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FEDERAL RESERVE BANK OF NEW YORK f Crcular No. 5 7 9 4 1 I March 31, 1966 J Interpretation by Board of Governors To the M em ber Banks o f the Second Federal Reserve D istrict: Printed below is a copy of an interpretation issued by the Board of Governors of the Federal Reserve System concerning the eligibility of demand paper for discount and as security for advances by Reserve Banks. The interpretation will be published shortly in the Federal R egister and Federal R eserve Bulletin, but it is being sent to you now so that you may have prompt notice of its content. A lfred H ayes, President. E ligibility o f Demand Paper for Discount and as Security for Advances by Reserve Banks The Board of Governors has reconsidered a ruling made in 1917 that demand notes are ineligible for discount under the provisions o f the Federal Reserve A ct. (1917 Federal Reserve Bulletin 378.) The basis o f that ruling was the provision in the second paragraph of section 13 of the Federal Reserve A ct that notes, drafts, and bills o f exchange must have a m aturity at the time o f discount o f not more than 90 days, exclusive of grace. The ruling stated that “ a demand note or bill is not eligible under the provisions o f the act, since it is not in terms payable within the prescribed 90 days, but, at the option of the holder, may not be presented for payment until after that tim e.” It is well settled as a matter o f law, however, that demand paper is due and payable on the date o f its issue. The generally accepted legal view is stated in B eutel’s Brannan on Negotiable Instruments Law, at page 305, as fo llo w s : 1‘ The words ‘ on demand ’ serve the same purpose as words making instruments payable at a specified time. They fix maturity of the obligation and do not make demand neces sary, but mean that the instrument is due, payable and matured when made and delivered.” A ccordingly, the Board has concluded that, since demand paper is due and payable on the date o f its issue, it satisfies the m aturity requirements o f the statute. Demand paper which otherwise meets the eligibility requirements o f the Federal Reserve A ct and Regulation A , therefore, is eligible fo r discount and as security for advances by Reserve Banks.
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