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F ederal reserve b an k of D ALLAS. TE X A S Dallas 75222 Circular No. 6 9-271 November 4, 1969 . PROPOSED AMENDMENT TO REGULATION Q To All Member Banks in the Eleventh Federal Reserve District: There is attached for your information a copy of a press statement issued by the Board of Governors of the Federal Reserve System relating to a proposed amendment to Regulation Q. The Board has invited interested persons to comment on the proposal through the Federal Reserve Banks. Written com ments on the proposed amendment may be forwarded to this Bank, and should be received not later than November 26, 1969* Yours very truly, P. E. C o ld w ell P r e s id e n t E n clo su res (2 ) This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) I FEDERAL p r e s s RESERVE r e l e a s e October 29, 1969. immediate release. The Board of Governors of the Federal Reserve System announced today it is considering amending its rules governing the payment of interest on deposits (Regulation Q) to apply to funds received by member banks from the issuance of commercial paper or similar obligations by bank affiliates. Comments on the proposal should be received by the Board not later than December 1. Included within the coverage of the proposal is commercial paper issued by a member bank's parent company--either a one-bank holding company or a company registered under the Bank Holding Com pany Act--or by a collateral affiliate of a member bank in a holding company system. Governors Mitchell and Maisel would have preferred to deal with the issuance of commercial paper by bank holding companies and their affiliates by looking to expanded legislative authority which would specifically include the power to make reserve requirements applicable in an appropriate fashion to funds raised by these means. The text of the proposal is attached. -0 - FEDERAL RESERVE SYSTEM [12 CFR Part 217] [Reg. Q] Certain Borrowings by Bank Affiliates as Deposits The Board of Governors is considering amending § 217.1(f) of Regulation Q to add the following sentence: of this part, "For the purposes ’deposits' of a member bank also include the liability of (i) an organization that controls a majority of the stock of the bank or (ii) a corporation that is majority-controlled by such an organization, on any promissory note, acknowledgment of advance, due bill, or similar obligation (written or oral), with a maturity of two years or less, that is issued or undertaken principally as a means of supplying funds to the bank for use in its banking business, or maintaining the availability of such funds," The main purpose of this proposal is to apply the rules governing payment of interest on deposits (Regulation Q) to funds received by member banks as the result of issuance, by affiliates of the banks, of obligations commonly described as commercial paper. Types of obligations within the coverage of this proposal are commercial paper issued for the specified purpose by a member b a n k ’s parent company - either one-bank or registered under the Bank Holding Company Act - or by a collateral affiliate of a member bank in such a holding company system. -2 In the Board*s judgment, adoption of a proposal along these lines is necessary because the purposes of section 19 of the Federal Reserve Act are in danger of being frustrated, to a substantial degree, as a result of the issuance of commercial paper by bank affiliates of the types described, the proceeds being channeled to the bank for lend ing and investing. The proposal does not refer to issuance of obligations by subsidiaries of member banks. In a related action, on which Governor Maisel dissented, the Board determined that obligations of such subsidiaries are, under present provisions of both Regulations Q and D, in the same status as obligations issued directly by the bank, and, accordingly, covered by § 217.1(f) of Regulation Q and § 204.1(f) of Regulation D. 250.141; See 12 CFR 1968 Fed, Res. Bulletin 6C1. This notice is published pursuant to section 553(b) of Title 5, United States Code, and § 262.2(a) of the rules of procedure of the Board of Governors. To aid in the consideration of this matter by the Board, interested persons are invited to submit relevant data, views, or arguments. Any such material should be submitted in writing to the Secretary, Board of Governors of the Federal Reserve System, Washington, D. C. 20551, to be received not later than December 1, 1969. Under the Board's rules regarding availability of information (12 CFR Part 261), such materials will be made available for - inspection and copying upon request unless the person submitting the material requests that it be considered confidential. By order of the Board of Governors, October 28, 1969. (signed) Robert P. Forrestal Robert P. Forrestal, Assistant Secretary.