Full text of District Notices (Federal Reserve Bank of Dallas) : Applicability of Regulations D and Q to "Loan to Lender" Type Programs, Circular No. 75-118

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

F e d er a l R ese r v e Ba n k
DALLAS, TEXAS

of

Dallas

75222

Circular No. 75-118
August 18, 1975

APPLICABILITY OF REGULATIONS D AND Q
TO "LOAN TO LENDER" TYPE PROGRAMS

TO ALL MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
Quoted below is a portion of a letter dated August 6, 1975, giving the views of
the Board of Governors of the Federal Reserve System:
The Board has been asked to review a number of recent inquiries related
to the status as "deposits" of promissory notes issued by member banks to
State or municipal housing authorities. These obligations are undertaken by
member banks as part of a "Loan to Lender" type program designed primarily
to provide funds for residential construction.
These transactions usually involve the issuance by a municipal authority
of tax-exempt bonds and the subsequent lending of the bond revenue funds
to financial institutions under the obligation that these funds are to be used
to make specified types of real estate loans. The Board has determined that
funds obtained by member banks on their notes to such housing authorities
are not exempt from deposit status under the existing definitions contained in
Regulations D and Q and, therefore, at the present time must be treated as de­
posits subject to reserve requirements and interest rate limitations. The
Board believes that these obligations issued by member banks may be consid­
ered "time deposits" and subject to Regulations D and Q when they are issued
with maturities of more than 30 days. However, where the lending agreement
between a member bank and a housing authority contains a default provision
providing for immediate payment of the principal of the loan default, in order
to avoid treatment of such obligations as demand deposits, the loan agreements
should provide a requirement that, upon such default, the authority must give
the bank at least 30 days' written notice prior to repayment.
Questions relating to the applicability of the "Loan to Lender" type programs to
Regulation D, "Reserves of Member Banks," should be directed to this Bank's Accounting
Department (214) 651-6334, and questions concerning Regulation Q, "Interest on Deposits,"
should be directed to this Bank's Regulations Department (214) 651-6169.

Sincerely yo urs,
T. W. Plant
First Vice President

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