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FEDERAL RESERVE BOARD WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO T H E FEDERAL RESERVE BOARD X-6649 J u l y 1, 1930. SUBJECT: B i l l to Amend Federal Reserve Act and National Bank Act. Dear S i r : There i s enclosed herewith f o r your i n formation, copy of a memorandum from the Board's A s s i s t a n t Counsel, summarizing the p r o v i s i o n s of S-4723, a t i l l introduced "by Senator Glass to amend v a r i o u s p r o v i s i o n s of t h e National Bank Act and the Federal Reserve Act. As the supply of the p r i n t e d M i l i s s t i l l l i m i t e d , only one copy i s attached hereto. Very t r u l y yours, ii. M. McClellaild, Assistant Secretaryi Enclosures. TO ALL GOVERNORS AND AGENTS. X-6649-a COPY 66 FEDERAL RESERVE BOARD . OFFICE CORRESPONDENCE To Federal Reserve Board From Mr. W i n g f i e l d - A s s i s t a n t Counsel. Date June 23, 1930 S u b j e c t : Summary of P r o v i s i o n s of the B i l l S-4723, introduced "by Senator g l a s s . On June 17, 1930, Senator Carter Glass introduced a t i l l , S.4723, to amend the p r o v i s i o n s of the National Bank Act and the Federal Reserve Act i n a number of r e s p e c t s . When he introduced t h i s t i l l Senator Glass s t a t e d on the f l o o r of the Senate t h a t i t i s merely a t e n t a t i v e measure to which he hopes to d i r e c t the i n q u i r y i n t o the "banking system a u t h o r i z e d "by the Senate. For the information of the Board, however, I w i l l "briefly summarize "below the most important changes which Senator Glass 1 "bill would make i n the p r e s e n t law. (1) The f i r s t paragraph of the h i l l , S. 4723, s t a t e s t h a t the t i t l e of the "bill i s the "Banking Act of 1930." ( 2 ) S e c t i o n 2 of the b i l l , S. 4723, would amend the 7th paragraph of S e c t i o n 5136 of the Revised S t a t u t e s which has to do with the powers which a n a t i o n a l bank may e x e r c i s e . In a d d i t i o n to the s p e c i f i c powers of n a t i o n a l banks now contained i n the law, t h i s b i l l provides t h a t n a t i o n a l banks may g e n e r a l l y engage i n a l l forms of business t h a t commercial banks of the S t a t e i n which the n a t i o n a l bank i s s i t u a t e d a r e p e r m i t t e d to t r a n s a c t by the laws of the S t a t e , except i n so f a r as n a t i o n a l banks a r e e x p r e s s l y f o r b i d d e n to undertake such b u s i n e s s by the National Bank Act, the Federal Reserve Act, o r other laws of the United S t a t e s . Under the p r e s e n t p r o v i s i o n s of Section 5136 of the Revised S t a t u t e s , n a t i o n a l banks a r e a u t h o r i z e d to buy and s o i l invostment s e c u r i t i e s . Section 2 of the b i l l , S. 4723, would a l s o amend S e c t i o n 5136 so a s to l i m i t t h i s power of n a t i o n a l banks to only the buying and s e l l i n g of i n vestment s e c u r i t i e s s o l e l y upon order and f o r account of customers, and i n no case f o r i t s own account, except as s p e c i f i e d i n S e c t i o n 24 of the Federal Reserve Act. (3) S e c t i o n 5144 of the Revised S t a t u t e s now provides t h a t each shareholder of a n a t i o n a l bank s h a l l be e n t i t l e d to one vote on each share of stock h e l d by him. S e c t i o n 3 of the b i l l S. 4723 would amend Section 5144 so as to r e s t r i c t the r i g h t of a shareholder to v o t e only shares of stock a c t u a l l y owned by him a s a r e s u l t of bona f i d e purchase, g i f t or i n h e r i t a n c e , and the shareholder who becomes such through nominal t r a n s f e r , or ownership on behalf of another, may not vote stock so a c q u i r e d . This s e c t i o n of the b i l l would f u r t h e r amend Section 5144 so a s to provide t h a t no c o r p o r a t i o n , a s s o c i a t i o n or p a r t n e r s h i p and no o f f i c e r , employee or d i r e c t o r of any c o r p o r a t i o n , a s s o c i a t i o n o r p a r t n e r s h i p which i s the owner of stock i n any n a t i o n a l bank s h a l l vote e i t h e r the stock owned by him i n d i v i d u a l l y or the stock owned by 1 th9 c o r p o r a t i o n . The p r e s e n t p r o v i s i o n of Section 5144 a u t h o r i z i n g shareholders to vote by proxy i s r e t a i n e d i n the b i l l S. 4723. via.;. —2— X-66494a ( 4 ) Section 4 of the b i l l S. 4723, would amend paragraph ( c ) of S e c t i o n 5155 of the Revised S t a t u t e s so as t o a u t h o r i z e a n a t i o n a l bank, a f t e r the date of the approval of t h i s b i l l , to e s t a b l i s h and operate new branches w i t h i n the l i m i t s of the S t a t e i n which the n a t i o n a l bank i s s i t u a t e d r a t h e r than merely i n the c i t y , town or v i l l a g e i n which such n a t i o n a l bank i s l o c a t e d . The proposed amendment r e t a i n s the p r e s e n t p r o v i s i o n of the law t h a t new branches may only be e s t a b l i s h e d and operated i f such establishment and o p e r a t i o n a r e p e r m i t t e d to S t a t e banks by the law of the S t a t e i n which the n a t i o n a l bank i s l o c a t e d . (5) Under the p r o v i s i o n s of Section 5197 a s i t now r e a d s , a n a t i o n a l bank i s a u t h o r i z e d t o charge i n t e r e s t a t the r a t e allowed by the laws of the S t a t e , t e r r i t o r y or d i s t r i c t where the bank i s l o c a t e d and when no r a t e i s so f i x e d by S t a t e law a n a t i o n a l bank may charge a r a t e not exceeding 7 p e r centum. Section 5 of the b i l l S. 4723 would amend these p r o v i s i o n s so a s to a u t h o r i z e a n a t i o n a l bank to charge the r a t e allowed by S t a t e law or a r a t e one p e r centum i n excess of the discount r a t e of the Federal r e s e r v e bank i n the Federal r e s e r v e d i s t r i c t where the n a t i o n a l bank i s l o c a t e d , whichever may be g r e a t e r , and where no r a t e i s f i x e d by S t a t e law a n a t i o n a l bank would be a u t h o r i z e d to charge a r a t e not exceeding 7 p e r centum or one p e r centum i n excess of the discount r a t e of the Federal r e s e r v e bank i n the Federal reserve d i s t r i c t where the n a t i o n a l bank i s l o c a t e d , whichever may be g r e a t e r . (6) S e c t i o n 5200 of the Revised S t a t u t e s l i m i t s loans by a n a t i o n a l bank t o any one person to 10 per cent of the c a p i t a l and s u r p l u s of the n a t i o n a l bank. This s e c t i o n , however, c o n t a i n s a number of exceptions to the 10 p e r cent l i m i t a t i o n . S e c t i o n 6 of the b i l l S. 4723 would amend S e c t i o n 5200 by adding a p r o v i s i o n t h a t no o b l i g a t i o n of a broker or of any f i n a n c e company, s e c u r i t i e s company, investment t r u s t or o t h e r s i m i l a r i n s t i t u t i o n , o r of any a f f i l i a t e , s h a l l be e n t i t l e d to the b e n e f i t s of any of t h e exceptions contained i n Section 5200, but a l l such o b l i g a t i o n s s h a l l be s u b j e c t to the 10 p e r cent l i m i t a t i o n . This s e c t i o n would f u r t h e r amend Section 5200 so as to provide t h a t the t o t a l o b l i g a t i o n s of an a f f i l i a t e s h a l l not exceed the 10 p e r cent l i m i t a t i o n or the amount of the c a p i t a l stock of the a f f i l i a t e a c t u a l l y p a i d i n and unimpaired, whichever may be the s m a l l e r . I t i s f u r t h e r provided t h a t an a f f i l i a t e s h a l l include a f i n a n c e company, s e c u r i t i e s company, investment t r u s t , or any other corp o r a t i o n the c o n t r o l of which i s h e l d d i r e c t l y or i n d i r e c t l y through stock ownership, or i n any o t h e r manner by a n a t i o n a l bank or by the shareholders thereof who own or c o n t r o l a m a j o r i t y of the stock of the n a t i o n a l bank. (7) S e c t i o n 7 of the b i l l S. 4723 would amend Section 5211 of the Revised S t a t u t e s by adding a new paragraph which would r e q u i r e each a f f i l i a t e of a n a t i o n a l bank to f u r n i s h to the Comptroller of the Currency not l e s s than t h r e e r e p o r t s each year, s e t t i n g out i n d e t a i l the condit i o n of the a f f i l i a t e . The p r e s i d e n t of the n a t i o n a l bank i s r e q u i r e d to s a t i s f y himself a s to t h e c o r r e c t n e s s of each such r e p o r t t r a n s m i t t e d to the Comptroller. This amendment contains d e t a i l e d requirements with r e f e r ence to the f i l i n g of such r e p o r t s and the form of such r e p o r t s and a u t h o r i z e s the Comptroller of the Currency t o c a l l f o r s p e c i a l r e p o r t s whenever i n h i s judgment i t i s n e c e s s a r y . An a f f i l i a t e which f a i l s to f u r n i s h the -Si- r e p o r t s r e q u i r e d of i t s h a l l "be s u b j e c t to a p e n a l t y of $100 f o r each day during which such f a i l u r e continues. (8) S e c t i o n 8 of the b i l l S. 4723 would amend the f i r s t paragraph of Section 7 of the Federal Reserve Act so as to provide t h a t a f t e r the payment of a 6 p e r cent dividend to member "banks, o n e - f o u r t h of the remainder of the net e a r n i n g s of a Federal r e s e r v e bank s h a l l be 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, o n e - f o u r t h t o the s u r p l u s fund of the Federal r e s e r v e bank (but a f t e r the s u r p l u s equals 100 p e r cent of the subscribed c a p i t a l the remainder goes to the United S t a t e s as a f r a n c h i s e tax) and the remaining 50 per cent of the net earnings of a Federal reserve bank s h a l l be p a i d to the member bank s t o c k h o l d e r s . (9) S e c t i o n 9 of the b i l l S. 4723 would amend S e c t i o n 9 of the Federal Be serve Act by adding a new paragraph which would r e q u i r e each a f f i l i a t e of a member S t a t e bank to f u r n i s h to the Federal Reserve Board not l e s s than t h r e e r e p o r t s each year, containing d e t a i l e d information with r e f e r e n c e to the c o n d i t i o n of the a f f i l i a t e . This amendment contains d e t a i l e d requirements with r e f e r e n c e to the f i l i n g of such r e p o r t s and the form thereof and r e q u i r e s the p r e s i d e n t of the member bank to s a t i s f y hin>s e l f a s to the c o r r e c t n e s s of each such r e p o r t t r a n s m i t t e d to the Federal Reserve Board. Any a f f i l i a t e which f a i l s to make any r e p o r t r e q u i r e d s h a l l be s u b j e c t to a p e n a l t y of $100 f o r each day during which such f a i l u r e continues. This s e c t i o n of the b i l l contains s u b s t a n t i a l l y the same d e f i n i t i o n of an a f f i l i a t e as was contained i n Section 6 of the b i l l a s above n o t e d . (10) S e c t i o n 10(a) of the b i l l S. 4723 would amend the f i r s t paragraph of S e c t i o n 10 of the Federal Reserve Act so a s t o e l i m i n a t e the S e c r e t a r y of the Treasury from membership on the Federal Reserve Board and to p r o v i d e f o r a membership of only seven members i n c l u d i n g s i x members app o i n t e d by the P r e s i d e n t of the United S t a t e s and the Comptroller of the Currency a s an ex o f f i c i o member. S e c t i o n 10(b) of t h i s b i l l would amend the second paragraph of S e c t i o n 10 of the Federal Reserve Act so a s to e l i m i n a t e the S e c r e t a r y of the Treasury from the p r o v i s i o n which now renders the S e c r e t a r y or Comptroller of the Currency i n e l i g i b l e during the t i n e he i s i n o f f i c e and f o r two years t h e r e a f t e r t o h o l d any o f f i c e , p o s i t i o n or employment i n any member bank. Section 10(c) would amend the f o u r t h paragraph of S e c t i o n 10 of the Federal Reserve Act to e l i m i n a t e t h e S e c r e t a r y of the Treasury a s an ex o f f i c i o chairman of the Federal Reserve Board and to provide t h a t the oaths of o f f i c e of members of the Federal Reserve Board s h a l l be f i l e d w i t h the S e c r e t a r y of the Federal Reserve Board r a t h e r than be c e r t i f i e d to the S e c r e t a r y of the Treasury as i s now required* (11) S e c t i o n 11 of t h e b i l l S. 4723 would amend the seventh paragraph of S e c t i o n 13 of the Federal Reserve Act so as to provide t h a t during the l i f e or continuance of advances to a member bank on the 15-day promissory c o l l a t e r a l n o t e s of the member bank such member bank s h a l l not i n c r e a s e or enlarge the t o t a l loans a l r e a d y made by i t e i t h e r upon c o l l a t e r a l s e c u r i t y to any borrower or to the members of any organized stock exchange, investment I ; oy X-6649-a -4house, or d e a l e r i n s e c u r i t i e s , upon any o b l i g a t i o n , note, or b i l l secured or unsecured, except f o r the purpose of purchasing and c a r r y i n g o b l i g a t i o n s of the United S t a t e s . (12) S e c t i o n 12, which i s the l a s t s e c t i o n of the b i l l S. 4723, would amend S e c t i o n 24 of the Federal Reserve Act so a s to r e q u i r e a n a t i o n a l bank to i n v e s t i t s time and savings d e p o s i t s i n the amount of r e a l e s t a t e l o a n s a u t h o r i z e d under the p r o v i s i o n s of S e c t i o n 24 of the Federal Reserve Act o r i n p r o p e r t y and s e c u r i t i e s of the kinds and amounts r e q u i r e d by law of savings banks i n the S t a t e where the n a t i o n a l bank i s s i t u a t e d . In ease no such S t a t e savings bank law e x i s t s the savings and timo d e p o s i t s of a n a t i o n a l bank s h a l l bo i n v e s t e d i n p r o p e r t y and s e c u r i t i e s s p e c i f i e d by the Comptroller of the Currency. The r e s e r v e of 3$ of time d e p o s i t s r e q u i r e d by the Federal Reserve Act s h a l l count a s a c o r r e s ponding p a r t of such investments. QSiis s e c t i o n of the b i l l f u r t h e r p r o vides t h a t i n case a n a t i o n a l bank becomes i n s o l v e n t , a l l the p r o p e r t y a c q u i r e d under t h i s s e c t i o n s h a l l be a p p l i e d by the r e c e i v e r thereof i n the f i r s t p l a c e r a t a b l y and p r o p o r t i o n a t e l y to the payment i n f u l l of the time and savings d e p o s i t s of the n a t i o n a l bank. A copy of the b i l l S. 4723 i s a t t a c h e d h e r e t o f o r the Board's information. Respectfully, (S) Copy of b i l l a t t a c h e d . BMW-sad B. M. Wingfield A s s i s t a n t Counsel.
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