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FEDERAL RESERVE BANK OF DALLAS
DALLAS. TEXAS

75222

Circular No. 80-170 (D)
Septem ber 9, 1980

REVISED REGULATION D

TO THE CHIEF EXECUTIVE OFFICER
OF THE INSTITUTION ADDRESSED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
As you may already be aware, with the passage of the Monetary
Control Act of 1980 (Public Law 96-221), all depository institutions offering
transaction accounts or nonpersonal time deposits will become subject to the
Federal Reserve's Regulation D, Reserve Requirements. The highlights of the
new reserve requirement structure are contained in the enclosed press release,
Federal Register document, and copy of Regulation D. The press release and
Federal Register document detailing the pass-through guidelines and a brochure
regarding the Monetary Control Act of 1980 are also enclosed.
Reporting under the new structure will begin for deposits as of
October 30, 1980, and reserve maintenance under the new structure will begin
on November 13, 1980. Detailed information on both reporting and reserve
maintenance will be provided to your institution within the next several weeks.
For additional information, contact Richard D. Ingram, Assistant Vice
President, Ext. 6333.
We look forward to a pleasant association with your institution.
Sincerely yours,
Ernest T. Baughman
President
Enclosures

B a n k s and o th e r s are e n c o u r a g e d to us e th e fo llo w in g in c o m in g W A T S n u m b e r s in c o n ta c tin g this Bank:
1-800-442-714 0 (in tr a s ta te ) an d 1-800-527-920 0 (in te rstate ). Fo r ca lls p la c e d locally, p le a s e use 651 plu s th e
ex te n s io n refe rred to above.

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

Mr. Eldon Miller
Vice President
First Dallas International
Banking Corp.
P. O. Box 8 3 7 2 5
Dallas, Texas 7 5 2 8 3

Mr. Barry J . Mason
President
Republic International Company
P. 0 . Box 2 2 5 9 6 1
Dallas, Texas 7 5 2 6 5

FEDERAL RESERVE BANK
OF DALLAS
MISC-125

Rev. 5 - 7 5
DAT]

'f H - t
1

,o:
of

Mr. Elvis Mason
Chief Executive Officer
First International Banking Corp.
F irst International Bank Bldg.
1 8 0 1 Main S treet
Houston, Texas 7 7 0 0 2
Mr. Gerald R. Williams
Executive Vice President and
Chief Financial O fficer
First City International Corp.
of Texas
P. 0 . Box 2 5 5 7
Houston, Texas 7 7 0 0 1
Mr. Yuichi Kuraishi
Vice President
Tokyo Bancorp. International
2 Houston C enter, Suite 1 1 0 0
Houston, Texas 7 7 0 0 2

Security Pacific International Bank
2 Allen Center, Suite 3 0 3 0
1 2 0 0 Smith S tre e t
Houston, Texas 7 7 0 0 2

F0n
,,;
Please:
□
□
□

Attend to
Note and return
Note and forward
to Fites
□ See (phone) me
re attached
□ Prepare reply for

□
□

D ^ s requested
□
□

D m y signature
□ President's s ig n a tu re □
O F . V . P / s sign atu re

□

For your information

Other remarks:

For your file s
A s ^ e r conversation

□

For your comments
and suggestions
D oes attach ed meet
with your approval?
For signature.
i f you approve
Supply S ecretariat
with copy o f response

Mr. Robert V. Silva
'
President
Chase Bank International-Houston
Iio o Milam, Suite 2 3 4 5
Houston, Texas 7 7 0 0 2

Mr. Robert S. Devens
President
Morgan Guaranty International Bank
of Houston
1 1 0 0 Milam, Suite 8 3 0
Houston, Texas 7 7 0 0 2

Mr. Tin L. Conner
Vice President and General Manager
Continental Bank International (Texas)
1 1 0 0 Milam, Suite 3 5 0 0
Houston, Texas 7 7 0 0 2

Mr. Ephrim Graff
Assistant Vice President
Citibank International-Houston
2 Allen Center, Suite 2 1 0 0
Houston, Texas 7 7 0 0 2

Mr. Omer Rifai
Manager
Banque De Paris Et Des Pays-Bas
International (Houston) Co.
6 0 1 Jefferson
Houston, Texas 7 7 0 0 2

Mr. Horst Kaiser
A ssistant Vice President
First Chicago International
(Southwest)
1 2 0 0 Milam, Suite 5 1 5
Houston, Texas 7 7 0 0 2

Mr. Kenneth E. Stallman
Vice President and Manager
Bank of America International
of Texas
5 0 0 Dallas Avenue, Suite 3 1 0 0
Houston, Texas 7 7 0 0 2

1

x

,

\

Mr. Douglas Cornwell
Vice President and Controller
Bankers Trust International
(Southwest) Corp.
1 1 0 0 Milam, Suite 2 6 3 0
Houston, Texas 7 7 0 0 2

For immediate release

August 15, 1980

The Federal Reserve Board today announced that it has revised its
Regulation D -- reserve requirements of depository institutions -- to carry out
provisions of the Monetary Control Act of 1980.
The first period for reporting deposits under the new regulation begins
October 30, 1980 for all institutions whose requirements have not been deferred.
The amount of initial reserves required beginning November 13 under the Act's
new reserve ratios will be calculated from these reports.
The Board amended Regulation D to conform to the Act after consideration
of comment on proposed new reserve requirement rules published in June.
The Monetary Control Act, which became law March 31, is designed to
improve the effectiveness of monetary policy by applying new uniform reserve
requirements, set by the Federal Reserve, to member and nonmember commercial
banks, savings banks, savings and loan associations and credit unions that offer
transaction accounts or nonpersonal time deposits.
By the terms of the Act, the reserve requirement on the first $25
million of an institution's transactions accounts will be 3 percent.
requirement on remaining transactions accounts will be 12 percent.

The initial
The reserve

requirement on nonpersonal time deposits with original maturities of less than
four years will be 3 percent.

Nonpersonal time deposits with original maturities

of four years or more will be zero percent.
have reserve requirements of 3 percent.

Eurocurrency liabilities will

The new requirements are, by law, to be

-2-

phased in gradually in order to provide an orderly transition.

The new regulation

includes phase-in schedules, with requirements varying according to the
status of the institution, and other factors.
Reporting requirements, and further details, are set forth in the
Board's official notice of these actions, which is available upon request from
the Federal Reserve Board and from the Federal Reserve Banks.

The Federal

Reserve Banks will send the notice to all affected depository institutions.
The major provisions of the new regulation are summarized below,
beginning with key definitions.

Definition of transaction account
The Act defines transaction

accounts to include demand deposits,

1
?/
NOW- / accounts, ATS— ' accounts, share draft accounts and accounts permitting

telephone or similar transfers for payments to third parties and some other
payments.

Regulation D as revised permits up to three telephone or preauthorized

transfers a month (to another account of the depositor in the same institution
or to a third party) before such accounts are regarded as transaction accounts.
Accounts that permit more than three such transfers monthly are subject to
reserve requirements even

if not actively used.

Accounts that permit the

customer to make third party payments by means of automatic tellers or remote
service units are also included among transaction accounts.
Transfers authorized in connection with loans made by the institution
holding the deposit do not make the account subject to reserve requirements.

.1/ Negotiable Order of Withdrawal.
2/ Automatic Transfer Service (for transfers of funds from savings to
demand accounts).

-3-

All cash items (check or check-like items) in process of collection or
due from other depository institutions may be deducted in computing transaction
account reserve requirements.

Time deposits
Nonpersonal time deposits are subject to reserve requirements under
the Act, but personal time deposits are not subject to reserve requirements.
The Act defines nonpersonal time deposits as a transferable time
deposit or account, or a time deposit or account in which any beneficial interest
is held by a depositor that is not a natural person.
a natural person as an individual or sole proprietor.

Regulation D defines
A personal time deposit

is one that is not transferable and in which the entire beneficial interest
is held by a natural person.

The regulation includes Individual Retirement

Accounts (IRAs) and Keogh Accounts among personal time deposits, as well as
time deposits held by trustees when the entire beneficial interest is held for
a natural person.
The regulation specifies that time deposits do not become transferable
by reason of being pledged for a loan, or due to transfer following death,
bankruptcy, judicial attachment or the like.
As a transitional measure, the Board said it would regard all time
deposits (over or under $100,000) issued to individuals prior to October 1,
1980 as personal time deposits, even if they are transferable.
On or after that date, to be a personal time deposit, the instrument
must be issued to and held by a natural person

and bear a legend (which may

be hand stamped or printed on the instrument) indicating that it is not
transferable.

The Board expects issuing institutions to follow normal practices

-4-

and to take steps designed to ensure that deposits are not issued to nonpersonal
entities through individuals in order to escape reserve requirements.
As a further transitional measure, the new rules permit institutions
to estimate -- using standard sampling methods -- the breakdown between personal
and nonpersonal fixed maturity time deposits issued prior to October 30 (the
beginning of the first reporting period for deposits).

Institutions must, however,

identify all existing savings deposits and time deposit open accounts as
personal or nonpersonal.

All time deposits (open or fixed maturity) and savings

accounts issued on or after October 30, 1980 must be classified as personal or
nonpersonal.

A new type of time deposit
New Regulation D establishes, effective October 30, 1980 a new type
of time deposit with a minimum maturity of 14 days, to help improve the ability
of domestic depository institutions to compete with banking offices located
abroad and with short-term domestic issues.

The minimum maturity for time

deposits has been 30 days.

Small institutions

The Board deferred reserve and reporting requirements for nonmember
depository institutions other than branches and agencies of foreign banks and
Edge corporations of less than $1 million in
order to relieve potential operating problems.
institutions, mostly credit unions.
whether to extend this deferral.

total deposits until May 1981, in
This applies to over 11,400

The Board will determine at a later date

-5 -

To ease the reporting burden of small institutions and Reserve Bank
administration, the Board adopted a procedure for quarterly reporting of
deposits and reserve maintenance for institutions between $1 million and $5
million in total deposits.

This procedure will begin January 1, 1981.

It

does not apply to branches and agencies of foreign banks or to Edge corporations.

Reserve requirements on domestic borrowings
Subordinated notes with maturities of seven years or more, federal
funds, repurchase agreements against U.S. Treasury and Federal agency securities
and certain other domestic borrowings are not regarded as deposits subject to
reserve requirements.
Revised Regulation D specifies that the 3 percent reserve requirement
applies only to nonpersonal time deposits that have original maturities of
less than four years.

Nonpersonal time deposits with maturities of four years

or more are subject to reserve requirements, but they will have an initial zero
reserve ratio.

Eurocurrency reserves
Gross borrowings by institutions in the United States from unaffiliated
foreign depository institutions and net borrowing from an institution's own
foreign offices are subject to a 3 percent reserve ratio.

This ratio applies

also to the proceeds of sales of domestic or foreign assets to an institution's
own foreign offices and to loans to U.S. residents made by foreign offices of U.S.
depository institutions.

Such reserve requirements will be computed on the

seven-day reserve maintenance period in effect for all other deposits.

-6-

The Eurocurrency reserve requirements are designed to eliminate any
artifical incentives favoring the raising of funds offshore as compared with
raising funds in the domestic market.

The basic reserve requirement on

Eurocurrency deposits is currently zero.

Other deposits subject to reserve requirements
Regulation D requires that the following also be treated as deposits
subject to reserve requirements:
--Commercial paper, including that issued by savings and loan
associations.
— Credit union certificates of indebtedness.
--Ineligible acceptances (marketable time drafts on a bank's customer),
--Due bills that remain uncollateralized by similar securities
within three days. (A due bill is a promise by a depository
institution to deliver at a future date a security bought
by the institution's customer.)
— Mortgaged-backed bonds with an original maturity of less than
four years.

Reserve requirement calculations for branches and
agencies of foreign banks, and Edge corporations
Only one $25 million tranche at the 3 percent reserve ratio on transaction
accounts will be permitted for each foreign bank or Edge or Agreement corporation
regardless of the number of their U.S. offices.

The U.S. branches and agencies

of foreign banks and offices of the same Edge or Agreement corporation will report
on a statewide basis.

Eligible reserve assets
All vault cash (except silver and gold coins) and balances held directly
or on a pass-through basis at Reserve Banks (above clearing balance requirements)
can be used to satisfy reserve requirements.

-7Phasing in reserve requirements

Nonmember depository institutions
These institutions -- other than those affected by the Board's actions
with respect to small institutions, and branches and agencies of foreign
banks -- will post, on November 13, 1980, one-eighth of the reserve requirements
applicable to them.

Subsequently, they will post an additional one-eighth of the

reserve requirements applicable to them during the first reserve maintenance
week following each September 1, until, in the eighth year, they are posting
their full required reserves.
Member banks
Member banks will phase down their required reserves over a period
of approximately 3 1/2 years from September 1, 1980, with the first reserve
reduction beginning in November 1980.
The reserves that member banks will be required to post while phasing
down to the lower new structure of required reserves under the Monetary Control
Act will be the amount required under the new structure, plus a percentage of
the difference between the lower new requirements and the higher requirements
in effect on August 31, 1980.

The table below shows the percentages of this

difference to be used in each phase-down period.

The phase down will begin

during the reserve maintenance period starting November 13, 1980.

Reserve maintenance periods
_between
—
November 13, 1980-September 2, 1981
September 3, 1981-March 3, 1982
March 4-September 1, 1982
September 2, 1982-March 2, 1983
March 3-August 31, 1983
September 1, 1983-February 29, 1984
March 1, 1984 forward

Percentage of the difference
_______to be applied_______
75
62.5
50
37.5
25
12.5
0

-8 -

To simplify this process, and to reduce the reporting burden of member
banks, a member's required reserves on time deposits used in calculating
requirements under the

old structure will be the average ratio in effect on

the bank's time deposits of all maturities during the 14-day period from July 24
to August 6 , 1980.

New banks, new members
and agencies and branches of foreign banks
Such U.S. institutions will have a 24-month transitional period during
which to phase-in to the reserve requirements under the Act.
also to new Edge corporations.

This applies

These institutions will begin by posting one-

eighth of their required reserves, and will add an eighth each quarter.

The

24-month phase-in applies also to a new branch or agency of a foreign bank when
the office is the foreign bank's first in the United States.
NOW accounts
By the terms of the Act, there is no phase-in period for reserve
requirements on NOW accounts of nonmetnbers outside states where NOW accounts are
currently permitted (New York, New Jersey and New England).

Similarly, no

phase-in is provided for NOW accounts of member banks outside these current
NOW account states.

Coverage of the Act
Regulation D specifies that in addition to member banks, nonmember
banks, U.S. branches and agencies of foreign banks and Edge and Agreement
corporations, savings and loan associations, savings banks and credit
unions, the reserve requirement provisions of the Act apply also to industrial

-9-

banks, but not to New York Investment Companies and "banker's banks" (banks
doing business only with other banks).

The latter two types of institutions,

however, may continue to sell federal funds.

Contemporaneous reserve accounting
The Board is disposed toward returning to contemporaneous reserve
accounting, prossibly by September 1, 1981, if further investigation indicates
that such a system is operationally practical.
possible change in June.

The Board proposed such a

At present, reserves are posted on the basis of

deposits held two weeks earlier.

Business-day reserve computation period
The Board has determined not to adopt a business-day computation
period at this time.

Nevertheless, the Board expects that depository institutions

will not engage in reserve avoidance practices under which reserve requirements
are lowered by transactions that increase artifically cash items and due-from
deductions.

Such practices include so-called "weekend Eurocurrency exchange"

transactions and borrowing arrangements involving recept of uncollected funds and
repayment in collected (or federal) funds.

To ensure compliance, the Federal

Reserve will monitor individual institutions and will consider the need for
implementation of additional measures, including adoption of a business-day
(in place of the current seven-day) reserve computation week.

Due-from/due-tos
In view of comment

received regarding the additional operational

difficulties institutions would encounter, the Board has determined not to adopt

-10-

at this time a proposal made in June to eliminate the reserve requirement against
due-to accounts nor to require changes in the use of due-from balances.

The Board

indicated that it would continue to study this matter.

Educational Activities
Representatives of the Federal Reserve Banks will carry out an
intensive educational program on the requirements of the Act and Regulation D
in meetings with groups of representatives of depositories, expected to reach
all institutions affected by the new reserve requirements, before the new
requirements go into effect.

# # # # # # # # # # # # # #

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-0306)
Part 204— RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS

AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Final rule.

SUMMARY: 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. The Act
authorizes the Federal Reserve to require reports from depository institutions
as necessary or desirable to monitor and control monetary and credit
aggregates, provides access to the Federal Reserve discount window for
depository institutions with transaction accounts or nonpersonal time
deposits, and requires the Federal Reserve to price its services and
provide access to system services to all depository institutions. The
Board has adopted a revised Regulation D— Reserve Requirements of Depository
Institutions (12 CFR Part 204) to implement the reserve requirement
provisions of the Monetary Control Act. The revised reserve requirement
regulation will also apply to Edge Act and Agreement Corporations and
United States branches and agencies of foreign banks.
DATE: November 13, 1980. On that date, depository institutions, U. S.
branches and agencies of foreign banks, and Edge and Agreement Corporations
will be required to commence maintaining required reserves under revised
Regulation D based upon deposits held during the seven-day reserve computation
period beginning October 30, 1980.
FOR FURTHER INFORMATION CONTACT: Gilbert T. Schwartz, Assistant General
Counsel (202/452-3625), Paul S. Pilecki, Attorney (202/452-3281), or
Thomas D. Simpson, Senior Economist (202/452-3361), Board of Governors
of the Federal Reserve System, Washington, D. C. 20551.
SUPPLEMENTARY INFORMATION: The Monetary Control Act of 1980 ("Act")
(Title I of Pub. L. 96-221; 94 Stat. 132) imposes Federal reserve requirements
on depository institutions that maintain transaction accounts or nonpersonal
time deposits. Depository institutions subject to reserve requirements
include any Federally-insured commercial or savings bank, or any such

-2-

bank that is eligible to become insured by the Federal Deposit Insurance
Corporation; any mutual or stock savings bank; any savings and loan
association that is a member of a Federal Home Loan Bank, insured by,
or eligible to apply for insurance with, the Federal Savings and Loan
Insurance Corporation; and any credit union that is insured by, or eligible
to apply for insurance with, the National Credit Union Administration
Board. The reserve requirements of the Act will apply to United States
branches and agencies of foreign banks with total worldwide consolidated
bank assets in excess of $1 billion, and to Edge and Agreement Corporations.
In this regard, the Act provides that nothing in the reserve requirement
provisions of the Act limits the authority of the Board under section 7
of the International Banking Act of 1978 ("IBA") (12 U.S.C. § 3105).
On March 19, 1980, the Board adopted amendments to Regulation D to impose
reserve requirements on such branches and agencies (45 Fed. Reg. 19216);
however, as discussed below, the revised regulation modifies certain
aspects of that action in view of the enactment of the Monetary Control
Act. In addition, since U.S. branches of foreign banks are eligible
to apply for Federal deposit insurance, Regulation D also will apply
to foreign banks with total worldwide consolidated bank assets of $1
billion or less in the same manner as applicable to other nonmember
depository institutions.
In light of the enactment of the Monetary Control Act, on
June 4, 1980, the Board requested public comment (45 Fed. Reg. 38388)
on a revised Regulation D to implement the provisions of the Act. The
period for public comment expired on July 15, 1980. After consideration
of the more than 750 comments received from the public (primarily from
depository institutions and financial institution trade groups), the
Board has adopted a revised Regulation D substantially in the form proposed.
However, certain modifications were made, as discussed below, relating
primarily to the definition of a transaction account and in the area
of nonpersonal time deposits.
In addition, certain technical changes
were made in order to clarify regulation.
DIGEST OF BOARD ACTIONS
The following is a general description of certain aspects
of the Board's actions with respect to the imposition of reserve requirements
that are broadly applicable to all depository institutions. A detailed
discussion of the reserve requirements and various technical issues
follows this digest.
General Requirement. A depository institution is required
to maintain reserves against its transaction accounts and nonpersonal
time deposits. An institution's reserve requirements are computed on
the basis of the institution's average daily net deposit balances during
a seven-day period beginning each Thursday (the "computation period").

-3 -

Required reserve balances must be maintained at a Federal Reserve Bank
during a corresponding seven-day period (the "maintenance period") which
begins on the second Thursday following the end of the computation period.
However, in determining the reserve balance to be held with the Federal
Reserve during the maintenance period, the average daily United States
currency and coin held during the computation period is deducted from
the institution's reserve requirements. The first reserve maintenance
period under revised Regulation D will begin November 13, 1980 based
on deposits held during the reserve computation period beginning October 30,
1980.
Transaction Accounts. A "transaction account" is defined
to include demand deposits, negotiable order of withdrawal (NOW) accounts,
savings accounts subject to automatic transfers (ATS), share draft accounts,
accounts that permit payments to third parties through use of a check,
draft, negotiable instrument, debit card or other similar items, accounts
under the terms of which a depositor is permitted to make more than
three preauthorized or telephone transfers per month (whether to another
account of the depositor or to a third party), and accounts that permit
a depositor to make payments to third parties through automated teller
machines or remote service units. An account is not regarded as a transaction
account merely because it permits repayments or transfers in connection
with loans made by the institution itself (as originator or servicer).
Whether an account is a transaction account by virtue of the number
of telephone or preauthorized transfers (excluding loan repayments)
permitted is to be determined based upon the terms of the account contract
or by practice of the depository institution and not on the basis of
the actual number of transfers made in a particular calendar month.
Institutions are expected to establish adequate monitoring procedures
or systems to insure that the number of transfers made in a calendar
month does not exceed the permissible amount in order for such accounts
not to be regarded as transaction accounts.
The reserve ratio on transaction accounts will be 3 per cent
on amounts of $25 million or less and 12 per cent on amounts in excess
of $25 million. In computing the amount of its transaction accounts,
a depository institution is permitted to deduct all cash items in process
of collection and balances due on demand from other depository institutions.
Nonpersonal Time Deposits. The Act defines "nonpersonal time
deposit" as a ( ) time deposit or account that is transferable or (2 )
1
a time deposit or account representing funds deposited to the credit
of, or in which any beneficial interest is held by, a depositor that
is not a natural person. Under the regulation, a time deposit includes
certificates of deposit, certificate accounts, credit union share certificates,
notice accounts, and regular accounts, savings deposits and share accounts that
are not regarded as transaction accounts. Time deposits issued to and held
by natural persons are not subject to reserve requirements if they are

-4 not transferable. Time deposits that are issued in transferable form
on or after October 1, 1980 will be regarded as nonpersonal time deposits
because of the transferability feature. The definition of nonpersonal
time deposit excludes a time deposit issued to and held by a natural
person on or after October 1, 1980, if it includes on the deposit instrument
or other document evidencing the account a specific statement that it
is not transferable, or is transferable only on the books of, or with
the permission of, the depository institution. To meet this requirement,
a depository institution may use the following terminology or any other
statement of equivalent legal effect: "Not transferable;" "Nontransferable;"
"Not transferable, as defined in 12 CFR Part 204;" or "Not transferable
except on the books of the depository institution." However, the words
"Not negotiable" and "Nonnegotiable" will not meet this requirement.
Depository institutions may stamp the required terminology on existing
stocks of deposit documents.
A transferable time deposit issued before October 1, 1980,
to a natural person will not be regarded as a nonpersonal time deposit.
Prior to that date, depository institutions shall refrain from issuing
transferable time deposits to natural persons that might otherwise be
issued in the name of a corporation or other organization for the purpose
of avoiding reserve requirements.
Since the provision of the Act defining transferable time
deposits as nonpersonal time deposits was intended to prevent the evasion
of reserve requirements through the transfer of time deposits from individuals
to organizations or governmental units, the Board will not regard as
"transfers" a number of transactions that normally would not be undertaken
as reserve avoidance devices. A time deposit will not be regarded as
"transferable" because it can be pledged as collateral for a loan, or
because title or beneficial interest in the deposit can be passed in
circumstances involving death, bankruptcy, divorce, marriage, judicial
attachment, incompetency, or by operation of law. In addition, the
reissuance of a time deposit by a depository institution in the name
of another will not be regarded as a transfer.
Nontransferable time deposits representing funds held pursuant
to Individual Retirement Accounts (IRA) and Keogh (H. R. 10) Plans will
be regarded as personal time deposits. Escrow accounts, such as funds
held for tax or insurance payments, will be regarded as personal time
deposits if the depositor is a natural person and the other conditions
of a time deposit are met, even though the funds are held by the depository
institution or other organization as escrow agent. In addition, the
Board will regard nontransferable time deposits held by fiduciaries
as personal time deposits exempt from reserve requirements where the
entire beneficial interest in the funds is held by natural persons.
A natural person is an individual or a sole proprietorship. A partnership,

-5-

corporation (including one solely owned by an individual), governmental
unit, or other association or organization (including a not-for-profit
organization) is not a natural person.
Depository institutions will be permitted to estimate (using
standard sampling methods) the breakdown between personal and nonpersonal
categories of fixed maturity time deposits issued prior to October 30,
1980, the beginning of the first deposit reporting period under the
revised regulation. All existing savings deposits, time deposit open
accounts and notice accounts, as well as fixed maturity time deposits
issued on or after October 30, 1980, are required to be classified as
either personal or nonpersonal. Savings deposits, time deposit open
accounts and notice accounts may not be estimated since these accounts
do not have a stated maturity and if estimation were permitted for such
accounts, they would always be reported on the basis of estimates rather
than actual amounts.
Nonpersonal time deposits with original maturities of 14 days
or more but less than four years will be subject to a reserve requirement
ratio of 3 per cent. Nonpersonal time deposits in the form of borrowings
from non-U.S. offices of unrelated depository institutions with original
maturities of less than four years also will be subject to a reserve
requirement of 3 per cent. All nonpersonal time deposits with original
maturities of four years or more will be subject to a zero per cent
reserve requirement.
Eligible Reserve Assets. The reserves of a depository institution
may be held in the form of vault cash or a balance maintained at the
Federal Reserve Bank, either directly or indirectly on a pass-through
basis. A depository institution that is a member of the Federal Reserve
System must hold its required reserve balances directly with its Federal
Reserve Bank. A nonmember depository institution may hold its required
reserve balance directly with its Federal Reserve Bank or, alternatively,
it may pass its required reserve balance to the Federal Reserve through
a correspondent. Such a correspondent may be a depository institution
that holds a required reserve balance directly with the Federal Reserve,
a Federal Home Loan Bank, or the National Credit Union Administration
Central Liquidity Facility. A depository institution is permitted to
use all of its vault cash, that is, United States currency and coin,
as eligible reserve assets. However, silver and gold coin and other
currency and coin whose numismatic or bullion value is substantially
in excess of face value will not be regarded as vault cash.
On June 26, 1980, the Board announced (45 Fed. Reg. 44962)
proposed procedures for nonmember depository institutions to follow
if they maintain required reserves under a pass-through arrangement.
The Board's final pass-through procedures will be announced shortly.
Phase-in of Reserve Requirements. (1) Member banks will
be phased down to the new structure of reserve requirements over a three
and one-half year period from the effective date of the Act, September 1,
1980. During this period, reserves required to be maintained will equal

-6 -

required reserves under the reserve structure in effect on August 31,
1980 ("old structure") less a portion of the difference between reserves
calculated under the structure of the Act ("new structure") and the
old structure. In order to relieve the reporting burden during the
phase-in period, a member bank's required reserves will be computed
under the old structure using its average reserve ratio on time deposits
during the 14-day period from July 24 - August 6 , 1980. This average
ratio will be used throughout the phase-in period to compute required
reserves on time deposits under the old structure.
Member banks will begin to phase down to the new reserve requirement
structure during the reserve maintenance period beginning November 13,
1980. At that time, required reserves will be reduced by 1/4 of the
difference between reserves under the old structure and the new structure.
The phase-down adjustment will increase by 1/8 of the difference between
reserves computed under the old and new structures beginning in September 1981,
and at each six-month interval thereafter until the new reserve structure
is phased in fully.
(2) Nonmember depository institutions will be required to
hold an amount equal to 1/8 of reserve requirements calculated under
the Act beginning with the reserve maintenance period beginning November 13,
1980. During the seven-day maintenance period beginning on that date,
a nonmember depository institution will maintain reserves based on its
deposits and vault cash outstanding during the seven-day computation
period beginning October 30, 1980. Thereafter, the amount of required
reserves will increase by an additional 1/8 of the reserve requirements
under the Act on the first maintenance period beginning after September 1,
of each succeeding year until the new reserve structure is implemented
fully.
(3) Pnited States branches and agencies of foreign banks
will phase in to the new reserve requirements on a quarterly basis over
a two-year period beginning November 13, 1980.
(4) Reserve requirements on NOW accounts outside New England,
New York and New Jersey, authorized pursuant to Federal law on December 31,
1980, will not be subject to the phase-in provisions.
Quarterly Reporting and Reserve Maintenance. To ease the
reporting burden and Reserve Bank administration, the Board has adopted
a procedure of quarterly reporting and reserve maintenance for institutions
that have less than $5 million in total deposits. This procedure will
begin in January 1981. This procedure will not apply to Edge or Agreement
Corporations or to U.S. branches and agencies of foreign banks.
Deferred Effective Date for Smaller Institutions. To further
relieve potential operational problems during the initial period of
reserve maintenance by depository institutions, the Board has deferred

-7 until May 1981 reserve requirements and reporting for institutions with
total deposits of less than $1 million. At that time, the Board will
make a determination as to whether to continue to defer reserve requirements
on such institutions.
Contemporaneous Reserve Accounting. The Board is disposed
toward returning to contemporaneous reserve accounting, possibly by
September 1981, if a further investigation indicates that such a system
is operationally practical.
DETAILED DISCUSSION
Transaction Accounts
Definition. The Board proposed to define transaction accounts
to include all demand deposits, negotiable order of withdrawal (NOW)
accounts, savings accounts subject to automatic transfer (ATS), share
draft accounts, accounts subject to preauthorized or telephone transfer
or withdrawal and all accounts that permit the account holder to make
third-party payments using automated teller machines (ATMs) or remote
service units (RSUs). The Board invited comment on the desirability
and feasibility of exempting from reserve requirements those accounts
subject to preauthorized or telephone transfers that are limited to
a minimal number of transfers per month for special purposes, such as
loan repayments and occasional transfers or withdrawals by telephone
from a savings account to a checking account.
Comments from the public indicated that the proposed definition
of a transaction account was too broad, that accounts that were not
normally used for transaction purposes would be covered and that the
proposal could adversely affect the level of services offered by depository
institutions. Consequently, the Board has narrowed the definition of
the term "transaction account" so as not to interfere with occasional
withdrawal or payment arrangements. Under the regulation, "transaction
account" includes demand deposits, NOW accounts, ATS accounts, share
draft accounts, accounts that permit payments to third parties through
use of checks, drafts, negotiable instruments, debit cards or other
similar items, accounts that permit a depositor to make payments to
third parties through ATMs or RSUs, and accounts that permit a depositor
to make more than three telephone or preauthorized transfers per calendar
month. Under this approach, those accounts that are actively used for
transaction purposes will be subject to transaction account reserve
requirements.
With regard to accounts subject to telephone or preauthorized
transfer, the determination of whether such an account is a transaction
account must be made on the basis of the number of transfers authorized

-8 in a calendar month under the terms of the account agreement rather
than on the basis of the number of transfers actually made in a particular
month. A preauthorized transfer includes any arrangement by the depository
institution to pay a third party from the account of a depositor upon
written or oral instruction (including an order received through an
automated clearing house (ACH)), or any arrangement by a depository
institution to pay a third party from the account of the depositor at
a predetermined time or on a fixed schedule. For example, if under
the terms of a savings account agreement (written or oral) or if permitted
by custom or practice of the institution a depositor is allowed to make
more than three telephone transfers during a calendar month, including
transfers to third parties for purposes of making payments or transfers
to another account, then such an account would be a transaction account.
This account would be a transaction account at all times even if a depositor
never made more than three transfers during a particular calendar month.
In order for an account that permits telephone or preauthorized
transfers to be exempt from transaction account reserve requirements,
the account must provide that no more than three such transfers per
calendar month are permitted and the account must not otherwise meet
the definition of a transaction account. A depository institution is
required to establish a system or other procedure to insure that no
more than three such transfers are made during any calendar month from
such accounts. A savings account will not be regarded as a transaction
account merely because it permits the depositor to make loan repayments
and pay associated expenses, such as insurance and escrow requirements,
to the institution itself (as servicer or originator).
(Arrangements
providing for credit extended to cover checks drawn on a zero balance
or low balance account are regarded as ATS accounts.) In addition,
an account would not be regarded as a transaction account because withdrawals
to be paid directly to the depositor could be effected by telephone
or preauthorized order. All other telephone and preauthorized transfers,
including those made to third parties or to another deposit account
of the same depositor, would count toward the three permissible transfers
per month.
Summary of Transaction Account Classifications
Always Regarded as Transaction Accounts
1.

Demand deposits

2.

NOW accounts

3.

Share draft accounts

4.

ATS accounts

5.

Accounts that permit third party payments through ATMs
or RSUs

-9-

6.

Accounts that permit third party payments through use
of checks, drafts, negotiable instruments, debit cards
or other similar items.

Accounts Regarded as Transaction Accounts If More Than Three of the
Following Transactions Per Calendar Month Are Permitted to Be Made by
Telephone or Preauthorized Order or Instruction
1.

Payments or transfers to third parties

2.

Transfers to another account of the depositor at the
same institution

3.

Transfers to an account at another depository institution

Not Regarded as Transaction Accounts (Unless Specified Above)
1.

Accounts that permit telephone or preauthorized transfers
or transfers by ATMs or RSUs to repay loans made or serviced
by the same depository institution

2.

Accounts that permit telephone or preauthorized withdrawals
where the proceeds are to be mailed to or picked up by
the depositor

3.

Accounts that permit transfers to other accounts of the
depositor at the same institution through ATMs or RSUs

4.

Accounts that permit three or less telephone or preauthorized
payments or transfers to third parties or to other accounts

Bona Fide Cash Management Arrangements. In determining the
amount of outstanding transaction accounts to which the reserve ratio
will apply, a depository institution shall not treat overdrafts in a
demand deposit account as negative demand deposits. Since overdrafts
are properly reflected on an institution's books as assets, they shall
not be netted against positive balances in other transaction accounts;
for purposes of reporting deposits, accounts in overdraft status shall
be regarded as having a zero balance. However, under present interpretations,
in cases where a customer has multiple demand deposit accounts with
a member bank, overdrafts in one account pursuant to a bona fide cash
management arrangement are permitted to be netted against demand balances
in other accounts for reserve requirement purposes. Under revised Regulation D,
depository institutions will be permitted to continue this practice.

-10-

Computation of Net Transaction Accounts. In computing demand
deposit reserve requirements, member banks currently are permitted to
deduct from their gross demand deposits cash items in the process of
collection ("CIPCs") and demand balances due from other banks. The
purpose of this deduction is to prevent situations in which more than
one institution holds required reserves against the same deposit liability
to the nonbank public.
The Board requested comment on the desirability of substituting
an exemption from reserve requirements for balances "due to" depository
institutions for a "due from" deduction. It was noted that such a treatment
of "due from's" and "due to's" is more consistent with an institutional
environment in which all depository institutions are subject directly
to Federal reserve requirements and, in such an environment, there is
no longer a need to control the deposits of nonmember institutions indirectly
through reserve requirements on the deposits nonmembers hold with their
member bank correspondents. Moreover, it was suggested that such a
treatment of interbank transactions would reduce the risk that distortions
in measures of the monetary aggregates could arise from the clearing
of checks and improve monetary control by removing one source of disturbance
to the multiplier connecting reserves to the money stock.
Comment from the public generally was adverse on this issue,
indicating that such an approach would be operationally burdensome.
In view of the comments received, the Board has determined not to adopt
this procedure at this time, but will continue to study the matter.
Consequently, a depository institution generally will be permitted to
deduct all cash items in process of collection and all balances due
on demand from U. S. offices of other institutions subject to Federal
reserve requirements from the sum of all transaction accounts in computing
reserve requirements. Although requests have been received by the Board
to expand the definition of CIPC to include credit card sales slips,
the Board has determined that credit card sales slips will continue
not to be regarded as cash items in process of collection.
Reserve Requirement Ratio. The Act specifies that any reserve
requirement imposed by the Board shall be solely for the purpose of
implementing monetary policy and shall be applied uniformly to all transaction
accounts at all depository institutions. A reserve ratio of 3 per cent
on transaction accounts of $25 million or less is established by the
Act. This low reserve requirement tranche will be adjusted annually
beginning in 1982 based on the change in the total of transaction accounts
at all depository institutions during the previous year. With regard
to transaction accounts in excess of $25 million, the Board has established
a reserve ratio of 12 per cent, the initial ratio established by law.
This ratio may be varied within a range of from 8 to 14 per cent.

-11-

Nonpersonal Time Deposits

Definition. The Act defines "nonpersonal time deposit" as
a ( ) transferable time deposit or account, or (2 ) a time deposit or
1
account representing funds deposited to the credit of or in which any
beneficial interest is held by a depositor that is not a natural person.
Nontransferable time deposits solely in the name of, or in which the
entire beneficial interest is held by, a natural person are not be subject
to reserve requirements. Under the revised Regulation D, the term "savings
deposit" will continue to be included in the definition of "time deposit;"
thus any savings deposit that is not otherwise regarded as a transaction
account and that is held by a business or nonprofit organization or
a domestic governmental unit would be regarded as a nonpersonal time
deposit.
Time deposits that are issued in transferable form on or after
October 1, 1980 will be regarded as nonpersonal time deposits because
of the transferability feature. The provision of the Act that defines
transferable time deposits as nonpersonal time deposits was intended
to prevent the evasion of reserve requirements through the transfer
of time deposits from individuals to organizations or governmental units.
Accordingly, the Board has determined that a transferable time deposit
issued before October 1, 1980, to a natural person in a denomination
of less than $100,000 would not be regarded as a nonpersonal time deposit.-'
In addition, a transferable time deposit of any denomination issued
to a natural person before that date will be regarded as exempt from
the reserve requirement on nonpersonal time deposits. The definition
of nonpersonal time deposit excludes a time deposit issued to and held
by a natural person on or after October 1, 1980, if it includes on its
face a statement that it is not transferable or if it is transferable
only on the books of, or with the permission of, the depository institution.
To meet this requirement, a depository institution may use the following
terminology or any other statement of equivalent legal effect: "Not
transferable;" "Nontransferable;" "Not transferable, as defined in 12
CFR Part 204;" or "Not transferable except on the books of the depository
institution." However, the words "Not negotiable" and "Nonnegotiable"
will not meet this requirement since such terms would not prohibit the
depositor from engaging in certain types of transactions that could

1/ The date was originally proposed as July 15, 1980. However, in
response to numerous comments expressing concern over the ability of
institutions to meet this deadline, the Board modified the date to Septem­
ber 1, 1980 (see 45 Fed. Reg. 47846). This date has been modified further
to October 1, 1980.

-12-

lead to an evasion of reserve requirements. In this regard, the transferee
of a nonnegotiable time deposit would not be a holder in due course
and would not have the ability to cut off certain defenses of an obligor.
Although such a transferee would be in a less desirable position visa-vis a transferee of a negotiable time deposit, an exchange for value
can be made and reserve avoidance transactions would be possible. Consequently,
in order to prevent this possibility, a time deposit issued to a natural
person on or after October 1, 1980 must be nontransferable in order
to be exempt from reserve requirements.
Depository institutions may stamp, type or otherwise affix
the required legend to existing stocks of deposit documents. Any personal
time deposit or account originally issued before October 1, 1980, would
not require a legend to be exempt from reserve requirements, including
time deposits that automatically renew after that date and accounts
to which additional funds can be added. The required legend must appear
on the document that evidences an account issued on or after October 1,
1980 whether in certificate, passbook, statement, or book-entry form.
Depository institutions should not issue time deposits in
the name of a natural person prior to October 1 that normally would
be issued in the name of a corporation or other organization. The Board
expects that depository institutions will observe the grandfather date
for transferable personal time deposits in good faith.
Transferability. A number of comments received from the public
raised questions concerning the potential limitations that could be
imposed by designating a time deposit "not transferable." As stated
above, the provision of the Act including transferable time deposits
as nonpersonal time deposits was intended to prevent the evasion of
reserve requirements by transferring time deposits from natural persons to
nonexempt entities. Accordingly, the Board will not regard a time deposit as
"transferable" although it can be pledged as collateral for a loan from
any lender, or even if title or beneficial interest in the deposit or
account can be passed on in circumstances arising from death, bankruptcy,
divorce, marriage, incompetency, attachment or otherwise by operation
of law. In addition, the reissuance of a time deposit by an institution
in the name of another or the addition or subtraction of names on the
time deposit will not be regarded as a transfer. In this regard, a
depository institution's involvement in the transaction would enable
it to know if any beneficial interest in the time deposit is being acquired
by other than a natural person, and, thus, the appropriate reserve requirement
change could be made.

-13-

IRA and Keogh Plan Time Deposits and Escrow Funds. The Monetary
Control Act provides that any time deposit held in the name of a depositor
that is not a natural person is subject to reserve requirements on nonpersonal
time deposits. Under this provision IRA and Keogh Plan time deposits,
which can only be issued to individuals, would be treated as nonpersonal
time deposits since they are held by the depository institution as trustee
or custodian due to the technical requirements of the Internal Revenue
Code. Since these deposits are indistinguishable from other personal
time deposits and are regarded by the depositor as his own funds subject
to his direct control, the Board will regard such funds as personal
time deposits.
In addition, escrow accounts, such as funds held for tax or
insurance payments, will be regarded as personal time deposits if the
depositor is a natural person and the other conditions of a time deposit
are met, notwithstanding that the funds are held by the depository institution
or other organization as escrow agent.
(If escrow funds are held in
any other type of deposit account, they will be regarded as a transaction
account.)
Time Deposits Held by Trustees. A number of commentators
raised the issue as to the appropriate treatment of time deposits held
by trustees and other fiduciaries where the entire beneficial interest
is held by natural persons. The Board believes that the imposition
of reserve requirements on such funds is not necessary for the conduct
of monetary policy. Therefore, any nontransferable time deposit held
in the name of a trustee or other fiduciary, whether or not a natural
person, will be regarded as a personal time deposit if the entire beneficial
interest is held by natural persons. A nontransferable time deposit
that is an asset of a pension fund would normally be regarded as a personal
time deposit since the entire beneficial interest of such funds normally
is held by natural persons.
Definition of Natural Person. Consistent with its longstanding
positions currently embodied in Regulations D and Q as to what constitutes
an individual for purposes of maintaining a NOW, ATS, or savings account,
the Board will regard a "natural person" to consist of an individual
and a sole proprietorship. "Natural person" will not include a partnership,
corporation (including one solely owned by an individual), governmental
unit, or other association or organization.
Estimation of Personal Time Deposits. A number of depository
institutions inquired during the comment period whether they would be
permitted to estimate the breakdown between the amount of outstanding
personal and nonpersonal time deposits. The Board has determined to
permit depository institutions to estimate (using standard sampling
methods) funds held in fixed maturity time deposits issued before October 30,
1980, the beginning of the first computation period for reserve requirements
under the revised regulation.

-14-

Amounts of personal and nonpersonal time deposits held in
savings accounts, time deposit open accounts and notice accounts may
not be estimated since such accounts do not have a stated maturity and
reliance on estimates of such accounts, therefore, would continue indefinitely
into the future. An institution will be required to classify as personal
or nonpersonal all existing savings, time deposit open accounts and
notice accounts as well as new fixed maturity time deposits issued on
or after October 30, 1980.
Maturity of Time Deposits. The Board has adopted its proposal
to shorten the minimum maturity of time deposits for purposes of Regulations D
and Q from the present 30 days to 14 days. The Board believes that
the shorter minimum maturity on time deposits will improve the competitive
position of domestic depository institutions vis-a-vis open market instruments
and foreign banking offices. Beginning October 30, 1980, member banks
and U. S. branches and agencies of foreign banks that are subject to
Regulation Q (12 CFR Part 217) may issue time deposits with original
maturities between 14 and 29 days issued in denominations of $100,000
or more and pay interest on such deposits at any rate since there are
no Federal interest rate limitations on time deposits issued in such
denominations. It is anticipated that the other Federal financial institu­
tion regulatory agencies will consider taking similar action with respect
to the definition of the term time deposit and that the Depository Institu­
tions Deregulation Committee will consider the establishment of an interest
rate ceiling on time deposits under $100,000 with maturities of 14 to
29 days.
Gross Borrowings From Non-U.S. Offices of Unrelated Institutions.
The Board has determined that the term time deposit also will include,
regardless of maturity, a promissory note, an acknowledgment of advance,
or a similar obligation that is issued to any office located outside
the United States of another depository institution or another foreign
bank, or to institutions whose time deposits are exempt from interest
rate limitations under § 217.3(g) of Regulation Q (12 CFR Part 217.3(g)).
Reserve Requirement Ratio. The Board has established a reserve
ratio of 3 per cent on nonpersonal time deposits with original maturities
of less than four years. Nonpersonal time deposits with original maturities
of four years or more will be subject to a zero per cent reserve ratio.
Treatment of Promissory Notes, Due Bills and Other Miscellaneous Obligations
of Depository Institutions
Regulation D currently defines as deposits a number of sources
of funds that frequently are not classified as deposits for other purposes.
The Board will continue to regard as deposits promissory notes (commercial
paper), ineligible acceptances (finance bills), due bills, acknowledgments

-15-

o£ advance, repurchase agreements against assets other than obligations
of, or fully-guaranteed as to principal and interest by, the United
States government and its agencies, and funds supplied from nondepository
affiliates. Generally, such obligations having original maturities
of less than 14 days will be regarded as demand deposits and will be
subject to the reserve requirement on transaction accounts; those having
maturities of 14 days or more will be regarded as nonpersonal time deposits,
if transferable or held by a depositor other than a natural person.
Under this approach, certificates of indebtedness issued by credit unions
and mortgage-backed bonds and commercial paper issued by all depository
institutions including savings and loan associations will be defined
as deposits. While such obligations with original maturities of four
years or more will be regarded as time deposits, they will
be subject
to a zero per cent reserve requirement.
Subordinated Notes. Under Regulations D and Q (Interest on
Deposits) subordinated capital debt of member banks is not regarded
as a deposit subject to reserve requirements or interest rate limitations
provided that certain conditions are met, including a minimum maturity
of seven years or more. The Board proposed to retain these conditions
for depository institutions. In this regard, the Federal Deposit Insurance
Corporation has similar rules concerning issuance of subordinated notes
exempt from interest rate limitations by insured nonmember commercial
banks (see 12 CFR Part 329). For thrift institutions, the Board proposed
a similar exemption from reserve requirements for subordinated capital
debt.
Such adebt obligation would be exempt from reserve requirements
if itwould have a minimum original maturity of seven years or more
and was approved by the institution's primary Federal supervisor or
was issued under the rules of the primary Federal supervisor. The Board
has adopted these proposals as published.
Obligations of Nondepository Affiliates. The Board has adopted
its proposal to revise the reserve treatment of funds advanced by affiliates
to depository institutions. At present, deposits of member banks include
the liability of an affiliate that it has issued to the extent that
the proceeds are used for the purpose of supplying funds to the affiliated
institution. However, these rules relating to determination of deposit
status of such obligations are complex. In order to simplify the determination
of the deposit status of affiliate obligations, the Board will apply
the following rules. An obligation issued by the affiliate will not
be regarded as a deposit of the affiliated depository institution if
the obligation has a maturity of four years or more. In addition, an
obligation issued by an affiliate will not be regarded as a deposit
of the affiliated depository institution if the obligation would not
have been a deposit had it been issued directly by the affiliated depository
institution. For example, a borrowing by an affiliate from an unaffiliated
depository institution will not be regarded as a deposit of the affiliated
depository institution. However, if the proceeds from such obligations

-16-

are placed with the affiliated depository institution in the form of
a deposit or other nonexempt borrowing, then such funds are reservable
to the affiliated depository institution. An obligation of a nondepository
affiliate will be regarded as a deposit if the obligation issued by
the affiliate would have been a deposit had it been issued directly
by the affiliated depository institution. For example, a borrowing
by an affiliate from a nondepository business organization will be regarded
as a deposit of the affiliated depository institution if the funds are
supplied to the depository institution by the affiliate. If the affiliate's
obligation is determined to be a deposit, then the appropriate reserve
ratio to be applied will be determined f y the shorter of the maturity
c
of the affiliate's obligation or the maturity of the obligation issued
to the affiliate by its affiliated depository institution. If the affiliate's
obligation is determined to be a deposit and the proceeds are used to
purchase assets, then the appropriate reserve ratio to be applied will
be determined by the shorter of the affiliate's obligation or the remaining
maturity of the assets purchased.
Due Bills. A due bill is a promise by the depository institution
to deliver at some future date a security purchased f y the institution's
c
customer. Under existing provisions, due bills issued or undertaken
by a member bank principally as a means of obtaining funds to be used
in its banking business are regarded as deposits subject to reserves.
However, due bills that are not issued principally as a means of obtaining
funds to be used in the banking business are deposits only if they are
not collateralized with a similar security within three days after issuance.
The principal questions that arise in connection with these transactions
involve whether a member bank is utilizing due bill transactions as
a means of obtaining funds principally for use in its banking business
and whether such obligations are collateralized with a "similar" security.
In order to minimize compliance and enforcement problems involving
due bills, the Board proposed to revise Regulation D so that all due
bills would be reservable deposits from the date of issuance without
regard to the purpose of the due bill unless collateralized within three
days from date of issuance by a security identical to the security purchased
by the depository institution's customer.
Comments from the public indicated that the requirement that
securities identical to those purchased be used as collateral would
place dealer banks at a significant competitive disadvantage to nonbank
dealers and could impair the market for U. S. government securities.
In view of these comments, the Board has adopted the proposed simplifications
concerning due bills in modified form, that is, eliminating the distinction
between bona fide and other due bills, but requiring that the collateral
provided be similar to, rather than identical to, the securities purchased.
In this regard, a security will be regarded as "similar" if it is of

-1 7 -

the same type and if its maturity is comparable to that of the obligation
purchased by the customer. A due bill that remains uncoilateralized
after three business days is a deposit from that time forward. In addition,
the Board is reviewing other aspects relating to due bills and may adopt
additional operational safeguards on due bills at some future date.
Eurocurrency Reserve Requirement
Under the Act, the Board's authority to establish a reserve
requirement necessary for the implementation of monetary policy on Euro­
currency transactions is extended to cover all domestic depository institutions.
In addition to imposing basic reserve requirements on all depository
institutions, the Board is authorized also to place reserve requirements
on: net borrowings from related foreign offices, net borrowings from
unaffiliated foreign depository institutions, loans to United States
residents made by overseas offices of depository institutions located
in the United States, and sales of assets by depository institutions
in the United States to their overseas offices. With the exception
of net borrowings from unaffiliated foreign depository institutions,
these are essentially the same categories that are reservable under
Regulation D currently. As explained beicw, using its basic reserve
requirement authority as well as a portion of its Eurocurrency reserve
requirement authority, the Board has determined to continue to subject
to reserve requirements the same categories of transactions that currently
are reservable as Eurocurrency transactions, except that the proceeds
of sales to foreign branches of all assets— rather than only domestic
assets— will be reservable. Loans to U.S. residents made f y non-U.S.
c
offices of foreign banks will not be reservable.
Under the Board's proposed regulations, borrowings from foreign
offices of unaffiliated depository institutions would continue to be
reservable on a gross rather than a net basis. U. S. agencies and branches
of foreign banks and some large domestic banks objected to the proposal
to reserve such liabilities on a gross basis. These institutions indicated
their view that the Monetary Control Act authorizes the Board to impose
reserve requirements on borrowings from unaffiliated institutions only
on a net basis. The Board has determined to treat these borrowings
on a gross basis as time deposits under the basic reserve
requirement authority of the Board rather than under the Board's additional
Eurocurrency reserve requirement authority. The Board intends to review
the matter of gross versus net borrowings from unaffiliated
depository institutions in the context of proposals to establish Domestic
International Banking Facilities.
The Board has adopted a reserve ratio of 3 per cent on Eurocurrency
transactions, the same ratio applied to nonpersonal time deposits.
The Board believes that this action will eliminate any artificial incentive
through the reserve requirement structure that favors raising funds

-18-

offshore as compared with the domestic market. As a technical matter,
the revised Regulation D reflects a change in the four-week computation
and maintenance period for Eurocurrency reserves to one week periods
coinciding with normal reserve computation and maintenance periods,
as proposed.
Eligible Reserve Assets
The reserves of a depository institution may be held in the
form of vault cash or a balance maintained at the Federal Reserve Bank,
either directly or indirectly on a pass-through basis. A depository
institution that is a member of the Federal Reserve System must hold
its required reserve balances directly with its Federal Reserve Bank.
A nonmember depository institution may hold its required reserve balance
directly with its Federal Reserve Bank or, alternatively, it may pass
its required reserve balance to the Federal Reserve through a correspondent.
Such a correspondent may be a depository institution that holds a required
reserve balance directly with the Federal Reserve, a Federal Home Loan
Bank, or the National Credit Union Administration Central Liquidity
Facility.
The Board has the authority to specify the portion of vault
cash that a depository institution may use to meet its reserve require­
ments. Under Regulation D, a depository institution will be permitted
to use all of its vault cash as eligible reserve assets. Vault cash
consists of United States currency and coin, and does not include securities
or earning assets of any type. In addition, all silver and gold coin
and other currency and coin whose numismatic or bullion value is sub­
stantially in excess of face value will not be regarded as vault cash.
Reserve Requirement Calculation by United States Branches and Agencies
of Foreign Banks
The Board has determined to continue the system of statewide
aggregation for reserve computation and maintenance for branches and
agencies. This procedure was adopted by the Board on March 19, 1980,
in regulations (45 Fed. Reg. 19216) implementing section 7 of the IBA
(12 U.S.C. § 3105) , which authorizes the Board to impose reserve requirements
on United States branches and agencies of foreign banks with total worldwide
consolidated assets in excess of $1 billion. However, only one $25
million low reserve requirement tranche on transaction accounts will
be permitted for each foreign bank, since its U.S. branches and agencies
compete primarily with domestic money center banks, which, by statute,
have only one low reserve requirement tranche. Allowing a foreign bank
only one low reserve tranche is consistent with the IBA's goal of promoting
competitive equality between branches and agencies and domestic depository

-19-

institutions. The Board also will allow an Edge or Agreement Corporation
only one lew reserve tranche on transaction accounts regardless of the
number of its branches.
Under the Board's rules, a foreign bank or an Edge or Agreement
Corporation will be allowed to assign its low reserve requirement tranche
to any of its offices. However, if possible, the lew reserve tranche
must be assigned to a single office or to a group of offices filing
a single aggregated report of deposits. In the event that the low reserve
tranche cannot be fully utilized by a single office or by a group of
offices filing am aggregated report of deposits, the unused portion
may be assigned to other offices. Reassignment of the low reserve requirement
tranch will be permitted on an annual basis.
Phase-in of Reserve Requirements
Member Banks. Member banks will be phased down to the new
structure of reserve requirements over a three and one-half year period
from the effective date of the Act, September 1, 1980. During this
period, reserves required to be maintained will equal required reserves
under the reserve structure in effect on August 31, 1980 ("old structure"),
less a portion of the difference between reserves calculated under the
structure of the Act ("new structure") and the old structure.
In order to relieve the reporting burden during the phasein period, the Board has adopted a simplified procedure for computing
reserve requirements under the old structure during this period. The
Board believes that this procedure will be beneficial to the Federal
Reserve and to member banks and is consistent with Congressional intent
concerning transitional adjustments. Under this approach, required
reserves of a member bank on time deposits under the old structure will
be computed by using its average reserve ratio on total time deposits
during the 14-day period from July 24 - August 6, 1980. This average
ratio will be used throughout the entire phase-in period. A former
member bank that did not maintain Federal reserves during this period
and, thus, did not report deposits to the Federal Reserve may use the
period from August 14-27, 1980 as its base period for purposes of determining
its average reserve ratio on time deposits. Required reserves on remaining
deposits (including savings deposits) will be computed using the existing
ratios.
The current reserve ratios on time deposits are as follows:
By original maturity
less than 180 days
- $0 - 5 million
- over $5 million
180 days to less than 4 years
4 years or more

3%
6%
2-1/2%
1%

Time deposits are subject, at present under the Federal Reserve Act,
to a 3% minimum reserve ratio. The average reserve ratio on time deposits
will be computed by dividing the daily average total amount of required
reserves on such deposits by the daily average total time deposits for
the 14-day period.

-20-

Member banks will begin to phase-down to the new reserve requirement
structure during the reserve maintenance period beginning November 13,
1980. Required reserves computed under the old structure will be reduced
at that time by 1/4 of the difference between required reserves under
the old structure and required reserves under the new structure. By
having an initial reserve reduction of 25 per cent rather than 1/8 as
originally proposed, member banks will be compensated for the two-month
delay in implementation of the new reserve requirements. The phasedown adjustment will increase by 1/8 of the difference between reserves
computed under the old and new structures, beginning in September 1981,
and at each six-month interval thereafter until the new reserve structure
is fully implemented.
Nonmember Banks and Thrift Institutions. Reserve requirements
of nonmember banks and thrift institutions will be phased in over an
eight-year period. Nonmember institutions (other than U.S. branches
and agencies of foreign banks) will be required to hold an amount equal
to 1/8 of reserve requirements calculated under the Act, starting with
the reserve maintenance period which begins on Thursday, November 13,
1980. During the seven-day maintenance period beginning on that date,
a nonmember depository institution will maintain reserves based on its
deposits and vault cash outstanding during the seven-day computation
period beginning October 30, 1980. Thereafter, the amount of required
reserves will increase by an additional 1/8 of the reserve requirements
under the Act on the first maintenance period beginning after September 1
of each succeeding year until the new reserve structure is fully implemented.
The Act provides a special phase-in provision for certain
State-chartered nonmember depository institutions located in a State
outside the continental United States. The Board's proposed Regulation D
would have applied this provision to such institutions located in Alaska
and Hawaii. However, because the Alaska Omnibus Act (Pub. L. 86-70)
provides that Alaska is part of the "continental United States," the
special phase-in provision of the Monetary Control Act can only apply
to certain State-chartered nonmember depository institutions in Hawaii.
State-chartered nonmembers in Alaska that were engaged in business on
July 1, 1979, and that were not Federal Reserve members will receive
the eight-year phase-in applicable to other depository institutions.
Deposits or Accounts Authorized After April 1, 1980. The
Act exempts from the transitional phase-in provisions any category of
deposits or accounts that are first authorized pursuant to Federal law
in any State after April 1, 1980. This provision most iimediately applies

-21-

to interest-bearing negotiable order of withdrawal (NOW) accounts that
are authorized in States outside of New England,— New York and New
Jersey on December 31, 1980. Therefore, depository institutions outside
of New England, New York and New Jersey maintaining NOW accounts will
be required to maintain reserves against such accounts at the full transaction
account Eeserve ratio.
In computing reserves required to be maintained on net NOW
accounts, a depository institution located outside of New England, New
York and New Jersey will be permitted to deduct from its total NOW accounts
a portion of its cash items in process of collection and balances due
on demand from other depository institutions equal to the ratio of its
NOW accounts to its total transaction accounts. In order to provide
the most benefit to depository institutions, the Board will permit the
the $25 million lew reserve tranche for transaction accounts to apply
to transaction accounts subject to the highest reserve ratio. Under
this approach, a nonmember depository institution outside of New England,
New York and New Jersey phasing in reserves may apply the $25 million
tranche to its NOW accounts initially with any remaining portion applied
to other transaction accounts subject to the phase-in. Transaction
accounts in excess of $25 million (other than NOW accounts) will be
subject to a reserve ratio of 12 per cent, but the effective reserve
ratio applicable to these accounts will be lower than 12 per cent because
of the phase-in. A member bank may apply the $25 million low reserve
tranche to demand deposits or NOW accounts in computing its reserve
requirements.
Branches and Agencies. Under the amendments to Regulation D
adopted in connection with implementation of the IBA, branches and agencies
were granted a phase-in of reserve requirements over a two-year period.
This phase-in period is similar to that allowed to nonmember banks joining
the Federal Reserve System. The Board has determined to allow branches
and agencies to phase-in to the new reserve requirement structure that
becomes effective on November 13, 1980, rather than requiring a more
complicated and burdensome procedure of phasing up to member bank actual
reserve requirements by the end of two years, and then phasing down
to the new structure over the next two years in line with member banks.
On November 13, when revised Regulation D becomes effective, branches
and agencies will begin to maintain reserves subject to a two-year phasein schedule similar to that proposed in June. Reporting will not be
required of branches and agencies until the reserve computation period
that begins on October 30, 1980. The deposits of new branches and agencies
of a foreign bank that has existing United States branches or agencies
will be entitled only to the remaining phase-in, if any, available to
the existing United States branches or agencies.
The amendments to Regulations D and Q (Interest on Deposits
(12 CFR Part 217)) that were adopted in March in connection with implementa­
tion of the IBA will go into effect on September 4, 1980, as originally

2/ Massachusetts, New Hampshire, Connecticut, Rhode Island, Vermont
and Maine.

-22-

scheduled, although reserves will not be required to be held until November 13
1980. Federal Reserve credit facilities also will be available beginning
September 4, 1980. System services will be made available to branches
and agencies beginning in November 1980 when they actually begin holding
reserves. However, clearing balances may be required commensurate with
the level of services provided. This will promote competitive equality
with member banks and take into account the shorter reserve requirement
phase-in period applicable to branches and agencies.
De Novo Banks and New Members. The Act provides an eightyear phase-in only for nonmember depository institutions engaged in
business on July 1, 1979. Consequently, a de novo nonmember depository
institution opening after July 1, 1979, would be required to maintain
full reserve requirements beginning on the effective date of the Act.
In addition, under the Act, a < e novo member or a nonmember joining
t
the System ("new member") would be required to maintain full present
member bank reserve requirements, and then phase down to the new requirements
of the Act. Current Board policy provides a two-year transitional period
to full reserve requirement levels for de novo and new member banks.
The Board believes that, in order to provide an orderly adjustment
to reserve requirements, it is appropriate for the Federal Reserve to
continue its policy of providing a 24-month transitional phase-in for
all de novo depository institutions and new members. Under the Board's
action, de novo institutions and new members will be phased in to the
new reserve requirements under the Act rather than to present member
bank reserve requirements. New member banks on or after September 1,
1980, will not be required to report deposits or maintain reserves until
the revised regulation becomes effective. This transition policy will
also apply to a newly formed Edge or Agreement Corporation, or a foreign
bank establishing its initial branch or agency in the United States.
Former Members and Mergers. On April 23, 1980, the Board
announced an interpretation (12 CFR 204.120; 45 Fed. Reg. 28305) of
section 19(b)(8)(D) of the Federal Reserve Act (12 U.S.C. § 461(b),
as amended f y section 103 of the Act). This interpretation applies
c
to the reserves required of any bank that was a member of the Federal
Reserve System on July 1, 1979, and which subsequently withdraws from
membership. That interpretation also establishes a System policy for
reserve requirements of depository institutions involved in mergers.
Coverage of the Act
During the comment period, several questions were received
concerning the scope of institutions covered by the Act. The Board
has determined that industrial banks that engage in a deposit-taking

-23-

function are covered by the Act and are subject to reserve requirements
on their transaction accounts and nonpersonal time deposits, since they
are eligible for Federal deposit insurance.
New York Investment (Article XII) Companies, on the other
hand, are not subject to reserve requirements under the IBA, and since
they accept credit balances rather than deposits, they are not eligible
for Federal deposit insurance. Consequently, the Board has concluded
that New York Investment Companies are not depository institutions subject
to the Act.
Onder the Act, bankers' banks are not subject to Federal reserve
requirements. Bankers' banks are defined as depository institutions
that are organized solely to do business with other financial institutions,
do not do business with the general public, and are owned primarily
by the financial institutions with which they do business. Questions
have arisen with respect to how the Board will apply these criteria
in individual cases, particularly with regard to corporate central credit
unions. The Board will consider in the near future the issue of what
institutions qualify for the exemption.
Quarterly Reporting for Certain Depository Institutions
The Board recognizes that many very small depository institu­
tions— especially credit unions— may not be equipped to report to the
Federal Reserve and to maintain reserves on a weekly basis. Moreover,
given the substantial number of such very small institutions that might
have small amounts of reservable liabilities, the Federal Reserve could
encounter operational difficulty in processing reports of these institutions
on a weekly basis. In an effort to reduce the reporting and reserve
management burdens of very small depository institutions and to reduce
the processing burden of the Reserve Banks, depository institutions
with total deposits of less than $5 million will report their deposits
to the Federal Reserve for a 7-day computation period only once each
calendar quarter and maintain reserves over a subsequent three-month
period based on such deposits reported.
Quarterly reporting will be staggered so that each month onethird of all quarterly reporters will report deposit data for one week.
Reserves will be maintained during a period beginning two weeks after
the start of the computation period and ending one week after the end
of the institution's next computation period. Balances to be held at
the Federal Reserve over the three-month maintenance period, either
directly or indirectly on a pass-through basis, would equal required
reserves based on the deposit report for one week less vault cash held
during the seven-day reporting period. An institution will remain eligible
for quarterly reporting until its total deposits are $5 million or more
for two consecutive quarterly reports. Depository institutions eligible
for quarterly reporting and reserve maintenance would retain the option
of reporting and maintaining required reserves on a weekly rather than
quarterly basis. Additional details will be supplied to depository
institutions in the near future.

24-

The quarterly reporting system will commence in January 1981.
Small member banks will continue to report deposits and maintain reserves
on a weekly basis until that time. Eligible nonmember institutions
will not be required to report or maintain reserves until the quarterly
procedure begins. It should be noted that Edge and Agreement Corporations
and U.S. branches and agencies of foreign banks will not be eligible
for quarterly reporting and reserve maintenance. Rather, all such institutions
will— regardless of size— be required to report and to maintain reserves
on a weekly basis.
In addition, the Board has deferred reserve requirements for
institutions that have less than $1 million in total deposits as of
December 31, 1979. These institutions will be exempt from reporting
and reserve maintenance until May 1981, at which time the Board will
determine whether a further delay is warranted.
Contemporaneous Reserve Accounting
The Federal Reserve Board is disposed toward returning to
contemporaneous reserve accounting, possibly by September 1981, if a
further investigation of potential operational difficulties indicates
that such a system is practical. Under contemporaneous reserve accounting,
the reserve computation and reserve maintenance weeks would coincide.
Reserve computation would be based on daily opening-of-business balances
while reserves maintained would be based on daily close-of-business
balances. Among the issues to be studied are the feasibility of such
a reserve accounting system for all types of depository institutions,
potential complications arising from pass-through arrangements, and
the relation to reserve carryover.
Business Day Computation Period
The Board has determined not to adopt a business-day computation
period at this time. However, the Federal Reserve Board expects that
depository institutions will not engage in reserve avoidance practices
under which reserve requirements are lowered by transactions that artificially
increase cash items in the process of collection and "due from" deductions.
Included among such practices are so-called "week-end Eurodollar arbitrage"
transactions and borrowing arrangements involving the receipt of uncollected
funds and repayment in collected (or Federal) funds. To ensure compliance,
the Federal Reserve will monitor individual institutions and consider
the need for implementation of additional measures, including adoption
of a business-day reserve computation week.
*

*

*

*

*

The following table presents reporting categories that will
be required of depository institutions, Edge and Agreement Corporations
and United States branches and agencies of foreign banks.

-25-

Table
Reporting categories for institutions subject to reserve requirements?
1.

Demand deposits due to banks.

2.

Demand deposits due to other depository institutions.

3.

Demand deposits due to the 0. S.

4.

Other demand deposits (including noninterest-bearing
negotiable orders of withdrawal).

Government.

5.

Savings deposits authorized for automatic transfer (ATS
accounts).

6.

Savings deposits that permit more than three telephone
or preauthorized transfers or payments per calendar month
or that permit payments to third parties through automated
teller machines, including remote service units.

7.

Negotiable order of withdrawal (NOW) accounts; share
drafts.

8.

Demand deposits due from depository institutions.

9.

Cash items in

10.

process of collection.

Other savings deposits (i.e., all savings deposits other
than those included in items 5, 6 , or 7 above)— personal.

11.

Other savings

deposits— nonpersonal.

12.

Personal time

deposits.

13.

Nonpersonal time deposits with original maturities of
14 days or more but less than 4 years.

14.

Nonpersonal time deposits with original maturities of
4 years or more.

15.

Time deposits

16.

Vault cash.

17.

of $100,000 or more.

Funds received frcm issuance of obligations by affiliates
and from the sale of ineligible bankers' acceptances
have remaining maturities of less than 14 days.

-2618.

Funds received from issuance of obligations by affiliates
and from the sale of ineligible bankers' acceptances
that have remaining maturities of 14 days or more but
less than 4 years— personal.

19.

Funds received from issuance of obligations by affiliates
and from the sale of ineligible bankers' acceptances
that have remaining maturities of 14 days or more but
less than 4 years— nonpersonal.

20.

Borrowings frcm offices of other depository institutions
outside the United States, foreign national governments,
and international institutions.

*21.

Gross balances due to own non-U. S. branches.

*22.

Gross balances due from own non-U. S. branches.

*23.

Assets sold to and held by own non-U. S. branches acquired
frcm U. S. offices (including assets that are claims
on both U. S. and non-U. S. residents).

*24.

Credit extended by own non-U. S. branches to U. S. residents

**25.

Gross liabilities to the foreign bank (including its
offices located outside the United States).

**26.

Gross claims on the foreign bank (including its offices
located outside the United States).

**27.

Total assets less the sum of United States coin and currency
cash items in process of collection and unposted debits,
balances due from domestic banks and other foreign banks,
balances due from foreign central banks and net balances
due frcm the foreign bank and the foreign bank's United
States and non-United States offices.

**28.

Assets sold by a branch or agency to its foreign bank
(including its offices located outside the United States)
or its foreign parent bank holding company.

*
To be reported only by U. S. depository institutions and Edge and
Agreement Corporations.
**

To be reported only by U. S. branches and agencies of foreign banks.

-27-

Effective November 13, 1980, pursuant to the Board's authority
under sections 19, 25, and 25(a) of the Federal Reserve Act (12 U.S.C.
SS 461 et seq., 601 et seq., 611 et seq.) and section 7 of the International
Banking Act of 1978 (12 U.S.C. s 3105), Regulation D (12 CFR Part 204)
is revised to read as follows:

PART 204— RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
Sec.
204.1
204.2
204.3
204.4
204.5
204.6
204.7
204.8

Authority, Purpose and Scope
Definitions
Computation and Maintenance
Transitional Adjustments
Emergency Reserve Requirement
Supplemental Reserve Requirement
Penalties
Reserve Ratios

FEDERA^RESERVEpressrelease
For immediate release

August 27, 1980

The Federal Reserve Board today announced rules for nonmember
depository institutions to follow if they pass required reserve balances
\

through another institution to the Federal Reserve, and rules for these
intermediaries to follow in handling the reserve balances of others.
The new rules will become effective November 13, 1980.

The

pass-through rules amend the Board's Regulation D (reserve requirements of
depository institutions).
Under the Monetary Control Act of 1980, depository institutions
are required to satisfy reserve requirements fixed by the Federal Reserve on
their transaction accounts and nonpersonal time deposits.

These reserves

may be held in vault cash, or if vault cash is not large enough to satisfy
reserve requirements, balances must be held with Federal Reserve Banks.
Depository institutions that are members of the Federal Reserve
System will continue to hold their reserves directly with the Federal Reserve
Bank in their Federal Reserve District.

Nonmembers may hold their reserves

directly with the Federal Reserve or indirectly, by passing the reserves
through another institution ("pass-through correspondent").
The Board's pass-through rules are described in the attached
notice.

Some highlights are:
--Correspondent institutions that may receive and pass through the

reserve balances of nonmember depositories are the Federal Home Loan Bank, the
National Credit Union Administration Central Liquidity Facility, or a
depository institution (member or nonmember) that holds a required reserve

-2-

balance directly at a Federal Reserve Bank.

The Board reserves the right

to permit other institutions, on a case-by-case basis, to be pass-through
correspondents.

U.S. branches and agencies of foreign banks and Edge and

Agreement corporations may pass their required reserves through other
institutions or may themselves act as pass-through correspondents.
--A respondent will be able to choose one pass-through correspondent,
and that correspondent must pass the reserve balances through directly to
the Federal Reserve.

Such arrangements may be initiated, terminated or

changed upon notification satisfactory to the Reserve Bank involved.
--In pass-through arrangements, it is the responsibility of the
correspondent to assure the maintenance of the correct level of its
respondent's reserve balances.

The pass-through rules approved by the Board

clarify the precise responsibilities of the parties to a pass-through
arrangement.

Reserve Banks will compare only the aggregate required reserve

balance with the total actual balance held in each reserve account maintained
by the correspondent for determination of reserve deficiencies, penalty
liability, and other reserve maintenance purposes.
— The correspondent institution passing balances through will
maintain the reserve balances it receives, dollar-for-dollar, with the
Federal Reserve Bank in whose territory!/ the main office of the respondent
is located.
--Under the rules adopted by the Board, a correspondent may choose
one of the two following options with respect to handling its own required
reserves and those of its respondents in the same Federal Reserve territory.

— / The service area of a Federal Reserve office.

-31.

The correspondent may maintain its own required
reserve balances, as well as those of its respondents
whose head office is located in the same territory as
the correspondent's head office, in a single,
commingled reserve account at the Federal Reserve
Bank or Branch serving the territory, or

..
2

The correspondent may maintain its own reserve
balance in the Federal Reserve Bank or Branch serving
its territory, and, in addition, maintain a separate
commingled reserve account for its respondents
located in the same Federal Reserve territory.

--A depository institution maintaining a reserve balance on a
pass-through basis is eligible for Federal Reserve System services provided
separately from its local Federal Reserve office (but where reserve balances
of nonmember institutions are zero or small, it may be necessary for the
institution also to maintain an adequate clearing balance).
The Board's notice setting forth
is attached.

Attachment

the Board's pass-through rules

V

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-0309)
Part 204— RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
Required Reserve Balance Pass-Through Rules

AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Final rule.

SUMMARY: The Monetary Control Act of 1980 (Title I of P.L. 96-221)
imposes Federal reserve requirements on all depository institutions
that maintain transaction accounts or nonpersonal time deposits. A
depository institution can satisfy its reserve requirements with a com­
bination of vault cash and balances held at a Federal Reserve Bank.
The Act authorizes a depository institution that is not a member of
the Federal Reserve System to hold its required reserve balance at the
Federal Reserve in one of two ways. It may deposit its required reserve
balance directly with the Federal Reserve Bank of its District. Alternatively,
in accordance with procedures adopted by the Board, it may elect to
pass through its required reserve balance to the Federal Reserve through
a correspondent. In order to implement the pass-through provisions
of the Monetary Control Act, the Board is amending Regulation D to establish
rules under which pass-through arrangements may be maintained.
EFFECTIVE DATE:

November 13, 1980.

FOR FURTHER INFORMATION, CONTACT: Benjamin Wolkowitz, Section Chief
(202/452-2686), Paul P. Burik, Economist (202/452-2556), Gilbert T.
Schwartz, Assistant General Counsel (202/452-3625), Lee S. Adams, Senior
Attorney (202/452-3623) or Paul S. Pilecki, Attorney (202/452-3281),
Board of Governors of the Federal Reserve System, Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION: Under the provisions of the Monetary Control
Act of 1980 (Title I of P.L. 96-221), Federal reserves are required
for all depository institutions with transaction accounts or nonpersonal
time deposits, as those terms are defined in Section 103 of the Act.
If these reserve requirements are not met in full by holdings of vault
cash, a depository institution that is a member of the Federal Reserve

System must satisfy its remaining requirement by directly maintaining
a balance at its local Federal Reserve Bank. A depository institution
that is not a member of the Federal Reserve System and does not completely
satisfy its reserve requirement with vault cash must satisfy its remaining
requirement by maintaining a balance with the Federal Reserve. Such
a required balance can be held in one of two ways at the nonmember institution1
discretion. It may deposit its required reserve balance directly with
the Federal Reserve Bank of its District, just as member banks do.
Alternatively, a nonmember depository institution may elect to pass
its required reserve balance through a correspondent. The correspondent
will pass through this required reserve balance dollar-for-dollar
to
the Federal Reserve Bank in the District in which the main office
of
the respondent institution is located. A correspondent may be (i) a
Federal Home Loan Bank, (ii) the National Credit Union Administration
Central Liquidity Facility, or (iii) a depository institution that maintains
a required reserve balance directly at a Federal Reserve Bank. In addition,
the Board reserves the right to permit other institutions, on a caseby-case basis, to serve as pass-through correspondents.
The Federal Reserve Board is amending its Regulation D to
provide rules for the holding of nonmember depository institution
(respondent) reserve balances. The rules as adopted by the Board are
very similar to the guidelines published for comment on June 26, 1980
(45 Fed. Reg. 44962). The Board determined to adopt these provisions
as part of Regulation D rather than as guidelines in order to clarify
the relationships between, and responsibilities of, the parties involved
in pass-through arrangements. Included in the rules are requirements
for reporting and maintaining pass-through reserve accounts and the
responsibilities of the various parties in a pass-through arrangement.
The rules also provide the conditions for using a pass-through account
to post entries arising from transactions involving the use of Federal
Reserve services.
Two modifications to the proposed guidelines were adopted
by the Board. First, the Board determined that a Reserve Bank, at its
discretion, may require a pass-through correspondent to consolidate
in a single account the reserve balances of its respondents whose head
offices are located in that Federal Reserve District rather than maintain
separate accounts at each office within that Federal Reserve District.
Secondly, the Board decided to reserve the right to permit institutions
other than the Federal Home Loan Banks, the Central Liquidity Facility,
and institutions holding Federal reserves, on a case-by-case basis,
to serve as pass-through correspondents.
In response to the comments that were received, the Board
clarified the rules to indicate that U.S. branches and agencies of foreign
banks and Edge and Agreement Corporations could serve as pass-through
correspondents or respondents. The Board also decided that a pass-through
correspondent would have the option either to commingle its own reserve

-3-

balance with the reserve balances of its respondents located in the
same Federal Reserve territory as the correspondent in a single account
or to maintain two accounts— one for its own reserve balance and a second
commingled account for the reserve balances of its respondents located
in the same territory as the correspondent. The rules also contain
more specific procedures that a correspondent is expected to follow
in managing its pass-through accounts. For example, for purposes of
determining required reserve deficiencies and imposing or waiving penalties
for deficiencies in required reserves, Reserve Banks will compare the
total reserve balance required to be maintained in each reserve account
with the total actual reserve balance held in such reserve account by
the correspondent.
Effective November 13,
under sections 19, 25, and 25(a)
§§ 461 et seq., 601 et seq., 611
Banking Act of 1978 (12 U.S.C. §
is revised to read as follows:
1.

1980, pursuant to the Board's authority
of the Federal Reserve Act (12 U.S.C.
et seq.) and section 7 of the International
3105), Regulation D (12 CFR Part 204)

Section 204.3 is amended to read as follows:
§ 204.3 —
*

COMPUTATION AND MAINTENANCE
*

*

*

*

(i) Pass-through rules.
(1)

Procedure
(i)

A nonmember depository institution required to maintain
reserve balances ("respondent") may select only one
institution to pass through its required reserves.
Eligible institutions through which respondent required
reserve balances may be passed ("correspondents")
are Federal Home Loan Banks, the National Credit Union
Administration Central Liquidity Facility, and depository
institutions that maintain required reserve balances at a
Federal Reserve office. In addition, the Board reserves
the right to permit other institutions, on a caseby-case basis, to serve as pass-through correspondents.
The correspondent chosen must subsequently pass through
the required reserve balances of its respondents directly
to the appropriate Federal Reserve office. The correspondent
placing funds with the Federal Reserve on behalf of
respondents will be responsible for reserve account
maintenance as described in subparagraphs (3) and
(4) below.

-4 -

(ii)

Respondent depository institutions or pass-through
correspondents may institute, terminate, or change
pass-through arrangements for the maintenance of required
reserve balances by providing all documentation required
for the establishment of the new arrangement and/or
termination of the existing arrangement to the Federal
Reserve Bank in whose territory the respondent is
located. The time period required for such a change
to be effected shall be specified by each Reserve
Bank in its operating circular.

(iii)

U.S. branches and agencies of foreign banks and Edge
and Agreement Corporations may (a) act as pass-through
correspondents for any nonmember institution required
to maintain reserves or (b) pass their own required
reserve balances through correspondents. In accordance
with the provision set forth in subparagraph (3) below,
the U.S. branches and agencies of a foreign bank or
offices of an Edge and Agreement Corporation filing
a single aggregated report of deposits may designate
any one of the other U.S. offices of the same institution
to serve as a pass-through correspondent for all of
the offices filing such a single aggregated report
of deposits.

(2)

Reports
(i)

Every depository institution that maintains transaction
accounts or nonpersonal time deposits is required
to file its report of deposits (or any other required
form or statement) directly with the Federal Reserve
Bank of its District, regardless of the manner in
which it chooses to maintain required reserve balances.

(ii) The Federal Reserve Bank receiving such reports shall
notify the reporting depository institution of its
reserve requirements. Where a pass-through arrangement
exists, the Reserve Bank will also notify the correspon­
dent passing respondent reserve balances through to
the Federal Reserve of its respondent's required reserve
balances.
(iii) The Federal Reserve will not
hold a correspondent
responsible for guaranteeing the accuracy of the reports
of deposits submitted by its
respondents to their
local Federal Reserve Banks.

-5-

(3)

Account Maintenance
(i)

(ii)

(iii)

(4)

A correspondent that passes through required reserve
balances of respondents whose main offices are located
in the same Federal Reserve territory in which the
main office of the correspondent is located shall
have the option of maintaining such required reserve
balances in one of two ways:
(a) A correspondent
may maintain such balances, along with the correspondent's
own required reserve balances, in a single commingled
account at the Federal Reserve Bank office in whose
territory the correspondent's main office is located,
or (b) A correspondent may maintain its own required
reserve balance in an account with the Federal Reserve
Bank office in whose territory its main office is
located. The correspondent, in addition, would maintain
in a separate commingled account the required reserve
balances passed through for respondents whose main
offices are located in the same Federal Reserve territory
as that of the main office of the correspondent.
A correspondent that passes through required reserve
balances of respondents whose main offices are located
outside the Federal Reserve territory in which the
main office of the correspondent is located shall
maintain such required reserve balances in a separate
commingled account at each Federal Reserve office
in whose territory the main offices of such respondents
are located.
A Reserve Bank may, at its discretion, require a pass­
through correspondent to consolidate in a single account
the reserve balances of all of its respondents whose
main offices are located in any territory of that
Federal Reserve District.

Responsibilities of Parties
(i)

(ii)

Each individual depository institution is responsible
for maintaining its required reserve balance with
the Federal Reserve Bank either directly or through
a pass-through correspondent.
A pass-through correspondent shall be responsible
for assuring the maintenance of the appropriate aggregate
level of its respondents' required reserve balances. A
Reserve Bank will compare the total reserve balance
required to be maintained in each reserve account
with the total actual reserve balance held in such
reserve account for purposes of determining required

-6-

reserve deficiencies, imposing or waiving penalties
for deficiencies in required reserves, and for other
reserve maintenance purposes. A penalty for a deficiency
in the aggregate level of the required reserve balance
will be imposed by the Reserve Bank on the correspondent
maintaining the account.
(iii)

(iv)

(v)

(5)

Each correspondent is required to maintain detailed
records for each of its respondents in a manner that
permits Reserve Banks to determine whether the respondent
has provided a sufficient required reserve balance
to the correspondent. A correspondent passing through
a respondent's reserve balance shall maintain records
and make such reports as the Federal Reserve System
requires in order to insure the correspondent's compliance
with its responsibilities for the maintenance of a
respondent's reserve balance. Such records shall
be available to the Federal Reserve Banks as required.
The Federal Reserve Bank may terminate any pass-through
relationship in which the correspondent is deficient
in its recordkeeping or other responsibilities.
Interest paid on supplemental reserves (if such reserves
are required under section 204.6 of this Part) held
by respondent(s) will be credited to the commingled
reserve account(s) maintained by the correspondent.

Services
(i)

A depository institution maintaining its reserve balances
on a pass-through basis may obtain available Federal
Reserve System services directly from its local Federal
Reserve office. For this purpose, the pass-through
account in which a respondent's required reserve balance
is maintained may be used by the respondent for the
posting of entries arising from transactions involving
the use of such Federal Reserve services, if the posting
of these types of transactions has been authorized
by the correspondent and the Federal Reserve. For
example, access to the wire transfer, securities transfer,
and settlement services that involve charges to the
commingled reserve account at the Reserve Bank will
require authorization from the correspondent and the
Reserve Bank for the type of transaction that is occurring.

-7-

(ii)

In addition, in obtaining Federal Reserve services,
respondents maintaining their required reserves on
a pass-through basis may choose to have entries arising
from the use of Federal Reserve services posted to:
(a) with the prior authorization of all parties concerned,
the reserve account maintained by any institution
at a Federal Reserve Bank, or (b) an account maintained
for clearing purposes at a Federal Reserve Bank
by the respondent.

(iii) Accounts at Federal Reserve Banks consisting only
of respondents' reserve balances that are passed through
by a correspondent to a Federal Reserve Bank may be
used only for transactions of respondents. A correspondent
will not be permitted to use such pass-through accounts
for purposes other than serving its respondents' needs.
(iv)

A correspondent may not apply for Federal Reserve
credit on behalf of a respondent. Rather, a respondent
should apply directly to its Federal Reserve Bank
for credit. Any Federal Reserve credit obtained by
a respondent may be credited, at the respondent's
option and with the approval of the parties concerned,
to the reserve account in which its required reserves
are maintained by a correspondent, to a clearing account
maintained by the respondent, or to any account to
which the respondent is authorized to post entries
arising from the use of Federal Reserve services.

By order of the Board of Governors of the Federal Reserve
System, August 27, 1980.

(Signed)

Theodore E. Allison
Theodore E. Allison
Secretary of the Board

[SEAL]

B O A R D O F G O V E R N O R S O F T H E F E D E R A L R E SE R V E SY ST E M

RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
SUPPLEMENT TO REGULATION D t
As amended effective for reserves required to be maintained during the seven-day period begin­
ning November 13, 1980, against deposits outstanding during the seven-day period beginning on
October 30, 1980.
SECTION 204.8— RESERVE
REQUIREM ENT RATIOS

over $2 million$10 million

(a) Reserve percentages. The following reserve
ratios are prescribed for all depository institutions,
Edge and Agreem ent C orporations and United
States branches and agencies of foreign banks:
Category

$140,000 + 9 '/2% of
amount over $2 million

over $10 million- $900,000+ 113
/4% of
$100 million
amount of over $10 million
over $100 million-$11,475,000+ 12%% of
$400 million
amount over $10 million

Reserve requirements
over $400 million $49,725,000+ \6'A% of
amount over $400 million

Net transaction accounts
$0-$25 million
Over $25 million

3% of amount
$750,000 plus 12%
o f am ount over
$25 million

Savings deposits

Nonpersonal time deposits

Time deposits

By original maturity (or notice
period)

(subject to 3%
minimum
specified by law)

less than 4 years
4 years or more

3%
0%

Eurocurrency liabilities

By initial maturity:

3%

(b)
Reserve ratios in effect during last compu­
tation period prior to September 1, 1980.

Category

Less than 180
days
$0-5 million
over $5 million
180 days to 4
years
4 years or more

3%
6%
2'A%
1%

Reserve Requirement
Accounts authorized pursuant to Section
303 of Public Law 96-221 offered by
member banks located in States outside
Connecticut, Maine, Massachusetts, New
Hampshire, New Jersey, New York,
Rhode Island and Vermont
12%

Net Demand
Deposits
Deposit
Tranche:
$0-$2 million

7%

t

Club accounts

For this Regulation to be com plete retain:
1) Printed Regulation pam phlet dated N ovem ber 13, 1980.
2) This Supplement.

A U G U ST 1980

3%

For purposes of computing the reserves under
this Part, that would have been required using the
reserve ratios that were in effect on August 31,
1980, the reserve ratio on time deposits of a mem­
ber bank shall be the average time deposit ratio of
the member bank during the 14-day period ending
August 6, 1980, except that the reserve ratio on

time deposits o f a nonm em ber bank that was a
member bank on or after July 1, 1979, but which
became a nonmember bank before March 31, 1980,
may be the average time deposit ratio of the non­
member during the 14-day period ending August
27, 1980.

BOARD OF GOVERNORS

of the
FEDERAL RESERVE SYSTEM

RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS

REGULATION D
(12 CFR 204)
As revised effective November 13, 1980

Any inquiry relating to this regulation should be addressed to the Federal
Reserve Bank of the Federal District in which the inquiry arises.

CONTENTS

Pg
ae
S e c . 2 0 4 .1 — A u t h o r it y , P u r p o s e

....................................................................................................................

5

S e c . 2 0 4 .2 — D e f i n i t i o n s ..................................................................................................................................................................

5

S e c . 2 0 4 .3 — C o m p u t a t io n

Sc

o pe

a i n t e n a n c e ....................................................................................................................

12

S e c . 2 0 4 .4 — T r a n s it io n a l A d j u s t m e n t s ...............................................................................................................................

16

and

M

and

S e c . 2 0 4 .5 — E m e r g e n c y R e s e r v e R e q u i r e m e n t ............................................................................................................... 2 0
S e c . 2 0 4 .6 — S u p p l e m e n t a l R e s e r v e R e q u ir e m e n t ..........................................................................................................2 0
S e c . 2 0 4 .7 — P e n a l t i e s ........................................................................................................................................................................2 1
S t a t u t o r y A p p e n d i x .......................................................................................................................................................................... 2 1
[S e c . 2 0 4 .8 — S u p p l e m e n t , R e s e r v e R e q u ir e m e n t R a t io s ,

3

is p r in t e d s e p a r a t e l y .]

REGULATION D
(1 2 C F R 204)

As revised effective November 13, 1980

RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS*

SECTION 204.1— AUTHORITY, PURPOSE
AND SCOPE
(a) Authority. This Part is issued under the au­
thority of section 19 (12 U .S.C. §§ 461 et seq.)
and other provisions of the Federal Reserve Act
and of section 7 of the International Banking Act of
1978 (12 U.S.C. § 3105).
(b) Purpose. This Part relates to reserves that
depository institutions are required to maintain for
the purpose of facilitating the implementation of
monetary policy by the Federal Reserve System.
(c) Scope. (1) The following depository institu­
tions are required to maintain reserves in accord­
ance with this Part:
(i) Any insured bank as defined in section 3
of the Federal Deposit Insurance Act (12 U .S.C.
§ 1813(h)) or any bank that is eligible to apply to
become an insured bank under section 5 of such
Act (12 U.S.C. § 1815);
(ii) Any savings bank or m utual savings
bank as defined in section 3 of the Federal Deposit
Insurance Act (12 U.S.C. § 1813(0, (g));
(iii) Any insured credit union as defined in
section 101 of the Federal Credit Union Act (12
U.S.C. § 1752(7)) or any credit union that is eligi­
ble to apply to become an insured credit union un­
der section 201 of such Act (12 U.S.C. § 1781);
(iv) Any member as defined in section 2 of
the Federal Home Loan Bank Act (12 U .S .C .
§ 1422(4)); and
(v) Any insured institution as defined in sec­
tion 401 of the National Housing Act (12 U .S.C.
§ 1724(a)) or any institution which is eligible to ap­
ply to become an insured institution under section
403 of such Act (12 U.S.C. § 1726).
*The text corresponds to the Code of Federal Regulations, Title 12,
Chapter II, Part 204; cited as 12 CFR 204. The words “ this Part” , as
used herein, mean Regulation D.

(2) Except as may be otherwise provided by
the Board, a foreign bank’s branch or agency lo­
cated in the United States is required to comply
with the provisions of this Part in the same manner
and to the same extent as if the branch or agency
were a member bank, if its parent foreign bank (i)
has total worldwide consolidated bank assets in ex­
cess of $1 billion; or (ii) is controlled by a foreign
company or by a group of foreign companies that
own or control foreign banks that in the aggregate
have total worldwide consolidated bank assets in
excess of $1 billion. In addition, any other foreign
bank’s branch located in the United States that is
eligible to apply to become an insured bank under
section 5 of the Federal Deposit Insurance Act
(12 U.S.C, § 1815) is required to maintain reserves
in accordance with this Part as a nonmember de­
pository institution.
(3) Except as may be otherwise provided by
the Board, an Edge Corporation (12 U.S.C. § 611
et seq.) or an Agreement Corporation (12 U.S.C.
§ 601 et seq.) is required to comply with the provi­
sions of this Part in the same manner and to the
same extent as a member bank.
(4) This Part does not apply to any financial
institution that (i) is organized solely to do business
with other financial institutions; (ii) is owned pri­
marily by the financial institutions with which it
does business; and (iii) does not do business with
the general public.
(5) The provisions of this Part do not apply to
any deposit that is payable only at an office located
outside the United States.
SECTION 204.2— DEFINITIONS
For purposes of this Part, the following defini­
tions apply unless otherwise specified:
(a)(1) “ Deposit” means:

§§ 2 0 4 .2

(i) the unpaid balance o f m oney or its
equivalent received or held by a depository institu­
tion in the usual course of business and for which it
has given or is obligated to give credit, either con­
ditionally or unconditionally, to an account, includ­
ing interest credited, or which is evidenced by an
instrument on which the depository institution is
primarily liable;
(ii) money received or held by a depository
institution, or the credit given for money or its
equivalent received or held by the depository insti­
tution in the usual course of business for a special
or specific purpose, regardless of the legal relation­
ships established thereby, including escrow funds,
funds held as security for securities loaned by the
depository institution, funds deposited as advance
payment on subscriptions to United States govern­
ment securities, and funds held to meet its accept­
ances;
(iii) an outstanding draft, cashier’s check,
money order, or officer’s check drawn on the de­
pository institution and issued in the usual course
of business for any purpose, including payment for
services, dividends, or purchases;
(iv) any due bill or other liability or under­
taking on the part of a depository institution to sell
or deliver securities to, or purchase securities for
the account of, any customer (including another de­
pository institution), involving either the receipt of
funds by the depository institution, regardless of
the use of the proceeds, or a debit to an account of
the customer before the securities are delivered. A
deposit arises thereafter, if after three business days
from the date of issuance of the obligation, the de­
pository institution does not deliver the securities
purchased or does not fully collateralize its obliga­
tion with securities similar to the securities pur­
chased. A security is similar if it is o f the same
type and if it is of comparable maturity to that pur­
chased by the customer;
(v) any liability of a depository institution’s
affiliate that is not a depository institution, on any
promissory note, acknowledgment of advance, due
bill, or similar obligation (written or oral), with a
maturity of less than four years, to the extent that
the proceeds are used to supply or to maintain the
availability of funds (other than capital) to the de­
pository institution, except any such obligation that,
had it been issued directly by the depository institu­
tion, would not constitute a deposit. If an obliga­
tion of an affiliate of a depository institution is re­

REGULATION D

garded as a deposit and is used to purchase assets
from the depository institution, the maturity of the
deposit is determined by the shorter of the maturity
of the obligation issued or the remaining maturity
of the assets purchased. If the proceeds from an
affiliate’s obligation are placed in the depository in­
stitution in the form of a reservable deposit, no re­
serves need be maintained against the obligation of
the affiliate since reserves are required to be main­
tained against the deposit issued by the depository
institution. However, the maturity of the deposit is­
sued to the affiliate shall be the shorter of the ma­
turity of the affiliate’s obligation or the maturity of
the deposit;
(vi) credit balances;
(vii) any liability of a depository institution
on any promissory note, acknowledgment of ad­
vance, bankers’ acceptance, or similar obligation
(written or oral), including mortgage-backed bonds,
that is issued or undertaken by a depository institu­
tion as a means of obtaining funds, except any such
obligation that:
(A) is issued or undertaken and held for
the account of:
(1) an office located in the United
States of another depository institution, foreign
bank, Edge or Agreement Corporation, or New
York Investment (Article XII) Company;
(2) the United States government or an
agency thereof; or
(3) the E xport-lm port Bank o f the
United States, Minbanc Capital Corporation, the
Government Development Bank for Puerto Rico, a
Federal Reserve Bank, a Federal Home Loan Bank,
or the National Credit Union Administration Cen­
tral Liquidity Facility;
(B) arises from a transfer of direct obliga­
tions of, or obligations that are fully guaranteed as
to principal and interest by, the United States gov­
ernment or any agency thereof that the depository
institution is obligated to repurchase;
(C) is not insured by a Federal agency, is
subordinated to the claims of depositors, has a
weighted average maturity of seven years or more,
is not subject to Federal interest rate limitations,
and is issued by a depository institution with the
approval of, or under the rules and regulations of,
its primary Federal supervisor;
(D) arises from a borrowing by a deposi­
tory institution from a dealer in securities, for one
business day, of proceeds of a transfer of deposit

REGULATION D

credit in a Federal Reserve Bank or other immedi­
ately available funds, (commonly referred to as
“ Federal funds” ), received by such dealer on the
date of the loan in connection with clearance of se­
curities transactions; or
(E) arises from the creation, discount and
subsequent sale by a depository institution of its
bankers’ acceptance of the type described in para­
graph 7 of section 13 of the Federal Reserve Act
(12 U.S.C. § 372).
(2) “ Deposit” does not include:
(i) trust funds received or held by the depos­
itory institution that it keeps properly segregated as
trust funds and apart from its general assets or
which it deposits in another institution to the credit
of itself as trustee or other fiduciary. If trust funds
are deposited with the commercial department of
the depository institution or otherwise mingled with
its general assets, a deposit liability of the institu­
tion is created;
(ii) an obligation that represents a condi­
tional, contingent or endorser’s liability;
(iii) obligations, the proceeds of which are
not used by the depository institution for purposes
of making loans, investments, or maintaining liquid
assets such as cash or “ due from” depository insti­
tutions or other similar purposes. An obligation is­
sued for the purpose of raising funds to purchase
business premises, equipment, supplies, or similar
assets is not a deposit;
(iv) accounts payable;
(v) hypothecated “ deposits” created by pay­
m ents on an installm ent loan where (A) the
amounts received are not used immediately to re­
duce the unpaid balance due on the loan until the
sum of the payments equals the entire amount of
loan principal and interest; (B) and where such
amounts are irrevocably assigned to the depository
institution and cannot be reached by the borrower
or creditors of the borrower;
(vi) dealer reserve and differential accounts
that arise from the financing of dealer installment
accounts receivable, and which provide that the
dealer may not have access to the funds in the ac­
count until the installment loans are repaid, as long
as the depository institution is not actually (as dis­
tinguished from contingently) obligated to make
credit or funds available to the dealer;
(vii) a dividend declared by a depository in­
stitution for the period intervening between the date

§§ 2 0 4 .2

of the declaration of the dividend and the date on
which it is paid;
(viii) an obligation representing a “ pass
through account,” as defined in this section;
(ix) an obligation arising from the retention
by the depository institution of no more than a 10
per cent interest in a pool of conventional 1-4 fam­
ily mortgages that are sold to third parties;
(x) an obligation issued to a State or munic­
ipal housing authority under a loan-to-lender pro­
gram involving the issuance of tax exempt bonds
and the subsequent lending of the proceeds to the
depository institution for housing finance purposes;
(xi) shares of a credit union held by the Na­
tional Credit Union Administration or the National
Credit Union Administration Central Liquidity Fa­
cility under a statutorily authorized assistance pro­
gram; and
(xii) any liability of a United States branch
or agency o f a foreign bank to another United
States branch or agency of the same foreign bank,
or the liability o f the United States office of an
Edge Corporation to another United States office of
the same Edge Corporation.
(b)(1) “ Demand deposit” means a deposit that
is payable on demand, or a deposit issued with an
original maturity or required notice period of less
than 14 days, or a deposit representing funds for
which the depository institution does not reserve
the right to require at least 14 days’ written notice
of an intended withdrawal. The term includes all
deposits other than time and savings deposits. De­
mand deposits may be in the form of (i) checking
accounts; (ii) certified, ca sh ier’s and o ffic e r’s
checks (including checks issued by the depository
institution in payment of dividends); (iii) traveler’s
checks and money orders that are primary obliga­
tions of the issuing institution; (iv) checks or drafts
drawn by, or on behalf of, a non-United States of­
fice of a depository institution on an account main­
tained at any of the institution’s United States of­
fices; (v) letters of credit sold for cash or its
equivalent; (vi) withheld taxes, withheld insurance
and other withheld funds; (vii) time deposits that
have matured or time deposits upon which the re­
quired notice of withdrawal period has expired and
have not been renewed (either by action of the de­
positor or automatically under the terms of the de­
posit agreement); and (viii) an obligation to pay on
demand or within 14 days a check (or other instru­

§§ 2 0 4 .2

REGULATION D

notice accounts issued by savings and loan associa­
ment, device, or arrangement for the transfer of
funds) drawn on the depository institution, where
tions.
(d)(1) “ Savings deposit” means a deposit or ac­
the account of the institution’s customer already has
count with respect to which the depositor is not re­
been debited. The term does not include an obliga­
quired by the deposit contract but may at any time
tion that is a tim e deposit under section
be required by the depository institution to give
204.2(c)(l)(ii).
written notice o f an intended withdrawal not less
(2)
A “ dem and d e p o sit” does not include
than 14 days before withdrawal is made, and that is
checks or drafts drawn by the depository institution
not payable on a specified date or at the expiration
on the Federal Reserve or on another depository in­
of a specified time after the date of deposit. A de­
stitution.
posit may continue to be classified as a savings de­
(c)(1) “ Time deposit” means (i) a deposit that
posit even if the depository institution exercises its
the depositor does not have a right to withdraw for
right to require notice of withdrawal. A “ savings
a period of 14 days or more after the date of de­
deposit” includes a regular share account at a
posit. “ Time deposit” includes funds:
credit union and a regular account at a savings and
(A) payable on a specified date not less
loan association.
than 14 days after the date of deposit;
(2) For depository institutions subject to 12
(B) payable at the expiration of a speci­
fied time not less than 14 days after the date of de­
CFR 217 or 12 CFR 329, funds deposited to the
posit;
credit of, or in which any beneficial interest is held
by, a corporation, association, partnership or other
(C) payable upon written notice which ac­
tually is required to be given by the depositor not
organization operated for profit may be classified as
less than 14 days before the date of repayment;
a savings deposit if such funds do not exceed
$150,000 per depositor at the depository institution.
(D) such as “ Christmas club” accounts
and “ vacation club” accounts, that are deposited
(3) “ Savings deposit” does not include funds
under w ritten contracts providing that no w ith­
deposited to the credit o f the depository
drawal shall be made until a certain number of pe­
institution’s own trust department where the funds
involved are utilized to cover checks or drafts.
riodic deposits have been made during a period of
not less than three months even though some of the
Such funds are “ transaction accounts.”
deposits may be made within 14 days from the end
(e) “ Transaction account” means a deposit or
of the period; or
account on which the depositor or account holder is
(E) that constitute a “ savings deposit”
permitted to make withdrawals by negotiable or
which is not regarded as a “ transaction account.”
transferable instrument, payment orders of with­
drawal, telephone transfers, or other similar device
(ii)
borrowings, regardless of maturity, rep­
resented by a promissory note, an acknowledgment
for the purpose of making payments or transfers to
of advance, or similar obligation described in sec­
third persons or others. “ Transaction account” in­
tion 204.2(a)(l)(vii) that is issued to any office lo­
cludes:
cated outside the United States of another deposi­
(1) demand deposits;
tory institution or Edge or Agreement Corporation
(2) deposits or accounts subject to check,
organized under the laws of the United States, to
draft, negotiable order of withdrawal, share draft,
any office located outside the United States of a
or other similar item;
foreign bank, or to institutions whose time deposits
(3) savings deposits or accounts in which with­
are exempt from interest rate limitations under sec­
drawals may be made automatically through pay­
tion 217.3(g) of Regulation Q (12 CFR 217.3(g)).
ment to the depository institution itself or through
(2)
A time deposit may be represented by a
transfer of credit to a demand deposit or other ac­
transferable or nontransferable, or a negotiable or
count in order to cover checks or drafts drawn upon
nonnegotiable, certificate, instrument, passbook,
the institution or to maintain a specified balance in,
statement, or otherwise. A “ time deposit” includes
or to make periodic transfers to, such accounts (au­
share certificates and certificates of indebtedness is­
tomatic transfer accounts);
sued by credit unions, and certificate accounts and
(4) deposits or accounts in which payments

REGULATION D

may be made to third parties by means of an auto­
mated teller machine, remote service unit or other
electronic device; and
(5) deposits or accounts in which payments
may be made to third parties by means of a debit
card;
(6) deposits or accounts under the terms of
which, or which by practice of the depository insti­
tution, the depositor is permitted or authorized to
make more than three withdrawals per month for
purposes of transferring funds to another account or
for making a payment to a third party by means of
preauthorized or telephone agreement, order or in­
struction. An account that permits or authorizes
more than three such withdrawals in a calendar
month is a “ transaction account” whether or not
more than three such withdrawals actually are made
in a calendar month. A “ preauthorized transfer”
includes any arrangement by the depository institu­
tion to pay a third party from the account of a de­
positor upon written or oral instruction (including
an order received through an automated clearing
house (ACH)), or any arrangement by a depository
institution to pay a third party from the account of
the depositor at a predetermined time or on a fixed
schedule. An account is not a “ transaction ac­
count” by virtue of an arrangement that permits
withdrawals for the purpose of repaying loans and
associated expenses at the same depository institu­
tion (as originator or servicer).
(f)(1) “ Nonpersonal time deposit” means:
(i) a time deposit, including a savings de­
posit, that is not a transaction account, representing
funds in which any beneficial interest is held by a
depositor which is not a natural person;
(ii) a time deposit, including a savings de­
posit that is not a transaction account, that repre­
sents funds deposited to the credit of a depositor
that is not a natural person, other than a deposit to
the credit of a trustee or other fiduciary if the entire
beneficial interest in the deposit is held by one or
more natural persons;
(iii) a time deposit that is transferable, ex­
cept a time deposit originally issued before Octo­
ber 1, 1980, to and held by one or more natural
persons, including a deposit to the credit of a
trustee or other fiduciary if the entire beneficial in­
terest in the deposit is held by one or more natural
persons;
(iv) a time deposit that is transferable, is­
sued on or after October 1, 1980, to and held by

§§ 2 0 4 .2

one or more natural persons, including a deposit to
the credit of a trustee or other fiduciary if the entire
beneficial interest is held by one or more natural
persons. A time deposit is transferable unless it
contains a specific statement on the certificate, in­
strument, passbook, statement or other form repre­
senting the account that it is not transferable. A
time deposit that contains a specific statement that
it is not transferable is not regarded as transferable
even if the following transactions can be effected: a
pledge as collateral for a loan; a transaction that oc­
curs due to circumstances arising from death, in­
competency, marriage, divorce, attachment or oth­
erwise by operation of law or a transfer on the
books or records of the institution; and
(v)
a time deposit represented by a promis­
sory note, an acknowledgment of advance, or a
sim ilar obligation
described
in
section
204.2(a)(l)(vii) that is issued to any office located
outside the United States of another depository in­
stitution or Edge or Agreement Corporation orga­
nized 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 ex­
empt from interest rate limitations under section
217.3(g) of Regulation Q (12 CFR 217.3(g)).
(2)
“ Nonpersonal time deposit” does not in­
clude nontransferable time deposits to the credit of
or in which the entire beneficial interest is held by
an individual pursuant to an Individual Retirement
Account or Keogh (H. R. 10) Plan under 26
U.S.C. (I.R.C. 1954) §§ 408, 401.
(g) “ N atural person” means an individual or a
sole proprietorship. The term does not mean a cor­
poration owned by an individual, a partnership or
other association.
(h) “ E urocurrency liabilities” means the sum
of the following:
(1)
Transactions with related offices outside
the United States.
(i)
In the case of a depository institution or
an Edge or Agreement Corporation organized under
the laws of the United States,
(A) positive net balances due to its non­
United States offices from its United States offices,
and
(B) assets (including participations) held
by its non-United States offices or by non-United
States offices of an affiliated Edge or Agreement
Corporation that were acquired from its United
States offices.

§§ 2 0 4 .2

REGULATION D

are
(ii)
In the case of a United States branch payable immediately upon presentation in the
and agency of a foreign bank,
United States, including checks forwarded to a Fed­
eral Reserve Bank in process of collection and
(A) positive net balances due to its for­
checks on hand that will be presented for payment
eign bank (including offices thereof located outside
or forwarded for collection on the following busi­
the United States) after deducting an amount equal
ness day;
to 8 per cent of the following: the United States
(ii) government checks drawn on the Trea­
branch’s or agency’s total assets less the sum of
sury of the United States that are in the process of
United States coin and currency, cash items in the
collection; and
process of collection and unposted debits, balances
(iii) such other items in the process of col­
due from domestic banks and other foreign banks,
balances due from foreign central banks, and net
lection, that are payable immediately upon presen­
tation in the United States and that are customarily
balances due from its foreign bank and the foreign
cleared or collected by depository institutions as
bank’s United States and non-United States offices;
however, the amount that may be deducted may not
cash items, including:
exceed net balances due to the foreign bank (in­
(A) drafts payable through another depos­
cluding offices thereof located outside the United
itory institution;
States), and
(B) redeemed bonds and coupons;
(B) assets (including participations) held
(C) food coupons and certificates;
by its foreign bank (including offices thereof lo­
(D) postal and other money orders, and
cated outside the United States) or by its parent
traveler’s checks;
(E) amounts credited to deposit accounts
holding company that were acquired from the
in connection with automated payment arrange­
United States branch or agency (other than assets
ments where such credits are made one business
required to be sold by Federal or State supervisory
day prior to the scheduled payment date to insure
authorities) or from an affiliated Edge or Agree­
ment Corporation.
that funds are available on the payment date;
(2)
Foreign branch credit extended to United
(F) commodity or bill of lading drafts
States residents. Credit outstanding from the non­
payable im m ediately upon presentation in the
United States office of a depository institution orga­
United States;
(G) returned items and unposted debits;
nized under United States law to United States resi­
dents (other than assets acquired and net balances
and
due from its United States offices), except credit
(H) broker security drafts.
extended (i) in the aggregate amount of $100,000
(2)
“ Cash item in process of collection” does
or less to any United States resident, (ii) by a non­
not include items handled as noncash collections
United States office that at no time during the com­
and credit card sales slips and drafts.
putation period had credit outstanding to United
(J) “ Net transaction accounts” means the total
States residents exceeding $1 million, or (iii) to an
amount of a depository institution’s transaction ac­
institution that will be maintaining reserves on such
counts less the deductions allowed under the provi­
credit pursuant to this Part. Credit extended to a
sions of § 204.3.
foreign branch, office, subsidiary, affiliate or other
(k)(l) “ Vault cash” means United States cur­
foreign establishment ( “ foreign affiliate” ) con­
rency and coin owned and held by a depository in­
trolled by one or more domestic corporations is re­
stitution that may, at any time, be used to satisfy
garded as credit extended to a United States resi­
depositors’ claims.
dent unless the proceeds will be used in its foreign
business or that of other foreign affiliates of the
(2)
“ Vault cash” includes United States cur­
controlling domestic corporation(s). This subpara­
rency and coin in transit to a Federal Reserve Bank
graph does not apply to United States branches and
or a correspondent depository institution for which
agencies of foreign banks.
the reporting depository institution has not yet re­
(i)(l) “ Cash item in process of collection”
ceived credit, and United States currency and coin
means:
in transit from a Federal Reserve Bank or a corre­
(i)
checks in the process of collection,
spondent depository institution when the reporting
drawn on a bank or other depository institution that
depository institution’s account at the Federal Re­

REGULATION D

§§ 2 0 4 .2

tion that is a member of the Federal Reserve Sys­
serve or correspondent bank has been charged for
such shipment.
tem.
“ Foreign bank” means any bank or other
(3)
Silver and gold coin and other currency (o)
similar institution organized under the laws of any
and coin whose numismatic or bullion value is sub­
country other than the United States or organized
stantially in excess of face value is not vault cash
for purposes of this Part.
under the laws o f Puerto Rico, Guam, American
Samoa, the Virgin Islands, or other territory or pos­
(1) “ Pass through account” means a balance
session of the United States.
maintained by a depository institution that is not a
(p) “ De novo depository institution” means a
member bank, by a U.S. branch or agency of a for­
depository institution that was not engaged in busi­
eign bank, or by an Edge or Agreement Corpora­
ness on July 1, 1979, and is not the successor by
tion, (1) in an institution that maintains required re­
merger or consolidation to a depository institution
serve balances at a Federal Reserve Bank, (2) in a
that was engaged in business prior to the date of
Federal Home Loan Bank, (3) in the N ational
Credit Union Administration Central Liquidity Fa­
merger or consolidation.
(q) “ Affiliate” includes any corporation, associ­
cility, or (4) in an institution that has been autho­
rized by the Board to pass through required reserve
ation, or other organization:
(1) Of which a depository institution, directly
balances if the institution, Federal Home Loan
or indirectly, owns or controls either a majority of
Bank, or National Credit Union Administration
the voting shares or more than 50 per cent of the
Central Liquidity Facility maintains the funds in the
numbers of shares voted for the election of its di­
form of a balance in a Federal Reserve Bank of
rectors, trustees, or other persons exercising similar
which it is a member or at which it maintains an
functions at the preceding election, or controls in
account in accordance with rules and regulations of
any manner the election of a majority of its direc­
the Board.
tors, trustees, or other persons exercising similar
(m)(l) “ Depository institution” means:
(i) any insured bank as defined in section 3
functions;
(2) Of which control is held, directly or indi­
of the Federal Deposit Insurance Act (12 U.S.C.
rectly, through stock ownership or in any other
§ 1813(h)) or any bank that is eligible to apply to
manner, by the shareholders of a depository institu­
become an insured bank under section 5 of such
tion who own or control either a majority of the
Act (12 U.S.C. § 1815);
shares of such depository institution or more than
(ii) any savings bank or mutual savings
50 per cent of the number of shares voted for the
bank as defined in section 3 of the Federal Deposit
election of directors of such depository institution
Insurance Act (12 U.S.C. § 1813(f), (g));
at the preceding election, or by trustees for the
(iii) any insured credit union as defined in
benefit of the shareholders of any such depository
section 101 of the Federal Credit Union Act
(12 U.S.C. § 1752(7)) or any credit union that is
institution;
(3) O f which a m ajority of its directors,
eligible to apply to become an insured credit union
trustees, or other persons exercising similar func­
under section 201 of such Act (12 U.S.C. § 1781);
tions are directors of any one depository institution;
(iv) any member as defined in section 2 of
the Federal Home Loan Bank Act (12 U .S .C .
or
(4) Which owns or controls, directly or indi­
§ 1422(4)); and
rectly, either a majority of the shares of capital
(v) any insured institution as defined in sec­
stock of a depository institution or more than 50
tion 401 of the National Housing Act (12 U .S.C.
per cent of the number of shares voted for the elec­
§ 1724(a)) or any institution which is eligible to ap­
tion of directors, trustees or other persons exercis­
ply to become an insured institution under section
ing similar functions of a depository institution at
403 of such Act (12 U.S.C. § 1726).
the
(2)
“ Depository institution” does not include preceding election, or controls in any manner
the election of a majority of the directors, trustees,
international organizations such as the World Bank,
or other persons exercising similar functions of a
the Inter-American Development Bank, and the
depository institution, or for the benefit of whose
Asian Development Bank.
shareholders or members all or substantially all the
(n) “ Member bank” means a depository institu­

§§ 2 0 4 .2 — 2 0 4 .3

REGULATION D

tranche may be assigned to other offices o f the
same foreign bank until the amount o f the tranche
or net transaction accounts is exhausted. The for­
eign bank shall determine this assignment subject to
the restriction that if a portion of the tranche is as­
signed to an office in a particular State, any unused
portion must first be assigned to other offices lo­
cated within the same State and within the same
Federal Reserve District, that is, to other offices in­
cluded on the same aggregated report of deposits.
The designation of office(s) to which the low re­
serve tranche is assigned may be changed at the be­
ginning of a calendar year.
SECTION 204.3— COMPUTATION AND
(2) Edge and Agreement Corporations.
M AINTENANCE
(i) An Edge or Agreement Corporation’s of­
(a) Maintenance of required reserves. A depos­ fices operating within the same State and within the
itory institution, a U.S. branch or agency of a for­
same Federal Reserve District* shall prepare and file
eign bank, and an Edge or Agreement Corporation
a report of deposits on an aggregated basis.
shall m aintain reserves against its deposits and
(ii) An Edge or A greem ent Corporation
Eurocurrency liabilities in accordance with the pro­
shall, if possible, assign the low reserve tranche on
cedures prescribed in this section and section 204.4
transaction accounts (§ 204.8(a)) to only one office
and the ratios prescribed in section 204.8. Penalties
or to a group of offices filing a single aggregated
shall be assessed for deficiencies in required re­
report of deposits. If the low reserve tranche cannot
serves in accordance with the provisions of section
be fully utilized by a single office or by a group of
204.7. Every institution holding transaction ac­
offices filing a single report of deposits, the unused
counts or nonpersonal time deposits shall file a re­
portion of the tranche may be assigned to other of­
port of deposits each week with the Federal Re­
fices of the same institution until the amount of the
serve Bank of its District (see section 204.3(d) for
tranche or net transaction accounts is exhausted. An
the special rule for depository institutions with total
Edge or Agreement Corporation shall determine
deposts of less than $5 million) and any other re­
this assignment subject to the restriction that if a
ports that the Board may require by rule, regulation
portion of the tranche is assigned to an office in a
or order. For purposes of this Part, the obligations
particular State, any unused portion must first be
of a majority owned (50% or more) U.S. subsidiary
assigned to other offices located within the same
(except an Edge or Agreement Corporation) o f a
State and within the same Federal Reserve District,
depository institution shall be regarded as obliga­
that is, to other offices included on the same aggre­
tions of the parent depository institution.
gated report o f deposits. The designation o f
(1) U nited States branches and agencies o f
office(s) to which the low reserve tranche is as­
foreign banks.
signed may be changed at the beginning of a calen­
(i) A foreign bank’s United States branches
dar year.
and agencies operating within the same State and
(b) Form of reserves. Reserves shall be held in
within the same Federal Reserve District shall pre­
the form of (i) vault cash, (ii) a balance maintained
pare and file a report of deposits on an aggregated
directly with the Federal Reserve Bank in the Dis­
basis.
trict in which it is located, or (iii) a pass through
(ii) United States branches and agencies of
account. R eserves held in the form o f a pass
the same foreign bank shall, if possible, assign the
through account shall be considered to be a balance
low reserve tranche on transaction accounts
maintained with the Federal Reserve.
(§ 204.8(a)) to only one office or to a group of of­
(c) C om putation o f required reserves. Re­
fices filing a single aggregated report of deposits. If
quired reserves are computed on the basis of the
the low reserve tranche cannot be fully utilized by
daily average deposit balances during a seven-day
a single office or by a group of offices filing a sin­
period ending each Wednesday (the “ computation
gle report of deposits, the unused portion of the
period” ). Reserve requirements are computed by
capital stock of a depository institution is held by
trustees.
(r) “ United S tates” means the States of the
United States and the District of Columbia.
(s) “ United States resident” means (1) any in­
dividual residing (at the time of the transaction) in
the United States; (2) any corporation, partnership,
association or other entity organized in the United
States ( “ dom estic co rporatio n” ); and (3) any
branch or office located in the United States of any
entity that is not organized in the United States.

REGULATION D

applying the ratios prescribed in section 204.8 to
the classes of deposits and Eurocurrency liabilities
of the institution. In determining the reserve bal­
ance that is required to be maintained with the Fed­
eral Reserve, the average daily vault cash held dur­
ing the computation period is deducted from the
amount of the institution’s required reserves. The
reserve balance that is required to be maintained
with the Federal Reserve shall be maintained during
a corresponding seven-day period (the “ mainte­
nance period” ) which begins on the second Thurs­
day follow ing the end o f a given com putation
period.
(d)
Special rule for depository institutions that
have total deposits of less than $5 million.
(1) A depository institution with total deposits
of less than $5 million shall file a report of deposits
once each calendar quarter for a seven-day compu­
tation period that begins on the third Thursday of a
given month during the calendar quarter. Each Re­
serve Bank shall divide the depository institutions
in its District that qualify under this paragraph into
three substantially equal groups and assign each
group a different month to report during each cal­
endar quarter.
(2) Required reserves are computed on the
basis of the depository institution’s daily average
deposit balances during the seven-day computation
period. In determining the reserve balance that a
depository institution is required to maintain with
the Federal Reserve, the average daily vault cash
held during the com putation period is deducted
from the amount of the institution’s required re­
serves. The reserve balance that is required to be
maintained with the Federal Reserve shall be main­
tained during a corresponding period that begins on
the second Thursday follow ing the end of the
institution’s computation period and ends on the
first Wednesday after the close of the institution’s
next computation period.
(3) A depository institution that has less than
$5 million in total deposits as o f December 31,
1979, shall qualify under this paragraph until it re­
ports total deposits of $5 million or more for two
consecutive calendar quarters.
(4) A depository institution that qualifies under
this paragraph may elect at the beginning of a cal­
endar year to report deposits and maintain reserves
on a weekly basis.
(5) This paragraph shall not apply to an Edge

§§ 2 0 4 .3

or A greem ent C orporation o r a United States
branch or agency of a foreign bank.
(e) C om putation o f transaction accounts.
Overdrafts in demand deposit or other transaction
accounts are not to be treated as negative demand
deposits or negative transaction accounts and shall
not be netted since overdrafts are properly reflected
on an institution’s books as assets. However, where
a customer maintains multiple transaction accounts
with a depository institution, overdrafts in one ac­
count pursuant to a bona fide cash management ar­
rangement are permitted to be netted against bal­
ances in other related transaction accounts for
reserve requirement purposes.
(0 Deductions allowed in computing reserves.
(1) In determining the reserve balance required
under this Part, the amount of cash items in process
of collection and balances subject to immediate
withdrawal due from other depository institutions
located in the U nited States (including such
amounts due from United States branches and agen­
cies of foreign banks and Edge and Agreem ent
Corporations) may be deducted from the amount of
gross transaction accounts. The amount that may be
deducted may not exceed that am ount o f gross
transaction accounts. However, if a depository in­
stitution maintains any transaction accounts that are
first authorized under Federal law after April 1,
1980, it may deduct from these balances cash items
in process of collection and balances subject to im­
mediate withdrawal due from other depository insti­
tutions located in the United States only to the ex­
tent of the proportion that such newly authorized
transaction accounts are of the institution’s total
transaction accounts. The remaining cash items in
process of collection and balances subject to imme­
diate withdrawal due from other depository institu­
tions located in the United States shall be deducted
from the institution’s rem aining transaction ac­
counts.
(2) United States branches and agencies o f a
foreign bank may not deduct balances due from an­
other United States branch or agency of the same
foreign bank, and United States offices of an Edge
or Agreement Corporation may not deduct balances
due from another United States office of the same
Edge Corporation.
(3) Balances “ due from other depository insti­
tutions” do not include balances due from Federal
Reserve Banks, pass through accounts, or balances

§§ 2 0 4 .3

REGULATION D

fice. The correspondent placing funds with the Fed­
eral Reserve on behalf o f respondents will be
responsible for reserve account maintenance as de­
scribed in subparagraphs (3) and (4) below.
(ii) Respondent depository institutions or
pass-through correspondents may institute, termi­
nate, or change pass-through arrangements for the
maintenance of required reserve balances by pro­
viding all documentation required for the establish­
ment of the new arrangement and/or termination of
the existing arrangement to the Federal Reserve
Bank in whose territory the respondent is located.
The time period required for such a change to be
effected shall be specified by each Reserve Bank in
its operating circular.
(iii) U.S. branches and agencies of foreign
banks and Edge and Agreement Corporations may
(A) act as pass-through correspondents for any non­
member institution required to maintain reserves or
(B) pass their own required reserve balances
through correspondents. In accordance with the
provision set forth in subparagraph (3) below, the
U.S. branches and agencies o f a foreign bank or
offices of an Edge and Agreement Corporation fil­
ing a single aggregated report of deposits may des­
ignate any one o f the other U .S. offices of the
same institution to serve as a pass-through corre­
spondent for all of the offices filing such a single
aggregated report of deposits.
(2) Reports
(i) Every depository institution that main­
tains transaction accounts or nonpersonal time de­
posits is required to file its report of deposits (or
(i) Pass-through rules.
any other required form or statement) directly with
(1) Procedure
the Federal Reserve Bank of its District, regardless
(i)
A nonmember depository institution of the manner in which it chooses to maintain re­
re­
quired to maintain reserve balances (“ respondent” )
quired reserve balances.
may select only one institution to pass through its
(ii) The Federal Reserve Bank receiving
required reserves. Eligible institutions through
such reports shall notify the reporting depository in­
stitution of its reserve requirements. Where a pass­
which respondent required reserve balances may be
through arrangement exists, the Reserve Bank will
passed (“ correspondents” ) are Federal Home Loan
also notify the correspondent passing respondent re­
Banks, the National Credit Union Administration
Central Liquidity Facility, and depository institu­
serve balances through to the Federal Reserve of its
respondent’s required reserve balances.
tions that maintain required reserves at a Federal
Reserve office. In addition, the Board reserves the
(iii) The Federal Reserve will not hold a
correspondent responsible for guaranteeing the ac­
right to permit other institutions, on a case-by-case
basis, to serve as pass-through correspondents. The
curacy of the reports of deposits submitted by its
correspondent chosen m ust subsequently pass
respondents to their local Federal Reserve Bank.
through the required reserve balances of its respon­
(3) Account Maintenance
dents directly to the appropriate Federal Reserve of­
(i) A correspondent that passes through re­
(payable in dollars or otherwise) due from banking
offices located outside the United States. An insti­
tution exercising fiduciary powers may not include
in “ balances due from other depository institu­
tions” amounts of trust funds deposited with other
banks and due to it as a trustee or other fiduciary.
(g) Availability of cash items as reserves. Cash
items forwarded to a Federal Reserve Bank for col­
lection and credit shall not be counted as part of
the reserve balance to be carried with the Federal
Reserve until the expiration of the time specified in
the appropriate time schedule established under
Regulation J, “ Collection of Checks and Other
Items and Transfers of Funds” (12 CFR 210). If a
depository institution draws against items before
that time, the charge will be made to its reserve ac­
count if the balance is sufficient to pay it; any re­
sulting impairment of reserve balances will be sub­
ject to the penalties provided by law and by this
Part. However, the Federal Reserve Bank may, at
its discretion, refuse to permit the withdrawal or
other use of credit given in a reserve account for
any time for which the Federal Reserve bank has
not received payment in actually and finally col­
lected funds.
(h) C a rry o v e r o f deficiencies. Any excess or
deficiency in a required reserve balance for any
maintenance period that does not exceed -2 per cent
o f institution’s required reserves shall be carried
forward to the next maintenance period. Any car­
ryover not offset during the next period may not be
carried forward to additional periods.

REGULATION D

quired reserve balances of respondents whose main
offices are located in the same Federal Reserve ter­
ritory in which the main office of the correspondent
is located shall have the option of maintaining such
required reserve balances in one of two ways: (A)
A correspondent may maintain such balances along
with the correspondent’s own required reserve bal­
ances in a single commingled account at the Fed­
eral Reserve Bank office in whose territory the
correspondent’s main office is located; or (B) A
correspondent may maintain its own required re­
serve balance in an account with the Federal Re­
serve Bank office in whose territory its main office
is located. The correspondent, in addition, would
maintain in a separate commingled account the re­
quired reserve balances passed through for respon­
dents whose main office is located in the same Fed­
eral Reserve territory as that of the main office of
the correspondent.
(ii) A correspondent that passes through re­
quired reserve balances of respondents whose main
offices are located outside the Federal Reserve ter­
ritory in which the main office of the correspondent
is located shall maintain such required reserve bal­
ances in a separate com mingled account at each
Federal Reserve office in whose territory the main
offices of such respondents are located.
(iii) A Reserve Bank may, at its discretion,
require a pass-through correspondent to consolidate
in a single account the reserve balances of all of its
respondents whose main offices are located in any
territory of that Federal Reserve District.
(4) Responsibilities o f Parties
(i) Each individual depository institution is
responsible for maintaining its required reserve bal­
ance with the Federal Reserve Bank either directly
or through a pass-through correspondent.
(ii) A pass-through correspondent shall be
responsible for assuring the maintenance of the ap­
propriate aggregate level of its respondents’ re­
quired reserve balance. A Reserve Bank will com­
pare the total reserve balance required to be
maintained in each reserve account with the total
actual reserve balance held in such reserve accounts
for purposes of determining required reserve defi­
ciencies, imposing or waiving penalties for defi­
ciencies in required reserves, and for other reserve
maintenance purposes. A penalty for a deficiency
in the aggregate level of the required reserve bal­
ance will be imposed by the Reserve Bank on the
correspondent maintaining the account.

§§ 2 0 4 .3

(iii) Each correspondent is required to main­
tain detailed records for each of its respondents in a
manner that permits Reserve Banks to determine
whether the respondent has provided a sufficient re­
quired reserve balance to the correspondent. A cor­
respondent passing through a respondent’s reserve
balance shall maintain records and make such re­
ports as the Federal Reserve System requires in or­
der to insure the correspondent’s compliance with
its responsibilities for the m aintenance o f a
respondent’s reserve balance. Such records shall be
available to the Federal Reserve Banks as required.
(iv) The Federal Reserve Bank may termi­
nate any pass-through relationship in which the cor­
respondent is deficient in its recordkeeping or other
responsibilities.
(v) Interest paid on supplemental reserves
(if such reserves are required under section 204.6
of this Part) held by respondent(s) will be credited
to the commingled reserve account(s) maintained
by the correspondent.
(5) Services
(i) A depository institution maintaining its
reserve balances on a pass-through basis may ob­
tain available Federal Reserve System services di­
rectly from its local Federal Reserve office. For
this purpose, the pass-through account in which a
respondent's required -reserve balance is maintained
may be used by the respondent for the posting of
entries arising from transactions involving the use
of such Federal Reserve services, if the posting of
these types of transactions has been authorized by
the correspondent and the Federal Reserve. For ex­
ample, access to the wire transfer, securities trans­
fer, and settlement services that involve charges to
the commingled reserve account at the Reserve
Bank will require authorization from the correspon­
dent and the Reserve Bank for the type of transac­
tion that is occurring.
(ii) In addition, in obtaining Federal Re­
serve services, respondents maintaining their re­
quired reserves on a pass-through basis may choose
to have entries arising from the use of Federal Re­
serve services posted to: (A) with the prior authori­
zation of all parties concerned, the reserve account
maintained by any institution at a Federal Reserve
Bank, or (B) an account maintained for clearing
purposes at a Federal Reserve Bank by the respon­
dent.
(iii) A ccounts at Federal Reserve Banks
consisting only of respondents’ reserve balances

REGULATION D

§§ 2 0 4 .3 — 2 0 4 .4

that are passed through by a correspondent to a
Federal Reserve Bank may be used only for trans­
actions of respondents. A correspondent will not be
permitted to use such pass-through accounts for
purposes other than serving its respondents’ needs.
(iv)
A correspondent may not apply
Federal Reserve credit on behalf of a respondent.
Rather, a respondent should apply directly to its
Federal Reserve Bank for credit. Any Federal Re­
serve credit obtained by a respondent may be cred­
ited, at the respondent’s option and with the ap­
proval of the parties concerned, to the reserve
account in which its required reserves are main­
tained by a correspondent, to a clearing account
maintained by the respondent, or to any account to
which the respondent is authorized to post entries
arising from the use of Federal Reserve services.
SECTION 204.4— TRANSITIONAL
ADJUSTMENTS
The following transitional adjustments for com­
puting Federal Reserve requirements shall apply to
all member and nonmember depository institutions,
except for reserves imposed under sections 204.5
and 204.6.
(a) Nonmembers. Except as provided below, the
required reserves of a depository institution that
was engaged in business on July 1, 1979, but was
not a member of the Federal Reserve System on or
after that date shall be determined by reducing the
amount of required reserves computed under sec­
tion 204.3 in accordance with the following schedReserve maintenance periods
occurring between
November 13, 1980 to
September 2, 1981
September 3, 1981 to
September 1, 1982
September 2, 1982 to
August 31, 1983
September 1, 1983 to
September 5, 1984
September 6, 1984 to
September 4, 1985
September 5, 1985 to
September 3, 1986
September 4, 1986 to
September 2, 1987
September 3, 1987 forward

However, an institution shall not reduce the amount
of required reserves on any category of deposits or
accounts that are first authorized under Federal law
in any State after April 1, 1980.
(b)
M embers and form er m em bers. The re ­
for
quired reserves of any depository institution that is
a member bank on September 1, 1980, or was a
member bank on or after July 1, 1979 and with­
drew from membership before March 31, 1980, or
withdraws from membership on or after March 31,
1980, shall be determined as follows:
(1) A depository institution whose required re­
serves are higher using the reserve ratios in effect
during a given computation period (§ 204.8(a))
than its required reserves using the reserve ratios in
effect on August 31, 1980 (§ 204.8(b)) (without re­
gard to required reserves on any category o f de­
posits or accounts that are first authorized under
Federal law in any State after April 1, 1980):
(i) shall maintain the full amount of required
reserves on any category of deposits or accounts
that are first authorized under Federal law in any
State after April 1, 1980; and
(ii) shall reduce the amount of its required
reserves on all other deposits computed under sec­
tion 204.3 by an amount determined by multiplying
the amount by which required reserves computed
under section 204.3 exceeds the amount of required
reserves com puted using the reserve ratios that
were in effect on August 31, 1980 (§ 204.8(b)),
times the appropriate percentage specified below in
accordance with the following schedule:

Percentage that
computed reserves
will be reduced
87.5
75
62.5
50
37.5
25
12.5
0

Reserve maintenance periods
occurring between
November 13, 1980 to
September 2, 1981
September 3, 1981 to
September 1, 1982
September 2, 1982 to
August 31,1983
September 1, 1983
forward

Percentage
applied to
difference to
compute amount
to be subtracted
75
50
25
0

REGULATION D

§§ 2 0 4 .4

(2)
A depository institution whose required
serves are lower using the reserve ratios in effect
during a given com putation period (§ 204.8(a))
(than its required reserves computed using the re­
serve ratios in effect on A ugust 31, 1980)
(§ 204.8(b)) (without regard to required reserves on
any category of deposits or accounts that are first
authorized under Federal law in any State after
April 1, 1980):
(i) shall maintain the full amount of required
reserves on any category o f deposits or accounts
that are first authorized under Federal law in any
State after April 1, 1980; and
(ii) shall increase the amount of its required
reserves on all other deposits computed under sec­
tion 204.3 by an amount determined by multiplying
the amount by which required reserves computed
using the reserve ratios that were in effect on Au­
gust 31, 1980 (§ 204.8(b)), exceeds the amount of
required reserves computed under section 204.3,
times the appropriate percentage specified below in
accordance with the following schedule:

Reserve maintenance periods
occurring between
November 13, 1980September 2, 1981
September 3, 1981March 3, 1982
March 4, 1982September 1, 1982
September 2, 1982March 2, 1983
March 3, 1983August 31, 1983
September 1, 1983February 29, 1984
March 1, 1984 forward

Percentage
applied to
difference to
compute amount
to be added

re­
commenced business between July 2, 1979, and
September 1, 1980, and any United States branch
or agency of a foreign bank with total worldwide
consolidated bank assets in excess of $1 billion
shall be determined by reducing the amount of its
required reserves computed under section 204.3 in
accordance with the following schedule:

Reserve maintenance periods
occurring between
November 13, 1980February 11, 1981
February 12-May 13, 1981
May 14-August 12, 1981
August 13November 11, 1981
November 12, 1981February 10, 1982
February 11-May 12, 1982
May 13-August 11, 1982
August 12, 1982 forward

Percentage that
computed reserves
will be reduced
87.5
75.0
62.5
50.0
37.5
25.0
12.5

0

However, an institution shall not reduce the amount
of required reserves on any category of deposits or
accounts that are first authorized under Federal law
in any State after April 1, 1980. An additional
United States branch or agency of a foreign bank
operating a branch or agency in the United States
as of September 1, 1980, shall be entitled only to
the remaining phase-in available to the existing
U.S. branch or agency.
(d)
New members. The required reserves of a
nonmember depository institution that was engaged
in business but was not a member bank during the
period between July 1, 1979 and Septem ber 1,
1980, inclusive, and which becomes a member of
the Federal Reserve System after Septem ber 1,
1980, shall be determined under paragraph (a) or
(c), as applicable, as if it had remained a nonmem­
ber and adding to this amount an amount deter­
mined by multiplying the difference between its re­
quired reserves computed using the ratios specified
in § 204.8(a) and its required reserves computed as
if it had remained a nonmember times the percent­
age specified below in accordance with the follow­
ing schedule:

75
62.5
50
37.5
25
12.5

0

(c) C ertain nonm em bers and branches and
agencies of foreign banks. The required reserves
of a nonmember depository institution that was not
engaged in business on or before July 1, 1979, but

17

REGULATION D

§§ 2 0 4 .4

shall not maintain reserves against its deposits im­
posed under this Part until January 2, 1986. On or
after January 2, 1986, the required reserves of such
a depository institution shall be determined by re­
ducing the amount of required reserves computed
under section 204.3 in accordance with the follow­
ing schedule:

Percentage
applied to
Maintenance periods occurring
difference to
during successive quarters after compute amount
becoming a member bank
to be added
1

2
■3
4
5
6
7
8 and succeeding

12.5

25.0
37.5
50.0
62.5
75.0
87.5
100.0

Maintenance periods
occurring between

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

Maintenance periods occurring
during successive quarters after
entering into business
1
2
3
4
5
6
7
8 and succeeding

Percentage o f
reserve
requirement to
be maintained
40
45
50
55
65
75
85
100

January 2 to December 31,
1986
January I, 1987 to
January 6, 1988
January 7, 1988 to
January 4, 1989
January .5, 1989 to
January 3, 1990
January 4, 1990 to
January 2, 1991
January 3, 1991 to
January 1, 1992
January 2, 1992 to
January 6, 1993
January 7, 1993 forward

Percentage that
compared reserves
will be reduced
87.5
75
62.5
50
37.5

(g) Mergers and consolidations. The following
rules concerning transitional adjustments apply to
mergers and consolidations of depository institu­
tions:
(1)
Nonmembers. Where the surviving institu­
tion of a merger or consolidation between nonmcmber depository institutions that were engaged in
business on July I, 1979, and were not members of
This paragraph shall also apply to a United
the Federal Reserve System on or after that date is
States branch or agency of a foreign bank if such
a nonmember institution, it shall compute its transi­
branch or agency is the foreign bank’s first office
tional adjustment of required reserves under para­
in the United States. Additional branches or agen­
graph (a), except that the amount of required re­
cies of such a foreign bank shall be entitled only to
serves shall be reduced by an amount determined
the remaining phase-in available to the initial of­
by multiplying the amount by which the required
fice.
(f)
Certain nonmembers chartered under laws reserves during the computation period immediately
preceding the date of the merger (computed as if
of Hawaii. Any State-chartered depository institu­
the institutions had merged) exceeds the sum of the
tion that was engaged in business on August 1,
actual required reserves of each bank during the
1978, which was not a member of the Federal Re­
same computation period times the appropriate per­
serve System on that date, and whose principal of­
centage as specified in the following schedule:
fice was located in Hawaii on and after that date

18

§§ 204.4

REGULATION D

Reserve maintenance periods
occurring during quarterly
periods following merger

Percentage
applied to
difference to
compute amount
to be subtracted

1
2
3
4
5
6
7
8 and succeeding

87.5
75.0
62.5
50.0
37.5
25.0
12.5
0

(2) Member with surviving nonmember. Where
the surviving institution of a merger or consolida­
tion between a nonmember bank and a bank that
was a member bank on or after July 1, 1979, is a
nonmember bank, it shall apply the transitional
rules for member banks in paragraphs (b) or (d), as
applicable, on the proportion of its deposits attrib­
utable to the absorbed member bank. This propor­
tion will be the ratio that daily average deposits of
the absorbed member bank were to the daily aver­
age deposits of the combined banks during the re­
serve computation period immediately preceding
the date of the merger. The bank will compute and
maintain reserves against the remaining proportion
of deposits applying the transitional rules applicable
to nonmember depository institutions in paragraphs
(a), (c) or (e), as applicable. A ratio of vault cash
also will be computed and applied.
(3) De novo with surviving nonmember. Where
the surviving institution of a merger or consolida­
tion between a depository institution that was en­
gaged in business on July 1, 1979, and was not a
member of the Federal Reserve System on or after
that date, and a de novo depository institution is a
nonmember depository institution, it shall compute
and maintain reserves applying the transitional rules
for de novo depository institutions in paragraphs (c)
or (e), as applicable, on a proportion of its deposits
attributable to the absorbed de novo bank. This pro­
portion will be the ratio that daily average deposits
of the absorbed de novo institution were to the
daily average deposits of the combined institutions
during the reserve computation period immediately
preceding the date of the merger. The institution
will compute and maintain reserves against the re­
maining proportion of its deposits by applying the

transitional rules applicable to nonmember deposi­
tory institutions in paragraph (a). A ratio of vault
cash also will be computed and applied.
(4) Nonmember with surviving member. Where
the surviving institution of a merger oi consolida­
tion between a member bank and a nonm em ber
bank is a member bank, it shall apply the transi­
tional rules under paragraphs (a), (c) or (e), as ap­
plicable, only on the amount of deposits o f the
nonmember bank outstanding on a daily average
basis during the computation period immediately
preceding the date of the merger. Reserves will be
computed and maintained against the balance of the
deposits of the surviving member bank under para­
graphs (b), (d) or (e), as applicable.
(5) Members. Where a merger or consolidation
involves member banks, required reserves shall be
computed and maintained applying the transitional
rules in paragraph (b), except that the amount of
reserves which shall be maintained shall be reduced
by an am ount determ ined by m ultiplying the
amount by which the required reserves during the
computation period immediately preceding the date
of the m erger (computed as if the banks had
merged) exceeds the sum of the actual required re­
serves of each bank during the same computation
period times the appropriate percentage as specified
in the following schedule:

Reserve maintenance periods
occurring during quarterly
period following merger

Percentage
applied to
difference to
compute amount
to be subtracted

1
2
3
4
5
6
7
8 and succeeding

87.5
75.0
62.5
50.0
37.5
25.0
12.5
0

(6)
D e novo with surviving member. Where
the surviving institution of a merger or consolida­
tion between a bank that was a member bank at
any time between July 1, 1979, and September 1,
1980, or that was engaged in business on July 1,
1979 and became a member after Septem ber 1,
1980, and a de novo depository institution is a
member bank, it shall compute and maintain re­

§§ 2 0 4 .4 — 2 0 4 .6

REGULATION D

serves by applying paragraph (e) only to the
and may be extended for further periods of up to
amount of deposits of the de novo institution out­
180 days each by affirmative action of at least five
standing on a daily average basis during the com­
members of the Board for each extension.
putation period immediately preceding the date of
(c) Reports to Congress. The Board shall trans­
the merger. Reserves will be computed and main­
mit promptly to Congress a report of any exercise
tained against the remaining deposits of the surviv­
of its authority under this paragraph and the reasons
ing member bank under paragraphs (b) or (d), as
for the exercise of authority.
applicable.
(d) Reserve requirements. At present, there are
(7)
D e novos. W here a merger involves deno emergency reserve requirements imposed under
novo depository institutions, required reserves shall
this section.
be computed and maintained in accordance with
section 204.3, except that the amount of reserves
which shall be maintained shall be reduced by an
amount determined by multiplying the amount by
which the required reserves during the computation
SECTION 204.6— SUPPLEMENTAL
period immediately preceding the date of the merg­
RESERVE REQUIREMENT
er (computed as if the depository institutions had
merged) exceeds the sum of the actual required re­
serves o f each depository institution during the
(a) Finding by Board. Upon the affirmative
same computation period, times the appropriate
vote of at least five members of the Board and after
percentage as specified in the following schedule:
consultation with the Board of Directors of the Fed­
eral Deposit Insurance Corporation, the Federal
Maintenance periods
Percentage applied
Home Loan Bank Board, and the National Credit
occurring during quarterly compute amount to
Union Administration Board, the Board may im­
periods following merger
be subtracted
pose a supplemental reserve requirement on every
depository institution of not more than 4 per cent of
1
87.5
its total transaction accounts. A supplemental re­
2
75.0
serve requirement may be imposed if:
3
62.5
(1) the sole purpose of the requirement is to
4
50.0
increase the amount of reserves maintained to a
5
37.5
level essential for the conduct of monetary policy;
6
25.0
(2) the requirement is not imposed for the pur­
7
12.5
pose of reducing the cost burdens resulting from
8 and succeeding
0
the imposition of basic reserve requirements;
(3) such requirement is not imposed for the
purpose of increasing the amount o f balances
needed for clearing purposes; and
(4) on the date on which supplemental reserve
SECTION 204.5— EM ERGENCY RESERVE
requirements are imposed, the total amount of basic
REQUIREM ENT
reserve requirements is not less than the amount of
reserves that would be required on transaction ac­
(a) Finding by Board. The Board may impose,
counts and nonpersonal time deposits under the ini­
after consulting with the appropriate committees of tial reserve ratios established by the Monetary Con­
Congress, additional reserve requirements on de­
trol Act o f 1980 (Pub. L. 96-221) in effect on
pository institutions at any ratio on any liability
September 1, 1980.
upon a finding by at least five m embers of the
(b) Term.
Board that extraordinary circumstances require such
(1)
If a supplemental reserve requirement has
action.
been imposed on for a period of one year or more,
(b) Term. Any action taken under this section
the Board shall review and determine the need for
shall be valid for a period not exceeding 180 days,
continued maintenance of supplemental reserves

20

§§ 2 0 4 . 6 — 2 0 4 .7

REGULATION D

and shall transmit annual reports to the Congress
penalty for reserve deficiencies except when the de­
regarding the need for continuing such requirement.
ficiency arises out of a depository institution’s
gross negligence or conduct that is inconsistent
(2)
Any supplem ental reserve requirem ent
shall terminate at the close of the first 90-day pe­
with the principles and purposes of reserve require­
riod after the requirement is imposed during which
ments. Each Reserve Bank has adopted guidelines
the average amount of supplemental reserves re­
that provide for waivers o f small penalties. The
quired are less than the amount of reserves which
guidelines also provide for waiving the penalty
would be required if the ratios in effect on Septem­
once during a two-year period for any deficiency
ber 1, 1980, were applied.
that does not exceed a certain percentage of the de­
(c) Earnings Participation Account. A deposi­
pository institution’s required reserves. Decisions
tory institution’s supplemental reserve requirement
by Reserve Banks to waive penalties in other situa­
tions are based on an evaluation of the circum ­
shall be maintained by the Federal Reserve Banks
stances in each individual case and the depository
in an Earnings Participation Account. Such bal­
institution’s reserve maintenance record. If a depos­
ances shall receive earnings to be paid by the Fed­
itory institution has demonstrated a lack of due re­
eral Reserve Banks during each calendar quarter at
gard for the proper maintenance of required re­
a rate not to exceed the rate earned on the securi­
ties portfolio of the Federal Reserve System during
serves, the Reserve Bank may decline to exercise
the waiver privilege and assess all penalties regard­
the previous calendar quarter. Additional rules and
less of amount or reason for the deficiency.
regulations may be prescribed by the Board con­
(ii)
In individual cases, where a Federal su­
cerning the payment of earnings on Earnings Partic­
ipation Accounts by Federal Reserve Banks.
pervisory authority waives a liquidity requirement,
(d) Report to Congress. The Board shall trans­
or waives the penalty for failing to satisfy a liquid­
ity requirement, the Reserve Bank in the District
mit promptly to the Congress a report stating the
where the involved depository institution is located
basis for exercising its authority to require a sup­
shall waive the reserve requirement imposed under
plemental reserve under this section.
this Part for such depository institution when re­
(e) Reserve requirements. At present, there are
quested by the Federal supervisory authority in­
no supplemental reserve requirements imposed un­
der this section.
volved.
(b)
Penalties for Violations. Violations of this
Part may be subject to assessment of civil money
S E C T IO N 204.7— PE N A L T IE S
penalties by the Board under authority of section
(a) Penalties for Deficiencies.
19(1) of the Federal Reserve Act (12 U .S .C .
(1) Assessment o f Penalties. Deficiencies in a
§ 505) as implemented in 12 CFR 263. In addi­
depository institution’s required reserve balance, af­
tion, the Board and any other Federal financial in­
ter application of the 2 per cent carryover provided
stitution supervisory authority may enforce this Part
in section 204.3(h) are subject to penalties. Federal
with respect to depository institutions subject to
Reserve Banks are authorized to assess penalties for
their jurisdiction under authority conferred by law
deficiencies in required reserves at a rate of 2 per
to undertake cease and desist proceedings.
cent per year above the lowest rate in effect for
borrowings from the Federal Reserve Bank on the
first day of the calendar month in which the defi­
ciencies occurred. Penalties shall be assessed on the
STATUTORY APPENDIX
basis of daily average deficiencies during each
computation period. Reserve Banks may, as an al­
ternative to levying monetary penalties, after con­
Section 19 of the Federal Reserve Act provides in
sideration of the circumstances involved, permit a
part as follows:
depository institution to eliminate deficiencies in its
(a)
The Board is authorized for the purposes of
required reserve balance by maintaining additional
this section to define the terms used in this section,
reserves during subsequent reserve maintenance
to determine what shall be deemed a payment of
periods.
interest, to determine what types of obligations,
(2) Waivers, (i) Reserve Banks may waive the

21

STATUTORY APPENDIX

REGULATION D

a deposit or account on which the depositor or ac­
whether issued directly by a member bank or indi­
count holder is permitted to make withdrawals by
rectly by an affiliate of a member bank or by other
negotiable or transferable instrument, payment or­
means, shall be deemed a deposit, and to prescribe
ders of withdrawal, telephone transfers, or other
such regulations as it may deem necessary to effec­
tuate the purposes of this section and to prevent
similar items for the purpose of making payments
or transfers to third persons or others. Such term
evasions thereof.
includes demand deposits, negotiable order of with­
(b) Reserve R equ irem en ts.—
drawal accounts, saving deposits subject to auto­
(1)
Definitions. The following definitions and
rules apply to this subsection, subsection (c), sec­
matic transfers, and share draft accounts.
(D) The term ‘nonpersonal time deposits’
tion 11 A, the first paragraph of section 13, and the
second, thirteenth, and fourteenth paragraphs of
means a transferable time deposit or account or a
section 16:
time deposit or account representing funds depos­
(A) The term ‘depository in stitu tio n’
ited to the credit of, or in which any beneficial in­
terest is held by, a depositor who is not a natural
means—
(i) any insured bank as defined in sec­
person.
tion 3 of the Federal Deposit Insurance Act or any
(E) In order to prevent evasions of the re­
bank which is eligible to make application to be­
serve requirements imposed by this subsection, af­
come an insured bank under section 5 of such Act;
ter consultation with the Board of Directors of the
(ii) any mutual savings bank as defined
Federal Deposit Insurance Corporation, the Federal
in section 3 of the Federal Deposit Insurance Act or
Home Loan Bank Board, and the National Credit
any bank which is eligible to make application to
Union Administration Board, the Board of Gover­
become an insured bank under section 5 of such
nors of the Federal Reserve System is authorized to
Act;
determine, by regulation or order, that an account
(iii) any savings bank as defined in
or deposit is a transaction account if such account
section 3 of the Federal Deposit Insurance Act or
or deposit may be used to provide funds directly or
any bank which is eligible to make application to
indirectly for the purpose of making payments or
become an insured bank under section 5 of such
transfers to third persons or others.
Act;
(2)
Reserve requirements. (A) Each deposi­
(iv) any insured credit union as defined
tory institution shall maintain reserves against its
in section 101 of the Federal Credit Union Act or
transaction accounts as the Board may prescribe by
any credit union which is eligible to make applica­
regulation solely for the purpose of implementing
tion to become an insured credit union pursuant to
monetary policy—
section 201 of such Act;
(i) in the ratio of 3 per centum for that por­
(v) any member as defined in section 2
tion of its total transaction accounts of $25,000,000
of the Federal Home Loan Bank Act;
or less, subject to subparagraph (C); and
(vi) any insured institution as defined
(ii) in the ratio of 12 per centum, or in such
in section 401 of the National Housing Act or any
other ratio as the Board may prescribe not greater
institution which is eligible to make application to
than 14 per centum and not less than 8 per centum,
become an insured institution under section 403 of
for that portion of its total transaction accounts in
such Act; and
excess of $25,000,000, subject to subparagraph
(vii) for the purpose of section 13 and
(C).
the fourteenth paragraph of section 16, any associa­
(B) Each depository institution shall
tion or entity which is wholly owned by or which
maintain reserves against its nonpersonal time de­
consists only of institutions referred to in clauses (i)
posits in the ratio of 3 per centum, or in such other
through (vi).
ratio not greater than 9 per centum and not less
(B) The term ‘bank’ means any insured
than zero per centum as the Board may prescribe
or noninsured bank, as defined in section 3 of the
by regulation solely for the purpose of implement­
Federal Deposit Insurance Act, other than a mutual
ing monetary policy.
savings bank or a savings bank as defined in such
section.
(C) Beginning in 1981, not later than De­
(C) The term ‘transaction account’ means
cember 31 of each year the Board shall issue a reg-

REGULATION D

STATUTORY APPENDIX

illation increasing for the next succeeding calendar
members, impose a supplemental reserve require­
year the dollar amount which is contained in sub­
ment on every depository institution of not more
paragraph (A) or which was last determined pursu­
than 4 per centum of its total transaction accounts.
ant to this subparagraph for the purpose of such
Such supplemental reserve requirement may be im­
posed only if—
subparagraph, by an amount obtained by multiply­
ing such dollar amount by 80 per centum of the
(i) the sole purpose of such requirement is
percentage increase in the total transaction accounts
to increase the amount of reserves maintained to a
of all depository institutions. The increase in such
level essential for the conduct of monetary policy;
transaction accounts shall be determined by sub­
(ii) such requirement is not imposed for the
tracting the amount on such accounts on June 30 of
purpose of reducing the cost burdens resulting from
the preceding calendar year from the amount of
the imposition of the reserve requirements pursuant
such accounts on June 30 of the calendar year in­
to paragraph (2);
volved. In the case of any such 12-month period in
(iii) such requirement is not imposed for the
which there has been a decrease in the total trans­
purpose of increasing the am ount o f balances
action accounts of all depository institutions, the
needed for clearing purposes; and
Board shall issue such a regulation decreasing for
(iv) on the date on which the supplemental
the next succeeding calendar year such dollar
reserve requirement is imposed, the total amount of
amount by an amount obtained by multiplying such
reserves required pursuant to paragraph (2) is not
dollar amount by 80 per centum of the percentage
less than the amount of reserves that would be re­
decrease in the total transaction accounts of all de­
quired if the initial ratios specified in paragraph (2)
pository institutions. The decrease in such transac­
were in effect.
tion accounts shall be determined by subtracting the
(B) The Board may require the supple­
mental reserve authorized under subparagraph (A)
amount of such accounts on June 30 of the calendar
year involved from the amount of such accounts on
only after consultation with the Board of Directors
June 30 of the previous calendar year.
of the Federal Deposit Insurance Corporation, the
Federal
(D)
Any reserve requirement imposed un­ Home Loan Bank Board, and the National
Credit Union A dm inistration Board. The Board
der this subsection shall be uniformly applied to all
transaction accounts at all depository institutions.
shall promptly transmit to the Congress a report
with respect to any exercise of its authority to re­
Reserve requirements imposed under this subsection
quire supplemental reserves under subparagraph (A)
shall be uniformly applied to nonpersonal time de­
posits at all depository institutions, except that such
and such report shall state the basis for the determi­
nation to exercise such authority.
requirements may vary by the maturity of such de­
posits.
(C) The supplemental reserve authorized
under subparagraph (A) shall be maintained by the
(3) Waiver of ratio limits in extraordinary cir­
cumstances. Upon a finding by at least 5 members
Federal Reserve Banks in an Earnings Participation
of the Board that extraordinary circumstances re­
Account. Except as provided in subsection
(c)(l)(A)(ii), such Earnings Participation Account
quire such action, the Board, after consultation
with the appropriate committees of the Congress,
shall receive earnings to be paid by the Federal Re­
may impose, with respect to any liability of deposi­
serve Banks during each calendar quarter at a rate
tory institutions, reserve requirements outside the
not more than the rate earned on the securities port­
limitations as to ratios and as to types of liabilities
folio of the Federal Reserve System during the pre­
vious calendar quarter. The Board may prescribe
otherwise prescribed by paragraph (2) for a period
rules and regulations concerning the payment of
not exceeding 180 days, and for further periods not
exceeding 180 days each by affirmative action by
earnings on Earnings Participation Accounts by
at least 5 members of the Board in each instance.
Federal Reserve Banks under this paragraph.
(D) If a supplemental reserve under sub­
The Board shall promptly transmit to the Congress
a report of any exercise of its authority under this
paragraph (A) has been required of depository insti­
tutions for a period of one year or more, the Board
paragraph and the reasons for such exercise of au­
thority.
shall review and determine the need for continued
maintenance of supplemental reserves and shall
(4) Supplem ental reserves. (A) The Board
transmit annual reports to the Congress regarding
may, upon the affirmative vote of not less than 5

23

STATUTORY APPENDIX

REGULATION D

for access to discount and borrowing facilities con­
the need, if any, for continuing the supplemental
sistent with their long-term asset portfolios and the
reserve.
sensitivity of such institutions to trends in the na­
(E)
Any supplemental reserve imposed
under subparagraph (A) shall terminate at the close
tional money markets.
of the first 90-day period after such requirement is
(8) Transitional adjustments.
(A) Any depository institution required to
imposed during which the average amount of re­
maintain reserves under this subsection which was
serves required under paragraph (2) are less than
engaged in business on July 1, 1979, but was not a
the amount o f reserves which would be required
member of the Federal Reserve System on or after
during such period if the initial ratios specified in
that date, shall maintain reserves against its de­
paragraph (2) were in effect.
posits during the first twelve-month period follow­
(5) Reserves related to foreign obligations or
ing the effective date of this paragraph in amounts
assets. Foreign branches, subsidiaries, and interna­
equal to one-eighth of those otherwise required by
tional banking facilities of nonmember depository
this subsection, during the second such tw elve­
institutions shall maintain reserves to the same ex­
month period in amounts equal to one-fourth of
tent required by the Board o f foreign branches,
those otherw ise required, during the third such
subsidiaries, and international banking facilities of
twelve-month period in amounts equal to threemember banks. In addition to any reserves other­
eighths of those otherw ise required, during the
wise required to be maintained pursuant to this sub­
fourth twelve-month period in amounts equal to
section, any depository institution shall maintain re­
one-half of those otherwise required, and during the
serves in such ratios as the Board may prescribe
fifth twelve-month period in amounts equal to fiveagainst—
eighths o f those otherw ise required, during the
(A) net balances owned by domestic of­
sixth tw elve-m onth period in am ounts equal to
fices of such depository institution in the United
three-fourths of those otherwise required, and dur­
States to its directly related foreign offices and to
ing the seventh twelve-month period in amounts
foreign offices of nonrelated depository institutions;
equal to seven-eighths of those otherwise required.
(B) loans to United States residents made
This subparagraph does not apply to any category
by overseas offices of such depository institution if
such depository institution has one or more offices
of deposits or accounts which are first authorized
pursuant to Federal law in any State after April 1,
in the United States; and
(C) assets (including participations) held
1980.
by foreign offices of a depository institution in the
(B) With respect to any bank which was
a member of the Federal Reserve System during the
United States which were acquired from its domes­
tic offices.
entire period beginning on July 1, 1979, and end­
(6) Exemption for certain deposits. The re­
ing on the effective date o f the Monetary Control
quirements imposed under paragraph (2) shall not
Act of 1980, the amount o f required reserves im­
posed pursuant to this subsection on and after the
apply to deposits payable only outside the States of
the United States and the District of Columbia, ex­
effective date of such Act that exceeds the amount
cept that nothing in this subsection limits the au­
o f reserves which would have been required o f
thority of the Board to impose conditions and re­
such bank if the reserve ratios in effect during the
reserve computation period immediately preceding
quirements on member banks under section 25 o f
such effective date were applied may, at the discre­
this Act or the authority of the Board under sec­
tion 7 o f the International Banking Act o f 1978
tion of the Board and in accordance with such rules
(12 U.S.C. 3105).
and regulations as it may adopt, be reduced by 75
per centum during the first year which begins after
(7) Discount and borrowing. Any depository
institution in which transaction accounts or nonper­
such effective date, 50 per centum during the sec­
sonal time deposits are held shall be entitled to the
ond year, and 25 per centum during the third year.
(C)(i) With respect to any bank which is
same discount and borrowing privileges as member
banks. In the administration of discount and bor­
a member of the Federal Reserve System on the ef­
fective date of the Monetary Control Act of 1980,
rowing privileges, the Board and the Federal Re­
serve Banks shall take into consideration the special
the amount of reserves which would have been re­
needs of savings and other depository institutions
quired o f such bank if the reserve ratios in effect

REGULATION D

STATUTORY APPENDIX

during the reserve computation period immediately
subsection, pursuant to subparagraphs (B) and
preceding such effective date were applied that ex­
(C)(i).
ceeds the amount of required reserves imposed pur­
(E)
This subparagraph applies to any de­
suant to this subsection shall, in accordance with
pository institution which was engaged in business
such rules and regulations as the Board may adopt,
on August 1, 1978, as a depository institution orga­
be reduced by 25 per centum during the first year
nized under the laws of a State, which was not a
which begins after such effective date, 50 per cen­
member o f the Federal Reserve System on that
tum during the second year, and 75 per centum
date, and the principal office of which was outside
during the third year.
the continental limits of the United States on that
date and
(ii)
If a bank becomes a member bank has remained outside the continental limits
during the four-year period beginning on the effec­
of the United States ever since. Such a depository
institution shall not be required to maintain reserves
tive date of the Monetary Control Act of 1980, and
against its deposits pursuant to this subsection until
if the amount of reserves which would have been
the first day of the sixth calendar year which begins
required of such bank, determined as if the reserve
after the effective date of the Monetary Control Act
ratios in effect during the reserve computation peri­
of 1980. Such a depository institution shall main­
od immediately preceding such effective date were
tain reserves against its deposits during the sixth
applied, and as if such bank had been a member
calendar year which begins after such effective date
during such period, exceeds the amount of reserves
in an amount equal to one-eighth of that otherwise
required pursuant to this subsection, the amount of
required by paragraph (2), during the seventh such
reserves required to be maintained by such bank
year in an amount equal to one-fourth of that other­
beginning on the date on which such bank becomes
wise required, during the eighth such year in an
a member of the Federal Reserve System shall be
amount equal to three-eighths of that otherwise re­
the amount of reserves which would have been re­
quired, during the ninth such year in an amount
quired of such bank if it had been a member on the
equal to one-half of that otherwise required, during
day before such effective date, except that the
amount of such excess shall, in accordance with
the tenth such year in an amount equal to fiveeighths of that otherwise required, during the elev­
such rules and regulations as the Board may adopt,
enth such year in an amount equal to three-fourths
be reduced by 25 per centum during the first year
of that otherwise required, and during the twelfth
which begins after such effective date, 50 per cen­
such year in an amount equal to seven-eighths of
tum during the second year, and 75 per centum
during the third year.
that otherwise required.
(D)(i) Any bank which was a member
(9) Exemption. This subsection shall not apply
bank on July 1, 1979, and which withdraws from
with respect to any financial institution which—
membership in the Federal Reserve System during
(A) is organized solely to do business
the period beginning on July 1, 1979, and ending
with other financial institutions;
on the day before the date of enactment of the De­
(B) is owned primarily by the financial
pository Institutions Deregulation and Monetary
institutions with which it does business; and
Control Act of 1980, shall maintain reserves begin­
(C) does not do business with the general
ning on such date of enactment in an amount equal
public.
to the amount of reserves it would have been re­
(10) W aivers. In individual cases, where a
quired to maintain if it had been a member bank on
Federal supervisory authority waives a liquidity re­
such date of enactment. After such date of enact­
quirement, or waives the penalty for failing to sat­
ment, any such bank shall maintain reserves in the
isfy a liquidity requirement, the Board shall waive
same amounts as member banks are required to
the reserve requirement, or waive the penalty for
maintain under this subsection, pursuant to subpara­
failing to satisfy a reserve requirement, imposed
graphs (B) and (C)(i).
pursuant
(ii)
Any bank which withdraws from to this subsection for the depository insti­
tution involved when requested by the Federal su­
membership in the Federal Reserve System on or
pervisory authority involved.
after the date of enactment of the Depository Insti­
tutions Deregulation and Monetary Control Act of
(c)(1) Reserves held by a depository institu­
1980 shall maintain reserves in the same amount as
tion to meet the requirements imposed pursuant to
subsection (b) shall, subject to such rules and regu­
member banks are required to maintain under this

STATUTORY APPENDIX

lations as the Board shall prescribe, be in the form
o f—

REGULATION D

( 0 The required balance carried by a member
bank with a Federal Reserve Bank may, under the
regulations and subject to such penalties as may be
prescribed by the Board of Governors of the Fed­
eral Reserve System, be checked against and with­
drawn by such member bank for the purpose of
meeting existing liabilities.

(A) balances m aintained for such pur­
poses by such depository institution in the Federal
Reserve Bank of which it is a member or at which
it maintains an account, except that (i) the Board
may, by regulation or order, permit depository in­
stitutions to maintain all or a portion of their re­
[U.S.C., title 12, sec. 464.|
quired services in the form of vault cash, except
(g)
In estimating the reserve balances required
that any portion so permitted shall be identical for
by this Act, member banks may deduct from the
all depository institutions, and (ii) vault cash may
amount of their gross demand deposits the amounts
be used to satisfy any supplemental reserve require­
of balances due from other banks (except Federal
ment imposed pursuant to subsection (b)(4), except
Reserve Banks and foreign banks) and cash items
that all such vault cash shall be excluded from any
in process of collection payable immediately upon
computation o f earnings pursuant to subsection
presentation in the United States, within the mean­
(b)(4)(C); and
ing of these terms as defined by the Board of Gov­
(B) balances maintained by a depository
ernors of the Federal Reserve System.
institution which is not a member bank in a deposi­
tory institution which maintains required reserve
(U.S.C., title 12, see. 465.)
balances at a Federal Reserve Bank, in a Federal
Section 11 of the Federal Reserve Act provides, in
Home Loan Bank, or in the National Credit Union
part, as follows:
Administration Central Liquidity Facility, if such
depository institution, Federal Home Loan Bank, or
The Board of Governors of the Federal Reserve
National Credit Union Administration Central Li­
System shall be authorized and empowered:
quidity Facility maintains such funds in the form of
* * * * %
balances in a Federal Reserve Bank of which it is a
member or at which it maintains an account. Bal­
(c)
To suspend for a period not exceeding thirty
ances received by a depository institution from a
days, and from time to time to renew such suspen­
second depository institution and used to satisfy the
sions for periods not exceeding fifteen days, any
reserve requirement imposed on such second depos­
reserve requirements specified in this Act.
itory institution by this section shall not be subject
(U.S.C., title 12, sec. 248<c).|
to the reserve requirements of this section imposed
on such first depository institution, and shall not be
* * * * *
subject to assessments or reserves imposed on such
first depository institution pursuant to section 7 of
(e)
To add to the number of cities classified as
the Federal D eposit Insurance Act (12 U .S.C .
reserve cities under existing law in which national
1817), section 404 of the National Housing Act (12
banking associations are subject to the reserve re­
U.S.C. 1727), or section 202 of the Federal Credit
quirements set forth in section [nineteen] of this
Union Act (12 U.S.C. 1782).
Act; or to reclassify existing reserve cities or to ter­
(2)
The balances maintained to meet the re­
minate their designation as such.
serve requirements of subsection (b) by a deposi­
IU.S.C., title 12, sec. 248(e).!
tory institution in a Federal Reserve Bank or passed
through a Federal Home Loan Bank or the National
* * * * *
Credit Union Administration Central Liquidity Fa­
cility or another depository institution to a Federal
Section 25 of the Federal Reserve Act provides, in
Reserve Bank may be used to satisfy liquidity re­
part, as follows:
quirements which may be imposed under other pro­
1. Capital and surplus required to exercise powers
visions of Federal or State law.
IU.S.C., tide 12, sec. 461.]

* * * * *

Sec. 25. Any national banking association pos­
sessing a capital and surplus of $1,000,000 or more
may file application with the Board of Governors

REGULATION D

of the Federal Reserve System for permission to
exercise, upon such conditions and under such reg­
ulations as may be prescribed by the said board,
the following powers:
[U.S.C., title 12, sec. 601.]

Section 25(a) of the Federal Reserve Act provides,
in part, as follows:
6. Banking powers

(a) To purchase, sell, discount, and negotiate,
with or without its indorsement or guaranty, notes,
drafts, checks, bills of exchange, acceptances, in­
cluding bankers’ acceptances, cable transfers, and
other evidences of indebtedness; to purchase and
sell with or without its indorsement or guaranty, se­
curities, including the obligations of the United
States or of any State thereof but not including
shares of stock in any corporation except as herein
provided; to accept bills or drafts drawn upon it
subject to such limitations and restrictions as the
Board of Governors of the Federal Reserve System
may impose; to issue letters of credit; to purchase
and sell coin, bullion, and exchange; to borrow and
to lend money; to issue debentures, bonds, and
promissory notes under such general conditions as
to security and such limitations as the Board of
Governors of the Federal Reserve System may pre­
scribe; to receive deposits outside of the United
States and to receive only such deposits within the
United States as may be incidental to or for the
purpose of carrying out transactions in foreign
countries or dependencies or insular possessions of
the United States; and generally to exercise such
powers as are incidental to the powers conferred by
this Act or as may be usual, in the determination of
the Board of Governors of the Federal Reserve Sys­
tem, in connection with the transaction of the busi­
ness of banking or other financial operations in the
countries, colonies, dependencies, or possessions in
which it shall transact business and not inconsistent
with the powers specifically granted herein. Noth­
ing contained in this section shall be construed to
prohibit the Board of Governors of the Federal Re­
serve System, under its power to prescribe rules
and regulations, from limiting the aggregate amount
of liabilities of any or all classes incurred by the
corporation and outstanding at any one time.
Whenever a corporation organized under this sec­
tion receives deposits in the United States autho­
rized by this section it shall carry reserves in such
amounts as the Board of Governors of the Federal

STATUTORY APPENDIX

Reserve System may prescribe for member banks
of the Federal Reserve System.
[U.S.C., title 12, sec. 615 ]

Section 7 of the International Banking Act of 1978
provides, in part, as follows:
Sec. 7. (a)(1)(A) Except as provided in para­
graph (2) of this subsection, subsections (a), (b),
(c), (d), (f), (g), (i), (j)> 0 0 . and the second sen­
tence of subsection (e) of section 19 of the Federal
Reserve Act shall apply to every Federal branch
and Federal agency of a foreign bank in the same
manner and to the same extent as if the Federal
branch or Federal agency were a member bank as
that term is defined in section 1 of the Federal Re­
serve Act; but the Board either by general or spe­
cific regulation or ruling may waive the minimum
and maximum reserve ratios prescribed under sec­
tion 19 of the Federal Reserve Act and may pre­
scribe any ratio, not more than 22 per centum, for
any obligation of any such Federal branch or Fed­
eral agency that the Board may deem reasonable
and appropriate, taking into consideration the char­
acter of business conducted by such institutions and
the need to maintain vigorous and fair competition
between and among such institutions and member
banks. The Board may impose reserve requirements
on Federal branches and Federal agencies in such
graduated manner as it deems reasonable and ap­
propriate.
(B)
After consultation and in cooperation
with the State bank supervisory authorities, the
Board may make applicable to any State branch or
State agency any requirement made applicable to,
or which the Board has authority to impose upon,
any Federal branch or agency under subparagraph
(A) of this paragraph.
(2)
A branch or agency shall be subject to this
subsection only if (A) its parent foreign bank has
total worldwide consolidated bank assets in excess
of $1,000,000,000; (B) its parent foreign bank is
controlled by a foreign company which owns or
controls foreign banks that in the aggregate have
total worldwide consolidated bank assets in excess
of $1,000,000,000; or (C) its parent foreign bank is
controlled by a group of foreign companies that
own or control foreign banks that in the aggregate
have total worldwide consolidated bank assets in
excess of $1,000,000,000.
[U.S.C., tide 12, sec. 3105.]

In determining the fee schedule, the Board must
price explicitly all services covered by the fee schedule, and
must price all services covered by the fee schedule to non­
member depository institutions at the same fee schedule
applicable to member banks. However, nonmembers may
be required to hold balances sufficient for clearing purposes
and may be subject to any other terms that the Board
applies to member banks.

PHASE-OUT OF
INTEREST RATE CEILINGS
The Act provides for the orderly phase-out o f limi­
tations on the maximum rates of interest and dividends that
may be paid on deposits. A Depository Institutions Deregu­
lation Committee—
with the Secretary of the Treasury,
Chairman of the Federal Reserve Board, Chairman o f the
Board o f Directors of the Federal Deposit Insurance Cor­
poration, Chairman o f the Federal Home Loan Bank Board,
and Chairman of the National Credit Union Administration,
as voting members, and Comptroller of the Currency as a
non-voting member— required to meet at least quarterly
is
in order to achieve the phase-out.

POWERS OF
DEPOSITOR Y INSTITUTIONS

Thrift Institutions
The Act also authorizes various new investment
authorities for federally chartered savings and loan associ­
ations and permits them to offer credit card services and to
exercise trust and fiduciary powers; expands authority to
make real estate loans; authorizes Federal mutual savings
banks to make commercial, corporate and business loans,
subject to limitations, and to accept demand deposits in
connection with a commercial, corporate, or business loan
relationship; and in other ways expands the powers o f thrift
institutions.

FOR FURTHER INFORMATION

The
MONETARY
CONTROL
ACT

______________________________

o f 1980

For more detailed information about the Act and
implementing regulations, a depository institution may
write to the Board of Governors o f the Federal Reserve
System or to its District Reserve Bank. Press releases will
be issued in connection with proposals and final action on
the provisions o f the Act. If your institution has not been
receiving such releases, please ask your District Bank to
add your name to its mailing list.
In mid-September, Reserve Banks will begin a series
o f meetings with depository institutions to familiarize them
with the new regulations and procedures.

General
The Act authorizes banks to continue to provide
automatic transfer services from savings to checking ac­
counts; authorizes savings and loan associations to establish
remote service units to credit and debit savings accounts,
or credit payments on loans, and provide related financial
transactions; and authorizes federally insured credit unions
to offer share draft accounts.
The Act also extends nationwide the authority for
depository institutions to offer NOW accounts, effective
December 31,1 9 8 0 . NOW accounts may consist solely o f
funds in which the entire beneficial interest is held by one
or more individuals or by an organization operated primar­
ily for religious, philanthropic, charitable, educational, or
other similar purposes and not operated for profit.
The insurance o f accounts o f federally insured banks,
savings and loan associations, and credit unions has been
increased from $40,000 to $100,000.

Federal Reserve Publication—August 15, 1980

The Monetary Control A ct o f 1980 (P.L. 96-221),
enacted on March 31, 1980, is designed to improve the
effectiveness o f monetary policy by applying new reserve
requirements set by the Federal Reserve Board to all de­
pository institutions. Among its other key provisions, the
A ct 1) authorizes the Federal Reserve to collect reports
from all depository institutions; 2) extends access to Fed­
eral Reserve discount and borrowing privileges and other
services to non-member depository institutions; 3) requires
the Federal Reserve to set a schedule offees for Federal Re­
serve services; and 4) provides for the gradual phase-out o f
deposit interest rate ceilings, coupled with broader powers
for thrift institutions.

WHO IS COVERED?
Uniform reserve requirements are imposed on
all depository institutions, including commercial banks,
savings banks, savings and loan associations, credit unions,
and industrial banks that have transaction accounts or
nonpersonal time deposits. Under the terms of the Inter­
national Banking Act o f 1978, the same reserve require­
ments will also be extended to U.S. agencies and branches
of foreign banks. The revised reserve requirement rules also
affect Edge Act and Agreement corporations.

REPORTING REQUIREMENTS
The Act requires all depository institutions to file
reports which the Board determines to be necessary or de­
sirable for the control or monitoring of the monetary and
credit aggregates. All reports are to be made directly to the
Federal Reserve.
The Board has deferred until May 1981 all reserve
requirements and reporting for institutions with total
deposits o f less than $1 million. The Board has also a­
dopted quarterly rather than weekly reporting and reserve
maintenance for institutions with total deposits of $1
million to $5 million. The quarterly reporting and mainte­
nance procedures will begin in January 1981. Reporting
forms, manuals, and other materials will be sent to quarterly
respondents later this year.
All other nonmember institutions will report de­
posits as o f October 30, 1980, and will begin maintaining
reserves on November 13,1980. Member banks will begin

phasing down their reserve requirements at that time also.
Reporting forms, manuals, and other materials will be
sent to these institutions within the next several weeks.

RESER VE REQUIREMENTS

The Board has also shortened the minimum maturity of
all time deposits to 14 days from the present 30 days.

Supplemental Reserves. Under certain conditions,
and after consultation with other depository institution
regulators, the Board is authorized to impose a supplemen­
tal reserve requirement o f not more than 4 percent on every
depository institution. Interest will be paid on supplemen­
tal reserves.

What Reserve Requirements are Established?
Transaction Accounts. The reserve requirement on
the first $25 million o f transaction accounts is 3 percent.
A reserve requirement o f 12 percent is established on that
portion of total transaction accounts above $25 million.
The Board is required to index the $25 million tranche an­
nually, beginning in 1982, at 80 percent o f increases or
decreases in transaction accounts of all depository insti­
tutions for the previous year.
Transaction accounts are defined to include demand
deposits, NOW accounts, ATS accounts, share draft accounts,
and accounts subject to telephone or pre-authorized transfer
when the depositor is authorized to make more than three
transfers per calendar m onth. Accounts that permit the de­
positor to make third party payments through automated
teller machines or remote service units are also covered.
Telephone and preauthorized transfers made to third parties
or to another deposit account of the same depositor are
counted toward the three permissible transfers per m onth;
telephone or preauthorized withdrawals paid directly to
the depositor are not. Further, a savings account is not
regarded as a transaction account merely because it permits
a depositor to make loan and associated payments to the
institution itself.

Nonpersonal Time Deposits. All depository insti­
tutions are required to maintain reserves against nonperson­
al time deposits (including savings deposits) with maturities
o f less than 4 years at a ratio o f 3 percent. Nontransferable
personal time deposits will not be subject to reserve require­
ments. Time deposits with maturities o f four years or more
are subject to a zero percent reserve ratio.
The Act defines a nonpersonal time deposit as any
time deposit or account that is transferable, or any time de­
posit or account held by a party other than a natural person.
Under the Board’s regulation, all time deposits issued to
natural persons prior to October 1, 1980 are to be re­
garded as personal time deposits even if they are transfer­
able. A time deposit issued on or after that date, to be a
personal time deposit, must be held by a natural person
and bear a statement indicating that it is not transferable.

Eurocurrency Reserve Requirements. The Board
has set a 3 percent reserve requirement on certain Eurocur­
rency activity, the same ratio as on nonpersonal time de­
posits. These are: net borrowings from related foreign
offices; gross borrowings from unrelated foreign depos­
itory institutions; loans to U.S. residents made by overseas
branches o f domestic depository institutions; and sales of
assets by depository institutions in the United States to
their overseas offices.
H ow Will Reserve R equirem ents be Phased In?
Larger nonmember institutions will begin posting
reserves on November 13, 1980; smaller institutions in early
January; reserve and reporting requirements have been
deferred for institutions with deposits o f less than $1
million until May 1981. Until November, member banks
will continue to post reserves under existing requirements.
The Board has proposed to phase in reserve requirement
provisions of the Act as follows:

Nonmember Institutions. The Act provides for an
eight-year phase-in period o f reserve requirements for non­
member banks and thrift institutions. During the first tenmonth period beginning in November 1980 the amount of
required reserves will be one-eighth of the full requirement
and will increase by one-eighth in September of each o f the
following 7 years. NOW accounts, other than those previ­
ously authorized in New England, New York and New Jersey,
will be subject immediately to the full reserve requirement
on transactions accounts.
Member Banks.Reserve requirements for member
banks on transaction accounts and time and savings de­
posits will be phased down by one-fourth of the difference
between the amount under the old and new reserve require­
ment structures on November 13, 1980; by an additional
one-eighth in September, 1981; and by an additional oneeighth at six-month intervals thereafter. To reduce report­
ing and processing burdens, reserve requirements on time