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F ederal
reserve
Ba n k
DALLAS. TEXAS
of
Dallas
75222
Circular No. 80-218
November 14, 1980
QUESTIONS AND ANSWERS ON THE
MONETARY CONTROL ACT
TO ALL DEPOSITORY INSTITUTIONS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
Printed on the following pages is the third in a series of
questions and answers on implementation of the Monetary Control
Act.
Sincerely yours,
Ernest T. Baughman
President
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
November 4, 1980
QUESTIONS AND ANSWERS CONCERNING REGULATION D,
RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
Prepared by the staff of the Board of Governors of the Federal
Reserve System in conjunction with the staff of the Federal Reserve
Bank of New York.
Nontr ans ferability
12.Q.
if a time or savings deposit is not evidenced by a certificate
or passbook, may the nontransferability legend appear
on a disclosure statement given to the depositor by the
institution at the time of opening the account?
A.
13.Q.
Yes, under such circumstances the nontransferability legend
may appear in a disclosure statement required by Federal
or State law or regulation that sets forth the terms of
the deposit account.
Personal savings and time accounts for which depositors
receive only monthly statements rather than passbooks
or certificates of deposit are required to include the
legend concerning nontransferability on the periodic state
ment if no contract, agreement or disclosure statement
required by law is given to the depositor carrying the
nontransferability legend. Instead of placing the legend
on the statement itself, may the legend appear in a separate
piece of paper mailed to the depositor along with the
monthly statement?
A.
14.
NO, the nontransferability legend must appear on a document
representing the account such as a certificate, passbook,
contract, disclosure statement, or periodic statement.
A separate piece of paper enclosed with the monthly state
ment would not be a document representing the account.
Q.
An institution issues a monthly statement to its natural
person depositor on which is reported the balance in a
transaction account, as well as the balance in a personal
savings or time deposit account. Need the statement have
the nontransferability legend?
A.
Yes, unless the depositor previously received a copy of
the deposit contract or disclosure statement with the
legend. If the statement indicates funds held in a personal
savings or time deposit account, it must state that such
account is nontransferable even though other types of
accounts are also listed.
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2 -
Transaction Accounts
10.
If under the terms of a savings account, a depositor ap
pearing at the depository institution is permitted to
withdraw funds in the form of a cashier's or officer's
check, endorse the check and redeposit the funds in an
account of another person at the same institution, would
such an account be considered a transaction account?
A.
11.
Q.
No. The ability of depositor to make withdrawals from
an account by appearing at the institution in person does
not render an account a transaction account regardless
of the manner of payment of the withdrawal to the depositor.
In this regard, an account would not be a transaction
account merely because a depositor appearing in person
at the institution can withdraw funds directly in the
form of cash, check (even if made payable to a third party),
money order, or travelers' checks. Note, however, that,
if a depositor is able to transfer funds from his savings
account through an ATM or RSO to another person's account
at the institution, that savings account is a transaction
account.
Q. Many institutions offer their depositors "prestige cards"
which allow the depositors to withdraw funds from their
savings accounts by filling out a withdrawal slip at another
institution. This type of service is also known as "traveler's
convenience." The institution disbursing the funds sends
the withdrawal slip to the depositor's institution and
obtains payment through the collection process. Does
this service make the savings account a transaction account?
A.
12.
No. The transaction is viewed simply as the depositor
making a direct withdrawal from his savings account.
Q. A depositor with a savings account leaves a supply of
deposit slips with the depository institution. The deposit
slips are for a checking account held by the depositor
at another depository institution. The depositor telephones
the institution from time to time and requests that funds
be withdrawn from his savings account in the form of a
check and that the check, along with the deposit slip,
be mailed or delivered to the institution holding his
checking account. In some instances the depositor may
have standing instructions with the institution to mail
or deliver funds at certain intervals. Does this practice
make that savings account a transaction account?
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A.
15.
If a depository institution permits ACH debits to an account
and does not limit the number of such debits by contract
to three per calendar month, is the account regarded as
a transaction account?
Yes. A depository institution must regard an account
that may permit in excess of three ACH debits per month
as a transaction account even though three or fewer transfers
per calendar month actually are being made. Since ACH
debits are regarded as preauthorized transfers, they must
be limited to three or fewer per calendar month in order
for the account not to be regarded as a transaction account.
Q.
Regulation E— Electronic Funds Transfers (12 CFR'Part
205) requires that amendments to certain account agreements
cannot be effective unless the customer is given 2 1 days'
written notice. If a depository institution desires to
amend its account agreement to limit the number of preauthorized
or telephone transfers to three or less per calendar month
and the account is subject to the Regulation E notice
requirement, when is the account agreement change effective
for Regulation D reserve requirement purposes?
A.
14.
Q.
A.
13.
Yes. The capability of making such telephone or preautho
rized transfers could render an account a transaction
account since the transfer is made to a third party, i.e.
the depository institution at which the checking account
is maintained. However, if such transfers were limited
to three or less per calendar month (and the account did
not otherwise meet the definition of a transaction account)
then the account would not be regarded as a transaction
account.
For purposes of reserve requirements, an amendment to
an account agreement is regarded as effective when sent
by the depository institution. Accordingly, an account
for which a Regulation E change of terms notice has been
sent may be regarded as exempt from the definition of
"transaction account" even though more than three transfers
could be effected during the interim period until the
Regulation E notice becomes effective.
Q.
is notification to customers required if a depository
institution desires to establish a limit on preauthorized
and telephone transfers of three per calendar month?
- 4 -
A.
16.
As a general matter, the Board has had a long standing
position that customers should be notified in writing
of any change in the terms of a deposit account that is
adverse to the customer (12 CFR 217.148). The necessity
of notifying customers of a limit imposed on telephone
and preauthorized transfers depends on a number of factors,
including other regulatory requirements, such as Regulations E
and Q and those imposed under state law. A depository
institution that has not explicitly provided in its deposit
agreement or other representations the right of its depositors
to make withdrawals by telephone may not necessarily have
to send notice to its customers that such service will
be limited in the future. However, a depository institution
that provides by written contract or agreement that telephone
or preauthorized orders may be made would be required
to notify each customer in writing of the change in terms.
This notice, however, may be required by local law and
disclosure requirements of other Federal and state regulatory
requirements, not by Regulation D.
Q.
If under the terms of an account, a depositor is not per
mitted to make more than three telephone or preauthorized
transfers per calendar month, what steps must a depository
institution take to prevent more than three transfers?
Is a fourth transfer in a calendar month absolutely pro
hibited?
A.
As stated in the Federal Register preamble to Regulation D,
"A depository institution is required to establish a system
or other procedure to insure that no more than three [telephone
or preauthorized] transfers are made during any calendar
month from such accounts."
(45 Fed. Reg. 56009) The
purpose to be served by a monitoring system is to establish
that it is not the practice of the depository institution
(12 CFR 204.2(e)(6)) to allow more than three telephone
or preauthorized transfers, notwithstanding a deposit
contract term to that effect. A system under which a
depository institution can identify prior to making a
requested transfer whether the limit is being adhered
to would meet this requirement.
An institution also is permitted to monitor on an ex post
basis its accounts that have limited telephone and pre
authorized transfer privileges. Under this procedure,
an institution nay determine which accounts made more
than three transfers in a particular month. If the in
stitution contacts the customer and informs him that the
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contract terms were violated and/or that the institution
has other account services available if the customer desires
an account for transaction purposes, this would indicate
that it is not the practice of the institution to allow
more than three transfers. Other factors that would be
relevant in determining whether it is the practice of
the institution to allow more than three telephone or
preauthorized transfers per month under an ex post monitoring
system would be the number of accounts that have restricted
transfer privileges and the relative number that exceed
the established limit.
It also is permissible for an institution to provide by
contract that a fourth transfer in a calendar month will
constitute an agreement by the customer to accept a new
type of deposit account that allows unlimited telephone
or preauthorized transfers. In this regard, a change
in pricing in the new account may serve as a disincentive
to customers making the fourth transfer. At the time
the fourth transfer is made and into the future, the ac
count would then be classified as a transaction account.
(An institution may not establish an arrangement whereby
a transaction account is converted to a nontransaction
account because three or less transfers are made in a
particular month.)
As an alternative approach to satisfy the three transfer
per month rule, institutions may use a procedure of re
classifying as transaction accounts those accounts that
incur more than three telephone or preauthorized transfers
in a calendar month. Once an account is classified as
a transaction account, then it may not revert to nontrans
action account status.
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Time Deposits (and Savings Deposits)
19.
Q.
A bearer certificate of deposit issued to a natural person
prior to October 1, 1980, is exempt from reserve require
ments on nonpersonal time deposits. The institutions
have no record of the purchasers of these bearer CDs;
a record of the owner is made only at maturity, when the
holder obtains the interest on the CD and must record
his identity for tax purposes. Is a depository institu
tion required to regard the amount of all bearer CDs issued
prior to October 1, 1980, as nonpersonal time deposits
if they cannot show that they were issued to natural persons?
A.
No. If bearer CDs have fixed maturities, depository institu
tions are permitted to estimate the distribution of such
deposits between personal and nonpersonal by use of reason
able sampling techniques. Estimates may be based on past
experience, current redemptions, or other reasonable in
quiry.
For deposits issued on or after October 1, 1980, depository
institutions are required to record the actual distribution
between personal and nonpersonal time deposits. Of course,
all transferable time deposits, including negotiable or
bearer CDs, are nonpersonal time deposits regardless of
to whom they are issued or who holds any beneficial interest
in the deposit.
20.
Does an institution have to go through its entire mortgage
portfolio in order to identify each mortgagor as individual
or corporate for the purpose of separating its mortgage
escrow account into two accounts, one personal and one
nonpersonal?
A.
21.
Q.
In order to treat an escrow account as a personal savings
account, all of the funds in the escrow account must be
received from natural persons. Thus, if an institution
has both individuals and corporations as mortgagors, the
escrow account must be treated as nonpersonal unless a
separation into two accounts is made and personal and
nonpersonal funds are segregated.
Q.
Escrow accounts may be treated as personal savings or
time accounts if the entire beneficial interest in the
funds is held by natural persons. Does this rule apply
to tenant security deposits?
- 7 -
A.
23.
Q.
Depository institutions may accept the representations
of trustees, executors, and escrow agents that the entire
beneficial interest of funds in a time or savings account
are natural persons in order to regard the account as
personal. Must that representation be made in writing?
A.
22.
Yes. If all of the tenants whose security deposits are
held in an account by a landlord are natural persons,
that account may be treated as personal. If a landlord
has both natural person and corporate or organizational
tenants, the landlord could be asked to place the security
deposits of natural persons in a separate account, and
that account could be treated as personal.
Yes. However, the representation may simply be noted
on the signature card or other instrument evidencing the
account that is signed by the trustee, executor or escrow
agent.
Q.
Are time deposits issued to the Bureau of Indian Afairs
as custodian for an Indian tribe holding the entire beneficial
interest in the funds personal or nonpersonal?
A.
Such deposits are nonpersonal since an Indian tribe is
considered to be an organization or association.
Bankers' Acceptances
Has the determination of the maturity of eligible bankers'
acceptances exempt from reserve requirements changed under
revised Regulation D?
Yes. Formerly any eligible bankers' acceptance having
not more than six months' sight to run would not be exempt
from reserve requirements until the remaining maturity
was 90 days or less at the time of discount. Under re
vised Regulation D f all eligible bankers' acceptances
described in paragraph 7 of section 13 of the Federal
Reserve Act (12 U.S.C. S 372) having not more than six
months' sight to run are exempt from reserve requirements.
Federal Funds and Other Exempt Borrowings
Repurchase agreements on securities guaranteed as to principal
and interest by the U. S. Government or an agency thereof
("RP") are exempt from reserve requirements as are direct
borrowings from the U. S. Government or an agency thereof.
Are Ginnie Mae (Government National Mortgage Association),
Fannie Mae (Federal National Mortgage Association), Freddie
Mac (Federal Home Loan Mortgage Corporaton), and Sallie
Mae (Student Loan Marketing Association) agencies of the
U. S. Government?
Yes. A list of obligations which the Federal Reserve
considers to be U. S. Government and agency securities
for purposes of the RP exception may be found at the Board's
Published Interpretations l 925 (12 CFR § 201.108). Ginnie
Mae, Fannie Mae, and Freddie Mac are on that list. Sallie
Mae is also a Government agency for this purpose.
In addition, direct borrowings in the form of promissory
notes or other similar instruments in the name of the
U. S. Government or an agency thereof are excluded from
the definition of deposits and, thus, are exempt from
reserves. Such exemption applies to borrowings that are
in the name of departments of the U. S. Government such
as the Bureau of Indian Affairs. However, liabilities
that are booked as deposits by the institution are re
garded as deposits because they are not "borrowings.”
The permissible collateral for outstanding due bills consists
of securities of similar type and comparable maturity
to the security underlying the due bill. What is considered
to be comparable maturity for this purpose?
All Treasury bills may be treated as being of comparable
maturity to each other because they are issued in original
maturities of one year or less. Obligations that have
maturities within a range of time that is normally referred
to as a common group may be substituted for each other.
In this regard, obligations that are referred to as "long
term," for example, may be substituted for each other
even though they might have maturities that vary by as
much as 10 years. This may be determined by common usage
in the market place. Shorter term securities would have
a narrower time range for the purpose of determining compara
bility of maturity. In determining the maturity comparability
of two securities, maturity may be determined on the basis
of the time remaining to maturity of a particular obligation.
-
10
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Calculations and Reporting
2.
Revised 11/4/80 (additions are underlined).
Q.
How are time deposit ratios for old reserve requirements
to be calculated for member banks (and former member banks)
that are involved in mergers subsequent to August 6 , 1980?
A.
The time deposit ratios for a combination of member banks
(or former member banks) will be calculated as a weighted
average of the individual ratios. The weights are to
be based on the daily average amount of time deposits
for each of the institutions involved over the reserve
computation period immediately preceding the merger.
For example, suppose that two member banks that had total
time deposits of $15 million and $35 million and ratios
of .0325 and .0340, respectively, merge. The required
reserve ratio on time deposits for the merged bank would
be (0.0325 x (15/50)) + (0.0340 x (35/50)) = 0.03355.
3.
Revised 11/4/80 (additions are underlined).
Q.
A.
4.
What is the definition of total deposits to be used to
determine whether quarterly reporters have reached $15
million?
Gross deposits, the sum of items 7, 12, and 15 on the
FR 2900, will be used to determine the continuing eligibility
of quarterly reporters as set forth in section 204.3(d)(3).
Revised
11/4/80 (additions are underlined).
Q.
For de novo institutions, how will the amount of total
deposits be determined for purposes of quarterly reporting?
A.
All de novo nonmember institutions organized after December 31,
1979, will be considered to be under $15 million in total
deposits and therefore eligible for quarterly reporting.
All such institutions will be required to report in January 1981,
along with all quarterly reporters. In order that those
de novo nonmember institutions whose total deposits are
less than $ 2 million would not have to complete the entire
deposits report for a week, we will try to work out an
alternate reporting scheme for those institutions. Those
de novo nonmember institutions that have less than $ 2
million in daily average gross deposits at that time will
have reporting and reserve requirements deferred until
May 1981. Other de novo nonmember institutions will con
tinue to report quarterly until such time as daily average
gross deposits are $15 million or above for two consecutive
quarterly reporting periods, at which time they would
become weekly reporters.
- 11 -
De novo member banks organized after December 31, 1979,
and before September 1, 1980, would already be reporting
weekly on the Report of Deposits and will continue reporting
weekly until January 1981. De novo member banks organized
between September 1, 1980, and October 30, 1980, will
begin reporting weekly as of October 30, 1980, and continue
reporting weekly until January 1981. De novo member banks
organized after October 30, 1980, will begin reporting
weekly as of the date of organization and will continue
reporting weekly until January 1981. Those de novo member
banks that have daily average gross deposits of less than
$15 million as of the first reporting period in January 1980,
may begin reporting quarterly at that time; those that
have daily average gross deposits of $15 million or more
must continue to report weekly.
8.
Many banks receive payments from other banks with unclear
information as to whom the funds should be credited.
The practice of many institutions is to credit those funds
to a suspense account. The funds remain in that account
until the institution determines the party to whom the
funds are to be credited or transmitted. This process
for each such payment may take several days or weeks.
During that time, how must an institution report that
suspense account for reserve purposes? Many foreign banks
find that 90 per cent of payments made to them are to
be credited to their parent's account, and thus most of
these funds should have been subject to Eurocurrency,
rather than domestic, reserves during that period.
A.
9.
Q.
Institutions must regard the entire amount of funds in
suspense accounts each day as transaction accounts (to
be reported as other demand deposits in Item 3 of the
FR 2900) unless they determine from their past experience
that a percentage of such funds usually are to be treated
otherwise. For example, if a United States branch of
a foreign bank finds that 90 per cent of the funds placed
in a suspense account normally go to its parent, it may
treat 90 per cent of its suspense account each day as
a balance due to its parent subject to the Eurocurrency
reserve requirement and 1 0 per cent as a transaction ac
count.
Q.
The instructions to FR 2900 indicate that a bona fide
cash management arrangement must be evidenced by a prior
written agreement between the reporting depository institu
tion and the customer authorizing transfers between trans
action accounts of the customer. Does this mean that
there must actually be a reduction on the books of the
institution in order to reduce the balance by the over
draft amount for purposes of reserves?
-
12
-
A.
Q.
How are "loans in process" to be treated for purposes
of reporting on the FR 2900?
A.
10.
An actual transfer on the books of the institution is
not necessarily required. Bona fide cash management purposes
can be demonstrated in a number of situations. The fact
that a depository institution has the ability to offset
an overdraft with funds in another account is sufficient
to serve the purposes of Regulation D.
"Loans in process” arise in at least two different contexts.
(1) Where a depository institution issues a cashier's
check representing mortgage or other loan proceeds and
delivers the check to a settlement agent in advance of
the loan closing, the cashier's check represents a demand
deposit and the amount of the check is reservable from
time of issuance as a transaction account.
(2) Thrift institutions commonly have a liability "contra”
account entitled "loans in process" that represents unadvanced
portions of construction loan commitments. Such commitments
are contingent liabilities of the depository institution
and are not subject to reserves. When a portion of the
loan commitment is advanced, a reservable liability would
be created if disbursement were made by issuance of an
officer's check or by credit to a deposit account.
11.
A depository institution ("seller") sells money orders
on consignment from a second depository institution ("issuer").
Funds are not remitted to the issuer until it notifies
the seller that the money orders have been received for
payment and the funds are then remitted by the seller.
How are the funds representing the proceeds of the money
order sale to be reported?
A.
12.
Q.
The money order proceeds are a deposit of the selling
institution until remitted to the issuer. If the issuer
is a depository institution, then the unremitted amount
held by the seller represents a balance due to a depository
institution.
Q.
The instructions to Ksrm FR 2900 for credit unions provides
under "Record-keeping"s
- 13 -
"Note: If, according to your standard accounting
practices, closing balances for accounts reported
on this report are not available on a daily basis,
you may report the same closing balance for subsequent
days provided that your closing balances for these
accounts are updated at least once a week. For example,
a credit union that uses a weekly batch system may
have closing balances only as of each Friday. In
this case, the balances for the preceding Friday
should be reported for Thursday of the current computation
week; the balances for Friday of the current computation
week should be reported not only for Friday but also
for the following Saturday, Sunday, Monday, Tuesday,
and Wednesday, and for the first Thursday of the
next computation period.”
Does this reporting principle apply to other similarly
situated depository institutions?
A.
13.
Yes. If a depository institution posts its general ledger
daily or generates a daily balance sheet, then all amounts
reported for reserve requirements purposes on the FR 2900
must be updated daily. However, as indicated above, if
it is the accepted accounting practice and standard for
a particular segment of the industry to post the general
ledger less frequently than daily, then weekly updating
is permitted.
Q.
Are depository institutions that have zero reserve require
ments required to report deposit and other data to the
Federal Reserve?
A.
Yes. All depository institutions, including "bankers'
banks," are required to submit data on Form FR 2900 in
accordance with Regulation D.
- 14 -
Eligible Reserve Assets
Vault Cash
4.
Q.
Coin and currency must be in the possession of the re
porting institution, subject to the in-transit exception,
in order to be treated as vault cash. Is currency and
coin considered to be in an institution's possession if
placed in a vault on the premises of another institution
that is rented by the reporting institution?
A.
Yes, so long as (1) the reporting institution has full
rights of ownership of the coin and currency, (2 ) the
reporting institution has full rights to obtain the coin
and currency immediately in order to satisfy customer
demands (and accordingly must be reasonably nearby), and
(3) the institution from which the vault is rented does
not include that coin and currency as its own vault cash.
- 15 -
Balances Due To/Due From Depository Institutions
Q.
Is the Investment Credit Union ("ICU") a depository institu
tion?
A.
ICU is a pooled investment account Cor credit unions that
invests solely in U. S. Government securities. Funds
placed in ICU by a credit union are not balances due from
a depository institution and may not be included as balances
due from depository institutions in Item 8 of the FR 2900.
Q.
Are balances due to bankers' banks such as Savings Banks
Trust Company and balances due to private banks to be
reported in Item l.a. of the FR 2900?
A.
Yes. Savings Banks Trust Company should be treated as
a bank. Balances due to private banks that are not depository
institutions are to be reported as bank demand accounts
in Item l.a. Balances due from Savings Banks Trust Company/
but not from private banks, are to be included in Item 8 .
Q.
What is the proper classification of funds received by
a depository institution representing payments for loans
that the institution is servicing for others?
A.
Funds received by a depository institution in connection
with servicing of loans for others represent deposits.
Where the loan is owned by another depository institution,
such funds represent a balance due to another depository
institution until remitted. Loan repayments received
by an institution for loans that it owns represent re
ductions in an asset account and do not give rise to re
serves notwithstanding that such payments are carried
temporarily in a liability account pending proper posting
to the loan accounts.
Q.
The actual balance in a reporting institution's demand
account at another institution usually will be greater
than the amount shown on the reporting institution's books
in its due-from entry. This occurs because the reporting
institution will write down the due-from account on its
books for checks and drafts that have not yet been paid
by the institution holding the account. In reporting
the total amount of balances due from depository institu
tions, must an institution report its book amount, or
may it report the amount shown each day at the other in
stitution as balances due to the reporting institution?
- 16 -
A.
11.
The reporting institution must use its book amount as
balances due from depository institutions for purposes
of Item 8 . The reporting institution will have written
down a liability account for the check that it has issued,
and, because that liability account is likely to be a
reservable deposit account, it has already obtained a
reduction in reserves on the transaction. To permit a
deduction for that amount would permit an unwarranted
double deduction for the amount of the check.
Q.
What is the proper treatment of a check drawn by a de
pository institution on a zero balance account at a cor
respondent?
A.
If a credit union, savings and loan association or other
depository institution draws checks on a zero balance
account at a correspondent bank and remits funds when
advised that the checks have been presented, then the
amount of the checks represent an amount due to another
depository institution. Although Regulation D (12 CFR
204.2(b)(2)) provides that a check or draft drawn by a
depository institution on another depository institution
are not demand deposits, such rule applies only where
the check or draft is drawn against a positive balance
at another institution and would properly represent a
reduction in an asset account. In the case of checks
drawn on a zero balance account, a depository institution
is regarded as having issued a reservable liability.
Eurocurrency Liabilities
Are direct borrowings frcm foreign corporations regarded
as Eurocurrency liabilities?
Direct borrowings from foreign and domestic corporations
that are not depository institutions are liabilities sub
ject to reserve requirements but are not Eurocurrency
liabilities. They are nonpersonal time deposits if their
maturity is 14 days or more. They are demand deposits
and reported as transaction accounts if their maturity
is less than 14 days. The exemption for Federal funds
and Eurocurrency borrowings cover borrowings from banks
and depository institutions.
If a foreign bank issues commercial paper in the United
States and the bank's United States branch or agency borrows
the proceeds from the bank's head office, are those funds
subject to reserves at the domestic ratios?
No. Commercial paper issued in the United States by a
foreign bank's head office is not subject to Federal re
serve requirements. However, when the proceeds of the
sale are channeled to the United States branch or agency,
the proceeds become subject to Eurocurrency reserve re
quirements as an advance from the foreign bank's head
office.
Are balances due from a Federal Reserve Bank to be sub
tracted from total assets in calculating a foreign bank's
United States office's capital equivalency deduction?
No.
The calculation by foreign banks of their capital equivalency
deduction requires that the definition of total assets
correspond to the definition on their quarterly call report
(FFIEC 002).
(However, the amount of total assets will,
in many cases, need to be adjusted to take into account
the different definitions of "related" institutions on
the two reports.) In order to calculate total assets in
Schedule A of that report, unearned income on loans is
to be subtracted. Many foreign banks do not calculate
unearned income on loans each day; rather they calculate
it only monthly or quarterly. Must such foreign banks
calculate this figure daily?
No. Foreign banks may use the most recently available
figure on a consistent basis.
Eurocurrency liabilities include borrowings from "nonOnited States offices" of the reporting domestic institu
tion. Do "non-United States offices" include foreign
offices of a nonbank corporation that is an affiliate
of the reporting institution?
No. "Non-United States offices” in this context means
only foreign offices of the foreign bank operating the
U. S. agency or branch. Affiliates are separate corporate
entities, and their foreign offices are not foreign offices
of the foreign bank itself. Borrowings from foreign offices
of affiliated depository institutions are reported together
with borrowings from other foreign depository institutions
in Column 1 of the FR 2950. Borrowings from foreign offices
of affiliated nonbank corporations are treated as deposits
and are subject to domestic reserve requirements as demand
or time deposits depending on maturity; if the borrowing
is a demand deposit (because the maturity is less than
14 days), then Regulation Q and Part 329 of the FDIC's
regulations prohibit the payment of interest on the borrowing.
A depository institution has separate demand accounts
for each of several foreign branches of a single unrelated
foreign bank. May amounts due to some of the branches
be "netted" against amounts due from other branches for
computing amounts due to banks?
No, unless the separate accounts of the foreign institution
serve a bona fide cash management function and if netting
is permitted under the law(s) of the country or countries
in which the branches are located.
Many depository institutions and foreign bank branches
and agencies have on their books liabilities owing to
Iranian entities that have been frozen pursuant to Presidential
Order since November 1979. Many of these liabilities
were short-term Eurocurrency borrowings, and the original
maturity date has long since been passed; payment of the
obligation is prevented by the freeze. For purposes of
reserve requirements, may such Eurocurrency liabilities
continue to be treated as a Eurocurrency borrowing even
though the maturity date of the obligation has passed?
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A.
Yes. Institutions should also note that demand deposits payable
to Iranian entities frozen under the Order continue to
be demand deposits despite the effect of the Order.
Institutions may transfer frozen demand deposit funds
into time deposits on their books so long as they will
pay some interest on those funds after the transfer.
@FedFRASER