that required for the organization of a national bank in the same. place."

The 12th paragraph of section 19 of the Federal Reserve Act (12 U. S. C. 371a), refers in the 3d proviso to a savings bank "as defined in section 12B of this act."

The sixth paragraph of section 25 (b) of the Federal Reserve Act (12 U. S. C. 632) provides that the term "insured bank" shall have the meaning given it in "section 12B of this act."

Recommendation

An amendment to repeal the twelfth paragraph of section 9 authorizing the Board to waive membership requirements in order to facilitate membership of State banks formerly required by subsection (y) of section 12B of the Federal Reserve Act to become members of the System in order to have their deposits insured; together with amendments correcting references to section 12B of the Federal Reserve Act now contained in the 12th paragraph of section 19 and the 6th paragraph of section 25 (b) of the Federal Reserve Act.

Reasons

The 12th paragraph of section 9 provides that the Board of Governors may waive requirements for membership in the System with respect to any State bank required by subsection (y) of section 12B of the Federal Reserve Act to become a member of the System in order to have its deposits insured. Subsection (y) of section 12B was repealed in 1939, and all of section 12B itself was withdrawn from the act and enacted as a separate Federal Deposit Insurance Act in 1950. Consequently, this paragraph is now of no significance and should be repealed.

The references to section 12B in the 12th paragraph of section 19 and the 6th paragraph of section 25 (b) of the Federal Reserve Act are now inaccurate for the reasons indicated above, and these references therefore should be to the Federal Deposit Insurance Act.

60. STOCK ACQUISITIONS IN CONNECTION WITH ABSORPTIONS Existing law

Paragraph 20 of section 9 of the Federal Reserve Act (12 U. S. C. 335) provides:

"State member banks shall be subject to the same limitations and conditions with respect to the purchasing, selling, underwriting, and holding of investment securities and stock as are applicable in the case case of national banks under paragraph 'Seventh' of section 5136 of the Revised Statutes, as amended."

The fifth sentence of paragraph "Seventh" of section 5136 of the Revised Statutes (12 U. S. C. 24) provides:

"*** Except as hereinafter provided or otherwise permitted by law, nothing herein contained shall authorize the purchase by the association for its own account of any shares of stock of any corporation. * * *”

Recommendation

An amendment to paragraph 20 of section 9 of the Federal Reserve Act to provide that, with the approval of the Board of Governors of the Federal Reserve System, a member State bank may purchase and

hold temporarily stock of another bank as one step in the process of absorbing such other bank through merger, consolidation, acquisition of assets, and assumption of liabilities, or otherwise.

Reasons

Section 5136 of the Revised Statutes contains a general prohibition against purchase by national banks, for their own accounts, of "any shares of stock of any corporation," and this prohibition is made applicable to member State banks by paragraph 20 of section 9 of the Federal Reserve Act.

In the course of the absorption of another bank, a member State bank occasionally finds that it would be convenient or otherwise beneficial to purchase the stock of such other bank and hold it for a short period, as one step in the takeover process. The statutory prohibition against member banks purchasing corporate stocks might be interpreted as not applying to such a temporary acquisition as one step in the process of absorption. However, the statutory prohibition is absolute in its language, and consequently the Board of Governors has felt obligated to look with disfavor upon any direct acquisition of stock by a member bank, even in the circumstances described above. As a result, member State banks have sometimes been deprived of this convenient means of effecting an otherwise unobjectionable absorption.

The proposed amendment would permit member State banks to utilize this convenient procedure, and the requirement of approval by the Board of Governors would prevent abuse of the privilege.

As indicated above, under existing law member State banks and national banks are in the same position in this respect. Consequently, the committee, if it favors this proposal, might wish to consider some similar amendment with respect to national banks.

61. OBSOLETE PROVISIONS REGARDING FEDERAL RESERVE BOARD MEMBERS

Existing law

The first and second paragraphs of section 10 of the Federal Reserve Act (12 U. S. C. 241) read as follows:

"SEC. 10. The Board of Governors of the Federal Reserve System (hereinafter referred to as the 'Board') shall be composed of seven members, to be appointed by the President, by and with the advice and consent of the Senate, after the date of enactment of the Banking Act of 1935, for terms of fourteen years except as hereinafter provided, but each appointive member of the Federal Reserve Board in office on such date shall continue to serve as a member of the Board until February 1, 1936, and the Secretary of the Treasury and the Comptroller of the Currency shall continue to serve as members of the Board until February 1, 1936. In selecting the members of the Board, not more than one of whom shall be selected from any one Federal Reserve district, the President shall have due regard to a fair representation of the financial, agricultural, industrial, and commercial interests, and geographical divisions of the country. The members of the Board shall devote their entire time to the business of the Board and shall each receive an annual salary of $15,000, payable monthly, together with actual necessary traveling expenses.

"The members of the Board shall be ineligible during the time they are in office and for two years thereafter to hold any office, position,

or employment in any member bank, except that this restriction shall not apply to a member who has served the full term for which he was appointed. Upon the expiration of the term of any appointive member of the Federal Reserve Board in office on the date of enactment of the Banking Act of 1935, the President shall fix the term of the successor to such member at not to exceed fourteen years, as designated by the President at the time of nomination, but in such manner as to provide for the expiration of the term of not more than one member in any two-year period, and thereafter each member shall hold office for a term of fourteen years from the expiration of the term of his predecessor, unless sooner removed for cause by the President. Of the persons thus appointed, one shall be designated by the President as chairman and one as vice chairman of the Board, to serve as such for a term of four years. The chairman of the Board, subject to its supervision, shall be its active executive officer. Each member of the Board shall within fifteen days after notice of appointment make and subscribe to the oath of office. Upon the expiration of their terms of office, members of the Board shall continue to serve until their successors are appointed and have qualified. Any person appointed as a member of the Board after the date of enactment of the Banking Act of 1935 shall not be eligible for reappointment as such member after he shall have served a full term of fourteen years. Recommendation

An amendment which would eliminate from the statute the provisions of these two paragraphs relating to the Banking Act of 1935 and the membership of the Secretary of the Treasury and the Comptroller of the Currency on the Board of Governors of the Federal Reserve System; and which would make the statement of the salary of the members of the Board conform to existing law or whatever substitute may be deemed appropriate by the committee or by Congress. Reasons

The provisions in the two paragraphs of section 10 of the Federal Reserve Act which are quoted above relating to the Banking Act of 1935 and to the Secretary of the Treasury and the Comptroller of the Currency were placed in the statute by the provisions of the Banking Act of 1935, which provided certain changes in the composition of the Federal Reserve Board. These provisions were necessary at the time in order to provide for the membership of the Board as newly constituted at that time, but their purpose has long since been served. The provisions are, therefore, obsolete and should be eliminated from the statute.

The last sentence of section 10 of the Federal Reserve Act as quoted above provides that the members of the Board of Governors of the Federal Reserve System shall each receive an annual salary of $15,000. However, under the provisions of the Federal Executive Pay Act of 1956, approved July 31, 1956, it is provided that the annual rate of basic compensation of the Chairman of the Board of Governors of the Federal Reserve System shall be $20,500 and of each of the other members of the Board of Governors shall be $20,000. In order that the provisions of the Federal Reserve Act may correctly reflect the actual situation in this regard, the reference to $15,000 in the last sentence of the first paragraph of section 10 should be changed to

conform to existing law or whatever substitute may be considered appropriate by the committee or by Congress.

62. REFERENCE TO NUMBER OF BOARD MEMBERS

Existing law

The last sentence of the fourth paragraph of section 10 of the Federal Reserve Act (12 U. S. C. 244) reads:

"***Whenever a vacancy shall occur, other than by expiration of term, among the six members of the Board of Governors of the Federal Reserve System appointed by the President as above provided, a successor shall be appointed by the President, by and with the advice and consent of the Senate, to fill such vacancy, and when appointed he shall hold office for the unexpired term of his predecessor."

Recommendation

Amend the fourth paragraph of section 10 of the Federal Reserve Act to change a reference to the "six members" of the Board to refer to the "members" of the Board.

Reasons

Since the Board has 7 members, the present reference in the law to 6 members of the Board is obviously inaccurate and should be changed to refer merely to the "members" of the Board.

63. RESERVATION OF POWERS OF SECRETARY OF TREASURY

Existing law

The sixth paragraph of section 10 of the Federal Reserve Act (12 U. S. C. 246) reads as follows:

"Nothing in this Act contained shall be construed as taking away any powers heretofore vested by law in the Secretary of the Treasury which relate to the supervision, management, and control of the Treasury Department and bureaus under such department, and wherever any power vested by this Act in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary." Recommendation

An amendment to repeal the last few lines of the above-quoted provision of law, specifically the language "and wherever any power vested by this act in the Board of Governors of the Federal Reserve System or the Federal reserve agent appears to conflict with the powers of the Secretary of the Treasury, such powers shall be exercised subject to the supervision and control of the Secretary."

Reasons

This provision was included in the original Federal Reserve Act in 1913, which provided for a Federal Reserve Board on which the Secretary of the Treasury and Comptroller of the Currency were members ex-officio. The provision appears to reflect some uncertainty on the part of Congress in 1913 as to the possibility of overlapping authority between the Treasury and the Federal Reserve System. However, the meaning and intent of the language suggested

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for repeal are not at all clear. The language apparently refers only to powers of the Secretary relating to the supervision, management, and control of the Treasury Department and its bureaus, although it is possible to interpret it as applying to other powers vested by the original Federal Reserve Act in the Federal Reserve Board and the Federal Reserve agent. It is not believed that Congress intended that this provision should be more broadly interpreted and, in any event, the removal of the Secretary of the Treasury and the Comptroller of the Currency from membership on the Federal Reserve Board by the Banking Act of 1935 clearly indicated an intent that the Board should perform its functions according to its own best judgment. Moreover, so far as is known, this provision has never had any significant effect on any of the operations or authority exercised by the Federal Reserve System or of the Secretary of the Treasury. It is believed that it is in the category of obsolete or unnecessary provisions and should be repealed.

Existing law

64. FEDERAL RESERVE BRANCH BUILDINGS

The ninth paragraph of section 10 of the Federal Reserve Act (12 U. S. C. 522) provides:

"No Federal reserve bank shall have authority hereafter to enter into any contract or contracts for the erection of any branch bank building of any kind or character, or to authorize the erection of any such building, if the cost of the building proper, exclusive of the cost of the vaults, permanent equipment, furnishings, and fixtures, is in excess of $250,000: Provided, That nothing herein shall apply to any building under construction prior to June 3, 1922: Provided further, That the cost as above specified shall not be so limited as long as the aggregate of such costs which are incurred by all Federal Reserve banks for branch bank buildings with the approval of the Board of Governors after the date of enactment of this proviso does not exceed $30,000,000."

Recommendation

An amendment which would remove entirely from the law quoted above the provisions thereof placing dollar limitations on expenditures for Federal Reserve bank branch buildings, but which would retain a provision requiring Board approval of expenditures for such buildings.

Reasons

The Federal Reserve banks use their own funds in the construction or improvement of their physical facilities, including their branch buildings and equipment. No appropriation of Government funds is involved. Federal Reserve bank buildings and branch buildings are capitalized-that is, carried as assets of the bank. Since a limitation on the expenditures for Federal Reserve bank branch buildings were first placed in the law in 1922, it has been necessary in 1947 and again in 1953 to amend the statutory limitation in order to provide for further branch construction and improvement that was found to be essential to increased activity of the branches. While most of the need for the next few years for physical expansion at the branches