Certain dangers attend loans on bills of lading. The bill does not guarantee the quality of the goods; the bill may be stamped "shipper's load and count," which indicates that the shipper has loaded and counted the shipment and that the carrier is not re sponsible for its correctness; the packages are merely "said to contain" such and such goods. It is therefore important to know the character and honesty of the shipper. Moreover, the bill may be a fraudulent issue and not binding upon the company. Since the bills are sometimes issued in duplicate or triplicate, delivery may have been made on the original, and the duplicate, outstanding but not marked, may be the one pledged for the loan; if any one of the set is sufficient warrant to deliver, posses sion of the entire set is necessary to guard a loan. By error or on purpose part of the goods represented by the bill may have been delivered and no indorsement of the delivery have been made on the bill. The goods may have shrunk, spoiled, or deteriorated en route, and be salable only at a discount, if at all. Stale bills are very apt to represent unsalable goods and should be carefully investigated.
The Rediscount of Commodity Paper The Federal Reserve Board has from the first favored the use of commodity paper by prescribing preferential rates for redis count, by furthering the warehouse movement, and by prepar ing a uniform system of accounting for warehouses. The Federal Reserve Act provided for the rediscount of notes, drafts, and bills of exchange arising out of actual commercial transactions and gave the board the right to determine and define the character of the paper thus eligible, but it specified that nothing in the act should be construed to prohibit such notes, drafts, and bills of exchange, secured by staple agricultural products, or other goods, wares, or merchandise from being eligible for such discount. The act further prescribed that notes, drafts, and bills admitted to discount under this paragraph must have a maturity at the time of discount of not more than ninety days, except that those drawn or issued for agricultural purposes or based on live stock and having a maturity not exceeding six months may be dis counted in an amount to be limited to a percentage of the capital of the federal reserve bank, which percentage is to be ascertained and fixed by the Federal Reserve Board.
The limitations imposed by the board are: 1. That the aggregate of notes, drafts, and bills bearing the signature or indorsement of any one borrower redis counted for any one member bank shall at no time exceed TO per cent of the unimpaired capital and surplus of such bank.
2. That the commodity paper must conform to the require ments of the federal reserve bank relating to shipping documents, receipts, insurance, etc.
3. The item must be one on which the rate of interest or discount, including commission, charged the maker does not exceed 6 per cent per annum.
The board also requires that the commodities represented be "approved and readily marketable, non-perishable staples, properly insured." The following table gives the distribution of commodity loans as among the leading commodities: Handling the Collateral of Rediscount Paper When a member bank rediscounts commodity paper, the matter of handling the collateral becomes difficult. In such a case the borrowing customer may wish the warehouse receipts to be held locally by the member bank where substitutions can be conveniently made; but it may not be regarded as sound bank ing to rediscount a loan and allow the warehouse receipts to re main in the hands of the borrowing bank. One method employed is to turn over the receipts to another designated bank in the same locality as the borrower, which bank holds the receipts under trust agreement with the reserve bank and permits the necessary collateral substitutions. This method is objectionable, however, because the banks are competitors and no bank cares to have a competitor obtain information in regard to its customers through holding warehouse receipts. Under regulations laid down by the Federal Reserve Board, a federal reserve bank is authorized to waive the requirement of a financial statement of the borrower with respect to any note discounted for a member bank in behalf of a depositor or another member bank, if the note is secured by a warehouse, terminal, or other similiar receipt covering goods in storage. In the case of the Federal Reserve Bank of New York, as a general rule the warehouse or other receipt covering goods in storage, together with insurance policies, accompanies the notes at the time they are offered for rediscount and is left with the bank until the maturity of the notes; but this custom has to do particularly with notes of persons, firms, or corporations which do not make a financial statement. Where a recent statement shows a reasonable excess of quick assets over current liabilities the member bank is sometimes permitted to retain the warehouse receipt and insurance policy, but it gives instead its trust receipt and notifies the federal reserve bank to that effect. The reserve bank, however, considers separately the circumstances surround ing each case.