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F E D E R A L R E S E R V E BA N K O F N E W YO R K fCircular No. 5 8 2 8 1 L June 27, 1966 J Reserve Requirements Increased on Certain Time Deposits Regulations D and Q Amended to Include Short-Term Promissory Notes in Definition of "Deposit” T o A ll M em ber Banks, and Others Concerned, in the Second Federal Reserve D istrict: Following is the text of a statement issued today by the Board of Governors o f the Federal Reserve System: The Board o f Governors o f the Federal Reserve System announced today two actions designed to moderate further growth of bank credit and deposits: an increase in reserve requirements against certificates and other forms of time deposits, and an extension of regulations regarding reserve requirements and interest on deposits to shorter-term promissory notes o f banks. Reserve requirements were increased from 4 per cent to 5 per cent against the amount o f time deposits (other than savings deposits) in excess of $5 million at each member bank. The increase will become effective with the reserve computation periods beginning July 14, 1966, for reserve city banks, and July 21, 1966, for all other member banks. It is estimated that this action will increase required reserves by more than $400 million — approxi mately $350 million at reserve city banks and $70 million at other member banks. A ll told, about 950 larger member banks throughout the country — prim arily those issuing savings certificates and other certificates o f deposit ( C D ’s) in large volume — are expected to be affected by this increase in requirements. The action should exercise a tempering influence on bank issuance o f time certificates o f deposit. The measure will also serve to apply a moderate additional measure o f restraint upon the expansion o f banks’ loanable funds and thus reinforce the operations o f other instruments o f monetary policy in containing inflationary pressures. A t the same time, the Board acted to bring shorter-term bank promissory notes and similar instruments under the regulations governing reserve requirements and payment o f interest on deposits. This action would not apply to Federal funds transactions, interbank borrowings, transfers o f assets with agreements to repurchase, or bank notes for capital purposes that have a maturity o f more than two years and are subordinated to claims o f depositors. The action will become effective September 1, 1966 and will apply to all promissory notes covered by the action that are issued on or after June 27, 1966, and are outstanding on or after the effective date. Prom issory notes and other instruments o f the type covered by the action have come into use only in the last few years and the volume outstanding at present is small. The purpose o f the B oa rd ’s action is to prevent future use o f these instruments as a means o f circum venting statutory and regulatory requirements applicable to bank deposits. Enclosed are copies of the Supplement to Regulation D, giving effect to the increase in reserve requirements, and of amendments to Regulations D and Q, defining “ deposits” as including certain promissory notes and similar instruments. Additional copies of this circular and the enclosures will be furnished on request. A lfred H ayes, President. SU PPLEM ENT TO R E G U LA TIO N D Section 204.5— Supplement ISSUED BY T H E BOARD OF GOVERNORS OP TH E FEDERAL RESERVE SYSTEM Effective as to member banks in reserve cities at the opening of business on July 14, 1966, and as to all other member banks at the opening of business on July 21, 1966. (а ) Reserve percentages.— Pursuant to the provisions o f section 19 o f the Federal Reserve A ct and § 204.2(a) and subject to paragraph (b ) o f this section, the Board of Governors of the Federal Reserve System hereby prescribes the follow ing reserve balances which each member bank o f the Federal Reserve System is required to maintain on deposit with the Federal Reserve bank o f its d istrict: (1 ) I f not in a reserve city— ( i) 4 per cent o f its savings deposits, plus ( ii) 4 per cent o f its other time deposits up to $5 million and 5 per cent o f such deposits in excess o f $5 million, plus (iii) 12 per cent o f its net demand deposits. (2 ) I f in a reserve city (except as to any bank located in such a city which is permitted by the Board of Governors o f the Federal Reserve System, pursuant to § 204.2(a) (2 ), to maintain the reserves specified in subparagraph (1 ) o f this paragraph )— ( i) 4 per cent o f its savings deposits, plus ( ii) 4 per cent of its other time deposits up to $5 million and 5 per cent o f such deposits in excess o f $5 million, plus (iii) 1 6 ^ per cent o f its net demand deposits. (б ) Counting o f currency and coin.— The amount o f a member bank’s currency and coin shall be counted as reserves in determining compliance with the reserve requirements o f paragraph ( a) o f this section. P R I N T E D IN N E W Y O R K RESERVES OF M EM BER BANKS AM EN DM EN T TO R E G U LA TIO N D ISSUED BY T H E BOARD OF GOVERNORS OF TH E FEDERAL RESERVE SYSTEM Effective September 1, 1966, section 204.1 is amended as follow s: ( a ) Paragraphs ( / ) , ( # ) , ( h ), and (i) o f Section 204.1 are redesignated as paragraphs ( g ), ( h) , ( i ), and ( j ), respectively. (&) A new paragraph ( / ) is inserted as follow s: S E C T IO N 204.1— D E F IN IT IO N S ( / ) Deposits as including certain prom issory notes.— F or the pur poses of this part, the term “ deposits” shall be deemed to include any promissory note, acknowledgment o f advance, due bill, or similar instrument that is issued by a member bank principally as a means o f obtaining funds to be used in its banking business, except any such instrument (1 ) that is issued to another bank, (2 ) that evidences an indebtedness arising from a transfer of assets that the bank is obli gated to repurchase, or (3 ) that has an original m aturity o f more than two years and states expressly that it is subordinated to the claims o f depositors. This paragraph shall not, however, affect the status, for purposes o f this part, o f any instrument issued before June 27, 1966. P R I N T E D IN N E W Y O R K PAYM EN T OF INTEREST ON DEPOSITS A M EN DM EN T TO R E G U LATIO N Q I ssu ed b y t h e B oard of G o ver n o r s of t h e F e d er a l R e ser ve S y s t e m Effective September 1, 1966, section 217.1 is amended by adding the follow ing paragrap h : SECTION 217.1 — DEFINITIONS ( / ) Deposits as including certain prom issory notes.— F or the purposes o f this part, the term “ deposits” shall be deemed to include any promissory note, acknowledgment 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 indebtedness arising from a transfer of assets that the bank is obligated to repurchase, or (3 ) that has an original maturity o f more than two years and states expressly that it is subordinated to the claims of depositors. This paragraph shall not, however, affect the status, for purposes o f this part, o f any instrument issued before June 27, 1966. P R I N T E D IN N E W Y O R K
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