Memorandum Bankers Treasury


Memorandum Bankers Treasury


Strong, Benjamin, 1872-1928




1913 November 17


Benjamin Strong Jr. writes a memo about the Federal Reserve Act.


Benjamin Strong Jr. Papers, New York Federal Reserve Bank




Page 3. The heading for Sec. 4 should be “Appropriation for Expenses.”
Page 4. At the end of Sec. 5 it should provide that the surplus paid to the United States should be applied to the purchase of United States bonds.
Page 5, 8th line, “centum” should be written in full.
Page 6, bottom of page. It is provided that the bank may lease and acquire real estate, and it should similarly be empowered to sub-let and sell.
Page 11. The sentence ending with the words “members of Executive Committees" is not sufficiently definite, and could be improved by reading as follows: "Members of Executive Committees may be summarily suspended and subsequently removed for cause by the Board after due hearing, and shall be so removed at the request of not less than ........ per centum of the depositors of a district expressed by votes of the Board of Directors of such depositors.”On the next line, between the words “annually” and “make”, add the words “and more frequently if required by the Board.”
Page 13. The first two lines should read, “exercise all the duties, services, or functions specified or implied in this Act.”
Page 14: end of Sec. 12. If the accounts and transactions of all depositors are confined to the branch and sub branches of the banking district in which they are located, foreign branches of National banks or State banks would not be able to do business with the foreign branches of the Federal Reserve Bank, and a few words at the end of the sentence will correct this error.
Page 15. Sec. 14. The word “centum” in place of “cent.”
Page 16. Paragraph (c): 1st line: “endorsement” mis-spelled
.Page 20. 4th line should read “as described in paragraph (d) of Sec2. 15 of this Act.”The last word in Sec. 20 is “surplus,” and this should be “surplus fund.”
Page 21. 3rd line. The words “the face” should be changed to “their should read “of equal cash value.”
Page 22: 1st paragraph: last 2line: the word “bank” should be “banks.”Same page: 7th line from the bottom, should read “gold and lawful money.”
Page 24; 12th line from top: the word “may” should be changed to “shall.”
Page 27; 4th line; the word “circulations” should be “circulation.”6th line; should read “notes of each of such national banks.”
Page 28; first three lines; I think better and more accurate language would be, “Circulating notes of an amount equal to one and one-half per centum per annum,” etc.In the first paragraph of Sec. 29, the letter “b” is omitted from the word “Board.”
Page 30; 18th line; the last word “expense” should be “expenses.”Next paragraph, same page, 2nd line: the word “examination” should be “examinations.”Please refer to the National Bank Act (National City Bank edition), page 16, paragraph 24. We have put nothing in the Bill in relation to jurisdiction of the courts over this institution. I am not able to suggest whether that is necessary or not, but inasmuch as special statutes have been enacted relating to the jurisdiction of State courts over National banks, it might be well to put a clause of declaration in the Bill as to the jurisdiction of the courts.
Page 20; the language of paragraph 35 indicates the possibility of some improvement in the language descriptive of the general powers of the Federal Reserve Bank.
Page 23; paragraph 42. We have not provided that directors shall hold office until their successors have been appointed and have qualified. This can be corrected in a sentence at the foot of page 7 of the Bill.Paragraph 43. Suggest that it might be wise to have the directors of the Federal Reserve Bank necessarily citizens of the United States.Paragraph 44; same page. Suggest that the form of oath might be expressed in the Act as that provided by Sec. 5147 of the Revised Statutes.
Page 23; paragraph 50, raises the question in my mind as to whether we have properly dealt with deposits of the Postal Savings Fund. They are not necessarily involved in this plan of legislation, but, even upon that theory, we want to make sure that the general language of the Act does not require the officers of the Government to disturb existing arrangements. It might be well to ascertain just how these accounts are kept, and see whether any clause would be required in the Bill to cover this situation.Paragraph 51, suggests that we have no provision in the Bill stating that the Federal Reserve Bank shall not pay interest upon any deposits, which should be there, and it should be without qualification.Page 30: paragraph 58, in relation to the Panama Canal bonds raises the question as to whether we have examined with sufficient care into the Statutes with relation to these bond issues and ascertained definitely whether our refunding operation would extend too far.Page 31; Sec. 60 should be made to extend to the refunding bonds to be issued to refund the 2%s.
Page 35; paragraph 67. I believe it would be wise that this section be amended so that it will not interfere with the provision in the Bill in regard to the retirement of one-half of the circulation of National banks. It may be that our Bill and this paragraph are in conflict
Page 39: paragraph 88. In describing the payments for which the notes of the bank may be received, we omitted payments for public lands. It isn't very important, but we might as well make it conform to the terms of the National Bank Act.
Page 40. Please consider the last line of that same paragraph.We have used the words “National bank notes” throughout the Bill. It might have been better to have put in a definition of Circulating Notes, in our paragraph of definitions, and changed the words “National bank notes” to “circulating notes” throughout the Bill.
Page 52. In providing that National banks may have branches, we should subsequently provide for an amendment to Sec. 5190 of the Revised Statutes.Page 53. Our reference to net deposits as defined by the Comptroller of the Currency should in some way refer to the sections of the National Bank Act appearing in paragraphs 122 and 123, so that his definition of net deposits might not imply something different from that already provided in the National Bank Act.
Page 54; top of page. We have omitted any reference to the of treatment of the 5% Redemption Fund as part of the reserves of National banks. The definite direction to establish a 12% reserve and how it shall be held, is contrary to the provisions of the National Bank Act. I suggest the addition of a clause which will place it within the power of the Federal Reserve Board to determine whether any of the 5% Redemption Fund, and if so to what extent and in what manner, may be counted as a part of the 12% reserve. Personally, I have no objection to this counting as part of the reserve which is to be held at their option in their own vaults.
Page 56; paragraph 135. We have given no consideration to the subject of usury. If the Federal Reserve Bank discounts only for corporations, that is, National and State banks, the usury statutes would not apply, but they would place the entire burden of costs for discounts in excess of the limit of usury upon the National bank, which could not in turn increase its rate to its customer. There is nothing we can do about this in the Bill, but it suggests the entire unwisdom of our usury statutes as they are in this country today.
Page 62; paragraph 149. Sec. 5209 of the Revised Statutes, or a similar clause, should be embodied in the Bill, unless other statutes of the United States apply to fraud of the character described in this section.
Page 64; paragraph 154. We have no method of disposition of unclaimed dividends provided in the Bill.
Page 69; paragraph 165. I am not sure whether this section must be made to conform to our own provision as to the retirement of circulation.
Page 72. We should have a paragraph, unless it has already been made to apply, similar to Sec. 5232 of the Revised Statutes.
Page 81. The question is raised again by paragraph 194, as to the jurisdiction of the courts over this corporation.Mr. Kent and I have been discussing some features of the Bill today. I haven't time to complete this dictation, but he will do so, and these rather sketchy notes together with his suggestions following will, I am sure, complete all the suggestions that have occurred to us since you left for Washington with the Bill.B.S.Jr.
Mr. Kent’s dictation:Page 1, of the Bill. Should not the word “That” follow the words “Sec. 2.”Page 5. Should not the word “That” follow the words “Sec. 6.”Page 6. Should not the word “That” follow the words “Sec. 7.” At the end of the 9th line from the bottom, the word “issue” might possibly be better changed to “issuance.”Page 7. 3rd line from top; the word “Board” is spelled first with a capital and then with a small letter. In this connection, would mention that the word “Branch” which appears in the definitions in capitals, is not capitalized anywhere in the Bill.Page 13; Sec. 11. Is there clear authority for the Board to divert earnings to surplus, should it so happen that, after the surplus reached the sum of $50,000,000., it were diminished through losses.Page 14; Sec. 13. The word “depositary” is followed in the first paragraph by the word “depositories.”Page 15; Sec. 14. As National banks invested in bonds of the United States, which were deposited as security for circulation, with the understanding that the 5% fund deposited with the Government would count as cash reserve, it seems only fair that they should be able to continue so counting it. While the amount is small, yet it might cause considerable friction among bankers if the regulation were changed.Page 15; Sec. 215 (b). Should not the words “that may not have been set aside as security for any other purpose” be added? There is no doubt whatever but that such words are not needed, practically, as a bankers would clearly understand it as it stands; but it might prevent criticism to have some such phrase affixed.Page 16; end of Sec (c). By adding the phrase “within the United States” it would prevent the purchase by the Bank of single name demand foreign exchange. As the section is worded it might be construed to mean that single name demand foreign exchange could be purchased. If it is intended that the bank shall be in a position to purchase such exchange, the paragraph should be left as it stands; otherwise I think it should be changed.Page 16 (c). Should not the words “from or to the United States” follow the word “importation” in the middle of the third line; making the line read, “upon the exportation or importation from or to the United States of goods, wares,” etc. Without those words the bank would not be authorized to operate, say, in London through discounting bills of exchange for exports and imports between foreign countries offered in the London market, because they would not bear the acceptance or endorsement of a depositor.Page 17. (f). The first line might better read as follows: “To purchase from depositors, for the purpose of carrying to maturity, or to sell,” etc., etc. This would prevent any possibility of a construction being put upon the section that would seem to make it necessary for the bank to sell everything that it purchased. If such a consideration does not seem to you possible, the paragraph should stand as it is.Page 17. (g). The fifth word in the third line is “or.” Should not this word be left out?Page 17. (h). In the second line “such countries” should be changed to “foreign countries,” otherwise it might be construed to mean that branches could be established only in countries in which foreign bank accounts had been opened.(h) In the third line, the word “discounting” should be added to “purchasing, selling, collecting.” The word “dealing” might cover it, but it would seem that the word “discounting” should be added, as it would probably be a daily operation.Page 17. (h). 5th line. The word “such” should be changed to “its foreign.” 6th line, the word “agency” should be followed by the word “such.”Page 18. Sec. 17. The word “it” in line 3 should be changed to “them.” In line 6 the word “it” should also be changed to “them.”Page 25. In the second paragraph, is the new issue of bonds clearly authorized in the words “he shall accomplish such refunding by the issue of bonds.”Page 27. Sec. 28 states that “purchases shall be made from the several National banks up to amounts not exceeding the par value,” etc., “and thereupon the banks shall be responsible for the retirement redemption and retirement of the notes of each such National bank to the amount of the purchase price of the bonds less interest,” etc. Suppose a condition arose under which bonds were offered to the Government at, we will say, 90, and were purchased at that price. If $100,000 of bonds were purchased at 90, the bank would assume liability for only $90,000 in National bank notes. It would unquestionably redeem $100,000 of such notes, but it would not be compelled to do so under the law.Sec. 30, under “Bank Examinations,” intends either to duplicate to a certain extent the examinations to be made by the Comptroller, or to take out from under his jurisdiction the examination of National banks. If the former is intended the section is in order; if the latter, it is not.Paragraph 2Page 35. Sec. 20. The word “amount” is mis-spelled in the fourth line.F.I.K.Additional Memorandum from Mr. Kent.Page 27. Sec. 28. Referring to the assumption of liability by the Bank for National bank notes, would say that under the present law National banks are obliged to deposit lawful money with the Treasurer of the United States in order to retire their circulation. If the Bank, under the proposed law, assumes responsibility for any National bank notes, the lawful money that is to be paid by the National banks which have sold their bonds to the Bank should be paid to the Bank and not to the Treasury Department. This matter should be so clearly stated that there can be no question of its operation either in law or in effect, as otherwise the standing of the Bank might be seriously jeopardized. The Bank would make payment from its assets for the United States bonds, which in itself would represent a cancelling transaction. When called upon to retire National bank notes therefor the Bank would have nothing that it could use that would not mean an actual reduction of its assets, unless the lawful money that the National banks were obliged to put up in order to release their bonds that had been deposited to secure circulation were placed with the Bank and not with the Treasury Department.F.I.K.(To follow end of first paragraph of page 27)and thereupon also such national bank shall be relieved from all further liability in respect of such notes of such national bank, the responsibility for the redemption and retirement of which has been so assumed by the Bank, except to pay the same on demand and receive in exchange therefor from the Bank lawful money to the face amount of such notes. So much of Section of the Revised Statutes of the United States (Act of June 20, 1874, Chap. 343, Sec. 4, 18 St. U.S. 124) and of the Act of July 12, 1882, Chap. 290, Sec. 9; 22 U. S. St. 164; Act of March 4, 1907 and Act of May 30, 1908, as provides for the withdrawal by any national bank of its circulating notes by the deposit of lawful money with the Treasurer of the United States, and the taking up of the bonds which such national bank has on deposit with the Treasurer for the security of such circulating notes, and as provides that the amount of bonds on deposit for circulation shall not be reduced below $50,000 for any such national bank, and as provides that not more than $9,000,000 of lawful money shall be so deposited with the Treasurer of the United States during any calendar month for the purpose of withdrawing circulating notes of any such national bank, are hereby repealed.

Original Format




Strong, Benjamin, 1872-1928, “Memorandum Bankers Treasury,” 1913 November 17, WWP18418, Benjamin Strong Jr. Papers, Woodrow Wilson Presidential Library & Museum, Staunton, Virginia.