Full text of Banking Act of 1933 : Report (To Accompany H.R. 5661)

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73d C ongbess
1st Session

) HOUSE OP RBPEBSBNTATIYBS
J

j
I

R eport

No. 150

BAN K IN G ACT OF 1933

M a y 19, 1933.— Committed to the Committee of the Whole House on the state

of the Union and ordered to be printed

Mr.

S te a g a ll,

from the Committee on BankingTand Currency,
submitted the following

REPORT
[To accompany H.R. 5661]

The Committee on Banking and Currency, to whom was referred
the bill (H.R. 5661) to provide for the safer use of the assets of banks,
to regulate interbank control, to prevent the undue diversion of
funds into speculative operations, and for other purposes, having
considered the same, report favorably thereon and Recommend that
the bill do pass.
STATEMENT

This bill provides for salutary reforms of our banking system and
the laws governing it along three important lines.
It makes provision for strengthening the restrictions upon banks
and bank officers in the making of loans for speculative purposes and
in investing bank funds.
It makes provision for expediting the liquidation of hundreds of
banks now in receivership, but providing for the purchase of the
good but frozen assets belonging to such receivership, or the lending
of funds on such assets as collateral security, so as to enable prompt
distribution to the distressed depositors in these closed banks.
We submit the following excerpts from the report of the Senate
Committee on Banking and Currency on S. 1631 relating to provisions
of that bill which are substantially identical with some of the pro­
visions of the House bill as follows:
Places general restrictions upon the operating policy of Federal Reserve banks
with the intent to limit them to the extension of credit for ordinary business pur­
poses and to make plain that their resources are not to be used to support specula­
tion. The Reserve Board is given power to oversee and direct such use of the
resources of banks.
This section also provides that where two or more member banks are affiliated
with the same holding company, they may participate in the nomination and




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BANKING ACT OF 1 9 3 3

election of directors of the Federal Reserve bank in their district through one of
the banks to be designated for that purpose by the holding company.
Amends the first paragraph of section 7 of the Federal Reserve Act so as to
eliminate the requirement of the payment of a franchise tax to the United States
by Federal Reserve banks.
Amends section 9 of the Federal Reserve Act so as to extend the privileges of
membership in the system to Morris Plan banks and other incorporated banking
institutions engaged in similar business, and to mutual savings banks having no
capital stock and any other banking institutions the capital of which consists of
segregated weekly or other time deposits.
Provision is also made for reports of condition of affiliates of State member
banks and for the examination of all such affiliates by examiners selected or
approved by the Federal Reserve Board.
The section also subjects State member banks to the same limitations and
conditions with respect to the purchasing, selling, underwriting, and holding of
investment securities and stock as are applicable in the case of national banks.
(See sec. 16.)
It is also provided that after 3 years from the date of enactment of the bill
no certificate representing the stock of a State member bank shall represent the
stock of any other corporation except a member bank or an existing corporation
engaged solely in holding the bank premises of the bank, nor be conditioned in
any manner whatsoever upon the ownership, sale, or transfer of a stock certificate
of any other corporation except a member bank. This corresponds to the
provision in section 18 Which is applicable to national banks.
Readjusts the term of members of the Federal Reserve Board so as to secure
as nearly as possible the expiration of terms of members at equal 2-year inter­
vals, and leaves to the Board the determination of its own internal management
policies.
Confers upon the Federal Reserve Board the power to fix from time to time
the percentage of individual member bank capital and surplus which may be
represented by loans secured by stock or bond collateral.
Adds a new section, 12A, to the Federal Reserve Act providing for the crea­
tion of a Federal open-market committee of 12 members to supervise the openmarket operations of the Federal Reserve banks and the relations of the Federal
Reserve System with foreign banks, in accordance with regulations adopted by
the Federal Reserve Board. This in effect legalizes and gives official recognition
to the present open-market committee.
Imposes certain limitations upon advances by Federal Reserve banks to
member banks on their 15-day promissory notes. It is provided that if, during
the life of any such advance and despite an official warning of the Federal Reserve
bank or the Federal Reserve Board to the contrary, any member bank increases
its outstanding loans made to members of any organized stock exchange, invest­
ment house, or dealer in securities for the purpose of purchasing or carrying
stocks, bonds, or other investment securities (except obligations of the United
States) the advance to the member bank shall be immediately due and payable
and the bank shall be ineligible as a borrower on 15-day paper for such period as
the Federal Reserve Board shall determine.
The section also repeals the provisions of existing law which empower a national
banking association located in a place having a population of not more than
5,000 inhabitants to act as the agent of an insurance company.
Gives the Federal Reserve Board power to supervise all relations and trans­
actions of any kind entered into by Federal Reserve banks with foreign banks or
bankers.
^ Prohibits member banks from acting as the medium or the agent of any non­
banking corporation, partnership, association, business trust, or individual in
making loans on the security of stocks, bonds, and other investment securities
to brokers or dealers in such securities.
The section also prohibits the payment by any member bank of interest on
demand deposists, and gives the Federal Reserve Board the power to regulate
the rate of interest which may be paid by member banks on time deposits. It
also amends the law relating to postal savings depositories so as to provide that
all deposits in such depositories shall be for a period of not less than 60 days,
and that no such deposits may be withdrawn prior to the expiration of such
60-day period.
Prohibits any executive officer of a member bank from borrowing from the
bank of which he is such officer, prohibits member banks from making loans to
their executive officers, and provides for the making of a written report by any




BANKING ACT OF 1 9 3 3

3

executive officer of a member bank of the amount in which he may be indebted
to any other member bank. Penalties are provided for the violation of any of
the provisions of this section.
Imposes certain limitations upon loans or extensions of credit by member
banks to their affiliates and also limits the amount which such banks may invest
\in the securities of such affiliates. In general, the maximum limit is 10 percent
of the capital stock and surplus of the member bank in the case of any one affiliate
and 20 percent of the capital stock and surplus in the case of all such affiliates.
It is also required that each such loan or extension of credit be secured by col­
lateral having a market value of at least 20 percent more than the amount of the
loan or extension or at least 10 percent more than the amount of the loan or exten­
sion if it is secured by obligations of any State or political subdivision of a State.
The provisions do not apply, however, to loans or extensions of credit secured by
obligations of the United States, the Federal intermediate credit banks, the Fed­
eral land banks, or by paper eligible for rediscount or purchase by Federal Reserve
banks. Certain types of affiliates are also exempted from the application of the
provisions of this section.
Adds a new section 24A to the Federal Reserve Act which imposes a maximum
limit upon the amounts which national banks and State member banks may
invest in bank premises or in the stock, bonds, debentures, or other such obliga­
tions of a corporation holding the premises of any such bank, and the amounts
which such banks may lend to any such corporation.
Provides that all suits of a civil nature to which any corporation organized
under the laws of the United States shall be a party, arising out of transactions
involving international or foreign banking, shall be deemed to arise under the
laws of the United States, and the district courts of the United States are given
original jurisdiction of all such suits. It is also provided that a defendant in any
such suit may at any time before the trial thereof remove the suit from a State
court to a Federal district court in the same manner as now provided by law for
the removal of other suits.
The section also makes the same provisions with respect to jurisdiction over
all suits of a civil nature to which any Federal Reserve bank shall be a party. It
also prohibits the issuance of attachment or execution against any Federal
Reserve bank or its property before final judgment in any suit, action, or proceed­
ing in any State, county, municipal, or United States court.
Undertakes to broaden the national banking laws by giving national banks all
powers possessed by State banks of deposit and discount organized in the States
in which such national banks are located, except insofar as they may be pro­
hibited by Federal legislation. National banks are to be permitted to purchase
and sell investment securities for their customers to the same extent as heretofore,
but hereafter they are to be authorized to purchase and sell such securities for
their own account only under such limitations and restriction as the Comptroller
of the Currency may prescribe, subject to certain definite maximum limits as to
amount. The limitations as to dealing in investment securities are not to take
effect until 2 years after the approval of the act.
Provides for the amount of capital of national banks depending upon the
population of the places where they are to be located and also prohibits the admis­
sion of a bank into the Federal Reserve System unless it possesses a paid-up unim­
paired capital sufficient to entitle it to become a national bank.
Provides for separating the certificates representing ownership in national
banks and ownership in affiliates other than member banks or existing corpora­
tions engaged solely in holding the bank premises of the affiliated national bank
so that in the future they will not be written upon a single certificate of ownership.
This corresponds to the provision contained in section 5 which is applicable to
State member banks.
Provides for cumulative voting of shares of national-bank stock in the election
of directors and for the voting of national-bank stock held by holding companies
under voting permits obtained from the Federal Reserve Board. Certain limi­
tations are imposed upon such holding companies which they must agree to
comply with at the time the voting permits are obtained. These limitations
relate chiefly to examinations* reports of condition, reserve requirements, and
ownership and control by holding companies of organizations engaged in the
issuance, underwriting, and distribution of securities. These provisions are also
made applicable to holding companies affiliated with State member banks. (See
sec. 5.)
Provides for eliminating after a period of 2 years all affiliations by member
banks with corporations, associations, business trusts, or other similar organi­




4

BANKING ACT OF 1 9 3 3

zations engaged principally in the issuance, underwriting, or distribution of
securities.
Makes it unlawful after a period of 2 years (1) for any person or institution
engaged principally in the issuance, underwriting, or distribution of securities, to
receive deposits; and (2) for any person or institution other than a banking insti­
tution or private banker subject to examination and regulation under State or
Federal law, to engage in the business of receiving deposits, unless such person
or institution shall submit to examination by the Comptroller of the Currency
or by Federal Reserve bank officials, and shall make and publish periodical reports
of its condition.
Authorizes national banks, subject to the approval of the Comptroller of the
Currency, to establish branches at any place within the limits of the city, town,
or village, or at any point within the State in which the national bank is situated,
if the establishment and operation are expressly authorized to State banks by the
law of the State in question, and subject to restrictions as to location imposed by
such law on State banks. No such association is to be permitted, however, to
establish a branch outside of the city, town, or village in which it is located unless
it has a paid-in and unimpaired capital of not less than $500,000; except that in
the case of an association situated in a State with a population of less than
1,000,000 and with no cities of more than 100,000, the required capital shall be
$250,000.
Amends the act of November 7, 1018 (relating to the consolidation of national
banks), to the extent necessary to carry out the policy provided for in section 21.
The section also amends such act with respect to the property rights and the
duties and powers of consolidated national banking institutions.
Limits the interest that may be charged by a national bank to that which may
be charged by local banks in the State where the national bank is located, or to
a rate 1 percent higher than the discount rate on 90-day commercial paper in
effect at the Federal Reserve bank in the district where the national bank is
located, whichever is greater. If no rate is fixed by State law, the maximum
rate the national bank may charge is limited to 7 percent, or 1 percent in excess
of such discount rate, whichever is greater.
Provides that in estimating the total amount of loans which may be made
by a national bank to a corporation, the obligations to the bank of all subsid­
iaries of the corporation in which it owns or controls a majority interest are to
be counted but it does not apply to obligations held by a national bank on the
effective date of the act.
Provides for reports of condition of all types of affiliates of national banks.
This corresponds to the provisions of section 5 which are applicable to affiliates
of State member banks.
Relates to the examinations of affiliates of national banks. There is a cor­
responding provision in section 5 relating to affiliates of State member banks.
Permits the Comptroller of the Currency to authorize a national bank which
has been closed to resume business if the depositors and unsecured creditors of
the bank representing at least 85 percent of its total deposit and unsecured credit
liabilities consent in writing to the retention by the bank of such part of its
deposits as the Comptroller deems necessary.
Provides for the removal from office of directors and officers of member banks
who have continued to violate the banking laws or who have continued unsafe
and unsound banking practices after being warned by a Federal Reserve agent
or the Comptroller of the Currency.
Requires every member bank to have a board of directors consisting of not
less than 5 nor more than 25 members, and that every member of the board shall
be a bona fide owner of stock of the bank having a par value of &Xleast $2,000.
Provides that no officer or director of a member bank shall be an officer, director,
or manager of any institution engaged primarily in the business of purchasing, sell­
ing, or negotiating securities, that no member bank shall act as a correspondent
bank for any such institution, and that no individual, partnership, corporation, or
unincorporated association shall act as correspondent for any member bank
unless a permit therefor is issued by the Federal Reserve Board. The issuance
and revocation of any such permit rests with the discretion of the Board.

Amends the Clayton Act to provide that no director, officer, or employee of any
bank, banking association, or trust company organized or operating under the
laws of the United States shall be at the same time a director, officer, or employee
of a corporation or a member of a partnership which shall make loans secured by
stock or bond collateral.




BANKING ACT OF 19 3 3

5

Permits national banks to hold stock in corporations organized by them for
the purpose of liquidating such of their assets as have been ordered liquidated
by the comptroller.
Reserves the right to alter, amend, or repeal the act and provides for separa­
bility of its provisions in case any part of the act is held invalid.
The changes which are thus suggested are considered to represent essential
matters called for in the interest of immediate inprovement of present conditions
and the avoidance of financial dangers and there is none of them which can wisely
be omitted. All afford solutions that have been indicated by investigators in
many quarters as unavoidable and all are thought urgent for the purpose of
correcting or eliminating actual hazards.

The bill maFes~pr6yision for insuring deposits both in national and
other member banks and in nonmember State banks, which it is
believed will provide absolute indemnity against loss for depositors in
banks insured. The bill does not provide that the Government
shall guarantee the payment of deposits; but it does provide and
require that the banks under Government supervision and regulation
shall mutually guarantee the deposits of each other through the
medium of a Government controlled instrumentality designed for
that purpose; and that the banks shall make such contributions to
the insurance fund provided for, from time to time, as may be neces­
sary to provide for the payment of all deposits in banks which may
be closed; and that such contributions shall be made by the banks
in proportion to the amount of their deposits.
It is submitted that the guarantee of bank deposits against loss
provided by this bill is absolute and that no specific guarantee of the
Government is necessary to make the protection of the depositors
complete.
The bill provides for a Federal Bank Deposit Insurance Corpora­
tion which shall insure all deposits of all member banks, and also of
all State banks complying with the conditions prescribed to the extent
of 100 percent of tne first $10,000 of any deposit and 75 percent of
the next $50,000 thereof, and 50 percent of the amount of any deposits
in excess of $50,000. Provision is made that when a bank is closed
the amounts of the deposits insured as herein stated shall be immedi­
ately available to the depositors through the medium of a temporary
national bank, which shall be created to assume and discharge the
insured deposit liabilities of the closed bank.
The Federal Bank Deposit Insurance Corporation provided for in
the act is to have a capital stock contributed by the Federal Reserve
banks to the extent of one half of their surplus on January 1, 1933,
which will amount to about $150,000,000, while each member bank
is required to subscribe to stock in the Corporation to the extent of
one half of 1 percent of its total deposit liabilities yielding an addi­
tional sum of approximately $150,000,000, in addition to which the
bill provides that the Government shall prescribe for $150,000,000 of
stock in the Corporation, thus providing for approximately $500,000,000 of original capital stock, and further provision is made that the
Corporation may is^ue notes, bonds, debentures, and other similar
obligations in an amotmt aggregating not more than three times the
amount of its capital. It is further provided that whenever the net
deposit liability of the Corporation, over and above the assets of
closed banks, shall equal or exceed one fourth of 1 percent of the de­
posits of the insured banks, the insured banks shall be assessed and
required to subscribe for and pay in an additional amount of stock
equal to one fourth of 1 percent of their deposits.




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BANKING ACT OF 1 9 3 3

The bill requires that the deposits in all banks which are members
of the Federal Reserve System shall be insured under the limitations
before stated and provides that any State bank, or trust company
not a member of the Federal Reserve System, with the approval of the
State authority and after examination by and approval of the Federal
Deposit Insurance Corporation, shall be entitled to the privileges of
insurance provided for member banks upon agreeing to comply with
the law and upon subscribing for the same amount of stock as would
be required if such bank or trust company became a member bank;
and the bill provides that the board of directors of the Federal Deposit
Insurance Corporation whenever in its opinion any such State bank
or trust company has failed to comply with the law, or that its con­
tinued participation in the insurance privileges of the insurance is
detrimental to the safe and economical performance of its duty, may
give notice to such State bank or trust company of its fundings, and
after hearing, be ordered to require withdrawal of such bank or trust
company from participation in the benefits of the law.
It is believed that the bill thus makes absolutely safe and ade­
quate provision for the protection of depositors in the thousands of
nonmember banks, without facing any undue risk or burden upon
the member banks.
There are a large number of nonmember State banks. They are
for the most part small institutions, and the aggregate of their deposit
liabilities is comparatively small. The risk would be diffused so
that the risks assumed in the insurance of their deposits is not large
and can be safely assumed in accordance with the provisions of the
bill.
Certainly it is not necessary to call attention to the great desira­
bility of protection against loss, to the limit of the ability of the
Government to do so, for millions of depositors in these nonmember
banks located in ever}' section of the country, and providing indis­
pensable banking accommodations and facilities for their communi­
ties. The demand for this great reform has become Nation-wide
and has the support of an overwhelming majority of the bankers
themselves. There can be no resumption of normal banking without
such legislation. Experts advise us that more than 90 percent of the
business of the Nation is conducted with bank credit, or check cur­
rency. The use of bank credit has declined to the vanishing point.
The public is afraid to deposit their money in the banks, and the banks
are afraid to employ their deposits in the extension of bank credit for
the support of trade and commerce. Business men and investors
are victimized by the same fear. The result is curtailment of busi­
ness, decline in values, idleness, unemployment, bread lines, national
depression, and distress. We must resume the use of bank credit if
we are to find our way out of our present difficulties
This point could not be more clearly, or forcefully stated than it
was by Dr. Thomas Nixon Carver, professor of political economy at
Harvard University, who in the press of April 23, 1933, said:
Credit will not expand again until confidence is restored. Confidence will not
return until people believe that their money is safe when in a bank or when
invested. They will not have confidence in banks until the Government guar­
antees bank deposits. That is a drastic measure, but nothing short of that will
do.

The bill submitted does not go so far as advocated by this great
economist. The measure provides a mutual insurance plan for




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BANKING ACT OF 1 9 3 3

banks. Dr. Carver together with practically all leading economists
of the country agree that we must have some form for the protection
of deposits.
Along the same lines about a year ago on March 30, 1932, Prof.
Irving Fisher, professor of economics at Yale University, testifying
before the House Banking and Currency Committee, said:
I
have never until last month made any study of guaranteeing bank deposits.
Nevertheless, I have reached a very definite decision, and that is that— especially
at this juncture— we need just such legislation.
*

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*

As I diagnose the present situation, and I have been writing a book on the
depression, and I think I am right, the real kink or trouble today is just what this
bill aims to eliminate, and next to stabilization legislation it seems to me to be the
most constructive legislation before Congress today, and with respect to the
present emergency it is even more important than stabilization legislation. If
you really could convince people that the member banks were safe, hoarding:
would stop overnight, and hoarding, once really stopped, that if, if the hoarded
money were put back into banks, if would soon go on its wav, to be multiplied
by 10.
*

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In conclusion, let me say that I believe it is inevitable that our banking system
must be thoroughly overhauled and made safer, and that- to this end a guaranty
system is of prime importance to help us out of this depression, which I believe
it will do very speedily, and for the permanent interests of industry, commerce,
and agriculture.

Now is the time of all times for this great reform.
In conformity with 2a of rule X III of the House Rules, there is
herewith printed in full the several statutes or parts thereof proposed
to be amended showing by black brackets the omissions proposed to
be made and showing in italics the new matter or insertions proposed
to be made, as follows:
[Sec. 4. Federal Reserve Act, U.S.C., title 12, sec. 301]

Eighth. Upon deposit with the Treasurer of the United States of any bonds
of the United States in the manner provided by existing law relating to national
banks, to receive from the Comptroller of the Currency circulating notes in
blank, registered and countersigned as provided by law, equal in amount to the
par value of the bonds so deposited, such notes to be issued under the same
conditions and provisions of law as relate to the issue of circulating notes of na­
tional banks secured by bonds of the United States bearing the circulating privi­
lege, except that the issue of such notes shall not be limited to the capital stock of
such Federal Reserve bank.
But no Federal Reserve bank shall transact any business except such as is
incidental and necessarily preliminary to its organization until it has been
authorized by the Comptroller of the Currency to commence business under the
provisions of this act.
Every Federal Reserve bank shall be conducted under the supervision and
control of a board of directors.
The board of directors shall perform the duties usually appertaining to the
office of directors of banking associations and all such duties as are prescribed
by law.
Said board of directors shall administer the affairs of said bank fairly and
impartially and without discrimination in favor of or against any member bank
or banks and [shallj may, subject to the provisions of law and the orders of the
Federal Reserve Board, extend to each member bank such discounts, advance­
ments, and accommodations as may be. safely and reasonably made with due
regard for the claims and demands of other member banks, the maintenance of
sound credit conditions, and the accommodation of commerce, industry, and agricul­
ture. The Federal Reserve Board may prescribe *•regulations further defining within
the limitations o f this act the conditions under which discounts, advancements, and
accommodations may be extended to member banks. Each Federal reserve bank shall

keep itself informed of the general character and amount of the loans and investments




8

BANKING ACT OF 1 9 3 3

o f its member banks with a view to ascertaining whether undue use is being made o f
bank credit fo r the speculative carrying o f or trading in secu rities, real estate, or
com m odities, or fo r an y other purpose inconsistent with the m aintenance o f sound
credit con ditions; and, in determ ining whether to grant or refuse advances, rediscounts
or other credit accom m odations, the Federal reserve bank shall give consideration to
such inform ation.
The chairm an o f the Federal reserve bank shall report to the
Federal Reserve Board an y such undue use o f bank credit by an y member bank,
together with his recom m endation.
W henever, in the judgm ent o f the Federal Reserve
B oard, an y member bank is making such undue use o f bank credit, the Board m a y,
in its discretion, after reasonable notice and an opp ortu n ity fo r a hearing, suspend
such bank fro m the use o f the credit fa cilities o f the Federal Reserve System and m ay
term inate such suspension or m ay renew it fro m time to time.
[Par. 1 of sec. 7]

After all necessary expenses of a Federal Reserve bank shall have been paid or
provided for, the stockholders shall be entitled to receive an annual dividend of
i / 6 per centum on the paid-in capital stock, which dividend shall be cumulative.
After the aforesaid dividend claims [sh a llj have been fully met, the net earn­
ings shall be paid [t o the United States as a franchise tax except that the whole
of such net earnings, including those for the year ending December 31, 1918,
shall be paid into a surplus fund until it shall amount to 100 per centum of
the subscribe dcapital stock of such bank, and that thereafter 10 per centum of
such net earnings shall be paid into the surplus.J into the surplus fu n d o f the
Federal Reserve bank.

Sec. 9. Any bank incorporated by special law of any State, or organized under
the general laws of any State or of the United States, including M orris P la n banks
and other incorporated banking institutions engaged in sim ilar business , desiring to
become a member of the Federal Reserve System, may make application to the
Federal Reserve Board, under such rules and regulations as it may prescribe, for
the right to subscribe to the stock of the Federal Jleserve bank organized within
the district in which the applying bank is located. Such application shall be for
the same amount of stock that the applying bank would be required to subscribe
to as a national bank. The Federal Reserve Board, subject to the provisions of
this act and to such conditions as it may prescribe pursuant thereto may permit
the applying bank to become a stockholder of such Federal Reserve bank.
Any such State bank which, at the date of the approval of this act, has estab­
lished and is operating a branch or branches in conformity with the State law,
may retain and operate the same while remaining or upon becoming a stockholder
of such Federal Reserve bank; but no such State bank may retain or acquire
stock in a Federal Reserve bank except upon relinquishment of any branch or
branches established after the date of the approval of this act beyond the limits
of the city, town, or village in which the parent bank is situated: Provided,
however, That nothing herein contained shall prevent an y State member bank fro m
establishing and operating branches in the United States or an y dependency or
insular possession thereof or in any foreig n cou ntry, on the same terms and conditions
and subject to the same lim itations and restrictions as are applicable to the establish­
ment o f branches by national banks.

In acting upon such application the Federal Reserve Board shall consider the
financial condition of the applying bank, the general character of its management,
and whether or not the corporate powers exercised are consistent with the purposes
of this act.
Whenever the Federal Reserve Board shall permit the applying bank to become
a stockholder in the Federal Reserve bank of the district its stock subscription
shall be payable on call of the Federal Reserve Board, and stock issued to it
shall be held subject to the provisions of this act.
All banks admitted to membership under authority of this section shall be
required to comply with the reserve and capital requirements of this act and to
conform to those provisions of law imposed on national banks which prohibit
such banks from lending on or purchasing their own stock, which relate to the
withdrawal or impairment of their capital stock, and which relates to the pay­
ment of unearned dividends. Such banks and the officers, agents, and em­
ployees thereof shall also be subject to the provisions of and to the penalties
prescribed by section fifty-two hundred and nine of the Revised Statutes and
shall be required to make reports of condition and of the payment of dividends
to the Federal Reserve bank of which they become a member. Not less than
three of such reports shall be made annually on call of the Federal Reserve bank
on dates to be fixed by the Federal Reserve Board. Failure to make such




BANKING ACT OF 1 9 3 3

9

reports within ten days after the date they are called for shall subject the offend­
ing bank to a penalty of $100 a day for each day that it fails to transmit such
report; such penalty to be collected by the Federal Reserve bank by suit or
otherwise.
As a condition ©f membership such banks shall likewise be subject to exam­
inations made by direction of the Federal Reserve Board or of the Federal
Reserve bank by examiners selected or approved by the Federal Reserve Board.
Whenever the directors of the Federal Reserve bank shall approve the ex­
aminations made by the State authorities, such examinations and the reports
thereof may be accepted in lieu of examinations made by examiners selected or
approved by the Federal Reserve Board: Provided, however, That when it deems
it necessary the Board may order special examinations by examiners of its own
selection and shall in all cases approve the form of the report. The expenses of
all examinations, other than those made by State authorities, may, in the dis­
cretion of the Federal Reserve Board, be assessed .against the banks examined
and, when so assessed, shall be paid by the banks examined. Copies of the
reports of such examinations may, in the discretion of the Federal Reserve Board,
be furnished to the State authorities having supervision of such banks, to officers,
directors, or receivers of such banks, and to any other proper persons.
If at any time it shall appear to the Federal Reserve Board that a member
bank has failed to comply with the provisions of this section or the regulations of
the Federal Reserve Board made pursuant thereto, or has ceased to exercise
banking functions without a receiver or liquidating agent having been appointed
therefor, it shall be within the power of the Board after hearing to require such
bank to surrender its stock in the Federal Reserve bank and to forfeit all rights
and privileges of membership. The Federal Reserve Board may restore mem­
bership upon due proof of compliance with the conditions imposed by this section.
Any State bank or trust company desiring to withdraw from membership in
a Federal Reserve bank may do so, after six months' written notice shall have been
filed with the Federal Reserve Board, upon the surrender and cancelation of all
of its holdings of capital stock in the Federal Reserve bank: Provided, That the
Federal Reserve Board, in its discretion and subject to such conditions as it may
prescribe, may waive such six months’ notice in individual cases and may permit
an y such State bank or trust company to withdraw from membership in a Federal
Reserve bank prior to the expiration of six months from the date of the written
notice of its intention to withdraw: Provided, however, That no Federal Reserve
bank shall, except under express authority of the Federal Reserve Board, cancel
within the same calendar year more than 25 per centum of its capital stock for
the purpose of effecting voluntary withdrawals during that year. All such
applications shall be dealt with in the order in which they are filed with the Board.
Whenever a member bank shall surrender its stock holdings in a Federal Reserve
bank, or shall be ordered to do so by the Federal Reserve Board, under authority
of law, all of its rights and privileges as a member bank shall thereupon cease and
determine, and after due provision has been made for any indebtedness due or
to become due to the Federal reserve bank it shall be entitled to a refund of its
cash paid subscription with interest at the rate of one-half of 1 per centum per
month from date of last dividend, if earned, the amount refunded in no event to
exceed the book value of the stock at that time, and shall likewise be entitled to
repayment of deposits and of any other balance due from the Federal Reserve
bank.
No applying bank shall be admitted to membership in a Federal Reserve
bank unless (a) it possesses a paid-up unimpaired capital sufficient to entitle it
to become a national banking association in the place where it is situated under
the provisions of the National Bank Act, or (b) it possesses a paid-up, unimpaired
capital of at least 60 percent of the amount sufficient to entitle it to become
a national banking association in the place where it is situated under the pro­
visions of the National Bank Act and under penalty of loss of membership com­
plies with rules and regulations which the Federal Reserve Board shall prescribe
fixing the time within which and the method by which the unimpaired capital
o f such bank shall be increased out of net income to equal the capital which
would have been required if such bank had been admitted to membership under
the provisions of clause (a) of this paragraph: Provided, That every such rule or
Tegulation shall require the applying bank to set aside annually not less than
20 percent of its net income of the preceding year as a fund exclusively applicable
to such capital increase.
Banks becoming members of the Federal Reserve System under authority of
sthis section shall be subject to the provisions of this section and to those of this




10

BANKING ACT OF 193 3

act which relate specifically to member banks, but shall not be subject to exami­
nation under the provisions of the first two paragraphs of section 5240 of the
Revised Statutes as amended by section 21 of this act. 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 System 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 created,
and shall be entitled to all privileges of member banks: P rovided , however , That
no Federal Reserve bank shall be permitted to discount for any State bank or
trust company notes, drafts, or bills of exchange of any one borrower who is
liable for borrowed money to such State bank or trust company in an amount
greater than that which could be borrowed lawfully from such State bank or
trust company were it a national banking association. The Federal Reserve
bank, as a condition of the discount of notes, drafts, and bills of exchange for
such State bank or trust company, shall require a certificate or guaranty to the
effect that the borrower is not liable to such bank in excess of the amount provided
by this section, and will not be permitted to become liable in excess of this amount
while such notes, drafts, or bills of exchange are under discount with the Federal
reserve bank.
It shall be unlawful for any officer, clerk, or agent of any bank admitted to
membership under authority of this section to certify any check drawn upon such
bank unless the person or company drawing the check has on deposit therewith
at the time such check is certified an amount of money equal to the amount
specified in such check. Any check so certified by duly authorized officers
shall be a good and valid obligation against such bank, but the act of any such
officer, clerk, or agent in violation of this section may subject such bank to a
forfeiture of its membership in the Federal Reserve System upon hearing by the
Federal Reserve Board.
All banks or trust companies incorporated by special law or organized under
the general laws of any State, which are members of the Federal Reserve System,
when designated for that purpose by the Secretary of the Treasury, shall bq
depositaries of public money, under such regulations as may be prescribed by
the Secretary; and they may also be employed as financial agents of the Govern­
ment; and they shall perform all such reasonable duties, as depositaries of public
money and financial agents of the Government, as may be required of them.
The Secretary of the Treasury shall require of the banks and trust companies
thus designated satisfactory security, by the deposit of United States bonds or
otherwise, for the safe keeping and prompt payment of the public money de­
posited with them and for the faithful performance of their duties as financial
agents of the Government.
A n y mutual savings bank having no capital stock, but having surplus and un­
divided profits not less than the am ount o f capital required fo r the organization o f a
national bank in the same place, m ay a p ply fo r and be admitted to mem bership in
the Federal Reserve System in the same m anner and subject to the sam e provisions o f
law as State banks and trust com pan ies, except that such savings bank shall subscribe
fo r capital stock o f the Federal Reserve bank in an am ount equal to six-tenths o f 1 p e r
centum o f its total deposit liabilities as shown by the most recent report o f exam ination
o f such savings bank preceding its adm ission to m em bership.
Thereafter such sub­
scription shall be adjusted sem iannually on the same percentage basis in accordance
with rules and regulations prescribed by the Federal Reserve Board. I f an y m utual
savings bank ap plyin g fo r m em bership is not perm itted by the Inws under which it
was organized to purchase stock in a Federal reserve bank, it shall, upon adm ission
to the system , deposit with the Federal reserve bank an am ount equal to the am ount
which it would have been required to p a y in on account o f a subscription to ca pital
stock.
Thereafter such deposit shall be adjusted sem iannually in the sam e m a n n er
as subscriptions fo r stock. Such deposit shall be subject to the same conditions with
respect to repaym ent as am ounts paid u pon subscriptions to capital stock by other
member banks and the Federal reserve bank shall pay interest thereon at the same rate
as dividends are actually paid on outstanding shares o f stock o f such Federal reserve
bank. I f the laws under which such savings bank was organized be am ended so as
to authorize mutual savings banks to subscribe f o r Federal reserve bank stock such
savings bank shall thereupon subscribe fo r the appropriate am ount o f stock in the
Federal reserve bank, and the deposit hereinbefore provided f o r in lieu o f paym ent
u pon capital stock shall be applied u pon such subscription. I f the laws under which
such savings bank was organized be not amended at the next session o f the legislature
follow in g the adm ission o f such savings bank to m em bership so as to authorize m utual
savings banks to purchase Federal reserve bank stock, or i f such laws be so am ended




BANKING ACT OF 19 3 3

11

and such bank fa il within six months thereafter to purchase such stock, all o f its rights
and privileges as a member bank shall be forfeited and its mem bership in the Federal
Reserve System shall be terminated in the manner prescribed elsewhere in this section
with respect to State banks and trust com panies. Each mutual savings bank shall
com ply with all the provisions o f law applicable to State member banks and trust com ­
panies, with the regulations o f the Federal Reserve Board and with the conditions o f
membership prescribed fo r such savings bank at the time o f adm ission to m em bership,
except as otherwise hereinbefore provided with respect to capital stock.
Each bank admitted to m em bership under this section shall obtain from each o f its
affiliates other than member banks and fu rn ish to the Federal reserve bank o f its
district and to the Federal Reserve Board not less than three reports during each year.
Such reports shall be in such fo rm as the Federal Reserve Board m ay prescribe, shall
be verified by the oath or affirmation o f the president or such other officer as m ay be
designated by the board o f directors o f such affiliate to verify such reports, and shall
disclose the inform ation hereinafter provided fo r as o f dates identical with those fixed
by the Federal Reserve Board fo r reports o f the condition o f the affiliated member bank.
Each such report o f an affiliate shall be transmitted as herein provided at the sam e
time as the corresponding report o f the affiliated member bank, except that the Federal
R eserve Board m a y, in its d iscretion, extend such time fo r good cause shown. Each
such report shall contain such inform ation as in the judgm ent o f the Federal Reserve
Board shall be necessary to disclose fu lly the relations between such affiliate and such
bank and to enable the Board to inform itself as to the effect o f such relations upon the
affairs o f such bank.
The reports o f such affiliates shall be published by the bank
under the same conditions, as govern its own condition reports.
A n y such affiliated member bank m ay be required to obtain from any such affiliate
such additional reports as in the opin ion o f its Federal reserve bank or the Federal
R eserve Board m ay be necessary in order to obtain a fu ll and complete knowledge
o f the condition o f the affiliated member bank. Such additional reports shall be
transmitted to the Federal reserve bank and the Federal Reserve Board and shall be
in such fo rm as the Federal Reserve Board may prescribe.
A n y such affiliated member bank which fa ils to obtain from any o f its affiliates and
fu rn ish any report provided fo r by the two preceding paragraphs o f this section shall
be subject to a penalty o f $100 fo r each day during which such fa ilu re continues,
which, by direction o f the Federal Reserve Board, m ay be collected, by suit or otherw ise, by the Federal reserve bank o f the district in which such member bank is located.
For the purposes o f this paragraph and the two preceding paragraphs o f this section,
the term “ affiliate” shall include holding com pany affiliates as well as other affiliates.
State member banks shall be subject to the same lim itations and conditions with
respect to the purchasing, selling, underw riting, and holding of investment securities
and stock as are applicable in the case o f national banks under paragraph u Seventh1’ o f
section 5136 o f the Revised Statutes, as amended.
A fter two years fro m the date o f the enactment o f the B anking A ct o f 1938, no certifi­
cate representing the stock of any State member bank shall represent the stock o f any
other corporation, except a member bank, nor shall the ownership, sale, or transfer o f
any certificate representing the stock o f any such bank be conditioned in any manner
whatsoever u pon the ownership, sale, or transfer o f a certificate representing the stock
o f any other corporation, except a member bank.
Each State member bank affiliated with a holding com pany affiliate shall obtain
fro m such holding com pany affiliate, within such time as the Federal Reserve B oard
shall prescribe, an agreement that such holding com pany affiliate shall be subject
to the same conditions and lim itations as are applicable under section 5144 ° f the
Revised Statutes, as amended, in the case o f holding com pany affiliates o f national
banks. A copy o f each such agreement shall be filed with the Federal Reserve Board.
U pon the fa ilu re o f a State member bank affiliated with a holding com pany affiliate
to obtain such an agreement within the time so prescribed, the Federal Reserve Board
shall require such bank to surrender its stock in the Federal reserve bank and to forfeit
all rights and privileges o f membership in the Federal Reserve System as provided in
this section.
W henever the Federal Reserve Board shall have revoked the voting
perm it o f any such holding com pan y affiliate, the Federal Reserve Board m ay, in its
discretion, require any or all State member banks affiliated with such holding com pan y
affiliate to surrender their stock in the Federal reserve bank and to forfeit all rights
and privileges o f membership in the Federal Reserve System as provided in this
section.
I n connection with exam inations o f State member banks, exam iners selected or
approved by the Federal Reserve Board shall make such exam inations o f the affairs
o f all affiliates o f such banks as shall be necessary to disclose fu lly the relations between
such banks and their affiliates and the effect o f such relations upon the affairs o f such
20-366 0 — 58------ 30




12

BANKING ACT OF 19 3 3

l>anks.
The expense o f exam ination o f affiliates o f any State member bank m ay,
in the discretion o f the Federal Reserve B oard, be assessed against such bank and,
when so assessed, shall be paid by such bank. I n the event o f the refusal to give any
inform ation requested in the course o f the exam ination o f an y such affiliatet or in the
event o f the refusal to perm it such exam ination, or in the event o f the refusal to pa y
any expense so assessed, the Federal Reserve Board m ay, in its d iscretion, require any
or all State member banks affiliated with such affiliate to surrender their stock in the
Federal reserve bank and to fo rfeit all rights and privileges o f m em bership in the
Federal Reserve S ystem , as provided in this section.
[Par. 2 of sec. 10]

The Secretary of the Treasury and the Comptroller of the Currency shall be
ineligible during the time they are in office and for two years thereafter to hold
any office, position, or employment in any member bank. The appointive
members of the Federal Reserve Board shall be ineligible during the time they
are in office and for two years thereafter to hold any office, position, or employ­
ment in any member bank, except that this restriction shall not apply to a
member who has served the full term for which he was appointed. [O f the six
members thus appointed by the President one shall be designated by the President
to serve for two, one for four, one for six, one for eight, and the balance of the
members for ten years, and thereafter each member so appointed shall serve for
a term of ten years, unless sooner removed for cause by the President.] U pon
the expiration o f the term o f an y appointive member o f the Federal Reserve Board in
office when this paragraph as amended takes effect, the Presid en t shall fix the term o f
the successor to such member at not to.exceed twelve yea rs, as designated by the P r esi­
dent at the tim e o f nom ination, but in such m anner as to provide fo r the exp ira tion o f
the term o f not more than one appointive member in an y tw o-year period , and there­
after each appointive member shall hold office fo r a term o f twelve years fro m the
expiration o f the term o f his predecessor. Of the six persons thus appointed, one

shall be designated by the President as governor and one as vice governor of the
Federal Reserve Board. The governor of the Federal Reserve Board, subject
to its supervision, shall be [t h e ] its active executive officer. [T h e Secretary of
the Treasury may assign offices in the Department of the Treasury for the use of
the Federal Reserve Board.] Each member of the Federal Reserve Board shall
within fifteen days after notice of appointment make and subscribe to the oath
of office.
JPar. 4, sec. 10]

[T h e first meeting of the Federal Reserve Board shall be held in Washington,
District of Columbia, as soon as may be after the passage of this Act, at a date
to be fixed by the Reserve Bank Organization Committee. The Secretary of
the Treasury shall be ex officio chairman of the Federal Reserve Board.] The
p rin cip al offices o f the Board shall be in the D istrict o f Columbia. A t meetings o f
the Board the Secretary o f the T reasury shall preside as chairm an, and, in his absence,
the governor shall preside. I n the absence o f both the Secretary o f the T reasury and
the governor the vice governor shall preside. I n the absence o f the Secretary o f the
T rea su ry, the governor, and the vice governor the Board shall elect a member to act
as chairm an pro tem pore. The Board shall determ ine and prescribe the m anner in
which its obligations shall be incurred and its disbursem ents and expenses allowed
and paid, and m ay leave on deposit in the Federal Reserve banks the proceeds o f
assessm ents levied u pon them to defray its estimated expenses and the salaries o f its
members and em ployees, whose em ploym ent, com pensation, leave, and expenses shall
be governed solely by the provisions o f this A ct, specific am endm ents thereof, and rules
and regulations o f the Board not inconsistent therewith; and fu n d s derived fro m such
assessments shall not be construed to be Government fu n d s or appropriated m oneys.

No member of the Federal Reserve Board shall be an officer or director of any
bank, banking institution, trust company, or Federal Reserve bank [n o r ] or
hold stock in any bank, banking institution, or trust company; and before entering
upon his duties as a member of the Federal Reserve Board he shall certify und£r
oath [t o the Secretary of the Treasury] that he has complied with this require­
ment, and such certification shall be filed with the secretary o f the Board, whenever
a vacancy shall occur, other than by expiration of term, among the six members
of the Federal Reserve Board appointed by the President as above provided, a
successor shall be appointed by the President, by and with the advice and consent
of the Senate, to fill such vacancy, and when appointed he shall hold office for
the unexpired term of [the member whose place he is selected to fill] his predecessor.




BANKING ACT OF 193 3

13

[(m ) Upon the affirmative vote of not less than five of its members, the Federal
Reserve Board shall have power to permit Federal Reserve banks to discount
for any member bank notes, drafts, or bills of exchange bearing the signature or
endorsement of any one borrower in excess of the amount permitted by section
9 and section 13 of this Act, but in no case to exceed 20 per centum of the member
bank's capital and surplus: Provided, however, That all such notes, drafts, or
bills of exchange discounted for any member bank in excess of the amount per­
mitted under such sections shall be secured by not less than a like face amount o f
bonds or notes of the United States issued since April 24, 1917, for which the
borrower shall in good faith prior to January 1, 1921, have paid or agreed to pay
not less than the full face amount thereof, or certificates of indebtedness of the
United States: Provided further, That the provisions of this subsection (m) shall
A)t be operative after October 31, 1921.]
(m) Upon the affirmative vote of not less than six of its members the Federal

Reserve Board shall have power to fix from time to time for each Federal Reserve
district the percentage of individual bank capital and surplus which may be repre­
sented by loans secured by stock or bond collateral made by member banks within such
districtf but no such loan shall be made by any such bank to any person in an amount
in excess of 10 per centum of the unimpaired capital and surplus of such bank.
Any percentage so fixed by the Federal Reserve Board shall be subject to change from
time to time upon ten days1 notice, and it shall be the duty of the Board to establish
such percentages with a view to preventing the undue use of bank loans for the specu­
lative carrying of securities. The Federal Reserve Board shall have power to direct
any member bank to refrain from further increase of its loans secured by stock or
bond collateral for any period up to one year under penalty of suspension of all
rediscount privileges at Federal Reserve banks.
S e c . 12A. (a) There is hereby created a Federal Open Market Committee ( herein­
after referred to as the ‘ committee’), which shall consist of as many members as there
are Federal Reserve districts. Each Federal Reserve bank by its board of directors
shall annually select one member of said committee. The meetings of said com­
mittee shall be held at Washington, District of Columbia, at least four times each year,
, Upon the call of the governor of the Federal Reserve Board or at the request of any
three members of the committee, and, in the discretion of the Board, may be attended
by the members of the Board.
(b) No Federal reserve bank shall engage in open-market operations under section
14 of this Act except in accordance with regulations adopted by the Federal Reserve
Board. The Board shall consider, adopt, and transmit to the committee and to the
several Federal reserve banks regulations relating to the open-market transactions of
such banks and the relations of the Federal Reserve System with foreign central or
other foreign banks.
(c) The time, character, and volume of all purchases and sales of paper described
in section 14 of this Act as eligible for open-market operations shall be governed with
a view to accommodating commerce and business and with regard to their bearing
upon the general credit situation of the country.
(d) If any Federal reserve bank shall decide not to participate in open-market
operations recommended and approved as provided in paragraph (b) hereof, it shall
file with the chairman of the committee within thirty days a notice of its decision, and
transmit a copy, thereof to the Federal Reserve Board.
[Par. 8, sec. 13]

[A n y Federal Reserve bank may make advances to its member banks on
their promissory notes for a period not exceeding fifteen days at rates to be
established by such Federal Reserve banks, subject to the review and determi­
nation of the Federal Reserve Board, provided such promissory notes are secured
by such notes, drafts, bills of exchange, or bankers’ acceptances as are eligible
for rediscount or for purchase by Federal Reserve banks under the provisions
of this Act, or by the deposit or pledge of bonds or notes of the United States.]

Any Federal reserve bank may make advances for periods not exceeding fifteen
days to its member banks on their promissory notes secured by the deposit or pledge
of bonds, notes, certificates of indebtedness, or Treasury bills of the United States,
or by the deposit or pledge of debentures or other such obligations of Federal inter­
mediate credit banks which are eligible for purchase by Federal reserve banks under
section IS (a) of this Act; and any Federal reserve bank may make advances for
periods not exceeding ninety days to its member banks on their promissory notes
secured by such notes, drafts, bills of exchange, or bankers9 acceptances as are eligible
for rediscount or for purchase by Federal reserve banks under the provisions of this
Act. All such advances shall be made at rates to be established by such Federal
reserve banks, subject to the review and determination of the Federal Reserve Board.




14

BANKING ACT OF 1 9 3 3

I f any member bank to which any such advance has been made shall, during the life
or continuance o f such advance, and despite an official warning of the reserve bank
o f the district or of the Federal Reserve Board to the contrary, increase its outstanding
loans secured by collateral in the form of stocks, bonds, debentures, or other such
obligations, or loans made to members of any organized stock exchange, investment
house, or dealer in securities, upon any obligation, note, or bill, secured or unse­
cured, for the purpose of purchasing and/or carrying stocks, bonds, or other invest­
ment securities (except obligations of the United States) such advance shall be
deemed immediately due and payable, and such member bank shall be ineligible as
a borrower at the reserve bank o f the district under the provisions of this paragraph
fo r such period os the Federal Reserve Board shall determine: Provided, That no
temporary carrying or clearance loans made solely for the purpose of facilitating the
purchase or delivery of securities offered for public subscription shall be included
in the loans referred to in this paragraph.
Sec. 14. Any Federal Reserve bank may, under rules and regulations pre­
scribed by the Federal Reserve Board, purchase and sell in the open market, at
home or abroad, either from or to domestic or foreign banks, firms, corporations,
or individuals, cable transfers, and bankers’ acceptances and bills of exchange of
the kinds and maturities by this act made eligible for rediscount, with or without
the endorsement of a member bank.
Every Federal Reserve bank shall have power—
(a) To deal in gold coin and bullion at home or abroad, to make loans thereon,
exchange Federal Reserve notes for gold, gold coin, or gold certificates, and to
contract for loans of gold coin or bullion, giving therefor, when necessary, accept­
able security, including the hypothecation of United States bonds or other
securities which Federal Reserve banks are authorized to hold;
(b) To buy and sell, at home or abroad, bonds and notes of the United States,
and bills, notes, revenue bonds, and warrants with a maturity from date of pur­
chase of not exceeding six months, issued in anticipation of the collection of taxes
or in anticipation of the receipt of assured revenues by any State, county, district,
political subdivision, or municipality in the continental United States, including
irrigation, drainage, and reclamation districts, such purchases to be made in
accordance with rules and regulations prescribed by the Federal Reserve Board;
(c) To purchase from member banks and to sell, with or without its indorse­
ment, bills of exchange arising out of commercial transactions, as hereinbefore
defined;
(d) T o establish from time to time, subject to review and determination of
the Federal Reserve Board* rates of discount to be charged by the Federal Reserve
bank for each class of paper, which shall be fixed with a view of accommodating
commerce and business;
<e) T o establish accounts with other Federal Reserve banks for exchange pur­
poses and, with the consent or upon the order and direction of the Federal Reserve
Board and under regulations to be prescribed by said Board, to open and maintain
accounts in foreign countries, appoint correspondents, and establish agencies in
such countries wheresoever it may be deemed best for the purpose of purchasing,
selling, and collecting bills of exchange, and to buy and sell, with or without its
indorsement, through such correspondents or agencies, bills of exchange (or accep­
tances) arising out of actual commercial transactions which have not more than
ninety days to run, exclusive of days of grace, and which bear the signature of
two or more responsible parties, and, with the consent of the Federal Reserve
Board, to open and maintain banking accounts for such foreign correspondents
or agencies. Whenever any such account has been opened or agency or corre­
spondent has been appointed by a Federal Reserve bank, with the consent of or
under the order and direction of the Federal Reserve Board, any other Federal
Reserve bank may, with the consent and approval of the Federal Reserve Board,
be permitted to carry on or conduct, through the Federal Reserve bank opening
such account or appointing such agency or correspondent, any transaction author­
ized by this section under rules and regulations to be prescribed by the Board;

(f) To purchase and sell in the open market, either from or to domestic banks,
firms, corporations, or individuals, acceptances of Federal Intermediate Credit
Banks and of National Agricultural Credit Corporations, whenever the Federal
Reserve Board shall declare that the public interest so requires.
(g) The Federal Reserve Board shall exercise special supervision over all relation­
ships and transactions o f any kind entered into by any Federal reserve bank with any
foreign bank or banker, or with any group o f foreign banks or bankers, and all such
relationships and transactions shall be subject to such regulations, conditions, and
limitations as the Board may prescribe. No officer or other representative o f any




BANKING ACT OF

19 3 3

15

F ederal reserve bank shall conduct negotiations o f any kind with the officers or repre­
sentatives o f an y foreign bank or banker without first obtaining the perm ission o f the
Federal Reserve Board.
The Federal Reserve Board shall have the right, in its discre­
tio n , to be represented in any conference or negotiations by such repesentative or
representatives as the Board m ay designate. A fu ll report o f all conferences or
negotiations, and all understandings or agreements arrived at or transactions agreed
upon, and all other material fa cts appertaining to such conferences or negotiations,
shall be filed with the Federal Reserve Board in writing by a duly authorized officer
o f each Federal reserve bank which shall have participated in such conferences or
negotiations.
S e c . 19. Demand deposits within the meaning of this Act shall comprise all
deposits payable within thirty days, and time deposits shall comprise all deposits
payable after thirty days, all savings accounts and certificates of deposit which
are subject to not less than thirty days’ notice before payment, and all postal
savings deposits.
Every bank, banking association, or trust company which is or which becomes
a member of any Federal Reserve bank shall establish and maintain reserve
balances with its Federal Reserve bank as follows:
(a) If not in a reserve or central reserve city, as now or hereafter defined, it
shall hold and maintain with the Federal Reserve bank of its district an actual
net balance equal to not less than seven per centum of the aggregate amount of
its demand deposits and three per centum of its time deposits.
(b) If in a reserve city, as now or hereafter defined, it shall hold and maintain
with the Federal Reserve bank of its district an actual net balance equal to not
less than ten per centum of the aggregate amount of its demand deposits and
three per centum of its time deposits: Provided , however, That if located in the
outlying districts of a reserve city or in territory added to such a city by the
extension of its corporate charter, it may, upon the affirmative vote of five
members of the Federal Reserve Board, hold and maintain the reserve balances
specified in paragraph (a) hereof.
(c) If in a central reserve city, as now or hereafter defined, it shall hold and
maintain with the Federal Reserve bank of its district an actual net balance equal
to not less than thirteen per centum of the aggregate amount of its demand
deposits and three per centum of its time deposits: Provided , however, That if
located in the outlying districts of a central reserve city or in territory added to
such city by the extension of its corporate charter, it may, upon the affirmative
vote of five members of the Federal Reserve Board, hold and maintain the reserve
balances specified in paragraphs (a) or (b) thereof.
No member bank shall keep on deposit with any State bank or trust company
which is not a member bank a sum in excess of ten per centum of its own paid-up
capital and surplus. No member bank shall act as the medium or agent of a
nonmember bank in applying for or receiving discounts from a Federal Reserve
bank under the provisions of this act, except by permission of the Federal Reserve
Board.

N o member bank shall act as the medium or agent o f any nonbanking corporation,
pa rtn ersh ip, association, business trust, or individual in m aking loans on the security
o f stocks, bonds, and other investment securities to brokers or dealers in stocks, bonds,
and other investment securities. Every violation o f this provision by any member
bank shall be punishable by a fin e o f not more than $100 per day during the con­
tinu an ce o f such violation; and such fin e m ay be collected, by suit or otherwise, by the
Federal R eserve bank o f the district in which such member bank is located.

The required balance carried by a member bank with a Federal Reserve bank
may, under the regulations and subject to such penalties as may be prescribed
by the Federal Reserve Board, be checked against and withdrawn by such
member bank for the purpose of meeting existing liabilities: Provided, however,
That no bank shall at any time make new loans or shall pay any dividends unless
and until the total balance required by law is fully restored.
In estimating the balances required by this act, the net difference of amounts
due to and from other banks shall be taken as the basis for ascertaining the
deposits against which required balances with Federal Reserve banks shall be
determined.
National banks, or banks organized under local laws, located in Alaska or in
a dependency or insular possession or any part of the United States outside the
continental United States may remain nonmember banks, and shall in that
event maintain reserves and comply with all the conditions now provided by
law regulating them; or said banks may, with the consent of the Reserve Board,
become member banks of any one of the reserve districts, and shall in that event




16

BANKING ACT OF 1 9 3 3

take stock, maintain reserves, and be subject to all the other provisions of this;
act.
The Federal Reserve Board shall fro m tim e to tim e lim it by regulation the rate o f
interest which m ay be paid by member banks on d eposits, and m ay prescribe d ifferent
rates f o r such paym ent on tim e and savings deposits having different m aturities or
subject to different conditions respecting withdrawal or repaym ent.
N o mem ber
bank shall pay an y time deposit before its m aturity, or waive an y requirem ent o f
notice before paym ent o f an y savings deposit except as to all saving deposits having
the same requirement.
S e c . 2 2 . (a) No member bank and no officer, director, or employee thereof
shall hereafter make any loan or grant any gratuity to any bank examiner.
Any bank officer, director, or employee violating this provision shall be deemed
guilty of a misdemeanor and shall be imprisoned not exceeding one year, or fined
not more than $5,000, or both, and may be fined a further sum equal to the
money so loaned or gratuity given.
Any examiner or assistant examiner who shall accept a loan or gratuity from
any bank examined by him, or from an officer, director, or employee thereof, or
who shall steal, or unlawfully take, or unlawfully conceal any money, note, draft,
boftd, or security or any other property of value in the possession of any member
bank or from any safe deposit box in or adjacent to the premises of such bank,
shall be deemed guilty of a misdemeanor and shall, upon conviction thereof in
any district court of the United States, be imprisoned for not exceeding one
year, or fined not more than $5,000, or both, and may be fined a further sum,
equal to the money so loaned, gratuity given, or property stolen, and shall for­
ever thereafter be disqualified from holding office as a national bank examiner.
(b) No national bank examiner shall perform any other service for compensa­
tion while holding such office for any bank or officer, director, or employee thereof.
No examiner, public or private, shall disclose the names of borrowers or the
collateral for loans of a member bank to other than the proper officers of such
bank without first having obtained the express permission in writing from the
Comptroller of the Currency, or from the board of directors of such bank, except
when ordered to do so by a court of competent jurisdiction, or by direction o f
the Congress of the United States, or of either House thereof, or any committee
of Congress, or of either House duly authorized. Any bank examiner violatingthe provisions of this subsection shall be imprisoned not more than one yearor fined not more than $5,000, or both.
(c) Except as herein provided, any officer, director, employee, or attorney o f
a member bank who stipulates for or receives or consents or agrees to receive
any fee, commission, gift, or thing of value from any person, firm, or corpora­
tion, for procuring or endeavoring to procure for such person, firm, or corpora­
tion, or for any other person, firm, or corporation, any loan from or the pur­
chase or discount of any paper, note, draft, check, or bill of exchange by such
member bank shall be deemed guilty of a misdemeanor and shall be imprisoned
not more than one year or fined not more than $5,000, or both.
(d) Any member bank may contract for, or purchase from, any of its directors
or from any firm of which any of its directors is a member, any securities or other
property when (and not otherwise) such purchase is made in the regular course o f
business upon terms not less favorable to the bank than those offered to others
or when such purchase is authorized by a majority of the board of directors not
interested in the sale of such securities of property, such authority to be evi­
denced by the affirmative vote or written assent of such directors: P rovided , how­
ever , That when any director, or firm of which any director is a member, acting
for or on behalf of others, sells securities or other property to a member bank, the
Federal Reserve Board by regulation may, in any or all cases, require a full dis­
closure to be made, on forms to be prescribed by it, of all commissions or other
considerations received, and whenever such director or firm, acting in his or its
own behalf, sells securities or other property to the bank the Federal Reserve
Board by regulation, may require a full disclosure of all profit realized from such
sale.
Any member bank may sell securities or other property to any of its directors,
or to a firm of which any of its directors is a member, in the regular course o f
business on terms not more favorable to such director or firm than those offered
to others, or when such sale is authorized by a majority o f the board of directors
of a member bank to be evidenced by their affirmative vote or written assent:
P rovided, however , That nothing in this subsection contained shall- be construed
as authorizing member banks to purchase or sell securities or other property
which such banks are not otherwise authorized by law to purchase or sell.




BANKING ACT OF 19 3 3

17

(e) No member bank shall pay to any director, officer, attorney, or employee
a greater rate of interest on the deposits of such director, officer, attorney, or
employee than that paid to other depositors on similar deposits with such mem­
ber bank.
(f) If the directors or officers of any member bank shall knowingly violate or
permit any of the agents, officers, or directors of any member bank to violate
any of the provisions of this section or regulations of the board made under
authority thereof, every director and officer participating in or assenting to such
violation shall be held liable in his personal and individual capacity for all dam­
ages which the member bank, its shareholders, or any other persons shall have
sustained in consequence of such violation.

(g) No executive officer of any member bank shall borrow from or otherwise become
indebted to any member bank of which he is an executive officer, and no member bank
shall make any loan or extend credit in any other manner to any of its own executive
officers: Provided, That loans heretofore made to any such officer may be renewed or
extended not more than two years from the effective date of this title, if in accord with
sound banking practice. I f any executive officer of any member bank borrow from
or if he be or become indebted to any bank other than a member bank of which he is an
executive officer, he shall make a written report to the chairman of the board of directors
of the member bank of which he is an executive officer, stating the dale and amount of
such loan or indebtedness, the security therefor, and the, purpose for which the
proceeds have been or are to be used. Any executive officer of any member bank violat­
ing the provisions of this paragraph shall be deemed guilty of a misdemeanor and
shall be imprisoned not exceeding one year, or fined not more than $5,000, or both;
and any member bank violating the provisions of this paragraph shall be lined not
more than $10,000, and may be fined a further sum equal to the amount so loaned or
credit so extended.
Sec. 2JfA. Hereafter no national bank, without the approval of the Comptroller of
the Currency, and no State member bank, without the approval of the Federal Reserve
Board, shall (1) invest in bank premises, or in the stock, bonds, debentures, or other
such obligations of any corporation holding the premises of such bank or (2)' make
loans to or upon the security of the stock of any such corporation, if the aggregate of
all such investments and loans will exceed the amount of the capital stock of such bank.
Sec. 25. (b) Notwithstanding any other provision of law all suits of a civil nature
at common law or in equity to which any corporation organized under the laws of the
United States shall be a party, arising out of transactions involving international
or foreign banking, or banking in a dependency or insular possession of the United
States, or out of other international or foreign financial operations, either directly
or through the agency, ownership, or control of branches or local institutions in
dependencies or insular possessions of the United States or in foreign countries,
shall be deemed to arise under the laws of the United States, and the district courts
of the United States shall have original jurisdiction of all such suits; and any de­
fendant in any such suit m&y, at any time before the trial thereof, remove such suits
from a State court into the district court of trie United States for the proper district
by following the procedure for the removal of causes otherwise provided by law.
Notwithstanding any other provision of law, all suits of a civil nature at common
law or in equity to which any Federal Reserve bank shall be a party shall be deemed
to arise under the laws of the United States, and the district courts of the United
States shall have original jurisdiction of all such suits; and any Federal Reserve bank
which is a defendant in any such suit may, at any time before the trial thereof, remove
such suit from a State court into the district court of the United States for the proper
district by following the procedure for the removal of causes otherwise provided by
law. No attachment or execution shall be issued against any Federal Reserve bank
or its property before final judgment in any suit, action, or proceeding in any State,
county, municipal, or United States court.
[Sec. 5136]

Seventh. To exercise by its board of directors, or duly authorized officers or
agents, subject to law, all such incidental powers as shall be necessary to carry
on the business of banking; by discounting and negotiating promissory notes,
drafts, bills of exchange, and other evidences of debt; by receiving deposits; by
buying and selling exchange, coin, and bullion; by loaning money on personal
security; and by obtaining, issuing, and circulating notes according to the pro­
visions of this t itle [:] [ Provided, That the business of buying and selling investment
securities shall hereafter be limited to buying and selling without recourse market­
able obligations evidencing indebtedness of any person, copartnership, associa­
tion, or corporation, in the form of bonds, notes and/or debentures, commonly




18

BANKING ACT OF 1 9 3 3

known as investment securities, under such further definition of the term “ invest­
ment securities” as may be regulation be prescribed by the Comptroller of the
Currency, and the total amount of such investment securities of any one obligor
or maker held by such association shall at no time exceed 25 per centum of the
amount of the capital stock of such association actually paid in and unimpaired
and 25 per centum of its unimpaired surplus fund, but this limitation as to total
amount shall not apply to obligations of the United States, or general obligations
of any State or of any political subdivision thereof, or obligations issued under
authority of the Federal Farm Loan Act: And provided further, That in carrying
on the business commonly known as the safe deposit business no such association
shall invest in the capital stock of a corporation organized under the law of any
State to conduct a safe deposit business in an amount in excess of 15 per centum
of the capital stock of such association actually paid in and unimpaired and 15
per centum of its unimpaired surplus.
But no association shall transact any business except such as is incidental and
necessarily preliminary to its organization, until it has been authorized by the
Comptroller of the Currency to commence the business of banking. J ; and gener­

ally by engaging in all forms of banking business and undertaking all types of banking
transactions that may, by the laws of the State in which such bank is situated, be per­
mitted to banks of deposit and discount organized and incorporated ur*der the laws
of such State, except insofar as they may be forbidden by the provisions of any Act
of Congress. The business of dealing in investment securities by the association shall
be limited to purchasing and selling such securities without recourse, solely upon the
order, and for the account of customers, and in no case for its own account, and the
association shall not underwrite any issue of securities: Provided, That the associa­
tion may purchase for its own account investment securities under such limitations
and restrictions as the Comptroller of the Currency may by regulation prescribe, but
in no event ( 1) shall the total amount of any issue of investment securities of any one
obligor or maker purchased after this section as amended takes effect and held by the
association for its own account exceed at any time 10 per centum of the total amount
of such issue outstanding, but this limitation shall not apply to any such issue the
total amount of which does not exceed $100,000 and does not exceed 50 per centum of
the capital of the association, nor (#) shall the total amount of the investment securities
of any one obligor or maker purchased after this section as amended takes effect and
held by the association for its own account exceed at any time 15 per centum of the
amount of the capital stock of the association actually paid in and unimpaired and
25 per centum of its unimpaired surplus fund. As^ used in this section the term
11investment securities ” shall mean marketable obligations evidencing indebtedness of
any person, copartnership, association, or corporation in the form of bonds, notes,
and/or debentures commonly known as investment securities under such further defini­
tion of the term “ investment securities” as may by regulation be prescribed by the
Comptroller of the Currency. ^ Except as hereinafter proiided or otherwise permitted
by law, nothing herein contained shall authorize the purchase by the association of
any shares of stock of any corporation. The limitations herein contained as to in­
vestment securities shall not apply to obligations of the United States, or obligations
of any State or of any political subdivision thereof, or obligations issued under au­
thority of the Federal Farm Loan Act, as amended, or any other Acts creating Federal
corporations: Provided, That in carrying on the business commonly known as the
safe-deposit business the association shall not invest in the capital stock of' a corpora­
tion organized under the law of any State to conduct a safe-deposit business in an
amount in excess of 15 per centum of the capital stock of the association actually paid
in and unimpaired and 15 per centum of its unimpaired surplus.
The restriziions of this section as to dealing in investment securities shall take effect
two years after the date of the approval of this Act.
S e c . 5188 Revised Statutes. After this section as amended takes effect, no national
banking association shall be organized with a less capital than $100,000, except
that such associations with a capital of not less than $50,000 may, [w ith the
approval of the Secretary of the Treasury,J be organized in any place the popula­
tion of which does not exceed six thousand inhabitants, [and except that such asso­
ciations with a capital of not less than $25,000 may, with the sanction of the
Secretary of the Treasury, be organized, in any place the population of which does
not exceed three thousand inhabitants.] No such association shall be organized
in a city the population of which exceeds fifty thousand persons with a capital of
less than $200,000, except that in the outlying districts of such a city wThere the
State laws permit the organization of State banks with a capital of $100,000 or
less, national banking associations now organized or hereafter organized may,
with the approval of the Comptroller of the Currency, have a capital of not less
than $100,000.




BANKING ACT OF 1 9 3 3

19

[Par. 10 of sec. 9.]

No applying bank shall be admitted to membership in a Federal Reserve bank
unless tfa ) j it possesses a paid-up, unimpaired capital sufficient to entitle it to
become a national banking association in the place where it is situated under the
provisions of the National Bank Act, as amended. [o r (b) it possesses a paid-up,
unimpaired capital of at least 60 per centum of the amount sufficient to entitle it
to become a national banking association in the«place where it is situated under
the provisions of the National Bank Act and, under penalty of loss of membership
complies with rules and regulations which the Federal Reserve Board shall pre­
scribe fixing the time within which and the method by which the unimpaired capi­
tal of such bank shall be increased out of net income to equal the capital which
would have been required if such bank had been admitted to membership under
the provisions of clause (a) of this paragraph: Provided, That every such rule or
regulation shall require the applying bank to set aside annually not less than 20
per centum of its net income of the preceding year as a fund exclusively appli­
cable to such capital increase.]
S e c . 5139, Revised Statutes. The capital stock of each association shall be
divided into shares of $100 each, or into shares of such less amount as may be provided in the articles of association, and be deemed personal property, and transfer­
able on the books of the association in such manner as may be prescribed in the
bylaws or articles of association. Every person becoming a shareholder by such
transfer shall, in proportion to his shares, succeed to all rights and liabilities of the
prior holder of such shares; and no:change shall be made in the articles of associa­
tion by which the rights, remedies, or security of the existing creditors of the
association shall be impaired.
After two years from the date of the enactment of the Banking Act of 1938, no

certificate representing the stock of any such association shall represent the stock of
any other corporation, except a member bank, nor shall the ownership, sale, or transfer
of any certificate representing the stock of any such association be conditioned in any
manner whatsoever upon the ownership, sale, or transfer of a certificate representing
the stock of any other corporation, except a member bank.
S e c . 5197, Revised Statutes. Any association may take, receive, reserve, and
charge on any loan or discount made, or upon any notes, bill of exchange, or
other evidences of debt, interest at the rate allowed by the laws of the State
Territory, or District where the bank is located, whichever may be the greater, and
no more, except that where by the laws of any State a different rate is limited for
banks [o f issue] organized under State laws, the rate so limited shall be allowed
for associations organized or existing in any such State under this title. When
no rate is fixed by the laws of the State, or Territory, or District, the bank may
take, receive, reserve, or charge a rate not exceeding 7 per centum, or 1 per

centum in excess of the discount rate on ninety-day commercial paper in effect at the
Federal Reserve bank in the Federal Reserve district where the bank is located, which­
ever may be the greater, and such interest may be taken in advance, reckoning the
days for which the note, bill, or other evidence of debt has to run. [A n d the
purchase, discount, or sale of a bona fide bill of exchange, payable at another
place than the place of such purchase, discount, or sale, at not more than the
current rate of exchange for sight drafts in addition to the interest, shall not be
considered as taking or receiving a greater rate of interest.]
S e c . 8. That from and after two years from the date of the approval of this
act no person shall at the same time be a director or other officer or employee of
more than one bank, banking association, or trust company,.organized or oper­
ating under the laws of the United States, either of which has deposits, capital,
surplus, and undivided profits aggregating more than $5,000,000; and no private
banker or person who is a director in any bank or trust company, organized and
operating under the laws of a State, having deposits, capital, surplus, and undi­
vided profits aggregating more than $5,000,000, shall be eligible to be a director
in any bank or banking association organized or operating under the laws of the
United States. The eligibility of a director, officer, or employee under the fore­
going provisions shall be determined by the average amount of deposits, capital,
surplus, and undivided profits as shown in the official statements of such bank,
banking association, or trust company filed as provided by law during the fiscal
year next preceding the date set for the annual election of directors, and when a
director, officer, or employee has been elected or selected in accordance with the
provisions of this act it shall be lawful for him to continue as such for one year
thereafter under said election or employment.
No bank, banking association or trust company, organized or operating under
the laws of the United States, in any city or incorporated town or village of more
than two hundred thousand inhabitants, as shown by the last preceding decennial
census of the United States, shall have as a director or other officer or employee




20

BANKING ACT OF 19 3 3

any private banker or any director or other officer or employee of any other bank,
banking association or trust company located in the same place: Provided, That
nothing in this section shall apply to mutual savings banks not having a capital
stock represented by shares: Provided further, That a director or other officer or
employee of such bank, banking association, or trust company may be a director
or other officer or employee of not more than one other bank or trust company
organized under the laws of tfce United States or any State where the entire
capital stock of one is owned by stockholders in the other: And provided further,
That nothing in this Act shall prohibit any private banker from being an officer,
director, or employee of not more than two banks, banking associations, or trust
companies, or prohibit any officer, director, or employee of any bank, banking
association, or trust company, or any class A director of a Federal reserve bank,
from being an officer, director, or employee of not more than two other banks,
banking associations, or trust companies, whether organized under the laws of the
United States or any State, if in any such case there is in force a permit therefor
issued by the Federal Reserve Board; and the Federal Reserve Board is author­
ized to issue such permit if in its judgment it i3 not incompatible with the public
interest, and to revoke any such permit whenever it finds, after reasonable notice
and opportunity to be heard, that the public interest requires its revocation.
Sec. 8 A. That from and after the 1st day of January, 1984» no director, officer,
or employee of any bank, banking association, or trust company, organized or operat­
ing under the laws of the United States shall be at the same time a director, officer,

or employee of a corporation or a member of a partnership .organized for any purpose
whatsoever which shall make loans secured by stock or bond collateral to any individual,
association, partnership, or corporation other than its own subsidiaries.
S e c . 4. The Federal Reserve Board shall classify the member banks of the
district into three general groups or divisions, designating each group by number.
Each group shall consist as nearly as may be of banks of similar capitalization.
Each member bank shall be permitted to nominate to the chairman of the board
of directors of the Federal Reserve bank of the district one candidate for director
of class A and one candidate for director of class B. The candidates so nominated
shall be listed by the chairman, indicating by whom nominated, and a copy of
said list shall, within fifteen days after its completion, be furnished by the chair­
man to each member bank. Each member bank by a resolution of the board
or by an amendment to its by-laws shall authorize its president, cashier, or some
other officer to cast the vote of the member bank in the elections of class A and
class B directors^.]: Provided, That whenever any two or more member banks

within the same Federal Reserve district are affiliated with the same holding company
affiliate, participation by such member banks in any such nomination or election
shall be confined to one of such banks, which may be designated for the purpose by
such holding company affiliate.

(

Sec . 23A. N o member bank shall 1) make any loan or any extension of credit
to, or purchase securities under repurchase agreement from, any of its affiliates, or
(2) invest any of its funds in the capital stock, bonds, debentures, or other such obli­
gations of any such affiliate, or (8) accept the capital stock, bonds, debentures, or other
such obligations of any such affiliate as collateral security for advances made to any
person partnership, association or corporation if, in the case of any such affiliate
the aggregate amount of such loans extensions of credit, repurchase agreements
investments and advances against such collateral security will exceed 10 per centum
of the capital stock and surplus of such member bank, or if, in the case of all such
affiliates, the aggregate amount of such loans, extensions of credits, repurchase agree­
ments, investments, and advances against such collateral security will exceed 20 per
centum of the capital stock and surplus of such member bank.

,

,

, ,

,

,,

Within the foregoing'limitations, each loan or extension of credit of any kind or
character to an affiliate shall be secured by collateral in the form of stocks, bonds,
debentures, or other such obligations having a market value at the time of making
the loan or extension of credit of at least 20 per centum more than the amount of the
loan or extension of credit, or of at least 10 per centum more than the amount of the
loan or extension of credit if it is secured by obligations of any State, or of any political
subdivision or agency thereof: Provided, That the provisions of this paragraph shall
not apply to loans or extensions of credit secured by obligations of the United States
Government, the Federal intermediate credit banks, or the Federal land banks, or by
such notes, drafts, bills of exchange, or bankers’ acceptances as are eligible for redis­
count or for purchase by Federal Reserve banks. A loan or extension of credit to a
director officer, clerk, or other employee or any representative of any such affiliate
shall be deemed a loan to the affiliate to the extent that the proceeds of such loan are used
for the benefit of, or transferred to, the affiliate.
For the purposes of this section the term “ affiliate” shall include holding company
affiliates as well as other affiliates, and the provisions of this section shall not apply




BANKING ACT OF

19:? 3

21

to any affiliate (1) engaged solely in holding the bank premises of the member bank
with which it is affiliated, ( 2 ) engaged solely in conducting a safe-deposit business or
the business of an agricultural credit corporation or livestock loan company, (8) in
the capital stock of which a national banking association is authorized to invest
pursuant to section 25 of the Federal Reserve Act, as amended, or (4) organized under
section 25 (a) of the Federal Reserve Act, as amended; but as to any such affiliate,
member banks shall continue to be subject to other provisions of law applicable to
loans by such banks and investments by such banks in stocks, bonds, debentures, or
other such obligations.
Sec. 5144. In all elections of directors, and in deciding all questions at meetings
of .shareholders, each shareholder shall be entitled to one vote on each share of
stock held by h im [:] ; except (1) that shares of its own stock held by a national bank
as sole trustee shall not be voted, and shares of its own stock held by a national bank
and one or more persons as trustees may be voted by such other person or persons,
as trustees, in the same manner as if he or they were the sole trustee, and (2) shares

controlled by any holding company affiliate of a national bank shall not be voted
unless such holding company' affiliate shall have first obtained a voting permit as
hereinafter provided, which permit is in force at the time such shares are voted.
Shareholders may vote by proxies duly authorized in writing; but no officer,
clerk, teller, or bookkeeper of such [associationJ bank shall act as proxy; and no
shareholder whose liability is past due and unpaid shall be allowed to vote.

For the purposes of this section shares shall be deemed to be controlled by a holding
company affiliate if they are owned or controlled directly or indirectly by such holding
company affiliate, or held by any trustee for the benefit of the shareholders or members
thereof.
Any such holding company affiliate may make application to the Federal Reserve
Board for a voting permit entitling it to cast one vote at all elections of directors and
in deciding all questions at meetings of shareholders of such bank on each share of
stock controlled by it or authorizing the trustee or trustees holding the stock for its
benefit or for the benefit of its shareholders so to vote the same. The Federal Reserve
Board may, in its discretion, grant or withhold such permit as the public interest
may require. In acting upon such application, the Board shall consider the financial
condition of the applicant, the general character of its management, and the probable
effect of the granting of such permit upon the affairs of such bank, but no such permit
shall be granted except upon the following conditions:
(a) Every such holding company affiliate shall, in making the application for
such permit, agree (1) to receive, on dates identical with those fixed for the examination
of banks with which it is affiliated, examiners duly authorized to examine such
banks, who shall make such examinations of such holding company affiliate as shall
be necessary to disclose fully the relations between such banks and such holding
company affiliate and the effect of such relations upon the affairs of such banks,
such examinations to be at the expense of the holding company affiliate so exam­
ined; (2) that the reports of such examiners shall contain such information as shall
be necessary to disclose fully the relations between such affiliate and such banks
and the effect of such relations upon the affairs of such banks; (8) that such examiners
may examine each bank owned or controlled by the holding company affiliate, both
individually and in conjunction with other banks owned or controlled by such holding
company affiliate; and (4) that publication of individual or consolidated statements
of condition of such banks may be required;
(b) After five years after the enactment of the Banking Act of 1938, every such
holding company affiliate (1) shall possess, and shall continue to possess during
the life of such permit, free and clear of any lien, pledge, or hypothecation of any
nature, readily marketable assets other than bank stock in an amount not less than
12 per centum of the aggregate par value of all bank stocks controlled by such holding
company affiliate, which amount shall be increased by not less than 2 per centum
per annum of such aggregate par value until such assets shall amount to 25 per
centum of the aggregate par value of such bank stocks; and (2) shall reinvest in
readily marketable assets other than bank stock all net earnings over and above 6
per centum per annum on the book value of^its own shares outstanding until such
assets shall amount to such 25 per centum of the aggregate par value of all bank
stocks controlled by it;
(c) Notwithstanding the foregoing provisions of this section, after five years after
the enactment of the Banking Act of 1988, (1) any such holding company affiliate
the shareholders or members of which shall be individually and severally liable in
proportion to the number of shares of such holding company affiliate held by them
respectively, in addition to amounts invested therein, for all statutory liability im­
posed on such holding company affiliate by reason of its control of shares of stock
of banks, shall be required only to establish and maintain out of net earnings over
and above 6 per centum per annum on the book value of its own shares outstanding




22

BANKING ACT OF 19 3 3

a reserve of readily marketable assets in an amount not less than 12 per centum of
the aggregate par value of bank stocks controlled by it, and (2) the assets required
by this section to be possessed by such holding company affiliate may be used by it
for replacement of capital in banks affiliated with it and for losses incurred in such
banks, but any deficiency in such assets resulting from such use shall be made up
within such period as the Federal Reserve Board may by regulation prescribe;
(d) Every officer, director, agent, and employee of every such holding company
affiliate shall be subject to the same penalties for false entries in any book, report, or
statement of such holding company affiliate as are applicable to officers, directorsf
agents, and employees of member banks under section 5209 of the Revised Statutes,
as amended; and
(e) Every such holding company affiliate shall, in its application for such voting
permit, (1) show that it does not own, control, or have any interest in, and is not
participating in the management or direction of, any corporation, business, trust,
association, or other similar organization formed for the purpose of, or engaged
principally in, the issue, flotation, underwriting, public sale, or distribution, at whole­
sale or retail or through syndicate participation, of stocks, bonds, debentures, notes,
or other securities of any sort {hereinafter referred to as “ securities company”) ;
(2) agree that during the period that the permit remains in force it will not acquire
any ownership, control, or interest in any such securities company or participate in
the management or direction thereof; (8) agree that if, at the time of filing the applica­
tion for such permit, it owns, controls, or has an interest in, or is participating in
the management or direction of, any such securities company, it will, within five
years after the filing of such application, divest itself of its ownership, control, and
interest in such securities company and will cease participating in the management
or direction thereof, and will not thereafter, during the period that the permit remains
in force, acquire any further ownership, control, or interest in any such securities
company or participate in the management or direction thereof; and (4) agree that
thenceforth it will declare dividends only out of actual net earnings.
If at any time it shall appear to the Federal Reserve Board that any holding com­
pany affiliate has violated any of the provisions of the Banking Act of 1988 or of
any agreement made pursuant to this section, the Federal Reserve Board may, in
its discretion, revoke any such voting permit after giving sixty daysJ notice by reg­
istered mail of its intention to the holding company affiliate and affording it an
opportunity to be heard. Whenever the Federal Reserve Board shall have revoked
any such voting permit, no national bank whose stock is controlled by the holding
company affiliate whose permit is so revoked shall receive deposits of public moneys
of the United States, nor shall any such national bank pay any further dividend
to such holding company affiliate upon any shares of such bank controlled by such
holding company affiliate.
Whenever the Federal Reserve Board shall have revoked any voting permit as here­
inbefore provided, the rights, privileges, and franchises of any or all national banks
the stock of which is controlled by such holding company affiliate shall, in the discretion of the Federal Reserve Board, be subject to forfeiture in accordance with section
2 of the Federal Reserve Act, as amended.
S e c . 5200. Revised Statutes.
The total obligations to any national banking
association of any person, copartnership, association, or corporation shall at no
time exceed 10 per centum of the amount of the capital stock of such association
actually paid in and unimpaired and 10 per centum of its unimpaired surplus
fund. The term “ obligations” shall mean the direct liability of the maker or
acceptor of paper discounted with or sold to such association and the liability
of the indojrser, drawer, or guarantor who obtains a loan from or discounts paper
with or sells paper under his guaranty to such association and shall include in
the case of obligations of a copartnership or association the obligations of the
several members thereof and shall include in the case of obligations of a corpora­

tions all obligations of all subsidiaries thereof in which such corporation owns or
controls a majority interest.
(6)
The amendment made by this section shall not apply to such obligations of
subsidiaries held by such association on the date this section takes effect.
Sec. 5211. Every association shall make to the Comptroller of the Currency
not less than three reports during each year, according to the form which may be
prescribed by him, verified by the oath or affirmation of the president, or of the
cashier, or of a vi,ce president, or of an assistant cashier of the association desig­
nated by its board of directors to verify such reports in the absence of the presi­
dent and cashier, taken before a notary public properly authorized and commis­
sioned by the State in which such notary resides and the association is located,
or any other officer having an official seal, authorized in such State to administer
oaths, and attested by the signature of at least three of the directors. Each such
report shall exhibit, in detail and under appropriate heads, the resources and




BANKING ACT OF 193 3

23

liabilities of the association at the close of business on any past day by him
specified, and shall be transmitted to the Comptroller within five days after the
receipt of a request or requisition therefor from him; and the statement of
resources and liabilities, together with acknowledgment and attestation in the
same form in which it is made to the comptroller, shall be published in a news­
paper published in the place where such association is established, or if there is
no newspaper in the place, then in the one published nearest thereto in the same
county, at the expense of the association; and such proof of publication shall be
furnished as may be required by the Comptroller. The Comptroller shall also
have power to call for special reports from any particular association whenever
In his judgment the same are necessary in order to obtain a full and complete
knowledge of its condition.

Each national banking association shall obtain from each of its affiliates other than
member banks and furnish to the Comptroller of the Currency not less than three
reports during each year, in such form as the Comptroller may prescribe, verified by
the oath or affirmation of the president or such other officer as may be designated by the
hoard of directors of such affiliate to verify such reports, disclosing the information
hereinafter provided for as of dates identical with those for which the Comptroller shall
during such year require the reports of the condition of the association. For the pur­
pose of this section the term 11affiliate shall include holding company affiliates as well
as other affiliates. Each such report of an affiliate shall be transmitted to the Comp­
troller at the same time as the cgrresponding report of the association, except that the
Comptroller may, in his discretion, extend such time for good cause shown. Each
such report shall contain such information as in the judgment of the Comptroller of
the Currency shall be necessary to disclose fully the relations between such affiliate
and such bank and to enable the Comptroller to inform himself as to the effect of such
relations upon the affairs of such bank. The reports of such affiliates shall be pub­
lished by the association under the same conditions as govern its own condition reports.
The Comptroller shall also have power to call for additional reports with respect to
any such affiliate whenever in his judgment the same are necessary in order to obtain
full and complete knowledge of the conditions of the association with which it is
affiliated. Such additional reports shall be transmitted to the Comptroller of the
Currency in such form as he may prescribe. Any such affiliated bank which fails lo
Main and furnish any report required under this section shall be subject to a penalty
of $100 for each day during which such failure continues.
S e c . 5240. The Comptroller of the Currency, with the approval of the Secre­
tary of the Treasury, shall appoint examiners, who shall examine every member
bank at least twice in each calendar year and oftener if considered necessary:
Provided, however, That the Federal Reserve Board may authorize examination
by the State authorities to be accepted in the case of State banks and trust
companies and may at any time direct the holding of a special examination of
State banks or trust companies that are stockholders in any Federal Reserve
bank. The examiner making the examination of any national bank, or of any
other member bank, shall have power to make a thorough examination of all
the affairs of the bank, and in doing so he shall have power to administer oaths
and to examine any of the officers and agents thereof under oath and shall make
a full and detailed report of the condition of said bank to the Comptroller of the
Currency [.J ; Provided, That in making the examination of any national bank the

examiners shall include such an examination of the affairs of all its affiliates other
than member banks as shall be necessary to disclose fully the relations between such
bank and such affiliates and the effect of such relations upon the affairs of such bank;
and in the event of the refusal to give any information required in the course of the
examination of any such affiliate, or in the event of the refusal to permit such examina­
tion, all the rights, privileges, and franchises of the bank shall be subject to forfeiture
in accordance with section 2 of the Federal Reserve Act, as amended. The Comptroller
of the Currency shall have power, and he is hereby authorized, to publish the report
of his examination of any national banking association or affiliate which shall not
within cne hundred and twenty days after notification of the recommendations or
suggestions of the Comptroller, based on said examination, have complied with the
same to his satisfaction. Ninety days’ notice prior to such publicity shall be given
to the bank or affiliate.
The examiner making the examination of any affiliate of a national bank shall
have power to make a thorough examination of all the affairs of the affiliate, and in
doing so he shall have power to administer oaths and to examine any of the officers,
directors, employees, and agents thereof under oath and to make a report of his findings
to the Comptroller of the Currency. The expense of examinations of such affiliates
may be assessed by the Comptroller of the Currency upon the affiliates examined in
proportion to assets or resources held by the affiliates upon the dates of examination




24

BANKING ACT OF 19 3 3

of the various affiliates. I f any such affiliate shall refuse to pay such expenses or shall
fail to do so within sixty days after the date of such assessment, then such expenses
may be assessed against the affiliated national bank and, when so assessedf shall be
paid by such national bank: Provided, however, That, if the affiliation is with two
or more national bahks, such expenses may be assessed against, and collected fromf
any or all of such national banks in such proportions as the Comptroller of the Cur­
rency may prescribe. If any affiliate of a national bank shall refuse to permit an
examiner to make an examination of the affiliate or shall refuse to give any informa­
tion required in the course of any such examination, the national bank with which it
is affiliated shall be subject, to a penally of not more than $100 for each day that any
such refusal shall continue* Such penally may be assessed by the Comptroller±of
the Currency and collected in the same manner as expenses of examinations.
Sec. 9. That Postal Savings funds received under the provisions of this act
shall be deposited in solvent banks, whether organized under National or State
laws, being subject to National or State supervision and examination, and the
sums deposited shall bear interest at the rate of not less than 2% per centum per
annum, which rate shall be uniform throughout the United States and Territories
thereof; but 5 per centum of such funds shall be withdrawn by the board of trustees
and kept with the Treasurer of the United States, w>ho shall be treasurer of the
board of trustees, in lawful money as a reserve. The board of trustees shall
take from such banks such security in public bonds or other securities, supported
by the taxing power, as the board Inay prescribe, approve, and deem sufficient
and necessary to insure the safety and prompt payment of such deposits on
demand: Provided, That no such security shall be required in case oj such part of

the deposits as are insured under this title*

The funds received at the Postal Savings depository offices in each city, town,
village, and other locality shall be deposited in banks located therein (substantia
ally in proportion to the capital and surplus of each such bank) willing to receive
such deposits under the terms of this act and tfye regulations made by authority
thereof: Provided, however, If one or more member banks of the Federal Reserve
System established by the act approved December 23, 1913, exists in the city,
town, village, or locality where the Postal Savings deposits are made, such deposit#
shall be placed in such qualified member banks substantially in proportion to the
capital and surplus of each such bank, but if such member banks fail to qualify
to receive such deposits, then any other bank located therein may, as herein*
before provided, qualify and receive the same. If no such member bank and no
other qualified bank exists in any city, town, village, or locality, or if none where
such deposits are made will receive such deposits on the terms prescribed, then
such funds shall be deposited under the terms of this act in the bank most con­
venient to such locality. If no such bank in any State or Territory is willing to
receive such deposits on the terms prescribed, then such funds shall be deposited
with the treasurer of the board of trustees and shall be counted in making up the
reserve of 5 per centum. Such funds may be withdrawn from the treasurer of
said board of trustees, and all other Postal Savings funds, or any part of such funds,
may be at any time withdrawn from the banks and savings depository offices
for the repayment of Postal Savings depositors when required for that purpose.
If at any time the Postal Savings deposits in any State,or Territory shall exceed
the amount which the qualified banks therein are willing to receive under the
terms of this act, and such excess amount is not required to make up the reserve
fund of 5 per centum hereinbefore provided for, the boarcT of trustees may invest
all or any,part of such excess amount in bonds or other securities of the United
States. When, in the judgment of the President, the general welfare and interests
o f the United States so require, the board of trustees may invest all or any part
of the Postal Savings funds, except the reserve fund of 5 per centum herein
provided for, in bonds or other securities of the United States. The board of
trustees may in its discretion purchase from the holders thereof bonds which have
been or may be issued under the provisions of section 10 of the act of June 25,
1910. Interest and profit accruing from the deposits or investment of Postai
Savings funds shall be applied to the payment of interest due to Postal Savings
depositors, as hereinbefore provided, and the excess thereof, if any, shall be
covered into the Treasury of the United States as a part of the postal revenue:
Provided further, That Postal Savings funds in the treasury of said board shall be
subject to disposition as provided in this act, and not otherwise: And provided
further, That the board of trustees may at any time dispose of bonds held as
Postal Savings investments and use the proceeds to meet withdrawals of deposits
by depositors. For the purposes of this act the word “ Territory ” as used herein
shall be held to include the District of Columbia, the District of Alaska and
Puerto Rico, and the word “ bank” shall be held to include savings banks and
trust companies doing p, banking business.




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