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

FEDERAL RESERVE BANK
OF NEW YORK

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

BANKING ACT OF 1933

To all Member Banks in the

Second Federal Reserve District:

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

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

George L. Harrison,

Governor.

[Public — No. 66 — 73d Congress]

[H.R. 5661]

AN ACT

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

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

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

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

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

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

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

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

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

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

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

2 [Pub. 66.]

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

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

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

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

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

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

[Ptm.64.1 3

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

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

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

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

4 [POB. 66.1

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

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

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

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

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

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

[Pen. 66.]

5

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

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

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

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

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

b (PVB. 66.]

any member bank, except that this restriction shall not apply to a
member who has served the full term for which he was appointed.
Upon the expiration of the term of any appointive member of the
Federal Reserve Board in office when this paragraph as amended
takes effect, the President shall fix the term of the successor to such
member at not to exceed twelve years, as designated by the President
at the time of nomination, but in such manner as to provide for the
expiration of the term of not more than one appointive member in
any two-year period, and thereafter each appointive member shall
hold office for a term of twelve years from the expiration of the term
of his predecessor. Of the six persons thus appointed, one shall be
designated by the President as governor and one as vice governor of
the Federal Reserve Board. The governor of the Federal Reserve
Board, subject to its supervision, shall be its active executive officer.
Each member of the Federal Reserve Board shall within fifteen days
after notice of appointment make and subscribe to the oath of office."

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

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

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

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

[Pcb. Ml /

vidual bank capital and surplus which may be represented by loans
secured by stock or bond collateral made by member banks within
such district, but no such loan shall be made by any such bank to
any person in an amount in excess of 10 per centum of the unim-
paired capital and surplus of such bank. Any percentage so fixed
by the Federal Eeserve Board shall be subject to change from time
to time upon ten days' notice, and it shall be the duty of the Board
to establish such percentages with a view to preventing the undue
use of bank loans for the speculative carrying of securities. The
Federal Reserve Board shall have power to direct any member bank
to refrain from further increase of its loans secured by stock or
bond collateral for any period up to one year under penalty of
suspension of all rediscount privileges at Federal reserve banks."

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

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

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

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

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

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

8 [Pub. M.l

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

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

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

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

[PUB. 68.1 S»

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

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

Pub. No. 66 2

10 [Pub. 60.1

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

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

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

(PUB. M.]

11

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

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

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

" First. To adopt and use a corporate seal.

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

" Third. To make contracts.

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

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

12 [POB. 60.1

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

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

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

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

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

IPUB. 66.)

13

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

14

IPUB 661

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

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

[PCB. 6fi.]

15

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

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

16 IPOB. 86.]

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

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

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

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

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

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

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

[Pub. 66.]

17

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

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

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

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

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

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

Pub. No. 66 3

18 [PCB.68.1

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

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

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

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

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

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

[Pub. CO.]

19

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

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

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

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

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

20 [PUB. 66.]

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

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

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

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

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

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

[Pub. 66.] 21

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

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

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

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

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

22

fPCB. 66.]

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

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

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

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

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

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

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

[Pub. 66.]

23

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

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

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

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

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

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

24

(Pub. 66.]

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

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

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

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

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

IPCB. 66J

25

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

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

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

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

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

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

26 [pcb.wi

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

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

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

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

1P0B. 66.J

27

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

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

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

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

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

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

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

28

[Pub. 66.1

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

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

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

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

(PUB. 68.]

29

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

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

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

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

30 ipot.m.i

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

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

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

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

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

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

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

[Pub. m.]

31

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

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

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

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

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

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

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

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

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

32 [Pcb. 66.]

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

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

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

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

[Pub. 66.]

33

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

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

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

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

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

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

34 ipcb.mj

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

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

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

[Pub. 66.]

35

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

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

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

36 ipub.mj

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

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

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

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

|Pub. 68.1 37

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

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

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

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

SUMMARY OF BANKING ACT OF 1933

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

Title. SECTION 1

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SECTION 4

Distribution of earnings of Federal reserve banks.

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

SECTION 5(a)

Membership of Morris Plan Banks.

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

SECTION 5(b)
Branches of State member banks.

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

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

SECTION 5(c)

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

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

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

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

Reports of affiliates of State member banks.

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

2

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

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

Dealings in stocks and investment securities by State member banks.

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

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

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

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

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

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

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

Examination of the affiliates of State member banks.

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

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

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

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

Offices of the Federal Reserve Board.

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

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

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

SECTION 7

Loans by member banks on stock or bond collateral.

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

SECTION 8
Federal Open Market Committee.

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

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

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

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

Federal Deposit Insurance Corporation.

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

Temporary Insurance provisions.

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

4

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

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

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

Permanent plan for insurance of deposits.

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

Management.

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

Capital stock.

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

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

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

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

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

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

What Banks may obtain benefit of Insurance Plan.

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

s

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

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

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

Banks applying for Membership in the Federal Reserve System.

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

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

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

Time and Amount of Insurance of Deposits.

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

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

Manner of Operation of the Insurance Fund — National Banks.

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

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

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

Manner of Operation of Insurance Funds — State Banks.

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

Loans to Closed Banks.

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

6

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

Issue of Debentures by Corporation.

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

Investment of Funds of Corporation.

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

Depositary of Public Moneys.

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

No discrimination against nonmember banks.

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

Criminal Provisions.

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

SECTION 9
Loans on Member Banks' Collateral Notes.

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

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

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

SECTION 10
Foreign transactions of Federal reserve banks.

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

7

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

SECTION 11(a)

Member banks as mediums in making loans on collateral.

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

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

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

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

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

SECTION 11(c)
Withdrawal of Postal Savings Deposits.

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

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

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

SECTION 12
Loans by Member Banks to Executive Officers.

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

SECTION 13
Loans to or investments in stock of affiliates.

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

8

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

SECTION 14
Limitation on Investments in Bank Premises.

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

SECTION 15

Jurisdiction of Federal Courts over cases involving foreign banking transactions.

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

Jurisdiction of suits by or against Federal reserve banks.

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

SECTION 16
Dealings in investment securities.

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

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

No member bank shall underwrite any issue of securities.

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

9

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

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

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

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

SECTION 17(a)
Capital requirements of national banks.

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

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

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

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

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

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

SECTION 19
Cumulative Voting for Directors of National Banks.

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

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

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

10

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

Regulation of Holding Companies.

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

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

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

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

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

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

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

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

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

SECTION 20

Relationships between member banks and securities dealers.

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

ll

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

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

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

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

SECTION 22
Liability of Shareholders of National Banks.

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

SECTION 23
Branches of National Banks.

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

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

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

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

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

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

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

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

12

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

SECTION 25

Rate of interest on loans.

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

SECTION

,»

D

Limitations on loans to affiliated corporations.

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

SECTION 27
Reports of affiliates of national banks.

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

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

SECTION 28
Examinations of affiliates of national banks.

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

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

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

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

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

SECTION 29
Resumption of business by closed national banks.

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

SECTION 30
Removal of bank directors or officers from office.

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

SECTION 31

.

Board of directors of National and State member banks.

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

SECTION 32

Relations of Member Banks ivith Securities Companies.

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

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SECTION 33
Amendment to the Clayton Antitrust Act.

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

SECTION 34

Savings Clause and reservation of right to amend.

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

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