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FEDERAL RESERVE BOARD WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD X-7413 April 17, 1933. SUBJECT: Application f o r membership "by p e r s o n a l loan "banks. Dear S i r : There i s i n c l o s e d a copy of a l e t t e r the Board has addressed to one of the Federal reserve agents i n r e p l y to an i n q u i r y with regard to whether a p e r s o n a l loan t a n k would "be admitted to membership in the Federal Reserve System. The copy of the Board's r e p l y in t h i s case i s being f u r n i s h e d f o r your information and guidance in connection with any s i m i l a r cases which come to you f o r c o n s i d e r a t i o n . Yours very t r u l y , Chester M o r r i l l , Secretary. Incloeure. TO ALL FEDERAL RESERVE AGENTS EXCEPT CHICAGO. JL 4 Copy X-7413~a April 15, 1933. Mr. Eugene M. Stevens, Federal Reserve Agent, Federal Beserve Bank of Chicago, Chicago, I l l i n o i s . Dear Mr* Stevens; Receipt i s acknowledged of your l e t t e r of March 23, 1933, in which you requested advice a s to whether the . Bank would be admitted to membership in the Federal Reserve System. It i s understood t h a t the i n s t i t u t i o n i s engaged i n the b u s i n e s s of making p e r s o n a l loans repayable i n i n s t a l l m e n t s and does not do any commercial banking b u s i n e s s . The p r o v i s i o n s of Section 9 of the Federal Reserve Act r e quire the Board, when a c t i n g on an a p p l i c a t i o n by a S t a t e bank f o r membership i n the Federal Reserve System to consider not only the f i n a n c i a l c o n d i t i o n of the i n s t i t u t i o n and the c h a r a c t e r of i t s management, which in the p r e s e n t case are understood to be s a t i s f a c t o r y , but a l s o whether or not the corporate powers e x e r c i s e d a r e c o n s i s t e n t w i t h the purposes of the Federal Reserve Act. Under the Federal Reserve Act, the Federal r e s e r v e banks may discount paper which i s issued or drawn f o r a g r i c u l t u r a l , i n d u s t r i a l or commercial purposes, or the proceeds of which a r e used f o r such p u r p o s e s , and i t i s evident from the p r o v i s i o n s of the Act t h a t i t was the i n t e n t i o n of Congress t h a t paper e l i g i b l e f o r r e discount should be s e l f — l i q u i d a t i n g i n c h a r a c t e r and of s h o r t matur- X-7413-a Mr. Eugene M. Stevens ity. 2 In o t h e r words, i t was contemplated t h a t the paper should a r i s e out of commercial or a g r i c u l t u r a l t r a n s a c t i o n s which o r d i n a r i l y w i l l "be consummated w i t h i n a comparatively short p e r i o d of time and out of which w i l l "be derived funds to pay the paper a t m a t u r i t y . The paper of p e r s o n a l loan hanks, of course, i s not of t h i s c h a r a c t e r , and, i t seems c l e a r t h a t the Act did not contemplate the admission to membership of i n s t i t u t i o n s of t h i s c l a s s . Accordingly, a f t e r c a r e f u l c o n s i d e r a t i o n of a l l the f a c t s involved, the Board does not f e e l t h a t i t can approve the a p p l i c a t i o n of the and r e q u e s t s t h a t you so advise i t . Very t r u l y yours, Chester M o r r i l l , Secretary. "Pfl/nV
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