frsbog_mim_v10_0012.pdf

7/17/2019 frsbog_mim_v10_0012.pdf

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E X - O F F I C I O M E M B E R S

SECRETARY O F T H E TREASURY

CHAIRMAN

HN SKELTON WILLIAM S

COMPTROLLER OF THE CURRENCY

W . P . G . HARDING. GOVERNOR

ALB ER T ST RAU SS. VICE GOVERNOR

ADOLPH C . MILLER

C H A R LES S . HAMLIN

FEDERAL RESERVE BOARD

W S H I N G T O N

J . A . BRODERICK. SECRETARY

L . C . ADELSON. ASSISTANT SECRETARY

W . T .

CHA PM AN. ASSISTANT SECRETARY

W . M . IMLAY, FISCAL ACENT

A D D R E S S R E P L Y

T O

F E D E R A L R E S E R V E B O A R D

January

6, 1919.

X--1350.

SUBJECT: REVISED REGULATIONS.

Bear

S i r :

I

inclose herewith

f o r

your confidential information

t en t a t i ve d ra f t of revised regul ati ons which t h e Board proposes

t o

issue

a t an

early date.

Before promulgating these regulations, however,

t h e

Board would be pleased t o have such comments and cr i t ic isms

regarding them

as you may

des i re

t o

make,

and

would suggest

t h a t

you

discuss them

with t h e

Governor

and

Counsel

f o r

your

bank.

Please

l e t u s

hear from

you a t

your ear l ies t

c o n -

venience.

Very truly yours,

Governor.

Inclosure.

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X-1350 a

Tentat ive Draf t of Regulat ions A, B and C, Series IS2.9,

which relate

t o

A.

Rediscounts

and

Advances under Section

13 ,

B. Opan-?v arkat Purchases of B i l l s of Exchange

and Acceptances.

C. Acceptance by Member Banks of Draf t s and Bi l l s

of

Exchange under Authority

of

Section

1 3 .

Tenta t ive r evi s ion

of

Regulat ion

F ,

Ser ies

1917 ,

which relates

t o t h e exerc i se of t rus t povers by nat ion al banks, h a s already been

forwarded t o counsel f o r Federal Reserve banks, with explanatory

rieecoranda prepared

by

Counsel

f o r t h e

Federal Reserve Board.

A

copy

of this memoranda and proposed regulation i s sent f o r your inforcat ion.

I t i s n o t contemplated that an y material changes wil l be cade i n

Regulat ions D, E, H, I and J, though they Tray be changed somewhat

i n f orm.

These regulat ions are no.v in the hands of the Board Members f o r

cons idera t ion , b u t have n o t y e t been considered by the Board.

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X-1350

a

D E F I N I T I O N S .

The

following terms which appear

i n t h e

Federal Reserve

Act, //hen

used

i n

these Regulations,

a r e

defined

by the

Federal Reserve Board

a s

follows:

ACCEPTANCES .

A negotiable draft or b i l l of exchange payable otherwise than a t

eight

or on

demand, which

has

been accepted without qualification

by

the d rawee.

AGRICULTURAL PURPOSES.

Shall include

the u se of th e

so i l

f o r

planting seed, raising

and

harvesting crops,

and the

rearing, feeding

and

management

of

live stock*

BANKERS' ACCEPTANCES,

A

draft

or

b i l l

of

exchange

of

which

t h e

acceptor

i s a

bank

or

trust

company,

o r a

firm, person

>

company,

ot

corporation engaged

i n t h e

business

of granting bankers* acceptance credits,

BILLS

OF

EXCHANGE.

An uncondi tional order in writing addressed by one person t o another,

signed

by the

person giving

i t ,

requiring

t h e

person

t o

whom

i t i s

addressed

to pay at a

fixed

or

determinable future time,

a sum

certain

i n

money

t o

order or t o bearer.

COMMODITY PAPER .

A

note, draft , bi ll

of

exchange,

or

trade acceptance accompanied

and secured by shipping documents or by a warehouse, terminal, or other

similar receipt covering approved

and

readily marketable, nonperishable

staples properly insured.

BILLS OF EXCHANGE DRAWN AGAINST

ACTUALLY EXISTING VALUES.

A b i l l of exchange discounted before acceptance n&y be treated as

drawn against actually existing value only when

i t i s

accompanied

by

shipping documents, warehouse receipts,

or

other similar documents

securing tit le

t o t h e

goods sold.

An

accepted b i l l

of

exchange

u n-

accompanied

by

shipping documents

or

other similar paper tray

be

considered

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(Definit ions)

X-1350

a

a s

drawn agains t ac tu al ly e xi st in g value

i f

drawn against

th e

drawee

a t

th e time of or within a reasonable time after th e shipment or delivery

of the

goods sold.

In

this latter case there must

be

reasonable grounds

t o believe that th e goods are in existence in the hands of the drawee either

in their original form or in the shape of the proceeds of their sale.

BORROWER

A

person, firm,

or

corporation

who

receive* from

a

member bank either

in cash or by credit on the books of the member bank th e funds or proceeds

resulting from

the

negotiation

of a

note, draft, b il l

of

exchange, Unless

th e b i l l of exchange discounted or sold to the member bank i s a b i l l of

exchange drawn aga ins t actua lly ex is ti ng value a s defined i n these

Regulations.

DRAFTS.

See Bil ls of Exchange .

GOODS,

Shall

be

construed

t o

include goods, wares, merchandise

or

agricultural

products, inclu ding l i ve stock*

INDUSTRIAL.

Shall be construed a s relating t o manufacture or to the product of

industrial labor.

1

ISSUED OR DRATO.

A note nay be said to be issued or a draft or b i l l of exchange t o

be drawn when i t has been executed by the primary obligor and delivered

to the obligee as an evidence of indebtedness. If the indebtedness arises

out of an

agricultu ral, industrial

or

commercial transaction

i t may be

said to be issued or drawn for one of these purposes.

MUNICIPALITY .

Shall be construed t o mean Sta te, county, di st ri ct ^ p o l i t i c a l

subdivision,

or

municipality

in the

contine ntal United St at es , including

irrigation, drainage

and

reclamation districts.

NET FUNDED INDEBTEDNESS.

See Regulation - p

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(Psf in i t i . l is)

- 3 - X-1350 a

PROMISSORY NOTES.

An unco ndit iona l promise in writing, signed by the irakcr, to pay,

i n t h e United States, a t a fixed o r determinable future time, a sum

c e r t a i n in do l l a r s t o order or t o bearer.

PROCEEDS OF NOTESJ DRAFTS .OR

BILLS OF EXCHANGE.

Shall

be

held

t o

include

t h e

proceeds

o r

funds received either

in

cash or by c red i t on account a s a r e su l t of the f i r s t o r or iginal

negot ia t ion by the owner of the no te , d ra f t , o r b i l l of exchange, after

i t s

execution

an d

del ivery

as an

evidence

of

indebtedness

by the

person

primarily l iable thereon.

SAVINGS ACCOUNTS .

See Regulation -* p •

TIME CERTIFICATE OF DEPOSIT .

See

Regulation

- p

TD-'E DEPOSITS - OPEN ACCOUNTS.

See Regulation - p

TRADE ACCEPTANCES

,

A b i l l of exchange drawn by the s e l l e r on the purchase of goods

sold an d accepted by th e purchaser.

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X-1350 a

REGULATION

A,*

REDISCOUNTS AND ADVANCES UNDER SECTI08 1 3 .

S t * t # o r T f g g u ^ r ^ q t ? ,

Form.

An instrument to be e l ig ib le f o r rediscount under Section 13 suet

be in the form of a note, or of a draft , or b i l l of exchange, before

or after acceptance.

I f e tu r^y -

Such no tes, draf ts

o r

b i l l s

of

exchange trust nature within ninety

days fro& date of rediscount, unless they a re issued or drawn f o r

agricultural purposes

o r a t e

based

on

li ve stock,

in

which case they

mist nature within

s i x

months from date

of

rediscount.

Endorsement.

Notes, drafts, bills

of

exchange

and

acceptances rediscounted under

this section, must bear th e endorsement of at leas t one member bank,

except that drafts accepted by member banks .to furnish dollar exchange

need not be endorsed unless th e regulations of the Board s o provide.

Character of

' - -

Notes. Drafts and B i l l s of Exchange

Eligible f o r Rediscount.

A note, draf t or b i l l of exchange to be e l i g i b l e f o r rediscount

under this section

(a ) Must have been issued o r drawn for an agricultural,

industrial

or

commercial purpose.

(t>) Its

proceeds must have been used

for one of

such purpose*;

or

( c ) I t

must have been issued

or

drawn

f o r t h e

purpose

of

carrying

o r trading i n bonds and notes of the Government of the

United States.

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-2*-

X-135C

a

(A)

I t

must

n o t

have been issued

o r

drawn

f o r t h e

purpose

of

carrying o r t rading i n stocks, bonds o r other investment

securities except bonds

and

notes

of the

Government

of

t h e

United States

and

trust

n o t

cover merely investments.

Character

of.

iember Bank Acceptances

El ig ib le

f o r

jMlscc imt .

Any

d r a f t

or

b i l l

of

exchange drawn

(a ) in a

domestic transaction,

(b) in a transaction involving t h e importation o r exportation ox goods,

or (c ) to

furnish dollar exchange, which

i s

legally accepted

by a

member

bank,

i s

e l i g i b l e

f o r

rediscount with

a

Federal Reserve Bank.

Limitations

on

Amount of Motes. Drafts, and Bi l l s of Exchange

that rrav

be

rediscounted.

There

is no

l im i t a t i on

on the

aggregate amount

of

notes , draf ts

and

b i l l s

of

exchange that

may be

rediscounted

for any one

:.ank,

bu t t he

note?,

d r a f t s

o r

b i l l s

of

exchange

(

except "bil ls

of

exci^nge drawn against

actually exist ing value'))bearing th e signature o r endorsement of any one

borrower rediscounted

for any one

bank trust

in no

case exceed

in the

aggregate,

a n

amount equal

t o t e n pe r

cent,

of the

capi ta l

and

surplus

of the

member bank.

Regulations.

Form.

The

term "notes, drafts

and

b i l l s

of

exchange"

i s

held

t o

include

commodity paper and trade acceptances a s def ined in these regulat ions.

^ 11

instruments rediscounted

by any

Federal Reserve bank must

be in

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19

- 3 ~ X-I350 a

(A)

negotiable form, must have

a

d e f i n i t e

an d

fixed maturity, ( that

i s ,

trust

not be payable a t s ight or on demand) an d trust conform i n

ll

respects

t o t h e statutory requirements of Section 13 as enumerated an d defined

in these regulat ions.

Applications f o r Rediscount.

A l l

appl ica t ions

fo.-

rediscount must contain

a

c e r t i f i c a t e

of an

execut ive off icer of the cemcer bar.K to the

effe t

that t o t h e best of

h i s knowledge, information o r belief, ,

the

instruments offered f o r r e -

discount conform

t o t h e

requirements

of the

S ta tu te

and to the

regulations

of the Board.

Evidence of E l i g i b i l i t y .

In

addi t ion

t o

c e r t i f i c a t e

of

e l i g i b i l i t y f i l ed w ith

o r a s

part

of the appl ica t ion f o r rediscount, each r: ember bank when so required,

must furnish t o t h e Federal Reserve bank satisfactory evidence of

e l i g i b i l i t y of any no te , d ra f t or b i l l of exchange offered f o r rediscount.

To t h i s end i t should require i t s customers, either by notat ion on the

ins t rument i t se l f , or by co l la t e ra l s ta tements , t o show f o r what purpose

t h e

instrument

was

"issued

o r

drawn"

o r f o r

what purpose

i t s

"proceeds

were used".

Where t h e customer i s engaged in an ag r i cu l t u r a l , i ndus t r i a l o r

commercial business,

a

financial statement

of

such customer showing

an

excess of qu ick asse t s over cur ren t l i ab i l i t i es may be accepted a s evidence

of the fact that t h e proceeds of the instrument negotiated were used f o r

such purposes. Unless such instrument

was

"issued

o r

drawn"

a s

defined

in these regulat ions f o r a n a g r i c u l t u r a l , i n d u s t r i a l o r commercial

purpose, i t s e l i g i b i l i t y s h a l l be determined by th e use made of i t s p r o -

repriq"

«.<?

herein def i ned .

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X-1350 a

Advances t o Member Banks,. ^

Form.-

Loans

o r

advances tray

be

trade

by

Fede ral re se rve banks

t o

member

banks

on the

promissory notes

of the

member bank,

Maturity,

Such notes trust mature within fifteen days.

Collateral Security Esquired.

They trust

be

secured either

h>

notes , dr af t s , b i l l s

of

exchange

or

acceptances eligible

f o r

rediscount under Section

13, by

b i l l s

of

exchange

o r

bankers acceptances eligible

f o r

purchase under Section

14,

or by bonds o r notes of the United States.

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X-1350 a

REGULATION

B.

OPEN MARKET PURCHASES OF BILLS OF EXCHANGE

AND ACCEPTANCES.

Statutory Requirements.

Form.

Negotiable instruments purchased under authority of Sect ion 14 of

t h e Federal Reserve Act ray. be in the form, of b i l l s of exchange o r

acceptances

b u t

canr.ov.

bu in the

form

of

prcrru^sory r.otos.

Maturity.

The

matur i ty

of

b i l l s

of

exchange

or

acc ept anc es purchased should

conform

t o t h s

requirements

of

Regulation

A,

Endorsement.

Such bills

of

exchange

o r

acceptances

may be

purchased with

o r

without t h e endorsement of a member bank,

Character of

B i l l s

of

Exchange

and

Acceptances

E l i g i b l e f o r Purchase.

B i l l s

of

exchange

and

acceptances including drafts drawn against

an d accepted by member banks, may be purchased i n t h e open market if they

conform in a l l respec ts t o t h e requirements of Section 13 and of

Regulation A,

Drafts drawn against

and

accepted

by

non-member banks

o r

bankers

nay l ikewise be purchased under authority of t h i s Section i f they meet

t h e requirements of a banker 's acceptance a s def ined i n these regula t ions .

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X-1350

a

REGULATION C.

ACCEPT

AHCE BY

MEMBER BANKS

OF

DRAFTS

AND

BILLS

OF EXCHANGE

Statutory Authority.

National banks ( and other member banks l<cated i n S ta tes , th e laws af

which expres sly con fe r upon them a l l t h e powers and p r iv i leges of amber

banks) a r e authorised t o accept drafts and b i l l s of exchange

( a ) Which grew cut of transactions involving, th e importation

or

exportation

cf

goods,

(b ) Which grew out of transactions involving th e domestic

shipment of goods;

(c)i;Which

a r e

secured

a t the

time

of

acceptance

by

warehouse

receip t o r other such document, conveying o r securing

t i t l e t o readily marketable staples;

(d )

Which

a r e

drawn under re gul at ion s pre scri bed

by the

Federal

Reserve Board by banks o r bankers in foreign countries,

dependencies

o r

insular possessions

cf the

United States,

f o r t h e purpose of fu rni sh ing do ll ar exchange*

Member banks , ot he r than t hese above menticned

may

accept dr af ts

and

b i l l s cf exchange t o t he extent permitted by th e laws of the State under

which they

a r e

organized.

F or convenience, drafts or bi l ls described i n paragraph ( a ) w i l l be

refer red

to as

foreign bills; those described

in (b) and (c)

w i l l

be

r e fe r red to as domestic b i l ls , and those described i n (d ) w i l l be referred

t o a s

dollar exchange drafts.

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X-1350

a ,

;><A

- 2 - ( C)

»

Limitat ions

on

Aggregate Amount

of

Draf t s

and

B i l l s

of

Exchange that tray

be

Accepted,

The aggregate of domestic and foreign bil ls accepted by any member

bank trust

n o t

exceed

an

amount equal

t o

f i f t y

p e r

cent ,

of the

capi tal

and surplus of the accepting bank unless t h e consent of the Federal

Reserve Board t c accept a larger amount h a s first been obtained. With the

consent

o t the

Federal Reserve Board,

th e

member bank

may

accept dr af ts

of the character described tc an amount wh.rch dees n e t exceed one hu n-

dred

p e r

cent ,

of the

capi ta l

and

surplus

of the

accepting bank

bu t the

amount of domestic bills accepted mast in nc ease exceed f i f t y p e r cent.

of the cap i t a l and surplus.

In addi t ion t o t h e foregoing, a member bank may accept do ll ar

exchange drafts to an amount -which does n o t exceed fif ty p e r cent , cf i t s

cap i t a l

and

surplus .

Limitations on Amount that may be accepted f o r

any one person, company, firm or corporat ion.

No

member bank

i s

permitted

t o

accept

for any one

person, company,

firm o r corporation, either domestic or fore ign b i l l s in an amount equal

t o more than t e n p e r cent , o f i t s cap i t a l and surplus , unless t h e bank

i s

secured

by

attached documents

or by

some other actual security growing

out of the same transaction as t h e acceptance. Even though thus secured

nc member bank i s permitted t o a c c e p t ^ , f o r t h e same person, company,

f i rm

o r

corporat ion,

in an

amount

i n

excess

cf

f i f t y

p e r

cent ,

of i t s

cap i t a l and surplus .

No member bank i s permitted t o accept dollar exchange drafts f o r

any one bank in an amount exceeding t e n p e r cent , o f i t s cap i t a l and

surplus .

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X-1350 a (C)

< v Regulat ions.

Drafts Drawn

i n

Transactions Involving

t h e

Importat ion

o r Expor tat ion of goods.

Where a member bank accepts drafts drawn in t r ansac t ions involving t h e

importat ion o r expor ta t ion of gccds, i t must have on f i l e a n agreement o r

guarantee frctr.

t h e

customer t

o r

whom

t h e

d r a f t s

a r e

accepte d, con taining

provis ions

t o t h e

fol lowing ef fect

( a ) That such customer has an agreement that necessari ly involves t h e

e x p o r t a t i . n o r importat ion of the goods and t h a t t h e proceeds

of the sa le cf the acceptance wil l be used i n a t r ansac t ion

directly connected with such importation o r expor ta t ion .

( b )

That

t h e

proceeds

of the

sa le

cf the

goods imported

o r

exported

w i l l

be

used

to pay the

acceptance

a t

matur i ty

or to pay a

renewal thereof within s i x months frctr t h e da te o f the or iginal

acceptance.

'Drafts Drawn

i n

Domestic Transa.nt.-iowa.

A

member bank a cce pt in g

a

draft drawn

i n a

domestic transaction mist

be secured a t t h e time of acceptance by shipping documents or by warehouse

rece ip t o r other similar document, conveying o r secur ing t o t h e bank t i t le

t o

rea di ly marketable s t ap le s .

I f the

draf t s accepted

f o r o n e

customer exceed

i n amount t e n p e r cent , cf the c a p i t a l and surplus of the accepting bank,

t h e securi ty must not be released during t h e l i f e of the drafts . Where t h e

aggregate cf the d r a f t s i s less than t e n p e r cent , t h e accepting bank nay

r e lease t h e securi ty upon t h e execution by the customer of a t r us t r ece ip t

t h e r e f o r o r cf an agreement that there will be deposi ted wi th t h e bank so

much of the proceeds of the s a l e of the goods represented by the secur i ty

as may be

necessary

to pay the

d r a f t

a t

matur i ty.

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- 4 - X-1350

a

1 *

(C)

A

% is

agreement imst

be

entered into with

th e

customer

f o r

whom

th e

draft

i s accepted and to whom the security i s released whether or not such

customer's name appears on the draft as drawer or endorser^.

Where the Federal Reserve Board has by general or special ruling

determined that th e usage of trade in any foreign country or in any dependency

or

insular possession

of the

United States, makes

i t

necessary

or

advisable

f or banks or bankers located therein to draw drafts on member banks of the

Jbderal Reserve System t o furnish dollar exchange, any member bank, so long

as such ruling is in force, may accept such dr af ts subject tc the limitations

and requirements of t hi s regu lat ion . Upon app licat ion of any member bank a

l i s t w i l l be furnished of the countries, dependencies or insular possessions

from which such drafts may be drawn.

Drafts Drawn

t o

Furnish Dollar Exchange.

Documents

frsbog_mim_v10_0012.pdf