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federal reserve

Ba n k

DALLAS. TEXAS

of

Dallas

75222
Circular No. 82-47
April 20, 1982

REGULATION D
Reserves of Depository Institutions
Final Rule on Two-year Phase-in for Reserve
Requirements of New Depository Institutions

TO THE FINANCIAL INSTITUTION ADDRESSED
IN THE ELEVENTH FEDERAL RESERVE DISTRICT:
The Board of Governors of the Federal Reserve System announced
a final rule regarding a temporary amendment to Regulation D in effect
since November 1981.
Enclosed is the Board's press release and the
Federal Register document related to the two-year phase-in period for
reserve requirements for new depository institutions.
The amendment
provides that the phase-in applies only to institutions that began
business on or after November 18, 1981 and have total reservable
liabilities under $50 million.
Additionally, the Board amended Regulation D's reporting
requirements to require weekly reporting of deposits by depository
institutions that are experiencing above normal growth. An institution
with total deposits of less than $15 million may report quarterly until
its deposits exceed $15 million for two consecutive quarters. Under the
amendment, the Board may require a switch to weekly reporting at any time
the institution exhibits above normal growth.
If you have any questions regarding the amendments, please
contact Thomas H. Rust of this Bank, Ext. 6333; William L. Wilson, El
Paso Branch, (915) 455-4730; Sammie C. Clay, Houston Branch, (713) 659­
4433; or Tony G. Valencia, San Antonio Branch, (512) 224-2141.
Additional copies of this circular and enclosure will be
furnished upon request to the Department of Communications, Financial
and Community Affairs, Ext. 6289.
Sincerely yours,

William H. Wallace
First Vice President
Enclosure

Banks and others are encouraged to use the following incoming W ATS 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.

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

FEDERAL RESERVE press release_____
’ ■ f^ A I. R t^ " ^ *

For immediate release

March 30, 1982

The Federal Reserve Board today made final a temporary amendment of
its Regulation D —

reserves of depository institutions — providing that the

two-year period for phasing in reserve requirements of new depository
institutions applies only to institutions that
— Commenced business on or after November 18, 1981, and that
— Have total reservable liabilities under $50 million.
The amendment has been in effect as a temporary rule since last
November to prevent bank holding companies that open out-of-state banks from
avoiding reserve requirements.

The Board made the rule final after considering

comment received on the temporary rule.
In its final form the amendment applies, as it did temporarily, to all
institutions that began business on or after November 18, 1981.

The Board had

requested comment on the questions whether it should apply only to institutions
affiliated with another depository institution, and whether a grandfather date
should be included.
Additionally, the Board amended Regulation D ’s reporting requirements
to confirm that weekly reporting of deposits rather than quarterly reporting for
purposes of reserve assessment is required by depository institutions that,
in the Board's opinion, are experiencing above normal growth.

An institution

with total deposits of less than $15 million may report quarterly until its
deposits exceed $15 million for two consecutive quarters.

Under the amendment

to reporting requirements, the Board may require a switch to weekly reporting at
any time the institution exhibits above normal growth.
The amendments are designed to limit exceptions to reserve maintenance
and reporting requirements to the beneficiaries originally intended.

The

two-year phase-in to full reserve maintenance was intended to avoid
disadvantaging new institutions during their start-up period. The Board believes

the phase-in is not appropriate for institutions that expand rapidly after
establishment. Similarly, the quarterly reporting exception was designed to
lighten the reporting burden of very small institutions and was not designed
for, and is not appropriate for, institutions experiencing rapid growth.
In adopting these amendments the Board noted that since Regulation D
was rewritten in 1980to conform to the Monetary Control Act (which made many
banks and thrift institutions not previously subject to Federal Reserve
reserve requirements liable for reserves on their transactions and non-personal
time deposits), Delaware law has been revised to permit out-of-state bank holding
companies to establish new banks there.

This provision of Delaware law is being

used to avoid higher state and local tax rates in the bank holding company's home
state or to avoid constraining usury laws.

Under the 1980 phase-in rule, the Beard

noted, deposits moved to these new banks that would otherwise be liable to full
reserve requirements would be subject to lower reserve requirements.
The Board has consequently amended Regulation D as noted above to assure
that the phase-in of reserve requirements for new depository institutions is not
used for reserve avoidance.
For reasons of equity the Board did not apply the phase-in amendment
to institutions that commenced business before November 18,
The Board's notice is attached.

1981.

FEDERAL RESERVE SYSTEM

Regulation D
[12 CFR PART 204]
tDocket No. R-0374]
RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
Phase-in of Reserve Requirements for De Novo
Depository Institutions

AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Final rule.

SUMMARY: The Board of Governors has amended Regulation D— Reserve Require­
ments of Depository Institutions (12 CFR Part 204) to modify the twoyear phase-in of reserve requirements that is accorded to
novo depository
institutions. This action makes permanent a temporary rule adopted
by the Board on November 19, 1981. Under the amendment, the two-year
phase-in of reserve requirements will apply to a depository institution
that commenced business after November 17, 1981, only as long as that
institution has total reservable liabilities of less than $50 million.
This amendment assures that a two-year phase-in of reserve requirements
will not be available to new institutions that experience rapid growth
in deposits that would otherwise not be subject to full reserve requirements
and will be available only as a benefit to smaller institutions during
their start-up period. Additionally, the Board of Governors has adopted
a technical amendment to Regulation D to require depository institutions
that are experiencing above normal growth to report deposits and maintain
reserves on a weekly basis prior to reporting $15 million or more in
total deposits for two consecutive quarterly periods.
EFFECTIVE DATE:

April 28, 1982

FOR FURTHER INFORMATION CONTACT: Gilbert T. Schwartz, Associate General
Counsel (202/452-3625), Paul S. Pilecki, Senior Attorney (202/452-3281),
or Robert G. Ballen, Attorney (202/452-3265), 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 Stat. 132) provides an eight-year phase-in of reserve
requirements Cor nonmember depository institutions existing on July 1,
1979. Neither the Monetary Control Act nor the Federal Reserve Act
explicitly provides for a phase-in of reserve requirements for de novo
depository institutions. However, when Regulation D was revised in
1980 to implement the Monetary Control Act, in order to assure an orderly

-2 -

transition foe de novo institutions, the Board provided a 24-month
adjustment period to institutions that commenced business after July 1,
19“9. Such a phase-in had been established by the Board in 1976 for
de novo member banks.
Effective February 17, 1981, Delaware law permits out-of-state
bank holding companies to acquire stock in de novo state-chartered banks
and national banks having their principal banking offices in Delaware
(Del. Code Ann., Title 5, § 801 et seq.). The Delaware statute establishes
minimum requirements for capital and certain other conditions of operation
of such banks. The Board recently has considered the application of
a bank holding company to acquire such an institution in Delaware, and
is aware of steps being taken by other money center and large regional
banks to establish banking affiliates in Delaware.
The principal reasons for establishing banks in Delaware by
out-of-state bank holding companies are to avoid higher state and local
tax rates in the holding company’s principal state of operation or to
avoid more constraining usury limitations in such states. The prospects
of attracting new business in the Delaware market appear to be minimal.
Indeed, the Delaware statute limits banks owned by the out-of-state
holding company to one office and the bank is required to be operated
in a manner and at a location that is not likely to attract customers
from the general public in the state to the substantial detriment of
existing banking institutions located there. Consequently, it is likely
that most of the business at banks in Delaware established by out-of­
state bank holding companies would otherwise have been booked at their
non-Delaware affiliates. Under these circumstances, liabilities against
which full reserve requirements have been maintained or would be maintained
would be subject to lower reserve requirements thereby providing a further
benefit to such out-of-state bank holding companies. In addition, in
states that permit multibank holding companies, reserve requirement
savings would occur in the case of the formation of a de novo institution
and the shifting of assets and liabilities from existing affiliated
banks
The two-year reserve requirement phase-in provision was not
intended to enable a depository institution that maintains full reserve
requirements to reduce its current reserve burden. In this regard,
the de novo phase-in was established so that new institutions would
not be disadvantaged during their start-up period. The Board believes
that where an institution achieves rapid growth, the de_ novo phase-in
is no longer necessary. In light of these concerns, including the
potential impact upon monetary control, the Board on November 19, 1931,
requested public comment and amended Regulation D on a temporary basis

1/ U.S. agencies and branches of foreign banks receive a de novo phasein only if the new institution represents the first presence of the
foreign bank in the U.S. Thereafter, new U.S. offices of the foreign
bank are subject to the same reserve requirements as their affiliated
U.S. offices. Thus, the potential for reserve savings from shifting
liabilities to de novo offices does not exist for these institutions.

to eliminate the de novo phase-in of reserve requirements for institutions
that grow rapidly. Under the temporary amendment, the de rqvo phasein was limited to only those institutions that have less than $50 million
of total reservable liabilities. The temporary amendment applied only
to depository institutions that commenced business after November 17,

1981.
The period for public comment on the temporary rule ended
on December 21, 1981. Comments were received from nine respondents,
primarily depository institutions. The majority of the respondents
supported adoption of the temporary rule on a permanent basis on the
grounds that multibank organizations should not be able to use the de
novo phase-in to reduce the aggregate required reserves for the organization
reserve avoidance possibilities that the de novo phase-in offers will
distort reported deposit flows and introduce a further source of "noise"
into the reserve aggregates and their relationship to the money supply,
and the de novo phase-in is not intended to benefit depository institutions
that hold more than $50 million in reservable liabilities. Respondents
that opposed adoption of the temporary rule on a permanent basis argued
that the de novo institutions in question will be generating their own
business, incurring the same start-up costs and administrative efforts
as any other de novo competitor and it is unfair to impose higher reserve
requirements merely because they are created by existing bank holding
companies. After consideration of the comments received, the Board,
for the reasons articulated by the commentators supporting the temporary
rule, has decided to adopt the temporary rule on a permanent basis.
At the time the Board adopted the temporary rule, it specifically
requested comment on whether any permanent rule should apply only to
depository institutions that commenced business after November 17, 1981.
The majority of the respondents that addressed this issue opposed inclusion
of a grandfather clause in the final rule because they believed it is
unfair that depository institutions commencing business prior to November 18
1981, should receive benefits denied other similarly situated institutions
simply because of their establishment early in time. These respondents
also argued that imposition of full reserves on depository institutions
that commenced business prior to November 18, 1981, is not unfair since
depository institutions should anticipate that regulation changes will
alter their reserve burden and that full reserve requirements will be
applied prospectively only. The respondents that supported inclusion
of a grandfather provision in the final rule argued that it is unfair
to apply the rule to an institution that commenced business prior to
the adoption of the temporary rule because such an institution structured
its operations based upon good faith reliance on the reasonable expectation
that the phase-in would be available. The Board has decided that equity
considerations make it appropriate to adopt a grandfather clause in
the final rule.

-

4-

The Board also specifically requested comment on whether the
final rule should apply only to depository institutions that are affiliated
with one or more depository institutions. All of the respondents that
commented on this aspect of the rule favored the application of the
final rule to all c e novo depository institutions, regardless of their
t
affiliations. Accordingly, the Board has decided to apply the rule
to depository institutions regardless of their affiliations. Any depository
institution that experiences such rapid growth as to report reservable
liabilities of $50 million or more within the first two years of operation
no longer needs the assistance of the de novo phase-in, regardless of
whether it is affiliated with another depository institution.
Die Board believes that this rule will not affect small entities
since it applies to depository institutions that have total reservable
liabilities of $50 million or more. A final regulatory flexibility
analysis in compliance with section 604 of the Regulatory Flexibility
Act (5 U.S.C. § 604) is available through the Board's Freedom of Information
Office (202/452-2407).
In connection with this matter, the Board also has adopted
a technical amendment to Regulation D to require depository institutions
that are experiencing above normal growth to report on a weekly, rather
than quarterly, basis prior to reporting $15 million or more in total
deposits for two consecutive quarterly periods. Under Regulation D,
depository institutions that have total deposits of less than $15 million
may report deposits once each calendar quarter and maintain reserves
against such deposits for a corresponding three-month period (12 CFR § 204.3(d)).
A depository institution that has less than $15 million in total deposits
generally qualifies for quarterly reporting until it reports total deposits
of $15 million or more for two consecutive calendar quarters. The quarterly
reporting procedure was adopted in recognition that many very small
depository institutions may not be equipped to report to the Federal
Reserve and to maintain reserves on a weekly basis. Moreover, since
such institutions typically exhibit relatively stable deposit patterns,
weekly reports were not deemed necessary for measurement and control
of the money aggregates. This amendment clarifies that quarterly reporting
was not designed, and is not appropriate, for institutions that have
experienced rapid growth far beyond $15 million. Quarterly reporting
in the context of the rapidly growing institution also offers the potential
for reserve avoidance as fully reservable deposits are shifted by one
depository institution to an affiliate depository institution that has
less than $15 million in deposits shortly after this smaller affiliate
has filed its quarterly report. Accordingly, the Board has confirmed
that quarterly reporting a n d reserve maintenance does not apply to
rapidly growing depository institutions.
In adopting this technical amendment, the Board has dispensed
with the public notice and participation provisions of 5 U.S.C. § 553(b)
because this action merely clarifies an existing Board interpretation
of its regulation. In addition, the Board believes that information

-5 -

is needed from such rapidly growing depository institutions on a timely
basis in order to assure the accuracy of monetary statistics. Accordingly,
,the Board believes that observance of public notice and procedure with
regard to this amendment are impracticable and unnecessary.
Pursuant to its authority under sections 11(a), 11(c), 19,
25 and 25(a) of the Federal Reserve Act (12 U.S.C. §§ 248(a), 248(c),
461, 601 et seq., 611 et seq. 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 April 23, 1932 as follows:
1. Paragraph (d)(3) of section 204.3 is amended by adding at
thereof a new sentence to read as follows:
SECTION 204.3 —
*

(d)

*

the end

COMPUTATION AND MAINTENANCE
*

*

*

***

(3) *** The Board may require any depository institution
that is experiencing above normal growth to report on a weekly basis
prior to reporting $15 million or more in total deposits for two consecutive
calendar quarters.
*

*

*

*

*

2. By revising paragraph (e) of section 204.4 to read asfollows:
SECTION 204.4 —
*

*

TRANSITIONAL ADJUSTMENTS
*

*

*

(e)
De novo institutions. (1) The required reserves of
any depository institution that was not engaged in business on September 1,
1980, shall be computed under section 204.3 in accordance with the following
schedule:

-6 -

P e r c e n ta g e o f

Maintenance periods occurring
during successive quarters after
entering into business

reserve
requirement to
be maintained

7
8 and succeeding

85
100

This subparagraph also shall apply to a United States branch
or agency of a foreign bank if such branch or agency is the foreign
bank's first office in the United States. Additional branches or agencies
of such a foreign bank shall be entitled only to the remaining phasein available to the initial office.
(2)
Notwithstanding subparagraph (1), the required reserves
of any depository institution that:
(i)

was not engaged in business on November 18, 1981;

and
(ii) has $50 million or more in daily average total
transaction accounts, nonpersonal time deposits and Eurocurrency
liabilities for any computation period after commencing business
shall be 100 per cent of the required reserves computed under section 204.3
starting with the maintenance period that begins eight days after the
computation period during which such institution has daily average total
transaction accounts, nonpersonal time deposits and Eurocurrency liabilities
of $50 million or more.
*

*

*

*

*

By order of the Board of Governors, March 30, 1962.

(signed) William W. Wiles
William W. Wiles
Secretary of the Board

[SEAL]