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Any depository institution holding reservable
transaction accounts or nonpersonal time deposits is
entitled to the same borrowing privileges as member banks.
In administering the borrowing privileges, the Fed­
eral Reserve is to take into consideration the special needs
of savings and other depository institutions for access con­
sistent with their long-term asset portfolios and their sensi­
tivity to national money market trends. In general, access
is available only after they have fully used reasonable alter­
native sources of funds. However, the discount window will
be available on a temporary basis to cover immediate cash
or reserve needs, when institutions are unable to gain timely
access to their special industry lenders.

As required by the Monetary Control Act the Board
has published for comment a set of pricing principles and
a proposed schedule of fees for Federal Reserve Bank ser­
vices. Under the proposal, the Board would begin actual
pricing of some services in January 1981 and price all
services by September 1981.
The following services are covered by the fee schedule:
1. Currency and coin services of a nongovernmental nature.
2. Check-clearing and collection.
3. Wire transfer.
4. Automated clearinghouse.
5. Settlement.
6. Securities safekeeping.
7. Federal Reserve float.
8. Any new service the Federal Reserve System offers,
including but not limited to, payment services to effectuate
electronic funds transfer.
In determining the fee schedule, the Board must
price explicitly all services covered by the fee schedule, and
must price all services covered by the fee schedule to non­
member depository institutions at the same fee schedule

applicable to member banks. However, nonmembers may
be required to hold balances sufficient for clearing purposes
and may be subject to any other terms that the Board
applies to member banks.

The Act provides for the orderly phase-out of limi­
tations on the maximum rates of interest and dividends that
may be paid on deposits. The Depository Institutions
Deregulation Committee—
with the Secretary of the Trea­
sury, Chairman of the Federal Reserve Board, Chairman of
the Board of Directors of the Federal Deposit Insurance
Corporation, Chairman of the Federal Home Loan Bank
Board, and Chairman of the National Credit Union Admin­
istration Board as voting members, and Comptroller of the
Currency as a non-voting member— required to meet at
least quarterly in order to achieve the phase-out.

Thrift Institutions
The Act also authorizes various new investment
authorities for federally chartered savings and loan associ­
ations and permits them to offer credit card services and to
exercise trust and fiduciary powers; expands authority to
make real estate loans; authorizes Federal mutual savings
banks to make commercial, corporate and business loans,
subject to limitations, and to accept demand deposits in
connection with a commercial, corporate, or business loan
relationship; and in other ways expands the powers of thrift

of 1980

The Act authorizes banks to continue to provide
automatic transfer services from savings to checking ac­
counts; authorizes savings and loan associations to establish
remote service units to credit and debit savings accounts,
or credit payments on loans, and provide related financial
transactions; and authorizes federally insured credit unions
to offer share draft accounts.
The Act also extends nationwide the authority for
depository institutions to offer NOW accounts, effective
December 31, 1980. NOW accounts may consist solely of
funds in which the entire beneficial interest is held by one
or more individuals or by an organization operated primar­
ily for religious, philanthropic, charitable, educational, or
other similar purposes and not operated for profit.
The insurance of accounts of federally insured banks,
savings and loan associations, and credit unions has been
increased from $40,000 to $100,000.

Federal Reserve Publication-December, 1980

The Monetary Control A ct o f 1980 (P. L. 96-221),
enacted on March 31, 1980 , is designed to improve the
effectiveness o f monetary policy by applying new reserve
requirements set by the Federal Reserve Board to all de­
pository institutions. Among its other key provisions, the
A ct 1) authorizes the Federal Reserve to collect reports
from all depository institutions; 2) extends access to Fed­
eral Reserve discount and borrowing privileges and other
services to nonmember depository institutions; 3) requires
the Federal Reserve to set a schedule o f fees fo r Federal R e­
serve services; and 4) provides for the gradual phase-out o f
deposit interest rate ceilings, coupled with broader powers
for thrift institutions.

Uniform reserve requirements are imposed on
all depository institutions, including commercial banks,
savings banks, savings and loan associations, credit unions,
and industrial banks that have transaction accounts or
nonpersonal time deposits. Under the terms of the Inter­
national Banking Act of 1978, the same reserve require­
ments will also be extended to U.S. agencies and branches
of foreign banks. The revised reserve requirement rules also
affect Edge Act and Agreement corporations.

The Act requires all depository institutions to file
reports which the Board determines to be necessary or de­
sirable for the control or monitoring of the monetary and
credit aggregates. All reports are to be made directly to the
Federal Reserve.
The Board has deferred until at least May 1981 all
reserve requirements and reporting for nonmember institu­
tions with total deposits of less than $2 million. The Board
has also adopted quarterly rather than weekly reporting and
reserve maintenance for institutions with total deposits of
$2 million to $15 million. The quarterly reporting and
maintenance procedures will begin in January 1981.
All other nonmember institutions began to report
deposits as of the week October 30 through November 5,
1980, and to maintain reserves on November 13, 1980.
Member banks began to phase down their reserve require­
ments to the new requirements of the Act at that time also.

What Reserve Requirements are Established?
Transaction Accounts. The reserve requirement on
the first $25 million of transaction accounts is 3 percent.
A reserve requirement of 12 percent is established on that
portion of total transaction accounts above $25 million.
The Board is required to index the $25 million tranche an­
nually, beginning in 1982, at 80 percent of increases or
decreases in transaction accounts of all depository insti­
tutions for the previous year.
Transaction accounts are defined to include demand
deposits, NOW accounts, ATS accounts, share draft accounts,
and accounts subject to telephone or pre-authorized transfer
when the depositor is authorized to make more than three
transfers per month. Accounts that permit the depositor to
make third party payments through automated teller
machines or remote service units are also covered. Tele­
phone and preauthorized transfers made to third parties
or to another deposit account of the same depositor are
counted toward the three permissible transfers per month;
telephone or preauthorized withdrawals paid directly to
the depositor are not. Further, a savings account is not
regarded as a transaction account merely because it permits
a depositor to make loan and associated payments to the
institution itself.
Nonpersonal Time Deposits. All depository insti­
tutions are required to maintain reserves against nonperson­
al time deposits (including savings deposits) with original
maturities of less than 4 years at a ratio of 3 percent.
Nontransferable personal time deposits will not be subject
to reserve requirements. Time deposits with original maturi­
ties of four years or more are subject to a zero percent
reserve ratio.
The Act defines a nonpersonal time deposit as any
time deposit or account that is transferable, or any time de­
posit or account held by a party other than a natural person.
Under the Board’s regulation, all time deposits issued to
natural persons prior to October 1, 1980 are to be re­
garded as personal time deposits even if they are transfer­
able. A time deposit issued on or after that date, to be a
personal time deposit, must be held by a natural person
and bear a statement indicating that it is not transferable.
The Board has also shortened the minimum maturity of
all time deposits to 14 days from 30 days.
Supplemental Reserves. Under certain conditions,
and after consultation with other depository institution

regulators, the Board is authorized to impose a supplemen­
tal reserve requirement of not more than 4 percent on every
depository institution. Interest will be paid on supplemen­
tal reserves.
Eurocurrency Reserve Requirements. The Board
has set a 3 percent reserve requirement on certain Eurocur­
rency activity, the same ratio as on nonpersonal time de­
posits. These are: net borrowings from related foreign
offices; gross borrowings from unrelated foreign depos­
itory institutions; loans to U.S. residents made by overseas
branches of domestic depository institutions; and sales of
assets by depository institutions in the United States to
their overseas offices.

How Will Reserve Requirements be Phased In?
Larger nonmember institutions began posting
reserves on November 13, 1980; smaller institutions will
begin in early January; reserve and reporting requirements
have been deferred for nonmember institutions with
deposits of less than $2 million until May 1981. Until
November, member banks continued to post reserves under
existing requirements. Reserve requirement provisions of
the Act are phased in as follows:
Nonmember Institutions. The Act provides for an
eight-year phase-in period of reserve requirements for non­
member banks and thrift institutions. During the first tenmonth period beginning in November 1980 the amount of
required reserves is one-eighth of the full requirement
and will increase by one-eighth in September of each of the
following 7 years. NOW accounts, other than those previ­
ously authorized in New England, New York and New Jersey,
are subject immediately to the full reserve requirement
on transactions accounts.
Member Banks. Reserve requirements for member
banks on transaction accounts and time and savings de­
posits were phased down by one-fourth of the difference
between the amount under the old and new reserve require­
ment structures on November 13, 1980; they will be phased
down by an additional one-eighth in September, 1981, and
by an additional one-eighth at six-month intervals there­
after. To reduce reporting and processing burdens, reserve
requirements on time deposits under the old structure are
determined by applying the average reserve ratio on time
deposits for the two week period ending August 6, 1980 to
the total amount of time deposits. This fixed average
reserve ratio on time deposits will be used throughout the

phase-in period. NOW accounts, other than those previously
authorized in New England, New York and New Jersey, are
subject immediately to the full reserve requirement on
transaction accounts.
De novo banks and banks that become member
banks after March 31, 1980, will have a two-year phasein period.
Former Member Banks. Under the Act any bank
that withdrew from membership on or after July 1, 1979,
must maintain reserves beginning on the date of enactment
as if it had been a member bank on that date. Reserve re­
quirements for these banks were deferred by the Board
until August 28, 1980. The date of withdrawal from
membership for a state member bank is determined by
the date on which the Federal Reserve Bank received
notice of the decision of the bank’s board of directors
(and shareholders when required by state law) to with­
draw from membership. For national banks, the with­
drawal date is the date on which a state charter was

What are Eligible Reserves?
Reserve requirements may be met with funds de­
posited directly at the Federal Reserve, funds held at the
Federal Reserve that are passed through a correspondent,
and vault cash. A depository institution that is a member
of the Federal Reserve System must hold its required
reserves directly with the Federal Reserve. A nonmember
institution may deposit its required reserve balance directly
with the Federal Reserve or pass its required reserve balance
through a correspondent. Such a correspondent may be a
Federal Home Loan Bank; the National Credit Union
Administration Central Liquidity Facility; a depository
institution that holds a reserve balance with the Federal
Reserve; or certain depository institutions that are not
required to hold a reserve balance if authorized by the
Vault cash means United States currency and coin
(with the exception of silver and gold coins) owned by a
depository institution that may, at any time, be used to
satisfy depositors’ claims. It includes United States currency
and coin in transit to a Federal Reserve Bank or a corres­
pondent depository institution for which the reporting de­
pository institution has not yet received credit, and United
States currency and coin in transit from a Federal Reserve
Bank or a correspondent depository institution when the
reporting depository institution’s account at the Federal
Reserve or correspondent bank has been charged for such

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