64TH CONGRESS,} SENATE. { REPORT No. 1059. AMENDMENTS TO THE FEDERAL RESERVE ACT. FEBRUARY 14 (calendar day, FEBRUARY 16), 1917.-Ordered to be printed. Mr. OWEN, from the Committee on Banking and Currency, submitted the following REPORT. [To accompany S. 8259.] The Committee on Banking and Currency, to which was referred the bill (S. 8259) to amend the Federal reserve act, having considered the same, report it back without amendment and recommend its passage. The amendments to the Federal reserve act contained in this bill are strongly recommended by the Federal Reserve Board, Gov. Harding, of the board, having appeared in person before the committee to explain the necessity for this proposed legislation. The several sections of the bill are separately discussed in the following report, and for the convenience of the Senate each section proposed to be amended is printed so as to show existing law and the proposed change in existing law. The existing law is shown in roman type, that portion of existing law which is to be stricken out is shown in line type, and new matter is shown by italics. SECTION 1.-ASSISTANTS TO RESERVE AGENTS. That section four of the act approved December twenty-third, nineteen hundred and thirteen, known as the Federal reserve act, be amended by striking out the sentence reading as follows: "One of the directors of class C, who shall be a person of tested banking experience, shall be appointed by the Federal Reserve Board as deputy chairman and deputy Federal reserve agent, to exercise the powers of the chairman of the board and Federal reserve agent in case of absence or disability of his principal," and by adding in place thereof the following: "Subject to the approval of the Federal Reserve Board, the Federal reserve agent shall appoint one or more assistants. Such assistants, who shall be persons of tested banking experience, shall assist the Federal reserve agent in the performance of his duties and shall also have power to act in his name and stead during his absence or disability. The Federal reserve agent may require such bonds of his assistants as he may deem necessary for his own protection. Assistants to the Federal reserve agent shall receive an annual compensation to be fixed and paid in the same manner as that of the Federal reserve agent. One of the directors of class C shall be appointed by the Federal Reserve Board as vice chairman to exercise the powers of the chairman of the board in case of the absence or disability of the Federal reserve agent; in case of the absence of the chairman and vice chairman, the third class C director shall preside at meetings of the board." The first section abolishes the office of deputy chairman and deputy Federal reserve agent and substitutes therefor an assistant to be appointed by the Federal reserve agent under bond to the agent, at a salary to be fixed and paid in the same manner as that of the Federal reserve agent. Existing law provides that in the absence of the Federal reserve agent, the deputy reserve agent acts in his place. The board has had much difficulty in obtaining from class C directors men qualified to fill the position of deputy reserve agent. This officer is required to have the same qualifications as the Federal reserve agent; he must have had banking experience and must not be an officer, director, or stockholder in any bank. As a rule, he is not a salaried officer, and his only compensation is the fees paid directly upon attendance of meetings, although he is compelled to be prepared at all times to assume the duties of Federal reserve agent in case of the absence or disability of that officer. This involves a transfer and auditing of securities, and the deputy reserve agent would find it most inconvenient to leave his business and report immediately to the bank on short notice. The adoption of the amendment will more definitely fix the responsibility for the funds and operates to give the board more latitude in the selection of class C directors. The amendment in this section further provides that one of the directors of class C shall be appointed by the reserve board as vice chairman to exercise the powers of chairman of the board in case of the absence or disability of the Federal reserve agent. Under existing law the deputy reserve agent is also deputy chairman. SECTION 2. EXTENDING CLEARING AND COLLECTION FACILITIE TO NONMEMBER BANKS. The following shows the proposed change in existing law: SEC. 2. That the first paragraph of section thirteen be amended so as to read as follows: "Any Federal reserve bank may receive from any of its member banks, and from the United States, deposits of current funds in lawful money, national-bank notes, Federal reserve notes, or checks, and drafts, payable upon presentation, and also, for collection, maturing notes and bills; or, solely for purposes of exchange or of collection, may receive from other Federal reserve banks deposits of current funds in lawful money, national-bank notes, or checks upon other Federal reserve banks, and checks and drafts, payable upon presentation within its district, and maturing notes and bills payable within its district; or, solely for the purposes of exchange or of collection, may receive from any nonmember bank or trust company deposits of current funds in lauful money, national-bank notes, Federal reserve notes, checks and drafts payable upon presentation, or maturing notes and bills: Provided, Such nonmember bank or trust company maintains with the Federal reserve bank of its district a balance in an amount to be determined by the Federal Reserve Board under such rules and regulations as it may prescribe." Section 2 proposes to amend the first paragraph of section 13 of the Federal reserve act so as to permit nonmember banks or trust companies to deposit funds in Federal reserve banks solely for the purposes of exchange or collection. This privilege is to be extended only in the event that such nonmember bank or trust company maintains with the Federal reserve bank of its district such a balance as in the judgment of the Federal Reserve Board may be deemed necessary. Any clearing and collection plan to be effective must be comprehensive enough to include all checks. The following statement from the members of the Federal Reserve Board is in justification of this proposed amendment: It is contemplated that the compensating balances which nonmember banks participating in the clearing plan will be required to keep with Federal reserve banks will be sufficiently large to protect member banks and justify Federal reserve banks in undertaking the service. Any clearing and collection plan to be effective must be so comprehenisve as to include all checks. At present the par lists of the Federal reserve banks include the names of banks checks on which can be collected in any circumstances at a minimum of time and expense, but do not embrace a large number of towns in every State where there are no member banks; and in order to make collections on such points many banks are obliged to maintain accounts in addition to their reserve accounts with the Federal reserve banks. A necessary factor in any successful clearing plan is the offset whereby balances only require settlement instead of the total volume of transactions. As long as the clearing system does not embrace all of the banks, this offset is lost in a corresponding degree and the value of the system diminished in proportion. SECTION 3. FOREIGN ACCEPTANCES. SEC. 3. That the fifth paragraph of section thirteen be, and is hereby, amended so as to read as follows: "Any member bank may accept drafts or bills of exchange drawn upon it having not more than six months sight to run, exclusive of days of grace, which grow out of transactions involving the importation or exportation of goods; or which grow out of transactions involving the domestic shipment of goods provided shipping documents conveying or securing title are attached at the time of acceptance; or which are secured at the time of acceptance by a warehouse receipt or other such document conveying or securing title covering readily marketable staples. No member bank shall accept, whether in a foreign or domestic transaction, for any one person, company, firm, or corporation to an amount equal at any time in the aggregate to more than ten per centum of its paid-up and unimpaired capital stock and surplus, unless the bank is secured either by attached documents or by some other actual security growing out of the same transaction as the acceptance; and no bank shall accept such bills to an amount equal at any time in the aggregate to more than one-half of its paid-up and unimpaired capital stock and surplus: Provided, however, That the S R-64-2-vol 1--30 Federal Reserve Board, under such general regulations as it may prescribe, which shall apply to all banks alike regardless of the amount of capital stock and surplus, may authorize any member bank to accept such bills to an amount not exceeding at any time in the aggregate one hundred per centum of its paid-up and unimpaired capital stock and surplus: Provided, however, That the aggregate of acceptances growing out of domestic transactions shall in no event exceed fifty per centum of such capital stock and surplus: Provided further, That in no event shall a bank accept for any one person, company, firm, or corporation to an amount equal at any time in the aggregate to more than twenty per centum of its paid-up and unimpaired capital stock and surplus.” Section 3 proposes to amend the fifth paragraph of section 13 of the reserve act so as to permit the Federal Reserve Board to authorize member banks to accept foreign bills of exchange growing out of transactions involving the importation or exportation of goods to an amount not exceeding 100 per cent of its paid-up and unimpaired capital and surplus. The acceptance for any one person, company, or firm, is restricted, however, to not more than 20 per cent of the bank's paid-up and unimpaired capital and surplus. SECTION 4. GOLD AND GOLD CERTIFICATES AS COLLATERAL SECURITY FOR THE ISSUANCE OF FEDERAL RESERVE NOTES. SEC. 4. That section sixteen, paragraphs two, three, four, five, six, and seven, be further amended and reenacted so as to read as follows: "Any Federal reserve bank may make application to the local Federal reserve agent for such amount of the Federal reserve notes herein before provided for as it may require. Such application shall be accompanied with a tender to the local Federal reserve agent of collateral in amount equal to the sum of the Federal reserve notes thus applied for and issued pursuant to such application. The collateral security thus offered shall be notes, drafts, bills of exchange, or acceptances rediscounted under the provisions of section thirteen of this Act, or bills of exchange indorsed by a member bank of any Federal reserve district and purchased under the provisions of section. fourteen of this Act, or bankers' acceptances purchased under the provisions of said section fourteen, or gold or gold certificates; but in no event shall such collateral security, whether gold, gold certificates, or eligible paper, be less than the amount of Federal reserve notes applied for. The Federal reserve agent shall each day notify the Federal Reserve Board of all issues and withdrawals of Federal reserve notes to and by the Federal reserve bank to which he is accredited. The said Federal Reserve Board may at any time call upon a Federal reserve bank for additional security to protect the Federal reserve notes issued to it. "Every Federal reserve bank shall maintain reserves in gold or lawful money of not less than thirty-five per centum against its deposits and reserves in gold of not less than forty per centum against its Federal reserve notes in actual circulation: Provided, however, That when the Federal reserve agent holds gold or gold certificates as collateral for Federal reserve notes issued to the bank such gold or gold certificates shall be counted as part of the gold reserve which such bank is required to maintain against its Federal reserve notes in actual circula |