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Collection Transactions -Charges.

XIII-B, 300. Maturing notes and bills.-While 'a member bank is prohibited from charging a Federal reserve bank for the collecting and remitting of checks and drafts under the proviso in section 13, nevertheless a member bank may make a charge for collecting and remitting maturing notes and bills. 1917 Bulletin, p. 661.

XIII-B, 301. Collection of checks drawn against a savings account. -A check upon a savings account in a member bank is a check or draft within the meaning of that part of section 13 which prohibits any bank from making a charge against a Federal reserve bank. Consequently, the drawee bank can not deduct exchange in making payment upon a check drawn against one of its savings accounts sent to it for collection by a Federal reserve bank. But maturing notes and bills, or bill-of-lading drafts drawn against a person other than a bank, do not constitute such checks or drafts, and a bank may properly charge the Federal reserve bank for collecting such items. 1919 Bulletin, p. 964.

XIII-B, 302. Exchange charges on member bank's own acceptances.A member bank has no authority in law to deduct exchange in accounting to the Federal reserve bank for one of its own acceptances forwarded to it for collection by the Federal reserve bank. 1920 Bulletin, p. 162. (See XIII-B, 304.)

XIII-B, 303. Checks drawn on a member bank forwarded by another member bank, with instructions to remit to a Federal reserve bank.--The drawee bank may impose an exchange charge not to exceed 10 cents per $100, or fraction thereof, since the charge is made against the bank for whose account remission is made and not against the Federal reserve bank. 1920 Bulletin, p. 494.

XIII-B, 304. Collection of notes and acceptances payable at member bank.-Inasmuch as the acceptance of a member bank is necessarily a “draft” on that bank, no charge may be made against the Federal reserve bank which forwarded it for collection. On the other hand, section 13 does not prohibit a bank from charging the Federal reserve bank for collecting notes and bills drawn on persons other than banks, even though such items may be made payable at the collecting bank.

1920 Bulletin, p. 699. (See XIII-B, 300.) C. Notes, DRAFTS, AND BILLS OF EXCHANGE ARISING OUT OF ACTUAL

COMMERCIAL AND AGRICULTURAL TRANSACTIONS. Classification and Eligibility of Paper in General.

XIII-C, 100. General discussion of eligible agricultural and commercial paper. There are two general classes of eligible agricultural and commercial paper: (1) Paper which is eligible because issued or drawn for an agricultural purpose, and (2) paper which is eligible

because the proceeds have been or are to be used for an agricultural or a commercial purpose.

The note of a buyer given to the seller in payment for articles will be eligible for rediscount as having been issued or drawn for a commercial purpose. If a note is not issued or drawn for an eligible purpose, its eligibility must be determined by the purpose for which the proceeds are used. The use of proceeds to purchase goods for resale is a commercial purpose, irrespective of the character of the goods. If the proceeds of a note, however, are not used to purchase goods for resale, the eligibility of the note may be affected by the character of the goods purchased. Thus, if a farmer discounts a note and uses the proceeds to purchase articles which are in the nature of a permanent investment, the note will be ineligible, but if he uses the proceeds to purchase other articles to be used for agricultural purposes, the note may be eligible as agricultural paper.

The purchase and sale of any articles, including agricultural products, is a commercial rather than an agricultural transaction. The note of a dealer issued, or the proceeds of which are used, to purchase agricultural products for resale, may therefore be eligible only as commercial paper. The note of a farmer, however, given in payment for goods purchased may be eligible as agricultural paper if the goods are to be used by the farmer for agricultural purposes and do not constitute permanent investments. The same is true of a farmer's note the proceeds of which are to be used to purchase such goods. On the other hand, a note given to a farmer in payment for agricultural products grown by him is a note used for a commercial purpose, namely, the purchase of goods for resale, and may be eligible only as commercial paper.

It is immaterial in these cases whether the buyer makes his own note or accepts a draft drawn on him by the seller; the same principles will apply in either case in determining whether the buyer's paper is eligible commercial or agricultural paper.

Even though paper may be eligible for rediscount, a Federal reserve bank is under no obligation to rediscount it, but may accept it or refuse it according as it is considered desirable from a credit standpoint. 1920 Bulletin, p. 1301. (See XIII-C, 204, 211, 334, 500.)

XIII-C, 101. The purpose of the original negotiation of paper determines for all time its eligibility and classification. A note given to a farmer in payment for grain purchased for resale is commercial paper, even though the farmer subsequently discounts the note and uses the proceeds for an agricultural purpose, since the purpose of the original negotiation of the note—its delivery to the farmer-is to finance the purchase and resale of goods, which is

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clearly a commercial purpose. 1921 Bulletin, p. 1199.

1921 Bulletin, p. 1199. (See sec. 13, “Agricultural paper" and "Commercial paper;" see also XIII-C, 400.)

XIII-C, 102. Warehouse receipts as collateral for bank loans.General discussion of acceptability and importance of warehouse receipts as collateral security for bank loans, especially as regards receipts of warehousemen licensed under the United States warehouse act. 1921 Bulletin, p. 1314.

XIII-C, 103. Collateral security as affecting eligibility. The eligibility for rediscount of paper other than bankers' acceptances does not depend upon the existence or character of collateral security. This is material only as bearing upon the acceptability of the paper and its desirability as an investment. 1922 Bulletin, p. 931(3). (See XIII-C, 200, 208.)

XIII-C, 104. Paper of cooperative marketing associations. -Sum mary of rulings and review of general principles relating to the eligibility for rediscount of paper arising out of the operations of agricultural cooperative marketing associations. (This summary of rulings is superseded by XIII-C, 106, which brings the subject up to date and in harmony with the law as amended March 4, 1923.) 1922 Bulletin, p. 1044.

XIII-C, 105. Nonnegotiable paper ineligible for rediscount.Although negotiability is not required in specific terms by the Federal reserve act or the board's regulations as a requisite to the eligibility of paper for rediscount by Federal reserve banks, the definitions of promissory notes, drafts, and bills of exchange contained in Regulation A incorporate substantially the requirements of negotiable paper as set forth in the negotiable instruments law, and negotiability is a necessary condition to eligibility. 1923 Bulletin, p. 559.

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(See XIII-C, 700-715.)

XIII-C, 106. Paper of cooperative marketing associations.--A summary of rulings and review of general principles affecting the discount and purchase by Federal reserve banks of cooperative marketing association paper. This ruling supersedes XIII-C, 104, and brings the subject matter up to date and in harmony with the provisions of law as amended by the agricultural credits act of 1923. This summary embodies rulings discussing the following questions:

(1) Definition of eligible commercial and agricultural paper substantially as set forth in Regulation A, series of 1923.

(2) Classes of cooperative marketing associations under consideration.

(3) Growers' drafts accepted by association covering deliveries of crops may be eligible for discount as agricultural paper when the proceeds are used by the growers for agricultural purposes.

(4) Growers' drafts accepted by associations may be considered bills of exchange drawn against actually existing values when drawn at about the time the grower delivers his crop to the association.

(5) Growers' drafts on associations are not trade acceptances, because the delivery of a crop to the association under the circumstances described is not the kind of a sale which should be made the basis of a trade acceptance. Such drafts may, however, be eligible for discount as agricultural or commercial paper.

(6) Carrying a crop pending its orderly marketing is an agricultural operation, and growers' paper used to finance the carrying of their products for a reasonable period incident to orderly marketing may be eligible for discount as agricultural paper.

(7) Notes and drafts of associations for funds to finance packing and marketing products of their members may be eligible for discount as agricultural paper.

(8) Notes and drafts of associations for funds to pay for products purchased from their members may be eligible for discount as agricultural paper.

(9) Notes and drafts of associations for funds to advance to their members for an agricultural purpose may be eligible for discount as agricultural paper.

(10) Bankers' acceptances drawn by associations for agricultural purposes are eligible for acceptance and discount with maturities up to six months when secured by warehouse receipts covering readily marketable staples.

(11) Warehouse receipts must be issued by corporations independent of the borrower in order to constitute proper security for bankers' acceptances.

(12) The discussion herein of certain kinds of paper of cooperative marketing associations as eligible for discount does not mean that they are the only classes of such paper which are eligible; they are merely the only classes of paper the eligibility of which the board has considered, and as questions arise concerning the eligibility of other kinds of paper further rulings will be issued.

(13) Paper of cooperative marketing associations the proceeds of which are used to pay organization expenses or represent fixed investments are not eligible for discount.

(14) Federal reserve banks are under no obligation to discount paper, even though it be eligible, but may accept it or refuse it in the exercise of discretionary power.

(15) Secured bankers' acceptances drawn by associations for agricultural purposes are eligible for purchase on the open market with maturities up to six months, and bills of exchange drawn by associations for an agricultural purpose may similarly be purchased with maturities up to nine months, provided they conform to the provisions

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of Regulations A and B. 1923 Bulletin, p. 999. (See XIII-C, 215, 216, 335, 336; XIII-E, 416, 417.) Agricultural Paper.

XIII-C, 200. Agricultural paper is eligible, irrespective of security, provided that the direct primary purpose of the loan is to carry on the ordinary operations of agriculture. The words in section 13 “based on” do not mean "secured by.” 1915 Bulletin, p. 72. (See XIII-C, 104.)

XIII-C, 201. Horses and mules constitute live stock within the meaning of the agricultural paper provision of section 13. 1915 Bulletin, p. 72.

XIII-C, 202. Notes for commercial fertilizer.--Six months notes given for commercial fertilizer to be used under growing crops are eligible as agricultural paper. (Note.-Under the present law such notes would be eligible with maturities up to nine months.) 1915 Bulletin, p. 75.

XIII-C, 203. Cattle paper.--Notes made by mule and cattle dealers, like notes of dealers in agricultural implements, are commercial rather than agricultural paper, and so limited to 90-day maturity. But a note made by a farmer in payment or part payment of mules to be used on his farm is agricultural paper. 1915 Bulletin, p. 212.

XIII-C, 204. Agricultural-implement paper.—Notes given by farmers in payment for agricultural implements to be used on the farm are eligible for rediscount as agricultural paper. A bill drawn by a dealer on a farmer in payment for agricultural implements purchased by the farmer is a bill that has been “ drawn or issued for agricultural purposes or the proceeds of which have been used or are to be used for agricultural purposes," and agricultural implements which wear out rapidly and in most cases have to be replaced within a comparatively short time are not considered as permanent or fixed investments. Notes of a farmer and bills drawn by implement dealers on a farmer against the sale to him of agricultural implements are therefore eligible for rediscount as agricultural paper: "1916 Bulletin,

. p. 67. (See XIII-C, 100, 210, 500, 501.)

XIII-C, 205. Cattle paper-Cows.--A note issued by a farmer and discounted by him at a bank, the proceeds of which are used for the purchase of cows which will be retained for a considerable length of time to produce milk, butter, cheese, etc., is eligible for rediscount as a note drawn for agricultural purposes or based on live stock, since live stock includes cows. 1916 Bulletin, p. 112.

XIII-C, 206. Purchase and sale of agricultural products or implements. The purchase or sale of an agricultural product or of implements, or other commodities used in agriculture, constitutes a com

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