the liquidation of a Federal Reserve Bank, it is possible, under this interpretation, to give effect to all other provisions of the Act in accordance with the accepted rules of construction in such cases.

In considering the question submitted, I am conscious of the great public importance of the Board's decision in this matter and realize that the question is one upon which counsel may, and in fact do, differ. I have endeavored, therefore, to call the Board's attention to the two possible viewpoints and to explain at some length the reasons for conclusions reached.

Briefly summarized, it appears to me that any interpretation which vests in the Board the power to reduce the number of districts makes it necessary to also vest in the Board implied or incidental powers which are repugnant to other expressed provisions of the Act. That, on the other hand, the provisions in question are susceptible of another equally reasonable interpretation which is in harmony with the spirit and purpose of the Act and which will give effect to all other provisions.

I am, therefore, of the opinion that this second interpretation must be given effect and that following the usual rules of construction in such cases the Board is without power to reduce the number of districts by consolidation, or otherwise, and that each Federal Reserve Bank now organized is entitled to have succession for a period of 20 years unless sooner dissolved by an Act of Congress or unless its franchise is forfeited by some violation of law. Respectfully,

M. C. ELLIOTT, Counsel. Hon. CHARLES S. HAMLIN,

Governor Federal Reserve Board.

Reduction of Federal Reserve Districts.

The following opinion to the effect that the Federal Reserve Board may under the provisions of the Federal Reserve Act reduce the number of Federal Reserve Districts determined by the Reserve Bank Organization Committee was prepared for the Board by Mr. Joseph P. Cotton, special counsel for the Board:

NOVEMBER 19, 1915.

SIRS: You have asked to be advised as to the extent of your present power to rearrange Reserve Bank Districts.

The powers of the Board in this regard are defined in section 2 of the Act.

The general scheme of organization of the Reserve System under the Act is that the Reserve Bank Organization Committee shall designate not less than 8 nor more than 12 cities to be known as Federal Reserve cities, and shall divide the United States into districts, each district to contain only one of such reserve cities. Then, under direction of the Organization Committee, the national banks of each such district (and eligible State banks) shall organize and form a reserve bank for the district by filing the proper certificate with the Comptroller of the Currency. Each reserve bank then becomes a corporate entity (section 4 of the Act). The Reserve Board is not selected until the Organization Committee have completed the districting. (Under section 10 of the Act the President in his choice of the appointive members of the Reserve Board is not to select more than one from any one reserve district thus created). It is clear that the Act intends that the Organization Committee shall organize and get the Reserve System in shape to do business in advance of the selection of the Reserve Board.

It is equally clear, however, that the Act intended that the work of the Organization Committee in the creation of the reserve districts should not be final but is subject to change by the Reserve Board. Thus section 2 of the Act, dealing with the determination of the Organization Committee as to creation of reserve districts, reads:

The determination of said organization. committee shall not be subject to review except by the Federal Reserve Board when organized: Provided, That the districts shall be apportioned with due regard to the convenience and customary course of business * * *. The districts thus created may be readjusted, and new districts may from time to time be created by the Federal Reserve Board, not to exceed 12 in all.

It is by the proper interpretation of this language, read in connection with the rest of the Act, that your questions must be answered. The language quoted confers authority upon the Reserve Board to act only after the determination of the Organization Committee has been made. The Board is given the power to review the determination of the Organization Committee, with the instruction that districts shall be apportioned with due regard to the convenience and customary course of business, an instruction which, from the connection of the words, is addressed to the Reserve Board. Then the Act as quoted provides that the districts thus created may be readjusted and new districts may from time to time be created by the Reserve Board not to exceed 12 in all. The words "thus created" refer to the mode of creation thus described, that is, by determination by the Organization Committee. The use of the word readjusted instead of adjusted, indicates that the Board was to have power after adjustment of readjustment of the districts as necessity should arise from time to time. The word "readjustment" implies the exercise of all the powers which were exercised upon adjustment, and thus clearly embraces a review of the determination of the Organization Committee both as to reserve cities and districts.

It is argued that the express authority contained in the words "new districts may from time to time be created" is inconsistent with authority implied or derived from the word "readjusted" to decrease the number of districts, or to change the reserve cities. There is no such inconsistency. The phrase of the Act is that new districts may be "created," but the word "created" is not synonymous with the term increase. The Act does not confer express authority to "increase" districts, the word "increase" does not appear in the Act. The word "create" means to mark out, to delineate, to determine, districts. Thus the authority to "create" new districts is the exercise of the same power which the Organization Committee exercised in the beginning, and it is

most significant that the Act thus uses the same word "created" to describe the determination as to districts by the Organization Committee and also by the Reserve Board. Having that true meaning of the term "created" in mind, and having regard to the fact that this Reserve Act intended to establish a system which should be sufficient for the changing needs of the country at all times, it seems clear that the word "readjusted" embraces and includes the power, not only to change the territorial limits or boundaries of districts already established, but also includes the power to reach a determination which may diminish the total number of such districts and change the reserve cities. In other words, it is a power to draw the reserve district map afresh.

It is notable that this simple and natural construction of the Act has found clear expression in an argument of the Hon. Robert L. Owen before the Reserve Board on February 10, 1915, in regard to a petition of certain banks of southern Oklahoma (at page 35 et seq. of the stenographic report of that hearing). In that argument he laid down clearly three points: First, that in a review of the determination of the Organization Committee the review by the Board is of the action of the committee, not of the record on which they acted; second, that the power of the Board to redistrict is complete (as he said "The intention was to give the Board the power of the Government itself in dealing with this system and, third, that the power of the Board extends to a reduction of the number of reserve districts.

* *);

The only argument proposed against Senator Owen's construction is based upon a different portion of the Act. Section 4 of the Act provides that when the Organization Committee shall have established districts each national bank in the district so constituted shall become eligible for membership in the reserve banks, that certain of the eligible banks shall then subscribe for stock and make a certificate which shall be the organization certificate of the reserve bank of the district, and further

provides that the reserve bank of the district shall, when organized, have, among other corporate powers, the following:

"Second. To have succession for a period of 20 years from its organization, unless it is sooner dissolved by an Act of Congress, or unless its franchise becomes forfeited by some violation of law."

In connection with this language there is also to be remembered the language of section 11 of the Act, which names among the specific powers of the Reserve Board the following:

(h) To suspend, for the violation of any of the provisions of this Act, the operations of any Federal Reserve Bank, to take possession thereof, administer the same during the period of suspension, and, when deemed advisable, to liquidate or reorganize such bank

which is ample to permit the termination of a reserve bank or reserve district if necessary to carry it out. The fact that section 4 in stating the limit of the corporate existence of a reserve bank provides it shall be 20 years unless sooner dissolved by Act of Congress or forfeited for violation of law is not a declaration of intention that, or a promise that, the reserve bank may not cease to function or exist for some other reason. If it be such a promise, to whom is the promise made? Not to any member bank, because it is conceded by every one that any particular member bank may be detached from a reserve district and made ineligible for membership by a shift of district boundaries. Since that can be done to one member bank it can be done to any member bank in the district, and no one of them has any right to object to redis

Each Federal Reserve Bank shall establish branch banks within the Federal Reserve District in which it is located, and may do so in the district of any Federal Reserve Bank which may have been suspended.

These three provisions last above quoted provide machinery for terminating the existence of any reserve bank by Act of Congress or, on violation of law, by the disciplinary authority of the Reserve Board. They are in themselves clear. The argument which it is sought to build upon them is that inasmuch as the Act thus provides in detail machinery for termination of the life of a reserve bank (whenever Congress wishes or the law is violated), but provides no machinery for termination of the life of a reserve bank if such termination should arise from redistricting, therefore power to redistrict given by section 2 must be construed as not including power to terminate a reserve bank or a reserve district. That is the argument, but it is, it seems, a strained and unnatural one. There is no vagueness about section 2 of the Act. The words "review," "created," "readjusted" in that section are clear and grant a clear and unlimited power

nection with the reserve bank of which it was The fact that the Act does not a member. provide machinery for terminating the existence of a reserve bank or redistricting—if it be an omission at all-is no reason for deciding that the clear language of section 2 (which grants the power to readjust the districts) means something less than it says. The language of section 2 gives a complete power to redistrict, and there follows from that complete grant of power, by necessary implication, the authority to take all steps necessary for that end.

It is important to remember that the Board has already by redistricting, in the case of New Jersey banks, transferred banks from one district to another. By that action the Board has already "created" new reserve districts. By such action it has already changed the corporate powers of the reserve banks involved. If section 4 of the Act contains a promise that the corporate powers of each reserve bank should exist until Congress end them or the law is violated, then that promise has been broken already, since the former corporate powers of the Federal Reserve Bank of Philadelphia have been taken away and new

11 (k) of the Act.

It is also to be remembered that the Reserve Board has not as yet reviewed or affirmed in any way the determination of the Organization Committee as to all the districts, and what action it takes at this time will be the action of original review (under section 2 of the Act) as well as of readjustment.

If those two words "review" and "readjustment" mean anything, they mean that the Board may do over again, and differently, whatever the Organization Committee did, even if such action mean the changing of reserve cities and such redrafting of the map of the districts as will mean the elimination of some district or the combination of one district with another. The power in the Reserve Board is at any time to make a new district map. There is no limitation on that power save the expressed commands of section 2 that in so districting the country there shall be not less than 8 nor more than 12 districts, and "that the districts shall be apportioned with due regard to the convenience and customary course of business."

Very respectfully, yours,

JOSEPH P. COTTON.

FEDERAL RESERVE BOARD,

Washington, D. C.

Counsel to the Federal Reserve Board issued the following statement for the press when questioned about the decision of the Illinois Supreme Court denying to national banks in Illinois the right to act as trustee, executor, administrator, and registrar of stocks and bonds:

ent State courts in which the question of the This is one of several suits pending in differconstitutionality of section 11 (k) of the Federal Reserve Act is involved. The Federal Reserve Board has asked leave to file briefs and to be heard by counsel in only one of these cases. January or in February. will not be argued until the latter part of

There are two fundamental questions involved; first, whether Congress has authority under the Constitution of the United States to vest national banks with corporate powers to act in these capacities, and second, whether the exercise of such powers will contravene the laws of the State in which any particular national bank is located.

The permits granted by the Board to national banks to act as trustee, executor, administrator, and registrar of stocks and bonds expressly authorize the exercise of these powers only when not in contravention of the laws of the State in which such banks are located, but the question of the constitutionality of the Act which is presented to the courts will be argued by Counsel for the Board. Some of these cases will be appealed to the Supreme Court of the United States and its decision on the constitutional question will be binding on all State courts.

GENERAL BUSINESS CONDITIONS.

General business and banking conditions are described in reports made by Federal Reserve Agents for the 12 Federal Reserve Districts.

Below are given in detail digests of conditions in the various districts substantially as reported by Federal Reserve Agents.

DISTRICT NO. 1-BOSTON.

The general improvement in business in this district has continued throughout the month with renewed vigor. This upward trend started in the lines affected by emergency orders and has spread until now business in general is better than it has been for a long time. Domestic business is becoming a larger factor each month, although in some industries the improvement is due to a large extent to the check upon importations because of the war. Stocks of merchandise have been allowed to run unusually low and this condition together with the sudden retail demand has put a strain on many manufacturers to fill orders. On the other hand manufacturers are inclined to keep their business well in hand and are cautious about extending beyond such business as is in sight. Labor is in good demand and in some lines is hard to obtain.

Money seems to be sentimentally a trifle firmer although there is no change in rates. Surplus reserves while considerably reduced in the large centers are still so large that the reduction has not materially affected money rates. Call loans 3 per cent, commercial paper 3 to 3 per cent for short dates and 3 to 4 per cent for six months, town notes 1.94 to 2.30 per cent, 90-day bankers' acceptances 2 per cent upward.

Loans and discounts of the Boston banks show an increase over last month of $5,233,000 and demand deposits have decreased $14,722,000 in the same time. The amount "due to banks" by the Boston banks has decreased $18,415,000 during the month. The excess reserve of Boston banks has decreased from $65,512,000 on November 13, 1915, to $31,584,000 on December 18, 1915. Exchanges

of the Boston clearing house banks for the week ending December 18, 1915, were $192,350,968 as compared with $144,277,498 for the corresponding week last year and $196,767,337 for the week ending November 13, 1915.

The comptroller's call for November 10, 1915, shows that member banks in this district are borrowing about $3,000,000, or about $400,000 less than at the time of the September call, as compared with approximately $5,000,000 at this time last year.

Building and engineering operations in New England from January 1 to December 15, 1915, were the largest, with the exception of 1912, of any year for 15 years, and amounted to $171,820,000, as compared with $159,280,000.

Exports at the port of Boston for November, 1915, were $9,219,676, an increase of $95,812 over November, 1914. Imports at the port of Boston during the same month were $13,011,267, an increase of $6,172,526 over the corresponding month last year.

This increase was due more to small receipts in November, 1914, than to large receipts in November, 1915, the importations in the latter month being about on an average with the last six months this year. The principal increases over last year were in sugar, wool, and hides.

Receipts of the Boston post office for November, 1915, show an increase of more than $100,000 over November, 1914, or about 16 per cent. The first 15 days of December, 1915, showed an increase over last year of approximately $45,000, or about 11 per cent.

The Boston & Maine Railroad reports for October, 1915, a surplus of $442,281, as compared with $224,114 for the same month last year. New York, New Haven & Hartford Railroad reports for October, 1915, a surplus of $715,333, as compared with $115,765 for October, 1914.

There were 191 failures in this district during November, 1915, with liabilities of $1,255,200, as compared with 180 in November, 1914, with liabilities of $1,550,300.

Woolen mills are doing a large volume of business and are running nearly at capacity. Worsted business has continued to improve