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N A T I O N A L BANKING
UNDER T H E
FEDERAL RESERVE
SYSTEM
T H E N A T I O N A L C I T Y BANK
OF NEW Y O R K
NATIONAL BANKING
U N D E R
T H E
F E D E R A L RESERVE
SYSTEM
1921
THE
NATIONAL
CITY
OF N E W
YORK
Head
Office
5 5 WALL
BANK
STREET
Copyright, 1921, by
THE
N A T I O N A L C I T Y B A N K OF N E W
YORK
CONTENTS
PAGE
FOREWORD
I
N E W Y O R K CORRESPONDENT
3
G R O W T H OF T H E N A T I O N A L B A N K I N G S Y S T E M — 1 8 6 3 - 1 9 2 1
N
NATIONAL BANKING
PRACTICE
N a t i o n a l bank organization
Succcssion of a state bank hy a national bank
.
.
.
.
Circulation
C h a n g e s in capital
Liquidation
Consolidation
C o r p o r a t e existence
N a m e and location
Shareholders
Dividends
24
38
41
45
49
51
54
56
57
59
Loans
A — G r a n t e d by a national bank
B — G r a n t e d to a national b a n k
Interest
P a p e r eligible f o r rediscount and purchase by F e d e r a l R e serve B a n k s
A c c e p t a n c e by member banks
R e s e r v e requirements
C h e c k c l e a r i n g and collection
65
I n t e r l o c k i n g directorates
80
B a n k s as insurance agents
B a n k s as agents and brokers f o r loans
P o w e r to hold real property
R e p o r t of condition
T r u s t department
Branches
THE
60
63
FEDERAL
RESERVE A C T
INDEX
67
73
75
77
85
86
. 8 7
88
89
90
92
141
FOREWORD
H
A R D L Y a day passes but that T h e N a t i o n a l C i t y
Bank of N e w Y o r k is called upon to furnish definite information regarding some phase of national banking in the United States. T h e Bank's first publication covering this subject appeared sixteen years ago
under the title National Bank Organization,
a volume
in w h i c h was brought together information of particular
value to those interested in the organization of a national
bank. T h e book was a welcome contribution in the general field of banking literature, and the demand for it
was greater than could be satisfied by two separate editions.
In 1912, therefore, the B a n k published a third and revised edition under the title National Banks of the United
States. A considerable quantity of new material was introduced in this later b o o k ; not only was the subject of
bank organization carefully covered, but an analysis of the
national banking l a w was given, and a supplement including specimens of practically all the forms that national banks must use, was included.
National Banks of the United States received a w i d e
distribution not only among those w h o were interested in
organizing new banks, but likewise among the executives
of existing banks. T h e book has been obsolete in many
respects since the Federal Reserve A c t became operative,
and T h e National C i t y B a n k of N e w Y o r k has deferred
issuing a later edition until it seemed that circumstances
governing the operation of the Federal Reserve A c t had
T I ]
FOREWORD
come, more or less, into a position of stability. It appears
that such a time has now been reached and that whatever
analysis is made of national banking at this time will be
of some permanent value.
T h e purpose of the present volume is to give a picture
and an interpretation of national banking in the United
States under the Federal Reserve System. A s a background for this extraordinarily important subject, there
has been included in the earlier pages of the book, a brief
history of national banking since the passage of the N a tional Bank A c t in 1863, with particular emphasis being
laid on the growth of the system. T h e technical details of
organizing a national bank are set forth; an analysis of
both the Federal Reserve A c t and the National Bank A c t
so far as they affect the management, supervision and general business practices of the national banks of the United
States, is given. T h e Reserve A c t itself is reprinted and
carefully indexed so that it may be of convenient reference to all those who have occasion to refer to it.
Needless to say, it is not the plan of this book to plead
the case of the national banks, as differentiated from other
types, nor to assume to speak for any particular system of
national finance. A l l of the various types of banks that
exist in the United States—national, state, and p r i v a t e —
are not only valuable but absolutely essential in a financial
structure as complex as ours of today.
But as the largest national bank in the country, as a
member of the National Banking System for more than
half a century, T h e National City Bank of N e w Y o r k
accepts with pleasure the opportunity to give both to other
banks and to individuals, specific, useful and reliable information regarding various phases of national banking.
[ 2 ]
NEW YORK CORRESPONDENT
N
E W Y O R K C I T Y , the money market of the country, is
also the heart of the nation's business organization. It
is well nigh impossible to conceive of a bank located anywhere
in the United States which would not, on almost any business
day of the year, be in contact in one way or another, with this
great commercial nerve center. From the standpoint of the
banks outside New York, therefore, it is essential that a connection with a New Y o r k bank be maintained, and to the formation of this connection should be given the greatest thought
and care.
There are some elements of the relationship that will be preassumed as a matter of course; safety, credit accommodation
under certain conditions, and the other usual banking functions. But within recent years there has grown up an idea of
bank service which in proportion far transcends these fundamentals. Measured by this much broader idea, the term
"National City Bank Service" has become a familiar and
vitally significant phrase in the minds of those bankers who
maintain a N e w York connection. "National City Bank Service" means not only the performance of those fundamentals
of banking which are taken for granted by all those who deal
with an eminently strong financial institution; it means also
rendering in a wide variety of helpful ways the extraordinary
and unusual services which only a very large organization has
the machinery for providing.
Domestic
Divisions
FOR purposes of organization, the domestic work of The
National City Bank, outside of N e w Y o r k City, is divided
territorially into units composed of various states.
Each
general division is in charge of a vice-president of the Bank,
assisted by several other officers.
This system enables the Bank to give the most minute care to
[ 3 ]
NATIONAL B A N K I N G UNDER THE FEDERAL RESERVE SYSTEM
the interests of its correspondents, since the various officers, by
devoting especial attention to particular territories, are constantly familiar with all those financial, industrial, and commercial conditions which may have direct bearing upon a correspondent bank's business. The district system of organization
means that every correspondent bank has a group of officers at
The National City Bank, definitely assigned to serve the correspondent's interests in every way possible.
Washington
Bureau
ONE of the most significant of the unusual services which T h e
National City Bank of New York renders its banking clients is
through the Bank's Washington Bureau, which is maintained
for the purpose of giving personal representation before the
Treasury Department and similar government divisions. T h e
functions of this Bureau include:
1 — P e r f o r m i n g the duties of an agent in connection w i t h counting and
v e r i f y i n g w o r n and mutilated bank notes, witnessing their destruction, and examining at necessary intervals bonds on deposit w i t h
the T r e a s u r e r of the United States as security f o r circulation or
public deposits.
2 — A t t e n d i n g to the details in connection w i t h deposits, w i t h d r a w a l s ,
substitutions, o r transfer of bonds f o r postal savings o r other accounts, and the collection of postal savings bonds.
3 — R e c e i v i n g interest and coupons on bonds held at the T r e a s u r y , and
transmitting coupons o r effecting collections as the owners desire.
4 — N o t i f y i n g banks by wire, if requested, when the C o m p t r o l l e r of the
C u r r e n c y calls f o r a statement of condition.
5 — A n s w e r i n g inquiries f r o m correspondents on m a t t e r s of record in
the various departments o r governmental bureaus, w h i c h are available to the public.
6—Furnishing
Congress.
copies
of
bills
and
resolutions
introduced
before
7 — S u p p l y i n g copies of Supreme C o u r t decisions o r other public documents, as w e l l as rules and regulations promulgated by the v a r i o u s
executive departments, boards, and commissions, such as t h e F e d eral R e s e r v e B o a r d , etc.
[ 4 ]
NEW YORK
CORRESPONDENT
8 — A t t e n d i n g to m a t t e r s relating to government contracts and
bids w i t h necessary deposit of funds to guarantee them.
filing
9 — F i l i n g of applications f o r passports, and attending to m a t t e r s relating to patents, copyrights, land titles, pensions, services, claims, etc.
Any of these matters will be cared for, without charge, for any
of T h e National City Bank's correspondents. Every bank that
is a member of the Federal Reserve System, or which contemplates at some future time entering the system, will find the aid
given by such an organization as T h e National City Bank's
Washington Bureau is frequently indispensable.
Interest
on
Balances—Collections
T o its correspondent banks T h e National City Bank of New
York pays the maximum rate of interest allowable under the
rules of the New York Clearing House Association.
T h e Bank receives at par for their credit, its correspondents'
items falling under the discretionary rules of the Clearing
House. Those items upon which an exchange rate is obligatory
under the Clearing House regulations are received by T h e
National City Bank of New Y o r k for correspondent banks at
the minimum allowable rate.
Trust
Department
THE Bank, through its Trust Department, is authorized and
prepared to act in any fiduciary capacity in which trust companies and state banks in New Y o r k State are permitted to act.
Among the principal functions which the Trust Department
performs are the following:
For Individuals
E x e c u t o r and trustee under w i l l ;
T r u s t e e under living t r u s t ;
A d m i n i s t r a t o r of an estate a t the request of the h e i r s ;
G u a r d i a n of the property of m i n o r s ;
C o m m i t t e e of the property of incompetents;
D e p o s i t a r y of property placed in e s c r o w .
[ 5 ]
N A T I O N A L B A N K I N G UNDER THE FEDERAL RESERVE SYSTEM
For Corporations
T r u s t e e under mortgage o r indentures securing issues of bonds o r
notes;
T r a n s f e r agent;
Registrar of stocks o r bonds;
Fiscal agent f o r the payment of dividends and coupons, and principal
of bonds and notes;
Depositary, as f o l l o w s :
U n d e r escrow agreements;
U n d e r voting trusteeships;
U n d e r reorganization or a d j u s t m e n t a g r e e m e n t s ;
O f subscriptions to stocks o r bonds.
THE Trust Department will be pleased, at all times, to assist
the clients of the Bank in solving their fiduciary problems.
Custodian
of
Securities
FOR many years, T h e National City Bank of New York has
maintained a separate department, the sole purpose of which
is to take care of securities. Apart from their physical safekeeping, the department attends to the collection of coupons
and dividends as they fall due, and principal when it matures.
The Bank will make such disposition of principal and income
as directed.
Under special arrangements, this department keeps investment accounts, renders statements thereof periodically, and
furnishes data for income tax returns; also, it endeavors to
notify those for whom it acts in this connection of subscription
privileges, securities called for payment prior to maturity, and
requests for tenders of bonds and notes for sinking fund purposes. In general, this department gives expert attention to
securities entrusted to its care.
T h e charges made for these services are nominal. When the
owner of securities lodged with this department is also a
depositor of the Bank, the charges depend upon the value of
the deposit account to the Bank.
When it is asked to obtain or dispose of securities for its
correspondent banks, T h e National City Bank of New Y o r k
is in an exceptionally fortunate position. T h e Bank's affiliate,
[6]
NEW YORK
CORRESPONDENT
T h e National City Company, is the most extensive dealer in
securities in the United States, carrying on its list of daily offerings the choice investments which appear in the market. The
Company at all times holds itself ready to be of service to the
Bank's correspondents. National City Company offices are
located in all of the important cities of the country, and where
time is an essential element, in the purchase or sale of bonds, it
is thus not always necessary to deal with the New York office.
Commercial
Paper
FROM the lists of commercial paper that are offered to T h e
National City Bank daily, the Bank will be glad to purchase,
for its correspondents' account (without responsibility on the
Bank's part but using the same care and discretion as in purchasing for its own account) any amount of such investments
that may be desired.
Commercial paper thus acquired is bought on 10 days'
option; pertinent information regarding the firm or individual
responsible for the obligation may be obtained from this
Bank's credit department.
Credit
Files
THE credit files of T h e National City Bank of N e w York
contain credit information on upwards of 350,000 names, domestic and foreign. Correspondents of T h e National City
Bank of New York have access to this body of credit information; they are finding that every day, by drawing upon the
information contained in these credit files, they are able to
render most valuable service to their own clients.
Telegraphic
Facilities
THE National City Bank has direct telegraphic wires connecting with the important business centers of the nation, and
through this system of direct communication, the Bank is able
to effect for its correspondents transfers of funds, etc., with a
minimum loss of time.
[ 7 ]
NATIONAL B A N K I N G UNDER THE FEDERAL RESERVE SYSTEM
Publications
THE Bank publishes a considerable volume of educational literature which is available to all of its correspondent banks.
Chief among the Bank's regular publications is its Monthly
Bank Letter, which is a review and interpretation of current
economic, financial, and commercial conditions. A plan has been
worked out whereby special editions of this publication are
available for distribution by The National City Bank's correspondents. These special editions carry the c o r r e s p o n d e n t
bank's own advertisement, and are proving a very effective
advertising and publicity medium to the correspondent banks
that are at present using their own editions of the Monthly
Letter. A special folder explaining this service in detail, and
giving an estimate of the small cost involved, will be furnished
upon request.
The Publicity Department is called upon from time to time
to advise with correspondent banks regarding their publicity
and advertising campaigns; to place in New York publications
advertisements for correspondents, (such as legal notices required by the National Bank Act) and to advise regarding
sources of material for publicity purposes.
Library
THE Bank's financial library contains upwards of 100,000 volumes, periodicals, corporate reports, etc. It is a pleasure for
the Bank's librarian to give suggestions to correspondent banks
that wish to build up libraries of their own, to prepare bibliographies and lists of readings on financial topics when requested
to do so, and, in a word, to make this large treasure-house of
financial literature useful to the Bank's clients.
Statistical
Information
THE Statistical Department of this Bank is often called upon
to compile statistical reports for correspondent banks. Such
requests are always gladly met and the information of course
is furnished with this Bank's compliments.
[ 8 ]
N E W YORK
CORRESPONDENT
Educational
Facilities
THE Educational Department is frequently in a position to
give counsel to correspondent banks that are interested in educational matters. T h e department has prepared a carefully
edited home study course in foreign exchange, consisting of
twenty units, and this course is available without charge to any
officers of our correspondent banks.
Foreign
Divisions
SINCE the establishing of T h e National City Bank of New
York's Foreign Department back in 1897, the Bank has tirelessly striven to develop its facilities for foreign banking, to
keep pace with the ever enlarging needs of American business
men. With the passage of the Federal Reserve Act, which gave
American banks the privilege of establishing branches abroad,
The National City Bank at once began serving the interests of
American trade by the opening of foreign offices. The Bank's
own branches, and those of the International Banking Corporation, (owned by T h e National City Bank) are located in
the principal cities of Latin America and the Caribbean district, throughout the Far East, in South Africa, and at such
important European commercial centers as London, Antwerp,
Brussels, Lyons, Barcelona, Madrid, and Genoa.
This world-wide network of branches, supplemented by
correspondents in all cities where branches do not exist, places
T h e National City Bank of New York in a unique position for
being of assistance to business houses and banks throughout
the world that are in any way in contact with the mighty current of foreign trade, and makes it possible for the Bank to
handle all financial transactions arising from international
commerce. Special facilities which the Bank's foreign organization enables it to offer include:
1 — C o l l e c t i o n of d r a f t s a n y w h e r e in the w o r l d .
2—Negotiating
o r advancing against approved foreign bills, documen-
t a r y o r clean, d r a w n on any foreign point.
3 — C a r i n g f o r all phases of foreign exchange transactions, including
[ 9 ]
NATIONAL B A N K I N G UNDER THE FEDERAL RESERVE SYSTEM
the sale of foreign drafts, payable in any foreign c o u n t r y ; t r a n s f e r
of funds by mail, telegraph or c a b l e ; and purchase and sale of
foreign currency.
4 — M a k i n g available the B a n k ' s foreign d r a f t service, under w h i c h
correspondents d r a w their o w n d r a f t s direct on foreign countries
f o r T h e N a t i o n a l C i t y Bank's account.
5 — A c c e p t a n c e of d r a f t s covering commercial transactions, domestic
and foreign, in accordance w i t h the regulations prescribed by the
F e d e r a l Reserve B o a r d .
6 — I s s u a n c e or advice of import or export commercial letters of
credit, and of travelers' letters of credit, and travelers' checks.
7 — G a t h e r i n g and supplying to the B a n k ' s clients reliable credit information on foreign firms, and f o r w a r d i n g to the Bank's foreign
branches correct credit information on A m e r i c a n firms.
8 — A i d i n g in securing legal services in foreign countries.
9 — S t u d y of, and reporting upon, foreign m a r k e t conditions and possibilities f o r the sale of A m e r i c a n goods abroad.
1 0 — T h r o u g h the Bank's Foreign T r a d e D e p a r t m e n t , bringing together the foreign buyer and the A m e r i c a n merchandiser, and
vice versa.
1 1 — A s s i s t i n g customers in disposing of rejected merchandise in connection w i t h dishonored foreign bills.
1 2 — S u p p l y i n g letters of introduction to the Bank's foreign branches
and foreign correspondents.
1 3 — E x e c u t i o n of orders in this and foreign countries f o r the sale or
purchase of securities.
T h e advice and counsel of the officers of T h e National City
Bank of New York—those concerned with foreign, as well as
those concerned with domestic affairs—is always at the disposal of every one of the Bank's correspondents. These gentlemen consider it a privilege to give their attention and best
efforts to the special problems which are every day laid before
them by the Bank's correspondents.
[10]
GROWTH
OF T H E
BANKING
NATIONAL
SYSTEM
I
N this chapter it is impossible to attempt anything approaching a comprehensive history of national banking in the
United States. The subject itself is so broad and so involved
with other subjects in the fields of finance closely akin to it, that
it can be treated here only in general outline. The sketch following is presented with the idea that it may serve as the background that is essential to a thorough understanding of the
national banking system as it operates today.
For convenience, and for purposes of comparison, the history of national banking may be divided into four main periods:
I—1863-1882
II—1883-1899
III—1900-1913
I V — 1 9 1 4 to
present date
Formative Period.
Natural Development.
Development of Smaller Banks.
Under Federal Reserve System.
I
F O R M A T I V E
P E R I O D
THE fundamental difference between the general course followed by American banking before and since the establishment
of the national banking system is this:
In the earlier period the tendency of banking w a s t o w a r d the extensive
use of bank credit in the f o r m of note issue; this f o r m of credit completely lacked stability and constant value, since it w a s subjected to no
central supervision.
D u r i n g the national banking period, the tendency w a s t o w a r d more
extensive use of bank credit in the f o r m of deposits, and relatively less
in the f o r m of note issue. N o t e issue w a s a privilege conferred only
upon those banks under F e d e r a l supervision, and w a s hence subjected
to central control, w i t h resultant stability of value.
[ 1 1 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
A very simple set of figures illustrates this differentiation quite
clearly. W e may assume that the national banking system had
become thoroughly established by 1870, at the close of which
year there were 1648 national banks in the United States. In
that year, national bank notes comprised 40.3% of the money
in circulation in the country; in 1920, national bank notes aggregated less than 9 % of the stock of money in the United
States, despite the fact that the total volume of these notes
was more than double what it had been in 1870. Measured by
the country's total volume of money, therefore, these figures
indicate that national bank note circulation was nearly fivefold
as important in 1870 as it is today.
In the year that the National Bank Act was passed, there
were in the United States 1466 state banks, capitalized at
$405,000,000. Bank circulation the same year was $239,000,000, or 59 cents bank circulation for every $1 of bank capitalization, which was the highest point state bank circulation ever
reached.
From the earliest years of the country's history, the banks
had assumed the right of note issue, and this right was supported, but in only a few cases adequately regulated, by the
various states. There was no Federal legislation governing
banking practices or bank note issue. Because state supervision
was generally lax, and reserves against bank notes were not
infrequently wholly insufficient, notes of numerous banks were
at varying degrees of discount throughout the country. Some
of them were entirely worthless. Counterfeiting was extensive.
Thus, with the banks' cash capital and deposits small, with
checks and drafts in quite uncommon use, with note issue the
chief function of the banks, and with this function in more or
less disrepute because of the discount at which many bank notes
passed, it is not surprising that the country was ready for a new
banking system at the time the National Bank Act went into
effect.
Salmon P. Chase, Secretary of the Treasury, aggressively
advocated the establishment of the national banking system
[12]
G R O W T H OF THE N A T I O N A L B A N K I N G SYSTEM
because he believed that, as it had been planned, it would accomplish two outstanding results: ( i ) Provide a market for
government bonds; (2) Give the country a unified currency
system. Therefore, one of the fundamental requirements of
national banks was that they should deposit with the Treasury
Department a certain quantity of government bonds which
they should be required to own. As something in the nature
of an exchange for this requirement, the national banks were
given the privilege of note issue based upon Government bonds.
By 1866, this right had been made exclusive by a 10% tax on
state bank note circulation.
T h e measure providing for the system was introduced in
Congress in the winter of 1861-1862 but was not acted upon
until the following session, in 1863. By the close of 1 8 6 5 —
the year marking the end of the Civil War—there were 1582
national banks with total capital of $403,300,000, owning
government bonds in excess of that sum, while their circulation was equal to approximately one-half of their total
capitalization.
Circulation had been rigidly limited by Congress—first to
$300,000,000, then to $354,000,000, and as a result, something of a financial injustice had been imposed upon the newer
sections of the country. National banks in the East and North,
which were either organized or converted soon after the
National Bank Act went into effect, had naturally obtained the
bulk of the circulation that was available. This left the banks
which were organizing in the newer sections of the country—
where both capital and currency were urgently needed—at a
decided disadvantage. For example, the banks of the Eastern
and Middle States, in 1870, had some 80 million dollars'
worth of currency in excess of their share on a basis of population and wealth. The banks of the Southern States, on the
other hand, were entitled to some 57 million dollars in currency more than they could obtain.
In 1875, Congress coupled with the passage of the Specie
Resumption Act, a measure providing for "free banking"—t.e.,
the removal of all limitations upon the volume of bank cur-
[ 1 3 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
rency. Some (although no great), impetus to the organization
of new banks was given by this measure. T h e year 1875 saw
the organization of 107 new national banks, capitalized at some
12 million dollars, against 71 with capitalization of 6.7 million
dollars for the previous year, 1874. In each of the four years
following 1875, however, the total number of national banks
in the country decreased by a slight margin.
As originally enacted, the National Bank Act provided for
charters extending over a period not exceeding 20 years, so in
1883-84 the charters granted the first national banks (and
extending 20 years) would have automatically expired. A s a
matter of fact, the charters of 29 banks organized for periods
of less than 20 years, expired prior to July 12, 1882. Congress
in 1882, in the face of bitter opposition, passed a bill permitting the extension of charters of existing national banks for 20
more years.
Thus closed what may be described as the formative period
of the National Banking System. During the first 20 years
of its existence, the system had been subject to attacks first
from one side, then from another; one Secretary of the Treasury would be its warm defender; another would view it with
apathy. Not infrequently, the issues which brought various
phases of the National Banking System up for Congressional
action, were not issues of a fundamental banking nature, but
were of a strictly political character, and were dealt with
accordingly.
But, in the period covered by the first charters of the
earliest national banks, the system established itself on a
thoroughly firm basis. It proved its great usefulness to the
financial organization of the country, and laid a firm foundation for the growth and strength which came to the national
banks with each succeeding year. Since the passage of the recharter act in 1882, no effort has been made from any responsible source either to legislate the national banks out of existence, or to restrict the scope of their banking practices. In
fact, the more recent tendency of Federal legislation has been
to further broaden the national banks' field of operation.
[ 1 4 ]
GROWTH OF THE N A T I O N A L B A N K I N G SYSTEM
II
NATURAL
DEVELOPMENT
THE period 1883-1899 was one of natural development in the
history of the National Banking System in that those national
banks already in existence were developing normally along the
lines of scientific and modern banking principles, and that the
new sections of the country were from year to year getting
much needed banking facilities through the organization of
additional national banks.
National banks during the period were neither disturbed nor
aided to any considerable extent by Federal legislation. The
currency phase of the nation's financial problem occupied the
major share of attention. Those who wished the country to go
on a silver basis were pressing their case with unremitting
vigor, and were winning some concessions. The old spectre of
the greenbacks was still sharing in the government's consideration of currency matters.
Bank circulation was measurably reduced during the period,
both in total volume and per dollar of national banking capital.
Whereas in 1882 there was $.65 bank circulation for every
$1.00 of national bank capital, in 1899 there was $.34 bank
circulation for every $1.00 national bank capitalization. T h e
chief causes for this reduction were:
1 — T h r e e per cent, bonds constituted a l a r g e portion of the nation's
debt and w e r e redeemable a t the pleasure of the g o v e r n m e n t ; they
w e r e being rapidly retired and w e r e hence undesirable as a basis
f o r note issue.
2 — A l l other issues of government bonds w e r e selling at high premiums. F o u r per cents reached 130+. C i r c u l a t i o n predicated on
bonds at this m a r k e t value w a s , of course, altogether unprofitable.
3 — T h e G o v e r n m e n t w a s purchasing silver, coining dollars and issuing
silver certificates at a rate never l o w e r than 2,000,000 per month
and w a s using every means at its command to f o r c e these silver
certificates into circulation, in direct competition w i t h bank notes.
But while circulation was declining, relatively, the practise of
the bank extending its credit through deposits was rapidly
[ 1 5 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
gaining headway. The following brief tabulation shows at a
glance the relation of deposits and loans to national bank
capital at the beginning and the close of the period. The figures
are compiled from the Comptroller's Statements taken as near
as possible to the ends of the fiscal years 1882 and 1899.
DEPOSITS PER
LOANS PER
YEAR
$1 OF CAPITAL
$1 OF CAPITAL
1882
$2.24
$2-53
I899
4.17
4-12
This was a very remarkable stride toward banking principles
as we see them in operation today. A t the close of 1899 there
were in active operation 3602 national banks in the United
States as compared with 2308 at the end of 1882. T h e average
yearly increase for the period was 76.
ILL
D E V E L O P M E N T
OF
S M A L L E R
B A N K S
PRIOR to 1900, the minimum national bank capitalization permissible under the law was $50,000. This meant that in many
of the less populous and less wealthy communities, where capital normally was badly needed for development of natural
resources of the country, establishment of a national bank was
often extremely difficult. Congress in March, 1900, amended
the National Bank Act to provide for the organization of banks
with a minimum of $25,000 capital. T h e same act also provided for the refunding of the national debt, and for issuing
2 per cent, consols, eligible as a basis of national bank circulation.
T h e effect of this new legislation on the organization of
national banks was almost instantaneous. During the five years
preceding 1900, the average net yearly decrease in the total
number of national banks in active operation had been 28. For
the five years 1900-1904 inclusive, the average net yearly
increase in the number of national banks of the country was
390. T h e few years immediately succeeding the passage of the
[16]
G R O W T H OF T H E N A T I O N A L B A N K I N G SYSTEM
Act of 1900 may be described as the "Golden A g e " of national
bank organization. N o other period in the history of national
banking approaches it for the prolific organization of national
banking institutions. The net average yearly increase for the
period 1900-1913 was 294.
T h e following tabulation, made on the same basis as that
indicated in the preceding section, shows how, during this
period, national banks increased still further their ability to
extend their credit.
YEAR
LOANS PER
$ I OF CAPITAL
1899
$4.12
1913
Due to the new provisions that had been made for national
bank currency by the Act of 1900, the volume of bank notes
increased materially during the period 1900-1913. In June of
the former year bank note circulation was $265,000,000, or
n - 3 % of the total money in the United States, whereas in the
same month of the final year of the period, bank note circulation was $722,000,000, or 19.4% of the total money in the
United States.
T h e year 1913 is taken as the termination of this period in
the national bank system's history, because that year marked
the passage of the Federal Reserve Act which had such a farreaching influence on the entire system and which altered it in
so many essential features. For many years it had been obvious
to close students of finance that the nation's banking system,
splendid as it was in many respects, contained many defects,
and that the whole might be so altered that the individual
banks could be of even greater service to their particular communities and to the country at large.
During the few years just preceding the passage of the
Federal Reserve Act, careful and comprehensive studies of
banking in the United States were made by various competent
agencies. Probably the most exhaustive of these inquiries was
that followed by the National Monetary Commission, which,
after the most diligent labor, presented a plan for the entire
[17]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
reorganization of our banking system. This plan, generally
known as the Aldrich scheme, was not adopted by Congress, but
the Congress which came in after the election of 1912, turned
its attention forthwith to that banking plan which was ultimately embodied in the Federal Reserve Act.
The National Monetary Commission, in its report, had detailed seventeen criticisms of American banking. This body of
criticism provides a splendid commentary on our whole banking structure—national, state, and private—before the passage
of the Federal Reserve Act; it gives, moreover, a vivid picture
of the causes from which the Reserve Act arose. A summarization of the list of the Monetary Commission's criticisms follows, and is included here because it gives, in the briefest way
possible, matter that is essential to the understanding of national banking.
Reserves
1 — T h e r e w a s no provision f o r concentrating the cash reserves of the
banks and f o r their mobilization and use in times of need;
2 — I n a d e q u a t e federal and state l a w s restricted the use of bank reserves, thus decreasing lending p o w e r ;
3 — T h e banks lacked adequate means f o r replenishing their reserves
o r increasing their loaning p o w e r under unusual demands.
Currency
B a n k note c u r r e n c y — t h e only f o r m of currency w h i c h might be expected to respond by expansion and contraction to unusual n e e d s — w a s
deprived of elasticity because its v o l u m e largely depended upon the
amount and price of U n i t e d States bonds.
Cooperation
1 — B a n k s lacked the means to insure such effective cooperation as w a s
necessary to protect their o w n and the public's interests in times of
stress. T h e r e w a s no cooperation of any kind a m o n g banks outside
of clearing house cities;
2 — T h e banks had no effective agency covering the entire country
affording necessary facilities f o r m a k i n g domestic exchanges.
Commercial paper
1 — L a c k of commercial paper of an established standard issued f o r
agricultural, industrial and commercial purposes, and available f o r
investment by banks, had led to an unhealthy congestion of loanable
[ 1 8 ]
GROWTH OF THE N A T I O N A L B A N K I N G SYSTEM
funds in g r e a t centers, thus hindering production throughout the
country on the w h o l e ;
2 — T h e r e w a s no open m a r k e t f o r the discount of such paper;
3 — T h e r e w a s a disparity in discount rates throughout the country
generally, and there w a s in existence no agency, the influence of
w h i c h could secure uniformity, steadiness and reasonableness in
rates of discount.
No banking facilities for emergency cases
W e had no effective agency that could surely provide adequate banking
facilities f o r different regions, promptly and on reasonable terms, to
meet the ordinary o r unusual demands f o r credit o r currency necessary
f o r moving crops or for other legitimate purposes.
Lack of uniformity
T h e r e w a s no p o w e r to enforce u n i f o r m standards throughout the
country w i t h regard to capital, reserves, examinations and the character and publicity of reports o f all banks in the different sections of
the country.
Foreign banking
T h e r e w e r e no A m e r i c a n banking institutions maintaining branches in
foreign countries, and the organization of such foreign branches w a s
necessary f o r the proper development of o u r foreign trade.
Loans on real estate
T h e inability of national banks to legally m a k e loans upon real estate
restricted their p o w e r to serve f a r m e r s and other b o r r o w e r s in r u r a l
communities.
IV
U N D E R
F E D E R A L
R E S E R V E
S Y S T E M
IT is often said, and generally conceded, that the Federal Reserve System saved the United States from financial chaos
during the European W a r . With equal emphasis it may be
said that the national banking system made the Federal Reserve
System possible. T h e national banks (particularly in the early
days of the Federal Reserve System's existence) supplied not
only the skeleton for the Reserve plan, but they supplied likewise its sinews—its very life-blood.
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
T w o elements, in analysis, were necessary to make the Federal Reserve System a success: first, capital for the twelve
Federal Reserve Banks; second, support and use of the facilities offered by those banks. Both of these elements the
national banks supplied. The Federal Reserve Act itself provided that each national bank should be a member of the Federal Reserve System and should subscribe to the capital stock
of one of the twelve Federal Reserve Banks. T h e alternative,
in effect, was surrender of the charters of those national banks
which did not see their way clear to join the System. In other
words, when the government was ready to put the Federal
Reserve System into effect, it found already in existence an
eminently strong banking system, reaching to every point of
the national compass, able to subscribe the necessary capital,
lend the necessary support and cooperation, and "make the
system march."
The non-national banks, likewise, rendered invaluable cooperation in the launching and operation of the Federal Reserve System. U p to October, 1920, 1431 banks other than
national had joined the System, indicating a ratio of 1 nonnational member bank to every 5% national members.
In referring to the national banks as making possible the
Federal Reserve System it is essential not to lose sight of the
fact that, despite the splendid case the System has proved for
itself by its own successful achievements, it was, seven years
ago, untried, and looked upon questioningly by many substantial bankers and business men of the country. H a d there been
in existence no great body of banks, subjected to Federal legislation, it may well be doubted whether the Federal Reserve
System would have had such an early and free-handed opportunity to demonstrate its merits.
With the inauguration of the Federal Reserve System, na*
tional banking in America entered upon a period influenced by
elements of more radical departure from established principles
of finance than those of any previous epoch. New regulations
have become operative; new forces in the general scheme of
banking have been introduced; a closer kinship between the
national and non-national banks that are members of the Sys-
[20]
G R O W T H OF T H E N A T I O N A L B A N K I N G SYSTEM
tem has arisen. And above all, the fact that in the neighborhood of ten thousand banks are encompassed in one central
banking system, working together for one purpose, has in itself
had as tremendous a moral effect upon the member banks
themselves as upon the country at large.
During the period 1914-1920, the average yearly increase
in the number of national banks organized was 83, but total
assets of all national banks increased from 11.5 billion dollars
to 22.2 billion, or nearly 100 per cent. In other words, the increase in total resources shown during the period mentioned
practically equaled the growth of assets during the entire 51
years that the national banking system had been in existence
up to 1914. Individual deposits in national banks more than
doubled during the period, and loans increased over 90 per
cent. These two items per $1 of capital, at the beginning and
close of the period were:
YEAR
DEPOSITS PER
$1 OF CAPITAL
1913
$5-6 3
1920
11.20
10.13
It must, of course, be borne in mind that these unprecedented
advances have been by no means due solely to the fact that the
Federal Reserve System was in operation, but have been due
likewise to other important financial and economic forces—
chiefly stimulated by the war—which were concurrent with the
development of the Federal Reserve System.
In 1920 there were 8093 national banks in operation, out
of a total of some 31,000 banks in the entire country. T h e
capitalization of the national banks was 1224 millions, as compared with 1478 millions for all other banks (June 30, 1920) ;
their total deposits 17,155 millions, as compared with 24,558
millions for other institutions.
T h e table on page 23 will show at a glance the development by periods, of certain important features of the national
banking system since its inauguration nearly 60 years ago. In
reading these figures, as well as those set forth on the preceding pages, it is well to remember that reliable statistics for all
[21]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
the national banks in the country are obtainable only through
reports compiled at the calls of the Comptroller of the Currency, and that these calls vary in number and dates from year
to year. For the compilations set forth here, figures have been
drawn from returns to calls falling the nearest to December 31
of the last year of the period concerned, except in reference
to the stock of money in the United States, and national bank
circulation, where June figures are used.
[22]
DEVELOPMENT OF NATIONAL BANKING SYSTEM
SHOWN BY PERIODS
PCMOD
Average
T o t a l Number
N a t i o n a l Banks . Y e a r l y
Inceease
Close or Peeiod
T o t a l Capital
Close or
Peeiod
(millions)
Average
Yearly
Inceease
(millions)
Banking Power or
N a t i o n a l Banks a t
Close or P m o D
(millions)
Averaoe
Yiailv
Increase
(millions)
Pee cent, or
T o t a l Money in T o t a l Monet
United S t a t e s a t Represented
Close or Pemod by N a t i o n a l
(millions)
Bake
Circulation
1863-1881
(inclusive)
aoytart
2,308
" 5
1883-1899
(Inclusive)
If yeart
485
24
2»350
117
1,409
21.3
3,6 02
76
607
7
4,433
122
2,190
9-i
7.50?
279
I»059
3*
11,148
479
3,720
19.4
8,093
83
1,248
27
20,293
1,306
7,894
8.7
1900-1913
(inclucive)
14 y tart
1914-1920
(inclusive)
7 ytan
NATIONAL BANK
ORGANIZATION
T
H E detailed steps in the organization of a national bank
are as follows:
1 — D e t e r m i n a t i o n of amount of bank's capital.
2 — O r g a n i z a t i o n application.
3 — D i s p o s a l of capital stock.
4 — E x e c u t i o n of A r t i c l e s of Association.
5 — E x e c u t i o n of O r g a n i z a t i o n C e r t i f i c a t e .
6 — E l e c t i o n of directors.
7 — A p p o i n t m e n t of officers.
8 — I n i t i a l payment of capital.
9 — B e g i n n i n g business.
1 0 — S u b s c r i p t i o n to stock in F e d e r a l R e s e r v e B a n k .
1 1 — P a y m e n t of balance of capital.
I. Amount of capital—Since
it is necessary to state the
amount of any proposed national bank's capital in the first
formal communication to the Comptroller of the Currency,
the determination of the amount of this capital may properly
be said to be the first preliminary step in national bank
organization.
The capital necessary for the organization of a national
bank is:
IN CITIES WITH POPULATION OF
MINIMUM CAPITAL
N o t m o r e than 3,000
$25,000
"
"
Over
50,000
100,000
200,000
"
"
"
"
6,000
50,000
50,000
Where a national bank is organized in a suburban district
included within the political boundaries of a city, the bank must
have a capitalization equivalent to the amount of capital required of a bank located in the city in question.
2. Organization
Application—Preliminary
to the formal
application to organize a national bank it is customary for
those interested in the prospective financial institution to write
the Comptroller of the Currency at Washington, requesting
[ 2 4 ]
NATIONAL B A N K
ORGANIZATION
reservation of the title under which the bank is to be known,
and stating the location and proposed capital. The title asked
for will be reserved for fifteen days, before the expiration of
which time it is expected that formal application to organize
will be filed with the Comptroller.
Forms for the application to organize a national bank are
furnished by the Comptroller of the Currency—and minute
care should be exercised in filling out these papers. All of the
information requested should be given, and the instructions
contained in the forms should be carefully followed.
T h e application must be signed by at least five prospective
shareholders of the association, and indorsed by three prominent public officials, preferably the mayor and postmaster of
the place where the bank is to be located, and a judge.
Exclusion of any professional promoters from the organization will be required. N o commissions paid for the sale of
stock or promotion fees should be included in the bank's organization expenses, but only such legitimate other expenses as
are incident to the actual organization of the bank. If any
agreement exists to use subsequently any part of the capital
stock, surplus or undivided profits, to pay promoters' expenses,
favorable consideration will not be given to the application.
Letterheads bearing the bank's name which are in use before
the bank is given permission to begin business should indicate
that the bank is organizing, or bear the heading "Organization
Committee."
Accompanying the application to organize a national bank
should be a draft for $100 payable to the order of the Comptroller. This sum is to cover expenses incurred in investigating
the proposed bank. A bank examiner will be sent to the town in
which the bank is to be located, and he will give consideration
to the general character and experience of those who are to
conduct the bank's affairs; to the question of whether there is
need for additional banking facilities in the community; to the
community's prospect for future development; to the methods
and banking practices of existing banks; to prospects of success for the proposed banks under efficient management. T h e
Comptroller also obtains reports on the situation from the Fed-
[ 2 5 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
eral Reserve Bank of the district, from the State Banking
Department, and from other sources.
Upon the approval by the Comptroller of the organization
of the proposed bank, all the necessary blanks for use in connection with the organization will be furnished, with instructions for their proper execution. T h e title applied for will be
reserved for sixty days more, during which period it is expected
the organization of the bank will be completed.
3. Disposition of capital stock—After
the bank has received
permission to organize, subscription contracts, to be signed by
the prospective shareholders, are usually drawn up. Forms for
such contracts are NOT furnished by the Comptroller, but it
will be found serviceable if each subscriber is required to give
not only his signature, but his address, occupation, statement
of his net financial worth, and the number of shares to which
he subscribes.
T h e stock of a national bank must be divided into shares of
$100 each, and the Comptroller recommends that all organizing national banks sell their stock at a premium, thereby creating a surplus from which to pay organization expenses, which,
with salaries, frequently prove a drain upon capital during the
early months of the bank's existence. Where no surplus is
created through premium, the Comptroller recommends that
no dividend be paid until a substantial surplus has been created
by earnings.
Payment of the capital stock is treated in Paragraphs 8 and
10 of this chapter.
4. Articles of Association—At
least five persons, the majority of whom are subscribers to stock of the proposed bank,
must sign the institution's Articles of Association, which are
drawn up and executed in duplicate. One copy is retained by the
bank, and another is filed in the Comptroller's office. T h e persons uniting to organize a national bank must be individuals
who can hold and control property in their individual right—
not corporations, firms, or associations of any character.
A form for typical Articles of Association is given at the end
of this chapter. (Page 32.)
[26]
N A T I O N A L B A N K ORGANIZATION
5. Organization Certificate—At
the same time that the Articles of Association are executed, or AFTER that date, the
bank's Organization Certificate (form furnished by the Comptroller) must be executed. One copy of the Organization Certificate is filed with the Comptroller; one copy is retained by the
bank. (See page 31.)
T h e bank will have succession for twenty years from the
date upon which the Organization Certificate is executed, and
NOT from the date of the certificate from the Comptroller
authorizing the bank to begin business. (See "Corporate Existence," page 54.)
CORPORATE
POWERS
UPON the date of the filing of its organization certificate, a
national bank becomes a body corporate, and has the following
powers:
( a ) T o adopt and use a corporate seal.
( b ) T o have succession f o r a period of t w e n t y y e a r s f r o m its organization, unless it is sooner dissolved according to the provisions of
its A r t i c l e s of Association, o r by the act of its shareholders o w n ing two-thirds of its stock, or unless its franchise becomes forfeited
by some violation of l a w .
( c ) T o make contracts.
( d ) T o sue and be sued, complain and defend, in any c o u r t of l a w and
equity, as f u l l y as n a t u r a l persons.
( e ) T o elect o r appoint directors, and by its board of directors to appoint a president, vice-president, cashier, and other officers, define
their duties, require bonds of them and fix the penalty thereof,
dismiss such officers or any of them a t pleasure, and appoint others
to fill their places.
( f ) T o prescribe, by its board of directors, b y - l a w s not inconsistent
w i t h l a w , regulating the manner in w h i c h its stock shall be transferred, its directors elected o r appointed, its officers appointed, its
property t r a n s f e r r e d , its general business conducted, and the privileges granted to it by l a w exercised and enjoyed.
( g ) T o exercise by its board of directors, o r duly authorized officers
or agents, subject to l a w , all such incidental p o w e r s as shall be
necessary to c a r r y on the business of b a n k i n g ; by discounting and
negotiating promissory notes, d r a f t s , bills of exchange, and other
evidences of d e b t ; by receiving deposits; by buying and selling ex-
[ 2 7 ]
N A T I O N A L B A N K I N G UNDER THE FEDERAL RESERVE SYSTEM
change, coin, and bullion; by loaning m o n e y ; and by obtaining,
issuing, and circulating notes according to the provisions of this
Title.
But no association shall transact any business except such as is
incidental and necessarily preliminary to its organization, until
it has been authorized by the Comptroller of the Currency to
commence the business of banking.
6. Directors—The
number of directors is provided for in the
Articles of Association, and cannot be less than five. T h e number may be rigidly fixed, or, on the other hand, a sliding scale
may be adopted, in which case the provision applying to directors will read: "TKe board of directors shall consist of not
fewer than — nor more than — shareholders," etc.
If the directors are not designated in the Articles of Association, the shareholders should proceed to their election after the
execution of the Organization Certificate. T h e qualifications
for directors are:
( a ) D i r e c t o r s of a bank capitalized at $25,000 must o w n at least five
shares of capital stock in their o w n r i g h t s ; directors of a bank
capitalized at m o r e than $25,000 m u s t o w n at least ten shares of
capital stock in their o w n rights. A n y director w h o ceases to o w n
the required number of shares becomes disqualified, and the remaining directors elect his successor.
( b ) E v e r y director must, during his term of office, be a citizen of the
United States.
( c ) N o t less than t h r e e - f o u r t h s of the directors must have resided in
the state in which the bank is located f o r at least a year prior to
their elections, and must be residents therein so long as they continue in office.
Each director is required to take an oath of office after his election, but cannot take such oath before the execution of the
bank's Organization Certificate. T h e oath must be sent to the
Comptroller's office, where it is filed.
7. Officers—The
directors elect the bank's president, vicepresidents, cashier, and such other officers as may be desired.
T h e Comptroller must be furnished with the original signature
of these officers, as well as notified of the date upon which they
were elected.
[28]
NATIONAL B A N K
ORGANIZATION
8. Initial payment of capital—The
law provides that 50%
of the capital stock of a national bank must be paid in cash
(not in assets of another corporation, notes, or other like evidence of debt), and permits payment of the remaining 50% in
five equal monthly cash installments. When at least 50% of the
stock has been paid, each shareholder having paid not less than
one-half on each share subscribed, and when all other legal
requirements have been complied with, the president, or cashier, and a majority of the directors, certify these facts under
oath to the Comptroller.
T h e Comptroller's office further requires a statement showing the total amount collected on stock subscriptions. The difference between this amount and organization expenditures
should be deposited in a disinterested bank, the president or
cashier of which is to certify to the Comptroller's office the
amount on deposit to the credit of the organizing bank.
9. Beginning business—When
the Comptroller is convinced
that all preliminary conditions regarding the organization of
the proposed bank have been satisfactorily complied with, he
will issue a certificate of authority to commence business (generally known as the bank's charter). This certificate, upon its
receipt, must be published in a local or county newspaper for
a period of 60 days. The bank may begin its operations immediately after it has been officially notified that its certificate has
been issued, and the Comptroller should be notified of the date
upon which business is actually begun.
10. Federal Reserve System—Every
national bank automatically becomes a member of the Federal Reserve System,
and is required to subscribe to stock in the Federal Reserve
Bank of its district to an amount equal to 6% of the paid-up
capital stock and surplus of the national bank in question.
Where a bank is just organizing, and where its capital is not
all paid in, or its surplus is being added to, further payments
of subscription to Federal Reserve Bank stock are called for
quarterly—April 1, July 1, October 1, and January 1.
Thus far the Federal Reserve Banks have called in subscription payments amounting to only 3 % of the capital and surplus
[ 2 9 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
of member banks; the remaining 2 % remains subject to future
call.
When a national bank is organized, it should promptly apply
for stock in the Federal Reserve Bank of its district, but payment on account of the subscription may be deferred until receipt of advice of approval of the application by the Federal
Reserve Agent and Federal Reserve Board.
(See also "Reserve Requirements," page 75.)
n . Payment
of balance of capital—Although
the law
makes it permissible for 50% of a national bank's capital stock
to be paid in five monthly payments, it is by no means obligatory that payment shall be so long deferred. All of the capital
stock, or a portion of it exceeding the first installment of S°%>
may be paid in advance.
Where the shareholders are granted the additional five
months in which to complete payment, installments are due
monthly from the date of the issuance of the bank's certificate
to begin business. These deferred payments must be paid in
money, as was the case with the first 50%, and each payment
must be certified to the Comptroller by the president or cashier,
under seal of the bank.
T h e law makes special provision for proceedings where a
shareholder defaults in his payments.
[ 3 4 ]
N A T I O N A L B A N K ORGANIZATION
TYPICAL ORGANIZATION
CERTIFICATE
[Executed in duplicate.]
W e , the undersigned, w h o s e names a r e specified in article f o u r t h of this
certificate, h a v i n g associated ourselves f o r the purpose of o r g a n i z i n g an
association f o r c a r r y i n g on the business of banking, under the l a w s of the
U n i t e d States, do m a k e and execute t h e f o l l o w i n g o r g a n i z a t i o n certificate:
F i r s t . T h e title of the association shall be " T h e
"
Second. T h e said association shall be located in the
of
county of
, and State of
w h e r e its operations of discount and deposit are t o be c a r r i e d on.
T h i r d . T h e capital stock of this association shall be
dollars
($
) , and shall be divided into
shares of one hundred
dollars each.
F o u r t h . T h e name, financial w o r t h — n e t , and the residence of each shareholder of this association, w i t h the n u m b e r of shares held, are as f o l l o w s :
NAME
FINANCIAL WORTH
—NET
RESIDENCE
NO. OF
SHARES
NOTE.—The names, etc., of all the shareholders must be given.
F i f t h . T h i s certificate is m a d e in o r d e r that w e m a y avail ourselves of the
advantages of the aforesaid l a w s of the U n i t e d States.
I n witness w h e r e o f w e have h e r e u n t o set o u r hands this
day
of
( T o be signed and acknowledged by those w h o h a v e signed the articles of
association.)
( A c k n o w l e d g m e n t must be made b e f o r e j u d g e of c o u r t o r notary public
and authenticated by the seal of such c o u r t or n o t a r y . )
STATE OF
( ss •
COUNTY OF
J
B e f o r e the undersigned, a
of
personally appeared
t o m e w e l l k n o w n , w h o severally ack n o w l e d g e d t h a t they executed the f o r e g o i n g certificate f o r the purposes
therein mentioned.
W i t n e s s m y hand and seal of office this
[OFFICIAL SEAL OF OFFICER]
[ 3 1 ]
d a y of
N A T I O N A L B A N K I N G UNDER THE FEDERAL RESERVE SYSTEM
TYPICAL ARTICLES OF ASSOCIATION
FOR the purpose of organizing an association to carry on the
business of banking under the laws of the United States, the
undersigned subscribers for the stock of the association hereinafter named do enter into the following articles of association:
1 — T h e title of this association shall be " T h e
"
2 — T h e place w h e r e its banking house o* office shall be located, and its
operations of discount and deposit carried on, and its general business
conducted, shall be
3 — T h e board of directors shall consist of
shareholders.
T h e first meeting of the shareholders f o r the election of directors shall
be held at
on the
o r at such other place and time as a m a j o r i t y of the undersigned shareholders may direct.
4 — T h e regular annual meetings of the shareholders f o r the election of
directors shall be held at the banking house of this association on the
second T u e s d a y of J a n u a r y of each y e a r ; b u t if no election shall be held
on that day it m a y be held on any other day, according to the provisions
of section 5149 of the Revised S t a t u t e s of the U n i t e d States, and all
elections shall be held according to such regulations as may be prescribed
by the board of directors not inconsistent w i t h the provisions of the
national banking l a w and of these articles.
5 — T h e capital stock of this association shall be
dollars,
divided into shares of one hundred dollars e a c h ; b u t the capital may,
w i t h the approval of the C o m p t r o l l e r of the C u r r e n c y , be increased at
any time by shareholders owning two-thirds of the stock, according to
the provisions of an act of Congress approved M a y 1, 1886; and in case
of the increase of the capital of the association each shareholder shall
have the privilege of subscribing f o r such n u m b e r of shares of the proposed increase of the capital stock as he m a y be entitled to according to
the number of shares owned by him b e f o r e the stock is increased.
6 — T h e board of directors, a m a j o r i t y of w h o m shall be a q u o r u m to do
business, shall elect one of its members president of this association, w h o
shall hold his office (unless he shall be disqualified, or be sooner removed
by a m a j o r i t y vote of the b o a r d ) f o r the t e r m f o r w h i c h he w a s elected
a director. T h e directors shall have p o w e r to elcct a vice-president, w h o
shall also be a member of the b o a r d of directors, and w h o shall be
authorized, in the absence o r inability of the president f r o m any cause,
to p e r f o r m all acts and duties pertaining to the office of the president,
except such as the president only is authorized by l a w to p e r f o r m , and
to elect o r appoint a cashier and such other officers and clerks as m a y be
NATIONAL B A N K
ORGANIZATION
required to transact the business o f the association; to fix the salaries
to be paid to them, and continue them in office, or to dismiss them as in
the opinion of a m a j o r i t y of the board the interests of the association
may demand.
T h e directors shall have p o w e r to define the duties of the officers and
clerks of the association, to require bonds f r o m them, and to fix the
penalty t h e r e o f ; to regulate the m a n n e r in w h i c h elections of directors
shall be held, and to appoint j u d g e s of the elections; to m a k e all by-laws
that it may be proper f o r them to make, not inconsistent w i t h l a w , f o r
the general regulation of the business of the association and the m a n agement of its affairs, and generally to do and p e r f o r m all acts that it
m a y be legal f o r a board of directors to do and p e r f o r m under the R e vised Statutes aforesaid.
7 — T h i s association shall continue f o r the period of t w e n t y years f r o m the
date of the execution of its organization certificate, unless sooner placed
in v o l u n t a r y liquidation by the act of its shareholders o w n i n g at least
two-thirds of its stock, o r otherwise dissolved by authority of l a w .
8 — T h e s e articles of association m a y be changed o r amended a t any time by
shareholders o w n i n g a m a j o r i t y of the stock of the association, in any
manner not inconsistent w i t h l a w ; and the board of directors o r any
three shareholders may call a meeting of the shareholders f o r this o r f o r
any other purpose, not inconsistent w i t h l a w , by publishing notice thereof
f o r thirty days in a newspaper published in the town, city, o r county
w h e r e the bank is located, o r by mailing to each shareholder notice in
w r i t i n g thirty days before the time fixed f o r the meeting.
In witness whereof we have hereunto set our hands this
day of
(To be signed by at least five natural persons, preferably
[ 3 3 ]
the
applicants.)
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
T Y P I C A L BY-LAWS FOR N A T I O N A L
BANKS
B Y - L A W S O F T H E (HERE INSERT THE TITLE OF THE BANK)
ORGANIZED UNDER THE NATIONAL BANKING LAWS
OF THE UNITED STATES
Annual
Meeting
SECTION I. T h e r e g u l a r annual meetings of the shareholders of this b a n t
f o r the election of directors shall be held a t its banking house on the day in
J a n u a r y of each y e a r provided in t h e articles of association, b e t w e e n the
hours of 10 and 4 of said day. I t shall be the duty of the board of directors,
within one month prior to the time of said election, to appoint t h r e e s h a r e holders to be j u d g e s of said election, w h o shall hold and conduct the same,
and w h o shall, a f t e r the election has been held, n o t i f y under their hands
the cashier of this b a n k of the result thereof and the names of the directors
elect.
SECTION 2. T h e cashier, upon receiving the r e t u r n s of the judges of the elections as aforesaid, shall cause the same to b e recorded upon the minute book
of the bank, and shall notify the directors elect of their election and of the
time at which they are required to meet a t the banking house of the b a n k
f o r the purpose of o r g a n i z i n g the n e w b o a r d . I f at the time fixed f o r the
meeting of the directors elect there is not a q u o r u m in attendance, the
members present m a y a d j o u r n f r o m time to time until a q u o r u m is secured,
and no business shall be transacted prior to t a k i n g the o a t h of office as prescribed by l a w .
SECTION 3. I f , f o r any cause, the annual election of directors is not held on
the d a t e fixed in the articles of association, t h e directors in office shall o r d e r
an election to be held on some o t h e r day, of w h i c h special election notice
shall be given in accordance w i t h the requirements of section 5149, U n i t e d
States Revised Statutes, j u d g e s appointed, r e t u r n s made and recorded, and
the directors elect notified, according to the provisions of sections one and
t w o of these b y - l a w s .
Officers
SECTION 4. T h e officers of this b a n k shall be a president, vice-president,
( w h o shall be m e m b e r s of the board of d i r e c t o r s ) , cashier, and such o t h e r
officers as may b e f r o m time to time required f o r the p r o m p t and o r d e r l y
transaction of its business, t o be elected o r appointed by the board of d i r e c tors, by w h o m their s e v e r a l duties s h a l l be prescribed.
SECTION 5. T h e president shall hold his office f o r the c u r r e n t y e a r f o r w h i c h
the b o a r d of w h i c h he shall be a m e m b e r w a s elected, unless he shall resign,
become disqualified, o r be r e m o v e d ; and any v a c a n c y o c c u r r i n g in the office
of president o r in the b o a r d of directors s h a l l be filled b y the remaining
members.
[ 3 4 ]
NATIONAL B A N K
ORGANIZATION
SECTION 6. T h e cashier and the subordinate officers and clerks shall be
appointed to hold their offices, respectively, during the pleasure of the board
of directors.
SECTION 7. T h e cashier of this bank shall be responsible f o r all the moneys,
funds, and v a l u a b l e s of the bank, and shall g i v e bond, w i t h security to be
approved by the board, in the penal sum of
dollars,
conditioned f o r t h e . f a i t h f u l and honest discharge of his duties as such
cashier, and that he w i l l f a i t h f u l l y apply and account f o r all such moneys,
funds, and valuables, and deliver the same to the o r d e r of the board of directors of this bank, or to the person or persons a u t h o r i z e d to receive them.
SECTION 8. T h e president of this bank shall be responsible f o r all such sums
of money and property of every kind as m a y be intrusted to his care or
placed in his hands by the board of directors o r by the cashier, o r otherwise
come into his hands as president, and shall give bond w i t h security to be
approved by the board, in the penal s u m of
dollars, conditioned
f o r the f a i t h f u l discharge of his duties as such president, and that he w i l l
f a i t h f u l l y and honestly apply and account f o r all sums of money and other
property of this bank t h a t m a y come into his hands as such president, and
pay o v e r and deliver the same t o the o r d e r of the board of directors, o r to
any o t h e r person or persons a u t h o r i z e d by the board to receive the same.
SECTION 9. T h e teller shall be responsible f o r all such sums of money, prope r t y and f u n d s of every description as may f r o m time to time be placed in
his hands by the cashier, o r otherwise come into his possession as t e l l e r ; and
shall give bond, w i t h security to be approved by the board, in the penalty of
dollars, conditioned f o r the honest and f a i t h f u l disc h a r g e of his duties as teller, and t h a t he w i l l f a i t h f u l l y apply, account f o r ,
and pay o v e r all moneys, property, and f u n d s of every description that m a y
come into his hands, by v i r t u e of his office as teller, to the o r d e r of the
board of directors aforesaid, or t o such person o r persons as m a y be authori z e d t o demand and receive the same.
Seal
SECTION 10. T h e f o l l o w i n g is an impression of the seal adopted by the
board of directors of this b a n k :
(IMPRESSION
OF SEAL)
Conveyance of Real Estate
SECTION I I . A l l t r a n s f e r s and conveyances of real estate shall be made by
t h e association, u n d e r seal, in accordance w i t h the o r d e r s of the b o a r d of
directors, and shall be signed by the president o r cashier.
Increase of Stock
SECTION 12. W h e n e v e r an increase of stock shall be determined upon, in
accordance w i t h l a w , it shall be t h e d u t y of the board to n o t i f y all the s h a r e -
[ 3 5 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
holders of the same, and to cause a subscription to be opened f o r such increase of capital. I n the increase of capital each shareholder shall h a v e the
privilege of subscribing f o r such number of shares of the n e w stock as he
m a y be entitled to subscribe f o r , according to his existing stock in the bank.
I f any shareholder fails to subscribe f o r the amount of stock to w h i c h he
m a y be entitled, the board of directors m a y determine w h a t disposition shall
be made of the privilege of subscribing f o r the unsubscribed stock.
Banking Hours
SECTION 13. T h i s bank shall be opened f o r business f r o m
o'clock
a.m. to
o'clock p.m. of each d a y of the year, excepting Sundays
and days recognized by the l a w s of this S t a t e as holidays.
Directors'
Meetings
SECTION 14. T h e r e g u l a r meetings of the board of directors shall be held on
the
of each month. W h e n any r e g u l a r meeting of the board
of directors falls upon a holiday, the meetings shall be held on such other
day as the board m a y previously designate. Special meetings m a y be called
by the president, cashier, o r at the request of three o r m o r e directors.
Discount
Committee
SECTION 15. T h e r e shall be a committee, to be k n o w n as the discount committee, consisting of the president, cashier, and
directors
appointed by the board every
months, to continue t o act until
succeeded, w h o shall have p o w e r to discount and p u r c h a s e bills, notes, and
o t h e r evidences of debt, and t o buy and sell bills of e x c h a n g e ; and w h o
shall, at each r e g u l a r meeting of the b o a r d of directors, submit in w r i t i n g
a r e p o r t of all bills, notes, and other evidences of debt discounted and p u r chased by them f o r the bank since their l a s t report. T h e board of directors
shall approve o r disapprove the report of the discount committee, such
action to be recorded in the minutes of the meeting.
Minute
Book
SECTION 16. T h e o r g a n i z a t i o n papers of this bank, the returns of the j u d g e s
of the elections, the proceedings of all r e g u l a r and special meetings of the
directors and of the shareholders, the b y - l a w s and any amendments thereto,
and reports of the committees of directors shall be recorded in the minute
b o o k ; and the minutes of each meeting shall be signed by the president and
attested by the cashier.
Transfers of Stock
SECTION 17. T h e stock of this b a n k s h a l l b e assignable and t r a n s f e r a b l e
only on the books of this bank, subject t o t h e restrictions and provisions of
the national banking l a w s ; and a t r a n s f e r book shall be p r o v i d e d in w h i c h
all assignments and t r a n s f e r s of stock shall be m a d e .
[ 3 6 ]
NATIONAL B A N K
ORGANIZATION
SECTION 18. T r a n s f e r s of stock shall not be suspended preparatory to the
declaration of dividends; and, unless an agreement to the c o n t r a r y shall be
expressed in the assignments, dividends shall be paid to the shareholders in
w h o s e n a m e the stock shall stand at the date of the declaration of dividends.
SECTION 19. C e r t i f i c a t e s of stock, signed by the president and cashier,
be issued to shareholders, and the certificates shall state upon the
thereof that the stock is t r a n s f e r a b l e only upon the books of the b a n k ;
w h e n stock is t r a n s f e r r e d , the certificates thereof shall be returned to
bank, canceled, preserved, and n e w certificates issued.
may
face
and
the
Expenses
SECTION 20. A l l the current expenses of the b a n k shall be paid by the
cashier, w h o shall e v e r y six months, o r o f t e n e r if required, m a k e to the
board a detailed statement thereof.
Contracts
SECTION 2 1 . A l l contracts, checks, d r a f t s , etc., and all receipts f o r circul a t i n g notes received f r o m the C o m p t r o l l e r of the C u r r e n c y shall be signed
by the president o r cashier.
Examinations
SECTION 22. T h e r e shall be appointed by the b o a r d of directors a committee
of
members, exclusive of the president and cashier, w h o s e duty
it shall be to examine every six months the affairs of this bank, count its
cash, and c o m p a r e its assets and liabilities w i t h the accounts of the general
ledger, ascertain w h e t h e r the accounts are correctly kept, and the condition
of the bank corresponds t h e r e w i t h , and w h e t h e r the bank is in a sound and
solvent condition, and to recommend to the board such changes in the m a n ner of doing business, etc., as shall seem to be d e s i r a b l e ; the result of w h i c h
e x a m i n a t i o n shall be reported in w r i t i n g t o the board at the next r e g u l a r
meeting thereafter.
SECTION 23. T h e board of directors shall h a v e p o w e r to change the f o r m
of the books and accounts w h e n deemed expedient and define the manner
in w h i c h the a f f a i r s of the bank shall be conducted.
Quorum
SECTION 24. A m a j o r i t y of all the directors is required to constitute a
q u o r u m to do business. Should there be no q u o r u m a t any r e g u l a r or special
meeting, the members present m a y a d j o u r n f r o m day to day until a q u o r u m
is in attendance. I n the absence of a q u o r u m n o business shall be transacted.
Changes in By-Laws
SECTION 25. T h e s e b y - l a w s m a y be c h a n g e d o r amended by the v o t e of a
m a j o r i t y of the directors.
[ 3 7 ]
SUCCESSION OF A STATE B A N K
A NATIONAL
BY
BANK
T
H E R E are two ways in which a state bank may enter the
national banking system:
Re-organization.
Conversion.
I. Re-organization—'When
it is deemed advisable by the
directors and stockholders to transform their bank into a
national association by re-organization, the dominant motive is
normally the desire to effect a re-distribution of stock, and
sometimes to provide for a more satisfactory investment of
loanable funds.
In re-organization proceedings, the method of incorporation
is precisely the same as that followed in organizing a new bank,
outlined step by step in the preceding chapter.
After it has received its authority from the Comptroller to
begin business, the re-organized bank is privileged to enter
into a contract to purchase the assets of the liquidating state
bank, and to assume its liabilities to depositors and other
creditors, providing that all assets so acquired are of a satisfactory value, and conform to the requirements of the National
Bank and the Federal Reserve Acts. A copy of this contract,
properly signed and executed, is forwarded to the Comptroller's office, together with an agreement signed by the directors of the re-organized bank, to the effect that the assets to be
acquired from the state bank will not include real estate, except
banking premises; stocks; loans secured by real estate, except
those permitted by Sec. 24 of the Federal Reserve Act; nor any
loans in excess of 10% of the capital stock of the national bank
actually paid-in and unimpaired, and 10% of unimpaired surplus fund, except as authorized by the amendments of October
22, 1919, to Section 5200 U . S. R. S. (See Loans, pages
60, 61.)
T h e law does not provide for the conversion of private
banks into national banks. If it is desired to effect a re-organi-
[ 3 8 ]
SUCCESSION OF A STATE B A N K BY A N A T I O N A L B A N K
zation, as in the case of a state bank liquidated for that purpose, an organization from the beginning must be undertaken
as provided in the previous chapter.
2. Conversion—In
converting a state bank into a national
bank, there is not a dissolution of the state institution, but
merely a change of title and whatever re-arrangements in the
converting bank's affairs are necessary to make its banking
practices conform to the National Bank and Federal Reserve
Laws. T h e national bank is liable for all contracts of the former state institution, and may enforce all previous contracts.
T h e preliminary conditions necessary to the initial move
where a state bank wishes to convert into a national bank are:
( a ) T h a t the l a w s of the state in which the bank is located shall not
forbid conversion of a state into a national banking association.
( b ) T h a t the bank's unimpaired capital shall be sufficient to entitle it
to become a national banking association (see " C a p i t a l , " page
2 4 ) . W h e r e it is necessary to increase the capital stock of a state
b a n k to m a k e it eligible as a national bank, o r change the par
v a l u e of shares, the change must be legally effected under the
l a w s of the state, and a certificate to this effect must be obtained
f r o m the proper state authority.
( c ) T h a t shareholders o w n i n g a t least 5 1 % of the state bank's stock
shall have voted in f a v o r of the proposed conversion.
These conditions obtaining, the bank notifies the Comptroller
of its purpose to enter the national banking system, asks for a
reservation of title for 60 days, and agrees that any assets
which cannot be legally held by a national bank will be disposed of before authorization to begin business as a national
bank is given (see "Loans," pages 60-63). Form for this
application is furnished by the Comptroller.
Accompanying the application to convert should be a draft
for $100, (see "Organization Application," pages 24-26) to
cover the expense of examination. When the Comptroller has
approved the application, he will so notify the bank, and a
meeting of its shareholders should be called, at which a resolution should be adopted by a vote representing at least 51 % of
the capital stock of the bank, authorizing the directors to convert the bank into a national association, as provided for in
[ 3 9 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
Sec. 5154 United States Revised Statutes, and acts amendatory
thereof. The directors, or a majority of them, must be authorized also to execute Articles of Association, Organization Certificate, all other necessary papers, and to perform all the necessary acts required in the process of conversion.
Forms for the Articles of Association, the Organization
Certificate, and the Certificate of Payment of Capital, are furnished by the Comptroller, and the procedure is the same as
that outlined under these heads in the preceding chapter (see
pages 26, 27, 29, 30).
Since the directors of every national bank must number at
least five, if the board of a converting state bank is composed
of less than that number, an increase must be effected under
the laws of the state, prior to the execution of any conversion
papers other than the application. Duly qualified directors of a
state bank may continue as directors of a national bank, regardless of the number of shares owned by each, until the first
annual election is held. Then, to be eligible for re-election, each
must own the number of shares required by the National Bank
Act (see "Directors," page 28). Oaths as directors of a
national bank must be taken.
It has been held by the Solicitor of the Treasury that a trust
company organized under state laws may convert into a
national bank, providing it complies with all conditions of the
law, divesting itself of all trust business except such as the Federal Reserve Board may authorize it to retain under the Federal Reserve Act.
[ 4 4 ]
CIRCULATION
F
OR nearly half a century it was obligatory upon every
national bank to keep a certain amount of government
bonds on deposit with the Treasurer of the United States,
regardless of whether or not the bank desired to issue circulation. But with the passage of the Federal Reserve Act, this
requirement—hitherto an outstanding feature of the national
banking system—was eliminated, except where a bank wished
to circulate its notes.
Although the Federal Reserve Act provides for the issuance
of currency by the Federal Reserve Banks (secured by either
government bonds or by other collateral), there is nothing in
the Act as it now stands which would abrogate the right of the
national banks to issue currency secured by government bonds.
It appears that the purpose of those who drafted the Federal
Reserve Act was that the Federal Reserve Banks should ultimately share with the Government the sole right of currency
issue, but up to the present there has been only one official step
to bring about this situation. Under Section 18 of the Federal
Reserve Act, the volume of 2 % gold bonds eligible for national
bank circulation has been reduced by $56,256,500. Bonds to
this amount have been acquired by the Federal Reserve Banks,
and converted into 3 % bonds and 3 % o n e y e a r notes, without
the circulation privilege.
Every national bank is entitled to issue circulating notes to
the amount of its paid in capital. These notes are secured by
United States interest bearing bonds which are deposited with
the Treasurer of the United States. Circulation is issued not on
the basis of the market value of these bonds, but on the basis
of their par value.
There are at the present time three classes of government
bonds which are acceptable as security for national bank circulation, viz.:
[41]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
2Jo consols of 1930.
2 Jo Panama Canal bonds.
4 % bonds of 1925.
These bonds cannot be procured from the Treasury Department, but may be purchased in the open market through dealers
in securities, such as The National City Company and others.
For a number of months past none of the Panama Canal bonds
have been available in the open market, practically all of them
being deposited in Washington to secure existing bank circulation. The 2 Jo consols in recent months have been selling at
about 102 and interest, and the 4%'s have been selling at from
105J4 to 106 and interest.
Where a bank determines to issue currency, it purchases in
the open market bonds having a par value equivalent to the
amount of circulation to be issued, and sends these to the
Comptroller of the Currency for deposit with the Treasurer of
the United States. Only registered bonds are eligible as security
for circulation, but where coupon bonds of either of the eligible
issues are presented, they will be exchanged by the Comptroller
for the registered bonds. T h e Comptroller authorizes payment
of interest on the bonds of the bank depositing them, and the
Treasurer of the United States will pay the interest, by check,
to the order of the depositing bank at the office of any United
States Assistant Treasurer or any United States depository.
All details in connection with the issuance of bank circulation are cared for by the Comptroller's office. This includes the
engraving of plates, printing, etc. Ordinarily a period of about
40 days is required to engrave the plates and print bank notes,
but at present (end of 1920) more than three months is
required. N o order for circulation is acted upon until bonds
have been deposited to secure the proposed circulation and
advanced payment of the cost of engraving ($130 per plate)
has been made.
National bank notes are issued in denominations of $5, $io,
$20, $50, and $100. U p until late in 1917 banks were prohibited from circulating notes of less denomination than $5, but
[ 4 2 ]
CIRCULATION
the only limitation upon the denomination of bank notes as the
law now stands is that no bank may have in circulation at any
one time more than $25,000 in $1 and $2 notes. However, up
to the present time, no plate designs for notes of $1 or $2
denominations have been approved, consequently no national
bank notes of these denominations have thus far been printed.
T h e Comptroller of the Currency will supply detailed information as to forms that should be observed in ordering circulation and as to the mechanical details of which it is necessary
to take cognizance in this connection.
T h e profit which a bank makes upon its circulation is determined chiefly by two factors: the average rate of interest in the
money market, and the price at which bonds to secure the
circulation are purchased.
Circulation secured by the 2 % bonds is subjected to a semiannual tax of % of 1 % ; circulation secured by bonds bearing a
rate of interest higher than 2 % is subjected to a semi-annual
tax of y* of 1 % . Other expenses in connection with national
bank circulation include ( 1 ) 5 % of the total amount of circulation, which must be kept on deposit in actual money, without
interest, with the Treasurer of the United States to redeem
notes sent into the Treasury; (2) the sum that must be set aside
as a sinking fund to absorb the premium on bonds which, purchased above par, the government must ultimately redeem at
100; and (3) the small expense in connection with redemptions, etc. T h e profit on circulation, therefore, above what
might be obtained by loaning a sum of money equivalent to the
cost of the bonds in the open market, is equal (say in a 6 %
market, to take a concrete case) to the net receipts minus 6 %
on the cost of the bonds.
T h e method of computing this profit may be illustrated
much more simply by the following tabulation, which shows
each step taken in the calculation. T h e hypothesis is that
$100,000 worth of circulation has been taken out, secured by
4 % bonds selling at i o 6 j 4 , and that the prevailing rate of
interest in the money market is 6%.
[ 4 3 ]
N A T I O N A L BANKING UNDER THE FEDERAL RESERVE SYSTEM
C o s t of bonds
Circulation obtainable
$106,500.00
100,000.00
Interest received on bonds
Interest on circulation at 6 % , less 5 %
fund
4,000.00
redemption
5,700.00
T o t a l gross receipts
$9,700.00
Deduction f o r t a x
Deduction f o r expenses
Deduction f o r sinking fund
$1,000.00
62.50
980.14
T o t a l deductions
2,042.64
N e t receipts (difference between gross receipts and total deductions)
Interest on cost of bonds at 6 %
7.657-36
6,390.00
Profit on circulation in excess of 6 % on the investment
E x t r a profit in terms of per cent
$1,267.36
1.19%
It is provided by the Federal Reserve Act that any bank desiring to retire all, or a part, of its circulating notes may file with
the Treasurer of the United States an application to sell for its
account, at par and accrued interest, the bonds held as security
for circulation that is to be retired.
[ 4 4 ]
CHANGES
IN
CAPITAL
i. In crease of Capital—A
bank contemplating increase of
its capital should first communicate with the Comptroller, since
that official's approval is necessary. Accompanying the notification that his consent to the increase has been given, the
Comptroller will send the proper forms and instructions.
The affirmative vote of the owners of two-thirds the bank's
capital stock is necessary, and the shareholders must be given
notice (usually 30 days in advance) of the meeting at which
the proposition is to be submitted, as required by the bank's
Articles of Association. Shareholders unable to be present at
the meeting may be represented by proxy. (See "Proxy," pages
57-58.)
N o increase is valid until the whole amount is paid in cash,
certified to the Comptroller, and his certificate of approval is
issued.
When any bank that is a member of the Federal Reserve
System increases its capital and surplus, it is obliged to file with
its Federal Reserve Bank an application (form furnished by
Federal Reserve Bank) for an additional amount of capital
stock of the Federal Reserve Bank of its district equal to 6 fo
of such increase. Upon approval of the application by the
Federal Reserve Agent, and the Federal Reserve Board, the
applying bank pays to its Federal Reserve Bank one-half the
amount of its additional subscription; the remaining half is
subject to call when deemed necessary by the Federal Reserve
Board.
Federal law makes no provision governing the distribution
of new national bank stock when the capital is increased, but
under the common law, (where not modified by statute) the
shareholders of a corporation have the right to participate in
the increase in capital proportionately to the number of shares
held by each. Waiver of that right should be obtained before
allotting any of the shares to others. T h e right of a shareholder
[ 4 5 ]
N A T I O N A L B A N K I N G UNDER THE FEDERAL RESERVE SYSTEM
to subscribe to new stock, however, must be exercised within a
fixed or reasonable period of time.
2. Reduction of Capital—Approval
of the Comptroller and
also of the Federal Reserve Board must be obtained before a
national bank may reduce its capital stock. A bank contemplating such action should advise the Comptroller, giving the
reasons for the proposed reduction', and should similarly advise
the Federal Reserve Bank of its district.
On receipt of the application, the Comptroller will advise
the bank what conditions must be met before approval may be
given, viz.:
( a ) T h a t , if the bank has not been examined recently, o r if its affairs
w e r e not satisfactory at the last examination, a special examination be made.
( b ) T h a t any losses w h i c h may have been sustained be charged off.
( c ) T h a t any loans w h i c h are excessive, o r w i l l become excessive by
reason of the reduction, be reduced to the legal limit.
( d ) T h a t any other conditions shown to be unsatisfactory by the examiner's report be corrected.
When all matters have been satisfactorily adjusted, (providing
adjustment is necessary) the Comptroller will indicate his
approval of the reduction, but will not give his formal certificate of approval until a resolution favoring the plan has been
adopted by the owners of two-thirds the bank's stock, and has
been certified to him. Proper notice, as provided for in the
Articles of Association, must be given all shareholders in
advance of the date of the meeting at which the question is to
be submitted. T h e bank's circulation (if excessive) must be
reduced to not more than the amount of capital after reduction,
by the deposit of lawful money with the Treasurer of the
United States.
T h e reduction of capital becomes operative upon issuance
of the Comptroller's certificate. Each shareholder has the right
to participate in the reduction in proportion to the number of
shares held, and receive cash in payment, unless the whole, or
a portion of the amount represented by the reduction, is to be
charged off losses. In this event, the assets so charged off should
[ 4 6 ]
CHANGES I N C A P I T A L
be trusteed, and the proceeds distributed among those who
were shareholders of record at the time of the reduction.
With the consent of all the shareholders, the assets may be
realized upon and the proceeds carried to profit account.
N o part of the sum set free by capital reduction can be
carried to surplus or undivided profits without the unanimous
consent of the shareholders.
When reduction is made, the shareholders should return their
old certificates; new stock certificates, for the capital as reduced, should then be issued. Issuance of fractional shares is
not unlawful.
Upon receipt of the proper application, (form furnished by
the Federal Reserve Bank) the Federal Reserve Bank will
cancel the stock which the applying national bank is entitled to
surrender, and refund the amount due.
3. Restoring Impaired Capital—When
the examination of
a national bank shows that its losses exceed the amount of its
surplus and undivided profits, thus impairing its capital, the
Comptroller sends a formal notice to the bank. A meeting of
the shareholders, (who must be notified 30 days in advance)
is called and at this meeting the shareholders must adopt one
of the two courses that are open, viz.:
( a ) Voluntary liquidation.
(b) Making up the deficiency by assessment of the bank's
stock.
If voluntary liquidation is the course elected, the procedure
is the same as outlined in the next chapter. (See "Liquidation,"
page 49.)
When an assessment is agreed upon, (a majority stock vote
being required to legalize the assessment) each shareholder
pays in proportion to the number of shares he holds, and the
entire sum must be paid in cash within three months after
receipt of the Comptroller's notice. A certificate, signed by the
cashier of the bank and stating that payment has been completed, is sent to the Comptroller.
If any shareholder refuses to meet the assessment levied
upon his stock, the board of directors shall cause to be sold at
[ 4 7 ]
N A T I O N A L B A N K I N G UNDER THE FEDERAL RESERVE SYSTEM
public auction a sufficient amount of the delinquent shareholder's stock to make good the deficiency. Before stock can be
thus sold, however, 30 days' notice must be given by posting
notice of the sale in the bank office, and by publishing such
notice in a local newspaper.
[48]
LIQUIDATION
W
H E N a national bank is to be placed in liquidation, the
Comptroller should be notified, as the initial step, so
that the proper blanks and instructions may be furnished. It
is then customary to call a meeting of the shareholders, and
before liquidation proceedings may go farther, the proposal
must receive the affirmative vote of the owners of two-thirds
of the bank's stock.
A f t e r the adoption of the resolution for liquidation, the directors cause notice of the fact to be certified, under seal of the
bank, to the Comptroller by the president or cashier. Also, notice of the proposed liquidation, requesting creditors to present
their claims against the bank for payment, must appear for a
period of two months in a newspaper published in New York
City, and also in a newspaper published in the place where the
bank is located. Weekly papers may be used.
Lawful money to provide for the redemption of circulation
must be deposited with the Treasurer of the United States
within six months from the date of liquidation.
These requirements having been met, Federal law ceases to
govern, and the affairs of the bank pass into the hands of its
shareholders, for settlement in whatever legal way may be
deemed advisable. It is usual, however, for the shareholders to
appoint a liquidating agent or committee, and to require the
agent or committee to render semi-annual reports to the Comptroller showing the progress of the liquidation until it is completed. Forms for these reports are furnished by the Comptroller's office, and although this office has no authority to compel rendering of such reports, it is obviously to the advantage
of all parties concerned that an official record of the liquidation
proceedings should be on file.
Officers of a bank in liquidation have no authority to bind the
shareholders except in transactions arising directly from the
closing of the bank's affairs, unless such authority is expressly
conferred by the shareholders.
[ 4 9 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
Any shareholder who is dissatisfied with the manner in which
the liquidation is being conducted, may go into court and ask
for the appointment of a receiver.
Although the point is not covered by the law, it has been
found most advisable for the liquidating agent or committee to
secure the authority of the board of directors before disposing
of the assets of the bank.
The liquidating bank must file with its Federal Reserve
Bank (form furnished by Reserve Bank) an application for
surrender and cancellation of the Federal Reserve Bank stock
that is held, and for the refund of all balances due to the
liquidating bank.
When a bank fails to provide for the extension of its 20year charter, its corporate existence, of course, expires by limitation, and the bank automatically goes into liquidation. No
resolution of the shareholders to this effect is necessary, but it
has been found advisable, in such cases, for the shareholders
to meet before the date of the charter's expiration, to exchange
views and to plan for properly closing the bank's affairs. Notice
of the expiration of the charter must be certified to the Comptroller by the president or cashier. Publication of notice of
liquidation by expiration, in both a local and a New York City
newspaper, is obligatory.
[ 5 4 ]
CONSOLIDATION
T
H E R E are three distinct circumstances in which consolidations of national banks are effected:
1 — W h e n neither bank is placed in liquidation.
2 — W h e n one bank is placed in liquidation.
( a ) W i t h o u t an increase of capital.
(b) W i t h an increase of capital.
3 — W h e n both banks are placed in liquidation.
I. Neither
bank liquidating—Until
the passage of an
amendment to the National Bank Act on November 7, 1918,
it had always been necessary for at least one of two consolidating banks to liquidate. The law as it now stands, however, permits consolidation of banks without liquidation of either, where
such a course is desired. The two banks that are to merge must,
however, be located in the same "county, city, town, or village."
A f t e r it has been informally agreed that two or more banks
are to consolidate, an application to pursue such a course is
sent to the Comptroller, who, if he approves, will return notice
of his approval, together with the forms that must be executed.
The directors of the two associations then enter into an
agreement covering the terms of consolidation, which must be
approved by the owners of at least two-thirds the capital stock
of each institution. Before a meeting of the shareholders to
consider the consolidation agreement may be held, it must have
been advertised for four consecutive weeks in a newspaper
published in the place where the banks are located, and notices
of the meeting must have been sent to each shareholder, by
registered mail, at least 10 days before the meeting.
A certified copy of the resolution of the shareholders approving the consolidation (this certified copy containing a complete recital of the consolidation agreement) must be sent to
the Comptroller, who will issue a formal certificate approving
the consolidation.
[ 5 1 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
Where an increase in capital is provided in the consolidation
agreement, or where there is in the agreement a provision requiring the paying in of cash in addition to the transfer of assets, to equalize the value of the capital stock, it is necessary to
furnish to the Comptroller's office a sworn certificate, executed
by the president or cashier of the consolidated bank, showing
that such increase has been paid in cash.
Bonds (on deposit to secure circulation) held by either bank
in excess of the capital of the consolidated bank, must be withdrawn before the consolidation is approved by the Comptroller's office. These bonds will be released upon the deposit of
lawful money to retire outstanding surplus circulation, providing the usual technicalities are complied with. If bonds are to
be transferred to the consolidated bank, it will be necessary to
furnish the Treasurer's receipts to the Comptroller.
Under the Federal Reserve Act, shares of the capital stock
of Federal Reserve Banks owned by member banks cannot be
transferred or hypothecated. This provision prevents a transfer of Federal Reserve stock by purchase, but does not prevent
a transfer by operation of law. Thus, when two or more national banks consolidate and the consolidated bank continues
the corporate identity of one of the consolidating banks, the
consolidated bank becomes owner of the Federal Reserve stock
of the other consolidating banks as soon as the consolidation
takes effect. In the event that the consolidation results in a
change of title, the certificates of stock issued in the names of
the consolidating banks should be surrendered and cancelled,
and a new certificate issued.
2. Consolidation
with one bank liquidating—Where
the
capital of the absorbing bank is not to be increased by consolidation, the directors of that bank may enter into a contract
with the directors or agents of the liquidating bank to purchase
its assets, assume its liabilities, and to pay the value of assets
purchased in excess of liabilities to depositors and other creditors, minus any expense incident to liquidation.
If the capital stock of the absorbing bank is to be increased
by an amount equal to the stock of the liquidating bank, the
[ 5 2 ]
CONSOLIDATION
additional shares may be sold to the stockholders of the liquidating bank, with the consent of the shareholders of the absorbing bank. Providing thus for the shareholders of the liquidating bank, the directors of the continuing bank contract to
take over the assets and liabilities of the liquidating bank.
T h e Federal law is construed as requiring payment of national bank capital, either original or on account of increase, in
cash. Hence, in the case under discussion, the right of the continuing bank to accept stock or assets representing stock of the
liquidating bank, and to issue therefor certificates of stock in
the continuing bank, is not recognized.
Since it is illegal for a bank to transfer or hypothecate its
Federal Reserve Bank shares, the liquidating bank which figures in a consolidation must surrender its Federal Reserve stock
and the bank resulting from the merger must apply for new
stock. A s to the allotment of stock when a national bank increases its capital, Federal law makes no provision. An analysis
of the common law covering such cases is given under
"Capital," page 45.
3. Consolidation with both banks liquidating—Both
banks
party to a proposed consolidation may be placed in voluntary
liquidation, then organize anew under a different corporate title
and the new bank acquire, in the manner outlined previously
in this chapter, the assets and liabilities of the liquidating banks.
This method enables the incorporators to place the stock as
they desire. A contract covering the taking over of the liquidating banks' assets and liabilities must be made, and an examination of the assets to be purchased will be made by a national
bank examiner at the expense of the new bank.
A bank which is in good faith closing its affairs for the purpose of consolidating with another national bank, is not required to deposit lawful money for its outstanding circulation,
providing transfer of the securing bonds is properly authorized,
and the circulation liability assumed.
[ 5 3 ]
CORPORATE
EXISTENCE
T
H E corporate existence of a national banking association
expires twenty years from the date of execution of the Organization Certificate, but may be extended for a period of
twenty years, and re-extended for a further twenty-year period.
Officers of a national bank can, therefore, ascertain the date
upon which the institution's corporate existence expires by reference to the bank's Organization Certificate, or if this document is unavailable the information may be had from the
Comptroller.
In extending the corporate existence of a national bank the
technical procedure is through the adoption of an amendment
to the bank's Articles of Association. While no meeting of
shareholders to pass upon this amendment to the Articles is
necessary, the law requires the signatures of the owners of
two-thirds of the bank's stock to the amendment. A copy of
this amendment, properly signed, accompanied by a certificate
from the bank's president or cashier, stating that the shareholders have agreed to the extension, is forwarded to the
Comptroller. These documents should be transmitted to the
Comptroller at least three months in advance of the expiration
of the bank's corporate existence.
Upon receipt of these papers, the Comptroller will order, as
required by law, a special examination, the expenses of which
are borne by the bank. If the condition of the bank is satisfactory, the Comptroller will issue the Certificate of Extension, simultaneously with the expiration of the prior charter.
Circulating notes issued by a bank which extends its existence
must be of a design different from that borne by the notes
previously circulated. This necessitates new plates, which are
prepared at the expense of the bank. (The cost is $130 per
plate.) A blank for order of new currency is furnished, and
the requisition should be transmitted with the amendment.
The law (Act of July 12, 1882) makes special provision for
[ 5 4 ]
CORPORATE EXISTENCE
the bank to purchase the shares of any stockholder who dis*
sents to the extension of corporate existence.
Re-extension of a national bank's corporate existence is permissible under the Act of April 12, 1902; the technical procedure is the same as in the case of the first extension.
[ 5 5 ]
NAME AND
LOCATION
I T H the consent of the Comptroller, and by the vote of
the shareholders owning two-thirds of the stock, a national bank may change its name or may change its location to
any other locality in the same state not more than thirty miles
distant.
Due notice of the meeting at which the proposal to change
a bank's name or location is to come up, must be given to the
stockholders. The resolution adopting the proposal by a twothirds vote and authorizing the Treasurer of the United States
to assign to the bank under its new title any bonds held to secure circulation, must be sent to the Comptroller. An order for
plates and circulation to conform to the new title should, of
course, be submitted at the same time. (See "Corporate Existence," page 54.)
N o change of name or location is valid until the Comptroller's certificate of approval is issued, and a change of name
does not in any way affect the liabilities or rights of the bank
as they existed under the old name.
[ 5 6 ]
SHAREHOLDERS
(See "Organization
" pages 24-30; "Changes
in Capital," pages
"Liquidation,"
pages 49-50; "Corporate
Existence,"
page 54, etc.)
45-48;
Meetings—The
annual meeting to elect directors is held "on
such day in January of each year" as is specified in the Articles
of Association. The law makes no provision as to notice of the
annual meeting, but unless the time is definitely fixed in the
Articles or By-laws of the bank, it seems that owners of the
stock are entitled to the usual 30 days' notice.
For all special meetings, notice should be given as provided
for in the Articles, or, in the absence of such provision, 30 days
in advance.
Votes—Each shareholder is entitled to one vote on each share
of stock. N o shareholder whose liability for stock subscription is unpaid and past due is allowed to vote. Cumulative voting is not allowed. For example, if 5 directors are to be elected,
the owner of 20 shares could not cast 100 votes in favor of one
person, but is at liberty only to cast 20 votes for each of the
5 candidates.
The minutes of the annual meeting of shareholders of a national bank should show that sufficient stock was represented
at the meeting, in person and by proxy, to constitute a legal
quorum under the laws of the state in which the association is
located.
A t meetings where the bank's Articles of Association are to
be amended, a majority vote of all the stock of the bank must
be cast, except where a larger proportion is required by law. A
resolution providing for change in capital, consolidation, liquidation, or change in name or location, requires the affirmative
vote of two-thirds of the stock of the bank.
Proxy—Shareholders
may vote by proxy, duly authorized in
writing, but no "officer, clerk, teller, or bookkeeper" of the
bank can act as proxy. Supported by court decisions, the Comp-
[ 5 7 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
troller holds that a national bank director is an "officer within
every sense and meaning of the word."
The proxy cannot vote when the owner of the stock is present
and votes.
Even when by its terms it is made "irrevocable," a proxy is
always revocable.
An ordinary proxy, being intended for election only, does
not empower the proxy to vote for increased capitalization,
consolidation or liquidation unless specific power so to do is
given.
Liability—National
bank stockholders are subjected to an
extra liability ( " f o r all contracts, debts and engagements" of
the bank) equal to the amount of stock held.
Who may subscribe to stock—Following
are the specific circumstances applying to subscription to a national bank's stock:
(a)
Guardian—May
(b)
Trustee—May
subscribe if he shows proper authority.
subscribe if he s h o w s proper authority.
( c ) Administrator—Has
no authority to subscribe.
( d ) State, county, township or municipality—Subscriptions
be received in the name of either.
should not
( e ) Order, lodge, association,
etc.—Evidence
must be produced to
s h o w the organization is authorized by its rules to buy stock, and
that it is legally and financially responsible f o r an assessment on
this stock w e r e one necessary under the N a t i o n a l B a n k A c t .
Lists—Every
national bank must at all times keep an up-todate list of the names and residences of all shareholders, and
a copy of this list, as of the first Monday of July of each year,
verified by oath by the president or cashier, must be forwarded
to the Comptroller.
[ 5 8 ]
DIVIDENDS
T
H E National Bank Act provides that directors of any
national bank "may, semi-annually, declare a dividend of
so much of the net profit of the association as they shall judge
expedient." Although the word "semi-annually" occurs in the
language of the act, there appears to be no prohibition against
declaration of more frequent dividends, when the bank's directors deem such a course advisable.
Within ten days after a dividend has been declared the president or cashier of the bank must attest to the Comptroller
under oath the amount of the dividend, and the amount of net
earnings in excess of such dividends.
Circumstances in which dividends may not be declared are:
( a ) If the bank's surplus fund is not equal to 20 per cent, of its capital stock, and one-tenth of the net profits f o r the preceding half
year is not carried to surplus.
( b ) W h e n the bank's balance at the Federal Reserve B a n k is below
the amount required by l a w .
( c ) If losses have at any time been sustained equal to or exceeding the
bank's undivided profits then on hand.
(d)
N o dividend shall be made,
to an amount greater than
bank's losses and bad debts.
the N a t i o n a l B a n k A c t are
due and unpaid for a period
well secured, and in process
while a bank continues its operation,
the net profits on hand, minus the
" B a d debts" within the meaning of
those debts on w h i c h interest is past
of six months, unless such debts are
of collection.
A national bank cannot lawfully declare a stock dividend.
(Opinion of the Attorney General, October 26, 1920.) Neither
the surplus fund nor the undivided profits can be used, except
by the declaration of a dividend, in which event the shareholders (if they so desire) may use the dividend checks in
payment of their subscriptions to additional capital.
[ 5 9 ]
LOANS
^.—GRANTED BY A NATIONAL BANK
I. On Improved Farm Land or Other Real
Estate—Until
the passage of the Federal Reserve Act it was not lawful for
a national bank to loan money on real estate. T h e Reserve Act,
however, provided that any national bank not situated in a
central reserve city (i.e., New York, Chicago, or St. Louis)
could make loans secured by improved and unencumbered farm
land situated:
W i t h i n its F e d e r a l R e s e r v e D i s t r i c t :
W i t h i n one hundred miles of the place in which the b a n k is located,
irrespective of district l i n e s ;
and that it could also make loans secured by improved and unencumbered real estate situated:
W i t h i n one h u n d r e d miles of the place in w h i c h the bank is located,
irrespective of district lines.
In all such loans, certain conditions and restrictions must be
observed, viz.:
( a ) T h e r e m u s t be no prior lien upon the land.
( b ) T h e a m o u n t of the loan m u s t not exceed 5 0 % of the a c t u a l v a l u e
of the property o f f e r e d as s e c u r i t y .
( c ) T h e a g g r e g a t e a m o u n t of loans on f a r m land and o t h e r r e a l estate
is limited by the l a w to an a m o u n t n o t in excess of one-third of
the bank's time d e p o s i t s 1 a t the time of the m a k i n g of the loan,
o r o n e - f o u r t h of the capital and s u r p l u s .
( d ) T h e right of a national b a n k t o " m a k e l o a n s " u n d e r this section
of the A c t includes the r i g h t to p u r c h a s e o r d i s c o u n t loans a l r e a d y
made.
( e ) N o loan m a d e upon the s e c u r i t y of f a r m lands s h a l l be f o r l o n g e r
than five y e a r s , and no l o a n m a d e upon the s e c u r i t y of o t h e r real
estate shall be f o r longer than o n e y e a r .
( f ) A l t h o u g h this t i m e limit m u s t be rigidly observed, n e v e r t h e l e s s , at
the expiration of the l e g a l period ( f i v e y e a r s f o r f a r m l a n d and
1
For definition of "time deposits" see "Reserve Requirements," page 75.
[ 6 0 ]
LOANS
one y e a r f o r o t h e r r e a l e s t a t e ) the b a n k m a y p r o p e r l y m a k e a
n e w loan upon the s a m e security f o r a similar period. T h e m a t u r i n g note m u s t be cancelled and a n e w note t a k e n in its place,
b u t if the original m o r t g a g e or deed of t r u s t h a s been d r a w n in
the first instance so as to c o v e r possible f u t u r e r e n e w a l s , a n e w
one need not be m a d e . U n d e r no circumstances m u s t the bank obligate itself in advance t o m a k e r e n e w a l s of such a loan.
(g)
I n o r d e r that r e a l estate loans held by a bank m a y be readily
classified, a statement signed by the officers m a k i n g the loan and
h a v i n g k n o w l e d g e of the f a c t s upon w h i c h it is based, should be
attached to each note s e c u r e d by a first m o r t g a g e on the land by
w h i c h the loan is secured, c e r t i f y i n g in detail as of the date of the
loan that all the r e q u i r e m e n t s of l a w h a v e been d u l y observed.
2. To Bank Examiners—It
is unlawful for a national bank
or any of its officers, directors, or employees to make any loan
or grant any gratuity to a bank examiner.
3. Limitation
to one Person, Company, etc.—The
total
loans of a national bank to any person, company, corporation,
or firm (or to the several members of a company or firm) shall
not at any time exceed 10% of the amount of the capital stock
of the bank, actually paid in and unimpaired, and 10% of its
unimpaired surplus funds. In the following cases, however, the
transaction is NOT considered a loan within the meaning of the
Act:
(a)
D i s c o u n t of bills of e x c h a n g e d r a w n in good f a i t h against a c t u a l
existing v a l u e s i n c l u d i n g :
D r a f t s and bills of exchange secured by shipping
conveying or securing title to goods shipped.
documents
Demand obligations when secured by documents covering commodities in actual process of shipment.
Bankers' acceptances of the kind described in Section 13 of the
Federal Reserve Act (see "Bankers' Acceptances," pages 70, 7 3 ) .
( b ) D i s c o u n t of c o m m e r c i a l or business p a p e r a c t u a l l y o w n e d by the
person, company, corporation, o r firm n e g o t i a t i n g such paper.
( c ) D i s c o u n t of notes secured by shipping documents, w a r e h o u s e receipts o r o t h e r such documents conveying o r s e c u r i n g title c o v e r ing readily m a r k e t a b l e , non-perishable staples, including live stock,
W h e n the actual market v a l u e of the property securing the obligation is not at any time less than 1 1 5 % of the f a c e amount of
the notes secured by such document;
W h e n such property is f u l l y covered by insurance.
[6l]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
( d ) D i s c o u n t of notes a m o u n t i n g to 1 0 % of the bank's c a p i t a l and
surplus, secured by not less t h a n a like face a m o u n t of bonds o r
notes of the U n i t e d States issued since A p r i l 24, 1 9 1 7 . ° r certificates of indebtedness of the U n i t e d S t a t e s .
A national bank may also make loans secured by United States
Bonds and Certificates of Indebtedness issued since April 24,
1917, to an unlimited amount if the par value of the security
is 105% of the face of the loan. This privilege, however,
expires June 30, 1921.
The accommodations under paragraph (c) above cannot
be granted to any one borrower for more than six months in
any consecutive twelve months. Furthermore, the aggregate of
such accommodations for each borrower, added to direct loans
to the same borrower which are subjcct to the limit of 10%
of the capital and surplus, must not exceed 25% of the bank's
paid-in unimpaired capital stock and surplus.
4. On Capital Stock— It is unlawful for a national bank to
make any loans or discounts on the security of the shares of its
own capital stock.
Some examples of what a national bank may lend at any one time to any
one customer under the amendment to section 5200, of October 22, i9'9>
expressed in terms of percentage of the bank's capital and surplus.
1
[
Example ijExample 2.ExampIe 3 Example 4
Accommodation or straight loans, or
loans secured by shares of stock,
bonds, or authorized real estate
mortgages
10%
5%
5%
0%
Notes secured by warehouse
etc
15%
20%
15%
25%
10%
10%
15%
10%
35%
35%
j 5%
35%
receipts,
Notes secured by a like face amount of
Government obligations
Total
Bills of exchange drawn against actually existing values
N o limit imposed by l a w .
<*
(i
it
Commercial or business paper
Notes secured by a t least 105% specified United States Government obligations
«
[ 6 2 ]
t<
M
LOANS
5. Fees to Bank Officers or Employees—No
officer, director,
employee, or attorney of a national bank may receive or consent to receive any fee, commission, gift or thing of value from
any person or firm for procuring or endeavoring to procure a
loan from the bank.
6. Balance at Federal Reserve Bank—The
balance which
an individual bank is required to carry with the Federal Reserve
Bank of its district may be checked against and withdrawn by
the member bank for the purpose of meeting an existing liabiliity, but no bank shall at any time make new loans (or pay any
dividends) until the total balance required by law is fully restored. (See "Reserve Requirements," page 75.)
7. United States Notes as Collateral—No
national bank
may offer or receive United States notes, or national bank
notes, as security for any loan.
B.—GRANTED
TO A NATIONAL BANK
1. By Federal Reserve Bank—A Federal Reserve Bank may
make loans to its members, on their promissory notes, for a
period not exceeding 15 days, provided the promissory notes
so given are secured by paper eligible for rediscount or purchase by the Federal Reserve Bank, or by bonds or notes of the
United States, or bonds of the W a r Finance Corporation.
(See page 67 ff.)
2. Limitation of Indebtedness—No
national bank can at any
time lawfully be indebted to an amount exceeding its capital
stock actually paid in and remaining undiminished by losses or
otherwise, except on account of demands of the nature following :
(a)
N o t e s of circulation.
( b ) M o n e y deposited w i t h or collected by the association.
( c ) Bills of exchange or d r a f t s d r a w n against money actually on deposit to the credit of the association, o r due thereto.
( d ) Liabilities to the stockholders of the association f o r dividends
and reserve profits.
[ 6 3 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
( e ) Liabilities incurred under the provisions of the F e d e r a l Reserve
Act.
( f ) Liabilities incurred under the provisions of the W a r Finance C o r poration A c t .
( g ) Liabilities created by the indorsement of accepted bills of exchange
payable abroad actually owned by the indorsing bank and discounted at home o r abroad.
INTEREST
1. Legal Rate—The legal rate of interest for a national bank
is governed by the laws of the state in which the bank is located.
Where the laws of a state fix a different interest rate for banks
of issue organized under state laws, national banks are allowed
the same rate. If the state laws do not fix an interest limit, a
national bank may charge a rate not exceeding 7 per cent.
Such interest may be taken in advance.
T h e purchase, discount, or sale of a bona fide bill of exchange, payable at a place other than the place of such purchase, discount, or sale, at not more than the current rate of
exchange for sight drafts in addition to the interest, shall not
be considered as taking a greater rate of interest.
A national bank in making contracts for interest on loans is
placed on an equal footing with the citizens and with the banks
organized under the laws of the state in which it is located. The
national bank may contract for, charge, and receive a rate of
interest on a loan made to a resident of another state, at a rate
allowed by the laws of that state, even though such rate is
greater than that prescribed by or expressed in the laws of the
state in which the bank is located, provided
( a ) T h a t the note or contract evidencing the loan is made payable or
is to be performed in the state authorizing the greater rate,
( b ) A n d that the transaction is made in good faith.
2. On Deposits—Neither
the Federal Reserve nor the National Bank Act authorizes a national bank to operate a savings
department. Since the capital, deposits and other funds of a
national bank may be invested only in conformity with Federal
law, the Comptroller's office holds that the sole business of a
savings bank which can be legally transacted by a national bank
is the paying of interest on deposits. T h e Federal Reserve
Board rules that the term "Savings Account" shall be held to
include those accounts of the bank in respect to which, by its
printed regulations, accepted by the depositor at the time the
account is opened—
[65]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
( a ) T h e pass book, certificate, o r other similar f o r m of receipt must
be presented to the bank w h e n e v e r a deposit o r w i t h d r a w a l is
made, and
( b ) T h e depositor may at any time be required by the bank to give
notice of an intended w i t h d r a w a l not less than 30 days before a
w i t h d r a w a l is made.
In an opinion rendered by counsel for the Federal Reserve
Board it is held that the Federal law governing the establishment and operation of national banks is superior to any State
law so governing. Congress having conferred on national
banks the power to pay interest on time deposits (See "Reserve
Requirements"), no state can interfere with this right or with
the bank's evident right to advertise for and solicit accounts
of such a nature.
3. To Officers, Directors, etc.— N o bank which is a member
of the Federal Reserve System can pay to any of its directors,
officers, attorneys, or employees, a rate of interest on deposits
greater than is paid to any other of the bank's depositors.
[ 6 6 ]
PAPER
ELIGIBLE
FOR
REDISCOUNT
PURCHASE BY FEDERAL RESERVE
AND
BANKS
P
A P E R which the various Federal Reserve Banks discount
and buy falls into three general classifications:
I. Notes, drafts, bills of exchange, trade acceptances
and six months' agricultural paper eligible for rediscount by the Federal Reserve Banks.
II. Bankers' acceptances eligible for rediscount by the
Federal Reserve Banks.
III. Bills of exchange, trade acceptances and bankers'
acceptances purchased in the open market by the
Federal Reserve Bank.
Since the circumstances governing the discount, rediscount and
sale of the various types of this paper depend largely upon rulings of the Federal Reserve Board, and since these rulings must
of necessity be changed from time to time, it would be impractical for the purposes of this book to minutely detail them here.
T h e question of acceptance of drafts or bills of exchange for
the purpose of creating dollar exchange is not discussed at all
because, although the pertinent rulings are of vital interest to
a few banks, the type of paper represented is not of interest to
any great number of banks as acceptors.
In the discussion of the other three general classes of paper
that follows, the purpose is to set forth the fundamental
principles underlying banking practice in this regard, as allowable under the Federal Reserve Act and rulings of the Federal
Reserve Board, rather than to give a detailed analysis of all
the governing conditions. This latter named phase of the subject is covered in pamphlet form by the Federal Reserve Board
itself, and a copy of the current regulations of this body is, of
course, at all times in the hands of every member bank.
[ 6 7 ]
N A T I O N A L B A N K I N G UNDER THE FEDERAL RESERVE SYSTEM
I
Notes,
drafts, bills of exchange,
six months' agricultural
trade acceptances
paper eligible
by the Federal
Reserve
for
and
rediscount
Banks
Definitions as laid down by the Federal Reserve Board:
Promissory Note—An
unconditional promise, in w r i t i n g , signed by the
maker, to pay, in the U n i t e d States, at a fixed or determinable f u t u r e
time, a sum certain in dollars to order o r to bearer.
Draft or Bill of Exchange—An
unconditional order, in w r i t i n g , addressed by one person to another, signed by the person giving it, requiring the person to w h o m it is addressed to pay in the United States,
at a fixed o r determinable f u t u r e time, a sum certain in dollars to the
order of a specified person.
Trade Acceptance—A
d r a f t or bill of exchange, d r a w n by the seller on
the purchaser, of goods sold, and accepted by the purchaser.
Six Months' Agricultural
Paper—A
note, d r a f t , bill of exchange, o r
trade acceptance, d r a w n or issued f o r a g r i c u l t u r a l purposes, o r based
on live s t o c k ; that is, a note, d r a f t , bill of exchange, o r trade acceptance, the proceeds of which h a v e been used, or are to be used, f o r
agricultural purposes, including the breeding, raising, fattening, o r
marketing of live stock, and w h i c h has a m a t u r i t y at the time of discount of not more than six months, exclusive of days of grace.
The Federal Reserve Act provides that any Federal Reserve
Bank may discount for any of its member banks any note, draft,
or bill of exchange, provided:
( a ) I t has a maturity at the time of discount of not more than 90
days, exclusive of days of g r a c e ; b u t if d r a w n o r issued f o r agricultural purposes o r based on live stock, it may have a m a t u r i t y
a t the time of discount of not m o r e than six months, exclusive of
days of grace.
( b ) I t arose out of actual commercial transactions; that is, it m u s t be
a note, d r a f t , o r bill of exchange w h i c h has been issued or d r a w n
f o r agricultural, industrial, or commercial purposes, o r the p r o ceeds of which have been used or are to be used f o r such purposes.
(c)
I t w a s not issued f o r c a r r y i n g or t r a d i n g in stocks, bonds, o r other
investment securities, except bonds and notes of the G o v e r n m e n t
of the United States.
( d ) T h e aggregate of notes, d r a f t s , and bills bearing the signature o r
indorsement of any one b o r r o w e r , w h e t h e r a person, company,
firm, o r corporation, rediscounted f o r any one member b a n k ,
[ 6 8 ]
PAPER REDISCOUNTED AND BOUGHT BY FEDERAL RESERVE B A N K S
w h e t h e r State o r N a t i o n a l , shall at
the unimpaired capital and surplus
tion shall not apply to the discount
good f a i t h against actually existing
no time exceed 10 per cent, of
of such bank, b u t this restricof bills of exchange d r a w n in
values.
( e ) I t is indorsed by a member bank.
( f ) I t conforms to all applicable provisions of the F e d e r a l R e s e r v e
B o a r d ' s regulations.
N o Federal Reserve Bank may discount for any member state
bank or trust company any of the notes, drafts, or bills of any
one borrower who is liable for borrowed money to such state
bank or trust company in an amount greater than i o f t of
the capital and surplus of that state bank or trust company,
but in determining the amount of money borrowed from such
state bank or trust company the discount of bills of exchange
drawn in good faith against actually existing value and the discount of commercial or business paper actually owned by the
person negotiating the same shall not be included.
Any Federal Reserve Bank may make advances to its member banks on their promissory notes for a period not exceeding
15 days, provided that they are secured by notes, drafts, bills
of exchange, or bankers' acceptances which are eligible for
rediscount or for purchase by Federal Reserve Banks, or by
the deposit or pledge of bonds or notes of the United States,
or bonds of the W a r Finance Corporation.
T h e Federal Reserve Board, exercising its statutory right
to define the character of a note, draft, or bill of exchange
eligible for rediscount at a Federal Reserve Bank, has determined that
( a ) I t must be a note, d r a f t , o r bill of exchange w h i c h has been issued
o r d r a w n , or the proceeds of w h i c h have been used or are to be
used in the first instance in producing, purchasing, carrying, o r
m a r k e t i n g goods in one o r m o r e of the steps of the process of
production, m a n u f a c t u r e , o r distribution, o r f o r the purpose of
c a r r y i n g o r trading in bonds or notes of the United States.
( b ) I t must not be a note, d r a f t , o r bill of exchange the proceeds of
w h i c h h a v e been used o r are to be used f o r permanent o r fixed
investments of any kind, such as land, buildings, o r machinery, o r
f o r any other capital purpose.
( c ) I t m u s t not be a note, d r a f t , o r bill of exchange the proceeds of
w h i c h have been used o r a r e to be used f o r investment of a purely
[ 6 9 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
speculative c h a r a c t e r o r f o r the purpose of lending to s o m e o t h e r
borrower.
( d ) I t may be secured by the pledge of g o o d s o r c o l l a t e r a l of
n a t u r e , including paper, w h i c h is ineligible f o r rediscount,
vided
it
(the
note, d r a f t ,
or
bill
of
exchange)
is
any
pro-
otherwise
eligible.
Special conditions of eligibility for discount at the Federal
Reserve Bank are applied in the case of each class of paper.
II
Bankers'
acceptances
eligible
by the Federal
Reserve
for
rediscount
Banks
D e f i n i t i o n : A banker's acceptance w i t h i n the meanings of the F e d e r a l R e serve B o a r d Regulations, is defined as a d r a f t o r bill of e x c h a n g e , w h e t h e r
payable in the U n i t e d States o r a b r o a d , and w h e t h e r payable in d o l l a r s o r
some other money, of w h i c h the a c c e p t o r is a bank o r t r u s t c o m p a n y , o r a
firm, person, company, o r corporation engaged g e n e r a l l y in the business of
g r a n t i n g bankers' acceptance credits.
A Federal Reserve Bank may rediscount any such bill having
a maturity at the time of discount of not more than three
months, exclusive of days of grace, which has been drawn
under a credit opened for the purpose of conducting or settling
accounts resulting from a transaction or transactions involving
any one of the following:
( a ) T h e shipment of goods b e t w e e n the U n i t e d S t a t e s and any f o r eign country, o r b e t w e e n the U n i t e d States o r any of its dependencies, or b e t w e e n f o r e i g n c o u n t r i e s ;
( b ) T h e shipment of goods w i t h i n the U n i t e d S t a t e s , p r o v i d i n g shipping documents conveying s e c u r i t y title are attached at the t i m e
of acceptance;
( c ) T h e storage of readily m a r k e t a b l e s t a p l e s , 1 p r o v i d i n g the
bill
is secured a t the time of acceptance by a w a r e h o u s e receipt, o r
o t h e r such document conveying security title.
In order to be eligible, acceptances for any one customer in
1
See note, page 73.
[ 7 0 ]
PAPER REDISCOUNTED AND BOUGHT BY FEDERAL RESERVE B A N K S
excess of 10 per cent, of the capital and surplus of the accepting bank must remain actually secured throughout the life of
the acceptance. In the case of acceptances of member banks
this security must consist of shipping documents, warehouse
receipts or other such documents, or some other actual security
growing out of the same transaction as the acceptance.
Although a Federal Reserve Bank may legally rediscount an
acceptance having a maturity at the time of not more than
three months, exclusive of days of grace, it may decline to rediscount any acceptance the maturity of which is in excess of
the usual or customary period of credit required to finance the
underlying transaction or which is in excess of that period reasonably necessary to finance such transaction.
Special conditions of eligibility for rediscount by the Federal
Reserve Bank are laid down in greater detail by the Federal
Reserve Board.
ILL
Bills
of exchange, trade acceptances, and bankers'
ceptances purchased in the open market
by the Federal Reserve Bank
ac-
T h e Federal Reserve Banks may, under rules and regulations
prescribed by the Federal Reserve Board, purchase and sell in
the open market, at home or abroad, from or to domestic or
foreign banks, firms, corporations, or individuals, bankers'
acceptances and bills of exchange of the kinds and maturities
made eligible by the Federal Reserve Act for rediscount, with
or without the indorsement of a member bank. As a matter of
fact, the bulk of the Federal Reserve Banks' transactions in
paper of this sort consists in sales and purchases in the open
market, under the section of the Act so permitting.
T h e Federal Reserve Board has determined that a bill of
exchange or acceptance to be eligible for purchase by Federal
Reserve Banks under this provision of the Federal Reserve Act
must
[71]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
( a ) C o n f o r m t o the relative r e q u i r e m e n t s of the B o a r d ' s R e g u l a t i o n
A.
( R e v i e w e d briefly b u t not completely in Section I o f
C h a p t e r , " N o t e s , d r a f t s , bills of e x c h a n g e , " etc.)
this
Exception:
A banker's acceptance g r o w i n g out of a transaction i n v o l v i n g
the storage within the United States of goods which h a v e been
actually sold, may be purchased, providing that the acceptor is
secured by the pledge of such goods and, providing further, that
the bill conforms in other respects to the relative requirements
of Regulation A .
( b ) M u s t h a v e a m a t u r i t y a t t h e time of p u r c h a s e of not m o r e than
90 days, exclusive of days o f g r a c e , unless it is a bill d r a w n on a
b a n k e r , w h e n it m a y h a v e a m a t u r i t y of t h r e e months, e x c l u s i v e
of days of g r a c e .
( c ) M u s t h a v e been accepted by the d r a w e e p r i o r to p u r c h a s e by a
F e d e r a l R e s e r v e B a n k , unless it is either accompanied and secured
by shipping documents, o r by a w a r e h o u s e , t e r m i n a l , o r
other
similar receipt conveying s e c u r i t y title, o r b e a r s a s a t i s f a c t o r y
banking endorsement.
ACCEPTANCE BY MEMBER BANKS
DRAFTS A N D BILLS OF
OF
EXCHANGE
Under the Federal Reserve Act any member bank may accept
drafts or bills of exchange drawn upon it having not more
than six months to run, exclusive of days of grace, which grow
out of a transaction, or transactions, involving any one of the
following:
( a ) T h e i m p o r t a t i o n o r e x p o r t a t i o n of g o o d s .
(b)
D o m e s t i c shipment of goods, p r o v i d i n g shipping documents conv e y i n g or securing title a r e attached a t the time of acceptance.
( c ) T h e s t o r a g e of r e a d i l y m a r k e t a b l e s t a p l e s , 1 p r o v i d i n g t h a t the
bill is secured at the time o f acceptance by a w a r e h o u s e receipt,
o r other such d o c u m e n t conveying o r s e c u r i n g title.
T h e Act limits the aggregate which any bank shall accept without security for any one person, company, firm, or corporation
to an amount not exceeding at any time 10% of the bank's
paid-up and unimpaired capital stock and surplus. This limit,
however, does not apply in any case where the accepting bank
remains secured either by attached documents or by some other
actual security growing out of the same transaction as the
acceptance.
Such bills may be accepted by a member bank up to an
amount not exceeding at any time more than one-half of the
bank's paid-up and unimpaired capital stock and surplus; or,
with the approval of the Federal Reserve Board, up to an
amount not exceeding at any time more than one hundred per
cent, of the bank's paid-up and unimpaired capital stock and
surplus.
In no event shall the aggregate amount of the acceptances
growing out of domestic transactions exceed fifty per cent, of
the bank's capital stock and surplus.
1 A
readily marketable staple within the meaning of these regulations may
be defined as an article of commerce, agriculture, or industry of such uses as to
make it the subject of constant dealings in ready markets with such frequent
quotations of price as to make ( i ) the price easily and definitely ascertainable
and (2) the staple itself easy to realize upon by sale at any time.
[ 7 3 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
T h e Federal Reserve Board has determined that any member bank, having an unimpaired surplus equal to at least twenty
per cent, of its paid-up capital, which desires to accept drafts
or bills of exchange drawn for the purposes described above,
up to an amount not exceeding at any time one hundred per
cent, of its paid-up and unimpaired capital stock and surplus,
may file an application for that purpose with the Federal Reserve Board. Such application must be forwarded through the
Federal Reserve Bank of the district in which the applying
bank is located.
T h e approval of any such application may be rescinded upon
90 days' notice to the bank affected.
T h e Reserve Bank requires certain evidences of eligibility,
and although the member banks may accept paper having six
months to run, it is not eligible for rediscount at the Federal
Reserve Bank until such time as it has a maturity of not more
than three months, exclusive of days of grace.
[ 7 4 ]
RESERVE
REQUIREMENTS
E
V E R Y member bank in the Federal Reserve System is
required to keep on deposit at the Federal Reserve Bank
of its district certain cash reserve balances which are designated in the paragraphs following.
"Demand deposits,"
within the meaning of the act, comprise all deposits payable
within 30 days; "time deposits" comprise all deposits payable
after 30 days and all savings accounts and certificates of deposit subject to not less than 30 days' notice before payment,
and all postal savings deposits.
1. Reserve Requirements for Banks not in Reserve
Cities1
— N o t less than 7 per cent, of the aggregate amount of demand deposits and 3 per cent, of its time deposits.
2. Reserve Requirements
for Banks in Reserve
Cities—
N o t less than 10 per cent, of demand deposits and 3 per cent,
of time deposits.
Exception:
If located in the o u t l y i n g districts of a r e s e r v e city o r in t e r r i t o r y
added to such a city by extension of its c o r p o r a t e c h a r t e r , the b a n k
m a y upon the affirmative v o t e o f five m e m b e r s of the F e d e r a l R e s e r v e
B o a r d , m a i n t a i n the r e s e r v e balances specified in P a r a g r a p h 1 above.
3. Reserve Requirements
for Banks in Central
Reserve
Cities—Not
less than 13 per cent, of demand deposits and
3 per cent, of time deposits.
1Central
Reserve Cities—New
Y o r k , Chicago, St. Louis.
Reserve Cities—Boston,
A l b a n y , Brooklyn and Bronx, Buffalo, Philadelphia,
Pittsburgh, Baltimore, Washington, Richmond, Charleston, A t l a n t a , Savannah
( w a s a Reserve City, but there are no national banks there at present, Jan. i ,
1921), Jacksonville, Birmingham, N e w Orleans, D a l l a s , El Paso, Fort W o r t h ,
Galveston, Houston, San Antonio, W a c o , Little Rock, Louisville, Chattanooga,
Memphis, Nashville, Cincinnati, C l e v e l a n d , Columbus, T o l e d o , Indianapolis,
Peoria, Detroit, G r a n d Rapids, M i l w a u k e e , Minneapolis, St. Paul, C e d a r Rapids,
Des Moines, Dubuque, Sioux City, K a n s a s City, Mo., St. Joseph, Lincoln, Omaha,
K a n s a s City, Kans., T o p e k a , W i c h i t a , Denver, Pueblo, Muskogee, Oklahoma
City, T u l s a , Seattle, Spokane, T a c o m a , Portland, Los A n g e l e s , Oakland, San
Francisco, O g d e n , Salt Lake City.
[ 7 5 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
Exception:
If located in the outlying districts of a central reserve city o r in
territory added to such city by the extension of its corporate charter,
the bank may, upon the affirmative v o t e of five members of the F e d e r a l
Reserve Board, maintain the reserve balances specified in P a r a g r a p h s
i o r 2 above.
A member bank's balance at its Federal Reserve Bank may
under certain conditions be checked against and withdrawn for
the purpose of meeting existing liabilities. (See "Loans," Paragraph 6.)
N o bank that is a member of the Federal Reserve System
may keep on deposit with any state bank or trust company
which is not a member of the system, a sum exceeding 10 per
cent, of its own paid capital and surplus. N o member bank may
act as the medium or agent of a non-member bank in applying
for or receiving discounts from the Federal Reserve Bank, except by permission of the Federal Reserve Board.
[76]
CHECK
CLEARING
AND
COLLECTION
H E following is an abridged transcript of the Federal
Reserve Board's Regulation J, Series of 1920.
Section 16 of the Federal Reserve Act authorizes the Federal Reserve Board to require each Federal Reserve Bank to
exercise the function of a clearing house for its member banks,
and section 13 of the Federal Reserve Act, as amended by the
Act approved June 21, 1917, authorizes each Federal Reserve
Bank to receive from any nonmember bank or trust company,
solely for the purposes of exchange or of collection, deposits
of current funds in lawful money, national bank notes, Federal
Reserve notes, checks, and drafts payable upon presentation,
or maturing notes and bills, provided such nonmember bank
or trust company maintains with its Federal Reserve Bank a
balance sufficient to offset the items in transit held for its account by the Federal Reserve Bank.
In pursuance of the authority vested in it under these provisions of law, the Federal Reserve Board has arranged to have
each Federal Reserve Bank exercise the functions of a clearing
house for member banks that desire to avail themselves of its
privileges and for nonmember state banks and trust companies
that maintain with the Federal Reserve Bank balances sufficient
to qualify them to send items for exchange or for collection.
Such nonmember State banks and trust companies will hereinafter be referred to in this regulation as nonmember clearing
banks.
Each Federal Reserve Bank shall exercise the functions of a
clearing house under the following general terms and conditions :
1 — E a c h F e d e r a l R e s e r v e B a n k w i l l receive a t p a r f r o m its m e m b e r
banks and f r o m n o n m e m b e r c l e a r i n g b a n k s in its district, c h e c k s 1
d r a w n on all m e m b e r and n o n m e m b e r c l e a r i n g banks and on
1 A check is generally defined as a d r a f t or order upon a bank or banking
house, purporting to be d r a w n upon a deposit of funds, f o r the payment at all
events of a certain sum of money to a certain person therein named, or to him
or his order, or to bearer, and payable instantly on demand.
[ 7 7 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
all o t h e r nonmember banks w h i c h agree to remit at p a r t h r o u g h
the F e d e r a l R e s e r v e B a n k of their district.
2 — E a c h F e d e r a l R e s e r v e B a n k w i l l receive at p a r f r o m o t h e r F e d eral R e s e r v e B a n k s , and f r o m all m e m b e r and n o n m e m b e r c l e a r ing banks, regardless of their location, f o r the c r e d i t of their
account w i t h t h e i r respective F e d e r a l R e s e r v e B a n k s , checks
d r a w n upon all m e m b e r and n o n m e m b e r c l e a r i n g b a n k s of its
district and upon all other n o n m e m b e r banks of its district w h o s e
checks a r e collected at p a r by the F e d e r a l R e s e r v e B a n k s .
3 — I m m e d i a t e credit entry upon receipt s u b j e c t to final p a y m e n t w i l l
be m a d e f o r all such items upon the books of the F e d e r a l R e s e r v e
B a n k a t f u l l face value, b u t the proceeds w i l l not be c o u n t e d as
p a r t of the m i n i m u m r e s e r v e n o r become a v a i l a b l e to m e e t checks
d r a w n until such time as m a y be specified in the a p p r o p r i a t e time
schedule r e f e r r e d to in subdivision 7.
4 — C h e c k s received by a F e d e r a l R e s e r v e B a n k on its m e m b e r o r
n o n m e m b e r clearing banks w i l l be f o r w a r d e d d i r e c t t o such
banks and w i l l not be c h a r g e d t o their accounts, until sufficient
time has elapsed w i t h i n w h i c h to receive advice of p a y m e n t , as
s h o w n by the appropriate t i m e schedule r e f e r r e d to in subdivision 7.
•
5 — U n d e r this plan each F e d e r a l R e s e r v e B a n k w i l l receive a t p a r
f r o m its m e m b e r and n o n m e m b e r c l e a r i n g b a n k s checks on all
m e m b e r and n o n m e m b e r c l e a r i n g banks and on all o t h e r nonm e m b e r banks w h o s e checks can be collected a t p a r by any
F e d e r a l R e s e r v e B a n k . M e m b e r and n o n m e m b e r c l e a r i n g b a n k s
w i l l be required by the F e d e r a l R e s e r v e B o a r d to provide f u n d s
to c o v e r a t par all checks received f r o m o r f o r the account of
their F e d e r a l R e s e r v e B a n k s : P r o v i d e d , h o w e v e r , T h a t a m e m ber o r n o n m e m b e r c l e a r i n g b a n k m a y ship c u r r e n c y o r specie f r o m
its o w n v a u l t s at the expense of its F e d e r a l R e s e r v e B a n k t o c o v e r
any deficiency w h i c h m a y arise because of and only in the case of
inability to provide items to o f f s e t checks received f r o m o r f o r the
account of its F e d e r a l R e s e r v e B a n k . 1
6 — S e c t i o n 19 of the F e d e r a l R e s e r v e A c t provides t h a t —
T h e r e q u i r e d balance c a r r i e d by a m e m b e r b a n k w i t h a F e d e r a l
R e s e r v e B a n k m a y , u n d e r the r e g u l a t i o n s and s u b j e c t t o such
penalties as m a y be prescribed by the F e d e r a l R e s e r v e B o a r d , be
checked against and w i t h d r a w n by such m e m b e r b a n k f o r the
' I n accordance w i t h instructions issued b y the Federal Reserve B o a r d on
A p r i l 24, 1917, the various Federal Reserve Banks h a v e issued circulars setting
forth the conditions under which their respective member banks may d r a w d r a f t s
on their Reserve B a n k accounts payable with or through any other Federal
Reserve B a n k .
C H E C K CLEARING AND COLLECTION
purpose of meeting existing liabilities: Provided, h o w e v e r , T h a t
no bank shall at any time m a k e n e w loans o r shall pay any dividends unless and until the total balance required by l a w is f u l l y
restored.
Items cannot be counted as p a r t of the minimum reserve balance
to be carried by a member bank w i t h its F e d e r a l R e s e r v e B a n k
until such time as may be specified in the appropriate time
schedule referred to in subdivision 7. T h e r e f o r e , should a
member bank d r a w against items b e f o r e such time, the d r a f t
w o u l d be charged against its reserve balance if such balance w e r e
sufficient in amount to pay i t ; but any resulting impairment of
reserve balances w o u l d be subject to all the penalties provided by
the A c t and by the F e d e r a l R e s e r v e B o a r d .
7 — E a c h F e d e r a l R e s e r v e B a n k w i l l determine by analysis the
amounts of uncollected funds appearing on its books to the credit
of each member bank. Such analysis w i l l show the true status of
the reserve held by the F e d e r a l R e s e r v e B a n k f o r each member
bank and w i l l enable it to apply the penalty f o r impairment of
reserve.
E a c h F e d e r a l Reserve B a n k w i l l publish time schedules showing
the time at which any item sent to it w i l l be counted as reserve
and become available to meet any checks d r a w n .
8 — I n handling items f o r member and nonmember clearing banks, a
F e d e r a l R e s e r v e B a n k w i l l act as agent only. T h e board w i l l
require that each member and nonmember clearing bank authorize its F e d e r a l R e s e r v e B a n k to send checks f o r collection to
banks on which checks are d r a w n , and, except f o r negligence,
such F e d e r a l R e s e r v e B a n k w i l l assume no liability. A n y f u r t h e r
requirements that the B o a r d may deem necessary w i l l be set
f o r t h by the F e d e r a l R e s e r v e B a n k s in their letters of instruction
to their member and nonmember clearing banks. E a c h F e d e r a l
R e s e r v e B a n k w i l l also promulgate rules and regulations governing the details of its operations as a clearing house, such rules
and regulations to be binding upon all member and nonmember
banks w h i c h are clearing t h r o u g h the F e d e r a l R e s e r v e B a n k .
INTERLOCKING
BANK
UNDER THE
DIRECTORATES
CLAYTON
ACT
(FEDERAL RESERVE BOARD REGULATION L , SERIES OF 1920)
Definitions applicable to this regulation:
Member
bank—Any
national b a n k and any state bank or t r u s t com-
pany which is a member of the F e d e r a l R e s e r v e System.
National
bank—National
banking associations, and all banks and trust
companies doing business in the D i s t r i c t of C o l u m b i a .
Resources—An
amount equal t o the sum of
the deposits,
capital,
surplus, and undivided profits.
State bank—Any
bank, banking association, or t r u s t company incorporated under state l a w .
Private banker—Any
unincorporated individual e n g a g i n g in one or
more phases of the banking business and to any m e m b e r of an unincorporated f i r m engaging in such business.
Edge Act—Section
25 ( a ) of the F e d e r a l R e s e r v e A c t , as amended
D e c e m b e r 24, 1919.
Edge Corporation—Any
the E d g e A c t .
corporation o r g a n i z e d u n d e r the provisions of
City of over 200,000 inhabitants—any
city, incorporated t o w n , or
village of more than 200,000 inhabitants, as s h o w n by the l a s t preceding decennial census of the U n i t e d States. A n y b a n k located a n y w h e r e
within the corporate limits of such city is located in a city of o v e r
200,000 inhabitants within the meaning of the C l a y t o n A c t , even
though it is located in a suburb o r an outlying district at some distance
f r o m the principal p a r t of the city.
Prohibitions
of Clayton
Act
THE Clayton Antitrust Act lays down three specific conditions
in which directors of one bank are forbidden to be directors of
another bank, viz.:
1 — N o person w h o is a director o r o t h e r officer o r employee of a
national bank o r E d g e C o r p o r a t i o n h a v i n g resources a g g r e g a t i n g
m o r e than $5,000,000 can legally s e r v e a t the s a m e t i m e as
director, officer, o r employee of any o t h e r national b a n k o r E d g e
C o r p o r a t i o n , regardless of its location.
2 — N o person w h o is a director in a state b a n k o r t r u s t company
h a v i n g resources a g g r e g a t i n g m o r e than $5,000,000, o r w h o is a
[80]
INTERLOCKING B A N K DIRECTORATES UNDER THE CLAYTON A C T
private banker having resources aggregating more than $5,000,000,
can legally serve at the same time as director of any national bank
o r E d g e Corporation, regardless of its location.
3 — N o person can legally be a director, officer, o r employee of a
national bank or E d g e C o r p o r a t i o n located in a city of more than
200,000 inhabitants w h o is at the same time a private banker in
the same city o r a director, officer, or employee of any other bank
(state o r national) located in the same city, regardless of the size
of such bank.
T h e eligibility of a director, officer, or employee under the foregoing provisions is determined by the average amount of deposits, capital, surplus, and undivided profits as shown in the
official statements of such bank, banking association, or trust
company filed as provided by law during the fiscal year next
preceding the date set for the annual election of directors, and
when a director, officer, or employee has been elected or
selected in accordance with the provisions of the Clayton Act
it is lawful for him to continue as such for one year thereafter
under said election or employment.
When any person elected or chosen as a director, officer, or
employee of any bank is eligible at the time of his election or
selection to act for such bank in such capacity his eligibility to
act in such capacity is not affected by reason of any change in
the affairs of such bank from whatsoever cause, until the expiration of one year from the date of his election or employment.
Exceptions:
1 — T h e provisions of the C l a y t o n A c t do not apply to m u t u a l savings
banks not having a capital stock represented by shares.
2 — D o not prohibit a person f r o m being at the same time a director,
officer, o r employee of a national bank o r E d g e C o r p o r a t i o n and
not more than one other national bank, E d g e C o r p o r a t i o n , State
bank, or trust company, w h e r e the entire capital stock of one is
o w n e d by the stockholders of the other.
3 — D o not prohibit a person f r o m being a t the same time a class A
director of a F e d e r a l R e s e r v e B a n k and also an officer o r director,
o r both an officer and a director, in one m e m b e r bank.
4 — D o not prohibit a person w h o is serving as director of a national
bank, o r E d g e C o r p o r a t i o n , even though it has resources a g g r e g a t i n g o v e r $5,000,000, f r o m serving at the same time as director
[ 8 I ]
N A T I O N A L B A N K I N G UNDER THE FEDERAL RESERVE SYSTEM
of any number of state banks and trust companies, provided such
state institutions are not located in the same city of over 200,000
inhabitants as the national bank or E d g e C o r p o r a t i o n , and do not
have resources aggregating in the case of any one bank m o r e than
$5,000,000.
5 — D o not prohibit a person f r o m serving at the same time as
director, officer, o r employee of any number of national banks,
provided no t w o of them are located in the same city of o v e r
200,000 inhabitants and no one of them has resources aggregating
over $5,000,000.
6 — D o not prohibit a person w h o is not a director, officer, or
employee of any national bank o r E d g e corporation f r o m serving
at the same time as officer, director, or employee of any number
of state banks o r trust companies, regardless of their locations
and resources.
7 — D o not prohibit a person w h o is an officer or employee but not a
director of a state bank f r o m serving as director, officer, o r
employee of a national bank, o r E d g e C o r p o r a t i o n , even though
such state bank has resources aggregating o v e r $5,000,000, provided both banks are not located in the same city of o v e r 200,000
inhabitants.
8 — D o not prohibit a person w h o is an officer o r employee but not a
director of a national bank o r E d g e C o r p o r a t i o n f r o m serving at
the same time as director, officer, o r employee of a State bank,
even though such State bank has resources a g g r e g a t i n g o v e r $5,000,000, provided both banks are not located in the same city
of over 200,000 inhabitants.
9 — D o not
approval
the K e r n
the E d g e
apply to persons w h o have obtained the consent o r
of the F e d e r a l R e s e r v e B o a r d under the provisions of
amendment, section 25 of the F e d e r a l R e s e r v e A c t o r
A c t as h e r e i n a f t e r provided.
T h e s e exceptions are cumulative.
Permission of the Federal Reserve
under Kern
Amendment
Board
BY the Kern amendment the Clayton Act now authorizes the
Federal Reserve Board to permit any private banker or any
officer, director, or employee of any member bank or class A
director of a Federal Reserve Bank to serve as director, officer,
or employee of not more than two other banks, banking associations, or trust companies coming within the prohibitions of
INTERLOCKING B A N K DIRECTORATES UNDER THE C L A Y T O N A C T
the Clayton Act, provided such other banks are not in substantial competition with such private banker or member bank.
Substantial competition—If
the institutions involved are not
in substantial competition, the Board is authorized, in its discretion, to grant, withhold, or revoke such consent; but if they
are in substantial competition, the Board has no discretion in
the matter and must refuse such consent.
When obtained—Inasmuch as the Kern amendment excepts
from the prohibitions of the Clayton Act only those "who shall
first procure the consent of the Federal Reserve Board," it is
a violation of the law to serve two or more institutions in the
prohibited classes before such consent has been obtained. Such
consent should be obtained, therefore, before becoming an
officer, director, or employee of more than one bank in the
prohibited classes. Such consent may be procured before the
person applying therefor has been elected as a class A director
of a Federal Reserve Bank or as a director of any member
bank.
Approval or disapproval—As
soon as an application is acted
upon by the Board, the applicant will be advised of the action
taken.
If the Board approves the application, a formal certificate
of permission to serve on the banks involved will be issued to
the applicant.
Rehearing—If
the Board decides that the banks are in substantial competition and that it cannot approve the application,
it will, upon petition of the applicant, reconsider its decision and
afford him every opportunity to present any additional facts
or arguments bearing on the subject.
Effect of permits—Permission
once granted is continuing
until revoked, and need not be renewed.
Revocation—All
permits, however, are subject to revocation
at any time in the discretion of the Federal Reserve Board.
T h e issuance of a permit to any person shall have the effect of
[ 8 I ]
N A T I O N A L B A N K I N G UNDER THE FEDERAL RESERVE SYSTEM
revoking any or all permits which may have been issued previously to that person.
Permits
under Section 25 of the Federal
Reserve
Act
WITH the approval of the Federal Reserve Board, any director, officer, or employee of a member bank which has invested
in the stock of any corporation principally engaged in international or foreign banking or financial operations or banking
in a dependency or insular possession of the United States,
under the provisions of section 25 of the Federal Reserve Act,
may serve as director, officer, or employee of any such foreign
bank or financial corporation.
Applications
for approval—The
approval of the Federal
Reserve Board for such interlocking directorates may be obtained through an informal application in the form of a letter
addressed to the Federal Reserve Board either by the officer,
director, or employee involved, or in his behalf by one of the
banks which he is serving. Such application should be sent directly to the Federal Reserve Board.
Permits
to Serve Edge
Corporations
WITH the approval of the Federal Reserve B o a r d —
1 — A n y officer, director, or employee of any member bank may serve
at the same time as director, officer, o r employee of any E d g e
C o r p o r a t i o n in whose capital stock the m e m b e r bank shall h a v e
invested.
2 — A n y officer, director, o r employee of any E d g e C o r p o r a t i o n may
serve at the same time as officer, director, o r employee of any
other corporation in w h o s e capital stock such E d g e C o r p o r a t i o n
shall h a v e invested under the provision of the E d g e A c t .
Applications
for approval—Such approval may be obtained
through an informal application in the form of a letter addressed to the Federal Reserve Board either by the director,
officer, or employee involved, or in his behalf by one of the
banks or corporations involved. Such applications should be
sent directly to the Federal Reserve Board.
[84]
BANKS AS INSURANCE
AGENTS
B
Y an amendment to the Federal Reserve Act national
banks located in any place the population of which does
not exceed 5,000 (last decennial census) may act as the agents
for fire insurance, life insurance, or other insurance companies,
under the following provisions:
( a ) T h e insurance company f o r which the bank acts must be authorized by state authorities to do business in the state in which the
bank is located.
( b ) T h e bank's activities as insurance agent are restricted to the
soliciting and selling of insurance and collection of premiums.
( c ) T h e bank may receive such l a w f u l fees as are agreed upon between itself and the insurance company.
( d ) T h e bank must not assume or guarantee the payment of any
payment on insurance policies.
( e ) T h e bank must not guarantee the t r u t h of any statement made
by the person w h o is insured.
In pursuance of the powers conferred upon him by the law the
Comptroller has prescribed a set of regulations for national
banks which act as insurance agents, which are furnished upon
request. N o national bank can act as an insurance agent if the
laws of the state in which it is located will not permit any bank
to so act, nor unless it conducts its business under the rules that
are prescribed by the Comptroller.
[ 8 5 ]
BANKS AS AGENTS A N D
REAL ESTATE
BROKERS
FOR
LOANS
N D E R the same provision of the Federal Reserve Act
which makes it legal for certain national banks to act as
insurance agents, a national bank located in any place the population of which does not exceed 5,000 (last decennial census)
may also act as broker or agent for others in making or procuring loans on real estate, under the following provisions:
( a ) T h e r e a l e s t a t e by w h i c h t h e l o a n n e g o t i a t e d is s e c u r e d m u s t be
l o c a t e d w i t h i n 100 m i l e s of t h e p l a c e in w h i c h t h e b a n k is l o c a t e d .
( b ) T h e b a n k shall in no case g u a r a n t e e
i n t e r e s t o f such l o a n .
either
the
principal
or
( c ) T h e bank may receive f o r such services a reasonable fee o r commission.
As is the case when a national bank acts as an insurance agent
the powers conferred by the law may be exercised only under
such regulations as are prescribed by the Comptroller of the
Currency. Copies of these regulations are furnished by the
Comptroller.
[ 8 6 ]
POWER TO HOLD
REAL
PROPERTY
T
H E Federal law prescribes that a national bank may
"purchase, hold, and convey" real estate for the following purposes only:
1 — S u c h as s h a l l be n e c e s s a r y f o r its i m m e d i a t e a c c o m m o d a t i o n
t h e t r a n s a c t i o n of its business.
in
2 — S u c h as s h a l l be m o r t g a g e d to it in g o o d f a i t h by w a y o f s e c u r i t y
f o r debts previously contracted.
3 — S u c h as s h a l l be c o n v e y e d t o it in s a t i s f a c t i o n of debts p r e v i o u s l y
c o n t r a c t e d in the c o u r s e of its d e a l i n g .
4 — S u c h as it s h a l l p u r c h a s e a t s a l e s u n d e r j u d g m e n t s , decrees,
m o r t g a g e s h e l d by the b a n k , o r s h a l l p u r c h a s e to s e c u r e
or
debts
d u e t o it.
It is, however, unlawful for a national bank to hold for a
longer period than five years any real estate under mortgage or
title and possession of any real estate purchased to secure debt.
REPORT OF
CONDITION
N
O T less than five times each year every national bank is
required to make a report to the Comptroller, according
to the form prescribed by him, verified by the oath of the bank's
president or cashier and attested to by the signatures of at least
three of the bank's directors other than the verifying officers.
Forms for these reports are furnished by the Comptroller
usually in advance of the date upon which formal notice of the
call reaches the bank. The information asked for must be
transmitted to the Comptroller within five days after the receipt of the call at the bank, and in the same form in which it
is furnished to the Comptroller the information must be inserted in a newspaper published in the place where the bank
is located.
T h e Comptroller has power to call for special reports from
any particular bank whenever in his opinion it is necessary to
obtain such information.
[ 8 8 ]
TRUST
DEPARTMENT
U
N D E R the Federal Reserve Act it is possible for a national bank to maintain and operate its own trust department, exercising through this department all of the fiduciary powers granted to state banks, trust companies, etc., by the
laws of the state in which the national bank is located.
Permission to establish such a department is granted, not by
the Comptroller's office, but by the Federal Reserve Board.
Proper forms for the applications are furnished by the Board
and the application, after it is executed by the president or
cashier of the bank, should be mailed to the Chairman of the
Board of Directors of the Federal Reserve Bank in the particular district, who will transmit it to Washington.
National banks which are permitted by the Federal Reserve
Board to function in fiduciary capacities are required to establish a separate trust department under the management of an
officer or officers, and to abide by certain other special rules laid
down in the Federal Reserve Act and by the Federal Reserve
Board.
[ 8 9 ]
BRANCHES
1. Domestic Branches—The
National Bank Act, as it now
stands, does not give national banks the privilege of establishing domestic branch banks. It does, however, contain the following provision permitting state banks which enter the national system to retain branches already established:
I t shall be l a w f u l f o r any b a n k o r b a n k i n g association, o r g a n i z e d under
s t a t e l a w s and h a v i n g branches, the capital being j o i n t and assigned
t o and used by the m o t h e r bank and branches in definite proportions,
t o become a national banking association in c o n f o r m i t y w i t h existing
l a w s and to retain and keep in operation its b r a n c h e s , o r s u c h one or
m o r e of t h e m as it m a y elect t o retain.
2. Foreign Branches—Under
the Federal Reserve Act, however, any national bank having a capital and surplus of not
less than $1,000,000 may, with the permission of the Federal
Reserve Board, and upon such conditions as may be prescribed
by the Board, exercise either or both of the following powers:
1 — E s t a b l i s h branches in f o r e i g n c o u n t r i e s f o r the f u r t h e r a n c e of the
foreign c o m m e r c e of the U n i t e d States, and to act if r e q u i r e d to
do so as fiscal agents of t h e U n i t e d S t a t e s .
2 — T o invest an a m o u n t not e x c e e d i n g in the a g g r e g a t e 10 p e r cent,
of its paid-in capital stock and surplus in the s t o c k of one o r
m o r e banks o r corporations c h a r t e r e d o r i n c o r p o r a t e d u n d e r the
l a w s of the U n i t e d S t a t e s o r of any state and principally engaged
in international o r f o r e i g n banking, either directly o r
through
agencies, ownership, o r c o n t r o l of local institutions in
foreign
countries.
Every national bank either operating foreign branches or owning stock in a bank or corporation engaged in international
banking must furnish to the Comptroller of the Currency,
upon demand, information concerning the condition of such
branches, banks, or corporations.
Before any national bank can purchase stock in such a corporation as that described above, the corporation itself must
enter into an agreement with the Federal Reserve Board to re-
[ 9 4 ]
BRANCHES
strict its operations or conduct its business in the manner in
which the Board may prescribe.
The accounts of each foreign branch of any national bank
must be conducted separately from the accounts of the bank's
other branches and its home office, and the bank must at the end
of each fiscal period transfer to its general ledger the profit or
loss accrued at each branch as a separate item.
[91]
FEDERAL RESERVE ACT
{Approved.
Dec.
23,
/p/j)
W i t h amendments approved up to January i , 1921
A n Act T o provide for the establishment of Federal reserve banks, to
furnish an elastic currency, to afford means of rediscounting commercial paper,
to establish a more effective supervision of banking in the United States,
and f o r other purposes.
Be it enacted by the Senate and House
States of America in Congress assembled,
shall be the " F e d e r a l R e s e r v e A c t . "
of Representatives
of the
United
T h a t the short title of this A c t
W h e r e v e r the w o r d " b a n k " is used in this A c t , the w o r d shall be held
to include State bank, banking association, and t r u s t c o m p a n y , e x c e p t w h e r e
national banks o r F e d e r a l reserve b a n k s a r e specifically r e f e r r e d to.
T h e terms " n a t i o n a l b a n k " and " n a t i o n a l b a n k i n g association" used in
this A c t shall be held to be synonymous and interchangeable.
T h e term
" m e m b e r b a n k " shall be held to mean any national bank, S t a t e bank, o r
bank o r t r u s t company w h i c h has become a m e m b e r of one of the reserve
banks created by this A c t . T h e t e r m " b o a r d " shall be held to m e a n F e d e r a l
R e s e r v e B o a r d ; the t e r m " d i s t r i c t " s h a l l be held t o m e a n F e d e r a l reserve
d i s t r i c t ; the t e r m " r e s e r v e b a n k " s h a l l be held to m e a n F e d e r a l reserve
bank.
FEDERAL RESERVE
DISTRICTS
S e c . 2 . A s soon as practicable, the S e c r e t a r y of the T r e a s u r y , the S e c r e t a r y of A g r i c u l t u r e and the C o m p t r o l l e r of the C u r r e n c y , a c t i n g as " T h e
R e s e r v e B a n k O r g a n i z a t i o n C o m m i t t e e , " shall designate not less than eight
nor m o r e than t w e l v e cities to be k n o w n as F e d e r a l r e s e r v e cities, and shall
divide the continental U n i t e d States, e x c l u d i n g A l a s k a , into districts, each
district to contain only one of such F e d e r a l r e s e r v e cities. T h e d e t e r m i n a tion of said o r g a n i z a t i o n committee s h a l l not be s u b j e c t to r e v i e w e x c e p t
by the F e d e r a l R e s e r v e B o a r d w h e n o r g a n i z e d : Provided,
T h a t the districts
shall be apportioned w i t h due r e g a r d to the convenience and c u s t o m a r y course
of business and shall not necessarily be c o t e r m i n o u s w i t h any S t a t e o r S t a t e s .
T h e districts thus created m a y be r e a d j u s t e d and n e w districts m a y f r o m
time to time be c r e a t e d by the F e d e r a l R e s e r v e B o a r d , not to exceed t w e l v e
in all. Such districts shall be k n o w n as F e d e r a l r e s e r v e districts and m a y
be designated by number. A m a j o r i t y of the o r g a n i z a t i o n c o m m i t t e e shall
constitute a q u o r u m w i t h a u t h o r i t y t o act.
2 a . Said o r g a n i z a t i o n c o m m i t t e e s h a l l be a u t h o r i z e d to e m p l o y counsel
and e x p e r t aid, to t a k e testimony, t o send f o r persons and papers, to a d minister oaths, and to m a k e such investigation as m a y be d e e m e d necessary
by the said c o m m i t t e e in d e t e r m i n i n g the r e s e r v e districts and in design a t i n g the cities w i t h i n such districts w h e r e such F e d e r a l r e s e r v e b a n k s shall
[ 9 2 ]
FEDERAL RESERVE A C T
be severally located. T h e said committee shall supervise the organization in
each of the cities designated of a F e d e r a l reserve bank, which shall include
in its title the name of the city in w h i c h it is situated, as " F e d e r a l Reserve
B a n k of C h i c a g o . "
2 b . U n d e r regulations to be prescribed by the organization committee,
every national banking association in the U n i t e d States is hereby required,
and every eligible bank in the United States and every trust company within
the D i s t r i c t of C o l u m b i a , is hereby authorized to signify in writing, within
sixty days a f t e r the passage of this A c t , its acceptance of the terms and
provisions hereof.
2C. W h e n the organization committee shall have designated the cities
in w h i c h F e d e r a l reserve banks are to be organized, and fixed the geographical limits of the F e d e r a l reserve districts, every national banking
association within that district shall be required within thirty days a f t e r
notice f r o m the organization committee, to subscribe to the capital stock of
such F e d e r a l reserve bank in a sum equal to six per centum of the paid-up
capital stock and surplus of such bank, one-sixth of the subscription to be
payable on call of the organization committee or of the F e d e r a l R e s e r v e
B o a r d , one-sixth within three months and one-sixth within six months thereafter, and the remainder of the subscription, o r any p a r t thereof, shall be
subject to call w h e n deemed necessary by the F e d e r a l R e s e r v e B o a r d , said
payments to be in gold o r gold certificates.
2 d . T h e shareholders of every F e d e r a l reserve bank shall be held individually responsible, equally and ratably, and not one f o r another, f o r
all contracts, debts, and engagements of such bank to the extent of the
amount of their subscriptions to such stock at the par v a l u e thereof in
addition to the amount subscribed, w h e t h e r such subscriptions have been
paid up in w h o l e or in part, under the provisions of this A c t .
a e . A n y national bank failing to signify its
of this A c t within the sixty days aforesaid, shall
agent, upon thirty days' notice, to be given within
organization committee or of the F e d e r a l R e s e r v e
acceptance of the terms
cease to act as a reserve
the discretion of the said
Board.
2 f . Should any national banking association in the U n i t e d States n o w
organized fail within one y e a r a f t e r the passage of this A c t to become a
member bank or fail to comply w i t h any of the provisions of this A c t applicable thereto, all of the rights, privileges, and franchises of such association granted to it under the national-bank A c t , or under the provisions
of this A c t , shall be thereby forfeited. A n y noncompliance w i t h or violation
of this A c t shall, however, be determined and adjudged by any court of the
U n i t e d States of competent jurisdiction in a suit brought f o r that purpose
in the district o r territory in w h i c h such bank is located, under direction
of the F e d e r a l R e s e r v e B o a r d , by the C o m p t r o l l e r of the C u r r e n c y in his
o w n name b e f o r e the association shall be declared dissolved.
In cases
of such noncompliance or violation, other than the f a i l u r e to become a
member bank under the provisions of this A c t , every director w h o partici-
[ 9 3 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
pated in o r assented to the same shall be held liable in his personal o r
individual capacity f o r all damages w h i c h said bank, its shareholders, o r
any other person shall have sustained in consequence of such violation.
Such dissolution shall not take a w a y o r impair any remedy against such
corporation, its stockholders or officers, f o r any liability o r penalty which
shall have been previously incurred.
2 g . Should the subscriptions by banks to the stock of said F e d e r a l
reserve banks or any one o r more of them be, in the j u d g m e n t of the
organization committee, insufficient to provide the amount of capital required
therefor, then and in that event the said organization committee may,
under conditions and regulations to be prescribed by it, offer to public subscription at p a r such an amount of stock in said F e d e r a l reserve banks, o r
any one or m o r e of them, as said committee shall determine, s u b j e c t to the
same conditions as to payment and stock liability as provided f o r m e m b e r
banks.
2 h . N o individual, copartnership, o r corporation other than a member bank of its district shall be permitted to subscribe f o r o r to hold at any
time more than $25,000 par value of stock in any F e d e r a l reserve bank.
Such stock shall be k n o w n as public stock and may be t r a n s f e r r e d on the
books of the F e d e r a l reserve bank by the chairman of the board of directors
of such bank.
s i . Should the total subscriptions by banks and the public to the stock
of said F e d e r a l reserve banks, o r any one o r m o r e of them, be, in the
judgment of the organization committee, insufficient to provide the amount
of capital required t h e r e f o r , then and in that event the said organization
committee shall allot to the U n i t e d States such an amount of said stock
as said committee shall determine. Said U n i t e d States stock shall be paid
f o r at par o u t of any money in the T r e a s u r y not otherwise appropriated,
and shall be held by the Secretary of the T r e a s u r y and disposed of f o r the
benefit of the United States in such manner, at such times, and at such price,
not less than par, as the Secretary of the T r e a s u r y shall determine.
2 j . Stock not held by member banks shall not be entitled to
power.
voting
2 k . T h e F e d e r a l R e s e r v e B o a r d is hereby empowered to adopt and
promulgate rules and regulations governing the t r a n s f e r s of said stock.
2 I . N o F e d e r a l reserve bank shall commence business w i t h a subscribed
capital less than $4,000,000.
2 m . T h e organization of reserve districts and F e d e r a l reserve cities
shall not be construed as changing the present status of reserve cities and
central reserve cities, except in so f a r as this A c t changes the a m o u n t of
reserves that may be carried w i t h approved reserve agents located therein.
2 n . T h e organization committee shall h a v e p o w e r to appoint such
assistants and incur such expenses in c a r r y i n g o u t the provisions of this
A c t as it shall deem necessary, and such expenses shall be payable by the
FEDERAL RESERVE A C T
T r e a s u r e r of the U n i t e d States upon voucher approved by the Secretary of
the T r e a s u r y , and the sum of $100,000, o r so much thereof as may be
necessary, is hereby appropriated, o u t of any moneys in the T r e a s u r y not
otherwise appropriated, f o r the payment of such expenses.
BRANCH
OFFICES
S e c . 3. T h e F e d e r a l R e s e r v e B o a r d may permit o r require any F e d e r a l
reserve bank to establish branch banks within the F e d e r a l reserve district in
which it is located or within the district of any F e d e r a l reserve bank w h i c h
may h a v e been suspended. Such branches, subject to such rules and regulations as the F e d e r a l Reserve B o a r d m a y prescribe, shall be operated under
the supervision of a board of directors to consist of not m o r e than seven
nor less than three directors, of w h o m a m a j o r i t y of one shall be appointed
by the F e d e r a l reserve bank of the district, and the remaining directors by
the F e d e r a l R e s e r v e B o a r d . D i r e c t o r s of branch banks shall hold office
during the pleasure of the F e d e r a l R e s e r v e B o a r d .
FEDERAL RESERVE
BANKS
S e c . 4. W h e n the organization committee shall have established F e d e r a l
reserve districts as provided in section t w o of this A c t , a certificate shall
be filed w i t h the C o m p t r o l l e r of the C u r r e n c y s h o w i n g the geographical
limits of such districts and the F e d e r a l reserve city designated in each of
such districts. T h e C o m p t r o l l e r of the C u r r e n c y shall thereupon cause to
be f o r w a r d e d to each national bank located in each district, and to such
other banks declared to be eligible by the organization committee w h i c h
may apply therefor, an application blank in f o r m to be approved by the
organization committee, which blank shall contain a resolution to be adopted
by the board of directors of each bank executing such application, authorizing a subscription to the capital stock of the F e d e r a l reserve bank organizing in that district in accordance w i t h the provisions of this A c t .
4a. W h e n the minimum amount of capital stock prescribed by this
A c t f o r the organization of any F e d e r a l reserve bank shall have been subscribed and allotted, the organization committee shall designate any five
banks of those w h o s e applications have been received, to execute a certificate
of organization, and thereupon the banks so designated shall, under their
seals, m a k e an organization certificate w h i c h shall specifically state the name
of such F e d e r a l reserve bank, the territorial extent of the district over
w h i c h the operations of such F e d e r a l reserve bank are to be carried on,
the city and State in w h i c h said bank is to be located, the amount of capital
stock and the number of shares into w h i c h the same is divided, the name
and place of doing business of each bank executing such certificate, and
of all banks w h i c h have subscribed to the capital stock of such F e d e r a l
reserve bank and the number of shares subscribed by each, and the f a c t
t h a t the certificate is made to enable those banks executing same, and all
banks w h i c h have subscribed o r m a y t h e r e a f t e r subscribe to the capital
[ 9 5 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
stock of such F e d e r a l r e s e r v e bank, t o avail themselves of the a d v a n t a g e s
of this A c t .
T h e said o r g a n i z a t i o n certificate shall be a c k n o w l e d g e d b e f o r e a j u d g e of
some c o u r t of record o r n o t a r y p u b l i c ; and shall be, t o g e t h e r w i t h the
a c k n o w l e d g m e n t thereof, authenticated by the seal of such c o u r t , o r n o t a r y ,
t r a n s m i t t e d to the C o m p t r o l l e r of the C u r r e n c y , w h o shall file, r e c o r d and
c a r e f u l l y preserve the same in his office.
4b.
Upon
the
filing
of
such certificate w i t h the
Comptroller
of
the
C u r r e n c y as aforesaid, the said F e d e r a l reserve bank shall become a body
corporate, and as such, and in the n a m e designated in such
certificate, shall h a v e
First.
organization
power—
T o adopt and use a c o r p o r a t e seal.
Second. T o h a v e succession f o r a period of t w e n t y y e a r s f r o m its o r g a n i z a t i o n unless it is sooner dissolved b y an A c t of C o n g r e s s , o r unless its
f r a n c h i s e becomes f o r f e i t e d by some v i o l a t i o n of l a w .
Third.
T o m a k e contracts.
Fourth.
T o sue and be sued, complain and defend, in any c o u r t of l a w
o r equity.
Fifth.
T o appoint by its board of directors such officers and employees
as a r e not o t h e r w i s e provided f o r in this A c t , to define their duties, require
bonds of them and fix the penalty t h e r e o f , and to dismiss at p l e a s u r e such
officers or employees.
Sixth.
T o prescribe by its board of directors, b y - l a w s not inconsistent
w i t h l a w , r e g u l a t i n g the m a n n e r in w h i c h its g e n e r a l business m a y be conducted, and the privileges g r a n t e d to it by l a w m a y be exercised and e n j o y e d .
Seventh.
T o exercise by its board of directors, o r duly a u t h o r i z e d officers
o r agents, all p o w e r s specifically g r a n t e d
by the provisions
of
this
Act
and such incidental p o w e r s as shall be necessary to c a r r y on the business
of b a n k i n g w i t h i n the limitations prescribed by this A c t .
Eighth.1
U p o n deposit w i t h the T r e a s u r e r of the U n i t e d S t a t e s of any
bonds of the U n i t e d S t a t e s in the m a n n e r provided by existing l a w
relating
to national banks, to receive f r o m the C o m p t r o l l e r of the C u r r e n c y
circu-
l a t i n g notes in blank, registered and c o u n t e r s i g n e d as provided by l a w , e q u a l
in a m o u n t to the p a r v a l u e of the bonds so deposited, such notes to be
issued u n d e r the s a m e conditions and provisions of l a w
as r e l a t e t o the
issue of c i r c u l a t i n g notes of national b a n k s secured by bonds of the U n i t e d
S t a t e s b e a r i n g the c i r c u l a t i n g privilege, except t h a t the issue of such notes
shall n o t be limited to the capital s t o c k of such F e d e r a l r e s e r v e b a n k .
B u t no F e d e r a l r e s e r v e b a n k shall t r a n s a c t any business except such as
is incidental and necessarily p r e l i m i n a r y to its o r g a n i z a t i o n until it h a s been
a u t h o r i z e d by the C o m p t r o l l e r of the C u r r e n c y to c o m m e n c e business u n d e r
the provisions of this A c t .
1 See section 18. A l s o sec. 5 of act approved A p r . 23, 1918, authorizing issuance of Federal Reserve Bank notes in any denominations (including $1 and
$2) against security of United States certificates of indebtedness.
FEDERAL RESERVE A C T
4c. E v e r y F e d e r a l reserve bank shall be conducted under the supervision
and control of a board of directors.
T h e board of directors shall p e r f o r m the duties usually appertaining to the
office of directors of banking associations and all such duties as are prescribed by l a w .
Said board shall administer the affairs of said bank f a i r l y and impartially
and w i t h o u t discrimination in f a v o r of or against any member bank o r banks
and shall, subject to the provisions of l a w and the orders of the F e d e r a l
R e s e r v e B o a r d , extend to each m e m b e r bank such discounts, advancements
and accommodations as may be safely and reasonably made with due regard
f o r the claims and demands of other member banks.
4 d . Such board of directors shall be selected as hereinafter specified
and shall consist of nine members, holding office f o r three years, and divided
into three classes, designated as classes A , B , and C .
C l a s s A shall consist of three members, w h o shall be chosen by and be
representative of the stock-holding banks.
C l a s s B shall consist of three members, w h o at the time of their election shall be actively engaged in their district in commerce, agriculture
o r some other industrial pursuit.
C l a s s C shall consist of three members w h o shall be designated by the
F e d e r a l R e s e r v e B o a r d . W h e n the necessary subscriptions to the capital
stock have been obtained f o r the organization of any F e d e r a l reserve bank,
the F e d e r a l Reserve B o a r d shall appoint the class C directors and shall
designate one of such directors as chairman of the board to be selected.
Pending the designation of such chairman, the organization committee shall
exercise the powers and duties appertaining to the office of chairman in the
organization of such F e d e r a l reserve bank.
N o Senator o r Representative in Congress shall be a member of the
F e d e r a l R e s e r v e B o a r d or an officer o r a director of a F e d e r a l reserve
bank.
N o director of class B shall be an officer, director, o r employee of any
bank.
N o director of class C shall be an officer, director, employee, o r stockholder of any bank.
4 e . D i r e c t o r s of class A and class B shall be chosen in the f o l l o w i n g
manner:
T h e F e d e r a l R e s e r v e B o a r d shall classify the member banks of the district into three general groups o r divisions, designating each group by
number. E a c h group shall consist as nearly as may be of banks of similar
capitalization. E a c h member bank shall be permitted to nominate to the
chairman of the board of directors of the F e d e r a l reserve bank of the
district one candidate f o r director of class A and one candidate f o r director
of class B . T h e candidates so nominated shall be listed by the chairman,
indicating by w h o m nominated, and a copy of said list shall, within fifteen
days a f t e r its completion, be furnished by the chairman to each member
N A T I O N A L B A N K I N G UNDER THE FEDERAL RESERVE SYSTEM
bank. E a c h member bank by a resolution of the board or by an amendment
to its b y - l a w s shall authorize its president, cashier, o r some other officer to
cast the vote of the member bank in the elections of class A and class B
directors.
W i t h i n fifteen days a f t e r receipt of the list of candidates the duly authorized officer of a member bank shall certify to the chairman his first, second,
and other choices f o r director of class A and class B , respectively, upon a
preferential ballot upon a f o r m furnished by the chairman of the board
of directors of the Federal reserve bank of the district. Each such officer
shall make a cross opposite the name of the first, second, and other choices
f o r a director of class A and f o r a director of class B, but shall not vote
more than one choice f o r any one candidate. N o officer or director of a
member bank shall be eligible to serve as a class A director unless nominated
and elected by banks which are members of the same g r o u p as the member
bank of which he is an officer o r director.
A n y person w h o is an officer o r director of m o r e than one m e m b e r bank
shall not be eligible f o r nomination as a class A director except by banks
in the same group as the bank having the largest a g g r e g a t e resources of any
of those of which such person is an officer or director.
A n y candidate having a m a j o r i t y of all votes cast in the column of first
choice shall be declared elected. If no candidate h a v e a m a j o r i t y of all
the votes in the first column, then there shall be added together the votes
cast by the electors f o r such candidates in the second column and the
votes cast f o r the several candidates in the first column. If any candidate
then have a m a j o r i t y of the electors voting, by adding together the first and
second choices, he shall be declared elected. I f no candidate have a m a j o r i t y
of electors voting w h e n the first and second choices shall have been added,
then the votes cast in the third column f o r other choices shall be added
together in like manner, and the candidate then having the highest number
of votes shall be declared elected. A n immediate report of election shall be
declared.
4 f . C l a s s C directors shall be appointed by the F e d e r a l R e s e r v e B o a r d .
T h e y shall have been f o r at least t w o years residents of the district f o r
which they are appointed, one of w h o m shall be designated by said board
as chairman of the board of directors of the F e d e r a l reserve bank and as
" F e d e r a l reserve agent." H e shall be a person of tested banking experience,
and in addition to his duties as chairman of the board of directors of the
F e d e r a l reserve bank he shall be required to maintain, under regulations to
be established by the F e d e r a l R e s e r v e B o a r d , a local office of said board on
the premises of the F e d e r a l reserve bank. H e shall m a k e r e g u l a r reports to
the F e d e r a l R e s e r v e B o a r d and shall act as its official representative f o r the
performance of the functions c o n f e r r e d upon it by this act. H e shall receive
an annual compensation to be fixed by the F e d e r a l R e s e r v e B o a r d and paid
monthly by the F e d e r a l reserve bank to which he is designated. O n e of the
directors of class C shall be appointed by the F e d e r a l R e s e r v e B o a r d as
[ 9 8 ]
FEDERAL RESERVE A C T
deputy c h a i r m a n to exercise the p o w e r s of the chairman of the board w h e n
necessary. I n case of the absence of the c h a i r m a n and deputy chairman,
the third-class C director shall preside at meetings of the board.
S u b j e c t to the approval of the F e d e r a l R e s e r v e B o a r d the F e d e r a l reserve
agent shall appoint one o r m o r e assistants. Such assistants, w h o shall be
persons of tested banking experience, shall assist the F e d e r a l reserve agent
in the p e r f o r m a n c e of his duties and shall also have p o w e r to act in his
name and stead d u r i n g his absence or disability.
T h e Federal Reserve
B o a r d shall require such bonds of the assistant F e d e r a l reserve agents as it
may deem necessary f o r the protection o f the U n i t e d States. Assistants to
the F e d e r a l r e s e r v e agent shall receive an annual compensation, to be fixed
and paid in the same manner as that of the F e d e r a l reserve agent.
4 g . D i r e c t o r s of F e d e r a l reserve banks shall receive, in addition to
any compensation otherwise provided, a reasonable allowance f o r necess a r y expenses in attending meetings of their respective boards, w h i c h amount
shall be paid by the respective F e d e r a l reserve banks. A n y compensation
that m a y be provided by boards of directors of F e d e r a l reserve banks f o r
directors, officers o r employees shall be s u b j e c t to the approval of the F e d eral R e s e r v e B o a r d .
4 h . T h e R e s e r v e B a n k O r g a n i z a t i o n C o m m i t t e e m a y , in o r g a n i z ing F e d e r a l reserve banks, call such meetings of bank directors in the
several districts as m a y be necessary t o c a r r y o u t the purposes of this A c t ,
and m a y exercise the functions herein conferred upon the chairman of the
board of directors of each F e d e r a l reserve bank pending the complete
o r g a n i z a t i o n of such bank.
4 i . A t the first meeting of the f u l l board of directors of each F e d eral reserve bank, it shall be the duty of the directors of classes A , B ,
and C , respectively, to designate one of the m e m b e r s of each class w h o s e
t e r m of office shall expire in one y e a r f r o m the first of J a n u a r y nearest
to d a t e of such meeting, one w h o s e t e r m of office shall expire at the end of
t w o y e a r s f r o m said date, and one w h o s e t e r m of office shall expire at the
end of three y e a r s f r o m said date. T h e r e a f t e r every director of a F e d e r a l
reserve b a n k chosen as hereinbefore provided shall hold office f o r a term of
three y e a r s . V a c a n c i e s that m a y occur in the several classes of directors
of F e d e r a l r e s e r v e banks may be filled in the manner provided f o r the
original selection of such directors, such appointees to hold office f o r the
unexpired terms of their predecessors.
STOCK ISSUES; INCREASE AND DECREASE
OF
CAPITAL
S e c . 5- T h e capital stock of each F e d e r a l r e s e r v e bank shall be divided
into shares of $100 each. T h e outstanding capital stock shall be increased
f r o m time to time as m e m b e r banks increase their capital stock and surplus
or as additional banks become members, and m a y be decreased as member
banks reduce their capital stock o r surplus o r cease t o be members.
[ 9 9 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
5a. Shares of the capital stock of F e d e r a l reserve banks o w n e d by member banks shall not be t r a n s f e r r e d o r hypothecated.
5b. W h e n a member bank increases its capital stock or surplus, it shall
thereupon subscribe f o r an additional a m o u n t of capital stock of the F e d e r a l
reserve bank of its district equal t o six per c e n t u m of the said increase,
one-half of said subscription to be paid in the m a n n e r hereinbefore provided
f o r original subscription, and one-half s u b j e c t to call of the F e d e r a l R e s e r v e
Board.
5c. A bank applying f o r stock in a F e d e r a l reserve bank at any time
a f t e r the o r g a n i z a t i o n thereof must subscribe f o r an amount of the capital
stock of the F e d e r a l reserve bank e q u a l t o six p e r centum of t h e paid-up
capital stock and surplus of said applicant bank, paying t h e r e f o r its par
value plus one-half of one per c e n t u m a month f r o m the period of the last
dividend.
5 d . W h e n the capital stock of any F e d e r a l reserve bank shall have
been increased either on account of t h e increase of capital stock of m e m b e r
banks o r on account of the increase in the n u m b e r of m e m b e r banks, the
board of directors shall cause to be executed a certificate to the C o m p t r o l l e r
of the C u r r e n c y showing the increase in capital stock, the a m o u n t paid in,
and by w h o m paid.
5 e . W h e n a m e m b e r bank reduces its capital stock it shall s u r r e n der a proportionate amount of its holdings in t h e capital of said F e d e r a l
reserve bank, and w h e n a m e m b e r b a n k v o l u n t a r i l y liquidates it shall surrender all of its holdings of the capital stock of said F e d e r a l r e s e r v e bank
and be released f r o m its stock subscription not previously called. I n either
case the shares surrendered shall be canceled and the m e m b e r b a n k shall
receive in payment t h e r e f o r , u n d e r regulations to be prescribed by the
F e d e r a l R e s e r v e B o a r d , a sum equal to its cash-paid subscriptions on the
shares surrendered and one-half of one per c e n t u m a month f r o m the period
of the last dividend, not to exceed the book v a l u e thereof, less any liability
of such m e m b e r bank to the F e d e r a l r e s e r v e bank.
INSOLVENCY
OF MEMBER
BANK
S e c . 6. I f any m e m b e r bank shall be declared insolvent and a receiver
appointed t h e r e f o r , the stock held by it in said F e d e r a l reserve b a n k shall
be canceled, w i t h o u t impairment of its liability, and all cash-paid subscriptions on said stock, w i t h one-half of one p e r c e n t u m per m o n t h f r o m the
period of last dividend, not to exceed the book v a l u e t h e r e o f , shall be first
applied to all debts of the insolvent m e m b e r b a n k to the F e d e r a l reserve
bank, and the balance, if any, shall b e paid to t h e receiver of t h e insolvent
bank. W h e n e v e r the capital stock of a F e d e r a l r e s e r v e b a n k is reduced,
either on account of a reduction in capital stock of any m e m b e r b a n k o r of
the liquidation o r insolvency of s u c h bank, t h e b o a r d of d i r e c t o r s shall
cause t o be executed a certificate t o t h e C o m p t r o l l e r of the C u r r e n c y s h o w ing such reduction of capital stock and the a m o u n t repaid to such bank.
[loo]
FEDERAL RESERVE A C T
DIVISION
OF
EARNINGS
S e c . 7 . A f t e r all necessary expenses of a F e d e r a l reserve bank have been
paid or provided f o r , the stockholders shall be entitled to receive an annual
dividend of six per centum on the paid-in capital stock, w h i c h dividend
shall be c u m u l a t i v e . A f t e r the aforesaid dividend claims have been f u l l y
met, the net earnings shall be paid to the U n i t e d States as a franchise t a x
except that the w h o l e of such net earnings, including those f o r the y e a r
ending D e c e m b e r thirty-first, nineteen hundred and eighteen, shall be paid
into a surplus fund until it shall a m o u n t to one hundred per centum of the
subscribed capital stock of such bank, and that t h e r e a f t e r ten per centum of
such net earnings shall be paid into the surplus.
T h e net earnings derived by the U n i t e d States f r o m F e d e r a l reserve
banks shall, in the discretion of the Secretary, be used to supplement the
gold reserve held against outstanding U n i t e d States notes, or shall be
applied to the reduction of the outstanding bonded indebtedness of the
U n i t e d S t a t e s under regulations to be prescribed by the Secretary of the
T r e a s u r y . Should a F e d e r a l reserve bank be dissolved o r go into liquidation, any surplus remaining, a f t e r the payment of all debts, dividend requirements as hereinbefore provided, and the p a r v a l u e of the stock, shall be
paid to and become the property of the U n i t e d States and shall be similarly
applied.
y a . F e d e r a l reserve banks, including the capital stock and surplus therein,
and the income derived t h e r e f r o m shall be exempt f r o m F e d e r a l , State, and
local taxation, except taxes upon real estate.
CONVERSION
OF STATE BANKS INTO NATIONAL
BANKS
S e c . 8. Section fifty-one hundred and f i f t y - f o u r , U n i t e d States Revised
Statutes, is hereby amended to read as f o l l o w s :
A n y bank incorporated by special l a w of any State o r of the U n i t e d
S t a t e s o r o r g a n i z e d under the g e n e r a l l a w s of any S t a t e o r of the United
States and having an unimpaired capital sufficient to entitle it t o become a
national banking association under the provisions of the existing l a w s may,
by the v o t e of the shareholders o w n i n g not less than fifty-one per centum
of the capital stock of such bank o r banking association, w i t h the approval
of the C o m p t r o l l e r of the C u r r e n c y be converted into a national banking
association, w i t h any name approved by the C o m p t r o l l e r of the C u r r e n c y :
Provided,
however, T h a t said conversion shall not be in contravention of
the S t a t e l a w .
In such case the articles of association and organization
certificate m a y be executed by a m a j o r i t y of the directors of the bank or
banking institution, and the certificate shall declare that the o w n e r s of fiftyone per c e n t u m of the capital stock h a v e a u t h o r i z e d the directors to m a k e
such certificate and to change o r c o n v e r t the b a n k o r banking institution
into a n a t i o n a l association. A m a j o r i t y of the directors, a f t e r executing the
articles of association and the o r g a n i z a t i o n certificate, shall have p o w e r to
[ l O l ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
execute all other papers and to do w h a t e v e r m a y be required t o m a k e its
organization perfect and complete as a national association. T h e shares
of any such bank may continue to be f o r the same a m o u n t each as they
w e r e b e f o r e the conversion, and the directors m a y continue to be directors
of the association until others are elected o r appointed in accordance with
the provisions of the statutes of the U n i t e d States. W h e n the C o m p t r o l l e r
has given to such bank or banking association a certificate that the provisions
of this A c t have been complied w i t h , such bank or banking association, and
all its stockholders, officers, and employees, shall h a v e the s a m e p o w e r s and
privileges, and shall be subject to the same duties, liabilities, and regulations,
in all respects, as shall have been prescribed by the F e d e r a l R e s e r v e A c t
and by the national banking A c t f o r associations originally o r g a n i z e d as
national banking associations.
STATE BANKS AS
MEMBERS
S e c . 9. A n y bank incorporated by special l a w of any S t a t e , o r organized
under the general l a w s of any State o r of the U n i t e d S t a t e s , desiring to
become a member of the F e d e r a l R e s e r v e System, m a y m a k e application
to the F e d e r a l Reserve B o a r d , under such rules and regulations as it may
prescribe, f o r the right to subscribe to the stock of the F e d e r a l reserve
bank organized within the district in w h i c h the applying b a n k is located.
Such application shall be f o r the same a m o u n t of stock t h a t the applying
bank w o u l d be required to subscribe to as a national bank. T h e F e d e r a l
Reserve B o a r d , subject to such conditions as it may prescribe, m a y permit
the applying bank to become a stockholder of such F e d e r a l r e s e r v e bank.
ga. I n acting upon such applications the F e d e r a l R e s e r v e B o a r d shall
consider the financial condition of the applying bank, the g e n e r a l character
of its management, and w h e t h e r or not the c o r p o r a t e p o w e r s exercised are
consistent w i t h the purposes of this act.
W h e n e v e r the F e d e r a l Reserve B o a r d shall permit the applying bank
to become a stockholder in the F e d e r a l reserve b a n k of the district its stock
subscription shall be payable on call of the F e d e r a l R e s e r v e B o a r d , and
stock issued to it shall be held subject to the provisions of this act.
g b . A l l banks admitted to membership u n d e r a u t h o r i t y of this section
shall be required to comply w i t h t h e reserve and capital requirements of
this act and to c o n f o r m to those provisions of l a w imposed on national banks
which prohibit such banks f r o m lending on or p u r c h a s i n g their o w n stock,
w h i c h relate to the w i t h d r a w a l or impairment of their capital stock, and
w h i c h relate to the payment of unearned dividends.
g c . Such banks and the officers, agents, and employees thereof shall
also be subject to the provisions of and to the penalties prescribed by section fifty-two hundred and nine of the R e v i s e d S t a t u t e s , and shall be required to m a k e reports of condition and of the p a y m e n t of dividends to the
F e d e r a l reserve bank of w h i c h they become a m e m b e r .
N o t less than
t h r e e of such reports shall be made a n n u a l l y on c a l l of the F e d e r a l reserve
[02]
FEDERAL RESERVE A C T
bank on dates to be fixed by the F e d e r a l Reserve B o a r d . F a i l u r e to make
such reports within ten days a f t e r the date they are called f o r shall subject
the offending bank to a penalty of $100 a day f o r each day that it fails
to transmit such r e p o r t ; such penalty to be collected by the F e d e r a l reserve
bank by suit o r otherwise.
A s a condition of membership such banks shall likewise be subject to
examinations made by direction of the F e d e r a l R e s e r v e B o a r d o r of the
F e d e r a l reserve bank by examiners selected o r approved by the F e d e r a l
Reserve Board.
W h e n e v e r the directors of the F e d e r a l reserve bank shall approve the
examinations made by the State authorities, such examinations and the reports thereof may be accepted in lieu of examinations made by examiners
selected o r approved by the F e d e r a l Reserve B o a r d : Provided,
however,
T h a t w h e n it deems it necessary the board may o r d e r special examinations
by examiners of its o w n selection and shall in all cases approve the f o r m of
the report. T h e expenses of all examinations, other than those made by
State authorities, shall be assessed against and paid by the banks examined.
g d . I f at any time it shall appear to the F e d e r a l R e s e r v e B o a r d that
a member bank has failed to comply with the provisions of this section
o r the regulations of the F e d e r a l R e s e r v e B o a r d made pursuant thereto,
it shall be within the p o w e r of the board a f t e r hearing to require such bank
to surrender its stock in the F e d e r a l reserve bank and to f o r f e i t all rights
and privileges of membership. T h e F e d e r a l R e s e r v e B o a r d may restore
membership upon due proof of compliance w i t h the conditions imposed by
this section.
g e . A n y State bank or trust company desiring to w i t h d r a w f r o m membership in a F e d e r a l reserve bank m a y do so, a f t e r six months' written
notice shall have been filed w i t h the F e d e r a l R e s e r v e B o a r d , upon the
surrender and cancellation of all of its holdings of capital stock in the
F e d e r a l reserve b a n k : Provided,
however, T h a t no F e d e r a l reserve bank
shall, except under express authority of the F e d e r a l Reserve B o a r d , cancel
within the same calendar year m o r e than twenty-five per centum of its
capital stock f o r the purpose of effecting voluntary w i t h d r a w a l s during that
y e a r . A l l such applications shall be dealt w i t h in the order in which they
are filed w i t h the board. W h e n e v e r a member bank shall surrender its
stock holdings in a F e d e r a l reserve bank, o r shall be ordered to do so by
the F e d e r a l R e s e r v e B o a r d , under authority of l a w , all of its rights and
privileges as a member bank shall thereupon cease and determine, and
a f t e r due provision has been made f o r any indebtedness due o r to become
due to the F e d e r a l reserve bank it shall be entitled to a refund of its cash
paid subscription w i t h interest at the rate of one-half of one per centum
per month f r o m date of last dividend, if earned, the amount refunded in no
event to exceed the book v a l u e of the stock at that time, and shall likewise
be entitled to repayment of deposits and of any other balance due f r o m the
F e d e r a l reserve bank.
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
gf.
N o applying bank shall be admitted to m e m b e r s h i p in a
Federal
reserve b a n k unless it possesses a paid-up, unimpaired c a p i t a l sufficient to
entitle it to become a national b a n k i n g association in the place w h e r e it is
situated under the provisions of the n a t i o n a l - b a n k act.
gg.
B a n k s becoming m e m b e r s of
the F e d e r a l
Reserve
System
under
authority of this section shall be s u b j e c t to the provisions of this section
and to those of this act w h i c h
r e l a t e specifically to m e m b e r banks, b u t
shall not be s u b j e c t to examination u n d e r the provisions of the
paragraphs of section
fifty-two
first
two
hundred and f o r t y of the R e v i s e d S t a t u t e s
as amended by section t w e n t y - o n e of this act. 1
S u b j e c t to the provisions of
this act and to the regulations of the b o a r d m a d e p u r s u a n t thereto, any
bank becoming a m e m b e r of the F e d e r a l R e s e r v e System shall retain its
f u l l c h a r t e r and s t a t u t o r y rights as a S t a t e b a n k o r t r u s t c o m p a n y ,
and
m a y continue t o exercise all c o r p o r a t e p o w e r s g r a n t e d it by the S t a t e in
w h i c h it w a s created, and shall be entitled to all privileges of
b a n k s : Provided,
however.
T h a t no
Federal
member
reserve bank shall be
per-
mitted to discount f o r any State b a n k o r t r u s t company notes, d r a f t s , o r
bills of exchange of any one b o r r o w e r w h o is liable f o r b o r r o w e d
money
to such State bank o r t r u s t company in an a m o u n t g r e a t e r than ten per
centum of the capital and surplus of such State bank o r t r u s t c o m p a n y , but
the discount of bills of exchange d r a w n against a c t u a l l y existing v a l u e and
the discount of commercial o r business paper a c t u a l l y o w n e d by the person
negotiating the same shall not be considered as b o r r o w e d m o n e y w i t h i n the
meaning of this section. 2
T h e F e d e r a l reserve bank, as a condition of the
discount of notes, d r a f t s , and bills of exchange f o r such S t a t e b a n k o r t r u s t
company,
shall
require
a certificate
or guaranty
to
the effect t h a t
the
b o r r o w e r is not liable to such b a n k in excess of the a m o u n t p r o v i d e d by
this section, and w i l l not be permitted to become l i a b l e in excess of
amount w h i l e such notes, d r a f t s , o r bills of e x c h a n g e a r e u n d e r
this
discount
w i t h the F e d e r a l reserve b a n k .
I t shall be u n l a w f u l f o r any officer, clerk, o r agent of any b a n k a d m i t t e d
to membership u n d e r authority of this section to c e r t i f y any check d r a w n
upon such bank unless the person o r c o m p a n y d r a w i n g the check h a s on
deposit t h e r e w i t h a t the time such check is certified an a m o u n t of
equal to the a m o u n t specified in such check.
money
A n y check so certified by duly
a u t h o r i z e d officers shall be a good and v a l i d obligation against such b a n k ,
b u t the act of any such officer, c l e r k , o r agent in violation of this section
m a y s u b j e c t such bank to a f o r f e i t u r e of its m e m b e r s h i p in the
Federal
R e s e r v e System upon h e a r i n g by the F e d e r a l R e s e r v e B o a r d . 3
1
2
Amending section 21 of this act.
Amended by section 11 ( m ) , as amended M a r c h 3, 1919.
3 See section 5209, Revised Statutes, as amended by act of Sept. 26, 1918, for
penalty for false certification of checks by officers of Federal Reserve Banks and
national banks.
[104]
FEDERAL RESERVE A C T
FEDERAL RESERVE
BOARD
S e c . 1 0 . A F e d e r a l R e s e r v e B o a r d is hereby created w h i c h shall consist of seven members, including the Secretary of the T r e a s u r y and the
C o m p t r o l l e r of the C u r r e n c y , w h o shall be members ex officio, and five
m e m b e r s appointed by the President of the United States, by and w i t h the
advice and consent of the Senate. I n selecting the five appointive members
of the F e d e r a l R e s e r v e B o a r d , not m o r e than one of w h o m shall be selected
f r o m any one F e d e r a l reserve district, the President shall have due regard
to a f a i r representation of the different commercial, industrial and geographical divisions of the country. T h e five members of the F e d e r a l Reserve
B o a r d appointed by the President and confirmed as aforesaid shall devote
their entire time to the business of the F e d e r a l R e s e r v e B o a r d and shall
each receive an annual s a l a r y of $12,000, payable monthly together w i t h
actual necessary t r a v e l i n g expenses, and the C o m p t r o l l e r of the C u r r e n c y ,
as ex officio m e m b e r of the F e d e r a l R e s e r v e B o a r d , shall, in addition to the
s a l a r y n o w paid him as C o m p t r o l l e r of the C u r r e n c y , receive the sum of
$7,000 annually f o r his services as a m e m b e r of said board.
T h e S e c r e t a r y of the T r e a s u r y and the C o m p t r o l l e r of the C u r r e n c y
shall be ineligible d u r i n g the time they are in office and f o r t w o y e a r s therea f t e r to hold any office, position, or employment in any m e m b e r bank. T h e
appointive m e m b e r s of the F e d e r a l R e s e r v e B o a r d shall be ineligible during
the time they a r e in office and f o r t w o y e a r s t h e r e a f t e r to hold any office,
position, o r e m p l o y m e n t in any m e m b e r bank, except that this restriction
shall not apply t o a m e m b e r w h o has served the f u l l term f o r w h i c h he w a s
appointed. O f the five m e m b e r s thus appointed by the President at least
t w o shall be persons experienced in banking o r finance. O n e shall be
designated by the P r e s i d e n t to serve f o r t w o , one f o r f o u r , one f o r six, one
f o r eight, and one f o r ten years, and t h e r e a f t e r each m e m b e r so appointed
shall s e r v e f o r a t e r m of ten y e a r s unless sooner removed f o r cause by the
President.
ioa.
O f the five persons "thus appointed, one shall be designated by
the P r e s i d e n t as g o v e r n o r and one as vice g o v e r n o r of the F e d e r a l R e s e r v e
B o a r d . T h e g o v e r n o r of the F e d e r a l R e s e r v e B o a r d , subject t o its supervision, shall be the active e x e c u t i v e officer. T h e S e c r e t a r y of the T r e a s u r y
m a y assign offices in the D e p a r t m e n t of the T r e a s u r y f o r the use of the
F e d e r a l R e s e r v e B o a r d . E a c h m e m b e r of the F e d e r a l R e s e r v e B o a r d shall
w i t h i n fifteen d a y s a f t e r notice of appointment m a k e and subscribe to the
oath of office.
1 0 b . T h e F e d e r a l R e s e r v e B o a r d shall have p o w e r to levy semiannually upon the F e d e r a l r e s e r v e banks, in proportion t o their capital stock
and surplus, an assessment sufficient t o pay its estimated expenses and the
salaries of its m e m b e r s and employees f o r the half y e a r succeeding the
l e v y i n g of such assessment, t o g e t h e r w i t h any deficit c a r r i e d f o r w a r d f r o m
the preceding h a l f y e a r .
[
105]
NATIONAL BANKING UNDER THE FEDERAL RESERVE SYSTEM
IOC.
T h e first meeting of the Federal Reserve B o a r d shall be held
in Washington, District of Columbia, as soon as may be a f t e r the passage
of this A c t , at a date to be fixed by the Reserve B a n k O r g a n i z a t i o n Committee.
T h e Secretary of the T r e a s u r y shall be ex officio chairman of the
Federal Reserve Board.
lod.
N o member of the Federal Reserve B o a r d shall be an officer
or director of any bank, banking institution, trust company, or
Federal
reserve bank nor hold stock in any bank, banking institution, or trust company; and before entering upon his duties as a member of the F e d e r a l Reserve Board he shall certify under oath to the Secretary of the T r e a s u r y
that he has complied with this requirement.
ioe.
Whenever
a vacancy shall occur, other
than by expiration of
term, among the five members of the Federal R e s e r v e B o a r d appointed by
the President, as above provided, a successor shall be appointed by the
President, w i t h the advice and consent of the Senate, to fill such vacancy,
and when appointed he shall hold office f o r the unexpired term of the member whose place he is selected to fill.
T h e President shall have power to fill all vacancies that may happen on
the Federal Reserve Board during the recess of the Senate, by granting
commissions which shall expire thirty days a f t e r the next session of the
Senate convenes.
i o f . Nothing in this A c t contained shall be construed as taking away
any powers heretofore vested by l a w in the Secretary of the T r e a s u r y
which relate to the supervision, management, and control of the T r e a s u r y
Department and bureaus under such department, and w h e r e v e r any power
vested by this A c t in the Federal Reserve B o a r d or the F e d e r a l reserve
agent appears to conflict with the powers of the Secretary of the T r e a s u r y ,
such powers shall be exercised subject to the supervision and control of the
Secretary.
log.
T h e Federal Reserve B o a r d shall annually m a k e a f u l l report
of its operations to the Speaker of the H o u s e of Representatives, w h o shall
cause the same to be printed f o r the information of the Congress.
i o h . Section three hundred and twenty-four of the Revised Statutes
of the United States shall be amended so as to read as f o l l o w s : T h e r e shall
be in the Department of the T r e a s u r y a bureau charged w i t h the execution
of all l a w s passed by Congress relating to the issue and regulation of
national currency secured by United States bonds and, under the general
supervision of the Federal Reserve B o a r d , of all F e d e r a l reserve notes, the
chief officer of which bureau shall be called the C o m p t r o l l e r of the C u r rency and shall perform his duties under the general directions of the
Secretary of the T r e a s u r y .
[106]
FEDERAL RESERVE A C T
POWERS OF FEDERAL RESERVE
BOARD
S e c . I I . T h e F e d e r a l R e s e r v e B o a r d shall be a u t h o r i z e d and e m p o w e r e d :
1 1 a . T o examine at its discretion the accounts, books and affairs
of each F e d e r a l r e s e r v e bank and of each m e m b e r bank and t o require
such statements and reports as it m a y deem necessary. T h e said board
shall publish once each w e e k a statement s h o w i n g the condition of each
F e d e r a l reserve bank and a consolidated statement f o r all F e d e r a l r e s e r v e
banks. S u c h statements shall s h o w in detail the assets and liabilities of the
F e d e r a l reserve banks, single and combined, and shall f u r n i s h f u l l i n f o r m a tion r e g a r d i n g the c h a r a c t e r of the money held as reserve and the amount,
n a t u r e and maturities of the paper and other investments o w n e d o r held by
F e d e r a l r e s e r v e banks.
l i b . T o permit, or, on the affirmative v o t e of at least five members
of the R e s e r v e B o a r d , to require F e d e r a l reserve banks to rediscount the
discounted paper of other F e d e r a l r e s e r v e banks at rates of interest to be
fixed by the F e d e r a l R e s e r v e B o a r d .
lie.
T o suspend f o r a period not exceeding thirty days, and f r o m
time to time to r e n e w such suspension f o r periods not exceeding fifteen
days, any reserve requirements specified in this A c t : Provided, T h a t it shall
establish a g r a d u a t e d t a x upon the amounts by w h i c h the reserve requirements of this A c t m a y be permitted t o f a l l b e l o w the level h e r e i n a f t e r
specified: And provided further, T h a t w h e n the gold r e s e r v e held against
F e d e r a l reserve notes f a l l s b e l o w f o r t y per centum, the F e d e r a l R e s e r v e
B o a r d shall establish a g r a d u a t e d t a x of not m o r e than one per centum
per annum upon such deficiency until the reserves f a l l to t h i r t y - t w o and onehalf p e r centum, and w h e n said r e s e r v e f a l l s b e l o w t h i r t y - t w o and one-half
p e r c e n t u m , a t a x at the rate increasingly of not less than one and one-half
per c e n t u m p e r annum upon each t w o and one-half per c e n t u m o r f r a c t i o n
thereof t h a t such r e s e r v e f a l l s b e l o w t h i r t y - t w o and one-half per centum.
T h e t a x shall be paid by the reserve bank, but the r e s e r v e bank shall add
an a m o u n t equal to said t a x to the r a t e s of interest and discount fixed by
the F e d e r a l R e s e r v e B o a r d .
lid.
T o supervise and r e g u l a t e t h r o u g h the b u r e a u u n d e r the c h a r g e
of the C o m p t r o l l e r of the C u r r e n c y the issue and retirement of F e d e r a l
r e s e r v e notes, and to prescribe rules and regulations u n d e r w h i c h such notes
m a y be delivered by the C o m p t r o l l e r t o the F e d e r a l r e s e r v e agents applying
therefor.
lie.
To
add to t h e number of cities classified as r e s e r v e and central
r e s e r v e cities under existing l a w
in w h i c h n a t i o n a l banking
associations
a r e s u b j e c t t o the r e s e r v e r e q u i r e m e n t s set f o r t h in section t w e n t y of this
A c t ; o r t o reclassify existing r e s e r v e and c e n t r a l r e s e r v e cities o r t o t e r m i nate their designation as such.
[ 107]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
x x f . T o suspend o r remove any officer o r director of any F e d e r a l reserve bank, the cause of such removal to be f o r t h w i t h communicated in
w r i t i n g by the F e d e r a l Reserve B o a r d to the removed officer or director
and to said bank.
ug.
T o require the w r i t i n g off of d o u b t f u l o r w o r t h l e s s assets upon
the books and balance sheets of F e d e r a l reserve banks.
nh.
T o suspend, f o r the violation of any of the provisions of this
A c t , the operations of any F e d e r a l reserve bank, to t a k e possession thereof,
administer the same during the period of suspension, and, w h e n deemed
advisable, to liquidate or reorganize such bank.
n i . T o require bonds of F e d e r a l reserve agents, to m a k e regulations
f o r the safeguarding of all collateral, bonds, F e d e r a l reserve notes, money
or property of any kind deposited in the hands of such agents, and said
board shall p e r f o r m the duties, functions, o r services specified in this A c t ,
and make all rules and regulations necessary to enable said board effectively
to p e r f o r m the same.
nj.
T o exercise general supervision over said F e d e r a l reserve banks.
nk.
T o g r a n t by special permit to national banks applying therefor, w h e n not in contravention of State o r local l a w , the right to act as
trustee, executor, administrator, registrar of stocks and bonds, g u a r d i a n
of estates, assignee, receiver, committee of estates of lunatics, o r in any
other fiduciary capacity in w h i c h State banks, trust companies, o r other
corporations which come into competition w i t h national banks are permitted to act under the l a w s of the State in w h i c h the national bank is
located.
W h e n e v e r the l a w s of such State authorize o r permit the exercise of
any or all of the foregoing p o w e r s by State banks, trust companies, o r other
corporations w h i c h compete w i t h national banks, the granting to and the
exercise of such powers by national banks shall not be deemed to be in
contravention of State o r local l a w within the meaning of this A c t .
N a t i o n a l banks exercising any or all of the powers enumerated in this
subsection shall segregate all assets held in any fiduciary capacity f r o m the
general assets of the bank and shall keep a separate set of books and records showing in proper detail all transactions engaged in under authority
of this subsection. Such books and records shall be open to inspection by
the State authorities to the same extent as the books and records of corporations organized under State l a w w h i c h exercise fiduciary powers, but
nothing in this A c t shall be construed as authorizing the State authorities
to examine the books, records, and assets of the national bank w h i c h are
not held in t r u s t under authority of this subsection.
N o national bank shall receive in its t r u s t department deposits of c u r rent funds subject to check o r the deposit of checks, d r a f t s , bills of exchange, o r other items f o r collection o r exchange purposes. F u n d s deposited
o r held in t r u s t by the bank a w a i t i n g investment shall be c a r r i e d in a
[108]
FEDERAL RESERVE A C T
separate account and shall not be used by the bank in the conduct of its
business unless it shall first set aside in the trust department U n i t e d States
bonds o r other securities approved by the F e d e r a l R e s e r v e B o a r d .
In the event of the f a i l u r e of such bank the o w n e r s of the funds held
in t r u s t f o r investment shall have a lien on the bonds o r other securities
so set apart in addition to their claim against the estate of the bank.
W h e n e v e r the l a w s of a State require corporations acting in a fiduciary
capacity to deposit securities w i t h the State authorities f o r the protection
of private o r court trusts, national banks so acting shall be required to m a k e
similar deposits, and securities so deposited shall be held f o r the protection
of private o r c o u r t trusts, as provided by the State l a w .
N a t i o n a l banks in such cases shall not be required to execute the bond
usually required of individuals if State corporations under similar circumstances are exempt f r o m this requirement.
N a t i o n a l banks shall have p o w e r t o execute such bond w h e n so required
by the l a w s of the State.
In any case in w h i c h the l a w s of a S t a t e require that a corporation acting
as trustee, executor, administrator, o r in any capacity specified in this section, shall t a k e an oath o r m a k e an affidavit, the president, vice president,
cashier, o r trust officer of such national bank m a y take the necessary oath
o r execute the necessary affidavit.
I t shall be u n l a w f u l f o r any national banking association to lend any
officer, director, o r employee any f u n d s held in trust under the powers conf e r r e d by this section. A n y officer, director, o r employee m a k i n g such loan,
o r to w h o m such loan is made, may be fined not more than $5,000, o r imprisoned not more than five years, or may be both fined and imprisoned, in
the discretion of the court.
In passing upon applications f o r permission to exercise the powers enumerated in this subsection, the F e d e r a l R e s e r v e B o a r d may take into consideration the amount of capital and surplus of the applying bank, w h e t h e r
o r not such capital and surplus is sufficient under the circumstances of the
case, the needs of the community to be served, and any other facts and
circumstances that seem to it proper, and m a y g r a n t o r refuse the application a c c o r d i n g l y : Provided, T h a t no permit shall be issued to any national
banking association having a capital and surplus less than the capital and
surplus required by State l a w of State banks, trust companies, and corporations exercising such powers.
I I I . T o employ such attorneys, experts, assistants, clerks, o r other
employees as may be deemed necessary to conduct the business of the board.
A l l salaries and fees shall be fixed in advance by said board and shall be
paid in the same m a n n e r as the salaries of the members of said board. A l l
such attorneys, experts, assistants, clerks, and other employees shall be
appointed w i t h o u t r e g a r d to the provisions of the A c t of J a n u a r y sixteenth,
eighteen hundred and eighty-three ( v o l u m e t w e n t y - t w o , U n i t e d States
S t a t u t e s at L a r g e , page f o u r hundred and t h r e e ) , and amendments thereto,
[109]
N A T I O N A L B A N K I N G UNDER T H B FEDERAL RESERVE SYSTEM
o r any rule o r regulation m a d e in pursuance t h e r e o f : Provided,
T h a t noth-
ing herein shall prevent the President f r o m placing said employees in the
classified service.
nm.
U p o n the affirmative v o t e of not less than five of its m e m b e r s ,
the F e d e r a l R e s e r v e B o a r d shall h a v e p o w e r to p e r m i t F e d e r a l
banks to discount f o r any m e m b e r b a n k notes, d r a f t s , o r bills of
reserve
exchange
bearing the signature o r endorsement of any one b o r r o w e r in excess of the
a m o u n t permitted by section nine and section thirteen o f this A c t , b u t in
no case to exceed twenty per centum of the m e m b e r b a n k ' s c a p i t a l
s u r p l u s : Provided,
however,
and
T h a t all such notes, d r a f t s , o r bills of e x c h a n g e
discounted f o r any m e m b e r bank in excess o f the a m o u n t p e r m i t t e d u n d e r
such sections shall be secured by not less than a like f a c e a m o u n t of bonds
o r notes of the U n i t e d States issued since A p r i l t w e n t y - f o u r t h ,
nineteen
hundred and seventeen, o r certificates of indebtedness of the U n i t e d S t a t e s :
Provided
further.
T h a t the provisions of this subsection ( m ) s h a l l n o t be
operative a f t e r D e c e m b e r thirty-first, nineteen hundred and t w e n t y .
FEDERAL ADVISORY
S e c . 12.
COUNCIL
T h e r e is hereby created a F e d e r a l A d v i s o r y C o u n c i l , w h i c h
shall consist of as many m e m b e r s as there a r e F e d e r a l
reserve
districts.
E a c h F e d e r a l reserve bank by its b o a r d of d i r e c t o r s s h a l l a n n u a l l y
select
f r o m its o w n F e d e r a l reserve district one m e m b e r of said council, w h o shall
receive such compensation and a l l o w a n c e s as m a y b e fixed by his b o a r d of
directors subject to the approval of
the F e d e r a l
Reserve
Board.
The
meetings of said advisory council shall be held a t W a s h i n g t o n , D i s t r i c t of
C o l u m b i a , at least f o u r times each y e a r , and o f t e n e r if c a l l e d by the F e d e r a l
Reserve Board.
T h e council m a y in addition to the m e e t i n g s a b o v e provided
f o r hold such o t h e r meetings in W a s h i n g t o n , D i s t r i c t of C o l u m b i a , o r elsew h e r e , as it m a y deem necessary, may select its o w n officers and a d o p t its
o w n methods of procedure, and a m a j o r i t y of its m e m b e r s shall c o n s t i t u t e a
q u o r u m f o r the transaction of business.
V a c a n c i e s in t h e council shall be
filled by the respective reserve banks, and m e m b e r s selected to fill v a c a n c i e s
shall serve f o r the unexpired t e r m .
12a.
The
Federal Advisory
Council
shall
have
power,
by
itself
or
t h r o u g h its officers, ( 1 ) t o c o n f e r directly w i t h the F e d e r a l R e s e r v e B o a r d
on general business conditions; (2) to m a k e o r a l o r w r i t t e n representations
concerning m a t t e r s w i t h i n the jurisdiction of said b o a r d ;
i n f o r m a t i o n and to m a k e recommendations
in r e g a r d
(3) t o c a l l f o r
to discount
rates,
rediscount business, note issues, r e s e r v e conditions in the v a r i o u s districts,
the purchase and s a l e of gold o r securities by r e s e r v e b a n k s , o p e n - m a r k e t
operations by said banks, and the g e n e r a l a f f a i r s o f
system.
[ H O ]
the r e s e r v e
banking
FEDERAL RESERVE A C T
POWERS
OF FEDERAL RESERVE
BANKS
S e c . 1 3 . A n y F e d e r a l reserve b a n k m a y receive f r o m any of its m e m b e r
banks, and f r o m the U n i t e d S t a t e s , 1 deposits of c u r r e n t f u n d s in l a w f u l
m o n e y , n a t i o n a l - b a n k notes, F e d e r a l r e s e r v e notes, o r checks, and d r a f t s ,
p a y a b l e upon presentation, and also, f o r collection, m a t u r i n g notes and
b i l l s ; o r , solely f o r purposes of e x c h a n g e o r of collection, m a y receive f r o m
o t h e r F e d e r a l r e s e r v e banks deposits of c u r r e n t f u n d s in l a w f u l money,
n a t i o n a l - b a n k notes, o r checks upon o t h e r F e d e r a l r e s e r v e banks, and checks
and d r a f t s , payable upon presentation w i t h i n its district, and m a t u r i n g notes
and bills p a y a b l e w i t h i n its d i s t r i c t ; o r , solely f o r the purposes of e x c h a n g e
o r of collection, m a y receive f r o m any n o n m e m b e r b a n k o r t r u s t c o m p a n y
deposits of c u r r e n t f u n d s in l a w f u l money, national-bank notes, F e d e r a l
r e s e r v e notes, checks and d r a f t s p a y a b l e upon presentation, o r m a t u r i n g
notes and b i l l s : Provided,
Such n o n m e m b e r b a n k o r t r u s t company maintains
w i t h the F e d e r a l r e s e r v e bank of its district a balance sufficient to o f f s e t
the items in t r a n s i t held f o r its account by the F e d e r a l r e s e r v e b a n k : Provided, further,
T h a t n o t h i n g in this o r any o t h e r section of this act shall
be c o n s t r u e d as prohibiting a m e m b e r o r n o n m e m b e r b a n k f r o m m a k i n g
reasonable charges, t o be determined and r e g u l a t e d by the F e d e r a l R e s e r v e
B o a r d , b u t in no case to exceed 10 cents per $100 o r f r a c t i o n t h e r e o f , based
on the t o t a l of checks and d r a f t s presented a t any one time, f o r collection o r p a y m e n t of checks and d r a f t s and remission t h e r e f o r by e x c h a n g e
o r o t h e r w i s e ; b u t no such c h a r g e s shall be m a d e against t h e F e d e r a l
reserve banks.
1 3 a . U p o n the indorsement of any of its m e m b e r banks, w h i c h shall
be d e e m e d a w a i v e r of demand, notice and protest by such b a n k as to
its o w n i n d o r s e m e n t exclusively, any F e d e r a l r e s e r v e bank m a y discount
notes, d r a f t s , and bills of e x c h a n g e a r i s i n g o u t of a c t u a l c o m m e r c i a l t r a n s a c t i o n s ; t h a t is, notes, d r a f t s , and bills of e x c h a n g e issued o r d r a w n f o r
a g r i c u l t u r a l , industrial, o r c o m m e r c i a l purposes, o r the proceeds of w h i c h
h a v e been used, o r a r e to be used, f o r such purposes, the F e d e r a l R e s e r v e
B o a r d t o h a v e the r i g h t to d e t e r m i n e o r define the c h a r a c t e r of the paper
thus eligible f o r discount, w i t h i n the m e a n i n g of this A c t . N o t h i n g in this
A c t contained shall be c o n s t r u e d to prohibit such notes, d r a f t s , and bills
of e x c h a n g e , secured by staple a g r i c u l t u r a l products, o r o t h e r goods, w a r e s ,
o r m e r c h a n d i s e , f r o m being eligible f o r such d i s c o u n t ; b u t such definition
s h a l l n o t include notes, d r a f t s , o r bills c o v e r i n g m e r e l y investments o r issued
o r d r a w n f o r the p u r p o s e of c a r r y i n g o r t r a d i n g in stocks, bonds, o r o t h e r
i n v e s t m e n t securities, e x c e p t bonds a n d notes o f t h e G o v e r n m e n t of the
United States.2
N o t e s , d r a f t s , and bills a d m i t t e d to discount u n d e r the
1 Under authority of W a r Finance A c t , approved A p r i l j , 1918, as amended
by act of M a r c h 3, 1919, m a y receive deposits f r o m W a r Finance Corporation.
2 O r bonds of the W a r
1918.
Finance Corporation.
[ I l l ]
See act approved A p r .
5,
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
t e r m s of this p a r a g r a p h must have a m a t u r i t y at the time of discount of not
m o r e than ninety days, exclusive of days of g r a c e : Provided,
T h a t notes,
d r a f t s , and bills d r a w n o r issued f o r a g r i c u l t u r a l purposes o r based on
live stock and having a m a t u r i t y not exceeding six months, e x c l u s i v e of days
of g r a c e , m a y be discounted in an a m o u n t to be limited to a p e r c e n t a g e of
the assets of the F e d e r a l reserve b a n k , to be ascertained and fixed by the
Federal Reserve Board.
T h e a g g r e g a t e of such notes, d r a f t s , and bills b e a r i n g the s i g n a t u r e o r
indorsement of any one b o r r o w e r , w h e t h e r a person, c o m p a n y , firm, o r c o r poration, rediscounted f o r any one b a n k shall a t no time exceed ten per
centum of the unimpaired capital and s u r p l u s of said b a n k ; b u t this restriction shall not apply to the discount of bills of e x c h a n g e d r a w n in good f a i t h
against actually existing v a l u e s . 1
1 3 b . A n y F e d e r a l reserve bank m a y discount acceptances of the kinds
h e r e i n a f t e r described, w h i c h have a m a t u r i t y at the time of discount of not
m o r e than t h r e e months' sight, exclusive of days of g r a c e , and w h i c h a r e
indorsed by at least one m e m b e r bank.
A n y m e m b e r bank may accept d r a f t s o r bills of e x c h a n g e d r a w n upon it
h a v i n g not m o r e than six months' sight to run, e x c l u s i v e of d a y s of g r a c e ,
w h i c h g r o w out of transactions involving the i m p o r t a t i o n o r e x p o r t a t i o n of
g o o d s ; o r which g r o w out of transactions involving the domestic shipment of
goods provided shipping documents conveying o r s e c u r i n g title a r e attached
at the time of acceptance; o r w h i c h a r e secured a t the t i m e of acceptance by
a w a r e h o u s e receipt o r o t h e r such d o c u m e n t conveying o r s e c u r i n g title
covering readily m a r k e t a b l e staples. N o m e m b e r b a n k shall accept, w h e t h e r
in a f o r e i g n o r domestic transaction, f o r any one person, c o m p a n y , firm, o r
corporation to an amount equal a t any time in the a g g r e g a t e to m o r e than
ten per centum of its paid-up and u n i m p a i r e d c a p i t a l stock and s u r p l u s ,
unless the bank is secured either by attached d o c u m e n t s o r by s o m e o t h e r
actual security g r o w i n g o u t of the s a m e transaction as the a c c e p t a n c e ;
and no b a n k shall accept such bills t o an a m o u n t equal a t any time in the
a g g r e g a t e t o m o r e than one-half of its paid-up and u n i m p a i r e d c a p i t a l stock
and s u r p l u s : Provided,
however, T h a t the F e d e r a l R e s e r v e B o a r d , u n d e r
such general regulations as it m a y prescribe, w h i c h shall apply to all banks
alike regardless of the a m o u n t of c a p i t a l stock and s u r p l u s , m a y a u t h o r i z e
any m e m b e r bank to accept such bills to an a m o u n t not e x c e e d i n g a t any
time in the a g g r e g a t e one hundred p e r c e n t u m of its p a i d - u p and u n i m p a i r e d
capital stock and s u r p l u s : Provided
further,
T h a t the a g g r e g a t e of acceptances g r o w i n g o u t of domestic t r a n s a c t i o n s s h a l l in no e v e n t exceed
fifty per centum of such capital stock and s u r p l u s .
A n y F e d e r a l reserve b a n k m a y m a k e advances t o its m e m b e r b a n k s on
their promissory notes f o r a period n o t exceeding fifteen days a t r a t e s to be
established by such F e d e r a l r e s e r v e b a n k s , s u b j e c t to the r e v i e w and determination of the F e d e r a l R e s e r v e B o a r d , provided s u c h p r o m i s s o r y n o t e s arc
1
Amended by section 11 ( m ) , as amended M a r c h 3, 1919.
[ 1 1 2 ]
FEDERAL RESERVE A C T
s e c u r e d by such notes, d r a f t s , bills o f exchange, o r b a n k e r s ' acceptances as
a r e eligible f o r rediscount or f o r p u r c h a s e by F e d e r a l reserve banks under
the provisions of this A c t , o r by the deposit o r pledge of bonds o r notes of
the U n i t e d S t a t e s . 1
1 3 c . Section fifty-two hundred and t w o o f the R e v i s e d S t a t u t e s of
the U n i t e d S t a t e s is hereby amended so as to r e a d as f o l l o w s : N o national
b a n k i n g association s h a l l a t any time be indebted, o r in any w a y liable, to
an a m o u n t e x c e e d i n g the a m o u n t of its capital stock a t such time actually
paid in and r e m a i n i n g undiminished by losses o r otherwise, except on acc o u n t of d e m a n d s of the n a t u r e f o l l o w i n g :
F i r s t . N o t e s of circulation.
Second. M o n e y s deposited w i t h o r collected by the association.
Third.
B i l l s of e x c h a n g e o r d r a f t s d r a w n against m o n e y a c t u a l l y on
deposit to the c r e d i t of the association, o r due thereto.
Fourth.
L i a b i l i t i e s to the stockholders of the association f o r dividends
and r e s e r v e profits.
F i f t h . L i a b i l i t i e s incurred u n d e r the provisions of the F e d e r a l R e s e r v e
Act.2
T h e discount and rediscount and the purchase and sale by any F e d e r a l
r e s e r v e b a n k of any bills receivable and of domestic and f o r e i g n bills of
e x c h a n g e , and of acceptances a u t h o r i z e d by this A c t , shall be s u b j e c t to such
restrictions, limitations, and regulations as m a y be imposed by the F e d e r a l
Reserve Board.
T h a t in addition to the p o w e r s n o w vested by l a w in national banking
associations o r g a n i z e d u n d e r the l a w s of the U n i t e d States any such association l o c a t e d and doing business in any place the population of w h i c h does
not exceed five t h o u s a n d inhabitants, as s h o w n by the l a s t preceding decennial census, m a y , u n d e r such rules and regulations as m a y be prescribed by
the C o m p t r o l l e r of the C u r r e n c y , act as the agent f o r any fire, life, o r other
i n s u r a n c e c o m p a n y a u t h o r i z e d by the authorities of the S t a t e in w h i c h
said b a n k is l o c a t e d to do business in said State, by soliciting and selling
insurance and c o l l e c t i n g p r e m i u m s on policies issued by such c o m p a n y ;
and m a y receive f o r services so rendered such f e e s o r commissions as m a y
be a g r e e d upon b e t w e e n the said association and the insurance c o m p a n y
f o r w h i c h it m a y act as a g e n t ; and m a y also act as the b r o k e r o r agent f o r
o t h e r s in m a k i n g o r p r o c u r i n g l o a n s on real estate located w i t h i n one
h u n d r e d miles of the place in w h i c h said b a n k m a y be located, receiving
f o r such s e r v i c e s a reasonable f e e o r c o m m i s s i o n : Provided,
however,
That
no such b a n k shall in any case g u a r a n t e e either the principal o r interest
o f any such l o a n s o r a s s u m e o r g u a r a n t e e the p a y m e n t of any p r e m i u m on
i n s u r a n c e policies issued t h r o u g h its agency by its p r i n c i p a l : And
provided
1 O r by bonds and notes of W a r
Finance Corporation Act, approved
2 A l s o liabilities incurred under
poration A c t . See section 20, W a r
191S.
Finance Corporation. See section 13, W a r
A p r . j , 1918.
the provisions of the W a r Finance C o r Finance Corporation Act, approved A p r . 5,
[
3
]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
further, T h a t the bank shall not g u a r a n t e e the t r u t h of any s t a t e m e n t made
by an assured In filing his application f o r insurance.
A n y member bank may accept d r a f t s o r bills of e x c h a n g e d r a w n upon it
h a v i n g not more than three months' sight to run, exclusive of days of grace,
d r a w n under regulations to be prescribed by the F e d e r a l R e s e r v e B o a r d
by banks or bankers in foreign countries o r dependencies o r i n s u l a r possessions of the United States f o r the purpose of furnishing d o l l a r e x c h a n g e as
required by the usages of trade in the respective countries, dependencies, or
insular possessions. Such d r a f t s or bills m a y be acquired by F e d e r a l reserve
banks in such amounts and subject t o such regulations, restrictions, and
limitations as may be prescribed by the F e d e r a l R e s e r v e B o a r d :
Provided,
however, T h a t no member bank shall accept such d r a f t s o r bills of exchange
referred to in this paragraph f o r any one bank to an a m o u n t exceeding in the
aggregate ten per centum of the paid-up and unimpaired capital and surplus
of the accepting bank unless the d r a f t o r bill of e x c h a n g e is accompanied
by documents conveying or securing title or by some o t h e r a d e q u a t e s e c u r i t y :
Provided further, T h a t no member bank shall accept such d r a f t s or bills in
an amount exceeding at any time the a g g r e g a t e of one-half of its paid-up
and unimpaired capital and surplus.
OPEN-MARKET
OPERATIONS
S e c . 1 4 . A n y F e d e r a l reserve b a n k m a y , u n d e r r u l e s and regulations
prescribed by the F e d e r a l Reserve B o a r d , purchase and sell in the open
market, at home or abroad, either f r o m o r to domestic o r f o r e i g n banks,
firms, corporations, or individuals, cable t r a n s f e r s and b a n k e r s ' acceptances
and bills of exchange of the kinds and m a t u r i t i e s by this A c t m a d e eligible
f o r rediscount, w i t h or w i t h o u t the Indorsement of a m e m b e r b a n k .
E v e r y F e d e r a l reserve bank shall h a v e p o w e r :
1 4 a . T o deal in gold coin and bullion at home o r a b r o a d , t o m a k e
loans thereon, exchange F e d e r a l reserve notes f o r gold, gold coin, o r gold
certificates, and to contract f o r loans of gold coin o r bullion, g i v i n g t h e r e f o r ,
w h e n necessary, acceptable security, including the hypothecation of U n i t e d
States bonds or other securities w h i c h F e d e r a l reserve b a n k s a r e a u t h o r i z e d
to hold;
1 4 b . T o buy and sell, at home or abroad, bonds and notes of the U n i t e d
s t a t e s , and bills, notes, revenue bonds, and w a r r a n t s w i t h a m a t u r i t y
f r o m date of purchase of not exceeding six months, Issued in anticipation
o t the collection of taxes or in anticipation of the receipt of assured revenues
by any btate, county, district, political subdivision, o r municipality in the
continental U n i t e d States, including irrigation, d r a i n a g e and reclamation
districts, such purchases to be made in accordance w i t h rules and regulations
prescribed by the F e d e r a l R e s e r v e B o a r d ;
1 4 c . T o purchase f r o m m e m b e r banks and t o sell, w i t h o r w i t h o u t
its indorsement, bills of exchange arising o u t of c o m m e r c i a l transactions, as
hereinbefore defined;
[
4
]
FEDERAL RESERVE A C T
I 4 d . T o establish f r o m time to time, s u b j e c t to r e v i e w and d e t e r mination of the F e d e r a l R e s e r v e B o a r d , r a t e s of discount to be charged by
the F e d e r a l r e s e r v e b a n k f o r each class of paper, w h i c h s h a l l be fixed
w i t h a v i e w o f a c c o m m o d a t i n g c o m m e r c e and business, and w h i c h , s u b j e c t
to the a p p r o v a l , r e v i e w , and d e t e r m i n a t i o n of the F e d e r a l R e s e r v e B o a r d ,
m a y be g r a d u a t e d o r progressed on the basis of the a m o u n t of the advances
and discount accommodations extended by the F e d e r a l r e s e r v e b a n k to the
borrowing bank;
X4e. T o establish accounts w i t h o t h e r F e d e r a l r e s e r v e banks f o r e x change purposes and, w i t h the consent o r upon the o r d e r and direction of
the F e d e r a l R e s e r v e B o a r d and u n d e r regulations t o be prescribed by said
b o a r d , to open and m a i n t a i n accounts in f o r e i g n countries, appoint c o r r e spondents, and establish agencies in such countries w h e r e s o e v e r it m a y be
deemed best f o r the purpose of purchasing, selling, and collecting bills of
e x c h a n g e , and to buy and sell, w i t h o r w i t h o u t its indorsement, t h r o u g h
such correspondents o r agencies, bills of e x c h a n g e ( o r . acceptances) arising
o u t of a c t u a l c o m m e r c i a l transactions w h i c h h a v e not m o r e than ninety days
to r u n , e x c l u s i v e of days of g r a c e , and w h i c h b e a r the s i g n a t u r e of t w o
o r m o r e responsible parties, and, w i t h the consent o f the F e d e r a l R e s e r v e
B o a r d , to open and m a i n t a i n banking accounts f o r such f o r e i g n correspondents o r agencies. W h e n e v e r any s u c h account has been opened o r agency
o r c o r r e s p o n d e n t has been appointed by a F e d e r a l r e s e r v e bank, w i t h the
consent of o r u n d e r the o r d e r and direction of the F e d e r a l R e s e r v e B o a r d ,
any o t h e r F e d e r a l r e s e r v e b a n k may, w i t h the consent and a p p r o v a l of the
F e d e r a l R e s e r v e B o a r d , be p e r m i t t e d to c a r r y o n o r conduct, t h r o u g h the
F e d e r a l r e s e r v e b a n k opening such account o r appointing such agency o r
correspondent, any transaction a u t h o r i z e d by this section u n d e r rules and
r e g u l a t i o n s t o be prescribed by the b o a r d .
GOVERNMENT
S e c . 15.
DEPOSITS
T h e m o n e y s held in the g e n e r a l f u n d of the T r e a s u r y , except
the five per c e n t u m f u n d f o r the redemption of o u t s t a n d i n g national-bank
notes and the f u n d s provided in this A c t f o r the redemption of
r e s e r v e notes m a y , upon the direction of the S e c r e t a r y of the
Federal
Treasury,
be deposited in F e d e r a l r e s e r v e banks, w h i c h banks, w h e n required by the
S e c r e t a r y of the T r e a s u r y , s h a l l act a s fiscal agents of the U n i t e d S t a t e s ; 1
and the r e v e n u e s of the G o v e r n m e n t o r any p a r t thereof m a y be deposited
in such b a n k s , and disbursements m a y be m a d e by c h e c k s d r a w n
against
such deposits.
N o public f u n d s of the Philippine I s l a n d s , o r of the p o s t a l savings, o r any
Government
funds, shall
be deposited
in the continental
United
States
1 U n d e r W a r Finance Corporation A c t , approved A p r . 5, 1918, as amended
by A c t of M a r . 3, 1919, Federal Reserve Banks may also act as fiscal agents
of the W a r Finance Corporation.
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
in any bank not belonging t o the system established by this A c t : 1
however.
Provided,
T h a t nothing in this A c t shall be c o n s t r u e d to deny the right of
the Secretary of the T r e a s u r y to use m e m b e r banks as depositories.
NOTE
ISSUES
S e c . 1 6 . F e d e r a l reserve notes, t o be issued at the discretion of the
F e d e r a l R e s e r v e B o a r d f o r the purpose of m a k i n g a d v a n c e s t o Federal
reserve banks through the F e d e r a l r e s e r v e agents as h e r e i n a f t e r set forth
and f o r no other purpose, a r e hereby a u t h o r i z e d . T h e said notes shall be
obligations of the United States and shall be r e c e i v a b l e by all national
and member banks and F e d e r a l r e s e r v e b a n k s and f o r all taxes, customs,
and other public dues. T h e y shall be redeemed in g o l d on demand at the
T r e a s u r y D e p a r t m e n t of the U n i t e d States, in the city of W a s h i n g t o n ,
D i s t r i c t of C o l u m b i a , o r in gold or l a w f u l money a t any F e d e r a l reserve
bank.
l 6 a . A n y F e d e r a l reserve bank m a y m a k e application to the local
F e d e r a l reserve agent f o r such amount of the F e d e r a l r e s e r v e notes hereinbefore provided f o r as it m a y require. Such application shall be accompanied w i t h a tender to the local F e d e r a l r e s e r v e a g e n t of c o l l a t e r a l in
amount equal to the sum of the F e d e r a l reserve notes t h u s applied f o r and
issued pursuant to such application. T h e c o l l a t e r a l security thus offered
shall be notes, d r a f t s , bills of exchange, o r acceptances acquired under the
provisions of section thirteen of this act, o r bills of e x c h a n g e indorsed by a
member bank of any F e d e r a l r e s e r v e district and p u r c h a s e d under the
provisions of section f o u r t e e n of this a c t , o r b a n k e r s ' acceptances purchased
under the provisions of said section f o u r t e e n , o r gold o r gold certificates;
but in no event shall such c o l l a t e r a l security, w h e t h e r gold, gold certificates,
o r eligible paper, be less than the a m o u n t of F e d e r a l r e s e r v e notes applied
f o r . 2 T h e F e d e r a l reserve agent shall each d a y n o t i f y the F e d e r a l Reserve
B o a r d of all issues and w i t h d r a w a l s of F e d e r a l r e s e r v e notes to and by the
F e d e r a l reserve bank to w h i c h he is accredited. T h e said F e d e r a l Reserve
B o a r d m a y at any time c a l l upon a F e d e r a l r e s e r v e b a n k f o r additional
security to protect the F e d e r a l reserve notes issued t o it.
1 6 b . E v e r y F e d e r a l reserve b a n k s h a l l m a i n t a i n r e s e r v e s in gold or
l a w f u l money of not less than thirty-five per c e n t u m against its deposits
and reserves in gold of not less than f o r t y per c e n t u m against its Federal
reserve notes in actual c i r c u l a t i o n : Provided,
however,
T h a t w h e n the
1 Under section 7 of the act approved A p r . 24, 1917, section 8 of the
approved Sept. 24, 1917, and section 8 of the act approved A p r . 4, i9™<
proceeds of sale of Liberty bonds of the first, second, and third issues ma?
deposited in nonmember banks. T h e act of M a y iS, 1916, amending the P<»»>
Savings Act, authorizes the deposit of postal s a v i n g s f u n d s in nonmeniD"
banks.
2 Under section 13 of W a r Finance Corporation A c t , approved A p r . 5»
notes secured by W a r Finance Corporation bonds m a y be used to same extern,
as collateral, as notes secured by United States bonds.
[ll6]
FEDERAL RESERVE A C T
F e d e r a l reserve agent holds gold o r gold certificates as collateral f o r
F e d e r a l reserve notes issued to the bank such gold o r gold certificates shall
be counted as p a r t of the gold reserve w h i c h such bank is required to maintain against its F e d e r a l reserve notes in actual circulation.
1 6 c . N o t e s so paid out shall bear upon their faces a distinctive letter
and serial number w h i c h shall be assigned by the F e d e r a l R e s e r v e B o a r d
to each F e d e r a l reserve bank. W h e n e v e r F e d e r a l reserve notes issued
through one F e d e r a l reserve bank shall be received by another F e d e r a l
reserve bank, they shall be promptly returned f o r credit or redemption t o
the F e d e r a l reserve bank through w h i c h they w e r e originally issued or, upon
direction of such F e d e r a l reserve bank, they shall be f o r w a r d e d direct to
the T r e a s u r e r of the U n i t e d States to be retired. N o F e d e r a l reserve
bank shall pay out notes issued through another under penalty of a t a x
of ten p e r centum upon the f a c e v a l u e of notes so paid out.
Notes
presented f o r redemption at the T r e a s u r y of the U n i t e d States shall be
paid o u t of the redemption fund and returned to the F e d e r a l reserve
banks through which they w e r e originally issued, and thereupon such
F e d e r a l reserve bank shall, upon demand of the Secretary of the T r e a s u r y ,
reimburse such redemption fund in l a w f u l money or, if such F e d e r a l reserve
notes h a v e been redeemed by the T r e a s u r e r in gold or gold certificates, then
such f u n d s shall be reimbursed to the extent deemed necessary by the Secret a r y of the T r e a s u r y in gold or gold certificates, and such F e d e r a l reserve
bank shall, so long as any of its F e d e r a l reserve notes remain outstanding,
maintain w i t h the T r e a s u r e r in gold an amount sufficient in the judgment
of the Secretary to provide f o r all redemptions to be made by the T r e a s u r e r .
F e d e r a l reserve notes received by the T r e a s u r e r otherwise than f o r redemption m a y be exchanged f o r gold o u t of the redemption fund hereinafter
provided and returned to the reserve bank through w h i c h they w e r e originally issued, o r they may be returned to such bank f o r the credit of the
U n i t e d States. F e d e r a l reserve notes unfit f o r circulation shall be returned
by the F e d e r a l reserve agents to the C o m p t r o l l e r of the C u r r e n c y f o r
cancellation and destruction.
i 6 d . T h e F e d e r a l R e s e r v e B o a r d shall require each F e d e r a l reserve
bank to maintain on deposit in the T r e a s u r y of the United States a sum
in gold sufficient in the j u d g m e n t of the Secretary of the T r e a s u r y f o r
the redemption of the F e d e r a l reserve notes issued to such bank, but in
no event less than five per centum of the total amount of notes issued less
the a m o u n t of gold o r gold certificates held by the F e d e r a l reserve agent
as collateral s e c u r i t y ; but such deposit of gold shall be counted and included
as p a r t of the f o r t y per centum reserve hereinbefore required.
l 6 e . T h e board shall have the right, acting through the F e d e r a l reserve agent, to g r a n t in w h o l e o r in part, o r to r e j e c t entirely the application of any F e d e r a l reserve bank f o r F e d e r a l reserve n o t e s ; b u t to the
extent t h a t such application m a y be granted the F e d e r a l R e s e r v e B o a r d
[ 117]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
shall, t h r o u g h its local F e d e r a l reserve agent, supply F e d e r a l r e s e r v e notes
to the banks so applying, and such b a n k s h a l l be c h a r g e d w i t h the amount
of notes issued to it and shall pay such r a t e of interest as m a y be established
by the F e d e r a l R e s e r v e B o a r d on only t h a t a m o u n t of such notes which
equals the total amount of its outstanding F e d e r a l reserve notes less the
amount of gold or gold certificates held by the F e d e r a l reserve agent as
c o l l a t e r a l security. F e d e r a l reserve notes issued to any such b a n k shall,
upon delivery, together w i t h such notes of such F e d e r a l r e s e r v e bank as
m a y be issued under section eighteen of this act upon security of United
States t w o per centum G o v e r n m e n t bonds, become a first and p a r a m o u n t
lien on all the assets of such bank.
l 6 f . A n y F e d e r a l reserve bank m a y at any time reduce its liability
f o r outstanding F e d e r a l reserve notes by depositing w i t h the F e d e r a l
reserve agent its F e d e r a l reserve notes, gold, gold certificates, o r l a w f u l
money of the U n i t e d States. F e d e r a l r e s e r v e notes so deposited shall not be
reissued, except upon compliance w i t h the conditions of an original issue.
T h e F e d e r a l reserve agent shall hold such g o l d , gold certificates, or
l a w f u l money available exclusively f o r e x c h a n g e f o r the o u t s t a n d i n g F e d e r a l
reserve notes w h e n offered by the reserve bank of w h i c h he is a director.
U p o n the request of the S e c r e t a r y of the T r e a s u r y the F e d e r a l R e s e r v e
B o a r d shall require the F e d e r a l r e s e r v e agent to t r a n s m i t to the T r e a s u r e r
of the U n i t e d States so much of the g o l d held by h i m as c o l l a t e r a l security
f o r F e d e r a l reserve notes as m a y be required f o r the e x c l u s i v e purpose
of the redemption of such F e d e r a l r e s e r v e notes, b u t such gold w h e n deposited w i t h the T r e a s u r e r shall be counted and considered as if collateral
security on deposit w i t h the F e d e r a l r e s e r v e agent.
i 6 g . A n y F e d e r a l reserve bank m a y a t its discretion w i t h d r a w coll a t e r a l deposited w i t h the local F e d e r a l r e s e r v e a g e n t f o r the protection
of its F e d e r a l reserve notes issued t o it and s h a l l a t the s a m e time substitute t h e r e f o r o t h e r c o l l a t e r a l of e q u a l a m o u n t w i t h the a p p r o v a l of the
F e d e r a l reserve agent u n d e r regulations to be p r e s c r i b e d by the Federal Reserve Board.
A n y F e d e r a l reserve bank m a y retire any of its
F e d e r a l reserve notes by depositing t h e m w i t h the F e d e r a l r e s e r v e agent or
w i t h the T r e a s u r e r of the U n i t e d States, and s u c h F e d e r a l r e s e r v e bank
shall thereupon be entitled t o receive b a c k the c o l l a t e r a l deposited w i t h the
F e d e r a l reserve agent f o r the security of such notes.
F e d e r a l reserve
banks shall not be required to m a i n t a i n the r e s e r v e o r the redemption
f u n d h e r e t o f o r e provided f o r against F e d e r a l r e s e r v e notes w h i c h have
been retired. F e d e r a l reserve notes so deposited s h a l l n o t be reissued except upon compliance w i t h the conditions of an o r i g i n a l issue.
A l l F e d e r a l reserve notes and all g o l d , gold c e r t i f i c a t e s , and l a w f u l money
issued to o r deposited w i t h any F e d e r a l r e s e r v e a g e n t u n d e r the provisions
of the F e d e r a l r e s e r v e act shall h e r e a f t e r be held f o r s u c h a g e n t , under
such rules and regulations as the F e d e r a l R e s e r v e B o a r d m a y prescribe, in
the j o i n t c u s t o d y of himself and the F e d e r a l r e s e r v e b a n k t o w h i c h he is
[ 1 1 8 ]
FEDERAL RESERVE A C T
accredited.
Such agent and such F e d e r a l reserve bank shall be jointly
liable f o r the safe-keeping of such F e d e r a l reserve notes, gold, gold certificates, and l a w f u l money. N o t h i n g herein contained, however, shall be
construed to prohibit a F e d e r a l reserve agent f r o m depositing gold or gold
certificates w i t h the F e d e r a l R e s e r v e B o a r d , to be held by such board subject
to his order, or w i t h the T r e a s u r e r of the U n i t e d States f o r the purposes
authorized by l a w .
l6h.
In o r d e r to furnish suitable notes f o r circulation as F e d e r a l reserve notes, the C o m p t r o l l e r of the C u r r e n c y shall, under the direction of
the Secretary of the T r e a s u r y , cause plates and dies to be engraved in the
best manner to g u a r d against counterfeits and f r a u d u l e n t alterations, and
shall have printed t h e r e f r o m and numbered such quantities of such notes
of the denominations of $5, $10, $20, $50, $100, $500, $1000, $5000, $10,000
as may be required to supply the F e d e r a l reserve banks. Such notes shall
be in f o r m and tenor as directed by the Secretary of the T r e a s u r y under the
provisions of this A c t and shall bear the distinctive numbers of the several
F e d e r a l reserve banks through w h i c h they are issued.
W h e n such notes have been prepared, they shall be deposited in the
T r e a s u r y , o r in the subtreasury o r mint of the United States nearest the
place of business of each F e d e r a l reserve bank and shall be held f o r the
use of such bank subject to the o r d e r of the C o m p t r o l l e r of the C u r r e n c y
f o r their delivery, as provided by this A c t .
T h e plates and dies to be procured by the C o m p t r o l l e r of the C u r rency f o r the printing of such circulating notes shall remain under his
control and direction, and the expenses necessarily incurred in executing the
l a w s relating to the procuring of such notes, and all other expenses incidental to their issue and retirement, shall be paid by the F e d e r a l reserve
banks, and the F e d e r a l R e s e r v e B o a r d shall include in its estimate of
expenses levied against the F e d e r a l reserve banks a sufficient amount to
c o v e r the expenses herein provided f o r .
T h e examination of plates, dies, bed pieces, and so f o r t h , and regulations relating to such examination of plates, dies, and so forth, of nationalbank notes provided f o r in section fifty-one hunt'red and seventy-four R e vised Statutes, is hereby extended to include notes herein provided f o r .
i 6 i . A n y appropriation h e r e t o f o r e made out of the general funds of
the T r e a s u r y f o r engraving plates and dies, the purchase of distinctive
paper, o r to c o v e r any other expense in connection w i t h the printing of
national-bank notes o r notes provided f o r by the A c t of M a y thirtieth,
nineteen hundred and eight, and any distinctive paper t h a t may be on
hand at the time of the passage of this A c t m a y be used in the discretion
of the Secretary f o r the purposes of this A c t , and should the appropriations
h e r e t o f o r e m a d e be insufficient to m e e t the requirements of this A c t in
addition to circulating notes provided f o r by existing l a w , the Secretary
is hereby authorized to use so much of any funds in the T r e a s u r y not otherw i s e appropriated f o r the purpose of furnishing the notes a f o r e s a i d : Pro-
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
vided,
however,
T h a t nothing in this section contained shall be construed
as e x e m p t i n g national banks o r F e d e r a l reserve banks f r o m their liability
to
reimburse
the
United
States
for
any expenses
incurred
in
printing
and issuing circulating notes.
i6j.
E v e r y F e d e r a l reserve bank shall receive on deposit a t p a r
from
m e m b e r banks or f r o m F e d e r a l reserve banks checks and d r a f t s d r a w n upon
any of its depositors, and w h e n remitted by a F e d e r a l r e s e r v e b a n k , checks
and d r a f t s d r a w n by any depositor in any other F e d e r a l r e s e r v e bank o r
member bank upon funds to the credit of said depositor in said r e s e r v e bank
o r m e m b e r bank.
l6k.
N o t h i n g herein contained shall be construed as prohibiting a member bank f r o m charging its actual expense i n c u r r e d in c o l l e c t i n g and
remitting funds, o r f o r exchange sold to its patrons. T h e F e d e r a l R e s e r v e
B o a r d shall, by rule, fix the charges to be collected by the m e m b e r banks
f r o m its patrons w h o s e checks are cleared t h r o u g h the F e d e r a l r e s e r v e bank
and the charge w h i c h may be imposed f o r the service of c l e a r i n g o r collection rendered by the F e d e r a l reserve bank.
1 6 I . T h e F e d e r a l R e s e r v e B o a r d shall m a k e and p r o m u l g a t e f r o m
time to time regulations g o v e r n i n g the t r a n s f e r of f u n d s and c h a r g c s theref o r a m o n g F e d e r a l reserve banks and their branches, and m a y a t its discretion exercise the functions of a c l e a r i n g house f o r such F e d e r a l reserve
banks, o r may designate a F e d e r a l r e s e r v e bank to exorcise such functions,
and m a y also require each such bank t o exercise the f u n c t i o n s of a clearing
house f o r its m e m b e r banks.
16m.
T h a t the S e c r e t a r y of
the T r e a s u r y
is h e r e b y
authorized
and
directed to receive deposits of gold coin o r of g o l d c e r t i f i c a t e s w i t h
T r e a s u r e r o r any assistant t r e a s u r e r of the U n i t e d S t a t e s w h e n
by any F e d e r a l reserve bank o r F e d e r a l
reserve
o r his account w i t h the F e d e r a l R e s e r v e B o a r d .
the
tendered
a g e n t f o r c r e d i t to its
T h e S e c r e t a r y shall pre-
scribe by regulation the f o r m of receipt to be issued by the T r e a s u r e r or
Assistant T r e a s u r e r to the F e d e r a l r e s e r v e b a n k o r F e d e r a l reserve agent
m a k i n g the deposit, and a duplicate of such receipt s h a l l be d e l i v e r e d to the
F e d e r a l R e s e r v e B o a r d by the T r e a s u r e r a t W a s h i n g t o n upon proper advices f r o m any assistant t r e a s u r e r t h a t s u c h deposit has been m a d e .
posits so m a d e shall be held s u b j e c t t o the o r d e r s of the F e d e r a l
De-
Reserve
B o a r d and shall be payable in gold coin o r gold c e r t i f i c a t e s on the o r d e r of
the F e d e r a l R e s e r v e B o a r d to any F e d e r a l r e s e r v e b a n k o r F e d e r a l reserve
agent at the T r e a s u r y o r at the S u b t r e a s u r y of the U n i t e d S t a t e s nearest
the place of business of such F e d e r a l r e s e r v e b a n k o r s u c h F e d e r a l reserve
a g e n t : Provided,
however.
T h a t any expense i n c u r r e d in shipping gold to
o r f r o m the T r e a s u r y o r s u b t r e a s u r i e s in o r d e r to m a k e such
payments,
o r as a result of m a k i n g such p a y m e n t s , s h a l l be paid by the F e d e r a l Res e r v e B o a r d and assessed against the F e d e r a l r e s e r v e b a n k s .
The
order
used by the F e d e r a l R e s e r v e B o a r d in m a k i n g s u c h p a y m e n t s s h a l l b e signed
[120]
FEDERAL RESERVE A C T
by the g o v e r n o r o r vice governor, or such other officers or members as the
board m a y by regulation prescribe. T h e f o r m of such o r d e r shall be approved by the S e c r e t a r y of the T r e a s u r y .
T h e expenses necessarily incurred in c a r r y i n g o u t these provisions, including the cost of the certificates o r receipts issued f o r deposits received, and
all expenses incident to the handling of such deposits shall be paid by the
F e d e r a l R e s e r v e B o a r d and included in its assessments against the several
F e d e r a l r e s e r v e banks.
G o l d deposits standing to the credit of any F e d e r a l r e s e r v e b a n k w i t h
the F e d e r a l R e s e r v e B o a r d shall, at the option of said bank, be counted as
p a r t of the l a w f u l reserve w h i c h it is required t o maintain against o u t standing F e d e r a l reserve notes, o r as a p a r t of the reserve i t is required
to maintain against deposits.
N o t h i n g in this section shall be construed as amending section six of
the act of M a r c h f o u r t e e n t h , nineteen hundred, as amended by the acts of
M a r c h f o u r t h , nineteen hundred and seven, M a r c h second, nineteen hundred
and eleven, and J u n e t w e l f t h , nineteen hundred and sixteen, nor shall the
provisions of this section be construed to apply to the deposits made or to
the receipts o r certificates issued u n d e r those acts.
S e c . 1 7 . S o much of the provisions of section fifty-one hundred and
fifty-nine of the Revised Statutes of the U n i t e d States, and section f o u r of
the act of J u n e twentieth, eighteen hundred and seventy-four, and section
eight of the act of J u l y t w e l f t h , eighteen hundred and eighty-two, and
of any o t h e r provisions of existing statutes as require t h a t b e f o r e any
national banking association shall be a u t h o r i z e d to commence banking business it shall t r a n s f e r and deliver to the T r e a s u r e r of the U n i t e d States
a stated a m o u n t of U n i t e d States registered bonds, and so m u c h of those
provisions o r of any o t h e r provisions of existing statutes as require any
national banking association n o w o r h e r e a f t e r o r g a n i z e d to maintain a
m i n i m u m deposit of such bonds w i t h the T r e a s u r e r is hereby repealed.
REFUNDING
BONDS
S e c . 18. A f t e r t w o y e a r s f r o m the passage of this A c t , and at any time
d u r i n g a period of t w e n t y y e a r s t h e r e a f t e r , any m e m b e r b a n k desiring
to retire the w h o l e o r any p a r t of its circulating notes may file w i t h the
T r e a s u r e r of t h e U n i t e d S t a t e s an application t o sell f o r its account,
at p a r and accrued interest, U n i t e d States bonds securing circulation t o
be retired.
18a. T h e T r e a s u r e r shall, at the end of each q u a r t e r l y period, f u r nish the F e d e r a l R e s e r v e B o a r d w i t h a list of such applications, and the
F e d e r a l R e s e r v e B o a r d m a y , in its discretion, require the F e d e r a l reserve
banks to p u r c h a s e such bonds f r o m the banks w h o s e applications h a v e been
filed w i t h the T r e a s u r e r a t least ten days b e f o r e the end of any q u a r t e r l y
period at w h i c h the F e d e r a l R e s e r v e B o a r d m a y direct the purchase t o be
m a d e : Provided,
T h a t F e d e r a l r e s e r v e banks shall not be permitted to p u r -
[
121]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
chase an a m o u n t to exceed $25,000,000 of such bonds in any one y e a r , and
w h i c h amount shall include bonds acquired under section f o u r of this A c t
by the F e d e r a l reserve bank.
Provided
further,
T h a t the F e d e r a l R e s e r v e B o a r d shall allot to each
F e d e r a l reserve bank such proportion of such bonds as the c a p i t a l and
surplus of such bank shall b e a r to the a g g r e g a t e c a p i t a l and s u r p l u s of all
the F e d e r a l reserve banks.
U p o n notice f r o m the T r e a s u r e r of the a m o u n t of bonds so sold f o r its
account, each m e m b e r bank shall duly assign and t r a n s f e r , in w r i t i n g , such
bonds to the F e d e r a l reserve bank purchasing the s a m e , and such F e d e r a l
reserve bank shall, thereupon, deposit l a w f u l money w i t h the T r e a s u r e r
of the U n i t e d States f o r the purchase price of such bonds, and the T r e a s u r e r
shall pay to the m e m b e r bank selling such bonds any b a l a n c e d u e a f t e r deducting a sufficient sum to redeem its o u t s t a n d i n g notes s e c u r e d by such
bonds, w h i c h notes shall be canceled and p e r m a n e n t l y retired w h e n
redeemed.
1 8 b . T h e F e d e r a l reserve banks purchasing such bonds shall be permitted to take o u t an amount of circulating notes e q u a l to the p a r v a l u e of
such bonds.
U p o n the deposit w i t h the T r e a s u r e r of the U n i t e d S t a t e s of bonds so
purchased, o r any bonds w i t h the c i r c u l a t i n g p r i v i l e g e acquired u n d e r section
f o u r of this A c t , any F e d e r a l r e s e r v e b a n k m a k i n g such deposit in the manner provided by existing l a w , shall be entitled to r e c e i v e f r o m the C o m p t r o l l e r of the C u r r e n c y circulating notes in b l a n k , r e g i s t e r e d and countersigned as provided by l a w , equal in a m o u n t to the p a r v a l u e of the bonds
so deposited. 1 Such notes shall be the obligations of the F e d e r a l reserve
bank procuring the same, and shall be in f o r m prescribed by the S e c r e t a r y
of the T r e a s u r y , and to the s a m e tenor and effect as n a t i o n a l - b a n k notes
n o w provided by l a w . T h e y shall be issued and r e d e e m e d u n d e r the same
terms and conditions as national-bank notes e x c e p t t h a t they s h a l l not be
limited to the a m o u n t of the capital stock of the F e d e r a l r e s e r v e bank
issuing them.
1 8 c . U p o n application of any F e d e r a l r e s e r v e b a n k , a p p r o v e d b y the
F e d e r a l R e s e r v e B o a r d , the S e c r e t a r y of the T r e a s u r y m a y issue, in exchange f o r U n i t e d States t w o per c e n t u m gold bonds b e a r i n g the c i r c u l a tion privilege, b u t against w h i c h no c i r c u l a t i o n is o u t s t a n d i n g , one-year
gold notes of the U n i t e d S t a t e s w i t h o u t the c i r c u l a t i o n p r i v i l e g e , to an
a m o u n t not to exceed one-half of the t w o p e r c e n t u m bonds so tendered
f o r exchange, and t h i r t y - y e a r t h r e e per c e n t u m g o l d bonds w i t h o u t the
circulation privilege f o r the r e m a i n d e r o f the t w o p e r c e n t u m bonds so
t e n d e r e d : Provided, T h a t a t the time of such e x c h a n g e the F e d e r a l reserve
b a n k obtaining such o n e - y e a r gold n o t e s s h a l l e n t e r into an o b l i g a t i o n w i t h
1 Under act of A p r . 23, 1918, Federal reserve banks may issue F e d e r a l reserve
bank notes in any denominations, including $1 and $2, against the security of
United States certificates of indebtedness to the extent permitted by that act.
[ 1 2 2 ]
FEDERAL RESERVE A C T
the S e c r e t a r y of the T r e a s u r y binding itself to p u r c h a s e f r o m the U n i t e d
S t a t e s f o r gold at the m a t u r i t y of such o n e - y e a r notes, an amount equal
to those delivered in exchange f o r s u c h bonds, if so requested by the Secret a r y , and a t each m a t u r i t y of o n e - y e a r notes so purchased by such F e d e r a l
r e s e r v e b a n k , to p u r c h a s e f r o m the U n i t e d S t a t e s s u c h an a m o u n t of oney e a r notes as the S e c r e t a r y m a y t e n d e r to such b a n k , n o t t o exceed
the a m o u n t issued to such bank in the first instance, in e x c h a n g e f o r the
t w o per c e n t u m U n i t e d States g o l d b o n d s ; said obligation t o purchase at
m a t u r i t y such notes s h a l l continue in f o r c e f o r a period n o t to exceed
thirty y e a r s .
F o r the purpose o f m a k i n g the e x c h a n g e herein provided f o r , the S e c r e t a r y of the T r e a s u r y is a u t h o r i z e d to issue at p a r T r e a s u r y notes in coupon
o r registered f o r m as he m a y prescribe in denominations of one hundred
d o l l a r s , o r any multiple thereof, b e a r i n g interest a t the r a t e of three per
c e n t u m p e r annum, p a y a b l e q u a r t e r l y , such T r e a s u r y notes to be payable
not m o r e than one y e a r f r o m the d a t e of their issue in gold coin of the
present s t a n d a r d v a l u e , and to be e x e m p t as to principal and interest f r o m
the p a y m e n t of all t a x e s and duties o f the U n i t e d S t a t e s except as provided
by this A c t , as w e l l as f r o m t a x e s in any f o r m by o r u n d e r State, municipal,
o r l o c a l authorities. A n d f o r the s a m e purpose, the S e c r e t a r y is authorized
and e m p o w e r e d to issue U n i t e d S t a t e s g o l d bonds a t p a r , b e a r i n g three per
c e n t u m interest payable thirty y e a r s f r o m d a t e of issue, such bonds to be
of the s a m e g e n e r a l tenor and effect a n d to be issued u n d e r the s a m e g e n e r a l
t e r m s and conditions as the U n i t e d S t a t e s three per c e n t u m bonds w i t h o u t
the c i r c u l a t i o n privilege n o w issued and outstanding.
l8d.
U p o n application of any F e d e r a l r e s e r v e bank, approved by the
F e d e r a l R e s e r v e B o a r d , the S e c r e t a r y m a y issue a t p a r such three per
c e n t u m bonds in exchange f o r the o n e - y e a r gold notes herein provided f o r .
BANK
RESERVES
S e c . 1 9 . D e m a n d deposits w i t h i n the m e a n i n g of this A c t shall comprise
all deposits p a y a b l e w i t h i n thirty days, and time deposits shall comprise all
deposits p a y a b l e a f t e r thirty days, a l l savings accounts and certificates of
deposit w h i c h a r e s u b j e c t to not less than thirty d a y s ' notice b e f o r e paym e n t , and all postal savings deposits. 1
E v e r y b a n k , b a n k i n g association, o r t r u s t c o m p a n y w h i c h is o r
which
becomes a m e m b e r of any F e d e r a l r e s e r v e b a n k shall establish and maintain
r e s e r v e b a l a n c e s w i t h its F e d e r a l r e s e r v e b a n k as f o l l o w s :
19a.
I f n o t in a reserve o r c e n t r a l r e s e r v e city, as n o w o r herea f t e r defined, it s h a l l hold and m a i n t a i n w i t h the F e d e r a l r e s e r v e bank of
its district a n a c t u a l n e t b a l a n c e e q u a l t o n o t less than seven per c e n t u m
1 Government deposits other than postal savings deposits are not subject to
reserve requirements. See section 7 of First Liberty Bond Act, approved A p r .
24, 1 9 1 7 ; section S of Second Liberty Bond Act, approved Sept. 24, 1 9 1 7 ; and
section 8 of T h i r d Liberty Bond Act, approved A p r . 4, 1918.
[
2
3 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
of the a g g r e g a t e amount of its demand deposits and t h r e e per c e n t u m of its
time deposits.
igb.
I f in a reserve city, as n o w o r h e r e a f t e r defined, it s h a l l hold
and maintain w i t h the F e d e r a l reserve b a n t of its district an a c t u a l net
balance equal to not less than ten per centum of the a g g r e g a t e a m o u n t of
its demand deposits and three per centum of its t i m e deposits:
however,
Provided,
T h a t if located in the outlying districts of a r e s e r v e city o r in
t e r r i t o r y added to such a city by the extension of its c o r p o r a t e
charter,
it m a y , upon the affirmative v o t e of f i v e m e m b e r s of the F e d e r a l
Reserve
B o a r d , hold and maintain the reserve balances specified in p a r a g r a p h
(a)
hereof.
1 9 c . I f in a central reserve city, as n o w o r h e r e a f t e r defined, it shall
hold and maintain w i t h the F e d e r a l reserve bank of its district an actual
net balance equal to not less than thirteen per c e n t u m of the aggregate amount of its demand deposits and three per c e n t u m of its time
deposits: Provided,
however. T h a t if located in the o u t l y i n g districts of a
c e n t r a l reserve city o r in t e r r i t o r y added to such city by the extension of its
corporate charter, it may, upon the affirmative v o t e of five m e m b e r s of the
F e d e r a l R e s e r v e B o a r d , hold and maintain the r e s e r v e b a l a n c e s specified in
paragraphs ( a ) o r (6) thereof.
igd.
No
m e m b e r bank
shall
keep
on
deposit
with
any
State
bank
o r t r u s t company w h i c h is not a m e m b e r bank a s u m in excess of ten per
centum of its o w n paid-up capital and surplus.
N o member bank
shall
act as the medium o r agent of a n o n m e m b e r bank in applying f o r o r receiving discounts f r o m a F e d e r a l reserve b a n k u n d e r the provisions of this A c t ,
except by permission of the F e d e r a l R e s e r v e B o a r d .
ige.
T h e required balance carried by a m e m b e r b a n k w i t h a F e d e r a l
reserve bank may, under the regulations and s u b j e c t to such penalties as
m a y be prescribed by the F e d e r a l R e s e r v e B o a r d , be c h e c k e d against and
w i t h d r a w n by such member bank f o r the purpose of m e e t i n g existing liabilit i e s : Provided,
however.
T h a t no b a n k shall a t any t i m e m a k e n e w loans
o r shall pay any dividends unless and until the t o t a l b a l a n c e required by l a w
is f u l l y restored.
igf.
I n estimating the balances r e q u i r e d by this A c t , the net differ-
ence of amounts due to and f r o m o t h e r b a n k s shall be t a k e n as the basis
f o r ascertaining the deposits against w h i c h r e q u i r e d b a l a n c e s w i t h
Federal
reserve banks shall be determined.
xgg.
National
banks, o r
banks
in A l a s k a o r in a dependency
0r
organized
under
local
i n s u l a r possession o r
laws,
located
any p a r t of
the
U n i t e d States outside the continental U n i t e d S t a t e s m a y r e m a i n nonmember
banks, and shall in that e v e n t maintain r e s e r v e s and c o m p l y w i t h all the
conditions n o w provided by l a w r e g u l a t i n g t h e m ; o r said b a n k s m a y , with
the consent of the R e s e r v e B o a r d , b e c o m e m e m b e r b a n k s of any one of the
[ 1 2 4 ]
FEDERAL RESERVE A C T
reserve districts, and shall in that event take stock, maintain reserves, and
be subject to all the other provisions of this A c t .
S e c . 20. So much of sections t w o and three of the A c t of June twentieth,
eighteen hundred and seventy-four, entitled " A n A c t fixing the amount of
United States notes, providing f o r a redistribution of the national-bank
currency, and f o r other purposes," as provides that the fund deposited
by any national banking association w i t h the T r e a s u r e r of the United States
f o r the redemption of its notes shall be counted as a part of its l a w f u l
reserve as provided in the A c t aforesaid, is hereby repealed. A n d f r o m and
a f t e r the passage of this A c t such fund of five per centum shall in no case
be counted by any national banking association as a part of its l a w f u l
reserve.
BANK
EXAMINATIONS
S e c . 21.
Section fifty-two hundred and forty, United States Revised
Statutes, is amended to read as f o l l o w s :
T h e C o m p t r o l l e r of the C u r r e n c y , w i t h the approval of the Secretary
of the T r e a s u r y , shall appoint examiners w h o shall examine every member
b a n k 1 at least twice in each calendar y e a r and oftener if considered necess a r y : Provided,
however, T h a t the F e d e r a l R e s e r v e Board may authorize
examination by the State authorities to be accepted in the case of State banks
and t r u s t companies and may at any time direct the holding of a special
examination of S t a t e banks o r trust companies that are stockholders in
any F e d e r a l reserve bank. T h e examiner making the examination of any
national bank, o r of any other member bank, shall have power to make a
thorough examination of all the affairs of the bank, and in doing so he shall
have p o w e r to administer oaths and to examine any of the officers and agents
thereof under oath and shall make a f u l l and detailed report of the condition of said bank to the C o m p t r o l l e r of the C u r r e n c y .
2 i a . T h e F e d e r a l R e s e r v e B o a r d , upon the recommendation of the
C o m p t r o l l e r of the C u r r e n c y , shall f i x the salaries of all bank examiners
and m a k e report thereof to Congress. T h e expense of the examinations
herein provided f o r shall be assessed by the C o m p t r o l l e r of the C u r r e n c y
upon the banks examined in proportion to assets o r resources held by the
banks upon the dates of examination of the various banks.
2 1 b . I n addition to the examinations made and conducted by the C o m p troller of the C u r r e n c y , every F e d e r a l reserve bank may, w i t h the
approval of the F e d e r a l reserve agent o r the F e d e r a l Reserve Board, provide f o r special examination of member banks within its district.
The
expense of such examinations shall be borne by the bank examined. Such
examinations shall be so conducted as to inform the F e d e r a l reserve bank
of the condition of its m e m b e r banks and of the lines of credit which are
1 Except banks admitted to membership in the system under authority of
section 9 of this act. See section 9 of this act as amended by act approved
June 3 i , 1917.
[ 125]
NATIONAL BANKING UNDER THE FEDERAL RESERVE SYSTEM
being extended by them. E v e r y Federal reserve bank shall at all times
furnish to the Federal Reserve Board such information as may be demanded
concerning the condition of any member bank within the district of the
said Federal reserve bank.
N o bank shall be subject to any visitatorial powers other than such as are
authorized by law, or vested in the courts of justice or such as shall be or
shall have been exercised or directed by Congress, or by cither House
thereof or by any committee of Congress or of either H o u s e duly authorized.
2 I C . T h e Federal Reserve Board shall, at least once each year, order
an examination of each Federal reserve bank, and upon joint application of
ten member banks the Federal Reserve Board shall order a special examination and report of the condition of any Federal reserve bank.
S e c . 22a. N o member bank and no officer, director, or employee thereof
shall hereafter make any loan or grant any gratuity to any bank examiner.
A n y bank officer, director, or employee violating this provision shall be
deemed guilty of a misdemeanor and shall be imprisoned not exceeding
one year or fined not more than $5,000, or both; and may be fined a further
sum equal to the money so loaned or gratuity given.
A n y examiner accepting a loan or gratuity f r o m any bank examined
by him or from an officer, director, o r employee thereof shall be deemed
guilty of a misdemeanor and shall be imprisoned one year or fined not more
than $5,000, or both, and may be fined a f u r t h e r sum equal to the money
so loaned or gratuity given, and shall forever t h e r e a f t e r be disqualified
from holding office as a national bank examiner.
22b. N o national bank examiner shall p e r f o r m any other service for
compensation while holding such office f o r any bank or officer, director, or
employee thereof.
N o examiner, public or private, shall disclose the names of b o r r o w e r s or
the collateral f o r loans of a member bank to other than the proper officers
of such bank without first having obtained the express permission in writing
f r o m the Comptroller of the C u r r e n c y , or f r o m the board of directors of
such bank, except when ordered to do so by a court of competent jurisdiction, or by direction of the Congress of the U n i t e d States, or of either
House thereof, or any committee of Congress, or of either H o u s e duly
authorized. A n y bank examiner violating the provisions of this subsection
shall be imprisoned not more than one y e a r or fined not m o r e than $5,000,
or both.
22c. Except as herein provided, any officer, director, employee, or
attorney of a member bank w h o stipulates f o r or receives or consents or
agrees to receive any fee, commission, g i f t , or thing of v a l u e f r o m any
person, firm, or corporation, f o r procuring or endeavoring to procure for
such person, firm, or corporation, or f o r any other person, firm, o r corporation, any loan f r o m or the purchase o r discount of any paper, note, draft,
check, or bill of exchange by such member bank shall be deemed guilty
[ 1 2 6 ]
FEDERAL RESERVE A C T
of a m i s d e m e a n o r and shall be imprisoned not m o r e than one y e a r or fined
not m o r e than $5,000, o r both.
2 2 d . A n y m e m b e r bank may c o n t r a c t f o r , o r purchase f r o m , any of
its directors o r f r o m any firm of w h i c h any of its directors is a member,
any securities o r o t h e r property, w h e n (and not o t h e r w i s e ) such purchase
is made in the r e g u l a r course of business upon t e r m s not less f a v o r a b l e
to the b a n k than those offered to others, o r w h e n such purchase is authorized by a m a j o r i t y of the board of directors not interested in the sale of
such securities o r property, such a u t h o r i t y to be evidenced by the affirmative
vote o r w r i t t e n assent of such d i r e c t o r s : Provided, however, T h a t w h e n any
director, o r firm of w h i c h any director is a member, acting f o r o r on behalf
of others, sells securities o r other p r o p e r t y to a member bank, the F e d e r a l
R e s e r v e B o a r d by regulation m a y , in any or all cases, require a f u l l disclosure to be made, on f o r m s to be prescribed by it, of all commissions or
o t h e r considerations received, and w h e n e v e r such director o r firm, acting
in his o r its o w n behalf, sells securities o r other property to the bank, the
F e d e r a l R e s e r v e B o a r d by regulation m a y require a f u l l disclosure of all
profit r e a l i z e d f r o m such sale.
A n y m e m b e r bank m a y sell securities o r other property to any of its
directors, o r t o a firm of w h i c h a n y of its directors is a member, in the
r e g u l a r course of business on t e r m s not m o r e f a v o r a b l e to such director
or firm than those offered to others, o r w h e n such sale is authorized by a
m a j o r i t y of the board of directors of a m e m b e r bank to be evidenced
by their affirmative vote o r w r i t t e n assent: Provided,
however, T h a t nothing in this subsection contained shall be construed as authorizing member
banks to purchase or sell securities o r other property w h i c h such banks
a r e not o t h e r w i s e a u t h o r i z e d by l a w to purchase o r sell.
22e.
N o m e m b e r b a n k shall pay to any director, officer, attorney, or
employee a g r e a t e r rate of interest on the deposits of such director, officer,
a t t o r n e y , o r employee than that paid to other depositors on similar deposits
w i t h such m e m b e r bank.
22f.
I f the directors o r officers of any m e m b e r bank shall k n o w i n g l y
v i o l a t e o r p e r m i t any of the agents, officers, or directors of any member
b a n k to v i o l a t e any of the provisions of this section o r regulations of the
board m a d e u n d e r authority thereof, every director and officer participating
in o r assenting to such violation shall be held liable in his personal and
individual capacity f o r all damages w h i c h the m e m b e r bank, its shareholders, o r any other persons shall h a v e sustained in consequence of such
violation.
LIABILITY
OF NATIONAL
BANK
STOCKHOLDERS
S e c . 2 3 . T h e stockholders of e v e r y national banking association shall
be held individually responsible f o r a l l contracts, debts, and engagements of
such association, each to the a m o u n t of his stock therein, a t the p a r v a l u e
[ 127]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
thereof in addition to the amount invested in such stock. T h e stockholders
in any national banking association w h o shall h a v e t r a n s f e r r e d their shares
o r registered the t r a n s f e r thereof w i t h i n sixty days n e x t b e f o r e the date
of the f a i l u r e of such association to meet its obligations, o r w i t h k n o w l e d g e
of such impending failure, shall be liable to the s a m e e x t e n t as if they had
m a d e no such transfer, to the extent that the subsequent t r a n s f e r e e fails
to meet such liability; but this provision shall not be c o n s t r u e d to affect
in any w a y any recourse which such shareholders m i g h t o t h e r w i s e have
against those in w h o s e names such shares a r e registered a t the time of
such f a i l u r e .
LOANS
ON F A R M
LANDS
S e c . 24. A n y national banking association not s i t u a t e d in a central
reserve city m a y make loans secured by improved and u n e n c u m b e r e d f a r m
land situated within its F e d e r a l reserve district o r w i t h i n a r a d i u s of one
hundred miles of the place in which such bank is l o c a t e d , irrespective of
district lines, and m a y also m a k e loans secured by i m p r o v e d and unencumbered real estate located within one h u n d r e d miles of the place in which
such bank is located, irrespective of district l i n e s ; b u t no loan m a d e upon
the security of such f a r m land shall be m a d e f o r a l o n g e r t i m e than five
years, and no loan made upon the security of such real e s t a t e as distinguished
f r o m f a r m land shall be m a d e f o r a l o n g e r time than one y e a r nor shall
the amount of any such loan, w h e t h e r upon such f a r m land o r upon such
real estate, exceed fifty per centum of the a c t u a l v a l u e of the property
offered as security. A n y such bank m a y m a k e s u c h loans, w h e t h e r secured
by such f a r m land o r such real estate, in an a g g r e g a t e s u m e q u a l to t w e n t y five per centum of its capital and surplus o r t o one-third of its t i m e deposits
and such banks may continue h e r e a f t e r as h e r e t o f o r e t o r e c e i v e time deposits
and to pay interest on the same.
T h e F e d e r a l R e s e r v e B o a r d shall h a v e p o w e r f r o m t i m e to t i m e to add
to the list of cities in which national b a n k s s h a l l not be p e r m i t t e d to make
loans secured upon real estate in the m a n n e r described in this section.
FOREIGN
BRANCHES
S e c . 25.
A n y national banking association possessing a capital and
surplus of $1,000,000 or m o r e may file application w i t h the F e d e r a l R e s e r v e
B o a r d f o r permission to exercise, upon such conditions and u n d e r such
regulations as m a y be prescribed by the said b o a r d , e i t h e r o r both of the
following powers:
F i r s t . T o establish branches in f o r e i g n c o u n t r i e s o r dependencies o r ins u l a r possessions of the U n i t e d S t a t e s f o r the f u r t h e r a n c e of the foreign
c o m m e r c e of the U n i t e d States, and t o a c t if r e q u i r e d t o d o so as fiscal
agents of the U n i t e d States.
Second.
To
invest an a m o u n t n o t e x c e e d i n g in t h e a g g r e g a t e ten per
centum of its paid-in capital stock and s u r p l u s in t h e s t o c k of one o r more
banks o r corporations c h a r t e r e d o r i n c o r p o r a t e d
[128]
under
the l a w s of
the
FEDERAL RESERVE A C T
U n i t e d S t a t e s o r of any S t a t e t h e r e o f , and principally engaged in intern a t i o n a l o r f o r e i g n banking, o r banking in a dependency o r insular possession
of the U n i t e d S t a t e s either directly o r t h r o u g h the agency, ownership, o r
c o n t r o l of local institutions in f o r e i g n countries, o r in such dependencies
o r i n s u l a r possessions* U n t i l J a n u a r y I, 1921, any national banking association, w i t h o u t r e g a r d to the amount of its capital and surplus, m a y file
application w i t h the F e d e r a l R e s e r v e B o a r d f o r permission, upon such conditions and u n d e r such regulations as m a y be prescribed by said b o a r d , to
invest an a m o u n t not exceeding in the a g g r e g a t e 5 p e r centum of its paid-in
capital and s u r p l u s in the stock of one o r m o r e corporations c h a r t e r e d o r
i n c o r p o r a t e d u n d e r the l a w s of the U n i t e d States o r of any State thereof
and, r e g a r d l e s s of its location, principally engaged in such phases of intern a t i o n a l o r f o r e i g n financial operations as m a y be necessary to facilitate the
e x p o r t of goods, w a r e s , o r merchandise f r o m the U n i t e d States o r any of
its dependencies o r i n s u l a r possessions to any foreign c o u n t r y :
Provided,
however.
T h a t in no event shall t h e total investments authorized by this
section b y any one national bank exceed 10 per centum of its capital and
surplus.
S u c h application s h a l l specify the n a m e and capital of the banking association filing it, the p o w e r s applied f o r , and the place o r places w h e r e the
b a n k i n g o r financial operations proposed are to be c a r r i e d on. T h e F e d e r a l
R e s e r v e B o a r d shall h a v e p o w e r to approve o r to r e j e c t such application in
w h o l e o r in p a r t if f o r any reason the g r a n t i n g of such application is deemed
inexpedient, and s h a l l also h a v e p o w e r f r o m time to time to increase o r dec r e a s e the n u m b e r of places w h e r e such banking operations m a y be carried
on.
E v e r y n a t i o n a l b a n k i n g association operating f o r e i g n branches shall be
required t o f u r n i s h i n f o r m a t i o n concerning the condition of such branches
to the C o m p t r o l l e r of t h e C u r r e n c y upon demand, and every m e m b e r bank
investing in the c a p i t a l s t o c k of banks o r corporations described above shall
be r e q u i r e d to f u r n i s h i n f o r m a t i o n concerning the condition of such banks o r
c o r p o r a t i o n s to the F e d e r a l R e s e r v e B o a r d upon demand, and the F e d e r a l
R e s e r v e B o a r d m a y o r d e r special examinations of the said branches, banks,
o r c o r p o r a t i o n s a t such time o r times as it m a y deem best.
B e f o r e any n a t i o n a l b a n k shall b e permitted to purchase stock in any
such c o r p o r a t i o n the said c o r p o r a t i o n shall enter into an agreement o r
u n d e r t a k i n g w i t h the F e d e r a l R e s e r v e B o a r d to restrict its operations o r
c o n d u c t its business in such m a n n e r o r under such limitations and restrictions
as the said b o a r d m a y prescribe f o r the place o r places w h e r e i n such business is to be c o n d u c t e d . I f a t any t i m e the F e d e r a l R e s e r v e B o a r d shall
ascertain t h a t the r e g u l a t i o n s prescribed by it a r e not being complied w i t h ,
said b o a r d is h e r e b y a u t h o r i z e d and e m p o w e r e d to institute an investigation
of the m a t t e r and to send f o r persons and papers, subpoena witnesses, and
administer o a t h s in o r d e r to s a t i s f y itself as t o the actual n a t u r e of the
transactions r e f e r r e d t o . S h o u l d s u c h investigation result in establishing
the f a i l u r e o f the c o r p o r a t i o n in question, o r of the national b a n k or banks
[ 1 2 9 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
w h i c h m a y be stockholders therein, to comply w i t h the r e g u l a t i o n s laid d o w n
by the said F e d e r a l R e s e r v e B o a r d , such national banks m a y be r e q u i r e d to
dispose of stock holdings in the said corporation upon reasonable notice.
E v e r y such national banking association shall c o n d u c t the accounts of
each foreign branch independently of the accounts of o t h e r f o r e i g n branches
established by it and of its home office, and shall at the end of each fiscal
period t r a n s f e r to its general ledger the profit o r loss a c c r u e d a t each branch
as a separate item.
A n y director o r other officer, agent, o r employee of any m e m b e r bank
may, w i t h the approval of the F e d e r a l R e s e r v e B o a r d , be a d i r e c t o r o r other
officer, agent, o r employee of any such bank o r c o r p o r a t i o n above mentioned
in the capital stock of which such m e m b e r bank s h a l l h a v e invested as hereinbefore provided, without being s u b j e c t to the provisions of section eight of
the A c t approved O c t o b e r fifteenth, nineteen hundred and f o u r t e e n , entitled
" A n A c t to supplement existing l a w s against u n l a w f u l r e s t r a i n t s and monopolies, and f o r other purposes." 1
BANKING
CORPORATIONS AUTHORIZED
FOREIGN
BANKING
TO
DO
BUSINESS
2 5 a . Corporations to be o r g a n i z e d f o r the purpose of engaging in
international o r foreign banking o r o t h e r international o r f o r e i g n financial
operations, or in banking o r other financial operations in a dependency or
insular possession of the United States, either directly o r t h r o u g h the agency,
ownership, o r control of local institutions in f o r e i g n c o u n t r i e s , o r in such
dependencies o r insular possessions as provided by this section, and to act
w h e n required by the Secretary of the T r e a s u r y as fiscal agents of the
U n i t e d States, may be formed by any n u m b e r of n a t u r a l persons, not less
in any case than five.
Such persons shall enter into
in general terms the objects f o r
contain any other provisions not
tion may see fit to adopt f o r the
of its affairs.
articles of association w h i c h shall specify
w h i c h the association is f o r m e d and may
inconsistent w i t h l a w w h i c h the associar e g u l a t i o n of its business and the conduct
Such articles of association shall be signed by all of the persons intending to participate in the o r g a n i z a t i o n of the c o r p o r a t i o n and, thereafter,
shall be f o r w a r d e d to the F e d e r a l R e s e r v e B o a r d and shall be filed and
preserved in its office. T h e persons signing the said articles of association
shall, u n d e r their hands, m a k e an o r g a n i z a t i o n c e r t i f i c a t e w h i c h shall
specifically s t a t e :
First.
T h e name assumed by such c o r p o r a t i o n , w h i c h shall be subject
to the approval of the F e d e r a l R e s e r v e B o a r d .
Second. T h e place o r places w h e r e its o p e r a t i o n s a r e to be c a r r i e d on.
T h i r d . T h e place in the U n i t e d S t a t e s w h e r e its h o m e office is to be
located.
1
T h e Clayton Act.
For text see A p p e n d i x , p. 139.
[ 1 3 4 ]
FEDERAL RESERVE A C T
F o u r t h . T h e amount of its capital stock and the number of shares into
w h i c h the s a m e shall be divided.
F i f t h . T h e names and places of business o r residence of the persons
executing the certificate and the number of shares to which each has
subscribed.
Sixth. T h e f a c t that the certificate is made to enable the persons subscribing the same, and all other persons, firms, companies, and corporations,
w h o o r w h i c h m a y t h e r e a f t e r subscribe to o r purchase shares of the capital
stock of such corporation, to avail themselves of the advantages of this
section.
T h e persons signing the organization certificate shall duly acknowledge
the execution thereof before a j u d g e of some c o u r t of record o r notary
public, w h o shall certify thereto under the seal of such court o r notary,
and t h e r e a f t e r the certificate shall be f o r w a r d e d to the Federal Reserve
B o a r d to be filed and preserved in its office. U p o n duly making and filing
articles of association and an organization certificate, and a f t e r the Federal
R e s e r v e B o a r d has approved the same and issued a permit to begin business,
the association shall become and be a body corporate, and as such and in the
name designated therein shall have p o w e r to adopt and use a corporate seal,
w h i c h may be changed at the pleasure of its board of directors; to have
succession f o r a period of t w e n t y y e a r s unless sooner dissolved by the act
of the shareholders o w n i n g two-thirds of the stock o r by an A c t of C o n gress o r unless its franchises become f o r f e i t e d by some violation of l a w ; to
m a k e c o n t r a c t s ; to sue and be sued, complain, and defend in any court of
l a w o r e q u i t y ; to elect o r appoint directors, all of w h o m shall be citizens
of the U n i t e d S t a t e s ; and, by its board of directors, to appoint such officers
and employees as may be deemed proper, define their authority and duties,
require bonds of them, and fix the penalty thereof, dismiss such officers o r
employees, o r any thereof, at pleasure and appoint others to fill their places;
to prescribe, by its board of directors, by-laws not inconsistent w i t h l a w or
w i t h the regulations of the F e d e r a l R e s e r v e B o a r d regulating the manner
in w h i c h its stock shall be t r a n s f e r r e d , its directors elected o r appointed, its
officers and employees appointed, its property transferred, and the privileges
g r a n t e d to it by l a w exercised and enjoyed.
E a c h corporation so organized shall have power, under such rules and
regulations as the F e d e r a l Reserve B o a r d may prescribe:
( a ) T o purchase, sell, discount, and negotiate, w i t h or w i t h o u t its
indorsement o r g u a r a n t y , notes, d r a f t s , checks, bills of exchange, acceptances, including bankers' acceptances, cable transfers, and other evidences of
indebtedness; to purchase and sell, w i t h or w i t h o u t its indorsement or g u a r anty, securities, including the obligations of the U n i t e d States o r of any
State thereof b u t not including shares of stock in any corporation except as
herein p r o v i d e d ; to accept bills o r d r a f t s d r a w n upon it subject to such
limitations and restrictions as the F e d e r a l R e s e r v e B o a r d may impose; to
issue letters of c r e d i t ; to purchase and sell coin, bullion, and exchange; to
b o r r o w and to lend m o n e y ; to issue debentures, bonds, and promissory notes
[ 131]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
under such general conditions as to security and such limitations as the
F e d e r a l R e s e r v e B o a r d may prescribe, b u t in no event having liabilities outstanding thereon at any one time exceeding ten times its capital stock and
s u r p l u s ; to receive deposits outside of the U n i t e d States and to receive only
such deposits within the United States as may be incidental to o r f o r the
purpose of carrying out transactions in foreign countries o r dependencies or
insular possessions of the United S t a t e s ; and generally to exercise such
p o w e r s as are incidental to the powers conferred by this A c t o r as may be
usual, in the determination of the F e d e r a l R e s e r v e B o a r d , in connection w i t h
the transaction of the business of banking or other financial operations in
the countries, colonies, dependencies, o r possessions in w h i c h it shall transact
business and not inconsistent w i t h the powers specifically granted herein.
N o t h i n g contained in this section shall be construed t o prohibit the F e d e r a l
Reserve B o a r d , under its p o w e r to prescribe rules and regulations, f r o m
limiting the aggregate amount of liabilities of any o r all classes incurred by
the corporation and outstanding at any one time. W h e n e v e r a corporation
organized under this section receives deposits in the U n i t e d States authorized by this section it shall c a r r y reserves in such amounts as the F e d e r a l
Reserve B o a r d may prescribe, but in no event less than 10 per centum of its
deposits.
( b ) T o establish and maintain f o r the transaction of its business
branches o r agencies in foreign countries, their dependencies o r colonies, and
in the dependencies o r insular possessions of the U n i t e d States, at such
places as may be approved by the F e d e r a l R e s e r v e B o a r d and under such
rules and regulations as it may prescribe, including countries o r dependencies not specified in the original organization certificate.
( c ) W i t h the consent of the F e d e r a l R e s e r v e B o a r d to purchase and
hold stock o r other certificates of ownership in any other corporation
organized under the provisions of this section, o r under the l a w s of any
foreign country o r a colony or dependency thereof, o r under the l a w s of any
State, dependenqr, o r insular possession of the U n i t e d States b u t not
engaged in the general business of buying o r selling goods, w a r e s , merchandise o r commodities in the United States, and not transacting any business in
the United States except such as in the j u d g m e n t of the F e d e r a l R e s e r v e
B o a r d may be incidental to its international o r foreign business:
Provided,
however. T h a t , except w i t h the approval of the F e d e r a l R e s e r v e B o a r d , no
corporation organized hereunder shall invest in any one corporation an
amount in excess of 10 per centum of its o w n capital and surplus, except in
a corporation engaged in the business of banking, w h e n 15 per centum of its
capital and surplus may be so invested: Provided further. T h a t no corporation organized hereunder shall purchase, o w n , o r hold stock o r certificates of
ownership in any other corporation organized hereunder o r under the l a w s
of any State w h i c h is in substantial competition t h e r e w i t h , o r w h i c h holds
stock o r certificates of ownership in corporations w h i c h a r e in substantial
competition w i t h the purchasing corporation.
FEDERAL RESERVE A C T
N o t h i n g contained herein shall prevent corporations organized hereunder
f r o m purchasing and holding stock in any corporation w h e r e such purchase
shall be necessary to prevent a loss upon a debt previously contracted in good
f a i t h ; and stock so purchased or acquired in corporations organized under
this section shall within six months f r o m such purchase be sold o r disposed
of at public or private sale unless the time to so dispose of same is extended
by the F e d e r a l Reserve B o a r d .
N o corporation organized under this section shall c a r r y on any part of its
business in the United States except such as, in the j u d g m e n t of the F e d e r a l
R e s e r v e B o a r d , shall be incidental to its international o r foreign business:
And provided further, T h a t except such as is incidental and preliminary to
its organization no such corporation shall exercise any of the p o w e r s conf e r r e d by this section until it has been duly authorized by the F e d e r a l
R e s e r v e B o a r d to commence business as a corporation organized under the
provisions of this section.
N o corporation organized under this section shall engage in commerce o r
trade in commodities except as specifically provided in this section, nor shall
it either directly or indirectly control o r fix o r attempt to control o r fix the
price of any such commodities. T h e c h a r t e r of any corporation violating
this provision shall be subject to f o r f e i t u r e in the manner hereinafter provided in this section. I t shall be u n l a w f u l f o r any director, officer, agent, o r
employee of any such corporation to use o r to conspire to use the credit, the
funds, o r the power of the corporation to fix o r control the price of any such
commodities, and any such person violating this provision shall be liable to a
fine of not less than $1,000 and not exceeding $5,000 o r imprisonment not
less than one y e a r and not exceeding five years, o r both, in the discretion of
the court.
N o corporation shall be organized under the provisions of this section
w i t h a capital stock of less than $2,000,000, one-quarter of w h i c h must be
paid in before the corporation may be authorized to begin business, and the
remainder of the capital stock of such corporation shall be paid in installments of at least 10 per centum on the w h o l e a m o u n t to which the corporation shall be limited as frequently as one installment a t the end of each
succeeding t w o months f r o m the time of the commencement of its business
operations until the w h o l e of the capital stock shall be paid in. T h e capital
stock of any such corporation may be increased at any time, w i t h the
approval of the F e d e r a l R e s e r v e B o a r d , by a vote of two-thirds of its shareholders o r by unanimous consent in w r i t i n g of the shareholders w i t h o u t a
meeting and w i t h o u t a f o r m a l vote, b u t any such increase of capital shall be
f u l l y paid in w i t h i n ninety days a f t e r such a p p r o v a l ; and m a y be reduced in
like manner, provided that in no event shall it be less than $2,000,000. N o
corporation, except as herein provided, shall d u r i n g the time it shall continue
its operations w i t h d r a w o r permit to be w i t h d r a w n , either in the f o r m of
dividends o r otherwise, any portion o f its capital. A n y national banking
association m a y invest in the stock of any corporation organized under the
provisions o f this section, b u t the a g g r e g a t e amount of stock held in all
[ 133]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
c o r p o r a t i o n s engaged in business of the kind described in this section and in
section 25 of the F e d e r a l R e s e r v e A c t as amended shall n o t exceed 10 per
c e n t u m of the subscribing bank's capital and surplus.
A m a j o r i t y of the shares of the capital stock of any such c o r p o r a t i o n shall
a t all times be held and o w n e d by citizens of the U n i t e d States, by c o r p o r a tions the controlling interest in w h i c h is o w n e d by citizens of the U n i t e d
States, chartered u n d e r the l a w s of the U n i t e d States o r of a S t a t e of the
U n i t e d States, o r by firms o r companies, the c o n t r o l l i n g interest in w h i c h is
o w n e d by citizens of the U n i t e d States. T h e provisions of section 8 of the
act approved O c t o b e r 15, 1914, entitled ' A n a c t to supplement existing l a w s
against u n l a w f u l restraints and monopolies, and f o r o t h e r purposes,' as
amended by the acts of M a y 15, 1 9 1 6 , and S e p t e m b e r 7, 1 9 1 6 , shall be
construed to apply to the directors, o t h e r officers, agents, o r employees of
corporations o r g a n i z e d u n d e r the provisions of this s e c t i o n :
Provided,
however. T h a t nothing herein contained shall ( 1 ) prohibit any d i r e c t o r o r
o t h e r officer, agent o r employee of any m e m b e r bank, w h o has p r o c u r e d the
approval of the F e d e r a l R e s e r v e B o a r d f r o m s e r v i n g a t the s a m e time as a
director o r other officer, agent o r employee of any c o r p o r a t i o n o r g a n i z e d
under the provisions of this section in w h o s e capital stock such m e m b e r
bank shall have invested; o r ( 2 ) prohibit any director o r o t h e r officer, agent,
o r employee of any corporation o r g a n i z e d u n d e r the provisions o f this
section, w h o has procured the a p p r o v a l of the F e d e r a l R e s e r v e B o a r d , f r o m
serving at the same time as a d i r e c t o r o r o t h e r officer, a g e n t o r employee of
any other corporation in w h o s e capital s t o c k such
first-mentioned
corporation shall have invested u n d e r the provisions of this section.
N o m e m b e r of the F e d e r a l R e s e r v e B o a r d shall be an officer o r d i r e c t o r
of any corporation organized u n d e r the provisions of this section, o r of any
corporation engaged in s i m i l a r business o r g a n i z e d u n d e r the l a w s of any
State, n o r hold stock in any such c o r p o r a t i o n , and b e f o r e e n t e r i n g upon his
duties as a m e m b e r of the F e d e r a l R e s e r v e B o a r d he s h a l l c e r t i f y u n d e r
o a t h t o the S e c r e t a r y of the T r e a s u r y t h a t he h a s complied w i t h this
requirement.
S h a r e h o l d e r s in any c o r p o r a t i o n o r g a n i z e d u n d e r the provisions of this
section shall be liable f o r the a m o u n t of their unpaid s t o c k subscriptions.
N o such corporation shall become a m e m b e r o f any F e d e r a l r e s e r v e b a n k .
Should any corporation o r g a n i z e d h e r e u n d e r v i o l a t e o r f a i l to comply
w i t h any of the provisions of this section, all of its rights, privileges, and
franchises derived h e r e f r o m m a y t h e r e b y be f o r f e i t e d .
B e f o r e any such
c o r p o r a t i o n shall be declared dissolved, o r its rights, privileges, and f r a n chises f o r f e i t e d , any noncompliance w i t h , o r v i o l a t i o n of such l a w s shall,
h o w e v e r , be determined and a d j u d g e d by a c o u r t of t h e U n i t e d S t a t e s of
c o m p e t e n t jurisdiction, in a suit b r o u g h t f o r that p u r p o s e in the district o r
t e r r i t o r y in w h i c h the h o m e office of s u c h c o r p o r a t i o n is l o c a t e d , w h i c h suit
s h a l l be b r o u g h t by the U n i t e d S t a t e s at the instance o f the F e d e r a l R e s e r v e
B o a r d o r t h e A t t o r n e y G e n e r a l . U p o n a d j u d i c a t i o n o f s u c h noncompliance
o r violation, each d i r e c t o r and officer w h o p a r t i c i p a t e d in, o r assented to, the
[ 1 3 4 ]
FEDERAL RESERVE A C T
illegal act o r acts, shall be liable in his personal o r individual capacity f o r all
damages w h i c h the said corporation shall have sustained in consequence
thereof. N o dissolution shall take a w a y o r impair any remedy against the
corporation, its stockholders, or officers f o r any liability o r penalty previously
incurred.
A n y such corporation may go into voluntary liquidation and be closed by a
vote of its shareholders owning two-thirds of its stock.
W h e n e v e r the F e d e r a l Reserve B o a r d shall become satisfied of the insolvency of any such corporation, it m a y appoint a receiver w h o shall take
possession of all of the property and assets of the corporation and exercise
the same rights, privileges, powers, and authority w i t h respect thereto as are
n o w exercised by receivers of national banks appointed by the C o m p t r o l l e r of
the C u r r e n c y of the U n i t e d S t a t e s : Provided, however, T h a t the assets of
the corporation subject to the l a w s of other countries or jurisdictions shall
be dealt w i t h in accordance w i t h the terms of such laws.
E v e r y corporation organized under the provisions of this section shall hold
a meeting of its stockholders annually upon a date fixed in its by-laws, such
meeting to be held a t its home office in the United States. E v e r y such
corporation shall keep a t its home office books containing the names of all
stockholders thereof, and the names and addresses of the members of its
board of directors, together w i t h copies of all reports made by it to the
F e d e r a l R e s e r v e B o a r d . E v e r y such corporation shall make reports to the
F e d e r a l R e s e r v e B o a r d at such times and in such f o r m as it m a y require;
and shall be subject to examination once a y e a r and at such other times as
may be deemed necessary by the F e d e r a l R e s e r v e B o a r d by examiners
appointed by the F e d e r a l R e s e r v e B o a r d , the cost of such examinations,
including the compensation of the examiners, to be fixed by the F e d e r a l
R e s e r v e B o a r d and to be paid by the corporation examined.
T h e directors of any corporation organized under the provisions of this
section may, semiannually, declare a dividend of so much of the net profits
of the corporation as they shall j u d g e expedient; but each corporation shall,
before the declaration of a dividend, c a r r y one-tenth of its net profits of the
preceding half y e a r to its surplus fund until the same shall amount to 20 per
centum of its capital stock.
A n y corporation organized under the provisions of this section shall be
subject to t a x by the S t a t e within w h i c h its home office is located in the same
m a n n e r and to the same extent as other corporations organized under the
l a w s of that State w h i c h are transacting a similar character of business.
T h e shares of stock in such corporation shall also be subject to t a x as the
personal property of the owners or holders thereof in the same manner and
to the same extent as the shares of stock in similar State corporations.
A n y corporation organized under the provisions of this section m a y at any
time w i t h i n the t w o y e a r s next previous to the date of the expiration of its
c o r p o r a t e existence, by a vote of the shareholders o w n i n g two-thirds of its
stock, apply to the F e d e r a l R e s e r v e B o a r d f o r its approval to extend the
period of its corporate existence f o r a term of not m o r e than t w e n t y years,
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
and upon certified approval of the F e d e r a l R e s e r v e B o a r d such corporation
shall have its corporate existence f o r such extended period unless sooner
dissolved by the act of the shareholders o w n i n g t w o - t h i r d s of its stock, or
by an A c t of Congress o r unless its franchise becomes f o r f e i t e d by some
violation of l a w .
A n y bank or banking institution, principally engaged in foreign business,
incorporated by special l a w of any S t a t e o r of the U n i t e d States o r
organized under the general l a w s of any State o r of the U n i t e d States and
having an unimpaired capital sufficient to entitle it to become a corporation
under the provisions of this section m a y , by the v o t e of the shareholders
owning not less than two-thirds of the capital stock of such bank o r banking
association, w i t h the approval of the F e d e r a l R e s e r v e B o a r d , be converted
into a F e d e r a l corporation of the kind authorized by this section w i t h any
name approved by the F e d e r a l R e s e r v e B o a r d : Provided,
however,
That
said conversion shall not be in contravention of the S t a t e l a w . In such case
the articles of association and organization certificate m a y be executed by a
m a j o r i t y of the directors of the bank o r banking institution, and the certificate shall declare that the owners of at least t w o - t h i r d s of the capital stock
have authorized the directors to make such certificate and to change or
convert the bank o r banking institution into a F e d e r a l corporation.
A
m a j o r i t y of the directors, a f t e r executing the articles of association and the
organization certificate, shall have p o w e r to execute all other papers and to
do w h a t e v e r may be required to make its organization p e r f e c t and complete
as a Federal corporation. T h e shares of any such corporation m a y continue
to be for the same amount each as they w e r e before the conversion, and the
directors may continue to be directors of the corporation until others are
elected o r appointed in accordance w i t h the provisions of this section. W h e n
the Federal R e s e r v e B o a r d has given to such corporation a certificate that
the provisions of this section have been complied w i t h , such corporation and
all its stockholders, officers, and employees shall h a v e the same p o w e r s and
privileges, and shall be subject to the same duties, liabilities, and regulations,
in all respects, as shall have been prescribed by this section f o r corporations
originally organized hereunder.
E v e r y officer, director, clerk, employee, o r agent of any corporation
organized under this section w h o embezzles, abstracts, o r w i l l f u l l y misapplies
any of the moneys, funds, credits, securities, evidences of indebtedness or
assets of any character of such c o r p o r a t i o n ; o r w h o , w i t h o u t authority f r o m
the directors, issues or puts f o r t h any certificate of deposit, d r a w s any order
o r bill of exchange, makes any acceptance, assigns any note, bond, debenture,
d r a f t , bill of exchange, mortgage, judgment, o r d e c r e e ; o r w h o m a k e s any
false entry in any book, report, or statement of such corporation w i t h intent,
in either case, to i n j u r e o r d e f r a u d such corporation o r any other company,
body politic o r corporate, o r any individual person, o r to deceive any officer
of such corporation, the F e d e r a l R e s e r v e B o a r d , o r any agent o r examiner
appointed to examine the affairs of any such c o r p o r a t i o n ; and e v e r y receiver
of any such corporation and every c l e r k o r employee of such receiver w h o
[136]
FEDERAL RESERVE A C T
shall e m b e z z l e , abstract, o r w i l l f u l l y misapply o r w r o n g f u l l y convert to his
o w n use any moneys, funds, credits, o r assets of any c h a r a c t e r w h i c h m a y
c o m e into his possession o r u n d e r his c o n t r o l in the execution o f his t r u s t o r
the p e r f o r m a n c e of the duties of his e m p l o y m e n t ; and e v e r y such receiver
o r c l e r k o r employee of such receiver w h o shall, w i t h intent to i n j u r e o r
d e f r a u d any person, body politic o r c o r p o r a t e , o r to deceive o r mislead the
F e d e r a l R e s e r v e B o a r d , o r any a g e n t o r e x a m i n e r appointed to examine the
a f f a i r s of such receiver, shall m a k e any false entry in any book, report, o r
r e c o r d of any m a t t e r connected w i t h the duties of such r e c e i v e r ; and every
person w h o w i t h like intent aids o r abets any officer, director, clerk,
employee, o r a g e n t of any c o r p o r a t i o n o r g a n i z e d under this section, o r
r e c e i v e r o r c l e r k o r employee of such receiver as a f o r e s a i d in any violation
of this section, shall upon conviction thereof be imprisoned f o r n o t less than
t w o y e a r s n o r m o r e than ten years, and m a y also be fined n o t m o r e than
$5,000, in the discretion of the c o u r t .
W h o e v e r being connected in any capacity w i t h any corporation organized
u n d e r this section represents in any w a y t h a t the U n i t e d States is liable f o r
the p a y m e n t of any bond o r o t h e r obligation, o r the interest thereon, issued
o r i n c u r r e d by any c o r p o r a t i o n o r g a n i z e d hereunder, o r t h a t the U n i t e d
S t a t e s incurs any liability in respect of any act o r omission of the corporation,
s h a l l be punished by a fine of not m o r e than $10,000 and by imprisonment
f o r n o t m o r e than five y e a r s .
S e c . 26. A l l provisions of l a w inconsistent w i t h o r superseded by any of
the provisions of this A c t a r e to t h a t extent and t o t h a t extent only hereby
r e p e a l e d : Provided,
N o t h i n g in this A c t contained shall be construed to
r e p e a l the p a r i t y provision o r provisions contained in an A c t approved
M a r c h f o u r t e e n t h , nineteen hundred, entitled " A n A c t to define and fix the
s t a n d a r d of v a l u e , to m a i n t a i n the p a r i t y of a l l f o r m s of money issued o r
coined by the U n i t e d S t a t e s , to r e f u n d the public debt, and f o r o t h e r p u r p o s e s , " and the S e c r e t a r y o f the T r e a s u r y m a y , f o r the purpose of maint a i n i n g such p a r i t y and to strengthen the g o l d r e s e r v e , b o r r o w g o l d on the
security of U n i t e d S t a t e s bonds a u t h o r i z e d by section t w o o f the A c t l a s t
r e f e r r e d t o o r f o r o n e - y e a r gold notes b e a r i n g interest at a r a t e o f not to
e x c e e d t h r e e p e r c e n t u m p e r annum, o r sell the s a m e if necessary to obtain
g o l d . W h e n the f u n d s of the T r e a s u r y on hand j u s t i f y , h e m a y p u r c h a s e
and retire such o u t s t a n d i n g bonds and notes.
S e c . 27. T h e provisions of the A c t of M a y thirtieth, nineteen hundred
and eight, a u t h o r i z i n g national c u r r e n c y associations, the issue of additional
n a t i o n a l - b a n k circulation, and c r e a t i n g a N a t i o n a l M o n e t a r y C o m m i s s i o n ,
w h i c h expires by limitation u n d e r the t e r m s of such A c t on the thirtieth day
o f J u n e , nineteen h u n d r e d and f o u r t e e n , a r e h e r e b y e x t e n d e d to J u n e
thirtieth, nineteen h u n d r e d and fifteen, and sections f i f t y - o n e h u n d r e d and
fifty-three,
fifty-one
h u n d r e d and s e v e n t y - t w o , 1 fifty-one h u n d r e d and ninetyone, and fifty-two h u n d r e d and f o u r t e e n of the R e v i s e d S t a t u t e s of the
1
A m e n d e d as to section 5172, Revised Statutes, by act approved M a r c h 3, 1919.
[ 1 3 7 ]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
U n i t e d States, w h i c h w e r e amended by the A c t of M a y thirtieth, nineteen
h u n d r e d and eight, a r e hereby reenacted to r e a d as such sections r e a d prior
t o M a y thirtieth, nineteen hundred and eight, s u b j e c t to s u c h amendments o r
modifications as a r e prescribed in this A c t :
2 7 a . Provided,
however, T h a t section nine of the A c t f i r s t r e f e r r e d
to in this section is hereby amended so as to change the t a x rates fixed in
said A c t by m a k i n g the portion applicable t h e r e t o r e a d as f o l l o w s :
N a t i o n a l banking associations h a v i n g c i r c u l a t i n g notes s e c u r e d o t h e r w i s e
t h a n by bonds of the U n i t e d States, s h a l l pay f o r the first t h r e e months a
t a x at the r a t e of three per centum per annum upon the a v e r a g e a m o u n t of
such of their notes in circulation as a r e based upon the deposit of such
securities, and a f t e r w a r d s an additional t a x r a t e of one-half of one per
centum per a n n u m f o r each m o n t h until a t a x of six per c e n t u m per annum
is reached, and t h e r e a f t e r such t a x of six per c e n t u m p e r annum upon the
a v e r a g e amount of such n o t e s : Provided
further.
T h a t w h e n e v e r in his
j u d g m e n t he m a y deem it desirable, the S e c r e t a r y of t h e T r e a s u r y shall have
p o w e r to suspend the limitations imposed by section one and section three of
the A c t r e f e r r e d to in this section, w h i c h prescribe t h a t such additional
circulation secured o t h e r w i s e than by bonds of the U n i t e d S t a t e s shall be
issued only to N a t i o n a l banks h a v i n g c i r c u l a t i n g n o t e s o u t s t a n d i n g secured
by the deposit of bonds of the U n i t e d S t a t e s to an a m o u n t not less than
f o r t y per centum of the capital stock o f such banks, and to suspend also the
conditions and limitations of section five of said A c t e x c e p t t h a t no bank
shall be permitted to issue c i r c u l a t i n g notes in excess o f one hundred and
twenty-five per centum of its u n i m p a i r e d c a p i t a l and s u r p l u s .
H e shall
require each b a n k and c u r r e n c y association to m a i n t a i n on deposit in the
T r e a s u r y of the U n i t e d S t a t e s a s u m in gold sufficient in his j u d g m e n t f o r
the redemption of such notes, b u t in no e v e n t less t h a n f i v e per c e n t u m . H e
m a y permit N a t i o n a l banks, d u r i n g the period f o r w h i c h such provisions are
suspended, to issue additional c i r c u l a t i o n u n d e r the t e r m s and conditions of
the A c t r e f e r r e d to as herein a m e n d e d : Provided
further,
T h a t the Secret a r y of the T r e a s u r y , in his discretion, is f u r t h e r a u t h o r i z e d to extend the
benefits of this A c t to all qualified S t a t e b a n k s and t r u s t companies, which
h a v e joined the F e d e r a l reserve system, o r w h i c h m a y c o n t r a c t to j o i n within
fifteen days a f t e r the passage of this A c t .
S e c . 28.
Section fifty-one h u n d r e d and f o r t y - t h r e e of the Revised
S t a t u t e s is hereby amended and r e e n a c t e d t o r e a d as f o l l o w s : A n y association
f o r m e d under this title m a y , by the v o t e of s h a r e h o l d e r s o w n i n g two-thirds
of its capital stock, reduce its c a p i t a l t o any s u m n o t b e l o w the amount
required by this title t o a u t h o r i z e the f o r m a t i o n of a s s o c i a t i o n s ; b u t no such
reduction shall be a l l o w a b l e w h i c h w i l l r e d u c e the c a p i t a l of the association
b e l o w the a m o u n t r e q u i r e d f o r its o u t s t a n d i n g c i r c u l a t i o n , n o r shall any
reduction be m a d e u n t i l the a m o u n t o f t h e proposed r e d u c t i o n has been
reported to the C o m p t r o l l e r of the C u r r e n c y and s u c h r e d u c t i o n h a s been
approved by the said C o m p t r o l l e r of t h e C u r r e n c y a n d by the F e d e r a l
[ 1 3 8 ]
FEDERAL RESERVE A C T
R e s e r v e B o a r d , o r by the o r g a n i z a t i o n c o m m i t t e e pending the o r g a n i z a t i o n of
the F e d e r a l R e s e r v e B o a r d .
S e c . 2 9 . I f any clause, sentence, p a r a g r a p h , o r p a r t of this A c t shall f o r
any reason be a d j u d g e d by any c o u r t o f competent jurisdiction to be invalid,
such j u d g m e n t shall not affect, impair, o r invalidate the r e m a i n d e r of this
A c t , b u t s h a l l be confined in its operation to the clause, sentence, p a r a g r a p h ,
o r p a r t thereof directly involved in the controversy in w h i c h such j u d g m e n t
shall h a v e been rendered.
S e c . 30.
reserved.
T h e right to amend, alter, o r repeal this A c t is hereby expressly
APPENDIX
C L A Y T O N A N T I - T R U S T A C T , A P P R O V E D O C T O B E R IS, 1914,
AS AMENDED BY THE KERN AMENDMENT,
APPROVED
M A Y 15, 1916.1
S e c . 8 . T h a t f r o m and a f t e r t w o y e a r s f r o m the d a t e of the approval of
this A c t no person shall a t the s a m e time be a d i r e c t o r o r o t h e r officer o r
employee of m o r e than one bank, banking association, o r t r u s t company
o r g a n i z e d o r o p e r a t i n g u n d e r the l a w s of the U n i t e d States, either of w h i c h
h a s deposits, capital, surplus, and undivided profits a g g r e g a t i n g m o r e t h a n
$5,000,000; and no p r i v a t e b a n k e r o r person w h o is a director in any bank o r
t r u s t c o m p a n y o r g a n i z e d and o p e r a t i n g u n d e r the l a w s of a S t a t e , h a v i n g
deposits, c a p i t a l , s u r p l u s , and undivided profits a g g r e g a t i n g m o r e than
$5,000,000, s h a l l be eligible to be a d i r e c t o r in any b a n k o r b a n k i n g association o r g a n i z e d o r o p e r a t i n g under the l a w s of the U n i t e d States. T h e eligibility of a d i r e c t o r , officer, o r employee u n d e r the f o r e g o i n g provisions shall
be d e t e r m i n e d by the a v e r a g e a m o u n t of deposits, capital, surplus, and
undivided profits as s h o w n in the official statements of such bank, banking
association, o r t r u s t c o m p a n y filed as provided by l a w d u r i n g the fiscal y e a r
n e x t preceding t h e d a t e set f o r the a n n u a l election of directors, and w h e n a
director, officer, o r employee has been elected o r selected in accordance w i t h
the provisions of this A c t it shall be l a w f u l f o r h i m to continue as such f o r
o n e y e a r t h e r e a f t e r u n d e r said election o r employment.
N o bank, b a n k i n g association, o r t r u s t company o r g a n i z e d o r operating
u n d e r the l a w s of the U n i t e d S t a t e s , in any city o r i n c o r p o r a t e d t o w n o r
v i l l a g e of m o r e than t w o hundred t h o u s a n d inhabitants, as s h o w n by the
l a s t p r e c e d i n g decennial census of the U n i t e d States, s h a l l h a v e as a director
o r o t h e r officer o r employee, any p r i v a t e b a n k e r o r any d i r e c t o r o r o t h e r
officer o r e m p l o y e e o f any o t h e r bank, b a n k i n g association, o r t r u s t
c o m p a n y l o c a t e d in the s a m e p l a c e : Provided,
T h a t n o t h i n g in this section
1 Amended by sec. 25 of Federal R e s e r v e Act, as_ amended Sept. 7, 1916, as to
corporations principally engaged in f o r e i g n banking in which member banks
hold stock.
[
139]
N A T I O N A L B A N K I N G UNDER T H E FEDERAL RESERVE SYSTEM
shall apply to m u t u a l savings banks not having a capital stock represented
by s h a r e s : Provided further. T h a t a director or other officer o r employee of
such bank, banking association, o r trust company may be a director o r other
officer o r employee of not m o r e than one other bank o r trust company
organized under the l a w s of the United States o r any S t a t e w h e r e the entire
capital stock of one is owned by stockholders in the o t h e r : And
provided
further, T h a t nothing contained in this section shall forbid a director of
class A of a F e d e r a l reserve bank, as defined in the F e d e r a l R e s e r v e A c t ,
f r o m being an officer or director, or both an officer and director, in one
member b a n k : And provided further, T h a t nothing in this A c t shall prohibit
any officer, director, o r employee of any member bank o r class A director of
a F e d e r a l reserve bank, w h o shall first procure the consent of the F e d e r a l
Reserve Board, which board is hereby authorized, at its discretion, to grant,
withhold, or revoke such consent, f r o m being an officer, director, o r employee
of not more than t w o other banks, banking associations, o r trust companies,
w h e t h e r organized under the l a w s of the United States o r any State, if such
other bank, banking association, or trust company is not in substantial
competition w i t h such member bank.
T h e consent of the Federal Reserve B o a r d may be procured b e f o r e the
person applying therefor has been elected as a class A director of a Federal
reserve bank or as a director of any m e m b e r bank.
*
*
*
*
*
W h e n any person elected o r chosen as a director o r officer o r selected as
an employee of any bank or other corporation subject to the provisions of
this A c t is eligible at the time of his election o r selection to act f o r such
bank o r other corporation in such capacity his eligibility to act in such
capacity shall not be affected and he shall not become o r be deemed amenable to any of the provisions hereof by reason of any change in the affairs of
such bank or other corporation f r o m w h a t s o e v e r cause, w h e t h e r specifically
excepted by any of the provisions hereof o r not, until the expiration of one
y e a r f r o m the date of his election o r employment.
[140]
INDEX
(Editor's Note.—In
the index following, the first column refers to the page in
the text of this book on which the topic indicated is discussed.
The second column
refers to the paragraph in the Federal Reserve Act {as reprinted in this text),
and the third column refers to the section of the Regulations of the Federal Reserve
Board, Series of 1920, issued in October, 1920. The Regulations of the Board
are not reprinted in this text, since they are of necessity changed from time to
time.)
ACCEPTANCES (See " B a n k e r s '
and " T r a d e A c c e p t a n c e s " )
Page in
Text
Federal
Reserve
Act
68-69
13a
Acceptances"
AGRICULTURAL PAPER, Discounted b y Federal
R e s e r v e for m e m b e r b a n k
ALASKA, R e s e r v e R e q u i r e m e n t s for N a t i o n a l
B a n k s in
A
I9g
27
ALDRICH-VREELAND ACT, effect on
26
32
ARTICLES OF ASSOCIATION
T y p i c a l Articles
70-71
BANKERS' ACCEPTANCES
BANK EXAMINERS:
Appointment of
G r a t u i t i e s o r loans t o , prohibited
Powers of.
Salaries o f
BANK NOTES (See " F e d e r a l R e s e r v e
and " C i r c u l a t i o n " )
6l
I3b-H
21
22a
21
21a
Notes"
BILLS OF EXCHANGE (See " D r a f t s " )
i3-i3a-c
BILLS RECEIVABLE, s u b j e c t to rediscount
BONDS, UNITED STATES:
D e a l t in b y Federal reserve b a n k s
H y p o t h e c a t i o n o f b y Federal reserve b a n k s
N a t i o n a l b a n k s n o t required to deposit
P u r c h a s e o f b y F e d e r a l reserve b a n k s
Refunding
T o secure F e d e r a l reserve b a n k n o t e s
T o secure national b a n k notes
Reserve
Board
Regulations
[141]
14
14
17
18a
i8a-c
4b
+1
A-B-C
INDEX
Page in
Text
Federal
Reserve
Act
Reserve
Board
Regulations
BRANCHES OF NATIONAL BANKS
90
25
K
BY-LAWS OF NATIONAL BANKS
34
CAPITAL STOCK OF NATIONAL BANKS:
A v e r a g e y e a r l y increase
$25,000 permitted
Deferred payments
Determination of amount
Disposition o f
Increase of
I n i t i a l p a y m e n t s on
Impaired
Reduction of
Shares m u s t b e #100
23
16
30
24
26
45
29
47
46
26
CAPITAL STOCK OF FEDERAL RESERVE BANKS:
A l l o t m e n t of
C a n c e l l a t i o n and r e d e m p t i o n of
Dividends
I n c r e a s e and decrease o f
Liabilities of holders o f
M a x i m u m a m o u n t t o be held b y o n e indiv i d u a l or corporation
N e t earning, a p p o r t i o n m e n t of
P a y m e n t for
Shares of $ 100 each
Subscriptions t o
A f t e r o r g a n i z a t i o n of Federal reserve
banks
B y banks
B y public
B y State banks
B y trust c o m p a n i e s
B y United States
T r a n s f e r of
V o t i n g power o f , limited
7
2C, 2g, 9
5
29
5b
4. I9g
2g, 2h
4, 9. 9a
4, 9, 9a
2\
2h, 2 k , 5a
2j
14
50
1
2h
77
54
29
]
5 d , 6 , 28
5ei 6
7
5 , 6 , 28
2d, 6
CHARTERS:
E a r l y legislation
E f f e c t o f expiration
E x t e n s i o n of
G r a n t e d by Comptroller
2
r
2c, 4a
CHECK CLEARANCE AND COLLECTION
[
5 a . 5d
13, i6j-k-l
j
INDEX
Page in
Text
CIRCULATION, NATIONAL BANKS (See also
" G r o w t h of National Banking S y s t e m " )
Additional
A m o u n t permissible for one b a n k
B o n d s t o secure
Denomination
Federal reserve
P e r c e n t a g e o f at different periods
Profit on
Retirement of
T a x on
Under "Free Banking"
Federal
Reserve
Act
Reserve
Board
Regulations
27
41
41
42
41
23
44
18
27a
13
L
80,139
CLAYTON ACT
CLEARING HOUSE f o r F e d e r a l r e s e r v e and
m e m b e r b a n k s (See " C h e c k C l e a r a n c e and
Collection")
COMMERCIAL PAPER (See " D r a f t s , " " A c c e p t ances," etc.)
COMPTROLLER OF CURRENCY:
D u t i e s of
M e m b e r of Federal Reserve Board
M e m b e r of Reserve Bank Organization
Committee
Powers of
Salary of
(See also all sections regarding N a t i o n a l
B a n k practise in t e x t )
4, i o h
10
I
CONDITION, S t a t e m e n t o f t o C o m p t r o l l e r b y
National Banks
R e p o r t of b y m e m b e r b a n k s
88
CONSOLIDATION OF NATIONAL BANKS:
Neither bank liquidating
One bank liquidating
B o t h banks liquidating
SI
52
CORPORATE EXISTENCE OF NATIONAL BANKS.
54
CORPORATE POWERS OF NATIONAL B A N K S —
27
CREDIT:
D e v e l o p m e n t in use o f
9C
I
I
I
53
11-23
27
CURRENCY ASSOCIATIONS
2
oh
10
[ 1 4 3 ]
—
INDEX
PaRCin
Text
DEPOSITS:
Demand
I n F e d e r a l reserve b a n k s
I n m e m b e r b a n k s , reserves a g a i n s t
O f Government funds
Time
W i t h n o n - m e m b e r b a n k s , limited
75
75
19
D
DIVIDENDS BY NATIONAL BANKS:
S t o c k dividends
U n p a i d , limit t o liability o f n a t i o n a l b a n k s
n o t t o include
W h e n allowable
W h e n prohibited
I3> IS
19
J9d
D
28
80
'af'
....
28
28
28
DISCOUNTS (See also " L o a n s b y N a t i o n a l
B a n k s " and "Federal Reserve B a n k s " ) . .
133,13b,14
59
13c
59
—
59
I9e
68
....
68
13 a _ 1 3
"Ac-
Definition of
D i s c o u n t e d b y F e d e r a l reserve b a n k s
member banks
Foreign
A
for
P u r c h a s e a n d sale b y F e d e r a l r e s e r v e b a n k s
W h e n officer o f m e m b e r b a n k m a y s e r v e . . .
c
14
7i
EDGE CORPORATION
14
' B
25a
L
L
84
ELIGIBLE BANKS
2 b , 8, 9 , 9^
EXAMINATIONS OF NATIONAL BANKS
O f Foreign Branches
EXPORTS, a c c e p t a n c e s o n , eligible as d i s c o u n t s
b y F e d e r a l r e s e r v e and m e m b e r b a n k s . . .
FARM LANDS (See " L o a n s " )
Reserve
Board
Etegulalions
«3. 1 4 . ' 5
19, i g f
DIRECTORS OF NATIONAL BANKS:
Election
Interlocking Directorates under C l a y t o n A c t
Liability of
Number of
O a t h required
Qualifications of
DRAFT OR BILL OF EXCHANGE ( S e e also
ceptances")
Federal
Reserve
Act
[144]
....
21
....
25
13b
—
INDEX
Page in
Text
FEDERAL ADVISORY COUNCIL
12, 1 2 a
FEDERAL RESERVE ACT ( R e p r i n t e d in f u l l ) . . .
E l e m e n t s n e c e s s a r y for success
O p e n e d n e w era in b a n k i n g
FEDERAL RESERVE AGENT
B o n d required o f
Deputy
P o w e r s o f , second t o those of S e c r e t a r y o f
Treasury
Salary of
S p e c i a l e x a m i n a t i o n o f m e m b e r b a n k s t o be
approved by
FEDERAL RESERVE BANKS:
A c c o u n t w i t h o t h e r F e d e r a l reserve b a n k s . .
A d v a n c e s t o , b y m e a n s o f F e d e r a l reserve
notes
A m o u n t o f capital s t o c k t o be subscribed to
Branches
Foreign Connections
By-laws
C a b l e t r a n s f e r s , p u r c h a s e and sale of
C a p i t a l s t o c k of
C e r t i f i c a t e of o r g a n i z a t i o n
Charter, term of
C l e a r i n g - h o u s e provisions
C o l l e c t i o n charges
Commercial paper:
P u r c h a s e and sale o f .
Rediscount of
Corporate body
Council, recommendations by
Depository, Government
Deposits:
D e f i n e d and classified
From member banks
F r o m o r in o t h e r F e d e r a l reserve b a n k s . .
From the United States
Reserves against
W i t h F e d e r a l reserve a g e n t o f F e d e r a l re-
92-139
20
20
4f
111
4f
iof
4f
2lb
13, 14,
16I
16
2C
3
14
4b
14
2l
4
4b
16I
1 6 k , 16I
14
1 3 a , 13c
4b
12a
13. i s
19
13, i6j
1 3 , 1 4 , i6j
I3> IS
16b
i6f, i6g
serve notes, gold, etc
Federal
Reserve
Act
[145]
Reserve
Board
Regulations
INDEX
Page is
Text
FEDERAL RESERVE BANKS ( C o n t i n u e d ) :
Directors
C h a i r m a n o f (Federal reserve a g e n t ) . . . .
C h o s e n , how
Compensation of
Duties of
E x t e n s i o n o f d i s c o u n t , a d v a n c e m e n t and
accommodations by
N u m b e r and classification of
Qualifications o f
R e m o v a l of
Suspension o f
Term of
Vacancies
Dissolution o f
D i v i d e n d s of
D o u b t f u l assets o f , t o b e w r i t t e n o f f
D r a f t s , received at p a r , w h e n
E a r n i n g s , divisions of
;
Employees
Examination of
E x c h a n g e charges
E x e m p t from taxes
E x p e n s e o f F e d e r a l R e s e r v e B o a r d t o be
paid b y
F i s c a l a g e n t of t h e U n i t e d S t a t e s
Franchise T a x
G o l d b o n d , 30-year 3 per cent w i t h o u t circ u l a t i n g privilege
G o l d coin o r gold certificates t o be received
as deposits b y S e c r e t a r y o f T r e a s u r y w h e n
rendered b y F e d e r a l reserve b a n k o r a g e n t
G o l d loans, m a d e o f , and c o n t r a c t e d f o r . . .
G o l d , p u r c h a s e and sale o f
G o l d n o t e s , i - y e a r 3 per c e n t w i t h o u t circulating p r i v i l e g e
G o v e r n m e n t deposits
I n d i v i d u a l liability o f shareholders
Liquidation of
L o a n s m a d e o f , and c o n t r a c t e d f o r
M u n i c i p a l securities d e a l t in
Officers o f , m a y b e r e m o v e d or s u s p e n d e d . .
[146]
Federal
Reserve
Act
40-4'
4 d , 4f
4d, 4e, 4f
4S
4C
4C
4d
4d
nf
nf
4 d , 4i
4»
4B, 7
7
"8
i6j
7
4B
21c
16k
7a
10b
IS
7
18c, i 8 d
16m
14
1 2 a , 14
18c, i 8 d
13. IS
2d
7, n h
14
14
iif
Reserve
Board
Regulations
INDEX
Page in
Teit
FEDERAL RESERVE BANKS ( C o n t i n u e d ) :
O p e n - m a r k e t operations
O r g a n i z a t i o n of
Powers of
P u r c h a s e o f U n i t e d States bonds f r o m m e m ber b a n k s
Rediscounts
Reorganization of
Seal, corporate
S e n a t o r s and R e p r e s e n t a t i v e s , prohibited
f r o m b e i n g directors of
State banks m a y become members
S t a t e m e n t of conditions t o b e published
weekly by Board
S t o c k h o l d e r s o f , responsibility and liability
of
Succession o f
S u r p l u s funds
Suspension o f
14
2 a , 4 a , 4h
4b, 13-14
18a
13a, b
nh
4b
4d
SH9D
ita
2d, 6
4b
7
nh
FEDERAL RESERVE BOARD:
Admission of banks other than n a t i o n a l . . .
Annual report of
A u t h o r i z e d t o r e v i e w decisions of R e s e r v e
Bank Organization Committee
Chairman of
C l e a r i n g house:
F o r reserve b a n k s , designation b y
F o r m e m b e r b a n k s , designation b y
9-9D
IOg
2
IOC
161
161
10
I4D
ill
10b, l i e
Discount rates subject to approval o f
E m p l o y e e s o f , n o t in classified s e r v i c e
E x p e n s e s o f , h o w paid
E x t e n s i o n o f discounts, e t c . , b y d i r e c t o r s ,
s u b j e c t t o orders of
F o r e i g n business t o be a p p r o v e d b y
4C
14
10a
11b
I n t e r e s t on rediscounts fixed b y
M a k i n g f a r m loans
Meetings of
24
ioc
10,ioa,iod
Open-market operations
Federal
Reserve
Act
71
[ 1 4 7 ]
14
II, 11m
Reserve
Board
REGULATIONS
B
A
INDEX
Page in
Text
FEDERAL RESERVE BOARD ( C o n t i n u e d ) :
P o w e r s s e c o n d a r y t o those o f S e c r e t a r y of
Treasury, when
R e d i s c o u n t i n g of paper of F e d e r a l reserve
b a n k s b y o t h e r F e d e r a l reserve b a n k s . . .
Report of
S a f e g u a r d i n g assets of F e d e r a l reserve b a n k s
I of
lib
log
11 i
lie
10a
by
Suspension o f reserve requirements b y
Vice governor
V i o l a t i o n s o f a c t , b y F e d e r a l reserve b a n k s ,
d u t y of
nh
FEDERAL RESERVE DISTRICTS
Designation b y number
H o w apportioned
Increase in n u m b e r of
Readjustment of
FEDERAL RESERVE
U n i t e d States)
NOTES
2> 4
2
2
2
2
(obligations
of
i6-i6i
FEDERAL RESERVE NOTES (circulating, obligations o f F e d e r a l reserve b a n k s )
F o r U n i t e d S t a t e s bonds purchased o f m e m ber b a n k s b y F e d e r a l reserve b a n k s
F o r U n i t e d S t a t e s bonds w i t h circulation
privilege against w h i c h no circulation is
outstanding
4b
4b,18b
4b,18b
4b,18b
Issued and redeemed as n a t i o n a l - b a n k notes
FISCAL AGENT OF UNITED STATES:
F e d e r a l reserve b a n k s as
I n foreign countries, dependencies
IS
25
GOVERNMENT DEPOSITS
13. i s
GROWTH OF NATIONAL BANKING SYSTEM
HAWAII, reserve requirements
b a n k s in
for
II
national
I9g
HYPOTHECATION:
O f F e d e r a l reserve b a n k s t o c k b y m e m b e r
b a n k s prohibited
O f National B a n k stock
O f U n i t e d S t a t e s b o n d s b y F e d e r a l reserve
banks
O f United States notes
Federal
Reserve
Act
[148]
5a
Reserve
Board
Regulations
INDEX
Page in
Text
IMPORTS, a c c e p t a n c e s on
Fcdera
Reserve
Act
Reserve
Board
Regulations
13b
INSURANCE AGENTS, N a t i o n a l b a n k s as
8S
13c
65
65
66
22e
INTEREST PAYABLE BY NATIONAL BANKS:
Legal rate
O n deposits
T o officers or directors
IRRIGATION BONDS, e t c . , dealt in b y F e d e r a l
reserve banks
LIQUIDATION OF NATIONAL BANKS
14b
49
5e
63
63
61
60
62
4C
LOANS BY OR TO A NATIONAL BANK:
B y F e d e r a l reserve b a n k s
L i m i t a t i o n of i n d e b t e d n e s s
L i m i t a t i o n t o o n e person
O n real e s t a t e a n d f a r m lands
O n capital stock
P r o h i b i t e d w h e n reserves are b e l o w requirements
T o bank examiners
U n i t e d S t a t e s n o t e s as collateral f o r
63
61
63
LOCATION OF NATIONAL BANKS
56
MEMBER BANKS (See also " S t a t e B a n k s , "
" T r u s t Companies," etc.)
A g e n t s for n o n m e m b e r b a n k s
Alaska
A p p l i c a t i o n for m e m b e r s h i p
B a l a n c e s in F e d e r a l reserve b a n k s
D e p o s i t s in F e d e r a l reserve b a n k
D e p o s i t s , reserves against
Deposits with nonmember banks
Dividends
Examination of
Individual liability of
Insolvency of
Outside continental United States
R e p o r t o f e a r n i n g s and d i v i d e n d s
Requirements of state banks for membership
S t o c k in F e d e r a l r e s e r v e b a n k s
T r a n s f e r o f s t o c k in F e d e r a l r e s e r v e b a n k s
[149]
24
I9e
22a
I9d
2> I 9 g
5C
i
9
f
13
19-igb
igd
ige
21, 21b
2d
6
i9g
9C
9f
29
2C, 4
2k, s a
I
G
....
INDEX
Page in
Text
NAME OF NATIONAL BANK, C h a n g e o f
S6
NATIONAL BANK ACT, purpose o f
13
"NATIONAL BANK ORGANIZATION"
Federal
Reserve
Act
Reserve
Board
Regulations
(Publica1
tion)
"NATIONAL BANKS OF UNITED STATES" ( P u b -
1
lication)
I
NATIONAL BANKING ASSOCIATION, d e f i n e d . . .
NATIONAL CITY BANK OF N E W Y O R K :
C a r e o f securities
Collections
C r e d i t files
D o m e s t i c divisions
E d u c a t i o n a l facilities
F o r e i g n divisions
I n t e r e s t on b a l a n c e s
Library
Publications
P u r c h a s e of c o m m e r c i a l p a p e r f o r b a n k s . . .
S e r v i c e to C o r r e s p o n d e n t B a n k s
S t a t i s t i c a l information
T e l e g r a p h i c facilities
Trust Department
Washington Bureau
6
5
7
3
9
9
S
8
8
7
3
8
7
5
4
NATIONAL CURRENCY ASSOCIATIONS
NATIONAL MONETARY COMMISSION, R e p o r t o f
N E W Y O R K CORRESPONDENT
27
18
3
NONMEMBER BANKS
....
i9d, igg
NOTES:
Definition of
68
D i s c o u n t e d b y F e d e r a l reserve b a n k s f o r
member banks
68
OFFICERS OF NATIONAL BANKS
28
ORGANIZATION OF NATIONAL BANKS
Application for
Certificate
T y p i c a l certificate
[ 1 5 0 ]
24-30
24
27
3i
A
urn,
I3a-b
INDEX
Page in
Text
PANAMA, reserve
b a n k s in
requirements
for
Federal
Reserve
Act
Reserve
Board
Regulations
national
I9G
PHILIPPINE ISLANDS, reserve requirements for
n a t i o n a l b a n k s in
PORTO RICO, reserve requirements for national
b a n k s in
I9G
POSTAL SAVINGS FUNDS TO BE DEPOSITED IN
MEMBER BANKS
15
2-c-d-g-h-j
PUBLIC FEDERAL RESERVE BANK STOCK
5»7A
REAL ESTATE LOANS, w h e n b a n k s m a y act as
a g e n t s or brokers f o r
86
REAL PROPERTY:
W h e n n a t i o n a l b a n k s m a y hold
87
REDISCOUNTS BY FEDERAL RESERVE BANKS
(See " N o t e s , " " D r a f t s , " " T r a d e A c c e p t ances," "Bankers' Acceptances," etc.)...
13c
67-71
1 1 m , 13-a-b
RESERVE BANK ORGANIZATION COMMITTEE . .
2R 4
RESERVE CITIES
C a s h r e s e r v e required for b a n k s in
C a s h r e s e r v e required for b a n k s n o t in
Designated
N u m b e r m a y be increased or d e c r e a s e d . . . .
75
2m, n e
1 9 b , 19c
19a
RESERVE REQUIREMENTS
member banks
for
national
75
lie
and
75
1 9 , 1 1 m , 20
I9F
lie
RESERVES, T a x on deficiency in
SAVINGS ACCOUNTS
SEAL OF NATIONAL BANK
SECRETARY OF THE TREASURY:
D e p o s i t o f G o v e r n m e n t f u n d s u n d e r direction of
E a r n i n g s o f F e d e r a l reserve b a n k s used
u n d e r r e g u l a t i o n s prescribed b y
TI
5 1 ]
65
19
27. 35
....
15
7
D
INDEX
Page la
Text
Federal
Reserve
Act
SECRETARY OF THE TREASURY ( C o n t i n u e d ) :
Examiners' appointment to be approved by
Maintaining of parity
M e m b e r of F e d e r a l R e s e r v e B o a r d
M e m b e r of F e d e r a l R e s e r v e B a n k O r g a n i z a tion Committee
P o w e r s heretofore v e s t e d i n , u n c h a n g e d . . .
2
lof
SECURITIES, d e a l t in b y F e d e r a l reserve b a n k s
14
SHAREHOLDERS IN NATIONAL BANKS:
Liability
Meetings
Proxy
Votes
STATE BANKS:
Succession o f b y national b a n k
Succession b y re-organization
Succession b y conversion
21
26
10
58
2f-23
57
57
57
38
8
38
39
STATE BANKS AS MEMBERS OF FEDERAL R E SERVE SYSTEM
C a p i t a l required
Deposits with nonmembers
Examinations of
Requirements precedent
Requirements subsequent
Withdrawal
TRADE ACCEPTANCES:
Definition of
D i s c o u n t e d b y F e d e r a l reserve b a n k s f o r
member bank
P u r c h a s e a n d sale b y F e d e r a l r e s e r v e b a n k s
H
*9f"
igd
21
9a
9 b , 9c
9e
68
nm,i3a, b
7i
14
A
B
1 , 2 b , 8, 9c
H
Ilk
F
40
TRUST DEPARTMENT o f n a t i o n a l b a n k
89
2 f , 9d
VIOLATIONS OF PROVISIONS OF ACT
WARRANTS, d e a l t in b y F e d e r a l r e s e r v e b a n k s
[152]
A
68
TRUST COMPANIES, as m e m b e r s o f F e d e r a l reserve system
C o n v e r s i o n into n a t i o n a l b a n k
Reserve
Board
Regulations
....
14
E
@FedFRASER