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F e d e r a l R e s e r v e b a n k o f Da l l a s
DALLAS. TEXAS
April 18, 1961
REPRINT OF REGULATION A
To All Member Banks and Others Concerned
in the Eleventh Federal Reserve District:
Enclosed is a copy of Regulation A of the Board of Gov
ernors of the Federal Reserve System. The Regulation has been
reprinted to conform with the style of the Code of the Federal
Regulations.
Member banks are requested to remove the old copy of the
Regulation from their ring binders containing the Regulations
of the Board of Governors and insert the enclosed copy in lieu
thereof.
Yours very truly,
Watrous H. Irons
President
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
BOARD OF GOVERNORS
o f the
FEDERAL RESERVE SYSTEM
ADVANCES AND DISCOUNTS BY
FEDERAL RESERVE BANKS
REGULATION A
(1 2 CFR 2 0 1 )
This regulation as printed herewith is in the form as revised
effective February 15, 1955
In announcing the following revision of Regulation
A, the Board of Governors stated:
“While this revision of Regulation A makes
certain changes in the language of the Regu
lation itself, the most important change is the
revision of the foreword ( General Principles )
to Regulation A. The revised foreword is
designed merely to restate and clarify certain
guiding principles which arc observed by the
Federal Reserve Banks in making advances
and discounts in accordance with the appli
cable provisions of the Federal Reserve Act
and of Regulation A. The revision is not
intended to further restrict or restrain access
by member banks to the credit facilities of
the Federal Reserve Banks.”
INQUIRIES REGARDING THIS REGULATION
Any inquiry relating to this regulation should be addressed to
the Federal Reserve Bank of the district in which the inquiry
arises.
CONTENTS
(This text corresponds to the Code of Federal Regulations, Title 12,
Chapter II, Part 201, cited as 12 CFR 201)
Page
Sec. 201.0. F oreword: G eneral P rinciples................................................................
1
Sec. 201.1 I ntroduction .................................................................................................
2
Sec. 201.2. A dvances to M ember B anks
(a) Advances on Government obligations......................................
(b) Advances on eligible paper............................................................
(c) Advances on other security under section 10(b) of the Fed
eral Reserve A c t............................................................................
2
3
3
Sec. 201.3. D iscount of N otes, D rafts and B ills for M ember B anks
(a) Commercial, agricultural and industrial paper.........................
(6) Bills of exchange payable at sight or on demand...................
(c) Bankers’ acceptances ......................................................................
(d) Construction loans ..........................................................................
(c) Agricultural paper ............................................................................
(/) Paper of cooperative marketing associations.............................
( g) Factors’ paper .................................................................................
(/)) Collateral securing discounted paper...........................................
(i) Determination of eligibility..........................................................
O') Limitations .......................................................................................
3
4
5
6
6
6
7
7
7
7
Sec. 201.4. G eneral R equirements as to A dvances and D iscounts
(« ) Applications for advances or discounts.......................................
( b ) Financial statements ......................................................................
(c) Other information ............................................................................
(•/) Amount of collateral......................................................................
S
S
S
9
Sec. 201.5. P aper
(r<)
(b)
(c)
A cquired from N onmember B anks
Prohibition upon acceptance of nonmember bank paper........ 9
Applications for permission.......................................................... 9
Paper acquired from Federal Intermediate Credit banks. . . . 10
Sec. 201.6. D iscounts for F ederal I ntermediate C redit B anks
( h) Kinds and maturity of paper........................................................ 10
(b) Limitations ....................................................................................... 10
A p p e n d ix — S tatutory P rovisions
11
REGULATION A
(12 C F R 201)
Revised effective February 15, 1955
SECTION 201.0—FO R E W O R D : G E N E R A L PRIN CIPLE S
(а) A principal function of the Federal Reserve Banks under the
law is to provide credit assistance to member banks, through advances
and discounts, in order to accommodate commerce, industry, and agri
culture. This function is administered in the light of the basic objec
tive which underlies all Federal Reserve credit policy, i.e., the advance
ment of the public interest by contributing to the greatest extent
possible to economic stability and growth.
(б) The Federal Reserve System promotes this objective largely by
influencing the availability and cost of credit through action affect
ing the volume and cost of reserves available to the member banks.
Through open market operations and through changes in reserve
requirements of member banks, the Federal Reserve may release or
absorb reserve funds in accordance with the credit and monetary needs
of the economy as a whole. An individual member bank may also
obtain reserves by borrowing from its Federal Reserve Bank at a
discount rate which is raised or lowered from time to time to adjust
to the credit and economic situation. The effects of borrowing from
the Federal Reserve Banks by individual member banks are not
localized, as such borrowing adds to the supply of reserves of the
banking system as a whole. Therefore, use of the borrowing facility
by member banks has an important bearing on the effectiveness of
System credit policy.
(c) Access to the Federal Reserve discount facilities is granted as a
privilege of membership in the Federal Reserve System in the light
of the following general guiding principles.*
(d) Federal Reserve credit is generally extended on a short-term
basis to a member bank in order to enable it to adjust its asset position
when necessary because of developments such as a sudden withdrawal
of deposits or seasonal requirements for credit beyond those which can
reasonably be met by use of the bank’s own resources. Federal Re
serve credit is also available for longer periods when necessary in
order to assist member banks in meeting unusual situations, such as
may result from national, regional, or local difficulties or from excep
tional circumstances involving only particular member banks. Under
ordinary conditions, the continuous use of Federal Reserve credit by
a member bank over a considerable period of time is not regarded as
appropriate.
* These principles arise out of statutory and regulatory requirements. See especially para
graph 8 of section 4 of the Federal Reserve Act set forth at p. 11 of the Appendix to this
Regulation.
1
2
REGULATION A
S ecs. 201.0-201.2
(e)
In considering a request for credit accommodation, each Fed
eral Reserve Bank gives due regal'd to the purpose of the credit and to
its probable effects upon the maintenance of sound credit conditions,
both as to the individual institution and the economy generally. It
keeps informed of and takes into account the general character and
amount of the loans and investments of the member bank. It con
siders whether the bank is borrowing principally for the purpose of
obtaining a tax advantage or profiting from rate differentials and
whether the bank is extending an undue amount of credit for the
speculative carrying of or trading in securities, real estate, or com
modities, or otherwise.
(/) Applications for Federal Reserve credit accommodation are con
sidered by a Federal Reserve Bank in the light of its best judgment
in conformity with the foregoing principles and with the provisions of
the Federal Reserve Act and this part.
SECTION 201.1—IN TR O D U C TIO N
This part is based upon and issued pursuant to various provisions
of the Federal Reserve Act. The part is applicable to the following
forms of borrowing from a Federal Reserve Bank: (a) advances to
member banks on their own notes secured (1) by direct obligations of
the United States, by paper eligible for discount or purchase by Federal
Reserve Banks, or by obligations of certain corporations owned by the
United States, or (2) by other security which is satisfactory to the
Federal Reserve Bank; (b ) discounts for member banks of commer
cial, agricultural and industrial paper and bankers’ acceptances; and
(c) discounts for Federal Intermediate Credit banks.
SECTION 201.2—AD VANCES TO M E M B E R BANKS
(a) Advances on Government obligations.—Any Federal Reserve
Bank may make advances, under authority of section 13 of the Federal
Reserve Act, to any of its member banks for periods not exceeding
fifteen days' on the promissory note of such member bank secured (1 1
by the deposit or pledge of bonds, notes, certificates of indebtedness,
or Treasury bills of the United States, or (2) by the deposit or pledge
of debentures or other such obligations of Federal Intermediate Credit
banks.having maturities of not exceeding six months from the date of
the advance.1'
1 Under the last paragraph of section 13 of the Federal Reserve Act, a Federal Reserve
Rank has authority to make* advances for periods not exceeding ninety days to individuals,
partnerships, and corporations (including member and nonmember hanks) on their promis
sory notes secured by direct obligations of the United States. However, advances to member
banks on the security of direct obligations of the United States are normally for short periods
of not exceeding fifteen days; and it is not the practice to make advances to othei-s than mem
ber banks except in unusual or exigent circumstances.
- Such advances may also be made on notes secured by the deposit or pledge of Federal
Farm Mortpape Corporation bonds issued under the Federal Farm Mortpape Corporation Act.
S ecs . 201.2-201.3
REG U LATIO N A
3
(b) Advances on eligible paper.— (1) Any Federal Reserve Bank
may make advances, under authority of section 13 of the Federal
Reserve Act, to any of its member banks for periods not exceeding
ninety days* on the promissory note of such member bank secured
by such notes, drafts, bills of exchange, or bankers’ acceptances as
are eligible for discount by Federal Reserve Banks under the provi
sions of this part or for purchase by such banks under the provisions
of the Federal Reserve Act.
(2) In the event notes which evidence loans made pursuant to a
commodity loan program of the Commodity Credit Corporation and
which comply with the maturity requirements of §201.3 (a) have been
deposited in a pool of notes operated by the Commodity Credit Cor
poration, the certificate of interest issued by the Commodity Credit
Corporation which evidences the deposit of such notes may lie ac
cepted as security for an advance made to a member bank under this
paragraph.
(r) Advances on other security under section 10(b) of tlie
Federal Reserve Act.—Any Federal Reserve Bank may make ad
vances, under authority of section 10(b) of the Federal Reserve Act,
to any of its member banks upon the latter’s promissory note secured
to the satisfaction of such Federal Reserve Bank regardless of whether
the collateral offered as security conforms to eligibility requirements
under other provisions of this part. The rate on advances made under
the provisions of this paragraph shall in no event be less than one-half
of 1 per cent, per annum higher than the highest rate applicable to
discounts for member banks under the provisions of sections 13 and
13a of the Federal Reserve Act in effect at such Federal Reserve Bank.
Such an advance must be evidenced by the promissory note of such
member bank payable cither (1) on a definite date not more than
four months after the date of such advance, or (2) at the option of the
holder on or before a definite date not more than four months after
the date of such advance.
SECTION 201.3— DISCOUNT OF NOTES. D R A FTS AND RILLS FOR
M EM BER RANKS'
(a)
Commercial, agricultural and industrial paper.—Any Fed
eral Reserve Bank may discount for any of its member banks, under
authority of sections 13 and 13a of the Federal Reserve Act, any note,
draft, or bill of exchange which meets the following requirements:
However, borrowings by member banks are generally for short periods.
4 Even though paper is not eligible for discount by a Federal Reserve Bank for a member
bank under the provisions o f this part, it may be used as security for an advance by a Fed
eral Reserve Bank to a member bank under the terms and conditions of paragraph (c) of
§201.2 if it constitutes security satisfactory to the Federal Reserve Bank.
4
REGULATION A
Sec . 201.3
(]) It must be a negotiable note, draft, or bill of exchange,
bearing the endorsement of a member bank, which has been issued
or drawn, or the proceeds of which have been used or are to be
used, in producing, purchasing, carrying or marketing goods5 in
one or more of the steps of the process of production, manufacture,
or distribution, or in meeting current operating expenses of a com
mercial, agricultural or industrial business, or for the purpose of
carrying or trading in direct obligations of the United States (i.e.,
bonds, notes, Treasury bills or certificates of indebtedness of the
United States);
(2) It must not be a note, draft, or bill of exchange the pro
ceeds of which have been used or are to be used for permanent
or fixed investments of any kind, such as land, buildings or ma
chinery, or for any other fixed capital purpose;
(3) It must not be a note, draft, or bill of exchange the pro
ceeds of which have been used or are to be used for transactions of
a purely speculative character or issued or drawn for the purpose
of carrying or trading in stocks, bonds or other investment secu
rities except direct obligations of the United States (i.e., bonds,
notes, Treasury bills or certificates of indebtedness of the United
States); and
(4) It must have a maturity at the time of discount of not
exceeding ninety days, exclusive of days of grace, except that
agricultural paper as defined in this section may have a maturity
of not exceeding nine months, exclusive of days of grace; but this
requirement is not applicable with respect to bills of exchange
payable at sight or on demand of the kind described in para
graph (b) of this section.
(b) Bills of exchange payable at sight or on demand.—Any
Federal Reserve Bank may discount for any of its member banks,
under authority of section 13 of the Federal Reserve Act, negotiable
bills of exchange payable at sight or on demand which (1) bear the
endorsement of a member bank, (2) grow out of the domestic shipment
or the exportation of nonperishable, readily marketable staples,11 and
(3.) are secured by bills of lading or other shipping documents con
veying or securing title to such staples. All such bills of exchange
shall be forwarded promptly for collection, and demand for payment
As used in this part the word “ g o o d s ” shall be construed to include tfoods, wares, merchandiie, or agricultural products, including livestock.
u A readily marketable staple within the meaning of this [tart means an article of com
merce, ajcriculturc, or industry o f such uses as to make it the subject of constant dealings in
ready markets with such frequent quotations of price as to make (a) the price easily and
definitely ascertainable and (b) the staple itself easy to realize upon by sale ut any time.
S ec. 201.3
REGULATION A
5
shall be made promptly, unless the drawer instructs that they be held
until arrival of such staples at their destination, in which event they
must be presented for payment within a reasonable time after notice
of such arrival has been received. In no event shall any such bill be
held by or for the account of a Federal Reserve Bank for a period in
excess of ninety days.
(c) Bankers’ acceptances.—Any Federal Reserve Bank may dis
count for any of its member banks a banker’s acceptance7 which bears
the endorsement of a member bank and (1) which grows out of trans
actions involving the importation or exportation of goods, the shipment
of goods within the United States, or the storage of readily marketable
staples,8* as such transactions are more fully described in §203.1 (a)
(1), (2), and (3),!) respectively, of this subchapter or (2) which
has been drawn by a bank or banker in a foreign country or de
pendency or insular possession of the United States for the purpose
of furnishing dollar exchange as provided in §203.2 of this subchapter:
Provided, That any such acceptance shall have a maturity at the time
of discount of not more than ninety days’ sight, exclusive of days of
grace, except that an acceptance drawn for agricultural purposes and
secured at the time of acceptance by warehouse receipts or other such
documents conveying or securing title covering readily marketable
staples may be discounted with a maturity at the time of discount of
not more than six months’ sight, exclusive of days of grace:10 And
provided further, That acceptances for any one customer in excess of
7 A banker’s acceptance within the meaning of this part is a draft or bill of exchange,
whether payable in the United States or abroad and whether payable in dollars or some other
money, accepted by a bank or trust company or a firm, person, company, or corporation en
gaged generally in the business of granting bankers’ acceptance credits.
KIn the case of an acceptance growing out of the storage of readily marketable staples, the
bill must be secured at the time of acceptance by a warehouse, terminal, or other similar re
ceipt, conveying security title to such staples, issued by a party independent of the customer
or issued by a grain elevator or warehouse company duly bonded and licensed and regularly
inspected by State or Federal authorities with whom all receipts for such staples and all
transfers thereof are registered and without w’hose consent no staples may be withdrawn; and
the acceptor must remain secured throughout the life of the acceptance. If the goods are
withdrawn from storage before maturity of the acceptance or retirement of the credit, a
trust receipt or other similar document covering the goods may be substituted in lieu of the
original document, provided that such substitution is conditioned upon a reasonably prompt
liquidation of the credit; and, to this end, it should be required, when the original document
is released, either that the proceeds of the goods will be applied within a specified time toward
a liquidation of the acceptance credit or that a new document, similar to the original one, will
be resubstituted within a specified time.
0 The bill itself should be drawn so as to evidence the character of the underlying trans
action, but if it is not so drawn evidence of eligibility may consist of a stamp or certificate
affixed by the acceptor in form satisfactory to the Federal Reserve Bank.
10 No acceptance discounted by a Federal Reserve Bank should have a maturity in excess of
the usual or customary period of credit required to finance the underlying transaction or of
the period reasonably necessary to finance such transaction ; and no acceptance growing out of
the storage of readily marketable staples should have a maturity in excess of the time ordi
narily necessary to effect a reasonably prompt sale, shipment, or distribution into the process
of manufacture or consumption.
6
REGULATION A
S ec. 201.3
ten per cent of the capital and surplus of the accepting bank must
remain actually secured throughout the life of the acceptance.11
(d ) Construction loans.—In addition to paper of the kinds speci
fied above, any Federal Reserve Bank may discount for any of its
member banks, under authority of section 24 of the Federal Reserve
Act, a negotiable note which (1) represents a loan made to finance
the construction of a residential or a farm building whether or not
secured by lien upon real estate, (2) is endorsed by such member bank,
(3) is accompanied by a valid and binding agreement, entered into by
a person1- acceptable to the discounting Federal Reserve Bank, re
quiring such person to advance the full amount of the loan upon the
completion of the construction of such residential or farm building, and
(4) matures not more than six months from the date such loan was
made and not more than ninety days from the date of such discount
by such Federal Reserve Bank, exclusive of days of grace.
(e) Agricultural paper.—Agricultural paper, within the meaning
of this part, is a negotiable note, draft, or bill of exchange issued or
drawn, or the proceeds of which have been or are to be used, for
agricultural purposes, including the production of agricultural prod
ucts the marketing of agricultural products by the growers thereof,
or the carrying of agricultural products by the growers thereof pend
ing orderly marketing, and the breeding, raising, fattening, or market
ing of livestock.
(/) Paper of cooperative marketing associations.—Notes, drafts,
bills of exchange, or acceptances issued or drawn by cooperative mar
keting associations composed of producers of agricultural products
are deemed to have been issued or drawn for an agricultural purpose
within the meaning of the foregoing definition of “ agricultural paper” ,
if the proceeds thereof have been or are to be used by such association
in making advances to any members thereof for an agricultural pur
pose, in making payments to any members thereof on account of
agricultural products delivered by such members to the association,
or to meet expenditures incurred or to be incurred by the association
in connection with the grading, processing, packing, preparation for
market, or marketing of any agricultural product handled by such
association for any of its members. In addition, any other paper of
" I n the ruse of the acceptances of member banks this security must consist of shipping
documents, warehouse receipts, or other such documents, or some other actual security grow
ing out of the same transaction as the acceptance, such as documentary drafts, trade accept
ances, terminal receipts, or trust receipts which have been issued under such circumstances,
and which cover goods ()f such a character, as to insure at all times a continuance of an
effective and lawful lien in favor o f the accepting bank, other trust receipts not being con
sidered such actual security if they permit the customer to have access to or control over the
goods.
Such person may be the member bank offering the note for discount or any other individ
ual, partnership, association or corporation.
S ec. 201.3
REG U LATIO N A
such associations which complies with the applicable requirements of
this part may be discounted. Paper of cooperative marketing associa
tions the proceeds of which have been or are to he used (1) to defray
the expenses of organizing such associations, or (2) for the acquisition
of warehouses, for the purchase or improvement of real estate, or for
any other permanent or fixed investment of any kind, is not eligible
for discount, even though such warehouses or other property is to be
used exclusively in connection with the ordinary operations of the
association.
(g) Factors’ paper.—Notes, drafts, and bills of exchange of factors
issued as such for the purpose of making advances exclusively to
producers of staple agricultural products in their raw state are eligible
for discount with maturities not in excess of ninety days, exclusive of
days of grace.
(h) Collateral securing discounted paper.—Any note, draft, or
bill of exchange eligible for discount is not rendered ineligible because
it is secured by the pledge of goods or collateral of any nature, includ
ing paper ineligible for discount.
(i) Determination of eligibility.— (1) A Federal Reserve Bank
shall take such steps as may be necessary to satisfy itself as to the
eligibility of any paper offered for discount. Compliance of paper
with the provisions of paragraph (a) (2) of this section may he evi
denced by a statement which adequately reflects the borrower’s finan
cial worth and evidences a reasonable excess of quick assets over
current liabilities, or such compliance may he evidenced in any other
manner satisfactory to the Federal Reserve Bank.
(2)
The requirement of this section that a note be negotiable shall
not be applicable with respect to any note evidencing a loan which is
made pursuant to a commodity loan program of the Commodity Credit
Corporation and which is subject to a commitment to purchase by the
Commodity Credit Corporation or with respect to any note evidencing
a loan which is in whole or in part the subject of a guarantee or com
mitment made pursuant to section 301 of the Defense Production Act
of 1950 as amended.
(j) Limitations.— (1) The aggregate of notes, drafts, and Dills upon
which any person, copartnership, association, or corporation is liable
as maker, acceptor, endorser, drawer, or guarantor, discounted for any
member bank shall at no time exceed the amount for which such per
son, copartnership, association, or corporation may lawfully become
liable to a national bank under the terms of section 5200 of the Revised
Statutes of the United States, as amended.*
* Section 5200 of the Revised Statutes of the United States is printed in the Appendix to
this Regulation (page 17).
8
REGULATION A
S ecs . 201.3-201.4
(2) The law forbids a Federal Reserve Bank to discount for any
State member bank notes, drafts, or bills of exchange of any one
borrower who is liable for borrowed money to such State member bank
in an amount greater than that which could be borrowed lawfully from
such State member bank were it a national bank.
SECTION 201,1—G E N E R A L R E Q U IR E M E N TS AS TO AD VA N CE S
AN D DISCOUNTS
(a) Applications for advances or discounts.— (1) Every applica
tion by a member bank for an advance to such bank or for the discount
of paper must contain a certificate of such bank, in form to be pre
scribed by the Federal Reserve Bank, that the security offered for
the advance or the paper offered for discount, as the case may be, has
not been acquired from a nonmember bank (otherwise than in accord
ance with §201.5) or, if so acquired, that the applying member bank
has received permission from the Board of Governors of the Federal
Reserve System to obtain advances from the Federal Reserve Bank on
security so acquired or to discount with the Federal Reserve Bank
paper acquired from nonmember banks.
(2) Every such application shall also contain a notation by the
member bank as to whether it has on file a statement which ade
quately reflects the financial worth of a party primarily liable on the
paper offered as security for an advance or for discount or of the person
from whom the member bank acquired such paper if such person is
legally liable thereon.
(3) Every application of a State member bank for the discount of
paper must contain a certificate or guaranty to the effect that the
borrower is not liable and will not be permitted to become liable to
such bank for borrowed money during the time his paper is under
discount with the Federal Reserve Bank in an amount greater than
that which could be borrowed lawfully from such State bank were it
a national bank.
(hi Financial statements.— In order to determine whether security
offered for an advance or paper offered for discount is eligible and
acceptable, any Federal Reserve Bank may require that, there be filed
with it statements, or certified copies thereof, which adequately reflect
the financial worth (1 I of one or more parties to any obligation offered
as security' for an advance or to any note, draft, or bill of exchange
offered for discount and (2) of any corporations or firms affiliated with
or subsidiary to such party or parties. A Federal Reserve Bank may
in any case require such other information as it. deems necessary.
(e)
Other information.— Each Federal Reserve Bank is required
by law to keep itself informed of the general character and amount of
S ecs . 201.4-201.5
REG U LATIO N A
9
the loans and investments of its member banks with a view to ascer
taining whether undue use is being made of bank credit for the specu
lative carrying of or trading in securities, real estate, or commodities,
or for any other purpose inconsistent with the maintenance of sound
credit conditions; and, in determining whether to grant or refuse
advances or discounts, the Federal Reserve Bank is required to give
consideration to such information. Each Federal Reserve Bank may
require such information from its member banks as it may deem
necessary in order to determine whether such undue use of bank
credit is being made and whether the granting of any requested credit
accommodation would be consistent with the general principles appli
cable to extensions of credit under this part.
(d) Amount of collateral.—In connection with any advance or
discount under this part, a Federal Reserve Bank may require such
collateral as it may deem advisable or necessary; but it is expected
that the Federal Reserve Bank in determining the amount of collateral
will give due regard to the public welfare and the general effects that
its action may have on the position of the member bank, on its de
positors, and on the community; and in general a Federal Reserve
Bank should limit the amount of collateral it requires to the minimum
consistent with safety.
SECTION 201.5— PAPER ACQ U IRED FROM X O N M E M B E It BANKS
(a) Prohibition upon acceptance of nonmember bank paper.—
Except with the permission of the Board of Governors of the Federal
Reserve System, no Federal Reserve Bank shall accept as security
for an advance or discount any assets acquired by a member bank
from, or bearing the signature or endorsement of, a nonmember bank,
except assets otherwise eligible which were purchased by the offering
bank on the open market or otherwise acquired in good faith and not
for the purpose of obtaining credit for a nonmember bank.
(b) Applications for permission.—An application for permission
to use as security for advances assets acquired from nonmember banks
or to discount paper acquired from nonmember banks shall be made
by the member bank which desires to offer such assets as security or
such paper for discount and shall state fully the facts which give
rise to such application and the reasons why the applying member
bank desires such permission. Such application shall be addressed
to the Board of Governors of the Federal Reserve System but shall be
submitted by the member bank to the Federal Reserve Bank of the
district, which will forward it promptly to the Board of Governors of
the Federal Reserve System with its recommendation.
10
REGULATION A
S ecs . 201.5-201.6
(c) Paper acquired from Federal Intermediate Credit hanks.—
The Board of Governors of the Federal Reserve System hereby grants
permission to Federal Reserve Banks to make advances to member
banks upon the security of paper or assets bearing the signature or
endorsement of, or acquired from, Federal Intermediate Credit banks
or to discount for member banks paper bearing such a signature or
endorsement or so acquired, if otherwise eligible under the law and
this part.
SECTION 201.6—DISCOUNTS FOR F E D E R A L IN T E R M E D IA T E
C R E D IT RANKS
(a) Kinds and maturity of paper.—Any Federal Reserve Bank,
under authority of section 13a of the Federal Reserve Act, may, with
the permission of the Board of Governors, discount for any Federal
Intermediate Credit bank (1) agricultural paper as defined in §201.3,
or (2) notes payable to such Federal Intermediate Credit bank cover
ing loans or advances made by it pursuant to the provisions of section
202(a) of Title II of the Federal Farm Loan Act, which are secured
by notes, drafts, or bills of exchange eligible for discount by Federal
Reserve Banks. Any paper discounted for a Federal Intermediate
Credit bank must bear the endorsement of such bank and must have a
maturity at the time of discount of not more than nine months, ex
clusive of days of grace.
(b) Limitations.—No Federal Reserve Bank shall discount for any
Federal Intermediate Credit hank any paper which bears the endorse
ment of any nonmember State bank or trust company which is eligible
for membership in the Federal Reserve System under the terms of
section 9 of the Federal Reserve Act. In acting upon applications
for the discount of {taper for Federal Intermediate Credit banks, each
Federal Reserve Bank shall give preference to the demands of its own
member banks and shall have due regard to the probable future needs
of its own member banks.
APPENDIX
STATUTORY PROVISIONS
Section 4 of the Federal Reserve Act reads in part as follows:
“ Said board of directors shall administer the affairs of said
bank fairly and impartially and without discrimination in favor
of or against any member bank or banks and may, subject to the
provisions of law and the orders of the Board of Governors of the
Federal Reserve System, extend to each member bank such dis
counts, advancements, and accommodations as may be safely and
reasonably made with due regard for the claims and demands of
other member banks, the maintenance of sound credit conditions,
and the accommodation of commerce, industry, and agriculture.
The Board of Governors of the Federal Reserve System may pre
scribe regulations further defining within the limitations of this
Act the conditions under which discounts, advancements, and the
accommodations may be extended to member banks. Each Fed
eral reserve bank shall keep itself informed of the general charac
ter and amount of the loans and investments of its member banks
with a view to ascertaining whether undue use is being made
of bank credit for the speculative carrying of or trading in secu
rities, real estate, or commodities, or for any other purpose incon
sistent with the maintenance of sound credit conditions; and, in
determining whether to grant or refuse advances, rediscounts or
other credit accommodations, the Federal reserve bank shall give
consideration to such information. The chairman of the Federal
reserve bank shall report to the Board of Governors of the Fed
eral Reserve System any such undue use of bank credit by any
member bank, together with his recommendation. Whenever, in
the judgment of the Board of Governors of the Federal Reserve
System, any member bank is making such undue use of bank
credit, the Board may, in its discretion, after reasonable notice
and an opportunity for a hearing, suspend such bank from the
use of the credit facilities of the Federal Reserve System and may
terminate such suspension or may renew it from time to time.”
Section 9 of the Federal Reserve Act reads in part as follows:
“ Provided, however, That no Federal reserve bank shall be per
mitted to discount for any State bank or trust company notes,
drafts, or bills of exchange of any one borrower who is liable for
borrowed money to such State bank or trust company in an
amount greater than that which could be borrowed lawfully from
such State bank or trust company were it a national banking asso
ciation. The Federal reserve bank, as a condition of the discount
11
12
REGULATION A
of notes, drafts, and bills of exchange for such State bank or trust
company, shall require a certificate or guaranty to the effect that
the borrower is not liable to such bank in excess of the amount
provided by this section, and will not be permitted to become
liable in excess of this amount while such notes, drafts, or bills of
exchange are under discount with the Federal reserve bank.”
Section 10(b) of the Federal Reserve Act reads as follows:
“ Sec. 10(b). Any Federal Reserve bank, under rules and regu
lations proscribed by the Board of Governors of the Federal Re
serve System may make advances to any member bank on its time
or demand notes having maturities of not more than four months
and which are secured to the satisfaction of such Federal Reserve
bank. Each such note shall bear interest at a rate not less than
one-half of 1 per centum per annum higher than the highest dis
count rate in effect at such Federal Reserve bank on the date of
such note.”
Section 13 of the Federal Reserve Act reads in part as follows:
‘‘ Upon the indorsement of any of its member banks, which shall
be deemed a waiver of demand, notice and protest by such bank
as to its own indorsement exclusively, any Federal reserve bank
may discount notes, drafts, and bills of exchange arising out of
actual commercial transactions; that is, notes, drafts, and bills of
exchange issued or drawn for agricultural, industrial, or commer
cial purposes, or the proceeds of which have been used, or are
to be used, for such purposes, the Board of Governors of the
Federal Reserve System to have the right to determine or define
the character of the paper thus eligible for discount, within the
meaning of this Act. Nothing in this Act contained shall be
construed to prohibit such notes, drafts, and hills of exchange,
secured by staple agricultural products, or other goods, wares, or
merchandise from being eligible for such discount, and the notes,
drafts, and bills of exchange of factors issued as such making ad
vances exclusively to producers of staple agricultural products in
their raw state shall be eligible for such discount; but such defini
tion shall not include notes, drafts, or bills covering merely in
vestments or issued or drawn for the purpose of carrying or
trading in stocks, bonds, or other investment securities, except
bonds and notes of the Government of the United States.* Notes,
drafts, and bills admitted to discount under the terms of this
* Or Treasury hills or certificates of indebtedness. See act approved June 17, 1929 (46
Slat., 19), amendinK sec. 5 o f Second Liberty Uond Act, approved Sept. 24, 1917 (40 Stat.,
290).
13
REGULATION A
paragraph must have a maturity at the time of discount of not
more than 90 days, exclusive of grace.
*
*
*
*
*
“Upon the indorsement of any of its member banks, which
shall be deemed a waiver of demand, notice, and protest by such
bank as to its own indorsement exclusively, and subject to regula
tions and limitations to be prescribed by tbd Board of Governors
of the Federal Reserve System, any Federal reserve bank may
discount or purchase bills of exchange payable at sight or on
demand which grow out of the domestic shipment or the exporta
tion of nonperishable, readily marketable agricultural and other
staples and are secured by bills of lading or other shipping docu
ments conveying or securing title to such staples: Provided, That
all such bills of exchange shall be forwarded promptly for collec
tion, and demand for payment shall be made with reasonable
promptness after the arrival of such staples at their destination:
Provided further, That no such bill shall in any event be held by
or for the account of a Federal reserve bank for a period in excess
of ninety days. In discounting such bills Federal reserve banks
may compute the interest to be deducted on the basis of the
estimated life of each bill and adjust the discount after payment
of such bills to conform to the actual life thereof.
“ The aggregate of notes, drafts, and bills upon which any
person, copartnership, association, or corporation is liable as
maker, acceptor, indorser, drawer, or guarantor, rediscounted for
any member bank, shall at no time exceed the amount for which
such person, copartnership, association, or corporation may law
fully become liable to a national banking association under the
terms of section 5200 of the Revised Statutes, as amended: Pro
vided, however, That nothing in this paragraph shall be construed
to change the character or class of paper now eligible for redis
count by Federal reserve banks.
“ Any Federal reserve bank may discount acceptances of the
kinds hereinafter described, which have a maturity at the time of
discount of not more than 90 days’ sight, exclusive of days of
grace, and which arc indorsed by at least one member bank:
Provided, That such acceptances if drawn for an agricultural pur
pose and secured at the time of acceptance by warehouse receipts
or other such documents conveying or securing title covering
readily marketable staples may be discounted with a maturity at
the time of discount of not more than six months’ sight exclusive of
days of grace.
“Any member bank may accept drafts or bills of exchange
14
REGULATION A
drawn upon it having not more than six months’ sight to run, ex
clusive of days of grace, which grow out of transactions involving
the importation or exportation of goods; or which grow out of
transactions involving the domestic shipment of goods provided
shipping documents conveying or securing title are attached at
the time of acceptance; or which are secured at the time of accept
ance by a warehouse receipt or other such document conveying
or securing title covering readily marketable staples. * * * * *
“Any Federal reserve bank may make advances for periods
not exceeding fifteen days to its member banks on their promis
sory notes secured by the deposit or pledge of bonds, notes, certifi
cates of indebtedness, or Treasury bills of the United States, or
by the deposit or pledge of debentures or other such obligations
of Federal intermediate credit banks which are eligible for pur
chase by Federal reserve banks under section 13(a) of this Act,
or by the deposit or pledge of Federal Farm Mortgage Corporation
bonds issued under the Federal Farm Mortgage Corporation Act,
or by the deposit or pledge of bonds issued under the provisions
of subsection (c) of section 4 of the Home Owners’ Loan Act
of 1933, as amended, and any Federal reserve bank may make
advances for periods not exceeding ninety days to its member
banks on their promissory notes secured by such notes, drafts,
bills of exchange, or bankers’ acceptances as are eligible for re
discount or for purchase by Federal reserve banks under the pro
visions of this Act. All such advances shall be made at rates to
be established by such Federal reserve banks, such rates to be
subject to the review and determination of the Board of Governors
of the Federal Reserve System. If any member bank to which any
such advance has been made shall, during the life or continuance
of such advance, and despite an official warning of the reserve bank
of the district or of the Board of Governors of the Federal Reserve
System to the contrary, increase its outstanding loans secured by
collateral in the form of stocks, bonds, debentures, or other such
obligations, or loans made to members of any organized stock
exchange, investment house, or dealer in securities, upon any
obligation, note, or bill, secured or unsecured, for the purpose of
purchasing and/or carrying stocks, bonds, or other investment
securities (except obligations of the United States) such advance
shall be deemed immediately due and payable, and such member
bank shall be ineligible as a borrower at the reserve bank of the
district under the provisions of this paragraph for such period as
the Board of Governors of the Federal Reserve System shall de
termine: Provided, That no temporary carrying or clearance loans
15
REGULATION A
made solely for the purpose of facilitating the purchase or delivery
of securities offered for public subscription shall be included in
the loans referred to in this paragraph.
*
#
*
*
*
“The discount and rediscount and the purchase and sale by any
Federal reserve bank of any bills receivable and of domestic and
foreign bills of exchange, and of acceptances authorized by this
Act, shall be subject-to such restrictions, limitations, and regula
tions as may be imposed by the Board of Governors of the Federal
Reserve System.
*
*
*
*
“Any member bank may accept drafts or bills of exchange
drawn upon it having not more than three months’ sight to run,
exclusive of days of grace, drawn under regulations to he pre
scribed by the Board of Governors of the Federal Reserve System
by banks or bankers in foreign countries or dependencies or insular
possessions of the United States for the purpose of furnishing
dollar exchange as required by the usages of trade in the respective
countries, dependencies, or insular possessions. Such drafts or bills
may be acquired by Federal reserve banks in such amounts and
subject to such regulations, restrictions, and limitations as may
be prescribed by the Board of Governors of the Federal Reserve
System: * * * *
“ Subject to such limitations, restrictions and regulations as
the Board of Governors of the Federal Reserve System 'may pre
scribe, any Federal reserve bank may make advances to any
individual, partnership or corporation on the promissory notes
of such individual, partnership or corporation secured by direct
obligations of the United States. Such advances shall be made
for periods not exceeding 90 days and shall bear interest at rates
fixed from time to time by the Federal reserve bank, subject to
the review anrl determination of the Board of Governors of
the Federal Reserve System.”
Section 13a of the Federal Reserve Act as amended reads in part
follows:
“Upon the indorsement of any of its member banks, which shall
be deemed a waiver of demand, notice, and protest by such bank
as to its own indorsement exclusively, any Federal reserve bank
may, subject to regulations and limitations to be prescribed by
the Board of Governors of the Federal Reserve System, discount
notes, drafts, and bills of exchange issued or drawn for an agri
cultural purpose, or based upon live stock, and having a maturity,
16
REGULATION A
at the time of discount, exclusive of days of grace, not exceeding
nine months, * * * *
“ That any Federal reserve bank may, subject to regulations
and limitations to be prescribed by the Board of Governors of
the Federal Reserve System, rediscount such notes, drafts, and
bills for any Federal Intermediate Credit Bank, except that no
Federal reserve bank shall rediscount for a Federal Intermediate
Credit Bank any such note or obligation which bears the indorse
ment of a nonmember State bank or trust company which is
eligible for membership in the Federal reserve system in accord
ance with section 9 of this Act. Any Federal reserve bank may
also, subject to regulations and limitations to be prescribed by the
Board of Governors of the Federal Reserve System, discount
notes payable to and bearing the indorsement of any Federal
intermediate credit bank, covering loans or advances made by
such bank pursuant to the provisions of section 202(a) of Title
II of the Federal Farm Loan Act, as amended (U.S.C., title 12,
ch. 8, sec. 1031), which have maturities at the time of discount
of not more than nine months, exclusive of days of grace, and
which are secured by notes, drafts, or bills of exchange eligible
for rediscount by Federal reserve banks.
*
*
*
*
*
“Notes, drafts, bills of exchange or acceptances issued or drawn
by cooperative marketing associations composed of producers of
agricultural products shall be deemed to have been issued or
drawn for an agricultural purpose, within the meaning of this sec
tion, if the proceeds thereof have been or are to be advanced by
such association to any members thereof for an agricultural pur
pose, or have been or arc to be used by such association in making
payments to any members thereof on account of agricultural prod
ucts delivered by such members to the association, or if such
proceeds have been or are to be used by such association to meet
expenditures incurred or to be incurred by the association in con
nection with the grading, processing, packing, preparation for
market, or marketing of any agricultural product handled by such
association for any of its members: Provided, That the express
enumeration in this paragraph of certain classes of paper of co
operative marketing associations as eligible for rediscount shall
not be construed as rendering ineligible any other class of paper
of such associations which is now eligible for rediscount.
“ The Board of Governors of the Federal Reserve System may,
by regulation, limit to a percentage of the assets of a Federal
reserve bank the amount of notes, drafts, acceptances, or bills
REGULATION A
17
having a maturity in excess of three months, but not exceeding
six months, exclusive of days of grace, which may be discounted
by such bank, and the amount of notes, drafts, bills, or ac
ceptances having a maturity in excess of six months, but not ex
ceeding nine months, which may be rediscounted by such bank.”
Section 19 of the Federal Reserve Act reads in part as follows:
“ * * * No member bank shall act as the medium or agent
of a nonmember bank in applying for or receiving discounts from
a Federal reserve bank under the provisions of this Act, except
by permission of the Board of Governors of the Federal Reserve
System.”
Section 24 of the Federal Reserve Act reads in part as follows:
“ Loans made to finance the construction of industrial or com
mercial buildings and having maturities of not to exceed eighteen
months where there is a valid and binding agreement entered into
by a financially responsible lender to advance the full amount of
the bank’s loan upon the completion of the buildings and loans
made to finance the construction of residential or farm buildings
and having maturities of not to exceed nine months, shall not be
considered as loans secured by real estate within the meaning of
this section but shall be classed as ordinary commercial loans
whether or not secured by a mortgage or similar lien on the real
estate upon which the building or buildings are being constructed:
Provided, That no national banking association shall invest in,
or be liable on, any such loans in an aggregate amount in excess
of 100 per centum of its actually paid-in and unimpaired capital
plus 100 per centum of its unimpaired surplus fund. Notes repre
senting loans made under this section to finance the construction
of residential or farm buildings and having maturities of not to
exceed nine months shall be eligible for discount as commercial
paper within the terms of the second paragraph of section 13 of
this Act if accompanied by a valid and binding agreement to ad
vance the full amount of the loan upon the completion of the
building entered into by an individual, partnership, association,
or corporation acceptable to the discounting bank.”
Section 5200 of the Revised Statutes of the United States reads as
follows:
“ Sec. 5200. The total obligations to any national hanking as
sociation of any person, copartnership, association, or corporation
shall at no time exceed 10 per centum of the amount of the capital
stock of such association actually paid in and unimpaired and 10
18
REGULATION A
per centum of its unimpaired surplus fund. The term ‘obliga
tions’ shall mean the direct liability of the maker or acceptor of
paper discounted with or sold to such association and the liability
of the indorser, drawer, or guarantor who obtains a loan from or
discounts paper with or sells paper under his guaranty to such
association and shall include in the case of obligations of a co
partnership or association the obligations of the several members
thereof and shall include in the case of obligations of a corporation
all obligations of all subsidiaries thereof in which such corporation
owns or controls a majority interest. Such limitation of 10 per
centum shall be subject to the following exceptions:
“ (1) Obligations in the form of drafts or bills of exchange
drawn in good faith against actually existing values shall not be
subject under this section to any limitation based upon such capi
tal and surplus.
“ (2) Obligations arising out of the discount of commercial or
business paper actually owned by the person, copartnership, asso
ciation, or corporation negotiating the same shall not be subject
under this section to any limitation based upon such capital and
surplus.
“ (3) Obligations drawn in good faith against actually existing
values and secured by goods or commodities in process of ship
ment shall not be subject under this section to any limitation
based upon such capital and surplus.
“ (4) Obligations as indorser or guarantor of notes, other than
commercial or business paper excepted under (2) hereof, having
a maturity of not more than six months, and owned by the per
son, corporation, association, or copartnership indorsing and nego
tiating the same, shall be subject under this section to a limitation
of 15 per centum of such capital and surplus in addition to such
10 per centum of such capital and surplus.
“ (5) Obligations in the form of banker’s acceptances of other
banks of the kind described in section 13 of the Federal Reserve
Act shall not be subject under this section to any limitation based
upon such capital and surplus.
“ (6) Obligations of any person, copartnership, association or
corporation, in the form of notes or drafts secured by shipping
documents, warehouse receipts or other such documents trans
ferring or securing title covering readily marketable nonperish
able staples when such property is fully covered by insurance, if
it is customary to insure such staples, shall be subject under this
section to a limitation of 15 per centum of such capital and sur
plus in addition to such 10 per centum of such capital and surplus
REGULATION A
19
when the market value of such staples securing such obligation
is not at any time less than 115 per centum of the face amount of
such obligation, and to an additional increase of limitation of 5
per centum of such capital and surplus in addition to such 25
per centum of such capital and surplus when the market value of
such staples securing such additional obligation is not at any time
less than 120 per centum of the face amount of such additional
obligation, and to a further additional increase of limitation of 5
per centum of such capital and surplus in addition to such 30 per
centum of such capital and surplus when the market value of such
staples securing such additional obligation is not at any time less
than 125 per centum of the face amount of such additional obliga
tion, and to a further additional increase of limitation of 5 per
centum of such capital and surplus in addition to such 35 per
centum of such capital and surplus when the market value of such
staples securing such additional obligation is not at any time less
than 130 per centum of the face amount of such additional obli
gation, and to a further additional increase of limitation of 5 per
centum of such capital and surplus in addition to such 40 per
centum of such capital and surplus when the market value of such
staples securing such additional obligation is not at any time less
than 135 per centum of the face amount of such additional obliga
tion, and to a further additional increase of limitation of 5 per
centum of such capital and surplus in addition to such 45 per
centum of such capital and surplus when the market value of
such staples securing such additional obligation is not at any time
less than 140 per centum of the face amount of such additional
obligation, but this exception shall not apply to obligations of any
one person, copartnership, association or corporation arising from
the same transections and/or secured by the identical staples for
more than ten months. Obligations of any person, copartnership,
association, or corporation in the form of notes or drafts secured
by shipping documents, warehouse receipts, or other such docu
ments transferring or securing title covering refrigerated or frozen
readily marketable staples when such property is fully covered by
insurance, shall be subject under this section to a limitation of 15
per centum of such capital and surplus in addition to such 10 per
centum of such capital and surplus when the market value of such
staples securing such obligation is not at any time less than 115
per centum of the face amount of such additional obligation, but
this exception shall not apply to obligations of any one person,
copartnership, association, or corporation arising from the same
20
REGULATION A
transactions and/or secured by the identical staples for more than
six months.
“ (7) Obligations of any person, copartnership, association, or
corporation in the form of notes or drafts secured by shipping
documents or instruments transferring or securing title covering
livestock or giving a lien on livestock when the market value of
the livestock securing the obligation is not at any time less than
115 per centum of the face amount of the notes covered by such
documents shall be subject under this section to a limitation of
15 per centum of such capital and surplus in addition to such
10 per centum of such capital and surplus. Obligations arising
out of the discount by dealers in dairy cattle of paper given in
payment for dairy cattle, which bear a full recourse endorsement
or unconditional guarantee of the seller and are secured by the
cattle being sold, shall be subject under this section to a limita
tion of 15 per centum of such capital and surplus in addition to
such 10 per centum of such capital and surplus.
“ (8) Obligations of any person, copartnership, association, or
corporation secured by not less than a like amount of bonds or
notes of the United States issued since April 24, 1917, or certifi
cates of indebtedness of the United States, Treasury bills of the
United States, or obligations fully guaranteed both as to principal
and interest by the United States, shall (except to the extent per
mitted by rules and regulations prescribed by the Comptroller of
the Currency, with the approval of the Secretary of the Treasury)
be subject under this section to a limitation of 15 per centum of
such capital and surplus in addition to such 10 per centum of
such capital and surplus.
“ (9) Obligations representing loans to any national banking
association or to any banking institution organized under the laws
of any State, or to any receiver, conservator, or superintendent
of banks, or to any other agent, in charge of the business and
property of any such association or banking institution, when
such loans are approved by the Comptroller of the Currency,
shall not be subject under this section to any limitation based
upon such capital and surplus.
“ (10) Obligations shall not be subject under this section to
any limitation based upon such capital and surplus to the extent
that such obligations are secured or covered by guaranties, or by
commitments or agreements to take over or to purchase, made by
any Federal Reserve bank or by the United States or any depart
ment, bureau, board, commission, or establishment of the United
States, including any corporation wholly owned directly or indi
REG U LATIO N A
21
rectly by the United States: Provided, That such guaranties agree
ments, or commitments are unconditional and must be performed
by payment of cash or its equivalent within sixty days after
demand. The Comptroller of the Currency is hereby authorized to
define the terms herein used if and when he may deem it necssary.
“ (11) Obligations of a local public agency (as defined in section
110 (h) of the Housing Act of 1949) or of a public housing agency
(as defined in the United States Housing Act of 1937, as amended)
which have a maturity of not more than eighteen months shall
not be subject under this section to any limitation, if such obli
gations are secured by an agreement between the obligor agency
and the Housing and Home Finance Administrator or the Public
Housing Administration in which the agency agrees to borrow
from the Administrator or Administration, and the Administrator
or Administration agrees to lend to the agency, prior to the ma
turity of such obligations, monies in an amount which (together
with any other monies irrevocably committed to the payment of
interest on such obligations) will suffice to pay the principal of such
obligations with interest to maturity, which monies under the
terms of said agreement are required to be used for that purpose.
“ (12) Obligations insured by the Secretary of Agriculture pur
suant to the Bankhcad-Jones Farm Tenant Act, as amended, or the
Act of August 28, 1937, as amended (relating to the conservation
of water resources), shall be subject under this section to a limi
tation of 15 per centum of such capital and surplus in addition
to such 10 per centum of such capital and surplus.
“ (13) Obligations as endorser or guarantor of negotiable or
nonnegotiable installment consumer paper which carries a full
recourse endorsement or unconditional guarantee by the person,
copartnership, association, or corporation transferring the same,
shall be subject under this section to a limitation of 15 per centum
of such capital and surplus in addition to such 10 per centum
of such capital and surplus: Provided, however, That if the bank’s
fdcs or the knowledge of its officers of the financial condition of
each maker of such obligations is reasonably adequate, and upon
certification by an officer of the bank designated for that purpose
by the board of directors of the bank, that the responsibility of
each maker of such obligations has been evaluated and the bank is
relying primarily upon each such maker for the payment of such
obligations, the limitations of this section as to the obligations of
eaeli such maker shall be the sole applicable loan limitation:
Provided further, That such certification shall be in writing and
shall be retained as part of the records of such bank.’’
@FedFRASER