Giving the Rulings, Regulations, Opinions of Counsel, General Statutory Provisions, and Amendments to 1920, in Connection with Commercial Banking Practice Under the Federal Reserve System; an Authoritative and Standard Reference Work Covering the Entire Field Relating to Acceptances in Commercial Banking Practice Under the Federal Reserve Act and Amendments Thereto.

General Introduction

Commerce and finance owe much to the acceptance, used by other commercial and financial centres for hundreds of years with success, but only recently permitted by our banking laws.

Acceptances are daily proving more and more of advantage, alike to the banker, the domestic merchant, the manufacturer, the importer, the exporter and the investor. It has served to remove obstacles that stood in the way of a free cultivation of foreign markets, and in this connection it must be realized that a broad discount market is essential if we are successfully to compete for a share of the world's business.

Under the authority granted by the Federal Reserve Act to the Federal Reserve Board, there has been made provision for the development of a broad discount market. Briefly, acceptances under the Federal Reserve Act and in commercial banking practice may be summarized as follows:

Any national bank may have oustanding acceptances aggregating fifty per cent. of its capital and surplus. By applying to the Federal Reserve Board a bank may receive permission to have outstanding acceptances up to one hundred per cent. of its capital and surplus, but in no event may acceptances in domestic transactions exceed fifty per cent. of the capital and surplus of the bank. No acceptance may have a maturity later than six months after the date of acceptance. The amount any member bank may accept for any one person, firm, or corporation must not exceed ten per cent. of the bank's capital and surplus, but such limitation does not apply, however, where the bank is secured by some actual security growing out of the same transaction as the acceptance; the security must remain with the bank all the time the acceptance is outstanding.

With the authority of the Federal Reserve Board, a member bank may also accept up to fifty per cent. of its capital and surplus, drafts drawn upon it for the purpose of furnishing dollar exchange. When accepted for this purpose, drafts must mature within three months.

Several States of the Union have already enacted legislation permitting the banks operating under their laws to make acceptances. Further than this, it has been made legal for savings banks and estate funds to invest in acceptances. The amount and restrictions, however, vary with the different States.

The four classes of bills which national banks may accept are:

1. Those arising out of a transaction involving the importation or exportation of goods;

2. Those arising out of a transaction involving the domestic shipment of goods;

3. Those which are secured by readily marketable goods in storage.

4. Those drawn for the purpose of furnishing dollar exchange.