Full text of Banking and Currency : Report No. 133 (to Accompany H.R. 7837), Calendar No. 107 : Views (To Accompany H.R. 7837)

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Calendar No. 107.
68 d G bw roxM , |

M Smion.

SENATE.

)

J R kpt. 188,

j

P a rt 8.

B A N K IN G A N D C U R R E N C Y .

November 22, 1913.—Ordered

to be printed, with the individual
berg o f the committee.

views of mm-

M r. H it c h c o c k ( f o r him self, Messrs. N el so n , B r is t o w , C raw fo r d ,
M c L e a n , and W e e k s ) , from the Com m ittee on B a n k in g and C u r­
rency, subm itted the fo llo w in g

VIEWS.
[To accompany H. R. 7837.]

T h e undersigned members o f the B an k in g and C urrency C om ­
mittee, constitu tin g on e-h a lf o f its m em bership, regret their in ability
to present to the Senate the m a jority report, w hich until lately ap­
peared to be probable, on H . R . 7837, know n as the F ederal R eserve
A ct.
W e take leave, how ever, to present the fo llo w in g statement o f ou r
views and to recom m end the passage o f the b ill w ith the amend­
ments which we incorporate in the print o f the b ill w hich we have
submitted. W e also append hereto and ask to have printed herewith
the b ill as it w ould rend i f so amended.
T h e H ouse b ill was received bv the com m ittee Septem ber 18 last
past. W e had com m enced to hold hearings upon it p rio r to that
time, and they were continued up to O ctober 25. In these hearingB
many witnesses from all parts o f the country, inclu din g bankers o f
all classes, merchants, business men, publicists, experts, and p olitical
econom ists, were examined. M uch valuable in form ation was ob­
tained and m any useful suggestions were m ade w hich greatly aided
the com m ittee in p erfectin g the bill. T h e testim ony covers over
3/000 pages and has been printed fo r the use o f the Senate.
O n O ctober 27, fo llo w in g the close o f the hearings, the com m ittee
went into executive session and began at once consideration o f the
vital provisions o f the bill. Discussion was follow ed in each case
by a vote in fu ll com m ittee on the vital provisions o f the bill and,
am ong others, the fo llo w in g im portant changes were tentatively de­
cided o n :
B y a vote o f 6 to 4 the com m ittee decided that the reserve board
shall do the work o f an organization committee.
B y a vote o f 9 to 1 the Secretary o f A gricu ltu re was taken o ff the
reserve board.
B v a vote o f 8 to *2 the C om ptroller o f the C urrency was taken off
the board.
B y a vote o f 9 to 3 the Secretary o f the Treasury was retained
upon the board.




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BANKING AND CURRENCY.

By a vote of 6 to 4 the membership of the reserve board was in­
creased to nine and the term of members fixed at eight years, one re­
tiring each year.
By a vote of 7 to 5 the number of Federal banks was reduced to
four, and at one time this vote for four reserve banks stood 8 to 4.
By a vote of 7 to 5 it was decided that the new system should, so
far as possible, be owned by the people and that the stock should be
offered to the public at par for 60 days, the banks being merely re­
quired to underwrite the issue and take what the public did not
subscribe for.
B y the same vote it was decided that the b an k in g interests shall
elect fo u r directors and the Federal board represen tin g the G ov ern ­
ment shall select five directors o f each F ederal reserve bank.
B y a vote o f 10 to 2 it was decided that the ca p ita l stock o f the
regional banks shall be G per cent o f the capital and surplus o f the
n ational banks in the d istrict and, w hether taken b y the p u b lic o r
the banks, shall be p aid fo r one-third cash, on e-third in 30 aays, and
one-third in 60 days.
B y a vote o f 8 to 4 it was decided that the F ed eral reserve notes
shall be payable in gold.
B y a vote o f 4 to 8 the effort to substitute bank notes guaranteed
b y the G overnm ent fo r U nited States notes was beaten.
T hus we w ere g o in g th rou gh the bill ta k in g one im portant p r o ­
vision a fter another and v otin g u pon it in a nonpartisan spirit, and
m akin g such progress that it was h oped the b ill cou ld be reported b y
the 15th o f this month. C onsideration and decisions had been n o n ­
partisan in character in accordance w ith the view s expressed in the
open Senate O ctober 9 b y Senators on both sides o f the Cham ber.
A t this juncture, how ever, in the com m ittee deliberations, a m otion
to reconsider one o f the im portan t questions was m ade and carried,
and the w h ole subject was throw n open again. A ft e r several days o f
discussion it was fou n d on takin g a vote that the com m ittee had be­
com e even ly d ivid ed and finally six o f our colleagues on the com ­
mittee w ithdrew fro m ou r m eetings and proceeded to consider the b ill
in separate session. W e continued w ith the consideration o f the b ill,
although la ck in g a quorum , accepting the decisions w hich had already
been tentatively m ade in fu ll com m ittee as above specified.
W a iv in g a stron g p referen ce w hich prevailed in com m ittee in fa v o r
o f a single G overnm ent bank w ith branches, we accepted the region al
bank plan as the on ly h op efu l outlook fo r action b y this Congress, but
retained the am endm ent substituting 4 regional banks fo r 12. W h ile
the single G overnm ent bank plan w ould p rodu ce the on ly p erfect
m ob iliza tion o f reserves, as has been dem onstrated b y the experience
o f other countries, the a dop tion o f fo u r regional banks under a single
control w ill, it is th ou ght, a pproxim ate this result and, in a cou n try
so large as ours, w ith so m any banks, p robably p rove efficient. E v ery
addition to this num ber o f reserve nanks must inevitably tend to
dissipate the reserves and weaken the system. T h e m ore reserve
banks the less p erfect w ill be the use o f reserve funds, w hich means
that asset cu rren cy w ill be issued w ith greater frequency and in
larger volum e. It w ill often happen with a system o f 12 reserve
banks that n num ber o f them w ill be ca llin g fo r currency and ch a rg ­
in g a high interest rate when other reserve \>anks w ill be in their dull
season w ith slack dem and fo r m oney and large balances. W ith fou r




BANKING AND CURRENCY.

3

reserve banks, each embracing a large territory served by branches
a n d having a variety o f climate and interests, this would rarely occur.
Moreover, to cut the country up into many reserve districts means
that most o f the reserve banks would be comparatively weak and
would not inspire confidence. They would not even equal in size
some o f their member banks supposed to depend on them.
It would probably be difficult to sell to the public the stock in these
small reserve banks because they might not be able to earn dividends
and would probably be frequently compelled to call upon the stronger
ones for assistance.
In our opinion the ownership o f the stock by the people is highly
important. I f $10(>,000,000 o f stock ijn these four reserve banks
can be sold to the public as a 5 per centum investment there will
be thereby added to the banking capital o f the United States that
great sum o f money. W e think this very desirable. A t present
there is a deficiency in the banking capital.in many sections o f the
United States. The tendency o f each bank has been to do as large
a volume o f business on as small an amount o f capital as possible
for the purpose o f maintaining dividends, and the result has been a
grow ing disparity in the proportion o f capital to deposits. T o
compel national banks to subscribe for the capital in the proposed
reserve banks simply means the shifting o f $100,000,000 o f capital
now actively employed with great efficiency and benefit to the public
by the various banks to a place where the return is limited to 5 per
centum. Such a contraction from the working capital would be to
aggravate the evil now existing, and we greatly prefer the plan o f
bringing this new capital into the banking world and giving to
small investors the tax-free, highly desirable 5 per centum invest­
ment which they wilUeagerly take. In this waVxtens o f thousands
o f our people will be directly interested in this great Governmentcontrolled banking system. This is easily possible with a system o f
four reserve banks, and it is very doubtful with a larger number.
It has seemed to us, moreover, wise that upon these reserve banks
the Government should have a majority o f the board o f directors. W e
have, therefore, proposed an amendment giving the Government five
and the banking interests four o f these directors.
In the division o f earnings we have provided that after the pay­
ment o f 5 per cent dividends and the accumulation o f a surplus
the net profits, instead o f being divided between the stockholders and
the Government, shall be disposed o f by giving the Government onehalf and with the other half creating a depositors’ insurance fund,
so that when a member bank shall fail in spite o f this new system
the depositors may be reimbursed out o f these accumulated profits.
This method levies a tax upon no bank, but it will add immensely to
the feeling o f confidence and security among depositors and stop
bank runs.
W e have proposed that the national banks shall decide whether to
join this new system or not within six months, as it has seemed to
us that a year is an unnecessary length o f time.
W e have recommended that the size o f the Federal reserve board
be increased to nine, because o f the vast interests which are intrusted
to it, the great country which must be covered, and the many ques­
tions and complaints which must l>e considered. We have thought
also that every member o f the board should give his whole time to




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BANKING AND CURRENCY.

the w ork , and we have therefore exclu ded the Secretary o f A g r i­
culture and the C om p troller o f the C u rrency, the duties o f whose
offices already absorb all their time.
W e have extended the lim it o f com m ercial paper w hich m ay be
discounted b y Federal reserve banks fro m three m onths to six m onths,
because we have fou n d that thousands o f banks in the W est and
in the South necessarily take six m onths’ pap er because o f the longer
tim e required fo r agricu ltu ral processes than fo r the m an u factu rin g
and m ercantile processes o f the E ast. W e hfrve, how ever, p rovid ed
that o f the discounted p ap er o f any bank n ot m ore than 50 p er
centum o f it shall be fo r tne long-tim e p eriod, and w e have sought
to furth er lim it this by p ro v id in g that in no case can any bank have
over $*200,000 o f paper discounted exceedin g a m aturity o f 00 days.
W e have recom m ended an am endm ent by w hich every mem ber
bank is given, as a m atter o f righ t, the p rivilege o f discount at its
reserve bank to the am ount o f its capital stock at the lowest current
rate o f interest, p ro v id in g it presents eligible paper. T h is is done
to prevent discrim ination against a bank and to make every bank
feel certain that it w ill receive the benefits o f the system. O n the
other hand, we have also recom m ended that a Federal reserve bank
shall not discount the paper o f any mem ber bank to a greater extent
than tw ice its capital stock. T h is is to prevent favoritism and undue
expansion. W e design, jilso, to place a check upon undue expansion
o f bank credits by p ro v id in g that when a bank is allow ed to discount
paper to a greater am ount than its capital stock it shall pay a
high er rate o f discount.
have raised the reserve against notes in Federal reserve banks
from
to 45 per cent because the experience o f the great cou n ­
tries o f the w rrld and because our ow n experience w ith greenbacks
has indicated that this lim it is the safe one. W e have p rovid ed ,
how ever, that in case o f em ergency the reserve board may authorize
a reserve bank to fa ll below its lim it o f 45 per cent when it is neces­
sary to g ive relief to m em ber banks, but in such case it shall p ay a
tax fo r each 2J p er cent o f deficiency. W e have p rovid ed that the
reserve against notes must be g o ld o r g o ld certificates, and we have
therefore recom m ended that the w ords “ o r law fu l n oney ” in the
H ouse bill be stricken out. W e feel that no argum ent upon this is
necessary, as it is obviou sly unsafe to p rovid e that one G overnm ent
ob ligation m ay be redeemed by another G overnm ent obligation .
W e have recom m ended that the reserve against deposits in reserve
banks be raised from
per centum to 35 per centum , but that the
reserve board may perm it a bank in em ergency to run its reserve
dow n to 25 per centum , paying, however, a tax fo r each deficiency o f
2 i per centum. T h is is thought to Ik? desirable so as to make the re'^ ^ e rv e less rigid.
^ ^ W e think it w ould be undesirable to perm it the Federal reserve
board to have discretionary pow er in issuing currency to a Federal
reserve bank which in all respects com plies w ith the provision s o f
this net. W e therefore recom m end that the Federal reserve board
shall issue reserve notes to any reserve bank which com plies w ith
the requirements as to g old reserve, as to the deposit o f security, and
con form s to the other provisions o f this act. T h is is a necessary
change because i f we give the member banks the right to secure d is­
counts o f the Federal reserve bank it is necessary fo r the F ederal




BANKING AND CURRENCY.

5

reserve bank to count on getting currency to meet the needs o f busi­
ness, provided, o f course, the reserve bank can com p ly with the re­
quirements as to gold reserve and security. B y placin g a lim it to
the amount o f discounts that can be made by a reserve bank to any
member bank we have placed a limit on excess. It should be noted
also that the Federal reserve board has the pow er to check excessive
loans and discounts by requiring reserve banks to raise their discount
rates at any time.
W e have recom m ended a change in the section relating to the
han dlin g o f individual checks by reserve banks under which banks
collectin g checks w ill still be perm itted to make reasonable charges
under regulations provided by the Federal reserve board. W e have
recom m ended changes in the refu nding provisions o f the bill, so that
the reserve banks may utilize about $50,000,000 a year o f their funds
tor the purchase o f 2 per centum Governm ent bonds at par with in ­
terest. Th is w ill afford em ploym ent fo r funds w hich m ay otherwise
be idle in the reserve banks; it will make a market fo r 2 per centum
bonds at par and thus preserve the G overnm ent credit, and it w ill
enable the retirement o f that national-bank currency which national
banks fo r any reason m ay desire to retire. W e have then recom ­
mended that the 2 per centum bonds so acquired by the Federal
reserve banks may be presented at the Treasury and exchanged fo r 3
per centum one-year gold Treasury notes. O rdin arily these notes
w ill be retained in the reserve banks and held as an investment.
W h ile the G overnm ent w ill be p ayin g 1 per centum more interest
than it pays on 2 per centum bonds it w ill also be receiving the sur­
plus profits from the operations o f the bank which w ill be an offset.
These 3 per centum one-year gold Treasury notes w ill be an invest­
ment in ordinary times, but they w ill also afford a means to the
reserve banks by which they can be useful in protecting the gold
su pply o f this country. W hen gold exports are threatened or when a
larger supply o f gold is desired in this country, the reserve hanks can
sell these notes at home or abroad and bring the proceeds to the
U nited States in gold , so as to maintain gold reserves. W h ile the
notes are one-vear notes they are only such fo r the purpose o f m ak­
in g them marketable, and the reserve banks will be under contract
with tjie Treasury to renew them year by year fo r 20 years i f desired.
W e have sought to m itigate the severity o f the shock that m ight
result from .the rapid transfer o f reserve when this bill is placed in
operation by p rovid in g that the transfer shall be gradual over a
period o f 30 months.
W e have also felt justified in reducing the reserve which city banks
are required to keep to 15 per centum, and in the case o f country
banks, while the reserve remains at 12 per centum, we have provided
that only 4 per centum o f this need be in Federal reserve banks, fo r
the reason that country banks in the immediate future are likely to
use the facilities o f reserve banks to a less extent than the city banks.
W e recommend that national banks located outside o f central reserve
cities be perm itted to use a portion o f their time deposits fo r m aking
five-year farm mortgages. This is done because the m aking o f a
farm m ortgage fo r one year is an im practicable and useless privilege
and because in practice it has been fou n d entirely safe fo r banks in
agricultural neighborhoods to invest a part o f their time loans in
this way.




6

BANKING AND CURRENCY.

"We have recom m ended that the savings-bank p ro v isio n be stricken
fro m the bill, as it disrupts a practice now in safe and successful
operation.
W e have recom m ended that the A ld rich -V re e la n d A c t be extended
fo r one year, so that it shall exp ire in June, 1915. T h is we have d on e
so as to brid ge over the p eriod o f organ ization w h ich w ill be required
to establish this new system.
R esp ectfu lly subm itted.
G il b e r t M. H it c h c o c k .
K n u te N elson .
J o se ph L . B r is t o w .
C oe I. C r a w f o r d .
G eo . P . M c L e a n .
J o h n W . W eeks.

T h e b ill, if am ended as suggested b y ou r prop osed am endm ent, w ill
read as fo llo w s :
H . R . 7837.
AN ACT T o provide for the establishment of Federal reserve banks, to furnish
an elastic currency, to afford means of rediscounting commercial paper, to
establish a more effective supervision o f banking in the United States, and for
other purposes.

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled, T h a t the short title
o f this act shall be the u Federal reserve act.”
T h e terms “ national b a n k ” and “ national ban k in g a sso cia tio n ”
used in this act shall be held to be synonym ous and interchangeable.
T h e term “ m em ber bank ” shall be held to mean any national bank,
State bank, or trust com pan y w hich has becom e a m em ber o f one o f
the reserve banks created by this act. T h e term “ b o a r d ” shall be
held to mean Federal reserve b o a r d ; the term “ d is tr ic t” shall be held
to mean F ederal reserve d istrict; the term “ reserve b a n k ” shall be
held to mean Federal reserve bank.
FEDERAL RESERVE D ISTR ICTS.

S ec . 2. T h a t the F ederal reserve board, h erein after p ro v id e d fo r ,
^hall, as soon as practicable a fter their appointm ent and confirm a­
tion , designate from am ong the reserve ana central reserve cities now
established a number o f such cities to be term ed F ed era l reserve
cities, and shall d ivid e the continental U n ited States into districts,
each d istrict to em brace one o f such F ed eral reserve citie s: Provided,
T h a t the districts shall be form ed w ith due regard to the convenience
and custom ary course o f financial and com m ercial business in each
d istrict, and need not necessarily coin cide w ith State o r cou n ty
boundaries. T h e districts thus established shall be know n as Federal
reserve districts, and each o f them shall be designated b y the name
o f the F ed eral reserve city located therein. T h e F ed eral reserve
board shall, as soon as practicable a fter the said districts have been
established, proceed to organize, con form ab le to the p rovision s o f this
act, in each Federal reserve city designated as aforesaid, a F ederal
reserve bank, w hich shall be known b y the nam e o f the city in w hich




BANKING AND CURRENCY.

7

it is established, as, fo r exam ple, “ Federal reserve bank o f C h icago.”
F o u r Federal reserve cities, and appurtenant to them fo u r F ederal
reserve districts, and no m ore, shall in the first instance be designated
and established as such by the F ederal reserve b o a rd : Provided, T h a t
after Federal reserve banks have been organ ized and in op eration
fo r a period o f tw o years in said fou r Federal reserve cities, the
Federal reserve board m ay, in its discretion, from time to time,
designate not to exceed in all eight additional F ederal reserve cities,
w ith the requisite Federal reserve districts appurtenant thereto, and
fo r that purpose m ay alter and change the lim its and areas o f exist­
in g Federal reserve districts.
There shall be allotted to every
national bank w ithin a Federal reserve district, o f the capital stock
o f the Federal reserve bank o f such district, a sum equal to six per
centum o f the fu lly p aid-up capital stock and surplus 01 such national
bank, which stock so allotted shall be underw ritten by said bank and
fo r a period o f sixty days after allotm ent be offered fo r subscription
at par to the public at large, but no ’more than one hundred shares
shall be allow ed to be subscribed fo r or held bv any person, firm, or
corp oration , and all o f the allotted stock not subscribed fo r and taken
b y the public shall im m ediately be subscribed fo r and taken by
the national bank to which the same was in the first instance allotted.
T h e preparation, allotm ent, subscription to, and sale o f stock shall be
under the con trol o f the b oard, which in case o f oversubscription shall
give preference to the smaller subscriptions. T h e national banks
shall in the first instance act as agents o f the Federal reserve board
to take subscriptions from the general public and receive pa}rment
therefor which shall be held subject to the order o f the board. T h at
said stock subscription shall be paid fo r in gold coin or gold certi­
ficates as fo llo w s : O ne-third at the time o f subscription, one-third
w ithin thirty days, and one-third w ithin sixty days thereafter. T h e
board is hereby em powered to app oin t such assistants, to subpoena,
swear, and examine witnesses, to em ploy counsel and experts, and to
incur such expenses as may be necessary fo r establishing, organizing,
and p uttin g in operation the Federal reserve banks and designating
the Federal reserve cities and reserve districts provided fo r in this
act, and such expenses shall be paid b y the Treasurer o f the U nited
States upon vouchers approved by the Secretary o f the Treasury,,
and the sum o f $100,000, or so much thereof as may be necessary, is
hereby a ppropriated, out o f any money in the Treasury not other­
wise appropriated, fo r the paym ent o f such expenses. F iv e members
o f the reserve board shall constitute a quorum with pow er to do
business.
STOCK ISSUES.

S e c . 3. The capital stock o f each Federal reserve bank shall be
divided into shares o f $100 each, and shall be w ithout votin g power.
T h e Federal reserve board shall have p ow er to prescribe regulations
fo r the transfer o f said stock. W ith the consent and approval o f
the board, reserve banks may establish such branch offices, within
their respective districts, as they deem necessary to con form to the
convenience and established course o f business.




8

BANKING AND CURRENCY.
FED ER AL RESERVE B A N K S .

S ec. 4. W h en the F ed era l reserve board has established F ederal
reserve districts, as prescribed in section tw o o f this act, the g o v ­
ernor o r vice g ov ern or o f such board shall, under his hand and seal,
execute a certificate d esign atin g the territorial lim its o f such districts
and the F ederal reserve city in each district, and shall file such cer­
tificate w ith the S ecretary o f the T reasury. W h en such certificate
has been executed and filed, as a foresa id , the b oard shall allot to
each and every national bank stock in the reserve banks as prescribed
in section tw o o f this act, and when, con form a b le to section tw o o f
this act, an am ount o f such stock has been subscribed f o r in any
Federal reserve d istrict eaual to $6,000,000, and on e-third o f such
subscription has been paid in, the b oard shall, b y its go v e rn o r or
vice g ov ern or, under his hand and seal, issue a certificate in w ritin g
sp e cify in g the name and location o f the reserve bank in such district,
the territorial lim its o f the district, the am ount o f the ca p ita l stock
subscribed, and the am ount p aid in on such su bscription, and the
name and am ount o f stock taken b v each subscriber. S u ch certifi­
cate shall be ackn ow ledged b efore the clerk o f a cou rt o f record, o r
a n otary p u blic, and shall be filed w ith the S ecretary o f the Treasury.
U pon tne filin g erf such certificate w ith the Secretary o f the T reas­
u ry as aforesaid, the said reserve bank so form ed shall becom e a b o d y
corporate and as such, and in the nam e designated in such org an iza ­
tion certificate, shall have p ow er—
F irst. T o adopt and use a corp ora te seal.
Second. T o have succession fo r a p eriod o f tw enty years fro m its
organization unless it is sooner dissolved b y an act o f Congress, o r
unless its franchise becom es fo rfe ite d b y som e violation o f law.
T h ird . T o make contracts.
Fourth. T o sue and be sued, com plain and d efen d , in any cou rt o f
law and equity as fu lly as natural persons.
F ifth . T o ap p oin t by its board o f directors, elected as hereinafter
p rovid ed , such officers as are not otherw ise p ro v id e d f o r in this act,
to define their duties, require bonds o f them and fix the penalty
thereof, to dismiss such officers or any o f them as m ay be appoin ted
b y them at pleasure, and to app oin t others to fill their places.
S ixth. T o prescribe bv its. b< a id o f directors by-law s not in con ­
sistent with law regulating the manner in w hich its general business
may be conducted and the privileges granted to it bv law may be e x ­
ercised and enjoyed.
Seventh. T o exercise bv its bvard o f directors, o r duly authorized
officers or agents, all powers specifically granted by the provision s o f
this act and such incidental pow ers as shall be necessary to carry on
the business o f banking within the lim itations prescribed by this act.
No Federal reserve bank shall transact any ban kin g business, e x ­
cept such as pertains to the p erfection o f its organ ization and m an­
agement, until tw o-thirds o f its stock subscribed fo r has been paid in
as prescriln'd in section tw o o f this act.
Kverv Federal reserve bank shall be conducted, m anaged, and con ­
trolled by a board o f nine directors, five o f whom shall be appointed
by the Federal reserve board, and shall be known as directors “ A ,”
and fou r « f whom shall be known as directors u B ,v and w’ ho shall be
selected and appointed by the member banks as fo llo w s :




BANKING AND CURRENCY.

9

As soon as practicable after a reserve bank has been incorporated
as above provided, the board shall notify the member banks in said
Federal reserve district to elect four directors within a certain date to
be named in the notification. Said board shall supply to each mem­
ber bank a blank for the purpose of recording the vote of said mem­
ber bank. Each member bank shall vote for four 44B ” directors upon
the blank so forwarded, shall certify that they are the choice of the
board of directors of said member bank, which certificate shall be
signed by the officers of said bank and forwarded to the board within
the time which said board shall limit. Said board shall canvass the
ballots so received from said member banks and forward a certificate
of the result to each of said member banks. The candidate for direc­
tor receiving the largest number of votes shall be elected for four
years; the candidate for director receiving the second largest number
of votes shall hold office for three years; the candidate for director
receiving the third largest number of votes shall hold office for two
years; the candidate for director receiving the fourth largest number
of votes shall hold office for one year. During each subsequent vear,
the election shall be held in the same manner except that each bank
shall vote for only one director unless in case of vacancies, when the
number to be elected shall be certified by the board to each member
bank, and in such cases a plurality vote shall elect.
No person shall be qualified to hold the office of director “A ” or
director “ B ” while he is an officer, director, stockholder, or employee
of any other bank or of any trust company, and no person shall be
appointed or elected director who is not at the time of his appoint­
ment or election an actual and bona fide resident of the Federal
reserve district for which he is appointed or elected. The Federal
reserve board shall designate and appoint one of said directors “A ”
as chairman of the board of directors, who shall be known as 44Fed­
eral reserve agent.” Directors 44A ” shall hold therr offices for four
years, except the Federal reserve agent, who shall hold his office at
the pleasure of the board. Of the directors 44A ” first selected one
shall hold office for one year, one for two years, one for three years,
and one for the full term of four vears, as designated by the Board.
Directors 44B ” shall hold their offices for four years, except that as
fo the first election one shall be elected for one year, one for two
years, one for three years, and one for four years.
The salaries of the directors shall be fixed by the board and shall
be payable from the revenues of the Federal reserve bank of which
they an* directors. The board of directors shall have authority to
fix the salaries and wages of all the employees of their bank.
Vacancies that occur in either class of directors of reserve banks
may be filled in the manner provided for the original selection of
such directors, the men so selected to hold! office ior the unexpired
terms of their predecessors.
Upon its own initiative, for cause, or upon written complaint un­
der oath presented by ten or more member banks charging any di­
rector of a reserve baiik with incompetency, dishonesty, or other'mat­
ter affecting his efficiency as a director, the board shall have the
power, after hearing ana proof and pursuant to a written notice
specifying the grounds thereof, to remove such director. The ac­
cused director snail be allowed thirty days in which to make defense
208HH O— 58------




10

BANKING AND CUBBENCY.

thereto. Pending the hearing the board may within its discretion
suspend the accused director.
IN C R E A S E O F C A P IT A L .

Sec. 5. That the capital stock in the reserve banks shall be main­
tained as nearly as practicable in an amount equal to six per centum
of the capital and surplus of the member banks in said district, and
the board is authorized from time to time to sell to the public such
additional stock in any reserve bank as may be required to main­
tain this proportion. The price at which said stock shall be offered
to the public shall be at its fair market value, but in no case below
ar. Any bank applying for membership in a reserve bank shall
e required by the board to underwrite, at the price fixed by the
board, such an amount of capital stock in said reserve bank equal to
six per centum of the capital and surplus of such applying bank, as
may be allotted to it by the board, and to purchase and pay for such
portion of said allotment as may not be purchased by the public, as
provided for in this act.
When the capital stock of any reserve bank has been increased, the
board shall certify the same to the Secretary of the Treasury.
S ec. 6. That in case the Federal reserve board shall decide, after
two years’ operation of the reserve banks first established, that one
or more additional banks herein authorized should be established it
shall make the necessary change in lines of existing districts, desig­
nate the new reserve city or cities, and notify the member banks
affected by such change to associate thertiselves with the new reserve
bank or banks and change the deposit of their reserves accordingly.
Stockholders in previously established reserve banks affected by tne
change .shall be invited to exchange a portion of their stock certifi­
cates as indicated by the reserve board, and for all stock so exchanged
the reserve board shall direct the transfer to the new reserve bank or
banks from the old reserve bank or banks of the corresponding
amount of cash capital in gold.
If sufficient stock certificates are not thus exchanged the reserve
board may offer to the general public at par stock in the newly cre­
ated district or districts to an amount necessary to make up the dif­
ference.
As an inducement to make the exchange of stock the reserve board
may direct that the stock of the old reserve bank or banks so ex­
changed shall be entitled to payment in cash of its share of the ac­
cumulated surplus.

E

D IV ISIO N OF E A R N IN G S .

S ec. 7. That after the payment of all necessary expenses and taxes,
including its share of the expenses of the Federal reserve board, the
stockholders of each Federal reserve bank shall be entitled to receive
an annual dividend of five per centum on the paid-in capital stock,
which dividend shall be cumulative. Net earnings over and above
expenses and the aforesaid dividend shall be applied as follows:
Twenty-five per centum of such net earnings to be carried to a surplus
fund until such fund shall amount to twenty per centum of the
>aid-in capital stock of such reserve bank, and thirty-seven and onelaif per centum of said net earnings shall be set aside in a trust

1




BANKING AND CURRENCY.

11

fu n d to be know n as the depositors9 insurance fu n d and shall be
used fo r the paym ent o f the depositors o f insolvent m em ber banks
under rules and regulations made b y the board. W h en , in the ju d g ­
m ent o f the board, there has been accum ulated in such depositors*
insurance fu n d a sufficient sum fu lly to insure the p aym en t o f the
depositor^ o f insolvent m em ber banks, the board shall have p ow er
to suspend the setting aside and accum ulation o f the said thirty-seven
and on e-h alf per centum o f such earnings, and thereafter such th irtyseven and on e-h a lf per centum o f such earnings shall be paid to
the U nited States, except that in the event the depositors’ insurance
fu n d is depleted bv the paym ent o f depositors o f insolvent m em ber
banks such fun d shall be replenished by again setting aside such
thirty-seven and on e-h a lf per centum o f the earnings or so much
th ereof as, in the judgm en t o f the board, m ay be necessary. T h e
rem aining net earnings shall be paid to the U nited States: Provided,
T h at the am ount so paid shall be applied to the purchase, at par,
with accrued interest, o f the tw o per centum bonds o f the U nited
States, said bonds then to be retired ; or i f such bonds can not be so
purchased said amount shall be a pplied to the purchase o f other
interest-bearing obligations o f the U nited States, which obligations
shall thereupon be retired.
E v e ry Federal reserve bank incorporated under the terms o f this
act and the capital stock therein and the incom e derived therefrom
shall be exem pt from Federal, State, and local taxation, except in
respect to taxes upon real estate.
S e c . 8. T h at w ithin six months a fter a national bank shall have
been notified bv the Federal reserve board o f its allotment o f stock
under section tw o o f this act, said national bank shall h old a m eeting
o f its stockholders and decide by a m a jority vote whether it w ill
becom e a member bank under the terms o f this act or whether it will
give up its charter as a national bank. In case the stockholders o f
said national bank shall decide that said national bank shall become
a member bank, the officers o f said bank, upon a blank provided by
the board, shall forw a rd the form al acceptance by said national
bank o f the terms o f this act to the board, p rop erly attested before
a notary public. In case any national bank shall fa il to forw ard its
acceptance to the board w ithin six months from the time said board
makes the allotm ent o f stock to said bank, it shall be deemed to have
declined to become a member bank and shall thereupon have six
m onths w ithin w hich to surrender its charter and abandon its exist­
ence as a national bank. In any case, however, every national bank
shall be and is required to accept the allotm ent o f stock as p rovided
in section tw o, which stock m ay be freely sold and disposed o f as
other assets o f the b an k : Provided, however, T h a t any national bank
actin g as a reserve agent in a reserve or central reserve city shall be
required to accept the terms o f this act w ithin six months from the
date o f notification o f its allotm ent o f stock, or, upon failure to do so,
shall cease to be a reserve agent fo r national banks.
S e c . 9. T h a t any bank or banking association incorporated by
special law o f any State or o f the U nited States, or organized under
the general law s o f any State or the U nited States, and h avin g an
unim paired capital sufficient to entitle it to becom e a national
ban kin g association under the provisions o f existin g laws, m ay,




12

BANKING AND CURRENCY.

by the consent in writing of the shareholders owning not less than
fifty-one per centum of the capital stock of such bank or banking
association, and with the approval of the Comptroller of the Cur­
rency, become a national banking association under its former name
or by any name approved by the comptroller. The directors thereof
may continue to be the directors of the association so organized until
others are elected or appointed in accordance with the provisions
of the law. When the comptroller has given to such bank or bank­
ing association a certificate that the provisions of this act have been
complied with, such bank or banking association and all its strickholuers, 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 this act
or by the national banking act for associations originally organized
as national banking associations.
ST ATE B A N K 8 AS M E M B E R S .

Sec. 10. That from and after the passage of this act any bank
or banking association or trust company incorporated by special law
of any State, or organized under the general laws of any State or the
United States, may make application to the Federal reserve board
to become a member of the Federal reserve bank organized or to be
organized within the Federal reserve district where the applicant
is located. The Federal reserve board, under such rules and regula­
tions as it may prescribe, subject to the provisions of this act, shall
permit such applying bank to become a member of the Federal re­
serve bank of the district in which such applying bank is located,
in which case stock shall be allotted to it as provided in this act.
No such applying bank shall be admitted to membership in a Fed­
eral reserve bank unless it possesses a paid-up unimpaired capital
sufficient to entitle it to become a national banking association in the
place where it is situated, under the provisions of the national bank­
ing act, and it shall thereafter be required to make the same reports
and be subject to the same examination and supervision as national
banking associations and subject also to the reserve requirements of
this act.
If at any time it shall appear to the Federal reserve board that
a member bank has failed to comply with the provisions of this
act or the regulations of the Federal reserve board, it shall be within
the power of the said board, after due hearing, to suspend or expel
the said bank from membership. The Federal reserve board may
restore membership upon due proof of compliance with the condi­
tions imposed by this act.
FEDERAL RESERVE BOARD.

S e c . 11. That the President of the United States shall appoint, by
and with the advice and consent of the Senate, a Federal reserve
board consisting of eight members, in addition to whom the Secretary
of the Treasury shall be an ex officio member. Of the eight members
appointed in the first instance, the President shall oppoint one for
a term of one year, one for a term of two years, one for a term of
three years, one for a term of four years, one for a term of five years,




BANKING AND CURRENCY.

13

one f o r a term o f six years, one fo r a term o f seven years, and one
fo r a term o f eight years, and thereafter all appointm ents shall be
m ade fo r a term o f eight years. Not less than one nor more than
three o f said members shall be appointed from any one Federal
reserve district. A ppointm en ts to fill vacancies in the board shall
be fo r the unexpired term and may be made by the President when
the Senate is not in session, which appointm ents shall expire at the
end o f the next session. In selecting members o f the reserve board
consideration shall be given to experience in com m erce and banking.
T h e eight members o f the Federal reserve board thus appointed by
the President shall devote their entire time to the w ork and duties
o f the board and shall not w hile in office be officers, directors, o r
em ployees o f any bank or trust com pany, nor hold stock in any such
institution, and they shall each receive a salary o f $12,000 per year,
payable m onthly out o f the Treasury o f the U nited States upon the
order or warrant o f the Secretary o f the Treasury. The President
shall designate, other than the Secretary o f the Treasury, one member
o f said board as gov ern or thereof, and one member as vice governor
th ereof w ho shall act in place o f the governor d u rin g his (usability
o r absence. T h e govern or shall be the active executive and presiding
officer o f the board. T h e Secretary o f the Treasury shall provide the
necessary office room s fo r said board in the Treasury Department
B u ild in g, or the board m ay select quarters elsewhere in the city o f
W ashington i f sufficient office room can not be fou n d in said building.
The said board shall hold its office in the city o f W ashington, D istrict
o f Colum bia. Th e first m eeting o f the board shall be held as soon as
mav be, upon the call o f the Secretary o f the Treasury, at a time
and place designated by him.
The Federal reserve hoard shall have power to levy semiannually
upon the Federal reserve banks, in proportion to their capital stock
and surplus, an assessment sufficient to pay its estimated expenses
and salaries fo r the h a lf year succeeding the levyin g o f such assess­
ment, together w ith any deficiency carried forw a rd from the pre­
ced in g h a lf year.
T h e Federal reserve board shall annually make a full report o f its
operations to the Congress.
Section three hundred and tw en ty-fou r o f the R evised Statutes o f
the U nited States shall be amended so as to read as fo llo w s : “ There
shall be in the Departm ent o f the Treasury a bureau charged with
the execution o f all laws passed by Congress relating to the issue and
regulation o f national currency secured bv United States bonds and,
under the general supervision o f the Federal reserve board, o f all
Federal reserve notes, the ch ief officer o f which bureau shall be called
the C om p troller o f the C urrency, and shall perform his duties under
the general direction o f the Secretary o f the T reasury.” N oth in g in
this act contained shall be construed as taking away any pow ers here­
tofore vested by law in the Secretary o f the Treasury which relate to
the supervision, management, and control o f the Treasury D epart­
ment and the bureaus under such departm ent.
S e c . 12. That the Federal reserve board hereinbefore established
shall be authorized and em pow ered:
(a )
T o examine at its discretion the accounts, books, and affairs
o f each Federal reserve bank and o f each member bank and to re­
quire such statements and reports as it may deem necessary. The




14

BANKING AND CURRENCY.

said board shall publish once each week a statement sh ow in g the
con d ition o f each F ederal reserve bank and a consolidated statement
fo r all F ederal reserve banks. Such statements shall show in detail
the assets and liabilities o f such Federal reserve banks, single and
com bined, and shall furnish fu ll in form ation reg ard in g the am ount
and character o f the m oney held as reserve and the am ount, nature,
and m aturities o f the paper and other investments ow ned or held by
Federal reserve banks.
(b ) T o perm it or require, in time o f em ergency, Federal reserve
banks to rediscount the discounted prim e com m ercial paper o f other
Federal reserve banks, at least six members o f the F ederal reserve
board being present w hen such action is taken and all present con ­
senting to the requirement. In such case the Federal board shall fix
a special rediscount rate o f not m ore than three per centum in excess
o f the discount rate o f the accom m odated reserve bank.
( c ) T o supervise and regulate the issue and retirem ent o f F ederal
reserve notes and to prescribe the form and tenor o f such notes.
(b ) T o add to the num ber o f cities classified as reserve and cen­
tral reserve cities under existin g law in w hich national ban k in g asso­
ciations are subject to the reserve requirements set forth in this a ct;
o r to reclassify existing reserve and central reserve cities or to
terminate their designation as such.
(e ) T o require the w ritin g o ff o f d oubtfu l or w orthless assets
upon the books and balance sheets o f Federal reserve banks.
( f ) T o require bonds o f Federal reserve agents fo r the fa ith fu l
perform an ce o f the duties o f their office.
FEDERAL AD VISO R Y C O U N C IL .

S e c . 13. T here is hereby created a Federal advisory cou n cil,
w hich shall consist o f as m any members as there are Federal reserve
districts. E ach Federal reserve bank, by its board o f directors, shall
annually select from its own Federal reserve district one member
o f said cou n cil, w ho shall receive such com pensation and allow ances
as m ay be fixed by the board o f directors, subject to the ap p rov al o f
the F ederal reserve board. T h e m eetings o f said advisory council
shall be held at W ash in gton , D istrict o f C olum bia, at least fo u r times
each year, and often er i f called by the F ederal reserve board. T h e
cou n cil m ay select its ow n officers and adopt its own m ethods o f
procedure, and a m a jority o f its members shall constitute a auorum
-fo r the transaction o f business. V acancies in the council snail be
filled by the respective reserve banks, and members selected to fill
vacancies shall serve fo r the unexpired term.
T h e F ederal a dvisory council shall have p ow er by itself or
th rou gh its officers (1 ) to meet and con fer directly with the Federal
reserve board on general business con d ition s; (2 ) to make oral or
w ritten representations con cerning matters w ithin the ju risd iction
o f said b o a r d ; (3 ) to call fo r com plete in form ation and to make
recom m endations in regard to discount rates, rediscount business,
note issues, reserve con dition s in the various districts, the purchase
and sale o f gold or securities bv reserve banks, open-m arket op er­
ations by said banks, and the general affairs o f the reserve banking
system.




BANKING AND CURRENCY.

15

REDISCOUNTS.

Sec. 14. That any Federal reserve bank may receive from ai\y
member bank and from the United States deposits of current funas
in lawful money, national-bank notes, Federal reserve notes, and
checks and drafts upon solvent member banks of the Federal reserve
system, payable upon presentation; and, solely for exchange purposes,
may receive from other Federal reserve banks deposits of current
funds in lawful money, national-bank notes, and checks and drafts
upon solvent member or other Federal reserve banks, payable upon
presentation. Reserve banks shall not pay interest on deposits.
Upon the indorsement of any member bank with a waiver of
demand notice and protest any Federal reserve bank may discount
notes, drafts, and bills of exchange arising out of actual commercial
transactions; that is, notes, drafts, and bills of exchange issued or
drawn for agricultural, industrial, or commercial purposes, or the
proceeds of which have been used, or may be used, for such purposes,
the Federal reserve board to have the right to determine or define
the character of the paper thus eligible for discount, within the
meaning of this act; notning herein contained shall be construed to
prohibit such notes, drafts, and bills of exchange, secured by staple
agricultural products, or other goods, wares, or merchandise from
being eligible for such discount; but such definition shall not include
notes, drafts, or bills covering merely investments or issued or
drawn for the purpose of carrying or trading in stocks, bonds or
other investment securities, except bonds and notes of the Govern­
ment of the United States and interest-bearing obligations of its
dependencies the principal and interest of which have been guar­
anteed by the United States. Notes and bills admitted to discount
under the terms of this paragraph must have a maturity at the time
of discount of not more than one hundred and eighty days: Pro­
vided, however, That not more than fifty per centum of tne paper
discounted for any member bank shall have a maturity exceeding
ninety days and in no case shall any member bank have more than
$200,000 of rediscounts having a maturity longer than ninety days.
Any Federal reserve bank may discount acceptances of member
banks which are based on the exportation or importation of goods
and which have a maturity at time of discount of not more than
six months and of acceptances based on domestic shipments of goods
and which have a maturity at time of discount of not more than four
months and bear the signature of at least one member bank in addi­
tion to that of the acceptor. The amount so discounted shall at no
time exceed one-half tne capital stock of the bank for which the
rediscounts are made.
The aggregate of such notes and bills bearing the signature or
indorsement of any one person, company, firm, or corporation re­
discounted for any one bank shall at no time exceed ten per centum
of the unimpaired capital and surplus of said bank; but this restric­
tion shall not apply to the discount of bills of exchange drawn in
good faith against actually existing values.
Any national bank may, at its discretion, accept drafts or bills of
exchange drawn upon it and growing out of transactions involving
the importation or exportation of goods having not more than six




16

BANKING AND CURRENCY.

m onths to run or g r o w in g out o f the dom estic shipm ent o f g o o d s and
h a v in g not m ore tnan fo u r m onths to r u n ; but n o bank shall accept
such b ills to an am ount equal at any time in the a ggregate to more
than the p ar value o f its p a id -u p ana unim paired capital.
T h e F ederal reserve b oard m ay authorize the reserve bank o f the
d istrict to discount the direct obligation s o f m em ber banks, secured
by the pled ge and deposit o f satisfa ctory secu rities; but in no case
shall the am ount so loaned b v a reserve bank exceed th ree-fou rth s
o f the actual m arket value 01 the securities so pledged o r on e -h a lf
the am ount o f the p aid-u p and unim paired capital o f the m em ber
bank.
T h e rediscount by any F ederal reserve bank o f any bills receivable
and o f dom estic and foreig n bills o f exchange shall be subject to such
regulations as m ay be im posed by the board. T h e d iscou n t p r o v i­
sions o f this act shall be equitably extended to all o f its m em ber
banks by each reserve bank upon equal terms, and each m em ber bank
shall be entitled as a m atter o f righ t to the rediscount o f eligible
p aper to the fu ll am ount o f its capital stock upon the low est current
rate o f discount, and 110 m em ber bank shall be perm itted to discount
an am ount o f paper exceedin g the amount o f its capital stock except
upon paym ent o f a h igh er rate o f discount, the increase in rate o f
d iscount to be one per centum f o r an additional fifty per centum o f
discounts or part tn ereof and tw o per centum fo r all in excess. In
n o case shall a Federal reserve bank discount paper fo r a mem ber
bank in excess o f tw ice the am ount o f its capital stock w ithout special
authority bv the board.
O P E N -M A R K E T O P E R A T IO N S.

S ec. 15. A n y Federal reserve bank m ay, under rules and regu la­
tions prescribed b y the F ederal reserve board, purchase and sell in
the open m arket, either fro m o r to dom estic o r fo re ig n banks, firm s,
corp oration s, or individuals, prim e bankers’ bills, and bills o f e x ­
change o f the kinds and m aturities by this act m ade eligible fo r re­
discount, and cable transfers.
E v e ry F ederal reserve bank shall have pow er (a ) to deal in g o ld
coin and b u llion both at hom e and abroad, to make loans thereon,
and to con tract fo r loans o f g old or bullion , g iv in g th erefor, when
necessary, acceptable security, in clu d in g the h ypoth ecation o f inter­
est-bearing obligation s o f the U nited States: ( b ) to buy and sell
interest-bearing ob ligation s o f the U nited States and o f its depen den ­
cies when paym ent o f p rin cip a l and interest is guaranteed by the
U nited States, and bonds or warrants o f any State, cou n ty, or m u n ici­
p ality , or short-tim e interest-bearing ob ligation s issued by fo re ig n
governm ents, w ith a m aturity from date o f purchase o f not exceedin g
one year, such purchases to be m ade in accordance w ith rules and
regulations prescribed by the Federal reserve b o a r d ; ( c ) to purchase
fro m a member bank and to sell, with or w ithout its ow n indorse­
ment, bills o f exchange arising out o f com m ercial transactions, as
h ereinbefore d efin ed: ( d ) to establish p u b licly from time to tim e,
subject to review and determ ination o f the F ederal reserve board, a
rate o f discount to be charged b y such bank fo r each class o f paper,
w hich shall be fixed w ith a view o f accom m odating the com m erce
o f the cou n try and p rom otin g stability in business; and (e ) establish




BANKING AND CURRENCY.

17

accounts w ith other reserve banks, and w ith the consent o f the F e d ­
eral reserve board, to open and m aintain bankin g accounts in fo re ig n
countries and establish agencies in such countries wheresoever it m ay
deem best fo r the purpose o f purchasing, sellin g, and colle ctin g bills
o f exchange, letters or credit, and travelers* checks, and to b uy and
sell w ith or w ithout its indorsem ent, th rou gh such correspondents
o r agencies, bills o f exchange arising out o f com m ercial transactions
w hich have n ot exceedin g ninety aays to run and w hich bear the
signature o f tw o o r m ore responsible parties.
G O V E R N M E N T DEPOSITS.

S ec. 10. T h a t all m oneys now held in the general fu n d o f the
T reasury, except the five per centum fu n d fo r the redem ption o f ou t­
stan ding n ational-bank notes and the fu n d s p rovid ed in this act f o r
the redem ption o f F ederal reserve notes, shall, u pon the direction o f
the Secretary o f the Treasu ry, be deposited in F ederal reserve banks,
w hich banks shall act as fiscal agents o f the U n ited S tates; and there­
a fte r the revenues o f the G overnm ent shall be regu la rly deposited
in such banks and disbursem ents shall be m ade b y checks draw n
against such deposits.
T h e Secretary o f the T reasu ry shall, subject to the a pp rov al o f
the F ederal reserve board, fro m tim e to tim e a p p ortion the G overn ­
ment deposits am on g the said Federal reserve banks, in p rop ortion
to their capital stocK as fa r as p ra ctica b le: Provided, T h a t f o r the
purposes o f collection and tran sfer on ly the Secretary o f the T reas­
u ry m ay designate national banks as G overnm ent depositories.
NOTE

ISSU ES.

S ec. 17. T h a t Federal reserve notes, to be issued under authority
o f the Federal reserve board f o r the purpose o f m akin g advances to
F ederal reserve banks as hereinafter set forth and f o r no other p u r­
pose, are hereby authorized. T h e said notes shall be obligation s o f
the U nited States and shall be receivable f o r all taxes, customs, and
other public dues but shall n ot be held as reserves b v m em ber banks
o r by a reserve bank. T h ey shall be redeemed in g o ld on dem and at
the Treasury D epartm ent o f the U nited States, in the city o f W ash ­
ington, D istrict o f C olum bia, or at any Federal reserve bank.
A n y Federal reserve bank m ay, upon vote o f its directors, m ake
a pplication to the local Federal reserve agent fo r such am ount o f the
Federal reserve notes hereinbefore p rovid ed fo r as it m ay require.
Such application shall be accom panied w ith a tender to the loca l
Federal reserve agent o f collateral security in am ount e(jual to the
sum o f the Federal reserve notes thus applied fo r and issued p u r­
suant to such application. T h e collateral security thus offered snail
be notes and bills accepted fo r rediscount under the p rovision s o f this
act, and the Federal reserve agent shall each d ay n o tify the F ederal
reserve board o f all issues and w ithdraw als o f F ederal reserve notes
to and bv the Federal reserve bank to w hich he is accredited. T h e
said Federal reserve board shall be authorized at any tim e to call
upon a Federal reserve bank fo r additional security to p rotect the
Federal reserve notes issued to it.




18

BANKING AND OURAENOY.

W h en ever any reserve bank shall pay out o r disburse F ederal re­
serve notes issued to it as hereinbefore p rovid ed , it shall segregate
and turn over to its reserve agent g o ld coin or g o ld b ullion o r U nited
States g o ld certificates to the am ount o f the face value o f the notes
so outstanding, or, at its op tion , shall segregate and turn over to the
reserve agent g o la coin o r g o ld bullion or U nited States g o ld cer­
tificates to the am ount o f forty -fiv e per centum o f such face value
and in a dd ition thereto collaterals con sisting o f prom issory notes and
b ills accepted fo r rediscount under the provision s o f this act, o r re­
fu n d in g notes o f the U nited States hereinafter p rovid ed fo r, o r both
such ccdlaterals and refu n d in g notes equal at their face value to one
hundred per centum o f the race value o f the notes so outstanding.
S u ch collaterals m ay be exchanged from tim e to time fo r other c o l­
laterals o f like quality and o f equal face value o r re fu n d in g notes
w ith in the lim itations a foresa id : Provided, T h a t whenever and so
lo n g as such reserve shall fa ll and remain below fo rty -fiv e per centum
the reserve bank shall pay a special tax u pon the deficiency o f reserve
at a rate increasing in p rop ortion to such deficiency, as fo llo w s : F o r
each tw o and on e-h a lf per centum o r fra ction th ereof that the reserve
fa lls below forty -fiv e per centum a tax shall be levied at the rate o f
one per centum per ann u m : Provided further, T h a t no additional
circu la tin g notes shall be issued whenever and so lo n g as the am ount
o f such reserve fa lls below th irty per centum o f its outstanding n otes:
Provided, T h a t the am ount o f such tax p aid b y the bank d u rin g a
fiscal year shall be charged to the m em ber banks in its district in
p ro p ortion to their average discounts d u rin g that year. N otes so
p aid out shall bear upon their faces a d istinctive letter and serial
num ber, w h ich shall be assigned by the F ed era l reserve board to each
F ederal reserve bank. W henever F ed eral reserve notes issued
th rou gh one F ed eral reserve bank shall be received by another F e d ­
eral reserve bank they shall be returned p rom p tly fo r redem ption to
the F ed era l reserve bank th rou gh w h ich they were o rigin a lly issued.
N o F ed eral reserve bank shall p ay out notes issued th rou gh another
u n der penalty o f a tax o f ten p er centum upon the face value o f notes
so p aia out. N otes presented fo r redem ption at the Treasu ry o f the
U nited States shall be paid out o f the redem ption fu n d and snail n ot
be reissued except u pon com plian ce w ith the con d ition s o f an origin al
issue.
F ederal reserve banks shall m aintain on deposit in the Treasu ry
o f the U n ited States a sum in g o ld equal to five per centum o f such
am ount o f Federal reserve notes as m ay be issued to them and out­
standing under the p rovision s o f this act, and such additional sums
as the Secretary o f the Treasury m ay fro m tim e to tim e decide to
be necessary, n ot exceedin g in the aggregate ten p er centum , but such
deposit o f g old , w hich shall be segregated and m aintained as a trust
fu n d , shall be counted and included as part o f the reserve against
said notes. T h e said board shall gran t tne application o f any F ederal reserve bank fo r Federal reserve notes, provid ed said reserve
bank com plies w ith the requirements o f this act as to g o ld reserve and
collateral security and otherwise con form s to its provisions. T h e
bank shall be charged w ith the am ount o f such notes, w hich, upon
delivery, shall becom e a first and param ount lien on all the assets o f
such bank.




BANKING AND CURRENCY.

19

A n y Federal reserve bank m ay at any time reduce its lia b ility fo r
outstanding Federal reserve notes by redeem ing the same and de­
p ositin g them with its Federal reserve agent, w h o shall fo rw a rd
them to the Treasury f o r retirement.
In ord er to furnish suitable Federal reserve notes the C om p troller
o f the C urrency shall, under the direction o f the Secretary o f the
T reasury, cause plates and dies to be engraved in the best manner
to guard against counterfeits and fraudulent alterations, and shall
have printed therefrom and numbered such quantities o f such notes
in blank o f the denom inations o f $5, $10, $20, $50, $100, $500, $1,000,
as m ay be required to su pp ly the reserve banks entitled to receive
the same. Such notes shall be in form and tenor provided f o r in
this act.
W h en such notes have been prepared, they shall be deposited ip
the Treasury, o r in the subtreasury o f the U nited States nearest
the place o f business o f each reserve bank, and shall be held f o r the
use o f such bank, subject to the order o f the Federal reserve board
fo r their delivery, as p rovid ed b y this act.
T h e plates and dies to be procured b y the C om ptroller o f the C ur­
rency fo r the p rin tin g o f such circu lating notes shall rem ain under
his control and direction, and the expenses necessarily incurred in
executing the laws relating to the procu rin g o f such notes, and all
other expenses incidental to their issue and retirement, shall be p aid
b y the reserve banks, and the Federal reserve board shall include in
its estimate o f expenses levied against the reserve banks a sufficient
am ount to cover the expenses herein p rovid ed fo r.
T h e exam ination o f plates, dies, b ed pieces, and so forth , and
regulations relating to such exam ination o f plates, dies, and so forth ,
o f national-bank notes provid ed f o r in section fifty-on e hundred and
seventy-four, R evised Statutes, is hereby extended to include Federal
reserve notes herein p rovided fo r.
A n y appropriation heretofore made out o f the general fun ds o f
the Treasury to r engravin g plates and dies, the purchase o f distinctive
paper, or to cover any other expense in connection with the p rin tin g
o f national-bank notes or notes p rovided fo r by the act o f M ay th ir­
tieth, nineteen hundred and eight, and any distinctive paper that m ay
be on hand at the time o f the passage o f this act m ay be used, in the
discretion o f the Secretary, fo r the purposes o f this a ct; and should
the a ppropriation s heretofore made be insufficient to meet the re­
quirem ents o f this act, in addition to circu la tin g notes p rovided fo r
by existing law, the Secretary is hereby authorized to use so much as
niay be necessary o f any funds in the Treasury not otherw ise a p p ro­
priated fo r the purpose o f furnishing the notes a fo r e sa id : Provided,
however, T hat notninff in this section contained shall be construed
as exem ptin g national banks or Federal reserve banks fro m their
liability to reimburse the U nited States fo r any expenses incurred in
p rin tin g and issuing circu lating notes.
E very Federal reserve bank sliall receive on deposit from m em ber
banks or from reserve banks checks and d ra fts draw n upon any o f its
depositors and, when rem itted by a reserve bank, checks and d ra fts
draw n by any depositor in any other reserve bank or m em ber bank
upon funds to the credit o f said depositor in said reserve bank or




20

BANKING AND CUBBENCY.

m em ber bank. N oth in g herein contained shall be construed as p ro ­
h ib itin g a member bank from m aking reasonable charges fo r checks
and d ra fts so debited to its account, or f o r collectin g and rem ittin g
fu n d s, or fo r exchange sold to its patrons. T h e F ederal reserve board
m ay, b y rule, fix reasonable charges to be collected b y the m em ber
banks from patrons whose checks are cleared th rou gh the reserve
bank and the charge w hich m ay be im posed fo r the service o f clearing
o r collection rendered by the Federal reserve bank. T h e F ederal
reserve board shall make and prom ulgate from tim e to tim e regula­
tions g ov ern in g the tran sfer o f fu n d s am ong F ederal reserve banks
and their branches.
S ec. 18. T h a t so m uch o f the provision s o f section fifty-on e hun­
d red and fifty-n in e o f the R evised Statutes o f the U nited States, and
section fo u r o f the act o f June twentieth, eighteen hundred and sev­
en ty-fou r, and section eigh t o f the act o f J u ly tw elfth , eighteen hun­
d red and eigh ty-tw o, ana o f any other provision s o f existin g statutes,
as require that b efore any national ban king association shall be au­
th orized to com m ence ban k in g business it snail tran sfer and deliver
to the Treasurer o f the U nited States a stated am ount o f U nited
States registered bonds be, and the same is hereby, repealed.
REFUNDING BONDS.
Sec. 19. T h a t as soon a fter the organ ization o f the reserve banks
as practicable and under authority fro m the F ederal reserve board
each F ederal reserve bank shall purchase at p a r and accrued interest
tw o p er centum bonds o f the U nited States. T h e am ount purchased
b y each reserve bank shall n ot be m ore than fifty p er centum o f its
ca p ital in any one year. T h e bonds so purchased m ay be h eld b y
such reserve bank and used fo r d eposit w ith its reserve agent as
security fo r the Federal reserve notes issued, o r they m ay be ex­
ch an ged at the Treasury fo r one-year T reasu ry g o ld notes bearing'
three p er centum interest. I n case o f such exchange the reserve
bank snail be bound at the option o f the U nited States to renew year
b y yea r f o r tw enty years the three p er centum g o ld notes ’so issued.
S a id one-year three per centum U nited States g o ld notes m ay be used
to deposit w ith the reserve agent as security f o r the U nited States
reserve notes, or be freely purchased by reserve banks from tim e to
tim e to em p loy idle funds, o r sold to protect the g o ld su pply.
N ational banks w hich sell tw o per centum bonds to a reserve bank
under this p rovision shall retire such p ortion o f their outstanding
national-bank notes as are secured b y the bonds so sold. T h e Secre­
ta ry o f the T reasu ry is hereby directed to issue three p er centum oney ea r g o ld T reasu ry notes year b y year to exchange fo r tw o p er
centum bonds as a\x>ve p rovid ed or to take the place o f three per
centum one-year g o ld notes that have been redeemed. D u rin g the
p eriod between the first and last purchases o f bonds any national
bank m ay continue to a p p ly fo r and receive circu la tin g notes based
u pon the deposit o f tw o per centum bonds as now p rovid ed fo r by
law . T h e one-year three per centum g o ld Treasu ry notes above p r o ­
vid ed fo r shall be exem pt fro m Federal, State, and m unicipal taxa­
tion both as to incom e and p rin cip al.




BANKING AND CURRENCY.

21

B A N K RESERVES.

S e c . 20 . That, when a Federal reserve bank has been d u ly organ ­
ized and established as p rovided in this act in any F ederal reserve
d istrict every member bank o f that district shall establish and m ain­
tain reserves as fo llo w s :
(a ) A bank not in a reserve or central reserve city as now o r
h ereafter defined shall hold and m aintain reserves equal to tw elve
p er centum o f the aggregate am ount o f its net deposits, as fo llo w s :
In its vaults, fou r-tw efth s thereof.
In the Federal reserve bank o f its district, f o r a p eriod o f six
m onths a fter said date, one-tw elfth, and fo r each succeeding six
m onths an additional one-tw elfth, until fou r-tw elfth s have been so
deposited, w hich shall be the am ount perm anently required.
A ft e r said p eriod said reserves, other than those hereinbefore re­
quired to be held in the reserve bank, m ay be held in the'vaults o f the
member bank or in the Federal reserve bank, or in both, at the op tion
o f the member bank.
(b ) A bank in a reserve or a central reserve city, as now o r here­
a fter defined, shall hold and m aintain reserves equal to fifteen p er
centum o f the aggregate amount o f its net deposits, as fo llo w s :
In its vaults, five-fifteenths thereof.
In the Federal reserve bank o f its district, fo r a p eriod o f six
m onths after the date aforesaid, at least one-fifteenth, and fo r each
succeeding six months an additional one-fifteenth, until six-fifteenths
have been so deposited, whielj shall be the am ount perm anently
required.
A ft e r said period all o f said reserves, except those hereinbefore
required to be held perm anently in the F ederal reserve bank, m ay be
held in its ow n vaults or in the Federal reserve bank, o r in both, at
the op tion o f the member bank.
I f a State bank or trust com pany is required b y the laws o f its State
to keep its reserves either in its ow n vaults or w ith another State bank
o r trust com pany, such reserve deposits so kept in such State bank o r
trust com pany shall be construed, w ithin the m eaning o f this section,
as i f they were reserve deposits in a national bank in a reserve o r
central reserve city fo r a period o f three years a fter the establish­
ment o f a Federal reserve bank in the district in w hich such State
bank or trust com pany is situate.
S e c . 21. T h a t so much o f sections tw o and three o f the act' o f
June twentieth, eighteen hundred and seventy-four, entitled 44A n act
fixin g the amount o f U nited States notes, p rov id in g fo r a redistribu­
tion o f the national bank currency, and fo r other purposes,” as p r o ­
vides that the fun d deposited by any national banking association
with the Treasurer o f the U nited States fo r the redem ption o f its
notes shall be counted «s a part o f its law ful reserve as p rovided in
the act aforesaid, be, and the same is hereby, repealed. A n d from
and after the passage o f this act such fund o f five per centum shall
in no case be counted by any national banking association as a part
o f its law fu l reserve.
S ec. 22. T h a t every Federal reserve bank shall at all times have on
hand in its own vaults, in g old , gold certificates, or law fu l m oney, a
sum ecpial to not less than thirty-five per centum o f its net deposits,
in addition to the reserve required against the Federal reserve notes




22

BANKING AND CURRENCY.

em itted b y such bank. T h e term “ net deposits ” w herever used in
this act shall mean net deposits as from time to tim e defined by the
C om p troller o f the C urrency, subject to the app roval o f the Federal
reserve board.
T h e F ederal reserve board m ay n o tify any Federal reserve bank
whose la w fu l reserve shall be below the am ount required to be kept
on hand to make g ood such reserve; and in the meantime m ay p r o ­
h ib it such F ederal reserve bank from m aking additional loans or d is­
cou n ts: Provided, however, T h at the Federal reserve board m ay in
case o f em ergency perm it the reserve against deposits to be reduced
below the said lim it, but the reserve bank shall in such case p ay a tax
at the rate o f one per centum per annum fo r every tw o and on e-h a lf
p er centum or fra ction th ereof that the reserve falls below said
th irty-five p er centum , but in no case shall it be allow ed to fa ll below
tw enty-five per centum o f its net deposits: Provided further, T h a t
the am ount o f such tax paid by the bank du rin g a fiscal year shall
be ch arged to the m em ber banks in the district in p rop ortion to their
average discounts d u rin g that year.
B A N K E X A M IN A T IO N S .

Sec. 23. T h a t the exam ination o f the affairs o f every member bank
shall take place at least tw ice in each calendar year and as much
often er as the Federal reserve board shall consider necessary in ord er
to furnish a fu ll and com plete know ledge o f its con dition . T h e
Federal reserve board m ay authorize exam inations by the State
authorities to be accepted in the case o f State banks and trust com ­
panies and m ay at any time direct the h old in g o f a special exam ina­
tion. T h e person assigned to the m aking o f such exam ination o f the
affairs o f any member bank shall have pow er to cull together a
quorum o f the directors o f such bank, w ho shall, under oath, state to
Such exam iner the character and circum stances o f such o f its loans
o r discounts as he may designate; and from and after the passage o f
this act all bank examiners shall receive fixed salaries, the am ount
w h ereof shall be not less than $2,000 nor more than $7,000 per
annum and be determ ined by the Federal reserve board and annually
reported to Congress. B u t the expense o f the exam inations herein
Erovid ed fo r shall be assessed by authority o f the Federal reserve
oard upon the member banks examined in p rop ortion to assets o r
resources held by such member banks upon the dates when the various
banks are exam ined.
In addition to the exam inations made and conducted by the C om p ­
troller o f the C urrency, every Federal reserve bank m ay, w ith the
ap p rov al o f the F ederal reserve agent or o f the Federal reserve board,
arrange fo r special or periodical exam ination o f the member banks
w ithin its district. Such exam ination shall be so conducted as to in ­
fo rm the Federal reserve bank under whose auspices it is carried on
o f the con dition o f its member banks and o f the lines o f cred it w hich
are bein g extended by them. E very Federal reserve bank shall at all
tim es furnish to the Federal reserve board such inform ation as m ay
be dem anded by the latter concerning the con dition o f any m em ber
bank located w ithin the district o f the said Federal reserve bank.
T h e Federal reserve board shall, at least once each year, ord er an
exam ination o f each Federal reserve bank, and upon jo in t a p p lica ­
tion o f ten member banks the Federal reserve board shall order a




BANKING AND CUBBENOY.

28

special exam ination and report o f the condition o f any Federal re­
serve bank.
Sec. 24. That no member bank, or any officer, director, or em ployee
th ereof, shall hereafter make any loan or gran t any gratu ity to any
exam iner o f such bank. A n y bank officer, director, or em ployee
th ereof viola tin g this provision shall be deemed g u ilty o f a m is­
dem eanor and shall be im prisoned not exceeding one year o r fined not
m ore than $5,000, or both. A n y exam iner accepting such a loan or
gratu ity shall be deemed gu ilty o f a m isdem eanor and shall be imErisoned not exceeding one year or be fined not m ore than $5,000, o r
oth. N o such exam iner shall p erform any other service fo r com ­
pensation fo r a bank w ithin his jurisdiction w hile h old in g such
office.
O ther than the usual salary or d irector’s fee p aid to any officer,
d irector, or em ployee o f a member bank, and other than a reasonable
fee paid to such officer, director, or em ployee acting as an attorney at
law fo r legal services rendered*to such bank, no officer, director,
em ployee, or attorney o f a member bank shall be a beneficiary o f or
receive, directly or indirectly, any fee, com m ission, g ift , or other
consideration fo r or in connection with any transaction or business o f
the bank. A n y person violatin g any provision o f this section shall
be deemed gu ilty o f a m isdem eanor and punished by a fine not exceed­
in g $5,000 or by im prisonm ent not. exceeding one year, or both.
E xcept so fa r as already provided in existing laws this provision
shall not take effect until six months after the passage o f this act.
Sec. 25. That from and after the passage o f this act the stock­
holders o f every national banking association shall be held in d i­
vidu ally responsible fo r all contracts, debts, and engagements o f such
association, each to the amount o f his stock therein, at the par value
th ereof in addition to the amount invested in such stock. T h e stock­
holders in any national banking association w ho shall have trans­
ferred their shares or registered the transfer th ereof w ithin sixty
days next before the date o f the failure o f such association to meet
its obligations shall be liable to the same extent as i f they had made
no such tra n sfer; but this provision shall not be construed to affect
in any w ay any recourse w hich such shareholders m ight otherwise
have against those in whose names such shares are registered at the
time o f such failure. S ection fifty-on e hundred and fifty-on e, R e ­
vised Statutes o f the U nited States, is hereby reenacted except in so
fa r as m odified by this section.
LOANS ON

FARM

LAN D S.

S ec. 26. That deposits in national banks, payable m ore than thirty
days after they are made, shall be know n as tim e deposits, and such
banks may continue hereafter as heretofore to receive time deposits
and to pay interest on the same. A ll national banks n ot located in
central reserve cities m ay make loans, secured by im proved, occupied,
and unencumbered farm land situated w ithin the Federal reserve
district where the loanin g bank is located to the extent o f on e-h alf
o f its value, but n o such loan shall be made fo r a longer p eriod than
five years, nor shall the aggregate o f such loans by any bank exceed
one-third o f its time deposits.
A fte r becom ing member banks o f any reserve bank, national banks
are hereby authorized to act as adm inistrators, executors, o r trustees.




24

BANKING AND CURRENCY.
FOREIGN BRANCHES.

Sec. 28. T h a t any Federal reserve bank or national b an k in g asso­
ciation possessing a capital o f $5,000,000 or m ore m ay file application
w ith the F ederal reserve board, upon such condition s and under such
circum stances as may be prescribed by the said board, fo r the p u r­
pose o f securing authority to establish branches in fo re ig n countries
o r dependencies o f the U nited States fo r the furtherance o f the
fo re ig n com m erce o f the U nited States, and to a<jt, i f required to d o
so, as fiscal agents o f the U nited States. Such applications shall
sp ecify , in add ition to the name and capital o f the ban k in g associa­
tion filin g it, the place o r places where the ban k in g operations p ro ­
posed are to be carried on and the am ount o f capital set aside b y the
said b an k in g association, filin g such application fo r the con du ct o f
its foreig n business at the branches proposed by it to be established
in foreig n countries. T h e Federal reserve board shall have pow er to
a pp rove or to reject such application i f in its ju d gm en t the am ount
o i capital p rop osed to be set aside f o r the con du ct o f fo re ig n busi­
ness is inadequate or i f fo r other reasons the g ran tin g o f such a p p li­
cation is deemed inexpedient.
E v e ry national ban gin g association w hich shall receive authority
t o establish branches in foreign countries shall be required at all
times to furnish in form ation con cern in g the con d ition o f such
branches to the C om p troller o f the C urrency upon dem and, and the
Federal reserve b oard m ay order special exam inations o f the said
foreign branches at such tim e or times as it m ay deem best. E v e ry
Federal reserve bank and every such national ban k in g association
■hill conduct the accounts o f each foreig n branch independently o f the
aftoouiito of other foreign branches established by it and o f its home
office, and shall at the end o f each fiscal p eriod tran sfer to its general
ledger the profit or loss accruing at each such branch as a separate
item.

Sbc. 29. A ll p rovision s o f law inconsistent w ith or superseded b y
any o f the provision s o f this act are to that extent and to that extent
o n ly hereby rep ealed : Provided, T h a t n oth in g in this act contained
shall be construed to repeal the p arity p rovision or provision s con ­
tained in an act a pproved M arch fourteenth, nineteen hundred, en­
titled “ A n act to define and fix the standard o f value, to m aintain
the p aK ty o f all form s o f m oney issued or coined by the U nited
States, to refu n d the p ublic debt, and fo r other purposes.”
Sec. 29a. T h a t the provision s o f the act of M a y thirtieth, nineteen
hundred and eight, authorizin g national currency associations, the
issue o f addition al national-bank circu lation, and creatin g a N ational
M on etary C om m ission, w hich expires by lim itation under the terms
o f such act on the thirtieth day o f June, nineteen hundred and fo u r ­
teen, are hereby extended to June thirtieth, nineteen hundred and
fifteen.
Sec. 30. That the right to amend, alter, or repeal this act is hereby
expressly reserved.
Passed the H ouse o f R epresentatives Septem ber 18, 1913.
A tte s t:




S o u t h T r im b l e .

Clerk.