Full text of Mimeograph Letters and Statements of the Board : Principles to be Followed by Reserve Banks in Dealing with Applications for Rediscounts, Number 92, Volume 1, Page 119

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92

The following is suggested as an outline of principles that should he fol­
lowed by Federal Reserve Banks in certain cases in dealing with applications o .
f
member banks for rediscounts:
(1)

Where a bank applying for rediscounts is found to be in an extended

condition, the question should be definitely raised as to how far the funds
requested are to be used in the liquidation of the outstanding obligations of
the institution, and how far they are being called for to finance new transactions
of the same kind that have already led to the extended dondition of the bank.

In

f

cases where funds are desired for the liquidation of indebtedness, the accommoda­
tion may well be granted; in any other case they should be declined.
(2)

In cases where a presumably sound bank offers doubtful or questionable

paper, such paper §hould be rejected vdthout hesitation regardless of the question
as to whether the bank's endorsement would in the last analysis make it good.
(3)

In cases where the paper offered is of such character as to comply with

the regulations laid down by the Board, but does not appear to possess such strength
as to altogether satisfy the directors as to its desirability, no objection vould
be made to their requiring the applying

bank to fortify its endorsement of such

paper by approved collateral deposited under a collateral agreement with the re­
serve bank