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366 DAVID P'!lfOU!fJPN I&CIITARY OP THI TRUSUIY CH41111AN FEDERAL RESERVE. BOARD JOHN SKELTON WILLIAMS COIIPTIOLLII OF THI CUIIBNCY ADDRESS REPI.Y TO 'Ill. T. CHAPIIAN, SICIITAIY R. G. EJIERSON,AIIIBTAKT SICIITAJY w, IIJ.IIIJ.AY,~•qA~ A·R~T WASHINGTON FEDERAL RESERVE BOARD W. P. G. HARDING, CIOVU.Oil ALII! liT STIAUII, YJCI GOVIIMOil ADOLPH C. JIILLIR CHARLES S.II411LIN HENRY A, JIOEHLENPAH April 15,1920. . X-1899 Subject: Warehouse Receipts on Whiskey in Bond. Dear Sir:For your information there is enclosed copy of the Boardr s reply to a letter from a firm formerly engaged in the wholesale liquor business, relating to the use of wareh•)use receipts on whiskey in bond as collateral for loans made by member banks~ · Very truly yours 1 Enclosure. Governor. To Governors and Chairmen of all F .R. Banks. 367 COPY April 14,1920 X-1699 a ··Dear Sirs:- Tln Feder.'S\l Reserve 3o3.r•i has received md considereu your letter of April 12th, 1920,· stat in; that since n'l tional "Drohibi tion becc>me effective banlo::s have not regarded warehouse receiuts coverin;r whislcey in bond as good collateral 2md askin.:: that the Feder;u Reserve Boarc. "reconsider the rr:a.tter a.nd give some relief".'-·· The Federal Reserve Bos.rd has never in tha past made any rulin:§" to the effect that w.:..trehouse recei:?ts covering whiskey in bond are either §:OOd or b<.td collateral for a ba.r:Jk loan. It is obviously a. qUestion uvhich each b.:m::: must determine for itself and is not a matter coming 1vi thin the jurisdiction of the Federal Reserve Board. Under th"! terms of Section 3 of Title II of the Vol stead .Act.· it is :nroviJ.ed "That nothin.:;; in this act shall prohibit the purchase or sale of warehouse receints covering distilled s:piri ts on de"tJosi t in Government bonrled warehouses and no s-peci.~ tax shall attach to the husine ss of purchE-tsing and seUinrr such war~house receints. 11 Article IV, Section 26 of the Re£:U].ations issued by th~ Bureau of Intern2~l Revenue, unier the terms of the Volstead Act, rel,.,.,tive to the r.oanu.fa.cture, sale, possession, .:,n~ use of intoxicating liquors 1/rovides th'3.t whisl;:-ey "':U:l brandy rray be "bottled in bon·t for •iOll~estic medicin:o1l "OUI'T.10ses in a distillery bottlin;r house or bo1ttlinq: room of a snecicl bonding w~rehouse." On ..Aur,:ust 21, 1919, the Attorney G3neral of the United States rendered an opinion to the Secretary of the Treasury to the effect that the sale of warehouse certificates on whiskey held in bon:l su·oject to the payment of tax befor·~ rerDOVal 'fll'.::ts not a s~e of 1Shiskey for beverage pur:poses within the meaning of the War Prohibition Act and was not prohibited by that Act. It seems reasonably clear, therefore, that under the terms of the ,.,rohibition laws :::~.nd the Reaulations issued by the Treasury DeT.Jartment, warehouse receints coverin,Q' •111hiskey in bond may under certain circumst,'l!lc·es be leG"ally bou::ht ?.Uti sold so that it is legally possible un.1er those circumstances for the owner of a warehouse recei-ot covering l.vhis1:ey in bond ' .. X-1899 a -2- to pledee that warehouse receiut as security for his note. ~ether or not a bank will mak-e a loan unon a note secured in that manner is a question which must, of course: be determined by the batiF itself in each case. The Federal Reserve Board has not and cannot make any rulin~ one way or another as to the desirability of such P.. warehouse recei~t as collateral for a loan upon a noter The Federal Reserve Board in construing the provisions of Section 13 of the Federal Reserve Act~ has had occasion to rule that a warehouse receint covering whiSkey in bond cannot be considereu a receint conveyinF: or securing title to "readily marl:etable staples" w·ithin the meaning of that section :and that therefore such a receipt is not a "~?remer basis for a ba.nl<:er 1 s accentance of the kind defined in that section. That ruling, h~vever, has no relation to thA legal right of a banl:- to make a loan u-pon the note of· a borro-v<~er secured by P. warehouse receipt covering ;_,hislrey in bond. Very truly yours, w. '?. G. HARDING. Governor • . ...
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