Full text of Federal Reserve Bank of New York Circulars : 82. Rates of Discount

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CIRCULAR NO. 82.
(REVISED)

FEDERAL RESERVE BANK
OF N E W YORK
NEW YORK, October 3,

1917.

RATES OF DISCOUNT.
To THE CASHIER,
SIR:

At the regular weekly meeting of the Directors of the Federal Reserve Bank held to-day,
it was decided to make no changes in the rates now established.

Attention is directed to these

rates which are now as follows:




For notes, drafts and bills of exchange (including promissory notes of
member banks secured by eligible paper or bonds, notes or certificates
of indebtedness of the United States), having a maturity at time of
discount of not more than 15 days
3%
For notes, drafts and bills of exchange, having a maturity at time of discount of more than 15 days and not more than 90 days
4%
For agricultural paper having a maturity at time of discount of more than
90 days and not more than six months..
5%
SPECIAL RATES
For notes, drafts and bills of exchange issued or drawn for the purpose of
buying or carrying bonds, notes or certificates of indebtedness of the
United States, and secured thereby, having a maturity at time of discount
of not more than 90 days..
3J^%
For trade acceptances having a maturity at time of discount of not more
than 90 days....
5XA%
For one day promissory notes of member banks required in connection
with transactions involving the fiscal operations of the Government, secured by eligible paper or bonds, notes or certificates of indebtedness of
the United States..,.
2% to 4%

%z
The special rate of 3 ^ % at which the Federal Reserve Bank will rediscount notes secured
by bonds of the United States Government applies to all notes discounted with member banks
secured by the pledge of Liberty Loan Bonds or United States certificates of indebtedness,
maturing within 90 days.
The rate of 3 % for collateral loans applies to notes made by member banks secured by
United States Government bonds, United States certificates of indebtedness, or any paper eligible
for discount at or purchase by the Federal Reserve Bank, that is to say, commercial paper and
bankers acceptances.
It should not be understood that the rates now in force will necessarily remain so for any
fixed period of time. The rates established by the bank must be governed by business and
monetary conditions, but the Directors of this bank see nothing in the present situation and
outlook requiring any changes in the rates now established.




Respectfully,
BENJ. STRONG,

Governor.

o

For your information, I d e s i r e to c a l l your a t t e n t i o n to
the enclosed c i r c u l a r No. 62 (revised) from the Federal Reserve
Bank, which explains j u s t what i t i s i n p o s i t i o n to do with r e gard to advances and rediscounts from member banks.
B r i e f l y , t h e r e are t h r e e d i f f e r e n t methods open to banks
f o r financing Liberty Loan Subscriptions through tne f a c i l i t i e s
of the Federal reserve Bank, i . e . ;




FIRST

Loans can be made d i r e c t l y to member banks by
the Federal Reserve Bank for p e r i o d s not exceeding f i f t e e n d a y s , with Liberty bonds as c o l l a t e r a l ,
f o r which the p r e s e n t r a t e i s 3%.
There i s
nothing i n t h e law to prevent a member bank from
paying the loan as i t matures and making a new
lean f o r a smaller or l a r g e r amount for f u r t h e r
p e r i o d s of f i f t e e n days providing circumstances
a t the time the notes mature require i t .
This
method may be helpful i n enabling a member bank
to carry temporarily bonds for large s u b s c r i p t i o n s where the s u b s c r i b e r s do not wish t o pay
immediately.

3E OOTID Customers of a bank who wish to subscribe to bonds
and pay f o r them on t h e instalment p l a n i n s t a t e d
p e r i o d s , i . e . , t h i r t y , s i x t y or n i n e t y d a y s , e t c .
may give t h e i r n o t e s covering the instalment payments to t h e i r bank.
If the bank i s a member of the Federal Reserve
System, i t may indorse and rediscount the paper
with the Federal Reserve 3ank, provided i t has a
m a t u r i t y of not more than n i n e t y d a y s , with
L i b e r t y bonas as c o l l a t e r a l ; the p r e s e n t r e d i s count r a t e being 3j£b«
Arrangements f o r reasona b l e extensions might of course be made between
the banks and t h e i r customers, bat the notes
should be drawn for not exceeding n i n e t y days in
each i n s t a n c e .
b u b s c r i p t i o n s of i n d u s t r i a l concerns, merchants,
e t c . for t h e i r own account and t h a t of t h e i r employes could a l s o be covered i n t h i s manner, and




the note of the subscriber may be taken by the bank
and indorsed and rediscounted with tne Federal
Heserve Bank w i t n the bonds as c o l l a t e r a l , as above
describeu.
A member bank may also rediscount a t the Federal Heserve Bank customers' notes given to nonmember banks,
i . e . , 3 t a t e banks, t r u n t companies and savings
banks, under the same conditions u n t i l f u r t n e r notice.
gHIlfl) In the case of small s u b s c r i p t i o n s , c a l l i n g for the
payment of, say, , 1 . 0 0 , .;2.00, 5.00 or :,10. p e r
week, an agreement might be made with the subscribers
whereby the bank r e t a i n s the t i t l e to the bonds u n t i l
paid f o r , and so has tnem a v a i l a b l e f o r use as collate r a l to i t s own note if d e s i r e d .
A member bank may then discount i t s note for not exceeding ninety d a y s , secured by the bonds, by a r rangements made witn another member bank, which i n
t u r n may rediscount i t with trie Federal teserve Ban/.
Konmember bank3, i n c l u d i n g s t a i e banks, t r u s t compan i e s ana savings banks, while they cannot borrow d i r e c t l y from the Federal Reserve Bank, may discount
t . i e i r own n o t e s secured by the bonds for a period
not exceeding n i n e t y days by arrangements made with a
member bank, which i n turn may rediscount sucn ^ e r
witn t h e Feueral Reserve Bank.
The p r e s e n t r a t e s for s ich r e d i s c o u n t s , as already
i n d i c a t e d , a r e 3^> up to f i f t e e n d a y s , arid 8Jp from
f i f t e e n days to n i n e t y d a y s .
Tnere i s nothing i n
the law to prevent the banks from paying t h e i r
notes a s tney n a t u r e , and making new notes for
smaller amounts for a d d i t i o n a l periods of ninety
day 3 .

FEDERAL RESERVE BANK
OF NEW YORK

October 4, 1917.

Dear Sir:
In our letter of October 2nd, wo requested you to
furnish us with information regarding ycur time loans for
out-of-town correspondents and to brokers.

In order to

make this data apply to the period directly under survey we
ask that ycu kindly report only your time loans maturing
b of ore February 1, l^T.S.
Provision for this has boon made on the new forms,
a supply of which is enclosed herewith.
Very truly yours.

Deputy Governor*

Enc.