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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.