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W, P. 8. HARDING, GOYB-1 PAUL II. WARBURG, Yla& . .YIIIi.uR FRIDERIC A. DELANO ADOLPH C. II ILLER CHARLES ll. HAMLIN EX·OP'FICIO M&M8aRa WlLLIAM Gl. McADOO SECRETARY OF THI TREASURY CHAJRIIAJII JOHN SKELTON WILLIAMS COIIPTROLLIR OF THE CURRENCY 11. PARKIR WILLIS, SICRITAaT SHIRIIAN P. ALLEN • .UIT. IICBITART FEDERAL RESERVE BOARD AIID FISCAL ACiiNT A.DDRa88 RaPt.Y TO WASHINGTON FBDBRAL RESERVE !BOARD March 4~ 1918. Dear Sir: I enclose herewith copy of a I-roposed bill Vlhich would authorize any state bank becoming a national bank by conversion, and which at tha time of ~ch conversion is conducting a separate savings depart- ment under authority of the laws of the state in which it is located, to continue, after becamimg a national banking association, to conduct or operate such savings department as a separate department of the bank and to invest deposita received in the savings department with the laws of the state. in~ccordance This idea grew out of a conference which the Board held sometime ago with a caxmittee of state bankers .from California, where the state laws as to reserves are such as to make it practically impossible for state banks to beccme nembers of the Fede~al Reserve System, and it seems, because of the situatlon in California, that many of the savings banks in that state would like to becnna national banks rather than to apply for ~embership as st~te banks in the Faderal Reserve System. I enclose also copy of a letter from the ~ounsel cf the Board in which he discusses the bill at some length. f:he Board would' be pleased t·o have an expres.sion of your views regarding the ;r'>pOsC;d legislation. Very truly yours~ Governo.r. ChG.inmn of the Board 1 Fede~l Reserve Bank of X-7'72 . .. (COPY) ~772-a FEDERAL :RESERVE BOARD.·· M.n.. Elliott WASHINGTON 'G.ounseL FebDuary 23, 1918P My dear a'overnor:; T,!le committee representing sta.vings bta.nks ;).n California which expects to come to Wta.shington about the twenty-eighth will prob~bly again raise t~e question of procuring i:l.ll amendme1:1t which will enable savings banks to convert into natio~l banks and to retain their separate savings department. in a conference held with members of -ited Washington sometime ago, it developed that Ce.liforn~oa. ma.ny of the st:Lvings banks would like and not merely to become members of the Federi:l.l the committee which visthe situation ie such i:n to become nationd.l bd.nks Reserve System. The prirtcipoa.l reason assigned for this is that the laws of Co:~.litorni(;l. are sb dravth as to vest little or no discretion in the superintendent of banks, and are, the ref ore, unust:u:L11y :rigid and not adaptable to changing circumstt:.~.nces. The superintendent of 'banks is, I.Laztl in• formed, opposed to having discretionary powers vested_ in him. . L suggest /t~ one of the committee that it might be well to have prepared a revision of the Galifornia statutes eliminating those provisions which have been found to be unsatisfta.ctory, and retaining those which are believe_d to:. afford the best safeguards to the depositor. My thought was that the Board would desire to have this in considering any possible amendment to the Federo:~.l Reserve Act relating to savings accounts or savings departments. · The proposed bill forwarded by the committee, which is hereto attache<!., is not drd.wn along the lines that ·I had expected it to be. This provides for the creation of departmental banks. Xt does not accomplish the purpose which I understood the committee to have, since the member banks continue t~ operate under their State charters d.nd will, of course1 be subject to State laws. I am C<a.lling this bill to the Board's attention merely because it will prob~bly be brought up for discussion if the Board, or ~ committee Ih this connection, I of the Board, meets the committee from California. am taking the liberty of submitting for the Board's consideration, a bill permitting State banks to.become converted into national banks and to re• tain and operate separate savings departments. The plan is somewhat analogous to -Section Slss·or the Revised Statutes, which authorizes State banks having broa.nches which beco~e converted into nt:.~.tion~l bt:.~.nks to continue to .. ., X-772;;a operate such br~nches. I believe that the passage of such a bill would be of assistance in bringing about a coordination of State and national banking powers. It is undoubtedly, true that the customers .of a bank having established relations•w:jlth a particular institution, prefer in most cases to carry on all of their banking operations with that institution. Provision has already been ~de for the operation of a trust depdrtment by national banks. The amendment recommended by the Board, if passed, will broaden the powers of national banks so as to place them in a position to compete more success• fully with trust companies. It seems to me to be entirely consistent with the purposes of the act to ~ke similar provision for the savings bank business. The decision in the case of Bank vs. Fellows has recognized the right of Congress to vest national banks with any powers which are enjoyed by competing institutions. I! such banks can operate a savings department, a commercial department and a trust department, they would be in a position to afford pr~ctica.lly any accommodation desired to their customers. I .. do not think i:t necessary or desirable to d.Ssign a fixed amount of capitttl to each department, but assets belonging to each department should be segregated and the opertttions of each department conducted separately. You will recall th~t the originul House bill provided for a separate sAvings department, but this was eliminated primarily because of the difficulty in working out the details of operation in a wd.y which would meet the situation in each of the severa.l States. Under the plan proposed in the accompanying bill, savings bank departments could be conducted in accordance with Sta.te l~ws, subject to regulation by the Board in those States in which proper laws h~ve been enacted, and where the State laws iro not afford proper protection, the Board can by regulation, adopt the necessary safeguards. · .. !Lbelieve that such a bill will make ~t an easier matter to work out a proper basis of reserve requirements. Lrecommend the accompanying bill to the consideration of the B~rd. Respectfully, )4.. O~ELLIO'IT, OounsEfl. Hon. W.P.Q.Harding, Federal Reserve Board. (COPY) 2-.21-18 UCR-C DFT 1. I\E IT ENACTED BY THE SENATE AND HOUSE OF REPRESENTATIVES' • OF THE UNITED STATES OF AMERICA IN CONGRESS ASSEMB~D, That "Any bank incorporated by speei~l law or organized under the general law of any State which becomes a national banking association by conversion under authority of Section 5154, Revised S~tutes, and which at the time of such conversion is conducting a spparate &avings department under <:~.uthority of the laws of the State in wh1ch such bank is located, may continue, after becoming a national banking association, to conduct or operate such Si:I.Vings department as ct.. separate department of the bank' and may invest deposits received in such department in accordance with the laws of the State; Provid~.d, however • That the Federal Reserve Board, by regulation, may determine to what extent investments shall be made in any particular class of,security or property which savings banks are permitted by the laws of the state to invest in, and in those sttttes the laws of whichdo not prescribe the character of investments to be made bysavings banks the Federal Reserve Board, b~ regulation, may prescribe the nature and character of investments to be made. Every national bank operating a separate savings department under authority of this Act snall segregate c:t.nd set apart all assets belonging to such department and, und&r regulations of the Federal R&serve Board. shall keep a separate set of books~ and records, sho\Ving in proper de~il. all transactions" engaged in· No such natio~l bank shall receive in its savings department any deposits other t~n time deposits or savings deposits, as defined by Section l9~of the Federal Reserve Act. In ease of liquid~tion of a national bank operating a separate savings department either by a receiver duly appointed or by a liquidating agent, the depositors in.the savings department shall hc:t.vc a first lien on ~ssets held in such department. The Foder<:~.l Reserve B.o<1rd, bf regulation, may permit any national bank to esW.blish and ~intain a separate savings department to be ope~ted in accordance with the provisions of this act so fc:t.r as applicable·
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