Occasionally, a Federal Reserve
Bank learns that a state member bank has violated section 24A of the
Federal Reserve Act or section 5199(b) of the Revised Statutes by
investing in bank premises or paying a dividend without having obtained
the Board’s approval. In such cases, the prior approval contemplated
by the statutes obviously cannot be given. Instead, the Board usually
has advised the member bank that it will not “object” to the expenditure
or dividend payment in a letter that has had the effect of notifying
the bank that the Board is aware of the violation but does not intend
to take disciplinary action.
In the future, such cases should not be submitted to the
Board except by mention in the report of examination. Instead, the Reserve
Bank is requested to notify the member bank of the violation by a
letter that also cautions against future violation. Mention in the
report of examination will, of course, ensure that the violation is
brought to the attention of the bank’s board of directors.
The same procedure should be followed
if a violation of section 24A is discovered when only part of the
funds representing a proposed investment in bank premises have been
expended. However, Board permission should be requested if it is possible
to divide the expenditure of funds into separate parts, such as for
land and building, and if construction has not begun.
If the financial condition of the
bank has been adversely affected to a serious extent by the investment
or dividend payment, the case should, of course, be reported to the
Board for appropriate action. S-1952; May 5, 1965.
