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federal

Reserve Ban k

DALLAS, TEXAS

of

Dallas

75222

Circular No. 70-299
December 15, 1970

INTERPRETATION OF REGULATION D REGARDING CURRENCY AND COIN
THAT MAY BE COUNTED AS RESERVES

To All Member Banks in the
Eleventh Federal Reserve District:

There is attached an interpretation of Regulation D effective
January 7, 1971* This interpretation specifies that a member bank may
count as part of its reserves only that currency and coin to which it
has a full and unrestricted right to use to meet depositors1 claims.
Currency or coin held by a bank under agreements, undertakings or
arrangements with customers that effectively deny to the bank the un­
restricted use of the currency or coin cannot be counted as reserves
within the meaning of the Federal Reserve Act since it is not available,
legally or practically, to meet depositors1 claims.
The press release regarding this interpretation is printed
on the reverse of this circular.
Yours very truly,
P. E. Coldwell,
President

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

FEDERAL RESERVE

k
9

press

release

f* A L R & '
S

F o r immediate release.

December 9* 1970

The Board of Governors of the Federal Reserve System today
issued an interpretation spelling out the circumstances under which a
member bank may count currency and coin as part of its required reserves.
The interpretation specifies that a member bank may count as
part of its reserves only that currency and coin to which it has a full
and unrestricted right to use to meet depositors1 claims.

Currency or

coin held by a bank under agreements, undertakings or arrangements with
customers that effectively deny to the bank the unrestricted use of the
currency or coin cannot be counted as reserves within the meaning of the
Federal Reserve Act since it is not available, legally or practically,
to meet depositors' claims.
In clarifying provisions of the Board's Regulation D govern­
ing the reserves of member banks, the interpretation does not affect the
legality of arrangements between a bank and its customers regarding
currency and coin.

It merely prevents member banks from counting such

currency or coin as part of their reserves.
In issuing this interpretation, the Board withdrew a proposed
regulatory amendment that would have prevented member banks from count­
ing, as part of their required reserves any silver coin they held for its
bullion or numismatic value.
A copy of the interpretation is attached.

TITLE 12 — BANKS AND BANKING
CHAPTER II — FEDERAL RESERVE SYSTEM
SUBCHAPTER A — BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
[Reg. D1

PART 204 — RESERVES OF MEMBER
BANKS

or practically, by virtue of customer agreements,
undertakings or arrangements, from using the
currency or coin at any time to meet customers’
demands. Such customer agreements, undertakings
or arrangements may relate to the specific cur­
rency or coins transferred to the bank or to
currency or coin that the bank is or may be obli­
gated to acquire to replace the specific currency
or coins so transferred.

(e) Examples of agreements, undertakings, or
arrangements between a bank and its customer
that have come to the Board’s attention under
which the bank does not have the full and unre­
1.
Effective January 7, 1971, § 204.116 is stricted right to use silver coins at any time to
added to read as follows:
meet customers’ demands are:
SECTION 204.116 CURRENCY O R COIN
(1) The bank holds the coins subject to a
H ELD PRINCIPALLY FOR ITS N U M IS­
repurchase agreement or an option by the cus­
MATIC OR BULLION VALUE.
tomer or his assignee (a borrowing by the bank
of the coins).
(a) The Board of Governors has considered
the status under Regulation D for purposes of
(2) Coins are deposited by the customer and
reserve computations of currency and coins held
the bank promises to resell to the customer a
by member banks principally for their numismatic
similar amount of coins (in effect a borrowing by
or bullion value.
the bank of the coins).
CURRENCY AN D COIN

(b) It appears that a number of banks have
been counting as part of their reserve requirements
silver coins which the banks have acquired and
segregrated from coins available to meet custo­
mers’ demands. In some cases, the coins are held
by the bank for its own account with the expec­
tation of earning a premium over face value
because of the greater numismatic or bullion
value of the coins. In other cases, the coins are
held by the bank for the account of its customers,
under a written or oral agreement, whereby the
customer retains the right to, or an option on,
such coins.

(3) The coins deposited by the customer are
to be segregated and returned to the customer
upon his request or after a certain period of time
(a bailment).

(c) When a member bank acquires currency
or coin that it has the full and unrestricted right
to use at any time to meet depositors’ claims, such
currency or coin may be counted as reserves for
purposes of satisfying the bank’s reserve require­
ments. The fact that a bank may choose to segre­
gate part of such currency or coin does not of
itself disqualify the currency or coin from count­
ing as reserves.

(f) An agreement between the bank and its
customer that the currency or coin is to be re­
garded as “owned” by the bank for purposes of
reserve requirements is not determinative. Whether
currency or coin may be counted as reserves de­
pends on the underlying nature of the transaction
in the light of the principle and examples set
forth herein.

(d) A bank does not have “the full and un­
restricted right” within the meaning of the pre­
ceding paragraph if the bank is prevented, legally

(4) The bank issues a certificate of deposit,
the consideration for which is coins, and the bank
simultaneously enters into an agreement to redeem
the certificate by payment of the coins, either the
identical coins deposited by the customer or sim­
ilar coins (a special deposit).
(5) Coins are transferred to the bank as
collateral for a loan.

(g) This interpretation is not intended to affect
the legality of agreements, undertakings, or
arrangements between the bank and its customers
regarding currency or coin.

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