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(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. [para. 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 Sec. 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 para. 1430
and para. 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 para. 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 para. 1450 [1926 BULLETIN
666]. The purpose for the acceptance transaction must be proper and
cannot be for speculation [para. 1400, 1919 BULLETIN 858] or for the
purpose of furnishing working capital [para. 1405, 1922 BULLETIN 52].
(h) This interpretation suspersedes only the previous para.
1445 of the Published Interpretations [1933 BULLETIN 188], and is not
intended to affect any other Board Interpretation regarding field
warehousing.
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