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FEDERAL RESERVE BOARD
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WASHINGTON
.DDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
F ."ir-uary 28, 192:3.
StmJECT:
~dvertiserr:0nts of M~mbar :Danks.
Dear Sir:
Th;;; FeJaral Re"'orve :~oard has had occasion from time to time to
express its views as to the propriety of various forms of advertisements
adopted by member ban~s setting forth the advantages accruing from mempership in the F3d.eral nasarve Syst.::m·,. A large number of individual letters
with refer:mce to this suojcct havG been written in answer to specific inquiries; a number of informal rulings have oeen :pU:olished in the Federal Reserve :.i3ulletin; and a comprehensive statem::mt of the Doard 1 s views on the
subject has been issued in the form of a circul.;::.r letter addressed to the
Chairmen of all Federal Reserve Janks under iate of April 3, 1920, (X-1882).
Certain recent developments ~nd a further study of the ethical and practical
aspects of this problem in the light of exrerience have led. the 3oard to
alter its judgment as to the rropriety of certain forms of advertisements
Which it had formerly approved, though it still adheres to the fundamental
principles heretofore expressed. Tl1e :Doard deems it advisable, therefore.
to issue at this time a new and comprehensive staterrsnt of its views on. this
subject.
There is. of course, no question that any bank, national or State,
which is a member of the Federal Reserve System, may properly advertise the
fact of its membership and the nature of the advantages which it actually
enjoys as a result of that meniliership. It is manifestly improper. however,
for any bank to issue any statement or to make use of any advertisement
which is calculated to mislead the public or which ma.y unintentially have
that effect, and rr~mber banks can not be too careful in choosing the
language of their advertisements to avoid any staterrPnt which ~ay mislead
the public or which may appear to have been intended to Luslead. Such advertisements not only are unethical, but are likely to cause unfavorable
comment and criticism which may shake the confidence of the cororrJunity in
the integrity of the bank's management and thus cause the batik irreparable
injury~ Furthermore, the Board feels that statements which may mislead the
public·as to the practical situation are improper, even though they are
theoretically or teChnically accurate.
One of the first rulings which the Hoard issue~ on this subject
was to the effect that rr:ember banks should not advertise that they or their
deposits are under 11 Gov.;;rnm:mt protactiorr". (Federal Reserve :;ulletin.
November, 1915, p, 362.) Similarly, the ~oard has expressed its disapproval
of advertisements containin,; the statement that member banks are "under
Federal control", that th2ir business is 11 c,1rried on under personal supervision of State and national authori t:::.es 11 , or t:-.. at, 11 0ur member&llip in the
Federal Reserve System means your guaranteed safety."
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The advertisements which have caused the ~oard the greatest difficulty, however, are those which contain statements with reference to the
character of supervision to wi:ich State member banks are subjected by
virtue of their membership in the Federal Reserve System. There is perhaps
an Unconscious tendency on the part of a number of State member banks to
use advertisements •Vhich imply that tl~ey are under precisely the same
supervision as national banks as well as 1.mder the supervision of the State
banking authorities. Such advertisements are inaccurate and misleading,
and the Federal Reserve Joard has always opposed them. Thus, the Board
has always opposed advertisements by State member banks containing statements to tLe effect th~t they are under National supervision or supervision
of the National Government; and in the circular letter above referred to
the :Board said:
"The Joard believes, therefore, that when a State member bank
uses the word 1 National' to describe the supervision to ~1iCh it
is subjected by reason of its membership in the Federal Reserve
System, the plausible inference of the public is that the supervision is the same as that to which National :Danks are subjected.
There is no doubt that that inference must be avoided so far as
E_()~_sible to do so.~~- - -- vv-hile it has previously expressed opinions to the contrary, the
noard is now of the opinion that for the s~~e reasons, it is also improper
for State member banks to advertise that they are subject to or under
Government or Federal supervision, or sup,?rvision of the Federal or United
States Government. Vfuile technically, under the terms of Section 9 of the
Federal Reserve Act, State banks are "subJect·. to 11 examination 'oy the Federal
Reserve noard in the sense that the Joard has the right to examine them,
yet as an actual watter they are not actually examined or supervised by
the Federal Reserve 3oard, and the Act expressly provides that they shall
not be subject to examination by the Comptroller of the Currency. It is
true that they are subject to examination by the Federal Reserve Danks,
but examination by the Federal Reserve nanks does not con&titute examination or supervision by the Federal Government, because the Federal Reserve nanks are not branches of the Government· and are not even owned by
the Government, but are private co~porations the entire stock of whiCh is
owned by their member banks. Furthermore, the Federal Reserve nanks often
do not examine them, out merely accept examinations made by the State
authorities.
It may be argued that, because they are technically "subject to"
examination by the Federal Reserve ~oard, Which is an independent establish~
trent of the Government, it is not im})roper for State member banks to advertise that they are subjsct to or under Federal or Governmental supervision.
While such a statement rna" be technically accurate, however, it is misleading to the public, be~ause the average layman reading such a statement
would fail to note this fine technical dis tinction and would get the imJ?l"eSsion that such banks actually are supervised by the Government, Which
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is not in accordance wi t:1 tha facts. lind.eed, an advertisement to the
effect that a State membar bank is subject to or under Federal or Governmantal supervi~icn ·v,rould have little or no advertising value were it not
for the fact that it conveys to the public the idea that such a bank
actually is examined by the Government in the same manner as national
banks.
The Federal Reserv..e :;:;oard h..1.s previously expressed t-:ne op~n~on
that statements by State ~e~ber bants to the effect that their membership
in the Federal Reserve Sy:;to:::m ;;ives "double security" or "double protection" are misleadin 6 • So, also,, w:1ile national banks are in a sense
"subject to" dou-ole supervision, that is, tbe supervision of the office
of the Comptroller of the Currancy and the supervision of the Federal Reserve .Do&:~d through special examinations malie by Federal Reserve :Banks
Nith the approval of the Federal Reserve :icard, nevertheless, i t would not
be pro~er for a national bank to advertise that it is under double supervision or supervision vvhich affords "douole securi ty 11 or 11 double protection" to its depositors.
The :,oa.rd has heretofore ruled, and is still of the op~n~on,
that it is entir,3ly proper for State member banks to advertise the fact
that thJy are member's of tne Faderal Reserve System and that the resources
of the system are available tbroue;):l the rediscount privilege to all member
banks.
Any rulings or o._JlDlons of the Federal Reserve J3oard which
are inconsistent with the views herein expres~ed shall be deemed to be
superseded by this ruling.
The Federal Reserve Danks ~re requestad to call this matter
to the attention of their member banks and to explain to them the opinions
of the Federal Reserve :ioard regarding the aci.vertisements of member banks,
·.vi th a view to the discontinuance of all advertisements which are considered to be improper or misleauing.
3y order of the Federal Reserve
~oard#
Wm. W. Haxton,
Secretary.
To Chai :rman of all Federal Reserve Lanl:s •
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