In 1916, an amendment was passed to the Federal Reserve Act, allowing member banks to invest up to ten per cent. of their capital and surplus in corporations organized to do a foreign or international banking business, and a number of such corporations have been organized as a result of this amendment. They specialize in the issuance of dollar credits and in the acceptance of drafts drawn upon them.

The Federal Reserve Board has imposed various restrictions upon the operations of these discount corporations, which may be enumerated as follows:

1. They are not permitted to receive domestic deposits, though they may receive deposits which are incidental to the carrying out of transactions in foreign countries or dependencies of the United States.

2. Against such deposits, a reserve must be obtained, which corresponds to that required of member banks located in central reserve cities.

3. They may accept drafts and bills of exchange for all transactions permissible to member banks under provisions of the Federal Reserve Act, but are obliged to make no acceptance for account of any one drawer at any time in amounts in excess of ten per cent. of their subscribed capital and surplus, unless:

(a) The transaction is fully secured, or,

(b) Arises from the exportation or importation of merchandise, and

(c) Is guaranteed by a bank or banker of undoubted solvency.

4. Whenever the aggregate of acceptances of any one corporation outstanding at any time exceeds the amount of its capital and surplus, fifty per cent. of all acceptances in excess of such amount shall be fully secured.

5. Whenever the aggregate of such acceptances exceeds twice the amount of the subscribed capital and surplus, all acceptances outstanding in excess of such amount shall be fully secured, whichever of said two requirements shall call for the smaller amount of secured acceptances.

6. The aggregate of all acceptances outstanding plus the total of all deposits held by any corporation must not exceed six times the amount of that corporation's capital and surplus, except with the approval of the Federal Reserve Board.

7. Discount corporations are required to maintain a reserve of at least fifteen per cent. in liquid assets as security for all outstanding acceptances, which reserve shall consist of cash balances with other banks, bankers' acceptances, or such securities as the Board may from time to time permit.

8. These corporations are required to make two reports annually to the Federal Reserve Board, covering such details of their operations as may be prescribed and as subject to such examinations as the Board may order.

Regarding "6" above given, the Federal Reserve Board has already in some cases given permission to acceptance corporations to create acceptances to the extent of twelve times their capital and surplus. The ratio of liabilities on account of deposits and acceptances, therefore, is twelve to one, a figure which is quite on a parity with some of the largest and strongest banks in this country. Out of an increased demand for dollar acceptances and dollar credits and out of the inability of the existing banks to supply the demand, the acceptance corporation came into being.