The Federal Reserve Act and amendments also broadened the powers of national banks, so as to put them more nearly on the same plane of competition with the state banks. Some of these acquired powers are:

1. To Act as Insurance Agent. Any national bank in a town or city with a population of less than 5,000 may act as agent for an insurance company authorized to do business within the state. In this capacity the bank may solicit and sell insurance and collect premiums on policies issued by such company, and receive therefor such lawful fees as may be agreed upon. The bank is prohibited from assuming or guaranteeing the payment of any premiums on policies so issued, or from guaranteeing the truth of any statement made by an insured person in filing his application for insurance. These powers must be exercised under the regulations made by the Comptroller of the Currency.

2. To Act as Real Estate Loan Broker. National banks located in places with a population not exceeding 5,000 may act as broker or agent in making or procuring loans on real estate and may receive reasonable fees or commission for such services. The real estate must be located within 100 miles of the place in which the negotiating bank is located. The bank must make the loans subject to the regulations of the Comptroller of the Currency and cannot guarantee either their principal or interest.

3. To Act as Trustee and Fiscal Agent. The Federal Reserve Board is authorized to grant by special permits to national banks applying therefor, when not in contravention of state or local law, the right to act as trustee, executor, administrator, or registrar of stocks and bonds, under rules and regulations prescribed by the board. This law gave national banks the power to compete with trust companies which do commercial banking. The law of some states definitely prohibited national banks from doing trust business, others clearly permitted it, while still others had doubtful laws on the subject. After the passage of the federal statute some states of the first group passed laws enabling national banks to engage in trust business; in others the efforts at similar legislation failed. In some states the trust companies became very hostile and contested in court whether the trust clause - Section 11 (k) -of the act is constitutional, and whether the exercise of such powers in that state was in contravention of the state law. Test cases were carried to the Supreme Court from Michigan, and the constitutionality of the law was upheld (Fellows v. First National Bank, June 11, 1917). The board does not grant such power unless it is plainly within the law of the state, and unless it appears that the granting of the power is to the best interests of the applying bank.

The trust company section of the American Bankers' Association, as well as other interested parties, felt that trust funds of national banks should be segregated from their commercial funds and the two businesses handled separately, as is required by law in most states; otherwise, instead of Section II (k) simply putting national banks on the same competitive basis with state banks and trust companies, the advantage would be with the national banks. On September 26, 1918, the so-called Phelan Bill became law, and among its various sections is one amending Section 11 (k) of the Federal Reserve Act, to the following effect:

That the Federal Reserve Board has power to grant by special permit to national banks applying therefor, when not in contravention of state or local law, the right to act in any fiduciary capacity in which state banks, trust companies, or other corporations which come into competition with national banks are permitted to act under the laws of the state in which the national bank is located.

Whenever the laws of such state authorize or permit the exercise of any of these powers by its institutions which compete with national banks, the granting to and the exercise of such powers by national banks shall not be deemed to be in contravention of state or local law within the meaning of this act.

National banks exercising any of these fiduciary powers must segregate all assets held in any fiduciary capacity from its general assets and keep a separate set of books and records for these transactions, which books and records must be open to inspection by the state authorities to the same extent as the books and records of those operating under state law. This amendment does not authorize state authorities to examine the books, records, and assets of the national bank when such assets are not thus held in trust.

No national bank may receive in its trust department deposits of current funds, subject to check, or the deposit of checks, drafts, bills of exchange, or other items for collection or exchange purposes. Funds deposited or held in trust by the bank awaiting investment must be carried in a separate account and not be used by the bank in the conduct of its business, unless it first sets aside in the trust department United States bonds or other securities approved by the Federal Reserve Board.

In the event of the failure of such bank the owners of the funds held in trust for investment shall have a lien on the bonds or other securities so set apart, in addition to their claim against the estate of the bank.

Whenever the laws of the state require corporations acting in a fiduciary capacity to deposit securities with the state authorities for the protection of private or court trusts, national banks so acting shall be required to make similar deposits, and the securities so deposited shall be held for those purposes, as provided by the state law.

National banks in such cases shall not be required to execute the bond usually required of individuals, if state corporations under similar circumstances are exempt from this requirement.

National banks are authorized to execute such bond when so required by the laws of the state.

In case the laws of the state require a corporation acting in a fiduciary capacity to take an oath or make an affidavit, the president, vice-president, cashier, or trust officer of such national bank may take the necessary oath or execute the necessary affidavit.

It is unlawful under penalty for any national bank to lend any officer, director, or employee, any funds held in trust under powers conferred by this act.

In passing upon applications for permission to exercise the above powers, the Federal Reserve Board may take into consideration the amount of capital and surplus of the applying bank, whether or not such capital and surplus is sufficient under the circumstances of the case, the needs of the community to be served and any other circumstances that seem to it proper, and may grant or refuse the application accordingly. No permit shall be issued to a bank having a capital and surplus less than the capital and surplus required by the state law of state banks, trust companies, and corporations exercising such powers.

It will be observed that the purpose of this law is to put national and state banks on the same competitive basis and hedge them about with the same safeguards.

4. To Handle Savings Deposits. The act distinguished between demand and time deposits, and fixed the required reserve against the latter at a very low rate. It is now 3 per cent. Heretofore it had been quite impossible for a national bank to handle savings accounts except through an affiliated savings bank organized under state law.

5. To Lend on Real Estate Security. State banks had enjoyed a competitive advantage in their powers to loan on real estate security; as a result they flourished in agricultural regions where national banks could not. This inequality was reduced by the act, which permitted national banks not situated in central reserve cities to make loans on improved and unencumbered farm land situated in its federal reserve district or within 100 miles from the bank, irrespective of district lines, and to make loans on improved and unencumbered real estate within 100 miles of the bank, irrespective of district lines. No loan may be for a longer time than five years, and no loan on real estate as distinguished from farm land may be for more than one year. No loan may exceed 50 per cent of the actual value of the property offered as security. The total of the loans of this character may not exceed 25 per cent of the bank's capital and surplus, or 33 1/3 Per cent of its time deposits. The board is empowered to name, from time to time, other cities besides central reserve cities in which such loans may not be made.

By entering into the trust, savings, and real estate loan business the commercial banks tended to reduce the liquidity of their assets; compensation for this, however, is realized in the higher liquidity of their other assets through rediscounts with and loans from the federal reserve banks.

The national banks were given power to accept bills drawn upon them under certain conditions, to establish foreign branches, and to do other things denied them heretofore. But since such powers were not much used by state banks, if they had them, the legislation was not occasioned by a desire to equalize the conditions of competition.