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local bank to make loans at a rate of interest not exceeding six per cent. per annum and have a liberal margin of profit on such transaction.

BOARD OPENS THE WAY TO PROMOTE DOLLAR EXCHANGE1

September 10, 1915, the board issued revised regulations governing the rediscount of bankers' acceptances by federal reserve banks, providing, among other things, that under certain conditions such acceptances may be renewed. In explanation of the new regulation, the board issued a statement as follows:

It has been the aim of the board to do everything in its power to create for the American acceptance, that is, dollar exchange, a dominating position in the world market. Present conditions offer in this respect a great opportunity. In widening somewhat the facilities of federal reserve banks in dealing with American bankers' acceptances, the board is attempting to give the member banks a larger opportunity for developing their sphere of usefulness in this respect.

The United States should now do what Europe has done for many generations for the United States, that is to say, the bank facilities of the United States should be used for carrying import and export transactions for foreign countries just as Europe up to now carried by its acceptances the import and export transactions of the United States. In order to do this with the exchange market disorganized it was thought that it would facilitate foreign transfers if liberal conditions should be allowed for the renewal of such drafts, so as to enable these foreign countries to have ample time to procure the necessary cover against the acceptances drawn by them.

It will be seen from the foregoing that the time has come, in the opinion of the board, when the American dollar should take a dominating place in the financial markets of the world, and when American or dollar exchange should become the medium through which the millions of exports and imports of the United States should be paid.

Members of the board state in this connection that there was no connection between the revision of the acceptance regulations and the visit of the Anglo-French Commission to the United States to take up exchange problems with American bankers. It was said that the visit of the com1Consult pp. 125-131 post.

mission had not been discussed by the board, and the revision of the regulations has been under consideration "quite two months" or long before it was known here that the commission was coming. However, the new acceptance regulations might facilitate the credit loan sought by the AngloFrench Commission. The board has liberalized conditions so that foreign and American bankers may use a part of the resources of the federal reserve system in taking care of purchases made here for exportation.

If American bankers decided to extend credit by indorsing or accepting drafts on Europe, they probably could rely on rediscounting these drafts with federal reserve banks to the value of many millions of dollars.

NO DOUBLE LIABILITY ON STOCKHOLDERS OF STATE INSTI

TUTIONS

September 11, 1915, the Federal Reserve Board decided there is no provision in the reserve act imposing double liability on the stockholders of State banks or trust companies which become members of the federal reserve system. The decision reads as follows:

The question has been raised whether or not the stockholders of a State bank or trust company which becomes a member of the federal reserve system are by reason of such membership, subject to the double liability provided for National banks in section 5151, Revised Statutes. This section reads in part as follows:

The shareholders of every National banking association shall be held individually responsible, equally and ratably and not one for another, for all contracts, debts and engagements of such association, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares. * * *

Section 9 of the Federal Reserve Act, relating to State banks and trust companies which are members of the federal reserve system, provides that such banks shall be subject to the provisions of sections 5188, 5200, 5201, 5208, 5209, and to certain other federal laws. Neither section 9 nor any other section of the Federal Reserve Act provides that such bank shall be subject to the provisions of section 5151 above referred to. In the absence, therefore, of any affirmative enactment to this effect, it is clear that State banks or trust companies located in a State the laws of which do not provide that the stockholders shall be

subject to double liability, may become members of the federal reserve system without subjecting their stockholders to this liability.

In this connection, however, it may be proper to call attention to the fact that section 2 of the Federal Reserve Act provides that

The shareholders of every federal reserve bank shall be held individually responsible * * * for all contracts, debts and engagements of such bank to the extent of the amount of their subscriptions to such stock at the par value thereof in addition to the amount subscribed. This provision subjects the State bank or trust company which becomes a member to liability double the amount of their subscription to the stock of the federal reserve bank, but this imposes no individual liability on the shareholders of such State bank or trust company.

BOARD HAS NO JURISDICTION OVER THE NEGOTIATION OF FOREIGN LOANS

September 15, 1915, the Federal Reserve Board announced that it had no jurisdiction over the negotiation of loans with foreign Governments, and that it has no knowledge of the attempt of the Anglo-French Commission to secure a loan in this country except what it has learned through the newspapers. The board's letter was in reply to one from Senator Lewis, protesting against the billiondollar loan. Governor Hamlin wrote:

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Your letter of September 13 has been received. The question you have raised will receive consideration in case the matter raised by you should come before the board. The board has no knowledge concerning the matter you present except what has appeared during the past few days in the public press, nor has it any jurisdiction over the negotiation of loans with foreign Governments.

RESERVE BANKS NOT PERMITTED WITHIN A QUARTER TO BUY MORE THAN ONE-FOURTH OF GOVERNMENT BONDS

October 20, 1915, the Federal Reserve Board adopted a ruling to the effect that a reserve bank cannot purchase during a quarter more than one-fourth of the annual allotment of United States bonds which the law provides. In this way it is expected a reserve bank will be prevented from purchasing a small amount of bonds during one quarter and equalizing this purchase by buying a large allotment the next quarter.

The resolution adopted is as follows:

Resolved, That, until further notice, in requiring federal reserve banks to purchase United States bonds offered for sale by member banks under the provisions of section 18. the Federal Reserve Board will not allot to any one federal reserve bank in any one quarter more than one-fourth of its pro rata share of the bonds to be purchased during the calendar year under the provisions of this section.

"TRUST COMPANY POWERS" PROVISION OF THE FEDERAL ACT DECIDED TO BE UNCONSTITUTIONAL AND VOID1

October 23, 1915, the Federal Reserve Board intervened in a case involving the trust company powers of National banks, in which the trust companies of Michigan have brought suit against the First National of Bay City.

The board also obtained permission to file a brief in the quo warranto proceedings to test the constitutionality of the provision in the Federal Reserve Act granting trust company powers to National banks.

The suit was brought June, 1914, in the Supreme Court at Lansing, Mich., in the name of the State Attorney, on behalf of the Union Trust Company, the Security Trust and the Detroit Trust, all of Detroit, and the Michigan Trust and the Grand Rapids Trust of Grand Rapids, these constituting all the trust companies in operation in the State. The board sought permission to file its own brief, because it was desired to give its side of the case and explain upon what grounds it is believed that the delegation of trust company powers to National banks is proper.

The First National of Bay City filed its answer to the quo warranto proceedings in August, 1915, stating that its application for membership in the Federal Reserve system was granted April 13, 1915, and said that "by virtue of such permit the bank is now acting for bondholders and is named as mortgagee and trustee in a certain real estate mortgage given to secure to said bondholders the payment of their debt." The answer stated that this action, the bank has been advised, “is not in contravention of any State or local

1Consult pp. 72-74 ante, pp. 215-217 post.

law in the State of Michigan." The answer also stated as follows: "That there is no public grievance to be remedied by this proceeding but the writ is prosecuted solely for the private benefit of the relators and many other trust companies that may be hereafter organized in Michigan."

December 23, 1915, the Supreme Court of the State of Illinois decided that subdivision k (eleventh paragraph) of section 12 of the Federal Reserve Act by which Congress conferred power on National banks to act as trustees, administrators and registrars of stocks and bonds is unconstitutional and void. This is the first ruling on this question. The decision was delivered by the court in a mandamus suit of the First National Bank of Joliet against the State Auditor.

The following opinion holds that this official was justified in refusing a National bank a certificate of authority to act in a fiduciary capacity under the Illinois trust act. The bank brought suit to compel the issuance of such a certificate. The decision of the court was unanimous. The opinion sustains the contention upon the ground that the right to act as trustee, executor or administrator is not necessary to be conferred upon National banks to enable them to serve the purpose for which they were created, nor to continue their existence. Certain powers of Government belong exclusively to the National Government. The power to regulate property within the limits of the State, the modes of acquiring and transferring it, and the rules of descent and distribution of property, are subjects belonging exclusively to the State. Trustees, executors and administrators deal with private property. They are the instrumentalities through which estates are settled and the transfer of property effected, and through which private property is protected for the purpose of applying it to the ends for which it was intended.

Any other decision would have left the State and Federal Governments both attempting to administer estates

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