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FEDERAL RESERVE BANK OF DALLAS December 27th, 1920. PURCHASES OF BANKERS’ ACCEPTANCES FROM ACCEPTING BANKS. As directed by a resolution of the Executive Committee of this bank, hereafter we will in no case purchase acceptances unendorsed by a bank other than the acceptor, of any one drawer in an amount exceeding 10% of the capital and surplus of the accepting bank, and then only when the acceptances are secured in a manner satisfactory to our Executive Committee. The practice of a great many accepting banks who offer their own acceptances directly to us for purchase under the impression that such trans action constitutes an open market transaction, when as a matter of fact such a transaction is a private one between two contracting parties, precludes the development o f an open market in this district for either buying or selling bankers’ acceptances, and sets up a tendency on the part of the accepting banks to regard the Federal Reserve Bank itself as the open market. Such a practice is not in accord with the principle underlying the use and efficacy of acceptance banking. The practice referred to has been frequently observed and commented upon, but from a desire to promote the use of acceptances in transactions where the method is suitable, no definite action looking to the distribution of bankers’ acceptances in the open market has heretofore been taken. The action o f our Executive Committee, o f which you are advised in this letter, is taken at a time when it will cause the accepting banks of this district the least inconvenience, as we are at the present time carrying in our portfolio less than $200,000.00 o f bankers’ acceptances which have been purchased directly from the accepting banks in this district. In granting acceptance credits, accepting banks will therefore be guided by this expression, and we may say, as we have frequently said before, that finding a market for bankers’ acceptances executed under acceptance credits should devolve largely upon the drawer or holder for whose benefit the credit has been granted. Yours very truly, This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
@FedFRASER