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For immediate release January 18, 1935 The Federal Reserve Board recently reviewed the general policy to be pursued in the selection of directors of Federal Re serve banks and their branches, and determined certain principles that should be observed in making these appointments. Under the law the Board appoints 5 of the 9 directors of each Federal Reserve bank and either tv;o or three of the directors of each branch, depending on whether the branch lias five or seven directors. Uhile the majority of branch directors are in all cases appointed by the Federal Reserve banks, the method of their selection is sub ject to rules and regulations prescribed by the Board. In view of the fact that operations of the Federal Reserve banks are vested with a public interest, the Board deemed it desir able that there should, be a certain degree of rotation in the member ship of the directorates of these banks and their branches. Gradual changes in the personnel of these directorates would insure against possible crystallization at the banks of the influence of individ uals or groups, which might not be in the public interest, as the Reserve banks must render uniform service to all the elements in their communities. Continuity of policy and the benefits of ac- X-9099 quired experience vdll be retained by permitting directors to serve as long as 6 years, and at the same time rigidity, will be avoided by now reappointing persons who have completed 6 years of service. Board proposes to follow this practice in the selection of that are subject to appointment by the Board, The irectors This rule will noc apply, however, to chairmen of the boards of directors, who are full time officials of the reserve banks. The Board also believes that the reserve banks and branches vdll be best adapted to serving their local communities if their di rectors are selected from persons whose business and financial inter ests are primarily within the bank or branch territory, and not representatives of interests owned or controlled outside the territory. The value of the regional organization of the Federal Reserve System rests on the closeness of its managements to the local problems of their communities, and the selection as directors of persons con nected vdth local enterprises will contribute to the maintenance of this relationship. In malting its own appointments of branch directors the Fed eral Reserve Board will henceforth select persons who are engaged in agriculture, industry, or commerce, rather than persons who are of ficers of banks, and in its revised regulation the Board provides that Federal Reserve banks need not confine their own appointments to branch directorates to bankers, but may also in their discretion ap point persons engaged in other business in the community. The Board's views on this matter are based on recognition of the fact that X-9099 sympathetic understanding of local trade and industrial conditions is as important as banking experience for the most effective manage ment of a Federal Reserve branch. A copy of the Board’s letter of January 9, 1955, to the Fed eral Reserve banks on this subject is attached. FED ER AL RESERVE B O A R D WASHINGTON A D D R E S S O F F IC IA L C O R R E S P O N D E N C E T O TH E FEDERAL RESERVE BO ARD X-9083 January 9, 1935• Dear Sir: The Board has been reviewing the questions of general policy involved in the selection of directors of Federal reserve banks and of their branches. In view of the special character of the func tions of these institutions and the public interest in then the Board believes that the composition of the boards and the tenure of service of their members are matters of great importance. The Board recognizes that experience gained from participation in the direc tion of the management of the Federal reserve banks and their branches has its distinct value but it believes that this can be overstressed and that there are special advantages that would come to these insti tutions from bringing to bear on their management from time to time new points of view and differing backgrounds of experience. In con sequence, the Board believes that neither great length of service nor too frequent changes are desirable and has endeavored to find a solu tion which on the whole and in the long run will be conducive to the best development of the policies of the banks and at the same time protect them against criticisms based either upon the fact or the possibility of crystallization of control of their managements by 7 7 -2 - X -9083 particular individuals or groups through long continuance in power. Therefore the Board has reached the conclusion that six years of service represents the maximum period during which a direc tor should remain continuously in office* It will be guided by this view in future and will not continue in office as directors men ap pointed by it who have served six or more consecutive years (except in the cases of chairmen of the Federal reserve banks). It is also the view of the Board that the welfare of the \ Federal reserve banks wall be served best by directors whose business and financial interests are primarily -within and representative of the bank or branch territory for which they are selected rather than of interests controlled or owned outside of such territory* The Board also feels that it is essential that the directors be men of established reputation and ability to meet their financial obliga tions* While the Board is aware of the fact that its present regula tions provide that directors of branches appointed by the Federal reserve banks shall be men well qualified and experienced in banking* the Board believes that the Federal reserve banks should be at liberty to select other men of high character and standing who are engaged in agriculture* industry or commerce* and it is the intention of the Board to follow uniformly in all districts the policy of selecting as its appointees individuals who are not officers of -banks or 3- X -9083 primarily engaged in banking, although they may be stockholders or directors of banks* ' The Board expects to apply these principles in the selec tion of directors appointed by it in the future, and is also amending its rules and regulations regarding the appointment of directors of branches of Federal reserve banks which were set forth in its letter of January 29, 1926, X-4516, so as to conform to these principles. A copy of the regulations as revised is attached hereto* It may be added in this connection that the reappointments made by the Board to take effect January 1, 1935, of branch direc tors who have already served six or more consecutive years were for the year 1935 only. . It will be appreciated if you will bring this letter to the attention of all the directors of your bank and its branches, if any* Very truly yours, M. S* Eccles, Governor. TO ALL CHAIRMEh OF FEDERAL RESERVE BALKS. 79 X-9083-a 1. The board of directors of each branch of a Federal reserve bank shall consist either of seven members or of five members, as may be determined by the Federal re serve bank, subject to the approval of the Federal Reserve Board. Y/here the board of directors of the branch consists of seven members, four shall be appointed by the Federal re serve bank and three by the Federal .Reserve Board, and, where the board consists of five members, three shall be appointed by the Federal reserve bank and two by the Federal Reserve Board. 2. All directors shall be persons of high character and standing who have established reputations and ability to meet their financial obligations. They shall be persons whose business and financial interests are primarily within and representative of the branch territory rather than of inter ests controlled or owned outside the territory. The directors appointed by the Federal reserve banks shall be persons who are either well qualified and experienced in banking or ac tively engaged in agriculture, industry or commerce. The directors appointed by the Federal Reserve Board shall be persons who are actively engaged in agriculture, industry or commerce and who are not primarily engaged in banking (al though they may be stockholders or directors of banks). 3. All directors shall be citizens of the district and shall reside within the territory served by the branch, but at least one of the directors appointed by the bank and one appointed by the Board shall reside outside of the city in which the branch is located. 4. One of the directors appointed by the reserve bank shall be the active manager of the branch and shall . have the title Managing Director” . 5. The term of office for the director chosen by the reserve bank to act as Managing Director of the branch shall be one year, subject to reappointment from year to year, if such action be desirable. 6. The full term for other directors shall be three years where the branch board consists of seven members and two years where the branch board consists of five members. In order to make practicable an orderly rotation or branch X -9083~a directorships, the terms of directors, other than the Manag ing Director, shall he so arranged that the terra of a direc tor appointed by the Federal Reserve Board and the term of a director appointed by the Federal reserve bank shall expire at the end of each year* No director, other than the Manag ing Director, shall be reappointed for a term immediately following six or more years of continuous service as a director. 7. The board of directors of each branch shall annually elect as chairman of the board the member appointed by the Federal Reserve Board whose term of office expires with the current year. 8. In the event of a vacancy occurring in the board of directors of a branch of a Federal reserve bank, the appoint ment to fill such vacancy shall be made by the body making the original appointment and such appointment- shall be for the unexpired term. 9. As provided in Section 3 of the Federal Reserve Act, directors of branches of Federal reserve banks hold office at the pleasure of the Federal Reserve Board.
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