Section 14 of the Federal reserve act, as amended, is further amended by adding at the end thereof a new paragraph reading as follows:

"The time, character and volume of all purchases and sales in the open market under this section 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.'"

Senator GLASS. Governor, wouldn't that proposed amendment abrogate the right of a Federal reserve bank to initiate the discount rate and transfer it to the Federal Reserve Board?

Mr. MEYER. I think not, Senator Glass. After looking at it again I would say it concerns open market operations. I do not think it would, but I should like to ask our counsel.

Mr. WYATT. I do not think it would.

Mr. MEYER. Our counsel is sitting here behind me, and he tells me it would not.

Senator GLASS. I am very much of opinion it would, and that is a bitterly contested proposition.

Mr. MEYER. You want to maintain the initiative in the banks?
Senator GLASS. Yes.

Mr. MEYER. It has been our policy to do that. I have attended meetings where the directors of banks have been discussing rates, and never had anything to say about it at all.

Senator GLASS. But you know it was a bitterly controverted prop'osition.

Mr. MEYER. Yes.

Senator GLASS. And that it created quite a sensational dispute?

Mr. MEYER. I am in entire sympathy with your view on that, Senator Glass, and am quite sure that we were not in the slightest degree intending that there should be any change. And our counsel advises me that he thinks it does not change that proposition.

Senator GLASS. Well, I was so certain of it that the technician of this committee having embodied that in the bill I had it stricken out.

Mr. MEYER. Well, of course it is worth studying from that point of view, but I think it is perfectly innocuous in that respect. I should like to have it looked into a little more fully by our counsel, and will write you a memorandum on that, for the benefit of the committee, if you and they so desire.

Senator GLASS. I am willing to be convinced.

Mr. MEYER. All right, Senator Glass, we will try to furnish you a basis for a sound conviction.

The CHAIRMAN. You may continue your statement, Governor Meyer.

Mr. MEYER. Federal liquidating corporation: The other part of section 10 deals with the proposed Federal liquidating corporation, and there is submitted a proposed substitute for the section as drafted in the bill. The substitute would confine the benefits of the liquidating corporation to member banks. Provision is made for assistance to nonmember banks in the Reconstruction Finance Corporation act, and it would render membership in the system more attractive if the benefits of the corporation were confined to member banks. In the substitute it is proposed that $100,000,000 of the capital of the liquidating corporation be subscribed by the Treasury. This subscription to capital may be considered as being derived from the franchise tax previously paid to the Treasury by the reserve banks.

In addition, it is proposed that the corporation be authorized to issue debentures up to twice the amount of its subscribed capital and that the Federal reserve banks be given authority to purchase those debentures up to one-fourth of their surplus. This is not a propitious time to ask the member banks to contribute to the liquidating corporation. The banks are going through a very difficult period and to tax them for this purpose would be a considerable hardship on them.

In order to make the operations of the corporation more easily manageable, it is proposed that the directorate be comprised of 5 members instead of 14 as proposed in the bill.

For the reasons which have been stated the following separate section on the Federal liquidating corporation has been drafted:

SEC. 5A. The Federal reserve act, as amended, is further amended by inserting between sections 28 and 29 thereof the following new section:

SEC. 28A. (a) There is hereby created a Federal liquidating corporation (hereafter referred to as the "corporation") for the purpose of making loans on, or purchasing and liquidating as hereinafter provided, all or any part of the assets of any member bank for which a receiver has been appointed. The term "receiver " as used in this section shall mean a receiver of a national bank, and a receiver, liquidating agent, 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.

(b) The management of the corporation shall be vested in a board of directors consisting of five members, one of whom shall be the Comptroller of the Currency, one a member of the Federal Reserve Board designated by the board for the purpose, and three selected annually by the governors of the 12 Federal reserve banks under such procedure as may be prescribed by the Federal Reserve Board.

(c) The corporation shall have a capital stock of $100,000,000, all of which shall be subscribed by the United States of America and payment for which shall be subject to call in whole or in part by the board of directors of the corporation.

There is hereby authorized to be appropriated out of any money in the Treasury not otherwise appropriated the sum of $100,000,000 for the purpose of making payments upon such subscription. Receipts for payments 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.

Any Federal reserve bank may purchase and hold any debentures or other such obligations of the corporation in an amount not exceeding one-fourth of the amount of its surplus fund.

(d) The corporation shall have power

First. To adopt, alter, and use a corporate seal.

Second. To have perpetual succession from the date of enactment hereof, unless it is sooner dissolved by an act of Congress.

Third. To make contracts; to purchase, lease, and hold or dispose of such real estate or personal property as may be necessary or convenient for the transaction of its business.

Fourth. To sue and be sued, complain and defend in any court of competent jurisdiction.

Fifth. To appoint, employ, and fix the compensation of such officers, employees, attorneys, and agents as shall be necessary for the transaction of the business of the corporation, without regard to the provisions of other laws applicable to the employment and compensation of officers or employees of the United States, to define their authority and duties, to require bonds of them and fix the penalty thereof and to dismiss them at pleasure. Nothing in this or any other act shall be construed to prevent the appointment and compensation as a director, 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, amend, and repeal by its board of directors by-laws and rules and regulations not inconsistent with law governing 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 such incidental powers as shall be reasonably necessary to carry out the powers so granted.

(e) The board of directors of the corporation shall determine and prescribe the manner in which its obligations shall be incurred and its expenses 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, commission, independent establishment, or executive department of the Government, including any field service thereof, may avail itself of the use of information, services, and facilities thereof in carrying out the provisions of this act.

(f) Upon the application of the receiver of any member bank, the corporation may in its discretion purchase the assets of such bank, in whole or in part, or make loans to the receiver on the security of such assets or any portion thereof, on such terms and conditions as shall be agreed upon between the corporation and the receiver, subject to the approval of (1) the Comptroller of the Currency in the case of any national bank, or (2) the person or agency designated by State law in the case of any State bank; except that, in no case shall the corporation make any loan or purchase any assets in an amount which in the opinion of the corporation shall not fully protect such corporation and no such loan or purchase shall be made in the case of State member banks unless expressly authorized by the law of the State in which the bank is located. Receivers of national banks are hereby authorized and empowered with the approval of the Comptroller of the Currency to borrow on, or sell, assets of banks of which they are receivers, and 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, 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. If the amount realized from any assets acquired by the corporation under the provisions of this section exceeds the sum paid therefor or loaned thereon, the corporation shall make an additional payment to the receiver of the bank equal to the amount of such excess, if any, after deducting the expenses of liquidating such assets and an amount equal to interest at the rate of 6 per cent per annum. All loans made by the corporation to receivers shall bear interest at the rate of 6 per cent per annum.

(g) 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 subject to check 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.

(h) The corporation is authorized and empowered to issue and to have outstanding at any one time in an amount aggregating not more than twice the amount of its capital, 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, to bear such rate or rates of interest, and to mature at such time or times as may be determined by the corporation: Provided, That the corporation may sell on a discount basis short-term obligations payable at maturity without interest. Obligations of the corporation may be secured by assets of the corporation in such manner as shall be prescribed by the board of directors. Such obligations may be offered for sale at such price or prices as the corporation may determine. The said obligations shall be fully and unconditionally guaranteed both as to interest and principal by the United States and such guaranty shall be expressed on the face thereof. In the event that the corporation shall be unable

to pay upon demand, when due, the principal of or interest on notes, debentures, bonds, or other such obligations issued by it, the Secretary of the Treasury shall pay the amount thereof, which is hereby authorized to be appropriated, out of any moneys in the Treasury not otherwise appropriated, and thereupon to the extent of the amounts so paid the Secretary of the Treasury shall succeed to all the rights of the holders of such notes, debentures, bonds, or other such obligations.

(i) All obligations issued by the corporation shall be exempt, both as to principal and interest, from all taxation (except estate or inheritance taxes) 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. The corporation, including its franchise, its capital, 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 property of the corporation shall be subject to State, county. municipal, or local taxation to the same extent according to its value as other real property is taxed.

(j) In order that the corporation may be supplied with such forms of 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 of the corporation. The engraved plates, dies, bed pieces, and 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 obligations.

(k) The corporation shall annually make a report of its operations to the Congress as soon as practicable after the 1st day of January in each year. (1) 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 act, makes any statement, knowing it to be false, or wilfully overvalues 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.

(m) Whoever (1) falsely makes, forges, or counterfeits any obligation or coupon, in imitation of or purporting to be an obligation or coupon, issued by the corporation, or (2) passes, utters, or publishes, or attempts to pass, utter, or publish, any false, forged or counterfeit obligation or coupon, purporting to have been issued by the corporation, knowing the same to be false, forged or counterfeited, or (3) falsely alters any obligation, or coupon, issued or purporting 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 purporting 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.

(n) Whoever, being connected in any capacity with the corporation, (1) embezzles, abstracts, purloins, or wilfully misapplies any moneys, funds, securities, or other things of value, whether belonging to it or pledged, or otherwise entrusted 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, anditor, 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.

(0) No individual, association, partnership. or corporation shall use the words "Federal Liquidating Corporation," or a combination of these three words, as the name or a part thereof under which he or it shall do business. Every individual, partnership, association, or corporation violating this subdivision shall be punished by a fine of not exceeding $1,000, or by imprisonment not exceeding one year, or both.

(p) 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, secs. 202 to 207, inclusive),

insofar as applicable, are extended to apply to contracts or agreements with the corporation under this act, 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.

(q) 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.

Senator GLASS. Governor, was it your judgment that it was all right for the banks to contribute four times as much to the National Credit Corporation?

Mr. MEYER. That was a temporary contribution, Senator Glass. It was only intended to be so, and I think it will prove to be so. Senator GLASS. This contribution is a single contribution and only a contribution.

Mr. MEYER. Yes; but I think it is expected that the National Credit Corporation will be able to return all of its capital.

Senator GLASS. The whole proposition is whether this is a propitious time to require the banks of the country to contribute four times as much to the National Credit Corporation as to this corporation.

Mr. MEYER. All banks did not do it, only about half of them.
Senator GLASS. And they were coerced into doing it?
Mr. MEYER. Some of them, perhaps.

Senator GLASS. We had testimony the other day that they only did it then after they were assured by high authority that the Government through the taxpayers was going to take it over.

Mr. MEYER. Well, I think that the $100,000,000 capital for the corporation, which is less than you suggested in the bill should come from the Government, and that, with $200,000,000 borrowing capacity, would enable the corporation to take care of the need for advances to facilitate payments to depositors of closed banks.

Senator GLASS. Has the Government ever contributed a dollar to the maintenance of the Federal reserve system?

Mr. MEYER. I know they have not in the last year and a half. Senator GLASS. And you know they have never done it, either. Mr. MEYER. Well, I will say that I think they have not, but you understand I can not speak on that from personal knowledge. Senator GLASS. And why should it ever do it? It is not a Government institution.

Mr. MEYER. No.

Senator GLASS. The Government does not own one dollar of proprietary interest in the Federal reserve system, and I for one have been intent on keeping it that way. I don't think the Government should have anything to do with it except by way of supervisory control.

Senator FLETCHER. How about nonmember banks being taken care of?

Mr. MEYER. There are a good many States which do not authorize receivers of closed banks to borrow. Some of the States are amending their laws, but some are not. Virginia amended its law.

Senator FLETCHER. The point I am making is, that the Recon-struction Finance Corporation itself is a temporary corporation. Mr. MEYER. Yes.