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Full text of "The Federal reserve act of 1913; history and digest"

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THE 

FEDERAL RESERVE ACT 

OF 1913 



HISTORY AND DIGfiST 

by 
V. GILMORE IDEN 



PUBLISHED BY 



THE NATIONAL BANK NEWS?./ '%. 



PHILADELPHIA 



^■'AV'' '.;•• 



f/67 

6IS(o3 

x/1 



Copyright, 1914 

by 
Corneliui Bakar 



History of Federal Reserve Act 



History 

Q In MONDAY, October 21, 1907, the Na- 
iQjgll tional Bank of Commerce of New York 
City announced its refusal to clear for the 
Knickerbocker Trust Company of the same 
city. The trust company had deposits amounting 
to $62,000,000. The next day, following a run of 
three hours, the Knickerbocker Trust Company 
paid out $8,000,000 and then suspended. 

One immediate result was that banks, acting 
independently, held on tight to the cash they had in 
their vaults, and money went to a premium. Ac- 
cording to the experts who investigated the situation, 
this panic was purely a bankers' panic and due 
entirely to our system of banking, which bases the 
protection of the financial solidity of the country 
upon the individual reserves of banks. In the case 
of a stress, such as in 1907, the banks fail to act as ^ 
a whole, their first consideration being the protec- 
tion of their own reserves. 

PAGE s 



History of Federal Reserve Act 



The conditions surrounding previous panics 
were entirely different. In 1873 the currency was 
inconvertible and depreciated, and the banks could 
not increase their available cash reserve by the 
acquisition of gold. About twenty years later silver 
purchases weakened the monetary structure and 
caused distrust of American securities at home and 
abroad. The panic of 1907 was not preceded by 
any legislative disturbances or monetary unsound- 
ness. 

^ This panic was preceded by a season of great- 
est prosperity. It was followed by a widespread 
demand for currency reform. What economic stu- 
dents had been urging for a long time at last, as 
a result of this panic, culminated in the appoint- 
ment of a National Monetary Commission by Con- 
gress'' and ultimately in the Federal Reserve Act of 
1913. A study of monetary conditions was author- 
ized by a Republican administration, and remedial 
legislation was enacted by a Democratic adminis- 
tration. 

PAGE 6 



History of Federal Reserve Act 



The immediate result of this panic was tlie 
^enactment of a temporary measure known as the . 
>?? Aldrich-Vreeland emergency currency act, which ' 
was to expire by limitation on June 30, 1914. This • 
act permitted the incorporation of national banks 
into associations similar to clearing houses and the 
issuance of "emergency" currency in times of stress 
upon certain securities approved by the authority 
of these associations and the government, which se- 
curities could be other than government bonds. 

It was some time before the banks would or- 
ganize under the authority of this act, the claim 
being made that the law would not work. Finally 
the Secretary of the Treasury during the Taft ad- 
ministration persuaded the banks in a number of 
the cities to organize. This, it was believea, was 
merely for the purpose of a pretense, as no one ever 
contemplated that the terms of the temporary act 
would be put into practice, and experience since has 
proven the truth of this prediction. 

PAGE 7 



History of Federal Reserve Act 

The National Monetary Commission was com- 
posed of Nelson W. Aldrich, of Rhode Island, 
chairman; Edward B. Vreeland, of New York, vice 
chairman; Julius C. Burrows, of Michigan; Eugene 
Hale, of Maine; H. M. Teller, of Colorado; H. D. 
Money, of Mississippi; Theodore E. Burton, of 
Ohio; Jas. P. Taliaferro, of Florida; Boise Pen- 
rose, of Pennsylvania; John W. Weeks, of Massa- 
chusetts; Robert W. Bonynge, of Colorado; L. P. 
Padgett, of Tennessee; Geo. F. Burgess, of Texas; 
A. P. Pujo, of Louisiana; Geo. W. Prince, of Illi- 
nois, and Jas. McLachlan, of California. A. Piatt 
Andrew, of Massachusetts, later Assistant Secretary 
of the Treasury during the Taft administration, 
was employed as an assistant to the commission and 
did most of the formulative work of that body. 

The conomission conducted investigations and 
held hearings in this country and abroad. The 
greater part of the energies of the commission, how- 
ever, were expended in collecting an adequate work- 
ing library. Volumes on the various banking sys- 

PAGE8 



History of Federal Reserve Act 



tems of the world were prepared by the leading 
economic students of the countries in question, and 
all were published by the commission. Because of 
the large monetary outlay made in this direction the 
Democrats criticized the commission very severely. 

The National Monetary Commission, upon in- 
vestigation, discovered the principal defects in our 
banking system to be in that: 

"1 : We have no provision for the concentra- 
tion of the cash reserves of the banks and for their 
mobilization and use wherever needed in times of 
trouble. Experience has shown that the scattered 
cash reserves of our banks are inadequate for pur- 
poses of assistance or defense at such times. 

"2. Antiquated Federal and State laws re- 
strict the use of bank reserves and prohibit the lend- 
ing power of banks at times when, in the presence 
of unusual demands, reserves should be freely used 
and credit liberally extended to all deserving cus- 
tOTiers. 

PAGE 9 



History of Federal Reserve Act 



"3. Our banks also lack adequate means 
available for use at any time to replenish their re- 
serves or increase their loaning powers when neces- 
sary to meet normal or unusual demands." 

There were seventeen of these "principal" de- 
fects in all, but this number will suffice to indicate 
the remedy which would naturally be proposed. In 
I company with Dr. Andrew, Senator Aldrich finally 
I drafted a plan to remedy the conditions. It was 
I strictly Senator Aldrich's plan, but the Monetary 
' Commission gave it the stamp of approval. As 
later appearing in the report of the commission, the 
plan was as follows: 

"It is proposed to incorporate the National 
Reserve Association of the United States with an 
authorized capital equal to 20 per cent of the capi- 
tal of all subscribing banks, of which one-half 
shall be paid in and the remainder shall become a 
liability, subject to call * * * *. It is also 
provided that before the reserve association can 
commence business, $100,000,000 of capital must 

PAGE 10 



History of Federal Reserve Act 



be paid in cash. All State banks and trust com- 
panies conforming to the provisions of the bill with 
reference to capitalization and reserves and all Na- 
tional banks are entitled to subscribe for stock and 
to become members of the association. Shares in 
the association are not transferable and can not be 
owned otherwise than by a subscribing bank or in 
any other than the proportion named. 

"It is proposed to group into local associations 
all subscribing banks located in contiguous terri- 
tory. The local associations are to be organized 
into district associations, in each of which shall be 
located a branch of the National Reserve Associa- 
tion; and the district associations, which shall be so 
arranged as to include all the territory of the United 
States, are combined to form the National Reserve 
Association of the United States. 

"One of the principal functions of the local 
associations is to guarantee, upon application, the 
commercial paper of individual banks which may be 
offered to the branches for rediscount * * * *, 

PAGE II 



History of Federal Reserve Act 



The local association may, and in most cases would, 
require from the bank making the application satis- 
factory security for the guarantee. Local associa- 
tions are authorized in serious emergencies to guar- 
antee the direct obligations of subscribing banks 
with adequate security * * * *. a local as- 
sociation may decline to give the guarantees pro- 
vided for under either of these sections. Local as- 
sociations may also, by vote of three-fourths of their 
board of directors and the approval of the National 
Reserve Association, assume and exercise the powers 
and functions of clearing^ houses. They are re- 
quired also to perform such services in facilitating 
domestic exchanges as, in the opinion of the Na- 
tional Reserve Association, the public interests may 
require." 

Speaking elsewhere in the report, the proposed 
association was described as follows : 

"It is not a bank, but a co-operative union of 
all the banks of the country, with very limited and 
clearly defined functions. First, it holds a portion 

PAGE li 



History of Federal Reserve Act 



of the cash reserves of the banks of the United 
States, with the provision for their use only for 
specific purposes; second, it is granted the power to 
issue circulating notes under strict governmental 
regulations; third, through the maintenance of its 
own reserves and the character and extent of its 
resources, it is required to sustain the credit of the 
banks and of the country under all circumstances. 
All of its operations are confined to, or incidental 
to these purposes, the only exception being the trans- 
action of its business as the fiscal agent of the gov- 
ernment of the United States." 

When the Democrats gained control of the 
House of Representatives in the political elections 
of 1910, the offices being filled in 1911, they forced 
the National Monetary Commission to make its re- 
port and wind up its work. In making this report. 
Senator Aldrich outlined a plan for establishing a 
National Reserve Association, with regional insti- 
tutions as indicated above. Immediately the Demo- 
crats attacked this as being typically republican 

PAGE 13 



History of Federal Reserve Act 



and a plan that would tend further to concentrate 
the control of money in Wall Street. Many sub- 
stitute Democratic plans for monetary reform were 
offered by the leaders of the party. 

Beyond occasional discussion of the subject, 
the banking question was not again brought to the 
front until the Democratic platform of 1912 was 
adopted in Baltimore. Concerning banking legis- 
lation, this platform said: 

"We oppose the so-called Aldrich bill, of the 
establishment of a Central Bank, and we believe the 
people of the country will be largely freed from 
panics and consequent unemployment and business 
depression by such a systematic revision of our 
banking laws as will render temporary relief in lo- 
calities where such relief is needed, with protection 
from control or domination by what is known as the 
Money Trust. 

"Banks exist for the accommodation of the 
public and not for the control of business. All 

PAGE 14 



History of Federal Reserve Act 



legislation on the subject of banking and currency 
should have for its purpose the securing of these 
accommodations on terms of absolute security to the 
public and of complete protection from the misuse 
of the power that wealth gives to those who possess 
it. 

"We condemn the present methods of deposit- 
ing Government funds in a few favored banks, 
largely situated in or controlled by Wall Street, in 
return for political favors, and we pledge our party 
to provide by law for their deposit by competitive 
bidding in the banking institutions of the country, 
National or State, without discrimination as to lo- 
cality, upon approved securities, and subject to call 
by the government." 

While Chairman Pujo, of the House Banking 
and Currency Committee, was, with the aid of At- 
torney Samuel Untermyer, of New York, attempting 
to xmearth sensational data relative to the existence 
of a Money Trust, Carter Glass, of Virginia, with 
his sub-committee from the same committee, was 

PAGE 1$ 



History of Federal Reserve Act 

giving serious consideration to real banking legisla- 
tion. Because of the bizarre nature of the Money 
Trust probe, but little was said of the Glass Com- 
mittee, and thereby the country generally heard very 
little about the plans for constructive legislation. 

Mr. Glass called a notable array of witnesses, 
including bankers from the most important financial 
centers and monetary experts. The short session of 
Congress came to an end on March 4, 1913, and the 
extra session was called April 7 of the same year by 
President Wilson to consider tariff revision. 

Members of Congress are not students of 
finance, but rather students of politics. That is 
why it is so difficult for a scholar of finance to 
fathom out the reasons for the interesting fight made 
over the currency bill in the first and second ses- 
sions of the 63rd Congress. For the same reason 
those students of politics who did all the fighting 
were unable to fully understand the financial prob- 
lem which they were supposed to be remedjdng by 
legislation. 

^^^FS T<!^ - - -'-1— ■- - - 

PAGE i6 



History of Federal Reserve Act 



In the spring of 1913 the newspapers began to 
publish reports that Carter Glass, the ranking Dem- 
ocrat on the House Banking and Currency Com- 
mittee, had drafted a currency bill to be proposed to 
the President and Congress. As a matter of fact, 
there was some doubt for a time whether Mr. Glass 
would receive the chairmanship of that committee. 
Finally precedent prevailed and Mr. Glass was 
named chairman. H. Parker Willis, an economic 
student, it was later discovered, had drafted a cur- 
rency bill for Mr. Glass. Dr. Willis was then in the 
employ of Mr. Glass as a monetary expert. The 
bill which the newspapers attributed to Mr. Glass 
was really the bill drafted by Dr. Willis. Follow- 
ing the elections of 1912, Mr. Glass and Dr. Willis 
had frequently gone to Trenton, N. J., for confer- 
ences with President-elect Wilson on this matter. It 
was presumed that they were, consequently, work- 
ing in the interest of the new Democratic executive. 

Only one thing stood in the way. That was 
the tariff legislation, which was a party promise. 



PAGE 17 



History of Federal Reserve Act 

So until this was assured, the President withheld his 
consent to make a fight for currency legislation. 
Consequently it was not until August 29 that the 
currency bill was first introduced. This bill bore 
the name of the Glass-Owen bill, because in its final 
shape it was the result of conferences between Mr. 
Glass, the President, Secretary of the Treasury Mc- 
Adoo, Secretary of State Bryan and Senator Owen, 
chairman of the newly organized Banking and Cur- 
rency Committee of the Senate. 

Inasmuch as the bill was the joint product of 
the leaders of both houses and the recognized re- 
sponsible persons in the Democratic party, it was to 
be expected that it would be easy to get it through 
Congress. Such was not the case, however. Repre- 
sentative Henry, of Texas, organized an insurgent 
move against the bill. Mr. Henry, it was reported, 
had a quarrel with the White House and hoped in 
this manner to square matters. He obtained the 
support of Representative Ragsdale, of South Caro- 
lina, and Representative Wingo, of Arkansas, both 

PAGE i8 



History of Federal Reserve Act 



members of the Banking and Currency Committee 
and both new members in Congress. The Texas 
Congressman based his fight upon the demand for 
so-called "agricultural" currency. He said that, in- 
asmuch as the proposed bill provided for asset cur- 
rency, it should permit a farmer to store his agricul- 
tural products in warehouses and receive loans on 
the warehouse receipts. 

Only the Democratic members of the House 
committee met to consider the bill introduced by Mr. 
Glass, but the first meeting resulted in almost a 
riot. It was impossible to accomplish anything. 
Several meetings were wasted in a fruitless dis- 
cussion of procedure. Finally, as a result of 
pressure from the White House the Democrats 
agreed upon a report on the bill, but the in- 
surgents forced a caucus. As a result of the 
caucus, which lasted over a week, all the Dem- 
ocrats came together, and Mr. Henry retired 
from the field of opposition. The Republican mem- 
bers of the committee were called in and a formal 

PAGE 19 



History of Federal Reserve Act 



vote on the bill was taken. This resulted in a report 
to the House on September 9, vfhere the measure 
was perfunctorily debated and finally adopted on 
September 18 by a vote of 286 to 85. 

The action of the House of Representatives 
was so speedy that the country had hardly had time 
to fully understand the measure that the new Demo- 
cratic administration was forcing upon it. The 
Senate had especially created a new committee, the 
Committee on Banking and Currency, to consider 
this measure, and placed at the head of it Senator 
Robert L. Owen, of Oklahoma. Senator Owen had 
made repeated attempts to call his committee to- 
gether ever since the bill was introduced in the 
House, but without success. The members of the 
Senate committee were opposed to precipitated ac- 
tion. 

In August a hurried call of the American 
Bankers' Association was convened in Chicago and 
a- committee of bankers elected to wait upon Con- 

PAGE 20 



History of Federal Reserve Act 



gress. This committee was given definite instruc- 
tions as to what features of the bill to oppose. The 
bankers were permitted to appear before the Senate 
committee the first of September. 

This again brought forth some criticism from 
the White House and the chairman of the House 
banking committee, Mr. Glass. It was insisted that 
the sole objection of the bankers to the House bill 
was that it contemplated the shifting of bank re- 
serves, and to this only the large banks in the re- 
serve cities were opposed. The President was un- 
willing that the Senate conamittee should delay ac- 
tion long enough to listen to the arguments of the 
bankers, but he failed to obtain his wish as com- 
pletely as he did in the House. 

The opening of hearings before the Senate 
committee brought forth many witnesses who clam- 
ored to be heard. The hearings stretched through 
September and well up into October. The printed 
records of these hearings covered many times the 
number of pages as did the hearings before the 

PAGE n 



History of Federal Reserve Act 



House committee. The hearings were more com- 
plete than the hearings on the House side because the 
witnesses had a definite proposition before them to 
discuss. Before these were completed a second con- 
vention of bankers, more especially for the country 
banks, was held in Boston, at which another delega- 
tion was sent to oppose certain features of the bill 
before the Senate committee. 

The country bankers had many and varied com- 
plaints to make. They opposed anything like a free 
clearing house for checks, they opposed the large 
subscription to stock of the reserve banks by country 
banks and they opposed the establishment of savings 
departments and the segregation of capital. But it 
was not until the concluding days of the hearing that 
the most dramatic moment was witnessed. 

Frank A. Vanderlip, of the National City 
Bank, New York City, reappeared as a witness be- 
fore the committee, and offered a comprehensive 
plan for the establishment of a central reserve bank, 
owned by the public and banks jointly and controlled 

PAGE 22 



History of Federal Reserve Act 



by the government. It was evident that Mr. Van- 
derlip had been requested to take this step 
upon advice of certain members of the Senate com- 
mittee. Later the truth of this assumption was veri- 
fied, when the Republican members of the committee 
reported this plan in modified form to the Senate. 

Hearings were closed in October, and the full 
membership of the Senate committee, both Republi- 
cans and Democrats, went into executive session on 
the bill. In the meantime repeated attempts were 
made to persuade the President to permit Congress 
to adjourn and to take up the currency bill at the 
regular session to meet in December. This the 
President consistently refused to do. As a conse- 
quence the Congress remained technically in session 
without stop, thereby merging the extra session 
called in April with the regular session beginning 
the first Monday in December. 

In the meantime the administration bill was by 
no means having an easy time in committee. Upon 
the fundamentals the administration Senators were 



PAGE 23 



History of Federal Reserve Act 



every time outvoted. Senators O'Gorman, of New 
York; Reed, of Missouri, and Hitchcock, of Ne- 
braska, refused to stand in line with the administra- 
tion's policies. The President called members of 
the committee to the White House and lectured them 
and did everything he could to whip them into line. 
Finally he had his followers in the Senate call a 
Democratic conference on the bill, having the state- 
ment published that the Democrats could not stand 
by any report from the committee which failed to 
receive the support of the majority members. 

Upon the day of the conference it was learned 
that Senators O'Gorman and Reed were back in the 
Democratic ranks, thereby permitting six Demo- 
cratic Senators to come together on a bill. Senator 
Hitchcock still remained recalcitrant. The Demo- 
cratic conference was dismissed without action and 
the six Democratic members of the committee left 
the conmiittee room and began preparing a report 
on the bill in private. This left Senator Hitchcock 
and five Republicans in the committee room, who 

PAGE Z4 



History of Federal Reserve Act 



also began the preparation of a separate report to 
the Senate. On November 20 the two sections of 
the committee came together and agreed to report 
a disagreement to the Senate, transmitting two 
recommendations on the House bill. The report 
was filed with the Senate two days later. 

Immediately plans were drawn for hurried ac- 
tion on the bill. It was desirous that the measure 
be placed on the statute books before the holiday 
recess. A Democratic caucus was called which de- 
cided to hold the Senate in daily sessions from 10 
o'clock in the morning until 1 1 o'clock at night until 
a final vote was had on the bill. Furthermore this 
caucus took up the Democratic draft of the bill, 
revised it slightly, and endorsed it for Democratic 
favor. 

This action practically assured the passage of 
the Democratic measure, but the Republican minor- 
ity in the Senate was able to compel some delay. 
The minority was successful in keeping up the de- 
bate until the week preceding Christmas. This 

PAGE iS 



History of Federal Reserve Act 



was indeed a task as the Democrats indulged in the 
debate but sparingly. Finally a vote was tak^i 
on the evening of December 19, resulting in a vic- 
tory for the Democratic measure by a vote of 54 to 
34, several Republicans voting with the Democrats. 
Plans had been perfected to have but three 
conferees on the bill from either House, but because 
this contemplated eliminating his name Senator 
O'Gorman raised an objection, wherefore the Sen- 
ate appointed nine conferees, six Democrats and 
three Republicans. The House appointed three 
conferees, and the committee began its deliberations 
on the afternoon of December 20. The conference 
report was adopted on December 23, and the bill 
signed by the President on the same day. 

Congress immediately adjourned for a rest. 
This brought to a conclusion possibly the most 
noted session of Congress during the Wilson admin- 
istration, a session which placed on the statute books 
two intensely important measures, a Democratic 
tariff law and the Federal Reserve Act. 



PAGE e6 



The Federal Reserve Act 



The Federal Reserve Act 

Be it enacted by the Senate and House of Represen- 
tatives of the United States of America in Congress as- 
sembled. That the short title of this Act shall be the 
"Federal Reserve Act." 

Wherever the word "bank" is used in this Act, the 
word shall be held to include State bank, banking asso- 
ciation, and trust company, except where national banks 
or Federal reserve banks are specifically referred to. 

The terms "national bank" and "national banking 
association" used in this Act shall be held tx) be synony- 
mous and interchangeable. The term "member bank" 
shall be held to mean any national bank. State bank, or 
bank or trust company which has become a member of 
one of the reserve banks created by this Act. The term 
"board" shall be held to mean Federal Reserve Board; 
the term "district" shall be held to mean Federal reserve 
district; the term "reserve bank" shall be held to mean 
Federal reserve bank. 

Federal Reserve Districts 

Sec. 2. As soon as practicable, the Secretary of the 
Treasury, the Secretary of Agriculture and the Comp- 

PAGB 97 



The Federal Reserve Act 



troUer of the Currency, acting as "The Reserve Bank 
Organization Committee," shall designate not less than 
eight nor more than twelve cities to be known as Federal 
reserve cities, and shall divide the continental United 
States, excluding Alaska, into districts, each district to 
contain only one of such Federal reserve cities. The 
determination of said organization committee shall not 
be subject to review except by the Federal Reserve Board 
when organized : Provided, That the districts shall be 
apportioned with due regard to the convenience and cus- 
tomary course of business and shall not necessarily be 
coterminous with any State or States. The districts 
thus created may be readjusted and new districts may 
from time to time be created by the Federal Reserve 
Board, not to exceed" twelve in all. Such districts shall 
be known as Federal reserve districts and may be desig- 
nated by number. A majority of the organization com- 
mittee shall constitute a quorum with authority to act. 

Said organization committee shall be authorized to 
employ counsel and expert aid, to take testimony, to send 
for persons and papers, to administer oaths, and to make 
such investigation as may be deemed necessary by the 
said committee in determining the reserve districts and in 
designating the cities within such districts where such 
Federal reserve banks shall be severally located. The 

PAGE i8 



The Federal Reserve Act 



said committee shall supervise the organization in each 
of the cities designated of a Federal reserve bank, which 
shall include in its title the name of the city in which 
it is situated, as "Federal Reserve Bank of Chicago." 

Under regulations to be prescribed by the organiza- 
tion committee, every national banking as"ociation in the 
United States is hereby required, and every eligible bank 
in the United States and every trust company within the 
District of Columbia, is hereby authorized to signify in 
writing, within sixty days after the passage of this Act, 
its acceptance of the terms and provisions hereof. When 
the organization committee shall have designated the 
cities in which Federal reserve banks are to be organized, 
and fixed the geographical limits of the Federal reserve 
districts, every national banking association within that 
district shall be required within thirty days after notice 
from the organization committee, to subscribe to the 
capital stock of such Federal reserve bank in a sum equal 
to six per centum of the paid-up capital stock and sur- 
plus of such bank, one-sixth of the subscription to be 
payable on call of the organization committee or of the 
Federal Reserve Board, one-sixth within three months 
and one-sixth within six months thereafter, and the re- 
mainder of the subscription, or any part thereof, shall be 
subject to call when deemed necessary by the Federal 

PAGE 19 



The Federal Reserve Act 



Reserve Board, said payments to be in gold or gold cer- 
tificates. 

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

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

Should any national banking association in the 
United States now organized fail within one year after 
the passage of this Act to become a member bank or fail 
to comply with any of the provisions of this Act applic- 
able thereto, all of the rights, privileges, and franchises 
of such association granted to it under the national-bank 
Act, or under the provisions of this Act, shall be thereby 
forfeited. Any noncompliance with or violation of this 
Act shall, however, be determined and adjudged by any 



PAGE 30 



The Federal Reserve Act 



court of the United States of competent jurisdiction in 
a suit brought for that purpose in the District or Terri- 
tory in which such bank is located, under direction of the 
Federal Reserve Board, by the Comptroller of the Cur- 
rency in his own name before the association shall be 
declared dissolved. In cases of such noncompliance or 
violation, other than the failure to become a member 
bank under the provisions of this Act, every director 
who participated in or assented to the same shall be held 
liable in his personal or individual capacity for all dam- 
ages which said bank, its shareholders, or any other per- 
son shall have sustained in consequence of such violation. 

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

Should the subscriptions by banks to the stock of 
said Federal reserve banks or any one or more of them be, 
in the judgment of the organization committee, insuffi- 
cient to provide the amount of capital required therefor, 
then and in that event the said organization committee 
may, under conditions and regulations to be prescribed 
by it, offer to public subscription at par such an amount 
of stock in said Federal reserve banks, or any one or 



PAGE 31 



The Federal Reserve Act 



more of them, as said committee shall determine, sub- 
ject to the same conditions as to pa3rment and stock lia- 
bility as provided for member banks. 

No individual, copartnership, or corporation other 
than a member bank of its district shall be permitted to 
subscribe for or to hold at any time more than $25,000 
par value of stock in any Federal reserve bank. Such 
stock shall be known as public stock and may be trans- 
ferred on the books of the Federal reserve bank by the 
chairman of the board of directors of such bank. 

Should the total subscriptions by banks and the pub- 
lic to the stock of said Federal reserve banks, or any one 
or more of them, be, in the judgment of the organization 
committee, insufficient to provide the amount of capital 
required therefor, then and in that event the said or- 
ganization committee shall allot to the United States 
such an amount of said stock as said committee shall 
determine. Said United States stock shall be paid for at 
par out of any money in the Treasury not otherwise 
appropriated, and shall be held by the Secretary of the 
Treasury and disposed of for the benefit of the United 
States in such manner, at such times, and at such price, 
not less than par, as the Secretary of the Treasury shall 
determine. 



PAGE 3s 



The Federal Reserve Act 



Stock not held by member banks shall not be en- 
titled to voting power. 

The Federal Reserve Board is hereby empowered 
to adopt and promulgate rules and regulations govern- 
ing the transfers of said stock. 

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

Branch Offices 

Sec. 3. Each Federal reserve bank shall establish 
branch banks within the Federal reserve district in which 
it is located and may do so in the district of any Federal 



PAGE 33 



The Federal Reserve Act 



reserve bank which may have been suspended. Such 
branches shall be operated by a board of directors under 
rules and regulations approved by the Federal Reserve 
Board. Directors of branch banks shall possess the same 
qualifications as directors of the Federal reserve banks. 
Four of said directors shall be selected by the reserve 
bank and three by the Federal Reserve Board, and they 
shall hold office during the pleasure, respectively, of the 
parent bank and the Federal Reserve Board. The re- 
serve bank shall designate one of the directors as man- 
ager. 

Federal Reserve Banks 

Sec. 4. When the organization committee shall 
have established Federal reserve districts as provided in 
section two of this Act, a certificate shall be filed with 
the Comptroller of the Currency showing the geographi- 
cal limits of such districts and the Federal reserve city 
designated in each of such districts. The Comptroller 
of the Currency shall thereupon cause to be forwarded 
to each national bank located in each district, and to such 
other banks declared to be eligible by the organization 
committee which may apply therefor, an application 
blank in form to be approved by the organization com- 
mittee, which blank shall contain a resolution to be 
adopted by the board of directors of each bank executing 

PAGn 34 



The Federal Reserve Act 



such application, authorizing a subscription to the capi- 
tal stock of the Federal reserve bank organizing in that 
district in accordance with the provisions of this Act. 

When the minimum amount of capital stock pre- 
scribed by this Act for the organization of any Federal 
reserve bank shall have been subscribed and allotted, the 
organization committee shall designate any five banks of 
those whose applications have been received, to execute 
a certificate of organization, and thereupon the banks so 
designated shall, under their seals, make an organization 
certificate which shall specifically state the name of such 
Federal reserve bank, the territorial extent of the district 
over which the operations of such Federal reserve bank 
are to be carried on, the city and State in which said 
bank is to be located, the amount of capital stock and the 
number of shares into which the same is divided, the 
name and place of doing business of each bank execut- 
ing such certificate, and of all banks which have sub- 
scribed to the capital stock of such Federal reserve bank 
and the number of shares subscribed by each, and the 
fact that the certificate is made to enable those banks 
executing same, and all banks which have subscribed or 
may thereafter subscribe to the capital stock of such 
Federal reserve bank, to avail themselves of the advant- 
ages of this Act. 

PAGE 35 



The Federal Reserve Act 



The said organization certificate shall be acknowl- 
edged before a judge of some court of record or notary 
public; and shall be, together with the acknowledgment 
thereof, authenticated by the seal of such court, or no- 
tary, transmitted to the Comptroller of the Currency, 
who shall file, record and carefully preserve the same in 
his office. 

Upon the filing of such certificate with the Comp- 
troller of the Currency as aforesaid, the said Federal 
reserve bank shall become a body corporate and as such, 
and in the name designated in such organization certifi- 
cate, shall have power — 

First. To adopt and use a corporate seal. 

Second. To have succession for a period of twenty 
years from its organization unless it is sooner dissolved 
by an Act of Congress, or unless its franchise becomes 
forfeited by some violation of law. 

Third. To make contracts. 

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

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



PAGE 36 



The Federal Reserve Act 



and fix the penalty thereof, and to dismiss at pleasure 
such officers or employees. 

Sixth. To prescribe by its board of directors, by- 
laws not inconsistent 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 Act and such incidental 
powers as shall be necessary to carry on the business of 
banking within the limitations prescribed by this Act. 

Eighth. Upon deposit with the Treasurer of the 
United States of any bonds of the United States in the 
manner provided by existing law relating to national 
banks, to receive from the Comptroller of the Currency 
circulating notes in blank, registered and countersigned 
as provided by law, equal in amount to the par value of 
the. bonds so deposited, such notes to be issued under the 
same conditions and provisions of law as relate to the 
issue of circulating notes of national banks secured by 
bonds of the United States bearing the circulating privi- 
lege, except that the issue of such notes shall not be lim- 
ited to the capital stock of such Federal reserve bank. 

PAGE 37 



The Federal Reserve Act 



But no Federal reserve bank shall transact any busi- 
ness except such as is incidental and necessary prelim- 
inary to its organization until it has been authorized by 
the Comptroller of the Currency to commence business 
under the provisions of this Act. 

Every Federal reserve bank shall be conducted under 
the supervision and control of a board of directors. 

The board of directors shall perform the duties 
usually appertaining to the office of directors of banking 
associations and all such duties as are prescribed by law. 

Said board shall administer the affairs of said bank 
fairly and impartially and without discrimination in 
favor of or against any member bank or banks and shall, 
subject to the provisions of law and the order of the 
Federal Reserve Board, extend to each member bank such 
discounts, advancements and accommodations as may be 
safely and reasonably made with due regard for the 
claims and demands of other member banks. 

Such board of directors shall be selected as herein- 
after specified and shall consist of nine members, hold- 
ing office for three years, and divided into three classes, 
designated as classes A, B, and C. 



PAGE 38 



The Federal Reserve Act 



Class A shall consist of three members, who shall 
be chosen by and be representative of the stock-holding 
banks. 

Class B shall consist of three members, who at the 
time of their election shall be actively engaged in their 
district in commerce, agriculture or some other industrial 
pursuit 

Class C shall consist of three members who shall 
be designated by the Federal Reserve Board. When the 
necessary subscriptions to the capital stock have been 
obtained for the organization of any Federal reserve 
bank, the Federal Reserve Board shall appoint the class 
C directors and shall designate one of such directors as 
chairman of the board to be selected. Pending the desig- 
nation of such chairman, the organization committee shall 
exercise the powers and duties appertaining to the ofifice 
of chairman in the organization of such Federal reserve 
bank. 

No Senator or Representative in Congress shall be 
a member of the Federal Reserve Board or an officer 
or a director of a Federal reserve bank. 

No director of class B shall be an officer, director, 
or employee of any bank. 

PAGE 39 



The Federal Reserve Act 



No director of class C shall be an officer, director, 
employee, or stockholder of any bank. 

Directors of class A and class B shall be chosen in 
the following manner: 

The chairman of the board of directors of the Fed- 
eral reserve bank of the district in which the bank is 
situated or, pending the appointment of such chairman, 
the organization committee shall classify the member 
banks of the district into three general groups or divi- 
sions. Each group shall contain as nearly as may be one- 
third of the aggregate number of the member banks of 
the district and shall consist, as nearly as may be, of 
banks of similar capitalization. The groups shall be 
designated by number by the chairman. 

At a regularly called meeting of the board of di- 
rectors of each member bank in the district it shall elect 
by ballot a district reserve elector and shall certify his 
name to the chairman of the board of directors of the 
Federal reserve bank of the district. The chairman shall 
make lists of the district reserve electors thus named by 
banks in each of the aforesaid three groups and shall 
transmit one list to each elector in each group. 

Each member bank shall be permitted to nominate 
to the chairman one candidate for director of class A 

PAGE 40 



The Federal Reserve Act 



and one candidate for director of class B. The candi- 
dates so nominated shall be listed by the chairman, in- 
dicating by whom nominated, and a copy of said list 
shall, within fifteen days after its completion, be 
furnished by the chairman to each elector. 

Every elector shall, within fifteen days after the 
receipt of the said list, certify to the chairman his first, 
second and other choices of a director of class A and 
class B, respectively, upon a preferential ballot, on a form 
furnished by the chairman of the board of directors 
of the Federal reserve bank of the district. Each elector 
shall make a cross opposite the name of the first, second 
and other choices for a director of class A and for a 
director of class B, but shall not vote more than one 
choice for any one candidate. 

Any candidate having a majority of all votes cast 
in the column of first choice shall be declared elected. 
If no candidate have a majority of all the votes in the 
first column, then there shall be added together the votes 
cast by the electors for such candidates in the second 
column and the votes cast for the several candidates in 
the first column. If any candidate then have a majority 
of the electors voting, by adding together the first and 
second choices, he shall be declared elected. If no candi- 
date have a majority of electors voting when the first 



PAGE 41 



The Federal Reserve Act 



and second choices shall have been added, then the votes 
cast in the third column for other choices shall be added 
together in like manner, and the candidate then having 
the highest number of votes shall be declared elected. 
An immediate report of election shall be declared. 

Class C directors shall be appointed by the Federal 
Reserve Board. They shall have been for at least two 
years residents of the district for which they are ap- 
pointed, one of whom shall be designated by said board 
as chairman of the board of directors of the Federal 
reserve bank and as "Federal reserve agent." He shall 
be a person of tested banking experience; and in addi- 
tion to his duties as chairman of the board of directors 
of the Federal reserve bank he shall be required to main- 
tain, under regulations to be established by the Federal 
Reserve Board a local office of said board on the prem- 
ises of the Federal reserve bank. He shall make regular 
reports to the Federal Reserve Board, and shall act as 
its official representative for the performance of the 
functions conferred upon it by this Act. He shall re- 
ceive an annual compensation to be fixed by the Federal 
Reserve Board and paid monthly by the Federal reserve 
bank to which he is designated. One of the directors 
of class C, who shall be a person of tested banking 
experience, shall be appointed by the Federal Reserve 

PAGE 4i 



The Federal Reserve Act 



Board as deputy chairman and deputy Federal reserve 
agent to exercise the powers of the chairman of the 
board and Federal reserve agent in case of absence or 
disability of his principal. 

Directors of Federal reserve banks shall receive, 
in addition to any compensation otherwise provided, a 
reasonable allowance for necessary expenses in attend- 
ing meetings of their respective boards, which amount 
shall be paid by the respective Federal reserve banks. 
Any compensation that may be provided by boards of 
directors of Federal reserve banks for directors, ofiScers 
or employees shall be subject to the approval of the Fed- 
eral Reserve Board. 

The Reserve Bank Organization Committee may, 
in organizing Federal reserve banks, call such meetings 
of bank directors in the several districts as may be neces- 
sary to carry out the purposes of this Act, and may exer- 
cise the functions herein conferred upon the chairman 
of the board of directors of each Federal reserve bank 
pending the complete organization of such bank. 

At the first meeting of the full board of directors of 
each Federal reserve bank, it shall be the duty of the 
directors of classes A, B and C, respectively, to designate 
one of the members of each class whose term of office shall 



PAGE 43 



The Federal Reserve Act 



expire in one year from the first of January nearest to 
date of such meeting, one whose term of office shall 
expire at the end of two years from said date, and one 
whose term of office shall expire at the end of three years 
from said date. Thereafter every director of a Federal 
reserve bank chosen as hereinbefore provided shall hold 
office for a term of three years. Vacancies that may 
occur in the several classes of directors of Federal re- 
serve banks may be filled in the manner provided for the 
original selection of such directors, such appointees to 
hold office for the unexpired terms of their predecessors. 

Stock Issues — Increase & Decrease of Capital 

Sec. 5. The capital stock of each Federal reserve 
bank shall be divided into shares of $100 each. The out- 
standing capital stock shall be increased from time to 
time as member banks increase their capital stock and 
surplus or as additional banks become members, and 
may be decreased as member banks reduce their capital 
stock or surplus or cease to be members. Shares of the 
capital stock of Federal reserve banks owned by mem- 
ber banks shall not be transferred or hypofJiecated. 
When a member bank increases its capital stock or sur- 
plus, it shall thereupon subscribe for an additional 
amount of capital stock of the Federal reserve bank of 
its district equal to six per centum of the said increase. 



PAGE. 44 



The Federal Reserve Act 



one-half of said subscription to be paid in the manner 
hereinbefore provided for original subscription and one- 
half subject to call of the Federal Reserve Board. A 
bank applying for stock in a Federal reserve bank at any 
time after the organization thereof must subscribe for 
an amount of the capital stock of the Federal reserve 
bank equal to six per centum of the paid-up capital stock 
and surplus of said applicant bank, paying therefor its 
par value plus one-half of one per centum a month from 
the period of the last dividend. When the capital stock 
of any Federal reserve bank shall have been increased, 
either on account of the increase of capital stock of mem- 
ber banks or on account of the increase in the number 
of member banks, the board of directors shall cause to 
be executed a certificate to the Comptroller of the Cur- 
rency showing the increase in capital stock, the amount 
paid in, and by whom paid. When a member bank re- 
duces its capital stock it shall surrender a proportionate 
amount of its holdings in the capital of said Federal 
reserve bank, and when a member bank voluntarily liqui- 
dates it shall surrender all of its holdings of the capital 
stock of said Federal reserve bank and be released from 
its stock subscription not previously called. In either 
case the shares surrendered shall be canceled and the 
member bank shall receive in payment therefor, under 
regulations to be prescribed by the Federal Reserve 



PAGE 43 



The Federal Reserve Act 



Board, a sum equal to its cash-paid subscriptions on the 
shares surrendered and one-half of one per centum a 
month from the period of the last dividend, not to ex- 
ceed the book value thereof, less any liability of such 
member bank to the Federal reserve bank. 

Sec. 6. If any member bank shall be declared in- 
solvent and a receiver appointed therefor, the stock held 
by it in said Federal reserve bank shall be canceled, 
without impairment of its liability, and all cash-paid sub- 
scriptions on said stock, with one-half of one per centum 
per month from the period of last dividend, not to ex- 
ceed the book value thereof, shall be first applied to all 
debts of the insolvent member bank to the Federal re- 
serve bank, and the balance, if any, shall be paid to the 
receiver of the insolvent bank. Whenever the capital 
stock of a Federal reserve bank is reduced, either on 
account of a reduction in capital stock of any member 
bank or of the liquidation or insolvency of such bank, the 
board of directors shall cause to be executed a certificate 
to the Comptroller of the Currency showing such reduc- 
tion of capital stock and the amount repaid to such bank. 

Division of Earnings 

Sec. 7. After all necessary expenses of a Federal 
reserve bank have been paid or provided for, the stock- 
holders shall be entitled to receive an annual dividend 



PAGE 46 



The Federal Reserve Act 



of six per centum on the paid-in capital stock, which 
dividend shall be cumulative. After the aforesaid divi- 
dend claims have been fully met, all the net earnings shall 
be paid to the United States as a franchise tax, except 
that one-half of such net earnings shall be paid into a 
surplus fund until it shall amount to forty per centum 
of the paid-in capital stock of such bank. 

The net earnings derived by the United States from 
Federal reserve banks shall, in the discretion of the Sec- 
retary, be used to supplement the gold reserve held 
against outstanding United States notes, or shall be 
applied to the reduction of the outstanding bonded in- 
debtedness of the United States under regulations to be 
prescribed by the Secretary of the Treasury. Should a 
Federal reserve bank be dissolved or go into liquidation, 
any surplus remaining, after the payment of all debts, 
dividend requirements as hereinbefore provided, and the 
par value of the stock, shall be paid to and become the 
property of the United States and shall be similarly ap- 
plied. 

Federal reserve banks, including the capital stock 
and surplus therein and the income derived therefrom, 
shall be exempt from Federal, State, and local taxation, 
except taxes upon real estate. 



PAGE 47 



The Federal Reserve Act 



Sec. 8. Section fifty-one hundred and fifty-four, 
United States Revised Statutes, is hereby amended to 
read as follows : 

Any bank incorporated by special law of any State 
or of the United States or organized under the general 
laws of any State or of the -United States and having an 
unimpaired capital sufficient to entitle it to become a 
national banking association under the provisions of the 
existing laws may, by the vote of the shareholders own- 
ing not less than fifty-one per centum of the capital 
stock of such bank or banking association, with the ap- 
proval of the Comptroller of the Currency, be converted 
into a national banking association, with any name ap- 
proved by the Comptroller of the Currency: Provided, 
however, That said conversion shall not be in contra- 
vention of the State law. . In such case the articles of as- 
sociation and organization certificate may be executed by 
a majority of the directors of the bank or banking insti- 
tution, and the certificate shall declare that the owners 
of fifty-one per centum of the capital stock have author- 
ized the directors to make such certificate and to change 
or convert the bank or banking institution into a national 
association. A majority of the directors, after executing 
the articles of association and the organization certificate, 
shall have power to execute all other papers and to do 



PAGE 48 



The Federal Reserve Act 



whatever may be required to make its organization per- 
fect and complete as a national association. The shares 
of any such bank may continue to be for the same amount 
each as they were before the conversion, and the directors 
may continue to be directors of the association until 
others are elected or appointed in accordance with the 
provisions of the statutes of the United States. When 
the comptroller has given to such bank or banking asso- 
ciation a certificate that the provisions of this Act have 
been complied with, such bank or banking association, and 
all its stockholders, officers, and employees, shall have 
the same powers and privileges, and shall be subject to 
the same duties, liabilities, and regulations, in all respects, 
as shall have been prescribed by the Federal Reserve Act 
and by the national banking Act for associations origi- 
nally organized as national banking associations. 

State Banks as Members 

Sec. 9. Any bank incorporated by special law of 
any State, or organized under the general laws of any 
State or of the United States, may make application to 
the reserve bank organization committee, pending organi- 
zation, and thereafter to the Federal Reserve Board for 
the right to subscribe to the stock of the Federal reserve 
bank organized or to be organized within the Federal 
reserve district where the applicant is located. The or- 



PAGE 49 



The Federal Reserve Act 



ganization committee or the Federal Reserve Board, 
under such rules and regulations as it may prescribe, 
subject to the provisions of this section, may permit the 
applying bank to become a stockholder in the Federal 
reserve bank of the district in which the applying bank 
is located. Whenever the organization committee or the 
Federal Reserve Board shall permit the applying bank to 
become a stockholder in the Federal reserve bank of 
the district, stock shall be issued and paid for under the 
rules and regulations in this Act provided for national 
banks which become stockholders in Federal reserve 
banks. 

The organization committee or the Federal Reserve 
Board shall establish by-laws for the general government 
of its conduct in acting upon applications made by the 
State banks and banking associations and trust com- 
panies for stock ownership in Federal reserve banks. 
Such by-laws shall require applying banks not organized 
under Federal law to comply with the reserve and capi- 
tal requirements and to submit to the examination and 
regulations prescribed by the organization committee or 
by the Federal Reserve Board. No applying bank shall 
be admitted to membership in a Federal reserve bank 
unless it possesses a paid-up unimpaired capital sufficient 
to entitle it to become a national banking association in 



PAGE 50 



The Federal Reserve Act 



the place where it is situated, under the provisions of 
the national banking Act. 

Any bank becoming a member of a Federal reserve 
bank under the provisions of this section shall, in addi- 
tion to the regulations and restrictions hereinbefore pro- 
vided, be required to conform to the provisions of law 
imposed on the national banks respecting the limitation 
of liability which may be incurred by any person, firm, 
or corporation to such banks, the prohibition against 
making purchase of or loans on stock of such banks, and 
the withdrawal or impairment of capital, or the payment 
of unearned dividends, and to such rules and regulations 
as the Federal Reserve Board may, in pursuance there- 
of, prescribe. 

Such banks, and the officers, agents, and employees 
thereof, shall also be subject to the provisions of and to 
the penalties prescribed by sections fifty-one hundred and 
ninety-eight, fifty-two hundred, fifty-two hundred and 
one, and fifty-two hundred and eight, and fifty-two 
hundred and nine of the Revised Statutes. The mem- 
ber banks shall also be required to make reports of the 
conditions and of the payments of dividends to the comp- 
troller, as provided in sections fifty-two hundred and 
eleven and fifty-two hundred and twelve of the Revised 



PAGE 51 



The Federal Reserve Act 



Statutes, and shall be subject to the penalties prescribed 
by section fifty-two hundred and thirteen for the failure 
to make such report. 

If at any time it shall appear to the Federal Reserve 
Board that a member bank has failed to comply with the 
provisions of this section or the regulations of the Fed- 
eral Reserve Board, it shall be within the power of the 
said board, after hearing, to require such bank to sur- 
render its stock in the Federal reserve bank; upon such 
surrender the Federal reserve bank shall pay the cash- 
paid subscriptions to the said stock with interest at the 
rate of one-half of one per centum per month, computed 
from the last dividend, if earned, not to exceed the book 
value thereof, less any liability to said Federal reserve 
bank, except the subscription liability not previously 
called, which shall be canceled, and said Federal reserve 
bank shall, upon notice from the Federal Reserve Board, 
be required to suspend said bank from further privileges 
of membership, and shall within thirty days of such 
notice cancel and retire its stock and make payment there- 
for in the manner herein provided. 

The Federal Reserve Board may restore member- 
ship upon due proof of compliance with the conditions 
imposed by this section. 

PAGE 5? 



The Federal Reserve Act 



Federal Reserve Board 

Sec. 10. A Federal Reserve Board is hereby cre- 
ated which shall consist of seven members, including the 
Secretary of the Treasury and the Comptroller of the 
Currency, who shall be members ex-officio, and five mem- 
bers appointed by the President of the United States, by 
and with the advice and consent of the Senate. In select- 
ing the five appointive members of the Federal Reserve 
Board, not more than one of whom shall be selected from 
any one Federal reserve district, the President shall have 
due regard to a fair representation of the different com- 
mercial, industrial and geographical divisions of the 
country. The five members of the Federal Reserve 
Board appoinlied by the President and confirmed as afore- 
said shall devote their entire time to the business of the 
Federal Reserve Board and shall each receive an annual 
salary of $12,000, payable monthly together with actual 
necessary traveling expenses, and the Comptroller of the 
Currency, as ex-officio member of the Federal Reserve 
Board, shall, in addition to the salary now paid him as 
Comptroller of the Currency, receive the sum of $7,000 
annually for his services as a member of said Board. 

The members of said board, the Secretary of the 
Treasury, the Assistant Secretaries of the Treasury, and 
the Conlptroller of the Currency shall be ineligible dur- 



FAGE S3 



The Federal Reserve Act 



ing the time they are in office and for two years there- 
after to hold any office, position, or employment in any 
member bank. Of the five members thus appointed by 
the President at least two shall be persons experienced 
in banking or finance. One shall be designated by the 
President to serve for two, one for four, one for six, 
one for eight, and one for ten years, and thereafter each 
member so appointed shall serve for a term of ten years 
unless sooner removed for cause by the President. Of 
the five 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 the active executive officer. The Secretary of the 
Treasury may assign offices in the Department of the 
Treasury for the use of the Federal Reserve Board. 
Each member of the Federal Reserve Board shall within 
fifteen days after notice of appointment make and sub- 
scribe to the oath of office. 

The Federal Reserve Board shall have power to 
levy semi-annually upon the Federal reserve banks, in 
proportion to their capital stock and surplus, an assess- 
ment sufficient to pay its estimated expenses and the sal- 
aries of its members and employees for the half year suc- 
ceeding the levying of such assessment, together with 



PAGE 54 



The Federal Reserve Act 



any deficit carried forward from the preceding half 
year. 

The first meeting of the Federal Reserve Board 
shall be held in Washington, District of Columbia, as 
soon as may be after the passage of this Act, at a date 
to be fixed by the Reserve Bank Organization Commit- 
tee. The Secretary of the Treasury shall be ex-officio 
chairman of the Federal Reserve Board. No member of 
the Federal Reserve Board shall be an officer or director 
of any bank, banking institution, trust company, or Fed- 
eral reserve bank nor 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 to the Secretary of the Treasury 
that he has complied with this requirement. Whenever 
a vacancy shall occur, other than by expiration of term, 
among the five members of the Federal Reserve Board 
appointed by the President, as above provided, a succes- 
sor shall be appointed by the President, with the advice 
and consent of the Senate, to fill such vacancy, and when 
appointed he shall hold office for the unexpired term of 
the member whose place he is selected to fill. 

The President shall have power to fill all vacancies 
tiiat may happen on the Federal Reserve Board during the 
recess of the Senate, by granting commissions which 



PAGE 55 



The Federal Reserve Act 



shall expire thirty days after the next session of the 
Senate convenes. 

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

The Federal Reserve Board shall annually make a 
full report of its operations to the Speaker of the House 
of Representatives, who shall cause the same to be 
printed for the information of the Congress. 

Section three hundred and twenty-four of the Re- 
vised Statutes of the United States shall be amended so 
as to read as follows : There shall be in the Department 
of the Treasury a bureau charged with the execution of 
all laws passed by Congress relating to the issue and 
regulation of national currency secured by United States 
bonds and, under the general supervision of the Fed- 
eral Reserve Board, of all Federal reserve notes, the 



PAGE 56 



The Federal Reserve Act 



chief ofificer of which bureau shall be called the Comp- 
troller of the Currency and shall perform his duties under 
the general directions of the Secretary of the Treasury. 

Sec. 11. The Federal Reserve Board shall be 
authorized and empowered : 

(a) To examine at its discretion the accounts, 
books and affairs of each Federal reserve bank and of 
each member bank and to require such statements and 
reports as it may deem necessary. The said board shall 
publish once each week a statement showing the condi- 
tion of each Federal reserve bank and a consolidated 
statement for all Federal reserve banks. Such statements 
shall show in detail the assets and liabilities of the Fed- 
eral reserve banks, single and combined, and shall fur- 
nish full information regarding the character of the 
money held as reserve and the amount, nature and ma- 
turities of the paper and other investments owned or 
held by Federal reserve banks. 

(b) To permit, or, on the afifirmative vote of at 
least five members of the Reserve Board, to require Fed- 
eral reserve banks to rediscount the discounted paper of 
other Federal reserve banks at rates of interest to be 
fixed by the Federal Reserve Board. 



PAGE 57 



The Federal Reserve Act 



(c) To suspend for a period not exceeding thirty 
days, and from time to time to renew such suspension 
for periods not exceeding fifteen days, any reserve re- 
quirement specified in this Act: Provided, That it shall 
establish a graduated tax upon the amounts by which 
the reserve requirements of this Act may be permitted to 
fall below the level hereinafter specified : And provided 
further. That when the gold reserve held against Federal 
reserve notes falls below forty per centum, the Federal 
Reserve Board shall establish a graduated tax of not 
more than one per centum per annum upon such defici- 
ency until the reserves fall to thirty-two and one-half 
per centum, and when said reserve falls below thirty- 
two and one-half per centum, a tax at the rate increas- 
ingly of not less than one and one-half per centum 
per annum upon each two and one-half per centum or 
fraction thereof that such reserve falls below thirty-two 
and one-half per centum. The tax shall be paid by the 
reserve bank, but the reserve bank shall add an amount 
equal to said tax to the rates of interest and discount 
fixed by the Federal Reserve Board. 

(d) To supervise and regulate through the bureau 
under the charge of the Comptroller of the Currency the 
issue and retirement of Federal reserve notes, and to 
prescribe rules and regulations under which such notes 



PAGE $8 



The Federsil Reserve Act 



may be delivered by the Comptroller to the Federal re- 
serve agents applying therefor. 

(e) To add to the number of cities classified as re- 
serve and central reserve cities under existing law in 
which national banking associations are subject to the 
reserve requirements set forth in section twenty of this 
Act ; or to reclassify existing reserve and central reserve 
cities or to terminate their designation as such. 

(f) To suspend or remove any officer or director 
of any Federal reserve bank, the cause of such removal 
to be forthwith communicated in writing by the Federal 
Reserve Board to the removed officer or director and to 
said bank. 

(g) To require the writing off of doubtful or 
worthless assets upon the books and balance sheets of 
Federal reserve banks. 

(h) To suspend, for the violation of any of the 
provisions of this Act, the operations of any Federal 
reserve bank, to take possession thereof, administer the 
same during the period of suspension, and, when deemed 
advisable, to liquidate or reorganize such bank. 

(i) To require bonds of Federal reserve agents, to 
make regulations for the safeguarding of all collateral, 

PAGE S9 



The Federal Reserve Act 



bonds, Federal reserve notes, money or property of any 
kind deposited in the hands of such agents, and said 
board shall perform the duties, functions, or services 
specified in this Act, and make all rules and regulations 
necessary to enable said board effectively to perform the 
same. 

(j) To exercise general supervision over said Fed- 
eral reserve banks. 

(k) To grant by special permit to national banks 
applying therefor, when not in contravention of State 
or local law, the right to act as trustee, executor, admin- 
istrator, or registrar of stocks and bonds under such rules 
and regulations as the said board may prescribe. 

(1) To employ such attorneys, experts, assistants, 
clerks, or other employees as may be deemed necessary 
to conduct the business of the board. All salaries and 
fees shall be fixed in advance by said board and shall be 
paid in the same manner as the salaries of the members 
of said board. All such attorneys, experts, assistants, 
clerks, and other employees shall be appointed without 
regard to the provisions of the Act of January sixteenth, 
eighteen hundred and eighty-three (volume twenty-two. 
United States Statutes at Large, page four hundred and 
three), and amendments thereto, or any rule or regula- 



PACE60 



The Federal Reserve Act 



tion made in pursuance thereof: Provided, That noth- 
ing herein shall prevent the President from placing said 
employees in the classified service. 

Federal Advisory Council 

Sec. 12. There is hereby created a Federal Advis- 
ory Council, which shall consist of as many members as 
there are Federal reserve districts. Each Federal re- 
serve bank by its board of directors shall annually select 
from its own Federal reserve district one member of 
said council, who shall receive such compensation and 
allowances as may be fixed by his board of directors sub- 
ject to the approval of the Federal Reserve Board. The 
meetings of said advisory council shall be held at Wash- 
ington, District of Columbia, at least four times each 
year, and oftener if called by the Federal Reserve Board. 
The council may, in addition to the meetings above pro- 
vided for, hold such other meetings in Washington, Dis- 
trict of Columbia, or elsewhere, as it may deem neces- 
sary, may select its own officers and adopt its own 
methods of procedure, and a majority of its members 
shall constitute a quorum for the transaction of business. 
Vacancies in the council shall be filled by the respective 
reserve banks, and members selected to fill vacancies 
shall serve for the unexpired term. 

PAGE 6i 



The Federal Reserve Act 



The Federal Advisory Council shall have power, by 
itself or through its officers, (1) to confer directly with 
the Federal Reserve Board on general business condi- 
tions; (2) to make oral or written representations con- 
cerning matters within the jurisdiction of said board; 
(3) to call for information and to make recommenda- 
tions in regard to discount rates, rediscount business, note 
issues, reserve conditions in the various districts, the 
purchase and sale of gold or securities by reserve banks, 
open-market operations by said banks, and the general 
affairs of the reserve banking system. 

Powers of Federal Reserve Banks 

Sec. 13. Any Federal refserve bank may receive 
from any of its member banks, and from the United 
States, deposits of current funds in lawful money, 
national-bank notes, Federal reserve notes, or checks 
and drafts upon solvent member banks, payable upon 
presentation ; or, solely for exchange purposes, may 
receive from other Federal reserve banks deposits of 
current funds in lawful money, national-bank notes, or 
checks and drafts upon solvent members of other 
Federal reserve banks, payable upon presentation. 

Upon the indorsement of any of its member banks, 
with a waiver of demand, notice and protest by such 
bank, any Federal reserve bank may discount notes, 

PAGE 62 



The Federal Reserve Act 



drafts, and bills of exchange arising out of actual com- 
mericial transactions; that is, notes, drafts, and bills 
of exchange issued or drawn for agricultural, indus- 
trial, or commercial purposes, or the proceeds of which 
have been used, or are to be used, for such purposes, 
the Federal Reserve Board to have the right to deter- 
mine or define the character of the paper thus eligible! 
for discount, within the meaning of this Act. Noth- 
ing in this Act contained shall be construed to prohibit 
such notes, drafts, and bills of exchange, secured by 
staple agricultural products, or other goods, wares, or 
merchandise from being eligible for such discount ; but 
such definition shall not include notes, drafts, or bills 
covering merely investments or issued or drawn for 
the purpose of carrying or trading in stocks, bonds, or 
other investment securities, except bonds and notes of 
the Government of the United States. Notes, drafts, 
and bills admitted to discount under the terms of this 
paragraph must have a maturity at the time of dis- 
count, of not more than ninety days: Provided, That 
notes, drafts, and bills drawn or issued for agricultural 
purposes or based on live stock and having a maturity 
not exceeding six months may be discounted in an amount 
to be limited to a percentage of the capital of the Federal 
reserve bank, to be ascertained and fixed by the Federal 
Reserve Board. 



PAGE 63 



The Federal Reserve Act 



Any Federal reserve bank may discount acceptances 
which are based on the importation or exportation of 
goods and which have a maturity at time of discount of 
not more than three months, and indorsed by at least one 
member bank. The amount of acceptances so discounted 
shall at no time exceed one-half the paid-up capital 
stock and surplus of the bank for which the rediscounts 
are made. 

The aggregate of such notes and bills bearing the 
signature or indorsement of any one person, company, 
firm, or corporation rediscounted for any one bank shall 
at no time exceed ten per centum of the unimpaired 
capital and surplus of said bank ; but this restriction shall 
not apply to the discount of bills of exchange drawn in 
good faith against actually existing values. 

Any member bank may accept drafts or bills of ex- 
change drawn upon it and growing out of transactions 
involving the importation or exportation of goods hav- 
ing not more than six months sight to run ; but no bank 
shall accept such bills to an amount equal at any time 
in the aggregate to more than one-half its paid-up capital 
stock and surplus. 

Section fifty-two hundred and two of the Revised 
Statutes of the United States is hereby amended so as 



PAGE 64 



The Federal Reserve Act 



to read as follows : No national banking association shall 
at any time be indebted, or in any way liable, to an 
amount exceeding the amount of its capital stock at such 
time actually paid in and remaining undiminished by 
losses or otherwise, except on account of demands of the 
nature following: 

First. Notes of circulation. 

Second. Moneys deposited with or collected by the 
association. 

Third. Bills of exchange or drafts drawn against 
money actually on deposit to the credit of the association, 
or due thereto. 

Fourth. Liabilities to the stockholders of the as- 
sociation for dividends and reserve profits. 

Fifth. Liabilities incurred under the provisions of 
the Federal Reserve Act. 

The rediscount by any Federal reserve bank of any 
bills receivable and of domestic and foreign bills of ex- 
change, and of acceptances authorized by this Act, shall 
be subject to such restrictions, limitations, and regula- 
tions as may be imposed by the Federal Reserve Board. 

PAGE 65 



The Federal Reserve Act 



Open Market Operations 

Sec. 14. Any Federal reserve bank may, under 
rules and regulations prescribed by the Federal Reserve 
Board, purchase and sell in the open market, at home 
or abroad, either from or to domestic or foreign banks, 
firms, corporations, or individuals, cable transfers and 
bankers' acceptances and bills of exchange of the kinds 
and maturities by this Act made eligible for rediscount, 
with or without the indorsement of a member bank. 

Every Federal reserve bank shall have power: 

(a) To deal in gold coin and bullion at home or 
abroad, to make loans thereon, exchange Federal reserve 
notes for gold, gold coin, or gold certificates, and to con- 
tract for loans of gold coin or bullion, giving therefor, 
when necessary, acceptable security, including the hy- 
pothecation of United States bonds or other securities 
which Federal reserve banks are authorized to hold; 

(b) To buy and sell, at home or abroad, bonds and 
notes of the United States, and bills, notes, revenue 
bonds, and warrants with a maturity from date of pur- 
chase of not exceeding six months, issued in anticipation 
of the collection of taxes or in anticipation of the receipt 
of assured revenues by any State, county, district, po- 
litical subdivision, or municipality in the continental 

PAGE 66 



The Federal Reserve Act 



districts, such purchases to be made in accordance with 
rules and regulations prescribed by the Federal Reserve 
Board ; 

(c) To purchase from member banks and to sell, 
with or without its indorsement, bills of exchange arising 
out of commercial transactions, as hereinbefore defined: 

(d) To establish from time to time, subject to re- 
view and determination of the Federal Reserve Board, 
rates of discount to be charged by the Federal reserve 
bank for each class of paper, which shall be fixed with 
a view of accommodating commerce and business; 

(e) To establish accounts with other Federal re- 
serve banks for exchange purposes and, with the consent 
of the Federal Reserve Board, to open and maintain 
banking accounts in foreign countries, appoint corre- 
spondents, and establish agencies in such countries where- 
soever it may deem best for the purpose of purchasing, 
selling, and collecting bills of exchange, and to buy and 
sell, with or without its indorsement, through such corre- 
spondents or agencies, bills of exchange arising out of 
actual commercial transactions which have not more 
than ninety days to run and which bear the signature of 
two or more responsible parties. 

PAGE 67 



The Federal Reserve Act 



Government Deposits 

Sec. is. The moneys held in the general fund of 
the Treasury, except the five per centum fund for the 
redemption of outstanding national-bank notes and the 
funds provided in this Act for the redemption of Federal 
reserve notes, may, upon the direction of the Secretary 
of the Treasury, be deposited in Federal reserve banks, 
which banks, when required by the Secretary of the 
Treasury, shall act as fiscal agents of the United States ; 
and the revenues of the Government or any part thereof 
may be deposited in such banks, and disbursements may 
be made by checks drawn against such deposits. 

No public funds of the Philippine Islands, or of the 
postal savings, or any Government funds, shall be de- 
posited in the continental United States in any bank not 
belonging to the system established by this Act: Pro- 
vided, however, That nothing in this Act shall be con- 
strued to deny the right of the Secretary of the Treasury 
to use member banks as depositories. 

Note Issues 

Sec. 16. Federal reserve notes, to be issued at 
the discretion of the Federal Reserve Board for the pur- 
pose of making advances to Federal reserve banks 
through the Federal reserve agents as hereinafter set 

PAGE 68 



The Federal Reserve Act 



forth and for no other purpose, are hereby authorized. 
The said notes shall be obligations of the United States 
and shall be receivable by all national and member banks 
and Federal reserve banks and for all taxes, customs, 
and other public dues. They shall be redeemed in gold 
on demand at the Treasury Department of the United 
States, in the city of Washington, District of Columbia, 
or in gold or lawful money at any Federal reserve bank. 

Any Federal reserve bank may make application to 
the local Federal reserve agent for such amount of the 
Federal reserve notes hereinbefore provided for as it 
may require. Such application shall be accompanied with 
a tender to the local Federal reserve agent of collateral 
in amount equal to the sum of the Federal reserve notes 
thus applied for and issued pursuant to such application. 
The collateral security thus offered shall be notes and 
bills, accepted for rediscount under the provisions of 
section thirteen of this Act, and the Federal reserve 
agent shall each day notify the Federal Reserve Board 
of all issues and withdrawals of Federal reserve notes 
to and by the Federal reserve bank to which he is ac- 
credited. The said Federal Reserve Board may at any 
time call upon a Federal reserve bank for additional 
security to protect the Federal reserve notes issued to it. 

PAGE 69 



The Federal Reserve Act 



Every Federal reserve bank shall maintain reserves 
in gold or lawful money of not less than thirty-five per 
centum against its deposits and reserves in gold of not 
less than forty per centum against its Federal reserve 
notes in actual circulation, and not ofifset by gold or 
lawful money deposited with the Federal reserve agent. 
Notes so paid out shall bear upon their faces a distinctive 
letter and serial number, which shall be assigned by the 
Federal Reserve Board to each Federal reserve bank. 
Whenever Federal reserve notes issued through one Fed- 
eral reserve bank shall be received by another Federal 
reser\'e bank they shall be promptly returned for credit 
or redemption to the Federal reserve bank through which 
they were originally issued. No Federal reserve bank 
shall pay out notes issued through another under penalty 
of a tax of ten per centum upon the face value of notes 
so paid out. Notes presented for redemption at the 
Treasury of the United States shall be paid out of the 
redemption fund and returned to the Federal reserve 
banks through which they were originally issued, and 
thereupon such Federal reserve bank shall, upon demand 
of the Secretary of the Treasury, reimburse such re- 
demption fund in lawful money, or, if such Federal re- 
serve notes have been redeemed by the Treasurer in 
gold or gold certificates, then such funds shall be reim- 



PAGE 70 



The Federal Reserve Act 



bursed to the extent deemed necessary by the Secre- 
tary of the Treasury in gold or gold certificates, and 
such Federal reserve bank shall, so long as any of its 
Federal reserve notes remain outstanding, maintain with 
the Treasurer in gold an amount sufficient in the judg- 
ment of the Secretary to provide for all redemptions to 
be made by the Treasurer. Federal reserve notes re- 
ceived by the Treasury, otherwise than for redemption, 
may be exchanged for gold out of the redemption fund 
hereinafter provided and returned to the reserve bank 
through which they were originally issued, or they may 
be returned to such bank for the credit of the United 
States. Federal reserve notes unfit for circulation shall 
be returned by the Federal reserve agents to the Comp- 
troller of the Currency for cancellation and destruction. 

The Federal Reserve Board shall require each Fed- 
eral reserve bank to maintain on deposit in the Treasury 
of the United States a sum in gold sufficient in the judg- 
ment of the Secretary of the Treasury for the redemp- 
tion of the Federal reserve notes issued to such bank, 
but in no event less than five per centum; but such de- 
posit of gold shall be counted and included as part of 
the forty per centum reserve hereinbefore required. The 
board shall have the right, acting through the Federal 
reserve agent, to grant in whole or in part or to reject 



PAGE 71 



The Federal Reserve Act 



entirely the application of any Federal reserve bank for 
Federal reserve notes; but to the extent that such ap- 
plication may be granted the Federal Reserve Board 
shall, through its local Federal reserve agent, supply 
Federal reserve notes to the bank so applying, and such 
bank shall be charged with the amount of such notes and 
shall pay such rate of interest on said amount as may 
be established by the Federal Reserve Board, and the 
amount of such Federal reserve notes so issued to any 
such bank shall, upon delivery, together with such notes 
of such Federal reserve bank as may be issued under 
section eighteen of this Act upon security of United 
States two per centum Government bonds, become a first 
and paramount lien on all the assets of such bank. 

Any Federal reserve bank may at any time reduce 
its liability for outstanding Federal reserve notes by de- 
positing, with the Federal reserve agent, its Federal 
reserve notes, gold, gold certificates, or lawful money 
of the United States. Federal reserve notes so depos- 
ited shall not be reissued, except upon compliance with 
the conditions of an original issue. 

The Federal reserve agent shall hold such gold, 
gold certificates, or lawful money available exclusively 
for exchange for the outstanding Federal reserve notes 



PAGE 72 



The Federal Reserve Act 



when offered by the reserve bank of which he is a di- 
rector. Upon the request of the Secretary of the Treas- 
ury the Federal Reserve Board shall require the Federal 
reserve agent to transmit so much of said gold to the 
Treasury of the United States as may be required for 
the exclusive purpose of the redemption of such notes. 

Any Federal reserve bank may at its discretion with- 
draw collateral deposited with the local Federal reserve 
agent for the protection of its Federal reserve notes de- 
posited with it and shall at the same time substitute 
therefor other like collateral of equal amount with the 
approval of the Federal reserve agent under regulations 
to be prescribed by the Federal Reserve Board. 

In order to furnish suitable notes for circulation as 
Federal reserve notes, the Comptroller of the Currency 
shall, under the direction of the Secretary of the Treas- 
ury, cause plates and dies to be engraved in the best 
manner to guard against counterfeits and fraudulent 
alterations, and shall have printed therefrom and num- 
bered such quantities of such notes of the denominations 
of $5, $10, $20, $50, $100, as may be required to supply 
the Federal reserve banks. Such notes shall be in form 
and tenor as directed by the Secretary of the Treasury 
under the provisions of this Act and shall bear the 

PAGE 73 



The Federal Reserve Act 



distinctive numbers of the several Federal reserve banks 
through which they are issued. 

When such notes have been prepared, they shall be 
deposited in the Treasury, or in the subtreasury or mint 
of the United States nearest the place of business of 
each Federal reserve bank and shall be held for the use 
of such bank subject to the order of the Comptroller of 
the Currency for their delivery, as provided by this Act. . 

The plates and dies to be procured by the Comp- 
troller of the Currency for the printing of such circulat- 
ing notes shall remain under his control and direction, 
and the expenses necessarily incurred in executing the 
laws relating to the procuring of such notes, and all other 
expenses incidental to their issue and retirement, shall 
be paid by the Federal reserve banks, and the Federal 
Reserve Board shall include in its estimate of expenses 
levied against the Federal reserve banks a sufificient 
amount to cover the expenses herein provided for. 

The examination of plates, dies, bed pieces, and so 
forth, and regulations relating to such examination of 
plates, dies, and so forth, of national-bank notes pro- 
vided for in section fifty-one hundred and seventy-four 
Revised Statutes, is hereby extended to include notes 
herein provided for. 



PAGE 74 



The Federal Reserve Act 



Any appropriation heretofore made out of the gen- 
eral funds of the Treasury for engraving plates and dies, 
the purchase of distinctive paper, or to cover any other 
expense in connection with the printing of national-bank 
notes or notes provided for by the Act of May thirtieth, 
nineteen hundred and eight, and any distinctive paper 
that may be on hand at the time of the passage of this 
Act may be used in the discretion of the Secretary for 
the purposes of this Act, and should the appropriations 
heretofore made be insufficient to meet the requirements 
of this Act in addition to circulating notes provided for 
by existing law, the Secretary is hereby authorized to 
use so much of any funds in the Treasury not otherwise 
appropriated for the purpose of furnishing the notes 
aforesaid : Provided, however, That nothing in this sec- 
tion contained shall be construed as exempting national 
banks or Federal reserve banks from their liability to 
reimburse the United States for any expenses incurred 
in printing and issuing circulating notes. 

Every Federal reserve bank shall receive on deposit 
at par from member banks or from Federal reserve banks 
checks and drafts drawn upon any of its depositors, and 
when remitted by a Federal reserve bank, checks and 
drafts drawn by any depositor in any other Federal 
reserve bank or member bank upon funds to the credit 



PAGE 75 



The Federal Reserve Act 



of said depositor in said reserve bank or member bank. 
Nothing herein contained shall be construed as prohibit- 
ing a member bank from charging its actual expense in- 
curred in collecting and remitting funds, or for exchange 
sold to its patrons. The Federal Reserve Board shall, 
by rule, fix the charges to be collected by the member 
banks from its patrons whose checks are cleared through 
the Federal reserve bank and the charge which may 
be imposed for the service of clearing or collection ren- 
dered by the Federal reserve bank. 

The Federal Reserve Board shall make and promul- 
gate from time to time regulations governing the transfer 
of funds and charges therefor among Federal reserve 
banks and their branches, and may at its discretion exer- 
cise the functions of a clearing house for such Federal 
reserve banks, or may designate a Federal reserve bank 
to exercise such functions, and may also require each 
such bank to exercise the functions of a clearing house 
for its member banks. 

Sec. 17. So much of the provisions of section 
fifty-one hundred and fifty-nine of the Revised Statutes 
of the United States, and section four of the Act of 
June twentieth, eighteen hundred and seventy-four, and 
section eight of the Act of July twelfth, eighteen hun- 

PAGE 76 



The Federal Reserve Act 



dred and eighty-two, and of any other provisions of 
existing statutes as require that, before any national 
banking association shall be authorized to commence 
banking business, it shall transfer and deliver to the 
Treasurer of the United States a stated amount of 
United States registered bonds is hereby repealed. 

Refunding Bonds 

Sec. 18. After two years from the passage of this 
Act, and at any time during a period of twenty years, 
thereafter, any member bank desiring to retire the whole 
or any part of its circulating notes, may file with the 
Treasurer of the United States an application to sell for 
its account, at par and accrued interest, United States 
bonds securing circulation to be retired. 

The Treasurer shall, at the end of each quarterly 
period, furnish the Federal Reserve Board with a list 
of such applications, and the Federal Reserve Board 
may, in its discretion, require the Federal reserve banks 
to purchase such bonds from the banks whose applica- 
tions have been filed with the Treasurer at least ten days 
before the end of any quarterly period at which the 
Federal Reserve Board may direct the purchase to be 
made : Provided, That Federal reserve banks shall not 

PAGE 77 



The Federal Reserve Act 



be permitted to purchase an amount to exceed $25,000,- 
000 of such bonds in any one year, and which amount 
shall include bonds acquired under section four of this 
Act by the Federal reserve bank. Provided further. That 
the Federal Reserve Board shall allot to each Federal 
reserve bank such proportion of such bonds as the capital 
and surplus of such bank shall bear to the aggregate capi- 
tal and surplus of all the Federal reserve banks. 

Upon notice from the Treasurer of the amount of 
bonds so sold for its account, each member bank shall 
duly assign and transfer, in writing, such bonds to the 
Federal reserve bank purchasing the same, and such 
Federal reserve bank shall, thereupon, deposit lawful 
money with the Treasurer of the United States for the 
purchase price of such bonds, and the Treasurer shall 
pay to the member bank selling such bonds any balance 
due after deducting a sufificient sum to redeem its out- 
standing notes secured by such bonds, which notes shall 
be canceled and permanently retired when redeemed. 

The Federal reserve banks purchasing such bonds 
shall be permitted to take out an amount of circulating 
notes equal to the par value of such bonds. 

Upon the deposit with the Treasurer of the United 
States of bonds so purchased, or any bonds with the 
circulating privilege acquired under section four of this 



PAGE 78 



The Federal Reserve Act 



Act, any Federal reserve bank making such deposit in 
the manner provided by existing law, shall be entitled 
to receive from the Comptroller of the Currency circulat- 
ing notes in blank, registered and countersigned as pro- 
vided by law, equal in amount to the par value of the 
bonds so deposited. Such notes shall be the obligations 
of the Federal reserve bank procuring the same, and 
shall be in form prescribed by the Secretary of the Treas- 
ury, and to the same tenor and effect as national-bank 
notes now provided by law. They shall be issued and re- 
deemed under the same terms and conditions as national- 
bank notes except that they shall not be limited to the 
amount of the capital stock of the Federal reserve bank 
issuing them. 

Upon application of any Federal reserve bank, ap- 
proved by the Federal Reserve Board, the Secretary of 
the Treasury may issue, in exchange for United States 
two per centum gold bonds bearing the circulation privi- 
lege, but against which no circulation is outstanding, one- 
year gold notes of the United States without the circula- 
tion privilege, to an amount not to exceed one half of 
the two per centum bonds so tendered for exchange, and 
thirty-year three per centum gold bonds without the cir- 
culation privilege for the remainder of the two per 
centum bonds so tendered: Provided, That at the time 



PAGE 79 



The Federal Reserve Act 



of such exchange the Federal reserve bank obtaining 
such one-year gold notes shall enter into an obligation 
with the Secretary of the Treasury binding itself to pur- 
chase from the United States for gold at the maturity 
of such one-year notes, an amount equal to those deliver- 
ed in exchange for such bonds, if so requested by the 
Secretary, and at each maturity of one-year notes so 
purchased by such Federal reserve bank, to purchase 
from the United States such an amount of one-year 
notes as the Secretary may tender to such bank, not to 
exceed the amount issued to such bank in the first in- 
stance, in exchange for the two per centum United States 
gold bonds ; said obligation to purchase at maturity such 
notes shall continue in force for a period not to exceed 
thirty years. 

For the purpose of making the exchange herein 
provided for, the Secretary of the Treasury is authorized 
to issue at par Treasury notes in coupon or registered 
form as he may prescribe in denominations of one hun- 
dred dollars, or any multiple thereof, bearing interest 
at the rate of three per centum per annum, payable 
quarterly, such Treasury notes to be payable not more 
than one year from the date of their issue in gold coin 
of the present standard value, and to be exempt as to 
principal and interest from the payment of all taxes 



PAGE 80 



The Federal Reserve Act 



and duties of the United States except as provided by 
this Act, as well as from taxes in any form by or under 
State, municipal, or local authorities. And for the same 
purpose, the Secretary is authorized and empowered to 
issue United States gold bonds at par, bearing three per 
centum interest, payable thirty years from date of issue, 
such bonds to be of the same general tenor and effect and 
to be issued under the same general terms and conditions 
as the United States three per centum bonds without the 
circulation privilege now issued and outstanding. 

Upon application of any Federal reserve bank, ap- 
proved by the Federal Reserve Board, the Secretary may 
issue at par such three per centum bonds in exchange 
for the one-year gold notes herein provided for. 

Bank Reserves 

Sec. 19. Demand deposits within the meaning of 
this Act shall comprise all deposits payable within thirty 
days, and time deposits shall comprise all deposits pay- 
able after thirty days, and all savings accounts and cer- 
tificates of deposit which are subject to not less than 
thirty days' notice before payment. 

When the Secretary of the Treasury shall have 
officially announced, in such manner as he may elect, the 
establishment of a Federal reserve bank in any district. 



PAGE 8i 



The Federal Reserve Act 



every subscribing member bank shall establish and main- 
tain reserves as follows: 

(a) A bank not in a reserve or central reserve city 
as now or hereafter defined shall hold and maintain 
reserves equal to twelve per centum of the aggregate 
amount of its demand deposits and five per centum of 
its time deposits, as follows : 

In its vaults for a period of thirty-six months after 
said date five-twelfths thereof and permanently there- 
after four-twelfths. 

In the Federal reserve bank of its district, for a 
period of twelve months after said date, two-twelfths, 
and for each succeeding six months an additional one- 
twelfth, until five-twelfths have been so deposited, which 
shall be the amount permanently required. 

For a period of thirty-six months after said date the 
balance of the reserves may be held in its own vaults, or 
in the Federal reserve bank, or in national banks in re- 
serve or central reserve cities as now defined by law. 

After said thirty-six months' period said reserves, 
other than those hereinbefore required to be held in the 
vaults of the member bank and in the Federal reserve 
bank, shall be held in the vaults of the member bank or 



PAGE 83 



The Federal Reserve Act 



in the Federal reserve bank, or in both, at the option of 
■ the member bank. 

(b) A bank in a reserve city, as now or hereafter 
defined, shall hold and maintain reserves equal to fifteen 
per centum of the aggregate amount of its demand de- 
posits and five per centum of its time deposits, as follows ; 

In its vaults for a period of thirty-six months after 
said date six-fifteenths thereof, and permanently there- 
after five-fifteenths. 

In the Federal reserve bank of its district for a 
period of twelve months after the date aforesaid at least 
three-fifteenths, and for each succeeding six months an 
additional one-fifteenth, until six-fifteenths have been so 
deposited, which shall be the amount permanently 
required. 

For a period of thirty-six months after said date 
the balance of the reserves may be held in its own vaults, 
or in the Federal reserve bank, or in national banks in 
reserve or central reserve cities as now defined by law. 

After said thirty-six months' period all of said re- 
serves, except those hereinbefore required to be held 
permanently in the vaults of the member bank and in 
the Federal reserve bank, shall be held in its vaults or 



PAGE 83 



The Federal Reserve Act 



in the Federal reserve bank, or in both, at the option of 
the member bank. 

(c) A bank in a central reserve city, as now or 
hereafter defined, shall hold and maintain a reserve equal 
to eighteen per centum of the aggregate amount of its 
demand deposits and five per centum of its time deposits, 
as follows: 

In its vaults six-eighteenths thereof. 

In the Federal reserve bank seven-eighteenths. 

The balance of said reserves shall be held in its own 
vaults or in the Federal reserve bank, at its option. 

Any Federal reserve bank may receive from the 
member banks as reserves, not exceeding one-half of 
each installment, eligible paper as described in section 
fourteen properly indorsed and acceptable to the said 
reserve bank. 

If a State bank or trust company is required by the 
law of its State to keep its reserves either in its own 
vaults or with another State bank or trust company, such 
reserve deposits so kept in such State bank or trust com- 
pany shall be construed, within the meaning of this sec- 
tion, as if they were reserve deposits in a national bank 



PAGE 84 



The Federal Reserve Act 



in a reserve or central reserve city for a period of three 
years after the Secretary of the Treasury shall have of- 
ficially announced the establishment of a Federal reserve 
bank in the district in which such State bank or trust 
company is situate. 

Except as thus provided, no member bank shall keep 
on deposit with any non-member bank a sum in excess 
of ten per centum of its own paid-up capital and surplus. 
No member bank shall act as the medium or agent of a 
non-member bank in applying for or receiving discounts 
from a Federal reserve bank under the provisions of this 
Act except by permission of the Federal Reserve Board. 

The reserve carried by a member bank with a Fed- 
eral reserve bank may, under the regulations and subject 
to such penalties as may be prescribed by the Federal 
Reserve Board, be checked against and withdrawn by 
such member bank for the purpose of meeting existing 
liabilities : Provided, however. That no bank shall at 
any time make new loans or shall pay any dividends un- 
less and until the total reserve required by law is fully 
restored. 

In estimating the reserves required by this Act, 
the net balance of amounts due to and from other banks 
shall be taken as the basis for ascertaining the deposits 



PAGE 85 



The Federal Reserve Act 



against which reserves shall be determined. Balances 
in reserve banks due to member banks shall, to the ex- 
tent herein provided, be counted as reserves. 

National banks located in Alaska or outside the con- 
tinental United States may remain non-member banks, 
and shall in that event maintain reserves and comply 
with all the conditions now provided by law regulating 
them; or said banks, except in the Philippine Islands, 
may, with the consent of the Reserve Board, become 
member banks of any one of the reserve districts, and 
shall, in that event, take stock, maintain reserves, and 
be subject to all the other provisions of this Act. 

Sec. 20. So much of sections two ahd three of the 
Act of June twentieth, eighteen hundred and seventy- 
four, entitled "An Act fixing the amount of United 
States notes, providing for a redistribution of the na- 
tional-bank currency, and for other purposes," as pro- 
vides that the fund deposited by any national banking 
association with the Treasurer of the United States for 
the redemption of its notes shall be counted as a part 
of its lawful reserve as provided in the Act aforesaid 
is hereby repealed. And from and after the passage 
of this Act such fund of five per centum shall in no 
case be counted by any national banking association as 
a part of its lawful reserve. 



PAGE 86 



The Federal Reserve Act 



Bank Examinations 

Sec. 21. Section fifty-two hundred and forty. 
United States Revised Statutes, is amended to read as 
follows : 

The Comptroller of the Currency, with the approval 
of the Secretary of the Treasury, shall appoint examiners 
who shall examine every member bank at least twice in 
each calendar year and oftener if considered necessary: 
Provided, however, That the Federal Reserve Board may 
authorize examination by the State authorities to be ac- 
cepted in the case of State banks and trust companies 
and may at any time direct the holding of a special ex- 
amination of State banks or trust companies that are 
stockholders in any Federal reserve bank. The examiner 
making the examination of any national bank, or of any 
other member bank, shall have power to make a thorough 
examination of all the affairs of the bank, and in doing 
so he shall have power to administer oaths and to ex- 
amine any of the officers and agents thereof under oath 
and shall make a full and detailed report of the condi- 
tion of said bank to the Comptroller of the Currency. 

The Federal Reserve Board, upon the recommenda- 
tion of the Comptroller of the Currency, shall fix the 
salaries of all bank examiners and make report thereof 



PAGE 8z 



The Federal Reserve Act 



to Congress. The expense of the examinations herein 
provided for shall be assessed by the Comptroller of the 
Currency upon the banks examined in proportion to as- 
sets or resources held by the banks upon the date of 
examination of the various banks. 

In addition to the examinations made and conducted 
by the Comptroller of the Currency, every Federal re- 
serve bank may, with the approval of the Federal reserve 
agent or the Federal Reserve Board, provide for special 
examination of member banks within its district. The 
expense of such examinations shall be borne by the bank 
examined. Such examinations shall be so conducted as 
to inform the Federal reserve bank of the condition of 
its member banks and of the lines of credit which are 
being extended by them. Every Federal reserve bank 
shall at all times furnish to the Federal Reserve Board 
such information as may be demanded concerning the 
condition of any member bank within the district of the 
said Federal reserve bank. 

No bank shall be subject to any visitatorial powers 
other than such as are authorized by law, or vested in 
the courts of justice or such as shall be or shall have 
been exercised or directed by Congress, or by either 
House thereof or by any committee of Congress or of 
either House duly authorized. 



PAGE 88 



The Federal Reserve Act 



The Federal Reserve Board shall, at least once each 
year, order an examination of each Federal reserve 
bank, and upon joint application of ten member banks 
the Federal Reserve Board shall order a special exam- 
ination and report of the condition of any Federal 
reserve bank. 

Sec. 22. No member bank or any officer, director, 
or employee thereof shall hereafter make any loan or 
grant any gratuity to any bank examiner. Any bank 
officer, director, or employee violating this provision 
shall be deemed guilty of a misdemeanor and shall be 
imprisoned not exceeding one year or fined not more 
than $5,000, or both; and may be fined a further sum 
equal to the money so loaned or gratuity given. Any 
examiner accepting a loan or gratuity from any bank 
examined by him or from an officer, director or employee 
thereof shall be deemed guilty of a misdemeanor and 
shall be iijiprisoned not exceeding one year or fined not 
more than $5,000, or both; and may be fined a further 
sum equal to the money so loaned or gratuity given; 
and shall forever threreafter be disqualified from hold- 
ing office as a national-bank examiner. No national- 
bank examiner shall perform any other service for com- 
pensation while holding such office for any bank or 
officer, director, or employee thereof. 

PAGE 89 



The Federal Reserve Act 



Other than the usual salary or director's fee paid 
to any officer, director, or employee of a member bank 
and other than a reasonable fee paid by said bank to 
such officer, director, or employee for services rendered 
to such bank, no officer, director, employee, or attorney 
of a member bank shall be a beneficiary of or receive, 
directly or indirectly, any fee, commission, gift, or other 
consideration for or in connection with any transaction 
or business of the bank. No examiner, public or private, 
shall disclose the names of borrowers or the collateral 
for loans of a member bank to other than the proper 
officers of such bank without first having obttained the 
express permission in writing from the Comptroller of 
the Currency or from the board of directors of such 
bank, except when ordered to do so by a court of com- 
petent jurisdiction, or by direction of the Congress of 
the United States, or of either House thereof, or of any 
committee of Congress or of either House duly author- 
ized. Any person violating any provision of this section 
shall be punished by a fine of not exceeding $5,000 or by 
imprisonment not exceeding one year, or both. 

Except as provided in existing laws, this provision 
shall not take effect until sixty days after the passage 
of this Act. 



PAGE go 



The Federal Reserve Act 



Sec. 23. The stockholders of every national bank- 
ing association shall be held individually responsible for 
all contracts, debts and engagements of such association, 
each to the amount of his stock therein, at the par value 
thereof in addition to the amount invested in such stock. 
The stockholders in any national banking association 
who shall have transferred their shares or registered the 
transfer thereof within sixty days next before the date 
of the failure of such association to meet its obligations, 
or with knowledge of such impending failure, shall be 
liable to the same extent as if they had made no such 
transfer, to the extent that the subsequent transferee 
fails to meet such liability ; but this provision shall not be 
construed to affect in any way any recourse which such 
shareholders might otherwise have against those in 
whose names such shares are registered at the time of 
such failure. 

Loans on Farm Lands 

Sec. 24. Any national banking association not sit- 
uated in a central reserve city may make loans secured 
by improved and unencumbered farm land, situated 
within its Federal reserve district, but no such loan shall 
be made for a longer time than five years, nor for an 
amount exceeding fifty per centum of the actual value of 
the property offered as security. Any such bank may 



PAGE 9 J 



The Federal Reserve Act 



make such loans in an aggregate sum equal to twenty- 
five per centum of its capital and surplus or to one-third 
of its time deposits, and such banks may continue here- 
after as heretofore to receive time deposits and to pay 
interest on the same. 

The Federal Reserve Board shall have power from 
time to time to add to the list of cities in which national 
banks shall not be permitted to make loans secured upon 
real estate in the manner described in this section. 

Foreign Branches 

Sec. 25. Any national banking association possess- 
ing a capital and surplus of $1,000,000 or more may file 
application with the Federal Reserve Board, upon such 
conditions and under such regulations as may be pre- 
scribed by the said board, for the purpose of securing 
authority to establish branches in foreign countries or 
dependencies of the United States for the furtherance 
of the foreign commerce of the United States, and to 
act, if required to do so, as fiscal agents of the United 
States. Such application shall specify, in addition to 
the name and capital of the banking association filing 
it, the place or places where the banking operations pro- 
posed are to be carried on, and the amount of capital set 
aside for the conduct of its foreign business. The Fed- 

PAGB pg 



The Federal Reserve Act 



eral Reserve Board shall have power to approve or to 
reject such application if, in its judgment, the amount of 
capital proposed to be set aside for the conduct of foreign 
business is inadequate, or if for other reasons the grant- 
ing of such application is deemed inexpedient. 

Every national banking association which shall re- 
ceive authority to establish foreign branches shall be 
required at all times to furnish information concerning 
the condition of such branches to the Comptroller of the 
Currency upon demand, and the Federal Reserve Board 
may order special examinations of the said foreign 
branches at such time or times as it may deem best. 
Every such national banking association shall conduct 
the accounts of each foreign branch independently of 
the accounts of other foregn branches established by it 
and of its home office, and shall at the end of each fiscal 
period transfer to its general ledger the profit or loss 
accruing at each branch as a separate item. 

Sec. 26. All provisions of law inconsistent with 
or superseded by any of the provisions of this Act are 
to that extent and to that extent only hereby repealed: 
Provided, Nothing in this Act contained shall be con- 
strued to repeal the parity provision or provisions con- 
tained in an Act approved March fourteenth, nineteen 
hundred, entitled "An Act to define and fix the standard 



PAGE 93 



The Federal Reserve Act 



of value, to maintain the parity of all forms of money 
issued or coined by the United States, to refund the 
public debt, and for other purposes," and the Secretary 
of the Treasury may for the purpose of maintaining 
such parity and to strengthen the gold reserve, borrow 
gold on the security of United States bonds authorized 
by section two of the Act last referred to or for one- 
year gold notes bearing interest at a rate of not to exceed 
three per centum per annum, or sell the same if necessary 
to obtain gold. When the funds of the Treasury on hand 
justify, he may purchase and retire such outstanding 
bonds and notes. 

Sec. 27. The provisions of the Act of May 
thirtieth, nineteen hundred and eight, authorizing 
national currency associations, the issue of additional 
national-bank circulation, and creating a National Mone- 
tary Commission, which expires by limitation under 
the terms of such Act on the thirtieth day of June, nine- 
teen hundred and fourteen, are hereby extended to June 
thirtieth, nineteen hundred and fifteen, and sections 
fifty-one hundred and fifty-three, fifty-one hundred and 
seventy-two, fifty-one hundred and ninety-one, and fifty- 
two hundred and fourteen of the Revised Statutes of 
the United States, which were amended by the Act of 
May thirtieth, nineteen hundred and eight, are hereby 



PAGE 94 



The Federal Reserve Act 



re-enacted to read as such sections read prior to May 
thirtieth, nineteen hundred and eight, subject to such 
amendments or modifications as are prescribed in this 
Act : Provided, however, That section nine of the Act 
first referred to in this section is hereby amended so as 
to change the tax rates fixed in said Act by making the 
portion applicable thereto read as follows : 

National banking associations having circulating 
notes secured otherwise than by bonds of the United 
States, shall pay for the first three months a tax at the 
rate of three per centum per annum upon the average 
amount of such of their notes in circulation as are based 
upon the deposit of such securities, and afterwards an 
additional tax rate of one-half of one per centum per 
annum for each month until a tax of six per centum per 
annum is reached, and thereafter such tax of six per 
centum per annum upon the average amount of such 
notes. 

Sec. 28. Section fifty-one hundred and forty-three 
of the Revised Statutes is hereby amended and re-enacted 
to read as follows: Any association formed under this 
title may, by the vote of shareholders owning two-thirds 
of its capital stock, reduce its capital to any sum not 
below the amount required by this title to authorize the 
formation of associations; but no such reduction shall 



PAGE 95 



The Federal Reserve Act 



be allowable which will reduce the capital of the associa- 
tion below the amount required for its outstanding cir- 
culation, nor shall any reduction be made until the amount 
of the proposed reduction has been reported to the 
Comptroller of the Currency and such reduction has been 
approved by the said Comptroller of the Currency and 
by the Federal Reserve Board, or by the organization 
committee pending the organization of the Federal Re- 
serve Board. 

Sec. 29. If any clause, sentence, paragraph, or 
part of this Act shall for any reason be adjudged by 
any court of competent jurisdiction to be invalid, such 
judgment shall not affect, impair, or invalidate the re- 
mainder of this Act, but shall be confined in its opera- 
tion to the clause, sentence, paragraph, or part thereof 
directly involved in the controversy in which such judg- 
ment shall have been rendered. 

Sec. 30. The right to amend, alter, or repeal this 
Act is hereby expressly reserved. 



PAGE i>6 



Analysis of the Federal Reserve Act 



Title 

The Federal Reserve Act. 

1. Definition of "bank," "board," "district," etc. 

Effective 

As soon as practicable. 

Federal Reserve Districts 

Organization Coirunittee composed of 

1. Secretary of the Treasury. 

2. Secretary of Agriculture. 

3. Comptroller of the Currency. 

Country to be divided into not less than 8 nor more 
than 12 districts. 

1. Country to exclude Alaska. 

2. Districts not necessarily coterminous with a 
state. 

PAGE 97 



Analysis of the Federal Reserve Act 

3. Districts may be readjusted by Federal Reserve 
Board. 

4. Districts to be designated by number. 

5. Each district to have a Federal Reserve City to 
be designated by the organization committee. 

6. Organization committee may employ assistance. 

— Banks to become members. 

1. All national banks required to become members. 

2. Must signify their willingness to join within 60 
days. 

~ 3. Within 30 days after receiving notice banks 

must subscribe 6 per centum of their capital 
and surplus to the capital of the reserve banks. 

(a) One-sixth to be payable on call. 

(b) One-sixth payable within three months. 

(c) One-sixth payable within six months. 

(d) Remainder subject to call. 

~ 4. Shareholders of Reserve Bank to be held re- 

sponsible individually. 

5. National banks failing to offer to come in the 
system within 60 days to cease to be a reserve 
agent. 



(a) Thirty days' notice to be given. 



PAGE 98 



Analysis of the Federal Reserve Act 

6. National banks failing to join within a year to 
be compelled to give up their national charters. 

~ 7. If banks fail to subscribe sufficient capital, stock 
of reserve bank may be offered to the public. 

(a) No one other than a bank may hold more 
than $25,000 stock in a reserve bank. 

8. If not sufficient capital then raised, the United 
States government may subscribe. 

Voting power of stock. 

1. Stock held by others than banks not to have a 
voting power. 

(a) Reserve Board to regulate the transfers of 
this stock. 

Size of banks. 

1. No reserve bank to start with capital of less 
than $4,000,000. 

2. Each reserve bank shall establish branches in 
its district. 

(a) Regulated by Board. 

(b) Reserve bank to designate manager of a 
branch. 



PAGE pv 



Analysis of the Federal Reserve Act 

Federal Reserve Banks 

Application for a reserve bank to be filed with 
Comptroller of the Currency 

1. By at least five banks in a district. 

2. Organization certificate to be acknowledged be- 
fore a judge, court of record, or notary public. 

3. Certificates to state 

(a) Name of reserve bank. 

(b) Limits of the district. 

(c) Location of reserve bank. 

(d) Amount of capital stock. 

(e) Etc. 

Organization certificate gives power 

1. To adopt a corporate seal. 

2. To have twenty-year franchise. 

3. To make contracts. 

4. To have entity before law. 

5. To appoint officers not enumerated by this act. 

6. To prescribe by-laws. 

7. To exercise specific and incidental powers. 



PAGE 100 



Analysis of the Federal Reserve Act 



8. To deposit government bonds and receive circu- 
lating notes from the Comptroller of the Cur- 
rency. 

9. Cannot exercise these powers until authorized 
by Comptroller of the Currency. 



Board of directors of a Reserve Bank 

1. To consist of three classes : 

Class A — ^Three members chosen by member banks. 
Class B — Three members representing commerce, 

agriculture and some other pursuit. 
Class C — Three members designated by Federal 

Reserve Board. 

2. Directors of Class B and C not to be connected 
with any bank. B directors may, however, be 
shareholders. 

3. No member of Congress may be member of 
Reserve Board, or director or officer of a re- 
serve bank. 

4. Class A and B directors elected by bank elec- 
tors, each member bank having one vote. 

5. Chairman of board of directors, (Federal Re- 
serve Agent) one of Class C, to have tested 
banking experience. 

6. One director of each class to retire each year — 
thereafter term of office is three years. 



PAGE loi 



Analysis of the Federal Reserve Act 

7. Method of selecting directors of Class A and B 
prescribed. 

8. Specific qualifications required of Class C di- 
rector. 

9. Chairman to be "Federal reserve agent." 

10. Chairman to have tested banking experience. 

11. Deputy chairman — from Class C — to have 
tested banking experience. 

12. Expenses to be paid by reserve banks. 

Stock issues ; increase of capital. 

1. Shares, $100. 

2. Stock increased as member banks increase or 
grow. 

3. Shares held by member banks not to be trans- 
ferred or hypothecated. 

4. New shares and shares surrendered after or- 
ganization to be paid at par plus dividend. 

5. Failed and liquidated banks and capital de- 
creases of member banks corresponds to in- 
crease and decrease in reserve bank capital. 



Division of earnings. 

Stockholders t 
dividend, 
(a) First excepting expetises of reserve banks, 



1. Stockholders to receive 6 per cent, cumulative 
dividend. 



PAGE 102 



Analysis of the Federal Reserve Act 



•«. 2. Remainder to go to Government. 

(a) One-half of earnings remaining after the pay- 
ment of these obligations to create a surplus 
fund. Until surplus equals 40 per cent of 
capital of a reserve bank. 

3. Secretary of Treasury may use net earnings to 
the government to add to gold reserve or to be 
used in liquidating the bonded debt. 

4. Reserve banks exempt from taxation, except on 
real estate. 



State banks 

1. May become national banks. 

(a) By compliance with national banking law. 

(b) When not in contravention of state law. 

2. State banks and trust companies may become 
members and retain state charters by applyiiig 
to Federal Reserve Board for membership in 
the system. 

(a) Must conform to reserve and capital require- 
ments of national banks. 

(b) Must conform to national law on limitation of 
liability. 

(c) Must make reports to Comptroller. 

(d) Federal Reserve Board jnay suspend, cancel 
or restore a state institution to membership. 



PAGE 103 



Analysis of the Federal Reserve Act 

Federal Reserve Board 

To consist of seven members : 

1. Secretary of the Treasury. 

2. Comptroller of the Currency. 

3. Five others appointed by President with con- 
sent of the Senate. 

(a) These to represent the country geographi- 
cally, commercially and industrially. 

(b) The five to devote entire time to their duties 
and receive salary of $12,000 per annum. 

(c) Comptroller to receive $7,000, in addition to 
his present salary. 

4. Secretary and Assistant Secretaries of the 

Treasury, Comptroller and members of Board 
not permitted to take office with a member 
bank during term of office or for two years 
after retiring. 

5. At least two members must be experienced in 
banking. 

6. One member to retire each second year, there- 
after term is 10 years. 

7. One of the five appointees to be designated by 
President as governor of the board. 

Board to levy semi-annually upon reserve banks 
assessment to pay expenses and salaries of board. 



PAGE 104 



Analysis of the Federal Reserve Act 



Offices to be in Treasury Department, Washington, 
D. C. 

No member of board may be connected with any 
bank. 

President may fill vacancies during recess of Con- 
gress. 

Powers of Secretary of Treasury not curtailed. 

Federal Reserve Board to report to the Speaker of 
the House of Representatives annually. 

Federal Reserve Board has the following powers: 

1. To examine Federal Banks and publish weekly 
statement. 

2. To permit or require one reserve bank to redis- 
count for another reserve bank. 

3. To suspend for not over 30 days the reserve 
requirements. 

(a) A graduated tax to apply when reserves fall 
below 40 per cent. 

4. To supervise the issue and retirement of reserve 
notes. 



PAGE 105 



Analysis of the Federal Reserve Act 

5. To add to number of reserve and central reserve 
cities. 

6. To suspend or remove any officer or director of 
a reserve bank. 

7. To require writing off of worthless assets of a 
reserve bank. 

8. To suspend, for cause, and operate a reserve 
bank. 

9. To require bonds of reserve agents. 

10. To exercise general supervision over reserve 
banks. 

11. To permit national banks to act as trustee, 
executor, administrator, or registrar of stocks 
and bonds. 

12. To employ necessary assistants, etc. 
(a) Without civil service act. 

Federal Advisory Council, an adjunct to the Board. 

1. One member selected by each reserve bank. 

2. Salary to be fixed by reserve bank. 

3. Council to meet in Washington, D. C, at least 
four times a year. 

4. Meetings oftener when called by the Board. 



PAGE io6 



Analysis of the Federal Reserve Act 

5. Council has the power: 

(a) To confer with Board on general business 
conditions. 

(b) To make representations concerning matters 
under the jurisdiction of the Board. 

(c) To make recommendations regarding di^pount 
rates, and other operations of reserve banks. 

Operations of Federal Reserve Banks 

Reserve banks are granted the power 

1. To receive deposits from member banks. 

2. To receive deposits from the United States. 

3. To receive deposits from other reserve banks. 

4. To discount notes of member banks growing 
out of commercial transactions. 

5. To discount acceptances indorsed by a member 
bank. 

(a) Amount of acceptances not to exceed one-half 
of capital of member bank. 

(b) Amount of notes of one person not to exceed 
10 per cent, of capital and surplus of member 
bank. 

(c) Amount of commercial notes not to exceed 
one-half paid-up capital and surplus of mem- 
ber bank. 

6. Liability of member banks restricted. 

PAGE 107 



Analysis of the Federal Reserve Act 



7. Board may regulate discount operations of a 
reserve bank. 



Open-market operations. 

1. Reserve bank may purchase and sell in open 
market 

(a) Cable transfers. 

(b) Bankers' acceptances. 

(c) Bills of exchange. 

2. A reserve bank has power 

(a) To deal in gold coin and bullion. 

(b) Buy and sell bonds and notes of certain kinds. 

(c) Purchase and sell bills of exchange. 

(d) Establish rates of discount. 

(e) Establish exchange accounts at home and 
abroad. 



Government deposits. 

1. Secretary of Treasury may deposit public funds 
with reserve banks, and use reserve banks as 
fiscal agents. 

(a) Excepting five per cent, redemption fund. 

(b) National banks may still be government de- 
positories. 



PAGE loS 



Analysis of the Federal Reserve Act 

Note issues. 

1. Board to issue reserve notes to reserve banks. 

(a) Notes to be obligations of government. 

(b) Redeemable in gold at Treasury. 

(c) Redeemable in gold or lawful money at re- 
serve bank. 

2. Reserve banks to receive these notes upon filing 
notes and bills accepted for rediscount. 

(a) Board may call upon reserve bank for addi- 
tional security. 

3. Reserve bank to maintain reserve in gold or 
lawful money of 35 per cent of deposits. 

(a) Gold reserve against notes in circulation must 
be 40 per cent. 

4. Reserve bank taxed 10 per cent on notes it is- 
sues of any other reserve bank. 

5. Reserve bank to deposit with Treasury a re- 
demption fund of at least 5 per cent. 

6. Reserve bank may reduce outstanding liabilities 
by depositing with Treasury notes, gold, certifi- 
cates, or lawful money. 

7. Reserve agent to hold gold, certificates or law- 
ful money for exchange for reserve notes. 

8. Reserve bank may substitute collateral held by 
agent. 



PAGE 109 



Analysis of the Federal Reserve Act 

9. Comptroller to have dies prepared for engrav- 
ing reserve notes. 

(a) Reserve banks to bear expense of engraving. 

10. Reserve banks to clear checks 

(a) Received at par from members. 

(b) At par from other reserve banks. 

(c) Board to regulate charges exacted of mem- 
ber banks for clearing checks. 

(d) Board to regulate transfer of funds. 

11. New national banks not to issue circulation 
based on bonds. 

Government bonds to be refunded. 

1. After two years from passage of this act and for 
twenty years thereafter a bank may retire its 
notes and sell its bonds held as security. 

2. Applications for this to be filed with U. S. 
Treasurer. 

3. Retiring bonds to be purchased by Federal Re- 
serve Banks. 

(a) Bonds purchased in any one year not to ex- 
ceed $25,000,000. 

(b) Reserve bank purchasing the bonds may issue 
circulating notes equal to par value of the 
bonds. 

(c) These circulating notes to be obligations of 
reserve banks. 



PAGE no 



Analysis of the Federal Reserve Act 

4. Government may issue in exchange for out- 
standing 2 per cent bonds, against which no 
circulation is outstanding. 

(a) One-year 3 per cent treasury gold notes, SO 
per cent interest. 

(b) Thirty-year 3 per cent bonds, SO per cent. 

Requirements of Banks 

Country banks should hold reserves 

1. Of 12 per cent on demand deposits. 

2. Of 5 per cent on time deposits. 

3. This reserve to be segregated as follows: 

(a) In vaults (Compulsory): 

12 months S-12 

18 months S-12 

24 months S-12 

30 months S-12 

36 months S-12 

Thereafter 4-12 

In Federal Reserve Bank (Compulsory): 

12 months 2-12 

18 months 3-12 

24 months 4-12 

30 months S-12 

36 months S-12 

Thereafter S-12 

PAGE III 



Analysis of the Federal Reserve Act 



(b) The remainder to be held for the first 36 
months in either the vaults, reserve banks or 
in national banks in reserve cities or central 
reserve cities. 

(c) Thereafter it may be held in vaults or in re- 
reserve banks. 



Reserve city banks shall hold reserves 

1. Of 15 per cent, on demand deposits. 

2. Of 5 per cent on time deposits. 

3. This reserve to be segregated as follows: 

(a) In vaults (Compulsory): 

12 months ; 6-15 

18 months 6-lS 

24 months , 6-15 

36 months 6-15 

36 months 6-15 

Thereafter S-IS 

In Federal Reserve Banks (Compulsory): 

12 months 3-15 

18 months 4-15 

24 months 5-15 

■ 30 months 6-15 

36 months 6-lS 

Thereafter 6-15 

(b) The remainder to be held for the first 36 
months in either vault, reserve banks or in 
banks in reserve or central reserve cities. 

PAGE 112 



Analysis of the Federal Reserve Act 



(c) Thereafter it may be held in vaults or in 
reserve banks. 



Central reserve city banks shall hold reserves 

1. Of 18 per cent on demand deposits. 

2. Of 5 per cent on time deposits. 

3. This reserve to be segregated as follows : 

(a) In vaults (compulsory), 6-18 thereof. 

(b) In reserve banks (compulsory), 7-18 thereof. 

(c) Remainder in either own vaults or in reserve 
bank. 

Reserves of state banks held in state banks to be 
considered as being held by reserve or central re- 
serve city national banks. 

1. A member bank could not rediscount with a 
Reserve association any paper endorsed by non- 
member bank except by permission of Federal 
Board. 

Reserves in reserve banks may be checked against. 

Banks in Alaska or outside the continental United 
States not required to come into the system. 

J- PAGE 113 



Analysis of the Federal Reserve Act 

Bank examinations. 

1. Comptroller of the currency to authorize bank 
examinations. 

2. Board to fix salaries of bank examiners. 

3. A reserve bank may authorize the examination 
of a member bank within its district. 

4. Board to order examination of Reserve Banks 
at least once a year. 

No loan or gratuity may be extended an examiner 
by a bank. 

No extra fee, etc., may be paid an officer or em- 
ployee of a bank. 

1. Effective 60 days after passage of this act. 
Stockholders of banks are individually responsible. 

Any country or reserve city bank may make farm 
loans. 

1. Such loans may not be made by central reserve 
city banks. 

2. Cannot be made for a time longer than 5 years. 

3. Not to exceed 50 per cent of the value of the 
land. 



PAGE IJ4 



Analysis of the Federal Reserve Act 

4. Such loans not to exceed 25 per cent of a bank's 
capital and surplus or one-third of its time de- 
posits. 

5. Board may add to list of cities within which the 
banks may not loan on farm lands. 

Foreign branches 

1. May be established by a member bank with 
capital exceeding $1,000,000 upon application 
to the Board. 

2. Branches under regulation of the Board. 

3. Reports of branches to be filed with Comptrol- 
ler. 

Accounts of branches to be separate. 

Nothing in this act to repeal the gold standard act. 

Aldrich-Vreeland emergency currency act extended 
until June 30, 1915. 

1. This act amended by reducing tax rate. 

Miscellaneous 

National banks permitted to reduce their capital. 

If a court holds one section of this act unconstitu- 
tional, that shall not impair the remainder of the 
act. 
Right to amend, alter or repeal is reserved. 

PAGE lis 



INDEX 



History 

Complete Text of Law 

Digest of Federal Reserve Act. 



Page 
._ 5 
__ 27 
.._97 



INDEX OF ACT 



Paie Sect. 



A. 
Appucation 

For Membership Federal Reserve Bank- 



Ban^c 

Definition 

Bank Examinations 

See Examinations. 
Bank Reserves 

S'ee Reserve. 

BOAKD 

Definition 



B. 



Federal Reserve. 
Branch Banks 

How established... 



(See Federal Reserve Board.) 



Managed by Board of Directors-. 

How Selected 

Manager of 

Branch Offices 

See Branch Banks. 

Demand Deposits 

Definition 

Directors 



D. 



of Federal Reserve Banks.., 

of Branch Banks 

of Member banks, fees or commissions for loans 
prohibited 



27 



27 



27 



33 
34 
34 

34 



81 

38 
34 

89 



19 

4 
3 

22 



PAGE 117 



The Federal Reserve Act 



INDEX 



Paee Sect 



Penalty for 

Dissolution 

of Member Banks effect. 

District 

Definition 



Division of Earnings 
See Earnings. 



Earnings 

of Federal Reserve Banks- 
How distributed 



Dividends to Stockholders™ 

U. S. franchise tax 

Surplus fund 



U. S. Earnings, how applied.. 



Emergency Currency 

Limitations of, Act of May 30, 1908, extended to 
June 30, 191S — 

Examinations 

of Member Banks.. 
Periodical 



Special examinations by order of Federal Reserve 
Board 



By Federal Reserve Banks. 
Expenses of, how paid 



Other visitorial powers- 

Examiners 

How appointed 

Salaries 



Not to receive gratuities from banks examined 

Penalty for 

Not to perform other services for banks examined— 



89 



80 



27 



46 
46 
47 
47 
47 



94 

87 
87 

87 
88 
87 
88 

87 
87 
89 
89 



PAGE 118 



The Federal Reserve Act 



INDEX 



Page 



Farm Lands 

See Loans on Farm Lands. 

Federal Advisory Council 

How appointed 

Meetings 

Powers 



Federal Reserve Agent 
Salary , 



Deputy 



Federal Reserve Banks 

Organized by Reserve Bank Organization Com- 
mittee 

Name of 

National Banks to signify intention to become 
members 



Subscription of 
surplus 



member banks 6% of capital & 



Stock (see stock) 

Payments, how made- 
How organized 

Powers 



Directors, how elected.. 



Class A by Member Banks — — 

Class B by Member Banks 

Class C by Federal Reserve Board.. 



No senator or congressman eligible. 
Electors selected from groups. 
Preferential ballot 



Directors, salaries & expenses.. 
Decrease and increase of stock. 



May be Government depositaries and required to 
act as iiscal agents. 



To receive checks at par 

Required to purchase 2% Government bonds at par 
after two years 



61 
61 
62 
42 
42 
42 



27 
29 

29 

29 
44 
29 
84 
S6 
38 
39 
89 
39 
39 
40 
41 
43 
44 

68 
68 

77 



PAGE 119 



The Federal Reserve Act 



INDEX 



Paee i 



Limitations of purchase- 



May issue notes against bonds purchased... 



May exchange 2% bonds purchased for 3% bonds 

Must re-purchase one-year bonds from year to year 

Federal Reserve Board 
How appointed- 



Secretary of the Treasury, Comptroller 

Currency, members ex-officio._ 

Salaries 



of the 



Terms of office... 



Expenses, how paid- 
First meeting.. 



Members ineligible to serve as Directors or officers 
of member banks for two years after retirement.. 
Vacancies, how filled 



Powers in conflict with those of the Secretary of 
the Treasury. 



To supervise issue of Federal Reserve Notes- 
General powers- 



Power to fix rules governing exchange charges 

To act as clearing house for Federal Reserve Banks 

Federal Reserve Cities 

Number 



77 
78 
79 
80 

53 

53 
53 
54 
54 
55 

53 
55 



-r% 



Designated by 

How determined- 



Subject to review by 

Federal Reserve Districts 
Number 



Designated by number- 
How changed 

Reviewed by 



Federal Reserve Notes 
How issued- 



Term and effect-. 



Reserve against, held by banks- 



57 
76 
76 



28 
28 
28 

28 

28 
28 
28 
28 

68 
68 
70 



PAGE ISO 



The Federal Reserve Act 



INDEX 



Paee Sect. 



Redemption of 

Withdrawal of collateral security for_ 

How printed 

Where deposited 



Denominations 

Delivered to Federal Reserve Agent. 

Appropriation f or_ 



Expenses of issue, how paid 

Foreign Branches 

National banks may establish when 

Regulations to be prescribed by Federal 
Board 



Reserve 



May be required to act as fiscal agents of United 
States 



G. 

Gold Reserve 

Secretary to maintain 

Government Deposits 

May be made with Federal Reserve Banks- 
With Member Banks 



I. 

Inconsistent Laws Repealed 

L. 

Loans on Farm Lands 

Member banks not in reserve cities may make- 
Federal Reserve Board may extend list 

Amount and time of such loans 



National Bank 
Definition 



N. 



Limitation of liabilities extended to include debts 
due Federal Reserve Banks, 



Need not deposit U. S. Government bonds before 
commencing business 



71 
73 
73 
74 
78 
72 
75 
74 

92 

92 

92 



68 



93 



91 
92 
91 



27 
64 
76 



PAGE lit 



The Federal Reserve Act 



INDEX 



PaEe Sect. 



Reduction of Capital Stock, how affected. 

Note Issob 

See Federal Reserve Notes 



O. 

OSGANIZATION COMMITTEE 

See Reserve Bank Organization Committee. 

P. 

Penalty 

For failure to signify acceptance of provisions of 
this act 



For violating provisions- 



For violating provisions by State Bank Members.- 

R. 

Reserve Bank 

Definition 

Reserve Bank Organization Committee 

Composed of 

Powers , 



S. 
State Banks 

Converted to National Banks- 



May become Members as State Banks- 
Conditions of membership 

Regulations 



Must be eligible to conversion as National Banks- 
Penalty for violation of provisions 

Reserve required— 

Stock 

Member banks , 



Public stock- 
Non-Voting 
U. S. Stock- 



How Public and U. S. stock transferred- 



Minimum Capital for any Federal Reserve Bank— 



PAGE I3i 



95 



80 
80 
62 



27 

27 
28 



48 
49 
49 
49 
60 
51 
84 

31 
32 
38 
32 
33 
88