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Federal Reser ve bank of Dallas DALLAS, TEXAS 75222 Circular No. 67-15 January 17, 1967 REVISION OF REGULATION D “RESERVES OF MEMBER BANKS” To All Member Banks in the Eleventh Federal Reserve District: There is enclosed a copy of Regulation D as amended effective January 1, 1967. This amended Regulation supersedes the present Regulation, as revised, in effect since July 28, 1962, and incorporates all outstanding amendments. The amendments which have been issued since July 28, 1962, are: (1) An amendment to Section 204.2(b) which became effec tive January 29, 1964. (2) An amendment to Section 204.1 which became effective September 1, 1966. (3) An amendment to Part 204 which became effective January 1, 1967. Please acknowledge receipt of the amended Regulation on the enclosed postal card and substitute it for the superseded Regulation in the ring binder furnished you for this purpose. The Supplement to Regulation D effective as to all member banks at the opening of busi ness on January 5, 1967, should be retained. Yours very truly, Watrous H. Irons President This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) BOARD OF GOVERNORS of the FEDERAL RESERVE SYSTEM RESERVES OF MEMBER BANKS REGULATION D (12 CFR 204) As amended effective January 1, 1967 IN Q U IR IE S W IT H R E S P E C T T O T H IS R E G U L A T IO N Any inquiry relating to this regulation should be addressed to the Federal Reserve Bank of the Federal Reserve district in which the inquiry arises. STATUTORY AUTHORITY This regulation is issued under authority of provisions of section 19 of the Federal Reserve Act (12 U.S.C. 461, 462, 464, 465) which, together with related provisions of law, are published in the Appendix hereto. CONTENTS Page S ec. 2 0 4 .3 .- D e f ic ie n c ie s (а) (б) (c) (d) A pp e n d ix in R e s e r v e s ................................................................... M M C O C O W C O to R e s e r v e s ................................................................. ifk of Amounts of reserves to be maintained.................... Deductions allowed in computing reserves ............ Availability of cash items as reserve ....................... Reserves against trust funds ..................................... Continuance of “time deposit” status ....................... 2 W S e c . 2 0 4 .2 . - C o m p u t a t i o n (а) (б) (c) (d) (e ) .................................................................................................. Demand deposits ............................................................ Time deposits .................................................................. Time certificates of deposit ......................................... Time deposits, open account ....................................... Savings deposits ............................................................ Deposits as including certain promissory notes . . . . Gross demand deposits ................................................. Cash items in process of collection ........................... Net demand deposits .............. .................................... Currency and coin ....................................................... Ul (а) (б) (c) (d) (e ) ( /) (g ) (h ) (i) (j) W e f in it io n s O ic n c n S ec. 2 0 4 .1 - D Computation of deficiencies ....................................... Penalties .......................................................................... Notice to directors of banks deficient in reserves . . Continued deficiencies .................................................. 6 6 ...................................................................................................................................... 8 R E G U L A T IO N D (12 CFR 204) As amended effective January 1, 1967 RESERVES OF MEMBER BANKS * SECTION 204.1— DEFINITIONS (a) Demand deposits.—The term “demand deposits” includes all deposits except “time deposits” as defined below. (b) Time deposits.—The term “time deposits” means “time certificates of deposits,” “time deposits, open account” and “savings deposits,” as defined below. (c) Time certificates of deposit.—The term “time certificate of deposit” means a deposit evidenced by a negotiable or nonnegotiable instrument which provides on its face that the amount of such deposit is payable to bearer or to any specified person or to his order— (1) On a certain date, specified in the instrument, not less than 30 days after the date of deposit, or (2) At the expiration of a certain specified time not less than 30 days after the date of the instrument, or (3) Upon notice in writing which is actually required to be given not less than 30 days before the date of repayment,1 and (4) In all cases only upon presentation and surrender of the instrument. (d ) Time deposits, open account.— The term “time deposit, open account” means a deposit, other than a “time certificate of deposit”, with respect to which there is in force a written contract with the depositor that neither the whole nor any part of such deposit may be withdrawn, by check or otherwise, prior to the date of maturity, which shall be not less than 30 days after the date of the deposit,2 or prior to the expiration of the period * T h e te x t co rresponds to th e Code of F e d e ra l R egulations, T itle 12, C h ap ter II, P a r t 204; cited a s 12 C F R 204. T h e w ords “ th is p a r t ” , a s used h erein , m ean R egulation D. 1 A dep o sit w ith re sp ec t to w hich the b a n k m erely reserves th e rig h t to re q u ire n o tice of no t less th a n 30 days befo re a n y w ith d ra w a l is m ade is n o t a “ tim e certificate of dep osit” . 2 D eposits, such as C h ristm as club accounts a n d v acatio n club accounts, w hich a re m ade u n d e r w ritte n c o n tra c ts p ro v id in g th a t n o w ith d ra w a l shall b e m ad e u n til a c e rta in n u m b er of periodic deposits h a v e been m ad e d u rin g a period o f n o t less th a n 3 m o n th s co n stitu te “ tim e deposits, open a cc o u n t” even th ou g h some o f th e deposits a re m ade w ith in 30 days fro m th e end of th e period. 1 2 REGULATION D § 204.1 of notice which must be given by the depositor in writing not less than 30 days in advance of withdrawal.3 ( e) Savings deposits.— The term “savings deposit” means a deposit— (1) which consists of funds deposited to the credit of one or more individuals, or of a corporation, association, or other organization operated primarily for religious, philanthropic, charitable, educational, fraternal, or other similar purposes and not operated for profit;4 or in which the entire beneficial interest is held by one or more individuals or by such a corpo ration, association, or other organization; and (2) with respect to which the depositor is not required by the deposit contract but may at any time be required by the bank to give notice in writing of an intended withdrawal not less than 30 days before such withdrawal is made 5 and which it not payable on a specified date or at the expiration of a speci fied time after the date of deposit. ( /) Deposits as including certain promissory notes.— For the purposes of this part, the term “deposits” shall be deemed to include any promissory note, acknowledgment of advance, due bill, or similar instrument that is issued by a member bank principally as a means of obtaining funds to be used in its bank ing business, except any such instrument (1) that is issued to another bank, (2) that evidences an indebtedness arising from a transfer of assets that the bank is obligated to repurchase, or (3) that has an original maturity of more than 2 years and states expressly that it is subordinated to the claims of depositors. This paragraph shall not, however, affect the status, for purposes of this part, of any instrument issued before June 27,1966. (g ) Gross demand deposits.—The term “gross demand deposits” means the sum of all demand deposits, including 3 A deposit w ith re sp ec t to w hich th e b a n k m erely reserves th e rig h t to re q u ire notice o f n o t less th a n 30 days b e fo re a n y w ith d ra w a l is m ade is n o t a “ tim e deposit, open acc o u n t” , w ith in th e m e a n in g of th e above definition. 4 D eposits in jo in t a cco u n ts o f tw o o r m o re individuals m ay be classified as sav ings deposits if th e y m eet th e o th e r re q u ire m e n ts o f th e above definition, b u t deposits o f a p a rtn e rs h ip o p e ra te d fo r p ro fit m ay n o t be so classified. D eposits to th e cred it o f a n individual of fu n d s in w hich a n y beneficial in te re s t is held by a c o rp o ratio n , p a rtn e rs h ip , association, o r o th e r o rg a n iz a tio n o p e ra te d fo r p ro fit or n o t o p e ra te d p rim a rily fo r religious, p h ila n th ro p ic, c h a r ita ble, educational, fr a te rn a l, o r o th e r sim ilar pu rp o ses m ay n o t be classified as sav ings deposits. 5 T h e exercise by th e b a n k o f its rig h t to re q u ire such notice shall n o t cause th e deposit to cease to be a sav ings deposit. 204.1-204.2 REGULATION D 3 demand deposits made by other banks, the United States, States, counties, school districts and other governmental subdivisions and municipalities, and all outstanding certified and officers’ checks (including checks issued by the bank in payment of dividends), and letters of credit and travelers’ checks sold for cash. ( h ) Cash items in process of collection. —The term “cash items in process of collection” means: (1) Checks in process of collection, drawn on a bank, private bank, or any other banking institution, which are pay able immediately upon presentation in the United States, including checks with a Federal Reserve bank in process of collection and checks on hand which will be presented for payment or forwarded for collection on the following business day; (2) Government checks and warrants drawn on the Treas urer of the United States which are in process of collection; (3) Such other items in process of collection, payable im mediately upon presentation in the United States, as are customarily cleared or collected by banks as cash items. Items handled as noncash collections may not be treated as “cash items in process of collection” within the meaning of this part. (i ) Net demand deposits.— The term “net demand deposits” means gross demand deposits as defined in paragraph (g ) of this section less the deductions allowed under the provisions of §204.2 (b). (j) Currency and coin.—The term “currency and coin” means United States currency and coin owned and held by a member bank, including currency and coin in transit to or from a Federal Reserve bank. S E C T IO N 204.2— C O M P U T A T IO N O F R E S E R V E S (a) Amounts of reserves to be maintained.— (1) Every mem ber bank shall maintain on deposit with the Federal Reserve bank of its district an actual net balance equal to 3 per cent of its time deposits, plus 7 per cent of its net demand deposits if it is not located in a reserve city or 10 per cent of its net demand deposits if it is located in a reserve city, or such different per centages of its time deposits and net demand deposits as the Board of Governors of the Federal Reserve System, pursuant to and within the limitations contained in section 19 of the Federal 4 REGULATION D § 204.2 Reserve Act, may prescribe from time to time in § 204.5 (the Supplement to this part); Provided, That a member bank’s currency and coin shall be counted as reserves in determining compliance with such requirements to such extent as the Board of Governors of the Federal Reserve System, pursuant to section 19 of the Federal Reserve Act, may permit from time to time in § 204.5. (2) Notwithstanding the provisions of subparagraph (1) of this paragraph, a member bank located in a reserve city may hold and maintain the reserve balances which are in effect for member banks not located in reserve cities if, upon application to the Board of Governors, the Board grants permission for the holding and maintaining of such lower reserve balances after consideration of all factors relating to the character of such bank’s business, including but not limited to, the amount of such member bank’s total assets, the amount of its total deposits, the amount of its total demand deposits, the amount of its demand deposits owing to banks, the nature of its depositors and borrowers, the rate of activity of its demand deposits, its geographical location within the city, and its competitive posi tion with relation to other banks in the city. Any such per mission shall be subject to revocation by the Board at any time in the light of changed circumstances, and all such grants of per mission may be subject to annual review by the Board. (3) For the purposes of this part, a member bank shall be considered to be in a reserve city if the head office or any branch thereof is located in a reserve city. ( b) Deductions allowed in computing reserves.— In determin ing the reserve balances required under the terms of this part, member banks may deduct from the amount of their gross demand deposits the amounts of balances subject to immediate withdrawal due from other banks and cash items in process of collection as defined in § 204.1 ( h ) . Balances “due from other banks” do not include balances due from Federal Reserve banks, balances (payable in dollars or otherwise) due from foreign banks or branches thereof wherever located, or balances due from foreign branches of domestic banks.6 * A m em b er b a n k ex ercisin g fiduciary pow ers m a y n o t include in balances “ due fro m o th e r b a n k s ” a m o u nts o f tr u s t fu n d s deposited w ith o th e r b a n k s a n d due to it as tru s te e o r o th e r fiduciary. I f tr u s t fu n d s a re deposited by th e tr u s t d e p a r tm e n t o f a m em ber b a n k in its com m ercial o r sav ings d e p a rtm e n t a n d a re th e n redeposited in a n o th e r ban k su b jec t to im m ediate w ith d ra w a l th ey m a y be included by th e m em ber b a n k in balan ces “ due fro m o th e r b a n k s,” s u b jec t to th e pro v isio ns o f § 204.2 ( b ) . § 204.2-204.3 REGULATION D 5 (c) Availability of cash items as reserve.— Cash items for warded to a Federal Reserve bank for collection and credit cannot be counted as part of the minimum reserve balance to be carried by a member bank with its Federal Reserve bank until the expiration of such time as may be specified in the appro priate time schedule referred to in part 210 of this chapter. If a member bank draw against items before such time, the draft will be charged against its reserve balance if such balance be sufficient in amount to pay it; but any resulting impairment of reserve balances will be subject to the penalties provided by law and by this part: Provided, hoivever, That the Federal Reserve bank may, in its discretion, refuse at any time to permit the with drawal or other use of credit given in its reserve account for any item for which the Federal Reserve bank has not received payment in actually and finally collected funds. (d) Reserves against trust funds.—A member bank exercising trust powers need not maintain reserves against trust funds which 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, however, such funds are mingled with the general assets of the bank, a deposit liability thereby arises against which reserves must be maintained. ( e ) Continuance of “time deposit” status.—A deposit which at the time of deposit was a “deposit evidenced by a time certifi cate of deposit,” “time deposit, open account,” or “savings deposit” continues to be a “time deposit” until maturity or the expiration of the period of notice of withdrawal, although it has become payable within 30 days. After the date of maturity of any time deposit, such deposit is a demand deposit. After the expira tion of the period of notice given with respect to the repayment of any savings deposit or other time deposit, such deposit is a demand deposit, except that, if the owner of such deposit advise the bank in writing that the deposit will not be withdrawn pur suant to such notice or that the deposit will thereafter again be subject to the contract or requirements applicable to such deposit, the deposit will again constitute a savings deposit or other time deposit, as the case may be, after the date upon which such advice is received by the bank. SECTION 204.3— DEFICIENCIES IN RESERVES (a) Computation of deficiencies.— (1) Deficiencies in reserve balances of member banks in reserve cities shall be computed on 6 REGULATION D § 204.3 the basis of average daily net deposit balances and average daily currency and coin covering weekly periods.7 Deficiencies in re serve balances of other member banks shall be computed on the basis of average daily net deposit balances and average daily currency and coin covering biweekly periods. (2) In computing such deficiencies the required reserve bal ance of each member bank at the close of business each day shall be based upon its net deposit balances and currency and coin at the opening of business on the same day; and the weekly and biweekly periods referred to in subparagraph (1) hereof shall end at the close of business on days to be fixed by the Federal Reserve banks with the approval of the Board of Governors of the Federal Reserve System. When, however, the reserve computation period ends with a nonbusiness day, or two or more consecutive non business days, of the member bank or its Federal Reserve bank, such nonbusiness day or days may, at the option of the member bank, and whether or not it had a reserve deficiency in such com putation period, be included in the next reserve computation period. ( b ) Penalties. — (1) Penalties for such deficiencies will be as sessed monthly on the basis of average daily deficiencies during each of the reserve computation periods ending in the preceding calendar month. (2) Such penalties will be assessed at a rate of 2 per cent per annum above the Federal Reserve bank rate applicable to discounts of 90-day commercial paper for member banks, in effect on the first days of the calendar month in which the deficiences occurred. (c) Notice to directors of banks deficient in reserves.—When ever it shall appear that a member bank is not paying due regard to the maintenance of its reserves, the Federal Reserve bank shall address a letter to each director of such bank calling attention to the situation and advising him of the requirements of the law and of this part regarding the maintenance of reserves. ( d ) Continued deficiencies.—If, after the notice provided for in paragraph (c) of this section has been given, it shall appear 7 H ow ever, deficiencies in reserv e b alances of m e m b e r b a n k s in reserv e cities w hich have been auth o rized by th e B o ard o f Governors, u n d e r th e pro v isio n s o f § 2 0 4 .2(a) (2 ) , to hold a n d m a in ta in th e reserve b alances in effect fo r m em ber b a n k s n o t in re serv e cities will be com puted on th e basis p rovided fo r such la tte r m em ber b anks. § 204.3 REGULATION D 7 that the member bank is continuing its failure to pay due regard to the maintenance of its reserves, the Federal Reserve bank shall report such fact to the Board of Governors of the Federal Re serve System with a recommendation as to whether or not the Board should: (1) In the case of a national bank, direct the Comptroller of the Currency to bring suit to forfeit the charter of such national bank pursuant to section 2 of the Federal Reserve Act (38 Stat. 252; 12 U.S.C. 501a); or (2) In the case of a State member bank, institute proceed ings to require such bank to surrender its stock in the Federal Reserve bank and to forfeit all rights and privileges of mem bership pursuant to section 9 of the Federal Reserve Act (46 Stat. 251; 12 U.S.C. 327); or (3) In either case, take such other action as the Federal Reserve bank may recommend or the Board of Governors of the Federal Reserve System may consider advisable. (S E C T IO N 204.5— S U P P L E M E N T , c o n ta in in g re s e rv e p e rc e n ta g e s a n d use of v a u lt ca sh in m e e tin g re se rv e re q u ire m e n ts, is p rin te d s e p a ra te ly .) 8 REGULATION D APPENDIX STATUTORY PROVISIONS Section 19 of the Federal Reserve Act (12 U.S.C. 461, 462, 464, 465) provides in part as follows: (a) The Board is authorized for the purposes of this section to define the terms used in this section, to determine what shall be deemed a payment of interest, and to prescribe such regulations as it may deem necessary to effectuate the purposes of this section and to prevent evasions thereof. (b) Every member bank shall maintain reserves against its deposits in such ratios as shall be determined by the affirmative vote of not less than four members of the Board within the follow ing limitations: (1) In the case of any member bank in a reserve city, the minimum reserve ratio for any demand deposit shall be not less than 10 per centum and not more than 22 per centum, except that the Board, either in individual cases or by regulation, on such basis as it may deem reasonable and appropriate in view of the character of business transacted by such bank, may make applicable the reserve ratios 'prescribed for banks not in re serve cities. (2) In the case of any member bank not in a reserve city, the minimum reserve ratio for any demand deposit shall be not less than 7 per centum and not more than 14 per centum. (3) In the case of any deposit other than a demand deposit, the minimum reserve ratio shall be not less than 3 per centum and not more than 10 per centum. (c) Reserves held by any member bank to meet the require ments imposed pursuant to subsection (b) of this section shall be in the form of— (1) balances maintained for such purpose by such bank in the Federal Reserve bank of which it is a member, and (2) the currency and coin held by such bank, or such part thereof as the Board may by regulation prescribe. * * * * * (f) 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 REGULATION D 9 of the Federal Reserve System, be checked against and withdrawn by such member bank for the purpose of meeting existing liabilities. (g) In estimating the reserve balances required by this Act, member banks may deduct from the amount of their gross de mand deposits the amounts of balances due from other banks (except Federal Reserve banks and foreign banks) and cash items in process of collection payable immediately upon presentation in the United States, within the meaning of these terms as defined by the Board of Governors of the Federal Reserve System. [The provisions of section 19 as set forth above became eifective by Act of September 21, 1966 (80 Stat. 823). That Act provides that one year from the date of its enactment, each provision of law amended by it is further amended to read as immediately before its enactment. On September 20, 1966, the relevant provisions of section 19 read as follows: The Board of Governors of the Federal Reserve System is authorized for the purposes of this section, to define the terms “demand deposits”, “gross demand deposits”, “deposits payable on demand”, “time deposits” , “ savings deposits”, and “trust funds”, to determine what shall be deemed to be a pay ment of interest, and to prescribe such rules and regulations as it may deem necessary to effectuate the purposes of this section and prevent evasions thereof: Provided, That, within the meaning of the provisions of this section regarding the reserves required of member banks, the term “time deposits” shall include “savings deposits”. Every bank, banking association, or trust company which is or which becomes a member of any Federal Reserve bank shall establish and maintain reserve balances with its Federal Reserve bank as follows: (a) If not in a reserve city, as now or hereafter defined, it shall hold and maintain with the Federal Reserve bank of its district an actual net balance equal to not less than seven per centum of the aggregate amount of its demand deposits and three per centum of its time deposits. (b) If in a reserve city, as now or hereafter defined, it shall hold and maintain with the Federal Reserve bank of its district an actual net balance equal to not less than ten per centum of the aggregate amount of its demand deposits and three per centum of its time deposits. Notwithstanding the other provisions of this section (1) the Board of Governors, under such regulations as it may prescribe, may permit member banks to count all or part of their currency and coin as reserves required under this section; and (2) a member bank in a reserve city may hold and maintain the reserve balances which are in effect under this section for member banks described in paragraph (a ), if permission for the holding and maintaining of such lower reserve balances is granted by the Board of Governors of the Federal Reserve System, either in individual cases or under regulations of the Board, on such basis as the Board may deem reason able and appropriate in view of the character of business transacted by the member bank. 10 REGULATION D Notwithstanding the other provisions of this section, the Board of Gov ernors of the Federal Reserve System, upon the affirmative vote of not less than four of its members, in order to prevent injurious credit expansion or contraction, may by regulation change the requirements as to reserves to be maintained against demand or time deposits or both (1) by member banks in reserve cities, (2) by member banks not in reserve cities, or (3) by all member banks; but the amount of the reserves required to be maintained by any such member bank as a result of any such change shall not be less than the amount of the reserves required by law to be maintained by such bank nor more than twice such amount, except that in the case of member banks in reserve cities the maximum amount of reserves which may be required to be maintained against demand deposits shall be 22 per centum. 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 Federal Reserve System, be checked against and withdrawn by such member bank for the purpose of meeting existing liabilities. In estimating the reserve balance required by this Act, member banks may deduct from the amount of their gross demand deposits the amounts of balances due from other banks (except Federal Reserve banks and foreign banks) and cash items in process of collection payable immediately upon presentation in the United States, within the meaningof these terms as defined by the Board of Governors of the Federal Reserve System. # s fe jfc sH s fc Notwithstanding the provisions of the First Liberty Bond Act, as amended, the Second Liberty Board Act, as amended, and the Third Liberty Bond Act, as amended, member banks shall be required to maintain the same reserves against deposits of public moneys by the United States as they are required by this section to maintain against other deposits: Pro vided, That until six months after the cessation of hostilities in the present war as determined by proclamation of the President or concurrent resolution of the Congress no deposit payable to the United States by any member bank arising solely as the result of subscriptions made by or through such member bank for United States Government securities issued under authority of the Second Liberty Bond Act, as amended, shall be subject to the reserve requirements of this section.] Section 11 of the Federal Reserve Act (38 Stat. 262, as amended; 12 U.S.C. 248) provides in part as follows: The Board of Governors of the Federal Reserve System shall be authorized and empowered: * * * (c) To suspend for a period not exceeding thirty days, and from time to time to renew such suspension for periods not exceeding fifteen days, any reserve requirements specified in this Act: Provided, That it shall establish a graduated tax upon the amounts by which the reserve requirements of this Act may be permitted to fall below the level hereinafter specified * * *.
