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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.