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FEDERAL RESERVE BOARD WASHINGTON X-3318 Fetruary 2, 1922. StJ'PJEC'T': Right of Iireetors of Federal Reserve Eanks and Ir911ebes to Examine Rerorts of Examination of Member }.~nks. De."lr Sir: I am transmitting herewith, for your information, copy of a letter from the Comptroller of the Currency on the subject of the right of directors of Federal Reserve Banks to exarrine reports of examination of mern:oe r ': anks made' ty ne tional tank examiners. I may sa.y that the Foard concurs in the views expressed by the Comptroller, althoueh the appointed memlers have not heard any of the COTrplaints to which the Comptroller refers. It is sue:£ested that as far as practicable the same rule 'ce adopted with respect to reports by Federal Reserve Bank examiners as the Comptroller desires to have followed with respect to reports by national lank examiners. It seerrs to the Board thl"lt directors could be inforn:ed of the cone lusions of the Federal Reserve Pgent ::end the Governor of the Bank as to info!1Tll3tion contained in the reports without going into det3il and that these ;;:eneral conclusions could be furnished officers C'lnd directors of r;anch tanks for their guidance. Very truly yours, G o v e r n o r. Elnc losures . CHJ m~'EN ALL F .R. F Jl.NKS. c 0 'P y TREJI.SURY DEPARTMENT Washington Office of Comptroller of the Curren~y January 30, 1922. X-33li:la Hon. W. P. G. Harding, Governor, Federal Reserve Board~ Washington, D. C. My dear Governor: Directors' right of access to of Examinajjion. R~orts I have had under consideration the letter of John Perrin, Chairman of the Board of the Federal Reserve Bank of San Francisco, and the opinion of Assistant Federal Reserve Agent in the matter of the right of directors for the inspection of reports made by National Bank Examiners. I have gone into the question presented by Mr. Perrin quite fully and I find that I am unable to agree with Mr. Perrin in his contention. A proper rule appears to have been laid down on December 22, 1914, in a letter from Mr. Delano to the then Corriptroller of the Currency, which reads: "Information contained in Natioilal Bank reports ot State Bank reports, should be available only to the National Bank Examiner, the Federal Reserve Exa~iner duly authorized to examine the Federal Reserve Bank and member banks in the respective districts, the Federal Reserve and Deputy Federal Reserve Agents, all of whom are government representatives. The Governor of the Federal Reserve Bank should., of course., have access to the Credit Bureau Files but under ng circumstances should any information contained in the Bank Examiner's reports be open for the inspection of the directors of any Federal Reserve Bank, and except those above referred to". !:! think the important thing to bear in mind is the Federal Reserve Agent is just as much a goverr~ent official as the Chief Examine-r, and., while the Chief Examiner reports direct to the Comptroller of the Currency., who is in turn ex-officio rr:ember of the Federal Reserve Board., the Federal Reserve Agent reports direct tothe Federal Reserve Board". ,~ -2- X-3318a r-,1 -"-r·.•..).._ It would appear that thus early in the organization of the Federal Reserve Systen: the constructj on was placed upon the right of directors to see the renorts adverse to tne contention of Mr. Perrin~ and I find that such co~structi on was transmit ted by '.r. P.. C. Milbr to Federal Res,erve Agent Perrin at San Francisco, in the ,-, or:is f ollo.< inc,~ "Referring to the attached- letter from Federal Reserve Agent Pernn of S8.n Francisco, this office for the pres~nt is willing to grant the Federal Reserve Bank of San Francisco permission to furnish the manager of the Spokane branch of that bank copies of the reports of examinations of national banks loca~ed in the territory assigned to the branch. These copies, however, should be filrnished to the !!@.nagec in confidence and he should be instructed that they are for his information and the information of his Qredit staJli only, and are not accessible to the members of the Board of Directors of the Branch bank". I am quite c~nvinced that the rulings neretofore made are both correct in law and in principle. It certair~y never was intended that bankers who were elected to serve on the Federal Reserve Bank Boards should have access to the inside of banks which were competing with their own banks and in which they might for some motive desire information. It rather begs the question to say that these men who are elected from banks as Claf:ls A and B directors are honorable men and would not use the information secured for personal advantage or for interference in the affairs of such banks whose repo;cts they would examine. That_. of course, is t.De high ideal that in all such transachons s.Dould be i ollowed; but the Class A and B directors are human beings, and while many no doubt do regard the right to look into the reports of the examiners as sacred and one which shc.uld not be used to the disadvantage of the bank, yet I have personal reasons to know that thel·e are except:i.ons to that rule, of which I have had serious complaint. It would seem that the directors should not demand the privilege of looking into these reports as a matter of right. If the Chaj.rmen of the Federal Reserve Banks are not capable of passing upon these reports so as to give correct information to the BoardJ then it would be my opinion that a Federal Reserve Agent should be secured who had such capability, and it seems to me that the 3oard should in all ca~es be guided by the determination of the Federal Reserve Agent and perhaps the Governor of the bank as to whether or not a member bank is entitled to credit it seeks. Certainly) the information should not be peddled to the boards of directors of the various banks, and by them in turn pediled to the boards of directors of the branch banks. It is my up inion that the inf orn:ation the bJ:anch banks get should be the direction from tne Governor and Fed.eral Reserve Agent of the parent bank and not by such branch bank directors having copies of the reports for their inspection and very often misuse. "~~(') ..,LL,.c_ ·.' tCJ -3- X-3318a I have just recently had coming from one of the big cities complaint that the reports of the Na.tional Bank Examiners were being improperly used. This information comes to me in a way that I am not at liberty to give details, but it is quite sufficient to enable me to come to the conclusion that there shculd be some more rigid regulation as to who should inspect reports. I am clearly of the opinion that such inspection should be limited to the Federal Reserve Agent and the Governor of the bank, and that their ccncl~sions as to the information contained in the reports and not !..@.~ should be given to such officers as are ·entitled to such information for their guidance and for the guidance of the officers of the branch banks. I am further clearly of the opinion that the copies of these reports should not be and must not be delivered to branch banks for the use of the officers of the branch banks, and it is my view in this respect that only the conclusions as to the merits and solvency of the bank should be transmitted to the officers of such branch banks with such directions as the parent bank desires to give. I do not desire 1 of course 1 to be captious or technical in laying down these rules as I think they shculd be 1 but I think that such regulations are important to the welfare of the Federal Reserve Banking System and necessary to inspire confidence with member banks that the inside of their institutions will not be peddled or improperly used. I think it is quite easy to understand that facts where they are known to too many persons are quite likely to leak out, and for that reason I am of the opinion that i t is highly important and proper that the regulations I am suggesting should be enforced and lived up to religiously. Respectfully submitted} (Signed) D. R. Crissinger, Jr.