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: FEDERAL RESERVE BOARD WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD X-6665 J u l y 26, 1930. SUBJECT: Examination of Member Banks. Dear S i r : By an a c t approved "by the P r e s i d e n t under date of June 26, 1930, S e c t i o n 9 of the Federal Reserve Act was amended and the t h i r d paragraph of Section 5240 of the United State® Revised S t a t u t e s , a s amended "by Section 21 of the Federal Reserve Act, was f u r t h e r amended so as to provide t h a t the expenses of a l l examinations made by Federal r e s e r v e banks may, i n the d i s c r e t i o n of the Federal Reserve Board, be a s s e s s e d a g a i n s t the banks examined and, when so assessed, s h a l l he p a i d by t h e "banks examined. In view of t h i s amendment, the Federal Reserve Board has r e c o n s i d e r e d and r e v i s e d the r e s o l u t i o n s adopted "by i t on October 10, 1928, ( s e t out i n X-6223 dated January 26, 1929) so a s to r e a d as f o l l o w s : "BE IT RESOLVED, That the Federal Reserve Board recognizes i t s duty under the Federal Reserve Act t o keep i t s e l f informed as to the c ondition of a l l member banks; "BE IT FURTHER RESOLVED, That the Board i s of the opinion t h a t i t i s j u s t i f i e d i n r e l y i n g upon the Compt r o l l e r of the Currency f o r such information as to n a t i o n a l banks; "BE IT FURTHER RESOLVED, That whenever the r e p o r t s of examination of S t a t e member banks f u r n i s h e d by the S t a t e a u t h o r i t i e s a r e not deemed s a t i s f a c t o r y e i t h e r to the Federal r e s e r v e bank of the d i s t r i c t concerned or to the Federal Reserve Board, the Federal r e s e r v e bank o r the Board s h a l l cause to be made a t l e a s t one examination or i n v e s t i g a t i o n each year of such c h a r a c t e r a s to f u r n i s h s a t i s f a c t o r y information; "BE IT FURTHER RESOLVED, That any e n t r y of a member bank made f o r the purpose of informing t h e Federal r e s e r v e bank and the Federal Reserve Board, ( l ) whether the member bank i s complying with the terms of the Federal Reserve Act, the Regulations of the Federal Reserve Board and the c o n d i t i o n s of i t s membership i n the Federal Reserve System a n d / o r (2) a s to the loan and investment p r a c t i c e s 8 7 X-6665 -2— and p o l i c i e s of the member "bank and whether i t s uses of Federal r e s e r v e c r e d i t f a c i l i t i e s a r e c o n s i s t e n t with the purposes of the Federal Reserve Act, as these have "been or may be defined "by the Federal Reserve Board, s h a l l not be termed an examination." Die Federal r e s e r v e agents are charged with the duty of s e e i n g to i t t h a t the Board's views, a s covered i n the above r e s o l u t i o n s , a r e c a r r i e d out i n t h e i r r e s p e c t i v e d i s t r i c t s . This does not mean t h a t the Board i s attempting to r e l i e v e i t s e l f of r e s p o n s i b i l i t y and i t w i l l continue, through i t s examining f o r c e , to check c a r e f u l l y the Federal r e s e r v e a g e n t s ' examination departments. While the Board r e a l i z e s t h a t i t i s not p o s s i b l e to l a y down a uniform d e t a i l e d procedure a p p l i c a b l e to each Federal r e s e r v e d i s t r i c t , the following i n s t r u c t i o n s w i l l serve as a guide to the Federal r e s e r v e agents i n the performance of t h e i r d u t i e s : 1 . The Comptroller of the Currency i s a member of the Federal Reserve Board and under the law i s charged with the r e s p o n s i b i l i t y of e n f o r c i n g the terms of the National Bank Act and a l s o of the Federal Reserve Act. The Board t h e r e f o r e r e l i e s upon the Comptroller of the Currency to perform h i s d u t i e s and i t w i l l not be necessary f o r the Federal r e s e r v e agent to d u p l i c a t e the work. 2 . In the opinion of the Board, S t a t e r e p o r t s of examination can be r e l i e d upon in the g r e a t m a j o r i t y of cases to f u r n i s h t h e necessary information to the agents. 3 . If a S t a t e examination i s u n s a t i s f a c t o r y , and an i n v e s t i g a t i o n w i l l not provide s u f f i c i e n t i n f o r m a t i o n upon which the agents may a c t i n t e l l i g e n t l y , a complete examination should be made f o r which the member bank should be charged. I t i s r e a l i z e d , however, t h p t i n some i n s t a n c e s unusual circumstances may e x i s t which would warrant the Board's e x e r c i s i n g the d i s c r e t i o n v e s t e d i n i t under the recent amendment and waiving charges f o r s p e c i f i c examinations. Any case which, i n the opinion of the Federal r e s e r v e agent, warrants such s p e c i a l c o n s i d e r a t i o n should be submitted to the Board i n advance, with a complete statement of the reasons why i t i s considered d e s i r a b l e to have the examination charges waived by the Board. Examinations of S t a t e banks i n c i dent to t h e i r admission to membership i n the System may be made without charge. 1-6665 -34 . Any i n v e s t i g a t i o n of a member "bank made f o r the purpose mentioned i n the l a s t paragraph of the r e s o l u t i o n of the Board s e t out above may "be conducted "by the Federal reserve agent without charge and without r e f e r e n c e to the Board. 5. The Federal r e s e r v e agent w i l l continue to f u r n i s h the Board with an a n a l y s i s on F. R. B. Form 212 of each s t a t e member hank examination r e p o r t r e c e i v e d "by him whether made by S t a t e a u t h o r i t i e s or under h i s own supervision, u n l e s s i n some exceptional case i t i s d e s i r e d t h a t the Board should have b e f o r e i t the complete r e p o r t of examination. 6. I f the Federal r e s e r v e agent h a s evidence i n the form of l e t t e r s or otherwise, t h a t o f f i c e r s and d i r e c t o r s of S t a t e member banks have had t h e i r a t t e n t i o n c a l l e d to v i o l a t i o n s of the law and unsound banking p r a c t i c e s by S t a t e a u t h o r i t i e s , i t i s not necessary f o r t h e agent to d u p l i c a t e t h i s work. 7. If t h i s supervision i s not conducted by S t a t e a u t h o r i t i e s the Federal r e s e r v e agent i s d i r e c t e d to take such a c t i o n , as i n h i s opinion, w i l l discharge the r e s p o n s i b i l i t i e s of the Board. 8 . When a S t a t e member bank f a i l s t o c o r r e c t i r r e g u l a r i t i e s w i t h i n a reasonable time so as to show m a t e r i a l improvement i n i t s condition, the Federal r e s e r v e agent w i l l be expected to lay the information b e f o r e the d i r e c t o r s of h i s bank and ask them to make a formal recommendation to t h e Federal Reserve Board, with reasons, a s to whether or not the S t a t e member bank should continue as a member. This l e t t e r supersedes and r e p e a l s the l e t t e r of January 26, 1929 (X-6223) on the same s u b j e c t . Very t r u l y yours, R. A. Young, Governor. TO ALL FEDERAL RESERVE AGENTS
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