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F ederal Reserve Bank
DALLAS, TEXAS
of
D allas
7S222
C ircu lar No. 79-120
J u ly 27, 1979
PROPOSALS TO IMPLEMENT THE PROVISIONS OF THE
INTERNATIONAL BANKING ACT OF 1978 INCLUDING
PROPOSED AMENDMENTS TO REGULATIONS D AND Q
TO ALL MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
On J u ly 23, 1979, the Board of G overnors of the Federal R eserve
System announced proposals to implement the pro visio ns of the International
Banking Act of 1978 imposing r e s e r v e req u irem en ts and in terest rate ceilings
on U .S . b ran ch es and agencies of foreign banks whose p a re n t banks have
w orldwide a s se ts of $1 billion or more.
At the same time, the Board made f u rth e r proposals u n d e r the
p rovisions of the International Banking Act th at g r a n t such b ran ch es and
agencies of foreign b an k s access to Federal R eserv e serv ices and perm it
them to borrow from the Federal R eserve Banks.
T he Board has ask ed for comment on its proposals by Septem ber 21,
1979. Comments should be submitted in w ritin g to the S e c re ta ry , Board of
G overnors of the Federal R eserve System, Washington, D .C . 20551, an d should
refer to Docket No. R -0238. Included in the Board's proposals is a r e q u e s t for
advice on the amount of lead time needed before final regulations grow ing out
of the Board's pro po sals become effective.
T he p r e s s release con cernin g this announcem ent, along with the
text of the announcem ent, is p rin te d on the following p ag es.
S in cerely y o u rs ,
Robert H . Boykin
F irst Vice P resid en t
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
FEDERAL
press
RESERVE
release
?*Al.R£*V
For immediate release
July 23, 1979
The Federal Reserve Board today announced proposals to
implement the provisions of the International Banking Act of 1978
imposing reserve requirements and interest rate ceilings on U.S.
branches and agencies of foreign banks whose parent banks have world
wide assets of $1 billion or more.
At the same time, the Board made further proposals under
the provisions of the IBA that grant such branches and agencies of
foreign banks access to Federal Reserve services and permit them to
borrow from the Federal Reserve Banks.
The Board asked for comment on its proposals by September 21,
1979. Included in the Board's proposals was a request for advice on
the amount of lead time needed before final regulations growing out of
the Board's proposals become effective.
These proposals were announced after consultation with State
bank supervisory authorities. On March 16, the Board submitted a report
to Congress on these consultations.
The proposals affecting reserve requirements would amend the
Board's regulation D (Reserves of Member Banks). Those imposing interest
rate ceilings would amend Regulation Q (Interest on Deposits).
In general, but with numerous special provisions, the Board
proposed:
1. To apply all the provisions of Regulation Q to the branches
and agencies of foreign banks operating in the United States.
2. To apply all the provisions of Regulation D to such
branches and agencies of foreign banks.
3. To permit any such branch or agency maintaining a
required reserve balance with a Reserve Bank to be eligible to borrow
from that Bank.
4. To make Federal Reserve services (including check
collection, currency and coin supply, securities safekeeping and wire
transfer services) available to branches and agencies as soon as final
regulations growing out of these proposals become effective, providing
that the branch or agency maintained a reserve account with its local
Reserve Bank.
-2In making its proposals the Board said:
The Board's proposals to implement the provisions of
the IBA are intended to facilitate the conduct of
monetary policy and promote vigorous and fair
competition between branches and agencies and member
banks by treating branches and agencies like member
banks to the fullest extent possible.
The Board made a number of specific requests for comment
including the following:
1. Whether there are significant differences between branches
and agencies and member banks in the w ay in which deposits and credit
balances are maintained and utilized (See Page 5, Preamble to the
Regulation):
2.
In connection with a proposal to treat credit balances
of agencies of foreign banks as deposits subject to the same reserve
requirements and interest rate limitations as member banks (Pages 5-6,
Preamble):
— A number of practices concerning the transfer of credit
balances;
— Whether credit balances should be viewed as time deposits,
demand deposits or as being in a special category;
— The effect of prohibiting the payment of interest on
credit balances or portions of them with maturities of
less than 30 d a y s .
3.
In connection with a proposal to subject Eurodollar
borrowings of the agencies and branches to the same reserve ratios that
apply to similar borrowings of member banks (Pages 7-8 , P r e a m b l e ) :
— The appropriateness of exempting from reserve requirements
on Eurodollar borrowings (otherwise the same as requirements on similar
borrowings by member banks) 8 percent of the total assets of the branches
or agencies, less cash and amounts due from unrelated banks and related
institutions; and
— H o w funds raised in the United States by sales of commercial
paper by the branch or agency's parent bank should be treated.
4.
Given the fact that foreign banks may have branches or
agencies in more than one State (although domestic banks may n o t ) , how
"families” of foreign bank branches or agencies (United States branches
and agencies of a single foreign parent bank and of its foreign banking
subsidiaries) should be handled with respect to:
— At which Reserve Bank or Banks they should keep required
reserves,
— And related questions arising from the interstate nature
of such foreign banking families (Pages 10-11 and 11-15 , P r e a m b l e ) .
-3 -
5.
The appropriateness of the Board's proposal that the branches and
agencies should be eligible to borrow at the discount window of the Reserve
Banks based on the needs of "family" meabers that are located in the Reserve
Bank District where the branches and agencies maintain a reserve account
(Pages 11-12, P r e a m b l e ) .
6.
The Board's proposal to phase in the reserve requirements for
the branches and agencies over a two-year period, in the same way as nonmember
banks that become members are permitted to assume their reserve requirements
gradually.
Further details of the Board's proposals and its request for comment
may be found in the attached text of the proposed regulatory amendments.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[12 CFR Parts 204 and 217]
(Docket No. R-0238)
Notice of Proposed Rulemaking
Reserve Requirements and Interest Rate Limitations on Deposits
for U.S. Branches and Agencies
of Foreign Banks
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
proposed rulemaking.
SUMMARY:
The International Banking Act of 1978 imposes Federal reserve
requirements and deposit rate limitations on Federal branches and agencies
and authorizes the Board to impose such requirements on State-licensed
United States branches and agencies of foreign banks whose foreign parents
have worldwide assets of $1 billion or more.
The Act also grants such
branches and agencies access to Federal Reserve discount, clearing,
and settlement facilities to the same extent as member banks, subject
to regulations promulgated by the Board.
In order to implement the
provisions of the International Banking Act, the Board proposes to amend
Regulation D (Reserves of Member Banks) and Regulation Q (Interest on
Deposits) to make branches and agencies subject to the reserve requirements
and interest rate ceilings currently applicable to member banks.
DATE:
Comments must be received by September 21, 1979.
ADDRESS:
Theodore E. Allison, Secretary, Board of Governors of the
Federal Reserve System, Washington, D.C. 20551.
All material submitted
should include the Docket Number R-0238.
FOR FURTHER INFORMATION, CONTACT:
C. Keefe Hurley, Jr., Senior Attorney
(202/452-3269) or Anthony F. Cole, Senior Attorney (202/452-3711), Legal
Division, Board of Governors of the Federal Reserve System, Washington,
D.C. 20551.
SUPPLEMENTARY INFORMATION:
Section 7(a) of the International Banking
A ct of 1978 (IBA) (92 Stat. 607) requires the Board to impose reserve
requirements and deposit interest rate limitations on Federally-licensed
United States branches and agencies of foreign banks ("branches and
agencies") whose foreign parents have worldwide assets of $1 billion
or more.
The IBA also authorizes the Board, after consultation and
in cooperation with the State bank supervisory authorities, to apply
any reserve requirements and deposit interest rate limitations made
applicable to Federal branches and agencies to any State-licensed branch
-2 -
or agency whose foreign parent has worldwide assets of $1 billion or
more.
In this regard, the Board staff undertook extensive consultations
with each of the State bank supervisory authorities that have responsibility
for State-licensed branches or agencies of foreign banks and on March 16,
1979, as required by the IBA, the Board submitted a report to Congress
concerning the steps taken to consult with the State bank supervisory
authorities.
A copy of this report is available from the Board's Office
of Public Affairs (202/452-3215).
Under the IBA, the purposes of reserve requirements and interest
rate limitations on branches and agencies are to facilitate the implementation
of monetary policy and to promote competitive equity among depository
institutions.
The Board's proposals to implement the provisions of
the IBA will facilitate the conduct of monetary policy and will promote
vigorous and fair competition between branches and agencies and member
banks by treating branches and agencies like member banks to the fullest
extent possible.
Accordingly, the Board of Governors proposes to amend
its regulations concerning reserves of member banks (Regulation D; 12
CFR Part 204) and interest on deposits (Regulation Q; 12 C FR Part 217)
to subject deposits, including credit balances, of United States branches
and agencies of foreign banks to the reserve requirements and interest
rate ceilings currently applicable to member banks.
Several provisions
of Regulation D, however, would be modified to reflect operational and
structural differences between member banks and branches and agencies.
Regulation Q
Regulation Q (12 CFR Part 217) prescribes rules governing
the payment and advertisement of interest on deposits, including limitations
on the rates of interest which may be paid by member banks on time and
savings deposits.
Regulation Q also includes provisions that prohibit
the payment of interest on deposits that are payable on demand or that
have a maturity of less than 30 days, specify the terms and conditions
under which member banks may pay savings and time deposits before maturity,
and prescribe rules governing the advertisement of interest paid on
deposits.
The Board proposes to apply all the provisions of Regulation Q
to branches and agencies.
Regulation D
Regulation D (12 CFR Part 204) presents the Board's regulatory
structure for implementation of reserve requirements on, and maintenance
of reserves by, member banks.
The regulation specifies the liabilities
that are regarded as deposits subject to reserves.
The procedures for
computing and maintaining required reserves including penalties for
deficiencies also are presented.
-3-
Under Regulation D, a member bank is required to maintain
reserve balances in an amount sufficient to satisfy its reserve requirements
as specified in the Regulation.
Reserve balances consist of U.S. currency
and coin as defined in §204.1 of the Regulation and the balances maintained
with the Federal Reserve.
Required reserves are computed on the basis
of the member bank's daily net deposit balances during a seven day period
ending each Wednesday (the "computation p e r i o d " ) . Required reserve
balances must be maintained at a Federal Reserve Bank during a corresponding
weekly period (the "maintenance period") which begins the second Thursday
following the end of the computation period.
However, in determining
whether a sufficient reserve balance has been maintained, the average
daily U.S. currency and coin held during the computation period is added
to the average daily balance maintained by the member bank in its reserve
account with the Federal Reserve during the maintenance week.
Current
Federal reserve requirements are listed in the table that follows.
-4 -
Federal Reserve Requirements
Type of deposit and deposit interval
in millions of dollars
Requirements (per cent) in
effect July 18, 1979
Net demand
0-2
Over
2-10
Over
10-100
Over 100-400
Over 400
Savings
7
9
11
12
16
1/2
3/4
3/4
1/4
3
Time*-By initial maturity
30 - 179 days
- 0-5
- over 5
180 days to 4 years
4 years or more
Eurodollar borrowings
3
6
2 1/2
1
0
* A supplementary reserve requirement of 2 per cent applies to time
deposits of $100,000 or more.
-5-
The Board proposes to apply all the provisions of Regulation D
to branches and agencies.
The Board recognizes, however, that branches
and agencies differ from member banks in some respects.
Consequently,
comment is requested on whether there are any significant differences
between branches and agencies and member banks in the way in which deposits
and credit balances are maintained and utilized.
Public comment also
is requested by September 21, 1979, on the following proposed actions:
Credit balances
The Board proposes to apply Regulation Q interest rate provisions
and Regulation D reserve requirements to deposits of branches and agencies
and credit balances of agencies in a manner similar to their application
to member banks.
Under most State laws, agencies cannot accept deposits.
However, agencies can maintain credit balances for their customers in
connection with the exercise of their other lawful banking powers.
Credit balances issued by agencies are like deposits in that they are
liabilities of the foreign agency to its customers.
If an account such
as a credit balance were maintained at a member bank, it would give
rise to a reservable deposit.
In view of the parallels between credit
balances and reservable deposit liabilities, the Board believes that
credit balances of agencies should be regarded as deposits subject to
interest rate ceilings and reserve requirements.
Under the proposal, for the purpose of reserve requirements
and interest rate limitations, credit balances would be defined as "deposits"
so that the maturity of such balances would determine the reserve ratios
and interest rate ceilings applicable to such balances just as it now
does for deposits at member banks.
Credit balances with a minimum maturity
of 30 days or more would be subject to time deposit reserve ratios,
while those with a shorter maturity would be treated as demand deposits.
Under this approach, the prohibition of payment of interest on demand
deposits would be applied to that portion of a credit balance available
on demand.
Credit balances with a maturity of 30 days or more would
be subject to applicable time deposit interest rate ceilings under
Regulation Q.
To aid the Board in its consideration of the treatment of
credit balances as deposits, public comment is requested on customary
practices with regard to credit balances.
Specific comment is requested
on:
(1)
the extent to which checks or drafts are, or may be,
drawn by customers on credit balances (a) for payment
of liabilities owed by customers to third parties and
(b) for transfers to customers' commercial bank accounts;
-6-
(2)
the extent to which credit balances are currently treated
as available on demand or as subject to a notice or maturity
requirement; and
(3)
the extent to which agencies are permitted to pay interest
on credit balances under State law and whether, in fact,
interest is paid on such balances and at what rates.
Public comment also is requested on the following:
(1)
(2)
whether credit balances should be viewed as demand deposits,
time deposits, or a special category of deposit for purposes
of Regulations D and Q; and
the effect of prohibiting the payment of interest on
credit balances (or those portions of credit balances)
with maturities of less than 30 days.
Officers' checks
Section 204.1(g) of Regulation D (12 CFR 204.1(g)) defines
officers' checks as a component of gross demand deposits; thus, officers'
or certified checks issued by member banks are reservable at the demand
deposit ratio.
Branches and agencies of foreign banks issue significant
amounts of officers' checks.
Since there does not appear to be any
difference inthe nature or function of an officer's check issued
by
a domestic bank and one issued by a branch or agency of a foreign bank,
the Board proposes to treat such checks identically for these institutions.
Thus, officers' checks issued by branches and agencies, including those
drawn as agent for the foreign parent or any other affiliate or entity,
would be treated as demand deposits for reserve requirements purposes.
Such classification is appropriate since branches and agencies would
enjoy a competitive advantage over member banks if officers' checks
were not reservable on the same terms.
Branches and agencies would be required to conform their accounting
practices with respect to officers' checks to those required of member
banks under Regulation D.
Such action would necessitate the modification
by branches and agencies of certain operating and accounting practices
involving officers' checks that are inconsistent with member bank treatment
of such checks.
The first practice requiring modification involves
officers' checks drawn as agent for the foreign parent, affiliate, or
other entity.
Such checks often are not reflected as a liability of
the branch or agency.
Instead, a nondeposit liability account reflecting
the branch's obligation is written down to offset the reduction on the
branch's books in balances due from domestic correspondent banks that
occurs when the checks are presented for payment.
Under such accounting
practice, such transactions would generate no liabilities subject to
reserve requirements even though there is no practical distinction between
such a transaction and a transfer of demand deposits using officers'
checks, which does generate reservable liabilities.
-7-
Prior to 1969, a number of member banks engaged in a similar
practice.
The Board, however, amended Regulation D to require member
banks to include in gross demand deposits checks "drawn by or on behalf
of a foreign branch of a member bank" (12 C FR 204.1(g)).
Application
of Regulation D
to branches and agencies of foreign banks would require
them to include
in gross demand deposits checks drawn by or
on behalf
of the foreign parent or affiliate.
A second practice of branches and agencies that is not comparable
to that of member banks involves the accounting by some branches and
agencies for officers' checks by writing down a customer account and
a due from correspondent bank account simultaneously when the officer's
check is issued.
When a member bank, however, issues an officer's check,
the customer's liability account is written down and offset by an increase
in officers' checks outstanding.
Therefore, the officer's check is
included in reservable liabilities until the check clears.
Application
of Regulation D
to branches and agencies would require them
to adopt
the same procedure for accounting for such officers' checks.
Eurodollar borrowings
Since 1969, deposits in the form of borrowings by domestic
offices of member banks from foreign banks, foreign governments, international
organizations, and the bank's own foreign branches have been subject
to reserve requirements under § 204.5(c) of Regulation D (12 CFR 204.5(c)).
The applicable reserve ratio has been as high as 20 per cent, but has
been set at zero since August 24, 1978.
Should the applicable reserve
ratio increase in the future, United States branches and agencies of
foreign banks could have a cost of funds advantage relative to member
banks.
To provide comparable treatment with member banks, the Board
proposes to subject Eurodollar borrowings of branches and agencies from
both related and unaffiliated foreign banking institutions to the same
reserve ratio that applies to similar borrowings by member banks under
Regulation D.
Much of the funding for branches and agencies is provided
by advances from their foreign parents.
Since branches and agencies
are part of their foreign parents' corporate entities, they have no
separate capital account in the domestic banking sense.
However, a
portion of advances or borrowings from the parent organization serve
purposes similar to that of the equity capital of domestic banks; such
capital of domestic banks is not subject to reserve requirements.
Consequent
ly, the Board proposes to exempt from reserve requirements that portion
of advances from the foreign bank parent (including other foreign offices)
that equals 8 per cent of certain assets of a branch or agency.
The
assets proposed would be total branch and agency assets less cash, due
from unrelated banks, and due from related institutions.
This capitalequivalency allowance should contribute both to competitive equity and
-8-
to the safety and soundness of foreign banking offices in the United
States.
The Board requests public comment on the appropriateness of
this proposal and on other asset concepts that might be used.
All funding obtained by a member bank by borrowing from a
foreign banking institution, whether related or not, is subject to the
Eurodollar reserve requirement (§ 204.5(c) and (d) of Regulation D;
12 C F R 204.5(c), (d)). Net borrowings from the parent by the branch
or agency, except to the extent of the 8 per cent allowance described
above, would be reservable at the Eurodollar rate even where the funds
borrowed represent the proceeds of commercial paper issued in the United
States by the parent.
Funds raised in the United States by a branch
or agency directly, however, would be subject to domestic reserve requirements
unless in a form specifically exempted by Regulation D, such as interbank
borrowings and repurchase agreements on United States government or
agency securities.
As an alternative, when a parent is issuing commercial paper
at the same time it is lending funds to its U.S. branches or agencies,
it could be presumed that the proceeds of the sale are being used to
supply funds to the branches or agencies.
Under this approach, the
commercial paper issued by the parent would be treated as a deposit
subject to domestic reserve requirements to the extent of advances to
the branches or agencies by the parent, less the 8 per cent capitalequivalency allowance.
To aid the Board in its consideration of the treatment of
commercial paper, public comment is requested on these alternatives.
Asset Sales
A domestic bank can fund its operations from deposits or borrowings
in the money markets or from affiliates; alternatively, in order to
obtain funds, it can transfer a portion of its assets to a foreign branch
or affiliate.
In each case, the domestic bank obtains additional funds
to lend in its domestic business.
Funds obtained by a member bank from
the sale of domestic assets, such as loans, to a foreign banking affiliate
are subject to Eurodollar reserve requirements (§ 204.5(d) of Regulation D;
12 C F R 204.5(d)).
Sales of assets to nonbank affiliates are subject
to domestic reserve requirements (§§204.1 and 204.5 of Regulation D;
12 C F R Part 204.1, 204.5).
The Board proposes to subject the proceeds
of the sale of any domestic asset by branches and agencies to their
foreign parent or affiliated banking institutions to the Eurodollar
reserve requirements.
However, domestic assets that for Federal supervisory
purposes are required to be sold will not be subject to Eurodollar reserve
requirements.
-9-
Reserve maintenance and accounting
Under section 5(b) of the IBA, a foreign bank that operates
or has applied for branches and agencies in more than one State on July 27,
1978, is permitted to retain those offices.
In contrast, member banks
generally are not permitted to operate branches interstate.
Interstate
operations by "families" of branches and agencies raise three reserve
requirement issues: (1) the definition of "family" for purposes of reserve
requirement calculations; (2) the extent to which the net deposits of
a foreign bank family should be consolidated or aggregated for purposes
of calculating the f a m i l y ’s reserve requirement; and (3) the number
of reserve accounts that a family should be permitted to maintain.
Definition of "family." In order to provide parallel treatment
between branches and agencies and member banks under the system of graduated
reserve requirements, the Board intends to impose reserve requirements
on families of branches and agencies.
For purposes of reserve requirements
only,
the Board proposes to define "family” to include only United
States branches and agencies of a single foreign parent bank and of
its foreign banking subsidiaries.
(The same definition may not be used
for other purposes.)
Under this definition, the United States branches
and agencies of a single foreign bank would constitute a separate family.
For example, if a foreign company owned two banks each having branches
and agencies in the United States, the branches and agencies would form
two separate families, one related to each of the foreign banks.
This
treatment parallels the current treatment of banks owned by domestic
multi-bank holding companies.
Subsidiary banks chartered in the United
States would always be excluded from the family.
However, a foreign
bank's foreign subsidiaries operating branches or agencies in the United
States would be considered part of the same family as the branches and
agencies of the owning foreign bank.
If a foreign bank established
an Edge Corporation, as permitted for the first time by the IBA, the
Edge Corporation would not be consolidated with the agencies and branches
of the foreign parent bank.
This treatment parallels the treatment
of Edge Corporations owned by domestic banks.
At present, Edge Corporations
owned by domestic banks are not consolidated with each other or with
their parent for reserve calculation purposes.
Aggr e g a t i o n . In order to assure competitive equity with member
banks under the system of graduated reserve requirements, the Board
proposes to require that deposits at all branches and agencies in the
same family be aggregated nationally for purposes of calculating reserve
requirements.
Under this approach, one of the offices of a branch and
agency family would be designated the "Administrative Office" for its
sister organizations.
This office would be responsible for nationally
consolidating the family's Report of Deposits, would maintain with its
Reserve Bank the marginal reserves for the family resulting from graduated
reserve requirements, and would bear the responsibility for penalties
that may be imposed for reserve deficiencies in that reserve account.
-10-
The Congressional policy expressed in the IBA of establishing
competitive equality between domestic and foreign banks in like circumstances
supports the concept of aggregation or consolidation for reserve calculation
purposes of deposits of all units of a foreign bank family operating
in the United States.
Since required reserve ratios increase with deposit
size, the marginal reserve requirement on the aggregated deposits of
a family of branches and agencies generally will exceed the marginal
reserve requirement of any single office.
Hence, the cost of funds
usually will be higher to a bank that must meet a reserve requirement
on its aggregated net deposits at all branches than on the net deposits
at each branch separately.
Domestic money-center banks, with which
branches and agencies primarily compete, must aggregate all of their
domestic branch deposits for reserve calculation purposes.
Thus, the
cost of funds will be more nearly equal between domestic banks and branches
and agencies if the latter aggregate their deposits for reserve calculation
purposes.
Under national aggregation, branches and agencies would be
permitted to deduct balances due from domestic banks, as well as from
other nonaffiliated branches and agencies, and cash items in the process
of collection in calculating net demand deposits subject to reserve
requirements.
For this purpose, demand deposits of member banks due
from United States branches of foreign banks would be treated identically
to demand deposits due from domestic banks.
Similarly, credit balances
held by member banks or other branches and agencies at United States
agencies of foreign banks would be eligible for the due from deduction
to the extent that those balances are treated as demand deposits for
reserve purposes (as discussed previously, credit balances with a minimum
maturity of less than 30 days would be treated as demand deposits).
Intra-family balances would not be included in calculating reserve requirements
since such balances net to zero for the family as a whole.
This procedure
parallels the current handling of inter-branch borrowing and lending
by branches of domestic banks.
Number of reserve a ccounts. The Board proposes to permit
families of branches and agencies to maintain one reserve account (and
to make use of Reserve Bank services) with each Reserve Bank or branch
in whose zone the family operates.
Each Reserve Bank would administer
the reserve accounts of the branches and agencies operating in its district
under the same rules that apply to member banks.
Thus, at the local
level, the Federal Reserve would require a separate Report of Deposits
that consolidates the deposits of the branches and agencies for each
State in which branches and agencies of the family operate.
At the
option of the foreign bank family, the reserves required against deposits
of any branch or agency could be held in the account of the Administrative
Office of the foreign bank family.
However, no Reserve Bank services
would be available locally to a branch or agency not having an account
at its local Reserve Bank office.
Penalties for deficiencies in the
reserve accounts used by each branch or agency would be assessed by
r
-
I
11 -
each Reserve Bank, although the Administrative Office would be responsible
for penalties for deficiencies in the reserve account it is required
to maintain.
Access to Federal Reserve services
Under the IBA, Congress intended foreign banks maintaining
Federal reserves to have access to Federal Reserve Bank services on
a comparable basis and to the same extent as those services are available
to member banks.
Accordingly, the Board proposes to make Federal Reserve
services, including check collection, currency and coin, securities
safekeeping and wire transfer services, available to branches and agencies
as soon as the proposed regulations become effective.
In order to obtain
such services locally, a branch or agency would be required to have
an account with its local Reserve Bank office.
During the phase-in
period described below, branches and agencies may be required to maintain
a level of clearing balances consistent with the level of services being
provided.
Access to discount window
The Board proposes to permit any branch or agency maintaining
a reserve balance with a local Reserve Bank to be eligible for advances
or discounts from that Reserve Bank.
The appropriateness of borrowing
by any branch or agency would be based on the needs of the family members
located in the district where the reserve account is maintained and
would be subject to guidelines to be adopted by the Board.
The Board
intends to monitor activities of foreign bank families on a consolidated
basis to identify certain systematic borrowing patterns that could be
regarded as excessive use of the discount window.
Implementation of reserve requirements
The Board recognizes that substantial revisions in the accounting
procedures of branches and agencies may be necessitated by the proposals.
Accordingly, comment specifically is requested on the amount of lead
time that would be required to make these necessary changes in an orderly
manner.
Under the Board's proposals, branches and agencies would be
required to report data necessary for the administration of reserve
requirements.
In this connection, it is anticipated that such reporting
would include data for the categories listed in the following table
and that data for these categories would be maintained on a daily basis
and filed with the local Federal Reserve Bank once each week.
The proposed
data and filing requirements would be similar to those required for
member banks.
I
-12-
Present Board policy permits nonmember banks that become member
banks to assume their reserve requirements gradually by authorizing
the Reserve Banks to waive penalties for deficiencies in "transitional
reserve requirements" on a graduated basis over a two-year period.
The Board proposes to phase-in the reserve requirements provided for
in these proposals over the two-year period now allowed to nonmember
banks joining the System.
-13-
Reporting Categories for Reserve Requirement Purposes*
1.
Demand deposits due to banks.
2.
Demand deposits due to the U.S. Government.
3.
Other Demand deposits
(including officers' checks).
4.
Demand deposits due from banks.
5.
Cash items in process of collection.
6.
Savings deposits.
7.
Time deposits with original
maturities of 30 to
8.
Time deposits with original
less than 4 years.
maturities of 180days but
9.
U.S. currency and coin held
11.
Time deposits of $100,000 or more.
13.
days.
Time deposits with original maturities of 4 years or
more.
10.
12.
179
in vaults.
Borrowings from non-related foreign banks, foreign national
governments, and international institutions.
Gross claims on the foreign parent bank and related
affiliates
located outside the States of the United States
and the
District of Columbia.
14.
Gross liabilities to the foreign parent bank and related
affiliates located outside the States of the United States
and the District of Columbia.
15.
Assets sold by the branch or agency to the foreign parent
bank and other banking affiliates located outside the
States of the United States and the District of Columbia.
16.
Assets sold by the branch or agency to other nonbanking
affiliates.
17.
Funds received from the sale of ineligible bankers acceptances
that have remaining maturities of less than 30 days.
*"Deposits" includes credit balances of similar maturity at agencies.
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18.
Funds received from the sale of ineligible bankers acceptances
that have remaining maturities of 30 days or more but
less than 180 days.
19.
Funds received from the sale of ineligible bankers acceptances
that have remaining maturities of 180 days or more but
less than 4 years.
20.
Funds received from the sale of ineligible bankers acceptances
that have remaining maturities of 4 years or more.
21.
Total assets other than cash and due from unrelated banks
and due from related institutions, as defined
for the Report of Condition.
-15-
In order to achieve national treatment in the implementation
of reserve requirements and discount borrowing privileges for U.S. branches
and agencies of foreign banks, the Board proposes generally to treat
individual members of a foreign bank family comparably to domestic member
banks.
However, the Board recognizes that the foreign bank family is
part of a single managerial entity. Where competitive balance may be
affected by coordinated interstate operations of the foreign bank family,
the Board's proposals take into account the fact that individual branches
and agencies are members of a family.
Thus, for example, the Board
proposes to aggregate deposits nationally for reserve computation purposes
although family members in each Federal Reserve zone would be entitled
to an account at the local Federal Reserve office.
A further example
is the Board's proposal that the appropriateness of discount window
borrowing be based upon local needs of family members, with overall
monitoring of borrowing by the family being coordinated at the national
level.
The Board would like to receive comments from the public on
this general approach to dealing with the new institutional structure
posed by interstate operations of branches and agencies.
Should the
Federal Reserve maintain a relationship through a single office with
the family as if it were a single bank, not taking account of the fact
that the family may have offices located throughout the country? Alternatively,
should the Board treat each office of the family as an independent bank?
Should some general approach other than that proposed by the Board be
followed to take into account the interstate banking operations of foreign
banks?
All comments and information on the above proposals should
be submitted in writing to the Secretary, Board of Governors of the
Federal Reserve System, Washington, D.C. 20551, to be received by September 21,
1979.
All material submitted should include the Docket Number R-0238.
Such material will be made available for inspection and copying upon
request except as provided in section 261.6(a) of the Board's Rules
Regarding Availability of Information (12 CFR Part 261.6(a)).
Pursuant to authority under the International Banking Act
of 1978 (12 U.S.C. 3101 et s e q.) and section 19 of the Federal Reserve
Act (12 U.S.C 371a, 371b, 461 et seq.), the Board proposes to amend
Regulation D (12 CFR Part 204) and Regulation Q (12 CFR Part 217) as
follows:
§ 204.0
SCOPE OF PART
(a)
This regulation is issued under authority of provisions
of § 19 of the Federal Reserve Act (12 U.S.C. 461 et s e q .) and of the
International Banking Act of 1978 (12 U.S.C. 3101 et s e q .).
-16-
(b)
This Pact relates to the computation and maintenance
of reserves that member banks are required to maintain against deposits.
United States branches and agencies of foreign banks with worldwide
assets of $1 billion or more are required to comply with the provisions
of this Part in the same manner as if the branches and agencies were
member banks.
Several provisions, however, have been modified to reflect
operational and structural differences between member banks and branches
and agencies.
(c)
The provisions of this Part do not apply to any deposit
that is payable only at an office located outside the States of the
United States and the District of Columbia.
§ 204.1
DEFINITIONS
*
*
*
*
*
(b)
*** "Time deposits" do not include time deposits of a
United States branch or agency deposited to the credit of another United
States branch or agency of the same "family," as provided in § 204.3(e).
*
*
*
*
*
(g)
Gross demand deposits. * * * "Gross demand deposits"
also includes officers' checks issued by a United States branch or
agency of a foreign bank, including checks drawn as agent for its foreign
parent bank, affiliates, or others.
"Gross demand deposits" do not
include demand deposits of a United States branch or agency deposited
to the credit of another United States branch or agency of the same
"family," as provided in § 204.3(e).
*
*
*
*
*
(k)
Credit balan ces. For purposes of this Part, the term
"deposits" also includes the credit balances of a United States agency
of a foreign bank.
§ 204.2
COMPUTATION OF RESERVES
*
*
*
*
*
(b)
Deductions allowed in computing reserves. In determining
the reserve balances required under the terms of this Part, member banks
may deduct from the amount of their gross demand deposits the amounts
of balances subject to immediate withdrawal due from other banks, including
amounts due from unrelated United States branches and agencies of foreign
banks, and cash items in process of collection as defined in § 204.1(h).
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Balances "due from other banks" do not include balances due from Federal
Reserve Banks or balances (payable in dollars or otherwise) due from
other banking offices located outside the States of the United States
and the District of Columbia.—
10 /
* * *
§ 204.3
DEFICIENCIES IN RESERVES
*
*
*
*
*
(e)
United States branches and agencies of foreign b a n k s .
An Administrative Office shall be designated by the United States branches
and agencies that constitute a "family." A "family" shall consist of
all the United States branches and agencies of a single foreign parent
bank, including United States branches and agencies of a foreign subsidiary
of the foreign parent bank.
The Administrative Office shall be responsible
for preparing and filing a consolidated Report of Deposits for the family,
for maintaining with the Federal Reserve Bank of its District any additional
reserves that may be required as a result of aggregating the deposits
of the United States branches and agencies of the family, and for penalties
that may be assessed for deficiencies in that required reserve balance.
§ 204.5
RESERVE REQUIREMENTS
(a)
Reserve percentages. * * * in determining the net demand
deposits of United States branches and agencies of foreign banks against
which reserve balances are required to be maintained, the net demand
deposits of all United States branches and agencies constituting a family
as provided in § 204.3(e) shall be aggregated.
*
*
*
*
*
(d)
Foreign branch transactions with parent bank. * * *
During each reserve maintenance week, United States branches or agencies
constituting a family as provided in § 204.3(e) shall maintain a reserve
against their deposits equal to a daily average balance of 0 per cent
of the daily average total o f —
(i)
net balances due to their foreign parent bank (including
branches and agencies located outside the States of the United States
and the District of C o l u m b i a ) , after deducting an amount equal to 8
per cent of the United States branches' and agencies' total assets (not
including cash or other assets due from their foreign parent bank or
related institutions or unrelated banks), and
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(ii)
assets (including participations) held by the foreign
parent bank (including branches and agencies located outside the States
of the United States and the District of Columbia) and other banking
affiliates which were acquired from its related United States branches
and agencies (other than assets representing credit extended to persons
not resident of the United States or assets required to be sold by the
federal supervisory authority of the branch or a gency), during the computation
week ending 15 days before the beginning of the maintenance period.
Reserves that may be required against assets sold to nonbanking affiliates
under § 204.1(f) of this section shall be maintained in accordance with
§ 204.5(a) of this section.
*
*
*
*
*
*
*
*
§ 217.0 SCOPE OF PART
*
*
(d)
Under authority of the provisions of the International
Banking Act of 1978 (12 U.S.C. 3101 et: seq.), the provisions of
this Part apply to federal and state branches and agencies of foreign
banks with total worldwide consolidated assets of $1 billion or more.
§ 217.1 DEFINITIONS
*
*
*
*
*
(h)
Credit balances. For purposes of this Part, the term
"deposits" also includes any liability on credit balances of a United
States agency of a foreign bank.
*
*
*
*
*
By order of the Board of Governors, July 18, 1979.
(signed)
Theodore E. Allison
Theodore E. Allison
Secretary of the Board
[SEAL]
@FedFRASER