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FEDERAL RESERVE BOARD
WASHINGTON
August 2, 1922
CONFIDENTIAL
SUBJECT:
Spacial Rates on Commodity Paper •
.
Dear Sir:
It has been proposed that the Board revive tha special
rates on commodity pa~J?Br 'illhich were first esto.blished during the
year 1915.
Before taking action, however, the Board is desirous
of obtaining the opinion of the officers anti executive committees
of all Federal Reserve Bonks as to the advisability of reestablishing special rates on commodity paper. There is enclosed herewith
a tentative draft of a lettar which it is proposed to send to all
Federal Reserve Banks in case the Board should decide to authorize
special rates on commodity paper; and your comments, criticisms
and suggestions are invited.
You are requested also to advise
the Board whether your bank would feel disposed to establish a
special rate on this class of paper and, if it should, whether in
your opinion your member banks generally would be inclined to avail
themselves of it.
Very truly yours,
Go v e r n o r.
{Enclosure)
TO ALL FEDERAL RESERVE AGENTS
COPIES TO GOVERNORS.
•
•
CONFIDENTIAL TENTATIVE DRAFT.
SUBJECT: Revival of Special Rates on Commodity Papsr •
•
Dear Sir:
Prior to 1913 there were in effect at some of the Federal
Reserve Banks special rates on so-called commodity paper.
VII of
Reg~lation
Section
A, Series of 1917, and earlier regulations, de-
finei commodity paper and prescribed
t~e
conditions under which such
paper would be eligible for rediscount by Federal Reserve Banks.
All such special rates
w~re
suspended during November and December
1917 and the regulations issued since ti1at time have not contained
any special provisions regarding commodity paper.
The Board
r~s
considered the matter and
decided that
r~s
it will, at the request of any Federal R6serve Bank 1 approve the
establishment by the applying bank of a special rat:.: of not less than
3~%
on commodity paper on n1icn
th~
rate of
inter~st
or discount -
including comnission - charged the borrower does ::1ot exceEJd,.
6%
per
annum.
The Board's definition of corr.modity
pap~r,
and the conditions
of eligibility applicable to such paper are as follows:
D0finition.- Commodity paper is dclfined as a note,
draft 1 bill of exchm1gs, or trade acc0ptancJ accompanied
and secured by shipping doc<unents or by a warehouse, terminal, or oth.;r similar rcc:Jipt covering approved and
readily marketabla, nonp8risnabl3 staples proparly insured.
. "'
'
-2Eligibili ty.-To be .;ligibla for rediscount at the
special rat~s, authorizad to b0 establis~ed for commodity paper, sue~ a note, draft, bill of exchange, or
trade acceptance must also comply with the respective
sections of this Regulation A, Series of 1922, applicable to it, must co-nform to t}le roq,uirements of the
Federal Reserve Bank relating to shipping documants,
receipts, insur&1.C0 1 etc., and must be a note, draft,
bill of excha:<$c, or trade acceptanc0 on whic~'l the
rate of interest or discount - including comnission charged the borrower, does not exce0d 6 per cent per
annum. Paper vJ::ich is issued or drawn, or the proceeds of which ~~va besn or ar0 to be used, for the
speculative holding of commodities, as distinguished
from the carrying of commoditi~s pending the orderly
marketing thereof, is not· e ligibla for rediscount.•
~~e
foregoing dafinition and conditions of eligibility
ara substAntially
t.:.ta sruns .::t.s
Regulation A, Series of lS17.
to this letter it should
t:1oso prescribad in the Board's former
In approving any special rate pursuant
b~ ~~derstood
reserves the rigat, whicn it alwnys
that the Federal Reserve Board
res~rved
when it approved similar
rates in the past, to suspend auc::1 rat:::: •V.1enever such a course seems
desirable.
Vory truly yours,
G o v e r n o r.
@FedFRASER