12 CFR 201.110 - Goods held by persons employed by owner.

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§ 201.110 Goods held by persons employed by owner.

(a) The Board has been asked to review an Interpretation it issued in 1933 concerning the eligibility for rediscount by a Federal Reserve Bank of bankers' acceptances issued against field warehouse receipts where the custodian of the goods is a present or former employee of the borrower. [¶ 1445 Published Interpretations, 1933 BULLETIN 188] The Board determined at that time that the acceptances were not eligible because such receipts do not comply with the requirement of section 13 of the Federal Reserve Act that a banker's acceptance be “secured at the time of acceptance by a warehouse receipt or other such document conveying or securing title covering readily marketable staples,” nor with the requirement of section XI of the Board's Regulation A that it be “secured at the time of acceptance by a warehouse, terminal, or other similar receipt, conveying security title to such staples, issued by a party independent of the customer.”

The requirement that the receipt be “issued by a party independent of the customer” was deleted from Regulation A in 1973, and thus the primary issue for the Board's consideration is whether a field warehouse receipt is a document “securing title” to readily marketable staples.

(b) While bankers' acceptances secured by field warehouse receipts are rarely offered for rediscount or as collateral for an advance, the issue of “eligibility” is still significant. If an ineligible acceptance is discounted and then sold by a member bank, the proceeds are deemed to be “deposits” under § 204.1(f) of Regulation D and are subject to reserve requirements.

(c) In reviewing this matter, the Board has taken into consideration the changes that have occurred in commercial law and practice since 1933. Modern commercial law, embodied in the Uniform Commercial Code, refers to “perfecting security interests” rather than “securing title” to goods. The Board believes that if, under State law, the issuance of a field warehouse receipt provides the lender with a perfected security interest in the goods, the receipt should be regarded as a document “securing title” to goods for the purposes of section 13 of the Federal Reserve Act. It should be noted, however, that the mere existence of a perfected security interest alone is not sufficient; the Act requires that the acceptance be secured by a warehouse receipt or its equivalent.

(d) Under the U.C.C., evidence of an agreement between the secured party and the debtor must exist before a security interest can attach. [U.C.C. section 9-202.] This agreement may be evidence by: (1) A written security agreement signed by the debtor, or (2) the collateral being placed in the possession of the secured party or his agent [U.C.C. section 9-203]. Generally, a security interest is perfected by the filing of a financing statement, [U.C.C. section 9-302.] However, if the collateral is in the possession of a bailee, then perfection can be achieved by:

(1) Having warehouse receipts issued in the name of the secured party; (2) notifying the bailee of the secured party's interest; or (3) having a financing statement filed. [U.C.C. section 9-304(3).]

(e) If the field warehousing operation is properly conducted, a security interest in the goods is perfected when a warehouse receipt is issued in the name of the secured party (the lending bank). Therefore, warehouse receipts issued pursuant to a bona fide field warehousing operation satisfy the legal requirements of section 13 of the Federal Reserve Act. Moreover, in a properly conducted field warehousing operation, the warehouse manager will be trained, bonded, supervised and audited by the field warehousing company. This procedure tends to insure that he will not be impermissibly controlled by his former (or sometimes present) employer, the borrower, even though he may look to the borrower for reemployment at some future time. A prudent lender will, of course, carefully review the field warehousing operation to ensure that stated procedures are satisfactory and that they are actually being followed. The lender may also wish to review the field warehousing company's fidelity bonds and legal liability insurance policies to ensure that they provide satisfactory protection to the lender.

(f) If the warehousing operation is not conducted properly, however, and the manager remains under the control of the borrower, the security interest may be lost. Consequently, the lender may wish to require a written security agreement and the filing of a financing statement to insure that the lender will have a perfected security interest even if it is later determined that the field warehousing operation was not properly conducted. It should be noted however, that the Federal Reserve Act clearly requires that the bankers' acceptance be secured by a warehouse receipt in order to satisfy the requirements of eligibility, and a written security agreement and a filed financing statement, while desirable, cannot serve as a substitute for a warehouse receipt.

(g) This Interpretation is based on facts that have been presented in regard to field warehousing operations conducted by established, professional field warehouse companies, and it does not necessarily apply to all field warehousing operations. Thus ¶ 1430 and ¶ 1440 of the Published Interpretations [1918 BULLETIN 31 and 1918 BULLETIN 862] maintain their validity with regard to corporations formed for the purpose of conducting limited field warehousing operations. Furthermore, the prohibition contained in ¶ 1435 Published Interpretations [1918 BULLETIN 634] that “the borrower shall not have access to the premises and shall exercise no control over the goods stored” retains its validity, except that access for inspection purposes is still permitted under ¶ 1450 [1926 BULLETIN 666]. The purpose for the acceptance transaction must be proper and cannot be for speculation [¶ 1400, 1919 BULLETIN 858] or for the purpose of furnishing working capital [¶ 1405, 1922 BULLETIN 52].

(h) This interpretation suspersedes only the previous ¶ 1445 of the Published Interpretations [1933 BULLETIN 188], and is not intended to affect any other Board Interpretation regarding field warehousing.

( 12 U.S.C. 342et seq.)
[ 43 FR 21434, May 18, 1978]

This is a list of United States Code sections, Statutes at Large, Public Laws, and Presidential Documents, which provide rulemaking authority for this CFR Part.

This list is taken from the Parallel Table of Authorities and Rules provided by GPO [Government Printing Office].

It is not guaranteed to be accurate or up-to-date, though we do refresh the database weekly. More limitations on accuracy are described at the GPO site.

United States Code
U.S. Code: Title 12 - BANKS AND BANKING

§ 248 - Enumerated powers

§ 343 - Discount of obligations arising out of actual commercial transactions

§ 344 - Discount or purchase of bills to finance agricultural shipments

§ 345 - Rediscount of notes, drafts, and bills for member banks; limitation of amount

§ 346 - Discount of acceptances

§ 347 - Advances to member banks on their notes

§ 347a - Advances to member bank groups; inadequate amounts of eligible and acceptable assets; liability of individual banks in group; distribution of loans among...for Federal reserve notes; foreign obligations as security for advances

§ 347b - Advances to individual member banks on time or demand notes; maturities; time notes secured by mortgage loans covering one-to-four family residences

§ 347c - Advances to individuals, partnerships, and corporations; security; interest rate

§ 347d - Transactions between Federal Reserve banks and branch or agency of foreign bank; matters considered

§ 348 - Discount of obligations given for agricultural purposes or based upon livestock; collateral security for Federal reserve notes

§ 348a - Transactions with foreign banks; supervision of Board of Governors of the Federal Reserve System

§ 349 - Rediscount for intermediate credit banks of obligations given for agricultural purposes; discount of notes made pursuant to section 1031

§ 350 - Purchase and sale of debentures and like obligations of intermediate credit banks and agricultural credit corporations

§ 351 - Obligations of cooperative marketing association as issued or drawn for agricultural purposes

§ 352 - Limitation on amount of obligations of certain maturities which may be discounted and rediscounted

§ 352a - Repealed. Pub. L. 85–699, title VI, § 601, Aug. 21, 1958, 72 Stat. 697

§ 353 - Purchase and sale of cable transfers, acceptances and bills

§ 354 - Transactions involving gold coin, bullion, and certificates

§ 355 - Purchase and sale of obligations of National, State, and municipal governments; open market operations; purchases and sales from or to United States;...of obligations acquired directly from or loaned directly to United States

§ 356 - Purchase of commercial paper from member banks and sale of same

§ 357 - Establishment of rates of discount

§ 358 - Establishment of accounts for purposes of open-market operations; correspondents and agencies

§ 359 - Purchase and sale of acceptances of intermediate credit banks and agricultural credit corporations

§ 359a - Omitted

§ 360 - Receiving checks and drafts on deposit at par; charges for collections, exchange, and clearances

§ 361 - Bills receivable, bills of exchange, acceptances; regulations by Board of Governors

§ 362 to 364 - Omitted

§ 374 - Acting as agent for nonmember bank in getting discounts from reserve bank

§ 374a - Acting as agent for nonbanking borrower in making loans on securities to dealers in stocks, bonds, etc.; penalties

§ 461 - Reserve requirements