Discount Of Renewal Notes

In an informal ruling of the Federal Reserve Board, the following is mentioned in connection with the discount of renewal notes: Self-liquidating paper, even though the transaction which gives rise to it does not liquidate itself within the ninety day maturity, might be discounted even though it appears to be renewal paper. Banks should not enter into an agreement for a renewal, and care should be exercised in examining such paper, and the transactions which give rise to it, but mechanical rules should not be allowed to take the place of discriminating banking judgment.

Secured notes; eligibility tested by use of funds. - The eligibility of a note for rediscount is determined by the use of the funds derived from the original negotiation of the note. The collateral security of the note may indicate its use, but the form of collateral is otherwise immaterial. A note may, therefore, be secured by railroad stocks and bonds, but the proceeds might be used for agricultural, industrial or commercial purposes, in which event the note would be eligible for rediscount, although it would not be so if the proceeds were used to purchase or carry the railroad stocks and bonds.

Notes Secured By Collateral

Notes secured by collateral, the proceeds of which have been used or are to be used for commercial pur-poses, and which otherwise comply with the regulations, are eligible for rediscount. The fact that commercial paper has the additional security of collateral in no way affects its eligibility for rediscount Collateral of mortgages. - A note, draft, or bill of exchange, drawn for commercial purposes and otherwise eligible for rediscount is not rendered ineligible merely because it is secured by a mortgage on real estate.

Paper Secured By Bills Receivable

The note of a manufacturer secured by his bills receivable is desirable paper, and is not debarred as a collateral trust note.

Eligible Security Not Sufficient

A note, even though secured by eligible paper, is not itself eligible for rediscount, unless issued for an agricultural, commercial or industrial purpose.

Offerings considered upon their merits; rediscounts for insolvent banks. - A Federal Reserve bank is not obliged to give assurance to a receiver of an insolvent member bank that it will upon the reopening of the insolvent bank rediscount its eligible paper freely, without requiring the indorsement of directors or other additional sescurity.

Notes Secured By Food Products

Paper secured by staple perishable food products, such as butter, cheese, eggs, poultry, frozen fish, etc., carried for reasonable periods, in cold storage, on negotiable warehouse receipts, is eligible, if offered with the indorsement of a member bank at the usual rate for ninety day commercial paper.

Notes Secured By Pig-Iron

The note of a furnace company, secured by pig-iron, manufactured by the company on contract for delivery, is eligible for rediscount, but the Federal Reserve bank upon being offered such paper may scrutinize each case according to its merits.