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 Commercial 
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Commercial 
 Banking Practice 
 
 under the 
 
 Federal Reserve Act 
 
 THE Law and Regulations, the 
 Informal Rulings of the Federal 
 Reserve Board, and the Opinions of 
 Counsel governing Bank Acceptances, 
 Rediscounts, Advances, and Open 
 Market Transactions of the Federal 
 Reserve Banks. 
 
 Revised to 
 October, 1918 
 
 Service Department 
 
 National Bank of Commerce 
 in New York 
 

 „ 4 "C3 
 
 AUTHORITIES 
 
 This book has been compiled from the following 
 official sources: 
 
 Federal Reserve Act 
 
 National Bank Act 
 
 War Finance Corporation Act 
 
 Regulations of the Federal Reserve Board 
 
 Federal Reserve Bulletin 
 
 First Edition, July, 1917 
 Revised Edition, October, 1918 
 
Foreword 
 
 Commercial banking has been made more 
 efficient through the use of acceptances. The 
 National Bank of Commerce in New York has 
 been a pioneer in recommending a broader use 
 of acceptances, and this Bank is today handling 
 a large and increasing volume of acceptance 
 business. 
 
 We are engaged in a commercial banking busi- 
 ness, and, therefore, our interest in commercial 
 banking practice is fundamental. This volume 
 has been compiled to meet the needs of practical 
 business men and bankers — the customers and 
 friends of the National Bank of Commerce in 
 New York. 
 
 The present edition is a complete revision up 
 to October 1918 of our first edition issued in 
 July 1917. We have attempted not only to revise 
 but to improve the first book. 
 
 This Bank is prepared to answer questions in 
 regard to commercial banking practice with par- 
 ticular reference to the use of acceptances. We 
 are constantly in touch with new developments 
 in the laws and rulings affecting commercial 
 banking, and we have complete information re- 
 garding the acceptance market. 
 
 James S. Alexander. 
 
 President 
 
TRADE ACCEPTANCE 
 
CONTENTS 
 
 Part I. Bank Acceptances Page 
 
 Acceptances 9 
 
 iXjreneral Statutory Provisions 11 
 
 J Acceptance Policy of the Federal Reserve Board 13 
 
 Bank Acceptances Based on Imports and Exports 16 
 
 Bank Acceptances Executed to Furnish Dollar Exchange ... 29 
 Bank Acceptances Based on Domestic Shipments of Goods 33 
 
 Bank Acceptances Secured by Warehouse Receipts 38 
 
 Investment in Acceptances by Member Banks 43 
 
 Part II. Rediscounts with Federal Reserve Banks 
 
 /General Statutory Provisions 49 
 
 General Regulations of Federal Reserve Board 53 
 
 Rediscount of Promissory Notes 56 
 
 Rediscount of Drafts and Trade Acceptances 76 
 
 Rediscount of Six Months' Agricultural Paper 90 
 
 Rediscount of Commodity Paper 96 
 
 Rediscount of Bank Acceptances 99 
 
 Part III. Advances by Federal Reserve Banks 
 
 General Statutory Provisions 109 
 
 JSecurity 109 
 
 Maturity Ill 
 
 Part IV. Open Market Transactions 
 
 General Statutory Provisions 115 
 
 General Regulations and Rulings 115 
 
 Transactions in Bank Acceptances 118 
 
 Transactions in Bills of Exchange and Trade Acceptances . 123 
 Index 128 
 
PART I. 
 
 Bank 
 Acceptances 
 
PART I. 
 
 Bank Acceptances 
 
 The term "acceptance" designates a draft or bill '^ fi c n c e e d ptance " 
 of exchange drawn to order, payable at a definite 
 time after date or sight, the obligation to pay which 
 has been accepted by an acknowledgment thereon 
 written or stamped and signed (generally across the 
 face of the instrument) by the party on whom the 
 bill is drawn. This acknowledgment, which gen- 
 erally consists merely of the word "accepted" fol- 
 lowed by signature and date, constitutes the agree- 
 ment of the acceptor to pay the draft at maturity 
 according to its tenor, without qualifying condi- 
 tions. To be negotiable, such an accepted bill must 
 be for a definite amount and must be payable in 
 money. 
 
 An ordinary "trade acceptance" is created when, Bank acceptance, 
 for example, the seller of merchandise draws a 
 draft for the purchase price on the purchaser and 
 the purchaser accepts the draft. The purchaser, 
 however, may enter into an agreement with his 
 bank whereby the bill is drawn on the bank and is 
 accepted by it for his account instead of by the pur- 
 chaser himself. Such a draft, when accepted, be- 
 comes a "bank acceptance." The Federal Reserve 
 Board has defined a bank acceptance as "a draft or Definition, 
 bill of exchange of which the acceptor is a bank or 
 trust company, or asfirm, person, company, or cor- 
 poration engaged in the business of granting bank- 
 ers' acceptance credits." 
 
 Bank acceptances are used largely in financing Ute of bank 
 international trade and domestic transactions in- acce P tance8 - 
 volving major staple commodities. They hold a 
 
, : C :o m me rcial Banking Practice 
 
 preeminent place among credit instruments and 
 offer a means of investment in which the credit risk 
 has practically been eliminated. This is due to the 
 fact that direct responsibility for their payment 
 rests on banking institutions whose credit is gen- 
 erally and widely known. 
 
 At a meeting of the leading banks and bankers 
 of New York, Boston, Philadelphia, and other 
 cities, held at the National Bank of Commerce in 
 New York, August 14, 1918, it was resolved that: 
 "The accepting bank shall require from its clients 
 that it be placed in funds to meet acceptances on 
 day of maturity either by 
 
 "(a) The deposit of clearing house funds one 
 
 day prior to maturity, or 
 "(b) The deposit of cash or check on the Federal 
 Reserve Bank of New York on the day of 
 maturity, or 
 " (c) Debit to the account of the bank's client on 
 day of maturity against funds cleared on, 
 or prior to, such date." 
 
11 
 
 General Statutory Provisions 
 
 Section 13 of the Federal Reserve Act, as 
 amended, provides as follows with regard to the 
 power of national banks as members of the Federal 
 Reserve System to accept drafts or bills of ex- 
 change : 
 
 "Any member bank may accept drafts or bills of Acceptance of 
 exchange drawn upon it having not more than six drafts * 
 months' sight to run, exclusive of days of grace, 
 
 "I. Which grow out of transactions involving Against imports 
 the importation or exportation of goods ; or an exports - 
 
 "II. Which grow out of transactions involving Against domestic 
 the domestic shipment of goods provided shipping s ipmen s * 
 documents conveying or securing title are attached 
 at the time of acceptance ; or 
 
 "III. Which are secured at the time of accept- Against goods in 
 ance by a warehouse receipt or other such document warehouse - 
 conveying or securing title covering readily market- 
 able staples. 
 
 "No member bank shall accept, whether in a for- Limit on acceptances 
 eign or domestic transaction, for any one person, for one interest - 
 company, firm, or corporation to an amount equal 
 at any time in the aggregate to more than ten per 
 centum of its paid-up and unimpaired capital stock 
 and surplus, unless the bank is secured either by 
 attached documents or by some other actual se- 
 curity growing out of the same transaction as the 
 acceptance ; and 
 
 "No bank shall accept such bills to an amount Limit on aggregate 
 equal at any time in the aggregate to more than acceptances, 
 one-half of its paid-up and unimpaired capital 
 stock and surplus: 
 
 "Provided, however, that the Federal Reserve Extension of limit. 
 Board, under such general regulations as it may 
 
12 
 
 Commercial Banking Practice 
 
 Limit on aggregate 
 domestic acceptances. 
 
 Acceptances for 
 dollar exchange. 
 
 Acceptances for one 
 bank limited. 
 
 Limit on aggregate 
 of such acceptances. 
 
 prescribe, which shall apply to all banks alike re- 
 gardless of the amount of capital stock and surplus, 
 may authorize any member bank to accept such bills 
 to an amount not exceeding at any time in the 
 aggregate one hundred per centum of its paid-up 
 and unimpaired capital stock and surplus : 
 
 "Provided, further, that the aggregate of accept- 
 ances growing out of domestic transactions shall in 
 no event exceed fifty per centum of such capital 
 stock and surplus. 
 
 "IV. Any member bank may accept drafts or 
 bills of exchange drawn upon it having not more 
 than three months' sight to run, exclusive of days 
 of grace, drawn under regulations to be prescribed 
 by the Federal Reserve Board by banks or bankers 
 in foreign countries or dependencies or insular pos- 
 sessions of the United States for the purpose of fur- 
 nishing dollar exchange as required by the usages 
 of trade in the respective countries, dependencies, 
 or insular possessions. 
 
 "Provided, however, that no member bank shall 
 accept such drafts or bills of exchange referred to 
 in this paragraph for any one bank to an amount 
 exceeding in the aggregate ten per centum of the 
 paid-up and unimpaired capital and surplus of the 
 accepting bank unless the draft or bill of ex- 
 change is accompanied by documents conveying or 
 securing title or by some other adequate security : 
 
 "Provided, further, that no member bank shall 
 accept such drafts or bills in an amount exceeding 
 at any time the aggregate of one-half of its paid-up 
 and unimpaired capital and surplus." 
 
 (Federal Reserve Act, Section 13.) 
 
13 
 
 Acceptance Policy of the Federal 
 Reserve Board 
 
 GENERAL STATEMENT 
 
 The Federal Reserve Board desires to avoid the 
 adoption of rigid regulations covering acceptances. 
 The development of an efficient acceptance system 
 will be facilitated if the banks of the United States 
 assimilate and voluntarily adopt the underlying 
 principles by which the Board must be guided, with- 
 out requiring inflexible rules. 
 
 Conservation of the strength of the Federal Re- J^^"^ 
 serve System requires : serve System. 
 
 (a) That it be possessed of short paper well 
 scattered in its maturities (not exceeding ninety 
 days) ; 
 
 (b) That when this paper matures it can be act- 
 ually collected ; 
 
 (c) That the supply of new paper coming into 
 the market can be controlled to a certain degree by 
 an advance or decline in the rate of interest at which 
 bankers' acceptances are bought. 
 
 Agreements to grant credits for an extended Character of^ 
 period by the purchase of 90-day paper or by 90- accepanc< 
 day acceptances ought to be based upon transac- 
 tions connected directly with the purchase and sale 
 of goods and the intermediate process of manufac- 
 turing. Credits so extended should relate to the 
 [liquid] resources of the borrowing concern and 
 should not be granted for the purpose of furnishing 
 working capital or for the temporary financing of 
 permanent investments. 
 
14 
 
 Commercial Banking Practice 
 
 These transactions should be of an individual 
 character. They call for direct contact between 
 banker and borrower, and syndicate credits should 
 be avoided. Agreements by bankers to furnish one 
 or two year money at a definite rate of interest 
 against 90-day paper or acceptances to be used to 
 finance themselves should not be countenanced, 
 either openly or in the form of exchange of paper 
 between bankers. 
 
 (Memorandum issued by Federal Reserve Board, Pages 
 257, 260, April, 1918, Bulletin; printed in full at Pages 257- 
 260.) 
 
 SYNDICATE ACCEPTANCE CREDITS 
 
 Policy of Federal 
 Reserve Board. 
 
 Authorization. 
 
 Duration of 
 credits. 
 
 Rate. 
 
 Character. 
 
 The Federal Reserve Board has issued a mem- 
 orandum stating its policy in dealing with accept- 
 ances drawn under credits extending over a period 
 of one or two years. 
 
 In this memorandum the Board authorized the 
 banks of New York, during a period which may be 
 declared ended at any time, to proceed upon certain 
 principles which may be summed up as follows : 
 
 (1) Acceptance credits opened for periods in 
 excess of 90 days should only, in exceptional cases, 
 extend over a period of more than one year, and 
 in no case for a time exceeding two years. 
 
 (2) Banks which are members of groups open- 
 ing these credits should not buy their own accept- 
 ances, and where an agreement is made with the 
 drawer for purchase of acceptances for future de- 
 livery, the rate should not be a fixed one, but should 
 be based upon the rate ruling at the time of the sale. 
 
 (3) Transactions covered by these credits 
 should be of a legitimate commercial nature, and 
 acceptances must be eligible according to the rules 
 and regulations of the Board. 
 
Bank Acceptances 
 
 15 
 
 (4) Whenever syndicates are formed for the Fld«ante!erve 
 purpose of granting acceptance credits for more Board, 
 than moderate amounts, Federal reserve banks 
 should be consulted with regard to the transaction. 
 The question of eligibility, both from the stand- 
 point of the character of the bill and of the amount 
 involved, will be passed upon by the Federal re- 
 serve bank subject to the approval in each case of 
 the Federal Reserve Board. 
 
 It must be understood in passing upon these Quality and 
 transactions that not only quality but also quantity Jontroifin?* 
 must be the controlling factors. The aggregate of factors, 
 these acceptances should not be permitted to con- 
 stitute the greater proportion of outstanding ac- 
 ceptances at any time, and it must be understood 
 that while the Federal reserve banks and the Fed- 
 eral Reserve Board might look with favor upon a 
 transaction as long as the total amount involved is 
 not excessive, transactions of exactly the same 
 character may be ruled out whenever the aggregate 
 amount of outstanding acceptances of this char- 
 acter becomes, in the opinion of the Federal Re- 
 serve Board, unduly large. 
 
 (Announcement of Federal Reserve Board, Page 257, April, 
 1918, Bulletin.) 
 
Bank Acceptances Based on 
 Imports and Exports 
 
 CHARACTER 
 
 Statutory Provisions 
 
 4 'Any member bank may accept drafts or bills of 
 exchange . . . which grow out of transactions 
 involving the importation or exportation of goods." 
 
 (Federal Reserve Act, Section 13.) 
 
 Opinions and Rulings 
 
 Determination of Character of Transactions on Which 
 Acceptances Are Based. 
 
 Held not to be necessary that the specific goods 
 covered by an acceptance based upon an import or 
 export transaction must be identified at the time of 
 the acceptance. 
 
 (Informal Ruling, Page 405, December, 1915, Bulletin.) 
 
 Good faith must be relied upon to a large extent 
 in determining whether an acceptance is based upon 
 a transaction involving the importation or exporta- 
 tion of goods. A member bank would be justified 
 in putting on the legend "this acceptance is based 
 on a transaction involving the importation or ex- 
 portation of goods," provided it is satisfied the state- 
 ment by its customer is made in good faith. 
 
 (Informal Ruling, Page 406, December, 1915, Bulletin.) 
 
Bank Acceptances 
 
 17 
 
 Member banks may best protect themselves in Proof of 
 determining whether acceptances are based upon 
 the exportation or importation of goods by stipu- 
 lating the right at times to ask for substantiation of 
 assurances from a customer. 
 
 (Informal Ruling, Page 406, December, 1915, Bulletin.) 
 
 Transaction Must Itself Involve Import or Export 
 of Goods. 
 
 A transaction, in order to be the basis of a draft J ransac * ions 
 or bill eligible for acceptance by a member bank, imp e o P rt n or n export 
 must itself involve the importation or exportation not suffic »* nt basi 
 of goods. A transaction wholly independent of the 
 transaction covering the importation or exportation 
 of goods is not sufficient basis for an acceptance, un- 
 der the terms of section 13 (relating to acceptances 
 against imports or exports). 
 
 (Opinion of Counsel, Page 276, September, 1915, Bulletin.) 
 
 Where the contract between a seller of goods who Dra f l$ tre ? ted 
 
 . •i*-i as " rawn in 
 
 draws a draft and the purchaser is entirely inde- domestic 
 
 pendent of the contract for the export of the goods, transactlons - 
 the draft would have to be treated as drawn in a 
 domestic transaction and would have to be accom- 
 panied by shipping documents or secured by ware- 
 house receipts or other similar documents convey- 
 ing and securing title when accepted by the drawee 
 bank. 
 
 (Informal Ruling, Page 435, May, 1918, Bulletin.) 
 
 A dealer having drawn drafts accepted by a Option £ aft$ 
 member bank in an export transaction should be as in domestic 
 given the option, with the consent of the accepting 
 bank, to secure such drafts in the manner required 
 of those drawn in domestic transactions if he wishes 
 to use the proceeds derived from the sale of the 
 goods exported for purposes other than the pay- 
 ment of such acceptances. 
 
 (Opinion of Counsel, Page 439, May, 1918, Bulletin.) 
 
 transactions. 
 
Commercial Banking Practice 
 
 cceptance at 
 istance of 
 
 sporter. 
 
 itention to 
 xport ultimately 
 ot sufficient basis. 
 
 ale to Allied 
 urchasing Com- 
 lission involves 
 xport. 
 
 If a drawee bank accepts at the instance of the 
 purchaser of goods, the purchaser having a contract 
 to export such goods, the drafts would grow out of 
 a transaction involving the export of goods and 
 could be accepted by the drawee bank under author- 
 ity of section 13. 
 
 (Informal Ruling, Page 435, May, 1918, Bulletin.) 
 
 Where a domestic corporation "A" enters into a 
 contract with another domestic corporation "B" to 
 furnish material to be used by "B" in the manufac- 
 ture of products which "B" is under contract to ex- 
 port, the mere fact that the material furnished is 
 ultimately intended for export in some form can 
 not be said to merge the two transactions into one. 
 The transaction between "A" and "B" could not be 
 said to involve the exportation of goods. 
 
 (Opinion of Counsel, Page 276, September, 1915, Bulletin.) 
 
 A member bank may accept drafts drawn for 
 the purpose of financing the sale of goods to one 
 of the allied purchasing commissions, such goods 
 to be delivered aboard ship and paid for within a 
 reasonable time thereafter. 
 
 It is held that the sale of goods in the manner 
 indicated comes within the terms of section 13, au- 
 thorizing a member bank to accept drafts "growing 
 out of transactions involving the importation or ex- 
 portation of goods," even though title to the goods 
 be transferred to the foreign purchaser before the 
 shipment out of the United States actually begins. 
 The transaction against which the draft is drawn 
 involves the direct sale to a foreign purchaser, and 
 the fact that the sale itself may be consummated be- 
 fore the exportation of the goods actually com- 
 mences is immaterial, provided that the transaction 
 is bona fide, and that the accepting bank has no 
 reason to believe that the purchaser will divert the 
 goods from their foreign destination. 
 
 (Informal Ruling, Page 878, November, 1917, Bulletin.) 
 
Bank Acceptances 19 
 
 Acceptance of Drafts Prior to Purchase or Sale of Goods 
 Imported or Exported. 
 
 In interpreting the word "involved" in connec- Goods purchased 
 tion with the importation or exportation of goods, acceptance. ° 
 upon which an acceptance has been based, it is held 
 that goods may be purchased and shipped subse- 
 quent to the time of the first acceptance, provided 
 that there is a definite bona fide contract for the 
 shipment of the goods within a specified and reason- 
 able time. 
 
 (Informal Ruling, Page 405, December, 1915, Bulletin.) 
 
 Section 13 of Federal Reserve Act construed to Delay in 
 justify a national bank in accepting a draft drawn immaterial! 
 upon it in settlement of advances for cotton being 
 accumulated by cotton buyers for export. The fact 
 that there is a temporary delay in actual shipment 
 of goods is immaterial. 
 
 (Informal Ruling, Page 458, September, 1916, Bulletin.) 
 
 A national bank may properly accept a draft, ^"£*{ a j£ t e u 8 re 
 drawn for the purpose of importing goods whether importations 
 or not the sale of the goods under consideration has of * ood *- 
 actually been consummated at the time of the ac- 
 ceptance of the draft, if the accepting bank is as- 
 sured that the proceeds of the draft will ultimately 
 be used solely for the purpose of financing a trans- 
 action involving the importation of goods. It is not 
 necessary that the goods to be sold be identified at 
 the time of acceptance. The accepting bank, how- 
 ever, must be reasonably sure that the draft is 
 drawn for the purpose of financing a transaction in- 
 volving the importation or exportation of goods, 
 and that its proceeds will be used for that purpose. 
 
 (Informal Ruling, Page 527, July, 1917, Bulletin.) 
 
 A member bank would be justified, if fully se- ^ t p ? u t lfi f£ a * ract 
 cured, in accepting drafts drawn by a local cotton- 
 buying firm having a contract to sell to foreign buy- 
 ers if the transaction, after having been made in 
 
Commercial Banking Practice 
 
 afts drawn 
 linst collateral 
 acceptances. 
 
 eligible for 
 ceptance. 
 
 good faith, ultimately resulted in the sale of the 
 cotton to an American instead of a foreign pur- 
 chaser. It was assumed in connection with this in- 
 terpretation of section 13 that the bank had received 
 permission from the Board to accept drafts or bills 
 of exchange drawn upon it; that the cotton buyers 
 had a contract to sell cotton to a firm of Liverpool; 
 that they held the cotton subject to shipping re- 
 ceipt of the Liverpool firm; and that because of 
 freight rates and shipping conditions the Liverpool 
 firm changed its policy and directed the sale of the 
 cotton. 
 
 (Informal Ruling, Page IS, January, 1916, Bulletin.) 
 
 An acceptance house which has purchased an ac- 
 ceptance based on the importation or exportation of 
 goods desires to reimburse itself by drawing a bill 
 upon a national bank, pledging as collateral secur- 
 ity for the bill the original acceptance. It is held 
 that the new bill cannot properly be said to grow 
 out of the original export transaction in the sense 
 contemplated by the Federal Reserve Act. 
 
 A national bank is not authorized to accept a 
 draft drawn under the above circumstances because 
 it is not an acceptance growing out of a transaction 
 involving the importation or exportation of 
 goods, nor drawn by a bank or banker located in a 
 foreign country, nor does it grow out of a transac- 
 tion involving the domestic shipment or storage of 
 goods. 
 
 (Informal Ruling, Page 29, January, 1917, Bulletin.) 
 
 hen acceptance 
 jreements 
 iould show 
 isis of drafts. 
 
 Acceptance Agreements of Dealers in Same Goods for 
 Export and Domestic Sale. 
 
 Where a dealer who is engaged in the purchase of 
 the same character and class of goods for export 
 and for domestic use desires to finance the purchase 
 and sale of goods to be exported, his agreement with 
 a member bank accepting such drafts should show: 
 
Bank Acceptances 21 
 
 (a) that he has a contract for the export of the 
 goods ; 
 
 (b) that the total amount of drafts under such 
 credit will not exceed the aggregate amount in- 
 volved in the export transaction ; 
 
 (c) that the proceeds of the drafts are to be 
 used in connection with the export transaction ; and 
 
 (d) that the proceeds of the sale of goods ex- Or drafts should 
 ported will be applied in payment of the accept- e secure ' 
 ances unless the dealer has in the meantime placed 
 
 the bank in funds to meet them at maturity, or has 
 secured such acceptances in the manner required of 
 domestic acceptances. 
 
 (Opinion of Counsel, Page 438, May, 1918, Bulletin.) 
 Acceptances against Goin and Bullion. 
 
 Gold coin is "goods" within the meaning of sec- Gold coin, 
 tion 13 of the Federal Reserve Act. 
 
 (Informal Ruling, Page 29, January, 1917, Bulletin.) 
 
 Gold bars may be properly considered as goods. Bullion. 
 
 (Informal Ruling, Page 29, January, 1917, Bulletin.) 
 
 MATURITY 
 
 Statutory Provisions 
 
 Acceptances of member banks against imports Maturity, 
 and exports are limited to drafts "having not more 
 than six months' sight to run, exclusive of days of 
 grace." 
 
 (Federal Reserve Act, Section 13.) 
 
 Opinions and Killings 
 
 Duration of Acceptance Credits. 
 
 A national bank is held to be authorized to enter Duration 
 into an agreement having more than six months to " c n e ^ ing 8IX 
 run, by the terms of which it obligates itself for a 
 period of time specified in the agreement to accept 
 
Commercial Banking Practice 
 
 ndicate 
 
 ceptance 
 
 edits. 
 
 enewals for 
 easonable periods. 
 
 lenewals against 
 mports on docks. 
 
 drafts drawn upon it, provided such drafts grow out 
 of transactions involving the importation or expor- 
 tation of goods, and that the individual drafts have 
 not more than six months' sight to run. This dis- 
 tinction is emphasized: "While a letter of credit or 
 credit agreement may lawfully be made by a na- 
 tional bank which will extend by its terms for a 
 period exceeding six months, the agreement must 
 not be of such a character as will impose upon the 
 holders of drafts accepted thereunder any obliga- 
 tion to renew such drafts so that the period of ac- 
 ceptance shall exceed six months in duration as to 
 any specified draft." 
 
 (Informal Ruling, Page 269, September, 1915, Bulletin.) 
 
 For statement of policy of Federal Reserve 
 Board with regard to syndicate acceptance credits 
 having a duration of several years, see "Syndicate 
 Acceptance Credits,"pages 14-15, above. 
 
 Renewal of Bank Acceptances. 
 
 Upon payment of an acceptance the accepting 
 bank may for a reasonable period accept new 
 drafts for the financing of the original transaction, 
 even after the shipment and delivery of the goods, 
 provided such renewals be stipulated in the orig- 
 inal contract as an incidental condition of the trans- 
 action of importation or exportation upon which the 
 acceptance is based. 
 
 (Informal Ruling, Page 405, December, 1915, Bulletin.) 
 
 The acceptance of a private banking house made 
 for a bag company, stating in the body of the draft 
 that it is for burlap from Calcutta stored on the 
 docks, might be continued or renewed while the 
 goods are on the dock. 
 
 (Informal Ruling, Page 30, January, 1917, Bulletin.) 
 
Bank Acceptances 23 
 
 AMOUNT BANK MAY ACCEPT FOR 
 ONE INTEREST 
 
 Statutory Provisions 
 
 "No member bank shall accept, whether in a for- Ten per 
 eign or domestic transaction, for any one person, cent llimt 
 company, firm, or corporation to an amount equal 
 at any time in the aggregate to more than ten per 
 centum of its paid-up and unimpaired capital stock 
 and surplus, unless the bank is secured either by Exception, 
 attached documents or by some other actual security 
 growing out of the same transaction as the accept- 
 ance." 
 
 (Federal Reserve Act, Section 13.) 
 
 Opinions and Rulings 
 
 Drafts accepted by foreign correspondents at the Acceptances 
 request and under the guarantee of a national bank correspondent 
 in the United States should be reported as a direct under guarantee 
 liability of such national bank, and treated as sub- of national bark ' 
 ject to the limitations imposed by the Federal Re- 
 serve Act on the acceptance power of national 
 banks. 
 
 (Opinion of Counsel, Page 311, April, 1918, Bulletin.) 
 Exemption from Ten Per Gent Limit. 
 
 The ten per cent limit upon the amount of ac- Secured 
 ceptances which any member bank might make for 
 any one person, company, firm, or corporation does 
 not apply if "the bank is secured either by attached 
 documents or by some other actual security grow- 
 ing out of the same transaction as the acceptance. 
 
 • • • y .. : . . .J 
 
 If documents which were attached at the time of Accepting 
 
 the acceptance are surrendered and no other se- remainTecured. 
 curity growing out of the same transaction is sub- 
 stituted, the ten per cent limit will apply. The ac- 
 
Commercial Banking Practice 
 
 cepting bank must remain secured in the manner 
 prescribed during the life of the acceptance in order 
 to be exempt from the ten per cent limit. 
 
 (Informal Ruling, Page 286, April, 1917, Bulletin.) 
 
 r hat constitutes 
 ctual security 
 rowing out of 
 ime transaction. 
 
 The only doubtful question is as to what consti- 
 tutes "some other actual security growing out of 
 the same transaction as the acceptance." The ten 
 per cent limit does not apply where the acceptor 
 holds : 
 
 1. Shipping documents. 
 
 2. Warehouse receipts. 
 
 3. Trust receipts which do not enable the bor- 
 
 rower to obtain the goods for his own use. 
 The ten per cent limit does apply where the bank 
 holds merely the ordinary trust receipt which gives 
 it only a lien on the goods in the hands of the pur- 
 chaser or on their proceeds. 
 
 (Informal Ruling, Page 286, April, 1917, Bulletin.) 
 
 rrust receipts 
 is actual security. 
 
 If an acceptance is secured by shipping docu- 
 ments which are surrendered by the acceptor for a 
 trust receipt which permits the purchaser of the 
 goods to retain control of the goods, the accepting 
 bank cannot be said to be secured "by some other 
 actual security" as provided in section 13 of the 
 Federal Reserve Act. A trust receipt, however, 
 which does not permit the purchaser to procure con- 
 trol of the goods, may properly be said to be actual 
 security within the meaning of the Act. 
 
 (Opinion of Counsel, Page 881, November, 1917, Bulletin.) 
 
 When section 
 5200 applies. 
 
 Relation of United States Revised Statutes, Section 
 5200, to the Ten Per Gent Limit. 
 
 A member bank may legally purchase its own 
 acceptances, but such a transaction is equivalent to 
 a loan or advance to the customer for whom the ac- 
 
Bank Acceptances 25 
 
 ceptance was made and the liability of such cus- 
 tomer becomes subject to the limitations of section 
 5200, Revised Statutes. 
 
 The limitations imposed by section 5200, Re- ^ h *| , ca n b ° 1 t e 
 vised Statutes, on the amount of money which may 
 be borrowed by any individual from a member bank 
 do not apply to acceptances of such bank. 
 
 (Opinion of Counsel, Page 680, December, 1916, Bulletin.) 
 
 Where a national bank has already loaned 10 per ^"dSn* 
 cent of its capital and surplus to a certain company, to loans, 
 it may, while the loan is still outstanding, obligate 
 itself as acceptor on a draft drawn by the same 
 company. 
 
 If, however, the member bank discounts its own Exception, 
 acceptance under the foregoing circumstances, it 
 must treat the transaction as a loan and not as an 
 acceptance, and could not in that case lend to, and 
 accept for, the same firm in an aggregate amount in 
 excess of the 10 per cent prescribed by section 5200. 
 
 (Informal Ruling, Page 197, March, 1918, Bulletin.) 
 
 The ten per cent limitation imposed by section When drawer 
 5200 of the Revised Statutes is not intended to ap- f un( j s to meet 
 ply to the mere acceptance of a bill of exchange, acceptance, 
 but the provisions of section 5200 would apply to 
 the indebtedness arising between the drawer of the 
 bill and the accepting bank in case the drawer fails 
 to furnish funds with which to meet the acceptance 
 at maturity. 
 
 (Informal Ruling, Page 64, February, 1916, Bulletin; re- 
 peated from Page 269, September, 1915, Bulletin.) 
 
 Note: The limitations imposed by the Federal Reserve 
 Act on the amount a bank may accept for any one interest 
 a Pply to drafts "whether in a foreign or domestic transaction." 
 The 10 per cent limit, therefore, applies to the aggregate of 
 both domestic and foreign drafts accepted for one interest. 
 
26 
 
 Commercial Banking Practice 
 
 AGGREGATE AMOUNT BANK 
 MAY ACCEPT 
 
 Statutory Provisions 
 
 Fifty per 
 cent limit. 
 
 Acceptances 
 
 up to 100 per cent. 
 
 "No bank shall accept such bills to an amount 
 equal at any time in the aggregate to more than 
 one-half of its paid-up and unimpaired capital stock 
 and surplus: 
 
 "Provided, however, that the Federal Reserve 
 Board, under such general regulations as it may pre- 
 scribe, which shall apply to all banks alike regard- 
 less of the amount of capital stock and surplus, may 
 authorize any member bank to accept such bills to 
 an amount not exceeding at any time in the aggre- 
 gate one hundred per centum of its paid-up and 
 unimpaired capital stock and surplus. . . ." 
 
 (Federal Reserve Act, Section 13.) 
 
 Application 
 for power to 
 accept up to 
 100 per cent. 
 
 Report on 
 application. 
 
 Regulations of Federal Reserve Board 
 
 Under the provisions of the law . . . the 
 Federal Reserve Board has determined that any 
 member bank, having an unimpaired capital equal 
 to at least twenty per centum of its paid-up capital, 
 which desires to accept drafts or bills of exchange 
 . . . up to an amount not exceeding at any 
 time in the aggregate one hundred per centum of 
 its paid-up and unimpaired capital stock and sur- 
 plus, may file an application for that purpose with 
 the Federal Reserve Board. Such application must 
 be forwarded through the Federal reserve bank of 
 the district in which the applying bank is located. 
 
 The Federal reserve bank shall report to the 
 Federal Reserve Board upon the standing of the 
 applying bank, stating whether the business and 
 banking conditions prevailing in its district war- 
 rant the granting of such application. 
 
Bank Acceptances 27 
 
 The approval of any such application may be Reversa | | of 
 rescinded upon 90 days' notice to the bank af- approva * 
 fected. 
 
 (Regulations of Federal Reserve Board, Regulation C, 
 Series of 1917, A, II.) 
 
 Opinions and Rulings 
 
 Authority from the Federal Reserve Board is Permission to 
 
 not necessary for a member bank to undertake ac- 50 per cent 
 
 ceptance business, unless the bank wishes to exceed not re <i uired - 
 50 per cent of its capital and surplus. 
 
 (Informal Ruling, Page 126, July, 1915, Bulletin.) 
 
 Drafts accepted by foreign correspondents at Acce P tance8 of 
 
 *T * ° r , correspondents 
 
 the request and under the guarantee of a national under guarantee 
 bank in the United States should be reported as a of nationaI bank * 
 direct liability of such national bank, and should be 
 treated as subject to the limitations imposed by the 
 Federal Reserve Act on the acceptance power of 
 national banks. 
 
 (Opinion of Counsel, Page 311, April, 1918, Bulletin.) 
 
 When a member bank purchases its own accept- P ur <*a8e of 
 ance before maturity such acceptance need not be acceptance, 
 included in the aggregate of acceptances author- 
 ized by section 13. 
 
 (Opinion of Counsel, Page S97, August, 1916, Bulletin. 
 See also "Purchase by National Bank of Its Own Accept- 
 ances," pages 45-46, below.) 
 
 The limitations imposed by section 5202, Re- Lim j t o a n tio 5 r 2 s 02 of 
 vised Statutes, on the liabilities incurred by any 
 national bank do not apply to acceptances of such 
 banks. 
 
 {Opinion of Counsel, Page 680, December, 1916, Bulletin.) 
 
28 Commercial Banking Practice 
 
 General By way of general summary it may be said : 
 
 (1) A member bank may not accept bills to a 
 greater amount than 50% of its capital and sur- 
 plus (unless the Federal Reserve Board has au- 
 thorized it to accept 100%) ; 
 
 (2) The amount of domestic bills accepted 
 shall in no event exceed 50% of capital and surplus; 
 
 (3) Acceptances purchased by the accepting 
 bank are exempt from the above limitations. 
 
Bank Acceptances Executed to 
 Furnish Dollar Exchange 
 
 CHARACTER 
 
 Statutory Provisions 
 
 "Any member bank may accept drafts or bills of ^Jjj" 
 exchange drawn upon it having not more than three exchange, 
 months' sight to run, exclusive of days of grace, 
 drawn under regulations to be prescribed by the 
 Federal Reserve Board by banks or bankers in for- 
 eign countries or dependencies or insular posses- 
 sions of the United States for the purpose of fur- 
 nishing dollar exchange as required by the usages of 
 trade in the respective countries, dependencies, or 
 insular possessions. 
 
 (Federal Reserve Act, Section 13.) 
 
 Regulations of Federal Reserve Roard 
 
 Any member bank desiring to accept drafts Application for 
 
 i i i ii • p j_ • permission 
 
 drawn by banks or bankers in foreign countries or t0 accept . 
 dependencies or insular possessions of the United 
 States for the purpose of furnishing dollar ex- 
 change shall first make an application to the Fed- 
 eral Reserve Board setting forth the usages of trade 
 in the respective countries, dependencies, or insular 
 possessions in which such banks or bankers are lo- 
 cated. 
 
 If the Federal Reserve Board should determine J"*^ 
 that the usages of trade in such countries, depen- 
 dencies, or possessions require the granting of the 
 
30 
 
 Commercial Banking Practice 
 
 acceptance facilities applied for, it will notify the 
 applying bank of its approval and will also publish 
 in the Federal Reserve Bulletin the name or names 
 of those countries, dependencies, or possessions in 
 which banks or bankers are authorized to draw on 
 member banks whose applications have been ap- 
 proved for the purpose of furnishing dollar ex- 
 change. 
 
 The Federal Reserve Board reserves the right to 
 modify or on 90 days' notice to revoke its approval 
 either as to any particular member bank or as to 
 any foreign country or dependency or insular pos- 
 session of the United States in which it has author- 
 ized banks or bankers to draw on member banks for 
 the purpose of furnishing dollar exchange. 
 
 (Regulations of Federal Reserve Board, Regulation C, 
 Series of 1917, B, II.) 
 
 Purpose 
 of law. 
 
 Countries whose 
 trade usages do 
 not require such 
 acceptances. 
 
 Announcements of Federal Reserve Board 
 
 The purpose of this act and the regulation made 
 pursuant thereto was to enable the American banks 
 to provide dollar exchange in countries where the 
 check is not the current means of remittance in pay- 
 ment of foreign debts, but where the three months' 
 bankers' draft is generally used for that purpose. 
 
 (Announcement of Federal Reserve Board, Page 665, 
 December, 1916, Bulletin.) 
 
 The Board is informed that the bankers' custom 
 of selling three months' drafts in preference to 
 checks originated in countries where the mail con- 
 nections were irregular and the foreign-exchange 
 market was a limited one, and where it would have 
 been difficult for the drawing banker to be certain 
 that he could find a cover against the checks drawn 
 by him in time to forward it by the same mail, 
 whereas, in drawing a three months' draft, he would 
 feel assured of being able to forward remittances 
 before his obligation fell due. Such conditions do 
 
Bank Acceptances 81 
 
 not exist in relations between England and France 
 and the United States. 
 
 (Announcement of Federal Reserve Board, Page 665, 
 December, 1916, Bulletin.) 
 
 Reserving the right to modify or revoke its ap- 1™^£? U 
 proval on 90 days' notice, the Board has decided to warrant such 
 permit member banks to accept foreign drafts acce P tances - 
 drawn upon them by banks or bankers in the fol- 
 lowing countries: Porto Rico, Santo Domingo, 
 Costa Rica, Peru, Chile, Brazil, Venezuela, Argen- 
 tina, and Bolivia. 
 
 It is understood that such drafts are to be drawn 
 for the purpose of furnishing dollar exchange as 
 required by the usages and trade in the respective 
 countries. 
 
 (Announcement of Federal Reserve Board, Page 665, 
 December, 1916, Bulletin.) 
 
 The following named countries have been added 
 to the above list: Colombia, Nicaragua, Ecuador, 
 Trinidad, and Uruguay. 
 
 MATURITY 
 
 Statutory Provisions 
 
 Member banks may accept drafts drawn to Maturity not 
 furnish dollar exchange "having not more than |J r "e m^th*. 
 three months' sight to run, exclusive of days of 
 grace. ..." 
 
 (Federal Reserve Act, Section 13.) 
 
 AMOUNT MEMBER BANK MAY ACCEPT 
 FOR ONE INTEREST 
 
 Statutory Provisions 
 
 "No member bank shall accept such drafts or J e e n n t ^ it 
 bills of exchange referred to in this paragraph for 
 
n 
 
 Commercial Banking Practice 
 
 any one bank to an amount exceeding in the aggre- 
 gate ten per centum of the paid-up and unimpaired 
 capital and surplus of the accepting bank unless the 
 draft or bill of exchange is accompanied by docu- 
 ments conveying or securing title or by some other 
 adequate security. . . ." 
 (Federal Reserve Act, Section 13.) 
 
 AGGREGATE AMOUNT MEMBER 
 BANK MAY ACCEPT 
 
 Fifty per 
 :ent limit. 
 
 Separate limits 
 )n the two 
 classes of 
 
 acceptances. 
 
 Section 5202 
 not applicable. 
 
 Statutory Provisions 
 
 "No member bank shall accept such drafts or 
 bills in an amount exceeding at any time the aggre- 
 gate of one-half of its paid-up and unimpaired cap- 
 ital and surplus." 
 
 (Federal Reserve Act, Section 13.) 
 
 Opinions and Rulings 
 
 "The 50 per cent limit imposed upon the amount 
 of drafts which a member bank may accept for the 
 purpose of furnishing dollar exchange is separate 
 and distinct from and not included in the limits im- 
 posed by section 13 upon the amount of drafts or 
 bills of exchange drawn against the shipment of 
 goods or against warehouse receipts covering readi- 
 ly marketable staples, which a member bank may 
 accept." 
 
 Member banks may therefore accept such bills 
 even though their acceptances for other purposes 
 aggregate 50% (or 100%) of capital and surplus. 
 
 (Opinion of Counsel, Page 528, July, 1917, Bulletin.) 
 
 The limitations imposed by section 5202, Re- 
 vised Statutes, on the liabilities incurred by any 
 national bank do not apply to acceptances of such 
 banks. 
 
 (Opinion of Counsel, Page 680, December, 1916, Bulletin.) 
 
53 
 
 Bank Acceptances Based on Do- 
 mestic Shipments of Goods 
 
 CHARACTER 
 
 Statutory Provisions 
 
 "Any member bank may accept drafts drawn Acceptances 
 upon it . . . which grow out of transactions I° a de. me$,c 
 involving the domestic shipment of goods provided 
 shipping documents conveying or securing title are 
 attached at the time of acceptance. . . ." 
 
 (Federal Reserve Act, Section IS.) 
 
 Opinions and Rnlings 
 
 Shipping Documents. 
 
 Under the provision of section 13, which author- Character 
 izes any member bank to accept drafts based upon of docuInent, • 
 domestic shipments of goods, provided shipping 
 documents conveying or securing title are attached, 
 such documents must be made out or indorsed so as 
 to convey or secure title to the accepting bank. 
 
 (Opinion of Counsel, Page 198, March, 1918, Bulletin.) 
 
 A provision of section 13 which authorizes any Documents not 
 member bank to accept drafts based upon the [^physically 
 domestic shipment of goods, provided shipping attached, 
 documents are "attached," should not be construed 
 so as to require that the documents be physically 
 fastened to the draft. It is sufficient if the accept- 
 ing bank has possession of the documents at the 
 time of acceptance. If placed in possession of the 
 bank's agent and under control of the bank, such 
 documents could clearly be considered as in its 
 possession. 
 
 (Opinion of Counsel, Page 765, October, 1917, Bulletin.) 
 
Commercial Banking Practice 
 
 Transaction Need Not Involve Sale of Goods. 
 
 A member bank may properly accept a draft 
 drawn against the shipment of goods from a corpo- 
 ration to its agent or branch even though no sale of 
 the goods is involved in the transaction. 
 
 In any case, where a draft is drawn against a 
 shipment of goods in a transaction which does not 
 involve the sale of those goods, the maturity of the 
 draft should approximate the duration of their 
 transit. In such a case the law contemplates that 
 the acceptance of the draft should be for the pur- 
 pose of financing the shipment, and that it should 
 not be the means of furnishing a credit for any other 
 purpose. 
 
 (Informal Ruling, Page 690, September, 1917, Bulletin.) 
 Acceptance Must Arise Out of Actual Transaction. 
 
 A draft drawn by the purchaser of the goods 
 against a national bank is not eligible for accept- 
 ance by that bank merely because it is secured by a 
 bill of lading covering the goods bought. 
 
 The law contemplates some actual connection be- 
 tween the acceptance of the draft and the transac- 
 tion involving the sale and shipment of the goods — 
 that is, it was evidently intended that the draft 
 should be drawn to finance that transaction. If a 
 seller ships goods and mails the bill of lading to the 
 purchaser and on arrival of the bill of lading the 
 purchaser draws on his own bank, attaching the bill 
 of lading as security, and offers it for acceptance, 
 the transaction is merely a straight loan to the 
 drawer secured by a bill of lading. As such it would 
 not come within the spirit of the provisions of sec- 
 tion 13. 
 
 (Opinion of Counsel, Page 380, May, 1917, Bulletin.) 
 
 Retention or Release of Documents against Acceptance. 
 
 Question is whether it is necessary, where a do- 
 mestic acceptance is based upon a bill of lading, that 
 the bank retain the bill of lading or other collateral 
 
warehouse 
 receipts. 
 
 Bank Acceptances 35 
 
 during the life of the acceptance, or may the bank 
 release the bill of lading after acceptance. Also, 
 whether the same rule will apply in case the accept- 
 ance is secured by a warehouse receipt. 
 
 Inasmuch as the statute merely requires the ac- 
 cepting bank to be secured in domestic transactions 
 by shipping documents or warehouse receipts at the 
 time of acceptance, the bank would no doubt have 
 the right, if it became necessary to do so, to release 
 either the shipping document or the warehouse re- 
 ceipt, provided the draft or drafts accepted for one 
 person did not exceed 10 per cent of the capital 
 and surplus of the accepting bank. This is a ques- 
 tion, however, which should be determined by the 
 bank itself. 
 
 It is no doubt necessary in some instances for the Release of 
 bank to release the shipping documents under some 
 agreement with its customer in order that the trans- 
 action may be consummated. There would seem to 
 be much less reason for releasing the warehouse re- 
 ceipts, and the banks might very properly adopt the 
 rule not to release warehouse receipts other than in 
 exceptional cases. In any event, this is purely a 
 matter of agreement as between the bank and its 
 customers. The Federal reserve bank in redis- 
 counting such acceptances may reasonably take into 
 consideration the question whether or not they are 
 secured or unsecured at the time they are offered 
 for rediscount. 
 
 (Informal Ruling, Page 634, July, 1918, Bulletin.) 
 
 MATURITY 
 
 Statutory Provisions 
 
 Any member bank may accept such drafts drawn Maturity not to 
 upon it, "having not more than six months' sight to exceed six nouthi ° 
 run, exclusive of days of grace." 
 
 (Federal Reserve Act, Section 13.) 
 
Commercial Banking Practice 
 
 edit agreement 
 r more than 
 : months. 
 
 Opinions and Hillings 
 
 Duration of Letters of Credit. 
 
 While a letter of credit or credit agreement may 
 be lawfully made by a national bank which will ex- 
 tend by its terms for a period exceeding six months, 
 the agreement must not be of such a character as 
 will impose upon the holders of the drafts accepted 
 thereunder any obligation to renew such drafts so 
 that the period of acceptance shall exceed six 
 months in duration as to any specified draft. 
 
 (Informal Ruling, Page 269, September, 1915, Bulletin.) 
 
 ndicate accept- 
 ce credits. 
 
 For statement of policy of Federal Reserve 
 Board with regard to syndicate acceptance credits 
 having a duration of several years, see "Syndicate 
 Acceptance Credits," pages 14-15, above. 
 
 AMOUNT BANK MAY ACCEPT FOR 
 ONE INTEREST 
 
 fty per 
 nt limit. 
 
 See, under "Bank Acceptances Based on Im- 
 ports and Exports," pages 23-25, above. 
 
 cceptances up 
 100 per cent. 
 
 AGGREGATE AMOUNT BANK 
 MAY ACCEPT 
 
 Statutory Provisions 
 
 "No bank shall accept such bills to an amount 
 equal at any time in the aggregate to more than 
 one-half of its paid-up and unimpaired capital 
 stock and surplus : 
 
 "Provided, however, that the Federal Reserve 
 Board, under such general regulations as it may 
 prescribe, which shall apply to all banks alike re- 
 gardless of the amount of capital stock and surplus, 
 may authorize any member bank to accept such bills 
 
Bank Acceptances 3 
 
 to an amount not exceeding at any time in the ag- 
 gregate one hundred per centum of its paid-up and 
 unimpaired capital stock and surplus:* 
 
 "Provided, further, that the aggregate of accept- Domestic accept- 
 ances growing out of domestic transactions shall in excee d 50 per cent, 
 no event exceed fifty per centum of such capital 
 stock and surplus." 
 
 (Federal Reserve Act, Section 13.) 
 
 Opinions and Rulings 
 
 Purchase of 
 bank's own 
 
 When a member bank purchases its own accept- 
 ance before maturity such acceptance need not be accept 
 included in the aggregate of acceptances authorized 
 by section 13. 
 
 (Opinion of Counsel, Page 397, August, 1916, Bulletin. 
 See also "Purchase by National Bank of Its Own Accept- 
 ances," pages 45-46, below.) 
 
 The limitations imposed by section 5202, Re- ^ io n n ot 5 fJp, y 
 vised Statutes, on the liabilities incurred by any to acceptances, 
 national bank do not apply to acceptances of such 
 banks. 
 
 (Opinion of Counsel, Page 680, December, 1916, Bulletin.) 
 
 *For regulations governing acceptance of domestic and for- 
 eign drafts up to an aggregate of 100 per cent of bank's capital 
 and surplus, see "Bank Acceptances Based on Imports and 
 Exports," pages 26-28, above. 
 
Bank Acceptances Secured by 
 Warehouse Receipts 
 
 CHARACTER 
 Statutory Provisions 
 
 "Any member bank may accept drafts or bills of 
 exchange drawn upon it . . . which are se- 
 cured at the time of acceptance by a warehouse re- 
 ceipt or other such document conveying or secur- 
 ing title covering readily marketable staples." 
 
 (Federal Reserve Act, Section 13.) 
 
 Warehouse receipts 
 uist be issued by 
 
 ndependent 
 warehouses. 
 
 Opinions and Rulings 
 
 Eligible Security. 
 
 Warehouse receipts offered as security for bills 
 accepted by member banks must be issued by ware- 
 houses which are independent of the borrower. 
 
 Where a corporation is formed as a subterfuge 
 for the purpose of evading the spirit of the Board's 
 ruling, this fact should be taken into consideration 
 by a member bank accepting the bill and by the 
 Federal reserve bank to which it is offered for dis- 
 count. 
 
 If the borrower exercises such control over the 
 corporation issuing the warehouse receipt as to give 
 him control over the goods in storage, the purpose 
 of requiring a receipt of the independent ware- 
 houseman would be defeated. The corporation is- 
 suing such receipt must be organized in good faith 
 as an independent corporation and its affairs must 
 
Bank Acceptances 39 
 
 be administered by duly authorized officers and 
 agents independent of the borrower. 
 
 (Informal Ruling, Page 31, January, 1918, Bulletin; see 
 also Informal Ruling, Page 30, January, 1917, Bulletin.) 
 
 The requirements of the Board appear to have J* elation h * tyf * en 
 
 j A , ±r borrower and ware- 
 
 been met where a separate corporation has been house corporation. 
 
 created and the warehouse receipts are issued by 
 that corporation and not by the borrower. How- 
 ever, where both corporations have practically the 
 same officers, the manager of the warehouse ap- 
 pointed to execute the receipts should not be an 
 employee of the borrowing company, as the Board 
 requires that the receipts should be issued by a 
 company independent of the borrower, and this re- 
 quirement should be met in substance as well as in 
 form. 
 
 (Informal Ruling, Page 862, September, 1918, Bulletin.) 
 
 A borrowing corporation takes receipts for goods 
 and materials stored in a warehouse controlled by a 
 separate corporation engaged solely in the ware- 
 house business, the entire stock of which is owned 
 by the prospective borrower. 
 
 If a representative of the accepting bank is given £°"^ u$ ° e f b 
 control of the warehouse under a proper resolution acceptors' 
 of the directors of the warehouse corporation, the representative, 
 fact that the stock of the corporation is owned by 
 the borrower should not prevent the acceptance of 
 drafts secured by the warehouse receipts. 
 
 It should be agreed, however, that if by any fu- 
 ture action of the warehouse corporation an attempt 
 is made to exercise control over the warehouse, the 
 representative of the acceptor should have the right 
 to move the goods and to place them in storage else- 
 where at the expense of the warehouse corporation. 
 
 (Informal Ruling, Page 862, September, 1918, Bulletin.) 
 
 A canned goods concern proposes to place part ^^X^hisee^ 
 of its readily marketable goods and materials in 
 
40 
 
 Commercial Banking Practice 
 
 storage with a lessee of part of its premises. The 
 lessee is then to issue warehouse receipts to the 
 owner of the goods, which receipts are to be used as 
 security for drafts drawn against and accepted by 
 a member bank. 
 
 If the premises in question are actually turned 
 over to the lessee under a bona fide lease, the lessee 
 being independent of the borrower and having en- 
 tire custody and control of the goods, there would 
 seem to be no objection to a member bank accept- 
 ing drafts against the security of warehouse receipts 
 issued by such lessee. It should, however, be ex- 
 pressly understood and agreed that the borrower 
 shall not have access to the premises except with the 
 permission of the lessee and that he shall exercise no 
 control of any sort over the goods against which 
 warehouse receipts are issued. The warehouse re- 
 ceipts must, of course, be in form to properly con- 
 vey and secure title to the bank. 
 
 (Informal Ruling, Page 634, July, 1918, Bulletin.) 
 
 Receipt of cus- 
 todian of wool as 
 warehouse receipt. 
 
 It being understood that wool is stored in build- 
 ings under control of custodian entirely indepen- 
 dent of borrower, custodian's certificate or receipt, 
 if issued in proper form to convey or secure title, 
 may be treated as a warehouse receipt within the 
 meaning of section 13 of the Federal Reserve Act 
 and acceptance of member bank under such condi- 
 tions would be eligible for rediscount. 
 
 (Informal Ruling, Page 636, July, 1918, Bulletin.) 
 
 Acceptance of 
 drafts against 
 sugar in bond. 
 
 It is the understanding of this office that sugar 
 referred to is placed in bond under transit entry 
 and warehouse receipt issued by collector in nego- 
 tiable form, but sugar can not be withdrawn for 
 domestic sale or consumption without special per- 
 mission of Treasury Department. Board is of 
 opinion that member banks may legally accept 
 
Bank Acceptances 41 
 
 drafts drawn against security of such warehouse re- 
 ceipt properly assigned. 
 
 (Informal Ruling, Page 520, June, 1918, Bulletin.) 
 Ineligible Security. 
 
 Drafts or bills of exchange drawn in domestic Chattel 
 transactions against a national bank cannot, under ""^w* 1 - 
 authority of section 13, be accepted when secured 
 by a chattel mortgage on cattle but only when ac- 
 companied by shipping documents or when secured 
 by a warehouse receipt or other similar document 
 conveying or securing title to readily marketable 
 staples. 
 
 While cattle may be treated as readily marketable 
 staples, a chattel mortgage is not considered a docu- 
 ment similar to a warehouse receipt since the bor- 
 rower retains the possession of the goods and con- 
 veys to the bank only the legal title. 
 
 (Informal Ruling, Page 309, April, 1918, Bulletin.) 
 
 A national bank is not authorized to accept a Collateral 
 draft secured by collateral notes which are in turn J ote c s ha s t e t ^ r * d 
 secured by chattel mortgages on cattle. mortgages. 
 
 (Informal Ruling, Page 690, September, 1917, Bulletin.) 
 
 Member banks are not authorized to accept drafts 
 of a cattle-loan company secured by notes of the 
 owner of the cattle, although such notes may be se- 
 cured by a chattel mortgage executed by the owner 
 of the cattle to the cattle-loan company and the 
 notes and chattel mortgage accompany the draft at 
 the time of acceptance. 
 
 (Opinion of Counsel, Page 871, September, 1918, Bulletin.) 
 
 A bill of sale is not a receipt similar to a ware- Bills of sale, 
 house or terminal receipt ; it is merely in substance 
 a chattel mortgage to goods in the hands of the 
 drawer and not a receipt for goods sold in the hands 
 of some third party "independent of the borrower." 
 
 (Opinion of Counsel, Page 684, December, 1916, Bulletin.) 
 
Commercial Banking Practice 
 
 The acceptance of a draft by a member bank 
 against an acceptance agreement which purports to 
 assign to the bank certain collateral security, but 
 which does not specifically mention any security as 
 assigned, is an ordinary accommodation acceptance, 
 and is not authorized by law. 
 
 (Opinion of Counsel, Page 311, April, 1918, Bulletin.) 
 
 Substitution. 
 
 Substitution of Warehouse Receipts. 
 
 It is held that there is no objection to permitting 
 mills to substitute other warehouse receipts for cot- 
 ton receipts during the life of an acceptance. 
 
 (Informal Ruling, Page 30, January, 1917, Bulletin.) 
 For a ruling governing the release of warehouse receipts 
 after acceptance, see page 35, above. 
 
 MATURITY 
 
 See, under "Bank Acceptances Based on Domes- 
 tic Shipments of Goods," pages 35-36, above. 
 
 AMOUNT BANK MAY ACCEPT FOR 
 ONE INTEREST 
 
 See, under "Bank Acceptances Based on Im- 
 ports and Exports," pages 23-25, above. 
 
 AGGREGATE AMOUNT BANK 
 MAY ACCEPT 
 
 See, under "Bank Acceptances Based on Domes- 
 tic Shipments of Goods," pages 36-37, above. 
 
43 
 
 Investment in Acceptances by 
 Member Banks 
 
 Statutory Provisions 
 
 "The total liabilities to any association, of any Ten per cent limit 
 person, or of any company, corporation, or firm for ™ l, £,°[ ) 7 
 money borrowed, including in the liabilities of a national bank, 
 company or firm the liabilities of the several mem- 
 bers thereof, shall at no time exceed ten per centum 
 of the amount of the capital stock of such associa- 
 tion, actually paid in and unimpaired, and ten per 
 centum of its unimpaired surplus fund: Provided, 
 however, that (1) the discount of bills of exchange Exception of 
 drawn in good faith against actually existing val- d j SC0UDt ° f bilI » 
 ues, (2) the discount of commercial or business LsSew* paper! 
 paper actually owned by the person, company, cor- 
 poration, or firm, negotiating the same, and (3) the 
 purchase or discount of any note or notes secured Paper secured 
 by not less than a like face amount of bonds of the obiigatbl. 8 *"*" 
 United States issued since April 24, 1917, or cer- 
 tificates of indebtedness of the United States, shall 
 not be considered as money borrowed within the 
 meaning of this section; but the total liabilities to 
 any association, of any person, or of any company, 
 corporation, or firm, upon any note or notes pur- 
 chased or discounted by such association and secured 
 by such bonds or certificates of indebtedness, shall 
 not exceed (except to the extent permitted by rules 
 and regulations prescribed by the Comptroller of 
 the Currency, with the approval of the Secretary of 
 the Treasury) ten per centum of such capital stock 
 and surplus fund of such association." 
 
 (U. S. Revised Statutes, Section 5200, as amended Septem- 
 ber 24, 1918.) 
 
44 
 
 Commercial Banking Practice 
 
 "Bills of 
 
 exchange" include 
 bank acceptances. 
 
 Bills discounted 
 before acceptance. 
 
 Secured by shipping 
 documents or 
 pledge of goods. 
 
 Bills discounted 
 after acceptance. 
 
 Acceptance 
 discounted after 
 removal of 
 attached 
 documents. 
 
 Opinions and Rulings 
 
 Purchase or Discount of Acceptances of Other Banks. 
 
 "Bills of exchange" may be taken as including 
 acceptances, since a bill does not lose its character- 
 istics as such when accepted by the drawee. 
 
 (Opinion of Counsel, Page 195, March, 1917, Bulletin.) 
 
 A bill of exchange discounted before acceptance 
 may be said to be drawn against actually existing 
 value . . . only when it is accompanied by 
 shipping documents, warehouse receipts, or other 
 papers securing title to the goods sold. 
 
 (Opinion of Counsel, Page 195, March, 1917, Bulletin.) 
 
 A bill secured by shipping documents, or by the 
 pledge of goods actually sold, might be discounted 
 by a member bank before acceptance without being 
 subject to the limitations imposed by section 5200, 
 since this would constitute a bill drawn in good 
 faith against actually existing value. 
 
 (Opinion of Counsel, Page 683, December, 1916, Bulletin.) 
 
 If the bill is discounted after acceptance it may 
 be treated as drawn against existing values if drawn 
 against the drawee at the time of, or within a rea- 
 sonable time after, the shipment or delivery of the 
 goods sold. There must be reasonable grounds to 
 believe at the time the bill is drawn that the goods 
 are in existence in the hands of the drawee either 
 in their original form or in the shape of the proceeds 
 of their sale. 
 
 (Opinion of Counsel, Page 195, March, 1917, Bulletin.) 
 
 When such bill has been accepted by the drawee 
 and the documents attached have been removed, 
 though the direct obligation of the drawee to pay 
 such bill at maturity may be said to be substituted 
 for the "actual value" against which the bill was 
 
Bank Acceptances 45 
 
 originally drawn, nevertheless, when discounted by 
 a bona fide owner for value, its discount would not 
 be subject to the limitations of section 5200, since 
 it would still come within the classification of "com- 
 mercial or business paper actually owned by the 
 person negotiating the same." 
 
 Should the drawee who accepts the bill, however, 
 attempt to discount it with a member bank it would 
 be subject to the limitations of section 5200, since 
 in that case the party primarily liable would in ef- 
 fect borrow money from the bank on his own ob- 
 tigation. 
 
 (Opinion of Counsel, Page 683, December, 1916, Bulletin.) 
 
 The Board finds it necessary to adhere to its es- Disconn * ° f 
 tablished policy of not making any general ruling busfnew""^". 
 on the question of how much a bank may invest in 
 any particular security. It held, however, that if 
 a firm is a bona fide owner for value of the accept- 
 ances of any particular institution and such accept- 
 ances are sold to or discounted with a member bank, 
 the acceptances could no doubt be treated as com- 
 mercial or business paper actually owned by the 
 party negotiating them and would therefore be ex- 
 cepted from the limitations of section 5200, Re- 
 vised Statutes. Ruling rests upon the fact that 
 paper is commercial or business paper actually 
 owned by the person negotiating it. 
 
 (Informal Ruling, Page 678, December, 1916, Bulletin.) 
 
 Purchase by National Bank of Its Own Acceptances. 
 
 A member bank may legally purchase its own ac- Bank ma y 
 
 purchase il 
 
 own acceptances. 
 
 ceptances, but such a transaction is equivalent to a p 
 loan or advance to the customer for whom the ac- 
 ceptance was made and the liability of such cus- 
 tomer becomes subject to the limitations of section 
 5200, Revised Statutes. 
 
 (Opinion of Counsel, Page 680, December, 1916, Bulletin.) 
 
46 
 
 Commercial Banking Practice 
 
 Exemption from 
 limitations of 
 Section 13. 
 
 Reissuance of 
 acceptances. 
 
 Rediscount of 
 such acceptances. 
 
 When a bank purchases its own acceptance be- 
 fore maturity such acceptance need not be included 
 in the aggregate of acceptances authorized by sec- 
 tion 13. 
 
 (Opinion of Counsel, Page 397, August, 1916, Bulletin.) 
 
 While the Board has ruled that when a bank buys 
 its own acceptances they are to be recorded as loans 
 subject to the limitations of section 5200, the right 
 of the bank to resell or reissue the acceptance is, in 
 the opinion of counsel, fully recognized by the au- 
 thorities, and where this is done they may be treated 
 as acceptances outstanding and not as loans. 
 
 (Informal Ruling, Page 691, September, 1917, Bulletin.) 
 
 An acceptance which has been purchased by the 
 accepting bank and subsequently rediscounted with 
 its Federal Reserve Bank is not subject to the lim- 
 itations of section 5200 of the Revised Statutes. 
 
 (Opinion of Counsel, Page 696, September, 1917, Bulletin.) 
 
PART II. 
 
 Rediscounts 
 
 with 
 
 Federal Reserve 
 Banks 
 
49 
 
 PART II. 
 
 Rediscounts with Federal 
 Reserve Banks 
 
 General Statutory Provisions 
 
 Member banks of the Federal Reserve System 
 are authorized to rediscount notes, drafts, bills of 
 exchange, and bank acceptances with Federal re- 
 serve banks under the following provisions of the 
 Federal Reserve Act: 
 
 "Upon the indorsement of any of its member Notes, drafts, and 
 banks, which shall be deemed a waiver of demand, bills of exchan * e - 
 notice, and protest by such bank as to its own in- 
 dorsement exclusively, any Federal reserve bank 
 may discount notes, drafts, and bills of exchange 
 arising out of actual commercial transactions ; that Commercial paper. 
 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, within the meaning of this Act. Nothing Agricultural and 
 in this Act contained shall be construed to prohibit commodit J r P a P er - 
 such notes, drafts, and bills of exchange, secured by 
 staple agricultural products, or other goods, wares, 
 or merchandise, from being eligible for such dis- 
 count; but such definition shall not include notes, 
 
50 
 
 Commercial Banking Practice 
 
 Ineligible paper. 
 
 Maturity of 
 eligible paper. 
 
 Amount rediscount- 
 able by one bank 
 bearing signature 
 of any one interest. 
 
 Bank acceptances 
 eligible for 
 rediscount. 
 
 Rediscounts for 
 member State banks. 
 
 drafts, or bills covering merely investments or is- 
 sued or drawn for the purpose of carrying or trad- 
 ing in stocks, bonds, or other investment securities, 
 except bonds and notes of the Government of the 
 United States. Notes, drafts, and bills admitted 
 to discount under the terms of this paragraph must 
 have a maturity at the time of discount of not more 
 than ninety days, exclusive of days of grace: Pro- 
 vided, that notes, drafts, and bills 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 be limited to a percentage of the assets 
 of the Federal reserve bank, to be ascertained and 
 fixed by the Federal Reserve Board. 
 
 "The aggregate of such notes, drafts, and bills 
 bearing the signature or indorsement of any one 
 borrower, whether a person, company, firm, or cor- 
 poration, rediscounted for any one bank, shall at no 
 time exceed ten per centum of the unimpaired capi- 
 tal and surplus of said bank; but this restriction 
 shall not apjoly to the discount of bills of exchange 
 drawn in good faith against actually existing 
 values. 
 
 "Any Federal reserve bank may discount ac- 
 ceptances 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."* 
 
 (Federal Reserve Act, Section 13.) 
 
 "No Federal reserve bank shall be permitted to 
 discount for any [member] State bank or trust 
 company notes, drafts, or bills of exchange of any 
 
 * For kinds of acceptances eligible for rediscount under this 
 section, see Part I, "General Statutory Provisions/' pages 
 
 11-12, above. 
 
Rediscounts 51 
 
 one borrower who is liable for borrowed money to 
 such State bank or trust company in an amount 
 greater than ten per centum of the capital and sur- 
 plus of such State bank or trust company, but the 
 discount of bills of exchange drawn against act- 
 ually existing value and the discount of commer- 
 cial or business paper actually owned by the person 
 negotiating the same shall not be considered as bor- 
 rowed money within the meaning of this section. 
 The Federal reserve bank, as a condition of the Condition*, 
 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 bor- 
 rower is not liable to such bank in excess of the 
 amount provided by this section, and will not be 
 permitted to become liable in excess of this amount 
 while such notes, drafts, or bills of exchange are 
 under discount with the Federal reserve bank." 
 (Federal Reserve Act, Section 9.) 
 
 "No member bank shall act as the medium or f p ";™J m fc^ " l • 
 agent of a nonmember bank in applying for or 
 receiving discounts from a Federal reserve bank 
 under the provisions of this Act, except by permis- 
 sion of the Federal Reserve Board." 
 
 (Federal Reserve Act, Section 19.) 
 
 "The discount and rediscount and the purchase Sub i ec , 1 to regulation. 
 
 - r 1 #11 of Federal Reserve 
 
 and sale by any Federal reserve bank oi any bills Board, 
 receivable and of domestic and foreign bills of ex- 
 change, and of acceptances authorized by this Act, 
 shall be subject to such restrictions, limitations, and 
 regulations as may be imposed by the Federal 
 Reserve Board." 
 
 (Federal Reserve Act, Section 13.) 
 
 "The Federal reserve banks shall be authorized, Security ^Wtr^ 
 subject to the maturity limitations of the Federal bonds. 
 Reserve Act and to regulations of the Federal 
 Reserve Board, to discount the direct obligations 
 
52 
 
 Commercial Banking Practice 
 
 of member banks secured by . . . bonds of the 
 [War Finance] Corporation and to rediscount eli- 
 gible paper secured by such bonds and indorsed by 
 a member bank." 
 
 (War Finance Corporation Act, Section 13.) 
 
58 
 
 General Regulations of Federal 
 Reserve Board 
 
 SUMMARY OF STATUTORY 
 PROVISIONS 
 
 Any Federal reserve bank may discount for any 
 of its member banks any note, draft, or bill of ex- 
 change provided: 
 
 (a) It has a maturity at the time of discount of Maturity, 
 lot more than 90 days, exclusive of days of grace; 
 
 out if drawn or issued for agricultural purposes or 
 based on live stock, it may have a maturity at the 
 time of discount of not more than six months, ex- 
 clusive of days of grace ; 
 
 (b) It arose out of actual commercial transac- Commercial 
 tions ; that is, it must be a note, draft, or bill of ex- 
 change which has been issued or drawn for agri- 
 cultural, industrial, or commercial purposes, or the 
 proceeds of which have been used or are to be used 
 
 for such purposes; 
 
 (c) It was not issued for carrying or trading in Finance paper 
 stocks, bonds, or other investment securities, ex- ine,gI e * 
 cept bonds and notes of the Government of the 
 United States; 
 
 (d) The aggregate of notes, drafts, and bills Ten per cent limit, 
 bearing the signature or indorsement of any one 
 borrower, whether a person, company, firm, or cor- 
 poration, rediscounted for any one member bank, 
 
 shall at no time exceed ten per cent of the unim- 
 paired capital and surplus of such bank; but this 
 restriction shall not apply to the discount of bills of 
 
54 
 
 Commercial Banking Practice 
 
 Indorsement. 
 
 exchange drawn in good faith against actually ex- 
 isting values ; 
 
 (e) It is indorsed by a member bank; 
 
 (f) It conforms to all applicable provisions of 
 this regulation. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, I.) 
 
 ELIGIBILITY OF NOTES, DRAFTS, 
 AND BILLS OF EXCHANGE 
 
 Commercial paper. 
 
 Finance paper 
 ineligible. 
 
 Collateral 
 
 security. 
 
 The Federal Reserve Board, exercising its statu- 
 tory right to define the character of a note, draft, or 
 bill of exchange eligible for rediscount at a Federal 
 reserve bank, has determined that : 
 
 (a) It must be a note, draft, or bill of exchange 
 the proceeds of which have been used or are to be 
 used in producing, purchasing, carrying, or market- 
 ing goods* in one or more of the steps of the pro- 
 cess of production, manufacture, or distribution; 
 
 (b) It must not be a note, draft, or bill of ex- 
 change the proceeds of which have been used or are 
 to be used for permanent or fixed investments of 
 any kind, such as land, buildings, or machinery; 
 
 (c) It must not be a note, draft, or bill of ex- 
 change the proceeds of which have been used or are 
 to be used for investments of a purely speculative 
 character ; 
 
 (d) It may be secured by the pledge of goods or 
 collateral, provided it is otherwise eligible. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, II.) 
 
 *When used in this regulation the word "goods" shall be 
 construed to include goods, wares, merchandise, or agricultural 
 products, including live stock. 
 
Rediscounts 55 
 
 APPLICATIONS FOR REDISCOUNT 
 
 All applications for the rediscount of notes, Certificate of 
 
 drafts, or bills of exchange must contain a certifi- 
 cate 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 mentioned in (a), above. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, III.) 
 
 member bank. 
 
Rediscount of Promissory 
 Notes 
 
 DEFINITION OF NOTE 
 
 A promissory note, within the meaning of this 
 regulation, is defined as an unconditional promise, 
 in writing, signed by the maker, to pay, in the 
 United States, at a fixed or determinable future 
 time, a sum certain in dollars to order or to bearer. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, IV.) 
 
 ELIGIBLE CLASSES OF NOTES 
 
 Statutory Provisions 
 
 Commercial paper. 
 
 Agricultural and 
 commodity paper. 
 
 Paper based on 
 United States 
 obligations. 
 
 Eligible notes are defined in the laws as fol- 
 lows: 
 
 "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, within the meaning of this Act. Nothing 
 in this Act contained shall be construed to prohibit 
 such notes, drafts, and bills of exchange, secured 
 by staple agricultural products, or other goods, 
 wares, or merchandise, from being eligible for such 
 discount; [or] . . . notes, drafts, or bills . . . 
 issued or drawn for the purpose of carrying or 
 
Rediscounts 
 
 57 
 
 trading in . . . bonds and notes of the Govern- 
 ment of the United States." 
 
 (Federal Reserve Act, Section 13.) 
 
 "The Federal reserve banks shall be authorized, ^ a 7 a ^^ n d an c n e bo,,d, 
 subject to the maturity limitations of the Federal Corporation. 
 Reserve Act and to regulations of the Federal 
 Reserve Board, to discount the direct obligations 
 of member banks secured by . . . bonds of the 
 [War Finance] Corporation and to rediscount eli- 
 gible paper secured by such bonds and endorsed by 
 a member bank." 
 
 (War Finance Corporation Act, Section 13.) 
 
 Regulations of Federal Reserve Roard 
 
 The Federal Reserve Board, exercising its statu- 
 tory right to define the character of a note, draft, or 
 bill of exchange eligible for rediscount at a Fed- 
 eral reserve bank, has determined that : 
 
 It must be a note, draft, or bill of exchange, the Commercial paper, 
 proceeds of which have been used or are to be used 
 in producing, purchasing, carrying, or marketing 
 goods* in one or more of the steps of the process of 
 production, manufacture, or distribution ; 
 
 The paper may be secured by the pledge of goods Collateral notes, 
 or collateral provided it is otherwise eligible. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, II.) 
 
 Opinions and Rulings 
 
 Federal reserve banks do not make loans di- Loans to indmdaaU. 
 rectly to individuals, but rediscount the paper of 
 
 * When used in this regulation the word "goods" shall be 
 construed to include goods, wares, merchandise, or agricul- 
 tural products, including live stock. 
 
58 
 
 Commercial Banking Practice 
 
 member banks, which include all national banks and 
 such State banks as may have joined the Federal 
 Reserve System. 
 
 (Informal Ruling, Page 272, June, 1916, Bulletin.) 
 
 Paper of waterworks 
 company. 
 
 Farmers' notes. 
 
 Assignment of open 
 accounts ineligible. 
 
 Discount of renewal 
 notes. 
 
 Notes Based on Production and Distribution of Goods. 
 
 The 90-day paper of a waterworks company, the 
 proceeds of winch have been or are to be used to 
 provide funds for payroll, purchases of coal, etc., 
 is eligible for rediscount by a Federal reserve bank 
 if the paper is otherwise in conformity with the law 
 and the provisions of the Board's regulations. 
 
 (Informal Ruling, Page 527, July, 1917, Bulletin.) 
 
 Farmers' notes, the proceeds of which are used 
 for tilling farms or for draining land already in 
 use as farm land, should be classified as agricultural 
 paper, and are eligible for rediscount. 
 
 (Informal Ruling, Page 743, August, 1918, Bulletin.) 
 
 The assignment of an open account is not nego- 
 tiable paper and is not eligible for rediscount by a 
 Federal reserve bank under the terms of section 
 18 of the Federal Reserve Act. 
 
 (Opinion of Counsel, Page 227, May, 1916, Bulletin.) 
 
 Renewals differ, and banking judgment deter- 
 mines the merits of each particular case. Self- 
 liquidating paper, even though the transaction 
 which gives rise to it does not liquidate itself within 
 the 90-day maturity, might be discounted even 
 though it appears to be renewal paper. Banks 
 should not enter into an agreement for a renewal. 
 Care should be exercised in examining such paper 
 and the transactions which give rise to it, but me- 
 chanical rules should not be allowed to take the 
 place of discriminating banking judgment. 
 
 (Informal Ruling, Page 74, June, 1915, Bulletin.) 
 
Rediscounts 
 
 59 
 
 Secured Notes. 
 
 Eligibility tested by 
 use of funds. 
 
 Collateral notes for 
 commercial purposes. 
 
 Under section 13 of the Federal Reserve Act the 
 eligibility of a note for rediscount is determined by 
 the use of the funds derived from the original nego- 
 tiation of the note. The collateral security of the 
 note may indicate its use, but the form of collateral 
 is otherwise immaterial. In other words, a note 
 might be secured by railroad stocks and bonds, but 
 the proceeds might be used for an agricultural, 
 industrial, or a commercial purpose, in which event 
 the note would be eligible for rediscount, although 
 it would not be if the proceeds were used to pur- 
 chase or carry the railroad stocks and bonds. 
 
 (Opinion of Counsel, Page 954, December, 1917, Bulletin.) 
 
 Notes secured by collateral, the proceeds of 
 which have been used or are to be used for commer- 
 cial purposes, and which otherwise comply with the 
 regulations, are eligible for rediscount. 
 
 The fact that commercial paper has the addi- 
 tional security of collateral in no way affects its 
 eligibility for rediscount. 
 
 (Informal Ruling, Page 268, September, 1915, Bulletin.) 
 
 A note, even though secured by eligible paper, is ^^ t security not 
 not itself eligible for rediscount unless issued for an 
 agricultural, commercial, or industrial purpose. 
 
 (Informal Ruling, Page 690, September, 1917, Bulletin.) 
 
 The note of a manufacturer secured by his bills 
 receivable is desirable paper, and should certainly 
 not be debarred as a collateral trust note. 
 
 (Informal Ruling, Page 127, July, 1915, Bulletin.) 
 
 A note, draft, or bill of exchange drawn for com- Collateral of 
 mercial purposes and otherwise eligible for redis- 
 count under the provisions of section 13 of the 
 Federal Reserve Act is not rendered ineligible 
 merely because it is secured by a mortgage on real 
 estate. 
 
 (Opinion of Counsel, Page 458, June, 1917, Bulletin.) 
 
 Collateral of bills 
 receivable. 
 
 mortgages. 
 
50 
 
 Commercial Banking Pract 
 
 Rediscount for 
 insolvent bank 
 when reopened. 
 
 Notes secured by 
 food products. 
 
 Pig iron security. 
 
 The Board upholds a Federal reserve bank in 
 declining to give assurance to the receiver of an 
 insolvent member bank that the Federal reserve 
 bank will upon the reopening of the insolvent bank 
 rediscount eligible paper freely, without requiring 
 the indorsement of directors or other additional se- 
 curity. Offerings should be considered upon their 
 merits. 
 
 (Informal Ruling, Page 66, February, 1916, Bulletin.) 
 
 Paper secured by staple perishable food products 
 such as butter, cheese, eggs, poultry, frozen fish, 
 etc., carried for seasonable periods in cold storage 
 on negotiable warehouse receipts, is eligible, if of- 
 fered with the indorsement of a member bank at 
 the usual rate for 90-day commercial paper. 
 
 (Informal Ruling, Page 30, January, 1918, Bulletin.) 
 
 The note of a furnace company secured by pig 
 iron manufactured by the company on contract for 
 delivery is eligible for rediscount. While this prin- 
 ciple generally holds good, each case should be 
 carefully scrutinized that the collateral may be 
 readily marketable goods. 
 
 (Informal Ruling, Page 127, July, 1915, Bulletin.) 
 
 Authority. 
 
 Notes Based on United States Obligations and War 
 Finance Corporation Bonds. 
 
 The statement of law that the definition of eli- 
 gible paper shall not include notes, drafts, or bills 
 of exchange drawn for the purpose of "carrying or 
 trading in stocks, bonds, or other investment se- 
 curities, except bonds and notes of the Government 
 of the United States," is equivalent to an affirma- 
 tive declaration that a Federal reserve bank may 
 discount a note, draft, or bill of exchange indorsed 
 by a member bank which is issued or drawn for the 
 purpose of carrying or trading in bonds or notes of 
 the United States. 
 
 (Informal Ruling, Page 158, March, 1917, Bulletin.) 
 
Rediscounts 61 
 
 Any member bank which has loaned money to 
 any of its customers for the purpose of carrying or 
 trading in bonds or notes of the United States may 
 rediscount with its Federal reserve bank the bill 
 or note of its customer, provided such bill or note 
 
 (a) Has a maturity at the time of discount of ^"^{J}" of 
 not more than ninety days, exclusive of days e >gl ! lty " 
 of grace; and 
 
 (b) Has the indorsement of the member bank. 
 Such bill or note, however, need not necessarily 
 
 be secured and need not be drawn for a commercial 
 purpose other than for the purpose of carrying or 
 trading in notes or bonds of the United States. 
 
 * (Informal Ruling, Page 158, March, 1917, Bulletin.) 
 
 A member bank acting through another member Maturity in relation 
 bank may obtain the discount of its paper secured to eli * ibility - 
 by Government bonds for a period as long as 90 
 days, although a member bank acting alone may 
 not tender its collateral note to the Federal reserve 
 bank, which runs for more than 15 days. 
 
 It may be proper in this connection to consider 
 questions of fact ; but in case a country bank which 
 has regular dealings with a large bank in a city 
 sends its note secured by Government bonds to that 
 bank, the Board would regard the note as eligible 
 for rediscount by the city bank. 
 
 (Informal Ruling, Page 863, September, 1918, Bulletin.) 
 
 If the proceeds of a note have been used or are to Notes of nonmember 
 be used to carry or trade in United States obliga- bank$ * 
 tions, the note, if acquired in good faith, should be 
 eligible for rediscount with the indorsement of the 
 member bank, whether it is executed by a member 
 or by a nonmember bank. 
 
 (Informal Ruling, Page 743, August, 1918, Bulletin.) 
 
62 
 
 Commercial Banking Practice 
 
 INELIGIBLE CLASSES OF NOTES 
 
 Statutory ^Provisions 
 
 Security paper. "Such definition [of paper eligible for redis- 
 
 count] shall not include notes, drafts, or bills cov- 
 ering merely investments or issued or drawn for the 
 purpose of carrying or trading in stocks, bonds, or 
 other investment securities, except bonds and notes 
 of the United States." 
 
 (Federal Reserve Act, Section IS.) 
 
 Notes for permanent, 
 fixed, or speculative 
 investments. 
 
 Herniations of theiFederal Reserve Hoard 
 
 The paper must not be a note, draft, or bill of 
 exchange, the proceeds of which have been used or 
 are to be used for permanent or fixed investments 
 of any kind, such as land, buildings, or machinery. 
 
 The paper must not be a note, draft, or bill of 
 exchange, the proceeds of which have been used or 
 are to be used for investments of a purely specula- 
 tive character. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, II.) 
 
 Opinions and Rulings 
 
 Discount of renewal 
 notes. 
 
 Extension. 
 
 Renewals and Intensions. 
 
 Renewals differ, and banking judgment deter- 
 mines the merits of each particular case. Those 
 providing working capital or to finance fixed in- 
 vestments are not eligible for rediscount. Banks 
 should not enter into an agreement for a renewal. 
 
 (Informal Ruling, Page 74, June, 1915, Bulletin.) 
 
 A note or draft containing a provision for an 
 extension of time should not be approved for gen- 
 eral use by the Federal Reserve Board. 
 
 (Opinion of Counsel, Page 870, September, 1918, Bulletin.) 
 
Rediscounts 
 
 63 
 
 Financial Paper. 
 
 A note executed by Bank "A," and discounted Notes ^replace 
 by Bank "B," the proceeds of which were used to 
 replace funds withdrawn by customers to purchase 
 Liberty Bonds, is not eligible for rediscount by a 
 Federal reserve bank, since the proceeds were not 
 used for an agricultural, industrial, or commercial 
 purpose, or for the purchase of notes or bonds of 
 the United States. 
 
 (Opinion of Counsel, Page 954, December, 1917, Bulletin.) 
 
 "Notes, drafts, and bills of exchange which are Paper secured by 
 secured by war savings stamps are ineligible for war sav,ngs 8tamp8 * 
 rediscount with a Federal reserve bank." 
 
 Counsel suggests that war savings stamps are 
 not bonds or notes of the United States but in ef- 
 fect only receipts for payment on account of non- 
 negotiable evidences of indebtedness (war savings 
 certificates) . 
 
 (Opinion of Counsel, Page 637, July, 1918, Bulletin.) 
 
 Notes of acceptance 
 house or broker. 
 
 The note of an acceptance house or broker, se- 
 cured by acceptances eligible for rediscount at a 
 Federal reserve bank, is not eligible for redis- 
 count. 
 
 The note of the acceptance house or broker can 
 not be said to have been used for an industrial, agri- 
 cultural, or commercial purpose, since the business 
 of such acceptance house or broker is not such as to 
 come within any of these classifications. The fact 
 that the note is secured by eligible paper is imma- 
 terial if the proceeds are not used for one of the 
 purposes named. 
 
 (Informal Ruling, Page 108, February, 1918, Bulletin.) 
 
 The note of a finance or credit company which is Notcs °/ finance 
 drawn either directly or indirectly to finance some 
 industrial or commercial concern in the transaction 
 of its business is not eligible for rediscount, even 
 
64 
 
 Commercial Banking Practice 
 
 Collateral 
 trust notes. 
 
 Collateral of bills 
 receivable. 
 
 Exchange and 
 collection charges 
 distinguished. 
 
 Charges before and 
 after maturity. 
 
 though it may be secured by paper which is itself 
 eligible for rediscount. 
 
 (Informal Ruling, Page 197, March, 1918, Bulletin.) 
 
 The Board holds that collateral trust notes of so- 
 called finance companies should not be accepted by 
 Federal reserve banks for rediscount. Such a 
 transaction is not a commercial one. 
 
 (Informal Ruling, Page 72, June, 1915, Bulletin.) 
 
 The note of a manufacturer secured by his bills 
 receivable is desirable paper, and should certainly 
 not be debarred as a collateral trust note. When 
 issued for the purpose of carrying collateral for a 
 speculative purpose or collateral in the nature of 
 stocks and bonds other than the securities of the 
 United States, the note would not be eligible for 
 rediscount. 
 
 (Informal Ruling, Page 127, July, 1915, Bulletin.) 
 Bills Payable with Collection Charges. 
 
 "A bill made payable with 'collection charges' 
 is not a negotiable instrument, though the Nego- 
 tiable Instruments Law provides that an instru- 
 ment payable 'with exchange' does not lose its ne- 
 gotiability." 
 
 Counsel suggests that the amount of exchange is 
 usually ascertainable in advance while collection 
 charges are not so ascertainable. 
 
 (Opinion of Counsel, Page 880, November, 1917, Bulletin.) 
 
 "While a bill containing a provision for payment 
 of the costs of collection and attorney's fees, if it is 
 dishonored at maturity, is a valid negotiable instru- 
 ment, a bill drawn for a fixed sum 'with collection 
 charges' is not a negotiable instrument unless it is 
 so drawn as to show that no collection charges are 
 to be included unless the bill is dishonored at ma- 
 turity." 
 
 (Opinion of Counsel, Page 745, August, 1918, Bulletin.) 
 
Rediscounts 65 
 
 EVIDENCE OF ELIGIBILITY AND RE- 
 QUIREMENT OF STATEMENTS 
 
 Regulations of the Federal Reserve Board 
 
 A Federal reserve bank must be satisfied by ref- E 7? A *™ e of 
 erence to the note or otherwise that it is eligible for e lgI ' lty * 
 rediscount. Compliance of a note [with the re- 
 quirements of eligibility] . . . may be evidenced 
 by a statement of the borrower showing a reason- 
 able excess of quick assets over current liabilities. 
 The member bank shall certify in its application 
 whether the note offered for rediscount has been 
 discounted for a depositor or another member bank 
 or whether it has been purchased from a nonde- 
 positor. It must also certify whether a financial 
 statement of the borrower is on file. 
 
 Such financial statements must be on file with Financial statements, 
 respect to all notes offered for rediscount which 
 have been purchased from sources other than a de- 
 positor or a member bank. With respect to any 
 other note offered for rediscount, if no statement is 
 on file, a Federal reserve bank shall use its discre- 
 tion in taking the steps necessary to satisfy itself 
 as to eligibility. It is authorized to waive the re- Waiver of statement, 
 quirement of a statement with respect to any note 
 discounted by a member bank for a depositor or 
 another member bank : 
 
 ( 1 ) If it is secured by a warehouse, terminal, or 
 other similar receipt covering goods in storage; 
 
 (2) If the aggregate of obligations of the bor- 
 rower rediscounted and offered for rediscount at 
 the Federal reserve bank is less than a sum equal to 
 10 per cent of the paid-in capital of the member 
 bank and does not exceed $5,000. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, IV.) 
 
66 Commercial Banking Practice 
 
 Opinions and Rulings 
 
 Cotton-mill paper. Banks are authorized to discount cotton-mill 
 
 paj)er indorsed by member banks where general 
 conditions are satisfactory and statement of cot- 
 ton mill shows that plant is not mortgaged and that 
 the deficiency between capital and plant account 
 does not amount to more than $5 per spindle. 
 
 (Informal Ruling, Page 73, June, 1915, Bulletin.) 
 
 Standing timber. The Board does not regard it as safe policy for 
 
 Federal reserve banks to treat timber standing 
 upon tracts of land as quick assets, similar to manu- 
 factured goods in the hands of the manufacturer or 
 jobber. 
 
 (Informal Ruling, Page 126, July, 1915, Bulletin.) 
 
 Unmined mineral*. Unmined minerals are not regarded as quick 
 
 assets. 
 
 (Informal Ruling, Page 126, July, 1915, Bulletin.) 
 
 Commercial paper. 
 
 Agricultural or live 
 stock paper. 
 
 MATURITY OF NOTES ELIGIBLE 
 FOR REDISCOUNT 
 
 Statutory Provisions 
 
 "Notes, drafts, and bills admitted to discount un- 
 der terms of this paragraph must have a maturity 
 at the time of discount of not more than ninety 
 days, exclusive of days of grace: Provided, that 
 notes, drafts, and bills drawn or issued for agricul- 
 tural 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 
 be limited to a percentage of the assets of the Fed- 
 eral reserve bank, to be ascertained and fixed by 
 the Federal Reserve Board." 
 
 (Federal Reserve Act, Section 13.) 
 
Rediscounts 67 
 
 Re£ulationsfof Federal! Reserve Board 
 
 Any Federal reserve bank may discount for any Maturity of 90 days, 
 of its member banks any note, draft, or bill of ex- 
 change provided it has a maturity at the time of 
 discount of not more than ninety days, exclusive of 
 days of grace; but if drawn or issued for agricul- 
 tural purposes or based on live stock, it may have JJ*^" of ,,x 
 a maturity at the time of discount of not more than 
 six months, exclusive of days of grace. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, I.) 
 
 Opinions and Rulings 
 
 A bill payable "on or before" a certain date is Notes payable n 
 negotiable paper and, if otherwise in conformity 
 with the provisions of law and of the Federal He- 
 serve Act, is eligible for discount by a Federal re- 
 serve bank. 
 
 (Informal Ruling, Page 394, August, 1916, Bulletin.) 
 
 A demand note or bill is not eligible under the Demand note «- 
 provisions of the Act, since it is not in terms pay- 
 able within the prescribed ninety days, but may, at 
 the option of the holder, not be presented for pay- 
 ment until after that time. 
 
 If the bill were altered so as to read "on or be- 
 fore ■ days from date, pay to the order of 
 
 ourselves," etc., it would come within the terms of 
 the law and would be eligible for rediscount. 
 
 (Informal Ruling, Page 378, May, 1917, Bulletin.) 
 
 * A note made payable "on demand, and if no de- ^ in pa ^ before 
 
 mand is made, then on ," is eligible for 
 
 rediscount by a Federal reserve bank, provided 
 that the date to be filled in is not more than 90 days 
 from the date of discount, and provided further it 
 conforms to the other provisions of law and the 
 regulations of the Board. 
 
 (Informal Ruling, Page 527, July, 1917, Bulletin.) 
 
68 
 
 Commercial Banking Practice 
 
 Extension of time. 
 
 Direct loans and 
 
 rediscounts 
 
 distinguished. 
 
 A note or draft containing a provision for an ex- 
 tension of time should not be approved for general 
 use by the Federal Reserve Board. 
 
 (Opinion of Counsel, Page 870, September, 1918, Bulletin.) 
 
 A member bank acting through another member 
 bank may obtain the discount of its paper secured 
 by Government bonds for a period as long as 90 
 days, although a member bank acting alone may 
 not tender its collateral note to the Federal re- 
 serve bank, which runs for more than 15 days. 
 
 It may be proper in this connection to consider 
 questions of fact — whether the transaction is in 
 good faith or whether the two banks exchange 
 courtesies merely for the purpose of having their 
 notes discounted for 90 days instead of 15 days; 
 but in case a country bank which has regular deal- 
 ings with a large bank in a city sends its note se- 
 cured by Government bonds to that bank, the 
 Board would regard the note as eligible for redis- 
 count by the city bank. 
 
 (Informal Ruling, Page 863, September, 1918, Bulletin.) 
 
 Ten per cent limit. 
 
 Exception. 
 
 AMOUNT OF PAPER OF 
 
 ONE INTEREST REDISCOUNTABLE 
 
 FOR ONE MEMBER BANK 
 
 Statutory Provisions 
 
 "The aggregate of such notes, drafts, and bills 
 bearing the signature or indorsement of any one 
 borrower, whether a person, company, firm, or cor- 
 poration, rediscounted for any one bank shall at no 
 time exceed ten per centum of the unimpaired capi- 
 tal and surplus of said bank; but this restriction 
 shall not apply to the discount of bills of exchange 
 drawn in good faith against actually existing 
 values. " 
 
 (Federal Reserve Act, Section 13.) 
 
Rediscounts 69 
 
 "No Federal reserve bank shall be permitted to R ediscou j tl 
 
 J- ror member 
 
 discount for any [member] State bank or trust state banks, 
 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 centum of the capital and sur- 
 plus 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 nego- 
 tiating the same shall not be considered as borrowed 
 money within the meaning of this section. The 
 Federal reserve bank, as a condition of the discount Conditions, 
 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 the amount provided by 
 this section, and will not be permitted to become 
 liable in excess of this amount while such notes, 
 drafts, or bills of exchange are under discount with 
 the Federal reserve bank." 
 
 (Federal Reserve Act, Section 9.) 
 
 Re£ulations~of Federal Reserve Board 
 
 "The aggregate of notes, drafts, and bills bear- Ten per cent limit, 
 ing the signature or indorsement of any one bor- 
 rower, whether a person, company, firm, or cor- 
 poration, rediscounted for any one member bank, 
 shall at no time exceed ten per cent of the unim- 
 paired capital and surplus of such bank; but this Exception, 
 restriction shall not apply to the discount of bills 
 of exchange drawn in good faith against actually 
 existing values." 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, I.) 
 
70 
 
 Commercial Banking Practice 
 
 Ten per cent limit. 
 
 Paper of one maker 
 or indorser. 
 
 Not applicable to 
 rediscounting bank. 
 
 Paper of cotton 
 broker. 
 
 Opinions and Rulings 
 
 A Federal reserve bank is not permitted to re- 
 discount the paper of a customer of a member State 
 bank if the customer is indebted to the member bank 
 in an amount in excess of ten per cent of the capital 
 and surplus of the member bank. 
 
 (Informal Ruling, Page 863, September, 1918, Bulletin.) 
 
 If any particular paper presented by a member 
 bank to a Federal reserve bank for rediscount, 
 singly or added to the paper of the same makers or 
 indorsers which the Federal reserve bank has al- 
 ready rediscounted for said member bank, amounts 
 to a total of more than ten per cent of the unim- 
 paired capital and surplus of that bank, the Fed- 
 eral reserve bank lias no authority for such re- 
 discount. 
 
 (Informal Ruling, Page 224, May, 1916, Bulletin.) 
 
 In the opinion of the Board the limitations con- 
 tained iu section 13 of the Federal Reserve Act on 
 the rediscount of paper bearing the signature or 
 indorsement of any one borrower should not be held 
 to refer to the indorsement of a nonmember bank 
 on paper rediscounted with a member bank. 
 
 (Informal Ruling, Page 520, June, 1918, Bulletin.) 
 
 A cotton broker who is a depositor of a bank 
 finances cotton for various mills by giving to the 
 bank his note secured by warehouse receipts of the 
 mills indorsed in blank, for cotton stored in his 
 name and properly insured, but sold to the mill for 
 a specific amount to be paid at a specific time, as 
 per sales note attached. The question arises 
 whether such loans taken from one broker in ex- 
 cess of ten per cent of the capital and surplus of 
 the bank would be an excess loan under the Federal 
 Reserve Act, if the financing for each individual 
 
Rediscounts 71 
 
 mill and the accepted sales note held of said mill 
 were not in excess of said ten per cent. 
 
 It is held that the transaction in form is merely a 
 discount of single name negotiable paper secured 
 by so many bales of cotton. Such notes would 
 clearly come within the provisions of section 5200 
 of the Revised Statutes.* 
 
 The language of section 13 of the Federal Re- 
 serve Act is still more comprehensive and no Fed- 
 eral reserve bank could rediscount such notes bear- 
 ing the name of one broker for an aggregate 
 amount in excess of ten per cent of the capital and 
 surplus of the member bank. 
 
 (Informal Ruling, Page 113, March, 1916, Bulletin.) 
 
 Relation of Section 5200, Revised Statutes,* to the Ten 
 Per Cent Limit. 
 
 While a member bank may acquire commercial J 01T ! raercial or 
 
 J tl business paper. 
 
 or business paper from the same person in excess 
 of ten per cent of its unimpaired capital and sur- 
 plus, its Federal reserve bank can not rediscount 
 such paper bearing the signature or indorsement of 
 the same person in excess of that amount. 
 
 Section 13, Federal Reserve Act, does not amend 
 section 5200, United States Revised Statutes. 
 
 (Opinion of Counsel, Page 274, June, 1916, Bulletin.) 
 
 A note or bill rediscounted in good faith by a Rediscounted paper 
 member bank, which is no longer owned or held by ^ctioTszoo/ 
 the bank, need not be included as a liability of the 
 maker to the bank within the meaning of section 
 5200, Revised Statutes. Notes or bills rediscounted 
 under an agreement to repurchase, or which are 
 merely credited to the account of the bank offering 
 them for rediscount, are subject to the limitations 
 of section 5200. 
 
 (Opinion of Counsel, Page 867, September, 1918, Bulletin.) 
 * For section 5200 see page 43, above. 
 
72 
 
 Commercial Banking Practice 
 
 Rediscount by State 
 member banks. 
 
 Where a State bank, which is a member of the 
 Federal Reserve System, has loaned to one of its 
 customers an amount equal to 30 per cent of its 
 capital and surplus, and has rediscounted two- 
 thirds of this amount with a correspondent bank, 
 the remaining one-third is eligible for rediscount 
 with its Federal reserve bank. 
 
 (Opinion of Counsel, Page 638, July, 1918, Bulletin.) 
 
 AGGREGATE AMOUNT REDISCOUNT- 
 ABLE FOR ONE BANK 
 
 Statutory Provisions 
 
 Not limited by 
 section 5202. 
 
 Subject to regulations 
 of Federal Reserve 
 Board. 
 
 "No national banking association shall at any 
 time be indebted, or in any way liable, to an amount 
 exceeding the amount of its capital stock at such 
 time actually paid in and remaining undiminished 
 by losses or otherwise, except on account of . . . 
 liabilities incurred under the provisions of the Fed- 
 eral Reserve Act." 
 
 (Section 5202, Revised Statutes, as amended by Section 13, 
 Federal Reserve Act.) 
 
 "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 ex- 
 change, and of acceptances authorized by this Act, 
 shall be subject to such restrictions, limitations, and 
 regulations as may be imposed by the Federal Re- 
 serve Board." 
 
 (Federal Reserve Act, Section 13.) 
 
 Opinions and Rulings 
 
 Not limited by law. The law places no limitation upon the amount of 
 commercial paper which a member bank may re- 
 discount with a Federal reserve bank, but leaves 
 
Rediscounts 73 
 
 this to the judgment of the officers of the Federal 
 reserve bank. 
 
 (Informal Ruling, Page 457, September, 1916, Bulletin.) 
 
 Under section 5202, Revised Statutes, a national Discretion of Federal 
 bank may not borrow as bills payable in excess of reserve 
 its capital stock. Under the Federal Reserve Act 
 it may rediscount actual items of paper in its pos- 
 session to any amount in the discretion of the Fed- 
 eral reserve bank of its district. 
 
 (Informal Ruling, Page 112, March, 1916, Bulletin.) 
 
 INDORSEMENT OF MEMBER RANKS 
 Statutory Provisions 
 
 "Upon the indorsement of any of its member indorsement. 
 banks, which shall be deemed a waiver of demand, 
 notice, and protest by such bank as to its own in- 
 dorsement exclusively, any Federal reserve bank 
 may discount notes, drafts, and bills of exchange." 
 
 (Federal Reserve Act, Section 13.) 
 
 Opinions and Rulings 
 
 A simple written indorsement will be regarded indorsement 
 as satisfactory and as coming within the terms of ] 
 the law. 
 
 (Informal Ruling, Page 524, October, 1916, Bulletin.) 
 
 If a note is otherwise eligible for rediscount, the Without recourse, 
 fact that it bears a "without recourse" indorsement 
 of a nonmember bank will not affect its eligibility. 
 
 (Opinion of Counsel, Page 745, August, 1918, Bulletin.) 
 
 REDISCOUNT FOR NONMEMBER 
 BANKS 
 
 Statutory Provisions 
 
 "No member bank shall act as the medium or Procuring rediscounts 
 
 n ill* i • p 'or nonmembers. 
 
 agent of a nonmember bank in applying tor or re- 
 
74 
 
 Commercial Banking Practice 
 
 ceiving discounts from a Federal reserve bank un- 
 der the provisions of this Act, except by permission 
 of the Federal Reserve Board." 
 
 (Federal Reserve Act, Section 19.) 
 
 Opinions and Rulings 
 
 Rediscount of paper Assuming that the paper offered by a member 
 acquired from bank f or rediscount is eligible under the regulations 
 
 prescribed by the Board, it would be necessary in 
 each case for the officers of the Federal reserve 
 bank to determine whether or not the proceeds of 
 such discount are to be used for the purpose of mak- 
 ing a loan to a nonmember bank. If the money 
 thus borrowed is to be re-lent to a nonmember 
 bank, rediscount should not be accepted without 
 the permission of the Federal Reserve Board. If, 
 on the other hand, a member bank had in good 
 faith acquired from a nonmember bank by redis- 
 count notes which are eligible under the regulations 
 of the Board for rediscount with the Federal re- 
 serve bank, and such notes were held as a part of 
 the assets of the member bank, there would seem to 
 be no objection to the Federal reserve bank's ac- 
 cepting such rediscounts, provided the officers are 
 satisfied that the transaction is a bona fide trans- 
 action and that the member bank did not extend 
 accommodation to the nonmember bank with a 
 view to rediscounting notes so acquired with the 
 Federal reserve bank. 
 
 This is one of the cases which must be left very 
 largely to the judgment and discretion of the Fed- 
 eral reserve bank officers; and a determination 
 must be reached by them on the facts of the case. 
 
 (Informal Ruling, Page 213, August, 1915, Bulletin.) 
 
 Rediscount of paper In the opinion of the Board the limitations con- 
 
 io d l r ember y bank. tained in section 13 of the Federal Reserve Act on 
 
 the rediscount of paper bearing the signature or in- 
 
Rediscounts 75 
 
 dorsement of any one borrower should not be held 
 to refer to the indorsement of a nonmember bank 
 on paper rediscounted with a member bank. 
 
 It is true that in such case the nonmember bank 
 is contingently liable if the paper is not paid at ma- 
 turity, but the Board is inclined to the view that 
 this language refers to paper bearing the signature 
 or indorsement of borrowers or customers of the 
 member bank and not to the indorsement of other 
 banks. A nonmember bank could not, of course, 
 obtain indirect accommodation from the Federal 
 reserve bank through the medium or agency of a 
 member bank except with the permission of the 
 Federal Reserve Board, but if a member bank had 
 acquired eligible paper in due course by rediscount 
 from a nonmember bank the member bank should 
 hardly be precluded from rediscounting this paper 
 with the Federal reserve bank because it bears the 
 indorsement of the nonmember bank. 
 
 (Informal Ruling, Page 520, June, 1918, Bulletin.) 
 
T<5 
 
 Rediscount of Drafts and Trade 
 Acceptances 
 
 DEFINITION OF DRAFT 
 
 Draft or bill 
 of exchange. 
 
 Regulations of Federal Reserve Board 
 
 A draft or bill of exchange, within the meaning 
 of this regulation, is defined as an unconditional 
 order in writing, addressed by one person to an- 
 other, other than a banker . . . signed by the per- 
 son giving it, requiring the person to whom it is 
 addressed to pay, in the United States, at a fixed or 
 determinable future time, a sum certain in dollars 
 to the order of a specified person. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, V.) 
 
 Extension 
 of time. 
 
 Presentment 
 of bills for 
 acceptance. 
 
 Acceptor not 
 affected by 
 
 Opinions and Rulings 
 
 A note or draft containing a provision for an ex- 
 tension of time should not be approved for general 
 use by the Federal Reserve Board. 
 
 (Opinion of Counsel, Page 870, September, 1918, Bulletin.) 
 
 The drawer and indorser of a bill of exchange 
 made payable on a date specified in the bill are not 
 discharged by a failure to present for acceptance, 
 unless the bill expressly provides that it must be 
 presented for that purpose, or unless it is payable 
 elsewhere than at the residence or place of busi- 
 ness of the drawee. 
 
 (Opinion of Counsel, Page 608, November, 1916, Bulletin.) 
 
 The acceptor of a bill of exchange is the prin- 
 cipal debtor. The law requires that notice of de- 
 mand and protest be given to parties secondarily 
 
Rediscounts 77 
 
 liable in case of dishonor. This right to receive 
 notice is a personal one which may be waived by 
 the parties entitled thereto, that is, the drawer and 
 indorser; but such waiver has no effect on the ac- 
 ceptor or principal debtor. 
 
 (Opinion of Counsel, Page 277, September, 1915, Bulletin.) 
 Negotiability. 
 
 The negotiability of a bill of exchange is not af- Effect of 
 fected by provisions which waive demand, notice, waivers, 
 and protest; which waive homestead exemption 
 rights ; and which provide for the costs of collection 
 and attorney's fees. 
 
 (Opinion of Counsel, Page 226, May, 1916, Bulletin.) 
 
 A provision in a draft or bill of exchange that it D f aft * payable 
 is payable "with interest at the rate of — per cent 
 per annum after maturity, if payment is delayed," 
 does not affect the negotiability of the instrument. 
 
 (Opinion of Counsel, Page 200, March, 1917, Bulletin.) 
 
 A draft made "payable on arrival of car" is non- Drafts payable 
 negotiable, not being payable at a determinable on condltlon - 
 future time. 
 
 (Opinion of Counsel, Page 219, August, 1915, Bulletin.) 
 
 "A bill made payable with 'collection charges' is Exchange and 
 not a negotiable instrument, though the Negotiable charges! 
 Instruments Law provides that an instrument pay- 
 able 'with exchange' does not lose its negotiability." 
 
 Counsel suggests that the amount of exchange is 
 usually ascertainable in advance while collection 
 charges are not so ascertainable. 
 
 (Opinion of Counsel, Page 880, November, 1918, Bulletin.) 
 
 While a bill containing a provision for payment ^ r ^J^ Tll 
 of the costs of collection and attorney's fees, if it is 
 dishonored at maturity, is a valid negotiable instru- 
 ment, a bill drawn for a fixed sum "with collection 
 charges" is not a negotiable instrument unless it 
 
78 
 
 Commercial Banking Practice 
 
 Drafts payable 
 
 to order of drawee. 
 
 Trade acceptance. 
 
 Acceptance 
 by drawee. 
 
 Place of payment 
 of acceptance. 
 
 Discount for 
 payment at 
 maturity. 
 
 is so drawn as to show that no collection charges are 
 to be included unless the bill is dishonored at 
 maturity. 
 
 (Opinion of Counsel, Page 745, August, 1918, Bulletin.) 
 
 A bill made payable to the order of the drawee is 
 not negotiable until the drawee as payee has in- 
 dorsed it. When it has been accepted and indorsed 
 by the drawee it is a valid negotiable instrument in 
 the hands of a third party, and the drawer is not 
 released, since the terms of his order have been 
 specifically complied with. 
 
 (Opinion of Counsel, Page 110, February, 1918, Bulletin.) 
 
 DEFINITION OF TRADE ACCEPTANCE 
 
 Regulations of Federal Reserve Roard 
 
 A trade acceptance is defined as a draft or bill of 
 exchange drawn by the seller on the purchaser of 
 goods sold, and accepted by such purchaser. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, V.) 
 
 Opinions and Rulings 
 
 A draft to be eligible as a trade acceptance must 
 be accepted by the drawee and not by anyone else. 
 
 (Informal Ruling, Page 112, March, 1916, Bulletin.) 
 
 An acceptance to pay at a particular place differ- 
 ent from the residence of the acceptor is a general 
 acceptance, unless it expressly states that the bill is 
 to be paid there and not elsewhere, and does not 
 render the bill nonnegotiable. 
 
 (Opinion of Counsel, Page 289, April, 1917, Bulletin.) 
 
 A trade acceptance which consists of an order 
 to pay a certain amount, which is the amount of the 
 debt minus a discount for prompt payment at ma- 
 
Discount for 
 prepayment. 
 
 Rediscounts 79 
 
 turity, or, if not paid at maturity, to pay a greater 
 amount, which is the amount of the debt without 
 any discount, is an order to pay a sum certain and 
 is negotiable. 
 
 (Opinion of Counsel, Page 200, March, 1918, Bulletin.) 
 
 A trade acceptance providing for a fixed dis- 
 count, if paid at a certain time before maturity, 
 should not be approved for general use by the Fed- 
 eral Reserve Board. 
 
 (Opinion of Counsel, Page 871, September, 1918, Bulletin.) 
 
 On the basis of the facts submitted in this case, it f c r " p ^i p ^ a e s n e t d s on 
 is held that a 90-day sight draft drawn by a firm in 
 Calcutta on a company in Boston and accepted by 
 that firm, covering a transaction involving the 
 transportation of merchandise from Calcutta to 
 Honolulu, is a trade acceptance rather than a 
 banker's acceptance. 
 
 (Informal Ruling, Page 404, December, 1915, Bulletin.) 
 
 ELIGIBLE DRAFTS AND TRADE 
 ACCEPTANCES 
 
 Statutory Provisions 
 
 Eligible paper is defined in the laws as follows: 
 "Notes, drafts, and bills of exchange issued or Commercial paper, 
 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 de- 
 fine the character of the paper thus eligible for dis- 
 count, within the meaning of this Act. Nothing in 
 this Act contained shall be construed to prohibit Agricultural and 
 such notes, drafts, and bills of exchange, secured by commodlty paper ' 
 staple agricultural products, or other goods, wares, 
 or merchandise from being eligible for such dis- 
 count; [or] . . . notes, drafts, or bills . . . issued 
 
80 
 
 Commercial Banking Practice 
 
 Paper based on 
 United States 
 obligations. 
 
 Paper based en 
 bonds of War 
 Finance Corporation. 
 
 Conditions of 
 eligibility. 
 
 Commercial 
 origin. 
 
 or drawn for the purpose of carrying or trading in 
 . . . bonds and notes of the Government of the 
 United States." 
 
 (Federal Reserve Act, Section IS.) 
 
 "The Federal reserve banks shall be authorized, 
 subject to the maturity limitations of the Federal 
 Reserve Act and to regulations of the Federal Re- 
 serve Board ... to rediscount eligible paper 
 secured by . . . bonds [of the War Finance Cor- 
 poration] and indorsed by a member bank." 
 
 (War Finance Corporation Act, Section 13.) 
 
 Herniations of Federal Reserve Board 
 
 The Federal Reserve Board, exercising its statu- 
 tory right to define the character of a note, draft, or 
 bill of exchange eligible for rediscount at a Federal 
 reserve bank, has determined that: 
 
 It must be a note, draft, or bill of exchange, the 
 proceeds of which have been used or are to be used 
 in producing, purchasing, carrying, or marketing 
 goods* in one or more of the steps of the process of 
 production, manufacture, or distribution; 
 
 It may be secured by the pledge of goods or 
 collateral, provided it is otherwise eligible. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, II.) 
 
 Based on retail 
 transactions. 
 
 Opinions and Rnlings 
 
 A bill of exchange drawn by the seller of goods 
 and accepted by the purchaser of those goods is a 
 trade acceptance, regardless of whether or not the 
 purchaser intends to resell the goods or to use them 
 
 * When used in this regulation the word "goods" shall be 
 construed to include goods, wares, merchandise, or agricultural 
 products, including live stock. 
 
tale DISCOUNTS 81 
 
 for his own purpose. Therefore, a retail dealer 
 may finance the sale of his goods to a retail cus- 
 tomer by means of the trade acceptance. 
 
 (Informal Ruling, Page 30, January, 1918, Bulletin.) 
 
 An acceptance drawn by a gas producing com- ? a , s . ed on f ale and 
 
 -,.,.1,. J or -. & , delivery of gas. 
 
 pany on a gas distributing company and accepted 
 by the latter in payment for gas sold and delivered 
 is a trade acceptance, eligible for rediscount by a 
 Federal reserve bank. 
 
 (Informal Ruling, Page 435, May, 1918, Bulletin.) 
 
 Regarding the use of trade acceptances in con- & a " d ° n in *j aU - 
 nection with the sale of coffee mills, etc., on an in- 
 stallment plan, if the purchaser is willing to accept 
 a draft in advance of the delivery of the goods there 
 would seem to be no reason why such an acceptance 
 should not be treated on the same basis as a bill 
 drawn and accepted after delivery of such goods. 
 
 (Informal Ruling, Page 437, May, 1918, Bulletin.) 
 
 Drafts drawn for the purchase price of electrical ? as * d °° electrical 
 
 ,.,.,, , x „. n ■ installation. 
 
 goods, which include the cost ot installation, may 
 be treated as trade acceptances when such drafts 
 are accepted by the purchaser. 
 
 (Informal Ruling, Page 310, April, 1918, Bulletin.) 
 
 A draft drawn bv a lumber corporation upon a Acceptances of 
 
 i .• i • i •. j i_ j» j.u saIes corporations. 
 
 sales corporation which it and a number of other 
 lumber concerns have organized will, when ac- 
 cepted, become a trade acceptance, even though the 
 selling corporation is a stockholder of the sales cor- 
 poration, provided the latter is organized in good 
 faith and not merely to act as an agent for the pur- 
 pose of evading the law. 
 
 (Opinion of Counsel, Page 33, January, 1918, Bulletin.) 
 
 A bill drawn by a retail dealer on his retail cus- Acceptances in 
 
 i t p i iii liquidation or 
 
 tomer to finance the sale ot goods to that customer 0P en accounts, 
 is a trade acceptance within the meaning of the 
 Board's regulations, even though it is drawn after 
 
82 
 
 Commercial Banking Practice 
 
 the purchaser has failed to remit promptly on an 
 open account. 
 
 The Board is of the opinion, however, that the 
 attempt to use a trade acceptance in this manner as 
 a means of liquidating an otherwise slow account 
 would involve considerable danger to the primary 
 purposes of the trade acceptance movement and 
 would subordinate the trade acceptance to the open 
 account by suggesting it as a last resort for bad 
 debts. 
 
 While, therefore, trade acceptances of this char- 
 acter should probably be considered eligible as a 
 matter of law, nevertheless member banks and Fed- 
 eral reserve banks should be encouraged to discrim- 
 inate against them as far as possible. 
 
 (Informal Ruling, Page 30, January, 1918, Bulletin.) 
 
 Acceptances based 
 on advertising space. 
 
 The Federal Reserve Board may properly rule 
 that a draft or bill of exchange drawn by the seller 
 on the purchaser of advertising space and accepted 
 by such purchaser is a trade acceptance. 
 
 (Opinion of Counsel, Page 116, February, 1917, Bulletin.) 
 
 Conditions. 
 
 A draft or bill of exchange drawn by a publisher 
 or other advertising agency on the purchaser of ad- 
 vertising space, and accepted by such purchaser, 
 shall be considered a trade acceptance provided the 
 advertisement on which the draft or bill is based is 
 for the purpose of promoting or facilitating the 
 production, manufacture, distribution, or sale of 
 goods, whether merchandise or agricultural prod- 
 ucts, including live stock, and provided, further, 
 that such advertisement is not illegal and is not for 
 the purpose of promoting or facilitating any trans- 
 action which is prohibited by the laws of the state 
 in which it is to be consummated. 
 
 (Informal Ruling, Page 114, February, 1917, Bulletin.) 
 
Rediscounts 83 
 
 Acceptances Based on Foreign Transactions. 
 
 The fact that importation or exportation is in- f r a a s n e 8 d ac ° t " ^ port 
 volved does not exclude the character of a trade ac- 
 ceptance, and trade acceptances originating through 
 importation from foreign countries, which are in- 
 dorsed by banks or bankers, may be taken within 
 the range of the discount rates for bankers' ac- 
 ceptances. 
 
 (Informal Ruling, Page 168, April, 1916, Bulletin.) 
 
 Bills drawn for the purpose of providing funds ^t^T*™ 
 for the purchase and export of cross-ties and lum- 
 ber to Cuba are eligible for rediscount if properly 
 indorsed and otherwise conforming to the regula- 
 tions of the Federal Reserve Board. 
 
 (Informal Ruling, Page 268, September, 1915, Bulletin.) 
 
 INELIGIBLE DRAFTS AND TRADE 
 ACCEPTANCES 
 
 Statutory Provisions 
 
 "Such definition [of paper eligible for rediscount] Security paper, 
 shall not include notes, drafts, or bills covering 
 merely investments or issued or drawn for the pur- 
 pose of carrying or trading in stocks, bonds, or 
 other investment securities, except bonds and notes 
 of the United States." 
 
 (Federal Reserve Act, Section 13.) 
 
 Regulations of the Federal Reserve Roard 
 
 The paper must not be a note, draft, or bill of Notes for 
 exchange, the proceeds of which have been used or E™^^' 
 are to be used for permanent or fixed investments investments, 
 of any kind, such as land, buildings, or machinery. 
 
 The paper must not be a note, draft, or bill of 
 exchange, the proceeds of which have been used or 
 are to be used for investments of a purely specula- 
 tive character. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, II.) 
 
84 
 
 Commercial Banking Practice 
 
 Acceptances 
 based on future 
 purchases. 
 
 Drafts to finance 
 capital requirements. 
 
 Drafts in payment 
 of insurance 
 premiums. 
 
 Character of 
 evidence. 
 
 Opinions and Rulings 
 
 A bill, in order to be a trade acceptance, must 
 arise out of the purchase of goods, and unless that 
 purchase is either consummated or actually con- 
 tracted for at the time the bill is drawn, it is doubt- 
 ful whether it can properly be said that the obliga- 
 tion arises out of the purchase of goods. 
 
 (Informal Ruling, Page 378, May, 1917, Bulletin.) 
 
 The Board's conception of the trade acceptance 
 is that it is an instrument which carries upon its 
 face the evidence of the commercial character of the 
 transaction which gave it birth. The finance paper 
 
 of the Corporation issued against drafts 
 
 drawn by it on dealers and placed in trust to secure 
 such paper issued by it in the shape of notes or 
 certificates gives no indication whatever as to the 
 nature of the security, which may or may not be 
 eligible paper. 
 
 It appears to the Board that the Corpora- 
 tion by issuing notes of this character is really rais- 
 ing money for capital requirements for similar 
 transactions in the future, and that the whole plan 
 is in essence a finance operation rather than a 
 commercial transaction. 
 
 (Informal Ruling, Page 109, February, 1918, Bulletin.) 
 
 A draft drawn by a casualty company against a 
 policyholder for premiums could hardly be said to 
 be a draft by the seller on the purchaser of goods 
 sold and would not, in the opinion of the Board, 
 come within the Board's present definition of a 
 trade acceptance. 
 
 (Informal Ruling, Page 309, April, 1918, Bulletin.) 
 
 EVIDENCE OF ELIGIBILITY 
 
 Regulations of Federal Reserve Board 
 
 A Federal reserve bank shall take such steps as 
 it deems necessary to satisfy itself as to the eligibil- 
 
Rediscounts 85 
 
 ity of the draft or bill offered for rediscount, unless 
 it presents prima facie evidence thereof or bears 
 a stamp or certificate affixed by the acceptor or 
 drawer showing that it is a trade acceptance. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, V.) 
 
 Opinions and Killings 
 
 The fact that a land company has stamped a bill ^ccTtlTc?" \a$ 
 a trade acceptance and has signed such statement no value, 
 as "acceptor" does not in itself make it a trade ac- 
 ceptance. The bill was accepted by the bank and 
 not by the land company and is therefore not eligi- 
 ble for purchase as a trade acceptance under the 
 regulation which requires a bill to be accepted by 
 the drawee. 
 
 (Informal Ruling, Page 112, March, 1916, Bulletin.) 
 
 MATURITY 
 
 Statutory^Provisions 
 
 "Notes, drafts, and bills admitted to discount Commercial paper, 
 under terms of this paragraph must have a matur- 
 ity at the time of discount of not more than ninety 
 days, exclusive of days of grace : Provided, that Agricultural or Iive 
 notes, drafts, and bills drawn or issued for agri- stoc paper * 
 cultural purposes or based on live stock and hav- 
 ing a maturity not exceeding six months, exclusive 
 of days of grace, may be discounted in an amount to 
 be limited to a percentage of the assets of the Fed- 
 eral reserve bank, to be ascertained and fixed by the 
 Federal Reserve Board." 
 
 (Federal Reserve Act, Section IS.) 
 
 Regulations of Federal Reserve Roard 
 
 The draft or trade acceptance must have a "ma- ^*" rit J a °[ 
 turity at the time of discount of not more than 
 
Commercial Banking Practice 
 
 Maturity of 
 six months. 
 
 ninety days, exclusive of days of grace; but if 
 drawn or issued for agricultural purposes or based 
 on live stock, it may have a maturity at the time of 
 discount of not more than six months, exclusive 
 of days of grace." 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, I.) 
 
 Opinions and Rulings 
 
 Drafts payable 
 on condition. 
 
 Drafts payable 
 "on or before" 
 certain date. 
 
 Demand drafts. 
 
 Extension. 
 
 A draft made "payable on arrival of car" is non- 
 negotiable, not being payable at a determinable 
 future time, and is therefore ineligible for redis- 
 count by a Federal reserve bank. 
 
 (Opinion of Counsel, Page 219, August, 1915, Bulletin.) 
 
 Drafts payable "ninety days from date or before 
 on five days after demand (i.e., on five days' notice) 
 by the holder hereof" are negotiable and eligible for 
 discount with a Federal reserve bank. 
 
 (Opinion of Counsel, Page 291, April, 1917, Bulletin.) 
 
 A demand note or bill is not eligible under the 
 provisions of the Act, since it is not in terms pay- 
 able within the prescribed ninety days, but, at the 
 option of the holder, may not be presented for pay- 
 ment until after that time. 
 
 If the bill were altered so as to read "on or before 
 
 days from date, pay to the order of ourselves," 
 
 etc., it would come within the terms of the law and 
 would be eligible for rediscount. 
 
 (Informal Ruling, Page 378, May, 1917, Bulletin.) 
 
 "A note or draft containing a provision for an 
 extension of time should not be approved for gen- 
 eral use by the Federal Reserve Board." 
 
 (Opinion of Counsel, Page 870, September, 1918, Bulletin.) 
 
Rediscounts C 
 
 AMOUNT OF PAPER OF ONE INTEREST 
 
 REDISCOUNTARLE FOR ONE 
 
 MEMRER RANK 
 
 Statutory Provisions 
 
 "The aggregate of such notes, drafts, and bills Ten per cent 
 bearing the signature or indorsement of any one hm,t " 
 borrower, whether a person, company, firm, or cor- 
 poration, rediscounted for any one bank shall at 
 no time exceed ten per centum of the unimpaired 
 capital and surplus of said bank; but this restric- 
 tion shall not apply to the discount of bills of ex- Exception, 
 change drawn in good faith against actually exist- 
 ing values." 
 
 (Federal Reserve Act, Section 13.) 
 
 Regulations of Federal Reserve Roard 
 
 "The aggregate of notes, drafts, and bills bear- Ten per cent 
 
 && & 7 . » i limit- 
 
 ing the signature or indorsement ot any one bor- 
 rower, whether a person, company, firm, or corpora- 
 tion, rediscounted for any one member bank, shall 
 at no time exceed ten per cent of the unimpaired 
 capital and surplus of such bank; but this restric- 
 tion shall not apply to the discount of bills of ex- Exception, 
 change drawn in good faith against actually exist- 
 ing values." 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, I.) 
 
 Opinions and Rulings 
 
 What Constitutes "Actually Existing Values." 
 
 A bill of exchange discounted before acceptance Drafts discounted 
 
 ,S ., n ■ .• before acceptance. 
 
 may be said to be drawn against actually existing 
 values, within the meaning of section 13 of the 
 Federal Reserve Act, when and on^ when it is 
 
88 
 
 Commercial Banking Practice 
 
 Trade acceptances. 
 
 Trade acceptances 
 for long standing 
 open accounts. 
 
 Evidence of 
 "actually existing 
 value." 
 
 Qualified 
 acceptances. 
 
 accompanied by shipping documents, warehouse re- 
 ceipts, or other papers securing title to the goods 
 sold. 
 
 An accepted bill of exchange, unaccompanied by 
 shipping documents or other such papers, may be 
 considered as drawn against actually existing 
 values if drawn against the drawee at the time of, 
 or within a reasonable time after, the shipment or 
 delivery of the goods sold. In this latter case there 
 must be reasonable grounds to believe that the 
 goods are in existence in the hands of the drawee 
 either in their original form or in the shape of the 
 proceeds of their sale. 
 
 (Opinion of Counsel, Page 195, March, 1917, Bulletin.) 
 
 A bill drawn for a balance due on open account 
 of long standing, which is accepted by the debtor, 
 might constitute a trade acceptance, but in order 
 for it to be excepted from the limitations imposed 
 by section 13 of the Federal Reserve Act as a bill of 
 exchange drawn against actually existing value, it 
 must have been drawn contemporaneously with, or 
 within such a reasonable time after, the shipment of 
 the goods as to justify the assumption that the 
 goods are in the hands of the drawee in their original 
 form or in the form of proceeds of sale. 
 
 As evidence of this fact, Federal reserve banks 
 might reasonably require such trade acceptances as 
 are offered as "bills of exchange drawn against 
 actually existing value" to show the date of invoice, 
 so that it may be determined whether or not the ac- 
 count is one of long standing. 
 
 (Informal Ruling, Page 287, April, 1917, Bulletin.) 
 
 A bill of exchange drawn payable "at sight" and 
 accepted payable in three months is a qualified or 
 conditional acceptance, and the maker and prior 
 indorsers are released. The instrument in effect 
 becomes the promissory note of the acceptor, and 
 
Rediscounts 89 
 
 would not come within the exception to section 5200 
 [or section 13] as a "bill of exchange" drawn in 
 good faith against actually existing value. 
 
 (Opinion of Counsel, Page 463, September, 1916, Bulletin.) 
 
 For additional opinions and rulings under this 
 heading, but relating also to promissory notes, see 
 pages 68-72, above. 
 
 AGGREGATE AMOUNT REDISCOUNT- 
 ABLE FOR ONE BANK 
 
 See "Rediscount of Promissory Notes," pages 
 72-73, above. 
 
 INDORSEMENT OF MEMBER BANKS 
 
 See "Rediscount of Promissory Notes," page 
 73, above. 
 
 REDISCOUNTS FOR NONMEMBER 
 BANKS 
 
 See "Rediscount of Promissory Notes," pages 
 73-75, above. 
 
90 
 
 Rediscount of Six Months' 
 Agricultural Paper 
 
 DEFINITION 
 
 Live stock 
 paper included. 
 
 Live stock. 
 
 Notes of cattle 
 dealers. 
 
 Notes of imple- 
 ment dealers. 
 
 Agricultural 
 products or 
 implements. 
 
 Regulations of Federal Reserve Roard 
 
 Six months' agricultural paper, within the mean- 
 ing of this regulation, is defined as a note, draft, 
 bill of exchange, or trade acceptance drawn or is- 
 sued for agricultural purposes, or based on live 
 stock; that is, a note, draft, bill of exchange, or 
 trade acceptance, the proceeds of which have been 
 used, or are to be used, for agricultural purposes, 
 including the breeding, raising, fattening, or mar- 
 keting of live stock, and which has a maturity at 
 the time of discount of not more than six months, 
 exclusive of days of grace. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, VI.) 
 
 Opinions^and Rulings 
 
 The term "live stock" is held to include not only 
 beef cattle, but also horses and mules. 
 
 (Informal Ruling, Page 72, June, 1915, Bulletin.) 
 
 Notes made by mule and cattle dealers are mer- 
 cantile rather than agricultural paper. 
 
 (Informal Ruling, Page 212, August, 1915, Bulletin.) 
 
 A note made by a dealer in agricultural imple- 
 ments is not agricultural paper. 
 
 (Informal Ruling, Page 212, August, 1915, Bulletin.) 
 
 The purchase or sale of an agricultural product, 
 or of implements or other commodities used in 
 agriculture, constitutes a commercial transaction. 
 
Rediscounts 91 
 
 Where the proceeds of a note made by a merchant 
 are used to purchase millet seed to be later retailed 
 or sold, such a note can not be treated as one given 
 for an agricultural purpose and can not be dis- 
 counted by a Federal reserve bank if it has a matur- 
 ity at time of discount of more than 90 days. 
 
 (Opinion of Counsel, Page 526, October, 1916, Bulletin.) 
 
 The bill or note of a packing company, the pro- Not f? or bills cf 
 
 i n i • i J i? 5 U Jf V Packing company. 
 
 ceeds of which are used lor the purchase ot live 
 stock which is slaughtered upon purchase, is not 
 "based on live stock" within the meaning of sec- 
 tion 13, and is, therefore, not eligible for rediscount 
 if it has a maturity in excess of 90 days. 
 
 (Opinion of Counsel, Page 616, August, 1917, Bulletin.) 
 
 ELIGIBLE AGRICULTURAL PAPER 
 
 Statutory Provisions 
 
 "Notes, drafts, and bills drawn or issued for ^ rIc s ^ a ^ r d 
 agricultural purposes or based on live stock and 
 having a maturity not exceeding six months, ex- 
 clusive of days of grace, may be discounted in an 
 amount to be limited to a percentage of the assets 
 of the Federal reserve bank, to be ascertained and 
 fixed by the Federal Reserve Board." 
 
 (Federal Reserve Act, Section IS.) 
 
 Regulations of Federal Reserve Board 
 
 To be eligible for rediscount six months' agricul- Conditions of 
 tural paper, whether a note, draft, bill of exchange, el,g,bl,ty ' 
 or trade acceptance, must comply with the respec- 
 tive sections of this regulation* which would apply 
 
 * For conditions of eligibility of promissory notes, see pages 
 56-61, above. For conditions of eligibility of drafts and trade 
 acceptances, see pages 79-83, above. 
 
>2 
 
 Commercial Banking Practice 
 
 to it if its maturity were 90 days or less. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, VI.) 
 
 Opinions and Rulings 
 
 !otes for 
 ertilizer. 
 
 lattle mortgages. 
 
 Chattel mortgages 
 nnecessary. 
 
 fetes (or 
 lairy cattle. 
 
 A farmer's six months' note for commercial fer- 
 tilizer, discounted and indorsed by a member bank, 
 is agricultural paper eligible for rediscount with 
 the Federal reserve bank. 
 
 (Informal Ruling, Page 75, June, 1915, Bulletin.) 
 
 Mortgages on cattle are not required, and the 
 question whether paper secured by cattle is self- 
 hquidating is a legal one to be determined at the 
 Federal reserve bank. 
 
 (Informal Ruling, Page 74, June, 1915, Bulletin.) 
 
 The Act does not require the taking of chattel 
 mortgages as security for loans based on agricul- 
 tural operations. The statement of the member 
 bank to this effect must ordinarily be accepted. 
 The direct, primary purpose of the loan should be 
 for the ordinary operations of agriculture. Words 
 "based on" are not considered synonymous with 
 "secured by." Agricultural paper need not be di- 
 rectly secured by agricultural products, but should 
 be genuinely based upon transactions entered upon 
 for agricultural operations. General banking pru- 
 dence and knowledge should be applied. 
 
 (Informal Ruling, Page 72, June, 1915, Bulletin.) 
 
 Notes signed by a farmer, the proceeds of which 
 are used for the purchase of cows to be used as dairy 
 cattle, are eligible for rediscount at the discretion 
 of the Federal reserve bank notwithstanding the 
 fact that the cattle are not primarily purchased for 
 "breeding, raising, fattening, and marketing of 
 live stock." 
 
 (Informal Ruling, Page 112, March, 1916, Bulletin.) 
 
Rediscounts 93 
 
 Loans on cattle for breeding, grazing, or fatten- Cattle for^ breeding, 
 ing may be made under the classification of six fattening, 
 months' agricultural paper and the paper may be 
 rediscounted by a member bank at its Federal re- 
 serve bank. 
 
 (Informal Ruling, Page 679, December, 1916, Bulletin.) 
 
 Where tractors are used to supplement the work ^° r t " l ^ tors 
 of horses or mules, or are used altogether instead of 
 these animals, it is held that notes given by farmers 
 for the purchase price of tractors, and maturing 
 within six months, should be admitted to discount 
 as agricultural paper. 
 
 (Informal Ruling, Page 309, April, 1918, Bulletin.) 
 
 Farmers' notes, the proceeds of which are used Farmers' notes. 
 for tilling farms or for draining land already in use 
 as farm land, should be classified as agricultural 
 paper and are eligible for rediscount. 
 
 (Informal Ruling, Page 743, August, 1918, Bulletin.) 
 
 A note given for the purchase price of a com- Discount by 
 modity can be classed as agricultural paper eligible 
 for rediscount when having a maturity in excess of 
 90 days, if the maker is to use the commodity for 
 an agricultural purpose, regardless of whether the 
 note is discounted by the maker or by the indorser. 
 
 (Opinion of Counsel, Page 312, April, 1918, Bulletin.) 
 
 Where a farmer makes his note payable to the Paper w^J^ 
 seller of a commodity, and actually uses the com- 
 modity for agricultural purposes, such a note may 
 be treated as agricultural paper, whether dis- 
 counted with the member bank by the farmer as the 
 maker or by the seller as the indorser. 
 
 Where the farmer makes his note payable to the f o a | e a ^J ayeble 
 member bank and uses the proceeds for an agri- 
 cultural purpose, such a note may likewise be dis- 
 counted by a Federal reserve bank as agricultural 
 paper. If, however, in either of the foregoing cases 
 
>4 
 
 Commercial Banking Practice 
 
 dentification of 
 gricultural paper. 
 
 the farmer does not use or intend to use the com- 
 modity purchased for an agricultural purpose, al- 
 though it is capable of being so used, the note in 
 question should be treated as commercial paper and 
 not as agricultural paper. 
 
 (Informal Ruling, Page 310, April, 1918, Bulletin.) 
 
 The nature of the bill, the name of the acceptor, 
 and the name of the drawer would probably indicate 
 that a farmer was the purchaser, and an implement 
 dealer, the seller of the goods. However, the pur- 
 chasing member bank will have to satisfy itself in 
 some satisfactory way that the bill is substantially 
 of an agricultural character. A simple memoran- 
 dum attached to the bill, stating that the bill was 
 drawn in payment of agricultural implements, 
 signed either by the acceptor or the drawer, would 
 probably be considered sufficient evidence by the 
 member bank and the Federal reserve bank. 
 
 (Informal Ruling, Page 68, February, 1916, Bulletin.) 
 
 Discretion of 
 Federal Reserve 
 Board. 
 
 Limit of agricultural 
 paper rediscountable 
 by reserve bank. 
 
 AMOUNT OF PAPER REDISCOUNT- 
 ABLE BY A FEDERAL RESERVE 
 BANK 
 
 Statutory Provisions 
 
 Notes, drafts, and bills drawn or issued for agri- 
 cultural purposes or based on live stock, and hav- 
 ing a maturity not exceeding six months, exclusive 
 of days of grace, may be discounted in an amount 
 to be limited to a percentage of the assets of the 
 Federal reserve bank, to be ascertained and fixed 
 by the Federal Reserve Board. 
 
 (Federal Reserve Act, Section 13.) 
 
 Opinions and Rulings 
 
 The law prescribes that in the aggregate the 
 total amount of agricultural paper purchased by a 
 Federal reserve bank should not exceed a fixed per- 
 
Rediscounts 95 
 
 centage of its capital stock, to be fixed from time to 
 time for each Federal reserve bank by the Federal 
 Reserve Board. The percentage fixed by the Board 
 differs in the various districts. Whenever a dis- 
 trict has applied, the maximum limit has been 
 granted, which has been considered to be 99 per 
 cent of the capital stock. 
 
 (Informal Ruling, Page 68, February, 1916, Bulletin.) 
 
 For other provisions governing the rediscount of 
 agricultural paper, see pages 68-75, above. 
 
96 
 
 Rediscount of Commodity Paper 
 
 DEFINITION 
 
 Commodity 
 paper defined. 
 
 Regulations of Federal Reserve Board 
 
 Commodity paper within the meaning of this 
 regulation is defined as a note, draft, bill of ex- 
 change, or trade acceptance accompanied and se- 
 cured by shipping documents or by a warehouse, 
 terminal, or other similar receipt covering approved 
 and readily marketable, nonperishable staples prop- 
 erly insured. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, VII.) 
 
 Opinions and Rulings 
 
 'Staples" defined. 
 
 Paper of mer- 
 chants included. 
 
 Potatoes 
 "staple." 
 
 "Staples" include manufactured goods as well as 
 raw materials, provided the goods are nonperish- 
 able and have a wide ready market. This is held 
 to include cotton yarns and flour. 
 
 (Informal Ruling, Page 523, October, 1916, Bulletin.) 
 
 "Commodity paper" includes not only paper 
 originating with the producer, but also paper of 
 merchants and others when the commodity is 
 not carried for speculative or purely investment 
 purposes. 
 
 (Informal Ruling, Page 307, October, 1915, Bulletin.) 
 
 Potatoes, properly graded and packed and stored 
 in a weatherproof and responsible warehouse, as 
 evidenced by its receipt, would undoubtedly con- 
 stitute a readily marketable, nonperishable staple. 
 
 (Informal Ruling, Page 614, August, 1917, Bulletin.) 
 
Rediscounts 97 
 
 Drafts drawn in connection with sales to the Drafls dra y n in 
 United States Government of lumber or other states exchded. 
 materials do not conform to the requirements of 
 commodity paper as defined by the Federal Reserve 
 Board. 
 
 (Opinion of Counsel, Page 32, January, 1918, Bulletin.) 
 
 ELIGIBLE COMMODITY PAPER 
 
 Statutory Provisions 
 
 Nothing in this Act contained shall be construed Eligibility, 
 to prohibit notes, drafts, and bills of exchange se- 
 cured by staple agricultural products or other 
 goods, wares, or merchandise from being eligible 
 for such discount. 
 
 (Federal Reserve Act, Section IS.) 
 
 Regulations of Federal Reserve Board 
 
 To be eligible for rediscount at the special rates Conditions of 
 authorized to be established for commodity paper, e Ig! ! ' y ' 
 such a note, draft, bill of exchange, or trade ac- 
 ceptance must also comply with the respective sec- 
 tions of this regulation applicable to it,* must con- 
 form to the requirements of the Federal reserve 
 bank relating to shipping documents, receipts, 
 insurance, etc., and must be a note, draft, bill of 
 exchange, or trade acceptance on which the rate 
 of interest or discount — including commission — 
 charged the maker, does not exceed six per cent 
 per annum. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, VII.) 
 
 * For conditions of eligibility of promissory notes, see pages 
 56-61, above. For conditions of eligibility of drafts and trade 
 acceptances, see pages 79-83, above. 
 
98 
 
 Commercial Banking Practice 
 
 Direct discounts 
 not allowed. 
 
 Drafts drawn in 
 sales to United 
 States ineligible. 
 
 Opinions and Hillings 
 
 Federal reserve banks can not discount commod- 
 ity paper directly for mercantile firms. 
 
 (Informal Ruling, Page 112, March, 1916, Bulletin.) 
 
 Drafts drawn in connection with sales to the 
 United States Government of lumber or other ma- 
 terials can not be treated as bills of exchange drawn 
 against actually existing value and are subject to 
 the limitations of section 5200, Revised Statutes, 
 when discounted by national banks. Such drafts 
 do not conform to the requirements of commodity 
 paper as defined by the Federal Reserve Board 
 and should not be discounted at the rate prescribed 
 for such paper. 
 
 (Opinion of Counsel, Page 32, January, 1918, Bulletin.) 
 
 SUSPENSION OF SPECIAL RATE ON 
 COMMODITY PAPER 
 
 Rate for move- 
 ment of crops. 
 
 Regulations of Federal Reserve Roard 
 
 As the special rate on commodity paper is in- 
 tended to assist actual producers during crop-mov- 
 ing periods and is not designed to benefit specula- 
 tors, the Board reserves the right to suspend the 
 special rates herein provided whenever it is ap- 
 parent that the movement of crops, which this rate 
 is intended to facilitate, has been practically com- 
 pleted. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, A, VII.) 
 
99 
 
 Rediscount of Bank Acceptances 
 
 DEFINITION 
 
 Regulations of Federal Reserve Board 
 
 A banker's acceptance within the meaning of ^ c a c n e ke t r a n C e 
 this regulation is defined as a draft or bill of ex- 
 change of which the acceptor is a bank or trust 
 company, or a firm, person, company, or corpora- 
 tion engaged in the business of granting bankers' 
 acceptance credits. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, B.) 
 
 Opinions and^ Rulings 
 
 The question of determining the eligibility of an Eligible 
 acceptor under the regulation is left to the discre- accep 01 
 tion of Federal reserve banks themselves. It is, of 
 course, understood that the Board would not wish 
 to see concerns regarded as eligible acceptors which 
 are not in the habit of carrying on some acceptance 
 business regularly and are not generally of such 
 character and standing as to qualify their accept- 
 ance as a "banker's acceptance." 
 
 (Informal Ruling, Page 362, November, 1915, Bulletin.) 
 
 A bill of exchange, in order to be negotiable, Conditions of 
 
 must be an unconditional order to pay, on demand 
 or at a fixed or determinable future time, a certain 
 sum of money to order or to bearer. If payment is 
 dependent upon the happening of a certain con- 
 tingency, the bill is conditional and nonnegotiable. 
 If payment is confined to the proceeds of a particu- 
 lar fund and is not chargeable to the general credit 
 
 negotiability. 
 
 Conditional bill. 
 
100 
 
 Commercial Banking Practice 
 
 Conditional 
 acceptance. 
 
 of the drawer, the bill is conditional and non- 
 negotiable. 
 
 A general acceptance of a conditional bill or 
 a conditional acceptance of an unconditional bill 
 makes the acceptance a conditional one and de- 
 stroys its negotiability. 
 
 (Opinion of Counsel, Page 21, May, 1915, Bulletin.) 
 
 Conditions of 
 eligibility. 
 
 ELIGIBLE BANK ACCEPTANCES 
 
 Statutory Provisions 
 
 "Any Federal reserve bank may discount accept- 
 ances 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 o?ie member bank." 
 
 (Federal Reserve Act, Section 13.) 
 
 Maturity. 
 
 Indorsement. 
 
 Based on imports 
 and exports. 
 
 Based on domestic 
 shipments. 
 
 Secured by 
 documents. 
 
 Drawn to furnish 
 dollar exchange. 
 
 Regulations of Federal Reserve Board 
 
 Any Federal reserve bank may discount for any 
 of its member banks bankers' acceptances which 
 have a maturity at the time of discount of not more 
 than three months' sight, exclusive of days of grace, 
 which are indorsed by at least one member bank, 
 and which grow out of transactions involving the 
 importation or exportation of goods ; or which grow 
 out of transactions involving the domestic shipment 
 of goods, provided shipping documents are attached 
 at the time of acceptance; or which are secured at 
 the time of acceptance by a warehouse receipt or 
 other such document conveying or securing title 
 covering readily marketable staples. Any Federal 
 reserve bank may also acquire drafts or bills of ex- 
 change drawn on member banks by banks or bank- 
 ers in foreign countries or dependencies or insular 
 possessions of the United States for the purpose of 
 furnishing dollar exchange. 
 
Rediscounts 101 
 
 To be eligible for rediscount the bill must have 
 been drawn under a credit opened for the purpose 
 of conducting, or settling accounts resulting from, 
 a transaction or transactions involving: 
 
 ( 1 ) The shipment of goods between the United Base . d on exports 
 States and any foreign country, or between the andunports - 
 United States and any of its dependencies or insu- 
 lar possessions, or between foreign countries ; or 
 
 (2) The domestic shipment of goods, pro- Based on domestic 
 vided shipping documents are attached at the time 8 Ipments ' 
 
 of acceptance ; or 
 
 (3) It must be a bill which is secured at the Based on ware- 
 time of acceptance by a warehouse receipt or other ouse recelpts< 
 such document conveying or securing title covering 
 
 readily marketable staples. 
 
 (4) Any Federal reserve bank may also ac- JJ r /j wn t0 {" rnish 
 quire drafts or bills drawn by a bank or banker in ° ar exc ange ' 
 a foreign country or dependency or insular posses- 
 sion of the United States for the purpose of furnish- 
 ing dollar exchange and accepted by a member 
 
 bank. Such drafts or bills may be acquired prior 
 to acceptance provided they have the indorsement 
 of a member bank. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, B.) 
 
 Opinions and Rulings 
 
 There is some doubt in the courts whether the , R 'K ren , ce to fact 
 
 „ . • l • j o j bill is based 
 
 mere reference to a particular consignment ol goods on imports or 
 makes the bill conditional, some courts stating that «p° r t»- 
 it is merely an indication of the fund out of which 
 the drawee is to reimburse himself; other courts 
 holding that it makes the bill conditional because 
 limiting payment to the proceeds of the particular 
 shipment referred to. There is no doubt, however, 
 that a reference, in general terms, on the face of an 
 accepted bill to the fact that it is based on the ex- 
 
102 
 
 Commercial Banking Practice 
 
 Acceptances 
 indorsed by member 
 bank of another 
 district. 
 
 Discount of 
 acceptances not 
 paid at Federal 
 reserve bank. 
 
 portation or importation of goods would not make 
 it conditional and nonnegotiable, and it would not, 
 therefore, be ineligible for discount under the pro- 
 visions of section 13 of the Federal Reserve Act. 
 
 (Opinion of Counsel, Page 21, May, 1915, Bulletin.) 
 
 Federal reserve banks may, under the provisions 
 of section 13, discount acceptances based on the im- 
 portation or exportation of goods, provided they 
 have a maturity at time of discount of not more 
 than three months, and provided, further, that they 
 are indorsed by at least one member bank. It is im- 
 material whether this member bank is located in the 
 district of the Federal reserve bank which is mak- 
 ing the discount or in any other district, the term 
 "member bank" being broad enough to include 
 member banks wherever located. 
 
 (Opinion of Counsel, Page 98, June, 1915, Bulletin.) 
 
 The discount committee of the Federal Reserve 
 Board has reported that, in its opinion, "Federal 
 reserve banks should insist that acceptances when 
 due should be paid by checks on the local Federal 
 reserve bank, in order that they may be charged to 
 the account of the acceptor on the day of maturity, 
 or else that acceptances should be paid by checks 
 through the clearings. If an arrangement on these 
 lines can not be perfected, Federal reserve banks 
 ought to be required to add one day to the actual 
 number of days the acceptance has to run when 
 bought, so as to make up for the loss of interest 
 incurred in collecting in this manner." 
 
 This report has been agreed to by the Board, and 
 your bank is requested, in buying acceptances, to 
 charge discount for one additional day, except in 
 cases where satisfactory arrangements are made to 
 make actual cash payment at the Federal reserve 
 bank on the day of maturity. 
 
 (Informal Ruling, Page 521, June, 1918, Bulletin.) 
 
Rediscounts 103 
 
 Acceptances of an acceptance corporation ought ^ c p e er co ° r f JJJJjJJj 
 to be dealt with exactly as would be the acceptances 
 of a prime private banker. These acceptance cor- 
 porations are in the same relation to the Federal 
 Reserve System as the private bankers. They can 
 not become members, but, inasmuch as they expect 
 to give full information about their own financial 
 standing and the nature of their acceptances, and 
 as they exercise a most important function for the 
 further development of our acceptance business and 
 discount market, their operation ought to be en- 
 couraged in every respect. 
 
 (Informal Ruling, Page 634, July, 1918, Bulletin.) 
 
 In purchasing or discounting bankers' accept- ^tf^Z*** 
 ances or other bills which are secured by warehouse warehouses, 
 receipts, etc., the Federal reserve banks should 
 make sure that the receipt is issued by a warehouse 
 which is independent of the borrower. 
 
 (Informal Ruling, Page 30, January, 1917, Bulletin.) 
 
 Gold coin is "goods" within the meaning of sec- Gold coin a. "good," 
 tion 13 of the Federal Reserve Act. 
 
 (Informal Ruling, Page 29, January, 1917, Bulletin.) 
 
 Gold bars may be properly considered as Gold bunion 
 "goods." 
 
 (Informal Ruling, Page 29, January, 1917, Bulletin.) 
 
 While a very decided differential may be inadvis- £f JJto bank 
 able, there is no objection to a moderate differential, acceptances, 
 say J4 of 1 per cent, to apply between member- 
 bank acceptances and the acceptances of large non- 
 member institutions well known throughout the 
 country and whose acceptances necessarily have a 
 broad market. 
 
 (Informal Ruling, Page 28, January, 1917, Bulletin.) 
 
 For additional opinions and rulings bearing on 
 this subject, see Parti, "Bank Acceptances," pages 
 16-21, 29-31, 33-35, 38-42, above. 
 
104 
 
 Commercial Banking Practice 
 
 INELIGIBLE BANK ACCEPTANCES 
 
 battel mortgages. 
 
 Bills payable 
 outside United 
 States. 
 
 Opinions and Rulings 
 
 The Board, having reached the conclusion that 
 national banks are not authorized to accept bills 
 secured by chattel mortgages on cattle, deems it 
 advisable that Federal reserve banks should con- 
 sider as ineligible bills drawn against the security 
 of such chattel mortgages, whether accepted by 
 member or nonmember banks. 
 
 (Informal Ruling, Page 309, April, 1918, Bulletin.) 
 
 Under the regulations of the Federal Reserve 
 Board defining bankers' acceptances, any bill which 
 is payable elsewhere than in the United States 
 would not be eligible for purchase as a bankers' ac- 
 ceptance, under the provisions of Regulations A 
 and B, Series of 1917, even though eligible in all 
 other respects. 
 
 The acceptance, however, might properly be pur- 
 chased as a bill of exchange payable in a foreign 
 country. 
 
 ""(Informal Ruling, Page 520, June, 1918, Bulletin.) 
 
 For additional opinions and rulings bearing on 
 this subject, see Part I, "Bank Acceptances," pages 
 16-21, 29-31, 33-35, 38-42, above. 
 
 EVIDENCE OF ELIGIBILITY 
 
 Evidence fur- 
 Dished Federal 
 reserve bank. 
 
 Regulations of Federal Reserve Board 
 
 A Federal reserve bank must be satisfied, either 
 by reference to the acceptance itself or otherwise, 
 that it is eligible for rediscount. Satisfactory evi- 
 dence of eligibility may consist of a stamp or cer- 
 tificate affixed by the acceptor in form satisfactory 
 to the Federal reserve bank. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, B.) 
 
Rediscounts 
 
 105 
 
 Opinions and Rulings 
 
 The Federal reserve bank reserves the right to J^J^ 
 ask State member banks for evidence underlying 
 the certification given to it, and the bank examiner 
 may require evidence from the national bank. 
 Member banks would, therefore, best protect them- 
 selves by stipulating for themselves the right at 
 times to ask for substantiation of the assurances 
 given by their customers. 
 
 (Informal Ruling, Page 406, December, 1915, Bulletin.) 
 
 MATURITY 
 
 Statutory Provisions 
 
 "Any Federal reserve bank may discount accept- Three months, 
 ances . . . which have a maturity at the time of dis- 
 count of not more than three months' sight, ex- 
 clusive of days of grace." 
 
 (Federal Reserve Act, Section IS.) 
 
 Regulations of Federal Reserve Board 
 
 Federal reserve banks may discount for their 
 member banks "bankers' acceptances which have a 
 maturity at the time of discount of not more than 
 three months' sight, exclusive of days of grace. 
 
 (Regulations of Federal Reserve Board, Regulation A, 
 Series of 1917, B.) 
 
 Opinions and Rulings 
 
 Acceptance business of Federal reserve banks is 
 not restricted "to the original transactions only," if 
 the transaction has not been liquidated. When the 
 first acceptance matures, member bank may renew 
 the acceptance, and there is no reason why a Fed- 
 eral reserve bank may not discount such renewed 
 acceptance, although a Federal reserve bank must 
 not engage in advance to make such discount of a 
 renewal. 
 
 (Informal Ruling, Page 126, July, 1915, Bulletin.) 
 
 Renewals. 
 
106 
 
 Commercial Banking Practice 
 
 INDORSEMENT 
 
 Member bank 
 indorsement. 
 
 Statutory Provisions 
 
 Any Federal reserve bank may discount accept- 
 ances . . . which are indorsed by at least one mem- 
 ber bank. 
 
 (Federal Reserve Act, Section 13.) 
 
 Indorsement 
 in blank. 
 
 Opinions and Rulings 
 
 If the acceptance is indorsed in blank it can of 
 course change ownership from one holder to an- 
 other without being indorsed by each subsequent 
 holder, and the title would pass. 
 
 The Board expresses the hope that we may soon 
 reach the point when Federal reserve banks can 
 make a definite rule not to buy bankers' acceptances 
 except such as bear three responsible signatures, 
 being those of the acceptor, the drawer, and the 
 indorser. 
 
 (Informal Ruling, Page 744, August, 1918, Bulletin.) 
 
PART III. 
 
 Advances by Federal 
 Reserve Banks 
 
 on the 
 
 Promissory Notes of 
 Member Banks 
 
109 
 
 PART III. 
 
 Advances by 
 Federal Reserve Banks 
 
 General Statutory Provisions 
 
 "Any Federal reserve bank may make advances Maturity, 
 to its member banks on their promissory notes for 
 a period not exceeding fifteen days at rates to be 
 established by such Federal reserve banks, subject 
 to the review and determination of the Federal Re- 
 serve Board, provided such promissory notes are Security: 
 secured by such notes, drafts, bills of exchange, or 
 bankers' acceptances as are eligible for rediscount Eligible paper; 
 or for purchase by Federal reserve banks under the 
 provisions of this Act, or by the deposit or pledge United states 
 of bonds or notes of the United States." obligation.; 
 
 (Federal Reserve Act, Section 13.) 
 
 "The Federal reserve banks shall be authorized, War Finance 
 subject to the maturity limitations of the Federal Corpora, bond,. 
 Reserve Act and to regulations of the Federal Re- 
 serve Board, to discount the direct obligations of 
 member banks secured by . . . bonds of the [War 
 Finance] Corporation." 
 
 (War Finance Corporation Act, Section 13.) 
 
 SECURITY 
 
 Announcements of^Federal Reserve Board 
 
 Advances may be made to member banks on their Jj^JJjEE* 
 promissory notes, secured either by such notes, obligations, 
 drafts, bills of exchange, or bankers' acceptances 
 
110 
 
 Commercial Banking Practice 
 
 Indorsement of 
 collateral. 
 
 Collateral of 
 Government bonds. 
 
 County warrants 
 ineligible. 
 
 Farm loan 
 bonds ineligible. 
 
 as are eligible for rediscount or purchase by Federal 
 reserve banks, or by the deposit or pledge of bonds 
 or notes of the United States. 
 
 (Announcement of Federal Reserve Board, Page 513, Octo- 
 ber, 1916, Bulletin.) 
 
 Opinions and Rulings 
 
 Eligible paper pledged as security for a promis- 
 sory note of a member bank on which an advance is 
 being made by a Federal reserve bank need not be 
 indorsed by such member bank if such eligible paper 
 is already in negotiable form. 
 
 (Opinion of Counsel, Page 685, December, 1916, Bulletin.) 
 
 Any member bank which has itself purchased ob- 
 ligations of the United States may procure ad- 
 vances from its Federal reserve bank, for not ex- 
 ceeding 15 days, on its own promissory note, pro- 
 vided such note is secured by a deposit or pledge of 
 bonds or notes of the United States. 
 
 (Informal Ruling, Page 159, March, 1917, Bulletin.) 
 
 Member banks in procuring advances from Fed- 
 eral reserve banks on promissory notes must secure 
 such notes by paper eligible for rediscount or for 
 purchase by Federal reserve banks or by bonds or 
 notes of the United States. County warrants are 
 not eligible as security. 
 
 (Opinion of Counsel, Page 609, November, 1916, Bulletin.) 
 
 Farm loan bonds are issued by Federal farm land 
 banks incorporated under Federal law, and are not 
 obligations of the United States, so that they are 
 not eligible as collateral for promissory notes of 
 member banks. 
 
 (Opinion of Counsel, Page 33, January, 1918, Bulletin.) 
 
 For conditions of eligibility of notes, drafts, and 
 acceptances, see pages 56-61, 79-83, 91-94, 97-98, 
 100-103, above. 
 
Advances by Reserve Banks 111 
 
 MATURITY 
 
 Statutory Provisions 
 
 Any Federal reserve bank may make advances to Fifteen days, 
 its member banks on their promissory notes for 
 periods not exceeding fifteen days. 
 
 (Federal Reserve Act, Section 13.) 
 
 Opinions and Rulings 
 
 If by reason of a State law paper falling due on Notes due on Sunday 
 Saturday or Sunday must be collected one or two or ega ° ! a7 ' 
 days before its apparent maturity or one or two 
 days thereafter, interest should be charged ac- 
 cordingly. 
 
 (Informal Ruling, Page 108, February, 1918, Bulletin.) 
 
 A Federal reserve bank may properly renew the Renewals 
 15-day notes of its member banks if properly se- permitte ■ 
 cured, provided that the Federal reserve bank does 
 not obligate itself in advance to make any such 
 renewal. 
 
 (Opinion of Counsel, Page 765, October, 1917, Bulletin.) 
 
 While the Federal Reserve Board does not wish ^"^J 01 
 to prohibit the renewal of 15-day notes, it feels that 
 renewals should be the exception rather than the 
 rule. 
 
 (Informal Ruling, Page 879, November, 1917, Bulletin.) 
 
II 
 
 PART IV. 
 
 £ 
 
 eJ* 1 
 
 a# 
 
 Open Market 
 Transactions 
 
ut 
 
 PART IV. 
 
 Open Market Transactions 
 
 General Statutory Provisions 
 
 "Any Federal reserve bank may, under rules and Cable transfers, 
 regulations prescribed by the Federal Reserve and bills. 
 Board, purchase and sell in the open market, at 
 home or abroad, either from or to domestic or for- 
 eign banks, firms, corporations, or individuals, 
 cable transfers and bankers' acceptances and bills 
 of exchange of the kinds and maturities by this 
 Act made eligible for rediscount, with or without 
 the indorsement of a member bank. 
 
 "Every Federal reserve bank shall have power Commercial bills. 
 ... to purchase from member banks and to sell, 
 with or without its indorsement, bills of exchange 
 arising out of commercial transactions, as herein- 
 before denned. . . 
 
 (Federal Reserve Act, Section 14.) 
 
 General Regulations and Rulings 
 
 Regulations of Federal Reserve Roard 
 
 Conditions 
 governing 
 
 The Federal Reserve Board, exercising its statu- 
 tory right to regulate the purchase of bills of ex- eiigibfiity. 
 change and acceptances, has determined that a bill 
 of exchange or acceptance, to be eligible for pur- 
 chase by Federal reserve banks under section 14: 
 
 (a) Must not have been issued for carrying or Security paper, 
 trading in stocks, bonds, or other investment secur- 
 ities, except bonds and notes of the Government of 
 the United States; 
 
Commercial Banking Practice 
 
 ixed, speculative, or 
 ivestment paper. 
 
 cceptance required. 
 
 ecured bills. 
 
 ther 
 equirements. 
 
 (b) Must not be a bill the proceeds of which 
 have been used or are to be used for permanent or 
 fixed investments of any kind, such as land, build- 
 ings, or machinery, or for investments of a merely 
 speculative character; 
 
 (c) Must have been accepted by the drawee 
 prior to purchase by a Federal reserve bank unless 
 it is accompanied and secured by shipping docu- 
 ments or by a warehouse, terminal, or other similar 
 receipt conveying or securing title; 
 
 (d) May be secured by the pledge of goods* 
 or collateral, provided it is otherwise eligible. 
 
 In addition to the above general requirements, 
 each bill of exchange and trade acceptance pur- 
 chased under the terms of this regulation must also 
 conform to the more specific requirements set forth 
 under Regulation B, III (see page 124), and 
 each bankers' acceptance must also conform to the 
 more specific requirements set forth under Regu- 
 lation B, IV (see pages 118-119) . 
 
 (Regulations of Federal Reserve Board, Regulation B, 
 Series of 1917, II.) 
 
 Opinions and Rulings 
 
 'romissory notes 
 xcluded. 
 
 The original bill for the establishment of Federal 
 reserve banks permitted the purchase in the open 
 market of "notes, drafts, and bills of exchange," 
 but in the bill as finally enacted the words "notes 
 and drafts" were stricken out in section 14, although 
 they are retained in section 13. The Board has 
 reached the conclusion, in which it is sustained by 
 opinion of counsel, that Congress drew a distinction 
 in sections 13 and 14 between the several forms of 
 
 * When used in this regulation the word "goods" shall be 
 construed to include goods, wares, merchandise, or agricultural 
 products, including live stock. 
 
Open Market Transactions 117 
 
 commercial paper, and that promissory notes, even 
 though bearing an additional indorsement, must be 
 regarded as excluded from open market purchases 
 under section 14. 
 
 There remain, then, as eligible for purchase under Eligible paper, 
 this section, "cable transfers" and "bills of ex- 
 change" of two kinds: (1) So-called foreign bills of 
 exchange; and (2) domestic acceptances drawn by 
 one party on another, as by a seller of goods upon 
 the purchaser, such as have been classified by the 
 Board as trade acceptances either accepted or not 
 accepted at the time of purchase. 
 
 The decision whether Federal reserve banks 
 should engage in such open market operations rests 
 entirely with them and not with the Federal Re- 
 serve Board. 
 
 Banks are cautioned that no bill be bought in the 
 open market which, even if indorsed by a member 
 bank, would be ineligible for rediscount under sec- 
 tion 13. 
 
 (Informal Ruling, Page 360, November, 1915, Bulletin.) 
 
 Any Federal reserve bank may, under the pro- Promissory notes, 
 visions of section 14 of the Federal Reserve Act, 
 purchase acceptances and bills of exchange of cer- 
 tain kinds and maturities in the open market; but 
 promissory notes as distinguished from bills of ex- 
 change, whether one or more names, are not eligible 
 for such purchase. 
 
 (Opinion of Counsel, Page 365, November, 1915, Bulletin.) 
 
 The purchase of commodity loans from member Commodity paper, 
 banks without their indorsement would not come 
 within the provisions of the law unless there is two- 
 name commodity paper or such paper can be 
 created in connection with commodity loans. 
 
 (Informal Rubng, Page 4?06, December, 1915, Bulletin.) 
 
118 
 
 Transactions in Bank 
 Acceptances 
 
 Banker's 
 acceptance. 
 
 DEFINITION 
 
 Regulations of Federal Reserve Board 
 
 A banker's acceptance, within the meaning of this 
 regulation, is a bill of exchange of which the ac- 
 ceptor is a bank or trust company, or a firm, person, 
 company, or corporation engaged in the business 
 of granting bankers' acceptance credits. 
 
 (Regulations of Federal Reserve Board, Regulation B, 
 Series of 1917, IV.) 
 
 ELIGIBLE BANK ACCEPTANCES 
 
 Cable transfers 
 and bankers' 
 acceptances. 
 
 Based on imports 
 and exports. 
 
 Statutory Provisions 
 
 Any Federal reserve bank may . . . purchase 
 and sell . . . cable transfers and bankers' accept- 
 ances ... of the kinds and maturities by this Act 
 made eligible for rediscount, with or without the in- 
 dorsement of a member bank. 
 
 (Federal Reserve Act, Section 14.) 
 
 Regulations of Federal Reserve Board 
 
 To be eligible for purchase, the bill . . . must 
 have been drawn under a credit opened for the 
 purpose of conducting or settling accounts resulting 
 from a transaction or transactions involving: 
 
 (1) The shipment of goods between the United 
 States and any foreign country, or between the 
 
Open Market Transactions 119 
 
 United States and any of its dependencies or in- 
 sular possessions, or between foreign countries ; 
 
 (2) The shipment of goods within the United f ,wd l . 0B . . 
 
 o.i •-i-ii i •■m i • a • domestic shipments. 
 
 Mates, provided the bill at the time ot its accept- 
 ance is accompanied bv shipping documents; 
 
 (3) The storage within the United States of ^™" d „J y recei ta . 
 readily marketable goods, provided the acceptor of 
 
 the bill is secured by warehouse, terminal, or other 
 similar receipt; 
 
 (4) The storage within the United States of * M g e o d o £ J^f e 
 goods which have been actually sold, provided the 
 acceptor of the bill is secured by the pledge of such 
 
 goods; i ; 
 
 (5) Or it must be a bill drawn by a bank or Drawn to furnish 
 
 , v , ' p , t i • dollar exchange. 
 
 banker m a toreign country or dependency or in- 
 sular possession of the United States for the pur- 
 pose of furnishing dollar exchange. In this latter 
 case the bank or banker drawing the bill must be 
 in a country, dependency, or possession whose us- 
 ages of trade have been determined by the Federal 
 Reserve Board to require the drawing of bills of 
 this character. 
 
 (Regulations of Federal Reserve Board, Regulation B, 
 Series of 1917, IV.) 
 
 Opinions and Rulings 
 
 Gold bars may be properly considered as goods, BuIlion s^pments. 
 and accordingly 60-day bills when accepted by 
 banks and bankers against such shipment would be 
 eligible for purchase by Federal reserve banks as 
 based upon or involving the exportation of goods. 
 
 (Informal Ruling, Page 29, January, 1917, Bulletin.) 
 
 Gold coin is "goods" within the meaning of sec- Coin s hi P ments - 
 tion 13 of the Federal Reserve Act; and, therefore, 
 a bill of exchange drawn to finance a shipment of 
 gold coin from this country is eligible for purchase 
 by a Federal reserve bank if otherwise in conform- 
 
20 
 
 Commercial Banking Practice 
 
 ity with the provisions of the law and the regula- 
 tions of the Federal Reserve Board. 
 
 (Informal Ruling, Page 29, January, 1917, Bulletin.) 
 
 For additional rulings, see, under Part II, "Rediscounts with 
 Federal Reserve Bank," pages 100-103, above. 
 
 INELIGIBLE BANK ACCEPTANCES 
 
 :ceptances not 
 sed on sales 
 d not secured. 
 
 :ceptances 
 cured by 
 II of sale. 
 
 lis payable out- 
 le United States. 
 
 Opinions and Rulings 
 
 Acceptances drawn by a manufacturer on and 
 accepted by a trust company not a member of the 
 Federal Reserve System, the proceeds of which are 
 to be used for purchases of raw material and pay- 
 ment for labor where the goods had not been sold 
 and no warehouse receipts or other instruments 
 could be furnished, are held not to be eligible for 
 purchase by a Federal reserve bank. 
 
 (Informal Ruling, Page 65, February, 1916, Bulletin.) 
 
 A banker's acceptance drawn for the purpose of 
 purchasing goods secured by a bill of sale of stock 
 in hand is not eligible for purchase by Federal re- 
 serve banks. 
 
 (Opinion of Counsel, Page 684, December, 1916, Bulletin.) 
 
 Under the regulations of the Federal Reserve 
 Board defining bankers' acceptances, any bill which 
 is payable elsewhere than in the United States 
 would not be eligible for purchase as a bankers' 
 acceptance, under the provisions of Regulations 
 A and B, Series of 1917, even though eligible in all 
 other respects. 
 
 The acceptance, however, might properly be pur- 
 chased as a bill of exchange payable in a foreign 
 country. 
 
 (Informal Ruling, Page_520,_June,_1918, Bulletin. )_^ 
 
 For additional rulings, see, under Part II, "Rediscounts with 
 Federal Reserve Bank," page 104, above. 
 
Open Market Transactions 121 
 
 EVIDENCE OF ELIGIBILITY AND RE- 
 QUIREMENT OF STATEMENTS 
 
 Regulations of Federal Reserve Board 
 
 A Federal reserve bank must be satisfied either Evidence of 
 by reference to the acceptance itself, or otherwise, el, s ib,llt y- 
 that it is eligible for purchase. Satisfactory evi- 
 dence of eligibility may consist of a stamp or cer- 
 tificate affixed by the acceptor, in form satisfactory 
 to the Federal reserve bank. No evidence of eligi- Exception of 
 bility is required with respect to a bill accepted by ^^FbiA* 7 
 a national bank. 
 
 Bankers' acceptances, other than those accepted statements. 
 or indorsed by member banks, shall be eligible for 
 purchase only after the acceptor has furnished a 
 satisfactory statement of financial condition in form 
 to be approved by the Federal Reserve Board and 
 has agreed in writing with a Federal reserve bank 
 to inform it upon request concerning the transac- 
 tions underlying such acceptances. 
 
 (Regulations of Federal Reserve Board, Regulation B, 
 Series of 1917, IV.) 
 
 Opinions and Rulings 
 
 Ultimate responsibility in purchasing accept- Responsibility 
 ances is held to rest with Federal reserve banks. for eli * ibil,t y- 
 
 The announcement that the Federal Reserve 
 Board will require statements satisfactory to it in statement form, 
 connection with acceptances is held to mean that 
 the statement shall be satisfactory in form. 
 
 (Informal Ruling, Page 13, January, 1916, Bulletin.) 
 
 MATURITY 
 
 Statutory Provisions 
 
 Any Federal reserve bank may . . . pur- 
 chase and sell . . . cable transfers and bank- 
 
]22 Commercial Banking Practice 
 
 er's acceptances ... of the kinds and maturi- 
 ties by this Act made eligible for rediscount. 
 
 (Federal Reserve Act, Section 14.) 
 
 Regulations of Federal Reserve Board 
 
 To be eligible for purchase, the bill must have a 
 maturity at time of purchase of not more than three 
 months, exclusive of days of grace. 
 
 (Regulations of P'ederal Reserve Board, Regulation B, Series 
 of 1917, IV.) 
 
IS 
 
 Transactions in Bills of Exchange 
 and Trade Acceptances 
 
 DEFINITIONS 
 
 Regulations of Federal Reserve Board 
 
 A bill of exchange, within the meaning of this Bill of exchange, 
 regulation, is defined as an unconditional order in 
 writing, addressed by one person to another, other 
 than a banker . . . signed by the person giving it, . 
 requiring the person to whom it is addressed to pay, 
 in the United States, at a fixed or determinable 
 future time, a sum certain in dollars to the order of 
 a specified person; and 
 
 A trade acceptance is defined as a bill of ex- Trade acceptance, 
 change drawn by the seller on the purchaser of 
 goods sold, and accepted by such purchaser. 
 
 (Regulations of Federal Reserve Board, Regulation B, 
 Series of 1917, III.) 
 
 ELIGIRLE BILLS AND TRADE 
 ACCEPTANCES 
 
 Statutory Provisions 
 
 Any Federal reserve bank may . . . purchase Eligible bills, 
 and sell in the open market . . . bills of exchange 
 of the kinds and maturities by this Act made eligible 
 for rediscount. 
 
 (Federal Reserve Act, Section 14.) 
 
 Regulations of Federal Reserve Roard 
 
 A bill of exchange or acceptance to be eligible General conditions 
 for purchase by Federal reserve banks under sec- ° e lgl ' Ity * 
 tion 14: 
 
24 
 
 Specific conditions. 
 
 Commercial 
 character. 
 
 Maturity. 
 
 Commercial Banking Practice 
 
 (1) Must have been accepted by the drawee 
 prior to purchase by a Federal reserve bank unless 
 it is accompanied and secured by shipping docu- 
 ments or by a warehouse, terminal, or other similar 
 receipt conveying security title; 
 
 (2) May be secured by the pledge of goods* 
 or collateral, provided it is otherwise eligible. 
 
 In addition to the above general requirements, 
 each bill of exchange and trade acceptance pur- 
 chased under the terms of this regulation must also 
 conform to the more specific requirements set forth 
 under Regulation B, III (below) . 
 
 (Regulations of Federal Reserve Board, Regulation B, 
 Series of 1917, II.) 
 
 To be eligible for purchase, the bill must have 
 arisen out of an actual commercial transaction, 
 domestic or foreign; that is, it must be a bill which 
 has been issued or drawn for agricultural, industrial, 
 or commercial purposes or the proceeds of which 
 have been used or are to be used for the purpose of 
 producing, purchasing, carrying, or marketing 
 goods in one or more of the steps of the process of 
 production, manufacture, or distribution. It must 
 have a maturity at time of purchase of not more 
 than ninety days, exclusive of days of grace. 
 
 (Regulations of Federal Reserve Board, Regulation B, 
 Series of 1917, III.) 
 
 Opinions and Rulings 
 
 See "Rediscount of Drafts and Trade Accept- 
 ances," pages 79-83, above. 
 
 * When used in this regulation the word ''goods" shall be 
 construed to include goods, wares, merchandise, or agricultural 
 products, including live stock. 
 
Open Market Transactions 125 
 
 INELIGIBLE BILLS AND TRADE 
 ACCEPTANCES 
 
 Regulations of Federal Reserve Board 
 
 A bill of exchange or acceptance, to be eligible Finance paper, 
 for purchase by Federal reserve banks under sec- 
 tion 14, must not have been issued for carrying or 
 trading in stocks, bonds, or other investment secur- 
 ities, except bonds and notes of the Government of 
 the United States ; and must not be a bill the pro- 
 ceeds of which have been used or are to be used for 
 permanent or fixed investments of any kind, such 
 as land, buildings, or machinery, or for investments 
 of a merely speculative character. 
 
 (Regulations of Federal Reserve Board, Regulation B, 
 Series of 1917, II.) 
 
 Opinions and Rulings 
 
 An instrument in the form of a bill of exchange, Draft drawn 
 drawn by an agent of a corporation upon the cor- £° agent™* 10 " 
 poration itself, is not a bill of exchange such as is 
 eligible for purchase in the open market by Federal 
 reserve banks. 
 
 (Opinion of Counsel, Page 462, September, 1916, Bulletin.) 
 
 The fact that a land company has stamped a bill ^"J J™ e ^ 
 a trade acceptance and has signed such statement as no value, 
 "acceptor" does not in itself make it a trade accept- 
 ance. The bill was accepted by the bank and not 
 by the land company and is therefore not eligible 
 for purchase under the regulations which require a 
 bill to be accepted by the drawee. 
 
 (Informal Ruling, Page 112, March, 1916, Bulletin.) 
 
 For additional rulings, see, under "Rediscount of Drafts and 
 Trade Acceptances," pages 83-84, above. 
 
Commercial Banking Practice 
 
 EVIDENCE OF ELIGIBILITY AND RE- 
 QUIREMENT OF STATEMENTS 
 
 Regulations of Federal Reserve Board 
 
 A Federal reserve bank shall take such steps as 
 it deems necessary to satisfy itself as to the eligibil- 
 ity of the bill offered for purchase, unless it presents 
 prima facie evidence thereof or bears a stamp or 
 certificate affixed by the acceptor or drawer show- 
 ing that it is a trade acceptance. 
 
 Unless indorsed by a member bank, a bill is not 
 eligible for purchase until a satisfactory statement 
 has been furnished of the financial condition of one 
 or more of the parties thereto. 
 
 (Regulations of Federal Reserve Board, Regulation B, 
 Series of 1917, III.) 
 
 Opinions and Rulings 
 
 The fact that a land company has stamped a bill 
 a trade acceptance and has signed such statement 
 as "acceptor" does not in itself make it a trade ac- 
 ceptance. 
 
 (Informal Ruling, Page 112, March, 1916, Bulletin.) 
 
 MATURITY 
 
 Statutory Provisions 
 
 Any Federal reserve bank may . . . purchase 
 and sell . . . bills of exchange of the . . . maturi- 
 ties by this Act made eligible for rediscount. 
 
 (Federal Reserve Act, Section 14.) 
 
Open Market Transactions 127 
 
 Regulations of Federal Reserve Board 
 
 To be eligible for purchase, the bill must have 
 ... a maturity at time of purchase of not more 
 than 90 days, exclusive of days of grace. 
 
 (Regulations of Federal Reserve Board, Regulation B, 
 Series of 1917, III.) 
 
 For additional rulings see, under "Rediscount of Drafts and 
 Trade Acceptances," pages 85-86, above. 
 
INDEX 
 
 PAGES 
 
 Acceptance agreements, duration of 13-15, 21-22, 36 
 
 Acceptance, bank, defined 9, 99, 118 
 
 Acceptance corporation, rediscount of acceptances of 103 
 
 Acceptance credits, syndicate 14-15 
 
 Acceptance defined 9 
 
 Acceptance house, rediscount of paper of 103 
 
 Acceptance policy of Federal Reserve Board: 
 
 General statement 13-14 
 
 Relative to syndicate acceptance credits 14-15 
 
 Acceptance, trade, defined 9, 78-79, 123 
 
 Acceptances, bank: 
 
 Based on domestic shipments of goods 33-37 
 
 Actual security, what constitutes 24 
 
 Actual transaction must be involved 34 
 
 Amount bank may accept 23-25, 36-37 
 
 Bill of lading does not necessarily render draft eligible 34 
 
 Character, statutory provisions governing 33 
 
 Duration of letters of credit 36 
 
 Eligibility not dependent on security alone 34 
 
 Maturity 34, 35-36 
 
 Purchase of bank's own acceptance 37 
 
 Release of shipping documents 34-35 
 
 Sale of goods not required to be involved 34 
 
 Shipment from principal to agent 34 
 
 Shipping documents in possession of bank's agent 33 
 
 Shipping documents must convey title 33 
 
 U. S. Revised Statutes, section 5202, limitations of, not applicable to 
 
 bank acceptances 37 
 
 Based on imports and exports 16-28 
 
 Acceptance at instance of exporter 18 
 
 Acceptance prior to purchase or sale 19-20 
 
 Acceptances in addition to loans 25 
 
 Actual security, what constitutes 24 
 
 Amount bank may accept 23-28 
 
 Bullion as goods 21 
 
 Coin as goods 21 
 
 Delay in shipment immaterial 19 
 
 Drafts accepted at instance of exporter 18 
 
 Drafts against collateral of acceptances 20 
 
 Drafts drawn under contracts independent of export transaction 17 
 
 Duration of acceptance credits 21-22 
 
 Exemption from ten per cent limit 23-24 
 
 Export contract not fulfilled 19 
 
 Foreign correspondents, acceptances by, under guarantee 27 
 
 Future importations of goods 19 
 
 General summary of limitations upon 28 
 
 Good faith a test in determining character 16 
 
 Goods defined 21 
 
 Guarantee, acceptances by foreign correspondents under 27 
 
 Identification of specific goods not required 16 
 
 Limitation on bank's liabilities, not applicable to acceptances 27 
 
 Limitation on loans to one borrower 24-25 
 
 See also U. S. Revised Statutes, section 5200 
 
 Loans up to ten per cent limit, acceptances in addition to 25 
 
 Maturity 21-22 
 
PAGES 
 
 Acceptances, bank— continued . 
 
 Based on imports and exports— continued 
 
 Option in method of securing acceptances * 
 
 Permission to accept not required. • • • • • ■ • ■ • 
 
 Permission to accept to amount of capital and surplus, application for 26 
 
 Proof of assurances as to character 
 
 Purchase of bank's own acceptances . . . • • 
 
 Purchase of goods subsequent to acceptance ot dratt £» 
 
 Renewal of acceptances • 18 
 
 Sales to allied purchasing commission. 
 
 Secured bills exempt from ten per cent limit *jj 
 
 Statutory provisions governing ■ 
 
 Transaction must itself involve import or export • • • • • " 
 
 Transactions independent of import or export transaction, not sut- ^ 
 
 ficient basis p ^ 
 
 Trust receipts as actual security • 
 
 Ultimate export of goods, not sufficient basis 
 
 U S. Revised Statutes, section 5200, limitations of ** ™ 
 
 U. S. Revised Statutes, section 5202, limitations of *^ 
 
 Executed to furnish dollar exchange 31-32 
 
 Amount bank may accept. 32 
 
 Limitation on bank's liabilities 
 
 Maturity, statutory provisions governing 
 
 Permission to accept, application for n-12 
 
 General statutory provisions / • ;' ' i 43-46 
 
 Investment in acceptances by member banks 
 
 Acceptances as commercial or business paper ** 
 
 Actually existing value, bills drawn against * 3 * 
 
 Bills discounted after removal of documents 
 
 Bills discounted before or after acceptance *° 
 
 Bills of exchange include bank acceptances. 
 
 Bills secured by shipping documents or goods * 
 
 Purchase or discount of acceptances 46 
 
 Reissuance of purchased acceptance • ■ . -, fi 
 
 U. S. Revised Statutes, section 5200 * 5 > ^ _*° 
 
 Secured by warehouse receipts oVoV w-<*7 42 
 
 Amount bank may accept 23 ~ 25 ' 6b 6i > ^ 
 
 Bill of sale not eligible security 39 
 
 Control of warehouse by acceptor 4Q 
 
 Custodian of wool, receipts issued by SS-U 
 
 Eligible security ' 41 _ 42 
 
 Ineligible security 35-36, 42 
 
 Maturity m 35' 42 
 
 Release of warehouse receipts ' 42 
 
 Security not specified • 42 
 
 Substitution of warehouse receipts 40 
 
 Sugar in bond, acceptances against 
 
 Warehouse receipts: SR-39 
 
 Issued by independent warehouses M 3g 
 
 Issued by lessee 11-12 
 
 Statutory provisions " 1 ^_ 15 
 
 Syndicate acceptance credits _ • • • • 
 
 See also Acceptance policy of Federal Reserve Board 
 
 Use of bank acceptances 38-42 
 
 Warehouse receipts, acceptances secured by 
 
 See also Acceptances, bank, Secured by warehouse receipts 
 
PAGES 
 
 Acceptances, trade: 
 
 Definition of 9, 78-79, 123 
 
 Must be accepted by drawee 78 
 
 Open market transactions in 123-127 
 
 See also Open market transactions, Bills of exchange and trade accept- 
 ances 
 
 Place of payment of trade acceptance 78 
 
 Rediscount of 76-89 
 
 See also Rediscount of. Drafts and trade acceptances 
 
 Actually existing value, what constitutes 44-45, 87-89 
 
 Advances by Federal reserve banks on promissory notes of member banks. .109-111 
 
 ( bilateral 109-110 
 
 County warrants not eligible collateral 110 
 
 Farm loan bonds not eligible collateral 110 
 
 Indorsement of collateral 110 
 
 Maturity ? HI 
 
 Renewals of member banks' notes Ill 
 
 General statutory provisions 109 
 
 Security for advances 109-110 
 
 Sunday or legal holiday, notes due on Ill 
 
 Advertising space, trade acceptances based on 82 
 
 Agricultural paper, rediscount of 90-95 
 
 See also Rediscount of, Agricultural paper 
 Assignment of open accounts, ineligible for rediscount 58 
 
 Bank acceptance defined 9, 99, 118 
 
 Bank acceptances, see Acceptances, bank 
 
 Bill of exchange, definition of 76-78, 123 
 
 Bill of lading, draft secured by 34 
 
 Bill of sale, not eligible as security for bank acceptance 41, 120 
 
 Bills of exchange: 
 
 Drawn against actually existing value 87-89 
 
 Include bank acceptances 44 
 
 Open market transactions in 123-127 
 
 See also Open market transactions, Bills of exchange and trade accept- 
 ances 
 
 Payable elsewhere than in the United States, rediscount of 104 
 
 Presentment for acceptance 76 
 
 Rediscount of 76-89 
 
 See also Rediscount of, Drafts and trade acceptances 
 
 Broker's paper, discount of 63 
 
 Cattle paper, see Chattel mortgages 
 
 Chattel mortgages, as security for agricultural paper 92 
 
 Chattel mortgages, bank acceptances against 41, 104 
 
 Collateral notes: 
 
 Eligibility for rediscount 57, 59-60, 63-64 
 
 Not eligible security for bank acceptances 41 
 
 See also Advances by Federal reserve banks, Collateral 
 
 Collateral trust notes, ineligible for rediscount 64 
 
 Collection charges, bills payable with 64 
 
 Commercial or business paper, bank acceptances as 44-45 
 
 Commodity paper : 
 
 Definition 96-97 
 
 Eligibility for open market purchase 116, 117 
 
 See also Rediscount of, Commodity paper 
 Cotton mill paper, rediscount of 66 
 
PAGES 
 
 County warrants not eligible as collateral for advances 110 
 
 Demand notes and drafts ineligible for rediscount 67 
 
 Demand, notice, and protest, waiver of 73, 70-77 
 
 Discount of acceptances 24-25, 44-46 
 
 See also Acceptances, bank, Investment in 
 
 Documents, shipping 33-35, 44 
 
 Dollar exchange 29-32 
 
 See also Acceptances, bank, Executed to furnish dollar exchange 
 Domestic shipments, bank acceptances based on 33-37 
 
 See also Acceptances, bank, Based on domestic shipments 
 
 Drafts accepted by foreign correspondents under guaranty 23 
 
 Drafts against collateral of acceptances 20 
 
 Drafts and bills of exchange 76-89, 123-127 
 
 See also Open market transactions, Bills of exchange, and Rediscount 
 of, Drafts and trade acceptances 
 
 Drafts secured by bill of lading , 34 
 
 Drafts to finance capital requirements 84 
 
 Drawee 78 
 
 Export contract, acceptances against 19 
 
 Finance companies, rediscount of paper of 63 
 
 Food products, rediscount of paper secured by 60 
 
 Foreign transactions as basis for trade acceptances 79, 82, 83 
 
 Goods defined 21, 80, 103, 119, 124 
 
 Holidays, legal, notes due on HI 
 
 Imports and exports, bank acceptances based on 16-28 
 
 See also Acceptances, bank, Based on imports and exports 
 
 Indorsement 73, 74, 102, 106, 110 
 
 Investment in bank acceptances by member banks 43-46 
 
 See also Acceptances, bank, Investment in 
 
 Letters of credit, duration of • • 21-22, 36 
 
 Liberty bonds, loans on, may be exempted from ten per cent limit 43 
 
 Limitation on bank's liabilities: 
 
 Not applicable to acceptances 27, 32, 37 
 
 Not applicable to rediscounts with reserve banks 72-73 
 
 See also U. S. Revised Statutes, section 5202 
 Limitation on loans to one borrower 43 
 
 See also U. S. Revised Statutes, section 5200 
 
 Limitation on rediscount of paper of one maker or indorser 68-72, 87-89 
 
 Live stock defined 00 
 
 Loans to individuals, Federal reserve banks do not make 57 
 
 Loans to ten per cent limit, bank acceptances in addition to 25 
 
 Maturity, see under appropriate class of paper 
 Mortgages, see Chattel mortgages and Collateral notes 
 
 Non-member banks, rediscount for 61, 73-75 
 
 Notes of member banks, advances by Federal reserve banks on 109-111 
 
 See also Advances by Federal reserve banks 
 
 Notes, promissory, not eligible for purchase in open market 116-117 
 
 Notes, promissory, rediscount of 56-75 
 
 See also Rediscount of, Notes, promissory 
 
 Open accounts 68, 81 
 
PAGES 
 
 OpenniarkettTansactiOTS^ 
 
 - r Bankaccep'tances, Transactions in 118-122 
 
 Based on domestic shipments 119 
 
 Based on imports and exports 118 
 
 Drawn to furnish dollar exchange 119 
 
 Eligible bank acceptances 118-120 
 
 . Evidence of eligibility and requirement of statements 121 
 
 ^r» 4 Ineligible bank acceptances 120 
 
 Maturity 121-122 
 
 Secured by goods sold 119 
 
 Secured by warehouse receipts 119 
 
 Unsecured acceptances 120 
 
 \ Bills of exchange and trade acceptances, transactions in 123-127 
 
 Bill of exchange defined 123 
 
 Conditions of eligibility 123-124 
 
 Definitions 123 
 
 Eligible bills and trade acceptances 123-124 
 
 Evidence of eligibility and requirement of statements 126 
 
 Ineligible bills and trade acceptances 125 
 
 Maturity 126-127 
 
 Commodity paper, eligibility of 117 
 
 Notes, promissory, not eligible for 116-117 
 
 Place of payment of trade acceptance 78 
 
 Presentment of bills for acceptance 76 
 
 Purchase of bank acceptances by member banks 24, 2.5, 44-46 
 
 See also Acceptances, bank, Investment in 
 Purchase of bank acceptances by reserve banks 118-122 
 
 See also Open market transactions, Bank acceptances 
 Purchase of bank's own acceptance 24, 25, 45-46 
 
 Rediscount of: 
 
 Agricultural paper 90-95 
 
 Amount redisconntable by a Federal reserve bank 94-95 
 
 Cattle dealers' notes 90 
 
 Cattle for breeding, grazing, or fattening 93 
 
 Cattle mortgages 92 
 
 Chattel mortgages 92 
 
 Conditions of eligibility 91 
 
 Dairy cattle, notes for 92 
 
 Dealers, notes of 90 
 
 Definition of agricultural paper 90-91 
 
 Discount may be by either maker or indorser 93 
 
 Eligible agricultural paper 91-94 
 
 Farm tractors, notes for 93 
 
 Farmers' notes 93 
 
 Fertilizer, notes for 92 
 
 Livestock paper 90 
 
 Packing company, note of 91 
 
 Statutory provisions governing agricultural paper 49, 91 
 
 Bank acceptances 99-106 
 
 Acceptance corporation, acceptances of 103 
 
 Bills payable outside United States 104 
 
 Chattel mortgages not eligible security 104 
 
 Definition of bank acceptance 99-100 
 
 Differential rate for member bank acceptances 103 
 
 Drafts not payable at reserve banks 102 
 
PAGES 
 
 Rediscount of — continued 
 
 Bank acceptances— continued g9 
 
 Eligible acceptors ' „„_,„« 
 
 Eligible bank acceptances i!u_in« 
 
 Evidence of eligibility 102 106 
 
 Indorsement ' -^ 
 
 Ineligible bank acceptances 1Q5 
 
 Maturity ' ' qq_i qo 
 
 Negotiability, conditions of 
 
 Payment at Federal reserve bank J 05 
 
 Renewals, rediscount of • 1 „ 
 
 Warehouse receipts of independent warehouses ^™ 
 
 Commodity paper g 7 
 
 Conditions of eligibility 96-97 
 
 Defined ',''•' j Q8 
 
 Direct discount for firms not authorized »° 
 
 Eligible commodity paper 9g 
 
 Special rate, suspension of 96 
 
 Staples defined ' 7 g_gg 
 
 Drafts and trade acceptances 7g 
 
 Acceptance by drawee , «7_8Q 
 
 Actually existing value, what constitutes °' °» 
 
 Advertising space, acceptances based on & 
 
 Amount rediscountable for one bank 76-79 
 
 Definitions gg 
 
 Demand drafts ineligible 7Q-83 
 
 Eligible drafts and trade acceptances ^_° 5 
 
 Evidence of eligibility 76 g6 
 
 Extension of time • 79' 83 
 
 Foreign shipments, acceptances based on » 
 
 Future purchases, acceptances based on ^ g9 
 
 Indorsement of member banks cq'_«4 
 
 Ineligible drafts and trade acceptances °^_° 6 
 
 Maturity ' 77.70 
 
 Negotiability of drafts and trade acceptances. " '° 
 
 Open accounts, acceptances used in liquidation ot gg 
 
 Qualified acceptances 73-75 89 
 
 Rediscount for non-member banks. ••••••••• 80 
 
 Retail transactions, trade acceptances based on 
 
 Stamp "trade acceptance" has no value 5g _ 75 
 
 Notes, promissory ' 56 
 
 Agricultural paper • ■ • • ■ ■ fi«_73 
 
 Amount rediscountable for one member bank ^J™ £ 
 
 Collateral notes 56* 57 
 
 Commercial paper ' ^g 
 
 Commodity paper 56 
 
 Definition g7 
 
 Demand Jnotes ineligible 56-61 
 
 Eligible classes of notes «*_«« 
 
 Evidence of eligibility and requirement of statements oo do 
 
 Farmers' notes 62 
 
 Fixed investments, notes for, not eligible ^ 
 
 Indorsement of member banks 62-64 
 
 Ineligible classes of notes ■ 
 
 Liberty bonds, notes to replace funds for purchase of ^w 
 
 Maturity 
 
Rediscount of — continued pages 
 
 Notes, promissory — continued 
 Non-member banks: ji 
 
 Paper acquired from or indorsed by 61, 74 
 
 Rediscount for 73-75 
 
 Note of acceptance house or broker 63 
 
 Notes based on production and distribution of goods 58 
 
 Open accounts, assignment of 58 
 
 Rediscounted paper not limited by U. S. Revised Statutes, section 5202 72 
 
 Renewalnotes 58, 62 
 
 Secured notes 59-61 
 
 State member banks, rediscounts by 69, 72 
 
 Statements, requirement and interpretation of 65-66 
 
 U. S. obligations, notes based on or secured by 56-57, 60-61 
 
 War Finance Corporation bonds, notes secured by 57, 60-61 
 
 Trade acceptances, see Drafts and Trade acceptances 
 
 Rediscounts with Federal reserve banks 49 /~ 10 .6 
 
 General regulations governing 53-55 
 
 General statutory provisions 49-52 
 
 Reissuance of acceptances . 46 
 
 Release of shipping documents and warehouse receipts 35 
 
 Renewal of bank acceptances 22 
 
 Renewal of member banks' notes for advances Ill 
 
 Retail transactions as basis for trade acceptances 80 
 
 Security, actual, what constitutes 24 
 
 Security eligible for acceptances 38-41 
 
 Single name paper ineligible for purchase in open market 116-117 
 
 Staples defined 96 
 
 State member banks, rediscounts for _ 69, 72 
 
 Statements, requirement of 05-66, 121, 126 
 
 Substitution of warehouse receipts 42 
 
 Sunday or legal holiday, notes due on Ill 
 
 Syndicate acceptance credits 14-15 
 
 See also Acceptances, bank, Syndicate acceptance credits 
 
 Trade acceptances 76-89, 123-127 
 
 See also Acceptances, trade 
 
 Transactions, acceptances must be based on actual 34 
 
 Trust receipts as actual security 24 
 
 U. S. Government, sales to, not basis for commodity paper 97 
 
 U. S. obligations eligible collateral for member banks' notes 109-110 
 
 U. S. obligations, rediscount of paper secured by 50, 60-61 
 
 U. S. Revised Statutes, section 5200 (ten per cent limit on loans) 2 fc-25, 13-46, 71 
 
 U. S. Revised Statutes, section 5202 (limit on liabilities of bank) 27, 32, 37, 72-73 
 
 Use of bank acceptances 9 
 
 Warehouse receipts: 
 
 Bank acceptances secured by 38-42 
 
 See also Acceptances, bank, Secured by warehouse receipts 
 
 Release of 35 
 
 Substitution of 42 
 
 War Finance Corporation bonds: 
 
 Advances on member banks' notes secured by 109 
 
 Rediscount of paper secured by 57, 60-61, 80 
 
 War savings stamps, paper secured by, ineligible for rediscount 63 
 
National Bank of Commerce 
 in New York 
 
 ORGANIZED 1839 
 
 President 
 James S. Alexander 
 Vice-Presidents 
 R. G. Hutchins, Jr. John E. Rovensky 
 
 Herbert P. Howell Faris R. Russell 
 
 J. Howard Ardrey Guy Emerson 
 
 Stevenson E. Ward Louis A. Keidel 
 
 Cashier 
 Richard W. Saunders 
 Assistant Cashiers 
 A. J. Oxenham Everett E. Risley 
 
 William M. St. John H. P. Barrand 
 
 A. F. Maxwell H. W. Schrader 
 
 John J. Keenan R. E. Stack 
 
 Gaston L. Ghegan L. P. Christenson 
 
 A. F. Brodenck E. A. Schroeder 
 
 R. H. Passmore 
 
 Statement of Condition 
 
 November 1, 1918 
 
 RESOURCES 
 
 Loans and Discounts $307,609,266.34 
 
 Overdrafts, secured and unsecured - 34,717.82 
 
 U. S. Certificates of Indebtedness and Liberty Bonds - 96,560,090.37 
 
 Other Bonds and Securities ------ 10,034,212.13 
 
 Stock of Federal Reserve Bank ----- 1,200,000.00 
 
 U. S. and Other Bonds Borrowed 24,689,450.00 
 
 Bonds Loaned - ------- 50,000.00 
 
 Banking House - ------- 2,000,000.00 
 
 Due from Banks and Bankers ----- 5,041,141.05 
 
 Checks and other cash items - - - - _ 3,262,846.30 
 
 Exchanges for Clearing House ----- 49,315,517.36 
 
 Cash in Vault and Net Amount Due from Fed. Res. Bank 46,487,833.87 
 
 Interest Accrued - ------ - 1,464,253.05 
 
 Customers^ Obligations a/c Bank's Contingent Liability 1,440,000.00 
 Customers' Liability under Letters of Credit and Acceptances 42,210,499.09 
 
 $59U99,827.38 
 
 LIABILITIES 
 
 Capital Stock paid In ------- $25,000,000.00 
 
 Surplus Fund --- 15,000,000.00 
 
 Undivided Profits, less expenses and taxes paid - - 9,376,660.45 
 
 Reserved for Taxes, etc. ------- 3,096,833-25 
 
 Dividends unpaid - ------- 17,525.00 
 
 Letters of Credit 10,098,242.26 
 
 Acceptances executed for Customers - - - _ 32,591,498.60 
 
 Deposits 379,835,997.64 
 
 U. S. and Other Bonds Borrowed 24,689,450.00 
 
 Unearned Discount ------- 1,726,110.99 
 
 Bills Payable with the Federal Reserve Bank - - 88,000,000.00 
 
 Liabilities other than those above stated - 1,967,509.19 
 
 ^59139,827^8 
 

OJV 
 
 Tfrs 
 
 
387333 
 
 +> ,* L 
 
 UNIVERSITY OF CALIFORNIA LIBRARY