12 U.S.C. § 414 — Authority of Board of Governors respecting issuance of notes; interest; lien

This section is one undivided provision covering three things: how the Federal Reserve Board approves note requests, what interest banks pay, and how those notes become a lien. Approving requests: The Board of Governors of the Federal Reserve System, acting through the local Federal Reserve agent, has the right to grant a Federal Reserve bank's application for Federal Reserve notes in full, grant it in part, or reject it completely. Supplying notes and charging interest: Whatever amount the Board grants, the Board supplies to the applying bank through the local Federal Reserve agent. The bank is then charged with the value of the notes it received. The bank must pay interest, at a rate the Board of Governors sets, but only on the part of its outstanding notes that isn't backed by gold certificates — that is, on the amount of a bank's outstanding Federal Reserve notes left over after subtracting the gold certificates the Federal Reserve agent holds as collateral security. Becoming a lien: Once Federal Reserve notes are delivered to a bank, they — together with any notes that bank issued under subchapter XIII of this chapter, backed by United States 2 percent government bonds — become a "first and paramount lien" on all of that bank's assets. That means these notes count as the bank's top-priority claim: if the bank's assets ever have to cover its debts, this claim gets paid before other claims on those same assets.