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1961 997 P R E S S S T A T E M E N T . J a n u a r y 29, 1917» The F e d e r a l R e s e r v e Board t o - d a y made p u b l i c t h e t e x t of a memorandum t r a n s m i t t e d t o i t "by Mr* James B. F o r g a n , P r e s i d e n t of t h e F e d e r a l Advisory C o u n c i l , e x p r e s s i n g t h e views of t h a t "body w i t h r e f e r e n c e t o t h e p r o p o s e d amendments t o t h e F e d e r a l R e s e r v e Act r e c e n t l y s u b m i t t e d t o t h e Banking and Currency Committees of t h e t w o Houses of C o n g r e s s by t h e F e d e r a l R e s e r v e BoardI t w i l l . b e noted t h a t t h e Council unanimously a p p r o v e d t h e p r o p o s e d n o t e i s s u e amendment which had been s t r i c k e n o u t by t h e House Committee on Banking and C u r r e n c y , and t h a t t h e C o u n c i l h a s s u g g e s t e d a m o d i f i c a t i o n of t h e p r o p o s e d r e s e r v e s t o be c a r r i e d by member banks w i t h t h e F e d e r a l r e s e r v e banks• I n v i e w of t h e f a c t , however, t h a t t h e House Committee s t r u c k o u t a l l r e q u i r e m e n t s f o r v a u l t c a s h , t h e Board b e l i e v e s t h a t t h e s u g g e s t e d r e s e r v e s of s e v e n , t e n , and t h i r t e e n p e r c e n t r e s p e c t i v e l y f o r c o u n t r y b a n k s , r e s e r v e c i t y banks and c e n t r a l r e s e r v e c i t y banks, should be r e t a i n e d . The A d v i s o r y C o u n c i l ' s memorandum, d a t e d J a n u a r y 2 $ t h , i s as f o l l o w s : 1963 v * 997RECOMMENDATIONS BY THE FEDERAL ADVISORY JGUNCIL IN REGARD TO THE AMENDMENTS TO THE FEDERAL RESERVE ACT PROPOSED BY FHE FEDERAL RESERVE BOARD JANUARY 19 1 7 . Noi 1 . AMENDMENT TO SECTION l 6 which p r o v i d e s ( a ) f o r t h e i s s u e of F e d e r a l r e s e r v e n o t e s d i r e c t l y a g a i n s t t h e d e p o s i t of g o l d ; or 100$ of p a p e r , o r b o t h ; (b) f o r thfe c o u n t i n g of g o l d h e l d by t h e F e d e r a l r e s e r v e agents as s e c u r i t y f b r n o t e s , a s p a r t of t h e g o l d r e s e r v e r e q u i r e d t o be h e l d by t h e bank a g a i n s t such F e d e r a l r e s e r v e n o t e s ; Meets w i t h t h e a p p r o v a l of t h e F e d e r a l A d v i s o r y C o u n c i l * No. 2 . IN RE. AMENDMENT OF SECTION 19, a b b r e v i a t i n g and s i m p l i f y i n g t h e c l a u s e s i n S e c t i o n 29 which r e l a t e t o r e s e r v e r e q u i r e m e n t s • T h i s p r o v i d e s t h a t a l l member banks s h a l l - maintain Reserves i n the Federal reserve bank a s f o l l o w s : Against Demand Deposits . ( a ) Country banks ( b ) R e s e r v e c i t y banks ( c ) C e n t r a l R e s e r v e c i t y banks 7$ 10$ 13$ and i n a d d i t i o n e v e r y member bank i s r e q u i r e d t o keep i n i t s own v a u l t f o r t i l l money an amount of s p e c i e o r c u r r e n c y ( n o t n e c e s s a r i l y g o l d o r l a w f u l money) e q u a l t o f i v e p e r c e n t of i t s demand d e p o s i t s , l e s s t h e amount of n e t b a l a n c e w i t h F e d e r a l r e s e r v e banks i n e x c e s s of t h e minimum above stipulated. Against Time Deposits 3$ 3? 3$ 1963 ?97- T h i s amendment i s 2 - i n h a r n ? . o n y wiiii one of t h e "basic p r i n - c i p l e s of t h e F e d e r a l R e s e r v e Act t o t h e e f f e c t t h a t t h e "bulk of t h e g o l d h e l d a s r e s e r v e s f o r "bank d e p o s i t s s h o u l d "be m o b i l i z e d i n t h e F e d e r a l r e s e r v e "banks• From t h e s t a n d p o i n t however of a p r a c t i c a l working b a s i s t h e Council doubts if of t h e member banks* a v a i l a b l e so mtich a s i s p r o p o s e d c a s h s h o u l d be a r b i t r a r i l y t i e d up i n t h e form of compulsory b a l a n c e s w i t h t h e F e d e r a l Reserve b a n k s • The C o u n c i l a t i t s m e e t i n g of September l $ t h l a s t , drew t h e B o a r d 1 s a t t e n t i o n t o t h e f a c t t h a t u n t i l t h e S t a t e banks j o i n t h e s y s t e m and d a i l y c l e a r i n g h o u s e b a l a n c e s c a n be s e t t l e d by c h e c k s on t h e F e d e r a l r e s e r v e banks t h e member b a n k s , e s p e c i a l l y i n t h e l a r g e c i t i e s , must keep a s u f f i c i e n t s u p p l y of g o l d or law^ f u l money on hand f o r t h e s e t t l e m e n t of such b a l a n c e s a s w e l l a s f o r t h e i r counter use. B e s i d e s t h i s i t would be a c o n s e r v a t i v e p o l i c y f o r t h e member banks t o keep i n t h e i r own v a u l t s a r e a s o n a b l e amount of g o l d ©r l a w f u l money p r o p o r t i o n a t e t o t h e i r demand d e p o s i t s * # Banks l o c a t e d i n F e d e r a l r e s e r v e c i t i e s ridw r e c e i v e from t h e F e d e r a l r e s e r v e banks l a t e i n t h e a f t e r n o o n checks on t h e m s e l v e s i n l a r g e volume and amount which have a c c u m u l a t e d d u r i n g t h e day and have been c h a r g e d a g a i n s t t h e i r l e g a l r e s e r v e b a l a n c e s i n s u c h l a r g e volume and amount a s t o hamper t h e n i n m a i n t a i n i n g t h e i r l e g a l r e s e r v e b a l a n c e s * I n o u r o p i n i o n 5$ c a s h on hand would n o t be s u f f i c i e n t f o r t h e s e p u r p o s e s and from a p r a c t i c a l s t a n d p o i n t i t would f a c i l i t a t e t h e o p e r - 1964 997 a t i o n s of the member banks i f t h e minimum compulsory balances t o be kept by them with t h e Federal reserve banks a g a i n s t t h e i r demand d e p o s i t s were at l e a s t reduced i n each c l a s s and t h e per*, centage of the t i l l money correspondingly i n c r e a s e d i n t h e case of the r e s e r v e c i t y and c e n t r a l r e s e r v e c i t y banks., t h e irid re as 6 i n / t i l l money i n t h e casB di the country banks being unnecessary* . . . . . . i * The C o u n c i l ' s recommendation i s t h e r e f o r e as f a l l o w s ; . Deposits in Federal Res. Banks a g a i n s t Demand D e p o s i t s . Deposits in F e d e r a l Res. Till Banks a g a i n s t Time D e p o s i t s . Money Country Banks 6$ 3$ Reserve City Banks 9$ 3$ Central Reserve City Banks No. y . 12$ "bi° 5^ 6$ AMENDMENT OF SECTION 11, so a s t o p e r m i t t h e F e d e r a l Reserve Board t o r a i s e r e s e r v e requirements i n e m e r g e n c i e s , j u s t as i t i s now empowered i n c e r t a i n c o n t i n g e n c i e s of a d i f f e r e n t kind t o lower t h o s e requirements. The Council i s of o p i n i o n t h a t i t would "be u n d e s i r a b l e and unnecessary t o grant such power t o t h e Federal Reserve Board. The Board would only take a c t i o n under such power when member banks are overburdened w i t h s u r p l u s cash r e s e r v e s and i t s a c t i o n then could o n l y apply t o member banks. The e f f e c t would t h e r e - f o r e be t h a t member banks would be compelled t o i n c r e a s e t h e i r n o n i n t e r e s t - b e a r i n g balances w i t h t h e Federal r e s e r v e banks w h i l e t •. * -4- . 99? , nonmember banks would have t h e f r e e . u s e of t h e i r f u n d s . I t would p l a c e a n o t h e r s t u m b l i n g b l o c k i n t h e way of S t a t e banks j o i n i n g the system. No. 4 . AMENDMENT OF SECTION 13, t o p e r m i t nonmember S t a t e banks and t r u s t companies, even t h o u g h t o o s m a l l t o be e l i g i b l e f o r membership i n t h e F e d e r a l r e s e r v e b a n k s , t o a v a i l , t h e m s e l v e s of t h e c l e a r ~ l e g and c o l l e c t i o n f a c i l i t i e s of t h e F e d e r a l r e s e r v e b a n k s , p r o v i d e d t h a t t h e y ctiver a t p a r c h e c k s on t h e m s e l v e s s e n t f o r c o l l e c t i o n by t h e F e d e r a l r e s e r v e bank and p r o v i d e d f u r t h e r t h a t they keep a compensating b a l a n c e with t h e F e f e r a l r e s e r v e bank i n an amount t o be d e t e r mined u n d e r r u l e s p r e s c r i b e d by t h e F e d e r a l Reserve Board. T h i s m i g h t work t o t h e m u t u a l a d v a n t a g e of t h e member banks i n c o n n e c t i o n w i t h t h e c h e c k c o l l e c t i o n s y s t e m and of n o n member banks w i l l i n g t o conform t o t h e r u l e s p r e s c r i b e d by t h e F e d e r a l ' R e s e r v e Board a s w e l l a s t o t h a t of t h e F e d e r a l r e s e r v e banks t h r o u g h t h e -•compensating b a l a n c e s . The e x p e r i m e n t m i g h t be worth t r y i n g . No* 5 . AMENDMENT OF SECTION 22 - t h e p e n a l s t a t u t e - so ad t o d e f i n e more c l e a r l y t h e r i g h t s and l i m i t a t i o n s of.. d i r e c t o r s i n t h e m a t t e r , of a c c e p t i n g f e e s or compensation o t h e r t h a n t h e ordinary f e e s paid directors f o r legitimate services rendered i n t h e r e g u l a r c o u r s e of b u s i n e s s , t h e p e r f o r mance of which s e r v i c e s i s n o t incumbent upon them i n t h e i r c a p a c i t y a s d i r e c t o r s . The C o u n c i l would recommend t h a t t h e p r o p o s e d a d d i t i o n t o S e c t i o n 22 commencing w i t h "PROVIDED, HOWEVER, THAT NOTHING IN THIS ACT CONTAINED" s h o u l d be amended a s f o l l o w s : 1965 1966 ' ' -5- 997 PROVIDED, HOWEVER, THAT NOTHING IN THIS ACT CONTAINED SHALL BE CONSTRUED TO PROHIBIT A DIRECTOR, OFFICER, OR EMPLOYEE FROM RECEIVING THE SAME RATE OF INTEREST PAID TO OTHER DEPOSITORS FOR SIMILAR DEPOSITS B D E WITH SUCH BANK: OR TO PROHIBIT A DIRECTOR, WHO IS NOT AN OFFICER OR EMPLOYEE FROM RECEIVING, DIRECTLY OR INDIRECTLY, THE USUAL AND CUSTOMARY COMMISSIONS OR FEES FOR SERVICES RENDERED IN BUYING AND SELLING SECURITIES OR OTHER INVESTMENTS FOR OR ON ACCOUNT OF SUCH BANK, BUT IN THIS LATTER CASE THE ACTION OF THE BOARD OF BISECTORS, IN DIRECTING EACH PURCHASER OR SALE OF SUCH SECURITIES OR OTHER INVESTMENTS, MUST BE BY AN AFFIRMATIVE VOTE OR W T T E # ASSENT OF AT LEAST THREE-FOURTHS OF THE MEMBERS OF THE BOARD EXCLUSIVE OF THE DIRECTOR INTERESTED. AND BUT EACH SUCH TRANSACTION MUST BE RECORDED IN THE MINUTES OF THE MEETING OF SAID BOARD, SUCH MINUTES TO SPECIFY THE NAME; OF THE DIRECTOR AND THE FIRit OR CORPORATION WITH WHICH HE IS CONNECTED, IF ANY, THROUGH WHICH SUCH ORDER IS TO BE EXECUTED TOGETHER WITH THE AMOUNT OF THE FEE OR COMMISSION TO BE PAID ON EACH TRANSACTION; AND, PROVIDED FURTHER, THAT NOTES, DRAFTS, BILLS OF EXCHANGE, OR OTHER EVIDENCES OF DEBT EXECUTED OR INDORSED BY DIRECTORS OF A MEMBER BANK MAY BE DISCOUNTED WITH SUCH MEMBER BANK ON THE SAME TERMS AND CONDITIONS AS OTHER NOTES, DRAFTS, BILLS OF EXCHANGE, OR EVIDENCES OF DEBT UPON THE AFFIRMATIVE VOTE OR WRITTEN ASSENT OF AT LEAST THREE-FOtRTHS OF THE MEMBERS OF THE BOARD OF DIRECTORS'. OF SUGH MEMBER BANK. The C o u n c i l makes t h i s recommendation 'because i n i t s judgment an a f f i r m a t i v e v o t e o r w r i t t e n a s s e n t of a t l e a s t t h r e e f o u r t h s of t h e members of t h e Board i s a n u n n e c e s s a r y r e s t r i c t i o n i n c o n n e c t i o n w i t h such s e r v i c e s by a d i r e c t o r a s t h e b u y i n g and s e l l i n g of s e c u r i t i e s and inasmuch a s n o t e s , d r a f t s , b i l l s of e x change o r o t h e r e v i d e n c e s of d e b t e x e c u t e d or i n d o r s e d by bank d i r e c t o r s a r e a s a r u l e t h e very b e s t of t h e i r c l a s s , t h e p l a c i n g of s p e c i a l r e s t r i c t i o n s on t h e d i s c o u n t i n g of s u c h i n s t r u m e n t s f o r d i r e c t o r s would o n l y u n n e c e s s a r i l y and u n w a r r a n t a b l y impede l e g i t i m a t e business or f o r c e i t i n t o o t h e r banks. 997 -6_ No- 6 . AMENDMENT OF SECTION l j t o r e s t o r e t h e p r o v i s i o n which was "by error stricken from the Act in the amendments of September 7, 19l6> thus restoring to national banks> with the approval of the Federal Reserve Board, the right to accept up to 100$ of their capital and surplus in transactions involving imports and exports. The C o u n c i l a p p r o v e s t h i s amendment. No. 7 . AMENDMENT OF SECTION i f , t o e&tieel t h e p r o v i s i o n of The N a t i o n a l Bank Act which R e q u i r e s n a t i o n a l banks t o m a i n t a i n a minimum d e p t i s i t of Government bonds w i t h t h e T r e a s u r e r of t h e U n i t e d States. The C o u n c i l a p p r o v e s t h i s amendment. No. 8 . AMENDMENT OF SECTION 25 t o a u t h o r i z e member banks l o c a t e d i n c i t i e s of more t h a n 1 0 0 , 0 0 0 p o p u l a t i o n and w h i c h have a c a p i t a l and s u r p l u s of more t h a n $ 1 , 0 0 0 , 0 0 0 t o e s t a b l i s h b r a n c h e s i n t h e sane c i t y , p r o v i d e d t h e S t a t e laws do n o t p r o h i b i t S t a t e banks and t r u s t companies from e s t a b l i s h i n g b r a n c h e s . The C o u n c i l h a s a l r e a d y a d v i s e d t h e Board t h a t i t a p - p r o v e s t h e a u t h o r i z a t i o n of member banks l o c a t e d i n cities of more t h a n 100,000 p o p u l a t i o n and which h a v e a c a p i t a l and s u r p l u s of more t h a n $ 1 , 0 0 0 , 0 0 0 t o e s t a b l i s h b r a n c h e s i n t h e same c i t y , b u t d i s a p p r o v e s t h e g r a n t i n g of s u c h a p r i v i l e g e t o t h e banks i n some S t a t e s w h i l e i t i s w i t h h e l d f r o m banks i n o t h e r S t a t e s irrespective of S t a t e laws a f f e c t i n g S t a t e banks and t r u s t companies i n r e g a r d t o t h e e s t a b l i s h m e n t of b r a n c h e s by them. 1967 1968 997 -7— No. 9 - AMENDMENT CF SECTION $ , a u t h o r i z e m u t u a l s a v i n g s baulks n o t h a v i n g a c a p i t a l s t o c k t o become a s s o c i a t e members of t h e F e d e r a l r e s e r v e s y s t e m tinder c e r t a i n prescribed conditions. The C o u n c i l a p p r o v e s t h i s amendment. No. 1 0 . AMENDMENT OF SECTION 18 so a s t o g i v e t o U n i t e d S t a t e s o n e - y e a r 3$ g o l d n o t e s i n t h e hands of F e d e r a l r e s e r v e banks t h e c i r c u l a t i o n p r i v i l e g e f o r t h e i s s u a n c e of F e d e r a l r e s e r v e bank n o t e s . The C o u n c i l would recommend t h a t i n s t e a d of amending S e c - t i o n 18 so a s t o g i v e U n i t e d S t a t e s o n e - y e a r 3 $ g o l d n o t e s i n t h e hands of F e d e r a l r e s e r v e banks t h e c i r c u l a t i o n p r i v i l e g e f o r t h e i s s u a n c e of F e d e r a l r e s e r v e bank n o t e s t h a t t h e l a w p r o v i d i n g f o r t h e e x c h a n g e of 2$ g o l d b o n d s b e a r i n g t h e c i r c u l a t i o n p r i v i l e g e , b u t a g a i n s t which no c i r c u l a t i o n i s o u t s t a n d i n g , f o r o n e - y e a r g o l d n o t e s t o a n amount n o t e x c e e d i n g o n e - h a l f of t h e 2$ bonds s o t e n d e r e d f o r e x c h a n g e , be so amended a s t o do away w i t h t h e oney e a r g o l d n o t e s e n t i r e l y and p r o v i d e t h a t t h e 2$ gold bonds may be e x c h a n g e d f o r an e q u a l etoount of t h i r t y - y e a r 3$ g o l d bonds without the c i r c u l a t i o n p r i v i l e g e . No. 1 1 . AMENDMENT OF SECTION 4 t o a b o l i s h t h e t i t l e and o f f i c e of Deputy F e d e r a l R e s e r v e A g e n t , t h u s h a v i n g two u n a t t a c h e d C l a s s C d i r e c t o r s i n s t e a d of one a s a t p r e s e n t , and t o c r e a t e t h e p o s i t i o n of A s s i s t a n t F e d e r a l R e s e r v e A g e n t , who s h a l l n o t be a d i r e c t o r of t h e bank, b u t who s h a l l be a S a l a r i e d bonded o f f i c e r i n t h e 997 «-8w F e d e r a l Reserve Agent1s department s e r v i n g a t a l l t i m e s a s an a s s i s t a n t t o t h e F e d e r a l R e s e r v e Agent and q u a l i f i e d t o a c t f o r t h e Agent i n h i s absence# As member banks and o t h e r s doing b u s i n e s s w i t h t h e F e d e r a l R e s e r v e Agent and h i s a s s i s t a n t would n o t n e c e s s a r i l y be c h a r g e d w i t h knowledge of the a b s e n c e o r d i s a b i l i t y of t h e F e d e r a l R e s e r v e Agent t h e r e s t r i c t e d power of h i s a s s i s t a n t t o a c t i n h i s name and s t e a d o n l y d u r i n g h i s a b s e n c e o r d i s a b i l i t y s h o u l d f o r t h e i r p r o t e c t i o n be removed by s t r i k i n g o u t t h e words " d u r ing h i s absence o r d i s a b i l i t y " o c c u r r i n g in t h e l a s t paragraph of t h e p r o p o s e d amendment. If t h e a s s i s t a n t s h o u l d a c t i n any m a t t e r of i m p o r t a n c e d u r i n g t h e p r e s e n c e or d i s a b i l i t y o'f t h e Ag6nt t o act f o r h i m s e l f h i s a c t i o n would b e n u l l and v o i d . w i s e t h e C o u n c i l s e e s no o b j e c t i o n t o the amendment. 1/29/17 Other-
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