Journal of Political Economy Vol. 22 No. 5 1914
Commercial Paper and the Federal Reserve Banks
Abstract
The Federal Reserve Board is empowered to formulate rules and regulations for putting into effect many requirements which very wisely are expressed in general terms in the Federal Reserve Act. One of the first and most important duties of the Board will be to determine the character of the paper which the reserve banks may rediscount for member banks. In this particular instance the act is explicit regarding certain requirements, while others are left to the determination of the Board in accordance with general principles laid down in the measure. Rediscounts are restricted to paper maturing within ninety days, aside from a limited amount of agricultural and live-stock paper maturing within six months. Notes, drafts, and bills of exchange may be rediscounted; in other words, form is immaterial, since practically all kinds of negotiable instruments used for borrowing purposes are included. Collateral loans when the collateral consists of stocks or bonds are specifically excluded from rediscount, while commercial paper, whatever its form, is eligible. The act does not define commercial loans except in most general terms, but directs the Federal Reserve Board to do so more precisely. The provision in the act regarding the general character of the paper which may be rediscounted reads as follows: Upon the indorsement of any of its member banks, with a waiver of demand, notice, and protest by such bank, any Federal reserve bank may discount notes, drafts, and bills of exchange arising out of actual commercial transactions; that is, notes, drafts, and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes, or the proceeds of which have been used, or are to be used, for such purposes, the Federal Reserve Board to have the right to determine or define the character of the paper thus eligible for discount, within the meaning of this Act.
- DOI
- 10.1086/252452
- Volume
- 22
- Issue
- 5
- Pages
- 436-443
- Language
- en
- Sources
- semanticscholar openalex crossref