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F ederal

reserve

Bank

DALLAS, TEXAS

of

Da llas

75222

Circular No* 69-137
June 2, 1969

PROPOSED AMENDMENT TO REGULATION D
"RESERVES OF MEMBER RANKS"

To All Member Banks
in the Eleventh Federal Reserve District:

There are attached a Press Release of the Board of Governors of the
Federal Reserve System dated May 29, 1 9 6 9 ?
proposed amendments to
§20*4-.l(h) and §20U,2(b) of Regulation D as these will be published in
the Federal Register*
You will note the Board of Governors has invited interested persons
to submit in writing relevant data, views, or arguments. Such material
should be sent to the Secretary, Board of Governors of the Federal
Reserve System, Washington, D* C. 20551 > to be received not later than
July 15, 1 9 6 9 .
Yours very truly,

P. E. Coldwell
President

Attachment

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

f G° ^ e

F E D E R A L

L_
press

R E S E R V E

release

May 29, 1969.

For Immediate release.

The Board of Governors of the Federal Reserve System today
proposed an amendment to its rules governing member bank reserves
(Regulation D) designed to ensure that checks resulting from transfers
involving foreign branches are not used to effect a reduction in
required reserves.
Specifically, the proposed amendment would prevent a
member bank from deducting from demand deposits,

for purpose of

computing reserve requirements, any "cash items in process of
collection" or "balances due from other banks*' involving any account
with or in a foreign branch of the member bank.
"The effect of the proposal relates principally to the
practice of bidding for Euro-dollar deposits by foreign branches of
member banks," the Board said in explanation of the proposal.

"For

example, when a foreign depositor in a domestic office of a U. S.
bank instructs that bank to transfer funds to another U. S. bank for
his account in the latter's foreign branch, the transfer is sometimes
effected by a cashier's check.

Upon its receipt by the second bank,

that check has been treated as a 'cash item in process of collection'
that is credited to the depositor's account in the foreign branch.
Such accounts are not subject to reserve requirements under
Regulation D.

1

**
2*

"A major reason for permitting deduction of cash items in
process of collection in computing deposits subject to reserves is to
avoid duplication of reserves against the same funds.

In a purely

domestic transaction of the kind described, a member bank issuing a
cashier's check maintains reserves against the funds involved while
the check is in process of collection.

The receiving bank is

normally permitted, during the collection process, to deduct the
item from its deposits subject to reserve requirements in order to
avoid duplication of reserves in such instances.

In the case of

Euro-dollar transactions, however, the receiving bank credits the
funds to an account that is not subject to reserve requirements,
and therefore there appears to be no reason to permit items credited
to a foreign branch account to be deducted from the parent bank's
deposits in the calculation of reserve requirements under
Regulation D."
The amendment would eliminate one element of attractive­
ness of Euro-dollar deposits to those member banks that have made
frequent use of the deduction of such items in connection with
their Euro-dollar transactions.
The Board asks that any comments on the proposal be sent
to the Board's offices no later than July 15, 1969.

A copy of the

proposed amendments in the form submitted for publication in the
Federal Register is attached.

Attachment.

FEDERAL RESERVE SYSTEM
[12 CFR Part 204]
[Reg. D]
RESERVES OF MEMBER BANKS
Certain Cash Items in Process of Collection

The Board of Governors is considering amending the last
sentence of § 204.1(h)

to read:

"Items handled as noncash collections

and items the amounts of which are credited to any account with or in
a foreign branch of the member bank may not be treated as 'cash items
in process of collection' within the meaning of this part."
In conjunction with such amendment, the last sentence of
§ 204.2(b) would be amended to read:

'"Balances due from other banks'

do not include balances due from Federal Reserve Banks, balances

(pay­

able in dollars or otherwise) due from foreign banks or branches thereof

i/
wherever located or from foreign branches of other domestic banks,

or

balances representing checks received or forwarded for collection and
not yet paid by the drawee the amounts of which are credited to any
account with or in a foreign branch of the member bank."

(Footnote 6

would remain unchanged.)
The purpose of these proposed amendments is to disallow as a
deduction from deposits in computing a member bank's reserve requirements
any "cash item in process of collection" or "balance due from other bank"
that is credited to any account with or in a foreign branch of such bank.

2-

The effect of the proposal relates principally to the
practice of bidding for Euro-dollar deposits by foreign branches
of member banks.

For example, when a foreign depositor in a

domestic office of a U. S. bank instructs that bank to transfer
funds to another U. S. bank for his account in the latter's foreign
branch, the transfer is sometimes effected by a cashier's check.
Upon its receipt by the second bank, that check has been treated
as a "cash item in process of collection" that is credited to the
depositor's account in the foreign branch.

Such accounts are not

subject to reserve requirements under Regulation D.
A major reason for permitting deduction of cash items
in process of collection in computing deposits subject to reserves
is to avoid duplication of reserves against the same funds.

In a

purely domestic situation of the kind described, a member bank issuing
a cashier's check maintains reserves against the funds involved while
the check is in process of collection.

The receiving bank is normally

permitted, during the collection process, to deduct the item from its
deposits subject to reserve requirements in order to avoid duplication
of reserves in such instances.

In the case of Euro-dollar transactions,

however, the receiving bank credits the funds to an account that is
not subject to reserve requirements, and therefore there appears to
be no reason to permit items credited to a foreign branch account to
be deducted from the parent bank's deposits in the calculation of
reserve requirements under Regulation D.

This notice is published pursuant to section 553(b) of title 5,
United States Code, and § 262.2(a) of the rules of procedure of the Board
of Governors.
To aid in the consideration of this matter by the Board, in­
terested persons are invited to submit relevant data, views, or arguments.
An y such material should be submitted in writing to the Secretary, Board
of Governors of the Federal Reserve System, Washington, D. C. 20551, to
be received not later than July 15, 1969.
Dated at Washington, D. C., the 29th day of May,
By order of the Board of Governors.

(Signed) Robert P. Forrestal
Robert P. Forrestal,
Assistant Secretary„

1969.

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