g r a m b y a n y t o p i c s t h a t i t may d e s i r e t o "bring
up f o r d i s c u s s i o n a t t h e m e e t i n g .
An e f f o r t w i l l "be made t o h a v e t h e
c o m p l e t e program i n t h e hands o f t h e Governors and F e d e r a l R e s e r v e
A g e n t s s u f f i c i e n t l y i n advance of t h e c o n f e r e n c e d a t e t o e n a b l e them
t o g i v e a d v a n c e c o n s i d e r a t i o n t o t h e s e v e r a l m a t t e r s w h i c h w i l l come
up f o r c o n s i d e r a t i o n .
Very t r u l y yours,
Chester M o r r i l l ,
Secretary.
TO GOVERNORS AND AGENTS OF ALL F . R . BANKS.
/
REPORT OF COMMITTEE APPOINTED BY JOINT CDEFERENCE OF FEDERAL
RESERVE BANK COUNSEL A3© THE STANDING COMMITTEE ON COLLECTIONS.
(As amended and a d o p t e d "by t h e C o n f e r e n c e . )
Your C o m m i t t e e , a p p o i n t e d t o r e p o r t r e l a t i v e t o t h e r i g h t s ,
d u t i e s and r e s p o n s i b i l i t i e s o f t h e F e d e r a l r e s e r v e "banks i n h a n d l i n g
Government c h e c k s a n d w a r r a n t s "begs l e a v e t o s u b m i t i t s r e p o r t and f i n d ings herewith.
Your c o m m i t t e e i s o f t h e o p i n i o n t h a t t h e d u t i e s and r e s p o n s i b i l i t i e s o f t h e F e d e r a l r e s e r v e b a n k s i n h a n d l i n g Government c h e c k s
and w a r r a n t s s h o u l d b e c l e a r l y d e f i n e d e i t h e r i n T r e a s u r y D e p a r t m e n t C i r c u l a r N o . 1 7 6 o r i n a s e p a r a t e document c o n t a i n i n g t h e s u b s t a n c e o f a n
agreement b e t w e e n t h e F e d e r a l r e s e r v e banks and t h e Treasury Department.
I n t h e o p i n i o n o f y o u r c o m m i t t e e s u c h document n e e d n o t c h a r a c t e r i z e t h e
F e d e r a l r e s e r v e banks a s f i s c a l a g e n t s or d e p o s i t a r i e s of t h e Treasury Dep a r t m e n t , n o r a s c o l l e c t i n g a g e n t s o f t h e i r member b a n k s .
I t might be
c o n f u s i n g and a n b a r r a s s i n g t o a t t e m p t a n y s u c h c h a r a c t e r i z a t i o n , s i n c e t h e
nature of t h e d u t i e s performed by t h e Federal r e s e r v e banks i n h a n d l i n g
Government c h e c k s a n d w a r r a n t s i s o f a m i x e d c h a r a c t e r .
Up t o a c e r t a i n
p o i n t i n t h e s e t r a n s a c t i o n s t h e F e d e r a l r e s e r v e banks undoubtedly a c t a s
a g e n t s of t h e b a n k s f r o m w h i c h t h e y h a v e r e c e i v e d t h e c h e c k s a n d b e y o n d
t h a t p o i n t t h e y a c t i n some a g e n c y c a p a c i t y i n b e h a l f o f t h e Government
of t h e U n i t e d S t a t e s .
We a r e o f t h e o p i n i o n t h a t t h e f o l l o w i n g s p e c i f i c p o i n t s
s h o u l d b e c o v e r e d e i t h e r i n amendments t o T r e a s u r y D e p a r t m e n t C i r c u l a r
N o . 1 7 6 oy i n a n a g r e e m e n t t o b e r e a c h e d b e t w e e n t h e T r e a s u r y D e p a r t ment a n d t h e F e d e r a l r e s e r v e b a n k s :
X-7290^ ' ^
-
(a)
2 -
That t h e p r o v i s i o n s o f S e c t i o n 3 2 o f C i r c u l a r 1 7 6 s h o u l d
b e amended s o t h a t t h e F e d e r a l r e s e r v e h a n k s w i l l h e r e q u i r e d t o r e c e i v e
Government c h e c k s and w a r r a n t s o n l y f r o m member "banks and f r o m nonmember
c l e a r i n g banks#
(b)
The Treasury Department should undertake and agree to
examine items for f o r g e r i e s , i n s u f f i c i e n c y of funds and other material
defects which might be discovered upon f i r s t examination and to n o t i f y
the Federal reserve banks of the items on which payment i s refused within
a d e f i n i t e limited time a f t e r their r e c e i p t .
The time i n our opinion
should be limited to the business day a f t e r the receipt of the items by
the Treasury Department.
(c)
The Treasurer should be requested to adopt the practice
a f t e r inspection of checks and warrants handled by a Federal reserve
bank o f n o t i f y i n g s u c h bank i m m e d i a t e l y by m a i l a s t o a l l i t e m s w h i c h h a v e
been found good, r e t u r n i n g t o t h e F e d e r a l r e s e r v e bank a l l i t e m s which f o r
a n y r e a s o n a r e d i s h o n o r e d , and g i v i n g t e l e g r a p h i c a d v i c e o f a l l d i s h o n o r e d
items amounting t o $500 or more.
(d)
The Treasurer should discontinue the p r a c t i c e of attempt-
ing to stop payment of items handled by Federal reserve banks s o l e l y i n order
to protect the i n t e r e s t of payees,
We a r e o f t h e o p i n i o n t h a t t h e D e p a r t m e n t s h o u l d b e r e q u e s t e d
t o amend t h e p e r t i n e n t p o r t i o n s o f p a r a g r a p h 3 2 o f C i r c u l a r N o . 1 7 6 s o
as to read s u b s t a n t i a l l y as f o l l o w s :
X-7268
» 3 •*
"II.
PAYMB1TT OF GOVERMBTO CHECKS AND WiBRMTTS
" 3 2 . F e d e r a l R e s e r v e Banks a n d b r a n c h e s . - F e d e r a l
R e s e r v e Banks and "branches w i l l make a r r a n g e m e n t s t o c a s h
Government c h e c k s and w a r r a n t s drawn on t h e T r e a s u r e r o f
t h e U n i t e d S t a t e s f o r d i s b u r s i n g o f f i c e r s o f t h e War D e p a r t m e n t and Navy D e p a r t m e n t , and o t h e r Government o f f i c e r s ,
p r o v i d e d that s a t i s f a c t o r y i d e n t i f i c a t i o n of t h e o f f i c e r s
s h a l l b e f u r n i s h e d . The T r e a s u r e r w i l l u p o n s p e c i a l r e q u e s t a d v i s e F e d e r a l R e s e r v e B a n k s and b r a n c h e s a s t o
whether t h e b a l a n c e s t o the c r e d i t of d i s b u r s i n g o f f i c e r s
a r e s u f f i c i e n t f o r payment o f t h e c h e c k s p r e s e n t e d .
"Bach F e d e r a l R e s e r v e Bank and b r a n c h w i l l g i v e - i a $ae4.iate-e3?e&i-fc-£e$> RECEIVE Government c h e c k s a n d w a r r a n t s
drawn on t h e T r e a s u r e r o f t h e U n i t e d S t a t e s w h i e h - a e e - s e e e i v e d f r o m i t s member and nonmember c l e a r i n g b a n k s e e - p e e 6eHSed- : fe$aseugh-3=eeegiiise&-eleapiag-lieti.see T WHEti p r o p e r l y i n dorsed w i t h guarantee of a l l p r i o r indorsements thereon,
i n c l u d i n g t h e i n d o r s e m e n t o f t h e d r a w e r when t h e c h e c k i s
Sueh-G«vepaaea*-eheek8-aa4-wappaH*s
drawn i n h i s f a v o r 7
will-be-peeeirved-aad-esedited-by-eaeh-FedeFai-Sesesve-Baak
a a d - b e a a e h AND WILL GIVE CREDIT THEREFOR s u b j e c t t o t h e t e r m s
and c o n d i t i o n s of i t s time s c h e d u l e s , of i t s c i r c u l a r r e g a r d i n g
• C o l l e c t i o n o f Cash I t e m s ' and o f R e g u l a t i o n J o f t h e F e d e r a l
Reserve Board.
" F e d e r a l R e s e r v e Banks and b r a n c h e s w i l l n o t b e
e x p e c t e d t o c a s h Government c h e c k s a n d w a r r a n t s p r e s e n t e d
d i r e c t t o t h e bank by t h e g e n e r a l p u b l i c .
"Government c h e c k s a n d w a r r a n t s c a s h e d o r c r e d i t e d
b y F e d e r a l R e s e r v e B a n k s a n d b r a n c h e s AS PROVIDED HEREIN
s h a l l b e c h a r g e d t o t h e a c c o u n t of t h e T r e a s u r e r of t h e
U n i t e d S t a t e s , s u b j e c t t o the r i g h t of t h e Treasurer to e x a m i n e a n d r e f u s e payment o f s u c h c h e c k s and w a r r a n t s , a e
p»«vi€L©d-4a~pa3?ag5Papfe-34-feei= ©©#•»"
~
(Deletions indicated — — )
( A d d i t i o n s i n CAPS)
This suggested r e v i s i o n of paragraph 32 of the c i r c u l a r f o l l o w s
t h e r e c o m m e n d a t i o n s made i n t h e r e p o r t o f t h e S t a n d i n g C o m m i t t e e on C o l l e c t i o n s t o t h e C o n f e r e n c e of Governors, d a t e d August 10, 1931, w i t h t h e
changes i n d i c a t e d i n t h e t e x t , c e r t a i n p o r t i o n s b e i n g e l i m i n a t e d and c e r t a i n
other p o r t i o n s b e i n g added.
x~73?p374
••
4
—
Your c o m m i t t e e i s f u r t h e r o f t h e o p i n i o n t h a t S e c t i o n 3 4
o f T r e a s u r y D e p a r t m e n t C i r c u l a r Ho. 1 7 6 s h o u l d "be amended s o
a s t o "be i n a p p l i c a b l e t o F e d e r a l r e s e r v e b a n k s and t h a t t h e
c o n d i t i o n s u n d e r w h i c h t h e T r e a s u r y may l o o k t o t h e F e d e r a l r e s e r v e banks f o r reimbursement f o r checks which have been cashed
o r r e c e i v e d f o r i m m e d i a t e c r e d i t and c h a r g e d t o t h e T r e a s u r e r ' s
a c c o u n t and t h e c o n d i t i o n s u n d e r w h i c h t h e T r e a s u r y w i l l m e r e l y
e x p e c t the F e d e r a l r e s e r v e banks to u s e t h e i r b e s t e f f o r t s to
o b t a i n r e i m b u r s e m e n t on s u c h c h e c k s s h o u l d b e c o v e r e d e i t h e r b y
a s e p a r a t e s e c t i o n ii. the c i r c u l a r or i n a s e p a r a t e document
which need not be incorporated i n the c i r c u l a r .
Such a g r e e -
ment s h o u l d c o v e r t h e m a t t e r o f a d v i c e o f payment o r n o n p a y m e n t , i n c l u d i n g t e l e g r a p h i c a d v i c e o f nonpayment o f a l l i t e m s
o f $ 5 0 0 o r m o r e , s h o u l d exempt t h e F e d e r a l r e s e r v e b a n k s f r o m
l i a b i l i t y e x c e p t f o r t h e i r own n e g l i g e n c e , and s h o u l d o t h e r w i s e
be i n accordance w i t h the recommendations s e t out above.
I f t h e T r e a s u r y D e p a r t m e n t i s n o t w i l l i n g t o amend
i t s c i r c u l a r and e n t e r i n t o d e f i n i t e u n d e r s t a n d i n g s i n s u b s t a n t i a l a c c o r d w i t h t h e v i e w s s e t f o r t h a b o v e , t h e Committee i s
of t h e o p i n i o n t h a t t h e F e d e r a l r e s e r v e banks s h o u l d c o n s i d e r t h e
a d v i s a b i l i t y of d i s c o n t i n u i n g the p r e s e n t p r a c t i c e of g i v i n g immediate
c r e d i t f o r s u c h i t e m s , and o f a d o p t i n g t h e p r a c t i c e of h a n d l i n g them
7L-72
«• 5 **
on a d e f e r r e d c r e d i t b a s i s , a s i f t h e c h e c k s w e r e drawn
on a b a n k i n W a s h i n g t o n , D. C.
Respectfully submitted
(A. C. Agnew)
(J.
S. Falden, J r . )
( Robert S. P a r k e r )
( E. B. S t r o u d , J r . )
( C. H. Coo )
( Walter Wyatt)
W a s h i n g t o n , D. C.
October 11, 1952.
Chairman
W a s h i n g t o n , D. C.
October 13, 1932.
The H o n o r a b l e ,
The S e c r e t a r y o f t h e T r e a s u r y ,
W a s h i n g t o n , D. C.
SIR.:
F o r some y e a r s p a s t t h e t e r m s a n d c o n d i t i o n s u p o n w h i c h
F e d e r a l r e s e r v e b a n k s h a n d l e Government w a r r a n t s a n d c h e c k s p u r s u a n t
t o t h e t e r m s o f S e c t i o n s 3 2 a n d 3 4 of T r e a s u r y D e p a r t m e n t C i r c u l a r
Ho. 1 7 6 , h a v e b e e n a m a t t e r o f c o n s i d e r a b l e c o n c e r n t o F e d e r a l r e serve banks, because of the f a c t that the p r o v i s i o n s of the c i r c u l a r
do n o t d e f i n e c l e a r l y t h e e x a c t r e l a t i o n s h i p o f t h e F e d e r a l r e s e r v e
b a n k s t o t h e T r e a s u r y D e p a r t m e n t i n p e r f o r m i n g t h i s f u n c t i o n and do
n o t e s t a b l i s h c l e a r l y t h e r i g h t s , d u t i e s and r e s p o n s i b i l i t i e s o f t h e
Federal reserve banks.
I t has been f e a r e d that t h i s might l e a d to
c o n f u s i o n and p o s s i b l e m i s u n d e r s t a n d i n g .
S e v e r a l a t t e m p t s h a v e b e e n made i n i n f o r m a l c o n f e r e n c e s b e ~
t w e e n r e p r e s e n t a t i v e s o f y o u r D e p a r t m e n t and t h e F e d e r a l r e s e r v e b a n k s
t o a g r e e upon a c l a r i f i c a t i o n of t h e s e p r o v i s i o n s of t h e c i r c u l a r , but
s a t i s f a c t o r y r e s u l t s have not been o b t a i n e d .
I n A p r i l , 1931, t h e F e d e r a l R e s e r v e Board t o o k c o g n i z a n c e o f
t h i s s i t u a t i o n and brought t h e m a t t e r t o t h e a t t e n t i o n o f t h e C o n f e r e n c e o f G o v e r n o r s o f a l l F e d e r a l r e s e r v e b a n k s , w h i c h was t h e n i n
s e s s i o n i n Washington, w i t h t h e r e s u l t t h a t t h e Conference of Governors
r e f e r r e d t h e s u b j e c t t o i t s S t a n d i n g Committee on C o l l e c t i o n s f o r s t u d y
L_2
-
and r e p o r t *
2 -
The S t a n d i n g Committee o n C o l l e c t i o n s r e n d e r e d a r e p o r t
u n d e r d a t e o f A u g u s t 1 0 , 1 9 3 1 , d i s c u s s i n g t h e s u b j e c t i n a g e n e r a l way
and s u g g e s t i n g c e r t a i n c h a n g e s i n t h e e x i s t i n g p r a c t i c e s a n d c e r t a i n
amendments t o t h e t e x t o f t h e T r e a s u r y C i r c u l a r , h u t w i t h t h e r e c o m m e n d a t i o n t h a t t h e s u g g e s t i o n s of t h e Committee "be r e f e r r e d t o t h e
G e n e r a l C o u n s e l o f t h e F e d e r a l R e s e r v e B o a r d and t o t h e C o u n s e l f o r
t h e s e v e r a l F e d e r a l r e s e r v e hanks f o r f u r t h e r c o n s i d e r a t i o n of t h e
l e g a l aspects of the subject.
Upon c o n s i d e r a t i o n o f t h i s r e p o r t , t h e
C o n f e r e n c e o f G o v e r n o r s h e l d i n W a s h i n g t o n o n December 1 9 , 1 9 3 1 ,
r e f e r r e d the matter t o t h e Conference of Counsel of a l l F e d e r a l r e s e r v e
"banks f o r c o n s i d e r a t i o n and c o n s u l t a t i o n w i t h t h e S t a n d i n g C o m m i t t e e on
C o l l e c t i o n s a n d t h e o f f i c i a l s of t h e T r e a s u r y D e p a r t m e n t , w i t h a v i e w
t o o b t a i n i n g a c l a r i f i c a t i o n of t h e a p p l i c a b l e p r o v i s i o n s of t h e
Treasury Department c i r c u l a r .
P u r s u a n t t o t h e a c t i o n t a k e n "by t h e C o n f e r e n c e o f G o v e r n o r s ,
a J o i n t C o n f e r e n c e was h e l d o n O c t o b e r 10 a n d 1 1 , 1 9 3 2 , w h i c h was
a t t e n d e d by Counsel r e p r e s e n t i n g a l l o f t h e F e d e r a l r e s e r v e banks and
b y t h e S t a n d i n g C o m m i t t e e on C o l l e c t i o n s .
After discussion, the
C o n f e r e n c e a p p o i n t e d a c o m m i t t e e c o n s i s t i n g o f t h e f o l l o w i n g named
persons to prepare a report:
Mr. A l b e r t C. Agnew, Chairman,
Counsel,
F e d e r a l R e s e r v e Bank o f S a n F r a n c i s c o .
Mr. J . S . Walden, J r . ,
C o n t r o l l e r o f t h e F e d e r a l R e s e r v e Bank o f
Richmond a n d Chairman o f t h e S t a n d i n g
Committee on C o l l e c t i o n s .
Mr. R o b e r t S . P a r k e r ,
C o u n s e l t o t h e F e d e r a l R e s e r v e Bank of A t l a n t a .
Mr. E. B. S t r o u d , J r » ,
C o u n s e l t o t h e F e d e r a l R e s e r v e Bank o f D a l l a s .
3 7 7
Xr*2
- 3 -
Mr. C. H. Coe,
A s s i s t a n t D e p u t y Governor o f t h e F e d e r a l
R e s e r v e Bank o f New Y o r k , a member
o f t h e S t a n d i n g C o m m i t t e e on
Collections.
Mr. W a l t e r W y a t t , G e n e r a l C o u n s e l of t h e F e d e r a l R e s e r v e B o a r d ,
who was s e r v i n g a s Chairman o f t h e J o i n t C o n f e r e n c e , a l s o s e r v e d e x
o f f i c i o a s a member o f t h e C o m m i t t e e .
This Committee prepared a r e p o r t which, a f t e r c a r e f u l c o n s i d e r a t i o n and d i s c u s s i o n , was a p p r o v e d u n a n i m o u s l y "by t h e J o i n t C o n f e r ence.
I h a v e t h e h o n o r t o i n c l o s e a c o p y of t h a t r e p o r t f o r y o u r
consideration.
The J o i n t C o n f e r e n c e a l s o r e q u e s t e d t h e C o m m i t t e e w h i c h
had p r e p a r e d t h e r e p o r t t o c o n s u l t w i t h the r e p r e s e n t a t i v e s of your
D e p a r t m e n t w i t h a v i e w of o b t a i n i n g amendments t o t h e T r e a s u r y C i r c u l a r
i n accordance w i t h t h e recommendations c o n t a i n e d i n i t s r e p o r t .
I n t h i s r e p o r t no a t t e m p t was made t o s t a t e i n d e t a i l a l l t h e
c h a n g e s w h i c h t h e J o i n t C o n f e r e n c e f e l t s h o u l d h e made i n t h e p r o v i s i o n s
o f t h e T r e a s u r y C i r c u l a r and i n t h e e x i s t i n g p r a c t i c e s w i t h r e g a r d t o
t h e h a n d l i n g o f Government w a r r a n t s a n d c h e c k s b y t h e F e d e r a l r e s e r v e
banks.
The r e p o r t m e r e l y s t a t e s t h e g e n e r a l p r i n c i p l e s w h i c h , i n t h e
opinion of the J o i n t Conference, should be observed.
I t was e x p e c t e d
that d e t a i l e d changes i n the c i r c u l a r would be agreed upon i n a conf e r e n c e b e t w e e n t h e a b o v e c o m m i t t e e and t h e r e p r e s e n t a t i v e s o f y o u r
Department.
The C o m m i t t e e w i l l b e g l a d t o m e e t w i t h s u c h r e p r e s e n t a t i v e s
a s y o u may d e s i g n a t e a s s o o n a s y o u h a v e had an o p p o r t u n i t y t o c o n s i d e r
t h e r e p o r t , and i t i s r e s p e c t f u l l y r e q u e s t e d t h a t y o u a d v i s e Mr. W a l t e r
i > i»s-r >
/ o
L-2
- 4 %ratt, General Counsel to the Federal Reserve Board, as t o t h e p e r s o n s
d e s i g n a t e d "by y o u t o r e p r e s e n t y o u r Department and a s t o t h e t i m e when
i t would be c o n v e n i e n t f o r than t o c o n f e r w i t h t h e Committee r e p r e s e n t i n g t h e F e d e r a l r e s e r v e "banks,
Mr. Tiyatt h a s v e r y k i n d l y c o n s e n t e d t o a c t f o r t h e C o m m i t t e e
i n t h e i n t e r i m , f u r n i s h i n g your Department w i t h s u c h a d d i t i o n a l
i n f o r m a t i o n or d a t a a s y o u may r e q u i r e i n y o u r c o n s i d e r a t i o n of t h e
matter.
Respectfully,
A l b e r t C. Agnew,
Chairman o f t h e C o m m i t t e e .
8 7 9
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-7271
October 13, 1932.
SUBJECT:
New I s s u e T r e a s u r y B i l l s .
Dear S i r :
In connection with telegraphic transactions i n
Government s e c u r i t i e s "between F e d e r a l r e s e r v e "banks, t h e
c o d e w o r d "HOXDIET" l i a s "been d e s i g n a t e d t o c o v e r a new
i s s u e of Treasury B i l l s , d a t e d October 19, 1932, and
maturing January 18, 1933.
T h i s w o r d s h o u l d "be i n s e r t e d i n t h e F e d e r a l r e s e r v e t e l e g r a p h c o d e "book, f o l l o w i n g t h e s u p p l e m e n t a l
c o d e w o r d "NOXDICTED" on p a g e 1 7 2 .
Very t r u l y y o u r s ,
J . C. H o e l l ,
Assistant Secretary.
TO GOVERNORS OF ALL F . ,R. BANKS.
FEDERAL RESERVE BOARD
WASHINGTON
X-7272
October 15, 1932.
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
SUBJECT:
Shipment of Canceled Checks, e t c . ,
"by E x p r e s s .
Dear S i r :
There i s i n c l o s e d a copy of a l e t t e r d a t e d September 13,
1 9 3 2 , w i t h i n c l o s u r e s , a d d r e s s e d t o t h e S e c r e t a r y o f t h e B o a r d "by
t h e D e p u t y G o v e r n o r o f t h e F e d e r a l R e s e r v e Bank o f K a n s a s C i t y ,
t o g e t h e r w i t h a c o p y o f a memorandum p r e p a r e d "by t h e o f f i c e o f t h e
B o a r d ' s C o u n s e l , r e l a t i n g t o a n i n q u i r y made b y a P o s t O f f i c e I n s p e c t o r c o n c e r n i n g v a r i o u s s h i p m e n t s made "by t h a t "bank w h i c h t h e
I n s p e c t o r f e e l s should perhaps have been sent by mail rather than
by e x p r e s s .
As y o u w i l l n o t e f r o m t h e i n c l o s e d c o r r e s p o n d e n c e , t h e
m a t t e r has n o t y e t b e e n a c t e d upon by t h e P o s t O f f i c e D e p a r t m e n t .
This correspondence i s being forwarded to you, however, f o r your
i n f o r m a t i o n and w i t h the r e q u e s t t h a t you a d v i s e the Board i n c a s e
y o u h a v e a n y comments or i n f o r m a t i o n r e g a r d i n g s i m i l a r i n c i d e n t s .
I t w o u l d s e e m t h a t no u s e f u l p u r p o s e w o u l d b e s e r v e d b y
t a k i n g t h e m a t t e r up w i t h t h e o f f i c i a l s of t h e P o s t O f f i c e w i t h
which you deal.
Very t r u l y y o u r s ,
Chester Morrill,
Secretary.
Inclosures.
TO GOVERNORS
OF ALL F . R . B A M S .
C O P /
X-7279-a
FEDERAL RESERVE B A H
OF
KANSAS CITY
September 1 3 , 1932.
Mr. C h e s t e r M o r r i l l , S e c r e t a r y ,
Federal Reserve Board,
Washington, D.C.
Dear Mr. M o r r i l l :
There i s a t t a c h e d h e r e t o , f o r your i n f o r m a t i o n , copy of a
l e t t e r r e c e n t l y r e c e i v e d from the Post O f f i c e I n s p e c t o r a t t h i s p o i n t ,
t o g e t h e r w i t h c a r b o n c o p y o f Mr. H e l m ' s r e p l y u n d e r d a t e o f S e p t . 9 .
I t w i l l he o b s e r v e d t h a t t h e P o s t O f f i c e Department i s o b j e c t i n g t o
the sending of t h e d a i l y t r a n s c r i p t of the T r e a s u r e r ' s d a i l y account
and t h e w a r r a n t s l i s t e d t h e r e i n , a s w e l l a s c e r t a i n c a s h l e t t e r s , b y
e x p r e s s . I n a c o n v e r s a t i o n w i t h t h e P o s t O f f i c e I n s p e c t o r , i t was
i n d i c a t e d t h a t t h e P o s t O f f i c e Department might a t t e m p t t o r e c o v e r
p o s t a g e on a l l s h i p m e n t s o f t h i s c h a r a c t e r w h i c h we h a v e h e r e t o f o r e
made b y e x p r e s s , a n d s i n c e t h i s i s a m a t t e r w h i c h u n d o u b t e d l y i n v o l v e s
o t h e r F e d e r a l r e s e r v e b a n k s , i t i s p o s s i b l e y o u may f e e l i t d e s i r a b l e
t o c o n s u l t w i t h some o f t h e o f f i c i a l s o f t h e P o s t O f f i c e D e p a r t m e n t .
In this connection, attention i s directed to the f a c t that,
i n a l l c a s e s b e f o r e making e x p r e s s a r r a n g e m e n t s f o r s h i p m e n t s o t h e r
than t h e T r e a s u r e r ' s t r a n s c r i p t s , t h e c h a r a c t e r of t h e documents t o
be e n c l o s e d , t o g e t h e r w i t h the form of p r i n t e d l e t t e r of t r a n s m i t t a l ,
has b e e n s u b m i t t e d t o t h e l o c a l P o s t O f f i c e f o r a p p r o v a l . Such
a p p r o v a l , h o w e v e r , h a s n o t b e e n i n w r i t i n g and t h e o n l y w r i t t e n
a u t h o r i z a t i o n we h a v e i s t h a t r e l a t i n g t o t h e T r e a s u r e r ' s t r a n s c r i p t
c o n t a i n e d i n B o a r d ' s l e t t e r X - 1 2 9 6 and s u b s e q u e n t comnrunicat i o n s f r o m
t h e T r e a s u r e r ' s o f f i c e . I t i s our u n d e r s t a n d i n g t h a t t h e o b j e c t i o n
o f t h e P o s t O f f i c e D e p a r t m e n t i s b a s e d on t h e p r i n t e d l e t t e r o f t r a n s m i t t a l which contains i n s t r u c t i o n s .
Very t r u l y y o u r s ,
(S)
CAW:L
C. A . W o r t h i n g t o n ,
Deputy Governor.
,383
COPY
X»7875R>
POST OFFICE DEPARTLiENT
B . W. F i c k e n
"Inspector
O f f i c e of I n s p e c t o r
C a s e No. 3 2 4 2 6 - C
Kansas C i t y , M i s s o u r i , September 1 , 1 9 3 2 .
SUBJECT:
T r a n s m i s s i o n b y e x p r e s s of d a i l y c l e a r a n c e l e t t e r , e t c .
F e d e r a l R e s e r v e Bank,
Kansas C i t y , M i s s o u r i .
A t t e n t i o n Mr. J . W. Helm.
Gentlemen:
The P o s t O f f i c e D e p a r t m e n t h a s r e q u e s t e d a n i n v e s t i g a t i o n of
t h e r e p o r t e d p r a c t i c e o f "bank s e n d i n g t h e i r d a i l y c l e a r a n c e l e t t e r ,
a c c o m p a n i e d b y p a i d or c a n c e l e d c h e c k , "by e x p r e s s i n s t e a d o f "by m a i l ,
and i n t h i s c o n n e c t i o n t h e S e c o n d A s s i s t a n t P o s t m a s t e r G e n e r a l a d v i s e s
a s f o l l o w s : "While t h e t r a n s m i s s i o n of c a n c e l e d c h e c k s , i f n o t a c c o m p a n i e d "by a n y t h i n g i n t h e n a t u r e o f p e r s o n a l c o r r e s p o n d e n c e , w o u l d n o t
"be v i o l a t i v e o f t h e l a w , t h e f a c t t h a t a d a i l y c l e a r a n c e l e t t e r i s
e n c l o s e d would c o n s t i t u t e an apparent v i o l a t i o n of the p r i v a t e express
statutes."
I n o r d e r t o d e t e r m i n e j u s t what i s "being s e n t "by e x p r e s s "by
y o u r "bank, w i l l y o u k i n d l y a d v i s e t o whom y o u a r e m a k i n g e x p r e s s s h i p m e n t s , how o f t e n and f o r how l o n g a p e r i o d . A l s o p l e a s e a d v i s e j u s t
what i s "being i n c l o s e d i n s u c h s h i p m e n t s , s u b m i t t i n g s a m p l e s of a l l
l e t t e r s and f o r m s u s e d w i t h d e s c r i p t i v e e x p l a n a t i o n o f e a c h . I t i s a l s o
d e s i r e d t h a t y o u a d v i s e f r o m what o t h e r "banks y o u a r e r e c e i v i n g c l e a r a n c e
l e t t e r s and s i m i l a r m a t t e r "by e x p r e s s .
Sincerely yours,
/s/
B . W. FICKEN
Post Office Inspector
I
uO'i
X-7272-C
0 11
FEDERAL RESERVE BA11K
or
KANSAS CITY
September 9, 1932.
Mr. B. W. F i c l t e n ,
Post Office Inspector,
Kansas C i t y , M i s s o u r i .
Dear S i r :
R e p l y i n g f u r t h e r t o t h e i n q u i r y c o n t a i n e d i n y o u r l e t t e r o f September
1 , 1 9 3 2 , Case Ho. 3 2 4 2 6 - C , y o u a r e a d v i s e d t h a t f o r y e a r s our d a i l y t r a n s c r i p t o f
t h e g e n e r a l a c c o u n t of t h e T r e a s u r e r o f t h e U n i t e d S t a t e s h a s 'been f o r w a r d e d b y
e x p r e s s , a c c o m p a n i e d "by a l l s u p p o r t i n g p a p e r s . T h i s was d o n e i n a c c o r d a n c e w i t h
i n s t r u c t i o n s c o n t a i n e d i n General L e t t e r X-1296 from t h e F e d e r a l Reserve Board,
W a s h i n g t o n , D. C . , d a t e d November 3 0 , 1 9 1 8 , a copy of w h i c h y o u w i l l f i n d e n c l o s e d .
As r e q u e s t e d , y o u w i l l f i n d s a m p l e s o f t h e f o r m s w h i c h accompany our p a i d v o u c h e r s
drawn on t h e T r e a s u r e r o f t h e U n i t e d S t a t e s and w h i c h a r e e n c l o s e d d a i l y w i t h t h e
transcript of the Treasurer's general account.
You a r e a l s o a d v i s e d t h a t "beginning i n 1 9 2 4 a n d 1 9 2 5 a n d c o n t i n u i n g
u n t i l t h e p r e s e n t t i m e , we h a v e u s e d t h i s method f o r d e l i v e r y o f c h e c k s t o t h e
F e d e r a l R e s e r v e Bank o f S t . L o u i s , 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 , t h e
F e d e r a l R e s e r v e Bank o f D a l l a s , and t o our "branches a t Omaha and Oklahoma C i t y .
T h e s e s h i p m e n t s h a v e "been made d a i l y e x c e p t S u n d a y s , h o l i d a y s a n d e l e c t i o n d a y s ,
except t h a t , during the d a y l i g h t savings p e r i o d , shipments to the Federal Reserve
Bank of C h i c a g o h a v e u s u a l l y "been s e n t "by m a i l . We a l s o r e c e i v e s i m i l a r i t e m s "by
e x p r e s s f r o m our Omaha and Oklahoma C i t y "branches.
You w i l l a l s o f i n d e n c l o s e d c o p i e s o f t h e f o r m s w h i c h a r e e n c l o s e d
w i t h t h e c h e c k s w h i c h a r e f o r w a r d e d t o t h e F e d e r a l R e s e r v e Banks of C h i c a g o ,
D a l l a s and S t . L o u i s , a n d t o our "branches a t Omaha and Oklahoma C i t y . W i t h t h e
e x c e p t i o n of t h e f o r m s a c c o m p a n y i n g t h e d a i l y t r a n s c r i p t o f t h e T r e a s u r e r ' s
g e n e r a l a c c o u n t , a l l o t h e r f o r m s e n c l o s e d i n s u c h s h i p m e n t s h a v e "been p r e s e n t e d
i n d u p l i c a t e t o t h e l o c a l p o s t o f f i c e o f f i c i a l s i n e v e r y c a s e f o r a p p r o v a l "before
they were a l l o w e d t o b e s e n t by e x p r e s s .
A l s o a s r e q u e s t e d , y o u a r e a d v i s e d t h a t we a r e r e c e i v i n g e x p r e s s
s h i p m e n t s c o n t a i n i n g c h e c k s and s i m i l a r a d v i c e s from t h e f o l l o w i n g b a n k s :
C o n t i n e n t a l I l l i n o i s Bank & T r u s t
F e d e r a l R e s e r v e Bank o f C h i c a g o ,
F i r s t N a t i o n a l Bank,
F i r s t N a t i o n a l Bank,
C i t i z e n s N a t i o n a l Bank,
Central N a t i o n a l Bank,
M e r c h a n t s N a t i o n a l Bank,
N a t i o n a l Bank of T o p e k a ,
F i r s t N a t i o n a l Bank,
Fourth N a t i o n a l Bank,
Chicago, 111.
ii
II
ii
n
Joliet,
"
Emporia, Kans. ( i r r e g u l a r l y )
Topeka, Kans.
N
II
ii
Wichita,
ii
"
II
II
*385
X~7273»c
FEDERAL RESERVE B A H
OF
KANSAS CITY
B . W. F i c k e n , P o s t O f f i c e I n s p e c t o r
K. C. Mo. 9-9—32
—3—
F i r s t N a t i o n a l Bank,
S t . J o s e p h , Mo. ( i r r e g u l a r l y )
T o o t l e - L a c y N a t i o n a l Bank,
tt
it
n
it
F e d e r a l R e s e r v e Bank o f S t . L o u i s , S t . L o u i s ,
"
E x c h a n g e N a t i o n a l Ban!:,
Tulsa, Okla.
(irregularly)
S h o u l d a n y f u r t h e r i n f o r m a t i o n b e d e s i r e d on t h i s m a t t e r ,
p l e a s e b e a s s u r e d t h a t we w i l l b e g l a d t o h a v e y o u a d v i s e u s .
Very t r u l y y o u r s ,
J . W. Helm
D e p u t y Governor and C a s h i e r
COPY
X-7273-d
386
S ^ f f i A L RESERVE
BOARD
OFFICE CORRESPONDENCE
To
The F e d e r a l R e s e r v e B o a r d
From
Mr. G-. Rowland Chase
Date
Sept. 30, 1933
S u b j e c t : Q u e s t i o n r a i s e d by P o s t O f f i c e Department a s t o whether c e r t a i n
s h i p m e n t s made "by t h e F e d e r a l R e s e r v e
Bank o f K a n s a s C i t y s h o u l d h e made
by mail r a t h e r than by e x p r e s s .
The a t t a c h e d c o r r e s p o n d e n c e d e a l s w i t h a n i n q u i r y made b y a
P o s t O f f i c e I n s p e c t o r r e g a r d i n g s h i p m e n t s o f c a n c e l l e d c h e c k s and o t h e r
m a t t e r s w h i c h t h e F e d e r a l R e s e r v e Bank of K a n s a s C i t y lias b e e n s e n d i n g
by e x p r e s s , and which t h e I n s p e c t o r f e e l s should perhaps have been sent
by m a i l .
A s t o a p a r t of t h e s e s h i p m e n t s , t h e d a i l y t r a n s c r i p t o f
g e n e r a l a c c o u n t and s u p p o r t i n g p a p e r s f o r w a r d e d t o t h e T r e a s u r e r o f
t h e U n i t e d S t a t e s , t h e F e d e r a l R e s e r v e Bank i s f o l l o w i n g t h e p r a c t i c e
s u g g e s t e d i n a c i r c u l a r l e t t e r from t h e F e d e r a l Reserve Board ( X - 1 2 9 6 ) ,
w h i c h was d a t e d November 3 0 , 1 9 1 8 , and i n t h i s r e s p e c t , a t l e a s t , i t
i s p r o b a b l y a d o p t i n g t h e same p r a c t i c e a s a l l t h e o t h e r r e s e r v e b a n k s .
A s i s s t a t e d i n t h e a t t a c h e d c o p y of t h e b a n k ' s l e t t e r d a t e d S e p t e m b e r
9 , 1 9 3 2 , t h e b a n k h a s a l s o b e e n s e n d i n g o t h e r m a t t e r s , i n c l u d i n g some
" c a s h l e t t e r s " and t h e a c c o m p a n y i n g c h e c k s , b y e x p r e s s s i n c e 1 9 2 4 or
1925
The B o a r d ' s f i l e s do n o t i n d i c a t e t h a t a n y q u e s t i o n h a s h e r e t o f o r e been r a i s e d i n c o n n e c t i o n w i t h any shipments of t h i s k i n d .
The I n s p e c t o r , i n h i s l e t t e r o f S e p t e m b e r 1 , q u o t e s t h e S e c o n d
A s s i s t a n t Postmaster General to t h e e f f e c t t h a t the o b j e c t i o n i s not
to t h e s e n d i n g of c a n c e l l e d checks by e x p r e s s but t o t h e s e n d i n g of
s u c h m a t t e r accompanied by something i n t h e n a t u r e of a " l e t t e r " .
The s t a t u t e t o w h i c h t h e I n s p e c t o r a p p a r e n t l y r e f e r s w i l l
b e f o u n d i n T i t l e 1 8 , S e c t i o n 3 0 4 , U n i t e d S t a t e s C o d e , w h i c h makes
i t a crime
f o r a n y one t o e s t a b l i s h a " p r i v a t e e x p r e s s f o r t h e conr-
3 8 ?
-
2
v e y a n c e of l e t t e r s or p a c k e t s " .
-
S e c t i o n 3 0 6 makes i t a c r i m e f o r t h e
s e n d e r t o t r a n s m i t a n y l e t t e r o r p a c k e t "by s u c h m e a n s .
The p u r p o s e
of t h e s e s t a t u t e s ( w h i c h h a v e "been i n e x i s t e n c e i n d i f f e r e n t f o r m s
a t l e a s t s i n c e t h e f i r s t p a r t of t h e l a s t c e n t u r y ) i s t o g i v e t o
t h e P o s t O f f i c e Department a monopoly i n t h e t r a n s p o r t a t i o n of
letters.
A p p a r e n t l y t h e word " l e t t e r " h a s no t e c h n i c a l s i g n i f i c a n c e ,
"but i s u s e d i n t h e commonly a c c e p t e d m e a n i n g .
The word " p a c k e t "
means a p a c k e t o f l e t t e r s ; i n o t h e r w o r d s , t h e m o n o p o l y g r a n t e d
d o e s n o t e x t e n d t o a n y t h i n g e x c e p t l e t t e r s ( S e e P o s t a l Laws a n d
Regulations, 1934, Section 1256.)
I t i s t h e o p i n i o n of t h i s o f f i c e t h a t no u s e f u l p u r p o s e
w o u l d "be s e r v e d b y a t t e m p t i n g a t t h i s t i m e t o i n t e r v i e w o f f i c i a l s
i n t h e P o s t O f f i c e Department i n Washington i n c o n n e c t i o n w i t h t h i s
matter.
To d a t e t h e r e h a s b e e n m e r e l y a n i n q u i r y b y a n i n s p e c t o r ,
and i t w o u l d seem i n a p p r o p r i a t e t o d i g n i f y t h e m a t t e r rath a n a t t e m p t
to argue the c a s e u n t i l something f u r t h e r has been heard from t h e
Post O f f i c e Department.
I t i s , of course, p o s s i b l e t h a t t h i s i n c i d e n t
i s a p a r t of t h e g e n e r a l attempt by t h e P o s t O f f i c e Department t o
correct i t s annual d e f i c i t .
I t would seem, however, t h a t should t h e
P o s t O f f i c e Department attempt t o impose t h i s added c o s t upon t h e
f e d e r a l R e s e r v e System i n c o n n e c t i o n w i t h t h e s e shipments, t h e burden
could be a v o i d e d by s h i p p i n g t h e c a n c e l l e d checks and t h e c o v e r i n g
l e t t e r s e p a r a t e l y , t h e f o r m e r by e x p r e s s and t h e l a t t e r b y m a i l .
What w i l l b e t h e a t t i t u d e o f t h e D e p a r t m e n t r e g a r d i n g s h i p m e n t s made
3 8 8
3&-72?2~&
- 3 -
i n t h e p a s t , m u s t r e m a i n t o "be s e e n .
A c c o r d i n g l y , i t i s suggested, t h a t t h e a t t a c h e d l e t t e r ,
t o g e t h e r w i t h c o p i e s o f t h e l e t t e r and i n c l o s u r e s f r o m t h e
D e p u t y G o v e r n o r of t h e F e d e r a l R e s e r v e Bank o f K a n s a s C i t y , a n d
a c o p y of t h i s memorandum, "be s e n t t o t h e G o v e r n o r s o f a l l F e d e r a l r e s e r v e b a n k s i n c a s e t h e y may h a v e a n y c o m m e n t s , or i n formation regarding similar incidents.
Respectfully,
G-. Howland C h a s e ,
Assistant Counsel,
Letters attached
FEDERAL RESERVE BOARD
X-7274
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
THE FEDERAL RESERVE BOARD
SUBJECT:
.
(Vtribpl* XIS
193?.
tS ,
U C t O D e r
Holidays during November, 1932.
Dear S i r :
On Tuesday, November 1, the Hew Orleans Branch of the
Federal Reserve Bank of Atlanta w i l l "be closed i n observance of
All S a i n t s ' Day. Please include c r e d i t s for Hew Orleans Branch
f o r November 1 i n the Gold Fund t r a n s i t clearing of November 2.
On Tuesday, November 8, General Election Day, t h e r e w i l l
be neither t r a n s i t nor Federal Reserve note clearing and the
books of the Board's Gold Settlement Fund w i l l "be closed. The
o f f i c e s of the Federal Reserve Board and the following Federal
reserve "banks and branches will be open f o r business on t h a t day:
Boston
Cleveland ) Until 1 P.M.,
Cincinnati) Eastern Standard
) Time
L i t t l e Rock
Louisville
Omaha
Salt Lake City
Atlanta
New Orleans
Birmingham
On Friday, November 11, i n observance of Armistice Day,
and on Thursday, November 24, Thanksgiving Day, there w i l l be
n e i t h e r t r a n s i t nor Federal Reserve note cleaning and the books
of the Board's Gold Settlement Fund w i l l be closed. The o f f i c e s
of the Board and of the Federal Reserve Bank of New York and i t s
Buffalo Branch w i l l be open f o r business on Friday, November 11.
Please n o t i f y branches.
TO GOVERNORS OF ALL F. R. BANKS.
Very t r u l y yours,
J . C. IToell,
Assistant Secretary.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
_
X-7275
October 20, 1932.
SUBJECT:
Hew Issue Treasury B i l l s .
Dear S i r :
In connection with telegraphic transactions i n
Government s e c u r i t i e s "between Federal reserve hanks,
the code word "NOXDIIFER" has been designated to cover
a new issue of Treasury B i l l s , dated October 26, 1932,
and maturing January 25, 1933.
This word should be inserted i n the Federal r e serve telegraph code book, following the supplemental
code word "HOXDIET" on page 172.
Very t r u l y yours,
J . C. Noell,
Assistant Secretary.
TO GOVERNORS OF ALL F. R. BABES.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-7276
October 20, 1932.
SUBJECT:
Expenditures of Federal Reserve Banks.
Dear S i r :
Under date of March 16, 1925, the Federal Reserve Board
addressed a l e t t e r to the Governors of a l l Federal reserve hanks
(X-4290) advising t h a t i t would not "be necessary f o r the Federal
reserve hanks to submit annual budgets of t h e i r expenditures f o r
welfare and educational work to the Board for approval hut s t a t ing, however, t h a t expenditures f o r welfare and educational work,
f o r o f f i c e r s ' dinners, entertainment of l o c a l and out-of-town
hankers and f o r membership dues i n and donations to a s s o c i a t i o n s
and s o c i e t i e s should be kept within a reasonably low l i m i t , and
that i n case of doubt as to whether a given expenditure i s a
proper one, the matter should be r e f e r r e d to the Board.
In a
number of instances the Federal Reserve Board has had occasion
to s t a t e that i t cannot authorize expenditures of Federal reserve
bank funds by way of donations to f u r t h e r purposes, no matter how
worthy, which are not d i r e c t l y r e l a t e d to the conduct of the
a f f a i r s of the banks.
X-7276
— 2 —
In reviewing the expenses of the Federal reserve "banks, i t
has "been noted t h a t i n a number of instances expenses have "been
incurred f o r memorials, testimonials, and f l o r a l o f f e r i n g s ; f o r
the purchase of p o r t r a i t s , and f o r other similar purposes.
Ordi-
n a r i l y , such expenditures would not seem to hear any reasonably
d i r e c t r e l a t i o n s h i p to the conduct of the "business of the Federal
reserve "banks and-, accordingly, i t i s the view of the Board t h a t
the Federal reserve "banks should not make such expenditures.
However, i f i n a p a r t i c u l a r case and f o r some special reason i t
i s "believed that an expenditure of t h i s general character would
"be advantageous from the standpoint of the proper conduct of the
business of the Federal reserve bank, a statement of the amount
and nature of the proposed expenditure, with the reason t h e r e f o r ,
should be submitted to the Board for consideration.
For the Board's information and f i l e s i t w i l l be appreciated i f you w i l l kindly f u r n i s h i t with a l i s t of a l l a s s o c i a t i o n s ,
clubs, s o c i e t i e s , e t c . , to which membership dues, or donations, are
being paid by your bank and by each of i t s branches, i f any.
The
statement should show what the membership covers; i n whose name
taken out; the date i t expires; the amount of the annual dues or,
i n case of donations to a s s o c i a t i o n s , s o c i e t i e s , e t c . , of which the
bank i s not a member, the amount of the donations; the special
b e n e f i t or advantage which i t i s believed accrues to the bank from
the expenditure; and any other p e r t i n e n t information.
In any case
X-7376 3 9 3
— 3 *"•
which involves the payment of dues, assessments, or the l i k e on
the "basis of p a r t i c i p a t i o n of more than one r e p r e s e n t a t i v e of
the "bank the names of such representatives and the s p e c i f i c
reasons f o r having more than one should "be s t a t e d .
I t i s understood that a t some of the "banks Federal r e serve clubs or s o c i e t i e s are maintained from funds contributed
i n p a r t "by the Federal reserve "bank and i n part "by the employees.
I t i s requested that the funds contributed to the club by the
Federal reserve bank or branch be accounted for separately from
those contributed by employees, and that a statement be sent to
the Board a t the end of each year showing the purposes for which
the funds contributed by the Federal reserve banks were expended*
Very t r u l y yours,
Chester M o r r i l l ,
Secretary.
TO G0VEB1TQRS OF ALL F. E. BAMS
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-7277
October 21, 1932.
SUBJECT:
Expense, Main Lines, Leased Wire System,
September, 1932.
Dear Sir:
Enclosed, herewith you will find two mimeographed
statements, X-7277-& and
covering in d e t a i l
operations of the main lines, Leased Wire System, during
the month of September, 1932.
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, f o r account of "Salaries
and Expenses, Federal Reserve Board, Special Fund", Leased
? i r e System, sending duplicate C/D to the Federal Reserve
Board.
Very truly yours,
Fiscal Agent.
Enclosures.
TO GOVERNORS OF ALL F. R. BANKS.
X-7277-a
REPORT SHOWING CLASSIFICATION AND NUMBER OF WORDS TRANSMITTED OVER MAIN LINES
OF THE FEDERAL RESERVE LEASED WIRE SYSTEM FOR THE MONTH OF SEPTEMBER, 1932.
Business
reported
by banks
From
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
S t . Louis
Minneapolis
.Kansas City
J3al l a s
San Francisco
Total
Words sent "by
New York chargeable to other
F. R. Banks (1)
Net Federal
reserve
bank
business
2,056
30,244
153,096
29,533
64,738
28,188
153,096
27,804
63,434
59,310
57,239
87,643
64,865
30,928
—
1,729
1,304
1,381
1,552
66,302
60,316
98.092
797,217
1,977
2,144
1,280
1,383
2,883
2.590
20,279
T. R. Board "business
60,691
58,791
89,620
67,009
32,208
67,685
63,199
100.682
817,496
Percent of t o t a l
bank business (*)
3.70
18.73
3.61
7.92
7.42
7.19
10.96
8.20
3.94
8.28
7.73
12.32
100.00
289.173
Reimbursable business Incoming and Outgoing
Total words transmitted over main l i n e s
(*)
These percentages used in c a l c u l a t i n g the pro r a t a share of leased wire expense as shown
on the accompanyirg statement (X-7277-b)•
(1)
Number of words sent by New York to other F. R. Banks f o r t h e i r sole b e n e f i t charged to
banks indicated i n accordance with action taken at Governors' Conference
November 2-4, 1925*
1,106,669
379,030
1,485,699
qp
V?
X-7277-Td
REPORT OF EXPENSE MAIN LINES
FEDERAL RESERVE LEASED WIRE SYSTEM, SEPTEMBER, 1932.
Name of Bank
Boston
New York
Philadelphia
Cleveland
Richmond
.Atlanta
Chicago
St. Loui s
Minneapolis
Kansas City
Dallas
San Francisco
Federal Reserve Board
Total
Operators 1
salaries
Operators 1
overtime
$260.00
1,134.15
225.00
306.66
190.00
270.00
3,778.53 ( # )
195.00
200.00
227.50
251.00
320.00
$
—•
$7,477.84
$
—
1.00
Wire
rental
Total
expenses
$
$260.00
1,135.15
—
225.00
—
—
306.66
230.00 (&)
420.00
270.00
3,772.53
—
195.00
—
200.00
—
287.50
251.00
—
380.00
—
15,656.96
15,656.96
1.00 $15,886.96
$23,365.80
Reimbursable charges:
"Treasury Department
$2,922.89
Reconstruction Finance Corporation . 2,890.03
Federal Farm Loan Board
25,30
"Federal Farm Board
46.87
XJompt. of Currency, Insolv. Bank' Div.
69.97
Less} Reimbursable charges. .
—
Pro r a t a
share of
total
expenses
Credits
$643.97
3,259.91
628.31
1,378.46
1,291.43
1,251.40
1,907.56
1,427.19
625.75
l,44l.il
1,345.39
2,144.26
$260.00
1,135.15
225.00
306.66
420.00
270.00
3,778.53
195.00
200.00
227.50
251.00
380.00
$17,404.74
$7,708.84
Payable to
Federal
Reserve
Board
$383-97
2,124.76
403.31
1,071.80
871.43
981.40
1,870.97 (*
1,232.19
485-75
1,153.61
1,094.39
1,764.26
$11,566.87
1.870.97 (a)
$ 9,695.90
5,96l.06
$17!404.74
(&) Main l i n e r e n t a l , Richmond-Washington.
(#) "Includes s a l a r i e s of Washington o p e r a t o r s .
(*) C r e d i t .
(a) Jmount reimbursable to Chicago.
cc
fTS
W
*t
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL C O R R E S P O N D E N C E T O
T H E FEDERAL RESERVE BOARD
X-7279
October 21, 1932.
SUBJECT:
Shipment of Canceled Checks,
e t c . , by Express.
Dear S i r :
With f u r t h e r reference to the l e t t e r of
October 15, 1932 (X-7272), r e l a t i n g to the above
s u b j e c t , there i s inclosed f o r your information
a copy of a l e t t e r dated October 17, 1932, which
has been received from Mr. Worthington.
Very t r u l y yours,
Chester M o r r i l l ,
Secretary.
Inclosure.
TO GOVEBiroBS OF ALL J . H. BASKS.
398
X-7279-a
COPY
FEDERAL EESERVE BAH
OP
KANSAS CITY
October 17, 1932.
Mr. Chester M o r r i l l , Secretary,
Federal Reserve Board,
Washington, D. C.
Dear Mr. M o r r i l l :
This w i l l acknowledge r e c e i p t of your l e t t e r of October 15,
enclosing a copy of Board's l e t t e r X-7272 on the s u b j e c t : "Shipment
of Canceled Checks, e t c . , by Express." We have received no reply
to Mr, Helm's l e t t e r of September 9, 1932, to Post Office Inspector
Ficken and t h e only new development i s that we have been informed
t h a t a member bank in t h i s d i s t r i c t was required to pay postage on
some shipments of cash items which i t made by express p r i o r to the
time i t was n o t i f i e d that such shipments were i n v i o l a t i o n of p o s t a l
r e g u l a t i o n s . While we s t i l l continue to send cash items to c e r t a i n
banks by express, we discontinued more than a month ago the sending
of a l e t t e r of t r a n s m i t t a l along with the items. Our l e t t e r l i s t i n g ,
the items and containing i n s t r u c t i o n s with reference thereto i s now
forwarded separately by mail and i t i s observed that t h i s procedure i s
i n l i n e with the suggestion made by the Board's counsel.
informed.
Should there by any f u r t h e r developments, you w i l l be promptly
Very t r u l y yours,
(S)
CAW:L
C. A. Worthington,
Deputy Governor.
399
X-7280
FEDERAL
HE S E R VE B 0 A O
STATEMENT FOE THE PRESS
For release in Morning Papers,
Wednesday, October 26, 1932.
The following summary of general business and f i n a n c i a l conditions in the
United States, based upon s t a t i s t i c s for
the months of September and October,
w i l l appear in the forthcoming issue
of the Federal Eeserve B u l l e t i n and in
the monthly reviews of the Federal
reserve banks.
I n d u s t r i a l a c t i v i t y and shipments of commodities by r a i l increased from
August to September by considerably more than the usual seasonal amount.
There
was also a more than seasonal increase in the volume of factory employment and
payrolls.
The general l e v e l of p r i c e s , a f t e r advancing f o r three months, showed
a decline beginning in the early p a r t of September.
Production and employment - Volume of i n d u s t r i a l production, as measured by
the Board's seasonally adjusted index, based on the 1923-1925 average, increased
from a low point of 58 in July to 60 in August and 66 in September.
The advance
in September r e f l e c t e d c h i e f l y large increases in a c t i v i t y a t t e x t i l e m i l l s ,
shoe f a c t o r i e s , meatpacking establishments, and coal mines.
In the s t e e l
industry, where a c t i v i t y had shown none of the usual seasonal increase in August,
operations expanded considerably during September and the f i r s t three weeks of
October to about 20 per cent of capacity.
Daily average output of automobiles
and lumber in September showed l i t t l e change from recent low l e v e l s .
Factory employment increased from 58 0 8 per cent of the 1923-1925 average in
August to 60.3 per cent in September, according to the Board's seasonally
adjusted index.
Considerable increases were reported in the cotton, woolen, s i l k ,
hosiery, and clothing i n d u s t r i e s , and smaller increases a t car building shops,
foundries, cement m i l l s , and f u r n i t u r e f a c t o r i e s .
In the automobile, t i r e and
X-7280
—2—
e l e c t r i c a l machinery i n d u s t r i e s , employment declined.
Daring the three months ending with September value of "building contracts
awarded, as reported "by the F. W. Dodge Corporation, was about the same as in the
preceding three months, although awards are usually smaller in the t h i r d quarter.
In the f i r s t half of October the d a i l y average of contracts declined somewhat.
Distribution - Volume of f r e i g h t - c a r loadings increased by considerably
more than the usual seasonal amount in September, r e f l e c t i n g c h i e f l y larger shipments of coal and miscellaneous f r e i g h t .
Department store sales increased from
the low level of August by somewhat more than the usual seasonal percentage.
Wholesale -prices - Wholesale commodity p r i c e s , as measured by the monthly
index of the Bureau of Labor S t a t i s t i c s , showed l i t t l e change from August to
.September.
During August and early September there was a general advance in
p r i c e s followed by a decline which continued through the f i r s t half of October,
when the average was 2 per cent below the high point in early September and 1 per
cent above the low point of early summer.
Substantial decreases occurred a f t e r
the beginning of September in the p r i c e s of many domestic a g r i c u l t u r a l commodit i e s , including cotton, grains, and livestock, and also in p r i c e s of gasoline,
nonferrous metals, and imported raw materials; while p r i c e s of wool, worsted
yarns, coal, and lumber increased somewhat during t h i s period.
Bank credit - During September and the f i r s t three weeks of October there
were f u r t h e r additions to the reserve funds of member banks, a r i s i n g from
increases in the country's stock of monetary gold, from an unseasonal return flow
of currency, and from issues of additional national bank notes.
Member bank
indebtedness to the reserve banks declined by more than $100,000,000 from
September 7 to October 19 and t h e i r reserve balances increased by $180,000,000.
X-7280
Baring September and the f i r s t two weeks of October reporting member banks
in leading c i t i e s showed a f u r t h e r growth in investment holdings, largely of
United States Government s e c u r i t i e s , but to some extent of other investments.
Loans of reporting banks declined f u r t h e r in September; in the early p a r t of
October loans a t "banks in New York City showed an increase.
There was consider-
able growth in Government deposits and in bankers 1 balances during the period;
time deposits also increased.
Money r a t e s in the open market declined to lower levels during the f i r s t
half of October, the r a t e on prime commercial paper being reduced from a range of
2~2i to a range of i f - 2 per cent, and the rate on 90-day bankers 1 acceptances
from 3/4 of one per cent to 1/2 of one per cent.
Rates f o r c a l l loans on stock
exchange c o l l a t e r a l declined from 2 per cent to 1 per cent.
1.7281402
FOREIGN BRANCHES OF AMERICAN
BANKING INSTITUTIONS
Bank of America n a t i o n a l Trust & Savings Assn.. San Francisco, C a l i f .
Branch:
England
London
Bankers Trust Company, Hew York, N. Y.
Branches:
England:
London
France:
Paris
Chase National Bank. New York, N. Y.
Branches:
Cuba:
Havana
England:
London (two o f f i c e s )
Panama:
Panama City
Canal Zone:
Cristobal
Bnpire Trust Company, New York, N. Y. (Non-Member)
England:
London
Branch:
F i r s t National Bank. Boston, Mass.
Branches:
Argentina:
Avellaneda
Buenos Aires (four o f f i c e s )
Bosario
Cuba:
Ci enfuegos
Havana
(three o f f i c e s )
Sancti S p i r i t u s
Santiago
guaranty Trust Company, New York, N. Y.
Branches:
Belgium:
Antwerp
Brussels
England:
London (three o f f i c e s )
- Liverpool
France:
Paris
Havre
National City Bank of New York, New York, N. Y.
Branches:
Argentina:
Buenos Aires (four o f f i c e s )
Eosario
Belgium:
Antwerp
Brussels
Brazil:
Pemambuco
Eio de Janeiro
Santos Agency
Sao Paulo
Chile:
Santiago
Valparaiso
China:
Canton
Dairen
Hankow
Harbin
Hongkong
X-7281
—2—
National City Bank of Hew York, Stew York, K. Y. (continued)
Branches:
China:
iviouk&en
Peiping
Shanghai
Tientsin
Colombia:
Bogota
Cali
Medellin
Cuba:
Caiharien
Camaguey
Cardena°
Ciego de Avila
Cienfuegos
G-uantanamo
Havana ( s i x o f f i c e s )
Manzanillo
Matanzas
Moron
ITuevitas
Paloa Soriano
Pinar del Eio
Sagua l a Grande
Sancti Spiritus
Santa Clara
Santiago
Dominican Republic:
Barahona
La Vega
Puerto Pla ta
San Pedro de Macoris
Santiago de Los Caballeros
Santo Domingo City
England:
London - City Branch
West End Branch (City Bank
Farmers Trust Co., 11 Waterloo Place, L t d . , a B r i t i s h
Company handling t r u s t operations only, e n t i r e stock
owned "by n a t i o n a l City Bank,
Hew York, i s also a t t h i s
address)
403
X-7281
-3National City Bank of New York, New York, N. Y. (continued)
Branches:
India:
Bombay (two o f f i c e s )
Calcutta
Rangoon
Italy:
Genoa
Milan
Japan:
Kobe
Osaka
Tokio
Yokohama
Mexico:
Mexico City
Panama:
Colon
Panama City
Peru:
Lima
Philippine Islands:
Cebu
Manila
Puerto Rico:
Arecibo
Bayamon
Caguas
Mayaguez
Ponce
San Juan
Santurce
S t r a i t s Settlements:
Singapore
Uruguay:
Montevideo
Venezuela:
Caracas
BRANCHES OF FOREIGN BASKING CORPORATIONS OPERATING
UNDER EDGE ACT OR UNDER AGREEMENT WITH THE FEDERAL RESERVE BOARD
The Chase Bank, New York, N. Y.
Branches:
China:
France:
Mexico:
(Edge Act Corporation stock of which
i s owned by the Chase National Bank
of New York.)
Shanghai
Hongkong
Tientsin
Paris (two o f f i c e s )
Mexico City
|
4$t
X-7281 4 0 5
-4I n t e r n a t i o n a l Banking Corporation (Subsidiary of n a t i o n a l City Bank
of Hew York, N. Y.)
Branches:
England:
London
Barcelona
Spain:
Madrid
France:
I n t e r n a t i o n a l Banking Corporation
owns stock of n a t i o n a l City Bank
of Hew York, France, S. A., opera t i n g "branches a t :
Paris (two o f f i c e s )
llice
Bank of H a i t i , I n c . , subsidiary
Haiti:
of the I n t e r n a t i o n a l Banking
Corporation, holds stock of
Banque Rationale de l a Republique
d ' H a i t i , operating a t the following points i n the Republic of
Haiti :
Port au Prince (Head O f f i c e )
Aux Cayes
Cape Haitian
G-onaives
Jacmel
Jeremie
P e t i t Goave
Port de Paix
S t . Marc
Aquin (Agency)
Miragoane (Agency)
Fort Liberte (Agency)
Switzerland:
International Banking Corporation
holds stock of Societe Anonyme de
G-erances et de Depots, a Swiss
corporation, operating a t Geneva,
Switzerland.
Federal Reserve Board,
October 31, 1932.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-7282
October 31, 1932.
SUBJECT;
Purchase of "bank stock by State member banks.
Dear Sir:
The Federal Reserve Board recently received a request from
a State member bank f o r permission to organize and acquire substant i a l l y a l l of the c a p i t a l stock of a bank to be located beyond the
l i m i t s of the c i t y in which the member bank i s s i t u a t e d .
This request
was submitted under the provisions of a condition of membership which
requires the member bank to obtain the permission of the Federal Reserve Board before i t acquires any stock in another bank or t r u s t
company.
A f t e r c a r e f u l consideration of the matter, the Board advised
the member bank that i t does not look with favor upon the a c q u i s i t i o n
by a member bank of stock in another bank or t r u s t company and t h a t ,
in view of the provision of Section 9 of the Federal Reserve Act which
forbids a State member bank to r e t a i n i t s membership in the Federal
Reserve System i f i t e s t a b l i s h e s a branch 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 , the Board
did not f e e l that i t could properly grant the member bank the permission
f o r which i t had applied.
In t h i s connection, a t t e n t i o n was called to
-2-
X-7282
the f a c t that the organization and ownership by a member hank of subs t a n t i a l l y a l l of the c a p i t a l stock of a hank located "beyond the l i m i t s
of the c i t y in which such member hank i s s i t u a t e d would have p r a c t i c a l l y
the same e f f e c t as the establishment of a branch of such bank beyond the
l i m i t s of the c i t y in which i t i s located, and would be contrary to the
s p i r i t and purpose of the provision of Section 9 of the Federal Reserve
Act r e f e r r e d to above.
The p o s i t i o n taken by the Board in t h i s matter i s c a l l e d to
your a t t e n t i o n f o r your information in the event that cases involving
similar circumstances should a r i s e h e r e a f t e r in your D i s t r i c t ; and the
Board should be advised in d e t a i l of the circumstances involved in any
such case.
In t h i s connection, i t may be noted that some State member
banks are not subject to the condition of membership requiring them to
obtain the Board's permission before acquiring stock in another bank.
However, in view of the provision of Section 9 of the Federal Reserve
Act which p r o h i b i t s the establishment of branches 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 member bank i s s i t u a t e d ,
the Board should also be advised of a l l the circumstances involved in
any case in which such a State member bank d e s i r e s to acquire a subs t a n t i a l amount of the stock of another bank located outside of the
l i m i t s of the c i t y in which the member bank i s s i t u a t e d .
Very t r u l y yours,
Chester M o r r i l l ,
Secretary.
TO ALL FEDERAL RESERVE AGENTS.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
THE FEDERAL RESERVE BOARD
X-7283
November 2, 1932.
SUBJECT: New Issue Treasury B i l l s .
Dear S i r :
In connection with telegraphic transactions in
Government s e c u r i t i e s between Federal reserve banks,
the code word "NOXDIFFUSE" has been designated to cover
a new issue of Treasury B i l l s , dated November 9, 1932,
and maturing February 8, 1933.
This word should be inserted in the Federal r e serve telegraph code book, following the supplemental
code word "NOXDIFFER" on page 172.
Very tr uly yours,
J . C. Noell,
Assistant Secretary.
TO GOVERNORS OF ALL F. R. BAMS.
409
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
THE FEDERAL RESERVE BOARD
X—f ^ 8 4
ITovember 3, 1932.
SUBJECT: Program f o r Meeting on November 14, 1932.
Dear S i r :
The Board has received from the Chairman of the Federal Reserve Agents' Conference and the Secretary of the Governors' Conference l i s t s of a l l the topics suggested "by the Federal reserve agents
and the Governors f o r consideration a t the meeting of the Federal
Reserve Board with the Federal reserve agents and Governors which
w i l l "be held beginning on Monday, November 14, 1932, at 10:30 a.m.
Careful consideration has been given to a l l of these suggestions, and
a copy of the program which has been adopted by the Federal Reserve
Board for t h i s meeting i s inclosed herewith for your information.
While i t was not p r a c t i c a b l e to include a l l of the suggested
topics i n the Board's program, which i t i s hoped w i l l be completed on
November 14, i t i s understood, of course, that at the conclusion of
the Board's program, and during the day on November 15, the Federal
reserve agents and Governors may, i f they so d e s i r e , discuss any other
subjects i n which they are i n t e r e s t e d , and the members of the Board
will be glad, as f a r as p o s s i b l e , to hear such discussions.
At a
session on November 15 or 16, following such discussions, the Board
w i l l receive any recommendations which the Federal reserve agents or
X-7284
-
2 -
the Governors may have formulated for i t s consideration.
In t h i s connection, while a general discussion of open
market policy w i l l take place on November 14, as a p a r t of the
Board's program, the Board desires that a meeting of the Open
Market Policy Conference be held while the members of the
conference are i n Washington.
Very t r u l y yours,
Chester M o r r i l l ,
Secretary.
Inclosure.
TO GOVEBHOES AiiD AG-EFTS OF ALL F. 2. 3AEZS.
'4
X-7284~aTJ1"J^
PROGRAM
COHFERE2TCE OF THE FEDERAL RESERVE BOARD
with the
FEDERAL RESERVE AGENTS AH> GOVERNORS
OF THE FEDERAL RESERVE BA1IKS
November 14, 1932.
I.
II.
Open market p o l i c y .
Government s e c u r i t i e s as c o l l a t e r a l to Federal reserve notes under
section 16, as amended "by the Act of February 27, 1932.
(a) Policy.
(b) Question of extension of a u t h o r i t y beyond March 3,
1933.
III.
A c t i v i t i e s of Banking and I n d u s t r i a l Committees.
IV.
Proposals f o r changes i n banking laws and f o r reorganization of
banking system.
V.
Status of report of System Committee on Branch, Group and Chain
Banking.
VI.
Status of report of System Committee on Reserves.
VII.
Policy and procedure i n granting permits under the provisions of
the Clayton Act r e l a t i n g to interlocking d i r e c t o r a t e s .
VIII.
Loans by Federal reserve banks under sections 10(a) and 10(b) of
the Federal Reserve Act, as amended by the Act of February
27, 1932.
(a) Experience and policy.
(b) Question of extension of a u t h o r i t y under section
10(b) beyond March 3, 1933.
IX.
X.
XI.
Discounts f o r individuals, partnerships and corporations under
section 13, as amended by the Act of July 21, 1932.
(a) Experience and polic y.
(b) Question of amendment so as to require indorsement
or other security i n connection with such
paper r a t h e r than both.
Proposed study of acceptance p r a c t i c e .
Finance company paper.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-7285
November 4, 1932.
SUBJECT:
Shipment of Canceled Checks,
e t c . , "by Express.
Dear S i r :
With f u r t h e r reference to the above s u b j e c t , which
was the subject of the Board's l e t t e r of October 15, 1932,
(X-7272), there a r e inclosed for your information copies of
f u r t h e r correspondence, as follows:
(1)
Letter dated October 21, 1932, from the
Governor of the Federal Reserve Bank of
Cleveland and a copy of the inclosure r e f e r r e d to t h e r e i n .
(2)
Letter dated October 21, 1932, from the
Governor of the Federal Reserve Bank of
Dallas.
Very t r u l y yours,
Chester M o r r i l l ,
Secretary.
Inclosures.
TO GOVERNORS OF ALL F. R. BAMS.
COPY
X-7285~a
FEDERAL RESERVE BAH
OF CLEVEIAHD
October 21, 1932.
Mr. Chester M o r r i l l , Secretary,
Federal Reserve Board,
Washington, D. C.
Dear Mr. M o r r i l l :
In response to the "board's l e t t e r X-7272 of October 15, 1932,
subject "Shipment of Canceled Checks, E t c , , by Express", we have to r e port that i t has been the p r a c t i c e of t h i s bank and i t s branches f o r many
years to ship to the Treasury Department by express Government checks and
warrants accompanied by the daily t r a n s c r i p t of the T r e a s u r e r ' s general account, as well as a limited number of bulky cash l e t t e r s to our member
banks. The shipment of Treasury checks and warrants by express was begun
a t the suggestion of the Federal Reserve Board contained i n i t s l e t t e r of
November 30, 1918 (X-1296), and the shipment of bulky cash l e t t e r s by express was adopted as a measure of added p r o t e c t i o n a f f o r d e d by the special
handling given express shipments, as well as the saving i n t r a n s p o r t a t i o n
charges, which i s quite s u b s t a n t i a l on large packages. The volume of express shipments was not augmented a t the time the increased p o s t a l r a t e s
became e f f e c t i v e .
Our experience with the Post Office inspectors has been similar
to that of Kansas City; i n July of t h i s year, an inspector from the Cleveland d i s t r i c t t o l d us that t h i s bank was v i o l a t i n g the p o s t a l laws by sending cash l e t t e r s to our member banks by express instead of by mail. He
was informed t h a t our i n t e r p r e t a t i o n of the law indicated that we were withi n our r i g h t s i n using the express company for the shipment of checks, and
that the adding-machine l i s t accompanying the checks was i n the nature of
an invoice such as the Post Office Department approves f o r enclosure with
parcel post shipments.
In September of t h i s year, a Post Office inspector from the P i t t s burgh d i s t r i c t v i s i t e d our Pittsburgh Branch, c a l l i n g a t t e n t i o n to an a l leged v i o l a t i o n of the p o s t a l laws i n sending cash l e t t e r s by express and
requested that the p r a c t i c e be discontinued. After conferring with our
Pittsburgh Branch and obtaining d e t a i l e d information regarding the number
of express shipments, a l e t t e r was received from the inspector estimating
the amount of revenue of which the Post Office Department was deprived during the period from J u l y 6 to the time the matter was taken up with the
branch, as not l e s s than $734.40. A copy of t h i s l e t t e r i s enclosed. KTo
formal demand has been m&de by the Post Office Department f o r re-imbursement. Our Cincinnati Branch has had no communication from the p o s t a l aut h o r i t i e s on t h i s s u b j e c t .
X-7285-a
FEDEBA.L EESEHVE BAH
OF CISVELAED
Mr. Chester Morrill, Secretary
Federal Eeserve Board,
Washington, D. C.
-a-
October 21, 1932.
We have been advised that a report regarding the p r a c t i c e of
t h i s bank and i t s Pittsburgh Branch has been forwarded to the Post Office
Department i n Washington.
Very t r u l y yours,
(S)
F:S:K
E. E. Fancher
Governor.
X-7285-b
PITTSBURGH BRAHCH
FEDERAL BE SERVE BAHK OF CLEVELAHD
POST OFFICE DEPARTMENT
OFFICE OF INSPECTOR.
1. C. KennedyInspector
S
Pittsburgh, P a . , September 24, 1932
Mr. F. E. Cobun
Assistant Cashier
Pittsburgh Branch Federal Reserve Bank
Pittsburgh, Pa.
Dear S i r :
At a conference with you yesterday regarding the transmission
of mail matter through express channels you s t a t e d that you sent an
average of 30 l e t t e r s a day weighing 12 ounces or more to your c o r r e s pondent banks. The postage revenue on t h i s would be not l e s s than
$10.80. The increased postage r a t e s went into e f f e c t July 6, 1932.
There were 68 business days between the time of the increase i n r a t e s
and the time that I called a t your o f f i c e and a t t h i s r a t e the Post
Office Department was deprived of revenue to a minimum charge of $734.40,
t h i s based on the assumption that each of the 30 l e t t e r s mailed daily
by you weighed a t l e a s t 12 ounces and the amount estimated i s t h e minimum
amount of revenue l o s t to the Post Office Department through the use of
the Railway Express.
Please advise i f t h i s estimate i s c o r r e c t . I am enclosing an
o f f i c i a l l y addressed envelope requiring no postage f o r your use i n
submitting a r e p l y .
Very r e s p e c t f u l l y ,
L. C. KE1TNEDY (signed)
Post Office Inspector
416
X-7285-c
COPY
FEDERAL RESERVE BANK
OF DALLAS
B. A. McKinney
Governor
October 21, 1932
Federal Reserve Bank
Washington, D. C.
Gentlemen:
Attention of Mr. Chester Morrill
This w i l l acknowledge r e c e i p t of your l e t t e r X—7272,
dated October 15, 1932, subject: "Shipment of Canceled Checks,
e t c . , "by Express."
For your information,' we are a t t h i s time sending
daily t r a n s c r i p t s of the general account of the Treasurer of
the United States "by express, accompanied by paid vouchers. We
are also forwarding by express daily cash l e t t e r s to twelve or
f i f t e e n banking i n s t i t u t i o n s within the d i s t r i c t , as well as
the Federal Reserve Bank Branch at Oklahoma City, a l l of which
are now accompanied by l e t t e r s of t r a n s m i t t a l .
Early i n September we had an experience here somewhat
similar to that of the Kansas City Federal Reserve Bank. An
inspector of the Post Office Department called upon us a t that
time and inquired i f we were sending checks by express, accompanied by a p r i n t e d l e t t e r of t r a n s m i t t a l . Upon learning of our
manner of handling such items, he obtained copies of a l l t r a n s m i t t a l l e t t e r s , which, according to our understanding, were to
be r e f e r r e d to the Office of the Third Assistant Postmaster General f o r a d e f i n i t e r u l i n g . We had not, p r i o r to the r e c e i p t of
your l e t t e r , heard anything f u r t h e r i n connection with the i n vestigation.
We a r e a t t h i s time giving the matter consideration,
and without f u r t h e r discussion with the Post Office Department,
contemplate i n s t i t u t i n g a t an early date a plan which w i l l comply with the suggestion of counsel i n a manner that should p r o t e c t t h i s bank from any complaint on the p a r t of the Post Office
Department.
Very t r u l y yours,
(S)
B. A. McKinney
Governor.
417
COinriDEHglAL
FEDERAL RESERVE BOARD
WASHINGTON
X-7286
ADDRESS OFFICIAL CORRESPONDENCE T O
THE FEDERAL RESERVE BOARD
November 5, 1932.
SUBJECT: Bankers 1 Acceptances.
Dear S i r :
For your information you w i l l f i n d inclosed a copy
of Governor Meyer's l e t t e r of May 6, 1932, to Governor
Calkins and a copy of Governor Calkins' reply of May 13 i n
regard to a proposed study of American acceptance p r a c t i c e
and i t s development.
In addition you will f i n d inclosed a
copy of a memorandum prepared under date of June 11 i n the
o f f i c e of the General Counsel of the Board on the subject
of the Board's r u l i n g s regarding bankers' acceptances.
The Board's s t a f f and the Committee appointed "by
Governor Calkins have outlined a t e n t a t i v e course of procedure f o r i n i t i a t i n g t h i s study.
In t h i s connection, f o r
your information, the Board has not designated any members
of the Committee, but the Board expects that members of i t s
s t a f f and the Committee w i l l j o i n t l y carry on the proposed
study and the Board's Secretary w i l l act as the medium of
communication between the Board's s t a f f and the Committee.
As a p a r t of the t e n t a t i v e procedure i t has been
suggested that the Governor of each Federal reserve bank
X-7286
— 2 —
transmit to the proper o f f i c e r of each of c e r t a i n member "banks
i n h i s d i s t r i c t which have been engaged in the acceptance "business a l e t t e r i n one of the forms inclosed, together with forms
of questionnaires, samples of which are also inclosed, to "be
f i l l e d out "by such banks respecting any acceptances on which
the experience of the "banks has proved u n s a t i s f a c t o r y .
It is
expected t h a t Mr. Kenzel w i l l send you a suggested l i s t of
such hanks.
You w i l l note that there are two forms of l e t t e r s
to accepting hanks, one to "be sent to "banks whidh a r e now a c t i v e
i n the acceptance market and the other to "banks which have
e i t h e r discontinued or considerably c u r t a i l e d t h e i r acceptance
c r e d i t "business.
I t has a l s o been suggested t h a t , in addition to the
information gained through the r e p l i e s to the proposed l e t t e r
and through the responses to the questionnaires, the Governors
of the various Federal reserve "banks might obtain h e l p f u l expressions of views through personal conferences with bankers
whose experience i n the acceptance f i e l d i n t h e i r respective
d i s t r i c t s has given them a special knowledge of the s u b j e c t .
The inclosures are being transmitted to you a t t h i s
time with the explanation contained i n t h i s l e t t e r a t the
suggestion of the Board i n view of the forthcoming conference
of the Board with the Federal reserve agents and Governors
beginning on Monday, November 14, a t 10:30 A. M.f so that you
X-7286
—
• 3
may have an opportunity i n the meantime to give some thought to
the subject and. he prepared to discuss i t as one of the topics
i n the Board's program, before steps are taken to carry out the
plan.
Very t r u l y yours,
Chester M o r r i l l ,
Secretary.
Inclosures.
TO GOVERNORS AMD AGENTS OF ALL F. B. BAMS.
- - - -
X-7286-a
May 6, 1932.
Mr. J . U. Calkins, Chairman,
Governors' Conference,
c/o Federal Reserve Bank of San Francisco,
San Francisco, C a l i f o r n i a .
Dear G-overnor Calkins:
Certain phases of the acceptance p r a c t i c e which has
grown up under the Federal Reserve Act have "been made the subj e c t of comment in recent years and occasionally of criticism.'
The report which was submitted on behalf of the Committee on
Banking and Currency of the Senate, regarding S. 4415, devotes
a paragraph to "The Growth of Acceptance Credit", which contains a number of such c r i t i c i s m s .
The Board f e e l s that c e r t a i n
of these c r i t i c i s m s may have pertinency and that i t would be
h e l p f u l to make a thorough and discriminating study of American
acceptance p r a c t i c e and i t s development, p a r t i c u l a r l y as i n f l u enced by the more l i b e r a l a t t i t u d e adopted by the Federal Reserve
System in recent years and r e f l e c t e d both in the rulings and regu l a t i o n s of the Federal Reserve Board and in the operating p r a c t i c e s of the Federal reserve banks.
The Board, t h e r e f o r e , sug-
gests that a committee be set up to begin an investigation a t an
appropriate time along the l i n e s indicated and to make recommendations f o r such correction of procedure and/or revision of the
Governor Calkins - Page 2.
X-7286-a
Board's r u l i n g s and regulations, as may be found to "be necessary
or d e s i r a b l e .
Such a committee might be e i t h e r a committee of
the Federal reserve banks alone or a j o i n t committee representing
both the banks and the Board,
I t would be appreciated i f you
would consider t h i s matter and l e t the Board have the b e n e f i t of
your suggestions, made a f t e r consultation with the Governors of
other Federal reserve banks if you p r e f e r , including your views
as to the personnel of such a committee, so f a r as i t involves
representation
of the Federal reserve banks.
Very t r u l y yours,
(S) Eugene Meyer,
Governor
EMM/CM/fsf
COPY
X-7286-b
4,2<
FEDERAL RESERVE BANK OF SM FRANCISCO
Jno. U. Calkins, Governor
May 12, 1932
Mr. Eugene Meyer,
Governor, Federal Reserve Board,
Washington, B . C .
My dear Governor Meyer;
In compliance with the suggestion i n your
l e t t e r of May 6th, I have proposed to the Governors
of the other Federal Reserve Banks the appointment of
a committee, representing the Banks, for the purpose
of making a thorough and discriminating study of
American acceptance p r a c t i c e and i t s development, i n
co-operation with or i n collaboration with a committee,
or members of a committee, appointed "by the Federal Reserve
Board, and have asked them to s i g n i f y t h e i r approval or
disapproval i n messages to be handed to me on Tuesday,
May 17.
As members of such committee representing the
Banks, I suggest Messrs. Kenzel of New York, McKay of
Chicago, and Clerk of San Francisco.
I am, of course, i n e n t i r e sympathy with the
proposal contained i n your l e t t e r , as many of the
developments i n the period since the Board's r e g u l a t i o n s
were w r i t t e n have been unsound and much correction i n
p r a c t i c e i s obviously needed.
Yours very t r u l y ,
(S)
Jno. U. Calkins
Chairman, Governors• Conference
X-7180
June 11, 1932
Miller
Board's r u l i n g s regarding
Bankers 1 Acceptances
. Vest - Assistant Counsel.
In accordance with your request, I have prepared the
following memorandum showing the more important changes which the
Board has made from time to time i n the p r i n c i p l e s incorporated i n
i t s regulations and rulings with respect to "bankers' acceptances.
The memorandum i s not intended to cover the lesser important r u l ings or regulations of the Board on t h i s subject "but i t s purpose
i s to give the f a c t s with reference to those rulings of primary
importance which represent changes in policy with regard to "bankers'
acceptances, and p a r t i c u l a r l y as to those cases where such changes
have involved a l i b e r a l i z a t i o n of the requirements.
ORIGINAL FEDERAL RESERVE ACT MP EARLY
REGULATIONS AM? RULICTG-S.
Under the provisions of the original Federal Reserve Act,
Federal reserve "banks were authorized by section 13 to discount acceptances "based on the importation or exportation of goods with m a t u r i t i e s
of net more than three months, when indorsed "by a member bank; and
member banks were authorized to accept d r a f t s or b i l l s of exchange
a r i s i n g out of import and export transactions having not more than
s i x months' sight to run.
Federal reserve banks were a l s o authorized
by section 14 to purchase bankers' acceptances, with or without the
indorsement of a member bank.
434
X-7180
-2-
The Federal Heserve Board i n 1915 issued several d i f f e r e n t
regulations regarding bankers ' acceptances, gradually expanding and
enlarging the provisions with respect to t h e i r e l i g i b i l i t y f o r r e discount,
As a r e q u i s i t e of e l i g i b i l i t y , i t was required by the
Board's r u l i n g s that there be a d e f i n i t e bona f i d e contract f o r the
shipment of the goods involved in the import or export transaction
within a s p e c i f i e d and reasonable time a f t e r the making of the
acceptance,'and also that the transaction on account of which the
acceptance i s drawn must i t s e l f involve the importation or exportation of the goods i n question.
One of the provisions contained in the Board's early
regulations was that an acceptance mast have been made "by a member
bank, nonmember bank, t r u s t company or by some p r i v a t e banking firm,
person, company or corporation engaged i n the business of accepting
or discounting".
This provision recognized as e l i g i b l e f o r discount
acceptances made, not only by banks and bankers, but also by others
engaged in the acceptance business.
A similar provision, though
i n d i f f e r e n t language, i s contained i n the present regulations r e garding acceptances.
One of the most important of the early rulings on acceptances
was one published in the 1915 B u l l e t i n at page 91, i n the form of
an opinion of the Board's counsel, which held that Federal reserve
banks were authorized to discount acceptances, as a r i s i n g out of the
X-7lld"
i-S—
importation and. exportation of goods, which were "based on the shipment
of goods between any two or more foreign countries and "between the
United States and c e r t a i n of i t s dependencies and possessions, as well
as between the United States and foreign countries.
The Board's
records do not i n d i c a t e the circumstances under which t h i s r u l i n g was
made.
The substance of t h i s r u l i n g was subsequently incorporated
in the Board's regulations and has been contained i n the regulations
since that time.
AUTHORITY FOR THE PURCHASE OR DISCOUNT OF
ACCEPTANCES ARISING OUT OF DOMESTIC TRANSACTIONS.
In a r e g u l a t i o n promulgated in November 1915, the Board
authorized Federal reserve banks to purchase bankers' acceptances,
when properly secured, covering the domestic shipment of goods or
covering the warehouse storage of r e a d i l y marketable staples<
In
transmitting t h i s regulation* the Board stated that i t had not f e l t
j u s t i f i e d , upon admitting State banks and t r u s t companies to the
Federal Reserve System, i n requiring that they discontinue making
acceptances a r i s i n g out of domestic transactions i f kept within reasonable l i m i t a t i o n s ; and that the Board considered such acceptances as
of a character to make desirable investments f o r Federal reserve banks.
As uniformly construed by the Board, the authority of Federal reserve
banks t o purchase bankers' acceptances under section 14 of the Federal
Reserve Act i s not subject to the l i m i t a t i o n s applicable i n the case of
rediscounts of acceptances, and accordingly i t was l e g a l l y possible
X-7180
. -4-
to authorize Federal reserve banks by regulation to purchase
domestic acceptances although no s p e c i f i c mention of domestic
acceptances was made i n the law.
The Board's records do not
disclose a t whose instance or suggestion t h i s authorization for
the purchase of domestic acceptances was given.
Subsequently i n the Act of September 7, 1916, the law
was amended so as to authorize member banks to accept d r a f t s
or b i l l s growing out of transactions involving the domestic
shipment of goods provided shipping documents conveying or securing
t i t l e are attached a t the time of acceptance, or which are secured
a t the time of acceptance by a warehouse receipt or other such document
conveying or securing t i t l e covering r e a d i l y marketable s t a p l e s ;
and Federal reserve banks were authorized t o discount such acceptances.
This amendment was recommended by the Federal Reserve
Board i n i t s annual report covering the year 1915, i n which i t
was. s a i d , "There can be but l i t t l e question of the s a f e t y of
such acceptances, and t h e i r use w i l l tend to equalize i n t e r e s t
r a t e s the country over and help to broaden the discount market 11.
x 7180
"
427
-5Among the p r i n c i p a l requirements which the Board has made in
i t s regulations and rulings with, respect to acceptances drawn against
the storage of r e a d i l y marketable staples i s that the warehouse r e c e ipt
covering such staples be issued by a party independent of the customer and
that such acceptances should not have a maturity in excess of the
time o r d i n a r i l y necessary to e f f e c t a reasonably prompt s a l e , shipment
or d i s t r i b u t i o n into the process of manufacture or consumption.
In con-
nection with acceptances drawn to finance the domestic shipment of goods,
the Board has held t h a t there should be some actual connection between
the acceptance of the d r a f t and the transaction involving the shipment
of the goods; that i s , the d r a f t should be drawn to finance the shipment.
The Board has a l s o said that a Federal reserve bank may properly decline
to discount any acceptance the maturity of which i s in excess of the
usual or customary period of credit required to finance the underlying
transaction or which i s in excess of that' period reasonably necessary
to finance such t r a n s a c t i o n .
ACCEPTANCES TO FURNISH DOLLAR EXCHANGE.
The amendment of September 7, 1916, a l s o authorized member
banks to make, and Federal reserve banks to acquire, acceptances having
not more than three months sight to run, drawn by banks or bankers
in f o r e i g n countries or dependencies or insular possessions of the
United States for the purpose of furnishing dollar exchange as r e quired by the usages of t r a d e .
X-7180
- 6 -
The Federal Reserve Board adopted regulations requiring member "banks which d e s i r e to accept d r a f t s drawn "by banks or bankers i n
c e r t a i n countries f o r the purpose of f u r n i s h i n g dollar exchange to
obtain the permission of the Board.
Such permission i s granted when
the usages of trade i n such countries appear to require such acceptance f a c i l i t i e s .
There have been no important changes i n the regula-
tions or i n the law with respect to t h i s subject since 1916..
ACCEPTANCES DRAWN UNDER CREDITS EXTENDING OVER A
PERIOD OF 0KB OR TWO YEARS.
Under date of February 7, 1918, the Board addressed a l e t t e r
to the Governor of the Federal Reserve Bank of New York (published i n
the 1918 B u l l e t i n a t page 257), s t a t i n g i t s policy i n dealing with acceptances drawn under c r e d i t s extending over a period of one or two
years..
The expression of the Board's policy on t h i s subject was con-
tained i n a memorandum accompanying the l e t t e r .
This l e t t e r and memo-
randum were prepared a f t e r correspondence with the Federal Reserve Bank
of New York and a f t e r conferences between Governor Strong and a number
of New York bankers.
The p r i n c i p l e s outlined i n the memorandum were
summarized i n the l e t t e r as follows:
(1) Acceptance c r e d i t s opened f o r periods i n excess of ninety days should only, i n exceptional cases, extend
over a period of more than one year, and i n no case for a time
exceeding two years.
(2) Banks which a r e members of groups opening these
credits,, should not buy t h e i r own acceptances, and where an
agreement i s made with the drawer f o r purchase of acceptances
f o r f u t u r e d e l i v e r y , the r a t e should not be a fixed one, but
X-7180
should be based upon the r a t e ruling a t the time of the s a l e .
(3) Transactions covered "by these c r e d i t s should he of a
l e g i t i m a t e commercial nature, and acceptances must he e l i g i b l e
according to the rules and regulations of the Board.
(4) Whenever syndicates are formed f o r the purpose of
granting acceptance c r e d i t s for more than moderate amounts,
Federal reserve hanks should he consulted with regard to
the t r a n s a c t i o n . The question of e l i g i b i l i t y , both from
the standpoint of the character of the b i l l and of the
amount involved, w i l l be passed upon by the Federal r e serve bank subject to the approval i n each case of the
Federal Reserve Board.
The introductory paragraph of the memorandum s e t t i n g f o r t h the p r i n ciples above summarized i s as follows:
"In dealing with the question of acceptances, i t i s
d e s i r a b l e that the Board should not be obliged to adopt
i n f l e x i b l e regulations unless absolutely necessary. I t
should be borne i n mind that we are competing i n the acceptance f i e l d with other countries which have no legal r e s t r i c t i o n s i n which sound business judgment, guided from
time to time by the central banks of these countries, c o n s t i t u t e s the unwritten, but none the l e s s r i g i d law. The banks
of the United States would g r e a t l y a s s i s t the Board i n i t s
work of developing a modern and e f f i c i e n t system of American
bankers' acceptances - and they would best serve t h e i r own
purposes - i f they would study and a s s i m i l a t e the underlying
p r i n c i p l e s which must guide the Board, and observe these p r i n c i p l e s v o l u n t a r i l y without requiring i n f l e x i b l e r u l e s . Unless
the bankers cooperate with the Board i n t h i s manner, many
transactions - unobjectionable as long as they are engaged in
f o r l e g i t i m a t e purposes and within reasonable l i m i t s - w i l l
have to be barred because s t r i c t regulations do not admit of
discriminat ion."
After a f u l l discussion of the p r i n c i p l e s which a r e summarized above
the Board's memorandum concluded as follows:
"These are the p r i n c i p l e s which the FederalReserve
System must apply. I t would be inexpedient t o attempt more than
to e s t a b l i s h the p r i n c i p l e s . I t would be detrimental to formul a t e d e f i n i t e regulations dealing i n minute d e t a i l with the
various phases of the problem. I t would be f a r b e t t e r to give
some l a t i t u d e to the banks in dealing with these matters. But
t h i s w i l l depend e n t i r e l y upon the wisdom and d i s c r e t i o n of the
member banks.
The banks w i l l best serve t h e i r own i n t e r e s t s if
following the example of European i n s t i t u t i o n s , they w i l l adopt
these p r i n c i p l e s as self-imposed, well t r i e d r u l e s of business
43<
X-7180
—3_i
prudence r a t h e r ' than "by abusing t h e i r freedom of action to force
the Board to t i e t h e i r hands "by r i g i d r e g u l a t i o n s . "
ACCEPTANCES AGAINST READILY MARKETABLE STAPLES STOKED III
A WAREHOUSE I J A FOREIGN COUNTRY.
In 1919, the response to an inquiry from the Federal Reserve Agent
at the Federal Reserve Bank of Boston the Board held that a member hank
might properly accept a d r a f t drawn in Canada, payable i n the United
States i n d o l l a r s and secured "by r i c e stored i n a public warehouse in
Canada, and that such an acceptance might properly he rediscounted "by
a Federal reserve hank.
The Board's r u l i n g on t h i s question was pub-
lished i n the 1919 B u l l e t i n at page 740.
PURCHASE OF EXPORT ACCEPTANCES WITH SIX
MONTHS MATURITIES.
Under date of May 6, 1921, the Federal Reserve Board amended i t s
Regulation B so as to authorize the purchase by Federal reserve banks
of bankers' acceptances growing out of transactions involving the imp o r t a t i o n or exportation of goods with maturities up to s i x months. This
increase in the m a t u r i t i e s of such acceptances e l i g i b l e f o r purchase
was suggested i n a l e t t e r to the Board from Deputy Governor Harrison
of the Federal Reserve Bank of New York,
The suggestion was also made
i n l e t t e r s from Mr. Paul M. Warburg, i n connection with the financing of
s o - c a l l e d " f i n i s h i n g c r e d i t s " , a term used to designate a c r e d i t to
finance both (1) the shipment from the United States of raw materials
to be manufactured i n t o f i n i s h e d products and (2) the subsequent process
of manufacture i n the foreign country and the exportation therefrom of
the f i n i s h e d product.
This amendment to Regulation B was recommended by
X-718(4'31-9the Federal Advisory Council and a l s o "by the Governors of the Federal
Reserve Banks.
In i t s l e t t e r transmitting the amended r e g u l a t i o n , the
Board said:
Two considerations have led the Board to take
t h i s a c t i o n : (1) The desire to widen the acceptance
market "by meeting the wants of savings "banks and similar
purchasers of "bankers 1 acceptances who are now deterred
from investing in acceptances of longer than three months'
maturity, because of the lack of authority of Federal
Reserve Banks to purchase longer maturities up to s i x months;
(2) to provide more ample f a c i l i t i e s f o r financing import
and export trade with countries where e i t h e r normal cond i t i o n s or present abnormal conditions i n d i c a t e the d e s i r a b i l i t y of rendering assistance by making acceptances of
m a t u r i t i e s not exceeding s i x months e l i g i b l e f o r purchase
by Federal Reserve Banks.
The Board also stated that i t looked to the good banking
judgment and d i s c r e t i o n of the accepting banks and of the Federal
Reserve Banks to avoid any untoward r e s u l t s ; and that the e f f e c t
of t h i s widening of the investment powers of the Federal reserve
banks would be followed closely with a view to such modification of
the regulations as might be necessary.
Under the Board's present r e g u l a t i o n , Federal reserve banks
may purchase bankers' acceptances growing out of transactions i n volving the importation or exportation of goods with m a t u r i t i e s not
i n excess of s i x months.
PURCHASE 01* ACCEPTANCES PRIM BY COOPERATIVE
MARKETING- ASSOCIATIONS WITH SIX MOUTHS1 MATURITIES.
Under date of December 19, 1922, the Federal Reserve Board
promulgated an amendment to i t s Regulation B authorizing Federal reserve
banks to purchase bankers 1 acceptances, with m a t u r i t i e s not in excess of
432
X-7180
-10-
si xmonths, which, a r e drawn by growers or "by cooperative marketing
associations composed exclusively of growers of nonperishable,
r e a d i l y marketable, staple a g r i c u l t u r a l products, to finance the
orderly marketing of such products grown by such growers and secured
at the time of acceptance "by warehouse, terminal or other similar
receipts issued by p a r t i e s independent of the borrowers and conveying security t i t l e to such products.
The Board's records do not indicate upon whose suggestion
or recommendation t h i s change i n i t s regulation was made; but the
Board s t a t e d i n i t s l e t t e r of t r a n s m i t t a l :
"The Board was moved to take t h i s action by a
d e s i r e to provide more ample f a c i l i t i e s f o r financing
the orderly marketing of staple a g r i c u l t u r a l products,
especially by cooperative marketing a s s o c i a t i o n s . This
i s i n accordance with the p r i n c i p l e heretofore recognized
by the Board that the carrying of a g r i c u l t u r a l products for
such periods as are reasonably necessary in order to a s s i s t
the orderly marketing thereof i s a proper step i n the process
of d i s t r i b u t i o n . "
By the Act of March 4, 1923, Federal Reserve ianks were
authorized to discount acceptances with maturities nr. to s i x
months when drawn f o r an a g r i c u l t u r a l purpose anr secured at the
time of acceptance by documents of t i t l e covering r e a d i l y marketable
staples.
ELIMINATION OF DOCUMENTARY REQUIREMENTS AS TO
ACCEPTANCES GROWING OUT OF IMPORT AND EXPORT
TRANSACTIONS•
Under date of March 29, 1922, the Board promulgated an
amendment to i t s Regulation A, eliminating the requirements f o r
the attachment or f u r n i s h i n g of documents in connection with acceptances a r i s i n g out of import and export t r a n s a c t i o n s , and leaving
433
X-7180
-11-
e l i g i b i l i t y to "be determined "by the Federal reserve banks as a
question of f a c t .
Simplification of the Board's regulations regarding
"bankers1 acceptances had been recommended in May, 1921 "by the
Federal Advisory Council in a statement as follows:
* * * * "Moreover, i t i s impossible f o r the American
bankers' acceptance to e s t a b l i s h i t s e l f i n competition
with the B r i t i s h s t e r l i n g acceptance i n world markets
i f the f o r e i g n drawer i s bewildered by a mass of
regulations which he has to understand f u l l y if he
i s to be c e r t a i n that he i s issuing an e l i g i b l e b i l l
which w i l l f i n d a ready market in the United S t a t e s .
The simpler the regulations the b e t t e r the opportunity
for the American bankers' acceptance to become a
c r e d i t instrument in world markets. If there are
competent men whose d i s c r e t i o n may be r e l i e d upon i n
charge of the supervision of American acceptors, there
i s no need f o r attempting to control by d e t a i l e d regul a t i o n s the p r a c t i c e of American accepting brnks and
bankers. "
I t was presumably on the basis of t h i s recommendation
that the matter was given consideration by the Board i n March,
1922, but the record does not show whether t h i s
a fact.
Shortly before the adoption of the amended reguU :;i c i
by the
Board, the proposed change eliminating the doc*unenvary r e quirements was discussed a t an informal conference i n Hew York
by Governor Harding and Mr. Logan with Messrs. Warburg, Kent,
Broderick, Kenzel and Harrison,
There was apparently another
discussion of the matter a few days l a t e r by Mr. Kenzel and
c e r t a i n New York bankers with the Federal Reserve Board.
Before
the change i n the regulation was adopted a number of the Federal
reserve banks, as well as the President of the Advisory Council,
-12-
were asked f o r t h e i r views with respect to the m a t t e r .
The Board's l e t t e r of t r a n s m i t t a l of t h i s amendment
to Regulation A s t a t e d that there had "been a rapid growth of the
acceptance business during the war and i t had been necessary
accordingly f o r the. Board to make frequent rulings and to amend
i t s regulations regarding bankers 1 acceptances p e r i o d i c a l l y ; the
Regulation of 1930 on t h i s subject was the l a s t step i n the
development of such regulations and i t contained the substance •
of the more important rulings previously issued by the Board
regarding acceptances a r i s i n g out of import and export t r a n s actions.
In view of the experience which the American banks
had obtained, the Board considered that detailed regulations on t h
subjoct were no longer necessary and also that the general advance
ment of foreign trade could be furthered most e f f e c t u a l l y by
the s u b s t i t u t i o n of a simpler r e g u l a t i o n .
Accordingly,
the Board eliminated the following sentences from i t s
regulation with respect to acceptances a r i s i n g out of import
and export t r a n s a c t i o n s :
* * * "While i t i s not necessary that shipping
documents covering goods i n the process of shipment
be attached to d r a f t s drawn f o r the purpose of
financing the exportation or importation of goods,
and while i t i s not e s s e n t i a l , t h e r e f o r e , that each
such d r a f t cover s p e c i f i c goods a c t u a l l y i n existence
a t the time of acceptance, nevertheless i t i s
e s s e n t i a l as a prerequisite to e l i g i b i l i t y e i t h e r (a)
that shipping documents or a documentary export d r a f t
be attached a t the time the d r a f t i s presented f o r
435
X-7180
—•13**
acceptance, or (b) i f the goods covered by the credit
have not been actually shipped, that there be i n
existence a s p e c i f i c and bona f i d e contract providing
f o r the exportation or importation of such goods
at or within a specified and reasonable time and
that the customer agree that the accepting bank
w i l l be furnished in due course with shipping documents covering such goods or with exchange a r i s i n g
out of the t r a n s a c t i o n being financed by the c r e d i t .
A contract between p r i n c i p a l and agent w i l l not be considered a bona f i d e contract of the kind required above,
nor i s i t enough that there be a contract providing
merely t h a t the proceeds of the acceptance w i l l be
used only to finance the purchase or shipment of
goods to be exported or imported.
In making t h i s amendment, the Board stated t h a t i t was
not reversing or modifying i t s former r u l i n g s , which were r e garded as e s s e n t i a l to the proper conduct of the acceptance busi n e s s , but t h a t i t s action was intended merely to allow greater
l a t i t u d e to Federal reserve banks f o r the exercise of t h e i r
d i s c r e t i o n and judgment, observing always the l i m i t a t i o n s of
the law.
The Board also s t a t e d that the r e s p o n s i b i l i t y f o r
passing upon the e l i g i b i l i t y of bankers' acceptances r e s t s
upon the Federal reserve banks themselves and each bank should
s a t i s f y i t s e l f that the acceptances conform to the r e q u i r e ments.
436
X-7180
ACCEPTANCES BY NATIONAL BANKS AGAINST
IMPORT AND EXPORT BILLJ.
In rulings published in the 1917 Bulletin a t page 28 and in the
1920 Bulletin a t page 610, the Board took the position that no bank
which has purchased a foreign documentary d r a f t may refinance i t s e l f
by drawing a d r a f t on a member bank secured by the documentary d r a f t .
The theory underlying these rulings was t h a t such a d r a f t i s not drawn
f o r the purpose of financing the importation or exportation of goods but
f o r the purpose of financing the business of the bank which purchased
the foreign documentary d r a f t .
During the year 1923, the Board had correspondence with Mr. J . H.
Fulton, President of the National Park Bank of New York with reference
to the r i g h t of a national bank to accept d r a f t s against the s e c u r i t y
of import or export b i l l s , and also had correspondence with the Federa l Reserve Bank of New York on t h i s question.
The Federal Reserve Bank
considered t h a t acceptances of t h i s kind under p r c j 3 v conditions would
be lawful, but i t was the Board's position a t that, t 'r.ie that such
acceptances were not proper under the rulings above r e f e r r e d t o .
In
1924, l e t t e r s were addressed to the Board by the Governors of the Fede r a l Reserve Banks of New York and San Francisco requesting a f i n a l
r u l i n g of the Board with respect to t h i s question.
The Board gave
f u r t h e r consideration to the s u b j e c t , but f o r some reason no action
was taken a t t h a t time.
In 1926, however, acceptances of t h i s kind
were questioned by a national bank examiner in an examination of the
F i r s t National Bank of Boston and the Comptroller of the Currency asked
437
-tl5«»
X-7130
the Federal Reserve Board for a ruling in the matter.. The Board again
gave consideration to the question and reached the conclusion that
i t s former r u l i n g s on the subject contained an unnecessarily s t r i c t
i n t e r p r e t a t i o n of the law.
Accordingly, the Board ruled that national
banks may l e g a l l y accept d r a f t s drawn upon them by other banks
against the s e c u r i t y of import or export b i l l s of exchange previously
discounted by such other banks; provided t h a t such d r a f t s are drawn
before the underlying import or export transactions are completed
and comply as to maturity and in a l l other respects with the p r o v i sions of the law and the Board's regulations. (1926 Bulletin 854),.
ACCEPTANCES AFTER IMPORT OH EXPORT TRANSACTION COMPLETED.
At a meeting of the Subcommittee of the General Acceptance
Committee held in New York in October, 1927, i t was decided to recommend to the Federal Reserve Board that the Board re voice 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 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 ; and
to rule in l i e u thereof that bankers' acceptances may properly be considered as growing out of transactions involving the importation or
exportation of goods when given f o r the purpose of financing the sale
or 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
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.
438
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X-7180
Shortly "before the meeting r e f e r r e d to, Mr. Kenzel,
Chairman of the Sab-committee, had appeared "before the Federal Reserve
Board, in response to an i n v i t a t i o n from the Board, to discuss possible amendments to the Board's regulations and r u l i n g s regarding "bankers'
acceptances, and had pointed out the d e s i r a b i l i t y of making a r u l i n g of
t h i s kind in order that American acceptances might compete with those
of other countries in financing foreign t r a d e .
Subsequent to h i s appearance "before the Board in t h i s connection, Mr. Kenzel conferred with a number of prominent Hew York
"bankers engaged in the acceptance "business; and the following i s an
excerpt from h i s statement on t h i s subject submitted in connection
with the recommendation of the sub-committee?
"They (the "bankers consulted) f e l t that they
would not wish to extend c r e d i t s in Europe for purely
domestic purposes, explaining 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 tion of such goods and i t s sale f o r domestic consumption
within any European country, but t h a t they did f e e l t h a t
they should be permitted to finance through acceptance credi t s the sale within European countries of goods of origin foreign
to those countries, and the f a b r i c a t i o n and sale of goods
f o r export. Many of them cited the f a m i l i a r problem of
American cotton which i s now sent so l a r g e l y to European
countries on consignment by American shippers and
i s sold to European spinners out of warehouses in
Europe. Spinners require credit of ninety days or more.
Under the present r u l e s , American banks can give
such c r e d i t s where the cotton crosses a f r o n t i e r in
Europe, t h a t i s , where i t i s exported from one European
country to another, but they cannot give such c r e d i t s
if the cotton i s sold to spinners located in the same
European count zy in which i t i s stored pending s a l e .
-17-
X-7180
"A similar negative p o s i t i o n a r i s e s with respect to
cotton which i s sold and shipped from America on terms
that have "become quite usual, i « e , , that a t the 'buyer's
option he may pay cash on a r r i v a l or give ninety 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 physical 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 give
ninety days bankers c r e d i t the banker may not accept the
b i l l i f the cotton lias arrived a t the foreign d e s t i n a t i o n
named in the shipping documents."
"The American bankers consulted f e l t that the time has
c e r t a i n l y arrived in the development of American acceptance business when American accepting bankers should be
permitted the f r e e exercise of t h e i r d i s c r e t i o n within
the law and regulations and t h a t , within those l i m i t s ,
f a l l l a t i t u d e should be granted them in the accommodat i o n of business as i t i s done in foreign countries.
They stressed p a r t i c u l a r l y the point t h a t they regarded
i t as p r e f e r a b l e to give a three months credit with a
renewal f o r a f u r t h e r period, i f i t were found t h a t a
renewal were required a t the expiration of the o r i g i n a l
period, than to grant the credit o r i g i n a l l y f o r a period
of six months, and t h a t i f the rule against 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 r u l i n g in favor of renewal b i l l s . I t was
pointed out that from the bankers' point of view i t was
p r e f e r a b l e to be able to review c r e d i t s a t more f r e quent i n t e r v a l s than i s the case when c r e d i t s up to
six months are being insi6ted upon by the borrower
as a precaution against being unable to redraw a t
the end of a shorter period in case of need even f o r
a small p a r t of the c r e d i t " .
The recommendation made by the subcommittee was considered
by the Federal Advisory Council and, with one suggested change, was
440
-IBapproved.
X-7180
A f t e r consideration of the matter, the Board reached
the conclusion t h a t i t s previous rulings on t h i s subject contained
an unnecessarily s t r i c t i n t e r p r e t a t i o n of the law; and, in order
to f a c i l i t a t e the financing of foreign trade and the sale of
American goods abroad, the Board ruled, on November 28, 1927, (1927
B u l l e t i n , p . 860) t h a t 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
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, ,
The Board pointed out that due care should be observed to prevent a
duplication of financing and that there should not be outstanding a t
any time more than one acceptance against the same goods. . This ruling
of the Board reversed a l l previous'
conflicting rulings.
ACCEPTANCES DRAIN BY WAREHOUSE OR ELEVATOR COMPANY AGAINST
WAREHOUSE RECEIPTS ISSUED BY ITSELF. .
In 1924, Governor Young of the Federal Reserve Bank of Minneapolis
suggested to the Federal Reserve Board that i t give approval to accept-
•
ances drawn by a terminal elevator company against the s e c u r i t y of warehouse r e c e i p t s issued by the company which draws the acceptances. . He p o i n t ed out that in Minnesota such a company i s under the s t r i c t supervision
and control of a State commission, a representative of which checks a l l
grain that i s stored in the elevator and a l l grain that i s removed therefrom; and t h a t i t i s p r a c t i c a l l y impossible to remove grain from such
terminal e l e v a t o r s without the knowledge and permission of the representa
441
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X-7180
tive of the State coram! s si on;
The matter was considered "by the Federal Reserve Board from time
to time over a period of several years and was twice r e f e r r e d to the
Governors' Conference, which recommended that the Board approve acceptances of t h i s c h a r a c t e r .
After consideration of the matter, the Board
in April, 1927, voted to disapprove the recommendation of the Governors'
Conference and not to amend i t s regulations so as to make such acceptances e l i g i b l e f o r rediscount or purchase "by the Federal reserve hanks.
The Board considered that the p r i n c i p l e l a i d down in i t s regulations, that
warehouse r e c e i p t s used as security f o r acceptances must be issued "by a
p a r t y independent of the customer, was e s s e n t i a l to the maintenance of
the high standard of "bankers' acceptances and that any action s e t t i n g
aside t h i s p r i n c i p l e might e s t a b l i s h a precedent f o r f u t u r e action
which would r e s u l t in the lowering of the standard.
The matter was again considered by the Federal Reserve Board
in October 1928, however, a t which time Governor Young was Governor
of the Federal Reserve Board, aad the Board decided to adept an amendment to i t s regulations making e l i g i b l e f o r rediscount or purchase
acceptances against warehouse r e c e i p t s conveying security t i t l e to
readily marketable staples when such r e c e i p t s are "issued by a grain
elevator or warehouse company duly bonded and licensed and r e g u l a r l y inspected by State or Federal a u t h o r i t i e s with whom a l l r e c e i p t s f o r
such s t a p l e s and a l l t r a n s f e r s thereof are r e g i s t e r e d and without whose
consent no s t a p l e s may be withdrawn,"
•20-
X-7180
LIB3B ALTZAUOIT OF BULINGS BE&AEDDTG- DOMESTIC
BilHCEBS^ .aCCEPTAI'TCaS.
The General Committee on Bankers' Acceptances a t i t s meeting in March, 1926, adopted a report containing a statement of
"broad general p r i n c i p l e s regarding correct p r a c t i c e s in the g r a n t ing of domestic "bankers' acceptance c r e d i t s and recommending spec i f i c a l l y that the use of domestic acceptances "be "broadened, p a r t i c u l a r l y in two r e s p e c t s :
(1)
To permit the purchaser of goods under "bankers' accept-
ance c r e d i t s to draw b i l l s having a maturity consistent with the
usual and customary c r e d i t time that obtains in the r e l a t i v e trade,
instead of requiring the shipper to draw the b i l l i f i t has a mat u r i t y in excess of the actual t r a n s i t time of the goods, (the
Board's rulings had been understood as making a d i s t i n c t i o n between
the period f o r which acceptances may be drawn by the s e l l e r and the
period f o r which they may be drawn by the purchaser)*
(2)
To permit the use of bankers' acceptances secured by
r e c e i p t s covering readily marketable staples to finance the carrying
of c e r t a i n s t a p l e s during the time they are being converted into
other forms of r e a d i l y marketable staples through a converter i n dependent of the drawer, provided that the i d e n t i t y of the goods i s
not l o s t and the accepting bank remains secured by the independent
converter's receipt.
*21-
X-7180
This report of the General Committee on Bankers 1 Acceptances was considered by the Governors* Conference in March, 1926, which
approved the report and requested the Federal Reserve Board to adopt
the rulings contained t h e r e i n .
The Federal Reserve Board acted
upon the matter in June, 1928, a t which time i t approved the report
in so f a r as i t contained a statement of the "broad general p r i n c i p l e s regarding correct p r a c t i c e s in the granting of domestic "banke r s ' acceptance c r e d i t s , "but with the understanding that such approval should not "be construed as revoking or qualifying any of
the Board's e x i s t i n g r u l i n g s .
The Board s t a t e d that i f the "broad-
ened use of domestic "bankers' acceptances was found to "be hampered
by the e x i s t i n g r u l i n g s of the Board, i t would consider the question
of revoking or modifying such r u l i n g s provided a statement of s p e c i f i c
f a c t s a r i s i n g in a c t u a l cases was submitted to the Board,
The Governors' Conference in November !S28, upon
consideration of a report of the subcommittee of t h j General
Committee on Bankers' Acceptances, requested the subcommittee to
submit to the Board s p e c i f i c examples of transactions exemplifying
the need f o r a modification of the Board's rulings in the respects
above mentioned.
This was done and the following i s an example
of the f a c t s submitted with regard to the Committee's f i r s t recom-
444
-22-
X-7180
mendation:
"A firm in ITaw York City purchases c e r t a i n
s t a p l e s from a s e l l e r in a western c i t y who ships
the same and draws a sight d r a f t on the purchaser
in Hew York with b i l l of lading attached. This
d r a f t and b i l l of lading attached are sent in
the customary way fco a bank in New York, Bank A,
designated by the purchaser. The l a t t e r then
drars a 90 day b i l l on Banlc i , which i s accepted
by the bank, having a t the time in i t s possession
the b i l l of lading covering the staples in process of
shipment. The acceptance i s then discounted by the
purchaser and the proceeds used to pay the sight
d r a f t and to obtain the release of the b i l l of
l a d i n g . I t does not require SO days f o r the
completion of the shipment of goods, only a
r e l a t i v e l y short time being necessary f o r t h i s
purpose."
After consideration, the Board ruled in November 1929
that a d r a f t drawn by the purchaser of goods in accordance
with the f a c t s above stated i s e l i g i b l e f o r acceptance by a
member bank when i t has a maturity consistent with the usual
and customary c r e d i t time p r e v a i l i n g in the p a r t i c u l a r b u s i ness, provided t h a t a l l other relevant requirements: of the
law and of the Board's regulations are complied with, (1529
B u l l e t i n , page 811).
-23-?.
X-7180
This r u l i n g was in some respects inconsistent with c e r t a i n
previous r u l i n g s of the Pederal Reserve Board to the e f f e c t t h a t an
acceptance should not be drawn f o r the purpose of furnishing working
c a p i t a l to the borrower or to the purchaser during the process of
the manufacture of goods; and the Board stated that such previous
rulings with regard to working c a p i t a l might be regarded as superseded by t h i s r u l i n g to the extent of any such i n c o n s i s t e n c i e s .
The subcommittee also submitted an example of a s p e c i f i c case
designed to show the d e s i r a b i l i t y of permitting the use of bankers'
acceptances, secured by r e c e i p t s covering readily marketable s t a p l e s ,
to finance the carrying of these staples during the time they are being converted into other forms through a converter or processor who
i s independent of the drawer of the acceptance, provided t h a t the
i d e n t i t y of the goods i s not l o s t and the accepting bank remains secured by the independent c o n v e r t e r ' s r e c e i p t .
A f t e r consideration,
however, the Board voted in March 1930, to disapprove the recommendation made on t h i s point and s t a t e d i t s opinion that b i l l s drawn
under such circumstances are not to be considered as e l i g i b l e f o r
acceptance by member banks.
BOARD'S POLICY 0? HJLIN& ON ACCEPTANCE QUESTIONS ONLY Afr'TER CONSIDERATION OF FEDERAL
RESERVE BANKS.
I t has been the policy of the Federal Reserve Board f o r a number of years not to consider and pass upon questions with regard to
446
-24-
X-7180
bankers' acceptances u n t i l such questions have "been f i r s t submitted
to and considered "by the Federal reserve bank of the d i s t r i c t in which
the question a r i s e s .
I t i s not c l e a r when t h i s policy was f i r s t adopted
but i t was d e f i n i t e l y in force as early as 1922 and probably, a t
l e a s t in some cases, f o r some time before t h a t .
Many acceptance questions, of course, have a r i s e n in the
New York D i s t r i c t and accordingly the Federal Reserve Bank of New
York has been f r e q u e n t l y c a l l e d upon to - consider such questions; and
much of the Board's correspondence regarding acceptance matters has
been with t h i s Federal reserve bank.
In a number of cases where a c -
ceptance questions have a r i s e n in other d i s t r i c t s , the Federal Reserve Board in considering such questions has taken them up e i t h e r
formally or informally with Mr. Kenzel, the Chairman of the Committee on Bankers' Acceptances.
SUIvMARY
For convenient reference there i s given below a b r i e f summary
of the changes in the law, regulations and r u l i n g s regarding acceptance s r which have been discussed above.
Provisions of the Federal Reserve Act.
Under the o r i g i n a l Federal Reserve Act, member banks were
authorized to accept d r a f t s a r i s i n g out of import and export t r a n s actions having not more than six months' sight to run and Federal
reserve banks were authorized to discount such acceptances, indorsed
by a member bank, with m a t u r i t i e s of not more than three months. Fede r a l reserve banks were a l s o authorized to purchase bankers' acceptances with or without the indorsement of a member bank.
By the Act of September 7, 1916, member banks were a u t h o r ized to make, and Federal reserve banks to discount, acceptances
a r i s i n g out of the domestic shipment of goods or out of the storage of
-25-
X-7180
readily marketable s t a p l e s ; and "by t h i s Act, a l s o , member "banks were
authorized to make, and Federal reserve "banks to acquire, acceptances
drawn f o r the purpose of f u r r i s h i n g dollar exchange.
By the Act of March 4, 1923, Federal reserve "banks were a u t h orized to discount acceptances with maturities up to six months when
drawn f o r an a g r i c u l t u r a l purpose and secured a t the time of acceptance "by documents of t i t l e covering readily marketable staples#
Rulings and Regulations of the Federal Reserve Board,
In i t s regulation of February 8, 1915, the Board recognized as
e l i g i b l e f o r rediscount acceptances made, not only by banks and bankers,
but also by others engaged in the acceptance business.
In a r u l i n g published in the 1915 B u l l e t i n a t page 91, the Board
gave approval to acceptances based on the shipment of goods between two
or more f o r e i g n countries and between the United States and c e r t a i n of
i t s dependencies and possessions, as well as between the United States
and foreign c o u n t r i e s .
By regulation dated November 29, 1915, the Board authorized Fede r a l reserve banks to -purchase bankers* acceptances, when properly
secured, covering the domestic shipment of goods or covering the warehouse storage of r e a d i l y marketable s t a p l e s , (This was p r i o r to the
amendment to the law permitting the discount of domestic acceptances.)
After the amendment to the law of September 7, 1916, the Board
included in i t s regulations provisions regarding the acceptance by
member banks of d r a f t s drawn to f u r n i s h d a l l a r exchange,
Under date of February 7, 1918, the Board addressed a l e t t e r
to the Governor of the Federal Reserve Bank of Hew York s t a t i n g i t s
policy in dealing with acceptances drum under c r e d i t s extending over
a period of one or two y e a r s .
In a r u l i n g published in the 1919 B u l l e t i n a t page 740, the
Board approved acceptances drawn in a foreign country payable in the
United S t a t e s in d o l l a r s and secured by staples stored in a foreign
warehouse.
Under date of May 6, 1921, the Board amended i t s regulations
so as to authorize the •purchase by Federal reserve banks of bankers'
acceptances growing out of transactions involving the importation or
exportation of goods with m a t u r i t i e s up to six months.
448
»26»
X-7180
Under date of December 19, 1922, the Board amended i t s regul a t i o n s so as to authorize Federal Reserve Banks to •purchase "bankers1
acceptances with m a t u r i t i e s not in excess of six months which are
drawn "by a g r i c u l t u r a l growers or "by cooperative marketing associations
and are properly secured*
On March 29, 1922, the Board amended i t s regulations so as
to eliminate the requirements f o r the attachment or furnishing
of documents in connection with acceptances a r i s i n g out of import
and export t r a n s a c t i o n s .
By r u l i n g published in the 1926 Bulletin a t page 854,
the Board held that national banks may l e g a l l y accept d r a f t s drawn
upon them by other banks against the security of import or export
b i l l s of exchange previously discounted by such other banks p r o vided that such d r a f t s are drawn before the underlying import or
export transactions are completed.
The Board ruled on November 28, 1927, that bankers' acceptances may properly be considered as growing cut of import or export
transactions 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 c r e d i t terms of imported or exported goods
into the channels of trade, whether or n o t , t h e b i l l s are accepted
a f t e r the physical importation or exportation has been completed.
On October 9, 1928, the Board amended i t s regulations so
as to make e l i g i b l e f o r rediscount or purchase acceptances against
warehouse r e c e i p t s issued by grain elevator or warehouse companies
duly bonded and licensed and regularly inspected by State or
Federal a u t h o r i t i e s with whom a l l receipts f o r such staples and a l l
t r a n s f e r s thereof are r e g i s t e r e d and without whose consent no s t a p l e s
may be withdrawn.
By a r u l i n g published in the 1929 B u l l e t i n a t page 811,
the Board ruled t h a t a d r a f t drawn by the purchaser of s t a p l e s to
finance the shipment of such staples i s e l i g i b l e f o r acceptance when
i t has a maturity consistent with the usual and customary c r e d i t
time p r e v a i l i n g in the p a r t i c u l a r business.
On March 19, 1930, the Board stated i t s opinion that b i l l s
drawn f o r the purpose o i financing the carrying of s t a p l e s during
the time they are being processed or converted are not e l i g i b l e f o r
acceptance.
I t has been the policy of the Board f o r a number of years
to consider and pass upon acceptance questions only a f t e r they have
f i r s t been considered by a Federal reserve bank.
Respectfully,
George B. Vest,
Assistant Counsel.
•149
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7287
November 7, 1932.
SUBJECT:
Glass Bill, S. 4412. •
Dear S i r :
The Federal Reserve Board has previously forwarded to you
copies of the so-called Glass B i l l , S. 4412, which was reported
to the Senate by the Banking and Currency Committee of that body
on April 18, 1932, as well as copies of the accompanying majority
and minority reports of the Committee.
You have also been furnished
with copies of the hearings on the b i l l which were held before the
Senate Committee in March when the b i l l was under consideration
as S. 4115.
The Board's report to the committee was p r i n t e d in
connection with Governor Meyer's testimony in these hearings and
was also included in the Federal Reserve B u l l e t i n f o r April, 1932.
There are inclosed herewith two copies of a memorandum (X-7139)
which presents a comparison of the more important f e a t u r e s of
S. 4412 and S. 4115 with the changes recommended by the Federal
Reserve Board.
As the b i l l may be taken up again a t the forthcoming
X-728?
session of Congress, the Federal Heserve Board w i l l "be glad to
receive any suggestions regarding i t s provisions which you desire
to submit f o r the Board's consideration, together with your
reasons f o r such suggestions.
Very t r u l y yours,
Chester M o r r i l l ,
Secretary.
Inclosures,
TO ALL CHAIRMEN AMD GOVERNORS
451
S. 4412, INTRODUCED APRIL 18, 1932.
X-7139
PROVISIONS OF THIS BILL COMPARED WITH S. 4115
WITH CHANGES RECOiECEZDED BY FEDERAL RESERVE BOARD.
There i s set f o r t h "below a comparison of the more important
f e a t u r e s of S. 4412, which was introdilced i n the Senate and reported
"by the Committee on Banking and Currency on April 18, 1982, and S. 4115
with the changes recommended "by the Federal Reserve Board i n i t s l e t t e r
to Senator Norbeck of March 29, 1932.
S. 4115 i s r e f e r r e d to herein as the "old h i l l " and S. 4412
as the "new b i l l " .
Section numbers and page numbers r e f e r to the sec-
tions and pages of the new t i l l , unless otherwise indicated.
Certain
sections of the old b i l l which have been omitted e n t i r e l y from the new
b i l l are t r e a t e d at the end of t h i s memorandum.
SECTION 1.
T i t l e . - (p. 1)
This section merely provides that the short t i t l e of the act
s h a l l be the "Banking Act of 1932."
SECTION 2.
D e f i n i t i o n s . - (pp. 1, 2 and 3)
The d e f i n i t i o n s contained in section 2, including those of an
a f f i l i a t e and of a holding company a f f i l i a t e , a r e , i n the new t i l l ,
made applicable not only to the provisions of t h i s act t u t to any pro-
453
X-T139
*. S3 »
visions of law amended by t h i s a c t .
The several c l a s s e s of i n s t i t u t i o n s defined as a f f i l i a t e s i n the
old h i l l are subdivided i n the new M i l so as to make a d i s t i n c t i o n between " a f f i l i a t e s " generally and "holding company a f f i l i a t e s " .
With these exceptions, the d e f i n i t i o n s contained i n the new t i l l
are s u b s t a n t i a l l y i n the same form as in the old b i l l with the changes
recommended by the Board.
SECTION 3.
(a) Control of Federal reserve bank c r e d i t by Federal Reserve Board.(pp.3,4)
On t h i s subject the recommendation of the Federal Reserve Board
i s adopted i n Section 3 (a) of the new b i l l .
(b) Voting by groups or chains in elections of Federal reserve bank
directors,
(p. 5)
Section 4 of the old b i l l prohibited banks that belong to a
group or chain from voting for Federal reserve bank d i r e c t o r s , and the
Board recommended the omission of the provision.
The new b i l l provides
(in Section 3(b) that when two or more member banks are a f f i l i a t e d with
the same holding company a f f i l i a t e only one of such banks may p a r t i c i p a t e
in the nomination or e l e c t i o n of Federal reserve bank d i r e c t o r s .
83CTI0N 4 .
D i s t r i b u t i o n of earnings of Federal reserve baftks. (p. 5)
The old b i l l provided (in Section 5) that net earnings of Fede r a l reserve banks a f t e r payment of dividends and expenses should be paid
to the Federal Liquidating Corporation.
The Board recommendedthat no
453
X-7139
- 3 changes be made in the present mejfchod of the d i s t r i b u t i o n of earnings of
Federal reserve banks but that the Secretary of the Treasury be authorized in h i s d i s c r e t i o n to use the franchise tax received from Federal r e serve banks f o r investment in obligations of the Liquidating Corporation.
The new b i l l provides ( i n Section 4) that a l l net earnings of a Federal
reserve bank, a f t e r payment of dividend claims and expenses, s h a l l be paid
into the surplus fund of the Federal reserve bank.
SECTION 5.
(a) Branches of State member banks,
(pp. 5, 6)
In connection with Section 21 of the old b i l l , the Board recommended a new provision to the e f f e c t that nothing contained in the b i l l shall
prevent State member banks from establishing branches e i t h e r in the United
States or elsewhere upon t h e same terms and conditions as those applicable
to branches of national banks.
This provision as recommended i s contained
in Section 5(a) of the new b i l l .
(The provisions of the new b i l l with reference to branches of
national banks are contained in Section 19.)
(b)
Reports of a f f i l i a t e s of State member banks,
(pp. 6, 7)
The old b i l l ( i n section 6) required each a f f i l i a t e of a State
member bank to make three complete reports of condition annually through
the president of the bank to t h e Federal Reserve Board.
The Board's recom-
mendation was t h a t such r e p o r t s be required only when deemed necessary by
tfie Federal Reserve Board.
The new b i l l provides in Section 5(b) that a
State member bank shall obtain from each of i t s a f f i l i a t e s and f u r n i s h to
the Federal r e s e r v e bank and to the Federal Reserve Board not l e s s than
X-7139
454.
- 4 three reports of condition each year and such additional r e p o r t s as the r e serve bank or the Board may deem necessary.
The provision requiring such r e -
p o r t s to be made i s mandatory; but they are required to contain only such
information as, in the judgment of the Federal Reserve Board, s h a l l be necessary to d i s c l o s e f u l l y the r e l a t i o n s between such a f f i l i a t e and such bank
and to enable the Board to inform i t s e l f as to the e f f e c t of such rela~
tions voon the a f f a i r s of such bank.
( S u b s t a n t i a l l y the same provisions are contained in Section 23 of
the new b i l l with reference to reports of a f f i l i a t e s of national banks.)
Dealings in stocks and investment s e c u r i t i e s by State member banks, (p. 8)
Section 5(b) of the new b i l l contains a provision to t h e e f f e c t
that State member banks shall be subject to the same l i m i t a t i o n s and cond i t i o n s as are national banks with respect to t h e purchase, sale, underwriting and holding of investment s e c u r i t i e s and stock.
There was no such pro-
vision in theold b i l l ; and the Board recommended t h a t Section 15 of the old
b i l l , which r e s t r i c t e d dealings in investment s e c u r i t i e s by national banks,,
be omitted e n t i r e l y .
(The provisions on t h i s subject regarding national banks are in
Section 14 of the new b i l l . )
Divorce of stock of State member banks from stock of other corporations, (p. 8)
Section' 5(b) of the new b i l l contains a provision to the e f f e c t
t h a t , a f t e r three years from the passage of t h e a c t , no c e r t i f i c a t e of stock
of a State member bank shall represent the stock of any other corporation,
except a member bank, nor s h a l l the ownership or t r a n s f e r of a stock cer-
- 5 -
X-7139
t i f i c a t e of such a tank "be conditioned upon the ownership or t r a n s f e r of
a c e r t i f i c a t e of stock of another corporation* except a member tank.
A similar provision regarding stock of national "banks i s found
in Section 16 of the new b i l l .
The old b i l l contained no such provision regarding the stock of
State member banks; but Section 17 contained a similar provision regarding the stock of national ianks, whidh would have become e f f e c t i v e immediately, and the Board recommended that i t be detained but t h a t i t be
made e f f e c t i v e a f t e r three years *
Right of an a f f i l i a t e of a State member bank to vote stock held by i t
in such bank, (vo. 8 and 9)
Section 5(b) of the new b i l l provides that the holding company a f f i l i a t e s of State member banks s h a l l be subject to the provisions
of Section .5L44 of the Revised Statutes (which contains the conditions
under which a f f i l i a t e s may vote stock held in national banks) and a l s o
provides f o r the f o r f e i t u r e of the membership of a State member bank,
in the d i s c r e t i o n of the Federal Reserve Board, where a voting permit of
a holding company a f f i l i a t e of such a bank i s revoked.
Under the new
b i l l , t h e r e f o r e , s u b s t a n t i a l l y the same provisions are applicable to holding company a f f i l i a t e s of n a t i o n a l banks and holding company a f f i l i a t e s
of State' member banks.
The Board recommended that the provisions of the old b i l l with
reference to the conditions under which holding company a f f i l i a t e s of
national banks might obtain permits to vote stock owned by them in such
X-7139
— 6
456
banks be revised in a number of p a r t i c u l a r s and also recommended that subs t a n t i a l l y the same provisions as those suggested for national banks be
made applicable to a f f i l i a t e s of State member banks, suggesting a new section of the b i l l f o r t h i s purpose.
The provisions applicable to a f f i l i -
a t e s of n a t i o n a l banks in t h i s connection are contained in Section 17 of
the new b i l l and are discussed h e r e a f t e r with reference to that section;
but i t may be s t a t e d b r i e f l y a t t h i s point t h a t the recommendations of the
Board regarding a f f i l i a t e s of national banks have not been adopted in the
new b i l l .
Ey-amination of a f f i l i a t e s of State member banks, (p. 9)
The new b i l l in Section 5(b) requires such examinations of a f f i l i a t e s of State member banks as s h a l l be necessary to disclose f u l l y the
r e l a t i o n s between such banks and t h e i r a f f i l i a t e s and the e f f e c t of such
r e l a t i o n s upon the a f f a i r s of the bank; the expense of such examinations
may, in the d i s c r e t i o n of the Federal Reserve Board, be assessed against
the bank examined, (instead of against the a f f i l i a t e s as recommended by the
Board); and, in the event of the r e f u s a l of the a f f i l i a t e to give information requested or to permit such an examination, or in the event of the
f a i l u r e of the bank to pay the expenses of such an examination, the membership of any State member bank a f f i l i a t e d with such an a f f i l i a t e may be f o r f e i t e d in the d i s c r e t i o n of the Federal Reserve Board.
The old b i l l contained a provision (in Section 28) requiring examinations of a f f i l i a t e s of a State member bank.
The Federal Reserve Board
recommended t h a t such examinations be authorized to be made only when deemed
necessary.
(Provisions of a somewhat similar character are contained in Section
•'
'
X-7139 4 5 . -
24 of the new t i l l with reference to examinations of a f f i l i a t e s of national
"banks.)
SECTIOH 6.
Membership of the Federal Reserve Board.
(pp. 10-12)
The old b i l l (in Section 7) contained a provision omitting the Secret a r y of the Treasury from the membership of the Federal "Reserve Board and omJ
t i n g the provision of the Federal "Reserve Act authorizing the Secretary to
assign quarters to the Federal Reserve Board.
The Board recommended c e r t a i n
minor amendments to t h i s section and suggested that a u t h o r i t y be given the
Board to purchase or erect a building for i t s o f f i c e s .
In Section 6 of the
new b i l l the provisions of the old b i l l are repeated with the minor changes
recommended by the Board; but the authority f o r the Federal Reserve Board to
purchase or erect a building i s omitted.
SECTION 7.
Open Market Committee, (pp. 13, 14)
Section 7 of the new b i l l adds a new Section 12A to t h e Federal Reserve Act, which provides f o r a Federal Open Market Committee along the l i n e s
of the existing Open Market Policy Conference.
The Board recommended that the similar provisions of the old b i l l
(Section 10) on t h i s subject be stricken out, and that there be s u b s t i t u t e d
c e r t a i n amendments to Section 14 of the Federal Reserve Act c l a r i f y i n g the
Board's powers over open market operations and containing in revised form
one of the provisions of the old b i l l .
The Board's recommendations were
not adopted in the new b i l l .
The chief d i f f e r e n c e s between the new b i l l and the old b i l l are:
In l i e u of the statement in the old b i l l that no Federal reserve bank may
Digitized forengage
FRASER in open
market operations
11
except a f t e r approval and authorization
*
X-7139
*•» 8 —
458
by the Committee", there i s a provision in the new b i l l that no Federal r e -
serve bank Shall engage in stidh operations "except in accordance with resol u t i o n s adopted by the Committee and approved by the Federal Reserve Board".
This applies to a l l purchases and sales on the open market under Section 14
of the Federal Reserve Act, whether for system account or f o r the account
of an individual Federal reserve bank.
The old b i l l provided t h a t the
Governor of the Federal Reserve Board should be a member of the committee in
addition to the twelve members appointed by the d i r e c t o r s of the Federal r e serve banks, but in the new b i l l the Governor i s not made a member of the
committee.
The new b i l l also omits the provision of the old b i l l that the
Board's annual r e p o r t to Congress should include a review of the decisions
of the committee with an explanation t h e r e o f .
Federal Liquidating Corporation, (pp. 14-27).
Section 7 of the new b i l l also contains the proposed new Section 12B
of the Federal Reserve Act providing f o r a Federal l i q u i d a t i n g Corporation
to expedite the payment of dividends to depositors and c r e d i t o r s of closed
member banks.
The provisions of the new b i l l on t h i s subject are a compro-
mise between the provisions of the old b i l l and the Board's proposed
substitute.
The old b i l l provided (in Section 10) f o r the creation of a Federal Liquidating Corporation f o r the purpose of purchasing and l i q u i d a t ing the a s s e t s of closed member banks.
The Board recommended a number of
changes in the provisions with reference to t h i s proposed corporation, and
in the new b i l l some of these changes have been adopted and some have
been omitted.
Without s e t t i n g f o r t h a l l of the d e t a i l e d d i f f e r e n c e s be-
tween the old b i l l , the recommendations of the Board, and the new b i l l ,
-r\
X-7139
9
" "
459
there are s t a t e d below the mo 1*6 ii|)ortemt of these d i f f e r e n c e s .
In accordance with the recommendation of the Federal Reserve Board,
the new b i l l provides f o r a board of d i r e c t o r s of f i v e members, (the Compt r o l l e r of the Currency, a member of the Federal Reserve Board, and three
members selected annually by the Governors of the Federal reserve banks),
instead of a board of fourteen members (the Comptroller of the Currency and
the 13 members of the Federal Open Market Committee) as provided in the old
bill.
The old b i l l provided f o r two c l a s s e s of c a p i t a l stock of the
corporation:
c l a s s A stock, to be subscribed by member banks in an amount
equal to one-half of one per cent of t h e i r deposits, and c l a s s B stock, to
be subscribed by Federal reserve banks in an amount equal to one-fourth of
t h e i r surplus; with an additional provision f o r annual subscriptions by
Federal reserve banks in amounts equal to one-fourth of the annual increase
in t h e i r surplus accounts.
The Board recommended that the c a p i t a l stock con-
s i s t of $100,000,000 to be subscribed by the United S t a t e s .
The new b i l l
provides f o r the appropriation by the United States to the corporation of
the sum of $125,000,000, but also provides f o r two classes of stock; class
A stock, to be subscribed by member banks in an amount equal to one-fourth
of one per cent of t h e i r deposits, §nd class B stock to be subscribed by
Federal reserve banks in an amount gqual to one-fourth of t h e i r surplus.
One-half of each c l a s s of stock i s apparently to be paid in upon the organization of the corporation, and the remainder i s subject to c a l l .
The
new b i l l , however, omits the provision for additional annual subscriptions
by the Federal reserve banks.
The old b i l l authorized the l i q u i d a t i n g Corporation to purchase
X-7139
- 10 -
460
and liquidate the a s s e t s of closed nonmember S t a t e banks and to make loans
to such banks, f o r a limited number of years; and also authorized an appropri-
ate
a t i o n of $200,000,000 from the United States Treasury f o r t h i s purpose*
In
accordance with the recommendation of the Board, t h i s provision i s omitted
from the new b i l l , and i t s provisions are limited to member banks.
The old b i l l provided f o r the issuance of debentures by the Liquidating Corporation in amounts aggregating not more than four times i t s c a p i t a l .
The Federal Reserve Board recommended that debentures be authorized up to
twice the amount of c a p i t a l and t h a t Federal reserve banks be given a u t h o r i t y
to purchase these debentures up to one-fourth of t h e i r surplus.
The new b i l l
authorizes the issuance of debentures in an amount aggregating not more than
twice the amovint of the c a p i t a l of the corporation and the $125,000,000
appropriation from the Treasury of the United S t a t e s .
The provision recom-
mended by the Board, however, that such debentures be guaranteed by the
United States i s omitted from the new b i l l .
The new b i l l (p. 20, l i n e s 24 , 25; p . 21, l i n e s 1-4) contains
in a
d i f f e r e n t form the provision f o r a valuation committee, the elimination of
which was recommended by the Board.
Loans on and purchases o f , a s s e t s of
closed member banks are 'to be made "on the b a s i s of" valuations of such
a s s e t s made by t h i s committee, which includes the receiver, a representative
of the insolvent bank, and a t h i r d member selected By those two, but does not
include any r e p r e s e n t a t i v e of the corporation.
A number of provisions recommended by the Federal Reserve Board of a
p r o h i b i t i v e or penal character in connection with the proposed Federal Liquida t i n g Corporation and i t s operations have been adopted in the new b i l l arid cert a i n unnecessary steps regarding the organization of the corporation and i n creases and decreases
in i t s c a p i t a l have been eliminated.
X-7139
"11SECTION 8 •
Loans on member franks' c o l l a t e r a l notes
27-38)
The old b i l l (Section 11) provided that the r a t e &t which a
Federal Reserve Bank might make advances to i t s member banks on t h e i r
15-day promissory notes should be a t a r a t e 1# higher than the
rediscount r a t e , and a l s o provided that i f a member bank, while
indebted to a Federal reserve bank on such a 15—day note and despite
a warning of the Federal reserve bank or the Federal Reserve Board,
should increase i t s loans made f o r the purpose of purchasing or
carrying investment s e c u r i t i e s (except obligations of the United S t a t e s ) ,
the note should be immediately due and payable and the member bank
should be i n e l i g i b l e to borrow on such 15-day notes f o r such periods
as the Federal Reserve Board might determine.
The old b i l l also pro-
vided that the Federal Reserve Board might suspend the provisions of
law with reference to loans to member banks on t h e i r 15-day notes f o r
periods of 90 days.
In l i ^ f c o f these provisions of the old b i l l , the Federal Reserve
Board recommended an amendment increasing the maximum maturity of
advances to member banks on t h e i r promissory notes secured by e l i g i b l e
paper from 15 to 90 days.
Section 8 of the new b i l l (pp. 27,28) does not adopt the recommendation of the Board on t h i s point and contains s u b s t a n t i a l l y ' the same
provisions as those in the old b i l l , except that there have been omitted
the discriminatory r a t e of 1$ on such 15-day advances to member banks and
the provisions f o r the suspension by the Board of the provisions of law
on t h i s s u b j e c t .
••
-12-
X-7139 :
41
SBCTlO#
Foreign transactions of Federal reserve banks (p„ 39)
The Federal Reserve Board suggested c e r t a i n changes in the
provisions of Section 12 of the old t i l l with reference to the
supervision of the Board over foreign transactions of Federal
reserve banks, and the more important of these changes have "been
adopted in the corresponding provisions contained in Section 9 of
the new b i l l .
The provisions of the new b i l l on t h i s s u b j e c t , which
are s u b s t a n t i a l l y those of the old b i l l with the Board's suggested
changes, provide t h a t a l l r e l a t i o n s h i p s and transactions by Federal
reserve banks with foreign bankers shall be subject to special
supervision and regulation by the Federal Heserve Board; t h a t negot i a t i o n s with foreign bankers s h a l l not be conducted without the
permission of the Board; that the Board may be represented in
any suoh n e g o t i a t i o n s ; and t h a t a f u l l report of a l l such n e g o t i a t i o n s s h a l l be made to the Board in w r i t i n g ,
SECTION 10 •
Reserves of member banks and r e s t r i c t i o n s on dealings in "Federal Funds"
30).
Section 13 of the old b i l l contained a complete revision of
Section 19 of the Federal Reserve Act with reference to the reserves
required of member banks.
Chief among i t s provisions was the r e q u i r e -
ment that the percentages of reserve against time deposits be increased
over a period of years to the same percentages as those required against
demand d e p o s i t s .
Another important provision of the old b i l l prohibited
the t r a n s f e r of balances with a Federal reserve bank from one bank to
463
X-7139
~ 13 *-
another without the authority of the Federal Reserve Board and except
upon payment of a fee f o r the p r i v i l e g e .
The Board was also authorized
to suspend a l l dealings in reserve balances f o r such periods as i t might
deem b e s t .
The Federal Reserve Board recommended, in l i e u of the provisions of
the old b i l l on t h i s s u b j e c t , a revision of section 19 of t h ^ F e d e r a l Reserve Act in accordance with the recommendations of the System Committee
on Reserves with some modifications; and recommended the omission of the
l i m i t a t i o n s on the use of balances standing to the credit of member banks
on the books of the Federal Reserve Banks.
The new b i l l ( i n Section 10) omits e n t i r e l y any revision or amendment
of the reserve requirements of member banks, and also omits the r e s t r i c t i o n s
of the old b i l l on the t r a n s f e r of balances in Federal reserve banks.
MemBer banks as mediums in making loans on c o l l a t e r a l , ("p. 30)
In accordance with a recommendation of the Federal Reserve Board,
Section 10 of the new b i l l adds a new paragraph to Section 19 of the Federal
Reserve Act forbidding a member bank to act as the medium or agent of any
non-banking corporation or individual in making loans on the s e c u r i t y of
stocks, bonds and other investment s e c u r i t i e s to brokers or dealers in such
s e c u r i t i e s , and providing a f i n e f o r v i o l a t i o n t h e r e o f .
The old b i l l contained a provision f o r a similar purpose but in
d i f f e r e n t form.
SECT I PIT 11.
loans to or investments in stock of a f f i l i a t e s , (-pp. 30-32)
On t h i s subject the new b i l l (in Section 11) adopts s u b s t a n t i a l l y
the recommendations of the Federal Reserve Board and provides t h a t no
member banks s h a l l make any loan or extension of c r e d i t t o , or purchase
464
X-7139
-14s e c u r i t i e s under repurchase agreements from, any of i t s a f f i l i a t e s ,
or invest i n the stock or obligations of such a f f i l i a t e s , or accept
such stock or obligations as security f o r advances, i f the aggregate
amount t h e r e o f , i n the case of any one a f f i l i a t e , w i l l exceed ten
per cent of the c a p i t a l stock and surplus of the member bank, or
i f , i n the case of a l l such a f f i l i a t e s , the aggregate amount thereof w i l l
exceed twenty per cent of the c a p i t a l stock and surplus of such member
bank.
Bach loan or extension of c r e d i t to an a f f i l i a t e s h a l l be
secured by c o l l a t e r a l , i n the form of stocks, bonds, debentures or other
such o b l i g a t i o n s , having a market value of at l e a s t twenty per cent
more than the amount of the loan
or extension of c r e d i t or at l e a s t
ten per cent more than the amount thereof i f secured by State or municipal obligations.
Loans or extensions of credit secured by obligations
of the United S t a t e s , Federal intermediate c r e d i t banks, Federal land
banks or paper e l i g i b l e f o r rediscount by Federal reserve banks are
excepted from the requirement as to marginal c o l l a t e r a l (but the suggestions
of the Federal Reserve Board that those secured by obligations of the
Reconstruction Finance Corporation be also excepted was not adopted).
The provisions of t h i s section do not apply to an a f f i l i a t e engaged
solely i n holding t h e bank premises of the a f f i l i a t e d member bank or
conducting a s a f e - d e p o s i t business or the business of an a g r i c u l t u r a l
c r e d i t corporation or l i v e stock loan company, or to an a f f i l i a t e i n the
c a p i t a l stock of which a national bank i s authorized to invest under
Section 25 of the Federal Reserve Act, or an a f f i l i a t e organized under
Section 25(a) of the Federal Reserve Act.
465
X-7139
-15The old b i l l ( i n Section 9) contained some of the provisions
of the new M i l on t h i s subject, hut the l i m i t a t i o n s prescribed
were applicable only as t o a f f i l i a t e s engaged in buying and s e l l i n g
stocks, bonds, r e a l e s t a t e or r e a l e s t a t e mortgages or organized to
hold t i t l e to any such property.
The old b i l l did not include
the twenty percent l i m i t in the case of a l l a f f i l i a t e s , on the
aggregate of loans, investments and advances, nor did i t include any
of the above-mentioned exceptions to the l i m i t a t i o n s prescribed.
The old b i l l required marginal c o l l a t e r a l of twenty per cent in a l l
cases except where the security f o r the loan consisted of paper
e l i g i b l e f o r rediscount or obligations e l i g i b l e for investment by
savings banks.
SECTIOH 12.
Heal e s t a t e loans and investments i n bank premises (pp. 32, 33)
The old b i l l ( i n Section 14) contained a number of provisions
with reference to r e a l e s t a t e loans and investments of member banks.
I t would have required a bank to r e v i s e the valuations on which
such loans were based at the time of each examination and a l s o , i n
e f f e c t , at the time of each report of i t s condition.
The l i m i t a t i o n s
on the amount of such loans would have been changed, and a l l unsecured loans whose eventual s a f e t y depends upon the value of r e a l
e s t a t e would have been c l a s s i f i e d as r e a l e s t a t e loans.
Time depositors
would have been given a p r e f e r r e d claim on a l l real e s t a t e loans and
other a s s e t s acquired under t h i s section of the old b i l l .
X-7139
—16—
The Federal Reserve Board recommended that these provisions
of the old b i l l be omitted and that there be s u b s t i t u t e d t h e r e f o r a
provision that no national bank, without the permission of the
Comptroller of the Currency, and no State member bank, without the
permission of the Board, shall invest in bank premises, or in the stock
or obligations o f , or i n loans to, any corporation owning" or holding
i t s bank premises a sum exceeding the amount of the c a p i t a l stock of
such bank.
The new b i l l omits the provisions of the old b i l l in accordance
with the recommendation
of the Board, and adopts i n substance the
provision suggested by the Board, although the language of the
provision i s somewhat changed, and loans upon the s e c u r i t y of the stock
of any such corporation holding bank premises are included within the
investments t o which the l i m i t a t i o n a p p l i e s .
SECTION 13 •
J u r i s d i c t i o n of Federal Courts over cases involving f o r e i g n banking
transactions,
(pp. 33.34)
This provision, which was not contained in the old b i l l and which
was not the subject of a recommendation by the Federal Reserve Board,
confers upon the d i s t r i c t courts of the United States j u r i s d i c t i o n over
any case to which a corporation organized under the laws of the United
States i s a party and which a r i s e s out of transactions involving i n t e r national or f o r e i g n banking, either d i r e c t l y or through the agency, owner
ship or control of branches or of local i n s t i t u t i o n s i n foreign
countries.
X-7139
467
-17I t i s understood that the r u l e i n the Federal courts with reference
to the valuation of f o r e i g n currency i n transactions cf t h i s kind i s
more favorable to banks than in the State courts,
and i t i s apparently
f o r t h i s reason that the b i l l contains the above provision.
SECTION 14.
Rational "banks granted a l l powers of State "banks. (p. 34)
In the old b i l l (Section 15) national banks were granted power to
engage i n a l l forms of banking business permitted by the laws of the
State i n which they a r e located to "banks of deposit and discount" organized under such S t a t e laws, except to the extent that the exercise
of such powers i s forbidden by the laws of the United S t a t e s .
The Board recommended that t h i s provision be omitted; but i t i s
contained i n the new b i l l in s u b s t a n t i a l l y the same form i n which i t
appeared i n the old b i l l .
Dealings i n investment s e c u r i t i e s (pp. 34-36)
The old b i l l (in section 15) contained a number of provisions with
reference to dealings i n investment s e c u r i t i e s by national banks and
the Board recommended that a l l these provisions be omitted.
They a r e ,
however, repeated i n the new b i l l , with c e r t a i n changes and a d d i t i o n s ,
and with the provision ( i n Section 4) that the same provisions s h a l l
be applicable to State member banks.
The new b i l l provides in e f f e c t
that:
Dealings i n investment s e c u r i t i e s are limited to the purchase and
s a l e of such s e c u r i t i e s , without recourse, solely upon the order
X-7139
—18—
and. f o r the account of customers, except that member "banks may purchase
and hold f o r t h e i r own account investment s e c u r i t i e s under l i m i t a t i o n s
and r e s t r i c t i o n s prescribed by regulation of the Comptroller of the
Currency.
Ho member "bank s h a l l underwrite any issue of s e c u r i t i e s .
The t o t a l amount of any one issue of investment s e c u r i t i e s of any one
obligor h e r e a f t e r purchased and held by a member bank f o r i t s own
account s h a l l not exceed. 10 per cent of the t o t a l amount of such
issue outstanding, but t h i s l i m i t a t i o n does not apply to any issue not
i n excess of $100,000 and not in excess of 50 per cent of the c a p i t a l
of the bank; and the t o t a l amount of investment s e c u r i t i e s of any one
obligor h e r e a f t e r purchased and held s h a l l not exceed 15$ of the
c a p i t a l of the bank and 25 per cent of i t s surplus.
(The l a t t e r
l i m i t a t i o n i n the old b i l l was stated i n ambiguous terms and might
have been construed, to apply to the aggregate amount of a l l i n v e s t ment s e c u r i t i e s held by the bank.)
No member bank may purchase or hold the stock of any corporation, except
as otherwise permitted by law, and except that a bank may invest
not more than 15 per cent of i t s c a p i t a l and surplus i n the stock
of safe deposit companies.
These l i m i t a t i o n s do not apply to obligations of the United S t a t e s ,
to general obligations of any State or any subdivision t h e r e o f , or to
obligations issued under the authority of the Federal Farm Loan Act.
X-7139
- 19 -
The d e f i n i t i o n of investment s e c u r i t i e s contained in e x i s t i n g
law would apparently have been stricken out by the old b i l l and
the Comptroller of the Currency given unlimited powers to p r e s c r i b e
h i s own d e f i n i t i o n , except that stocks could not be included.
The
new b i l l , however, in e f f e c t r e s t o r e s the d e f i n i t i o n contained in the
existing law.
SSCTIOIT 15
(a)
Capital required for organization of national banks,
("op. 35, 37)
The old b i l l (in section 16) contained an amendment to Section
5138 of the "Revised Statutes to provide that no national bank may be
organized with a c a p i t a l of l e s s than $50,000, except that a national
bank may be formed, in the d i s c r e t i o n of the Comptroller of the Currency
f o r the purpose of succeeding to the business of an e x i s t i n g bank
with a c a p i t a l of not l e s s than $25,000.
The old b i l l also eliminated
the e x i s t i n g requirement that the organization of national banks with
a c a p i t a l of l e s s than $100,000 shall be subject to the approval of the
Secretary of the Treasury.
The Board recommended the elimination of the exception in the
old b i l l which permitted the formation of national banks with a c a p i t a l
of l e s s than $50,000 to take over the business of an e x i s t i n g bank.
This recommendation was adopted and with t h i s change the provisions
of the old b i l l on t h i s subject are repeated in the new b i l l .
X-:7135S!70
-
20 -
(b) Capital requirements of State member banks, (p. 3fr)
Section 15(b) of the new b i l l contains a provision,
not appearing in the old b i l l and not recommended by the Federal
Reserve Board, which amends Section 9 of the Federal Reserve Act
so as to eliminate the provision of e x i s t i n g law under which a
'
State bank is permitted to become a member of the Federal Reserve
System with a c a p i t a l equal to only 60$ of the amount required f o r
the organization of a national bank in the place in which i t i s
situated.
The c a p i t a l required of State member banks h e r e a f t e r
admitted to the System, t h e r e f o r e , would be required in a l l
cases to be equal to t h a t required of national banks located in
places of l i k e s i z e .
SECTION 16.
Shares of stock of $100 each.
The old b i l l ( i n Section 17) would have amended section 5139
of the Revised Statutes so as to provide t h a t the capital stock of
national banks should be divided into shares of $100 each, thus
repealing the provision of the present law for shares of a l e s s e r
amount.
In accordance with the recommendation of the Federal Reserve
Board, however, t h i s provision i s omitted in the new b i l l .
Divorce of stock of national bank from stock of other corporations, (p. 37)
The new b i l l provides (in Section 16) t h a t , a f t e r three years
from the date of i t s passage, no c e r t i f i c a t e of stock of a national
X-7139
-
21
bank shall represent the stock of any other corporation except a
member bank, nor s h a l l the ownership or t r a n s f e r of a stock c e r t i f i c a t e of a national bank be conditioned uoon the ownership or
t r a n s f e r of a c e r t i f i c a t e of stock of another corporation except a
memb er bank.
S u b s t a n t i a l l y the same provision was included in the old b i l l
(in Section 17), except that the prohibition apparently was to take
e f f e c t immediately and no exception was made as to the stock of another
member bank.
The Board recommended that t h i s provision be made
e f f e c t i v e three years a f t e r enactment and, as s t a t e d , the new b i l l
includes t h i s change.
Similar provisions regarding c e r t i f i c a t e s of stock of State
member banks are included in section 5(b)
of the new b i l l .
SECTION 17.
Shares of i t s own stock held by a national bank as t r u s t e e ,
(p. 38)
The old h i l l (in Section 19) provided that no shareholders
of national banks who shall become such through nominal t r a n s f e r
or ownership on behalf of another shall vote a t meetings of shareholders of such banks.
The Board recommended that shares of i t s
own stock held by any national bank as t r u s t e e shall not be voted.
The Board's recommendation was adopted in the new b i l l , and the
provision of the old b i l l was not retained.
471
.
x
™7139472
22.
Right of an a f f i l i a t e of a l i a t b ^ h k to fr0t6 stock held "by i t in
such bank.
(pp. 38-43)
The old "bill ( i n Sections 19 and 20) contained provisions requiring an a f f i l i a t e of a national bank to obtain a voting
permit from the Federal Reserve Board before voting any stock held
by i t in such national bank.
Such a voting nermit might be issued only
upon compliance by the holding company a f f i l i a t e with a number of
d e t a i l e d provisions.
The Federal Reserve Board recommended a number
of changes in these provisions of the old b i l l , but the Board's recommendations on t h i s subject have not been adopted in the new b i l l .
The s a l i e n t f e a t u r e s of the Board's recommendations on t h i s
subject were as follows:
Shares owned or controlled by an a f f i l i a t e
shall not be voted unless such a f f i l i a t e has f i l e d an agreement with
the Comptroller of the Currency to comply with the provisions of t h i s
section.
Within one year from the date of any such agreement each
nonmember State bank owned or controlled by such a f f i l i a t e s h a l l apply
f o r membership in the Federal Reserve System and i f not admitted such
a f f i l i a t e shall divest i t s e l f of a l l i n t e r e s t in such bank.
Each such
a f f i l i a t e shall hold r e a d i l y marketable a s s e t s , other than bank stocks,
equal to 15 per cent of bank stocks held by i t and shall r e i n v e s t i t s
net earnings above 6 per cent in such a s s e t s u n t i l they amount to
25 per cent of bank shares held by i t ; with a proviso that c r e d i t
s h a l l be given f o r contributions made during the preceding three
years to
banks
owned or controlled by the a f f i l i a t e .
Failure to
comply with the agreement i s ground for termination thereof by
the Comptroller.
No national bank shall make any loan to, or on
X-7139
.
473
the security of the stock o f , or "be the purchaser of the stock o f ,
any A f f i l i a t e which owns or controls such bank, unless necessary to
prevent loss upon a debt previously contracted in good f a i t h , and
stock so acquired s h a l l foe disposed of within two y e a r s .
O f f i c e r s and
employees of a f f i l i a t e s which have entered into an agreement with the
Comptroller of the Currency, are made subject to c e r t a i n criminal p r o visions, and a penalty i s provided f o r voting the stock held by a f f i l i a t e s , unless such an agreement i s in e f f e c t .
The provisions of the new b i l l on t h i s s u b j e c t , which follow
along the l i n e s of the old b i l l with c e r t a i n changes and additions and
which do not contain the provisions as recommended by the Board, are in
b r i e f form set f o r t h in the following paragraphs.
(As hereinbefore
explained under Section 5, the provisions of the new b i l l on t h i s subject
are applicable a l s o to holding company a f f i l i a t e s of State member banks,)
Shares of a national bank controlled by a holding company a f f i l i a t e , including those held by a trustee f o r the benefit of the shareholders of such a f f i l i a t e , s h a l l not be voted unless such a f f i l i a t e s h a l l
have obtained a voting permit from the Federal Reserve Board; and in
a c t i n g upon an a p p l i c a t i o n f o r such permit, the Board s h a l l consider the
f i n a n c i a l condition of the a p p l i c a n t , the general character of i t s management and the probable e f f e c t of the granting of the permit upon the
a f f a i r s of such bank.
No permit s h a l l be granted except upon the f o l -
lowing conditions:
(a) Each such holding company a f f i l i a t e s h a l l agree; to submit
to examinations, a t i t s own expense, disclosing f u l l y the r e l a t i o n s h i p
«S4between such a f f i l i a t e
X-7139
and such bank, that such examinations may he
made of each hank owned or controlled "by the a f f i l i a t e , and t h a t
publication of statements of condition of such banks may be required,
•(b)
A f t e r January 1, 1935, every such holding company a f -
f i l i a t e s h a l l possess unpledged readily marketable a s s e t s other than
bank stock in an amount not l e s s than 12$ of the par value of a l l
bank stocks controlled by such a f f i l i a t e , which amount s h a l l be i n creased by not l e s s than 2$ annually up to 25$ thereof and by r e investing in such readily marketable a s s e t s net earnings in excess of
6$ annually u n t i l the 25$ requirement i s reached.
(The l a s t of the
requirements of t h i s paragraph was recommended by the Board.)
(c)
However, where the shareholders of the a f f i l i a t e
are themselves l i a b l e under the double l i a b i l i t y provisions on the
bank stock held by the a f f i l i a t e , the l a t t e r s h a l l be required only
to e s t a b l i s h , out of i t s net earnings in excess of 6$, a reserve of
r e a d i l y marketable a s s e t s equal to 12$ of the par value of bank
stocks controlled by i t , and r e a d i l y marketable a s s e t s required
of such a f f i l i a t e may be used f o r replacement of c a p i t a l in banks
a f f i l i a t e d with i t ; but any deficiency so incurred s h a l l be made
up within such period as the Federal Reserve Board may p r e s c r i b e .
(d)
That o f f i c e r s , d i r e c t o r s , agents and employees of such
a holding company a f f i l i a t e s h a l l be subject to the same p e n a l t i e s f o r
f a l s e e n t r i e s as o f f i c e r s and employees of member banks are subject
to under Section 5209 of the Revised S t a t u t e s .
-26-
X-7139
4^
(e) That every such holding company a f f i l i a t e s h a l l show that i t
does not have any i n t e r e s t in and i s not p a r t i c i p a t i n g in the management
of any s e c u r i t i e s company; t h a t , i f i t has such an i n t e r e s t or p a r t i c i pation i t w i l l , within three years, divest i t s e l f thereof; and that i t
w i l l declare dividends only out of actual net earnings.
If any holding company a f f i l i a t e v i o l a t e s any of the provisions
of t h i s a c t , the Federal Reserve Board may revoke i t s voting permit
a f t e r n o t i c e , and t h e r e a f t e r no national bank whose stock i s controlled
by such a f f i l i a t e s h a l l receive Government deposits or pay any dividend
to such a f f i l i a t e .
Where such a voting permit of an a f f i l i a t e has "been revoked, the
franchise of any national bank controlled by such an a f f i l i a t e s h a l l be
subject to f o r f e i t u r e .
SECTION 18.
Relationships between Member Banks and S e c u r i t i e s Dealers or Corporations making c o l l a t e r a l loans. (t>-p. 43. 44.)
The old b i l l ( i n section 18) provided t h a t , a f t e r January 1,
1933, no d i r e c t o r , o f f i c e r or employee of a member bank should be an
o f f i c e r or employee of a corporation or association engaged primarily in
the s e c u r i t i e s business and no such o f f i c e r , d i r e c t o r or employee of
a member bank should be a d i r e c t o r , o f f i c e r or employee of a corporation
making loans secured by c o l l a t e r a l to any one except i t s own s u b s i d i a r i e s .
The old b i l l also provided that no member bank should have correspondent
r e l a t i o n s h i p s with a s s o c i a t i o n s or corporations of the kind mentioned.
X-7139'
4 7 6
— 26 —
The Board recommended that these provisions be omitted and suggested s u b s t i t u t e provisions.
The new "bill provides, in substantial • accordance with the s u b s t i tute provisions recommended by the Board, t h a t , a f t e r three years, no member
bank s h a l l be a f f i l i a t e d with a s e c u r i t i e s corporation in the manner
described in Section 2(b) of the b i l l (where the word " a f f i l i a t e " i s defined
so as not to include holding company a f f i l i a t e s ) •
Violations of t h i s p r o v i -
sion subjects the member bank to a penalty of $1,000 a day, in the d i s c r e t i o n
of the Federal Reserve Board, and, if the v i o l a t i o n s continue f o r six months
a f t e r warning from the Board, the bank's f r a n c h i s e may be f o r f e i t e d , if a
national bank, or i t s membership in the Federal Reserve System may be
f o r f e i t e d , i f a State bank.
SECTION- 19.
Branches of National banks, (trp. 44.45).
The old b i l l (in Section 21) provided f o r State-wide branches of
n a t i o n a l banks in States where the State law permits State banks to have
branches, with a proviso t h a t , if the usual business of the bank extends
into an adjacent S t a t e , the Federal Reserve Board may permit the e s t a b l i s h ment of a branch by the bank in such State not more than f i f t y miles from
i t s head o f f i c e *
In order to have branches outside of the c i t y of i t s
head o f f i c e , a c a p i t a l of $500,000 was required.
Furthermore, the aggre-
gate c a p i t a l of a bank and i t s branches was required to equal the c a p i t a l
required f o r an equal number of national banks s i t u a t e d where the bank and
i t s branches are respectively located.
477
X-7139
—27—
The Federal Reserve Board suggested t h a t , i f these provisions
were to be r e t a i n e d , a change "oe made which would eliminate the l i m i t ations of the present law on the
number
of "branches which may be estab-
lished i n c i t i e s of l e s s than 100,000 i n h a b i t a n t s , and the l i m i t a t i o n
providing that no branch may be established in a c i t y of l e s s than
25,000 i n h a b i t a n t s .
This recommendation of the Board was adopted i n
the new b i l l .
The provisions of the new b i l l on t h i s subject are substant i a l l y the same as those contained in the old b i l l , with the change
recommended by the Board; except that the establishment of State-wide
branches i s not limited to those States i n which the S t a t e law permits
State banks to have branches.
(The provisions of the new b i l l with reference to branches of
State member banks are contained i n Section 5 ( a ) . )
SBC TI Oil 20.
Consolidations of national banks with other banks i n the same S t a t e , (p. 45)
The provisions of the Act providing for the consolidation, of two
or more national banks or f o r the consolidation of State ba,nks with nationa l banks rould be amended by the new b i l l so as to permit such consolidations to take place between banks located anywhere i n the same S t a t e .
section was contained i n the same form i n the old b i l l ( i n Section 22).
suggestion was made by the Board on t h i s p o i n t .
This
Ho
X-7lA
-28-
StiCfllOlJ 31.
Rate of i n t e r e s t on loans, (pp. 45,4-6)
The new b i l l would anend. Section 519? of the Revised Statutes so
that national "banks could charge on loans and discounts, (1) the r a t e
of i n t e r e s t allowed by the State law (or 7$ where the State law f i x e s
no l i m i t ) , or (2) a r a t e 1$ i n excess of the Federal reserve bank
discount r a t e , ^hich ever
may be the g r e a t e r .
The provision of the new b i l l on t h i s subject i s the same as that
contained i n the old b i l l (Section 23) with a minor change suggested
by the Board.
SECTION 22.
Limitations on loans to a f f i l i a t e d corporations, (pp.46,47)
The new b i l l provides an amendment to the f i r s t paragraph of Section
5200 of the Revised S t a t u t e s , ^hich provides that in computing the amount
which a corporation can borrow from a national bank, the corporation and
a l l of i t s s u b s i d i a r i e s i n which such corporation owns or controls a
majority i n t e r e s t would be treated as a single borrower.
This provision has been adopted from the old b i l l (Section 25(a))
with a c l a r i f y i n g amendment suggested by the Board.
In accordance with the Board's recommendations, the following provisions of section 25 of the old b i l l are omitted from the new b i l l :
(1)
That the amount which any national bank might lend to any broker
or member of any stock exchange or similar corporation or any finance
company, s e c u r i t i e s company, investment t r u s t or other similar organization
would be limited to 10$ of the c a p i t a l and surplus of such national bank.
(2)
that no national bank would be permitted to lend to "an a f f i l i a t e "
an amount exceeding 10$ of the c a p i t a l and surplus of such
X-7139
. 479
"89national "bank or exceeding the capital stock of such a f f i l i a t e , whichever
may "be the smaller.
(3) that the aggregate amount which a l l a f f i l i a t e s of a national bank
could "borrow from such national "bank (including repurchase agreements)
would be limited to 10$ of the national "bank's c a p i t a l and surplus except
that loans secured "by Government bonds or by bonds issued by the State i n
which such bank i s s i t u a t e d or by any p o l i t i c a l subdivision of such
State would be excluded altogether from the l i m i t a t i o n s of Section 5200
of the Revised S t a t u t e s , i f actually owned by the borrower.
(4)
that no national bank might e s t a b l i s h or c a p i t a l i z e an a f f i l i a t e
through cash or stock dividend declarations made from i t s surplus
or from undivided p r o f i t s ; and "within three years a f t e r t h i s section
as amended takes e f f e c t " , every a f f i l i a t e should be c a p i t a l i z e d through
the s a l e of i t s own stock which should be paid f o r i n cash i n the same
manner as required in the case of a national bank.
(5)
that f o r a period of three years, no a f f i l i a t e of a national
bank might hold, or lend upon, more than 10$ of the shares of
the c a p i t a l stock of the parent i n s t i t u t i o n .
X-7139
480
<-30SSCTIQtT 23.
Reports of a f f i l i a t e s of national "banks (pp. 47, 48).
The old b i l l (in Section 27) required each a f f i l i a t e of a nationa l bank to make three complete reports .of condition annually through
the president of the bank to t h e Comptroller of the Currency, and also
to make such special r e p o r t s as the Comptroller night r e q u i r e .
The
Board's recommendation was that such reports be required only when deemed
necessary.
The new b i l l provides that every nationa-l bank s h a l l obtain f r o n
each of i t s a f f i l i a t e s , other than member banks, and f u r n i s h to the
Comptroller of the Currency not less than three reports of condition
each year and such additional reports as t h e Comptroller may deem necessary.
The provision requiring such reports i s s t i l l mandatory; but they
are required to contain only such information as in the judgment of the
Comptroller s h a l l be necessary to disclose f u l l y the r e l a t i o n s between
such a f f i l i a t e and such bank and to enable the Comptroller to inform
himself as to the e f f e c t of such r e l a t i o n s upon the a f f a i r s of such bank.
The bank i s subject to a penalty f o r f a i l u r e to render such r e p o r t s .
Provisions of the old b i l l requiring an a f f i l i a t e under c e r t a i n
s t a t e d conditions to publish i t s e n t i r e p o r t f o l i o are omitted from
the new b i l l .
(Substantially the same provisions are contained in Section
5(b) of the new b i l l with reference to reports of a f f i l i a t e s of State
member banks).
X-7139 4 8 1
-31»SECTION 34.
Examinations of a f f i l i a t e s of national t a c k s . (pp< 48-50)
The new b i l l requires such exaninations of a f f i l i a t e s (other
than member banks) of a national bank as s h a l l be necessary to d i s c l o s e
f u l l y the r e l a t i o n s between such bank and such a f f i l i a t e s and the e f f e c t
of such r e l a t i o n s upon the a f f a i r s of such bank, and authorizes the
f o r f e i t u r e of the f r a n c h i s e of the bank i n the event of r e f u s a l of the
a f f i l i a t e to give information or to permit such examination.
Publication of the examination report of a national bank or of an a f f i l i a t e i s authorized i f the bank or a f f i l i a t e f a i l s to comply with
recommendations of the Comptroller of the Currency based on such examinations.
The old b i l l contained a provision (in Section 28) requiring
examinations of a f f i l i a t e s of national banks and member banks.
The Feder-
a l Reserve Board recommended that t h i s section provide f o r examination of
a f f i l i a t e s of national banks only (as examinations of a f f i l i a t e s of State
member banks are provided f o r elsewhere in the b i l l ) and that such examinations be authorized to be made only when deemed necessary.
In accordance with c e r t a i n other suggestions of the Federal Reserve Board on t h i s s u b j e c t , the new b i l l has added c e r t a i n provisions
to authorize examiners making an examination of an a f f i l i a t e of a nationa l bank to administer oaths and to examine o f f i c e r s and employees under
oath; to provide that the expenses of such examination may be assessed
against the a f f i l i a t e and, i f not paid by the a f f i l i a t e , then against
X-7139
u 33 -
the tank; and to provide a penalty of $100 per day to "be paid "by the
bank f o r r e f u s a l of the a f f i l i a t e to give information required or to
permit such an examination.
While examinations of a f f i l i a t e s of national banks in the old
b i l l were limited to a period of three years a f t e r i t s passage, the new
b i l l , in accordance with the Board's suggestion on t h i s p o i n t , contains
no limit of t h i s kind.
(Provisions of a somewhat similar character with reference to
examinations of a f f i l i a t e s of State member banks are contained in Sect i o n 5(b) of the new b i l l . )
SECTION 35.
Removal of bank d i r e c t o r s or o f f i c e r s from o f f i c e . ( t o . 5 0 - 5 2 )
On t h i s subject, the new b i l l follows s u b s t a n t i a l l y the recommendation of the Board and provides a procedure f o r the removal of a
d i r e c t o r or o f f i c e r of a member bank who has continued to v i o l a t e the
law or has continued unsafe or unsound p r a c t i c e s in conducting the
business of the bank with which he i s connected, a f t e r being warned by
the Comptroller of the Currency (as to a n a t i o n a l bank) or the Federal
Reserve Agent of h i s d i s t r i c t (as to a State member bank) to d i s continue such v i o l a t i o n s or such p r a c t i c e s .
After a hearing by the
Federal Reserve Board e s t a b l i s h i n g such f a c t s , the Board may order
the removal of such d i r e c t o r or o f f i c e r and a copy of such order s h a l l
be served upon him and upon the bank with which he is connected.
Such
order and f i n d i n g s of f a c t may not be made public or disclosed except
X-7139
33 —
;
to such d i r e c t o r or o f f i c e r and the d i r e c t o r s of h i s "bank, "otherwise than in connection with proceedings f o r a v i o l a t i o n of t h i s
section."
P a r t i c i p a t i o n by such o f f i c e r or d i r e c t o r in the manage-
ment of such bank a f t e r having "been removed i s punishable by f i n e or
imprisonment.
The old b i l l placed the power of removal in a committee
consisting of the Governor of the Federal Reserve Board, the Comptroller
of the Currency and the Federal Reserve Agent, instead of in the Fede r a l Reserve Board as provided in the new b i l l .
The old b i l l did not
contain the provision p r o h i b i t i n g the making public or d i s c l o s i n g the
order of removal or findings of f a c t .
SECTION 25.
Saving clause and reservation of right to amend, (v. 52),
Section 26 contains the usual provisions (which were also
in the old b i l l ) reserving the r i g h t to a l t e r , amend or repeal the
act and l i m i t i n g decisions holding p a r t s of the act to be i n v a l i d ,
to the s p e c i f i c sections dealt with in such d e c i s i o n s .
488
X-71j
- 34 SECTIONS OF OLD BILL
DMiTtID FROM FEW BILL.
In addition to a number of other provisions of the old b i l l
which have been omitted from the new b i l l but which have been t r e a t e d
above in connection with c e r t a i n r e l a t e d topics contained in the corresponding sections of the new b i l l , (such as the provisions regarding
reserves and regarding r e a l e s t a t e loans and investments of member
banks), there have also been omitted from the new b i l l the following
provisions, each of which constituted an e n t i r e separate section of
the old b i l l .
Limitation upon amount of loans on c o l l a t e r a l security by member banks.
Section 8 of the old b i l l authorized the Federal Reserve Board
to f i x the percentage of the c a p i t a l and surplus of a member bank which
might be represented by loans on c o l l a t e r a l security.
The purpose of
t h i s section apparently was to prevent the undue use of bank loans f o r
speculation in s e c u r i t i e s , which i s f u l l y covered in Section 3.
In
accordance with the recommendation of the Board, t h e r e f o r e , the provisions of Section 8 of the old b i l l have been omitted from the new b i l l .
I n t e r e s t on deposits.
Section 24 of the old b i l l would have limited the r a t e of
i n t e r e s t which national and State member banks would be permitted to
pay on deposits as follows: (1)
have been limited to 2 1/2$ or
i n t e r e s t on balances due to banks would
11
the current r a t e of discount of the
Federal reserve bank", whichever i s the smaller;
(2) on a l l other
deposit balances, the r a t e would have been limited to one-half the
r a t e of i n t e r e s t which national banks are permitted to charge on loans.
x 7139
~
- 35In accordance with a recommendation of the Federal Reserve
Board t h i s section i s omitted from the new t i l l .
Limitations on c o l l a t e r a l loans to single borrowers.
Section 26 of the old b i l l provided that no member bank
shall lend to any individual or corporation "upon c o l l a t e r a l security"
an amount exceeding 10$ of i t s own capital and surplus, or an amount
exceeding the percentage f i x e d by the Federal Reserve Board, whichever i s the smaller.
In accordance with the recommendation of the Federal Reserve Board t h i s section i s omitted from the new b i l l (as was also
Section 8 of the old b i l l which also provided f o r l i m i t i n g c o l l a t e r a l
loans.)
485
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-7289
November 11, 1932.
SUBJECT: Hew Issue Treasury B i l l s .
Dear S i r :
In connection with telegraphic transactions in
Government s e c u r i t i e s between Federal reserve banks,
the code word "NOXDIET" has been designated to cover
a new issue of Treasury B i l l s , dated November 16, 1932,
and maturing February 15, 1933.
This word should be inserted in the Federal r e serve telegraph code book, following the supplemental
•code word "ITOXDIFFUSE" on page 172.
Very t r u l y yours,
J . C. Uoell,
Assistant Secretary.
TO GOVEBHOHS OF ALL F. B. BANKS.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-7290
Hovember 12, 1932.
SUBJECT:
Shipment of Checks, e t c . , "by Express.
Dear S i r :
There i s inclosed herewith f o r your information, a copy
of a l e t t e r addressed to the Federal Reserve Bank of Kansas City
"by a Post Office Inspector, quoting a r u l i n g by the Second
Assistant Postmaster General.
You w i l l note that the r u l i n g s t a t e s that "there would he
no objection to checks being forwarded by express" i f not accompanied by a l e t t e r .
Apparently cash l e t t e r s or similar form l e t t e r s
of t r a n s m i t t a l covering such shipments are regarded by the Post
Office Department as " l e t t e r s " within the meaning of the "private
express s t a t u t e s . "
Some Federal reserve banks have already adopted the p r a c t i c e
of sending such covering l e t t e r by mail, and the checks by express.
The r u l i n g r e f e r r e d to above, however, indicates that there w i l l be
no objection to inclosing with the checks a l i s t prepared on an
adding machine, provided such l i s t i s not w r i t t e n on a form containing i n s t r u c t i o n s or other communications.
Whether or not i t would
X-7290
"" 2 *•
"be permissible to date the adding machine l i s t does not s p e c i f i c a l l y
appear from the above r u l i n g .
Very t r u l y yours,
Chester M o r r i l l ,
Secretary.
Inclosure.
TO GOVERNORS OF ALL F.R. BA.HKS EXCEPT KANSAS CITY.
488
I
X-7290~a
COPY
(COPY)
POST
OFFICE DEPARTMENT
Office of Inspector.
Case No. 32426-C
B. W. Ficlcen
Inspector.
Kansas City, Missouri
November 4, 1932.
SUBJECT:
Shipment of clearings by express.
Federal Reserve Bank,
Kansas City, Missouri.
Gentlemen:
Referring to the matter of shipment of checks and clearings
by express, I have to advise that I have received the following addit i o n a l r u l i n g from the Second Assistant Postmaster General:
"Under the provisions of the p r i v a t e express
s t a t u t e s , i t i s not permissible to send checks
or d r a f t s in process of collection from one
hank to another by express without payment of
postage i f such checks are accompanied by
clearance l e t t e r s or anything else i n the
nature of correspondence, though there would
be no objection to checks being forwarded by
express i f they are not accompanied "by anything other than an adding machine l i s t . "
Sincerely yours
/s/
B. W. Ficken
Post Office Inspector.
490
Federal Reserve Ifotes, Series 1928, For Federal Reserve Board.
October 1 t o 28, 1932,
$5
$10
$20
Amount
$6,063.50
10,000 104,000
9,412.00
-
130,000
11,765.00
-
-
33,000
2,986.50
-
-
24,000
2,172.00
10,000
-
30,000
2,715.00
5,000
-
40,000
3,620.00
-
15,000
1,357.50
10,000
-
33,000
2,986.50
25,000
24,000
-
107,000
9,683.50
202,000
89,000
10,000 583,000
$52,761.50
37,000
20,000
10,000
Philadelphia,
50,000
34,000
10,000
Cleveland,
74,000
36,000
20,000
Richmond,
13,000
20,000
Atlanta,
14,000
10,000
Chicago,
-
20,000
21,000
14,000
Minneapolis,
5,000
10,000
Kansas City,
10,000
13,000
San Francisco,
58,000
282,000
Total
Sheets
67,000
Boston,
S t . Louis,
#50
-
-
583,000 sheets, @ $90.50 per M, . . . .052,761.50
FEDERAL RESERVE BOARD
WASHINGTON
X-7292
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
November 18, 1932.
SUBJECT: New Issue Treasury B i l l s .
Dear S i r :
In connection with telegraphic transactions in
Government s e c u r i t i e s between Federal reserve "banks,
the code word "NOXDISABLEJ" has been designated to cover
a new issue of Treasury B i l l s , dated November 23, 1932,
and maturing February 23, 1933.
This word should be inserted in the Federal r e serve telegraph code book, following the supplemental
code word "NOXDlRT" on page 172.
Very t r u l y yours,
J . C. Noell,
Assistant Secretary.
TO GOVERNORS OF ALL F. R. BANKS
FEDERAL RESERVE BOARD
WASHINGTON
X-7293
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
December 16, 1932.
Dear S i r :
For your f u r t h e r information i n connection with the grading
and inspection work now conducted "by the Bureau of Agricultural
Economics of the United States Department of Agriculture, you w i l l
f i n d inclosed a copy of a l e t t e r dated November 15 from Mr. Nils
A. Olsen, Chief of the Bureau of Agricultural Economics, i n which
he sets f o r t h a clear and concise description of t h i s s e r v i c e . You
w i l l also f i n d attached a copy of the inclosure transmitted with
h i s l e t t e r showing the inspection markets where t h i s service i s
conducted.
On the reverse side of t h i s l i s t of inspection markets
you w i l l f i n d a "brief announcement by the bureau regarding the
service with respect to canned f r u i t s and vegetables.
—
Very tr uly yours,
Chester M o r r i l l ,
Secretary.
Inclosures.
TO CHA.IEMEH AND GOVEENORS OF ALL F. R. BANKS.
X-7293-a
UNITED STATES DEPARTMENT OF AGRICULTURE
BUREAU OF AGRICULTURAL ECONOMICS
Washington, D. C.
November 15, 1932.
Mr, Chester M o r r i l l , Secretary,
Federal Reserve Board,
Washington, D. C.
Dear Mr. M o r r i l l :
Following your conversation the other day with Mr. Wells
A. Sherman of t h i s Bureau, i t i s my understanding that you d e s i r e
a "brief statement of the grading and inspection work now conducted
by t h i s Bureau. The l e g a l a u t h o r i t y f o r conducting work of the kind
described to you by Mr. Sherman i s found in the annual a g r i c u l t u r a l
appropriation Act reading as follows;
"For enabling the Secretary of Agriculture, independently and
in cooperation with other branches of the Government, State agencies,
purchasing and consuming organizations, boards of t r a d e , chambers of
commerce, or other a s s o c i a t i o n s of business men or trade organizations,
and persons or corporations engaged in the production, t r a n s p o r t a t i o n ,
marketing, and d i s t r i b u t i o n of farm and food products, whether operating
in one or more j u r i s d i c t i o n s , to investigate and c e r t i f y to shippers and
other i n t e r e s t e d p a r t i e s the c l a s s , q u a l i t y , and/or condition of cotton,
tobacco, f r u i t s and vegetables whether raw, dried, or canned, p o u l t r y ,
b u t t e r , hay, and other perishable farm products when o f f e r e d f o r i n t e r s t a t e shipment or when received a t such important central markets as the
Secretary of Agriculture may from time to time designate, or a t p o i n t s
which may be conveniently reached therefrom, under such r a l e s and regulations as he may p r e s c r i b e , including payment of such f e e s as w i l l be
reasonable and as nearly as may be cover the cost f o r the service r e n dered: Provided, That c e r t i f i c a t e s issued by the authorized agents of the
Department s h a l l be received in a l l courts of the United States as prima
f a c i e evidence of the t r u t h of the statements t h e r e i n contained."
In providing such a service i t i s necessary to develop o f f i c i a l
grades or standards of the various products in order t h a t the grade and
condition may be accurately r e f l e c t e d in the o f f i c i a l c e r t i f i c a t e of
grade. The chief advantages of the development of such standards may be
considered b r i e f l y in two groups:
( l ) The advantages of a common language between buyer and s e l l er and other f i n a n c i a l l y i n t e r e s t e d p a r t i e s , l i k e banks, t h a t are i n terested in loaning money on a g r i c u l t u r a l products covered by warehouse
r e c e i p t s , and
-
2 -
X-7293-a
(2) The advantages of a c t u a l l y separating the various produ c t s into d i f f e r e n t grades of market q u a l i t y .
The following paragraphs indicate the extent to which grades
have been formulated f o r the p r i n c i p a l commodity groups and whether
c e r t i f i c a t i o n service i s a v a i l a b l e .
(1) Raw f r u i t s and vegetables
have been established f o r p r a c t i c a l l y
and f r e s h vegetables and an extensive
available both a t shipping points and
and r e l a t e d products: Grades
a l l of the important f r e s h f r u i t s
o f f i c i a l inspection service i s
important receiving markets,
(2) Canned f r u i t s and vegetables and r e l a t e d products. The
grading service on these commodities has only recently been organized
and standards have been formulated f o r several of these products.
C e r t i f i c a t i o n service i s gradually being developed.
(3) Grades have been established and o f f i c i a l c e r t i f i c a t i o n
carried on f o r b u t t e r , cheese, eggs, and dressed p o u l t r y . The inspection
of dressed poultry f o r condition and wholesomeness i s also conducted a t
a number of poultry canning p l a n t s . Likewise a l l of the c a r l o t r e c e i p t s
of live poultry are inspected f o r h e a l t h and crop condition in the c i t y
of New York
(4) Hay, beans, soybeans, r i c e and broomcorn. Grades have
been formulated f o r these products and considerable c e r t i f i c a t i o n work
performed,
(5) Meats. Grades have been established f o r b e e f , lamb, mutton,
veal and pork and a c e r t i f i c a t i o n service i s a v a i l a b l e in a number of the
important markets.
(6) Livestock. Grades have been formulated f o r c a t t l e and hogs
and sheep but thus f a r the Bureau has not undertaken to grade and c e r t i f i cate the grade of l i v e animals.
(7) Tobacco. Grades have been established f o r a l l of the important types of tobacco and a grading service i s conducted both a t the time
tobacco i s sold by growers on auction f l o o r s and a t tobacco p r i z e r i e s ,
(8) Wool. Limited grades, based on diameter of f i b e r only, have
been formulated f o r wool but thus f a r the Bureau has not developed a certif i c a t i o n service f o r t h i s commodity.
(9) Hides. Tentative grades have been formulated f o r hides but
no c e r t i f i c a t i o n service has yet been developed.
—* 3 ™*
X-7293-a
The grading service on the commodities j u s t mentioned i s
performed only upon request and the a v a i l a b i l i t y of the service
depends upon the extent to which i t has been developed. The scope
of the service v a r i e s with the d i f f e r e n t commodities.
The standardization and inspection work conducted f o r cotton
and grain i s c a r r i e d on under s p e c i f i c Acts of Congress such as the
United States Cotton Standards Act, and the United States Grain
Standards Act. The use of the o f f i c i a l grades established f o r cotton
and grain i s mandatory in transactions made on the b a s i s of grade.
The use of grades f o r a l l other commodities i s permissive. You are
f a m i l i a r , of course, as I believe a l l of the members of the Federal
Reserve Board a r e , with the United States warehouse Act and the standardization provision contained therein which requires that the grade
of a l l fungible products stored in Federally licensed warehouses must
be shown upon the warehouse receipt but may, a t the request of the dep o s i t o r , be omitted on r e c e i p t s issued f o r non-fungible products.
The location of o f f i c e s performing inspection and grading
services i s such as to bring them into close proximity with the most
important producing areas and with the important receiving markets of
the country. A few copies of the l i s t of o f f i c e s grading f r u i t s and
vegetables are enclosed.
O f f i c i a l inspection, grading, and c e r t i f i c a t i o n may be requested
by any party f i n a n c i a l l y i n t e r e s t e d in a given l o t of fann products, i n cluding shippers, common c a r r i e r s , public warehousemen, brokers, bankers,
and r e c e i v e r s .
The c e r t i f i c a t e s are u s e f u l :
(1) As supporting evidence of quality in making d e l i v e r i e s .
(2) As o f f i c i a l evidence of condition and q u a l i t y to enable
bankers to c o r r e c t l y appraise paper of f e r e d them as c o l l a t e r a l .
(3) To assure receivers and bankers of the compliance or noncompliance of products f o r which there may be l e g a l minimum r e q u i r e ments of quality when moved in i n t e r s t a t e commerce. For example the
Federal Food and Drugs Act now requires certain canned products below
U. S. Standard to bear c e r t a i n legends on l a b e l s .
(4) Transportation companies use the c e r t i f i c a t e s of grade and
condition in settlement of claims.
- 4 -
X-7293-a
O f f i c i a l c e r t i f i c a t e s of grade are widely used on staple
products which of n e c e s s i t y must remain a t warehouses f o r i n d e f i n i t e periods while awaiting marketing. Many producers of such
products are obliged to "borrow heavily in order to finance t h e i r
operations and n a t u r a l l y r e s o r t to pledging t h e i r warehoused stocks
as c o l l a t e r a l . Thus the i n t e r e s t of f i n a n c i a l i n s t i t u t i o n s and d i s counting and rediscounting agencies i s r e a d i l y apparent. Quite a number of these i n s t i t u t i o n s find i t to t h e i r advantage to f o r t i f y themselves with o f f i c i a l assurance of the character of the merchandise
on which they are asked to advance money in addition to the claims
of the borrower.
A c e r t i f i c a t e of grade covering canned f r u i t s and vegetables
f o r example covers a t l e a s t four s a l i e n t p o i n t s :
(1) The size and precise location of the l o t graded, i f the
samples have been o f f i c i a l l y drawn.
(2) How the samples were drawn and by whom.
(3) An accurate determination of the condition of the l o t .
By condition we r e f e r not only to the condition of the product but
to the condition of the glass or t i n container in which preserved
and the type of package in which packed.
(4) Hie statement of grade based upon standards or grades
approved f o r the purpose by t h i s Bureau.
I t has been the earnest endeavor of t h i s Bureau in developing
the various grades to have in mind the needs of the i n t e r e s t e d p a r t i e s .
In such commodities as canned f r u i t s and vegetables we have been p a r t i c u l a r l y c a r e f u l to embody those f a c t o r s in the grades which make possible
t h e i r proper evaluation. Die i n t e r e s t s of the lending agencies are being
served, we f e e l , in our e f f o r t s to give as accurate a p i c t u r e as possible
of the condition as well as the grade of stored merchandise.
Very t r u l y yours,
(S) Mils A. 01sen
Chief of Bureau.
Enclosures
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
X-7294
November 21, 1932.
SUBJECT:
Holidays during December, 1932.
Dear S i r ;
The Havana Agency of the Federal Reserve
Bank of Atlanta w i l l be closed on Wednesday, December 7, Cuban Memorial Day,
As Christmas f a l l s on Sunday, the o f f i c e s
of the Federal Reserve Board and a l l Federal reserve
banks and branches w i l l be closed on Monday, December
26.
Please n o t i f y Branches,
Very t r u l y yours,
J . C. Noell,
Assistant Secretary.
TO GOVERNORS OF ALL F. R. BANKS.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-7295
November 22, 1932.
SUBJECT; Member banks which have "been continuously
d e f i c i e n t in t h e i r required reserves f o r
six months or more.
Dear S i r ;
I t w i l l "be appreciated i f h e r e a f t e r in transmitting l e t t e r s
reporting to the Board national banks which have been continuously
d e f i c i e n t in t h e i r required reserves f o r six months or more, and subsequent l e t t e r s regarding the progress made by such i n s t i t u t i o n s in
r e s t o r i n g and maintaining t h e i r required reserves, you w i l l send with
each l e t t e r three copies t h e r e o f , in addition to the o r i g i n a l l e t t e r ,
and a t t a c h to each of these copies a copy of each inclosure which
accompanied your l e t t e r .
Your cooperation in t h i s respect w i l l avoid
the necessity of a considerable amount of copying here because of the
f a c t that two copies of your l e t t e r s and inclosures are transmitted
to the Comptroller of the Currency and two copies are required f o r
our records.
I t w i l l be s u f f i c i e n t i f l e t t e r s with regard to reserve
d e f i c i e n c i e s of State member banks are forwarded to the Board in
duplicate.
TO ALL mZEBAL
Very t r u l y yours,
Chester M o r r i l l ,
Secretary.
RESERVE AGTS.
:
499
X-7296
FEDERAL
RESERVE
BOARD
STATEMENT FOR THE PRESS
For release in Morning Papers,
Friday, November 25, 1932.
The following summary of general b u s i ness and f i n a n c i a l conditions in the
United States, "based upon s t a t i s t i c s f o r
the months of October and November will
appear in the forthcoming issue of the
.Federal Reserve B u l l e t i n and in the
monthly reviews of the Federal reserve
banks.
Volume of i n d u s t r i a l output, a f t e r increasing considerably during August
and September, remained unchanged in October.
Factory employment and payrolls
reported f o r the middle of the month, showed a f u r t h e r increase.
During October,
as in the l a s t three weeks of September, wholesale commodity p r i c e s declined,
and in the f i r s t three weeks of November the general average was a t the level
of early summer.
Production and employment -
I n d u s t r i a l production, as measured by the
Board's seasonally adjusted index, continued in October a t 66 per cent of the
1923-1925 average, as compared with a low level of 58 per cent in J u l y .
In
the t e x t i l e i n d u s t r i e s , which had shown a rapid expansion in August and Septemrber, there was a s l i g h t decrease in consumption of raw materials while output of
f i n i s h e d products increased somewhat.
Shoe production, which also had increased
s u b s t a n t i a l l y in recent months, showed a seasonal decline.
Operations a t
s t e e l m i l l s expanded from an average of 17 per cent of capacity in September
to 19 per cent in October, contrary to seasonal tendency, and, according to
trade r e p o r t s , continued a t about t h i s r a t e through the f i r s t three weeks of
November.
level.
Production of automobiles in October declined f u r t h e r to a new low
At coal mines a c t i v i t y continued to increase rapidly u n t i l the middle
of October, but since t h a t time a reduction, largely seasonal in character,
has been reported.
-2-
X-7296
500
Smployinent iii most manufacturing i n d u s t r i e s increased between the middle of
September and the middle of October, and the Board's seasonally adjusted index
of factory employment showed an advance from 60 per cent of the 1923-1925 average
to 61 per cent.
At t e x t i l e m i l l s working forces increased by considerably more
than the usual seasonal amount, and s u b s t a n t i a l increases were also reported a t
s t e e l m i l l s , lumber m i l l s and carbuilding shops.
In the canning and automobile
i n d u s t r i e s there were decreases in employment.
Value of construction contracts awarded, as reported by the P. W. Dodge
Corporation, continued a t low l e v e l s during October and the f i r s t half of
November.
The Department of Agriculture estimate of the cotton crop, based on November
1 conditions, was 11,950,000 b a l e s , about 525,000 bales l a r g e r than the estimate
a month e a r l i e r .
Distribution - From September to October volume of f r e i g h t t r a f f i c increased
by more than the usual seasonal amount; a f t e r the middle of October carloadings
declined, r e f l e c t i n g c h i e f l y seasonal developments.
Dollar value of department
store sales increased by the usual amount in October.
Wholesale p r i c e s - Wholesale commodity p r i c e s , as measured by the monthly
index of the Bureau of Labor S t a t i s t i c s , declined from 65 per cent of the 1926
average in September to 64 per cent in October.
Weekly f i g u r e s show declines in
the general average from early September through the f i r s t week in November, r e f l e c t i n g reductions in the p r i c e s of many domestic a g r i c u l t u r a l products and
t h e i r manufactures, as well as in the p r i c e s of s t e e l r a i l s , copper, c o f f e e ,
rubber, and s i l k .
In the second week of November p r i c e s of many leading com-
modities, including g r a i n s , hogs, cotton, s i l k , zinc, lead, and t i n advanced considerably, but l a t e r the p r i c e s of these commodities declined.
501
-3-
X-7296
Batik credit — Volume of reserve "bank credit showed little change for the
four-week period ending November 16.
Member "bank "balances at the reserve "banks
increased further "by $75,000,000, and in the middle of November were about
$475,000,000 in excess of legal reserve requirements.
Dais growth in reserve
balances reflected an increase of $60,000,000 in the stock of gold and the issue
of additional national bank notes.
Demand for currency showed little change
during the four-week period.
Loans and investments of reporting member banks in leading cities, outside
New York City and Chicago, declined further between the middle of October and the
middle of November, reflecting a farther reduction of loans at these banks.
In
New York City the investments of member banks increased by an amount larger than
the decrease in loans, so that total loans and investments of these banks showed
a further increase.
Money rates in the open market continued at low levels during October and
the first half of November.
Bates on 90-day bankers* acceptances were 'unchanged
at 1/2 of 1 per cent, and rates on prime commercial paper declined from a range
of 1 3/4-2 to a range of 1 l/2-l 3/4 per cent.
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL. C O R R E S P O N D E N C E T O
THE FEDERAL RESERVE BOARD
X—7297
November 23, 1932.
SUBJECT:
Hew Issue Treasury Bills.
Dear Sir*
In connection with telegraphic transactions in
Government securities "between ^federal Reserve "banks,
the code word "HOXDISPORT" has been designated to cover
a new issue of Treasury Bills, dated November 30, 1932,
and maturing March 1, 1933*
This word should be inserted in the tfeddral reserve telegraph code book, following the supplemental
coda Wotd "NOXDI SABLE1' on page 172.
Very truly yours,
J. C. Hoell,
Assistant Secretary.
TO GOVEBItORS OF ALL F. H. BANKS.
503
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL C O R R E S P O N D E N C E T O
T H E FEDERAL RESERVE BOARD
X-7298
November 25, 1932,
SUBJECT:
Charge for national Bank Examination Reports,
Dear Sir;
The Federal Reserve Board is informed that at a meeting of
the Federal Reserve Agents and the Governors of the Federal Reserve
Banks on Tuesday, November 15, the Acting Comptroller of the Currency
asked for the payment of an increased fee for copies of reports of
examinations of national banks and that it was voted that a fee of
$10,00 be paid for each report of examination furnished to Federal
reserve banks until December 31, 1933.
After consideration of the matter the Board approves the
payment of a fee of $10.00 for each report of examination of a
national bank furnished to the Federal reserve banks until June 30,
1933, after which date the present practice of paying $5,00 for each
report of examination should be resumed in the absence of further
action in the meantime by the Federal Reserve Board.
Very truly yours,
Chester Morrill,
Secretary.
TO AGENTS A N D GOVERNORS OF ALL F. R, BANKS.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
THE FEDERAL RESERVE BOARD
X-7299
November 26, 1932.
SUBJECT;
Use of "K" locks on other than
authorized shipments.
Dear Sir;
Inclosed is a copy of a letter from the Honorable
P. A. Tilton, Third Assistant Postmaster General, with
reference to a complaint from the Postmaster at Washington,
D. C., of an improper use of "K" rotary locks assigned for
the use of the Treasury Department and the Federal reserve
banks.
The Board requests that the Federal reserve banks
and their branches cooperate to the fullest extent with
the Post Office Department aifd take every precaution to
safeguard the special "K" locks and prevent their use except on authorized dispatches made by the reserve banks.
Very truly yours,
E. M. McClelland,
Assistant Secretary.
Inclosure.
TO GOVERNORS OF ALL F. B. BANKS.
505
Division of Registered Mails
Copy
Post Office Department
THIRD ASSISTANT POSTMASTER GENERAL
Washington
X-7299—a
November 16, 1932.
The Federal Reserve Board,
Washington, D. C.
Gentlemen:
The postmaster at Washington, D. C., has recently advised this
Office in part as follows;
"It has been noted recently that apparently a number
of the special series of 'K1 rotary locks assigned for
the use of the Treasury Department and Federal Reserve
Banks have in some way become mixed with the regular locks
of the postal service. They have been used on rotary lock
dispatches making it necessary at destination to rip the
seams of the pouches in order to extract the contents."
It is requested that such action as is practicable be taken by
your Board to prevent any of these "K" rotary locks of special series
getting out of the custody of the Federal Reserve Banks except when
attached to authorized dispatches made by such banks.
This matter is also being made the subject of a communication to
the Treasury Department for proper action in so far as special locks
used by that Department or its branches are concerned.
Very truly yours,
(S) F. A. Tilton,
Third Assistant Postmaster General.
GtPiMRS
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
X-7300
November 26, 1932.
SUBJECT:
Expense, Main Lines, Leased Wire System,
October, 1932.
Dear Sir;
Enclosed herewith you will find two mimeographed
statements, X-7300-a and X-7300-b, covering in detail
operations of the main lines, Leased Wire System, during
the month of October, 1932.
Please credit the amount payable by your bank in
the general account, Treasurer, U. S., on your books, and
issue C/D Foim 1, National Banks, for account of "Salaries
and Expenses, Federal Beserve Board, Special Fund", Leased
Wire System, sending duplicate C/D to the Federal Eeserve
Board.
Very truly yours,
Fiscal Agent,
Enclosures.
TO GOVERNORS OF ALL F. R. BANKS.
X-7300-a
REPORT SHOWING CLASSIFICATION AND NUMBER OF WORDS TRANSMITTED OVER MAIN LINES
OF THE FEDERAL RESERVE LEASED WIRE SYSTEM FOR THE MONTH OF OCTOBER, 1932.
Business
reported
by banks
From
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
1
Total
Words sent by
New York charge-*
able to other
F. R. Banks (1)
2,040
28,059
142,327
—
27,856
60,51+8
53,035
57,344
1,181
1,101
1,216
1,168
84,862
64,841
33,320
1,333
1,907
1,074
1,355
1,782
2,568
6s,o4o
58,604
97,o6o
775,896
16,725
F. R. Board "business
Net Federal
reserve
bank
"business
Percent of total
bank business (*)
30,099
3.80
142,327
17.96
29,037
61,649
54,251
58,512
86,195
66,748
34,394
69,395
60,386
99.628
792,621
3.66
7-78
6.84
7-38
10.87
8.42
4.34
8.76
7.62
12.57
100.00
290,098
Reimbursable "business Incoming and. Outgoing
Total words transmitted over main lines
(*)
These percentages used in calculating the pro rata share of leased wire expense as shown
on the accompanying statement (X-7300-b).
(l)
Number of words sent by New York to other F. R. Banks for their sole benefit charged to
banks indicated in accordance with actian taken at Governors' Conference
November 2-4, 1925-
1,082,719
356.687
1,439,4o6
wl
o
x-7300-b
REPORT OF EXPENSE MAIN LINES
FEDERAL HESEBVE LEASED WISE SYSTEM, OCTOBER, 1932.
Name of bank
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
Kansas City
Dallas
San Francisco
Federal Reserve Board
Total
Operators'
salaries
$260.00
1,134.15
225.00
Operators *
overtime
$
-
—*
306.66
190.00
270.00
—
—»
-
3,737.31 (#)
195.00
200.00
-
287-50
-
251.00
-
380.00
-
—
$7,436.62
$
~
Wire
rental
Total
expenses
$260.00
1,134.15
—
225.00
—
306.66
420.00
230.00 (&)
—
270.00
3,737.31
195.00
200.00
287-50
251.00
—
380.00
15,599.36
15,599.36
$15,829.36
$23,265.98
$
-
-
Pro rata
share of
total
expenses
$665.02
3,143.12
640.52
1,361.55
1,197-04
1,291.55
1,902.32
i>473.55
759.53
1,533.06
1,333.55
2,199.83
—
$17,500.64
Credits
$260.00
1,134.15
225.00
306.66
420.00
270.00
3,737-31
195.00
200.00
287-50
251.00
380.00
—
$7,666.62
Payable to
Federal
Reserve
Board
$405.02
2,008.97
415.52
1,054.89
777.04
1,021.55
1,834.99 (*)
1,278.55
559-53
1,245.56
1,082.55
1,819-83
-
$11,669.01
$ 9,234.02
Reimbursable charges:
Treasury Department
$2,677-32
Reconstruction Finance Corporation . 2,961.59
Federal Farm Loan Board
31*08
Federal Farm Board
54.16
Compt. of Currency, Insolv. Bank Div.
4l.l9
Less: reimbursable charges
(&)
(#)
(*)
(a)
Main line rental, Richmond-Washington.
Includes salaries of Washington operators.
Credit.
Amount reimbursable to Chicago.
5,765.34
$17,500.64
ui
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-7301
November 28, 1932.
Dear Sir:
There is inclosed herewith, for your information, copy of a telegram addressed to the Cashier of
the Federal Reserve Bank of San Francisco with regard
to the transmission of messages over the main line
leased wire system for account of Regional Agricultural
Credit Corporations.
If and when Regional Agricultural
Credit Corporations in your district begin to transmit
messages over the leased wires, they should be requested to
use the AC symbol and, meanwhile, your telegraph operators
should be instructed to guard against dropping the symbol
from any messages originating in other districts which
they may relay.
Very truly yours,
E. M. McClelland,
Assistant Secretary.
Inclosure.
TO GOVERNORS OF ALL F. R. B A M S EXCEPT SAN FRANCISCO.
510
COPY
(
TELEGRAM
FEDERAL RESERVE BOARD
WASHINGTON
X-7301-a
November 28, 1932,
Hale - San Francisco
Referring your telegram November 16 and 21, please include telegrams
sent over main line leased wires for account of Regional Agricultural Credit
Corporations along with other reimbursable business in item three of monthly
telegraphic report requested Board's letter X-7100 February 24, 1932.
Word
count of such messages will be made by Board and bills rendered monthly
against Reconstruction Finance Corporation for account of individual Agricultural
Credit Corporations.
In order that Regional Agricultural Credit Corporation
wires may be distinguished from ordinary Reconstruction Finance Corporation
telegrams please request local corporations to use symbol AC at beginning of
date line in all messages transmitted over leased wires.
Also instruct your
head office and branch telegraph operators to transmit symbol,
McClelland.
FEDERAL RESERVE BOARD
WASHINGTON
X—7302
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
November 29, 1932.
SUBJECT:
Federal Reserve Exhibit at Century of
Progress Exhibition.
Dear Sir:
There is inclosed herewith, for your information,
a copy of a letter which the Federal Reserve Board is
addressing today to Mr. F. H. Curtiss, Federal Reserve
Agent at the Federal Reserve Bank of Boston, advising
that in the opinion of the Federal Reserve Board all
plans for participation in the Century of Progress
Exposition at Chicago in 1933 should he abandoned.
If a representative of your bank served on the
committee appointed to report on participation by the
System in the Exposition, it is requested that you express to him the Board's appreciation of his participation
in the work done by the committee in developing a plan and
arriving at an estimate of its cost.
Very truly yours,
Chester Morrill,
Secretary.
Inclo sure.
TO ALL FEDERAL RESERVE AGENTS.
(EXCEPT BOSTON)
X-7302-a
COPY
November 29, 1932.
Mr. F. H. Curtiss,
Federal Reserve Agent,
Federal Reserve Bank of Boston,
Boston, Massachusetts.
Dear Mr. Curtiss:
Reference is made to the action taken at the recent Federal
reserve agents' conference in recommending the appropriation by the
Federal reserve banks of $75,000 to cover the cost of a proposed Federal Reserve System exhibit at the Century of Progress Exposition to
be held in Chicago in 1933.
You will recall that at the joint meet-
ing of the Federal Reserve Board with the governors and Federal reserve agents on Wednesday, November 16, 1932, the matter was further
discussed and it was expressed as the opinion of the members of the
Board that an exhibit of the nature suggested in the second report
of the committee appointed to consider the question of System participation in the Exposition would not be sufficiently effective in
acquainting the general public with the fundamental functions of the
Federal Reserve System to justify the expenditure of the amount suggested.
The Federal Reserve Board has since given further consideration to this matter and for the reasons indicated at the joint meeting
has reached the conclusion that an exhibit such as suggested by the
committee should not be approved.
The Board also discussed the question whether the Federal
513
-2—
X-7302-a
Eeserve System should prepare a less expensive exhibit, consisting
merely of charts and literature, and it was felt that such an exhibit
would not be desirable.
Accordingly, I have been requested to advise you that in
the opinion of the Federal Reserve Board, all plans for participation in the Century of Progress Exposition should be abandoned.
There-
fore, the Board has discontinued the committee which was appointed to
report on System participation in the Exposition and requests that you
express to Mr. Gettemy the Board's appreciation of his participation
in the work done by the committee in developing a plan and arriving
at an' estimate of its cost,
A copy of this letter is being sent to all Federal reserve
agents for their information.
Very truly yours,
Chester Morrill,
Secretary.
o
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-7303
December 5, 1932#
SUBJECT:
Extended Leaves of Absence With Pay.
Dear Sir:
In the Board's letter of June 14, 1928, X-6069, the hoard
of directors of each Federal reserve hank was authorized to grant
leaves of absence with pay to employees on account of sickness in
excess of thirty days and it was requested that monthly reports
of all such cases be submitted in accordance with the form attached
to the letter.
The Board's division of examinations has been requested,
as a part of the examination of each Federal reserve bank, to
review all cases where it appears that such leave ef absence has
been taken, for the purpose of ascertaining the facts and whether
in each case the approval of the board of directors of the bank
has been obtained.
In any case where it appears that such approval
has not been obtained or where there are other circumstances which
create any question, the examiners will take the matter up with the
proper officer of the bank and make an appropriate reference to
such case in the report of the examination.
x-7303
-* 2 —
The Board therefore feels that it is unnecessary for the
Federal reserve banks to continue to render the monthly reports
of sick leave in excess of thirty days.
However, as pointed out
in the letter of June 14, 1928, the Board's advance approval
should "be obtained in any case where annual leave is extended
"beyond the regular vacation to any officer or employee.
Very truly yours,
Chester Morrill,
Secretary.
TO CHAIEMM OF ALL F. R. BAUKS.
515
(Report adopted by Federal Reserve Agents during their
Conference, Nov. 14-16, 1932.)
516
L-10
PERMITS TOR INTERLOCKING DIRECTORATES UNDER CLAYTON ACT
With reference to the question suggested "by the Federal Reserve Board
with regard to the policy and procedure in granting pennits under the provisions of the Clayton Act relating to interlocking directorates, your committee
has to report as follows:
We understand that under the present operation of the Kern amendment
to the Clayton Act, as amended, the question of approval of permits for interlocking directorates in banks is subject to two major considerations.
The first
is the factor of lessening competition or restricting credit, and the second
is the question of public interest involved.
We consider, therefore, that the Federal Reserve Board may properly
weigh against the question of competition the factor of public interest involved, and this we "believe to be recognized in the present regulations of the
Federal Reserve Board.
We are of the opinion that the final determination by the Federal Reserve Board mist necessarily be on the evidence presented in each individual
case rather than by general rule.
One.
To this end we respectfully suggests
That Section IV, sub-section (d)3 of Regulation "L" be amended
to read as follows:
"Purpose for which services are sought, nature
of proposed influence and activity, relationships,
competency, and any other facts having a bearing
upon the interest of the public in such banks as
affected by their having the same directors,
officers, or employees."
Two.
In order to comply with this suggested amendment to Regulation
"L", it is recommended that, as a matter of procedure, the applicant for a
permit and the banks which he is serving and proposing to serve, be required
to furnish in writing such information and reasons as they may, in support
-2~
Ir-10
51
of their contention that the granting of the permit will not be against
the public interest, and thereupon the application follow the usual course
of review and recommendation by the Federal Reserve Agent before submission
to the Federal Reserve Board.
y
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
X-7304
December 7, 1932.
SUBJECT:
Hew Issues of Treasury Certificates
of Indebtedness and Treasury Motes.
Dear Sir:
In connection with telegraphic transactions "between
Federal reserve banks covering Government securities, the
following code words have been designated to cover new issues
of Treasury Certificates of Indebtedness and Treasury Notes:
"NOWHOBAD11
Treasury Certificates of Indebtedness,
Series TD-1933, •§$, dated December 15,
1932, due December 15, 1933;
"1T0WHIMN"
Treasury Notes, Series B-1936, to
be dated December 15, 1932, due December
15, 1936.
These code words should be inserted in the Federal Reserve
Telegraph Code book, on page 172.
Very truly yours,
J. C. Noell,
Assistant Secretary,
TO GOVERNORS OF ALL F. R. BANKS.
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
SUBJECT:
X-7305
•
D 6 C 6IXID Q T
V ,
I V 3 3 •
Discount of Eligible Paper by Federal
Reserve Banks for Regional Agricultural
Credit Corporations.
Dear Sir:
You will recall that during the recent conference in
Washington, the attention of the Governors of the Federal reserve "banks was directed to the reply made "by the Federal
Reserve Board, under date of October 25, 1932, to a letter,
dated October 13, from the Governor of the Federal Reserve
Bank of Minneapolis, with regard to the discount "by Federal
reserve banks of eligible paper offered by regional agricultural credit corporations.
Copies of these letters are
inclosed herewith, for your information and files, together
with copies of telegrams on the same subject exchanged by
the Board with the Governor of the Federal Reserve Bank of
San Francisco, under dates of November 23 and November 28,
1932.
Very truly yours,
Chester Morrill,
Secretary.
Inclosures.
TO GOVERNORS OF ALL F. R. BANKS.
C O P Y
X-7305-a
Oct 25 1932
Mr. W. B. Geery, Governor,
Federal Reserve Bank of Minneapolis,
Minneapolis ,• Minnesota.
Dear Governor Geery;
Reference is made to your letter of October 13, 1932, referring to the authority of the Regional Agricultural Credit Corporations
created by the Reconstruction Finance Corporation pursuant to the provisions of Section 201(e) of the Emergency Relief and Construction Act
of 1932 to rediscount paper with the various Federal reserve banks, and
inquiring whether a Regional Agricultural Credit Corporation located
in one Federal Reserve District and having a "branch in another Federal
Reserve District would be expected to rediscount paper acquired through
such branch with the Federal reserve bank of the district in which the
head office of the corporation is located or with the Federal reserve bank
of the district in which the paper has originated.
The Regional Agricultural Credit Corporations are authorized
under the law to rediscount with the Reconstruction Finance Corporation
and the various Federal reserve banks and Federal Intermediate Credit
Banks any paper that they acquire v.-hich is eligible for .each purpose, and it is assumed that the corporations, before requesting
the Federal reserve banks to rediscount their paper, will consult with
the Reconstruction Finance Corporation and also will utilize their
authority to rediscount with the Federal Intermediate Credit Banks.
X-7305-a
Mr. W. B« G-eery
-2-
In the event that it should "become desirable for the Federal reserve
"banks to rediscount paper for these corporations, there are a number
of questions to "be considered with a view to obtaining some uniformity
of policy and procedure among the Federal reserve "banks in accepting
such paper for rediscount.
Replying to your specific inquiry, it is the view of the
Federal Reserve Board that, if and when the Federal reserve "banks are
requested to rediscount paper for the Regional Agricultural Credit
Corporations, the offering in each case should "be made to the Federal
reserve "bank of the district in which the head office of the offering
corporation is located, unless exceptional circumstances are presented
which might render it desirable to follow some other course of procedure.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
GBV gc
522
C O P Y
X-7305-b
FEDERAL RESERVE BAMK
OF MIMEAFOLIS
October 13, 1932.
Federal Reserve Board,
Washington, D. C.
Gentlemen:
Under the act of Congress providing for the organization
of the Regional Agricultural Credit Corporations, they are given
the right of rediscount with the Federal Reserve Bank. Would it
he expected that they would rediscount only with the Federal Reserve
Bank located in the district in which they are situated?
What prompts this inquiry is the question as to whether,
in case the Regional Agricultural Credit Corporation of Spokane
desired to rediscount paper taken through its "branch in Helena, they
would be expected to offer it to the Federal Reserve Bank of San
Francisco or to this hank, and whether the Regional Agricultural
Credit Corporation located in Minneapolis would expect to rediscount
paper taken in Southern Michigan, with us or with the Federal Reserve
Bank of Chicago.
Yours very truly,
(s)
W. B. Geery
Governor
:
C O P Y
X-7305-c
T E L E G R A M
FEDERAL RESERVE SYSTEM
(Leased Wire Service)
Received at Washington, D. C.
3gs
San Francisco Nov 23 345 FM -24
Board
Washn
Paragraph "E" Section 201 "A" title 11 Emergency Relief and
Construction Act of 1932 provides that Regional Agricultural
Credit Corporations may rediscount with Federal Reserve Bank
paper acquired by them which is eligible for such purpose.
Is
it Board's opinion Federal Reserve Bank in absence specific
amendment to Federal Reserve Act may discount eligible paper
for regional Agricultural Credit Corporation either under statute
above referred to or under Section 210 of Act of July 21, 1932
or under any other provision Federal Reserve Act
523
Calkins
838AM
C O P Y
X-7305-d
T E L E G R A M
FEDERAL RESERVE BOARD
W6.SHIITGTOH
November 28, 1932.
Calkins
San Francisco
Your telegram November 23.
In view of provisions of Section 201(e)
of Emergency Relief and Construction Act of 1932, it is Board's
opinion that Federal reserve "banks may legally rediscount eligible
paper for regional agricultural credit corporations; but inasmuch
as such corporations are authorized to rediscount eligible paper
also with Reconstruction Finance Corporation and Federal Intermediate
Credit Banks, it is assumed that, before requesting Federal reserve banks to rediscount their paper, they will consult with Reconstruction Finance Corporation and will also utilize their authority to rediscount with Federal Intermediate Credit Banks.
In
the event that it should become desirable for the Federal reserve
banks to rediscount paper for regional agricultural credit corporations, there are a number of questions to be considered with a
view to obtaining some uniformity of policy and procedure among
the Federal reserve banks in accepting such paper for rediscount.
Morrill
525
x-7306
STATEMENT OF BUREAU OF ENGRAVING AND PRINTING
Federal Reserve N o t e s , S e r i e s 1928.
November 1 t o 30, 1932#
Boston,
Philadelphia,
Cleveland,
Richmond,
Atlanta,
Chicago,
S t . Louis,
Minneapolis,
Kansas C i t y ,
San F r a n c i s c o
|5
$10
$20
$50
37,000
54,000
70,000
42,000
33,000
48,000
18,000
10,000
18,000
13,000
10,000
10,000
25,000
27,000
10,000
-
24,000
11,000
22,000
216,000
115,000
-
12,000
—
21,000
5,000
10,000
58,000
267,000
-
-
-
-
-
10,000
10,000
-
-
-
-
-
10,000
6 0 8 , 0 0 0 s h e e t s , @ $90.50 per M,
Total
Sheets
Amount
89,000
122,000
145,000
18,000
22,000
28,000
44,000
15,000
21,000
104,000
$8,054.50
11,041.00
13,122.5©
1,629.00
1,991.00
2,534.00
3,982.00
1, 557.50
1,900.50
9,412.00
608,000
$55,024.00
$55,024.00
526
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
X-7307
December 13, 1932.
SUBJECT:
Eight to exercise trust powers of national
"banks formed through consolidations of
national banking institutions previously
authorized to exercise such powers.
Dear Sir:
As several of the Federal reserve agents have been advised,
in correspondence relating to particular cases, the Federal Heserve
Board has decided that where a national bank succeeds to the right
to exercise trust powers by virtue of a consolidation of two or
more national banks under the provisions of the Act of Congress of
November 7, 1918, it is preferable to issue to the consolidated
institution a certificate showing that it has the right to exercise
trust powers previously granted to the consolidating banks, rather
than to grant to the consolidated institution a new permit authorizing it to exercise trust powers.
It is accordingly now the practice,
when the Board receives advice from the Comptroller of the Currency
that two or more national banks have consolidated under the provisions of the Act of November 7, 1918, and one or more of such banks
has been granted trust powers previously, to send to the consolidated bank a certificate of the kind described above.
A copy of
the Board's letter to the consolidated bank and a copy of the
X-7307
certificate inclosed therewith are also sent to the Federal
reserve agent of the district.
In these circumstances it is
not necessary for the consolidated bank to make a formal application for the certificate, but if in any such case you find
that the certificate has not been received the Board should be
advised.
When the Board's Regulation F is next revised, Section III
thereof will be amended so as to conform to the practice which the
Board is following in cases of this kind.
Very truly yours,
Chester Morrill,
Secretary.
To all Federal reserve agents.
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE BOARD
X-7309
December 19, 1932.
SUBJECT:
Holidays during January, 1933.
Dear S i r :
As Uew Y e a r ' s Day f a l l s on Sunday, the o f f i c e s of the
Federal Reserve Board and a l l Federal r e s e r v e banks w i l l be
c l o s e d on Monday, January 2, 1933.
In a d d i t i o n , the f o l l o w i n g Federal r e s e r v e banks and
branches ^ i l l observe h o l i d a y s during the month of January:
Monday,
January
9
Thursday, January 19
Hew Orleans
Anniversary of B a t t l e of
Hew Orleans
Richmond
Charlotte
Anniversary of Birthday
of General Robert E. Lee
Atlanta
Birmingham
Nashville
Jacksonville
Dallas
E l Paso
Houston
San Antonio
Louisville
Memphis
Saturday, January 28
Havana Agency
Anniversary of Birthday of
J o s e i.iarti
On the d a t e s i n d i c a t e d t h e banks a f f e c t e d r i l l not p a r t i c i p a t e i n e i t h e r t h e Gold Settlement Fund Transit or Note c l e a r i n g .
X-7309
— 2 —
Please include credits for the offices affected on each of the
holidays with your credits in the Transit clearing for the followi n g business day, and make no shipments of Federal reserve notes,
fit or unfit, for account of the Inderal Reserve Banks of Richmond,
Atlanta and Dallas, on January 19.
Please notify "branches.
Very truly yours,
J. C. IToell,
Assistant Secretary.
TO GOVISiTORS OF ALL F. R. BA3KS.
530
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
the federal reserve board
X-7310
December 20, 1932.
SUBJECT:
Method of Handling Funds of Federal Home Loan Banks.
Dear Sir:
For your information there is transmitted herewith a copy
of a letter dated December 17, 1932, addressed by the Comptroller
of the Federal Home Loan Bank Board to the Federal Home Loan Bank
of Cambridge, Massachusetts, regarding a plan which has been decided upon by the Federal Home Loan Bank Board for the handling of
funds of the Federal home loan banks.
It is understood that a
similar letter has been sent to each of the Federal home loan banks.
It is also understood that supplementary instructions will be sent
to all Federal reserve banks by the Secretary of the Treasury.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO GOVERNORS OF ALL F. R. B A M S .
531
X-7310-a
C d P 1
December 17, 1932
Mr. Walter H. Heaves, Executive Vice Pres.,
Federal Home Loan Bank of Cambridge,Kendall Square Building,
Cambridge, Massachusetts.
Dear Mr. Heaves:
Re;
Government subscription to stock
The Federal Home Loan Bank Board has arranged with the
Department to act in the capacity of hanker for the Federal Home
with respect to funds called for on account of the $125,000,000.
available by Congress to enable the Secretary of the Treasury to
to stock in the Federal Home Loan Banks.
Treasury
Loan Banks
made
subscribe
Under the procedure contemplated, all of such funds applicable
to the various Federal Home Loan Banks will remain on deposit with the
Treasurer of the United States until actually required by the banks for
the purpose of consummating loans. The Board will, by resolution, call
upon the Treasurer from time to time to make available certain sums of money
for each bank. At such time as your institution requires funds in order to
make loans, after having exhausted all other available funds, it is requested
that you kindly sign one of the forms of receipt evidencing purchase by the
Government of capital stock in lump sums of $100,000. Such receipts should
then be forwarded to the Federal Reserve Bank of your district or the branch
which you are now using, with the request that the Treasurer of the United
States be advised by wire. Upon receipt of this wire the Treasurer of the
United States will telegraph your bank to the effect that a like amount has
been placed to your credit on his books. Upon receipt of such telegraphic
advice you may then issue your bank's check on the Treasurer of the United
States payable to the borrower for the exact amount of the loan. Dividend
on such sums thus obtained from the Treasurer of the United States will run
only from the date of your receipt. It is requested that you refrain from
issuing such receipts in blocks of $100,000. each until you are actually
ready to close loans up to such amount. After all other funds have been
exhausted, you may also draw on this symbol account for operating purposes,
provided in such cases you refrain from drawing in excess of $10,000. at any
one time. The proceeds of checks drawn for operating purposes may be
deposited in your commercial checking account.
The Treasurer of the United States is forwarding you an emergency
supply of 100 checks numbered numerically, and an order has been placed for
the printing of 2,000 additional checks numbered from 101 to 2,101. These
additional checks will be forwarded you direct from the Bureau of Engraving
and Printing and no charge will be made therefor. The Treasurer of the
5
-
X-7310-a
2 -
United States has assigned Symbol Ho. 79988 to your bank and all correspondence you may have occasion to conduct with the Treasurer should make
reference to such symbol number, which number will likewise appear on all
checks furnished you. It is suggested that you obtain locally a supply
of duplicate checks similar to those being forwarded you in order to
enable you to maintain carbon copies of all checks drawn. At the end #f
each month the Treasurer of the United States will forward to your bank all
cancelled checks, together with a transcript of your account, copy of which
will alse be forwarded to the undersigned.
Ho entries should be made on your books in connection with these
transactions until yeu have executed your receipts in the manner above
indicated and have received a telegram from the Treasurer of the United
States indicating that the amounts thereof have been placed to your bank* s
credit. Careful record should, of ceurse, be maintained of each such
receipt in order that you may properly accrue dividend at 2$, as required
by the Act, such dividend to accrue only from the date on which your
receipts are executed. All checks should be signed only by the efficials
whose facsimile signatures you have forwarded to the Treasurer ef the
United States.
We shall be glad if you will acknowledge the receipt of this
letter, and call our attention to any points in connection with the contemplated procedure which may not be entirely clear te you.
Very truly yeurs,
9
hi
Q o O
0 0 0
1 1 1
&
O
0
1
EEB/myr
cc - Mr. Fort
Gries
cc - Mr. Best
Bodfish
Murray
Berlin
Comptroller.
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
t h e federal reserve board
X-7311
December 21, 1932.
SUBJECT:
Hew Issue Treasury Bills.
Dear Sir;
In connection with telegraphic transactions in
Government securities between Federal reserve banks,
the code word "HQXDITTY" has been designated to cover
a new issue of Treasury Bills, dated December 28, 1932,
and maturing March 29, 1933.
This word should be inserted in the Federal reserve telegraph code book, following the supplemental
code word "NOXDI SPORT" on page 172.
Very truly yours,
J. 0. Noell,
Assistant Secretary.
to goveeuors of a l l f . e . b a m s .
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
t h e federal reserve board
X-7312
December 22, 1932.
SUBJECT:
Bonds of Federal Reserve Agents and Assistant
Federal Reserve Agents.
Dear Sir:
The Federal Reserve Board recently approved a revision of
its forms 181, "Bond of Federal Reserve Agent", and 182, "Bond of
Assistant Federal Reserve Agent", and a supply of these revised
forms is being forwarded to you today under separate cover.
Your attention is called to the rules, printed on the
reverse side of the forme, which must be observed in the execution
of bonds by Federal reserve agents and assistant Federal reserve
agents, and it is requested that, before sending to the Board the
bonds which may be executed in the future by you or by an assistant
Federal reserve agent at your bank, you have them examined by your
counsel to determine whether their execution complies fully with
these rules.
Very truly yours,
Chester Morrill,
Secretary.
TO AIL FEDERAL RESERVE AGEHTS
OiSO
X-7313
F E D E R A L
R E S E R V E
B O A R D
STATEMENT FOR THE PRESS
The following summary of general business and financial conditions in the
United States, "based upon statistics for
the months of November-and December will
appear in the forthcoming issue of the
Federal Reserve Bulletin and in the
monthly reviews of the Federal reserve
"banks.
For release in Morning Papers,
Saturday, December 24, 1932.
Industrial activity declined in November "by somewhat more than the usual
seasonal amount.
Changes in factory employment and payrolls, reported for the
middle of the month, were largely seasonal in character.
Prices in wholesale
commodity markets were somewhat lower, on the average, in November than in
October, and declined further during the first three weeks of December.
Production and employment - Volume of industrial production, as measured
by the Board's seasonally adjusted index, declined from 66 per cent of the
1923—1925 average in October to 65 per cent in November, compared with a low
level of 58 per cent in July.
Output at woolen mills, silk mills, and shoe
factories declined in November from the relatively high levels of the autumn,
while cotton mills continued active.
Lumber production declined by considerably
more than the usual seasonal amount.
Steel production decreased during Novem-
ber and the first three weeks of December, while automobile output increased
considerably in connection with the introduction of new models.
The number employed at factories declined somewhat from October to
November, reflecting in large part developments of a seasonal character.
Working force's in the woolen, silk, shoe, and canning industries were reduced,
while at car-building shops and at factories producing automobiles and agricultural implements there were increases in employment.
X-7313
53G
— 2 —
Construction contracts awarded up to December 15, as reported "by the
F. 17. Dodge Corporation, indicate for the last three months of the year a
decline from the third quarter of somewhat more than the usual seasonal
amount, following a non-seasonal increase from the. second to the third quarter.
Estimates of the Department of Agriculture, based on December 1 reports,
indicate a cotton crop of 12,727,000 "bales, about 800,000 "bales larger than
the estimate a month earlier, "but 4,400,000 "bales smaller than last year's
unusually large crop.
Wheat, tobacco, flaxseed, and other leading cash crops
are also considerably smaller than a year ago, while feed crops are substantially larger.
Acreage of winter wheat planted this fall was slightly smaller
than a year ago, and condition of the crop on December 1 was unusually poor,
according to the Department of Agriculture.
Distribution - Distribution of commodities by rail decreased seasonally
from October to ITov ember, while the dollar volume of department store sales,
which ordinarily expands at this season, showed a decline.
Wholesale prices - During early ITov ember the general level of wholesale
commodity prices advanced somewhat, reflecting chiefly increases in prices of
domestic agricultural products; in the latter part of the month, however,
prices of livestock, cotton, and grains declined considerably; and, during the
first three weeks of December, further declines in livestock prices were
reported.
By the third week of December prices of textiles, copper, and
silver, as well as of livestock, were substantially lower than in the middle
of ITovember and the general average of wholesale prices was at a level
slightly below that prevailing before the advance that occurred last summer.
Bank credit - During the four weeks ended December 14 there was an
addition of $85,000,000 to the country's stock of monetary gold.
The funds
X-7313
5 3 7
- 3 -
derived from this source were utilized in meeting an increase in the demand
for c u r r e n c y , which was smaller than usual at this season, in further reducing
by $23,000,000 the indebtedness of member banks to the reserve banks, and in
increasing by $25,000,000 the volume of me:.iber bank reserve balances.
On
December 15 there was a further increase of $95,500,000 in the stock of
monetary gold in connection with the current payment by Great Britain on the
war debt.
This amount of gold was earmarked in London for account of the
Federal Reserve Bank of Hew York, and an equivalent credit was given by that
bank to the United States Treasury.
This transaction together with other
fiscal operations on December 15 resulted in a temporary addition of $100,000,000 to the reserves of member banks, which were subsequently reduced by
Christmas currency demands, and an increase in Treasury deposits with the
reserve banks.
Loans and investments of reporting member banks declined by more than
$100,000,000 between November 16 and December 14, reflecting reductions in the
banks' holdings of United States Government securities, and in loans other than
security loans.
Loans on securities increased, both at Hew York City and at
other reporting member banks.
Money rates in the open market declined further, rates on 90-day bankers'
acceptances declining from l/2 of 1 per cent to 3/8 of 1 per cent, and rates on
prime commercial paper from a range of 1 l/2 - 1 3/4 per cent to a range of
1 l/4 - 1 l/2 per cent.
538
FEDERAL RESERVE BOARD
WASHINGTON
X—7315
\ddress official correspondence t o
the federal reserve board
December 23, 1932.
SUBJECT:
Shipment- of Canceled Checks, etc., "by Express.
Dear Sir:
With further reference to the above subject and the Board's letter
of November 12, 1932 (X-7290), there is inclosed a copy of a letter dated
December 17, 1932, received by the Federal Reserve Bank of Hew York from the
Post Office at New York City.
The method of sending the cash letter which
is referred to therein may perhaps be found convenient.
For your information, there is quoted below Section 1712 of the
"Postal Laws and Regulations, 1932":
"1712. All letters inclosed in stamped envelopes, if the
postage stamp is of a denomination sufficient to cover the
postage that would be chargeable thereon if the same were sent
by mail, may be sent, conveyed, and delivered otherwise than by
mail, provided such envelope shall be duly directed and properly
sealed, so that the letter can not be taken therefrom without
defacing the envelope, and the date of the letter or of the
transmission or receipt thereof shall be written or stamped upon
the envelope. But the Postmaster General may suspend the operation of this section upon any mail route where the public interest may require such suspension.
" (NOTE.-1 Stamped envelopes* means Government stamped
envelopes. (See sec. 140.)"
Very truly yours,
Chester Morrill,
Secretary*
Inclosure.
TO GOVERNORS
OF ALL F2DERAL RESERVE BANKS EXCEPT NEW YORK.
copy
X-7315-a
UNITED STATES POST OFFICE
NEW YOKE, N. Y.
December 17, 1932.
Federal Reserve Bank of New York,
New York, N. Y.
Gentlemen:
Referring to the letters regarding your inquiry as to whether
a form known as a "cash letter" may be enclosed in express shipments of
checks if it is placed in a Government stamped envelope, you are advised
in accordance with information received from the Department that there
will be no objection to this practice.
It is assumed that the requirement of endorsing the date upon
the envelope which is prescribed by the Postal Laws and Regulations is
understood and will be complied with.
Sincerely yours,
(Signed) J. J. Kiely
Postmaster.
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
the federal reserve board
X-7316
December 23, 1932.
SUBJECT:
Expense, Main Lines, Leased Wire System,
November, 1932.
Dear Sir:
Enclosed herewith you will find two mimeograohed
statements,
and x - 7 3 1 6 - b , covering in detail
operations of the main lines, Leased Wire System, during
the month of November, 1932.
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, Snecial Fund", Leased
Wire System, sending duplicate O/D to the Federal Reserve
Board.
Very truly yours,
Fiscal Agent.
Enclosures.
TO GOVERNORS of a l l f .
R. BAHCS.
X-73l6-a
REPORT SHOWING CLASSIFICATION AND NUMBER OF WORDS TRANSMITTED OVER MAIN LINES
OF THE FEDERAL RESERVE LEASED WIRE SYSTEM FOR THE MONTH OF NOVEMBER, 1932.
Business
reported
by banks
From
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
St. Louis
Minneapolis
.-Kansas City
^Dallas
iSan Francisco
Total
Words sent by
New York chargeable to other
F. R. Banks (1)
25,253
123,221
26,546
55,201
48,276
47,327
79,463
59,243
29,756
63,124
54,831
88,545
700,788
1,357
—
1,087
952
1,129
986
1,099
1,599
938
1,071
1,832
2.302
14,352
"JF. R. Board business
Net Federal
reserve
bank
business
26,610
123,221
27,633
56,153
49,405
48,313
80,562
60,842
30,696
64,195
56,663
90,847
715,140
Percent of total
bank business (*)
3.72
17.23
3.86
7.85
6.91
6.76
11.27
8.51
4.29
8.9%
7.92
12.70
100.00
277,609
Reimbursable business Incoming and Outgoing
Total words transmitted over main lines
(*)
These percentages used in calculating the pro rata share of leased wire expense as shown
on the accompanying statement (X-73l6-b).
(l)
Number of words sent by New York to other F. R. Banks for their sole benefit charged to
banks indicated in accordance with action taken at Governors' Conference
November 2-4, 1925.
992,749
271,992
1,264,741
x-73i6-t>
BEPOHD OF EXPENSE MAIN LINES
FEDERAL EE SERVE LEASED WIRE SYSTEM, NOVEMBER, 1932.
Name of Bank
Boston
New York
Philadelphia
Cleveland
Richmond
Atlanta
Chicago
Si. Louis
Minneapolis
.Kansas city
Dallas
Syn Franci sco
Federal Reserve Board
Total
Operators'
salaries
Operators'1
overtime
$260.00
1,111.48
225.00
306.66
220.00
270.00
3,724.98 (#)
195.00
200.00
287.50
251.00
380.00
$
$
—
—
*—•
$
Reimbursable charges:
Treasury Department.
. . . $1,792.18
Reconstruction Finance Corporation . 3,080.84
Federal Farm Loan Board
27.48
Federal Farm Board
53»31
Ocmpt. of Currency, Insolv. Bank Div.
51.2?
Less: Reimbursable charges. . . .
(&) Main line rental, Richmond-Washington.
(#) Includes salaries of Washington operators.
( *.) Credi t.
(a)-Amount reimbursable to Chicago.
Total
expenses
$260.00
1,111.48
—
—
225.00
—
306.66
230.00 (&)
450.00
270.00
9.00
3,733-98
195-00
—
200.00
287-50
251.00
380.00
—
15,604.89
: 15,604.89
9-00 $15,834.89
$23,275.51
-
-
—
$7,431.62
Wire
rental
Pro rata
share of
total
expenses
$679.64
3,147.91
705.22
1,434.19
1,262.45
1,235.05
2,059.02
1,554.77
783-78
l$64o.64
1,446,98
2,320.28
—
$18,269.93
Credits
$260.00
1,111.48
225.00
306.66
450.00
270.00
3,733.9S
195.00
200.00
287.50
251.00
380.00
—
$7,670.62
Payable to
Federal
Reserve
Board
$419.64
2,036.43
480.22
1,127.53
812.45
965.05
1,674.96 (
1,359.77
583.78
1,353-14
1,195.93
1,940.28
-
$12,274.27
1,674.96 (
$10,599.31
5,005.58
$18,269.93
01
to
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
the federal reserve board
X-7317
December 28, 1932.
SUBJECT:
State Member Banks Not Examined Daring 1932.
Dear Sir:
It will "be appreciated if you will send to the Board,
as early in January as possible, a list of the State member
banks in your district which were not examined either by
State authorities or Federal reserve examiners during 1932.
It is also requested that you advise what arrangements
are "being made by you or the State authorities for an early
examination of the banks listed.
Very truly yours,
Chester Morrill,
Secretary.
10 ALL FEDERAL RESERVE AGENTS.
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
t h e federal reserve board
X-7318
December 29, 1932.
SUBJECT:
Eligibility of Notes Given in
Payment of Insurance Premiums.
Dear Sir:
There are inclosed herewith, for your information, copies of letters exchanged between the Federal
Reserve Board and the Federal Reserve Bank of Hew York
on the subject of the eligibility for rediscount at a
Federal reserve bank of notes given in payment for
premiums for insurance by persons, firms or corporations engaged in the production, manufacture or
distribution of goods.
Very truly yours,
Chester Morrill,
Secretary.
Inclosures.
TO GOVERNORS OF ALL F. R. BANKS., EXCEPT NEW YORK.
545
X-7318-a
Federal Reserve Bank
of New York
December 9, 1932.
S i r s :
We have an inquiry from Mr. Paxil L. Haid, President of
the Insurance Executives Association, as to the eligibility for rediscount
at the Federal Reserve Bank of notes given in payment for premiums for
insurance "by persons, firms or corporations engaged in the production,
manufacture or distribution of goods.
It is our view that if such notes have been made by
parties engaged in producing, purchasing, carrying or marketing goods
and given in payment for insurance premiums which were a current expense
of the business, this would represent an eligible use of the proceeds
and if further the financial statements of the makers in each case show
a reasonable excess of quick assets over current liabilities, that such
notes should be considered eligible for rediscount.
In other words, if
the maker's straight note discounted at his bank would be eligible, we
see no reason why its eligibility would be in any way affected by the
endorsement of an insurance company or insurance agent.
We would appreciate your ruling on this subject.
Respectfully,
(S) L. R. Rounds
Deputy Governor
Federal Reserve Board
Washington, D. C.
546
Copy
X—7318—13
December 22, 1932,
Mr. L. E. Bounds,
Deputy Governor,
Federal Heserve Bank of Hew York,
New York City, New York.
Dear Mr. Rounds:
Reference is made to your letter of December 9, 1932, in
which you request a ruling *f the Board on a question raised by Mr.
Paul L. Said, President of the Insurance Executives Association, as
to the eligibility for rediscount at a Federal reserve bank of notes
given in payment for premiums for insurance by persons, firms or
corporations engaged in the production, manufacture or distribution
of goods.
Upon consideration of this question, it is the opinion of
the Federal Reserve Board that notes of such persons, firms or corporations given in payment for premiums for insurance customarily deemed
necessary in the business of producing, purchasing, carrying or
marketing goods, or the proceeds of which are used for such purposes, are
notes issued for commercial or agricultural purposes within the meaning of
the Federal Reserve Board's Regulation A; and accordingly, such notes are
eligible for discount by Federal reserve banks if they comply in other respects with the applicable provisions of the law and of the Board's regulations.
A note which is thus given for an eligible purpose is not
547
Mr. Rounds —
2
•
X-7318-b
rendered ineligible by the fact that it may subsequently be indorsed
by an insurance company or an insurance agent.
As in any other.
case, a statement of the maker showing a reasonable excess of quick
assets over current liabilities may be required as evidence that the
note is not one the proceeds of which have been or are to be used
for a capital purpose.
Very truly yours,
(S) Chester Morrill,
Secretary.
#
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
t h e federal reserve board
July 6, 1932.
B-772.
SUBJECT:
Operating Efficiency at the
Federal reserve banks.
Dear Sir:
For your information there is inclosed,
herewith a cony of our usual annual statement
relating to the cost of handling work in the
principal operating departments of the head
offices of the Federal reserve banks.
Very truly yours,
E* 1. Smead, Chief,
Division of Bank Operations,
Inclosure.
TO GOVERNORS AMD CHAIRMEF
OF ALL FEDERAL RESERVE BATES.*
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
t h e federal reserve board
August 23, 1932.
B-S13'.
SUBJECT:
Functional Expenses,
First Half, 1932.
Dear Sir:
There are enclosed herewith
copies of the consolidated Functional Expense
Exhibit for the half year ending June 30, 1932,
A copy of the exhibit is also being mailed to the
Governor of the bank.
Very truly yours,
J. R. Van Fossen, Assistant Chief,
Division of Bank Operations.
Enclosure.
LETTER TO CHAIR!'JU*T OF EACH FEDERAL RESERVE B A M *
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
t h e federal reserve board
SUBJECT:
July 28, 1932.
B-831.
Preliminary classification of loans
and investments of member banks as
of June 30, 1932.
Dear Sir:
There is enclosed for your information and confidential use, a copy of a memorandum and statement
prepared for the Board with respect to changes in
the loans and investments of member banks during the
first half of 1932 and the last two years, as disclosed by the June 30 condition reports.
Figures
for the June 1932 call are based on the preliminary
data, furnished by the Federal reserve agents and will
be published in the forthcoming August issue of the
Federal Reserve Bulletin.
Very truly yours,
E, L. Smead, Chief,
Division of Bank Operations.
Enclosure.
TO ALL GOVERNORS AND FEDERAL RESERVE AG-EFTS*
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
t h e federal reserve board
August 15, 1932.
B-533.
SUBJECT:
Condition of member banlcs
as of June 30» 1932.
Dear Sir:
For your information there is enclosed a statement showing the resources and liabilities of all member banks in each
Federal reserve district as of June 30, 1932, also a statement giving a classification of loans, investments, deposits
and borrowings of member banks in each district on the sane
date.
The Board's Member Bank Call Report (lTo, 55) giving detailed figures by states, cities and classes of banks, which
will include the data shown in the enclosed statements, will
be ready for distribution about the middle of September.
Very truly yours,
J. R. Van Fossen, Assistant Chief,
Division of Bank Operations.
Enclosure.
TO ALL GOVERNORS Aim FEDERAL RESERVE ACrETTS*
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
t h e federal reserve board
August 26, 1932
B-836
SUBJECT:
Abstracts of Condition Reports
of State Banks and Trust Companies.
Dear Sir:
It will be greatly appreciated if, in accordance
with your usual practice, you will furnish the Federal
Reserve Board Tilth a copy of the abstract of condition
reports of state banks and trust companies in your
state on June 30, 1932, or on the call date nearest
thereto.
A franked and addressed envelope, requiring no
postage, is inclosed for use in transmitting the data
requested.
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations.
Inclosure.
TO SELECTED STATE BAUKITO DEPARTMENTS. *
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
t h e federal reserve board
September 2, 1932.
B-S3S.
SUBJECT:
Member Bank Call Report
for June ]0, 1932.
Dear Sir:
We are forwarding to you under separate cover
copies of the Board's Member Bank Call
Report Fo. 55» showing the condition of all member
banks on June 30, 1932.
Please forward a copy to
each member bank in your district that has expressed
a desire to receive copies of call reports as
issued.
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations.
TO ALL FEDERAL RESERVE AGETTS*
554
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
September 1], 1932.
t h e federal reserve board
B-839.
SUBJECT:
Reports of Member Banks Borrowing from
federal Reserve Banks.
Dear Sir;
Since April, 1929» each Federal reserve bank has been sending the
Board quarterly reports on Form St. 6170 covering member banks borrowing 80 per cent or more of the time during the quarter.
The Board feels that a report which would require considerably
less time to compile would answer its purposes satisfactorily at the
present time and, accordingly, requests that these reports be submitted
semi-annually hereafter, in accordance with the attached form, covering
all member banks which were borrowing 80 per cent or more of the time
during the twelve-month periods ending June J>0 and December 31, respectively.
You will note that the form calls for the average daily bor-
rowings of each such member bank during the last month of the period
covered by the report; the number of days on which each bank was in debt
to the Federal reserve bank during the last month and year; and the
amount of the bank's capital and surplus.
Very truly yours,
Chester Morrill,
Secretary.
TO GOVERNORS OF ALL F. R. BAFKS*.
MEMBER BANKS BORROWING FROM THE FEDERAL RESERVE B A M OF
FOUR-FIFTHS OF THE TIME*DURING THE YEAR EKDIFG
Location
Fame of bank
Capital and
surplus at
end of
report period
Average daily
borrowings
during last
month of
report period
Uumber of days bank was in debt
to F. R. Bank during
Year covered
Last month
by
of
renort
report period
Ox
01
Oi
•On 292 or more days, including Sundays and holidays.
(B-l4)
FEDERAL RESERVE BOARD
WASHINGTON
address official correspondence t o
t h e federal reserve board
September l6, 1932.
B-SUO.
SUBJECT:
Call Condition Reports of Member Banks,
Dear Sir:
There have been forwarded to you under separate cover
copies of Form 105 to be used by State bank members in submitting
their condition reports as of the next call date.
Kindly hold
the blanks at your bank until you are advised by the Board to
forward them to the State bank members, whereupon please mail
three copies to each such bank with the request that they be
held pending receipt of a call for condition reports.
It will be appreciated if you will kindly arrange to have
the usual preliminary classification of loans and investments of
reserve city and of country banks in your district wired to the
Board within three weeks, if practicable, from the date of the
next call report.
It is suggested that the figures be compared
with corresponding data for the preceding call before they are
telegraphed to the Board, in order that any obvious discrepancies
may be detected and promptly reconciled.
It will also be appreciated if you will kindly have your
staff make a special check of Schedule AA, in view of the fact
that quite a number of banks did not properly complete the
schedule on the June 30» 1932 call.
Very truly yours,
Chester Morrill,
Secretary.
TO ALL FEDERAL RESERVE AGEFTS*.
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE B O A R D
October 19, 1932.
B-844.
SUBJECT:
Forms for u s e d u r i n g 1933*
Dear Sir:
It will be appreciated if you will advise the Board the
number of copies of the forms listed below that will be required
by your bank (including branches, if any) during the calendar
year 1933.
Form
34
F.B.A.-5
Title
*
Daily balance, sheet. (Please state the number required
for the head office and each branch separately, and
indicate any special punching that may be desired).
Daily statement of Federal reserve agent.
38
Classification of discounted and purchased bills held
at the end of the month.
44
Monthly report of Federal reserve notes showing the
number of each denomination and aggregate amount received, issued to bank, and returned to the Comptroller of the Currency.
95
Monthly report of earnings.
96
Monthly report of current expenses.
160
Monthly report of receipts and payments of paper currency.
194
Monthly report of Federal reserve notes received and
issued; also stock on hand at beginning and end of month,
E
Semi-annual functional expense report.
Please show separately the number of copies of each form,
except form
required if it is revised and the number if not
revised.
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations.
LETTER TO ALL FEDERAL HESEHVE AGEKTS*.
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE B O A R D
October 28, 1932.
B-845
SUBJECT:
Changes in Inter-District Time
Schedule.
Dear Sir:
In accordance with a request of the Federal
Heserve Bank of Chicago, the Federal Reserve Bank
6f San Francisco having agreed thereto, the Federal
Reserve Board has approved a reduction from 4 days
to 3 days in the inter-district time schedule for
cash items from Chicago to San Francisco and from
Chicago to Los Angeles.
Very truly yours,
Chester Morrill,
Secretary,
TO C-CW?0?
ILi,
R. M K ' S -
FEDERAL RESERVE BOARD
November 4, 1932.
B-8H6.
WASHINGTON
A D D R E S S OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE B O A R D
SUBJECT:
Earnings and Expenses of
Federal Reserve Banks.
Dear Sir:
The general instructions governing the preparation
of reports of earnings and expenses of Federal reserve
banks, issued by the Board in December, 1922, have been
revised for the purpose of incorporating therein instructions issued since that date, and instructions relating
to depreciation allowances, reserves, etc.
The revised
instructions also indicate the form in which profit and
loss statements should be submitted to the Federal Reserve Board, and the procedure to be followed in connection with certain other end-of-year reports.
One copy
of the instructions is inclosed and a copy is being forwarded to the Federal reserve agent.
Additional copies
may be had upon request.
The instructions should be made effective as of
December 1, 1932.
Very truly yours,
Inclosure.
TO GOVERNORS
Chester Morrill,
Secretary.
OF ALL FEDERAL RESERVE BAUICS*.
562
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE B O A R D
ITovember 10, 1932.
B-S47.
SUBJECT:
Preliminary classification of
loans and investments of member
banks as of September JO, 1932.
Dear Sir:
There is inclosed for your information and confidential use, a copy of a memorandum and statement
prepared for the Board with respect to changes in the
loans and investments of member banks during the third
quarter of 1932 and the last year, as disclosed by the
September
condition reports.
Figures for the Sep-
tember 30, 1932 call are based on the preliminary
data furnished by the Federal reserve agents and will
be published in the forthcoming ITovember issue of the
Federal Reserve Bulletin,
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations.
Enclosure,
TO ALL GOVERNORS AKD FEDERAL RESERVE AGENTS*
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
November 17. 1932
B-849.
SUBJECT:
Condition of member "banks as
of September JO, 1932.
Dear Sir:
For your information there is inclosed a statement showing the resources and liabilities of all member banks in each
Federal reserve district as of September JO,
1932, also a
statement giving a classification of loans, investments, deposits and borrowings of member banks in each district on
the same date.
The Board's Member Bank Call Report (No. 5&) giving detailed figures by states, cities and classes of banks, which
will include the data shown in the inclosed statements, will
be ready for distribution about the middle of December.
Very truly yours,
E. Ii. Smead, Chief
Division of Bank Operations.
Inclosure.
TO ALL
GOVERNORS AND FEDERAL RESERVE AGENTS*
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
]T 0 vernber 30, 1932.
federal reserve board
3-352.
SUBJECT:
Data for 1932 Annual Report of
the Federal Heservo Board,
Dear Sir:
It will "be appreciated if yon will kindly furnish
us with the following data for use in the Board's forthcoming annual report:
1.
Classification of U. S. securities held by
your bank (1) under repurchase agreement
and (2) in own investment account, as at
close of "business December 31, 1932, giving the kind of securities, interest rate,
maturity date, and par value. The total
only need be shown for the bank's participation in securities held in Special
Investrnent Account,
2.
Statement showing the number of member
banks in ea.ch State (or part of State in
the district) accommodated through the
discount of paper during the calendar
year 1932.
Very truly yours,
E. L. Smead, Chief,
Division of Banl: Operations.
TO GOVEEITOBS OF ALL FEDERAL EES1RV3 BAFXS EXCEPT ITE'7 YOU"*
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE B O A R D
November JO, 1932.
B-S53.
SUBJECT:
S a l a r i e s of o f f i c e r s of
Federal reserve banks.
Dear S i r :
In accordance with the u s u a l p r a c t i c e , a s t a t e m e n t showi n g t h e 1933 s a l a r y p r o v i d e d by your Board of D i r e c t o r s a t i t s
f i r s t m e e t i n g i n January f o r each o f f i c e r of your bank and
b r a n c h e s , i f any, s u b j e c t to the approval of the F e d e r a l Reserve
Board, should be forwarded to the Board a s e a r l y i n January as
practicable.
P l e a s e l i s t t h e o f f i c e r s and t h e i r s a l a r i e s i n t h e
manner i n d i c a t e d i n t h e a t t a c h e d form.
In case t h e b a n k ' s counsel
i s not an o f f i c e r of t h e bank h i s annual r e t a i n e r f e e and any
a d d i t i o n a l compensation f o r c l e r k h i r e should be shown s e p a r a t e l y .
Very t r u l y y o u r s ,
Chester M o r r i l l ,
Secretary.
Inclosure.
TO CHAIRMAF OF EACH FEDERAL RESERVE 3AM*
%
566
V
OFFICERS' SALARIES FOR 1933 AT THE FEDERAL RESERVE BAM OF _ _ _ _ _
AIT!) ITS BRANCHES,' IF A2TY, AS PROVIDED BY THE BOARD OF DIRECTORS
SUBJECT TO APPROVAL BY THE FEDERAL RESERVE BOARD
Hame
Departments or
functions superv i s e d (Form A
classification)
Title
Total,
Annual. S a l a r y
1933, f o r
Dec. 31, a p p r o v a l of
F.R. Board
1932
officers
„3-S53a
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE B O A R D
November 30,
B-S54.
SUBJECT:
Salaries of employees of
Federal reserve banks.
Dear Sir:
Will you kindly furnish the Board as early in
January as practicable with a statement showing the name
of each employee of your bank and its "branches (if any)
on January 1 ,
1933> and the salary paid to each as of
January 1, 1932 and January 1, 1933.
The list should be
prepared in accordance with the sanple form attached in
order to facilitate checking with the approved personnel
classification plan for your bank on file with the
Federal Reserve Board.
As in the past the schedules should cover all
employees on the bank's payroll including those whose
salaries are reimbursed to the bank in whole or in part.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure
http://fraser.stlouisfed.org/TO CEAI2MAF
Federal Reserve Bank of St. Louis
0? EACH FEDERAL RESERVE SAHC*
* *
EMPLOYEES OF THE FEDERAL RESERVE 3A1TK OF
Aim ITS
KRAI'CHES ( I F A H ) 01! JAMJARY 1 , 1933
Fame of employee
FOTE:
Classification
symbol
Salary on Jan. 1
Title of job
Salary
range
1932* | 1933
Employees should be listed "by functions or departments and the positions
or jobs arranged in the same order as they appear in the personnel classification -plan. Form A. on file with the Federal Reserve Board. The total
number of employees including employees whose salaries are reimbursed to
the bank in whole or in part and the total salaries paid should be shown
for each function or department. Extra help or temporary employees should
be listed with the regular employees of the bank and designated by the
letter "T" after the classification symbol. In case of enroloyees on a
per diem or hourly basis, the estimated total annual compensation should
also be shown.
*If hired during 1932, please show the initial salary.
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
November 30, 1932.
B-355.
SUBJECT:
1933 Budget for Statistical
and Analytical Work.
Dear Sir:
In accordance with your usual practice, a statement
of the "budget for the Statistical and Analytical function
of your bank (including branches, if any), for the calendar year 1 9 3 3 should be forwarded to the Federal Heserve
Board as soon after January 1 as practicable.
The budget
should be prepared in accordance with the attached form.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.
TO ALL FEDERAL 3ES3HVE AGENTS*
3-S55a 5 7 Q
FEDERAL RESERVE 3A1TK OF
(including 'branches)
Proposed "budget for the Statistical and Analytical function (as defined
in the Manual of Instructions covering functional expense reports,
Form 3)
(All figures to be shown to the nearest dollar, cents omitted)
BUDGET
for
1932
EXPENSES
during
1932
BUDGET
for
1933
ADMINISTRATION:
Salaries - officers
Salaries - employees
Traveling expenses
Printing & stationery & other supplies
Telephone and telegraph
All other*
_•
TOTAL
STATISTICAL:
Salaries - employees
Traveling expenses
Printing & stationery & other supplies
Telephone and telegraph
Postage
All other*
TOTAL
MONTHLY LETTER:
Printing and stationery
Postage
TOTAL
LIBRARY:
Salaries - emoloyees
Traveling expenses
Printing & stationery & other supplies
Telephone and telegraph
Hews service - subscriptions to
periodicals, etc.
Books
All other*
TOTAL
0
GRATE TOTAL
MEMORANDA:
number of copies of monthly letter printed, December 1932
Receipts from monthly letters sold:
Estimated,
•Classify, if in excess of $100.
Year 1932
Year 1933
5.
$,
Do not deduct from
expenses
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE B O A R D
November ] 0 , 193 2 «
3-856.
SUBJECT:
1933 Budget f o r Federal r e s e r v e bank.
Dear S i r :
In accordance w i t h the u s u a l p r a c t i c e , a statement of
the "budget approved f o r the head o f f i c e and each of i t s
branches, i f any, f o r the calendar year 1933 should be forwarded
to the Federal Reserve Board as soon a f t e r January 1 as p r a c t i cable.
The budget statement as submitted to the Board should
be prepared i n accordance with the sample form a t t a c h e d and
should show t o t a l s f o r each separate u n i t (department, f u n c t i o n ,
division,
s e c t i o n or expense u n i t ) f o r which separate f i g u r e s
are shown i n the budget approved by the bank's budget committee.
Very t r u l y yours,
Chester M o r r i l l ,
Secretary.
Inclosure.
TO CHAIHMAH OF BACH FEDERAL RESERVE BAW*
'}
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL CORRESPONDENCE T O
T H E FEDERAL RESERVE B O A R D
FOVBIILBER
J O ,
1 9 3 2 .
3-857.
SUBJECT:
Summary Statement of Federal Reserve
Bank Personnel.
Dear Sir:
In accordance with the usual
practice, please furnish the Board
with a summary statement showing the number and salaries of the officers and employees of your bank (including branches, if any) as of
December 3 1 , 1 9 3 2 , and January 1 , 1 9 3 3 , made out in accordance with
the attached form.
The figures for December 31, 1932, which should
not include any changes in either the number or salaries of officers
or employees that become effective on January 1, 1933» will be published in the Board's 1 9 3 2 annual report and should be comparable
with corresponding figures published on pages 238-240 of the Board's
1 9 3 1 annual report.
The figures for January 1 ,
1933» should represent
the number and annual salaries of employees after all changes effective
as of January 1 have been made, and the number and annual salaries of
officers as submitted to the Board for its approval.
Very truly yours,
Chester Morrill,
Secretary.
Inclosure.
LETTER TO ALL CHAIffifflBT*
573
3-25?a
FFD3RAI. RFS3RVE BAJTK OF
(Including "branches)
Annual Salaries
Fumber
Jan. 1
1933
Dec. 31
1932
Jan. 1
1933
Officers:
Chairman and Federal Reserve Agent
Governor
Other officers
Employees by departments:
Banking department
Federal Reserve Agent's department
Auditing Department
Fiscal Agency Department
Total
Employees whose salaries are
reimbursed to bank:
Fiscal Agency department
Other employees•
Grand To tal
Temporary employees (not to be
•included above)
•Subdivide "by functions and units on separate sheet.
Dec. 31
1932
FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
November 30, 1932.
B-85S.
SUBJECT:
Description of Federal reserve districts.
Dear Sir:
The 1931 Annual Report of the Federal Reserve
Board, beginning on page 286, contains a description
of the territory constituting each Federal reserve
district and each branch zone.
It will be appreciated
if you will kindly have the data shown for your district, except that relating to land area and population, checked as of December 31, 1932, and advise the
Board of any necessary changes therein.
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations.
TO ALL FEDERAL RESERVE AGENTS*
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE BOARD
SUBJECT:
, l 0 T e t i ) e r 30,. 1 9 3 2 . .
8 5 9
' J *
Abstracts of Condition Reports of
State Banks and Trust Companies,.
Dear Sir:
It will be greatly appreciated if, in accordance
with your usual practice, you will furnish the Federal
Reserve Board with a copy of the abstract of condition
reports of state banks and trust companies in your
state for September 3 0 , 1 9 3 2 , or for the call date
nearest thereto.
A franked and addressed envelope, requiring no
postage, is inclosed for use in transmitting the data
requested.
Very truly yours,
E . L, Smead, Chief,.
Division of Bank Operations.
Inclosure*
To State Banking Departments,.
576
FEDERAL RESERVE BOARD
WASH.NGTON
A D D R E S S OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE B O A R D
SUBJECT:
^
^
B - 8 60
Earnings and Dividends Reports of
State Bank Members, Form 107
Dear Sir:
There is inclosed a copy of revised form 107, Report of Earnings
and Dividends of state "bank members cf the Federal Reserve System, and
of instructions governing the preparation of such reports.
Correspond-
ing revisions have "been made in the Comptroller of the Currency's form
2129, Report of Earnings and Dividends of National banks, and the
Comptroller's office is also issuing similar instructions to national
banks governing the preparation of their reports.
A supply of revised
form 107, for the use of state "bank members in submitting their reports
cf earnings and dividends for the six months ending December 31, 1932,
tsgather with a supply of instructions, is being sent to you under
separate cover.
It is requested that you include the following paragraphs in your
letter transmitting the blank forms 107 to state bank members for use
in submitting their reports for the six months ending December 31, 1932:
"The form heretofore used by member banks in submitting their semiannual earnings and dividends repcrts has been rearranged in order to
simplify its preparation by member banks, as well as to facilitate its
- 2 use by the Federal Reserve System.
577
Instructions governing the prepara-
tion of the report are inclosed.
"It will be noted from an examination of the revised form and
accompanying instructions that dividends declared bat not payable until
after the end of the report period are to be included with ''Deductions
from Undivided Profits' and reported against item 12-c of earnings and
dividends reports, and included in 'Other liabilities' in condition reports; that reserves for depreciation on banking house, furniture and
fixtures, and other real estate, which are deducted from asset accounts
in condition reports, form 105, are not to be included in 'Reserves for
contingencies' in earnings and dividends reports, form 10%; and that
amounts set aside to cover 'Interest, taxes and other expenses accrued
and unpaid' are to be included in item 2, 'Expenses, ' of earnings and
dividends reports in the period in which they are set aside, regardless
of when paid, and reported against item 25 of 'Liabilities' in condition
reports.
"If the 'reserve' items as reported by your bank in its earnings
and dividends report
for the six months ended June 30, 1932, included
any reserves for dividends, for depreciation on banking house, furniture
and fixtures and other real estate, or for interest, taxes and other
expenses accrued and unpaid, it will bo necessary for you to make certain adjustments in reserve accounts when preparing your report for the
six months ending December 31, 1932.
It is realized that these adjust-
ments will result in a reduction in the amount which would otherwise be
reported against item 7> 'Net addition to profits for current period. '
b-s6o
-
578
3
In order that th<_ reason for any such reduction in net profits may
appear on the report itself, and to moke it possible to eliminate the
adjustments in summarizing the figures for publication, the adjustments
should be reported as follows:
"Reserves for dividends.
Dividends declared but not payable until
after June 30, 1932, if included in item 21, 'Net amount reserved for — ,
1
in the report of earnings and dividends submitted for the six months ended
June 30, 1932, should bo included in the report covering the six month
period ending December 31, 1932, with amounts withdrawn from reserves,
items 10-a and 17,
and also shown separately following item 12-c as
'Dividends paid, declared -during prior periods.1
"Reserves for depreciation on real estate.
Any depreciation re-
serves on banking house, furniture and fixtures, and other real estate,
that were included in item 21, 'Net amount reserved for — , ' in the report of earnings and dividends submitted for the six months ended June 30,
1932, should be included in the report covering the six months ending
December 31, 1932, w ith amounts withdrawn from reserves, items 10-a and
17, and also shown separately under item 6-d as 'Withdrawals from depreciation reserves on banking house, furniture and fixtures' or 'Withdrawals
from depreciation reserves on other real estate, ' as the case may be.
"Interest, taxes and other expenses accrued and unpaid.
If item 21,
'Met amount reserved for —,' as shown in the report of earnings and dividends submitted for the six months ended June 30, 1932, included any
b-s6o
m
-
579
4
amount set aside for expenses payable after June 30, 1932, such amount
should be included in the report covering the six months ending Deceuber
31, 1932, with amounts withdrawn from reserves, items 10-a and 17,
and also shown separately under item 2-f as 'Withdrawals from reserves
for expenses.1
In addition, a memorandum should be attached or shown
at the bottom of the report, classifying this amount in accordance with
the subdivisions of item 2, 'Expenses.'n
Very truly yours,
Chester Morrill,
Secretary.
Inclosures.
TO ALL FEDERAL BES2EVE AGENTS*
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE B O A R D
December 13, 1932.
B-S62.
SUBJECT:
Forms for use during 1933.
Dear Sir:
There are being forwarded to you today under
separate cover a supply of the following forms for use
during 1933s
Form
Form
Form
Form
Form
38,
95*
96,
loO,
"5,
copies
copies
copies
copies
copies
A supply of Form ]>k and additional copies of
form l60 will be mailed when received from the printer.
TO
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations.
GOVERNORS OF ALL F. R. BAHCS*
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE B O A R D
December 14, 1932.
B-S63.
SUBJECT:
Member Bank Call Report
for September 30, 1932.
Dear Sir:
VTe are forwarding to you under separate cover
copies of the Board's Member Bank Call
Report No,
showing the condition of all member
banks on September 30» 1932.
Please forward a copy
to each member bank in your district that has expressed a desire to receive copies of call reports
as issued.
TO
Very truly yours,
E. L. Smead, Chief,
Division of Bank Operations.
ALL FEDERAL RESERVE AGENTS*
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE B O A R D
December 19, 1932.
3-865.
SUBJECT:
Forms for use during 1933.
Dear S i r :
There are b e i n g forwarded to you today
under s e p a r a t e c o v e r , by r e g i s t e r e d m a i l , a s u p p l y
of the f o l l o w i n g forms f o r u s e during 1333:
Form F.R.A.-5
Form 44
Form 194
copies
copies
copies
Very t r u l y y o u r s ,
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 .
TO ALL FEDERAL RESERVE AGETTS*
583
FEDERAL RESERVE BOARD
WASHINGTON
A D D R E S S OFFICIAL CORRESPONDENCE TO
T H E FEDERAL RESERVE B O A R D
December 22, 133^•
3-367.
SUBJECT:
Call Condition Reports of Member Banks.
Dear Sir:
There have been forwarded to you under separate cover
copies
of form 105 to be used by State bank members in submitting taeir condition
reports as of the next call date.
Kindly hold the blanks at your bank
until you are advised by the Board to forward them to the State bank members, whereupon please mail three copies to each such bank with the request
that they be held pending receipt of a call for condition reports.
Certain revisions have been made in form 105, as well as in the
Comptroller of the Currency's form 2130, most of them made necessary by
the Board's recent ruling (see page ?l4 of Federal Reserve Bulletin for
November 1932) that certificates of deposit payable to other banks within
30 days are demand deposits v/ithin the meaning of Section 19 of the Federal
Reserve Act.
Changes have also been made in the two reserve items, Fos. 17
and 18 on the last edition of the form, in connection with a revision of
the semi-annual report of earnings a n d dividends, form 107.
In view of
these changes, the supply of form 105 forwarded to you is accompanied by
revised definitions for some of the items contained in the August, 1928
edition of form 105-a, "Instructions for preparation of condition reports,"
- 2 -
584
A copy of these revised definitions should "be furnished each State Dank:
member. .
At the tine of the next call for condition reports the Board desires
to obtain certain information with respect to (1) affiliates of member banks,
and (2) real estate mortgages, mortgage bonds, and mortgage participation
certificates sold either by the member banks themselves or by their affiliates.
For this purpose, it is requested that, in your letter transmitting
blank forms 105 to State bank members for use in submitting their next condition reports, you incorporate therein the attached request for such information.
A supply of the schedules on viiich the data are to be reported
has been mailed to you with the supply of form IO5.
The attention of the
banks should also be called to this request at the time the call for condition reports is made.
The Comptroller of the Currency is asking national
banks to furnish similar information..
It will be appreciated if you will kindly arrange to have the usual
preliminary classification of loans and investments of reserve city and
of country banks in your district wired to the Board within three weeks,
if practicable, from the date of the next call report.
It is suggested that
the figures be compared with corresponding data for the preceding call
before they are telegraphed to the Board* in order that any obvious discrepancies may be detected and promptly reconciled.
Very truly yours,
Chester Morrill,
Secretary.
Inclosures.
TO ALL F3DK3AL EESZRT2 AGENTS*
« »
585
(TO BE INCLUDED 1ST FEDERAL RESERVE AC-ETT' S LETTER SE1IDI1TG OUT FORM 105
TO STATE BASK MSMB3HS FOR THEIR 1TEXT QUARTERLY COHDITIOH REPORTS)
"By direction of the Federal Reserve Board, you are requested to submit
with, and as of the date of, your next condition report, form 105, the information called for by inclosed schedules 'X,1
1
Y' and
1
Z.'
Schedule 'X,1 it will
be noted, relates to 'affiliates' as defined on the reverse side of the
schedule.
Schedule 'Y' relates to real estate mortgages, mortgage bonds, and
mortgage participation certificates sold by affiliates, and schedule 1Z' relates
to similar obligations, if any, sold by your bank.
"A separate schedule, both 'A' and 'Y,' should be submitted covering each
affiliate.
If your bank has no affiliates, as defined for the purpose of this
request, schedules '%' and 'Y1 should be returned with the word 'none' clearly
written or stamped thereon.
Likewise, if your bank has no real estate mortgages,
mortgage bonds, or mortgage participation certificates to report on schedule 'Z,'
the schedule should be returned with the word 'none' clearly written or stamped
thereon.
"All of the information called for by schedules 'X,' 'Y* and 'Z' should be
submitted in duplicate, over the signature of an officer of the bank.
copies of each schedule are inclosed.
Three
If your bank has more than one affiliate
and, therefore, requires additional copies of schedules 'X' and 'Y,1 they should
be prepared on your own stationery."
(B~S6b)
@FedFRASER