Limitation Of Rediscounts For Member State Banks

No Federal Reserve bank shall be permitted to discount for any member State bank or trust company, notes, drafts, or bills of exchange of any one borrower who is liable for borrowed money to such State bank or trust company in an amount greater than ten percentum of the capital and surplus of such State bank or trust company; but the discount of bills of exchange drawn against actually existing value and the discount of commercial or business paper actually owned by the person negotiating the same shall not be considered as borrowed money.

Conditions Governing Discount Of Notes, Drafts And Bills Of Exchange For State Banks Or Trust Companies

The Federal Reserve bank, as a condition of the discount of notes, drafts or bills of exchange for such State bank or trust company shall require a certificate or guaranty to the effect that the borrower is not liable to such bank in excess of ten percentum of the unimpaired capital and surplus of said bank, and will not be permitted to become liable in excess of this amount while such notes, drafts, or bills of exchange are under discount with the Federal Reserve bank.

Regulations Of The Federal Reserve Board

In Connection With Amount of Paper of One Interest Rediscount-able for One Member Bank

Ten per cent. limit and exceptions. - The aggregate of notes, drafts and bills bearing the signature or indorsement of any one borrower, whether a person, company, firm, or corporation, rediscountable for any one member bank, is not permitted at any time to exceed ten per cent. of the unimpaired capital and surplus of such bank; but this restriction does not apply to the discount of bills of exchange in good faith against actually existing value.

Opinions Of Counsel And Rulings

In Connection With Amount of Paper of One Interest Rediscount-able for One Member Bank

Limitation Of Amount Rediscountable

A Federal Reserve bank is not permitted to rediscount the paper of a customer of a member State bank if the customer is indebted to such member bank in an amount in excess of ten per cent. of the capital and surplus of said bank.

Discount Of Paper For One Maker Or Indorser

If any particular paper presented by a member bank to a Federal Reserve bank for rediscount, singly or added to the paper of the same makers or indors-ers, which the Federal Reserve bank has already rediscounted for said member bank, amounts to a total of more than ten per cent. of the unimpaired capital and surplus of that bank, the Federal Reserve bank has no authority for such rediscount.

Not Applicable To Rediscounting Bank

The limitations on the rediscount of paper bearing the signature or indorsement of any one borrower should not be held to refer to the indorsement of a non-member bank on paper rediscounted with a member bank.

Paper Of Cotton Broker

An opinion has been asked as to whether a cotton broker who was a depositor of a bank and financed cotton for various mills by giving to the bank his note secured by warehouse receipts of the mills, indorsed in blank, for cotton stored in his name and properly insured, but sold to the mill for a specific amount to be paid at a specific time as per sales note attached-whether such loans taken from one broker in excess of ten per cent. of the capital and surplus of the bank would be an excess loan under the Federal Reserve Act, if the financing for each individual mill of the accepted sales note held of said mill were not in excess of ten per cent. It is held that the transaction in form is not merely a discount of single name negotiable paper secured by the cotton. Such notes would clearly come within the provisions of Section 5200 of the Revised Statutes (For Section 5200, see "Investment in Acceptances by Member Banks" in Part I, "Bank Acceptances"). No Federal Reserve bank could rediscount such notes bearing the name of one broker for an aggregate amount in excess of ten per cent. of the capital and surplus of the member bank.

Limitation of Amount of Commercial or Business Paper Rediscountable and its relation to section 52oo of the Revised Statutes

Commercial Or Business Paper

While a member bank may acquire commercial or business paper from the same person in excess of ten per cent. of its unimpaired capital and surplus, its Federal Reserve bank cannot rediscount such paper bearing the signature or indorsement of the same person in excess of that amount. It should be noted that Section 13 of the Federal Reserve Act does not amend Section 5200 of the U. S. Revised Statutes. (For text of U. S. Revised Statutes, Section 5200, see "Investment in Acceptances by Member Banks," in Part I, on "Bank Acceptances").

Rediscounted Paper Not Included In Aggregate Amount

A note or bill rediscounted in good faith by a member bank which is no longer owned or held by the bank need not be included as a liability of tin-maker to the bank. Notes or bills rediscounted under an agreement to repurchase, or which are merely credited to the account of the bank offering them for rediscount arc subject to the limitations of Section 5200. (For text of U. S. Revised Statutes, Section 5200, see "Invest-ment in Acceptances by Member Banks").