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X-4988 REGULATION D, SERIES OP 1527 (Superseding R e g u l a t i o n D of 1924) RESERVES OF MEMBER BASICS (As T e n t a t i v e l y Approved by Federal Reserve Board on June 31, 1 9 2 7 . ) SECTION I . STATUTORY PROVISIONS S e c t i o n 19 o f the F e d e r a l r e s e r v e a c t p r o v i d e s , in p a r t , as f o l l o w s : BANK RESERVES shall Sec. 19. Demand d e p o s i t s w i t h i n the meaning of t h i s a c t / c o m p r i s e a l l de p o s i t s p a y a b l e w i t h i n t h i r t y days, and time d e p o s i t s s h a l l comprise a l l d e p o s i t s p a y a b l e a f t e r t h i r t y days, a l l s a v i n g s accounts and c e r t i f i c a t e s of d e p o s i t which are s u b j e c t to n o t l e s s than t h i r t y days' n o t i c e b e f o r e payment, and a l l p o s t a l s a v i n g s d e p o s i t s . Every bank, banking a s s o c i a t i o n , or t r u s t company which i s or which becomes a member of any Federal r e s e r v e bank s h a l l e s t a b l i s h and m a i n t a i n r e s e r v e b a l a n c e s w i t h i t s Federal r e s e r v e bank as f o l l o w s : (a) I f not i n a r e s e r v e or c e n t r a l r e s e r v e c i t y , as no? or h e r e a f t e r de f i n e d , i t s h a l l h o l d and maintain w i t h the Federal r e s e r v e bank of i t s d i s t r i c t an a c t u a l n e t b a l a n c e equal to not l e s s than seven per centum of the a g g r e g a t e amount o f i t s demand d e p o s i t s and t h r e e per centum of i t s time deposits. (b) I f i n a r e s e r v e c i t y , as now or h e r e a f t e r d e f i n e d , i t sha.ll h o l d and maintain w i t h the Federal r e s e r v e bank of i t s d i s t r i c t an a c t u a l n e t b alan ce equal to not l e s s than ten per centum of the a g g r e g a t e amount of i t s demand d e p o s i t s and t h r e e per centum of i t s time d e p o s i t s : P r o v i de d, however, That i f l o c a t e d in the o u t l y i n g d i s t r i c t s of a r e s e r v e c i t y or in t e r r i t o r y added to such a c i t y by the e x t e n s i o n of i t s c o r p o r a t e charte i t may, upon the a f f i r m a t i v e v o t e of f i v e members of the F e d e r a l Reserve Board, h o l d and maintain the r e s e r v e b a l a n c e s s p e c i f i e d in paragraph ( a ) hereof. ( c ) I f in a c e n t r a l r e s e r v e c i t y , as now or h e r e a f t e r d e f i n e d , i t s h a l l h o l d and maintain w i t h the Federal r e s e r v e bank of i t s d i s t r i c t an a c t u a l n e t b a l a n c e equal to not l e s s than t h i r t e e n per centum of the a g g r e g a t e amount of i t s demand d e p o s i t s and three per centum of i t s time d e p o s i t s : Provided, however, That i f l o c a t e d in the o u t l y i n g d i s t r i c t s of a c e n t r a l r e s e r v e c i t y or i n t e r r i t o r y added to such c i t y by the e x t e n s i o n o f i t s c o r p o r a t e c h a r t e r , i t may, upon the a f f i r m a t i v e v o t e of f i v e members of the Federal Reserve Board, h o l d and maintain the r e s e r v e b a l a n c e s s p e c i f i e d in paragraphs ( a ) or (b) t h e r e o f . * * # * * * * The r e q u i r e d "balance c a r r i e d by a member bank with, a Federal r e s e r v e bank may, under the r e g u l a t i o n s and s u b j e c t to such p e n a l t i e s a s may be p r e s c r i b e d by the Federal Reserve Board, be checked a g a i n s t and withdrawn "by such member bank f o r the purpose of meeting e x i s t i n g l i a b i l i t i e s : Prov i d e d , however, That no bank s h a l l a t any time make new l o a n s or s h a l l -2- X-4988 pay any dividends u n l e s s and "until the t o t a l balance required by law i s f u l l y restored. In e s t i m a t i n g the balances required by t h i s a c t , the net d i f f e r e n c e of amounts due to and from other banks s h a l l be taken a s the b a s i s f o r a s c e r t a i n i n g the d e p o s i t s against which required balances w i t h Federal reserve banks s h a l l be determined. The various Liberty bond a c t s ( a c t of April 24, 1917, s e c . 7; a c t of September 24, 1917, s e c . 8; act of April 4, 1918, s e c . 8) provide, in p a r t , as f o l l o w s : That the p r o v i s i o n s * * * with r e f e r e n c e to the r e s e r v e s required to be kept by n a t i o n a l banking a s s o c i a t i o n s and other member banks of the Federal Reserve System, s h a l l not apply -co d e p o s i t s of public moneys by the United S t a t e s in designated d e p o s i t a r i e s . SECTIOIT I I . DEFINITIONS (a) Demand d e p o s i t s . - The term 11 demand deposits" s h a l l include a l l dep o s i t s which are payable within 30 days except "savings accounts," 11 time c e r t i f i c a t e s of deposit," and "postal savings d e p o s i t s , " as d e f i n e d below. (o) Time d e p o s i t s . - The term "time deposits" s h a l l include a l l "time d e p o s i t s , open accounts," a l l "savings accounts," a l l "time c e r t i f i c a t e s of deposit," and a l l "postal savings d e p o s i t s , " as d e f i n e d below. (c) Time d e p o s i t s , open accounts. - The term 11 time d e p o s i t s , open accounts" s h a l l mean d e p o s i t s not evidenced by c e r t i f i c a t e s of deposit or savings p a s s books, in r e s p e c t to which a w r i t t e n contract i s entered into with the depositor at the time the deposit i s made that n e i t h e r the whole nor any part of such deposit may be withdrawn, by check or otherwise, except on a given date, not l e s s than 30 days a f t e r the date of the d e p o s i t , or on w r i t t e n n o t i c e which must be given by the depositor a c e r t a i n s p e c i f i e d number of days in advance, in no case l e s s than 30 days. (d) Savings accounts. - The term "savings accounts" s h a l l mean those d e p o s i t s in r e s p e c t to which s S ^ r S i a i n e ^ k " ' c e r t i f i c a t e , or other similar form of r e c e i p t d e l i v e r ed/by the depositor must a c t u a l l y be presented to the bank whenever a withdrawal i s made, (2) The depositor may at any time be required by the bank to g i v e n o t i c e of an intended withdrawal not l e s s than 30 days b e f o r e a withdrawal i s made, and (3) The bank's printed r e g u l a t i o n s , accepted by the depositor at the time the account i s opened, include the above requirements. Deposits which are permitted to be withdrawn by check or otherwise, without the a c t u a l p r e s e n t a t i o n of the pass-book, c e r t i f i c a t e , or other simi l a r form of r e c e i p t whenever a withdrawal i s made, s h a l l not be considered "savings accounts" w i t h i n the meaning of t h i s r e g u l a t i o n . The r e t e n t i o n of the pass-book, c e r t i f i c a t e , or other similar form of r e c e i p t , or a duplicat of same, by the bank and the p r e s e n t a t i o n of same by the bank to i t s e l f i s not an "actual presentation" within the meaning of t h i s r e g u l a t i o n . Deposits of one bank in another s h a l l not in any case be considered "savings accounts" within the meaning of t h i s r e g u l a t i o n . ( e ) Time c e r t i f i c a t e s of d e p o s i t . - A "time c e r t i f i c a t e of deposit" i s d e f i n e d as a w r i t t e n instrument d e l i v e r e d to and r e t a i n e d by the depositor evidencing the deposit xrith a bank, e i t h e r with or without i n t e r e s t , of a c e r t a i n sum s p e c i f i e d on the f a c e of the c e r t i f i c a t e payable in whole or in part to the depositor or on h i s order . -3- X-4983 (1) On a c e r t a i n date, s p e c i f i e d on the c e r t i f i c a t e , not l e s s than 30 days a f t e r the date of the d e p o s i t , or (2) After the lapse of a c e r t a i n s p e c i f i e d t i n e subsequent to the date of the c e r t i f i c a t e , in no case less, than 30 dp.ys, or (3) Upon w r i t t e n n o t i c e , which the bank may at Sb option require to be given a c e r t a i n s p e c i f i e d number of days, not l e s s than 30 days, before the date of repayment, and (4) In a l l cases only upon actual p r e s e n t a t i o n of the c e r t i f i c a t e at each, withdrawal for proper indorsement of surrender. The r e t e n t i o n of the c e r t i f i c a t e , or a duplicate of same, by the bank and the p r e s e n t a t i o n of same by the bank to i t s e l f i s not an "actual p r e s entation" w i t h i n the meaning of t h i s r e g u l a t i o n . A c e r t i f i c a t e of deposit which i s o r i g i n a l l y a time deposit w i t h i n the meaning of t h i s r e g u l a t i o n becomes a demand deposit when i t s a c t u a l maturity becomes l e s s than 30 days. ' ( f ) P o s t a l savings d e p o s i t s . - The term "postal savings deposits" s h a l l mean d e p o s i t s of p d s t a l savings funds in banks under1 the terms of the post a l savings a c t , approved June 25, IS10, as amended. (g) Government deposits* - the term "Government deposits" s h a l l mean d e p o s i t s of p u b l i c moneys by the United States in designated d e p o s i t a r i e s . ? f * Deposits made by United S t a t e s postmasters of Government funds, other than p o s t a l savings deposits, r e c e i v e d by them in t h e i r o f f i c i a l c a p a c i t y , c o n s t i t u t e "Government deposits" within the meaning of t h i s r e g u l a t i o n and, when made in designated d e p o s i t a r i e s , are exempt from the r e s e r v e r e q u i r e ments of s e c t i o n 19. The f o l l o w i n g c l a s s e s of d e p o s i t s , however, are not "Government deposits" within such meaning and are not exempt from r e s e r v e requirements: (1) Deposits of P h i l i p p i n e funds made by the P h i l i p p i n e Government and carried under the t i t l e "Treasurer of the P h i l i p p i n e I s l a n d s cufrency r e serve fund account." (2) Deposits of Porto Rican funds made by the Porto Bican Government. (3) Deposits of Indian funds under the control of the Department of the Interior. (4) Deposits of S t a t e s , c o u n t i e s ^ or m u n i c i p a l i t i e s . (5) Deposits of the United S t a t e s Shipping Board and the Emergency F l e e t Corporation. I -4section. i i i . X-4988 coliputatiok of r e s e r v e s (&) Amounts of r e s e r v e s to be maintained., - -Every member bank of the Federal reserve system i s required by law to maintain on d e p o s i t with the Federal reserve bank of i t s d i s t r i c t an actual net balance equal to 3 per cent of i t s time d e p o s i t s p l u s Seven per cent of i t s demand d e p o s i t s i f not in a r e s e r v e or central r e s e r v e c i t y . Ten per cent of i t s demand d e p o s i t s i f in a. r e s e r v e c i t y , except that i f l o c a t e d in an o u t l y i n g d i s t r i c t ® of a r e s e r v e c i t y , or in t e r r i t o r y added to- such c i t y by the extension of the c i t y ' s corporate l i m i t s such bank may, upon the a f f i r m a t i v e vote of f i v e members of the Federal Reserve Board, be permitted to maintain 7 per cont r e s e r v e s against i t s demand d e p o s i t s . Thirteen per cent of its demand d e p o s i t s i f l o c a t e d in a c e n t r a l r e s e r v e c i t y , except that i f l o c a t e d in an o u t l y i n g d i s t r i c t of a c e n t r a l reserve c i t y or in t e r r i t o r y added to such c i t y by the extension of the c i t y ' s corporate l i m i t s , such bank may, upon the a f f i r m a t i v e vote of f i v e members of the Federal Reserve Board, be permitted to maintain 7 per cent or 10 per cent r e s e r v e s a g a i n s t i t s demand d e p o s i t s . Ho r e s e r v e s are required to be maintained against Government dep o s i t s as d e f i n e d above. A member bank e x e r c i s i n g t r u s t powers need not carry r e s e r v e s a g a i n s t t r u s t funds which i t keeps segregated and apart from i t s general a s s e t s or which i t d e p o s i t s in another i n s t i t u t i o n to the c r e d i t of i t s e l f as t r u s t e e or other f i d u c i a r y . I f , however, such funds are mingled with the general a s s e t s of the bank, as permitted to n a t i o n a l banks under authority of Section l l ( k ) of the Federal Reserve Act, a d e p o s i t l i a b i l i t y thereby a r i s e s against which r e s e r v e s must be c a r r i e d . In, computing r e s e r v e requirements, t r u s t funds deposited in a member bank/oahK to" 6 the c r e d i t of such other bank as t r u s t e e or other f i d u c i a r y must be c l a s s i f i e d by the member bank as individual d e p o s i t s rather than bank deposits.. (b) Deductions allowed in computing r e s e r v e s . - Member banks i n determining the amount against which r e s e r v e s must be c a r r i e d may deduct: The term "outlying d i s t r i c t " i s construed to mean that p o r t i o n of a c i t y which i s l o c a t e d o u t s i d e o f , and at a considerable d i s t a n c e from, the recognized b u s i n e s s and f i n a n c i a l center of such c i t y , and includes a l l suburban d i s t r i c t s . x-4988 3 5 6 (1) from gross demand deposits, a l l Government deposits as defined above. (2) From the amount of balances das to other banks, the amount of balances duo from other beaks (except federal reserve banks and foreign, banks), including i n the amount due to other banks c e r t i f i e d , cashiers', and treasurers' checks outstanding, and including i n the amount due from other banks out of town items placed in the mail and charged to the account of correspondent banks, items w i t h a f e d e r a l reserve bank in process of c o l l e c t i o n , checks drawn on banks located i n the same c i t y , and exchanges for clearing houses. (c) A v a i l a b i l i t y of checks &a reserve. - Checks forwarded to a Federal reserve bank for collection or credit can not be counted as p a r t of the minimum reserve balance to be carried by a member bank with i t s Federal reserve bank u n t i l such timp as may be specified in the appropriate time schedule r e f e r r e d to in Section IV of Regulation J. I f aunember bank draw against checks before such time, the d r a f t w i l l be charged against i t s reserve b a l ance i f Such balance be s u f f i c i e n t in amount to pay i t ; but any r e s u l t i n g impairment of reserve balances w i l l be subject # a l l the penalties provided by the a c t , and by t h i s Regulation. SBCTIOH IV. F w m i m fOH BSFICIMCISS bf wssmm Inasmuch as i t i s essential that the law in respect to the maintenance by member banks of the required minimum reserve balance s h a l l be s t r i c t l y comp l i e d w i t h , the Federal Reserve Board, under authority vested i n i t by section 19 of the Federal Reserve Act, hereby prescribes the following rules governing deficiencies i n reserves: 1, Deficiencies in reserve balances of a l l member banks w i l l be computed on the basis of actual not deposit balances, tho required reserve balance of each member bank at the close of business each day being based on i t s net deposit balances at the close of business on the preceding business day; 3# Penalties f o r such deficiencies w i l l be assessed monthly on the basis of actual d a i l y deficiencies during the preceding month; 3 . Such penalties s h a l l be assessed a t a basic r a t e of 2$ per annum above the Federal reserve bank discount r a t e on commercial paper; 4. When a member bank has an actual deficiency i n reserves for f i f t e e n or more days i n any month,: there shall be assessed, i n addition to the penalty at the basic r a t e , a progressive penalty on d a i l y reserve deficiencies, u n t i l such member bank has maintained the required reserves every day for a month. Such progressive penalty shall be at the r a t e of 1$6 f o r the f i r s t month and shall increase at the r a t e of 1# for each subsequent month therea f t e r in which the bank's actual reserves have been d eficien t for f i f t e e n days or more; provided that the maximum penalty charged s h a l l not exceed 10$; 5. Whenever any member bank i s subject to the maximum penalty of 10$, tho Federal Bo serve Agent s h a l l promptly report tho f a c t to the Federal Reserve Board with a recommendation as to whether or not the Board should; (a^ I n the case Of a national bank, diroct the Comptroller of thd Currency to brj^g suit to f o r f e i t the charter of such national bank under He "provisions of Section 2 of the Federal Reserve Act; or (b) I n tho case of a State member bank, i n s t i t u t e proceedings to require such bqnk to surrender i t s stock in the Federal reserve bank end to f o r f e i t a l l f i g h t s and p r i v i l e g e s of membership, pursuant to the provisions of Section 9 of the Federal Reserve Act; or (c) I n either case, to take such other action as the Federal Reserve A geaat may recommend or the f e d e r a l Beserre Board may consider advisable. X-4988 SECTION V. IOANS MB DIVIDENDS WHILE RESERVES ARE DEFICIENT I t i s unlawful f o r any member "bank the r e s e r v e s of which are at anytime d e f i c i e n t to make any new loans or pay any dividends u n l e s s and •until the t o t a l r e s e r v e s required by law are f u l l y r e s t o r e d , and the payment of p e n a l t i e s f o r d e f i c i e n c i e s in r e s e r v e s does not exempt member banks from t h i s p r o h i b i t i o n of law. The Federal Reserve Agent in each D i s t r i c t s h a l l promptly report to the Federal Reserve Board any w i l f u l disregard of t h i s p r o h i b i t i o n by member banks in h i s D i s t r i c t and s h a l l in each case recommend whether or not the Board should: (a) In the case of a n a t i o n a l bank, d i r e c t the Comptroller of the Currency to bring s u i t to f o r f e i t the charter of such n a t i o n a l bank under theprovisions of Section 2 of the Federal Reserve Act; or (b) In the case of a S t a t e member bank, i n s t i t u t e proceedings to require such bank to surrender i t s stock i n the Federal r e s e r v e bank and to f o r f e i t a l l r i g h t s and p r i v i l e g e s of membership pursuant to the prov i s i o n s of Section 9 of the Federal Reserve Act; or (c) In e i t h e r c a s e take such other a c t i o n as the Federal Reserve Agent may recommend or the Federal Reserve Board may consider a d v i s a b l e . ' * '
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