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FEDERAL RESERVE BANK OF N E W YORK F iscal A gen t o f the U nited States r Circular N o. 7 4 1 9 "I L July 12, 1974 -J Auction of $ 1.5 Billion of Federal Financing Bank Bills T o A ll Banking Institutions, and O thers C oncerned, in th e Second Federal R eserve D istrict: The following statements were made public yesterday by the Federal Financing Bank: FEDERAL FINANCING BANK BILL OFFERING T h e F ed era l F in an cin g Bank to d a y an nou n ced its first b o rro w in g from the p u b lic. T he F ed eral F in an cin g Bank is an instrum entality o f the U n ited States G overn m en t and its obliga tion s are general ob ligation s o f the U n ited States, iden tical in this respect to Treasury obligations. W ith th e ap p roval o f the Secretary o f the Treasury, the Bank is inviting b ids fo r $1.5 b illion o f d iscou n t bills to m ature M arch 31, 1975. T h e bills, w h ich w ill have the characteristics o f T reasury bills a n d w ill b e sold in the sam e w ay, w ill b e au ction ed on July 23 fo r delivery on July 30. C om m ercial banks m a y m ake paym ents fo r their ow n an d their custom ers’ a cce p te d tenders b y cred itin g T reasury T ax and L o a n A ccou n ts. Jack F. Bennett, President o f the Bank and U n d er Secretary o f the Treasury fo r M on eta ry Affairs, n oted that the m aturity date o f the Bank’s bills correspon ds w ith a m aturity date in T reasury’s 2-year cy cle . C on seq u en tly, at m aturity, these securities co u ld b e refu n d ed b y an issue o f 2-year notes at that tim e either th rou gh Treasury or the F ederal F in an cin g Bank. T h e Bank was created b y the A ct o f D e ce m b e r 29, 1973, to con solida te the m arket financing o f oth er F ed eral agencies. It m ad e its first loan on M ay 24, 1974, and b y July 30 it w ill have $1.4 b illio n o f loans outstanding, all o f w h ich w ill have b een financed b y b o rro w in g fro m the Treasury. T h e p roceed s o f the p u b lic b o rro w in g an n ou n ced tod ay w ill b e used to p a y o ff the b o rro w in g from the Treasury. DETAILS OF FEDERAL FINANCING BANK ANNOUNCEMENT OF AUCTION OF $1.5 BILLION OF BILLS T h e F ed eral F in an cin g Bank, w ith the ap p roval o f T enders w ill not b e re ce iv e d at the F ed era l F in a n cin g the Secretary o f the Treasury, b y this p u b lic n otice Bank in W ash in gton , D . C . invites tenders fo r $1,500,000,000, or thereabouts, o f fo r a m inim um o f $10,000. T enders over $10,000 m ust 244-day F ederal F in a n cin g Bank bills to b e dated b e in m ultiples o f $5,000. In the case o f com p etitiv e July 30, 1974, and to m ature M arch 31, 1975 (C U S IP tenders, the p rice offered m ust b e expressed on the N o. 313322 A A 7 ). E a ch ten d er m ust b e basis o f 100, w ith n ot m ore than three decim als, e.g., 99.925. Fractions m ay n ot b e used. T h e bills w ill b e issued on a d iscou n t basis under com p etitive and n on com p etitiv e b id d in g as herein- B anking institutions and dealers w h o m ake prim ary after p rov id ed , and at m aturity their fa ce am ount markets in G overn m en t securities and rep ort d aily to w ill b e p ay able w ith ou t interest. T h e y w ill b e issued the F ederal R eserve Bank o f N e w York their positions in bearer and book -en try form s only, and in d en om i- w ith respect to G overn m en t securities and b orrow in g s nations o f $10,000, $15,000, $50,000, $100,000, $500,000 and $1,000,000 (m atu rity v a lu e ). T enders w ill b e re ce iv e d at F ederal R eserve Banks th ereon m ay subm it tenders fo r a cco u n t o f custom ers, p ro v id e d the nam es o f th e custom ers are set forth in such tenders. Others w ill n ot b e perm itted to subm it tenders ex cep t fo r their o w n accou nt. T enders and B ranches u p to the closin g hour, one-thirty p.m ., w ill b e re ce iv e d w ith ou t d ep osit from in corp orated Eastern D ay ligh t Saving tim e, T uesday, July 23, 1974. banks and trust com p an ies and from respon sible and re co g n iz e d dealers in investm ent securities. T enders from others m u st b e a cco m p a n ie d b y paym en t o f 2 m a ls) o f a cce p te d com p etitiv e b ids. Settlem ent for p ercen t o f the fa ce am ount o f bills a p p lied for, unless b e m ad e or co m p le te d at the F ed eral R eserve Bank a cce p te d tenders in a cco rd a n ce w ith the bid s m ust the tenders are a ccom p a n ied b y an express guaranty on July 30, 1974, in cash or other im m ediately avail o f paym en t b y an in corp ora ted ban k or trust com p a n y. a b le funds. A n y qu alified depositary w ill b e p erm itted to m ake settlem ent b y cred it in its Treasury T ax and A ll bid d ers are req u ired to agree n ot to purchase L oa n A cco u n t fo r bills allotted to it fo r itself and its or to sell, or to m ake any agreem ents w ith resp ect to custom ers. the pu rchase or sale or other d isposition o f any bills U n d er Sections 4 5 4 ( b ) and 1 2 2 1 (5 ) o f the Internal b id fo r u nder this offerin g at a sp ecific rate or price, until after one-thirty p.m ., E astern D a y lig h t Saving R even u e C o d e o f 1954, the am ount o f discou n t at w h ich bills issued h ereun der are sold is con sid ered tim e, T uesday, July 23, 1974. to accru e w h en the bills are sold, re d eem ed or oth er Im m ed iately after th e closin g hour, tenders w ill b e w ise d isp osed o f, and the bills are e x clu d ed from o p e n e d at the F ederal R eserve Banks and Branches, con sideration fo llo w in g w h ich p u b lic a n nou n cem en t w ill b e m ad e ow n er o f bills (o th e r than life insurance com p a n ies) as capital assets. A ccord in g ly , the b y the F ed era l F in an cin g Bank o f the a m ou n t and issued h ereun der m ust in clu d e in his in com e tax return, p rice range o f a cce p te d bids. O n ly those subm itting as ordin ary gain or loss, the differen ce b etw een the com p etitiv e tenders w ill b e advised o f the a ccep ta n ce p rice p a id fo r the bills, w h eth er on original issue or or rejection th ereof. T h e F ed era l F in a n cin g Bank on su bsequ ent purchase, and the am ount actually expressly reserves the right to a cce p t or reject any or re ce iv e d either u p on sale or red em p tion at maturity all tenders, in w h o le or in part, and its action in any d uring the taxable year fo r w h ich the return is m ade. su ch resp ect shall b e final. S u b ject to these reserva This offerin g is m ade pursuant to F ederal F inancing tions, n on com p etitiv e tenders fo r $300,000 or less w ith ou t stated p rice from any o n e b id d e r w ill b e Bank C ircu lar N o. 1-74. C op ies o f the circular m ay be ob ta in ed from any F ed eral R eserve Bank or Branch. a cce p te d in fu ll at the average p rice (in three d e c i The terms of this offering are set forth above and in Federal Financing Bank Circular No. 1-74, a copy of which is printed on the following pages. This Bank will receive tenders up to 1:30 p.m., Eastern Daylight Saving time, Tuesday, July 23, 1974, at the Securities Department of its Head Office and at its Buffalo Branch. Please use the enclosed tender forms to submit tenders, and return them in the enclosed envelope marked “Tender for Federal Financing Bank Securities.” Tenders not requiring a deposit may be submitted by telegraph, subject to written confirmation; no tenders may be submitted by telephone. Settlement for accepted tenders must be made on or before July 30, 1974, in cash or other immediately available funds, except that any qualified depositary may make settlement by credit in its Treasury Tax and Loan Account for bills allotted to it for itself and its customers. Also printed on the following pages are brief descriptions of the Federal Financing Bank and the characteristics of its bills, and a formal opinion of the Attorney General of the United States concluding that “the obligations of the Bank will be general obligations of the United States backed by its full faith and credit.” A lfred H ayes, President. 2 FEDERAL FINANCING BANK BILLS FEDERAL FINANCING BANK, FEDERAL FINANCING BANK W ashington, July 10,1974. Circular No. 1-74 T h e F ederal F in an cin g Bank A ct o f 1973 created a b o d y corp ora te to b e k n ow n as the F ed eral F in an cin g Bank. T h e Bank, w h ich is su bject to the general supervision an d d irection o f the Secretary o f the Treasury, is an instrum entality o f the U nited States. It is authorized, w ith the ap p roval o f the Secretary o f the Treasury, to issue p u b licly obligation s having such maturities and bearin g such rate or rates o f interest as m ay b e determ in ed b y the Bank. A n ew C hapter V III, entitled “ F ederal F inancing Bank” , con tain ing a n ew Part 810 entitled “ F ed eral F in an c ing Bank Bills” , is a d d ed to T itle 12 o f the C o d e o f F ed eral R egulations. T h e n ew Part sets forth the regulations con tain ed in F ederal F in an cin g Bank C ircu lar N o. 1-74. As these regulations relate to the fiscal p o licy o f the U nited States n otice and p u b lic proced u res thereon are unnecessary. In con sideration o f the fo re g o in g , T itle 12 o f the C o d e o f F ederal R egulations is am en d ed b y the ad dition o f a n ew C h apter V III, as set forth b e lo w , effective July 10, 1974. JACK F. B E N N E T T President Federal Financing Bank Title 12 — Banks and Banking CH APTER V III — F E D E R A L F IN A N C IN G BANK PART 810 — F E D E R A L F IN A N C IN G BANK BILLS tions having such m aturities and b ea rin g such rate or Sec. rates o f interest as m ay b e d eterm in ed b y the Bank. 810.0 A u thority fo r issue and sale. 810.1 D escrip tion o f F ederal F in an cin g Bank bills. 810.2 P u blic n otice o f offering. Pursuant to this authority, F ed eral F in an cin g Bank 810.3 bills, referred to herein as “ F F B bills” , are offered for sale from tim e to tim e and tenders in vited therefor, through the F ederal R eserve Banks. Paym ent at maturity. T h e F F B bills 810.4 A ccep ta n ce o f F F B bills fo r various purposes. 810.5 Taxation. so offered, the tenders m ade, and all su bsequ ent trans actions therein are su bject to the terms and con ditions o f the p u b lic n otice offerin g the bills fo r sale, this 810.6 E xem ption. circular, and to the extent n ot inconsistent w ith such 810.7 F ederal R eserve Banks as fiscal agents. 810.8 Reservations as to terms o f circular. n otice and circular, to D epartm en t o f the Treasury C ircular N o. 418, current revision, the regulations g overn in g U nited States Treasury bills, and all other regulations govern in g U nited States securities. A uthority: T h e provisions o f this Part 810 are issued u nder Secs. 9-11, 87 Stat. 939, 940; 12 U.S.C. 2288, 2289, 2290. Sec. 810.0 Authority for issue and sale. Sec. 810.1 Description of Federal Financing Bank bills. (a ) The F ed General. F ederal F in an cin g Bank bills are eral F in an cin g Bank is authorized u nder th e F ederal bearer ob ligation s o f the F ed era l F in an cin g Bank, F in an cin g Bank A ct o f 1973, to issue p u b licly , w ith the terms o f w h ich p rov id e fo r p aym en t o f a sp eci the ap p roval o f the Secretary o f th e Treasury, o b lig a - fied am ount on a specified date. 3 T h e y are issued on ly b y F ed eral R eserve Banks and Branches, p u r fiduciary, trust, and p u b lic funds, the investm ent or suant to tenders a cce p te d b y the F ederal F inancing d ep osit o f w h ich shall b e u nder the authority or Bank, and are available in b o th definitive and b o o k entry form . W h ere issued as a definitive security, con trol o f the U nited States, the D istrict o f C olu m bia, the C om m on w ea lth o f Puerto R ico or any territory it shall n ot b e valid unless the issue date, the m aturity or possession o f the U nited States. T h ey are eligible fo r purchase b y national banks, and w ill b e a ccep ted at m aturity value to secure p u b lic m oneys. date and the C U S IP num ber are im prin ted thereon. (b ) Denominations. F ederal F in an cin g Bank bills w ill b e issued in denom inations o f $10,000, Sec. 810.5 $15,000, $50,000, $100,000, $500,000 and $1,000,000 ( maturity v a lu e ). Taxation. A ll F F B bills shall b e su b je ct to F ed era l taxation to the sam e extent as o b lig a tions o f private corporations are taxed. Sec. 810.2 Public notice of offering. O n the o c c a sion o f an offerin g o f F F B bills, tenders th erefor w ill b e in vited throu gh p u b lic notices issued b y the F ederal Sec. 810.6 Exemption. O bligation s o f the F ederal F in an cin g Bank are d eem ed to b e ex em p ted securities w ithin the m eaning o f § 3 ( a ) ( 2 ) o f the Securities A ct o f 1933 (1 5 U .S.C. 7 7 c ( a ) ( 2 ) ) , o f § 3 ( a ) ( 1 2 ) o f the F in an cin g Bank. E a ch n otice w ill set forth the am ount offered, the issue date, the date they w ill b e du e and Securities E xchan ge A ct o f 1934 (1 5 U .S.C. 7 8 ( a ) p ayable, the p la ce and the date o f the closin g hour fo r the receip t o f tenders, and the date on w hich ( 1 2 ) ) , and o f § 3 0 4 (a ) ( 4 ) o f the Trust In den tu re A ct o f 1939 (1 5 U .S.C. 7 7 d d d (a ) ( 4 ) ) . p aym en t fo r a ccep ted tenders must b e m ad e or c o m p leted. Sec. 810.7 Sec. 810.3 Payment at maturity. E ach F F B bill w ill b e p a id in its fa ce am ount at m aturity u pon presentation and surrender to any F ederal R eserve Bank or Branch or to the D ep artm en t o f the Treasury, Bureau o f the P u b lic D e b t, Securities Transaction Branch, W ash in gton , D . C. 20226. I f a F F B b ill is b e necessary to carry ou t the provisions o f this and other circulars o f the D ep artm en t o f the T reasury as m ay b e a p p lica b le to F F B bills, and o f any p u b lic presented and surrendered fo r red em p tion after it has n otice or notices issued in con n ection w ith any offerin g o f these securities. b e co m e overd u e, the F ed eral F in an cin g Bank m ay require satisfactory p r o o f o f ow nership, as p ro v id e d in § 306.25 o f D epartm en t o f the T reasury C ircular N o. 300, current revision. Sec. 810.8 Reservations as to terms o f circular. T h e F ederal F in an cin g Bank reserves the right to A cceptan ce o f FFB bills for various am end, supplem ent, revise or w ith d ra w all or any o f F ederal F in an cin g Bank bills are law fu l the provisions o f this circular at any tim e or from tim e to time. Sec. 810.4 purposes. Federal R eserve Banks as fiscal agents . T h e F ed eral R eserve Banks, as fiscal agents o f the U nited States, have b een au th orized b y the D ep a rt m ent o f the Treasury to p erform all such acts as m ay investm ents and m ay b e a cce p te d as security fo r all O R G A N IZATIO N OF TH E F E D E R A L F IN A N C IN G BANK T h e F ederal F in an cin g Bank was created b y the F ederal F in an cin g Bank A ct o f 1973, a p p rov ed D e ce m b e r 29, 1973, (P .L . 93-224, 87 Stat. 9 3 7 ) as an instrum entality o f the U nited States su b ject to the general d irection and supervision o f the Secretary o f the Treasury. T h e p u rp ose o f the Bank is to con solida te the m arket financing o f other F ederal agencies. T h e Bank is authorized u nder the A ct to purchase any obligation s issued, sold, or guar anteed b y any F ederal agen cy, and to finance such purchases b y issuing its o w n ob ligation s in the m arket or to the Secretary o f the Treasury. T h e Secretary o f the Treasury is Chairm an o f the B oard, and the U n d er Secretary o f the Treasury fo r M on e tary Affairs is its President. B O A R D O F D IR E C T O R S Secretary o f the Treasury, Chairman D e p u ty Secretary o f the Treasury U n der Secretary o f the Treasury fo r M on etary Affairs G eneral C ou n sel o f the Treasury F iscal Assistant Secretary o f the Treasury 4 O F F IC E R S President ........................................................ G eneral C oun sel ......................................... U nder Secretary o f the Treasury fo r M onetary Affairs G eneral C ounsel o f the Treasury V ice President & Treasurer .................... Fiscal Assistant Secretary o f the Treasury V ice President ............................................. Special Assistant to the Secretary o f the Treasury (D e b t M an agem en t) Secretary Assistant to the S pecial Assistant to th e Secretary o f the Treasury (D e b t M an agem en t) ........................................................ CHARACTERISTICS O F FED ER AL FIN A N C IN G BANK BILLS P u b lic L a w 93-224 established the F ederal F inancing Bank u nder the general d irection and supervision o f the Secretary o f the Treasury. T h e pu rpose o f the Bank is to con solidate the m arket financing o f other F ederal agencies. T he Bank m ay purchase obligations issued, sold, or guaranteed b y any F ederal agen cy. T o finance such purchases the Bank m ay issue obligations in the market or to the Secretary o f the Treasury. T he authority o f the Bank to b o rro w from the Secretary o f the Treasury assures the im m ediate availability o f any funds requ ired fo r tim ely paym en t b y the Bank o f principal and interest on obligations issued in the market. O bligations issued in the market b y the Bank are obligations o f the U n ited States issued w ith the approval o f the Secretary o f the Treasury. Federal F inancing Bank bills are: — A vailable in bearer or b ook -en try form . — E xem pt from State and local taxation to the same extent as Treasury securities. — L a w fu l investm ents and m ay b e a ccep ted as security fo r all fiduciary, trust and p u b lic funds (in clu d in g Treasury T ax and L oan A c c o u n ts ), the investm ent or dep osit o f w h ich is u nder the authority o f any officer o f th e U nited States or o f the D istrict o f C olu m bia, the C om m on w ealth o f Puerto R ico, or any territory or possession o f the U nited States. — E lig ib le as collateral fo r F ederal R eserve Bank advances. — E lig ib le fo r F ederal Reserve Bank op en market purchases. — Payable at F ederal Reserve Banks or at the Treasury. — E lig ib le fo r denom inational exchanges at F ederal Reserve Banks or th e Bureau o f the P u b lic D e b t o f the Treasury. — E lig ible fo r conversion to book -en try at Federal R eserve Banks. — E lig ible for Federal R eserve Bank w ire transfer. — E ligible fo r relief in the event o f loss, theft, or destruction in the same m anner as Treasury securities. — E lig ib le fo r purchase b y national banks w ith ou t restriction. — E lig ib le fo r investm ent b y Federal savings and loan associations, F ederal cred it unions, and small bu si ness investm ent com panies. 5 OPINION LETTER OF ATTORNEY GENERAL July 3, 1974 The Honorable William E. Simon Secretary of the Treasury Washington, D. C. 20220 My dear Mr. Secretary: You have requested my opinion as to whether obligations to be issued by the Federal Financing Bank will be backed by the full faith and credit of the United States. The Bank was created by the Federal Financing Bank Act of 1973, P.L. 93-224, 87 Stat. 937 to assure coordination of Federal and federally assisted borrowing programs. It is a government instrumentality subject to the general supervison and direction of the Secretary of the Treasury. Congress has specifically authorized the Bank to issue obligations to the public in amounts not in excess of $15,000,000,000 or such additional amounts as may be authorized in appropriations acts. 87 Stat. 939. In addition, the Bank may issue obligations to the Secretary of the Treasury and the latter may in his discretion purchase any such obligations. Aside from the Secretary's discretionary purchases, moreover, the Bank may require him to purchase its obligations in amounts that will not at any time cause his holdings from required purchases to exceed $5,000,000,000. Nowhere in the legislation is it expressly stated that the full faith and credit of the United States is pledged to the obligations issued by the Bank. However, an extensive series of opinions of Attorneys General of the United States has established that such language is not necessary to a pledge of full faith and credit. It is enough to create an obligation of the United States if an agency or officer is validly authorized to incur such an obligation on its behaH and validly exercises that power. E.g., 42 Op.A.G. No. 30; 42 Op.A.G. No. 1; 41 Op.A.G. 403; 41 Op. A.G. 363. In sum, I am of the opinion that if issued within the monetary limits of the Act and in accordance with its other provisions, the obligations of the Bank will be general obligations of the United States backed by its full faith and credit. Sincerely, WILLIAM B. SAXBE Attorney General 6
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