FOOTNOTES:

FOOTNOTES:[313]H. Parker Willis,American Finance and the European War,The Journal of Political Economy, Vol. 23, No. 2. February, 1915, pp. 144-165.[314]A fuller account of the gold fund and cotton loan plans will be found in theFirst Annual Report of the Federal Reserve Board, Washington, January 15, 1915.[315]Report of Secretary of the Treasury, December 7, 1914.[316]First Annual Report of the Federal Reserve Board, p. 16.[317]Report of the Comptroller of the Currency, 1914, pp. 15, 16.[318]J. Laurence Laughlin,Will the Gold Basis Survive in Europe?,The Annalist, Vol. 7, No. 162, Feb. 21, 1916, pp. 244, 252.[319]A. Barton Hepburn,A History of Currency in the United States, pp. 463-466. The Macmillan Company. New York. 1915.[320]Of Boissevain Co.[321]Hartley Withers,War and Lombard Street, pp. 98-111. E. P. Dutton and Company. 1915.[322]Franklin Escher, Review ofWar and Lombard Street,The American Economic Review, Vol. 5, No. 3, September, 1915, pp. 624-5.[323]E. W. Kemmerer,America's Chance of Holding World Purse-Strings,The Annalist, Vol. 7, No. 158, Jan. 24, 1916, pp. 119-121, 144.

[313]H. Parker Willis,American Finance and the European War,The Journal of Political Economy, Vol. 23, No. 2. February, 1915, pp. 144-165.

[314]A fuller account of the gold fund and cotton loan plans will be found in theFirst Annual Report of the Federal Reserve Board, Washington, January 15, 1915.

[315]Report of Secretary of the Treasury, December 7, 1914.

[316]First Annual Report of the Federal Reserve Board, p. 16.

[317]Report of the Comptroller of the Currency, 1914, pp. 15, 16.

[318]J. Laurence Laughlin,Will the Gold Basis Survive in Europe?,The Annalist, Vol. 7, No. 162, Feb. 21, 1916, pp. 244, 252.

[319]A. Barton Hepburn,A History of Currency in the United States, pp. 463-466. The Macmillan Company. New York. 1915.

[320]Of Boissevain Co.

[321]Hartley Withers,War and Lombard Street, pp. 98-111. E. P. Dutton and Company. 1915.

[322]Franklin Escher, Review ofWar and Lombard Street,The American Economic Review, Vol. 5, No. 3, September, 1915, pp. 624-5.

[323]E. W. Kemmerer,America's Chance of Holding World Purse-Strings,The Annalist, Vol. 7, No. 158, Jan. 24, 1916, pp. 119-121, 144.

[324]For the purpose of tracing the circulation of money, and measuring it by bank records,[325]we may classify the persons who use money in purchase of goods into three groups:

1. Commercial depositors,i. e., all engaged in business—firms, companies, and others—who have bank deposits mainly or wholly apart from personal accounts.

2. All other depositors, chiefly private persons.

3. All who, like most wage earners, are not depositors at all.

These three classes we shall distinguish as "Commercial depositors," "Other depositors," and "Nondepositors," or C, O, and N. The money in the possession of "Commercial depositors" we shall call "till money," and the rest "pocket money."

The three groups necessarily include all in the community who circulate money. By circulating money is meant expending it in exchange, not for some other circulating medium, as checks, but for goods....

... The category of "commercial depositors" coincides for all practical purposes with the category of business establishments.

"Other depositors" include most proprietors, professional, and salaried persons. Almost no wage earners are included, and almost no business establishments or business men in a business capacity....

... Although "other depositors" include most proprietors and professional and salaried persons, yet some proprietors and professional men, especially in rural communities, and some salaried persons, chiefly small clerks, are "Nondepositors."...

... "Nondepositors" consist chiefly of those who are classed in statistics as wage earners. While there are some wage earners who are depositors,[326]they are rare: and while there are some "nondepositors" who are not wage earners, especially (as just indicated)the agricultural proprietors (farmers) and small clerks, the amount of money circulated by them is small in comparison with the total circulation. While the line separating wages and salaries is not definitely marked in theory, it is usually easily recognised in practice....

We may now picture concretely the main currents of the monetary flow, including the circulation of money in exchange for goods.... [The figure here given] illustrates the three principal types.

The corners of the triangle, C, O, and N, represent the three groups of "commercial depositors," "other depositors," and "nondepositors," and the B's represent banks. The arrows represent the flow of money from each of these four categories to the others. Thus Borepresents the annual withdrawals from banks by "other depositors," Octhe spending of this withdrawn money by "other depositors" among "commercial depositors," and Cbthe return of the money from the "commercial depositors" to the banks. This circuit (BoOcCb) of three links is very common. A second type of circuit is represented by a chain of four arrows (BoOnNcCb). It is illustrated by private depositors drawing money (Bo), and paying wages (On) to servants who in turn spend the money (Nc) among tradesmen who finally deposit it (Cb). A third type of circuit, also fourfold, is represented by the arrows BcCnNcCb. It is illustrated by commercial firms cashing their checks at banks (Bc) for pay rolls, with the cashso obtained paying wages (Cn) to workmen who spend it (Nc) among other tradesmen who redeposit it in banks (Cb). These three types are not the only ones, but they are so much more important than any others that they merit out undivided attention before a completer study is undertaken.... [The accompanying figure] has been constructed for the purpose of exhibiting them uncomplicated by other details.

It will be noted that not all of the flows described are examples of thecirculationof money. As already indicated, money may be said to circulate only when it passes in exchange forgoods. Its entrance into and exit from banks is a flow, but not a circulation against goods. In the diagram the horizontal arrows represent such mere banking operations, not true circulation. On the other hand, the arrows along the sides of the triangle represent actual circulation. The diagram shows four such arrows, representing the four chief types of circulation: Ocpayments of money from "other depositors" to "commercial depositors" in the purchase of goods; Oopayments from "other depositors" to "nondepositors," as when a housewife pays wages; Cnpayments from "commercial depositors" to "nondepositors," as when a firm pays wages; and Ncpayments from "nondepositors" to "commercial depositors," as when a wage earner buys goods of a merchant.

There four types of circulation of money occur in the three circuits already described, being sandwiched between the flows from and to the banks. The first, Oc, is contained within the circuit BoOcCband, since no "nondepositors" intervene, represents money changing hands once between its withdrawal from bank and its redeposit there. The remaining types (On, Cn, and Nc) are contained within the two other circuits (BoOnNcCband BcCnNcCb), and, owing to the fact that "nondepositors" intervene, represent money circulating twice between withdrawal and redeposit.

In short, one of the three circuits (BoOcCb) shows money circulating once out of bank. Both the others pass through N, and show money circulating twice out of bank. The diagram, then, represents all circulating money as springing from and returning to the banks; all of it as circulating at least once in the interim; and that portion handled by "nondepositors" as circulating once in addition. Therefore, the total circulation exceeds the total flow from and to banks by the amount flowing through "nondepositors." In other words, the total circulation in the diagram is simply the sum of the annual money flowing from and to banks and the money handled by "nondepositors." The quotient of this sum divided by the amount of money in circulation will give approximately the velocity of circulation of money....

FOOTNOTES:[324]Irving Fisher,Purchasing Power of Money, Appendix XII. pp. 448-454.The Macmillan Company. New York. 1911.[325]For a complete formula for determining the velocity of the circulation of money see pages 448-460, of the Purchasing Power of Money.[326]The term "depositors," as here used, does not, of course, include savings bank depositors. A savings bank is not a true bank of deposit, providing circulating credit.

[324]Irving Fisher,Purchasing Power of Money, Appendix XII. pp. 448-454.The Macmillan Company. New York. 1911.

[325]For a complete formula for determining the velocity of the circulation of money see pages 448-460, of the Purchasing Power of Money.

[326]The term "depositors," as here used, does not, of course, include savings bank depositors. A savings bank is not a true bank of deposit, providing circulating credit.

Federal Reserve Board

Washington, January 12, 1915.

Whenever a member bank shall offer for rediscount any note, draft, or bill of exchange bearing the indorsement of such member bank, with waiver of demand notice and protest, the directors or executive committee of the federal reserve bank may, until July 15, 1915, accept as evidence that the proceeds of such note, draft, or bill of exchange were or are to be used for agricultural, industrial, or commercial purposes (and that such notes, drafts, or bills of exchange in other respects comply with the regulations of the board), a written statement from the officer of the applying bank that of his own knowledge and belief the original loan was made for one of the purposes mentioned, and that the provisions of the act and regulations issued by the board have been complied with.

Charles S. Hamlin,Governor.H. Parker Willis,Secretary.

Federal Reserve Board

Washington, April 2, 1915.

In this regulation the term "acceptance" is defined as a draft or bill of exchange drawn to order, having a definite maturity, and payable in dollars, in the United States, the obligation to pay which has been accepted by an acknowledgment written or stamped and signed across the face of the instrument by the party on whom it is drawn; such agreement to be to the effect that the acceptor will pay atmaturity according to the tenor of such draft or bill without qualifying conditions.

Section 13 of the Federal Reserve Act as amended provides that:(a) Any federal reserve bank may discount acceptances:(1) Which are based on the importation or exportation of goods;(2) Which have a maturity at time of discount of not more than three months; and(3) Which are indorsed by at least one member bank.(b) The amount of acceptances so discounted shall at no time exceed one-half the paid-up capital stock and surplus of the bank for which the rediscounts are made, except by authority of the Federal Reserve Board and of such general regulations as said board may prescribe, but not to exceed the capital stock and surplus of such bank.(c) The aggregate of notes 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 10 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.

Section 13 of the Federal Reserve Act as amended provides that:

(a) Any federal reserve bank may discount acceptances:

(1) Which are based on the importation or exportation of goods;

(2) Which have a maturity at time of discount of not more than three months; and

(3) Which are indorsed by at least one member bank.

(b) The amount of acceptances so discounted shall at no time exceed one-half the paid-up capital stock and surplus of the bank for which the rediscounts are made, except by authority of the Federal Reserve Board and of such general regulations as said board may prescribe, but not to exceed the capital stock and surplus of such bank.

(c) The aggregate of notes 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 10 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.

Section 14 of the Federal Reserve Act permits federal reserve banks, under regulations to be prescribed by the Federal Reserve Board, to purchase and sell in the open market bankers' acceptances, with or without the indorsement of member bank.

The Federal Reserve Board, exercising its power of regulation with reference to paragraph II (b) hereof, rules as follows:

Any federal reserve bank shall be permitted to discount for any member bank "bankers' acceptances" as hereinafter defined up to an amount not to exceed the capital stock and surplus of the bank for which the rediscounts are made.

The Federal Reserve Board has determined that, until further order, to be eligible for discount under section 13, by federal reserve banks, at the rates to be established for bankers' acceptances:

(a) Acceptances must comply with the provisions of paragraph II (a), (b), (c) hereof;

(b) Acceptances must have been made by a member bank, non-member bank, trust company, or by some private banking firm, person, company, or corporation engaged in the business of accepting or discounting. Such acceptances will hereafter be referred to as "bankers'" acceptances;[327]

(c) A banker's acceptance must be drawn by a commercial, industrial, or agricultural concern (that is some person, firm, company, or corporation) directly connected with the importation or exportation 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 after the goods have been surrendered to the purchaser or consignee.

(d) A banker's acceptance must bear on its face or be accompanied by evidence in form satisfactory to a federal reserve bank that it originated in an actualbona fidesale or consignment involving the importation or exportation of goods. Such evidence may consist of a certificate on or accompanying the acceptance to the following effect:

This acceptance is based upon a transaction involving the importation or exportation of goods. Reference No. ——. Name of acceptor ——.

(e) Bankers' acceptances, other than those of member banks, shall be eligible only after the acceptors shall have agreed in writing to furnish to the federal reserve banks of their respective districts, upon request, information concerning the nature of the transactions against which acceptances (certified or bearing evidence under IV (d) hereof) have been made.

(f) A bill of exchange accepted by a "banker" may be considered as drawn in good faith against "actually existing values," under II (c) hereof, when the acceptor is secured by a lien on or by transfer of title to the goods to be transported; or, in case of release of the goods before payment of the acceptance, by the substitution of other adequate security;

(g) Except in so far as they may be secured by a lien on or by transfer of the title to the goods to be transported, as under (f), the bills of any person, firm, company, or corporation,drawn on and accepted by any private banking firm, person, company, or corporation (other than a bank or trust company) engaged in the business of discounting and accepting, and discounted by a federal reserve bank, shall at no time exceed in the aggregate a sum equal to 5 per centum of the paid-in capital of such federal reserve bank;

(h) The aggregate of acceptances of any private banking firm, person, company, or corporation (other than a bank or trust company) engaged in the business of discounting or accepting, discounted or purchased by a federal reserve bank, shall at no time exceed a sum equal to 25 per centum of the paid-in capital of such federal reserve bank.

To be eligible for purchase by federal reserve banks under section 14, bankers' acceptances must comply with all requirements and be subject to all limitations hereinbefore stated, except that they need not be indorsed by a member bank:Provided, however, That no federal reserve bank shall purchase the acceptance of a "banker" other than a member bank which does not bear the indorsement of a member bank, unless a federal reserve bank has first secured a satisfactory statement of the financial condition of the acceptor in form to be approved by the Federal Reserve Board.

While it would appear impracticable to fix a maximum sum or percentage up to which federal reserve banks may invest in bankers' acceptances, both under section 13 and section 14, it will be necessary to watch carefully the aggregate amount to be held from time to time. In framing their policy with respect to transactions in acceptances, federal reserve banks will have to consider not only the local demands to be expected from their own members, but also requirements to be met in other districts. The plan to be followed must in each case adapt itself to the constantly varying needs of the country.

Charles S. Hamlin,Governor.H. Parker Willis,Secretary.

Federal Reserve Board

Washington, April 2, 1915.

By act of Congress approved March 3, 1915, section 13 (paragraphs 3, 4, and 5 of the Federal Reserve Act) was amended and re-enacted so as to read as follows:

Any federal reserve bank may discount acceptances which arebased 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 unimpaired 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 and bills bearing the signature or indorsement of any one such person, company, firm, or corporation rediscounted for any one bank shall at no time exceed 10 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.

Any member bank may accept drafts or bills of exchange drawn upon it and growing out of transactions involving the importation of exportation of goods having not more than six months' sight to run; 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.

In order to give effect to the above amendment of the law, the Federal Reserve Board issues the appended Regulation K, series of 1915, stating the conditions under which member banks may accept, up to 100 per cent. of their capital and surplus, drafts or bills of exchange growing out of transactions involving the importation or exportation of goods and having not more than six months' sight to run.

Charles S. Hamlin,Governor.H. Parker Willis,Secretary.

Federal Reserve Board

Washington, May 8, 1915.

"The Federal Reserve Board shall make and promulgate from time to time regulations governing the transfer of funds and charges therefore among federal reserve banks and their branches, and may at itsdiscretion exercise the functions of a clearing house for such federal reserve banks, or may designate a federal reserve bank to exercise such functions, and may also require each such bank to exercise the functions of a clearing house for its member banks."

In the exercise of the functions of the clearing house authorised under the provisions of section 16, quoted above, the Federal Reserve Board and the federal reserve banks will be governed by and subject to the following regulations and the Federal Reserve Board will be the custodian of the funds hereinafter termed the gold settlement fund. The board will appoint a settling agent who shall keep the necessary records and accounts.

(a) Each federal reserve bank shall, not later than May 24, 1915, forward to the Treasury or the nearest Sub-Treasury, for credit to the account of the gold settlement fund $1,000,000 in gold, gold certificates or gold order certificates, and, in addition, an amount at least equal to its net indebtedness due to all federal reserve banks.

(b) The Treasurer of the United States or Assistant Treasurer will, in accordance with arrangements made with the Treasury Department, advise the Federal Reserve Board, by mail or telegraph, of the receipt of all funds deposited on account of the gold settlement fund, and the Treasurer will issue and deliver to the Federal Reserve Board gold order certificates made "payable to the order of the Federal Reserve Board" covering the sum so deposited.

(d) Excess balances may, at the convenience of each federal reserve bank, remain deposited with the gold settlement fund.

(a) A safe in the Treasury vault will be set apart for the exclusive use of the Federal Reserve Board.

(b) To open the Treasury vault, the presence of two persons designated by the Secretary of the Treasury is required. The combination of the safe set apart for the use of the board will be controlled by two persons designated by the board.

(c) A vault record shall be kept, giving a memorandum of all entrances to the safe, by whom made, for what purpose, and the certificatesdeposited or withdrawn. Each entry on the vault record book shall be signed by the persons having access to the safe.

In its relations with other federal reserve banks each federal reserve bank shall keep an account showing balances "due to" other federal reserve banks representing the proceeds of items which it has actually collected, and payments and transfers which have been made to it for the account of such other federal reserve banks; and an account showing balances "due from" other federal reserve banks representing the proceeds of items which it has sent to such other federal reserve banks, and payments and transfer which have been made to such other federal reserve banks for its account.

(a) At the close of business each Wednesday night, each federal reserve bank shall telegraph to the Federal Reserve Board, confirming such telegram by mail, the amounts in even thousands due to each other federal reserve bank as of that date, as indicated by its "due to" account provided for in Rule V. If Wednesday is a holiday in the State in which a federal reserve bank is located, then such bank shall telegraph as herein provided on Tuesday, at the close of business.

(b) The settling agent shall, on each Thursday, make the proper debits and credits in the accounts of each federal reserve bank with the gold settlement fund, and shall telegraph to each bank the amounts, in even thousands, of credits to its settlement account, giving the name of each federal reserve bank from which each of its credits was received and also its net debit or credit balance in the weekly settlement.

(c) Each federal reserve bank shall, on receipt of the telegram from the settling agent, debit the "due to" federal reserve banks' accounts, and shall credit the gold settlement fund; and shall credit the "due from" federal reserve banks' accounts and charge the gold settlement fund. The difference between the total debits and credits shall equal the net debit or credit to the gold settlement fund, as advised in the telegram from the settling agent.

(a) Should the debit settlement balance of any federal reserve bank be in excess of the amount of its credit in the gold settlement fund, such deficit must be immediately covered either by the deposit of gold, gold certificates, or gold order certificates in the Treasury ornearest Sub-Treasury, or by credit operations with other federal reserve banks which have an excess balance with the gold settlement fund. Any delay in covering such deficit shall be subject to such charge as the Federal Reserve Board may impose.

(b) As required in III (c) of this regulation, each federal reserve bank shall maintain a balance in the gold settlement fund of not less than $1,000,000. Should the credit balance of any federal reserve bank in such fund fall below $1,000,000, such bank shall restore its balance to that amount in either manner indicated under VII (a) of this regulation on or before Tuesday of the following week.

Any excess balance shall, on request, either by telegraph or letter, of the federal reserve bank to which it is due, be refunded by the return to the reserve bank of the gold order certificates held by the gold settlement fund properly indorsed; or by the indorsement and delivery to the Treasurer of a like amount of such certificates for which he will give in exchange bearer gold certificates, which the Federal Reserve Board may send by registered mail, insured, to the banks, if they want funds other than gold order certificates, or in lieu of such payment, the Treasurer may by wire or mail direct payment to be made by a Sub-Treasury office through the medium of the general account, provided funds are held in such office available for the purpose. Gold order certificates will, when presented at the office of the Treasurer of the United States or any Sub-Treasury, bearing the signatures of duly authorised officers of the federal reserve bank, be payable in gold or gold certificates. If the Treasury finds it necessary to ship from one point to another in order to have the gold or gold certificates available at the Sub-Treasury to which such gold order certificates are presented, the Federal Reserve Board will, for the account of the gold settlement fund, refund any expense incurred by the Treasury in making such shipments.

Each federal reserve bank shall count as a part of its legal reserve the funds standing to the credit of its account on the books of the gold settlement fund.

Cost of operation of and shipment of currency by the gold settlement fund shall be apportioned by a semi-annual accounting amongthe 12 federal reserve banks on a basis to be hereafter determined by the board after consultations with the federal reserve banks.

At least once in each three months an audit shall be made of the gold settlement fund by a representative of the Federal Reserve Board and representative appointed by the federal reserve banks.

The Federal Reserve Board reserves the right to add to, alter, or amend these regulations.

Charles S. Hamlin,Governor.H. Parker Willis,Secretary.

Federal Reserve Board

Washington, June 7, 1915.

Specific provisions of the Federal Reserve Act applicable to State banks and trust companies which become member banks are quoted at the end of this regulation.

A State bank or a trust company to be eligible for membership in a federal reserve bank must comply with the following conditions:

(1) It must have been incorporated under a special or general law of the State or district in which it is located.

(2) It must have a minimum paid-up unimpaired capital stock as follows:

In cities or towns not exceeding 3,000 inhabitants, $25,000.

In cities or towns exceeding 3,000 but not exceeding 6,000 inhabitants, $50,000.

In cities or towns exceeding 6,000 but not exceeding 50,000 inhabitants, $100,000.

In cities exceeding 50,000 inhabitants, $200,000.

Any eligible State bank or trust company may make application on Form 83, made a part of this regulation, to the federal reserve agent of its district for an amount of capital stock in the federal reserve bank of such district equal to 6 per cent. of the paid-up capital stock and surplus of such State bank or trust company.[328]

Upon receipt of such application the federal reserve agent shall submit the same to a committee composed of the federal reserve agent, the governor of the federal reserve bank, and at least one other member of the board of directors of such bank, to be appointed by such board, but no Class A director whose bank is in the same city or town as the applying bank or trust company shall be a member of such committee. This committee shall, after receiving the report of such examination as may be required by the federal reserve bank in pursuance of directions from the Federal Reserve Board, consider the application and transmit it to the Federal Reserve Board with its report and recommendations.

In passing upon an application the Federal Reserve Board will consider especially:

(1) The financial condition of the applying bank or trust company and the general character of its management.

(2) Whether the nature of the powers exercised by the said bank or trust company and its charter provisions are consistent with the proper conduct of the business of banking and with membership in the federal reserve bank.

(3) Whether the laws of the State or district in which the applying bank or trust company is located contain provisions likely to interfere with the proper regulation and supervision of member banks.

If, in the judgment of the Federal Reserve Board, an applying bank or trust company conforms to all the requirements of the Federal Reserve Act and these regulations, and is otherwise qualified for membership, the board will issue a certificate of approval. Whenever the board may deem it necessary, it will impose such conditions as will insure compliance with the act and these regulations. When the certificate of approval and any conditions contained therein have been accepted by the applying bank or trust company, stock in the federal reserve bank of the district in which the applying bank or trust company is located shall be issued and paid for under the regulationsof the Federal Reserve Act provided for national banks which become stockholders in the federal reserve banks.

Every State bank or trust company while a member of the federal reserve system:

(1) Shall retain its full charter and statutory rights as a State bank or trust company, and may continue to exercise the same functions as before admission, except as provided in the Federal Reserve Act and the regulations of the Federal Reserve Board, including any conditions embodied in the certificate of approval.

(2) Shall invest only in loans on real estate or mortgages of a character and to an extent which, considering the nature of its liabilities, will not impair its liquid condition.

(3) Shall adjust, to conform with the requirements of the Federal Reserve Act and these regulations, within such reasonable time as may be determined by the board in each case, any loans it may have at the time of its admission to membership which are secured by its own stock, or any loans to one person, firm, or corporation aggregating more than 10 per cent. of its capital and surplus or more than 30 per cent. of its capital, or any real estate loans which, in the judgment of the Federal Reserve board, impair its liquid condition.

(4) Shall maintain such improvements and changes in its banking practice as may have been specifically required of it by the Federal Reserve Board as a condition of its admission, and shall not lower the standard of banking then required of it: and

(5) Shall enjoy all the privileges an observe all those requirements of the Federal Reserve Act and of the regulations of the Federal Reserve Board applicable to State banks and trust companies which have become member banks.

Any State bank or trust company desiring to withdraw from membership in a federal reserve bank may do so twelve months after written notice of its intention to withdraw shall have been filed with the Federal Reserve Board. The board will immediately notify the federal reserve bank of the receipt of such notice. At the expiration of said twelve months, such bank or trust company shall surrender all of its holdings of capital stock in the federal reserve bank, which stock shall then be cancelled and the withdrawing bank or trust company shall thereupon be released from its stock subscription not previously called. Such bank or trust company shall, immediately upon the cancellation of its stock, cease to be a member of thefederal reserve bank, and the federal reserve bank shall then refund to such bank or trust company a sum equal to the cash-paid subscription on the shares surrendered, with interest at the rate of one-half of one per centum per month computed from the last dividend, if earned, not to exceed the book value thereof, and the reserve deposits, less any liability of such member to the federal reserve bank:Provided, That no federal reserve bank shall, except by the specific authority of the Federal Reserve Board, cancel within the same calendar year more than 10 per cent. of its capital stock for the purpose of effecting voluntary withdrawals during that year. All applications, including therein any on which action may have been deferred because in excess of the aforesaid 10 per cent. limitation, will be dealt with in the order in which they were originally filed with the board.

Any State bank or trust company desiring to withdraw from membership at the expiration of the twelve months' notice, notwithstanding the fact that the federal reserve bank has previously cancelled 10 per cent. of its stock during the same calendar year, may do so. In such case, however, the federal reserve bank shall not be required to repay to the withdrawing bank or trust company the sums due as above, until such time as its stock would have been cancelled had it not exercised this option. The federal reserve bank shall, however, give a receipt for the stock surrendered.

Every State bank or trust company, while a member of the Federal Reserve system, shall be subject to such examinations as may be prescribed by the Federal Reserve Board in pursuance to the provisions of the Federal Reserve Act.

In order to avoid duplication, the board will exercise the broad discretion vested in it by the act in accepting examinations of State banks and trust companies made by State authorities wherever these are satisfactory to the board and are found to be of the same standard of thoroughness as national bank examinations, and where in addition satisfactory arrangements for co-operation in the matter of examination between the designated examiners of the Board and those of the States already exist or can be effected with State authorities. Examiners from the staff of the board or of the federal reserve banks will, whenever desirable, be designated by the board to act with the examination staff of the State in order that uniformity in the standard of examination may be assured.

The Federal Reserve Board reserves the right to make such amendments and adopt and issue, from time to time, such further regulationsauthorised by the act as it may deem necessary, but no amendment of section VI of these regulations, relating to voluntary withdrawals, shall take effect until six months after its adoption and issue by the board.

Charles S. Hamlin,Governor.H. Parker Willis,Secretary.

FOOTNOTES:[327]Drafts and bills of exchange eligible for rediscount under section 13, other than "bankers'" acceptances, have been dealt with by Regulation B, series of 1915.[328]Three per cent. has already been called from national and other member banks, but the remainder of the subscription or any part of it shall be subject to call if deemed necessary by the Federal Reserve Board.

[327]Drafts and bills of exchange eligible for rediscount under section 13, other than "bankers'" acceptances, have been dealt with by Regulation B, series of 1915.

[328]Three per cent. has already been called from national and other member banks, but the remainder of the subscription or any part of it shall be subject to call if deemed necessary by the Federal Reserve Board.

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