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Circular No. 70-15^4June 29j 1970

(Amendments to Regulations D and Q)

To All Member Banks
in the Eleventh Federal Reserve District:
The following is a press statement issued by the Board of
Governors of the Federal Reserve System on June 29, 1970, concerning
amendments to Regulations D and Q:
"The Board of Governors of the Federal Reserve System
today announced new conditions that must be met for a sub­
ordinated note or debenture issued by a member bank to be
exempt from interest rate controls (Regulation Q ) and re­
serve requirements (Regulation D).
"The new conditions, to become effective tomorrow
(Tuesday, June 30), are designed to distinguish clearly
between capital-type funds and deposit-type funds.
"Under the basic rule for new issues, in order for a
subordinated note to be exempt from Regulations Q and D it
must have an original maturity of 7 years or more and be in
an amount of at least $500- Certain statements, designed to
assure that an investor in such notes understands the nature
of his investment, must be included in each note. The issu­
ance of the notes must be approved by the bank’s primary
Federal bank supervisor.
"In exigent circumstances, the primary bank supervisor
may permit the issuance of nondeposit subordinated notes
with a maturity of less than 7 years.
"Formerly, the exemption from the regulations for sub­
ordinated notes applied if the maturity of the obligation
was more than 2 years. The changes became necessary in view
of recent evidence that member banks were able to market
exempt obligations to acquire deposit-type funds.
"Proposed changes in the Board's rules regarding sub­
ordinated notes were announced on March 2.
"These changes in the Board’s regulations were adopted
following extensive consideration by the Interagency Co-

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ordinating Committee— the Comptroller of the Currency, the
Chairman of the Federal Deposit Insurance Corporation, the
Chairman of the Federal Home Loan Bank Board, and the Vice
Chairman of the Board of Governors."
Copies of the amendments will be forwarded as soon as available.
Yours very truly,
P. E. Coldwell