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S e c . 11 (m) FRA-2 INTERPRETATION OF L W OR REGULATION A (Copies t o be s e n t t o a l l F e d e r a l Reserve banks) March 2 0 , 1939. Mr. , Vice President, Federal Reserve Bank o f . Dear Mr. : R e f e r e n c e i s made t o your l e t t e r of March 3 , 1939, w i t h r e s p e c t t o s e c t i o n 11(m) o f t h e Federal Reserve A c t , which p r o v i d e s i n part as f o l l o w s : " . made by made by c e s s of surplus . . l o a n s secured by member banks . . . , any such bank t o any 10 per centum of t h e o f such bank . . . " s t o c k or bond c o l l a t e r a l but no such l o a n s h a l l be person i n an amount i n e x unimpaired c a p i t a l and Although o t h e r p r o v i s i o n s of s e c t i o n 11(m) a u t h o r i z e t h e Board o f Governors to p l a c e c e r t a i n l i m i t a t i o n s on the a g g r e g a t e amount o f member banks' l o a n s secured by s t o c k or bond c o l l a t e r a l , a c t i o n by t h e Board t o impose such an a g g r e g a t e l i m i t a t i o n i s n o t a p r e r e q u i s i t e t o t h e o p e r a t i o n o f the 10 per c e n t l i m i t a t i o h quoted above. I t i s a s e t t l e d p r i n c i p l e o f the law a p p l i c a b l e to p a r t n e r s h i p s t h a t each g e n e r a l p a r t n e r i s i n d i v i d u a l l y l i a b l e f o r the d e b t s o f the p a r t n e r s h i p . A c c o r d i n g l y , the Board a g r e e s w i t h t h e view e x p r e s s e d by c o u n s e l t o your bank t h a t , i f a person i s a g e n e r a l partner i n an u n l i m i t e d p a r t n e r s h i p and a S t a t e member bank a l r e a d y has o u t s t a n d i n g t o the p a r t n e r s h i p l o a n s on s t o c k or bond c o l l a t e r a l i n an amount equal t o 10 per c e n t o f t h e b a n k ' s unimp a i r e d c a p i t a l and s u r p l u s , t h e quoted p r o v i s i o n f o r b i d s t h e bank t o make any a d d i t i o n a l l o a n on such c o l l a t e r a l t o one of t h e g e n eral partners. I t i s assumed, of c o u r s e , t h a t t h e l o a n s a r e n o t s e c u r e d by Government o b l i g a t i o n s and hence do n o t g e t t h e b e n e f i t o f t h e 25 per c e n t s p e c i a l l o a n l i m i t s p e c i f i e d i n s e c t i o n l l ( m ) f o r l o a n s on such s e c u r i t i e s . Very t r u l y y o u r s , (Signed) L. P. Bethea L. P. Bethea, Assistant Secretary.
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