The Federal Reserve Foreign Bank proposed by Senate Bill 3928 is
strictly in line with the policy of the Federal Reserve Act in the
powers granted to the Federal Reserve Banks, and is intended to make
effective the principles of the Federal Reserve Act itself.
The Federal Reserve Act authorized the Federal Reserve Banks in
Sections 13 and 14 to receive deposits, discount commercial bills and
acceptances, deal in gold and silver, to exchange Federal Reserve
notes for gold, to contract for loans on gold coin or bullion, giving
therefor when necessary acceptable security, including hypothecation
of United States bonds or other securities which Federal Reserve Banks
are authorized to hold, to buy and sell at home or abroad bonds and
notes of the United States, of foreign Governments, etc., buy and sell
commercial bills of exchange, to issue bank notes and receive Federal
Reserve notes, to open credits at home or abroad, to open and maintain
accounts in foreign countries, appoint correspondents and establish
agencies in such countries wheresoever it may be deemed best for
the purpose of purchasing, selling, or buying bills of exchange or
acceptances, arising out of actual commercial transactions which have
not more than ninety days to run and which bear the signature of two or
more responsible parties, and with the consent of the Federal Reserve
Board, to open and maintain banking accounts for such correspondents or
agencies, etc.
The original Federal Reserve Act also provided, in Section 25, that
any National Banking Association with a capital surplus of a million
dollars, or more, might be permitted to establish branches in foreign
countries for the furtherance of the foreign commerce of the United
States and to act as fiscal agents of the United States.
Such National Banks are also authorized to take stock in banks or
corporations, chartered under the laws of the United States or of any
State thereof, and principally engaged in international or foreign
exchange.
Under Section 25 some of the National Banks have established branches
in foreign countries.
Some of them have taken stock in banks doing a foreign business.
But the Federal Reserve Banks have not exercised the powers
contemplated by the Federal Reserve Act in foreign bills or foreign
business except in a negligible degree.
The Federal Reserve Banks have been intensely occupied in domestic
business, so there is that reason why they have not been disposed to
enter the foreign field. These banks have increased their resources
until now they exceed thirty-eight hundred million dollars. But it is
also true that six of their nine Directors are chosen by the privately
owned banks some of whom fear the competition of the Reserve Banks in
foreign banking.
Congress later amended the Federal Reserve Act, at the request of the
Federal Reserve Board, and gave the Federal Reserve Board authority
to _require_ the Federal Reserve Banks to establish foreign branches,
but practically nothing has been done under this authority granted by
Congress. Senate Bill 3928 proposes to add a new Section to the Federal
Reserve Act as Section 25 A., creating a Federal Reserve Foreign Bank
of the United States, under the supervision of the Federal Reserve
Board to be located in the City of New York, with a capital of one
hundred million dollars, with an initial capital of twenty millions,
the stock to pay five per cent., to be non-taxable, to be offered to
the public and to the banks at par and if not taken by them to be taken
by the United States Government.
The powers proposed for this bank are practically the same as are
given to the Federal Reserve Banks, but the management of the bank is
put into the hands of directors, nine in number to be designated by
the President of the United States. The proposed Act directs that the
members of the board shall be men of tested mercantile experience and
fairly representative of the various parts of the United States. It
does not say that they shall not be bankers, but if they are bankers
they must be bankers who have had tested mercantile experience, such as
is required of the Governors of the Bank of England.