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Circular No. 19.
Series of 1920.

FEDERAL RESERVE BANK
O F DAL LAS

PROGRESSIVE DISCOUNT RATES

To

May 21, 1920.
the

M ember B a x k A ddressed :

In our Circular Letter No. 17, dated May 7th, we indicated that it might become necessary
to establish progressive rates of discount on borrowings of our member banks.
With the view of stabilizing conditions, discouraging excessive borrowings and of giving
assurance that indispensable credit will be made available to all banks which are making needed
loans, for purposes of raising crops and live stock and for distributing merchandise and moving
crops and live stock to market, we have decided that it is to the best interests of all concerned
to make these rates effective at once. It is apparent that if we permit some banks to borrow
beyond their proper limit, other banks equally deserving may be deprived of needed credit to
which they are entitled.
In its consideration of what would constitute a normal basic line of accommodation, our
Board of Directors has had due regard for the seasonal requirements of our member banks
due to the demands made upon them for credit to finance our farmers in their agricultural and
live stock pursuits, and others in the manufacture and distribution of products already on hand,
to the end that production and distribution of necessities may be stimulated and not curtailed.
We have, therefore, with the approval of the Federal Reserve Board, established a normal
basic amount of advances v'hich may be extended to member banks, equal to the member banks’
paid-up and unimpaired capital and surplus. This we consider a liberal line, which closely fol­
lows some of the State laws, and is more liberal than was permitted by the National Bank Act
before the Federal Reserve System wras created. Credit advances extended up to and includ­
ing this basic amount will take the normal discount rate in effect at the time paper is submitted.
Whenever advances to a member bank on rediscounts or member bank fifteen-day promissory
notes, (with the exception explained below) shall be approved in an amount greater than its
basic amount, such advances shall be subject to an increasing discount rate, applicable to paper
of all maturities as follows:
“One-half of 1 per cent above normal current rate on accommodations extending
above the normal basic amount up to and including 25 per cent of such basic amount;
“One per cent above normal current rate for the next subsequent sum up to and
including an additional 25 per cent of the basic amount;
“One and one-half per cent above normal current rate for the next subsequent sum
up to and including an additional 25 per cent of the basic amount;
“And so on at an increasing rate of one-half of 1 per cent for each unit of 25 per
cent additional; i. e., the normal current rate shall apply on paper discounted for a
member bank in an amount equal to its capital and surplus, but thereafter the rate shall
increase progressively one-half of 1 per cent on each subsequent sum advanced equal
to 25 per cent, or fraction thereof, of the capital and surplus of the applying member
bank.”
EXCEPTION: The direct obligations (collateral notes for 15 days or less) of member
banks secured by Liberty Bonds or Victory Notes which were actually owned by the borrow­
ing member on April 1, 1920, and direct obligations of member banks secured by Treasury
Certificates of Indebtedness actually owned by the borrowing member, will not be considered

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

as a part of the sum constituting the normal basic amount or any amount in excess thereof;
and the progressive rates shall not apply to such direct obligations. In order to come within
this exception, and not be subject to inclusion in the calculation of the normal basic amount and
the subsequent application of progressive rates, each member bank collateral note secured by
Treasury Certificates of Indebtedness or by Liberty Bonds or Victory Notes, must be accom­
panied by a certificate from an authorized officer of the applying bank, to the effect that the
Liberty Bonds and Victory Notes offered are the property of the applying bank and were
actually owned by it on April 1, 1920, and/or the Treasury Certificates of Indebtedness offered
as collateral security are actually owned by the applying bank on date of hypothecation.
The progressive rate shall not attach to the paper now under discount, but new offerings
and renewals (other than those secured by Liberty Bonds or Victory Notes owned on April
1, 1920, or by Treasury Certificates of Indebtedness owned) shall be subject to the progressive
discount rate, to be based upon the then liability of the offering member bank after deducting
the amount of paper maturing or being paid on the day the offering is accepted.
Member banks should contract their borrowings by retiring their rediscounts in advance
whenever possible, and the discount on paper retired before maturity will be rebated at our cur­
rent discount rates according to the class of paper retired.
Notwithstanding the liberal construction which, with the approval of the Federal Reserve
Board, our Board of Directors has placed upon the amendment to Section 14 of the Federal
Reserve Act, our Executive Committee feels that it is its duty to inquire into the necessity, on
the part of the member bank, for all offerings of paper for rediscount, and will feel privileged
to obtain from member banks information as to the purposes for which the proceeds are to
be used by them, (unless such information is furnished by the offering bank in a letter of
explanation accompanying the offering) and in its discretion may decline offerings for which a
real need is not shown.
The progressive rates above described will be effective on and after the date of this crcular, and will be applied to all accepted offerings received after this date, which, when added
to the paper already under discount, creates an amount in excess of the offering bank's capital
and surplus, or further increases that amount if already in excess of such capital and surplus,
with the exceptions noted.
It is hoped and believed that with the co-operation of member banks, and with a general
elimination of capital and speculative loans by all banks and the limitation of loans to the in­
dispensable needs of actual production, manufacture and distribution, this action will assure
sufficient credit accommodations to all member banks.
Respectfully,

(N. B.—Member bank collateral notes secured wholly or in part by Liberty Bonds, Victory
Notes or Treasury Certificates of Indebtedness not accompanied by the certificate of owner­
ship specified, or which are secured wholly or in part by borrowed bonds, will be considered as a
part of the sum constituting the normal basic amount or amount in excess thereof, and the
progressive rates shall apply thereto.)

E F F E C T I V E J U N E IO. 1 9 2 0

Federal Reserve Bank of Balias

DISCOUNT RATES

SUPERSEDING ALL PREVIOUS RATES

D ISC O U N T IS C A L C U L A T E D ON B A S IS OF 365 D A Y S TO Y E A R
M em ber B an ks’ C ollateral N o tes— Secured by U . S. C ertificates of In deb tedn ess....................................
M em ber B an ks’ C ollateral N o tes— Secured by L iberty B onds or V ictory N o te s...........................................
M em ber B an ks’ C ollateral N o tes— Secured by E ligib le P aper ................................................................... .........
M em ber B an ks’ C ollateral N o tes— Secured by W ar F inance C orporation B onds................... ................
R ediscoun ts— C ustom ers’ N o tes— Secured by U . S. C ertificates of In deb tedn ess.........................................
R ed iscou n ts— C ustom ers’ N o tes— Secured by L iberty Bonds or V ictory N o te s................................................
R ed iscou n ts— C ustom ers’ N o tes— Secured by W ar F inance C orporation B onds....................... ............
R ediscoun ts— Trade A ccep tan ces ..................................................................................................................................................
R ed iscou n ts— Com m ercial P aper .................................. ................................................................................................ ..... .
R ed iscou n ts— A gricu ltu ral or Live Stock P a p e r ...................................................................................................................

BD

S U B J E C T TO
C H A N G E WIT H
OUT N OT ICE

15 D ays and
u n d er

16 to 90
D ays

91 D ays to
Six M onths

See N ote
5 V i%
6 %
7 %
See N ote
5 /2%
7 %
6 %
6 %
6 %

S ee N ote
5'/2 %
7 %
6 %.
6 %
6 %

6 %

N O TE— R ate borne by C ertificates attached with minim um of 5% .
(Revenue Stam ps ARE NOT Required on N otes Secured by U nited S tates G overnm ent Obligations issued a fte r A pril 24, 1917.)
B A N K ERS’ A C C EPTA N C ES—Purchased a t m arket rates subject to agreem ent and discount calculated on basis of 360 days
to the year.
60— 1500— 5206
M aturities N ot Eligible W here R ates N ot Quoted

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