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F

ederal

R eserve Bank
DALLAS, TE X A S

of

Dallas

75222

Circular No. JO-292
December 1 , 1970
+

AMENDMENTS TO REGULATIONS D AMD M
(Eurodollar Borrowings)

To All Member Banks
in the Eleventh Federal Reserve District:
On November 30, 1970, the Board of Governors of the Federal
Reserve System announced amendments to §20^.5 (Supplement) of Regulation
D, "Reserves of Member Banks", and to §213.7 of Regulation M, "Foreign
Activities of National Banks". The amendments concern bank borrowings
of Eurodollars, and will be effective January 7, 1971.
On November 30, the Board of Governors issued a press state­
ment dealing in part with these amendments, and the relevant portions
of this press statement are reproduced on the reverse of this circular.
Copies of the amendments for insertion in the ring binders
containing the regulations of the Board of Governors and the bulletins
of this Bank are attached. The Regulation D amendment is a restate­
ment of paragraph (c) of §20^.5 of the Supplement, and the Regulation M
amendment is a complete restatement of §213.7 of the regulation. It
should be noted that the current versions of these provisions will con­
tinue in effect until the effective date of these amendments, January 7,
1971.
A current version of Regulation D should include the pamphlet
dated February 12, 1970; amendments dated June 30, September 17, and
November 9, 1970; and the current Supplement dated October 1, 1970.
(On January 7, 1971, the Supplement sheet forwarded with this circular
should replace the October 1 version.)
A current version of Regulation M consists of the pamphlet
dated March 15, 19&7;
an amendment containing §213.7, dated
September 4, 1969. (The attached amendment to §213.7 should replace
the current version of that section on January 7, 1971.)
Yours very truly,
P. E. Coldwell
Pres ident
Enclosures (2)

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

(Excerpt from press release)

Three inter-related decisions were made by the Board regarding
bank borrowings of Eurodollars.
First, the Board raised from 10 to 20 per cent the reserves
required from member banks against Eurodollar borrowings that exceed
amounts that the banks are allowed as a reserve-free base. The higher
requirement is intended to give banks an added inducement to preserve
their reserve-free bases presently at substantial levels against a time
of future need, instead of allowing their bases to be lowered automatically
by repaying their Eurodollar borrowings. The higher requirement becomes
effective in the current four-week reserve computation period ending
December 23.
In a second step, to assure that the higher marginal reserve
requirement does not penalize banks that currently have Eurodollar
liabilities above their reserve-free bases, the Board also amended its
regulations so as to make the marginal reserve requirement applicable
to borrowings above either (l) the minimum base equal to a percentage
of deposits, or (2) the average level in the reserve computation period
ended November 255 whichever is higher.
Third, the Board amended its regulations to discourage repay­
ment of Eurodollar liabilities, not only by banks that use an historically
determined reserve-free base originally related to their May 1969 bor­
rowings, but also by those banks that operate under a minimum base equal
to 3 per cent of their overall deposits subject to reserve requirements.
The amendment will apply the automatic downward adjustment to reservefree bases of the latter kind as well as of the former. This amendment
becomes effective with the reserve computation period ending January 20,
1971.
Although the steps announced today were deliberately made of
modest scale, the Board has under review other measures that might be
adopted for the purpose of tempering the repayment of Eurodollars while
avoiding penalty to banks that operate so as to retain their reservefree bases.

B oard of G overnors of t h e F ederal R eserve S y st e m

FOREIGN ACTIVITIES OF NATIONAL BANKS
A M E N D M E N T TO R E G U LA TIO N M
Effective January 7, 1971, § 213.7 is amended to read as follows:
SEC TIO N 213.7-R E S E R V E S A G A IN ST FO R EIG N
B R A N C H D E P O SIT S
(a)
Transactions with parent bank. — During each week of the
four-week period beginning October 16, 1969, and during each week of
each successive four-week (“maintenance”) period, a member bank
having one or more foreign branches shall maintain with the Reserve
Bank of its district, as a reserve against its foreign branch deposits,
a daily average balance equal to 20 per cent of the amount by which
the daily average total of
(1) net balances due from its domestic offices to such
branches, and
(2) assets (including participations) held by such
branches which were acquired from its domestic
offices,7
during the four-week (“computation”) period ending on the Wednes­
day fifteen days before the beginning of the maintenance period, ex­
ceeds the greater of
(i) the corresponding daily average total8 for the compu­
tation period ending November 25, 1970, or the lowest
corresponding daily average total for any computation
period beginning after that date, whichever amount is
the lesser, or
(ii) 3 per cent of the member bank’s daily average deposits
subject to § 204.5(a) of this chapter (Regulation D )
during the current computation period, or, if the bank
has had a foreign branch in operation for more than
90 days, the lowest corresponding daily average total
for any computation period beginning on or after
December 24, 1970, whichever amount is the lesser:

Provided, T hat the applicable base computed under (i) or (ii) shall
be reduced by the daily average amount of any deposits of the member
bank subject to
§ 204.5(c)
of this chapter (Regulation D ) during the
computation period.
7 Excluding (1) assets so held on June 26, 1969, representing credit extended to persons not
residents of the United States and (2) credit extended or renewed by a domestic office after
June 26, 1969, to persons not residents of the United States to the extent such credit was not
extended in order to replace credit outstanding on that date which was paid prior to its original
maturity (see definition of United States resident in footnote 9).
8 Excluding assets representing credit extended to persons not residents of the United
States.

()
b
Credit extended t United S a e Residents.—During each
o
tts
week of the four-week period beginning October 16, 1969, and during
each week of each successive four-week maintenance period, a member
bank having one or more foreign branches shall maintain with the
Reserve Bank of its district, as a reserve against its foreign branch
deposits, a daily average balance equal to 20 per cent of the amount
by which daily average credit outstanding from such branches to
United States residents9 (other than assets acquired and net balances
due from its domestic offices), during the four-week computation
period ending on Wednesday fifteen days before the beginning of the
maintenance period, exceeds the corresponding daily average total
during the four-week period ending on November 25, 1970: P rovided,
That this paragraph does not apply to credit extended (1) by a foreign
branch which at no time during the computation period had credit
outstanding to United States residents exceeding $5 million, (2) to
enable the borrower to comply with requirements of the Office of
Foreign Direct Investments, Department of Commerce,10 or (3) under
binding commitments entered into before December 1, 1970.
9 (a ) Any individual residing (at the time the credit is extended) in any State o f the U n ited
States or the District of Columbia; (b ) any corporation, partnership, association or other entity
organized therein ( “domestic corporation” ); and (c ) any branch or office located therein o f 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 dom estic
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 o f other foreign affiliates of the controlling dom estic
corporation (s ).
10 The branch may in good faith rely on the borrower’s certification that the funds w ill be
so used.

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