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OFFICIAL OPINIONS
OF
THE ATTORNEYS GENERAL
or
THE UNITED STATES
ADVISING THE
PEESIDEIT AND HEADS OF DEPARTMENTS
IN RELATION 1 0
THEIR OFFICIAL DUTIES
EDITED B\'
G E O R G E KEARNEY
VOLUME 30
WASHINGTON
GOVERNMENT PRINTING OFFICB
1918
The
President.
517
T. W. G E E G O E Y .
To the PRESIDENT.
CHANGE OP LOCATION OF FEDERAL RESERVE BANKS.
The Federal Reserve Board can not legally change the present location of any Federal reserve bank, whether there has been an
alteration or readjustment in the district lines or not.
- The Federal reserve act, in- prescribing a minimum capitalization
of $4,000,000 for Federal reserve banks as a condition precedent
to commencing business, does not require that such minimum
capitalization shall be preserved when member banks reduce
their capital stock or surplus, or cease to be members.
DEPARTMENT
OF
JUSTICE,
April Ik, 1916.
SIR: At the request of the Federal Eeserve Board you
have submitted the following questions for my opinion:
" I. Can the Federal Eeserve Board legally change the
present location of any Federal reserve bank:
u
{a) In the case where there has been no alteration in
the district lines, and
"(&) In the case where there has been such readjustment of district lines as in the opinion of the board necessitates the designation of a new Federal reserve city in
order that due regard may be given to the convenience
and customary course of business as required by section 2
of the Federal reserve act ?
" I I . Must the Federal Eeserve Board, in exercising it
admitted power to readjust, preserve the $4,000,000 mill'
mum capitalization required of each Federal reserve ban
as a condition precedent to the commencement of bus
nessf"
I.
In my opinion of November 22, 1915, I expressed the
view that the Federal reserve act does not confer on the
Federal Eeserve Board the power to abolish any of the
518
Change of Location of Federal Reserve
Banks.
existing Federal reserve banks or Federal reserve districts.
I believe that the reasoning of that opinion is equally applicable to both branches of the first question now submitted.
Section 2 of the Federal reserve act provides (38 Stat.
251):
"As soon as practicable, * * * the Reserve Bank Organization-Committee shall designate not less than eight
nor more than twelve cities to be known as Federal reserve cities, and shall divide the continental United
States * * * into districts, each district to contain only
one of such Federal reserve cities. The determination of
said organization committee shall not be subject to review
except by the Federal: Reserve Board when organized:
Provided, That the districts shall be apportioned with
due regard to the convenience and customary course of
business and shall not necessarily be coterminous with any
State or States. The districts thus created may be readjusted and new districts may from time to time be
created by the Federal Reserve Board, not to exceed
twelve in all. Such districts shall be know7n as Federal
reserve districts and may be designated by number. * * *
" Said organization committee shall be authorized * * * to make such investigation as may be
deemed necessary by the said committee in determining
the reserve districts and in designating the cities within
such districts where such Federal reserve banks shall be
severally located."
The same section further provides:
" The said committee shall supervise the organization
in each of the cities designated of a Federal reserve bank,
which shall include in its title the name of the city in
which it is situated, as ' Federal Reserve Bank of Chicago.' "
Since the act thus provides that each city designated as
a Federal reserve city is to be the location of a Federal
reserve bank, it follows that a change in the location of a
Federal reserve bank would in effect be the designation
of a new Federal reserve city and the abandonment of one
The
President.
519
previously designated. I find no more warrant in the act
for the abandonment of one Federal reserve city and the
designation of a new one than I do for the abolition of a
Federal reserve district when once established.
The power to designate a new Federal reserve city (12
cities having been named by the organization committee), or to change the location of a Federal reserve bank,
is not expressly conferred by the act on the Federal
Reserve Board. If the board possesses such power it is
only by implication from the provision (sec. 2) that—
" The determination of said organization committee
shall not be subject to review except by the Federal Reserve Board when organized: Provided, That the districts
shall be apportioned with due regard to the convenience
and customary course of business and shall not necessarily be coterminous with any State or States. The districts thus created may be readjusted and new districts
may from time to time be created by the Federal Reserve
Board, not to exceed twelve in all."
In my opinion there is no clear indication either in the
provision just quoted or elsewhere in the act of an intent
to confer on the Federal Reserve Board the power to
change the location of Federal reserve banks by the designation of new Federal reserve cities. On the contrary,
there are indications of an opposite intent. As stated in
my opinion of November 22, 1015, above referred to—•
" The merely negative statement that the determination
of the organization committee ' shall not be subject to
review except by the Federal Reserve Board when organized ' clearly cannot be enlarged into an affirmative grant
of power to the board to review and set aside everything
done by the organization committee. The reasonable view
is that by that language Congress meant that the determination of the organization committee should not be subject
to review at all, except in so far as the subsequent provisions specifically authorize a review by the Federal Reserve
Board. The only subsequent provision authorizing a review of the determination of the organization committee by
the Federal Reserve Board is contained in the sentence—
520
Chamje of Location of Federa^Reserve
Banks.
" ' The districts thus created may be readjusted and new
districts may from time to time be created by the Federal
Keserve Board, not to exceed twelve in all.'"
Again, as stated in that opinion—
"A reading of the act shows at once that the organization committee was created not merely for the purpose of
attending to the formalities of organization or to serve as
a stop-gap until the Federal Reserve Board should come
into existence, but that it had an independent function
to perform and to that end was invested with wide powers.
That is to say, its function was to organize the system as
contradistinguished from the function of the Federal
Reserve Board, which was primarily to administer the
system."
The duty of designating Federal reserve cities belonged
to the Reserve bank organization committee as a part of
the organization of the system, and the committee was
required by the act to designate not less than 8 nor more
than 12 cities. This duty is named first among those
imposed upon the organization committee, and it is imposed by the same provision of section 2 which required
the committee to divide the United States into Federal
reserve districts. The same considerations that indicate
an intention that the several districts should be permanent
would also indicate that the designation of the cities was
not to be made for temporary purposes, but was intended
to be permanent, subject, of course, to change by Congress.
The designation was to be made only after thorough
investigation, and the same machinery was provided to
facilitate both the determination of the districts and the
designation of the cities. Thus, section 2 provides:
" Said organization committee shall be authorized to
employ counsel and expert aid, to take testimony, * * *
and to make such investigation as may be deemed neces* * * in determining the reserve districts and in
sary
designating the cities within such districts where such
Federal reserve banks shall be severally located."
I n my opinion, this coupling of the duty of determining
the districts with the duty of designating the Federal
The
President.
521
reserve cites within the several districts shows an intention
on the part of Congress that the cities so designated are
to constitute the fixed centers in the scheme or system of
division, the duty of designating the cities being coordinate with the duty of forming districts around them. I t
was left to the discretion of the organization committee
whether it should designate the full number of Federal
reserve cities and establish the full number of Federal
reserve districts permitted by the act. The committee
elected to designate and establish the full number authorized, thereby practically suspending the operation of the
provision of the act that-" new districts may from time to
time be created by the Federal Eeserve Board, not to exceed twelve in all." The primary, if not the only purpose
of that provision, must have been to take care of the situation in the event that the organization committee had designated less than 12 Federal reserve cities.
The fact that the Federal Reserve Board, aside from the
provision relating to the creation of new districts from
time to time, was merely given the power to " r e a d j u s t "
districts suggests that there was to be some permanent
characteristic or element in the districts created by the organization committee. If, however, in addition to the
power which the Federal Eeserve Board has of readjusting
districts by changing their boundary lines, it also possessed
the power to change the location of the respective Federal
reserve cities within such districts, then the board could,
by successive changes of cities and boundaries, entirely
obliterate existing districts and substitute in their place
new districts totally different from those created by the
organization committee. I do not think that Congress
intended to confer such a power.
The act provides that each Federal reserve bank is to
include the name of the city in which the bank is located.
By section 4 it is provided that the organization certificate
of each bank shall state specifically—
" The name of such Federal reserve bank, the territorial
extent of the district over which the operations of such
Federal reserve bank are to be carried on, the city and
Stale in which said hank is to be located, the amount of
522
Change of Location of Federal Reserve
Banks.
capital stock and the number of shares into which the
same is divided * * *."
Upon the filing of such certificate with the Comptroller
of the Currency in the manner prescribed, such Federal
reserve bank—
"shall become a body corporate and as such, and in the
name designated in such organization certificate, shall have
power— ..
" * * * To have succession for a period of twenty
years from its organization unless it is sooner dissolved by
an act of Congress, or unless its franchise becomes forfeited by some violation of law." (Sec. 4.)
I t is to be noted that there is no provision in the act by
which the Federal Reserve Board may change the name of
a Federal reserve bank or amend its certificate in this respect. The whole tenor suggests permanency.
The omission of Congress to grant, by express language,
the power to change Federal reserve cities is significant,
especially in view of the language of section 11 (e) of the
act, which confers the power—
" To add to the number of cities classified as reserve and
central reserve cities * * *; or to reclassify existing
reserve and central reserve cities, or to terminate their
designation as such."
I t would have been equally easy, had Congress desired
to grant the authority to designate new Federal serve
cities, to have said so in express terms. (Tillson v. United
States, 100 U. S., 43, 46, quoted in my opinion of November 22, 1915, supra.)
I t may be suggested that changes in the "customary
course of business " or other changes not foreseen by the
organization committee may result in inconveniences which
the Federal Reserve Board can not remedy if its power to
change the location of Federal reserve cities is denied.
The answer is that the remedy is with Congress, in so far
as it may not already be supplied by section 3, which authorizes the establishment of as many branch banks in any
district as may be found expedient.
To sum up my conclusion on the question whether the
Federal Reserve Board can legally change the present
The President.
•
523
location of any Federal reserve bank, I am of opinion that
the board has no such power, and that such power is lacking whether there has been an alteration or readjustment
in the district lines or not.
II.
Coming now to the consideration of the second question
submitted, namely,--whether the Federal Eeserve Board, in
exercising its admitted power to readjust, must preserve
the $4,000,000 minimum capitalization required of each
Federal reserve bank as a condition precedent to the commencement of business, I am of opinion that this question
is to be answered in the negative.
The Federal reserve act provides, in section 2 :
" No Federal reserve bank shall commence business with
a subscribed capital less than $4,000,000."
The same section also contains a provision requiring
subscriptions to the capital stock to be paid—
"One-sixth * * * on call of the organization committee or of the Federal Reserve Board, one-sixth within
three months and
th within six months thereafter,
and the remainder of the subscription, or any part thereof,
shall be subject to Gall when demed necessary by the Federal Reserve Board * * *."
Section 4 contains the following provision:
" When the minimum amount of capital stock prescribed by this act for the organization of any Federal
reserve bank shall have been subscribed and allotted, the
organization committee shall designate any five banks
* * * to execute a certificate of organization * * *,
" Upon the filing of such certificate with the Comptroller
of the Currency the said Federal reserve bank shall become a body corporate."
The decrease of capital stock is authorized by the following provision of section 5:
" T h e outstanding capital stock shall be increased from
time to time as member banks increase their capital stock
and surplus or as additonal banks become members, and
may be decreased as member banks reduce their capital
stock or surplus or cease to be members."
524
Change of Location of Federal Reserve
Banks.
Additional provisions relating to the decrease of capital
stock are found in sections 5 and 6, as follows:
" Sec. 5. * * * When a member bank reduces its capital stock it shall surrender a proportionate amount of its
holdings in the capital of said Federal reserve bank, and
when a member bank voluntarily liquidates it shall surrender- all of its holdings of the capital stock of said Federal reserve b a n t and be released from its"stock subscription not previously called. In either case the shares surrendered shall be canceled and the member bank shall receive in payment therefor * * * a sum equal to its
cash-paid subscriptions on the shares surrendered * * *
less any liability of such member bank to the Federal reserve bank.
" Sec. 6. / / any member bank shall be declared insolvent * * * the stock held by it in said Federal reserve
bank shall be canceled * * * and all cash-paid subscriptions on said stock, with one-half of one per centum
per month from the period of last dividend, not to exceed
the book value thereof, shall be first applied to all debts
of the insolvent member bank to the Federal reserve bank,
and the balance, if any, shall be paid to the receiver of
the insolvent bank. Whenever the capital stock of a Federal reserve bank is reduced, either on account of a reduction in capital stock of any member bank or of the liquidation or insolvency of such bank, the board of directors
shall cause to be executed a certificate to the Comptroller
of the Currency showing such reduction of capital stock
and the amount repaid to such bank."
In section 9 it is provided;
" If at any time * * * a member bank has failed to
comply with * * * the regulations of the Federal Reserve Board, it shall be within the power of the said
board, after hearing, to require such bank to surrender its
stock in the Federal reserve bank; * * * and said Federal reserve bank shall, upon notice from the Federal Keserve Board, be required to suspend said bank from further privileges of membership, and shall within thirty days
of such notice cancel and retire its stock and make payment therefor in the manner herein provided."
The
President.
525
I t will be observed from the foregoing quotations that
the Federal reserve act expressly provides that no Federal
reserve bank shall commence business with a subscribed
capital of less than $4,000,000. (Sec. 2.) They were each
to be organized when the minimum amount of capital
stock had been subscribed. (Sec. 4.) Only three-sixths of
the capital subscribed is required to be paid in, the remainder being left- " subject to call when deemed necessary by the Federal Reserve Board." (Sec. 2.)
The act specifically provides for the decrease of capital
stock (1) as member banks reduce their capital stock;
and (2) as they cease to be members. (Sec. 5.)
Member banks may cease to be members for any of
four causes—
(a) Voluntary liquidation (sec. 5 ) ;
(b) Insolvency (sec. 6 ) ;
(c) Violation of regulations of Federal Reserve Board
(sec. 9 ) ;
(d) Transfer from one Federal district to another
through readjustment of districts (sec. 2).
The act specifically requires the cancellation of capital
stock where membership ceases under (a), (£>), or (c).
(Sees. 5, 6, and 9.)
No specific provision is made for cancellation of capital
stock where membership ceases under (d).
While the minimum capital had to be subscribed in
order to commence business, the maintenance of that minimum is nowhere prescribed by the act. The fact that the
board is to determine whether more than half the subscription is to be paid in seems to indicate that the minimum to be subscribed was fixed as a precaution to make
sure that ample credit should be pledged to insure the
success of the system.
Not only is the maintenance of the minimum not prescribed, but express provision is made for reducing the
capital stock as, or whenever, member banks " cease to
be members." This language is general and includes in
its terms all cases in which member banks cease to be
members. I t is coupled with no expressed condition that
the minimum capitalization be preserved, and since the
526
Change of Location of Federal Reserve
Banks.
Federal reserve act required the organization of the Federal reserve banks upon the subscription of the minimum,
it is obvious that any reduction whatever made after
commencing business might reduce the capital below the
minimum.
I t is plain that a member bank can be a member only
of the Federal reserve bank of the district in which both
are located. This is obvious from the nature of the Federal reserve, districts and is assumed in sections 2, 4, and 9.
Of necessity, therefore, when the Federal Reserve Board,
in the exercise of its power to readjust, transfers a member
bank from one district to another, such transferred bank
must cease to be a member of the Federal reserve bank of
the district from which it is transferred. When it thus
ceases to be a member, the capital of the Federal reserve
bank may be reduced; and there is nothing in the act
requiring the reduction to be made subject to the maintenance of a minimum capital.
I t is to be noted that section 5 provides that the capital
stock shall be increased and may be decreased under the
conditions therein mentioned. Succeeding provisions of
sections 5, 6, and 9, however, make it clear that may is
here used in the sense of shall, as applied to cases arising
under (a), (6), and (c). It seems reasonable to infer that
it is used in the same sense as applied to (d). But whether
so used or used in its more literal sense is here immaterial,
for. so far as the answer to the question submitted is concerned, the result is the same whether the board is required
or merely authorized to reduce the capital when member
banks cease to be members.
Nor can any significance be attached to the fact that
specific provision is made for reducing the capital stock
of a Federal reserve bank in cases arising under (a), (5),
and (<?), while the act is silent as to cases arising under
(d).
The cases specifically provided for include cases
where the member banks cease to be members as the direct
result of their own acts or conduct. Cases under (d)
arise where banks cease to be members as an incident of
the exercise of the power of the Federal Reserve Board
The President.
527
to readjust districts. The grant of the specific power to
readjust carries with it, as fully as if expressed in the act,
the power to do what is necessarily incidental. (Broom's
Maxims, 7th ed. 505; 199 U. S. 12.)
My conclusion as to the second question submitted is
that the Federal reserve act, in prescribing a minimum
capitalization of $4,000,000 for Federal reserve banks as
a- condition precedent to commencing business, does not
require that such minimum capitalization shall be preserved under the circumstances.
Very respectfully,
T. W. GKEGOKY.
@FedFRASER