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F ederal R eserve Ba n k o f Dallas DALLAS. TEXAS 7S222 C ir c u la r No. 78-123 August 30, 1978 ELIM INATION OF RESERVE REQUIREMENTS ON EURODOLLAR BORROWINGS T O A LL MEMBER BANKS IN THE ELEVENTH FEDERAL RESERVE D IS T R IC T: T h e re is quoted below the text of a press release issued on August 28, 1978 by the Board of Governors of the Federal Reserve System announcing the elimination of reserve requirem ents on Eurodollar b orrow in gs. T h e amendment is effective on b o r rowings d u rin g the fo u r-w e e k computation period that began August 24, 1978, and w ill affect reserves re q u ire d to be maintained beginning October 5, 1978. In a fu r th e r move to improve the international position of the d o lla r, the Federal Reserve Board today announced a change in reserve r e q u ir e ments to make it more attractive for member banks to borrow funds in the Eurodollar m arket. T h e change was the second move announced b y the Board w ithin the past 10 days to improve conditions in the foreign exchange m arkets. On August 18, the Board announced an increase in the discount rate from 7 1 /4 to 7 3 /4 percent in view of d is o rd e rly conditions that p revailed e a r lie r this month in foreign exchange markets as w ell as the continuing serious domestic inflatio nary problem . Today's action involves a reduction from 4 percent to zero in the r e serve requirem ent on foreign borrow ings of member banks, p rim a rily Euro dollars, from th e ir foreign branches and other foreign banks. T h e 1 percent reserve ratio on foreign branch loans to U . S . borrow ers was also reduced to zero. Also affected by today's decision a re U . S . offices of foreign-ow ned banking institutions that have v o lu n ta rily maintained reserves on in creases in net foreign borrow in gs since m id-1973. T h e effect of the reserve reduction is intended to encourage mem b e r banks to substitute Eurodollar borrow ings for domestic borrow ings as a source of fu nds. Such increased E urodollar borrow ings should im prove the demand in Euromarkets for dollar-denom inated assets. Banks and others are encouraged to use the fo llo w in g incom ing WATS numbers in contacting this Bank: 1-800-492-4403 (intrastate) and 1-800-527-4970 (interstate). For calls placed locally, please use 651 plus the extension referred to above. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) - 2 - In taking the action, the Board reemphasized the importance of U .S . banks complying w ith its previous requests not to solicit o r encourage deposits by U .S . residents at th eir foreign branches unless such d e posits serve a definite international purpose. T h e reduction in reserve requirem ents w ill be effective with b o rro w ings d u rin g the fo u r-w e e k computation period that began August 24. A p p ro p ria te amendments to Regulations D and M, suitable for insertion in your Regulations B in d e r, w ill be forw arded to you in the near fu tu re . If you have any questions reg arding this change in reserve requirem ents, please contact A llan Y . Neale (E xt. 6334) at the Head Office, or the Manager of the Accounting Department at our El Paso Branch (9 1 5 /5 4 4 -4 7 3 0 ), Houston Branch (7 1 3 /6 5 9 -4 4 3 3 ), or our San Antonio Branch (512/224-2141) . S in ce re ly yo u rs , Robert H . Boykin First Vice President
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