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.