Board Interpretations of Federal Open Market Committee Rules and Regulations

ACCEPTANCES—For Capital Purposes
ACCEPTANCES—Secured by Bill of Sale
ACCEPTANCES—Scope of Authority of Reserve Banks to Purchase
BILLS PAYABLE IN FOREIGN CURRENCIES—Purchase or Sale of
COOPERATIVE MARKETING ASSOCIATION PAPER—Summary of Rulings and General Principles

8-845

ACCEPTANCES—For Capital Purposes

A draft drawn upon and accepted by a nonmember bank, the proceeds of which are to be used for the purchase of raw material and the payment of labor used in manufacturing, is not eligible for purchase in the open market. Digest of 1916 Fed. Res. Bull. 486.

8-846

ACCEPTANCES—Secured by Bill of Sale

A banker’s acceptance drawn for the purpose of purchasing goods and secured by a bill of sale of stock on hand is not eligible for purchase by Federal Reserve Banks under the provisions of Regulation B, series of 1916, since a bill of sale is not a receipt similar to a warehouse or terminal receipt, but is in substance merely a chattel mortgage. Nor is the acceptor secured by a pledge of goods sold and in storage, as required in Regulation B, since the term “storage” means storage with some party other than the borrower or drawer. Digest of 1916 Fed. Res. Bull. 684.

8-847

ACCEPTANCES—Scope of Authority of Reserve Banks to Purchase

The substance of a letter written by the Board’s general counsel and containing a full discussion of a number of questions arising under the provisions of law and of the Board’s regulations which deal with the acceptance, discount, and open market purchase of banker’s acceptances:

A Federal Reserve Bank is not authorized by the Board’s regulations or otherwise to purchase an acceptance made by a member bank which the member bank had no authority to make, but a Federal Reserve Bank may, under Regulation B, purchase acceptances made by institutions other than member banks and may also purchase acceptances made by state member banks under acceptance powers not conferred by section 13. Federal Reserve Banks may also, under section 14, purchase acceptances which, under section 13, they are not authorized to discount.

Federal Reserve Banks are authorized to purchase in the open market all classes of acceptances which are made eligible for rediscount under section 13, and may also purchase certain additional classes of acceptances not eligible for rediscount. These additional classes of acceptances are specified in Regulation B. Digest of 1923 Fed. Res. Bull. 316.

8-850

BILLS PAYABLE IN FOREIGN CURRENCIES—Purchase or Sale of

See Board interpretation at 7-088.

8-855

COOPERATIVE MARKETING ASSOCIATION PAPER—Summary of Rulings and General Principles

This summary embodies rulings discussing the following questions:

1. Definition of eligible commerical and agricultural paper substantially as set forth in Regulation A, series of 1923.

2. Classes of cooperative marketing associations under consideration.

3. Growers’ drafts accepted by associations covering deliveries of crops may be eligible for discount as agricultural paper when the proceeds are used by the growers for agricultural purposes.

4. Growers’ drafts accepted by associations may be considered bills of exchange drawn against actually existing values when drawn at about the time the grower delivers his crop to the association.

5. Growers’ drafts on associations are not trade acceptances, because the delivery of a crop to the association under the circumstances described is not the kind of a sale which should be made the basis of a trade acceptance. Such drafts may, however, be eligible for discount as agricultural or commercial paper.

6. Carrying a crop pending its orderly marketing is an agricultural operation, and growers’ paper used to finance the carrying of their products for a reasonable period incident to orderly marketing may be eligible for discount as agricultural paper.

7. Notes and drafts of associations for funds to finance packing and marketing products of their members may be eligible for discount as agricultural paper.

8. Notes and drafts of associations for funds to pay for products purchased from their members may be eligible for discount as agricultural paper.

9. Notes and drafts of associations for funds to advance to their members for an agricultural purpose may be eligible for discount as agricultural paper.

10. Banker’s acceptances drawn by associations for agricultural purposes are eligible for acceptance and discount with maturities up to six months when secured by warehouse receipts covering readily marketable staples.

11. Warehouse receipts must be issued by corporations independent of the borrower in order to constitute proper security for banker’s acceptances.

12. The discussion herein of certain kinds of paper of cooperative marketing associations as eligible for discount does not mean that they are the only classes of such paper which are eligible; they are merely the only classes of paper the eligibility of which the Board has considered, and as questions arise concerning the eligibility of other kinds of paper, further rulings will be issued.

13. Paper of cooperative marketing associations the proceeds of which are used to pay organization expenses or represent fixed investments are not eligible for discount.

14. Federal Reserve Banks are under no obligation to discount paper, even though it be eligible, but may accept it or refuse it in the exercise of discretionary power.

15. Secured banker’s acceptances drawn by associations for agricultural purposes are eligible for purchase on the open market with maturities up to six months, and bills of exchange drawn by associations for an agricultural purpose may similarly be purchased with maturities up to nine months, provided they conform to the provisions of Regulations A and B. Digest of 1923 Fed. Res. Bull. 999.