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FEDERAL RESERVE BANK
OF N E W YORK

C ir c u la r N o . 7727
O c to b e r 9 , 1975

PROMISSORY NOTES ISSUED BY MEMBER BANKS
TO STATE AND MUNICIPAL HOUSING AUTHORITIES

T o A ll Member B a n k s in th e S eco n d
F e d e ra l R e s e r v e D is tr ic t:

In our Circular No. 7697, dated August 28, 1975, you were notified
that the Board of Governors of the Federal Reserve System had determined that
funds obtained by member banks through so called "Loan to Lender" programs
must be treated as deposits subject to reserve requirements and interest rate
limitations. The generation of such funds usually involves the issuance by a
municipal authority of tax-exempt bonds and the subsequent lending of the bond
proceeds to financial institutions under the obligation that these funds are
to be used to make specified types of real estate loans.
S in c e t h a t a n n o u n c e m e n t, t h e B o a r d o f G o v e r n o r s h a s r e c e i v e d r e ­
q u e s t s , f r o m m em ber b a n k s , S t a t e h o u s in g a u t h o r i t i e s , a n d o t h e r s , t h a t t h e
B o a rd r e v ie w i t s e a r l i e r a c t i o n i n v ie w o f
t h e a b i l i t y o f m em ber b a n k s t o p a r t i c i p a t e

i t s p o s s i b l e a d v e r s e im p a c t u p o n
i n su c h S t a t e - s p o n s o r e d h o u s in g

p ro g ra m s .
On t h e b a s i s o f a d d i t i o n a l i n f o r m a t i o n t h a t h a s b e e n p r o v i d e d t o t h e
B o a r d , an d i n r e s p o n s e t o t h e s e r e q u e s t s , t h e B o a r d h a s d e c id e d t o r e v i e w i t s
d e c i s i o n r e g a r d i n g t h e " d e p o s i t " s t a t u s o f p r o m is s o r y n o t e s is s u e d b y m em ber
banks

to

S ta te

o r m u n i c i p a l h o u s in g

a u th o r itie s

under

such

"Loan

to

L e n d e r"

p ro g ra m s .
D u r in g
G o v e rn o rs

has

th e

d e c id e d

and,

th e re fo re ,

such

fu n d s .

to

pendency o f
to

w a iv e

Y ou m ay d i r e c t
R e g u la t io n s

D e p a rtm e n t.

suspend

its

r e v ie w

th e

e ffe c tiv e n e s s

th e r e q u ir e m e n t s

any

in q u ir ie s

A d d itio n a l

of

fo r

th e s e

of

p ro g ra m s ,
its

th is

th is

th e

p r io r

m a in te n a n c e

r e g a r d in g

c o p ie s

of

of

re s e rv e s

m a tte r

c ir c u la r

B o a rd

to
w ill

of

d e te r m in a tio n

our

a g a in s t

B ank

be

fu r n is h e d

upon r e q u e s t.




P

a u l

A .

V

o l c k e r

,

President.