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federal reserve Bank of D allas DALLAS, TEXAS 75222 Circular No. 77-129 November 25, 1977 AMENDMENT TO REGULATION M Reserves Against Foreign Branch Deposits TO ALL MEMBER BANKS AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: The Board of Governors of the Federal Reserve System has amended Section 213.7(h) of its Regulation M, "Foreign Activities of National Banks," to reduce reserve requirements on the dollar deposits that foreign branches of United States banks use to lend funds to American borrowers. Effective December 1, 1977, the Board will reduce the required reserve on this type deposit from it percent to 1 percent. This reserve requirement was established originally in 1969 as part of a then needed effort to moderate the use of Euro-dollars in the financing of United States domestic credit. No change was made in the l+-percent reserve required on borrow ings by member banks from their overseas branches or from foreign banks abroad. This action will not affect loans by United States banks to foreign borrowers and should have no impact upon the availability of credit from domestic offices of United States banks. The action will enable the foreign branches of American banks to compete on more equal terms with foreign banks in lending to United States borrowers. In recent years, foreign banks have increased their efforts to lend to United States corporations from offices outside the United States. As the spreads between Euro-dollar lending and deposit rates have narrowed, the Board's Euro-dollar reserve requirement on United States branch lending to United States residents has become a more impor tant factor, limiting the ability of overseas offices of United States banks to bid for the business of United States firms against foreign banks which are not required to maintain reserves against Euro-dollar deposits. Outstanding loans to United States residents from foreign branches of United States banks amount currently to about $500 million; they have ranged between $200 million and $800 million over the past two years. Banks and others are encouraged to use the follow ing incoming W ATS numbers in contacting this Bank: 1-800-492-4403 (intrastate) and 1-800-527-4970 (interstate). For calls placed locally, please use 651 plus the extension referred to above. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) - 2 - The new 1-percent reserve requirement must be maintained by affected banks beginning December 1, 1977, based initially on the level of deposits during the period of October 20 - November 16. The order relating to this amendment was published in the FEDERAL REGISTER, November 11, 1977* Member banks and others should file the enclosed copy of the amendment in their Regulations Binder. Any questions concerning this amendment may be directed to Mrs. Sydna Gordon of the Regulations Depart ment, Ext. 6l82. Additional copies of the amendment will be furnished upon request to the Bank and Public Information Department of this Bank, Ext. 6267. Sincerely yours, Robert H. Boykin First Vice President Enclosure BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM FOREIGN ACTIVITIES OF NATIONAL BANKS AM END M ENT T O R EG U LA T IO N M f Effective D ecem ber 1, 1977, § 2 1 3 .7(b ) of Regulation M is am ended to read as follows: SEC T IO N 213.7 — RE SE R V E S A G A IN S T F O R E IG N B R A N C H D EPO SITS * * * * * (b) Credit extended to United States residents. D uring each week of the four-week period be ginning M ay 22, 1975, and during each week of each successive four-week m aintenance period, a m em ber b ank having one or m ore foreign branches shall m aintain with the Reserve Bank of its district, as a reserve against its foreign branch deposits, a daily average balance equal to 1 per cent of the daily average credit outstanding from such branches to United States residents7 (other th an assets acquired and net balances due from its domestic offices) during the four-week com pu tation period ending on the W ednesday 15 days before the beginning of the m aintenance period: Provided, T h a t this p aragraph does n o t apply to credit extended (1 ) in the aggregate am ount of $100,000 or less to any U nited States resident, (2) by a foreign branch which at no time during the com putation period had credit outstanding to United States residents exceeding $1 million, (3) to enable the borrow er to comply with the require ments o f the Office of Foreign D irect Investments, D epartm ent of Com m erce,8 (4) u n der binding com mitments entered into before M ay 17, 1973, or (5) to an institution th at will be maintaining reserves on such credit u nder § 204.5(c) of Regu lation D o r § 211.7(c) of Regulation K or to a foreign-owned-banking institution that will vol untarily be maintaining m em ber bank reserves on such credit. * * * * * t For this Regulation to be complete as amended effective December 1, 1977, retain: 1) 2) 3) 4) 5) Printed Regulation pamphlet containing Regulation M dated January 7, 1971; Amendment effective May 22, 1975, Section 213.7(a) and (b); Amendment effective August 25, 1975, Section 213.3(b) (6), (b) (7), and (b) (8); Amendment effective February 6, 1976, Section 213.7(b) ; and This slip sheet. 7 (a) Any individual residing (at the time the credit is extended) in any State of the United States or the District of Columbia; (b) any corporation, partnership, association, or other entity organized therein (“domes tic corporation”); and (c) any branch or office located therein of any other entity wherever organized. Credit extended to a foreign branch, office, subsidiary, affiliate or other foreign establishment (“foreign affiliate”) controlled by one or more such domestic corporations will not be deemed to be credit extended to a United States resident if the proceeds will be used in its foreign business or that of other foreign affiliates of the controlling domestic corporation(s). 8 The branch may in good faith rely on the borrower’s certification that the funds will be so used.
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