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MINUTES OF THS
FKlUSRAL ADVISORY COUNCIL
September 15, 1919.

A statutory meeting of the Federal Advisory was held in th#
federal Keaerve Board room, Metropolitan Bank building, tfashin^ton,

1) c,

iuondiy, September 15, 19199 convening at 11 A M.
Present: Messrs. L. L. Ru- , Vice-Preaident, D, 0 . Wing, W S Rowe, A B

Hepburn, J • G. Brown, C. A. Lyerly, F. 0 . Watts, C. T. J if fray,
Svinnuy, S . P. Wilmot, A. L. m i l s ,
Absent:

F.

and Merritt H. Grim, Secretary.

James B. Forgan.

The meeting was called to orier by Mr* Swinney.
Lr. 3 inney announced that &r. James B. Morgan, President, was pre­
vented by illn e s s from being present and that Mr. Rue, the Vice-President
would soon arrive, when he would take the chair*
The minutes of meeting of the Federal Advisory Council held on May
19th, 1919, copies o f which had been sent by

the Secretary to the members

of the Council were on motion of Mr. ^ i l l s , duly seconded, approved.
The minutes of a ape s ia l meeting of the Executive Committee of the
Council held on June 20th, 1919, which had boon called by Coverhor Harding,
copies of which had been sent by the Secretary to the members of the
Council, were al^o approved*
Sir. Rue, Vice-President, having arrived he took tho chair and th©
letter of Governor Harding, dated August :20th, 1919, to Mr* Forman,
riding as follows was la id before the Council:




August 20, 1919.

Dear Mr. Forgan;I acknowledge receipt of your le tte r of the 16th
instant in which you advise that the next meeting of
the Federal Advisory Council w ill be held on Monday,
September 15th at eleven o*clock, A. M.
You ask for a memorandum of the action taken by
the Board on the Council’ s recommendations made at its
last meeting, May 1 9 th , and I would state that in most
cases i t has seemed to the Board that the recommendations
required no d e fin ite or immediate action but that they
should serve rather as a guide fo r the Board in the
formulation of general p o lic ie s .
The Council expi’ essed the opinion that the time
had arrived when the embargo on the export of gold could
be lifte d with s a fe ty , and, as you know, the embargo
was raised on June 9 th . The Board has issued a regulation
defining re a d ily marketable sta p le s, in conformity with
the recommendation made by the Council. The substance
of the Council’ s recommendations regarding various matters
relating to the maintenance of the country's export trade
has been conveyed to the Committees on Banking and Currency
of the Senate and House, and b i l l s have been introduced
and in some cases passed by one house or the other, which
i f enacted into law would make the recommendations of the
Council e ffe c t iv e .
(a) A b i l l has passed the House amending
Section 5202 of the Revised Statutes, as recom­
mended by the Council some several months ago,
^hich would except, from the lim itations on the
l i a b i l i t y of a national bank i t s endorsements
on foreign b i l l s actu a lly owned and discounted
abroad*
(b) A b i l l has been passed by the House and
reported favorab ly, without amendment, by the
Senate Committee to amend Section 5200 of the
Revised S ta tu te s, which would have the effec t
of enabling national banks to operate with more
freedom in the movement of crops • as the b i l l




-2-

I

raises the ten per cent, limitation to twentyfive per cent, on loans secured by non-perishable
agricultural staples; this lending power to be
limited to not more than six months in any con­
secutive twelve months.
(c) The House has passed a bill authorizing
any national bank, with the approval of the Federal
Reserve Board, to subscribe for an amount not
exceeding five per cent, of its capital and surplus
of stock in a corporation principally engaged in
the business of financing foreign trade, the five
per cent* so subscribed to be a part of the ten
per cent- now authorized in the case of foreign
banking corporations under Section 25 of the Federal
Reserve Act.
(d) The Senate Committee has reported favorably
what is known as ttThe Edge Bill” to provide for
the Federal incorporation of corporations engaged
principally in foreign banking or financing.

1: The Board would be glad to have the Council consider and
make recommendations regarding Senate Bills 2582 and 2590 (copies
enclosed) upon which its opinion will be asked.
2.
The Board would also ask for an expression of the views
of the Council as to the advisability of any legislation at this
time looking to the retirement of the United States notes or leg a
tenders. (The Board itself has already gone on record against any
legislation on this subject at the present time, but it has been
requested to ascertain the views of the Council) •
3: The suggestion has been made that the law should be
tended so as to permit Federal reserve banks to lend money o
call and short time, without restriction against renewal, o a
Person, firm, corporation, or institution, member or
g
collateral security of any of the things which the
Reserve
-/purchase under the provisions of Section 1
‘ , „i,ould have
Act. the argument of the proponents being that
™
^
ney
elation to the money market giving them
^n-pTUence rates down'aSY* if not plentiful, upon occasion, and
us
through member
*ard; that lacking contact with the marke ,
without the cooperaanka, such power may not be exerted effectiv ^ "
nds> the banks
l0n of the member banks, and that as the^ aw
large accommodamake advances in rates effective at
cccmmodation is desired,
member banks exists or w h e n jgvprs by loaning freely, may ease
accommodation is sought by memb
*




-3 -

money rates, but in the absence of the member banks’ willingness
or desire to borrow or rediscount# the reserve banks* effective
power is very lim ited,

4: Section 11 (e) of the Act gives the Federal Reserve Board
the power to add to the number of c itie s cla ssifie d as reserve
and central reserve c it ie s under existing law, and to reclassify
existing reserve and central reserve c itie s or terminate their
designation as such. The Board has received applications from
banks in several c it ie s fo r re c la ssific a tio n to a lower level
in order that th eir reserve requirements may be reduced, but has
taken no action, fe e lin g that the whole subject should be given
oareful study in order that some principle may be deduced, if
possible, to govern the c la s s ific a tio n . The suggestion has been
made that le g isla tio n should be asked to provide for the fixing
of reserves with reference to the character of deposits applicable
to all places alike regardless of population. The Board is having
tables prepared by it s S ta tis tic a l Division showing the effect
upon the reserves of the various c it ie s and of the Federal reserve
banks of a uniform law fix in g reserves on time deposits at three
per cent, on demand individual t firm and corporate accounts, at
seven, eight and ten per cent, respectively, and on balances due
to other banks at th irte e n , fourteen and fifte e n per cent« re­
spectively. It w ill not be practicable to distribute these tables
in advance of the meeting of the Council# but the Board would
like to have an opportunity of presenting them to the Council
for the consideration of i t s members at the time of the meeting.
Very tru ly yours,
W. P. G. Harding,
Governor,

Mr. James B, Forgan, President,
Federal Advisory Council,
Chicago, 111.

r* S. A b ill has passed the Senate authorizing national banks in c itie s of not
less than fiv e hundred thousand population to establish branches, but it s
fate in the House seems doubtful.




Federal Advisory Council
i>ept ember 15, 1919, Cont

The topics therein submitted for the Council's consideration
were taken up and Mr. Forgan having sent the answers on the topics
prepared ay him for the use of the Council it was decided they
should be read by the chair.

The executive Coaraittee was asked

to prepare tentative rocommandations on the topics embodying the
views as expressed by the Council.
The members of the Federal Reserve Board having arrived
the Council went into join t session with the Board.
The following members of the Federal Reserve Board were
present:

Governor W P G Harding, Messrs. C S Hamlin, J 5 /illia n s ,

A C U iller, Albert Strauss and

Y. Chapman, Acting secretary.

Governor Harding addressed the meeting stating the Board's
position on the to p ic s and also reviewed existin g financial condi­
tions.

He also asked the Council to make recommendations on
Discount r a te s , e sp e cia lly in regard to a continuance
o f a d iffe r e n t ia l rate on paper secured by
government o b lig a tio n s,
\ plan for an automatic routing of checks collected
through the Federal Reserve Banks.
Three amendments to law proposed by the Administrative
Committee of the American Bankers' Association.
At 1 F M the Council adjourned u n til 2:3 0 P M.




secretary

FlsJDiSRAL ADVISORY COUNCIL,

September 15, 1919

At 2:30 P k the Federal Advisory Council resumed it s c o n s id e r a t io n
#f the topics submitted by the federal Reserve Board*
lir. Hpeburn suggested that a recommendation should be made to the

Board in re ard to a b i l l which had passed in th* Senate ( S .170) per­
mitting member banks in c itie s of 500,000 or snore population «id having
a capitalisation of $1,000,000 or more to establish branches, again
urging the enactment of such le g isla tio n *
suggested

This and the additional topics

by Governor Harding wer* le ft to the Executive Committee to

prepare formal recommendations thereon.
At 4:30 F

m

the meeting was adjourned un til Tuesday, 16th in st. at

te* A* M.
SECEBTARIf,

illNUTKS OF MATING OF
THE SX^CUnVS COMMITTEE
September 15, 1919

Present:.
Hepburn,

Messrs* L L Rue, Vice-Fresidont, presiding, D G Wing, A B
£ Rowe, F 0 tfatt*, s.nd Merritt H* Grim, Secretary*

Immediately following adjournment of the Federal Advisory Cdounoil
at 4:30 the Executive Co?nmittee met and prepared a report making tentative
recommendations on a l l the topics submitted to it by the Council and the
Chairman was requested to

present same to the Council at its meeting on

16th inst*




SECRETARY.

7
klNUTKli OF

THE

F^UKKAL ADVISORY COUNCIL*

Spotember 16, 1919,

The Federal Advisory Council mot in the Federal Reserve Board room,
As arranged, at ten o'clock A M. ruesdiy, September 16, 1919»
Present:

^ es*rs, L. L. Hue, Vice-President, presiding, D 0 Ving,

A B. Kt^burn,

:J S Rowe, J G Brown, C A Lyerly, F 0 tfatts, C T Jar fray,

I F Swinney, 35 F '11 mot, A L M ills,

md iaerritt H* Brim, becretury,

The Chair laid oefore the Council the report of the Executive
Co^lttee.

Tho Committee's tentative recommendations on a ll of tho topics

were fully discussed and tho following recommendations to the Federal
Reserve Hoard #ere prepared and the Vice-Presid'wit requests* to pres jit
saae to the Federal Reaerve Board at the joint session arranged for*
(See printed copy hereto attached and made apart of these minutes).
On motion of lir. Watts, seconded by iir. Lyerly, it was ordered that
the time of convening the Council at future statutory meetings should be
fixed at 10:30 A M on the fir s t day of the session.
The meeting theiv adjourned un til the arrival of the Federal Reserve
itaard for a joint session*




S K C R S T \ R Y .

R EC O M M E N D A T IO N S OF T H E FEDERAL ADVISORY
COUNCIL T O T H E FE D E R A L RESERVE BOARD
September 16, 1919
T O P I C N O . I.

Senate bills 2582 and 2590.

(36th CONGRESS, 1st Session.
IN

THE

S. 2582.

SENATE

OF THE

UNITED

STATES.

July 22, 1919.
Mr. Owen introduced the following bill; which was read twice and referred to the
Committee on Banking and Currency.
A BILL
To amend the Act approved December 23, 1913, known as the Federal Reserve Act,
as amended by the Acts of August 4, 1914, August 15, 1914, March 3, 1915, Sep­
tember 7, 1916, and June 21, 1917.
Be it enacted by the Senate and House of Representatives of the United States
of America in Congress assembled, That section 14 of the Act known as the Federal
Reserve Act be, and is hereby, amended as follows:
Strike out all in paragraph (e) of section 14 and insert in lieu thereof:
“ (e) To establish accounts with other Federal reserve banks and with the Federal
reserve foreign bank.”
After section 25 insert a new section, as follows:
“ Sec. 25a. There is hereby created a Federal reserve foreign bank of the United
States, to be under the supervision of the Federal Reserve Board, and to be located
in the city of New York, State of New York.
“ The Federal reserve foreign bank of the United States, hereinafter referred to
as the foreign bank, shall have an authorized capital of $100,000,000, and shall begin
business with a paid-up capital stock of $20,000,000. The stock of such bank shall be
offered at par to the banks of the United States and to the public by the Secretary
of the Treasury, any stock not subscribed for to be taken by the Treasury of the
United States subject to sale at the option of the Secretary of the Treasury.
“ The capital stock of the foreign bank shall pay 5 per centum annual dividends
if earned and shall not be taxable by any State or municipality or by the United
States. The 5 per centum dividend if not earned in any one year shall be cumulative.
Any surplus shall be distributed as follows: One-half to surplus and one-half to the
United States, until 50 per centum surplus on the then outstanding capital shall have
been accumulated, and thereafter such surplus dividends shall be paid into the Treas­
ury of the United States.
“ The Federal Reserve Board shall prepare an organization certificate and file the
same with the Comptroller of the Currency.
“ Upon the filing of such certificate with the Comptroller of the Currency as
aforesaid, the said foreign bank shall become a body corporate, and as such shall
have the power—
“ First. To adopt and use a corporate seal.
“ Second. To have succession for a period of tw’cntv years from its organization
unless it is sooner dissolved by an Act of Congress.
“ Third. To make contracts.
“ Fourth.
To sue and be sued, complain and defend, in any court of law or
equity.
“ Fifth. To appoint by its board of directors such officers and employees as are
not otherwise provided for in this Act, to define their duties, require bonds of them
and fix the penalty thereof, and to dismiss at pleasure, such officers or employees.
“ Sixth.
To prescribe by its board of directors by-laws, not inconsistent with
law, regulating the manner in which its general business may be conducted, and the
privileges granted to it by law may be exercised and enjoyed.
“ Seventh. To exercise by its board of directors, or duly authorized officers or
agents, all powers specifically granted by the provisions of this Act. and such incidental
powers as shall be necessary to carry on the business of banking within the limita­
tions prescribed by this Act.




— 13 —

“ The foreign bank shall be conducted under the supervision and control of a
board of directors, consisting of nine members appointed by the President upon the
advice and consent of the Senate.
“ One of the directors appointed by the President shall be known as the governor,
one as vice governor, and one as the Federal reserve agent.
The directors shall
name a' committee of five as an executive board to actually manage the affairs of the
bank. The members of the board shall be citizens of the United States over thirtyfive years of age and be men of tested mercantile experience and be fairly repre­
sentative of the various parts of the United States.
“ The directors shall be designated by the President to i-;erve for from one to
nine years, respectively, and thereafter each member so appointed shall serve for a
term of nine years, unless sooner removed for cause by the President.
“ After the first year the directors shall annually elect the governor and vice
governor from among the directors appointed by the President of the United States.
“ The salaries of the directors and officers shall be fixed by the Federal Reserve
Board and be paid from the earnings of the foreign bank:
Provided, That the
governor of the foreign bank shall receive $25,000, the vice governor $15,000, and
the reserve agent $10,000.
“ The directors of the foreign bank shall receive in addition to their salary a rea­
sonable allowance for necessary expenses in attending meetings of the board.
“ The board of directors shall perform the duties usually appertaining to the office
of directors of banking associations and perform all such duties as are prescribed by law.
“ Said board shall administer the affairs of the foreign bank fairly and
impartially and without discrimination, and shall, subject to the provisions of law
and the orders of the Federal Reserve Board, extend to Federal reserve banks
end to member banks, and to all other banks and bankers throughout the country, and to foreign banks and bankers such accommodations as may be safely and
reasonably made in relation to foreign banking business.
“ The powers of the foreign banks shall be as follows:
“ To receive deposits from American and foreign banks and bankers, from
the United States or foreign Governments, in current funds in lawful money,
national-bank rotes, Federal reserve notes or checks and drafts, payable upon
presentation, and a’ so for the collection of maturing notes and bills.
“ The foreign bank may discount notes, drafts, and bill of exchange arising
out of actual commercial transactions; that is, notes, drafts, and bills of exchange
issued or drawn for agricultural, industrial, or commercial purposes, or the proceeds
of which have been used or which are to be used for such purposes, the Federal
Reserve Board to have the right to determine or define the character of the paper
thus eligible for discount within the meaning of this Act.
“ The aggregate of such notes, drafts, and bills, bearing the signature or
indorsement of any one borrower, whether a person, company, firm, or corporation,
rediscounted for any one bank, shall at no time exceed 5 per centum of the net
unimpaired capital and surplus of said foreign bank, but this restriction shall not
apply to the discounting of bills of exchange drawn in good faith against a'ctual
existing values. The foreign bank may discount acceptances of the kinds permitted
under the authority of this Act.
“ The foreign bark shall not at any time be indebted or in any way liable to
an amount exceeding the amount of its capital stock at such time actually paid
in and remaining undiminished by losses or otherwise, except on account of de­
mands of the following nature:
“ First. Kotes of circulation.
“ Second. Moneys deposited with or collected by the foreign bank.
“ Third. Bids of exchange or drafts drawn against money actually on deposit
to the credit of the foreign bank or due thereto.
“ Fourth. Liabilities to the stockholders of the foreign bank for dividends and
reserve profits.
“ Fifth. Liabilities incurred under the provisions of the Federal Reserve Act.
The discounting and rediscounting and the purchase or sale by the foreign bank
of any bills receivable and of domestic and foreign bills of exchange and of
acceptances shall be subject to such limitations, restrictions, and regulations as may
be imposed by the Federal Reserve Board.
“ The foreign bank shall have power—
“ (a) To deal in gold and silver coin and bullion at home or abroad, to make
loans thereon, exchange Federal Reserve notes for gold, gold coin, or gold certificates,
and to contract for loans of gold coin or bullion, giving therefor, when necessary,




— 14 —

acceptable security, including the hypothecation of United States bonds or other
securities which Federal Reserve Banks are authorized to hold:
“ (b) To buy and sell, at home or abroad, bonds and notes of the United States,
bonds and notes of foreign Governments, and bills, notes, revenue bonds, and war­
rants, with a maturity from date of purchase of not exceeding six months, issued in
anticipation of the collection of taxes or in anticipation of the receipt of assured
revenues by any State, county, district, political subdivision, or municipality in the
continental United States, including irrigation, drainage, and reclamation districts,
such purchases to be made in accordance with rules and regulations prescribed by
the Federal Reserve Board;
“ (c) To purchase and to sell, with or without its indorsement, bills of exchange
arising out of commercial transactions as hereinbefore defined;
“ (d)
To establish from time to time, subject to review and determination of
the Federal Reserve Board, rates of discount and exchange and commissions for
the opening of credits at home or abroad, to be charged by the foreign bank for each
class of paper which shall be fixed with a view to accommodating commerce and
business.
“ (e) To issue bank notes and receive Federal Reserve notes upon like terms
and conditions as now provided for the Federal Reserve Banks.
“ (f) To open credits at home and abroad for account of domestic and foreign
banks or bankers, to facilitate exports and imports to and from the United States,
and exports and imports to and from one foreign country to another foreign coun­
try“ (g) Upon the direction and under rules and regulations prescribed by the
Federal Reserve Board to establish branches and agencies in foreign countries for the
purpose of facilitating commerce with the United States.
“ (h) No bank, banker, corporation, or individual, other than the foreign bank,
shall sell dollar balances at less than gold par except as payment for merchandise
imported into the United States without the express authority of the Federal Reserve
Board. ’ ’
S. 2582------ 2

S. 2590.

(>6th CONGRESS, 1st Session.
IN

THE

SENATE

OF

THE

UNITED

STATES.

July 22, 1919
Mr. Owen introduced the following bill; which was read twice and referred to the
Committee on Banking and Currency.
A BILL
To incorporate a Foreign Finance Corporation to provide means of acquiring and
selling public and private foreign securities, extending credits against the same,
and assisting in the development of the foreign trade of the United States, and
for other purposes.

Ee it enacted by the Senat3 and House of Representatives of the United States
of America in Congress assembled, That a Foreign Finance Corporation shall be
established with a' capital of $1,000,000,000, divided into ten million shares of $100
each. Two million five hundred thousand shares shall be subscribed and paid for by
the War Finance Corporation, two million five hundred thousand shares may be sub­
scribed and paid for by banks and trust companies incorporated under the laws of
the United States or of any State thereof in the manner hereinafter specified, and
five million shares shall be subscribed and paid for by individuals, firms, companies,
or corporations other than banks or trust companies hereinbefore mentioned in the
manner hereinafter specified.
Sec. 2. That the subscribers to the said Foreign Finance Corporation, their suc­
cessors and assigns, shall be, and are hereby, created a corporation and body politic
by the name, style, and title of “ The Foreign Finance Corporation” (herein called
“ the corporation” ), and shall have succession for a period of twenty years.
Sec. 3. That the Secretary of Commerce is authorized and hereby directed,
under rules and regulations to be prescribed by him, to receive, approve, and allot
subscriptions for the capital stock of the corporation from banks, trust companies,
individuals, firms, companies, and other corporations in the aggregate sums hereto­
fore specified.
The War Finance Corporation, through its board of directors, is




— 15 —

heruby directed t:ud instructed to subscribe to two million five hundred thousand
shares of the Foreign Finance Corporation.
Sec. 4. That the principal office of the corporation shall be located in New
York City, New York, but the corporation shall be authorized to establish branches
or agencies in any city or cities of the United States or any foreign country, under
rules and regulations to be prescribed by the board of directors.
Sec. 5. That the management of the corporation shall be vested in a board of
directors, consisting of nine members, three of whom shall be annually appointed by
the Secretary of Commerce, three of whom shall be electcd annually by the stock­
holding banks and trust companies, and three of whom shall be elected by the stock­
holding individuals, firms, companies, or corporations other than banks or trust com­
panies.
Sec. G. That the corporation shall bo empowered and authorized to adopt, alter,
and use a corporate seal; to make contracts; to purchase or lease a'nd hold or
dispose of such real estate as may be necessary for the prosecution of its business;
to sue and be sued; to complain and defend in any court of competent jurisdiction,
State, Federal, or foreign; to appoint by its board of directors and fix the com­
pensation of such ofiicers, employees, attorneys, and agents as are necessary for the
transaction of the business of the corporation, to define their duties, require bonds
of them, and fix the penalties thereof; and to prescribe, amend, and repeal by its
board of directors by-laws regulating the manner in which its general business may
be conducted and the privileges granted to it by law may be exercised and enjoyed,
find prescribing the powers and duties of its officers and agents.
Sec. 7. That the corporation shall be empowered and authorized (1) to make
advances upon such terms not inconsistent herewith as it may prescribe to any
foreign Government, with or without security, or to any bank, banking institution,
or trust company, or other corporation organized or operating under the laws of any
foreign country or to any individual or firm located in or doing business in a foreign
country for the purpose of importing goods from the United States into such foreign
country or into other foreign countries: Provided, however, That the corporation shall
not make any advances for the purpose of directly financing individual short-term
transactions which are in their nature self-liquidating; (2) (a) to buy and sell, at
home or abroad, the obligations evidencing the advances made under paragraph (1)
of this section, and to sell any securities pledged as collateral to such obligations,
•(b) to buy and sell, at home or abroad, foreign securities, whether public or private;
that is, securities of any foreign Government municipality, or political subdivision,
or securities of any individual, firm, or corporation of the kind described in subparagraph (1) of this section: Provided, however, That the corporation shall not
engage in the business of buying and selling notes, drafts, bills of exchange, or
other short-term obligations arising out of transactions which iu their nature are
commercial or self-liquidating, and shall not engage in any other business or exer­
cise any other powers except those that are expressly defined or conferred by this
Act and except those that are necessarily incidental to the exercise of such express
business or express powers.
(3) That the corporation 'shall be empowered and
authorized to issue and to have outstanding at any one time its bonds in an amount
aggregating not more than ten times its paid-in capital, such bonds to mature not
loss than one year and not more than twenty years from the respective dates of
issue and to bear such rate or rates of interest as the corporation may determine.
Such bonds sh;ll have a first and paramount floating charge on all the assets of the
corporation which shall not at any time be mortgaged or pledged by the corpora­
tion; such bonds* may be offered for sale publicly or to any individual, firm, corpora­
tion, or association at such price or prices as the corporation may determine; such
bonds shall not be eligible for purchase or discount by any Federal reserve bank,
and no note, draft, or bill drawn for the purpose of buying or •carrying such bonds,
whether or not secured by such bonds, shall be eligible for purchase or rediscount
by a Federal reserve bank.
Sec. 8. That the corporation shall not exercise any of the powers granted by
this Act, or perform any business except such as is incidental and necessarily pre­
liminary to its organization, until it has been authorized by the Secretary of Com­
merce to commence business under the provisions of this Act. The corporation shall
be authorized to begin its business whenever five million shares shall have been sub­
scribed.
Sec. 9. That neither the War Finance Corporation nor any other shareholder
in the corporation shall be liable beyond the amount of its subscription to the capital
stock of the corporation for the payment of any bond or other obligation issued or




— 16 —

incurred by the corporation, nor shall any such shareholder as such incur any lia­
bility in respect to any act or omission of the corporation.
Sec. 10. That whoever makes or authorizes to be made any statement in writ­
ing, knowing it to be false, for the purpose of obtaining for himself or for any
other person, firm, corporation, or association any advance under this title, shall
be punished by a fine of not more than $10,000 or by imprisonment for not more than
live years or both.
Whoever (1) falsely makes, forges, or counterfeits any bond, coupon, or paper
in imitation of or purporting to be an imitation of a bond or coupon issued by the
corporation; or (2) passes, utters, or publishes, or attempts to pass, utter, or publish,
any false, forged, or counterfeited bond, coupon, or paper purporting to be issued
by the corporation, knowing the same to be falsely made, forged, or counterfeited;
or (3) falsely alters any such bond, coupon, or paper; or (4) passes, utters, or pub­
lishes as true any falsely altered or spurious bond, coupon, or paper issued or pur­
porting to have been issued by the corporation, knowing the same to be falsely
altered or spurious, shall be punished by a fine of not more than $10,000 or by im­
prisonment for not more than five years or both.
Whoever, being connected in any capacity with the corporation, (1) embezzles,
abstracts, or willfully misapplies any moneys, funds, or credits thereof, or (2) with
intent to defraud the corporation or any other company, body politic or corporate,
or any individual, or to deceive any officer of the corporation (a) makes any false
entry in any book, report, or statement of the corporation, or (b) without authority
from the directors draws any order or assigns any note, bond, draft, mortgage, judg­
ment or decree thereof, shall be punishable by a fine of not more than $10,000 or
by imprisonment for not more than five years, or both.
The Secretary of the Treasury is hereby authorized to direct and use the Secret
Service Division of the Treasury Department to dctect, arrest and deliver into
custody of the United States marshal having jurisdiction over any person committing
any of the offenses punishable under this section.
Sec. 11. The corporation shall file quarterly with the Secretary of Commerce a
report, of its business in sueh manner and form as may be directed by the Secretary
of Commerce, who shall make an annual report to Congress of the operation of
such corporation.
Sec. 12. That the term “ securities” as *u3ed in this Act shall include bonds,
(lebentures, notes, certificates of indebtedness, and other such obligations (not
stocks).

R e c o m m e n d a tio n :
In the o p in io n

of

th e

F ed eral

A d v is o r y

objections o b ta in a g a in st b o th S e n a te
Sufficient g o v er n m e n ta l m a c h in e r y n o w
further n ecessity sh o u ld

T O P IC

NO.

2.

b ills
ex ists

C o u n cil

the sam e general

( N o s . 2 5 8 2 and 2 5 9 0 ) .
in our jud gm ent and any

b e m e t th rou gh p rivate enterprise.

The

B oard

w o u ld

ask

for an expression o f the

view s o f the C o u n c il as to th e d e sir a b ility o f an y leg isla tio n at this time
looking to the retirem en t o f th e U n it e d S ta te s n otes or le g a l tenders.

(T h e

Board itse lf h as a lr e a d y g o n e on record a g a in st a n y legislation on this
subject at the p resen t tim e, b u t it h a s b e e n req u ested to ascertain the view s
of the C o n n c il).
R e c o m m e n d a tio n :
C oncurrin g in th e sta te m e n ts m a d e , th e v ie w s exp ressed and the a d v ice
given on this to p ic in th e B o a r d ’s letter o f A u g u s t 8 th , 1 9 1 9 , ad dressed
to H o n . G e o r g e P . M c L e a n , C h a irm a n C o m m itte e on B a n k in g an d C u r­
rency, U n ite d S ta te s S e n a te , w e reg a rd a n y le g isla tio n at this tim e lo o k ­




— 17 —

ing to the retirem ent o f th e U n it e d S ta t e s n o te s or le g a l ten d e rs as in­
a d v isa b le a n d u n n ecessa ry .
S o lo n g a s n o p a rt o f th e c ir c u la tin g m edium
o f the cou n try in the p o ssessio n o f th e m e m b e r b a n k s c a n
their le g a l reserve req u irem en ts, w h ic h

c a u s e s th e m

to

b e c o u n te d in

turn o v er d a ily

to

the F e d e r a l R e se r v e b a n k s su ch o f it as th e y h a v e n o t a c tu a l u se for, there
ca n n o t b e a n y seriou s r e d u n d a n c y o f c u r r e n c y in a c tu a l c ir c u la tio n .

The

d a ily red em p tion o f F e d e r a l R e s e r v e n o te s b y th e F e d e r a l R e s e r v e banks
a n d the d a ily d ep o sitin g w ith th em o f a ll o th e r k in d s o f c ir c u la tin g notes
not a c tu a lly n e e d e d b y the p u b lic or b y th e m e m b e r b a n k s fo r su p p ly in g
the p u b lic k eep s the m o n e y in c ir c u la tio n d o w n to th e a c tu a l requ irem en ts
o f the p u b lic in trad e a n d c o m m er ce.

T O P IC

N O . 3.

T h e su g g e stio n h a s b e e n m a d e th a t th e la w sh o u ld

b e a m en d e d so as to perm it F e d e r a l R e s e r v e b a n k s to le n d m o n e y b o th on
c a ll an d short tim e, w ith o u t restriction a g a in st r e n e w a l, to a n y p erso n , firm,
corporation, or in stitu tion, m em b er or n o n m em b e r, o n th e c o lla te r a l secu rity
o f an y o f the things w h ic h th e b a n k s m ig h t a c q u ir e b y p u r c h a se u n d er the
provisions o f S e c tio n
p rop onents

b ein g

1 4 o f th e F e d e r a l R e s e r v e A c t , th e a rg u m en t o f the

that

the

b an k s

sh o u ld

have

a

r e la tio n

to

th e

m o n ey

m arket g ivin g them th e p o w e r to m a k e m o n e y e a s y , if n o t p le n tifu l, upon
o ccasion ,

an d

thus

in flu en ce

rates

dow nw ard;

th a t

la c k in g

c o n ta c t

w ith

the m arket, ex c e p t th rou gh m em b er b a n k s, su ch p o w e r m a y n o t b e ex erted
effectiv ely w ith o u t the co -o p era tio n o f th e m em b e r b a n k s, a n d th a t as the
la w n o w stand s, the b an k s m a y m a k e a d v a n c e s in ra tes e ffe c tiv e a t tim es
w h en large a cc o m m o d a tio n to m em b er b a n k s ex ists or w h e n g re a ter a cc o m ­
m od ation is d esired , a n d if a c c o m m o d a tio n is so u g h t b y m em b ers, b y lo a n ­
ing freely , m ay ea se m o n e y rates, b u t in th e a b s e n c e o f th e m em b er b a n k s’
w illin g n ess or d esire to b o rro w or re d isco u n t, th e reserv e b a n k s ’ effective
p ow er is very limited,,
R e c o m m e n d a tio n :
In our op in ion the la w n o w fu rn ish es a m p le c h a n n e ls th ro u g h w h ich
the resources c f the F e d e r a l R e s e r v e b a n k s a re m a d e a v a ila b le to the
p ub lic through the m em ber b an k s for a ll le g itim a te p u rp o ses.
W e d o not
therefore ap p rove the su g g estio n th at th e la w sh o u ld b e a m e n d e d so as to
perm it F ed er a l R e se r v e b an k s to le n d m o n e y b o th on c a ll a n d short time
w ith ou t restriction again st re n e w a l to a n y p erso n , firm, co rp o ra tio n or in­
stitution, m em ber or n on m em b er, on the c o lla te r a l se cu rity o f a n y o f the
things w h ich the b an k s m ight a cq u ire b y p u r ch a se u n d er th e p ro v isio n s o f
S ectio n 1 4 o f the F e d e r a l R e s e r v e A c t .

T O P IC N O . 4
S e c tio n 1 1 ( e ) o f th e A c t g iv e s the F ed era l
R eserv e B oard the p o w er to a d d to the n u m b er o f cities cla ssifie d as reserve
an d central reserve cities under ex istin g la w , a n d to r e c la ssify existing
reserve and central reserve cities or term in ate their d esig n a tio n as such.
T h e B oard has received a p p lica tio n s from b a n k s in sev era l cities for



—

18 —

reclassification to a lo w e r le v e l in order that their reserve requirem ents m ay
be redu ced, but has tak en n o action , fe e lin g that the w h o le subject should
be given ca r efu l stu d y in ord er that som e p rin cip le m ay b e d ed u ced , if
possible, to govern the classification .
T h e su ggestion has been m ade that
legislation sh o u ld b e a sk ed to p ro v id e for the fixing o f reserves w ith reference to the ch aracter o f d ep o sits a p p lic a b le to a ll p la ces alik e regardless o f
population.
T h e B o a r d is h a v in g ta b les p rep ared b y its statistical division
show ing the effect u p on the reserves o f the various cities an d o f the F e d ­
eral R e se r v e b ank s o f a u niform la w fixing reserves on tim e deposits at
three per cent, on d em a n d in d iv id u a l, firm an d corporate accounts, at seven,
eight and ten p er c e n t re sp ec tiv e ly , a n d on b a la n ces d u e to other banks a!
thirteen, fou rteen an d fifte en p er c e n t resp ectiv ely .
It w ill not be practic­
able to d istrib ute th ese ta b le s in a d v a n c e o f the m eetin g o f the C oun cil but
the B o a rd w o u ld lik e to h a v e an op p ortu n ity o f presenting them to the
C ouncil for the co n sid er a tio n o f its m em bers at the tim e o f the m eeting.
R e c o m m e n d a tio n :
It is the o p in io n o f th e C o u n c il that the reserve requirem ents o f all
member b ank s sh o u ld b e b a se d on the ch aracter o f d eposits and not cn
their classificatio n as c e n tr a l reserve cities a n d reserve cities an d further
the C o u n cil re co m m en d s th at the F e d e r a l R e se r v e B o a r d en d eavor to
secure such le g isla tio n as m a y b e n ecessa ry to au th orize them to m ake such
reclassification.

T O P IC

N O . 5.

S e n a te b ill N o .

C6th CONGRESS, 1st. Session.
IN

THE

170.

S. 170.
HOUSE

OF

REPRESENTATIVES.

August 5, 1919.
Referred to the Committee on Banking and Currency.
A N ACT
To amend section 25 of the Act of December 23, 1913, known as the Federal Reservo
Act, as amended by the Act of September 7, 1916.
Be it enacted by the Senate and House of Representatives of the United States
of America in Congress assembled That section 25 of the Act approved December
23, 1913, known as the Federal Reserve Act, as amended by the Act of September
7, 1916, be amended by adding a subsection (a) to read as follows:
“ Sec. 25a. That any member bank located in a city or incorporated town of
more than five hundred thousand inhabitants and possessing a capital and surplus of
$1,000,000 or more may, under such rules and regulations as the Federal Reserve
Board may prescribe, establish branches, not to exceed ten in number, within the
corporate limits of the city or town in which it is located: Provided, That no such
branch shall be established in any State in which neither State banks nor trust
companies may lawfully establish branches.”
Passed the Senate August 2, 1919.
Attest:
GEORGE A. SANDERSON,
Secretary.

R e c o m m e n d a tio n :
W e u rge th e F e d e r a l R e s e r v e B o a r d to u se ev ery effort to secure the
p assage o f S e n a te b ill N o .

1 7 0 in the in terest o f sou nd b an k in g and the

granting o f eq u a l b a n k in g fa c ilitie s to a ll p e o p le in the sam e b usiness c o m ­
munity.




THREE A M E N D M E N T S P R O P O S E D B Y T H E ADMINISTRA­
TIVE C O M M I T T E E OF T H E A M E R I C A N BANKERS
ASSOCIATION
T O P IC

NO.

6.

(a )

P ro p o sed

am en dm en t

to

F ed er a l R e s e r v e A c t a u th o r iz in g th e F e d e r a l R e s e r v e
m em bership
en title

them

in co rp o ra ted
to b e c o m e

co m b in ed ca p ita l

an d

sa v in g s

banks

w it h

m em ber

banks

u nd er

su rp lu s o f

th e

S e c t io n
B oard

in su ffic ie n t
e x is tin g

in c o r p o r a te d

9

to a d m it to

c a p ita l

la w ,

s a v in g s

o f the
stock

p r o v id e d

banks

to
the

is eq u al

to the am ou n t o f c a p ita l sto c k r e q u ir e d o f n a tio n a l b a n k s in th e p la ce s in
w h ich

su ch
(b )

in co r p o r a te d
P rop osed

sa v in g s

am en dm en t

banks
to

are

lo c a t e d .

S e c t io n

A c t a d d in g at th e e n d o f su b - d iv isio n C

19

of

th e

F ed eral

R ese rv e

t h e r e o f a n e w p a r a g r a p h to read

as fo llo w s:
“ T w o - th ir d s o f th e th ree p er c e n tu m

o f tim e d e p o s it s req u ired to be

m ain tain ed as reserve b y su b d iv isio n A , B a n d C h e r e o f m a y co n sist, in the
case o f savin gs a cc o u n ts o n ly , as d e fin e d

by

th e

F ederal

R e s e r v e B o a rd ,

c f b on d s o f the U n it e d S ta t e s issu e d s in c e A p r il T w e n t y - f o u r th , N in e te e n
hundred an d se v en te en , or ce rtific a te s o f in d e b t e d n e s s o f th e U n it e d S tates
d ep osited w ith the F e d e r a l R e s e r v e b a n k .
(c )

P r o p o se d a m e n d m e n t to S e c t io n 5 1 5 4 U . S . R . S . a d d in g thereto

the fo llo w in g :
“ A n y savin gs b an k in c o r p o r a te d b y s p e c ia l la w o f a n y sta te or o f the
U n ite d S ta tes, or o r g a n iz e d u n d er th e g e n e r a l la w s o f a n y sta te or o f the
U n ite d S ta tes, w h ic h h a s b e e n c o n v e r te d

in to a n a tio n a l b a n k in g a sso cia ­

tion a ccord in g to th e p ro v isio n s h ere in , is p e r m itte d to m a in ta in a separate
savings d ep artm ent an d to c o n tin u e to d is c h a r g e
exercised b efo re

the co n v er sio n ,

under rules an d

reg u la tio n s

su ch

sa v in g s

th e sa m e

d e p a r tm e n t

to

be

p r o m u lg a te d

i

•'

*

by

fu n ctio n s as it
to

be

op erated

th e

F ed eral

R ese rv e

i

I! ’

B o a r d .”
j

1

i

.

1

R e c o m m e n d a tio n :
T h e C o u n cil is o p p o se d to a ll th ree o f th e

above

p r o p o se d

am en d ­

ments.

T O P I C N O . 7.
D iffe r e n tia l d isc o u n t
U n ite d S tates govern m en t o b lig a tio n s.

ra tes

on

lo a n s

secu red

by

R e c o m m en d a tio n :
In v ie w o f the u n certain ty e x istin g as to th e c o n tin u a n c e of th e p o licy
o f a differential rate o f d isco u n t in fa v o r o f lo a n s se c u r e d b y th e U n ite d
States governm ent o b lig a tio n s the C o u n c il re c o m m e n d s to th e F ed era l
R eserve B oard that existin g rates on lo a n s o f this ch a r a c te r b e maintained
during the b ala n ce o f this year.



— 20 —

TOPIC NO. 8.

Check Collections.

R e c o m m e n d a tio n :
R efer rin g to G overn or H a r d in g ’s remarks respecting a proposed order
o f the F e d e r a l R e se r v e B o a rd for a uniform plan for hand lin g o f checks on
m em ber b ank s the C ou n cil resp ectfu lly requests that the F ed era l R eserve
B oard m ail to each m em ber o f the C oun cil such inform ation regarding the
plan as m ay b e a v a ila b le an d further that the F ed era l R eserv e B oard take
no d efinite action on this su b ject p en din g the next m eeting of the C ouncil
w ith the F e d e r a l R e se r v e B oard .
T h e fo llo w in g m em bers o f the F ed er a l A d v iso ry C oun cil w ere present
at this m eetin g:
M essrs. L . L . R u e , V ice -P re sid en t; D . G . W in g , A . B .
H ep b u rn , W . S . R o w e , J. G . B r o w n , C harles A . L y e rly , F . O . W a tts, C.
T . Jaffray, E . F . S w in n e y , E . P . W ilm o t, A . L . M ills and M erritt H .
G rim , S ecr eta ry .




-—21 —

JOINT MATING
FEDERAL RESERVE BOARD AND
FEDERAL ADVISORY COUNCIL.
September 16, 1919.

At 11 A M. Tuesday, September 16, 1919, a joint meeting of the Federal
Reserve Board and the Federal Advisory Council was held in the Federal Reserve
Board Room, Washington, D C«
Present: Members of t&e

Federal Reserve Board, Governor W P G Harding,

Messrs. A C M iller, Albert Strauss, J S Williams, C S Hamlin, and W T Chapman,
Acting Secretary.
Members of Federal Advisory Council

-L . L. Rue, Vice-President, D ^ ^ing

A B Hepburn, W S Rowe, J G Brown, C A Lyerly, F 0 Watts, C T Jaffray, E F
Swinney, E h Wilmot, A L M ills and Merritt H. Grim, Secretary.
Governor Harding called the meeting to order and Mr. Rue read the Recommen­
dations of the Federal Advisory Council on the topics submitted.
A general discussion followed on the topics and on matters pertaining to
tno Federal Reserve Banks*
In regard to the Board's plan for a system of automatic routing of checks
collected by Federal Reserve Banks (Topic No.8 ) Governor Harding said thfct
shfuld the Board prepare a regulation on this subject copies of it would be
sent to each member of the Council for further consideration before putting
it into e ffe c t.

This would probably be before the next regular meeting of the

Council.
In regard to changing the basis of figuring the reserves of member

banks

(Topic No. 4) Governor Harding said copies of the Board'w s ta tis tic a l tables
sho ing the effect of various computations, e t c ., would be provided so that th t
President could send one to each member of the Council.



FEDERAL ADVISORY COUNCIL
MINUTES

Governor Harding stated i t was Counsel*s

opinion that there was

no authority in the Federal Reserve Act for the appointment of an alte rn a te
or proxy for a member of the Council, therefore he vould have no le g a l
standing or vote, and could only participate in the d eliberation s of the
Council through courtesy*.
Governor Harding said that the Board would print the Recommendations
of th© Federal Advisory Council for the year 1919 in i t s
report#

forthcoming annual

There was no objection*

The joint session then adjourned at 1 2 :3 0 o'clock *




S ECRETARY*

R E C O M M E N D A TIO N S OF T H E FEDERAL ADVISORY
COUNCIL T O T H E FE D E R A L RESERVE BOARD
S e p te m b e r 1 6 ,
T O P IC N O .

1.

S e n a te b ills 2 5 8 2 and 2 5 9 0 .

ii6th CONGRESS, 1st Session.
IN

TIIE

1919

S. 2582.

SENATE

OF

THE

UNITED

STATES.

July 22, 1919.
Mr. Owen introduced the following bill; which was read twice and referred to the
Committee on Banking and Currency.
A BILL
To amend the Act approved December 23, 1913, known as the Federal Reserve Act,
as amended by the Acts of August 4, 1914, August 15, 1914, March 3, 1915, Sep­
tember 7, 1916, and June 21, 1917.
Be it enacted by the Senate and House of Rspresentatives of the United States
of America in Congress assembled, That section 14 of the Act known as the Federal
Reserve Act be, and is hereby, amended as follows:
Strike out all in paragraph (e) of section 14 and insert in lieu thereof:
“ (e) To establish accounts with other Federal reserve banks and with the Federal
reserve foreign bank.”
After section 25 insert a new section, as follows:
“ Sec. 25a. There is hereby created a Federal reserve foreign bank of the United
States, to be under the supervision of the Federal Reserve Board, and to be located
in the city of New York, State of New York.
“ The Federal reserve foreign bank of the United States, hereinafter referred to
us the foreign bank, shall have an authorized capital of $100,000,000, and shall begin
business with a paid-up capital stock of $20,000,000. The stock of such bank shall be
offered at par to the banks of the United States and to the public by the Secretary
of the Treasury, any stock not subscribed for to be taken by the Treasury of the
United States subject to sale at the option of the Secretary of the Treasury.
“ The capital stock of the foreign bank shall pay 5 per centum annual dividends
if earned and shall not be taxable by any State or municipality or by the United
States. The 5 per centum dividend if not earned in any one year shall be cumulative.
Any surplus shall be distributed as follows: One-half to surplus and one-half to the
United States, until 50 per centum surplus on the then outstanding capital shall have
been accumulated, and thereafter such surplus dividends shall be paid into the Treas­
ury of the United States.
“ The Federal Reserve Board shall prepare an organization certificate and file tho
same with the Comptroller of the Currency.
“ Upon the filing of such certificate with the Comptroller of the Currency as
aforesaid, the said foreign bank shall become a body corporate, and as such shall
have the power—
“ First. To adopt and use a corporate seal.
“ Second. To have succession for a period of twenty years from its organization
unless it is sooner dissolved by an Act of Congress.
“ Third. To make contracts.
“ Fourth. To sue and be sued, complain and defend, in any court of law or
equity.
“ Fifth. To appoint by its board of directors such officers and employees as are
not otherwise provided for in this Act, to define their duties require bonds of them
and fix the penalty thereof, and to dismiss at pleasure such officers or employees.
“ Sixth.
To prescribe by its board of directors by-laws, not inconsistent with
law, regulating the manner in which its general business may be conducted, and the
privileges granted to it by law may be exercised and enjoyed.
“ Seventh. To exercise by its board of directors, or duly authorized officers or
agents, all powers specifically granted by the provisions of this Act and such incidental
powers as shall be necessary to carry on the business of banking within the limita­
tions prescribed by this Act.




— 13 —

“ The foreign bank shall be conducted under the sup ervis io n and control of a
board of directors, consisting of Dine members appointed by the 1'resident upon the
advice and consent of the Senate.
“ One of the directors appointed by the President shall be known as the governor,
one as vice governor, and one as the Federal reserve agent.
The directors shall
name a committee oi' five as an executive board to actually manage the affairs of the
bank. The members of the board shall be citizens of the United States over thirtylive years of age and be men of tested mercantile experience and be fairly repre­
sentative of the various parts of the United States.
“ The directors shall be designated by the President to serve for from one to
nine years, respectively, and thereafter each member so appointed shall serve for a
term of nine years, unless sooner removed for cause by the President.
“ After the first year the directors shall annually elect the governor and vice
governor from among the directors appointed by the President of the United States.
“ The salaries of the directors and officers shall be fixed by the Federal Reserve
Board and be paid from the earnings of the foreign bank:
Provided, That the
governor of the foreign bank shall receive $25,000, tha vice governor $15,000, and
the reserve agent $10,000.
“ The directors of the foreign bank shall receive in addition to their salary a rea­
sonable allowance for necessary expenses in attending meetings of the board.
“ The board of directors shall perform the duties usually appertaining to the office
of directors of banking associations and perform all such duties as are prescribed by law.
“ Said board shall administer the affairs of the foreign bank fairly and
impartially and without discrimination, and shall, subject to the provisions of law
and the orders of the Federal Reserve Board, extend (o Federal reserve banks
and to member banks, and to all other banks and bankers throughout the coun­
try, and to foreign banks and bankers such accommodations as may be safely and
reasonably made in relation to foreign banking business.
“ The powers of the foreign banks shall be as follows:
“ To receive deposits from American and foreign banks and bankers, from
the United States or foreign Governments, in current funds in lawful money,
naticnal-bank rotes, Federal reserve notes or checks and drafts, payable upon
presentation, and aiso for the collection of maturing notes and bills.
“ The foreign bank may discount notes, drafts, and bill of exchange arising
out of actual commercial transactions; that is, notes, drafts, and bills of exchange
issued or drawn for agricultural, industrial, or commercial purposes, or the proceeds
of which have been used or which are to be used for such purposes, the Federal
Reserve Board to have the right to determine or define the character of the paper
thus eligible for discount within the meaning of this Act.
“ The aggregate of such notes, drafts, and bills, bearing the signature or
indorsement of any one borrower, whether a person, company, firm, or corporation,
rediscounted for any one bank, shall at no time exceed 5 per centum of the net
unimpaired capital and surplus of said foreign bank, but this restriction shall not.
apply to the discounting of bills cf exchange drawn in good faith against actual
existing values. The foreign bank may discount acceptances of the kinds permitted
under the authority of this Act.
“ The foreign bank shall not at any time be indebted or in any way liable to
an amount exceeding the amount of its capital stock at such time actually paid
in and remaining undiminished by losses or otherwise, except on account of de­
mands of the following nature:
“ First. Notes of circulation.
“ Second. Moneys deposited with or collected by the foreign bank.
“ Third. Bids of exchange or drafts drawn against money actually on deposit
to the credit of the foreign bank or due thereto.
“ Fourth. Liabilities to the stockholders of the foreign bank for dividends and
reserve profits.
“ Fifth. Liabilities incurred under the provisions of the Federal Reserve Act.
The discounting and rediscounting and the purchase or sale by the foreign bank
of any bills receivable and of domestic and foreign bills of exchange and of
acceptances shall be subject to such limitations, restrictions, and regulations as may
be imposed by the Federal Reserve Board.
“ The foreign bank shall have power—
“ (a) To deal in gold and silver coin and bullion at home or abroad, to make
loans thereon, exchange Federal Reserve notes for gold, gold coin, or gold certificates,
and to contract for loans of gold coin or bullion, giving therefor, when necessary.




— 14 —

acceptable security, including the hypothecation of United States bonds or other
securities which Federal Reserve Banks are authorized to hold:
“ (b) To buy and sell, at home or abroad, bonds and notes of the United States,
bonds and notes of foreign Governments, and bills, notes, revenue bonds, and war­
rants, with a maturity from date of purchase of not exceeding six months, issued in
anticipation of the collection of taxes or in anticipation of the receipt of assured
revenues by any State, county, district, political subdivision, or municipality in the
continental United States, including irrigation, drainage, and reclamation districts,
such purchases to be made in accordance with rules and regulations prescribed by
the Federal Reserve Board;
“ (c) To purchase and to sell, with or without its indorsement, bills of exchange
arising out of commercial transactions as hereinbefore defined;
“ (d)
To establish from time to time, subject to review and determination of
the Federal Reserve Board, rates of discount and exchange and commissions for
the opening of credits at home or abroad, to be charged by the foreign bank for each
elass of paper which shall be fixed with a view to accommodating commerce and
business.
“ (e) To issue bank notes aud receive Federal Reserve notes upon like terms
and conditions as now provided for the Federal Reserve Banks.
“ (f) To open credits at home and abroad for account of domestic and foreign
banks or bankers, to facilitate exports and imports to and from the United States,
£fnd exports and imports to and from one foreign country to another foreign country.
“ (g) Upon the direction and under rules and regulations prescribed by the
Federal Reserve Board to establish branches and agencies in foreign countries for the
purpose of facilitating commerce with the United States.
“ (h) No bank, banker, corporation, or individual, other than the foreign bank,
shall sell dollar balances at less than gold par except as payment for merchandise
imported into the United States without the express authority of the Federal Reserve
Board. ”
S. 2582------ 2
66th CONGRESS, 1st Session.
IN

THE

S. 2590.

SENATE

OF

THE

UNITED

STATES.

July 22, 1919
Mr. Owen introduced the following bill; which was read twice and referred to the
Committee on Banking and Currency.
A BILL
To incorporate a Foreign Finance Corporation to provide means of acquiring and
selling public and private foreign securities, extending credits against the same,
and assisting in the development of the foreign trade of the United States, and
for other purposes.
Be it enacted by the Senate and House of Representatives of the United States
of America in Congress assembled, That a Foreign Finance Corporation shall be
established with a' capital of $1,000,000,000, divided into ten million shares of $100
each. Two million five hundred thousand shares shall be subscribed and paid for by
the War Finance Corporation, two million five hundred thousand shares may be sub­
scribed and paid for by banks and trust companies incorporated under the laws of
the United States or of any State thereof in the manner hereinafter specified, and
five million shares shall be subscribed and paid for by individuals, firms, companies,
or corporations other than banks or trust companies hereinbefore mentioned in the
manner hereinafter specified.
Sec. 2. That the subscribers to the said Foreign Finance Corporation, their suc­
cessors and assigns, shall be, and are hereby, created a corporation and body politic
by the name, style, and title of “ The Foreign Finance Corporation” (herein called
“ the corporation” ), and shall have succession for a period of twenty years.
Sec. 3. That the Secretary of Commerce is authorized and hereby directed,
under rules and regulations to be prescribed by him, to rcceive, approve, and allot
subscriptions for the capital stock of the corporation from banks, trust companies,
individuals, firms, companies, and other corporations in the aggregate sums hereto
fore specified.
The War Finance Corporation, through its board of directors, is




— 15 —

hereby directed jnul instructed to subscribe to two million five hundred thousand
shares of the Foreign Finance Corporation.
Sec. 4. That the principal office of the corporation shall bo located in New
York City, New York, but the corporation shall be authorized to establish branches
or agencies in any city or cities of the United States or any foreign country, under
rules and regulations to be prescribed by the board of directors.
Sec. 5. That the management of the corporation shall be vested in a board of
directors, consisting of nine members, three of whom shall be annually appointed by
Ihe Secretary of Commerce, three of whom shall be elected annually by the stock­
holding banks and trust companies, and three of whom shall be elected by the stock­
holding individuals, firms, companies, or corporations other than banks or trust com­
panies.
Sec. 6. That the corporation shall be empowered and authorized to adopt, alter,
and use a corporate seal; to make contracts; to purchase or lease and hold or
dispose of such real estate as may be necessary for the prosecution of its business;
to sue and be sued; to complain and defend in any court of competent jurisdiction,
State, Federal, or foreign; to appoint by its board of directors and fix the com­
pensation of such officers, employees, attorneys, and agents as are necessary for the
transaction of the business of the corporation, to define their duties, require bonds
of them, and fix the penalties thereof; and to prescribe, amend, and repeal by its
beard of directors by-laws regulating the manner in which its general business may
be conducted and the privileges granted to it by law may be exercised and enjoyed,
and prescribing the powers and duties of its officers and agents.
Sec. 7. That the corporation shall be empowered and authorized (1) to make
advances upon such terms not inconsistent herewith as it may prescribe to any
foreign Government, with or without security, or to any bank, banking institution,
or trust company, or other corporation organized or operating under the laws of any
foreign country or to any individual or firm located in or doing business in a foreign
country for the purpose of importing goods from the United States into such foreign
country or into other foreign countries: Provided, however, That the* corporation shall
not make any advances for the purpose of directly financing individual short-term
transactions which are in their nature' self-liquidating; (2) (a) to buy and sell, at
home or abroad, the obligations evidencing the advances made under paragraph (1)
of this section, and to sell any securities pledged as collateral to such obligations,
(b) to buy and sell, at home or abroad, foreign securities, whether public or private;
that is, securities of any foreign Government municipality, or political subdivision,
or securities of any individual, firm, or corporation of the kind described in subparagraph (1) of this section: Provided, however, That the corporation shall not
engage in the business of buying and selling notes, drafts, bills of exchange, or
other short-term obligations arising out of transactions which in their nature are
commercial or self-liquidating, and shall not engage in any other business or exer­
cise any other powers except those that are expressly defined or conferred by this
Act and except those that are necessarily incidental to the exercise of such express
business or express powers.
(3) That the corporation shall be empowered and
authorized to issue and to have outstanding at any one time its bonds in an amount
aggregating not more than ten times its paid-in capital, such bonds to mature not
less than one year and not more than twenty years from the respective dates of
issue and to bear such rate or rates of interest as the corporation may determine.
Such bonds shrill have a first and paramount floating charge on all the assets of the
corporation which shall not at any time be mortgaged or pledged by the corpora­
tion; such bonds may be offered for sale publicly or to any individual, firm, corpora­
tion, or association at such price or prices as the corporation may determine; such
bonds shall not be eligible for purchase or discount by any Federal reserve bank,
and no note, draft, or bill drawn for the purpose of buying or carrying such bonds,
whether or not secured by such bonds, shall be eligible for purchase or rediscount
by a Federal reserve bank.
Sec. 8. That the corporation shall not exercise any of the powers granted by
this Act, or perform any business except such as is incidental and necessarily pre­
liminary to its organization, until it has been authorized by the Secretary of Com­
merce to commence business under the provisions of this Act. The corporation shall
be authorized to begin its business whenever five million shares shall have been sub­
scribed.
Sec. 9. That neither the War Finance Corporation nor any other shareholder
in the corporation shall be liable beyond the amount of its subscription to the capital
stock of the corporation for the payment of any bond or other obligation issued or




— 16 —

incurred by the corporation, uor shall auy such shareholder as such incur any lia­
bility in respect to any act or omission of the corporation.
Sec. 10. That whoever makes or authorizes to be made any statement in writ­
ing, knowing it to be false, for the purpose of obtaining for himself or for any
other person, firm, corporation, or association any advance under this title, shall
be punished by a fine of not more than $10,000 or by imprisonment for not more than
five years or both.
Whoever (1) falsely makes, forges, or counterfeits any bond, coupon, or paper
in imitation of or purporting to be an imitation of a bond or coupon issued by the
corporation; or (2) passes, utters, or publishes, or attempts to pass, utter, or publish,
any false, forged, or counterfeited bond, coupon, or paper purporting to be issued
by the corporation, knowing the same to be falsely made, forged, or counterfeited;
or (3) falsely alters any such bond, coupon, or paper; or (4) passes, utters, or pub­
lishes as true any falsely altered or spurious bond, coupon, or paper issued or pur­
porting to have been issued by the corporation, knowing the same to be falsely
altered or spurious, shall be punished by a fine of not more than $10,000 or by im­
prisonment for not more than five years or both.
Whoever, being connected in any capacity with the corporation, (1) embezzles,
abstracts, or willfully misapplies any moneys, funds, or credits thereof, or (2) with
intent to defraud the corporation or any other company, body politic or corporate,
or any individual, or to deceive any officer of the corporation (a) makes any false
entry, in any book, report, or statement of the corporation, or (b) without authority
i'rom the directors draws any order or assigns any note, bond, draft, mortgage, judg­
ment or decree thereof, shall be punishable by a fine of not more than $10,000 or
by imprisonment for not more than five years, or both.
The Secretary of the Treasury is hereby authorized to direct and use the Secret
Service Division of the Treasury Department to dcteet, arrest and deliver into
custody of the United States marshal having jurisdiction over any person committing
anv of the offenses punishable under this section.
See. 11. The corporation shall file quarterly with the Secretary of Commerce a
report of its business in such manner and form as may be directed by the Secretary
of Commerce, who shall make an annual report to Congress of the operation of
such corporation.
Sec. 12. That the term “ securities” as used in this Act shall include bonds,
debentures, notes, certificates of indebtedness, and other such obligations (not
stocks).

R e c o m m e n d a tio n :
In

the o p in io n

of

th e

F ed eral

A d v is o r y

C o u n cil

the sam e general

objections o b ta in a g a in st b o th S e n a te b ills ( N o s . 2 5 8 2 and 2 5 9 0 ) .
Sufficient g o v er n m e n ta l m a ch in e ry n o w exists in our jud gm ent and any
further n ecessity sh o u ld b e m et through p rivate enterprise.

* 4 .is *
T O P IC N O . 2.
T h e B o a r d w o u ld ask for an expression o f the
view s o f the C o u n c il a s to th e d esir a b ility o f an y leg isla tio n at this time
looking to the retirem en t o f th e U n ite d S ta te s n otes or le g a l tenders.
(T h e
B oard itse lf h as a lr e a d y g o n e on record a g a in st an y legislation on this
subject at th e p resen t tim e, b u t it h as b een requ ested to ascertain the view s
o f the C o n n c il).
R e c o m m e n d a tio n :
C on cu rrin g in th e sta te m e n ts m a d e, the v ie w s exp ressed and
given on this to p ic in th e B o a r d ’s letter o f A u g u s t 8 th , 1 9 1 9 ,
to H o n . G e o r g e P . M c L e a n , C h airm an C o m m ittee on B a n k in g
rency, U n ite d S ta te s S e n a te , w e regard a n y leg isla tio n at this




— 17 —

the a d vice
addressed
and C u r­
time lo o k ­

ing to

the retirem ent o f

the U n it e d

a d v isa b le a n d u n n ecessa ry .

S ta te s

n c te s

or

le g a l

ten d ers as in­

S o lo n g a s n o p a rt o f th e c ir c u la tin g m ed iu m

o f the co u n try in the p o ssessio n o f th e m em b e r b a n k s c a n
their le g a l reserve requ irem en ts, w h ic h

ca u se s th em

b e c o u n te d in

to turn o v e r d a ily

to

the F e d e r a l R e se r v e b an k s su ch o f it as th e y h a v e n o t a c tu a l u se for, there
ca n n o t b e a n y serious r e d u n d a n c y o f cu rr en cy in a c tu a l c ir c u la tio n .
The
d a ily red em p tion o f F e d e r a l R e s e r v e n o te s b y th e F e d e r a l R e s e r v e b an k s
an d the d a ily d ep o sitin g w ith th em o f a ll o th e r k in d s o f c ir c u la tin g n otes
n ot a c tu a lly n e e d e d b y th e p u b lic Gr b y th e m em b e r b a n k s fo r su p p ly in g
the p u b lic k eep s the m o n e y in c ir c u la tio n d o w n to th e a c tu a l req u irem en ts
c f the p u b lic in trad e a n d co m m erce.

T O P IC

N O . 3.

T h e su g g estio n h a s b e e n m a d e th a t th e la w sh o u ld

b e a m en d e d so as to perm it F e d e r a l R e s e r v e b a n k s to le n d m o n e y b o th on
c a ll an d short tim e, w ith o u t restriction a g a in st r e n e w a l, to a n y p erso n , .firm,
corporation, or in stitu tion, m em b er or n o n m em b er, o n th e c o lla te r a l secu rity
c f an y o f the thin gs w h ic h th e b a n k s m ig h t a cq u ire b y p u r c h a se u n d e r the
p rovisions o f S e c tio n 1 4 o f th e F e d e r a l R e s e r v e A*ct, th e a rg u m en t o f the
p rop on en ts b ein g that the b a n k s sh o u ld h a v e a re la tio n to th e m o n e y
m arket giv in g them the p o w e r to m a k e m o n e y e a s y , if n o t p le n tifu l, u p o n
occa sio n , an d thus in flu en ce rates d o w n w a r d ; th a t la c k in g c o n ta c t w ith
the m arket, e x c e p t through m em b er b a n k s, su ch p o w e r m a y n o t b e e x e rted
e ffec tiv e ly w ith o u t the co-o p era tio n o f th e m em b er b a n k s, a n d th a t as the
la w n o w stan d s, the b an k s m a y m a k e a d v a n c e s in rates e ffe c tiv e a t tim es
w h en large a cc o m m o d a tio n to m em b er b a n k s ex ists or w h e n g rea ter a c c o m ­
m od ation is d esired , a n d if a c c o m m o d a tio n is so u g h t b y m em b ers, b y lo a n ­
ing fre ely , m a y e a se .m on ey rates, b ut in th e a b se n c e o f th e m em b er b a n k s’
w illin g n ess or d esire to b o rro w or red isco u n t, the reserve b a n k s’ effec tiv e
p ow er is very lim ited ,
R e c o m m e n d a tio n :
In cur op inion the la w n o w fu rn ish es a m p le c h a n n e ls th rou gh w h ich
the resources o f the F e d e r a l R e se r v e b a n k s are m a d e a v a ila b le to the
p ub lic through the m em ber b ank s for a ll le g itim a te p u rp o ses.
W e d o not
therefore ap p rove the su g g estio n th at the la w sh o u ld b e a m e n d e d so as to
perm it F e d e r a l R e se r v e b an k s to le n d m o n e y b o th on c a ll a n d short tim e
w ith ou t restriction again st ren ew a l to a n y p erson , firm, co rp o ra tio n or in­
stitution, m em ber or n onm em ber, on the c o lla te r a l secu rity o f a n y o f the
things w h ich the bank s m ight acq u ire b y p u rch a se u n d er the p ro v isio n s o f
S ectio n 1 4 o f the F ed er a l R e se r v e A c t .

T O P IC N O . 4
S ectio n 1 1 ( e ) o f th e A c t g iv es the F ed er a l
R eserv e B o a rd the p o w er to a d d to the num ber o f cities cla ssified as reserve
and central reserve cities u nd er existin g la w , a n d to r e cla ssify existin g
reserve and central reserve cities or term inate their d esig n a tio n as such.
T h e B oard has received a p p lication s from b ank s in several cities for




—

18

—

T H R E E A M E N D M E N T S P R O P O S E D B Y T H E ADMINISTRA­
TIVE C O M M I T T E E OF T H E A M E R I C A N BANKERS
ASSOCIATION
T O P IC

NO.

6.

(a )

P ro p o sed

am en dm en t

to

F e d e r a l R e s e r v e A c t a u th o r iz in g th e F e d e r a l R e s e r v e
m em b ersh ip
en title

in c o r p o r a te d

th em

co m b in e d

to

becom e

c a p ita l

and

sa v in g s

banks

w ith

m em ber

banks

u nd er

su rp lu s o f

th e

S e c t io n
B oard

in su fficien t
e x is tin g

in c o r p o r a te d

9

c a p ita l

la w ,

sa v in g s

o f the

to a d m it to
sto ck

p r o v id e d

banks

to
the

is eq u al

to th e a m o u n t o f c a p ita l sto c k r e q u ir e d o f n a tio n a l b a n k s in th e p la c e s in
w h ic h

su ch
(b )

in c o r p o r a te d
P ro p o sed

sa v in g s

banks

am en dm en t

to

a re

lo c a te d .

S e c t io n

A c t a d d in g a t th e e n d o f su b - d iv isio n C

19

of

th e

F ed eral

R e se r v e

t h e r e o f a n e w p a r a g r a p h to read

a s f o llo w s :
“ T w o - th ir d s o f th e th ree p er c e n tu m

o f tim e d e p o s its re q u ir ed to b e

m a in ta in e d as reserv e b y s u b d iv isio n A , B a n d C h e r e o f m a y c o n sis t, in the
c a s e o f sa v in g s a c c o u n ts o n ly , as d e fin e d

by

th e F e d e r a l

R eserve

B oard,

o f b o n d s o f th e U n i t e d S t a t e s iss u e d s in c e A p r il T w e n t y - f o u r t h , N in e te e n
h u n d r e d a n d s e v e n te e n , or c e r tific a te s o f in d e b t e d n e s s o f th e U n i t e d S ta tes
d e p o s ite d w ith th e F e d e r a l R e s e r v e b a n k .
(c )

P r o p o s e d a m e n d m e n t to S e c t io n 5 1 5 4 U . S . R . S . a d d in g thereto

th e f o llo w in g :
“ A n y sa v in g s b a n k in c o r p o r a te d b y s p e c ia l la w o f a n y sta te or o f the
U n it e d S ta t e s , or o r g a n iz e d u n d e r th e g e n e r a l la w s o f a n y s ta te or o f the
U n it e d

S ta t e s , w h ic h h a s b e e n

co n v erted

in to

a n a tio n a l b a n k in g

a sso c ia ­

tion a c c o r d in g to th e p r o v isio n s h e r e in , is p e r m itte d to m a in ta in a se p a ra te
s a v in g s d e p a r tm e n t a n d
e x e r c is e d
u n d er

b e fo r e

ru les

th e

and

to c o n tin u e

c o n v e r s io n ,

r e g u la tio n s

to

to d is c h a r g e

su c h
be

s a v in g s

th e

sam e

d e p a r tm e n t

p r o m u lg a t e d

by

th e

fu n c tio n s as it
be

o p era te d

F ed eral

to

R eserv e

B o a r d .”
R e c o m m e n d a t io n :
The

C o u n c il is o p p o s e d

to

a ll

th r e e o f

th e

above

D if fe r e n t ia l

d is c o u n t

ra tes

p rop osed

am en d ­

m en ts.

T O P IC

NO.

7.

on

lo a n s

se c u r e d

by

U n it e d S ta t e s g o v e r n m e n t o b lig a tio n s .
i

'

R e c o m m e n d a t io n :
In v ie w o f th e u n c e r ta in ty e x is tin g a s to th e c o n t in u a n c e o f th e p o lic y
o f a d iffe r e n tia l ra te o f d is c o u n t in fa v o r o f lo a n s s e c u r e d b y
S ta t e s

governm ent

o b lig a t io n s

th e

C o u n c il

recom m en ds

to

th e U n ite d
th e

F ed eral

R e s e r v e B o a r d th a t e x is tin g ra te s o n lo a n s o f th is c h a r a c te r b e m a in ta in ed
d u r in g th e b a la n c e o f th is y e a r .




— 20 —

TO P IC NO. 8.

Check Collections.

Recom m endation:
R e fe r r in g to G o v e rn o r H a r d in g ’s remarks respecting a proposed order
of the F e d e r a l R e s e r v e B o a r d for a uniform plan for h an d lin g o f checks on
m em ber b an k s the C o u n c il re sp ectfu lly requests that the F ed era l R eserve
B oard m ail to ea c h m em b er o f the C o u n cil such inform ation regarding the
plan as m ay b e a v a ila b le an d further that the F ed era l R eserv e B oard take
no d efinite actio n on this su b ject p en d in g the next m eeting of the C ouncil
w ith the F e d e r a l R e s e r v e B o a rd .
T h e f o llo w in g m em bers o f the F ed er a l A d v iso ry C oun cil w ere present
at this m eetin g :
M e ssr s. L . L . R u e , V ic e - P r e sid e n t; D . G . W in g , A . B .
H ep b u rn , W . S . R o w e , J. G . B r o w n , C h arles A . L y e rly , F . O . W a tts, C.
T . Jaffray, E . F . S w in n e y , E . P . W ilm o t, A . L . M ills and M erritt H .
G rim , S ecr eta ry .