THE GENERAL COUNSEL OF THE TREASURY, Hon. JOHN SPARKMAN, Chairman, Committee on Banking and Currency, DEAR MR. CHAIRMAN: Reference is made to your request for the views of this Department on S. 714, "To amend section 22(g) of the Federal Reserve Act relating to loans to executive officers by member banks of the Federal Reserve System, and to amend the Federal Credit Union Act to modify the loan provisions relating to directors, members of the supervisory committee, and members of the credit committee of Federal credit unions.” The first section of the bill would increase from $2,500 to $5,000 the amount of a loan that a member bank of the Federal Reserve System may make to any of its executive officers; permit loans by a member bank to an executive officer up to $30,000 in the case of a home mortgage loan; and revise the approval and reporting requirements with respect to loans to executive officers of member banks. With respect to section 2 of the bill, existing law limits the amount that a director or member of a supervisory or credit committee of a Federal credit union may borrow from a Federal credit union to the amount of his shares in the credit union plus the shares of any cosigner. Section 2 would permit additional borrowing by such persons in the amount of the unsecured loan limit, which is $750 at the present time. The Department has no objection to the first section of the proposed legislation. The Department defers to the views of the Department of Health, Education, and Welfare as to the merits of section 2 of the bill. The Department has been advised by the Bureau of the Budget that there is no objection from the standpoint of the Administration's program to the submission of this report to your Committee. Sincerely yours, FRED B. SMITH, General Counsel. Hon. WILLIAM PROXMIRE, FIRST NATIONAL CITY BANK, Chairman, Subcommittee on Financial Institutions, Senate Banking and Currency Committee, New Senate Office Building, Washington, D.C. DEAR SENATOR: We were pleased to learn of your introduction of S. 714 dealing with loans to executive officers of member banks, and that your subcommittee will consider this bill soon. The increase in the individual loan limit from $2,500 to $5,000 is helpful. For example, it will enable a member bank to finance an officer's purchase of an automobile. However, there is a special category of loans which we think should be further liberalized. This is, loans to executive officers for the purpose of financing the education of their children. We suggest a limit of $10,000 on this type of loan. Under your bill, of course, the loans could not be made on more favorable terms than to other borrowers and they would have to be reported to the board of directors. We cannot conIceive that this larger loan limit would be subject to abuse. You are aware, of course, of the increase in costs of education over the past several years. We make many loans for this purpose and, frankly, it is embarrassing to us and, we think, needlessly discriminatory to have to deny our officers the privilege of borrowing from their own bank for such a salutary purpose. Very truly yours, CARL DESCH, Senior Vice President and Cashier. 90TH CONGRESS 1ST SESSION S. 965 IN THE SENATE OF THE UNITED STATES FEBRUARY 15, 1967 Mr. PROXMIRE introduced the following bill; which was read twice and referred to the Committee on Banking and Currency A BILL To amend the Federal Reserve Act to enable Federal Reserve banks to invest in certain obligations of foreign governments. 1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 3 That the first sentence of subsection (e) of section 14 of 4 the Federal Reserve Act (12 U.S.C. 358) is amended to 5 read as follows: 6 "(e) To establish accounts with other Federal Reserve 7 banks for exchange purposes and, with the consent or upon 8 the order and direction of the Board of Governors of the 9 Federal Reserve System and under regulations to be pre10 scribed by said Board, to open and maintain accounts in 11 foreign countries, appoint correspondents, and establish 2 1 agencies in such countries wheresoever it may be deemed 2 best for the purpose of purchasing, selling, and collecting 3 bills of exchange, and to buy and sell, with or without its 4 endorsement, through such correspondents or agencies, bills 5 of exchange (or acceptances) arising out of actual commer6 cial transactions which have not more than ninety days to exclusive of days of grace, and which bear the signature 8 of two or more responsible parties, and to buy and sell any 9 securities which are direct obligations of, or fully guaranteed as to principal and interest by, any foreign government or 7 10 11 run, monetary authority, and which have maturities from date 12 of purchase not exceeding twelve months and are denom13 inated payable in any convertible currency; and, with the 14 consent of the Board of Governors of the Federal Reserve 15 System, to open and maintain banking accounts for such 16 foreign correspondents or agencies, or for foreign banks or 17 bankers, or for foreign states as defined in section 25 (1) 18 of this Act." BOARD OF GOVERNORS OF THE The Hon. JOHN SPARKMAN, Chairman, Committee on Banking and Currency, DEAR MR. CHAIRMAN: Since February 1962, the Federal Reserve Bank of New York has engaged in foreign currency operations on behalf of the System Open Market Account and under directions of the Federal Open Market Committee. These operations have been encouragingly successful in accomplishing their basic purposes, and have thus helped to safeguard the value of the dollar in international exchange markets. These operations have been implemented in part by the establishment of reciprocal credit balances or "swap" arrangements between the New York Reserve Bank and foreign central banks. The authorization for System foreign currency operations adopted by the Federal Open Market Committee requires that foreign currency holdings in excess of minimum working balances be invested insofar as practicable, and that such investments be in accordance with the provisions of section 14 (e) of the Federal Reserve Act. . Under section 14 (e), idle amounts held by the Reserve Bank in an account with a foreign bank may be invested in bills of exchange and acceptances that arise out of actual commercial transactions and have maturities of not more than 90 days, or they may be placed in an interest-bearing time account with the same or some other foreign bank. However, in certain instances there has been a scarcity of such paper for investment, time deposit facilities have not always been conveniently available, and, under present law, such idle funds could not be invested in obligations of foreign governments, such as foreign treasury bills. On the other hand, a foreign central bank having a balance or reciprocal credit or "swap” arrangement with the Federal Reserve Bank of New York may invest idle funds in its account with the Reserve Bank in interestbearing United States securities. The disadvantage in this respect under which the Reserve Bank must operate would be remedied by an amendment to section 14 (e) of the Federal Reserve Act that would specifically authorize Federal Reserve Banks to buy and sell securities with maturities not exceeding 12 months that are issued or guaranteed by foreign governments. The Board recommends the enactment of such an amendment to the law. A suggested draft of a bill for this purpose is enclosed. This draft is identical with S.1557, which passed the Senate in the last Congress, and S.965, introduced this year by Senator Proxmire. Sincerely yours, WM. MCC. MARTIN, JR. DRAFT A BILL To amend the Federal Reserve Act to enable Federal Reserve banks to invest in certain obligations of foreign governments Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the first sentence of subsection (e) of section 14 of the Federal Reserve Act (12 U.S.C. 358) is amended to read as follows: "(e) To establish accounts with other Federal reserve banks for exchange purposes and, with the consent or upon the order and direction of the Board of Governors of the Federal Reserve System and under regulations to be prescribed by said board, to open and maintain accounts in foreign countries, appoint correspondents, and establish agencies in such countries wheresoever it may be deemed best for the purpose of purchasing, selling, and collecting bills of exchange, and to buy and sell, with or without its endorsement, through such correspondents or agencies, bills of exchange (or acceptances) arising out of actual commercial transactions which have not more than ninety days to run, exclusive of days of grace, and which bear the signature of two or more responsible parties, and to buy and sell any securities which are direct obligations of, or fully guaranteed as to principal and interest by, any foreign government or monetary authority, and which have maturities from date of purchase not ex ceeding twelve months and are denominated payable in any convertible currency; and, with the consent of the Board of Governors of the Federal Reserve System, to open and maintain banking accounts for such foreign correspondents or agencies, or for foreign banks or bankers, or for foreign states as defined in section 25(b) of this Act." Hon. JOHN SPARKMAN, THE GENERAL COUNSEL OF THE TREASURY, Chairman, Committee on Banking and Currency, DEAR MR. CHAIRMAN: Reference is made to your request for the views of this Department on S. 965, "To amend the Federal Reserve Act to enable Federal Reserve banks to invest in certain obligations of foreign governments." S. 965 would amend section 14 (e) of the Federal Reserve Act (12 U.S.C. 358) to authorize the investment of funds held by Federal Reserve banks in foreign central banks in securities which are direct obligations of, or fully guaranteed as to principal and interest by, any foreign government or monetary authority, and which have maturities from the date of purchase not exceeding twelve months and are denominated payable in any convertible currency. The Department believes that the enactment of the proposed legislation would improve the operation of the Federal Reserve foreign currency program which is designed to safeguard the value of the dollar in international exchange markets. Consequently, the Department recommends favorable consideration of S. 965. The Department has been advised by the Bureau of the Budget that there is no objection from the standpoint of the Administrations' program to the submission of this report to your Committee. Sincerely yours, FRED B. SMITH, General Counsel. |