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W. P. G. HARDING, GOVERNOR
PAUL M. WARBURG, VICE GOVERNOR
EX·OF'F'ICIO MEMBERS
FREDERIC A. DELANO
ADOLPH C. MILLER
CHARLES S. HAMLIN
WILLIAM G. McADOO
SECRETARY OF THE TREASURY
CHAIRMAN
JOHN SKELTON WILLIAMS
COMPTROLLER OF THE CURRENCY
FEDERAL RESERVE BOARD
WASHINGTON
H. PARKER WILLIS, SECRETARY
SHERMAN P. ALLEN, ASST. SECRETARY
AND fiSCAL AGENT
ADDRESS RRPLY TO
FEDERAL RESERVE BOARD
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April, 2, 1918.
Dear Sir!
In connection with the authoricy of banks to accept drafts
against transactions involving tho export of goods, the attention of
the Board has been called to certain acceptance transactions, the contract or pledge against which reads as follJws:
We hold aga:i.nst export orders received through United
states Food Commission for the Allies, goods in excess of
.. one Hundred thousand dollars ($100,000.00) and shall continue to so hold in excess of this runount during the life
6f and for account of our drafts, #2753 to #2756 inclusive,
for "'''J'Ienty.-five thousand ·dollars($25,000.00) each, dated
March 18th, 1918, payable ninety days after sight, drawn upon
you, until same are fully paid.
11
·~re hereby undertake to pay into your hands one day
before the maturity of these drafts the amount required to
retire them."'
The question arises whether the bank is authorized to accept
these drafts.
(a) on the ground that it is a domestic transaction and is
secured at the time of acceptance by warehouse receipt or other
similar document conveying and securing title to the bank, or
:;
(b) on the ground that the drafts are drawn in a transaction
which involves the export of goods.
The opinion of counsel on this question, in which the_Board
concurs, is as follows:
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- 2
'!"
''It appears that certain dealers in staples who
have a large domestic business are under contract to export food to the allies. The question has arisen to Vlhat
extent and under what circumstances member banks may accept drafts or bills of exchange dra~m by such dealers.
· {1) Where the drafts are drawn in a domestic transaction, under section 13 they must be accompanied by shipping documents or the bank must be secured at the time
of acceptance by a warehouse receipt or other similar document conveying or securing title to the goods involved.
(2) V/he:re the draft grovts cn:t of a pa!""ticu1ar
trans'lction invol iring the expJrt of goods ·i~he regulations
- of the Board require that the bilJ. m1J.St have been drawn under a credit opener' for the purpose of conr'ucting or settling accounts resulting from such transaction.
In other words, it must appear that the bill is
drawn and the proceeds are used in connection with the export transaction.
The Federal reserve bank must be satisfied either by reference to the acceptance itself or otherwise that it is eligible for redisco~nt.
Satisfactory evidence of the eligibility may consist of a stamp or certificate affixed by the acceptor in form satisfactory to the
Federal reserve bank.
In the case under consideration it is assumed that
the dealer is engagect in the purchase of goods for export and is purchasing the same character and class of goods
for domestic use.
Some difficulty may be encountered,
therefore, in ascertaining whether the goods purchasec in
any particular transaction are to be used for export or for
domestic consumption.
You have asked that consideration be given to the
question of what evidence the accepting bank should require
if the acceptance grows out of a transaction involving the
export of goods' and what form this evidence should take.
It is respectfully suggested that where the dealer
desires to finance the purchase and sale of goods to be
exported his contract with the bank should provide (a) that
he has entered into a contract for the export of the goods
of a fixed amount; (b) that the total amount of drafts drawn
by him under the credit opened to finance the export of such
goods shall at no time exceed the aggregate amount of the
import or export transactions contracted for and in process of
execution; (c) that the proceeds of drafts drawn against the
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accepting bank under this credit are to be used in connection with the export contracts referred to, and that the
proceeds of the sale of the goods exported will be applied
in payment of the acceptances unless the dealer has in the
meantime placed the bank in funds to meet them at maturity
or has secured such acceptances by shipping documents, warehouse receipt or other similar document conveying and securing title to readily marketable staples.
Unless the dealer can ~d will assure the bank that
the proceeds of the credit are to be used in an export
transaction and that the proceeds cf the goods exported are
to be used to liquidate the accep·tances, the dealer should
be required t.o t.rcat the bills as d:-awn in domestic transactions and the b9.nk should require security provided by section 13."
Please convey this information to accepting banks in
your district.
very truly yours,
Governor.
@FedFRASER