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Circular N o . 2 7

FED ER AL R ESER VE

Series of 1922

BANK

OF D A L L A S

December 23, 1922.

P E N A L T I E S F O R D E F I C I E N C IE S IN R E S E R V E S O F M E M B E R B A N K S

To the Member Bank Addressed:
This circular supersedes all previous circulars governing the assessment of penalties
to cover deficiencies in member banks ’ reserves.
Unless otherwise stated, the term “ Federal Reserve Bank of Dallas” includes the
El Paso and Houston branches.
Effective January 1, 1923, penalties will be assessed covering deficiencies in member
banks’ reserves on the following basis:
Deficiencies in reserve balances of member banks in reserve cities will be com­
puted on the basis of average daily net deposit balances covering a weekly period of
seven days commencing with Thursday and ending with the Wednesday following.
Deficiencies in reserve balances of member banks outside of reserve cities will be com­
puted on the basis of average daily net deposit balances covering a semi-monthly
period.
Penalties for deficiencies in reserves will be assessed monthly on the basis of
average daily deficiencies during each of the reserve computation periods ending in
the preceding month.
A basic rate of 2% per annum above the Federal Reserve Bank discount rate
on ninety-day commercial paper will be assessed as a penalty on deficiencies in
reserves of member banks.
When a member bank in a reserve city has had an average deficiency in reserves
for six consecutive weekly periods, a progressive penalty, increasing at the rate of
one-fourth of one per cent for each week thereafter during which the average reserve
balance is deficient, will be assessed on weekly deficiencies until the required reserve
has been restored and maintained for four consecutive weekly periods, provided, that
the maximum penalty charged will not exceed 10%.
When a member bank outside of a reserve city has had an average deficiency
in reserves for three consecutive semi-monthly periods, a progressive penalty, in­
creasing at the rate of one-half of one per cent for each half-month thereafter during
which the average reserve balance is deficient, will be assessed on semi-monthly de­
ficiencies until the required reserve has been restored and maintained for two con­
secutive semi-monthly periods, provided that the maximum penalty charged will not
exceed 10%.

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

A deficiency in a member bank’s reserve is determined by comparing the average
reserve balance maintained with the Federal Reserve Bank for the period with the aver­
age reserve requirement for the same period, as shown by the member bank’s report
of net deposits; therefore, an average excess balance carried during one period can not be
used to offset an average deficiency occurring in another, but each period will be consid­
ered separately.
The average reserve requirement and the average reserve balance of reserve city
banks are calculated on a seven-day basis, the week beginning with Thursday and ending
with the Wednesday following. The average reserve requirement and the average reserve
balance of member banks outside of reserve cities are calculated on a semi-monthly basis,
beginning with the first and sixteenth and ending with the fifteenth and last day of each
month, respectively. The net deposits to be reported by a member bank for Sundays and
holidays should be the same as reported for the last preceding business day.
A member bank’s legal reserve is represented by the collected balance to its credit
on the books of the Federal Reserve Bank. Statements of reserve accounts which are
forwarded to member banks daily by the Federal Reserve Bank should be checked imme­
diately upon receipt in order that errors, delays in credit, etc., may be promptly reported
for investigation and correction, if necessary.
Respectfully,

Governor.


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102