Rediscounts With Federal Reserve Banks of Acceptances, Notes and Bills of Exchange

General Statutory Provisions

Rediscount Of Notes, Drafts, Bills Of Exchange, Commercial, Agricultural And Commodity Paper

Notes, drafts and bills of exchange may be discounted by member banks of the Federal Reserve System with Federal Reserve banks, governed by the following provisions:

Upon the indorsement of any of its member banks, which shall be a waiver of demand, notice, and protest by such bank as to its own indorsement exclusively, any Federal Reserve bank may discount notes, drafts and bills of exchange arising out of actual commercial transactions; that is, notes, drafts and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes, or the proceeds of which have been used, or are to be used for such purposes, the Federal Reserve Board to have the right to determine or define the character of the paper thus eligible for discount. Notes, drafts and bills of exchange secured by staple agricultural products, or other goods, wares or merchandise, are also to be considered as eligible for discount.

Classes Of Ineligible Paper

Notes, drafts or bills covering merely investments or issued or drawn for the purpose of carrying on trading in stocks, bonds, or other investment securities, except bonds and notes of the government of the United States, are ineligible.

Maturity Of Eligible Paper

Notes, drafts and bills admitted to discount must have a maturity at the time of discount of not more than ninety days, exclusive of days of grace. Notes, drafts and hills drawn or issued for agricultural purposes or based on live stock and having a maturity not exceeding six months, exclusive of days of grace, may be discounted in an amount to he limited to a percentage of the assets of the Federal Reserve bank to be ascertained and fixed by the Federal Reserve Board.

Amount Rediscountable By One Bank For Any One Interest

The aggregate amount of such notes, drafts and bills bearing the signature or indorsement of any one borrower, whether a company, person, firm, or corporation, rediscountable for any one bank, shall at no time exceed ten per cent. of the unimpaired capital and surplus of the bank; but this restriction shall not apply to the discount of bills of exchange drawn in good faith against actually existing values.

Bank Acceptances Eligible For Rediscount

Any Federal Reserve bank may discount acceptances of the kinds hereinafter described, which have a maturity at the time of discount of not more than three months' sight, exclusive of days of grace, and which are indorsed by at least one member bank. Such acceptances may:

(1) Grow out of transactions involving the importation or exportation of goods;

(2) Grow out of transactions involving the domestic shipment of goods, provided shipping documents conveying or securing title are attached at the time of acceptance;

(3) Must be secured at the time of acceptance by a warehouse receipt or other such document conveying or securing title, covering readily marketable staples;

(4) Arise out of the drawing of drafts or bills of exchange issued for the purpose of furnishing dollar exchange.

Rediscounts For Member State Banks

No Federal Reserve bank is permitted to discount for any (member) State bank or trust company notes, drafts, or bills of exchange, of any one borrower who is liable for borrowed money to such State bank or trust company in an amount greater than ten per cent. of the capital and surplus of such State bank or trust company, but the discount of bills of exchange drawn against actually existing value and the discount of commercial or business paper actually owned by the person negotiating the same shall not be considered as borrowed money.

Conditions Attached To Rediscounts By Federal Reserve Banks

Federal Reserve banks, as a condition of the discount of notes, drafts and bills of exchange, for such State bank or trust company, shall require a certificate or guaranty to the effect that the borrower is not liable to such bank in excess of ten per cent. of the unimpaired capital and surplus of such bank, and will not be permitted to become liable in excess of this amount while such notes, drafts and bills of exchange are under discount with the Federal Reserve banks.

Discounts For Non-Members

No member bank is permitted to act as the medium or agent of a non-member bank in applying for or receiving discounts from a Federal Reserve bank, except by permission of the Federal Reserve Board.

Discounts And Rediscounts Subject To Regulations Of Federal Reserve Board

The discount and rediscount and the purchase and sale by any Federal Reserve bank of any bills receivable and of domestic and foreign bills of exchange, and of acceptances authorized by the Federal Reserve Act, are subject to such restrictions, limitations and regulations as may be imposed by the Federal Reserve Board.

Applications for rediscount; requirement of certificate of member bank. - All applications for the rediscount of notes, drafts, or bills of exchange must contain a certificate of the member bank, in form to be prescribed by the Federal Reserve bank, that, to the best of its knowledge and belief, such notes, drafts, or bills of exchange have been issued for one or more of the purposes governing eligibility as set forth in the regulations of the Federal Reserve Board.