The sixth paragraph of section 19 of the Federal Reserve Act (12 U. S. C. 462b) provides:

"Notwithstanding the other provisions of this section, the Board of Governors of the Federal Reserve System, upon the affirmative vote of not less than four of its members, in order to prevent injurious credit expansion or contraction, may by regulation change the requirements as to reserves to be maintained against demand or time deposits or both (1) by member banks in central reserve cities or (2) by member banks in reserve cities or (3) by member banks not in reserve or central reserve cities or (4) by all member banks; but the amount of the reserves required to be maintained by any such member bank as a result of any such change shall not be less than the amount of the reserves required by law to be maintained by such bank on the date of enactment of the Banking Act of 1935 nor more than twice such amount."

Recommendation

An amendment to each of the provisions of law quoted above, eliminating the requirement that the Board action authorized by each such provision be taken only upon the concurrence of a specified number of the members of the Board. It might be regarded as appropriate to accompany these changes with a suitable amendment to the fourth paragraph of section 10 of the Federal Reserve Act (12 U. S. C. 244) which would provide that any action which the Board is authorized to take may be taken by the affirmative vote of a majority of the members present at any meeting, assuming there is a quorum present. Reasons

The several provisions of law quoted above require that the particular Board action authorized by each such provision be taken only upon the concurrence of a specific number of the members of the Board. In each case concurrence by more than a majority of a quorum is required. However, the Board actions authorized by such provisions would seem to be no more important than other actions which the Board is authorized to take and with respect to which there is no specific statutory requirement for a concurrence of a specified number of the members of the Board. In these latter situations, the general rule of law requiring concurrence by a majority of a quorum is applicable. No reason is known why this rule should not be applicable to all actions of the Board.

67. FISCAL AGENCY OPERATIONS OF RESERVE BANKS

Existing law

Sections 11 (a), 11 (j), and 15 of the Federal Reserve Act (12 U. S. C. 248 (a), 248 (j), and 391) provide in part as follows:

"SEC. 11. The Board of Governors of the Federal Reserve System shall be authorized and empowered:

"(a) To examine at its discretion the accounts, books and affairs of each Federal reserve bank *** and to require such statements and reports as it *** deem necessary may

"(j) To exercise general supervision over said Federal reserve banks."

*

"SEC. 15. *** Federal reserve banks, ***when required by the Secretary of the Treasury, shall act as fiscal agents of the United States; ***"

In addition the laws creating a number of different Government agencies authorize or direct the Reserve banks to act as fiscal agent for such agencies.

Recommendation

An amendment to the Federal Reserve Act providing that, notwithstanding any other provision of law, the operations of a Federal Reserve bank pursuant to authority of law as fiscal agent, depositary, or custodian of the United States or any instrumentality thereof or of any other organization shall be subject to the supervision and regulation of the Board of Governors of the Federal Reserve System. Reasons

The report of the House Banking and Currency Committee on the original Federal Reserve Act stated that the Federal Reserve Board was "intrusted with the power to overlook and direct the general functions" of the Federal Reserve banks and that an important purpose of the Board was that of "regulating relationships between Federal reserve banks and between them and the Government itself ***"? [Emphasis supplied.]

Fiscal agency activities of the Reserve banks have increased substantially in recent years and consume a large amount of the time of the managements of the Reserve banks and can have important effects not only on the Reserve banks themselves, but also on System monetary and credit policies. Questions have arisen as to whether the present law is sufficiently specific with respect to the Board's authority regarding this function which the Reserve banks perform as agents for the various Government agencies. Since the Board's responsibility for general supervision of the Federal Reserve banks cannot be effectively discharged without adequate authority to supervise and regulate this important part of Reserve bank operations, it is important that the point be covered specifically in the law to avoid any uncertainty in the matter.

The importance of Reserve bank relations with foreign banks led the Congress in 1933 to deal specifically with that problem by adding to the Federeal Reserve Act section 14 (g), which directs the Board to exercise special supervision over those relationships. Similarly, the magnitude and importance of Reserve bank fiscal agency operations, including their extensive monetary and credit consequences, make it desirable to write into the law a specific provision on this subject.

68. INCORRECT REFERENCE TO SECTION 20 OF THE FEDERAL RESERVE ACT Existing law

Subsection (e) of section 11 of the Federal Reserve Act (12 U. S. C. 248 (e)) authorizes the Board of Governors of the Federal Reserve System

"(e) To add to the number of cities classified as reserve and central reserve cities under existing law in which national banking associations are subject to the reserve requirements set forth in section twenty

of this Act; or to reclassify existing reserve and central reserve cities or to terminate their designation as such."

Recommendation

Amend section 11 (e) of the Federal Reserve Act to make the inaccurate reference to section 20 of the act refer to section 19, and to change "national banking associations" to "member banks."

Reasons

The reference in this provision of present law to the reserve requirements set forth in section 20 of the Federal Reserve Act obviously should refer to section 19 of that act. The proposed amendment would correct this reference. In addition, the amendment would change the words "national banking associations" to "member banks," in view of the fact that section 19 actually prescribes reserves with respect to all member banks rather than merely national banks.

69. REVOCATION OF TRUST POWERS OF NATIONAL BANKS

Existing law

The last sentence of the last paragraph of section 11 (k) of the Federal Reserve Act (12 U. S. C. 248 (k)) provides:

"The Board of Governors of the Federal Reserve System is authorized and empowered to promulgate such regulations as it may deem necessary to enforce compliance with the provisions of this subsection and the proper exercise of the powers granted therein.”

Recommendation

An amendment to authorize the Board of Governors, on complaint by the Comptroller of the Currency, to revoke trust powers of national banks if it is determined, after hearing, that such powers are being unlawfully or improperly exercised.

Reasons

Although the Board is authorized to promulgate regulations to enforce the proper exercise of trust powers, there is no practical means to enforce compliance with these regulations. The supervisory authorities may request correction but they cannot demand correction. The only action that may be taken is forfeiture of the bank's charter or removal of officers for unsafe or unsound banking practices. As the Board issues a "special permit" to the national bank, which is in the nature of a license, the Board should have authority to revoke such permit if the powers are not being properly exercised. This extreme action would, of course, seldom be necessary as the possibility of such action would be sufficient in most instances to obtain the correction.

70. REFERENCES TO BONDS ISSUED UNDER HOME OWNERS' LOAN ACT AND BONDS OF FEDERAL FARM MORTGAGE CORPORATION

Existing law

The eighth paragraph of section 13 of the Federal Reserve Act (12 U. S. C. 347) provides that any Federal Reserve bank may make advances for periods not exceeding 15 days to its member banks on their promissory notes secured by various types of collateral including:

"***the deposit or pledge of Federal Farm Mortgage Corporation bonds issued under the Federal Farm Mortgage Act, or by the deposit

or pledge of bonds issued under the provisions of subsection (c) of section 4 of the Home Owners' Loan Act of 1933, as amended ***” Section 14 (b) of the Federal Reserve Act (12 U. S. C. 355) authorizes each Federal Reserve bank to buy and sell certain types of obligations including

“*** bonds of the Federal Farm Mortgage Corporation having maturities from date of purchase of not exceeding six months, bonds issued under the provisions of subsection (c) of section 4 of the Home Owners' Loan Act of 1933, as amended ***"

The second paragraph of section 23A of the Federal Reserve Act (12 U. S. C. 371c) provides that the provisions of that paragraph regarding security for loans to affiliates of member banks shall not apply to loans on extensions of credit secured by certain types of obligations including:

"*** obligations of*** the Home Owners' Loan Corporation *** 29°

The third paragraph of section 23A of the Federal Reserve Act (12 U. S. C. 371c) exempts from the provisions of that section any affiliate engaged solely in holding certain types of obligations including

"*** obligations of *** the Home Owners' Loan Corporation *

Recommendation

An amendment to eliminate reference to bonds and obligations of the Federal Farm Mortgage Corporation and the Home Owners' Loan Corporation and bonds issued under the Home Owners' Loan Act, as now contained in the provisions of law referred to above.

Reasons

The Home Owners' Loan Corporation was dissolved by order of the Secretary of the Home Loan Bank Board, effective February 3, 1954, pursuant to act of June 30, 1953; and no bonds of the Corporation are outstanding. The Federal Farm Mortgage Corporation has been in process of liquidation since 1947, most of its assets have been transferred to the Federal land banks, and only a relatively insignificant amount of obligations of that Corporation are now outstanding. Consequently, references in the Federal Reserve Act quoted above to obligations of these two Corporations no longer have any significance and should be repealed as obsolete.

71. REFERENCES TO NATIONAL AGRICULTURAL CREDIT CORPORATIONS

Existing law

The third paragraph of section 13a of the Federal Reserve Act (12 U. S. C. 350) authorizes any Federal Reserve bank to buy and sell debentures and other such obligations issued by "a national agricultural credit corporation."

Section 14 (f) of the Federal Reserve Act (12 U. S. C. 359) authorizes any Federal Reserve bank to purchase and sell in the acceptances "of national agricultural credit corporations."

open market

The third paragraph of section 15 of the Federal Reserve Act (12 U. S. C. 393) authorizes the Federal Reserve banks to act as depositories and fiscal agents for "any national agricultural credit corpora

Recommendation

An amendment to repeal references to the national agricultural credit corporations contained in the provisions of law referred to above.

Reasons

Section 77 of the act of June 16, 1933 (12 U. S. C. 1151a), provide that after the date of that act "no national agricultural credit corporation shall be formed under the provisions of this chapter." No such corporations are now in operation. Consequently, references to these corporations in the provisions of the Federal Reserve Act above referred to are obsolete and should be repealed.

72. REPURCHASE AGREEMENTS OF FEDERAL RESERVE BANKS

Recommendation

An amendment specifically stating, and thus making it clear, that Federal Reserve banks are authorized to make repurchase agreements with respect to Government securities and that such activities of the Reserve banks are subject to the direction of the Federal Open Market Committee.

Reasons

For many years the Federal Reserve banks have utilized repurchase agreements as a convenient and flexible means of helping to smooth out temporary irregularities in the money market, and these activities of the Reserve banks have conformed to directions of the Federal Open Market Committee. However, the Federal Reserve Act does not specifically state that these transactions shall be subject to the direction of the Federal Open Market Committee and does not even specifically state that they are authorized for the Federal Reserve banks, although there is specific authority for purchases and sales of Government securities as well as for loans on such securities.

Repurchase agreements have some of the attributes of loans. However, as actually used in practice by the Reserve banks, they not only have the legal form of purchases and sales but they also have more of the practical attributes of open market operations than of loans. This is because they usually proceed on the initiative of the Reserve bank whereas loans usually proceed on the initiative of the other party to the transaction. In fact, this characteristic of repurchase agreements is an important reason for their flexibility and usefulness in helping to iron out temporary irregularities in the money market— it enables the System to use them readily for that purpose without having to wait for a member bank to borrow.

The absence of a specific provision on this matter has not produced operating difficulties but has at times been the subject of some discussion and uncertainty within the System. An amendment specifically covering the subject would clarify the matter.

Existing law

73. SETTLEMENT FUND

Paragraph 16 of section 16 of the Federal Reserve Act (12 U. S. C. 467), relating to the gold-certificate fund (settlement fund) held on