frsbog_mim_v36_0246.pdf

246 FEDERAL RESERVE BOARD

WASHINGTON ADDRESS OFFICIAL C O R R E S P O N D E N C E T O

T H E FEDERAL R E S E R V E B O A R D

X-7115

March 10, 1933.

SUBJECT: Advances to member banks under SectionslO(a) and 10(b) of the Federal Reserve Act, as amended February 27, 1932.

Dear S i r :

In view of the f a c t that advances to member banks under

the provis ions of Sections 10(a) and 10(b) of the Federal Reserve

Act, as amended by the Act of February 27, 1932, w i l l be l imi ted

to cases where t he r e are condit ions of an unusual and temporary

cha rac t e r , the Federal Reserve Board has not p rescr ibed any regu-

l a t i o n s governing such advances but " i l l consider each case sepa-

r a t e l y and w i l l decide , on the bas i s of the f a c t s and circumstances

in each p a r t i c u l a r case, whether or not to permit the Federal re -

serve tank to make the advance appl ied f o r .

However, i n order that the member banks may be informed of

the provis ions of these sect ions and of the procedure contemplated

thereunder , a committee of o f f i c e r s of Federal rese rve banks

appointed pursuant to ac t ion taken by the Conference of Governors

of Federal rese rve banks held in Washington on February 24 and 25,

1932, has prepared , with the a s s i s t ance of counsel , a c i r c u l a r

Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

X-7115 ( 2 4 7

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l e t t e r to be seht by the Federal reserve "banks to a l l member

banks as soon as p o s s i b l e .

While i t would seem that the law would permit the Board !

to grant blanket consent f o r Federal reserve banks to make loans

under the provis ions of Section 10(a) , the Board p r e f e r s f o r the

present a t l e a s t to consider each case sepa ra te ly ; and the law

requ i re s separa te ac t ion by the Board in the case of each

s p e c i f i c loan under the terms of Section 10(b). Before making

any loan or any renewal or extension thereof under the provis ions

of e i t he r s e c t i o n , t h e r e f o r e , the Federal reserve bank should ob-

t a i n the Board's consent .

The Board i s prepared to give prompt cons idera t ion to any

app l i ca t i on received under these sec t ions . Each request f o r i t s

permission to make such an advance must include a recommendation

of the Federal r e se rve bank and should contain the fol lowing i n -

format ion:

A. Name and loca t ion of borrowing bank.

B. Capital s tock .

C. Surplus and undivided p r o f i t s .

D. TCiether the bank which i s to rece ive the proceeds of the loan has an adequate amount of e l i g i b l e and acceptable a s se t s to enable i t t o obtain s u f f i c i e n t c red i t accommodations from the Federal reserve "bank under other provis ions of the Federal Reserve Act.

E. Amount of the loan applied f o r .

F. Maturity of loan applied f o r .


248 X-7115

b

G. Proposed r a t e .

H. Nature and f ace amount of s ecu r i t y o f f e r e d .

I . Total deposi ts of borrowing t ank .

J . Total amount of rediscounts and other "borrowings ( including repurchase agreements) from Federal reserve "bank, exclusive of t h i s loan.

K. Amount of rediscounts and "borrowings ( including repurchase agreements) from o the r s .

L. Concise statement of exceptional and exigent c i r -cumstances which occasioned the a p p l i c a t i o n , together with any other f a c t s having a t e a r i n g upon the case .

M. Whether the app l ica t ion i s f o r a loan under Section 10(a) or Section 10(b) .

N. In the case of loans appl ied f o r under Section 10(a) , name and address of each p a r t i c i p a t i n g bank and the amount of l i a b i l i t y assumed by i t , together with the na ture and f ace amount of add i t iona l s e c u r i t y , i f any, required of i t .

When the information i s t ransmi t ted by t e legraph , each item

l i s t e d above may be indica ted by us ing the l e t t e r preceding such

i tem, i n l i e u of s t a t i n g the text of the quest ion.

The Board has not prescr ibed any l i m i t a t i o n on the aggre-

gate amount of such loans which may be made by any Federal reserve

bank; b u t , i n a c t i n g upon requests f o r i t s permission to make such

loans , w i l l give cons idera t ion , among other t h ings , to the aggre-

gate amount of such loans which the Federal reserve bank has

outs tanding.

In making loans to groups of banks under Sect ion 10(a) ,

the Federal r e se rve bank should r equ i re the t r u s t e e r ep re sen t -

ing the group of banks to pledge with the Federal reserve bank


x - 7 1 1 5 . 2 4 9 4

the note of each 'bank which i s to receive the proceeds of the

loan and the s ecu r i t y t h e r e f o r . The Federal reserve "bank

should assure i t s e l f tha t the t r u s t e e has been proper ly au-

thor ized to pledge such note and secur i ty to the Federal r e -

serve "bank. In add i t ion to the note of the "borrowing "bank and

such secur i ty as i t may provide, the Federal reserve "bank may,

i f i t deems i t adv isab le , requ i re the other members of the

group to give such other secur i ty as the Federal reserve bank

may consider necessary f o r i t s p ro t ec t i on .

In the absence of regu la t ions and in order to insure

uni formi ty of procedure, the Federal Reserve Board has approved

the inclosed c i r c u l a r fo r use by the Federal reserve banks. I t

K i l l be observed tha t the Board has made c e r t a i n modif ica t ions

i n the proposed c i r c u l a r which was t ransmit ted to the Governors

with the Committee's repor t of March 6, 1932. If any Federal r e -

serve bank d e s i r e s to make any f u r t h e r changes, i n order to conform

to loca l condi t ions or p r a c t i c e s , i t should communicate with the

Federal Reserve Board and obtain i t s approval be fore t r ansmi t t ing

the c i r c u l a r to member banks. The Board w i l l give prompt considera-

t i o n to such changes.

This l e t t e r i s so le ly f o r the information and guidance of

the Federal r e se rve banks.

Very t r u l y yours,

Chester Morri11, Secre ta ry .

I n c l o s u r e .

TO GOVERNORS OF ALL F. R. BAEKS. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

I 250 X- 7X15—a

CIRCULAR LETTER MOM FEDERAL RESERVE BAMS TO THEIR MEMBER BANKS

Subject : Amendment to Federal Reserve Apt "by Act of Congress approved February 27, 1932.

The Act of February 27, 1932, adds two new sec t ions to the

Federal Reserve Act, Section 10(a) and Section 10(b) . Section 10(a)

au thor izes the making of loans to groups of member banks and i s a

permanent p rov i s ion , whereas Section 10(b) au thor izes u n t i l March 3,

1933, advances to ind iv idua l member banks having a c a p i t a l s tock not

exceeding $5,000,000 each. Under both sec t ions , the banks rece iv ing

the proceeds of such advances must be without adequate amounts of e l i -

g ib le and acceptable a s s e t s to enable them to obtain s u f f i c i e n t c r ed i t

accommodations from the Federal Reserve Banks under o ther provis ions

of the Federal Reserve Act.

The f u l l t ex t of these two sect ions of the Federal Reserve

Act i s p r i n t e d a t the end of t h i s c i r c u l a r .

In view of the f a c t that i t i s contemplated tha t app l i ca t ions

f o r such advances w i l l be made only in -unusual circumstances, the

Federal Reserve Board has not prescr ibed any regu la t ions governing such

advances, bu t , f o r the information of a l l member banks, the p r i nc ipa l

requirements of the law are analyzed and the general procedure contem-

p la t ed thereunder i s ou t l ined below.

SECTION 10(a) ADVANCES TO GROUPS OF MEMBER BANKS

This sec t ion provides in e f f e c t t h a t , upon rece iv ing the con-

sent of not l e s s than f i v e members of the Federal Reserve Board, any

Federal Reserve Bank may make advances, in such amount as the board of


»2u X-7115-a

d i r e c t o r s of such Federal Reserve Sanjc may determine, upon the fol lowing

condi t ions ;

(a) .Advances may "be made on the promissory notes of groups of f i v e or more member banks within the d i s t r i c t of the loaning Federal Reserve Bank, a ma jo r i ty of them indepen-dent ly owned and cont ro l led ; except tha t advances may be made to a l e s s e r number of such member banks (but not l e s s than two) i f the aggregate amount of t h e i r deposi t l i a b i l i t y cons t i t u t e s at l e a s t 10 per centum of the e n t i r e deposi t l i a b i l i t y of the member banks wi thin such d i s t r i c t .

(b) .Advances may be made only i f the bank or banks which receive the proceeds thereof have no adequate ameunts of e l i g i b l e and acceptable a s s e t s ava i l ab le to enable such bank or banks to obtain s u f f i c i e n t c r ed i t accommodations from the Federal Reserve Bank through rediscounts or advances o ther than as provided in Section 10(b) of the Act.

(c) The l i a b i l i t y of the individual banks in each group mast be l imi ted to such proport ion of the t o t a l amount advanced to such group as the deposi t l i a b i l i t y of the respec t ive banks bears to the aggregate deposit l i a b i l i t y of a l l banks in such group. (The l i a b i l i t y of each ind iv idua l bank on the note of a group under t h i s p r o v i -sion of the law should be determined on the b a s i s of i t s gross deposi t l i a b i l i t i e s a t the opening of business on the date of the wr i t t en app l i ca t ion by the group to the Federal reserve bank f o r the advance, computed by adding toge ther , ( l ) in the case of na t iona l banks, the f i g u r e s corresponding to those ca l l ed f o r by items 21, 22, 23 and 24 on the Comptroller of the Currency1s c a l l repor t form No. 2130, as revised in November, 1931, j r , (2) in the case of Sta te member banks, the f i g u r e s corresponding to those ca l led f o r by items 19, 20, 21 and 22 on the Federal Reserve Board 's c a l l repor t form No. 105, as rev ised in November, 1931.)

(d) The proceeds of an advance to a group may be d i s t r i b u t e d only to banks which are members of such group, and before rece iv ing such proceeds such banks must deposi t with a su i t ab l e t r u s t e e , designated by and rep resen t ing the e n t i r e group, t h e i r individual notes made in favor of the group pro tec ted by such c o l l a t e r a l secur i ty as may be agreed upon.

(e) No ob l iga t i ons of any fo re ign government, ind iv idua l , p a r t -ne r sh ip , a s soc ia t ion or corporat ion organized under the laws thereof sha l l be e l i g i b l e as c o l l a t e r a l s ecu r i t y f o r advances under t h i s s ec t ion .


, 253 w3** X—7115—a

( f ) No note upon which, such advances are made w i l l be e l i g i -ble as c o l l a t e r a l secur i ty fo r Federal Reserve no tes .

The r a t e a t which advances may be made under the provis ions of

t h i s sec t ion w i l l be f i x e d from time to time, subject to the approval of

the Federal Reserve Board and the condit ion spec i f i ed in the law.

The m a t u r i t i e s of notes accepted under t h i s sec t ion must be

s a t i s f a c t o r y to the Federal Reserve Bank. There must be deposi ted and

pledged with the Federal Reserve Bank, as secur i ty f o r any advance made

by the Federal Reserve Bank to a group of banks under the provis ions of

Section 10(a) , the note or notes of the bank or banks to which the p r o -

ceeds of such advance a re d i s t r i b u t e d by the group, toge ther wi th a l l the

secur i ty f o r such note or no tes . Such secur i ty must, of course, be

acceptable to the Federal Reserve Bank, which may requi re the group or

any member thereof to provide such add i t i ona l secur i ty as may be deemed

necessary .

For the convenience rf member banks de s i r i ng to apply f o r loans

under Section 10(a) , the fol lowing suggested forms are being prepared.

1. Resolution to be adopted by board of d i r e c t o r s of each of the banks des i r ing to form a group, au thor iz ing t h e i r o f f i c e r s to sign an agreement with o ther banks f o r t h i s purpose.

2. Agreement to be entered in to by banks d e s i r i n g to form a group. This form of agreement includes the designat ion of a t r u s t e e f o r the group.

3 . Resolution to be adopted by board of d i r e c t o r s of i n d i v i -dual borrowing bank au thor iz ing i t to borrow from the group and to pledge secur i ty t h e r e f o r .

4 . Applicat ion to be used by individual borrowing bank in request ing loan from the grcup. This must include a c e r t i f i c a t e to the e f f e c t t h a t such bank has no adequate amount of e l i g i b l e and acceptable a s s e t s ava i l ab le to enable i t to obtain s u f f i c i e n t c red i t accommodations from the Federal Reserve Bank through rediscounts or advances other than as provided in Section 10(b) .


- 4 - X~7115^a 253

5. Note to be used by the individual "borrowing "bank in borrow-ing from the group.

6. Resolution to be adopted by the board of d i r e c t o r s of each of the banks in the group, au thor iz ing the group to borrow from the Federal Reserve Bank upon the note of the group and to pledge the note or no tes of the ind iv idua l borrowing bank or banks and the secur i ty t h e r e f o r .

7. Application to be used by group in reques t ing advance from the Federal Reserve Bank.

8. Note to be used by the group in borrowing from the Federal Reserve Bank. This form contemplates t h a t the group s h a l l give to the Federal Reserve Bank a s ing le note f e r the f u l l amount of the advance, such note , or counterpar ts t he reo f , being signed by a l l members of the group and s t a t i n g on the face thereof the d o l l a r amount of the propor t ion of the p r i n c i p a l of such note f o r which each bank in the group i s l i a b l e .

Banks d e s i r i n g to form groups, or contemplating the p o s s i b i l i t y

of forming groups a t some fu tu r e time, should so advise t h i s bank, which

wi l l be glad to f u r n i s h them with copies of the suggested forms. I t i s

suggested tha t each group be formed under the name "Member Bank Loan

Group No . of the Federal Reserve D i s t r i c t . " In order to

prevent poss ib l e dup l ica t ion of numbers in the names of groups t h i s bank

w i l l ass ign numbers when advised of the d e s i r e to form groups.

The forms used in d i f f e r e n t cases may vary to some extent to

meet the needs and de s i r e s of the banks forming the p a r t i c u l a r group, but

a l l forms used in connection with any advance made by t h i s bank must, of

course, be s a t i s f a c t o r y to i t .

SECTION 10(b) ADVANCES TO INDIVIDUAL MEMBER BANKS

Under the terms of t h i s sect ion Federal Reserve Banks may, u n t i l

March 3, 1933, and in except ional and exigent circumstances, and subjec t

in each case to a f f i r m a t i v e ac t ion by not l e s s than f i v e members of the

Federal Reserve Board, make advances to ind iv idua l member banks upon

the fo l lowing condi t ions : Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis

4-5-i 254

x-Vllfe-a

(a) Advances may be made only to member "banks having cap i t a l stock of not exceeding $5,000,000 each.

(b) Advances may be made only to banks which have no f u r t h e r e l i g i b l e and acceptable a s se t s avai lable to enable them to obtain adequate c red i t accommodations through r e d i s -count ing a t the Federal Reserve Bank or any other method provided by the Federal Reserve Act other than tha t p ro -vided by Section 10(a) .

(c) No obl iga t ions of any fore ign government, ind iv idua l , pa r tne r sh ip , assoc ia t ion , or corporat ion organized under the laws thereof sha l l be e l i g i b l e as c o l l a t e r a l secur i ty f o r advances under t h i s sec t ion .

(a) Advances under t h i s sect ion may be made only upon the promissory notes of member banks secured to the s a t i s -f ac t ion of the lending Federal Reserve Bank.

(e) No note accepted fo r any such advance sha l l be e l i g i b l e as c o l l a t e r a l secur i ty f o r Federal reserve no tes .

The r a t e a t which advances may be made under the provis ions of

t h i s sec t ion w i l l be f i xed from time to time, subject to the approval of

the Federal Reserve Board and the condition spec i f i ed in the law,

A spec ia l form of appl ica t ion i s being prepared fo r the use of

member banks des i r ing to apply fo r leans under Section 10(b) . Copies

w i l l be provided upon reques t .

Each such appl ica t ion must include a c e r t i f i c a t e to the e f f e c t

that the applying bank has no f u r t h e r e l i g i b l e and acceptable a s s e t s

ava i lab le to enable i t to obtain adequate c red i t accommodations through

rediscount ing a t the Federal Reserve Bank or any other method provided

by the Federal Reserve Act other than tha t provided by Section 10(a);

and i t must also be supported by a statement of f a c t s s u f f i c i e n t to s a t i s -

f y the Federal Reserve Bank and the Federal Reserve Board that there are

exceptional and exigent circumstances which would j u s t i f y the making of

such loan under the provis ions of Section 10(b),


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The regular form of member bank promissory note may be used

f o r advances made under t h i s sec t ion . Matur i t ies must be s a t i s f a c t o r y to

the Federal Reserve Bank.

GENERAL

In conformity with the purposes of th i s l e g i s l a t i o n , advances

under Sections 10(a) and 10(b) of the Federal Reserve Act w i l l be l imi ted

to cases where there are conditions of an unusual and temporary character

which appear to j u s t i f y such action and when the member banks r ece iv ing

the proceeds lack adequate amounts of e l i g i b l e and acceptable a s s e t s with

which to secure s u f f i c i e n t c r ed i t accommodations from the Federal Reserve

Bank under o ther p rov i s ions of the Federal Reserve Act. When and i f such

circumstances ex i s t i t i s hoped tha t t h i s bank may be able to render

h e l p f u l se rv ice f o r temporary pe r iods . I t i s suggested, however, tha t

before making app l i ca t ions f o r such advances member banks should communi-

cate with t h i s bank and a s c e r t a i n i t s views as to the c o l l a t e r a l or o ther

secu r i ty which should be o f f e r e d and as to the other condi t ions upon which

t h i s bank would be disposed to give favorable considera t ion to the a p p l i -

ca t ion .

APPENDIX

(Here p r i n t t i t l e and f i r s t two sect ions of Act.)


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