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F ed er a l R e se r v e Ba n k DALLAS, TEXAS of Dallas 75222 Circular No. 80-91 May 12, 1980 ADDITIONAL QUESTIONS AND ANSWERS CONCERNING THE CREDIT RESTRAINT PROGRAM TO ALL BANKS AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: The sta ff of the Federal Reserve Board has supplied this additional set of answers to questions concerning the Board's Credit Restraint Program. These questions and answers may be added to those previously supplied, under the headings previously used and continuing previous num bering of questions. Sincerely yours, Robert H. Boykin First Vice President This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) Q & A — 5/5/80 SHORT TERM FINANCIAL INTERMEDIARIES General - - Page 3 o r not th e s e funds would o th erw ise be e l i g i b l e fo r c o l l e c t i v e investm ent by a bank. These exempt funds must be deducted from a covered c r e d i t o r ' s base as w e l l as from i t s weekly r e p o r t. An amended base rep ort should be f i l e d i f n e c e s s a r y . 6 . What methods can a money market fund use to determ ine th e p rop ortion o f i t s s h a r e s , u n i t s , or o th er i n t e r e s t s th a t r ep re se n t exempt funds o f f i d u c i a r i e s , fo r th e purpose o f weekly rep orts? Answer: For new a c c o u n ts , a fund must determ ine w hether funds o f th e sh a reh o ld er are e l i g i b l e fo r e x c l u s i o n . This can be accom plished by p e r m ittin g th e purchaser to i d e n t i f y h im s e lf as e l i g i b l e on h is purchase ord er, provided th e purchase forms c l e a r l y s e t fo r th th e su b stan ce o f i n t e r p r e t a t io n s above as t o who i s e l i g i b l e . For e x i s t i n g accounts w ith b a lan ces over $ 1 0 0 ,0 0 0 , th e fund must determ ine th e e l i g i b i l i t y o f th e funds o f each account h o ld e r . For e x i s t i n g accou n ts w ith b a la n ces under $ 1 0 0 ,0 0 0 , th e fund may determ ine exempt h o ld in g s by sampling a t l e a s t one te n th o f th o se a c c o u n ts . Funds a c c e p tin g moneys from bank t r u s t departments or insu ran ce companies may r e l y on th e r e p r e s e n ta t io n s o f th o s e o r g a n iz a t io n s as to th e p ro p o rtio n o f sh ares th ey hold th a t may be exclu d ed . 7. Can a covered c r e d i t o r choose not to take th e exemption and assume th a t i t has no f id u c ia r y sh a r eh o ld ers f o r r e p o r tin g purposes? Answer; 8. No. I t must determ ine i t s p ro p o rtio n o f f id u c ia r y s h a r e h o ld e r s . Which covered c r e d i t o r s must be a g g r e g a t e d 'f o r r e p o r tin g purposes? Answer: A l l managed c r e d i t o r s th a t are s e r i e s o f sh a r es o f a s i n g l e r e g i s t e r e d investm ent company and are not ta x exempt bond funds must be agg regated for r e p o r tin g and s p e c i a l d e p o s it p u rp oses. A l l ta x exempt managed c r e d i t o r s th a t are s e r i e s o f shares o f a s i n g l e in vestm en t company must be aggregated ap art from th e s e r i e s th a t are not ta x exempt. An investm ent company t h a t has a s e r i e s o f sh ares th a t i s a managed c r e d i t o r , and s e r i e s t h a t are n o t , may not a g g reg a te th o se s e r i e s even though th e investm ent company as a whole i s a managed c r e d i t o r : i t must rep ort o n ly the s e r i e s th a t are managed c r e d i t o r s . A bank t r u s t department must ag g reg a te fo r r e p o r tin g and s p e c i a l d e p o s i t purpose a l l o f i t s c o l l e c t i v e in vestm en t fu nd s, m aster n o t e s , and o th er c o l l e c t i v e investm ent v e h i c l e s th a t are managed c r e d i t o r s . Separate s e r i e s o f a u n it in vestm ent t r u s t a re never a g g r e g a te d . a covered c r e d i t o r must f i l e a s e p a r a te r e p o r t. 9. Each s e r i e s th a t i s Must a managed c r e d i t o r t h a t has no s p e c i a l d e p o s it l i a b i l i t y f i l e rep orts? Answer: A l l managed c r e d i t o r s must f i l e a b a se r e p o r t . A managed c r e d i t o r whose covered c r e d i t i s l e s s than 80 p ercen t o f i t s base need not f i l e r e g u la r w eekly r e p o r t s . T h e r e a fte r when such a managed c r e d i t o r ' s covered c r e d i t exceed s i t s b a s e , i t should f i l e w eekly rep o rts whether o r not i t i s req u ired t o h old a s p e c i a l d e p o s i t u n t i l i t s covered c r e d i t f a l l s below 80 p ercen t o f i t s b a se . - 0 - Q & A — 5/5/80 SHORT TERM FINANCIAL INTERMEDIARIES General -- Page 2* C orrection: Q u estion 1 on page 1 o f General q u e s t io n s regardin g Short Term F in a n c ia l I n t e m e d i a r i e s (A p ril 11, 1980) co n ta in ed an e r r o r i n th e second paragraph. The c o r r e c t i o n q u e s tio n and answer a r e as f o l l o w s : What does p r im a r ily r e a l l y mean? Answer: For a u n it in vestm en t t r u s t p r im a r ily means any amount g r e a t e r than zero p e r c e n t. A t r u s t whose investm en ts have i n i t i a l m a t u r it i e s o f 14 months may be 100 p erce n t in v e s t e d i n a s s e t s w ith remaining m a t u r it i e s o f 13 months fo r most o f i t s d u r a tio n . T h e r e fo r e , i n order t o a v o id th e s p e c i a l d e p o s i t requireme n t , a u n it investm ent t r u s t must b e f u l l y in v e s t e d in lo n g e r term a s s e t s on i t s s e t t le m e n t d a t e . 4 . S e c t i o n 2 2 2 .1 2 ( c ) o f th e r e v is e d Subpart e x c lu d e s from covered c r e d i t t h e p ro p o rtio n o f a covered c r e d i t o r ' s e x t e n s io n s o f c r e d i t th a t r ep re se n t th e h o ld in g s o f t r u s t e e s and o th e r f i d u c i a r i e s whose h o ld in g s would be e l i g i b l e f o r c o l l e c t i v e investm en t by a bank provided th e y a re h eld i n c i d e n t a l l y to th e management o f o th er t r u s t a s s e t s . What can be co n sid ere d t o be h eld i n c i d e n t a l l y to th e management o f oth er tr u s t a sse ts? Answer: The preamble t o r e v is e d Subpart B in d i c a t e s t h a t , g e n e r a l l y , moneys h eld by a bank or t r u s t company pursuant t o a bona f i d e t r u s t purpose a r e w it h in th e i n c i d e n t a l l y e x c l u s i o n even though th e y may tem p o ra rily be in v e s te d l a r g e l y in a sh o rt term in vestm en t fund. The h o ld in g s o f any t r u s t whose income i s not con sid ered to be th e cu rren t income o f th e g ra n to r under th e a t t r i b u t i o n r u le s o f th e I n te r n a l Revenue S e r v ic e (Treasury R eg u la tio n s s e c t i o n s 1 .6 7 1 - 1 .6 7 8 ) are not covered c r e d i t under t h i s r u l e . The h o ld in g s o f a t r u s t (o th e r than a p en sio n p lan whose b e n e f ic ia r y has r e t i r e d and i s r e c e iv i n g b e n e f i t s ) th e income o f which i s c u r r e n t ly a t t r i b u t a b l e to th e gran tor are covered c r e d i t i f 50 p ercen t o r more o f i t s a s s e t s are in a money market fund or th e s h o r t term investm ent fund o f a bank. 5. Are funds h eld by o th e r typ es o f f i d u c i a r i e s excluded from covered c r e d it ? Answer: G e n e r a lly , o n ly funds h eld by a t r u s t e e , e x e c u to r , a d m in is tr a t o r , guardian, o r a c u s to d ia n under t h e Uniform G if t s to Minors Act are exclu ded. However, h o ld in g s o f a p r iv a t e fou n d ation organized as a c o r p o r a tio n a re exclu d ed . A lso excluded are funds h eld by any ta x d e ferr ed r etirem en t p lan n in g v e h i c l e , in c lu d in g funds h eld by a se p a r a te account o f an insu ran ce company under an n u ity c o n tr a c ts which p rovid e fo r a s u b s t a n t i a l fr o n t or r ea r end s a l e s load or redemption ch arge, IRA and Keogh p la n s , and funds h eld pursuant t o s e c t i o n s 403(b ) or 457 o f the I n te r n a l Revenue Code, whether *The l a s t p rev io u s s e t o f q u e s tio n s and answers on t h i s s u b je c t was is s u e d 1980 (S et No. V .) . A p r il 11,
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