Notes Based On United States Obligations

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 on trading in bonds or notes of the United States. The statement of law that the definition of eligible paper shall not include notes, drafts or bills of exchange drawn for the purpose of carrying on trading in stocks, bonds or other government securities, except bonds and notes of the government of the United States, is equivalent to an affirmative declaration of the eligibility of such notes based on United States obligations. Any member bank which has loaned money to any of its customers for the purpose of carrying on 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 conforms to the following conditions governing eligibility:

(1) Has a maturity at the time of discount of not more than ninety days, exclusive of days of grace;

(2) 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 on trading in notes or bonds of the United States.

Relation Of Maturity To Eligibility

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 ninety days, although a member bank acting alone may not tender its collateral note to the Federal Reserve bank which runs for more than fifteen days. A country bank which has regular dealings with a large bank in a city may send its note secured by government bonds to that bank, and the Board would regard the note as eligible for rediscount by the city bank.

Notes Of Non-Member Banks

If the proceeds of a note have been used or are to be used to carry on trading in United States obligations, 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 bank or by a non-member bank.

Classes Of Notes Ineligible General Statutory Provisions

Security Paper Ineligible

Eligible paper shall not include notes, drafts or bills covering merely investments or issued or drawn for the purpose of carrying on trading in stocks, bonds or other investment securities, except bonds and notes of the United States.

Regulations Of Federal Reserve Board

Relating to Ineligible Classes of Promissory Notes

Notes For Permanent, Fixed Or Speculative Investments

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 lands, buildings, or machinery, are ineligible. The paper must also 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 speculative character.

Opinions Of Counsel And Rulings

Relating to Ineligible Classes of Promissory Notes Renewals and Extensions