PRIA, Government Policy, Made Personal

Summary

A Federal Reserve Bank can lend money to a group of at least five member banks if at least five members of the Board of Governors agree. The reserve bank’s board decides how much to lend. Most banks in the group must be independently owned. Loans are made on time or demand promissory notes only when those banks do not have enough eligible assets to get credit from the reserve bank in other ways. Each bank in the group is only responsible for its share of the total loan based on its deposit size. The loan can be made to fewer banks if they together hold at least 10% of the district’s deposits. The group can split the money among its members, but any member who gets money must give its note to a trustee for the whole group and provide agreed collateral. The reserve bank must charge interest at least 1% above its current discount rate. Notes used for these advances cannot be used as collateral for Federal reserve notes, and foreign obligations are not acceptable collateral. Member banks may bind themselves under these rules.

Title 12, §347a

Banks and Banking, Source: USLM XML via OLRC

Upon receiving the consent of not less than five members of the Board of Governors of the Federal Reserve System, any Federal reserve bank may make advances, in such amount as the board of directors of such Federal reserve bank may determine, to groups of five or more member banks within its district, a majority of them independently owned and controlled, upon their time or demand promissory notes, provided the bank or banks which receive the proceeds of such advances as herein provided have no adequate amounts of eligible and acceptable assets available to enable such bank or banks to obtain sufficient credit accommodations from the Federal reserve bank through rediscounts or advances other than as provided in section 347b of this title. The liability of the individual banks in each group must be limited to such proportion of the total amount advanced to such group as the deposit liability of the respective banks bears to the aggregate deposit liability of all banks in such group, but such advances may be made to a lesser number of such member banks if the aggregate amount of their deposit liability constitutes at least 10 per centum of the entire deposit liability of the member banks within such district. Such banks shall be authorized to distribute the proceeds of such loans to such of their number and in such amount as they may agree upon, but before so doing they shall require such recipient banks to deposit with a suitable trustee, representing the entire group, their individual notes made in favor of the group protected by such collateral security as may be agreed upon. Any Federal reserve bank making such advance shall charge interest or discount thereon at a rate not less than 1 per centum above its discount rate in effect at the time of making such advance. No such note upon which advances are made by a Federal reserve bank under this section shall be eligible under section 412 of this title as collateral security for Federal reserve notes. No obligations of any foreign government, individual, partnership, association, or corporation organized under the laws thereof shall be eligible as collateral security for advances under this section. Member banks are authorized to obligate themselves in accordance with the provisions of this section.

Notes & Related Subsidiaries

Editorial Notes

References in Text

section 347b of this title, referred to in first par., was in the original a reference to section 10(b), meaning section 10(b) of the Federal Reserve Act. section 10(b) of that Act was renumbered section 10B by Pub. L. 102–242, title I, § 142(a)(2), Dec. 19, 1991, 105 Stat. 2279, without a corresponding amendment to this section.

Statutory Notes and Related Subsidiaries

Change of Name

section 203(a) of act Aug. 23, 1935, changed name of Federal Reserve Board to Board of Governors of the Federal Reserve System.