RECOMMENDATIONS OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

LETTER OF TRANSMITTAL

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM,

Hon. A. WILLIS ROBERTSON,

OFFICE OF THE CHAIRMAN, Washington, September 28, 1956.

Committee on Banking and Currency,

United States Senate, Washington, D. C.

DEAR SENATOR ROBERTSON: In response to your memorandum of July 20, 1956, there is submitted herewith a compilation of suggested amendments to the Federal banking laws affecting the Federal Reserve System for the consideration of your committee in connection with its current study of all Federal laws relating to financial institutions and credit.

In accordance with the Board's understanding of the scope of your committee's present study, the proposed amendments now being submitted by the Board relate in general to possible changes in the law with respect to operational activities and changes intended merely to eliminate obsolete provisions or to add such new provisions as seem desirable in order to clarify the law or make it more workable.

The suggestions do not cover proposals relating to policy matters or the structure and scope of authority of the Federal bank agencies, except for certain legislative proposals which were recommended by the Board during the last Congress; nor does the list of suggestions now submitted include matters of codification, such as the arrangement without change in substance of existing statutory provisions. However, with respect to such matters of codification, as well as any other matters in connection with your committee's study the Board and its staff will be glad to render whatever assistance the committee may desire at any time. Sincerely,

Existing law

WM. MCC. MARTIN, Jr.

46. RESERVE BANK ORGANIZATION COMMITTEE

The first 2 paragraphs (partially incorporated in 12 U. S. C. 222, 223, and 225) and the 13th paragraph (12 U. S. C. 224 and 281) of section 2 of the Federal Reserve Act read as follows:

Paragraph 1: "SEC. 2. As soon as practicable, the Secretary of the Treasury, the Secretary of Agriculture and the Comptroller of the Currency, acting as "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, excluding Alaska, 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 Board of Governors of the Federal Reserve System 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 Board of Governors of the Federal Reserve System, not to exceed twelve in all. Such districts shall be known as Federal reserve districts and may be designated by number. A majority of the organization committee shall constitute a quorum with authority to act."

Paragraph 2: "Said organization committee shall be authorized to employ counsel and expert aid, to take testimony, to send for persons and papers, to administer oaths, and 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 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.'"

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Paragraph 13: "No Federal reserve bank shall commence business with a subscribed capital less than $4,000,000. The organization of reserve districts and Federal reserve cities shall not be construed as changing the present status of reserve cities and central reserve cities, except in so far as this Act changes the amount of reserves that may be carried with approved reserve agents located therein. The organízation committee shall have power to appoint such "assistants and incur such expenses in carrying out the provisions of this Act as it shall deem necessary, and such expenses shall be payable by the Treasurer of the United States upon voucher approved by the Secretary of the Treasury, and the sum of $100,000, or so much thereof as may be necessary, is hereby appropriated, out of any moneys in the Treasury not otherwise appropriated, for the payment of such expenses." Recommendation

Amendments to revise the first 2 paragraphs of section 2 of the Federal Reserve Act to eliminate references to the Reserve Bank Organization Committee and its functions and powers, and to repeal the 13th paragraph of such section.

Reasons

The Reserve Bank Organization Committee is now defunct, since its functions in connection with the original designation of Federal Reserve districts and cities and the organization of Federal Reserve banks were fully accomplished in the early days of the System. Consequently, all provisions relating to the Committee, its functions and expenses, contained in the 1st, 2d, and 13th paragraphs of section 2 of the Federal Reserve Act are obsolete. In addition, the minimum capital required for the original organization of Federal Reserve banks, as contained in the 13th paragraph of that section is no longer of any significance. However, certain provisions of the first two

paragraphs of this section, relating to readjustment and apportionment of Federal Reserve districts and to the locatio nof Federal Reserve cities and titles of Federal Reserve banks are still of importance and should be retained in revised form if those paragraphs are amended to remove references to the Organization Committee.

47. SUBSCRIPTION BY NATIONAL BANKS TO FEDERAL RESERVE
BANK STOCK

Existing law

In section 2 of the Federal Reserve Act the third paragraph (partly in 12 U. S. C. 282), the fifth paragraph (not in United States Code), and the sixth and seventh paragraphs (12 U. S. C. 501a) read as follows:

Paragraph 3: "Under regulations to be prescribed by the organization committee, every national banking association in the United States is hereby required, and every eligible bank in the United States and every trust company within the District of Columbia, is hereby authorized to signify in writing, within sixty days after the passage of this Act, its acceptance of the terms and provisions hereof. When the organization committee shall have designated the cities in which Federal reserve banks are to be organized, and fixed the geographical limits of the Federal reserve districts, every national banking association within that district shall be required within thirty days after notice from the organization committee, to subscribe to the capital stock of such Federal 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 Board of Governors of the Federal Reserve System, one-sixth within three months and one-sixth within six months thereafter, and the remainder of the subscription, or any part thereof, shall be subject to call when deemed necessary by the Board of Governors of the Federal Reserve System, said payments to be in gold or gold certificates."

Paragraph 5: "Any national bank failing to signify its acceptance of the terms of this Act within the sixty days aforesaid, shall cease to act as a reserve agent, upon thirty days' notice, to be given within the discretion of the said organization committee or of the Board of Governers of the Federal Reserve System."

Paragraph 6: "Should any national banking association in the United States now organized fail within one year after the passage of this Act to become a member bank or fail to comply with any of the provisions of this Act applicable thereto, all of the rights, privileges, and franchises of such association granted to it under the nationalbank Act, or under the provisions of this Act, shall be thereby forfeited. Any noncompliance with or violation of this Act shall, however, be determined and adjudged by any court of the United States of competent jurisdiction in a suit brought for that purpose in the district or territory in which such bank is located, under direction of the Board of Governors of the Federal Reserve System, by the Comptroller of the Currency in his own name before the association shall be declared dissolved. In cases of such noncompliance or violation, other than the failure to become a member bank under the provisions of this Act, every director who participated in or assented to the same

shall be held liable in his personal or individual capacity for all damages which said bank, its shareholders, or any other person shall have sustained in consequence of such violation."

Paragraph 7: "Such dissolution shall not take away or impair any remedy against such corporation, its stockholders or officers, for any liability or penalty which shall have been previously incurred." Recommendation

An amendment repealing the third and fifth paragraphs of section 2 of the Federal Reserve Act, and revising the sixth and seventh paragraphs of that section to eliminate obsolete provisions and to make it clear that national banks organized since the date of the Federal Reserve Act must be members of the Federal Reserve System.

Reasons

The third and fifth paragraphs of section 2 of the Federal Reserve Act, requiring every national bank in the United States to signify its acceptance of that act "within 60 days after the passage of this act" and providing penalties for failure to do so, obviously relate only to national banks in existence at the time of the original Federal Reserve Act and have no applicability to banks organized since that time. They have therefore been fully executed and should be repealed as obsolete.

The provision in the sixth paragraph of section 2 for the forfeiture of the franchise of any national bank "now organized" which fails within 1 year after the passage of the act to become a member bank likewise is obviously obsolete; and it is questionable whether the remainder of the paragraph regarding violations of the act by national banks is technically applicable to national banks organized since the date of the act. Furthermore, this paragraph does not make clear the intent of the law that national banks organized since the date of the act must become members of the Federal Reserve System. The paragraph should be revised to make the provision regarding violations of law applicable to all national banks whenever organized and also to provide specifically that every national bank shall be a member of the System. If this paragraph were revised as suggested, it might incorporate the substance of the present seventh paragraph relating to the effect of dissolution of a national bank.

48. LIABILITY INCIDENT TO OWNERSHIP OF FEDERAL RESERVE BANK STOCK

Existing law

The fourth paragraph of section 2 of the Federal Reserve Act (12 U.S. C. 502) provides:

"The shareholders of every Federal Reserve bank shall be held individually responsible, equally and ratably, and not one for another, for all contracts, debts, and engagements of such bank to the extent of the amount of their subscriptions to such stock at the par value thereof in addition to the amount subscribed, whether such subscriptions have been paid up in whole or in part, under the provisions of this act." Recommendation

An amendment which would repeal the provision of law quoted above and thereby relieve member banks of the so-called "double liability" incident to their ownership of Federal Reserve bank stock.