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F E D E R A L R E S E R V E BA N K O F NEW YO RK r Circular No. 5 7 7 0 *1 L January 31, 1966 J INTERPRETATION OF REGULATION A To the M em ber Banks o f the Second Federal Reserve D istrict: Printed below is an excerpt from the Federal R egister of January 26, 1966, containing an interpretation, issued by the Board of Governors of the Federal Reserve System, on the eligibility of Export-Import Bank participation certificates as collateral security for advances to member banks under the eighth paragraph of section 13 of the Federal Reserve Act. Additional copies of this circular will be furnished upon request. A lfred H ayes, President. Title 12— BANKS AND BANKING Chapter II— Federal Reserve System SUBCHAPTER A — BOARD OF G O V ER N O R S OF THE FEDERAL RESERVE SYSTEM [R e g . A ] PART 201— A D V A N C E S A N D DIS C O U N T S BY F E D E R A L R ES ER V E BANKS Export-Import Bank Participation C e r tificates as Collateral for Advances § 201.105 Export-Import Bank par ticipation certificates as collateral for advances. ( a ) The B o ard o f G overnors has been asked whether p articip ation certificates representing interests in loans made by E x p o r t-I m p o r t B a n k o f W a sh in g to n ( “ B a n k ” ) are eligible as collateral secu rity fo r advances b y R eserve B an ks to m em ber banks. ( b ) The eighth p aragrap h o f section 13 o f the F edera l R eserve A c t (1 2 U .S .C . 347) provides that an y R eserve B an k “ m ay m ake advances f o r periods n ot ex ceeding ninety days to its m em ber banks on their p rom issory notes secured by such notes, d ra fts, bills o f exchange, or bankers’ acceptances as are eligible * * * fo r purchase by F ederal R eserve B anks under the provisions o f this A c t .” Under section 1 4 ( b ) o f the A c t (1 2 U .S .C . 3 5 5 ) , the R eserve B anks m ay purchase, subject to lim itations not relevant f o r this p u r pose, “ any bonds, notes, or other ob liga tions * * * which are fu lly guaranteed by the U nited States as to p rin cip a l and interest.” (c ) The E x p o r t-Im p o r t B a n k A c t (1 2 U .S .C . 6 3 5 ) does not exp ressly pledge or give the B a n k the authority to pledge the “ fa ith ” or “ credit” o f the U nited States fo r the redem ption o f the B a n k ’s p artici pation certificates. The B a n k is however, a w holly owned Governm ent corporation, and it does unconditionally guarantee the p aym en t o f p rin cipal and interest, when due, on each certificate. ( d ) I n N a tio n al Cored F o r g in g s Co. v. U nited States, 1 3 2 F . S u p p . 4 5 4 ( 1 9 5 5 ) , the Court o f Claim s held that a suit based on a gu a ra n ty obligation o f the R econ struction F in an ce C orp oration, a wholly owned corporation o f the U nited States, could be brought directly against the U nited States on the ground that, when the R F C acted within the scope o f its statutory authority, it contracted both in its corporate capacity and as an agent o f the U nited States, thereby obligating the latter also. (e ) M oreover, the A tto rn e y General o f the U nited S tates has expressed the opinion that obligations guaranteed by the D evelop m ent L oan F u n d , a w holly owned Governm ent corporation, were ob ligations fu lly binding on the United States, even though the C ongress had neither p ledged nor authorized such F u n d to p led ge the “ fa ith ” or “ credit” o f the U nited S tates (4 2 O p . A .G . N o . 1 o f A p r il 1 4 , 1 9 6 1 ) . T h at opinion sta te s: A series o f opinions o f the A tto rn e y General issued between 1 95 3 and 195 9 has established that a gu a ra n ty by a G overnm ent agen cy contracted p u rsu ant to a congressional g r a n t o f author ity f o r constitutional p u rp oses is an obligation fu lly bind ing on the U nited States despite the absence o f statutory language exp ressly p le d g in g its “ fa ith ” or “ credit” to the red em ption o f the gua ra n ty and despite the possibility that a fu tu re ap p ro p ria tio n m ig h t be necessary to carry out such redem ption. (f) O n the basis o f these authorities, the B o ard has concluded that p articip a tion certificates w ith respect to which the E x p o r t-I m p o r t B a n k unconditionally guarantees the p a y m en t o f p rin c ip a l and interest, when due, are “ fu lly guaranteed b y the U nited States as to p rin c ip a l and interest” w ithin the m eaning o f section 1 4 ( b ) and are therefore eligible as col lateral f o r advances under the eighth p aragrap h o f section 1 3 , provid ed that the p articip ation certificates (an d an y su b-particip ation s therein) are fu lly transferrable to the R eserve B a n k s in order that they m a y possess the sam e rights o f ow nership therein as the original purchaser. (12 U .S.C. 2 4 8 ( i ) . Interprets 12 U .S.C. 347 and 355) D ated at W a sh in g to n , D .C ., this 14th day o f Jan u ary 1 96 6 . B oard of G o v e r n o r s o f t h e F ederal R eserve S y s t e m , [ seal] M e r r it t S h e r m a n , S ecr eta ry . [F .R . Doc. 6 6 -8 4 8 ; Filed, Jan. 25, 1 96 6 ; 8 :4 5 a.m.]
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