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DALLAS. TEXAS 75222
Circular No. 7^-231
August 28, 197*+

To All Member Banks
in the Eleventh Federal Reserve District:

The Board of Governors of the Federal Reserve System
is inviting public comment on a proposal to revise its Regulation A
governing the extension of credit in special situations by Federal
Reserve Banks.
This is the regulation under which the discount win­
dow is made available to member banks.
The proposed regulation and
the Board's accompanying press release are printed on the following
pages.
The provision relating to emergency credit in the
regulation would be revised to permit application of a special dis­
count rate to member banks needing exceptionally large assistance
over a prolonged period.
The special discount rate would ordinarily
be higher than the basic discount rate but would not exceed the rate
established for emergency loans to nonmember banks. This special
rate would not apply to member banks which utilize seasonal or short­
term adjustment credit.
Comments on this proposed change in Regulation A will be
timely if received by September 23, 197^, and should be addressed
to the Secretary, Board of Governors of the Federal Reserve System,
Washington, D.C.
20551.
Should you have any questions on this pro­
posed change, please contact an officer with responsibility for loan
matters at our Head Office or appropriate branch.

Yours very truly,
P. E. Coldwell
President

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

FEDERALRESERVE

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W

press

release

Release

August 21, 1974

The Board of Governors of the Federal Reserve System today proposed an
amendment to its regulation governing member bank borrowing that would permit
application of a special discount rate to member banks needing exceptionally
large assistance over a prolonged period.

Comment will be received on the pro­

posal through September 23.
The special discount rate would ordinarily be higher than the basic
discount rate but would not exceed the rate established for emergency loans to non­
member banks (currently 10 percent).

The basic discount rate is now 8 percent.

The special discount rate would limit any rate preference for long-term assistance
to an individual bank when a wide gap exists between the basic discount rate and
money market rates as it does at present.

The special rate would also encourage

the borrowing bank to make the necessary adjustments in its operations to permit
repayment of the loan in a reasonable period.
Under the proposal the special rate may apply to member banks borrowing
for prolonged periods

(such as for more than eight weeks) and in significant

amounts (such as when the loan has exceeded on average the amount of the borrowing
bank's required reserves).

Under the proposed amendment to the Board's Regulation A

(covering use of the discount window) the special rate could be waived in individual
cases.
The present provision in Regulation A relating to emergency credit to
member banks reads as follows:

"Federal Reserve credit is available to assist

member banks in unusual or emergency circumstances such as may result from
national, regional, or local difficulties or from exceptional circumstances in­
volving only a particular member bank."
Under the proposal, this provision would be divided into two categories.
One would cover Federal Reserve credit to assist member banks in unusual or
emergency circumstances such as may result from national, regional, or local
difficulties.

A second category, to which the special discount rate would apply,

would be available for prolonged assistance involving only a particular member
bank.
A copy of the Board's order in this matter is attached.

TITLE 12 — BANKS AND BANKING
CHAPTER II— FEDERAL RESERVE SYSTEM
SUBCHAPTER A— BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
PART 201— EXTENSIONS OF CREDIT BY FEDERAL RESERVE BANKS
[Regulation A]
Special Rate Application to Certain Extensions of Credit

Pursuant to its authority under Section 10(b) of the Federal Reserve Act
(12 U.S.C. 347(b)), the Board proposes to amend § 201.2(e) of its Regulation A to
permit application of a special discount rate to certain types of lending to member
banks.

The amendment would continue the availability of credit to member banks in

unusual or emergency circumstances resulting from national, regional, or local
difficulties.

Federal Reserve credit would also continue to be made available for

protracted assistance where there are exceptional circumstances or practices in­
volving only a particular member bank.

Under the proposed rule, however, a special

rate may be applied to credit in the latter category.
The purpose of the special discount rate would be to limit any rate pre­
ferential and to encourage the borrowers to make the necessary underlying adjust­
ments that will facilitate repayment of the loan.

The special rate would ordinarily

be higher than the basic discount rates established under Sections 13 and 10(b) of
the Federal Reserve Act (12 U.S.C. 347 and 12 U.S.C. 347(b), respectively).
no event would it be lower than the basic Section 10(b) rate.

In

The spread between

the special and the basic discount rate would be larger the higher market rates
are in relation to the basic rate.

In no case should the special loan rate to member

banks exceed the rate established for loans to nonmembers (currently 10 percent).
The special rate may be waived by the Federal Reserve Bank in cases of banks in
particular difficulty where there is a remedial program under way leading to
repayment of the loan over a reasonable period.
To aid in the consideration of this matter by the Board, interested
persons are invited to submit relevant data, views, comments, or argument.

Any

such material should be submitted in writing to the Secretary, Board of Governors
of the Federal Reserve System, Washington, D.C. 20551, to be received not later
than September 23, 1974.
The proposed amendment to Regulation A would read as follows:

(over)

§ 201.2— General Principles
*

*

*

*

(e) Other Credit to Member Banks
(1) In the event of unusual or emergency circumstances resulting from
national, regional, or local difficulties, Federal Reserve credit beyond that
contemplated under § 201.2(c) is available.
(2) Federal Reserve credit is also available for protracted assistance
where there are exceptional circumstances or practices involving only a particular
member bank.

A special rate apart from rates charged for lending to member banks

under other provisions of this Part may be applied to such credit.

The special

rate may apply to member banks borrowing for prolonged periods (such as for more
than eight weeks) and in significant amounts (such as when the loan has exceeded
on average the amount of the borrowing bank's required reserves) because of
financial strains arising from particular circumstances or practices affecting
the individual bank— including sustained deposit drains, impaired access to money
market funds, sudden deterioration in loan repayment performance, or unsatisfactory
bank policies.

In no case should the special loan rate to member banks exceed

the rate established for loans to nonmembers under 12 U.S.C. 347(c).
By order of the Board of Governors, August 21, 1974.

(Signed) Chester B. Feldberg
Chester B. Feldberg
Secretary of the Board

[SEAL]


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102