APPENDIX 4

FEDERAL RESERVE BOARD COMMENTS ON H.R. 1560

CHAIRMAN OF THE BOARD OF GOVERNORS,
FEDERAL RESERVE SYSTEM,
Washington, D.C., May 4, 1977.

Hon. CLEMENT J. ZABLOCKI,

Chairman, Committee on International Relations, House of Representatives,
Washington, D.C.

DEAR MR. CHAIRMAN: I am pleased to respond further to your letter of February 7 requesting the Board's comments on H.R. 1560, a bill to repeal section 5(b) of the Trading With the Enemy Act of 1917.

Section 5(b) appears to have considerably more applicability to the departments and agencies within the Executive branch than to the Board. We understand that repeal of this section would jeopardize certain programs, rules and regulations of the Departments of Commerce, Justice, State, and Treasury. Therefore, the Board defers to those departments and the Office of Management and Budget in assessing the general implications of H.R. 1560.

Insofar as the Board is concerned, there seems to have been only one use by a President of the emergency powers conferred by section 5(b) that directly affected our operations. That use was the promulgation of Exectuive Order 8843 in 1941, which authorized the Board to control consumer credit. The Executive Order was ratified by the Congress after World War II with the passage of a statute (12 U.S.C. 249) providing that the Board was not to exercise consumer credit controls except during wartime or national emergencies. The Congress repealed the statute in question last year (Public Law 94-412, 90 Stat. 1255).

Section 5(b) is relied upon as the primary authority of the Secretary of the Treasury to regulate the Nation's banks in the event of an attack upon the United States. This authority has been redelegated to the Board of Governors. The Board's contingency plans to carry out this responsibility were described by Governor Coldwell in testimony before the Joint Committee on Defense Production on June 28, 1976. I have enclosed a copy of his statement.

Section 5(b) also has applicability to the Federal Reserve in its role as fiscal agent for the Treasury. In this connection, it is important to the interests of the United States that the President be authorized to block transactions with foreigners under certain circumstances (such as those specified in section 5(b)). If and when such authority is exercised and the Federal Reserve Banks are asked to act as the Treasury's agents, it is important that the Banks be granted explicit immunity against suit. Section 5 (b) provides such immunity in the case of actions relying upon the Trading With the Enemy Act of 1917 or any implementing Executive Order or agency directive.

I hope that these comments will be helpful to you and your Committee in the further consideration of H.R. 1560.

Sincerely yours,

Enclosure.

ARTHUR F. BURNS.

STATEMENT BY PHILIP E. COLDWELL, MEMBER, BOARD OF GOVERNORS OF THE
FEDERAL RESERVE SYSTEM BEFORE THE JOINT COMMITTEE ON DEFENSE
PRODUCTION, JUNE 28, 1976

Madam Chairwoman, I am happy to have this opportunity to describe to the Joint Committee the responsibilities of the Federal Reserve System in the emergency preparedness area, and our plans to carry out those responsibilities if necessary.

Federal Reserve System involvement in contingency planning for an attack on the United States began in the early 1950's. It was formalized in 1956 when the Office of Defense Mobilization issued a Defense Mobilization Order to the (236)

Board. That order was superseded by Presidential Executive Orders, the most recent of which is E. O. 11490 dated June 11, 1976.

The Federal Preparedness Agency has designated the Federal Reserve a Category A agency, which means that we have essential functions that must be continued during an attack and in an immediate postattack period. The Executive Order requires, among other things, that such agencies maintain alternate headquarters and sites for the storage of duplicate essential records.

More specifically, the Executive Order charges the heads of the Federal bank supervisory agencies, including the Federal Reserve Board, with responsibility for developing emergency plans, programs and regulations to cope with the potential economic effects of mobilization or an attack. Functions which the Order specifies must be carried on includes (1) provision and regulation of money and credit; (2) acquisition, decentralization, and distribution of currency; (3) collection of checks; (4) fiscal agency and foreign operations; (5) provision for the continued or resumed operations of financial institutions; and (6) provision of necessary liquidity to those institutions.

These policies and plans are not directed at the areas of the country that would be devastated by an exchange of high yield nuclear weapons. Rather, they are aimed at the undamaged or lightly damaged areas where national survival might depend upon maintaining economic momentum and organized economic activity. This is a point that is often overlooked by those who, quite understandably, are preoccupied by the terrible problems that would confront us in the damaged

areas.

I should point out also that these plans are based on a general war—an “all out" nuclear exchange. However, we have examined the problems that would be generated by a limited exchange such as the one being examined by this Committee. We have concluded that the same plans would apply, the difference being one of magnitude. The plans would be easier to implement, since presumably a larger number of our normal operating facilities would survive, and problems of communication and control would be less difficult.

The Board and the Reserve Banks have organized themselves to meet the responsibilities outlined briefly above by establishing alternate headquarters and duplicate record storage sites in nontarget areas. In the Board's case, we have been able to combine these functions at a facility which also operates our vital communications system on a day-to-day basis.

Lists of officials and staff who would relocate to these sites when instructed to do so have been established and are kept current. Succession lists are maintained on a current basis. Delegations of authority which would be triggered by an attack have been made to Reserve Banks that might be out of communication with the Board.

The problem of insuring a currency supply is made difficult by the facts that the only production source of Federal Reserve notes is the Bureau of Engraving and Printing, here in Washington, and that almost all of the Reserve Banks and branches are in potential target areas. We have established an inventory of the various denominations of Federal Reserve notes at our facility at Culpeper, Virginia, to provide a cushion until the Bureau could get back into production.

Since we must assume that high speed equipment at normal operating facilities would not be available, plans for maintaining the check collection and currency distribution systems involve a high degree of decentralization. Check agent and cash agent banks, each serving a small geographic area, have agreed to perform these functions in an emergency for the Federal Reserve. Each agent bank has been furnished instructions and the necessary forms.

Most importantly, we have informed the banks and other financial institutions about these plans in detail by distributing to each copies of emergency regulations, operating circulars, and operating letters.

These plans and policies have been tested, to the extent that they can be, during national tests and exercises he'd over the past 20 years. In 1974, an interagency committee of the Federal financial agencies re-evaluated the postattack financial policies and recommended no changes.

However, the basic assumptions underlying these plans, particularly those relating to national survival and continuity of government, have not been revised since 1966. In that period the political and military situations have changed materially. For that reason, as we informed the Joint Committee in our last Annual Report, Chairman Burns has asked that these assumptions be reexamined.

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We understand that General Bray is chairing an interagency steering group which is engaged in such a study. In the meantime, we plan to maintain emergency preparedness programs at the Board and at the Reserve Banks at their present levels until we are advised differently by the Administration or by the Congress.

In conclusion Madam Chairwoman, you have asked about the need for such emergency preparedness plans. In my opinion the national emergency plans on the civil side of Government are a necessary complement to the defense efforts on the military side. As long as there are such emergency plans, and in this disturbed and unsettled world they seem to be a requirement, the plans and programs I have outlined for the Federal Reserve are a fundamental feature underlying all other plans since the others assume a functioning monetary system.

APPENDIX 5

MEMORANDUM FROM THE AMERICAN LAW DIVISION, CONGRESSIONAL RESEARCH SERVICE, LIBRARY OF CONGRESS, REGARDING REPEAL OF SECTION 5(b) OF THE TRADING WITH THE ENEMY ACT OF 1917, 12 U.S.C. 95a, 50 U.S.C. App. 5b, DATED JANUARY 24, 1977

This memorandum is submitted in response to your request concerning the above subject. Specifically, you have asked the following questions concerning the possible repeal of Section 5(b) of the Act:

1. What authorities are currently or potentially exercised
under 5(b), and thus possibly affected by a repeal?

2. Do other statutory bases exist for the exercise of any
of those authorities which could be used by the
Executive branch if 5(b) were repealed?

3. Is 5(b) in any respect necessary for the effectiveness
of the rest of the Act as a wartime trade control measure;
that is, if 5(b) were repealed, could the remainder of the
Act stand on its own?

How have the courts interpreted 5(b)?

We will respond to each of these questions in turn.

Authorities Currently or Potentially Exercised Under Section 5(b)

Section 5(b) of the Act currently provides the legal basis for

the following regulatory authorities:

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A. Office of Alien Property, Department of Justice 8 C.F.R.

501, 103-10. The regulations contained in these provisions govern the operations of the Office of Alien Property in the Department of There are rules relating to general procedure (Part 501);

claims procedure (Part 502); availability of records (Part 503);

vesting orders (Part 504); specific prohibitions against certain types of transactions (Part 505); patent, trademark, and copyright transactions (Part 507); and reports of royalties due and payable under vested

patent, copyright, or trademark interests (Part 510).

B. Monetary Offices, Department of the Treasury, 31 C.F.R. 120-128. These regulations contain President Roosevelt's bank holiday Proclamation No. 2039 of March 6, 1933, as well as associated Proclamations and Executive Orders (Part 120), emergency bank regulations (Part 121), and bank licensing authority (Part 122). Also included are Roosevelt's Executive Order No. 6560 of January 15, 1934 (Part 127) and implementing regulations (Part 128) concerning the regulation of transactions in foreign exchange, transfers of credit, and the export of coin and currency.

C. Office of Foreign Asset Control, Department of the Treasury, 31 C.F.R. 500-520. These provisions contain regulations controlling foreign asset transactions with China, North Korea, Cambodia, and Vietnam (Part 500); transactions involving the shipment of certain merchandise from any foreign country to designated foreign countries (Part 505); transactions involving Cuban assets (Part 515); and foreign funds (Part 520).