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F ederal Reserve bank of DALLAS. TEXAS Dallas 75222 C ir c u la r N o. 78-106 A u g u s t 10, 1978 T R E A S U R Y T A X A N D LO A N I N V E S T M E N T P R O G R A M T O T H E C H IE F E X E C U T IV E O F F IC E R , EACH B A N K IN T H E E L E V E N T H F E D E R A L R E S E R V E D I S T R I C T : T h e T r e a s u r y D e p a r t m e n t has n o t i f ie d us t h a t im p le m e n ta tio n o f the T r e a s u r y T a x a n d Loan I n v e s t m e n t P r o g r a m w i l l p r o b a b l y b e g i n on T h u r s d a y , S e p t e m b e r 7 . E n c lo s e d f o r y o u r i n f o r m a t io n a r e S t a r t - U p P r o c e d u r e s c o n c e r n i n g th e p r o g r a m . A l s o , lis te d b e l o w a r e s e v e r a l q u e s tio n s a n d t h e i r a n s w e r s w h i c h w e r e p o se d a t v a r i o u s m e e t in g s in M a y o f t h i s y e a r . n e e d f u r t h e r e la b o r a t i o n on a n y o f the s u b j e c t s m e n t io n e d , p le a s e c a ll: S h o u ld y o u D a lla s O f fic e Jack A . C ly m e r o r T r u d y L a n p h ie r E x t . 6340 o r 6341 El Paso B r a n c h H o u s to n B r a n c h J e r r y S i Iv e y o r J o e l L . Koonce J am e s L o c k h a r t , O n e z ia D o n a ld s o n , (9 1 5 ) 5 4 4 -4 7 3 0 (7 1 3 ) 6 5 9 -4 4 3 3 S a n A n t o n io B r a n c h T o n y V a l e n c i a o r T h o m a s C . C o le o r S a m m ie C . C l a y 1. (5 1 2 ) 2 24 -2 14 1 Q u e s tio n : H o w w i l l the l i q u i d i t y r a t i o be c a lc u la t e d b y tho se b a n k s e le c t i n g t h e N o te O p tio n ? A n sw er: It is the o p in io n o f t h is B a n k a n d o t h e r s w h o h a v e b e e n c o n s u lt e d t h a t th e s e f u n d s w i l l be in c lu d e d in th e f o r m u la a s t h e y a r e n o w u n d e r th e p r e s e n t p r o g r a m . S in ce t h e s e f u n d s a r e o r i g i n a l l y d e p o s i t s , y o u w o u l d n o t c o n s i d e r them a s a loan in d e v e lo p in g y o u r b a n k 's liq u id ity . 2. Q u e s tio n : Is th e F e d F u n d s R a te b a s e d on a w e e k l y o r a m o n t h l y a v e r a g e ? A nsw er: T h e F ed F u n d s R a t e as p u b l i s h e d in th e F e d e r a l R e s e r v e B u l l e t i n is a n a v e r a g e w e e k l y r a t e ( T h u r s d a y t h r o u g h W e d n e s d a y ) . T h i s r a t e le s s 25 b a s is p o in ts w i l l b e a p p l i e d to the a p p r o p r i a t e a v e r a g e w e e k l y b a l a n c e in th e T r e a s u r y T a x a n d Loan N o te a c c o u n t s . 3. Q u e s tio n : W ill th e b a n k s be a b l e to u se th e F ed F u n d s R a t e p u b l i s h e d in th e W a ll Street Journal to m o n it o r the i n t e r e s t rate? A n sw er: In o r d e r t h a t the b a n k s c a n m o n it o r the r a t e , w e h a v e b e e n in f o r m e d t h a t th e W a ll Street Journal p u b l i s h e s th e s e r a t e s on F r i d a y o f e a c h w e e k , u n d e r th e c a p t io n " F e d e r a l R e s e r v e D a t a . " T h e r a t e s lis te d d a i l y u n d e r th e c a p t io n " F i n a n c i n g B u s i n e s s , " s u b c a p t io n " M o n e y R a t e s " is o n l y a s u r v e y o f N e w Y o r k b a n k s a n d m a y o r m a y n o t be a n in d ic a t io n o f the r a t e y o u w i l l be c h a r g e d . 4 Q u e s tio n : H o w w i l l d e p o s i t a r i e s u n d e r th e N o te O p t io n r e p o r t t h e s e b a l a n c e s on t h e i r " R e p o r t o f C o n d itio n " ? A nsw er: M e m b e r B a n k s - T h e s e b a la n c e s s h o u ld be a c c o u n t e d f o r in th e total in Item 2 9 , " O t h e r L i a b i l i t i e s . " A l s o , th e T r e a s u r y T a x a n d L oan n o te b a l a n c e w i l l b e d e t a ile d Banks and others are encouraged to use the following incoming W A T S numbers in contacting this Bank: 1-8 00 -4 9 2 -4 4 0 3 (intrastate) and 1 -8 00 -527 -497 0 (interstate). For calls placed locally, please use 651 plus the extension referred to above. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) - 2 in S c h e d u l e H N o . 8 , " A l l O t h e r . " O n D e c e m b e r 3 1 , 1 97 8, a r e v i s e d R e p o r t o f C o n d i t io n w i l l b e c o m p l e t e d , a n d th e s e b a la n c e s w i l l b e r e p o r t e d u n d e r Item 2 6 A , " I n t e r e s t B e a r i n g D e m a n d N otes Is s u e d to th e T r e a s u r y . " T e x a s a n d N e w M e x i c o N o n m e m b e r B a n k s - T h e y w i l l r e p o r t th e s e item s a s t h e y do u n d e r th e p r e s e n t s y s te m s in c e th e S t a te C o m m is s io n e r o f B a n k i n g in e a c h o f th e s e s ta te s h a s r u l e d t h a t the N o te A c c o u n t f o r n o n m e m b e r b a n k s w i l l s t il l b e c o n s id e r e d a dem and account. c a ll: S h o u ld y o u h a v e a n y q u e s t i o n s r e g a r d i n g t h i s r u l i n g , p le a s e T e x a s — A r c h ie C la y to n — (5 1 2 ) 4 7 5 -4 4 5 1 N e w M e x ic o — E d w a r d S t . P e t e r — (5 0 5 ) 8 2 7 -2 2 1 7 O k la h o m a a n d L o u is ia n a N o n m e m b e r B a n k s - T h e y w i l l r e p o r t th e s e b a l a n c e s as if t h e y w e r e loan s fro m th e T r e a s u r y . I f y o u h a v e a n y q u e s t i o n s , p le a s e c a ll : O k la h o m a — D o n a ld V a n H o r n — (4 0 5 ) 5 2 1 -2 7 8 2 L o u is ia n a — J i m m y W h i t t in g t o n - - (5 0 4 ) 9 2 5 -4 6 6 0 Q u e s tio n : D oes a n o n m e m b e r b a n k s t il l h a v e r e s e r v e r e q u i r e m e n t s o n th e N o te A co u nt? A n sw er: 5. T e x a s a n d N e w M e x ic o - Y E S . T h e S t a te C o m m is s io n e r o f B a n k i n g h as r u l e d t h a t th e s e d e p o s it s a r e d e m a n d a c c o u n t s a n d r e s e r v e s a r e r e q u i r e d . S h o u ld y o u h a v e a n y q u e s t i o n s , p le a s e c a ll th e n u m b e r lis te d a b o v e f o r y o u r s ta te . O k la h o m a a n d L o u is ia n a - N O . a n d no r e s e r v e s a r e r e q u i r e d . T h e fu n d s a r e c o n s i d e r e d lo a n s f r o m th e T r e a s u r y S h o u ld y o u h a v e a n y q u e s t i o n s , p le a s e c a ll th e n u m b e r li s t e d a b o v e f o r y o u r s ta te . 6. Q u e s tio n : W h y d o e s n 't th e F D IC c o n s i d e r the N o te A c c o u n t a tim e o r d e m a n d d e p o s it a n d a llo w c o v e r a g e r e g a r d i n g c o l la t e r a l? A n sw er: T h e F D IC c o n s i d e r s th e s e d e p o s it s to be b o r r o w e d f u n d s a f t e r 24 h o u r s a n d , t h e r e f o r e , no c o v e r a g e is a l l o w e d . S h o u ld y o u h a v e q u e s t i o n s r e g a r d i n g t h is r u l i n g , p le a s e c a ll C h a r l e s P i c k e t t , R e g io n a l C o u n s e l - F D I C , a t (2 1 4 ) 7 4 9 - 7 6 9 1 . 7. Q u e s tio n : W ill th e B o a r d o f G o v e r n o r s o f the F e d e r a l R e s e r v e S y s te m e l i m i n a t e r e s e r v e r e q u i r e m e n t s on th e N o te A c c o u n t f o r m e m b e r b an k s? A n sw er: A m e n d m e n ts to R e g u la t i o n s D a n d Q w e r e d i s t r i b u t e d J u n e 7 , 1 9 7 8 . T h e y p r o v id e d that b a la n c e s in th e N o te A c c o u n t s w i l l no t be r e g a r d e d as d e p o s it s s u b j e c t to r e s e r v e r e q u i r e m e n t s ( R e g u la t io n D ) o r s u b j e c t to i n t e r e s t r a t e li m it a t io n ( R e g u la t io n Q ) . It s h o u ld b e n o te d t h a t f u n d s d e p o s it e d in T T & L a c c o u n t s r e t a i n t h e i r s ta tu s a s d e m a n d d e p o s it s u n t i l t h e y a r e in v e s t e d in the n o te o b lig a t i o n s o f t h e d e p o s i t a r y b a n k o r r e m it t e d to th e T r e a s u r y . 8. Q u e s tio n : H o w w i l l m e m b e r b a n k s w h o r e p o r t w e e k l y on th e " R e p o r t o f C o n d i t io n " in d ic a t e n o te b a la n c e s ? A n sw er: T h i s total w i l l b e i n d ic a t e d in Item N o . 1 1 , " O t h e r L i a b i l i t i e s . - 3 9. Q u e s tio n : W i ll s ta te w a r r a n t s be a c c e p t a b le p a y m e n t o f t a x e s c o l le c t e d f r o m th e v a r i o u s s ta te offices? A nsw er: Y E S , t h e y a r e a c c e p t a b le , b u t a d e p o s i t a r y a c c e p t s them a t t h e i r o w n c h o o s in g s in c e t h e y a r e n o t r e q u i r e d to a c c e p t a n y c h e c k n o t d r a w n on t h e m s e lv e s . 1 0. Q u e s tio n : A nsw er: W h a t a r e th e r a m if ic a t io n s o f a b a n k a c c e p t in g a c h e c k n o t d r a w n o n i t s e l f in p a y m e n t o f F e d e r a l taxes? B a n k s s h o u ld be a w a r e t h a t w h e n e v e r t h is t y p e o f p a y m e n t is a c c e p t e d , t h e y w i l l i n c u r t h e f lo a t a n d w i l l a ls o b e g i n p a y i n g i n t e r e s t on th e s e f u n d s , s h o u ld t h e y e le c t th e N o te O p t i o n . U n d e r th e R e m itt a n c e O p t i o n , th e f u n d s c o u l d p r o b a b l y b e w i t h d r a w n fr o m th e T r e a s u r y T a x a n d Loan a c c o u n t b e f o r e th e c h e c k h as b ee n c o l l e c t e d . 1 1. Q u e s tio n : In r e f e r e n c e to r e i m b u r s e m e n t f o r F e d e r a l ta x d e p o s it t r a n s a c t i o n s , w i l l th e m o n t h l y s ta te m e n ts m a ile d on th e 2 0th o f th e f o l l o w i n g m o n th r e f l e c t th e n u m b e r o f c a r d s h a n d le d a n d th e total in c o m e f o r the c y c le ? A n sw er: Q u e s tio n : Is n e x t d a y d e l i v e r y o f a d v i c e s m a n d a t o r y f o r R e m itt a n c e O p t io n b an k s? A n sw er: 12. YES. Y E S . R e m itt a n c e O p t io n 1 — T h e d e l i v e r y r e q u i r e m e n t is v e r y s t r i n g e n t f o r th is c la s s o f b a n k s s in c e c o n t in u a l la te d e p o s it s w i l l f o r c e th e b a n k in to th e N o te O p t i o n . NO. R e m itt a n c e O p t io n 2 — T h e d e l i v e r y r e q u i r e m e n t in t h is c la s s is less s t r i c t . L a te fee s on d e l a y e d d e p o s it s w i l l be u s e d to n e t o u t F e d e r a l ta x d e p o s it fe e s d u e to th e d e p o s i t a r y . T h e b a n k w i l l n o t be f o r c e d in to th e N o te O p t io n i f t h e y a r e c o n t i n u a l l y la te . If a b a n k f e e ls t h a t it c a n m e e t the d e l i v e r y r e q u i r e m e n t b y s e n d in g t h e i r a d v ic e s o f c r e d i t to a n o t h e r o ffic e in th e E l e v e n t h D i s t r i c t , w e e n c o u r a g e y o u to d o s o . A l e t t e r n o t i f y i n g u s o f y o u r p r e f e r e n c e to sen d to a n o t h e r o ff ic e w i l l b e s u f f i c i e n t n o t i f ic a t io n . I t s h o u ld b e n o te d h e r e t h a t o n l y th e o r i g i n a l c o p y o f F o rm 2 2 8 4 , " A d v i c e o f C r e d i t F e d e r a l T a x e s , " s h o u ld be s e n t to the F e d e r a l R e s e r v e . T h e sec on d c o p y s h o u ld b e s e n t to the I n t e r n a l R e v e n u e S e r v i c e w i t h th e t a x p a y e r ' s F e d e r a l t a x c a r d s a t t a c h e d . M a n y b a n k s r e v e r s e t h is p ro c e s s o r a tt a c h th e t a x p a y e r ' s c a r d s to th e o r i g in a l a d v i c e . W e a s k t h a t y o u r e v i e w t h i s o p e r a t io n w i t h y o u r p e r s o n n e l f o r c o m p l i a n c e s in c e s u c h e r r o r s c a u s e u n n e c e s s a r y p a p e r w o r k a n d d e l a y s in p r o c e s s i n g . 13. Q u e s tio n : W ill c u s t o d i a n r e c e i p t s b e m a n d a t o r y f o r a ll n o n m e m b e r b a n k s p l e d g i n g c o l l a t e r a l to T r e a s u r y T a x a n d Loan? A nsw er: D u e to th e p o s s i b i l i t y o f th e F e d e r a l R e s e r v e B a n k o f D a l la s a n d its B r a n c h e s b e i n g l i m it e d on s p a c e f o r d e f i n i t i v e c o l l a t e r a l p le d g e d to T r e a s u r y T a x a n d L o a n , it m a y be n e c e s s a r y f o r n o n m e m b e r in s t i t u t io n s to s u b m it c u s t o d i a n r e c e i p t s . L is te d b e lo w a r e tho s e c u s t o d ia n b a n k s q u a l i f i e d f o r s u c h t r a n s a c t i o n s in t h e E l e v e n t h D i s t r i c t . A l b u q u e r q u e N a tio n a l B a n k T h e F i r s t N a tio n a l B a n k in A l b u q u e r q u e A l b u q u e r q u e , N e w M e x ic o A l b u q u e r q u e , N e w M e x ic o - a - G u a ran ty B ank and T r u s t Com pany A l e x a n d r i a , L o u is ia n a T h e A m e r i c a n N a tio n a l B a n k o f A m a r i l l o A m a rillo , T ex as T h e F i r s t N a tio n a l B a n k o f A m a r i l l o T h e A m e r i c a n N a tio n a l B a n k o f A u s t i n A u s tin , T e x a s T h e A u s t i n N a tio n a l B a n k T h e C a p it a l N a tio n a l B a n k in A u s t i n C i t y N a t io n a l B a n k A m e ric a n B an k and T r u s t C om pany A m a rillo , T ex as A u s tin , T e x a s A u s tin , T e x a s A u s tin , T e x a s B ato n R o u g e , L o u is ia n a L o u is ia n a N a tio n a l B a n k F i r s t S e c u r i t y N a tio n a l B a n k B a to n R o u g e , L o u is ia n a C o n t in e n t a l I l l i n o i s N a t io n a l B a n k a n d T r u s t C o m p a n y o f C h ic a g o C h ic a g o , Illin o is T h e F i r s t N a tio n a l B a n k o f C h ic a g o C orpus C h ris ti B ank & T r u s t C h ic a g o , Illin o is C h ic a g o , Illin o is C orpus C h ris ti, T exas C o r p u s C h r i s t i N a tio n a l B a n k C orpus C h ris ti, T exas C i t i z e n s N a tio n a l B a n k o f D a l la s D a lla s , T e x a s N o rth e rn T r u s t Com pany B e a u m o n t, T e x a s T e x a s A m e r ic a n B a n k -D a lla s N o rth D a lla s , T e x a s F i r s t N a tio n a l B a n k in D a lla s M e r c a n t i l e N a tio n a l B a n k a t D a l la s D a lla s , T e x a s D a lla s , T e x a s N a tio n a l B a n k o f C o m m e r c e o f D a l la s D a lla s , T e x a s R e p u b l i c N a tio n a l B a n k o f D a l la s D a lla s , T e x a s D a lla s , T e x a s T e x a s B a n k & T r u s t C o m p a n y o f D a l la s U n it e d N a tio n a l B a n k T h e El Paso N a tio n a l B a n k C o n t in e n t a l N a tio n a l B a n k o f F o r t W o r t h D a lla s , T e x a s El P a so , T e x a s F o rt W orth, T e x a s F i r s t N a tio n a l B a n k o f F o r t W o r t h F o rt W orth, T e x a s F o rt W orth B a n k a nd T r u s t C om pany F o rt W o rth , T e x a s F o r t W o r t h N a tio n a l B a n k F o rt W orth, T e x a s A llie d B a n k of T e x a s B a n k o f t h e S o u t h w e s t , N a t io n a l A s s o c ia t io n H o u s to n , T e x a s H ouston, T e x a s C a p it a l N a tio n a l B a n k H o u s to n , T e x a s F a n n in B a n k F i r s t C i t y N a tio n a l B a n k o f H o us ton H ouston, T e x a s H o u s to n , T e x a s F i r s t I n t e r n a t i o n a l B a n k o f H o u s to n H o u s to n , T e x a s H o u s to n N a tio n a l B a n k H o u s to n , T e x a s S o u t h e r n N a tio n a l B a n k o f H o us ton T e x a s C o m m e r c e B a n k , N a tio n a l A s s o c ia t io n H o u s to n , T e x a s D e p o s it G u a r a n t y N a tio n a l B a n k C o m m e r c e B a n k of K a n s a s C i t y , M i s s o u r i J a c k s o n , M is s i s s i p p i Kansas C it y , M iss o u ri N a tio n a l A s s o c ia t io n T h e F i r s t N a tio n a l B a n k o f K a n s a s C i t y Kansas C it y , M iss o u ri F i r s t N a tio n a l B a n k a t L u b b o c k F i r s t N a tio n a l B a n k o f M e m p h is Lubbock, Texas M e m p h is , T e n n e s s e e H o u s to n , T e x a s - 5 N a t io n a l B a n k o f C o m m e r c e M e m p h is , T e n n e s s e e F i r s t N a tio n a l B a n k o f M i d l a n d M id la n d , T exas C entral Bank M o n r o e , L o u is ia n a O u a c h it a N a tio n a l B a n k F i r s t N a tio n a l B a n k o f C o m m e r c e M o n r o e , L o u is ia n a N e w O r l e a n s , L o u is ia n a T h e H i b e r n i a N a tio n a l B a n k in N e w O r l e a n s N e w O r l e a n s , L o u is ia n a N e w O r l e a n s , L o u is ia n a New Y o r k , New Y o r k W h i t n e y N a tio n a l B a n k T h e B a n k of New Y o r k B an kers T r u s t Company New Y o r k , N ew Y o r k T h e C h a s e M a n h a t t a n B a n k , N a tio n a l A s s o c ia t io n New Y o r k , N ew Y o r k C h e m ic a l B a n k New Y o r k , New Y o r k New Y o r k , New Y o r k New Y o r k , New Y o r k F i r s t N a tio n a l C i t y B a n k Ir v in g T r u s t Com pany M a n u fa c tu re rs H anover T r u s t Com pany M o rg a n G u a ra n ty T r u s t C o m pany of N ew Y o r k New Y o r k , New Y o r k F i d e l i t y B a n k , N a tio n a l A s s o c ia t io n O k la h o m a C i t y , O k la h o m a F i r s t N a tio n a l B a n k a n d T r u s t C o m p a n y O k la h o m a C i t y , O k la h o m a o f O k la h o m a C i t y T h e L i b e r t y N a tio n a l B a n k a n d T r u s t C o m p a n y O k la h o m a C i t y , O k la h o m a o f O k la h o m a C it y F i r s t N a tio n a l B a n k o f A r i z o n a New Y o r k , New Y o r k V a l l e y N a tio n a l B a n k P h o e n ix , A riz o n a P h o e n ix , A riz o n a T h e C e n t r a l N a tio n a l B a n k o f S a n A n g e lo San A n g e lo , T e x a s S a n A n g e l o N a tio n a l B a n k San A n g e lo , T e x a s T h e A la m o N a tio n a l B a n k o f S a n A n to n io B e x a r C o u n t y N a tio n a l B a n k o f S a n A n to n io F i r s t N a tio n a l B a n k o f S a n A n t o n io San A n to n io , T e x a s San A n to n io , T e x a s Sa n A n t o n i o , T e x a s F r o s t N a tio n a l B a n k T h e G ro o s N a tio n a l B a n k o f S a n A n t o n io San A n to n io , T e x a s San A n to n io , T e x a s N a tio n a l B a n k o f C o m m e r c e o f S a n A n t o n io W e lls F a r g o B a n k , N a tio n a l A s s o c ia t io n San A n to n io , T e x a s San F ra n c is c o , C a lifo rn ia F i r s t N a tio n a l B a n k in S t . L o u is S t . L o u is , M i s s o u r i C o m m e r c ia l N a tio n a l B a n k in S h r e v e p o r t S h r e v e p o r t , L o u is ia n a T h e F i r s t N a tio n a l B a n k o f S h r e v e p o r t S h r e v e p o r t , L o u is ia n a T y l e r B ank and T r u s t C om pany T h e F i r s t N a tio n a l B a n k a n d T r u s t C o m p a n y T y le r, Texas of T u ls a V ic to ria B ank and T r u s t Company T h e A m e r i c a n B a n k o f Waco T h e C i t i z e n s N a tio n a l B a n k o f Waco T u l s a , O k la h o m a V ic to ria , T exas Waco, T e x a s F i r s t N a tio n a l B a n k in W ic h it a Waco, T e x a s Waco, T e x a s W i c h i t a , K an s as C i t y N a tio n a l B a n k in W ic h it a F a l ls W i c h it a F a l l s , T e x a s T h e F i r s t - W i c h i t a N a tio n a l B a n k o f W ic h it a F a l ls W i c h it a F a l l s , T e x a s T h e F i r s t N a tio n a l B a n k o f Waco - 6 A d d i t i o n a l c o p ie s o f t h i s c i r c u l a r m a y b e o b ta in e d fr o m th e F is c a l A g e n c y D e p a r t m e n t a t th e D a l la s o f f ic e . S in c e re ly y o u rs , R o b e r t H . B o y k in F ir s t V ic e P re s id e n t E n c lo s u r e START-UP PROCEDURES These procedures are organized into three sections - I. Principles II. Examples and III. Chronology. The procedures assume a September 7 effec tive date for illustrative purposes. The dates specified should be modified to correspond to the dates of the reporting cycle in which the program is implemented. I. PRINCIPLES 1. Handling existing balances and transmittal processing A. B. 2. Note Option depositaries - Balances in the Treasury tax and loan account as of opening of business on September 7 will be converted into the opening note account balance on September 7. Advices dated prior to September 7 but received and processed September 7 or later will be added to the note balance on the day processed. Advices dated on or after September 7 will be included in the closing note account balance on the business day after the advice of credit date. Remittance Option depositaries - Balances in the TT&L account as of opening of business on September 7 will be withdrawn on September 7. Advices of credit dated prior to September 7 and processed at the Reserve Bank on or after the September 7 effective date will be withdrawn from the TT&L account on the date processed and will not be subject to late fees or analysis credits. Advices dated on or after September 7 will be with drawn from the TT&L account on the date processed and will be subject to late fees or analysis credits if applicable. Collateral A. Sufficiency - (1) Note Option depositaries should be advised by the Federal Reserve Bank that sufficient collateral security must be pledged on September 7 to cover both the balances in the note account and the closing balances in the TT&L account. Federal Deposit Insurance Corporation coverage may be used to reduce the collateral pledge for balances in the Treasury tax and loan account. FDIC coverage does not apply to balances in the note account. (2) Remittance Option depositaries should be advised by the Federal Reserve Bank that on September 7 the depositaries’ closing balance in the TT&L account, less FDIC insurance coverage, should be fully collateralized. B. Policing - Treasury will in the future issue instructions to the Reserve Banks finalizing specifications for an end-of-reportingcycle comparison between balances each day during the cycle on the books of the depositary and the actual collateral pledged each day. After such specifications are finalized, Reserve Banks will have at least thirty days lead time until this procedure is to be implemented. During the interim period, Reserve Banks will continue to use the current procedure for collateral policing. This procedure consists of a daily comparison of balances as re ported on the books of the Reserve Bank versus collateral pledged. For a Note Option depositary, the Reserve Bank will compare the balance in the note account each day to the amount of collateral pledged. For a Remittance Option deposi tary, the Reserve Bank will compare the total credits to the TT&L account each day less deposit insurance coverage, if applicable, to the amount of collateral pedged. Deficien cies will be resolved under current FRB procedures. This daily procedure is currently in effect and shall continue in effect without interruption during implementation of the investment program. Handling savings and loan association, credit union and savings bank applications The Treasury is coordinating finalizing drafts of the agreement forms, for use by financial institutions seeking designation under the revised 31 CFR Parts 203 and 214, with the Federal Reserve Banks. Upon receipt of the finalized agreement forms from Treasury the Reserve Banks should pro vide general information, including copies of the revised regulations and the Procedural Instructions for Treasury Tax and Loan Depositaries, and the agreement forms, to requesting S&Ls, credit unions and savings banks. Completed agreement forms received should be logged or time-stamped and processed on a first-in, first-out basis. As workload conditions permit, the Reserve Banks should process requests for designation as follows: A. Federally-chartered S&Ls and Credit Unions To date, the Federal regulatory agencies for savings and loan associations and credit unions have not finalized their regulations to conform with Treasury's requirements for deposi taries. Until such regulations are finalized, Federally-char tered financial institutions governed by the Federal Home Loan Bank Board and the National Credit Union Administration may not be designated. Treasury will advise the Reserve Bank when the required revisions to the regulations are complete. B. State-chartered S&Ls, Credit Unions and Savings Banks No general statement can be made for State-chartered sav ings and loan associations, credit union and savings banks con cerning eligibility under the tax and loan investment program. The revised agreement forms require the applying financial institution to certify that: - 3 - (a) It possesses under its charter and regulations issued by its chartering authority either gen eral or specific authority permitting the main tenance of the note account (if applicable) and the tax and loan account as accounts, the balances in which are payable on demand without previous notice of intended withdrawal. (b) it possesses under its charter and regulations issued by its chartering authority either general or specific authority permitting the pledging of collateral to secure funds in a note account (if applicable) and the tax and loan account, and (c) it is otherwise eligible under 31 CFR 203.3(b) (1) (i). To supplement the certifications of such institutions, the Reserve Bank of the District shall request from the appropriate state chartering authority, an opinion concerning the capabilities of the financial institutions under the laws of the states and their governing charters and regulations to meet (a), (b) and (c) above. The opinion can provide blanket approval for the specific class of financial institutions within that state and should be requested as such. For example the opinion should specify if all S&Ls chartered under state statutes have the capabilities to meet (a), (b) and (c) above. Such an opinion is necessary before the designation of the financial in structions as Treasury tax and loan depositaries. When the territorial boundaries of a state are divided among two or more Reserve Banks, the request for an opinion from the state shall be coordinated by the Reserve Banks to ensure only one request is submitted to the state. When an affirmative opinion is received from the state, the Reserve Bank will accept such opinion as evidence that the financial institutions in question have the capabilities specified in (a), (b) and (c) above. However, if the opinion received relies on Federal law (P.L. 95-147) to supercede state law as evidence that the financial institutions in question have the capabilities specified in (a), (b) and (c) above, designation of the class of institutions covered by such an opinion should be withheld and the opinion forwarded to the Treasury (Office of the Fiscal Assistant Secretary)for further review. 4. Adjustments A. Opening balances - Adjustments to opening balances in the TT&L account on the effective date which are made after the effective date will use the effective date as the beginning point for any interest adjustments due. - 4 - B. 5. Transmittal processing - The date processed at the Reserve Bank provides the benchmark for adjustments to advices of credit dated prior to but received on or after the effective date. For Note Option depositaries, interest related to advices of credit dated prior to but received on or after the effective date, will accrue from the date such advices are processed by the Reserve Bank. The date processed will be used as the beginning point for computing interest adjust ments. For Remittance Option depositaries the advice of credit balances will be withdrawn from the TT&L account on the date processed. The date processed will be used as the beginning point for any interest adjustments required. Remit tance Option depositaries will not be subject to late fees or analysis credits for advices of credit dated prior to the effective date. Non-TT&L depositaries Under existing regulations, a depositary may be designated a Depositary for Federal Taxes without being designated a Treasury Tax and Loan Depositary. As of September 7, a depositary must hold both designations to handle FTDs. A financial institution can be a Treasury Tax and Loan Depositary without being a Depositary for Federal Taxes. The Reserve Bank should take action to advise each existing depositary designated as a Depositary for Federal Taxes but not as a Treasury Tax and Loan Depositary of the requirements under the regulations effective September 7. 6. Start-up procedures for depositaries Each Reserve Bank should provide start-up procedures to exist ing depositaries by August 7. To accomplish this, the Reserve Bank should draft procedures to incorporate items 1 and 2A of these principles plus any additional operating procedures with respect to start-up established by the Reserve Bank. II. EXAMPLES The examples that follow are provided to clarify several principles set forth in Section I. 1. Handling existing balances and transmittal Facts: processing - (a) The TT&L balance opening of business September 7 is $ 100,000. (b) An advise of credit dated September 3 is for $ 10,000 and received at the FRB on September 10. (c) An advice of credit dated September 7 is for $ 20,000 and received at the FRB on September 10. - 5 - A. Note Option (1) On September 7, the opening balance of $ 100,000 is withdrawn from the TT&L account and automatically added to the note account. (2) On September 10, the advice dated September 3 is re ceived and processed at the Reserve Bank. The $ 10,000 is added to the closing balance of the note account for September 10. (3) B. Remittance Option (assume Class 1 for illustration purposes) (1) (2) (3) 2. On September 10, the advice dated September 7 is received at the Reserve Bank. The $ 20,000 will be added to the closing balance of the note account for September 8. On September 7 the opening balance of $ 100,000 is withdrawn , from the TT&L account and added to Treasury's account. On September 10, the advice dated September 3 is received and processed at theReserve Bank. The $ 10,000 is with drawn from the TT&L account and added to Treasury's account at the FRB on September 10. The depositary is not subject to a late fee. On September 10, the advice dated September 7 is received at the Reserve Bank prior to the cutoff and processed. The $ 20,000 is withdrawn from the TT&L account and added to Treasury's account at the FRB on September 10. The deposi tary is subject to a late fee for 2 days, representing September 8, and 9, during which the advice was late. Adjustments Facts: The balance of $ 100,000 opening of business September includes an advice of credit for $ 50,000 dated August (b) A. (a) 7 29. An advice of credit dated August 30 is for $ 10,000 and is received at the FRB on September 10. Opening Balances On September 7, the opening balance of $ 100,000 is withdrawn from the TT&L account and placed into the note account. On September 13, the advice dated August 29 for $ 50,000 is identified as overstated. The correct amount should have been $ 5,000. The adjusting transaction will return the principal amount of $ 45,000 (in accordance with the principles of the adjustment package, re leased May 1, 1978) and reduce the closing note balance for interest computation purposes for the period September 7, but not including September 13. - 6 - If the depositary was participating under the Remittance Option, the adjusting transaction would return the $ 45,000 principal (in accordance with the principles of the adjust ment package, released May 1, 1978) and compensation for the period September 7 to, but not including September 13. B. Transmittal processing The advice of credit dated August 30 is received and processed on September 10. Under either option, the depositary is not subject to interest for any portion of the period August 30 to, but not including, September 10. On September 21, the advice of August 30 for $ 10,000 is identified as overstated. The correct amount should be $ 5,000. The adjusting transaction under the Note Option will return the principal amount of $ 5,000 (in accordance with the principles of the adjustment package, released May 1, 1978) and reduce the closing note balances for interest computation purposes for the period September 10 to, but not including September 21. If the depositary was participating under the Remittance Option, the adjusting transaction would return the principal amount of $ 5,000 (in accordance with the principles of the ad justment package, released on May 1, 1978) and compensation for the period September 10 to, but not including, September 21. III. CHRONOLOGY Specific procedures on the operations mentioned in this chronol ogy are provided in the FRB manual for continuing operations and Section I of this paper for start-up principles. To determine the appropriate date, the rule stated should be applied to the effective date. Rule Action Business day after effective date a. Withdraw all prior balances for Remittance Option depositaries b. Effective date Automatically convert all prior balances for Note Option depositaries to note account balances a. Collateral policing under investment procedures continues (same under previous system). - 7 b 12th of month following the reporting cycle I f Begin reporting TT&L investment program data on the daily balance wire. The balance wire for the effective date due at Treasury by 8:30 a.m. Eastern Time FTD payment tape received by this date. 13th of month following the reporting cycle 2 / If FTD payment tape not received by 12:00 noon, contact the service center to locate it. 15th of the month following the report ing cycle 2J Interest rates provided to Reserve Banks 20th of month following the reporting cycle 1/ a. FTD apyment tape run b. Statement for first reporting cycle prepared and sent to depositaries c. Administrative wire on amount of fee payments to depositaries sent to BGFO a. Accomplish payments to Treasury and to the depositaries through the Reserve Account mechanism b. Funds transfer message transmitted through the FRCS to Treasury con cerning interest and late fees. c. SF 5515, Debit Voucher, completed and submitted to Treasury to support the payment of fees to depositaries 25th of month following the reporting cycle 2/ Business day after payments accomplished Return payment tape to service center. 1/ Prior business day if the specified day is a non-business day. 2/ Subsequent business day if the specified day is a non-business day.
