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Federal reserve Ba n k of D allas DALLAS, TEXAS 75222 Circular No, 7*+-306 November I*)-, 197*+ RESTRUCTURING OF RESERVE REQUIREMENTS To All Member Banks in the Eleventh Federal Reserve District: There is quoted below the text of a press release issued Wednesday, November 13, 197*+ by the Board of Governors of the Federal Reserve System announcing amendments to Regulation D modifying reserve requirements for member banks. The amendments are effective on deposits outstanding in the week beginning November 28, 197*+ and affect reserves held by member banks in the week beginning December 12, 197*+. "The Board of Governors of the Federal Reserve System today approved a restructuring of reserve requirements that will help meet the seasonal need for bank reserves over the coming weeks. The Board's action is also designed to improve the liquidity of the banking system by encouraging member banks to seek longer-term time deposits. This will be done by lowering reserve requirements on longer-term time deposits and increasing reserve requirements on shorter-term time deposits. The net effect of the over-all restructuring — which includes some reduction in reserve requirements on demand deposits over $*+00 million — will be to release about $750 million in reserves to the banking system. Normally, the Federal Reserve provides a substantial amount of reserves to accommodate the seasonal expan sion in the demand for money and credit that occurs over this period, particularly during the Christmas shopping season. This restructuring will provide part of the needed reserves directly to member banks rather than through open market operations. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) -2- Actions taken by the Board will: 1. Reduce from 5 per cent to 3 per cent the reserve requirement on all time deposits with an initial maturity of four months or longer. 2. Increase from 5 per cent to 6 per cent the reserve requirement on all time deposits with an initial maturity of less than four months. (The first $5 million of such deposits at each member bank will be subject to a 3 per cent reserve requirement). 3. Reduce from 18 per cent to 17-1/2 per cent the reserve requirement on net demand deposits over $1+00 million. U. Remove the remaining marginal reserve requirement of 3 per cent on large certificates of deposit issued to mature in less than four months. All changes will apply to deposits outstanding in the week beginning November 28 and will release reserves in the week beginning December 12. The net reduction in reserves will be distributed among various size banks as shown in the following table: Size of Bank (Total deposits in millions of dollars) Under 50 50 - 100 100 - 500 500 and over Net reduction in required reserves $2^0 $135 $ll+0 $2^+5 million million million million Reserve Requirements on Time Deposits Reserve requirements on time deposits will be restruc tured to provide for a higher reserve requirement on shorter-term time deposits and a lower reserve require ment on longer-term time deposits. The following table depicts the new reserve structure: -3 Time and Savings Deposits Type of Deposit Ratio Savings deposits 3 Other Time Deposits 30-119 days $5 million and under Over $5 million 120 days and over 3 6 3 This change introduces a maturity breakdown for reserve requirements on "other time deposits" regardless of de nomination. Under the system now in effect, member banks are required to maintain a 3 per cent reserve requirement on "other time deposits" up to $5 million and a 5 per cent reserve requirement on "other time deposits" of more than $5 million. Reserve Requirements on Demand Deposits Reserve requirements will be reduced from 18 per to 17-1/2 per cent on net demand deposits over $1+00 million. This will offset the increase in required serves that large banks will experience as a result changes in the structure of reserve requirements on deposits. cent re of time The reduction will also narrow somewhat the gap now exist ing in reserve requirements for large banks as shown in the following table: Deposits millions of dollars) 0-2 2-10 10 - 100 100 - i+oo Over 1+00 Net Demand Deposits Old New 8 10-1/2 12-1/2 13-1/2 18 8 10-1/2 12-1/2 13-1/2 17-1/2 -UMarginal Reserve Requirement Removal of the remaining marginal reserve requirement of 3 per cent affects large certificates of deposit ($100,000 and over) maturing in less than four months. The Board in September removed the marginal reserve requirement on large CD’s -with an initial maturity of four months or longer. This action was taken in recognition of the fact that the volume of large CD’s has declined in recent weeks and in view of the outdated base period used by banks to compute their marginal reserves. The elimination of the marginal reserve requirement on large CD's means that non-member banks that maintained this reserve requirement voluntarily are no longer asked to do so as of the effective date of today's action. A marginal reserve requirement (the regular 5 per cent plus a supplemental 3 per cent) was first announced by the Board on May l6, 1973. An additional 3 per cent marginal reserve was announced on September 7» 1973, but this was removed by the Board last December. On September U, 197*+, the Board announced removal of the 3 per cent mar ginal reserve requirement on large CD's with an initial maturity of four months or longer. Today's action will result in removal of the remaining marginal reserve re quirement . The marginal reserve requirement applied to increases (beyond the amount outstanding in the week ended May l6, 1973) is the total of (a) t ime deposits in denominations of $100,000 and over and (b) bank-related commercial paper and finance bills with a maturity of 30 days or longer. In no case did the supplemental reserve apply to banks whose deposits of this type totaled less than $10 million. Reserve requirements on borrowings of Euro-dollars by American banks remain at 8 per cent. Agencies and branches of foreign banks that are maintaining this reserve require ment voluntarily are not affected by today's action." A revised Supplement to Regulation D (Reserves of Member Banks) is enclosed and should be inserted in your binder of Bulletins and Regulations issued by this Bank. Yours very truly, T. W. Plant First Vice President Enclosure BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM RESERVES OF MEMBER BANKS SUPPLEM ENT TO REGU LA TIO N D As amended effective November 28,1974 SECTION 204.5— RESERVE REQUIREM ENTS (a) Reserve percentages. Pursuant to the provi sions of section 19 of the Federal Reserve Act and § 204.2(a) and subject to paragraph (c) of this section, the Board of Governors of the Fed eral Reserve System hereby prescribe the follow ing reserve balances that each member bank of the Federal Reserve System is required to main tain on deposits with the Federal Reserve Bank of its district: (1) If not in a reserve city— deposits are in excess of $10 million but less than $100 million, or ( d ) $12,250,000 plus 13 Vi per cent of its net demand deposits in excess of $100 million. (2) If in a reserve city (except as to any bank located in such a city that is permitted by the Board of Governors of the Federal Reserve Sys tem, pursuant to § 2 0 4 .2 (a )(2 ), to maintain the reserves specified in subparagraph (1) of this paragraph) — (i) 3 per cent of (A ) its savings deposits and (B) its time deposits, open account, that constitute deposits of individuals, such as Christmas club ac counts and vacation club accounts, that are made under written contracts providing that no with drawal shall be made until a certain number of periodic deposits have been made during a period of not less than 3 months; and (i) 3 per cent of (A) its savings deposits and (B) its time deposits, open account, that consti tute deposits of individuals, such as Christmas club accounts and vacation club accounts, that are made 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 3 months; and (ii) 3 per cent of its time deposits outstanding on November 28, 1974, which have an initial maturity of 120 days or more, or are issued on or after November 28, 1974 with an initial maturity of 120 days or more, 3 per cent of its time deposits up to $5 million, outstanding on November 28, 1974, which have an initial maturity of less than 120 days, or are issued on or after November 28, 1974 with an initial maturity of less than 120 days, plus 6 per cent of such deposits in excess of $5 million; and (ii) 3 per cent of its time deposits outstanding on November 28, 1974, which have an initial maturity of 120 days or more, or are issued on or after November 28, 1974 with an initial m atur ity of 120 days or more, 3 per cent of its time deposits up to $5 million, outstanding on Novem ber 28, 1974, which have an initial maturity of less than 120 days, or are issued on or after November 28, 1974 with an initial maturity of less than 120 days, plus 6 per cent of such deposits in excess of $5 million; and (iii) (a) 8 per cent of its net demand deposits if its aggregate net demand deposits are $2 million or less, ( b ) $160,000 plus IOV2 per cent of its net demand deposits in excess of $2 million if its aggregate net demand deposits are in excess of $2 million but less than $10 million, (c) $1 million plus H V 2 per cent of its net demand deposits in excess of $10 million if its aggregate net demand (iii) $52,750,000 plus Y lV i per cent of its net demand deposits in excess of $400 million. (b) Currency and coin. The amount of a mem ber bank’s currency and coin shall be counted as reserves in determining compliance with the re serve requirements of paragraph (a) of this sec tion. (c) Reserve percentages against certain de posits by foreign banking offices. Deposits repre sented by promissory notes, acknowledgments of advance, due bills, or similar obligations described in § 204.1(f) to foreign offices of other banks,8 or to institutions the time deposits of which are exempt from the rate limitations of Regulation Q pursuant to § 217.3(g) thereof, shall not be sub ject to paragraph (a) of this section or to § 204.3 (a ) (1 ) and (2 ); but during each week of the four-week period beginning June 21, 1973, and during each successive four-week ( “maintenance” ) period, a member bank shall maintain with the Reserve Bank of its district a daily average bal ance equal to 8 per cent of the daily average amount of such deposits during the four-week computation period ending on the Wednesday fifteen days before the beginning of the mainte nance period. An excess or deficiency in reserves in any week of a maintenance period under this paragraph shall be subject to § 204.3(a) (3 ), as if computed under § 2 0 4 .3 (a )(2 ), and deficiencies 8 Any banking office located outside the States of the United States and the District of Columbia of a bank organized under domestic or foreign law. under this paragraph shall be subject to § 204.3 (b):» Provided, That any bank that, under the terms of § 204.5(c) of Regulation D as in effect prior to June 21, 1973,10 was deducting for the computation period ending on May 9, 1973, an earlier period’s corresponding daily average total of such deposits (hereinafter called “reserve-free base”) in calculating its reserve requirements shall continue to be entitled to do so in accordance with the terms of such former section, but such reservefree base shall not exceed progressively lower ceilings established hereunder by reducing the amount of its reserve-free base for the computa tion period ending on May 9, 1973, in ten incre ments, each equal to 10 per cent of its base in such computation period ending on May 9, 1973, applied consecutively in each succeeding computa tion period beginning with the period ending on August 1, 1973, until such reserve-free base is exhausted. 9The term “computation period” in § 204.3(a)(3) and (b) shall, for this purpose, be deemed to refer to each week of a maintenance period under this para graph. 10 35 Federal Register 18658.
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