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F ederal
reserve
Ba n k
DALLAS, TEXAS
of
Dallas
75222
Circular No. 83-23
February 17, 1983
INELIGIBLE BANKERS’ ACCEPTANCES
PROPOSED RULEMAKING
RULES REGARDING DELEGATION OF AUTHORITY
FINAL RULE
TO ALL MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Board of Governors of the Federal Reserve System has published
for comment several proposals regarding bankers’ acceptances in connection with
the recently enacted Bank Export Services Act (BESA). The proposals include
three clarifications of its rules affecting eligible bankers’ acceptances and the
placement of reserve requirements on all ineligible acceptances. This would
involve changes to Regulation D (Reserve Requirements of Depository Institutions).
In order to facilitate implementation of the new act, the Board has
delegated to the Federal Reserve Banks the authority to grant permission to
member banks to create certain bankers’ acceptances of up to 200 percent of
capital stock and surplus.
Interested parties are invited to submit comments concerning the
proposed rule changes to William W. Wiles, Secretary, Board of Governors of
the Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, D.C., 20551. Comments should refer to Docket Number R-0453
(Bankers’ Acceptances) or Docket Number R-0451 (Regulation D) and must be
received by March 18, 1983.
Attached are copies of the Board's press release and the material
submitted for publication in the Federal Register.
Questions regarding the
material contained in this circular should be directed to Mike Broker in the Legal
Department, Extension 6228.
Additional copies of this circular will be furnished upon request to the
Public Affairs Department, Extention 6289.
Sincerely yours,
William H. Wallace
First Vice President
Banks and others are encouraged to use the following incoming W A T S numbers in contacting this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (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)
FEDERALRESERVEpressrelease
For immediate release
February 1, 1983
The Federal Reserve Board today published for comment several
proposals regarding bankers’ acceptances in connection with the recently
enacted Bank Export Services Act (BESA).
The Board asked for comment on its proposals by March 18, 1983.
The Board's actions implement provisions of the BESA that raise
the limit on issuance by member banks without prior approval of "eligible"—
bankers’ acceptances from 50 to 150 percent of paid-in capital and surplus;
authorize the Federal Reserve to permit a member bank to issue eligible
acceptances up to an aggregate of 200 percent of paid-in capital and surplus,
and apply these new limitations also to U.S. branches and agencies of foreign
banks, but not to nonmember domestic banks.
In connection with the new legislation, the Board requested comment on
three clarifications of its rules affecting eligible bankers' acceptances.
2/
Board also proposes to place reserve requirements on all ineligible-
The
acceptances
To facilitate implementation of the new act, the Board approved
delegation to the Reserve Banks of authority to permit issuance by member
banks, and by U.S. branches and agencies of large foreign banks, of
eligible acceptances up to 200 percent of their paid-in capital and surplus.
In considering requests to permit institutions to issue acceptances up to this
limit, the Reserve Banks will take into account factors related to the
institution's capital position, financial condition and management quality.
— Banker's acceptances are eligible for exclusion from Federal reserve
requirements if they meet criteria in Section 13 of the Federal Reserve
Act including requirements that the acceptance (1) grows out of a trade
transaction involving exporting, importing or domestic shipment and
storage of goods and (2) has a maturity of less than six months.
— Not meeting the above noted criteria.
(OVER)
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The principal elements of the Board’s proposals are:
1.
Participations
Participations in eligible acceptances purchased by a member bank
or a U.S. branch or agency of a foreign bank are to be included in the buyer’s
limit of acceptances, while those sold to nonmember banks remain part of
the limit of acceptances applicable to the selling member bank or U.S. branch
or agency.
2.
Domestic transactions
Eligible acceptances growing out of domestic transactions may not
exceed 50 percent of the maximum amount of eligible acceptances that an
institution may issue, rather than 50 percent of its acceptances outstanding
at any one time.
3.
Capital of U.S. branches and agencies
This is to be determined and reported following procedures for
reporting to the Board under the Board’s Regulation Y (Report FR Y-7).
4.
Agented acceptances
Under the Board’s Regulation D (Reserve Requirements of Depository
Institutions) ineligible
bankers’ acceptances currently are subject to reserve
requirements if and only if they are created, discounted and sold by the same
depository institution.
A market is developing in which, to avoid reserve
requirements, such acceptances are created by one bank and discounted and sold
by another bank or dealer (known as "agented" acceptances).
To limit the growth of this reserve avoidance the Board proposed that
all ineligible bankers' acceptances issued by a depository institution be made
subject to reserve requirements under Regulation D, even though the issuing
institution does not discount and resell the ineligible acceptance.
The Board’s delegation of authority and its proposals are set forth
in the attached notices of its actions.
Attachments
FEDERAL RESERVE SYSTEM
[12 CFR Part 250]
[Docket No. R-0453]
MISCELLANEOUS INTERPRETATIONS
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Proposed rulemaking.
SUMMARY: The Board is proposing to clarify the meaning of the seventh
paragraph of section 13 of the Federal Reserve Act as amended by the Bank
Export Services Act (Title II of Pub. L. 97-290).
DATES:
Comments must be received by March 18, 1983.
ADDRESS:
Interested parties are invited to submit written data, views,
or arguments concerning the proposed rule to William W. Wiles, Secretary,
Board of Governors of the Federal Reserve System, 20th Street and
Constitution Avenue, N. W . , Washington, D. C. 20551, or such comments may
be delivered to room B-2223 between 8:45 a.m. and 5:15 p.m. Comments may
be inspected in room B-1122 between 8:45 a.m. and 5:15 p.m., except as
provided in section 261.6(a) of the Board's Rules Regarding Availability
of Information (12 CFR 261.6(a)).
FOR FURTHER INFORMATION CONTACT: Gilbert T. Schwartz, Associate General
Counsel (202/452-3625), or Robert G. Ballen, Attorney (202/452-3265),
Legal Division, Board of Governors of the Federal Reserve System,
Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION:
Section 207 of the Bank Export Services Act
(Title II of Pub. L. 97-290) ("BESA") provides that a member bank or a
Federal or State branch or agency in the United States whose parent
foreign bank has, or is controlled by a foreign company or companies that
have, more than $1 billion in total worldwide consolidated bank assets,
may accept drafts or bills of exchange drawn
upon it of the
type
described in that section in the aggregate up to 150 per cent of
its paid
up and unimpaired capital stock and surplus and, with the permission of
the Board, up to 200 per cent of its paid up and unimpaired capital stock
and surplus (12 U.S.C. § 372).
The Board is proposing to clarify themeaning of the
seventh
paragraph of section 13 of the Federal Reserve
Act, as amended
by the
BESA. This clarification would cover the treatment of (1) participations
in BAs that are issued by institutions subject to the limitations of the
BESA and sold to institutions not subject to such limitations, (2)
participations in BAs that are issued by institutions not subject to the
limitations of the BESA and sold to institutions subject to such
limitations, (3) the limitation on BAs growing out of domestic
transactions, and (4) the dollar equivalent of the paid up capital and
surplus of the foreign bank parent of U. S. branches and agencies subject
to the limitations of the BESA.
The impact of this proposal on small entities has been
considered in accordance with section 603 of the Regulatory Flexibility
Act (Pub. L. 96-354; 5 U.S.C. § 603). The Board's proposal will assist
in assuring that small member banks that are covered by the limitations
on the amount of acceptances they may issue will be able to take
advantage of the increased limits of the BESA. Further, small nonmember
banks should not be affected by the proposal since they typically do not
issue bankers' acceptances.
No new recordkeeping or reporting
requirements will be imposed as a result of this action.
List of Subjects in 12 CFR Part 250
Federal Reserve System.
Pursuant to its authority under the seventh paragraph of
section 13 of the Federal Reserve Act (12 U.S.C. § 372), the Board of
Governors
proposes
to amend
12
CFR
Part 250— Miscellaneous
Interpretations, by adding a new section 250.164 to read as follows:
§ 250.164— Bankers' acceptances
(a)
Section 207 of the Bank Export Services Act (Title II of
Pub. L. 97-290) ("BESA") raised the limits on the aggregate amount of
eligible bankers' acceptances ("BAs") that may be issued by an individual
member bank from 50 per cent (or 100 per cent with the permission of the
Board) of its paid up and unimpaired capital stock and surplus
("capital") to 150 per cent (or 200 per cent with the permission of the
Board) of its capital. This section of the BESA applies the same limits
applicable
to member banks to U. S. branches and agencies of foreign
banks that are subject to reserve requirements under section 7 of the
International Banking Act of 1978 (12 U.S.C. 3105). The Board is issuing
this rule as to the proper meaning of the seventh paragraph of section 13
of the Federal Reserve Act, as amended by the BESA.
(b)(1) This section of the BESA provides that any portion of an
eligible BA that is issued by an institution subject to the BA
limitations contained therein ("covered bank") shall not be included in
the calculation of the issuer's limits if it is sold through a
participation agreement to another covered bank.
The participation is to
be applied to the limitations applicable to the covered bank purchasing
the participation.
Although a covered bank that has reached its 150 or
200 per cent limit can continue to create eligible acceptances by selling
participations to other covered banks, Congress has in effect imposed an
aggregate limit on the eligible acceptances that may be issued by all
covered banks equal to the sum of 150 or 200 per cent of the capital of
all covered banks.
(2) The Board has clarified that under the statute an eligible
BA issued by a covered bank that is sold through a participation
agreement to an institution that is not subject to the limitations of
this section of the BESA continues to be included in the limitations
applicable to the issuing covered bank.
However, given that Edge
Corporations, like covered banks, are subject to separate per customer
and aggregate BA limits imposed by Federal statute or regulation, a
participation in an eligible BA issued by a covered institution that is
sold to an Edge Corporation should be included in the limits applicable
to the Edge Corporation and not included in the limits applicable to the
creating covered bank.
This will ensure that the total amount of
eligible BAs that may be issued by covered banks does not exceed the 150
or 200 per cent of capital limitations established by Congress.
In
addition, this ensures that participations in acceptances are not used as
a device for the avoidance of reserve requirements.
(3)
In addition, a participation purchased by a covered bank
from an institution not covered by the limitations of the Act is to be
included in the limitations applicable to the purchasing covered bank.
Subjecting participations in acceptances issued by institutions not
covered by the Act that are purchased by a covered bank to the purchasing
covered bank's acceptance limitations is* based upon the language of the
statute which includes within the institution's limits on eligible
bankers* acceptances outstanding, the amount of participations purchased
by the institution. This provision reflects Congressional intent that a
covered bank not be obligated on eligible bankers' acceptances, and
participations therein, for an amount in excess of 150 or 200 per cent of
the institution's capital.
(c) The statute also provides that eligible acceptances growing
out of domestic transactions are not to exceed 50 per cent of the
aggregate of all acceptances authorized for covered banks. The Board has
clarified that this 50 per cent limitation is applicable to the maximum
permissible amount of eligible BAs (150 or 200 per cent of capital) ,
regardless of the bank's amount of eligible acceptances outstanding.
The
statutory language prior to the BESA amendment made clear that covered
banks could issue eligible acceptances growing out of domestic
transactions up to 50 per cent of the amount of the total permissible
eligible acceptances the bank could issue.
The legislative history of
the BESA indicates no intent to change this domestic acceptance
limitation.
(d)
The statute also provides that for the purpose of the
limitations that apply to U. S. branches and agencies of foreign banks, a
branch's or agency's capital is to be calculated as the dollar equivalent
of the capital stock and surplus of the parent foreign bank as determined
by the Board. The Board has clarified that for purposes of calculating
the BA limits applicable to U. S. branches and agencies of foreign banks,
the identity of the parent foreign bank is the same as for reserve
requirement purposes.
Accordingly, the parent of a U. S. branch or
agency would be the bank entity that owns the branch or agency most
directly.
The Board has also clarified that the procedures currently
used for purposes of reporting to the Board on the Annual Report of
Foreign Banking Organizations, Form F.R. Y-7, are also to be used in the
calculation of the acceptance limits applicable to U. S. branches and
agencies of foreign banks.
The F.R. Y-7 generally requires financial
statements prepared in accordance with local accounting practices and an
explanation of the accounting terminology and the major features of the
accounting standards used in the preparation of the financial
statements.
Conversions to the dollar equivalent of the worldwide
capital of the foreign bank should be made periodically.
In this regard,
the Board notes the need to be flexible in dealing with the effect of
foreign exchange rate fluctuations on the calculation of the worldwide
capital of the parent foreign bank.
The Board believes that these
procedures should minimize reporting and calculation burdens for U. S.
branches and agencies of foreign banks that are subject to the
limitations of this section of the BESA.
*
*
*
*
*
By order of the Board of Governors, February 1, 1983.
(signed) William W. Wiles
William W, Wiles
Secretary of the Board
[SEAL]
FEDERAL RESERVE SYSTEM
REGULATION D
12 CFR Part 204
[Docket No. R-0451]
RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
Ineligible Bankers' Acceptances
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Proposed rulemaking.
SUMMARY:
Under the Board's current Regulation D— Reserve Requirements of
Depository Institutions (12 CFR Part 204), a bankers' acceptance ("BA") that
does not meet the criteria of section 13 of the Federal Reserve Act
("ineligible BA") is regarded as a reservable deposit only if it is created,
discounted, and sold by the same depository institution.
In order to avoid
reserve requirements, some banks have recently entered into arrangements
with brokers and other third parties that provide for the issuance of an
ineligible BA by the bank and the subsequent discount and/or resale by a
third party.
To prevent the use of this device as a means of avoiding
reserve requirements, the Board proposes to amend Regulation D such that the
creation of an ineligible BA results in a reservable liability regardless of
whether the depository institution that creates the BA subsequently
discounts and/or sells it.
DATES:
Comments must be received by March 18, 1983.
ADDRESS:
Interested parties are invited to submit written data, views, or
arguments concerning the proposed rule to William W. Wiles, Secretary, Board
of Governors of the Federal Reserve System, 20th Street and Constitution
Avenue, N.W., Washington, D. C. 20551, or such comments may be delivered to
room B-2223 between 8:45 a.m. and 5:15 p.m.
Comments may be inspected in
room B-1122 between 8:45 a.m. and 5:15 p.m., except as provided in section
261.6(a) of the Board's Rules Regarding Availability of Information (12 CFR
261.6 (a)) .
FOR FURTHER INFORMATION CONTACT:
Gilbert T. Schwartz, Associate General
Counsel (202/452-3625); Paul S. Pilecki, Senior Attorney (202/452-3281); or
Robert G. Ballen, Attorney (202/452-3265) , Legal Division, Board of
Governors of the Federal Reserve System, Washington, D.C. 20551.
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SUPPLEMENTARY INFORMATION:
Section 19(a) of the Federal Reserve Act
authorizes the Board to determine what types of obligations are reservable
deposits (12 USC § 461(a)).
In addition, section 19(a) grants the Board
authority to prescribe regulations necessary to prevent evasions of reserve
requirements.
Regulation D currently regards an ineligible BA as a reservable
deposit only if it is created, discounted, and sold by the same depository
institution.
Some banks have recently entered into agented BA arrangements
with brokers and other third parties that provide for the issuance of an
ineligible BA by the bank and the subsequent discount and/or resale by the
third party. Since the bank issuing the BA did not discount and resell the
acceptance, currently it is not required to maintain reserves against the
BA. Similarly, the third party depository institution that discounts and/or
resells the BA pursuant to such an arrangement would not be subject to
reserve requirements on the transaction since it did not issue the BA. The
Board believes that these arrangements serve only as a device to avoid
reserve requirements under Regulation D.
In order to prevent reserve
requirement evasion, the Board proposes to amend Regulation D such that the
creation of an ineligible BA results in a reservable deposit regardless of
whether the depository institution that creates the BA subsequently
discounts and/or sells it. The Board notes that where the party discounting
or selling the BA is not the same institution that created the BA, it is in
many cases difficult, if not impossible, to determine whether the discount
and sale of the BA have occurred pursuant to a prearranged agented BA
transaction.
Commenters may also wish to address whether reserve
requirements should be applied only to agented BA transactions and how such
agented arrangements may be identified— in addition to comments on other
aspects of the proposal.
It should be noted that under the proposal reserve requirements
would not apply to an ineligible BA that the issuing institution itself
discounts and holds since under current practices, such acceptances are not
regarded as acceptances outstanding. Further, due to equity considerations,
the Board proposes that this amendment not apply to outstanding ineligible
BAs that were created prior to the announcement of the proposed amendment.
Depository institutions would be on notice that under the proposal all
ineligible BAs created after the date of the announcement would be subject
to reserve requirements even if the creating institution did not itself
discount and sell the acceptance.
Comments on this proposed amendment must
be received by March 18, 1983.
The impact of this proposal on small entities has been considered
in accordance with section 603 of the Regulatory Flexibility Act (Pub. L.
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11
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96-354; 5 USC § 603).
Section 411 of the Garn-St Germain Depository
Institutions Act of 1982 (Pub. L. 97-320; 96 Stat. 1520) provides for an
exemption from reserve requirements for the first $2.1 million in reservable
liabilities at all depository institutions.
The Board believes that its
proposed action would not add any reserve requirement burden to small
depository institutions that have zero reserve requirements as a result of
section 411 of the Garn-St Germain Act.
In addition, small entities
typically do not issue ineligible BAs.
No new recordkeeping or reporting
requirements will be imposed as a result of this action.
List of Subjects in 12 CFR Part 204
Banks, banking;
Reporting Requirements.
Currency;
Federal
Reserve
System;
Penalties;
Pursuant to its authority under section 19(a) of the Federal
Reserve Act (12 USC § 461(a)), the Board proposes to amend section 204.2 of
Regulation D
(12
CFR
Part
204)
by
redesignating
existing
subparagraph (a)(1)(vii) as (a)(1)(viii); by removing the words "banker's
acceptance,", by adding the word "or" at the end of subparagraph (C) , by
changing the semi-colon at the end of subparagraph (D) to a period, by
removing the word "or" at the end of subparagraph (D) , and by removing
subparagraph (E) from subparagraph (a)(1) (viii); and by adding a new
subparagraph (a)(1)(vii) to read as follows:
SECTION 204.2 —
*
(a) (1)
*
*
*
*
DEFINITIONS
*
*
*
(vii)
any liability of a depository institution that arises
from the creation after January 31, 1983, of a bankers' acceptance that is
not of the type described in paragraph 7 of section 13 of the Federal
Reserve Act (12 U.S.C. 372); or
*
*
*
*
*
By order of the Board of Governors, February 1, 1983.
(signed) William W. Wiles
William W. Wiles
Secretary of the Board
[SEAL]
FEDERAL RESERVE SYSTEM
[12 CFR Part 265]
[Docket No. R-0452]
RULES REGARDING DELEGATION OF AUTHORITY
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Final rule.
SUMMARY:
In order to expedite and facilitate the performance of certain
of its functions, the Board of Governors has delegated to the Federal
Reserve Banks the authority to grant permission to member banks and
certain United States branches and agencies of foreign banks to create
bankers' acceptances of the type described in 12 U.S.C. § 372 up to 200
per cent of capital stock and surplus. The Board has specified certain
factors the Reserve Banks should take into account in considering
requests for such permission.
EFFECTIVE DATE:
February 1, 1983.
FOR FURTHER INFORMATION CONTACT:
Gilbert T. Schwartz, Associate General
Counsel (202/452-3625), or Robert G. Ballen, Attorney (202/452-3265),
Legal Division, Board of Governors of the Federal Reserve System,
Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION: Section 207 of the Bank Export Services Act
(Title II of Pub. L. 97-290) ("BESA") provides that a member bank or a
Federal or State branch or agency in the United States whose parent
foreign bank has, or is controlled by a foreign company or companies that
have, more than $1 billion in total worldwide consolidated bank assets,
may accept drafts or bills of exchange drawn upon it of the type
described in that section in the aggregate up to 150 per cent of its paid
up and unimpaired capital stock and surplus and, with the permission of
the Board, up to 200 per cent of
its
paidupand unimpaired capital stock
and surplus (12 U.S.C. § 372).
The Board has amended its Rules Regarding Delegation of
Authority to authorize the Federal Reserve Banks to grant permission to a
member bank or a U. S. branch or agency of the type described above to
accept drafts or bills of exchange of the type described in 12 U.S.C.
§ 372 in an aggregate amount up to 200 per cent of its capital and
surplus.
(For purposes of considering applications from U. S. branches
and agencies of foreign banks, the identity of the parent foreign bank is
the same as for reserve requirement purposes. Accordingly, the parent of
the U. S. branch or agency would be the bank entity that owns the branch
or agency most directly.)
The Reserve Banks may grant such permission
after giving consideration to the institution's capitalization in
relation to the character and condition of its assets, liabilities and
other corporate responsibilities, including the volume of its risk assets
and of its marginal and inferior quality assets, all considered in
relation to the strength of its management.
Reserve Banks are not to consider a request for permission to
accept such drafts or bills of exchange up to 200 per cent of capital and
surplus unless the institution requesting such permission plans to make
use of it in the reasonably near future, which generally would be no more
than twelve months. The Board reserves the right to withdraw such
permission if changes in circumstances warrant.
In addition, Reserve
Banks should use the occasion of the consideration of requests for
permission to accept bankers' acceptances up to 200 per cent of capital
to encourage banks to increase their capital.
In this connection, the Board determined that Reserve Banks
should consider the following factors in evaluating requests for
permission to create bankers' acceptances of the type described in
12 U.S.C. § 372 up to 200 per cent of capital and surplus:
1)
The reasons why the expanded authority is being
requested, including a quantification of the
extent to which the general authority in
section 13 of the Federal Reserve Act has been
used to date (including the type, tenor and
general quality of acceptances issued by the
Applicant and participations purchased by the
Applicant that are currently outstanding) and
Applicant's plans for implementation of the
expanded acceptance authority over time.
2)
An assessment of the financial condition of the
Applicant, including an evaluation of the
Applicant's capital position in relation to the
character and conditions of its assets and to its
deposit liabilities and other corporate
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14
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responsibilities, including the volume of its
risk assets and of its marginal and inferior
quality assets.
3)
Projected growth and sources of capital of the
Applicant over the next 12 months.
4)
An assessment of management strengths and
weaknesses of the Applicant.
The provisions of sections 553 and 604 of Title 5, United States
Code, relating to notice, public participation, deferred effective date,
and regulatory flexibility analysis are not followed in connection with
these matters because the delegation is procedural in nature.
List of Subjects in 12 .CFR Part 265
Authority delegations (Government agencies); Banks, banking;
Federal Reserve System.
paragraph
and 372),
Authority
paragraph
Pursuant to its authority under section 11(k) and the seventh
of section 13 of the Federal Reserve Act (12 U.S.C. §§ 248 (k)
the Board of Governors amends its Rules Regarding Delegation of
(12 CFR Part 265) effective February 1, 1983, by revising
(f) of section 265.2 to read as follows:
SECTION 265.2 —
SPECIFIC FUNCTIONS DELEGATED TO BOARD
EMPLOYEES AND TO FEDERAL RESERVE BANKS
*
(f)
*
*
*
*
* * *
(6)
Under the provisions of the seventh paragraph of
section 13 of the Federal Reserve Act (12 U.S.C. 372) , to permit a member
bank or a Federal or State branch or agency of a foreign bank that is
subject to reserve requirements under section 7 of the International
Banking Act of 1978 (12 U.S.C. 3105) to accept drafts or bills of
exchange in an aggregate amount at any one time up to 200 per cent of its
paid up and unimpaired capital stock and surplus, if the Reserve Bank is
satisfied that such permission is warranted after giving consideration to
the institution's capitalization in relation to the character and
condition of its assets and to its deposit liabilities and other
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15
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corporate responsibilities, including the volume of its risk assets and
of its marginal and inferior quality assets, all considered in relation
to the strength of its management.
*
*
*
*
*
By order of the Board of Governors, February 1, 1983
(signed) William W. Wiles
William W. Wiles
Secretary of the Board
[SEAL]
