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F ederal reserve Ba n k D ALLAS, TE X A S of Dallas 75222 Circu lar No. 79-154 September 10, 1979 OFF-PREMISES COLLATERAL ARRANGEMENT AND BULLETIN 2, "LOANS" TO ALL MEMBER BANKS IN THE ELEVENTH FEDERAL RESERVE DISTRICT: During 1978, the Federal Reserve System undertook a broad scale review of discount window collateral with a view to modernizing existing policies and p r o c e d u r e s . Some member b a n k s , particula rl y the la r g e r b a n k s , had ex per ienced difficulty finding adequate collateral to s ecure their borrowing needs. Th e objective of the study was to r e evaluate and ex pand the scope of collateral acceptable for discount window borrowings an d also to free other collateral for use in the TT&L program. As a r esu lt of the s tu d y , a number of major policy and procedural changes a r e being implemented. Under the new r u le s , Reserve Banks can now accept foreign pa per and loan participations as collateral to secu re bo rro wings. Also, member banks located in Oklahoma, New Mexico, and Texas may be permitted to hold in their possession certain types of collateral unde r off-premises custody arra n g e m e n ts . (Louisiana law prec ludes use of off-premises collateral a r r a n g e m e n t s . ) The liberalization will p e r mit member banks with a need for additional collateral to use one-to-four family residential mortgages held in their own possession to s ecure discount window borrowing u n d e r the off-premises custody arra n g e m e n t. Borrow ings secu red by these type mortgages will be made at the basic discount rate. The off-premises custody pro ced u re may also be used in the case of commercial and ag ricu ltural pa p e r (including loan p a r t i c ip a ti o n s ) , and Croup I municipal se cu rities. To take account of these pr ocedural changes and to make other needed minor rev isions, our Bulletin 2, "Loans" has been updated and a copy is enclosed for filing in your Regulations and Bulletins Binder . The bulletin dated March 10, 1977, should be removed from your b in d e r and destroyed. B a n k s a nd o th e rs are e n c o u ra g e d to use th e fo llo w in g in c o m in g W A TS n u m b e rs in c o n ta c tin g th is Bank: 1-800-442-7140 (in tra s ta te ) and 1-800-527-9200 (in te rs ta te ). F o r c a lls p la ce d lo c a lly , p le a se use 651 p lu s th e e x te n s io n re fe rre d to above. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) - 2 - If your bank has an interest in the new collateral ar ran gements or any question with res pec t to the types of cr ed it available at the discount window, you may contact J e s s e D. S anders or Billy J . Hayden in the Loan Department at this Bank, Ext. 6240. Interested member banks located in the te r r i to r y s e rv e d by a Branch of this Bank should contact the individual at the appropri ate Branch as indicated below: El Paso Branch Robert W. Schultz, (915) 544-4730, Ext. 41; Houston Branch C. O. Holt, J r . , (713) 659-4433, Ext. 44; San Antonio Branch Thomas C. Cole, (512) 224-2141, Ext. 13; or you may call on the incoming WATS number 1 -8 0 0-2 92 -5 81 0, Ext. 13. The above named individuals will be pleased to provide fu rthe r information concerning the offering of collateral u n d e r the off-premises ar ra ngem en t and to f urn is h the n e c e s s a r y forms for use in handling this type tr ansaction. Sincerely y o u r s , Robert H . Boykin F ir st Vice President Enclosure BULLETIN 2 Loans FEDERAL RESERVE BANK OF DALLAS SCOPE This bulletin sets forth the general terms and conditions under which we may extend credit accommodations to member banks and the procedures to be followed in connection with extensions of such accommodations. Additional information, including statements concerning the policy by which the “discount window” is administered, may be found in Regulation A and the Federal Reserve A ct (see references in section 2 of this bulletin). Our current discount rate and our current rates on section 10(b) advances and advances to in dividuals, partnerships, and corporations under the last paragraph of section 13 of the Fed eral Reserve A ct are found in Supplement A to this bulletin. FEDERAL RESERVE B A N K OF DALLAS BULLETIN 2 TABLE OF CONTENTS Section 1, DEFINITIONS 1.00 1.05 1.10 1.15 1.20 1.25 1.30 1.35 1.40 1.45 1.50 1.55 1.60 Acceptable and acceptability Act Advance Borrow and borrowing Collateral Discount Discount rate Eligible and eligibility Section 10(b) advance Section 13 advance Officer authorized to borrow Paper Reference to Bulletin 1 Section 2, REFERENCES Section 6, SECTION 10(b) ADVANCES 6.00 Description 6.05 Collateral types 6.10 Procedure Section 7, DISCOUNTS 7.00 Description 7.05 Procedure Section 8, SECURITIES AS COLLATERAL 8.00 Book-entry Treasury securities 8.05 Securities held elsewhere 8.10 Securities held by an approved custodian bank 8.15 Simplified description in certain cases Section 3, GENERAL 3.00 Kinds of credit accommodations 3.05 Disbursement of funds and computation of interest 3.10 Information required by law 3.15 Payment at maturity and pre-payment 3.20 Payments received on collateral by bor rowing banks 3.25 Renewal 3.30 Selling Federal funds while borrowing 3.35 Off-premises collateral arrangements Section 9, PAPER 9.00 9.01 9.05 9.10 9.15 9.20 9.25 9.30 Section 4, PREREQUISITES FOR BORROWING 4.00 Borrowing resolution 4.05 Filing of signatures 4.10 Continuing lending agreement Section 5, SECTION 13 ADVANCES 5.00 5.05 5.10 5.15 5.20 5.25 Description Borrowing request Collateral security Collateral must have adequate maturity Release of collateral Advances due on Saturdays, Sundays, or holidays 9.35 9.40 9.45 9.50 Approval required Loan participations Bankers’ acceptances Collection of paper Demand paper Financial statements Financial statements — originals or copies Form of financial statements, forms available Endorsement Insurance Secured paper Warehouse receipts Section 10, CONTRACT Supplement A, RATES FOR DISCOUNTS AND ADVANCES Supplement B, ELIGIBILITY OF SECURITIES Supplement C, APPROVED CUSTODIAN BANKS FEDERAL RESERVE B A N K OF DALLAS BULLETIN 2 Section 1, DEFINITIONS 1.40 Section 10(b) advance 1.00 Acceptable and acceptability “Section 10(b) advance” means an advance under section 10(b) of the A ct at a rate not less than Vs of 1 percent over the discount rate. Such an advance need not have eligible collateral, but the collateral must nevertheless be acceptable. “Acceptable” and “acceptability” refer to the credit quality of paper and other collateral. Acceptability depends on the financial responsi bility of makers, endorsers, or guarantors, or on the security behind the obligation, or on all of these, as appropriate. We determine to our own satisfaction the acceptability of paper and cer tain other collateral. 1.05 Act “A ct” means the Federal Reserve Act. 1.10 Advance “Advance” means a borrowing other than by discount under section 13 or 10(b) of the Act. Advances are generally made under the Continu ing Lending Agreement Regarding Advances by Federal Reserve Bank of Dallas (Form LD-176). 1.15 Borrow and borrowing “Borrow” and “borrowing” refer to a member bank receiving an extension of credit from this Bank, whether by advance or discount. 1.20 Collateral 1.45 Section 13 advance “Section 13 advance” means an advance at the discount rate under section 13 of the A ct and secured by eligible collateral. 1.50 Officer authorized to borrow “Officer authorized to borrow” means an officer of a member bank currently holding one of the offices which the member bank’s borrowing resolution authorizes to borrow from this Bank. R e f e r e n c e : 4.05 of this bulletin. 1.55 Paper “Paper” refers to notes and similar obligations of various obligors, usually customers of borrow ing banks. 1.60 Reference to Bulletin 1 “Collateral” refers to obligations in the form of securities or paper which a borrowing bank pledges to secure an advance. Several definitions, rules of construction, and other provisions applicable to this bulletin are found in our Bulletin 1, “General Provisions,” and are incorporated herein by reference. R eference: sections 5 and 6 of this bulletin. Section 2, REFERENCES 1.25 Discount “Discount” means an extension of credit in which a member bank discounts eligible paper. 1.30 Discount rate “Discount rate” refers to the lowest rate charged for borrowing. It is fixed by our Board of Direc tors subject to review and determination of the Board of Governors of the Federal Reserve System. In addition to the specific references found throughout this bulletin, the following general references are important to an understanding of borrowing transactions with this Bank: (1) Section 201.2 of Regulation A, containing general principles concerning the use of Federal Reserve credit. (2) Section 201.3 of Regulation A, covering ad vances to member banks. R e fe r e n c e : Supplement A to this bulletin for the current discount rate. (3) Section 201.4 of Regulation A, covering dis counts for member banks. 1.35 Eligible and eligibility (4) Section 201.5 of Regulation A, containing general requirements. “Eligible” and “eligibility” refer to obligations satisfying the applicable requirements of the Act and Regulation A for use in connection with a section 13 advance or, in the case of paper, for discount. (5) The following portions of the A ct: sections 4.8, 9.13, 10(b), 12.2, 13.2, 13.3, 13.4, 13.5, 13.6, 13.7, 13.8, 13.10, 13.12, 13.13, 13a.l, 13a.2, 13a,4, 19(d), and 24.3. BULLETIN 2 FEDERAL RESERVE B A N K OF DALLAS (6) RS 5200, containing the indebtedness limit for one borrower from national banks, a limit made applicable to borrowing from this Bank by section 201.5(d] of Regulation A. (Note: For pur poses of this statute, as applied to borrowing from us, undivided profits may be included as part of capital stock and surplus.) R e fe r e n c e : Paragraph 2309 of Published Inter pretations of the Board of Governors of the Federal Reserve System. Section 3, GENERAL 3.00 Kinds of cred it accom m odations U nder p ro v isio n s of the A ct and su b je c t to Regulation A, and in the light of the general principles set forth in that regulation, we are authorized to make credit available to member banks by the following means: section 13 ad vances (see section 5); section 10(b) advances (see section 6); and discounting eligible paper (see section 7). Credit accommodations to mem ber banks are divided into the following types: (1) short-term adjustment credit; (2) seasonal credit; (3) emergency credit; and (4) prolonged credit. R e fe r e n c e : s e c t i o n s 2 0 1 .2 ( c ) , 2 0 1 .2 ( d ) , and 201.2(e) of Regulation A. 3.05 D isbursem ent of funds and com putation of in terest If a request for credit is received by us before 2:00 p.m. (3:00 p.m. Central Time in unusual cases and when the collateral is held at this Bank or approved collateral is being held in abeyance) and the request is approved, the borrowing member bank will be given immediate credit in its reserve account unless the member bank re quests that credit be given on a subsequent day. At the time of the advance, we credit the full amount of the advance to the reserve account of the borrowing bank. Interest on an advance will be payable to us at the time of repayment of the advan ce at the ap p licab le rate in d icated in Supplement A to this bulletin at the time the advance was made, except that, if the rate is changed while the advance is outstanding, the new rate shall apply for the period after the date of such change. Interest will be computed on a basis of 365 days to the year. In computing in terest, we include the date of borrowing and exclude the date of payment. The same pro cedure will apply to the discount of eligible paper, except no consideration will be given to unpaid interest on discounted eligible paper. 3.10 Inform ation required by law We are required by law to keep informed of the general character and amount of the loans and in v estm en ts of m em ber ban ks to a scerta in whether undue use is being made of bank credit for the speculative carrying of or trading in securities, real es tate, or commodities, or for any other purpose inconsistent with the maintenance of sound credit conditions. In connection with any advance or discount, we reserve the right to require a current condition report of the borrow ing member bank, a recent balance sheet and profit and loss statement of any obligor on paper offered as collateral for an advance or for dis count, and such other reports and statements as we may deem desirable. R e fe re n c e : section 201.2(h) of Regulation A ; and section 9.25, 9.30, and 9.35 of this bulletin. 3.15 Paym ent at m aturity and prepaym ent A borrow ing plus accru ed in te re st w ill be charged to the borrowing bank’s reserve account at maturity. The borrowing bank, at its option, may prepay all or part of any borrowing, and in such cases, the amount paid plus accrued inter est will be charged to the borrowing bank’s reserve account. 3.20 Paym ents received on collateral by borrow ing banks If a member bank that has pledged or dis counted paper with us, or has otherwise trans ferred collateral to us, receives any funds in payment for such paper or other collateral while it is so pledged, discounted, or transferred, the member bank must immediately advise us of all such payments. When there is an excess of collateral equal to or greater than the amount of such payment, we will reduce the collateral value by the amount of the payment. In other c a ses, we w ill charge the borrow in g b a n k ’s reserve account in the amount of the payment plus accrued interest thereon. Until we take either of the above actions, as appropriate, such payment will be considered as having been re ceived in trust for us. 3.25 Renew al A borrowing bank wishing to renew an advance FEDERAL RESERVE B A N K OF DALLAS should follow the same procedure necessary to obtain an original advance (see section 5 and section 6). 3.30 Selling Fed eral funds w hile borrow ing Net sales of Federal funds will not be regarded as inappropriate while using seasonal credit as long as such transactions are representative of the bank’s normal operating pattern. However, in utilizing other types of Reserve Bank credit, the member bank should not be a net seller of Federal funds in the same reserve week in which it is borrowing. Excess funds should be applied as a payment to the loan as opposed to placing them in the funds market. 3.35 O ff-prem ises collateral arrangem ents If approved by us, member banks located in New Mexico, Oklahoma, and Texas may retain collateral consisting of paper (including loan par ticipations and one-to-four family residential mortgages] and Group I municipal securities in their possession rather than transmit such col lateral to us or a custodian bank.* To participate in such an arrangement the member bank should execute form BD-59, “Application to Act as OffPremises Custodian of Collateral and Security Agreement”. Collateral under an off-premises arrangement can secure an advance for up to 21 calendar days. It can secure subsequent ad vances if before each there is a period of at least 7 calendar days in which it is released from the Security Agreement or in which no credit is outstanding to the borrowing bank. Section 4, PREREQUISITES FOR BORROWING 4.00 Borrow ing resolution A certified copy of a resolution adopted by a member bank’s board of directors authorizing designated officers to execute agreements with us and to borrow on its behalf from us must be on file with us in order for any member bank to obtain credit accommodations. Our Form BD-1 Rev. should be used for this purpose. Borrowing resolutions filed with us remain in effect until canceled or superseded by a new resolution. 4.05 Filing of signatures BULLETIN 2 An officer authorized to borrow must have his signature filed with this Bank on a signature card, Form AC-150, before he is authorized to sign any documents in connection with borrow ing. 4.10 Continuing lending agreem ent In general, we will make advances to a member bank pursuant to a continuing lending agree ment (our Form LD-176) to be executed by an officer authorized to borrow, and such advances pursuant to such agreement will be evidenced by an advice of credit transmitted to the member bank at the time of the advance, specifying the amount and maturity of the advance. However, we reserve the right in any case to require the execution by a member bank of a promissory note with respect to a particular advance. Such a note must be signed by an officer authorized to borrow. The continuing lending agreement re mains in effect until canceled by either party by notice in writing to the other; however, can cellation does not affect loan transactions made previously. Reference: 1.50 and 4.05 of this bulletin. Section 5, SECTION 13 ADVANCES 5.00 D escription We may make advances to a member bank, pursuant to section 13 of the Act, for periods not exceeding 90 days,** on the security of obli gations of, or fully guaranteed by, the United States or any agency of the United States (see Supplement B). Also, we may make advances to a member bank, pursuant to section 13 of the Act, for periods not exceeding 90 days,** on the security of any paper eligible for discount or for purchase by the Reserve Banks under provisions of the Act (eligible paper). 5.05 Borrow ing request In general, we do not require that a request for an advance be accompanied by a written appli cation, and any such request may be made by letter, wire, or telephone by an officer authorized to borrow. However, we reserve the right to re quire the submission of a written application. Each request for an advance must specify the amount and maturity of the requested advance ‘ Louisiana law precludes use of off-premises collateral arrangements. **It is expected, however, that advances normally will be for shorter periods unless made for seasonal or emergency reasons. BULLETIN 2 FEDERAL RESERVE B A N K OF DALLAS and the collateral offered as security, and in the event such collateral is not already held by us, the manner in which such collateral will be placed in our possession or under our control. R e fe re n c e : 4.05 of this bulletin. 5.13 C ollateral security Collateral offered as security for any advance, in addition to meeting requirements of the con tinuing lending agreement, must be acceptable to us; must be endorsed or assigned by the mem ber bank (except in the case of bearer paper); and must be in such form, or accompanied by such documents, that it may be readily trans ferred to us without further action by the mem ber bank. R e fe re n c e : 1.00 and sections 8 and 9 of this bulletin. 5.15 C ollateral m ust have adequate m aturity Collateral should not mature earlier than the date on which the borrowing matures (except collateral which is to be exchanged for similar collateral, with our advance agreement, before the maturity of the borrowing). 5.20 R elease of collateral Unless the borrowing bank requests otherwise, we release collateral immediately following pay ment of the related borrowing. All paper held as collateral will be returned to the borrowing bank and securities will be held by us in safekeeping subject to the order of the borrowing bank. 5.25 A dvances due on Saturdays, Sundays, or holidays If an advance is agreed to fall due on one of our nonbanking days, the due date will be changed so that the advance will mature on our next banking day. R e f e r e n c e : Supplem ent A to Bulletin 1, contain ing our nonbanking days. Section 6, SECTION 10[b) ADVANCES 6.00 D escription We may make advances to a member bank, pursuant to section 10(b) of the Act, for periods not to exceed four months,* secured to our satis faction, whether or not the collateral meets the requirements of 5.00 above. However, the rate on such advances must be at least V 2 of 1 per cent higher than the highest rate applicable to discounts of or advances on eligible paper. Pro vided, however, advances under this section, when secured by mortgages on one-to-four fam ily residential property, shall be at a rate equal to the lowest rate charged for borrowing. 6.05 C ollateral types Among the types of collateral which may be acceptable for a section 10(b) advance are those listed below: (1) Paper which would be eligible, except for its maturity, at the unpaid principal amount. (2) Paper secured by stock and complying with Regulation U at the unpaid principal amount. (3) Obligations insured under Title I or Title II of the National Housing Act at the unpaid prin cipal amount. (4) Long-term general obligation bonds, revenue bonds, notes, and warrants of any state or politi cal subdivision thereof (other than those re ferred to in Supplement B). In addition, when in our judgment circumstances make it advisable, we may accept as security for a section 10(b) advance any assets other than those set forth above which we find acceptable. 6.10 Procedure The procedure for obtaining a section 10(b) ad vance is identical to that for other advances (see section 5). In addition, form BD-29 should be sub mitted when the collateral is paper to be held by us, and form BD-59 should be submitted when the collateral is paper or municipal se curities to be held under an off-premises ar rangement (see 3.35). Section 7, DISCOUNTS 7.00 D escription We may discount custom ers’ paper of a member bank pursuant to sections 13 and 13(a) of the Act, that meets the “eligibility” requirements set forth in section 201.4 of Regulation A (eligible paper). Banks have generally found it more con venient to use eligible paper as collateral for a section 13 advance, rather than have it dis counted. *It is expected, however, that advances normally will be for shorter periods unless made for seasonal or emergency reasons. FEDERAL RESERVE B A N K OF DALLAS 7.05 Procedure Any member bank desiring to discount paper with us, as indicated in 7.00 above, should con sult us regarding the procedure to be followed. R e fe r e n c e : section 9 for operating details with respect to eligible paper. Section 3, SECURITIES AS COLLATERAL 8.00 B ook -entry T reasury secu rities In a cco rd a n ce w ith S e ctio n 306 .1 1 7 (a ) of S u b p art 0 o f T reasu ry D epartm ent C ircu lar No. 300 and the corresponding section of Agency regulations, this Bank, as fiscal agent of the United States, maintains as “book-entry securi ties,” transferable Treasury or Agency securities deposited as collateral for advances by this Bank. Notwithstanding the application of the book-entry procedures, this Bank in its indi vidual capacity shall continue to maintain ap propriate accounts evidencing such deposits. Transferable Treasury or Agency securities on deposit or hereafter deposited for such purpose will be converted into book-entry form and maintained in a book-entry collateral account in accordance with the provisions of our current Bulletin 14, “Book-Entry Securites,” and in such event such securities will be handled pursuant to the terms and conditions of that circular, n otw ith stan d in g any in c o n sis te n t p ro v isio n s herein. 8.05 Secu rities held elsew here Under certain conditions, securities offered as collateral may be held elsewhere than at this Bank and should be handled in the following manner: (1) If held by an approved custodian bank, ar rangements may be made for us to accept a custody receipt (see 8.10 for procedure). (2) If held in a correspondent bank in a Federal Reserve office city outside this district, they may be delivered to the Federal Reserve office in that city. The procedure for this will be supplied on request and should be initiated early in the morning on the day the advance is needed. (3) If the borrowing bank is approved to hold collateral under an off-premises arrangement (see 3.35), securities consisting of Group I mu nicipal securities may be retained by the bor rowing bank pursuant to that arrangement. Form BD-59 must be executed in connection with such offering. BULLETIN 2 (4) In all other cases the securities should be delivered to us. 8.10 Secu rities held by an approved custodian b ank Supplement C to this bulletin lists custodian banks that have agreed to hold collateral for us. The borrowing bank should telephone and in struct the custodian bank to hold the securities subject to our order and for the account of the borrowing bank. The name of the individual contacted at the custodian bank should be fur nished us in order that we may confirm that the securities are held as collateral. The borrowing bank should execute a Pledge Agreement Form (LD-168X), though when necessary the agree ment may be obtained after the funds are ad van ced . W hen the se cu ritie s are no longer pledged, we will instruct the custodian bank to release them and hold them in free safekeeping. 8.15 Sim plified description in certain cases W hen o b lig atio n s pledged as co lla te ra l are regular bearer securites held in custody with us or book-entry Treasury securities on our books, the borrowing bank need only advise us of the description of the securities and the number of the custody receipt or advice of deposit. Section 9, PAPER 9.00 A pproval o f paper Paper offered to secure an advance should be submitted prior to actual need to allow time for processing and approval by our Discount Com mittee. Paper which has been so approved will be accepted at face value and held in abeyance pending a request for credit. The offering should be listed on one of the following forms: (1) Form BD-29, to be used when the paper is to be held by us. (In certain cases subcollateral supporting the paper may continue to be held by the offering bank.) (2) Form BD-59, to be used when the paper is to be held by the offering bank (see 3.35). If paper is not submitted in advance of actual need, we have the option of assigning a collateral value of less than 100 percent pending its ap proval. If such paper is ultimately approved by the Discount Committee, it can thereafter be utilized at 100 percent of its face value; but if it is not so approved, the assigned collateral value will be charged to the borrowing bank’s BULLETIN 2 FEDERAL RESERVE B A N K OF DALLAS reserve account unless acceptable substitute col lateral is promptly provided. R e fe re n c e : T h e reverse side of form BD-29 for detailed information as to the preparation and submission of an offering. 9.01 Loan participations Loan participations which clearly reflect the pur chase of a portion of an obligation by a member bank from the original lender may be used as collateral if we find them acceptable. Loan par ticipations containing the following provisions will not be acceptable: — Payment of the participation (or the underlying loan) is guaranteed by the lender. — The participation is to be repaid on a schedule different from that of the underlying loan. — Interest rates on the participation are substantially different from the rates applicable to the underlying loan. — The original lender is obligated to re purchase the participation, (a right of the lender to repurchase, which is com mon in participations, is not such an obligation.) If the underlying obligation of the borrower to the original lender is eligible, a participation in that obligation will be eligible. Loan participa tions offered should be listed on form BD-29 if they are to be held by us, or on form BD-59 if they are to be held by the offering bank under an off-premises collateral arrangement (see 3.35). 9.05 Bankers’ accep tan ces If a banker’s acceptance as drawn does not clearly disclose the character of the underlying transaction on its face, evidence of eligibility may consist of a stamp or certificate affixed by the acceptor in one of the following standard certificate forms: DOMESTIC SHIPMENTS At time of acceptance, this bill was ac companied by shipping documents evi d encing the d o m estic shipm ent of (name of commodity) from (point of shipment) to (place of destination). (Name of Acceptor) IM P O R T AND E X P O R T TR A N SA C T IO N S The transaction which gives rise to this instrument is the (importation or expor tation) of (name of commodity] from (point of shipment) to (place of desti nation). (Name of Acceptor) W A R EH O U SE SECU RED CRED IT This bill was secured at the time of acceptance by independent warehouse, terminal, or other similar receipt con veying security title to (name of readily marketable staple) stored in (country where stored). (Name of Acceptor) 9.10 C ollection of paper Paper which has been discounted or pledged as collateral will be furnished to the borrowing bank, in trust, in advance of maturity to permit collection (see also section 3.20 of this bulletin). 9.15 Demand paper Eligible paper in the form of demand notes is acceptable for discount or to secure advances. However, demand paper cannot be accepted if offered more than a reasonable time after issue, if dishonored after demand for payment, or if otherwise overdue. Subject to the above restric tions, or unless limited by facts which establish an earlier payment date: (1) Commercial or industrial demand paper may be accepted for periods up to 90 days from the date of pledge or discount. (2) Agricultural demand paper may be dis counted for periods up to 9 months, or accepted as collateral to a borrowing bank’s note having a maturity not in excess of 90 days. 9.20 Fin an cial statem ents In connection with any advance or discount, financial statements, including complete sched ules of important items, should be submitted with all commercial or industrial paper regard less of amount and should be submitted with agricultural paper in the amount of $1,000 or over. Financial statements of endorsers or guar antors, if any, should also be submitted. We reserve the right to require a recent balance sheet and profit and loss statement of any obli BULLETIN 2 FEDERAL RESERVE B A N K OF DALLAS gor on paper offered as collateral for an advance or for discount, and such other reports and statements as we may deem desirable.* If more current financial statements or other pertinent data should come into the possession of the member bank during the time approved paper remains in our custody or remains sub ject to an off-premises custody arrangement (see 3.35), we request that such information be sup plied to us promptly. We will return or other wise remove from collateral status all paper not supported by a current financial statement; for this purpose, a financial statement will be con sidered noncurrent 18 months after its date, but in appropriate circumstances it may be consid ered noncurrent earlier than that. 9.25 Fin an cial statem ents — originals or copies Financial statements should be originals or copies of originals held in the files of the bor rowing bank. Financial statements become the property of this Bank and are not returned; th e re fo re , w hen a borrow ing ban k subm its original financial statements, it should retain copies for its files. If copies (other than photo copies) are furnished, they should bear the fol lowing certification signed by an officer autho rized to borrow: This is a true copy of the original signed financial statement held in our files. 9.30 Form of financial statem ents, form s available Financial statements need not be in any special form but should consist of a complete and reasonably detailed balance sheet, profit and loss statement, and reconciliation of net worth. W e may request additional information when deemed desirable for a better understanding of the financial condition and operation of the obligor. W e have prepared th ree form s fo r optional use by member banks in this connec tion, and we supply them free of charge to member banks. They are: (1) Form C-5, financial statement for farmers and ranchers. (2) Form C-6, financial statement for commercial borrowers. (3) Form C-7, for comparative posting of five years of financial data on the borrower. 9.35 Endorsem ent Paper must be endorsed, by or on behalf of the holder, on the back of the instrument. The en dorsement should read: Pay to the order of Federal Reserve Bank of Dallas (Name of borrowing bank and location) (Manually signed by an officer authorized to borrow) 9.40 Insurance When applicable, insurance policies covering collateral should accompany paper and should have riders attached making loss payable to the member bank as its interest may appear. 9.45 Secured paper The borrowing bank should see that copies of security agreements or similar instruments ac company secured paper. Evidence of compliance with the appropriate statutes covering the crea tion and perfection of security interests and other liens should also be provided. 9.50 W arehou se receipts If paper is secured by warehouse receipts, the paper will not be acceptable as collateral unless the warehouse receipts meet the following re quirements: (1) They must be negotiable and endorsed when ever endorsement is necessary to pass title. (2) T h e w arehou sem an issu in g the rece ip t should be entirely independent of the customer pledging such receipt, and the warehouseman must not have any financial interest in the goods described in the receipt, except to the extent of the usual lien for storage charges, etc. Section 10, CONTRACT Each member bank applying to us for an ad vance or discount shall be deemed by such action to have agreed to all of the terms and conditions set forth in this bulletin and in Regu lation A. ‘ Under certain conditions, the requirement for a financialstatement may be waived. FEDERAL RESERVE B A N K OF DALLAS BULLETIN 2 Supplement B ELIGIBILITY OF SECURITIES B -1 .00 Eligible U .S. agency secu rities Direct obligations of, and obligations fully guar anteed as to principal and interest by, agencies of the United States Government, are eligible to secure advances at the discount rate. The following are the principal agency obligations now eligible as collateral for such advances: (1) Federal Intermediate Credit Bank deben tures. (2) Federal Home Loan Bank notes and bonds. (3) Federal Land Bank bonds. (4) Bank for Cooperatives debentures. (5) F e d e ra l N atio n al M ortgage A sso cia tio n notes, debentures, and guaranteed certificates of participation. (6) Obligations of or fully guaranteed by the Government National Mortgage Association. (7) M erchant Marine bonds. (8) Export-Import Bank notes and guaranteed participation certificates.* (9) F arm ers notes.* Home A d m in istratio n insu red (10) Notes fully guaranteed as to principal and interest by the Small Business Administration.* (11) Federal tures. Housing Administration deben (12) District of Columbia Armory Board bonds. (13) Tennessee Valley Authority bonds and notes. (14) Bonds and notes of local urban renewal or public housing agencies fully supported as to principal and interest by the full faith and credit of the United States pursuant to section 302 of the Housing Act of 1961 (42 U.S.C. 1421(a)(c), and 1452(c)). (15) Commodity Credit Corporation certificates of interest in a price-support loan pool conform ing with, and assigned in conformity with, agree ‘ Form BD-29 is required with these obligations. m ents, in stru ctio n s, and reg u latio n s o f the Commodity Credit Corporation as to form and security. (16) Federal Home Loan Mortgage Corporation notes, debentures, and guaranteed certificates of participation. (17) United States Postal Service obligations. (18) Participation certificates evidencing undi vided interests in purchase contracts entered into by the General Services Administration. (19) Obligations entered into by the Secretary of Health, Education, and W elfare under the Public Health Service Act, as amended by the Medical Facilities Construction and Moderniza tion Amendments of 1970. (20) Obligations guaranteed by the Overseas Private Investment Corporation pursuant to the provisions of the Foreign Assistance A ct of 1961, as amended. (21) Federal Financing Bank bills. NOTE: Nothing less than a full guarantee of principal and interest by a federal agency makes an obligation eligible. For example, mortgage loans insured by the Federal Housing Adminis tration are not eligible since the insurance con tract is not equivalent to an unconditional guar antee and does not fully cover interest payable on the loan. Obligations of international institu tions, such as the Inter-American Development Bank and the International Bank for Reconstruc tion and Development also are not eligible, since such institutions are not agencies of the United States. B -2.00 Eligible short-term m unicipal w arran ts and sim ilar secu rities Securities of the following types may be used as collateral for a section 13 advance at the dis count rate: Bills, notes, revenue bonds, and warrants with a maturity from date of purchase of not exceeding six months, issued in anticipation of the collec tion of taxes or in anticipation of the receipt of assured revenues by any state, county, district, political subdivision, or municipality in the continental United States, including irrigation, drainage, and reclamation districts. FEDERAL RESERVE B A N K OF DALLAS In determining the eligibilty of such obligations as collateral, compliance with the requirements of Regulation E is not necessary; but this Bank will satisfy itself that sufficient tax or other assured revenues earmarked for payment of such obligations will be available for that pur pose at maturity, or within six months from the date of the advance if no maturity is stated. Payments due from federal, state, or other gov ernmental units, in our discretion, may be re garded as “other assured revenues” ; but neither BULLETIN 2 the proceeds of a prospective issue of securities nor future tolls, rents, or similar collections for the voluntary use of government property for non-governmental purposes will normally be so regarded. Obligations with original maturity ex ceeding one year would not ordinarily be selfliquidating as contemplated by the statute, un less at the time of issue provision is made for a redemption or sinking fund that will be suffi cient to pay such obligations at maturity. FEDERAL RESERVE B A N K OF DALLAS Supplement C APPROVED CUSTODIAN BANKS The following custodian banks have agreed to hold collateral for a borrowing bank in this district: First National Bank, Albuquerque, New Mexico First National Bank of Amarillo, Amarillo, Texas Austin National Bank, Austin, Texas City National Bank of Austin, Austin, Texas Continental Illinois National Bank and Trust Company, Chicago, Illinois The First National Bank of Chicago, Chicago, Illinois Corpus Christi National Bank, Corpus Christi, Texas Citizens National Bank, Dallas, Texas First City Bank, Dallas, Texas First National Bank in Dallas, Dallas, Texas Mercantile National Bank at Dallas, Dallas, Texas National Bank of Commerce, Dallas, Texas Republic National Bank of Dallas, Dallas, Texas BULLETIN 2 Houston National Bank, Houston, Texas Texas Commerce Bank, N A ., Houston, Texas First National Bank in Little Rock, Little Rock, Arkansas First National Bank at Lubbock, Lubbock, Texas The First National Bank of Midland, Midland, Texas Whitney National Bank, New Orleans, Louisiana The Bank of New York, New York, New York Bankers Trust Company, New York, New York The Chase Manhattan Bank, N.A., New York, New York Chemical Bank, New York, New York First National City Bank, New York, New York Manufacturers Hanover Trust Company, New York, New York Morgan Guaranty Trust Company, New York, New York Texas Commerce Bank, N.A., Houston, Texas (New York Office) San Angelo National Bank, San Angelo, Texas First National Bank, St. Louis, Missouri El Paso National Bank, El Paso, Texas The Alamo National Bank of San Antonio, San Antonio, Texas The State National Bank of El Paso, El Paso, Texas Bexar County National Bank, San Antonio, Texas Continental National Bank of Fort Worth, Fort Worth, Texas Frost National Bank, San Antonio, Texas The First National Bank of Fort Worth, Fort Worth, Texas Fort Worth National Bank, Fort Worth, Texas Bank of the Southwest, N.A., Houston, Texas First City National Bank of Houston, Houston, Texas National Bank of Commerce of San Antonio, San Antonio, Texas Wells Fargo Bank, N.A., San Francisco, Cali fornia First National Bank & Trust Company, Tulsa, Oklahoma The First National Bank of Waco, Waco, Texas
@FedFRASER