Your letter of July 12 is received, asking whether the Federal Reserve Act, as now amended, permits the service on the board of directors of a national bank after October 15, 1916, of a member of a private banking firm under certain conditions.

Section 22 of the Federal Reserve Act, which relates to the fees to be paid officers, directors, and employees of member banks, and is the only portion of that Act which could have a bearing on this question, has not been amended. You are advised, however, that section 8 of the Clayton Antitrust Act, approved October 15, 1914, provides in part:

no

"That from and after two years from the date of the approval of this act * * * private banker or person who is a director in any bank or trust company, organized and operating under the laws of a State, having deposits, capital, surplus, and undivided profits aggregating more than $5,000,000, shall be eligible to be a director in any bank or banking association organized or operating under the laws of the United States.'

Under this language it would seem that a private banker or a member of a private banking firm would be ineligible after October 15, 1916, to serve at the same time as a director of a member bank.

The Kern amendment to the Clayton Act, approved May 15, 1916, provides in substance that nothing in the act shall prohibit any officer, director, or employee of any member bank, who shall first procure the consent of the Federal Reserve Board, from serving at the same time as an officer, director, or employee of not more than two other banks, banking associations, or trust companies which are not in substantial competition with such member bank. No change is made, however, in the provisions of the original Clayton Act regarding the eligibility of private bankers.

JULY 13, 1916.

Notes for Farm Implements.

Your letter of June 27, relative to borrowing money on your farm in order that you may

buy adequate machinery for use thereon, is received.

In reply, you are informed that under the Federal Reserve Act member banks of the Federal Reserve System, which comprise all national banks and such State banks and trust companies as have joined, may loan funds on farm lands for a limited period, protecting themselves by mortgage. Of course there is nothing in the Act to compel a member bank to make such loans or to fix the rates at which they shall be made. Moreover, the Federal Reserve Banks are not authorized to rediscount for a member bank loans based on farm-land security.

As you have doubtless seen in the public. print, the rural credits bill, which was passed at this session of Congress, has been signed by the President and is now a law. This bill will doubtless be of interest to you, and the Senate document office has been requested to forward a copy to you direct.

For your information several circulars issued by the Federal Reserve Board in this connection. are inclosed herewith. JULY 8, 1916.

Cattle Paper.

Comparatively few of the Federal Reserve Banks discount cattle paper in large amounts. While the usual reports made to the Federal Reserve Board show the amount of such paper discounted by the several Federal Reserve Banks, the detailed information requested by you could not be furnished without first making it the subject of special reports.

The Federal Reserve Banks of Dallas and Kansas City have occasion to handle more of this paper than any of the other banks. Approximately 40 per cent of the total paper discounted for the month of June by the Dallas Bank and approximately 60 per cent of the total amount discounted during the same month by the Kansas City Bank consisted of livestock paper.

JULY 12, 1916.

The following opinions of counsel have been authorized for publication by the Board since the last edition of the Bulletin:

Provisos to Clayton Act Cumulative.

An officer, director, or employee of a member bank, who would otherwise come within the prohibitory language of the Clayton Act, may serve as a director, officer, or employee of one other bank where the entire capital of one is owned by stockholders in the other, and at the same time, under the Kern amendment, may, with the consent of the Federal Reserve Board, serve as an officer, director, or employee of not more than two other banks which are not in substantial competition with the member bank. JULY 13, 1916.

SIR: There has been submitted to this office for an opinion the question of whether an officer, director, or employee of a member bank may, under the proviso contained in paragraph 2 of section 8 of the Clayton Act, serve as a director, other officer, or employee of not more than one other member bank where the entire capital stock of one is owned by stockholders in the other, and at the same time, under the Kern amendment, serve as an officer, director, or employee of not more than two other banks which are not in substantial competition with the member bank, provided the consent of the Federal Reserve Board is first obtained.

As originally enacted, section 8 of the Clayton Act contained three exceptions to its prohibitory provisions, which exceptions were incorporated in paragraph 2 of the section as provisos and read as follows:

(1) That nothing in this section shall apply to mutual savings banks not having a capital stock represented by shares.

(2) That a director or other officer or employee of such bank, banking association, or trust company may be a director or other officer or employee of not more than one other bank or trust company organized under the laws of the United States or any State where the entire capital stock of one is owned by stockholders in

the other.

(3) That nothing contained in this section shall forbid a director of Class A of a Federal Reserve Bank, as defined in the Federal Re

The amendment to the Clayton Act, May 15, 1916, known as the Kern amendment, constitutes a further exception and is added as a fourth proviso to the second paragraph of section 8. The amendment reads as follows:

And provided further, That nothing in this act shall prohibit any officer, director, or employee of any member bank or Class A director of a Federal Reserve Bank, who shall first procure the consent of the Federal Reserve Board * * * from being an officer, director, or employee of not more than two other banks * * * if such other bank, is not in substantial competition with such member bank.

* *

According to the usual rules of construction, a proviso takes out of the operation of the body of the enactment that which otherwise would be within it. It restrains the generality of the previous provisions. (Savings Bank v. United States, 86 U. S., 227-236.)

In the case of Deitch v. Staub (115 Fed. Rep., 309) the court said, on page 314:

The primary and usual office of a proviso is to except something out of a statute which would otherwise be within it. Its use is to take special instances out of a general class. Ogden, 9 Wheat., 191, 6 L. Ed., 23.) (Suth St. Const., secs. 222, 223; Gibbons v.

See also Georgia Banking Co. v. Smith (128 U. S., 174).

Applying this rule to the three provisos mentioned above and to the Kern amendment which follows them and forms a fourth proviso, it is apparent that each takes out of the operation of the prohibiting clauses of the statute that which otherwise would be forbidden. The substance of the amendment is that nothing in the prohibitory clauses of the Act as it stood at the time the amendment was passed should prevent an officer, director, or employee of a member bank from serving as an officer, director, or employee of not more than two other banks which are not in sub

stantial competition with the member bank, provided the consent of the Federal Reserve Board is first obtained.

In the opinion of this office, therefore, an officer, director, or employee of a member bank who would otherwise. come within the prohibitory language of the Act may serve as a director, officer, or employee of one other bank or trust company where the entire capital stock of one is owned by stockholders in the other, and at the same time, under the Kern amendment, may serve as an officer, director, or employee of not more than two other banks which are not in substantial competition with the member bank, if the consent of the Federal Reserve Board is first obtained. Respectfully,

M. C. ELLIOTT, Counsel.

To Hon. CHARLES S. HAMLIN,

Governor Federal Reserve Board.

Member Bank Acceptances.

When a member bank purchases its own acceptance before maturity such acceptance need not be included in the aggregate of acceptances authorized by section 13.

JULY 25, 1916.

SIR: Section 13 of the Federal Reserve Act as amended by an act approved March 3, 1915, provides in part as follows:

Any member bank may accept drafts or bills of exchange drawn upon it and growing out of transactions involving the importation or 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.

The opinion of this office has been requested on the question of whether or not acceptances of a member bank purchased by it before maturity would continue to be treated as acceptances within the meaning of this provision and subject to the limitations imposed. In other words, if we assume that a member bank has accepted drafts or bills of exchange drawn upon it to an amount equal to its capital and surplus, and before the maturity of such acceptances it purchased and carried in its assets 25 per cent of its own acceptances, would such bank be regarded as having outstanding acceptances equal to 100 per cent or acceptances equal to 75 per cent of its capital and surplus ?

In the opinion of this office the purchase of such an acceptance cancels the obligation of the bank, and so long as it is held by the bank it does not constitute a liability which may be regarded as an acceptance. When the member bank executes its acceptance of a draft or bill of exchange it enters into a contract or obligation to pay at maturity the amount specified therein. Whether this payment is made at or before maturity the obligation is discharged. In this view member banks might legally deduct from the amount of acceptances outstanding those purchased and held by such member banks in considering the limit provided by section 13 as amended.

Of course, if a member bank subsequently disposed of its acceptance, either by sale or hypothecation, thus renewing its obligation to pay it at maturity, the acceptance should be included in the amount outstanding. Respectfully,

M. C. ELLIOTT, Counsel. To Hon. CHARLES S. HAMLIN, Governor Federal Reserve Board