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Although instrumentalities of the Government performing public functions, the Federal Reserve banks are not parts of the Federal Government in the same sense as the Board and the executive departments of the Government. The courts have said that “a corporation which is an agency of the Government is not the Government or a department or officer of it." United States v. Salant (41 Fed. Supp. 196, 197 (1938)). The Supreme Court of the United States, in discussing a related matter, stated that the Federal Reserve banks, even though instrumentalities of the Government, "are not departments of the Government." Emergency Fleet Corporation v. Western Union Telegraph Company (275 U. S. 415, 426 (1928)). The status of the Federal Reserve banks is partly similar to that of national banks. Both are created under statutes enacted by Congress and both are instrumentalities of the United States. National banks, like Federal Reserve banks, may be employed as financial agents and depositaries of the Government. National banks, however, are operated for private profit, whereas the Federal Reserve banks are operated for public purposes.

It is believed that the status of the Federal Reserve banks may be properly summarized by saying that they are corporate instrumentalities or agencies of the Federal Government, created by statute for the performance of public or governmental functions and subject to governmental supervision through the Board of Governors of the Federal Reserve System, itself a Government establishment.

A more detailed discussion of the status of the Board and of the Federal Reserve banks is contained in the answers given by Chairman Martin of the Board of Governors to questions 8 and 10 of the questionnaire submitted to him by the Subcommittee on General Credit Control and Debt Management of the Joint Committee on the Economic Report. Those answers were printed at pages 242 and 261, respectively, of part 1 of the recently published joint committee print of questions and answers relating to "Monetary Policy and the Management of the Public Debt."

Representative PATMAN. And you are not willing to say now specifically that all parts of the Federal Reserve System are an agency of Congress?

Mr. VEST. Mr. Chairman, I am not quite sure what is involved in the term "agency of Congress" as distinguished from "agency of the United States."

Representative PATMAN. Well, of course, there are three branches of government. Now, you do not claim to be a part of the executive branch, do you?

Mr. VEST. No, sir.

Representative PATMAN. And you are not a part of the judiciary, are you?

Mr. VEST. No, sir.

Representative PATMAN. So you must be a part of the legislative, because that is the only branch that is left.

Mr. VEST. Well, putting it that way, of course it leads to that conclusion. I think, though, that except as regards institutions which are in the Government itself, that any other institution is an agency of the entire United States, all three departments of government, perhaps.

Representative PATMAN. Well, you are getting yourself more under that shelter than anybody else I have known around here, because they all want to stay away from the executive, they do not want any part of it.

Mr. VEST. No, sir, I am not saying it is an agency of the executive department.

Representative PATMAN. Well, if it is not an agency of the executive and not an agency of the judiciary branch, it must be an agency of the legislative branch.

Mr. VEST. I think it is an agency of the United States, or an instrumentality of the United States.

Representative PATMAN. Now, I have this here, and I want you to give me your interpretation of this:

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

Well, now, this says that you are not exempt from the payment of taxes on real estate. Now, you say you do not pay taxes on real estate in the District of Columbia.

Why is it you do not pay taxes when it says here you are not exempt? Mr. VEST. Well, that section you are reading, sir, relates to Federal Reserve banks, and the question of-

Representative PATMAN. You make a distinction between the Board and the banks?

Mr. VEST. Oh, yes.

Representative PATMAN. Well, what about personal property? You pay no taxes on your personal property either, if you do not pay on real estate?

Mr. VEST. That is correct.

Representative PATMAN. What about your automobiles? Do you pay excise taxes when you purchase cars?

Mr. VEST. I believe not, but I would need to check that.

Representative PATMAN. You do not pay taxes?

Mr. VEST. I am talking about the Board now.

Representative PATMAN. That is right. Well, what about license fees for driving automobiles purchased for the Board? Do you pay that?

Mr. VEST. As far as I know, we do not.

Representative PATMAN. You do not. What kind of tag do you get? I want to inquire into that; maybe Congressmen can get in on that.

Mr. VEST. We have a Government tag.

Representative PATMAN. A Government tag. What do you pay for that tag?

Mr. VEST. That I do not know.

Representative PATMAN. Do you have anyone here in your group that knows that?

Mr. POWELL. I would doubt if anyone here would know that. They are not in the Accounting Section.

Representative PATMAN. All right.

What about the Federal Reserve banks? They pay taxes on the real

estate, do they not?

Mr. VEST. Yes, sir.

Representative

pay on that?

PATMAN. What about personal property, do they

Mr. VEST. No; they do not.

Representative PATMAN. What about excise taxes, do they pay

excise taxes?

Mr. VEST. I think not, sir.

Representative PATMAN. And they come in just like you fellows

do in the Board, they just get a Government license tag?

Mr. VEST. For the cars?

Representative PATMAN. Yes.

Mr. VEST. I think not, sir.

Representative PATMAN. You think they pay the State licenses? Mr. VEST. I do not know what they pay for them, but I think that they use the State license tags.

Representative PATMAN. Will you find out about those two points and call Mr. Murphy and tell him, please, for the record, what they pay for automobiles in the way of license fees?

You know they do not pay excise on cars.

Mr. VEST. That is right.

Representative PATMAN. Or any other kind of excise taxes on what the Board purchases?

Mr. VEST. I think that is right, but we will supply the information. Representative PATMAN. And the same way with the Federal Reserve banks, they do not pay excise?

Mr. VEST. Not as far as I know.

Representative PATMAN. And you do not think that they pay on

the licenses-but you will let Mr. Murphy know?

Mr. VEST. I will be glad to.

Representative PATMAN. What about salaries of employees or officials? They all pay taxes, just like everybody else?

Mr. VEST. Of the Federal Reserve Board and the Federal Reserve banks?

Representative PATMAN. That is right.

Mr. VEST. Yes, sir.

Representative PATMAN. They pay the same income taxes; there is no exemptions on income taxes?

Mr. VEST. No, sir.

Representative PATMAN. And they pay excise taxes the same as everybody else?

Mr. VEST. They should.

Representative PATMAN. Except where it is connected with the Board or the bank.

Mr. VEST. Yes, sir.

Representative PATMAN. Well, if they buy an automobile in connection with the Board they pay no excise?

Mr. VEST. Not for the Board.

(The information requested with respect to excise taxes will be found on p. 981.)

Representative PATMAN. All right.

Now, the banks get 6 percent on this stock. On this 6 percent,

do they pay income taxes, like other people?

Mr. VEST. The banks?

Representative PATMAN. The commercial banks I am talking about. They get 6 percent on their stock investment.

Mr. VEST. Yes, sir. Up until March of 1942 the dividends on that stock were not subject to taxation.

But in March of 1942 Congress passed a law amending the law of 1941, providing that income from all obligations of any agency of the United States would thereafter be taxable.

Since that time-or, rather, any stock issued since that time is subject to tax on dividends on the stock.

Representative PATMAN. NOW, I have a memorandum here and I think it was obtained from, if not your office, someone connected with the Federal Reserve Board, which gives the information that there is a total amount of $237,000,000 in stock outstanding to the commercial banks and of that stock $139,000,000 was issued prior to December 3, 1940, and since that time there has been an increase of $98,000,000.

You mean to say, then, if these figures are correct, that the $98,000,000 has a tax paid on the 6 per cent dividend each year, but there is no tax paid on the $139,000,000?

Mr. VEST. On the dividends on that stock, that is correct.
Representative PATMAN. That is, the $139,000,000?
Mr. VEST. That is correct.

Representative PATMAN. Well, is that not kind of unusual, I wonder why

Mr. VEST. It results, I think, Mr. Chairman, from the language of the statute which was passed in 1942.

Representative PATMAN. Has the board ever called that to the attention of Congress or asked it be changed?

Mr. VEST. I do not recall they have.

Representative PATMAN. A lot of the bankers I know are hard against these tax exemptions; they are hard against them and, of course, I do not blame them, they should be against exemptions, you know, for private industry making profits and not paying taxes.

I wonder why they would accept the tax exemptions here in a case like that it has never been called to the attention of Congress? Mr. VEST. I do not believe so, sir.

Representative PATMAN. And the Board has never taken any action on it?

Mr. VEST. No action that the Board could take up-we did take it up with the Internal Revenue, to get their viewpoint.

Representative PATMAN. Their interpretation of it?

Mr. VEST. Yes, sir.

Representative PATMAN. Mr. Bolling, would you like to ask some

questions?

Representative BOLLING. No further questions.

Representative PATMAN. Dr. Murphy?

Mr. MURPHY. No questions.

Representative PATMAN. Dr. Ensley?

Mr. ENSLEY. NO.

Representative PATMAN. Thank you very much, Mr. Powell and Mr. Vest, and you will get that information for us and give it to Mr. Murphy.

Now, there is one thing I would like to mention. If we need any additional information, of course you will be glad to submit it, Mr. Powell and Mr. Vest?

Mr. POWELL. Indeed, we will be.

Representative PATMAN. And you may give it by correspondence or telephone.

Now, there is one thing I desire to mention for the record, and that is that in his statement, Mr. Carrol M. Shanks stated on page 13:

Furthermore, in the original act the Secretary of the Treasury and the Comptroller of the Currency were made ex officio members of the Board, but in the Banking Act of 1935 their positions on the Board were eliminated in order to avoid the possibility of undue Treasury influence on monetary policies.

I intended to ask Mr. Shanks about this, but I did not do it. So, since it does not coincide with the information I have had all along, I am going to ask Dr. Murphy to write Mr. Shanks a letter asking him to give his reasons for stating that was the reason the Treasury was taken off the Board. It is not my understanding at all, so I would like to know his reasons, if he is able to give them to us. (The information is as follows:)

Hon. WRIGHT PATMAN,

AMERICAN LIFE CONVENTION,

Chicago, Ill., March 26, 1952,

Chairman, Subcommittee on General Credit Control and Debt Management, Joint Committee on the Economic Report, House of Representatives,

Washington, D. C.

DEAR REPRESENTATIVE PATMAN: Dr. Murphy has asked me to give your committee some of the reasons why I think the Secretary of the Treasury was removed from the Federal Reserve Board by the Banking Act of 1935 in order to avoid the possibility of undue Treasury influence on monetary policies.

In discussing the proposed Banking Act of 1935 on the floor of the Senate just prior to the passage of the Senate bill, Senator Glass made the following statement with reference to the exclusion of the Secretary and the Comptroller from the Board of Governors of the Federal Reserve System. The following quotation comes from the Congressional Record (vol. 79, pt. 11, 74th Cong., 1st sess., July 24, 1935, pp. 11776-11777). Senator Carter Glass was the chairman of the Subcommittee on Monetary Policy, Banking and Deposit Insurance which held the hearings on the proposed bill.

"Since the establishment of the System, and now, the Secretary of the Treasury and the Comptroller of the Currency have been members of the Federal Reserve Board. Periodically, it has been urged upon the Banking and Currency Committees of the two Houses of Congress that these two officials should be eliminated, for various reasons. With respect to the Secretary of the Treasury, it was urged-and I know it to be a fact, because I was once Sercetary of the Treasurythat he evercised undue influence over the Board; that he treats it rather as a bureau of the Treasury instead of as a board independent of the Government, designed to respond primarily and altogether to the requirements of business and industry and agriculture, and not to be used to finance the Federal Government, which was assumed always to be able to finance itself.

"Moreover, it was represented that these officials, except when of their own initiative they wanted something to be acted on, rarely ever attended meetings of the Board. I think the present Secretary of the Treasury has attended only two or three meetings. I do not think I, as Secretary of the Treasury, ever attended more than one or two meetings of the Board; but, all the same, I dominated the activities of the Board, and I always directed them in the interest of the Treasury, and so did my predecessor, the present Senator from California Mr. McAdoo. That, however, was because when he functioned it was during the war, and when I functioned it was in the immediate postwar period, when the difficulties of the Treasury perhaps exceeded those of the war period. Certainly they were not less.

"In the Banking Act of 1932, which passed the Senate overwhelming there was a provision eliminating the Secretary of the Treasury, and upon a record vote it was retained in the bill by 62 to 14, after considerable discussion on the floor, which indicated that the Senate concurred in the better judgment of those who think the Secretary of the Treasury and the Comptroller of the Currency should not be on the Board.

"That provision would have been retained in the Banking Act of 1933 but for the fact that the then Secretary of the Treasury, in wretched health which eventuated in his death, was greatly concerned about the matter, and was rather importunate and insistent in desiring to be retained as a member of the Board. In the bill which we have reported, however, we leave off both the Secretary of the Treasury and the Comptroller of the Currency, with no dissent from these officials.

**

"

As is indicated by Senator Glass the matter of removing the Secretary of the Treasury or the Comptroller or both from the Board had been brought up a number of times over the years in the Congress. In fact in 1933 the matter was debated on the floor of the Senate during the consideration of S. 4412. The bill as it came to the floor of the House provided for the removal of the Secretary of the Treasury from the Federal Reserve Board. Senator Long from Louisiana took issue with this and his amendment was defeated 62 to 14 on the floor of

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