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FEDERAL RESERVE BOARD WASHINGTON x-7215 July 26, 1932. ADDRESS OFFICIAL CORRESPONDENCE TO T H E FEDERAL RESERVE BOARD SUBJECT: Discounts for Individuals, Partners h i p s and C o r p o r a t i o n s . Dear S i r : T h e r e i s i n c l o s e d a copy of a c i r c u l a r on t h e a b o v e s u b j e c t w h i c h was a p p r o v e d by t h e F e d e r a l R e s e r v e Board t o d a y , Your a t t e n t i o n i s i n v i t e d t o t h e f a c t t h a t , i n S e c t i o n I I t h e r e o f , t h e Board h a s a u t h o r i z e d a l l F e d e r a l r e s e r v e b a n k s , f o r a p e r i o d o f s i x months b e g i n n i n g A u g u s t 1 , 1 9 3 2 , t o d i s c o u n t e l i g i b l e n o t e s , d r a f t s and b i l l s o f e x c h a n g e f o r i n d i v i d u a l s , p a r t n e r s h i p s and c o r p o r a t i o n s , s u b j e c t t o t h e p r o v i s i o n s of t h e l a w , t h e B o a r d ' s R e g u l a t i o n A and t h e i n c l o s e d c i r c u l a r . C o p i e s o f t h i s c i r c u l a r w i l l b e g i v e n t o t h e p r e s s on S a t u r d a y , J u l y 3 0 , f o r r e l e a s e on Monday, A u g u s t 1 , 1 9 3 2 , a n d should be t r e a t e d as c o n f i d e n t i a l u n t i l the l a t t e r d a t e . You a r e a t l i b e r t y t o h a v e t h e i n c l o s e d c i r c u l a r p r i n t e d and, b e g i n n i n g August 1 , 1932, t o g i v e c o p i e s t h e r e o f t o p e r s o n s making i n q u i r i e s r e g a r d i n g t h i s s u b j e c t , t o g e t h e r w i t h c o p i e s o f t h e B o a r d ' s R e g u l a t i o n A and of any s u p p l e m e n t a l c i r c u l a r and any f o r m s w h i c h y o u r b a n k may a d o p t w i t h t h e a p p r o v a l o f y o u r C o u n s e l . Very t r u l y y o u r s , Chester M o r r i l l , Secretary. Inclosure. TO GOVERNORS AND CHAIRMEN OF ALL F . R. BANKS. 109 FEDERAL RESERVE BOARD WASHINGTON X-7215-a ADDRESS OFFICIAL CORRESPONDENCE T O T H E TEDERAL RESERVE BOARD SUBJECT: J u l y 2 6 , 1 9 3 2 . DISCOUNTS FOR INDIVIDUALS. PARTNERSHIPS AMD CORPORATIONS. TO ALL FEDERAL RESERVE BANKS: The t h i r d p a r a g r a p h o f S e c t i o n 13 of t h e F e d e r a l R e s e r v e A c t , a s amended "by t h e A c t o f J u l y 2 1 , 1 9 3 2 , p r o v i d e s a s f o l l o w s : "In u n u s u a l and e x i g e n t c i r c u m s t a n c e s , t h e F e d e r a l R e s e r v e B o a r d , by t h e a f f i r m a t i v e v o t e o f n o t l e s s t h a n f i v e members, may a u t h o r i z e a n y F e d e r a l r e s e r v e b a n k , d u r i n g s u c h p e r i o d s a s t h e s a i d b o a r d may d e t e r m i n e , at r a t e s e s t a b l i s h e d i n accordance with the p r o v i s i o n s of s e c t i o n 14, s u b d i v i s i o n ( d ) , of t h i s A c t , t o d i s c o u n t f o r any i n d i v i d u a l , p a r t n e r s h i p , or c o r p o r a t i o n , n o t e s , d r a f t s , and b i l l s o f e x c h a n g e o f t h e k i n d s and m a t u r i t i e s made e l i g i b l e f o r d i s c o u n t f o r member b a n k s u n d e r o t h e r p r o v i s i o n s of t h i s A c t when s u c h n o t e s , d r a f t s , and b i l l s of exchange a r e i n d o r s e d and o t h e r w i s e s e c u r e d t o t h e s a t i s f a c t i o n o f t h e F e d e r a l r e s e r v e b a n k : P r o v i d e d , That b e f o r e d i s c o u n t i n g a n y s u c h n o t e , d r a f t , or b i l l of e x c h a n g e f o r a n i n d i v i d u a l or a p a r t n e r s h i p or c o r p o r a t i o n t h e F e d e r a l r e s e r v e bank s h a l l o b t a i n e v i d e n c e t h a t s u c h i n d i v i d u a l , p a r t n e r s h i p , or c o r p o r a t i o n i s u n a b l e t o s e c u r e a d e q u a t e c r e d i t accommodations from other banking i n s t i t u t i o n s . A l l s u c h d i s c o u n t s f o r i n d i v i d u a l s , p a r t n e r s h i p s , or c o r p o r a t i o n s s h a l l be s u b j e c t t o such l i m i t a t i o n s , r e s t r i c t i o n s , and r e g u l a t i o n s a s t h e F e d e r a l R e s e r v e Board may p r e s c r i b e . " I n v i e w o f t h e f a c t t h a t t h e power c o n f e r r e d b y t h i s p r o v i s i o n can b e e x e r c i s e d o n l y i n "unusual and e x i g e n t c i r c u m s t a n c e s " , t h e F e d e r a l R e s e r v e Board h a s n o t p r e s c r i b e d any f o r m a l r e g u l a t i o n s g o v e r n i n g t h e e x e r c i s e o f t h i s p o w e r ; b u t t h e r e q u i r e m e n t s o f t h e l a w and t h e p r o c e d u r e w h i c h t h e F e d e r a l R e s e r v e Board w i l l e x p e c t t o b e f o l l o w e d a r e o u t l i n e d b e l o w f o r t h e i n f o r m a t i o n o f t h e F e d e r a l r e s e r v e b a n k s and any i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s t h a t may c o n t e m p l a t e a p p l y i n g t o them f o r d i s c o u n t s . X-7215-6 «« 2 ** I . LEQ-A1 REgCJIREMENTS. I t w i l l be o b s e r v e d t h a t , b y t h e e x p r e s s t e r m s o f t h e l a w : 1. The p o w e r c o n f e r r e d upon t h e F e d e r a l R e s e r v e B o a r d t o a u t h o r i z e F e d e r a l r e s e r v e banks to discount e l i g i b l e paper f o r i n d i v i d u a l s , p a r t n e r s h i p s o r c o r p o r a t i o n s may be e x e r c i s e d o n l y : (a) I n -unusual a n d e x i g e n t c i r c u m s t a n c e s , (b) By t h e a f f i r m a t i v e v o t e o f n o t l e s s t h a n f i v e members o f t h e F e d e r a l Be s e r v e B o a r d , a n d (c) F o r s u c h p e r i o d s a s t h e F e d e r a l He s e r v e B o a r d may determine. 2. When s o a u t h o r i z e d , a F e d e r a l R e s e r v e Bank may d i s c o u n t f o r i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s o n l y n o t e s , d r a f t s and b i l l s of e x c h a n g e o f t h e k i n d s and m a t u r i t i e s made e l i g i b l e f o r d i s c o u n t f o r member b a n k s , u n d e r o t h e r p r o v i s i o n s ( S e c t i o n s 1 3 and 1 3 a ) o f t h e F e d e r a l R e s e r v e Act. ( S u c h p a p e r m u s t , t h e r e f o r e , comply w i t h t h e a p p l i c a b l e r e q u i r e m e n t s of Regulation A of the Federal Reserve Board). 3. Paper discounted f o r i n d i v i d u a l s , partnerships or corporations m a s t be b o t h ( a ) i n d o r s e d a n d ( b ) o t h e r w i s e s e c u r e d t o t h e s a t i s f a c t i o n of the Federal reserve bank. 4. B e f o r e d i s c o u n t i n g paper f o r any i n d i v i d u a l , p a r t n e r s h i p or c o r p o r a t i o n , a Federal r e s e r v e bank mast o b t a i n e v i d e n c e t h a t such i n d i v i d u a l , p a r t n e r s h i p or c o r p o r a t i o n i s unable t o secure adequate c r e d i t accommodations from o t h e r banking i n s t i t u t i o n s . 5. S u c h d i s c o u n t s may b e made o n l y a t r a t e s e s t a b l i s h e d by t h e F e d e r a l r e s e r v e b a n k s , s u b j e c t t o r e v i e w and d e t e r m i n a t i o n b y t h e F e d e r a l Reserve Board. X-7215-a - 3 6. A l l d i s c o u n t s f o r i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s a r e s u b j e c t t o s u c h l i m i t a t i o n s , r e s t r i c t i o n s , and r e g u l a t i o n s a s t h e F e d e r a l R e s e r v e B o a r d may p r e s c r i b e . II. AUTHORIZATION BY THE FEDERAL RESERVE BOARD. The F e d e r a l R e s e r v e B o a r d , p u r s u a n t t o t h e p o w e r c o n f e r r e d upon i t "by t h e amendment h e r e i n b e f o r e g u o t e d , h e r e b y a u t h o r i z e s a l l F e d e r a l r e s e r v e b a n k s , f o r a p e r i o d o f s i x months b e g i n n i n g A u g u s t 1 , 1 9 3 2 , t o d i s c o u n t e l i g i b l e n o t e s , d r a f t s and b i l l s o f e x c h a n g e f o r i n d i v i d u a l s , p a r t n e r s h i p s and c o r p o r a t i o n s , s u b j e c t t o t h e p r o v i s i o n s o f t h e l a w , t h e B o a r d ' s r e g u l a t i o n s , and t h i s c i r c u l a r . III. FOR WHOM PAPER MAY BE DISCOUNTED. A F e d e r a l r e s e r v e b a n k may d i s c o u n t f o r i n d i v i d u a l s , p a r t n e r s h i p s o r c o r p o r a t i o n s n o t e s , d r a f t s or b i l l s o f e x c h a n g e , w h i c h a r e t h e o b l i g a t i o n s o f o t h e r p a r t i e s a c t u a l l y owned b y s u c h i n d i v i d u a l s , p a r t n e r s h i p s or c o r p o r a t i o n s a n d i n d o r s e d b y t h e m , or t h e p r o m i s s o r y n o t e s o f s u c h i n d i v i d u a l s , p a r t n e r s h i p s , or c o r p o r a t i o n s i n d o r s e d b y o t h e r p a r t i e s whose i n d o r s e m e n t s a r e s a t i s f a c t o r y t o t h e F e d e r a l r e s e r v e bank. Within t h e meaning of t h i s c i r c u l a r , t h e term "corporations" does not i n c l u d e banks. X-7215-a^^ •• 4 "• IV. APPLICATIONS FOR DISCOUNT. Bach a p p l i c a t i o n of an i n d i v i d u a l , p a r t n e r s h i p or c o r p o r a t i o n f o r t h e d i s c o u n t o f e l i g i b l e p a p e r "by t h e F e d e r a l r e s e r v e "bank m u s t b e a d d r e s s e d t o t h e F e d e r a l R e s e r v e Bank o f t h e D i s t r i c t i n w h i c h t h e p r i n c i p a l p l a c e o f b u s i n e s s of t h e a p p l i c a n t i s l o c a t e d , must b e made i n w r i t i n g on a f o r m f u r n i s h e d f o r t h a t p u r p o s e b y t h e F e d e r a l r e s e r v e b a n k and m u s t c o n t a i n , o r b e a c c o m p a n i e d b y , t h e f o l l o w i n g : 1. A s t a t e m e n t of t h e c i r c u m s t a n c e s g i v i n g r i s e t o t h e a p p l i c a - t i o n and o f t h e p u r p o s e s f o r w h i c h t h e p r o c e e d s o f t h e d i s c o u n t a r e t o b e used; 2. E v i d e n c e s u f f i c i e n t t o s a t i s f y t h e F e d e r a l r e s e r v e bank a s to (a) the l e g a l e l i g i b i l i t y of the paper o f f e r e d f o r discount under S e c t i o n 1 3 o r S e c t i o n 1 3 ( a ) o f t h e F e d e r a l R e s e r v e A c t and R e g u l a t i o n A o f t h e F e d e r a l R e s e r v e Board and ( b ) i t s a c c e p t a b i l i t y f r o m a c r e d i t standpoint; 3. A s t a t e m e n t o f t h e e f f o r t s made b y t h e a p p l i c a n t t o o b t a i n adequate c r e d i t accommodations from other banking i n s t i t u t i o n s , i n c l u d i n g t h e names a n d a d d r e s s e s o f a l l o t h e r b a n k i n g i n s t i t u t i o n s t o w h i c h a p p l i c a t i o n s f o r s u c h c r e d i t a c c o m m o d a t i o n s w e r e made, t h e d a t e s u p o n w h i c h s u c h a p p l i c a t i o n s were made, whether such a p p l i c a t i o n s were d e f i n i t e l y r e f u s e d and t h e r e a s o n s , i f a n y , g i v e n f o r s u c h r e f u s a l ; 4. A l i s t showing each bank w i t h which t h e a p p l i c a n t h a s had banking r e l a t i o n s , e i t h e r a s a d e p o s i t o r or a s a b o r r o w e r , d u r i n g t h e p r e c e d i n g y e a r , w i t h t h e approximate d a t e upon which s u c h banking r e l a t i o n s commenced a n d , i f s u c h b a n k i n g r e l a t i o n s h a v e b e e n t e r m i n a t e d , t h e a p p r o x i mate d a t e of their termination; X-721fHt 11 - 5 5. Complete c r e d i t data r e g a r d i n g the f i n a n c i a l c o n d i t i o n of t h e p r i n c i p a l o b l i g o r s and i n d o r s e r e o n t h e p a p e r o f f e r e d f o r d i s c o u n t ; 6i A l i s t and d e s c r i p t i o n o f t h e c o l l a t e r a l or o t h e r s e c u r i t y o f f e r e d "by t h e a p p l i c a n t ; 7. A w a i v e r "by t h e a p p l i c a n t of demand, n o t i c e a n d p r o t e s t a s t o a p p l i c a n t ' s o b l i g a t i o n on a l l p a p e r d i s c o u n t e d "by t h e F e d e r a l r e s e r v e "bank or h e l d b y t h e F e d e r a l r e s e r v e b a n k a s s e c u r i t y ; and 8. An a g r e e m e n t b y t h e a p p l i c a n t , i n f o r m s a t i s f a c t o r y t o t h e Federal r e s e r v e bank, (a) to f u r n i s h a d d i t i o n a l c r e d i t information to the F e d e r a l r e s e r v e b a n k , when r e q u e s t e d , ( b ) t o s u b m i t t o a u d i t s , c r e d i t i n v e s t i g a t i o n s or e x a m i n a t i o n s b y r e p r e s e n t a t i v e s o f t h e F e d e r a l r e s e r v e bank a t t h e e x p e n s e o f t h e a p p l i c a n t , w h e n e v e r r e q u e s t e d b y t h e F e d e r a l r e s e r v e b a n k , and ( c ) t o f u r n i s h a d d i t i o n a l s e c u r i t y w h e n e v e r r e q u e s t e d t o do s o b y t h e F e d e r a l R e s e r v e Bank. V. GRANT OR REFUSAL OF APPLICATION. B e f o r e d i s c o u n t i n g n o t e s , d r a f t s , or b i l l s o f e x c h a n g e f o r a n y i n d i v i d u a l , p a r t n e r s h i p or c o r p o r a t i o n , t h e F e d e r a l r e s e r v e b a n k s h a l l a s c e r t a i n t o i t s s a t i s f a c t i o n by s u c h means a s i t may deem a p p r o p r i a t e : 1. T h a t t h e f i n a n c i a l c o n d i t i o n and c r e d i t s t a n d i n g o f t h e a p p l i c a n t j u s t i f y t h e g r a n t i n g of such c r e d i t accommodations; 2. That t h e p a p e r o f f e r e d f o r d i s c o u n t i s a c c e p t a b l e f r o m a c r e d i t s t a n d p o i n t and e l i g i b l e from a l e g a l s t a n d p o i n t ; 3. That t h e s e c u r i t y o f f e r e d i s a d e q u a t e t o p r o t e c t t h e F e d e r a l r e s e r v e bank a g a i n s t l o s s * 4. t i o n s ; and That t h e r e i s a r e a s o n a b l e n e e d f o r s u c h c r e d i t accommoda^- SC-7215-a mm 5. 0 114 mm That t h e a p p l i c a n t i s u n a b l e t o o b t a i n a d e q u a t e c r e d i t accommodations from o t h e r banking i n s t i t u t i o n s . A s p e c i a l e f f o r t s h o u l d b e made t o d e t e r m i n e w h e t h e r t h e banking i n s t i t u t i o n w i t h which the a p p l i c a n t o r d i n a r i l y t r a n s a c t s h i s banking b u s i n e s s or any other banking i n s t i t u t i o n to which the a p p l i c a n t o r d i n a r i l y would have a c c e s s i s w i l l i n g to grant such c r e d i t a c c o m o d a t i o n s . A F e d e r a l r e s e r v e bank should not d i s c o u n t such paper u n l e s s i t appears t h a t the p r o c e e d s of such d i s c o u n t s w i l l be u s e d t o f i n a n c e current b u s i n e s s o p e r a t i o n s and not f o r s p e c u l a t i v e p u r p o s e s , f o r permanent or f i x e d i n v e s t m e n t s , or f o r any o t h e r c a p i t a l p u r p o s e s . Except w i t h the p e r m i s s i o n o f t h e F e d e r a l R e s e r v e B o a r d , no s u c h p a p e r s h o u l d b e d i s c o u n t e d i f i t appears t h a t the p r o c e e d s w i l l be u s e d f o r the purpose o f p a y i n g o f f e x i s t i n g indebtedness to other banking i n s t i t u t i o n s . In discounting paper f o r i n d i v i d u a l s , partnerships or corpora** t i o n s , a F e d e r a l r e s e r v e b a n k s h o u l d n o t make a n y commitment t o r e n e w o r e x t e n d such paper or t o g r a n t f u r t h e r or a d d i t i o n a l d i s c o u n t s . VI. LIMITATIONS. E x c e p t w i t h t h e p e r m i s s i o n o f t h e F e d e r a l R e s e r v e B o a r d , no F e d e r a l r e s e r v e b a n k s h a l l d i s c o u n t f o r a n y one i n d i v i d u a l , p a r t n e r s h i p o r c o r p o r a t i o n p a p e r a m o u n t i n g i n t h e a g g r e g a t e t o more t h a n o n e p e r cent of the p a i d - i n c a p i t a l s t o c k and surplus of such Federal r e s e r v e bank, V I I . . ADDITIONAL HEQUIRTtOTNIS. Any F e d e r a l r e s e r v e b a n k may p r e s c r i b e s u c h a d d i t i o n a l r e q u i r e m e n t s a n d p r o c e d u r e r e s p e c t i n g d i s c o u n t s h e r e u n d e r a s i t may d e e m n e c e s s a r y o r a d v i s a b l e ; p r o v i d e d t h a t s u c h r e q u i r e m e n t s and p r o c e d u r e a r e c o n s i s t e n t 115 4# % X-7si8-e —7 — w i t h t h e p r o v i s i o n s o f t h e l a w , t h e B o a r d ' s r e g u l a t i o n s and. t h e t e r m s o f this circular. By o r d e r o f t h e F e d e r a l R e s e r v e B o a r d . Chester Morrill, Secretary.
@FedFRASER