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h~ ··-' ::( FEDERAL RESERVE BOARD WASHINGTON ADDRESS OFFICIAL CORRESPONDENCE TO THE FEDERAL RESERVE BOARD X-4776 January 19, 1927 SUBJECT: Eligibility for rediscount of notes of parent co~oration re:)resenting borrowb.gs of fu11ds to be advanced to subsidiaries. Dear Sir: In its circular letter of December ~0, 1925 (X-4484), the Federal Reserve Board ruled upon the eligibility for rediscount at a Federal reserve balik of notes of a parent corporation representing borrowings by the parent cor~oration of funds to be advanced to its own sibsidiaries. The substance of that ruli1~ may be stated as follows: "Where a parent corporation owns at least 75 :per cent of the stock of each of a number of subsidiary corporations the notes of such parent corporation the proceeds of which have been adv~~ced or loaned to its subsidiary corporations will not be considered finance paper within the meaning of the Eoardts reg~lations; provided that (1) the parent corporation makes no advances except to its own subsidiaries, (2) the subsidiaries borrow no money except from the parent corporation, and (3) the proceeds of such advances have been or are to be used by the subsidiary corporation for an industrial, commercial, or agricultural purpose, within the meaning of the Federal Reserve Act and the Board's reg~lations. It is understood, of course, that in order to be eligible for rediscount such paper must also comply in all other respects with the requirements of the law and the Board 1 s regulations." In accordance with a recommendation ~~de at the recent Governors 1 Conference, the Federal Reserve Board now revokes in toto the ruling contained in its letter of December 30, 1925 (X-4484) and rules in lieu thereof as follows: i"Tl1.ere the borro·~er is a parent corporation havi::lg a number of subsidiaries and the parent co~)oration and its subsidiaries are in practical effect one single organization, and may Tiith propriety be considered a single borro~er, the pa~er of such parent corporation, the proceeds of which have been used or are to be used. by the parent corporation or by the subsidiary corporations for an industrial, commercial or agricul- X-4776 -2tural purpose, '.vi thin tho mca11ing of tho Federal Reserve Act and the Board 1·s Rcgulatio:1s, may be considered eligible for rediscount if it co;T:>lies in all other respects with the provisions of the la'.7 o.:1d the Regulatio:1s of the Federal Reserve Board. Very truly yours, D. R. Crissinger, Governor. ro GOVEF.l~OF..S A!ID F. R. AG:slr.I'S AT .ALL F. R. J3Al1KS.
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