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FEDERAL RESERVE BANK
O F DA LLAS
August 20,1923.
REGULATIONS OF THE FEDERAL RESERVE BOARD
SERIES OF 1923
To the Member Bank Addressed:
There is enclosed a copy of the Federal Reserve Board’s Regu
lations, Series of 1923, superseding regulations of a previous date pro
mulgated by the Board, except that the effective date of Regulation
“ J ” has been postponed until further notice.
In the meantime Regula
tion “ J ” , Series of 1920, will remain in effect.
As these Regulations contain valuable and important informa
tion regarding transactions and relations of member banks with
Federal Reserve Banks, it is suggested that they be carefully studied
and that the enclosed copy be filed in a convenient place for future
reference when necessary.
Very truly yours,
Governor.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
TABLE OF CONTENTS.
Page.
Letter of transmittal........................... .........................................................................................................................
R e g u l a t io n A.—Discounts under sections 13 and 13a.............................................................................................
R e g u l a t io n B.—Open-market purchases of bills of exchange, trade acceptances, and hankers’ acceptances
under section 14......... .................................................................................................................
R e g u l a t io n C.—Acceptance by member banks of drafts and bills of exchange....................................................
R e g u l a t io n D.—Time deposits and savings accounts..............................................................................................
R e g u l a t io n E.—Purchase of warrants......................................................................................................................
R e g u l a t io n F.—Trust powers of national banks......................................................................................................
R e g u l a t io n G.—Loans on farm land and other real estate......................................................................................
R e g u l a t io n H.—Membership of State banks and trust companies.........................................................................
R e g u l a t io n I.—Increase or decrease of capital stock of Federal Reserve Banks and cancellation of old and
issue of new stock certificates.....................................................................................................
R e g u l a t io n J.—Check clearing and collection........................................................................................................
R e g u l a t io n K.—Banking corporations authorized to do foreign banking business under the terms of section
25 (a) of the Federal Reserve Act..............................................................................................
R e g u l a t io n L.—Interlocking bank directorates under the Clayton Act.................................................. ; ............
(ii )
1
3
9
10
12
13
10
19
21
24
28
FEDERAL RESERVE BOARD.
W a s h i n g t o n , July 10, 1923.
The Federal Reserve Board transmits herewith a new issue of all of its regulations applicable
to member banks. Regulations A and B of the new series supersede the corresponding regu
lations of the series of 1922, and the other regulations of the new series supersede corresponding
regulations of the series of 1920. I t is to be noted that Regulation J of the new series will not
be effective until August 15, 1923.
Regulation A has been materially amended in order to make it conform to the provisions
of the Federal Reserve Act as amended by the Agricultural Credits Act of 1923. This regu
lation has also been amended so as to conform to the amendment to section 9 of the Federal
Reserve Act contained in the Act of July 1, 1922, and has also been amended in a few other
respects.
Regulation B has been clarified and Section II (c) of the old regulation has been omitted
because it is no longer necessary in view of the broader provisions with reference to six months’
agricultural acceptances contained in the law and in Regulation A as amended.
Regulation C is identically the same as in the series of 1920.
Regulation D has not been changed, except that a slight inaccuracy in the quotation from
section 19 has been corrected and section numbers have been inserted.
Regulation E has been rearranged and the appendices heretofore published separately
bave been incorporated in the body of the regulation. No material change has been made
111 the substance of the regulation, however, except the elimination of the 10 per cent limitation
°n the amount of warrants of any municipality which might be purchased by a Federal Reserve
Rank with the indorsement of a member bank.
Regulation F is identically the same as in the series of 1920.
Regulation G has been changed only in one respect. Paragraph (g) thereof has been
changed so as not to require a note representing a real-estate loan to be canceled at maturity
arid a new note taken in its place. I t now permits the old note to be renewed or extended for
ari additional period.
Regulation H has been changed materially so as to conform to the amendments to section 9
°f the Federal Reserve Act contained in the Agricultural Credits Act of 1923, which make
State banks with a capital equal to not less than 60 per cent of the amount required for the
0rganization of a national bank eligible for admission to membership under certain terms and
conditions.
Regulation I has been changed so as to conform to the present practice in connection with
the applications of newly organized national banks for membership in the Federal Reserve
System, and also so as to require the receivers of insolvent member banks and the liquidating
agents 0f member banks in voluntary liquidation to apply for the surrender and cancellation
°f the Federal Reserve Bank stock held by such banks within six months after their appointment.
Regulation J has been rewritten and brought up to date. This new regulation, however,
^hl not become effective until August 15, 1923.
Regulation K is identically the same as in the series of 1920.
Regulation L has been changed slightly by broadening the definition of the term “ national
Cank ” as used in the regulation to include all banking institutions organized or operating
atlder the laws of the United States. A statement of the general principles adopted by the
,°ard for its guidance in determining whether two or more banks are in substantial compe
tition has also been inserted in the regulation.
,
Instructions which govern only Federal Reserve Agents or Federal Reserve Banks will
e covered in separate letters or regulations, as in the past.
Ry order of the Federal Reserve Board.
WM. W. HOXTON, Secretary.
(1)
REGULATION A.
Series of 1923.
(Superseding Regulation A of 1922.)
DISCOUNTS UNDER SECTIONS 13 AND 13 (a).
ARTICLE A.
NOTES, DRAFTS, AND BILLS OF EXCHANGE.
S e c t io n
I. G e n e r a l S t a t u t o r y P r o v is io n s .
Any Federal Reserve Bank may discount for any of its member banks any note, draft,
°r bill of exchange: Provided—
{a) I t has a definite maturity at the time of discount of not more than 90 days, exclusive
°f days of grace; except that (1) if drawn or issued for an agricultural purpose or based on live
stock, it may have a maturity at the time of discount of not more than nine months, exclusive
°f days of grace, and (2) certain bills of exchange payable at sight or on demand are eligible
even though they have no definite maturity (see Section VII, below);
(b) I t has been issued or drawn for an agricultural, industrial, or commercial purpose, or
the proceeds have been used or are to be used for such a purpose, or it is a note, draft, or bill
°f exchange of a factor issued as such making advances exclusively to producers of staple
agricultural products in their raw state;
(c) I t was not issued for carrying or trading in stocks, bonds, or other investment securihes, except bonds and notes of the Government of the United States;
(d) The aggregate of notes, drafts, and bills bearing the signature or indorsement of any
°he borrower, whether a person, company, firm, or corporation, discounted for any one mem
ber bank, whether State or National, shall at no time exceed 10 per cent of the unimpaired
Capital and surplus of such bank; but this restriction shall not apply to the discount of bills
°f exchange drawn in good faith against actually existing values;
(e) I t is indorsed by a member bank; and
(/) I t conforms to all applicable provisions of this regulation.
No Federal Reserve Bank may discount for any member State bank or trust company
aHy of the notes, drafts, or bills of exchange of any one borrower who is liable for borrowed
^oney to such State bank or trust company in an amount greater than that which could be
borrowed lawfully from such State bank or trust company under the terms of section 5200 of
the United States Revised Statutes, as amended, were it a national banking association.
Any Federal Reserve Bank may make advances to its member banks on their promissory
^otes for a period not exceeding 15 days, provided that they are secured by notes, drafts, bills
°f exchange, or bankers’ acceptances which are eligible for discount or for purchase by Fedei*al Reserve Banks, or by the deposit or pledge of bonds or notes of the United States, or bonds
°f the War Finance Corporation.
(3)
4
S e c t io n
II. G e n e r a l C h a r a c t e r
N o t e s , D r a f t s , a n d B il l s o f E x c h a n g e E l ig ib l e .
of
The Federal Reserve Board, exercising its statutory right to define the character of a note,
draft, or bill of exchange eligible for discount at a Federal Reserve Bank has determined
that—
(a)
I t must be a negotiable note, draft, or bill of exchange which has been issued or drawn,
or the proceeds of which have been used or are to be used in the first instance, in producing,
purchasing, carrying, or marketing goods 1 in one or more of the steps of the process of pro
duction, manufacture, or distribution, or for the purpose of carrying or trading in bonds or
notes of the United States, and the name of a party to such transaction must appear upon it
as maker, drawer, acceptor, or indorser.
(5) I t must not be a note, draft, or bill of exchange the proceeds of which have been or
are to be advanced or loaned to some other borrower, except as to paper described below under
Sections VI (b) and VIII.
(c) It must not be a note, draft, or bill of exchange the proceeds of which have been used
or are to be used for permanent or fixed investments of any kind, such as land, buildings, or
machinery, or for any other capital purpose.
id) I t must not be a note, draft, or bill of exchange the proceeds of which have been used
or are to be used for investments of a purely speculative character.
(e)
I t may be secured by the pledge of goods or collateral of any nature, including paper
which is ineligible for discount, provided it (the note, draft, or bill of exchange) is otherwise
eligible.
S e c t io n
III.
A p p l ic a t io n s f o r D is c o u n t .
Every application for the discount of notes, drafts, or bills of exchange must contain a
certificate of the member bank, in form to be prescribed by the Federal Reserve Bank, that, to
the best of its knowledge and belief, such notes, drafts, or bills of exchange have been issued
or drawn, or the proceeds thereof have been or are to be used, for such a purpose as to render
them eligible for discount under the terms of this regulation, and, in the case of a member
State bank or trust company, every application must contain a certificate or guaranty to the
effect that the borrower is not liable, and will not be permitted to become liable during the time
his paper is held by the Federal Reserve Bank, to such bank or trust company for borrowed
money in an amount greater than that which could be borrowed lawfully from such State
bank or trust company under the terms of section 5200 of the United States Revised Statutes,
as amended, were it a national banking association.
S e c t io n
IV. P r o m isso r y N o t e s .
(a) Definition.—A promissory note, within the meaning of this regulation, is defined as
an unconditional promise, in writing, signed by the maker, to pay, in the United States, at
a fixed or determinable future time, a sum certain in dollars to order or to bearer.
(b) Evidence of eligibility and requirement of statements.—A Federal Reserve Bank must
be satisfied by reference to the note or otherwise that it is eligible for discount. The member
bank shall certify in its application whether the note offered for discount has been discounted
for a depositor other than a bank or for a nondepositor and, if discounted for a bank, whether
for a member or a nonmember bank. The member bank must also certify whether a financial
statement of the borrower is on file with it.
1 When used in this regulation the word “ goods” shall be construed to include goods, wares, merchandise, or
agricultural products, including live stock.
5
A recent financial statement of the borrower must be on file with the member bank in all
cases, unless the note was discounted by a member bank for a depositor (other than a bank)
or for another member bank, and—
(1) I t is secured by a warehouse, terminal, or other similar receipt covering goods in storage,
by a valid prior lien on live stock which is being marketed or fattened for market, or by bonds
or notes of the United States; or
(2) The aggregate of obligations of the borrower discounted and offered for discount at
the Federal Reserve Bank by the member bank is less than a sum equal to 10 per cent of the
paid-in capital of the member bank and is less than $5,000.
A Federal Reserve Bank shall use its discretion in taking the steps necessary to satisfy
itself as to eligibility. Compliance of a note with Section II (c) may be evidenced by a state
ment of the borrower showing a reasonable excess of quick assets over current liabilities. A
Federal Reserve Bank may, in all cases, require the financial statement of the borrower to be
filed with it.
S e c t io n V . D r a f t s , B il l s o f E x c h a n g e , a n d T r a d e A c c e p t a n c e s .
(a) Definition.—A draft or bill of exchange, within the meaning of this regulation, is
defined as an unconditional order in writing, addressed by one person to another, signed by
the person giving it, requiring the person to whom it is addressed to pay in the United States,
&t a fixed or determinable future time, a sum certain in dollars to the order of a specified
person; and a trade acceptance is defined as a draft or bill of exchange, drawn by the seller
on the purchaser of goods sold,2 and accepted by such purchaser.
(b) Evidence of eligibility and requirement of statements.—A Federal Reserve Bank shall
take such steps as it deems necessary to satisfy itself as to the eligibility of the draft, bill, or
trade acceptance offered for discount and may require a recent financial statement of one
or more parties to the instrument. The draft, bill, or trade acceptance should be drawn so as
to evidence the character of the underlying transaction, but if it is not so drawn evidence of
eligibility may consist of 'a stamp or certificate affixed by the acceptor or drawer in a form
satisfactory to the Federal Reserve Bank.
S e c t io n V I. A g r ic u l t u r a l P a p e r .
(a) Definition.—Agricultural paper, within the meaning of this regulation, is defined as a
negotiable note, draft, or bill of exchange issued or drawn, or the proceeds of which have been
or are to be used, for agricultural purposes, including the production of agricultural products,
the marketing of agricultural products by the growers thereof, or the carrying of agricultural
Products by the growers thereof pending orderly marketing, and the breeding, raising, fatten
ing, or marketing of live stock, and which has a maturity at the time of discount of not more
than nine months, exclusive of days of grace.
(b) Paper of cooperative marketing associations.—Under the express terms of section 13a,
notes, drafts, bills of exchange, or acceptances issued or drawn by cooperative marketing asso
ciations composed of producers of agricultural products are deemed to have been issued or
drawn for an agricultural purpose, if the proceeds thereof have been or are to be—
(1) Advanced by such association to any members thereof for an agricultural purpose, or
(2) Used by such association in making payments to any members thereof on account of
agricultural products delivered by such members to the association, or
2 A consignment of goods or a conditional sale of goods can not be considered “ goods sold” within the meaning
°f this clause. The purchase price of goods plus the cost of labor in effecting their installation may be included in
tbe amount for which the trade acceptance is drawn.
6
(3)
Used by such association to meet expenditures incurred or to be incurred by the asso
ciation in connection with the grading, processing, packing, preparation for market, or mar
keting of any agricultural product handled by such association for any of its members.
These are not the only classes of paper of such associations which are eligible for dis
count, however, and any other paper of such associations which complies with the applicable
requirements of this regulation may be discounted on the same terms and conditions as the
paper of any other person or corporation.
Paper of cooperative marketing associations the proceeds of which have been or are to be
used (1) to defray the expenses of organizing such associations, or (2) for the acquisition of
warehouses, for the purchase or improvement of real estate, or for any other permanent or
fixed investment of any kind, are not eligible for discount, even though such warehouses or
other property are to be used exclusively in connection with the ordinary operations of the
association.
(c) Eligibility.—To be eligible for discount, agricultural paper, whether a note, draft,
bill of exchange, or trade acceptance, must comply with the respective sections of this regula
tion which would apply to it if its maturity were 90 days or less.
(d) Discounts for Federal Intermediate Credit Banks.—Any Federal Reserve Bank may
discount agricultural paper for any Federal Intermediate Credit Bank; but no Federal Reserve
Bank shall discount for any Federal Intermediate Credit Bank any such paper which bears
the indorsement of any nonmember State bank or trust company which is eligible for member
ship in the Federal Reserve System under the terms of section 9 of the Federal Reserve Act as
amended. In discounting such paper each Federal Reserve Bank shall give preference to the
demands of its own member banks and shall have due regard to the probable future needs of
its own member banks; and no Federal Reserve Bank shall discount paper for any Federal
Intermediate Credit Bank when its own reserves amount to less than 50 per cent of its own
aggregate liabilities for deposits and Federal reserve notes in actual circulation. The aggre
gate amount of paper discounted by all Federal Reserve Banks for any one Federal Intermediate
Credit Bank shall at no time exceed an amount equal to the paid-up and unimpaired capital
and surplus of such Federal Intermediate Credit Bank.
(e) limitations.—The Federal Reserve Board prescribes no limitation on the aggregate
amount of notes, drafts, bills of exchange, and acceptances with maturities in excess of
three months, but not exceeding six months, exclusive of days of grace, which may be dis
counted by any Federal Reserve Bank; but] the aggregate amount of notes, drafts, bills of
exchange, and acceptances with maturities in excess of six months, but not exceeding nine
months, which may be discounted by any Federal Reserve Bank shall not exceed 10 per
cent of its total assets.
S e c t io n
VII. S ig h t D r a f t s S e c u r e d
by
B il l s o f L a d in g .
A Federal Reserve Bank may discount for any of its member banks bills of exchange pay
able at sight or on demand which—
(a) Are drawn to finance the domestic shipment of nonperishable, readily marketable,
staple agricultural products, and
(b) Are secured by bills of lading or other shipping documents conveying or securing title
to such staples.
All such bills of exchange shall be forwarded promptly for collection, and demand for
payment shall be made promptly, unless the drawer instructs that they be held until arrival of
car, in which event they must be presented for payment within a reasonable time after notice
of arrival of such staples at their destination has been received. In no event shall any such
bill be held by or for the account of a Federal Reserve Bank for a period in excess of 90 days.
7
In discounting such bills Federal Reserve Banks may compute the interest to be deducted
on the basis of the estimated life of each bill and adjust the amount thus deducted after pay
ment of such bills to conform to the actual life thereof.
S e c t io n
VIII. F a c t o r s 7 P a p e r .
Notes, drafts, and bills of exchange of factors issued as such for the purpose of making
advances exclusively to producers of staple agricultural products in their raw state are eligible
for discount with maturities not in excess of 90 days, exclusive of days of grace, irrespective
of the requirements of Sections 11(a) and 11(6).
ARTICLE B.
BANKERS' ACCEPTANCES.
S e c t io n
IX. D e f in it io n .
A banker’s acceptance within the meaning of this regulation is defined as a draft or bill
of exchange, whether payable in the United States or abroad and whether payable in dollars
or some other money, of which the acceptor is a bank or trust company, or a firm, person,
company, or corporation engaged generally in the business of granting bankers’ acceptance
credits.
S e c t io n X. E l ig ib il it y .
A Federal Reserve Bank may discount any such bill bearing the indorsement of a member
bank and having a maturity at the time of discount not greater than that prescribed by Section
X l (a), which has been drawn under a credit opened for the purpose of conducting or settling
accounts resulting from a transaction or transactions involving any one of the following:
(1) The shipment of goods between the United States and any foreign country, or
between the United States and any of its dependencies or insular possessions, or between
foreign countries, or between dependencies or insular possessions and foreign countries;
(2) The shipment of goods within the United States, provided shipping docu
ments conveying security title are attached at the time of acceptance; or
(3) The storage of readily marketable staples,3 provided that the bill is secured
at the time of acceptance by a warehouse, terminal, or other similar receipt, conveying
security title to such staples, issued by a party independent of the customer, and pro
vided further that the acceptor remains secured throughout the life of the acceptance.
In the event that the goods must be withdrawn from storage prior to the maturity of
the acceptance or the retirement of the credit, a trust receipt or other similar docu
ment covering the goods may be substituted in lieu of the original document, provided
that such substitution is conditioned upon a reasonably prompt liquidation of the
credit. In order to insure compliance with this condition it should be required, when
the original document is released, either (a) that the proceeds of the goods will be
applied within a specified time toward a liquidation of the acceptance credit or (b) that
a new document, similar to the original one, will be resubstituted within a specified
time.
Provided, that acceptances for any one customer in excess of 10 per cent of the capital and
Surplus of the accepting bank must remain actually secured throughout the life of the acceptance,
_ 3 A readily marketable staple within the meaning of these regulations may be defined as an article of commerce,
agriculture, or industry of such uses as to make it the subject of constant dealings in ready markets with such frequent
Rotations of price as to make (a) the price easily and definitely ascertainable and (b) the staple itself easy to realize
aPon by gale at any time.
52947°—23----- 2
8
and in the case of the acceptances of member banks this security must consist of shipping
documents, warehouse receipts, or other such documents, or some other actual security growing
out of the same transaction as the acceptance, such as documentary drafts, trade acceptances,
terminal receipts, or trust receipts which have been issued under such circumstances, and which
cover goods of such a character, as to insure at all times a continuance of an effective and lawful
lien in favor of the accepting bank, other trust receipts not being considered such actual security
if they permit the customer to have access to or control over the goods.
A Federal Reserve Bank may also discount any bill drawn by a bank or banker in a
foreign country or dependency or insular possession of the United States for the purpose of
furnishing dollar exchange as provided in Regulation C, provided that it has a maturity at the
time of discount of not more than three months* exclusive of days of grace.
S e c t io n
XI. M a t u r it ie s .
(a) Legal requirements.—No such acceptance is eligible for discount which has a ma
turity at the time of discount in excess of 90 days’ sight, exclusive of days of grace, except that
acceptances drawn for agricultural purposes and secured at the time of acceptance by ware
house receipts or other such documents conveying or securing title covering readily market
able staples may be discounted with maturities at the time of discount of not more than six
months’ sight, exclusive of days of grace.
(b) General conditions as to maturity of domestic acceptances.—Although a Federal
Reserve Bank may legally discount an acceptance having a maturity at the time of discount
not greater than that prescribed under (a), it may decline to discount any acceptance the ma
turity of which is in excess of the usual or customary period of credit required to finance the
underlying transaction or which is in excess of that period reasonably necessary to finance such
transaction. Since the purpose of permitting the acceptance of drafts secured by warehouse
receipts or other such documents is to permit of the temporary holding of readily marketable
staples in storage pending a reasonably prompt sale, shipment, or distribution, no such accept
ance should have a maturity in excess of the time ordinarily necessary to effect a reasonably
prompt sale, shipment, or distribution into the process of manufacture or consumption.
S e c t io n
X II. E v id e n c e
of
E l ig ib il it y .
A Federal Reserve Bank must be satisfied, either by reference to the acceptance itself, or
otherwise, that the acceptance is eligible for discount under the terms of the law and the pro
visions of this regulation. The bill itself should be drawn so as to evidence the character of
the underlying transaction, but if it is not so drawn evidence of eligibility may consist of a
stamp or certificate affixed by the acceptor in form satisfactory to the Federal Reserve Bank.
REGULATION B.
Series of 1923.
(S up erseding R eg u la tio n B of 1922.)
OPEN MARKET PURCHASES OF BILLS OF EXCHANGE, TRADE ACCEPTANCES, AND
BANKERS’ ACCEPTANCES UNDER SECTION 14.
S e c t io n
I. G e n e r a l S ta t u t o r y P r o v is io n s .
Section 14 of the Federal Reserve Act provides that, under rules and regulations to be
prescribed by the Federal Reserve Board, Federal Reserve Banks may purchase and sell in the
°pen market, at home or abroad, from or to domestic or foreign banks, firms, corporations, or
individuals, bills of exchange of the kinds and maturities made eligible by the act for discount
and bankers’ acceptances, with or without the indorsement of a member bank.
S e c t io n
II. G e n e r a l C h a r a c t e r
of
B il l s a n d A c c e p t a n c e s E l ig ib l e .
The Federal Reserve Board, exercising its statutory right to regulate the purchase of bills
°f exchange and acceptances, prescribes that—
(a) Any banker’s acceptance or bill of exchange which is eligible for discount under the
terms of Regulation A is eligible for purchase by Federal Reserve Banks in the open market,
Udth. or without the indorsement of a member bank, if—
(1) It has been accepted by the drawee prior to purchase; or
(2) I t is accompanied or secured by shipping documents or by warehouse, ter
minal, or other similar receipts conveying security title; or
(3) It bears a satisfactory bank indorsement;
(b) A banker’s acceptance growing out of a transaction involving the importation or
exportation of goods may be purchased if it has a maturity not in excess of six months, exclusive
°f days of grace, provided that it conforms in other respects to the applicable requirements of
Regulation A; and
(c) A banker’s acceptance growing out of a transaction involving the storage within the
United States of goods actually under contract for sale and not yet delivered or paid for may
be purchased, provided that the acceptor is secured by the pledge of such goods, and provided
Rather, that the acceptance conforms in other respects to the applicable requirements of Regu
lation A.
S e c t io n III. S t a t e m e n t s .
A bill of exchange, unless indorsed by a member bank, is not eligible for purchase until a
satisfactory statement has been furnished of the financial condition of one or more of the parties
thereto.
A banker’s acceptance, unless accepted or indorsed by a member bank, is not eligible for
Purchase until the acceptor has furnished a satisfactory statement of its financial condition in
hum to be approved by the Federal Reserve Bank and has agreed in writing with a Federal
■Reserve Bank to inform it upon request concerning the transaction underlying the acceptance.
(9)
REGULATION C.
Series of 1923.
(Superseding R eg u la tio n C o f 1920.)
ACCEPTANCE BY MEMBER BANKS OF DRAFTS AND BILLS OF EXCHANGE.
ARTICLE A.
Acceptance of drafts or bills of exchange drawn against domestic or foreign shipments of goods
or secured by warehouse receipts covering readily marketable staples.
S e c t io n
I. S t a t u t o r y P r o v is io n s .
Under the provisions of the sixth paragraph of section 13 of the Federal Reserve Act,
as amended, any member bank may accept drafts or bills of exchange drawn upon it,
having not more than six months’ sight to run, exclusive of days of grace, which grow
out of transactions involving the importation or exportation of goods; or which grow
out of transactions involving the domestic shipment of goods, provided shipping docu
ments conveying or securing title are attached at the time of acceptance; or which are
secured at the time of acceptance by a warehouse receipt or other such document con
veying or securing title covering readily marketable staples.1 This paragraph limits the
amount which any bank shall accept for any one person, company, firm, or corporation, whether
in a foreign or domestic transaction, to an amount not exceeding at any time, in the aggregate,
more than 10 per cent of its paid-up and unimpaired capital stock and surplus. This limit?
however, does not apply' in any case where the accepting bank remains secured either by
attached documents or by some other actual security growing out of the same transaction as
the acceptance. A trust receipt which permits the customer to have access to or control over
the goods will not be considered by Federal Reserve Banks to be “ actual security” within the
meaning of section 13. A bill of lading draft, however, is “ actual security” even after the
documents have been released, provided that the draft is accepted by the drawee upon or
before the surrender of the documents. The law also provides that any bank may accept
such bills up to an amount not exceeding at any time, in the aggregate, more than one-half of
its paid-up and unimpaired capital stock and surplus; or, with the approval of the Federal
Reserve Board, up to an amount not exceeding at any time, in the aggregate, more than 100
per cent of its paid-up and unimpaired capital stock and surplus. In no event, however,
shall the aggregate amount of acceptances growing out of domestic transactions exceed 50 per
cent of such capital stock and surplus.
S e c t io n
II. R e g u l a t io n s .
1.
Under the provisions of the law referred to above the Federal Reserve Board has
determined that any member bank, having an unimpaired surplus equal to at least 20 per
cent of its paid-up capital, which desires to accept drafts or bills of exchange drawn for the
1 A readily marketable staple within the meaning of these regulations may be defined as an article of commerce
agriculture, or industry of such uses as to make it the subject of constant dealings in ready markets with such frequent
quotations of price as to make (a) the price easily and definitely ascertainable and (b) the staple itself easy to realize
upon by sale at any time.
(10)
11
purposes described above, up to an amount not exceeding at any time, in the aggregate, 100
per cent of its paid-up and unimpaired capital stock and surplus, may file an application for
that purpose with the Federal Reserve Board. Such application must be forwarded through
the Federal Reserve Bank of the district in which the applying bank is located.
2. The Federal Reserve Bank shall report to the Federal Reserve Board upon the standing
of the applying bank, stating whether the business and banking conditions prevailing in its
district warrant the granting of such application.
3. The approval of any such application may be rescinded upon 90 days’ notice to the bank
affected.
ARTICLE B.
Acceptance of drafts or bills of exchange drawn for the purpose of creating dollar exchange.
S e c t io n
III. S t a t u t o r y P r o v is io n s .
Section 13 of the Federal Reserve Act also provides that any member bank may accept drafts
or bills of exchange drawn upon it having not more than three months’ sight to run, exclusive
of days of grace, drawn, under regulations to be prescribed by the Federal Reserve Board, by
banks or bankers in foreign countries or dependencies or insular possessions of the United
States for the purpose of furnishing dollar exchange as required by the usages of trade in the
respective countries, dependencies, or insular possessions.
No member bank shall accept such drafts or bills of exchange for any one bank to an amount
exceeding in the aggregate 10 per cent of the paid-up and unimpaired capital and surplus
of the accepting bank unless the draft or bill of exchange is accompanied by documents con
veying or securing title or by some other adequate security. No member bank shall accept
such drafts or bills in an amount exceeding at any time in the aggregate one-half of its paid-up
and unimpaired capital and surplus. This 50 per cent limit is separate and distinct from and
not included in the limits placed upon the acceptance of drafts and bills of exchange as
described under Article A of this regulation.
S e c t io n
IV. R e g u l a t io n s .
Any member bank desiring to accept drafts drawn by banks or bankers in foreign coun
tries or dependencies or insular possessions of the United States for the purpose of furnishing
dollar exchange shall first make an application to the Federal Reserve Board setting forth the
Usages of trade in the respective countries, dependencies, or insular possessions in which such
banks or bankers are located.
If the Federal Reserve Board should determine that the usages of trade in such countries,
dependencies, or possessions require the granting of the acceptance facilities applied for, it will
notify the applying bank of its approval and will also publish in the Federal Reserve Bulletin
the name or names of those countries, dependencies, or possessions in which banks or bankers
are authorized to draw on member banks whose applications have been approved for the pur
pose of furnishing dollar exchange.
The Federal Reserve Board reserves the right to modify or on 90 days’ notice to revoke
its approval either as to any particular member bank or as to any foreign country or depend
ency or insular possession of the United States in which it has authorized banks or bankers to
draw on member banks for the purpose of furnishing dollar exchange.
REGULATION D.
Series of 1923.
(Sup erseding R eg u la tio n D o f 1920.)
TIME DEPOSITS AND SAVINGS ACCOUNTS.
S e c t io n
I. S t a t u t o r y P r o v is io n s .
Section 19 of the Federal Reserve Act provides, in part, as follows:
“ 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 t io n
II. T im e D e p o s it s , O p e n A c c o u n t s .
The term “ time deposits, open accounts” shall be held to include all accounts, not evi
denced by certificates of deposit or savings pass books, in respect to which a written contract
is entered into with the depositor at the time the deposit is made that neither the whole nor
any part of such deposit may be withdrawn by check or otherwise, except on a given date or
on written notice which must be given by the depositor a certain specified number of days in
advance, in no case less than 30 days.
S e c t io n
III. S a v in g s A c c o u n t s .
The term “ savings accounts” shall be held to include those accounts of the bank in respect
to which, by its printed, regulations, accepted by the depositor at the time the account is
opened—
(а) The pass book, certificate, or other similar form of receipt must be presented to the
bank whenever a deposit or withdrawal is made, and
(б) The depositor may at any time be required by the bank to give notice of an intended
withdrawal not less than 30 days before a withdrawal is made.
S e c t io n
IV. T im e C e r t if ic a t e s
of
D e p o s it .
A “ time certificate of deposit” is defined as an instrument evidencing the deposit with a
bank, either with or without interest, of a certain sum specified on the face of the certificate
payable in whole or in part to the depositor or on his order—
(a) On a certain date, specified on the certificate, not less than 30 days after the date
of the deposit, or
(b) After the lapse of a certain specified time subsequent to the date of the certificate,
in no case less than 30 days, or
(c) Upon written notice, which the bank may at its option require to be given a certain
specified number of days, not less than 30 days, before the date of repayment, and
(id) In all cases only upon presentation of the certificate at each withdrawal for proper
indorsement or surrender.
(12)
REGULATION E.
Series of 1923.
(Superseding R eg u la tio n E of 1920.)
PURCHASE OF WARRANTS.
S e c t io n
I. S t a t u t o r y R e q u ir e m e n t s .
Section 14 of the Federal Reserve Act reads in part as follows:
“ Every Federal Reserve Bank shall have power—
“ (b) To buy and sell, at home or abroad, bonds and notes of the United States, and bills,
notes, revenue bonds, and warrants with a maturity from date of 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 pur
chases to be made in accordance with rules and regulations prescribed by the Federal Reserve
Board.’’
S e c t io n II. D e f in it io n s .
Within the meaning of this regulation—
The term “ w arrant” shall be construed to mean “ bills, notes, revenue bonds, and war
rants with a maturity from date of purchase of not exceeding six months.”
The term “ municipality” shall be construed to mean “ State, county, district, political
subdivision, or municipality in the continental United States, including irrigation, drainage,
and reclamation districts.”
The term “ net funded indebtedness” shall be construed to mean the legal gross indebted
ness of the municipality (including the amount of any school district or other bonds which
depend for their redemption upon taxes levied upon property within the municipality) less the
aggregate of the following items:
(1) The amount of outstanding bonds or other debt obligations made payable from current
revenues;
(2) The amount of outstanding bonds issued for the purpose of providing the inhabitants
of a municipality with public utilities, such as waterworks, docks, electric plants, transporta
tion facilities, etc.: Provided, That evidence is submitted showing that the income from such
utilities is sufficient for maintenance, for payment of interest on such bonds, and for the
accumulation of a sinking fund sufficient for their redemption at maturity;
(3) The amount of outstanding improvement bonds, issued under laws which provide for
the levying of special assessments against abutting property in amounts sufficient to insure the
payment of interest on the bonds and the redemption thereof at maturity: Provided, That
such bonds are direct obligations of the municipality and included in the gross indebtedness of
the municipality; and
(4) The total of all sinking funds accumulated for the redemption of the gross indebtedness
of the municipality, except sinking funds applicable to bonds described in (1), (2), and (3) above.
(13)
14
III. C lass o f W a r r a n t s E l ig ib l e f o r P u r c h a s e .
Any Federal Reserve Bank may purchase warrants issued by a municipality in antici
pation of the collection of taxes or in anticipation of the receipt of assured revenues, provided—
(а) They are the general obligations of the entire municipality; it being intended to ex
clude as ineligible for purchase all such obligations as are payable from “ local benefit” and
“ special assessment” taxes when the municipality at large is not directly or ultimately liable;
(б) They are issued in anticipation of taxes or revenues which are due and payable on
or before the date of maturity of such warrants; but the Federal Reserve Board may waive
this condition in specific cases. For the purposes of this regulation, taxes shall be considered
as due and payable on the last day on which they may be paid without penalty;
(c) They are issued by a municipality—
(1) Which has been in existence for a period of 10 years;
(2) Which for a period of 10 years previous to the purchase has not defaulted
for longer than 15 days in the payment of any part of either principal or interest
of any funded debt authorized to be contracted by it;
(3) Whose net funded indebtedness does not exceed 10 per centum of the valua
tion of its taxable property, to be ascertained by the last preceding valuation of
property for the assessment of taxes.
S e c t io n
S e c t io n IY . “ E x i s t e n c e ” a n d “ N o n d e f a u l t . ”
Warrants will be construed to comply with that part of Section III (c) relative to term of
existence and nondefault, under the following conditions:
(1) Warrants issued by or in behalf of any municipality which was, subsequent to the
issuance of such warrants, consolidated with or merged into an existing political division which
meets the requirements of these regulations, will be deemed to be the warrants of such political
division: Provided, That such warrants were assumed by such political division under statutes
and appropriate proceedings the effect of which is to make such warrants general obligations
of such assuming political division and payable, either directly or ultimately, without limitation
to a special fund from the proceeds of taxes levied upon all the taxable real and personal property
within its territorial limits.
(2) Warrants issued by or in behalf of any municipality which was, subsequent to the
issuance of such warrants, wholly succeeded by a newly organized political division whose term
of existence, added to that of such original political division or of any other political division
so succeeded, is equal to a period of 10 years will be deemed to be warrants of such succeeding
political division: Provided, That during such period none of such political divisions shall have
defaulted for a period exceeding 15 days in the payment of any part of either principal or interest
of any funded debt authorized to be contracted by i t : And provided further, That such warrants
were assumed by such new political division under statutes and appropriate proceedings the
effect of which is to make such warrants general obligations of such assuming political division
and payable, either directly or ultimately, without limitation to a special fund, from the
proceeds of taxes levied upon all the taxable real and personal property within its territorial
limits.
(3) Warrants issued by or in behalf of any municipality which, prior to such issuance,
became the successor of one or more, or was formed by the consolidation or merger of two or
more, preexisting political divisions, the term of existence of one or more of which, added to
that of such succeeding or consolidated political division, is equal to a period of 10 years, will
be deemed to be warrants of a political division which has been in existence for a period of 10
years: Provided, That during such period none of such original, succeeding, or consolidated
political divisions shall have defaulted for a period exceeding 15 days in the payment of any
part of either principal or interest of any funded debt authorized to be contracted by it.
15
S e c t io n
V. L im it a t io n s .
(а) Except with the approval of the Federal Reserve Board, no Federal Reserve Bank
shall purchase and hold an amount in excess of 25 per cent of the total amount of warrants
outstanding at any time and issued in conformity with provisions of section 14 (b) , above quoted,
and actually sold by a municipality.
(б) Except with the approval of the Federal Reserve Board, the aggregate amount invested
by any Federal Reserve Bank in warrants of all kinds shall not exceed at the time of purchase
a sum equal to 10 per cent of the deposits kept by its member banks with such Federal
Reserve Bank.
(c) Except with the approval of the Federal Reserve Board, the maximum amount which
may be invested at the time of purchase by any Federal Reserve Bank in warrants of any single
municipality shall be limited to the following percentages of the deposits kept in such Federal
Reserve Bank by its member banks:
Five per cent of such deposits in warrants of a municipality of 50*,000 population or over;
Three per cent of such deposits in warrants of a municipality of over 30,000 population,
but less than 50,000;
One per cent of such deposits in warrants of a municipality of over 10,000 population,
but less than 30,000.
(d) Any Federal Reserve Bank may purchase from any of its member banks warrants of
any municipality, indorsed by such member bank, with waiver of demand, notice, and protest
if such warrants comply with Sections III and V (b) of these regulations, except that where a
period of 10 years is mentioned in III (c) hereof a period of 5 years shall be substituted for the
purposes of this clause.
S e c t io n
VI. W a r r a n t s
of
S m a ll M u n ic ip a l it ie s .
Warrants of a municipality of 10,000 population or less shall be purchased only with the
special approval of the Federal Reserve Board.
The population of a municipality shall be determined by the last Federal or State census.
Where it can not be exactly determined the Federal Reserve Board will make special rulings.
S e c t io n
VII. O p in io n
of
Co u n s e l .
Opinion of recognized counsel on municipal issues or of the regularly appointed counsel
of the municipality as to the legality of the issue shall be secured and approved in each case
by coimsel for the Federal Reserve Bank.
52947°—23---- 3
REGULATION F.
Series of 1923.
(S u p ersed in g R egu lation F of 1920.)
TRUST POWERS OF NATIONAL BANKS.
S e c t io n
I. S ta t u t o r y P r o v is io n s .
The Federal Reserve Act as amended by the act of September 26, 1918, provides in part:
S e c . 11. The Federal Reserve Board shall be authorized and empowered:
(k) To grant by special permit to national banks applying therefor, when not in contra
vention of State or local law, the right to act as trustee, executor, administrator, registrar of
stocks and bonds, guardian of estates, assignee, receiver, committee of estates of lunatics, or
in any other fiduciary capacity in which State banks, trust companies, or other corporations
which come into competition with national banks are permitted to act under the laws of the
State in which the national bank is located.
Whenever the laws of such State authorize or permit the exercise of any or all of the fore
going powers by State banks, trust companies, or other corporations which compete with
national banks, the granting to and the exercise of such powers by national banks shall not be
deemed to be in contravention of State or local law within the meaning of this Act.
National banks exercising any or all of the powers enumerated in this subsection shall
segregate all assets held in any fiduciary capacity from the general assets of the bank and shall
keep a separate set of books and records showing in proper detail all transactions engaged in
under authority of this subsection. Such books and records shall be open to inspection by
the State authorities to the same extent as the books and records of corporations organized
under State law which exercise fiduciary powers, but nothing in this Act shall be construed
as authorizing the State authorities to examine the books, records, and assets of the national
bank which are not held in trust under authority of this subsection.
No national bank shall receive in its trust department deposits of current funds subject
to check or the deposit of checks, drafts, bills of exchange, or other items for collection or
exchange purposes. Funds deposited or held in trust by the bank awaiting investment shall
be carried in a separate account and shall not be used by the bank in the conduct of its business
unless it shall first set aside in the trust department United States bonds or other securities
approved by the Federal Reserve Board.
In the event of the failure of such bank the owners of the funds held in trust for investment
shall have a lien on the bonds or other securities so set apart in addition to their claim against
the estate of the bank.
Whenever the laws of a State require corporations acting in a fiduciary capacity, to deposit
securities with the State authorities for the protection of private or court trusts, national
banks so acting shall be required to make similar deposits and securities so deposited shall
be held for the protection of private or court trusts, as provided by the State law.
National banks in such cases shall not be required to execute the bond usually required
of individuals if State corporations under similar circumstances are exempt from this requirement.
National banks shall have power to execute such bond when so required by the laws of
the State.
In any case in which the laws of a State require that a corporation acting as trustee,
executor, administrator, or in any capacity specified in this section, shall take an oath or make
an affidavit, the president, vice president, cashier, or trust officer of such national bank may
take the necessary oath or execute the necessary affidavit.
I t shall be unlawful for any national banking association to lend any officer, director, or
employee any funds held in trust under the powers conferred by this section. Any officer,
director, or employee making such loan, or to whom such loan is made, may be fined not more
(16)
17
than $5,000, or imprisoned not more than five years, or may be both fined and imprisoned,
m the discretion of the court.
In passing upon applications for permission to exercise the powers enumerated in this
subsection, the Federal Reserve Board may take into consideration the amount of capital and
surplus of the applying bank, whether or not such capital and surplus is sufficient under the
circumstances of the case, the needs of the community to be served, and any other facts and
circumstances that seem to it proper, and may grant or refuse the application accordingly:
Provided, That no permit shall be issued to any national banking association having a capital
and surplus less than the capital and surplus required by State law of State banks, trust com
panies, and corporations exercising such powers.
S e c t io n
II. A p p l ic a t io n s .
A national bank desiring to exercise any and all of the powers authorized by section 11 (k)
of the Federal Reserve Act, as amended by the Act of September 26, 1918, shall make appli
cation to the Federal Reserve Board, on a form approved by said Board, for a special permit
authorizing it to exercise such powers. In the case of an original application—that is, where
the applying bank has never been granted the right to exercise any of the powers authorized
by section 11 (k)—the application should be made on F. R. B. Form 61. In the case of a supple
mental application—that is, where the applying bank has already been granted the right to
exercise one or more of the powers authorized by section 11 (k)—the application should be
made on F. R. B. Form 61-b. Both forms are made a part of this regulation and may be
obtained from the Federal Reserve Board or any Federal Reserve Bank.
S e c t io n
III. S e p a r a t e D e p a r t m e n t s .
Every national bank permitted to act under this section shall establish a separate trust
department, and shall place such department under the management of an officer or officers,
^hose duties shall be prescribed by the board of directors of the bank.
S e c t io n IV . C u sto d y o f T r u s t S e c u r it ie s an d I n v e s t m e n t s .
The securities and investments held in each trust shall be kept separate and distinct from
the securities owned by the bank and separate and distinct one from another. Trust securities
aud investments shall be placed in the joint custody of two or more officers or other employees
designated by the board of directors of the bank and all such officers and employees shall
be bonded.
S e c t io n V . D e p o s it o f F u n d s A w a it in g I n v e s t m e n t o r D is t r ib u t io n .
Funds received or held in the trust department of a national bank awaiting investment
°r distribution may be deposited in the commercial department of the bank to the credit of
the trust department, provided that the bank first delivers to the trust department, as collateral
security, United States bonds, or other readily marketable securities owned by the bank, which
collateral security shall at all times be at least equal in market value to the amount of the
funds so deposited.
S e c t io n VI. I n v e s t m e n t o f T r u s t F u n d s .
(a)
Private trusts.—Funds held in trust must be invested in strict accordance with the
terms of the will, deed, or other instrument creating the trust. Where the instrument creating
the trust contains provisions authorizing the bank, its officers, or its directors to exercise their
discretion in the matter of investments, funds held in trust may be invested only in those classes
18
of securities which are approved by the directors of the bank. Where the instrument creating
the trust does not specify the character or class of investments to be made and does not expressly
vest in the bank, its officers, or its directors a discretion in the matter of investments, funds
held in trust shall be invested in any securities in which corporate or individual fiduciaries in
the State in which the bank is located may lawfully invest.
(b)
Court trusts.—Except as hereinafter provided, a national bank acting as executor
administrator, or in any other fiduciary capacity, under appointment by a court of competent
jurisdiction, shall make all investments under an order of that court, and copies of all such
orders shall be filed and preserved with the records of the trust department of the bank.
If the court by general order vests a discretion in the national bank to invest funds held in
trust, or if under the laws of the State in which the bank is located corporate fiduciaries
appointed by the court are permitted to exercise such discretion, the national bank so appointed
may invest such funds in any securities in which corporate or individual fiduciaries in the
State in which the bank is located may lawfully invest.
S e c t io n
VII. B o oks
and
A cco u n ts.
All books and records of the trust department shall be kept separate and distinct from
other books and records of the bank. All accounts opened shall be so kept as to enable the
national bank at any time to furnish information or reports required by the Federal or State
authorities, and such books and records shall be open to the inspection of such authorities.
S e c t io n
VIII. E x a m in a t io n s .
Examiners appointed by the Comptroller of the Currency or designated by the Federal
Reserve Board will be instructed to make thorough and complete audits of the cash, securities,
accounts, and investments of the trust department of the bank at the same time that examination
is made of the banking department.
S e c t io n
IX. C o n fo r m it y
w it h
Sta te L a w s.
Nothing in these regulations shall be construed to give a national bank exercising the
powers permitted under the provisions of section 11 (k) of the Federal Reserve Act, as amended,
any rights or privileges in contravention of the laws of the State in which the bank is located
within the meaning of that Act.
S e c t io n
X. R e v o c a t io n
of
P e r m it s .
The Federal Reserve Board reserves the right to revoke permits granted under the pro
visions of section 11 (k), as amended, in any case where in the opinion of the Board a bank has
willfully violated the provisions of the Federal Reserve Act or of these regulations or the laws
of any State relating to the operations of such bank when acting in any of the capacities per
mitted under the provisions of section 11 (k), as amended.
S e c t io n
XI. C h a n g e s
in
R e g u l a t io n s .
These regulations are subject to change by the Federal Reserve Board; provided, however,
that no such change shall prejudice any obligation undertaken in good faith under regulations
in effect at the time the obligation was assumed.
REGULATION G.
Series of 1923.
(Superseding R eg u la tio n G of 1920.)
LOANS ON FARM LAND AND OTHER REAL ESTATE.
Section 24 of the Federal Reserve Act provides in part that—
Any national banking association not situated in a central reserve city may make loans
secured by improved and unencumbered farm land situated within its Federal reserve district
°r within a radius of one hundred miles of the place in which such bank is located, irrespective
of district lines, and may also make loans secured by improved and unencumbered real estate
located within one hundred miles of the place in which such bank is located, irrespective of
district lines; but no loan made upon the security of such farm land shall be made for a longer
time than five years, and no loan made upon the security of such real estate as distinguished
from farm land shall be made for a longer time than one year nor shall the amount of any such
loan, whether upon such farm land or upon such real estate, exceed fifty per centum of the
actual value of the property offered as security. Any such bank may make such loans, whether
secured by such farm land or such real estate, in an aggregate sum equal to twenty-five per
centum of its capital and surplus or to one-third of its time deposits and such banks may
continue hereafter as heretofore to receive time deposits and to pay interest on the same.
National banks not located in central reserve cities may, therefore, legally make
loans secured by improved and unencumbered farm land or other real estate as provided by
this section.
Certain conditions and restrictions must, however, be observed—■
(a) There must be no prior lien on the land; that is, the lending bank must hold an abso
lute first mortgage or deed of trust.
(b) The amount of the loan must not exceed 50 per cent of the actual value of the land by
Which it is secured.
(c) The maximum amount of loans which a national bank may make on real estate,
Whether on farm land or on other real estate as distinguished from farm land, is limited under
the terms of the Act to an amount not in excess of one-third of its time deposits at the time of
the making of the loan, and not in excess of one-third of its average time deposits during the
preceding calendar year: Provided, however, That if one-third of such time deposits as of the
date of making the loan or one-third of the average time deposits for the preceding calendar
year, is less than one-fourth of the capital and surplus of the bank as of the date of making the
loan, the bank in such event shall have authority to make loans upon real estate under the
terms of the Act to the extent of one-fourth of the bank’s capital and surplus as of that date.
(d) Farm land to be eligible as security for a loan by a national bank must be situated
Within the Federal reserve district in which such bank is located or within a radius of 100 miles
of such bank irrespective of district lines.
(e) Real estate as distinguished from farm land to be eligible as security for a loan by
a national bank must be located within a radius of 100 miles of such bank irrespective of
district lines.
(/) The right of a national bank to “ make loans7’ under section 24 includes the right to
purchase or discount loans already made as well as the right to make such loans in. the first
instance: Provided, however, That no loan secured by farm land shall have a maturity of more
than five years from the date on which it was purchased or made by the national bank and
52947°—23----4
(19)
20
that no loan secured by other real estate shall have a maturity of more than one year from
such date.
(g) Though no national bank is authorized under the provisions of section 24 to make a
loan on the security of real estate, other than farm land, for a period exceeding one year, never
theless, at the end of the year, the maturing note may be renewed or extended for another
year, and in order to obviate the necessity of making a new mortgage or deed of trust for
each renewal the original mortgage or deed of trust may be so drawn in the first instance as to
cover possible future renewals of the original note. Under no circumstances, however, must the
bank obligate itself in advance to make such a renewal. It must in all cases preserve the right
to require payment at the end of the year and to foreclose the mortgage should that action
become necessary. The same principles apply to loans of longer maturities secured by farm
lands.
Qi) In order that real estate loans held by a bank may be readily classified, a statement
signed by the officers making a loan and having knowledge of the facts upon which it is based
must be attached to each note secured by a first mortgage on the land by which the loan is
secured, certifying in detail as of the date of the loan that all of the requirements of law have
been duly observed.
REGULATION H.
Series of 1923.
(Superseding R eg u la tio n H of 1920.)
MEMBERSHIP OF STATE BANKS AND TRUST COMPANIES.
S
e c t io n
I.
B
anks
E
l ig ib l e
fo r
M
e m b e r s h ip
.
1. Incorporation.—In order to be eligible for membership in a Federal Reserve Bank, a
State bank or trust company must have been incorporated under a special or general law of
the State or district in which it is located.
2. Capital stock.—Under the terms of section 9 of the Federal Reserve Act as amended,
no appljdng bank can be admitted to membership in a Federal Reserve Bank unless—
(a) I t possesses a paid-up, unimpaired capital sufficient to entitle it to become a national
banking association in the place where it is situated, under the provisions of the National
Bank Act, or
(b) I t possesses a paid-up, unimpaired capital of at' least 60 per cent of such amount,
and, under penalty of loss of membership, complies with the rules and regulations herein pre
scribed by the Federal Reserve Board fixing the time within which and the method by which
the unimpaired capital of such bank shall be increased out of net income to equal the capital
required under (a).
In order to become a member of the Federal Reserve System, therefore, any State bank
°r trust company must have a minimum paid-up capital stock at the time it becomes a member,
as follows:
If located in a city or town with a population of—
Minimum capi Minimum capi
tal if admitted tal if admitted
under clause (o). under clause (&).
$25,000
50,000
hot exceeding 3,000 inhabitants....................... . ..........
Exceeding 3,000 but not exceeding 6,000 inhabitants..
Exceeding 6,000 but not exceeding 50,000 inhabitants.
-Exceeding 50,000 inhabitants........................................
100,000
$15,000
30.000
60.000
200,000
120,000
Any bank admitted to membership under clause (6) must also, as a condition of member
ship, the violation of which will subject it to expulsion from the Federal Reserve System, in
crease its paid-up and unimpaired capital within five years after the approval of its application
by the Federal Reserve Board to the amount required under (a). For the purpose of providing
for such increase, every such bank shall set aside each year in a fund exclusively applicable to
such capital increase not less than 50 per cent of its net earnings for the preceding year prior
io the payment of dividends, and if such net earnings exceed 12 per cent of the paid-up capital
°f such bank, then all net earnings in excess of 6 per cent of the paid-up capital shall be carried
fo such fund, until such fund is large enough to provide for the necessary increase in capital.
Whenever such fund shall be large enough to provide for the necessary increase in capital, or
at such other time as the Federal Reserve Board may require, such fund or as much thereof as
^ a y be necessary shall be converted into capital by a stock dividend or used in any other
Uianner permitted by State law to increase the capital of such bank to the amount required
(21)
under (a): Provided, however, That such bank may be excused in whole or in part from com
pliance with the terms of this paragraph if it increases its capital through the sale of additional
stock: Provided, further, That nothing herein contained shall be construed as requiring any
such bank to violate any provision of State law, and in any case in which the requirements of
this paragraph are inconsistent with the requirements of State law the requirements of this
paragraph may be waived and the subject covered by a special condition of membership to be
prescribed by the Federal Reserve Board.
S e c t io n
II.
A
p p l ic a t io n f o r
M
e m b e r s h ip
.
Any eligible State bank or trust company may make application on F. R. B. Form 83a, made
a part of this regulation, to the Federal Reserve Board for an amount of capital stock in the
Federal Reserve Bank of its district equal to 6 per cent of the paid-up capital stock and surplus
of such State bank or trust company. This application must be forwarded direct to the Federal
Reserve Agent of the district in which the applying bank or trust company is located and must
be accompanied by Exhibits I, II, and III, referred to on page 1 of the application blank.
S
e c t io n
III.
A
pproval of
A
p p l ic a t io n
.
In passing upon an application the Federal Reserve Board will consider especially—
1. The financial condition of the applying bank or trust company and the general char
acter of its management;
2. Whether the corporate powers exercised by the applying bank or trust company are
consistent with the purposes of the Federal Reserve Act; and
3. Whether the laws of the State or district in which the applying bank or trust company
is located contain provisions likely to prevent proper compliance with the provisions of the
Federal Reserve Act and the regulations of the Federal Reserve Board made in conformity
therewith.
If, in the judgment of the Federal Reserve Board, an applying bank or trust company
conforms to all the requirements of the Federal Reserve Act and these regulations, and is other
wise qualified for membership, the Board will issue a certificate of approval subject to such
conditions as it may deem necessary to insure compliance with the act and these regulations.
When the conditions imposed by the Board have been accepted by the applying bank or trust
company the Board will issue a certificate of approval, whereupon the applying bank or trust
company shall make a payment to the Federal Reserve Bank of its district of one-half of the
amount of its subscription, i. e., 3 per cent of the amount of its paid-up capital and surplus,
and upon receipt of this payment the appropriate certificate of stock will be issued by the
Federal Reserve Bank. The remaining half of its subscription shall be subject to call when
deemed necessary by the Federal Reserve Board.
IV. P o w e r s a n d R e s t r i c t i o n s .
Every State bank or trust company while a member of the Federal Reserve System—
1. Shall retain its full charter and statutory rights as a State bank or trust company,
subject to the provisions of the Federal Reserve Act and to the regulations of the Federal
Reserve Board;
2. Shall maintain such improvements and changes in its banking practice as may have
been specifically required of it by the Federal Reserve Board as a condition of its admission
and shall not lower the standard of banking then required of it;
3. Shall enjoy all the privileges and observe all those requirements of the Federal Reserve
Act and of the regulations of the Federal Reserve Board made in conformity therewith which
are applicable to State banks and trust companies which have become member banks; and
S e c t io n
23
4.
Shall comply at all times with any and all conditions of membership prescribed by the
Federal Reserve Board at the time of the admission of such member bank to the Federal Reserve
System.
S e c t io n V. E x a m in a t io n s a n d R e p o r t s .
Every State bank or trust company, while a member of the Federal Reserve System, shall
he subject to examinations made by direction of the Federal Reserve Board or of the Federal
Reserve Bank by examiners selected or approved by the Federal Reserve Board.
In order to avoid duplication, examinations of State banks and trust companies made by
State authorities will be accepted in lieu of examinations by examiners selected or approved
by the Board wherever these are satisfactory to the directors of the Federal Reserve Bank, and
examiners from the staff of the Board or of the Federal Reserve Banks will, whenever desir
able, be designated by the Board to act with the examination staff of the State in order that
uniformity in the standard of examination may be assured.
Every State bank or trust company, while a member of the Federal Reserve System, shall
be required to make in each year not less than three reports of condition on F. R. B. Form 105.
Such reports shall be made to the Federal Reserve Bank of its district on call of such bank, on
dates to be fixed by the Federal Reserve Board. They shall also make semiannual reports of
earnings and dividends on F. R. B. Form 107. As dividends may be declared from time to
time, each State bank or trust company member shall also furnish to the Federal Reserve
Bank of its district a special notification of dividend declared on F. R. B. Form 107a. F. R. B.
Forms 105, 107, and 107a are made a part of this regulation.
REGULATION I.
Series of 1923.
(Superseding R egu lation I of 1920.)
INCREASE OR DECREASE OF CAPITAL STOCK OF FEDERAL RESERVE BANKS AND
CANCELLATION OF OLD AND ISSUE OF NEW STOCK CERTIFICATES.
S e c t io n I . I n c r e a s e o f C a p it a l S t o c k .
(a) New national banks.—Each new national bank, while in process of organization (includ
ing each nonmember State bank converting into a national bank,1 while in process of such con
version) shall file with the Federal Reserve Bank of its district an application to the Federal
Reserve Board on F. R. B. Form 30 (or as to a nonmember State bank converting into a national
bank, on F. R. B. Form 30a), made a part of this regulation, for an amount of capital stock of
the Federal Reserve Bank of its district equal to 6 per cent of the paid-up capital stock and
surplus of such new national bank. Such application shall be forwarded promptly to the
Federal Reserve Board, and if it is found to be in proper form the Federal Reserve Board will
grant its approval effective if and when the Comptroller of the Currency issues to such
bank his certificate of authority to commence business. If its application is approved, the
applying bank shall thereupon make a payment to the Federal Reserve Bank of its district
of one-half of the amount of its subscription, i. e., 3 per cent of the amount of its paid-up capital
and surplus; and upon receipt of this payment the Federal Reserve Bank will issue a receipt
therefor, place the amount in a suspense account, and notify the Federal Reserve Board that
it has been received. When the Comptroller of the Currency issues to such applying bank his
certificate of authority to commence business the Federal Reserve Bank shall issue a stock
certificate to the applying bank, and the capital stock of the Federal Reserve Bank represented
by such certificate shall be considered as issued as of the date upon which the Comptroller of
the Currency issues his certificate of authority to commence business. The remaining half of
the subscription of the applying bank shall be subject to call when deemed necessary by the
Federal Reserve Board.
(b) State banks becoming members.—Any State bank or trust company desiring to become
a member of the Federal Reserve System shall make application as provided in Regulation H,
and when such application has been approved by the Federal Reserve Board and all require
ments of Regulation H have been complied with the Federal Reserve Bank shall issue an appro
priate certificate of stock as provided in Regulation H.
(c) Increase of capital or surplus by member banks.—Whenever any member bank shall
increase the aggregate amount of its paid-up capital stock and surplus, it shall file with the
Federal Reserve Bank of which it is a member an application on F. R. B. Form 56, made a
part of this regulation, for an additional amount of the capital stock of the Federal Reserve
1 Whenever any State member bank is converted into a national bank under section 5154 of the Revised Statutes,
as amended by section 8 of the Federal Reserve Act, it may continue to hold as a national bank its shares of Federal
Reserve Bank stock previously held as a State bank, and need not file any application for Federal Reserve Bank stock,
unless the aggregate amount of its capital and surplus is increased, in which event it should file an application for addi
tional stock, as provided in Section I (c). The certificate of stock issued in the old name of the member bank, how
ever, should be surrendered and canceled, and a new certificate should be issued in lieu thereof, in the new name of
the member bank, as provided in Section III.
(24)
25
Bank of its district equal to 8 per cent of sucli increase. After such application has been ap
proved by the Federal Reserve Agent and by the Federal Reserve Board, the applying member
bank shall pay to the Federal Reserve Bank of its district one-half of the amount of its addi
tional subscription, and when this amount has been paid the appropriate certificate of stock
shall be issued by the Federal Reserve Bank. The remaining half of such additional subscrip
tion shall be subject to call when deemed necessary by the Federal Reserve Board.
(d) Consolidation of member banks.—Whenever two or more member banks consolidate
and such consolidation results in the consolidated bank acquiring by operation of law 2 the
Federal Reserve Bank stock owned by the other consolidating bank or banks, and which also
results in the consolidated bank having an aggregate capital and surplus in excess of the aggre
gate capital and surplus of the consolidating member banks, such consolidated bank shall
file an application for additional stock, as provided in Section I (c).
(e) Certifying increases of Federal Reserve Bank stock.—Whenever the capital stock of any
Federal Reserve Bank shall be increased the board of directors of such Federal Reserve Bank
shall certify such increase to the Comptroller of the Currency on F. R. B. Form 58, which is
made a part of this regulation. Such certifications shall be made quarterly as of the last days
°f December, March, June, and September of each year. A duplicate copy of each certificate
shall be forwarded to the Federal Reserve Board.
S
e c t io n
II. D
ecrea se
of
C a p it a l
Stock.
(a) Reduction of capital by member bank.—Whenever a member bank reduces the
amount of its paid-up capital stock and, in the case of reduction of the paid-up capital
of a national bank, such reduction has been approved by the Comptroller of the Currency
and by the Federal Reserve Board in accordance with the provisions of section 28 of the
Federal Reserve Act, it shall file with the Federal Reserve Bank of which it is a member
an application for the surrender and cancellation of stock on F. R. B. Form 60, which is made
a part of this regulation. When this application has been approved by the Federal Reserve
Agent and the Federal Reserve Board, the Federal Reserve Bank shall accept and cancel the
stock which the applying bank is entitled to surrender and shall refund to the member bank
the proportionate amount due such bank on account of the stock canceled.
(b)
. Insolvency of member bank.—Whenever a member bank shall be declared insolvent
^nd a receiver appointed by the proper authorities, such receiver shall, within six months from
the date of his appointment, file with the Federal Reserve Bank of which the insolvent bank is
a member an application on F. R. B. Form 87, which is made a part of this regulation, for the
surrender and cancellation of the stock held by such insolvent member bank, and for the refund
■°f all balances due to it. If the receiver shall fail to make such application within the time
2 Section 5 of the Federal Reserve Act provides that “ Shares of the capital stock of Federal Reserve Banks owned
by member banks shall not be transferred or hypothecated.” This provision prevents a transfer of Federal Reserve
bank stock by purchase, but does not prevent a transfer by operation of law. When there is a merger of member
banks involving the liquidation of one of such banks and the purchasing of the assets of the liquidating bank by the
bank continuing in existence, it is necessary for the liquidating bank to surrender its Federal Reserve Bank stock
aud for the purchasing bank to apply for new stock. On the other hand, if member banks consolidate, under a statute
Miich does not require the liquidation of any of the consolidating banks, and the assets and obligations of the
consolidating banks are transferred to the consolidated bank by operation of law, the consolidated bank becomes the
owner of the Federal Reserve Bank stock of the consolidating banks as soon as the consolidation takes effect
f nd such stock technically need not be surrendered. The certificates of stock issued in the names of the consolidat
e s banks, however, should be surrendered and canceled, and a new certificate should be issued in lieu thereof, in the
aew name of the consolidated bank, as provided in Section III. A consolidation of national banks under the Act of
Congress entitled “ An Act to provide for the consolidation of national banking associations,” approved November 7,
Dl8, meets all of these conditions.
26
specified, the Federal Reserve Agent shall report the facts to the Federal Reserve Board with
a recommendation as to the action to be taken, whereupon the Federal Reserve Board will
either issue an order to cancel such stock or, if the circumstances warrant it, grant the receiver
additional time in which to file such an application. Upon approval of such an application
by the Federal Reserve Agent and the Federal Reserve Board, or upon the issuance of such an
order by the Federal Reserve Board, the Federal Reserve Bank shall cancel such stock and
shall adjust accounts between the member bank and the Federal Reserve Bank by applying
to any indebtedness of the insolvent member bank to such Federal Reserve Bank all cashpaid subscriptions made by it on the stock canceled with one-half of 1 per cent per month
from the period of last dividend, if earned, not to exceed the book value thereof, and the bal
ance, if any, shall be paid to the duly authorized receiver of such insolvent member bank.
(c) Voluntary liquidation of member bank.—Whenever a member bank goes into voluntary
liquidation and a liquidating agent is appointed, such agent shall, within six months from the
date of his appointment, file with the Federal Reserve Bank of which the liquidating bank is
a member an application on F. R. B. Form 86, if a national bank, and on F. R. B. Form
143, if a State bank, which forms are made a part of this regulation, for the surrender and
cancellation of the stock held by it and for the refund of all balances due to such liqui
dating member bank. If the liquidating agent shall fail to make such application within
the time specified, the Federal Reserve Agent shall report the facts to the Federal Reserve
Board with a recommendation as to the action to be taken, whereupon the Federal Reserve
Board will either issue an order to cancel such stock, or, if the circumstances warrant it, grant
the liquidating agent additional time in which to file such an application. Upon approval
of such an application by the Federal Reserve Agent and the Federal Reserve Board, or upon
the issuance of such an order by the Federal Reserve Board, the Federal Reserve Bank shall
cancel such stock and shall adjust accounts between the liquidating member bank and the
Federal Reserve Bank by applying to the indebtedness of the liquidating member bank to
such Federal Reserve Bank all cash-paid subscriptions made by it on the stock canceled with
one-half of 1 per cent per month from the period of last dividend, if earned, not to exceed the
book value thereof, and the balance, if any, shall be paid to the duly authorized liquidating agent
of such liquidating member bank.
(d) Consolidation of member banks.—Whenever there is a consolidation of two or more
member banks which results in the consolidated bank acquiring by operation of law (see
note 2 on p. 25) the Federal Reserve Bank stock owned by the other consolidating banks,
and which also results in the consolidated bank having a paid-up capital less than the
aggregate paid-up capital of the consolidating member banks, the consolidated bank shall
file with the Federal Reserve Bank of which it is a member an application for the surrender
and cancellation of stock on F. R. B. Form 60a, which, is made a part of this regulation. Upon
the approval of this application by the Federal Reserve Agent and the Federal Reserve
Board, the Federal Reserve Bank shall accept and cancel the stock which the applying bank
is entitled to surrender, and shall refund to the applying bank the proportionate amount due
such bank on account of the stock canceled.
(e) Certifying reductions of Federal Reserve Bank stock.—All reductions of the capital stock
of a Federal Reserve Bank shall, in accordance with the provisions of section 6 of the Federal
Reserve Act, be certified to the Comptroller of the Currency by the board of directors of such
Federal Reserve Bank on F. R. B. Form 59, which is made a part of this regulation. Such
certifications shall be made quarterly as of the last days of December, March, June, and Sep
tember of each year. A duplicate copy of each certificate shall be forwarded to the Federal
Reserve Board.
27
S e c t io n
III. C a n c e l l a t io n
of
O l d a n d I s s u e o f N e w S t o c k C e r t if ic a t e s .
Whenever a member bank changes its name or, by consolidation with another member
bank acquires by operation of law (see note 2 on p. 25) the Federal Reserve Bank stock
previously held by such other member bank, it shall surrender to the Federal Reserve Bank
the certificate of Federal Reserve Bank stock which was issued to it under its old name,
?r which was issued to such other member bank. The certificate so surrendered shall be
indorsed by the member bank surrendering it or by the member bank to which it was orig
inally issued and shall be accompanied by proper proof of the change of name or consolidation,
bipon receipt of such certificate of stock so indorsed, together with such proof, the Federal
Reserve Bank shall cancel the certificate so surrendered and shall issue in lieu thereof to and
111 the name of the member bank surrendering it a new certificate for the number of shares
represented by the certificate so surrendered, or if the member bank is entitled to surrender
some of the stock which is represented by the surrendered certificate, and an application for
the surrender and cancellation of such stock is at the same time made in accordance with
this regulation, the new certificate shall be for the number of shares represented by the sur
rendered certificate less the number of shares canceled pursuant to such application. All
pases where certificates of stock are surrendered and new certificates issued in lieu thereof and
111 a different name shall be reported to the Federal Reserve Board by the Federal Reserve
Agent.
(Effective August 15, 1923.)
REGULATION J.
Series of 1923.
(S uperseding R eg u la tio n J of 1920.)
CHECK CLEARING AND COLLECTION.
S e c t io n
I.
Statutory
P
r o v is io n s .
Section 16 of the Federal Reserve Act authorizes the Federal Reserve Board to require
each Federal Reserve Bank to exercise the functions of a clearing house for its member banks,
and section 13 of the Federal Reserve Act, as amended by the act approved June 21, 1917,
authorizes each Federal Reserve Bank to receive from any nonmember bank or trust com
pany, solely for the purposes of exchange or of collection, deposits of current funds in lawful
money, national-bank notes, Federal reserve notes, checks and drafts payable upon presenta
tion, or maturing notes and bills, provided such nonmember bank or trust company maintains
with its Federal Reserve Bank a balance sufficient to offset the items in transit held for its
account by the Federal Reserve Bank.
S
e c t io n
II.
G
eneral
R
e q u ir e m e n t s .
In pursuance of the authority vested in it under these provisions of law, the Federal
Reserve Board, desiring to afford both to the public and to the various banks of the country
a direct, expeditious, and economical system of check collection and settlement of balances,
has arranged to have each Federal Reserve Bank exercise the functions of a clearing house for
such of its member banks as desire to avail themselves of its privileges and for such nonmember
State banks and trust companies as may maintain with the Federal Reserve Bank balances
sufficient to qualify them under the provisions of section 13 to send items to Federal Reserve
Banks for purposes of exchange or of collection. Such nonmember State banks and trust
companies will hereinafter be referred to as nonmember clearing banks.
Each Federal Reserve Bank shall exercise the functions of a clearing house under the
general terms and conditions hereinafter set forth.
S e c t io n
III.
Ch ec k s R
e c e iv e d
fo r
C o l l e c t io n .
(a) Each Federal Reserve Bank will receive at par from its member banks and from
nonmember clearing banks in its district, checks 1 drawn on all member and nonmember
clearing banks and on all other nonmember banks which agree to remit at par in acceptable
funds through the Federal Reserve Bank of their district.
(b) Each Federal Reserve Bank will receive at par from other Federal Reserve Banks,
and from all member and nonmember clearing banks in other Federal Reserve Districts author
ized to route direct for the credit of their accounts with their respective Federal Reserve Banks,
checks drawn upon all member and nonmember clearing banks of its district and upon all
other nonmember banks of its district which agree to remit at par in acceptable funds.
1 A check is generally defined as a draft or order upon a bank or banking house, purporting to be drawn upon a
deposit of funds, for the payment at all events of a certain sum of money to a certain person therein named, or to hi#1
or his order, or to bearer, and payable on demand.
(28)
29
(c) No Federal Reserve Bank shall receive on deposit or for collection any check drawn
on any nomnember bank which refuses to remit at par in acceptable funds.
(d) Whenever a Federal Reserve Bank receives on deposit or for collection a check drawn
by, indorsed by, or emanating from, any nonmember bank which refuses to remit at par in
acceptable funds, it shall make a charge for the service of collecting such check of one-tenth
of 1 per cent, the minimum charge to be 10 cents for each item.
S e c t io n IV . T im e S c h e d u l e a n d A v a il a b il it y o f C r e d it s .
Each Federal Reserve Bank will publish a time schedule showing the time at which any
item sent to it will be counted as reserve and become available to meet checks drawn. For
all checks received, the sending bank will be given immediate credit, or deferred credit, in
accordance with such time schedule, and as provided below.
For all such checks as are received for immediate credit in accordance with such time
schedule, immediate credit, subject to final payment, will be given upon the books of the Federal
Reserve Bank at full face value in the reserve account or clearing account upon day of receipt,
and the proceeds will at once be counted as reserve and become available to meet checks drawn.
For all such checks as are received for deferred credit in accordance with such time schedule,
deferred credit, subject to final payment, will be entered upon the books of the Federal Reserve
Bank at full face value, but the proceeds will not be counted as reserve nor become available
to meet checks drawn until such time as may be specified in such time schedule, at which time
credit will be transferred from the deferred account to the reserve account or clearing account
and will then be counted as reserve and become available to meet checks drawn.
S e c t io n V. Ma n n e r o f C o l l e c t io n .
The Federal Reserve Board hereby authorizes, and each member and nonmember clearing
bank will be required to authorize, the Federal Reserve Banks to handle checks received on
deposit or for collection as follows:
(1) A Federal Reserve Bank will act as agent only and will assume no liability except for its
own negligence and its guaranty of prior indorsements.
(2) A Federal Reserve Bank is authorized to present or send checks for payment in cash
or exchange draft direct to the bank on which they are drawn or at which they are payable, or
to forward them to any suitably selected subagent with authority to present or send them for
payment in cash or exchange draft direct to the bank on which they are drawn or at which they
are payable.
(3) Checks received by a Federal Reserve Bank on its member or nonmember clearing
banks will be forwarded or presented direct to such banks, and such banks will be required to
remit therefor at par in funds acceptable to the Federal Reserve Bank, or to authorize the Fed
eral Reserve Bank to charge their reserve accounts or clearing accounts; provided, however,
tbat in case such remittance or authorization is not received by the Federal Reserve Bank from
any such bank at the expiration of the agreed transit time between the Federal Reserve Bank
and such bank, the Federal Reserve Bank reserves the right to charge such items to the reserve
account or clearing account of such bank at the expiration of such time.
(4) Checks received by a Federal Reserve Bank payable in other districts will be for
warded to the Federal Reserve Bank of the district in which such items are payable.
(5) A Federal Reserve Bank will charge back the amount of any check for which payment
mther in cash or in the proceeds of an exchange draft has not actually been received, regardless
°f whether or not the check itself can be returned.
30
S e c t io n
VI. P e n a l t ie s
for
D e f ic ie n c ie s i n R e s e r v e s .
(a) Statutory provisions.—Section 19 of the Federal Reserve Act provides that—
The required balance carried by a member bank with a Federal Reserve Bank may, under
the regulations and subject to such penalties as may be prescribed by the Federal Reserve
Board, be checked against and withdrawn by such member bank for the purpose of meeting
existing liabilities: Provided, however, That no bank shall at any time make new loans or shall
pay any dividends unless and until the total balance required by law is fully restored.
(b) Computation of reserves.—Items can not be counted as part of the minimum reserve
balance to be carried by a member bank with its Federal Reserve Bank until such time as may
be specified in the appropriate time schedule referred to in Section IV. If a member bank
draw against items before such time, the draft will be charged against its reserve balance if
such balance be sufficient in amount to pay it; but any resulting impairment of reserve
balances will be subject to all the penalties provided by the Act.
(c) Basic penalty.—Inasmuch as it is essential that the law in respect to the maintenance
by member banks of the required minimum reserve balance shall be strictly complied with,
the Federal Reserve Board, under authority vested in it by section 19 of the Federal Reserve
Act, hereby prescribes a basic penalty for deficiencies in reserves according to the following rules:
1. Deficiencies in reserve balances of member banks in central reserve and reserve cities
will be computed on the basis of average daily net deposit balances covering a weekly period
of seven days. Deficiencies in reserve balances of other member banks will be computed on the
basis of average daily net deposit balances covering a semimonthly period.
2. Penalties for deficiencies in reserves will be assessed monthly on the basis of average
daily deficiencies during each of the reserve computation periods ending in the preceding month.
3. A basic rate of 2 per cent per annum above the Federal Reserve Bank discount rate on
90-day commercial paper will be assessed as a penalty on deficiencies in reserves of member
banks.
(d) Progressive penalty.—The Federal Reserve Board will also prescribe for any Federal
Reserve District, upon the application of the Federal Reserve Bank of that district, an additional
progressive penalty for continued deficiencies in reserves, in accordance with the following
rules:
1. When a member bank in a central reserve or reserve city has had an average deficiency
in reserves for six consecutive weekly periods, a progressive penalty, increasing at the rate of
one-fourth of 1 per cent for each week thereafter during which the average reserve balance is
deficient, will be assessed on weekly deficiencies until the required reserve has been restored and
maintained for four consecutive weekly periods, provided that the maximum penalty charged
will not exceed 10 per cent.
2. When a member bank outside of a central reserve or reserve city has had an average
deficiency in reserves for three consecutive semimonthly periods, a progressive penalty, increas
ing at the rate of one-half of 1 per cent for each half month thereafter during which the average
reserve balance is deficient, will be assessed on semimonthly deficiencies until the required
reserve has been restored and maintained for two consecutive semimonthly periods, provided
that the maximum penalty charged will not exceed 10 per cent.
S e c t io n Y I I . O t h e r R u l e s a n d R e g u l a t io n s .
Any further requirements that the Board may deem necessary will be set forth by the
Federal Reserve Banks in their letters of instruction to their member and nonmember clearing
banks. Each Federal Reserve Bank will also promulgate rules and regulations governing the
details of its operations as a clearing house, such rules and regulations to be binding upon all
member and nonmember banks which are clearing through the Federal Reserve Bank.
REGULATION K.
Series of 1923.
(S u p ersed in g R eg u la tio n K of 1920.)
ba n k in g
c o r po r a tio n s
autho rized
to
do
fo r eig n
ba n k in g
b u s in e s s
UNDER THE TERMS OF SECTION 25 (a) OF THE FEDERAL RESERVE ACT.
I.
Org
a n iz a t io n
.
Any number of natural persons, not less in any case than five, may form a Corporation
under the provisions of section 25 (a) for the purpose of engaging in international or foreign
banking or other international or foreign financial operations or in banking or other financial
operations in a dependency or insular possession of the United States either directly or
through the agency, ownership, or control of local institutions in foreign countries or in
such dependencies or insular possessions.
II.
A
r t ic l e s
of
A
s s o c ia t io n
.
Any persons desiring to organize a corporation for any of the purposes defined in section
25 (a) shall enter into articles of association (see F. R. B. Form 151 which is suggested
as a satisfactory form of articles of association) which shall specify in general terms
the objects for which the Corporation is formed, and may contain any other provisions
not inconsistent with law which the Corporation may see fit to adopt for the regulation of
its business and the conduct of its affairs. The articles of association shall be signed by
each person intending to participate in the organization of the Corporation and when signed
shall be forwarded to the Federal Reserve Board in whose office they shall be filed.
III.
O
r g a n iz a t io n
C e r t if ic
ate
.
All of the persons signing the articles of association shall under their hands make an
organization certificate on F. R. B. Form 152, which is made a part of this regulation, and
which shall state specifically:
First. The name assumed by the Corporation.
Second. The place or places where its operations are to be carried on.
Third. The place in the United States where its home office is to be located.
Fourth. The amount of its capital stock and the number of shares into which it shall
be divided.
Fifth. The names and places of business or residences of persons executing the organiza
tion certificate and the number of shares to which each has subscribed.
Sixth. The fact that the certificate is made to enable the persons subscribing the same
and all other persons, firms, companies, and corporations who or which may thereafter sub
scribe to or purchase shares of the capital stock of such Corporation to avail themselves of
the advantages of this section.
The persons signing the organization certificate shall acknowledge the execution thereof
before a judge of some court of record or notary public who shall certify thereto under the
seal of such court or notary. Thereafter the certificate shall be forwarded to the Federal
Reserve Board to be filed in its office.1
1Whenever these regulations refer to a Corporation spelled with a capital C, they relate to a corporation organized
under section 25 (a) of the Federal Reserve Act.
(
31)
32
IV. T it l e .
Inasmuch as the name of the Corporation is subject to the approval of the Federal Reserve
Board, a preliminary application for that approval should be filed with the Federal Reserve
Board on F. R. B. Form 150, which is made a part of this regulation. This application
should state merely that the organization of a Corporation under the proposed name is
contemplated and may request the approval of that name and its reservation for a period
of 30 days. No Corporation which issues its own bonds, debentures, or other such obli
gations will be permitted to have the word “ bank” as a part of its title. No Corporation
which has the word “ Federal” in its title will be permitted also to haye the word “ bank” as
a part of its title. So far as possible the title of the Corporation should indicate the nature
or reason of the business contemplated and should in no case resemble the name of any other
corporation to the extent that it might result in misleading or deceiving the public as to its
identity, purpose, connections, or affiliations.
Y. A u t h o r it y to C o m m en c e B u s in e s s .
After the articles of association and organization certificate have been made and filed with
the Federal Reserve Board, and after they have been approved by the Federal Reserve Board
and a preliminary permit to begin business has been issued by the Federal Reserve Board, the
association shall become and be a body corporate, but none of its powers except such as are
incidental and preliminary to its organization shall be exercised until it has been formally
authorized by the Federal Reserve Board by a final permit generally to commence business.
Before the Federal Reserve Board will issue its final permit to commence business, the presi
dent or cashier, together with at least three of the directors, must certify (a) that each director
elected is a citizen of the United States; (6) that a majority of the shares of stock is owned by
citizens of the United States, by corporations the controlling interest in which is owned by
citizens of the United States, chartered under the laws of the United States, or by firms or
companies the controlling interest m which is owned by citizens of the United States; and
(c) that of the authorized capital stock specified in the articles of association at least 25 per
cent has been paid in in cash and that each shareholder has individually paid in in cash at least
25 per cent of his stock subscription. Thereafter the cashier shall certify to the payment of the
remaining installments as and when each is paid in, in accordance with law.
VI. C a p it a l S t o c k .
No Corporation may be organized under the terms of section 25 (a) with a capital stock of
less than $2,000,000. The par value of each share of stock shall be specified in the articles of
association, and no Corporation will be permitted to issue stock of no par value. If there is
more than one class of stock, the name and amount of each class and the obligations, rights,
and privileges attaching thereto shall be set forth fully in the articles of association. Each class
of stock shall be so named as to indicate to the investor as nearly as possible what is its character
and to put him on notice of any unusual attributes.
VII. T r a n s f e r s
of
Stock.
Section 25 (a) provides in part that—
A majority of the shares of the capital stock of any such corporation shall at all times be
held and owned by the citizens of the United States, by corporations the controlling interest in
which is owned by citizens of the United States, chartered under the laws of the United States
or of a State of the United States, or by firms or companies the controlling interest in which
is owned by citizens of the United States.
33
In order to insure compliance at all times with the requirements of this provision after the
organization of the Corporation, shares of stock shall be issuable and transferable only on the
books of the Corporation. Every application for the issue or transfer of stock shall be accom
panied by an affidavit of the party to whom it is desired to issue or transfer stock, or by his or
its duly authorized agent, stating—
In the case of an individual.—(a) "Whether he is or is not a citizen of the United States and
if a citizen of the United States, whether he is a natural born citizen or a citizen by naturaliza
tion, and if naturalized, whether he remains for any purpose in the allegiance of any foreign
sovereign or state; (b) Whether there is or is not any arrangement under which he is to hold
the shares or any of the shares which he desires to have issued or transferred to him, in trust
for or in any way under the control of any foreign state or any foreigner, foreign corporation,
°r any corporation under foreign control, and if so, the nature thereof.'
In the case of a corporation.—(a) Whether such corporation is or is not chartered under
the laws of the United States or of a State of the United States. If it is not, no further declara
tion is necessary, but if it is, it must also be stated (b) whether the controlling interest in such
corporation is or is not owned by citizens of the United States, and (c) whether there is or is
not any arrangement under which such corporation will hold the shares or any of the shares if
issued or transferred to such corporation, in trust for or in any way under the control of any
foreign state or any foreigner or foreign corporation or any corporation under foreign control,
and if so, the nature thereof.
In the case of a firm or company.—(a) Whether the controlling interest in such firm or com
pany is or is not owned by citizens of the United States and, if so, (b) whether there is or is not
any arrangement under which such firm or company will hold the shares or any of the shares if
issued or transferred to such firm or company in trust for or in any way under the control of
any foreign state or any foreigner or foreign corporation or any corporation under foreign con
trol and if so, the nature thereof.
The board of directors of the Corporation, whether acting directly or through an agent,
may; before making any issue or transfer of stock, require such further evidence as in their
discretion they may think necessary in order to determine whether or not the issue or transfer
°f the stock would result in a violation of the law. No issue or transfer of stock which would
cause 50 per cent or more of the total amount of stock issued or outstanding to be held con
trary to the provisions of the law or these regulations shall be made upon the books of the Cor
poration. The decision of the board of directors in each case shall be final and conclusive and
Hot subject to any question by any person, firm, or corporation on any ground whatsoever.
If at any time by reason of the fact that the holder of any shares of the Corporation ceases
to be a citizen of the United States, or, in the opinion of the board of directors, becomes subject
to the control of any foreign state or foreigner or foreign corporation or corporation under
foreign control, 50 per cent or more of the total amount of capital stock issued or outstanding
ls held contrary to the provisions of the law or these regulations, the board of directors may,
"'vhen apprised of that fact, forthwith serve on the holder of the shares in question a notice in
S itin g requiring such holder within two months to transfer such shares to a citizen of the
United States, or to a firm, company, or corporation approved by the board of directors as an
^igible stockholder. When such notice has been given by the board of directors the shares of
stock so held shall cease to confer any vote until they have been transferred as required above
and if on the expiration of two months after such notice the shares shall not have been so
transferred, the shares shall be forfeited to the Corporation.
The board of directors shall prescribe in the by-laws of the Corporation appropriate regula
tions for the registration of the shares of stock in accordance with the terms of the law ana these
34
regulations. The by-laws must also provide that the certificates of stock issued by the Cor
poration shall contain provisions sufficient to put the holder on notice of the terms of the law
and the regulations of the Federal Reserve Board defining the limitations upon the rights of
transfer.
V I I I . O p e r a t io n s i n t h e U n it e d S t a t e s .
No Corporation shall carry on any part of its business in the United States except such
as shall be incidental to its international or foreign business. Agencies may be established
in the United States with the approval of the Federal Reserve Board for specific purposes, but
not generally to carry on the business of the Corporation.
I X . I n v e s t m e n t s in t h e S t o c k o f O t h e r C o r p o r a t io n s .
I t is contemplated by the law that a Corporation shall conduct its business abroad either
directly or indirectly through the ownership or control of corporations, and it is accordingly
provided that a Corporation may invest in the stock, or other certificates of ownership, of any
other corporation organized—
(а) Under the provisions of section 25 (a) of the Federal Reserve Act;
(б) Under the laws of any foreign country or a colony or dependency thereof;
(c) Under the laws of any State, dependency, or insular possession of the United
States;
provided, first, that such other corporation is not engaged in the general business of buying or
selling goods, wares, merchandise, or commodities in the United States; and second, that it is
not transacting any business in the United States except such as is incidental to its international
or foreign business.
Except with the approval of the Federal Reserve Board, no Corporation shall invest an
amount in excess of 15 per cent of its capital and surplus in the stock of any corporation engaged
in the business of banking, or an amount in excess of 10 per cent of its capital and surplus
in the stock of any other kind of corporation.
No Corporation shall purchase any stock in any other corporation organized under the
terms of section 25 (a) or under the laws of any State, which is in substantial competition
therewith, or which holds stock or certificates of ownership in corporations which are in sub
stantial competition with the purchasing Corporation. This restriction, however, does not
apply to corporations organized under foreign laws.
X. B r a n c h e s .
No Corporation shall establish any branches except with the approval of the Federal Re
serve Board, and in no case shall any branch be established in the United States.
XI. I s s u e
of
D e b e n t u r e s , B o n d s , a n d P r o m isso r y N o t e s .
Approval of the Federal Reserve Board.—No Corporation shall make any public or private
issue of its debentures, bonds, notes, or other such obligations without the approval of the
Federal Reserve Board, but this restriction shall not apply to notes issued by the Corporation
in borrowing from banks or bankers for temporary purposes not to exceed one year. The
approval of the Federal Reserve Board will be based solely upon the right of the Corporation
to make the issue under the terms of this regulation and shall not be understood in any way
to imply that the Federal Reserve Board has approved or passed upon the merits of such obliga
tions' as an investment. The Federal Reserve Board will consider the general character and
scope of the business of the Corporation in determining the amount of debentures, bonds, notes,
or other such obligations of the Corporation which may be issued by it.
35
Application.—Every application for the approval of any such issue by a Corporation shall
be accompanied by (1) a statement of the condition of the Corporation in such form and as of
such date as the Federal Reserve Board may require; (2) a detailed list of the securities by
which it is proposed to secure such issue, stating their maturities, indorsements, guaranties, or
collateral, if any, and in general terms the nature of the transaction or transactions upon which
they were based; and (3) such other data as the Federal Reserve Board may from time to time
require.
Advertisements.—No circular, letter, or other document advertising the issue of the obliga
tions of a Corporation shall state or contain any reference to the fact that the Federal Reserve
Board has granted its approval of the issue to which the advertisement relates. This require
ment will be enforced strictly in order that there may be no possibility of the public’s miscon
struing such a reference to be an approval by the Federal Reserve Board of the merits or desira
bility of the obligations as an investment.
XII.
Sale
of
F
o r e ig n
S
e c u r it ie s .
Approval of the Federal Reserve Board.—No Corporation shall offer for sale any foreign
securities with its indorsement or guaranty, except with the approval of the Federal Reserve
Board, but such approval will be based solely upon the right of the Corporation to make such a
sale under the terms of this regulation and shall not be understood in any way to imply that the
Federal Reserve Board has approved or passed upon the merits of such securities as an invest
ment.
Application.—Every application for the approval of such sale shall be accompanied by a
statement of the character and amount of the securities proposed to be sold, their indorsements,
guaranties, or collateral, if any, and such other data as the Federal Reserve Board may from
Bme to time require.
Advertisements.—No circular, letter, or other document advertising the sale of foreign
securities by a Corporation with its indorsement or guaranty shall state or contain any reference
to the fact that the Federal Reserve Board has granted its approval of the sale of the securities
to which the advertisement relates.
X III.
A
cc eptan c es.
Kinds.—Any Corporation may accept (1) drafts and bills of exchange drawn upon it which
grow out of transactions involving the importation or exportation of goods, and (2) drafts and
bills of exchange which are drawn by banks or bankers located in foreign countries or dependeucies or insular possessions of the United States for the purpose of furnishing dollar exchange
95 required by the usages of trade in such countries, dependencies, and possessions, provided,
however, that, except with the approval of the Federal Reserve Board and subject to such
hruitations as it may prescribe, no Corporation shall exercise its power to accept drafts or bills
°f exchange if at the time such drafts or bills are presented for acceptance it has outstanding
aUy debentures, bonds, notes, or other such obligations issued by it.
Maturity.—Except with the approval of the Federal Reserve Board, no Corporation shall
Accept any draft or bill of exchange which grows out of a transaction involving the importa
tion or exportation of goods with a maturity in excess of six months, or shall accept any
hr aft or bill of exchange drawn for the purpose of furnishing dollar exchange with a maturity
lri excess of three months.
Limitations.—(1) Individual drawers: No acceptances shall be made for the account of
any one drawer in an amount aggregating at any time in excess of 10 per cent of the subscribed
capital and surplus of the Corporation, unless the transaction be fully secured or represents
36
an exportation or importation of commodities and is guaranteed by a bank or banker of un
doubted solvency. (2) Aggregates: Whenever the aggregate of acceptances outstanding at
any time (a) exceeds the amount of the subscribed capital and surplus, 50 per cent of all the
acceptances in excess of the amount shall be fully secured; or (b) exceeds twice the amount of
the subscribed capital and surplus, all the acceptances outstanding in excess of such amount
shall be fully secured. (The Corporation shall elect whichever requirement (a) or (b) calls for
the smaller amount of secured acceptances.) In no event shall any Corporation have outstand
ing at any one time acceptances drawn for the purpose of furnishing dollar exchange in an
amount aggregating more than 50 per cent of its subscribed capital and surplus.
Reserves.—Against all acceptances outstanding which mature in 30 days or less a reserve
of at least 15 per cent shall be maintained, and against all acceptances outstanding which mature
in more than 30 days a reserve of at least 3 per cent shall be maintained. Reserves against
acceptances must be in liquid assets of any or all of the following kinds: (1) cash; (2) balances
with other banks; (3) bankers' acceptances; and (4) such securities as the Federal Reserve
Board may from time to time permit.
XIV. D e p o s it s .
In the United States.—No Corporation shall receive in the United States any deposits
except such as are incidental to or for the purpose of carrying out transactions in foreign countries
or dependencies of the United States where the Corporation has established agencies, branches,
correspondents, or where it operates through the ownership or control of subsidiary corpora
tions. Deposits of this character may be made by individuals, firms, banks, or other corpo
rations, whether foreign or domestic, and may be time deposits or on demand.
Outside the United States.—Outside the United States a Corporation may receive deposits
of any kind from individuals, firms, banks, or other corporations, provided, however, that if
such corporation has any of its bonds, debentures, or other such obligations outstanding it
may receive abroad only such deposits as are incidental to the conduct of its exchange, dis
count, or loan operations.
Reserves.—Against all deposits received in the United States a reserve of not less than 13
per cent must be maintained. This reserve may consist of cash in vault, a balance with the
Federal Reserve Bank of the district in which the head office of the Corporation is located, or
a balance with any member bank. Against all deposits received abroad the Corporation shall
maintain such reserves as may be required by local laws and by the dictates of sound business
judgment and banking principles.
XV. G e n e r a l L im it a t io n s
and
R e s t r ic t io n s .
Liabilities of one borroiver.—The total liabilities to a Corporation of any person, company,
firm, or corporation for money borrowed, including in the liabilities of a company or firm the
liabilities of the several members thereof, shall at no time exceed 10 per cent of the amount of
its subscribed capital and surplus, except with the approval of the Federal Reserve Board:
Provided, however, That the discount of bills of exchange drawn in good faith against actually
Agisting values and the discount of commercial or business paper actually owned by the person
negotiating the same shall not be considered as money borrowed within the meaning of this
paragraph. The liability of a customer on account of an acceptance made by the Corporation
for his account is not a liability for money borrowed within the meaning of this paragraph
unless and until he fails to place the Corporation in funds to cover the payment of the accept
ance at maturity or unless the Corporation itself holds the acceptance.
37
Aggregate liabilities of the Corporation.—The aggregate of the Corporation’s liabilities
outstanding on account of acceptances, average domestic and foreign deposits, debentures,
bonds, notes, guaranties, indorsements, and other such obligations shall not exceed at any one
tune ten times the amount of the Corporation’s subscribed capital and surplus except with the
approval of the Federal Reserve Board. In determining the amount of the liabilities within
the meaning of this paragraph, indorsements of bills of exchange having not more than six
months to run, drawn and accepted by others than the Corporation, shall not be included.
Operations abroad.—Except as otherwise provided in the law and these regulations, a
Corporation may exercise abroad not only the powers specifically set forth in the law but also
such incidental powers as may be usual in the determination of the Federal Reserve Board in
connection with the transaction of the business of banking or other financial operations in the
countries in which it shall transact business. In the exercise of any of these powers abroad a
Corporation must be guided by the laws of the country in which it is operating and by sound
business judgment and banking principles.
XYI. M a n a g e m e n t .
The directors, officers, or employees of a Corporation shall exercise their rights and perform
their duties as directors, officers, or employees, with due regard to both the letter and the spirit
°f the law and these regulations. For the purpose of these regulations the Corporation shall,
°f course, be responsible for all acts of omission or commission of any of its directors, officers,
employees, or representatives in the conduct of their official duties. The character of the man
agement of a Corporation and its general attitude toward the purpose and spirit of the law and
these regulations will be considered by the Federal Reserve Board in acting upon any applica
tion made under the terms of these regulations.
XVII. R e p o r t s
and
E x a m in a t io n s .
Reports.—Each Corporation shall make at least two reports annually to the Federal Reserve
®oard at such times and in such form as it may require.
Examinations.—Each Corporation shall be examined at least once a year by examiners
appointed by the Federal Reserve Board. The cost of examinations shall be paid by the
Corporation examined.
XVIII. A m e n d m e n t s
to
R e g u l a t io n s .
These regulations are subject to amendment by the Federal Reserve Board from time to
Boie, provided, however, that no such amendment shall prejudice obligations undertaken in
good faith under regulations in effect at the time they were assumed.
REGULATION L.
Series of 1923.
(Superseding Regulation L of 1920.)
INTERLOCKING BANK DIRECTORATES UNDER THE CLAYTON ACT.
S e c t io n
I. D e f in it io n s .
Within the meaning of this regulation—
The term “ member bank” shall apply to any national bank and any State bank or trust
company which is a member of the Federal Reserve System.
The term “ national bank ” shall be construed to apply not only to national banking asso
ciations but also to banks, banking associations, and trust companies organized or operating
under the laws of the United States, including all banks and trust companies doing business in
the District of Columbia, regardless of the sources of their charters.
The term “ resources” shall be construed to mean an amount equal to the sum of the
deposits, capital, surplus, and undivided profits.
The term “ State bank” shall include any bank, banking association, or trust company
incorporated under State law.
The term “ private banker” shall apply to any unincorporated individual engaging in one
or more phases of the banking business as that term is generally understood and to any member
of an unincorporated firm engaging in such business.
The term “ Edge A ct” shall mean section 25 (a) of the Federal Reserve Act as amended
December 24, 1919.
The term “ Edge Corporation” shall mean any corporation organized under the provisions
of the Edge Act.
The term “ city of over 200,000 inhabitants ” includes any city, incorporated town, or village
of more than 200,000 inhabitants, as shown by the last preceding decennial census of the United
States. Any bank located anywhere within the corporate limits of such city is located in a city
of over 200,000 inhabitants within the meaning of the Clayton Act, even though it is located in a
suburb or an outlying district at some distance from the principal part of the city.
S e c t io n
II. P r o h ib it io n s
of
C la y to n A c t .
Under section 8 of the Clayton Antitrust Act—
(1) No person who is a director or other officer or employee of a national bank having
resources aggregating more than $5,000,000 can legally serve at the same time as director,
officer, or employee of any other national bank, regardless of its location.
(2) No person who is a director in a State bank or trust company having resources aggre
gating more than $5,000,000 or who is a private banker having resources aggregating more
than $5,000,000 can legally serve at the same time as director of any national bank, regardless
of its location.
(3) No person can legally be a director, officer, or employee of a national bank located in
a city of more than 200,000 inhabitants who is at the same time a private banker in the same
city or a director, officer, or employee of any other bank (State or national) located in the same
city, regardless of the size of such bank.
(38)
39
The eligibility of a director, officer, or employee under the foregoing provisions is deter
mined 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 the
Clayton Act it is lawful for him to continue as such for one year thereafter under said election
or employment.
When any person elected or chosen as a director, officer, or employee of any bank is eligible
at the time of his election or selection to act for such bank in such capacity his eligibility to act
m such capacity is not affected by reason of any change in the affairs of such bank from what
soever cause until the expiration of one year from the date of his election or employment.
S e c t io n
III. E x c e p t io n s .
The provisions of section 8 of the Clayton Act—
(1) Do not apply to mutual savings banks not having a capital stock represented by
shares.
(2) Do not prohibit a person from being at the same time a director, officer, or employee
of a national bank and not more than one other national bank, State bank, or trust company,
where the entire capital stock of one is owned by the stockholders of the other.
(3) Do not prohibit a person from being at the same time a class A director of a Federal
Reserve Bank and also an officer or director, or both an officer and a director, in one member
bank.
(4) Do not prohibit a person who is serving as director, officer, or employee of a national
bank, even though it has resources aggregating over $5,000,000, from serving at the same
time as director, officer, or employee of any number of State banks and trust companies, pro
vided such State institutions are not located in the same city of over 200,000 inhabitants as
the national bank and do not have resources aggregating in the case of any one bank more
than $5,000,000.
(5) Do not prohibit a person from serving at the same time as director, officer, or employee
of any number of national banks, provided no two of them are located in the same city of over
200,000 inhabitants and no one of them has resources aggregating over $5,000,000.
(6) Do not prohibit a person who is not a director, officer, or employee of any national
bank from serving at the same time as officer, director, or employee of any number of State
banks or trust companies, regardless of their locations and resources.
(7) Do not prohibit a person who is an officer or employee but not a director of a State
bank from serving as director, officer, or employee of a national bank, even though either or
both of such banks have resources aggregating over $5,000,000, provided both banks are not
located in the same city of over 200,000 inhabitants.
(8) Do not prohibit a person who is an officer or employee but not a director of a national
bank from serving at the same time as director, officer, or employee of a State bank, even though
either or both of such banks have resources aggregating over $5,000,000, provided both banks
are not located in the same city of over 200,000 inhabitants.
(9) Do not apply to persons who have obtained the consent or approval of the Federal
Reserve Board under the“provisions of the Kern amendment, section 25 of the Federal Reserve
Act, or the Edge Act, as hereinafter provided.
Exceptions cumulative.—The above exceptions are cumulative.
40
S e c t io n
IV. P e r m is s io n
of the
F e d e r a l R e s e r v e B o ard U n d e r K e r n A m e n d m e n t .
By the Kern amendment, approved May 15, 1916, as amended May 26, 1920, the Clayton
Act was amended so as to authorize the Federal Reserve Board to permit any private banker
or any officer, director, or employee of any member bank or class A director of a Federal Reserve
Bank to serve as director, officer, or employee of not more than two other banks, banking associa
tions, or trust companies coming within the prohibitions of the Clayton Act, provided such other
banks are not in substantial competition with such private banker or member bank.
Substantial competition.—If the institutions involved are not in substantial competition,
the Board is authorized, in its discretion, to grant, withhold, or revoke such consent; but if
they are in substantial competition, the Board has no discretion in the matter and must refuse
such consent.
The Board has adopted the following statement of general principles for its guidance in
determining whether banks are in substantial competition within the meaning of the Kern
amendment to the Clayton A ct:
“ In general, two banks will be deemed to be in substantial competition if they actually
compete for a considerable amount of business, i. e., if a considerable portion of the business
of each is of the same character and in doing or seeking such business they actually compete
for the same customers or prospective customers, regardless of whether or not it is probable or
possible that an interlocking directorate between them would result in injury to the public by
making credit less available. If the statements of two banks show that each has a considerable
amount of the same class of deposits or loans and it appears from the evidence submitted that
they are so located as to be in a position to serve the same customers conveniently, the Board
will presume, in the absence of evidence to the contrary, that they are in substantial competi
tion. This presumption may be rebutted, however, by *any evidence showing that they are
not actually competing for such business, e. g., that they actually serve different classes of
customers, that the business in question is not actually sought by one bank but is merely
incidental to its other business, or that competition has already been eliminated through common
stock ownership. The existence of substantial competition, however, may be shown by evidence
other than that described above.”
This-is not intended as a precise definition of the term “ substantial competition,” but
merely as a broad statement of the general principles which will be observed b}7 the Federal
Reserve Board in determining whether banks are in substantial competition. Whether or not
substantial competition exists in any particular case is a question of fact which must be deter
mined in the light of all the facts and circumstances involved in such case.
When obtained.—Inasmuch ‘as the Kern amendment excepts from the prohibitions of
the Clayton Act only those “ who shall first procure the consent of the Federal Reserve Board,”
it is a violation of the law to serve two or more institutions in the prohibited classes before
such consent has been obtained. Such consent should be obtained, therefore, before becoming
an officer, director, or employee of more than one bank in the prohibited classes. Such consent
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.
Applications for permission.—A person wishing to obtain the permission of the Federal
Reserve Board to serve banks coming within the prohibitions of the Clayton Act should—
(1) Make formal application on F. R. B. Form 94, or, if a private banker, on F. R. B. Form
94d'. Each of these forms is made a part of this regulation.
(2) Obtain from each of the banks involved a statement on F. R. B. Form 94a, which is
made a part of this regulation, showing the character of its business, together with a copy of
41
its last published statement of condition, and, if a private banker, make a statement on F. R. B.
Form 94e showing the character of his or his firm’s business.
(3)
Forward all these papers to the Federal Reserve Agent of his district, who will attach
Ms recommendation on F. R. B. Form 94b, which is made a part of this regulation, and forward
them in due course to the Federal Reserve Board.
Approval or disapproval.—As soon as an application is acted upon by the Board, the appli
cant will be advised of the action taken.
If the Board approves the application, a formal certificate of permission to serve on the
banks involved will be issued to the applicant.
Rehearing.—If the Board decides that the banks are in substantial competition, and that
it can not approve the application, it will, upon petition of the applicant, reconsider its decision
and afford him every opportunity to present any additional facts or arguments bearing on the
subject.
Effect of permits.—Permission once granted is continuing until revoked, and need not be
renewed.
Revocation.—All permits, however, are subject to revocation at any time in the discretion
of the Federal Reserve Board. The issuance of a permit to anj^ person shall have the effect
of revoking any or all permits which may have been issued previously to that person.
S
e c t io n
V.
P
e r m it s
U
nder
S e c t io n
25
of
the
F
ederal
R
eser ve
A
ct.
With the approval of the Federal Reserve Board any director, officer, or employee of a
member bank which has invested in the stock of any corporation principally engaged in inter
national or foreign banking or financial operations or banking in a dependency or insular posses
sion of the United States, under the provisions of section 25 of the Federal Reserve Act, may
serve as director, officer, or employee of any such foreign bank or financial corporation.
Applications for approval.—The approval of the Federal Reserve Board for such interlock
ing directorates may be obtained through an informal application in the form of a letter addressed
to the Federal Reserve Board either by the officer, director, or employee involved, or in his
behalf by one of the banks which he is serving. Such application should be sent directly to the
Federal Reserve Board.
S
e c t io n
VI.
P
e r m it s
to
S
erve
E
dge
C o r p o r a t io n s .
With the approval of the Federal Reserve Board—(1) Any officer, director, or employee of any member bank may serve at the same time as
director, officer, or employee of any Edge Corporation in whose capital stock the member bank
shall have invested.
(2) Any officer, director, or employee of any Edge Corporation may serve at the same time
as officer, director, or employee of any other corporation in whose capital stock such Edge
Corporation shall have invested under the provisions of the Edge Act.
Applications for approval.—Such approval may be obtained through an informal applica
tion in the form of a letter addressed to the Federal Reserve Board either by the director,
officer, or employee involved, or in his behalf by one of the banks or corporations involved.
Such applications should be sent directly to the Federal Reserve Board.
o
@FedFRASER