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F ed er a l R e s e r v e Ba n k

DALLAS. TEXAS

of

Dallas

75222

Circular No. 6 9 -1 6 0
July 1, 1969

PROPOSED AMENDMENTS TO REGULATIONS M AND D

To All Member Banks
in the Eleventh Federal Reserve District:
Attached is a copy of a press release of the Board of
Governors of the Federal Reserve System regarding proposed amend­
ments to Regulations M and D which would impose reserve require­
ments on certain Eurodollar transactions.

Copies of the proposed

amendments are also attached.
Comments on the proposal should be received by the Board
by July 28, 1969*
Yours very truly,

P. E. Coldwell
President
Enclosures (2 )

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

F E D E R A L

press

R E S E R V E

release

For immediate release

June 26, 1969

The Board of Governors of the Federal Reserve System today
proposed to amend its regulations in order to moderate the flow of
Euro-dollars between U.S. banks and their foreign branches and also
between U.S. and foreign banks.

Comments on the proposed amendments

should be submitted to the Board within 30 days.
Proposed amendments to Regulation M, which governs the foreign
activities of member banks, would:
1.
of U.

Establish a 10 per cent reserve requirement on borrowings

S. banks from theirforeign branches to

the extent that these

borrowings exceed the daily average amounts outstanding in the four
weeks ending May 28, 1969.

This marginal reserve requirement would

also apply to assets acquired by the foreign branch from U.S. offices
of the bank.
To reduce potential inequities that may be involved in use of
a base period under this proposal, the Board suggested a minimum base
equal to 3 per cent of total deposits subject to reserve requirements
for any bank with a foreign branch regardless of the magnitude of its
previous use of Euro-dollars.
2.
loans

to U.S.

Establish a 10 per cent reserve

requirement on branch

residentsto the extentsuch loans exceed those in a

base period defined as either (a) the amount outstanding on June 25,
1969, or (b) the daily average of amounts outstanding in the four weeks

-2-

ending May 28, 1969.
bank.

The choice of base would be left to the member

An exemption for branches with small amounts of loans to U.S.

residents (less than $5 million on any day of a relevant computation
period) is included in the proposal.
In a companion measure, the Board proposed to define as
deposits subject to Regulation D, which governs reserves of member
banks, any borrowing by a member bank from a foreign bank.

The

Board proposed a 10 per cent reserve requirement against deposits of
this class.
The reserve requirements proposed in these amendments
would remove a special advantage to U.S. banks of using Euro-dollars
for adjustment to domestic credit restraint.

The Board noted that

these reserve-free liabilities of U.S. banks to their foreign
branches have risen by more than $7 billion since the beginning of
1969, and by about $3 billion during the first three weeks of June.
Increases of these magnitudes in liabilities to foreign branches by
a few large banks have had a distorting influence on credit flows in
the United States and abroad.
The Board proposed that banks1 reserve-free bases be
subject to automatic reduction unless such reduction is waived by
Board action at the time.

Under the automatic reduction feature,

a new base would be established when, in any period used to calculate a
reserve requirement, these claims of foreign branches subject to reserve
requirements fall below the original base.
Copies of the proposed amendments are attached.
-

0

-

FEDERAL RESERVE SYSTEM
[12 CFR Parts 204, 213]
[Regs, D, M]

RESERVES OF MEMBER BANKSj FOREIGN ACTIVITIES OF NATIONAL BANKS— ^
Reserves Against Certain Foreign Transactions

The Board of Governors is considering amending Part 204 and
Part 213 to impose reserve requirements against certain transactions usually
involving so-called "Euro-dollars" - deposits of United States dollars
with banks located outside the United States, including overseas branches
of United States banks.
The proposed amendments are designed to remove a special advan­
tage to member banks of using Euro-dollars for adjustment to domestic
credit restraint.

The increasing magnitude of this practice has had a

distorting influence on credit flows in the United States and abroad.
Specifically, the proposed amendments would:
(1) Establish a 10 per cent reserve requirement against (a) bor­
rowings by domestic offices of member banks from their foreign branches and
(b) assets of foreign branches acquired from domestic offices of its parent
member bank, to the extent that such borrowings and assets exceed the daily
average amounts outstanding in the four weeks ending May 28, 1969.
(2) Establish a 10 per cent reserve requirement against credit
extended by a foreign branch of a member bank to United States residents,
to the extent such credits exceed those in a base period defined as either
(a) the amount outstanding on June 25, 1969, or (b) the daily average
amount outstanding in the four weeks ending May 28, 1969.

1/ Despite the title of Part 213, the conditions, limitations, and restric­
tions therein are applicable to foreign activities of State-chartered member
banks as well as national banks (12 U.S.C, 321, 601).

-2 (3)

Establish a 10 per cent reserve requirement on borrowings

by member banks from banks abroad that are not denominated as deposits.
Each of the reserve requirements would be maintained by member
bank head offices in a manner similar to that applicable to their deposit
liabilities generally.
The first two of the proposed requirements would be accomplished
by adding a nev section to

Part 213, as follows:

§ 213.7 Marginal reserve requirements.
(a)

Member bank transactions with foreign branches.

During each

week of the four-week period beginning [the seventh Thursday after the ef­
fective date of this paragraph] and each week of each successive four-week
("maintenance") period, a member bank having one or more foreign branches
shall, in addition to the requirements of Part 204 of this chapter (Regula­
tion D), keep on deposit with the Reserve Bank of its district a daily
average balance equal to 10 per cent of the amount by which the daily aver­
age net total of (1) outstanding assets held by its foreign branches which
were purchased from its domestic offices and (2) balances due from its domes­
tic offices to its foreign branches, for the four-week ("computation") period
ending on the Wednesday fifteen days before the beginning of each maintenance
period, exceeds the greater of either (i) the corresponding daily average
total for either the four-week period ending May 28, 1969 or

any computa­

tion period beginning on or after [the effective date of this

paragraph],

whichever is least, or (ii) three per cent of the member bank*s average
total deposits subject to reserve requirements during the computation period.

-3

(b)

Credit extended by foreign branches to United States residents.

During each week of the four-week period beginning [the seventh Thursday
after the effective date of this paragraph] and each week of each succes­
sive four-week maintenance period, a member bank having one or more foreign
branches shall, in addition to the requirements of Part 204 of this chapter
(Regulation D) and of the preceding paragraph, keep on deposit with the
Reserve Bank of its district a daily average balance equal to 10 per cent
of the amount by which daily average credit outstanding from its foreign
branches to United States residents (other than assets purchased and
balances due from its domestic offices) for the four-week computation
period ending on the Wednesday fifteen days before the beginning of each
maintenance period exceeds either the corresponding daily average total
during the four-week period ending May 28, 1969 or the total outstanding
on June 25, 1969:

Provided, That this paragraph does not apply with respect

to any foreign branch which did not have credit outstanding to United States
residents exceeding $5 million on any day during the relevant computation
period.
*

*

*

*

*

The third of the proposed requirements would

be accomplished:

(1) by amending the exemption enumerated (1) in § 204.1(f) (relating
to certain promissory notes as deposits) by changing "that is issued to
another bank" to read "that is issued to a domestic office of another bank";
(2) by amending § 204.5(a) by changing "subject
to read "subject to paragraphs (b) and (c)"; and

to paragraph (b)"

-4 -

(3 ) by adding to § 2 0 4 .5 th e f o llo w in g new paragraph:
"(c) Reserve percentage against certain deposits of foreign banks.
Deposits represented by promissory notes, acknowledgments of advance, due
bills, or similar obligations of the kind described in § 204*1(f) that are
issued to, or undertaken with respect to, a foreign office of another bank
shall not be subject to the requirements of paragraph (a) of this section,
but a member bank shall maintain on deposit with the Reserve Bank of its
district a balance equal to 10 per cent of such deposits."
*

*

*

*

*

This notice is published pursuant to section 553(b) of Title 5,
United States Code, and section 262.2(a) of the rules of procedure of the
Board of Governors.
To aid in the consideration of this matter by the Board, inter­
ested 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 July 28, 1969.
Dated at Washington, D. C., this 26th day of June 1969.
By order of the Board of Governors.

(signed) Robert P. Forrestal
Robert P. Forrestal,
Assistant Secretary*

[Seal]

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