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H C O N G K E S S 1ST SESSION I F F \ ^ I I IN T H E HOUSE OF R E P R E S E N T A T I V E S JANUARY Mr. PATMAN 4,1965 introduced the following bill; which was referred to the Committee on Banking and Currency A BILL To make the Federal Reserve System responsive to the best interests of the people of the United States and to improve the coordination of monetary, fiscal, and economic policy. It provides for: (a) Retiring Federal Reserve bank stock; (b) Coordinating Federal Reserve bank policies and programs with those of the President of the United States in keeping with the provisions of the Employment Act of 1946; (c) Reducing the number and term of office of members of the Federal Reserve Board; (d) Making the term of Chairman of the Board coterminous with that of the President of the United States; (e) A n audit for eachfiscalyear of the Federal Reserve I 2 Board and the Federal Reserve banks and their branches by the Comptroller General of the United States; (f) Funds to operate the Federal Reserve System to be appropriated by the Congress, of the United States. 1 2 3 Be it enacted by the Senate and House of JRepresentatives of the United States of America R E T I R E M E N T 4 O F F E D E R A L in Congress assembled, R E S E R V E B A N K S T O C K 5 SECTION 1. (a) The last sentence of the first paragraph 6 of section 2 of the Federal Reserve Act (12 U.S.C. 222) is 7 amended by changing "subscribing and paying for stock" to 8 read "obtaining a certificate of membership". 9 (b) The last sentence of the third paragraph of such 10 section 2 (12 U.S.C. 282) is amended by changing "subH scribe to the capital stock of such Federal reserve bank in a 12 sum equal to 6 per centum of the paid-up capital and sur13 plus of such bank, one-sixth of the subscription to be payable 14 on call of the organization committee or of the Board of Governors of the Federal Reserve System, one-sixth within ^ three months and one-sixth within six months thereafter, and the remainder of the subscription, or any part thereof, shall be subject to call when deemed necessary by the Board ^ of Governors of the Federal Reserve System, said payments ^ to be in gold or gold certificates." to read "obtaining a 673 1 certificate of membership pursuant to the provisions of this 2 Act/' 3 (c) The fourth paragraph of such section 2 (12 U.S.C. 4 502) is repealed. 5 (d) The paragraphs which, prior to the repeal made 6 by subsection (c) of this section, were the eighth, ninth, 7 tenth, eleventh, and twelfth paragraphs of such section 2 8 (12 U.S.C. 283-286) are repealed. 9 (e) The first sentence of the last paragraph of such 10 section 2 (12 11 U.S.C. 281) is repealed. SEC. 2. (a) The last sentence of the first paragraph of 12 section 4 of the Federal Reserve Act is amended by 13 changing "a subscription to the capital stock o f to read 14 "an application for a certificate of membership in". 15 (b) The second paragraph of such section is amended 16 (1) by changing "when the minimum amount of capital 17 stock prescribed by this Act for the organization of any 18 Federal reserve bank shall have been subscribed and al19 lotted," to read "when the organization committee shall 20 deem that a sufficient proportion of eligible banks have 21 applied for membership in a Federal Eeserve bank in 22 process of organization,", (2) by striking "the amount of 23 capital stock and the number of shares into which the same 1 is divided/', (3) by changing "subscribed to the capital 2 stock of" to read "applied for membership in", (4) by 3 striking "and the number of shares subscribed by each", 4 and (5) by changing "subscribed or may thereafter sub5 scribe to the capital stock of" to read "applied or may there- 6 after apply for membership in". 7 (c) The subparagraph numbered "Eighth" of the fourth 8 paragraph of such section 4 (12 TJ.S.C. 341) is amended 9 by striking "stock". 10 H (d) The tenth paragraph of such section 4 is amended by changing "stock-holding" to read "member". (e) The second sentence of the twelfth paragraph of such section 4 is amended by changing "subscriptions to 14 the capital stock" to read "applications for membership". 15 16 SEC. 3. Section 5 of the Federal Eeserve Act (12 U.S.C. 287) is amended to read : 17 1$ 66 CERTIFICATES OP MEMBERSHIP "SEC. 5. (a) The Federal Eeserve banks shall have no 1 capital stock. ® 20 " (b) A bank applying for membership in the Federal 21 Eeserve System at any time after the date of enactment of 22 this subsection shall submit such application, in accordance 23 with the regulations of the Federal Eeserve Board, to the 24 Federal Eeserve bank of its district. Such application shall 25 be accompanied by a membership fee of $10, which shall 5 1 not be refundable unless such application is disapproved or 2 withdrawn before approval. 3 " (c) Upon the approval of an application submitted 4 pursuant to subsection (b) of this section, the Federal Re- 5 serve bank shall issue to the applicant a certificate attesting 6 the membership of the applicant in such Federal Reserve 7 bank and in the Federal Reserve System. 8 " (d) When a member bank voluntarily liquidates, it 9 shall surrender its certificate of membership and cease to be 10 a member of the Federal Reserve bank of its district and of H the Federal Reserve System." SEC. 1 2 4. (a) The first paragraph (12 U.S.C. 288, first paragraph) of section 6 of the Federal Reserve Act is 14 repealed. (b) The second sentence of the paragraph which, prior 1 to the repeal made by subsection (a) of this section, was ® I7 the second paragraph (12 U.S.C. 288, second paragraph) of such section 6, is amended to read: "The certificate of 19 membership held by said national bank shall be surrendered 20 to the Federal Reserve bank of its district, and said national 21 bank shall cease to be a member of such Federal Reserve 22 bank and of the Federal Reserve System." SEC. 2 3 24 5. (a) The first paragraph (12 U.S.C. 289) of section 7 of the Federal Reserve Act is amended by striking 25 "the stockholders shall be entitled to receive ail annual 6 1 dividend of 6 per centum on the paid-in capital stock, which 2 dividend shall be cumulative. After the aforesaid dividend 3 claims have been fully met,". 4 (b) The second sentence of the second paragraph (12 5 U.S.C. 290) of such section 7 is amended by striking 6 "dividend requirements as hereinbefore provided, and the 7 par value of the stock,". 8 (0) The third paragraph (12 U.S.C. 531) of such 9 section 7 is amended by striking "capital stock and". 10 H SEC. 6. (a) The first paragraph (12 U . S . C . 321, first paragraph) of section 9 of the Federal Eeserve Act is 12 amended (1) by changing, in the first sentence, "the right 13 to subscribe to the stock of" to read "membership in", (2) 14 by striking the second and third sentences, and (3) by 15 changing, in the last sentence, "stockholder" to read 16 "member". (b) The first sentence of the second paragraph (12 18 U.S.C. 321, second paragraph) of such section 9 is amended 19 by changing "Federal reserve bank stock owned by the 20 national bank shall be canceled and paid for as provided in 21 section 5 of this Act." to read "membership of such national 22 bank shall be extinguished and the certificate of membership 23 canceled as provided in section 5 of this Act." 24 (c) The first sentence of the third paragraph (12 25 U.S.C. 321, third paragraph) of such section 9 is amended 7 1 (1) by changing "stockholder" to read "member", and (2) 2 by changing "stock" to read "membership". 3 (d) The fifth paragraph (12 U.S.C. 323) of such 4 section 9 is repealed. 5 (e) The first sentence of the paragraph which, prior 6 to the repeal made by subsection (d) of this section, was 7 the ninth paragraph (12 U.S.C. 327) of such section 9, is 8 amended by striking out "stock" and inserting in lieu thereof 9 "certificate of membership". 10 (f) The paragraph which, prior to the repeal made by 11 subsection (d) of this section, was the tenth paragraph 12 (12 U.S.C. 328) of such section 9, is amended (1) by 13 changing, in the first sentence thereof, "all of its holdings 14 of capital stock" to read "its certificate of membership", (2) 15 by striking the second proviso of the first sentence thereof, 16 (3) by changing, in the last sentence thereof, "stock hold- 17 ings" to read "certificate of membership", and (4) by 18 striking, in the last sentence thereof, "a refund of its cash 19 paid subscription with interest at the rate of one-half of 1 20 per centum per month from date of last dividend, if earned, 21 the amount refunded in no event to exceed the book value 22 of the stock at that time, and shall likewise be entitled to". 23 (g) The paragraph which, prior to the repeal made by 24 subsection (d) of this section, w7as the sixteenth paragraph 25 (12 U.S.C. 333) of such section 9, is amended (1) by 8 2 striking, in the first sentence thereof, ", except that any 2 such savings bank shall subscribe for capital stock of the 3 Federal reserve bank in an amount equal to six-tenths of 1 4 per centum of its total deposit liabilities as shown by the most 5 recent report of examination of such savings bank preceding 6 its admission to membership", (2) by striking all of the 7 remaining sentences of such paragraph except the last sen- g tence thereof, and (3) by striking, in the last sentence 9 of such paragraph, ", except as otherwise hereinbefore pro- 10 vided with respect to capital stock". 11 (h) The paragraph which, prior to the repeal made by 12 subsection (d) of this section, was the twenty-second para13 graph (12 U.S.C. 337) of such section 9, is amended (1) by 14 changing, in the third sentence thereof, "stock" to read 15 "certificate of membership", and (2) by changing, in the 16 last sentence thereof, "stock" to read "certificates of mem17 bership". 18 (i) The last paragraph (12 U.S.C. 338) of such seo- 19 tion 9 is amended by changing, in the last sentence thereof, 20 "stock" to read "certificates of membership". 21 SEC. 7. The amendments made by the first six sec- 22 tions of this Act shall take effect on the thirty-first day after 23 the date of enactment of this Act. D 1 SEC. 8. (a) Not later than thirty-one days after the date 2 of enactment of this Act, each holder of stock in any Federal 3 Eeserve bank shall surrender such stock to such bank, which 4 shall, as of the thirty-first day after the date of enactment 5 of this Act, cancel and retire the same and pay or credit to 6 such former holder the par value thereof, plus interest at 7 the rate of one-half of one per centum per month from the 8 date of the last dividend, less a membership fee of $10, 9 which shall not be refundable. 10 (b) Upon the cancellation and retirement of Federal 11 Eeserve bank stock as provided in subsection (a) of this 12 section, each Federal Eeserve bank shall issue to each such former holder thereof a certificate attesting its membership 14 in such Federal Eeserve bank and in the Federal Eeserve ^ System. SEC. 9. The eleventh paragraph of section 9 of the Federal Eeserve Act is amended to read: 18 "Any applying bank shall be eligible for membership if it is an insured bank as defined in subsection (h) of 20 section 3 of the Federal Deposit Insurance Act. The capital stock of a State member bank shall not be reduced except 22 with the prior consent of the Federal Eeserve Board," H.R. 1 1 — 2 10 1 COORDINATION OF M O N E T A R Y POLICIES A N D PROGRAMS 2 SEC. 10. (a) Section 12A of the Federal Eeserve Act 3 (12 U.S.C. 263) is amended to read: 4 " S E C T I O N 12 A . O P E N M A R K E T OPERATIONS 5 " (a) No Federal Eeserve bank shall engage or decline 6 to engage in open-market operations under section 14 of this 7 Act except in accordance with the direction of and regula- r tions adopted by the Board. The Board shall consider, s ® adopt, and transmit to the several Federal Eeserve banks 10 regulations relating to the open-market transactions of such 11 banks. 12 " (b) A l l purchases and sales by Federal Eeserve banks 13 of paper described in section 14 of this Act as eligible for 14 open-market operations, as well as all other actions and l^ policies of the Federal Eeserve banks and the Board in the l^ field of monetary affairs, shall be conducted in accordance with the programs and policies of the President pursuant to 1 the Employment Act of 1946 and other provisions of law. ® "(c) The Board shall submit a quarterly report to the 20 Congress stating, in comprehensive detail, its past and 21 prospective actions and policies under this section and other22 wise with respect to monetary affairs, and indicating specifi23 cally how such actions and policies facilitate the economic 24 program of the President." Jt 1 ABOLITION OF FEDEBAL OPEN M A E K E T 2 3 COMMITTEE (b) The Federal Open Market Committee is abolished. F E D E R A L 4 R E S E R V E B O A R D M E M B E R S H I P A N D T E N U R E 5 SEC. 11* (a) The first and second paragraphs (12 6 U.S.C. 241 and 242) of section 10 of the Federal Reserve 7 Act are amended to read as follows: 8 "The Federal Reserve Board (hereinafter referred to 9 as the 'Board') shall be composed of five members ap- 10 pointed by the President by and with the advice and con11 sent of the Senate. Each member shall be appointed for 12 a term expiring on June 30 of one of the first five calendar 13 years succeeding the year in which he is appointed, as l^ designated by the President at the time of nomination, sub- l^ ject to the limitation that not more than one member of 1 the Board may have a term scheduled to expire within ® the same calendar year. The members of the Board shall devote their entire time to the business of the Board, 19 "The members of the Board shall be ineligible during 20 the time they are in office and for two years thereafter to hold ^ any office, position, or employment in any member bank, except that this restriction shall not apply to a member who bas served the full term for which he was appointed. The President shall designate one member as Chairman, to serve 12 1 as such until the expiration of his term of office as a member, 2 or until the President shall designate another member to 3 serve as Chairman, whichever is earlier. The Chairman of 4 the Board, subject to its supervision, shall be its active 5 executive officer. The Chairman may designate one member 6 as Vice Chairman, who shall have power to act in the 7 temporary absence or disability of the Chairman, or in the 8 event of the death, resignation, or permanent incapacity of 9 the Chairman, to act as Chairman pending appointment of 10 his successor. Each member of the Board shall within fifteen 11 days after notice of appointment make and subscribe the 12 oath of office. Upon the expiration of their terms of office, 13 members of the Board shall continue to serve until their 14 successors are appointed and have qualified." 15 (b) The Board of Governors of the Federal Reserve 1 ® System established under authority of the Federal Reserve Act as in effect prior to the effective date of the amendment 18 made by subsection (a) of this section is abolished. Each 19 member of the Board of Governors of the Federal Reserve 20 System in office immediately prior to the taking effect of 21 such amendment shall be paid one year's salary at his then 22 current rate. 23 (c) On and after the effective date of the amendment 24 made by subsection (a) of this section, any reference (other 25 than the reference in subsection (b) of this section) to the 1 Board of Governors of the Federal Eeserve System in any 2 law, rule, or regulation of the United States or any depart3 ment or agency thereof shall be deemed a reference to the 4 Federal Reserve Board. 5 A U D I T 6 O F F E D E R A L R E S E R V E C O M P T R O L L E R S Y S T E M B Y G E N E R A L SEC. 12. (a) The Comptroller General shall make, 7 8 under such rules and regulations as he shall prescribe, an 9 audit for each fiscal year of the Federal Eeserve Board 10 and the Federal Eeserve banks and their branches. 11 (b) In making the audit required by subsection (a), 12 representatives of the General Accounting Office shall have 13 access to all books, accounts, financial records, reports, files, 14 and all other papers, things, or property belonging to or in 15 use by the entities being audited, including reports of exam- 16 inations of member banks, and they shall be afforded full fa17 cilities for verifying transactions with balances or securities 18 held by depositaries, fiscal agents, and custodians of such 19 entities. 20 (c) The Comptroller General shall, at the end of six 21 months after the end of the year, or as soon thereafter as may 22 be practicable, make a report to the Congress on the results 23 of the audit required by subsection (a), and he shall make 24 any special or preliminary reports he deems desirable for 25 the information of the Congress. A copy of each report made 14 1 under this subsection shall be sent to the President of the 2 United States, the Federal Eeserve Board, and the Federal 3 Eeserve banks. In addition to other matters, the report shall 4 include such comments and recommendations as the Comp5 troller General may deem advisable, including recommenda- 6 tions for attaining a more economical and efficient administra- 7 tion of the entities audited, and the report shall specifically 8 show any program, financial transaction, or undertaking 9 observed in the course of the audit which in the opinion of 10 the Comptroller General has been carried on without 11 authority of law. 12 (d) The Comptroller General is authorized to employ such personnel and to obtain such temporary and intermittent services as may be necessary to carry out the audit required ^ by subsection (a), at such rates as he may determine, without regard to the civil service and classification laws, and ^ without regard to section 15 of the Act of August 2, 1946, as amended (5 U.S.C. 55a). 1 9 R E C E I P T S 2 0 2 E X P E N D I T U R E S R E S E R V E 21 2 A N D O F F E D E R A L S Y S T E M SEC. 13. Section 7 of the Federal Eeserve Act is amended by inserting immediately after the section heading 23 the following new paragraph: 24 "The full amount of all interest, discounts, assessments, and fees received by Federal Eeserve banks shall be paid 15 1 or credited by such banks to the Secretary of the Treasury 2 and covered into the Treasury as miscellaneous receipts. 3 The expenses of such banks may be paid only from such 4 funds as may be specifically authorized or appropriated for 5 that purpose." 6 SEC. 14. (a) The third paragraph (12 U.S.C, 243) of 7 section 10 of the Federal Reserve Act is amended to read: 8 "There are hereby authorized to be appropriated such 9 sums as may be necessary to pay the expenses of the Fed- 10 eral Reserve Board and the salaries of its members and H employees. Subject to the availability of appropriations, 12 the Board may maintain, enlarge, or remodel its office build13 ing in the District of Columbia and shall have sole control 14 of such building and space therein." 15 (b) The fourth paragraph (12 U.S.C. 244) of section 16 10 of the Federal Reserve Act is amended by striking the l^ third sentence. 18 E F F E C T I V E D A T E ; A C C O U N T I N G PERIOD 19 SEC. 15. Sections 13 and 14 of this Act shall take effect 20 on the first day of the first fiscal year which begins after the 21 date of enactment of this Act. During the period between 22 the date of enactment of this Act and the effective date of 23 such sections, the several Federal Reserve banks and the 24 Federal Reserve Board shall take such steps as may be necessary to change their accounting period from the calen- 16 1 dar year to the fiscal year and otherwise to bring their 2 accounting practices and procedures into conformity with 3 those employed by other agencies of the United States 4 operated with appropriated funds. 5 A M E N D M E N T O F E M P L O Y M E N T A C T O F 1946 6 SEC. 16. Subsection (a) of section 3 of the Employment 7 Act of 1946 (15 U.S.C. 1022 (a)) is amended by adding 8 the following new sentence at the end thereof: "Such pro9 gram shall include the President's recommendations on fiscal I® and debt management policy and guidelines concerning 11 monetary policy, domestic and foreign, including the growth ^ of the money supply as defined by him." w 2 & I & ^MSMUoPM^l! 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