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REQUIREMENTS FOR DESIGNATION OF RESERVE CITIES April 3, 1915, the Federal Reserve Board adopted the following requirements as necessary before consideration will hereafter be given to the designation of any city as a reserve city

A population of at least 50,000; combined capital and surplus of National banks in the applying city of not less than $3,000,000, with deposits of not less than $10,000,000; endorsement of the application by at least fifty (50) National banks located outside of the applying city who will state that they are carrying or intend to carry upon such designation, accounts with a National bank in the applying city. Applications will be referred for report and recommendation to the federal reserve bank of the district in which the applying city is located, whose chairman shall certify the names of the National banks endorsing the application.


April 5, 1915, the Federal Reserve Board issued its regulations as to bankers' acceptances in accordance with the statute enacted by Congress, March 3, 1915, amending the Federal Reserve Act. It provided for removing the limitations originally imposed on the amount of acceptances which might be discounted by a federal reserve bank for member banks, or accepted by member banks. The law originally limited the amount of acceptances which might be discounted for a bank to half of the bank's unimpaired capital stock and surplus. The amendment increases the limit to the full amount of any capital and surplus.

The board rules that "any federal reserve bank shall be permitted to discount for any member bank 'bankers' acceptances', as defined up to an amount not to exceed the capital stock and surplus of the bank for which the rediscounts are made." The following definition is made: "A bankers' acceptance must be drawn by a commercial or industrial concern, that is, some person, firm, company or corporation directly connected with the importation or exporta

tion of the goods involved in the transaction in which the acceptance originated, or by a banker. In the latter case, the goods, the importation or exportation of which is to be financed by the acceptance, must be clearly specified in the agreement with or the letter of advice to the acceptor. The bill must not be drawn or renewed to the purchaser or consignee."

The new regulation provides that "any member bank may accept drafts or bills of exchange drawn upon it, having not more than six months' sight to run and growing out of transactions involving the importation or exportation of goods up to amount not exceeding the capital and surplus of such bank, provided that

"1. Every such bank shall possess an unimpaired surplus of not less than twenty per cent. of its paid-in capital.

"2. Every such bank shall file formal application with the federal reserve bank of its district, which shall report to the Federal Reserve Board upon the standing of such applicant, stating also whether the business and banking conditions prevailing in the district warrant the granting of such application in said district.

"3. Every such application shall first have to be approved by the Federal Reserve Board."

Approval of such application may be rescinded and modifications of this regulation may be made by the Federal Reserve Board upon notice of ninety days to the bank or banks thereby affected.



April 2, 1915, the Attorney-General gave an opinion to the Treasury Department, maintaining the right of National banks to have their deposits guaranteed by surety companies. The question had been referred to the Depart

1 Introduction, Paine's National Banking Laws (7th Ed.), p. 14.

2Ibid, p. 15.

"Paine's New York Banking Laws (7th Ed.), pp. 164. 179, 245, 254.

ment of Justice as a result of questions which had arisen as to the interpretation of opinions given on this subject by the Attorney-General in 1908 and 1909. Following is an excerpt from the opinion:

"The means by which depositors are to be protected and secured are not expressly limited or restricted by statute. A large discretion is left to the banks' officers and directors. They may use such means for the purpose as are not prohibited by or inconsistent with the provisions of the law, and as they may reasonably find to be suitable and proper and not inconsistent with the prudent conduct of the affairs of the bank within the scope of its charter. 'Whatever protects the depositors,' it has been said, 'protects the bank because it assures confidence in the bank.'

"A contract of insurance or guaranty such as described in the question submitted may afford protection to depositors by securing the performance of an obligation on the part of the bank which otherwise might not be performed. And it is not unreasonable to believe that such a contract at the same time may prove valuable to the bank because of the confidence it may assure.

"No reason is perceived for prohibiting a National bank in the discretion of its directors from so securing its depositors or for denying to the bank such benefits as they believe may accrue in the form of increased confidence resulting from such a contract."


April 5, 1915, the following letter was issued by the Federal Reserve Board to its reserve agents:

In order that the powers of National and State banks and trust companies as members of the federal reserve system may be equalized as far as possible, the board desires to grant to National banks applying therefor, when not in contravention of State or local laws, permission to act as trustee, executor, administrator and registrar of stocks

and bonds. In acting on applications, however, for such permits, it is necessary that the board should take into consideration—

First. Whether or not the exercise of these powers, or any of these powers, will be in contravention of State or local law.

Second. Whether the applying bank is in proper condition and is equipped to handle this class of business, and whether a permit will, under the circumstances, prove of benefit to such bank.

In order to pass upon the question of whether or not action under the permit will contravene State or local laws, the board has requested counsel for the various federal reserve banks to analyze the laws of the States in the several districts and file his opinion with the board. In view of the lack of uniformity in the laws of the several States it is difficult, if not impossible, to prescribe any fixed rules by which this question may be determined. Inasmuch as National banks are incorporated under federal law, the statutes of the various States necessarily have a very limited application, but in this instance Congress has expressly provided that State laws shall not be contravened, just as it did in the case of usury laws of the several States.

There are probably no States whose statutes in terms prohibit National banks from exercising these powers, and few which expressly authorize their exercise. The question under consideration, therefore, cannot be determined by ascertaining merely whether a State law specifically prohibits or specifically authorizes National banks to act as provided by section 11 (k). Nor is it within the province of the Federal Reserve Board to pass upon the constitutionality of this section. general, the board will grant permits in accordance with this section where the exercise of the powers granted does not contravene the general policy of the State laws as indicated by the statutes dealing with banking institutions and other corporations, and will refuse permits in those cases where such exercise would be clearly in contravention of the general policy of such State laws.


In determining the second question, that is, whether or not in a given case the granting of the permit will prove to the best interest of the applying bank, the board must necessarily take into consideration the particular circumstances in each instance. Banks having small capital and surplus should, therefore, be requested to indicate the nature and extent of the business it contemplates undertaking. Its equipment and the efficiency of its organization must of necessity be taken into consideration in determining the general character of the estates to be administered.

While the board does not desire to promulgate at this time any fixed rules as to the proportion that the capital and surplus of the applying bank should bear to the size of the estates to be handled, it is at once manifest that small institutions should not undertake to administer estates which will require a larger and more efficient trust department than such banks will be justified in establishing. Before making any

recommendation, therefore, to the Federal Reserve Board that application should be approved or disapproved, federal reserve banks should give consideration to the circumstances, as indicated above.

It is the desire of the board to coöperate with the member banks through the federal reserve banks in a gradual and conservative development of this class of business. To this end, applications received by the federal reserve bank should be handled in the following manner:

First. They should be submitted to counsel for the federal reserve bank, who will certify thereon whether or not, in his opinion, there is reasonable ground for believing that the exercise of the powers applied for will not be in contravention of the laws of the State in which the applying bank is located. The application should then be referred to the board of directors of the federal reserve bank.

Second. The board of directors, after due consideration, should forward the application to the Federal Reserve Board with its recommendation. If, for any reason, the board of directors is of the opinion that the permission applied for should not be granted, the application should be accompanied by its reasons in writing.

Third. The Federal Reserve Board, under the terms of the act, can authorize National banks to exercise only those powers which are not in contravention of State or local laws, and if, after a permit is granted, the right to act under it should be questioned by the State authorities, member banks should promptly notify the federal reserve bank and the Federal Reserve Board, so that arrangements may be made for an adjustment or for a proper adjudication by a court of competent jurisdiction.


April 18, 1915, trust companies organized under the banking law of the State of New York, presented a protest to the Federal Reserve Board, representing that the Federal Government has no power under the constitution to authorize a corporation to perform such functions. It is argued that the right to charter a bank was sustained as one of the implied powers, useful in carrying out certain functions of the Government, National banks being financial agencies of the Government in issuing currency, receiving and disbursing money, etc.; but that the trustee function is in no way re

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