The Bridgeport evening farmer., 1914-11-13
RESERVE BOARD DEFINES COMMERCIAL PAPER AND
 REDISCOUNTING RULINGS
Sinqle and Double Name Bills are Al= lowed in Liberal Policy of New
 System Effective Monday


 await the effect of the release of re-. serves and of the changes which the credit mechanism of the country is about to experience before establish ing a definite discount policy
 Commercial Paper.-The Federal Reserve Board, under Section of the Federal Reserve act. has the right to determine or define the character of paper eligible for discount, to wit. notes. drafts, and bills of exchange arising out of actual commercial transactionss that is, notes. drafts and bills Of exchange issued or drawn for agricultural, industrial or coD1mercial purposes, or the proceeds of which have been used or are to be used for such purposes.
 ..Bearing in mind the requirements of the present situation the Federal Reserve Board believes that 1t would be inadvisabIe at this time to issue regulations placing a narrow or re- stricted interpretation on the section defining the character of paper elfgf- ble for discount. It has, therefore, been decided not to enter upon the discussion of the question of single or double name paper at this time. but to admit both forms of bills to redis- count with the Federal reserve banks.
 The Basic Principles.
 'The Federal Reserve Board pro-
 
 lowing basic principals for the guid- ance of Federal reserve banks and member banks:
 "IAl-No bill shall be admitted to rediscaunt by Federal reserve banks, the proceeds of which have beens or are. to be applied to permanent in vestment, and regulation No, has been formulated with the intention of giving effect t0 this principle and ia heraWith enclosed at
 "(B)-Maturities of discounted bills should be well distributed. It is the well established practice of European reserve banks to invest only in obligations maturing within a short time It is a general rule than ninety days to run. The ma turities Of these notes and bills are so we'll distributed as to enable those banks within short time to strength en their hold on the general money market by collecting at maturity or very substantial proportion of their assets. Acting son this principle the Federal reserve banks should be in a position to liquidate, whenever such a course is necessary, substantially one-third of al1ss their investments within a period of thirty days. De- parture from this principle will en-
  It is observance of this principle that affords justification for permit ting member banks to count balances with Federal reserve banks as the equivalent of cash reserves.
 Short Term Bills
 s'(C)-B1ls should be essentially self-Hquidating. Safety requires not only that bills held by the Federal reserve banks should be of short and 1 dition should be of such character that it is reasona bly, certain that they can be collected when they mature. They ought to be essentially self liquidating,' or in other words, should represent in every case some distinct step or stage in the productive or dis tributive process-the progression of more nearly these steps approacIi the final consumer the smaller will be the amount involved in each trans action, as represented by the bill and the more automatically self l liquidating will be it's. character.
 Double name papers drawn on a purchaser against an actual sale of goods affords from the eco homie point of view prima facie evil dence of the character of the loan | transaction from which it arose. Sin gle name notes, now so freely used in the Unted States, may represent the same kind of transactions as those bearing two names
 stInasmuch, however, as the single name paper does not show on it's face the character of the transaction out of which it arose-an admitted weak ness of these forms of paper-it fs Incumbent upon each Federal reserve l bank to insist that the character o1 the business and the general status o1 the concern supplying such paper should be carefully examined in order I that the discounting bank may be cer tain that, no such single name paper has been issued for purposes excluded by the act, such as investments of z permanent or speculative nature,
 Carefully Inquiry Needed.
 .sonly careful inquiry on these points will render it safe and propel hfor a Federal reserve bank to con sidec such paper 8 sself-liquidating I investment at maturity.
 Question of Procedure.
 Turning now to the question O procedure, it is not thought necessar. to impose upon the banks the observ ance of methods which would invoIv' needless difficulty or delay It i deemed essential therefore that statement of conditions be attacher to each bill when sold to a Fedora reserve bank. It is thought acvisa ble by the board, however, to 1equir that on and after January Is, 1915 no paper shall be discounted or pur chased by the Federal reserve bank that does not bear on it's face the ev fdence that it is eligible for redis count under the principles and def rftions above outlined and expresses in regulation No. ?, and that the selle of the paper has given a staremen to the member bank A rubber ssaml is considered sufficient evidence if i states in substance:
 Eligible for rediscount with Fed eraI reserve banks under regulation o Federal reserve circular No 13.
 Credit file No.
 District Nc.
 Name oe member bank =