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X-3018 Topics submitted by t h e Federal Reserve Board f o r d i s c u s s i o n by t h e Federal Advisory Council a t i t s n e x t meeting t o be h e l d Monday, February 21, 1921: (1) Should t h e Board e x e r c i s e t h e a u t h o r i t y given i t i n S e c t i o n 16 of t h e Federal Reserve Act and impose an i n t e r e s t charge a g a i n s t Federal r e s e r v e banks on t h e amount of t h e i r Federal r e s e r v e n o t e s o u t s t a n d i n g , l e s s t h e amount of gold or gold c e r t i f i c a t e s h e l d by t h e Federal Reserve Agent a s c o l l a t e r a l s e c u r i t y , and if so, what should t h e r a t e of i n t e r e s t be? (2) Should t h e Board e s t a b l i s h f o r t h e y e a r 1921 a t e n t a t i v e l i m i t f o r each F e d e r a l r e s e r v e bank on t h e amount which i t nay r e d i s c o u n t w i t h o t h e r Federal r e s e r v e banks? (3) Should e x i s t i n g p r e f e r e n t i a l r a t e s on n o t e s s e c u r e d by L i b e r t y Bonds and V i c t o r y Notes be continued? (a) With r e s p e c t t o customers paper r e d i s c o u n t e d ? (b) With r e s p e c t t o member b a n k s ' 15 day c o l l a t e r a l n o t e s ? (4) S e c t i o n 14 p e r m i t s any Federal r e s e r v e bank under r u l e s and r e g u l a t i o n s t o be p r e s c r i b e d by t h e Federal Reserve Board " t o p u r c h a s e and s e l l i n t h e open market *** c a b l e t r a n s f e r s and bankers a c c e p t a n c e s and b i l l s of exchange of t h e k i n d s and m a t u r i t i e s by t h i s Act made e l i g i b l e f o r r e d i s c o u n t , w i t h or w i t h o u t t h e endorsement of a member bank". S e c t i o n 13 p r o v i d e s t h a t "any Federal r e s e r v e bank may d i s c o u n t a c c e p t a n c e s of t h e k i n d s h e r e i n a f t e r d e s c r i b e d , which m y have a m a t u r i t y a t t h e time of d i s c o u n t of not more t h a n s i x months, e x c l u s i v e of days of g r a c e , which a r e endorsed by a t l e a s t one member bank". Counsel i s of t h e o p i n i o n t h a t t h e words "of t h e k i n d s and m a t u r i t i e s by t h i s Act made e l i g i b l e f o r r e d i s c o u n t " a p p l y only t o b i l l s of exchange which t h e r e f o r e cannot be bought where they have a .maturity of more t h a n t h r e e months, b u t t h a t t h e y do n o t a p p l y t o b a n k e r s ' a c c e p t a n c e s and t h a t consequently t h e Federal Reserve Board might l e g a l l y i s s u e r e g u l a t i o n s p e r m i t t i n g t h e purchase by Federal r e s e r v e banks of b a n k e r s ' a c c e p t a n c e s of s i x months m a t u r i t y . As a m a t t e r of sound banking p o l i c y does t h e Council a d v i s e t h e Board t o i s s u e such a regulation? (5) Under a u t h o r i t y given i n S e c t i o n 13 of t h e F e d e r a l Reserve Act t h e Board has a u t h o r i z e d member banks t o a c c e p t d r a f t s or b i l l s of exchange having n o t more t h a n t h r e e months s i g h t t o r u n , drawn by banks or bankers i n C e n t r a l American and South American C o u n t r i e s f o r t h e purpose of f u r n i s h i n g d o l l a r exchange a s r e q u i r e d by t h e "usages of t r a d e " i n t h o s e c o u n t r i e s . Within t h e p a s t few days t h e Board h a s a u t h o r i s e d member banks t o a c c e p t d r a f t s i n t h e same maimer f o r banks or b a n k e r s i n ~2— x-3018 A u s t r a l i a , New Zealand and o t h e r A u s t r a l a s i a n d e p e n d e n c i e s , h a v i n g r e c e i v e d a s s u r a n c e s t h a t t h e r e i s now a "usage of t r a d e " i n t h e s e dependencies which r e q u i r e s d o l l a r exchange. Will t h e "usages of t r a d e " i n European c o u n t r i e s l i k e l y l e a d t o r e q u e s t s f o r the e x t e n s i o n of t h i s p r i v i l e g e t o t h o s e c o u n t r i e s , and i f so, what should t h e p o l i c y of t h e Board be r e g a r d i n g such a p p l i c a t i o n s ?
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