The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
W . P . G . H A R D I N G . GOVERNOR A L B E R T S T R A U S S . VICE GOVERNOR EX-OFFICIO MEMBERS ADOLPH C. MILLER CHARLES S. HAMLIN CARTER GLASS SECRETARY OF THE TREASURY CHAIRMAN J O H N SKELTON WILLIAMS COMPTROLLER OF THE CURRENCY FEDERAL RESERVE BOARD WASHINGTON J . A. B R O D E R I C K . SECRETARY L . C . A D E L S O N . ASSISTANT SECRETARY W . T . C H A P M A N . ASSISTANT SECRETARY W . M. I M L A Y , FISCAL ACENT ADDRESS REPLY TO FEDERAL January 6, 1919. X--1350. SUBJECT: REVISED REGULATIONS. Bear S i r : I i n c l o s e herewith f o r your c o n f i d e n t i a l information t e n t a t i v e d r a f t of revised r e g u l a t i o n s which the Board proposes to i s s u e a t an early d a t e . Before promulgating these r e g u l a t i o n s , however, t h e Board would be pleased to have such comments and c r i t i c i s m s regarding them as you may d e s i r e t o make, and would suggest t h a t you d i s c u s s them with the Governor and Counsel f o r your bank. Please l e t us hear from you a t your e a r l i e s t convenience. Very t r u l y yours, Governor. Inclosure. RESERVE BOARD X-1350 a T e n t a t i v e D r a f t of Regulations A, B and C, S e r i e s IS2.9, which r e l a t e t o A. Rediscounts and Advances under Section 13, B. Opan-?v!arkat Purchases of B i l l s of Exchange and Acceptances. C. Acceptance by Member Banks of D r a f t s and B i l l s of Exchange under Authority of Section 13. T e n t a t i v e r e v i s i o n of Regulation F, S e r i e s 1917, which r e l a t e s t o t h e e x e r c i s e of t r u s t povers by n a t i o n a l banks, has a l r e a d y been forwarded t o counsel f o r Federal Reserve banks, w i t h e x p l a n a t o r y rieecoranda prepared by Counsel f o r t h e Federal Reserve Board. A copy of t h i s memoranda and proposed r e g u l a t i o n i s sent f o r your i n f o r c a t i o n . I t i s not contemplated t h a t any m a t e r i a l changes w i l l be cade in Regulations D, E, H, I and J , though they Tray be changed somewhat i n f orm. These r e g u l a t i o n s a r e no.v in the hands of the Board Members f o r c o n s i d e r a t i o n , but have not yet been considered by t h e Board. X-1350 a DEFINITIONS. The following terms which appear in the Federal Reserve Act, //hen used in these Regulations, are defined by the Federal Reserve Board as follows: ACCEPTANCES . A negotiable draft or b i l l of exchange payable otherwise than at eight or on demand, which has been accepted without q u a l i f i c a t i o n by the d rawee. AGRICULTURAL PURPOSES. Shall include the use of the s o i l for planting seed, r a i s i n g and harvesting crops, and the rearing, feeding and management of l i v e stock* BANKERS' ACCEPTANCES, A draft or b i l l of exchange of which the acceptor i s a bank or trust company, or a firm, person > company, ot corporation engaged in the business of granting bankers* acceptance c r e d i t s , BILLS OF EXCHANGE. An unconditional order in writing addressed by one person to another, signed by the person giving i t , requiring the person t o whom i t i s addressed t o pay at a fixed or determinable future time, a sum certain in money to order or t o bearer. COMMODITY PAPER . A note, d r a f t , b i l l of exchange, or trade acceptance accompanied and secured by shipping documents or by a warehouse, terminal, or other similar receipt covering approved and readily marketable, nonperishable staples properly insured. BILLS OF EXCHANGE DRAWN AGAINST ACTUALLY EXISTING VALUES. A b i l l of exchange discounted before acceptance n&y be treated as drawn against a c t u a l l y e x i s t i n g value only when i t i s accompanied by shipping documents, warehouse r e c e i p t s , or other similar documents securing t i t l e to the goods sold. An accepted b i l l of exchange unaccompanied by shipping documents or other similar paper tray be considered X-1350 a (Definitions) as drawn against a c t u a l l y e x i s t i n g value if drawn against the drawee at the time of or within a reasonable time a f t e r the shipment or delivery of the goods sold. In t h i s l a t t e r case there must be reasonable grounds to believe that the goods are in existence in the hands of the drawee either in t h e i r original form or in the shape of the proceeds of t h e i r sale. BORROWER. A person, firm, or corporation who receive* from a member bank either in cash or by credit on the books of the member bank the funds or proceeds resulting from the negotiation of a note, draft, b i l l of exchange, Unless the b i l l of exchange discounted or sold to the member bank i s a b i l l of exchange drawn against actually e x i s t i n g value as defined in these Regulations. DRAFTS. See "Bills of Exchange". GOODS, Shall be construed to include goods, wares, merchandise or agricultural products, including l i v e stock* INDUSTRIAL. Shall be construed as relating to manufacture or t o the product of industrial l a b o r . 1 ISSUED OR DRATO. A note nay be said t o be issued or a draft or b i l l of exchange t o be drawn when i t has been executed by the primary obligor and delivered to the obligee as an evidence of indebtedness. If the indebtedness arises out of an agricultural, industrial or commercial transaction i t may be said to be issued or drawn for one of these purposes. MUNICIPALITY . Shall be construed to mean State, county, d i s t r i c t ^ p o l i t i c a l subdivision, or municipality in the continental United S t a t e s , including i r r i g a t i o n , drainage and reclamation d i s t r i c t s . NET FUNDED INDEBTEDNESS. See Regulation - p -3- (Psf in i t i .lis) X-1350 a PROMISSORY NOTES. An unconditional promise in w r i t i n g , signed by the irakcr, t o pay, in the United S t a t e s , at a fixed or determinable f u t u r e time, a sum c e r t a i n in d o l l a r s t o order or to bearer. PROCEEDS OF NOTESJ DRAFTS .OR BILLS OF EXCHANGE. Shall be held t o include the proceeds or funds received e i t h e r in cash or by c r e d i t on account as a r e s u l t of the f i r s t or o r i g i n a l n e g o t i a t i o n by the owner of the note, d r a f t , or b i l l of exchange, a f t e r i t s execution and d e l i v e r y as an evidence of indebtedness by the person primarily l i a b l e thereon. SAVINGS ACCOUNTS . See Regulation -* p • TIME CERTIFICATE OF DEPOSIT . See Regulation - p TD-'E DEPOSITS - OPEN ACCOUNTS. See Regulation - p TRADE ACCEPTANCES , A b i l l of exchange drawn by the s e l l e r on the purchase of goods sold and accepted by t h e purchaser. X-1350 a REGULATION A,* REDISCOUNTS AND ADVANCES UNDER SECTI08 13. St*t#orT f g g u ^ r ^ q t ? , Form. An instrument t o be e l i g i b l e for rediscount under Section 13 suet be in the form of a note, or of a d r a f t , or b i l l of exchange, before or a f t e r acceptance. Ifetur^ySuch notes, drafts or b i l l s of exchange trust nature within ninety days fro& date of rediscount, unless they are issued or drawn f o r agricultural purposes or ate based on l i v e stock, in which case they mist nature within s i x months from date of rediscount. Endorsement. Notes, d r a f t s , b i l l s of exchange and acceptances rediscounted under t h i s section, must bear the endorsement of at l e a s t one member bank, except that drafts accepted by member banks .to furnish dollar exchange need not be endorsed unless the regulations of the Board so provide. # Character of ' - - Notes. Drafts and B i l l s of Exchange E l i g i b l e for Rediscount. A note, draft or b i l l of exchange to be e l i g i b l e for rediscount under t h i s section (a) Must have been issued or drawn for an agricultural, industrial or commercial purpose. (t>) I t s proceeds must have been used for one of such purpose*; or ( c ) I t must have been issued or drawn for the purpose of carrying or trading in bonds and notes of the Government of the United S t a t e s . -2*- X-135C a (A) I t must not have been issued or drawn f o r t h e purpose of carrying or t r a d i n g in stocks, bonds or other investment s e c u r i t i e s except bonds and notes of the Government of t h e United S t a t e s and trust not cover merely investments. Character of. iember Bank Acceptances Eligible for jMlsccimt. Any d r a f t or b i l l of exchange drawn (a) in a domestic t r a n s a c t i o n , (b) in a t r a n s a c t i o n involving the importation or exportation ox goods, or (c) to f u r n i s h d o l l a r exchange, which i s l e g a l l y accepted by a member bank, i s e l i g i b l e f o r rediscount with a Federal Reserve Bank. Limitations on Amount of Motes. D r a f t s , and B i l l s of Exchange t h a t rrav be rediscounted. There i s no l i m i t a t i o n on the aggregate amount of n o t e s , d r a f t s and b i l l s of exchange t h a t may be rediscounted f o r any one :.ank, but the note?, d r a f t s or b i l l s of exchange ( except " b i l l s of exci^nge drawn a g a i n s t a c t u a l l y e x i s t i n g value'))bearing the signature or endorsement of any one borrower rediscounted f o r any one bank trust in no case exceed in the aggregate, an amount equal to ten per cent, of the c a p i t a l and surplus of the member bank. Regulations. Form. The term "notes, d r a f t s and b i l l s of exchange" i s held to include commodity paper and t r a d e acceptances as d e f i n e d in these r e g u l a t i o n s . ^11 instruments rediscounted by any Federal Reserve bank must be in 19 -3~ X-I350 a (A) n e g o t i a b l e form, must have a d e f i n i t e and fixed maturity, ( t h a t i s , trust not be payable a t sight or on demand) and trust conform in all r e s p e c t s t o the s t a t u t o r y requirements of Section 13 as enumerated and defined in th e s e r e g u l a t i o n s . Applications f o r Rediscount. All a p p l i c a t i o n s fo.- rediscount must contain a c e r t i f i c a t e of an executive o f f i c e r of the cemcer bar.K to the effect t h a t t o the best of h i s knowledge, information or belief,, the instruments o f f e r e d f o r r e discount conform t o the requirements of the S t a t u t e and to the r e g u l a t i o n s of the Board. Evidence of E l i g i b i l i t y . In a d d i t i o n to c e r t i f i c a t e of e l i g i b i l i t y f i l e d with or as part of the a p p l i c a t i o n for rediscount, each r: ember bank when so required, must f u r n i s h t o the Federal Reserve bank s a t i s f a c t o r y evidence of e l i g i b i l i t y of any note, d r a f t or b i l l of exchange offered f o r rediscount. To t h i s end i t should r e q u i r e i t s customers, e i t h e r by n o t a t i o n on the instrument i t s e l f , or by c o l l a t e r a l statements, t o show f o r what purpose the instrument was "issued or drawn" or f o r what purpose i t s "proceeds were used". Where t h e customer i s engaged in an a g r i c u l t u r a l , i n d u s t r i a l or commercial business, a f i n a n c i a l statement of such customer showing an excess of quick a s s e t s over current l i a b i l i t i e s may be accepted as evidence of the f a c t t h a t the proceeds of the instrument n e g o t i a t e d were used f o r such purposes. Unless such instrument was "issued or drawn" as defined in these r e g u l a t i o n s f o r an a g r i c u l t u r a l , i n d u s t r i a l or commercial purpose, i t s e l i g i b i l i t y s h a l l be determined by the use made of i t s "pro- http://fraser.stlouisfed.org/ repriq" «.<? Federal Reserve Bank of St. Louis herein defined. X-1350 a Advances t o Member Banks,. ^ Form.Loans or advances tray be trade by Federal reserve banks t o member banks on the promissory notes of the member bank, Maturity, Such notes trust mature within f i f t e e n days. C o l l a t e r a l Security Esquired. They trust be secured e i t h e r h> notes, d r a f t s , b i l l s of exchange or acceptances e l i g i b l e f o r rediscount under Section 13, by b i l l s of exchange or bankers acceptances e l i g i b l e f o r purchase under Section 14, or by bonds or notes of the United S t a t e s . X-1350 a REGULATION B. OPEN MARKET PURCHASES OF BILLS OF EXCHANGE AND ACCEPTANCES. S t a t u t o r y Requirements. Form. Negotiable instruments purchased under a u t h o r i t y of Section 14 of t h e Federal Reserve Act ray. be in t h e form, of b i l l s of exchange or acceptances but canr.ov. bu in the form of prcrru^sory r.otos. Maturity. The m a t u r i t y of b i l l s of exchange or acceptances purchased should conform t o t h s requirements of Regulation A, Endorsement. Such b i l l s of exchange or acceptances may be purchased with or without t h e endorsement of a member bank, Character of B i l l s of Exchange and Acceptances E l i g i b l e f o r Purchase. B i l l s of exchange and acceptances i n c l u d i n g d r a f t s drawn a g a i n s t and accepted by member banks, may be purchased in t h e open market if they conform in a l l r e s p e c t s t o t h e requirements of Section 13 and of Regulation A, D r a f t s drawn a g a i n s t and accepted by non-member banks or bankers nay l i k e w i s e be purchased under a u t h o r i t y of t h i s Section if they meet the requirements of a b a n k e r ' s acceptance as d e f i n e d i n t h e s e r e g u l a t i o n s . X-1350 a REGULATION C. ACCEPTAHCE BY MEMBER BANKS OF DRAFTS AND BILLS OF EXCHANGE " S t a t u t o r y Authority. National banks ( and other member banks l<cated in S t a t e s , the laws af which expressly confer upon them a l l the powers and p r i v i l e g e s of a m b e r banks) are authorised t o accept d r a f t s and b i l l s of exchange (a) Which grew cut of t r a n s a c t i o n s involving, the importation or exportation cf goods, (b) Which grew out of t r a n s a c t i o n s involving the domestic shipment of goods; (c)i;Which are secured at the time of acceptance by warehouse r e c e i p t or other such document, conveying or securing t i t l e to readily marketable s t a p l e s ; (d) Which are drawn under regulations prescribed by the Federal Reserve Board by banks or bankers in foreign c o u n t r i e s , dependencies or i n s u l a r possessions cf the United S t a t e s , f o r the purpose of f u r n i s h i n g d o l l a r exchange* Member banks, other than these above menticned may accept d r a f t s and b i l l s cf exchange t o the extent permitted by the laws of the S t a t e under which they are organized. For convenience, d r a f t s or b i l l s described in paragraph (a) w i l l be r e f e r r e d to as f o r e i g n b i l l s ; those described in (b) and (c) w i l l be r e f e r r e d to as domestic b i l l s , and those described in (d) w i l l be r e f e r r e d to as d o l l a r exchange d r a f t s . -2i X-1350 a (C) » Limitations on Aggregate Amount of D r a f t s and B i l l s of Exchange t h a t tray be Accepted, The aggregate of domestic and foreign b i l l s accepted by any member bank trust not exceed an amount equal to f i f t y per cent, of the c a p i t a l and surplus of the accepting bank unless t h e consent of the Federal Reserve Board t c accept a l a r g e r amount has f i r s t been obtained. With the consent ot the Federal Reserve Board, the member bank may accept d r a f t s of the character described t c an amount wh.rch dees net exceed one hundred per cent, of the c a p i t a l and surplus of the accepting bank but the amount of domestic b i l l s accepted mast in nc ease exceed f i f t y per cent. of the c a p i t a l and s u r p l u s . In a d d i t i o n to the foregoing, a member bank may accept d o l l a r exchange d r a f t s to an amount -which does not exceed f i f t y per c e n t , cf i t s c a p i t a l and s u r p l u s . Limitations on Amount t h a t may be accepted f o r any one person, company, firm or c o r p o r a t i o n . No member bank i s permitted to accept for any one person, company, firm or corporation, e i t h e r domestic or foreign b i l l s in an amount equal t o more than ten per c e n t , of i t s c a p i t a l and s u r p l u s , u n l e s s the bank i s secured by attached documents or by some other a c t u a l s e c u r i t y growing out of the same t r a n s a c t i o n as the acceptance. Even though thus secured nc member bank i s permitted t o a c c e p t ^ , f o r t h e same person, company, f i r m or corporation, in an amount in excess cf f i f t y per cent, of i t s c a p i t a l and s u r p l u s . No member bank i s permitted to accept d o l l a r exchange d r a f t s f o r any one bank in an amount exceeding ten per cent, of i t s c a p i t a l and surplus. ,;><A X-1350 a < v (C) Regulations. D r a f t s Drawn in T r a n s a c t i o n s Involving the Importation or E x p o r t a t i o n of goods. Where a member bank a c c e p t s d r a f t s drawn in t r a n s a c t i o n s i n v o l v i n g the importation or e x p o r t a t i o n of gccds, i t must have on f i l e an agreement or guarantee frctr. t h e customer t or whom the d r a f t s a r e accepted, containing p r o v i s i o n s t o the following e f f e c t (a) That such customer has an agreement t h a t n e c e s s a r i l y involves t h e e x p o r t a t i . n or importation of t h e goods and t h a t t h e proceeds of t h e s a l e cf the acceptance w i l l be used in a t r a n s a c t i o n d i r e c t l y connected with such importation or e x p o r t a t i o n . (b) That t h e proceeds of t h e s a l e cf t h e goods imported or exported w i l l be used to pay t h e acceptance a t m a t u r i t y or to pay a renewal thereof within s i x months frctr t h e d a t e of t h e o r i g i n a l acceptance. 'Drafts Drawn in Domestic Transa.nt.-iowa. A member bank a c c e p t i n g a d r a f t drawn in a domestic t r a n s a c t i o n mist be secured a t t h e time of acceptance by shipping documents or by warehouse r e c e i p t or o t h e r s i m i l a r document, conveying or s e c u r i n g to t h e bank t i t l e t o r e a d i l y marketable s t a p l e s . If the d r a f t s accepted f o r one customer exceed in amount ten per c e n t , cf t h e c a p i t a l and s u r p l u s of the a c c e p t i n g bank, the s e c u r i t y must not be r e l e a s e d during t h e l i f e of t h e d r a f t s . Where the aggregate cf the d r a f t s i s l e s s than ten per c e n t , t h e a c c e p t i n g bank nay r e l e a s e the s e c u r i t y upon t h e execution by the customer of a t r u s t r e c e i p t t h e r e f o r or cf an agreement t h a t t h e r e w i l l be d e p o s i t e d w i t h t h e bank so much of t h e proceeds of t h e s a l e of t h e goods r e p r e s e n t e d by t h e s e c u r i t y as may be n e c e s s a r y to pay the d r a f t a t m a t u r i t y . -4- 1 * X-1350 a (C) A %is agreement imst be entered into with the customer for whom the draft i s accepted and to whom the security i s released whether or not such customer's name appears on the draft as drawer or endorser^. Drafts Drawn to Furnish Dollar Exchange. Where the Federal Reserve Board has by general or special ruling determined that the usage of trade in any foreign country or in any dependency or insular possession of the United States, makes i t necessary or advisable f or banks or bankers located therein to draw drafts on member banks of the Jbderal Reserve System to furnish dollar exchange, any member bank, so long as such ruling i s in force, may accept such drafts subject tc the limitations and requirements of t h i s regulation. Upon application of any member bank a l i s t w i l l be furnished of the countries, dependencies or insular possessions from which such d r a f t s may be drawn.
@FedFRASER