12 U.S.C. § 343 — Discount of obligations arising out of actual commercial transactions

When a member bank endorses a note, draft, or bill of exchange, that endorsement counts as the bank waiving demand, notice, and protest — but only as to its own endorsement. With that endorsement, a Federal Reserve Bank may discount notes, drafts, and bills of exchange that arise from actual commercial transactions — meaning they were issued for agricultural, industrial, or commercial purposes, or their proceeds were or will be used for those purposes. The Board of Governors decides what kind of paper counts as eligible for this discounting under this chapter. This doesn't stop notes, drafts, or bills secured by staple agricultural products or other goods, wares, or merchandise from being eligible, and it specifically makes eligible the paper of factors who make advances only to producers of raw staple agricultural products. But this eligible category never includes paper that is merely an investment, or that was issued or drawn to carry or trade in stocks, bonds, or other investment securities — except bonds and notes of the United States government. To be discounted this way, the paper must mature within ninety days of the discount date, not counting the grace period. (Note: the supplied text of this section jumps directly to a provision labeled "(3)"; no paragraphs labeled (1) or (2) appear in the text provided.) (3)(A) In unusual and urgent circumstances, the Board of Governors — by the affirmative vote of at least five members — may authorize a Federal Reserve Bank, for a period the Board sets, to discount notes, drafts, and bills of exchange for a participant in any program or facility with broad-based eligibility, at rates set under section 357 of this title, as long as they are endorsed or otherwise secured to the Reserve Bank's satisfaction. Before discounting, the Reserve Bank must first get evidence that the participant cannot get adequate credit from other banking institutions. All such discounts are subject to whatever limitations, restrictions, and regulations the Board prescribes. (B)(i) As soon as practical after July 21, 2010, the Board — in consultation with the Secretary of the Treasury — had to establish, by regulation, the policies and procedures governing this emergency lending. Those policies and procedures must be designed to make sure any emergency lending program or facility provides liquidity to the financial system (not aid to one failing company), that the security for emergency loans is sufficient to protect taxpayers from losses, and that any such program ends in a timely, orderly way. The Board's policies must require a Federal Reserve Bank to assign a lendable value to all loan collateral, consistent with sound risk management, in deciding whether a loan is adequately secured for purposes of this paragraph. (ii) The Board must establish procedures to prohibit insolvent borrowers from borrowing under these programs and facilities. Those procedures may include a certification, from the borrower's chief executive officer or other authorized officer, at the time the borrower first borrows, that the borrower is not insolvent, with a duty to update that certification if the underlying facts materially change. A borrower counts as insolvent for this purpose if it is in bankruptcy, in resolution under title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or in another federal or state insolvency proceeding. (iii) A program or facility structured to remove assets from one specific company's balance sheet, or set up to help one specific company avoid bankruptcy, Dodd-Frank title II resolution, or another insolvency proceeding, does not count as a program or facility with broad-based eligibility. (iv) The Board may not establish any program or facility under this paragraph without the Secretary of the Treasury's prior approval. (C) The Board must provide to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services: (i) not later than 7 days after the Board authorizes any loan or other financial assistance under this paragraph, a report including the justification for providing it, the identity of the recipients, the date and amount of the assistance and the form it took, and its material terms — including duration, collateral pledged and its value, all interest, fees, and other value to be received in exchange, any requirements imposed on the recipient regarding employee pay, dividends, or other corporate decisions, and the expected cost to taxpayers; and (ii) once every 30 days after that, for any outstanding loan or assistance, written updates on the value of the collateral, the interest, fees, and other value received in exchange, and the expected or final cost to taxpayers. (D) Certain information submitted to Congress under subparagraph (C) — the identity of participants in an emergency lending program or facility, the amounts each participant borrowed, and identifying details about the assets or collateral involved — must be kept confidential if the Board's Chairman requests that in writing; in that case, it goes only to the chairs and ranking members of the committees named in subparagraph (C). (E) If an entity that received a loan from a Federal Reserve Bank under this paragraph later becomes a "covered financial company," as defined in section 201 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, while the loan is still outstanding, and the Federal Reserve Bank suffers a realized net loss on that loan, the Federal Reserve Bank gets a claim against that company equal to the amount of the net realized loss — with the same priority as an obligation owed to the Secretary of the Treasury under section 210(b) of the Dodd-Frank Act.