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Ex -Offic io m em b e rs A.W.^GI?HARDING. GOVERNOR PAUL M. WARBURG, VICE GOVERNOR FREDERIC A. DELANO ADOLPH C. MILLER CHARLES S. HAMLIN WILLIAM 6. MCADOO Secretary of the Treasury Chairman JOHN SKELTON WILLIAMS COMPTROLLER OF THE CURRENCY FEDERAL RESERVE BOARD W A S H IN G T O N H. PARKER WILLIS. SECRETARY SHERMAN P. ALLEN, ASST. SECRETARY AND FISCAL AGENT ADDRESS REPLY TO FEDERAL RESERVE BOARD December 1, 1917. Dear Sir: # On November 28, 1917, the Federal Reserve Board for warded to you the following telegram: "Board has been advised that promissory notes of member banks are subject to stamp tax Stop Legislation necessary to obtain exemption Stop Eligible commercial paper, how ever, may be rediscounted by member banks with Federal Re serve Banks without any additional stamps Stop If Federal Reserve Banks desire to do so they may resell such paper with customary rebate of unearned discount. ■ HARDING, Governor." In view of the fact that the stamp tax imposed by the War Revenue Act has been held to apply to the promissory notes oi member banks on which short time advances are made by Federal Re serve Banks under the provisions of Section 13 of the Federal Re serve Act, and in view of the fact that this tax practically pro hibits this form of short term borrowings by member banks at a time when such borrowings are most necessary as an incident to the successful loan operations of the Government, every proper effort will be made to secure an amendment effecting the requisite exemptir.::. Pending consideration of such an amendment by Congress, member banks may properly obtain short time advances from Federal Reserve Banks, by rediscounting eligible commercial paper, of longer maturities, under an agreement by which the reserve bank will resell and the member bank repurchase on whatever date may be agreed upon by both parties. the usual nanner. The unearned discount nay be rebated in ' It is suggested by the Board, however, that, in order, to ex pedite these rediscount operations and to simplify the bookkeeping inci dent to such operations so that they will be practicable during the rush .and pressure of the banks1 activities in connection with the payment of the next installment of the Liberty Loan subscriptions, Federal Reserve Banks may adjust the rebate of discount in advance. That is, instead of ' deducting interest for the full period of the note or bill when making the credit in favor of the member banks, the reserve bank may charge interest only for the period covered by the agreement, that is, from the date of rediscount to the date of repurchase. Or the reserve bank may, if it desires, credit the member bank with the full amount of the paper rediscounted at the time of making the rediscount and at the date . of repurchase charge the member bank with that amount plus the amount of discount earned up to the date of repurchase. It should also be understood that the Federal Reserve Banks may further aid the situation by purchasing, either from member or non member banks, notes or bonds of the United States under similar agree ments of resale. Respectfully, ' Governor. Federal Reserve Agent
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