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F e d e r a l r e s e r v e B a n k o f Da lla s
DALLAS, TE X A S

75222

C irc u la r No. 79-77
A p ril 20, 1979

PROPOSED AMENDMENT TO REGULATION D TO RESTRUCTURE
RESERVE REQUIREMENTS AS APPLIED TO CERTAIN BORROWINGS
AND REPURCHASE AGREEMENTS

TO A L L MEMBER BANKS IN THE
ELEVENTH FEDERAL RESERVE D IS T R IC T :
On A p ril 13, 1979, the Board of G overnors of the Federal Reserve
System proposed fo r comment an amendment to Regulation D to re s tru c tu re its
re s e rv e requirem ents as ap p lied to certain borrow ing s b y member banks.
G e n e ra lly , the m ajor categories affected include Federal Funds, repurchase
agreem ents, and T re a s u ry tax and loan account note balances.
T h e te x t of the B oard's proposal is attached. It is stressed that
all comments and inform ation on this proposal should be submitted in w ritin g
to the S e c re ta ry , Board of G overnors of the Federal Reserve System , Wash­
ington, D .C . 20551. Comments should be received by May 18, 1979, and
should re fe r to Docket No. R -0218.
If you have any questions re g a rd in g this proposal, please contact
A lla n Y . Neale o f o u r Accounting D epartm ent, E x t. 6334, o r any officer at
o u r El Paso, Houston, o r San Antonio B ran ch .
S in c e re ly y o u rs ,
Robert H . Boykin
F irs t V ice President
Enclosure

Banks and others are encouraged to use the follow ing incoming W A T S numbers in contacting this Bank:
1-8 0 0 -4 9 2 -4 4 0 3 (intrastate) and 1-8 0 0 -5 2 7 -4 9 7 0 (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)

FEDERAL RESERVE SYSTEM
[REGULATION D; DOCKET NO. R-0218]
[12 CFR Part 204]
RESERVES OF MEMBER BANKS
Reserve Requirements on Federal Funds and
Repurchase Agreement Time Deposits

JUSENCYt

Board of Governors of the Federal Reserve System.

ACTION;

Proposed Rule.

SUMMARY:

The Board proposes to restructure its reserve requirements

as applied to certain borrowings by member banks.

Under the proposed

restructuring, member banks would be required to maintain a 3 per cent
reserve against borrowings £rom domestic offices of nonmember banks
and other depository institutions whose liabilities are not subject
to reserve requirements and from the United States government (and
Its agencies), as well as a 3 per cent reserve against certain repurchase
agreements on U.S. government and agency securities.

Currently, such

liabilities are exempt from the Board's reserve requirements.

DATE:

Comments must be received by May 18, 1979.

ADDRESS:

Comments should be addressed to Theodore E. Allison, Secretary

of the Board, Board of Governors of the Federal Reserve System, Washington,
D.C. 205S1.

Comments should contain Docket No. R-0218*

FOR FURTHER INFORMATION CONTACT:

Allen L. Raiken, Associate General

Counsel, Legal Division (202/452-3625), or Gilbert T. Schwarti, Assistant
General Counsel, Legal Division (202/452-3623), Board of Governors
of the Federal Reserve System.

SUPPLEMENTARY INFORMATION:

The Board of Governors proposes to amend

Its Regulation D, Reserves of Member Banks (12 CFR 204) to restructure
reserve requirements as applied to certain borrowings and repurchase
agreements entered into by member banks.
Currently, borrowings by member banks from domestic offices
of other banks are not defined as deposits and are not subject to reserve
requirements.

Also, borrowings by member banks from the United States

government (principally in the form of Treasury tax and loan account
note balances) and its agencies have not been regarded as deposits
subject to reserve requirements.

Under the Board's proposal, member

bank borrowings from the domestic offices of other banks whose liabilities
are not subject to reserve requirements and from the U.S.

government

and Its agencies would be treated as a new category of time deposit
subject to a 3 per cent reserve requirement.
The term "bank" has been regarded as including commercial
banks, savings banks, savings and loan associations, cooperative banks,
the Export-Import Bank, and Minbanc Capital Corporation.
217.137)

(See 12 CFR

For purposes of reserve requirements (and interest rate restrictions)

it Is also proposed that the term "bank" be expanded to include credit
unions.

Member bank borrowings from domestic offices of other member

banks or other organizations that are or may be required by the Board
to maintain reserves and from Federal Reserve Banks would continue
to be exempt from reserve requirements.

The institutions that currently

are subject to reserve requirements include Edge Corporations (12 U.S.C.
615), Agreement Corporations (12 U.S.C. 601>604a), and operations sub­
sidiaries of mcmbec banks (12 CFR 204.117).

In addition, pursuant to S 7 of

>

the International Banking Act oC 1978 (Pub. L.

95-369), the Board

Bay subject U.S. branches and agencies oC foreign banks to reserve
requirements.

The exemption is believed appropriate to facilitate

the reserve adjustment process of member banks and to avoid the possi­
bility of imposing double reserve requirements on liabilities that
already may be subject to reserve requirements.
The Board's proposal would also affect member bank borrowings
in the form of repurchase agreements based on U.S. government and agency
securities.

Currently, such repurchase agreements entered into by

a member bank with any entity are not deposits and are not subject
to reserve requirements.

Under the Board's proposal, such obligations

would be regarded as deposits and would be subject to a 3 per cent
reserve requirement.

However, repurchase agreements entered into by

a member bank with domestic banking offices of other member banks or
organizations subject to reserve requirements and with the Federal
Reserve System would continue to be exempt from reserve requirements.
In order to continue to facilitate the activities of member
bank dealers in the U.S. government and agency securities markets,
and to provide competitive equality between bank and nonbank dealers,
the Board's proposal would regard repurchase agreements entered into
with institutions not subject to reserve requirements as time deposits
only when the amount of such repurchase agreements exceeds the amount
of U.S. government and agency securities held by the member bank In
its own trading account.

A member bank's trading account represents

the U.S. and agency securities that it holds for its dealer transactions—
i.e., securities are purchased with the intention that they will be
resold rather than held as an investment.

Public comment is requested

on appropriate limitations on, or other descriptions of, member bank
trading accounts.

Xt la also proposed that the 3 pec cent reserve requirement

•ppiy to

any obligation that arises from a borrowing by a member bank

for one business day froia a dealer in securities whose liabilities
•re not subject to the reserve requirements of the Federal Reserve
Act of proceeds of a transfer of deposit credit in a Federal Reserve
Bank (or other immediately available funds ) , received by such dealer
on the date of the loan in connection with clearance of securities
transactions.
The proposed actions are designed to establish more effective
control over growth of bank credit.

Approximately 20 per cent of the

growth in commercial bank credit during the past six months has been
financed by exempt borrowings in the form of Federal funds and repurchase
agreements on U.S. government and agency securities.

It is anticipated

that the proposed reserve requirements would moderate the growth of
commercial bank credit financed through the issuance of these types
of bank liabilities.
All comments and information on this proposal should be submitted
in writing to Theodore E. Allison, Secretary of the Board of Governors
of the Federal Reserve System, Washington, D.C. 20551, to be received
by Kay 18, 1979.
Number R-0218.

All material submitted should include the Docket
Such material will be made available for inspection

and copying upon request except as provided in section 261.6(a) of
the Board's Rules Regarding Availability of Information (12 CFR 261.6(a)).


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102