frsbog_mim_v10_0230.pdf
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F EDERAL
E ~ ~ ' . i i j i V ~
B O , A R D
STATEMENT
FOR
THE
PRESS
X-1478
For
i n r u ~ d i a t e
release
Wednesday,
April
16,1919.
The F e d e r ~ l Reserve Bod.rd ~ k e s public
the following
instructions to
F e d e r ~ l
Reserve Eunks, b e ~ r i n g on the rediscount of ~ p e r secured
by
Government obligations.
: ',•.
· Section 3 of
the
Act dpproved NJa.rch 3,1919, a.mends Section 11
of the Federal
Reserve
Act by the substi tution of a new s u ~ s e c t i o n (m)
which
r ~ d s d.S follows:
"(m) Upon the affirmative vote of not
less
than five of
i t s ruembers the Federal Reserve Boa.rd s ~ l l hd.ve
·power
to
pennit Federa-l Reserve
banks to discount
for any
member
bank notes, draf t s or bi l l s
of
exchange bea.ring the s i g ~ t u r e
or indorsement of <J.ny one borrower
n excess
of the .:mount
perndtted by
section
nine
and
sect ion
th ir teen of th is Act,
but
in no
ca.se to
exceed twenty
per centum
of
the member
bank
ls ca.pitd.l dll
d
surplus:
Provided, however, Thd.t a l l
such
notes,
dra.fts,
or
b i l l s
of
e c ~ g e discounted for ~ member
bank in excess of
the d.IDO\.:.-nt
permitt•ed under such sections
shal l
be secured y not less tl:lan
a.
l ike face dmount of bonds
or
notes
of
the
United
States
issued since
Ap:..•il
twer.tyfourth,
nineteen
hundred
ani
seventeen,
or
certifica.tes
of
indebtedness
of
the United
Stc:4.tes: Provided
further,
Tha.t the provisions of
th i s subsection (m) s ~ l l not be operative
af ter
December thi r ty
f i r s t nineteen hundred ~ d twenty.w
Under
the
provisions of this Section,
F e d e r ~ l Reserve
~ n k s
are
permitted
upon
the affirmative vote of not
less tb.Jn
five members of the
: F e d e r c : ~ l
Reserve
B o ~ r d
to rediscount
far
any
one member bank,
notes, d r4 t s
or bi l l s of exchange of any one borrower in
excess
of those
l imits
now i ~
posed by Sections 9 <J.nd 13
of
the
Federal
Reserve
Act,
provided
that
the
aggregate
in
no
ca.se
shal l
exceed twenty per cent and provided t ut a.rq
rediscounts
over
a.nd
above ten per cent
sha.llbe
secured
by
Government
obligat ions
of
the
kinds
specified.
The interpretd.tion of this clmendment is very clea.r .as
to re
discounts
for
na.tiond.l member bQI.nks
ani
the
only
question which might a-rise
is as
to
whether
or
not the power to rediscount a.n addit ional ten per cent
of pil.:per
secured by the
p ~ r o p e r Government
obligat ions
ap,Plies
to the
ca.se
of a. State membel bank which under the Stc;at e
l.:t.w
ha.s alre..3.dy loaned. under
the regular l ine of
credit
n
excess of
ten per
cent to one borrower.
Section
9, independent
of the amendment • provides in substance
tha.t
i a.
State bank
ha.s loaned in
excess
of ten per cent to d n::f one borrower,
the
F e d e r c : ~ l
Reserve
b a ~
ca.nnot
rediscount
for that
bank
any
of
the paper of
that
borrower, but
i
on
the
other ha.nd i t
has
not loa.ned in excess Oil
ten
percent
then
the State meniber b.,j.nk
sh.l.ll
be a.fforded
the
reguld.r rediscount
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.
privileges conferrad by Section
13
EQ
12
the
l imits
set forth in Section
lJ.
The amendlr,ent
of
March 3,1919, confers powers in excess of the z:mount
set forth in Sections 13 so that in
order.
to
give
ful l
force to th?.t
part
of the
language which refers to
Section 9 i t
must
be
interPreted to r n a ~
that even though the State member
bank
has loaned in excess of ten
per
cent to
one
borrower under
his
regular
l ine
of
credit ,
nevertheless
the
Federal
Deserve bank rra y rediscount paper
of
that borrower which
is
secured by the
Government
obligat ions
of the kind
specified,
provided that
the age:regate
of
al l
rediscounts does
not exceed
twenty
per
cant
of
the
meu;ber
bank's
ce:.pital
and surplus.
f
t
were intended to
authorize Stc:.te member bc.nks
to
rediscount
with
their Federal
Reserve banks,
paper secured by Government
o',:,ligations
onll n
the
case where the Stc:te
bank h.:.s
loaned
less
than
ten ·oer cent under
i t s
regular
l ine
of
credit , there
could h v e ~ no p u r ~ o s in referring to
Section 9 in
the
amendrrent.
The Board therefore rules under authority ~ n t e d in
this
amendment that
the Federal
~ e s e r v e
banks may
rediscount unt i l
Decenber 31,1920 for w t ional
and
state
member banks. paper secured by not less
t h ~
a l ike
f ~ c e
amount
of
bonds
or notes
of
the
United
States
issued since
April
24,1917,
or
cer t i f ica tes
of indebtedness
of
the United States, without regc..rd to the an;ount the
borrowing
bank rray have
already
loaned to i t s borrower under
his
regular l ine
of credit; provided, however, that the ag?regate of ~
rediscounts
must in
no case
exceed
twenty per
centum of the
capital and surplus
of the
n;err,ber bank,
I l l ~ s t r a t i o n : The resul t in a specific
case would
be as follows:
Stc:.te member bank A
has loaned
f i f teen
per cent
to X on
his
regular
l ine
of
credit
and
f i f teen
per
cent
to
X
on
the
securi ty
of
Government
obligat ions
of
the kindsspecified. What
and
how much m i ~ h t
the
reserve
bank rediscount of these
items? The regular l ine being in excess of ten per cent. ,
Section
9 applies
n d ~ of that paper
may
be rediscounted but the amendrr:ent of March
3,1919,
authorizes the rediscount
of
paper in 'excess" of what co..Ud
have
been
re
discounted
heretofore under Section
9
provided f i r s t t h ~ t the excess be
secur-nd y Government obligat ions of the kinds specified and -provided second,
that the
ag.p;-egate
in
no event
~ l l
exceed twenty ~ . ~ e n \ < ~ : ; . l
tne c :: se
su.pposed
therefore, the reserve bank
could take
al l f i f teen per cent of
the
paper seeured
hy the Gov3rnn:ent
obligat ions
but none
of the
paper tDken
in
X' s regular
l ine
of
credit .
f the
commercial l ine had been nine per cent . , for instance,
the
reserve
b ~
could
rediscount
al l
of the nine
per cent
and
in
addit ion
eleven per
cent
of the paper secured by Government oblig&tions, rraking a total
of
twenty
per
cent
of
the capital and s ~ l u s of the member bank. n