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Minutes of actions taken by the Board of Governors of the Federal Reserve System on Tuesday, August 4, 1953. PRESENT: Mr. Mr. Mr. Mr. Martin, Chairman Szymczak Evans Mills Mr. Carpenter, Secretary Mr. Sherman, Assistant Secretary Minutes of actions taken by the Board of Governors of the Federal Reserve System on July 31, 1953, were approved unanimously. Minutes of actions taken by the Board of Governors of the Federal Reserve System on August 3, 1953, were approved and the actions recorded therein were ratified unanimously. Letter to Mr. Rouse, Vice President, Federal Reserve Bank of 14%1 York, reading as follows: "This is in reply to your letter to the Board and accompanying memorandum, both dated July 27, relating to a proposed arrangement under which the Chase National Bank would extend to Banco do Brasil a $10,000,000 dollar-exchange acceptance credit, the commitment to run for one year. Presumably a large proportion of the credit would be utilized shortly after its extension, and your memorandum states that the arrangement would expressly contemplate renewals at the end of three, six, and nine months of at least a portion of the maturing acceptances. "Section 13 of the Federal Reserve Act authorizes member banks, in specified circumstances, to accept dollar-exchange drafts 'having not more than three months' sight to run, exclusive of days of grace'. Regulation C contemplates that such drafts can and will be liquidated at maturity 'through the proceeds of export documentary bills or from other sources reasonably available to such foreign bank or banker (that is, the drawer) arising in the normal course of trade' (section 2 (c)(2)). Under the facts presented, the drafts proposed to _ 8/4/53 -2- "be drawn by Banco do Brasil would not meet this standard, since the parties expressly contemplate that each time the bills come due they would have to be renewed at least in part and could not, therefore, be liquidated at maturity within the meaning of the regulation. "Apart from the foregoing, your memorandum also raised the question as to whether, in any circumstances, it is permissible for a member bank to make a commitment running for as long as one year (as contemplated in this case) to accept dollar-exchange drafts. It is the Board's position that, in appropriate circumstances, a member bank may enter into such an arrangement, but any draft drawn thereunder must conform to all legal requirements, including a maturity of not more than the three months prescribed by section 13, as outlined above. "As suggested in your letter, the proposed arrangement was discussed with representatives of the Export-Import 13i.nk of Washington, who indicated that current negotiations regarding the use of the Export-Import Bank's $300,000,000 credit to Banco do Brasil contemplate that Banco do Brasil will raise from other sources additional credits of the general order of magnitude indicated in your memorandum - that is, in the neighborhood of $100,000,000. They were optimistic about the possibility that Banco do Brasil could work out some satisfactory arrangement with American banks that would be in accordance with applicable laws and regulations." Approved unanimously.
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