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Bank Notes
Source:  Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)

A bank's own promise to pay to bearer upon demand, and intended to be used as money.  Bank notes are often referred to as circulating notes or circulation.  The current emission of note issue in the U.S. is now confined to the Federal Reserve banks, which issue FEDERAL RESERVE NOTES.  Power to issue notes still exists in national banks, but no government bonds bearing the circulation privilege are issued or outstanding.  So does the power to issue bank notes continue to exist in state banks, but federal 10% tax thereon in the Internal Revenue Code continues to bar issue as a matter of feasibility.  Since March, 1935, funds have been on deposit with the Treasurer of the U.S. to cover retirement of all FEDERAL RESERVE BANK NOTES and, since August, 1935, to cover retirement of all outstanding NATIONAL BANK NOTES.

Bank Commercial Paper (Promissory Notes).  

The question of whether a member bank may issue its own commercial paper in the open market found the Comptroller of the Currency and the Board of Governors of the Federal Reserve System divided.

The Comptroller has ruled that a national bank may do so (Par. 7530, Rulings).  A national bank may issue at par or discount its negotiable or nonnegotiable promissory notes of any maturity.  The provisions of Regulation 16 (12 CFR 16) should be consulted for registration requirements if there is to be a public offering of such notes or a series thereof.  In its latest form, however, Par. 7530 of the Comptroller's Rulings omits former additional matter as follows:  "Such promissory notes, issued in the regular course of business to obtain working funds for use in making loans and the performance of ordinary banking functions, represent liabilities of the nature excepted from the provisions of 12 U.S.C. 82 (note:  the general limitation on indebtedness of a national bank to the amount of its capital stock plus 50% of unimpaired surplus fund).  Such notes may, therefore, be issued without regard to the limitations or indebtedness contained in that section.  Notwithstanding the provisions of Regulations Q and D issued by the Federal Reserve board, it is the position of the Comptroller of the Currency that the proceeds of such notes do not constitute deposits and that the provisions of 12 U.S.C. 461, 462, and 1813 relating to reserves, interest limitations, and deposit insurance are not applicable."

The Board of Governors of the Federal Reserve System disagreed.  In their Regulation D, as amended effective January 1, 1967, definitions of deposits subject to legal reserve requirements included "any promissory note, acknowledgement of advance, due bill, or similar instrument that is issued by a member bank principally as a means of obtaining funds to be used in its banking business, except any such instrument (1) that is issued to another bank, (2) that evidences an obligated to repurchase, or (3) that has an original maturity of more than 2 years and states expressly that it is subordinated to the claims of depositors" (exempting any instrument issued before June 27, 1966).  Similar provision was found in the board's Regulation Q, as amended effective

January 1, 1967 , relating to regulation of interest on deposits.

Bank Finance.
  "A Note on Banknote Characteristics and the Demand for Currency By Denomination.  Journal of Banking and Finance, September, 1988.

ZWEIG, J.  "From Munis to Money."  Forbes, February 10, 1989 .  
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