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Under the existing law the Corporation may make loans to or purchase assets from closed member banks. This power is changed so that the Corporation is authorized to make loans to and purchase assets from insured banks closed on account of inability to meet the demands of depositors.

For a limited time the Corporation is given power to make loans to and purchase assets from closed or open insured banks, in connection with consolidations or mergers, to facilitate stabilization of such banks. In like manner the Corporation may, for a limited time, guarantee other banks against loss which assume the liabilities and purchase the assets of insured banks,

Provision is made in title I for appointing in each State, Territory, and jurisdiction where insured banks are located, an agent for the service of summons in suits against the Corporation.

Under the provisions of title I, Federal courts have jurisdiction over suits to which the Corporation is a party where the amount involved exceeds $3,000, but an exception is made where the Corporation is a party in its capacity as receiver of a State bank.

Members of the board of directors, who become such after the enactment of title I, are restricted from being financially interested in insured banks by similar restrictions to those imposed upon members of the Federal Reserve Board, with respect to member banks, by the Federal Reserve Act.

Further, the Corporation is given the right to require insured banks to maintain adequate fidelity and burglary insurance. The Corporation's approval is required before a merger or consolidation of any insured bank with a noninsured bank, or before reduction of capital of a nonmember takes place and nonmember insured banks are required to make reports of condition which the Corporation may order to be published.

In accordance with the policy established in the Banking Act of 1933 of relaxing, to the extent of insurance protection, statutory requirements of giving security in case of certain deposits which are insured and also required under law to be secured, sections 338 and 339 in title III eliminate the double protection to deposits in insured banks of bankruptcy funds and of funds of receivers of national banks by relaxing, to the extent that such deposits are protected by insurance, the statutory requirement of giving security.

TITLE II. AMENDMENTS TO THE FEDERAL RESERVE ACT

There follows a section by section analysis of title II with a brief statement of the reasons for each section.

SECTION 201. CONSOLIDATION OF OFFICES OF GOVERNOR AND

CHAIRMAN OF FEDERAL RESERVE BANK

Section 201 amends section 4 of the Federal Reserve Act so as to combine the offices of chairman of the board of directors and governor of the Federal Reserve banks and to provide for the appointment of the governor to the combined office to be made annually by the directors of each bank subject to approval every 3 years by the Federal Reserve Board. The governor would be the chief executive officer of the bank, chairman of its board of directors, and a class C director.

A vice governor would be selected in the same manner and would perform the executive functions of the governor in his absence. In the discretion of the Federal Reserve Board the vice governor might also be a class C director, and in such case might be appointed as deputy chairman of the board of directors. The offices of Federal Reserve agent and assistant Federal Reserve agent would be abolished and all duties prescribed by law for the Federal Reserve agent would be performed by the governor of the bank or such person as he may designate.

Under the present law, the Federal Reserve Board appoints the three class C directors of each Federal Reserve bank and designates one of them as a Federal Reserve agent and chairman of the board of directors. It appears to have been the intention of the framers of the original Federal Reserve Act that the chairman of the board of directors be the principal executive officer of each bank, and the law makes him also the official representative of the Federal Reserve Board at the bank. In practice, however, the directors appoint an executive officer for whom they have adopted the title of governor, a title that is not mentioned in the law, and these governors have become the active heads of the Federal Reserve banks.

The amendment recognizes the existing situation by giving the governor of a Reserve bank a status in the law, and combines his office with that of the Federal Reserve agent and chairman of the board of directors. The holders of these combined offices will be

. appointed by the board of directors subject to the approval of the Federal Reserve Board, and their reappointment will be subject to approval by the Federal Reserve Board every 3 years. The Federal Reserve Board will no longer appoint a chairman of the board, but will merely have the power to approve or disapprove the appointment of the governor, who will also be chairman of the board. When the appointment of the governor is approved by the Board he will automatically become a class C director.

This proposal merely reestablishes the original principle of the Federal Reserve Act that the Federal Reserve Board, which has responsibility for national policies and for general supervision over the Reserve banks, shall be a party to the selection of the active heads of the 12 Reserve banks. This change will work toward smoother cooperation between the Board and the banks. What is equally important, it will establish within the banks a greater unity of administrative control than now exists. It will also result in considerable saving through the elimination of one of the two highest-salaried officers in each Federal Reserve bank.

Section 4 of the Federal Reserve Act is also amended to provide that no member of the board of directors of a Federal Reserve bank, other than the governor and vice governor, shall serve as a director for more than two consecutive terms of 3 years each, but this shall not prevent the present incumbents from serving out the remainders of their present terms.

The purpose of this provision is to prevent the crystallization in the directorates of the Reserve banks of the influence of any one individual or group of individuals. Continuity of service is provided for by allowing directors to serve as long as 6 years, and there is nothing to prevent directors who have served for 6 years from again becoming directors after the lapse of a year or more.

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SECTION 202. ADMISSION OF INSURED NONMEMBER BANKS

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Section 202 would amend section 9 of the Federal Reserve Act so as to authorize the Federal Reserve Board, in its discretion, to waive any requirements imposed by statute or otherwise as a condition to admitting insured nonmember banks to membership in the Federal Reserve System.

The purpose of this amendment is to facilitate the admission of thousands of small banks into the Federal Reserve System. There are now about 2,000 State banks and trust companies which have been admitted to deposit insurance by the Federal Deposit Insurance Corporation but which have capital insufficient to make them eligible for membership in the Federal Reserve System. About 1,500 of these banks are located in towns with a population of less than 3,000 inhabitants.

In some States, numerous banks have been reorganized since the banking holiday under plans involving the issuance of deferred certificates of beneficial interest to depositors who have waived portions of their deposits. In these cases, the condition of the banks has been materially improved and new deposits are fully protected; but the banks in many instances are not technically eligible for membership in the Federal Reserve System because they are under absolute liability to pay the amounts stated in the deferred certificates issued to waiving depositors, although such liabilities are subordinated to the liabilities of the bank to depositors and other creditors.

Other banks which the amendment would permit to join the Federal Reserve System are those which have sold preferred stock or capital notes or debentures, thereby strengthening the position of the depositors, but which have not been able to eliminate losses constituting a technical impairment of capital because of provisions of State laws making it impossible to reduce the common capital to the extent necessary to charge off the losses. SECTION 203(1). QUALIFICATIONS OF MEMBERS OF THE FEDERAL

RESERVE BOARD

Section 203(1) would amend section 10 of the Federal Reserve Act by striking out the present requirement that, in selecting members of the Board, the President shall have due regard to a fair representation of the financial, agricultural, industrial, and commerical interests and geographical divisions of the country, and substituting a requirement that they shall be well qualified by education or experience, or both, to participate in the formulation of national economic and monetary policies. The requirement that not more than one member of the Board shall be from any one Federal Reserve district is preserved, but it is made inapplicable to the Governor of the Board.

This amendment is for the purpose of describing the qualifications of Board members in terms of the Board's principal function, which is the formulation of national economic and monetary policies. It is important to emphasize in the law that Board action should reflect, not the opinion of a majority of special interests, but rather the well considered judgment of a body that takes into consideration all phases of the national economic life.

The selection of the Governor of the Federal Reserve Board should be as free from arbitrary limitations and restrictions as possible. If the President has in mind a man who in his judgment qualifies for the position, he ought not to be restrained from appointing him by the fact that he happens to live in a district which is represented by some other member of the Board.

SECTION 203 (2). RETIREMENT OF MEMBERS OF FEDERAL RESERVE

BOARD

Section 203(2) amends section 10 of the Federal Reserve Act so as to permit present appointive members of the Federal Reserve Board to retire upon reaching the age of 70 when they have served for as long as 5 years, and to require members hereafter appointed to retire upon reaching that age; but it would not prevent the President from reappointing any of the present members of the Board. Any member of the Board whose term expires and who is not reappointed would be eligible for retirement if he has served for as long as 5 years, except that, if his term expires before he reaches the age of 65 and he is offered and declines to accept reappointment, he would not be eligible for retirement. Members of the Board who have served for as long as 12 years would receive a maximum retirement pay of $12,000 per annum and members who have served for less than 12 years but not less than 5 years would receive retirement pay at the rate of $1,000 per annum for each year of such service. All of the funds for such retirement pay would be provided by assessments on the Federal Reserve banks and none of it would come from appropriations or from the revenues of the Government.

This amendment is for the purpose of making the members of the Board more independent by eliminating the possibility of their official actions being influenced by the necessity of seeking positions in the banking world after the expiration of their terms as members of the Board if they are not reappointed. This is especially desirable in view of the increased responsibilities which will be placed upon the Federal Reserve Board by the other provisions of this bill.

SECTION 203(3). GOVERNOR OF THE FEDERAL RESERVE BOARD

Section 203 (3) amends section 10 of the Federal Reserve Act so that, if the Governor of the Federal Reserve Board should resign from membership on the Board within 90 days after he ceases to be Governor, he could reenter the banking business without waiting 2 years as now required by law. However, he could serve out his full term as a member of the Board if he chose to do so.

This provision is intended to make it easier for the President to induce successful bankers of outstanding ability to accept the position of Governor of the Federal Reserve Board. Any outstanding man probably would resign from membership on the Board if his designation as Governor were terminated by the President before the expiration of his term as a member of the Board; and, under existing law, Governor who resigned in such circumstances would be precluded from reentering the banking business until 2 years after his resignation. This seriously discourages outstanding bankers from accepting the

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position of Governor of the Federal Reserve Board when tendered by the President. This is an obstacle which should be removed.

The amendment makes no substantive change so far as the designation by the President of the Board's Governor is concerned. The present law states that “of the six persons thus appointed, one shall be designated by the President as Governor." This has been consistently interpreted to mean that the Governor serves as Governor at the pleasure of the President. The bill follows this interpretation without changing it, by including the additional words “to serve as such until the further order of the President."

SECTION 203(4). BOARD MEMBERS HOLDING OF ER

Section 203(4) would amend section 10 of the Federal Reserve Act so that, upon the expiration of their terms of office, members of the Federal Reserve Board could continue to serve until their successors are appointed and have qualified.

In view of the fact that the terms of most of the members of the Board expire in August, this amendment would reduce the occasions when the President has to make recess appointments to the Board and would make it possible for members who have been confirmed by the Senate to continue to serve until their successors have been appointed and confirmed by the Senate. It would also reduce the chances of vacancies existing on a board which is charged with very heavy responsibilities and therefore ahould have its full quota of membership at all times.

SECTION 204 (a). ASSIGNMENT OF DUTIES Section 204 amends section 11 of the Federal Reserve Act so as to authorize the Federal Reserve Board to assign to designated members of the Board or its representatives, under rules and regulations prescribed by the Board, the performance of specific duties and functions. It would prohibit such assignment from including the

. determination of national or system policies, or any power to make rules and regulations, or any power which under the act is required to be exercised by a specified number of members of the Board.

The purpose of this provision is to relieve the Board of the necessity of handling details and to give it a better opportunity to concentrate on problems of national importance. The Board should be able to concentrate on studies and inquiries that would enable it to reach decisions on matters of national importance. This is an exacting task and one that should not be interrupted by the necessity of giving attention to innumerable details.

The assignment of specific duties to individuals would also expedite matters before the Board that require immediate decision. The Board could greatly improve its relations with the Federal Reserve banks and member banks through prompt and systematic disposition of numerous details by assigning them to individual members or officers of the Board or to its representatives at the Federal Reserve banks, to be acted upon in accordance with rules and regulations prescribed by the Board and policies laid down by it.

One of the important consequences of these provisions would be that the Board would have authority to assign to the governor or

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