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F ed er a l R ese r v e Ba n k

DALLAS. TEXAS

of

Dallas

75222

Circular No. 6 9 -1 6 1
July 1, 1969

PROPOSED AMENDMENTS TO REGULATIONS D AND Q

To All Member Banks
in the Eleventh Federal Reserve District:
Attached is a copy of a press release of the Board
of Governors of the Federal Reserve System regarding a proposal
to bring a member bank’s liability on certain so-called "Fed­
eral funds" transactions with customers other than banks within
the coverage of Regulations D and Q.

A copy of the proposal is

also attached.
Comments on the proposal should be received by the
Board by July 28, 19&9Yours very truly,
P. E. Coldwell
President

Enclosures (2)

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

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f

F E D E R A L
press

R E S E R V E

release

June 27, 1969

For immediate release

The Board of Governors of the Federal Reserve System today
invited comments within 30 days on a proposal to bring a member bank's
liability on certain so-called "Federal funds" transactions with
customers other than banks within the coverage of Regulations D (reserve
of member banks) and Q (payment of interest on deposits). A copy of
the proposal is attached.
-0-

FEDERAL RESERVE SYSTEM
[12 CFR Parts 204, 217]
[Regs. D, Q]
RESERVES OF MEMBER BANKS; PAYKENT OF INTEREST ON DEPOSITS
Certain Federal Funds Transactions as Deposits

The Board of Governors is considering amending section 204.1(f)
and section 217.1(f) in order to bring a member bank*s liability on certain
so-called "Federal funds" transactions with customers other than banks
within the coverage of Regulations D and Q.

At the present time, all such

transactions in nondocumentary nondeposit form are exempt from the regulations.
Recently, some banks have been making the Federal funds market
available to their corporate depositors as a means of providing them with
interest on short-term funds.

In the Boardfs judgment, there is no justifica­

tion for a bank's liability on such transactions to be exempt from rules govern­
ing reserve requirements and the legal prohibition against payment of interest
on demand deposits.
In the Board's view there are only two types of Federal funds
transactions entered into by banks that may justifiably be exempt from
Regulations D and Q.

One is where the liability is to another bank acting

as principal (and not on behalf of any customer).

The other is where the

liability relates to certain transactions in connection with payment for
securities.

In the first case, the transactions facilitate implementation

of monetary policy; in the second, the transactions are an integral part of
the established market practice of settling purchases and sales of securities.
Limiting the scope of Federal funds transactions that are exempt
from Regulations D and Q would be accomplished by amending the general rule

-2 -

set forth in section 204.1(f) and section 217.1(f), by modifying the inter­
bank exemption thereto, and by the addition of a new exemption to cover
Federal funds transactions on securities transactions, as follows:
" (f) Deposits as including certain promissory notes and other obli
gations.

For the purposes of this part, the term 1deposits* shall be

deemed to include the proceeds of any promissory note, acknowledgment of
advance, due bill, or similar obligation (written or oral) that is issued
or undertaken by a member bank principally as a means of obtaining funds to
be used in its banking business, except any such obligation that:
(1) is issued to, and held for its own account by, a bank
* * *
(4) arises from a loan, for one business day, of proceeds of a
transfer of deposit credit in a Federal Reserve Bank (or other immediately
available funds), commonly referred to as 'Federal funds', in connection
with payment on that day for securities."
This notice is published pursuant to section 553(b) of Title 5,
United States Code, and section 262.2(a) of the rules of procedure of the
Board of Governors.
To aid in the consideration of this matter by the Board, inter­
ested 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. C., 20551, to
be received not later than July 28, 1969.
Dated at Washington, D. C., this 26th day of June 1969.
By order of the Board of Governors.
(signed)

[SEAL]

Robert P. Forrestal

Robert P f Forrestal,
Assistant Secretary.

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