FEDERAL RESERVE ACT PDF
1 A number of sections of the Federal Reserve Act are long or note above and below at the bottom of each page of the pdf version and. gress and ultimately in the Federal Reserve Act of. A study of monetary conditions was author ized by a Republican administration, and remedial. H E Federal Reserve Act has now so completely demonstrated its value, and is so widely approved by the business men of America and of the world, that I have .
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Federal Reserve Act, McFadden Act, Banking Act of Banking Act of Bank Holding Company Act, COMMITTEE ON BANKING AND . Act shall be the "Federal Reserve Act." Wherever the word "bank" is used in this Act, the word shall be held to include State bank, banking association and trust. HARVARD COLLEGE LIBRARY THE FEDERAL RESERVE ACT "That one Measure won the War" — John Skbkton WruaiAMs Comptroller qf the Currency The.
Congress chartered this Second bank for a twenty-year period to create irredeemable currency with which to pay for the costs of the War of The creation of congressionally authorized irredeemable currency by the Second Bank of the United States opened the door to the possibility of taxation by inflation.
Congress did not want state-chartered banks as competition in the inflation of currency. In the aftermath of the Panic of , there was general agreement among leaders in both parties of the necessity to create some sort of central banking system to provide coordination during financial emergencies.
Under conservative Republican Senator Nelson Aldrich 's leadership, the National Monetary Commission had put forward a plan to establish a central banking system that would issue currency and provide oversight and loans to the nation's banks. However, many progressives distrusted the plan due to the degree of influence bankers would have over the central banking system.
Relying heavily on the advice of Louis Brandeis , Wilson sought a middle ground between progressives such as William Jennings Bryan and conservative Republicans like Aldrich. Owen crafted a compromise plan in which private banks would control twelve regional Federal Reserve Banks , but a controlling interest in the system was placed in a central board filled with presidential appointees. The system of twelve regional banks was designed with the goal of diminishing Wall Street 's influence.
Wilson convinced Bryan's supporters that the plan met their demands for an elastic currency because Federal Reserve notes would be obligations of the government. After Wilson convinced just enough Democrats to defeat an amendment put forth by bank president Frank A. Vanderlip that would have given private banks greater control over the central banking system, the Senate voted 54—34 to approve the Federal Reserve Act. Refunding Bonds Section Bank Reserves Section National bank notes redemption fund as reserve Section Bank Examinations Section Offenses of examiners, member banks, officers, and directors Section Relations with affiliates Section 23B.
Restrictions on Transactions with Affiliates Section Real Estate Loans Section 24A.
Foreign Branches Section 25A. Potential Liability on Foreign Accounts Section Tax on national bank notes Section Reduction of capital of national banks Section So long as the Reserve Associa- tion issued its own bank notes it fol- lowed as a corollary that the Associa- tion would control its own notes as it saw fit, and thereby could control the currency of the country and thereby control the credits of the coxintry regardless of the will of the American people, since the Govern- ment under the proposed would not have been in control.
The measure, however, did have some valuable features; it did provide for the gradual retirement of the national bank notes.
Board of Governors of the Federal Reserve System
It did provide for acceptances, do- mestic and foreign. It did provide for a currency which was elastic and would accommodate itself to the demands of commerce always provided the gentlemen in control permitted it. Woodrow Wilson was elected President of the United States upon a platform oppos- ing a central bank, favoring the tak- ing of the banking business out of the control of the so-called "money- trust" or "credit trust" whose ex- istence had been demonstrated by the Pujo investigation, and declaring the doctrine ''Banks exist for the accommodation of the public and not for the control of business.
The Senate was reorganized ac- cordingly; there was formed a Com- mittee on Committees, of which I became a member, the Conomittee on Finance was divided, the Com- mittee on Banking and Currency established, I was made Chairman of this Committee, and immediately organized a sub-Committee to study this question in co-operation with the Committee of the House, which was giving attention to this question at the same time.
During the preceding winter , Hon. I was advised that this draft had met with the tentative approval of the President.
Glass gave me a copy of his draft and his notes thereon which I have preserved. I, too, made a draft incorporating the principles I had advanced in , and these two proposals became the basis of discussion in framing the Federal Reserve Bill which finally became the Federal Reserve Act. Glass, however, proposed to amend this draft to alter this provision so that the Federal Reserve Board should be selected by the directors of the Na- tional Reserve banks, the directors of the Federal Reserve banks being selected by the member banks and their shareholders, either directly or indirectly.
I was strongly opposed to either provision because it would not give to the United States control of the system. Their representations with regard to this had made a serious impression on Mr.
Glass and on others in au- thority. Glass and myself discussed the matter very freely and fully, but could not reach an agreement. Upon this vital difference we de- termined to appeal to the President. Glass urging his view and I pressing the proposal that the Gov- ernment should control the appoint- ment of every member of this Board. R- I had printed for the use of the Senate explanatory notes and in con- nection with the section providing for the Federal Reserve Board I answered the objection of the Amer- ican Banking Association to Govern- ment control.
The Glass draft. This I was unwilling to agree to, believing that the Government should retain complete control of its receipts and disbiu-sements as a further check on the reserve banks by the Government. On this point I received valuable suggestions from Hon.
Shib- ly, who briefed the case for me. Glass authorized the National Reserve banks to receive from the Federal Reserve Board Federal Re- serve notes, but these notes were to be the bank notes of the Federal Re- serve banks as in the Monetary Com- mission Bill, and not the notes of the United States Government. I objected to this provision, insist- ing that the notes should be United States Treasury notes and treated as such, for the reason that in this way the United States Government would be able to control these notes and the banks would not be able to control them, and Senate Bill , and House Bill , introduced June 26, , by Mr.
On this point I had the active as- sistance of Hon. Bryan, Secre- tary of State. Between June and September many discussions took place with re- gard to this bill. Finally, on Au- gust 29, , Mr. Glass reintroduced the measiu-e of H.
On the 2d of September, , an- ticipating the passage by the House of this Bill, I opened the hearings in the Senate upon H. It resulted in a substitute bill which after conference became The Federal Reserve Act. The hearings on this bill before the Senate Committee filled three large volumes of 3, pages, and were not concluded until October 27, The Committee made very resolute efforts to ascertain as fully as possible the views of bankers and business men with regard to this bill.
The most distinguished bankers, business men and financiers in the coxmtry gave the Committee their views, some of which were very use- ful in refining the Bill. I spent days in New York discuss-  THE FEDERAL RESERVE ACT ing this measure with leading bank- ers in order to be thoroughly assured of their point of view and not to omit any suggestions of value or to insert in the bill any provisions which would be injiu-ious either to the banks or to our business people, but, as I explained to them, I was considering the matter as a public servant from the standpoint of the interests of the people of the United States, of the manuf actiu'er and merchant and pro- ducer and consimier, and not from the standpoint merely of the banker.
On one occasion I spent the entire day from nine o'clock in the morning imtil nine o'clock at night talking to the Legislative Committee of the American Bankers' Association in New York City. I recall spending seven consecutive hours discussing with Mr. I took the position that the currency of the coimtry ought to have behind it the taxing power of the nation, that the United States should control the currency, and that private persons should not control the currency, and that the Treasury notes would mobilize cap- ital so that it would be easier for the Government to negotiate its loans [ THE FEDERAL RESERVE ACT with such notes operating as a me- dium for transfer of credits conven- iently through the banks which would be stabilized by this system.
The automatic re- demption of these notes is expressly provided for in the Act. First, A short-time promise-to-pay of a business man in good standing, based on commodities and for which his entire fortune was responsible.
Second, The endorsement of a member bank in good standing. Fourth, The reserve balance of such member bank in the Reserve bank. Fifth, The double liability of stock- holders of the member bank endors- ing the note. Sixth, The capital and surplus of the Federal Reserve bank obtaining the note. Seventh, A minimum gold reserve of forty per cent, behind such notes. Eighth, The liability of member Danks for the obligation of its own Federal Reserve banks.
Ninth, The double liability of stockholders of all member banks. Tenth, The mutual liability of all Federal Reserve banks for the debts of one another. No such line of securities was ever provided for any note issue in the history of the world. These notes have not expanded beyond the actual requirements of commerce, and the expansion is absolutely within the control of the Government of the United States. The present assets of these banks exceed five thousand million dollars.
November 15, A serious contention over this Act turned upon the question: Should there be a central bank. Twelve banks were established.
Another vital issue was who should control this system — the banks or the people of the United States?
Federal Reserve Act
I steadily insisted that the control of the banking system of the United States was a governing func- tion and should be controlled by the representatives of the people of the United States and should not be controlled by private persons, what- ever their respectability. The sys- tem was put under Government con- trol. It was contended, as by Mr. Warburg, that these notes should be the notes of corporations instead of notes of the United States.
The Federal Reserve notes were made Government notes. Some wished one bank, or as few as possible; others, from eight to twelve. In my own Committee I was con- fronted with the most serious diver- gences of opinion with regard to some of these vital questions, and found it desirable at last to take the bill before the Democratic Conference. It was there discussed for about three weeks, in which I defended the points in the bill for which I stood, finally receiv- ing the approval of the Democratic Conference and being sustained, as far as I now recall, on every vital point in the bill.
The number of Federal Reserve banks permissible was increased from ten to twelve. The national banks were required, and the state banks and trust companies were permitted, to become members. National banks failing to signify their acceptance within sixty days were forbidden to act as Reserve agents, and those failing within a year to become members were required to surrender their charters. The iisual charter rights were granted to the Reserve banks. The six directors of each Federal Reserve bank to be chosen by the member banks were required to be elected on a plan which I framed by a preferential baUoty which automatically coheres a ma- jority of those voting on one ballot and prevents the need of succeeding elections to obtain a majority vote.
This was thought necessary to pre- vent a possibility of interference with the functions of the Treasury. The Comptroller of the Ciu'rency was put in charge of all Federal Reserve notes. The reserves of the member banks were by the Act and the amendments of June, , subjected to a gradual change, so that after three years the reserves in country districts were put at seven per cent of its demand de- posits and three per cent of its time deposits.
In central reserve cities, at thirteen per cent of its demand deposits and three per cent of its time deposits, to be carried with the Federal Re- jserve banks, leaving the member banks at liberty to carry such addi- tional reserves as they may see fit. Previously to the passage of the Reserve Act a large part of the so- called reserves in country banks and in reserve cities were not available in actual cash, but were held as open accounts in city banks with other reserve agents, and were not avail- able in times of stringency.
I was much disappointed by this defeat of domestic acceptances. At a later date, September 7, , it was inserted in the Federal Reserve Act, so that now national banks can issue acceptances on domestic ship- ments. I strongly stood for this gold concentration in the Reserve Bank System. When the Federal Reserve Act was signed I was given a copy of the Act on vellum, in duplicate, with the signatures of the Govern- ment oflScials participating in the Act.
The President presented me with one of the gold pens with which he signed the Act, and wrote me the following letter: The whole country owes you a debt of gratitude and admiration. It has been a pleasure to be associated with you in so great a piece of constructive legislation.
Treasury notes, supported by a large gold reserve, and by sound commercial credits and banking credits; 2 issued and con- trolled by the Government, 3 easily available to banks and to business men, 4 under an interest charge to prevent inflation by compelling con- traction, 5 distributing bank re- serves in twelve banks to serve com- merce instead of concentrating them  THE FEDERAL RESERVE ACT in New York to serve the Stock Ex- change.
It gives assurance to the business men of the country that they never need fear a currency famine. It assures them absolutely against the danger of financial panic, due to hoarding of currency or sudden de- nial of legitimate credit. The protection of the country against industrial depressions is very largely safeguarded by this Act, but other steps by Government are es- sential if industrial depression in the future is to be entirely avoided.
The refinements of the Federal Re- serve Act were brought about by the co-operation of a great many able men who participated in the delib- erations whose names and evidence will be found in the hearings of the two Conunittees. After Mr. Glass and myself introduced the bill in June, , it received altogether over eight hundred amendments, nearly all of which related merely to language and punctuation, the chang- ing of words back and forth, and matters of that character, which were unimportant.
Carter Glass was entitled to very great credit for his able and admirable work on this measure. I am especially grateful to Hon. Henry F. Hollis N.Restrictions on Transactions with Affiliates Section It is the best financial system the world has ever seen.
This bill provided for the establishment of National Cur- rency Associations, and it was ap- proved May 30, 35th Stats. I failed to convince the Committee of its wisdom, but made a second attempt and obtained the support of Hon. No national bank in any event was to have any relief in emergency notes exceeding a gross amount of its outstanding notes in excess of the capital and surplus of such bank.