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Full text of "FULL TEXT: The Glass-Steagall Act a.k.a. The Banking Act of 1933"

FEDERAL RESERVE BANK 
OF NEW YORK 



{Circular No. 1248 "1 
June 22. 1933 J 



BANKING ACT OF 1933 



To all Member Banks in the 

Second Federal Reserve District: 

For your information we enclose a copy of the Banking Act of 
1933, approved June 16, 1933, commonly known as the Glass Act. 

We enclose also a copy of a summary of the principal provisions 
of that act. This is intended merely as a summary of the law and not 
as an interpretation thereof or commentary thereon. 

George L. Harrison, 

Governor. 



[Public — No. 66 — 73d Congress] 

[H.R. 5661] 

AN ACT 

To provide for the safer and more effective use of the assets of banks, to regulate 
interbank control, to prevent the undue diversion of funds into speculative 
operations, and for other purposes. 

Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled* That the short 
title of this Act shall be the " Banking Act of 1933." 

Sec. 2. As used in this Act and in any provision of law amended 
by this Act — 

(a) The terms " banks ", " national bank ", " national banking 
association ", " member bank ", " board ", " district ", and " reserve 
bank " shall have the meanings assigned to them in section 1 of the 
Federal Reserve Act, as amended. 

(b) Except where otherwise specifically provided, the term " affili- 
ate " shall include any corporation, business trust, association, or 
other similar organization — 

(1) Of which a member bank, directly or indirectly, owns or 
controls either a majority of the voting shares or more than 50 
per centum of the number of shares voted for the election of its 
directors, trustees, or other persons exercising similar functions at 
the preceding election, or controls in any manner the election of a 
majority of its directors, trustees, or other persons exercising similar 
functions; or 

(2) Of which control is held, directly or indirectly, through 
stock ownership or in any other manner, by the shareholders of a 
member bank who own or control either a majority of the share3 
of such bank or more than 50 per centum of the number of shares 
voted for the election of directors of such bank at the preceding 
election, or by trustees for the benefit of the shareholders of any 
such bank; or 

(3) Of which a majority of its directors, trustees, or other persons 
exercising similar functions are directors of any one member bank. 

(c) The term " holding company affiliate " shall include any cor- 
poration, business trust, association, or other similar organization — 

(1) Which owns or controls, directly or indirectly, either a 
majority of the shares of capital stock of a member bank or more 
than 50 per centum of the number of shares voted for the election 
of directors of any one bank at the preceding election, or controls 
in any manner the election of a majority of the directors of any one 
bank; or 

(2) For the benefit of whose shareholders or members all or 
substantially all the capital stock of a member bank is held by 
trustees. 



2 [Pub. 66.] 

Sec. 3. (a) The fourth paragraph after paragraph " Eighth " of 
section 4 of the Federal Reserve Act, as amended (U.S.C., title 12, 
sec. 301), is amended to read as follows: 

" Said board of directors shall administer the affairs of said bank 
fairly and impartially and without discrimination in favor of or 
against any member bank or banks and may, subject to the provi- 
sions of law and the orders of the Federal Reserve Board, extend 
to each member bank such discounts, advancements, and accommoda- 
tions as may be safely and reasonably made with due regard for 
the claims and demands of other member banks, the maintenance of 
sound credit conditions, and the accommodation of commerce, indus- 
try, and agriculture. The Federal Reserve Board may prescribe 
regulations further defining within the limitations of this Act the 
'conditions under which discounts, advancements, and the accommo- 
'dations may be extended to member banks. Each Federal reserve 
bank shall keep itself informed of the general character and amount 
of the loans and investments of its member banks with a view to 
ascertaining whether undue use is being made of bank credit for 
the speculative carrying of or trading in securities, real estate, or 
commodities, or for any other purpose inconsistent with the mainte- 
nance of sound credit conditions; and, in determining whether to 
grant or refuse advances, rediscounts or other credit accommodations, 
the Federal reserve bank shall give consideration to such informa- 
tion. The chairman of the Federal reserve bank shall report to 
the Federal Reserve Board any such undue use of bank credit by 
any member bank, together with his recommendation. Whenever, 
in the judgment of the Federal Reserve Board, any member bank 
is making such undue use of bank credit, the Board may, in its 
discretion, after reasonable notice and an opportunity for a hearing, 
suspend such bank from the use of the credit facilities of the Federal 
Reserve System and may terminate such suspension or may renew 
it from time to time." 

(b) The paragraph of section 4 of the Federal Reserve Act, as 
amended (U.S.C., title 12, sec. 304), which commences with the words 
" The Federal Reserve Board shall classify " is amended by inserting 
before the period at the end thereof a colon and the following: 
"Provided, That whenever any two or more member banks within 
the same Federal reserve district are affiliated with the same holding 
company affiliate, participation by such member banks in any such 
nomination or election shall be confined to one of such banks, which 
may be designated for the purpose by such holding company affiliate." 

Sec. 4. The first paragraph of section 7 of the Federal Reserve 
Act, as amended (U.S.C., title 12, sec. 289), is amended, effective 
July 1, 1932, to read as follows : 

"After all necessary expenses of a Federal reserve bank shall have 
been paid or provided for, the stockholders shall be entitled to receive 
an annual dividend of 6 per centum on the paid-in capital stock, 
which dividend shall be cumulative. After the aforesaid dividend 
claims have been fully met, the net earnings shall be paid into the 
surplus fund of the Federal reserve bank." 

Sec. 5. (a) The first paragraph of section 9 of the Federal Reserve 
I Act, as amended (U.S.C., title 12, sec. 321 ; Supp. VI, title 12, sec. 
821), is amended by inserting immediately after the words "United 



[Ptm.64.1 3 

States " a comma and the following : " including Morris Plan banks 
and other incorporated banking institutions engaged in similar 
business." 

(b) The second paragraph of section 9 of the Federal Reserve Act, 
as amended, is amended by adding at the end thereof the following : 
"Provided, however, That nothing herein contained shall prevent 
any State member bank from establishing and operating branches in 
the United States or any dependency or insular possession thereof or 
in any foreign country, on the same terms and conditions and subject 
to the same limitations and restrictions as are applicable to the 
establishment of branches by national banks." 

(c) Section 9 of the Federal Reserve Act, as amended (U.S.C., 
title 12, sees. 321-331; Supp. VI, title 12, sees. 321-332), is further 
amended by adding at the end thereof the following new paragraphs : 

"Any mutual savings bank having no capital stock (including any 
other banking institution the capital of which consists of weekly or 
other time deposits which are segregated from all other deposits and 
are regarded as capital stock for the purposes of taxation and the 
declaration of dividends), but having surplus and undivided profits 
not less than the amount of capital required for the organization of a 
national bank in the same place, may apply for and be admitted to 
membership in the Federal Reserve System in the same manner and 
subject to the same provisions of law as State banks and trust com- 
panies, except that any such savings bank shall subscribe for capital 
stock of the Federal reserve bank in an amount equal to six-tenths of 
1 per centum of its total deposit liabilities as shown by the most recent 
report of examination of such savings bank preceding its admission 
to membership. Thereafter such subscription shall be adjusted 
semiannually on the same percentage basis in accordance with rules 
and regulations prescribed by the Federal Reserve Board. If any such 
mutual savings bank applying for membership is not permitted by 
the laws under which it was organized to purchase stock in a Federal 
reserve bank, it shall, upon admission to the system, deposit with 
the Federal reserve bank an amount equal to the amount which it 
would have been required to pay in on account of a subscription to 
capital stock. Thereafter such deposit shall be adjusted semi- 
annually in the same manner as subscriptions for stock. Such 
deposits shall be subject to the same conditions with respect to repay- 
ment as amounts paid upon subscriptions to capital stock by other 
member banks and the Federal reserve bank shall pay interest 
thereon at the same rate as dividends are actually paid on outstand- 
ing shares of stock of such Federal reserve bank. If the laws under 
which any such savings bank was organized be amended so as to 
authorize mutual savings banks to subscribe for Federal reserve bank 
stock, such savings bank shall thereupon subscribe for the appropriate 
amount of stock in the Federal reserve bank, and the deposit here- 
inbefore provided for in lieu of payment upon capital stock shall be 
applied upon such subscription. If the laws under which any such 
savings bank was organized be not amended at the next session of 
the legislature following the admission of such savings bank to 
membership so as to authorize mutual savings banks to purchase 
Federal reserve bank stock, or if such laws be so amended and such 
bank fail within six months thereafter to purchase such stock, all 



4 [POB. 66.1 

of its rights and privileges as a member bank shall be forfeited and 
its membership in the Federal Reserve System shall be terminated 
in the manner prescribed elsewhere in this section with respect to 
State member banks and trust companies. Each such mutual savings 
bank shall comply with all the provisions of law applicable to State 
member banks and trust companies, with the regulations of the Fed- 
eral Reserve Board and with the conditions of membership prescribed 
for such savings bank at the time of admission to membership, except 
as otherwise hereinbefore provided with respect to capital stock. 

" Each bank admitted to membership under this section shall 
obtain from each of its affiliates other than member banks and 
furnish to the Federal reserve bank of its district and to the Federal 
Reserve Board not less than three reports during each year. Such 
reports shall be in such form as the Federal Reserve Board may 
prescribe, shall be verified by the oath or affirmation of the president 
or such other officer as may be designated by the board of directors 
of such affiliate to verify such reports, and shall disclose the infor- 
mation hereinafter provided for as of dates identical with those 
fixed by the Federal Reserve Board for reports of the condition of 
the affiliated member bank. Each such report of an affiliate shall 
be transmitted as herein provided at the same time as the corre- 
sponding report of the affiliated member bank, except that the 
Federal Reserve Board may, in its discretion, extend such time for 
good cause shown. Each such report shall contain such information 
as in the judgment of the Federal Reserve Board shall be necessary 
to disclose fully the relations between such affiliate and such bank 
and to enable the Board to inform itself as to the effect of such 
relations upon the affairs of such bank. The reports of such affiliates 
shall be published by the bank under the same conditions as govern 
its own condition reports. 

" Any such affiliated member bank may be required to obtain from 
any such affiliate such additional reports as in the opinion of its 
Federal reserve bank or the Federal Reserve Board may be necessary 
in order to obtain a full and complete knowledge of the condition 
of the affiliated member bank. Such additional reports shall be 
transmitted to the Federal reserve bank and the Federal Reserve 
Board and shall be in such form as the Federal Reserve Board may 
prescribe. 

"Any such affiliated member bank which fails to obtain from any 
of its affiliates and furnish any report provided for by the two 
preceding paragraphs of this section shall be subject to a penalty of 
$100 for each day during which such failure continues, which, by 
direction of the Federal Reserve Board, may be collected, by suit or 
otherwise, by the Federal reserve bank of the district in which such 
member bank is located. For the purposes of this paragraph and 
the two preceding paragraphs of this section, the term ' affiliate ' 
shall include holding company affiliates as well as other affiliates. 

" 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 of national banks under paragraph ' Seventh ' of section 5136 
of the Revised Statutes, as amended. 

"After one year from the date of the enactment of the Banking 
Act of 1933, no certificate representing the stock of any State member 






[Pen. 66.] 



5 



bank shall represent the stock of any other corporation, except a 
member bank or a corporation existing on the date this paragraph 
takes effect engaged solely in holding the bank premises of such State 
member bank, nor shall the ownership, sale, or transfer of any 
certificate representing tbe stock of any such bank be conditioned in 
any manner whatsoever upon the ownership, sale, or transfer of a 
certificate representing the stock of any other corporation, except a 
member bank. 

" Each State member bank affiliated with a holding company 
affiliate shall obtain from such holding company affiliate, within 
such time as the Federal Reserve Board shall prescribe, an agree- 
ment that such holding company affiliate shall be subject to the same 
conditions and limitations as are applicable under section 5144 of 
the Revised Statutes, as amended, in the case of holding company 
affiliates of national banks. A copy of each such agreement shall be 
filed with the Federal Reserve Board. Upon the failure of a State 
member bank affiliated with a holding company affiliate to obtain 
such an agreement within the time so prescribed, the Federal Reserve 
Board shall require such bank to surrender its stock in the Federal 
reserve bank and to forfeit all rights and privileges of membership 
in the Federal Reserve System as provided in this section. When- 
ever the Federal Reserve Board shall have revoked the voting permit 
of any such holding company affiliate, the Federal Reserve Board 
may, in its discretion, require any or all State member banks 
affiliated with such holding company affiliate to surrender their 
stock in the Federal reserve bank and to forfeit all rights and 
privileges of membership in the Federal Reserve System as provided 
in this section. 

" In connection with examinations of State member banks, exam- 
iners selected or approved by the Federal Reserve Board shall make 
such examinations of the affairs of all affiliates of such banks as 
shall be necessary to disclose fully the relations between such banks 
and their affiliates and the effect of such relations upon the affairs 
of such banks. The expense of examination of affiliates of any State 
member bank may, in the discretion of the Federal Reserve Board, 
be assessed against such bank and, when so assessed, shall be paid 
by such bank. In the event of the refusal to give any information 
requested in the course of the examination of any such affiliate, or in 
the event of the refusal to permit such examination, or in the event 
of the refusal to pay any expense so assessed, the Federal Reserve 
Board may, in its discretion, require any or all State member banks 
affiliated with such affiliate to surrender their stock in the Federal 
reserve bank and to forfeit all rights and privileges of membership 
in the Federal Reserve System, as provided in this section." 

Sec. 6. (a) The second paragraph of section 10 of the Federal 
Reserve Act, as amended (U.S.C., title 12, sec. 242), is amended to 
read as follows: 

" The Secretary of the Treasury and the Comptroller of the Cur- 
rency 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. The appointive members of the Federal Reserve 
Board shall be ineligible during the time they are in office and for 
two years thereafter to hold any office, position, or employment in 



b (PVB. 66.] 

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 when this paragraph as amended 
takes effect, the President shall fix the term of the successor to such 
member at not to exceed twelve 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 appointive member in 
any two-year period, and thereafter each appointive member shall 
hold office for a term of twelve years from the expiration of the term 
of his predecessor. Of the six persons thus appointed, one shall be 
designated by the President as governor and one as vice governor of 
the Federal Reserve Board. The governor of the Federal Reserve 
Board, subject to its supervision, shall be its active executive officer. 
Each member of the Federal Reserve Board shall within fifteen days 
after notice of appointment make and subscribe to the oath of office." 

(b) The fourth paragraph of section 10 of the Federal Reserve 
Act, as amended (U.S.C., title 12, sec. 244), is amended to read as 
follows : 

" The principal offices of the Board shall be in the District of 
Columbia. At meetings of the Board the Secretary of the Treasury 
shall preside as chairman, and, in his absence, the governor shall 
preside. In the absence of both the Secretary of the Treasury and 
the governor the vice governor shall preside. In the absence of the 
Secretary of the Treasury, the governor, and the vice governor the 
Board shall elect a member to act as chairman pro tempore. The 
Board shall determine and prescribe the manner in which its obli- 
gations shall be incurred and its disbursements and expenses allowed 
and paid, and may leave on deposit in the Federal Reserve banks the 
proceeds of assessments levied upon them to defray its estimated 
expenses and the salaries of its members and employees, whose 
employment, compensation, leave, and expenses shall be governed 
solely by the provisions of this Act, specific amendments thereof, and 
rules and regulations of the Board not inconsistent therewith; and 
funds derived from such assessments shall not be construed to be 
Government funds or appropriated moneys. No member of the Fed- 
eral Reserve Board shall be an officer or director of any bank, bank- 
ing institution, trust company, or Federal Reserve bank or hold stock 
in any bank, banking institution, or trust company; and before 
entering upon his duties as a member of the Federal Reserve Board 
he shall certify under oath that he has complied with this require- 
ment, and such certification shall be filed with the secretary of the 
Board. Whenever a vacancy shall occur, other than by expiration 
of term, among the six members of the Federal Reserve Board 
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." 

Sec. 7. Paragraph (m) of section 11 of the Federal Reserve Act, as 
amended (U.S.C., title 12, sec. 248), is amended to read as follows: 

"(m) Upon the affirmative vote of not less than six of its mem- 
bers the Federal Reserve Board shall have power to fix from time 
to time for each Federal reserve district the percentage of indi- 



[Pcb. Ml / 

vidual 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 unim- 
paired capital and surplus of such bank. Any percentage so fixed 
by the Federal Eeserve Board shall be subject to change from time 
to time upon ten days' notice, and it shall be the duty of the Board 
to establish such percentages with a view to preventing the undue 
use of bank loans for the speculative carrying of securities. The 
Federal Reserve Board shall have power to direct any member bank 
to refrain from further increase of its loans secured by stock or 
bond collateral for any period up to one year under penalty of 
suspension of all rediscount privileges at Federal reserve banks." 

Sec. 8. The Federal Reserve Act, as amended, is amended by insert- 
ing between sections 12 and 13 (U.S.C., title 12, sees. 261, 262, and 
342), thereof the following new sections: 

" Sec. 12A. (a) There is hereby created a Federal Open Market 
Committee (hereinafter referred to as the 'committee'), which 
shall consist of as many members as there are Federal reserve dis- 
tricts. Each Federal reserve bank by its board of directors shall 
annually select one member of said committee. The meetings of 
said committee shall be held at Washington, District of Columbia, 
at least four times each year, upon the call of the governor of the 
Federal Reserve Board or at the request of any three members of 
the committee, and, in the discretion of the Board, may be attended 
by the members of the Board. 

"(b) No Federal reserve bank shall engage in open-market opera- 
tions under section 14 of this Act except in accordance with regu- 
lations adopted by the Federal Reserve Board. The Board shall 
consider, adopt, and transmit to the committee and to the several 
Federal reserve banks regulations relating to the open-market trans- 
actions of such banks and the relations of the Federal Reserve System 
with foreign central or other foreign banks. 

"(c) The time, character, and volume of all purchases and sales 
of paper described in section 14 of this Act as eligible for open- 
market operations shall be governed with a view to accommodating 
commerce and business and with regard to their bearing upon the 
general credit situation of the country. 

"(d) If any Federal reserve bank shall decide not to participate 
in open-market operations recommended and approved as provided 
in paragraph (b) hereof, it shall file with the chairman of the 
committee within thirty days a notice of its decision, and transmit 
a copy thereof to the Federal Reserve Board. 

" Sec. 12B. (a) There is hereby created a Federal Deposit Insur- 
ance Corporation (hereinafter referred to as the 'Corporation'), 
whose duty it shall be to purchase, hold, and liquidate, as hereinafter 
provided, the assets of national banks which have been closed by 
action of the Comptroller of the Currency, or by vote of their direc- 
tors, and the assets of State member banks which have been closed 
by action of the appropriate State authorities, or by vote of their 
directors ; and to insure, as hereinafter provided, the deposits of all 
banks which are entitled to the benefits of insurance under this 
section. 



8 [Pub. M.l 

"(b) The management of the Corporation shall be vested in a 
board of directors consisting of three members, one of whom shall 
be the Comptroller of the Currency, and two of whom shall be 
citizens of the United States to be appointed by the President, by 
and with the advice and consent of the Senate. One of the appoin- 
tive members shall be the chairman of the board of directors of the 
Corporation and not more than two of the members of such board 
of directors shall be members of the same political party. Each 
such appointive member shall hold office for a term of six years and 
shall receive compensation at the rate of $10,000 per annum, payable 
monthly out of the funds of the Corporation, but the Comptroller 
of the Currency shall not receive additional compensation for his 
services as such member. 

" (c) There is hereby authorized to be appropriated, out of any 
money in the Treasury not otherwise appropriated, the sum of 
$150,000,000, which shall be available for payment by the Secretary 
of the Treasury for capital stock of the Corporation in an equal 
amount, which shall be subscribed for by him on behalf of the United 
States. Payments upon such subscription shall be subject to call in 
whole or in part by the board of directors of the Corporation. Such 
stock shall be in addition to the amount of capital stock required to 
be subscribed for by Federal reserve banks and member and nonmem- 
ber banks as hereinafter provided, and the United States shall be 
entitled to the payment of dividends on such stock to the same extent 
as member and nonmember banks are entitled to such payment on the 
class A stock of the Corporation held by them. Receipts for pay- 
ments by the United States for or on account of such stock shall be 
issued by the Corporation to the Secretary of the Treasury and shall 
be evidence of the stock ownership of the United States. 

"(d) The capital stock of the Corporation shall be divided into 
shares of $100 each. Certificates of stock of the Corporation shall 
be of two classes — class A and class B. Class A stock shall be held 
by member and nonmember banks as hereinafter provided and they 
shall be entitled to payment of dividends out of net earnings at the 
rate of 6 per centum per annum on the capital stock paid in by them, 
which dividends shall be cumulative, or to the extent of 30 per centum 
of such net earnings in any one year, whichever amount shall be the 
greater, but such stock shall have no vote at meetings of stockholders. 
Class B stock shall be held by Federal reserve banks only and shall 
not be entitled to the payment of dividends. Every Federal reserve 
bank shall subscribe to shares of class B stock in the Corporation to 
an amount equal to one half of the surplus of such bank on January 
1, 1933, and its subscriptions shall be accompanied by a certified check 
payable to the Corporation in an amount equal to one half of such 
subscription. The remainder of such subscription shall be subject to 
call from time to time by the board of directors upon ninety days' 
notice. 

" (e) Every bank which is or which becomes a member of the Fed- 
eral Reserve System on or before July 1, 1934, shall take all steps 
necessary to enable it to become a class A stockholder of the Corpora- 
tion on or before July 1, 1934; and thereafter no State bank or 
trust company or mutual savings bank shall be admitted to mem- 
bership in the Federal Reserve System until it becomes a class A 



[PUB. 68.1 S» 

stockholder of the Corporation, no national bank in the continental 
United States shall be granted a certificate by the Comptroller of 
the Currency authorizing it to commence the business of banking 
until it becomes a member of the Federal Reserve System and a 
class A stockholder of the Corporation, and no national bank in 
the continental United States for which a receiver or conservator 
has been appointed shall be permitted to resume the transaction 
of its banking business until it becomes a class A stockholder of the 
Corporation. Every member bank shall apply to the Corporation 
for class A stock of the Corporation in an amount equal to one half 
of 1 per centum of its total deposit liabilities as computed in accord- 
ance with regulations prescribed by the Federal Reserve Board; 
except that in the case of a member bank organized after the date this 
section takes effect, the amount of such class A stock applied for by 
such member bank during the first twelve months after its organiza- 
tion shall equal 5 per centum of its paid-up capital and surplus, and 
beginning after the expiration of such twelve months' period the 
amount of such class A stock of such member bank shall be adjusted 
annually in the same manner as in the case of other member banks. 
Upon receipt of such application the Corporation shall request the 
Federal Reserve Board, in the case of a State member bank, or the 
Comptroller of the Currency, in the case of a national bank, to cer- 
tify upon the basis of a thorough examination of such bank whether 
or not the assets of the applying bank are adequate to enable it to 
meet all of its liabilities to depositors and other creditors as shown 
by the books of the bank; and the Federal Reserve Board or the 
Comptroller of the Currency shall make such certification as soon as 
practicable. If such certification be in the affirmative, the Corpora- 
tion shall grant such application and the applying bank shall pay one 
half of its subscription in full and shall thereupon become a class A 
stockholder of the Corporation: Provided, That no member bank 
shall be required to make such payment or become a class A stock- 
holder of toe Corporation before July 1, 1934. The remainder of 
such subscription shall be subject to call from time to time by the 
board of directors of the Corporation. If such certification be in the 
negative, the Corporation shall deny such application. If any 
national bank shall not have become a class A stockholder of the 
Corporation on or before July 1, 1934, the Comptroller of the Cur- 
rency shall appoint a receiver or conservator therefor in accordance 
with the provisions of existing law. Except as provided in subsec- 
tion (g) of this section, if any State member bank shall not have 
become a class A stockholder of the Corporation on or before July 1, 
1934, the Federal Reserve Board shall terminate its membership in 
the Federal Reserve System in accordance with the provisions of 
section 9 of this Act. 

" (f ) Any State bank or trust company or mutual savings bank 
which applies for membership in the Federal Reserve S^'stem or for 
conversion into a national banking association on or after July 1, 
1936, may, with the consent of the Corporation, obtain the benefits 
of this section, pending action on such application, by subscribing 
and paying for the same amount of stock of the Corporation as it 
would be required to subscribe and pay for upon becoming a member 

Pub. No. 66 2 



10 [Pub. 60.1 

bank. Thereupon the provisions of this section applicable to member 
banks shall be applicable to such State bank or trust company or 
mutual savings bank to the same extent as if it were already a 
member bank: Provided, That if the application of such State bank 
or trust company or mutual savings bank for membership in the 
Federal Reserve "System or for conversion into a national banking 
association be approved and it shall not complete its membership in 
the Federal Reserve Sj'stem or its conversion into a national banking 
association within a reasonable time, or if such application shall be 
disapproved, then the amount paid by such State bank or trust 
company or mutual savings bank on account of its subscription to the 
capital stock of the Corporation shall be repaid to it and it shall no 
longer be subject to the provisions or entitled to the privileges of this 
section. 

" (g) If any State bank or trust company, or mutual savings bank 
(referred to in this subsection as ' State bank ') which is or which 
becomes a member of the Federal Reserve System is not permitted by 
the laws under which it was organized to purchase stock in the 
Corporation, it shall apply to the Corporation for admission to the 
benefits of this section and, if such application be granted after 
appropriate certification in accordance with this section, it shall 
deposit with the Corporation an amount equal to the amount which 
it would have been required to pay in on account of a subscription 
to capital stock of the Corporation. Thereafter such deposit shall 
be adjusted in the same manner as subscriptions for stock by 
class A stockholders. Such deposit shall be subject to the same 
conditions with respect to repayment as amounts paid on subscrip- 
tions to class A stock by other member banks and the Corporation 
shall pay interest thereon at the same rate as dividends are actually 
paid on outstanding shares of class A stock. As long as such 
deposit is maintained with the Corporation, such State bank shall, 
for the purposes of this section, be deemed to be a class A stockholder 
of the Corporation. If the laws under which such State bank was 
organized be amended so as to authorize State banks to subscribe 
for class A stock of the Corporation, such State bank shall within 
six months thereafter subscribe for an appropriate amount of such 
class A stock and the deposit hereinafter provided for in lieu of 
payment upon class A stock shall be applied upon such subscription. 
If the law under which such State bank was organized be not 
amended at the next session of the State legislature following the 
admission of such State bank to the benefits of this section so as to 
authorize State banks to purchase such class A stock, or, if the iaw 
be so amended and such State bank shall fail within six months 
thereafter to purchase such class A stock, the deposit previously made 
with the Corporation shall be returned to such State bank and it 
shall no longer be entitled to the benefits of this section, unless it 
shall have been closed in the meantime on account of inability to 
meet the demands of its depositors. 

" (h) The amount of the outstanding class A stock of the Corpo- 
ration held by member banks shall be annually adjusted as here- 
inafter provided as of the last preceding call date as member banks 
increase their time and demand deposits or as additional banks 
become members or subscribe to the stock of the Corporation, and 



(PUB. M.] 



11 



such stock may be decreased in amount as member banks reduce 
their time and demand deposits or cease to be members. Shares of 
the capital stock of the Corporation owned by member banks shall 
not be transferred or hypothecated. When a member bank increases 
its time and demand deposits it shall, at the beginning of each 
calendar year, subscribe for an additional amount of capital stock of 
the Corporation equal to one half of 1 per centum of such increase 
in deposits. One half of the amount of such additional stock shall 
be paid for at the time of the subscription therefor, and the bal- 
ance shall be subject to call by the board of directors of the Corpora- 
tion. A bank organized on or before the date this section takes 
effect and admitted to membership in the Federal Reserve System 
at any time after the organization of the Corporation shall be 
required to subscribe for an amount of class A capital stock equal 
to one half of 1 per centum of the time and demand deposits of the 
applicant bank as of the date of such admission, paying therefor 
its par value plus one half of 1 per centum a month from the period 
of the last dividend on the class A stock of the Corporation. When 
a member bank reduces its time and demand deposits it shall sur- 
render, not later than the 1st day of January thereafter, a propor- 
tionate amount of its holdings in the capital stock of the Corpora- 
tion, and when a member bank voluntarily liquidates it shall 
surrender all its holdings of the capital stock of the Corporation 
and be released from its stock subscription not previously called. 
The shares so surrendered shall be canceled and the member bank 
shall receive in payment therefor, under regulations to be pre- 
scribed by the Corporation, a sum equal to its cash-paid subscriptions 
on the shares surrendered and its proportionate share of dividends 
not to exceed one half of 1 per centum a month, from the period of 
the last dividend on such stock, less any liability of such member 
bank to the Corporation. 

"(i) If any member or nonmember bank shall be declared insolvent, 
or shall cease to be a member bank (or in the case of a nonmember 
bank, shall cease to be entitled to the benefits of insurance under this 
section), the stock held by it in the Corporation shall be canceled, 
without impairment of the liability of such bank, and all cash-paid 
subscriptions on such stock, with its proportionate share of dividends 
not to exceed one half of 1 per centum per month from the period of 
last dividend on such stock shall be first applied to all debts of the 
insolvent bank or the receiver thereof to the Corporation, and the 
balance, if any, shall be paid to the receiver of the insolvent bank. 

"(j) Upon the date of enactment of the Banking Act of 1933, the 
Corporation shall become a body corporate and as such shall have 
power — 

" First. To adopt and use a corporate seal. 

" Second. To have succession until dissolved by an Act of 
Congress. 

" Third. To make contracts. 

" Fourth. To sue and be sued, complain and defend, in any court 
of law or equity. State or Federal. 

"Fifth. To appoint by its board of directors such officers and 
employees as are not otherwise provided for in this section, to define 
their duties, fix their compensation, require bonds of them and fix 



12 [POB. 60.1 

the penalty thereof, and to dismiss at pleasure such officers or em- 
ployees. Nothing in this or any other Act shall be construed to 
prevent the appointment and compensation as an officer or employee 
of the Corporation of any officer or employee of the United States 
in any board, commission, independent establishment, or executive 
department thereof. 

" Sixth. To prescribe by its board of directors, bylaws not in- 
consistent with law, regulating the manner in which its general 
business may be conducted, and the privileges granted to it by law 
may be exercised and enjoyed. 

Seventh. To exercise by its board of directors, or duly authorized 
officers or agents, all powers specifically granted by the provisions 
of this section and such incidental powers as shall be necessary to 
carry out the powers so granted. 

"(k) The board of directors shall administer the affairs of the 
Corporation fairly and impartially and without discrimination. The 
board of directors of the Corporation shall determine and prescribe 
the manner in which its obligations shall be incurred and its ex- 
penses allowed and paid. The Corporation shall be entitled to the 
free use of the United States mails in the same manner as the 
executive departments of the Government. The Corporation with 
the consent of any Federal reserve bank or of any board, commis- 
sion, independent establishment, or executive department of the Gov- 
ernment, including any field service thereof, may avail itself of the 
use of information, services, and facilities thereof in carrying out 
the provisions of this section. 

"(1) Effective on and after July 1, 1934 (thus affording ample 
time for examination and preparation), unless the President shall by 
proclamation fix an earlier date, the Corporation shall insure as 
hereinafter provided the deposits of all member banks, and on and 
after such date and until July 1, 1D3C, of all nonmember banks, 
which are class A stockholders of the Corporation. Notwith- 
standing any other provision of law, whenever any national bank 
which is a class A stockholder of the Corporation shall have been 
closed by action of its board of directors or by the Comptroller of 
the Currency, as the case may be, on account of inability to meet the 
demands of its depositors, the Comptroller of the Currency shall 
appoint the Corporation receiver for such bank. As soon as possi- 
ble thereafter the Corporation shall organize a new national bank 
to assume the insured deposit liabilities of such closed bank, to 
receive new deposits and otherwise to perform temporarily the func- 
tions provided for it in this paragraph. For the purposes of this 
subsection, the term ' insured deposit liability ' shall mean with 
respect to the owner of any claim arising out of a deposit liability 
of such closed bank the following percentages of the net amount 
due to such owner by such closed bank on account of deposit lia- 
bilities: 100 per centum of such net amount not exceeding $10,000; 
and 75 per centum of the amount, if any, by which such net amount 
exceeds $10,000 but does not exceed $50,000; and 50 per centum of 
the amount, if any, by which such net amount exceeds $50,000: 
Provided, That, in determining the amount due to such owner for 
the purpose of fixing such percentage, there shall be added together 
all net amounts due to such owner in the same capacity or the same 
right, on account of deposits, regardless of whether such deposits 



IPUB. 66.) 



13 



be maintained in his name or in the names of others for his benefit. 
For the purposes of this subsection, the term ' insured deposit lia- 
bilities ' shall mean the aggregate amount of all such insured deposit 
liabilities of such closed bank. The Corporation shall determine as 
expeditiously as possible the net amounts due to depositors of the 
closed bank and shall make available to the new bank an amount 
equal to the insured deposit liabilities of such closed bank, where- 
upon such new bank shall assume the insured deposit liability of such 
closed bank to each of its depositors, and the Corporation shall be 
subrogated to all rights against the closed bank of the owners of 
such deposits and shall be entitled to receive the same dividends from 
the proceeds of the assets of such closed bank as would have been 
payable to each such depositor until such dividends shall equal the 
insured deposit liability to such depositor assumed by the new bank, 
whereupon all further dividends shall be payable to such depositor. 
Of the amount thus made available by the Corporation to the new 
bank, such portion shall be paid to it in cash as may be necessary to 
enable it to meet immediate cash demands and the remainder shall 
be credited to it on the books of the Corporation subject to with- 
drawal on demand and shall bear interest at the rate of 3 per centum 
per annum until withdrawn. The new bank may, with the 
approval of the Corporation, accept new deposits, which, together 
with all amounts made available to the new bank by the Corporation, 
shall be kept on hand in cash, invested in direct obligations of the 
United States, or deposited with the Corporation or with a Federal 
reserve bank. Such new bank shall maintain on deposit with the 
Federal reserve bank of its district the reserves required by law of 
member banks but shall not be required to subscribe for stock of the 
Federal reserve bank until its own capital stock has been subscribed 
and paid for in the manner hereinafter provided. The articles of 
association and organization certificate of such new bank may be 
executed by such representatives of the Corporation as it may desig- 
nate; the new bank shall not be required to have any directors at 
the time of its organization, but shall be managed by an executive 
officer to be designated by the Corporation ; and no capital stock need 
be paid in by the Corporation ; but in other respects such bank shall 
be organized in accordance with the existing provisions of law relat- 
ing to the organization of national banks; and, until the requisite 
amount of capital stock for such bank has been subscribed and paid 
for in the manner hereinafter provided, such bank shall transact 
no business except that authorized by this subsection and such busi- 
ness as may be incidental to its organization. When in the judg- 
ment of the Corporation it is desirable to do so, the Corporation shall 
offer capital stock of the new bank for sale on such terms and condi- 
tions as the Corporation shall deem advisable, in an amount suffi- 
cient in the opinion of the Corporation to make possible the conduct 
of the business of the new bank on a sound basis, but in no event less 
than that required by section 5138 of the Revised Statutes, as amended 
(U.S.C., title 12, sec. 51), for the organization of a national bank in 
the place where such new bank is located, giving the stockholders of 
the closed bank the first opportunity to purchase such stock. Upon 
proof that an adequate amount of capital stock of the new bank has 
been subscribed and paid for in cash by subscribers satisfactory to the 
Comptroller of the Currency, he shall issue to such bank a certificate 



14 



IPUB 661 



of authority to commence business and thereafter it shall be managed 
by directors elected by its own shareholders and may exercise all of the 
powers granted by law to national banking associations. If an ade- 
quate amount of capital for such new bank is not subscribed and paid 
in, the Corporation may offer to transfer its business to any other 
banking institution in the same place which will take over its assets, 
assume its liabilities, and pay to the Corporation for such business 
such amount as the Corporation may deem adequate. Unless the 
capital stock of the new bank is sold or its assets acquired and its 
liabilities assumed by another banking institution, in the manner 
herein prescribed, within two years from the date of its organization, 
the Corporation shall place the new bank in voluntary liquidation 
and wind up its affairs. The Corporation shall open on its books a 
deposit insurance account and, as soon as possible after taking pos- 
session of any closed national bank, the Corporation shall make an 
estimate of the amount which will be available from all sources for 
application in satisfaction of the portion of the claims of depositors 
to which it has been subrogated and shall debit to such deposit insur- 
ance account the excess, if any, of the amount made available by the 
Corporation to the new bank for depositors over and above the 
amount of such estimate. It shall be the duty of the Corporation 
to realize upon the assets of such closed bank, having due regard 
to the condition of credit in the district in which such closed bank 
is located; to enforce the individual liability of the stockholders 
and directors thereof; and to wind up the affairs of such closed 
bank in conformity with the provisions of law relating to the 
liquidation of closed national banks, except as herein otherwise 
provided, retaining for its own account such portion of the amount 
realized from such liquidation as it shall be entitled to receive on 
account of its subrogation to the claims of depositors and paying 
to depositors and other creditors the amount available for distribu- 
tion to them, after deducting therefrom their share of the costs of the 
liquidation of the closed bank. If the total amount realized by the 
Corporation on account of its subrogation to the claims of depositors 
be less than the amount of the estimate hereinabove provided for, the 
deposit insurance account shall be charged with the deficiency and, 
if the total amount so realized shall exceed the amount of such esti- 
mate, such account shall be credited with such excess. With respect 
to such closed national banks, the Corporation shall have all the 
rights, powers, and privileges now possessed by or hereafter given 
receivers of insolvent national banks and shall be subject to the 
obligations and penalties not inconsistent with the provisions of this 
paragraph to which such receivers are now or may hereafter become 
subject.* 

" Whenever any State member bank which is a class A stockholder 
of the Corporation shall have been closed by action of its board of 
directors or by the appropriate State authority, as the case may be, 
on account of inability to meet the demands of its depositors, the 
Corporation shall accept appointment as receiver thereof, if such 
appointment be tendered by the appropriate State authority and be 
authorized or permitted by State law. Thereupon the Corporation 
shall organize a new national bank, in accordance with the provisions 
of this subsection, to assume the insured deposit liabilities of such 
closed State member bank, to receive new deposits and otherwise to 



[PCB. 6fi.] 



15 



perform temporarily the functions provided for in this subsection. 
Upon satisfactory recognition of the right of the Corporation to 
receive dividends on tlie same basis as in the case of a closed national 
bank under this subsection, such recognition being accorded by State 
law, by allowance of claims by the appropriate State authority, by 
assignment of claims by depositors, or by any other effective method, 
the Corporation shall make available to such new national bank, in 
the manner prescribed by this subsection, an amount equal to the 
insured deposit liabilities of such closed State member bank ; and the 
Corporation and such new national bank shall perform all of the 
functions and duties and shall have all the rights and privileges with 
respect to such State member bank and the depositors thereof which 
are prescribed by this subsection with respect to closed national banks 
holding class A stock in the Corporation : Provided, That the rights 
of depositors and other creditors of such State member bank shall be 
determined in accordance with the applicable provisions of State 
law : And provided further, That, with respect to such State member 
bank, the Corporation shall possess the powers and privileges pro- 
vided by State law with respect to a receiver of such State member 
bank, except in so far as the same are in conflict with the provisions 
of this subsection. 

" Whenever any State member bank which is a class A stockholder 
of the Corporation shall have been closed by action of its board of 
directors or by the appropriate State authority, as the case may be, 
on account of inability to meet the demands of its depositors, and 
the applicable State law does not permit the appointment of the 
Corporation as receiver of such bank, the Corporation shall organize 
a new national bank, in accordance with the provisions of this sub- 
section, to assume the insured deposit liabilities of such closed State 
member bank, to receive new deposits, and otherwise to perform tem- 
porarily the functions provided for in this subsection. Upon satis- 
factory recognition of the right of the Corporation to receive divi- 
dends on the same basis as in the case of a closed national bank under 
this subsection, such recognition being accorded by State law, by 
allowance of claims by the appropriate State authority, by assign- 
ment of claims by depositors, or by any other effective method, the 
Corporation shall make available to such new bank, in accordance 
with the provisions of this subsection, the amount of insured deposit 
liabilities as to which such recognition has been accorded ; and such 
new bank shall assume such insured deposit liabilities and shall in 
other respects comply with the provisions of this subsection respect- 
ing new banks organized to assume insured deposit liabilities of 
closed national banks. In so far as possible in view of the applicable 
provisions of State law, the Corporation shall proceed with respect 
to the receiver of such closed bank and with respect to the new bank 
organized to assume its insured deposit liabilities in the manner 
prescribed by this subsection with respect to closed national banks 
and new banks organized to assume their insured deposit liabilities; 
except that the Corporation shall have none of the powers, duties, 
or responsibilities of a receiver with respect to the winding up of 
the affairs of such closed State member bank. The Corporation, in 
its discretion, however, may purchase and liquidate any or all of the 
assets of such bank. 



16 IPOB. 86.] 

" Whenever the net debit balance of the deposit insurance account 
of the Corporation shall equal or exceed one fourth of 1 per centum 
of the total deposit liabilities of all class A stockholders as of the 
date of the last preceding call report, the Corporation shall levy 
upon such stockholders an assessment equal to one fourth of 1 per 
centum of their total deposit liabilities and shall credit the amount 
collected from such assessment to such deposit insurance account. 
No bank which is a holder of class A stock shall pay any dividends 
until all assessments levied upon it by the Corporation shall have 
been paid in full; and any director or officer of any such bank who 
participates in the declaration or payment of any such dividend may, 
upon conviction, be fined not more than $1,000, or imprisoned for not 
more than one year, or both. 

" The term ' receiver ' as used in this section shall mean a receiver, 
liquidating agent, or conservator of a national bank, and a receiver, 
liquidating agent, conservator, commission, person, or other agency 
charged by State law with the responsibility and the duty of winding 
up the affairs of an insolvent State member bank. 

" For the purposes of this section only ; the term ' national bank ' 
shall include all national banking associations and all banks, banking 
associations, trust companies, savings banks, and other banking insti- 
tutions located in the District of Columbia which are members of 
the Federal Reserve System ; and the term ' State member bank ' 
shall include all State banks, banking associations, trust companies, 
savings banks, and other banking institutions organized under the 
laws of any State, which are members of the Federal Reserve System. 

" In any determination of the insured deposit liabilities of any 
closed bank or of the total deposit liabilities* of any bank which is 
a holder of class A stock of the Corporation, or a member of the 
Fund provided for in subsection (y), for the purposes of this 
section, there shall be excluded the amounts of all deposits of such 
bank which are payable only at an office thereof located in a foreign 
country. 

" The Corporation may make such rules, regulations, and contracts 
as it may deem necessary in order to carry out the provisions of this 
section. 

" Money of the Corporation not otherwise employed shall be 
invested in securities of the Government of the United States, 
except that for temporary periods, in the discretion of the board 
of directors, funds of the Corporation may be deposited in any 
Federal reserve bank or with the Treasurer of the United States. 
When designated for that purpose by the Secretary of the Treasury, 
the Corporation shall be a depositary of public moneys, except 
receipts from customs, under such regulations as may be prescribed 
by the said Secretary, and may also be employed as a financial agent 
of the Government. It shall perform all such reasonable duties as 
depositary of public moneys and financial agent of the Government 
as may be required of it. 

"(m) Nothing herein contained shall be construed to prevent the 
Corporation from making loans to national banks closed by action 
of the Comptroller of the Currency, or by vote of their directors, 
or to State member banks closed by action of the appropriate State 



[Pub. 66.] 



17 



authorities, or by vote of their directors, or from entering into nego- 
tiations to secure the reopening of such banks. 

"(n) Receivers or liquidators of member banks which are now 
or may hereafter become insolvent or suspended shall be entitled 
to offer the assets of such banks for sale to the Corporation or as 
security for loans from the Corporation, upon receiving permission 
from the appropriate State authority in accordance with express pro- 
visions of State law in the case of State member banks, or from the 
Comptroller of the Currency in the case of national banks. The 
proceeds of every such sale or loan shall be utilized for the same 
purposes and in the same manner as other funds realized from the 
liquidation of the assets of such banks. The Comptroller of the 
Currency may, in his discretion, pay dividends on proved claims at 
any time after the expiration of the period of advertisement made 
pursuant to section 5235 of the Revised Statutes (U.S.C., title 12, 
sec. 193), and no liability shall attach to the Comptroller of the 
Currency or to the receiver of any national bank by reason of any 
such payment for failure to pay dividends to a claimant whose claim 
is not proved at the time of any such payment. 

"(o) The Corporation is authorized and empowered to issue and 
to have outstanding at any one time in an amount aggregating not 
more than three times the amount of its capital, its notes, debentures, 
bonds, or other such obligations, to be redeemable at the option of the 
Corporation before maturity in such manner as may be stipulated in 
such obligations, and to bear such rate or rates of interest, and to 
mature at such time or times as may be determined by the Cor- 

E oration: Provided, That the Corporation may sell on a discount 
asis short-term obligations payable at maturity without interest. 
The notes, debentures, bonds, and other such obligations of the Cor- 
poration may be secured by assets of the Corporation in such manner 
as shall be prescribed by its board of directors. Such obligations 
may be offered for sale at such price or prices as the Corporation 
may determine. 

" (p) All notes, debentures, bonds, or other such obligations issued 
by the Corporation shall be exempt, both as to principal and interest, 
from all taxation (except estate and inheritance taxes) now or here- 
after imposed by the United States, by any Territory, dependency, 
or possession thereof, or by any State, county, municipality, or local 
taxing authority. The Corporation, including its franchise, its capi- 
tal, reserves, and surplus, and its income, shall be exempt from all 
taxation now or hereafter imposed by the United States, by any 
Territory, dependency, or possession thereof, or by any State, county, 
municipality, or local taxing authority, except that any real prop- 
erty of the Corporation shall be subject to State, Territorial, county, 
municipal or local taxation to the same extent according to its value 
as other real property is taxed. 

" (q) In order that the Corporation may be supplied with such 
forms of notes, debentures, bonds, or other such obligations as it may 
need for issuance under this Act, the Secretary of the Treasury is 
authorized to prepare such forms as shall be suitable and approved by 
the Corporation, to be held in the Treasury subject to delivery, upon 
order or the Corporation. The engraved plates, dies, bed pieces, and 

Pub. No. 66 3 



18 [PCB.68.1 

other material executed in connection therewith shall remain in the 
custody of the Secretary of the Treasury. The Corporation shall 
reimburse the Secretary of the Treasury for any expenses incurred 
in the preparation, custody, and delivery of such notes, debentures, 
bonds, or other such obligations. 

" (r) The Corporation shall annually make a report of its opera- 
tions to the Congress as soon as practicable after the 1st day of 
January in each year. 

" (s) Whoever, for the purpose of obtaining any loan from the 
Corporation, or any extension or renewal thereof, or the acceptance, 
release, or substitution of security therefor, or for the purpose of 
inducing the Corporation to purchase any assets, or for the purpose of 
influencing in any way the action of the Corporation under this sec- 
tion, makes any statement, knowing it to be false, or willfully over- 
values any security, shall be punished by a fine of not more than 
$5,000, or by imprisonment for not more than two years, or both. 

" (t) Whoever (1) falsely makes, forges, or counterfeits any obli- 
gation or coupon, in imitation of or purporting to be an obligation 
or coupon issued by the Corporation, or (2) passes, utters, or pub- 
lishes, or attempts to pass, utter, or publish, any false, forged, or 
counterfeited obligation or coupon purporting to have been issued 
by the Corporation, knowing the same to be false, forged, or coun- 
terfeited, or (3) falsely alters any obligation or coupon issued or 
purjjorting to have been issued by the Corporation, or (4) passes, 
utters, or publishes, or attempts to pass, utter, or publish, as true, 
any falsely altered or spurious obligation or coupon, issued or pur- 
porting to have been issued by the Corporation, knowing the same 
to be falsely altered or spurious, shall be punished by a fine of not 
more than $10,000, or by imprisonment for not more than five years, 
or both. 

" (u) Whoever, being connected in any capacity with the Corpo- 
ration, (1) embezzles, abstracts, purloins, or willfully misapplies 
any moneys, funds, securities, or other things of value, whether 
belonging to it or pledged, or otherwise intrusted to it, or (2) with 
intent to defraud the Corporation or any other body, politic or 
corporate, or any individual, or to deceive any officer., auditor, or 
examiner of the Corporation, makes any false entry in any book, 
report, or statement of or to the Corporation, or without being duly 
authorized draws any order or issues, puts forth, or assigns any 
note, debenture, bond, or other such obligation, or draft, bill of 
exchange, mortgage, judgment, or decree thereof, shall be punished 
by a fine of not more than $10,000, or by imprisonment for not 
more than five years, or both. 

" (v) No individual, association, partnership, or corporation shall 
use the words ' Federal Deposit Insurance Corporation ', or a com- 
bination or any three of these four words, as the name or a part 
thereof under which he or it shall do business. No individual, asso- 
ciation, partnership, or corporation shall advertise or otherwise 
represent falsely by any device whatsoever that his or its deposit 
liabilities are insured or in anywise guaranteed by the Federal 
Deposit Insurance Corporation, or by the Government of the United 
States, or by any instrumentality thereof; and no class A stock- 
holder of the Federal Deposit Insurance Corporation shall 



[Pub. CO.] 



19 



advertise or otherwise represent falsely by any device whatsoever 
the extent to which or the manner in which its deposit liabilities are 
insured by the Federal Deposit Insurance Corporation. Every 
individual, partnership, association, or corporation violating this 
subsection shall be punished by a fine of not exceeding $1,000, or 
by imprisonment not exceeding one year, or both. 
*"(w) The provisions of sections 112, 113, 114, 115, 116, and 117 
of the Criminal Code of the United States (U.S.C., title 18, ch. 5, 
sees. 202 to 207, inclusive), in so far as applicable, are extended to 
apply to contracts or agreements with the Corporation under this 
section, which for the purposes hereof shall be held to include loans, 
advances, extensions, and renewals thereof, and acceptances, releases, 
and substitutions of security therefor, purchases or sales of assets, 
and all contracts and agreements pertaining to the same. 

"(x) The Secret Service Division of the Treasury Department is 
authorized to detect, arrest, and deliver into the custody of the 
United States marshal having jurisdiction any person committing 
any of the offenses punishable under this section. 

" (y) The Corporation shall open on its books a Temporary Federal 
Deposit Insurance Fund (hereinafter referred to as the 'Fund'), 
which shall become operative on January 1, 1934, unless the Presi- 
dent shall by proclamation fix an earlier date, and it shall be the 
duty of the Corporation to insure deposits as hereinafter provided 
until July 1, 1934. 

" Each member bank licensed before January 1, 1934, by the Secre- 
tary of the Treasury pursuant to the authority vested in him by the 
Executive order of the President issued March 10, 1933, shall, on or 
before January 1, 1934, become a member of the Fund; each member 
bank so licensed after such date, and each State bank trust company or 
mutual savings bank (referred to in this subsection as ' State bank ', 
which term shall also include all banking institutions located in 
the District of Columbia) which becomes a member of the Federal 
Reserve System on or after such date, shall, upon being so licensed 
or so admitted to membership, become a member of the Fund; and 
any State bank which is not a member of the Federal Reserve 
System, with the approval of the authority having supervision of 
such State bank and certification to the Corporation by such author- 
ity that such State bank is in solvent condition, shall, after exam- 
ination by, and with the approval of, the Corporation, be entitled 
to become a member of the Fund and to the privileges of this sub- 
section upon agreeing to comply with the requirements thereof and 
upon paying to the Corporation an amount equal to the amount that 
would be required of it under this subsection if it were a member 
bank. The Corporation is authorized to prescribe rules and regu- 
lations for the further examination of such State bank, and to fix 
the compensation of examiners employed to make examinations of 
State banks. 

" Each member of the Fund shall file with the Corporation on or 
before the date of its admission a certified statement under oath 
showing, as of the fifteenth day of the month preceding the month 
in which it was so admitted, the number of its depositors and the 
total amount of its deposits which are eligible for insurance under 
this subsection, and shall pay to the Corporation an amount equal 



20 [PUB. 66.] 

to one-half of 1 per centum of the total amount of the deposits so 
certified. One-half of such payment shall be paid in full at the 
time of the admission of such member to the Fund, and the remainder 
of such payment shall be subject to call from time to time by the 
board of directors of the Corporation. Within a reasonable time 
fixed by the Corporation each such member shall file a similar 
statement showing, as of June 15, 1934, the number of its depositors 
and the total amount of its deposits which are eligible for such 
insurance and shall pay to the Corporation in the same manner an 
amount equal to one-half of 1 per centum of the increase, if any, 
in the total amount of such deposits since the date covered by the 
statement filed upon its admission to membership in the fund. 

" If at any time prior to July 1, 1934, the Corporation requires 
additional funds with which to meet its obligations under this 
subsection, each member of the Fund shall be subject to one addi- 
tional assessment only in an amount not exceeding the total amount 
theretofore paid to the Corporation by such member. 

" If any member of the Fund shall be closed on or before June 30, 
1934, on account of inability to meet its deposit liabilities, the Corpo- 
ration shall proceed in accordance with the provisions of subsection 
(1) of this section to pay the insured deposit liabilities of such mem- 
ber; except that the Corporation shall pay not more than $2,500 
on account of the net approved claim of the owner of any deposit. 
The provisions of such subsection (1) relating to State member banks 
shall be extended for the purposes of this subsection to members of 
the Fund which are not members of the Federal Reserve System; 
and the provisions of this subsection shall apply only to deposits 
of members of the Fund which have been made available since 
March 10, 1933, for withdrawal in the usual course of the banking 
business. 

"Before July 1, 1934, the Corporation shall make an estimate of 
the balance, if any, which will remain in the Fund after providing 
for all liabilities of the Fund, including expenses of operation 
thereof under this subsection and allowing for anticipated recoveries. 
The Corporation shall refund such estimated balance, on such basis 
as the Corporation shall find to be equitable, to the members of the 
Fund other than those which have been closed prior to July 1, 1934. 

" Each State bank which is a member of the Fund, in order to 
obtain the benefits of this section after July 1, 1934, shall, on or 
before such date, subscribe and pay for the same amount of class A 
stock of the Corporation as it would be required to subscribe and 
pay for upon becoming a member bank, or if such State bank is 
not permitted by the laws under which it was organized to pur- 
chase such stock, it shall deposit with the Corporation an amount 
equal to the amount it would have been required to pay in on account 
of a subscription to such stock ; and thereafter such State bank shall 
be entitled to such benefits until July 1, 193G. 

" It is not the purpose of this section to discriminate, in any 
manner, against State nonmember, and in favor of, national or 
member banks; but the purpose is to provide all banks with the 
same opportunity to obtain and enjoy the benefits of this section. No 
bank shall be discriminated against because its capital stock is less 



[Pub. 66.] 21 

than the amount required for eligibility for admission into the 
Federal Reserve S3'stem." 

Sec. 9. The eighth paragraph of section 13 of the Federal Reserve 
Act, as amended (U.S.C., title 12, sec. 347; Supp. VI, title 12, sec. 
347), is amended to read as follows: 

"Any Federal reserve bank may make advances for periods not 
exceeding fifteen days to its member banks on their promissory 
notes secured by the deposit or pledge of bonds, notes, certificates of 
indebtedness, or Treasury bills of the United States, or by the 
deposit or pledge of debentures or other such obligations of Federal 
intermediate credit banks which are eligible for purchase by Fed- 
eral reserve banks under section 13 (a) of this Act; and any 
Federal reserve bank may make advances for periods not exceeding 
ninety days to its member banks on their promissory notes secured 
by such notes, drafts, bills of exchange, or bankers' acceptances as are 
eligible for rediscount or for purchase by Federal reserve banks under 
the provisions of this Act. All such advances shall be made at rates 
to be established by such Federal reserve banks, such rates to be sub- 
ject to the review and determination of the Federal Reserve Board. 
If any member bank to which any such advance has been made 
shall, during the life or continuance of such advance, and despite 
an official warning of the reserve bank of the district or of the 
Federal Reserve Board to the contrary, increase its outstanding 
loans secured by collateral in the form of stocks, bonds, debentures, 
or other such obligations, or loans made to members of any organized 
stock exchange, investment house, or dealer in securities, upon any 
obligation, note, or bill, secured or unsecured, for the purpose of 
purchasing and/or carrying stocks, bonds, or other investment 
securities (except obligations of the United States) such advance 
shall be deemed immediately due and payable, and such member 
bank shall be ineligible as a borrower at the reserve bank of the 
district under the provisions of this paragraph for such period as 
the Federal Reserve Board shall determine: Provided, That no 
temporary carrying or clearance loans made solely for the purpose 
of facilitating the purchase or delivery of securities offered for 
public subscription shall be included in the loans referred to in 
this paragraph." 

Sec. 10. Section 14 of the Federal Reserve Act, as amended (U. S. C, 
title 12, sees. 353-358), is amended by adding at the end thereof the 
following new paragraph : 

"(g) The Federal Reserve Board shall exercise special supervision 
over all relationships and transactions of any kind entered into by 
any Federal reserve bank with any foreign bank or banker, or with 
any group of foreign banks or bankers, and all such relationships 
and transactions shall be subject to such regulations, conditions, and 
limitations as the Board may prescribe. No officer or other represen- 
tative of any Federal reserve bank shall conduct negotiations of 
any kind with the officers or representatives of any foreign bank 
or banker without first obtaining the permission of the Federal 
Reserve Board. The Federal Reserve Board shall have the right, in 
its discretion, to be represented in any conference or negotiations by 
such representative or representatives as the Board may designate. 
A full report of all conferences or negotiations, and all understand- 



22 



fPCB. 66.] 



ings or agreements arrived at or transactions agreed upon, and all 
other material facts appertaining to such conferences or negotiations, 
shall be filed with the Federal Reserve Board in writing by a duly 
authorized officer of each Federal reserve bank which shall have 
participated in such conferences or negotiations." 

Sec. 11. (a) Section 19 of the Federal Keserve Aet, as amended 
(U.S.C., title 12, sees. 142, 374, 461-466; Supp. VI, title 12, sec. 462a), 
is amended by inserting after the sixth paragraph thereof the follow- 
ing new paragraph : 

" No member bank shall act as the medium or agent of any non- 
banking corporation, partnership, association, business trust, or indi- 
vidual in making loans on the security of stocks, bonds, and other 
investment securities to brokers or dealers in stocks, bonds, and other 
investment securities. Every violation of this provision by any 
member bank shall be punishable by a fine of not more than $100 
per day during the continuance of such violation ; and such fine 
may be collected, by suit or otherwise, by the Federal reserve bank 
of the district in which such member bank is located." 

(b) Such section 19 of the Federal Reserve Act, as amended, is 
further amended by adding at the end thereof the following new 
paragraphs : 

" No member bank shall, directly or indirectly by any device what- 
soever, pay any interest on any deposit which is payable on demand : 
Provided, That nothing herein contained shall be construed as pro- 
hibiting the payment of interest in accordance with the terms of any 
certificate of deposit or other contract heretofore entered into in 
good faith which is in force on the date of the enactment of this 
paragraph ; but no such certificate of deposit or other contract shall 
be renewed or extended unless it shall be modified to conform to this 
paragraph, and every member bank shall take such action as may be 
necessary to conform to this paragraph as soon as possible consist- 
ently with its contractual obligations : Provided, however, That this 
paragraph shall not apply to any deposit of such bank which is 
payable only at an office thereof located in a foreign country, and 
shall not apply to any deposit made by a mutual savings bank, nor 
to any deposit of public funds made by or on behalf of any State, 
county, school district, or other subdivision or municipality, with 
respect to which payment of interest is required under State law. 

" The Federal Reserve Board shall from time to time limit by 
regulation the rate of interest which may be paid by member banks 
on time deposits, and may prescribe different rates for such pay- 
ment on time and savings deposits having different maturities or 
subject to different conditions respecting withdrawal or repay- 
ment or subject to different conditions by reason of different loca- 
tions. No member bank shall pay any time deposit before its ma- 
turity, or waive any requirement of notice before payment of any 
savings deposit except as to all savings deposits having the same 
requirement." 

(c) Section 8 of the Act entitled "An Act to establish postal 
savings depositories for depositing savings at interest with the 
security of the Government for repayment thereof, and for other 
purposes ", approved June 25, 1910, as amended (U.S.C., title 39, 
sec. 758), is amended by striking out the first sentence thereof and 



[Pub. 66.] 



23 



inserting in lieu thereof the following: "Any depositor may with- 
draw the whole or any part of the funds deposited to his or her 
credit with the accrued interest only on notice ^iven sixty days in 
advance and under such regulations as the Postmaster General 
may prescribe; but withdrawal of any part of such funds may be 
made upon demand, but no interest shall be paid on any funds so 
withdrawn except interest accrued to the date of enactment of the 
Banking Act of 1933: Provided, That Postal Savings depositories 
may deposit funds in member banks on time under regulations to be 
prescribed by the Postmaster General." 

(d) The second sentence of section 9 of the Act entitled "An Act to 
establish postal savings depositories for depositing savings at interest 
with the security of the Government for repayment thereof, and for, 
other purposes ", approved June 25. 1910, as amended (U.S.C., title 
39, sec. 759), is amended by striking out the period at the end thereof 
and inserting in lieu thereof a colon and the following: "Provided. 
That no such security shall be required in case of such part of the* 
deposits as are insured under section 12B of the Federal Reserve Act, 
as amended." 

Sec. 12. Section 22 of the Federal Reserve Act, as amended (U.S.O^ 
title 12, sees. 375, 376, 503, 593-595; Supp. VI, title 12, sec 593), is 
further amended by adding at the end thereof the following new 
paragraph : 

" (s) ^° executive officer of any member bank shall borrow from 
or otherwise become indebted to any member bank of which he is 
an executive officer, and no member bank shall make any loan or 
extend credit in any other manner to any of its own executive officers: 
Provided, That loans heretofore made to any such officer may be 
renewed or extended not more than two years from the date this 
paragraph takes effect, if in accord with sound banking practice. 
If any executive officer of any member bank borrow from or if 
he be or become indebted to any bank other than a member bank 
of which he is an executive officer, he shall make a written report to 
the chairman of the board of directors of the member bank of which 
he is an executive officer, stating the date and amount of such loan 
or indebtedness, the security therefor, and the purpose for which 
the proceeds have been or are to be used. Any executive officer of 
any member bank violating the provisions of this paragraph shall 
be deemed gudty of a misdemeanor and shall be imprisoned not 
exceeding one year, or fined not more than $5,000, or both ; and any 
member bank violating the provisions of this paragraph shall be 
fined not more than $10,000, and may be fined a further sum equal 
to the amount so loaned or credit so extended." 

Sec. 13. The Federal Reserve Act, as amended, is amended by 
inserting between sections 23 and 24 thereof (U.S.C., title 12, sees. 
64 and 371 ; Supp. VI, title 12, sec. 371) the following new section: 

" Sec. 23 A. No member bank shall (1) make any loan or any 
extension of credit to, or purchase securities under repurchase agree- 
ment from, any of its affiliates, or (2) invest any of its funds in the 
capital stock, bonds, debentures, or other such obligations of any 
such affiliate, or (3) accept the capital stock, bonds, debentures, or 
other such obligations of any such affiliate as collateral security for 
advances made to any person, partnership, association, or corpora- 



24 



(Pub. 66.] 



tion, if, in the case of any such affiliate, the aggregate amount of 
such loans, extensions of credit, repurchase agreements, investments, 
and advances against such collateral security will exceed 10 per 
centum of the capital stock and surplus of such member bank, or 
if, in the case of all such affiliates, the aggregate amount of such 
loans, extensions of credits, repurchase agreements, investments, and 
advances against such collateral security will exceed 20 per centum 
of the capital stock and surplus of such member bank. 

" Within the foregoing limitations, each loan or extension of credit 
of any kind or character to an affiliate shall be secured by collateral 
in the form of stocks, bonds, debentures, or other such obligations 
having a market value at the time of making the loan or extension 
of credit of at least 20 per centum more than the amount of the 
loan or extension of credit, or of at least 10 per centum more than 
the amount of the loan or extension of credit if it is secured by 
obligations of any State, or of any political subdivision or agency 
thereof: Provided, That the provisions of this paragraph shall not 
apply to loans or extensions of credit secured by obligations of the 
United States Government, the Federal intermediate credit banks, 
the Federal land banks, the Federal Home Loan Banks, or the Home 
Owners' Loan Corporation, or by such notes, drafts, bills of exchange, 
or bankers' acceptances as are eligible for rediscount or for purchase 
by Federal reserve banks. A loan or extension of credit to a 
director officer, clerk, or other employee or any representative of 
any such affiliate shall be deemed a loan to the affiliate to the extent 
that the proceeds of such loan are used for the benefit of, or trans- 
ferred to, the affiliate. 

" For the purposes of this section the term ' affiliate ' shall include 
holding company affiliates as well as other affiliates, and the pro- 
visions of this section shall not apply to any affiliate (1) engaged 
solely in holding the bank premises of the member bank with which 
it is affiliated, (2) engaged solely in conducting a safe-deposit busi- 
ness or the business of an agricultural credit corporation or livestock 
loan company, (3) in the capital stock of which a national banking 
association is authorized to invest pursuant to section 25 of the 
Federal Reserve Act, as amended, (4) organized under section 
25 (a) of the Federal Reserve Act, as amended, or (5) engaged 
solely in holding obligations of the United States Government, the 
Federal intermediate credit banks, the Federal land banks, the Fed- 
eral Home Loan Banks, or the Home Owners' Loan Corporation; 
but as to any such affiliate, member banks shall continue to be subject 
to other provisions of law applicable to loans by such banks and 
investments by such banks in stocks, bonds, debentures, or other such 
obligations." 

Sec. 14. The Federal Reserve Act, as amended, is amended by 
inserting between section 24 and section 25 thereof (U.S.C.. title 12, 
sees. 371 and 601-605; Supp. VI, title 12, sec. 371) the following 
new section : 

" Sec. 24A. Hereafter no national bank, without the approval 
of the Comptroller of the Currency, and no State member bank, 
without the approval of the Federal Reserve Board, shall (1) invest 
in bank premises, or in the stock, bonds, debentures, or other such 
obligations of any corporation holding the premises of such bank 



IPCB. 66J 



25 



or (2) make loans to or upon the security of the stock of any such 
corporation, if the aggregate of all such investments and loans will 
exceed the amount of the capital stock of such bank." 

Sec. 15. The Federal Reserve Act, as amended, is further amended 
by inserting after section 25 (a) thereof (U.S.C., title 12, sec. 
611-631) the following new section: 

" Sec. 25. (b) Notwithstanding any other provision of law all suits 
of a civil nature at common law or in equity to which any corporation 
organized under the laws of the United States shall be a party, aris- 
ing outof transactions involving international or foreign banking, or 
banking in a dependency or insular possession of the United States, 
or out of other international or foreign financial operations, either 
directly or through the agency, ownership, or control of branches or 
local institutions in dependencies or insular possessions of the United 
States or in foreign countries, shall be deemed to arise under the laws 
of the United States, and the district courts of the United States 
shall have original jurisdiction of all such suits; and any defendant 
in any such suit may, at any time before the trial thereof, remove 
such suits from a State court into the district court of the United 
States for the proper district by following the procedure for the 
removal of causes otherwise provided by law. Such removal shall 
not cause undue delay in the trial of such case and a case so removed 
shall have a place on the calendar of the United States court to 
which it is removed relative to that which it held on the State court 
from which it was removed. 

" Notwithstanding any other provision of law, all suits of a civil 
nature at common law or in equity to which any Federal Reserve 
bank shall be a party shall be deemed to arise under the laws of the 
United States, and the district courts of the United States shall have 
original jurisdiction of all such suits; and any Federal Reserve bank 
which is a defendant in any such suit may, at any time before the 
trial thereof, remove such suit from a State court into the district 
court of the United States for the proper district by following the 
procedure for the removal of causes otherwise provided by law. No 
attachment or execution shall be issued against any Federal Reserve 
bank or its property before final judgment in any suit, action, or 
proceeding in any State, county, municipal, or United States court." 

Sec. 16. Paragraph "Seventh" of section 5136 of the Revised 
Statutes, as amended (U.S.C., title 12, sec. 24; Supp. VI, title 12, sec. 
24), is amended to read as follows : 

" Seventh. To exercise by its board of directors or duly authorized 
officers or agents, subject to law, all such incidental powers as shall be 
necessary to carry on the business of banking; by discounting and 
negotiating promissory notes, drafts, bills of exchange, and other 
evidences of debt; by receiving deposits; by buying and selling 
exchange, coin, and bullion ; by loaning money on personal security ; 
and by obtaining, issuing, and circulating notes according to the 
provisions of this title. The business of dealing in investment securi- 
ties by the association shall be limited to purchasing and selling such 
securities without recourse, solely upon the order, and for the account 
of, customers, and in no case for its own account, and the association 
shall not underwrite any issue of securities : Provided, That the asso- 
ciation may purchase for its own account investment securities under 



26 [pcb.wi 

such limitations and restrictions as the Comptroller of the Currency 
may by regulation prescribe, but in no event (1) shall the total 
amount of any issue of investment securities of any one obligor or 
maker purchased after this section as amended takes effect and held 
by the association for its own account exceed at any time 10 per centum 
of the total amount of such issue outstanding, but this limitation shall 
not apply to any such issue the total amount of which does not exceed 
$100,000 and does not exceed 50 per centum of the capital of the asso- 
ciation, nor (2) shall the total amount of the investment securities of 
any one obligor or maker purchased after this section as amended 
takes effect and held by the association for its own account exceed at 
any time 15 per centum of the amount of the capital stock of the 
association actually paid in and unimpaired and 25 per centum of its 
unimpaired surplus fund. As used in this section the term 'invest- 
ment securities ' shall mean marketable obligations evidencing indebt- 
edness of any person, copartnership, association, or corporation in the 
form of bonds, notes and/or debentures commonly known as invest- 
ment securities under such further definition of the term ' investment 
securities ' as may by regulation be prescribed by the Comptroller of 
the Currency. Except as hereinafter provided or otherwise per- 
mitted by law, nothing herein contained shall authorize the purchase 
by the association of any shares of stock of any corporation. The 
limitations and restrictions herein contained as to dealing in, under- 
writing and purchasing for its own account, investment securities 
shall not apply to obligations of the United States, or general obliga- 
tions of any State or of any political subdivision thereof, or obliga- 
tions issued under authority of the Federal Farm Loan Act, as 
amended, or issued by the Federal Home Loan Banks or the Home 
Owners' Loan Corporation : Provided, That in carrying on the busi- 
ness commonly known as the safe-deposit business the association 
shall not invest in the capital stock of a corporation organized under 
the law of any State to conduct a safe-deposit business in an amount 
in excess of 15 per centum of the capital stock of the association 
actually paid in and unimpaired and 15 per centum of its unimpaired 
surplus." 

The restrictions of this section as to dealing in investment securi- 
ties shall take effect one year after the date of the approval of 
this Act. 

Sec. 17. (a) Section 5138 of the Revised Statutes, as amended 
(U.S.C., title 12, sec. 51; Supp. VI, title 12, sec. 51), is amended to 
read as follows : 

" Sec. 5138. After this section as amended takes effect, no national 
banking association shall be organized with a less capital than 
$100,000, except that such associations with a capital of not less than 
$50,000 may be organized in any place the population of which does 
not exceed six thousand inhabitants. No such association shall be 
organized in a city the population of which exceeds fifty thousand 
persons with a capital of less than $200,000, except that in the out- 
lying districts of such a city where the State laws permit the organi- 
zation of State banks with a capital of $100,000 or less, national 
banking associations now organized or hereafter organized may, with 
the approval of the Comptroller of the Currency, have a capital of 
not less than $100,000." 



1P0B. 66.J 



27 



(b) The tenth paragraph of section 9 of the Federal Reserve Act, 
as amended (U.S.C., title 12, sec. 329), is amended to read as follows: 

" No applying bank shall be admitted to membership in a Federal 
reserve bank unless it possesses a paid-up unimpaired capital suffi- 
cient to entitle it to become a national banking association in the 
place where it is situated under the provisions of the National 
Bank Act, as amended : Provided, That this paragraph shall not 
apply to State banks and trust companies organized prior to the 
date this paragraph as amended takes effect and situated in a place 
the population of which does not exceed three thousand inhabitants 
and having a capital of not less than $25,000, nor to any State bank 
or trust company which is so situated and which, while it is entitled 
to the benefits of insurance under section 12B of this Act, increases 
its capital to not less than $25,000." 

Sec. 18. Section 5139 of the Revised Statutes, as amended (U.S.C., 
title 12, sec. 52; Supp. VI, title 12, sec. 52), is amended by adding at 
the end thereof the following new paragraph : 

'After one year from the date of the enactment of the Banking Act 
of 1933, no certificate representing the stock of any such association 
shall represent the stock of any other corporation, except a member 
bank or a corporation existing on the date this paragraph takes effect 
engaged solely in holding the bank premises of such association, nor 
shall the ownership, sale, or transfer of any certificate representing 
the stock of any such association be conditioned in any manner 
whatsoever upon the ownership, sale, or transfer of a certificate rep- 
resenting the stock of any other corporation, except a member bank." 

Sec. 19. Section 5144 of the Revised Statutes, as amended (U.S.C., 
title 12, sec. 61), is amended to read as follows: 

" Sec. 5144. In all elections of directors, each shareholder shall 
have the right to vote the number of shares owned by him for as 
many persons as there are directors to be elected, or to cumulate 
such shares and give one candidate as many votes as the number of 
directors multiplied by the number of his shares shall equal, or to 
distribute them on the same principle among as many candidates as 
he shall think fit ; and in deciding all other questions at meetings of 
shareholders, each shareholder shall be entitled to one vote on each 
share of stock held by him; except (1) that shares of its own stock 
held by a national bank as sole trustee shall not be voted, and shares 
of its own stock held by a national bank and one or more persons as 
trustees may be voted by such other person or persons, as trustees, 
in the same manner as if he or they were the sole trustee, and 
(2) shares controlled by any holding company affiliate of a national 
bank shall not be voted unless such holding company affiliate shall 
have first obtained a voting permit as hereinafter provided, which 
permit is in force at the time such shares are voted. Shareholders 
may vote by proxies duly authorized in writing ; but no officer, clerk, 
teller, or bookkeeper of such bank shall act as proxy; and no share- 
holder whose liability is past due and unpaid shall be allowed to vote. 

" For the purposes of this section shares shall be deemed to be 
controlled by a holding company affiliate if they are owned or con- 
trolled directly or indirectly by such holding company affiliate, or 
held by any trustee for the benefit of the shareholders or members 
thereof. 



28 



[Pub. 66.1 



"Any such holding company affiliate may make application to the 
Federal Reserve Board for a voting permit entitling it to cast one 
vote at all elections of directors and in deciding all questions at 
meetings of shareholders of such bank on each share of stock con- 
trolled by it or authorizing the trustee or trustees holding the stock 
for its benefit or for the benefit of its shareholders so to vote the same. 
The Federal Reserve Board may, in its discretion, grant or with- 
hold such permit as the public interest may require. In acting upon 
such application, the Board shall consider the financial condition of 
the applicant, the general character of its management, and the prob- 
able effect of the granting of such permit upon the affairs of such 
bank, but no such permit shall be granted except upon the following 
conditions : 

" (a) Every such holding company affiliate shall, in making the 
application for such permit, agree (1) to receive, on dates identical 
with those fixed for the examination of banks with which it is 
affiliated, examiners duly authorized to examine such banks, who 
shall make such examinations of such holding company affiliate as 
shall be necessary to disclose fully the relations between such banks 
and such holding company affiliate and the effect of such relations 
upon the affairs of such banks, such examinations to be at the 
expense of the holding company affiliate so examined; (2) that the 
reports of such examiners shall contain such information as shall be 
necessary to disclose fully the relations between such affiliate and 
such banks and the effect of such relations upon the affairs of such 
banks; (3) that such examiners may examine each bank owned or 
controlled by the holding company affiliate, both individually and in 
conjunction with other banks owned or controlled by such holding 
company affiliate; and (4) that publication of individual or con- 
solidated statements of condition of such banks may be required; 

" (b) After five years after the enactment of the Banking Act 
of 1933, every such holding company affiliate (1) shall possess, and 
shall continue to possess during the life of such permit, free and 
clear of any lien, pledge, or hypothecation of any nature, readily 
marketable assets other than bank stock in an amount not less than 
12 per centum of the aggregate par value of all bank stocks con- 
trolled by such holding company affiliate, which amount shall be 
increased by not less than 2 per centum per annum of such aggregate 
par value until such assets shall amount to 25 per centum of the 
aggregate par value of such bank stocks; and (2) shall reinvest in 
readily marketable assets other than bank stock all net earnings 
over and above 6 per centum per annum on the book value of its 
own shares outstanding until such assets shall amount to such 25 
per centum of the aggregate par value of all bank stocks controlled 
by it; 

" (c) Notwithstanding the foregoing provisions of this section, 
after five years after the enactment of trie Banking Act of 1933, (1) 
any such holding company affiliate the shareholders or members of 
which shall be individually and severally liable in proportion to the 
number of shares of such holding company affiliate held by them 
respectively, in addition to amounts invested therein, for all statutory 
liability imposed on such holding company affiliate by reason of its 
control of shares of stock of Danks, shall be required only to 



(PUB. 68.] 



29 



establish and maintain out of net earnings over and above 6 per 
centum per annum on the book value of its own shares outstanding 
a reserve of readily marketable assets in an amount of not less than 
12 per centum of the aggregate par value of bank stocks controlled 
by it, and (2) the assets required by this section to be possessed by 
such holding company affiliate may "be used by it for replacement of 
capital in banks affiliated with it and for losses incurred in such 
banks, but any deficiency in such assets resulting from such use shall 
be made up within such period as the Federal Reserve Board may 
by regulation prescribe; 

" (d) Every officer, director, agent, and employee of every such 
holding company affiliate shall be subject to the same penalties for 
false entries in any book, report, or statement of such holding com- 
pany affiliate as are applicable to officers, directors, agents, and 
employees of member banks under section 5209 of the Revised 
Statutes, as amended (U.S.C., title 12, sec. 592) ; and 

" (e) Every such holding company affiliate shall, in its application 
for such voting permit, (1) show that it does not own, control, or 
have any interest in, and is not participating in the management or 
direction of, any corporation, business trust, association, or other 
similar organization formed for the purpose of, or engaged prin- 
cipally in, the issue, flotation, underwriting, public sale, or 
distribution, at wholesale or retail or through syndicate participa- 
tion, of stocks, bonds, debentures, notes, or other securities of any 
sort (hereinafter referred to as 'securities company'); (2) agree 
that during the period that the permit remains in force it will not 
acquire any ownership, control, or interest in any such securities 
company or participate in the management or direction thereof; 
(3) agree that if, at the time of filing the application for such permit, 
it owns, controls, or has an interest in, or is participating in the 
management or direction of, any such securities company, it will, 
within five years after the filing of such application, divest itself 
of its ownership, control, and interest in such securities company 
and will cease participating in the management or direction thereof, 
and will not thereafter, during the period that the permit remains 
in force, acquire any further ownership, control, or interest in any 
such securities company or participate in the management or direc- 
tion thereof ; and (4) agree that thenceforth it will declare dividends 
only out of actual net earnings. 

" If at any time it shall appear to the Federal Reserve Board that 
any holding company affiliate has violated any of the provisions of 
the Banking Act of 1933 or of any agreement made pursuant to this 
section, the Federal Reserve Board may, in its discretion, revoke any 
such voting permit after giving sixty days' notice by registered mail 
of its intention to the holding company affiliate and affording it an 
opportunity to be heard. Whenever the Federal Reserve Board shall 
have revoked any such voting permit, no national bank whose stock 
is controlled by the holding company affiliate whose permit is so 
revoked shall receive deposits of public moneys of the United States, 
nor shall any such national bank pay any further dividend to such 
holding company affiliate upon any shares of such bank controlled 
by such holding company affiliate. 



30 ipot.m.i 

" Whenever the Federal Reserve Board shall have revoked any 
voting permit as hereinbefore provided, the rights, privileges, and 
franchises of any or all national banks the stock of which is con- 
trolled by such holding company affiliate shall, in the discretion of 
the Federal Reserve Board, be subject to forfeiture in accordance 
with section 2 of the Federal Reserve Act, as amended." 

Sec. 20. After one year from the date of the enactment of this Act, 
no member bank shall be affiliated in any manner described in sec- 
tion 2 (b) hereof with any corporation, association, business trust, or 
other similar organization engaged principally in the issue, flotation, 
underwriting, public sale, or distribution at wholesale or retail or 
through syndicate participation of stocks, bonds, debentures, notes, 
or other securities. 

For every violation of this section the member bank involved shall 
be subject to a penalty not exceeding $1,000 per day for each day 
during which such violation continues. Such penalty may be assessed 
by the Federal Reserve Board, in its discretion, and, when so 
assessed, may be collected by the Federal reserve bank by suit or 
otherwise. 

If any such violation shall continue for six calendar months after 
the member bank shall have been warned by the Federal Reserve 
Board to discontinue the same, (a) in the case of a national bank, all 
the rights, privileges, and franchises granted to it under the National 
Bank Act may be forfeited in the manner prescribed in section 2 of 
the Federal Reserve Act, as amended (U.S.C., title 12, sees. 141, 222- 
225, 281-286, and 502), or, (b) in the case of a State member bank, 
all of its rights and privileges of membership in the Federal Reserve 
System may be forfeited in the manner prescribed in section 9 of the 
Federal Reserve Act, as amended (U.S.C., title 12, sees. 321-332). 

Sec. 21. (a) After the expiration of one year after the date of 
enactment of this Act it shall be unlawful — 

(1) For any person, firm, corporation, association, business trust, 
or other similar organization, engaged in the business of issuing, 
underwriting, selling, or distributing, at wholesale or retail, or 
through syndicate participation, stocks, bonds, debentures, notes, or 
other securities, to engage at the same time to any extent whatever 
in the business of receiving deposits subject to check or to repayment 
upon presentation of a passbook, certificate of deposit, or other 
evidence of debt, or upon request of the depositor ; or 

(2) For any person, firm, corporation, association, business trust, 
or other similar organization, other than a financial institution or 
private banker subject to examination and regulation under State 
or Federal law, to engage to any extent whatever in the business of 
receiving deposits subject to check or to repayment upon presentation 
of a passbook, certificate of deposit, or other evidence of debt, or upon 
request of the depositor, unless such person, firm, corporation, asso- 
ciation, business trust, or other similar organization shall submit 
to periodic examination by the Comptroller of the Currency or by 
the Federal reserve bank of the district and shall make and publish 
periodic reports of its condition, exhibiting in detail its resources 
and liabilities, such examination and reports to be made and pub- 
lished at the same times and in the same manner and with like effect 



[Pub. m.] 



31 



and penalties as are now provided by law in respect of national 
banking associations transacting business in the same locality. 

(b) Whoever shall willfully violate any of the provisions of this 
section shall upon conviction be fined not more than $5,000 or impris- 
oned not more than five years, or both, and any officer, director, 
employee, or agent of any person, firm, corporation, association, 
business trust, or other similar organization who knowingly par- 
ticipates in any such violation shall be punished by a like fine or 
imprisonment or both. 

Sec. 22. The additional liability imposed upon shareholders in 
national banking associations by the provisions of section 5151 of the 
Revised Statutes, as amended, and section 23 of the Federal Reserve 
Act, as amended (U.S.C., title 12, sees. 63 and 64), shall not apply 
with respect to shares in any such association issued after the date 
of enactment of this Act. 

Sec. 23. Paragraph (c) of section 5155 of the Revised Statutes, as 
amended (U.S.C., title 12, sec. 36), is amended to read as follows: 

"(c) A national banking association may, with the approval of the 
Comptroller of the Currency, establish and operate new branches: 
(1) Within the limits of the city, town or village in which said 
association is situated, if such establishment and operation are at the 
time expressly authorized to State banks by the law of the State in 
question; and (2) at any point within the State in which said associa- 
tion is situated, if such establishment and operation are at the time 
authorized to State banks by the statute law of the State in question 
by language specifically granting such authority affirmatively and 
not merely by implication or recognition, and subject to the restric- 
tions as to location imposed by the law of the State on State banks. 
No such association shall establish a branch outside of the city, town, 
or village in which it is situated unless it has a paid-in and unim- 
paired capital stock of not less than $500,000: Provided, That in 
States with a population of less than one million, and which have no 
cities located therein with a population exceeding one hundred 
thousand, the capital shall be not less than $250,000 : Provided, That 
in States with a population of less than one-half million, and which 
have no cities located therein with a population exceeding fifty 
thousand, the capital shall not be less than $100,000." 

Paragraph (d) of section 5155 of the Revised Statutes, as amended 
(U.S.C., title 12, sec. 36), is amended to read as follows: 

"(d) The aggregate capital of every national banking association 
and its branches shall at no time be less than the aggregate minimum 
capital required by law for the establishment of an equal number 
of national banking associations situated in the various places where 
such association and its branches are situated." 

Sec. 24. (a) Sections 1 and 3 of the Act entitled "An Act to pro- 
vide for the consolidation of national banking associations ", ap- 
proved November 7, 1918, as amended (U.S.C., title 12, sees. 33, 34, 
and 34a), are amended by striking out the words " county, city, town, 
or village " wherever they occur in each such section, and inserting 
in lieu thereof the words "' State, county, city, town, or village." 

(b) Section 3 of such Act of November 7, 1918, as amended, is 
further amended by striking out the second sentence thereof and 
inserting in lieu thereof the following : " The capital stock of such 



32 [Pcb. 66.] 

consolidated association shall not be less than that required under 
existing law for the organization of a national banking association 
in the place in which such consolidated association is located. 
Upon such a consolidation, or upon a consolidation of two or 
more national banking associations under section 1 of this Act, the 
corporate existence of each of the constituent banks and national 
banking associations participating in such consolidation shall be 
merged into and continued in the consolidated national banking 
association and the consolidated association shall be deemed to be 
the same corporation as each of the constituent institutions. All the 
rights, franchises, and interests of each of such constituent banks 
and national banking associations in and to every species of prop- 
erty, real, personal, and mixed, and choses in action thereto belonging, 
shall be deemed to be transferred to and vested in such consolidated 
national banking association without any deed or other transfer ; and 
such consolidated national banking association, by virtue of such 
consolidation and without any order or other action on the part of 
any court or otherwise, shall hold and enjoy the same and all rights 
of property, franchises, and interests, including appointments, desig- 
nations, and nominations and all other rights and interests as trustee, 
executor, administrator, registrar of stocks and bonds, guardian of 
estates, assignee, receiver, committee of estates of lunatics and in 
every other fiduciary capacity, in the same manner and to the same 
extent as such rights, franchises, and interests were held or enjoyed 
by any such constituent institution at the time of such consolidation : 
Provided, however, That where any such constituent institution at the 
time of such consolidation was acting under appointment of any court 
as trustee, executor, administrator, registrar of stocks and bonds, 
guardian of estates, assignee, receiver, committee of estates of lunatics 
or in any other fiduciary capacity, the consolidated national banking 
association shall be subject to removal by a court of competent juris- 
diction in the same manner and to the same extent as was such 
constituent corporation prior to the consolidation, and nothing herein 
contained shall be construed to impair in any manner the right of 
any court to remove such a consolidated national banking association 
and to appoint in lieu thereof a substitute trustee, executor, or other 
fiduciary, except that such right shall not be exercised in such a 
manner as to discriminate against national banking associations, nor 
shall any such consolidated association be removed solely because 
of the fact that it is a national banking association." 

Sec. 25. The first two sentences of section 5197 of the Revised 
Statutes (U.S.C., title 12, sec. 85) are amended to read as follows: 

" Any association may take, receive, reserve, and charge on any 
loan or discount made, or upon any notes, bills of exchange, or other 
evidences of debt, interest at the rate allowed by the laws of the State, 
Territory, or District where the bank is located, or at a rate of 1 
per centum in excess of the discount rate on ninety-day commercial 

Saper in effect at the Federal reserve bank in the Federal reserve 
istrict where the bank is located, whichever may be the greater, and 
no more, except that where by the laws of any State a different rate 
is limited for banks organized under State laws, the rate so limited 
shall be allowed for associations organized or existing in any such 
State under this title. When no rate is fixed by the laws of the 



[Pub. 66.] 



33 



State, or Territory, or District, the bank may take, receive, reserve, 
or charge a rate not exceeding 7 per centum, or 1 per centum in excess 
of the discount rate on ninety-day commercial paper in effect at the 
Federal reserve bank in the Federal reserve district where the bank 
is located, whichever may be the greater, and such interest may be 
taken in advance, reckoning the days for which the note, bill, or other 
evidence of debt has to run." 

Sec. 26. (a) The second sentence of the first paragraph of section 
5200 of the Revised Statutes, as amended (U.S.C., title 12, sec. 84: 
Supp. VI, title 12, sec. 84), is amended by inserting before the period 
at the end thereof the following : " and shall include in the case of 
obligations of a corporation all obligations of all subsidiaries thereof 
in which such corporation owns or controls a majority interest." 

(b) The amendment made by this section shall not apply to such 
obligations of subsidiaries held by such association on the date thia 
section takes effect. 

Sec. 27. Section 5211 of the Revised Statutes, as amended (U.S.C., 
title 12, sec. 161; Supp. VI, title 12, sec. 161), is amended by adding 
at the end thereof the following new paragraph : 

" Each national banking association shall obtain from each of its 
affiliates other than member banks and furnish to the Comptroller of 
the Currency not less than three reports during each year, in such 
form as the Comptroller may prescribe, verified by the oath or affir- 
mation of the president or such other officer as may be designated by 
the board of directors of such affiliate to verify such reports, dis- 
closing the information hereinafter provided for as of dates identical 
with those for which the Comptroller shall during such year require 
the reports of the condition of the association. For the purpose of 
this section the term ' affiliate ' shall include holding company affil- 
iates as well as other affiliates. Each such report of an affiliate shall 
be transmitted to the Comptroller at the same time as the correspond- 
ing report of the association, except that the Comptroller may, in his 
discretion, extend such time for good cause shown. Each such report 
shall contain such information as in the judgment of the Comptroller 
of the Currency shall be necessary to disclose fully the relations 
between such affiliate and such bank and to enable the Comptroller 
to inform himself as to the effect of such relations upon the affairs of 
such bank. The reports of such affiliates shall be published by the 
association under the same conditions as govern its own condition re- 
ports. The Comptroller shall also have power to call for additional 
reports with respect to any such affiliate whenever in his judgment 
the same are necessary in order to obtain a full and complete knowl- 
edge of the conditions of the association with which it is affiliated. 
Such additional reports shall be transmitted to the Comptroller of 
the Currency in such form as he may prescribe. Any such affiliated 
bank which fails to obtain and furnish any report required under 
this section shall be subject to a penalty of $100 for each day during 
which such failure continues." 

Sec. 28. (a) The first paragraph of section 5240 of the Revised 
Statutes, as amended (U.S.C., title 12, sec. 481), is amended by 
inserting before the period at the end thereof a colon and the fol- 
lowing proviso : " Provided, That in making the examination of any 
national bank the examiners shall include such an examination of 



34 ipcb.mj 

the affairs of all its affiliates other than member banks as shall be 
necessary to disclose fully the relations between such bank and such 
affiliates and the effect of such relations upon the affairs of such 
bank; and in the event of the refusal to give any information 
required in the course of the examination of any such affiliate, or in 
the event of the refusal to permit such examination, all the rights, 
privileges, and franchises of the bank shall be subject to forfeiture 
in accordance with section 2 of the Federal Reserve Act, as amended 
(U.S.C., title 12, sees. 141, 222-225, 281-286, and 502). The Comp- 
troller of the Currency shall have power, and he is hereby author- 
ized, to publish the report of his examination of any national banking 
association or affiliate which shall not within one hundred and twenty 
days after notification of the recommendations or suggestions of the 
Comptroller, based on said examination, have complied with the same 
to his satisfaction. Ninety days' notice prior to such publicity shall 
be given to the bank or affiliate." 

(b) Section 5240 of the Revised Statutes, as amended (U.S.C., title 
12, sec. 481), is further amended by adding after the first paragraph 
thereof the following new paragraph : 

" The examiner making the examination of any affiliate of a 
national bank shall have power to make a thorough examination of 
all the affairs of the affiliate, and in doing so he shall have power 
to administer oaths and to examine any of the officers, directors, 
employees, and agents thereof under oath and to make a report of 
his findings to the Comptroller of the Currency. The expense of 
examinations of such affiliates may be assessed by the Comptroller 
of the Currency upon the affiliates examined in proportion to assets 
or resources held by the affiliates upon the dates oi examination of 
the various affiliates. If any such affiliate shall refuse to pay such 
expenses or shall fail to do so within sixty days after the date of 
such assessment, then such expenses may be assessed against the 
affiliated national bank and, when so assessed, shall be paid by such 
national bank : Provided, however, That, if the affiliation is with two 
or more national banks, such expenses may be assessed against, and 
collected from, any or all of such national banks in such proportions 
as the Comptroller of the Currency may prescribe. The examiners 
and assistant examiners making the examinations of national bank- 
ing associations and affiliates thereof herein provided for and the 
chief examiners, reviewing examiners and other persons whose serv- 
ices may be required in connection with such examinations or the 
reports thereof, shall be employed by the Comptroller of the Cur- 
rency with the approval of the Secretary of the Treasury; the 
employment and compensation of examiners, chief examiners, review- 
ing examiners, assistant examiners, and of the other employees of the 
office of the Comptroller of the Currency whose compensation is paid 
from assessments on banks or affiliates thereof shall be without regard 
to the provisions of other laws applicable to officers or employees of 
the United States. The funds derived from such assessments may be 
deposited by the Comptroller of the Currency in accordance with the 
provisions of section 5234 of the Revised Statutes (U.S.C., title 12, 
sec. 192) and shall not be construed to be Government funds or 
appropriated monies; and the Comptroller of the Currency is 
authorized and empowered to prescribe regulations governing the 



[Pub. 66.] 



35 



computation and assessment of the expenses of examinations herein 
provided for and the collection of such assessments from the banks 
and/or affiliates examined. If any affiliate of a national bank shall 
refuse to permit an examiner to make an examination of the affiliate 
or shall refuse to give any information required in the course of any 
such examination, the national bank with which it is affiliated shall 
be subject to a penalty of not more than $100 for each day that any 
such refusal shall continue. Such penalty may be assessed by the 
Comptroller of the Currency and collected in the same manner as 
expenses of examinations." 

Sec. 29. In any case in which, in the opinion of the Comptroller 
of the Currency, it would be to the advantage of the depositors and 
unsecured creditors of any national banking association whose busi- 
ness has been closed, for such association to resume business upon the 
retention by the association, for a reasonable period to be prescribed 
by the Comptroller, of all or any part of its deposits, the Comp- 
troller is authorized, in his discretion, to permit the association to 
resume business if depositors and unsecured creditors of the associa- 
tion representing at least 75 per centum of its total deposit and 
unsecured credit liabilities consent in writing to such retention of 
deposits. Nothing in this section shall be construed to affect in any 
manner any powers of the Comptroller under the provisions of law 
in force on the date of enactment of this Act with respect to the 
reorganization of national banking associations. 

Sec. 30. Whenever, in the opinion of the Comptroller of the Cur- 
rency, any director or officer of a national bank, or of a bank or 
trust company doing business in the District of Columbia, or when- 
ever, in the opinion of a Federal reserve agent, any director or officer 
of a State member bank in his district shall have continued to vio- 
late any law relating to such bank or trust company or shall have 
continued unsafe or unsound practices in conducting the business 
of such bank or trust company, after having been warned by the 
Comptroller of the Currency or the Federal reserve agent, as the 
case may be, to discontinue such violations of law or such unsafe 
or unsound practices, the Comptroller of the Currency or the Federal 
reserve agent, as the case may be, may certify the facts to the Fed- 
eral Reserve Board. In any such case the Federal Reserve Board 
may cause notice to be served upon such director or officer to appear 
before such Board to show cause why he should not be removed 
from office. A copy of such order shall be sent to each director of 
the bank affected, by registered mail. If after granting the accused 
director or officer a reasonable opportunity to be heard, the Federal 
Reserve Board finds that he has continued to violate any law relating 
to such bank or trust company or has continued unsafe or unsound 
practices in conducting the business of such bank or trust company 
after having been warned by the Comptroller of the Currency or 
the Federal reserve agent to discontinue such violation of law or 
such unsafe or unsound practices, the Federal Reserve Board, in its 
discretion, may order that such director or officer be removed from 
office. A copy of such order shall be served upon such director or 
officer. A copy of such order shall also be served upon the bank of 
which he is a director or officer, whereupon such director or officer 
shall cease to be a director or officer of such bank: Provided, That 



36 ipub.mj 

such order and the findings of fact upon which it is based shall not 
be made public or disclosed to anyone except the director or officer 
involved and the directors of the bank involved, otherwise than in 
connection with proceedings for a violation of this section. Any 
such director or officer removed from office as herein provided who 
thereafter participates in any manner in the management of such 
bank shall be fined not more than $5,000, or imprisoned for not more 
than five years, or both, in the discretion of the court. 

Sec. 31. After one year from the date of enactment of this Act, 
notwithstanding any other provision of law, the board of directors, 
board of trustees, or other similar governing body of every national 
banking association and of every State bank or trust company which 
is a member of the Federal Reserve System shall consist of not less 
than five nor more than twenty-five members; and every director, 
trustee, or other member of such governing body shall be the bona 
fide owner in his own right of shares of stock of such banking asso- 
ciation, State bank or trust company having a par value in the 
aggregate of not less than $2,500, unless the capital of the bank 
shall not exceed $50,000, in which case he must own in his own right 
shares having a par value in the aggregate of not less than $1,500, 
or unless the capital of the bank shall not exceed $25,000, in which 
case he must own in his own right shares having a par value in the 
aggregate of not less than $1,000. If any national banking associa- 
tion violates the provisions of this section and continues such viola- 
tion after thirty days' notice from the Comptroller of the Currency, 
the said Comptroller may appoint a receiver or conservator therefor, 
in accordance with the provisions of existing law. If any State bank 
or trust company which is a member of the Federal Reserve System 
violates the provisions of this section and continues such violation 
after thirty days' notice from the Federal Reserve Board, it shall be 
subject to the forfeiture of its membership in the Federal Reserve 
System in accordance with the provisions of section 9 of the Federal 
Reserve Act, as amended. 

Sec. 32. From and after January 1, 1934, no officer or director 
of any member bank shall be an officer, director, or manager of any 
corporation, partnership, or unincorporated association engaged pri- 
marily in the business of purchasing, selling, or negotiating securi- 
ties, and no member bank shall perform the functions of a corre- 
spondent bank on behalf of any such individual, partnership, 
corporation, or unincorporated association and no such individual, 
partnership, corporation, or unincorporated association shall perform 
the functions or a correspondent for any member bank or hold on 
deposit any funds on behalf of any member bank, unless in any 
such case there is a permit therefor issued by the Federal Reserve 
Board; and the Board is authorized to issue such permit if in its 
judgment it is not incompatible with the public interest, and to 
revoke any such permit whenever it finds after reasonable notice 
and opportunity to be heard, that the public interest requires such 
revocation. 

Sec. 33. The Act entitled "An Act to supplement existing laws 
against unlawful restraints and monopolies, and for other purposes ", 
approved October 15, 1914, as amended (U.S.C., title 15, sec. 19), is 



|Pub. 68.1 37 

hereby amended by adding after section 8 thereof the following new 
section : 

" Sec. 8A. That from and after the 1st day of January 1934, no 
director, officer, or employee of any bank, banking association, or 
trust company, organized or operating under the laws of the United 
States shall be at the same time a director, officer, or employee of a 
corporation (other than a mutual savings bank) or a member of a 
partnership organized for any purpose whatsoever which shall make 
loans secured by stock or bond collateral to any individual, associa- 
tion, partnership, or corporation other than its own subsidiaries." 

Sec. 34. The right to alter, amend, or repeal this Act is hereby 
expressly reserved. If any provision of this Act, or the application 
thereof to any person or circumstances, is held invalid, the remainder 
of the Act, and the application of such provision to other persons 
or circumstances, shall not be affected thereby. 

Approved, June 16, 1933, 11.45 a.m. 



SUMMARY OF BANKING ACT OF 1933 

There is set forth below a summary of the principal provisions of the Banking Act of 
1933 (Glass Bill), as approved by the President on June 16, 1933. 

Title. SECTION 1 

This section merely provides that the short title of the act shall be the "Banking Act 
of 1933." 
Definitions. SECTION 2 

In view of the concise language in which the definitions are phrased, no attempt will be 
made to summarize them, but for convenience the definitions are set forth here : 

" (a) The terms 'banks', 'national bank', 'national banking association', 'member bank', 'board', 
'district', and 'reserve bank' shall have the meanings assigned to them in section 1 of the Federal 
Reserve Act, as amended. 

"(b) Except where otherwise specifically provided, the term 'affiliate' shall include any corpo- 
ration, business trust, association, or other similar organization — 

" (1) Of which a member bank, directly or indirectly, owns or controls either a majority of the 
voting shares or more than 50 per centum of the number of shares voted for the election of its direc- 
tors, trustees, or other persons exercising similar functions at the preceding election, or controls in 
any manner the election of a majority of its directors, trustees, or other persons exercising similar 
functions; or 

"(2) Of which control is held, directly or indirectly, through stock ownership or in any other 
manner, by the shareholders of a member bank who own or control either a majority of the shares of 
such bank or more than 50 per centum of the number of shares voted for the election of directors of 
such bank at the preceding election, or by trustees for the benefit of the shareholders of any such 
bank; or 

" (3) Of which a majority of its directors, trustees, or other persons exercising similar functions 
are directors of any one member bank. 

" (c) The term 'holding company affiliate' shall include any corporation, business trust, associa- 
tion, or other similar organization — 

"(1) Which owns or controls, directly or indirectly, either a majority of the shares of capital 
stock of a member bank or more than 50 per centum of the number of shares voted for the election 
of directors of any one bank at the preceding election, or controls in any manner the election of a 
majority of the directors of any one bank; or 

" (2) For the benefit of whose shareholders or members all or substantially all the capital stock 
of a member bank is held by trustees. ' ' 

SECTION 3(a) 
Control of Federal reserve hank credit by Federal Reserve Board. 

Section 4 of the Federal Keserve Act is amended so as to provide that the board of 
directors of each Federal reserve bank shall administer its affairs fairly and impartially and 
without discrimination among member banks and may extend to each member bank such ac- 
commodations as may be safely and reasonably made with due regard for the claims of other 
members, the maintenance of sound credit conditions and the accommodation of commerce, 
industry and agriculture. 

Each Federal reserve bank shall keep itself informed of the general character and amount 
of the loans and investments of its member banks with a view to ascertaining whether undue 
use is being made of bank credit for any purpose inconsistent with sound credit conditions, 
and shall give consideration to such information in determining whether to make advances to 
such member banks. Undue use of bank credit shall be reported to the Federal Reserve Board 
by the Chairman of the Federal reserve bank, and the Board may suspend a member bank 
from the use of the credit facilities of the System if, in its judgment, the bank is making such 
undue use of bank credit. 



SECTION 3(b) 
Voting by groups or chains in elections of Federal reserve batik directors. 

Section 4 of the Federal Reserve Act is amended to provide that when two or more mem- 
ber banks are affiliated with the same holding company affiliate only one of such banks, which 
may be designated by such affiliate, may participate in the nomination or election of Federal 
reserve bank directors. 

SECTION 4 

Distribution of earnings of Federal reserve banks. 

Section 7 of the Federal Reserve Act is amended to provide that all net earnings of a 
Federal reserve bank after payment of expenses and dividend claims shall be paid into the 
surplus fund of the bank. 

SECTION 5(a) 

Membership of Morris Plan Banks. 

Section 9 of the Federal Reserve Act is amended to make eligible for membership in the 
Federal Reserve System Morris Plan Banks and other incorporated banking institutions en- 
gaged in similar business. 

SECTION 5(b) 
Branches of State member banks. 

Section 9 of the Federal Reserve Act is amended so as to provide that nothing contained 
in that Act shall prevent State member banks from establishing branches either in the United 
States or elsewhere upon the same terms and conditions as those applicable to branches of 
national banks. 

(The provisions of the Act with reference to branches of national banks are contained in 
Section 23). 

SECTION 5(c) 

Membership of mutual savings banks and other banking institutions without capital stock. 

Section 9 of the Federal Reserve Act is amended so as to make eligible for membership in 
the Federal Reserve System mutual savings banks having no capital stock and other banking 
institutions the capital of which consists of time deposits which are segregated from other de- 
posits and regarded as capital stock for purposes of taxation and dividends. 

A mutual savings bank may be admitted to membership when it has surplus and undivided 
profits not less than the amount of capital required for the organization of a national bank in 
the same place. It must subscribe for Federal reserve bank stock in an amount equal to six- 
tenths of one per cent of its total deposit liabilities, such subscription to be adjusted semi- 
annually on the same basis. 

If a mutual savings bank is not permitted by the law under which it was organized to 
purchase stock in a Federal reserve bank, it shall upon admission deposit with the Federal 
reserve bank the same amount which it would be required to pay in on a subscription to capital 
stock. The amount so deposited is subject to the same conditions regarding repayment as 
subscriptions to capital stock and the Federal reserve bank is required to pay interest at the 
same rate as dividends are paid on its stock. This is a temporary arrangement, however, and 
if the State law is not amended at the next session of the legislature following the admission 
of such bank to membership so as to authorize it to purchase Federal reserve bank stock, or if 
the bank fail to purchase such stock within six months after the enactment of such a law in lieu 
of such deposit with the Federal reserve bank, its membership shall be forfeited. Mutual sav- 
ings banks admitted to membership will be subject to all provisions of law applicable to member 
state banks and trust companies. 

Reports of affiliates of State member banks. 

A State member bank shall obtain from each of its affiliates, other than member banks, and 
furnish to the Federal reserve bank and the Federal Reserve Board, not less than three reports 
of condition each year on dates identical with the reports of the affiliated member bank and 
such additional reports as the reserve bank or the Board may deem necessary. The provision 

2 



requiring such reports to be made is mandatory; but they are required to contain only such 
information, as in the judgment of the Federal Reserve Board, shall be necessary to disclose 
fully the relations between such affiliate and such bank and to enable the Board to inform 
itself as to the effect of such relations upou the affairs of such bank. The reports of affiliates 
are to be published by the bank under the same conditions as govern its own condition reports. 
A penalty is prescribed for a failure to obtain and furnish any such report. 

(Substantially the same provisions are contained in Section 27 of the Act with reference 
to reports of affiliates of national banks, except that the reports are made to the Comptroller 
of the Currency instead of the Federal Reserve Board.) 

Dealings in stocks and investment securities by State member banks. 

State member banks shall be subject to the same limitations and conditions as are national 
banks with respect to the purchase, sale, underwriting and holding of investment securities 
and stock. 

(The provisions on this subject regarding national banks are in Section 16 of the Act.) 

Divorce of stock of State member bank from stock of other corporations. 

After one year from the passage of the Act, no certificate of stock of a State member bank 
shall represent the stock of any other corporation, except a member bank or a corporation 
existing when the provision takes effect engaged solely in holding the bank premises of such 
State member bank ; nor shall the ownership or transfer of the stock certificate of such a bank 
be conditioned upon the ownership or transfer of a certificate of stock of another corporation 
except a member bank. 

(Similiar provisions on this subject applicable to the stock of national banks are found in 
Section 18 of the Act.) 

Right of an affiliate of a State member bank to vote stock held by it in such bank. 

Each State member bank affiliated with a holding company affiliate is required to obtain 
from such affiliate, within a period prescribed by the Board, an agreement that the affiliate 
will be subject to the same conditions and limitations with respect to voting stock in the bank 
as are applicable in the case of holding company affiliates of national banks (under Section 
19 of the Act) ; and for failure so to do the membership of the State bank in the Federal Re- 
serve System may be forfeited. If the Board revokes the voting permit (required by Section 
19) of any holding company affiliate, the membership of any State member bank affiliated with 
it may be forfeited. 

Examination of the affiliates of State member banks. 

The Act requires such examinations of affiliates of State member banks to be made in con- 
nection with the examination of such banks as shall be necessary to disclose fully the relations 
between such banks and their affiliates and the effect of such relations ; the expenses of such 
examinations may, in the discretion of the Board, be assessed against the bank examined ; and, 
in the event of the refusal of the affiliate to give information or to permit an examination, or 
in the event of the failure of the bank to pay the cost thereof, the membership of the bank may 
be forfeited. 

(Provisions with reference to examinations of affiliates of national banks are contained in 
Section 28 of the Act.) 

SECTION 6(a) 
Terms of Federal Reserve Board Members. 

Section 10 of the Federal Reserve Act is amended so that, upon the expiration of the term 
of any appointive member of the Federal Reserve Board now in office, the term of his successor 
shall be fixed by the President at not more than twelve years in such manner as to provide 
for the expiration of the term of not more than one appointive member in any two-year period, 
and thereafter each appointive member shall hold office for a term of twelve years from the 
expiration of the term of his predecessor. 

Offices of the Federal Reserve Board. 

The provision of existing law that the Secretary of the Treasury may assign offices in the 
Treasury Department for the use of the Board is repealed. 



SECTION 6(b) 
Other provisions regarding the Federal Reserve Board. 

Section 10 of the Federal Reserve Act is also amended so as to provide that the principal 
offices of the Federal Reserve Board shall be in the District of Columbia. At meetings of the 
Board, the Secretary of the Treasury shall preside as Chairman; in his absence, the Governor 
shall preside ; in the absence of both, the Vice Governor ; and in the absence of all three, the 
Board shall elect a member to act as Chairman pro tempore. This section also makes clear 
the right of the Federal Reserve Board to leave its funds on deposit with the Federal reserve 
banks and clarifies the Board's powers with respect to the funds derived from the assessments 
levied on the Federal reserve banks for the purpose of defraying its expenses. It is also pro- 
vided that the certification of a Board member that he is not an officer, director or stockholder 
of any bank is to be filed with the Secretary of the Board instead of with the Secretary of the 
Treasury. 

SECTION 7 

Loans by member banks on stock or bond collateral. 

Section 11 (m) of the Federal Reserve Act is amended to provide that, upon the affirma- 
tive vote of six members, the Federal Reserve Board may fix the percentage of individual 
bank capital and surplus in each Federal Reserve District which may be represented by loans 
secured by stock or bond collateral made by member banks in such district. No such loan shall 
be made by a member bank to any person in an amount in excess of 10 per cent of its unim- 
paired capital and surplus. Such percentages, which may be changed from time to time upon 
ten days' notice, are to be fixed with a view of preventing the undue use of bank loans for 
the speculative carrying of securities. The Board may direct any member bank to refrain 
from increasing such loans, for one year or less, under penalty of suspension of rediscount 
privileges. 

SECTION 8 
Federal Open Market Committee. 

A new section, known as Section 12A, is added to the Federal Reserve Act creating a 
Federal Open Market Committee consisting of twelve members, one being appointed by each 
Federal reserve bank. Their meetings, held at least four times a year, may be attended by 
the members of the Federal Reserve Board. 

No Federal reserve bank may engage in open market operations except in accordance with 
regulations of the Federal Reserve Board, which shall be transmitted to the committee and to 
the Federal reserve banks. 

Open market operations shall be governed with a view to accommodating commerce and 
business and with regard to their bearing on the general credit situation. 

If a Federal reserve bank shall decide not to participate in open market operations, it 
shall notify the committee and the Board. 

Federal Deposit Insurance Corporation. 

Section 8 also adds a new section to the Federal Reserve Act known as Section 12B, 
creating a Federal Deposit Insurance Corporation and providing for the insurance of deposits 
in member banks of the Federal Reserve System and also in nonmember banks under certain 
conditions. The provisions of this section are extensive and the following paragraphs contain 
a brief summary of only the more important provisions of the section. Provision is made for 
temporary insurance of deposits and also for permanent insurance; and, for purposes of 
convenience, the temporary insurance provisions will be first summarized although the perma- 
nent provisions are given first in the Act. 

Temporary Insurance provisions. 

The Federal Deposit Insurance Corporation is required to open on its books a Temporary 
Fund for insuring deposits from January 1, 1934, (unless the President fixes an earlier date) 
until July 1, 1934. The benefits of such temporary insurance are extended to member banks 
licensed to open by the Secretary of the Treasury and to nonmember banks upon certification 

4 



that they are solvent by the State banking authorities and npon examination and approval by 
the Corporation. 

Deposits are insured in the amount of $2,500 of the net claim of any depositor, and when 
a bank (member of the fund) is closed, deposits in this amount are paid in accordance with 
the procedure established under the permanent insurance provisions of the Act. 

Each bank participating in the fund is required to pay to the corporation one half of 
one per cent of the amount of its deposits eligible for insurance. One half of this amount must 
be paid at the time of admission to the fund and the remainder is subject to call. One addi- 
tional assessment, not exceeding the amount theretofore paid to the Corporation, may be made 
against the members of the fund. The Corporation is to refund to participating banks any 
balance remaining on July 1, 1934, after providing for all liabilities of the fund. 

Permanent plan for insurance of deposits. 

This plan becomes effective July 1, 1934, unless the President fixes an earlier date, and 
applies to the deposits of all member banks as to which the Federal Reserve Board or the 
Comptroller of the Currency shall certify as hereinafter provided, and until July 1, 1936, to 
deposits of nonmember banks which are members of the temporary insurance fund. After the 
latter date, the insurance benefits apply only to member banks of the Federal Reserve System. 

Management. 

The management of the Corporation consists of a board of directors of three members: 
The Comptroller of the Currency and two members appointed by the President with the 
advice and consent of the Senate. One of the appointive members shall be chairman and not 
more than two members may be from the same political party. The appointive members hold 
office for a term of six years and receive a salary of $10,000 per annum payable out of the 
funds of the corporation. 

Capital stock. 

An appropriation of $150,000,000 from the Federal Treasury is authorized for subscrip- 
tion to the stock of the Corporation on behalf of the United States. Payment on such stock 
is subject to call by the board of directors. Such stock is to receive dividends to the same 
extent as stock held by member and nonmember banks. 

Class A stock is to be held by member banks and nonmember banks and is entitled to 
payment of cumulative dividends at the rate of 6 per cent per annum or to the extent of 30 
per cent of annual net earnings, whichever may bo greater. Class B stock is held by Federal 
reserve banks and is not entitled to dividends. 

Each Federal reserve bank shall subscribe to Class B stock in an amount equal to one- 
half of its surplus on January 1, 1933, and shall pay in one-half of such subscription, the 
remainder to be subject to call. 

Every member bank is required to subscribe to Class A stock in an amount equal to one- 
half of one per cent of its total deposit liabilities except that the stock subscription of a mem- 
ber bank hereafter organized shall for the first year of its existence be in an amount equal to 
5 per cent of its paid-up capital and surplus. One-half of the subscription must be paid in 
and the remainder is subject to call. 

Provision is made for the adjustment of Class A stock from time to time in the case of 
increases or decreases in the deposit liabilities of member banks and in the case of insolvency 
or termination of membership of the member bank. 

Whenever the net debit balance of the deposit insurance account of the Corporation shall 
equal or exceed one-fourth of one per cent of the total deposit liabilities of all Class A stock- 
holders, the Corporation shall levy an additional assessment upon them equal to one-fourth 
of one per cent of such liabilities. 

What Banks may obtain benefit of Insurance Plan. 

Unless the Federal Reserve Board, in the case of a State member bank, and the Comp- 
troller of the Currency, in the case of a national bank, shall certify on the basis of an exam- 
ination thereof that the assets of such bank are adequate to enable it to meet all of its liabilities 

s 



to depositors and other creditors, it may not become a member of the corporation. 

A national bank, which shall not become a member by July 1, 1934, shall be placed in 
receivership or conservatorship, and a State member bank, which shall not have done so by 
July 1, 1934, shall be expelled from the Federal Reserve System. 

In addition to member banks, nonmember banks which are members of the temporary 
insurance fund may, until July 1, 1936, be Class A stockholders in the corporation and be 
entitled to the benefits of the permanent insurance plan. 

Banks applying for Membership in the Federal Reserve System. 

Provision is made for State banks after July 1, 1936, to obtain the benefits of the insur- 
ance plan while their applications for membership in the Federal Reserve System or for con- 
version into national banks are pending. 

Banks which are not authorized to subscribe to Class A stock. 

Provision is also made for deposits with the Corporation by banks (in lieu of payments 
on capital stock), in cases where they are not authorized to subscribe to the stock of such Cor- 
poration, for a temporary period until the State law can be amended. 

Time and Amount of Insurance of Deposits. 

Effective on and after July 1, 1934, the Corporation shall insure the deposits of all member 
banks, and until July 1, 1936, of all nonmember banks, which are Class A stockholders in the 
following amounts : 100 per cent of the liability to a depositor not exceeding $10,000 ; 75 per cent 
of the amount of such liability in excess of $10,000 but not in excess of $50,000; and 50 per cent 
of the amount in excess of $50,000. 

Deposits payable only at an office of a bank located in a foreign country are not to be 
insured and are not to be counted in computing the total deposit liabilities of a bank as a basis 
for determining the amount of Class A stock to which it must subscribe. 

Manner of Operation of the Insurance Fund — National Banks. 

When a national bank is closed, the Corporation shall be appointed receiver therefor and 
shall organize a new national bank to assume the insured deposit liabilities of the closed bank 
and to receive new deposits. The Corporation shall make available to the new bank the amount 
of the insured deposit liabilities of the closed bank, and the new bank shall then assume such 
liabilities to depositors and the Corporation shall be subrogated to the rights of such deposi- 
tors against the closed bank. 

The Corporation shall then proceed to wind up the affairs of the closed bank, collect its 
assets and enforce the liability of the stockholders and directors. 

The new bank is to be organized without capital stock and managed by the Corporation. 
It is not to transact banking business unless and until it shall have capital stock (sufficient in 
the judgment of the Corporation) subscribed and paid in on the same terms and in the same 
manner as provided for the organization of other national banks. If sufficient capital stock is 
not thus paid in or if the business of the new bank is not sold by the Corporation to another 
bank in the community, it shall, after two years from its organization, be liquidated. 

Manner of Operation of Insurance Funds — State Banks. 

When a State member or nonmember bank is closed, the Corporation may accept appoint- 
ment as receiver thereof if such appointment is authorized by State law, and in any case shall 
organize a new national bank to assume the insured deposit liabilities of the closed bank. 
Upon satisfactory recognition of the right of the Corporation to receive dividends on the same 
basis as in the case of a closed national bank either by State law, by allowance of claims by 
State authority, by assignment of claims by depositors, or by other effective method, the Cor- 
poration shall make available to the new national bank the amount of insured deposit liabilities 
of the closed bank. In so far as consistent with State law, the plan is then to proceed as pro- 
vided with respect to closed national banks. 

Loans to Closed Banks. 

The Corporation may also make loans to closed national or State member banks of the 

6 



Federal Eeserve System (and probably also to nonmembers which are members of the Cor- 
poration) and may enter into negotiations to secure the reopening of such banks; and receivers 
or liquidators of member banks are authorized, upon receiving permission from the appro- 
priate supervisory authorities to sell the assets of such banks to the Corporation or to obtain 
loans from the Corporation upon such assets. 

Issue of Debentures by Corporation. 

The Corporation may issue and have outstanding at any one time debentures or other 
such obligations aggregating not more than three times the amount of its capital, and may sell 
short term obligations on a discount basis. Such obligations shall be exempt from all taxation, 
except estate and inheritance taxes; and the Corporation shall be exempt from all taxation 
except real estate taxes. 

Investment of Funds of Corporation. 

Moneys of the Corporation not otherwise employed shall be invested in Government 
securities, except that for temporary periods they may be deposited in a Federal reserve bank 
or with the Treasurer of the United States. 

Depositary of Public Moneys. 

When so designated by the Secretary of the Treasury, the Corporation shall be a deposi- 
tary of public moneys and may be employed as a financial agent of the Government. 

No discrimination against nonmember banks. 

The Act declares that it is the purpose to provide all banks with the same opportunity to 
obtain and enjoy the insurance benefits of the Act, and it is not the purpose to discriminate in 
any manner against nonmember banks and in favor of national or State member banks. 

Criminal Provisions. 

There are a number of provisions providing punishment, by fine or imprisonment, for 
making false statements to influence the action of the Corporation, for counterfeiting obli- 
gations of the Corporation, for embezzling the Corporation's funds, for making false entries 
in reports of or to the Corporation, or for using the words "Federal Bank Deposit Insurance 
Corporation" or a combination of any three of them in a firm name, for falsely advertising 
that deposit liabilities are insured, and for doing other similar acts. 

SECTION 9 
Loans on Member Banks' Collateral Notes. 

Section 13 of the Federal Reserve Act is amended so as to increase the maximum maturity 
of advances to member banks on their promissory notes secured by paper eligible for redis- 
count or for purchase by Federal reserve banks from 15 to 90 days. 

The maximum maturity of 15 days on advances on member banks' notes secured by Gov- 
ernment bonds or obligations of Federal intermediate credit banks is not changed. (Bonds 
of Federal Land Banks are made eligible as security for such notes by the Act of May 12, 
1933, but under this Act would not be eligible.) 

If a member bank, while indebted to a Federal reserve bank, on such a 15 day or 90 day 
collateral note and despite a warning of the Federal reserve bank or the Federal Reserve 
Board, increases its outstanding collateral loans or loans to securities dealers for the purpose 
of purchasing or carrying stocks or investment securities (except obligations of the United 
States), its note shall be immediately due and payable and the member bank shall be ineligible 
to borrow on such a 15 day or 90 day note for a period determined by the Board. (A tem- 
porary carrying or clearance loan made solely for the purpose of facilitating the purchase or 
delivery of securities offered for public subscription is not included in the amount of such loans 
of a member bank.) 

SECTION 10 
Foreign transactions of Federal reserve banks. 

Section 14 of the Federal Reserve Act is amended to provide that all relationships and 

7 



transactions by Federal reserve hanks with foreign hankers shall he subject to special super- 
vision and regulation by the Federal Reserve Board; that negotiations with foreign hankers 
shall not be conducted without the permission of the Board; that the Board may be repre- 
sented in any such negotiations ; and that a full report of all such negotiations shall be made 
to the Board in writing. 

SECTION 11(a) 

Member banks as mediums in making loans on collateral. 

Section 19 of the Federal Reserve Act is amended so as to forbid a member bank to act as 
the medium or agent of any nonbanking corporation, partnership or individual in making loans 
on the security of stocks, bonds and other investment securities to brokers or dealers in such 
securities, and a fine is provided for violation. 

SECTION 11(b) 
Interest on deposits of member banks. 

Section 19 of the Federal Reserve Act is amended so as to provide that no member bank 
shall pay interest on any demand deposit, except in accordance with existing contracts ; but 
this provision does not apply to a deposit which is payable only at an office of the bank located 
in a foreign country and does not apply to a deposit made by a mutual savings bank nor to a 
deposit of public funds made by any State, county, municipality or school district or other sub- 
division, with respect to which payment of interest is required under State law. 

The Federal Reserve Board may regulate the amount of interest to be paid on time 
deposits. 

No member bank shall pay any time deposit before its maturity, or waive a requirement of 
notice before payment of a savings deposit except when such requirement is waived as to all 
savings deposits subject thereto. 

SECTION 11(c) 
Withdrawal of Postal Savings Deposits. 

The Act of June 25, 1910, providing for postal savings deposits, is amended to provide 
that any such deposits may be withdrawn with accrued interest only on 60 days notice. How- 
ever, such funds may be withdrawn on demand if no interest is paid which accrues after the 
date of enactment of the Act. Postal savings depositories may make time deposits in member 
banks under regulations prescribed by the Postmaster General. 

SECTION 11(d) 
Security for Deposits of Postal Savings Funds. 

The Postal Savings Act of June 25, 1910, is amended to provide that no security shall be 
required for deposits of postal savings funds in banks or trust companies as to such part of 
such deposits as are insured under the provisions contained in this Act for insurance of bank 
deposits. 

SECTION 12 
Loans by Member Banks to Executive Officers. 

Section 22 of the Federal Reserve Act is amended so as to forbid a member bank to loan 
to its executive officers and to forbid them to borrow from the bank ; but loans of this kind 
heretofore made may be renewed or extended not more than two years from the date this pro- 
vision takes effect. An executive officer of a bank who borrows from any other bank is also 
required to make a written report thereof to the chairman of the board of directors of his 
bank. Violation of this provision is made a crime, subject to fine or imprisonment. 

SECTION 13 
Loans to or investments in stock of affiliates. 

A new section 23A is added to the Federal Reserve Act which provides that no member 
bank shall make any loan or extension of credit, to, or purchase securities under repurchase 

8 



agreements from, any of its affiliates, or invest in the stock or obligations of such affiliates, or 
accept such stock or obligations as security for advances, if the aggregate amount thereof, in 
the case of any one affiliate, will exceed ten per cent of the capital stock and surplus of the 
member bank, or if, in the case of all such affiliates, the aggregate amount thereof will exceed 
twenty per cent of the capital stock and surplus of such member bank. Each loan or extension 
of credit to an affiliate shall be secured by collateral, in the form of stocks, bonds, debentures 
or other such obligations, having a market value of at least twenty per cent more than the 
amount of the loan or extension of credit or at least ten per cent more than the amount thereof 
if secured by State or municipal obligations. Loans or extensions of credit secured by obliga- 
tions of the United States, Federal intermediate credit banks, Federal land banks, Federal 
Home Loan Banks, the Home Owners' Loan Corporation or paper eligible for rediscount by 
Federal reserve banks are excepted from the requirement as to marginal collateral. The provi- 
sions of this section do not apply to an affiliate engaged solely in holding the bank premises of 
the affiliated member bank or conducting a safe-deposit business or the business of an agricul- 
tural credit corporation or live stock loan company, or to an affiliate in the capital stock of 
which a national bank is authorized to invest under Section 25 of the Federal Reserve Act, or 
an affiliate organized under Section 25(a) of the Federal Reserve Act, or to an affiliate engaged 
solely in holding obligations of the United States Government, Federal Intermediate credit 
banks, Federal land banks, Federal Home Loan Banks or the Home Owners' Loan Corporation. 

SECTION 14 
Limitation on Investments in Bank Premises. 

A new section, 24(a), is added to the Federal Reserve Act which provides that no national 
bank, without the approval of the Comptroller of the Currency, and no State member bank, 
without the approval of the Board, shall invest in bank premises, or in stock or obligations of, 
or make loans to or upon the security of the stock of, any corporation holding its. bank 
premises, in an aggregate sum exceeding the amount of the bank's capital stock. 

SECTION 15 

Jurisdiction of Federal Courts over cases involving foreign banking transactions. 

A new section 25(b), is added to the Federal Reserve Act which confers upon District 
Courts of the United States jurisdiction over any case to which a corporation (organized) 
under the laws of the United States is a party and which arises out of transactions involving 
international or foreign banking, either directly or through the agency, ownership or control 
of branches or of local institutions in foreign countries. 

Jurisdiction of suits by or against Federal reserve banks. 

The new Section 25(b) restores to the District Courts of the United States jurisdiction of 
all suits to which a Federal reserve bank shall be a party and provides that Federal reserve 
banks shall not be subject to attachment or garnishment proceedings before final judgment in 
any case. 

SECTION 16 
Dealings in investment securities. 

The Act provides in effect that after one year after the passage of the Act : 

Dealings in investment securities by a member bank are limited to the purchase 
and sale of such securities, without recourse, solely upon the order and for the account 
of customers, except that a member bank may purchase for its own account invest- 
ment securities under limitations and restrictions prescribed by regulation of the 
Comptroller of the Currency. 

No member bank shall underwrite any issue of securities. 

The total amount of any one issue of investment securities of any one obligor pur- 
chased after this section takes effect and held by a member bank for its own account 
shall not exceed 10 per cent of the total amount of such issue outstanding, but this limi- 
tation does not apply to any issue not in excess of $100,000 and not in excess of 50 per 
cent of the capital of the bank. 

9 



The total amount of investment securities of any one obligor purchased after this 
section takes effect and held by a member bank for its own account shall not exceed 15 
per cent of the paid-up unimpaired capital of the bank and 25 per cent of its unim- 
paired surplus. 

No member bank may purchase the stock of any corporation, except as otherwise 
permitted by law, and except that a bank may invest not more than 15 per cent of its 
unimpaired capital and surplus in the stock of safe deposit companies. 

These limitations and restrictions do not apply to obligations of the United 
States, to general obligations of any State or subdivisions thereof, to obligations 
issued under the authority of the Federal Farm Loan Act or issued by the Federal 
Home Loan Banks or the Home Owners' Loan Corporation. 

The definition of investment securities contained in existing law has been re- 
stored in effect in the Act. 

SECTION 17(a) 
Capital requirements of national banks. 

Section 5138 of the Eevised Statutes is amended so as to repeal the provision which now 
authorizes national banks to be organized with a capital of $25,000 in a place the population 
of which does not exceed 3,000 inhabitants. The minimum capital of a national bank would, 
therefore, be $50,000 in a place of not more than 6,000 inhabitants. 

SECTION 17(b) 
Capital Requirements of State Member Banks. 

Section 9 of the Federal Reserve Act is amended so as to eliminate the provision of exist- 
ing law under which a State bank is permitted to become a member of the Federal Reserve 
System with a capital equal to only 60 per cent of the amount required for the organization 
of a national bank in the place in which it is situated. The capital of State member banks here- 
after admitted to the System, therefore, would be required in all cases to be equal to that 
required of national banks located in places of like size. The Act contains a proviso, however, 
which would permit a State Bank, now organized with a capital of not less than $25,000 and 
located in a place of not more than 3,000 inhabitants, to become a member of the System, and 
also a State bank, which is located in such a place and increases its capital to $25,000 while 
entitled to the insurance benefits of the Act, to become a member. 

SECTION 18 
Divorce of stock of national banks from stock of other corporations. 

Section 5139 of the Revised Statutes is amended so as to provide that, after one year from 
the passage of the Act, no certificate of stock of a national bank shall represent the stock of 
any other corporation, except a member bank or a corporation existing when the provision 
takes effect engaged solely in holding the bank premises of such national bank; nor shall 
ownership or transfer of a stock certificate of the national bank be conditioned upon the owner- 
ship or transfer of a stock certificate of another corporation except a member bank. 

(Similar provisions regarding certificates of stock of State member banks are included in 
section 5(c) of the Act.) 

SECTION 19 
Cumulative Voting for Directors of National Banks. 

Section 5144 of the Revised Statutes is amended so as to provide for cumulative voting by 
shareholders in elections of directors of national banks. That is, each shareholder may, if he 
desires, give one candidate as many votes as equals the number of directors to be elected 
multiplied by the number of his shares of stock or may distribute his votes on the same prin- 
ciple among as many candidates as he wishes. 

Voting rights of stock in a national bank held by it as trustee. 

Shares of its own stock held by a national bank as sole trustee may not be voted. 

10 



Shares of its own stock held by a national bank and other persons as trustees may be voted 
by such other persons as if they were sole trustees. 

Regulation of Holding Companies. 

The provisions of the Act on this subject are set forth in brief form in the following 
paragraphs : 

Shares of a national bank controlled by a holding company affiliate shall not be voted 
unless such affiliate shall have obtained a voting permit from the Federal Reserve Board ; and 
in acting upon an application for such permit, the Board shall consider the financial condition 
of the applicant, the general character of its management and the probable effect of the grant- 
ing of the permit upon the affairs of such bank. No permit shall be granted except upon the 
following conditions : 

(a) Each such holding company affiliate shall agree: to submit to examinations, at its own 
expense, disclosing fully the relationship between such affiliate and such bank; that such 
examinations may be made of each bank owned or controlled by the affiliate; and that publi- 
cation of statements of condition of such banks may be required. 

(b) After five years after the passage of the Act, every such holding company affiliate 
shall possess unpledged readily marketable assets other than bank stock in an amount not less 
than 12% of the par value of all bank stocks controlled by such affiliate, which amount shall be 
increased by not less than 2% annually up to 25% thereof and by re-investing in such readily 
marketable assets net earnings in excess of 6% annually until such 25% requirement is reached. 

(c) However, after five years after the passage of the Act, where the shareholders of the 
affiliate are themselves liable under the double liability provisions on the bank stock held by 
the affiliate, the latter shall be required only to establish, out of its net earnings in excess of 
6%, a reserve of readily marketable assets equal to 12% of the par value of banks stocks con- 
trolled by it, and readily marketable assets required of such affiliate may be used for replace- 
ment of capital in, or losses incurred by, banks affiliated with it ; but any deficiency so incurred 
shall be made up within such period as the Federal Reserve Board may prescribe. 

(d) That officers, directors, agents and employees of such a holding company affiliate shall 
be subject to the same penalties for false entries as officers and employees of member banks are 
subject to under Section 5209 of the Revised Statutes. 

(e) That every such holding company affiliate shall show that it does not have any interest 
in and is not participating in the management of any securities company and that it will not 
acquire such an interest or participation ; that, if it has such an interest or participation it will, 
within five years, divest itself thereof; and that it will declare dividends only out of actual net 
earnings. 

If any holding company affiliate violates any of the provisions of this act, the Federal 
Reserve Board may revoke its voting permit after notice, and thereafter no national bank 
whose stock is controlled by such affiliate shall receive Government deposits or pay any divi- 
dend to such affiliate. 

Where such a voting permit of an affiliate has been revoked, the franchise of any national 
bank controlled by such an affiliate shall, in the discretion of the Federal Reserve Board, be 
subject to forfeiture. 

SECTION 20 

Relationships between member banks and securities dealers. 

The Act provides that after one year from the date of enactment of the Act no member 
bank shall be affiliated with a securities corporation in the manner described in Section 2(b) 
of the present Act (where the word "affiliate" is defined so as not to include holding company 
affiliates). A violation of this provision subjects the member bank to a penalty of $1,000 a day, 
in the discretion of the Federal Reserve Board, and if the violation is continued for six months 
after warning from the Board, the bank's franchise may be forfeited, if a national bank, or its 
membership in the Federal Reserve System may be forfeited, if a State Bank. 

ll 



SECTION 21 
Receipt of deposits by securities companies and other non-banking institutions. 
It is made unlawful, after a period of one year : 

(1) For any person, corporation or other organization engaged in the issue, underwrit- 
ing or selling of securities to receive deposits subject to check or to repayment upon presen- 
tation of a pass book or certificate. 

(2) For any person, corporation or organization, other than a financial institution or 
private banker subject to examination and regulation under State or Federal law, to receive 
deposits subject to check or to repayment upon presentation of a pass book or certificate, 
unless such person, corporation or organization shall submit to periodic examination by the 
Comptroller of the Currency or Federal reserve bank and shall make periodic reports of 
condition in the same manner and at the same time as is required of national banks. 

A violation of the above provisions is punishable by fine or imprisonment or both, and 
officers, directors, employees or agents knowingly participating in such a violation are subject 
to like penalties. 

SECTION 22 
Liability of Shareholders of National Banks. 

The additional liability imposed upon shareholders of national banks (generally known 
as double liability) is eliminated with respect to shares of national banks issued after the 
date of the enactment of this Act. 

SECTION 23 
Branches of National Banks. 

Section 5155 of the Revised Statutes, is amended to provide that, with the approval of 
the Comptroller of the Currency, a national bank may establish branches at any point within 
the State in which it is located, if the State law, specifically and not by implication, author- 
izes State banks to do so. 

The aggregate capital of a national bank and its branches must equal the aggregate 
minimum capital required for the establishment of an equal number of national banks in the 
respective localities. 

In order to establish an out of town branch, a national bank must have a paid-in and 
unimpaired capital stock of at least $500,000, except that, in States with a population of less 
than 1,000,000 and with no cities of more than 100,000 population, the capital in such case 
shall be not less than $250,000, and in states with a population of less than 500,000 with no 
cities exceeding 50,000 population, the capital shall be not less than $100,000. 

(These provisions are also applicable to branches of State member banks. See Section 5(b). 

SECTION 24(a) 
Consolidations of national banks with other banks in same State. 

The provisions of the Act of November 7, 1918, as amended, providing for the consoli- 
dation of two or more national banks or for the consolidation of State banks with national 
banks are amended by this section so as to permit such consolidations to take place between 
banks located anywhere in the same State. 

SECTION 24(b) 
Transfer of trust business upon consolidation. 

The Act of November 7, 1918, as amended, providing for the consolidation of national 
banking associations and of State banks with national banking associations, is amended to pro- 
vide that the corporate existence of each constituent bank shall be merged into and continued 
in the consolidated national bank, and all trust business, including appointments, designations 
and nominations as trustees or other fiduciary, shall be transferred to the consolidated institu- 
tion without any order or other action of the part of any court or otherwise. The consolidated 

12 



national bank, however, is subject to removal by a proper court, to the same extent as was the 
constituent corporation, but the right of removal shall not be exercised so as to discriminate 
against national banks. 

SECTION 25 

Rate of interest on loans. 

Section 5197 of the Revised Statutes is amended so that national banks could charge on 
loans and discounts, (1) the rate of interest allowed by the State law (or 7% where the State 
law fixes no limit), or (2) a rate of 1% in excess of the Federal reserve bank discount rate, 
whichever may be the greater. 

SECTION 



,» 






D 













Limitations on loans to affiliated corporations. 

The Act amends the first paragraph of Section 5200 of the Revised Statutes to provide 
that in computing the amount which a corporation can borrow from a national bank, the cor- 
poration and all of its subsidiaries in which such corporation owns or controls a majority 
interest would be treated as a single borrower; (but this would not apply to existing obliga- 
tions of such a subsidiary to a bank). 

SECTION 27 
Reports of affiliates of national banks. 

This section amends Section 5211 of the Revised Statutes so as to provide that a national 
bank shall obtain from each of its affiliates, other than member banks, and furnish to the 
Comptroller of the Currency not less than three reports each year on the same dates on which 
condition reports are required of the bank and such additional reports as the Comptroller 
may deem necessary. The term "affiliate" includes holding company affiliate. Such reports 
are required to contain such information as in the judgment of the Comptroller shall be neces- 
sary to disclose fully the relations between such affiliate and such bank and as to the effect of 
such relations upon the affairs of such bank, and shall be published by the bank on the same 
conditions as govern its own condition reports. The bank is subject to a penalty for failure to 
render such reports. 

(Substantially the same provisions are contained in Section 5(c) of the Act with reference 
to reports of affiliates of State member banks, except that the reports are to be made to the 
Federal Reserve Board instead of to the Comptroller of the Currency.) 

SECTION 28 
Examinations of affiliates of national banks. 

Section 5240 of the Revised Statutes is amended so as to require that examiners in mak- 
ing the examination of any national bank shall include such an examination of the affairs of 
all of its affiliates, other than member banks, as shall be necessary to disclose fully the rela- 
tions between the bank and its affiliates and the effect thereof; and authorizes the forfeiture 
of the franchise of the bank in the event of the refusal of the affiliate to give information or 
to permit such an examination. 

The Comptroller of the Currency is authorized to publish an examination report of a 
national bank or affiliate after 90 days' notice if the bank or affiliate fails to comply within 120 
days with his recommendations based on such examination. 

The examiner making the examination of the affiliate is authorized to examine officers and 
employees thereof under oath. The expenses of the examination may be assessed by the 
Comptroller against the affiliate and, if not paid by the affiliate, against the national bank. A 
refusal by the affiliate to permit an examination or to give information makes the national 
bank with which it is affiliated subject to penalty of $100 per day. 

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(Somewhat similar provisions with reference to examinations of affiliates of State mem- 
ber banks are contained in Section 5(c) of the Act.) 

The funds derived by the Comptroller of the Currency from assessments on banks for 
expenses of his examiners and other employees may be deposited by him in banks, and his 
powers with respect to the employment and compensation of such examiners and employees 
are broadened. 

SECTION 29 
Resumption of business by closed national banks. 

The Act contains a provision under which, in any case where, in the opinion of the 
Comptroller of the Currency, it would be to the advantage of depositors and unsecured 
creditors of a closed national bank for it to resume business upon the retention for a reason- 
able period, of all or a part of its deposits, the Comptroller may permit such resumption of 
business if 75% in amount of depositors and unsecured creditors consent in writing to such 
retention of deposits. It is provided that this section shall not affect any powers which the 
Comptroller now has with respect to the reorganization of national banks. 

SECTION 30 
Removal of bank directors or officers from office. 

This section provides a procedure for the removal of a director or officer of a member 
bank who has continued to violate the law or has continued unsafe or unsound practices in 
conducting the business of the bank with which he is connected, after being warned by the 
Comptroller of the Currency (as to a national bank) or the Federal Reserve Agent of his 
district (as to a State member bank) to discontinue such violations or such practices. After 
a hearing by the Federal Reserve Board establishing such facts, the Board may order the 
removal of such director or officer and a copy of such order shall be served upon him and 
upon the bank with which he is connected. Such order and findings of fact may not be made 
public or disclosed except to such director or officer and the directors of his bank, "otherwise 
than in connection with proceedings for a violation of this section". Participation by such 
officer or director in the management of such bank after having been removed is punishable 
by fine or imprisonment. 

SECTION 31 

. 

Board of directors of National and State member banks. 

After one year, the board of directors of every national bank and State member bank shall 
consist of not less than five and not more than twenty-five members and each director shall 
own stock having a par value of not less than $2500. If, however, the capital of the bank does 
not exceed $50,000, a director is required to own stock having a par value of only $1500, and if 
the capital does not exceed $25,000 he is required to own stock having a par value of only 
$1,000. The Comptroller of the Currency may appoint a receiver or conservator for a national 
bank which continues to violate this provision after 30 days notice from the Comptroller, and 
the Federal Reserve Board may forfeit the membership of a State member bank which con- 
tinues to violate the provision after 30 days notice from the Board. 

SECTION 32 

Relations of Member Banks ivith Securities Companies. 

After January 1, 1934, no officer or director of a member bank shall be an officer, director 
or manager of an organization engaged primarily in the securities business and correspondent 
relationships between member banks and securities organizations are prohibited, except when 
authorized by a permit therefor issued by the Federal Reserve Board. The Board may issue 
such a permit if not incompatible with the public interest, and may revoke such permit if the 
public interest requires. 

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SECTION 33 
Amendment to the Clayton Antitrust Act. 

The Clayton Antitrust Act is amended by adding a new section, Section 8A, to provide that 
after January 1, 1934, no officer, director or employee of any bank organized or operating 
under the laws of the United States may be an officer, director or employee of a corporation 
(other than a mutual savings bank) or member of a partnership which makes loans on stocks 
or bonds except to its own subsidiaries. 

SECTION 34 

Savings Clause and reservation of right to amend. 

Section 34 contains the usual provisions reserving the right to alter, amend or repeal the 
act and limiting decisions holding parts of the act to be invalid, to the specific sections dealt 
with in such decisions. 



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