The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
FEDERAL RESERVE BOARD WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD X-U122 J u l y IS, 1924, SUBJECT: Observance of Holidays. Dear S i r : There i s enclosed herewith f o r your information and guidance copy of an opinion rendered by the General Counsel of the Federal Reserve Board, and formally concurred in by the Board, t o the e f f e c t that a Federal reserve bank may not l a w f u l l y close and suspend a l l banking operations on any day unless such day i s a l e g a l holiday throughout i t s Federal reserve d i s t r i c t . By d i r e c t i o n of the Federal Reserve Board. Very t r u l y yours, J . C. Noell, Assistant Secretary. Enc. TO THE GOVERNORS AND CHAIRMEN OF AIL F. R. BANKS. X—4l22—a SUBJECT: Holidays of Federal Reserve Banks. Questions have a r i s e n involving the observance by Federal r e s e r v e banks of l o c a l , S t a t e , or n a t i o n a l holidays and t h i s o f f i c e has been asked t o prepare a memorandum d i s c u s s i n g the r i g h t of Federal r e s e r v e banks t o close on such days. In my opinion a Federal reserve bank may not l a w f u l l y close and suspend a l l banking operations on any day u n l e s s such day i s a l e g a l holiday throughout i t s Federal r e s e r v e d i s t r i c t . My. reasons f o r t h i s conclusion w i l l be s t a t e d below. I t may be argued t h a t i f there i s a l e g a l holiday i n the S t a t e i n which a Federal r e s e r v e bank i s l o c a t e d , the Federal reserve bank need not t r a n s a c t any business on t h a t day and w i l l not be held responsible f o r f a i l u r e to t r a n s a c t b u s i n e s s . This argument i s based on the generally e s t a b l i s h e d p r i n ciple that the laws of a State operate on Federal corporations doing busine ss t h e r e i n in the same way t h a t they operate upon other persons and corporations within the S t a t e , u n l e s s such laws ( l ) a r e i n c o n f l i c t with a c t s of Congress r e g u l a t i n g the Federal c o r p o r a t i o n s , (2) f r u s t r a t e the purpose f o r which the corporation was created, or (3) discriminate a g a i n s t Federal c o r p o r a t i o n s . There i s no p r o v i s i o n of Federal lav/ d e a l i n g with Federal r e s e r v e bank h o l i days with which a S t a t e s t a t u t e d e c l a r i n g a S t a t e holiday might c o n f l i c t and i t can hardly be s a i d t h a t such a s t a t u t e would f r u s t r a t e the purpose f o r which Federal r e s e r v e banks a r e created, since observance of a holiday i s not compulsory and f o r t h i s reason the s t a t u t e would not preclude Federal r e serve banks from serving member banks in other S t a t e s of t h e i r r e s p e c t i v e d i s t r i c t s . I t is obvious a l s o t h a t a s t a t u t e d e c l a r i n g a S t a t e holiday would not d i s c r i m i n a t e a g a i n s t Federal reserve banks. The above argument appears to be sound in so f a r as concerns t r a n s a c t i o n s within the S t a t e and i t may be conceded t h a t a S t a t e s t a t u t e a u t h o r i z i n g the c e s s a t i o n of s e c u l a r business on a p a r t i c u l a r day would excuse a Federal reserve bank l o c a t e d i n t h a t S t a t e from performing any a c t w i t h i n the S t a t e which was nominally r e q u i r e d to be done on that day. Federal r e s e r v e banks, however, a r e q u a s i - n a t i o n a l i n s t i t u t i o n s i n the sense t h a t the scope of t h e i r operations i s not confined t o a s i n g l e S t a t e and consequently the r i g h t of a Federal reserve bank to cease a l l operations on a day which i s a holiday i n the S t a t e of i t s l o c a t i o n cannot be determined by r e f e r e n c e to the laws of that State a l o n e . Federal r e s e r v e d i s t r i c t s were expressly c r e a t e d under Section 2 of the Federal Reserve Act without regard t o State l i n e s , but r a t h e r with regard to the convenience and customary course of business, and the d i s t r i c t s of a l l Federal reserve banks include p a r t s or the whole of more than one S t a t e . Moreover, Section 4 of t h e Federal Reserve Act provides i n p a r t t h a t d i r e c t o r s of Federal reserve banks " s h a l l administer the a f f a i r s of said bank f a i r l y and i m p a r t i a l l y and without d i s c r i m i n a t i o n in - 2 - X-Ul22-a favor of or a g a i n s t any member bank or banks," so t h a t the o p e r a t i o n s of each Federal r e s e r v e bank mast be c a r r i e d on with due regard t o a l l i t s member banks and not merely those i n the S t a t e of i t s l o c a t i o n . In considering the r i g h t ' o f a Federal reserve bank to close, t h e r e a r e two main p o i n t s t o be observed: ( l ) The general duty of a Federal r e s e r v e bank t o give a l l i t s member banks the s e r v i c e s contemplated by the Federal Reserve Act as the ordinary p e r q u i s i t e s of membership, such a s f u r n i s h i n g currency, extending c r e d i t , discounting paper, e t c . ; (2) The o b l i g a t i o n of a Federal r e serve bank under the Negotiable Instruments Law to perform t h e a c t s i n c i d e n t a l to c o l l e c t i n g checks and d r a f t s forwarded to i t by i t s member and nonmember c l e a r i n g banks. With regard t o the f i r s t point noted above, t h e underlying purpose f o r which Federal reserve banks were created was to serve a l l the member banks within t h e i r several d i s t r i c t s by supplying t h e i r currency and c r e d i t r e q u i r e ments. While t h e r e seems t o be no s p e c i f i c p r o v i s i o n of the Federal Reserve Act r e q u i r i n g Federal reserve banks to f u r n i s h currency or accommodation to t h e i r member banks a t any p a r t i c u l a r time, i t must be contemplated t h a t these services should be rendered whenever reasonably needed by the member banks i n the ordinary course of t h e i r business and c l e a r l y the underlying purpose of the Act would be f r u s t r a t e d i f member banks in one State were deprived of the p r i v i l e g e s of membership merely because of a holiday in some o t h e r State in which they were i n no way concerned. If f o r example, a member bank i n the D i s t r i c t of Columbia, where t h e r e was no holiday, r e q u i r e d immediate accomodat i o n and was unable to obtain i t because the Federal Reserve Bank of Richmond had closed i t s doore in observance of a State holiday i n V i r g i n i a , i t can hardl y be doubted t h a t the Federal reserve bank would have been d e r e l i c t i n i t s duty to serve i t s member banks. The po^nt would be brought out even more f o r c e f u l l y i f the member bank were i n a c r i t i c a l condition and f a i l e d because i t was unable t o obtain the needed accommodation. I t must always be remembered t h a t Federal reserve banks a r e n e c e s s a r i l y c a l l e d upon to t r a n s a c t business in other States than the S t a t e s of t h e i r r e s pective l o c a t i o n s and while a Federal reserve bank may be excused from p e r formance of a c t s w i t h i n the S t a t e because of a holiday t h e r e i n , a c t s to be p e r formed i n other S t a t e s in i t s d i s t r i c t a r e not a f f e c t e d by the h o l i d a y . I t would seem c l e a r , t h e r e f o r e , both from the standpoint of general l e g a l o b l i g a t i o n and of business policy t h a t a Federal reserve bank, notwithstanding a l o cal State holiday, should not sever i t s contact with member banks of other S t a t e s , but should r e t a i n s u f f i c i e n t working f o r c e on hand t o care f o r t h e i r l e g i t i m a t e needs. With regard to the o b l i g a t i o n s of a Federal r e s e r v e bank i n c i d e n t a l t o the clearance and c o l l e c t i o n of checks, t h e same l i n e of reasoning a p p l i e s . Section 194 of the Negotiable Instruments Law, which has been adopted in every S t a t e except Georgia, provides generally "Where the day, or the l a s t day, f o r doing any a c t h e r e i n r e q u i r e d or permitted to be done, f a l l s on Sunday or on # V f •' ^ ft X-4l22-a a holiday, the a c t may be done on the next succeeding s e c u l a r or business day,* Wi#% pegard s p e c i f i c a l l y to payment, Section 85 of the Negotiable Instruments law provides "Every n e g o t i a b l e instrument i s payable a t the time f i x e d ^ h e r e i n without grace» When the day of maturity f a l l s upon Sunday, or a h o l i d a y , t h e instrument i s payaole on the next succeeding business day *11 The normal a c t s required t o be done in c o l l e c t i n g a check or d r a f t or other n e g o t i a b l e i n s t r u ment are demand and presentment f o r payment, and p r o t e s t in case of non-payment. These a c t s must be done a t the place of payment, which i s o r d i n a r i l y s t a t e d in the instrument or, i f n o t , i s generally a t the place of business or residence of the party p r i m a r i l y l i a b l e * If the place of pigment of a check forwarded to a Federal r e s e r v e bank f o r c o l l e c t i o n i s within the S t a t e i n which the Federal r e serve bank i s l o c a t e d and the due date f a l l s upon a holiday in t h a t S t a t e , the Federal reserve bank i s excused from the a c t s of demand, presentment and p r o t e s t under the above quoted provisions of the Negotiable Instruments Law. I f , however, a Federal r e s e r v e bank holds f o r c o l l e c t i o n a check payable i n another State of i t s d i s t r i c t , where t h e r e i s no holiday, the a c t s i n c i d e n t a l t o c o l l e c t ing the check, being governed by the law of the place of payment, a r e in no way a f f e c t e d by the holiday in the State of the Federal r e s e r v e bank 1 s l o c a t i o n . In such a case the Federal reserve bank, although excused from t r a n s a c t i n g business within the S t a t e of i t s l o c a t i o n , would be g u i l t y of negligence i f i t f a i l e d to present the check f o r payment or p r o t e s t f o r non-payment in the place where the check was payable* Since Federal reserve banks normally handle many checks payable without the S t a t e s in which they are located they should be prepared t o make due c o l l e c t i o n of such checks, i r r e s p e c t i v e of holidays a f f e c t i n g merely the States of t h e i r s i t u s . The above general p r i n c i p l e s are in iry opinion equally a p p l i c a b l e to Fede r a l r e s e r v e branch banks, which also should not suspend a l l o p e r a t i o n s u n l e s s there i s a holiday throughout the t e r r i t o r y served by them. In reaching the conclusion t h a t a Federal reserve bank may not l a w f u l l y suspend a l l i t s banking a c t i v i t i e s unless there i s a holiday a f f e c t i n g i t s ent i r e d i s t r i c t , I do not imply that the Federal reserve bank may not properly ! cut down i t s personnel t o meet an expected decrease in the amount of business t o be t r a n s a c t e d on a c e r t a i n day Because of a holiday i n some p a r t of i t e d i s t r i c t . This, question i s purely one of i n t e r n a l management and may properly be l e f t to the d i s c r e t i o n of the Federal reserve banks.
@FedFRASER