Reasons

The above provision of law imposing double liability with respect to the stock of the Federal Reserve banks, is a part of the Federal Reserve Act as originally enacted in 1913. At that time double liability was a common feature of bank stock. However, under the provisions of the Federal Reserve Act, member banks have never been required to pay more than one-half of the price of the total Federal Reserve bank stock to which they must subscribe under the law. While the remaining onehalf is payable on call of the Board, the need for such a call has never arisen and none has been made. As a practical matter, therefore, Federal Reserve bank stock is subject to double liability quite aside from the provision of law quoted above. Accordingly, continuation of such provision clearly would seem to be unnecessary. It may be noted, in addition, that double liability has been terminated as to national bank stock and the stock of many State banks.

49. SUBSCRIPTION TO FEDERAL RESERVE BANK STOCK BY THE PUBLIC AND THE UNITED STATES

Existing law

The 8th, 9th, 10th, 11th, and 12th paragraphs of section 2 of the Federal Reserve Act (12 U. S. C. 283, 284, 285, and 286) read as follows:

Paragraph 8: "Should the subscriptions by banks to the stock of said Federal reserve banks or any one or more of them be, in the judgment of the organization committee, insufficient to provide the amount of capital required therefor, then and in that event the said organization committee may, under conditions and regulations to be prescribed by it, offer to public subscription at par such an amount of stock in said Federal reserve banks, or any one or more of them, as said committee shall determine, subject to the same conditions as to payment and stock liability as provided for member banks."

Paragraph 9: "No individual, copartnership, or corporation other than a member bank of its district shall be permitted to subscribe for or to hold at any time more than $25,000 par value of stock in any Federal reserve bank. Such stock shall be known as public stock and may be transferred on the books of the Federal reserve bank by the chairman of the board of directors of such bank."

Paragraph 10: "Should the total subscriptions by banks and the public to the stock of said Federal reserve banks, or any one or more of them, be, in the judgment of the organization committee, insufficient to provide the amount of capital required therefor, then and in that event the said organization committee shall allot to the United States such an amount of said stock as said committee shall determine. Said United States stock shall be paid for at par out of any money in the Treasury not otherwise appropriated, and shall be held by the Secretary of the Treasury and disposed of for the benefit of the United States in such manner, at such times, and at such price, not less than par, as the Secretary of the Treasury shall determine."

Paragraph 11: "Stock not held by member banks shall not be entitled to voting power."

Paragraph 12: "The Board of Governors of the Federal Reserve System is hereby empowered to adopt and promulgate rules and regulations governing the transfers of said stock."

Recommendation

An amendment repealing all of the above-quoted paragraphs of section 2 of the Federal Reserve Act.

Reasons

All of the minimum capital required for the original organization of each Federal Reserve bank was fully subscribed to by banks; no Federal Reserve bank stock was offered to the public or allotted to the United States. Accordingly, the 8th, 9th, and 10th paragraphs of section 2, as quoted above, are now obsolete.

The 11th paragraph of the section, providing that stock not held by member banks shall not be entitled to voting power, has no significance, since all Federal Reserve bank stock is held by member banks.

The 12th paragraph of the section, authorizing the Board to promulgate regulations governing the transfer of "said stock," clearly relates only to stock held by the public or by the United States, since section 5 of the act expressly provides that stock held by member banks shall not be transferred. Consequently, since no Federal Reserve bank stock is held by the public or the United States, this paragraph has no significance.

50. ORIGINAL ORGANIZATION OF RESERVE BANKS

Existing Law

In section 4 of the Federal Reserve Act, the first three paragraphs (not in U. S. Code), the introductory part of the fourth paragraph (12 U. S. C. 341), the ninth paragraph (12 U. S. C. 302), the twelfth paragraph (12 U. S. C. 302), part of the 20th paragraph (12 U. S. C. 305), and the 23rd and 24th paragraphs (12 U. S. C. 308), read as follows:

Paragraph 1: "SEC. 4. When the organization committee shall have established Federal reserve districts as provided in section two of this Act, a certificate shall be filed with the Comptroller of the Currency showing the geographical limits of such districts and the Federal reserve city designated in each of such districts. The Comptroller of the Currency shall thereupon cause to be forwarded to each national bank located in each district, and to such other banks declared to be eligible by the organization committee which may apply therefor, an application blank in form to be approved by the organization committee, which blank shall contain a resolution to be adopted by the board of directors of each bank executing such application, authorizing a subscription to the capital stock of the Federal reserve bank organizing in that district in accordance with the provisions of this Act."

Paragraph 2: "When the minimum amount of capital stock prescribed by this Act for the organization of any Federal reserve bank shall have been subscribed and allotted, the organization committee shall designate any five banks of those whose applications have been received, to execute a certificate of organization, and thereupon the banks so designated shall, under their seals, make an organization certificate which shall specifically state the name of such Federal reserve bank, the territorial extent of the district over which the operations of such Federal reserve bank are to be carried on, the

city and State in which said bank is to be located, the amount of capital stock and the number of shares into which the same is divided, the name and place of doing business of each bank executing such certificate, and of all banks which have subscribed to the capital stock of such Federal reserve bank and the number of shares subscribed by each, and the fact that the certificate is made to enable those banks executing same, and all banks which have subscribed or may thereafter subscribe to the capital stock of such Federal reserve bank, to avail themselves of the advantages of this Act."

Paragraph 3: "The said organization certificate shall be acknowledged before a judge of some court of record or notary public; and shall be, together with the acknowledgment thereof, authenticated by the seal of such court, or notary, transmitted to the Comptroller of the Currency, who shall file, record and carefully preserve the same in his office."

Paragraph 4: "Upon the filing of such certificate with the Comptroller of the Currency as aforesaid, the said Federal reserve bank shall become a body corporate and as such, and in the name designated in such organization certificate, shall have power-* * *"

Paragraph 9: "Such board of directors shall be selected as hereinafter specified and shall consist of nine members, holding office for three years, and divided into three classes, designated as classes A, B, and C."

Paragraph 12: "Class C shall consist of three members who shall be designated by the Board of Governors of the Federal Reserve System. When the necessary subscriptions to the capital stock have been obtained for the organization of any Federal reserve bank, the Board of Governors of the Federal Reserve System shall appoint the class C directors and shall designate one of such directors as chairman of the board to be selected. Pending the designation of such chairman, the organization committee shall exercise the powers and duties appertaining to the office of chairman in the organization of such Federal reserve bank."

Paragraph 20: "Class C directors shall be appointed by the Board of Governors of the Federal Reserve System. They shall have been for at least two years residents of the district for which they are appointed, one of whom shall be designated by said board as chairman of the board of directors of the Federal reserve bank and as 'Federal reserve agent.' * * *”

*

Paragraph 23: "The Reserve Bank Organization Committee may, in organizing Federal reserve banks, call such meetings of bank directors in the several districts as may be necessary to carry out the purposes of this Act, and may exercise the functions herein conferred upon the chairman of the board of directors of each Federal reserve bank pending the complete organization of such bank."

Paragraph 24: "At the first meeting of the full board of directors of each Federal reserve bank, it shall be the duty of the directors of classes A, B and C, respectively, to designate one of the members of

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

Recommendation

An amendment to repeal the first three paragraphs of section 4 of the Federal Reserve Act; to change the introductory part of the fourth paragraph of said section to read: "Each Federal Reserve bank now existing shall be a body corporate and, as such and in the name designated in its organization certificate, shall have power"; to revise the 9th paragraph of such section to include provision for filling vacancies in directors now contained in the 24th paragraph of section 4; to repeal the 2d and 3d sentences of the 12th paragraph of such section; to eliminate the 1st sentence of the 20th paragraph and change the word "They" at the beginning of the second sentence to read "Class C directors"; and to repeal the 23d and 24th paragraphs of such section.

Reasons

The first three paragraphs of section 4 of the Federal Reserve Act provided for the organization of the Reserve banks under the supervision of the Reserve Bank Organization Committee. Since that committee has long been defunct and since no new Federal Reserve banks may be created, these paragraphs are of no significance and may be repealed as obsolete. Their repeal would necessitate a change in the language of the introductory part of the fourth paragraph of the section, as indicated in the recommendation.

The 2d and 3d sentences of the 12th paragraph of section 4, relating to the Reserve Bank Organization Committee, are now obsolete. The same is true of the 23d paragraph of the section.

The provision for appointment of class C directors in the first sentence of the 20th paragraph is a duplication of the provision in the first sentence of the 12th paragraph; the duplication would be eliminated by the recommended amendment.

The provisions of the 1st sentence of the 24th paragraph of section 4, relating to the terms of the original directors of the Federal Reserve banks, are of no present significance and should be eliminated. Provisions of the second sentence relating to the length of terms of directors are a duplication of provisions in the 9th paragraph and may also be eliminated. The 3d sentence regarding filling of vacancies on the board of directors should be transferred to the 9th paragraph. With these changes the 24th paragraph could be repealed.

51. FEDERAL RESERVE BANK DIRECTORS RESIDENTS OF DISTRICT Existing law

Section 4 of the Federal Reserve Act (12 U. S. C. 302, 305) provides:

Paragraph 9: "Such board of directors shall be selected as hereinafter specified and shall consist of nine members, holding office for three years, and divided into three classes, designated as classes A, B, and C."

Paragraph 10: "Class A shall consist of three members, who shall be chosen by and be representative of the stock-holding banks."

Paragraph 11: "Class B shall consist of three members, who at the time of their election shall be actively engaged in their district in commerce, agriculture or some other industrial pursuit."

Paragraph 12: "Class C shall consist of three members who shall be designated by the Board of Governors of the Federal Reserve System.

*

Paragraph 20: "Class C directors shall be appointed by the Board of Governors of the Federal Reserve System. They shall have been for at least two years residents of the district for which they are appointed, one of whom shall be designated by said board as chairman of the board of directors the Federal Reserve bank and as 'Federal Reserve agent.'

Recommendation

Amend section 4 to provide that every Federal Reserve bank director shall be a resident of the district of the Federal Reserve bank on whose Board he is serving, and that he shall cease to be a director when he ceases to be a resident of that district.

Reasons

Section 4 has provided, since the original enactment of the Federal Reserve Act, that class C directors "shall have been for at least 2 years residents of the district for which they are appointed," but the act contains no similar requirement with respect to class A or class B directors.

Moreover, even as to class C directors, the act contains no requirement that they must continue to be residents during their term of office.

Consequently, a person could not be appointed a class C director of the Federal Reserve Bank of New York, for example, unless he were a resident of the Second Federal Reserve District at the time of his appointment; but if he moved to California before the expiration of his term, he would not be disqualified thereby from continuing to serve as a director of the Federal Reserve Bank of New York. Furthermore, although it is not likely that member banks would select a class A or class B director who was not a resident of their district, (1) there is nothing in the act to prevent their doing so, and (2) there is nothing in the act to prevent a class A or class B director, once he has been elected, from moving to a distant part of the country without ceasing to be a director.

It would seem appropriate that all directors be residents of the district of the Federal Reserve bank for which they are appointed, not only at the time of their appointment, but also throughout their term of office, because, as to class A directors the Federal Reserve Act provides that they "shall be chosen by and be representative of the stockholding banks." As to class B directors the act provides