receive on deposit from their depositors checks drawn upon member banks or Federal Reserve Banks of other districts. As the council reads these sections such checks can only be received on deposit by a Federal Reserve Bank "when remitted by" another Federal Reserve Bank and then solely for exchange purposes. In the opinion of the council it is unsound in principle and wrong in practice that a check drawn on a member bank should be charged to its reserve account with a Federal Reserve Bank without its authority and without its having had an opportunity to pass upon it. The council fears that the attempt being made by some of the Federal Reserve Banks to disregard the elements of time and distance in connection with the clearing of bank checks may so involve and absorb the funds of the Federal Reserve Banks as to seriously impair their usefulness as banks of issue and discount.

TOPIC NO. 5.

The regulations under which State banks are to be admitted to the system.

Recommendation.-The council finds the suggestions of the Federal Reserve Board on this subject as contained in its draft circular No. 78 to be substantially along right lines. The chief inducement, however, for State banks to come into the system is in connection with the clearing of so-called country checks and until this matter is developed to such a point that State banks may definitely know just what advantages may accrue to them in that connection it seems futile to prepare regulations for their joining the system. Moreover, the great obstacle to their joining the system is that once in they may be unable to withdraw. The council therefore advises the Federal Reserve Board to get advice of counsel as to whether it is able by regulation to establish a method whereby State banks entering the system may upon sufficient and reasonable notice and on equitable terms withdraw from it.

I have the honor to be respectfully, yours,

JAS. B. FORGAN, President. Recommendations of the Federal Advisory Council to the Federal Reserve Board January 19, 1915.

TOPIC NO. 1.

Bankers Acceptances and Bills of Exchange.

Recommendation. That for the present at least we deem it wise for the Federal Reserve Banks to buy in the open market under section 14 bankers' acceptances and bills of exchange only when such bankers' acceptances or bills of exchange are the acceptances or bear the indorsement of member banks. Such purchases should also be subject to the following limitations provided for acceptances under section 13, when offered for discount, as follows:

"Any Federal Reserve Bank may discount acceptances which are based on the importation or exportation of goods and which have a maturity at time of discount of not more than three months. The amount of acceptances so discounted shall at no time exceed one-half the paid-up capital stock and surplus of the bank for which the rediscounts are made."

Commercial Paper.

TOPIC NO. 2.

Recommendation.-The Federal Advisory Council submits the Federal Reserve Board's Circular No. 3 with the accompanying Regulation B, dated January 15, 1915, altered to meet its views, as follows:

CIRCULAR NO. 3-SERIES OF 1915.

[Superseding Circular 13 of 1914.]

FEDERAL RESERVE BOARD,
Washington, January 15, 1915.

COMMERCIAL PAPER.

When Circular No. 13, bearing date of November 10, 1914, and the accompanying regulations were issued it was believed that a period of two months would suffice to enable member banks to familiarize their customers with the requirements of Regulation No. 4 of 1914. It appears, however, that in many districts the needed readjustments of banking and business practice can not be effected in so short a period. An extension of time has therefore been asked by both member banks and their customers for the purpose of adjusting their methods to the new requirements.

To meet these requests the Board has by Regulation A, accompanying Circular No. 2, Series of 1915, extended Regulation No. 3, Series of 1914, for a period of six months, or until July 15, 1915, subject to the modifications contained in the accompanying regulation (B-1915) which supersedes Regulations Nos. 2 and 4 (1914).

The Board includes in this regulation (paragraph III) a new method for certifying to the eligibility of bills for rediscount. While banks will not be required to comply with the provisions of this paragraph until after July 15, the new method prescribed is made a part of this regulation in order that advance notice may be given to all banks so that those which are equipped to do so may begin to operate under its provisions as soon as possible. The Board suggests, furthermore, that Federal Reserve Banks insist that the accompanying regulation be applied as promptly as possible to all so-called "purchased paper" (that is, paper bought through brokers or otherwise from customers with whom the purchasing bank has no direct business relation). Where such direct connections do not exist the requirement that statements, both as to business conditions and methods of borrowing, be furnished appears to be a matter of prudence and should not be delayed. Some borrowers may not be able to give a statement in the required form until after the close of their business year. In such cases statements for the previous year may be accepted, even though they may not contain all the desired data.

While it has been thought best not to insist, as a mandatory requirement, upon a written statement in the case of limited borrowings by depositors, when officers of member banks, from their own personal knowledge, certify to the eligibility of the paper for discount, it is urged, nevertheless, that member banks do their utmost to accustom their borrowers to furnishing such statements.

In order to facilitate operations, particularly during the initial period, the mandatory requirements as to the contents of borrowers' statements have been modified, but banking prudence requires that whenever possible the observance of the rules originally prescribed should be encouraged. CHARLES S. HAMLIN,

The word "bill," when used in this regulation, shall be construed to include notes, drafts, or bills of exchange, and the word "goods" shall be construed to include goods, wares, merchandise, or staple agricultural products, including live stock.

1. STATUTORY REQUIREMENTS.

The Federal Reserve Act provides that a bill (other than an acceptance covered by the regulation accompanying Circular No. -), to be eligible for rediscount by a member bank with a Federal reserve bank, must comply with the following statutory requirements:

(a) It must be indorsed by a member bank, accompanied by a waiver of demand notice and protest.

(b) It must have a maturity at the time of discount of not more than 90 days, except as provided by Regulation C, accompanying Circular No. 4, Series of 1915.

(c) It must have arisen out of actual commercial transactions; that is, be a bill which has been issued or drawn for agricultural, industrial, or commercial purposes, or the proceeds of which have been or are to be used for such purposes

(d) It must not have been issued for carrying or trading in stocks, bonds, or other investment securities except bonds and notes of the Government of the United States, but the pledge of "goods" as security for a bill is not prohibited.

II. CHARACTER OF PAPER ELIGIBLE.

The Federal Reserve Board, exercising its statutory right to define the character of a bill eligible for rediscount by Federal reserve banks, has determined:

(a) That it must be a bill the proceeds of which have been used or are to be used in producing, purchasing, carrying, or marketing "goods" in one or more of the steps of the process of production, manufacture, and distribution;

(b) That no bill is "eligible" the proceeds of which have been used or are to be used, (1) For permanent or fixed investments of any kind, such as land, buildings, machinery (including therein additions, alterations, or other permanent improvements, except such as are properly to be regarded as costs of operation). It may be considered as sufficient evidence of compliance with this requirement if the borrower shows, by statement or otherwise, that he has a reasonable excess of quick assets over his current labilities on open accounts, short-term notes, or otherwise;

(2) For investments, whether made in "goods" or otherwise, of a merely speculative

nature.

III. METHOD OF CERTIFYING ELIGIBILITY.

The Federal Reserve Board has adopted the following method by which member banke, after July 15, 1915, shall certify that a bill is eligible for rediscount when applying for rediscount thereof:

(a) In the case of a bill which has been discounted for one of its own depositors, provided either

(1) such bill bears the signatures of the purchaser and the seller of the goods, and contains a statement on its face that it was issued for goods actually purchased or sold, or

(2) the aggregate amount of obligations of such depositor rediscounted and offered for rediscount does not exceed $5,000, but in no event a sum in excess of ten per cent of the paid in capital of the member bank.

Every member bank will be required to certify in the letter of application, over the signature of a duly authorized officer, that, to the best of his knowledge and belief, the bill was issued for one of the purposes mentioned in paragraphs I (c) and II (a) hereof and that it conforms to the provisions of the act and the requirements of this regulation. (b) In the ease-of-a-bill-which does not conform to the conditions described under HI (a) (1) and (2) hereof or of a bill purchased otherwise than from one of its own depositors, the member bank shall place-a-certificate upon the bill substantially to the following effect:

Eligible for rediscount with Federal reserve banks under--Federal Reserve Board Regulation-B. (series of 1915).

which certificate shall be deemed a representation by the member bank that, to the best of the knowledge and belief of its duly authorized officers, the bill conforms to the provisions of the act and the requirements of this regulation.

For the purpose of enabling it to affix the above certificate, Every member bank should maintain a credit file, bearing an identification number or name, which should contain a statement of the financial condition of the borrower, either signed by the borrower or duly certified by a member bank or notary public, to be a copy of a signed statement. Such statement should contain all the information essential to a clear and correct knowledge of the borrower's credit and of his methods of borrowing. A schedule specifying certain information which such statement should include and the main points to be observed is hereto appended.

Regulations Nos. 2 and 4 of 1914 are hereby revoked.

H. PARKER WILLIS,

Secretary.

APPENDIX.

CHARLES S. HAMLIN,

Governor.

INFORMATION TO BE INCLUDED IN CREDIT FILES OF MEMBER BANKS.

The credit files of member banks, referred to in the above regulation, should include information concerning the following matters:

(a) The nature of the business or occupation of the borrower;

(b) If an individual, information as to his indebtedness and his financial responsibility;

(c) If a firm or corporation, a balance sheet showing quick assets, slow assets, permanent or fixed assets, current liabilities and accounts, short-term loans, long-term loans, capital (and surplus);

(d) The maximum and minimum amount of short-term loans during the preceding year and the anticipated maximum during the present year;

(e) A statement evidencing the purpose of such short term loans and the policy of the borrower in financing slow, permanent, or fixed assets;

(f) All contingent liabilities, such as indorsements, guaranties, etc.;

(g) Particulars respecting any mortgage debt and whether the mortgage is a lien on Current assets;

(h) Such other information as may be necessary to determine whether the borrower is entitled to credit in the form of short-term loans.

The following members of the Federal Advisory Council were present at this meeting: President James B. Forgan, in the chair; Vice President L. L. Rue, J. P. Morgan, D. G. Wing, W. S. Rowe, George J. Seay, Charles A. Lyerly, Rolla Wells, C. T. Jaffray, J. Howard Ardrey, Archibald Kains; and Merritt H. Grim, secretary.

Recommendations of the Federal Advisory Council to the Federal Reserve Board contained in President's letter to F. A. Delano, ViceGovernor of the Federal Reserve Board dated March 7, 1915. (Approved April 20, 1915.)

Mr. Delano's letter is as follows:

WASHINGTON, March 5, 1915.

DEAR MR. FORGAN: The Board will soon have to deal for the first time with the question of rediscounting between Federal Reserve Banks, and has already discussed the matter informally.

As the first transaction of this kind may be regarded as establishing a principle, the Board deems it wise to advise you that this question is now under consideration, in order that you may have an opportunity of giving it the benefit of any suggestions that you may deem proper to make.

There seem at present to be no serious difficulties in connection with rediscount operations between districts, and the Board does not feel that the matter warrants calling the Advisory Council together for conference. Should you, however, entertain a contrary opinion, we would be glad at any time to meet the Council or its Executive Committee for a discussion of the question.

The Federal Reserve Bank of Atlanta has now under discount for its member banks commercial paper aggregating approximately $5,200,000, and its net cash reserve against its liabilities is but a little more than 45 per cent. We are approaching a season when southern banks begin to rediscount freely, and it is probable that the Federal Reserve Banks in the southern districts will before long have occasion to ask other Federal Reserve Banks to discount for them. The suggestion has been made that any Federal Reserve Bank so desiring should have an opportunity of participating pro rata in the purchase of paper from the southern reserve institutions. As you recall, the Board early in January favored a reduction of interest rates in the southern districts in order to encourage the retirement of Aldrich-Vreeland currency, and the low rates obtaining have been effective in materially reducing the amount of Aldrich-Vreeland currency outstanding in the South. It seems probable in fact that by April 1st there will be practically no National Bank notes in circulation in the South except those secured by United States bonds.

When the Board approved the present discount rates for the southern banks it was realized that the banks would sooner or later reach a point where they must rediscount, thus giving an opportunity for Federal Reserve Banks in other sections to employ profitably some of their funds in the South.

As you know, section 11, of the Federal Reserve Act, imposes upon the Board the duty of permitting or requiring Federal Reserve Banks to rediscount for each other, at rates to be fixed by the Federal Reserve Board. While the Board would prefer to adopt a policy, as far as the public interests will permit, of leaving the initiative in these transactions to the Federal Reserve Banks, from whom it expects shortly to receive suggestions as to rates, it seems proper that the Board should formulate its own views regarding the subject, particularly as these rates must ultimately be fixed by the Board.