§347a Advances to Member Bank Groups; Inadequate Amounts of Eligible and Acceptable Assets; Liability of Individual Banks in Group; Distribution of Loans Among Banks of Group; Rate of Interest; Notes Accepted for Advances as Collateral Security for Federal Reserve Notes; Foreign Obligations as Security for Advances

Summary

A Federal Reserve bank can lend money to a group of at least five member banks in its district if at least five members of the Board of Governors agree. Most of the banks in the group must be independently owned and controlled. The loans are made on time or demand promissory notes when the banks getting the money do not have enough acceptable assets to get credit from the Reserve bank by the usual rediscount or advance methods. Each bank in the group is only responsible for the share of the loan that matches its share of the group’s total deposits. The bank may lend to fewer than five banks if those banks together hold at least 10% of all member-bank deposits in the district. The group decides how to split the loan, but any bank that receives money must give its note to a trustee for the group and back it with the agreed collateral. The Reserve bank must charge interest at least 1% above its discount rate when the loan is made. Notes used for these group advances cannot be used as collateral for Federal Reserve notes. Debt from foreign governments or foreign companies cannot be used as collateral for these advances. Member banks may agree to these obligations.