
    Banks’ Reserve Funds.
    
      Banks and banking — Deposit of reserves in other institutions — Act of May 8, 1907.
    
    Under the Act of May 8, 1907, P. L. 189, a hank may deposit its reserve funds in the form of bonds with another banking institution approved by the Commissioner of Banking for safekeeping, convenience or availability for immediate use, provided such bonds are duly earmarked and kept separate and apart from the assets of the depository, and are subject to the call, order or demand of the bank owning the same, and remain under its domination and control, and are free and unpledged for other purposes not in contemplation of the act requiring the creation and maintenance of a reserve fund.
    Attorney-General’s Department. Opinion to Hon. Peter G. Cameron, Deputy Commissioner of Banking.
    April 19, 1922.
   Alter, Att’y-Gen.,

I acknowledge receipt of your communication of April 11, 1922, referring to section 2 of the Act of Assembly approved May 8, 1907, P. L. 189, entitled “An act to provide for the creation and maintenance of a reserve fund in all banks,” etc., and inquiring whether bonds carried by such banking institutions as part of the legal reserve required by said act of assembly must be in the immediate possession of the hanking institution in its own vaults, or whether such bonds may be placed or deposited for safekeeping or convenience in the custody of another banking institution, subject to the call, order or demand of the bank so depositing the same.

Section 2 of the act above referred to provides as follows: “Every such corporation, receiving deposits of money subject to check or payable on demand, shall, at all times, have on hand a reserve fund of at least 15 per centum of the aggregate of all its immediate demand liabilities. The whole of such reserve fund may, and at least one-third thereof must, consist of either lawful money of the United States, gold certificates, silver certificates, notes or bills issued by any lawfully organized national banking association, or clearing-house certificates, representing specie or lawful money specially deposited for the purpose of any clearing-house association, held and owned by any such corporation as a member of a clearing-house association. One-third, or any part thereof, may consist of bonds of the United States, bonds of the Commonwealth of Pennsylvania, and bonds issued in compliance with law by any city, county or borough of the Commonwealth of Pennsylvania, and bonds which now are or hereafter may be authorized by law as legal investments for savings banks or savings institutions in Pennsylvania, computed at their par value, and which bonds are the absolute property of such corporation. The balance of said reserve fund, over and above the part consisting of lawful money of the United States, gold certificates, silver certificates, notes and bills issued by any lawfully organized national banking association, or clearing-house certificates, representing specie or lawful money specially deposited for the purpose of any clearing-house association, held and owned by any such corporation as a member of a clearing-house association, and the part thereof consisting of bonds, not exceeding the limit above provided, may consist of moneys on deposit, subject to call, in any bank or trust company in the State of Pennsylvania which shall have been approved by the Commissioner of Banking, or in any bank or trust company in any other state, located in any city designated as a reserve city by or by virtue of the authority of the Revised Statutes of the United States and the amendments thereto, which shall have been approved by the Commissioner of Banking.”

The expression used in the act, “shall have on hand a reserve fund,” etc., contemplates the having, by such bank, immediately available, for use in case of need, emergency or stress, the reserve fund, consisting of bonds or moneys on deposit in other banks subject to call, as therein provided. The act does not expressly direct that such bonds shall be in the actual physical custody or possession or in the vaults or boxes of such banking institution.

There might be situations where it might be either safer or more convenient for country banks to deposit their reserve bonds with the larger banks in the cities, so that in case of sudden need, emergency or stress these bonds might be made immediately available by “wire,” for the purpose of obtaining funds from such correspondent banks. If these bonds were “on hand” in the sense that they remained in the vaults of the bank carrying the same as a part of its reserve, they might not, in case of need, emergency or stress, be immediately available for reserve purposes, but would perhaps have to be taken to the correspondent bank in some distant city for the purpose of obtaining funds thereon, thereby failing to meet immediately the emergency requirement for which the maintenance of the reserve is intended.

In my opinion, therefore, it is a sufficient compliance with the act of assembly if the reserve bonds are deposited or placed with another banking institution, approved by the Commissioner of Banking, for safekeeping, convenience or availability for immediate use, provided, of course, such bonds are duly earmarked and kept separate and apart from the assets of the depositary, and are subject to the call, order or demand of the bank owning the same and remain under its domination and control, and are free and unpledged for other purposes, not in contemplation of the act of assembly requiring the creation and maintenance of a reserve fund.

From Guy H. Davies, Harrisburg, Pa.  