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FEDERAL RESERVE BOARD
WASHINGTON
ADDRESS OFFICIAL CORRESPONDENCE TO
THE FEDERAL RESERVE BOARD
X-7287
November 7, 1932.
SUBJECT:
Glass Bill, S. 4412. •
Dear S i r :
The Federal Reserve Board has previously forwarded to you
copies of the so-called Glass B i l l , S. 4412, which was reported
to the Senate by the Banking and Currency Committee of that body
on April 18, 1932, as well as copies of the accompanying majority
and minority reports of the Committee.
You have also been furnished
with copies of the hearings on the b i l l which were held before the
Senate Committee in March when the b i l l was under consideration
as S. 4115.
The Board's report to the committee was p r i n t e d in
connection with Governor Meyer's testimony in these hearings and
was also included in the Federal Reserve B u l l e t i n f o r April, 1932.
There are inclosed herewith two copies of a memorandum (X-7139)
which presents a comparison of the more important f e a t u r e s of
S. 4412 and S. 4115 with the changes recommended by the Federal
Reserve Board.
As the b i l l may be taken up again a t the forthcoming
X-728?
session of Congress, the Federal Heserve Board w i l l "be glad to
receive any suggestions regarding i t s provisions which you desire
to submit f o r the Board's consideration, together with your
reasons f o r such suggestions.
Very t r u l y yours,
Chester M o r r i l l ,
Secretary.
Inclosures,
TO ALL CHAIRMEN A D GOVERNORS
M
451
S. 4412, INTRODUCED APRIL 18, 1932.
X-7139
PROVISIONS OF THIS BILL COMPARED WITH S. 4115
WITH CHANGES RECOiECEZDED BY FEDERAL RESERVE BOARD.
There i s set f o r t h "below a comparison of the more important
f e a t u r e s of S. 4412, which was introdilced i n the Senate and reported
"by the Committee on Banking and Currency on April 18, 1982, and S. 4115
with the changes recommended "by the Federal Reserve Board i n i t s l e t t e r
to Senator Norbeck of March 29, 1932.
S. 4115 i s r e f e r r e d to herein as the "old h i l l " and S. 4412
as the "new b i l l " .
Section numbers and page numbers r e f e r to the sec-
tions and pages of the new t i l l , unless otherwise indicated.
Certain
sections of the old b i l l which have been omitted e n t i r e l y from the new
b i l l are t r e a t e d at the end of t h i s memorandum.
SECTION 1.
T i t l e . - (p. 1)
This section merely provides that the short t i t l e of the act
s h a l l be the "Banking Act of 1932."
SECTION 2.
D e f i n i t i o n s . - (pp. 1, 2 and 3)
The d e f i n i t i o n s contained in section 2, including those of an
a f f i l i a t e and of a holding company a f f i l i a t e , a r e , i n the new t i l l ,
made applicable not only to the provisions of t h i s act t u t to any pro-
453
X-T139
*. S »
3
visions of law amended by t h i s a c t .
The several c l a s s e s of i n s t i t u t i o n s defined as a f f i l i a t e s i n the
old h i l l are subdivided i n the new M i l so as to make a d i s t i n c t i o n between " a f f i l i a t e s " generally and "holding company a f f i l i a t e s " .
With these exceptions, the d e f i n i t i o n s contained i n the new t i l l
are s u b s t a n t i a l l y i n the same form as in the old b i l l with the changes
recommended by the Board.
SECTION 3.
(a) Control of Federal reserve bank c r e d i t by Federal Reserve Board.(pp.3,4)
On t h i s subject the recommendation of the Federal Reserve Board
i s adopted i n Section 3 (a) of the new b i l l .
(b) Voting by groups or chains in elections of Federal reserve bank
directors,
(p. 5)
Section 4 of the old b i l l prohibited banks that belong to a
group or chain from voting for Federal reserve bank d i r e c t o r s , and the
Board recommended the omission of the provision.
The new b i l l provides
(in Section 3(b) that when two or more member banks are a f f i l i a t e d with
the same holding company a f f i l i a t e only one of such banks may p a r t i c i p a t e
in the nomination or e l e c t i o n of Federal reserve bank d i r e c t o r s .
83CTI0N 4 .
D i s t r i b u t i o n of earnings of Federal reserve baftks. (p. 5)
The old b i l l provided (in Section 5) that net earnings of Fede r a l reserve banks a f t e r payment of dividends and expenses should be paid
to the Federal Liquidating Corporation.
The Board recommendedthat no
453
X-7139
- 3 changes be made in the present mejfchod of the d i s t r i b u t i o n of earnings of
Federal reserve banks but that the Secretary of the Treasury be authorized in h i s d i s c r e t i o n to use the franchise tax received from Federal r e serve banks f o r investment in obligations of the Liquidating Corporation.
The new b i l l provides ( i n Section 4) that a l l net earnings of a Federal
reserve bank, a f t e r payment of dividend claims and expenses, s h a l l be paid
into the surplus fund of the Federal reserve bank.
SECTION 5.
(a) Branches of State member banks,
(pp. 5, 6)
In connection with Section 21 of the old b i l l , the Board recommended a new provision to the e f f e c t that nothing contained in the b i l l shall
prevent State member banks from establishing branches e i t h e r in the United
States or elsewhere upon t h e same terms and conditions as those applicable
to branches of national banks.
This provision as recommended i s contained
in Section 5(a) of the new b i l l .
(The provisions of the new b i l l with reference to branches of
national banks are contained in Section 19.)
(b)
Reports of a f f i l i a t e s of State member banks,
(pp. 6, 7)
The old b i l l ( i n section 6) required each a f f i l i a t e of a State
member bank to make three complete reports of condition annually through
the president of the bank to t h e Federal Reserve Board.
The Board's recom-
mendation was t h a t such r e p o r t s be required only when deemed necessary by
tfie Federal Reserve Board.
The new b i l l provides in Section 5(b) that a
State member bank shall obtain from each of i t s a f f i l i a t e s and f u r n i s h to
the Federal r e s e r v e bank and to the Federal Reserve Board not l e s s than
X-7139
454.
- 4 three reports of condition each year and such additional r e p o r t s as the r e serve bank or the Board may deem necessary.
The provision requiring such r e -
p o r t s to be made i s mandatory; but they are required to contain only such
information as, in the judgment of the Federal Reserve Board, s h a l l be necessary to d i s c l o s e f u l l y the r e l a t i o n s between such a f f i l i a t e and such bank
and to enable the Board to inform i t s e l f as to the e f f e c t of such rela~
tions voon the a f f a i r s of such bank.
( S u b s t a n t i a l l y the same provisions are contained in Section 23 of
the new b i l l with reference to reports of a f f i l i a t e s of national banks.)
Dealings in stocks and investment s e c u r i t i e s by State member banks, (p. 8)
Section 5(b) of the new b i l l contains a provision to t h e e f f e c t
that State member banks shall be subject to the same l i m i t a t i o n s and cond i t i o n s as are national banks with respect to t h e purchase, sale, underwriting and holding of investment s e c u r i t i e s and stock.
There was no such pro-
vision in theold b i l l ; and the Board recommended t h a t Section 15 of the old
b i l l , which r e s t r i c t e d dealings in investment s e c u r i t i e s by national banks,,
be omitted e n t i r e l y .
(The provisions on t h i s subject regarding national banks are in
Section 14 of the new b i l l . )
Divorce of stock of State member banks from stock of other corporations, (p. 8)
Section' 5(b) of the new b i l l contains a provision to the e f f e c t
t h a t , a f t e r three years from the passage of t h e a c t , no c e r t i f i c a t e of stock
of a State member bank shall represent the stock of any other corporation,
except a member bank, nor s h a l l the ownership or t r a n s f e r of a stock cer-
- 5 -
X-7139
t i f i c a t e of such a tank "be conditioned upon the ownership or t r a n s f e r of
a c e r t i f i c a t e of stock of another corporation* except a member tank.
A similar provision regarding stock of national "banks i s found
in Section 16 of the new b i l l .
The old b i l l contained no such provision regarding the stock of
State member banks; but Section 17 contained a similar provision regarding the stock of national ianks, whidh would have become e f f e c t i v e immediately, and the Board recommended that i t be detained but t h a t i t be
made e f f e c t i v e a f t e r three years *
Right of an a f f i l i a t e of a State member bank to vote stock held by i t
in such bank, (vo. 8 and 9)
Section 5(b) of the new b i l l provides that the holding company a f f i l i a t e s of State member banks s h a l l be subject to the provisions
of Section .5L44 of the Revised Statutes (which contains the conditions
under which a f f i l i a t e s may vote stock held in national banks) and a l s o
provides f o r the f o r f e i t u r e of the membership of a State member bank,
in the d i s c r e t i o n of the Federal Reserve Board, where a voting permit of
a holding company a f f i l i a t e of such a bank i s revoked.
Under the new
b i l l , t h e r e f o r e , s u b s t a n t i a l l y the same provisions are applicable to holding company a f f i l i a t e s of n a t i o n a l banks and holding company a f f i l i a t e s
of State' member banks.
The Board recommended that the provisions of the old b i l l with
reference to the conditions under which holding company a f f i l i a t e s of
national banks might obtain permits to vote stock owned by them in such
X-7139
— 6
456
banks be revised in a number of p a r t i c u l a r s and also recommended that subs t a n t i a l l y the same provisions as those suggested for national banks be
made applicable to a f f i l i a t e s of State member banks, suggesting a new section of the b i l l f o r t h i s purpose.
The provisions applicable to a f f i l i -
a t e s of n a t i o n a l banks in t h i s connection are contained in Section 17 of
the new b i l l and are discussed h e r e a f t e r with reference to that section;
but i t may be s t a t e d b r i e f l y a t t h i s point t h a t the recommendations of the
Board regarding a f f i l i a t e s of national banks have not been adopted in the
new b i l l .
Ey-amination of a f f i l i a t e s of State member banks, (p. 9)
The new b i l l in Section 5(b) requires such examinations of a f f i l i a t e s of State member banks as s h a l l be necessary to disclose f u l l y the
r e l a t i o n s between such banks and t h e i r a f f i l i a t e s and the e f f e c t of such
r e l a t i o n s upon the a f f a i r s of the bank; the expense of such examinations
may, in the d i s c r e t i o n of the Federal Reserve Board, be assessed against
the bank examined, (instead of against the a f f i l i a t e s as recommended by the
Board); and, in the event of the r e f u s a l of the a f f i l i a t e to give information requested or to permit such an examination, or in the event of the
f a i l u r e of the bank to pay the expenses of such an examination, the membership of any State member bank a f f i l i a t e d with such an a f f i l i a t e may be f o r f e i t e d in the d i s c r e t i o n of the Federal Reserve Board.
The old b i l l contained a provision (in Section 28) requiring examinations of a f f i l i a t e s of a State member bank.
The Federal Reserve Board
recommended t h a t such examinations be authorized to be made only when deemed
necessary.
(Provisions of a somewhat similar character are contained in Section
•'
'
X-7139 4 5 . -
24 of the new t i l l with reference to examinations of a f f i l i a t e s of national
"banks.)
SECTIOH 6.
Membership of the Federal Reserve Board.
(pp. 10-12)
The old b i l l (in Section 7) contained a provision omitting the Secret a r y of the Treasury from the membership of the Federal "Reserve Board and omJ
t i n g the provision of the Federal "Reserve Act authorizing the Secretary to
assign quarters to the Federal Reserve Board.
The Board recommended c e r t a i n
minor amendments to t h i s section and suggested that a u t h o r i t y be given the
Board to purchase or erect a building for i t s o f f i c e s .
In Section 6 of the
new b i l l the provisions of the old b i l l are repeated with the minor changes
recommended by the Board; but the authority f o r the Federal Reserve Board to
purchase or erect a building i s omitted.
SECTION 7.
Open Market Committee, (pp. 13, 14)
Section 7 of the new b i l l adds a new Section 12A to t h e Federal Reserve Act, which provides f o r a Federal Open Market Committee along the l i n e s
of the existing Open Market Policy Conference.
The Board recommended that the similar provisions of the old b i l l
(Section 10) on t h i s subject be stricken out, and that there be s u b s t i t u t e d
c e r t a i n amendments to Section 14 of the Federal Reserve Act c l a r i f y i n g the
Board's powers over open market operations and containing in revised form
one of the provisions of the old b i l l .
The Board's recommendations were
not adopted in the new b i l l .
The chief d i f f e r e n c e s between the new b i l l and the old b i l l are:
In l i e u of the statement in the old b i l l that no Federal reserve bank may
Digitized forengage in open
FRASER
market operations
1
1
except a f t e r approval and authorization
*
X-7139
* 8 —
•
»
458
by the Committee", there i s a provision in the new b i l l that no Federal r e -
serve bank Shall engage in stidh operations "except in accordance with resol u t i o n s adopted by the Committee and approved by the Federal Reserve Board".
This applies to a l l purchases and sales on the open market under Section 14
of the Federal Reserve Act, whether for system account or f o r the account
of an individual Federal reserve bank.
The old b i l l provided t h a t the
Governor of the Federal Reserve Board should be a member of the committee in
addition to the twelve members appointed by the d i r e c t o r s of the Federal r e serve banks, but in the new b i l l the Governor i s not made a member of the
committee.
The new b i l l also omits the provision of the old b i l l that the
Board's annual r e p o r t to Congress should include a review of the decisions
of the committee with an explanation t h e r e o f .
Federal Liquidating Corporation, (pp. 14-27).
Section 7 of the new b i l l also contains the proposed new Section 12B
of the Federal Reserve Act providing f o r a Federal l i q u i d a t i n g Corporation
to expedite the payment of dividends to depositors and c r e d i t o r s of closed
member banks.
The provisions of the new b i l l on t h i s subject are a compro-
mise between the provisions of the old b i l l and the Board's proposed
substitute.
The old b i l l provided (in Section 10) f o r the creation of a Federal Liquidating Corporation f o r the purpose of purchasing and l i q u i d a t ing the a s s e t s of closed member banks.
The Board recommended a number of
changes in the provisions with reference to t h i s proposed corporation, and
in the new b i l l some of these changes have been adopted and some have
been omitted.
Without s e t t i n g f o r t h a l l of the d e t a i l e d d i f f e r e n c e s be-
tween the old b i l l , the recommendations of the Board, and the new b i l l ,
-r\
X-7139
9
" "
459
there are s t a t e d below the mo 1*6 ii|)ortemt of these d i f f e r e n c e s .
In accordance with the recommendation of the Federal Reserve Board,
the new b i l l provides f o r a board of d i r e c t o r s of f i v e members, (the Compt r o l l e r of the Currency, a member of the Federal Reserve Board, and three
members selected annually by the Governors of the Federal reserve banks),
instead of a board of fourteen members (the Comptroller of the Currency and
the 13 members of the Federal Open Market Committee) as provided in the old
bill.
The old b i l l provided f o r two c l a s s e s of c a p i t a l stock of the
corporation:
c l a s s A stock, to be subscribed by member banks in an amount
equal to one-half of one per cent of t h e i r deposits, and c l a s s B stock, to
be subscribed by Federal reserve banks in an amount equal to one-fourth of
t h e i r surplus; with an additional provision f o r annual subscriptions by
Federal reserve banks in amounts equal to one-fourth of the annual increase
in t h e i r surplus accounts.
The Board recommended that the c a p i t a l stock con-
s i s t of $100,000,000 to be subscribed by the United S t a t e s .
The new b i l l
provides f o r the appropriation by the United States to the corporation of
the sum of $125,000,000, but also provides f o r two classes of stock; class
A stock, to be subscribed by member banks in an amount equal to one-fourth
of one per cent of t h e i r deposits, §nd class B stock to be subscribed by
Federal reserve banks in an amount gqual to one-fourth of t h e i r surplus.
One-half of each c l a s s of stock i s apparently to be paid in upon the organization of the corporation, and the remainder i s subject to c a l l .
The
new b i l l , however, omits the provision for additional annual subscriptions
by the Federal reserve banks.
The old b i l l authorized the l i q u i d a t i n g Corporation to purchase
X-7139
- 10 -
460
and liquidate the a s s e t s of closed nonmember S t a t e banks and to make loans
to such banks, f o r a limited number of years; and also authorized an appropri-
ate
a t i o n of $200,000,000 from the United States Treasury f o r t h i s purpose*
In
accordance with the recommendation of the Board, t h i s provision i s omitted
from the new b i l l , and i t s provisions are limited to member banks.
The old b i l l provided f o r the issuance of debentures by the Liquidating Corporation in amounts aggregating not more than four times i t s c a p i t a l .
The Federal Reserve Board recommended that debentures be authorized up to
twice the amount of c a p i t a l and t h a t Federal reserve banks be given a u t h o r i t y
to purchase these debentures up to one-fourth of t h e i r surplus.
The new b i l l
authorizes the issuance of debentures in an amount aggregating not more than
twice the amovint of the c a p i t a l of the corporation and the $125,000,000
appropriation from the Treasury of the United S t a t e s .
The provision recom-
mended by the Board, however, that such debentures be guaranteed by the
United States i s omitted from the new b i l l .
The new b i l l (p. 20, l i n e s 24 , 25; p . 21, l i n e s 1-4) contains
in a
d i f f e r e n t form the provision f o r a valuation committee, the elimination of
which was recommended by the Board.
Loans on and purchases o f , a s s e t s of
closed member banks are 'to be made "on the b a s i s of" valuations of such
a s s e t s made by t h i s committee, which includes the receiver, a representative
of the insolvent bank, and a t h i r d member selected By those two, but does not
include any r e p r e s e n t a t i v e of the corporation.
A number of provisions recommended by the Federal Reserve Board of a
p r o h i b i t i v e or penal character in connection with the proposed Federal Liquida t i n g Corporation and i t s operations have been adopted in the new b i l l arid cert a i n unnecessary steps regarding the organization of the corporation and i n creases and decreases
in i t s c a p i t a l have been eliminated.
X-7139
"11SECTION 8 •
Loans on member franks' c o l l a t e r a l notes
27-38)
The old b i l l (Section 11) provided that the r a t e &t which a
Federal Reserve Bank might make advances to i t s member banks on t h e i r
15-day promissory notes should be a t a r a t e 1# higher than the
rediscount r a t e , and a l s o provided that i f a member bank, while
indebted to a Federal reserve bank on such a 15—day note and despite
a warning of the Federal reserve bank or the Federal Reserve Board,
should increase i t s loans made f o r the purpose of purchasing or
carrying investment s e c u r i t i e s (except obligations of the United S t a t e s ) ,
the note should be immediately due and payable and the member bank
should be i n e l i g i b l e to borrow on such 15-day notes f o r such periods
as the Federal Reserve Board might determine.
The old b i l l also pro-
vided that the Federal Reserve Board might suspend the provisions of
law with reference to loans to member banks on t h e i r 15-day notes f o r
periods of 90 days.
In l i ^ f c o f these provisions of the old b i l l , the Federal Reserve
Board recommended an amendment increasing the maximum maturity of
advances to member banks on t h e i r promissory notes secured by e l i g i b l e
paper from 15 to 90 days.
Section 8 of the new b i l l (pp. 27,28) does not adopt the recommendation of the Board on t h i s point and contains s u b s t a n t i a l l y ' the same
provisions as those in the old b i l l , except that there have been omitted
the discriminatory r a t e of 1$ on such 15-day advances to member banks and
the provisions f o r the suspension by the Board of the provisions of law
on t h i s s u b j e c t .
•
•
-12-
X-7139 :
41
SBCTlO#
Foreign transactions of Federal reserve banks (p„ 39)
The Federal Reserve Board suggested c e r t a i n changes in the
provisions of Section 12 of the old t i l l with reference to the
supervision of the Board over foreign transactions of Federal
reserve banks, and the more important of these changes have "been
adopted in the corresponding provisions contained in Section 9 of
the new b i l l .
The provisions of the new b i l l on t h i s s u b j e c t , which
are s u b s t a n t i a l l y those of the old b i l l with the Board's suggested
changes, provide t h a t a l l r e l a t i o n s h i p s and transactions by Federal
reserve banks with foreign bankers shall be subject to special
supervision and regulation by the Federal Heserve Board; t h a t negot i a t i o n s with foreign bankers s h a l l not be conducted without the
permission of the Board; that the Board may be represented in
any suoh n e g o t i a t i o n s ; and t h a t a f u l l report of a l l such n e g o t i a t i o n s s h a l l be made to the Board in w r i t i n g ,
SECTION 10 •
Reserves of member banks and r e s t r i c t i o n s on dealings in "Federal Funds"
30).
Section 13 of the old b i l l contained a complete revision of
Section 19 of the Federal Reserve Act with reference to the reserves
required of member banks.
Chief among i t s provisions was the r e q u i r e -
ment that the percentages of reserve against time deposits be increased
over a period of years to the same percentages as those required against
demand d e p o s i t s .
Another important provision of the old b i l l prohibited
the t r a n s f e r of balances with a Federal reserve bank from one bank to
463
X-7139
~ 13 *-
another without the authority of the Federal Reserve Board and except
upon payment of a fee f o r the p r i v i l e g e .
The Board was also authorized
to suspend a l l dealings in reserve balances f o r such periods as i t might
deem b e s t .
The Federal Reserve Board recommended, in l i e u of the provisions of
the old b i l l on t h i s s u b j e c t , a revision of section 19 of t h ^ F e d e r a l Reserve Act in accordance with the recommendations of the System Committee
on Reserves with some modifications; and recommended the omission of the
l i m i t a t i o n s on the use of balances standing to the credit of member banks
on the books of the Federal Reserve Banks.
The new b i l l ( i n Section 10) omits e n t i r e l y any revision or amendment
of the reserve requirements of member banks, and also omits the r e s t r i c t i o n s
of the old b i l l on the t r a n s f e r of balances in Federal reserve banks.
MemBer banks as mediums in making loans on c o l l a t e r a l , ("p. 30)
In accordance with a recommendation of the Federal Reserve Board,
Section 10 of the new b i l l adds a new paragraph to Section 19 of the Federal
Reserve Act forbidding a member bank to act as the medium or agent of any
non-banking corporation or individual in making loans on the s e c u r i t y of
stocks, bonds and other investment s e c u r i t i e s to brokers or dealers in such
s e c u r i t i e s , and providing a f i n e f o r v i o l a t i o n t h e r e o f .
The old b i l l contained a provision f o r a similar purpose but in
d i f f e r e n t form.
SECT I PIT 11.
loans to or investments in stock of a f f i l i a t e s , (-pp. 30-32)
On t h i s subject the new b i l l (in Section 11) adopts s u b s t a n t i a l l y
the recommendations of the Federal Reserve Board and provides t h a t no
member banks s h a l l make any loan or extension of c r e d i t t o , or purchase
464
X-7139
-14s e c u r i t i e s under repurchase agreements from, any of i t s a f f i l i a t e s ,
or invest i n the stock or obligations of such a f f i l i a t e s , or accept
such stock or obligations as security f o r advances, i f the aggregate
amount t h e r e o f , i n the case of any one a f f i l i a t e , w i l l exceed ten
per cent of the c a p i t a l stock and surplus of the member bank, or
i f , i n the case of a l l such a f f i l i a t e s , the aggregate amount thereof w i l l
exceed twenty per cent of the c a p i t a l stock and surplus of such member
bank.
Bach loan or extension of c r e d i t to an a f f i l i a t e s h a l l be
secured by c o l l a t e r a l , i n the form of stocks, bonds, debentures or other
such o b l i g a t i o n s , having a market value of at l e a s t twenty per cent
more than the amount of the loan
or extension of c r e d i t or at l e a s t
ten per cent more than the amount thereof i f secured by State or municipal obligations.
Loans or extensions of credit secured by obligations
of the United S t a t e s , Federal intermediate c r e d i t banks, Federal land
banks or paper e l i g i b l e f o r rediscount by Federal reserve banks are
excepted from the requirement as to marginal c o l l a t e r a l (but the suggestions
of the Federal Reserve Board that those secured by obligations of the
Reconstruction Finance Corporation be also excepted was not adopted).
The provisions of t h i s section do not apply to an a f f i l i a t e engaged
solely i n holding t h e bank premises of the a f f i l i a t e d member bank or
conducting a s a f e - d e p o s i t business or the business of an a g r i c u l t u r a l
c r e d i t corporation or l i v e stock loan company, or to an a f f i l i a t e i n the
c a p i t a l stock of which a national bank i s authorized to invest under
Section 25 of the Federal Reserve Act, or an a f f i l i a t e organized under
Section 25(a) of the Federal Reserve Act.
465
X-7139
-15The old b i l l ( i n Section 9) contained some of the provisions
of the new M i l on t h i s subject, hut the l i m i t a t i o n s prescribed
were applicable only as t o a f f i l i a t e s engaged in buying and s e l l i n g
stocks, bonds, r e a l e s t a t e or r e a l e s t a t e mortgages or organized to
hold t i t l e to any such property.
The old b i l l did not include
the twenty percent l i m i t in the case of a l l a f f i l i a t e s , on the
aggregate of loans, investments and advances, nor did i t include any
of the above-mentioned exceptions to the l i m i t a t i o n s prescribed.
The old b i l l required marginal c o l l a t e r a l of twenty per cent in a l l
cases except where the security f o r the loan consisted of paper
e l i g i b l e f o r rediscount or obligations e l i g i b l e for investment by
savings banks.
SECTIOH 12.
Heal e s t a t e loans and investments i n bank premises (pp. 32, 33)
The old b i l l ( i n Section 14) contained a number of provisions
with reference to r e a l e s t a t e loans and investments of member banks.
I t would have required a bank to r e v i s e the valuations on which
such loans were based at the time of each examination and a l s o , i n
e f f e c t , at the time of each report of i t s condition.
The l i m i t a t i o n s
on the amount of such loans would have been changed, and a l l unsecured loans whose eventual s a f e t y depends upon the value of r e a l
e s t a t e would have been c l a s s i f i e d as r e a l e s t a t e loans.
Time depositors
would have been given a p r e f e r r e d claim on a l l real e s t a t e loans and
other a s s e t s acquired under t h i s section of the old b i l l .
X-7139
—16—
The Federal Reserve Board recommended that these provisions
of the old b i l l be omitted and that there be s u b s t i t u t e d t h e r e f o r a
provision that no national bank, without the permission of the
Comptroller of the Currency, and no State member bank, without the
permission of the Board, shall invest in bank premises, or in the stock
or obligations o f , or i n loans to, any corporation owning" or holding
i t s bank premises a sum exceeding the amount of the c a p i t a l stock of
such bank.
The new b i l l omits the provisions of the old b i l l in accordance
with the recommendation
of the Board, and adopts i n substance the
provision suggested by the Board, although the language of the
provision i s somewhat changed, and loans upon the s e c u r i t y of the stock
of any such corporation holding bank premises are included within the
investments t o which the l i m i t a t i o n a p p l i e s .
SECTION 13 •
J u r i s d i c t i o n of Federal Courts over cases involving f o r e i g n banking
transactions,
(pp. 33.34)
This provision, which was not contained in the old b i l l and which
was not the subject of a recommendation by the Federal Reserve Board,
confers upon the d i s t r i c t courts of the United States j u r i s d i c t i o n over
any case to which a corporation organized under the laws of the United
States i s a party and which a r i s e s out of transactions involving i n t e r national or f o r e i g n banking, either d i r e c t l y or through the agency, owner
ship or control of branches or of local i n s t i t u t i o n s i n foreign
countries.
X-7139
467
-17I t i s understood that the r u l e i n the Federal courts with reference
to the valuation of f o r e i g n currency i n transactions cf t h i s kind i s
more favorable to banks than in the State courts,
and i t i s apparently
f o r t h i s reason that the b i l l contains the above provision.
SECTION 14.
Rational "banks granted a l l powers of State "banks. (p. 34)
In the old b i l l (Section 15) national banks were granted power to
engage i n a l l forms of banking business permitted by the laws of the
State i n which they a r e located to "banks of deposit and discount" organized under such S t a t e laws, except to the extent that the exercise
of such powers i s forbidden by the laws of the United S t a t e s .
The Board recommended that t h i s provision be omitted; but i t i s
contained i n the new b i l l in s u b s t a n t i a l l y the same form i n which i t
appeared i n the old b i l l .
Dealings i n investment s e c u r i t i e s (pp. 34-36)
The old b i l l (in section 15) contained a number of provisions with
reference to dealings i n investment s e c u r i t i e s by national banks and
the Board recommended that a l l these provisions be omitted.
They a r e ,
however, repeated i n the new b i l l , with c e r t a i n changes and a d d i t i o n s ,
and with the provision ( i n Section 4) that the same provisions s h a l l
be applicable to State member banks.
The new b i l l provides in e f f e c t
that:
Dealings i n investment s e c u r i t i e s are limited to the purchase and
s a l e of such s e c u r i t i e s , without recourse, solely upon the order
X-7139
—18—
and. f o r the account of customers, except that member "banks may purchase
and hold f o r t h e i r own account investment s e c u r i t i e s under l i m i t a t i o n s
and r e s t r i c t i o n s prescribed by regulation of the Comptroller of the
Currency.
Ho member "bank s h a l l underwrite any issue of s e c u r i t i e s .
The t o t a l amount of any one issue of investment s e c u r i t i e s of any one
obligor h e r e a f t e r purchased and held by a member bank f o r i t s own
account s h a l l not exceed. 10 per cent of the t o t a l amount of such
issue outstanding, but t h i s l i m i t a t i o n does not apply to any issue not
i n excess of $100,000 and not in excess of 50 per cent of the c a p i t a l
of the bank; and the t o t a l amount of investment s e c u r i t i e s of any one
obligor h e r e a f t e r purchased and held s h a l l not exceed 15$ of the
c a p i t a l of the bank and 25 per cent of i t s surplus.
(The l a t t e r
l i m i t a t i o n i n the old b i l l was stated i n ambiguous terms and might
have been construed, to apply to the aggregate amount of a l l i n v e s t ment s e c u r i t i e s held by the bank.)
No member bank may purchase or hold the stock of any corporation, except
as otherwise permitted by law, and except that a bank may invest
not more than 15 per cent of i t s c a p i t a l and surplus i n the stock
of safe deposit companies.
These l i m i t a t i o n s do not apply to obligations of the United S t a t e s ,
to general obligations of any State or any subdivision t h e r e o f , or to
obligations issued under the authority of the Federal Farm Loan Act.
X-7139
- 19 -
The d e f i n i t i o n of investment s e c u r i t i e s contained in e x i s t i n g
law would apparently have been stricken out by the old b i l l and
the Comptroller of the Currency given unlimited powers to p r e s c r i b e
h i s own d e f i n i t i o n , except that stocks could not be included.
The
new b i l l , however, in e f f e c t r e s t o r e s the d e f i n i t i o n contained in the
existing law.
SSCTIOIT 15
(a)
Capital required for organization of national banks,
("op. 35, 37)
The old b i l l (in section 16) contained an amendment to Section
5138 of the "Revised Statutes to provide that no national bank may be
organized with a c a p i t a l of l e s s than $50,000, except that a national
bank may be formed, in the d i s c r e t i o n of the Comptroller of the Currency
f o r the purpose of succeeding to the business of an e x i s t i n g bank
with a c a p i t a l of not l e s s than $25,000.
The old b i l l also eliminated
the e x i s t i n g requirement that the organization of national banks with
a c a p i t a l of l e s s than $100,000 shall be subject to the approval of the
Secretary of the Treasury.
The Board recommended the elimination of the exception in the
old b i l l which permitted the formation of national banks with a c a p i t a l
of l e s s than $50,000 to take over the business of an e x i s t i n g bank.
This recommendation was adopted and with t h i s change the provisions
of the old b i l l on t h i s subject are repeated in the new b i l l .
X-:7135S!70
-
20 -
(b) Capital requirements of State member banks, (p. 3fr)
Section 15(b) of the new b i l l contains a provision,
not appearing in the old b i l l and not recommended by the Federal
Reserve Board, which amends Section 9 of the Federal Reserve Act
so as to eliminate the provision of e x i s t i n g law under which a
'
State bank is permitted to become a member of the Federal Reserve
System with a c a p i t a l equal to only 60$ of the amount required f o r
the organization of a national bank in the place in which i t i s
situated.
The c a p i t a l required of State member banks h e r e a f t e r
admitted to the System, t h e r e f o r e , would be required in a l l
cases to be equal to t h a t required of national banks located in
places of l i k e s i z e .
SECTION 16.
Shares of stock of $100 each.
The old b i l l ( i n Section 17) would have amended section 5139
of the Revised Statutes so as to provide t h a t the capital stock of
national banks should be divided into shares of $100 each, thus
repealing the provision of the present law for shares of a l e s s e r
amount.
In accordance with the recommendation of the Federal Reserve
Board, however, t h i s provision i s omitted in the new b i l l .
Divorce of stock of national bank from stock of other corporations, (p. 37)
The new b i l l provides (in Section 16) t h a t , a f t e r three years
from the date of i t s passage, no c e r t i f i c a t e of stock of a national
X-7139
-
21
bank shall represent the stock of any other corporation except a
member bank, nor s h a l l the ownership or t r a n s f e r of a stock c e r t i f i c a t e of a national bank be conditioned uoon the ownership or
t r a n s f e r of a c e r t i f i c a t e of stock of another corporation except a
memb er bank.
S u b s t a n t i a l l y the same provision was included in the old b i l l
(in Section 17), except that the prohibition apparently was to take
e f f e c t immediately and no exception was made as to the stock of another
member bank.
The Board recommended that t h i s provision be made
e f f e c t i v e three years a f t e r enactment and, as s t a t e d , the new b i l l
includes t h i s change.
Similar provisions regarding c e r t i f i c a t e s of stock of State
member banks are included in section 5(b)
of the new b i l l .
SECTION 17.
Shares of i t s own stock held by a national bank as t r u s t e e ,
(p. 38)
The old h i l l (in Section 19) provided that no shareholders
of national banks who shall become such through nominal t r a n s f e r
or ownership on behalf of another shall vote a t meetings of shareholders of such banks.
The Board recommended that shares of i t s
own stock held by any national bank as t r u s t e e shall not be voted.
The Board's recommendation was adopted in the new b i l l , and the
provision of the old b i l l was not retained.
471
.
x
™7139472
22.
Right of an a f f i l i a t e of a l i a t b ^ h k to fr0t6 stock held "by i t in
such bank.
(pp. 38-43)
The old "bill ( i n Sections 19 and 20) contained provisions requiring an a f f i l i a t e of a national bank to obtain a voting
permit from the Federal Reserve Board before voting any stock held
by i t in such national bank.
Such a voting nermit might be issued only
upon compliance by the holding company a f f i l i a t e with a number of
d e t a i l e d provisions.
The Federal Reserve Board recommended a number
of changes in these provisions of the old b i l l , but the Board's recommendations on t h i s subject have not been adopted in the new b i l l .
The s a l i e n t f e a t u r e s of the Board's recommendations on t h i s
subject were as follows:
Shares owned or controlled by an a f f i l i a t e
shall not be voted unless such a f f i l i a t e has f i l e d an agreement with
the Comptroller of the Currency to comply with the provisions of t h i s
section.
Within one year from the date of any such agreement each
nonmember State bank owned or controlled by such a f f i l i a t e s h a l l apply
f o r membership in the Federal Reserve System and i f not admitted such
a f f i l i a t e shall divest i t s e l f of a l l i n t e r e s t in such bank.
Each such
a f f i l i a t e shall hold r e a d i l y marketable a s s e t s , other than bank stocks,
equal to 15 per cent of bank stocks held by i t and shall r e i n v e s t i t s
net earnings above 6 per cent in such a s s e t s u n t i l they amount to
25 per cent of bank shares held by i t ; with a proviso that c r e d i t
s h a l l be given f o r contributions made during the preceding three
years to
banks
owned or controlled by the a f f i l i a t e .
Failure to
comply with the agreement i s ground for termination thereof by
the Comptroller.
No national bank shall make any loan to, or on
X-7139
.
473
the security of the stock o f , or "be the purchaser of the stock o f ,
any A f f i l i a t e which owns or controls such bank, unless necessary to
prevent loss upon a debt previously contracted in good f a i t h , and
stock so acquired s h a l l foe disposed of within two y e a r s .
O f f i c e r s and
employees of a f f i l i a t e s which have entered into an agreement with the
Comptroller of the Currency, are made subject to c e r t a i n criminal p r o visions, and a penalty i s provided f o r voting the stock held by a f f i l i a t e s , unless such an agreement i s in e f f e c t .
The provisions of the new b i l l on t h i s s u b j e c t , which follow
along the l i n e s of the old b i l l with c e r t a i n changes and additions and
which do not contain the provisions as recommended by the Board, are in
b r i e f form set f o r t h in the following paragraphs.
(As hereinbefore
explained under Section 5, the provisions of the new b i l l on t h i s subject
are applicable a l s o to holding company a f f i l i a t e s of State member banks,)
Shares of a national bank controlled by a holding company a f f i l i a t e , including those held by a trustee f o r the benefit of the shareholders of such a f f i l i a t e , s h a l l not be voted unless such a f f i l i a t e s h a l l
have obtained a voting permit from the Federal Reserve Board; and in
a c t i n g upon an a p p l i c a t i o n f o r such permit, the Board s h a l l consider the
f i n a n c i a l condition of the a p p l i c a n t , the general character of i t s management and the probable e f f e c t of the granting of the permit upon the
a f f a i r s of such bank.
No permit s h a l l be granted except upon the f o l -
lowing conditions:
(a) Each such holding company a f f i l i a t e s h a l l agree; to submit
to examinations, a t i t s own expense, disclosing f u l l y the r e l a t i o n s h i p
«S4between such a f f i l i a t e
X-7139
and such bank, that such examinations may he
made of each hank owned or controlled "by the a f f i l i a t e , and t h a t
publication of statements of condition of such banks may be required,
•(b)
A f t e r January 1, 1935, every such holding company a f -
f i l i a t e s h a l l possess unpledged readily marketable a s s e t s other than
bank stock in an amount not l e s s than 12$ of the par value of a l l
bank stocks controlled by such a f f i l i a t e , which amount s h a l l be i n creased by not l e s s than 2$ annually up to 25$ thereof and by r e investing in such readily marketable a s s e t s net earnings in excess of
6$ annually u n t i l the 25$ requirement i s reached.
(The l a s t of the
requirements of t h i s paragraph was recommended by the Board.)
(c)
However, where the shareholders of the a f f i l i a t e
are themselves l i a b l e under the double l i a b i l i t y provisions on the
bank stock held by the a f f i l i a t e , the l a t t e r s h a l l be required only
to e s t a b l i s h , out of i t s net earnings in excess of 6$, a reserve of
r e a d i l y marketable a s s e t s equal to 12$ of the par value of bank
stocks controlled by i t , and r e a d i l y marketable a s s e t s required
of such a f f i l i a t e may be used f o r replacement of c a p i t a l in banks
a f f i l i a t e d with i t ; but any deficiency so incurred s h a l l be made
up within such period as the Federal Reserve Board may p r e s c r i b e .
(d)
That o f f i c e r s , d i r e c t o r s , agents and employees of such
a holding company a f f i l i a t e s h a l l be subject to the same p e n a l t i e s f o r
f a l s e e n t r i e s as o f f i c e r s and employees of member banks are subject
to under Section 5209 of the Revised S t a t u t e s .
-26-
X-7139
4^
(e) That every such holding company a f f i l i a t e s h a l l show that i t
does not have any i n t e r e s t in and i s not p a r t i c i p a t i n g in the management
of any s e c u r i t i e s company; t h a t , i f i t has such an i n t e r e s t or p a r t i c i pation i t w i l l , within three years, divest i t s e l f thereof; and that i t
w i l l declare dividends only out of actual net earnings.
If any holding company a f f i l i a t e v i o l a t e s any of the provisions
of t h i s a c t , the Federal Reserve Board may revoke i t s voting permit
a f t e r n o t i c e , and t h e r e a f t e r no national bank whose stock i s controlled
by such a f f i l i a t e s h a l l receive Government deposits or pay any dividend
to such a f f i l i a t e .
Where such a voting permit of an a f f i l i a t e has "been revoked, the
franchise of any national bank controlled by such an a f f i l i a t e s h a l l be
subject to f o r f e i t u r e .
SECTION 18.
Relationships between Member Banks and S e c u r i t i e s Dealers or Corporations making c o l l a t e r a l loans. (t>-p. 43. 44.)
The old b i l l ( i n section 18) provided t h a t , a f t e r January 1,
1933, no d i r e c t o r , o f f i c e r or employee of a member bank should be an
o f f i c e r or employee of a corporation or association engaged primarily in
the s e c u r i t i e s business and no such o f f i c e r , d i r e c t o r or employee of
a member bank should be a d i r e c t o r , o f f i c e r or employee of a corporation
making loans secured by c o l l a t e r a l to any one except i t s own s u b s i d i a r i e s .
The old b i l l also provided that no member bank should have correspondent
r e l a t i o n s h i p s with a s s o c i a t i o n s or corporations of the kind mentioned.
X-7139'
4 7 6
— 26 —
The Board recommended that these provisions be omitted and suggested s u b s t i t u t e provisions.
The new "bill provides, in substantial • accordance with the s u b s t i tute provisions recommended by the Board, t h a t , a f t e r three years, no member
bank s h a l l be a f f i l i a t e d with a s e c u r i t i e s corporation in the manner
described in Section 2(b) of the b i l l (where the word " a f f i l i a t e " i s defined
so as not to include holding company a f f i l i a t e s ) •
Violations of t h i s p r o v i -
sion subjects the member bank to a penalty of $1,000 a day, in the d i s c r e t i o n
of the Federal Reserve Board, and, if the v i o l a t i o n s continue f o r six months
a f t e r warning from the Board, the bank's f r a n c h i s e may be f o r f e i t e d , if a
national bank, or i t s membership in the Federal Reserve System may be
f o r f e i t e d , i f a State bank.
SECTION- 19.
Branches of National banks, (trp. 44.45).
The old b i l l (in Section 21) provided f o r State-wide branches of
n a t i o n a l banks in States where the State law permits State banks to have
branches, with a proviso t h a t , if the usual business of the bank extends
into an adjacent S t a t e , the Federal Reserve Board may permit the e s t a b l i s h ment of a branch by the bank in such State not more than f i f t y miles from
i t s head o f f i c e *
In order to have branches outside of the c i t y of i t s
head o f f i c e , a c a p i t a l of $500,000 was required.
Furthermore, the aggre-
gate c a p i t a l of a bank and i t s branches was required to equal the c a p i t a l
required f o r an equal number of national banks s i t u a t e d where the bank and
i t s branches are respectively located.
477
X-7139
—7
2—
The Federal Reserve Board suggested t h a t , i f these provisions
were to be r e t a i n e d , a change "oe made which would eliminate the l i m i t ations of the present law on the
number
of "branches which may be estab-
lished i n c i t i e s of l e s s than 100,000 i n h a b i t a n t s , and the l i m i t a t i o n
providing that no branch may be established in a c i t y of l e s s than
25,000 i n h a b i t a n t s .
This recommendation of the Board was adopted i n
the new b i l l .
The provisions of the new b i l l on t h i s subject are substant i a l l y the same as those contained in the old b i l l , with the change
recommended by the Board; except that the establishment of State-wide
branches i s not limited to those States i n which the S t a t e law permits
State banks to have branches.
(The provisions of the new b i l l with reference to branches of
State member banks are contained i n Section 5 ( a ) . )
SBC TI Oil 20.
Consolidations of national banks with other banks i n the same S t a t e , (p. 45)
The provisions of the Act providing for the consolidation, of two
or more national banks or f o r the consolidation of State ba,nks with nationa l banks rould be amended by the new b i l l so as to permit such consolidations to take place between banks located anywhere i n the same S t a t e .
section was contained i n the same form i n the old b i l l ( i n Section 22).
suggestion was made by the Board on t h i s p o i n t .
This
Ho
X-7lA
-28-
StiCfllOlJ 31.
Rate of i n t e r e s t on loans, (pp. 45,4-6)
The new b i l l would anend. Section 519? of the Revised Statutes so
that national "banks could charge on loans and discounts, (1) the r a t e
of i n t e r e s t allowed by the State law (or 7$ where the State law f i x e s
no l i m i t ) , or (2) a r a t e 1$ i n excess of the Federal reserve bank
discount r a t e , ^hich ever
may be the g r e a t e r .
The provision of the new b i l l on t h i s subject i s the same as that
contained i n the old b i l l (Section 23) with a minor change suggested
by the Board.
SECTION 22.
Limitations on loans to a f f i l i a t e d corporations, (pp.46,47)
The new b i l l provides an amendment to the f i r s t paragraph of Section
5200 of the Revised S t a t u t e s , ^hich provides that in computing the amount
which a corporation can borrow from a national bank, the corporation and
a l l of i t s s u b s i d i a r i e s i n which such corporation owns or controls a
majority i n t e r e s t would be treated as a single borrower.
This provision has been adopted from the old b i l l (Section 25(a))
with a c l a r i f y i n g amendment suggested by the Board.
In accordance with the Board's recommendations, the following provisions of section 25 of the old b i l l are omitted from the new b i l l :
(1)
That the amount which any national bank might lend to any broker
or member of any stock exchange or similar corporation or any finance
company, s e c u r i t i e s company, investment t r u s t or other similar organization
would be limited to 10$ of the c a p i t a l and surplus of such national bank.
(2)
that no national bank would be permitted to lend to "an a f f i l i a t e "
an amount exceeding 10$ of the c a p i t a l and surplus of such
X-7139
. 479
"89national "bank or exceeding the capital stock of such a f f i l i a t e , whichever
may "be the smaller.
(3) that the aggregate amount which a l l a f f i l i a t e s of a national bank
could "borrow from such national "bank (including repurchase agreements)
would be limited to 10$ of the national "bank's c a p i t a l and surplus except
that loans secured "by Government bonds or by bonds issued by the State i n
which such bank i s s i t u a t e d or by any p o l i t i c a l subdivision of such
State would be excluded altogether from the l i m i t a t i o n s of Section 5200
of the Revised S t a t u t e s , i f actually owned by the borrower.
(4)
that no national bank might e s t a b l i s h or c a p i t a l i z e an a f f i l i a t e
through cash or stock dividend declarations made from i t s surplus
or from undivided p r o f i t s ; and "within three years a f t e r t h i s section
as amended takes e f f e c t " , every a f f i l i a t e should be c a p i t a l i z e d through
the s a l e of i t s own stock which should be paid f o r i n cash i n the same
manner as required in the case of a national bank.
(5)
that f o r a period of three years, no a f f i l i a t e of a national
bank might hold, or lend upon, more than 10$ of the shares of
the c a p i t a l stock of the parent i n s t i t u t i o n .
X-7139
480
<-30SSCTIQtT 23.
Reports of a f f i l i a t e s of national "banks (pp. 47, 48).
The old b i l l (in Section 27) required each a f f i l i a t e of a nationa l bank to make three complete reports .of condition annually through
the president of the bank to t h e Comptroller of the Currency, and also
to make such special r e p o r t s as the Comptroller night r e q u i r e .
The
Board's recommendation was that such reports be required only when deemed
necessary.
The new b i l l provides that every nationa-l bank s h a l l obtain f r o n
each of i t s a f f i l i a t e s , other than member banks, and f u r n i s h to the
Comptroller of the Currency not less than three reports of condition
each year and such additional reports as t h e Comptroller may deem necessary.
The provision requiring such reports i s s t i l l mandatory; but they
are required to contain only such information as in the judgment of the
Comptroller s h a l l be necessary to disclose f u l l y the r e l a t i o n s between
such a f f i l i a t e and such bank and to enable the Comptroller to inform
himself as to the e f f e c t of such r e l a t i o n s upon the a f f a i r s of such bank.
The bank i s subject to a penalty f o r f a i l u r e to render such r e p o r t s .
Provisions of the old b i l l requiring an a f f i l i a t e under c e r t a i n
s t a t e d conditions to publish i t s e n t i r e p o r t f o l i o are omitted from
the new b i l l .
(Substantially the same provisions are contained in Section
5(b) of the new b i l l with reference to reports of a f f i l i a t e s of State
member banks).
X-7139 4 8 1
-31»SECTION 34.
Examinations of a f f i l i a t e s of national t a c k s . (pp< 48-50)
The new b i l l requires such exaninations of a f f i l i a t e s (other
than member banks) of a national bank as s h a l l be necessary to d i s c l o s e
f u l l y the r e l a t i o n s between such bank and such a f f i l i a t e s and the e f f e c t
of such r e l a t i o n s upon the a f f a i r s of such bank, and authorizes the
f o r f e i t u r e of the f r a n c h i s e of the bank i n the event of r e f u s a l of the
a f f i l i a t e to give information or to permit such examination.
Publication of the examination report of a national bank or of an a f f i l i a t e i s authorized i f the bank or a f f i l i a t e f a i l s to comply with
recommendations of the Comptroller of the Currency based on such examinations.
The old b i l l contained a provision (in Section 28) requiring
examinations of a f f i l i a t e s of national banks and member banks.
The Feder-
a l Reserve Board recommended that t h i s section provide f o r examination of
a f f i l i a t e s of national banks only (as examinations of a f f i l i a t e s of State
member banks are provided f o r elsewhere in the b i l l ) and that such examinations be authorized to be made only when deemed necessary.
In accordance with c e r t a i n other suggestions of the Federal Reserve Board on t h i s s u b j e c t , the new b i l l has added c e r t a i n provisions
to authorize examiners making an examination of an a f f i l i a t e of a nationa l bank to administer oaths and to examine o f f i c e r s and employees under
oath; to provide that the expenses of such examination may be assessed
against the a f f i l i a t e and, i f not paid by the a f f i l i a t e , then against
X-7139
u 33 -
the tank; and to provide a penalty of $100 per day to "be paid "by the
bank f o r r e f u s a l of the a f f i l i a t e to give information required or to
permit such an examination.
While examinations of a f f i l i a t e s of national banks in the old
b i l l were limited to a period of three years a f t e r i t s passage, the new
b i l l , in accordance with the Board's suggestion on t h i s p o i n t , contains
no limit of t h i s kind.
(Provisions of a somewhat similar character with reference to
examinations of a f f i l i a t e s of State member banks are contained in Sect i o n 5(b) of the new b i l l . )
SECTION 35.
Removal of bank d i r e c t o r s or o f f i c e r s from o f f i c e . ( t o . 5 0 - 5 2 )
On t h i s subject, the new b i l l follows s u b s t a n t i a l l y the recommendation of the Board and provides a procedure f o r the removal of a
d i r e c t o r or o f f i c e r of a member bank who has continued to v i o l a t e the
law or has continued unsafe or unsound p r a c t i c e s in conducting the
business of the bank with which he i s connected, a f t e r being warned by
the Comptroller of the Currency (as to a n a t i o n a l bank) or the Federal
Reserve Agent of h i s d i s t r i c t (as to a State member bank) to d i s continue such v i o l a t i o n s or such p r a c t i c e s .
After a hearing by the
Federal Reserve Board e s t a b l i s h i n g such f a c t s , the Board may order
the removal of such d i r e c t o r or o f f i c e r and a copy of such order s h a l l
be served upon him and upon the bank with which he is connected.
Such
order and f i n d i n g s of f a c t may not be made public or disclosed except
X-7139
33 —
;
to such d i r e c t o r or o f f i c e r and the d i r e c t o r s of h i s "bank, "otherwise than in connection with proceedings f o r a v i o l a t i o n of t h i s
section."
P a r t i c i p a t i o n by such o f f i c e r or d i r e c t o r in the manage-
ment of such bank a f t e r having "been removed i s punishable by f i n e or
imprisonment.
The old b i l l placed the power of removal in a committee
consisting of the Governor of the Federal Reserve Board, the Comptroller
of the Currency and the Federal Reserve Agent, instead of in the Fede r a l Reserve Board as provided in the new b i l l .
The old b i l l did not
contain the provision p r o h i b i t i n g the making public or d i s c l o s i n g the
order of removal or findings of f a c t .
SECTION 25.
Saving clause and reservation of right to amend, (v. 52),
Section 26 contains the usual provisions (which were also
in the old b i l l ) reserving the r i g h t to a l t e r , amend or repeal the
act and l i m i t i n g decisions holding p a r t s of the act to be i n v a l i d ,
to the s p e c i f i c sections dealt with in such d e c i s i o n s .
488
X-71j
- 34 SECTIONS OF OLD BILL
DMiTtID F O FEW BILL.
RM
In addition to a number of other provisions of the old b i l l
which have been omitted from the new b i l l but which have been t r e a t e d
above in connection with c e r t a i n r e l a t e d topics contained in the corresponding sections of the new b i l l , (such as the provisions regarding
reserves and regarding r e a l e s t a t e loans and investments of member
banks), there have also been omitted from the new b i l l the following
provisions, each of which constituted an e n t i r e separate section of
the old b i l l .
Limitation upon amount of loans on c o l l a t e r a l security by member banks.
Section 8 of the old b i l l authorized the Federal Reserve Board
to f i x the percentage of the c a p i t a l and surplus of a member bank which
might be represented by loans on c o l l a t e r a l security.
The purpose of
t h i s section apparently was to prevent the undue use of bank loans f o r
speculation in s e c u r i t i e s , which i s f u l l y covered in Section 3.
In
accordance with the recommendation of the Board, t h e r e f o r e , the provisions of Section 8 of the old b i l l have been omitted from the new b i l l .
I n t e r e s t on deposits.
Section 24 of the old b i l l would have limited the r a t e of
i n t e r e s t which national and State member banks would be permitted to
pay on deposits as follows: (1)
have been limited to 2 1/2$ or
i n t e r e s t on balances due to banks would
11
the current r a t e of discount of the
Federal reserve bank", whichever i s the smaller;
(2) on a l l other
deposit balances, the r a t e would have been limited to one-half the
r a t e of i n t e r e s t which national banks are permitted to charge on loans.
x 7139
~
- 35In accordance with a recommendation of the Federal Reserve
Board t h i s section i s omitted from the new t i l l .
Limitations on c o l l a t e r a l loans to single borrowers.
Section 26 of the old b i l l provided that no member bank
shall lend to any individual or corporation "upon c o l l a t e r a l security"
an amount exceeding 10$ of i t s own capital and surplus, or an amount
exceeding the percentage f i x e d by the Federal Reserve Board, whichever i s the smaller.
In accordance with the recommendation of the Federal Reserve Board t h i s section i s omitted from the new b i l l (as was also
Section 8 of the old b i l l which also provided f o r l i m i t i n g c o l l a t e r a l
loans.)
485
@FedFRASER