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F ederal reserve Ba n k DA LLAS, T E X A S of Dallas 75222 Circular No. 80-95 M a y 14, 1980 INTERPRETATION TO REGULATION D PURSUANT TO THE MONETARY CONTROL ACT OF 1980 TO ALL MEMBER BANKS AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: The Federal Reserve Board adopted an interpretation to implement the Monetary Control Act of 1980 as it applies to reserve requirements of a bank that was a member of the Federal Reserve System on July 1, 1979 and subsequently withdrew, and to member banks involved in mergers or consolidations since that date. The interpretation also deals with the availability of Federal Reserve services to banks maintaining reserves. The Monetary Control Act of 1980 provides that a bank that was a member of the System on July 1, 1979 and withdrew between that time and March 30, 1980 is required to maintain reserves to the same extent as a member bank; and a bank that withdraws from the System on or after March 31, 1980 must continue to maintain reserves to the same extent as a member bank. The Board has approved the following interpretations relating to provisions of the Act: 1. How the date of withdrawal of a member bank from the System is to be determined. 2. Waiving reserve requirements of former member banks for the period March 31 through August 27, 1980. Member banks will be required to maintain full reserve requirements thereafter, with provisions for limited extensions to avoid hardships in extraordinary circumstances. 3. How reserve requirements will be applied in the cases of banks that withdrew from the System on or after July 1, 1979, due to merger or consolidation where: (1) a non-member bank merged or consolidated with a member bank and the surviving bank is a non-member bank, when Banks and others are encouraged to use the following incoming W AT S numbers in contacting this Bank: 1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the extension referred to above. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) a. b. (2) the merger or consolidation took place between July 1, 1979 and August 27, 1980; the merger or consolidation took place on or after August 28, 1980, or a surviving member bank merges with a non-member bank after March 30, 1980. 4. How the date of a merger or consolidation will be determined. 5. Policy for access to Federal Reserve services, providing that banks maintaining full Federal reserves pursuant to this interpretation will be given access to all Federal Reserve services. Questions regarding this revision should be directed to Allan Neale at the Head Office, Ext. 6334, or the Manager of the Accounting Departments at our El Paso, Houston, or San Antonio branches. Sincerely yours, Robert H. Boykin First Vice President Enclosure BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM RESERVES OF MEMBER BANKS INTERPRETATION OF REGULATION D I m p le m e n ta tio n of th e M o n e ta ry C o n tro l A c t o f 1980 Effective April 2 , 1980, §204.120 i added to 1 s read as follows: SECTION 204.120- I M P L E M E N T A T I O N OF M O N E T A R Y CONTROL ACT OF 1980 The Monetary Control Act of 1980 ( i l I o Tte f P. L. 96-221) ( “Act”)provides that any bank that was a member bank on July 1 1979, and which , withdraws from membership i the Federal n Reserve System during the period beginning on July 1 1979, and ending on March 30 1980, i re , , s quired to maintain reserves i an amount equal to n the amount of reserves i would have been re t quired to maintain i i had been a member bank ft on March 31,1980. The Act further provides that any bank that withdraws from membership i the n Federal Reserve System on or after March 3 , 1 1980, s a l maintain reserves i the same amount hl n as member banks. The Board of Governors has established certain p l c e and procedures to im oiis plement these provisions. 1. D e te r m in a tio n of D a te of W ith d r a w a l fro m M e m b e rs h ip . Any bank that was a member bank, but which withdrew from membership i the n Federal Reserve System prior to July 1 1979, as , determined below, w l be subject to Federal il reserve requirements on September 1 1980, the , effective date of the remaining provisions o the f Monetary Control Act. Such banks w l be en il t t e to an eight-year phase-in of reserve re ild quirements. A bank that i determined to have s withdrawn from membership on July 1 1979, or , thereafter, i subject to Federal reserve re s quirements pursuant to Regulation D i the same n manner as a member bank. The date of withdrawal from membership i the n System f r a State member bank w l be deter o il mined by the date on which the Federal Reserve Bank received notice of the decision o the bank's f board of directors (and shareholders where State law requires) to withdraw from membership.1 With regard to a national bank, the date o f withdrawal i the date on which such national s bank received a State charter whether by conver s o , merger, or consolidation. in In recognition o the f ct that there may have f a been individual bank circumstances that delayed an individual bank’ withdrawal or acquisition ofa s State charter, the Board, consistent with the legislative history of section 103 of the Act, w l il consider evidence from a former member bank that i made an unambiguous irrevocable decision t to withdraw from membership before July 1 , 1979, and, thus, i entitled to an eight-year phases i of required reserves. A bank that was a State n member bank whose directors (and shareholders where State law requires) voted to leave the System prior to July 1,1979, or a bank that was a national bank whose shareholders voted to con vert to a State charter (including conversion by merger or consolidation) prior to July 1,1979, and was not a member bank on March 3 , 1980, may 1 present the Board with c e r unambiguous la, documentation of such actions. Upon review o f such information, the Board may then determine that the date that an individual bank made such an irrevocable decision i i s date of withdrawal s t from membership. Any bank that believes that i t meets these c i e i , should submit f l documen rtra ul tation to the Board as soon as possible, but i any n event, no later than June 1 , 1980. Such submis 6 sions should be addressed to Theodore E. A llison, Secretary of the Board, Board of Governors of the Federal Reserve System, 20th Street and Con stitution Avenue, N.W., Washington, D.C. 20551. 1. See 126 Cong. Rec. E 1619 (daily ed. March 28, 1980) (remarks of Rep. Brademas and Rep. Reuss); 126 Cong. Rec. S 3176 (daily ed. March 28, 1980) (remarks of Senators Bayh, Proxmire and Lugar). 2 R e s e r v e R e q u ir e m e n ts of F o r m e r M e m b e r . B a n k s. The Board has determined, with respect to banks that withdrew from the System (other than by merger or consolidation) on or after July 1,1979, and ceased maintaining reserves pursuant to Regulation D prior to March 31,1980, to waive a l Federal reserve requirements for the period l from March 31 1980, through the maintenance , period ending August 27 1980.2 Such banks w l , il be required to maintain currently prescribed levels of Federal reserves commencing with the reserve maintenance period that begins on August 28 1980. A former member bank may , commence maintaining reserves with a Federal Reserve Bank beginning on or after June 5,1980, i order to have s ff n u icient balances available fo r Federal reserve requirement purposes for the August 28-September 3 maintenance period. A , former member bank that maintains f l reserve ul balances on or after June 5 1980, w l receive ac , il cess to a l System services. l March 31, 1980, i required to maintain Federal s reserves against i s deposits i the same manner t n as a member bank. 3 M e r g e r s . Banks that withdraw from . membership due to mergers or consolidations on or after July 1 1979, w l be required to maintain , il Federal reserves i the same manner as a n member bank on the proportion of their deposits attributable to former member banks. The date of a merger w l be determined i accordance with il n the procedures established i item 1 above. n Any bank that maintained Federal reserves pursuant to Regulation D during the maintenance period that included March 31 1980, and any , member bank that withdraws from the System (other than by merger or consolidation) on or after Where a nonmember bank merges or con solidates on or after July 1 1979, with a member , bank and the surviving bank i a nonmember s bank, the bank i required to maintain Federal s reserves i the same manner as a member bank n on a proportion of i s deposits attributable to the t absorbed member bank. This proportion w l be il the ratio that daily average deposits of the ab sorbed member bank were to the daily average deposits of the combined banks during the reserve computation period immediately preceding the date of the merger. For example, i f during the l s f l computation period before the a t ul date of a merger or consolidation between a member bank and a nonmember bank, the ratio of member bank daily average deposits to the daily average t otal deposits of the merged entity i 25 s percent, then the surviving nonmember bank w l il maintain Federal reserve requirements i the n same manner as a member bank on 25 percent of i s deposits. The portion of the surviving bank’ t s deposits representing nonmember bank deposits, that i, 75 percent, w l be subject to Federal s il reserve requirements on an eight-year phase-in schedule under the Act. A ratio also w l be computed for vault cash, and il only the proportion of the vault cash attributable to the absorbed member bank w l be permitted to il be used i determining the amount of reserve n balances required to be held at the Federal Reserve. For example, i during the l s f l com f a t ul putation period before the date ofa merger or con solidation between a member bank and a nonmember bank, the ratio of member bank daily average vault cash to the daily average t otal vault cash of the merged entity i 35 percent, then the s surviving nonmember bank w l take that propor il tion of i svault cash intoaccount i computing the t n reserve balance required to be maintained against i s deposits attributable to the absorbed member t bank. 2, Such banks will continue to be subject to the special deposit require ment on managed liabilities pursuant to S ubpart C of 12 CFR P a r t 229. For mergers or consolidations taking place be tween July 1 1979, and August 27 1980, where , , the surviving bank i a nonmember bank, Federal s The Board recognizes that certain former member banks may experience hardships by be ing subjected to Federal reserve requirements i n the same manner as a member bank, notwithstanding the delayed effective date that has been established. In order to accommodate former member banks that may incur significant hardship by maintaining f l reserve balances by ul the maintenance period beginning August 2 , the 8 Board w l consider granting limited extensions il beyond that date i extraordinary circumstances. n A former member bank that placed i s Federal t reserve balances, prior to March 31, 1980, i n assets that have declined significantly i value n and that cannot be converted to cash before August 28 1980, without incurring significant , losses may be granted a limited extension of time by the Board to maintain f l Federal reserve re ul quirements. A former member bank requesting such an extension should submit information con cerning such placements of reserve balances withdrawn by July 1 , 1980. Such submissions 5 should be addressed to Theodore E. Allison, Secretary of the Board, Board of Governors of the Federal Reserve System, 20th Street and Consitution Avenue, N.W., Washington, D.C. 20551. reserves w l be required to be maintained on that il portion of the bank's deposits representing member bank deposits during the maintenance period beginning August 2 , 1980. 8 Mergers and consolidations that take place on or after March 3 , 1980, between a member and 1 nonmember bank that was engaged i business on n July 1 1979, where a member bank i the surviv , s ing bank w l be treated on a proportionate basis il for reserve purposes. However, only the amount of deposits and vault cash of the nonmember bank outstanding on a daily average basis during the computation period immediately preceding the date of the merger w l be e i i l f r an eightil lgbe o year phase-in of reserves. The balance of the deposits of the surviving member bank w l con il tinue to be subject to member bank reserve re quirements. Mergers and consolidations involving two member banks w l continue to be subject to the il Board's current policy of a two-year transitional phase-in of increased reserve requirements. 4 A c c e ss to S e rv ic e s . Any bank maintaining . f l Federal reserves pursuant to the above ul p l s w l be permitted access to a l Federal o icie i l l Reserve services, except that Federal Reserve Banks may require satisfactory clearing balances. However, a nonmember bank that i maintaining s reserves due to the acquisition of a member bank w l have access to services i i maintains Federal il ft reserves pursuant to Regulation D against a l of l i s deposits. t