View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

F ederal







Circular Wo. 73-235
September li, 1973


To All Member Banks in the
Eleventh Federal Reserve District:

There is attached a proposal by the Board of Governors for
an amendment to Regulation D, "Reserves of Member Banks."

The proposed

amendment would apply reserve requirements against certain accounts
classified among "Other Liabilities."
Yours very truly,
P. E. Coldwell
P re sid e n t
A tta c h m e n t

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (

r12 CFR Part 204]
Definition of Gross Demand Deposits

The Board of Governors proposes to apply reserve requirements
against certain accounts classified among "Other liabilities" against
which reserves are presently not maintained.

The certain "Other lia­

bility" accounts against which reserve requirements will now apply are
those accounts which a member bank has created to balance its books
after debiting demand deposit accounts

(or any other accounts for the

transfer of funds).
For example, member banks, at present,

sometimes exchange

checks in the late afternoon or evening, and may debit an account on
the day the checks were received, while not making settlement until
the following business day.

Some banks balance their books until the

next business day by creating an ' Other liability" account the night
that the debit is posted.

On the next business day, the "Other lia­

bility” account is debited and the check is paid.

The Board of Gov­

ernors proposes to regard that "Other liability" account as a "deposit"
against which reserves must be maintained.
"Other liability" accounts that are used for other purposes
would not be affected, e.g. bills payable for services and supplies
received and for which payment is not yet due.


There are several reasons why the Board proposes the change.
The use of an "Other liability” account for this purposes involves a
one business day delay in crediting accounts after debits are posted and
the practice may deprive customers of the use of funds in a way that
is difficult to detect and is misleading.

The Board is also concerned

that the practice outlined above can result in understatement of the
money supply.

Also, a bank that became accustomed to the practice

described may have problems in adapting to any electronic payments
mechanism that will require simultaneous credits and debits.


the practice allows the level of required reserves to be lower than the
Board intended.
To aid in the consideration of this matter by the Board,
interested persons are invited to submit relevant data views, and arguments.
Any such material should be submitted in writing to the Secretary,
Board of Governors of the Federal Reserve System, Washington, D. C. 20551,
to be received not later than

October 12 » 1973.

Such material will be

made available for inspection and copying upon request, except as
provided in § 261.6(a) of the B o a r d ’s Rules Regarding Availability of
To implement its proposal, the Board proposes to amend
section 204.1(g) of its Regulation D (12 CFR Part 204) by adding a new
sentence at the end thereof to read as follows:
§ 204.1





Gross demand deposits,




-3 *

"Gross demabd deposits" also includes any obligation to
pay a check (or other instrument, device, or arrangement for the
transfer of funds) drawn on the Bank,where the account of the bank's
customer has already been debited.





By order of the Board of Governors>September 7# 1973,


Theodore E. Allison

Theodore E. Allison
Assistant Secretary of the Board