Full text of Federal Reserve Bank of New York Circulars : 6593. Regulation D

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F E D E R A L R ESER VE B A N K
O F N E W YORK
Circular No. 6 5 9 3 “I
August 21, 1970 J

REGULATION D
Amendment, Supplement, and Interpretation
To A ll M em ber Banks, and Others Concerned,
in the Second F ederal Reserve D istric t:

Enclosed are copies of a revised Supplement, effective October 1,1970, to Regulation D, and an
amendment, effective September 17, 1970, to Regulation D. These documents give effect to the
changes in reserve requirements announced by the Board of Governors of the Federal Reserve
System on August 17; the text of that announcement was contained in our Circular No. 6589, dated
August 17, 1970. In addition, printed below is the text of an interpretation issued by the Board of
Governors, illustrating the application of the rules governing member bank reserve requirements
to funds received by member banks through the issuance of commercial paper by their affiliates.
I f the commercial paper has a m aturity of less than 30 days, the usual reserve percentages on mem­
ber bank demand deposits will apply.
The Board of Governors has also ruled that “ the authority of the Reserve Banks to waive
penalties for deficient reserves resulting from issuance of obligations by bank subsidiaries is with­
drawn effective with the reserve computation period beginning October 1 as to deposits outstanding
in the week beginning September 17.”
Additional copies of this circular and its enclosures will be furnished upon request.
A lfred H a y es ,

President.

[Reg. D ]
P a r t 204— RESERVES OF MEMBER BANKS

Commercial Paper of Bank Affiliates

E ffective S ep tem b er 17, 1970, th e B o a rd o f Gov­
e rn o rs h as am ended § 2 0 4 .1 (f) to a p p ly th e ru le s gov­
e rn in g m em ber b a n k reserve re q u ire m e n ts (R e g u la ­
tio n D ) to fu n d s received by m em ber b an k s as th e
re su lt o f issuance o f o b lig atio n s b y affiliates o f the
bank, in c lu d in g obligations com m only described as
com m ercial p a p e r. T h e follow ing exam ples illu s tra te
the effect o f th e a m e n d m e n t:

in te re sts in loans m ade b y th e b ank, $3 m illion of
w hich w ill m a tu re in 90 day s a n d $2 m illion of w hich
w ill m a tu re in 180 days. U n d e r th e am en d m en t to
R eg u latio n D, $5 m illion o f th e no tes w ill become su b ­
ject, on S eptem ber 17, to a 5 p e r cen t reserve re q u ire ­
m ent (assu m in g th e m em ber b an k h a s o th e r tim e d e­
p osits su b je c t to § 2 0 4 .5 (a) o f $5 m illio n ), w hich w ill
co n tin u e as long as, and. to th e e x te n t th a t, fu n d s of
th e affiliate are u se d to m a in ta in th e av a ila b ility of
fu n d s to th e bank.

(1)
A c o rp o ra tio n t h a t co n tro ls a m a jo rity of th e
stock of a m em ber b an k establishes a n d acq u ires a
m a jo rity of th e stock o f a n o th e r co rp o ratio n . T h a t
co rp o ra tio n proposes to a cq u ire $10 m illion b y th e
public sale on S ep tem b er 1 of pro m isso ry n o tes in
am o u n ts o f $100,000 o r m ore w ith a m a tu rity of 90
days an d to use $5 m illion to acq u ire, on S ep tem b er 1,

(2)
I f , on S ep tem b er 15, th e affiliate described in
th e p re ced in g p a ra g r a p h sells to a th ir d p erso n $1
m illion o f th e 90-day loans, th e b an k m ay th e re u p o n
reduce its deposits su b je c t to tim e dep o sit reserve re ­
q u irem en ts b y $1 m illion. I f , on N ovem ber 1, $1 m il­
lio n of th e affiliate’s fu n d s a re a g ain used to p u rc h ase
fro m th e b an k notes m a tu rin g in 45 days, th e b an k

§ 204.115

Borrowings by bank affiliates as deposits.




(over)

m u s t a d d back $1 m illion to its deposits s u b je c t to
tim e dep o sit reserve req u irem en ts, even th o u g h the
affiliate does n o t issue ad d itio n a l obligations. (If , be­
tw een th e sale o f notes on S ep tem b er 15 a n d th e a d d i­
tio n a l p u rch ase on N ovem ber 1, th e affiliate places the
idle fu n d s in a checking acco u n t w ith th e bank, th e
u su a l d em an d d ep o sit reserve re q u ire m e n t ap p lies in ­
stead , fo r t h a t p e rio d .) I f, u p o n m a tu r ity on N ovem ­
b e r 30 of th e affiliate’s $5 m illion o f obligations, the
affiliate ex ten d s $1 m illion th e re o f fo r 60 d ay s a n d $2
m illio n fo r 90 days, th e $1 m illion is su b je c t to reserves
only fo r 16 days— u n til th e m a tu rity o f th e 45-day
loans— unless a d d itio n a l fu n d s a re ch an n eled to the
b a n k or re p a y m e n ts on th e loans m a tu rin g in th a t tim e
are d e fe rre d . I f , on J a n u a r y 1, a p o rtio n o f th e $2
m illio n 180-day loans is p re p a id , th e am o u n t of such
p re p a y m e n ts w ill red u ce th e a m o u n t of th e affiliate’s
o blig atio n s t h a t a re su b je c t to reserves, u n less a d d i­
tio n a l fu n d s a re ch an n eled to th e bank.




(3)
A c o rp o ra tio n th a t is m ajo rity -c o n tro lle d by a
com pany th a t also m ajo rity -c o n tro ls a m em ber ban k
proposes to acq u ire $10 m illion by th e sale of 90-day
$100,000 prom issory notes an d to use th e proceeds to
acq u ire all of th e autom obile loans of the bank. The
b ank w ill th e re u p o n cease to engage in th a t ty p e of
lending. The am endm ents a p p ly to a n affiliate’s obli­
g ations issued to finance such a reo rg an izatio n , even
th o u g h th e sh ift o f o p eratio n s fro m th e b an k is on a
one-tim e basis. The fu n d s o b tain e d by th e b ank m ay
be used b y it to e x p a n d its re m a in in g le n d in g a c tiv i­
ties, a n d th e B o a rd considers th a t such fu n d s should
be su b je ct to reserve req u irem e n ts a t le ast as long as
th e affiliate holds th e assets a cq u ired fro m the bank.
(Interprets and applies 12 U.S.C. 461.)




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R E S E R V E S O F M E M B E R BA N K S

A M E N D M E N T TO R E G U L A T IO N D

Effective September 17, 1970, section 204.1(f)
is amended by adding the following sentence at
the end thereof:
SECTION 204.1—DEFINITIONS

•

*

*

(f) D eposits as in c lu d in g c e rta in p ro m is­
sory notes an d o th e r obligations.
•

»

«

For the purposes of this Part, “deposits” of a
member bank also include the liability of a mem­
ber bank’s affiliate, as defined in section 2 of the
Banking Act of 1933 (12 U.S.C. 221a(b)), on any
promissory note, acknowledgement of advance, due
bill, or similar obligation (written or oral) with a
maturity of 7 years or less, to the extent that the
proceeds are used for the purpose of supplying
funds to the bank for use in its banking business,
or to maintain the availability of such funds, ex­
cept any such obligation that, if it had been issued
directly by the member bank, would not constitute
a deposit in view of exceptions ( 1 ) and ( 2 ) above.

PRINTED IN NEW YORK

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SUPPLEMENT TO REGULATION D
As a m en d ed effective O ctober 1, 1970
S E C T IO N 204.5— S U P P L E M E N T

(a)
Reserve percentages. Pursuant to the
provisions of section 19 of the Federal Reserve
Act and § 204.2(a) and subject to paragraph (c)
of this section, the Board of Governors of the Fed­
eral Reserve System hereby prescribes the follow­
ing reserve balances which each member bank of
the Federal Reserve System is required to main­
tain on deposit with the Federal Reserve Bank of
its district:
(1) If not in a reserve city—
(1) 3 per cent of (a) its savings deposits and (b)
its time deposits, open account, that constitute de­
posits of individuals, such as Christmas club ac­
counts and vacation club accounts, that are made
under written contracts providing that no with­
drawal shall be made until a certain number of
periodic deposits have been made during a period
of not less than 3 months; and
(ii) 3 per cent of its other time deposits up to
$5 million, plus 5 per cent of such deposits in ex­
cess of $5 million; and
(iii) 12 % per cent of its net demand deposits
up to $5 million, plus 13 per cent of such deposits
in excess of $5 million.
( 2 ) If in a reserve city (except as to any bank
located in such a city which is permitted by the
Board of Governors of the Federal Reserve Sys­
tem, pursuant to § 204.2(a) (2), to maintain the
reserves specified in subparagraph ( 1 ) of this para­
graph)—
(i) 3 per cent of (a) its savings deposits and (b)
its time deposits, open account, that constitute de­
posits of individuals, such as Christmas club ac­
counts and vacation club accounts, that are made
under written contracts providing that no with­
drawal shall be made until a certain number of
periodic deposits have been made during a period
of not less than 3 months; and
(ii) 3 per cent of its other time deposits up to
$5 million, plus 5 per cent of such deposits in ex­
cess of $5 million; and




P R IN T E D I N

(iii)
17 per cent of its net demand deposits up
to $5 million, plus 17% per cent of such deposits
in excess of $5 million.
(b) C urren cy and coin. The amount of a mem­
ber bank’s currency and coin shall be counted as
reserves in determining compliance with the re­
serve requirements of paragraph (a) of this section.
(c) R eserve percentages against c e rta in d e­
posits by fo reig n b an k in g offices. Deposits
represented by promissory notes, acknowledge­
ments of advance, due bills, or similar obligations
described in § 204.1(f) to foreign offices of other
banks,8 or institutions the time deposits of which
are exempt from the rate limitations of Regula­
tion Q pursuant to § 217.3(g) thereof, shall not be
subject to paragraph (a) of this section or to
§ 204.3(a)(1) and (2); but during each week of
the four-week period beginning October 16, 1969,
and during each week of each successive four-week
(“maintenance”) period, a member bank shall main­
tain with the Reserve Bank of its district a daily
average balance equal to 10 per cent of the daily
average amount of such deposits during the fourweek (“computation”) period ending on the
Wednesday fifteen days before the beginning of the
maintenance period; except that only 3 per cent
need be so maintained against such deposits which
are time deposits9 aggregating not more than 4 per
cent of such member bank’s daily average deposits
subject to paragraph (a) of this section during the
computation period. An excess or deficiency in
reserves in any week of a maintenance period
under this paragraph shall be subject to
§ 204.3(a) (3), as if computed under § 204.3(a) (2),
and deficiencies under this paragraph shall be sub­
ject to § 204.3(b).10
8 I.e., offices of other banks not covered by § 204.1(f) (1 ).
9 For the purposes of this paragraph, “ time deposits”
means any deposit having a maturity of one day or more.
10 The term “ computation period’’ in § 2 0 4 .3 (a )(3 ) and
(b) shall, for this purpose, be deemed to refer to each week
of a maintenance period under this paragraph.

NEW

YORK