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federal
Reser ve Ba n k
DALLAS, TEXAS
of
Dallas
75222
Circular No. 80-49
March 15, 1980 (Rev. 3-17-80)
TO THE CHIEF EXECUTIVE OFFICER
OF ALL STATE MEMBER BANKS AND
BANK HOLDING COMPANIES IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
President C arter has announced a broad program designed to
m oderate and reduce inflationary forces in the United S tates economy. In
addition to fiscal, energy, and other measures, the President, under the term s
of the C redit Control Act of 1969, provided the Federal Reserve Board with the
authority to exercise special restrain ts on the growth of certain kinds of credit.
In order to clarify the actions taken, enclosed are copies of certain
new regulations adopted by the Federal Reserve Board and a description of the
voluntary Special C redit R estraint program th a t covers, among others, S tate
member banks. In the near future, you will be receiving from the Federal
Reserve, further instructions on the program of special deposits, which must be
held a t Federal Reserve Banks, on increases in certain kinds of consumer
credit.
In addition, the Board acted to strengthen the marginal reserve
requirem ent program on managed liabilities th a t has been in effe c t since last
October 6. Base amounts under th a t program will be reduced by the larger of
7 percent of the existing base or any reduction in foreign loans of a covered
bank. In no case will the base fall below $100 million. The required reserve
ratio on increases in such managed liabilities was increased to 10 percent.
Moreover, if you have deposits in excess of $300 million you will also be
hearing from the Federal Reserve about monthly or quarterly reports
authorized by the President for the purpose of monitoring the voluntary Special
C redit R estraint Program. Questions about the various programs should be
directed to Richard D. Ingram, Assistant Vice President, Ext. 6333, and Helen
E. Holcomb, Senior Technical Assistance R epresentative, Ext. 6370, a t this
Federal Reserve Bank.
Very briefly, here are the highlights of the programs th a t affe c t S tate member
banks and others, as described in more detail in the enclosures.
Special C redit R estraint Program
1. Banks are expected to restrain their growth in to tal loans to a
range of 6-9 percent. However, the actual growth for individual institutions
will be appraised in light of their location, past growth patterns, their liquidity
and capital positions, and other individual circum stances. Similar restrain t
should be exercised with respect to com m itm ents.
2. Within this general constraint banks are encouraged to maintain
reasonable availability of funds for small businesses, farm ers, housing, smaller
agriculturally-oriented com m ercial bank correspondents and th rift institutions.
Banks and others are e nc o ura ge d to use the following incom ing W A T S num bers in con tac tin g this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). F or 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)
3. C redit for automobile and home im provement loans should be
tre a te d normally.
4. Special restrain t should be applied to financing of corporate
takeovers or m ergers, of the retirem en t of corporate stock, of speculative
holding of comm odities or precious m etals, and of extraordinary inventory
accum ulation.
5. In establishing the price and non-price term s of bank loans, no
specific guidelines or formulas are suggested. However, as appropriate and
possible, lending ra te s and other term s should take account of the special needs
of small businesses and farm ers.
Consumer C redit R estraint
1. The program is designed to slow the expansion of certain types
of consumer credit by requiring th a t all bank lenders with more than $2 million
of such credit outstanding on March 14 maintain a special deposit a t a Federal
Reserve Bank equal to 15 percent of the increases in such credit since March
14.
2.
Covered consumer credit includes loans extended via credit
cards, checking account o verdraft credit plans, other forms of revolving credit,
all open-end credit, unsecured closed-end credit, or secured credit not extended
to purchase the collateral—with the exceptions noted below.
3. Excluded from covered consumer credit are secured loans where
the security is purchased with the proceeds of the loan, such as an automobile,
mobile home, furniture or appliance; mortgage loans where the proceeds are
used to purchase the home or for home improvements; credit extended for
utility, health or educational services; credit extended under S tate or Federal
governm ent guaranteed loan programs; and savings passbook loans.
4. All banks with $2 million or more of covered credit outstanding
on March 14 must file a base rep ort by April 1 with the Federal Reserve. This
report will sta te the amount of credit outstanding on March 14 or the nearest
available figure.
5. T hereafter, covered banks must file a monthly report with the
Federal Reserve on the am ount of covered consumer credit outstanding during
the month, based on the daily average am ount of covered credit or other
available figures. The first of these reports, for the period from March 15
through April 30 is due by May 12. The report for subsequent months is due
by the second Monday of the month a fte r th a t covered by the report.
6. The first 15 percent special deposit requirem ent must be
m aintained during the period beginning May 22 and ending June 25 on increases
in outstanding cred it during the first reporting period.
Managed Liabilities Reserve Requirem ents
1.
This program is designed to strengthen the marginal reserve
requirem ent first imposed by the Board on October 6, 1979. The changes made
will further restrain extensions of bank credit funded by increases in managed
liabilities a t member banks and U. S. branches and agencies of foreign banks.
2. The marginal liabilities base for those banks with a base in
excess of $100 million will be reduced by the larger of 7 percent or by the
amount of any reduction in a bank's foreign loans occurring since Sep
tem ber 1979. In no case will the base be reduced below $100 million.
3. Each bank with a base in excess of $100 million must report its
outstanding foreign loans for Septem ber 13 through Septem ber 26, 1979 and for
March 6 through March 12, 1980 by March 25, for purposes of recalculating the
base.
4. In each reserve m aintenance period including the one beginning
April 3, a marginal reserve requirem ent of 10 percent must be held against
increases in managed liabilities outstanding above the new adjusted base for
each reserve com putation period including the period beginning March 20.
While the Federal Reserve is aware of the burdensome nature of
these actions on both you and your
custom ers, we believe th a t they are
necessary to begin the process of slowing the pace of inflation th a t has become
so painful. We also believe th a t these programs seek to spread the burden of
com bating inflation equitably among all lenders and as fairly among borrowers
as is practical. Without your wholehearted cooperation, the best in terest of the
Nation will not be served.
Sincerely yours,
Ernest T. Baughman
President
Enclosures
FEDERAL RESERVE press release
For immediate release
MARCH 14, 1980
The Federal Reserve Board today announced a series of monetary and
credit actions as part of a general government program to help curb inflationary
pressures. The actions ares
1.
A voluntary Special Credit R estraint Program that will apply to all
domestic commercial banks, bank holding companies, business credit extended by
finance companies, and credit extended to U.S. residents by the U.S. agencies and
branches of foreign banks. The parents and affiliates of those foreign banks are urged
to cooperate in similarly restricting their lending to U.S. companies. Special effort
will be made to maintain credit for farm ers and small businessmen.
2.
A program of restraint on certain types of consumer credit, including
credit cards, check credit overdraft plans, unsecured personal loans and secured credit
where the proceeds are not used to finance the collateral. The Board has established a
special deposit requirem ent of 15 percent for all lenders on increases in covered types
of credit.
Automobile credit, credit specifically used to finance the purchase of
household goods such as furniture and appliances, home improvement loans and
mortgage credit are not covered by the program.
3.
An increase from 8 percent to 10 percent in the marginal reserve
requirement on the managed liabilities of large banks th at was first imposed last
October 6, and a reduction in the base upon which the reserve requirement is
* calculated.
4.
R estraint on the amount of credit raised by large non-member banks
by establishing a special deposit requirem ent of 10 percent on increases in their
managed liabilities.
5.
R estraint on the rapid expansion of money market mutual funds by
establishing a special deposit requirement of 15 percent on increases in their total
assets above the level of March 14.
-2-
6.
A surcharge on discount borrowings by large banks to discourage
frequent use of the discount window and to speed bank adjustm ents in
response to restraint on bank reserves.
A surcharge of 3 percentage
points appiies to borrowings by banks with deposits of $500 million or
more for more than one week in a row or more than four weeks in any
calendar quarter. The basic discount rate remains a t 13 percent.
In making the announcement, the Board said:
"President C arter has announced a broad program of fiscal,
energy, credit and other measures designed to m oderate and reduce
inflationary forces in a manner th a t can aiso lay the ground work for a
return to stable economic growth.
"Consistent with th at objective and with the continuing intent
of the Federal Reserve to restrain growth in money and credit during 1980,
the Federal Reserve has a t the same tim e taken certain further actions to
reinforce the effectiveness of the measures announced in October of 1979.
These actions include an increase in the marginal reserve requirem ents on
managed liabilities established on October 6 and a surcharge for large
banks on borrowings through the Federal Reserve discount window.
"The President has also provided the Federal Reserve, under the
term s of the Credit Control Act of 1969, with authority to exercise
particular restrain t on the growth of certain types of consumer credit
extended by banks and others. That restrain t will be achieved through the
imposition of a requirem ent for special deposits equivalent to 15 percent of
any expansion of credit provided by credit cards, other forms of unsecured
revolving credit, and personal loans.
"One consequence of strong demands for money and credit
generated in part by inflationary forces and expectations has been to bring
heavy pressure on credit and financial m arkets generally, with varying
impacts on particular sectors of the economy. At the same tim e, restraint
on growth in money and credit must be a fundamental part of the process
of restoring stability. That restraint is, and will continue to be, based
primarily on control of bank reserves and other traditional instrum ents of
monetary policy. However, the Federal Reserve Board also believes the
effectiveness and speed with which appropriate restraint can be achieved
without disruptive effects on credit m arkets will be facilitated by a more
formal program of voluntary restraint by im portant financial
interm ediaries, developing further the general criteria set forth in earlier
communications to member banks."
Special C redit R estraint Program
In adopting this program, the Board said increases in lending this year
should generally be consistent with the announced growth ranges for money and credit
-3-
reported to Congress on February 19. Although growth trends will vary among banks
and regions of the country, growth in bank loans should not generally exceed the upper
part of the range of 6-9 percent indicated for bank credit (that is, loans and
investments). Banks whose past lending patterns suggest relatively slow growth should
expect to confine their growth to the lower portion or even below the range for bank
credit.
The Board said the commercial paper m arket and finance companies—both
a growing source of business credit—will be monitored closely in the program. Since
activity in the commercial paper market is normally covered by bank credit lines,
banks are expected to avoid increases in commitments for credit lines to support such
borrowing out of keeping with normal business needs.
Thrift institutions and credit
unions will not be covered by the special program in light of the reduced trend in their
asset growth.
No numerical guidelines for particular types of credit are planned but
banks are encouraged particularly:
—
To restrain unsecured lending to consumers, including credit cards
and other revolving credits. Credit for automobiles, home mortgage
and home improvement loans should be treated normally in the light
of general m arket conditions.
—
To discourage financing of corporate takeovers or mergers and the
retirem ent of corporate stock, except in those limited instances in
which there is a clear justification in term s of production or
economic efficiency commensurate with the size of the loan.
—
To avoid financing for purely speculative holdings of commodities or
precious m etals or extraordinary inventory accumulation.
—
To
maintain
availability
of
funds
to
small business, farmers
homebuyers and others without access to other forms of financing.
—
To restrain the growth in commitments for back-up lines in support
of commercial paper.
4
No specific guidelines will be issued on the term s and pricing of bank loans.
However, rates should not be calculated in a manner th at reflects the cost of
relatively
small amounts of
marginal funds subject
to
the
marginal reserve
requirement on managed liabilities. The Board also expects th at banks, as appropriate
and possible, will adjust lending rates and other term s to tak e account of the special
needs of small business and others.
Lenders covered by the program are asked to supply certain data and
information. The President, in activating the C redit Control Act, has
provided the
authority to require such reports.
Monthly reports are requested from domestic banks with assets in excess of
$1 billion and for branches and agencies of foreign banks th at have worldwide assets in
excess of $1 billion.
Monthly reports are also requested on the business credit
activities of domestic affiliates of bank holding companies with total assets in excess
of $? billion. Banks with assets between $300 million and $1 billion are asked to report
quarterly.
Smaller institutions need not report unless subsequent developments
warrant it.
Foreign banks will be asked to respect the substance and spirit of the
guidelines in their loans to U.S. borrowers or loans designed to support U.S. activity.
A panel of large corporations will be asked to report monthly on their
commercial paper issues and their borrowings abroad. Finance companies with more
than $1 billion in business loans outstanding will also be asked to report monthly on
their business credit outstanding.
Consumer Credit R estraint
The special deposit requirements of 15 percent on increases in some types
of consumer credit is designed to encourage particular restraint on such credit
extensions.
Methods used by lenders to achieve such restraint are a m atter for
determ ination by the individual firms.
Increases in covered credit above the base
date—March 14~will be subject to the special deposit requirement.
-5-
Among lenders subject to the regulation are commercial banks, finance
companies, credit unions, savings and loan associations, mutual savings banks, retail
establishm ents, gasoline companies and travel and entertainm ent card companies—in
ail instances where there is $2 million or more in covered credit.
Typical examples of credit th at is covered are credit cards issued by
financial institutions, retailers and oil companies; overdraft and special check-type
credit plans; unsecured personal loans; loans for which the collateral is already owned
by the borrower; open account and 30-day credit without regard to whether a finance
charge is imposed; credit secured by financial assets when the collateral is not
purchased with the proceeds of the loan.
Examples of consumer credit not covered are:
Secured credit where the security is purchased with the proceeds of the
loan such as an automobile, mobile home, furniture or appliance; mortgage loans where
the proceeds are used to purchase the home or for home improvements; insurance
company policy loans, credit extended for utilities, health or educational services;
credit extended under State or Federal government guaranteed loan programs; and
savings passbook loans.
All creditors with $2 million or more of covered credit outstanding on
March 14 must file a base report by April 1 directly with the Federal Reserve or
through
the
Federal
Home
Loan
Bank
Board
or
the
Federal
Credit
Union
Administration. This report will sta te the amount of credit outstanding on March 14
or a figure for the nearest available date.
Thereafter, these creditors must file a monthly report on the amount of
covered consumer credit outstanding during the month, based on the daily average
amount of covered credit if th at data is available, or the amount outstanding on other
appropriate dates approved by the Federal Reserve. The first report—for the period
from March 15 through April 30—is due by May 12. The report for subsequent months
is due by the second Monday of the following month.
-6-
The first 15 percent deposit requirem ent must be maintained beginning
May 22 on increases in outstanding credit.
Marginal Reserve Requirement
On October 6, the Board established an 8 percent marginal reserve
requirement on increases in managed liabilities th at had been actively used to finance
a rapid expansion in bank credit. The base for this reserve requirem ent was set a t the
larger of $100 million or the average amount of managed liabilities held by a member
bank, an Edge corporation, or a family of U.S. agencies and branches of a foreign bank
as of September 13-26. Any increase in managed liabilities above th at base period was
subject to the additional 8 percent reserve requirem ent.
Managed liabilities include large tim e deposits ($100,000 or more) with
m aturities of less than a year, Eurodollar borrowings, repurchase agreem ents against
U.S. government and federal agency securities, and federal funds borrowed from a
nonmember institution.
In today's action, the Board increased the reserve requirement to 10
percent and lowered the base by (a) 7 percent or (b) the decrease in a bank's gross
loans to foreigners and gross balances due from foreign offices of other institutions
between the base period and the week ending March 12, whichever is greater.
In
addition, the base will be reduced to the extent a bank's foreign loans continue to
decline. The minimum base amount remains a t $100 million.
Nonmember Banks
The special deposit requirement for nonmember banks is designed to
restrain credit expansion in the same manner as the marginal reserve requirement on
the managed liabilities of member banks.
For nonmembers, the base is the two-week period th at ended March 12 or
$100 million, whichever is greater. The 10 percent special deposit will be maintained
-7-
a t the Federal Reserve on increases in managed liabilities above the base amount. The
J
base will be reduced in subsequent periods to the extent that a nonmember bank
reduces its foreign loans.
Money Market Mutual Funds
Money market mutual funds and similar creditors must maintain a special
deposit with the Federal Reserve equal to 15 percent of the increase in their total
assets a fte r March 14.
A covered fund must file by April 1 a base report of its outstanding assets
as of March 14. T hereafter, a monthly report on the daily average amount of its assets
must be filed by the 21st of the month. For example, a report on the first month's
assets—from March 15 to April 14—must be filed by April 21 and the special deposit
requirement will be maintained beginning May 1.
A fund th a t registers as an
investm ent company with the Securities and Exchange Commission afte r March 14
must file a base report within two weeks afte r it begins operations.
Discount R ate
In fixing the surcharge for large bank borrowing, the Board acted on
requests from the directors of all 12 Federal Reserve Banks. The action is effective
Monday. The discount rate is the interest rate th at member banks are charged when
they borrow from their d istrict Federal Reserve Bank.
The surcharge above the basic discount rate would generally be related to
m arket interest rates.
It is designed to discourage frequent use of the discount
window and to encourage banks with access to money markets to adjust their loans
and investments more promptly to changing m arket conditions. This should facilitate
the ability of the Federal Reserve to attain longer-run bank credit and money supply
objectives.
The surcharge will apply to banks with more than $500 million in deposits
on their borrowings for ordinary adjustm ent credit, when such borrowing occurs
successively in two statem ent weeks or more, or when the borrowing occurs in more
-8-
than four weeks in a calendar quarter.
There will be no other change in the
administration of the discount window with respect to adjustm ent credit. Such credit
will continue to be available to member banks only on a short-term basis to assist
them in meeting a temporary requirement for funds or to provide a cushion while
orderly adjustm ents are made in response to more subtained charges in a bank's
position.
The surcharge will not apply to borrowing under the seasonal loan program,
which will continue a t the basic discount rate, nor to borrowing under the emergency
loan program.
Attached are copies of the following documents:
1.
The Special Credit R estraint Program.
2.
Regulation CC establishing a special deposit
requirem ent on
increases in certain types of consumer credit.
3.
An amendment to Regulation D increasing the marginal reserve
requirem ent on managed liabilities to 10 percent and reducing
the base period.
4.
A subpart of Regulation CC establishing
a special
deposit
a special
deposit
requirement for nonmember banks.
5.
A subpart
of Regulation CC establishing
requirement for money m arket mutual funds.
Special C red it R e stra in t Program
Background
President C arter has announced a broad program of fiscal, energy, credit,
and other measures designed to m oderate and reduce inflationary forces in a manner
th at can also lay the groundwork for a return to stable economic growth.
In connection with those actions, and consistent with the continuing
objective to restrain growth in money and credit during 1980, the Federal Reserve has
also taken certain further actions to reinforce the effectiveness of the measures
announced in October of 1979.
These actions include an increase in the marginal
reserve requirem ents on managed liabilities established on October 6 and the
establishment of a surcharge on borrowings through the discount window by large
banks.
The President has also authorized the Federal Reserve, under the term s of
the Credit Control Act of 1969, to exercise particular restraint on certain types of
credit. The Board has determined to restrain the growth of certain types of consumer
credit through the imposition of a requirem ent for special deposits equivalent to 15%
of any expansion of consumer credit provided by any lender through credit cards, other
forms of unsecured revolving credit, and personal loans.
Under the authority of the
Credit Control Act, the Federal Reserve has also (a) applied a special d e p o rt
requirem ent on the growth of managed liabilities of large non-member banks and (b)
imposed a special deposit requirem ent on the growth in the net assets of money
m arket mutual funds and other similar entities.
One consequence of strong demands for money and credit generated in part
by inflationary forces and expectations has been to bring heavy pressure on credit and
financial markets generally, with varying impacts on particular sectors of the
economy.
At the same tim e, restraint on growth in money and credit must be a
fundamental part of the process of restoring stability.
That restraint is, and will
continue to be, based primarily on control of bank reserves and other traditional
instruments of monetary policy.
However, the Federal Reserve 3oard also believes
-2 -
the effectiveness and speed with which appropriate restraint can be achieved without
unnecessarily disruptive effec ts on credit m arkets will be facilitated by a program of
voluntary credit restraint by im portant financial interm ediaries.
The program set
forth here develops certain general criteria to help guide banks and others in their
lending policies during the period ahead.
Statem ent of Purpose
The purpose of the Special Credit R estraint Program is to encourage
lenders and borrowers, in their individual credit decisions, to take specific account of
the overall aims and quantitative objectives of the Federal Reserve in restraining
growth in money and credit generally. The guidelines set forth are consistent with the
continuing interest of the Federal Reserve and individual institutions to:
— Meet the basic needs of established customers for normal
operations, particularly smaller businesses, farm ers, thrift
institution bank custom ers,
correspondent
banks,
and
and agriculturally-oriented
homebuyers
with
limited
to
support
alternative sources of funds.
— Avoid
use
of
available
credit
resources
essentially speculative uses of funds, including voluntary
buildup of inventories by businesses beyond operating
needs, or to finance transactions such as takeovers or
mergers th a t can resasonably be postponed, th at do not
contribute to economic efficiency or productivity, or may
be financed from other sources of funds.
— Limit overall loan growth so that adequate provision is
made for liquidity and acceptable capital ratios.
In requesting cooperation of individual institutional lenders in achieving the
general objectives of this program, the Federal Reserve Board is strongly conscious of
the fact th at sound decisions concerning the distribution of credit and specific loans
can be made only by individual institutions dealing directly in financial markets and
intim ately fam iliar with the needs and conditions of particular customers. We are also
aware, however, th at in existing market circum stances, individual institutions may be
under com petitive pressure to make loans or commitments th at, in the aggregate,
cannot be sustained within our overall monetary and credit objectives or th at, for
particular institutions, may exceed prudent limits.
By more clearly considering
individual lending and commitment decisions in the light of the national objectives
reflected in this program, undue m arket pressures and disturbances can be avoided and
available credit supplies be used to m eet more urgent requirements.
Nature of the Program
Coverage
The Special Credit R estraint Program will be directed primarily toward the
domestic credit supplied by commercial banks and the domestic business credit
extended by finance companies. Surveillance will also be exercised over borrowing in
the commercial paper m arket and borrowings abroad by U.S. corporations.
With regard to domestic commercial banks, the program is designed to
cover credit extended to U.S. residents by both the domestic and overseas offices of
such banks.
Credit extended to U.S. residents by agencies and branches of foreign
banks domiciled in the United States will be specifically covered. A ffiliates abroad of
banks operating in the U.S. are expected to respect the substance and spirit of* the
guidelines in their loans to U.S. borrowers or loans otherwise designed to support U.S.
activity.
In recent months, the commercial paper market and finance companies
have been a growing source of business credit.
In recognition of this trend and to
assure comparable com petitive treatm ent, finance companies (including subsidiaries of
bank holding companies) are asked to follow the general guidelines in their business
lending.
Activity in the commercial paper m arket is normally covered by bank
credit lines. That practice is strongly encouraged in the interest of continuing to
provide a sound base to th a t m arket.
But the use of commercial paper should be
restrained, and growth in the market and activity of the larger users of th at market
will be closely monitored. For their p art, banks are expected to give special attention
to avoiding increases in commitments for credit lines for purposes of supporting
commercial paper borrowing for other than normal business operating purposes.
Thrift institutions and credit unions are not specifically covered by the
Special Program in light of recent patterns in their asset growth.
Reporting arrangements are described below.
Q uantitative Guidelines
The Federal Reserve has recently set forth growth ranges for the monetary
aggregates for 1980 as follows:
MIA
3)4% -
6%
M1B
4%
-
6)4%
M2
6%
-
9%
M3
654% -
9)4%
The growth ranges set forth for M3 encompass almost all the relatively
short-term liabilities of banks and other depository institutions. That liability growth
was broadly estim ated to be consistent with growth in total bank credit (loans and
investments) of 6-9%. We are aware th at in current m arket circum stances, banks may
be requested to carry a larger than normal share of growth in business and certain
other types of credit.
However, prudent attention to liquidity and capital positions
will also be required, and liquidity of banks is already somewhat depleted.
Taking
these factors into account, growth in bank loans, consistent with the monetary growth
ranges and maintenance of prudent liquidity positions, should not generally exceed the
upper part of the indicated range of growth in to tal bank credit. That growth should
-5-
be spread out over time in an orderly fashion, taking account of normal seasonal
patterns.
Growth trends vary among banks and regions of the country.
Individual
institutions will wish to appraise their own prospects and policies in th at light. Banks
whose past patterns suggest relatively slow growth, and particularly those serving
more slowly growing areas, should expect to confine growth to the lower portion or
even below the indicated range for bank credit, particularly in instances where
liquidity or capital ratios are below average. More rapidly growing banks should also
evaluate their ability to support such growth without impairing liquidity or capital
ratios.
The Federal Reserve and other federal bank regulatory agencies will
carefully review patterns of loans and commitments at institutions
that
are
experiencing growth in lending a t or above the top of the range specified. Account
will be taken of their own past experience and regional trends as well as the banks'
capacity to finance their loan portfolios without straining capital or liquidity.
Increases in loans by banks resulting in lower capital or liquidity ratios, particularly
when the bank ratios are below peer groups, will be especially closely reviewed to
assure their position is not weakened. In th a t connection, other regulatory authorities
will be consulted as appropriate.
Individual institutions should adopt commitment policies that enable them
to maintain adequate control over growth in loan totals and to assure funds are
available to m eet the priority needs specified below.
Qualitative Guidelines
The Board does not intend to set forth numerical guidelines for particular
types of credit. However, banks are encouraged particularly:
(1) To restrain unsecured lending to consumers, including
credit cards and other revolving credits. Credit for auto,
-6-
home mortgage and home improvement loans should not be
subject to extraordinary restraint.
(2) To discourage financing of corporate takeovers or mergers
and the retirem ent of corporate stock, except in those
limited instances in which there is a clear justification in
term s of production or economic efficiency commensurate
with the size of the loan.
(3)
To avoid financing of purely speculative holdings of
commodities or precious m etals or extraordinary inventory
accumulation out of keeping with business operating needs.
(4)
To maintain reasonable availability of funds
to small
businesses, farm ers, and others without access
to other
forms of financing.
(5) To restrain the growth in comm itments for backup lines in
support of commercial paper.
(6)
Tomaintain
adequate
flow
of
credit
to
smaller
correspondent banks serving agricultural areas and small
business needs and th rift institutions.
The term s and pricing of bank loans are expected to reflect the general
circum stances of the m arketplace. No specific guidelines or formulas are suggested.
However, the Board does not feel it appropriate th at lending rates be calculated in a
manner th a t reflects the cost of relatively small amounts of marginal funds subject to
the marginal reserve requirem ents on managed liabilities.
Moreover, the Board
expects th at banks, as appropriate and possible, will adjust lending rates and other
term s to take account of the special needs of small businesses, including farm ers, and
others.
-7-
Reporting
The Federal Reserve will closely monitor developments in all sectors of the
credit m arkets and will ask th at certain data and information be supplied by banks and
others.
The President, in activating the Credit Control Act of 1969, has provided
authority for requiring such reports.
In the case of domestic banks with assets in excess of $1 billion, and for
U.S. branches and agencies of foreign banks th at have worldwide assets in excess of $1
billion, a monthly report will be requested. Monthly reports will also be requested on
the business credit activities of domestic affiliates of bank holding companies with
U.S. financial assets in excess of $1 billion. As will be noted, the bank reports include,
apart from qualitative information, certain data on the movements in broad categories
of loans and commitments, liquid asset holdings, and capital accounts. C ertain data,
including th a t on capital and liquidity, will be requested on a consolidated worldwide
basis. Banks with less than $1 billion but more than $300 million in assets will report
quarterly. Smaller institutions, while requested to observe the program, will not have
special reporting requirem ents unless warranted by subsequent developments.
A group of large corporations will be requested to complete a brief
monthly form about their activities in the commercial paper m arket, including the
extent and usage of ''backup'’ lines of credit a t banks and their borrowing abroad.
Finally, finance companies — including subsidiaries of bank holding companies — with
more than $1 billion in loans outstanding to business borrowers will be requested to
provide monthly reports concerning their business lending activities.
Consultative Arrangements
In instances warranted by trends in loans and commitments, Federal
Reserve Bank officials in consultation with other federal bank regulatory agencies,
will review with individual banks and others their progress in achieving and
maintaining appropriate restraint on lending.
In general, such consultations will be
sought if:
(1)
Bank or finance company lending is occurring at a pace
th at appears to be significantly in excess of the national
objective,
taking
account
of
the
location
or
past
experience of the bank or other institution.
(2) Commitment policies appear to suggest the possibility of
large subsequent increases
in
lending
or
exceptional
expansion of commercial paper borrowing.
(3)
Explanations
of
"takeover"
or "speculative" financing
contained in regular reports raise significant questions.
(4) The distribution of credit a t an institution generally
appears
disproportionate
in
light
of
the
qualitative
guidelines above.
(5) Liquidity positions or capital ratios reflect developing
strains, particularly in th e case of institutions whose ratios
are below peer group averages.
In the case of nonbanks, the Federal Reserve may also wish to hold
informal discussions with such institutions if such discussions seem warranted by
developments.
T ITL E 1 2 — BANKS AND BANKING
CHAPTER II— FEDERAL RESERVE SYSTEM
SUBCHAPTER A— BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Regulation D]
(Docket No. R-0278)
Part 204— RESERVES OF MEMBER BANKS
Marginal Reserve Requirements
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Final rule.
SUMMARY: On October 6, 1979, the Board of Governors amended Regulation D
to establish a marginal reserve requirement of 8 per cent on the amount
by which the total of certain managed liabilities of member banks (and
Edge and Agreement Corporations) and United States branches and agencies
of foreign banks exceeds the amount of an institution's base of managed
liabilities. An institution's base was defined as the daily average
total of managed liabilities outstanding during the period September 13
26, 1979, or $100 million, whichever is greater. The Board has amended
Regulation D to increase the marginal reserve requirement ratio to 10
per cent. The Board also has amended Regulation D to reduce an institution's
managed liabilities base by the greater of 7 per cent or the amount
of decrease in an institution's daily average gross loans to non-United
States residents and gross balances due from foreign offices of other
institutions between the base period (September 13-26, 1979) and the
statement week ending March 12, 1980. In the future, an institution's
base will be reduced further after March 12, 1980, by the amount by
which it decreases its daily average gross loans to non-U. S. residents
and gross balances due from foreign offices of other institutions during
a statement week. However, in no event will the base of an institution
that was a net borrower of managed liabilities during the base period
(September 13-26, 1979) be reduced below $100 million. The purpose
of this action is to control further the availability of bank credit.
EFFECTIVE DATE: This action is effective for marginal reserves required
to be maintained during the seven-day period beginning April 3, 1980,
against total managed liabilities outstanding during the seven-day
period beginning on March 20, 1980.
FOR FURTHER INFORMATION CONTACT: Gilbert T. Schwartz, Assistant General
Counsel (202/452-3625), Anthony F. Cole, Senior Attorney (202/452-3612),
or Paul S. Pilecki, Attorney (202/452-3281), Legal Division, Board of
Governors of the Federal Reserve System, Washington, D. C. 20551.
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>
SUPPLEMENTARY INFORMATION! On October 6, 1979, the Board of Governors
amended Regulation 0 (12 CFR Part 204) to impose a marginal reserve
requirement of 8 per cent on the amount by which the total managed
liabilities of member banks (and Edge and Agreement Corporations) and
United States branches and agencies of foreign banks with total world
wide consolidated bank assets in excess of $1 billion exceeds the amount
of the institution's managed liabilities outstanding during the base
period (September 13-26, 1979) or $100 million, whichever is greater
(44 Fed. Reg. 60071). Managed liabilities include the total of (1)
time deposits in denominations of $100,000 or more with original ma
turities of less than one year; (2) Federal funds borrowings with orig
inal maturities of less than one year from U. S. offices of depository
institutions not required to maintain Federal reserves and from U. S.
government agencies; (3) repurchase agreements with original maturities
of less than one year on U. S. government and agency securities entered
into with parties other than institutions required to maintain Federal
reserves; and (4) Eurodollar borrowings from foreign banking offices,
asset sales to related foreign offices and member bank foreign office
loans to U. S. residents. The purpose of this action was to better
control the expansion of bank credit, help curb speculative excesses
in financial, foreign exchange and commodity markets and thereby serve
to dampen inflationary forces.
Under the marginal reserve program, the amount of marginal
reserves that a member bank, Edge or Agreement Corporation, or a U. S.
branch or agency family of a foreign bank that is a net borrower of
managed liabilities is required to maintain is determined by the amount
by which the total of the institution's managed liabilities during a
given seven-day reserve computation period exceeds the daily average
amount of managed liabilities outstanding during the base period or
$100 million, whichever is greater. For an institution that is a net
lender of managed liabilities (that is, the sum of its managed liabil
ities is negative because its net Eurodollar loans to its foreign of
fices are greater than the total of its other managed liabilities),
its managed liabilities base is the algebraic sum of its managed lia
bilities and $100 million.
The Board has determined to increase the marginal reserve
requirement ratio to 10 per cent and also has determined to adjust the
base amount of managed liabilities for institutions subject to the
marginal reserve requirement program. For reserve computation periods
beginning March 20, 1980, if an institution was a net borrower of man
aged liabilities during the base period, its base amount will be reduced
by an amount equal to the greater of 7 per cent of its current base
or an amount equal to the decrease in the sum of its daily average gross
loans to non-United States residents and gross balances due from foreign
offices of other institutions from the base period (September 13-26,
1979) to the seven-day statement week ending March 12, 1980. For example,
t
-3 -
if an institution has a borrowed managed liabilities base of $250 mil
lion, its base would be reduced by at least $17.5 million (7 per cent
x $250 million). However, if such institution's daily average of gross
loans to non-United States residents and gross balances due from foreign
offices of other institutions decreased between the base period (September 13
26, 1979) and the statement week ended March 12, 1980, by $25 million,
then the new managed liabilities base for such institution would be
$225 million, since the decrease in daily average of such loans and
balances was greater than 7 per cent. Consequently, the marginal re
serve ratio of
10 per cent would be applied
tothe institution's managed
liabilities in excess of $225 million.
The managed liabilities base shall be further reduced in re
serve computation periods beginning March 20, 1980, by the amount by
which the institution's daily average of gross loans to non-United
States residents and gross balances due from foreign offices of other
institutions during the statement week is lower than the daily average
amount of such loans and balances during the statement week ending on
March 12, 1980. In order to minimize the reserve impact of small re
payments or reductions in the daily average gross loans to non-United
States residents and balances due from foreign offices of other insti
tutions, a future reduction in such loans and balances below the daily
average for the week ending March 12, 1980, will reduce the base only
in increments of $2 million. For example, if an institution reduces
such loans and balances by a daily average of $12.5 million during the
statement week
ending March 26, 1980, its base for that week and
future
weeks will be reduced by $12 million. This
approach also will enable
institutions to receive ordinary repayments of foreign loans without
being required to relend such funds immediately to avoid increased
marginal reserves. The base for an institution that was a net borrower
of managed liabilities during the base period (September 13-26, 1979),
will not be reduced below $100 million. The base will not change for
an institution that was a net lender of managed liabilities during the
base period. An institution's base will not be affected by an increase
in daily average gross loans to non-United States residents. In addition,
eligible bankers' acceptances not held in the issuer's own portfolio
will not be regarded as loans for purposes of determining reductions
in the managed liabilities base.
These actions are being taken to moderate expansion of bank
credit, thereby dampening inflationary pressures. In order to achieve
the above stated objectives as soon as possible, the Board for good
cause finds that the notice, public procedure, and deferral of effective
date provisions of 5 U.S.C. § 553(b) with regard to these actions are
impracticable and contrary to the public interest.
-4 -
These actions are taken pursuant to the Board's authority
under sections 19, 25 and 25(a) of the Federal Reserve Act (12 U.S.C.
§§ 461, 601 et seq.) and under section 7 of the International
Banking
Act of 1978 (12 U.S.C. § 3105).
Effective April 3, 1980, section 204.5 of Regulation D (12 CFR § 204.5)
is revised as follows:
§ 204.5
RESERVE REQUIREMENTS
*
(f)
*
*
*
*
Marginal Reserve Requirements.
(1) Member banks. A member bank shall maintain a daily av
erage reserve balance against its time deposits equal to 10 per cent
of the amount by which the daily average of its total managed liabilities
during the seven-day computation period ending eight days prior to the
beginning of the corresponding seven-day reserve maintenance period
exceeds the member bank's managed liabilities base as determined in
accordance with subparagraph (3). A member bank's managed liabilities
are the total of the following: * * *
(2) United States branches and agencies of foreign banks.
A United States branch or agency of a foreign bank with total worldwide
consolidated bank assets in excess of $1 billion shall maintain a daily
average reserve balance against its liabilities equal to 10 per cent
of the amount by which the daily average of its total managed liabilities
during the seven-day computation period ending eight days prior to the
beginning of the corresponding seven-day reserve maintenance period
exceeds the institution's managed liabilities base as determined in
accordance with subparagraph (3). In determining managed liabilities
of United States branches and agencies, the managed liabilities of all
United States branches and agencies of the same foreign parent bank
and of its majority-owned (greater than 50 per cent) foreign banking
subsidiaries (the "family") shall be consolidated. Asset and liability
amounts that represent intra-family transactions between United States
branches and agencies of the same family shall not be included in com
puting the managed liabilities of the family. United States branches
and agencies of the same
family shall designate one U.S.office to be
the reporting office forpurposes of filing consolidated family reports
required for determination of the family's marginal reserve require
ments. The reporting office shall file reports and maintain marginal
reserves required under this section for the family at the Federal
Reserve Bank of the district in which the reporting office is located.
The total managed liabilities of a family are the total of each branch's
and agency's: * * *
-5 -
(3)
Managed liabilities base. During the seven-day reserve
computation period beginning March 20, 1980, and during each seven-day
reserve computation period thereafter, the managed liabilities base
of a member bank or a family of United States branches and agencies
of a foreign bank ("family") shall be determined as follows:
(i)
For a member bank or family that, on a daily avera
basis, is a net borrower of total managed liabilities during the fourteenday base period ending September 26, 1979, its managed liabilities base
shall be the daily average of its total managed liabilities during the
base period less the greater of
(A)
7 per cent of the daily average of its total
managed liabilities during the base period;
or
(B)
the amount equal to the decrease in its daily
,
average gross loans to non-United States residents— ■
and gross balances dueg£rom foreign offices
of other institutions— * or
institutions,
the time deposits of which are exempt from
the rate limitations ofRegulation Q pursuant
to § 217.3(g) thereof—• between the fourteenday base period ending September 26, 1979,
and the computation period ending March 12,
1980.
For each computation period beginning after March 19, 1980, the managed
liabilities base of a member bank or family shall be further reduced
during
the computation period by the amount by which its lowest daily
average of gross loans to non-United States residents*— iQ§nd gross
balances due from foreign offices of other institutions^ or
institutions,
the time deposits of which are exempt from £he rate limitations of
Regulation Q pursuant to § 217.3(g) thereof—
outstanding during any
computation period beginning after March 19, 1980, is lower than the
daily average amount of such loans and balances outstanding during the
computation period ending on March 12, 1980. The amount representing
such difference shall be rounded to the next lowest multiple of $2 million.
In no event will the managed liabilities base for an institution
that was a net borrower of managed liabilities during the fourteen-day
base period ending September 26, 1979 be less than $100 million.
-
6-
i
(ii)
For a member bank or family that, on a daily av
erage basis, is a net lender of total managed liabilities during the
fourteen-day base period ending September 26, 1979, its managed lia
bilities base shall be the sum of its daily average negative total
managed liabilities and $100 million.
18/ A United States resident is:
(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 ("domestic corporation"); and (c)
any branch or office located therein of any other entity wherever or
ganized. 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).
19/ Any banking office located outside the States of the United States
and the District of Columbia of a bank organized under domestic or
foreign law.
20/ A foreign central bank, or any international organization of which
the United States is a member, such as the International Bank for Re
construction and Development (World Bank), International Monetary Fund,
Inter-American Development Bank, and other foreign international, or
supranational entities exempt from interest rate limitations under
§ 217.3(g)(3) of Regulation Q (12 CFR 217.3(g)(3)).
By order of the Board of Governors of the Federal Reserve
System, March 14, 1980.
(Signed) Theodore E. Allison
Theodore E. Allison
Secretary of the Board
[SEAL]
T IT L E 1 2 — BANKS AND BANKING
CHAPTER II— FEDERAL RESERVE SYSTEM
SUBCHAPTER A —
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYTEM
(Docket No. R-0280)
Part 229— CREDIT RESTRAINT
[Subpart A]
Consumer Credit
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Final Rule.
SUMMARY: Pursuant to the Credit Control Act (12 U.S.C. §S 1901-1909)
as implemented by Executive Order 12201, the Board has adopted provisions
requiring creditors that extend certain types of consumer credit to
maintain a special non-interest bearing deposit with the Federal Reserve
equal to 15% of the amount by which certain types of the creditor's
outstanding consumer credit exceeds the larger of $2 million or the
amount of such credit outstanding on March 14, 1980 (or the last day
or other period immediately prior to March 14, 1980 for which data are
available). Members of the Federal Home Loan Banks and all other savings
and loan associations shall maintain the special deposit with the Federal
Home Loan Banks. Credit unions, whether or not members of the National
Credit Union Administration's Central Liquidity Facility, shall maintain
the special deposit with the Central Liquidity Facility. The types
of consumer credit covered by this regulation include credit extended
through the use of credit cards, unsecured consumer loans, and secured
consumer credit where the proceeds are not being used to purchase the
collateral. Credit extended for business and agricultural purposes
and closed-end consumer credit secured by the collateral financed are
not subject to the regulation. The purpose of this action is to help
curb inflationary pressures in the economy.
EFFECTIVE DATE:
March 14, 1980.
FOR FURTHER INFORMATION CONTACT: Robert E. Mannion, Deputy General
Counsel; Gilbert T. Schwartz, Assistant General Counsel; or Margaret L.
Egginton, Attorney; Legal Division, Board of Governors of the Federal
Reserve System, Washington, D.C. 20551 (202/452-3000).
SUPPLEMENTARY INFORMATION:
In accordance with the Credit Control Act
(12 U.S.C. SS 1901-1909) as implemented by Executive Order 12201,
dated March 14, 1980, the Board has adopted this regulation to require
certain creditors that extend certain types of consumer credit to hold
a special deposit with the Federal Reserve Banks against increases in
-2 -
the amount of those types of credit outstanding. Creditors that have
less than $2 million of consumer credit outstanding of the types covered
by the regulation will not be required to maintain the special deposit.
The amount of the special deposit that must be held will be equal to
15% of the amount by which certain types of consumer credit extended
by the creditor exceeds the larger of $2 million or the amount of such
credit outstanding as of the base date. For creditors that have daily
credit data available, the base date is March 14, 1980 or the last day
before March 14, 1980 for which such data are available. For creditors
that do not have daily credit data available, the base date is the
period immediately prior to March 14, 1980 for which credit data are
available.
The regulation will apply to (1) all open-end consumer credit,
whether secured or unsecured and (2) closed-end consumer credit that
is either unsecured or secured by collateral that is not being purchased
with the proceeds of the credit. Examples of open-end consumer credit
are:
- credit card plans, such as cards issued by financial
institutions, retailers, and oil companies;
- overdraft and special check-type credit plans offered by
financial institutions;
- other revolving credit plans.
Examples of closed-end consumer credit that is covered are:
- unsecured personal loans;
- loans for which the collateral provided is already owned
by the borrower;
- open account and 30-day credit without regard to whether
a finance charge is imposed, such as travel and entertainment card plans
and retail merchant credit;
- credit secured by financial assets, other than savings
deposits, when the collateral is not purchased with the loan proceeds.
Credit extended through the use of credit cards will be presumed to
be consumer — that is, non-business — credit unless the creditor
establishes otherwise. A creditor also will be required to treat as
covered consumer credit any such credit that is sold or otherwise trans
ferred to any non-U. S. office of the same or another entity and any
such credit sold or otherwise transferred with recourse to another
entity wherever located.
-3 -
Examples of consumer credit that is not covered cure:
- secured credit where the collateral is purchased with the
proceeds of the loan, such as automobile, mobile home, and other chattelsecured loans (see Uniform Commercial Code § 9-107, including Official
Comments 1 and 2);
- credit secured by financial assets when the collateral is
purchased with the proceeds;
- credit secured by savings deposits held at the lending
institution;
- mortgage loans where the proceeds are used to purchase the
collateral or for home improvements or "bridge" loans;
- insurance company policy loans;
- credit extended by providers of utility, health and
educational services;
- credit extended under state or federal government guaranteed
consumer loan
programs,such as student loans.
All
creditorswith $2 million or more of covered consumer
credit outstanding as of the base date are required to file a base
report on the amount ofsuch credit outstanding with the Federal Reserve
Banks by April 1, 1980.If daily data are available, a creditor
shall
report as its base the actual amount of covered credit outstanding on
March 14, 1980 or the last day before March 14 for which such data are
available; if daily data are not available, the creditor shall report
as its base the amount of such credit outstanding during the last period
immediately before March 14, 1980, for which such data are available.
A base report may be also required of certain creditors with covered
consumer credit of less than $2 million. All creditors with $2 million
or more of covered consumer credit outstanding as of the base date or
anytime thereafter on an average basis during any calendar month shall
file monthly reports on the amount of covered consumer credit outstanding.
The monthly report on the average amount of covered consumer credit
outstanding during the calendar month shall be filed by the second
Monday of the following month. For example, a report on the daily
average amount of covered credit outstanding during May shall be filed
by June 9, 1980.
The initial monthly report, however, shall cover
the period from March 15, 1980 through April 30, 1980 and shall be filed
by May 12, 1980.
Based upon the monthly report, a covered creditor is required
to maintain a special non-interest bearing deposit with the Federal
Reserve (or with the Federal Home Loan Bank or Central Liquidity
Facility) equal to 15% of the amount by which the average amount of
its covered credit exceeds the reported base or $2 million, whichever
is greater. The special deposit shall be maintained in collected funds,
-4 -
in the form of 0. S. dollars, during the period beginning on the fourth
Thursday of the month following the month for which the last report
has been filed and ending on the day prior to the fourth Thursday of
the next month. For example, the report covering the month of May shall
be filed by June 9, 1980, and the special deposit based upon the May
report shall be held beginning June 26, 1980, and continue through
July 23, 1980, at which time a special deposit based upon June's report
shall be required. The deposit based on the initial report, for March 15
through April 30, 1980, shall be maintained beginning May 22, 1980 and
ending June 25, 1980. The amount of the special deposit may not vary
during each maintenance period. Federal Reserve services, such as check
collection, will not be made available based on maintenance of the
special deposit.
Members of the Federal Home Loan Banks and all other savings
and loan associations shall file reports and maintain the special deposit
with the Federal Home Loan Banks. Credit unions, whether or not members
of the National Credit Union Administration's Central Liquidity Facility,
shall file reports and maintain the special deposit with the Central
Liquidity Facility. Deposits maintained with the Federal Home Loan
Banks and the Central Liquidity Facility shall be passed through by
those entities to the Federal Reserve Banks. All other covered creditors,
including commercial banks, U.S. branches and agencies of foreign banks,
retailers, other credit card issuers, and finance companies, are required
to file reports and maintain the special deposit with the Federal Reserve
Bank for the District in which the reporting office of the creditor
is located.
For purposes of reporting and determining whether the
creditor's outstanding covered credit exceeds the $2 million threshold
during the base period or thereafter, the covered credit of all U. S.
offices of the same company and direct and indirect U. S. subsidiaries
of the same parent con?)any shall be combined, and only one base and
monthly report shall be filed for the combined organization. For
example, if a company has 100 offices throughout the United States,
it should combine the required information from each office, and one
designated reporting office should file one combined base or monthly
report for the entire company. The covered credit of all U. S. offices
(such as the branches, agencies and subsidiaries, including banks) of
the same foreign parent company and all U.S. offices of that foreign
parent's non-U.S. subsidiaries shall be combined and one office selected
as the reporting office for such offices. A subsidiary is a company
that is more than 50 per cent owned, directly or indirectly, by another.
-5 -
These actions are being taken to curb inflationary pressures.
Continuing growth of consumer credit has contributed to inflationary
forces by helping to sustain consumer demand for goods and services.
As a consequence of this sustained high level of demand, savings in
the economy have fallen to the lowest level since the Korean War.
Restraint on consumer credit will tend to encourage additional savings,
which can be channelled to productive investment to increase the supply
of goods. At the same time, consumer demands for the supply of goods
available will be restrained.
In both of these ways, restraint on
consumer credit will contribute to dampening inflationary forces. The
particular types of credit to which these restraints will apply are
those generally showing undue strength in recent months. Thus, auto
mobile credit, residential mortgage credit, and credit extended to
purchase the collateral will not be affected by this action.
The Board believes that it is in the national interest to
achieve the objective of curbing inflation as quickly as possible, and
that publication of this rule for conment or any delay in its effective
date would lead to rapid increases in extensions of consumer credit
that would not be subject to the regulation and would frustrate its
purpose. The Board, therefore, for good cause finds that further notice,
public procedure, and deferral of effective date provisions of 5 U.S.C.
S 553(b) with regard to these actions are impracticable and contrary
to the public interest.
Pursuant to its authority under the Credit Control Act (12
U.S.C. §§ 1901-1909) as implemented by Executive Order 12201, the Board
hereby issues this subpart (12 C.F.R. 229, Subpart A) effective
March 14, 1980, as follows:
SECTION 229.1 - AUTHORITY, PURPOSE, AND SCOPE
(a)
Authority. This subpart is issued by the Board
of
Governors ofthe Federal Reserve System pursuant to the Credit
Control
Act (12 U.S.C. §§ 1901-1909) as implemented by Executive Order 12201,
dated March 14, 1980.
(b) Purpose and Scope. This subpart is intended to
curb
inflation generated by the extension of certain types of consumer credit
in an excessive volume and governs extensions of such credit by all
covered creditors.
SECTION 229.2 - DEFINITIONS
(a)
For the purposes of this subpart, the terms, "Board,"
"credit," "creditor," "extension of credit" and "credit transaction,"
and "loan,” shall have the meanings given them in the Credit Control
Act.
In addition, the following definitions apply.
-6 -
(b)
"Base” means the larger of $2 million or the amount of
covered credit outstanding as of the close of business on the base date.
(c) "Base date" means:
for a creditor that has daily credit
data available/ March 14, 1980 or the last day immediately before
March 14, 1980 for which such data cure available; for a creditor that
does not have daily credit data available, the period immediately before
March 14, 1980 for which credit data are available.
(d) "Closed-end credit" means all consumer credit except
open-end credit.
(e)
"Consumer credit” means credit extended in the U. S.
primarily for personal, family, or household purposes and does not
include credit for business or agricultural purposes.
(f) "Covered credit" means consumer credit that is (1) openend credit and (2) closed-end credit which is unsecured or in which
the proceeds of the credit are not being used to purchase the collateral.
Covered credit that is sold or otherwise transferred after March 14,
1980 to any office located outside the a. S. of the same or another
entity shall remain the covered credit of the transferor until such
credit is repaid. Covered credit that is sold or otherwise transferred
on a recourse basis to any a. S. office of the same or another entity
shall remain the covered credit of the transferor; covered credit that
is transferred on a non-recourse basis to any U. S. office of the same
or another entity shall be treated as covered credit of the transferee.
Covered credit does not include insurance company policy loans; credit
extended by federal, state or local governments, or by providers of
utility, health or education services; state or federal .government
guaranteed loans; or loans secured by savings deposits^ held at the
lending institution.
(g) "Covered creditor” means any creditor which extends
covered credit. For purposes of determining the amount of a creditor's
outstanding covered credit, the covered credit of all U. S. offices
of (i) the same company, (ii) U. S. subsidiaries of the same parent
company, and (iii) non-U. S. subsidiaries of the same parent company
shall be combined. A subsidiary is a company that is more than 50 per
cent owned directly or indirectly by another company.
(h) "Open-end credit" means consumer credit extended on an
account pursuant to a plan under which (1) the creditor may permit the
customer to make purchases or obtain loans, from time to time, directly
from the creditor or indirectly by use of a credit card, check, or other
1/
As defined in § 217.1(e) of this Chapter (Regulation Q ) .
-7 -
device, as the plan may provide; (2) the customer has the privilege
of paying the balance in full or in instalments; and (3) a finance
charge may be computed by the creditor from time to time on an out
standing unpaid balance.
(i)
"U.S.” means the fifty states of the United States and
the District of Columbia.
SECTION 229.3 - REPORTS
(a) Each covered creditor with $2 million or more of covered
credit outstanding as of the base date, and certain covered creditors
as may be required by the Board, shall file a base report by April 1,
1980. The base report shall state the amount of the covered creditor's
base. A creditor with a base of $2 million or more as indicated on
its base report, or with covered credit outstanding in excess of
$2 million on an average basis during any calendar month, shall submit
monthly reports. The initial monthly report shall be filed by May 12,
1980, for the period March 15 through April 30, 1980; thereafter, the
monthly report shall be filed for each full calendar month by the second
Monday of the following month. The monthly report shall include the
average amount of covered credit outstanding during the month (on a
daily average basis if such data are available) and the amount by which
that number exceeds the creditor's base.
(b) One base and one monthly report shall be filed by a
reporting office for all the offices of a covered creditor. A covered
creditor may designate any of its offices as its reporting office.
(c) Members of the Federal Home Loan Banks and all other
savings and loan associations shall file reports with the Federal Home
Loan Banks. Credit unions, whether or not members of the National
Credit Union Administration's Central Liquidity Facility, shall file
reports with the Central Liquidity Facility. All other creditors shall
file reports with the Federal Reserve Bank in whose District their
reporting office is located.
SECTION 229.4 - MAINTENANCE OF SPECIAL DEPOSIT
(a)
Each covered creditor shall hold a non-interest bearing
special deposit equal to 15 per cent of the amount by which the average
amount of its covered credit outstanding during the calendar month
exceeds its base. The corresponding period during which the special
deposit shall be maintained begins on the fourth Thursday of the month
following the calendar month for which the report was filed and continues
through the Wednesday before the fourth Thursday of the next month.
The special deposit shall be maintained in collected funds in the form
of U. S. dollars.
-8 (b)
Members of the Federal Home Loan Banks and all other
savings and loan associations shall maintain the special deposit with
the Federal Home Loan Banks. Credit unions, whether or not members
of the National Credit Onion Administration's Central Liquidity Facility,
shall maintain the special deposit with the Central Liquidity Facility.
Deposits maintained with the Federal Home Loan Banks and the Central
Liquidity Facility shall be placed with a Federal Reserve Bank. All
other creditors shall maintain the special deposit with the Federal
Reserve Bank to which the creditor reports.
SECTION 229.5 - PENALTIES
For each willful violation of this subpart, the Board may
assess against any creditor, or officer, director or employee thereof
who willfully participates in the violation, a maximum civil penalty
of $1,000.
In addition, a maximum criminal penalty of $1,000 and
imprisonment of up to one year may be imposed for willful violation
of this subpart.
By order of the Board of Governors of the Federal Reserve
System, effective March 14, 1980.
(Signed) Theodore E. Allison
Theodore E. Allison
Secretary of the Board
[SEAL]
T IT L E 1 2 — BANKS AND BANKING
CHAPTER II— FEDERAL RESERVE SYSTEM
SUBCHAPTER A— BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
(Docket No. R-028I)
Part 229— CREDIT RESTRAINT
[Subpart B]
Short Term Financial Intermediaries
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Final rule.
SUMMARY: Pursuant to the Credit Control Act (12 U.S.C. §§ 1901-1909)
as implemented by Executive Order 12201, the Board has adopted provisions
requiring money market funds and other similar creditors to maintain
a special non-interest bearing deposit with the Federal Reserve equal
to 15 per cent of the amount by which the investment assets of these
creditors exceeds their investment assets on March 14, 1980. Special
non-interest bearing deposits shall be maintained at the Federal Reserve
Bank of the district in which the creditor maintains its principal place
of business. The purpose of this action is to control inflation by
limiting the expansion of short-term credit offered by such financial
intermed iar ies.
EFFECTIVE DATE:
March 14, 1980.
FOR FURTHER INFORMATION CONTACT: Gilbert T. Schwartz, Assistant General
Counsel, Lee S. Adams, Senior Attorney, C. Baird Brown, Attorney, or
Daniel L. Rhoads, Attorney, Legal Division, Board of Governors of the
Federal Reserve System, Washington, D.C. 20551 (202/452-3000).
SUPPLEMENTARY INFORMATION:
In accordance with the Credit Control Act
(12 U.S.C. §§ 1901-1909) as implemented by Executive Order 12201, the
Board has adopted this Subpart of its Credit Restraint regulation to
require creditors, consisting of investment companies commonly regarded
as money market funds and certain common trust funds of banks that invest
in short term assets (short term investment funds) to hold a non-interest
bearing special deposit with the Federal Reserve against increases in
their total assets. The amount of the special deposit that must be
held shall be equal to 15 per cent of the amount by which the assets
of the creditor exceed the amount of such assets in the creditor's portfolio
on March 14, 1980.
The special deposit must be made in collected funds
in U.S. dollars.
-2 -
A creditor will be covered if its investment portfolio primarily
consists of short-term securities, deposits, or other instruments with
original or remaining maturities of 13 months or less through which
it extends credit to banks, federal, state or local governmental units
or agencies thereof, any corporation, partnership or other business
entity, or any person. Covered creditors include both open and closedend management companies and unit investment trusts. A series of shares
or units of a registered investment company is a covered creditor if
the investment assets which are included in the valuation of the shares
or units in the series primarily have maturities of less than 13 months.
Common trust funds of banks and trust companies are also included unless
all moneys contributed to them are held by the bank or trust company
incidentally to the management of other trust assets. Collective investment
funds consisting of funds of retirement, pension, or other tax exempt
trusts are not covered.
A covered creditor, other than a unit investment trust or
series of units of such a trust ("Non-unit Creditor"), that possesses
assets on March 14, 1980, shall file a base report with a Federal Reserve
Bank by April 1, 1980. A Non-unit Creditorthat acquires or holds assets
or trust moneys that cause it to become a covered creditor after March 14,
1980, shall file a base report, within two weeks after it becomes a
covered creditor. The base report will state the amount of the Non
unit Creditor's covered credit, which is defined as the total amount
of its investment assets and other deposits plus accrued interest, held
as of March 14, 1980, whether or not it was a covered creditor at that
time.
If the covered creditor was not in existence on March 14, 1980,
its base amount is zero.
Thereafter, each NOn-unit Creditor shall file a report monthly
stating the daily average amount of its net assets during each reporting
period by the 21st day of the month in which the reporting period ends.
The reporting periods will run from the 15th day of each month to the
14th day of the following month.
For example, the first reporting period
will run from March 15 to April 14, 1980, and the second from April 15
to May 14, 1980. The report for the first reporting period must be
filed by April 21, 1980, and for the second by May 21, 1980. Based
upon this report, a covered creditor is required to maintain a special
non-interest bearing deposit with the Federal Reserve Bank in the District
in which its principal place of business is located equal to 15 per
cent of the amount by which the reported average of covered credit exceeds
the reported base. The special deposit shall be maintained during the
period beginning on the first Thursday of the first full calendar month
following the period for which the report was filed and ending on the
day prior to the first Thursday of the next month. For example, the
special deposit based upon the first report shall be held beginning
May 1, 1980 and continue through June 4, 1980, at which time a special
deposit based upon the second report shall be required.
-3 -
A unit investment trust or series of units of such a trust
("Unit Creditor”) that holds investment assets on March 14, 1980, need
not file reports or maintain special deposits, as their assets are fixed
as of the date they are transferred to the trust and will not increase
after March 14, 1980. A Unit Creditor that is established, by the transfer
of investment assets to the trustee, after March 14, 1980, must file
immediately upon acquisition of assets by the trust, a base report stating
the amount of covered credit held by the trust.
Each such Unit Creditor
must maintain a special deposit equal to 15 per cent of the covered
credit it holds. The special deposit must be maintained during the
period beginning with the acquisition of assets by the Unit Creditor
and ending on the day prior to termination of the trust pursuant to
the terms of the trust agreement. A Unit Creditor is only required
to file reports and maintain deposits if, at its inception, its assets
primarily have original or remaining maturities of less than 13 months.
A Unit Creditor whose assets at its inception had longer maturities,
but whose asset maturities fall below 13 months as the termination of
the trust approaches is not required to report or to maintain a special
deposit.
For a covered creditor that is a series of shares or units
of a registered investment company, reports should be filed and deposits
maintained by the registered investment company.
If the entire investment
company which issues such a series is a covered creditor, the entire
company may file a single report and maintain a single deposit. Otherwise
the investment company must file a separate report and maintain a separate
deposit for each series that is a covered creditor. Maintenance of
a special deposit at a Federal Reserve Bank does not entitle covered
creditors to Federal Reserve services.
Recent strong demands for money and credit, generated in part
by inflationary forces, have brought heavy pressure on credit and financial
markets generally, with varying impacts on particular sectors of the
economy.
The creditors covered by this Subpart act as financial intermediaries,
accepting funds from investors who desire a stable, liquid, high income
investment, and extending credit primarily through the purchase of money
market instruments. Rapid expansion of credit extended by these creditors
has contributed to the pressures by facilitating borrowing in the markets
for Eurodollars, commercial paper, bankers acceptances, and other short
term liquid instruments. Moreover, the rapid expansion of such creditors
has tended to impede reasonable flows of credit to other sectors including
housing, small businesses, and farmers. Restraint on the growth, of
money market funds and similar creditors will enable funds to flow in
more usual measure to productive uses, and thus contribute to dampening
inflationary forces.
-4 -
Ttiese actions are being taken to curb inflationary pressures.
The Board believes that it is in the national interest to achieve this
objective as quickly as possible/ and that publication of this rule
for comment or any delay in its effective date would lead to rapid increases
in extensions of credit that would not be subject to the regulation
and would frustrate its purpose.
The Board therefore finds for good
cause that further notice, public procedure, and deferral of effective
date provisions of 5 U.S.C. § 553(b) with regard to these actions are
impracticable and contrary to the public interest.
Pursuant to its authority under the Credit Control Act (12
U.S.C. §§ 1901-1909) the Board hereby adopts Subpart B of its Credit
Restraint regulation (12 C.F.R. § 229) effective March 14, 1980, as
follows:
SECTION 229.11— AUTHORITY, PURPOSE, AND SCOPE
(a) Authority. This Subpart is issued by the Board of Governors
of the Federal Reserve System pursuant to the Credit Control Act (12
U.S.C. §§ 1901 - 1909), as implemented by Executive Order 12201.
(b) Purpose and Scooe. This Subpart is intended to curb
inflation generated by the extension of credit by certain of those financial
intermediaries which are not subject to either the amendments of law
effected by Pub. L. 89-597, as amended, or section 19 of the Federal
Reserve Act, as amended (12 U.S.C.§461), and which are primarily engaged
in the extension of short-term credit, specifically money market funds
and other similar creditors.
SECTION 229.12— DEFINITIONS
(a) For the purposes of this Subpart, the terms "credit,"
"creditor," and "extension of credit" shall have the meanings given
them in the Credit Control Act.
In addition, the following definitions
apply.
(b)
"Base" means the amount—'^ of covered credit held by a
covered creditor as of the close of business on March 14, 1980.
(c)
"Covered credit" means any extension of credit originated
through the acquisition of a security, deposit, or other instrument, 1/
including but not limited to domestic and Eurodollar certificates of
deposit, U.S. Treasury bills, repurchase agreements, commercial paper,
bankers acceptances, and state and local government obligations, and
any interest accrued thereon.
1/ Assets should be valued for purposes of this Subpart by the same
procedure used by a registered investment company to value assets in
calculating net share or unit value under the Investment Company Act
of 1940 and rules promulgated thereunder.
(d)
"Covered creditor" means any creditor (1) that is (A)
an investment company registered with the Securities and Exchange Commission
under the Investment Company Act of 1940, (B) any series of shares or
units of such a company, or (C) any common trust fund or similar fund
maintained by a bank or trust company exclusively for the collective
investment and reinvestment of moneys contributed thereto by the bank
or trust company in its capacity as a trustee, unless all moneys contributed
thereto are held incidentally to the management of other trust assets;
and (2) whose investment portfolio consists primarily of securities,
deposits or other instruments, including but not limited to domestic
and Eurodollar certificates of deposit, U.S. Treasury bills, repurchase
agreements, commercial paper, and state and local obligations with maturities
of 13 months or less & ] However, a unit investment trust is only a covered
creditor if its investment portfolio consists primarily of securities,
deposits, or other instruments with maturities of 13 months or less—
at the time the unit investment trust acquires those assets.
(e)
Act of 1933.
"Security" means any security as defined in the Securities
(f)
"Unit investment trust" means any unit investment trust
as defined in the Investment Company Act of 1940, or a series of units
of such a trust.
SECTION 229.13— REPORTS
(a)
Each covered creditor except a unit investment trust
shall file a base report and periodic reports. The base report shall
state the amount of the covered creditor's base and shall be submitted
no later than April 1, 1980, or in the case of a covered creditor that
becomes a covered creditor after March 14, 1980, within two weeks of
acquiring or holding assets or accepting trust moneys that cause it
to become a covered creditor.
Periodic reports shall be filed monthly
for each period running from the 15th day of each calendar month to
the 14th day of the following month, or in the case of a covered creditor
that becomes a covered creditor after March 14, for each full period
after it becomes a covered creditor. These reports shall be submitted
by the 21st day of the month in which the reporting period ends, and
shall state the amount by which the average of the daily amounts of
covered credit outstanding during the reported period exceeds the base.
2/ This includes variable rate securities, deposits or other instruments
with longer nominal maturities but with interest rates subject to adjust
ment at intervals shorter than 13 months.
6-
(b) A covered creditor that is a unit investment' trust established
after March 14, 1980, shall file a base report stating the amount of
covered credit it holds. This report shall be filed immediately upon
acquisition of investment assets by the unit investment trust. Each
such covered creditor shall also notify the appropriate Federal Reserve
Bank two weeks before termination of the trust stating the projected
date of termination of the trust.
(c) All reports shall be filed with the Federal Reserve Bank
in the District where the covered creditor has its principal place of
business.
SECTION 229.14— MAINTENANCE OF SPECIAL DEPOSIT
(a) Each covered creditor that is not a unit investment trust
shall maintain a non-interest bearing special deposit equal to 15 per
cent of the amount by which the average of the daily amounts of its
covered credit outstanding during each reporting period exceeds its
base.
The corresponding period during which the special deposit shall
be maintained begins on the first Thursday of the first full calendar
month following the period for which the report was filed and ends on
the day prior to the first Thursday of the following month. The special
deposit shall be maintained at the Federal Reserve Bank to which the
covered creditor reports.
(b) Each covered creditor that is a unit investment trust
established after March 14, 1980, shall maintain a non-interest bearing
special deposit equal to 15 per cent of the covered credit it holds
as of the date it acquires investment assets. This special deposit
shall be maintained during the period beginning with the day the covered
creditor acquires assets consisting of covered credit and ending one
day prior to final distribution of trust assets by the Trustee pursuant
to the terms of the trust agreement.
The special deposit shall be maintained
at the Federal Reserve Bank to which the covered unit investment trust
reports. Upon two weeks notice, the special deposit will be returned
to the trustee one day prior to maturity or final distribution pursuant
to the terms of the trust agreement.
(c) Special deposits shall be maintained in collected funds
in the form of U.S. dollars.
SECTION 229 .15— PENALTIES
For each willful violation of this Subpart, the Board may assess
against any creditor, or officer, director or employee thereof who willfully
-7 -
participates in the violation, a maximum civil penalty of $1,000.
In
addition, a maximum criminal penalty of $1,000 and imprisonment of one
year may he imposed for willful violation of this Subpart.
Board of Governors of the Federal Reserve System, effective
March 14, 1980.
(signed)
Theodore E. Allison
Theodore E. Allison
Secretary of the Board
[SEAL]
T IT L E 1 2 — BANKS AND BANKING
CHAPTER II— FEDERAL RESERVE SYSTEM
SUBCHAPTER A— BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
(Docket No. R-0282)
Part 229— -CREDIT RESTRAINT
fSubpart C]
Nonmember Commercial Banks
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Final rule.
SUMMARY: Pursuant to the Credit control Act (12 U.S.C. §§ 1901 - 1909)
as implemented by Executive Order 12201, the Board has adopted provisions
requiring commercial banks that are not members of the Federal Reserve
System to maintain a non-interest bearing special deposit with the Federal
Reserve equal to 10 per cent of the amount by which the total of certain
managed liabilities of those banks exceeds the amount of such managed
liabilities outstanding during a base period. The purpose of this action
is to better control the expansion of bank credit and thereby serve
to dampen inflationary forces. The managed liabilities affected by
this action include the total of (1) time deposits in denominations
of $100,000 or more with original maturities of less than one year;
(2) Federal funds borrowings with original maturities of less than one
year from U.S. offices of certain depository institutions and from U.S.
government agencies; (3) repurchase agreements with original maturities
of less than one year on U.S. government and agency securities; and
(4) Eurodollar borrowings from foreign banking offices, asset sales
to related foreign offices, and foreign office loans to U.S. residents.
The special deposit requirement will not apply to borrowings from the
United States, principally in the form of Treasury tax and loan account
note balances. The 10 per cent special deposit requirement will apply
to the amount by which the daily average amount of an institution's
total managed liabilities during a deposit computation period exceeds
a base amount calculated generally as either the daily average amount
of such liabilities outstanding during the base period (February 28
to March 12, 1980) or $100 million, whichever is greater.
EFFECTIVE DATE: The special deposit requirement is effective on marginal
total managed liabilities outstanding during the seven-day computation
period beginning March 20, 1980, and each seven day period thereafter.
The non-interest bearing special deposit for the computation periods
beginning March 2Q% 27 , an<j April 3, 1980,'must be held during the deposit
maintenance period beginning April 17*, 1980. Thereafter the special
deposit must be held during the seven day maintenance period beginning
eight days after the end of the corresponding computation period.
-2 -
FOR FURTHER INFORMATION CONTACT: Gilbert T. Schwartz, Assistant General
Counsel, C. Baird Brown, Attorney, Paul S. Pilecki, Attorney, or Daniel
L. Rhoads, Attorney, Legal Division, Board of Governors of the Federal
Reserve System, Washington, D.C. 20551 (202/452-3000).
SUPPLEMENTARY INFORMATION: In accordance with the Credit Control Act
(12 U.S.C. 55 1901 - 1909) as implemented by Executive Order 12201,
the Board has adopted this Subpart to require certain borrowers consisting
of all commercial banks that are not members of the Federal Reserve
System to maintain a non-interest bearing special deposit with the Federal
Reserve System.This Subpart
does not apply to United States branches
and agencies of
foreign banks
that are
subject to the Board's marginal
reserve requirements (12 C.F.R. 5 204.5(f))* Other United States branches
and agencies of
foreign banks
are covered. The amount-of the
special
deposit to be held will be equal to 10 per cent
of theamount
by which
the daily average total of an institution's managed liabilities during
a deposit computation period exceeds a base amount. Generally, an institution's
base is the daily average amount of the institution's total managed
liabilities outstanding during the base period (February 28 to March 12,
1980) or $100 million, whichever is greater. The managed liabilities
on which the special deposit requirement will apply include the total
of (1) time deposits in denominations of $100,000 or more with original
maturities of less than one year; (2) Federal funds borrowings with
original maturities of less than one year from U.S. offices of certain
depository institutions and from U.S. government agencies; (3) repurchase
agreements with original maturities of less than one year on U.S. government
and agency securities; and (4) Eurodollar borrowings from foreign banking
offices of the same institution or of other banks, asset sales to related
foreign offices, and non-member commercial bank foreign office loans
to U.S. residents.
Time Deposits of $100,000 or More
Managed liabilities subject to the special deposit requirement
include deposits of the following types:
(a)
Time deposits of $100,000 or more with original maturities
of less than one year; and
(b)
Time deposits of $100,000 or more with original maturities
of less than one year represented by promissory notes,
acknowledgements of advance, due bills, or similar obliga
tions (written or oral) as provided in S 204.1(f) of
Regulation D; and
-3 -
(c)
Time deposits of any denomination with remaining maturities
of less than one year represented by ineligible bankers'
acceptances or obligations issued by a bank's affiliate
to the extent that the proceeds are supplied to the bank
as provided in 5 204.1(f) of Regulation 0.
Credit balances of $100,000 or more with original maturities of 30 days
or more but less than one year will also be treated as managed liabilities
subject to the special deposit requirement. Time deposits subject to
the special deposit requirement do not include savings deposits and
Christmas club-type deposits.
Federal Funds and Repurchase Agreements
Certain Federal funds borrowings and repurchase agreements
of non-member commercial banks are treated as managed liabilities subject
to the special deposit requirement. Under this approach, the amount
of borrowings with original maturities of less than one year from agencies
of the United States and other non-exempt entities (together with other
managed liabilities) that exceeds the institution's base, will be subject
to the 10 per cent special deposit requirement. The Board believes
that exempting Federal funds borrowings from institutions whose liabilities
already are subject to Federal reserve requirements from the special
deposit requirement is appropriate to facilitate the reserve adjustment
process.
Borrowings from the United States government (principally
in the form of Treasury tax and loan account note balances), however,
will not be regarded as managed liabilities subject to the special deposit
requirement. Borrowings with original maturities of less than one year
from Federal agencies and instrumentalities such as the Federal Home
Loan Bank Board and the Federal Home Loan Banks will be subject to the
special deposit requirement.
In the past, the term "bank" has been defined by the Board
to include commercial banks, savings banks, savings and loan associations,
cooperative banks, credit unions, the Export-Import Bank, and Minbanc
Capital Corporation (see 12 C.F.R. 5 217.137). Borrowings from all
such non-member institutions by non-member commercial banks will be
regarded as managed liabilities subject to the special deposit requirement.
Borrowings from domestic offices of organizations that are
required by the Board to maintain reserves will not be regarded as managed
liabilities subject to the special deposit requirement. The institutions
that currently are required to maintain reserves include member banks,
Edge Corporations engaged in the banking business (12 U.S.C. S 615),
Agreement Corporations (12 U.S.C.
601-604a), operations subsidiaries
of member banks (12 C.F.R. 5 204.117), and U.S. branches and agencies
of foreign banks with worldwide banking assets in excess of $1 billion
(12 U.S.C.
3105).
Under the Board's action, borrowings in the form of repurchase
agreements with original maturities of less than one year involving
U.S. government and agency securities also would be regarded as managed
liabilities subject to the special deposit requirement. Repurchase
agreements entered into with U.S. offices of member banks or organizations
that are required by the Board to maintain reserves with the Federal
Reserve System would not be regarded as managed liabilities subject
to the special deposit requirement. Repurchase agreements entered into
by non-member commercial banks with nonexempt entities, such as non
member banks and nonbank dealers, will not be subject to the special
deposit requirement if such transactions are intended to provide collateral
to nonexempt entities in order to engage in repurchase transactions
with the Federal Reserve System Open Market Account.
In order to continue to facilitate the activities of bank
dealers in the U.S. government and agency securities markets, and to
provide competitive equality between bank and nonbank dealers, the amendment
permits non-member commercial banks to deduct the amount of U.S. government
and agency securities held by the institution in its trading account
from the total amount of its repurchase agreements entered into in determining
the amount of its repurchase agreements subject to the special deposit
requirement. A trading account represents the U.S. government and agency
securities that are held for dealer transactions— I . e . , securities purchased
with the intention that they will be resold rather than held as an investment.
The Board expects that institutions will not reclassify U.S. government
and agency securities held in their investment or other accounts to
their trading accounts for the purpose of avoiding special deposit requirements.
Managed liabilities subject to the 10 per cent special deposit
requirement also will include any obligation that arises from a borrowing
for one business day from a dealer in securities whose liabilities are
not subject to the reserve requirements of the Federal Reserve Act of
proceeds of a transfer of deposit credit in a Federal Reserve Bank (or
other immediately available funds), received by such dealer on the date
of the loan in connection with clearance of securities transactions.
-5 '
Eurodollars
The Board also has included the Eurodollar borrowings of non
member commercial banks as managed liabilities subject to the special
deposit requirement. Consequently, the amount of Eurodollars (together
with other managed liabilities) of a bank that exceeds the institution's
base will be subject to the 10 per cent special deposit requirement.
Such Eurodollars include the institution's daily average balance of
(1) borrowings with original maturities of less than one year from foreign
offices of other banks and institutions that are exempt from interest
rate limitations pursuant to 5 217.3(g) of Regulation Q; (2) net balances
due from an institution's domestic offices to its foreign offices; (3)
liabilities of an institution's foreign branches to the extent that
the branches hold assets (including participations) acquired from its
domestic offices or has credit outstanding from the bank's foreign
offices to U.S. residents.
Computation and Maintenance of Non-Interest Bearing Special Deposits
The amount of special deposits that a bank will be required
to maintain each week will be determined by the amount by which the
total of the institution's managed liabilities during a corresponding
seven-day computation period exceeds its base of managed liabilities.
The base amount for a bank that is a net borrower of managed liabilities
is $100 million, or the daily average amount of its managed liabilities
during the fourteen-day base period ending March 12, 1980, reduced by
an adjustment for the reduction in its foreign lending from domestic
offices, whichever is greater. The adjustment for any given computation
period is based on the difference between the sum of its gross loans
to non-United States residents and gross balances due from foreign offices
of other institutions, and the lowest gross total of such lending for
any computation week beginning after March
1980. That difference
is then rounded down to the largest lower multiple of $2 million and
subtracted from the daily average of managed liabilities for the base
period. For example, if a bank has $125 million of average managed
liabilities and $40 million in gross lending to foreign borrowers and
institutions during the base period, and $35 million of gross lending
to foreign borrowers and institutions during the week beginning March 20, .
1980, its base for that computation week
would be $125 million minus$4
million = $121 million (where $4 million is derived from $40 million minus $35
million = $5 million which is rounded to$4 million). If in a later
week the gross lending to foreign borrowers and institutions rises to
$45 million, the base remains at $121 million.
If in a later week the
gross lending to foreign borrowers and institutions falls to S10 million,
the reduction would be $40 million minus $10 million = $30 million (no
rounding needed), thus the calulated base would be $125 million minus $30
million = $95 million, but the reported base amount would be $100 million,
-6 -
which is a permanent floor for the base amount. The special deposit
would be 10 per cent of the difference between its managed liabilities
for the computation week and the $100 million base.
Rounding the reduction in the base will serve to minimize
the impact of small repayments or reductions in the daily average
gross loans to non-United States residents and balances due from foreign
offices of other institutions. The reduction in such lending below
the daily average for the base period ending March 12, 1980 will only
reduce the base in increments of $2 million. This approach will enable
institutions to receive ordinary repayments of foreign loans without
being required to relend such funds immediately to avoid a reduction
in the base.
For an institution that is a net lender of managed liabilities
(that is, the sum of its managed liabilities is negative because its
net Eurodollar loans to its foreign offices are greater than the total
of its large time deposits, Federal funds purchased, repurchase agreements,
and borrowed Eurodollars), its base will be the algebraic sum of its
managed liabilities during the base period ending March 12, 1980, and
$100 million. For example, if an institution has negative $150 million
of managed liabilities during the base period, its base will be negative
$50 million, and special deposit requirements will apply to the amount
of its total managed liabilities above that amount. If such an institution
maintained a daily average of total managed liabilities during a computation
period of negative $30 million, it would be required to maintain the
10 per cent special deposit requirement against $20 million of managed
liabilities during the reserve maintenance period.
The special deposit must be maintained in collected funds
in the form of U.S. dollars. Maintenance of a special deposit does
not entitle a non-member bank to Federal Reserve services.
Restraint on growth in money and credit must be a fundamental
part of the process of subduing inflationary forces. Growth in bank
credit in recent months has been excessive. Therefore, the Board has
adopted this special deposit requirement based on managed liabilities
issued by nonmember banks. This requirement will impose restraint on
the sources of funds that banks typically have used to finance the expansion
of bank credit. The nonmember bank special deposit requirement complements
the additional restraint the Board has imposed on similar liabilities
of member banks. In the absence of this constraint, nonmember banks
could continue to extend credit with few limitations. Borrowers that
could not be accommodated at a member bank could turn to a nonmember
bank, thereby undermining restraint on bank credit. Containing the
growth of bank credit financed in large part by managed liabilities
at nonmember banks will thus contribute to dampening inflationary forces.
-7 -
These actions are being taken to help curb the expansion of
bank credit, thereby dampening inflationary pressures. The Board believes
that it is in the national interest to achieve this objective as quickly
as possible, and that publication of this rule for comment or any delay
in its effective date would lead to rapid increases in extensions of
credit that would not be subject to the regulation and would frustrate
its purpose. The Board therefore finds for good cause that the
notice, public procedure, and deferral of effective date provisions
of 5 U.S.C. 5 553(b) with regard to these actions are impracticable
and contrary to the public interest.
Pursuant to its authority under the Credit Control Act (12
U.S.C. <)§ 1901 - 1909) the Board hereby adopts Subpart C of its regulation
regarding Credit Restraint (12 C.P.R.
229) effective March 14, 1980,
1980, as follows:
SECTION 229.21— AUTHORITY, PURPOSE, AND SCOPE
(a) Authority. This Subpart is issued by the Board of Governors
of the Federal Reserve System pursuant to the Credit Control Act (12
U.S.C. 55 1901 - 1909), as implemented by Executive Order 12201.
(b) Purpose and Scope. This Subpart is intended to curb
inflation by controlling the expansion of credit extended by commercial
banks that are not members of the Federal Reserve System that is supported
by extensions of credit to those banks in the form of managed liabilities.
SECTION 229.22— DEFINITIONS
(a) For the purposes of this Subpart, the terms "credit,"
and "extension of credit" shall have the meanings given them in the
Credit Control Act. In addition, the following definitions apply.
(b) "Covered bank" means any commercial bank that is not
a member of the Federal Reserve System, or required to maintain reserves
under the Federal Reserve Act.
(c) "Member bank" means any bank that is a member of the
Federal Reserve System.
SECTION 229.23— REPORTS
Each covered bank shall file with the Federal Reserve Bank
for the Federal Reserve district in which its head office is located
such reports as shall be required in connection with the maintenance
of a special deposit under this Subpart.
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SECTION 2 2 9 . 2 4 — MAINTENANCE OF SPECIAL D EPOSIT
(a)
During the seven-day deposit maintenance period beginning
April 17% 1980, each covered bank shall maintain a non-interest bearing
special deposit equal to 10 per cent of the sum of the amounts by which
the daily average of its total managed liabilities during each of the
seven-day computation periods beginning March 20, 27, and April 3 exceeds
its managed liabilities base as determined in accordance with paragraph (b).
During the seven-day deposit maintenance period beginning April 24',
1980, and each deposit maintenance period thereafter, each covered bank
shall maintain a non-interest bearing special deposit equal to 10 per
cent of the amount by which the daily average of its total managed liabilities
during the seven-day computation period ending eight days prior to the
beginning of the corresponding seven-day deposit maintenance period
exceeds its managed liabilities base as determined in accordance with
paragraph (b). A covered bank's managed liabilities are the total of
the following:
(1)(A) time deposits of $100,000 or more with original
maturities of less than one year;
(B) time deposits of $100,000 or more with original
maturities of less than one year representing borrowings in
the form of promissory notes, acknowledgments of advance,
due bills, or similar obligations as provided in §.204.1(f)
of Regulation D; and
(C) time deposits with remaining maturities of less
than one year represented by ineligible bankers' acceptances
or obligations issued by a bank's affiliate, as provided in
§ 204.1(f) of Regulation D. However, managed liabilities
do not include savings deposits, or time deposits, open account
that constitute deposits of individuals, such as Christmas
club accounts and vacation club accounts that are made under
written contracts providing that no withdrawal shall be made
until a certain number of periodic deposits have been made
during a period of not less than three months;
(2)
any obligation with an original maturity of less
than one year that is issued or undertaken as a means of obtain
ing funds to be used in its banking business in the form of
a promissory note, acknowledgment of advance, due bill, ineligible
bankers' acceptance, repurchase agreement (except on a U.S.
or agency security), or similar obligation (written or oral)
issued to^and held for the account of a domestic banking office
or agency-' of another commercial bank or trust company that
is not required to maintain reserves pursuant to Regulation D,
a savings bank (mutual or stock), a building or savings and
1/ Any banking office or agency in any State of the United States or
law D ^str*c*
Columbia of a bank organized under domestic or foreign
-9 loan association, a cooperative bank, a credit union, or an
agency of the United States, the Export-Import Bank of the
United States, Minbanc Capital Corporation and the Government
Development Bank for Puerto Rico;
(3)
any obligation with an original maturity of less
than one year that is issued or undertaken as a means of obtain
ing funds to be used in its banking business in the form of
a repurchase agreement arising from a transfer of direct obliga
tions of, or obligations that are fully guaranteed as to principal
and interest by, the United States or any agency thereof that
the institution is obligated to repurchase except repurchase
agreements issued to a domestic banking office or agency of
a member bank, or other organization that is required to maintain
reserves under Regulation D pursuant to the Federal Reserve
Act,-' to the extent that the amount of such repurchase agreements
exceeds the total amount of United States and agency securities
held by the covered bank in its trading account;
(4) any obligation that arises from a borrowing by a
covered bank from a dealer in securities that is not a member
bank or other organization that is required to maintain reserves
pursuant to Regulation D,-' for one business day, of
proceeds of a transfer of deposit credit in a Federal Reserve
Bank (or other immediately available funds ) , received by such
dealer on the date of the loan in connection with clearance
of securities transactions;
(5) borrowings with an original maturity of less than
one year from foreign offices of other banks and from institu
tions that are exempt from interest rate limitations pursuant
to $ 217.3(g) of Regulation Q;
(6) net balances due from the covered bank's domestic
offices to its foreign branches;
(7) liabilities of a foreign branch of the covered bank
to the extent that the foreign branch holds assets (including
participations) acquired from the covered bank's domestic
offices; and
2/ Edge Corporations engaged in banking, Agreement Corporations, operations
subsidiaries of member banks and U.S. branches and agencies of foreign
banks with worldwide banking assets in excess of $1 billion.
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(8)
liabilities of a foreign branch of the covered bank
to the extent that it has credit outstanding from its foreign
branches to U.S. residents^ (other than assets acquired and
net balances due from its domestic offices). Provided, That
this paragraph does not apply to credit extended (1) in'the
aggregate amount of $100,000 or less to any United States
resident, (2) by a foreign branch which at no time during
the computation period had credit outstanding to United States
residents exceeding $1 million, (3) under binding commitments
entered into before May 17, 1973, or (4) to an institution
that will be maintaining reserves on such credit under paragraphs (c)
or (f) of section 204.5 of Regulation D or under Regulation R.
(b)
Managed liabilities base. During the seven-day deposit
computation period beginning March 20, 1980, and during each seven-day
deposit computation period thereafter, the managed liabilities base
of a covered bank shall be determined as follows:
(1)
For a covered bank that, on a daily average basis,
is a net borrower of total managed liabilities during the
fourteen-day base period ending March 12, 1980, its managed
liabilities base shall be the daily average of its total managed
liabilities during the base period reduced by the amount by __
which its lowest^daily average of gross loans to non-United
States residents-' and .gross balances due from foreign offices
of other institutions-^ or institutions the time deposits
of which are exempt from the rate limitations of Regulation Q
pursuant to S 217.3(g) thereof-^ outstanding during any computation
period after March 12, 1980, is lower than the daily average
amount of such loans and balances outstanding during the base
period. The amount of the reduction shall be rounded down
to the largest lower multiple of $2 million.
3/ A United States resident is:
(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 ("domestic 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).
4/ Any banking office located outside the States of the United States
and the District of Columbia of a bank organized under domestic or foreign
law.
5/ A foreign central bank, or any international organization, of which
the United States is a member, such as the International Bank for Reconstruc
tion and Development (World Bank), International Monetary Fund, InterAmerican Development Bank, and other foreign international, or supranational
entities exempt from interest rate limitations under 3 217.3(g)(3) of
Regulation Q (12 C.F.R.
217.3(g)(3)).
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However, in no event will the managed liabilities base
for a covered bank that was a net borrower of managed liabilities
during the fourteen-day base period ending March 12, 1980,
be less than $100 million.
(2)
For a covered bank that, on a daily average basis,
is a net lender of total managed liabilities during the fourteenday base period ending March 12, 1980, its managed liabilities
base shall be the sum of its daily average negative total
managed liabilities and $100 million.
(c)
The special deposit shall be maintained at the Federal
Reserve Bank to which the covered bank reports. The special deposit
must be maintained in collected funds in the form of U.S. dollars.
SECTION 229.25— PENALTIES
For each willful violation of this Part, the Board may assess
against any creditor, or officer, director or employee thereof who willfully
participates in the violation, a maximum civil penalty of $1,000. In
addition, a maximum criminal penalty of $1,000 and imprisonment of one
year may be imposed for willful violation of this Part.
Board of Governors of the Federal Reserve System, effective
March 14, 1980.
(Signed)
Theodore E. Allison
Theodore E. Allison
Secretary of the Board
[SEAL]
@FedFRASER