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5000 - Statements of Policy
{{12-31-98 p.5035}}
GOLD
Statement of Policy
On December 31, 1974, Public Law 93-373, which removes the
restrictions on a person "purchasing, holding, selling, or otherwise
dealing with gold," becomes effective. The word "person" in
the Act has been construed to include banks. Thus, to the extent
authorized by State law, State nonmember banks will be permitted to
deal in gold.
Trading in any commodity, including gold, is a highly speculative
activity. The past experience of individuals and companies in the
commodities markets indicates that, at minimum, commodities trading is
a very risky activity for the novice. In the case of gold, moreover,
the more than forty year old prohibition against U.S. citizens holding
and trading in gold has meant that few persons have even a nominal
degree of expertise in such activity. The Corporation therefore
believes that insured State nonmember banks should consider confining
their trading in gold to purchases and sales on a consignment or agency
basis. Irrespective of the manner in which an insured nonmember bank
intends to deal in gold, the Corporation should be notified of such
intention. 1
Insured nonmember banks which are considering dealing in gold for
their own accounts should carefully evaluate the experience and ability
of their present staffs in this regard before proceeding. Further, such
banks should bear in mind that gold ownership exposes them to possible
loss due to adverse fluctuations in market value. In order to minimize
such exposure, banks may find it necessary to conduct limited trading
in gold futures for hedging purposes. Banks considering holding
inventories of their own gold are reminded that gold bears no yield or
interest and that any such inventory should be reflected as "other
assets" and should be periodically adjusted to current market value.
Even the sale of gold by a bank to its customers on a consignment
basis, while not subjecting the bank to possible losses due to
fluctuations in the price of gold, entails certain other risks of which
insured State nonmember banks should be aware. These problems can also
arise with respect to sales of a bank's own gold. First, banks may bear
the risk of any loss with respect to gold which they hold, even when it
is held on consignment. Banks considering holding gold should therefore
evaluate the adequacy of their present security arrangements. Second,
gold purchase or consignment agreements entered into by a bank may not
provide it with the right to resell to the dealer any gold which the
bank's customers ask the bank to repurchase. Thus a bank might be
forced to refrain from repurchasing gold which it had previously sold
to its customers. Third, banks should attempt to minimize the
possibility of receiving, and ultimately selling, bogus gold by
entering into agreements only with responsible, reputable dealers. In
this connection, insured nonmember banks should be especially wary of
proposals which purport to offer gold to them at or below the current
market price. They should pay particular attention to the degree of
fineness (purity) of the gold so offered. The inadvertent sale of gold
which does not conform to a bank's representations may well expose the
bank to unfavorable publicity or legal action. Fourth, banks engaging
to repurchase gold from their customers should consider retaining
possession of the gold pursuant to a sale/safekeeping agreement. Unless
the gold has constantly remained in the possession or control of the
bank, it may be necessary for the bank to acquire or utilize facilities
for weighing and assaying gold it plans to repurchase.
Many insured nonmember banks, including banks which do not choose to
offer gold for sale to their customers, may find themselves engaged in
safekeeping arrangements for gold owned by their customers. Here too,
banks contemplating providing such services should
{{12-31-98 p.5036}}evaluate the adequacy of their
security arrangements. Where the size or amount of the gold received
cannot feasibly be held in normal safe deposit facilities, banks should
take care to segregate such gold in their vaults and to issue receipts
to their customers therefor. Such receipts, whether issued in
connection with a sale/safekeeping transaction or otherwise, should be
issued in non-negotiable form and should refer to a specifically
identifiable amount of gold. Each receipt and any advertisement of gold
safekeeping services should also state clearly and conspicuously that
the gold held pursuant to the safekeeping arrangement is not a deposit
insured by FDIC.
It is the opinion of the Secretary of the Treasury that Public Law
93-373 did not repeal or alter the so-called Gold Clause Resolution of
1933 (31 U.S.C. 463). The Resolution prohibits any contractual
provision which purports to give the obligee the option of requiring
payment of the obligation in money or a specified amount of gold.
Deposit contracts which purport to give the bank's customer such an
option are therefore rendered legally unenforceable by the terms of the
Gold Clause Resolution. Contracts specifically payable only in gold may
be similarly unenforceable where the parties to the contract view the
gold as a medium of discharging a debt, such as a deposit liability,
rather than as a commodity to be traded. Needless to say, sound banking
practice dictates that insured nonmember banks not enter into legally
unenforceable deposit contracts. Conversely, while contracts entered
into by a bank treating gold as a commodity, rather than a currency,
such as futures contracts, may be valid obligations of the bank, they
do not give rise to "deposits" insured by FDIC.
Insured nonmember banks should exercise care so that the aggregate
amount of gold held as collateral for loans does not become unduly
large. Adequate margin requirements on such loans (such as valuing the
gold at 50 percent of the current market price) should be maintained
and banks should revalue gold held as collateral at least monthly.
Banks considering making loans for the purpose of enabling the borrower
to purchase gold should bear in mind that such loans, unless made for
industrial or commercial purposes, are speculative and nonproductive.
As in the cases of the sale and safekeeping of gold, banks should
consider the adequacy of their facilities for authenticating and
protecting gold held as collateral for loans.
In sum, the Corporation believes that insured nonmember banks should
move cautiously in regard to dealing in gold. Those banks offering gold
for sale should consider possible adverse customer reaction if the
price of gold drops and endeavor to warn their customers of the highly
speculative nature of such an investment. Banks should also check their
security systems for compliance with the Corporation's
Part 326 and any subsequent
revisions thereof.
Similar policy statements are being issued by the other Federal bank
regulatory agencies with respect to banks under their jurisdictions.
Effective date. The policy enunciated in the preceding
statement shall be effective on the date of its publication [December
18, 1974].
By order of the Board of Directors, December 9, 1974.
[Source: 39 Fed. Reg. 43765, December 18, 1974]
[The page following this is 5049.]
1 Insured nonmember banks intending to trade in gold should
submit written notice of such intent to the appropriate regional office
of the Corporation at least 10 business days prior to the initiation of
such trading. Such notice should include all information the bank deems
relevant to its proposed activity including whether the bank will be
trading for its own account or solely on an agency or consignment
basis, the projected amount and purpose of any such trading, the
experience of those individuals who will be engaged in the trading,
insurance arrangements which will be in effect and, where applicable,
the relation of the bank's capital and earnings to the projected amount
of gold that the bank will acquire for its own account. Go Back to Text
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