Federal Reserve System

Twentieth Street and Constitution Avenue NW.
REpublic 1100, Branches 253, 254

Board of Governors of the Federal Reserve System

MEMBERS
Chairman	Marriner S. Eccles
Vice Chairman	Ronald Ransom
M.S. Szymczak    Ernest G. Draper    John K. McKee    R.M. Evans
OFFICIALS
Assistant to the Chairman	Elliott Thurston
Secretary	Chester Morrill
Assistant Secretary	S.R. Carpenter
Assistant Secretary	Brat Hammond
General Counsel	Walter Wyatt
General Attorney	J.P. Dreibelbis
Assistant General Attorney	George B. Vest
Assistant General Attorney	J. Leonard Townsend
Director, Division of Research and Statistics	Woodlief Thomas

Assistant Director, Division of Research and Statistics	Howard S. Ellis
Director, Division of Examinations	Leo H. Laulger
Assistant Director, Division of Examinations	C.E. Cagle
Assistant Director, Division of Examinations	William B. Pollard
Director, Division of Bank Operations	Edward L. Smead
Assistant Director, Division of Bank Operations	J.R. Van Fossen
Assistant Director, Division of Bank Operations	J.E. Horbett
Director, Division of Security Loans	Carl E. Parry
Assistant Director, Division of Security Loans	Bonnar Brown
Director, Division of Personnel Administration	Robert F. Leonard
Director, Division of Administrative Services	Liston P. Bethea
Assistant Director, Division of Administrative Services	Fred A. Nelson
Administrator, Office of Administrator for War Loans	Edward L. Smead
Assistant Administrator, Office of Administrator for War Loans	Gardner L. Boothe, II
Fiscal Agent	O.E. Foulk
Deputy Fiscal Agent	Josephine E. Lally

Federal Open Market Committee

MEMBERS
Chairman	Marriner S. Eccles
Vice Chairman	Allan Sproul
Ernest G. Draper    R.R. Gilbert    Ronald Ransom
R.M. Evans    H.G. Leedy    M.S. Szymczak
R.M. Gidney    John K. McKee    Alfred H. Williams
OFFICIALS
Secretary	Chester Morrill
Assistant Secretary	S.R. Carpenter
General Counsel	Walter Wyatt
Assistant General Counsel	J.P. Dreibelbis
Economist	E.A. Goldenweiser
Associate Economist	James C. Dolley
Associate Economist	C.O. Hardy
Associate Economist	Kenneth H. MacKenzie
Associate Economist	C.A. Sienkiewicz
Associate Economist	Woodlief Thomas
Associate Economist	John H. Williams
Manager of System Open Market Account	Robert G. Rouse

Chairmen and Presidents of the Federal Reserve Banks

Federal Reserve Bank of--	Chairman and Federal Reserve Agent	President
Boston	Albert M. Creighton	Ralph E. Flanders
New York	Beardsley Ruml	Allan Sproul
Philadelphia	Thomas B. McCabe	Alfred H. Williams
Cleveland	Geo. C. Brainard	R.M. Gidney
Richmond	Robt. Lassiter	Hugh Leach
Atlanta	Frank H. Neely	W.S. McLarin, Jr.
Chicago	Simeon E. Leland	C.S. Young
St. Louis	Wm. T. Nardin	Chester C. Davis
Minneapolis	W.C. Coffey	J.N. Peyton
Kansas City	R.B. Caldwell	H.G. Leedy
Dallas	Jay Taylor	R.R. Gilbert
San Francisco	Henry F. Grady	Wm. A. Day

Federal Advisory Council

	District		Member
No.	1	(Boston)	Chas. E. Spencer, Jr., Vice President
No.	2	(New York)	John C. Traphagen
No.	3	(Philadelphia)	William F. Kurtz
No.	4	(Cleveland)	John H. McCoy
No.	5	(Richmond)	Robert V. Fleming
No.	6	(Atlanta)	Keehn W. Berry
No.	7	(Chicago)	Edward E. Brown, President
No.	8	(St. Louis)	Ralph C. Gifford
No.	9	(Minneapolis)	Julian B. Baird
No.	10	(Kansas City)	A.E. Bradshaw
No.	11	(Dallas)	Ed. H. Winton
No.	12	(San Francisco)	George M. Wallace
		Secretary, Walter Lichtenstein

---

Creation and Authority.--The Federal Reserve System was established pursuant to authority contained in the act of December 23, 1913, known as the Federal Reserve Act (38 Stat. 251; 12 U.S.C. 221).

Purpose.--As stated in the preamble, the purposes of the act are "to provide for the establishment of Federal Reserve Banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes."

Organization.--The System comprises the Board of Governors; the Federal Open Market Committee; the 12 Federal Reserve Banks and their 24 branches situated in different sections of the United States; the Federal Advisory Council; and the member banks, which include all national banks in the United States and such State banks and trust companies as have voluntarily applied to the Board of Governors for membership and have been admitted to the System.

Board of Governors

Broad supervisory powers are vested in the Board of Governors, which has its offices in Washington. The Board is composed of seven members appointed by the President by and with the advice and consent of the Senate. In selecting these seven members the President is required to have due regard to a fair representation of financial, agricultural, industrial, and commercial interest, and the geographical divisions of the country. No two members may be from the same Federal Reserve district.

The Board determines general monetary, credit, and operating policies for the System as a whole and formulates the rules and regulations necessary to carry out the purposes of the Federal Reserve Act. The Board's principal duties consist of exerting an influence over credit conditions and supervising the Federal Reserve Banks and member banks.

Power to Influence Credit Conditions.--The Board is given the power, within statutory limitations and in order to prevent injurious credit expansion or contraction, to change the requirements concerning reserves to be maintained by member banks against deposits. Another

important instrument of credit control is found in open market operations. The members of the Board of Governors are also members of the Federal Open Market Committee, whose work and organization are described below. The Board of Governors reviews and determines the discount rates charged by the Federal Reserve Banks on their discounts and advances. For the purpose of preventing excessive use of credit for the purchase or carrying of securities, the Board is authorized to regulate the amount of credit that may be initially extended and subsequently maintained on any security (with certain exceptions) registered on a national securities exchange. Certain other powers have been conferred upon the Board which are likewise designed to enable it to prevent an undue diversion of funds into speculative operations. Under Executive Order 8843 of August 9, 1941, the Board prescribes maximum terms for extension of consumer credit in the form of single-payment loans, installment loans, charge accounts, and installment sales of a comprehensive list of consumer goods.

Supervision of Federal Reserve Banks.--The Board is authorized to make examinations of the Federal Reserve Banks, to require statements and reports from such Banks, to supervise the issue and retirement of Federal Reserve notes, to require the establishment or discontinuance of branches of Reserve Banks, and to exercise supervision over all relationships and transactions of those Banks with foreign banks or bankers. The Board of Governors reviews and follows the examination and supervisory activities of the Federal Reserve Banks with a view to furthering coordination of policies and practices.

Supervision of Member Banks.--The Board has jurisdiction over the admission of State banks and trust companies to membership in the Federal Reserve System, the termination of membership of such banks, and the establishment of out-of-town branches by such banks. It has power to examine member banks and the affiliates of member banks and it receives condition reports from them. It limits by regulation the rate of interest which may be paid by member banks on their time and savings deposits. It has authority to remove officers and directors of a member bank for continued violations of law or unsafe or unsound practices in conducting the business of such bank, and it may, in its discretion, suspend member banks from the use of the credit facilities of the Federal Reserve System for making undue use of bank credit for speculative purposes or for any other purpose inconsistent with the maintenance of sound credit conditions.

The Board approves applications of national banks for authority to act in a fiduciary capacity; it may grant authority to national banks to establish branches in foreign countries or dependencies or insular possessions of the United States or to invest in the stock of banks or corporations engaged in international or foreign banking; and it supervises the organization and activities of corporations organized under Federal law to engage in international or foreign banking. The Board is authorized in its discretion to issue voting permits to holding company affiliates of member banks entitling them to vote the stock of such banks at any or all meetings of shareholders. It may issue general regulations permitting interlocking relationships in certain circumstances between member banks and organizations dealing in securities or, under the Clayton Antitrust Act (38 Stat. 730; 28 U.S.C. 381-90), between member banks and other banks.

Other Functions.--The Board operates the Interdistrict Settlement Fund by which balances due to and from the various Reserve Banks, arising out of their own transactions or transactions of their member banks or of the United States Government, are settled in Washington through telegraphic transfer of funds without physical shipments of currency.

Expenses.--To meet its expenses and pay the salaries of its members and its employees, the Board makes semiannual assessments upon the Reserve Banks in proportion to their capital stock and surplus.

Federal Open Market Committee

Each member of the Board of Governors is also a member of the Federal Open Market Committee, whose membership, in addition, includes five representatives of the Reserve Banks, each such representative being elected annually by the boards of directors of certain specified Reserve Banks.

Open-market operations of the Reserve Banks are conducted under regulations adopted by the Committee with a view to accommodating commerce and business, and with regard to their bearing upon the general credit situation of the country. No Reserve Bank may engage or decline to engage in open-market operations except in accordance with the direction of, and regulations adopted by, the Committee. These open-market operations consist of the purchase and sale in the open market of obligations of the United States, certain other securities, and bills of exchange and bankers' acceptances of the kinds and maturities eligible for discount by the Reserve Banks.

Federal Reserve Banks

The capital stock of the Reserve Banks is all owned by the member banks and may not be transferred or hypothecated. Every national bank in the United States is required to subscribe to the capital stock of the Reserve Bank of its district in an amount equal to 6 percent of the subscribing bank's paid-up capital and surplus. State banks or trust companies, upon becoming members of the Federal Reserve System, must subscribe for a corresponding amount. When a member bank increases or decreases its capital or surplus, it is required to alter it holdings of Reserve Bank stock in the same proportion. One-half of the subscription of each member bank must be fully paid, and the remainder is subject to call by the Board of Governors of the Federal Reserve System; no call for payment of the remainder has been made.

Earnings and Dividends.--After all necessary expenses of a Federal Reserve Bank have been paid or provided for, its stockholding member banks are entitled to receive an annual dividend of 6 percent on the paid-in capital stock, which dividend is cumulative. After these dividend claims have been fully met, the net earnings are added to the surplus of the Reserve Bank. Reserve Banks, including the capital stock and surplus therein and the income derived therefrom, are exempt from Federal, State, and local taxation, except taxes upon real estate. In case of liquidation or dissolution of a Reserve Bank, any surplus remaining, after payment of all debts, dividends, and the par value of its capital stock, becomes the property of the United States Government.

Directors and Officers of Reserve Banks.--The board of directors of each Reserve Bank is composed of nine members, equally divided into three classes, designated class A, class B, and class C. Directors of class A are representative of the stockholding member banks. Directors of class B must be actively engaged in their district in commerce, agriculture, or some other industrial pursuit, and may not be officers, directors, or employees of any bank. Class C directors may not be officers, directors, employees, or stockholders of any bank. The six class A and class B directors are elected by the stockholding member banks, while the three class C directors are appointed by the Board of Governors. The term of office of each director is 3 years, so arranged that the term of one director of each class expires each year.

One of the class C directors appointed by the Board of Governors is designated as chairman of the board of directors of the Reserve Bank and as Federal Reserve agent, and in the latter capacity he is required to maintain a local office of the Board of Governors on the premises of the Reserve Bank. Another class C director is appointed by the Board of Governors as deputy chairman.

Each Reserve Bank has as its chef executive officer a president appointed for a term of 5 years by its board of directors with the approval of the Board of Governors. There is also a first vice president, appointed in the same manner for the same term.

Member Bank Reserves.--The Reserve Banks receive and hold on deposit the reserve balances of member banks.

Extensions of Credit to Member Banks.--Reserve Banks are authorized, among other things, to discount for their member banks notes, drafts, bills of exchange, and bankers' acceptances of short maturities arising out of commercial, industrial, and agricultural transactions, and short-term paper secured by obligations of the United States. The Reserve Banks may make advances to their member banks upon their promissory notes for periods not exceeding 90 days upon the security of direct obligations of the United States or paper eligible for discount or purchase, and of certain other securities for periods not exceeding 15 days. They also may make advances to member banks upon security satisfactory to the Reserve Bank concerned, for periods not exceeding 4 months, at a rate of interest at least one-half of 1 percent higher than that applicable to discounts and advances of the kinds mentioned above. in certain exceptional circumstances and under certain prescribed conditions, they may make advances to groups of member banks.

Extensions of Credit to Others.--Under the authority of an amendment to the Federal Reserve Act approved June 19, 1934, the Reserve Banks may grant credit accommodations to furnish working capital for established industrial or commercial businesses for periods not exceeding 5 years, either through the medium of financing institutions or, in exceptional circumstances, directly to such businesses, and may make commitment with respect to the granting of such accommodations. Subject to regulations of the Board of Governors, Reserve Banks may make advances to individuals, partnerships, and corporations for periods not exceeding 90 days upon their promissory notes secured by direct obligations of the United States. In unusual and exigent circumstances, when authority has been granted by at least

five members of the Board of Governors, the Reserve Banks may also discount for individuals, partnerships, or corporations, under certain prescribed conditions, notes, drafts, and bills of exchange of the kinds and maturities made eligible for discount by member banks. As fiscal agents of the United States, the Federal Reserve Banks also arrange for loans to contractors, subcontractors, and other engaged in business or operations deemed by the War Department, the Department of the Navy, or the United States Maritime Commission to be necessary, appropriate, or convenient for the prosecution of the war. Such loans are made by banks and other financing institutions under guarantees by the War Department, the Department of the Navy, or the United States Maritime Commission.

Currency Issue.--The Reserve Banks issue Federal Reserve notes, which constitute the bulk of money in circulation. These notes are obligations of the United States and are a prior lien upon the assets of the issuing Federal Reserve Bank. They are issued against a pledge by the Reserve Bank with the Federal Reserve agent of collateral security consisting of gold certificates, paper discounted or purchased by the Bank, and, until June 30, 1945, direct obligations of the United States.

Reserves Required to be Held by Federal Reserve Banks.--Each Reserve Bank is required to maintain reserves in gold certificates of not less than 40 percent against its Federal Reserve notes in actual circulation, and is also required to maintain reserved in gold certificates or lawful money of not less that 35 percent against its deposits.

Other Powers.--The Reserve Banks are empowered to act as clearing houses and as collecting agents for their member banks and under certain conditions for nonmember banks, in the collection of checks and other instruments. They are also authorized to act as depositories and fiscal agents of the United States and to exercise other banking functions specified in the Federal Reserve Act. They perform a number of important functions relating to the War Program, particularly in connection with the issue and redemption of United States Government securities and the administration of property in the United States belonging to certain foreign countries and their nationals.

Federal Advisory Council

The Federal Advisory Council acts in an advisory capacity, conferring with the Board of Governors on general business conditions and making recommendations concerning matters with the Board's jurisdiction.

The Council is composed of 12 members one from each Federal Reserve district being selected annually by the board of directors of the Reserve Bank of the district. The Council is required to meet in Washington at least four times each year, and oftener if called by the Board of Governors.

Approved.

Chester Morrill
Secretary of the Board of Governors

Table of Contents