has been taken care of, it is probable that improvement and modernization will be necessary from time to time in the future, with the result that the dollar limitations in the law again would require change. However, even without the statutory dollar limitations recommended for repeal, the recommendation would require approval of the Board for any such expansion. This would mean that, as in the past, the Board would continue to consider and would have to approve the proposed construction or improvement in the light of the needs of the branch, the type of proposed construction, the reasonableness of the costs, and whether the construction was generally in keeping with the prevailing economic situation.

Existing law

65. ADVANCES TO GROUPS OF MEMBER BANKS

Section 10 (a) of the Federal Reserve Act (12 U. S. C. 347a), provides as follows:

"SEC. 10 (a). Upon receiving the consent of not less than five members of the Board of Governors of the Federal Reserve System, any Federal reserve bank may make advances, in such amount as the board of directors of such Federal reserve bank may determine, to groups of five or more member banks within its district, a majority of them independently owned and controlled, upon their time or demand promissory notes, provided the bank or banks which receive the proceeds of such advances as herein provided have no adequate amounts of eligible and acceptable assets available to enable such bank or banks to obtain sufficient credit accommodations from the Federal reserve bank through rediscounts or advances other than as provided in section 10 (b). The liability of the individual banks in each group must be limited to such proportion of the total amount advanced to such group as the deposit liability of the respective banks bears to the aggregate deposit liability of all banks in such group, but such advances may be made to a lesser number of such member banks if the aggregate amount of their. deposit liability constitutes at least 10 per centum of the entire deposit liability of the member banks within such district. Such banks shall be authorized to distribute the proceeds of such loans to such of their number and in such amount as they may agree upon, but before so doing they shall require such recipient banks to deposit with a suitable trustee, representing the entire group, their individual notes made in favor of the group protected by such collateral security as may be agreed upon. Any Federal reserve bank making such advance shall charge interest or discount thereon at a rate not less than 1 per centum above its discount rate in effect at the time of making such advance. No such note upon which advances are made by a Federal reserve bank under this section shall be eligible under section 16 of this Act as collateral security for Federal reserve notes.

"No obligations of any foreign government, individual, partnership, association, or corporation organized under the laws thereof shall be eligible as collateral security for advances under this section.

"Member banks are authorized to obligate themselves in accordance with the provisions of this section."

Recommendation

An amendment to repeal section 10 (a) of the Federal Reserve Act authorizing advances by Federal Reserve banks, under certain limited circumstances, to groups of five or more member banks.

Reasons

The authority conferred by section 10 (a) of the act was added by the Glass-Steagall Act of 1932, as an emergency means of providing credit to groups of member banks where one or more banks in the group were in a weakened condition and did not have sufficient "eligible paper" to obtain credit from the Reserve banks under other provisions of the act. The authority was made subject to very rigid restrictions, and advances under the section must bear interest at a rate at least 1 percent above the regular discount rate. As far as is known, no advances were ever made by the Reserve banks under this authority. One reason presumably was that the same time Congress enacted section 10 (b) of the Federal Reserve Act authorizing advances to any individual member bank on any "satisfactory security." In the circumstances it seems reasonably clear that the authority contained in section 10 (a) serves no useful purpose and should be repealed.

66. SIMPLE MAJORITY FOR ALL BOARD ACTIONS

Existing law

The first paragraph of section 10 (a) of the Federal Reserve Act (12 U.S. C. 347a) provides in part:

"SEC. 10 (a). Upon receiving the consent of not less than five members of the Board of Governors of the Federal Reserve System, any Federal reserve bank may make advances, in such amount as the board of directors of such Federal reserve bank may determine, to groups of five or more member banks within its district, a majority of them independently owned and controlled, upon their time or demand promissory notes, provided the bank or banks which receive the proceeds of such advances as herein provided have no adequate amounts of eligible and acceptable assets available to enable such bank or banks to obtain sufficient credit accommodations from the Federal reserve bank through rediscounts or advances other than as provided in section 10 (b)

Paragraph (b) of section 11 of the Federal Reserve Act (12 U. S. C. 248 (b)) authorizes the Board of Governors:

"(b) To permit, or, on the affirmative vote of at least five members of the Board of Governors of the Federal Reserve System to require Federal reserve banks to rediscount the discounted paper of other Federal reserve banks at rates of interest to be fixed by the Board of Governors of the Federal Reserve System."

Paragraph (m) of section 11 of the Federal Reserve Act (12 U. S. C. 248 (m)) provides in part:

"(m) Upon the affirmative vote of not less than six of its members the Board of Governors of the Federal Reserve System shall have power to fix from time to time for each Federal reserve district the percentage of individual bank capital and surplus which may be represented by loans secured by stock or bond collateral made by member banks within such district, but no such loan shall be made by any such

bank to any person in an amount in excess of 10 per centum of the unimpaired capital and surplus of such bank: Provided, That with respect to loans represented by obligations in the form of notes secured by not less than a like amount of bonds or notes of the United States issued since April 24, 1917, certificates of indebtedness of the United States, Treasury bills of the United States, or obligations fully guaranteed both as to principal and interest by the United States, such limitation of 10 per centum on loans to any person shall not apply, but State member banks shall be subject to the same limitations and conditions as are applicable to the case of national banks under paragraph (8) of section 5200 of the Revised Statutes, as amended (U. S. C., Supp. VII, title 12, sec. 84)***”

The third paragraph of section 13 of the Federal Reserve Act (12 U. S. C. 343) provides:

"In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, by the affirmative vote of not less than five members, may authorize any Federal reserve bank, during such periods as the said board may determine, at rates established in accordance with the provisions of section 14, subdivision (d), of this Act, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange of the kinds and maturities made eligible for discount for member banks under other provisions of this Act when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal Reserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual or a partnership or corporation the Federal reserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the Board of Governors of the Federal Reserve System may prescribe."

Paragraphs (b) and (c) of section 19 of the Federal Reserve Act (12 U. S. C. 462) provide:

"(b) If in a reserve city, as now or hereafter defined, it shall hold and maintain with the Federal reserve bank of its district an actual net balance equal to not less than ten per centum of the aggregate amount of its demand deposits and three per centum of its time deposits: Provided, however, That if located in the outlying districts of a reserve city or in territory added to such a city by the extension of its corporate charter, it may, upon the affirmative vote of five members of the Board of Governors of the Federal Reserve System, hold and maintain the reserve balances specified in paragraph (a) hereof.

"(c) If in a central reserve city, as now or hereafter defined, it shall hold and maintain with the Federal reserve bank of its district an actual net balance equal to not less than thirteen per centum of the aggregate amount of its demand deposits and three per centum of its time deposits: Provided, however, That if located in the outlying districts of a central reserve city or in territory added to such city by the extension of its corporate charter, it may, upon the affirmative vote of five members of the Board of Governors of the Federal Reserve System, hold and maintain the reserve balances specified in paragraphs (a) and (b) thereof."

of this Act; or to reclassify existing reserve and central reserve cities or to terminate their designation as such.".

Recommendation

Amend section 11 (e) of the Federal Reserve Act to make the inaccurate reference to section 20 of the act refer to section 19, and to change "national banking associations" to "member banks."

Reasons

The reference in this provision of present law to the reserve requirements set forth in section 20 of the Federal Reserve Act obviously should refer to section 19 of that act. The proposed amendment would correct this reference. In addition, the amendment would change the words "national banking associations" to "member banks," in view of the fact that section 19 actually prescribes reserves with respect to all member banks rather than merely national banks.

69. REVOCATION OF TRUST POWERS OF NATIONAL BANKS

Existing law

The last sentence of the last paragraph of section 11 (k) of the Federal Reserve Act (12 U. S. C. 248 (k)) provides:

"The Board of Governors of the Federal Reserve System is authorized and empowered to promulgate such regulations as it may deem necessary to enforce compliance with the provisions of this subsection and the proper exercise of the powers granted therein."

Recommendation

An amendment to authorize the Board of Governors, on complaint by the Comptroller of the Currency, to revoke trust powers of national banks if it is determined, after hearing, that such powers are being unlawfully or improperly exercised.

Reasons

Although the Board is authorized to promulgate regulations to enforce the proper exercise of trust powers, there is no practical means to enforce compliance with these regulations. The supervisory authorities may request correction but they cannot demand correction. The only action that may be taken is forfeiture of the bank's charter or removal of officers for unsafe or unsound banking practices. As the Board issues a "special permit" to the national bank, which is in the nature of a license, the Board should have authority to revoke such permit if the powers are not being properly exercised. This extreme action would, of course, seldom be necessary as the possibility of such action would be sufficient in most instances to obtain the correction.

70. REFERENCES TO BONDS ISSUED UNDER HOME OWNERS' LOAN ACT AND BONDS OF FEDERAL FARM MORTGAGE CORPORATION

Existing law

The eighth paragraph of section 13 of the Federal Reserve Act (12 U. S. C. 347) provides that any Federal Reserve bank may make advances for periods not exceeding 15 days to its member banks on their promissory notes secured by various types of collateral including:

"***the deposit or pledge of Federal Farm Mortgage Corporation bonds issued under the Federal Farm Mortgage Act, or by the deposit

or pledge of bonds issued under the provisions of subsection (c) of section 4 of the Home Owners' Loan Act of 1933, as amended * * *” Section 14 (b) of the Federal Reserve Act (12 U. S. C. 355) authorizes each Federal Reserve bank to buy and sell certain types of obligations including

"*** bonds of the Federal Farm Mortgage Corporation having maturities from date of purchase of not exceeding six months, bonds issued under the provisions of subsection (c) of section 4 of the Home Owners' Loan Act of 1933, as amended ***”

The second paragraph of section 23A of the Federal Reserve Act (12 U. S. C. 371c) provides that the provisions of that paragraph regarding security for loans to affiliates of member banks shall not apply to loans on extensions of credit secured by certain types of obligations including:

"*** obligations of *** the Home Owners' Loan Corporation***""

The third paragraph of section 23A of the Federal Reserve Act (12 U. S. C. 371c) exempts from the provisions of that section any affiliate engaged solely in holding certain types of obligations including

66* * obligations of *** the Home Owners' Loan Corporation***

Recommendation

An amendment to eliminate reference to bonds and obligations of the Federal Farm Mortgage Corporation and the Home Owners' Loan Corporation and bonds issued under the Home Owners' Loan Act, as now contained in the provisions of law referred to above.

Reasons

The Home Owners' Loan Corporation was dissolved by order of the Secretary of the Home Loan Bank Board, effective February 3, 1954, pursuant to act of June 30, 1953; and no bonds of the Corporation are outstanding. The Federal Farm Mortgage Corporation has been in process of liquidation since 1947, most of its assets have been transferred to the Federal land banks, and only a relatively insignificant amount of obligations of that Corporation are now outstanding. Consequently, references in the Federal Reserve Act quoted above to obligations of these two Corporations no longer have any significance and should be repealed as obsolete.

71. REFERENCES TO NATIONAL AGRICULTURAL CREDIT CORPORATIONS

Existing law

The third paragraph of section 13a of the Federal Reserve Act (12) U. S. C. 350) authorizes any Federal Reserve bank to buy and sell debentures and other such obligations issued by "a national agricultural credit corporation."

Section 14 (f) of the Federal Reserve Act (12 U. S. C. 359) authorizes any Federal Reserve bank to purchase and sell in the open market acceptances "of national agricultural credit corporations."

The third paragraph of section 15 of the Federal Reserve Act (12 U. S. C. 393) authorizes the Federal Reserve banks to act as depositories and fiscal agents for "any national agricultural credit corpora