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federal reserve
Ba n k
DALLAS, T E X A S
of
Dallas
75222
Circular No. 83-121
October 19, 1983
REGULATION D
RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
(Amendment)
TO ALL DEPOSITORY INSTITUTIONS IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Board of Governors of the Federal Reserve System has issued
an amendment to Regulation D modifying reserve requirements on nonpersonal
time deposits. The change, effective October 6, 1983, lowers the minimum
maturity of nonpersonal time deposits which qualify for a zero reserve
requirement from 2-1/2 years to 1-1/2 years. Therefore, nonpersonal time
deposits with original maturities of less than 1-1/2 years will continue to be
subject to a 3 percent reserve requirement.
Attached is the text of the Board’s press release and related Federal
Register document.
Questions regarding the material contained in this circular should be
directed to Robert Feil, (214) 651-6690 at the Head Office; Javier Jimenez,
(915) 544-4730 at the El Paso Branch; Rodney Franklin, (713) 659-4433 at the
Houston Branch; or Pete Castleberry, (512) 224-2141 at the San Antonio Branch.
Additional copies of this circular will be furnished upon request to
the Public Affairs Department, Extension 6289.
Sincerely yours,
William H. Wallace
First Vice President
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
Banks and others are encouraged to use the following incoming W A T S numbers 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.
FEDERA^RESERV^pr^s^Blease
For immediate release
*
October 5, 1983
The Federal Reserve Board has amended its Regulation D —
Requirements of Depository Institutions —
Reserve
modifying reserve requirements on
nonpersonal time deposits, effective October 6, 1983.
Under the amendment, nonpersonal time deposits with original
maturities of 1-1/2 years or more will have no required reserve.£/
Nonpersonal time deposits with original maturities of less than 1-1/2 years
will continue to be subject to a 3 percent reserve requirement.
The existing reserve requirement for nonpersonal time accounts
with original maturities of less than 2-1/2 years is 3 percent.
The Board
amended the rule in connection with action by the Depository Institutions
Deregulation Committee (DIDC) freeing most time deposits from inrterest rate
ceilings effective October 1.
The Board announced its actions September 30.
The official notices
of the actions, not available at that time, are attached.
-
0
-
Attachments
}_/
All stated reserve ratios are as of the completion of reserve phase-in
periods required under The Monetary Control Act of 1980.
FEDERAL RESERVE SYSTEM
Regulation D
[12 CFR Part 204]
[Docket No. R-0484]
RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
Reserve Requirements on Nonpersonal Time Deposits
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Final rule.
SUMMARY:
The
Board
of
Governors
has
amended
Regulation D — Reserve Requirements of Depository Institutions
(12 CFR Part 204) to modify the reserve requirements on
nonpersonal time deposits.
Under the amendment, nonpersonal
time deposits with original maturities of 1-1/2 years or more
will be subject to a reserve requirement ratio of zero
percent.
Nonpersonal time deposits with original maturities of
less than 1-1/2 years will continue to be subject to a three
percent reserve requirement ratio.
This action was taken to
facilitate the offering by depository institutions of longer
maturity time deposits that are exempt from interest rate
ceilings.
EFFECTIVE
DATE:
October 6,
1983.
The
maintenance period to which the amendment
October 20, 1983.
first
reserve
applies commences
FOR FURTHER INFORMATION CONTACT:
Gilbert
T. Schwartz,
Associate General Counsel (202/452-3625) or Paul S. Pilecki,
Senior Counsel
(202/452-3281),
Legal Division,
Board of
Governors of the Federal Reserve System, Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION:
The Monetary Control Act of 1980
(Title I of P.L. 96-221; 94 S t a t . 132) ("MCA") authorizes the
Board to prescribe, solely for the purpose of implementing
monetary policy, reserve requirements against nonpersonal time
deposits within a reserve ratio range of zero to nine percent.
The MCA requires the reserve requirement against nonpersonal
time deposits to be applied uniformly to the deposits at all
depository institutions, except that such requirement may vary
by deposit maturity.
Nonpersonal time deposits are defined by
the M CA as time deposits that are transferable, regardless of
the nature of the holder, and time deposits in which any
beneficial interest is held by a depositor who is not a natural
person.
Nontransferable time deposits in which the entire
beneficial interest is held solely by a natural person are not
subject to reserve requirements.
Regulation D — Reserve
Requirements
of
Depository
Institutions (12 CFR Part 204) currently imposes a three
percent reserve requirement on nonpersonal time deposits with
original maturities or required notice periods of less than
2-1/2 years.
Nonpersonal time deposits with maturities or
required notice periods of 2-1/2 years or more are subject to a
zero percent reserve requirement.
The Depository Institutions Deregulation Committee
("DIDC"), pursuant to its authority under the Depository
Institutions Deregulation Act of 1980 (Title II of Pub.
L. 96-221; 12 U.S.C. § 3501 e_t s e q . ) , authorized federally
insured commercial banks, mutual savings banks, and savings and
loan associations to offer, effective May 1, 1982, a new
category of ceiling-free time deposit with an original maturity
or required notice period of 3-1/2 years or more.
Such time
deposits may be issued in negotiable or nonnegotiable form at
the option of the issuer to any holder.
Effective April 1,
1983, the minimum maturity of this deposit category was reduced
to 2-1/2 years.
In conjunction with the establishment of this
instrument and its subsequent reduction in maturity, the Board
modified the maturity break for reserve requirements on
nonpersonal time deposits to facilitate the DIDC's objectives
in authorizing this instrument in negotiable form.
In this
regard, a negotiable time deposit was viewed as more attractive
to depositors since it could be sold as an alternative to
incurring an early withdrawal penalty.
Effective October 1, 1983, the DIDC removed interest
rate ceilings on all time deposits with original maturities or
required notice periods of 32 days or more and on all time
deposits of more than $2,500 with original maturities or
required notice periods of seven to 31 days.
To continue to
facilitate the DIDC's objectives, the Board has amended the
reserve requirements on nonpersonal time deposits so that,
after the completion of the transition periods set forth in the
MCA, nonpersonal time deposits with original maturities of
1-1/2 years or more will be subject to a zero percent reserve
requirement ratio and nonpersonal time deposits with original
maturities of less than 1-1/2 years will be subject to a three
percent reserve requirement ratio.
The Board estimates that
the amount of reserves held on nonpersonal time deposits with
maturities of 1-1/2 to 2-1/2 years is small, and, thus, this
action will not adversely affect monetary control.
However,
the Board notes that reducing further the nonpersonal time
deposit maturity break could have an adverse effect on monetary
control by eroding the reserve base and loosening the linkage
between reserves and deposits in the money stock.
This action is effective for depository institutions
that report deposits and maintain reserves on a weekly basis
with the reserve computation period beginning October 6, 1983.
The first reserve maintenance period to which this action
applies for these institutions commences October 20, 1983.
For
depository institutions that report deposits and maintain
reserves on a quarterly basis,
the change in reserve
requirements on nonpersonal time deposits with maturities of
1-1/2 years to 2-1/2 years will commence with the reserve
maintenance period that begins on January 12, 1984, based on
data submitted for the computation period of December 15-21,
1983.
In view of the fact that commercial banks, mutual
savings banks, and savings and loan associations may offer time
deposits with a broad range of maturities not subject to
interest rate ceilings effective October 1, 1983, the Board
finds that application of the notice and public participation
provisions of 5 U.S.C. § 553 to this action would be contrary
to the public interest, and that, since this action relieves a
restriction, good cause exists for making this action effective
October 6, 1983.
List of Subjects in 12 CFR Part 204
Banks, banking; Currency,
Penalties; Reporting Requirements.
Federal
Reserve
System;
Pursuant to its authority under sections 19, 25, and
25(a) of the Federal Reserve Act (12 U.S.C. §§ 461, 601 et
s e q . , 611 et s e q . ) and under section 7 of the International
Banking Act of 1978 (12 U.S.C. § 3105), the Board amends
Regulation D (12 CFR Part 204) effective October 6, 1983, by
revising paragraph (a) of section 204.9 to read as follows:
SECTION 204.9— RESERVE REQUIREMENT RATIOS
(a)(1)
Reserve p e r c e n t a g e s .
The following reserve
ratios are prescribed for all depository institutions, Edge and
Agreement Corporations and United States branches and agencies
of foreign banks:
Reserve Requirement
Category
Net Transaction Accounts
3% of amount
$789,000 plus 12% of
amount over $26.3
million
$0 - $26.3 million
Over $26.3 million
Nonpersonal Time Deposits
By original maturity
(or notice period):
less than 1-1/2 years
1-1/2 years or more
3%
0%
Eurocurrency Liabilities
*
*
3%
*
*
By order of the Board of
Reserve System, October 3, 1983.
*
Governors
of
the
Federal
(signed) William W. Wiles
William W. Wiles
Secretary of the Board
FEDERAL RESERVE SYSTEM
Regulations D and Q
[12 CFR Parts 204 and 217]
(Docket No. R-0417)
RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
INTEREST ON DEPOSITS
Definition of Time Deposits
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Final rules.
SUMMARY:
The Board of Governors has adopted final amendments
to
Regulation D — Reserve
Requirements
of
Depository
Institutions (12 CFR Part 204) and Regulation Q — Interest on
Deposits (12 CFR Part 217) to reduce the minimum maturity of
all time deposits to seven days.
Comments from the public were
favorable to adoption of this rule.
The Board's action was
taken in light of recent actions by the Depository Institutions
Deregulation Committee ("DIDC") to authorize the Money Market
Deposit Account ("MMDA") and removing the interest rate ceiling
on time deposits of $2,500 or more with maturities of seven- to
31-days.
EFFECTIVE DATE:
October 1, 1983.
FOR FURTHER INFORMATION CONTACT:
Gilbert T.
Schwartz,
Associate General Counsel (202/452-3625) or Paul S. Pilecki,
Senior Counsel
(202/452-3281),
Legal Division,
Board of
Governors of the Federal Reserve System, Washington, D. C.
20551.
SUPPLEMENTARY INFORMATION:
Section 19(a) of the Federal
Reserve Act (12 U.S.C. § 461(a)) authorizes the Board to
determine the types of obligations that constitute deposits.
At present, the Board defines time deposits as deposits or
accounts with a minimum maturity or required notice period of
14 days and deposits with maturities or required notice periods
of seven to 13 days issued pursuant to section 1204.121 of the
rules of the DIDC (12 C.F.R. § 1204.121).
Demand deposits are
defined to include any deposit or account with a maturity or
required notice period of less than 14 days or that does not
meet the requirements of the DIDC for accounts issued under 12
C.F.R. § 1204.121.
On August 24, 1982, the Board requested public comment
on a proposal to reduce the minimum maturity or required notice
period of all time deposits to seven days.
The Board requested
comments on the following specific issues:
1.
whether reducing the minimum maturity to seven
days would broaden the market for certificates of
deposit for depository institutions,
thereby
improving their competitive position;
2.
whether depository institutions would
flexibility to vary the maturity mix
liability structures;
3.
potential difficulties
for
interpreting
the
monetary
aggregates
because
of
diminished
distinctions between transaction accounts and
time deposits; and
4.
whether such a proposal would erode the liquidity
position of depository institutions were they to
rely more heavily on short-term funds.
have more
of their
The Board received a total of 57 comments on this proposal,
distributed as follows:
45 commercial banks and bank holding
companies, six savings and loan associations, eight Federal
Reserve Banks, two business organizations, one credit union,
and
one commercial bank
trade association.
Of
those
commenting, 79 percent favored the proposal, 18 percent were
opposed to further reducing the minimum matur ity of time
deposits, and two comments suggested that the minimum maturity
of time deposits should be reduced further to one day.
Comments in favor of the proposal generally cited
benefits to depository institutions such as
an improved
competitive posit ion and providing more flexibility to vary the
maturity mix of their liability structures, while not adversely
affecting depository institution liquidity.
However, those
opposed to the proposal expressed the view that its adoption
would have adverse implications for liquidity by leading to
increases in the mismatch of assets and liabilities of
depository institutions.
With respect to the implications for
monetary policy, 75 percent of those addressing the issue
believed that the existence of seven-day time deposits would
not
lead to distortions of the monetary aggregates and,
therefore, the conduct of monetary policy would not be impaired.
Since the Board issued its proposal to reduce the
minimum matur ity of time deposits, several significant actions
have been taken by the DIDC to facilitate the ability of
depository institutions to offer short-term deposit accounts.
Effective December 14, 1982, depository institutions were
authorized to offer MMDAs, which have a minimum denomination of
$2,500, no interest rate ceiling, and are subject only to a
reservation of the right of the depository institution to
require seven days' notice prior to withdrawal.
In addition,
effective October 1, 1983, the DIDC removed interest rate
ceilings on all time deposits with maturities of more than 31
days and on time deposits of $2,500 or more with maturities of
seven to 31 days, whether issued in negotiable or nonnegotiable
form.
Consequently, in order to enable depository institutions
to offer certificates of deposit with maturities of seven to 13
days, the Board has amended Regulations D and Q to reduce the
minimum maturity of time deposits to seven days.
In addition, the Board has previously determined that
eligible bankers' acceptances (those described in 12 U.S.C. §
372) are not reservable deposits.
The Board has issued a
clarifying amendment to confirm that eligible bankers'
acceptances held by certain foreign organizations are not
deposits.
The impact of this proposal has been considered in
accordance with section 605 of the Regulatory Flexibility Act
(5 U.S.C. § 604; Pub. L. 96-354).
This action will provide an
additional tool for small banks to use in competing with larger
institutions for short term, large denomination deposits.
A
seven day minimum maturity could enhance the attractiveness of
CDs issued by small banks which normally do not trade in the
secondary market.
Since this action relieves a restriction and because
this action is necessary to conform the rules of the Board to
those of the DIDC, the Board makes this action effective
October 1, 1983.
List of Subjects in 12 CFR Part 204
Banks, banking; Currency;
Penalties; Reporting requirements.
List of Subjects
Federal
Reserve
System;
in 12 CFR Part 217
Advertising;
Foreign banking.
Banks,
banking;
Federal
Reserve
System;
Pursuant to its authority under section 19(a) of the
Federal Reserve Act (12 USC § 461(a)) to define deposits, the
Board amends Regulation D (12 CFR Part 204) and Regulation Q
(12 CFR Part 217), effective October 1, 1983, as follows:
(2),
1.
(c)(1), and
In section 204.2 by revising paragraphs
(d)(1), and (f)(l)(v) to read as follows:
SECTION 204.2 —
*
*
*
(b)(1) and
DEFINITIONS
*
*
(b)(1) "Demand d e p o s i t 1 means a deposit that is
1
payable on demand, or a deposit issued with an original
maturity or required notice period of less than seven days, or
a deposit representing funds for which the depository
institution does not reserve the right to require at least
seven days' written notice of an intended withdrawal.
The term
includes all deposits other than time and savings deposits.
Demand deposits may be in the form of (i) * * *
(viii) an
obligation to pay on demand or within seven days 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.
The
term does not include an obligation that is a time deposit
under § 204.2(c )(1)(i i ).
(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 d e p o s i t " means (i)
a deposit that
the
depositor does not have a right towithdraw for a period of
seven days or more after the date of deposit.
"Time deposit"
includes funds:
(A) payable on a specified
less than seven days after the date of deposit;
specified
deposit;
time
not
less
date
(B) payable at the expiration of
than seven days after the date
not
a
of
(C) payable upon written notice which
actually is required to be given by the depositor not less than
seven days before the date of repayment;
(D) 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 may be made within seven days from the end of the
period; or
(E)
that constitute a "sa
which is not regarded as a "transaction account;" and
(ii) borrowings, regardless of maturity,
represented by a promissory note, an acknowledgment of advance,
or similar obligation described in section 2 0 4 . 2 (a)(1)(v i i )
that is issued to, or any bankers' acceptance (other than the
type described in 12 USC 372) of the depository institution
held by, any office located outside the United States of
another depository institution or Edge or agreement corporation
organized under the laws of the United States, to any office
located outside the United States 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)(e) .
(d)(1)
"Savings d e p o s i t " means a deposit or account
(i) (A) 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 seven 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; and
(B)***
(f)(1)***
(v) a time deposit
represented by a
promissory note, an acknowledgment of advance, or similar
obligation described in section 204.2 (a)(l)(vii) that is
issued to, or any bankers' acceptances (other than the type
described in 12 U.S.C. 372) of the depository institution held
by, any office located outside the United States of another
depository institution or Edge or agreement corporation
organized under the laws of the United States, to any office
located outside the United States 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 ) ) .
- 14-
2.
Section 217.1 is amended by revising
(b)(1),
the
initial
phrase
in
paragraph (e),
and
paragraphs (e)(2), (3), and (4) to read as follows:
SECTION 217.1 —
*
*
*
paragraph
DEFINITIONS
*
*
(b)(1)
"Time d e p o s i t M means (i) a deposit that the
depositor does not have a right to withdraw for a period of
seven days or more after the date of deposit.
"Time deposit"
includes funds:
(A) payable on a specified
than seven days after the date of deposit;
date
not
less
(B) payable at the expiration of a specified
time not less than seven days after the date of deposit;
(C) payable upon written notice which
actually is required to be given by the depositor not less than
seven days before the date of repayment;A/or
(D) such as "Christmas club" accounts and
"vacation club" accounts, that are deposited under written
contracts pro viding that no withdrawal shall be made until a
certain number of periodic deposits have been made during a
period of not less than seven days from the end of the period;
and
(ii) an
"international banking
facility
time deposit."
*
*
*
*
*
(e) "Savings deposit" means a deposit —
(1 ) * * *
(2)
With respect to which
not required by the deposit contract but may at any time be
required by the bank to give written notice of an intended
withdrawal not less than seven days before such withdrawal is
made,:?/ and that is not payable on a specified
A/
A deposit with respect to which the bank merely reserves
the right to require notice of not less than seven days before
any withdrawal is made is not a "time deposit" within the
meaning of the above definition.
3/
* * *
the
dep
- 15-
date or at the expiration of a specified time after the date of
deposit.
(3 )(i ) * * *
(ii)
Deposits in which
interest is held by a corporation, partnership, association, or
other organization that is operated for profit or is not
operated primarily for religious, philanthropic, charitable,
educational, fraternal or other similar purposes, or that is
not a governmental unit described in subpragraph (i)(C) may not
be classified as deposits subject to negotiable orders of
withdrawal, except as authorized by section 217.7(g).
any
bene
(4)
"Savings d e p o s i t " also means a deposit issued
pursuant to section 2 1 7 . 7 ( c ) (2)(i i ) or section 217.7(g) with
respect to which the member bank reserves the right to require
at least seven days' notice prior to withdrawal or transfer.
*
*
*
*
*
3.
The second sentence of
amended by removing "14" and inserting "seven"
By order of the Board of Governors,
section 217.5(c)(2)
in its place.
October 4, 1983.
(signed) William W. Wiles
W illiam W. Wiles
Secretary of the Board
is
