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FEDERAL RESERVE BOARD
X-4690
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
OctJber 12, 1926.
Su:BJECT:
TOPIC FOR GOVE:lNORS 1 COl\JFEilENCE.
Dear Sir:
T'ne BJard has voted to plnce
1.ti_10:1
the program
for the next conference of Governors the question of the
authority
of~
Federal reserve
b~~k
to receive deposits
of securities for safekeeping froo. Faro Loan Registrars,
from Federal Land Ba..'1kS a,."ld fron Federal InterDediate
Credit Banks.
This
~testion
is discussed in a menoran-
dum prepa1•ed in the office of the Board 1 s C:n.l.l."lsel, a
copy of which is enclosed herewith for y.:mr informati:m.
Very tr'.ll;:r y:urs,
•
To Govorn:.n·s of all F.R.Banks.
Enclosure:
Walter L. Eddy,
Secretary.
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X-4690-a
Federal Reserve Board
Mr. Vest - Assistant Counsel.
June 4, l94ti.
Authority of Federal reserve
banks to receive deposits of securities from Federal land banks for
safekeeping.
The attached letter from tho Cashier of the Federal Reserve Bank of
raises the question whether Federal reserve
banks arc a1J.thorized to accept securities for safekeeping from
Farm Loa..'l Registrars, from Federal land banks and from Federal intermediate credit banks.
After a careful consideration of this question, I am of
the oyinion that Federal reserve banks are authorized to receive
deyosits of securities for safekeeping from Federal intermediate
credit banks, but are without authority to receive such deposits
from Federal land b~~ks or from Farm Loan Rcgistrcrs.
With reference to the authority of Federal reserve banks
to receive deposits of securities from Federal intermediate credit
banks the following provision of la:w found in Section 406 of the Agricultural Credits Act of 1923, is pertinent:
"Federal reserve banks are hereby authorized to
act as depositories for a."'ld fiscal .a;;.ents of any national
agricultural credit corporation or Federal intermediate
credit bank. u
In my opinion, this provision of law is sufficiently broad to include
authority to Federal reserve banks to accept deposits of funds or
securities from Federal intermediate credit banks. In fa.ct, the Board
has previously held, under a statute containing substantially the same
provision with reference to the War Finance Corporation as the above
statute has with reference to Intermediate credit banks, that Federal reserve banks rna~ hold securities for safekeeping for the ~ccount of
the War Finance Corporation.
The question w~ether tho reserve banks may receive deposits
of securities from Federal land banks or from Farm Loan Registrars
is mvre involved. There is no express authority given in either
the Federal Reserve Act or the Farm Loan Act for Federal reserve
banks to receive deposits of funds or securities from Federal land
banks or from Farm Loan Registrars. This in itself makes the receipt of such deposits beyond tho powers of Federal reserve banks.
In addition, however, there is a provision of the Farm Loan Act
which seems by implication to deny the existence of a right in
Federal land banks to make deposits in Federal reserve banks. This
is folli!d in Section 13 of the Farm Loan Act and authorizes a Federal land bank "to deposit its socuri ties, a.J.'ld its current funds
subject to check, with any member bank of the Federal Reserve
System." It is reasonable to assu.rne from this provision of law
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and from the abse~cc of any prov1s1on authorizing deposits in Federal reserve banks, that·it was not intended that Federal land banks
shJuld mruce deposits in Federal reserve b&vtl{S.
Section 19 of the Farm Loan Act provides that mortgages
and bonds held by a Farm Loan Registrar as collateral security for farm
loon bonds shall be dep-' sited 11 in such clepo sit vati.l t or bank 'as the
Federal Farm Loan :Soard shall approve, subject to the C-'ntrol of said
Registrar and in his name as trustee * * * . 11
The words "in any bank11
W)uld seem to include a Federal reserve ba.11k, and there appears to be
no reason why a Federal reserve bank, approved by the Farm Loan :Soard,
might not be used as such a d.opcsi tory, so far as the Registrar's
authority is concerned. This statute obviously, however, does not in
any way enlarge the powers of Federa~ reserve banks or give them authority to receive deposits from Farm Loan Registrars.
The Federal Heserve :Soard has a:pproved the right of
Federal reserve btmks to pay coupons of Farm loan bonds and also to
accept deposits of funds from Federal land banks in anticipation of
such maturing coupons. The authority to receive deposits for this purpose is found in the fir& p:Jragraph of Section 13 of the Federal Reserve Act which authorizes Federal reserve banks, solely for the purposes of exchange or collection, to receive from a nonmember bank deposits ':lf current fu..'lds, provided such nonmember bank maintains balances
sufficient to offset the items in transit held for its account by the
Federal reserve bank. This provision of law, however, does not authorize Federal reserve banks generally to receiva deposits from Federal
land banks for other purposes. ~1e decision of the Federal Reserve
:Soard that coupons of Farm loan :Bonds might be paid by Federal reserve
b~'lks out of deposits u~do by Federal land baru~s was based upon an
opinion rendered by Judge Elliott, then General Counsel for the Federal Reserve :Soard. In ~1other opinion, however, Judge Elliott took
the position tbat the Federal reserve banks have no a~thority to receive deposits generally from Federal land banks, ~•d also in his opinion
with reference to the payment of Farm Loan :Bond coupons he stated that
Section 13 does not authorize Federal reserve banks to receive deposits 11 fron Farm land banks to tho same extent that such deposits ar~.
received fror:l member banks or fro!n the United States Government. 11
Under Section 6 of the Farm Loru1 Act the Secretary
of the Treasury is directed to require all Federal land b~'lks acting
as financial agents of the Gover~mont or depositaries of public money
to furnish satisfactory security by the deposit of bonds or otherwise.
No doubt the Secretary of the Treasury, under his authority to require Federal reserve banks to act as fiscal agents of the United
States, could require tho Reserve :Sanks to receive deposits of such
securities fror:1 Federal land banks as are required of them under Section 6 of the Farm Loan Act. In so doing, however, Federal reserve
banks wJuld be acting as fisca~ agents of the United States and w~uld
be receiving and holding securities for the United States rather
than for the Federal land banks.
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Except in such cases as this, however, it is not believed
that a Federal reserve bank could properly bo considered to be acting
as a fiscal agent or d~pository of the Government in receiving deposits of securities from Federal land banks. The United States
at the present time owns only a small amount of the capital stock
of the Federal land bru1ks. Funds and securities of the land banks
are not the p:;.·opcrty of t::ae Government, and a bank receiving a deposit of funds or securities of Federal land ba~ks is not in my
opinion thereby rendered a fiscal agent or a depository of the United
States.
As stated above, therefore, I am of the op1n1on that
Federal reserve banks are without legal authority to receive a deposit of funds or securities from Farm Loan Registrars, or from
Federal land banks except where such depoGi to are r..a.de in an ticipation of maturing coupons of Farm loan bonds which are to be paid by
the Federal reserve banks. * * * * .
Respectfully,
George :B. Vest,
Assistant Counsel.
@FedFRASER