View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

federal

R eserve

bank

of

Da l l a s

D ALLAS, TEXAS

July 14, 1966

REVISION OF BULLETIN No. 12
COVERING ADVANCES TO AND DISCOUNTS FOR
MEMBER BANKS

To the Member Banks o f the
Eleventh Federal Reserve District:

Various changes in our lending and discounting procedures,
partially necessitated by the fact that three states in this District
now operate under the Uniform Commercial Code, are reflected
by the enclosed revision o f our Bulletin No. 12.
W e trust that you will take the opportunity to read the
entire Bulletin, but your attention is particularly directed to
Paragraph 26 covering demand paper. Such paper was recently
ruled by the Board o f Governors o f the Federal Reserve System
to be eligible for discount and as collateral to advances. Other
new classes o f collateral on which this Reserve Bank may make
advances are listed in sections (c), (d ), and (e) of Paragraph IB.
Another addition is incorporated in Paragraph 8 which author­
izes advances in certain cases on the basis of a telephone request
to the appropriate Federal Reserve office.
Please return the enclosed postal card as an acknowledgment
of receipt o f this Bulletin, which you will likely wish to insert
in the ring binder previously furnished fo r that purpose.
Additional copies o f Bulletin No. 12 may be obtained upon
request to the Head Office or appropriate branch o f this Bank.
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)

federal

reserve

bank

OF DALLAS

NO. 12
JULY 14, 1966
(Superseding Bulletin No. 12
dated June 2, 19S8)
b u l l e t in

ADVAN CES T O AND D ISCO U N TS F O R M E M BE R BANKS

T o the Member Banks o f the
Eleventh Federal Reserve D istrict:

1. The Federal Reserve Bank o f Dallas extends credit directly to member
banks in the form o f advances against Government obligations, eligible paper,
and other specified types o f collateral, and by discount o f eligible paper.
2. Federal Reserve credit generally is extended on a short-term basis to a
member bank in order to enable it to adjust its asset position when necessary
because o f developments such as a sudden withdrawal o f deposits or seasonal
requirements for credit beyond those which reasonably can be met by use o f the
bank’s own resources. Under ordinary conditions, the continuous use o f Federal
Reserve credit by a member bank over a considerable period o f time is not
regarded as appropriate.
3. The Federal Reserve Bank is required by law1 to keep itself informed of
the general character and amount o f the loans and investments of its member
banks with a view to ascertaining whether undue use is being made o f bank credit
for the speculative carrying o f or trading in securities, real estate, or commodi­
ties, or for any other purpose inconsistent with the maintenance o f sound credit
conditions. Thus, the Federal Reserve Bank of Dallas requires certain informa­
tion from its member banks (usually submitted on the loan or discount applica­
tion form ) in order to be assured that Federal Reserve credit is being used for
appropriate purposes, and that the granting o f any credit requested is consistent
with the general principles applicable to extensions o f credit under Regulation A
o f the Board o f Governors o f the Federal Reserve System.
Rales

4. Rates o f discount are fixed by the Directors o f the Federal Reserve Bank,
subject to review and determination o f the Board o f Governors o f the Federal
Reserve System. Current rates are set forth separately in the Bank’s Operating
Bulletin No. 1.
Authorization of Officers To Borrow

5. Before a member bank may obtain an advance from the Federal Reserve
Bank o f Dallas or discount its bills receivable with this Bank, it must file with
this Bank, or the appropriate branch office, a duly certified copy o f a resolution
adopted by its board o f directors authorizing specified officers (by title) to
obtain such advances and to discount such paper. Member banks are required to
use Form BD-1 Rev., supplied by the Federal Reserve Bank, which sets forth
the text o f such a resolution.
^Paragraph 8, Section 4 of the Federal Reserve Act, and Section 201.0 of the Fore­
word to Regulation A of the Board of Governors of the Federal Reserve System.

— 2—

BULLETIN No. 12

6. Resolutions filed with the Federal Reserve Bank o f Dallas remain in
effect until cancelled or superseded by a new resolution. Many member banks in
the Eleventh District have resolutions on file which are many years old, and as
some o f these resolutions contain special provisions or limitations, these banks
may want to review their respective resolutions to determine if, for any reason,
they want to submit new resolutions.
ADVANCES
Application, Note, and Collateral

7. A member bank desiring an advance and having on file with the Federal
Reserve Bank o f Dallas a resolution o f the kind described in paragraph 5 above,
should submit, not later than 2 :00 p.m. on the business day the advance is
desired, (1 ) its application therefor on the appropriate form specified in the
following paragraphs for the type o f advance desired; (2 ) its promissory note
and pledge o f collateral (the form specified in following paragraphs for type o f
collateral to be pledged) for the amount o f the advance desired, made payable
on the date on which the advance is to be repaid; and (3 ) all collateral fo r the
advance (fo r full discussion o f the pledging o f collateral, see paragraphs 34
through 4 4 ). The note and the application should be signed manually in ink by
one o f the authorized officers designated in the resolution, Form BD -1 Rev.,
and whose signature is on file with the Federal Reserve Bank2. Attention is
called to the fact that the note and collateral form should be signed in two places
— on the promissory note and on the pledge o f collateral.
8. A member bank located outside Dallas, El Paso, Houston or San
Antonio may receive credit on the same day funds are needed by having an
authorized officer make a telephone request to the appropriate Federal Reserve
Office, provided that acceptable collateral is available and that the completed
note and application are mailed the same day.
9. I f a note of a member bank is written so as to fall due on a Saturday,
Sunday, or holiday, it will be discounted, and discount will be taken fo r the
additional number o f days necessary to mature the note on the next succeeding
business day o f this Bank.
10. In the event that, pursuant to Regulation A , the Federal Reserve Bank
should require additional or marginal collateral in connection with any advance,
the borrowing bank will be so notified.
Advances Against Specific Types o f Collateral Indicated Below:
U. S. Government Securities

11. The Federal Reserve Bank of Dallas may make advances,3 for short
periods of time,4 secured by the deposit or pledge of bonds, notes, certificates
o f indebtedness, or Treasury bills of the United States. Such securities are
acceptable for collateral purposes at par value, regardless of market value.
Signatures o f member bank officers are submitted to the Accounting Department o f
the Federal Reserve Bank o f Dallas on request on Form A C 149 or Form A C ISO.
3Authorized under paragraph 8, Section 13 of the Federal Reserve Act, and Section
201.2(a) o f Regulation A.
‘ Under paragraph 13, Section 13 o f the Federal Reserve Act, the Federal Reserve
Bank is authorized to make advances for periods not exceeding 90 days to individuals, part­
nerships, and corporations (including member banks) secured by direct obligations o f the
United States. Advances to member banks on the security o f direct obligations normally are
made for short periods, however, usually not exceeding IS days.

— 3—

BULLETIN No. 12

12. Application for such advances should be made on Form LD -77, accom­
panied by an executed promissory note and pledge o f collateral, Form L D 90.
Obligations Issued or Guaranteed by U. S. Government-Owned Corporations

13. The Federal Reserve Bank of Dallas may make advances to member
banks, for short periods of time, secured b y :
(a ) Debentures or other such obligations o f the Federal Intermediate
Credit Banks having maturities not exceeding six months from the
date o f advance ;5
(b ) Commodity Credit Corporation certificates o f interest0 issued by
the corporation showing that there have been deposited in a pool o f
notes operated by the corporation notes evidencing loans made
pursuant to commodity loan programs o f the corporation and
complying with the maturity requirements o f Section 201.3(a) o f
R e g u la tio n A ;

(c ) Participation certificates representing interest in Export-Im port
Bank o f Washington loans acquired in connection with financing
operations pursuant to the provisions of the Export-Im port Bank
A ct of 1945 (12 U .S.C. 6 3 5 );
(d ) Promissory notes evidencing loans which are insured by the
Farmers H om e Administration without regard to purpose or
maturity;
(e ) Promissory notes fully guaranteed as to principal and interest
by the Small Business Administration pursuant to authority of
Section 3 0 3 (b ) o f the Small Business Investment Act, October
o f 1958 [15 H .S.C. 683 ( b ) ].
14. Application for advances secured by obligations of the Federal Inter­
mediate Credit Banks [item (a ) of paragraph 13 above] should be made on
Form LD-77, accompanied by an executed promissory note and pledge of col­
lateral, Form L D 90.
15. Commodity Credit Corporation certificates o f interest [item (b ) of
paragraph 13 above] submitted as collateral to an advance should be listed on
Form BD-29, accompanied by an executed promissory note and pledge of col­
lateral, Form L D 90, and by properly executed assignments (see paragraph 4 4 ).
16. Participation certificates of Export-Im port Bank of Washington,
promissory notes insured by Farmers H om e Administration, and promissory
notes guaranteed by the Small Business Administration [items ( c ) , ( d ) , and
(e ) of paragraph 13 above] submitted as collateral to an advance should be
listed on Form BD-29, accompanied by an executed promissory note and
pledge of collateral, Form L D 90.
6Paragraph 8, Section 13 o f the Federal Reserve Act, and Section 201.2(a) of Regula­
tion A of the Board o f Governors o f the Federal Reserve System.
6The Federal Reserve Banks are authorized by Regulation A to make advances on
Commodity Credit Corporation certificates o f interest for periods up to 90 days; however,
the Federal Reserve Bank of Dallas accepts such security for an advance for a period in
excess o f 15 days only in unusual circumstances.

— 4—

BULLETIN No. 12

Eligible Paper

17. The Federal Reserve Bank is authorized7 to make advances to member
banks, for periods not exceeding 90 days,8 secured by eligible paper. The bor­
rowing bank may find it more convenient to use the eligible paper as collateral to
its own note (F orm L D 90) than to discount the paper.
18. Eligible paper submitted as collateral to an advance should be listed on
Form BD-29 (on which is shown the due date, the rate of interest or discount
charged, the name o f the borrower, his net worth, etc.), accompanied by an
executed promissory note and pledge of collateral, Form L D 90.
19. The total principal amount o f eligible paper serving as collateral should
equal or exceed the amount o f the advance for which application is being made.
20. The Federal Reserve Bank cannot accept as collateral to an advance any
paper which, by reason of any provision, alteration, or omission is not negotiable.
Advances on Other Security, Including Ineligible Paper,
Under Section 1 0 (b ) of the Federal Reserve Act

21. W hen a member bank holds collateral that is not eligible for discount
or as security for an advance as described above, the collateral, if satisfactory to
the Federal Reserve Bank, may be submitted as security for a “ Section 1 0 ( b ) ”
advance, for periods not exceeding four months, at a rate which shall not be less
than one-half o f one percent above the existing discount rate. A m ong the types
o f collateral which may be acceptable for such an advance are those listed b e lo w :
(a ) Paper which would be eligible for discount by Federal Reserve banks
except by reason o f the fact that the period o f its maturity is greater
than that permitted for paper eligible for discount;
( b ) Obligations evidencing loans upon the security o f stock, which have
been made in conformity with the provisions o f Regulation U o f the
Board o f Governors o f the Federal Reserve System ;
( c ) Obligations insured under the provisions o f Title I or Title II o f the
National Housing A c t ;
( d ) Debentures, bonds, or other such obligations issued by Federal H om e
Loan Banks or issued under authority o f the Federal Farm Loan A ct,
without regard to the maturity o f such obligations; and
( e ) General obligation bonds, revenue bonds, notes and warrants of any
State or any political subdivision thereof.
In addition, when in its judgment circumstances make it advisable to do so, the
Federal Reserve Bank o f Dallas may accept as security fo r advances under
Section 1 0 (b) any assets other than those set forth above which it finds satis­
factory.
22.
Application for advances secured by any of the collateral referred to in
paragraph 21 above should be made on Form LD -77, accompanied by
“ Schedule 1 — Secured and Unsecured Notes,” Form L D 129-B, or “ Schedule
7Paragraph 8, Section 13 o f the Federal Reserve Act, and Section 201.2(b) o f Regu­
lation A of the Board of Governors o f the Federal Reserve System.
8However, borrowings by member banks are generally for short periods.

— 5—

BULLETIN No. 12

2 — Bonds, Warrants, and Other Securities,” Form L D 129-C. The promissory
note and pledge of collateral should be executed on Form L D 128.
DISCOUNTS

23. The Federal Reserve Bank may discount9 for a member bank eligible
paper which bears the endorsement o f the bank and which meets the require­
ments set forth in Regulation A . It should be said again, however, that the
borrowing bank may find it more convenient to use the eligible paper as collateral
to its own note (F orm L D 90) than to discount the paper to the maturity of
each individual note.
24. The principal categories o f eligible paper a re:
(a ) Commercial and Industrial Paper. Negotiable notes, drafts, or bills
o f exchange issued or drawn:
(1 ) T o produce, purchase, carry, or market goods in one or more
o f the steps o f the process o f production, manufacture, or
distribution;
(2 ) T o meet current operating expenses o f a commercial or indus­
trial business; or
(3 ) T o carry or trade in bonds, notes, Treasury bills, or certifi­
cates o f indebtedness o f the United States.
Eligible and acceptable commercial and industrial paper must have
a maturity not exceeding 90 days from date o f discount.
(b ) Agricultural and Livestock Paper. Negotiable notes, drafts or bills
o f exchange o f farmers and ranchers, or cooperative associations
thereof, issued or draw n:
(1 ) T o produce, purchase, carry or market crops, livestock, or
livestock products in one or more o f the steps o f the process
o f production or distribution; or
(2 ) T o meet operating expenses o f an agricultural or livestock
business.
Eligible and acceptable agricultural and livestock paper must have
a maturity not exceeding nine months from date o f discount.
(c ) Bills o f Exchange Payable at Sight or on Demand. Negotiable
bills o f exchange payable at sight or on demand which grow out of
the domestic shipment or the exportation of nonperishable, readily
marketable staples (as defined in Regulation A ) and are secured
by bills o f lading or other shipping documents conveying or secur­
ing title to such staples.10
(d ) Construction Loans. Negotiable notes which represent loans made
to finance the construction o f a residential or a farm building
°Paragraph 2, Section 13 and paragraph 1, Section 13(a) o f the Federal Reserve Act,
and Section 201.3 o f Regulation A.
10For further information on bills o f exchange, see Bulletin No. 3 o f the Federal
Reserve Bank o f Dallas. A copy of this Bulletin is provided each member bank in its Ring
Binder containing bulletins and regulations.

— 6—

BULLETIN No. 12

whether or not secured by a lien upon real estate. Such notes
should be accompanied by a valid and binding agreement requiring
an acceptable lender (mortgage company, etc.) to advance the full
amount o f the loan upon the completion o f the construction o f such
residential or farm building. Such notes should mature not more
than six months from the date the loan is made and not more than
90 days from the date o f discount by this bank.
(e ) Factors Paper. Notes, drafts, and bills o f exchange o f factors
issued as such for the purpose o f making advances exclusively to
producers o f staple agricultural products in their raw state. Such
paper should have a maturity not in excess o f 90 days from date
o f discount.
( f ) Bankers’ Acceptances. Bankers’ acceptances o f the kind described
in Section 13 o f the Federal Reserve
A ct and which comply with
the requirements o f Section 2 01 .3 (c) o f Regulation A .11
25. Notes are not eligible if their proceeds have been used for permanent or
fixed investments, such as land, buildings, machinery, improvements, general
investments, or for other fixed capital purposes, or fo r financing transactions
o f a purely speculative character, or for the purpose o f carrying or trading in
stocks, bonds, or other investment securities (except direct obligations o f the
United States).
26.Demand paper which meets the eligibility requirements o f the Federal
Reserve A ct and Regulation A may be accepted for discount or as security
for 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 restrictions or unless limited by facts which establish
an earlier payment date:
(a) Commercial or industrial demand paper may be accepted for dis­
count or as collateral for periods up to 90 days from the date
of pledge or discount.
(b ) Agricultural demand paper may be discounted for periods up to
9 months, or accepted as collateral to a member bank’s own note
which has a maturity not exceeding 90 days.
27. A note, draft, or bill o f exchange which otherwise meets the require­
ments o f eligibility is not rendered ineligible because o f the nature o f the goods
or other collateral pledged to secure i t ; the security may even be other paper
which is ineligible for discount.
28. There is a distinction to be made between eligibility and acceptability.
The Federal Reserve A ct and the Regulations o f the Board o f Governors o f the
Federal Reserve System determine the classes o f paper which are eligible for
discount with the Federal Reserve Banks, but each o f the Federal Reserve
Banks determines to its own satisfaction the acceptability of the paper offered
by member banks. Credit acceptability depends upon the security behind the
obligation or upon the financial responsibility o f the maker an d /or the endorser
or guarantor.
11See also Bulletin No. 2 o f the Federal Reserve Bank o f Dallas contained in the Ring
Binder previously supplied to member banks.

BULLETIN No. 12

29. Negotiability is a prerequisite to eligibility, and paper cannot be
accepted for discount which, by reason of any provision, alteration or omis­
sion, is rendered nonnegotiable.
30. The aggregate of paper on which any person, partnership, association,
or corporation is liable as maker, acceptor, endorser, drawer, or guarantor
which is discounted for a national bank must at no time exceed 10 percent
o f the bank’s unimpaired capital and surplus, except as provided by Section
5200 of the National Banking Act, as amended.12 Undivided profits, capital
notes or debentures do not constitute “ capital” or “ surplus” for the provisions
that limit the amount of paper of one borrower that may be discounted or
accepted as collateral for an advance.
31. The Federal Reserve Bank is not permitted by law13 to discount for a
state member bank the paper o f any one borrower who is liable for borrowed
money to such bank in an amount greater than that which could be borrowed
from such bank were it a national bank.
32. Application for discount should be made on Form BD-29, except for
bills o f exchange payable at sight or on demand, in which case Form LD 62
should be used. I f there is insufficient space on one copy o f the required form,
the listing of paper and accompanying information should be continued on
another copy o f the same form.
33. Paper submitted to the Federal Reserve Bank of Dallas fo r discount
must be processed and approved for discount by the Bank’s Discount Committee
before any credit can be granted. However, any credit for approved paper that
may be extended by the Federal Reserve Bank will be granted as o f the date the
paper was received by the Bank, unless the Bank is otherwise instructed. Many
banks find it more convenient to submit paper for approval by this Bank’s
Discount Committee in advance of actual need with instructions for the
approved paper to be held in abeyance pending possible use for borrowing.
REQUIREMENTS AS TO FORM OF
COLLATERAL PLEDGED FOR ADVANCES AND DISCOUNTS
Obligations of the United States

34. W hen obligations pledged as collateral are regular bearer securities held
in custody at the Federal Reserve Bank o f Dallas, the borrowing bank needs
only to list these securities on the collateral pledge agreement (which is part o f
the promissory note, Form L D 9 0 ), showing a description o f the securities and
the custody receipt number.
35. A ll such securities offered as collateral should not mature earlier than
the date on which the note is made payable (except those securities which are to
be exchanged for similar securities before the maturity date o f the note).
36. Securities which are to be pledged to the Federal Reserve Bank of
Dallas and are held elsewhere, other than by a correspondent bank, should be
transferred to the Reserve Bank. I f they are held by a correspondent bank,
arrangements may be made for the Federal Reserve Bank to accept a custody
“ Paragraph 5, Section 13 o f the Federal Reserve Act, and Regulation A o f the Board
of Governors o f the Federal Reserve System. For an enumeration o f the exceptions see
Regulation A.
“ Paragraph 13, Section 9 o f the Federal Reserve Act.

— 8—

BULLETIN No. 12

receipt.14 Information concerning the procedure to be followed in pledging
securities held by a correspondent bank will be supplied upon request. This
procedure is necessarily lengthy, and arrangements must be completed before
credit is extended. Member banks in the past have elected to transfer the securi­
ties to the Federal Reserve Bank o f Dallas or, in appropriate instances, to follow
the procedure outlined in paragraph 37 below.
37.
I f the borrowing bank wants to pledge securities which are lodged
with a correspondent in another Federal Reserve city, the bank may have
them delivered to the Federal Reserve Bank of the city in which the corres­
pondent bank is located. It is necessary for the borrowing bank to advise this
Bank first so that a wire authorizing the acceptance of the securities can be
sent, and then the borrowing bank should instruct its correspondent bank to
deliver the securities to the latter Federal Reserve Bank to be held subject
to the order of the Federal Reserve Bank of Dallas for the account of the
borrowing bank. Under this arrangement, the Federal Reserve Bank receiving
the securities will hold them only so long as they are pledged as collateral.
W hen the securities are no longer pledged, the Federal Reserve Bank o f
Dallas will wire instructions to Federal Reserve Bank holding the securities
to release them, and the borrowing bank should instruct its correspondent
bank to withdraw them from its Federal Reserve Bank.
38. I f securities pledged are registered, they should be accompanied by
the appropriate Treasury Department forms properly executed. In this connec­
tion, reference should be made to Treasury Department Form P.D. 1004
(P ow er o f A ttorney), and Treasury Department Form P.D. 1010 (A uthoriz­
ing R esolution), and the instructions contained thereon. Such authorizing reso­
lution will be in addition to the regular authorization for borrowing from the
Federal Reserve Bank o f Dallas, filed on Form BD-1 Rev.
Securities Other Than Obligations of the United States

39. A ll such securities offered the Federal Reserve Bank o f Dallas as col­
lateral should be physically delivered to the Bank, and should be in such form,
or accompanied by such instruments, as to make them readily transferable to the
Bank without further action by the applicant member bank.
Secured Notes

40. A n instrument o f credit should not be separated from the collateral
pledged to secure it, and when paper offered is secured, the collateral, or evi­
dence thereof, together with instruments o f transfer, must accompany the
paper.
Warehouse Receipts

41. Warehouse receipts to be acceptable collateral must be negotiable, and
endorsed whenever an endorsement is necessary to pass title. The warehouse­
man issuing the receipt should be entirely independent o f the borrower pledging
such receipt, and must not have any financial interest in the goods described in
the receipt except to the extent o f the usual lien for storage charges, etc.
Insurance Policies

42. Insurance policies covering collateral should accompany paper and
should have riders attached making loss payable to the offering bank as its
interest may appear.
14It is expected that securities held in correspondent banks in Dallas, El Paso, Houston,
or San Antonio will be delivered to the local Federal Reserve Bank.

— 9—

BULLETIN No. 12

Endorsement of Paper Pledged as Collateral or Discounted

43. The paper may be endorsed by the use o f allonge so firmly affixed
as to become a part of the instrument. Affixing the allonge by glue will meet
this test; however, the use of pins, staples, paper clips, or scotch tape will
not comply.
CCC Certificates of Interest

44. W here certificates o f interest o f the Commodity Credit Corporation are
pledged as security for an advance, such certificates should conform with, and
be assigned in conform ity with, agreements, instructions, and regulations o f
the Commodity Credit Corporation as to form and security.
GENERAL INFORMATION REGARDING ADVANCES AND DISCOUNTS
Method o f Disbursement

45. Proceeds o f an advance or discount are credited to the reserve account
o f the member bank, after deduction o f discount.
Collections

46. The note o f a borrowing member bank will be charged to its reserve
account at maturity. Customers’ notes which have been discounted or pledged
as collateral to an advance will be returned to the borrowing bank 10 days
in advance of maturity to permit collection.
Computation of Discount

47. In the case o f an advance by the Federal Reserve Bank to a member
bank, this Bank, at the time o f making the advance, will deduct from the face
amount o f the note discount at the then current rate, computed to the maturity
o f the note on a basis o f 365 days to the year, and will credit the balance to the
reserve account o f the member bank. In computing discount, the Federal
Reserve Bank excludes the date o f borrowing and includes the date o f payment.
The same procedures will apply to the discount o f eligible paper for a member
bank, except that discount will be deducted from the unpaid principal amount
o f the discounted paper; no consideration is given to any unpaid interest on dis­
counted eligible paper.
Prepayment

48. A t any time before the date on which a note evidencing an advance is
payable, a member bank, at its option, may pay all or part o f its obligation. The
Federal Reserve Bank will then make an adjustment for the unearned discount.
Advice o f partial or full payment prior to maturity may be handled by a letter
or by telephone, to be followed by a letter of confirmation. Discounts may be
prepaid in the same manner.
Rebate of Unearned Discount: Change in Rate

49. I f a member bank pays before maturity all or part o f its collateral note,
or prepays discounted paper, the Federal Reserve Bank will rebate the
unearned discount thereon. The rebate is calculated at the discount rate at which
the advance or discount was made or at the then current rate, whichever is lower.
Release and Disposition o f Collateral

50. The Federal Reserve Bank o f Dallas releases collateral to advances im­
mediately upon payment o f such advances; unless otherwise instructed, all paper

— 10 —

BULLETIN No. 12

held as collateral will be returned to the borrowing bank, while securities may be
held in safekeeping, subject to the order o f the bank.
Payments Received by Member Banks from Obligors

51. I f a member bank receives partial or full payment o f any promissory
note, security or other collateral discounted by, or pledged with, the Federal
Reserve Bank o f Dallas, the member bank shall remit to this Bank fo r each such
payment. Until paid over and delivered to the Federal Reserve Bank by the
member bank, each such payment received by it shall be deemed held in trust
for the account o f this Bank.
Secured Paper

52. The offering bank should see that copies of Security Agreements,
Chattel Mortgages, or other similar instruments accompany the paper sub­
mitted. Evidence showing compliance with the appropriate statutes covering
the creation and perfection o f liens and security interests should also be pro­
vided. The instruments should describe the note as to date and amount, and
should contain a provision giving a first and prior lien on the collateral to
protect the note specifically described as against any other indebtedness which
the maker of the note may owe the bank.
The Federal Reserve Bank o f Dallas, upon request of member banks, will
supply without charge Chattel Mortgages (F orm C -2) for banks in non-Code
states and Security Agreements (F orm C -9) for banks in states that have
adopted the Uniform Commercial Code.
Financial Statements

53. Financial statements, including complete schedules o f important items,
must be submitted with all notes o f borrowers engaged in commercial or indus­
trial pursuits, regardless o f amount. Financial statements should be submitted
with all notes o f farmers or stockmen in the amount of $1,000 or over. These
statements should be supplemented by any other available information as to
the financial responsibility of such person (including affiliated or subsidiary
corporations or firm s). There also should be submitted financial statements
of endorsers or guarantors, if any.
54. Financial statements need not be in any special form but should consist
o f a complete and reasonably detailed balance sheet and profit and loss statement
and a reconciliation o f net worth. The Federal Reserve Bank o f Dallas may
request additional information when it is deemed desirable fo r a better under­
standing o f the financial condition and operations o f the borrower or other party
liable on a note submitted for any purpose. Forms o f financial statements fo r
commercial borrowers have been prepared by the Federal Reserve Bank o f Dal­
las for use by member banks and are designated Form C-6. Financial state­
ments of farmers and ranchers may be submitted on Form C-5.15
55. Financial statements furnished the Federal Reserve Bank should be
originals or copies o f the original statements held in the files o f the member
bank. All financial statements submitted to the Federal Reserve Bank o f Dallas
become the property o f the Bank and are not returned; therefore, when a mem­
ber bank submits original financial statements, it is expected to retain copies fo r
its own files. If statement copies (other than photo copies) are furnished the
15The Federal Reserve Bank of Dallas also supplies to member banks Form C-7 on
which may be posted, for the member bank’s own information, financial statement data over
a period o f five years for comparative purposes.

-1 1 -

BULLETIN No. 12

R eserve Bank, they should bear the following certification of the m ember bank,
signed by an authorized officer:
“ This is a true copy o f the original signed
financial statement held in our files.”
Renewals

56. A member bank desiring to “ renew” its note at the Federal Reserve
Bank o f Dallas must file an application for a new advance, following the same
procedure required in obtaining the original advance.
Paper Acquired from Nonmember Banks

57. Except with the permission o f the Board o f Governors o f the Federal
Reserve System, the Federal Reserve Bank o f Dallas cannot discount or accept
as security for an advance any assets acquired by a member bank from, or bear­
ing the signature or endorsement of, a nonmember bank, except assets otherwise
eligible which were purchased by the offering bank on the open market or other­
wise acquired in good faith and not fo r the purpose o f obtaining credit fo r a
nonmember bank.
Agreement lo Terms of Bulletin and Waiver

58. A ny member bank which applies to the Federal Reserve Bank of
Dallas for an advance or discount shall be deemed by such action to have
agreed to the applicable terms and conditions set forth in this bulletin, and
to have waived presentment, protest, and notice of dishonor on all notes and
other instruments offered for discount or as collateral to an advance.

RIGHT TO AMEND

59.
The Federal Reserve Bank o f Dallas reserves the right to withdraw,
add to, or amend at any time, without notice, any o f the provisions o f this bulle­
tin.
Yours very truly,
Watrous H . Irons
President