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FED ER A L RESERVE BANK OF DALLAS
DALLAS, TEXAS

75222
C ircular No. 79-95
June 1, 1979

PROPOSED AMENDMENT TO REGULATION Q
Deposits as Including Certain Promissory Notes and Other Obligations

TO ALL MEMBER BANKS AND
OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Board of Governors of the Federal Reserve System has issued for
comment a proposal to amend Regulation Q, Interest on Deposits, to subject member
bank repurchase agreements of less than $100,000 to the interest rate ceilings of
Regulation Q.
Enclosed is a copy of the proposed amendment. Interested persons are
invited to submit comments to the Secretary, Board of Governors of the Federal
Reserve System, Washington, D .C . 20551, to be received no later than July 2,
1979. Comments should be in w riting and refer to Docket No. R-0229.
Any questions on the proposed amendment should be directed to our
Consumer Affairs Section of the Bank Supervision and Regulations Department,
Ext. 6171.

Sincerely yours,
Robert H. Boykin
First Vice President
Enclosure

Banks and others are encouraged to use the following incoming W ATS numbers in contacting this Bank:
1-800-492-4403 (intrastate) and 1-800-527-4970 (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)

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[12 CFR Part 217]
(Docket No. R-0229)
INTEREST ON DEPOSITS
Deposits as Including Certain Promissory Notes
and Other Obligations
AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Proposed rulemaking.

SUMMARY:

The Board has proposed amending its regulations to subject

member bank repurchase agreements of less than $100,000 to the interest
rate ceilings of Regulation Q.

Such repurchase agreements arise from

a transfer of direct obligations of, or obligations that are fully
guaranteed as to principal and interest by the United States or any
agency thereof that the bank is obligated to repurchase.
DATE:

Comments must be received by July 2, 1979.

FOR FURTHER INFORMATION CONTACT:

Gilbert T. Schwartz, Assistant General

Counsel (202/452-362 3), or Paul S. Pilecki, Attorney (202/452-3281)
Legal Division, Board of Governors of the Federal Reserve System,
Washington, D. C. 20551.
SUPPLEMENTARY INFORMATION:

Section 217.1(f)(2) of Regulation Q and

section 204.1(f)(2) of Regulation D presently exempt from the definition
of deposits any obligations that "evidence an indebtedness arising from
a transfer of direct obligations of, or obligations that are fully
guaranteed as to principal and interest by the United States or any
agency thereof that the bank is obligated to repurchase."

Consequently,

these obligations are not subject to the Regulation Q interest rate
ceilings or to reserve requirements.

This general exemption was estab­

lished in 1969 in order to facilitate a strong Government and agency

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securities market, to provide banks a means of temporarily financing
their portfolio positions and to provide a service to customers who
desire to invest temporarily idle funds in Government and agency securities
in amounts and maturities less than those readily available in the market.
The repurchase agreement exemption was not intended to provide member
banks with a device for avoiding interest rate ceilings.
The Board Is aware of recent actions by banks to offer small
denomination repurchase agreements ("RPs") of Government and agency
securities at rates in excess of that which would be available for time
deposits of comparable terms.

The Board views the sale of small de­

nomination repurchase agreements of Government and agency securities
not subject to interest rate limitations as potentially harmful to the
orderly administration of currently prescribed deposit rate ceilings
and to the competitive balance existing between thrifts and commercial
banks.

In this regard, the issuance of small denomination RPs appears

to be primarily a substitute for small denomination time deposits.
Consequently, the Board has proposed to narrow the current
exemption from deposit treatment under Regulation Q by including within
the definition of deposits member bank obligations arising from a trans­
fer of direct obligations of, or obligations that are fully guaranteed
as to principal or interest by the United States or any agency thereof
that the bank is obligated to repurchase.

Public comment is requested

on the extent to which the application of interest rate ceilings to
repurchase agreements issued in amounts of less than $100,000 would
affect the practice of providing bank customers a vehicle for investing
temporarily idle funds.

This proposal would not affect the current

exemption for interbank transactions involving repurchase agreements
of less than $100,000.

All comments on this proposal should be submitted in writing
to the Secretary, Board of Governors of the Federal Reserve System,
Washington, D. C. 20551, to be received by July 2, 1979.
submitted should include the Docket Number R-0229.

All material

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.
Pursuant to its authority under § 19(a),
Federal Reserve Act

(12 U.S.C.

(i) and

§§ 461, 371a and 371b)

(j) of the

the Board proposes

to amend Regulation Q (12 CFR 217) as follows:
§ 217.1

DEFINITIONS
*

(f)
obligations.

*

*

*

*

Deposits as including certain promissory notes and other
For the purposes of this Part, the term "deposits" also

includes any member bank's liability on any promissory note, acknowledg­
ment of advance, due bill, or similar obligation (written or oral) that
is issued or undertaken by a member bank principally as a means of ob­
taining funds to be used in its banking business, except any such obli­
gation that:
*
(2)

*

*

*

*

Is issued in denominations of $100,000 or more on or

after July 1, 1979, and evidences an indebtedness arising from a trans­
fer of direct obligations of, or obligations that are fully guaranteed
as to principal and interest by the United States or any agency thereof
that the bank is obligated to repurchase;

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*

*

*

*

*

By order of the Board of Governors of the Federal Reserve
System, May 30, 1979.

(Signed) Theodore E. Allison
Theodore E. Allison
Secretary of the Board

[SEAL]

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