tion to the issuing bank, all charges incident to the return of such notes to be borne by the issuing bank."

Pending the issuance of revised regulations on this subject, you are authorized to act in accordance with the amendment thus indicated.

JANUARY 28, 1916.

Loans on Bills Payable.

I have your letter of January 27. Under section 5202, Revised Statutes, a national bank may not borrow as bills payable an amount in excess of its capital stock. Under the Federal Reserve Act, however, it may rediscount actual items of paper in its possession to any amount that the Federal Reserve Bank of its district is willing.

JANUARY 29, 1916.

Direct Discounts.

Your letter of January 28 is received, and in reply you are informed that Federal Reserve Banks can not discount commodity paper directly for mercantile firms. This paper must come to the banks through and bearing the indorsement of member banks. FEBRUARY 1, 1916.

Drafts Purchased in Open Market.

I wish to acknowledge receipt of your letter of January 25, inclosing a copy of a draft drawn by a certain company and purchased by you in the open market as a banker's acceptance.

You are advised that this draft does not come within the definition of a banker's acceptance as set forth in paragraph I, Regulation S, series of 1915. It is accepted by the bank and not by the land company which is the drawee. Under the requirements of the regulations of the Board, a draft to be eligible as an acceptance must be accepted by the drawee and not by anyone else. You are advised, therefore, that the paper in question is not a banker's acceptance within the meaning of the regulations of the Board and is not eligible for purchase as such by you.

It is ineligible for purchase as a trade acceptance for the same reason. The fact that the land company has stamped the bill a trade acceptance and has signed such statement as acceptor" does not in itself make it a trade

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acceptance. The bill was accepted by the bank and not by the land company, which appeared on the bill merely as an indorser. It was therefore not eligible for purchase by you as a trade acceptance under Regulation P, series of 1915, which requires a bill to be accepted by the company, firm, corporation, or person upon whom it is drawn. It is suggested, therefore, that you make arrangements with the parties in question to have the bill drawn in such form as will conform to the regulations of the Board.

If it is desired that the acceptance be made by the bank, the land company should make arrangements with such bank in advance and the bill should be drawn on that bank and not on the land company. The bank as drawee could then properly make an acceptance eligible for purchase as a banker's acceptance. If the company drawing the draft desires the credit of the land company, in addition to that of the bank, they should arrange to have such company sign as indorser. FEBRUARY 1, 1915.

Cattle Paper.

I beg to acknowledge receipt of your letter of February 9, inquiring in substance whether or not a note issued by a farmer, the proceeds of which are to be used for the purchase of cows, would be eligible within the regulation of the. Board.

In connection with the question you state you "must assume that these cows will be used as dairy cattle which will be retained for a considerable length of time to produce milk, butter, cheese, etc., and that the loan is not made, strictly speaking, for the 'breeding, raising, fattening, and marketing of live stock.'"

Replying to this question the Board instructs me to state that as the Act defines agricultural paper as "notes, drafts, and bills drawn or issued for agricultural purposes or based on live stock," and as there is no doubt that "live stock" includes cows, it would appear, therefore, that, unless for banking reasons concerning which the Federal Reserve Board must exercise its own discretion, there would not be any objection to the notes mentioned by you. FEBRUARY 15, 1916.

Advisory Council.

In answer to your letter of February 9 I beg to say that the question you raise has been considered by the Federal Reserve Board. It

is the opinion of the Board that Advisory Council members should sit with boards of directors of Federal Reserve Banks only at the invitation of the latter, and not as a matter of course. In some cases it may be desirable to have the local member of the Advisory Council attend a board meeting for consultation or report, but this is believed to be the exception rather than the rule.

FEBRUARY 16, 1916.

Cotton Loan Paper.

Your letter of January 24 has been under advisement by the Federal Reserve Board, and this letter is written in accordance with the instructions of the Board. In your letter

you say:

"A cotton broker who is a depositor of the bank desires to finance cotton for various mills. He finances the same by giving to the bank his note secured by the warehouse receipt of the mill indorsed in blank, for cotton stored in his name and properly insured, but sold to the mill for a specific amount to be paid at a specific time, as per sales note attached. Sample copies of the above papers are inclosed.

"The money is deposited to the credit of the broker, who in turn, we understand, charges the mill interest on the same, and the loan is paid by the broker only when he receives notice from the mill that the mill desires to use and pay for the cotton. Would such loans taken from one broker in excess of the 10 per cent of the capital and the surplus of the bank be an excess loan under the Federal Reserve Act, if the financing for each individual mill and the accepted sales note held of said mill were not in excess of said 10 per cent?"

Referring to this point, counsel of the Board

the form of the transaction. There is no privity of contract as between the bank or the holder of the note and the mill. Should the mill refuse to purchase the cotton under the agreement referred to, the bank might, if the broker assigned his contract, possibly be subrogated to the rights of the broker and might, in this case, sue the mill for damages arising out of the breach of contract, but if the bank has this right, it merely enhances the value of the collateral and does not affect the form of the transaction. Such notes would, therefore, in the opinion of this office, clearly come within the provisions of section 5200 of the Revised Statutes, and no national or member bank could discount an aggregate amount of more than 10 per cent of its capital and surplus without violating the provisions of this section.

"The language of section 13 of the Federal Reserve Act is still more comprehensive, and no Federal Reserve Bank could, in the opinion of this office, rediscount such notes bearing the name of one broker for an aggregate amount in excess of 10 per cent of the capital and surplus of the member bank without violating the provisions of section 13 of the Federal Reserve Act.

"A different situation would result if the

broker should draw a bill of exchange on the mill accompanied by the necessary documents and the mill should accept this bill of exchange. In such case, if the bank discounted it, it would hold the direct obligation of the mill as acceptor; would have the security of the broker's obligation as drawer of the bill, and would also have the security of the cotton pledged as collateral. In this form the transaction would come within the proviso of section 5200 of the Revised Statutes, which excepts from its operation 'the discount of bills of exchange drawn in good faith against actually existing values.""

The matter has been submitted to the Comptroller of the Currency, who states that he fully concurs in the view expressed by counsel as set forth above.

FEBRUARY 9, 1916.

The following opinions of counsel have been authorized for publication by the Board since the last edition of the Bulletin:

Reports of Condition of State Banks and Trust Companies. The Comptroller of the Currency may, under the provisions of the Federal Reserve Act, accept from member State banks and trust companies the form of report of condition prescribed by the State authorities, provided such report exhibits the resources and liabilities of such banks

or trust companies under appropriate heads.

JANUARY 29, 1916. SIR: The following questions have been referred to this office for an opinion:

(1) Can the Comptroller of the Currency, under the provisions of the Federal Reserve Act, accept reports of condition of State banks and trust companies on forms prescribed by the State authorities?

(2) Can the Comptroller of the Currency authorize State banks and trust companies making reports of conditions to fill out only the first page of form used by national banks and exempt them from furnishing all or any part of the details called for on subsequent pages of

such form?

Section 9 of the Federal Reserve Act, which relates to State banks as members of the Federal Reserve System, requires such banks to comply with the provisions of sections 5211 and 5212, Revised Statutes.

Section 5211 requires each national bank to make not less than five reports during each year on a form to be prescribed by the Comptroller. This section provides in part that

Each such report shall exhibit, in detail and under appropriate heads, the resources and liabilities of the association at the close of business on any past day by him specified.

Section 5212 provides that

In addition to the reports required by the preceding section, each association shall report to Comptroller of the Currency, within ten days after declaring any dividend, the amount of such dividend, and the amount of net earnings in excess of such dividend.

It will be observed that the form of the report is left to the Comptroller, the statute merely providing that such report shall exhibit,

in detail and under appropriate heads, the resources and liabilities of the association. It would seem, therefore, that if the form of report prescribed by any of the State authorities shows under appropriate heads the resources and liabilities of State banks and trust companies which are members of the Federal Reserve System, when such form has been approved and adopted by the Comptroller, section 5211, Revised Statutes, will have been complied with.

Section 5211 further provides that

The Comptroller shall also have power to call for special reports from any particular association whenever in his judgment the same are necessary to a full and complete knowledge of its condition.

This section gives the Comptroller the right to call for additional information from any particular bank and precludes the assumption that all reports must be in the same form.

Since State banks and trust companies are not limited by law to the same class and character of investments as national banks, their resources and liabilities may differ in some particulars from the resources and liabilities of national banks, and there is nothing in the Act to indicate that the form of report used by such State banks and trust companies should be identical with the form used by national banks.

In answer to the specific questions submitted, this office is of the opinion that the Comptroller may adopt the form prescribed by State authorities if, in his opinion, it exhibits the resources and liabilities under proper heads, or he may adopt so much of the form used by national banks as he considers appropriate and necessary, and may prescribe this as the form to be used by State banks and trust companies which become members of the Federal Reserve System.

Respectfully,

M. C. ELLIOTT, Counsel.

To Hon. C. S. HAMLIN,

Governor Federal Reserve Board.

Any Federal Reserve Bank may receive from any of its member banks and from the United States, deposits of current funds in lawful money, national-bank notes, Federal Reserve notes, etc.

The word "may," as used in the Federal Reserve Act, has generally been construed to confer a privilege rather than to impose an obligation, and Congress all through the Act has made a clear distinction between that word and "shall." It seems, therefore, that a Federal Reserve Bank is not required under all circumstances to accept for deposit currency offered to it, regardless of the purpose for which the deposit is being made.

Section 4 provides that the board of directors of each Federal Reserve Bank

Shall administer the affairs of said bank fairly and impartially and without discrimination in favor of or against any member bank or banks, and shall, subject to the provisions of law and the orders of the Federal Reserve Board, extend to each member bank such discounts, advancements, and accommodations as may be safely and reasonably made with due regard for the claims and demands of other

member banks.

Under the provisions of this section no Federal Reserve Bank could legitimately discriminate against any particular member bank, nor could it, without reason, refuse to extend to one member bank privileges which it offers to others.

It seems clear, however, that any Federal Reserve Bank may refuse to accept deposits of

Pennsylvania Escheat Law.

The act of June 7, 1915, of the Pennsylvania State

Legislature, providing for the escheat to the State of all deposits which have not been increased or decreased for a period of 14 years, does not apply to such deposits in national banks. JANUARY 27, 1916.

SIR: On June 7, 1915, the Pennsylvania State Legislature passed an act which provides in part as follows:

Be it enacted, etc., That every person, bank, safe deposit company, trust company and corporation, organized or doing business under the laws of this Commonwealth, except mutual saving-fund societies not having a capital stock represented by shares, which receives or has received deposits of moneys, shall make a report to the auditor general, under oath, in the month of January of each year hereafter, been increased or decreased, or, if not increased of such deposits of money which shall have not or decreased, on which interest shall not have been credited in the pass book, at the request of the depositor, within fourteen or more consecutive years next preceding the first day of said month.

It will be observed that under the terms of this act all banks organized or doing business