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F E D E R A L R E S E R V E BANK
OF N EW YORK
["Circular N o. 6 6 4 6 ~ l
L D ecem ber 1, 1970 J
Changes in Reserve Requirements on Eurodollar Borrowings
Under Regulations M and D
Reductions in Discount Rates
To the Member Banks of the Second Federal Reserve District :
F ollow in g is the text o f a statement issued yesterday b y the B oa rd o f G overnors o f
the F ederal R eserve S ystem :
The B o a rd of G overnors of th e F e d e ra l R eserve S ystem ann o u n ced to d a y a f u r th e r re d u c
tio n in F e d e ra l R eserve B an k discount ra te s to 5^2 P er cent.
A t th e sam e tim e, the B o a rd an n o unced step s to stre n g th e n th e in d u cem en t fo r A m erican
b anks to re ta in th e ir E u ro d o lla r liabilities, an d th u s m oderate th e pace of re p ay m en ts of E u ro
d o lla r borrow ings.
T he re d u c tio n in th e d isco u n t ra te was accom plished as th e B o a rd a p p ro v ed actions b y th e
d irecto rs o f th e F e d e ra l R eserve B anks of B oston, Cleveland, A tla n ta , M inneapolis, a n d D allas
red u cin g th e d iscount ra te a t those banks from 5% to 5^2 p e r cent, effective T uesday, D ecem
b er 1. T he move was in reco g n itio n of the fu r th e r dow nw ard tre n d in sh o rt-term in te re st ra te s in
re c e n t weeks. The d isco u n t ra te h a d been red u ce d fro m 6 to 5 % p e r c en t effective N ovem ber 11.
T hree in te r-re la ted decisions w ere m ade by th e B o ard re g a rd in g b a n k borrow ings of E u ro
d o llars :
F i r s t th e B o ard ra ise d fro m 10 to 20 p e r cent th e reserves re q u ire d fro m m em ber b anks
a g a in st E u ro d o lla r b orrow ings th a t exceed am ounts th a t th e ban k s are allow ed as a reserv e-free
base. The h ig h e r re q u ire m e n t is in te n d e d to give banks an a d d ed in d u cem en t to p reserve th e ir
reserve-free bases p re se n tly a t su b sta n tia l levels a g a in st a tim e of f u tu re need, in ste a d of allow
in g th e ir bases to be low ered au to m atic ally by re p a y in g th e ir E u ro d o lla r borrow ings. The
h ig h e r re q u ire m e n t becomes effective in th e c u rre n t four-w eek reserve co m p u tatio n p erio d e n d
in g D ecem ber 23.
I n a second step, to assure th a t th e h ig h e r m a rg in a l reserve re q u ire m en t does n o t penalize
banks th a t c u rre n tly have E u ro d o lla r liabilities above th e ir reserve-free bases, th e B o a rd also
am ended its reg u latio n s so as to m ake th e m a rg in a l reserve re q u ire m en t applicable to borrow ings
above e ith e r (1) th e m inim um base equal to a p ercen tag e of deposits, or (2) th e average level in th e
reserve co m p u tatio n p erio d ended N ovem ber 25, w hichever is h ig h er.
T h ird , th e B o ard am ended its reg u latio n s to discourage rep a y m e n t of E u ro d o lla r liabilities, n o t
o nly b y b anks th a t use an h isto rically d ete rm in e d reserve-free base o rig in a lly re la te d to th e ir
M ay 1969 borrow ings, b u t also by those banks th a t operate u n d e r a m inim um base equal to 3
p e r cen t of th e ir o verall deposits su b ject to reserve req u irem en ts. T he am en d m en t w ill a p p ly
th e au to m atic do w n w ard a d ju s tm e n t to reserve-free bases of th e la tte r k in d as well as of th e
fo rm er. T his am en d m en t becomes effective w ith th e reserve c o m p u tatio n p e rio d e n d in g J a n u a r y
20, 1971.
A lth o u g h th e steps an n o u n ced to d a y w ere d elib erately m ade o f m odest scale, th e B o ard has
u n d e r review o th e r m easures th a t m ig h t be a d o p ted fo r th e p u rp o se of te m p e rin g th e re p a y m e n t
of E u ro d o lla rs w hile avoiding p e n a lty to banks th a t op erate so as to re ta in th e ir reserve-free
bases.
E nclosed are copies o f an amendment to Regulation M, “ F oreign A ctivities o f
N ational B anks,’ ’ and the Supplem ent to Regulation D, “ R eserves o f M em ber B an ks,”
giving effect to the reserve requirement changes referred to above. A dditional copies o f
the enclosures will be furnished upon request.
A lfred H a y es,
P resident
.
B
oard o f
G overnors
of
the
F
ederal
R eserve S y st e m
SUPPLEMENT TO REG U LATIO N D
A s am ended effective J a n u a r y 7, 1971
S E C T IO N 204.5 — S U P P L E M E N T
(a ) Reserve percentages. Pursuant to the
p rovisions o f section 19 of th e F e d e ra l R e
serve A c t a n d § 2 0 4 .2 (a) a n d su b je c t to p a r a
g ra p h (c) of th is section, th e B o a rd of
G overnors of th e F e d e ra l R eserve System
h ereb y prescribes th e follow ing reserve b a l
ances w hich each m em ber b an k of th e F e d
e ra l R eserve S ystem is re q u ire d to m a in ta in
on dep o sit w ith th e F e d e ra l R eserve B a n k of
its d is tr ic t:
(1 ) If not in a reserve city —
(1) 3 p e r cent of (a ) its savings deposits
a n d (b ) its tim e deposits, open account, th a t
c o n stitu te deposits of in d iv id u als, such as
C h ristm as club accounts an d vacatio n club
accounts, th a t are m ade u n d e r w ritte n con
tra c ts p ro v id in g th a t no w ith d ra w a l shall be
m ade u n til a c e rta in n u m b er of perio d ic de
posits have been m ade d u rin g a p erio d of n ot
less th a n 3 m o n th s; a n d
(ii) 3 p e r cen t of its o th er tim e deposits
u p to $5 m illion, p lu s 5 p e r cent of such de
posits in excess of $5 m illio n ; an d
(iii) 1 2 1/2 p e r cen t of its n e t d em an d de
posits u p to $5 m illion, p lu s 13 p e r cen t of
such deposits in excess of $5 m illion.
(2 ) If in a reserv e city (ex cep t as to any
b an k located in such a c ity w hich is p e rm itte d
by th e B o ard of G overnors of th e F e d e ra l
R eserve System , p u rs u a n t to § 2 0 4 .2 (a) (2 ), to
m a in ta in th e reserves specified in s u b p a ra
g ra p h (1 ) of th is p a ra g ra p h ) —
(i) 3 p e r cent of (a ) its savings deposits
a n d (b ) its tim e deposits, open account, th a t
co n stitu te deposits of in d iv id u als, such as
C h ristm as club accounts a n d v acation club
accounts, th a t are m ade u n d e r w ritte n con
tra c ts p ro v id in g th a t no w ith d ra w a l shall be
m ade u n til a c e rta in n u m b e r of perio d ic de
p o sits have been m ade d u rin g a p erio d of n o t
less th a n 3 m o n th s ; an d
(ii) 3 p e r cen t of its o th e r tim e deposits u p
to $5 m illion, p lu s 5 p e r cen t of such deposits
in excess of $5 m illio n ; a n d
(iii)
17 p e r cent of its n e t dem and deposits
u p to $5 m illion, p lu s 17*4 p e r cent of such
deposits in excess of $5 m illion.
(b ) Currency and coin. The am o u n t of a
m em ber b a n k ’s cu rren cy an d coin shall be
counted as reserves in d ete rm in in g com pli
ance w ith th e reserve re q u ire m e n ts of p a ra
g ra p h (a ) of th is section.
(c) Reserve percentages against certain
deposits by foreign banking offices. D eposits
rep re se n ted by prom issory notes, acknow l
edgem ents of advance, due bills, or sim ilar
obligations described in § 20 4 .1 (f) to foreign
offices of o th er banks,8 or in stitu tio n s the tim e
deposits of w hich are exem pt from th e ra te
lim itatio n s of R eg u latio n Q p u rs u a n t to § 217.3
(g ) thereof, shall n o t be su b jec t to p a ra g ra p h
(a) of th is section or to § 204.3(a)(1) an d (2);
b u t d u rin g each week of th e four-w eek period
b e g in n in g O ctober 16, 1969, an d d u rin g each
week of each successive four-w eek ( “ m ain te
n a n c e ” ) period, a m em ber b ank shall m ain
ta in w ith th e R eserve B an k of its d is tric t a
d aily average balance equal to 20 p e r cent of
the am o u n t by w hich the d a ily average
am o u n t of such deposits d u rin g the fourweek ( “ c o m p u ta tio n ” ) p erio d en d in g on the
W ednesday fifteen days before th e b eg in n in g
of th e m aintenance perio d exceeds the lesser
of (i) 3 p e r cent of such m em ber b a n k ’s daily
average deposits su b ject to p a ra g ra p h (a) of
this section d u rin g th e c u rre n t com putation
period or d u rin g th e com putation period en d
ing N ovem ber 25, 1970, w hichever is g reater,
or (ii) th e low est corresponding daily average
to tal fo r a n y co m putation period beg in n in g on
or a fte r D ecem ber 24, 1970. A n excess or de
ficiency in reserves in an y week of a m ainte
nance period u n d e r th is p a ra g ra p h shall be
subject to § 2 04.3(a) (3 ), as if com puted u n d er
§ 2 04.3(a) (2 ), and deficiencies u n d e r th is
p a ra g ra p h shall be su b ject to § 2 0 4 .3 (b ).9
8 Any banking office located outside the States of the
U nited States and the District of Columbia of a bank organ
ized under dom estic or foreign law.
9 The term “computation period” in { 2 0 4 .3 ( a ) ( 3 ) and
(b ) shall, for this purpose, be deem ed to refer to each week
of a maintenance period under this paragraph.
P R IN T E D IN N E W YORK
B o a r d o f Go v e r n o r s o f t h e F e d e r a l E e s e r v e S y s t e m
FOREIGN ACTIVITIES OF NATIONAL BANKS
A M E N D M E N T TO R E G U L A T IO N M
Effective J a n u a r y 7, 1971, section 213.7 is am ended to re a d as
fo llo w s:
S E C T IO N 213.7— R E S E R V E S A G A IN S T F O R E IG N
B R A N C H D E P O S IT S
(a)
Transactions w ith parent bank.— D u rin g each week of the
four-w eek p eriod b eg in n in g O ctober 16, 1969, an d d u rin g each week of
each successive four-w eek (“ m a in te n a n c e ” ) period, a m em ber bank
having one o r m ore fo reig n b ranches shall m a in ta in w ith th e Reserve
B an k of its d istric t, as a reserve ag a in st its fo reig n b ran ch deposits,
a d a ily average balance equal to 20 p e r cent of the am ount by w hich
th e d aily average to ta l of
(1) n e t balances due fro m its dom estic offices to snch
branches, an d
(2) assets (in c lu d in g p a rtic ip a tio n s) held by snch
b ranches w hich w ere acq u ired from its dom estic
offices,7
d u rin g th e four-w eek ( “ co m p u ta tio n ” ) period ending on the W ednes
d ay fifteen days before th e b eg in n in g of th e m aintenance period, ex
ceeds th e g re a te r of
(i) th e co rresponding d a ily average to ta l8 fo r th e com
p u ta tio n p erio d en d in g N ovem ber 25, 1970, or th e
lowest corresp o n d in g d a ily average to ta l fo r an y com
p u ta tio n p eriod b eg in n in g a fte r th a t date, w hichever
am ount is th e lesser, or
(ii) 3 p e r cent of th e m em ber b a n k ’s daily average de
posits su b ject to § 204.5 (a) of th is ch a p ter (R e g u la
tio n D ) d u rin g th e c u rre n t co m putation period, or,
if the b an k h as h a d a fo reig n b ran ch in op eratio n fo r
m ore th a n 90 days, th e low est co rresponding d aily
7 Excluding (1) assets so held on June 26, 1969 representing credit extended to persons
not residents of the United States and (2) credit extended or renewed by a domestic office after
June 26, 1969 to persons not residents o f the United States to the extent such credit was not
extended in order to replace credit outstanding on that date which was paid prior to its original
maturity (see definition of U nited States resident in footnote 9 ).
8 Excluding assets representing credit extended to persons not residents of the U nited
States.
P R IN T E D I N N E W YORK
average to ta l fo r a n y co m putation p eriod b eg inning
on or a f te r D ecem ber 24, 1970, w hichever am o u n t is
th e lesser:
Provided, T h a t the applicable base com puted u n d e r (i) or (ii) shall
be reduced by th e d aily average am ount of any deposits of th e m em ber
b ank su b ject to § 204.5(c) of th is c h a p te r (R e g u latio n D ) d u rin g th e
co m p u tatio n period.
(b )
Credit extended to U nited States residents.— D u rin g each
week of th e four-w eek p erio d b eg in n in g O ctober 16, 1969, an d d u rin g
each week of each successive four-w eek m ain ten an ce period, a m em ber
bank h av in g one o r m ore fo re ig n b ranches shall m a in ta in w ith the
Reserve B ank of its d istric t, as a reserve ag ain st its fo re ig n b ra n ch
deposits, a d aily average balance equal to 20 p er cent of the am ount
by w hich d aily average cre d it o u tsta n d in g from such bran ch es to
U n ited S tates resid en ts9 (o th er th a n assets acq u ired a n d n e t balances
due from its dom estic offices), d u rin g the four-w eek com putation
p erio d en d in g on W ed n esd ay fifteen days before th e beg in n in g of
th e m ain ten an ce period, exceeds th e co rresponding daily average
to ta l d u rin g th e four-w eek p erio d en d in g on N ovem ber 25, 1970:
Provided, T h a t th is p a ra g ra p h does n o t a p p ly to c re d it extended (1)
by a fo reig n b ran ch w hich a t no tim e d u rin g th e co m p u tatio n p eriod
h ad c re d it o u tsta n d in g to U n ited S tates resid e n ts exceeding $5 m il
lion, (2) to enable th e b o rro w er to com ply w ith req u irem en ts of th e
Office of F o re ig n D irect Investm en ts, D e p a rtm e n t of C om m erce,10 or
(3) u n d e r b in d in g com m itm ents en tered in to before D ecem ber 1, 1970.
9 (a) any individual residing (at the time the credit is extended) in any State of the
U nited States or the District of Columbia; (b) any corporation, partnership, association or
other entity organized therein ( “domestic corporation” ) ; and (c) any branch or office located
therein o f any other entity wherever organized. Credit extended to a foreign branch, office,
subsidiary, affiliate or other foreign establishment ( “ foreign affiliate” ) controlled by one or more
such domestic corporations will not be deemed to be credit extended to a U nited States resident
if the proceeds will be used in its foreign business or that of other foreign affiliates of the
controlling domestic corporation (s ).
10 The branch may in good faith rely on the borrower’s certification that the funds will be
so used.
@FedFRASER