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F ederal
reserve
Ba n k
DALLAS. TE X A S
of
Dallas
75222
Circular No. 80-116
June 11, 1980
PROPOSED REGULATION D
RESERVES OF ALL DEPOSITORY INSTITUTIONS
(Including U. S. Branches and Agencies of Foreign Banks
And Edge Act and Agreement Corporations
That Have Transaction Accounts or Nonpersonal Time Deposits)
TO THE CHIEF EXECUTIVE OFFICER OF THE
DATA PROCESSING SERVICE CENTER ADDRESSED
IN THE ELEVENTH FEDERAL RESERVE DISTRICT:
Enclosed is a press release and a proposed Regulation D, Reserve
Requirements of Depository Institutions.
The proposed regulation presents
changes in the reserve requirement structure and the computation of reserve
requirements arising from the Monetary Control Act of 1980, under which reserve
requirements are to be imposed by the Board of Governors of the Federal Reserve
System on all depository institutions in the United States that have transactions
accounts or nonpersonal time deposits.
Interested parties are invited to submit comments on the proposed
regulation to Theodore E. Allison, Secretary, Board of Governors of the Federal
Reserve System, Washington, D.C. 20551. Such comments must be received by
July 15, 1980. Following a review of comments received by the Federal Reserve,
issuance of a final regulation is expected in August 1980.
All depository institutions with reservable deposits will berequired to
submit to the Federal Reserve a weekly report of deposits containing daily
information. A list of the items to be reported is contained in the proposed
regulation. The Federal Reserve will issue reporting forms and instructions for
the deposits reports, as well as the information necessary for the calculation of
reserve requirements, as soon as possible following the issuance of the final
regulation.
If you provide data processing services to depository institutions that
will be affected by the proposed regulation, you may wish to consider at this time
how the new reporting requirements and reserve computation procedures will
affect these services. Please keep in mind, however, that the proposed regulation
is subject to change following the comment period and prior to its finalapproval
by the Board of Governors of the Federal Reserve System.
Additional copies of the proposed regulation will be furnished upon
request to the Bank and Public Information Department, Ext. 6266. Questions
regarding the proposed Regulation D change may be directed to Richard D.
Ingram, Assistant Vice President, Ext. 6333, or the officer in charge of the
Accounting Department at the El Paso, Houston, or San Antonio Branches.
Banks and others are encouraged to use the following incoming W ATS num bers in contacting this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the
extension referred to above.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
-2 -
It is anticipated that the implementation of the Monetary Control Act
will enable the Federal Reserve to more effectively conduct monetary policy.
The Federal Reserve is aware, however, of the difficulties that may be
encountered by depository institutions and the data processing centers providing
services to these institutions as adjustments are made to the new reporting
requirements and reserve computation procedures. We look forward to working
with you to minimize the problems associated with the implementation of these
changes.
Sincerely yours,
Robert H. Boykin
First Vice President
Enclosures
For immediate release
June 4, 1980
The Federal Reserve Board Coday issued for public comment a proposed
Regulation D designed to carry out the provisions for reserve requirements in
the Monetary Control Act of 1980.
Comment should be received by July 15.
The Act, enacted on March 31, will improve the effectiveness of
monetary policy by applying new reserve requirements to be set by the Federal
Reserve to member and nonmember commercial banks, savings banks, savings and
loan associations, and credit unions that offer transactions accounts or
nonpersonal time deposits.
By law, the reserve requirement on the first $25 million of an
institution's transactions accounts will be 3 percent; the initial requirement
on remaining transactions accounts will be 12 percent; and the initial require
ment on nonpersonal time deposits will be 3 percent.
The new requirements are
to be phased in gradually, with the phase-in period depending in part on the
present reserve status of the institution.
Major provisions of the new proposed regulation are summarized below.
In addition, some alternatives are noted on which views are specifically requested.
Definition of transactions account
The Act defines a transactions account to include demand deposits,
NOW accounts, ATS accounts, share draft accounts, accounts subject to telephone
transfer, and also other accounts used for making payments or transfers.
To
help ensure that reserve requirements are applied uniformly on all accounts used
for transactions purposes, the Board proposed that transaction accounts include
all accounts subject to telephone or preauthorized transfer, and all accounts
that permit the account holder to make third-party payments through automated
teller machines or remote service units.
The Board invites comment on the
-2 -
feasibility or desirability of exempting from transactions reserve requirements those
accounts subject to telephone or preauthorized transfer that are limited to a
minimal number of transfers per month— perhaps, one or two--for special purposes.
Definition of nonpersonal time deposits
The Act defines a nonpersonal time deposit as any time deposit that
is transferable or any time deposit held by a party other than a natural person.
Since many institutions have issued time deposits to individuals that by their
terms technically may be transferred but are in practice held to maturity by
the original depositor, the Board proposes to regard all time deposits in
denominations of under $100,000 issued to individuals prior to July 15 as personal
time deposits.
On or after that date, to be a personal time deposit, the
instrument must be issued to and held by a natural person and bear on its face
a statement indicating that it is not transferable.
The Board also proposes
to change the minimum maturity of all time deposits from the present 30 days
to 14 days to help improve the ability of domestic depository institutions to
compete with banking offices located abroad and with issuers of short-term
paper in this country.
Eurodollar reserve requirement
The Board proposed a 3 percent reserve requirement on certain Eurodollar
activity, the same reserve ratio as on nonpersonal time deposits, so as to eliminate any
artificial incentive that would favor raising funds offshore as compared
the domestic market.
with
The basic reserve requirement on Eurodollars is presently
zero, although such activity is included in the definition of managed liabilities
currently subject to marginal reserve requirements.
The Eurodollars that would
become subject to the 3 percent basic requirement are the same as those now
-3 covered by the marginal reserve program— namely, net borrowings from related
foreign offices, borrowings from unrelated foreign depository institutions,
loans to U.S. residents made by overseas branches of U.S. chartered depository
institutions, and sales of foreign and domestic assets by depository institutions
in the United States to their overseas offices.
Phase-in of reserve requirements
The Board proposes to implement the phase-in provision of the Act as
follows:
Member banks.
As provided in the Act, reserve requirements for member
banks would be phased down to the new reserve requirements over a period ending
about 3-1/2 years after the September 1, 1980, effective date of the Act.
When
the revised Regulation D takes effect, the amount of required reserves that a
member bank must hold would be equal to
the amount required under the old
structure less 1/8 of the difference between that amount and the amount required
under the new structure.
Thereafter, at approximately 6-month intervals after
the effective date of the Act, required reserves will be reduced by an additional
1/8 of this difference.
The phase-in provision would not apply to NOW accounts
at member banks outside New England, New Jersey, and New York; such accounts
would be immediately subject to the new reserve requirement.
Nonmember institutions.
Nonmember institutions would be phased up
to the new reserve requirement structure over the eight year period set forth
in the Act in the following manner:
On the effective date of this regulation, the required reserves of such
institutions would be equal to 1/8 of the requirement under the new structure.
Thereafter, the amount of required reserves would be increased by an additional
1/8 after each succeeding 12-month interval following the September 1, 1980,
-4 effective date of the Act.
Under the Act, the phase-in provisions would not
apply to NOW accounts at nonmember institutions outside New England, New York,
and New Jersey, which are subject immediately to the new reserve requirements
that apply to all transactions accounts.
Agencies and branches of foreign banks, de novo banks, and new member
banks.
These institutions would be phased in to the new requirements over a two-
year period.
For agencies and branches of foreign banks this schedule is
consistent with the regulation adopted earlier to implement the
Banking Act.
International
For new member banks, the Board presently allows a two-year phase-
in of reserve requirements.
Eligible reserve assets
Reserve requirements would be met with balances held directly at the
Federal Reserve, balances held indirectly at the Federal Reserve on a pass
through basis, and vault cash.
Depository institutions that are not members
of the Federal Reserve may, under the Act, hold reserve balances on a pass
through basis in a depository institution which maintains required reserve
balances at a Federal Reserve Bank, in a Federal Home Loan Bank, or National
Credit Union Administration Central Liquidity Facility.
In view of the substantial restructuring of the reserve system that
is involved in implementation of the Monetary Control Act of 1980, the Board
felt that it would also be appropriate at the same time to invite comment on
three further reserve requirement issues that have been under study.
Conment
on these issues, set forth below, should address the advantages and disadvantages
of the proposals for the financial system as a whole and for monetary policy,
impacts on the efficiency and cost of reserve m anagement by individual institutions,
and the lead time necessary for implementation should the Board find it desirable
-5to introduce these additional measures.
These views will assist the Board in
determining the usefulness of these measures.
Contemporaneous reserve accounting
The Board has been considering a return to contemporaneous
reserve accounting as a means of improving monetary control by strengthening
the linkage between the reserves of the depository system and the money supply.
Instead of basing required reserves on deposits held two weeks earlier, required
reserves would be based on deposits in a current statement week.
To reduce
operational problems for individual institutions, required reserves in the
seven-day reserve maintenance week would be based on beginning-of-day deposits
in the same week.
The measure of beginning-of-day deposits would be deposits
at close of business the previous day.
Vault cash held two weeks previously
would continue to satisfy reserve requirements in the current maintenance week.
A business day reserve-computation period and retention of a 7-day reservemaintenance period
This proposal would require banks and other depository institutions
to calculate reserve requirements on the basis of the five week-days within a
statement week--but less if one of these days is a holiday.
(For institutions
open on the weekend or on holidays, deposits would be reported as of the next
business day for reserve requirement calculation purposes).
The proposal would
thereby eliminate the incentive for institutions to undertake transactions that
artificially raise "cash items" and "due from's" just prior to a weekend or
holiday without similarly adding to their gross deposit liabilities.
Such
activity enables institutions to lower reserve requirements, since "cash items"
and "due from's" are now deducted from deposits in computing reserve requirements.
In addition to making the application of reserve requirements more uniform across
institutions, this proposal,
by removing an incentive for building up such
deductions artificially, would also work to reduce the risk of distortion in
measures of the money supply.
-6Reserve treatment of "due to's" and "due from's"
At present,demand deposits due to banks are reservable, while demand
deposits due from banks can be deducted from gross demand deposits in calculating
reserve requirements.
Reserve requirements on "due to" balances have provided
the Federal Reserve with a mechanism for indirectly influencing the public's
deposits at nonmember institutions--deposits that are to a degree supported by
the member bank balances due to nonmembers.
In view of the extension of the
mandatory reserve requirement system from member banks to all depository
institutions, all of the public's transactions deposits are directly subject
to reserve requirements set by the Federal Reserve, thus eliminating the need
for such indirect methods of control.
Moreover, retention of the present
reserve treatment of "due to's" and "due from's" would complicate monetary
control under the new Act because it is more likely that there would be deposit
shifts between institutions with "due from's" in excess of transactions accounts
and other institutions that would change the effective reserve multiplier.
Therefore, the Board is considering removing reserve requirements
from demand deposits due to depository institutions, which would effectively
eliminate the deduction for "due from's" since they are properly deductible
only to the extent that the corresponding "due to" is reservable.
To ensure
that institutions which clear incoming checks through correspondents are not
subject to a reserve requirement on uncollected funds, these institutions
would record such checks as a "cash item" until they become collected funds.
Since the correspondent would also be entitled to a "cash item" deduction
until the checks are collected, that institution would need to record an
offsetting reservable liability— in the form of a deferred availability
deposit— until the funds are received.
In addition to being more consistent
with the direct control of the public's transactions balances through the
reserve base, such a treatment of interbank transactions would involve less
risk that the process of check clearing would distort money supply statistics.
A copy of the Board's proposals is attached.
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[12 CFR Part 204]
(Docket No. R-0306)
Notice of Proposed Rulemaking
RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Proposed rulemaking.
SUMMARY: The Monetary Control Act of 1980 (Title I of P.L. 96-221)
imposes Federal reserve requirements on all depository institutions
that maintain transaction accounts or nonpersonal time deposits. The
Act authorizes the Federal Reserve to require reports from depository
institutions as necessary or desirable to monitor and control monetary
and credit aggregates, provides access to the Federal Reserve discount
window for all depository institutions subject to Federal reserve requirements,
and requires the Federal Reserve to price its services and provide open
access to system services to all depository institutions on the same
terms and conditions as member banks. In order to implement the reserve
requirement provisions of the Monetary Control Act, the Board proposes
to revise its reserve requirement rules contained in Regulation D— Reserves
of Member Banks (12 CFR Part 204). The revised regulation also will
affect Edge Act and Agreement Corporations and United States branches
and agencies of foreign banks.
DATE: Interested parties are invited to submit relevant data, views
and other comments. Comments must be received by July 15, 1980.
ADDRESS: Comments, which should refer to Docket No. R-0306, should
be addressed to ftieodore E. Allison, Secretary, Board of Governors of
the Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, D.C. 20551, or delivered to room B-2223 between 8:45 a.m.
and 5:15 p.m. Comments received may be inspected in room B-1122 between
8:45 a.m. and 5:15 p.m., except as provided in section 261.6(a) of the
Board's Rules Regarding Availability of Information (12 CFR 261.6(a)).
FOR FURTHER INFORMATION CONTACT: Gilbert T. Schwartz, Assistant General
Counsel (202/452-3625), Paul S. Pilecki, Attorney (202/452-3281), or
Thomas D. Simpson, Senior Economist (202/452-3361), Board of Governors
of the Federal Reserve System, Washington, D.C. 20551.
-2 -
SUPPLEMENTARY INFORMATION: The Monetary Control Act of 1980 ("Act")
(Title I of P.L. 96-221; 94 Stat. 132) imposes Federal reserve requirements
on all depository institutions that maintain transaction accounts or
nonpersonal time deposits. Depository institutions subject to reserve
requirements include any Federally-insured commercial or savings bank,
or any bank that is eligible to become insured by the Federal Deposit
Insurance Corporation; any savings and loan association that is a member
of a Federal Home Loan Bank, insured by, or eligible to apply for insurance
with, the Federal Savings and Loan Insurance Corporation; and any credit
union that is insured by, or eligible to apply for insurance with, the
National Credit Union Administration Board. Reserve requirements would
continue to apply to United States branches and agencies of foreign
banks with total worldwide consolidated bank assets in excess of $1
billion, and to Edge Act and Agreement Corporations in the same manner
as member banks. In this regard, the Act provides that nothing in the
reserve requirement provisions of the Act limits the authority of the
Board under section 7 of the International Banking Act of 1978 ("IBA")
(12 U.S.C. § 3105). On March 19, 1980, the Board adopted amendments
to Regulation D to impose reserve requirements on such branches and
agencies (45 Fed. Reg. 19216); however, as discussed below, the proposed
revised regulation modifies certain aspects of that action in view of
the enactment of the Monetary Control Act. In addition, since branches
of foreign banks are eligible to apply for Federal deposit insurance,
reserve requirements also will apply to United States branches' of foreign
banks with total worldwide consolidated bank assets of $1 billion or
less.
The Act also provides access to the Federal Reserve discount
window to all depository institutions with transaction accounts or nonpersonal
time deposits. On March 31, 1980, the Board indicated that its policy
with respect to full access to the discount window will be announced
by July 1, 1980. The Act also requires the pricing of services and
the provision of services to all depository institutions. The Federal
Reserve is reviewing the issues of fees and access to System services
for all depository institutions and will announce a policy with regard
to access to Federal Reserve services at a later date.
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 and the procedures
for computing and maintaining required reserves including penalties
for deficiencies and other violations.
-3 -
Under Regulation D at present, reserve balances consist of
United States currency and coin and 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 period”). Required reserve balances must
be maintained at a Federal Reserve Bank during a corresponding weekly
period (the "maintenance period") which begins on the second Thursday
following the end of the computation period. However, in determining
whether a sufficient reserve balance has been maintained, the average
daily United States 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.
Changes to Regulation D
Apart from the issues discussed below and changes mandated
by the Monetary Control Act, the proposed Regulation D reflects modifications
of the present regulation. These changes primarily take the form of
clarification of language and incorporation of existing Board interpretations
into the proposed regulation. The organization of Regulation D has
also been revised to present the requirements in a more understandable
format.
New sections have been added to the regulation to reflect
additional reserve requirement authority added pursuant to the Monetary
Control Act.Specific sections deal with reserve requirements in
emergency circumstances, supplemental reserves, and Eurodollar reserves.
These sections set forth the Board's authority to impose reserves in
the relevant circumstances. A section has been added which sets forth
rules concerning imposition of penalties for failure to maintain proper
reserve requirements.
Public comment is requested by July 15, 1980 on the following
proposed actions.
Transaction Accounts
Definition. The Act defines "transaction account" to include
demand deposits, negotiable order of withdrawal (NOW) accounts, savings
accounts subject to automatic transfers (ATS), share draft accounts,
1/ The proposed Regulation D does not include any provision for the
marginal reserve requirement program on managed liabilities (12 CFR
204.5(f)). The continuation of the marginal reserve requirements after
the September 1, 1980, effective date of the Act would depend upon con
ditions at that time.
-4-
accounts subject to telephone transfers, and other accounts for the
purpose of making payments or transfers to third persons or others.
For monetary control purposes, the Board believes that it is desirable
to sharpen the distinction between accounts actively used for transactions
purposes and those that serve mainly as liquid investment outlets.
Consequently, to ensure that reserve requirements are applied on all
accounts used for transactions purposes, the Board proposes to define
"transaction accounts" to include all savings accounts subject to telephone
or preauthorized transfers, or that permit payments to third parties
through automated teller machines, including remote service units, as
well as demand deposits, NOW, ATS, and share draft accounts. Thus,
any account that would allow the depositor to transfer any funds or
to make payments to third parties by telephone or by preauthorized arrangement
would be regarded as a transaction account. The Board, however, requests
public comment on the feasibility or desirability of regarding accounts
that permit only infrequent transfers by telephone or preauthorized
instruction as transaction accounts. A savings account that is accessible
by an automated teller machine or electronic terminal would not be considered
a transaction account under the Board's proposal unless payments or
transfers to third parties could be effected.
Reserve Requirement Ratio. The Act specifies that any reserve
requirement imposed by the Board shall be solely for the purpose of
implementing monetary policy and shall be applied uniformly to all transaction
accounts at all depository institutions. A reserve ratio of 3 per cent
on transaction accounts of $25 million or less is established by the
Act. This low reserve requirement tranche will be adjusted annually
based on the change in the total of transaction accounts at all depository
institutions. With regard to transaction accounts in excess of $25
million, the Board is required by the Act to set an initial reserve
ratio of 12 per cent, but, in the future, may vary the ratio within
a range of 8 to 14 per cent.
Reserve Requirement Calculation by United States Branches
and Agencies of Foreign Banks. On March 19, 1980, the Board adopted
regulations (45 Fed. Reg. 19216) implementing section 7 of the IBA (12
U.S.C. § 3105) to impose reserve requirements on United States branches
and agencies of foreign banks with total worldwide consolidated bank
assets in excess of $1 billion ("branches and agencies"). The Board
adopted a procedure of statewide aggregation for purposes of calculating
reserve requirements for branches and agencies. The determination to
adopt a system of statewide aggregation was based principally on comments
received indicating that national aggregation for calculating reserves
would be complex and costly and on estimates suggesting that it would
have very little effect on the reserves required of branches and agencies.
-5 -
The system of statewide aggregation for reserve computation
and maintenance will not be affected by the proposed regulation. However,
it is proposed that only one low reserve requirement tranche ($25 million)
be permitted on transaction accounts for each foreign bank’s branches
and agencies since these institutions compete primarily with domestic
money center banks, which will have only one low reserve requirement
tranche. Allowing a foreign bank only one low reserve tranche is consistent
with the IBA's goal of competitive equality between branches and agencies
and domestic depository institutions. In this regard, the Board also
proposes that an Edge Corporation be allowed only one low reserve tranche
on transaction accounts regardless of the number of its branches.
Under the Board's proposals, a foreign bank or an Edge Corporation
would be allowed to assign its low reserve requirement tranche to any
office of its choice or, in the event that the total of transaction
accounts at such office are less than $25 million, to more than one
office until the amount of the tranche is exhausted. These institutions
also would be permitted periodically to reassign the low reserve requirement
tranche, perhaps once every two years.
NOnpersonal Time Deposits
Definition. The Act defines "nonpersonal time deposit" as
a transferable time deposit or account or a time deposit or account
representing funds in which any beneficial interest is held by a depositor
which is not a natural person. Nontransferable time deposits in which
the entire beneficial interest is held by a natural person would not
be subject to reserve requirements. Currently, under Regulation D,
the term "savings deposits" is included in the definition of "time deposit;"
thus, any savings deposit held by a business or nonprofit organization
or a domestic governmental unit would be regarded as a nonpersonal time
deposit (unless otherwise defined as a transaction account).
Time deposits, including credit union share certificates,
that are issued in transferable form could be regarded as nonpersonal
time deposits because of the transferability feature. Since the provision
of the Act including transferable time deposits as nonpersonal time
deposits was intended to prevent the evasion of reserve requirements
through the transfer of time deposits from individuals to organizations
or governmental units, the Board proposes to exclude from the definition
of nonpersonal time deposits a time deposit issued to and held by a
natural person on or after July 15, 1980 only if it includes on the
face of the deposit instrument a specific statement that it is not transferable.
A transferable time deposit issued before July 15, 1980 to a natural
person in a denomination of less than $100,000 would not be regarded
as a nonpersonal time deposit.
-6 -
Reserve Requirement Ratio. The Act requires that the reserve
ratio on all nonpersonal time deposits initially be set at 3 per cent.
The Board has authority to set the reserve ratio on nonpersonal time
deposits within a range of 0 to 9 per cent.
Maturity of Time Deposits
In considering the definition of nonpersonal time deposits,
the Board also examined certain other issues related to reserve requirements.
In this regard, the Board proposes to shorten the present 30-day minimum
maturity for a time deposit to 14 days. The Board believes that a shorter
minimum maturity on time deposits has considerable merit for purposes
of improving the competitive position of domestic depository institutions
vis-a-vis open market instruments and foreign banking offices. Under
the Board's proposal, time deposits with original maturities of between
14 and 29 days issued in minimum denominations of $100,000 or more could
earn interest at any rate since there are no Federal interest rate limitations
on time deposits issued in such denominations.
Treatment of Promissory Notes, Due Bills and Other Miscellaneous Obligations
of Depository Institutions
Regulation D currently defines as deposits a number of sources
of funds that formerly were exempt from reserve requirements. The Board
proposes to continue to regard as deposits promissory notes (commercial
paper), ineligible acceptances (finance bills), due bills, acknowledgments
of advance, repurchase agreements against assets other than obligations
of the United States government and its agencies, and funds raised from
affiliates. Such obligations having original maturities of less than
14 days would be regarded as demand deposits and would be subject to
the reserve requirement on transaction accounts and those having maturities
of 14 days or more would be regarded as nonpersonal time deposits, if
transferable or held by a depositor other than a natural person. Under
this approach, certificates of indebtedness issued by credit unions
would be defined as deposits.
Subordinated Notes. Under Regulations D and Q (Interest on
Deposits) subordinated capital debt of member banks are not regarded
as deposits subject to reserve requirements or interest rate limitations
provided that certain conditions are met, including a minimum maturity
of seven years or more. The Board proposes to retain these conditions
for depository institutions. In this regard, the Federal Deposit Insurance
Corporation has similar rules concerning issuance of subordinated notes
exempt from interest rate limitations by insured nonmember commercial
-7-
banks {see 12 CFR Part 329). For thrift institutions, the Board proposes
a similar exemption from reserve requirements for subordinated capital
debt. Such a debt obligation would be exempt from reserve requirements
if it would have a minimum original maturity of seven years or more
and was approved by the institution's primary Federal supervisor or
was issued under the rules of the primary Federal supervisor.
Obligations of Affiliates. The Board proposes to revise the
reserve treatment of funds advanced by affiliates to depository institutions.
At present, deposits of member banks include the liability of an affiliate
to the extent that the proceeds are used for the purpose of supplying
funds to the affiliated institution. However, the rules relating to
determination of deposit status of such obligations are complex. In
order to simplify the determination of the deposit status of affiliate
obligations, the Board proposes to apply the following rules. An obligation
issued by the affiliate would not be regarded as a deposit of the affiliated
depository institution if the obligation would not have been a deposit
had it been issued directly by the affiliated depository institution.
Conversely, an obligation of an affiliate would be regarded as a deposit
if the obligation issued by the affiliate would have been a deposit
had it been issued directly by the affiliated depository institution.
If the affiliate's obligation is determined to be a deposit, then the
appropriate reserve ratio to be applied would be determined by the shorter
of the maturity of the affiliate’s obligation or the maturity of the
obligation issued by its affiliated depository institution, or in the
case of asset purchases, the maturity of the assets purchased.
Due Bills. A due bill is a promise by the bank to deliver
at some future date a security purchased by the bank's customer. Under
existing provisions, due bills issued or undertaken by a member bank
principally as a means of obtaining funds to be used in its banking
business are regarded as deposits subject to reserves. However, due
bills that are not issued principally as a means of obtaining funds
to be used in the banking business are deposits only if they are not
collateralized with a similar security within three days after issuance.
The principal questions that arise in connection with these transactions
involve whether a member bank is utilizing due bill transactions as
a means of obtaining funds principally for use in its banking business
and whether such obligations are collateralized with a "similar" security.
In order to minimize compliance and enforcement problems involving
due bills, the Board proposes to revise Regulation D so that all due
bills would be reservable deposits from the date of issuance without
regard to the purpose of the due bill unless collateralized within three
-8 -
days from date of issuance by a security identical to the security purchased
from the depository institution's customer.
Eurodollar Reserve Requirement
Under the Act, the Board's authority to establish any reserve
requirement necessary for the implementation of monetary policy on Eurodollars
is extended to cover all domestic depository institutions. In particular,
the Board is authorized to place reserve requirements on: net borrowings
from related foreign offices, borrowings from unaffiliated foreign depository
institutions, loans to United States residents made by overseas offices
of depository institutions located in the United States, and sales of
assets by depository institutions in the United States to their overseas
offices. These are essentially the same categories that are reservable
under Regulation D currently, although the basic reserve ratio on Eurodollar
transactions has been zero since August 1978. Such activities, however,
are managed liabilities subject to marginal reserve requirements. The
Board proposes to continue the present definition of Eurodollar transactions
subject to basic reserve requirements, except that the proceeds of sales
to foreign branches of all assets— rather than only domestic assets-would be reservable.
The Board also proposes to apply a reserve ratio of 3 per
cent to Eurodollar transactions, the same ratio that would be applied
to nonpersonal time deposits. The Board believes that such action would
eliminate any artifical incentive through the reserve requirement structure
that would favor raising funds offshore as compared with the domestic
market. As a technical matter, the proposed Regulation D reflects a
change in the four-week computation and maintenance period for Eurodollar
reserves to one week periods coinciding with normal reserve computation
and maintenance periods.
Eligible Reserve Assets
The Act specifies that reserves of a depository institution
may be held in the form of vault cash, a balance maintained at the Federal
Reserve Bank of which it is a member or at which it maintains an account,
or a balance maintained by a depository institution which is not a member
bank in a depository institution which maintains required reserve balances
at a Federal Reserve Bank, a Federal Home Loan Bank, or the National
Credit Union Administration Central Liquidity Facility if such funds
are passed through to the Federal Reserve.
The Board has the authority to specify the portion of vault
cash that a depository institution may use to meet its reserve requirements.
Under the proposed Regulation D, a depository institution would be permitted
to use all of its vault cash as eligible reserve assets. However, all
-9 -
silver and gold coin and other currency and coin whose numismatic or
bullion value is substantially in excess of face value would not be
regarded as vault cash.
The Board presently is reviewing the operations issues in
connection with pass-through accounts through consultation with other
agencies and depository institution trade groups. An announcement will
be forthcoming concerning the mechanics of pass-through arrangements.
Phase-in of Reserve Requirements
Member Banks. Member banks would be phased down to the new
structure of reserve requirements over a three and one-half year period,
beginning on September 4, 1980. During this period, actual reserves
maintained would equal required reserves under the current structure
less a portion of the difference between reserves calculated under the
structure of the Act and the reserve structure in effect on August 31,
1980.
The Act stipulates that the phase-in rate increment each year
for member banks should be 1/4 of the difference between reserves under
the current structure and the new structure, under rules and regulations
of the Board. To implement this provision, the Board proposes to phasedown reserve requirements for member banks at semiannual intervals,
beginning with reserves held in the maintenance period starting September 4,
1980. Every six months the phase-down adjustment would rise by 1/8
of the difference between reserves computed under the old and new structures.
Nonmember Banks and Thrift Institutions. Reserve requirements
of nonmember banks and thrift institutions would be phased-in over an
eight-year period. Nonmember institutions would be required to hold
an amount equal to 1/8 of reserve requirements calculated under the
Act, beginning with the reserve maintenance period beginning Thursday,
September 4, 1980. During the seven-day maintenance period beginning
on that date, a nonmember depository institution would maintain reserves
based on its deposits and vault cash outstanding during the seven-day
computation period beginning August 21, 1980. Thereafter, the amount
of reserves required would increase by an additional 1/8 of the reserve
requirements under the Act after each succeeding 12 month interval.
Deposits or Accounts Authorized After April 1, 1980. A special
provision in the Act exempts from the transitional phase-in provisions
any category of deposits or accounts that are first authorized pursuant
to Federal law in any State after April 1, 1980. This provision most
-1 0 -
inunediately applies to negotiable order of withdrawal (NOW) accounts
that are authorized in States outside of New England, New York and New
Jersey on December 31, 1980. Therefore, depository institutions maintaing
NOW accounts in those States would be required to maintain reserves
against such accounts at the full transactions deposits reserve ratio.
In computing reserves required to be maintained on NOW accounts,
a depository institution located outside of New England, New York and
New Jersey would be permitted to deduct a portion of its cash items
in process of collection in the proportion that its NOW accounts are
of its total transaction accounts. To determine the reserve ratio to
apply to NOW accounts, depository institutions would apply the $25 million
initial tranche for transaction accounts to its transactions accounts
subject to the highest reserve requirement. Under this approach, a
nonmember depository institution outside of New England, New York and
New Jersey phasing-in reserves could apply the $25 million tranche to
its NOW accounts initially with any remaining portion applied to other
transactions accounts subject to the phase-in. Transaction accounts
in excess of $25 million (other than NOW accounts) would be subject
to a reserve ratio of 12 per cent, but the effective reserve ratio applicable
to these accounts would be lower than 12 per cent because of the phasein. Member banks could apply the $25 million transaction tranche to
demand deposits or NOW accounts in computing its phase-down of reserve
requirements.
Branches and Agencies. Under the amendments to Regulation D
adopted in connection with implementation of the IBA, branches and agencies
were granted a phase-in of reserve requirements over a two-year period.
This phase-in period is similar to that allowed to nonmember banks joining
the Federal Reserve System. The Board proposes to allow branches and
agencies to phase-in to the new reserve requirement structure that becomes
effective on September 1, rather than requiring a more complicated and
burdensome procedure of phasing up to member bank actual reserve requirements
by the end of two years, and then phasing down over the next two years
in line with member banks.
The deposits of additional branches
and
agencies of a foreign bank that has existing United States branches
or agencies would be entitled only to the remaining phase-in, if any,
available to the existing United States branches or agencies.
De Novo Banks and New Members.The Act provides an eightyear phase-in for nonmember banks engaged in business on July 1, 1979.
Consequently, a de novo nonmember depository institution formed after
July 1, 1979 would be required to maintain full reserve requirements
beginning on the effective date of the Act. In addition, under the
-1 1 -
Act, a de novo member or a nonmember joining the System ("new member")
would be required to maintain full present member bank reserve requirements,
and then phase down to the new requirements of the Act. Current Board
policy provides a two-year transitional period to full reserve requirement
levels for de novo and new member banks.
The Board believes that, in order to provide an orderly adjustment
to reserve requirements, it is appropriate for the Federal Reserve to
continue its policy of providing a 24-month transitional phase-in for
all de novo depository institutions and new members. Under the Board's
proposal, de novo institutions and new members would be phased in to
the new reserve requirements under the Act rather than to present member
bank reserve requirements.
Former Members and Mergers. On April 23, 1980, the Board
announced an interpretation (45 Fed. Reg. 28305) of section 19(b)(8)(D)
of the Federal Reserve Act (12 U.S.C. § 461(b), as amended by section 103
of the Act). This interpretation applies to the reserves required of
any bank that was a member bank in the Federal Reserve System on July 1,
1979, and which subsequently withdraws from membership. That interpretation
also establishes a System policy for reserve requirements of depository
institutions involved in mergers.
Tables 1 and 2 present reporting categories that will be required
of depository institutions and of United States branches and agencies
of foreign banks.
Table 1
Reporting categories for any depository institution other than a U. S.
branch or agency of a foreign bank:
1.
Demand deposits due to banks.
2.
Demand deposits due to other depository
3.
Demand deposits due to the U. S.Government.
4.
Other demand deposits (including noninterest-bearing
negotiable orders of withdrawal).
5.
Savings deposits authorized for automatic transfer (ATS
acccounts).
6.
Negotiable order of withdrawal (NOW) accounts; share
drafts.
institutions.
-1 2 -
7.
Savings deposits subject to telephone or preauthorized
transfer or that permit payments through automated teller
machines, including remote service units.
8.
Demand deposits due from depository institutions. (Note:
For institutions designated below under a single asterisk
(*), this category will be broken down into two items:
(1) demand deposits due from banks, and (2) demand deposits
due from other depository institutions.)
9.
Cash items in process of collection.
10.
Other savings deposits (i.e., all savings deposits other
than those included in items 5, 6, or 7 above)— personal.
11.
Other savings deposits— nonpersonal.
12.
Personal time deposits.
13.
Nonpersonal time deposits.
*14.
Time deposits with original maturities of 14 through
179 days.
*15.
Time deposits with original maturities of 180 days but
less than 4 years.
*16.
Time deposits with original maturities of 4 years or
more.
17.
Time deposits of $100,000 or more.
18.
U. S. currency and coin owned and held.
19.
Funds received from issuance of obligations
that have remaining maturities of less than
20.
Funds received from issuance of obligations by affiliates
that have remaining maturities of 14 days or more. (Note:
For institutions designated below under a single asterisk
(*), this item will cover obligations that have remaining
maturities of 14 days or more but less than 180 days.)
*21.
Funds received from issuance of obligations by affiliates
that have remaining maturities of 180 days or more but
less than 4 years.
by affiliates
14
days.
-1 3 *22.
Funds received from issuance of obligations by affiliates
that have remaining maturities of 4 years or more.
23.
Funds received from the sale of ineligible bankers' acceptances
that have remaining maturities of less than 14 days.
24.
Funds received from the sale of ineligible bankers' acceptances
that have remaining maturities of 14 days or more. (Note:
For institutions designated below under a single asterisk
(*), this item will cover obligations that have remaining
maturities of 14 days or more but less than 180 days.)
*25.
Funds received from the sale of ineligible bankers' acceptances
that have remaining maturities of 180 days or more but
less than 4 years.
*26.
Funds received from the sale of ineligible bankers' acceptances
that have remaining maturities of 4 years or more.
**27.
Borrowings from offices of other banks outside the United
States, foreign national governments, and international
institutions.
**28.
Gross balances
due to own non-U. S. branches.
**29.
Gross balances
due from own non-U. S. branches.
**30.
Assets sold to and held by own non-U. S. branchesacquired
from U. S. offices (including assets that are claims
on both U. S. and non-U. S. residents).
**31.
Credit extended by own non-U. S. branches to U. S.
residents.
*
To be reported only by a depository institution that is a member
bank on September 1, 1980, or that was a member bank on or after July 1,
1979, and since then withdrew from membership.
** To be reported only by U. S. commercial banks and Edge Act and Agreement
corporations.
-14-
Table 2
Reporting categories for any United States branch or agency of a foreign
bank:*
*
1.
Demand deposits due to banks.
2.
Demand deposits due to other depository institutions.
3.
Demand deposits due to the U. S.
Government.
4.
Other demand deposits (including
officers' checks).
5.
Savings deposits authorized for automatic transfer (ATS
accounts).
6.
Negotiable order of withdrawal (NON)accounts.
7.
Savings deposits subject to telephone or preauthorized
transafer or that permit payments through automated teller
machines, including remote service units.
8.
Demand deposits due from depository institutions.
9.
Cash items in process of collection.
10.
Other savings deposits (i.e., all savings deposits other
than those included in items 5, 6, or 7 above)— personal.
11.
Other savings deposits— nonpersonal.
12.
Personal time deposits.
13.
Nonpersonal time deposits.
14.
Time deposits of $100,000 or more.
15.
U. S. currency and coin owned and held.
16.
Funds received from the sale of ineligible bankers' acceptances
that have remaining maturities of less than 14 days.
17.
Funds received from the sale of ineligible bankers' acceptances
that have remaining maturities of 14 days or more.
"Deposits" include credit balances.
-1 5 18.
Borrowings from other foreign banks, foreign national
governments, and international institutions.
19.
Gross claims on the foreign bank (including its offices
located outside the United States).
20.
Gross liabilities to the foreign bank (including its
offices located outside the United States).
21.
Assets sold by a branch or agency to its foreign bank
(including its offices located outside the United States)
or its foreign parent bank holding company.
22.
Assets sold by the branch or agency to nonbanking affiliates.
23.
Total assets less the sum of United States coin and currency,
cash items in process of collection and unposted debits,
balances due from domestic banks and other foreign banks,
balances due from foreign central banks and net balances
due from the foreign bank and the foreign bank's U. S.
and foreign offices.
In addition to the above proposals, the Board desires public
comment on three issues that have been under consideration in the past.
Contemporaneous Reserve Accounting
As an alternative to the existing procedures of reserve maintenance,
the Board requests comment on a proposal to modify the procedures by
which reserve requirements are maintained. Under the proposal, the
reserve computation period would continue to cover the seven-day period
beginning Thursday and ending on the following Wednesday, and reserve
requirements would continue to be computed based upon the daily average
deposits outstanding during the reserve computation week. Reserve requirements,
however, would be required to be satisfied by the United States currency
and coin held by a depository institution on a daily average basis during
the seven-day reserve computation period which begins on the Thursday
fifteen days prior to the beginning of the reserve maintenance period
and by balances maintained in a Federal Reserve Bank (directly or indirectly)
on a daily average basis during the seven-day maintenance period which
begins on the day after (i.e., Friday) the beginning of the reserve
computation period (i.e., Thursday). For example, under the proposal,
a depository institution would be required to maintain a reserve balance
at the Federal Reserve on a daily average basis during the seven-day
reserve maintenance period beginning Friday, June 6, 1980, and ending
-1 6 -
on Thursday, June 12, 1980, based upon daily average deposits during
the seven-day reserve computation period beginning Thursday, June 5,
1980, and ending Wednesday, June 11, 1980, after talcing into account
the institution's currency and coin maintained during the seven-day
computation period beginning Thursday, May 22, 1980, and ending Wednesday,
May 28, 1980. A depository institution would continue to be permitted
to carry forward to the following reserve maintenance week excesses
or deficiencies up.to 2 per cent of the institution's required reserves.
This procedure would improve monetary control by strengthening
the linkage between the reserves of the depository system and the money
supply.
Business Day Reserve Computation Period
Under the present method of computing required reserves, all
seven days of the computation period, including Saturdays, Sundays and
legal holidays, are included in computing the daily average of deposits.
Under this approach, the deposits outstanding at the close of business
on Friday generally are reported for Saturday and Sunday also. Thus,
Friday's balances are used three times in computing the institution's
daily average deposits outstanding during the computation period. Similarly,
the deposits outstanding at the close of business on the day before
a legal holiday are reported as the balances outstanding for the holiday
also.
The Board is aware of actions on the part of some member banks
to engage in transactions on Fridays that tend to increase asset accounts
artificially, particularly cash items in process of collection (CIPC's).
Since CIPC's are available as a deduction from the member bank's gross
demand deposits, this activity results in a lower daily average of net
demand deposits and lower reserve requirements. Such transactions may
have an adverse effect on the conduct of monetary policy in that they
may adversely affect the relationship between the supply of reserves
and the stock of money.
In order to limit the effect of actions that may lower reserve
requirements, the Board proposes to revise the present method of computing
daily average deposit balances and daily average marginal managed liabilities
by deleting nonbusiness days, that is, Saturdays, Sundays and legal
holidays, in the computation of the daily averages outstanding during
the reserve computation period. By changing the method of computing
balances against which reserves must be maintained to include only banking
business days, the Board anticipates that the impact of such artificial
-1 7 transactions that serve only to reduce reserve requirements would be
minimized. This proposed method of computation would apply to all depository
institutions required to maintain reserves under the Act. It should
be noted that under the proposal, daily currency and coin would continue
to be computed under the present seven-day method and required reserves
would continue to be maintained over a seven-day maintenance period.
Deductions from Gross Transaction Accounts
In computing demand deposit reserve requirements, member banks
currently are permitted to deduct from their gross demand deposits cash
items in the process of collection ("CIPCs") and demand balances due
from other banks. The purpose of this deduction is to prevent situations
in which more than one institution holds required reserves against the
same deposit liability to the nonbank public.
At present, indirect control over the public's deposits at
nonmember institutions is exerted through reserve requirements on the
balances that these institutions have due from member banks, that is,
member bank deposits due to other depository institutions. The Board
believes that, with the application of reserve requirements to all depository
institutions, there is no longer the need for such indirect methods
of control. Therefore, the Board is considering excluding from the
definition of deposits inter-depository institution balances that represent
finally collected funds that are immediately withdrawable. Exempting
such balances from reserve requirements would eliminate the necessity
of allowing a deduction for the corresponding "due from" account. Under
this approach, a "due from" deduction would be permitted only if the
corresponding "due to" balance of a depository institution is subject
to Federal reserve requirements.
Under this approach, cash items in the process of collection
would be permitted to be deducted from the amount of a depository institution's
gross transactions accounts. To ensure that institutions which clear
incoming checks through correspondents are not subject to a reserve
requirement on uncollected funds, these institutions would record such
checks as a "cash item" until they become collected funds. Since the
correspondent would also be entitled to a "cash item" deduction until
the checks are collected, that institution would need to record an offsetting
reservable liability— in the form of a deferred availability deposit-until the funds are received. The deferred availability account effectively
would not be reserved, however, since that account would be offset by
the amount of the CIPC the correspondent has forwarded for collection.
As the correspondent institution received payment on cleared
checks, it would advise its respondent daily of collected funds becoming
available that day before the correspondent could convert the deferred
availability balance to a nonreservable "due to." Upon receipt of the
-18advice, the respondent would be required to debit deductible CIPCs and
credit nondeductible "due fronts." In addition to being more consistent
with direct control of the public's transaction balances through the
reserve base, such a treatment of interbank transactions would involve
less risk that the process of check clearing would distort money supply
statistics.
In view of the September 1, 1980 effective date of the reserve
requirement provisions of the Monetary Control Act, the Board has determined
to shorten the length of the comment period normally provided to the
public. Accordingly, comments on these proposals should be submitted
to the Board by July 15, 1980.
Pursuant to authority under section 19 of the Federal Reserve
Act (12 U.S.C. § 461 et seg*)>as amended by the Monetary Control
Act
of 1980 (Title I, P.L. 96-221; 94 Stat. 132) and section 7 of the International
Banking Act of 1978 (12 U.S.C. § 3105), the Board proposes to revise
Regulation D (12 CFR Part 204) to read as follows:
-1 9 PART 204— RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
Sec.
204.1
204.2
204.3
204.4
204.5
204.6
204.7
204.8
204.9
Authority, Purpose and Scope
Definitions
Computation and Maintenance
Transitional Adjustments
Emergency Reserve Requirement
Supplemental Reserve Requirement
Eurodollar Reserve Requirements
Penalties
Reserve Ratios
SECTION 204.1— AUTHORITY, PURPOSE AND SCOPE
(a) Authority. This Part is issued under the authority of
section 19 (12U.S.C. SS 461 et seq.) and other provisions of the Federal
Reserve Act and of section 7 of the International Banking Act of 1978
(12 U.S.C. S 3105).
(b) Purpose. This Part relates to reserves that, member banks
and other depository institutions are required to maintain for the purpose
of facilitating the conduct of monetary policy by the Federal Reserve
System.
(c) Scope. (1)
The following depository institutions are
required to maintain reserves in accordance with this Part:
(i) Any insured bank as defined in section 3 of the
Federal Deposit Insurance Act (12 U.S.C. S 1813(h)) or any bank that
is eligible to apply to become an insured bank under section 5 of such
Act (12 U.S.C. S 1815);
(ii) Any savings bank or mutual savings bank as defined
in section 3 of the Federal Deposit Insurance Act (12 U.S.C. S 1813(f),
(g)) ;
(iii) Any insured credit union as defined in section 101
of the Federal Credit Union Act (12 U.S.C. S 1752(7)) or any credit
union that is eligible to apply to become an insured credit union under
section 201 of such Act (12 U.S.C. S 1781);
(iv) Any member as defined in section 2 of the Federal
Home Loan Bank Act (12 U.S.C. S 1 4 2 2(4 )); and
(v) Any insured institution as defined in section 401
of the National Housing Act (12 U.S.C. § 1724(a)) or any institution
which is eligible to apply to become an insured institution under section 403
of such Act (12 U.S.C. § 1726).-
-2 0 -
(2) Except as may be otherwise provided by the Board, a foreign
bank's branch or agency located in the United States is required to
comply with the provisions of this Part in the same manner and to the
same extent as if the branch or agency were a member bank, if its parent
foreign bank (i) has total worldwide consolidated bank assets in excess
of $1 billion; or (ii) is controlled by a foreign company or by a group
of foreign companies that own or control foreign banks that in the aggregate
have total worldwide consolidated bank assets in excess of $1 billion.
In addition, any other foreign bank's branch located in the United States
that is eligible to apply to become an insured bank under section 5
of the Federal Deposit Insurance Act (12 U.S.C. § 1815) is required
to maintain reserves in accordance with this Part as a depository in
stitution.
(3) This Part does not apply to any financial institution
that (i) is organized solely to do business with other financial institutions;
(ii) is owned
primarily by the financial institutions with which
it
does business; and (iii) does not do business with the general public.
(4) The provisions of this Part do not apply to any deposit
that is payable only at an office located outside the United States.
(That is, an obligation is not subject to the reserve requirements of
this Part if it requires a depository institution to make payment only
at an office located outside the United States and, if for any reason
the obligation is not paid at a foreign office, the depository institution
cannot be required to pay it in the United States.)
SECTION 204. 2— DEFINITIONS
For purposes of this Part, the following definitions apply
unless otherwise specified:
(a)(1)
"Deposit" means:
(i) the unpaid balance of money or its equivalent received
or held by a depository institution in the usual course of business
and for which it has given or is obligated to give credit, either conditionally
or unconditionally, to an account, or which is evidenced by an instrument
on which the depository institution is primarily liable;
(ii) money received or held by a depository institution,
or the credit given for money or its equivalent received or held by
the depository institution in the usual course of business for a special
or specific purpose, regardless of the legal relationships established
thereby, including escrow funds, funds held as security for securities
loaned by the depository institution, funds deposited as advance payment
on subscriptions to United States government securities, and funds held
to meet its acceptances;
-2 1 -
(iii) an outstanding draft, cashier's check, money order,
ot officer's check drawn on the depository institution and issued in
the usual course of business for any purpose, including payment for
services, dividends, or purchases;
(iv) any due bill or other liability or undertaking
on the part of a depository institution to sell or deliver securities
to, or purchase securities for the account of, any customer (including
another depository institution), involving either the receipt of funds
by the depository institution, regardless of the use of the proceeds,
or a debit to an account of the customer before the securities are delivered.
A deposit arises from the date of issuance of the obligation if, within
three business days, the depository institution does not deliver the
securities purchased or does not fully collateralize its obligation
with securities identical to the securities purchased;
(v) any liability of a depository institution's affiliate,
on any promissory note, acknowledgment of advance, due bill, or similar
obligation (written or oral), with a maturity of seven years or less,
to the extent that the proceeds are used to supply or to maintain the
availability of funds (other than capital) to the depository institution,
except any such obligation that, had it been issued directly by the
depository institution, would not constitute a deposit;
(vi)
of a foreign bank;
credit balances of a United States branch or agency
(vii) a depository institution's liability on any promissory
note, acknowledgment of advance, bankers' acceptance, or similar obligation
(written or oral) that is issued or undertaken by a depository institution
as a means of obtaining funds, except any such obligation that:
(A)
(B)
is issued or undertaken and held for the account of:
(1)
an office located in the United States of another
depository institution or foreign bank;
(2)
the United States government or an agency thereof;
or
(3)
the Export-Import Bank of the United States,
Minbanc Capital Corporation, the Government
Development Bank for Puerto Rico, a Federal
Reserve Bank, or a Federal Home Loan Bank;
arises from a transfer of direct obligations of,
or obligations that are fully guaranteed as to principal
and interest by, the United States government or
any agency thereof that the depository institution
is obligated to repurchase;
PROPOSED REGULATION D
RESERVES OF DEPOSITORY INSTITUTIONS
PART 2
-2 2 -
(2)
(C)
is not insured by a Federal agency, is subordinated
to the claims of depositors, has a weighted average
maturity of more than seven years, is not subject
to Federal interest rate limitations, and is issued
by a depository institution with the approval of
or under the rules and regulations of its primary
Federal supervisor;
(D)
arises from a borrowing by a depository institution
from a dealer in securities, for one business day,
of proceeds of a transfer of deposit credit in a
Federal Reserve Bank or other immediately available
funds, (commonly referred to as "Federal funds"),
received by such dealer on the date of the loan
in connection with clearance of securities transactions;
(E)
arises from the creation, discount and subsequent
sale by a depository institution of its bankers'
acceptance of the type described in section 13 of
the Federal Reserve Act (12 U.S.C. § 346) and which
is eligible for discount by the Federal Reserve
Banks; or
(F)
represents the liability of a United States branch
or agency of a foreign bank to another United States
branch or agency of the same foreign bank, or the
liability of the United States office of an Edge
Corporation to another United States office of the
same Edge Corporation.
"Deposit" does not include:
(i) trust funds received or held by the depository in
stitution that it keeps properly segregated as trust funds and apart
from its general assets or which it deposits in another institution
to the credit of itself as trustee or other fiduciary. If trust funds
are deposited with the commercial department of the depository institution
or otherwise mingled with its general assets, a deposit liability of
the institution is created;
(ii) an obligation that represents a conditional or
endorser's liability;
(iii) obligations, the proceeds of which are not used
by the depository institution for purposes of making loans, investments,
or maintaining liquid assets such as cash or "due from" depository in
stitutions or other similar purposes. Obligations issued for the purpose
of raising funds to purchase business premises, equipment, supplies,
-2 3 -
or similar assets are not deposits. The creation of mortgage indebtedness
to acquire business premises or the creation of accounts payable to
acquire equipment and supplies generally does not give rise to creation
of a deposit liability;
(iv)
accounts payable;
(v) hypothecated "deposits” created by payments on installment
loans where the amounts received are not used immediately to reduce
the unpaid balance due on the note until the sum of the payments equals
the entire amount of principal and interest and where such amounts are
irrevocably assigned to the depository institution and cannot be reached
by the borrower or creditors of the borrower;
(vi) dealer reserve and differential accounts that arise
from the financing of dealer installment accounts receivable and which
provide that the dealer may not have access to the funds in the account
until the installment loans are repaid, as long as the depository in
stitution is not actually (as distinguished from contingently) obligated
to make credit or funds available to the dealer;
(vii) a dividend declared by a depository institution
for the period intervening between the date of the declaration of the
dividend and the date on which it is paid;
(viii) an obligation representing a "pass through account,"
as defined in this section;
(ix) an obligation arising from the retention by the
depository institution of no more than a 10 per cent interest in a pool
of conventional 1-4 family mortgages that are sold to third parties;
and
(x) an obligation issued to a State or municipal housing
authority under loans to lenders programs involving the issuance of
tax exempt bonds and the subsequent lending of the proceeds to the depository
institution for housing finance purposes.
(b)(1) "Demand deposit" means a deposit that is payable on
demand, or a deposit issued with an original maturity or required notice
period of less than 14 days, or a deposit representing funds for which
the depository institution does not reserve the right to require at
least 14 days' written notice of an intended withdrawal. The term includes
all deposits other than time and savings deposits. Overdrafts in demand
deposit accounts are not to be treated as negative demand deposits and
should not be netted since overdrafts are properly reflected on an institution's
books as loans. Demand deposits may be in the form of (i) checking
-24accounts; (ii) certified, cashier's and officer's checks (including
checks issued by the depository institution in payment of dividends);
(iii) traveler's checks and money orders; (iv) checks or drafts drawn
by or on behalf of a non-United States office of a depository institution
on an account maintained at any of the institution's United States offices;
(v) letters of credit sold for cash or its equivalent; (vi) withheld
taxes, withheld insurance and other withheld funds; (vii) time deposits
that have matured or time deposits upon which the required notice of
withdrawal period has expired and have not been renewed (either by action
of the depositor or automatically under the terms of the deposit agreement);
and (viii) any obligation to pay a check (or other instrument, device,
or arrangement for the transfer of funds) drawn on the depository institution,
where the account of the institution's customer already has been debited.
(2)
A "demand deposit" does not include checks or drafts
drawn by the depository institution on the Federal Reserve or on another
depository institution.
(c)(1) "Time deposit" means funds that the depositor does
not have a right to withdraw for a period of 14 days or more after the
date of deposit. "Time deposit" includes funds:
(i) payable on a specified date not less than 14 days
after the date of deposit;
(ii) payable at the expiration of a specified time not
less than 14 days after the date of deposit;
(iii) payable upon written notice which actually is
required to be given by the depositor not less than 14 days before the
date of repayment; or
(iv) such as "Christmas club" accounts and "vacation
club" accounts, that are deposited under written contracts providing
that no withdrawal shall be made until a certain number of periodic
deposits have been made during a period of not less than three months
even though some of the deposits are made within 14 days from the end
of the period.
(2)
A time deposit may be represented by a transferable or
nontransferable instrument, a negotiable or nonnegotiable instrument,
a passbook, or otherwise.
A time deposit includes share certificates
and certificates of indebtedness issued by credit unions, and certificate
accounts and notice accounts issued by savings and loan associations.
-2 5 (d)(1) "Savings deposit" means a deposit or account with
respect to which the depositor is not required by the deposit contract
but may at any time be required by the depository institution to give
written notice of an intended withdrawal not less than 14 days before
withdrawal is made, and that is not payable on a specified date or at
the expiration of a specified time after the date of deposit. A deposit
may continue to be classified as a savings deposit even if the depository
institution exercises its right to require notice of withdrawal. A
"savings deposit” includes a regular share account at a credit union
and a regular account at a savings and loan association.
(2) For depository institutions subject to 12 CFR Part 217
or 12 CFR Part 329, funds deposited to the credit of, or in which any
beneficial interest is held by, a corporation, association, partnership
or other organization operated for profit may be classified as a savings
deposit if such funds do not exceed $150,000 per depositor at a depository
institution.
(3) "Savings deposit" does not include funds deposited to
the credit of the depository institution's own trust department where
the funds involved are utilized to cover checks.
(e) "Transaction account" means a deposit or account on which
the depositor or account holder is permitted to make withdrawals by
negotiable or transferable instrument, payment orders of withdrawal,
telephone transfers, or other similar device for the purpose of making
payments or transfers to third persons or others. "Transaction account"
includes:
(1)
demand deposits;
(2) deposits or accounts subject to negotiable orders of
withdrawal accounts or share drafts;
(3) savings deposits or accounts in which withdrawals may
be made automatically through payment to the depository institution
itself or through transfer of credit to a demand deposit or other account
in order to cover checks or drafts drawn upon the institution or to
maintain a specified balance in, or to make periodic transfers to, such
accounts; and
(4) deposits or accounts in which withdrawals may be made
by preauthorized transfer or payment, by telephone transfer or payment,
or by payment to third parties by means of an automated teller machine,
remote service unit or other electronic device.
'2 6 -
(f)
"Nonpersonal time deposit" means:
(1) a time deposit representing funds deposited to the credit
of, or in which any beneficial interest is held by, a depositor which
is not a natural person;
(2) a savings deposit that is not a transaction account and
that represents funds deposited to the credit of, or in which any beneficial
interest is held by, a depositor which is not a natural person;
(3) a time deposit that is transferable, except a time deposit
in a denomination of less than $100,000 issued before July 15, 1980,
to and held by a natural person; and
(4) a time deposit issued on or after July 15, 1980, to and
held by a natural person that does not contain on its face a statement
that it is not transferable.
(g)(1)
bank or other
presentation
Reserve Bank
presented for
day;
"Cash item in process of collection" means:
(i) checks in the process of collection, drawn on a
depository institution that are payable immediately upon
in the United States, including checks forwarded to a Federal
in process of
collection and checks onhand that
will be
payment or forwarded for collection on the following business
(ii) government checks drawn on the Treasury of the
United States that are in the process of collection; and
(iii) such other items in the process of collection,
that are payable immediately upon presentation in the United States
and that are customarily cleared or collected by depository institutions
as cash items, including:
(A) drafts payable through another depository institution;
(B) redeemed bonds and coupons;
(C) food coupons and certificates;
(D) postal and other money orders, and traveler's checks;
(E) amounts credited to deposit accounts in connection
with automated payment arrangements where such credits
are made one business day prior to the scheduled
payment date to insure that funds are available
on the payment date;
-2 7 (F)
commodity or bill of lading drafts payable immediately
upon presentation in the United States;
(G)
returned items and unposted debits; and
(H)
broker security drafts.
(2)
"Cash item in process of collection" does not include
items handled as noncash collections and credit card slips and drafts.
(h) "Net transaction accounts" means the total amount of
a depository institution's transaction accounts less the deductions
allowed under the provisions of § 204.3.
(i)(1) "Vault cash" means United States currency and coin
owned and held by a depository institution that may, at any time, be
used to satisfy depositors' claims.
(2)
"Vault cash" includes United States currency and coin
in transitto a Federal Reserve Bank or a correspondent depository
in
stitution for which the reporting depository institution has not yet
received credit, and United States currency and coin in transit from
a Federal Reserve Bank or a correspondent depository institution when
the reporting depository institution's account at the Federal Reserve
or correspondent
bank has been charged for such shipment.
(3) All silver and gold coin, and other currency and coin
whose numismatic or bullion value is substantially in excess of face
value, is not vault cash for purposes of this Part.
(j) "Pass through account" means a balance maintained by
a depository institution that is not a member bank (1) in a depository
institution that maintains required reserve balances at a Federal Reserve
Bank, (2) in a Federal Home Loan Bank, or (3) in the National Credit
Union Administration Central Liquidity Facility, if the depository institution,
Federal Home Loan Bank, or National Credit Union Administration Central
Liquidity Facility maintains the funds in the form of balances in a
Federal Reserve Bank of which it is a member or at which it maintains
an account.
(k)(1)
"Depository institution" means:
(i)
any insured bank as defined in section 3 of the
Federal Deposit Insurance Act (12 U.S.C. § 1813(h)) or any bank that
is eligible to apply to become an insured bank under section 5 of such
Act (12 U.S.C. § 1815);
-28(ii) any savings bank or mutual savings bank
in section 3 of the Federal Deposit Insurance Act (12 U.S.C.
(g));
(iii) any insured credit union as defined in
of the Federal Credit Union Act (12 U.S.C. S 1752(7)) or any
union that is eligible to apply to become an insured credit union under
section 201 of such Act (12 U.S.C. § 1781);
(iv) any member as defined in section 2 of the Federal
Home Loan Bank Act (12 U.S.C. § 1422(4)); and
(v) any insured institution as defined in section 401
of the National Housing Act (12 U.S.C. § 1724(a)) or any institution
which is eligible to apply to become an insured institution under section 403
of such Act (12 U.S.C. § 1726).
(2)
"Depository institution” does not include international
organizations such as the Wbrld Bank, the Interamerican Development
Bank, and the Asian Development Bank.
(1) "Member bank" means a depository institution that is a
member of the Federal Reserve System.
(m) "Foreign bank" means any bank organized under the laws
of any country other than the United States or organized under the laws
of Puerto Rico, Guam, American Somoa, the Virgin Islands, or other territory
or possession of the United States.
(n)
"De novo depository institution" means a depository
stitution that was not engaged in business on July 1, 1979, and is
the successor by merger or consolidation to a depository institution
that was engaged in business on that date.
(o)
other organization:
in
not
"Affiliate includes any corporation, association, or
(1) Of which a depository institution, directly or indirectly,
owns or controls either a majority of the voting shares or more than
50 per cent of the numbers of shares voted for the election of its directors,
trustees, or other persons exercising similar functions at the preceding
election, or controls in any manner the election of a majority of its
directors, trustees, or other persons exercising similar functions,
(2) Of which control is held, directly or indirectly, through
stock ownership or in any other manner, by the shareholders of a depository
institution who own or control either a majority of the shares of such
depository institution or more than 50 per cent of the number of shares
voted for the election of directors of such depository institution at
the preceding election, or by trustees for the benefit of the shareholders
of any such depository institution;
-2 9 -
(3) Of which a majority of its directors, trustees, or
other persons exercising similar functions are directors of any one
depository institution; or
(4) which owns or controls, directly or indirectly, either
a majority of the shares of capital stock of a depository institution
or more than 50 per cent of the number of shares voted for the election
of directors, trustees or other persons exercising similar functions
of a depository institution at the preceding election, or controls in
any manner the election of a majority of the directors, trustees, or
other persons exercising similar functions of a depository institution,
or for the benefit of whose shareholders or members all or substantially
all the capital stock of a depository institution is held by trustees.
(p) "United States" means the States of the United States
and the District of Columbia.
(q) "United States resident" means (1) any individual residing
(at the time of the transaction) in the United States; (2) any corporation,
partnership, association or other entity organized in the United States
("domestic corporation"); and (3) any branch or office located in the
United States of any entity that is not organized in the United States.
SECTION 204.3 —
COMPUTATION AND MAINTENANCE
(a) Maintenance of reserves. (1) Depository institutions.
A depository institution shall maintain reserves against its deposits
in accordance with the procedures prescribed in this section and section 204.4
and the ratios prescribed in section 204.9. For purposes of this Part,
the obligations of a majority owned (50% or more) subsidiary (except
an Edge or Agreement Corporation) of a depository institution shall
be regarded as obligations of the parent depository institution. Every
depository institution holding transaction accounts or nonpersonal time
deposits shall file a Report of Deposits each week
with the Federal
Reserve Bank of its District and any other reports
that theBoard may
require by rule, regulation, or order and shall be
assessedpenalties
for deficiencies in required reserves in accordance with the provisions
of this Part.
(2)
United States branches and agencies of foreign banks.
(i)
A foreign bank's United States branches and agencies
operating within the same State and within the same Federal Reserve
District shall prepare and file a Report of Deposits on an aggregated
basis, shall maintain required reserves with the Federal Reserve Bank
of thier District, and shall be assessed penalties for deficiencies
in reserve accounts in accordance with the provisions of this Part.
-3 0 (ii)
The United States branches and agencies of the
same foreign bank shall attribute to one such branch or agency the low
reserve tranche on transaction accounts (§ 204.9(a)). If net transaction
accounts at such agency or branch are less than the amount of the low
reserve tranche, the remaining portion of the reserve tranche shall
be attributed to other United States branches or agencies of the same
foreign bank until the amount of the tranche or net transaction accounts,
whichever is less, is exhausted.
(3)
Edge and Agreement Corporations.
(i) An Edge Corporation's offices operating within the
same State and within the same Federal Reserve District shall prepare
and file a Report of Deposits on an aggregated basis, shall maintain
required reserves with the Federal Reserve Bank of their District, and
shall be assessed penalties for deficiencies in required reserves in
accordance with the provisions of this Part.
(ii) An Edge and Agreement corporation shall attribute
to one of its offices the low reserve tranche on transaction accounts
(§ 204.9(a)). If net transaction accounts at such office are less than
the amount of the low reserve tranche, the remaining portion of the
reserve tranche shall be attributed to other offices of the Edge Corporation
until the amount of the reserve tranche or net transaction accounts,
whichever is less, is exhausted.
(b) Form of reserves. Reserves shall be held by a depository
institution in the form of (i) a balance maintained directly with the
Federal Reserve Bank in the District in which it is located, (ii) vault
cash, and (iii) a pass through account. Reserves held in the form of
a pass through account shall be considered to be a balance maintained
with the Federal Reserve.
(c) Computation of reserves. Required reserves are computed
on the basis of the depository institution's daily average deposit balances
during a seven-day period ending each Wednesday (the "computation period").
Required reserve balances shall be maintained during a corresponding
seven-day period (the "maintenance period") which begins the second
Thursday following the end of the computation period. However, to determine
the reserve balance that a depository institution is required to maintain
with the Federal Reserve, the average daily vault cash held during the
computation period is deducted from the amount of the institution's
reserve requirements.
(d)
Deductions allowed in computing reserves.
(1)
In determining the reserve balance required under
this Part, the amount of cash items in process of collection and balances
-3 1 subject to immediate withdrawal due from other depository institutions
located in the United States (including such amounts due from United
States branches and agencies of foreign banks) may be deducted from
the amount of gross transaction accounts. The amount that may be deducted
may not exceed the amount of gross transaction accounts. However, if
a depository institution maintains any transaction accounts that are
first authorized under Federal law after April 1, 1980, it may deduct
from these balances cash items in process of collection and balances
subject to immediate withdrawal due from other depository institutions
located in the United States only to the extent of the proportion that
such newly authorized transaction accounts are of the institution's
total transaction accounts. The remaining cash items in process of
collection and balances subject to immediate withdrawal due from other
depository institutions shall be deducted from the institution's remaining
transaction accounts.
(2) United States branches and agencies of a foreign
bank may not deduct balances due from another United States branch or
agency of the same foreign bank, and United States offices of an Edge
Corporation may not deduct balances due from another United States office
of the same Edge Corporation.
(3) Balances "due from other depository institutions"
do not include balances due from Federal Reserve Banks, pass through
accounts, or balances (payable in dollars or otherwise) due from banking
offices located outside the United States. An institution exercising
fiduciary powers may not include in "balances due from other depository
institutions" amounts of trust funds deposited with other banks and
due to it as a trustee or fiduciary.
(e)
Availability of cash items as reserves. Cash items forwarded
to a Federal Reserve Bank for collection and credit shall not be counted
as part of the reserve balance to be carried by a depository institution
with the Federal Reserve until the expiration of the time specified
in the appropriate time schedule established under Regulation J, "Collection
of Checks and Other Items and Transfers of Funds" (12 CFR Part 210).
If a depository institution draws against items before that time, the
charge will be made to its reserve balance if the balance is sufficient
to pay it; any resulting impairment of reserve balances will be subject
to the penalties provided by law and by this Part. However, the Federal
Reserve Bank may, at its discretion, refuse to permit the withdrawal
or other use of credit given in a reserve account for any time for which
the Federal Reserve Bank has not received payment in actually and finally
collected funds.
-3 2 -
(f) Carryover of deficiencies. Any excess or deficiency
in a depository institution's required reserve balance for any maintenance
period that does not exceed 2 per cent of the depository institution's
required reserves shall be carried forward to the next maintenance period.
Any carryover not offset during the next period may not be carried forward
to additional periods.
(g) Deposits of affiliates. If an obligation of an affiliate
of a depository institution is regarded as a deposit and is used to
purchase assets from the depository institution, the maturity of the
deposit is determined by the shorter of the maturity of the obligation
issued or the maturity of the assets purchased. If the proceeds from
an affiliate's obligation are placed in the depository institution in
the form of a reservable deposit, no reserves need be maintained against
the obligation of the affiliate. However, the maturity of the deposit
issued to the affiliate shall be the shorter of the maturity of the
affiliate's obligation or the maturity of the deposit.
SECTION 204.4--TRANSITI0NAL ADJUSTMENTS
The following transitional adjustments for computing Federal
reserve requirements shall apply to all member and nonmember depository
institutions, except for reserves imposed under sections 204.5, 204.6
and 204.7.
(a)
Nonmembers. Except as provided below, the required reserves
of a depository institution that was engaged in business on July 1,
1979, but was not a member of the Federal Reserve System on or after
that date shall be determined by reducing the amount of required reserves
computed under section 204.3 in accordance with the following schedule:
Reserve maintenance periods
occurring between
September
September
September
September
September
September
September
September
4, 1980
3, 1981
2, 1982
1, 1983
6, 1984
5, 1985
4, 1986
3, 1987
to September 2, 1981
to September 1 , 1982
to August 31, 1983
to September 5, 1984
to September 4, 1985
to September 3, 1986
to September 2, 1987
forward
Percentage that computed
reserves will be reduced
87.5
75
62.5
50
37.5
25
12.5
0
However, an institution shall not reduce the amount of reserves required
to be maintained on any category of deposits or accounts that are first
authorized under Federal law in any State after April 1, 1980.
-3 3 -
(b)
Members and former members. Any depository institution
that is a member bank on September 1, 1980, or was a member bank on
or after July 1, 1979 and withdrew from membership before March 31,
1980, or withdraws from membership on or after March 31, 1980, shall
compute and maintain reserves as follows:
(1)
A depository institution whose required reserves
are higher using the reserve ratios in effect during
a given computation period (§ 204.9(a)) than its
required reserves using the reserve ratios in effect
on August 31, 1980 (§ 204.9(b)):
(i)
shall maintain the full amount of reserves
that is required against any category of deposits
or accounts that are first authorized under
Federal law in any State after April 1, 1980;
and
(ii)
shall reduce the amount of its required reserves
on all other deposits computed under section 204.3
by an amount determined by multiplying the
amount by which required reserves computed
under section 204.3 exceeds the amount of reserves
that would have been required using the reserve
ratios that were in effect on August 31, 1980
(§ 204.9(b)), times the appropriate percentage
specified below in accordance with the following
schedule:
Reserve maintenance periods
occurring between
September
September
September
September
4,
3,
2,
1,
1980 to September 2, 1981
1981 to September 1, 1982
1982 toAugust 31, 1983
1983 forward
(2)
Percentage applied to difference
to compute amount to be subtracted
75
50
25
0
A depository institution whose required reserves
are lower using the reserve ratios in effect during
a given computation period (§ 204.9(a)) than its
required reserves using the reserve ratios in effect
on August 31, 1980 (§ 204.9(b)):
(i)
shall maintain the full amount of reserves
that is required against any category of deposits
or accounts that are first authorized under
Federal law in any State after April 1, 1980;
and
-3 4 -
(ii)
shall increase the amount of its required reserves
on all other deposits computed under section 204.3
by an amount determined by multiplying the
amount by which reserves that would have been
required using the reserve ratios that were
in effect on August 31, 1980 (§ 204.9(b)),
exceeds the amount of required reserves computed under
section 204.3, times the appropriate percentage
specified below in accordance with the following
schedule:
Reserve maintenance periods
occurring between
September 4, 1980-March 4,
March 5-September 2, 1981
September 3, 1981-March 3,
March 4-September 1, 1982
September 2, 1982-March 2,
March 3-August 31, 1983
September 1, 1983-February
March 1, 1984 forward
1981
1982
1983
29, 1984
Percentage applied to
difference to compute
amount to be added
87.5
75
62.5
50
37.5
25
12.5
0
(c)
Certain nonmembers and branches and agencies of foreign
banks. The required reserves of a nonmember depository institution
that was not engaged in business on or before July 1, 1979, but commenced
business between July 2, 1979, and September 1, 1980, and any United
States branch or agency of a foreign bank with total worldwide consolidated
bank assets in excess of $1 billion shall be determined by reducing
the amount of its required reserves computed under section 204.3 in
accordance with the following schedule:
Reserve maintenance periods
occurring between
September 4-December 3, 1980
December 4, 1980-March 4, 1981
March 5-June 3, 1981
June 4-September 2, 1981
September 3-December 2, 1981
December 3, 1981-March 3, 1982
March 4-June 2, 1982
June 3, 1982 forward
Percentage that computed
reserves will be reduced
87.5
75.0
62.5
50.0
37.5
25.0
12.5
0
-3 5 -
However, the institution shall not reduce the amount of reserves required
to be maintained on any category of deposits or accounts that are first
authorized under Federal law in any State after April 1/ 1980.
(d) New members. Any nonmember depository institution that
becomes a member of the Federal Reserve System after September 1, 1980,
shall maintain reserves in an amount determined under paragraph (a)
or (c), as applicable, as if it had remained a nonmember and adding
to this amount an amount determined by multiplying the difference between
its required reserves computed using the ratios specified in § 204.9(a)
and its required reserves computed as if it had remained a nonmember
times the percentage specified below in accordance with the following
schedule:
Maintenance periods occurring
during successive quarters after
becoming a member bank
1
2
3
4
5
6
7
8 and succeeding
Percentage applied to
difference to compute
amount to be added
12.5
25.0
37.5
50.0
62.5
75.0
87.5
100.0
(e) De novo institutions. Any depository institution that
was not engaged in business on September 1, 1980, shall maintain the
amount of required reserves computed under section 204.3 in accordance
with the following schedule:
Maintenance periods occurring
during successive quarters after
entering into business
1
2
3
4
5
6
7
8 and succeeding
Percentage of reserve
requirement to be maintained
40
45
50
55
65
75
85
100
-3 6 -
(f) Nonmembers chartered under laws of Alaska or Hawaii.
This subparagraph applies to any State-chartered depository institution
that wasengaged in business on August 1, 1978,
which was not a
member
of theFederal Reserve Systemon that date,
and whose principal
office
was located in Alaska or Hawaii on and after that date shall not maintain
reserves against its deposits imposed under this Part until January 2,
1986. On or after January 2, 1986, the required reserves of such a
depository institution shall be determined by reducing the amount of
required reserves computed under section 204.3 in accordance with the
following schedule:
Maintenance periods
occurring between
January
January
January
January
January
January
January
January
2 to December 31, 1986
1, 1987 to January 6, 1988
7, 1988 to January 4, 1989
5, 1989 to January 3, 1990
4, 1990 to January 2, 1991
3, 1991 to January 1, 1992
2, 1992 to January 6, 1993
7, 1993 forward
Percentage that computed
reserves will be reduced
87.5
75
62.5
50
37.5
25
12.5
0
(g)
Mergers and consolidations. The following rules concerning
transitional adjustments apply to mergers and consolidations of depository
institutions:
(1)
Nonmembers. Where the surviving institution of
a merger or consolidation between nonmember depository
institutions that were engaged in business on July 1,
1979 is a nonmember institution, it shall compute
its transitional adjustment of reserve requirements
under paragraph (a).
(2)
Member with surviving nonmember. Where the surviving
institution of a merger or consolidation between
a nonmember bank and a bank that was a member bank
on or after July 1, 1979, or after is a nonmember
bank, it shall apply the transitional rules for
member banks in paragraphs (b) or (d), as applicable,
on the proportion of its deposits attributable to
the absorbed member bank. This proportion will
be the ratio that daily average deposits of the
absorbed member bank were to the daily average deposits
of the combined banks during the reserve computation
period immediately preceding the date of the merger.
The bank will compute and maintain reserves against
the remaining proportion of deposits applying the
transitional rules applicable to nonmember depository
institutions in paragraphs (a), (c) or (e), as applicable.
A ratio of vault cash also will be computed and
applied.
-3 7 (3)
De novo with surviving nonmember. Where the surviving
institution of a merger or consolidation betweeen
a depository institution that was engaged in business
on July 1, 1979, and was not a member of the Federal
Reserve System on or after that date, and a de novo
depository institution is a nonmember depository
institution, it shall compute and maintain reserves
applying the transitional rules for de novo depository
institutions in paragraphs (c) or (e), as applicable,
on a proportion of its deposits attributable to
the absorbed de novo bank. This proportion will
be the ratio that daily average deposits of the
absorbed de novo institution were to the daily average
deposits of the combined institutions during the
reserve computation period immediately preceding
the date of the merger. The institution will compute
and maintain reserves against the remaining proportion
of its deposits by applying the transitional rules
applicable to nonmember depository institutions
in paragraph (a). A ratio of vault cash also will
be computed and applied.
(4)
Nonmember with surviving member. Where the surviving
institution of a merger or consolidation between
a member bank and a nonmember bank is a member bank,it
shall apply the transitional rules under paragraphs
(a), (c) or (e), as applicable, only on the amount
of deposits of the nonmember bank outstanding on
a daily average basis during the computation period
immediately preceding the date of the merger. Reserves
will be computed and maintained against the balance
of the deposits
of the surviving member bank under
paragraphs (b),
(d) or (e), as applicable.
(5) Members. Where
a merger or consolidation involves
member banks, required reserves shall be computed
and maintained under section 204.3, except that
the amount of reserves which shall be maintained
shall be reduced by an amount determined by multiplying
the amount by which the required reserves during
the computation period immediately preceding the
date of the merger (computed as if the banks had
merged) exceeds the sum of the actual required reserves
of each bank during the same computation period
times the appropriate percentage as specified in
the following schedule:
-3 8 -
Reserve maintenance periods
occurring during quarterly
periods following merger
1
2
3
4
5
6
7
8 and succeeding
Percentage applied to
difference to compute
amount to be subtracted
87.5
75.0
62.5
50.0
37.5
25.0
12.5
0
(6)
De novo with surviving member. Where the surviving
institution of a merger or consolidation between
a bank that was a member bank at any time between
July 1, 1979, and September 1, 1980, and a de novo
depository institution is a member bank, it shall
compute and maintain reserves by applying paragraph
(e) only to the amount of deposits of the de novo
institution outstanding on a daily average basis
during the computation period immediately preceding
the date of the merger. Reserves will be computed
and maintained against the remaining deposits of
the surviving member bank under paragraphs (b) or
(d), as applicable.
(7)
De novos. Where a merger involves de novo depository
institutions, required reserves shall be computed
and maintained in accordance with section 204.3,
except that the amount of reserves which shall be
maintained shall be reduced by an amount determined
by multiplying the amount by which the required
reserves during the computation period immediately
preceding the date of the merger (computed as if
the depository institutions had merged) exceeds
the sum of the actual required reserves of each
depository institution during the same computation
period, times the appropriate percentage as specified
in the following schedule:
Maintenance periods occurring
during quarterly periods
following merger
1
2
3
4
5
6
7
8 and succeeding
Percentage applied
compute amount to
be subtracted
87.5
75.0
62.5
50.0
37.5
25.0
12.5
0
-3 9 -
SECTIO N 2 0 4 . 5
—
EMERGENCY RESERVE REQUIREMENTS
(a) Finding by Board. The Board may impose, after consulting
with the appropriate committees of Congress, additional reserve requirements
on depository institutions at any ratio on any liability upon a finding
by at least five members of the Board that extraordinary circumstances
require such action.
(b) Term. Any action taken under this section shall be valid
for a period not exceeding 180 days, and may be extended for further
periods of up to 180 days each by affirmative action of at least five
members of the Board for each extension.
(c) Reports to Congress. The Board shall transmit promptly
to Congress a report of any exercise of its authority under this paragraph
and the reasons for the exercise of authority.
(d) Reserve requirements. At present, there are no emergency
reserve requirements imposed under this section.
SECTION 204.6 —
SUPPLEMENTAL RESERVE REQUIREMENTS
(a)
Finding by Board. Upon the affirmative vote of not less
than five members and after consultation with the Board of Directors
of the Federal Deposit Insurance Corporation, the Federal Home Loan
Bank Board, and the National Credit Union Administration Board, the
Board may impose supplemental reserve requirements on every depository
institution of not more than 4 per cent of its total transaction accounts.
This supplemental reserve requirement may be imposed if:
(1) the sole purpose of the requirement is to increase
the amountof reserves maintained to a level essential for the conduct
of monetary policy;
(2) the requirement is not imposed for the purpose of
reducingthe cost burdens resulting from the imposition of the reserve
requirements under section 204.3;
(3) the requirement is not imposed for the purpose
of increasing the amount of balances needed for clearing purposes; and
(4) on the date on which supplemental reserve requirements
are imposed, the total amount of reserves required under section 204.3
is not less than the amount of reserves that would be required on transaction
accounts and nonpersonal time deposits under the reserve ratios in effect
on September 1, 1980.
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(b)
Term.
(1) If a supplemental reserve requirement has been required
of depository institutions for a period of one year or more, the Board
shall review and determine the need for continued maintenance of supplemental
reserves and shall transmit annual reports to the Congress regarding
the need for continuing the supplemental reserve.
(2) Any supplemental reserve requirement shall terminate
at the close of the first 90-day period after the requirement is imposed
during which the average amount of supplemental reserves required are
less than the amount of reserves which would be required if the ratios
in effect on September 1, 1980, were applied.
(c) Earnings Participation Account. A depository institution's
supplemental reserve requirement shall be maintained by the Federal
Reserve Banks in an Earnings Participation Account. Such balances shall
receive earnings to be paid by the Federal Reserve Banks during each
calendar quarter at a rate not to exceed the rate earned on the securities
portfolio of the Federal Reserve System during the previous calendar
quarter. Additional rules and regulations may be prescribed by the
Board concerning the payment of earnings on Earnings Participation Accounts
by Federal Reserve Banks.
(d) Report to Congress. The Board shall transmit promptly
to the Congress a report stating the basis for exercising its authority
to require supplemental reserves under this section.
(e) Reserve requirements. At present, there are no supplemental
reserve requirements imposed under this section.
SECTION 204.7 —
EURODOLLAR RESERVE REQUIREMENTS
(a) Reserves required. In addition to the reserves required
to be maintained under section 204.3, a depository institution and a
United States branch or agency of a foreign bank shall maintain reserves
against the sum of its Eurodollar liabilities described in this section
applying the ratio set forth in section 204.9(a).
(b)
Eurodollar liabilities are the sum of the following:
(1)
Certain deposits by foreign banking offices. Deposits
represented by promissory notes, acknowledgments of advance, or similar
obligations described in section 204.2(a)(1)(vii) that are issued to
any office located outside the United States of another depository institution
organized under the laws of the United States or of a foreign bank,
or to institutions whose time deposits are exempt from interest rate
limitations under section 217.3(g) of Regulation Q (12 CFR 217.3(g)).
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(2)
Foreign branch transactions with parent.
(i)
(ii)
In the case of a depository institution organized
under United States law,
(A)
net positive balances due from its United
States offices to its non-United States
offices, and
(B)
assets (including participations) held
by non-United States branches that were
acquired from its United States offices
or from an affiliated Edge Corporation.
In the case of United States branches and agencies
of a foreign bank,
(A)
net positive balances due to its foreign
bank (including offices thereof located
outside the United States) after deducting
an amount equal to 8 per cent of the United
States branch's or agency's total assets
less the sum of United States coin and
currency, cash items in the process of
collection and unposted debits, balances
due from domestic banks and other foreign
banks, balances due from foreign central
banks, and net balances due from its foreign
bank and its United States and non-United
States offices; however, the amount that
may be deducted may not exceed net balances
due to the foreign bank (including offices
thereof located outside the United States),
and
(B)
assets (including participations) held
by its foreign bank (including offices
of the foreign bank located outside the
United States or its parent holding company
that were acquired from the United States
branch or agency) other than assets required
to be sold by Federal or State supervisory
authorities or from an affiliated Edge
Act Corporation.
-42(3)
Foreign branch credit extended to United States
residents. Credit outstanding from the non-United States office of
a depository institution organized under United States law to United
States residents (other than assets acquired and net balances due from
its United States offices), except credit extended (i) in the aggregate
amount of $100,000 or less to any United States resident, (ii) by a
non-United States office which at no time during the computation period
had credit outstanding to United States residents exceeding $1 million,
and (iii) to an institution that will be maintaining reserves on such
credit pursuant to this Part. This subparagraph does not apply to United
States branches and agencies of foreign banks. Credit extended to a
foreign branch, office, subsidiary, affiliate or other foreign establishment
("foreign affiliate") controlled by one or more domestic corporations
will not be regarded as credit extended to a United States resident
if the proceeds will be used in its foreign business or that of other
foreign affiliates of the controlling domestic corporation(s).
SECTION 204.8 -- PENALTIES
(a)
Penalties for Deficiencies.
(1) Assessment of Penalties. Deficiencies in a depository
institution's required reserve balance, after application of the 2 per
cent carryover provided in section 204.3(f) are subject to penalties.
Penalties shall be assessed at a rate of 2 per cent per year above the
lowest rate in effect for borrowings from the Federal Reserve Bank on
the first day of the calendar month in which the deficiencies occurred.
Penalties shall be assessed on the basis of daily average deficiencies
during each computation period. Reserve Banks may, as an alternative
to levying monetary penalties, after consideration of the circumstances
involved, permit a depository institution to eliminate deficiencies
in its required reserve balance by maintaining additional reserves during
subsequent reserve maintenance periods.
(2) Waivers. Reserve Banks may waive the penalty for
reserve deficiencies except when the deficiency arises out of a depository
institution's gross negligence or conduct that is inconsistent with
the principles and purposes of reserve requirements. Each Reserve Bank
has adopted guidelines that provide for waivers of small penalties.
The guidelines also provide for waiving the penalty once during a twoyear period for any deficiency that does not exceed a certain percentage
of the depository institution's required reserves. Decisions by Reserve
Banks to waive penalties in other situations are based on an evaluation
of the circumstances in each individual case and the depository institution's
reserve maintenance record. If a depository institution has demonstrated
a lack of due regard for the proper maintenance of required reserves,
the Reserve Bank may decline to exercise the waiver privilege and assess
all penalties regardless of amount or reason for the deficiency.
(b) Penalties for Violations. Violations of this Part may
be subject to assessment of civil money penalties by the Board under
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authority of section 19(1) of the Federal Reserve Act (12 U.S.C. § 505)
as implemented in 12 CFR Part 263. In addition, the Board and any other
Federal financial institution supervisory authority may enforce this
Part with respect to depository institutions subject to their jurisdiction
under authority conferred by law to undertake cease and desist proceedings.
SECTION 204.9 —
RESERVE REQUIREMENT RATIOS
(a)
Reserve percentages. The following reserve ratios are
prescribed for all depository institutions:
Reserve requirement
Category
Net transaction accounts
$0-$25 million
Over $25 million
3% of amount
$750,000 plus 12%
of amount over
$25 million
Nonpersonal time deposits
3%
Eurodollars
3%
(b)
Reserve ratios in effect during last computation period
prior to September 1, 1980.
Category
Reserve Requirement
Net Demand Deposits
Deposit Tranche
7%
$0-$2 million
over $2 million-$10 million
$140,000+9-1/2% of amount over $2 million
over $10 million-$100 million
$900,000+11-3/4%
over$100 million-$400 million
$11,475,000+12-3/4%
ofamount over $100 million
over $400 million
$49,725,000+16-1/4%
ofamount over $400 million
Savings deposits
Time deposits
(subject to 3% minimum
specified by law)
of amount over $10 million
3%
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By initial maturity
30-179 days
-$0-5 million
-over $5 million
180 days to 4 years
4 years or more
3%
6%
2-1/2%
1%
Supplementary requirement (applied
to time deposits issued
in denominations of $100,000
or more, time deposits represented
by ineligible bankers' acceptances,
or obligations issued by an affiliate
of a depository institution)
2%
Marginal reserve requirement
(on managed liabilities in excess
of the institution's managed
liabilities base)
5%
By order of the Board of Governors, June 4, 1980.
(Signed)
Theodore E. Allison
Theodore E. Allison
Secretary of the Board
[SEAL]
@FedFRASER