5.4

5.5

Scope and application.

General authorization.

Appraisals.

Covenants and restrictions.
Insured loans.

AUTHORITY: §§ 5.1 to 5.5 issued under sec. 24, 38 Stat. 273, as amended; 12 U. S. C. 371. SOURCE: 5.1 to 5.5 appear at 14 F. R. 6788, Nov. 11, 1949.

§ 5.1 Scope and application. (a) This part is issued by the Comptroller of the Currency under authority of section 24 of the Federal Reserve Act, as amended (12 U. S. C. 371), and section 6 the act of October 25, 1949 (63 Stat. 906).

(b) The part applies to real estate loans made by national banks secured by liens on leaseholds.

§ 5.2 General authorization. Any national bank may make or acquire a loan, in accordance with this part, secured by a first lien on a leasehold (a) under a lease for not less than ninety-nine years, which is renewable, or (b) under a lease having a period of not less than

fifty years to run from the date the loan is made or acquired by the bank.

§ 5.3 Appraisals. The "appraised value" of a leasehold, for the purposes of section 24 of the Federal Reserve Act, shall be the full appraised value of the fee simple estate of the land and improvements, less the greater of:

(a) The value of the land without improvements;

(b) The average annual rental due under the lease from the date the loan is made or acquired by the bank to the maturity of the loan, multiplied by twenty (in other words, capitalized at 5%).

§ 5.4 Covenants and restrictions. In order to qualify as an acceptable leasehold for security for a real estate loan made by a national bank, the covenants and restrictions contained in the lease which provide for forfeiture or reversion in the event of a breach must not be more onerous or burdensome than those contained in leases in general use in the area in which such bank is located, and the lease should permit acquisition of the leasehold by the lending bank by voluntary conveyance or assignment by the lessee, and acquisition and sale under judicial process, without being subject to such restrictions as would jeopardize recovery of the security value of such leasehold.

§ 5.5 Insured loans. Loans insured under title II, title VI, or title VIII of the National Housing Act (12 U. S. C. 1707-1715, 1736-1742, or 1748-1748g) are not subject to the provisions of §§ 5.3 and 5.4.

(b) This part applies to loans made by national banks secured by direct obligations of the United States which will mature in not exceeding 18 months. [22 F. R. 5628, July 17, 1957]

§ 6.2 General authorization. The obligations to any national banking association in the form of notes of any person, copartnership, association, or

corporation, secured by not less than a like amount of direct obligations of the United States which will mature in not exceeding eighteen months from the date such obligations to such national banking association are entered into shall not be subject to any limitation based upon the capital and surplus of the association.

[23 F. R. 1825, Mar. 19, 1958]

Part

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271

201.6 Discounts for Federal Intermediate Credit Banks.

AUTHORITY: §§ 201.0 to 201.6 issued under sec. 11 (i), 38 Stat. 262; 12 U. S. C. 248 (i). Interpret or apply R. S. 5200, as amended, secs. 4, 13, 19, 24, 38 Stat. 254, as amended, 263, as amended, 270, as amended, 273, as amended, 39 Stat. 753, as amended, sec. 9, 40 Stat. 232, as amended, secs. 13, 13a, 42 Stat. 1479, as amended, sec. 10, 47 Stat. 56, as amended; 12 U. S. C. 84, 301, 330, 343-347, 347b, 347c, 348, 349, 351, 352, 361, 371, 372, 374.

SOURCE: 201.0 to 201.6 contained in Regulation A, 20 F. R. 263, Jan. 12, 1955.

§ 201.0 Foreword; general principles. (a) A principal function of the Federal Reserve Banks under the law is to provide credit assistance to member banks, through advances and discounts, in order to accommodate commerce, industry, and agriculture. This function is administered in the light of the basic objective which underlies all Federal Reserve credit policy, i. e., the advancement of

the public interest by contributing to the greatest extent possible to economic stability and growth.

(b) The Federal Reserve System promotes this objective largely by influencing the availability and cost of credit through action affecting the volume and cost of reserves available to the member banks. Through open market operations and through changes in reserve requirements of member banks, the Federal Reserve may release or absorb reserve funds in accordance with the credit and monetary needs of the economy as a whole. An individual member bank may also obtain reserves by borrowing from its Federal Reserve Bank at a discount rate which is raised or lowered from time to time to adjust to the credit and economic situation. The effects of borrowing from the Federal Reserve Banks by individual member banks are not localized, as such borrowing adds to the supply of reserves of the banking system as a whole. Therefore, use of the borrowing facility by member banks has an important bearing on the effectiveness of System credit policy.

(c) Access to the Federal Reserve discount facilities is granted as a privilege of membership in the Federal Reserve System in the light of the following general guiding principles.

(d) Federal Reserve credit is generally extended on a short-term basis to a member bank in order to enable it to adjust its asset position when necessary

because of developments such as a sudden withdrawal of deposits or seasonal requirements for credit beyond those which can reasonably be met by use of the bank's own resources. Federal Reserve credit is also available for longer periods when necessary in order to assist member banks in meeting unusual situations, such as may result from national, regional, or local difficulties or from exceptional circumstances involving only particular member banks. Under ordinary conditions, the continuous use of Federal Reserve credit by a member bank over a considerable period of time is not regarded as appropriate.

(e) In considering a request for credit accommodation, each Federal Reserve Bank gives due regard to the purpose of the credit and to its probable effects upon the maintenance of sound credit conditions, both as to the individual institution and the economy generally. It keeps informed of and takes into account the general character and amount of the loans and investments of the member bank. It considers whether the bank is borrowing principally for the purpose of obtaining a tax advantage or profiting from rate differentials and whether the bank is extending an undue amount of credit for the speculative carrying of or trading in securities, real estate, or commodities, or otherwise.

(f) Applications for Federal Reserve credit accommodation are considered by a Federal Reserve Bank in the light of its best judgment in conformity with the foregoing principles and with the provisions of the Federal Reserve Act and this part.

§ 201.1 Introduction. This part is based upon and issued pursuant to various provisions of the Federal Reserve Act. The part is applicable to the following forms of borrowing from a Federal Reserve Bank: (a) advances to member banks on their own notes secured (1) by direct obligations of the United States, by paper eligible for discount or purchase by Federal Reserve Banks, or by obligations of certain

corporations

owned by the United States, or (2) by other security which is satisfactory to the Federal Reserve Bank; (b) discounts for member banks of commercial, agricultural and industrial paper and bankers' acceptances; and (c) discounts for Federal Intermediate Credit banks.

§ 201.2 Advances to member banks(a) Advances on Government obligations. Any Federal Reserve Bank may make advances, under authority of section 13 of the Federal Reserve Act, to any of its member banks for periods not exceeding fifteen days' on the promissory note of such member bank secured (1) by the deposit or pledge of bonds, notes, certificates of indebtedness, or Treasury bills of the United States, or (2) by the deposit or pledge of debentures or other such obligations of Federal Intermediate Credit banks having maturities of not exceeding six months from the date of the advance.2

3

(b) Advances on eligible paper. (1) Any Federal Reserve Bank may make advances, under authority of section 13 of the Federal Reserve Act, to any of its member banks for periods not exceeding ninety days on the promissory note of such member bank secured by such notes, drafts, bills of exchange, or bankers' acceptances as are eligible for discount by Federal Reserve Banks under the provisions of this part or for purchase by such banks under the provisions of the Federal Reserve Act.

(2) In the event notes which evidence loans made pursuant to a commodity loan program of the Commodity Credit Corporation and which comply with the maturity requirements of § 201.3 (a) have been deposited in a pool of notes operated by the Commodity Credit Corporation, the certificate of interest issued by the Commodity Credit Corporation which evidences the deposit of such notes may be accepted as security for an advance made to a member bank under this paragraph.

1 Under the last paragraph of section 13 of the Federal Reserve Act, a Federal Reserve Bank has authority to make advances for periods not exceeding ninety days to individuals, partnerships, and corporations (including member and nonmember banks) on their promissory notes secured by direct obligations of the United States. However, advances to member banks on the security of direct obligations of the United States are normally for short periods of not exceeding fifteen days; and it is not the practice to make advances to others than member banks except in unusual or exigent circumstances. 2 Such advances may also be made on notes secured by the deposit or pledge of Federal Farm Mortgage Corporation bonds issued under the Federal Farm Mortgage Corporation Act.

3 However, borrowings by member banks are generally for short periods.