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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

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