The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
r-..
v
January),
R~servcl
To:
The Federal
Board.
From:
Mr. Wyatt - G:eneral CounseL
SubJeCt:
1923.
X-3611
Reserves against socalled "Sp~cial Savings
Deposits".
A forwal opinion has been requested on the question whether socalled "Special Savings Deposits" of certain State Member Banks in California can properly be classified as
11
savine,s accounts" in computing the
reserves which such member banks are required to maintain under the terms
of Section
19 of the Federal Reserve
.~ct.
These so-called "special savint,s deposits" are represented by pass
books and bear interest, and the banks receivin6 them expressly reserve the
rie_,ht to require thirty days' notice be fora withdrawal.
Under the Cali-
fornia law, as it has oaen construed by thcJ State authorities, these accounts are also required to ba see:,re ,~a ted in separate savint:,s departments
the assets of which constitute trust funds for the protection of savin;;;s
depositors; they can be invested only in a restricted class of securities
and
loo:~\ll
only in a restricted rrannerj and they are subJeCt to
special safeDuards not
ap~licable
man~
to ordinary comrnercial depooits.
other
It ap-
P<=:ars, hoNever, that they do not r0present the savin"-'s of persons of small
m;;ans, but interest is paid only on
a.rr~ounts
in e;,ccas::, of $)00, and such
deposits usually consist of surplus funds of persons of large means who wish
to obtain interest upon th:;u· and at the srure tirr:e enjoy the privilege of
checkin 6 asainst them.
Furthermore, they are normally subJect to with-
9
. .---··"'·
60
X-3611
-2-
drawal by check without the present2.tio.n of
thd
pass books, and normally
an unl imi tad number of checks can be c..rav';n d.e.:a::.ns t them at the same time,
althout_Sh the bank reserves the r1 1;ht to require the presentation of the
pass books.
In practice, thc;;refora, thay are subject to check and con-
stitute interest-bearing checkinu accounts.
Before they applied for membership in the Federal Reserve System,
the California State banks raised the question whether they could treat
such deposits as savinbs accounts in computin0 the reserves which they
would be required to rrcaintain under the terms of the Federal Reserve .Act.
At that time Mr. Perrin, tha Boara.'s local representative at San Francisco, took the position that such accounts should bx:3 treated as savings
ur~e~
accounts and
the Federal Reserve 3oard to adopt the same view.
Ap-
parently Without obtainin 0 an opinion from its Counsel as to whether this
could be done
le~all:,
the :Doard. addressed a circular letter to all
Federal Re~erve Agents under date of December 26, 1917, requestin6 their
views as to whether it should amend its Rebulation D so as to permit such
deposits to be treated as sa.vin 6 s accounts.
The gr~at majority of the
Federal Reserve A0 ents opposed such an amenwnent to Rebulation D on the
0round that it would lead to abuse, and the Eoard refused to amend its
Resulation.
With full knowled6e of this action, thG California State banks
applied for, and received, admission to
mer~ership
in the Federal Reserve
System.
Accordin6 to a
state~~nt
contained in the brief of Mr. Edward
Elliott, representinG the Security Trust and Savings Bank of Los lill6eles,
81
.'
X-3611
however, all the California State Ba.nlrs having sur.h 8-Ccounts havealways
carried reserves of only three per cent a(!;ainst the:n, and the practice
rr:~'l.._r
was first called into question in the autumn of 1921, following an examination by Federal Reserve Dank examiners of the Los Angeles Trust and
Savings Lank.
* * *
Apparently, it was not called to the attention of
the Board, however, until the sprins of 1922, when it was
brou~t
to the
attention of Mes::>r:;. Miller and Mitchell of the Federal Reserve Board by
the Los Ant:,eles Trust and Savin;:.,s :Dank, du rinc;; the visit of those e,entlerren
to California in March and April.
At that time the question whether such deposits could be treated
as savin6s accounts in computinb reserves was
addressed to the Board under date of April
aga~n
raised in a telegram
15· Governor Harding replied
under date of .April 19 that such deposits could not be made subject to 3;~;
reserves without an
amendn~nt
to the Doard's re6ulations and that the
:Joard felt that such an amendment would lead to abuse and that it could not
properly make a special reGulation or exception applicable only to banks
in California.
Several of the State Banks then
r~quested
a hearing, which was
t;ranted on June 14 and at which Mr. Edward Elliott, formerly of the Federal
Reserve Jank of San Francisco, appeared as their representative, filed an
elaborata brief tot;e ther with one written by Mr. William G. McAdoo,
formarly Secretary of the Treasury and ex-officio chairman of the Federal
Reserve Board, and strongly urced the noard to permit only
3~
reserves to
..
62
X-3611
-4be carried agai.qst such accounts.
Apparently, the llo:ocrd took no action at
that time but took the matter under
~dviserrent.
T.he matter was discussed
several timas at ::Joard meetings; sevaral other informal confaronces were
had with Mr. Elliott; a report was requestdd and obtained from Mr. Perrin
(in which he advocated the branting of the raquest of the State Janks);
and finally, on fucember 6, the ~:oard voted not to amand its Regulation D
and that suCh deposits must be treated as damand deposits in computing
reserves.
In advising its agent, Mr. Parrin, of this action, the .Board
specifically advised him of its expectation that he would see that this
ruling was strictly complidd with.
It appears, however, that this rulint;, is no't being compliad with
and that Mr. Perrin has requested a hearing at which he may appeal from
the :3oard 1 s rulint; and again advocate the ::,rantin"' of the ruquest of the
California State :oanks.
hearin~,
Before d0cidin15 whather or not to t;rant this
the Board desires a formal opinion on the question whather it
can labally Grant the requast of tha State
b~s
wad
~armit
such
~eFosits
to be treated as savin,:_:s accounts in comptcting reserves.
When this question
~s
originally submittad to me I was unwilline:;
to say dogmatically that tha t.;nn
of the Federal
Res~rve
11
savine,s accounts" as usad in Section
Act could not be construad to include such deposits
without making a thorough invastigation of the subJect.
serious doubts, however, as to the propriety of so
ttsavings accounts If.
I did express
co~truing
the term
I h::we baan giving the problam furthar study and de-
liberation for several rr.onths, and whan
19
Mr. Plntt informed me
th~t
the
..
63
-s-
X-3611
matter was again coming up for consideration I concantratad the afforts
of this office on th8 probl-.::m c:md made a thoroug[-1 investig::1tion of the
authori tias,
n,
Cclreful analysis of the; bric.:fs submitted by Messrs. McAdoo
and Elliott and of the
r~port
submittad by
~tr.
Parrin,
~d
a
p~instaking
study of the lan6 uage, philosophy, history and underlying purpose of the
l.J.w.
On account of pressure of othar ,-,ork I was unabL; to render a writ-
ten opinion on tha subj;;ct at that tirne, but I advised Mr. Platt orally
that such deposits could not properly b~ cl..1ssifLd -~s "savine,s accounts"
within the rr.aaning of S.sction 19 of the Federal I\eserve .Act.
TEE T:SBIS OF TIIE LAW.
In prJscribing the Eli!lOunt of r3Serves to be maintD.inad by memb3r
ban}-.:s, Saction 19 of the Fed;:;ral
R~sc;rve
Act makas a distinction betwean
ntime depo:sits" and "demand cieposits"~ and requires smaller reserves to be
maintained against the form.:jr than against the lattar.
graph of that section a.efines
11
'lhe first para-
demand daposits 11 and "time di::3posits" as fol-
lows:
Demand deposits within the meaning of this Act shall
comprise all d.aposi ts payabla cili thin thirty days, and time
d.aposi ts shall comprise all daposi ts payable af.tar thirty
days, all savings accounts ~d certificates of deposit
wnich ~re subject to not loss than thirty days' notice
bafon; payrn.ant, and all postal savings deposits".
11
It will be noted that the term
11
time deposits" comprises:
(1) All deposits payabld after thirty days.
(2) Savings accounts which ara subject to not
less than thirty days' notice before payment.
(3; Cc:rtifica.tas of deposit which ar,; subjact to
not lass than thirty days 1 notice b2fore payrrBnt, and
(4) Postal savinc,s d,;posi ts.
ThJ deposits under consid.::Jration are not "payable after thirty
days"; because they are not payable on a definite date nor a spacified
number.of d::tys
..:~fter
actually raquired.
date, nor only after thirty days1 notice which is
Th.:; mer.a fact that they are subJect to not less than
thirty days' notice before payment is not sufficient to !T'.a.ke tham deposits
11
payable a:ftar thirty days"; b;;cause the J,ct claarly makes a distinction
ba tween daposi ts payable after thirty days and those which are merely sub-
ject to thirty
brief.
day~'
notice b.:;fore payment.
Mr. McAdoo admits this ip his
It is obvi6us that thay are neither certificates of deposit nor
pas t:ll savings deP.os its.
_ tf they
aN
to ba classified as time deposits, tharefore. they
must be brought witbin the term
11
Savings accountsn; and this di"cussion
will ba confined to ,the question whather they can propzrly be
deelT'~d
to
be includad in that t,;rm.
THE EOAfill I s 1\EGULAT IONS'
The :dc:J.rd 1 s Hegulation D, Series of 1920, defines "Savings Accounts;• ,as follo•.vs:
Tha term •Savings Accounts' shall be held to include
those accounts of tho b:.mk in r.:;spact to which, by its
printed regulations, accepted by the depoBitor at the time
the account is opened 11
65
-7-
X-3611
(a) the pass book, c.:Jrtificata or othar similar
form of rsceipt must be presanted. to tha bank whanevar
a deposit or withdrawal is made, and
(b) the depositor rr:ay at any tim8 be required
by tha bank to give not ice of an intended Ni thdrawal
not less than thirty days before a withdrawal is made."
The dapoBit.s in question comply with r,;;quirement (b), but they
do not
corr~ly
required to be
with requirement (a) because the pass books are not actually
.~.)res.mted
wh::mever deposits or withdrawals are made.
It
has been argued on bdhalf of th.;; California banks that requirement (a)
is not essential to a proper dafinition of the tarm "savings accounts"
as used in Saction 19, and the Board has been urged to
arr~nd
R8gulation
D so as to parmit such daposi ts to be classified as "savings accounts" •
Even if requiremont (a) could be eliminated or waived, however, it would
not necessarily follow that these deposits can properly be considered
"savings accounts" within tha meaning of Section 19, because they differ
in other respects from ordinary savings
The question to
of the provisions of the
b~
~c~o~ts.
determined, therefore. is whether, regardless
~card's
regulations, such deposits can properly
be deemad to be "savings accounts" within the meaning of the first paragraph of Section 19 of the Federal Res2rve Act.
In
attem~ting
to answer this question it is necessary to ob-
serve two fundamental rules of statutory construction: (l) That the Nords
used should be givc::n their ordinar;;: and commonly accepted rna;:ming unlass
it appears that a differ2nt rr;;;aning was intended; and (2} that the stat-
66
.,
X-3611
-3-
uta shoul J. ba cons trued in the 1 igp t of its reason and purpose and in such
a way as to carry out thJ intention of tha lagisla.tura.
11HA'i' ..t~i.B "SAITJi:ITS.S .ACCOilliTS"1
The ordinary and comrr.only accapt2d maaning of any term is to be
sought first of all in a gan;:>ral dictionary, but neither Webster's Unabridgad Dictionary nor the Standard Dictionary defines the tarm "savings
accounts".
Likewise, i.n seak.ing for the meaning given by tha legal
authorities, it -.vas found thc.'l.t neither the reported decisions nor the legal
treatises contain any definition or direct discussion of the term "savings
aCCOuntS II
r
Thera are many decisions dealing with the
natur~
and oparation
of savings banks, however, which throw much l i 6 ht on this quastion..
It is
proper to assume that tha savin6s accounts which Congress had in mind ware
the accounts commonly received as savings accounts by savings banks and
by commercial baru:s and trust companies having savings departments.
As
such accounts originated Hi th savings banks and were developad by them, a
discussion of the nature and functions of savings banks is necessary to an
understanding of the
pro~er
maaning of savinss accounts.
In Corpus Juris (Vol. 7, p. g51) it is said that,
bank is an institution
11
* * * the purpose of '.11/hich is to promote the pros-
parity of persons of small means and limitad opportunities of
them by
r~ceiving
inv~sting
their savings in even trivial 6ums and lending them in
larger amounts, aharaby int-::r:?.st may be g,ainad. 11
A savings
'•
87
X- 3611
Savings
banl~s 11 ar;;> bank~
sums deposit ad by the
j;~oorer
In Marcant il?
~~:ml:.
cl
:tSS
establisiled for the; raceipt of small
of lJ.;rsons for o.ccumulations at in-
v. N. Y. , 121 tJ. S. _1 )8., tha Supremo Court
of the Unitad Statas said t:u.t s::l.Vings bariLs
11 ar6
vvhat their
n<.und
indi-
c.:ttds, banks of daposi t for th<:3 accumulation of small savinr;;s belon6inc:; ·
to thd industrious and t:1rifty. 11
In Nation:ll ~ :.n:J; v._;_;;_9ston. 12!) U. S.
60, tha
Suj_Jrarr~ Court said,
"Tr.tay ara substant1ally in&titutior.s, under puolic managcn:ant, in pursuance
of a ;::;raJ.t and. ban:;ficial .i::JUblic J?Olicy, or~a.ni:::ad for tha i:)Urpocia of invasting tha savin~:;:> of Sr.'all d.a_;;Jc.-;i tors, anci not ~s bankin::., instituti"ons
in tha commarcial sans2 of tP.at phra.sa. 11
The two cas-:35 cit.;ci 3..ra particular·.iy
valunbL~
for the purpose of
this discussion, baca.uso thay contain such a forcaful distinction batwa,m
savings banks and comncrcLtl banl-:a, which. distinction is equally applicable
batwa.m savings acco:unts and ordinary chackinc, 3:ccounts in comnBrcial banks .•
3oth these
C?.LS~s
•v.ara based upon an allag.ad
national banks und.ar Saction
;219
dL~crimination
in taxing
of tha Raviaad Statutds, ona ground of
th~
alleged .discrimination in aach casa baing that savings banks ware not taxed
at the same rata as national ba.nk.s.Tha court held in each casa that no
discrimination could be pradicat.3d upon diffar.mt ratds of taxing national
banks and savinc;s banks, bcca.us<; of the :::,raat dissimilarity between such
classas~~f banks.
It can properly ba said, tharafor-3, that savings ac-
counts are inherently diffarant from comnercial accounts, and it would seem
•
·.
68
X-3611
-10-
to follow that if certain accounts partake of the nature of corrrnarcial
accounts, they cannot pass muster as savings accounts.
Another fact indicative of this charactaristic of savings accounts is that a number of States limit by law the amount which may be
received from any one savings depositor.
Thus Massachusetts limits it to
$2,000, excepting deposits from raligious, charitable or similar cor~
(Gem. LaiN'S I Chap. 163 I s~c. 31); Conn--cticut limits the amount
porations.
which may be received from a sin5le depositor in any three ye~rs to $3,000
(Sec. 3981, Gan.Stat. of 1918); the laws of North Dru{ota provide that the
directors may limit the amount received from any one depositor (Sec. 5196,
Comp. Bk. Laws 1913); the
receive
11
Minne~ota
statute authorizes savings bank to
all sums of money offered for depo6it in amounts
***
fixed by
the by-laws, which shall in no case exceed five thousand dollars«.
(Gen.
Stat. 1913, 6388); the Missouri statute limits thd amount to $4,000with
certain exceptions (R.S. 1909, Sec. 1154); and the Danking & Trust Co. laws
of the State of Washington, (Sa~. 143) limit the amount to $3,000.
These
are not all of tha States whose laws contain such a limitation but they
are sufficLmt to indicate th.lt the usual or ordinary conception of a savings
account does not include surplus funds of large corporations or firms, or
of wealthy individuals,
tam~orarily
depositod at intarast with tha barik
pending investment by the ovmer.
Other illustrations of this wall established meaning are numerous and thay need not be t)ivan haN.
lamning through all
th~se
laws
X- 3611
-ll-
and decisions is the bas·ic ida a that savin0s banks, .md a-ccounts carried
by .them, aro essentially devoted to thc. small J.oposi tor, and that tha
primary purpose of savincs b;,n!::s is to r2ceiva, prot~~ct and increase the
savings of parsons of small rni:lans.
In
L
Corpus Juris •......2:.....8§J,, it is said, "A vary gcn;;;rcil rule of
,, ..._;.'II·
,-·
savings banks is th:l. t dapr~s its will b<> paid only ·.vhen the p:.:..ss book of
.
the depositor is pr.;;;sant~d wi trl. the ord3r for i.,aym:.:nt", citing Mitchell v •
Home Savings :Bank,
38
Hun. (N.Y.) 2):~, and Eos,mthal y. Dollar S::.vinr;s
Eank, 113 N. Y. S. 787·
And Morse in his work on cJ::.t.n.Ls & .Jarik.ing (5th F.d., Soction 620
(b) says, "One of th;:; common.:;st tulas (of s:.:.vintr,s banks) is that the oank
book lm.lst ba produced in order to draw tha deposit.
11
The laws of GeortSia de find a S:1Vin:.:.s bank as one whose depc ::.its ·
4o S. E. 82).
or the statemant of an account
* * * *
the ·oook: is the: instrtllllent by w:hich
alon.1 th;;; monay can b;,;: obti.tin;d. :,
And in .Jon~s v. '/fc:a.k:lz_, {Ala.) 12 So. 420, the court d.istin~uis......,_..
ed b:::twaJn $avine;s pass books .md corruN;rcia.l bank pass books and ~i.ald
that a commarcial account could not ba transfarrad by tha transfar of th~
pass book. b0cause "the money could be ·Ni thdrawn from the bank, not by
70
X-3611
-12-
.l:'rod1;1ction of the j_..)ass book, but qn tha check of the depositor. 11
The
nacessary implication of this holding is that a savingsa.ccount w.ay be
transferred by a transfer of the pass book, because such an account is
not subject to check, and this is recognized eenerally by the courts.
It is believed, therefore, that tha term "savings accounts 11
as it is cornrr.only understood means generally accounts consisting of the
savings or accumulations of small depositors which bear interest, are
represented by pass books, and are not subJect to check but can be withdrawn only U?On the presentation of the pass book.
Further~ore,
it is
believad that Congress had this concept in mind when it used that term
in Section
19 of the Federal Reserve Act.
SUCH DEPOSITS NOT "SAVINGS ACCOUNTS. 11
It is understood that these so-callad
are received in unlimited
or savings of
p~rsons
a~ounts
of small
persons carried in the bank as
spacial savings deposits"
and do not consist of the accumulations
rr~ans
~
11
but ara surplus funds of wealthy
temporary form of investment.
These ac-
counts are popular with such paople because they baar interest and are
not subject to the inconvenience of ordinary savings accounts in that withdrawals may be made by check and without presentation of the pass book.
It is understood alJo that they appeal
cause no
inter~st
axclu~ivaly
to large depositors be-
is paid on balances of lass tl1an $500, which is entirely
inconsistent with the idea of savings accounts ·but is a vary common
characteristic of interest-bearing
chec~:ing
accounts against which mo::>t
-13-
X-3611
banks maintain 10% reserves without question.
It is quite clear from a considerationm these general characteristics that such accounts are not savings accounts within the commonly
accepted meaning of that tarm but ara rather specially
privile~ed
accounts; and the Board might well refuse to
them as savings
raco~nize
checking
accounts for this reason alone.
They are lacking in anothar and r.:ore important characteristic
of savings accounts, however, which is believad to be an essential
characteristic of
11
savings accounts" within tha meaning of that term as
used in Section 19 of the Federal Raserve Act, i.e., the bank does not
require the presantation of the pass book at each withdrawal but in
practice permits an unlimited number of checks to be drawn against them
at any time.
It has been shown above that the requirement that the pass
book must be presented at each withdrawal is one of the distinguishing
characteristics of
savin~s
it is commonly understood.
accounts within the meaning of that ter.m as
A consideration of the reason why
Congr~ss
permitted such accounts to be classified astime depobits for the purpose
of computing reserves, aven though thay are "payable in lass than thirty
days 11 , further demonstrates that this is an absolutely essential characteristic of "savings accounts 11 within
th~
meaning of that term as used in
Section 19.
THE REASON OF THE LAW.
vVhen Con5rcss enacted S3ction 19 of tha
was for the first time in the history of the
Fcd~ral
r0s~rva
Reserve Act it
Nquirements of the
72
.. ,
-14-
X-3611
Federal law making a distinction batween various classes of deposits and
requiring less reserves to be maintained against one class than
another..
agai~st
rthis would be an unjustifiable discrimination if i t did not
bear some reasonable ralation to the purpose of reserves.
It will b3
conced~d
that time
depo~its
require a less reserve
than demand deposits because by their very nature they are not subject
to such large .and frequent withdrawals, and the ~e of reserves is
to put a bank in a position to meet withdrawals by its depositors.
savings
account~
Ordinary
clearly huvd this charactaristic of time deposits.
They
are, as we have sec.n above, savings of small depositors, put aside in small
amounts from time to time to accumulata ;1nd remain intact so far as
possible for emargency uses and for future investment and,
normally have
a.g~aat degrc~
of stability.
thar~fore,
This inherent stability is
furt4er enhanced by mechanical devic~s dasi§11ed to minimize the ease of
withdrawals.
The commonest of such devices is the requirement that no with-
drawal can be made unlessthe withdrawal ordclr is accompanied by the pass
book.
Tnis
r~quir~~nt
is so common as to be
charactoristic of savings daposits.
r~co 67lized
as an essential
The laws of several States, including
Naw York, make this requirerr.cnt in ragard to savings accounts, and, as
pointed out abqve, it has ba3n frequently held that tha pass book so far
represonts tRe right to withdraw a savings account that a transfer of the
pass book affects a transfer of the right to the account itself.
Furthermore, it is evidenced from an analysis of the statute that
Congress had this very characteristic of savings accounts in mind when it
-15enacted Section
19.
X-3611
In the first paragraph of that Section,
Con~ress
made a clear distinction between accounts payable after thirty days, anu.
t:C. . ose which ara merely subj0ct to
ti1ir~~,r
day;,;'
~"lotice
.All deposits of the form,;r cl""s;;; are clas'>ified
:lS
befora faylrkln t .
time d..e_tJo:;i ts,
w~nile
the only deposits of the latter class which are classified as tim;;; deposits are "savings accountsfl and "certificates of depositn,
If.
a de-
posit is by its terms payable aftar thirty days the bank will not be expected topay it before the specified date has arrived or the specified
time has elapsed and is fully
prot~ted
against vVithdrawals.
Where a bank
merely reserves the. risht to require thirty days 1 notice of the withdrawal
of a deposit, ho·:revar, it ordinarily parmits withdrawals to be made 7Jithout any notice and it usually is reluctant to require notice, because
this displeasas the depositor and. may cause sorr:e unfavorable comment.
Fur-
thermore, it is probable that a bank in a "shaky" condition would not dare
te exercise such right for fear of precipitating
positors.
a'run
by its demand de-
''Thile the rcscrvat 10n of this right is probably intend.ed to pro-
teet a bank against v-vithdrawals, theNfore, it is not always effectiva.
~n
classifying only savings accounts and certificates of deposit as time
deposits when thoy were merely
subJ~Ct
to thirty
d~ys'
notice before pay-
rnent, therefore, Congress must ·have relied upon something
in:~erent
in
tlli.: natura of such deposits to afford the bank some additional protection.
One does not have to s.;Jarch long to find a comrwn charactdristic of these
two classes of deposits which afford v0ry effective protection against
/
I
....
-16frequent withdrawals - naithar savings accounts norcertificates of deposit are ordinarily subject to check, and it is inconveniant to withdraw tham because the certificate or pass book usually has to be presented at the time of each withdrawal.
It is thus seen that the :Pequirement in the definition of
sav/ings accounts contained in the Joa.rd's Regulation D, that nthe pass
oook, certificate, or other simil3I form of receipt must be
the bank when,;;ver a**
*
p~esented
to
withdr::1wal is made", is not an arbitrary re-
quirament, but is in entire ac;cord with the acceptod meaning of the term
"savings accounts 11 and the considerations which led Congress to classifyins such accounts as tims deposits.
It is ar::,udd on behalf of the California banks that there is
no ma5ic in the presentation of the pass book whenever withdrawals are
rn3.de, that this
requirem~nt
is an
un~ss~tial,
a mere mattar of. pro-
cedure and has no r~lation to tha amount of reserve which a bank should
L.aap against such deposits.
Ma.~io do~s
not
~nter
into ths question of
what is a savincs account, but clearly the requirement of p»i::lsantation
of tho pass book has infinitely more importance th:m the mer .a name by. which
~
account is called.
The r0quirement that the pass book must be presented
when withdrawals are made is a most effective me:ms of preventing frequent
withdrawals and thus praservin:; tha inherently stable chlracte.r of s::.:.vings
depositsj and because of this· it
reserve requirements.
do~s
have
;J.
very real relation te proper
A provision that the pass book must be pres~nted when
withdrawals a.ra made is a more important 0l2m:.::nt in characterizing savings
75
X-3611
-17-
accounts as time deposits than ti1e provision that thirty days 1 notice of
withdraw::U may ba requirc;ci, b2cause even if such notiC-3 is not:. raquired,
-and as a practical. matter it r:u:;l
is- fhc:: :pr.?s3ntation of tha pass
book at each ·.vi thdra'.val protacts the accounts from too fraquent withdrawals .:md prev2nts it from daganaratintS frcm a savings account into a
cheCking account;,n acccunt
v~~.ic'l
nu.y he; 'Nithdr::;;:m Nit:..,out presentation of the
pass· book :md is subJ:.::ct to be ch0cked a.san1st, is not, for ti:a t very
reason, properly
intanded ;;:.,.;;
ac
~ount
fi;;s an
-.'v
d.
..:..wi:-c:-:_•.s :tcr:ou.'l.t-
J..::; wa
sean, a savings account
n.a::.ns of c:;r:J.<iual accu.."'II.llation of savings.
It
i~
iS
a C3.pital
and )l'O)::;rL· is :.iUOJ.JCt to witi.dra-,•:.ll only when th0 oceasion justia::pendJt1;.:r,~ fl"c:!~-
c lf:~i taJ .::.ccour.t.
C:.'1eck, howevc_;r, is
int.;!~ci~d.
positor1 s current
and
is the one
outstandint~
checl:ing acco'.mt-
H
to h.:;
o~'lin"'-rY
lega in i ts,;;lf rr.<-.J:.o;... the::
c>CC;.:>'J.llt
<:.t
f!'OTn
I'Jhich the d.a-
0xp.:msas may oa r.:.et - tha chacking privic::.s::>.::nt i~lly adapt ..::d. to this purpose: cUld
J.iStinction
b·::lt·N;.:~n
a savine-;::> account :.nd an ordinary
vould oa as raa...sonable to
s~
pr~Sdntation
say that a savings account :i,s subject to
repu~t
.An account which is subject to
liquid fund.,
courrt may not be ,,Ji t::-"drm'V'tl. ex:c.;pt upon
utt3rly
h.~vo
c~.ac~:.
tt.cat a checkine:; acof tha pa.s-2 book as to
Tho idaa of CLacking is
to tha idaa of a sa.·1i:ngs L.<.ccount, and th;O t'i'vo
~mD.ot
0X-
ist togtlth-:;r.
~,-:Jlile
t.ha Sta t'3
:·m:.s
E~rt,ue
n. t
sorr.~
lent;tb that
t:t~
se ..1.ccounts
are relativ"'::i.y ina-::tive .J,nd say that th3y c .... Nfu.lly pNv-:;nt tl:t.;:m from be-
'
X-}611
· ......
76
ing used as commercial accounts, there is some testimony to the contrary.
s~nt
Thus, one of the replias to a circular lettor which Mr. Perrin
to a nuiriber of prominent
b~srs
in California requesting their views
with reference to these so-called "special savings deposi ts 11 contains the
following statament:
"Of cours.a, you and I know, as a matter of fact that
who carry these special savings accounts check
on them just the S<J.rn~ as a commarcial account, and they are
in fact, in 11'.cUll' cases, bu_,iness accounts where the de~ositor does not requne lending facilities and expects to
check on them freely at all times. I doubt whdther many
of the d.;;lposi tcrs of these accounts really l.4'?.derstand that
tney are subJect to a notice. It is certain that if one
were required at any time it would undoubtedly create a
great deal of trouble for the bank which might demand such
notice.n
d~positors
The representatives of the State
no difference between thair
~pecial
~anks
argue that there is
savings accounts and their ordi-
nary savings accounts, except that in -the case of the former, the re-
quirement that tha pass book must be presented is waived.
In
~
opinion,
that one diff9rence is fundamontal and. is alone sufficient to praclude
these special savings accounts from being
clas~ified
as time deposits
Within the rreaning of Section 19 of the Federal Reserve Act.
I am un-
able to reach any conclusion in this matter except that these so-called
nspecial savings deposits" are essentially checking accounts and
ehould be considered as demand deposits for the purpose of computing
tne reserves to be maintained under Section 19 of the Federal Reserve
Act.
77
-19ARGDrv1ENTS ON 13EHALF OF
X-3611
C~"..UFORi'HA
STATE
::...;\1\fi~S.
Most of th8 argum:::nts advancod on bohalf of th2 California
StatG banks rr.ay bG divid.ad into thr:: classes:
(1)
Thoso t>as::d pur,~ly upon considerations of policy and
which ar-:; design:d to show why such accounts aro morally 2ntitl.:d to
b3 cln.ssifLd as
sorves.
savi~aG;s
a,ccounts for
th~
pur:i)OS .: of computing rc-
Th:::s:: argum-:nts hav:: no diroct b:arina on tho legal qu3stion
whoth:r or not such acc01.:.nts can proparly b.; consid.Gr..::d nsaving;s
accounts 11 U..'1dor oxistinr; law ano_ th::y n:::::d not bo answ,;;rod hc:r:::.
It
is th: function of Co:::'lp;r.'ss rath:.:;r than th.: Doard to pass on the
question of policy
wh:th::::r cr not th:;; la ,'T should b0 am:mde:d so as
1
to permit such d2posits to b2 classifL:d as savings accounts.
(2)
Thos.o ar.:;wrl_nts bas2d upon thJ alLgation that such
deposits ar.;; tr..;at.3d as savinP;S d::::posits by th::: Stat.; law and by
tho Stat2 banking authoritLs.
qu~stion
meanin~
This also has no bearing on
.. ~
wh::::th:::.r such accounts ar:;
of S0ction
19
of
th~
>o-J
11 savin>:>;s
th~
accounts" within ths
F0deral Reszrvo Act.
OtharwisG, the
California Legislatur..; could in effect am-.:nd S:::ction 19 of the
F'ed.::ral Rsserv::: .f.ct by d::::claring anything it chosa to b::;; savings
accounts.
Thus, it could provide that ordinary commercial ch:::ck-
ing accounts should bs consid:.;r:::;d savin£;s accounts if thay are in·vested in a certain way, ar:; rocoiv.::d from r3d-hcad2d men, or comply
with some oth::;r whim of th0 S·;;ato Logislatur,::.
78
-20(3)
Thos2 which
e,r...;
X-3611
bas:;d upon th; fact that savings
deposits in California StaL banl:s e.r:: subj,:;ct to certain saf:;guards
which thJ C': lifornia law thro''-'S about s.wing;s dsposi ts, and, thenfor.J, ar::: saf2r than ordinary chccl:ina accounts.
Sucl1. saf-=:PUards
consist principally of r :;strj ctions rm th: kinds of loans and invostm:mts that may b;:;
r:'<..t.d~ by
s.:win::rs banks and on th.c; po;·.r::r of such
banks to borro'v r:nonc:y and r _.discount pap;;r.
This
ar~xro;:;nt
has more
forco, b;.;.caus.: such pr;:Jt ction is a fairly common attribute of savings
dJposits f2;:;;n_ra11y and, th.;r.of0r~. miR:ht b..:; considered a prop;;r olom:mt
of a dcfinit ion of th·.; tc:rm
11 savin:)·s
accounts 11 •
:war, has no r-:::asonabl.:; x·::lation to th.:,
th~ory
This foatur,;, howon which Congress made
a distinction b;:;:tw~.:n thc: r:.•s:;rv .JS '.vhich shvuld b3 carri:;d against
time deposits and those which should b;;; carri.:::d against demand doposits.
This distinction ,,vas not based on th:.: theory that timo
deposits aro safer than dow.and d;:posits but on the;; thGory that
time deposits
dopos its.
ar~
subj
)Ct
to less
frequ~nt
withdrawals than domand
. Congr::; s s did not have in mind th0 saf 3 invc stm:mt of
tim;; deposits but rather th.::: ability of a bank to meet th:; dow.and
of its dspositors.
Furth.::rmorc, th3ss sp.:;cial
safe~ards
which ar3 applicable
to savings accounts in California stat3 banks did not constitute one
of the; charact:::rist i cs of ::,h::; class of savings accounts that Congress
had most prominently in mind when it cnact:;d Section
19
of the
79
-21app~;ars
FJdoral ResGrve Act.
This
of tho history of the
~mactm::nt
very cl:::arly from a consideration
of that provision.
Th3 first para-
graph of that S::oction, which dcfin-.es tim:; and demand doposits, was
contain;d in the: F.:d::oral R--sorv.; let as oridnally enacted
1913, and has never b c..::n amended.
.At
th:: t imc of
th~
D~c::mbcr
23,
Jnactmc!'t of tho
F..;dcral RJscrv:; Act it was c:::rtain that all national banks in tho
contin.:mtal Unit::d Stat ;s would b::como mJmb0rs of tho F3doral B.osorv.J
Syst3m~
bccauso th-..:;y wore;
wh.::th..;r any
r~quir·::d
to do so; but it was unc0rtain
Stat:; banks would b:.:comc mcmbcrs.
reserve requircm.mts of
s~ction
Furth~rmor:J,
th:
19 of tho F.;d.::ral IL::scrv.:: Act sttp::rssd·"d
th-J previously ;;xisting roscrv ..: rcquirc.;mc:nts of th.:; Nationa:.
r·a~:
Act
which w3re th3 only reserve r::;quir-:monts applicabl :- to national banks;
while State barlks, on th: oth:::r hand, wer:;; subj.::ct to r0s0rvo requirements of the
of S3ction
19
StatJ laws which wore not suporsJd~d by thJ provisions
but r3maincd in full force and offcct until amended
by the State legislatures.
It is clear, therefore, that the
class of banks which Congress had most prominently in mind 'Nhen
it enacted Section 19 of the Federal Reserve Act and which were to
be most surely and most seriously affected by the provisions of
that Section were national banks.
Lut savings deposits in national
banks are not restricted as to investment in any way different from
any other deposits of the national banks nor are they required to
be segregated in separate departments and held as a trust fund for
'
~
..
BO
X-3611
-22savings depositors.
Nor ha,ve they any of ths other peculiar charac-
teristics IJcrtaining to savings accounts in California State banks
I
upon which the representatives of th::> State ba.nks lay such great
It is obvious, therefore,
stress.
th~t
such
safegUk~rds
and
restri~
tions are not the distinguishing ch&racteristics of the kind of
counts" which Congress had most prominently in mind
Section
lS
of the Federal Reserve
whe~
11
Savings ac-
it enacted
Act~
I Jo not d0ny that Congress also had in mind State banks
and trust companies 'nth ,;,3.-vinrcs :iepa.rtments, but it can hardly be
doubted that it had national banks most prominently in mind and intended to use language applicable to them as well as to State in~~·
stitutions.
Mr. Elliott's brief contains the surprising statemant thatJ
11
Th is discuss ion cannot be based upon the conditions surrounding
!f.?-v-
ings accounts' in any other State or upon the general character of
such deposits elsewhere, but rrust be predicated solely Uf-On an understanding of the distinctive character of •savings deposits' under the
California "Bank Act."
In this Mr. Elliott is J'Ilanifestly wrong.
The
question at issue depends, not upon any interpretation of the California
Dank Act, but upon the proper interpretation of term "savin;.:;s accounts"
as used in tht"' Federal Reservs .kt.
··::hen it enc.. cted the Federal Re-
serve Act Congress was not legislating for CF.1lifornia alone but for·
the whole United States, and when i t used the term "savings accounts"
...
81
-23-
X-3611
it did not have in mind any unique kind of accounts in California
or any other single State; but a 'croc..J class of accounts which are
commonly known as savings accounts all over the country.
This is
too obvious to require any further argument.
Much stress is laid on the fnct that the California Act
provides that whenever there is a call by savings depositors for repayment of a greater amount than the bank may have disposable for
that purpose, the directors or other officers of the bank must not
make any new loan or investment of the funds of such depositors or
of the
~arnings
thereof until such excess of call has cGased.
the reasons set forth
~bove,
For
it is not believed that this unique
provision of the California law has any real bearing on the que£tion
at issue.
Furthermore, this provision wo1ud seem quite superfluous.
It is nothing more than a corr.mon-sense rule which any banY..er in his
right mind would observe in the absence of a statute requiring him
to do so.
It amounts merely to saying that a savings department
should not tie up any more of its available funds or investments
when it is unable to pay its depositors and, therefore, is in danger of a
run and consequent insolvency.
There is about as much reason to put
such a provision into the law as there is for putting in a provision
that the bank shall not rrake loans to a hopelessly insolvent corporation.
It is also urged that this provision prevents a bank from
being insolvent when it is unable to meet the demands of its depositors.
It is not seen how such a provision has any bearing on the legal
.. ,
X-3611
question whether or not a bank is insolvent under such circumstances,
but even i f it did ha'i.·e this effect it would not have any important
bearing on the question now u1·1der consideration.
Mr,. E:liott states the,t in compliance with a requirement of
the State T'anlring !::epartment, the checks used by "special savings
depositors" bear on their faces the \VOrds' nsubject to Rules Governing Special Savings .tcc01.mts 11 •
·-nne
technically non-negotiable, it
appears that in practice they circu-
this renders such checks
late freely and are handled through the clearing houses like any
,:;,rdinary comnercial checl:s.
Mr.
Elliott's brief also contains the following statement:
"The use of this special form of check is permitted at the
option of the bank and not at the option of the depositor and
we believe that the depositors are well aware of the fact that
this pr.ivilege rnay be withdrawn at the option of .the bank and
that it will be w:i.thdrawn if checking against such an account
becomes active. The termination by the bank of a special savi.ng,§_acccunt i~_Ji;sue.lly by transfer to an ordinary comrrercial
account ._ 11
m :io.not
quite see what Mr. Elliott was trying to prove by this state-
rnent, but to
~
mind it shows very clearly that these accounts resemble
commercial accounts much more than savings accounts, and that their.
tendency is to become commercial accounts.
It is intimated that a strict enforcement of the Board's
Regulation D requirine; such deposits to be treated as dernan~j deposits
in computing reserves would amount to a discrimination in favor of
'
'.
X-3611
national banks.
This could not possibly be so, because Regulation D
applies equally to all member banks, national· as well as State, and
if any national bank maintains such accounts it also must treat them
as deiTand deposits for the purpose of coillputing reserves.
But it is
said that national banks have no such accounts because savings deposits
in national banks are not subjected by the National Bank Act to the
same safeguards as are tnrovm abo"tLt savings deposits by the California
Bank Act.
T'c"ds (;eing t::ue, it is rranifest that it would be a dis-
crimination a:2:ainst natioJ:1.al banks to amend Regulation D so as to make
a special exception favoring accounts
~.vhich
meet the peculiar require-
ments of the California Bank Act •vhich cannot possibly be met by
national banks.
Lnother argument advanced by Mr. Elliott is that these deposits should be treated as savings accounts because the State banks
involved always have treated them as savings accounts in computing
their reserves and have carried only 3~ reserves against them.
As
shown above, however, this was directly contrary to the Board's ruling
· on the subject and constituted a violation of t·he Board t s regulations
and the terms of the Federal Reserve Act.
It is ITanifestly absurd
to argue that the Board's regulQtions ought to be amended because the
parties desiring to see them amended have wilfully and consistently
violated them.
own boot-str.aps.
This is like a wan attempting to lift himself by his
. ..
C4
-26-
X-3611
One of the arguments of policy advanced by the representative
of the State banks which deserves special mention is that if the same
reserves must be maintained against these deposits as against demand
deposits several of the largest State member banks in California may
withdraw from the System rather than
~aintain
the 'increased reserves.***
Un1er date of May 5, 1:313, Mr. Perrin addressed a lett.er to
Governor Harding which contained the following statement:
In the campaign upon ''lhich 1ve are entering to bring in
California State banks as members, ;;re :may find it an important
obstacle if 'special savingsr deposits are held to be demand
deposits and whether it will prove an insuperable obstacle in
ma.ey cases cannot. of course, be foretold".
11
In reply, Governor Harding stated the Board•s position, in
part, as follows:
"The Board is of the opinion, therefore, that the present
regulations should not be amended and that in any case where
notice of withdrawal is not mandatory the pass book must he presented at the time of withdrawal if the account is to be considered a time deposit.
"The Board appreciates that this rrray deter some of your
State b~ from joining the System just as it ~ade certain State
institutions in Hew York hesitate about becoming member banks,
but it does not· feel that it can properly change its position in
the matter merely on that account though it hopes that something
may be done to persuade those institutions in California to join
even though the special savings account as handled at the present
time cannot properly be classified as time deposits."
Both Mr. Elliott and Mr. McAdoo question the Board's jurisdiction "to deny their character to deposits which comply with all the
re-quirements of the California Bank Act for savings deposits and which
have been recognized and treated as such by the State Banking Department ever since these deposits have been in existence."
They quote
. .,
-27-
9
Section
X-3611
of the Federal Reserve Act to the effect that, "Subject to
the provisions of this Act and to the regulations of the Board made
pursuant thereto, any bank becoming a member of the Federal Reserve
S~stem
shall retain its full charter and statutory rights as a State
Bank or trust company and may continue to exercise all corporate
powers granted it by the State in which it was createdr and shall
be entitled to all privileges of member banks''. and argue that
it is open to serious <Festion whether the Boar:i can by regulation
prescribe a definition of savings accounts which is in conflict with
the State law.
They say that to treat special savings deposits as
commercial deposits for the purposes of computing reserves is to disregard the California Bank Act.
The question at issue, hcwever. is
what are the correct reserves to be maintained under the provisions of
t~e
Federal Reserve Act? and no right derived from State law is in-
volved.
If the State banks had-any right (which they have not) to
· treat so-called special savings deposits as savings accounts for the
purpose of_ computing reserves, such right would be derived from the
. terms of Section 19 of the Fede.ral Reserve Act and not from any provision of the.State law.
. say that
The Board 1 s regulations do not purpo;t to
•
S'l.}.ch
deposits are not "savings deposits" within the meaning
of the California Bank Act but merely that they are not nsavings
accounts« within the meaning of the Federal Reserve Act-
Manifestly,
the classification of such accounts as demand deposits within the
meaning of the Federal Reserve Act does not denlf to State banks the
C5
\
'!
X-}611
c6
right to waintain such accounts; and, even if it did, it would be
excepted from the above restriction of Section 3 by the plain terms
of the words underlined.
Both Mr. McAdoo and Mr. Elliott argue that the true purpose
of a reserve against deposits is to insure a reasonable ability on the
part of the bank to lrJI:jt withdra,lll'als, and to that extent I agree with
them~
~r.
Elliott argues
f~rtner
that the presentation of the pass
book has little or nothing to do with the ability of the bank to meet
withdrawals.
As
demonstrated above, however, the presentation of a
pass book has a very v1tal bearing on the frequency of withdrawals,
because it prevents the accounts involved from becoming mere checking
accounts which everyone admits are subject to more frequent withdrawals
than strictly savings accounts, and this directly affeets the bank 1 s
ability to meet withdraVJals.
Mt. McAdoo argues that the true distinction between a savings
account and a commercial account lies in the difference in the rela-
tion which the bank holds to the deposit ·- a savings bank being a
trustee whose power over its
depo~·its
is limited and restricted by law
in special ways as compared with the powers of a comnercial uank.
While this may be true in one sense • thie distinction has no direct
relation to the amount of
savings deposits.
~e~es
which should be ro4intained against
It bfs not nearly such an important bearing on the
frequency of withdrawals as the q_uestion whether or not such accounts
[7
-29~
X-3611
are permitted to be checked against or whether they can be withdrawn
only upon the presentation of the pass book.
Mr. McAdoo continues this line of argument as
follows~
11 The ~rue test of a Savings Deposit is therefore whether
or not the deposit is made in an institution which is subject ·
to the requireme11ts and restrictions placed by law on savings
banks and which, in conse~1ence, must reserve to itself,with
respect to such deposits, the right to receive prior notice of
withdrawal. It is submitted. that if a commercial bank,not subject to the laws regulating savings banks, instituted a form of
deposit which met both the .l"equirernents of Regulation ,.D'*u
which requi'red both presentation of pass book and notice of withdravoral, such a deposit 1M:lu.l.d still not be a 'Savings Deposit 1be_cause not subject t~ the protection and guarantees with which the
law su.rrounds the relation between a savings bank and its depositors."
While this may be true as to the meaning of the term "savings
deposits" as
u.yd
in the O:l.l1fornia Bank .Act, it cannot be true as to
the meaning of the term "savings accounts" as used in the Federal Re-
serve Jet 1 which is the statute under consideration..
Otherwise
national banks (which undoubtedly were the banks which Congress had most
prominently in mind when it enacted Section 19 of the Federal Reserve
Act) could not have any savings accounts.
Mr. McAdoo calls attention to the fact that, under the terms
of Saction 13 "savings accounts" are to be considered as "time deposits"
where they are merely "subject to not less than thirty days notice before paymentn, whereas other time deposits must be
thirty days".
11
payable after
I:e says, "all that is reCJ.uired is that the savings bank
should reserve to itself the right a.b any time to insist upon such
.
C:S
,.._.
-30pe:::-.i.o<i. of notice and to postpone payment until its expiration" and that
11 other
accounts are to be treated as
1 time
deposits' only where there
is a flat postponement of payment for thirty days or more. 11
He then argues
that this distinction between time deposits and savings accounts rests
on the fact the,t the laws governing the operations of savings banks limit
the power of withdrawal by depositors in such a ·vay as to throw around
funds of the savings ba.>1k, even 1··:hel'e no nctica of
~~.rithdrawal
is actually
required, a protection ":hich tb::J fu:1Js of a corm:ercial bank do not enjoy.
lie illustrates this by refsr:mce to a number of peculiar provisions of
the California Bank Let.
He
s".l<'!IS
up this argwnent \•.rith the statement
that "It, therefore, oeems to follow that the words'Savings Accounts'
as used in Section 19 of the Federal Res.;;rve Act, mean nothing more
than
1 acco'Ul'lts
in savings ban,k. 111
This argument also is open to the
objection that it is entirely iQapplicable to savings accounts in
national banks, and if Mr. r-1cAdoo 1 s view were a a:epted it would be
impossible for national b~riks t·o Ir.aintain savings accounts within the
meaning of Section
13
of the Federal Reserve .Act, which right they have
e;{ercised for years without question.
Mr. ¥cAdoo contends that Regulation D adds some additional
requirements to those prescribed by Section 1~ and questions the Board's
right to Chaqr,e the meanin~ of Section
19
by regulation.
I agree with
him that the Board has no right to enact a regulation whiCh is inconsistent
with the plain_terms of tha .ll.ct, but I b3lieve that the Board's Regulation D is nothing more than a reasonable interpretation of the mean-
[9
-31ing of the Act, and that that part of it which defines "savings accounts"
is entirely consistent with the language and }lhilosophy of the Act and
the intent of Con,Q;ress in enacting it.
Furthermore, I am of the opinion
that any attempt on the part of the Boar:l to amend its Regulation D
so as to waive the presentation of the pass book and require only
3~
reserves against these so-called ''special saving::. deposits", v.,rhich are
in rea"jl!j,y specially pnvile[;ed. ch"-cl:in:· accounts, wo.uld be inconsistent with the law and, therefore,
~.\·ould
b;:J entirely unauthorized.
The fact that the Board's present definition of savings
.
accounts has been in force for over eight years and has not been
questioned except by these few California banks and by them only as
to its effect on this peculiar class of deposits would be given great
weight
~
a court as indicating the proper construction of that term as
used in the Federal Reserve Act.
"It is a rule, announced by the Supreme Court of
the United States at an early day, and which has since been
followed in numerous cases both in the federal and state
courts, that the contemporaneous construction put upon a
statute by the officers who have been called upon to carry
it into effect, made·the basis of their constant and uniform practice for a long period of time, and generally
acquiesced in, and not questioned by any suit brought, or
any public or private action instituted, to test and settle
the construction in the courts, is entitled to gr.:~~t respect, and if the statute is doubtful or ambiguous', such
practical construction ought to be accepted as in accordance with the true meaning of the law, unless there are
very cogent and persuasive reasons for departing from it n.
(Black, Interpretation of Laws, Second Edit ion, J? 301.)
co
.._,,
-32CONCLUSION.
In conclusion, I am of the opinion that!
1.
~t
The Federal Reserve Board did not exceed its powers when
prescribed in Regulation D that in order for a deposit to be con-
sidered a "savings account" in computing reserves it must be a deposit which is not subject to withdrawal without the presentation of
a pass book, certificate, or other similar form of receipt.
2.
The Federal Reserve Board would exceed its powers if it
amended its Regulation D so as to permit deposits which are subject to
withdrawal by check without the presentation of a pass book, certificate of deposit or similar receipt to be classified as "savings accounts"
t,
for the purpose of computing reserves.
3·
The s"O... called "special savings deposits 11 of California banks
cannot properly be, considered "savings accounts" within the meaning of Section 19 of the Federal Reserve Act, not only because they are subject to
withdra~l
without the presentation of the pass book but also because they
are checking ac.counts and differ essentially from that class of accounts
which is generally known and recognized as savings accounts.
4.
Such deposits must be classified as demand deposits in
computing the reserves to be
~Aintained
under the terms of Section 19,
because they are essentially checking nccountsj and the Board would fail
in the performance of its duty if it permitted only 3~ reserves to be maintaiued against them.
.,
.
£1
-33-
5·
The only
~anner
in which such deposits can legally be
made subject to 3~ reserves without changing the terms on which they·
are received is by an amendment to the law.
Respectfully submitted,
(Signed) 1Yalter VTya.tt
General Counsel.
@FedFRASER