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F ederal

reserve b an k of




Circular No. 6 9-271
November 4, 1969


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 (


p r e s s


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 -

[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.


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.

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.

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