Paper of Suspended Banks. Your correspondence with the receiver of a national bank has been brought to the attention of the Board. It appears that the receiver, in considering his plans for the reorganization of the bank, desires assurances from you that the Federal Reserve Bank will, upon the reopening of the national bank, rediscount eligible paper for it freely, without requiring the indorsement of the directors or other additional security. He further intimates that upon such assurances will depend the success of the plans for the reorganization of the bank. In the opinion of the Board you have very properly declined to give such assurances. The fact that the bank has suspended and that it is necessary to reorganize it is evidence that its affairs have not hitherto been prudently conducted. In many cases it is customary for small banks, in securing accommodations from their reserve agents, to offer the note of the bank secured by bills receivable aggregating considerably more than the face of the note offered for discount, thus giving the rediscounting bank a good margin of security. The Federal Reserve Banks are not permitted under the Act to discount notes for their member banks secured in this way, but in granting accommodation must discount each note or bill separately. Discount operations, however, are not mandatory upon the Federal Reserve Banks. Section 13 of the Act provides that "upon the indorsement of any of its member banks, with the waiver of demand notice and protest by such bank, any Federal Reserve Bank may discount notes, drafts, and bills of exchange arising out of actual commercial transactions." There is nothing in the Act that prohibits guaranties or the deposit of additional security under a collateral agreement. Nearly all of the Federal Reserve Banks in their transactions with over-extended member banks, have required additional security or guaranties, although they have complied with the letter of the Act by discounting notes separately with the indorsement of the member bank. It is difficult in many cases for directors of Federal Reserve Banks to form definite conclusions as to the strength of paper offered and many accommodations that have been granted would doubtless have been refused but for the additional security offered. There are many banks where the management is concentrated in one officer and where the directors do not actually direct. In such cases there is an obvious advantage in securing the indorsement or guaranty of the directors, for besides the added strength that is given by the names of well-to-do directors, the liability incurred by them in indorsing, brings about a closer supervision on their part of the bank's affairs. The Board feels, however, that Federal Reserve Banks in dealing with member banks will, as far as possible, comply with the terms of the Act and where the bank making offerings for discount is in good standing and well managed, and where the paper conforms to the regulations of the Board and appears to be unquestionably good, a guaranty of directors should not be required, but it is clear, none the less, that your position in declining to give the assurances asked for by the receiver, is well taken. It is assumed, of course, that should of directors will consider its offerings upon the national bank resume business your board their merits, and will discount, without the personal indorsement of its directors, such paper as may be entirely satisfactory. JANUARY 18, 1916. Farm Land Loans. Replying to your letter of January 20, relating to the limit imposed by law on farm-land loans, you are advised that the provisions of section 5200 of the Revised Statutes are applicable to money borrowed on the security of farm land under the provisions of section 24 of the Federal Reserve Act, and that, in consequence, no real estate loan should be made to any one individual in excess of 10 per cent of the capital and surplus of the lending bank. You are also advised that the provisions of section 5200 refer to the total liabilities of any one association, person, company, or corporation, and that, therefore, any other liability of a borrower on his personal note should be included in estimating the maximum amount which can be loaned on the security of real estate. JANUARY 24, 1916. Agricultural Implement Paper. Upon the question, whether notes given by farmers in payment of agricultural implements may be rediscounted at Federal Reserve Banks, the Federal Reserve Board on December 30, 1915, made answer as follows: The The question put is a very close one. law permits the rediscount of six months' paper that has been "drawn or issued for agricultural purposes, or the proceeds of which have been used or are to be used for agricultural purposes." 26 There can not be any doubt that a bill drawn by a dealer on a farmer in payment for agricultural implements purchased by the farmer is a bill that has been drawn or issued for agricultural purposes and the proceeds of which have been used or are to be used for agricultural purposes." The question then arises-does such paper comply in addition to this requirement, with those prescribed by the Federal Reserve Board by Regulation B, of which II (a) prescribes that "no bill is 'eligible,' the proceeds of which have been used or are to be used for permanent or fixed investments of any kind, such as land, buildings, machinery (including therein additions, alterations, or other permanent improvements, except such as are properly to be regarded as costs of operation).' It is a very close question whether agricultural implements are to be considered as permanent improvements or as part of the cost of operation. However, it must be considered that machinery of this kind is not of a permanent character. It wears out rapidly and in most cases has to be replaced within a comparatively short time, so that it may be assumed that a certain amount of money would be spent annually and regularly for the purchase and replacement of machinery of this kind. As the Board by its regulations does not desire unnecessarily to restrict, but rather to encourage, the facilities to be given, as far as that may be done consistently with prudence, it would appear that the wider interpretation in this case should be given, and a ruling by the Board would appear entirely appropriate which would permit notes and bills of exchange drawn by implement dealers on a farmer against a sale to him of agricultural implements, to be considered as drawn or issued for agricultural purposes. This would answer, in the affirmative, question 1: "Are the notes of farmers or consumers given for the purchase price of farm tools, agricultural machinery, or other farm-operating equipment discountable under the section 13 of the Federal Reserve Act providing for notes, bills, or drafts, drawn or issued for 'agricultural purposes'?" Question 2 reads as follows: "Will the fact that such notes, drafts, or bills are presented by the dealer with his indorsement for rediscount, change their classification from the rating given them if presented by the maker (the farmer); if so, why?" It is to be assumed that the clause permitting the rediscount of agricultural six months paper was enacted by Congress for the purpose of giving special facilities to farmers. If the note were purchased from a dealer, it would appear that the facility is not given to the farmer but to the dealer. However, there is no doubt that the language of the law plainly would permit the rediscount of such paper and, inasmuch as, indirectly, the farmer would profit by the rediscount to the dealer-inasmuch as otherwise the farmer would have to borrow, and probably borrow at a higher rate for a single-name note than the money could be secured upon the double-name bill of exchange drawn by the dealer-it is to be expected that the advantage of the lower discount rate and of the cheaper credit will indirectly result to the benefit of the farmers. It would appear, therefore, that from every point of view, question 2 should be answered in the negative. Question 3 reads: if any, must be placed upon notes, drafts, or "What provisions or marks of identification, bills to have them properly classified as 'issued for agricultural purposes' and render them discountable if their maturity does not exceed six months?" 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 purchasing member bank will have to satisfy itself in some satisfactory way that the bill is substantially of an agricultural character. A simple memorandum 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. Question (4) reads: "What is the limit, in amount, that a Federal Reserve Bank may rediscount of notes, drafts, or bills where taken for 'agricultural purposes' as provided in section 13?", The law prescribes that in the aggregate the total amount of agricultural paper purchased by a Federal Reserve Bank should not exceed a percentage of its capital stock, the percentage 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 district has applied, the maximum limit has been granted, which has been considered to be 99 per cent of the capital stock. Treatment of Earnings and Expenses. On January 22 the Federal Reserve Board sent out the following letter and attached form which will in the future be used by Federal Reserve Banks in reporting their earnings and expenses. Inclosed please find 50 copies of revised forms Nos. 286b and 287b for reporting the No change has been made in the form of the monthly earnings and expenses of your bank. report for the earnings except that the reading of the first two captions has been modified to agree with the reading of the corresponding items on Form 34. Under the second head should be included, therefore, the earnings from all open-market purchases of trade acceptances, bankers' domestic acceptances, and bankers' foreign trade acceptances. No provision has been made for reporting separately "Commissions paid." Such commissions, in accordance with informal ruling of the Board under date of September 22, 1915 (see p. 309 of the October Bulletin), should be treated as part of the purchase price or cost of the invest ment. Under the head of current expenses the following observations would seem pertinent: 1. Assessments on account of expenses of Federal Reserve Board should be apportioned to each month (regardless of the dates when 117 paid) and cumulative figures of amounts charged since January 1, 1916, shown in the second column. Dec. 2. The expenses of the several advisory bodies, including the Federal Advisory Council, the Governors', and the Federal Reserve Agents' conferences, should be segregated, these expenses to include fees, per diem allowances, traveling and other incidental expenses. 3. Items to be apportioned over a period 25 should on day of payment, be charged to account "Expenses paid in advance" on Form 34, pro rata amounts to be transferred to current 25 expenses on the last day of each month and to be included, under proper headings, on monthly report of expenses (Form 287b). 25 25 12 30 12 7,30 25 4, 13 St. Louis. Minneapolis. Kansas City. San Francisco. Dallas 1 Usually a holiday. 4. Under the general head of organization 25 expenses please report, in accordance with informal ruling of December 10, 1915 (p. 12 of the January Bulletin), in short column the of 1916-Continued. MEMORANDUM. cost of Federal Reserve notes issued by the Earnings of the Federal Reserve Bank of 5. A separate account is set up for depreciation of furniture and equipment. This account is to show amounts written off in accordance with paragraph 5 of informal ruling of December 10, 1915. 6. The amount of item "Total current expenses" shown at the foot of Form 287b should equal the amount shown against item "Expense Current" on Form 34 as at close of business on the last day of each month. Items shown in memorandum on Form 286b represent amounts expended during the month on account of Federal Reserve notes printed and shipped, including expressage, insurance, etc.; also amounts paid during the month for furniture and equipment. As indicated in the heading, the figures in the second column against items Total cost of furniture and equipment" and "Cost of Federal Reserve notes unissued by bank" in this memorandum should equal amounts shown against items "Furníture and equipment" and "Cost of unissued Federal Reserve notes" on Form 34 as at close of business on the last day of the report month. Copies of the monthly report of earnings and expenses should be sent to us on or before the 7th of each month. Cost of Federal Reserve notes unissued by bank (including expressage, insurance, etc.). Cost of furniture and equipment: of Furniture and fixtures. Vaults. Total cost of furniture and equipment... - for the month Totals for items "Cost of Federal reserve notes unissued, etc.,” and responding items on Form 34, as at close of business on the last of the "Cost of furniture and equipment" should agree with totals for correport month. Expenses of the Federal Reserve Bank of· I. Current expenses: 1916. Assessments account expenses Federal Re- Governors' conferences (including travel ing expenses).. Federal Reserve Agents' conferences (in- Salaries: Bank officers.... Clerical staff.. Special officers and watchmen. Insurance and premiums on fidelity bonds. Printing and stationery. Repairs and alterations.. All other expenses, n. s........ Total expenses of operation.... II. Cost of Federal Reserve notes issued by III. Organization expenses: Organization expenses Jan. 1, 1916 Cost of Federal Reserve notes used All other. Total. Amortization of Federal Reserve notes, Total current expenses.... -for the month Fiduciary Powers. The applications of the following banks for permission to act under section 11 (k) of the Federal Reserve Act have been approved since the issue of the January Bulletin, as follows: DISTRICT No. 1. Trustee, executor, administrator, and registrar of stocks and bonds: First National Bank, Springfield, Vt. Trustee, executor, and registrar of stocks and bonds: First National Bank, Bangor, Me. Manufacturers National Bank, Lewiston, Me. Second National Bank, Nashua, N. H. DISTRICT NO. 2. DISTRICT No. 8. Trustee, executor, administrator, and registrar of stocks and bonds: Citizens National Bank, Lebanon, Ky. Exchange National Bank, Columbia, Mo. DISTRICT No. 9. Trustee, executor, administrator, and registrar of stocks Great Falls National Bank, Great Falls, Mont. DISTRICT NO. 10. Trustee, executor, administrator, and registrar of stocks First National Bank, Anthony, Kans. Trustee, executor, administrator, and rgistrar of stocks and Trustee, executor, administrator, and registrar of stocks bonds: First National Bank, Morristown, N. J. Bloomfield National Bank, Bloomfield, N. J. DISTRICT NO. 3. and bonds: State National Bank, Albuquerque, N. Mex. Intradistrict Clearing System. Additions to and withdrawals from the system since the publication of the lists in Trustee, executor, administrator, and rgistrar of stocks and previous issues of the Bulletin are as follows: bonds: |