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AMENDMENTS TO THE FEDERAL RESERVE ACT.

[NOTE.-Senate bill 5078 was first considered by a subcommittee of the Committee on Banking and Currency, consisting of Senator Owen, as chairman, and Senators Hitchcock, Pomerene, Weeks, and Gronna, but after the first hearing, on Wednesday, March 22, 1916, a report of which follows, the bill was taken up and considered by the full committee.]

WEDNESDAY, MARCH 22, 1916.

UNITED STATES SENATE,

SUBCOMMITTEE ON BANKING AND CURRENCY,

Washington, D. C. The subcommittee met, pursuant to call, at 2 o'clock p. m. in room 303, Senate Office Building, Senator Robert L. Owen presiding. Present: Senator Owen (chairman), and Senators Hitchcock, Pomerene, Weeks, and Gronna.

After consideration of the bill (S. 5079) to amend section 6 of an act to define and fix the standard of value, to maintain the parity of all forms of money issued or coined by the United States, to refund the public debt, and for other purposes, approved March 14, 1900, as amended by the acts of March 4, 1907, and March 2, 1911, a report of which proceedings is printed in a separate pamphlet, the committee proceeded to consider the bill (S. 5078) to amend the act approved December 23, 1913, known as the Federal reserve act, the first committee print of which is here printed in full, as follows:

[S. 5078, Sixty-fourth Congress, first session.]

A BILL To amend the Act approved December twenty-third, nineteen hundred and thirteen, known as the Federal reserve Áct.

DOMESTIC ACCEPTANCES, AND OTHER MATTERS.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That section thirteen of the Act approved December twenty-third, nineteen hundred and thirteen, known as the Federal reserve Act, be amended 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, nationalbank notes, Federal reserve notes, or checks, and drafts upon solvent member banks, payable upon presentation, and also, for collection, maturing bills; or solely for purposes of exchange or of collection purposes, may receive from other Federal reserve banks deposits of current funds in lawful money, nationalbank notes, or checks and drafts upon solvent member-or other Federal reserve banks, and checks and drafts, payable upon presentation within its district, and maturing bills payable within its district.

"Upon the indorsement of any of its member banks, with-a-waiver-of-demand, notice and protest by such bank, any Federal reserve bank may discount notes, drafts, and bills of exchange arising out of actual commercial transactions; that is, notes, drafts, and bills of exchange issued or drawn for agricultural, industrial, or commer

cial purposes, or the proceeds of which have been used, or are to be used, for such purposes, the Federal Reserve Board to have the right to determine or define the charac ter of the paper thus eligible for discount, within the meaning of this Act. Nothing in this Act contained shall be construed to prohibit such notes, drafts, and bills of exchange, secured by staple agricultural products, or other goods, wares, or merchan dise from being eligible for such discount; but such definition shall not include notes, drafts, or bills covering merely investments or issued or drawn for the purpose of carrying or trading in stocks, bonds, or other investment securities, except bonds and notes of the Government of the United States. Notes, drafts, and bills admitted to discount under the terms of this paragraph must have a maturity at the time of discount of not more than ninety days.

"Provided, That notes, drafts, and bills drawn or issued for agricultural purposes or based on live stock and having a maturity not exceeding six months may be dis counted in an amount to be limited to a percentage of the capital of the Federal reserve bank, to be ascertained and fixed by the Federal Reserve Board.

"Any Federal reserve bank may discount acceptances which-are-based-on-the importation or exportation of goods, and which have a maturity at time of discount-of not-more-than-three months, and indorsed by at least one-member bank. The amount of acceptances so discounted shall at no time exceed one half the paid up and unim paired-capital-stock-and-surplus of the bank for which the rediscounts-are-made, except by authority of the Federal Reserve Board, under such general regulations as said board may prescribe, but not to exceed the capital stock and surplus of such bank. "The aggregate of such notes, drafts, and bills bearing the signature or indorsement of any one person, company, firm, or corporation rediscounted for any one bank shall at no time exceed ten per centum of the unimpaired capital and surplus of said bank; but this restriction shall not apply to the discount of bills of exchange drawn in good faith against actually existing values.

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'Any Federal reserve bank may discount acceptances of the kinds hereinafter described, which have a maturity at the time of discount of not more than three months' sight and which are indorsed by at least one member bank.

"Any member bank may accept drafts or bills of exchange drawn upon it and growing out of transactions involving the importation or exportation-of-goods having not more than six months' sight to run 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 are attached at the time of acceptance; or which are secured by a warehouse receipt or other such document affording security title covering readily marketable staples, or by the pledge of goods actually sold. 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 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 but 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, except by authority of the Federal Reserve Board, under such general regulations as said board may prescribe, but not to exceed the capital stock and surplus of such bank, and such regulations shall apply to all banks alike regardless of the amount of capital stock and surplus.

"Any Federal reserve bank may make advances to its member banks on their promissory notes for a period not exceeding fifteen days at rates to be established by such Federal reserve banks, subject to the review and determination of the Federal Reserve Board, such promissory notes to be secured by such notes, drafts, bills of exchange, or bankers' acceptances as are eligible for rediscount or for purchase by Federal reserve banks under the provisions of this Act, or by the deposit or pledge of bonds or notes of the United States.

"Section fifty-two hundred and two of the Revised Statutes of the United States is hereby amended so as to read as follows: No national banking association shall at any time be indebted, or in any way liable, to an amount exceeding the amount of its capital stock at such time actually paid in and remaining undiminished by losses or otherwise, except on account of demands of the nature following:

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'Second. Moneys deposited with or collected by the association.

'Third. Bills of exchange or drafts drawn against money actually on deposit to the credit of the association, or due thereto.

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Fourth. Liabilities to the stockholders of the association for dividends and reserve profits.

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'Fifth. Liabilities incurred under the provisions of the Federal Reserve Act.

"The discount and rediscount and the purchase and sale by any Federal reserve bank of any bills receivable and of domestic and foreign bills of exchange, and of acceptances authorized by this Act, shall be subject to such restrictions, limitations, and regulations as may be imposed by the Federal Reserve Board."

FEDERAL RESERVE NOTES.

That section sixteen, paragraphs two, three, four, five, six, and seven, of the Act approved December twenty-third, nineteen hundred and thirteen, known as the Federal Reserve Act, be 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 hereinbefore 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, and bills of exchange or bankers' acceptances, accepted for rediscount rediscounted or purchased under the provisions of section thirteen or fourteen, respectively of this Aet, or, with the approval of the Federal Reserve Board, may be gold, or gold and such notes, drafts, bills of exchange or bankers' acceptances. Gold thus deposited as collateral shall be counted and included as part of the forty per centum reserve hereinafter required. and the 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.

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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, and not offset by gold or lawful money deposited by it with the Federal reserve agent for the purpose of reducing its liability on outstanding notes as hereinafter provided. Notes so paid out shall bear upon their faces a distinctive letter and serial number, which shall be assigned by the Federal Reserve Board to each Federal reserve bank. Whenever Federal reserve notes issued through one Federal reserve bank shall be received by another Federal reserve bank they shall be promptly returned for credit or redemption to the Federal reserve bank through which they were originally issued. No Federal reserve bank shall pay out notes issued through another under penalty of a tax of ten per centum upon the face value of notes so paid out. Notes presented for redemption at the Treasury of the United States shall be paid out of the redemption fund and returned to the Federal reserve banks through which they were originally issued, and thereupon such Federal reserve bank shall, upon demand of the Secretary of the Treasury, reimburse such redemption fund in lawful money, or if such Federal reserve notes have been redeemed by the Treasurer in gold or gold certificates, then such funds shall be reimbursed to the extent deemed necessary by the Secretary of the Treasury in gold or gold certificates, and such Federal reserve bank shall, so long as any of its Federal reserve notes remain outstanding, maintain with the Treasurer in gold an amount sufficient in the judgment of the Secretary to provide for all redemptions to be made by the Treasurer. Federal reserve notes received by the Treasury, otherwise than for redemption, may be exchanged for gold out of the redemption fund hereinafter provided and returned to the reserve bank through which they were originally issued, or they may be returned to such bank for the credit of the United States. Federal reserve notes unfit for circulation shall be returned by the Federal reserve agents to the Comptroller of the Currency for cancellation and destruction.

"The Federal Reserve Board shall require each Federal reserve bank to maintain on deposit in the Treasury of the United States a sum in gold sufficient, in the judgment of the Secretary of the Treasury, for the redemption of the Federal reserve notes issued to such bank, but in no event less than five per centum; but such deposit of gold shall be counted and included as part of the forty per centum reserve hereinbefore required. The board shall have the right, acting through the Federal reserve agent, to grant in whole or in part or to reject entirely the application of any Federal reserve bank for Federal reserve notes; but to the extent that such application may be granted the Federal Reserve Board shall, through its local Federal reserve agent, supply Federal reserve notes to the bank so applying, and such bank shall be

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