§347b Advances to individual member banks on time or demand notes; maturities; time notes secured by mortgage loans covering one-to-four family residences

Summary

Federal Reserve banks may lend money to member banks on short-term notes that mature in not more than four months, if the loan is properly secured. They may also make loans on time notes with maturities the Board allows when those notes are backed by mortgage loans on one-to-four family residences. These advances charge interest equal to the lowest discount rate the Reserve bank has on the date of the note. If a bank is undercapitalized, its advances normally cannot be outstanding more than 60 days in any 120-day period. That 60-day limit can be extended in extra 60-day steps if the bank’s federal regulator or the Federal Reserve Board certifies in writing that the bank is viable; those certifications cannot be delegated to someone else. The Board may treat a noncertified undercapitalized bank as critically undercapitalized and apply special rules. If a bank becomes critically undercapitalized, any advance still unpaid after a 5-day window (or any new advance after that window) can create limited liability for the Board to cover certain FDIC losses. The Board’s liability is capped at the smaller of two amounts tied to the increases in advances, the Board must pay the FDIC any liability, and must report to Congress within 6 months. A Federal Reserve bank is never required to make, increase, renew, or extend any advance. Definitions used here (like “appropriate Federal banking agency,” “critically undercapitalized,” “depository institution,” “undercapitalized,” and “viable”) follow the meanings given in the referenced banking rules, including that “undercapitalized” can include a CAMEL rating of 5.