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FEDER L RESERVE BO RD

WASHINGTON

  T O

T H E  FEDERAL RESERVE BOARD

X-6649

July  1 , 1930.

SUBJECT: Bi l l  to  Amend Federal Reserve  Act and

National Bank  Ac t .

Dear  S i r :

There  i s  enclos ed herewi th  f o r  your  i n -

formation, copy  o f a  memorandum from  th e  Board's

Assistant Counsel, summarizing  th e  provis ions  of

S-4723,  a  t i l l i n t roduced  by  Senator Glass  t o

amend various provisions  o f the  National Bank  Act

a n d t h e

  Federal Reserve

  A c t . As the

  supply

  of the

p r i n t e d

  M i l i s

  s t i l l l imi ted , on ly

  one

  copy

  i s

at tached hereto .

Very truly yours,

ii. M.

  McClellaild,

Assistant Secretaryi

Enclosures.

TO ALL  GOVERNORS  AND AGENTS.

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COPY

X-6649-a

FEDERAL RESERVE

BOARD

  .

OFFICE CORRESPONDENCE

Date June  23, 1930

From

  M r.

  Wingfield-Assistant Counsel.

To

  Fed era l Reserve Board Subject: Summary

  of

  Provisions

of the  Bill S-4723, introduced

by  Senator g la ss .

On  June  17 , 1930 ,  Senator Carter Glass introduced  a  t i l l , S .4723,

t o  amend  t h e  prov is ions  of the  National Bank  Act and the  Federal Reserve

Act in a  number  of  re sp ec ts . When  he  introduced th is t i l l Senator Glass

s t a t e d  on t he  f l o o r  of the  Senate that  i t i s  merely  a  tentative measure

t o  which  he  hopes  t o  d i r e c t  th e  inquiry into  t h e  banking system au th ori ze d

by the  Senate.  Fo r t he  information  of t he  Board, however,  I  wi ll briefly

summarize below

  t h e

  most important changes which Senator Glass

1

  bil l would

make  i n t he  present  l aw .

(1) The  f i r s t pa ragraph  of the  h i l l ,  S .  4723, states that  t h e  t i t l e

of the  bill  i s t h e  Banking  Act of  1930.

( 2 )  Sect ion  2 of the  b i l l ,  S .  4723, would amend  t he 7 t h  paragraph

of  Sect ion  5136 of the  Revised Statutes which  h as to do  with  t h e  powers

which  a  national bank  may  exerc i se .  I n  add i t ion  t o t he  specific powers  of

national banks  now  contained  in the l aw,  this bi l l provides that national

banks  may  generally engage  i n a l l  forms  of  business that commercial banks

of t he  Sta te  i n  which  t h e  national bank  i s  s i t u a t e d  a r e  permit ted  t o  t rans -

ac t by t he

  laws

  of the

  State, except

  i n s o f a r a s

  national banks

  a r e

expressly forbidden  t o  undertake such business  by t he  National Bank  Act ,

t h e  Federal Reserve  A c t , o r  other laws  of the  United States .

Under  t h e  present provis ions  of  Section  5136 of the  Revised Statutes,

national banks  a r e  authorized  to buy and  soil invostment securi t ies .

Section  2 of th e  b i l l ,  S .  4723, would also amend Section  5136 so as to

limit this power  of  national banks  t o  only  th e  buying  an d  s e l l i n g  o f i n -

vestment se cu r it ie s so le ly upon order  a n d f o r  account  of  customers,  and

in no  case  f o r i t s o w n  accoun t, except  a s  s p e c i f i e d  i n  Sect ion  24 of the

Federal Reserve  A c t .

( 3 )  Sect ion  5144 of the  Revised Statutes  now  pro vid es tha t each

shareholder  of a  national bank shall  be  e n t i t l e d  to one  vote  on  each share

of  stock held  b y h i m .  Sect ion  3 of the  b i l l  S .  4723 would amend Section

5144 so as to  r e s t r i c t  t h e  r i g h t  of a  shareholder  t o  vote only shares  of

stock actually owned  by him as a  r e s u l t  of  bona fide purchase, gift  o r

inhe r i t ance ,  and the  shareholder  who  becomes such through nominal transfer,

o r  ownership  on  behalf  o f  another,  may no t  vote stock  so  acq ui re d. This

sec t ion  of the  b i l l would f u r t h e r amend Sec tio n  5144 so as to  provide that

no  corpora t ion, asso cia t io n  o r  pa r tne rsh ip  and no  officer, employee  o r

di rec to r  of any  corpora t ion, associa t ion  o r  partnership which  i s t h e  owner

of

  stock

  i n any

  national bank shall vote either

  th e

  stock owned

  by him

ind iv idua l ly  o r t h e  stock owned  by

1

 t h 9  corpora t ion.  The  present provision

of  Section  5144  authorizing shareholders  t o  vote  by  proxy  i s  re ta ined  i n

t h e  b i l l  S .  4723. via .;.

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X-66494a

— —

( 4 )

  Section

  4 of the

  b i l l

  S .

  4723, would amend para graph

  (c) of

Section  5155 of the  Revised Statutes  so as to  au thor ize  a  national bank,

a f t e r  t h e  date  of the  approval  of  t h i s b i l l ,  to  e s t a b l i s h  an d  operate  new

branches within  t h e  l i m i t s  of t he  Sta te  i n  which  t h e  national bank  i s

situated rather than merely  i n t h e  city, town  o r  v i l l a g e  i n  which such

national bank

  i s

  lo ca ted .

  The

  proposed amendment retains

  th e

  present

prov is ion  of the law  t h a t  new  branches  may  only  be  es tab l i sh ed  a n d  operated

i f

  such establishment

  a n d

  operat ion

  a r e

  permi t ted

  t o

  State banks

  by the law

o f t h e

  S ta te

  i n

  which

  t h e

  national bank

  i s

  located .

( 5 )  Under  t h e  prov is ions  of  Section  5197 a s i t now  reads,  a  national

bank  i s  au thor ized  t o  charge in terest  a t t h e  rate al lowed  b y t h e  laws

of t he  S t a t e , t e r r i t o r y  o r  d is t r ic t where  t h e  bank  i s  lo ca ted  a n d  when  no

r a t e

  i s so

  f i x e d

  by

  S ta te

  law a

  national bank

  may

  charge

  a

  r a t e

  n o t e x -

ceeding

  7 p e r

  centum. Se ct ion

  5 of th e

  b i l l

  S .

  4723 would amend these

  p r o -

vis ions

  s o a s t o

  au thor ize

  a

  national bank

  to

  charge

  t h e

  rate allowed

  by

Sta te

  law or a

  r a t e

  o n e p e r

  centum

  i n

  excess

  o f t h e

  discount rate

  of the

Federal reserve bank  i n t h e  Federal reserve district where  t h e  national bank

i s  located, whichever  may be  g rea te r ,  a n d  where  no  r a t e  i s  f i x e d  by  State

l aw a  national bank would  be  au thor ized  t o  charge  a  r a t e  n o t  exceeding  7

p e r  centum  or one pe r  centum  i n  excess  of t he  discount rate  of the  Federal

reserve bank  i n t h e  Federal reserve distr ict where  th e  national bank  i s l o -

cated, whichever

  may be

  greater .

( 6 )  Se ct io n 5200  of t he  Revised Sta tute s l i mi ts loans  b y a  national

bank

  to any one

  person

  t o 1 0 p e r

  cent

  of t he

  c a p i t a l

  an d

  surplus

  of the

nat ion al bank. This sec tio n, however, con tai ns

  a

  number

  of

  exceptions

  to

t h e 1 0 p e r  cen t l i mi t a t i on . Sect ion  6 o f t he  b i l l  S .  4723 would amend

Section 5200

  by

  adding

  a

  provision that

  no

  ob l igat ion

  o f a

  broker

  or of any

finance company, securities company, investment trust  o r  other similar

i n s t i t u t i o n ,  or o f any  a f f i l i a t e , sh al l  be  e n t i t l e d  t o t h e  b e n e f i t s  of

any o f t he

  exceptions contained

  i n

  Section 5200,

  b u t a l l

  such obligations

shal l  be  sub ject  t o t h e 1 0 p e r  cent li mi ta ti on . This sec tio n would  f u r -

ther amend Section 5200  so as to  provide that  th e  to ta l ob l igat ions  of an

a f f i l i a t e s h a l l  n o t  exceed  t h e 1 0 p e r  cen t l imi ta t ion  o r t h e  amount  of the

capital s tock

  o f t h e

  a f f i l i a t e a c t u a l l y p a i d

  i n a n d

  unimpaired, whichever

may be the  smaller .  I t i s  fu rt he r provided that  a n  a f f i l i a t e sh a l l i nc lu de

a  fi na nc e company, s e c u r i t i e s company, investment tr u s t ,  or any  other  c o r -

p o ra t io n  t h e  control  of  which  i s  held d i rec t ly  o r  indirectly through stock

ownership,

  or i n any

  other manner

  by a

  national bank

  or by the

  shareholders

thereof

  who own or

  con tro l

  a

  major i ty

  of the

  stock

  of the

  national bank.

( 7 )

  Section

  7 of th e

  b i l l

  S .

  4723 would amend Section

  5211 of th e

Revised Statutes

  by

  adding

  a new

  paragraph which would require each

a f f i l i a t e  of a  national bank  t o  fu rn i sh  t o t h e  Comptroller  of t he  Currency

n o t  le ss than thr ee re por ts each year, se tt in g  o u t i n  d e t a i l  th e  condi-

t io n  o f t h e  a f f i l i a t e .  Th e  pres iden t  of t he  national bank  i s  requ i red  to

sa t i s fy h imsel f  a s t o t h e  correctness  of  each such re po rt t ra nsm it te d  to

th e  Comptroll er. This amendment cont ain s det ai le d requireme nts with r e f e r -

ence

  t o t h e

  f i l i n g

  of

  such reports

  a n d t h e

  form

  of

  such reports

  a n d

  author-

i zes

  t h e

  Comptroller

  of the

  Currency

  t o

  c a l l

  f o r

  special reports whenever

i n h i s  judgment  i t i s  necessary .  An  a f f i l i a t e which f a i l s  t o  f u r n i s h  the

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  i

repor ts requ i red  o f i t  sh a l l  be  sub ject  to a  penal ty  o f $ 10 0 f o r  each  day

during which such failure continues.

( 8 )

  Section

  8 of the

  b i l l

  S .

  4723 would amend

  t h e

  first paragraph

of

  Section

  7 of th e

  Federal Reserve

  Act so as to

  provide that a f t e r

  the

payment

  of a 6 p e r

  cent dividend

  to

  member banks, one-fou r th

  of th e

remainder  of t he ne t  earnings  of a  Federal reserve bank shall  be  p a id  t o

t h e  United States  a s a  f ran ch i se  t a x ,  one-fourth  t o t h e  surplus fund  of

th e  Federal reserve bank  ( b u t  a f t e r  th e  surplus equals  1 0 0 p e r  cent  of the

subscribed capital  t h e  remainder goes  to t he  United States  a s a  franchise

t a x ) a n d t h e  remaining  5 0 p e r  cent  o f t h e n e t  earnings  of a  Federal reserve

bank shall  b e  p a i d  t o t h e  member bank stockholders.

( 9 )  Section  9 of the  b i l l  S .  4723 would amend Se ct io n  9 o f t he

Federal  Be serve  Act by  adding  a new  par agr aph which would req ui re each

a f f i l i a t e  o f a  member State bank  t o  f u r n i s h  t o t h e  Federal Reserve Board

n o t

  less than three reports each year, containing detailed information

with reference  t o t h e  condit ion  of the  a f f i l i a t e . This amendment contai ns

detailed requirements with reference  to t he  f i l i n g  of  such reports  and the

form thereof  an d  req u i res  t h e  pres iden t  of the  member bank  to  satisfy hin>-

sel f  as t o t he  correctness  o f  each such report transmitted  t o t h e  Federal

Reserve Board.  Any  a f f i l i a t e which f a i l s  t o  make  an y  report required shal l

be

  sub ject

  t o a

  penal ty

  o f $ 1 0 0 f o r

  each

  day

  during which such failure

conti nues. This se ct ion

  of the

  b i l l con ta ins subs tan t ia l ly

  th e

  same

d e f i n i t i o n  of an  a f f i l i a t e  as was  contained  i n  Section  6 of the  b i l l  a s

above noted.

( 1 0 )  Section  1 0 ( a ) o f t h e  b i l l  S .  4723 would amend  t h e  f i r s t

paragraph

  of

  Sect ion

  10 of the

  Federal Reserve

  Act so as to

  e l imin a te

  t h e

Secretary  of t he  Treasur y from membership  o n t h e  Federal Reserve Board  and

to  provide  f o r a  membership  of  only seven members inc lu di ng  s i x  members  a p -

poin ted  by the  Pres iden t  of the  United States  and the  Comptroller  of the

Currency

  as an ex

  o f f i c i o member. Sec tion

  1 0 ( b ) o f

  t h i s b i l l would amend

th e

  second paragraph

  of

  Section

  10 of the

  Federal Reserve

  Ac t so a s to

el iminate

  t h e

  Secre tary

  o f t h e

  Treasury from

  t h e

  provision which

  now

  renders

t h e

  Secre tary

  o r

  Comptroller

  of t he

  Currency ineligible during

  t h e

  tine

h e i s i n

  o f f i c e

  and fo r two

  years there af t er

  t o

  ho ld

  an y

  off ice , pos i t ion

o r

  employment

  i n a n y

  member bank. Se ct io n

  1 0 ( c )

  would amend

  th e

  fourth

paragraph  o f  Section  10 o f t he  Federal Reserve  Act to  el iminate  t h e

Secretary  of t he  Treasury  as an ex  officio chairman  of t he  Federal  R e-

serve Board

  a n d t o

  provide that

  th e

  oaths

  of

  o f f i c e

  of

  members

  of t he

Federal Reserve Board shall  be  f i l ed w i th  t h e  Secretary  of t he  Federal

Reserve Board rather than  b e  c e r t i f i e d  t o t h e  Secretary  of the  Treasury

as is now  required*

( 1 1 )  Sect ion  11 o f t he  b i l l  S .  4723 would amend  t h e  seventh paragraph

of  Section  13 of th e  Federal Reserve  Act so as to  provi de tha t during  the

l i f e  or  continuance  of  advances  t o a  member bank  o n t h e  15-day promissory

co l l a t e ra l n o tes  of t he  member bank such member bank shall  n o t  increase  o r

enlarge  t h e  total loans already made  b y i t  ei t her upon co ll at er al securi ty

to any  borrower  or t o t he  members  of any  organized stock exchange, investment

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I

  ;

  o y

X-6649-a

- 4 -

house,

  o r

  dealer

  i n

  secur i t ies , upon

  any

  obligat ion, note,

  o r

  bil l secured

o r  unsecur ed, exce pt  f o r t h e  purpose  of  purchasing  a n d  carrying obligat ions

of the  United States.

( 1 2 )  Section  12 ,  which  i s t he  las t sec t io n  of the  b i l l  S .  4723,

would amend Section

  24 of the

  Federal Reserve

  Act so as to

  requ i re

  a

national bank  t o  invest  i t s  time  and  savings deposits  i n t he  amount  of

re al e st at e loans auth oriz ed under  t h e  provisions  of  Sect ion  24 of the

Federal Reserve  A c t o r i n  proper ty  a n d  s e c u r i t i e s  of the  kinds  a n d  amounts

requ i red

  by law of

  savings banks

  i n t h e

  State where

  t h e

  national bank

  i s

s i t u a t e d .  I n  ease  no  such State savings bank  law  e x i s t s  th e  savings  and

timo deposits  of a  national bank shall  bo  inves ted  i n  proper ty  a n d  secu r i -

t i e s sp ec i f i ed

  by the

  Comptroller

  o f t he

  Currency.

  The

  reserve

  of 3$ of

t ime deposits required  by the  Federal Reserve  A ct  shall count  a s a  corres-

ponding part  of  such in vest ment s. QSiis se c t ion  of the  b i l l f u r t h e r  p r o -

vides that

  i n

  case

  a

  national bank becomes insolvent,

  a l l t h e

  property

acquired under th i s s ect ion sha l l  be  app l ied  by the  receiver thereof  i n

t h e  f i r s t p l a c e r a t a b l y  and  propor t ionate ly  t o t he  payment  i n  f u l l  of

t h e  time  a n d  savings deposits  of the  national bank.

A  copy  of the  b i l l  S .  4723  i s  at tached hereto  f o r t h e  Board's

information.

Respectful ly ,

(S ) B. M.  Wingfield

Assistant Counsel.

Copy  of  b i l l a t t ach ed .

BMW-sad