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It is the policy of the Comptroller of the Currency to permit the issuance of preferred stock by national banking associations in accordance with normal business considerations. Subject to the provisions of 12 U.S.C. 51a, 51b, and 51b-1, the bank may, by vote of stockholders owning a majority of the stock of the bank, issue convertible or nonconvertible preferred stock of one or more classes, with such other provisions and in such amount and with such par value as shall be approved by the Comptroller, and make such amendments to its Articles of Association as may be necessary for this purpose.

§ 14.5 Capital debentures.

(a) It is the policy of the Comptroller of the Currency to permit the issuance of convertible or nonconvertible capital debentures by national banking associations in accordance with normal business considerations.

(b) Subject to the provisions of 12 U.S.C. 82, the bank may, with the approval of stockholders owning two-thirds of the stock of the bank, entitled to vote, issue convertible or nonconvertible capital debentures in such amounts and under such terms and conditions as shall be approved by the Comptroller, provided, however, that the principal amount of capital debentures outstanding at any time, when added to all other outstanding indebtedness of the bank, except those forms of indebtedness exempt from the provisions of 12 U.S.C. 82, shall not exceed an amount equal to 100 percent of the bank's unimpaired paid-in capital stock plus 50 percent of the amount of its unimpaired surplus fund.

§ 14.6 Other increases of capital.

(a) Applications by a national banking association on Form 1904-B for the Comptroller's preliminary approval of proposed sales of additional common capital stock, other than under an employee stock option or employee stock purchase plan which has previously been approved by the stockholders of the bank and by the Comptroller pursuant to Part 13 of this chapter, and other than pursuant to the preceding sections of this Part 14, shall be filed with the appropriate Regional Chief National Bank Examiner, whose approval shall be deemed to be the preliminary approval of the Comptroller. Upon such approval, the bank may proceed to obtain the approval of stockholders pursuant to the provisions of 12 U.S.C. 57, if such approval has not been obtained previously under the procedures set forth in § 14.2.

(b) The Regional Chief National Bank Examiner will communicate his written approval to the bank within 30 days after his receipt of the application. In cases where the Regional Chief National Bank Examiner disapproves the proposed increase of capital, he shall forward the application to the Office of the comptroller in Washington for final disposition, and shall advise the bank of such referral.

§ 14.7 Applications for approval.

(a) Applications by a national banking association for the Comptroller's preliminary approval of a change in capital structure shall be filed with the principal office of the Comptroller in Washington, except as provided in §§ 14.3 and 14.6. § 14.8 Effectiveness of increase.

Pursuant to the provisions of 12 U.S.C. 57, no increase in the capital of a national banking association shall be valid until the whole amount of such increase is paid in or in the case of an increase by way of a stock dividend until such stock dividend has been duly declared by the stockholder, and notice thereof, duly acknowledged before a notary public by the president, vice president or cashier of the bank has been transmitted to the Comptroller of the Currency and his certificate obtained specifying the amount of such increase in capital and his final approval thereof.

CHAPTER II-FEDERAL RESERVE SYSTEM

SUBCHAPTER A-BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

Part

201

Advances and discounts by Federal Reserve Banks.

Open market purchases of bills of exchange, trade acceptances, bankers' acceptances.

Acceptance by member banks of drafts or bills of exchange.

202

203

204

Reserves of member banks.

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220

Membership of State banking institutions in the Federal Reserve System.
Issue and cancellation of capital stock of Federal Reserve banks.
Check clearing and collection.

Corporations doing foreign banking or other foreign financing under the
Federal Reserve Act.

Interlocking bank directorates under the Clayton Act.

Foreign branches of national banks and of corporations organized under section 25 (a), Federal Reserve Act.

Relations with foreign banks and bankers.

Loans to executive officers of member banks.

Holding company affiliates; voting permits.
Payment of interest on deposits.

Relations with dealers in securities under section 32, Banking Act of 1933.
Credit by brokers, dealers, and members of national securities exchanges.
Loans by banks for the purpose of purchasing or carrying registered stocks.
Bank holding companies.

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SUPPLEMENTAL PUBLICATIONS: The Federal Reserve Act, as amended through October 1, 1961, with an Appendix containing provisions of certain other statutes affecting the Federal Reserve System. Rules of Örganization and Procedure—Board of Governors of the Federal Reserve System. Regulations of the Board of Governors of the Federal Reserve System. Published Interpretations of the Board of Governors of the Federal Reserve System. The Federal Reserve System-Purposes and Functions. Annual Report. Federal Reserve Bulletin. Monthly. Federal Reserve Chart Book on Financial and Business Statistics. Monthly; annual supplement issued in September.

SUBCHAPTER A-BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

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in order to accommodate commerce, industry, and agriculture, This function is administered in the light of the basic objective which underlies all Federal Reserve credit policy, i.e., the advancement of the public interest by contributing to the greatest extent possible to economic stability and growth.

(b) The Federal Reserve System promotes this objective largely by influencing the availability and cost of credit through action affecting the volume and cost of reserves available to the member banks. Through open market operations and through changes in reserve requirements of member banks, the Federal Reserve may release or absorb reserve funds in accordance with the credit and monetary needs of the economy as a whole. An individual member bank may also obtain reserves by borrowing from its Federal Reserve Bank at a discount rate which is raised or lowered from time to time to adjust to the credit and economic situation. The effects of borrowing from the Federal Reserve Banks by individual member banks are not localized, as such borrowing adds to the supply of reserves of the banking system as a whole. Therefore, use of the borrowing facility by member banks has an important bearing on the effectiveness of System credit policy.

(c) Access to the Federal Reserve discount facilities is granted as a privilege of membership in the Federal Reserve System in the light of the following general guiding principles.

(d) Federal Reserve credit is generally extended on a short-term basis to a member bank in order to enable it to adjust its asset position when necessary because of developments such as a sudden withdrawal of deposits or seasonal requirements for credit beyond those which can reasonably be met by use of the bank's own resources. Federal Reserve credit is also available for longer periods when necessary in order to assist member banks in meeting unusual situations, such as may result from national, regional, or local difficulties or from exceptional circumstances involving only particular member banks. Under ordinary conditions, the continuous use of Federal Reserve credit by a member bank over a considerable period of time is not regarded as appropriate.

(e) In considering a request for credit accommodation, each Federal Reserve Bank gives due regard to the purpose of the credit and to its probable effects upon the maintenance of sound credit conditions, both as to the individual institution and the economy generally. It keeps informed of and takes into account the general character and amount of the loans and investments of the member bank. It considers whether the bank is borrowing principally for the purpose of obtaining a tax advantage or profiting from rate differentials and whether the bank is extending an undue amount of credit for the speculative carrying of or trading in securities, real estate, or commodities, or otherwise.

(f) Applications for Federal Reserve credit accommodation are considered by a Federal Reserve Bank in the light of its best judgment in conformity with the foregoing principles and with the provisions of the Federal Reserve Act and this part.

§ 201.1 Introduction.

This part is based upon and issued pursuant to various provisions of the Federal Reserve Act. The part is applicable to the following forms of borrowing from a Federal Reserve Bank: (a) advances to member banks on their own notes secured (1) by direct obligations of the United States, by paper eligible for discount or purchase by Federal Reserve Banks, or by obligations of certain corporations owned by the United States, or (2) by other security which is satisfactory to the Federal Reserve Bank; (b) discounts for member banks of commercial, agricultural and industrial

paper and bankers' acceptances; and (c) discounts for Federal Intermediate Credit banks.

§ 201.2 Advances to member banks. (a) Advances on Government obligations. Any Federal Reserve Bank may make advances, under authority of section 13 of the Federal Reserve Act, to any of its member banks for periods not exceeding fifteen days' on the promissory note of such member bank secured (1) by the deposit or pledge of bonds, notes, certificates of indebtedness, or Treasury bills of the United States, or (2) by the deposit or pledge of debentures or other such obligations of Federal Intermediate Credit banks having maturities of not exceeding six months from the date of the advance.2

(b) Advances on eligible paper. (1) Any Federal Reserve Bank may make advances, under authority of section 13 of the Federal Reserve Act, to any of its member banks for periods not exceeding ninety days on the promissory note of such member bank secured by such notes, drafts, bills of exchange, or bankers' acceptances as are eligible for discount by Federal Reserve Banks under the provisions of this part or for purchase by such banks under the provisions of the Federal Reserve Act.

(2) In the event notes which evidence loans made pursuant to a commodity loan program of the Commodity Credit Corporation and which comply with the maturity requirements of $201.3 (a) have been deposited in a pool of notes operated by the Commodity Credit Corporation, the certificate of interest issued by the Commodity Credit Corporation

1 Under the last paragraph of section 13 of the Federal Reserve Act, a Federal Reserve Bank has authority to make advances for periods not exceeding ninety days to individuals, partnerships, and corporations (including member and nonmember banks) on their promissory notes secured by direct obligations of the United States. However, advances to member banks on the security of direct obligations of the United States are normally for short periods of not exceeding fifteen days; and it is not the practice to make advances to others than member banks except in unusual or exigent circumstances. 2 Such advances may also be made on notes secured by the deposit or pledge of Federal Farm Mortgage Corporation bonds issued under the Federal Farm Mortgage Corporation Act.

3 However, borrowings by member banks are generally for short periods.

which evidences the deposit of such notes may be accepted as security for an advance made to a member bank under this paragraph.

(c) Advances on other security under section 10 (b) of the Federal Reserve Act. Any Federal Reserve Bank may make advances, under authority of section 10 (b) of the Federal Reserve Act, to any of its member banks upon the latter's promissory note secured to the satisfaction of such Federal Reserve Bank regardless of whether the collateral offered as security conforms to eligibility requirements under other provisions of this part. The rate on advances made under the provisions of this paragraph shall in no event be less than one-half of 1 percent per annum higher than the highest rate applicable to discounts for member banks under the provisions of sections 13 and 13a of the Federal Reserve Act in effect at such Federal Reserve Bank. Such an advance must be evidenced by the promissory note of such member bank payable either (1) on a definite date not more than four months after the date of such advance, or (2) at the option of the holder on or before a definite date not more than four months after the date of such advance.

§ 201.3

Discount of notes, drafts and bills for member banks.1

(a) Commercial, agricultural and industrial paper. Any Federal Reserve Bank may discount for any of its member banks, under authority of sections 13 and 13a of the Federal Reserve Act, any note, draft, or bill of exchange which meets the following requirements:

(1) It must be a negotiable note, draft, or bill of exchange, bearing the endorsement of a member bank, which has been issued or drawn, or the proceeds of which have been used or are to be used, in producing, purchasing, carrying or marketing goods in one or more of the steps of the process of production, manufacture, or distribution, or in meeting current

Even though paper is not eligible for discount by a Federal Reserve Bank for a member bank under the provisions of this part, it may be used as security for an advance by a Federal Reserve Bank to a member bank under the terms and conditions of paragraph (c) of 201.2 if it constitutes security satisfactory to the Federal Reserve Bank.

As used in this part the word "goods" shall be construed to include goods, wares, merchandise, or agricultural products, including livestock.

operating expenses of a commercial, agricultural or industrial business, or for the purpose of carrying or trading in direct obligations of the United States (1. e., bonds, notes, Treasury bills or certificates of indebtedness of the United States);

(2) It must not be a note, draft, or bill of exchange the proceeds of which have been used or are to be used for permanent or fixed investments of any kind, such as land, buildings or machinery, or for any other fixed capital purpose;

(3) It must not be a note, draft, or bill of exchange the proceeds of which have been used or are to be used for transactions of a purely speculative character or issued or drawn for the purpose of carrying or trading in stocks, bonds or other investment securities except direct obligations of the United States (1. e., bonds, notes, Treasury bills or certificates of indebtedness of the United States); and

(4) It must have a maturity at the time of discount of not exceeding ninety days, exclusive of days of grace, except that agricultural paper as defined in this section may have a maturity of not exceeding nine months, exclusive of days of grace; but this requirement is not applicable with respect to bills of exchange payable at sight or on demand of the kind described in paragraph (b) of this section.

(b) Bills of exchange payable at sight or on demand. Any Federal Reserve Bank may discount for any of its member banks, under authority of section 13 of the Federal Reserve Act negotiable bills of exchange payable at sight or on demand which (1) bear the endorsement of a member bank, (2) grow out of the domestic shipment or the exportation of nonperishable, readily marketable staples, and (3) are secured by bills of lading or other shipping documents conveying or securing title to such staples. All such bills of exchange shall be forwarded promptly for collection, and demand for payment shall be made promptly, unless the drawer instructs that they be held until arrival of such

A readily marketable staple within the meaning of this part means an article of commerce, agriculture, or industry of such uses as to make it the subject of constant dealings in ready markets with such frequent quotations of price as to make (a) the price easily and definitely ascertainable and (b) the staple itself easy to realize upon by sale at any time.

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