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7 4 th

Congress ) HOUSE OF REPRESENTATIVES

1st Session

f

R eport

(

J

N o. 742

B A N K IN G A C T OF 1935

A p r il

19, 1935.— 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 Banking and Currency, sub­
mitted the following

REPORT
[To accompany H. R. 7617]

The Committee on Banking and Currency, to whom was referred
the bill (II. R. 7617) to provide for the sound, effective, and uninter­
rupted operation of the banking system, and for other purposes
having considered the same, report favorably thereon and recommend
that the bill do pass.
general statement

Title I of the bill deals with Federal deposit insurance and places
it on a permanent basis by consolidating the temporary Federal
deposit insurance fund and the fund fo*r mutuals into the permanent
insurance fund for deposits, operative immediately upon enactment
of the title.
Title II contains certain amendments to the Federal Reserve Act.
The fundamental purposes of these amendments are as follows:
1 . T o increase the ability of the banking system to promote stability
of employment and business, insofar as this is possible within the
scope of monetary action and credit administration.
2. To concentrate the authority and responsibility for the formula­
tion of national monetary policy in a body representing the general
public interest.
3 . To modify the structure of the Federal Reserve System to the
extent necessary for the accomplishment of these purposes, but
without interfering with regional autonomy in matters of local concern.
4 . T o relieve the banks of the country of unnecessary and hamper­
ing restrictions, and thus enable them to meet the credit needs of
their communities more adequately and contribute more effectively
to the acceleration of recovery.
Title III consists of a number of technical amendments to the
National Bank Act, the Federal Reserve Act, the Banking Act of




2

BANKING ACT OF 193 5

1933, and related statutes. These amendments make no fundamental
changes in the existing banking laws but are designed to improve and
facilitate the administration of these laws by eliminating unnecessary
inconveniences and hardships and by revising certain provisions
which have been found difficult to administer in their present form.
There follows a summary of the bill by titles.

TITLE I. FEDERAL DEPOSIT INSURANCE
Through the existing insurance in more than 14,000 of our 15,000
banks, there is universal justified confidence among the depositors in
insured banks and the provisions in title I will place Federal deposit
insurance on a permanent basis by consolidating the temporary
Federal deposit insurance fund and the fund for mutuals into the per­
manent insurance fund for deposits, operative immediately upon the
enactment of the title (subdivision 12).
It has now been reliably determined that the $5,000 maximum
insurance protection to each depositor insures in full the deposits of
more than 98 percent of the depositors in insured banks and the
committee has been impressed that it is neither necessary nor expedi­
ent at this time to increase the insured deposit liability carried by the
Federal Deposit Insurance Corporation to give added protection to the
remaining one and a fraction percent of the bank depositors. Con­
sequently, the provisions of title I (subdivisiQn 12 ) continue hereafter
the present maximum insurance protection of $5,000 to each depositor
and repeal the existing provisions of law which call for insurance of
larger amounts after July 1 , 1935.
It has also been determined by the committee that insurance assess­
ments, based upon the insured deposit liability alone, place too large
a burden upon small banking institutions, especially when reasonable
regard is given to the necessity for general safety in the banking
structure and to the comparative benefits. Adequate funds can
be supplied to provide sound insurance with a lower original rate of
levy than that provided in the Banking A ct of 1933, and without
subjecting the insured banks-to unlimited liability for assessments.
Title I (subdivision 8) therefore provides that insured banks shall
pay an annual assessment of one-eighth of 1 percent payable in two
installments, upon total deposit liabilities, without liability for added
assessments, and repeals the provision of existing law requiring an
assessment on July 1 , 1935, of one-fourth of 1 percent upon total
deposit liabilities as the purchase price of class A stock, with unlimited
liability for subsequent assessments as needed. Under the annual
assessment plan of title I a reserve fund will be gradually amassed to
provide against periods when the Corporation might be called upon
to pay large amounts of insured deposit liabilities.
The Corporation has received as capital funds approximately
$290,000,000 from the sale of its stock to the United States and to the
Federal Reserve banks. The Corporation is relieved of all require­
ments calling for the paying of dividends on any stock issued by it.
In addition to these capital funds and the annual assessments to be
paid by insured banks, provision is made, in case of need, for making
available to the Corporation added funds from the sale of its obliga­
tions up to the extent of more than a billion dollars. These obliga­




BANKING ACT OF 193 5

3

tions to be sold by the Corporation may be guaranteed as to principal
and interest by the Government of the United States.
Title I continues the feature of the Banking Act of 1933 that it is
compulsory for all member banks of the Federal Reserve System to be
insured banks.
The right of nonmember banks, which voluntarily had their
deposits insured for the temporary period, to terminate their relation­
ship with the Corporation as of July 1 , 1935, is preserved, but non­
member banks seeking to so terminate their insurance are required to
give notice to their depositors, to the Corporation and, in certain
instances, to the Reconstruction Finance Corporation (subdivision 9).
This is required in the interest of fairness to their depositors, as w as
rell
to the Corporation and the Reconstruction Finance Corporation*
Title I makes it possible for the Corporation to be advised at all
times of the elements affecting its insurance hazard and gives means
to reasonably protect the funds against the consequences of unsound
or dangerous practices on the part of insured banks. Title I makes
available to the Corporation all of the reports of examinations made to
the Comptroller of the Currency and to the Federal Reserve Board
and it requires the Corporation to examine nonmember insured banks.
W ith the consent of the Comptroller of the Currency or the Federal
Reserve Board, the examiners of the Corporation may examine
National or State member banks. The Corporation is authorized to
terminate the insurance in any bank which persists in unsound prac­
tices, giving adequate protection to the depositors, however, for a
reasonable time thereafter. N o bank is permitted to continue as a
member bank of the Federal Reserve System after its insurance has
been terminated.
iJnder the existing lawT every bank must become or apply to become
,
a member bank of the Federal Reserve System by July 1 , 1937, in
order to continue as an insured bank after that date. M ore than
7,500 insured banks are not now members of the Federal Reserve
System. The committee, after careful consideration of the factors
involved, has come to the conclusion that membership in the Federal
Reserve System, however desirable it may be from the viewpoint tff
bringing about a unified banking system, should not be rendered
practically compulsory by requiring insured banks to either join the
System or terminate their insurance. The committee has therefore
eliminated this requirement of existing law.
Under the present law, where the Corporation makes an insurance
payment to a depositor in a closed bank, it is subrogated to the entire
claim of the depositor, even though he has more than $5,000, and it
is given the right to collect dividends up to $5,000, after which the
residue is paid over to the depositor. Under title I the subrogation
right of the Corporation would extend only to such dividends as
would have been payable to the depositor on a claim for the insured
deposit. The Corporation is given authority to regulate interest pay­
able by nonmember insured banks on deposits similar to the authority
the Federal Reserve Board now exercises in regulating interest pay­
able by member banks on deposits. The Corporation may prescribe
different rates for different classes of banks or different classes of
deposits, subject to the requirement that the rates fixed must be
reasonable.




4

BANKING ACT OF 193 5

Under the existing law the Corporation may make loans to or
purchase assets from closed member banks. This power is changed
so that the Corporation is authorized to make loans to and purchase
assets from insured banks closed on account of inability to meet the
demands of depositors.
For a limited time the Corporation is given power to make loans
to and purchase assets from closed or open insured banks, in connec­
tion with consolidations or mergers, to facilitate stabilization of such
banks. In like manner the Corporation may, for a limited time,
guarantee other banks against loss which assume the liabilities and
purchase the assets of insured banks.
Provision is made in title I for appointing in each State, Territory,
and jurisdiction where insured banks are located, an agent for the
service of summons in suits against .the Corporation.
Under the provisions of title I, Federal courts have jurisdiction over
suits to which the Corporation is a party where the amount involved
exceeds $3,000, but an exception is made where the Corporation is a
party in its capacity as receiver of a State bank.
Members of the board of directors, who become such after the enact­
ment of title I, are restricted from being financially interested in
insured banks by similar restrictions to those imposed upon members
of the Federal Reserve Board, with respect to member banks, by the
Federal Reserve Act.
Further, the Corporation is given the right to require insured banks
to maintain adequate fidelity and burglary insurance. The Corpora­
tion's approval is required before a merger or consolidation of any
insured bank with a noninsured bank, or before reduction of capital of
a nonmember takes place and nonmember insured banks are required
to make reports of condition which the Corporation may order to be
published.
In accordance with the policy established in the Banking A ct of
1933 of relaxing, to the extent o f insurance protection, statutory
requirements of giving security in case of certain deposits which are
insured and also required under law to be secured, sections 338 and
339 in title III eliminate the double protection to deposits in insured
banks of bankruptcy funds and of funds of receivers of national banks
by relaxing, to the extent that such deposits are protected by insur­
ance, the statutory requirement of giving security.

TITLE II. AMENDMENTS TO THE FEDERAL RESERVE ACT
There follows a section by section analysis of title II with a brief
statement of the reasons for each section.

S ection 201. C onsolidation of O ffices of G overnor
C hairman of F ederal R eserve B ank

and

Section 201 amends section 4 of the Federal Reserve A ct so as to
combine the offices of chairman of the board of directors and governor
of the Federal Reserve banks and to provide for the appointment of
the governor to the combined office to be made annually by the di­
rectors of each bank subject to approval every 3 years by the Federal
Reserve Board. The governor would be the chief executive officer of
the bank, chairman of its board of directors, and a class C director.




BANKING ACT OF 193 5

5

A vice governor would be selected in the same manner and would per­
form the executive functions of the governor in his absence. In tbs
discretion of the Federal Reserve Board the vice governor might also
be a class C director, and in such case might be appointed as deputy
chairman of the board of directors. The offices of Federal Reserve
agent and assistant Federal Reserve agent would be abolished and all
duties prescribed by law for the Federal Reserve agent would be per­
formed by the governor of the bank or such person as he may designate.
Under the present law, the Federal Reserve Board appoints the
three class C directors of each Federal Reserve bank and designates
one of them as a Federal Reserve agent and chairman of the board of
directors. It appears to have been the intention of the framers of
the original Federal Reserve A ct that the chairman of the board of
directors be the principal executive officer of each bank, and the law
makes him also the official representative of the Federal Reserve
Board at the bank. Mfirpr^ctice, however, the directors appoint an
executive officer for whom they have adopted the title of governor,
a title that is not mentioned in the law, and these governors have
become the active heads of the Federal Reserve banks.
The amendment recognizes the existing situation by giving tne
governor of a Reserve bank a status in the law, and combines his
office with that of the Federal Reserve agent and chairman of the
board of directors. The holders of these combined offices will be
appointed by the board of directors subject to the approval of the
Federal Reserve Board, and their reappointment will be subject to
approval by the Federal Reserve Board every 3 years. The Federal
Reserve Board will no longer appoint a chairman of the board, but
will merely have the power to approve or disapprove the appointment
of the governor, who will also be chairman of the board. When the
appointment of the governor is approved by the Board he will auto­
matically become a class C director.
This proposal merely reestablishes the original principle of the
Federal Reserve Act that the Federal Reserve Board, which has
responsibility for national policies and for general supervision over
the Reserve banks, shall be a party to the selection of the active heads
of the 12 Reserve banks. This change will work toward smoother
cooperation between the Board and the banks. What is equally
important, it will establish within the banks a greater unity of adminis­
trative control than now exists. It will also result in considerable
saving through the elimination of one of the two highest-salaried
officers in each Federal Reserve bank.
Section 4 of the Federal Reserve A ct is also amended to provide
that no member of the board of directors of a Federal Reserve bank,
other than the governor and vice governor, shall serve as a director for
more than two consecutive terms of 3 years each, but this shall not
prevent the present incumbents from serving out the remainders of
their present terms.

The purpose of this provision is to prevent the crystallization in
the directorates of the Reserve banks of the influence of any one
individual or group of individuals. Continuity of service is provided
for by allowing directors to serve as long as 6 years, and there is
nothing to prevent directors who have served for 6 years from again
becoming directors after the lapse of a year or more.




6

BANKING ACT OF 1935

Section 202. A dmission

of

I nsured N onmember B anks

Section 202 would amend section 9 of the Federal Reserve A ct so
as to authorize the Federal Reserve Board, in its discretion, to waive
any requirements imposed by statute or otherwise as a condition »to
admitting insured nonmember banks to membership in the Federal
Reserve System.
The purpose of this amendment is to facilitate the admission of
thousands of small banks into the Federal Reserve System. There
are now about 2,000 State banks and trust companies which have
been admitted to deposit insurance by the Federal Deposit Insurance
Corporation but which have capital insufficient to make them eligible
for membership in the Federal Reserve System. A bout 1,500 of
these banks are located in towns with a population of less than 3,000
inhabitants.
In some States, numerous banks have been reorganized since the
banking holiday under plans involving the issuance of deferred cer­
tificates of beneficial interest to depositors who have waived portions
of their deposits. In these cases, the condition of the banks has been
materially improved and new deposits are fully protected; but the
banks in many instances are not technically eligible for membership
in the Federal Reserve System because they are under absolute
liability to pay the amounts stated in the deferred certificates issued
to waiving depositors, although such liabilities are subordinated to
the liabilities of the bank to depositors and other creditors.
Other banks which the amendment would permit to join the Federal
Reserve System are those which have sold preferred stock or capital
notes or debentures, thereby strengthening the position of the de­
positors, but which have not been able to eliminate losses constitut­
ing a technical impairment of capital because of provisions of State
laws making it impossible to reduce the common capital to the extent
necessary to charge off the losses.

Section 203(1). Q u a lification s o f Members o f th e F e d e ra l
R eserve B oard
Section 203(1) would amend section 10 of the Federal Reserve
A ct by striking out the present requirement that, in selecting mem­
bers of the Board, the President shall have due regard to a fair repre­
sentation of the financial, agricultural, industrial, and commerical
interests and geographical divisions of the country, and substituting
a requirement that they shall be well qualified by education or ex­
perience, or both, to participate in the formulation of national economic
and monetary policies. The requirement that not more than one
member of the Board shall be from any one Federal Reserve district
is preserved, but it is made inapplicable to the Governor of the Board.
This amendment is for the purpose of describing the qualifications
of Board members in terms of the Board's principal function, which
is the formulation of national economic and monetary policies. It is
important to emphasize in the law that Board action should reflect, not
the opinion of a majority of special interests, but rather the well
considered judgment of a body that takes into consideration all phases
of the national economic life.




7

BANKING ACT OF 1935

The selection of the Governor of the Federal Reserve Board should
be as free from arbitrary limitations and restrictions as possible. If
the President has in mind a man who in his judgment qualifies for
the position, he ought not to be restrained from appointing him by
the fact that he happens to live in a district which is represented by
some other member of the Board.

Section 203(2). R etirement

of M embers
B oard

of

F ederal R eserve

Section 203(2) amends section 10 of the Federal Reserve Act so
as to permit present appointive members of the Federal Reserve
Board to retire upon reaching the age of 70 when they have served for
as long as 5 years, and to require members hereafter appointed to
retire upon reaching that age; but it would not prevent the President
from reappointing any of the present members of the Board. Any
member of the Board whose term expires and who is not reappointed
would be eligible for retirement if he has served for as long as 5 years,
except that, if his term expires before he reaches the age of 65 and
he is offered and declines to accept reappointment, he would not be
eligible for retirement. Members of the Board who have served for
as long as 12 years would receive a maximum retirement pay of
$12,000 per annum and members who have served for less than 12
years but not less than 5 years would receive retirement pay at the
rate of $1,000 per annum for each year of such service. All of the
funds for such retirement pay would be provided by assessments on
the Federal Reserve banks and none of it would come from appro­
priations or from the revenues of the Government.
This amendment is for the purpose of making the members of the
Board more independent by eliminating the possibility of their official
actions being influenced by the necessity of seeking positions in the
banking world after the expiration of their terms as members of the
Board if they are not reappointed. This is especially desirable in
view of the increased responsibilities which will be placed upon the
Federal Reserve Board by the other provisions of this bill.

Section 203(3). G overnor

of the

F ederal R eserve B oard

Section 203(3) amends section 10 of the Federal Reserve Act so
that, if the Governor of the Federal Reserve Board should resign from
membership on the Board within 90 days after he ceases to be Gover­
nor, he could reenter the banking business without waiting 2 years as
now required by law. However, he could serve out his full term as a
member of the Board if he chose to do so.
This provision is intended to make it easier for the President to
induce successful bankers of outstanding ability to accept the position
of Governor of the Federal Reserve Board. Any outstanding man
probably would resign from membership on the Board if his designa­
tion as Governor were terminated by the President before the expira­
tion of his term as a member of the Board; and, under existing law, a
Governor who resigned in such circumstances would be precluded from
reentering the banking business until 2 years after his resignation.
This seriously discourages outstanding bankers from accepting the




8

BANKING ACT OF 193 5

position of Governor of the Federal Reserve Board when tendered by
the President. This is an obstacle which should be removed.
The amendment makes no substantive change so far j^ th e designa­
tion by the President of the B oard’s Governor is concerned. The
present law states that “ of the six persons thus appointed, one shall be
designated by the President as Governor.” This has been consistently
interpreted to mean that the Governor serves as Governor at the pleas­
ure of the President. The bill follows this interpretation without
changing it, by including the additional words “ to serve as such until
the further order of the President.”

Section 203(4). B oard M embers H olding O ver
Section 203(4) would amend section 10 of the Federal Reserve A ct
so that, upon the expiration of their terms of office, members of the
Federal Reserve Board could continue to serve until their successors
are appointed and have qualified.
In view of the f^ct that the terms of most of the m ember* of the
Board expire in August, this amendment would reduce the occasions
when the President has to make recess appointments to the Board
and would make it possible for members who have been confirmed by
the Senate to continue to serve until their successors have been
appointed and confirmed by the Senate. It would also reduce the
chances of vacancies existing on a board which is charged with very
heavy responsibilities and therefore ahould have its full quota of
membership at all times.

Section 204 (a).

A ssignment

of

D uties

Section 204 amends section 11 of the Federal Reserve A ct so as to
authorize the Federal Reserve Board to assign to designated mem­
bers of the Board or its representatives, under rules and regulations
prescribed by the Board, the performance of specific duties and
functions. It would prohibit such assignment from including the
determination of national or system policies, or any power to make
rules and regulations, or any power which under the act is required
to be exercised.by a specified number of members of the Board.
The purpose of this provision is to relieve the Board of the neces­
sity of handling details and to give it a better opportunity to concen­
trate on problems of national importance. The Board should be able
to concentrate on studies and inquiries that would enable it to reach
decisions on matters of national importance. This is an exacting
task and one that should not be interrupted by the necessity of giving
attention to innumerable details.
The assignment of specific duties to individuals would also expedite
matters before the Board that require immediate decision. The
Board could greatly improve its relations with the Federal Reserve
banks and member banks through prompt and systematic disposition
of numerous details by assigning them to mdividual members or officers
of the Board or to its representatives at the Federal Reserve banks,
to be acted upon in accordance with rules and regulations-prescribed
by the Board and policies laid down by it.
^
One of the important consequences of these provisions would be
that the Board would have authority to assign to the governor or




9

BANKING ACT OF 193 5

board of directors of a Federal Reserve bank such duties as the
admission of banks into the system; the issuance of voting permits to
holding companies; authority to grant acceptances up to 100 percent
of its capital; and other matters on which the local bank is in a better
position to have the necessary contacts and information. This would
tend to decentralize administrative duties and to utilize to a greater
extent the regional features of the Federal Reserve System.

Section 204 (b). Statement

of

Objectives

Section 204 (b) amends section 11 of the Federal Reserve Act in
order to redefine and clarify the powers and duties of the Federal
Reserve Board. The section as amended requires the Federal R e­
serve Board—
to exercise such powers as it possesses in such manner as to promote conditions
conducive to business stability and to mitigate by its influence unstabilizing
fluctuations in the general level of production, trade, prices, and employment,
so far as may be possible within the scope of monetary action and credit admin­
istration.

In view of the added powers proposed to be conferred on the Federal
Reserve Board, and to insure that these powers will be exercised in
the public interest, it is desirable for Congress to lay down as definite
instructions as are practicable. The present objective, the accom­
modation of commerce, industry, and agriculture, is inadequate as
an expression of the will of Congress. It is felt that what the people
really expect of monetary management is that it should be directed
toward promoting business stability.
This objective is unequivocally specific and definite as to aims and
yet leaves to the Federal Reserve Board discretion as to the choice
of means. It would furnish a criterion by which the public and its
Representatives in Congress could assess the merits of monetary
policy. It would provide an added assurance that monetary control
would be exercised in the interest of the Nation as a whole.

Section 205. O pen M arket P olicies
Section 205 of the bill amends section 12A of the Federal Reserve
Act so as to provide for an Open Market Advisory Committee con­
sisting of 5 representatives of the Federal Reserve banks elected
annually by the governors of the 12 Federal Reserve banks. It will
be the duty of the committee to consult and advise with, and make
recommendations to, the Federal Reserve Board from time to time
with regard to the open-market policy of the Federal Reserve System
and to aid in the execution of open-market policies. The Federal
Reserve Board will be required to consult the committee before mak­
ing any changes in the open-market policy, discount rates of Federal
Reserve banks, or in the reserves required of member banks. After
consulting with and considering the recommendations of the com­
mittee, however, the Federal Reserve Board will be empowered to
prescribe the open-market policy of the Federal Reserve System, and
this policy will be binding on all Federal Reserve banks.
Having enlarged the duties of the Federal Reserve Board with
regard to the economic objectives of monetary action and credit
administration, it is essential that the Board be given the same definite
responsibility and final authority with respect to the open-market
2 0 3 6 6 0 — 5 8 -------- 3 6




10

BANKING ACT OF 193 5

policies of the Federal Reserve System as it already possesses with
respect to the discount rates of the Federal Reserve banks and the
reserves required of member banks.
Under the present law, open-market policies are formulated b y the
Federal Open Market Committee, which consists of the governors of
the 12 Federal Reserve banks. The recommendations o f the com ­
mittee are subject to the approval of the Federal Reserve Board, and
the boards of directors of each Federal Reserve bank retain the
authority to refuse participation in the policy adopted. W e have,
therefore, an arrangement by which there is a policy-making body of
12, which has power to formulate policies, but not to put them into
effect. We have the Federal Reserve Board, consisting of 8 members,
who have the authority to approve or disapprove of the recommenda­
tions of the committee; and we have 108 directors of the Reserve
banks, who have the final determination as to whether the policy is
to be carried out or not. It would be difficult to conceive o f an
arrangement better calculated than this for diffusing responsibility
and creating an elaborate system of obstructions.
The amendment will cure this situation by placing responsibility
for national monetary and credit policies squarely upon the Federal
Reserve Board. It will eliminate conflicts of jurisdiction and policy
because the final decision as to all matters affecting national policies
would be vested in the Federal Reserve Board. The participation of
Federal Reserve bank governors in the deliberations leading to the
adoption of open-market policies will be preserved. Open-market
operations may be initiated either by the committee of the governors
or by the Board, but the ultimate responsibility for making a final
decision and the power for adopting and carrying out national policies
will be concentrated in a national body, as they properly should be
in the public interest.
The Federal Reserve Board is appointed by the President and con ­
firmed by the Senate. It has a national viewpoint and has long been
accustomed to considering matters as they affect the country as a
whole, without regard to the special interests of any particular group
or locality. It was created for the purpose of supervising and coordi­
nating the activities of the 12 Federal Reserve banks “ in order that
they may pursue a banking policy which shall be uniform and har­
monious for the country as a w hole” (report of the Banking and Cur­
rency Committee of the House of Representatives on the original
Federal Reserve Act, Rept. No. 69, 63d Cong., 1st sess., p. 16). It is
for this reason that the original Federal Reserve A ct gave the Federal
Reserve Board final authority over discount rates. Since openmarket operations have in more recent years come to be recognized
as a much greater factor in credit policy than discount rates, it is en­
tirely consistent with the philosophy of the original Federal Reserve
A ct to vest in the Federal Reserve Board final authority with respect
to the open-market policies of the Federal Reserve System.

S ection 206. E lig ib ility f o r D iscount
Section 206 amends section 13 of the Federal Reserve A ct so as to
authorize the Federal Reserve banks, subject to regulations of the
Federal Reserve Board, to discount for member banks any commercial,




BANKING ACT OF 193 5

11

agricultural, or industrial paper, and to make advances to member
banks on their promissory notes secured by any sound assets.
The purpose of this provision is to relax or remove stringent tech­
nical limitations on the character of paper that can be used as a basis
of borrowing from the Federal Reserve banks, and thus to give member
banks the assurance they need so that it will be possible for them to
meet the needs of their communities for both short-time and long­
time funds.
Existing limitations had to be suspended during the emergency,
but this was accomplished only after they had done a great deal of
harm and after many banks had failed because of a lack of assets
technically eligible for obtaining accommodation at a Federal Reserve
bank. Since in practice existing restrictions must be relaxed when­
ever they become really restrictive, it is best not to have them in the
law, but to place full regulatory responsibility on the Board, which is
always in session and in a position to take prompt action when it is
required.
Changes in the country’s economic life, notably in the methods
of financing business enterprise, have materially reduced the volume
of short-term self-liquidating paper of the classes to which the discount
privileges of the Reserve banks are largely restricted by law. In
times of stress, therefore, when the help of the Federal Reserve
System has been most urgently needed, many bap&s, though holding
sound assets in their portfolios, have been devoid of the particular
kinds of paper available under the law for borrowing at the Reserve
banks.
This amendment, by removing many of the technical restrictions
of the present law, will enable the Federal Reserve banks to render
better service to their member banks in times of need. This will not
only make membership in the Federal Reserve System much ifiore
attractive but will encourage the member banks to invest their
savings deposits, which are essentially capital funds, in longer-term
loans, a course that would greatly facilitate business recovery.
This amendment will also make it possible for banks, without relax­
ing prudence or care, to meet local needs both for short-time and for
long-time funds, and to be assured that in case of need they can obtain
advances from the Reserve banks on the basis of all their sound
assets, regardless of their form or of the nature of the collateral.
Soundness of assets (a term which is here for the first time introduced
into the Federal Reserve A ct) is a greater safeguard to the banks than
short maturity of loans or the particular form of the underlying trans­
action.

S ection 207. Purchase o f U nited States G uaranteed O bliga­
tions
Section 207 amends section 14 of the Federal Reserve A ct so as to
make eligible for purchase by Federal Reserve banks all obligations
which are fully guaranteed by the United States as to principal and
interest, without regard to maturity.
This is for the purpose of placing obligations^ fully guaranteed by
the United States Government on tne $ame basis with direct obliga­
tions of the Government in respect to eligibility for purchase by the
Federal Reserve banks. There is no logic in discriminating against




12

BANKING ACT OF 193 5

obligations which, being in effect obligations of the United States
Government, differ from other such obhgations only in that they are
not issued directly by the Government.

Section 208. C o lla t e r a l f o r F e d e ra l R eserv e N otes
This section would repeal the requirement in section 16 of the
Federal Reserve A ct that Federal Reserve notes must be secured at
all times by the specific pledge of collateral. ||It would also repeal the
prohibition against one Federal Reserve bank paying out the notes of
another and would eliminate many of the present technical provisions
regarding the issue, redemption and retirement of Federal Reserve
notes. It would preserve the present requirement of a 40-percent
reserve in gold certificates, and would provide that Federal Reserve
notes and Federal Reserve bank notes shall not be counted as reserves
of a Federal Reserve bank.
Federal Reserve notes, being prior liens on all the assets of the
issuing Reserve banks as well as obligations of the United States
Government and protected by a 40-percent gold reserve, require no
specific pledging of collateral in order to insure their safety.
The Reserve banks have two principal classes of liabilities, deposits,
and notes. Back of these are all of the assets of a Federal Reserve
bank, including its gold and lawful money and all of its rediscounted
paper. The volume of either notes or deposits can be increased only
through a reduction in the other kind of liability or through the acqui­
sition by the Reserve banks of an additional asset. For example, a
member bank having a balance with a Federal Reserve bank can
withdraw part of it in the form of Federal Reserve notes, with the
consequence that the Reserve bank'd note liability will expand by the
sanje amount that its deposit liability contracts; or a member bank hav­
ing more Federal Reserve notes than it requires can taken them to the
Federal Reserve bank and have them credited to its accoujit, with
the consequence that the bank’s note liability will diminish and it3
deposit liability will correspondingly increase. The combined lia­
bility on notes and deposits can increase only through the acquisition
by the Reserve bank of additional assets.
It is at the time an asset is acquired that the determination is made
that it is good enough to be held by the Federal Reserve bank; and
this determination is made without reference to whether the asset
is ultimately to become backing for a deposit liability or for a note
liability. The assets of the Federal Reserve banks are the reserves
back of all deposits of member banks. Assets that are good enough
to constitute the backing for deposit liabilities of the Reserve banks
are also good enough to back Federal Reserve notes.
A holder of a deposit with a Federal Reserve bank has the right to
withdraw it in notes at any time, and consequently the Federal
Reserve bank should be in a position to use the asset acquired
at the time the deposit was created as backing for the notes into which
this deposit is convertible.
Neither the elasticity of our currency supply nor the safety of
Federal Reserve currency is in any way affected by the proposed
change in the law. Its only practical effect is to el^ainate the cumber­
some and useless requirement that certain specific collateral be segre­
gated, and held at considerable expense and in a privileged position,
as backing exclusively for Federal Reserve notes.




BANKING ACT OF 193 5

13

The elastic character of our currency is based primarily on the
fa6t that the public does not carry any more currency in its pockets
than it needs for day-to-day use and the banks themselves do not
carry any more than is necessary for their over-the-counter require­
ments. Therefore, any excess of currency quickly finds its way back
to the Federal Reserve banks. On the other hand, insufficiency of
currency is quickly remedied by member banks borrowing at the
Federal Reserve banks.
The present collateral requirements caused serious difficulty in
1931-32 when there was a foreign drain on the country's gold. At
that time it was necessary to pledge against Federal Reserve notes a
billion dollars of gold over and above reserve requirements, and it
was not possible for the Federal Reserve banks to increase the amount
of their eligible paper to release the gold, except by the sale of G ov­
ernment securities, which would in turn have forced more borrowing
by member banks, thus increasing the burden of debt on these banks
and giving an added impetus to deflation.
In those circumstances collateral requirements prevented the Re­
serve System from adopting a monetary policy that was clearly in
the interests of combating the prevailing deflation. The situation
was met by an emergency measure, which, however, was greatly
delayed. Such a state of affairs should not be permitted to occur
again.

Section 209. R eserve R equirements
Section 209 amends section 19 of the Federal Reserve Act, as
amended by the Thomas amendment, so as to permit the Federal
Reserve Board, without the necessity of approval of the President
and without declaring the existence of an emergency, to decrease the
reserve requirements in order to prevent injurious credit contraction
as well as to increase the reserve requirements in order to prevent
injurious credit expansion. Changes might be made applicable to
demand or time deposits or both and might be made different in two
different classes of cities: (1 ) Reserve and central reserve cities and
(2) nonreserve cities.
This proposal represents a clarification and modification of a power
which the Board now possesses under the Thomas amendment. The
present law provides that the Board, in order to change reserve
requirements, must obtain authority from the President. It does not
seem desirable to require Presidential approval for action which should
be within the competence of the Federal Reserve Board.
It is essential to give the Board more authority in controlling credit
conditions in view of the possibility of dangerous credit expansion on
the basis of existing member bank reserves, and also in order to give
the Board another mstrument for easing credit conditions if at some
time in the future that policy should become in the public interest.
Changes in reserve requirements are similar in their effects to openmarket operations, although they differ from those operations in the
fact that they directly and immediately affect a wider group of banks.
It is probable that ordinarily these powers would not be used; but,
in view of the very large volume of available excess reserves and the
possibility of credit expansion on these reserves, it is important to
clarify the Federal Reserve Board's power to arrest inflation.




14

BANKING ACT OF 193 5

S ection 210. R eal-E state L oans
Section 210 would amend section 24 of the Federal Reserve A ct so
that the conditions under which real-estate loans may be made by
national banks will be prescribed henceforth by regulations of the
Federal Reserve Board, except that (1 ) the amount of any such loan
hereafter made shall not exceed 60 percent of the appraised value of
the real estate at the time the loan is made; and (2) the aggregate
amount of such loans which any bank may make shall not exceed the
capital and surplus of the bank or 60 percent of its time and savings
deposits, whichever is the greater.
The purposes of this amendment are to increase the ability of com ­
mercial banks to serve their communities, to provide a greater outlet
for the banks’ funds, and to promote business recovery by opening up
the mortgage market and reviving the construction industry.
Few banks are purely commercial, since a large part of the deposits
in the banks represents savings. M ember banks hold in the aggregate
as much as $10,000,000,000 of savings funds. Separation of commercial
banking from savings banking in this country at the present time is an
academic question, as it could, not be accomplished now without dis­
rupting the banking system. So long, moreover, as commercial
banks continue to accept and hold a large amount of the people’s
savings they should use at least a part of these funds in long-time loans
and investments.
In using savings funds for long-time investments, there are no out­
lets that would serve a more useful economic purpose at the present
time than real-estate loans. The restoration of building activity to
something like a normal level is absolutely essential to further busi­
ness recovery, and to this end reestablishment of an active mortgage
market would greatly contribute. A t the present time the banks of
the country have a vast amount of funds for which they can find no
profitable outlet. Increased activity in real-estate loans would, there­
fore, be of importance to the banks in helping them to make reason­
able earnings and would at the same time enable them to render the
proper service to their communities, as well as to contribute to
recovery.
Member banks have an enormous volume of excess reserves, and
at the same time they are neglecting a broad field of real-estate loans
in which there is an opportunity to place their funds. Commercial
banks, which are surfeited with funds, are refraining from making
real-estate loans in any considerable volume, while building and loan
associations, which are anxious to make such loans, lack funds for
the purpose and are endeavoring to obtain funds from the Go em ­
inent. The Government, on the other hand, is pouring money into
the real-estate loan field through various agencies, such as the Home
Owners’ Loan Corporation, the Reconstruction Finance Corporation,
and the lending agencies under the Farm Credit Administration. If
commercial banks increased the volume of their loans on real estate,
special Government agencies would not be under the same pressure
to make these loans, the banks’ ability to make a living would improve,
and their usefulness to their communities would increase.
There is no logic in prescribing rigid limitations as to the proportion
of a bank’s funds that can be invested in real-estate loans, when the




BANKING ACT OF 193 5

15

proportion of their funds that can go into bonds and other kinds of
long-time uses is not restricted.
The record of real-estate loans during the depression has not been
worse than that of many other classes of loans and investments. Realestate loans, however, have differed from other long-time invest­
ments, such as bonds, in that there was no organized market where they
could be sold even at a reduced value. As compared with commercial
loans, real-estate loans have also suffered from ineligibility as a basis
of borrowing at a Federal Reserve bank. In consequence, real-estate
loans which might have been good in substance, despite being tempo­
rarily uncollectible, have had to be considered entirely frozen because,
until the emergency legislation of February 1932, temporary accom­
modation could not be obtained from the Reserve banks on these
loans as security. The elimination by this bill of rigid eligibility
requirements would remove from real-estate loans this serious
disability.

TITLE III. TECHNICAL AMENDMENTS TO THE BANKING
LAWS
There follows a statement summarizing the effect of the amend­
ments contained in each section of title III.

Section 301. “ A c cid e n ta l” H olding Company A ffilia te s
E liminated
Section 301 amends section 2 (c) of the Banking A ct of 1933 so as
to exclude from the very broad definition of the term “ holding com­
pany affiliate” , and hence from all provisions of law regarding such
affiliates (except the provisions of sec. 23A of the Federal Reserve
Act regarding loans to and investments in the securities of such affili­
ates), every corporation wholly owned by the United States and every
organization which, in the judgment of the Federal Reserve Board,
“ is not engaged, directly or indirectly, as a business in holding the
stock of, or managing or controlling banks, banking associations,
savings banks, or trust companies.”
The following actual cases illustrate the types of so-called “ acci­
dental” holding-company affiliates which the amendment would
exclude from the broad definition contained in the present law, be­
cause they are not believed to be within the intent of the provisions
of law regarding holding-company affiliates:
A corporation owning and operating large department stores in
several cities in the United States owns the stock of a small member
bank located on the premises of one of its stores, which bank is oper­
ated primarily for the convenience of its customers and employees.
An unincorporated labor union owns a majority of the stock oi a
member bank in New York City and a subsidiary organization of
the labor union owns the stock of a member bank located in Chicago,
A corporation organized to hold real and personal property of a
church owns or controls two member banks.
A charitable foundation established for the purpose of aiding young
men and women in obtaining an education owns the stock of a mem*
ber bank.




16

BANKING ACT OF 1 9 3 5

A large corporation engaged primarily in the lumber business, and
having some subsidiaries in the United States and Canada, owns the
stock of a small member bank which it operates for its own conveni­
ence and that of its employees.
An industrial-development company owns the stock of a small
member bank.
Although these organizations come within the broad definition of
“ holding-company affiliate” contained in the existing law, it is be­
lieved that no useful purpose is served by requiring them and similar
organizations to obtain voting permits and to submit to examination
and regulation by the Federal Reserve Board.
S e c t io n

302. D

iv o r c e m e n t

of

d a t io n

N

S e c u r it ie s C o m p a n ie s
R e q u ir e d

in

L iq u i ­

ot

Section 302 amends section 20 of the Banking Act of 1933 so as to
make it clear, in conformity with a previous ruling of the Federal
Reserve Board, that member banks need not go through the formality
of divorcing securities affiliates which have been placed in formal
liquidation.
S e c tio n

303 (a).

S e c t i o n 21 o f B a n k i n g A c t C l a r i f i e d ;
p lic a b le t o B a n k s S e llin g M o r t g a g e s

In a p ­

Section 303 (a) amends section 21 (a) (1) of the Banking Act of
1933 so as to make it clear that it does not prohibit any financial
institution or private banker from engaging in the securities business
to the limited extent permitted to national banks under section 5136
of the Revised Statutes. (Section 5136 limits national banks, in
dealing and underwriting, to United States Government obligations,
general obligations of States or subdivisions, and obligations issued
under the Federal Farm Loan Act or by the Federal Home Loan
Banks or the Home Owners’ Loan Corporation.) The amendment
would also make it clear that section 21 (a) (1) does not prohibit a
bank from selling, without recourse or agreement to repurchase, obli­
gations evidencing loans on real estate.
S e c t io n

303

(b ). F e d e r a l

E x a m in a t io n s
A b o l is h e d

of

P r iv a t e

B ankers

Section 303 (b) would repeal entirely paragraph (2) of section 21 (a)
of the Banking Act of 1933, which makes it a crime for any person,
firm, corporation, association, business trust, or other similar organi­
zation, other than a financial institution or private banker which is
subject to examination and regulation under State or Federal law, to
engage to any extent whatever in the business of receiving deposits,
unless such person, firm, corporation, association, business trust, or
other similar organization submits to examinations and makes reports
to the Comptroller of the Currency or the Federal Reserve bank of the
district. Furthermore, this paragraph has given rise to many adminis­
trative difficulties because of the division of authority between the
Comptroller of the Currency and the Federal Reserve banks, the lack
of any provision for defraying the costs of examinations, and the lack
of any provision for requiring corrective actions when unsatisfactory
conditions are discovered.




17

B ANKING ACT OF 19 3 5

The Comptroller of the Currency recommended some amendments
to this paragraph but the committee voted to repeal the paragraph
altogether, not only because of doubts as to its constitutionality but
because it did not appear that the paragraph could be amended in a
practicable manner so as to eliminate difficulties inherent in the situa­
tion. Inasmuch as dangerous conditions found to exist in such
institutions are not subject to correction under the law, the present
situation tends to deceive the public by causing it to have a false con­
fidence in such institutions, based on the knowledge that they are
subject to Federal examination, because the public will assume that
being subject to such examination they are also subject to super­
visory regulation and control.
S e c t io n 304. D

ouble

L ia b il it y o n N
T e r m in a t e d

a t io n a l

B ank

Stock

Section 22 of the Banking Act of 1933 abolished double liability of
stockholders on national-bank stock issued after June 16, 1933, and
section 304 of the bill would add a provision terminating on July 1,
1937, the double liability on previously issued stock in national banks
operating on July 1, 1937, provided the banks publish notice of such
termination of liability 6 months before the date of termination.
S e c t io n 3 05. D ir e c t o r s of N o n m e m b e r N a t io n a l B a n k s
R e l ie v e d o f S t o c k O w n e r s h ip R e q u ir e m e n t

Section 4 of the act of June 16, 1934, which relieved directors of
member banks from the stock ownership requirement of section 31 of
the Banking Act of 1933, is amended to eliminate such requirement
also as to nonmember national banks, such as those in Alaska and
Hawaii.
S e c tio n

306.

In te r lo c k in g
R e la tio n s h ip s
b e tw e e n
B a n k s a n d S e c u r i t i e s C o m p a n ies

M em ber

Section 306 would revise section 32 of the banking act of 1933,
which prohibits interlocking relationships between member banks and
securities companies, so as to extend the provisions thereof to employ­
ees as well as officers and directors and so as to include individuals
engaged in the securities business as well as officers, directors, and
managers of organizations engaged in such business. The descrip­
tion of this type of business would be revised so as to conform to
other provisions of the Banking Act of 1933 and the prohibition
against “ correspondent relationships” between member banks and
securities companies would be eliminated. Whereas the existing law
authorizes the Federal Reserve Board to make exceptions by granting
permits in individual cases, the revised section would authorize the
Board to make exceptions only by general regulations dealing with
limited classes of cases when, in the judgment of the Board, such
relationships would not unduly influence the investment policies of
such member banks or the advice they give their customers regarding
investments.




18

BANKING ACT OF 1 9 3 5

S e c t i o n 307 (a). C h a n g e in A m o u n t o f I n v e s t m e n t S e c u r i t i e s
o f O n e O b lig o r T h a t M a y B e H e ld by M e m b e r B a n k

Section 307 (a) amends section 5136 of the Revised Statutes so as to
eliminate the existing prohibition against a member bank purchasing
and holding more than 10 percent of a particular issue of securities;
but reduces the total obligations of one obligor which may be pur­
chased and held by a member bank from 15 percent of the bank’s
capital and 25 percent of its surplus, to 10 percent of each.
S e c tio n

307

(b ). P u r c h a s e o f S t o c k s f o r A c c o u n t o f C u s t o m e r s

Section 307 (b) would amend section 5136 of the Revised Statutes
so as to make it clear that national banks and other member banks
may purchase and sell stocks for the account of their customers but
not for their own accounts.
S e c tio n

308.

S u r p l u s R e q u i r e d f o r O r g a n iz a t i o n o f N a t i o n a l
B anks

Section 308 amends section 5138 of the Revised Statutes so as to
require a newly organized national bank to have a paid-in surplus
equal to 20 percent of its capital; but the Comptroller of the Currency
would be permitted to waive this requirement as to a State bank
eonverting into a National bank.
S e c tio n

309.— S e p a r a t i o n

o f N a tio n a l B an k S to ck C e r tific a te s
fr o m T h o s e o f O t h e r C o r p o r a t i o n s

Section 309 amends the requirement of section 5139 of the Revised
Statutes that stock certificates of national banks may not “ represent
the stock” of any other corporation, except a member bank or a
corporation existing on the date the paragraph took effect “ engaged
solely in holding the bank premises of such association” , so as to
provide that such certificates may not “ bear any statement purporting
to represent the stock” of any other corporation, except a member
bank or a corporation existing on the date the paragraph took effect
“ engaged primarily in holding the bank premises.” A provision is
also added to the effect that the section shall not operate to prevent
the transfer of stock of another corporation being conditioned upon
the transfer of a national bank stock certificate.
S e c tio n

310

(a). P r o v is i o n s r e V o t i n g S t o c k o f N a t i o n a l B a n k s

Section 310 (a) revises the first paragraph of section 5144 of the
Revised Statutes so as to make the following changes in existing law:
1. It makes it clear that nothing in this paragraph limits the voting
rights of the Reconstruction Finance Corporation and other holders
of preferred stock under the provisions of articles of association or
amendments thereto adopted pursuant to the provisions of section
302 (a) of the Emergency Banking Act of March 9,1933, as amended.
2. It permits shares of its own stock held in trust by a national bank
to be voted when the donor or beneficiary of the trust actually directs
how such shares shall be voted.




19

BANKING ACT OF 19 3 5

3. It eliminates the necessity for voting permits in cases where
shares of a member bank held by holding company affiliates are to be
voted merely in favor of placing the bank in voluntary liquidation or
taking any other action pertaining to its voluntary liquidation.
4. A provision is added to the effect, whenever shares of stock can­
not be voted because they are held by the bank as sole trustee, such
shares shall be excluded m determining whether matters voted upon
by the shareholders were adopted by the requisite percentage of
shares.
S e c t io n 310 (b ). L im it e d V

P e r m it s
C l a r if ie d

o t in g

and

C u m u l a t iv e V

o t in g

Section 310 (a) amends section 5144 of the Revised Statutes so as
to make it clear that holding company affiliates which have obtained
voting permits are entitled to the right of cumulative voting given
other shareholders and also so as to make it clear that the Federal
Reserve Board may issue limited voting permits and is not confined
to issuing general voting permits.
S e c t io n

311. R

e t e n t io n

of

I n e l ig ib l e
B anks

A

s se t s

by

C o n v e r t in g

Section 311 amends section 5154 of the Revised Statutes so as to
authorize the Comptroller of the Currency to permit State banks
converting into national banks to retain and carry, at a value de­
termined by the Comptroller, assets not permitted to be acquired
and held by national banks.
S e c t io n 312. C o m p t r o l l e r M

ay

D

elegate

C o u n t e r s ig n in g

Section 312 amends section 5162 of the Revised Statutes so as to
authorize the Comptroller of the Currency to designate a person or
persons to countersign on his behalf assignments and transfers of
bonds.
S e c t io n 313. I n t e r e s t R a t e s C h a r g e d b y N a t io n a l B a n k
B r a n c h e s O u t s id e U n it e d S t a t e s

Section 313 amends section 5197 of the Revised Statutes so as to
permit national bank branches located outside the States of the United
States and the District of Columbia to charge interest at the rate
permitted by local law.
S e c t io n 31 4 . A

c c u m u l a t io n

of

Su rplu s

by

N

a t io n a l

B ank

Section 31 4 amends section 5199 of the Revised Statutes so that,
before the declaration of dividends, national banks must carry not
less than one-tenth part of their net profits of the preceding half
year to surplus until same is built up to an amount equal to the
common capital instead of present requirement that same need
equal only 20 percent of capital. This change is deemed desirable in
connection with the provision that assessment liability be eliminated
from bank stock and is further desirable from the standpoint of build­
ing up a proper capital structure.




20

B ANKING ACT OF 19 3 5

S e c t io n

315. C r im in a l P r o v is io n s
E n t r i e s , E t c ., E x t e n d e d

R
to

E m bezzlem en ts, F alse
I nsu red B a n k s

e

Section 315 extends the criminal provisions of section 5209 of the
Revised Statutes relating to embezzlements, false entries, etc. so
as to apply to officers, directors, and employees, etc., of insured
nonmember banks.
S e c t io n 316. V

oluntary

L iq u id a t io n

of

N

a t io n a l

B anks

Section 316 adds a paragraph to section 5220 of the Revised Stat­
utes to provide a procedure to be followed in cases of voluntary
liquidation of national banks% Liquidation is to be accomplished by
a liquidating agent or committee which is to be responsible to the
bank's directors and stockholders, and the bank is to remain subject
to examination by the Comptroller of the Currency.
S e c tio n

317.

P r o h i b it i o n o f U s e o f W o r d s “ N a t i o n a l ” ^ “ F e d ­
e r a l ” , a n d “ U n ite d S t a t e s ”

Section 317 amends section 5243 of the Revised Statutes, which
now prohibits the use of the word “ national” in certain cases, so as
to prohibit the use of the words “ national” , “ Federal” , and “ United
States” as a part of the name or title of any person, firm,or corpora­
tion doing the business of bankers, brokers, or trust or savings insti­
tutions, unless they are organized under the laws of the United States
or are permitted by the laws of the United States to use such names
or are now lawfully using such names.
S e c t io n 31 8 . R e d u c t io n i n F e d e r a l R e s e r v e B a n k S t o c k
C o n f o r m t o R e d u c t io n i n M e m b e r B a n k ' s S u r p l u s

to

Section 318 amends section 5 of the Federal Reserve Act so as to
require member banks to reduce their holdings of Federal Reserve
bank stock upon a reduction in their own surplus, just as they are
already required to do upon a reduction in their own capital. It would
also repeal the provisions of sections 5 and 6 of the Federal Reserve
Act winch require the board of directors of a Federal Reserve bank to
execute a certificate to the Comptroller of the Currency showing an
increase or decrease in the capital stock of the Federal Reserve bank.
Inasmuch as every adjustment in Federal Reserve bank stock is ap­
proved by the Federal Reserve Board before the stock is issued or
canceled, the filing of such certificates with the Comptroller of the
Currency is a useless formality involving duplication of work.
S e c tio n

319.

P u b lic a tio n o f C o n d itio n R e p o r ts o f S t a t e M e m ­
ber B anks

Section 319 amends section 9 of the Federal Reserve Act so as to
require State member banks to publish the reports of condition which
the law already requires them to submit to the Federal Reserve banks.
The amendment would also authorize the Federal Reserve Board to
prescribe the form of such reports and the information to be contained
therein.




BANKING ACT OF 1 9 3 5

S e c tio n

320 (a).

21

L i m it a t io n o n L o a n s b y M e m b e r
G o v e r n m e n t O b lig a tio n s

B anks

on

Section 320 (a) amends section 11* (m) of the Federal Reserve Act
so as to place State member banks on a parity with national banks in
lending on the security of bonds, notes, certificates of indebtedness,
and Treasury bills of the United States, by changing the limitation on
loans to one individual on such security, from 10 percent of the bank’s
unimpaired capital and surplus to 25 percent thereof, as provided for
national banks in section 5200 of the Revised Statutes.
S e c tio n

320

(b ). L im it a t io n o n L o a n s b y N a t i o n a l B a n k s o n
T r e a s u r y B il l s

Section 320 (b) amends section 5200 of the Revised Statutes so as
to extend the eighth exception thereof, which pertains to loans secured
by bonds, notes, and certificates of indebtedness of the United States,
so as to apply also to loans secured by Treasury bills of the United
States.
S e c tio n

321.

In d o rse m e n t o r O th e r S e c u r ity S u ffic ie n t
R e s e r v e B a n k D i s c o u n t s f o r I n d i v id u a ls

fo r

Section 321 amends section 13 of the Federal Reserve Act so as to
require either indorsement or other security, rather than both, for
paper discounted by Federal Reserve banks for individuals or corpora­
tions unable to secure adequate credit accommodations from other
banks.
S e c tio n

322.

C h a n g e s in W o r d i n g o f S e c t i o n
R e s e r v e A ct

13 (b)

o f F ed eral

This section makes certain changes in the language of section 13 (b)
of the Federal Reserve Act, making it conform to the amendment in
title I of the bill whereby stock of the Federal Deposit Insurance Cor­
poration subscribed for by the Federal Reserve banks is changed to no
par value. These changes are in form only and do not alter the effect
of the existing law.
S e c tio n

323

(a). D e f i n i t i o n o f V a r i o u s C l a s s e s
by F e d e r a l R e s e r v e B o a rd

o f D e p o s its

Section 323 (a) amends section 19 of the Federal Reserve Act so as to
repeal the rigid statutory definitions of “ demand deposits” and “ time
d ^ osits^ and authorizes the FederaTReserve Board to define for the
purposes of the section the terms: ‘‘ Demand deposits ”, “ gross demand
deposits” , “ deposits payable on demand7^ t i m e deposits” , “ savings
deposits” and “ t r u s T tffid ^ ”To determine whaf is to be deemed a
payment of interesfTalid to prescribe regulations to effectuate the
purposes of the section.
S e c tio n

323

(b ). D e d u c t i o n o f “ A m o u n ts D u e F r o m B a n k s ’ *
in C o m p u tin g R e s e r v e s

Section 323 (b) amends section 19 of the Federal Reserve Act so
that, for purposes of computing member bank reserves, amounts due
from other banks (including checks in process of collection) may be




22

BAN KIN G ACT OF 1 9 3 5

deducted from gross demand deposits rather than from balances due
to other banks, thus extending the benefits of this deduction to country
banks which have no balances due to other banks.
S e c tio n

323

(c). B o a r d ’ s C o n t r o l O v e r P a y m e n t o f D e p o s i t s
and I n t e r e s t M a d e M o r e F le x ib le

Section 323 (c) amends section 19 of the Federal Reserve Act so as
to add to the classes of deposits exempted from the prohibition against
the payment of interest on demand deposits the following: (1) Con­
tracts existing when a bank joins the System; (2) deposits payable
otitside the States of the United States and the District of Columbia
(rather than merely those payable in foreign countries); (3) deposits
of trust funds on which interest is required by State law; and (4)
deposits of the United States, its territories, districts or possessions
on which interest is required by law.
The section is also amended to make more flexible the Federal
Reserve Board’s power to classify time and savmgs dfijiQsits and
limit the rates of interest to be paid thereon. The absolute prohibi­
tion against the payment of time deposits before maturity is relaxed
to permit such payments under conditions prescribed by the Board;
and deposits payable only at offices of member banks located outside
the States of the United States, and the District of Columbia are
exempted from all restrictions on payment before maturity and all
restrictions on interest rates.
S e c tio n

323

(d ). R e s e r v e s R e q u i r e d

on G o v e r n m e n t D e p o s its

Section 323 (d) amends section 19 of the Federal Reserve Act
by adding a new paragraph requiring member banks to keep the same
reserves against deposits of the United States as against other depos­
its, thus repealing the exemption contained in the Liberty bond acts.
S e c t io n 3 2 4 . W

a iv e r of

R eports

or

E x a m in a t io n s

of

A

f f il ia t e s

Section 324 adds a new paragraph to section 21 of the Federal
Reserve Act, authorizing the Federal Reserve Board or the Comp­
troller of the Currency, as the case may be, to waive examinations of,
or reports from, affiliates of a member bank, when they are not
necessary to disclose fully the relations between such affiliate and
such bank and the effect thereof upon the affairs of such bank.
S e c tio n

325

(a ). C r im i n a l P r o v is i o n s C l a r i f i e d , E x t e n d e d t o
I n sured B an k s

Section 325 (a) amends section 22 (a) of the Federal Reserve Act
so as to make it clear that the prohibitions against loans or gratuities
to bank examiners from member banks, and their officers ana employ­
ees, apply only to banks subject to examination by such examiners;
and also so as to make it clear that these prohibitions and the pro­
hibitions against thefts by examiners apply to State examiners
examining member banks as well as to Federal examiners but not to
private examiners. The prohibitions are extended to cover insured
nonmember banks.
>




BANKING ACT OF 1 9 3 5

S e c tio n

23

325 (b). F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n
E x a m in e r s S u b j e c t e d t o C r im i n a l P r o v is io n s

Section 325 (b) amends section 22 (b) of the Federal Reserve Act
so that the prohibition against a national bank examiner receiving
compensation from any bank, or any officer or employee thereof, is
extended to examiners of the Federal Deposit Insurance Corporation;
and the restrictions against examiners revealing the names of bor­
rowers or collateral to loans is extended to cover insured nonmember
banks.
S e c tio n

325

(c). B o r r o w i n g s b y E x e c u t i v e O f f i c e r s o f M e m b e r
B a n k s — E lim in a t i o n o f C r im in a l P e n a l t y

Section 325 (c) revises section 22 (g) of the Federal Reserve Act
which forbids executive officers of member banks to borrow from
their banks. The period permitted for renewing such loans that were
outstanding on June 16, 1933, is extended from June 16, 1935, to
June 16, 1938, but conditioned on a finding by the bank directors
that such renewal is in the hank’s interest and that the officer has
made reasonable effort to reduce his obligation must be spread on
the bank’s minute book. An exception is made permitting any
member bank to lend not more than $2,500 to any executive officer
with the prior approval of a majority of its entire board of directors.
Borrowing by a partnership in which one or more executive officers
have individually or collectively a majority interest is stated to be
within the prohibition, whereas the existing law is construed to pro­
hibit loans to partnerships in which an executive officer has any
interest. It is made clear that, in order to aid or protect the bank,
executive officers may endorse paper previously taken by the bank in
good faith, or may incur any indebtedness to the bank. The Federal
Reserve Board is given power to define terms used in the section and
to prescribe regulations to effect its purposes. The present criminal
penalties are repealed and there is substituted a provision for the
removal of offending officers.
S e c tio n

326.

R e s tr ic tio n s on L o a n s t o A f f i l i a t e s

XSection 326 amends section 23A of the Federal Reserve Act, which
limits member banks’ loans to affiliates and loans on and investments
in the securities of affiliates, so as to add to the exemptions from its
provisions: (1) Affiliates engaged “ primarily ” in holding the bank
premises (the existing law requires them to be “ solely” so engaged),
(2) affiliates primarily engaged in maintaining and operating properties
acquired for banking purposes prior to enactment of the bill*>((3)
wholly owned subsidiaries of foreign banking corporations organized
under the Federal Reserve Act, (4) wholly owned subsidiaries of
similar corporations in which national banks are authorized to invest
under section 25 of the Federal Reserve Act, (5) affiliates which
became such through a bona fide previous debt, and (6) affiliates
which are such because their shares are held by the bank as fiduciary
(except when the beneficiaries are a majority of the bank’s stock­
holders). The section is also made inapplicable (a) to affiliate
indebtedness arising from the unpaid balance due on assets purchased




24

B AN KIN G ACT OF 1 9 3 5

from the bank, and (b) to loans and extensions of credit secured by
obligations of the United States or obligations fully guaranteed by
the United States as to principal and interest. The latter, of course, is
intended to apply only to loans fully secured by such obligations.
S e c tio n

327.

“ W o r k in g C a p i t a l” L o a n s
E s t a t e R e s tr ic tio n s

R e lie v e d

of

R e a l-

Section 327 amends section 24 of the Federal Reserve Act so as to
exempt from the restrictions of that section on real-estate loans, all
“ working capital” loans in which the Reconstruction Finance Cor­
poration or a Federal Reserve bank has participated or made a com­
mitment, or which it has discounted, loaned upon, or purchased.
S e c tio n

328.

In te r lo c k in g B an k D ir e c to r a te s

Section 328 repeals section 8A of the Clayton Act, which restricts
interlocking relationships between banks and trust companies organ­
ized or operating under the laws of the United States and institutions
which “ make loans secured by stock or bond collateral” , and revises
section 8 of the Clayton Act. The latter is made to apply to all
member banks rather than banks organized or operating under the
laws of the United States; and a simple prohibition against a private
banker, or a director, officer, or employee of any other bank, savings
bank (other than a mutual savings bank), or trust company serving
as officer, director, or employee of a member bank, is substituted for
the complicated provisions of existing law that depend upon the size
of the banks and of^the cities in which they are located. Authority
for the Federal Reserve Board to relax this prohibition by general
regulations in limited classes of cases, when the classes of institutions
involved are not in substantial competition^ is substituted for its
existing power to allow the service of particular individuals to a
limited number of institutions by issuing individual permits when
“ not incompatible with the public interest.”
S e c tio n

329.

N a t i o n a l B a n k C o n s o li d a t i o n s

Section 329 amends section 1 of the act of November 7, 1918, so as
to clarify the provisions relating to consolidations of national banks,
particularly with respect to dissenting stockholders.
S e c tio n

330.

C o n s o lid a tio n o f S t a t e an d N a t i o n a l B a n k s

Section 330 amends section 3 of the act of November 7, 1918, so as
to clarify the provisions relating to consolidations of State and
National banks, particularly with respect to dissenting stockholders.
S e c tio n

331.

L im i t a t i o n o n U s e o f W o r d s “ D e p o s i t I n s u r e d ”

Section 2 of the act of May 24, 1926, forbidding the misleading
use of the words “ Federal” , “ United States” , and “ Reserve” by
banks, insurance companies, and similar financial institutions, is
amended to forbid such use of the words “ Deposit Insurance.”




25

BANKING ACT OF 1 9 3 5

S e c t io n 3 3 2 . R

obbery

of

I n s u r e d B a n k P u n is h e d

The act of M ay 18, 1934, punishing robberies of member banks
and of banking institutions organized or operating under Federal
law is amended to extend such protection to insured nonmember
banks.
S e c t io n 3 33. D

is t r ib u t io n o f
of

N

A ss e t s u p o n R e d u c t io n
B anks

of

C a p it a l

a t io n a l

Section 333 amends section 5143 of the Revised Statutes so,as to
make it clear that, in approving reductions of capital stock by na­
tional banks, the Comptroller of the Currency in order to conserve
the assets for the protection of the banks, may specify that such
banks shall not distribute a corresponding amount of their assets to
their shareholders. The amendment would also strike out the words
which make it necessary for capital stock reductions to be approved
by the Federal Reserve Board # addition to the Comptroller of the
in
Currency, thus eliminating an unnecessary duplication of work.
S e c t io n 3 34. C e r t if ic a t e s

of

N

a t io n a l

B a n k Stock

Section 33 4 amends section 5139 of the Revised Statutes by
adding a paragraph specifying certain information to be stated on
certificates hereafter issued representing shares of stock in national
banks.
S e c t io n 3 3 5 .

C e r t if ic a t e o f C o m p t r o l l e r
P r e f e r r e d S tock

as

to

I ssu an ce

of

Section 335 amends the last sentence of section 301 of the Emer­
gency Banking Act of March 9, 1933, so as to require, in connection
with the issuance of preferred stock, the same kind of a certificate
by the Comptroller of the Currency as to the validity of such issue
as is now required in the case of the issuance of common stock.
S e c t io n 33 6 .

T e r m in a t io n
B a n k s in D

of

L i a b i l i t y of S h a r e h o l d e r s
o f C o l u m b ia

of

is t r ic t

Section 336 would terminate the liability of shareholders of banks
and trust companies in the District of Columbia as of July 1, 1937,
in a manner similar to that provided elsewhere in the bill for termi­
nating the liability of shareholders of national banks.
S e c t io n 337. B r a n c h e s

of

State M

em ber

B anks

Section 337 amends section 9 of the Federal Reserve Act so as to
correct a technical error in the Banking Act of 1933 which results in
State member banks being required to obtain the approval of the
Comptroller of the Currency, instead of the Federal Reserve Board,
before establishing out-of-town branches or retaining such branches
upon admission to the Federal Reserve System, if they were estab­
lished after February 2 5, 1927.
The amendment would neither enlarge nor diminish the right of
State banks to establish or retain branches but would merely require
20366 O— 58-------37




26

BANKING ACT OF 1 9 3 5

them to obtain the approval of the Federal Reserve Board instead of
the Comptroller of the Currency.
S e c t io n 3 38. S e c u r it y

for
in

B a n k R e c e iv e r s h ip F u n d s
I n sured B a n k s

on

D

e p o s it

Section 338 removes the requirement of furnishing security in case
of bank receivership funds deposited in banks whose deposits are
protected by insurance under section 12B of the Federal Reserve Act.
S e c t io n

339. S e c u r it y

B ankruptcy F unds
I nsured B a n k s

for

on

D

e p o s it

in

Section 339 removes the requirement of furnishing security in case
of bankruptcy funds deposited in banks whose deposits are protected
by insurance under section 12B of the Federal Reserve Act.
S e c tio n

340.

I n t e r e s t o n P o s t a l S a v in g s D e p o s i t s

Section 340 clarifies the amendment made in section 10 (c) of the
Banking Act of 1933 relating to withdrawal of postal savings deposits,
and adds provisions relating to interest on postal savings deposits
and to deposits in member banks by postal savings depositories.

SUPPLEMENTAL VIEWS OF MR, BROWN OF MICHIGAN
With the general purposes of the bill (H. R. 7617) I am in accord.
But to one familiar, in a measure, with the banking system, some
of the sections and some of the omissions of the bill seem detrimental
to the interests of the country.
The adoption of this measure, as amended in committee, will tend
to drive many banks out of the national banking system and out
of the Federal Reserve System. This is directly contrary to the
purpose of the bill as first introduced (H. R. 5357). Changes in com­
mittee, certainly not in line with the desire of the administration, if
the original bill expressed that desire, were made. No one ventured
to assert in committee that the changes made, which will be presently
discussed, were desired by the President, the Comptroller, or the
Federal Deposit Insurance Corporation, but many times the com­
mittee was informed that the bill as introduced (H. R. 5357) had the
approval of the various agencies affected.
A fairly well unified banking system could be brought about by
legislation which would encourage the chartering and extension of
national banks and inclusion of State banks in the Federal Reserve
System. This bill, together with the existing law unaffected by it,
will discourage national banking. It will break down and reverse the
policy of our last two banking bills which encouraged a unified, demo­
cratic form of banking where each bank was independent in the
matter of local credit and at the same time was able to call on the
system for aid in extending credit and for aid in time of financial stress.
Under existing law the nonmember banks of the county were ad­
mitted as insured banks in the Federal Deposit Insurance Corpora­
tion with the understanding that in 1937 such insured banks would
have to join the Federal Reserve System or terminate their member-




BANKING ACT OF 1 9 3 5

27

ship in the Federal Deposit Insurance Corporation. Under the bill
as reported, the committee definitely abandons this policy and per­
mits for all time nonmember banks to participate in the Federal
Deposit Insurance Corporation without membership ill the Federal
Reserve System. Every act of Congress heretofore passed relating
to this subject has announced the policy that insured banks must
become members of the Federal Reserve System. In my judgment,
if this provision is repealed as is contemplated in H. K. 7617, the
pending bill, a unified system of banking with individual autonomy
and control of the separate banks is gone.
Some reasons that will drive banks out of the national system are
now given. Why should a national bank subject itself to the some­
what more drastic control of the Treasury Department (which I
think is highly desirable and beneficial to the depositors) if it no
longer has the power of issuing money to the amount of its capital,
a right which was taken away by the recent action of the administra­
tion? It is in competition with State banks which in most States are
permitted to have branches— a valuable right. Small national banks
are denied the privilege of so doing, although this right is accorded
to national banks with a capital of a half million dollars. In other
words the National Rank of Detroit can now establish a branch in a
hamlet in Gogebic County, Mich., 700 miles away, but the national
bank in the county seat cannot ao so. It is a strange situation of
law which gives a big city bank the right to establish branches at
any place in the State and permits State banks of any size to do like­
wise, but denies to national banks of capital under $500,000 the same
privilege.
In many places of 800 to 3,000 population, banks have disappeared
and the national county-seat banks are ready and willing to establish
offices where deposits may be made and checks cashed. They cannot
do so under the present law. People in these towns, too small to
establish banks, want this service. If their county-seat bank is a
State bank they may get the service, but if a national bank they
cannot. However, the big city bank can establish it.
One of three results will follow: Either under-capitalized, weak,
banks will be established in these places; branches of large national
banks will go in; or the town will have no service. Why not give to
these people the safe service that could be provided by county branch
banking and prevent thousands of under-capitalized small banks to
start up.
The following insert sets out in roman type the existing law and
the language starting with “ (3) ” and ending with the words “ clause
(c) (3 )” contains an amendment first adopted by the committee
under a free vote, then rejected, under extreme pressure, on recon­
sideration, after the lines were adroitly reformed.
Section 5155 of the Revised Statutes, as amended (U. S. C., Supp.
VII, title 12, sec. 36).
(c) A national banking association may, with the approval'
of the Comptroller of the Currency, establish and operate new
branches: (1) Within the limits of the city, town, or village in
which said association is situated, if such establishment and
operation are at the time expressly authorized to State banks
by the law of the State in question; and (2) at any point within
the State in which said association is situated, if such establish-




28

BANKING ACT OF 1 9 3 5

ment and operation are at the time authorized to State banks
by the statute law of the State in question by language specifi­
cally granting such authority affirmatively and not merely by
implication or recognition, and subject to the restrictions as to
location imposed by the law of the State on State banks; and (3),

in any State in which State banks are permitted by statute law
to maintain branches within the county or within a 40-mile
radius of the place in which the State bank is located, if no bank
is located and doing business in the place where the proposed
branch is to be located, any such national banking association
may, independent of the capital requirements of this section,
establish and operate new branches at any place within the
county or within a 40-mile radius of the place in which said
association is situated, but not to exceed four in number and
subject to such capital requirements as the Comptroller of the
Currency may impose. Except as provided in clause (c) (3)
no such association shall establish a branch outside of the city,
town, or village in which it is situated unless it has a paid-in and
unimpaired capital stock of not less than $500,000: Providedf
That in States with a population of less than one million, and
which have no cities located therein with a population exceeding
one hundred thousand, the capital shall be not less than $250,000:
Provided, That in States with a population of less than one-half
million, and which have no cities located therein with a popula­
tion exceeding fifty thousand, the capital shall not be less than
$ 100 ,000 .
When the issue of county branch banking was finally presented in
committee, an aroused leadership refused to permit small national
banks to have county branches and at the same time declined to
approve a measure wmch would prevent a further extension of branch
banking by large national banks. It is difficult to write without some
heat of the inconsistent attitude of some experienced majority
members of the committee, who assert great solicitude for the small
banks and vote great exclusive powers to large ones, but my affection
for them, nurtured in three busy sessions of Congress, aided by a few
hours of contemplation, cools my pen.
I think limited county branch banking highly desirable for two
reasons:
First. It will give service to many small towns now without it.
Second. It will discourage the opening of the pawn shop, corner
grocery type of small bank.
Why should a medium-sized town bank now remain a member of
the Federal Reserve System when it must maintain about 10 percent
of its deposit liability with the Federal Reserve bank, getting nothing
for it, when it is a well-known fact that the town bank (I am speaking
of the town of 25,000 and less), neither asks nor gets much accom­
modation from the Federal Reserve System because little of its paper
is eligible? State requirements on reserves are usually more liberal.
Character loans have no standing with the Federal Reserve System,
and character is the basis of much of the solidity of our small-town
banks.
Smaller national banks and smaller member banks by withdrawing
will save much expense of examination, much drastic regulation, much
remote bureaucratic domination, all of which is anathema to the




BANKING ACT OF 193 5

29

bankers. So why continue in the National and Federal Reserve
System?
As independent State banks they can establish branches in most
States, they will be subject to much less regulation. They will be
members of the Federal Deposit Insurance Corporation, which will
give confidence to the public. This was a prime factor in bringing
banks into the National and Federal Reserve Systems before Federal
deposit insurance. That incentive goes if this bill is enacted as
reported.
I believe Federal examination and Federal control has been bene­
ficial. The figures show it. But with the right to issue national-bank
currency gone, with no right to establish branches, except by big
banks, with interest on Federal Reserve balances gone to the town
banker, the National and Federal Reserve Systems look like “ all give
and no get” . With State charters more liberal, with less control,
with branch banking permitted, and with Federal protection of
deposits, the banker sees a condition where he has every reason for
giving up his national charter and every reason for going into a non­
member State bank statufc.
But while such a tendency is inevitable because the bankers will
do what they think best for themselves it is decidedly unfortunate for
the depositors and the country, because Government supervision by
the Comptroller's Office and by the Federal Reserve, examiners,
although it may seem drastic, is highly desirable in the interest of the
depositors.
One cannot contemplate the record of the past without realizing
that national and Federal control is highly desirable from the stand­
point of the depositor whose interest is paramount. Let's look at the
record:
The record of national, State member and nonmember banks from
1921 to 1932 shows the superior safety of national banks. Mutual
savings banks are not included in these figures with nonmember
banks as they are of a different character. The figures are based on
the 1933 report of the Federal Reserve Board.
In 1921, there were 8,150 national banks with total deposits of
$12,991,000,000. There were 1,595 member State banks with de­
posits of $7,646,000,000. There were 20,181 nonmember banks with
deposits of $9,529,000,000. In 1932, open national banks had dimin­
ished in number from 8,150, 12 years before, to 6,080; the State
member banks from 1,595 to 824; the nonmember banks from 20,181
to 11,296.
During the 12-year period just before the abnormal situation of
1933, the average annual number of national banks closing per year
were 138, or 1.6 percent of the 1921 total; State member banks 35
per year, or 2.2 percent; nonmember banks 732 per year, or 3.6
percent.
In the matter of deposits, the 12-year period shows that the total
deposits in national banks suspended, was $1,187,000,000; in State
member banks $680,000,000; and in nonmember banks $3,017,000,000.
When one stops to consider that the 1932 member banks' de­
posits were three and one-half times the nonmember deposits and that
the deposits in suspended nonmember banks for the 12 preceding
years were practically twice the amount of deposits in suspended
member banks, it is plain and apparent that a unified system is im­




30

B ANKING ACT OF 1 9 3 5

mensely superioT in safety to depositors. The National and Federal
Reserve Systems have proven their superiority in the commercial
banking field. Figures for the period from 1933 to date are not avail­
able, but I am assured, on authority I consider reliable, that the
record when written will fully sustain the conclusions here reached.
The§e figures demonstrate that a unified system such as we have
should be continued, encouraged, and perfected. This bill (H. R.
7617) will break it downi. Give national banks the same rights and
privileges State banks have and no more. Give the little bank the
same right as you do the big bank, and extend insurance of deposits
to all banks that will join the Federal Reserve System and assist in the
general unification and strengthening of our banking structure.
The results desired can best be achieved by restoring section 23 of
title I of H. R. 5357, requiring insured nonmember banks, within a
reasonable time, to join the Federal Reserve System, w
rhich will be
offered on the floor by Representative Hancock of North Carolina, and
by adopting an amendment permitting county branch banking where
State banks are permitted by statute law to have branches. These
measures, in conjunction with the patent benefits of the bill, either
H. R. 5357 or H. R. 76l7, will do much toward achieving a sound,
effective, uninterrupted operation of a unified banking system with
local community control of its own credit.
While several members of the committee are in accord with my
views on much that is here said, I have not asked anyotfe to join me
in this statement. For the information of the House I add a short
statement, as of March 27, 1935, of the present status of State laws
concerning branch banking.
P r e n t i s s M. B r o w n .
STATES WHERE BRANCH BANKING IS PERMITTED, WITH SHORT SUMMARY OF
CONDITIONS

Alabama.— County-wide branch banking in counties of 250,000 population.
Arizona.— State-wide branch banking.
California.—State-wide branch banking.
Connecticut.— State-wide branch banking permitted if town is without banking
facilities or if bank takes over or consolidates with another bank located at any
place within the State.
Delaware.— State-wide branch banking.
. Georgia.— Permits branch banking within limits of municipality in which
main office is located provided such municipality has a population of not less
than 80,000.
Idaho.— Permits State-wide branch banking if town is without bank, or if
applying bank takes over existing bank that has operated for 5 years, or gets
consent of existing banks.
Indiana.— County-wide branch banking provided there is no bank in such
place.
Iowa.— Branch banking permitted in same county or counties contiguous to
the county in which home office is located, subject exclusion of cities and towns
in which there is already an established bank in operation.
Kentucky.— Branch banking permitted within limits of municipality in which
main office is located.
Louisiana.— Parish-wide branch banking permitted. Amended by special
act providing that any bank with principal office in the parishes of Allen, Cal­
casieu, or Jefferson Davis may establish branches in any one or more of these
parishes.
Maine.— State-wide branch banking permitted if there is no local bank in
place where branch is to be located, or a unit bank or branch or another bank is
taken over by applying bank.
Maryland.—State-wide branch banking.




BANKING ACT OF 1 9 3 5

31

Massachusetts.—Branch banking permitted within town where main office is
located, or in any other town within the same county if such other town does not
have commercial banking facilities.
Michigan.—\
State-wide branch banking.
Mississippi.— National banks may establish branches: First, in the city of
their location; second, within the limits of the county; third, within the limits of
adjacent counties; fourth, anywhere within a 100-mile radius of the parent bank,
except that beyond counties adjacent to the county of the bank’s location a
branch may not be established in a town of less than 3,500 population where a
going bank has its main office.
Montana.— National bank consolidating with a State bank in the same or an*
adjoining county may operate a branch in the location of either consolidating
bank.
Nevada.—State-wide branch banking.
New Jersey.— County-wide branch banking provided existing bank is taken
over.
New Mexico:—Branch banking permitted (1) anywhere in the same county
in which the parent bank is located; (2) in any adjacent county if there is no bank
operating in said county; (3) anywhere within a 100-mile radius from the parent
bank if there is no bank in operation in the county in which such branch is to
operate.
New York.— Branch banking permitted within limits of banking district in
which main office is located. There are nine banking districts in the State of
New York.
North Carolina.— State-wide branch banking.
Ohio.— Branch banking permitted within limits of municipality in which main
office is located, and in city or village contiguous thereto, or in other parts of the
county or counties in which the municipality containing the main office is
located.
Oregon.— State-wide branch banking permitted. In situation where town with
population under 50,000 with bank or banks operating there, a bank must be
taken over.
Pennsylvania.— Branches may be established in a city, borough, or township
in which the bank has its principal place of business if a national bank located in
that place was on March 1, 1927, operating a branch therein, such privilege being
limited to the corporate limits of the place as they existed on March 1,1927.
Rhode Island.—
-State-wide branch banking.
South Carolina.—State-wide branch banking.
South Dakota.—State-wide branch banking permitted subject to following
conditions: In towns of a population less than 3,000 a branch cannot be established
where there is an existing National or State bank transacting a customary banking
business except through purchase of or consolidation with said existing banks.
In cities or towns of a population more than 3,000 or less than 15,000 in which there
are two or more existing banks transacting a customary banking business a branch
cannot be established except by purchase of or consolidation with one of said
existing banks for each branch desired to be established in that community.
Tennessee.— County-wide branch banking.
Utah.—State-wide branch banking permitted in cities of first class or in cities,
towns, or villages in which no bank or banks are regurarly transacting business.
In all others must take over existing bank or get consent from local existing bank.
Vermont.— State-wide branch banking.
Virginia.— National banks may establish branches in same or adjoining coun­
ties or within 25 miles of main office providing this is in connection with merger
or consolidation.
Washington.— State-wide branch banking permitted if there is no local bank or
branch operating, or same is taken over.
Wisconsin.—Branch banking permitted within 30 miles of parent bank.
STATES WHERE BRANCH BANKING IS PROHIBITED

Arkansas, Colorado, Florida, Illinois, Kansas, Minnesota, Nebraska! New
Hampshire, Oklahoma, Texas, and West Virginia.
STATES WHERE STATE STATUTES ARB SILENT

Missouri.—-No law providing for branch banking in any form.
New Mexico.— No law providing for branch banking in any form.
Wyoming.— No law providing for branch banking in any form.
North Dakota.— No law providing for branch banking in any form.




32

BANKING ACT OF 1 9 3 5
STATES WHEI^E BRANCH BANKING LEGISLATION IS PENDING

Colorado, Nebraska, and Missouri.
N ote. —The fact that States permit branch banking does not aid a national
bank with capital of less than $500,000, because the Federal law prohibits it
beyond city limits.

MINORITY VIEWS OF THE COMMITTEE ON BANKING AND
CURRENCY (TO ACCOMPANY REPORT ON H. R. 7617)
The undersigned members of the committee find themselves unable
to concur in the majority report filed.
Title I and III of the bill H. R. 761,7 as reported are in the main
satisfactory, but title II, while containing some provisions of merit,
is in its entirety such a radical departure from tne sound principles
of central banking that the evils it contains more than counteract
the advantages of title I and III.
The chief objections to title II are the changes in the control of
the governors of the Federal Reserve banks, changes in the control
of the Governor of the Federal Reserve Board, increases in the power
of the Federal Reserve Board, and too great liberalization of the
discount and borrowing provisions of the Federal Reserve member
banks.
PURPOSE OF THE FEDERAL RESERVE SYSTEM

The history of the establishment of the Federal Reserve System
is a long and interesting one. Far-sighted men realized almost 30
years ago that there should be a central system to bring about the
control of credit and the concentration of reserves, together with
certain reforms in the currency proper. Some desired to put this
system entirely under Government control. Many private bankers
fought bitterly to eliminate any Government control whatsoever.
Various plans were studied carefully for several years, and the system
worked out more than 20 years ago was a compromise whereby the
Federal Reserve Board members, though appointed by the President,
were assured of tenure through long terms. The right of the Presi­
dent to appoint one of the Board as Governor, and the ex-officio
membership on the Board of the Secretary of the Treasury and of the
Comptroller of the Currency gave the administration an important
voice in the Board's deliberations. It was supposed, however, to
be an independent supervisory body for the whole Federal Reserve
System.
The Federal Reserve banks, on the other hand, are private institu­
tions, whose capital is subscribed by the various member banks.
They hold the deposits of member banks, discounting for them cer­
tain types of obligations, and are the vehicle for the issue of Federal
Reserve notes. They are controlled through their boards of directors,
two-thirds named by the member banks, and one-third by the Federal
Reserve Board, thus assuring that the views of the central board will
receive careful consideration.
This separation of the Reserve banks from governmental control is
in accordance with central banking practice in most of the more
highly civilized countries under a democratic form of government.
The best known central bank, for instance, is the Bank of England,
which is a private institution entirely separate from direct govern-




BANKING ACT OF 19 3 5

33

mental control, even though it cooperates closely with the Govern­
ment. Conversely, countries under close dictatorship, like Italy and
Russia, have central banks entirely under Government domination.
One of the first and essential steps in any dictatorship is to extend
power over the credit resources of the country.
THE EFFECT OF TITLE II OF THE BILL

At the present time the Governor of each Federal Reserve bank, its
chief executive officer, is elected annually by the directors of the bank.
He is responsible to his board, and not to the Federal Reserve Board.
Under this bill he must be subject to the approval of the Federal
Reserve Board when first designated as Governor, and each 3 years
thereafter, if redesignated, he must again be subject to the Board's
approval, thus removing to a great extent the independence which he
has enjoyed in the past.
At the present time the Governor and Vice Governor of the Federal
Reserve Board are designated as such by the President from the mem­
bership of the Board. Under this bill they would be removable by
the President at will, thus taking away whatever independence they
now have. To realize the extent of this change, it must be remem­
bered that the Governor has always been the dominant figure on the
Board, and the Board is thus made more subject to control by the
Executive.
At the present time open-market operations, that is, the buying
and selling of Government obligations by the Federal Reserve banks,
are recommended by a committee of governors of the Reserve banks,
but no such bank may be compelled to take part in these operations
if it prefers not to do so. Under this bill the Federal Reserve Board
becomes the open-market committee and its decision as to buying
and selling of Government bonds is mandatory on all the Federal
Reserve banks.
Open-market operations are always conducted for all the banks by
the New York Federal Reserve Bank, for New York is the money
and bond market of the country. If this new provision becomes law,
it means that the resources of the Federal Reserve banks from the 12
districts may be drained to New York for the purpose of acquiring
bonds, no matter how unwise it might appear to bankers generally.
Thus the board of directors of a particular Federal Reserve bank
might consider that it was already overloaded with Government
bonds, and yet be forced to buy more.
At the present tii»&~r£serw requireme^
banks may ber
changed from certain statutory limits only in times of emergency by
a vote of five members of the Federal Reserve Board, and with the
consent of the President. Under this bill the Federal Reserve Board
(acting perhaps by a bare majority of a bare quorum) could raise or
lower reserve requirements at will. The right to raise is the right to
curtail or even stop entirely the normal banking function of lending.
The right to lower brings the possibility of endangering deposits by
requiring insufficient reserves. Neither power should be lightly
exercised.




34

B ANKING ACT OF 1 9 3 5

One of the chief evils of title II is that it is tied in with titles I and
III, for it is entirely separate and distinct, and has little connection
with their subject matter. The enactment of title I in the near
future is most desirable, and title III is also of value. It must be
obvious that there was a purpose in sandwiching title II between
titles I and III and insisting that they be passed as an entirety.
NEED OF FURTHER STUDY

The original set-up of the Federal Reserve System was the result
of many years of study. Any drastic changes in it today should be
the result of similar study. Plenty of time should be given, and all
viewpoints should be sought. The present title II is not even the
original title II as presented in the bill, but is almost without change
an amended title II submitted by Governor Eccles of the Federal
Reserve Board after he had entirely completed his testimony before
the committee.
While the committee was assured that the first draft was the joint
work of all the various financial departments of the Government, and
had their joint approval, we have had no assurance that title II m its
amended form has received anjr approval except that of Governor
Eccles, or has even been submitted to anyone else. It is a clear
example of hasty and ill-advised legislation on a matter of vital
importance to the country.
DANGER OF COMPULSORY FINANCING OF DEFICITS

One of the things most dreaded today by thinking people is the
possibility of the weakening, or perhaps collapse of Government
credit because of continued deficits. Government financing should
be on the same basis as private financing; that is, a free and open
market where the savings of the people are voluntarily used in the
purchase of Government obligations. Whenever the Government is
m a position to compel the use of the savings o f the people to acquire
such obligations, such financing becomes a forced loan and is one of
the most vicious inroads on liberty. Weakening of the market for
Government obligations is a danger signal in the spending program
of any government, and this bill would make it easy to ignore such
a danger signal. What most people do not realize is that whenever
banks may be forced to acquire Government bonds against their will,
or at rates which they would not recognize if the transaction were
voluntary, as far as the actual credit of the Government is concerned,
deficits might just as well be financed by fiat money.
CONCLUSION

No emergency has been shown requiring the passage of this title
II. No immediate need for it has been evidenced. The inherent
dangers in it are obvious. Its presence in the bill jeopardizes the
early passage by Congress of titles I and III.
In the interests o f the general banking situation in the country
title II should be removed from the bill, to be given further con­




BAN KIN G ACT OF 1 9 3 5

35

sideration by the committee or by a special commission in a position
to give it careful and expert study. If title II remains in this bill in
substantially its present form, it is our recommendation that the
bill do not pass.
J o h n B. H o l l i s t e r .




J esse P . W o l c o t t .
P e t e r A. C a v i c c h i a .
H a m il t o n F is h , J r .
C h a r l e s L. G i f f o r d .
E v e r e t t M. D i r k s e n .
C lare G . F en e r ty.

CHANGES IN EXISTING LAW
In compliance with paragraph 2a of rule X III of the Rules of the
House of Representatives, changes in existing law made by the bill
are shown as follows: Existing law proposed to be omitted is enclosed
in black brackets; new matter is printed in italics; existing law in
which no change is proposed is shown in roman.
Amendments made by title I of the bill in section 12B of the Federal
Reserve Act, as amended.
Sec. 12B. [(a) There is hereby created a Federal Deposit Insurance Corpora­
tion (hereinafter referred to as the “ Corporation” whose duty it shall be to
purchase, hold, and liquidate, as hereinafter provided, the assets of national
banks which have been closed by action of the Comptroller of the Currency, or
by vote of their directors, and the assets of State member banks which have been
closed by action of the appropriate State authorities, or by vote of their directors;
and to insure, as hereinafter provided, the deposits of all banks which are entitled
to the benefits of insurance under this section. J
(a) Thefe is hereby created a Federal Deposit Insurance Corporation (hereinafter
referred to as the “ Corporation” ), which shall insure, as hereinafter provided, the
deposits of all banks which are entitled to the benefits of insurance under this section
and which shall have the right to exercise all powers hereinafter granted.
(b) The management of the Corporation shall be vested in a board of directors
consisting of three members, one of whom shall be the Comptroller of the Cur­
rency, and two of whom shall be citizens of the United States to be appointed
by the President, by and with the advice and consent of the Senate. One of the
appointive members shall be the chairman of the board of directors of the Cor­
poration and not more than two of the members of such board of directors shall
be members of the same political party. Each such appointive member shall
hold office for a term of six years and shall receive compensation iat the rate of
$10,000 per annum, payable monthly out of the funds of the Corporation, but
the Comptroller of the Currency shall not receive additional compensation for
his services as such member. In the event of a vacancy in the office of the Comptroller
of the Currency, and pending the apppintment of his successor, the Acting Comptroller
of the Currency shall be a member of the board of directors in his place and stead.
In the absence of the Comptroller of the Currency any Deputy Comptroller of the
Currency, as designated from time to time by the Comptroller, may, within the limits
prescribed by the Comptroller, act as a mernber of the board of directors in the place
and stead of the Comptroller. In the event of a vacancy in the office of the chairman
of the board of directors, and pending the appointment of his successor, the Comptroller
of the Currency shall act as chairman. The Comptroller of the Currency shall be
ineligible during the time he is in office and for two years thereafter to hold any office,
position, or employment in any insured bank. The appointive members of the board
of directors shall be ineligible during the time they are in office and for two years
thereafter to hold any office, position, or employment in any insured bank, except
that this restriction shall not apply to a member who has served the full term for which
he was appointed. No member of the board of directors shall be an officer or director
of any bank, banking institution, trust company, or Federal Reserve bank or hold
stock in any bank, banking institution, or trust company; and before entering upon
his duties as a member of the board of directors he shall certify under oath that he has
complied with this requirement and such certification shall be filed with the secretary
of the board of directors. No member of the board of directors serving on the board
of directors at the effective date shall be subject to any of the provisions of the three
preceding sentences until the expiration of. his present term of office.
(c) As used in this section-—
(l)
The term “ State bank” means any bank, banking association, trust company,
savings bank, or other banking institution which is engaged in the business of receiving
deposits and which is incorporated under the laws of any State or the Territories of
Hawaii or Alaska or which is operating under the Code of the District of Columbia
(except a national bank),
36




BANKING ACT OF 19 3 5

37

(2) The term “ State member bank” means any State bank which is a member of
the Federal Reserve System, and the term u State nonmember bank” means any other
State bank.
(8) The term “ District bank” means any State bank operating under the Code of
the District of Columbia.
(4) The term “ national member bank” means any national bank located in the
States of the United States, the District of Columbia, or the Territories of Hawaii or
Alaska, except a national nonmember bank as hereinafter defined.
(5) The term, “ national nonmember bank” means any national bank located in
the Territory of Hawaii or Alaska which is not a member of the Federal Reserve
System.
(6) The term “ mutual savings bank ” means a bank without capital stock transacting
a savings bank business, the net earnings of which inure wholly to the benefit of its
depositors after payment of obligations for any advances by its organizers.
(7) The term “ savings bank” means a bank, other than a mutual savings bank,
transacting a strictly savings-bank business under State laws imposing special require­
ments on such banks governing the manner of investing their funds and of conducting
their business: Provided, That the bank maintains, until maturity date or until
withdrawn, all deposits made with it, exclusive of funds held by it in a fiduciary
capacity, as time savings deposits of the specific term type or of the type where the
right to require written notice before permitting withdrawal is reserved: Provided
further, That such bank to be considered a savings bank must elect to become subject
to regulations of the Corporation respecting the redeposit of maturing deposits and
prohibiting withdrawal of deposits by checking except from specifically designated
deposit accounts totaling not more than 15 per centum of the bank’s total deposits.
(8) The term 1 insured bank” means any bank the deposits of which are insured in
1
accordance with the provisions of this section, and the term “ noninsured bank”
means any other bank.
(9) The term “ new bank ” means a new national banking association organized by
the Corporation to assume the insured deposits of an insured bank closed on accouyit
of inability to meet the demands of its depositors and otherwise to perform temporarily
the functions prescribed in this section.
(10) The term “ receiver” shall include a receiver, liquidating agent, conservator,
commission, person, or other agency charged by law with the-duty of winding up the
affairs of a bank.
(11) The term 1 board of directors ” means the board of directors of the Corporation.
1
(12) The term “ deposit” means the unpaid balance of money or its equivalent re­
ceived by a bank in the usual course of business and for which it has given or is obli­
gated to give unconditional credit to a commercial, checking, savings, time or thrift
account, or which is evidenced by its certificate of deposit, and trust funds held by such
bank whether retained or deposited in any department of such bank or deposited in
another bank, together with such other obligations of a bank as the board of directors
shall find and shall prescribe by its regulations to be deposit liabilities by general
usage: Provided, That any obligation of a bank which is payable only at an ojfice of
the bank located outside the States of the United States, the District of Columbia, and
the Territories of Hawaii and Alaska shall not be a deposit for purposes of this section
or be included as a part of total deposits or of an insured deposit. The board of di­
rectors may by regulation further define the terms used in this paragraph.
(18) The term “ insured deposit ” means such part of the net amount of money due
to any depositor for deposits in an insured bank, after deducting offsets, as shall noi
exceed the maximum prescribed by paragraph (1) of subsection (I) of this section.
Such amount shall be determined according to such regulations as the board of directors
may prescribe. In determining the amount due to any depositor there shall be added
together all deposits in the bank maintained in the same capacity and the same right
for his benefit either in his own name or in the names of others, except trust funds
which shall be insured as provided in paragraph (8) of subsection (h) of this section.
(14) The term “ transferred deposit” means a deposit in a new bank or other
insured bank made available to a depositor by the Corporation as payment of the
insured deposit of such depositor in a closed bank, and assumed by such new bank or
other insured bank.
(15) The term 1 effective date” means the date of enactment of the Banking Act of
1
1985.
[(c) J (d) There is hereby authorized to be appropriated, out of any money in
the Treasury not otherwise appropriated, the sum of $150,000,000, which shall
be available for payment by the Secretary of the Treasury for capital stock of the
Corporation in an equal amount, which shall be subscribed for by him on behalf
of the United States. Payments upon such subscription shall be subject to call




38

BAN KIN G ACT OF 1 9 3 5

in whole or in part by the board of directors of the Corporation. Such stock
shall be in addition to the amount of capital stock required to be subscribed for
by Federal Reserve banks [and member and nonmember banks as hereinafter
provided, and the United States shall be entitled to the payment of dividends
on such stock to the same extent as member and nonmember banks are entitled
to such payment on the class A stock of the Corporation held by themj. Receipts
for payments by the United States for or account of such stock shall be issued by the
Corporation to the Secretary of the Treasury and shall be evidence of the stock owner­
ship of the United States.
[(d ) The capital stock of the Corporation shall be divided into shares of $100
each. Certificates of stock of the Corporation shall be of two classes— class A
and class B. Class A stock shall be held by member and nonmember banks as
hereinafter provided and they shall be entitled to payment of dividends out of
net earnings at the rate of six per centum on the capital stock paid in by them,
which dividends shall be cumulative, or to the extent of thirty per centum of
such net earnings in any one year, whichever amount shall be the greater, but
such stock shall have no vote at meetings of stockholders. Class B stock shall
be held by Federal Reserve banks only and shall not*be entitled to the payment
of dividends.] Every Federal Reserve bank shall subscribe to shares of [class
b j , stock in the Corporation to an amount equal to one-half of the surplus of
such bank on January 1, 1933, and its subscriptions shall be accompanied by a
certified check payable to the Corporation in an amount equal to one-half of
such subscription. The remainder of such subscription shall be subject to call
from time to time by the board of directors upon ninety days’ notice. The
capital stock of the corporation shall consist of the shares subscribed for prior to the
effective date. Such stock shall be without nominal or par value, and shares issued
prior to the effective date shall be exchanged and reissued at the rate of one share for
each $100 paid into the corporation for capital stock. The consideration received
by the corporation for the capital stock shall be allocated to capital and to surplus
in such amounts as the board of directors shall prescribe. Such stock shall have no
vote and shall not be entitled to the payment of dividends.
[(e) Every bank which is or which becomes a member of the Federal Reserve
System on or before July 1, 1935, shall take all steps necessary to enable it to
become a class A stockholder of the Corporation on or before July 1, 1935; and
thereafter no State bank or trust company or mutual savings bank shall be ad­
mitted to membership in the Federal Reserve System until it becomes a class A
stockholder of the Corporation, no national bank in the continental United
States shall be granted a certificate by the Comptroller of the Currency author­
izing it to commence the business of banking until it becomes a member of the
Federal Reserve System and a class A stockholder of the Corporation, and no
national bank in the continental United States for which a receiver or conser­
vator has been appointed shall be permitted to resume the transaction of its
banking business until it becomes a class A stockholder of the Corporation.
Every member bank shall apply to the Corporation for class A stock of the Cor­
poration in an amount equal to one-half of 1 per centum of its total deposit
liabilities as computed in accordance with regulations prescribed by the Federal
Reserve Board; except that in the case of a member bank organized after the
date this section takes effect, the amount of such class A stock applied for by
such member bank during the first twleve months after its organization shall
equal 5 per centum of its paid up capital and surplus, and beginning after the
expiration of such twelve months' period the amount of such class A stock of
such member bank shall be adjusted annually in the same manner as in the case
of other member banks. Upon receipt of such application the Corporation shall
request the Federal Reserve Board, in the case of a State member bank, or the
Comptroller of the Currency, in the case of a national bank, to certify upon the
basis of a thorough examination of such bank whether or not the assets of the
applying bank are adequate to enable it to meet all of its liabilities to depositors
and other creditors as shown by the books of the bank; and the Federal Reserve
Board or the Comptroller of the Currency shall make such certification as soon
as practicable. If such certification be in the affirmative, the Corporation shall
grant such application and the applying bank shall pay one-half of its subscrip­
tion in full and shall thereupon become a class A stockholder of the Corporation:
Provided, That no member bank shall be required to make such payment or
become a class A stockholder of the Corporation before July 1, 1935. The
remainder of such subscription shall be subject to call from time to time by the
board of directors of the Corporation. If such certification be in the negative,
the Corporation shall deny such application. If any national bank shall not have




BANKING ACT OF 19 3 5

39

become a class A stockholder of the Corporation on or before July 1, 1935, the
Comptroller of the Currency shall appoint a receiver or conservator therefor in
accordance with the provisions of existing law. Except as provided in subsec­
tion (g) of this section, if any State member bank shall not have become a class
A sto3kholder of the Corporation on or before July 1, 1935, the Federal Reserve
Board shall terminate its membership in the Federal Reserve System in accord­
ance with the provisions of section 9 of this Act.]
(e) (1) Every operating member bank, including a bank incorporated since March
10, 1983, licensed on or before the effective date by the Secretary of the Treasury shall
be and continue without application or approval an insured bank and shall be subject
to the provisions of this section.
(#) After the effective date any national member bank authorized to commence or
resume the business of banking, State bank converting into a national member bank,
or State bank becoming a member of the Federal Reserve System shaU be an insured
bank from the time the certificate herein prescribed shall be issued to the Corporation
by the Comptroller of the Currency in the case of such national member bank, or by
the Federal Reserve Board in the case of such State member bank: Provided, That in
the case of an insured bank admitted to membership in the Federal Reserve System
or insured State bank converting into a national member bank, such certificate shall
not be required, and the bank shall continue as an insured bank. Such certificate
shall state that the bank is authorized to transact the business of banking in the case
of a national member bank, or is a member of the Federal Reserve System in the case
of a State member bank, and that consideration has been given to the factors enumerated
in subsection (g) of this section.
[(f) Any State bank or trust company or mutual savings bank which applie8
for membership in the Federal Reserve System or for conversion into a national
banking association on or after July 1, 1936, may, with the consent of the Cor*
poration, obtain the benefits of this section, pending action on such application
by subscribing and paying for the same amount of stock of the Corporation a8
it would be required to subscribe and pay for upon becoming a member bank*
Thereupon the provisions of this section applicable to member banks shall be
applicable to such State bank or trust company or mutual savings bank to the"
same extent as if it were already a member bank: Provided, That if the applica­
tion of such State bank or trust company or mutual savings bank for membership
in the Federal Reserve System or for conversion into a national banking associa­
tion be approved and it shall not complete its membership in the Federal Reserve
System or its conversion into a national banking association within a reasonable
time, or if such application shall be disapproved, then the amount paid by such
State bank or trust company or mutual savings bank on account of its subscrip­
tion to the capital stock of the Corporation shall be repaid to it and it shall no
longer be subject to the provisions or entitled to the privileges of this section.]
(/) (1) Every bank not a member of the Federal Reserve System which on the
effective date is a member of the Temporary Federal Deposit Insurance Fund or of
the Fund for Mutuals created pursuant to the provisions of the Banking Act of 1938,
as amended (48 Stat. 168, 969; chs. 89, 546), shall be and continue without applica­
tion or approval an insured bank and shall be subject to the provisions of this section,
unless in accordance with regulations to be prescribed by the board of directors such
bank shall give to the Corporation and to the Reconstruction Finance Corporation, if
it owns or holds as pledgee any preferred stock, capital notes, or debentures of such
bank, within thirty days after the effective date written notice of its election not to
continue after June 80, 1985, as an insured bank and shall give to its depositors, by
publication or by any reasonable means, as the board of directors may prescribe, not
less than twenty days’ notice prior to June 80, 1935, of such election: Provided, Thai
any State nonmember bank which was admitted to said Temporary Federal Deposit
Insurance Fund or Fund for Mutuals but which did not file on or before the effective
date an October 1, 1934, certified statement and make the payments thereon required
by law as it existed prior to the effective date, shall cease to be an insured bank on
June 30, 1985: Provided further, That no bank admitted to the said Temporary
Federal Deposit Insurance Fund or the Fund for Mutuals prior to the effective date
shall, after June 80, 1985, be an insured bank or have its deposits insured by the
Corporation, if such bank shall have permanently discontinued its banking operations
prior to the effective date. Deposits of the bank giving such notice shall continue to
be insured until June 80, 1935, and the rights of the bank shall be as provided by law
existing prior to the effective date, and such bank shall not be insured by the Corpora­
tion beyond June 80, 1935.
(2) Subject to the provisions of this section, any national nonmember bank, on
application by the bank and certification by the Comptroller of the Currency in the




40

BAN KIN G ACT OP 1 9 3 5

manner prescribed in subsection (e) of this section, and any State nonmember bank,
upon application to and examination by the Corporation and approval by the board
of directors, may become an insured bank. Before approving the application of any
such State nonmember bankt the board of directors shall give consideration to the
factors enumerated in subsection (g) of this section and shall determine, upon the
basis of a thorough examination of such banky that its assets in excess of its capital
requirements are adequate to enable it to meet all of its liabilities as shown by the
books of the bank to depositors and other creditors.
[ (g) If any State bank or trust company, or mutual savings bank (referred to
in this subsection as “ State bank” ) which is or which becomes a member of the
Federal Reserve System is not permitted by the laws under which it was organ­
ized to purchase stock in the Corporation, it shall apply to the Corporation for
admission to the benefits of this section and, if such application be granted after
appropriate certification in accordance with this section, it shall deposit with the
Corporation an amount equal to the amount which it would have been required
to pay in on account of a subscription to capital stock of the Corporation. There­
after such deposit shall be adjusted in the same manner as subscriptions for stock
by class A stockholders. Such deposit shall be subject to the same conditions
with respect to repayment as amounts paid on subscriptions to class A stock by
other member banks and the Corporation shall pay interest thereon at the same
rate as dividends are actually paid on outstanding shares of class A stock. As
long as such deposit is maintained with the Corporation, such State bank shall,
for the purposes of this section, be deemed to be a class A stockholder of tha
Corporation. If the laws under which such State bank was organized be amended
so as to authorize State banks to subscribe for class A stock of the Corporation,
such State bank shall within six months thereafter subscribe for an appropriate
amount of such class A stock and the deposit hereinafter provided for in lieu of
payment upon class A stock shall be applied upon such subscription. If the law
under which such State bank was organized be not amended at the next session
of the State legislature following the admission of such State bank to the benefits
of this section so as to authorize State banks to purchase such class A stock, or,
if the law be so amended and such State bank shall fail within six months there­
after to purchase such class A stock, the deposit previously made with the Cor­
poration shall be returned to such State bank and it shall no longer be entitled to
the benefits of this section, unless it shall have been closed in the meantime on
account of inability to meet the demands of its depositors.!
(g)
The factors to be enumerated in the certificate required under subsection (e)
and to be considered by the board of directors under subsection (J) shall be the financial
condition of the bank and the adequacy of its capital structure.
[(h) The amount of the outstanding class A stock of the Corporation held by
member banks shall be annually adjusted as hereinafter provided as of the last
preceding call date as member banks increase their time and demand deposits or
as additional banks become members or subscribe to the stock of the Corporation,
and such stock may be decreased in amount as member banks reduce their time
and demand deposits or cease to be members. Shares of the capital stock of the
corporation owned by member banks shall not be transferred or hypothecated.
When a member bank increases its time and demand deposits it shall, at the be­
ginning of each calendar year, subscribe for an additional amount of capital stock
of the Corporation equal to one-half of 1 per centum of such increase in deposits.
One-half of the amount of such additional stock shall be paid for at the time of the
subscription therefor, and the balance shall be subject to call by the board of
directors of the Corporation. A bank organized on or before the date this section
takes effect and admitted to membership in the Federal Reserve System at any
time after the organization of the Corporation shall be required to subscribe for
an amount of class A capital stock equal to one-half of 1 per centum of the time
and demand deposits of the applicant bank as of the date of such admission, paying
therefor its par value plus one-half of 1 percentum a month from the period of the
last dividend on the class A stock of the Corporation. When a member bank
reduces its time and demand deposits it shall surrender, not later than the last
day of January thereafter, a proportionate amount of its holdings in the capital
stock of the Corporation, and when a member bank voluntarily liquidates it shall
surrender all its holdings of the capital stock of the Corporation and be released
from its stock subscription not previously called. The shares so surrendered
shall be canceled and the member bank shall receive in payment therefor, under
regulations to be prescribed by the Corporation, a sum equal to its cash paid
subscriptions on the shares surrendered and its proportionate share of dividends
not to exceed one-half of 1 per centum a month, from the period of the last divi­
dend on such stock less any liability of such member bank to the Corporation.!




BANKING ACT OF 1 9 3 5

41

(h)
(1) The assessment rate shall be one-eighth of 1 per centum per annum based
upon the average of the total amount of the liability of the bank for deposits {according
to the definition of the term “ deposit” in and pursuant to paragraph {12) of subsection
(c) of this section, without any deduction for indebtedness of depositors). The
average of such total shall be determined as of the close of business on one day of each
of three or more months preceding July and January of each year, such days to be
designated by the directors in the manner provided in the next succeeding paragraph.
In the event a separate fund for mutuals be established the board of directors from
time to time may fix a lower rate operative for such period as the board may determine
applicable to insured mutual savings banks only.
(2)
During the months of June and December of each year the board of directors
shall designate three or more dates, one in each of three or more months of the current
semiannual period, for which the insured banks shall report their deposit liabilities
for the purpose of assessment. On or before the 15th day of July of each year, each
insured bank shall file with the Corporation a certified statement under oath showing
the total amount of its liability for deposits as of the close of business on the three or
more days so designated and shall pay to the Corporation the portion of the annual
assessment equal to one-half of the annual rate fixed by this subsection (h) multiplied
by the average of its total deposits for such days as are designated. On or before the
15th day of January of each year each insured bank shall file a like statement showing
the total amount of its liability for deposits as of the close of business on the three or
more days designated as hereinbefore provided, and shall pay to the Corporation the
portion of the annual assessment equal to one-half of the annual rate fixed by this
subsection (h) multiplied by the average of its total deposits for such days as are
designated.
(5) Every bank which becomes an insured bank after the effective date shall be
admitted without liability for the current semiannual payment but it shall file with the
Corporation a certified statement under oath showing the total amount of its liability
for deposits at the close of business on the fifteenth day after it becomes an insured
bank and it shall pay to the Corporation as an initial assessment the prorated portion
for the period between the date such bank became an insured bank and the next sueceeding last day of June or December, as the case may be, of an amount equal to onehalf the annual assessment rate provided in this section multiplied by such total
deposits. The first semiannual payment after the initial payment shall be made
according to the provisions of paragraphs (1) and {2) of this subsection in all cases
where the bank shall have been in operation throughout the preceding semiannual
period and in all other cases according to its certified statement under oath showing
the deposit liability at a date designated by the board of directors.
(4) Each bank which shall be and continue without application or approval an
insured bank in accordance with the provisions of subsection {e) or (/) of this section,
shall, in lieu of all right to refund, be credited with any balance to which such bank
shdll become entitled upon the termination of said Temporary Federal Deposit Insur­
ance Fund or the Fund, for Mutuals. The credit shall be applied by the Corporation
toward the payment of the assessment next becoming due from such bank and upon
succeeding assessments until the credit is exhausted.
(5) Any insured bank which fails to file such certified statement or statements as
it is lawfully required to file in connection with determining the amount of assessment
or assessments due the Corporation, may be compelled to file such statement or state­
ments by mandatory injunction or other appropriate remedy in a suit brought by
the Corporation against the bank and any officer or officers thereof', for the purpose
stated, in any court of the United States of competent jurisdiction in the district or
territory in which such bank is located.
{6) The Corporation, in a suit brought at law or in equity in any court of com­
petent jurisdiction, shall be entitled to recover from any insured bank any unpaid
assessment or assessments lawfully due from such insured bank to the Corporation,
regardless of whether or not such bank shall have filed the certified statement or state­
ments it is lawfully required to file, and regardless of whether or not suit shall have
been brought to compel such statement or statements to be filed.
(7)
Should any national member bank now or hereafter organized, or should any
national nonmember bank which is now or hereafter becomes an insured bank, omit
to file any certified statement required to be filed by such bank under any provision
of this section, or to pay the assessment required to be paid under any provision
of this section by such bank on any certified statement filed by it, and should any
such bank not correct such omission to file or to pay within thirty days after written
notice has been given by the Corporation to an officer of the bank, citing this paragraph,
and stating that the bank has omitted to file or pay as required by law, all the rights,
privileges, and franchises of the offending bank granted to it under the National
20366 0— 58-------38




42

BANKING ACT OF 1 9 3 5

Bank Act or under the provisions of the Federal Reserve Act, as amended, shall be
thereby forfeited. Whether or not the 'penalty provided in this paragraph has been
incurred shall be determined and adjudged in the manner provided in the sixth para­
graph of section 2 of this Act, as amended. The remedies provided in this paragraph
and in the two preceding paragraphs shall not be construed as limiting any other
remedies against any bank, but shall be in addition thereto.
(8) Trust funds held by an insured bank in a fiduciary capacity whether held in Us
trust or deposited in any other department or in another bank shall be insured subject
to a $5,000 limit for each trust estate and when deposited by the fiduciary bank
in another insured bank, shall be similarly insured to the fiduciary bank according
to the trust estates represented. Notwithstanding any other provision of this section,
such insurance shall be separate from and additional to that covering other deposits
of the owners of such trust funds or beneficiaries of such trust estates: Provided, That
where the fiduciary bank deposits any of such trust funds in other insured banks, the
amount so held by other insured banks on deposit shall not for the purpose of the
certified statement required under paragraphs (2) or (3) of subsection (h) of this
section, be considered to be a deposit liability of the fiduciary bank, but shall be
considered a deposit liability of the bank in which such funds are so deposited by such
fiduciary bank. The board of directors shall have power by regulation to prescribe
the manner of reporting and of depositing such funds.
[(i) If any member or nonmember bank shall be declared insolvent, or shall
cease to be a member bank (or in the case of- a nonmember bank, shall cease to
be entitled to the benefits of insurance under this section), the stock held by it in
the Corporation shall be canceled, without impairment of the liability of such bank,
and all cash paid subscriptions on such stock, with its proportionate share of
dividends not to exceed one half of 1 per centum per month from the period of
last dividend on such stock shall be first applied to all debts of the insolvent bank
or the receiver thereof to the Corporation, and the balance, if any, shall be paid
to the receiver of the insolvent bank.]
(i)
(1) Any insured bank (except a national member bank or State member bank)
may, upon not less than ninety days’ written notice to the Corporation, and to the
Reconstruction Finance Corporation if it owns or holds as pledgee any preferred stock,
capital notes, or -debentures of such bank, terminate its status as an insured bank.
Wherever the board of directors shall find that an insured bank or its directors or
trustees have continued unsafe or unsound practices in conducting the business of
such bank or have knowingly or negligently permitted any of its officers or agents to
violate any provision of this section or of any material regulation made thereunder, or
of any law or material regulation made pursuant to law to which the insured bank is
subject, the board of directors shall first give to the Comptroller of the Currency in the
case of a national bank or district bank, to the authority having supervision in case of
a State bank, and also to the Federal Reserve Board in case of a State member bank, a
statement of such violation by the bank for the purpose of securing a correction of such
practices or conditions. Unless such correction shall be made within one hundred and
twenty days or such shorter period of time as the Comptroller of the Currency, the State
authority, or Federal Reserve Board, as the case may be, shall require, the board of
directors, if it shall determine to proceed further, shall give to the bank not less than
thirty days1written notice of intention to terminate the status of the bank as an insured
bank, fixing a time and place for a hearing before the board of directors or before a
person designated by it 'to conduct such hearing, at which evidence may be produced.
and upon such evidence the board of directors shall make written findings which shall
be conclusive. Unless the bank shall appear at the hearing by a duly authorized rep­
resentative, it shall be deemed to have consented to the termination of its status as an
insured bank. I f the board of directors shall find that any violation specified in such
notice has been established, the board of directors may order that the insured status of
the bank be terminated on a date subsequent to such finding and to the expiration of
the time specified in such notice of intention. The Corporation may publish notice of
such termination and the bank shall give notice of such termination to its depositors,
in such manner and at such time as the board of directors may find necessary and may
order for the protection of depositors. After termination of the insured status of any
bank under the provisions of this paragraph, the insured deposits of each depositor in
the bank on the date of such termination, less all subsequent withdrawals from any
deposits of such depositor, shall continue for a period of two years to be insured and
the bank shall continue to pay to the Corporation assessments as in the case of an
insured bank for such period of two years from such termination, but no additions
to any deposits or any new deposits shall be insured by the Corporation, and the
bank shall not advertise or hold itself out as having insured deposits unless in the same
connection it shall state with equal prominence that additions to deposits and new




BANKING ACT OP 1 9 3 5

43

deposits made after the date of such termination, specifying such date, are not insured.
Such bank shall in all other respects be subject to the duties and obligations of an
insured bank for the period of two years from such termination and in the event of
being closed on account of inability to mek the demands of its depositors within such
period of two years, the Corporation shall have the same powers and rights with respect
to such bank as in case of an insured bank.
(2) Whenever the insured status of a member bank shall be terminated by action of
the board of directors, the Federal Reserve Board in the case of a State member bank
shall terminate its membership in the Federal .Reserve System in accordance with the
provisions of section 9 of this Act and in the case of a national member bank the Comp­
troller of the Currency shall appoint a receiver for the bank (to be the Corporation when­
ever the bank shall be unable to meet the demands of its depositors).
(3) When the liabilities of an insured bank for deposits shall have been assumed by
another insured bank or banks, the insured status of the bank whose liabilities are so
assumed shall terminate on the date of receipt by the Corporation of satisfactory
evidence of such assumption with like effect as if terminated on said date by the board
of directors after proceedings under paragraph (1) of this subsection (i): Provided,
That if the bank whose liabilities are so assumed gives to its depositors notice of such
assumption within thirty days after such assumption takes effect, by publication or
by any reasonable means, in accordance with regulations to be prescribed by the
board of directors, the insurance of its deposits shall terminate at the end of six months
from the date such assumption takes effect and such bank shall be relieved of all
future obligations to the Corporation, including the obligation to pay future assess­
ments.
(j) Upon the date of enactment of the Banking Act of 1933, the Corporation
shall become a body corporate and as such shall have power—
First. To adopt and use a corporate seal.
Second. To have succession until dissolved by an Act of Congress.
Third. To make contracts.
Fourth. To sue and be sued, complain and defend, in any court of law or equity.
State or Federal. All suits of a civil nature at common law or in equity to which
the Federal Deposit Insurance Corporation shall be a party shall be deemed to arise
under the laws of the United States: Provided, That any such suit to which the Cor­
poration is a party in its capacity as receiver of a State bank and which involves
only the rights or obligations of depositors, creditors, stockholders and such State
bank under State law shall not be deemed to arise under the laws of the United States.
No attachment or execution shall be issued against the Corporation or its property
before final judgment in any suit, action, or proceeding in any State, county, municipal,
or United States court. The board of directors shall designate an agent upon whom
service of process may be made in any State, Territory, or jurisdiction in which any
insured bank is located.
Fifth. To appoint by its board of directors such officers and employees as are
not otherwise provided for in this section, to define their duties, fix their com­
pensation, require bonds of them and fix the penalty thereof, and to dismiss at
pleasure such officers or employees. Nothing in this or any other Act shall be
construed to prevent the appointment and compensation as an officer or em­
ployee of the Corporation of any officer or employee of the United States in any
board, commission, independent establishment, or executive department thereof.
Sixth. To prescribe by its board of directors bylaws not inconsistent with law,
regulating the manner in which its general business may be conducted, and the
privileges granted to it by law may be exercised and enjoyed.
Seventh. To exercise by its board of directors, or duly authorized officers or
agents, all powers specifically granted by the provisions of this section and such
incidental powers as shall be necessary to carry out the powers so granted.
Eighth. To make examinations of and to require information and reports from
banks, as provided in this section.
Ninth. To act as receiver.
Tenth. To prescribe by its board of directors such rules and regulations as it may
deem necessary to carry out the provisions of this section.
[ k ] (k) (1) The board of directors shall administer the affairs of the Corpora­
tion fairly and impartially and without discrimination. The board of directors
of the Corporation shall determine and prescribe the manner in which its obliga­
tions shall be incurred and its expenses allowed and paid. The Corporation
shall be entitled to the free use of the United States mails in the same manner as
the executive departments of the Government. The Corporation with the con­
sent of any Federal Reserve bank or of any board, commission, independent estab­
lishment, or executive department of the Government, including any field service




44

BAN KIN G ACT OF 1 9 3 5

thereof, may avail itself of the use of information, services, and facilities thereof
in carrying out the provisions of this section.
(#) The board of directors shall appoint examiners, who shall have power on behalf
of the Corporation (except as to a District bank) to examine any insured State non­
member bank, State nonmember bank making application to become an insured bank,
or closed insured bank, whenever considered necessary. Such examiners shall have
like power to examine, with the written consent of the Comptroller of the Currency,
any national bank, or District bank and, with the written consent of the Federal
Reserve Board, any State member bank. Each examiner shall have power to make a
thorough examination of all of the affairs of the bank and in doing so he shall have
power to administer oaths and to examine and take and preserve the testimony of any
of the officers and agents thereof under oath and shall make a full and detailed report
of the condition of the bank to the Corporation. The board of directors in like manner
shall appoint claim agents who shall have power to investigate and examine all claims
for insured deposits and transferred deposits. Each claim agent shall have power to
administer oaths and to examine under oath and take and preserve testimony of any
persons relating to such claims. Any such examiner or claim agent in relation to
any such examination, investigation, or taking of testimony may apply to any judge
or clerk of any court of the United States to issue subpenas and to compel the appear­
ance of witnesses and the production and taking of any such testimony and to punish
disobedience in like manner as provided in sections 184 to 186 of the Revised Statutes
(U. S. C., title 5, secs. 94 to 96).
(8)
Each insured State nonmember bank (except a District bank) shall make to
the Corporation reports of condition in such form and at such times as the board of
directors may require of such bank. The board of directors may require such reports
to be published in such manner, not inconsistent with any applicable law, as it may
direct. Every such bank which fails to make or publish any such report within such
time, not less than five days, as the board of directors may require, may be subject to
a penalty 'of $100 for each day of such failure, recoverable by the Corporation for its
use.
(4)
The Corporation shall have access to reports of examinations made by and
reports of condition made to the Comptroller of the Currency or any Federal Reserve
bank, and may accept any report made by or to any commission, board, or authority
having supervision of a State nonmember bank (<
except a District bank), and may
furnish to the Comptroller of the Currency, or any such Federal Reserve bank, com­
mission, board, or authority reports of examinations made on behalf of and reports
of condition made to the Corporation.
[(1) Effective on and after July 1, 1935 (thus affording ample time for exami­
nation and preparation), unless the President shall by proclamation fix an earlier
date, the Corporation shall insure as hereinafter provided the deposits of all
member banks, and on and after such date and until July 1, 1937, of all non­
member banks, which are class A stockholders of the Corporation. Notwith­
standing any other provision of law, whenever any national bank which is a class
A stockholder of the Corporation shall have been closed by action of its board of
directors or by the Comptroller of the Currency, as the case may be, on account
of inability to meet the demands of its depositors, the Comptroller of the Cur­
rency shall appoint the Corporation receiver for such bank. As soon as possible
thereafter the Corporation shall organize a new national bank to assume the
insured deposit liabilities of such closed bank, to receive new deposits and other­
wise to perform temporarily the functions provided for it in this paragraph.
For the purposes of this subsection, the term “ insured deposit liability ” shall
mean with respect to the owner of any claim arising out of a deposit liability of
such closed bank the following percentages of the net amount due to such owner
by such closed bank on account of deposit liabilities: 100 per centum of such net
amount not exceeding $10,000; and 75 per centum of the amount, if any, by
which such net amount exceeds $10,000 but does not exceed $50,000; and 50
per centum of the amount, if any, by which such net amount exceeds $50,000:
Provided, That in determining the amount due to such owner for the purpose of
fixing such percentage, there shall be added together all net amounts due to such
owner in the same capacity or the same right, on account of deposits, regardless
of whether such deposits be maintained in his name or in the names of others for
his benefit. For the purposes of this subsection, the term “ insured deposit lia­
bilities’’ shall mean the aggregate amount of all such insured deposit liabilities of
such closed bank. The Corporation shall determine as expeditiously as possible
the net amounts due to depositors of the closed bank and shall make available
to the new bank an amount equal to the insured deposit liabilities of such closed
bank, whereupon such new bank shall assume the insured deposit liability of such




BANKING ACT OF 1 9 3 5

45

closed bank to each of its depositors, and the Corporation shall be subrogated to
all rights against the closed bank of the owners of such deposits and shall be en­
titled to receive the same dividends from the proceeds of the assets of such closed
bank as would have been payable to each such depositor until such dividends
shall equal the insured deposit liability to such depositor assumed by the new
bank, whereupon all further dividends shall be payable to such depositor. Of
the amount thus made available by the Corporation to the new bank, such por­
tion shall be paid to it in cash as may be necessary to enable it to meet immediate
cash demands and the remainder shall be credited to it on the books of the Cor­
poration subject to withdrawal on demand and shall bear interest at the rate of
3 per centum per annum until withdrawn. The new bank may, with the ap­
proval of the Corporation, accept new deposits, which, together with all amounts
made available to the new bank by the Corporation, shall be kept on hand in
cash, invested in direct obligations of the United States, or deposited with the
Corporation or with a Federal reserve bank. Such new bank shall maintain on
deposit with the Federal reserve bank of its district the reserves required by law
of member banks but shall not be required to subscribe for stock oi tne Federal
reserve bank until its own capital stock has been subscribed and paid for in tha
manner hereinafter provided. The articles of association and organization cer­
tificate of such new bank may be executed by such representatives of the Cor­
poration as it may designate; the new bank shall not be required to have any
directors at the time of its organization, but shall be managed by an executive
officer to be designated by the Corporation; and no capital stock need be paid
in by the Corporation; but in other respects such bank shall be organized in ac­
cordance with the existing provisions of law relating to the organization of na­
tional banks; and, until the requisite amount of capital stock for such bank has
been subscribed and paid for in the manner hereinafter provided, such bank shall
transact no business except that authorized by this subsection and such business
as may be incidental to its organization. When in the judgment of the Corpora­
tion it is desirable to do so, the Corporation shall offer capital stock of the new"
bank for sale on such terms and conditions as the Corporation shall deem advis­
able, in an amount sufficient in the opinion of the Corporation to make possible
the conduct of the business of the new bank on a sound basis, but in no event
less than that required by section 5138 of the Revised Statutes, as amended
(U. S. C., title 12, sec. 51), for the organization of a national bank in the place
where such new bank is located, giving the stockholders of the closed bank the
first opportunity to purchase such stock. Upon proof that an adequate amount
of capital stock of the new bank has been subscribed and paid for in cash by sub­
scribers satisfactory to the Comptroller of the Currency, he shall issue to such
bank a certificate of authority to commence business and thereafter it shall be
managed by directors elected by its own shareholders and may exercise all of the
powers granted by law to national banking associations. If an adequate amount
of capital for such new bank is not subscribed and paid in, the Corporation may
offer to transfer its business to any other banking institution in the same place
which will take over its assets, assume its liabilities, and pay to the Corporation
for such business such amount as the Corporation may deem adequate. Unless
the capital stock of the new bank is sold or its assets acquired and its liabilities
assumed by another banking institution, in the manner herein prescribed, within
two years from the date of its organization, the Corporation shall place the new
bank in voluntary liquidation and wind up its affairs. The Corporation shall
open on its books a deposit insurance account and, as soon as possible after
taking possession of any closed national bank, the Corporation shall make an
estimate of the amount which will be available from all sources for application
in satisfaction of the portion of the claims of depositors to which it has been
subrogated and shall debit to such deposit insurance account the excess, if any,
of the amount made available by the Corporation to the new bank for depositors
over and above the amount of such estimate. It shall be the duty of the Cor­
poration to realize upon the assets of such closed bank, having due regard to the
condition of credit in the district in which such closed bank is located; to enforce
the individual liability of the stockholders and directors thereof; and to wind up
the affairs of such closed bank in conformity with the provisions of law relating
to the liquidation of closed national banks, except as herein otherwise provided,
retaining for its own account such portion of the amount realized from such
liquidation as it shall be entitled to receive on account of its subrogation to the
claims of depositors and paying to depositors and other creditors the amount
available for distribution to them, after deducting therefrom their share of the
costs of the liquidation of the closed bank. If the total amount realized by the
Corporation on account of its subrogation to the claims of depositors be less than




46

BAN KIN G ACT OF 1 9 3 5

the amount of the estimate hereinabove provided for, the deposit insurance ac*
count shall be charged with the deficiency and, if the total amount so realized
shall exceed the amount of such estimate, such account shall be credited with
such excess. With respect to such closed national banks, the Corporation shall
have all the rights, powers, and privileges now possessed by or hereafter given
receivers of insolvent national banks and shall be subject to the obligations and
penalties not inconsistent with the provisions of this paragraph to which such
receivers are now or may hereafter become subject.!
[Whenever any State member bank which is a class A stockholder of the Cor­
poration shall have been closed by action of its board of directors or by the
appropriate State authority, as the case may be, on account of inability to meet the
demands of its depositors the Corporation shall accept appointment as receiver
thereof, if such appointment be tendered by the appropriate State authority and
be authorized or permitted by State law. Thereupon the Corporation shall
organize a new national bank, in accordance with the provisions of this subsec­
tion, to assume the insured deposit liabilities of such closed State member bank,
to receive new deposits and otherwise to perform temporarily the functions pro­
vided for in this subsection. Upon satisfactory recognition of the right of the
Corporation to receive dividends on the same basis as in the case of a closed
national bank under this subsection, such recognition being recorded by State
law, by allowance of claims by the appropriate State authority, by assignment of
claims by depositors, or by any other effective method, the Corporation shall make
available to such new national bank, in the manner prescribed by this subsection,
an amount equal to the insured deposit liabilities of such closed State member
bank, and the Corporation and such new national bank shall perform all of the
functions and duties and shall have all the rights and privileges with respect to
such State member bank and the depositors thereof which are prescribed by this
subsection with respect to closed national banks holding class A stock in the
Corporation: Provided, That the rights of depositors and other creditors of such
State member bank shall be determined in accordance with the applicable pro­
visions of State law: And provided further, That with respect to such State mem­
ber bank, the Corporation shall possess the powers and privileges provided by
State law with respect to a receiver of such State member bank, except insofar
as the same are in conflict with the provisions of this subsection.!
[Whenever any State member bank which is a class A stockholder of the
Corporation shall have been closed by action of its board of directors or by the
appropriate State authority, as the case may be, on account of inability to meet
the demands of its depositors, and the applicable State law does not permit the
appointment of the Corporation as receiver of such bank, the Corporation shall
organize a new national bank, in accordance with the provisions of this subsection,
to assume the insured deposit liabilities of such closed State member bank, to
receive new deposits, and otherwise to perform temporarily the functions provided
for in this subsection. Upon satisfactory recognition of the right of the Corpora­
tion to receive dividends 011 the same basis as in the case of a closed national bank
tinder this subsection, such recognition being accorded by State law, by allowance
of claims by the appropriate State authority, by assignment of claims by de­
positors, or by any other effective method, the Corporation shall make available
to such new bank, in accordance with the provisions of this subsection, the amount
of insured deposit liabilities as to which such recognition has been accorded; and
such new bank shall assume such insured deposit liabilities and shall in other
respects comply with the provisions of this subsection respecting new banks
organized to assume insured deposit liabilities of closed national banks. Inso­
far as possible in view of the applicable provisions of State law, the Corporation
shall proceed with respect to the receiver of such closed bank and with respect to
the new bank organized to assume its insured deposit liabilities in the manner
prescribed by this subsection with respect to closed national banks and new banks
organized to assume their insured deposit liabilities; except that the Corporation
shall have none of the powers, duties, or responsibilities of a receiver with respect
the winding up of the affairs of such closed State member bank. The Corpora­
tion, in its discretion, however, may purchase and liquidate any or all of the assets
of such bank.!
[Whenever the net debit balance of the deposit insurance account of the
Corporation shall equal or exceed one-fourth of 1 per centum of the total deposit
liabilities of all class A stockholders as of the date of the last preceding call report,
the Corporation shall levy upon such stockholders an assessment equal to onefourth of 1 per centum of their total deposit liabilities and shall credit the amount
collected from such assessment to such deposit insurance account. No bank




BANKING ACT OF 1 9 3 5

47

which is a holder of class A stock shall pay any dividends until all assessments
levied upon it by the Corporation shall have been paid in full, and any director or
officer of any such bank who participates in the declaration or payment of any
such dividend may, upon conviction, be fined not more than $1,000, or imprisoned
for not more than one year, or both.]
[The term “ receiver” as used in this section shall mean a receiver, liquidating
agent, or conservator of a national bank, and a receiver, liquidating agent, con­
servator, commission, person, or other agency charged by State law with the
responsibility and the duty of winding up the affairs of an insolvent State
member bank.]
[For the purposes of this section only, the term “ national bank” shall include
all national banking associations and all banks, banking associations, trust
companies, saving banks, and other banking institutions located in the District
of Columbia which are members of the Federal Reserve System, and the term
“ State member bank” shall include all State banks, banking associations, trust
companies, savings banks, and other banking institutions organized under the
laws of any State, which are members of the Federal Reserve System.]
[In any determination of the insured deposit liabilities of any closed bank or
of the total deposit liabilities of any bank which is a holder of class A stock of the
Corporation, or a member of the Fund provided for in subsection (y), for the
purposes of this section, there shall be excluded the amounts of all deposits of
such bank which are payable only at an office thereof located in a foreign country.]
[The Corporation may make such rules, regulations, and contracts as it may
deem necessary in order to carry out the provisions of this section.]
(1) (1) The Temporary Federal Deposit Insurance Fund and the Fund for Mu­
tuals are hereby consolidated into the permanent insurance fund for deposits created
by this section and the assets therein shall be held by the Corporation for the uses and
purposes of the Corporation: Provided, That the obligations to and rights of the Cor­
poration, depositors, banks, and other persons arising out of any event or transaction
prior to the effective date shall remain unimpaired. From the effective date the Cor­
poration shall insure the deposits of all insured banks as defined and provided in this
section. The maximum amount of the insured deposit of any depositor shall be
$5,000. The Corporation, in the discretion of the board of directors, may open on its
books solely for the benefit of mutual savings banks and depositors therein a separate
fund for mutuals. I f such a fund is opened, all assessments of each mutual savings
bank shall be made part of such fund and the other permanent insurance funds of the
Corporation shall cease to be liable for losses sustained in mutual savings banks:
Provided, That the capital assets of the Corporation shall be so liable and all expenses
of operation of the Corporation shall be allocated on an equitable basis.
(2) An insured bank shall, for the purposes of this section, be deemed to have been
closed on account of inability to meet the demands of its depositors in any case where it
has been closed for the purpose of liquidation without adequate provision for payment
of its depositors.
(3) Notwithstanding any other provision of law, whenever any insured national
bank or insured District bank shall have been closed by action of its board of directors
or the Comptroller of the Currency, as the case may be, on account of inability to meet
the demands of its depositors, the Comptroller of the Currency shall appoint the
Corporation receiver for such closed bank and no other person shall be appointed as
receiver of such closed bank.
(4) It shall be the duty of the Corporation as such receiver to realize upon the
assets of such closed bank, having due regard to the condition of credit in the locality;
to enforce the individual liability of the stockholders and directors thereof; and to
wind up the affairs of such closed bank in conformity with the provisions of law
relating to the liquidation of closed national banks, except as herein otherwise pro­
vided, retaining for its own account such portion of the amount realized from such
liquidation as it shall be entitled to receive on account of its subrogation to the claism
of depositors and paying to depositors and other creditors the net amount available
for distribution to them. With respect to such closed bank, the Corporation, as such
receiver, shall have all the rights, powers, and privileges now possessed by or hereafter
given a receiver of an insolvent national bank.
(5) Whenever any insured State bank, except a District bank, shall have been
closed by action of its board of directors or by the authority having supervision of such
bank, as the case may be, on account of inability to meet the demands of its depositors,
the Corporation shall accept appointment as receiver thereof, if such appointment be
tendered by the authority having supervision of such bank ana be authorized or per­
mitted by State law. With respect to such insured State bank, the Corporation shall
possess the power and privileges given by State law to a receiver of such State bank.




48

BAN KIN G ACT OF 1 9 3 5

(6) When an insured bank shall have been closed on account of inability to meet
the demands of its depositors, payment of the insured deposits shall be made by the
Corporation as soon as possible, subject to the provisions of paragraph (7) of this
subsection (I), either (a) by making available to each depositor a transferred deposit
in a new bank in the same community or in another insured bank in an amount
equal to the insured deposit of such depositor and subject to withdrawal on demand,
or (b) in accordance with any other procedure adopted by the board of directors:
Provided, That the Corporation, in its discretion, may require proof of claims to
be filed before paying the insured deposits, and that in any case where the Corporation
is not satisfied as to the validity of a claim for an insured deposit, it may require the
final determination of a court of competent jurisdiction before paying such claim.
(7) In the case of a closed national bank or District bank the Corporation, upon
payment of any depositor as provided in paragraph (6) of this subsection (I), shall
become and be subrogated to all rights of the depositor to the extent of such payment.
In the case of any other closed insured bank, the Corporation shall not pay any
depositor until the right of the Corporation to be subrogated to the rights of such
depositor on the same basis as provided in the case of a closed national bank under
this section shall have been recognized, by express provisions of State law, by allow­
ance of claims by the authority having supervision of such bank, by assignment of
claims by depositors, or by any other effective method. Such subrogation in the cctse
of any dosed bank shall include the right to receive the same dividends from the pro­
ceeds of the assets of such closed bank and recoveries on account of stockholders1
liability as would have been payable to such depositor on a claim for the insured
deposit, such depositor retaining his claim for any uninsured portion of his deposit:
Provided, That the rights of depositors and other creditors of any State bank shall be
determined in accordance with the applicable provisions of State law.
(8) -As soon as possible, the Corporation, if it finds that it is advisable and in the
interest of the depositors of the dosed bank or the public, shall organize a new bank
to assume the insured deposits of such closed bank and otherwise to perform tempo­
rarily the functions provided for in this section. The new bank shall have its place
of business in the same community as the closed bank.
(9) The articles of association and the organization certificate of the new bank
shall be executed by representatives designated by the Corporation. No capital stock
need be paid in by the Corporation. The new bank shall not have a board of directors,
but shall be managed by an executive officer appointed by the board of directors of the
Corporation and who shall be subject to its directions. In other respects such bank
shall be organized in accordance with the existing provisions of the law relating to
the organization of national banking associations. The new bank may, with the
approval of the Corporation, accept new deposits which shall be subject to with­
drawal on demand and which, except where the new bank is the only bank in the com­
munity, shall not exceed $5,000 from any depositor. The new bank, without applica­
tion or approval, shall be an insured bank and shall maintain on deposit with the
Federal Reserve bank of its district the reserves required by law for member banks,
but shall not be required to subscribe for stock of the Federal Reserve bank. Funds
of the new bank shall be kept on hand in cash, invested in securities of the Government
of the United States, or in securities guaranteed as to principal and interest by the
Government of the United States, or deposited with the Corporation, or with a Federal
Reserve bank, or, to the extent of the insurance coverage thereon, with an insured bank.
The new bank, unless otherwise authorized by the Comptroller of the Currency, shall
transact no business except that authorized by this section and such business as may
be incidental to its organization. Notwithstanding any other provision of law, it, its
franchise, property, and income shall be exempt from all taxation now or hereafter
imposed by the United States, by any Territory, dependency, or possession thereof,
or by any State, county, municipality, or local taxing authority.
(10) On the organization of a new bank, the Corporation shall promptly make
available to the new bank an amount equal to the estimated insured deposit of such
closed bank plus the amount of its estimated expenses of operation and shall determine
as soon as possible the amount due each depositor for his insured deposit in the closed
bank, and the total expenses of operation of the new bank. Upon determination
thereof, the amounts so estimated and made available shall be adjusted to conform to
the amounts so determined. Earnings of the new bank shall be paid over or credited
to the Corporation in such adjustment. I f any new bank, during the period it con­
tinues its status as such, sustains any losses with respect to which it is not effectively
protected except by reason of being an insured bank, the Corporation shall furnish to
it additional funds in the amount of such losses. The new bank shall assume as
transferred deposits the payment of the insured deposits of such closed bank to each
of its depositors. Of the amount so made available, the Corporation shall transfer to




BANKING ACT OF 1 9 3 5

49

the new bank, in cash, such amount as is necessary to enable it to meet expenses and
immediate cash demands on such transferred deposits and the remainder shall be
subject to withdrawal by the new bank on demand.
(11) When in the judgment of the board of directors it is desirable to do so, the
Corporation shall cause capital stock of the new bank to be offered for sale on such
terms and conditions as the board of directors shall deem advisable, in an amount
sufficient, in the opinion of the board of directors, to make possible the conduct of the
business of the new bank on a sound basis, but in no event less than that required by
section 5138 of the Revised Statutes, as amended ( U. S. C., Supp. VII, title 12,
sec. 51), for the organization of a national bank in the place where such new bank is
located, giving the stockholders of the closed bank the first opportunity to purchase
any shares of common stock so offered. Upon proof that an adequate amount of
capital stock in the new bank has been subscribed and paid for in cash, the Comp­
troller of the Currency shall require the articles of association and the organization
certificate to be amended to conform to the requirements for the organization of a
national bank, and thereafter, when the requirements of law with respect to the organ­
ization of a national bank have been complied with, he shall issue to the bank a cer­
tificate of authority to commence business, which shall thereupon cease to have the
status of a new bank and shall be managed by directors elected by its own shareholders
and may exercise all the powers granted by law and shall be subject to all of the provi­
sions of law relating to national banks. Such bank shall thereafter be an insured
national bank, without certification to or approval by the Corporation.
(12) If the capital stock of the new bank shall not be offered for sale, or if an
adequate amount of capital for such new bank is not subscribed and paid in, the board
of directors may offer to transfer its business to any insured bank in the same com­
munity which will take over its assets, assume its liabilities, and pay to the Corpora­
tion for such business such amount as the board of directors may deem adequate;
or the board of directors in its discretion may change the location of the new bank
to the office of the Corporation or to some other place or may at any time wind up its
affairs as herein provided. Unless the capital stock of the new bank is sold or its
assets acquired and its liabilities assumed by an insured bank, as provided above,
within two years from the date of its organization, the Corporation shall wind up its
affairs, after giving such notice, if any, as the Comptroller of the Currency may
require, and shall certify to the Comptroller of the Currency the termination of the
new bank and thenceforth the Corporation shall be liable for its obligations and be
the owner of its assets. The provisions of sections 5220 and 5221 of the Revised
Statutes (U. S. C., title 12, secs. 181 and 182) shall not apply to such new banks.
(m) (1) The Corporation as receiver of a closed national bank or District bank
shall not be required to furnish bond and shall have the right to appoint an agent or
agents to assist it in Us duties as such receiver, and all fees, compensation, and
expenses of liquidation and administration thereof shall be fixed by the Corporation,
subject to the approval of the Comptroller of the Currency, and may be paid by it out
of funds coming into its possession as such receiver. The Comptroller of the Currency
is authorized and'empowered to waive and relieve the Corporation from complying
with any regulations of the Comptroller of the Currency with respect to receiverships
where in his discretion such action is dee?ned advisable to simplify administration.
(2) Payment of an insured deposit to any person by the Corporation shall dis­
charge the Corporation, and payment of a transferred deposit to any person by the new
bank or the other insured bank shall discharge the Corporation and such new bank or
other insured bank, to the same extent that payment to such person by the closed bank
would have discharged it from liability for the insured deposit.
(3) Except as otherwise prescribed by the board of directors, neither the Corporation,
such new bank, nor such other insured bank, shall be required to recognize as the owner
of any portion of a deposit appearing on the records of the closed bank under a name
other than that of the claimant, any person whose name or interest as such owner
is not disclosed on the records of such closed bank, or on its outstanding certificates or
passbooks, as part owner of said account,, where such recognition would increase the
aggregate amount of the insured deposits in such closed bank.
“ (4) The Corporation may withhold payment of such portion of the insured deposit
of any depositor in a closed bank as may be required to provide for the payment of
any liability of such depositor as a stockholder of the bank, or of any liability & such
f
depositor to the bank or its receiver, not offset against a claim due from the bank, pend­
ing the determination and payment of such liability by such depositor or any other
person liable therefor.
(5)
If, after the Corporation shall have given at least three months’ notice to the
depositor by mailing a copy thereof to his last known address appearing on the records




50

BANKING ACT OF 19 3 5

of the closed bank, any depositor in a dosed bank shall fail to claim his insured deposit
from the Corporation within eighteen months after the appointment of the receiver for
the closed bank, or shall fail to claim or arrange to continue the transferred deposit
with the new bank or other bank assuming liability therefor within such eighteen
monthsJ period, all rights of the depositor against the Corporation in respect to the
insured deposit or against the new bank and such other bank in respect to the transferred
deposit shall be barred, and all rights of the depositor against the closed bank, its shareholders or the receivership estate to which the Corporation may have become subrogated
shall thereupon revert to the depositor. The amount of any transferred deposits not
claimed within such eighteen months’ period, shall be refunded to the Corporation.
(n) (1) Money of the Corporation not otherwise employed shall be invested
in securities of the Government of the United States[,] or in securities guaranteed
as to principal and interest by the Government of the United States, except that for
temporary periods, in the discretion of the board of directors, funds of the
Corporation may be deposited in any Federal Reserve bank or with the Treasurer
of the United States. When designated for that purpose by the Secretary of the
Treasury, the Corporation shall be a depositary of public mone}"s, except receipts
from customs, under such regulations as may be prescribed by the said Secre­
tary, and may also be employed as a financial agent of the Government. It
shall perform all such reasonable duties as depositary of public moneys and
financial agent of the Government as may be required of it.
[(m )] (#) Nothing [herein] in this section contained shall be construed to
prevent the Corporation from making loans to national banks closed by action
of the Comptroller of the Currency, or by vote of their directors, or to State
member banks closed by action of the appropriate State authorities, or by vote
of their directors, or from entering into negotiations to secure the reopening of
such banks.
[ ( n ) ] (3) Receivers or liquidators of [member bankswhich are now or may
hereafter become insolvent or suspended] insured banks closed on account of
inability to meet the demands of depositors shall be entitled to offer assets of such
banks for sale to the Corporation or as security for loans from the Corporation,
upon receiving permission from the appropriate State authority in accordance
with express provisions of State law in the case of [State member] insured State
banks, or from the Comptroller of the Currency in the case of national banks or
district banks. The proceeds of every such sale or loan shall be utilized for the
same purposes and in the same manner as other funds realized from the liquidation
of the assets of such banks. The Comptroller of the Currency may, in his discre­
tion, pay dividends or proved claims at any time after the expiration of the
period of advertisement made pursuant to section 5235 of the Revised Statutes
(U. S. C., title 12, sec.* 193), and no liability shall attach to the Comptroller of
the Currency or to the receiver of any national bank by reason of any such pay­
ment for failure to pay dividends to a claimant whose claim is not proved at the
time of any such payment. The Corporation, in its discretion, may make loans
on the security of or may purchase and liquidate or sell any part of the assets of an
insured bank which is now or may hereafter be closed on account of inability to meet
the demands of its depositors. In any case where the Corporation is acting as re­
ceiver of such insured bank such loan or purchase shall not be made without approval
of a court of competent jurisdiction.
(4)
Until July 1, 1936, whenever in the judgment of the board of directors such
action will reduce the risk or avert a threatened loss to the Corporation and will facili­
tate a merger or consolidation, or facilitate the sale of the assets of an open or closed
insured bank to and assumption of its liabilities by another insured bank, the Corpora­
tion may, upon such terms and conditions as it may determine, make loans secured
in whole or in part by assets of such open or closed insured bank, ivhich loans may be
in subordination to the rights of depositors and other creditors, or it may purchase such
assets, or may guarantee any other insured bank against loss by reason of assuming
the liabilities and purchasing the assets of such open or closed insured bank. Any
insured national bank or District bank or, with the approval of the Comptroller of the
Currency, any receiver thereof is authorized to contract for such sales or loans and
to pledge any assets of the bank to secure such loans.
[(o) The Corporation is authorized and empowered to issue and to have out­
standing at any one time in an amount aggregating not more than three times
the amount of its capital, its notes, debentures, bonds, or other such obligations,
to be redeemable at the option of the Corporation before maturity in such manner
as may be stipulated in such obligations, and to bear such rate or rates of interest,
and to mature at such time or times as may be determined by the Corporation:
Provided, That the Corporation may sell on a discount basis short-term obliga­




BANKING ACT OF 193 5

51

tions payable at maturity without interest. The notes, debentures, bonds, and
other such obligations of the Corporation may be secured by assets of the Cor­
poration in such manner as shall be prescribed by its board of directors. Such
obligations may be offered for sale at such price or prices as the Corporation may
determine.]
(o)
(1) The Corporation is authorized and empowered to issue and to have out­
standing iV notes, debentures, bonds, or other such obligations, in a par amount
s
aggregating not more than three times the amount received by the Corporation in
payment of its capital stock and of the first annual assessments. Notes, debentures,
bonds, or other such obligations issued under this subsection shall be redeemable at
the option of the Corporation before maturity in such manner as may be stipulated
in such obligations, and shall bear such^rate or rates of interest, and shall mature at
such time or times as may be determined by the Corporation: Provided, That the
Corporation may sell on a discount basis short-term obligations payable at maturity
without interest. The notes, debentures, bonds, and other such obligations of the
Corporation may be secured by assets • the Corporation in such manner as shall be
of
prescribed by its board of directors. Such obligations may be offered for sale at such
price or 'prices as the Corporation may determine.
(2) Such of the obligations authorized to be issued under this subsection, as the
Corporation, with the approval of the Secretary of the Treasury, may determine, shall
be fully and unconditionally guaranteed, both as to interest and principal, by the
United States and such guaranty shall be expressed on the face thereof. In the event
that the Corporation shall be unable to pay upon demand, when due, principal of or
interest on notes, debentures, bonds, or other such obligations issued by it and guaran­
teed by the United States under this pargaraph, the Secretary of the Treasury shall pay
the amount thereof, which is hereby authorized to be appropriated out of any money
in the Treasury not otherwise approriated, and thereupon, to the extent of the amounts
so paid, the Secretary of the Treasury shall succeed to all the rights of the holders of
such notes, debentures, or other obligations.
(3) The Secretary of the Treasury, in his discretion, is authorized to purchase any
obligations of the Corporation which are guaranteed by the United States under this
subsection, and for such purpose the Secretary of the Treasury is authorized to use
as a public-debt transaction the proceeds from the sale of any securities hereafter issued
under the Second Liberty Bond Act, as amended, and the purposes for which securities
may be issued under the Second Liberty Bond Act, as amended, are extended to include
any purchases of the Corporation’s obligations hereunder. The Secretary of the
Treasury may, at any time, sell any of the obligations of the Corporation acquired
by him under this subsection. All redemptions, purchases, and sales by the Secretary
of the Treasury of the obligations of the Corporation shall be treated as public-debt
transactions of the United States.
(4) The Secretary of the Treasury, at the request of the Corporation, is authorized
to market for the Corporation such of its notes, debentures, bonds, and other such
obligations as are guaranteed by the United States under this subsection, using therefor
all the facilities of the Treasury Department now authorized by law for the marketing
of the obligations of the United States. The proceeds of the obligations of the Corpora­
tion so marketed shall be deposited in the same manner as proceeds derived from the
sale of the obligations of the United States, and the amount thereof shall be credited
to the Corporation on the books of the Treasury.
(s) Whoever, for the purpose of obtaining any loan from the Corporation, or
any extension or renewal thereof, or the acceptance, release, or substitution of
security therefor, or for the purpose of inducing the Corporation to purchase any
assets, or for the purpose of obtaining the payment of any insured deposit or transferred
deposit or the allowance, approval, or payment of any claim, or for the purpose of
influencing in any way the action of the Corporation under this section, makes any
statement, knowing it to be false, or willfully overvalues any security, shall be
punished by a fine of not more than $5,000, or by imprisonment for not more than
two years, or both.
[ v ] (v) (1) No individual, association, partnership, or corporation shall use the
words “ Federal Deposit Insurance Corporation” , or a combination of any three
of these four words, as the name or a part thereof under which he or it shall do
business. No individual, association, partnership, or corporation shall advertise
or otherwise represent falsely by any device whatsoever that his or its deposit
liabilities are insured or in anywise guaranteed by the Federal Deposit Insurance
Corporation, or by the Government of the United States, or by any instrumen­
tality thereof; and no [class A stockholder of the Federal Deposit Insurance Cor­
poration] insured bank shall advertise or otherwise represent falsely by any device
whatsoever the extent to which or the manner in which its deposit liabilities are




52

BANKING ACT

O
F

193 5

insured by the Federal Deposit Insurance Corporation. Every individual, partner­
ship, association, or corporation violating this subsection shall be punished by a
fine of not exceeding $1,000, or by imprisonment not exceeding one year or both.
[Every insured bank shall display at each place of business maintained by it a
sign or signs to the effect that its deposits are insured by the Federal Deposit
Insurance Corporation. The Corporation shall prescribe by regulation the form
of such sign and the manner of its display. Such regulation may impose a maxi­
mum penalty of $100 for each day an insured bank continues to violate any lawful
provisions of said regulation.!
(2) Every insured bank shall display at each place of business maintained by it a
sign or signs, and shall include in advertisements relating to deposits a statement to
the effect that its deposits are insured by the Corporation. The board of directors shall
prescribe by regulation the forms of such signs and the manner of display and the
forms of such statements and the manner of use. For each day an insured bank
continues to violate any provision of this paragraph or any lawful provision of said
regulations, it may be subject to a penalty of $100, recoverable by the Corporation for
its use ”
(3) No insured bank shall pay any dividends on its capital stock or interest on its
capital notes or debentures (if such interest is required to be paid only out of net
profits) while it remains in default in the payment of any assessment due to the
Corporation: Provided, That if such default is due to a dispute between the insured
bank and the Corporation over such assessment, this paragraph shall not apply, if
such bank shall deposit security satisfactory to the Corporation for payment upon
final determination of the issue.
(4) Unless, in addition to compliance with other provisions of law, it shall have
the prior written consent of the Corporation, no insured bank shall enter into any
consolidation or merger with any noninsured bank, or assume liability to pay any
deposits made in any noninsured bank, or transfer assets to any noninsured bank in
consideration of the assumption of liability for any portion of the deposits made in
such insured bank, and no insured State nonmember bank (except a District bank)
without such consent shall reduce the amount or retire any part of its common or pre­
ferred capital stocky or retire any part of its capital notes or debentures.
(6)
The Corporation may require any insured bank to provide protection and
indemnity against burglary, defalcation, and other similar insurable losses. When­
ever any insured bank refuses to comply with any such requirement, the Corporation
may contract for such protection and indemnity and add the cost thereof to the assess­
ment otherwise payable by such bank.
(6) Whenever an insured bank, except a national bank or district bank, for a period
of one hundred and twenty days after written notice of the recommendations of the
Corporation, based on a report of examination of such bank by an examiner of the
Corporation, shall fail to comply with such recommendations, the Corporation shall
have the power, and is hereby authorized, to publish any part of such report of exami­
nation in such manner as it may determine: Provided, That such notice of intention to
make such publication shall be given at the time such recommendations are made,
or at any time thereafter and at least ninety days before such publication.
(7) The board of directors shall by regulation prohibit the payment of interest on
demand deposits in insured nonmember banks and for such purpose may define the
terms “ demand deposits” , provided such exceptions from said prohibition shall be
made as are now or may hereafter be prescribed with respect to deposits payable on
demand in member banks by section 19 of this Act, as amended, or by regulation of
the Federal Reserve Board. From time to time the board. of directors shall limit by
regulation the rates of interest or dividends payable by insured nonmember banks on
deposits other than demand deposits, provided such regulations shall be consistent
with the contractual obligations of such banks to their depositors. For the purpose
of fixing rates the board of directors may classify deposits according to maturities,
conditions respecting receipt, withdrawal, or repayment, and may classify banks
according to locations or kinds of banking business chiefly done as it may deem
necessary in the public interest. It may prescribe different rates for different classes
of deposits or different classes of banks, provided such different rates are reasonable
when the bases for the classifications are considered. The board of directors by regu­
lations shall define what constitutes savings deposits in an insured nonmember bank.
Such regulations shall prohibit insured nonmember banks from paying deposits
prior to maturity and from waiving any notice requirement with respect to withdrawal
of deposits: Provided, That exceptions may be prescribed where by reason of special
circumstances the prohibitions respecting withdrawal would cause unnecessary hard­
ship to depositors and provided the prohibitions respecting withdrawal shall not apply
to savings deposits. For each violation of any provision of this paragraph or any




BANKING ACT OF 193 5

53

lawful 'provision of the Corporation’s regulations relating to paying interest or
dividends on deposits or to withdrawal of deposits the offending bank shall be subject
to a penalty of $100, recoverable by the Corporation for its use.
[(y) The Corporation shall open on its books a temporary Federal deposit
insurance fund (hereinafter referred to as the “ fund” ), which shall become opera­
tive on January 1, 1934, unless the President shall by proclamation fix an earlier
date, and it shall be the duty of the Corporation to insure deposits je ls hereinafter
provided until July 1, 1935. J
[Each member bank licensed before January 1, 1934, by the Secretary of the
Treasury pursuant to the authority vested in him by the Executive order of the
President issued March 10, 1933, shall, on or before January 1, 1934, become a
member of the fund, each member bank so licensed after such date, and each
State bank trust company or mutual savings bank (referred to in this subsection
as “ State bank” , which term shall also include all banking institutions located in
the District of Columbia and the Territories of Hawaii and Alaska) which becomes
a member of the Federal Reserve System on or after such date, shall, upon being
so licensed or so admitted to membership, become a member of the fund, and
any State bank which is not a member of the Federal Reserve System, with the
approval of the authority having supervision of such State bank and certification
to the Corporation by such authority that such State bank is in solvent condition,
shall, after examination by, and with the approval of, the Corporation, be entitled
to become a member of the fund and to the privileges of this subsection upon
agreeing to comply with the requirements thereof and upon paying to the Corpo­
ration an amount equal to the amount that would be required of it under this
subsection if it were a member bank. The Corporation is authorized to prescribe
rules and regulations for the further examination of such State bank, and to fix
the compensation of examiners employed to make examinations of State banks.]
[Each member of the fund shall file with the Corporation on or before the date
of its admission a certified statement under oath showing, as of the fifteenth day
of the month preceding the month in which it was so admitted, the number of
its depositors and the total amount of its deposits which are eligible for insurance
under this subsection, and shall pay to the Corporation an amount equal to onehalf of 1 per centum of the total amount of the deposits so certified. One-half of
such payment shall be paid in full at the time of the admission of such member
to the fund, and the remainder of such payment shall be subject to call from time
to time by the board of directors of the Corporation. Within a reasonable time
fixed by the Corporation each such member shall file a similar statement showing,
as of October 1, 1934, the number of its depositors and the total amount of its
deposits which are eligible for such insurance and shall pay to the Corporation
in the same manner an amount equal to one-half of 1 per centum of the increase,
if any, in the total amount of such deposits since the date covered by the state­
ment filed upon its admission to membership in the fund.]
Elf at any time prior to July 1, 1935, the Corporation requires additional funds
with which to meet its obligations under this subsection, each member of the fund
shall be subject to one additional assessment only in an amount not exceeding
the total amount theretofore paid to the Corporation by such member.]
[On and after July 1, 1934, the amount eligible for insurance under this sub­
section for the purposes of the October 1, 1934, certified statement, any entrance
assessment, and, if levied, the additional assessment, shall be the amounts not in
excess of $5,000 of the deposits of each depositor.]
[Each mutual savings bank, unless it becomes subject to the provisions of the
preceding paragraph in the manner hereinafter provided, shall be excepted from
the operation of the preceding paragraph and for each such bank which is so
excepted the amount eligible for insurance under this subsection for the purposes
of the October 1, 1934, certified statement, any entrance assessment, and, if
levied, the additional assessment, shall be the amounts not in excess of $2,500
for the deposits of each depositor. In the event any mutual savings banks shall
be closed on account of inability to meet its deposit liabilities the Corporation
shall pay net more then $2,500 on account of the net approved claim of any oWner
of deposits in such bank: Provided, however, That should any mutual savings
bank make manifest to the Corporation its election to be subject to the provisions
of the preceding paragraph the Corporation may, in the discretion of the board
of directors, permit such bank to become so subject and the insurance of its
deposits to continue on the same basis and to the same extent as that of fund
members other than mutual savings banks.]
[The Corporation, in the discretion of the board of directors, may open on its
books solely for the benefit of mutual savings banks an additional temporary




54

BANKING ACT OF 1 9 3 5

Federal deposit insurance fund (hereinafter referred to as the “ fund for mutuals” )
which, if opened, shall become operative on or after July 1, 1934, but prior to
August 1, 1934, and shall continue to July 1, 1935. If the fund for mutuals is
opened on the books of the Corporation, each mutual savings bank which is or
becomes entitled to the benefits of insurance during the period of its operation
shall be a member thereof and shall not be a fund member. All assessments on
each mutual savings bank, including payments heretofore made to the Corpora­
tion less an equitable deduction for liabilities and expenses of the fund incurred
prior to the opening of the fund for mutuals, if opened, shall be transferred or
paid, as the case may be, to the fund for mutuals. All provisions of this section
applicable to the and not inconsistent with this paragraph shall be applicable to
the fund for mutuals if opened, except that as to any period the two are in opera­
tion the fund shall not be subject to the liabilities of the fund for mutuals and the
fund for mutuals shall not be subject to the liabilities of the fund. Each mutual
savings bank admitted to the fund shall bear its equitable share of the liabilities
of the fund for the period it is a member thereof, including expenses of operation
and allowing for anticipated recoveries.]
[If any member of the fund shall be closed on or before June 30, 1935, on
account of inability to meet its deposit liabilities, the Corporation shall proceed
in accordance with the provisions of subsection (1) of this section to pay the
insured deposit liabilities of such member, except that the Corporation shall pay
not more than $2,500 on account of the net approved claim of the owner of any
deposit, if the member closed on or before June 30, 1934, and not more than
$5,000 if closed on or after July 1, 1934. The provisions of such subsection (1)
relating to State member banks shall be extended for the purposes of this sub­
section to members of the fund which are not members of the Federal Reserve
System; and the provisions of such subsection (1) relating to the appointment
of the Corporation as receiver shall be applicable to all members of the fund.
The provisions of this subsection shall apply only to deposits of members of the
fund which have been made available since March 10, 1933, for withdrawal in
the usual course of the banking business.]
[Before July 1, 1935, the Corporation shall make an estimate of the balance,
if any, which will remain in the fund after providing for all liabilities of the
fund, including expenses of operation thereof under this subsection and allowing
for anticipated recoveries. The Corporation shall refund such estimated balance,
on such basis as the Corporation shall find to be equitable, to the members of the
fund other than those which have been closed prior to July 1, 1935. The Cor­
poration shall prescribe by regulations the manner of exercise of the right of
nonmember banks to withdraw from membership in the fund on July 1, 1934,
except that no bank shall be permitted to withdraw unless ten days prior thereto
it has given written notice to the Corporation of its election so to do. Banks
which withdrew from the fund on July 1, 1934, shall be entitled to a refund of
their proportion to share of any estimated balance in the fund on the same basis
as if the fund had terminated on July 1, 1934.]
[Each State bank which is a member of the fund, in order to obtain the
benefits of this section after July 1, 1935, shall, on or before such date, subscribe
and pay for the same amount of class A stock of the Corporation as it would
be required to subscribe and pay for upon becoming a member bank, or if such
State bank is not permitted by the laws under which it was organized to purchase
such stock, it shall deposit with the Corporation an amount equal to the amount
it would have been required to pay in on account of a subscription to such stock;
and thereafter such State bank shall be entitled to such benefits until July 1,
1937.]
(y) (1) For the purposes of this section, and notwithstanding any other provision
thereof, any unincorporated bank which continues to be an insured bank without
application or approval under the provisions of paragraph (1) of subsection (J) of this
section shall be included in the term “ State bank ” and “ State nonmember bank .
(2)
It is not the purpose of this section to discriminate, in any manner, against
State nonmember, and in favor of, national or member banks: but the purpose is
to provide all banks with the same opportunity to obtain and enjoy the benefits
of this section. No bank shall be discriminated against because its capital stock
is less then the amount required for eligibility for admission into the Federal
Reserve System.




BANKING ACT OF 1 9 3 5

A

m endments
of

M

55

T it l e I I of t h e B il l i n V a r io u s S e c t io n s
F e d e r a l R e se r v e A ct, as A m e n d e d

ade by

the

Section 201 (a) of the bill amends section 4 of the Federal Reserve
Act.
S ec . 4. *

*

*

Class C directors shall be appointed by the Federal Reserve Board. They
shall have been for at least two years residents of the [district] districts for which
they are appointed, [one of whom shall be designated by said board as chairman
of the board of directors of the Federal Reserve bank and as “ Federal Reserve
agent.” He shall be a person of tested banking experience, and in addition to
his duties as chairman of the board of directors of the Federal Reserve bank he
shall be required to maintain, under regulations to be established by the Federal
Reserve Board, a local office of said board on the premises of the Federal Reserve
bank. He shall make regular reports to the Federal Reserve Board and shall
act as its official representative for the performance of the functions conferred
upon it by this Act. He shall receive an annual compensation to be fixed by the
Federal Reserve Board and paid monthly by the Federal Reserve bank to which
he is designated.] except that this requirement shall not apply to the Governor and
Vice Governor of the bank. Each class C director shall hold office for a term• three
of
years except that the Governor’s term as a class C director shall expire when he ceases
to be Governor of the bank and, if the Vice Governor be designated as a class C director,
his term as a class C director shall expire when he ceases to be Vice Governor. One
of the directors of class C shall be appointed by the Federal Reserve Board as
deputy chairman to exercise the powers of the chairman of the board when neces­
sary. In [th e] case of the absence of the chairman and deputy chairman, the
third class C director shall preside at meetings of the Board.
[Subject to the approval of the Federal'Reserve Board the Federal Reserve
agent shall appoint one or more assistants. Such assistants, who shall be per­
sons of tested banking experience, shall assist the Federal Reserve agent in the
performance of his duties and shall also have power to act in his name and stead
during his absence or disability. The Federal Reserve Board shall require such
bonds of the assistant Federal Reserve agents as it may deem necessary for the
protection of the United States. Assistants to the Federal Reserve agent shall
receive an annual compensation, to be fixed and paid in the same manner as that
of the Federal Reserve agent.]
Effective ninety days after the enactment of the Banking Act of 1935, the offices of
Governor and chairman of the board of directors of each Federal Reserve bank shall
be combined. The Governor shall be the chief executive officer of the bank and shall
be appointed annually by the board of directors. His first appointment shall be
subject to the approval of the Federal Reserve Board. He shall not take office until
approved by the Federal Reserve Board and thereupon he shall become a class C
director of the bank for the unexpired portion of the term held by his predecessor as
chairman of the board of directors or, if such term was completed, then for the next
regular term of three years. At the expiration of such term as a class C director, and
of each term of three years thereafter, his continuance in office shall be subject to the
approval of the Federal Reserve Board, and he shall cease to be Governor at the expira
tion of any such term unless his reappointment be approved by the Federal Reserve
Board. Upon such approval he shall become a class C director for the ensuing
term of three years. He shall be ex officio chairman of the board of directors and chair­
man of the executive committee; and all other officers and employees of the bank shall
be directly responsible to him. For each Federal Reserve bank there shall be appointed
annually in the same manner as the Governor, a Vice Governor, who shall, in the
absence or disability of the Governor or during a vacancy in the office of Governor,
serve as the chief executive officer of the bank and act as chairman of the executive
committee of the bank. His appointment and reappointment shall be subject to
approval by the Federal Reserve Board in the same manner as that of the Governor.
He may be appointed by the Federal Reserve Board as a class C director of the bank
and, in such case, may be appointed as deputy chairman of the board of directors.
Whenever a vacancy shall occur in the office of the Governor or Vice Governor of a
Federal Reserve bank, it shall be filled in the manner provided for original appoint­
ments; and the person so appointed shall hold office until the expiration of the term of
his predecessor.




56

BAN KIN G ACT OP 1 9 3 5

Effective ninety days after the enactment of the Banking Act of 1935, any Federal
Reserve agent who shall not have been appointed Governor of the bank shall cease to
be a class C director and chairman of the board of directors. All duties prescribed
by law for the Federal Reserve agent shall be performed by the Governor of the bank or
by such other person or persons as he shall designate.
No member of the board of directors of a Federal Reserve bank, other than the
Governor and Vice Governor, shall serve as a director for more than two consecutive
terms of three years each, but nothing in this paragraph shall prevent the present
incumbents from serving out the remainders of their present terms.

Section 201 (b) of the bill amends the last paragraph of section 4 of
the Federal Reserve Act.
Sec. 4. *

*

*

*
* * Thereafter [every] each director of [a Federal Reserve bank] class
A and each director of class B chosen as hereinbefore provided shall hold office
for a term of three years. * * *
Sec. 4. *

*

*

Section 201 (c) amends the paragraph of such section 4 which
commences “ such board of directors shall be selected” .
Such board of directors shall be selected as hereinafter specified and shall
consist of nine members, [holding office for three years, and] divided into three
classes, designated as classes “ A” , “ B ” , and “ C ” .

Section 202 of the bill amends section 9 of the Federal Reserve Act,
as amended, by inserting after the tenth paragraph thereof a new
paragraph.
Sec. 9.*

*

*

Upon application to the Federal Reserve Board by any nonmember bank which
at the time of such application has been admitted to the benefits of insurance by the
Federal Deposit Insurance Corporation under section 12B of this Actf the Federal
Reserve Board, in its discretion, in order to facilitate the admission of such bank to
membership in the Federal Reserve System, may waive in whole or in part the require­
ments of this section relating to the admission of such bank to membership: Provided,
That, if such bank is admitted with a capital less than that required for the organiza­
tion of a national bank in the same place and its capital and surplus are not, in the
judgment of the Federal Reserve Board, adequate in relation to its liabilities to deposi­
tors and other creditors, the Federal Reserve Board may, in its discretion, require
such bank to increase its capital and surplus to such amount as the Board may deem
necessary within such period prescribed, by the Board as in its judgment shall be
reasonable in view of all the circumstances: Provided, however, That no such bank
shall be required to increase its capital to an amount in excess of that required for the
organization of a national bank in the same place.

Section 203 (1) of the bill amends the first paragraph of section 10
of the Federal Reserve Act.
Sec. 10. * * * In selecting the six appointive members of the Federal Re­
serve [Board, not] Board the President shall choose persons well qualified by edu­
cation or experience or both to participate in the formulation of national economic
and monetary policies. Not more than one of [whom] the appointive members
shall be selected from any one Federal reserve district, except that this limitation
shall not apply to the selection of the Governor. [the President shall have due re­
gard to a fair representation of the financial, agricultural, industrial, and com­
mercial interests, and geographical divisions of the country. ] The six members of
the Federal Reserve Board appointed by the President and confirmed as afore­
said shall devote their entire time to the business of the Federal Reserve Board
and shall each receive an annual salary of $12,000, payable monthly, together
with actual necessary traveling expenses, and the Comptroller of the Currency,
as ex officio member of the Federal Reserve Board, shall, in addition to the
salary now paid him as Comptroller of the Currency, receive the sum of $7,000
annually for his services as a member of said Board. Each appointive member of
the Federal Reserve Board heretofore appointed may retire from service upon reach­
ing the age of seventy or at any time thereafter, and all members hereafter appointed
shall retire upon reaching the age of seventy. Each member of the Board so retired
from service who shall have served for as long as twelve years shall, during the re-




57

BANKING ACT OF 19 3 5

mainder of his life, receive an annual retirement pay in an amount equal to his
annual salary at the time of retirement: Provided, That if he shall have served for
as long as five years but less than twelve years, his annual retirement pay shall be at
the rate of one-twelfth of such annual salary for each year served and for any fraction
of an additional year of such service: Provided further, That any member whose
term expires and who is not reappointed shall receive retirement pay upon the same
basis as if he had been retired under the provisions of this paragraph, except that, if
his term expire before he reaches the age of sixty-five and he be offered and decline to
accept reappointment, he shall not receive any retirement pay. The funds necessary
for such retirement pay shall be provided by the Federal Reserve banks in such manner
as the Federal Reserve Board shall prescribe. Nothing in this section shall prevent
the President from reappointing any member of the Federal Reserve Board holdmfr*
office on July 1, 1985.

Section 203 (3) of the bill amends the second paragraph of section
10 of the Federal Reserve Act.
Sec. 10. * * *
*
* * Upon the expiration of the term of any appointive member of the
Federal Reserve Board in office when this paragraph as amended takes effect, the
President shall fix the term of the successor to such member at not to exceed
twelve years, as designated by the President at the time of nomination, but in
such manner as to provide for the expiration of the term of not more than one
appointive member in any two-year period, and thereafter each appointive
member shall hold office for a term of twelve years from the expiration of the
term of his predecessor. Of the six [persons thus appointed,] appointive mem­
bers of the Board one shall be designated by the President as Governor and one as
Vice Governor of the Federal Reserve Board, to serve as such until the further
order of the President, and the provisions of the next preceding sentence of this para­
graph shall not apply to the member designated as Governor. If the Governor’s
designation as such be terminated, he may continue to serve as a member of the Board
for the remainder of his term as such; but, if he resign within 90 days from the date
of the termination of his designation as Governor, he shall not be subject thereafter to
any restriction of this section with respect to holding any office, position, or employ­
ment in any member bank. The Governor of the Federal Reserve Board, subject
to its supervision, shall be its active executive officer. * * * Upon the ex­
piration of their terms of office, members of the Federal Reserve Board shall continue to
serve until their successors are appointed and have qualified.

Section 204 (a) of the bill amends subsection (i) of section 11 of the
Federal Reserve Act, by adding at the end thereof the following new
paragraph:
(^ * * * To require bonds of Federal Reserve agents, to make regulations
for the safeguarding of all collateral, bonds, Federal reserve notes, money, or
property of any kind deposited in the hands of such agents, and said board "shall
perform the duties, functions, or services specified in this Act, and make all rules
and regulations |necessary to enable said board effectively to perform the same.
The Board may assign to designated members of the Board or officers or representatives
of the Board, under rules and regulations prescribed by the Board, the performance
of any of its duties, functions, or services; but any such assignment shall not include
the determination of any national or system policy or any power to make rules and
regulations or any power which under the terms of this Act is required to be exercised
by a specified number of members of the Board.

Section 204 (b) of the bill amends section 11 of the Federal Reserve
Act by adding at the end thereof, the following new subsection:
(o)
It shall be the duty of the Federal Reserve Board to exercise such powers as it
possesses in such manner as to promote conditions conducive to business stability and
to mitigate by its influence unstabilizing fluctuations in the general level of production,
trade, prices, and employment, so far as may be possible within the scope of monetary
action and credit administration.

*

*

*

*

*

*

*

Section 205 of the bill, effective 90 days after its enactment, amends
section 12A of the Federal Reserve Act.
20366 0 — 58------ 39




58

BANKING ACT OF 1 9 3 5

Sec. 12A. [(a) There is hereby created a Federal Open Market Committee
(hereinafter 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 committee 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 openmarket 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.]
(a) There is hereby created an Open Market Advisory Committee (hereinafter
referred to as the “ Committee” ), which shall consist of five representatives of the
Federal Reserve banks. The members of the Committee and an alternate to serve in
the absence of each of them shall be elected annually by the governors of the twelve
Federal Reserve banks in accordance with procedure prescribed by regulations of the
Federal Reserve Board. Vacancies shall be filled in the same manner. The terms
of the members of the Committee shall expire at the end of each calendar year, and a
person elected to fill a vacancy shall serve for the remainder of the term of his prede­
cessor. The Committee shall elect its own chairman. Meetings of the Committee
shall be held from time to time upon the call of the chairman or upon the call of the
Governor of the Federal Reserve Board. Meetings shall be called whenever requested
by a majority of members of the Committee or by a majority of the members of the
Federal Reserve Board.
(b) The Committee shall consult and advise with, and make recommendations to,
the Federal Reserve Board from *
time to time with regard to the open-market policy
of the Federal Reserve System. The Committee shall also aid in the execution of
open-market policies adopted from time to time by the Federal Reserve Board and
shall perform such other duties relating thereto as the Federal Reserve Board may
prescribe. The Federal Reserve Board shall consult the Committee before making
any changes on its own initiative in the open-market policy, in the rates of interest
or discount to be charged by the Federal Reserve banks, or in the reserve balances
required to be maintained by member banks.
(c) After consulting with and considering the recommendations of the Com­
mittee, the Federal Reserve Board, from time to time, shall prescribe the openmarket policy of the Federal Reserve System. Each Federal Reserve bank shall
purchase or sell obligations of the United States, banked acceptances, bills of
exchange, and other obligations of the kinds and maturities made eligible for
purchase under the provisions of section 14 of this Act to such extent and in such
manner as may be required by the Federal Reserve Board in order to effectuate
the open-market policies adopted by the Board from time to time under the
provisions of this section and each Federal Reserve bank shall cooperate fully,
in every way, in making such policies effective.
(d) All transactions of Federal Reserve banks under authority of section 14
of this Act shall be subject to such regulations, limitations, and restrictions as the
Federal Reserve Board may prescribe.

Section 206 of the bill adds a new paragraph at the end of section 13
of the Federal Reserve Act.
Sec. 13. *

* *
Notwithstanding any other provision of law, upon the endorsement of any member
bank, which shall be deemed a waiver of demand, notice and protest as to its own
endorsement exclusively, and subject to such regulations as to maturities and other
matters as the Federal Reserve Board may prescribe, any Federal Reserve bank may
discount any commercial, agricultural, or industrial paper and may make advances




59

BAN KIN G ACT OP 1 9 3 5

to any such member bank on its promissory notes secured by any sound assets of
such member bank.

Section 207 of the bill amends section 14 (b) of the Federal Reserve
Act.

Sec. 14. * * *
Every Federal Reserve bank shall have power:
*

*

*

*

*

*

*

(b)
To buy and sell, at home or abroad, bonds and notes of the United States,
bonds of the Federal Farm Mortgage Corporation having maturities from date
of purchase of not exceeding six months (Act January 31, 1934), bonds issued
under the provisions of subsection (c) of section 4 of the Home Owners’ Loan Act
of 1933, as amended, and having maturities from date of purchase of not exceeding
six months (Act April 27, 1934), and bills, notes, revenue bonds, and warrants
with a maturity from date of purchase 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: Provided, That any bonds, notes, or
other obligations which are direct obligations of the United States or which are fully
guaranteed by the United States as to principal and interest may be bought and sold
without regard to maturities;

Section 208 (1) of the bill amends section 16 of the Federal Reserve
Act.

[Sec. 16. Federal Reserve notes, to be issued at the discretion of the Federal
Reserve Board for the purpose of making advances to Federal Reserve banks
through the Federal Reserve agents as hereinafter set forth and for no other
purpose, are hereby authorized. The said notes shall be obligations of the
United States and shall be receivable by all national and member banks and
Federal reserve banks and for all taxes, customs, and other public dues. They
shall be redeemed in lawful money on demand at the Treasury Department of the
United States, in the city of Washington, District of Columbia, or at any Federal
Reserve bank.]
Sec. 16. Each Federal Reserve bank may issue Federal Reserve notes, which shall
be obligations of the United States, secured by a first and paramount lien on all of
the assets of such bank. Federal Reserve notes shall be issued by Federal Reserve
banks and retired under such rules and regulations as the Federal Reserve Board may
prescribe and shall be legal tender for all purposes.
[Any Federal Reserve bank may make application to the local Federal Reserve
agent for such amount of the Federal Reserve notes hereinbefore provided for as
it may require. Such application shall be accompanied with a tender to the
local Federal Reserve agent of collateral in amount equal to the sum of the
Federal Reserve notes thus applied for and issued pursuant to such application.
The collateral security thus offered shall be notes, drafts, bills of exchange, or
acceptances acquired under the provisions of section 13 of this Act, or bills of
exchange indorsed by a member bank of any Federal Reserve district and pur­
chased under the provisions of section 14 of this Ast, or bankers ’ acceptances pur­
chased under the provisions of said section 14, or gold certificates: Provided,
however, That until March 3, 1935, or until the expiration of such additional
period not exceeding two years as the President may prescribe, the Federal
Reserve Board may, should it deem it in the public interest, upon the affirmative
vote of not less than a majority of its members, authorize the Federal Reserve
banks to offer, and the Federal agents to accept, as such collateral security,
direct obligations of the United States. On such date or upon the expiration
of such period so prescribed by the President, or sooner should the Federal Re­
serve Board so decide, such authorization shall terminate and such obligations
of the United States be retired as security for Federal Reserve notes. In no
event shall such collateral security be less than the amount of Federal Reserve
notes applied for. The Federal Reserve agent shall each day notify the Federal
Reserve Board of all issues and withdrawals of Federal Reserve notes to and by
the Federal Reserve bank to which he is accredited. The said Federal Reserve
Board may at any time call upon a Federal Reserve bank for additional security
to nrotect the Federal Reserve notes issued to it.]




60

BANKING ACT OF 1 9 3 5

Every Federal Reserve bank shall maintain reserves in [gold certificates of J
lawful money (other than Federal Reserve notes or Federal Reserve bank notes)
of not less than 35 per centum against its deposits and reserves in gold certificates
of not less than 40 per centum against its Federal Reserve notes in actual circula­
tion: [ Provided, however, That when the Federal Reserve agent holds gold
certificates as collateral for Federal Reserve notes issued to the bank such gold
certificates shall be counted as part of the reserve which such bank is required to
maintain against its Federal Reserve notes in actual circulation. Notes so paid
out shall bear upon their faces a distinctive letter and serial number which shall
be assigned by the Federal Reserve Board to each Federal Reserve bank.] Each
Federal Reserve note shall bear upon its face a distinctive letter, which shall be assigned
by the Federal Reserve Board to each Federal Reserve bank, and also a serial number.
[Whenever Federal Reserve notes issued through one Federal Reserve bank shall
be received by another Federal Reserve bank, they shall be promptly returned for
credit or redemption to the Federal Reserve bank through which they were
originally issued or, upon direction of such Federal Reserve bank, they shall be
forwarded direct to the Treasurer of the United States to be retired. No Federal
Reserve bank shall pay out notes issued through another under penalty of a tax
of ten per centum upon the face value of notes so paid out. Notes presented
for redemption at the Treasury of the United States shall be paid out of the
redemption fund and returned to the Federal Reserve banks through which they
were originally issued, and thereupon such Federal Reserve bank shall, upon
demand of the Secretary of the Treasury, reimburse such redemption fund in
lawful money or, if such Federal Reserve notes have been redeemed by the Treas­
urer in gold certificates, then such funds shall be reimbursed to the extent deemed
necessary by the Secretary of the Treasury in gold certificates, and such Federal
Reserve bank shall, so long as any of its Federal Reserve notes remain outstanding,
maintain with the Treasurer in gold certificates an amount sufficient in the
judgment of the Secretary to provide for all redemptions to be made by the Treas­
urer. Federal Reserve notes received by the Treasurer otherwise than for
redemption may be exchanged for gold certificates out of the redemption fund
hereinafter provided and returned to the reserve bank through which they were
originally issued, or they may be returned to such bank for the credit of the United
States. Federal Reserve notes unfit for circulation Bhall be returned by' the
Federal Reserve agents to the Comptroller of the Currency for cancellation and
destruction.1
]
[The Federal Reserve Board shall require each Federal Reserve bank to
maintain on deposit in the Treasury of the United States a sum in gold certificates
sufficient in the judgment of the Secretary of the Treasury for the redemption
of the Federal Reserve notes issued to such bank, but in no event less than five
per centum of the total amount of notes issued less the amount of gold certificates
held by the Federal Reserve agent as collateral security, but such deposit of gold
certificates shall be counted and included as part of the forty per centum reserve
hereinbefore required. The Board shall have the right, acting through the
Federal Reserve agent, to grant in whole or in part, or to reject entirely the
application of any Federal Reserve bank for Federal Reserve notes, but to the
extent that such application may be granted the Federal Reserve Board shall,
through its local Federal Reserve agent, supply Federal Reserve notes to the
banks so applying, and such bank shall be charged with the amount of notes
issued to it and shall pay such rate of interest as may be established by the
Federal Reserve Board on only that amount of such notes which equals the total
amount of its outstanding Federal Reserve notes less the amount of gold cer­
tificates held by the Federal Reserve agent as collateral security. Federal Re­
serve notes issued to any such bank shall, upon delivery, together with such
notes of such Federal Reserve bank as may be issued under section eighteen of
this Act upon security of United States two per centum Government bonds,
become a first and paramount lien on all the assets of such bank.]
[Any Federal Reserve bank may at any time reduce its liability for outstand­
ing Federal Reserve notes by depositing with the Federal Reserve agent its
Federal Reserve notes, gold certificates, or lawful money of the United States.
Federal Reserve notes so deposited shall not be reissued, except upon compliance
with the conditions of an original issue.]
[The Federal Reserve agent shall hold such gold certificates, or lawful money
available exclusively for exchange for the outstanding Federal Reserve notes
when offered by the Reserve bank of which he is a director. Upon the request of
i Similar provision added at end of section.




61

BANKING ACT OF 1 9 3 5

the Secretary of the Treasury the Federal Reserve Board shall require the Federal
Reserve agent to transmit to the Treasurer of the United States so much of the
gold certificates held by him as collateral security for Federal Reserve notes as
may be required for the exclusive purpose of the redemption of such Federal
Reserve notes, but such gold certificates when deposited with the Treasurer
shall be counted and considered as if collateral security on deposit with the
Federal Reserve agent.]
[Any Federal reserve bank may at its discretion withdraw collateral deposited
with the local Federal reserve agent for the protection of its Federal reserve noted
issued to it and shall at the same time substitute therefor other collateral of equal
amount with the approval of the Federal reserve agent under regulations to be
prescribed by the Federal Reserve Board. Any Federal reserve bank may retire
any of its Federal reserve notes by depositing them with the Federal reserve agent
or with the Treasurer of the United States, and such Federal reserve bank shall
thereupon be entitled to receive back the collateral deposited with the Federal
reserve agent for the security of such notes. Federal reserve banks shall not
be required to maintain the reserve or the redemption fund heretofore provided
for against Federal reserve notes which have been retired. Federal reserve
notes so deposited shall not be reissued except upon compliance with the condi­
tions of an original issue.]
[All Federal reserve notes and all gold certificates and lawful money issued to
or deposited with any Federal reserve agent under the provisions of the Federal
Reserve Act shall hereafter be held for such agent, under such rules and regulations
as the Federal Reserve Board may prescribe, in the joint custody of himself and
the Federal reserve bank to which he is accredited. Such agent and such Federal
reserve bank shall be jointly liable for the safe-keeping of such Federal reserve
notes, gold certificates, and lawful money. Nothing herein contained, however,
shall be construed to prohibit a Federal reserve agent from depositing gold cer­
tificates with the Federal Reserve Board, to be held by such Board subject to
his order, or with the Treasurer of the United States for the purposes authorized
by law.]
When received by the Treasurer of the United States from a source other than a
Federal Reserve bank, Federal Reserve notes unfit for further use shall be canceled
and retired; and, upon receipt of advice of such cancelation and retirements, the
issuing Federal Reserve bank shall reimburse the Treasurer of the United States for
the notes so canceled and retired. When received by a Federal Reserve bank, Federal
Reserve notes unfit for further use shall be canceled and forwarded to the Treasurer of
the United States for retirement; and, if issued by another Federal Reserve bank,
such issuing bank shall reimburse the Federal Reserve bank which canceled such
notes and forwarded them to the Treasurer of the United States.
In order to furnish suitable notes for circulation as Federal Reserve notes, the
Comptroller of the Currency shall [under the direction of the Secretary of the
Treasury,] cause plates and dies to be engraved in the best manner to guard
against [counterfeits] counterfeiting and fraudulent alterations, and shall have
printed therefrom and numbered such quantities of such notes of the denomina­
tions of $5, $10, $20, $50, $100, $500, $1,000, $5,000, and $10,000 as may be
required to supply the Federal Reserve banks. Such notes shall be in form and
tenor as directed by the Secretary of the Treasury [under the provisions of this
A ct] and shall bear the distinctive [numbers] letters of the several Federal
Reserve banks through which they are issued. When such notes have been pre­
pared, they shall be [deposited] held in the Treasury [, or in the subtreasury
or mint of the United States nearest the place of business of each Federal Reserve
bank and shall be held for the use of such bank] subject to the order of the Comp­
troller of the Currency for [their] delivery [, as provided by this A ct.] to the
Federal Reserve banks. Federal Reserve notes unfit for circulation shall be returned
to the Comptroller of the Currency for cancelation and destruction.

*

*

*

*

*

*

*

Section 208 (2) of the bill amends the sixteenth paragraph of section
16 of the Federal Reserve Act.
The Secretary of the Treasury is hereby authorized and directed to receive
deposits of gold or of gold certificates with the Treasurer [or any assistant treas­
urer] of the United States when tendered by any Federal reserve bank [or Federal
reserve agent] for credit to its [or his] account with the Federal Reserve Board.
The Secretary shall prescribe by regulation the form of receipt to be issued by
the Treasurer [or assistant treasurer] to the Federal reserve bank [or Federal




62

BANKING ACT OF 1 9 3 5

reserve agent] making the deposit, and a duplicate of such receipt shall be deliverd
to the Federal reserve Board [by the Treasurer at Washington upon proper
advices from any assistant treasurer that such deposit has been made]. Deposits
so made shall be held subject to the orders of the Federal Reserve Board-and shall
be payable in gold certificates on the order of the Federal Reserve Board to and
Federal reserve bank [or Federal reserve agent at the Treasury or at the Subtreas­
ury of the United States nearest the place of business of such Federal reserve bank
or such Federal reserve agent]. The order used by the Federal Reserve Board in
making such payments shall be signed by the governor or vice governor, or such
other officers or members as the Board may by regulation prescribe. The form of
such order shall be approved by the Secretary of the Treasury.

Section 209 of the bill amends the sixth paragraph of section 19 of
the Federal Reserve Act.
Notwithstanding the [foregoing] other provisions of this section, the Federal
Reserve Board, [upon the affirmative vote of not less than five of its members
and with the approval of the President, may declare that an emergency exists
by reason of credit expansion, and may by regulation during such emergency
increase or decrease from time to time, in its discretion, the reserve balances
required to be maintained against either demand or time deposits] in order to
'prevent injurious credit expansion or contraction, may by regulation change the
requirements as to reserves to be maintained against demand or time deposits or both
by member banks in reserve and central reserve cities or by member banks not in
reserve or central reserve cities or by all member banks.

Section 210 of the bill amends the first paragraph of section 24 of
the Federal Reserve Act.
[S e c. 24. Any national banking association may make loans secured by first
lien upon improved real estate, including improved farm land, situated within its
Federal reserve district or within a radius of one hundred miles of the place in
which such bank is located, irrespective of district lines. A loan secured by real
estate within the meaning of this section shall be in the form of an obligation or
obligations secured by mortgage, trust deed, or other such instrument upon
real estate when the entire amount of such obligation or obligations is made or
is sold to such association. The amount of any such loan shall not exceed 50
per centum of the actual value of the real estate offered for security, but no such
loan upon such security shall be made for a longer term than five years: Pro­
vided!, That in the case of loans secured by real estate which are insured under the
provisions of title II of the National Housing Act, such restrictions as to the
amount of the loan in relation to the actual value of the real estate and as to the
five-year limit on the terms of such loans shall not apply. Any such bank may
make such loans in an aggregate sum including in such aggregate any such loans
on which it is liable as indorser or guarantor or otherwise equal to 25 per centum
of the amount of the capital stock of such association actually paid in and unim­
paired and 25 per centum of its unimpaired surplus fund, or to one-half of its
savings deposits, at the election of the association, subject to the general limita­
tion contained in section 5200 of the Revised Statutes of the United States.
Such banks may continue hereafter as heretofore to receive time and savings
deposits and to pay interest on the same, but the rate of interest which such
banks may pay upon such time deposits or upon savings or other deposits shall
not exceed the maximum rate authorized by law to be paid upon such deposits
by State banks or trust companies organized under the laws of the State wherein
such national banking association is located.]
S ec. 24. Subject to such regulations as the Federal Reserve Board may prescribe,
any national banking association may make real-estate loans secured by first liens
upon improved real estate, including improving {arm land and improved business
and residential properties. The amount of any such loan hereafter made shall not
exceed 60 per centum of the appraised value of the real estate; but this limitation shall
not prevent the renewal or extension of loans heretofore made and shall not apply to
real-estate loans which are insured under the provisions of Title II of the National
Housing Act. No bank shall make such loans in an aggregate sum in excess of the
amount of the capital stock of such association paid in and unimpaired plus its
unimpaired surplus fund, or in excess of 60 per centum of the amount of its time and
savings deposits, whichever is the greater. The Federal Reserve Board is authorized
to prescribe from time to time regulations defining the term “ real-estate loans” and
other terms used in this section and regulating and limiting the making of real-estate




63

BAN KIN G ACT OF 1 9 3 5

loans by member banks, with a view of preventing an unreasonably large proportion
of each bank’s assets from being invested in real estate and real-estate loa,ns, preventing
such loans from exceeding a reasonable percentage of the appraised value of the real
estate in view of the circumstances existing at the time and otherwise requiring the
banks to conform to sound practices in making real-estate loans.
A m endm ents M

ade

by

B il l in V a r io u s P r o v is io n s
B a n k in g L a w s

the

of

the

Section 301 of the bill amends section 2 (c) of the Banking Act of
1933.
S ec .

*

2. As used in this Act and in any provision of law amended by this Act—

*

*

*

*

*

*

(c)
The term “ holding company affiliate” shall include any corporation,
business trust, association, or other sim ilar organization—
(1) Which owns or controls, directly or indirectly, either a majority of the
shares of capital stock of a member bank or more than 50 per centum of the num­
ber of shares voted for the election of directors of any one bank at the preceding
election, or controls in any manner the election of a majority of the directors of
any one bank; or
(2) For the benefit of whose shareholders or members all or substantially all
the capital stock of a member bank is held by trustees.
Notwithstanding the foregoing, the term uholding company affiliate” shall not in­
clude (except for the purposes of section 23A of the Federal Reserve Act, as amended)
any corporation all of the stock of which is owned by the United States of America or
any organization which, in the judgment of the Federal Reserve Board, is not engaged,
directly or indirectly, as a business in holding the stock of, or managing or controlling,
banks, banking associations, savings banks, or trust companies.

Section 302 of the bill amends the first paragraph of section 20 of
the Banking Act of 1933.
S ec . 20. After one year from the date of the enactment of this Act, no member
bank shall be affiliated in any manner described in section 2 (b) hereof with any
corporation, association, business trust, or other similar organization engaged
principally in the issue, flotation, underwriting, public sale, or distribution at
wholesale or retail or through syndicate participation of stocks, bonds, deben­
tures, notes, or other securities: Provided, That nothing in this paragraph shall
apply to any such organization which shall have been placed in formal liquidation
and which shall transact no business except such as may be incidental to the liquida­
tion of its affairs.

Section 303 (a) of the bill amends section 21 (a) (1) of the Banking
Act of 1933.
S ec ! 21. (a) After the expiration of one year after the date of enactment of
this Act it shall be unlawful—
(1)
For any person, firm, corporation, association, business trust, or other
similar organization, engaged in the business of issuing, underwriting, selling, or
distributing, at wholesale or retail, or through syndicate participation, stocks,
bonds, debentures, notes, or other securities, to engage at the same time to any
extent whatever in the business of receiving deposits subject to check or to repay­
ment upon presentation of a passbook certificate of deposit, or other evidence of
debt, or upon request of the depositor: Provided, That the provisions of this para­
graph shall not prohibit national banks or State banks or trust companies (whether or
not members of the Federal Reserve System) or other financial institutions or private
bankers from dealing in, underwriting, purchasing, and selling investment securities
to the extent permitted to national banking associations by the provisions of section
5186 of the Revised Statutes, as amended ( U. S. C., title 12, sec. 24 ; Supp. VII, title
12, sec. 24 ): Provided further, That nothing in this paragraph shall be construed as
affecting in any way such right as any bank, banking association, savings bank, trust
company, or other banking institution, may otherwise possess to sell, without recourse
or agreement to repurchase, obligations evidencing loans on real estate.




64

BANKING ACT OF 1 9 3 5

Section 303 (b) of the bill repeals section 21 (a) (2) of the Banking
Act of 1933.
Sec. 21 (a) After the expiration of one year after the date of enactment of this
Act it shall be unlawful—

*

*

*

*

*

*

*

[(2) For any person, firm, corporation, association, business trust, or other
similar organization, other than a financial institution or private banker subject
to examination and regulation under State or Federal law, to engage to any
extent whatever in the business of receiving deposits subject to check or to repay­
ment upon presentation of a passbook, certificate of deposit, or other evidence of
debt, or upon request of the depositor, unless such person, firm, corporation,
association, business trust, or other similar organization shall submit to periodic
examination by the Comptroller of the Currency or by the Federal reserve bank
of the district and shall make and publish periodic reports of its condition, exhibit­
ing in detail its resources and liabilities, such examination and reports to be made
and published at the same times and in the same manner and with like effect and
penalties as are now provided by law in respect of national banking associations
transacting business in the same locality.]

Section 304 of the bill amends section 22 of the Banking Act of
1933.
Sec. 22. The additional liability imposed upon shareholders in national bank­
ing associations by the provisions of section 5151 of the Revised Statutes, as
amended, and section 23 of the Federal Reserve Act, as amended (U. S. C.,
title 12, secs. 63 and 64), shall not apply with respect to shares in any such associ­
ation issued after the date of enactment of this Act. Such additional liability
shall cease on July 1 1937, with respect to all shares issued by any association which
shall be transacting the business of banking on July 1, 1937: Provided, That not less
than six months prior to such date, such association shall have caused notice of such
prospective termination of liability to be published in a newspaper published in the
city, town, or county in which such association is located, and if no newspaper is
published in such city} town, or county, then in a newspaper of general circidation
therein. If the association fail to give such notice as and when above provided, a
termination of such additional liability may thereafter be accomplished as of the date
six months subsequent to publication, in the manner above provided.

,

Section 305 of the bill amends section 4 of the act approved June
16, 1934, entitled “ An act to amend section 12B of the Federal
Reserve Act so as to extend for one year the temporary plan for deposit
insurance, and for other purposes.”
Sec. 4. So much of section 31 of the Banking Act of 1933, as amended, as
relates to stock ownership by directors, trustees, or members of similar governing
bodies of [member banks] any national banking association or of any State bank
or trust company which is a member of the Federal Reserve System, is hereby
repealed.

Section 306 of the bill, effective January 1, 1936, amends section
32 of the Banking Act of 1933.

[Sec. 32. From and after January 1, 1934, no officer or director of any member
bank shall be an officer, director, or manager of any corporation, partnership,
or unincorporated association engaged primarily in the business of purchasing,
selling, or negotiating securities, and no member bank shall perform the functions
of a correspondent bank on behalf of any such individual, partnership, corporation,
or unincorporated association and no such individual, partnership, corporation,
or unincorporated association shall perform the functions of a correspondent for
any member bank or hold on deposit any funds on behalf of any member bank,
unless in any such case there is a permit therefor issued by the Federal Reserve
Board; and the Board is authorized to issue such permit if in its judgment it is
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 such revocation.]

,

,

,

,,

,,

Sec . 32. No officer director or employee of any corporation or unincorporated
association no partner or employee of any partnership and no individual primarily
engaged in the issue flotation underwriting public sale or distribution at wholesale




,

,

,

BANKING ACT OF

1935

65

or retail, or through syndicate participation, of stocks, bonds, or oZ/ier similar securi­
ties,
at the same time as an officer, director, or employee of any member
bank except in limited classes of cases in which the Federal Reserve Board may allow
such service by general regulations when in the judgment of the Federal Reserve
Board it would not unduly influence the investment policies of such member bank
or the advice it gives its customers regarding investments.

Section 307 (a) of the bill amends the second sentence of paragraph
“ Seventh” of section 5136 of the Revised Statutes, as amended.
5136. * * *
Seventh. * * *
The business of dealing in [investments] securities and stock by the association
shall be limited to purchasing and selling such securities and stock 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 or
stock: Provided, That the association may purchase for its own account invest­
ment securities under such limitations and restrictions as the Comptroller of the
Currency may by regulation prescribe [ , but in]. In no event [ (1 )] shall the
total amount of [any issue q fj the investment securities of any one obligor or
maker [ , purchased after this section, as amended, takes effect and] hfeld 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 (2) 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 unim­
paired surplus fund.] its capital stock actually paid in and unimpaired and 10
per centum of its unimpaired surplus fund, except that this limitation shall not
require any association to dispose of any securities lawfully held by it on the date of
enactment of the Banking Act of 1935.”
S ec .

Section 307 (b) of the bill amends the fourth sentence of such
paragraph seventh:
Except as hereinafter provided or otherwise permitted by law, nothing herein
contained shall authorize the purchase by the association for its own account of
any shares of stock of any corporation.

Section 308 of the bill amends section 5138 of the Revised Statutes,
as amended, by adding a sentence at the end thereof.
Section 5138 * * *. No such association shall hereafter be authorized to com­
mence the business of banking until it shall have a paid-in surplus equal to W per
centum of its capital: Provided, That the Comptroller of the Currency may waive this
requirement as to a State bank converting into a national banking association.

Section 309 of the bill amends the last paragraph of section 5139
of the Revised Statutes, as amended.
After [one year from] the date of the enactment of the Banking Act of [1933]
1935 no certificate [representing] evidencing the stock of any such association
shall bear any statement purporting to represent the stock of any other corporation,
except a member bank or a corporation existing on [th e ] such date [this para­
graph takes effect] engaged [solely] primarily in holding the bank premises of
such association, 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 [ . ] or a corporation existing
on the date this paragraph takes effect engaged primarily in holding the bank premises
of such association: Provided, That this section shall not operate to prevent the owner­
ship, sale, or transfer of stock of any other corporation being conditioned upon the
ownership, sale, or transfer of a certificate representing stock of a national banking
association.




66

BANKING ACT OF 1 9 3 5

Section 310 (a) of the bill amende the first sentence of section 5144
of the Revised Statutes, as amended.
Sec. 5144. In all elections of directors, each shareholder shall have the right
to vote the number of shares owned by him for as many persons as there are
directors to be elected, or to cumulate such shares and give one candidate as many
votes as the number of directors multiplied by the number of his shares shall
equal, or to distribute them on the same principle among as many candidates as
he shall think fit; and in deciding all other questions at meetings of shareholders,
each shareholder shall be entitled to one vote on each share of stock held by him
[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. Share­
holders may vote by proxies duly authorized in writing; but no officer, clerk,
teller, or bookkeeper of such bank shall act as proxy; and no shareholder whose
liability is past due and unpaid shall be allowed to vote.] except that (1) this
shaU not be construed as limiting the voting rights of holders of preferred stock under
the term$ and provisions of articles of association, or amendments thereto, adopted
pursuant to the provisions of section 302 (a) of the Emergency Banking Act of March
9, 1933, as amended, {2) in the election of directors, shares of its own stock held by
a national bank as sole trustee, whether registered in its own name as suck trustee or
r
in the name of its nominee, shaU not be voted by the registered owner unless under the
terms of the trust the manner in which such shares shall be voted may be determined by
a donor or beneficiary of the trust and unless such donor or beneficiary actually directs
how such shares shall be voted, (3) 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 (4) shares
controlled by any holding company affiliate of a national bank shaU not be voted unless
such holding comapny affiliate shall have first obtained a voting permit as hereinafter
provided, which permit is in force at the time such shares are voted, but such holding
company affiliate may, without obtaining such permit, vote in favor of placing the
association in voluntary liquidation or taking any other action pertaining to the
voluntary liquidation of such association. Shareholders may vote by proxies duly
authorized in writing; but no officer, clerk, teUer, or bookkeeper of such bank shall ad
as proxy; and no shareholder whose liability is past due and unpaid shall be allowed
to vote. Whenever shares of stock cannot be voted by reason of being held by the bank
as sole trustee, such shares shall be excluded in determining whether matters voted
upon by the shareholders were adopted by the requisite percentage of shares.”

Section 310 (c) of the bill amends the first sentence of the third
paragraph of section 5144 of the Revised Statutes, as amended.
S e c . 5144 * * * 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 share­
holders of such bank on each share o f] vote the stock controlled by it at any or aU
meetings of shareholders of such bank or authorizing the trustee or trustees holding
the stock for its benefit or for the benefit of its shareholders so to vote the
same. * * *

Section 311 of the bill adds a n e w paragraph to section 5154 of the
Revised Statutes.
Sec . 5154. Any bank incorporated by special law of any State or of the United
States or organized under the general laws of any State or of the United States
and having an unimpaired capital sufficient to entitle it to become a national
banking association under the provisions of the existing laws may, by the fote
of the shareholders owning not less than fifty-one per centum of the capital stock
of such bank or banking association, with the approval of the Comptroller of the
Currency be converted into a national banking association, with any name
approved by the Comptroller of the Currency: Provided, however, That said
conversion shall not be in contravention of the State law. In such case the
articles of association and organization certificate may be executed by a majority
of the directors of the bank or banking institution, and the certificate shall




BANKING ACT OF 19 3 5

67

declare that the owners of fifty-one per centum of the capital stock have authorized
the directors to make such certificate and to change or convert the bank or bank­
ing institution into a national association. A majority of the directors, after
executing the articles of association and the organization certificate, shall have
power to execute all other papers and to do whatever may be required to make its
organization perfect and complete as a national association. The shares of any
such bank may continue to be for the same amount each as they were before the
conversion, and the directors may continue to be directors of the association until
others are elected or appointed in accordance with the provisions of the statutes
of the United States. When the Comptroller has given to such bank or banking
association a certificate that the provisions of this Act have been complied with,
such bank or banking association, and all its stockholders, officers, and employees,
shall have the same powers and privileges, and shall be subject to the same
duties, liabilities, and regulations, in all respects, as shall have been prescribed
by the Federal Reserve Act and by the national banking act for associations
originally organized as national banking associations.
The Comptroller of the Currency may, in his discretion and subject to such condi­
tions as he may prescribe, permit such converting bank to retain and carry at a value
determined by the Comptroller such of the assets of such converting bank as do not
conform to the legal requirements relative to assets acquired and held by national
banking associations.

Section 312 of the bill amends section 5162 of the Revised Statutes.
5162. All transfers of United States bonds, made by any association
under the provisions of this title, shall be made to the Treasurer of the United
States in trust for the association, with a memorandum written or printed on each
bond, and signed by the cashier, or some other officer of the association making
the deposit. A receipt shall be given to the association, by the Comptroller of the
Currency, or by a clerk appointed by him for that purpose, stating that the bond
is held in trust for the association on whose behalf the transfer is made, and as
security for the redemption and payment of any circulating notes that have been
or may be delivered to such association. No assignment or transfer of any such
bond by the Treasurer shall be deemed valid unless countersigned by the Comp­
troller of the Currency.
The Comptroller of the Currency may designate one or more persons to countersign
in his name and on his behalf such assignments or transfers of bonds as require his
countersignature.
Sec .

Section 313 of the bill amends section 5197 of the Revised Statutes
by inserting a new sentence after the second sentence thereof.
S ec . 5197. Any association may take, receive, reserve, and charge on any loan
or discount made, or upon any notes, bil,ls 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, or at a rate of 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, whichever may be the
greater, and no more, except that where, by the laws of any State, a different
rate is limited for banks 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, whichever may be the greater, and such interest may be taken in advance,
reckoning the days for which the note, bill, pr other evidence of debt has to run.
The maximum amount of interest or discount to be charged at a branch of an associa­
tion located outside of the States of the United States and the District of Columbia
shall be at the rate allowed by the laws of the country, territory, dependency, province,
dominion, insular possession, or other political subdivision where the branch is located.
And 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.

Section 314 of the bill amends section 5199 of the Revised Statutes.
5199. The directors of any association may, semiannually, declaie a divi­
dend of so much of the net profits of the association as they shall judge expedient;
S ec .




68

BAN KIN G ACT OP 1 9 3 5

but each association shall, before the declaration of a dividend on its shares of
common stock, carry not less than ono-tenth part of its net profits of the preceding
half year to its surplus fund until the same shall [amount to 20 per centum of its
capital stock] equal the amount of its common capital.

Section 315 of the bill amends section 5209 of the Revised Statutes.

Sec. 5209.

Any officer, director, agent, or employee of any Federal reserve
bank, or of any member bank as defined in the Act of December twenty-third,
nineteen hundred and thirteen, known as the Federal Reserve Act or of any insured
bank as defined in subsection (c) of section 12B of the Federal Reserve Act, who
embezzles, abstracts, or willfully misapplies any of the moneys, funds, or credits
of such Federal Reserve bank or member bank or insured bank, or who, without
authority from the directors of such Federal Reserve bank or member bank
or insured bank, issues or puts in circulation any of the notes of such Federal
Reserve bank or member bank or insured bank, or who, without such authority,
issues or puts forth any certificate of deposit, draws any order or bill of exchange,
makes any acceptance, assigns any note, bond, draft, bill of exchange, mortgage,
judgment, or decree, or who makes any false entry in any book, report, or state­
ment of such Federal Reserve bank or member bank or insured bank, with intent
in any case to injure or defraud such Federal Reserve bank or member bank or
insured bank, or any other company, body politic or corporate, or any individual
person, or to deceive any officer of such Federal Reserve bank or member bank
or insured bank, or the Comptroller of the Currency, or the Federal Deposit Insur­
ance Corporation, or any agent or examiner appointed to examine the affairs of
such Federal Reserve bank or member bank or insured bank, or the Federal
Reserve Board; and every receiver of a national banking association who, with
like intent to defraud or injure, embezzles, abstracts, purloins, or willfully
misapplies any of the moneys, funds, or assets of his trust, and every person who,
with like intent, aids or abets any officer, director, agent, employee, or receiver
in any violation of this section shall be deemed guilty of a misdemeanor, and upon
conviction thereof in any district court of the United States shall be fined not
more than $5,000 or shall be imprisoned for not more than five years, or both,
in the discretion of the court.
Any Federal Reserve Agent, or any agent or employee of such Federal Reserve
Agent, or of the Federal Reserve Board, who embezzles, abstracts, or willfully mis­
applies any moneys, funds, or securities intrusted to his care, or without complying
with or in violation of the provisions of the Federal Reserve Act, issues or puts in
circulation any Federal Reserve notes shall be guilty of a misdemeanor and upon
conviction in any district court of the United States shall be fined not more than
$5,000 or imprisoned for not more than five years, or both, in the discretion of
the court. *

Section 316 of the bill amends section 5220 of the Revised Statutes.

Sec. 5220. Any association may go into liquidation and be closed by the vote
of its shareholders owning two-thirds of its stock.

The shareholders shall designate one or more persons to act as liquidating agent
or committee, who shall conduct the liquidation in accordance with law and under the
supervision of the board of directors, who shall require a suitable bond to be given by
said agent or committee. The liquidating agent or committee shall render annual
reports to the Comptroller of the Currency on the 31st day of December of each year
showing the progress of said liquidation until the same is completed. The liquidating
agent or committee shall also make an annual report to a meeting of the shareholders
to be held on the date fixed in the articles of association for the annual meeting, at
which meeting the shareholders may, if they see fit, by a vote representing a majority
of the entire stock of the bank, remove the liquidating agent or committee and appoint
one or more others'in place thereof. A special meeting of the shareholders may be
called at any time in the same manner as if the bank continued an active bank and
at said meeting the shareholders may, by vote of the majority of the stock, remove the
liquidating agent or committee. The Comptroller of the Currency is authorized to
have an examination made at any time into the affairs of the liquidating bank until
the claims of all creditors have been satisfied, and the expense of making such examina­
tions shall be assessed against such bank in the same manner as in the case of exam­
inations made pursuant to section 5240 of the Revised Statutes, as amended ( U. S. C.,
title 12, secs. 484* 485'* Supp. V II, title 12, secs. 481-488).

Section 317 of the bill amends section 5243 of the Revised Statutes.

Sec. 5243. [All banks not organized and transacting business under the na­
tional currency laws, or under chapter 2, and all persons or corporations doing



BANKING ACT OF 193 5

69

the business of bankers, brokers, or savings institutions, except savings banks
authorized by Congress to use the word “ national” as a part of their corporate
name, are prohibited from using the word “ national” as a portion of the name
or title of such bank, corporation, firm, or partnership,] The use of the word “ na­
tional” , the word “ Federal” , or the words 11United States” , separately, in any
combination thereof, or in combination with other words or syllables, as part of the
name or title used by any person, corporation, firm, partnership, business trusty
association or other business entity, doing the business of bankers, brokers, or trust or
savings institutions is prohibited except where such institution is organized under
the laws of the United States, or is otherwise permitted by the laws of the United
States to use such name or title, or is lawfully using such name or title on the date
when this section, as amended, takes effect, [and any violation of this prohibition
shall subject the party chargeable therewith to a penalty of $50 for each day
during which it is committed or repeated.]

Section 318 (a) of the bill amends the last three sentences of sec­
tion 5 of the Federal Reserve Act.
When a member bank reduces its capital stock OR SURPLUS it shall surrender
a proportionate amount of its holdings in the capital STOCK of said Federal
Reserve bank[, and when a member bank voluntarily liquidates it shall surrender
all of its holdings of the capital stock of said Federal reserve bank and be released
from its stock subscription not previously called]. Any member bank which
holds capital stock of a Federal Reserve bank in excess of the amount required on the
basis of 6 per centum of its paid-up capital stock and surplus shall surrender such
excess stock. When a member bank voluntarily liquidates it shall surrender all of
its holdings of the capital stock of said Federal Reserve bank and be released from its
stock subscription not previously called. In [either] any such case the shares
surrendered shall be canceled and the member bank shall receive in payment
therefor, under regulations to be prescribed by the Federal Reserve Board, a
sum equal to its cash-paid subscriptions on the shares surrendered and one-half
of one per centum a month from the period of the last dividend, not to exceed
the book value thereof, less any liability of such member "bank to the Federal
Reserve bank.

Section 318 (b) repeals the last paragraph of section 6 of the
Federal Reserve Act.
[Whenever the capital stock of a Federal Reserve bank is reduced either on
account of a reduction in capital stock of any member bank or of the liquidation
or insolvency of such bank or on account of the appointment of a receiver for a
national bank following discontinuance of its banking operations as provided in
this section, the board of directors shall cause to be executed a certificate to the
Comptroller of the Currency showing such reduction of capital stock and the
amount repaid to such bank.]

Section 319 of the bill amends the fifth paragraph of section 9
of the Federal Reserve Act.
S ec . 9

*

*

*

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 payment
of unearned dividends. Such banks and the officers, agents, and employes
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 re­
quired 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 reports within ten days after
the date they are called for shall subject the offending 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. Such reports of condition shall
be in such form and shall contain such information as the Federal Reserve Board may
require and shall be published by the reporting banks in such manner and in accor­
dance with such regulations as the said board may prescribe.




70

BANKING ACT OF 1 9 3 5

Section 320 (a) of the bill amends the first sentence of paragraph
(m) of section 11 of the Federal Reserve Act.
Sec. 11. (m) Upon the affirmative vote of not less than six of its members
the Federal Reserve Board shall have the power to fix from time to time for each
Federal Reserve district the percentage of individual bank capital and surplus,
which may be represented by loans secured by stock or bond collateral made by
member banks within such district, 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 unim­
paired capital and surplus of such bank [ . ] : Provided, That with respect to loans
represented by obligations in the form of notes secured by not less than a like amount
of bonds or notes of the United States issued since April 24, 1917, or certificates of
indebtedness of the United States, or Treasury bills of the United States, such limi­
tation of 10 per centum an loans to any person shall not apply, but State member
banks shall be subject to the same limitations and conditions as are applicable in
the case of national banks under paragraph (8) of section 5200 of the Revised Statutes,
as amended (U. S. C.f Supp. V II, title 12, sec. 84)*

Section 320 (b) of the bill amends paragraph (8) of section 5200
of the Revised Statutes.
(8)
Obligations of any person, copartnership, association, or corporation in
the form of notes secured by not less than a like amount of bonds or notes of the
United States issued since April 24, 1917, or certificates of indebtedness of the
United States, or Treasury bills of the United States, shall (except to the extent
permitted by rules and regulations prescribed by the Comptroller of the Cur­
rency, with the approval of the Secretary of the Treasury) be subject under
this section to a limitation of 15 per centum of such capital and surplus in addition
to such 10 per centum of such capital and surplus.

Section 321 of the bill amends the*third paragraph of section 13 of
the Federal Reserve Act.
Sec. 13. *

* *
In unusual and exigent circumstances, the Federal Reserve Board, by the
affirmative vote of not less than five members, may authorize any Federal Reserve
bank, during such periods as the said board may determine, at rates established
in accordance with the provisions of section 14, subdivision (d), of this Act, to dis­
count for any individual, partnership, or corporation, notes, drafts, and bills of
exchange of the kinds and maturities made eligible for discount for member banks
under other provisions of this Act when such notes, drafts, and bills of exchange
are indorsed [an d ] or otherwise secured to the satisfaction of the Federal Reserve
bank: Provided, That before discounting any such note, draft, or bill of exchange
for an individual or a partnership or corporation the Federal Reserve bank shall
obtain evidence that such individual, partnership, or corporation is unable to
secure adequate credit accommodations from other banking institutions. All
such discounts for individuals, partnerships, or corporations shall be subject to
such limitations, restrictions, and regulations as the Federal Reserve Board may
prescribe.

*

*

*

*

*

*

*

Section 322 of the bill amends subsection (e) of section 13b of the
Federal Reserve Act.
Sec. 13b (e). In order to enable the Federal Reserve banks to make the loans,
discounts, advances, purchases, and commitments provided for in this section, the
Secretary of the Treasury [upon the date this section takes effect] on and after
June 19,1984, is authorized, under such rules and regulations as he shall prescribe,
to pay to each Federal Reserve bank not to exceed such portion of the sum of
$139,299,557 as may be represented by [the par value of the holdings of each
Federal Reserve bank of Federal Deposit Insurance Corporation stock] the
amount paid by each Federal Reserve bank for stock of the Federal Deposit Insurance
Corporation, upon the execution by each Federal Reserve bank of its agreement
(to be endorsed on the certificate of such stock) to hold such stock unencumbered
and to pay to the United States all dividends, all payments on liquidation, and all
other proceeds of such stock, for which dividends, payments, and proceeds the
United States shall be secured by such stock itself up to the total amount
paid to each Federal Reserve bank by the Secretary of the Treasury under this
section. * * *




BANKING ACT OF 1 9 3 5

71

Section 323 (a) amends the first paragraph of section 19 of the
Federal Reserve Act.
[ 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.]
S e c . 19. The Federal Reserve Board is authorized, for the purposes of this section,
to define the terms “ demand deposits” , “ gross demand deposits” , “ deposits payable
on demand” , “ time deposits” , “ savings deposits” , and “ trust funds” , to determine
what shall be deemed to be a paymeJit of interest, and to prescribe such rules and
regulations as it may deem necessary to effectuate the purposes of this section and
prevent evasions thereof: Provided, .That, within the meaning of the provisions of
this section regarding the reserves required of member banks, the term 1time deposits”
1
shall include “ savings deposits” .

Section 323 (b) amends the tenth paragraph of section 19 of the
Federal Reserve Act.
In estimating the Reserve balances [required by this Act, the net difference
of amounts due to and from other banks shall be taken as the basis for ascertain­
ing the deposits against which required balances with Federal reserve banks shall
be determined.] Member banks may deduct from the amount of their Qross demand
deposits the amounts of balances due from other banks (except Federal Reserve banks
and foreign banks), and cash items in process of collection payable immediately
upon presentation in the United States, within the meaning of these terms as defined
by the Federal Reserve Board.

Section 323 (c) amends the last two paragraphs of section 19 of the
Federal Reserve Act.
No member bank shall, directly or indirectly[ , ] by any device whatsoever,
pay any interest on any deposit which is payable on demand: Provided, That
nothing herein contained shall be construed as prohibiting the payment of interest
in accordance with the terms of any certificate of, deposit or other contract
[heretofore] entered into in good faith which is in force on the date [o f the
enactment of this paragraph] on which the bank becomes subject to the provisions
of this paragraph; but no such certificate of deposit or other contract shall be
renewed or extended unless it shall be modified to conform to this paragraph,
and every member bank shall take such action as may be necessary to conform to
this paragraph as soon as possible consistently with its contractual obligations:
Provided[, however,] further, That this paragraph shall not apply (1) to any
deposit of such bank which is payable only at an office thereof located [in a
foreign country,] outside of the States of the United States and the District of
Columbia; [and shall not apply] (2) to any deposit made by a mutual savings
bank[, nor]; (8) to any deposit of public funds made by or on behalf of any
State, county, school district, or other subdivision or municipality, [with respect
to which payment of interest] or to any deposit of trust funds if the payment of
interest with respect to such deposit of public funds or of trust funds is required
[under] by State la w [.]; or (4) to any deposit of funds by the United States, any
Territory, District, or possession thereof (including the Philippine Islands) or any
public instrumentality or agency of the foregoing, with respect to which interest is
required by law to be paid.
The Federal Reserve Board shall from time to time limit by regulation the
rate of interest which may be paid by member banks on time and savings deposits
[ , and may prescribe different rates for such payment on time and savings de­
posits having different maturities or subject to different conditions respecting
withdrawal or repayment or subject to different conditions by reason of different
locations]; may classify time and savings deposits according to maturities, locations
of banks, conditions respecting receipt, withdrawal, or repayment, or otherwise as it
may deem necessary in the public interest; and may prescribe different rates for
deposits of different classes. No member bank shall pay any time deposit before
its maturityf,"\except upon such conditions and in accordance with such rules and
regulations as may be prescribed by the Federal Reserve Board, or waive any require­
ment of notice before payment of any savings deposit except as to all savings
deposits having the same requirement^]: Provided, That the provisions of this
paragraph shall not apply to any deposit which is payable only at an office of a member
bank located outside of the States of the United States and the District of Columbia.




72

B N IN A T O 1935
AK G C F

Section 323 (d) of the bill amends section 19 o f the Federal Reserve
Act, by adding a new paragraph at the end thereof.
Sec. 19. * * *
Notwithstanding the provisions of the First Liberty Bond Act, as amended, the
Second Liberty Bond Act, as amended, and the Third Liberty Bond Act, as amended,
member banks shall be required to maintain the same reserves against deposits of
public moneys by the United States as they are required by this section to maintain
against other deposits.

Section 324 of the bill amends section 21 of the Federal Reserve Act,
by adding a paragraph at the end thereof.
Sec. 21.

*

*

'*

Whenever member banks are required to obtain reports from affiliates, or whenever
affiliates of member banks are required to submit to examination, the Federal Reserve
Board.or the Comptroller of the Currency, as the case may be, may waive such require­
ments ‘with respect to any such report or examination of any affiliate if in the judgment
o f the said Board or Comptroller, respectively, such report or examination is not
necessary to disclose fully the relations between such affiliate and such bank and the
effect thereof upon the affairs of such bank.

Section 325 (a) of the bill amends section 22 (a) of the Federal
Reserve Act.
S e c . 2 2 . (a) No member bank and no insured bank as defined in subsection (c) of
section 12B of this Act and no officer, director, or employee thereof shall hereafter
make any loan or grant any gratuity to any bank examiner or assistant examiner,
who examines or has authority to examine such bank. 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,
bond, or security or any other property of value in the possession of any member
bank or insured 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 forever
thereafter be disqualified from holding office as a national-bank examiner or
Federal Deposit Insurance Corporation examiner.
The provisions of this subsection shall apply to all public examiners and assistant
examiners who examine member banks of the Federal Reserve System or insured banks,
whether appointed by the Comptroller of the Currency, by the Federal Reserve Board,
by a Federal Reserve agent, oy a Federal Reserve bank, or by the Federal Deposit
Insurance Corporation, or appointed or elected under the laws of any State, but shall
not apply to private examiners or assistant examiners employed only by a clearing­
house association or by the directors of a bank.

Section 325 (b) of the bill amends section 22 (b) of the Federal
Reserve Act.
(b) No national-bank examiner and no Federal Deposit Insurance Corporation
examiner shall perform any other service for compensation 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 or insured 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 as to a national bank, the Federal
Reserve Board as to a State member bank, or the Federal Deposit Insurance Corpo­
ration as to any other insured bank, or from the board of directors of such bank,
except when ordered to do so bv a court of competent jurisdiction, or by direction
of 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 violating
the provisions of this subsection shall be imprisoned not more than one year or
fined not more than $5,000, or both.

Section 325 (c) of the bill amends section 22 (g) of the Federal
Reserve Act.




BANKING ACT OF 19 3 5

73

(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 prior to June 16,1933, may be renewed or extended for periods expiring not
more than [tw o ] five years from [th e] such date [this paragraph takes effect, if
in accord with sound banking practice]. Where the board of directors of the member
bank shall have satisfied themselves that such extension or renewal is in the best interest
of the bank and that the officer indebted has made reasonable effort to reduce his
obligation, these findings to be evidenced by resolution of the board of directors spread
upon the minute book of the bank: Provided further, That with the prior approval of
a majority of the entire board of directors any member bank may extend credit to any
executive officer thereof, and such officer may become indebted thereto, in an amount
not'exceeding $2,500, If 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 date 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 violating 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 fined not more than $10,000, and may be
fined a further sum equal to the amount so loaned or credit so extended.] Borrowing by, or loaning to, a partnership in which one or more executive officers of a
member bank are partners having either individually or together a majority interest
in said partnership, shall be considered within the prohibition of this subsection.
Nothing contained in this subsection shall prohibit any executive officer of a member
bank from endorsing or guaranteeing for the protection of such bank any loan or other
asset which shall have been previously acquired by such bank in good faith or from
incurring any indebtedness to such bank for the purpose of protecting such bank
against loss or giving financial assistance to it. The Federal Reserve Board is author­
ized to define the term uexecutive officer ” , to determine what shall be deemed to be a
borrowing, indebtedness, loan, or extension of credit, for the purposes of this subsection,
and to prescribe such rules and regulations as it may deem necessary to effectuate the
provisions of this subsection in accordance with its purposes and to prevent evasions
of such provisions. Any executive officer of a member bank accepting a loan or
extension of credit which is in violation of the provisions of this subsection shall be
subject to removal from office in the manner prescribed in section 30 of the Banking
Act of 1933: Provided, That for each day that a loan or extension of credit made in
violation of this subsection exists, it shall be deemed to be a continuation of such
violation within the meaning of said seltion 30.

Section 326 of the bill amends the third paragraph of section 23A
of the Federal Reserve Act.

Sec. 23A. * * *

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 to any affiliate (1) engaged [solely] primarily in holding the bank
premises of the member bank with which it is affiliated or in maintaining and
operating properties acquired for banking purposes prior to the date this section,
as amended, takes effect; (2) engaged solely in conducting a safe-deposit business
or the business of an agricultural credit corporation or livestock loan company;
(3) in the capital stock of which a national banking association is authorized to
invest pursuant to section 25 of [the Federal Reserve] this Act, as amended, or
a subsidiary of such affiliate, all the stock of which (except qualifying shares of
directors in an amount not to exceed 10 per centum) is owned by such affiliate; (4) or­
ganized under section 25 (a) of [the Federal Reserve] this Act, as amended, or a
subsidiary of such affiliate, all the stock of which (except qualifying shares of directors
in an amount not to exceed 10 per centum) is owned by such affiliate; or (5) engaged
solely in holding obligations of the United States Government, the Federal
intermediate credit banks, the Federal land banks, the Federal [Home Loan]
home-loan banks, or the Home Owners’ Loan Corporation or obligations fully
guaranteed by the United States as to principal and interest; (6) where the affiliate
relationship has arisen out of a bona fide debt contracted prior to the date of the
creation of such relationship; or (7) where the affiliate relationship exists by reason
of the ownership cr control of any voting shares thereof by a member bank as executor,
20366 0 — 58------ 40




74

BANKING ACT OF 1935

administrator j trustee, receiver, agent, depositary, or in any other fiduciary capacity
except where such shares are held for the benefit of all or a majority of the stock­
holders of such member bank: 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 obliga­
tions. The provisions of this section shall likewise not apply to indebtedness of any
affiliate for unpaid balances due a bank on assets purchased from such bank, or to
loans secured by, extensions of credit against, or purchases under repurchase agree­
ment of obligations of the United States Government or obligations fully guaranteed
by the United States Government as to principal and interest.

Section 327 of the bill adds a new paragraph to section 24 of the
Federal Reserve Act.
Sec. 24. (For provisions of first paragraph of sec. 24 of the Federal Reserve
Act, see sec. 210 of the bill.)
Loans made to established industrial or commercial businesses (a) which are in
whole or in part discounted or purchased or loaned against as security by a Federal
Reserve bank under the provisions of section 18b of this Act, (b) for any part of which
a commitment shall have been made by a Federal Reserve bank under the provisions
of said section, (c) in the making of which a Federal Reserve bank participates under
the provisions of said section, or id) in which the Reconstruction Finance Corpora­
tion cooperates or purchases a participation under the provisions of section 5d of the
Reconstruction Finance Corporation Act, shall not be subject to the restrictions or
limitations of this section upon loans secured by real estate.

Section 328 of the bill, effective January 1, 1936, amends section 8
and repeals section 8A, of the act entitled “ An Act to supplement
existing laws against unlawful restraints and monopolies, and for
other purposes” (the Clayton Act).
[ 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 operat­
ing 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 un­
divided 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.]
[N o 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
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, to joint-stock land banks organized under the pro­
visions of the Federal Farm Loan Act, or to other banking institutions which do
no commercial banking business: 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 the United States or any State where the
entire capital stock of one is owned by stockholders in the other: And provided
further, That nothing contained in this section shall forbid a director of class A
of a Federal Reserve bank, as defined in the Federal Reserve Act, from being an
officer or director, or both an officer and director, in one member bank: And pro­
vided 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 asso­
ciations, 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




75

BANKING ACT OF 1 935

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 authorized to issue such permit if in its judgment it is 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. J
[The consent of the Federal Reserve Board may be procured before the person
applying therefor has been elected as a class A director of a Federal Reserve bank
or as a director of any member bank.]
S ec . 8. No director, officer, or employee of any member bank of the Federal Reserve
System shall be at the same time a private banker or a director, officer, or employee of
any other bank, banking association, savings bank (other than a mutual savings bank) ,
or trust company except in limited classes of cases in which the Federal Reserve Board
may allow such service by general regulations when in the judgment of the Federal
Reserve Board such classes of institutions are not in'substantial competition.
9|C

*

*

*

*

*

*

When any person elected or chosen as a director of officer or selected as a
employee of any bank or other corporation subject to the provisions of this Act
is eligible at the time of his election or selection to act for such bank or other cor­
poration in such capacity his eligibility to act in such capacity shall not be affected
and he shall not become or be deemed amenable to any of the provisions hereof
by reason of any change in the affairs of such bank or other corporation from
whatsoever cause, whether specifically excepted by any of the provisions hereof
or not, until the expiration of one year from the date of his election or employment.
[ S ec . 8A. That from and after the 1st day of January 1934, 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 (other than a mutual savings bank) 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, partner­
ship, or coporation other than its own subsidiaries.]

Sections 329 (a) and 329 (b) of the bill amend section 1 of the act of
November 7, 1918 (U. S. C., title 12, sec. 33).
S ection 1. That any two or more national banking associations located within the
same State, county, city, town, or village may, with the approval of the Comptroller
of the Currency, consolidate into one association under the charter of either exist­
ing banks, on such terms and conditions as may be lawfully agreed upon by a ma­
jority of the board of directors of each association proposing to consolidate, and be
ratified and confirmed by the affirmative vote of the shareholders of each such
association owning at least two-thirds of its capital stock outstanding, at a meet­
ing to be held on the call of the directors after publishing notice of the time, place,
and object of the meeting for four consecutive weeks in some newspaper published
in the place where the said association is located, and if no newspaper is published
in the place, then in a paper published nearest thereto, and after sending such
notice to each shareholder of record by registered mail at least ten days prior to
said meeting: Provided, That the capital stock of such consolidated association
shall not be less than that required under existing law for the organization of a
national bank in the place in which it is located: \^And provided further, That
when such consolidation shall have been effected and approved by the comptroller
any shareholder of either of the associations so consolidated who has not voted
for such consolidation may give notice to the directors of the association in which
he is. interested within twenty days from the date of the certificate of approval
of the comptroller that he dissents from the plan of consolidation as adopted and
approved, whereupon he shall be entitled to receive the value of the shares so
held by him, to be ascertained] and provided further, that if such consolidation
shall be voted for at said meetings by the necessary majorities of the shareholders of
each of the associations proposing to consolidate, any shareholder of any of the asso­
ciations so consolidated who has voted against such consolidation at the meeting of
the association of which he is a shareholder or has given notice in writing at or prior
to said meeting to the presiding officer that he dissents from the plan of consolidation,
shall be entitled to receive the value of the shares so held by him if and when said consoli­
dation shall be approved by the Comptroller of the Currency, such value to be ascer­
tained as of the dale of the Comptroller’s approval by an appraisal made by a com­
mittee of three persons, one to be selected by the shareholder, one by the directors,




76

BANKING ACT OF 1935

and the third by the two so chosen; and in case the value so fixed shall not be
satisfactory to the shareholder he may within five days after being notified of the
appraisal appeal to the Comptroller of the Currency, who shall cause a reappraisal
to be made, which shall be final and binding; and if said reappraisal shall exceed
the value fixed by said committee, the bank shall pay the expenses of the reap­
praisal; otherwise the appellant shall pay said expenses, and the value so ascer­
tained and determined shall be deemed to be a debt due and be forthwith paid to
said shareholder from said bank, and the share so paid shall be surrendered and
after due notice sold at public auction within thirty days after the final appraise­
ment for in this Act.
Publication of notice and notification by registered mail of the meeting provided
for in the foregoing paragraph may be waived by unanimous action of the shareholders
of the respective associations. Where a dissenting shareholder has given notice as
above provided to the association of which he is a shareholder of his dissent from the
plan of consolidation, and the directors thereof fail for more than thirty days there­
after to appoint an appraiser of the value of his shares, said shareholder may request
the comptroller of the currency to appoint such appraiser to act on the appraisal
committee for and on behalf of such association.
If shares, when sold at public auction in accordance with this section, realize a
price greater than their final appraised value, the excess in such sale price shall be
paid to the shareholder. The consolidated association shall be liable for all liabilities
of the respective consolidating associations. In the event one of the appraisers fails
to agree with the others as to the value of said shares, then the valuation of the remaining
appraisers shall govern.

Sections 330 (a) and 330 (b) of the bill amends Section 3 of the Act
of November 7, 1918 (U. S. C., Title 12, sec. 34 (a)).
Sec . 3. *

*

*.

[When such consolidation shall have been effected and approved by the
comptroller any shareholder of either the association or of the State or District
bank so consolidated, who has not voted for such consolidation, may give notice
to the directors of the consolidated association within twenty days from the date
of the certificate of approval of the comptroller that he dissents from the plan
of consolidation as adopted and approved, whereupon he shall be entitled to
receive the value of the shares so held by him, to be ascertained] and provided
further, if such consolidation shall be voted for at said meetings by the necessary
majorities of the shareholders of the association and of the State or other bank pro­
posing to consolidate, and thereafter the consolidation shall be approved by the Comp­
troller of the Currency, any shareholder of either the association or the State or other
bank so consolidated, who has voted against such consolidation at the meeting of the
association of which he is a stockholder, and has given notice in writing thereat to
the presiding officer that he dissents from the plan of consolidation, shall be entitled
to receive the value of the shares so held by him if and when said consolidation shall
be approved by the Comptroller of the Currency, such value to be ascertained as of
the date of the Comptroller’s approval by an appraisal made by a committee of
three persons, one to be selected by the shareholder, one by the directors of the
consolidated association, and the third by the two so chosen; and in case the
value so fixed shall not be satisfactory to such shareholder he may within five
days after being notified of the appraisal appeal to the Comptroller of the Cur­
rency, who shall cause a reappraisal to be made, which shall be final and binding;
and the consolidated association shall pay the expenses of reappraisal, and the
value as ascertained by such appraisal or reappraisal shall be deemed to be a
debt due and shall be forthwith paid to said shareholder by said consolidated
association, and the shares so paid for shall be surrendered and, after due notice,
sold at public auction within thirty days after the final appraisement provided
for in this section; and if the shares so sold at public auction shall be sold at a
price greater than the final appraisal value, the excess in such sale price shall be
paid to the said shareholder; and the consolidated association shall have the fight
to purchase such shares at public auction, if it is the highest bidder therefor, for
the purpose of reselling such shares within thirty days thereafter to such person
or persons and at such price as its board of directors by resolution may determine.
The liquidation of such shares of stock in any State bank shall be determined in
the manner prescribed by the law of the State in such cases if such provision is
made in the State law; otherwise as hereinbefore provided. No such consolida­
tion shall be in contravention of the law of the State under which such bank is
incorporated.
The words “ State bank” , “ State banks” , “ bank” , or “ banks” , as used in
this section, shall be held to include trust companies, savings banks, or other such




BANKING ACT OF 1935

77

corporations or institutions carrying on the banking business under the authority
of State laws.
Publication of notice and notification by registered mail of the meeting provided
for in the foregoing paragraph may be waived by unanimous action of the shareholders
of the respective associations. Where a dissenting shareholder has given notice as
above provided to the association of which he is a shareholder of his dissent from the
plan of consolidation, and the directors thereof fail for more than thirty days thereafter to appoint an appraiser of the value of his shares, said shareholder may request
the Comptroller of the Currency to appoint such appraiser to act on the appraisal
committee for and on behalf of such association.
If shares, when sold at public auction in accordance with this section, realize a
price greater than their final appraised value, the excess in such sale price shall be
paid to the shareholder. The consolidated association shall be liable for all liabilities
of the respective consolidating associations. In the event one of the appraisers fails
to agree with the others as to the value of said shares, then the valuation of the remaining
appraisers shall govern.

Section 331 of the bill amends sections 2 and 4 of the act of M ay
24, 1926, entitled “ Act to prohibit offering for sale as Federal farmloan bonds any securities not issued under the terms of the Farm
Loan Act, to limit the use of the words ‘ Federal’, ‘ United States’,
or ‘ reserve’, or a combination of such words, to prohibit false adver­
tising and for other purposes” (U. S. C., title 12, secs. 584-588).
S ec . 2. That no bank, banking association, trust company, corporation, asso­
ciation, firm, partnership, or person engaged in the banking, loan, building and.
loan, brokerage, factorage, insurance, indemnity, or trust business shall use the*
word “ Federal” , the words “ United States” , the words 1 deposit insurance” , or
1
the word “ reserve” , or any combination of such words, as a portion of its corpo­
rate, firm, or trade name or title or of the name under which it does business:
Provided, however, That the provisions of this section shall not apply to the
Federal Reserve Board, the Federal Farm Loan Board, the Federal Trade Com­
mission, or any other department, bureau, or independent establishment of the
Government of the United States, nor to any Federal Reserve bank, Federal
land bank, or Federal Reserve agent, nor to the Federal Advisory Council, nor
to any corporation organized under the laws of the United States, nor to any new
bank organized by the Federal Deposit Insurance Corporation as provided in section
12B of the Federal Reserve Act, as amended, nor to any bank, banking association,
trust company, corporation, association, firm, partnership, or person actually
engaged in business under such name or title prior to the passage of this Act.
S ec . 3. * *
S ec . 4. That

*

any bank, banking association, trust company, corporation, asso­
ciation, firm, or partnership violating any of the provisions of this Act shall be
guilty of a misdemeanor and shall be subject to a fine of not exceeding $1,000.
Any person violating any of the provisions of this Act, or any officer of any bank,
banking association, trust company, corporation, or association, or member of
any firm or partnership violating any of the provisions of this Act who partici­
pates in, or knowingly acquiesces in, such violations shall be guilty of a mis­
demeanor and shall be subject to a fine of not exceeding $1,000 or imprisonment
not exceeding one year, or both. Any such illegal use of such word or words,
or any combination of such words, or any other violation of any of the provisions
of this Act, may be enjoined by the United States district court having jurisdic­
tion, at the instance of any United States district attorney, any Federal land bank,
joint-stock land bank, Federal Reserve bank, or the Federal Farm Loan Board
or the Federal Reserve [Board.] Board, or the Federal Deposit Insurance
Corporation.

Section 332 of the bill amends the act of May 18, 1934, entitled
“ An Act to provide punishment for certain offenses committed
against banks organized or operating under laws of the United States
or any member of the Federal Reserve System” (48 Stat. 783).
As used in this Act the term “ bank” includes any member bank of the Federal
Reserve System, and any bank, banking association, trust company, savings
bank, or other banking institution organized or operating under the laws of the
United States, and any insured bankas defined in subsection (c) of section 12B of
the Federal Reserve Act, as amended.




78

BAN KIN G ACT OF 1 0 3 5

Sec. 2. (a) Whoever, by force and violence, or by putting in fear, feloniously

takes, or feloniously attempts to take, from the person or presence of another
any property or money or any other thing of value belonging to, or in the care,
custody, control, management, or possession of, any bank shall be fined not more
than $5,000 or imprisoned not mdre than twenty years, or both.
(b)
Whoever, in committing, or in attempting to commit, any offense defined
in subsection (a) of this section, assaults any person, or puts in jeopardy the life
of any person by the use of a dangerous weapon or device, shall be fined not less
than $1,000 nor more than $10,000 or imprisoned not less than five years nor
more than twenty-five years, or both.
S e c . 3. Whoever, in committing any offense defined in this Act, or in avoiding
or attempting to avoid apprehension for the commission of such offense, or in
freeing himself or attempting to free himself from arrest or confinement for such
offense, kills any person, or forces any person to accompany him without the
consent of such person, shall be punished by imprisonment for not less than
10 years, or by death if the verdict of the jury shall so direct.
S e c . 4. Jurisdiction over any offense defined by this Act shall not be reserved
exclusively to courts of the-United States.

Section 333 of the bill amends section 5143 of the Revised Statutes.
5143. Any association formed under this title may, by the vote of share­
holders owning two-thirds of its capital stock, reduce its capital to any sum not
below the amount required by this title to authorize the formation of associations;
but no such reduction shall be allowable which will reduce the capital of the
association below the amount required for its outstanding circulation, nor shall
any reduction be made until the amount of the proposed reduction has been
reported to the Comptroller of the Currency and [such reduction has been
approved by the said Comptroller of the Currency and by the Federal Reserve
Board, or by the organization committee pending the organization of the Federal
Reserve Board] no shareholder shall be entitled to any distribution of cash or other
assets by reason of any reduction of the common capital of any association unless
such distribution shall have been approved by the Comptroller of the Currency and
by the affirmative vote of at least two-thirds of the shares of each class of stock out­
standing, voting as classes.
Se c .

S*c

*

*

*

*

*

*

Section 334 of the bill amends section 5139 of the Revised Statutes
by adding a new paragraph at the end thereof.
S e c . 5139. * * *
Certificates hereafter issued representing shares of stock of the association shall
state (1) the name and location of the association, (2) the name of the holder of record
of the stock represented thereby, (8) the number and class of shares which the certificate
represents, and (4) if the association shall issue stock of more than one class, the
respective rights, preferences, privileges, voting rights, powers, restrictions, limita­
tions, and qualifications of each class of stock issued shall be stated in full or in
summary upon the front or back of the certificates or shall be incorporated by a
reference to the articles of association set forth on the front of the certificates. Every
certificate shall be signed by the president and the cashier of the association, or by
such other officers as the bylaws of the association shall provide, and shall be sealed
with the seal of the association.

*
*
*
*
*
*
*
Section 335 of the bill amends the last sentence of section 301 of the
Emergency Banking Act of March 9, 1933, as amended.
S e c . 301. Notwithstanding any other provision of law, any national banking
association may, with the approval of the Comptroller of the Currency and by
vote of shareholders owning a majority of the stock of such association, upon not
less than five days’ notice, given by registered mail pursuant to action J;aken by
its board of directors, issue preferred stock of one or more classes, in such amount
and with such par value as shall be approved by said Comptroller, and make
such amendments to its articles of association as may be necessary for this pur­
pose; but, in the case of any newly organized national banking association which
has hot yet issued common stock, the requirement of notice to and vote of share­
holders shall not apply. No issue of preferred stock shall be valid until the par
value of all stock so issued shall be paid [in .] in and notice thereof, duly acknowl­
edged before a notary public by the president, vice president, or cashier of said asso­
ciation, has been transmitted to the Comptroller of the Currency and his certificate




79

BANKING ACT OF 1 9 3 5

obtained specifying the amount of such issue of preferred stock and hi? approval
thereof and that the amount has been duly paid in as a part of the capital of such
association; which certificate shall be deemed to be conclusive evidence that such pre­
ferred stock has been duly and validly issued.
*

*

*

*

*

*

*

Section 336 of the bill renders inoperative on July 1, 1937, but not
by express amendment, the act of March 3, 1901, as amended, and
section 4 of the act of March 4,1933, relating to stockholders' liability*
in District of Columbia banks. The pertinent sections of these acts
are set forth for the information of the House.
Act of March 4, 1933 (regulating banking in the District of Colum­
bia) (D. C. Code, Supp. I, secs. 300a (a) and 300a (b)).
Sec. 4. (a) The shareholders of every savings bank or savings company other
than building associations now or hereafter organized under authority of any
Act of Congress to do business in the District of Columbia and of every banking
institution organized by virtue of the laws of any of the States of the Union to do
or doing a banking business in the District of Columbia, who acquire in any
manner the shares of any such savings bank or savings company or such banking
institutions other than building asspciations after the enactment of this Act,
shall be held individually responsible equally and ratably, and not one for another,
for all contracts, debts, and engagements of such bank or company, to the extent
of the amount of their stock so acquired therein, at the par value thereof, in
addition to the amount invested in such shares.
(b)
The shareholders, at the date of the enactment of this Act, of every savings
bank or savings company other than building associations organized under
authority of any Act of Congress to do business in the District of Columbia, and
of every banking institution organized by virtue of the laws of any of the States
of this Union to do or doing a banking business in the District of Columbia,
shall be held individually responsible, equally and ratably, and not one for another,
for all contracts, debts, and engagements of such savings bank, savings company,
or banking institution, entered into or incurred subsequent to the date of the
enactment of this Act to the extent of the amount of their stock therein at the
par value thereof, in addition to the amount invested in such shares. The words
“ entered into or incurred” as ussd in this section, shall be held to include any
extension or renewal of any contracts, debt, and engagement renewed or extended
after the enactment of this Act.
*

*

*

*

*

*

*

Act of March 3, 1901 (D. C. Code, Title 5, sec. 361).
Sec . 734. All stockholders of every company incorporated under this sub­
chapter, or availing itself of its provisions under section 725, shall be severally
and individually liable to the creditors of such company to an amount equal to
and in addition to the amount of stock held by them respectively for all debts
and contracts made by such company.

Section 337 of the bill amends the second paragraph of section 9
of the Federal Reserve Act.
Sec . 9. *

*

*

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 stock­
holder 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 is1situated: Provided,
however, That nothing herein contained shall prevent any State member bank
from establishing and operating branches in the United States or any dependency
or insular possession thereof or in any foreign country, on the same terms and
conditions and subject to the same limitations and restrictions as are applicable
to the establishment of branches by national [banks.] banks, except that the
approval of the Federal Reserve Board, instead of the Comptroller of the Currency,
shall be obtained before any State member bank may hereafter establish any branch
and before any State bank hereafter admitted to member slip may retain any branch
established after February 25, 1927, beyond the limits of the city, town, or village in
which the parent bank is situated.




80

BANKING ACT OF 1935

Section 338 of the bill amends section 5234 of the Revised Statutes.
Sec. 5234. On becoming satisfied, as specified in sections fifty-two hundred

and twenty-six and fifty-two hundred and twenty-seven, that any association has
refused to pay its circulating notes as therein mentioned, and is in default, the
Comptroller of the Currency may forthwith appoint a receiver* and require of
him such bond and security as he deems proper. Such receiver, under the direc­
tion of the Comptroller, shall take possession of the books, records, and assets of
every description of such association, collect all debts, dues, and claims belonging
to it, and, upon the order of a court of record of competent jurisdiction, may sell
or compound all bad or doubtful debts, and, on a like order, may sell all the real
and personal property of such association, on such terms as the court shall direct;
and may, if necessary to pay the debts of such association, enforce the individual
liability of the stockholders. Such receiver shall pay over all money so made to
the Treasurer of the United States, subject to the order of the Comptroller, and
also make report to the Comptroller of all his acts and proceedings. Provided,
That the Comptroller may, if he deems proper, deposit any of the money so
made in any regular Government depositary, or in any State or national bank
either of the city or town in which the insolvent bank was located, or of a city
or town as adjacent thereto as practicable; if such deposit is made he shall require
the depositary to deposit Unitefl States bonds or other satisfactory securities
with the Treasurer of the United States for the safe-keeping and prompt pay­
ment of the money so deposited: Provided, That no security in the form of deposit
of United States bonds, or otherwise, shall be required in the case of such parts of the
deposits as are insured under section 12B of the Federal Reserve Act, as amended.
Such depositary shall pay upon such money interest at such rate as the Comp­
troller may prescribe, not less, however, than two per centum per annum upon
the average monthly amount of such deposits.

Section 339 of the bill amends section 61 of the National Bank­
ruptcy Act.
S e c . 61. D e p o s it o r ie s fo r M o n e y .—a Courts of bankruptcy shall designate*
by order, banking institutions as depositories for the money of bankrupt estates?
as convenient as may be to the residences of trustees, and shall require bonds to
the Uriited States, subject to their approval, to be given by such banking institu­
tions, and may from time to time as occasion may require, by like order increase
the number of depositories or the amount of any bond or change such deposi­
tories [ . ] : Provided, That no security inform of a bond or otherwise shall be required
in the case of such part of the deposits as are insured under section 12B of the Federal
Reserve Act, as amended.

Section 340 of the bill amends section 8 of the Postal Savings
Depository Act of June 25, 1910.
S e c . 8. *

*

*

[Any depositor may withdraw the whole or any part of the funds deposited
to his or her credit with the accrued interest only on notice given sixty days in
advance and under such regulations as the Postmaster General may prescribe;
but withdrawal of any part of such funds may be made upon demand, but no
interest shall be paid *on any funds so withdrawn except interest accrued to the
date of enactment of the Banking Act of 1933: Provided, That Postal Savings
depositories may deposit funds in member banks on time under regulations to be
prescribed by the Postmaster General.] Subject to such regulations as the Postmaster General may prescribe, any depositor may withdraw the whole or any part of
the funds deposited to his or her credit with the accrued interest after the expiration
of sixty days after giving notice in writing of intention to withdraw, and any depositor
may withdraw the whole or any part of such funds without such notice only on con­
dition that there be deducted from the funds to his or her credit derived from interest
an amount equivalent to interest for a period of not less than three months on the
amount withdrawn. Notwithstanding any other provision of law, no interest shall
be paid on any deposit in any postal savings depository office at a rate in excess of
that which may lawfully be paid on savings deposits under regulations prescribed
by the Federal Reserve Board pursuant to the Federal Reserve Act for member banks
of the Federal Reserve System located in or nearest to the place when such depository
office is situated. Postal savings depositories may deposit funds on time in member
banks of the Federal Reserve System subject to the provisions of the Federal Reserve
Act and the regulations of the Federal Reserve Board regarding the payment of time
deposits and interest thereon.




o


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102