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rCircular No. 3 5 0 3 1
t October 18, 1949 J


Revision of Operating Circular No. 2
To all Member Baiiks in the
Second Federal Reserve D istrict:

We transmit herewith a copy of our Operating Circular No. 2, Revised October 18, 1949,
which supersedes our Operating Circular No. 2, dated December 8, 1947, and the First Supple­
ment thereto dated February 11, 1949. The only change of substance made in the revised oper­
ating circular is contained in a new paragraph 9 (paragraphs 9 and 10 of the superseded cir­
cular being renumbered as paragraphs 10 and 11), which deals with the discretionary waiver
by this bank, pursuant to the instructions of the Board of Governors of the Federal Reserve
System, of penalties for deficiencies in reserves, in the following cases:
(1 ) W hen a member bank is deficient in reserves during any reserve computation period, to the
extent that the deficiency is offset by excess reserves during the immediately following reserve com­
putation period, provided that such deficiency does not exceed two per cent o f the member bank’s
required reserves.
(2 ) W h en a member bank is deficient in reserves during a reserve computation period ending
on a non-business day (o f a member bank or of this bank), to the extent that the inclusion of that day
in the next reserve computation period would reduce or eliminate the deficiency.

( I f the period in

which the deficiency occurs ends with two or more non-business days, they may all be included in
the next computation period.)

The Board of Governors has advised us that these instructions have been adopted with the
definite objective of reducing the number of occasions on which member banks might otherwise
incur deficient reserve penalties, but that the law contemplates that member banks should make
reasonable efforts to hold and maintain the prescribed reserve balances from day to day, mak­
ing allowance for unforeseen fluctuations in deposits and reserves, even though penalties are
assessed on daily average deficiencies over prescribed periods and there is no longer a statutory
prohibition against the making of new loans and the payment of dividends while reserves are
We have omitted, as being no longer necessary, the reproduction of Form F.R. 414 (and
the schedules on the reverse side) formerly contained in Operating Circular No. 2.
Additional copies of this circular and of the revised operating circular will be furnished
upon request.

Atj a n

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Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102