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FEDERAL RESERVE BANK OF DALLAS DALLAS, TEXAS 75222 C ircular No. 68-107 M ay 1, 1968 A M EN D M E N T TO REG ULATIO N D “R E SE R V E S OF MEM BER B A N K S” To AH Member B anks in th e E leventh Federal R eserve D istrict: R eference is m ade to m y C ircular L e tte r No. 68-27 dated F e b ru ary 1, 1968, fo rw arding a P ress Release of th e Board of Governors of th e Federal R eserve System dated Ja n u a ry 29, 1968, proposing an A m endm ent to P a ra g ra p h 204.3(a) and (b) of R egulation D. T here is attached a copy of a P ress Release issued by th e Board of Governors of th e Federal Reserve System on April 29, 1968, announcing adoption of th e lag reserve plan substantially in th e fo rm proposed on Ja n u a ry 29, 1968. T here is also a ttach ed an A m endm ent to Regulation D reflecting th e changes in th e com putation of reserve requirem ents by m em ber banks to become effective w ith th e reserve com putation period beginning Septem ber 12, 1968. The purposes of th ese am endm ents a re (1) to establish coincident one-week reserve periods fo r reserve city and country banks, (2) to require th e calculation of weekly average required reserves on th e basis of average deposits two weeks earlier, (3) to require th e calculation of weekly average reserves held in satisfaction of requirem ents on th e basis of average v a u lt cash held two weeks earlier, and (4) to provide t h a t e ith er an excess o r a deficiency in reserve requirem ents averaging up to 2 percent of required reserves will be carried forw ard to th e n e x t reserve week. These changes are expected to reduce uncertainties as to th e am ount of reserves required during th e course of any reserve period and to m oderate some of th e p ressures fo r reserve ad ju stm e n ts w ithin th e banking system t h a t can occasionally develop n e a r th e close of a reserve period and can produce sharp fluc tuations in th e availability of day-to-day funds. To illu stra te th e operation of th e provision fo r carry in g over a deficiency in reserve requirem ents (§ 2 0 4 .3 (a )(3 )), it will be assum ed t h a t a m em ber bank’s reserve requirem ent fo r th e week ending Septem ber 18, 1968, is computed to be $1 million, based on average deposits two weeks earlier. The com putation of its reserve balance indicates t h a t it is deficient by 2 percent — its balance is $980,000 and its deficiency am ounts to $20,000. In th e succeeding reserve period ending Septem ber 25, the bank m u st m ain tain its reserve balance on average §20,000 h ig h er th a n its reserve requirem ent fo r the week to avoid penalty. If th e reserve requirem ent rem ained a t $1 million, th e reserve balance would need to average a t least $1.02 million in th e week ending Septem ber 25. To illu strate th e carry over of an excess in reserve requirem ent, it will again be assum ed th a t a m em ber ban k ’s reserve requirem ent fo r th e week ending Septem ber 18, 1968, is $1 million. The com putation of its reserve balance indicates t h a t it has an excess of 4 percent — its balance is $1.04 million. The bank is entitled to carry over 2 percent of its requirem ents, am ounting to $20,000, to th e n e x t sta te m e n t week. This $20,000 excess ca rry over will be applied autom atically a g a in st require m ents of th e succeeding week ending Septem ber 25, reducing the average reserve balance t h a t m u st be m aintained to m eet reserve requirem ents fo r t h a t week. If th e reserve requirem ent rem ains a t $1 million, th is bank can m eet requirem ents by m aintaining average reserve balance a t $980,000. To th e ex ten t th a t th e average reserve balance is h ig h er th a n $980,000 in th e week ending Septem ber 25, the bank foregoes use of p a rt or all of th e carry-over surplus from Septem ber 18, which cannot be carried forw ard m ore th a n one reserve period. Notice of proposed rule m aking w ith respect to these am endm ents w as published in th e Federal R egister of F e b ru ary 2, 1968 (33 F.R. 2532). The Board adopted th e am endm ents as proposed a fte r consideration of all relevant m a tte r t h a t w as presented by interested persons. A revised B ulletin No. 4, “Reserves of M ember B anks,” will be forw arded to you a t a la te r date. Please in se rt th e attached A m endm ent in th e rin g binder containing th e R egulations of the Board of Governors and the Bulletins of th is bank. Additional copies of th e P ress Release and th e A m endm ent will be furnished upon request. Please acknowledge receipt of th e A m endm ent to R egulation D on th e enclosed postal card. Yours very tru ly , P. E. Coldwell P resident A ttach m en ts (3) This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) FEDERAL For immediate release. RESERVE April 29, 1968 The Board of Governors of the Federal Reserve System announced today adoption of an amendment to its Regulation D, "Reserves of Member Banks," effecting several changes in the computation of reserve require ments by member banks. Except for clarification in language, the amendment, to become effective September 12, was adopted as proposed by the Board last January 29. 1. The changes made by the amendment involve: establishing a one-week reserve period for the so-called "country banks" instead of their present two-week period, thus putting them on the same basis now used for reserve city banks; 2. using average deposits two weeks earlier in calculating the weekly average required reserves for the present period; 3. using vault cash held two weeks earlier, together with average balances at the Federal Reserve Bank for the current week, in the computation of weekly average reserves held in satisfaction of the requirements; and 4. providing that either excesses or deficiencies averaging up to 2 per cent of required reserves may be carried forward to the next reserve week. These new rules by which member banks will compute and comply with System reserve requirements do not represent any change in Federal 2 Reserve monetary policy, but are alterations in a technical regulation and are designed to facilitate more efficient functioning of the reserve mechanism. In combination, these changes are expected to reduce un certainties, both for member banks and the Federal Reserve, as to the amount of reserves required during the course of any reserve period. Their adoption should moderate some of the pressures for reserve adjust ments within the banking system that can occasionally develop near the close of a reserve period and can produce sharp fluctuations in the availability of day-to-day funds. The text of the amendment in the form that is being forwarded for publication in the Federal Register is attached. 0- AMENDMENT TO REGULATION D S e c tio n 2 0 4 . 3 ( a ) a n d ( b ) I s s u e d by t h e B oard of G overnors o f t h e F ed e r a l R eser v e Sy s t e m Effective September 12, 1968, Section 204.3(a) and (b) are amended to read as follow s: S e c tio n 2 0 4 .3 — D e fic ie n c ie s i n R e se rv es (a) Com putation of deficiencies. — (1) Reserve requirements of all member banks shall be determined on the basis of average daily net deposit balances and average daily currency and coin covering 7-day computation periods which shall end at the close of business on W ednesday of each week. (2) In determining whether a member bank has maintained a reserve balance that is in excess or less than its required reserve balance for any computation period: (i) the required reserve balance of such bank shall be based upon the average daily net deposit balances held by the member bank at the close of business each day during the second computation period prior to the computation period for which the computation is made. (ii) The reserve balance of such bank shall consist of the average daily balance with the Federal Reserve Bank of its District held by the member bank at the close of business of each day during the com putation period for which the computation is made and the average daily currency and coin held by the member bank at the close of business each day during the second computation period prior to the computation period for which the computation is made. (over)
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