South Bend news-times. (South Bend, Ind.) 1913-1938, 1917-04-29
BANK POWERS
IN THE BALANCE
Scope of New Federal Reserve
Act to be Interpreted by
Supreme Court.

WASHINGTON. April IS Upon
the United States supreme courts
decision in the first proceeding rails
ing "A question as TO the constitution
atty Of provisions Of the new fed
eral reserve act. depended whether
about 800 national banks can or
cannot act as trustees, executors, ad
ministrators, and registrars OF Sc
curities in competition with state
banks, trust companies and others.
Trust companies throughout the
country were especially interested in
seeking 70 prevent the national
banks from performing such bust
ness functions.
The clause of the federal reserve
act OF 1913. creating the federal re-
serve board and prescribing the new
monetary system, which was at
tackled as unconstitutional by the
trust companies, is a subsection of
Section XII. providing that:
The federal reserve board shall be
authorized and empowered
20 grant, by special permit to ma
tionsl banks applying therefor, when
not in contravention of state or local
law, the right TO act as trustee, eX-
ecutor, administrator or registrar of
stocks and bonds, under such rules
and regulations as the said board
may prescribe"
That such functions are private,
subject to local and not federal reg
ulation, and beyond the power of
congress to confer on national banks
through the reserve board. was con-
tended by the trust companies.
The clause was held unconstitu-
tional in the test case by the Michi-
gan supreme court; also, in another
case, of the First National Bank of
Joliet, Ill, a similar finding was
made by the Illinois state courts.
In the present proceeding the
First National bank of Bay City,
Mich. was given a permit by the
federal reserve board to act as trus-
tee, etc. The Union, Detroit and Sc
curity Trust companies of Detroit
and the Michigan and Grand Rapids
Trust companies of Grand Rapids
Joined in a quo warrant suit brought
in the name of Atty. Gen. Grant Eel
lows Of Michigan, to enjoin the Bay
City bank The injunction was
granted by the Michigan supreme
court in September, 1915.
Department Intervenes.
Upon appeal to the United States
supreme court the department OF
justice interviewed as a friend of the
court in behalf of the federal re-
serve board. joining with the Bay
City bank in asking the court TO sus-
tain the clause. Grounds given were
that congress has power to extend
functions of national banks within
its discretion, in preserving and ex-
tending the national banking system,
whether such functions be private or
public. All powers necessary to the
stability and successful operations of
national banks it was cOntended, are
enjoyed by congress and the reserve
act, il was asserted, does not dele
gate such powers to the federal re-
serve board. The additional busi-
ness functions authorized in the
clause, 1t was contended, are ordin-
airy commercial and financial opera
tons, necessary TO preserve the
business of national banks in compe-
tition with state banks and trust
companies. Forty-four states were
said to give state institutions such
powers.
The trust companies contended
that the powers given are not nor
NAL, natural or necessary as pertain
ing to national banks, but are private
and exclusively within state author
ity 10 bestow and regulate. That the
clause was inserted in the reserve
act at the eleventh hour" and is a
"utopian and parental plan" also
insisted. Exercise of these powers
by national banks, under scant su-
pervision, il was said. would create
an "intolerable condition"
The department of justice, in de-
nying that the Michigan courts had
Jurisdiction TO entertain the trust
companies suit against the Bay City
bank, questioned the right of state
courts to enjoin national bank as
an alleged state interference with
the federal financial system.