(Compiled by the Federal Reserve Bank of New York.)

(See text, pp. 452-62)

Rediscounting safety for depositors, stockholders, and borrowers

Q. 1. In what way is membership of advantage to a bank or trust company?

A. Through membership in the Federal Reserve system, a bank or trust company is assured of greater safety for its depositors and stockholders than when operating as a nonmember bank, not only as to the repayment of deposits, but also as to its ability to continue to grant accommodation at all times.

Q. 2. In what way does membership insure greater safety to the institution, its depositors and stockholders?

A. Nearly every bank or trust company has among its assets a considerable amount of commercial paper. If it is a member of the Federal Reserve system, this commercial paper is practically as available as though it were actual cash, for the member bank can at any time take it to the Federal Reserve bank and rediscount or borrow upon it, and is thus in position to meet whatever demands for cash it may have. Government securities and notes secured by government securities, or given for the purpose of purchasing or carrying government securities, may be used in the same way. The ability of the well-managed institution to meet its obligations is thus assured.