| Subject: |
Gold Transactions |
As you are undoubtedly aware, United States residents will
be allowed to purchase, hold, sell or otherwise deal in gold
beginning December 31, 1974. There is no specific language in
the Banking Code of 1969 which authorizes state-chartered banks
to purchase, hold, sell or otherwise deal in gold. However,
it is the interpretation of the Attorney General that state-chartered
banks have this authority under the incidental powers section
(Sec. 151) of the Banking Code.
Sec. 151, in part, reads as follows:
"...Subject to the limitations and restrictions contained
in this act or in its articles, a bank may engage in the business
of banking and any business related or incidental thereto,
and for such purposes without specific mention thereof in
its articles, shall have all the powers conferred by this
act...."
Due to the hazards involved in gold trade, this Bureau is considering
the promulgation of a rule which will specify guidelines, principles
and restrictions to be adhered to by state-chartered banks which
deal in gold. Pending the promulgation of the rule, I am requesting
state-chartered banks to exercise extreme caution in carrying
out any gold transactions in which they might participate. Gold
is a highly speculative commodity and should not in any way be
regarded as anything akin to legal tender. There is a great potential
for any buyer or seller of gold to incur substantial losses. There
is nothing sacrosanct about gold as compared to any other commodity.
The market price can decline as well as increase. Moreover, the
buying and selling of gold requires a great deal of expertise.
One is faced with the problem of assaying the weight and pureness
of any gold bars being purchased. There are no existing federal
or state standards on weight or pureness of gold bullion. Thus,
there is a great danger of exposure to counterfeiting operations.
Gold and any gold refiner's stamp are easily subject to counterfeiting.
Banks should be aware that there are counterfeiters of gold who
are operating in foreign countries, and who are exporting such
counterfeited gold to the U.S.
Operating officers of any bank deciding to deal in gold should
work within the framework of a policy statement established
by their Board of Directors. The policy adopted by the Board
should affirm that the market risks involved in gold transactions
have been thoroughly considered, and that the staff is qualified
for directing gold transactions. The total amount of bank funds
to be so used should also be approved. Please be advised that
if you intend to deal in gold in any manner this Bureau should
be notified in advance of such action. We should also be supplied
with a copy of the Board of Directors policy statement on gold
dealings and a copy of any information supplied the Federal
Reserve or FDIC in accordance with the policy statements issued
by those agencies.
It should be pointed out that gold coin and gold bullion cannot
be used to meet the reserve requirements established by the
Commissioner or by the Federal Reserve Board. It should also
be noted that gold bullion and coins are a non-interest bearing
asset which should be revalued frequently to reflect changes
in the current market value.
I am requesting state-chartered banks as a voluntary measure,
to refrain from buying gold for their own account pending promulgation
of rules by this office. However, state-chartered banks may
purchase and sell gold on a consignment basis or as an agent.
Gold may also be accepted as collateral for a customer's loan.
However, banks must keep in mind the difficulty of assaying
the weight and pureness of gold being held as collateral.
Again, it is my hope that state-chartered banks become familiar
with the pitfalls of gold trading before they actively participate
in the market.
| Signed: |
Richard J. Francis, Commissioner |
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| Dated: |
December 23, 1974 |
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