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F ed er a l Re ser ve Ba n k
DALLAS. TEXAS
of
Dallas
75222
Circular No. 80-208
November 4 1980
,
REGULATION D INTERPRETATION
DEFINING "BANKERS' BANKS" AND SETTING FORTH
THE CRITERIA UNDER WHICH BANKERS’ BANKS
MAY ACT AS PASS-THROUGH AGENTS FOR
RESERVES OF OTHER INSTITUTIONS
TO THE CHIEF EXECUTIVE OFFICER
OF ALL FINANCIAL INSTITUTIONS IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
Printed on the following pages is the tex t o f a press release issued
on October 15, 1980 by the Board of Governors of the Federal Reserve System
announcing an interpretation of its Regulation D, "Reserve Requirements of
Depository Institutions" defining "bankers' banks" and setting forth the criteria
under which bankers' banks may a ct as pass-through agents for the reserves of
other institutions. The Federal Register document, also printed on the following
pages, details the tex t of the Board's interpretation.
An interpretation will be provided in the near future for insertion in
the regulations binder furnished by this Bank. In the interim, you should refer
to the enclosed Federal Register document for the full tex t of the inter
pretation.
Questions regarding this revision should be directed to Allan Neale at
the Head O ffice, Ext. 6334, or the manager of the Accounting Department at
our El Paso, Houston, or San Antonio Branches.
Sincerely yours,
Robert H. Boykin
First Vice President
Banks and others are encouraged to use the follo w in g incom ing WATS num bers in co n ta c tin g 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)
For immediate release
October 15, 1980
The Federal Reserve Board today issued an interpretation of its
Regulation D —
reserve requirements of depository institutions —
defining
"bankers' banks" and setting forth the criteria under which bankers' banks
may act as pass-through agents for the reserves of other institutions.
The Monetary Control Act of 1980 specifies that bankers
are exempt from Federal reserve requirements.
banks
In its interpretation the
Board ruled that an institution is a bankers' bank if it satisfies all the
following criteria:
--It is organized solely to do business with other financial
institutions.
This requirement may be met even though the institution does
a limited amount of business with customers other than financial institutions.
Those to whom it may lend or from whom it may receive deposits are
specified in the interpretation.
--It is owned primarily (75 percent or more) by the financial
institutions with which it does business.
--It does not do business with the general public
specified in the interpretation.
except for cust<lmen
Loans to others than financial institutions
may not exceed 10 percent of its total assets and the deposits it receives
from others than financial institutions may not exceed 10 percent of its
total liabilities.
A bankers' bank may act as a pass-through agent for the reserves of
other institutions under the following conditions:
-2— If the bankers' bank
enters into an agreement with the Federal
Reserve to accept responsibility for correctly maintaining passed-through
reserves.
--The Federal Reserve is satisfied with the quality of the
management and financial resources of the bankers' bank.
The Board said that to determine the quality of the management and
financial resources of a bankers' bank it will consult with the appropriate
Federal supervisor.
Since the Board does not intend to involve itself in the
direct supervision of other than commercial banks, it will look to the
National Credit Union Administration and the Federal Home Loan Bank to
review requests from credit unions or savings and loan associations that wish
to qualify as bankers' banks.
Federal Reserve approval will depend upon a
finding by the appropriate Federal supervisor that
financial resources are adequate.
The Board's interpretation is attached.
# # # # # # #
management and
TITLE 12—BANKS AND BANKING
CHAPTER II— FEDERAL RESERVE SYSTEM
SUBCHAPTER A— BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Regulation D]
(Docket No. R-0328)
Part 204— RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Interpretation.
SUMMARY:
Under the Monetary Control Act of 1980, "bankers' banks” are
exempt from Federal reserve requirements.
The Board has determined
that a depository institution will be regarded as a bankers' bank if
it meets certain criteria with regard to its ownership and the extent
to which it does business with entities other than depository institutions.
The Board has also adopted criteria that will be applied in determining
whether to grant requests from bankers' banks to act as a correspondent
for the pass-through of required reserves of other depository institutions.
DATE:
Effective November 13, 1980.
FOR FURTHER INFORMATION CONTACT: Gilbert T. Schwartz, Assistant General
Counsel (202/452-3625), Lee S. Adams, Senior Attorney (202/452-3623),
Paul S. Pilecki, Attorney (202/452-3281), or Myron L. Kwast, Economist
(202/452-2686), or Paul P. Burik, Economist (202/452-2556), Board of
Governors of the Federal Reserve System, Washington, D. C. 20551.
SUPPLEMENTARY INFORMATION:
Under section 19 of the Federal Reserve
Act ("Act"), as amended by the Monetary Control Act of 1980 (Title I
of P. L. 96-221), the Board has adopted the following interpretation,
effective November 13, 1980, with regard to the characteristics a depository
institution must possess in order to qualify for the "bankers' bank"
exemption from reserve requirements contained in § 1 9 ( b ) (9) of the Act.
The Board also established criteria to be applied to determine whether
a specific bankers' bank is qualified to act as a pass-through correspondent
for nonmember depository institutions that are subject to the Act.
Effective November 13, 1980, pursuant to the Board's authority
under section 19 of the Federal Reserve Act (12 U.S.C. §S 461 et seq.) ,
Regulation D (12 C FR Part 204) is amended by adding a new section 204.121
as follows:
-2§ 204.121 B a n k e r s ' Banks
(a)
(1) The Federal Reserve Act, as amended by the Monetary
Control Act of 1980 (Title I of P. L. 96-221), imposes Federal reserve
requirements on depository institutions that maintain transaction accounts
or nonpersonal time deposits. Under § 19(b)(9), however, a depository
institution is not required to maintain reserves if it:
(A)
is organized solely to do business with other financial
institutions;
(B)
is owned primarily by the financial institutions
with which it does business; and
(C)
does not do business with the general public.
Depository institutions that satisfy all of these requirements are regarded
as "bankers' banks."
(2)
In its application of these requirements to specific
institutions, the Board will use the following standards:
(A) A depository institution may be regarded as organized
solely to do business with other depository institutions even
if, as an incidental part to its activities, it does business
to a limited extent with entities other than depository institu
tions.
The extent to which the institution may do business
with other entities and continue to be regarded as a bankers'
bank is specified in (C) below.
(B) A depository institution will be regarded as being
owned primarily by the institutions with which it does business
if 75 per cent or more of its capital is owned by other depository
institutions.
The 75 per cent or more ownership rule applies
regardless of the type of depository institution.
(C) A depository institution will not be regarded as
doing business with the general public if it meets two conditions.
First, the range of customers with which the institution does
business must be limited to depository institutions, including
subsidiaries or organizations owned by depository institutions;
directors, officers or employees of the same or other depository
institutions; individuals whose accounts are acquired at the
request of the institution's supervisory authority due to
the actual or impending failure of another depository institution;
share insurance funds; and depository institution trade associations.
Second, the extent to which the depository institution makes
loans to, or investments in, the above entities (other than
depository institutions) cannot exceed 10 per cent of total
assets, and the extent to which it receives deposits (or shares
-3 -
if the institution does not receive deposits) from or issues
other liabilities to the above entities (other than depository
institutions) cannot exceed 10 per cent of total liabilities
(or net worth if the institution does not receive deposits).
If a depository institution is unable to meet all of these
requirements on a continuing basis, it will not be regarded as a bankers'
bank and will be required to satisfy Federal reserve requirements on
all of its transaction accounts and nonpersonal time deposits.
(b)
(1) Section 19(c) (1) of the Federal Reserve Act, as amended
by the Monetary Control Act of 1980 (Title I of P. L. 96-221) provides
that Federal reserve requirements may be satisfied by the maintenance
of vault cash or balances in a Federal Reserve Bank.
Depository institu
tions that are not members of the Federal Reserve System may also satisfy
reserve requirements by maintaining a balance in another depository
institution that maintains required reserve balances at a Federal Reserve
Bank, in a Federal Home Loan Bank, or in the National Credit Union Administra
tion Central Liquidity Facility if the balances maintained by such institu
tions are subsequently passed through to the Federal Reserve Bank.
(2) On August 27, 1980, the Board announced the procedures
that will apply to such pass-through arrangements (45 F e d . R e g . 58099).
Section 204 . 3 (i)(1) provides that the Board may permit, on a case-bycase basis, depository institutions that are not themselves required
to maintain reserves ("bankers' banks") to act as pass-through correspondents
if certain criteria are satisfied.
The Board has determined that a
bankers' bank may act as a pass-through correspondent if it enters into
an agreement with the Federal Reserve to accept responsibility for the
maintenance of pass-through reserve accounts in accordance with Regulation D
(12 CFR 204.3(i )) and if the Federal Reserve is satisfied that the quality
of management and financial resources of the institution are adequate
in order to enable the institution to serve as a pass-through correspondent
in accordance with Regulation D. Satisfaction of these criteria will
assure that pass-through arrangements are maintained properly without
additional financial risk to the Federal Reserve.
(3)
In order to determine uniformly the adequacy of managerial
and financial resources, the Board will consult with the Federal supervisor
for the type of institution under consideration.
Because the Board
does not possess direct experience with supervising depository institutions
other than commercial banks, and does not intend to involve itself in
the direct supervision of such institutions, it will request the National
Credit Union Administration to review requests from credit unions that
qualify as bankers' banks and the Federal Home Loan Bank Board to review
requests from savings and loan associations that qualify as bankers'
banks, regardless of charter or insurance status.
(The Board, itself,
will consider requests from all commercial banks that qualify as bankers'
-4-
banks.)
If the Federal supervisor does not find the.institution's managerial
or financial resources to be adequate, the Board will not permit the
institution to act as a pass-through correspondent.
In order to assure
the continued adequacy of managerial and financial resources, it is
anticipated that the appropriate Federal supervisor will, on a periodic
basis, review and evaluate the managerial and financial resources of
the institution in order to determine whether it should continue to
be permitted to act as a pass-through correspondent.
It is anticipated
that, with respect to state chartered institutions, the Federal supervisor
may discuss the request with the institution's State supervisor.
The
Board believes that this procedure will promote uniformity of treatment
for all types of bankers' banks, and provide consistent advice concerning
managerial ability and financial strength from supervisory authorities
that are in a better position to evaluate these criteria for depository
institutions that are not commercial banks.
(4)
Requests for a determination as to whether a depository
institution will be regarded as a bankers' bank for purposes of the
Federal Reserve Act or for permission to act as a pass-through correspondent
may be addressed to the Federal Reserve Bank in whose District the main
office of the depository institution is located or to the Secretary,
Board of Governors of the Federal Reserve System, Washington, D. C.
20551.
The Board will act promptly on all requests received directly
or through Federal Reserve Banks.
By order of the Board of Governors of the Federal Reserve
System, October 14, 1980.
(Signed)
Theodore E. Allison
Theodore E. Allison
Secretary of the Board
[SEAL]
