The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
X-8078 October 17, 1934 Dear Sirs Thcro in attached, .Vvr your information, a copy of a l e t t e r addressed t o the Federal Reserve Agent at the Federal Reserve Bank of Cleveland under date of October 15, 1934, with regard to the question whether capital notes and debentures sold t o the Reconstruction Finance Corporation by State member banks may be considered as capital or capital stock for the purpose of determining limitations under certain sections of the Federal Re nerve Act and the Agricultural Credits Act of 1925. Very t r u l y yours • i-. Boihea, ;r firii Secretary Ir- closure TO ALL F. R. AGENTS EXCEPT CLEVELAND 257 X-8078*a COPY October 15, 1934. Mr. L. B. Williams, Federal Reserve Agent, Federal Reserve Bank of Cleveland, C l e v e l raid, Ohio* Dear Mr. Williams; This referc to iir* Anderson's telogran dated July 21, 1934, which reads as f e l l o w s : 4" "Has the Board ruled Mother capital debentures sold t o ft F C or otherwise may be considered capital for the purpose of establishing loan l i m i t s . " Although the above telegram i s not s p e c i f i c , i t i s assumed that LSr. Anderson desires a ruling upon the question whether c a p i t a l notes and debentures sold t o the Reconstruction Finance Corporation by State member banks may be considered as c a p i t a l or c a p i t a l stock for the purpose of determining l i m i t a t i o n s under the following sections of the Federal Reserve Act: s e c t i o n 9, -which provides a limitation upon purchasing, s e l l i n g , underwriting, and holding, by member banks# of investment s e c u r i t i e s ; sections 9 end 15, which provide l i m i t a t i o n s npoti the ratount of paper of any one borrower which a Federal reserve brail: may rediscount for a member Lank; s e c t i o n 13, which provides a l i m i t a t i o n upen the amount of drafts or b i l l s of any one borrower which t\ member btti^s: may accept, upon the t o t a l amount of b i l l s which r. member bank may ^cdept, and upon the amount of drafts or b i l l s which rany bo accepted by >t member bunk for the purpose of providing dollar exchange; section 11(a)* iihAoh provides a l i m i t a t i o n " 258 -2- X-8073-a upon the amount which a member bank way lorn upon the s e c u r i t y of stock or bond c o l l a t e r a l j s e c t i o n 12B(c), which provides f o r the amount of stcck of the Federal Deposit Insurance Corporation f o r which a member bank organized a f t e r June 1 0 , may apply during the f i r s t twelve months a f t e r i t s organization; s . c t i o n 19, which provides a l i m i t a t i o n upon the sum which a member bank s h a l l keep on deposit with a nonmember State bank} s e c t i o n 25A, a i c , provides a l i m i t a t i o n upon the amount which a member tarac nav i n v e s t i n or loan upon s t o c k s , bone s , debentures, or other such o i l i g a t i o n s -u an a f f i l i a t e ; and s e c t i o n 24A, which provi "•••s a lj.n5.tatior u,)on the nmour.t which a member bank may i n v e s t i n bank promises or the stock, bonds, debentures, or other such o b l i g a t i o n s of a corporation holding the bank's premises, and upon the amount which a member bank may loan upon the stock of such a corporation* A similar question a r i s e s under s e c t i o n 210 of the Agricultural Credits Act of 1923, which provides a l i m i t a t i o n upon the amount of stock of National Agricultural Credit Corporations i n which a member bank may invest. In view of the ruling of the Board contained i n i t s telegram t o a l l Federal Reserve Agents, dated November 8, 1935, (Trans. 1905), end i n view of the l a t e r amendment to s e c t i o n 9 of the Federal Reserve Act, contained i n the Act of June 16, 1934, which provides t h a t , for the purposes of membership of any State bank, the terms c a p i t a l and c a p i t a l stock s h a l l inulu'lo the rev.oi.;at of outstanding c a p i t a l notes and debentures ler;rlly issued by the applyiv.- bank and purchased -3- X—8078-a by the Reconstruction Finance Corporation, the Federal Reserve Board i s of the opinion that capital notes and debentures l e g a l l y issued by State member banks and purchased by the Reconstruction Finance Corporation should be considered as capital or capital stock i n determining limitations unuor the above mentioned s e c t i o n s , Er.jevor* since the above mentioned amendment t o sect i o n 9 of th-s i eoeral Reserve Act does not rofer t o capital notes and debentures sold t o others than the Reconstruction Finance Corporation# any notes or debentures not sold t o the Reconstruction Finance Corporat i o n may not be included in determining the limitations above referred to. Likewise, since the above mentioned amendment to s e c t i o n 9 r e f e r s only t o c a p i t a l ndtes and debentures issued by State member banks, the above opinion i s applicable only t o State banks. In t h i s connection, however, i t i s understood that i t i s not the practice of national banks to issue capital notes or debentures. You w i l l understand, of course, that the Board's advic i n t h i s matter i s not intended to refer to limitations f i x e d by State s t a t u t e s , as the construction of such statutes i s within the j u r i s d i c t i o n of the appropriate State supervisory a u t h o r i t i e s rather than the j u r i s d i c t i o n of the Board. Very t r u l y yours, (Signed) L. P. Bethea L. P. Bethea, Assistant Secretary.
@FedFRASER