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FEDERAL RESERVE BOARD WASHINGTON address official correspondence t o the federal reserve board X-8086 October 19, 1934# SUBJECT: Examinations under Section 21 of t h e Banking Act of 1933# Dear S i r : I n connection w i t h examinations of p r i v a t e banks and bankers, made by the F e d e r a l r e s e r v e banks under t h e p r o v i s i o n s of s e c t i o n 2 1 ( a ) ( 2 ) of t h e Banking Act of 1933, q u e s t i o n s have been r a i s e d as t o t h e r e s p o n s i b i l i t y of the Federal r e s e r v e banks and as t o the a c t i o n , i f any, which should be t a k e n by them r e g a r d i n g ; 1# P r o t e c t i o n of d e p o s i t o r s when the r e p o r t of examination d i s c l o s e s an i n s o l v e n t condition# 2# C o r r e c t i o n of other u n s a t i s f a c t o r y conditions# 3# Reporting apparent v i o l a t i o n s of the c r i m i n a l p r o v i s i o n s of S t a t e laws # Under the p r o v i s i o n s of s a i d s e c t i o n 2 1 ( a ) ( 2 ) a F e d e r a l r e - serve bank has no a u t h o r i t y t o r e q u i r e the c o r r e c t i o n of u n s a t i s f a c t o r y c o n d i t i o n s i n p r i v a t e banks s u b m i t t i n g t o examination and i s under no s t a t u t o r y duty t o t a k e any a c t i o n f o r t h e p r o t e c t i o n of dep o s i t o r s , t o c o r r e c t u n s a t i s f a c t o r y c o n d i t i o n s , or t o r e p o r t t o the S t a t e a u t h o r i t i e s apparent v i o l a t i o n s of t h e c r i m i n a l p r o v i s i o n s of S t a t e laws# The Board f e e l s , however, t h a t each F e d e r a l r e s e r v e bank should e x e r t i t s b e s t e f f o r t s t o induce p r i v a t e banks t o c o r r e c t 2 7 1 > X—8086 2- any u n s a t i s f a c t o r y c o n d i t i o n s d i s c l o s e d by t h e examinations made by t h e Federal r e s e r v e bank and otherwise t o p r o t e c t d e p o s i t o r s a g a i n s t unsound and u n l a w f u l banking p r a c t i c e s . The Board, t h e r e f o r e , expects each F e d e r a l r e s e r v e bank t o adopt a c o n s t r u c t i v e a t t i t u d e i n t h i s r e s p e c t and t o endeavor t o o b t a i n such c o r r e c t i v e a c t i o n i n t h e case of p r i v a t e banks as may appear n e c e s s a r y or d e s i r a b l e i n t h e circumstances s The Board a l s o b e l i e v e s t h a t i t i s proper f o r a F e d e r a l r e - serve bank t o r e p o r t apparent v i o l a t i o n s of c r i m i n a l p r o v i s i o n s of S t a t e laws t o t h e a p p r o p r i a t e S t a t e a u t h o r i t i e s . Very t r u l y yours, L. P. Bethea, Assistant Secretary. TO ALL FEDERAL RESERVE AGENTS. ^