The Federal Reserve Board was reluctant to let the reserve banks establish such agencies abroad, on the grounds that the condition of business in foreign markets was too disturbed by the war, that foreign operations should not be engaged in until the domestic aspects of the federal reserve system had been fully developed, and that pioneering should be done rather by member banks. On February 13, 1917, however, the Philippine National Bank was designated by the reserve bank of San Francisco as its agent for the Philippine Islands. The arrangement includes the maintenance of reciprocal accounts, the collection of drafts and claims and, when desired, the purchase of bills by either bank for the other or from the other for its own account, if conditions favor and such business is deemed mutually desirable. When as a result of the war the United States became a creditor nation and finan cial operations of huge size developed between this country, England, and France, the board permitted the reserve bank of New York to appoint as its foreign agents the Banks of England and of France (December 24, 1916, and February 28, 1917), and to become the American agent of these banks. Other federal reserve banks may participate in the agency relationship with these foreign banks upon the same terms and conditions as the New York bank, if they so desire. It is probable that the system will develop more and more along the line of the establishment of such foreign agencies. The New York bank has also entered upon mutual agency relations with the Bank of Japan (January 23, 1918), and has now, or has had during the war, relationships with De Nederlandsche Bank, Norges Bank, Sveriges Riksbank, De Javasche Bank, and with the governments of India, Argentina, Bolivia, and Peru. Most of these relationships were arranged to stabilize foreign exchange. The item, Gold Held with Foreign Agencies, appeared for the first time in the statement of the federal reserve banks under the date of June 23, 1917.
Membership in Federal Reserve System The sponsors of the federal reserve system hoped to have it include all national banks and all state banks and trust companies of size and importance. The act required each national bank to signify to the Organization Committee its acceptance of the terms and provisions of the act, within sixty days of its passage. Any national bank failing thus to signify its acceptance was to cease acting as a reserve agent upon thirty days' notice from the com mittee or Federal Reserve Board; and if any national bank failed within one year after the passage of the act to become a member bank, it forfeited its national charter. As soon as the districts were determined, the committee required the members to sub scribe to the capital of the federal reserve bank. Only fifteen banks refused to join, and as these were either small, or in process of liquidation or consolidation, or had been organized so recently that they had not had time to signify their acceptance, acceptance of the system was practically unanimous.
The act provides that state banks and trust companies may apply to the Federal Reserve Board for membership in the federal reserve system and may buy stock of the reserve bank.
Such a bank, when admitted, must comply with the capital and reserve requirements of national banks and have a paid-up un impaired capital sufficient to entitle it to become a national bank. In acting upon such applications the board considers the financial condition of the applying bank, the general character of its man agement, and whether or not its corporate powers are consistent with the requirements of the Federal Reserve Act.
Legal Requirements of Membership State banks becoming members of the federal reserve must conform to the laws imposed upon national banks, which prohibit them from lending on or purchasing their own stock, and which relate to the withdrawal or impairment of their capital and to the payment of unearned dividends. Their officers and employees are subject to the national bank statutes covering penal offences. They are required to present to the federal reserve bank, not less than three times a year and on dates fixed by the Federal Re serve Board, reports of their condition and of the payment of dividends. They are also subject to examination made under direction of the board or of the reserve bank by examiners selected or approved by the board. In lieu of this, however, the reserve bank may accept the examinations made by the state authorities. The board may also order special examinations. The expenses for these various federal examinations are assessed upon the bank.
The Federal Reserve Board has power, after a hearing, to require any member to surrender its stock in the reserve bank and forfeit its membership, if the member fails to comply with the federal laws or regulations. A state member bank or trust com pany may withdraw its membership at will, after six months' notice of its intention has been filed with the board. The board deals with these applications for withdrawal in the order in which they are filed. After indebtedness to or from the reserve bank has been adjusted the withdrawing member is entitled to a refund of its subscription at par and to the repayment of its deposits with the reserve bank. Subject to the provisions of the Federal Reserve Act and to the regulations of the board, a state bank or trust company becoming a member retains its full charter and statutory rights as a state institution and may continue to exercise all the corporate powers granted by the state, except that no federal reserve bank is permitted to discount for such bank or trust company the paper of any one borrower who has borrowed from such bank or trust com pany in an amount greater than ro per cent of its capital and sur plus. The discount, however, of bills of exchange drawn against actually existing value and the discount of commercial or business paper actually owned by the person negotiating the same are not considered as borrowed money within the meaning of this clause. The reserve bank requires a signed statement from such member seeking to discount its paper, that it is not liable in excess of these amounts. Overcertification of checks by a state bank or trust company member is prohibited under penalty of forfeiture of membership.