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F ederal

Ba n k o f Da lla s
DALLAS, TEXAS 75222
reserve

Circular No. 70-55
March 6, 1970

PROPOSED AMENDMENTS TO REGULATIONS D AND Q

To All Member Banks
in the Eleventh Federal Reserve District:

There are attached for your information a copy of a press
statement and proposed amendments to Regulations D and Q issued by
the Board of Governors of the Federal Reserve System on March 2,
1970.
The Board has invited interested persons to comment on
the proposals. Written comments should be submitted to the Board
not later than April 2, 1970.
Yours very truly,
P. E. Coldwell
President

Enclosure

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

FEDERAL
press

RESERVE

release

For immediate release

March 2, 1970.

The Board of Governors of the Federal Reserve System announced
today it is considering establishing a new minimum denomination and
maturity on subordinated notes and debentures that are presently outside
the definition of "deposit" and are being sold by member banks without
regard to reserve requirements and interest rate ceilings.

Comments

on the proposal should be submitted to the Board by April 2.
The intent of the proposed amendments is to distinguish between
deposit-type funds and true capital funds.
The proposal would establish a minimum maturity of more than
five years and a minimum denomination of $20,000 on such capital notes
and debentures.

Present regulations specify a minimum maturity of more

than two years but do not specify a minimum denomination for capital
notes or debentures.
Under the proposal a capital note or debenture would be exempt
from reserve requirements (Regulation D) and interest rate ceilings
(Regulation Q) if it (1) has an original maturity of more than five
years, (2) is expressly subordinated to the claims of depositors and
is unsecured, (3) expressly states that it will not be eligible as
collateral for a loan by the issuing bank, and (4) is issued in
denominations not less than $20,000, with certain exceptions.
A copy of the proposal is attached.

FEDERAL RESERVE SYSTEM
[12 CFR Parts 204, 217]
RESERVES OF MEMBER BANKS; INTEREST ON DEPOSITS

Certain Subordinated Obligations as Deposits

The Board of Governors is considering changing present
requirements for an obligation issued by a member bank subordinated
to the claims of depositors to be classified by the bank as a non­
deposit borrowing for the purposes of member bank reserve requirements
(Regulation D) and interest rate controls (Regulation Q).
This would be accomplished by amending the relevant
portions of § 204.1(f) and § 217.1(f) to read as follows:
(f) Deposits as including certain promissory notes and
other obligations.

[The term "deposit" does not include an obliga­

tion that]
Vc

(3)

it

*

*

*

is designated as a capital note or capital debenture

and possesses the following characteristics:
(i)

has an original maturity of more than five years;

(ii)

is subordinated expressly to the claims of de­

positors and is unsecured;
(iii)

expressly provides that it will not be eligible

as collateral for a loan by the issuing bank; and
(iv)

is of a denomination not less than $20,000, unless

part of an issue of securities sold by means of a pre-emptive rights
offering, an underwriting, or other securities marketing channel

-2not connected with the issuing bank's regular banking operations and
personnel or those of its affiliates;
but this subparagraph (3) shall not affect (A) any instrument issued
before March 9, 1970, that has an original maturity of more than two
years, is unsecured, and states expressly that it is subordinated to
the claims of depositors, or (B) capital notes or debentures issued,
other than to the general public, by a national bank with the specific
approval of the Coraptroller of the Currency or by a State member bank
with the specific approval of its State supervisor and the Board of
Governors, upon a determination in each case that exigent circumstances
require the issuance of such capital notes or debentures without regard
to the provisions of this Part.

*

*

Recent evidence indicates that member banks are marketing
certain types of subordinated obligations to acquire deposit-type
funds, with results that the Board considers as impairing the effective
application of regulations with respect to deposit interest rates and
reserve requirements.

The intent of the amendment is to distinguish

between deposit-type funds and true capital funds.
To aid in the consideration of this matter by the Board
interested persons are invited to submit relevant data, views, or
arguments.

Any such material should be submitted in writing to the

Secretary, Board of Governors of the Federal Reserve System,
Washington, D. G, 20551, to be received not later than April 2, 1970,

Under the Board*s rules regarding availability of information
(12 CFR Part 261), such materials will be made available for in­
spection and copying upon request unless the person submitting the
material asks that it be considered confidential.
By order of the Board of Governors, February 27, 1970,

(Signed) Kenneth A, Kenyon
Kenneth A. Kenyon,
Deputy Secretary.
(SEAL)

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