Rediscounting occurs when a bank finds itself in need of funds, and takes some of the paper that it has discounted for customers to some other bank and discounts it; that is, "rediscounts" it. Of course, the bank must indorse, if the paper has been so drawn as to require it. When member banks discount at a Federal Reserve bank, the process is also known as "rediscounting." Federal Reserve banks are permitted to discount notes, drafts, and bills of exchange indorsed by member banks with a maturity at time of discount of not more than ninety days, the proceeds of which have been or are to be used for agricultural, industrial or commercial purposes. They are also allowed to discount agricultural paper with a maturity date at time of discount of not more than six months.

Acceptances

Under the Federal Reserve Act any member bank may accept drafts or bills of exchange drawn upon it having not more than six months to run, exclusive of days of grace, which grow out of a transaction, or transactions, involving any one of the following: (a) The importation or exportation of goods. (b) Domestic shipment of goods, providing shipping documents conveying or securing title are attached at the time of acceptance. (c) The storage of readily marketable staples, providing that the bill is secured at the time of acceptance by a warehouse receipt, or other such document conveying or securing title. The Act limits the aggregate which any bank shall accept without security for any one person, company, firm, or corporation to an amount not exceeding at any time 10% of the bank's paid-up and unimpaired capital stock and surplus. This limit, however, does not apply in any case where the accepting bank remains secured either by attached documents or by some other actual security growing out of the same transaction as the acceptance. Such bills may be accepted by a member bank up to an amount not exceeding at any time more than one-half of the bank's paid-up and unimpaired capital stock and surplus; or, with the approval of the Federal Reserve Board, up to an amount not exceeding at any time more than one hundred per cent of the bank's paid-up and unimpaired capital stock and surplus. In no event shall the aggregate amount of the acceptances growing out of domestic transactions exceed fifty per cent of the bank's capital stock and surplus. The Federal Reserve Board has determined that any member bank, having an unimpaired surplus equal to at least twenty per cent of its paid-up capital, which desires to accept drafts or bills of exchange drawn for the purposes described above, up to an amount not exceeding at any time one hundred per cent of its paid-up and unimpaired capital stock and surplus, may file an application for that purpose with the Federal Reserve Board. Such application must be forwarded through the Federal Reserve bank of the district in which the applying bank is located. The approval of any such application may be rescinded upon 90 days' notice to the bank affected. The Reserve bank requires certain evidences of eligibility, and although the member banks may accept paper having six months to run, it is not eligible for rediscount at the Federal Reserve bank until such time as it has a maturity of not more than three months, exclusive of days of grace.