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F ederal

reserve

Ba n k

DALLAS, TEXAS

of

Dallas

75222

Circular No. 69-208
August 15, 1969

AMENDMENTS TO REGULATIONS M AND D

To All Member Banks
in the Eleventh Federal Reserve District:
Attached is a copy of a press release of the Board
of Governors of the Federal Reserve System regarding amend­
ments to Regulations M and D that establish a 10 per cent
marginal reserve requirement on certain foreign borrowings,
primarily Euro-dollars, by member banks and on the sale of
assets to their foreign branches.
Copies of the amendments will be sent to you as
soon as printing has been completed.
Yours very truly,
P. E. Coldwell

President
Enclosure (l)

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

cov/A

FEDERAL
press

RESERVE

release

?**rsT*V
August 13, 1969

For immediate release.

The Board of Governors of the Federal Reserve System today
established a 10 per cent marginal reserve requirement on certain
foreign borrowings, primarily Euro-dollars, by member banks and on the
sale of assets to their foreign branches.

The new requirement must be

met by affected banks beginning the week of October 16, based on the
initial four-week computation period beginning September 4.
Purpose of the action is to moderate the flow of foreign funds
between U.S. banks and their foreign branches and also between U.S. and
foreign banks by removing a special advantage to member banks that have
used Euro-dollars not subject to reserve requirements to adjust to do­
mestic credit restraint.

The Board noted that liabilities of U.S. banks

to their foreign branches have more than doubled since the beginning of
this year, reaching a record $14.6 billion during the week ending July 30.
The amendments approved by the Board to its Regulation M(which
governs the foreign activities of member banks) and Regulation D(which
governs reserves of member banks) are basically the same as those proposed
on June 26.

Several modifications, primarily to reduce potential in­

equities and to clarify the original proposal, were made by the Board
after reviewing the more than 50 letters of comment received.
Amendments to Regulation M will:
1.

Establish a 10 per cent reserve requirement on net borrowin

of member banks from their foreign branches to the extent these borrowings
exceed the daily average amounts outstanding in the four weeks ending

May 28, 1969.

This marginal requirement will also apply to assets

acquired by foreign branches from U.S. head offices of banks except for
assets representing credits extended by head offices to nonresidents
after June 26.

To reduce potential inequities the Board established a

minimum base, the same as proposed in June, equal to 3 per cent of de­
posits subject to reserve requirements for any bank with a foreign branch
regardless of its previous use of Euro-dollars.
2.

Establish a 10 per cent reserve requirement on branch loans

to U.S. residents to the extent such loans exceed either the amount out­
standing on June 25 or June 26, 1969, or the daily average amounts out­
standing in the four weeks ending May 28, 1969.
be at the option of the member bank.
emptions as follows:

Choice of the base would

This amendment includes three ex­

It does not apply to any foreign branch with $5

million or less in credit outstanding to U.S. residents; credit extended
to enable a borrower to comply with requirements of the Office of Foreign
Direct Investments, Department of Commerce; and credit extended under
lending commitments entered into before June 27, 1969.
An amendment to Regulation D establishes a 10 per cent reserve
requirement on borrowings by member banks from foreign banks with one
exception:

only a 3 per cent reserve is required against such deposits

that do not exceed 4 per cent of a member bank's daily average deposits
subject to reserve requirements.

This latter provision is designed to

reduce inequities for banks without foreign branches which would have no
reserve-free base under the Regulation M amendments.

-3-

The reserve-free base under the amendment establishing a
reserve requirement on borrowings of U.S. banks from their foreign
branches will be reduced when and to the extent that the liabilities
of any bank to its foreign branches drop below the original base during
any period used to compute the reserve requirement.
The action is not intended to interfere with the normal
operations of U.S. banks or U.S. corporations in financing business
abroad.
Governors Mitchell and Daane dissented from this action.

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