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267 BOARD OF G O V E R N O R S D F T H E FEDERAL RESERVE SYSTEM W A S H I N G T O N I 9» » A D D R E S S OFFICIAL C O R R E S P O N D E N C E TO T H E BOARD X-9355 September 30, 1935. SUBJECT: Contacts with Nonmember Banks to Obtain Membership Applications, and Waiver of Eligibility Requirements, Dear Sir: There is inclosed herewith for your information a copy of a letter which the Board has addressed to the Federal Reserve Agent at the Federal Reserve Bank of Chicago with regard to obtaining from nonmember banks applications for admission to membership in the Federal Reserve System and also relating to waiver of eligibility requirements for admission to membership. Very truly yours L. P. Bethea, Assistant Secretary Inclosure. TO ALL FEDERAL RESERVE AGENTS X-9335-a COPY September 30, 1955. Mr. Eugene M. Stevens, Federal Reserve Agent, Federal Reserve Bank of Chicago, Chicago, Illinois. Dear Mr. Stevens: Receipt is acknowledged of your letter of August 21, 1935, in which you suggested that it would be desirable at this time for an active campaign to be undertaken to obtain applications from nonmember banks for admission to membership in the Federal Reserve System. It is the view of the Board that the Federal Reserve banks should at all times keep in touch with eligible nonmember banks and call to the attention of such banks, whenever practicable, the desirability of applying for admission to membership in the System, and it has been the Board's understanding that it is the general practice of the Federal Reserve banks to contact eligible nonmember banks from time to time with a view to obtaining their applications for membership. In this connection, as you will recall, the Board, in 1954, approved a pamphlet on the Federal Reserve System prepared by a committee of the Federal Reserve Agents' Conference which, among other things, described the advantages and privileges of membership. in a letter of January 16, 1935, addressed to the Governor Also, of the Federal Reserve Bank of Chicago, a copy of which was forwarded to all of the Federal Reserve Agents on January 21, 1935 (X-9100), the Board 269 X-9555-S suggested that, in contacting nonmember banks, the representatives of the Federal Reserve banks should, among other things, discuss membership in the Federal Reserve System. The Board further feels, as you suggested, that in view of the passage of the Banking Act of 1935, it would be desirable to make snecial efforts at this time to contact eligible nonmember banks with a view to obtaining thoir applications for admission to membership. Contacts with such banks by representa- tives of the Federal Reserve bank in person, or where this is not practicable by correspondence, would seem to be the most desirable means at this time of bringing the matter to their attention. As you know, section 202 of the Banking Act of 1955, as passed by the House of Representatives, would have authorized the Board, in the case of banks which had been admitted to the benefits of insurance, to waive in whole or in part the eligibility requirements for the admission of such banks to membership in the Federal Reserve System. However, section 202 of the Banking Act of 1955, as finally enacted, limits the right of the Board to waive eligibility requirements for admission to membership in the System to those banks which are required, under subsection (y) of section 12B of the Federal Reserve Act, to become members of the Federal Reserve System in order to be insured banks or continue to have any part of their deposits insured under section 12B. Subsection (y) provides that, with certain specified exceptions, no State bank which "during the calendar year ~6— X-9335-a 1941 or any succeeding calendar year shall have average deposits of $1,000,000 or more" shall be an insured bank or continue to have any part of its deposits insured after July 1 of the year following any such calendar year during which it shall have had such amount of average deposits, unless such bank shall be a member of the Federal Reserve System. In view of these provisions of subsection (y), it cannot be determined prior to the end of 1941 whether any specific bank mast be admitted to membership in the Federal Reserve System in order to be an insured bank or to continue to have any part of its deposits insured. Therefore, it is the view of the Board that it is not authorized, under the provisions of section 202 of the Banking Act of 1935, to waive eligibility requirements for admission to membership until the end of the year 1941. However, in the case of any bank which will apparently require the waiver of certain eligibility requirements in order to become a member of the System and retain its deposit insurance after July 1, 1942, there would be no objection to such bank filing its application for membership prior to the end of the year 1941 in order that consideration may be given to all of the facts involved and its admission to membership be expedited in so far as practicable after the end of the year 1941. Your attention is called to "the following provisions contained in section 545 of the Banking Act of 1935 relating to the factors which, under certain circumstances, are to be taken into consideration in determining whether the capital of a bank is impaired: 3 7 1 X-9535~a "Sec. 345. If any part of the capital of a national bank, State member bank, or bank applying for membership in the Federal Reserve System consists of preferred stock, the determination of whether or not the capital of such bank is impaired and the amount of such impairment shall be basted upon the par value of its stock even though the amount which the holders of such preferred stock shall be entitled to receive in thte event of retirement or liquidation shall be in excess of the par value of such preferred stock. If any such bank or trust company uhall have outstanding any capital notes or debentures of the type which the Reconstruction Finance Corporation is authorized to purchase pursuant to the provisions of section 504 of the Emergency Banking and Bank Conservation Act, approved Mnrch 9, 1935, as amended, the capital of such bank may be deemed to be unimpaired if the sound value of its assets is not less than its total liabilities, including capital stock, but excluding such capital notes or debentures and any obligations of the bank expressly subordinated thereto. * * -x-» You will observe that under the provisions of section 545, above quoted, certain banks which may have heretofore been ineligible for admission to membership in the Federal Reserve System because of an impairment in their capital stock may now be eligible for admission. Very truly yours, (Signed) L. P. Bethea L. P. Bethea, Assistant Secretary,