12 U.S.C. § 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
submitted 113 years ago by ch. 6 to r/title-12-BANKS-AND-BANKING · 381 words · no verdicts yet
A Federal Reserve Bank may lend money to groups of five or more member banks in its district. The Board of Governors must approve this first. Each bank's share of the debt matches its share of the group's deposits. The loan must charge at least one percent more interest than the bank's usual rate, and special rules limit what can serve as collateral.
This section has no lettered subsections, so it is explained here as a series of connected rules.
Who can act, and how: A Federal Reserve Bank may make advances (loans) to groups of five or more member banks in its district, but only after getting the consent of at least five members of the Board of Governors of the Federal Reserve System. A majority of the banks in the group must be independently owned and controlled.
When this is allowed: This option is only for banks that don't have enough "eligible and acceptable assets" to get sufficient credit* from the Federal Reserve the normal way — through rediscounts or advances under section 347b.
Liability: Each bank in the group is only responsible for its proportional share of the total loan. That share is based on how much of the group's total deposits that bank holds. A smaller group — fewer than five banks — can still borrow this way if their combined deposits equal at least 10 percent of all deposits held by member banks across the whole district.
Distributing the money: The banks in the group decide among themselves how to split the loan proceeds. But before any bank gets its share, it must deposit its own promissory note with a trustee representing the whole group, backed by whatever collateral the group agrees on.
Interest rate: The Federal Reserve Bank making the advance must charge interest at least 1 percentage point above its own discount rate at the time it makes the loan.
Collateral restrictions: Two limits apply. First, none of these notes can be used, under section 412, as collateral backing the issuance of Federal Reserve notes (paper currency). Second, obligations of any foreign government, individual, partnership, association, or corporation cannot serve as collateral for advances made under this section.
Authorization: Member banks are authorized to take on the obligations described in this section.
Upon receiving the consent of not less than five members of the Board of Governors of the Federal Reserve System, any Federal reserve bank may make advances, in such amount as the board of directors of such Federal reserve bank may determine, to groups of five or more member banks within its district, a majority of them independently owned and controlled, upon their time or demand promissory notes, provided the bank or banks which receive the proceeds of such advances as herein provided have no adequate amounts of eligible and acceptable assets available to enable such bank or banks to obtain sufficient credit* accommodations from the Federal reserve bank through rediscounts or advances other than as provided in section 347b 1 of this title. The liability of the individual banks in each group must be limited to such proportion of the total amount advanced to such group as the deposit liability of the respective banks bears to the aggregate deposit liability of all banks in such group, but such advances may be made to a lesser number of such member banks if the aggregate amount of their deposit liability constitutes at least 10 per centum of the entire deposit liability of the member banks within such district. Such banks shall be authorized to distribute the proceeds of such loans to such of their number and in such amount as they may agree upon, but before so doing they shall require such recipient banks to deposit with a suitable trustee, representing the entire group, their individual notes made in favor of the group protected by such collateral security as may be agreed upon. Any Federal reserve bank making such advance shall charge interest or discount thereon at a rate not less than 1 per centum above its discount rate in effect at the time of making such advance. No such note upon which advances are made by a Federal reserve bank under this section shall be eligible under section 412 of this title as collateral security for Federal reserve notes.
No obligations of any foreign government, individual, partnership, association, or corporation organized under the laws thereof shall be eligible as collateral security for advances under this section.
Member banks are authorized to obligate themselves in accordance with the provisions of this section.
Source credit: (Dec. 23, 1913, ch. 6, § 10A, formerly § 10(a), as added Feb. 27, 1932, ch. 58, § 1, 47 Stat. 56; amended Aug. 23, 1935, ch. 614, title II, § 203(a), 49 Stat. 704; renumbered § 10A, Pub. L. 102–242, title I, § 142(a)(1), Dec. 19, 1991, 105 Stat. 2279.)
- 1913Enacted · Act of Dec. 23, 1913, ch. 6 · 47 Stat. 56
- 1935Amended · Act of Aug. 23, 1935, ch. 614 · 49 Stat. 704
- 1991Amended · Pub. L. 102-242 · 105 Stat. 2279
A history note hasn’t been published yet. The record shows enactment by ch. 6 on 1913-12-23.
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