PART 201-EXTENSIONS OF CREDIT Sec. 201.1 Authority, scope and purpose. 201.6 Federal Intermediate Credit Banks. 201.104 Eligibility of consumer loans and 201.107 Eligibility of demand paper for dis- count and as security for advances by 201.108 Obligations eligible as collateral 201.109 Eligibility for discount of mortgage 201.110 Goods held by persons employed AUTHORITY: Secs. 10(a), 10(b), 13, 13a, and 19 of the Federal Reserve Act (12 U.S.C. 347a, 347b, 343 et seq., 347c, 348 et seq., 374, 374a, and 461); sec. 7(b) of the International Banking Act of 1978 (12 U.S.C. 347d), unless § 201.1 Authority, scope and purpose. (a) Authority and scope. This part is issued under the authority of sections 10(a), 10(b), 13, 13a, and 19 of the Fed- eral Reserve Act (12 U.S.C. 347a, 347b, 343 et seq., 347c, 348 et seq., 374, 374a, and 461), other provisions of the Fed- eral Reserve Act, and section 7(b) of the International Banking Act of 1978 (12 U.S.C. 347d) and relates to exten- sions of credit by Reserve Banks to de- pository institutions and others. Except as may be otherwise provided, this part shall be applicable to United States branches and agencies of for- eign banks subject to reserve require- ments under Regulations D (12 CFR (b) Purpose. This part establishes credit to depository institutions to ac- commodate commerce, industry, and agriculture is a principal function of Reserve Banks. While open market op- erations are the primary means of af- fecting the overall supply of reserves, the lending function of the Reserve Banks is an effective method of sup- plying reserves to meet the particular credit needs of individual depository institutions. The lending functions of the Federal Reserve System are con- ducted with due regard to the basic objectives of monetary policy and the maintenance of a sound and orderly fi- nancial system. These basic objectives are promoted by influencing the over- all volume and cost of credit through actions that affect the volume and cost of reserves to depository institu- tions. Borrowing by individual deposi- tory institutions, at a rate of interest that is adjusted from time to time in accordance with prevailing economic and money market conditions, has a direct impact on the reserve positions of the borrowing institutions and thus on their ability to meet the credit needs of their customers. However, the effects of such borrowing do not remain localized but have an impor- For purpose of this part, the follow- (a)(1) "Depository institution" means an institution that maintains reservable transaction accounts or nonpersonal time deposits and is: (i) An insured bank as defined in sec- tion 3 of the Federal Deposit Insur- ance Act (12 U.S.C. 1813(h)) or a bank that is eligible to apply to become an insured bank under section 5 of such Federal Deposit Insurance Act (12 U.S.C. 1813(f), (g)); (iii) An insured credit union as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752(7)) or a credit union that is eligible to apply to become an insured credit union under section 201 of such Act (12 U.S.C. 1781); (iv) A member as defined in section 2 of the Federal Home Loan Bank Act (12 U.S.C. 1422(4)); or (v) An insured institution as defined in section 401 of the National Housing Act (12 U.S.C. 1724(a)) or an institution that is eligible to apply to become an insured institution under section 403 of such Act (12 U.S.C. 1726). (2) A financial institution that is not required to maintain reserves under Part 204 of this title (Regulation D) because it is organized solely to do business with other financial institutions, is owned primarily by the financial institutions with which it does business, and does not do business with the general public is not a depository institution. (b) "Transaction account and nonpersonal time deposits" have the meanings specified in Part 204 of this title (Regulation D). § 201.3 Availability and terms. (a) Short-term adjustment credit. Federal Reserve credit is available on a short-term basis to a depository institution under such rules as may be prescribed to assist the institution, to the extent appropriate, in meeting temporary requirements for funds, or to cushion more persistent outflows of funds pending an orderly adjustment of the institution's assets and liabilities. Such credit generally is available only after reasonable alternative sources of funds, including credit from special industry lenders, such as Federal Home Loan Banks, the National Credit Union Administration's Central Liquidity Facility, and corporate central credit unions have been fully used. Under certain circumstances, a surcharge may be imposed above the basic rate of interest normally charged by Reserve Banks. mitted under adjustment credit to assist smaller depository institutions in meeting regular needs for funds arising from a combination of expected patterns of movement in their deposits and loans. Seasonal credit is available only if similar assistance is not available from other special industry lenders. Seasonal credit will ordinarily be limited to the amount by which the depository institution's seasonal needs exceed certain percentages, established by the Board of Governors, of the institution's average total deposits in the preceding calendar year. Such credit will be available if the Reserve Bank is satisfied that the institution's qualifying need for funds is seasonal and will persist for at least four weeks. Need for credit at depository institutions will also be given consideration when institutions are experiencing unusual seasonal demands for credit in a period of liquidity strain. To the extent practicable, a depository institution should arrange in advance for seasonal credit for the full period during which such credit is expected to be required. Under certain circumstances, a surcharge may be imposed above the basic rate of interest normally charged by Reserve Banks. (2) Other extended credit. Federal Reserve credit is available to depository institutions under extended credit arrangements where similar assistance is not reasonably available from other sources, including special industry lenders. Such credit may be provided where there are exceptional circumstances or practices involving only a particular depository institution. Exceptional circumstances would include situations where an individual depository institution is experiencing financial strains arising from particular circumstances or practices affecting that institution-including sustained deposit drains, impaired access to money market funds, or sudden deterioration in loan repayment performance. Extended credit may also be provided to accommodate the needs of depository institutions, including those with longer term asset portfolios, that may be experiencing difficulties adjusting to changing money market conditions over a longer period, particularly at times of deposit disintermediation. A special rate or rates above the basic discount rate established by the Reserve Banks, subject to review and determination by the Board of Governors, may be applied to other extended credit. (c) Emergency credit for others. In unusual and exigent circumstances, a Reserve Bank may, after consultation with the Board, advance credit to individuals, partnerships, and corporations that are not depository institutions if, in the judgment of the Reserve Bank, credit is not available from other sources and failure to obtain such credit would adversely affect the economy. The rate applicable to such credit will be above the highest rate for advances in effect for depository institutions. Where the collateral used to secure such credit consists of assets other than obligations of, or fully guaranteed as to principal and interest by, the United States or an agency thereof, an affirmative vote of five or more Board members is required before credit may be extended. 8 201.4 Advances and discounts. (a) Reserve Banks may lend to depository institutions either through advances secured by acceptable collateral or through the discount of certain types of paper. Credit extended by the Federal Reserve generally takes the form of an advance. (b) Reserve Banks may make advances to any depository institution if secured to the satisfaction of the Reserve Bank. Satisfactory collateral generally includes United States government and Federal agency securities, and, if of acceptable quality, mortgage notes covering 1-4 family residences, State and local government securities, and business, consumer and other customer notes. (c) If a Reserve Bank concludes that a depository institution will be better accommodated by the discount of paper than by an advance, it may discount any paper endorsed by the depository institution that meets the requirements specified in the Federal Reserve Act. § 201.5 General requirements. (a) Credit for capital purposes. Federal Reserve credit is not a substitute for capital. (b) Compliance with law and regulation. All credit extended under this part shall comply with applicable requirements of law and of this part. Each Reserve Bank (1) shall keep itself informed of the general character and amount of the loans and investments of depository institutions with a view of ascertaining whether undue use is being made of credit for the speculative carrying of or trading in securities, real estate, or commodities, or for any other purpose inconsistent with the maintenance of sound credit conditions, and (2) shall consider such information in determining whether to extend credit. (c) Information. A Reserve Bank shall require such information as it believes appropriate or desirable to insure that paper tendered as collateral for advances or for discount is acceptable and that the credit provided is used in a manner consistent with this part. (d) Indirect credit for others. Except with the permission of the Board of Governors, no depository institution shall act as the medium or agent of another depository institution in receiving Federal Reserve credit. A Reserve Bank may discount for any Federal Intermediate Credit bank (1) agricultural paper, or (2) notes payable to and bearing the endorsement of the Federal Intermediate Credit Bank that cover loans or advances made under subsections (a) and (b) of section 2.3 of the Farm Credit Act of 1971 (12 U.S.C. 2074) and that are secured by paper eligible for discount by Reserve Banks. Any paper so discounted shall have a period remaining to maturity at the time of discount of not more than nine months. § 201.51 Short-term adjustment credit for depository institutions. The rates for short-term adjustment credit provided to depository institu NOTE.-These rates apply for the first 60 days of borrowing. A 1 percent surcharge applies for borrowing during the next 90 days, and a 2 percent surcharge applies for borrowing thereafter. Where credit provided to a particular depository institution is anticipated to be outstanding for an unusually prolonged period, the time period in which each rate under the structure is applied may be shortened, and the rate may be established on a more flexible basis, taking into account rates on market sources of funds. [50 FR 23395, June 4, 1985] § 201.53 Emergency credit for other than depository institutions. The rates for emergency credit to individuals, partnerships, or corporations other than depository institutions under § 201.3(c) of Regulation A are: 8 May 20, 1985. 8 May 20, 1985. 8 May 24, 1985. 8 May 21, 1985. 8 May 20, 1985. 8 May 20, 1985. 8 May 20, 1985. 8 May 21, 1985. 8 May 20, 1985. 8 May 20, 1985. 8 May 20, 1985. 8 May 21, 1985. Richmond. Atlanta Chicago Minneapolis. San Francisco (12 U.S.C. 248(i). Interprets or applies 12 U.S.C. 357) [46 FR 27090, May 18, 1981] INTERPRETATIONS § 201.104 Eligibility of consumer loans and finance company paper. (a) The Board of Governors has clarified and modified its position with respect to the eligibility of consumer loans and finance company paper for discount with and as collateral for advances by the reserve banks. (b) Section 13, paragraph 2, of the Federal Reserve Act authorizes a Federal Reserve Bank, under certain conditions, to discount for member banks "*** notes, drafts, and bills of exchange arising out of actual commercial transactions; that is, notes, drafts, and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes, or the proceeds of which have been used, or are to be used, for such purposes, the Board of Governors of the Federal Reserve System to have the right to determine or define the character of the paper thus eligible for discount, within the meaning of this Act." (c) It continues to be the opinion of the Board that borrowing for the purpose of purchasing goods is borrowing for a commercial purpose, whether the borrower intends to use the goods himself or to resell them. Hence, loans made to enable consumers to purchase automobiles or other goods should be included under commercial, agricultural, and industrial paper within the meaning of the Federal Reserve Act, and as such are eligible for discounting with the Reserve Banks and as security for advances from the Reserve Banks under section 13, paragraph 8, of the Federal Reserve Act as long as they conform to requirements with respect to maturity and other matters. This applies equally to loans made directly by banks to consumers and to paper accepted by banks from dealers or finance companies. It also applies to notes of finance companies themselves as long as the proceeds of such notes are used to finance the purchase of consumer goods or for other purposes which are eligible within the meaning of the Federal Reserve Act. (d) If there is any question as to whether the proceeds of a note of a finance company have been or are to be used for a commercial, agricultural, or industrial purpose, a financial statement of the finance company reflecting an excess of notes receivable which appear eligible for rediscount (without regard to maturity) over total current liabilities (i.e., notes due within 1 year) may be taken as an indication of eligibility. Where information is lacking as to whether direct consumer loans by a finance company are for eligible purposes, it may be assumed that 50 percent of such loans are "notes receivable which appear eligible for rediscount". In addition, that language should be regarded as including notes given for the purchase of mobile homes that are acquired by a finance company from a dealer-seller of such homes. (e) The principles stated above apply not only to notes of a finance company engaged in making consumer loans but also to notes of a finance company engaged in making loans for other eligible purposes, including business and agricultural loans. Under section 13a of the Federal Reserve Act, paper representing loans to finance the production, marketing, and carrying of agricultural products or the breeding, raising, fattening, or marketing of livestock is eligible for discount if the paper has a maturity of not exceeding 9 months. Consequently, a note of a finance company the proceeds of which are used by it to make loans for such purposes is eligible for discount or as security for a Federal Reserve advance, and such a note, unlike the note of a finance company making consumer loans, may have a maturity of up to 9 months. [37 FR 4701, Mar. 4, 1972] § 201.107 Eligibility of demand paper for discount and as security for advances by Reserve Banks. (a) The Board of Governors has reconsidered a ruling made in 1917 that demand notes are ineligible for discount under the provisions of the Federal Reserve Act. (1917 Federal Reserve Bulletin 378.) (b) The basis of that ruling was the provision in the second paragraph of section 13 of the Federal Reserve Act that notes, drafts, and bills of exchange must have a maturity at the time of discount of not more than 90 days, exclusive of grace. The ruling stated that "a demand note or bill is not eligible under the provisions of the act, since it is not in terms payable within the prescribed 90 days, but, at the option of the holder, may not be presented for payment until after that time." (c) It is well settled as a matter of law, however, that demand paper is due and payable on the date of its issue. The generally accepted legal view is stated in Beutel's Brannan on Negotiable Instruments Law, at page 305, as follows: The words "on demand" serve the same purpose as words making instruments payable at a specified time. They fix maturity |