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FEDERAL RESERVE BANK
OF NEW YORK
[
Circular No. 10521 "I
March 11, 1992
RESERVE REQUIREMENTS
— Comments Due April 6 on Vault Cash and Carryover Proposals
— Text of Regulatory Change on Reduction in Reserve Requirements
on Net Transaction Accounts
To All Depository Institutions, and Others
Concerned, in the Second Federal Reserve District:
Following is the text of a statement by the Board of Governors of the Federal Reserve System:
The Federal Reserve Board has formally requested public comment on two proposals to change the way depository
institutions compute and maintain their reserve requirements.
Comment should be received by the Board by April 6.
The proposals, previously announced by the Board when it acted on February 18 to reduce reserve requirements on
transaction accounts, would:
1. Shorten by two weeks the lag in counting vault cash toward required reserves in order to reduce the decline in
required reserve balances early in the year.
2. Double the carryover allowance for reserve balances to the larger of $50,000 or 4 percent of required reserves
plus required clearing balances. This would provide institutions with more flexibility in managing reserves from
one maintenance period to another.
Printed on the following pages is the text of the B oard’s official notice on these proposals. Comments thereon
should be subm itted by A pril 6, and may be sent to the Board, as indicated in the notice, or to our Accounting D e
partm ent.
Also, the Board has am ended its Regulation D to reflect the reduction in reserve requirem ents on net transaction
accounts from 12% to 10%, which was announced on February 18 (see our Circular No. 10515). Enclosed is a copy
o f a revised Supplem ent to Regulation D containing that amendment; additional, single copies of the supplement
may be obtained at this Bank (33 Liberty Street) from the Issues Division on the 1st floor, or from our Circulars
Division (Tel. No. 212-720-5215 or 5216). Please note that for depository institutions that report deposits weekly,
this reduction will becom e effective for the reserve m aintenance period beginning A pril 2; however, for depository
institutions reporting quarterly, the reduction will be effective for the reserve m aintenance period starting A pril 16.
Questions regarding maintenance requirements under Regulation D may be directed to our Accounting D epart
m ent (212-720-5250 or 5803); questions on reporting requirements under the regulation, to our Statistics Function
(212-720-8590); and questions on interpretation o f Regulation D, to our Legal Function (212-720-5024 or 5041)
or our Bank Exam inations Function (212-720-6820).
E.
G
erald
C
o r r ig a n
,
President.
10521
FEDERAL RESERVE SYSTEM
12 CFR Part 204
[Docket Mo. R-0750]
Regulation D - Reserve Requirements of
Depository Institutions
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Notice of proposed rulemaking.
SUMMARY:
The Board is publishing for comment two amendments to
its Regulation D to facilitate the computation and maintenance of
reserves.
The Board proposes to reduce the lag in the
application of vault cash to reserve requirements in order to
damp the seasonal variations in required reserve balances
resulting from the current lag in application and thereby reduce
the probability that reserve balances will drop seasonally to
levels that would cause depository institutions difficulty in
managing their reserve balances.
The Board also proposes to
increase the amount of excesses or deficiencies in reserve
balances that may be carried over from one reserve maintenance
period to the next from the greater of 2 percent or $25,000 to
the greater of 4 percent or $50,000.
DATES:
Comments should be received by April 6, 1992.
ADDRESSES:
Comments, which should refer to Docket No. R-0750,
may be mailed to the Board of Governors of the Federal Reserve
System, 20th Street and Constitution Avenue, N. W., Washington,
D.C. 20551, to the attention of Mr. William W. Wiles, Secretary.
2
t AP,Ol
Comments addressed to the attention of Mr. Wiles may be delivered
to the Board's mail room between 8:45 a.m. and 5:15 p.m., and to
the security control room outside of those hours.
Both the mail
room and the security control room are accessible from the
courtyard entrance on 20th Street between Constitution Avenue and
C Street, N.W.
Comments may be inspected in Room B-1122 between
9:00 a.m. and 5:00 p.m., except as provided in § 261.8 of the
Board's Rules Regarding the Availability of Information,
12 CFR 261.8.
FOR FURTHER INFORMATION CONTACT:
Patrick J. McDivitt, Attorney
(202/452-3818), or Lawranne Stewart, Attorney (202/452-3513),
Legal Division; or Joshua Feinman, Economist (202/452-2841),
Division of Monetary Affairs.
For the hearing impaired only.
Telecommunications Device for the Deaf ("TDD"), Dorothea Thompson
(202/452-3544).
SUPPLEMENTARY INFORMATION:
The Board is proposing for public
comment revisions to its Regulation D, Reserve Requirements of
Depository Institutions, 12 CFR part 204, concerning the
computation and maintenance of reserves.
The proposed changes,
which concern vault cash and carryover of reserve deficiencies
and excesses, are intended to improve the ability of depository
institutions to manage their reserve balances.
Vault cash.
The Board proposes to amend Regulation D to reduce the
lag in the application of vault cash to reserve requirements from
3
10521M
two periods to one in order to better synchronize movements in
required reserves and applied vault cash.
Currently, reserve
requirements for depository institutions that report weekly are
assessed against transaction accounts on a contemporaneous
basis,-/ but offsetting vault cash is applied to the required
reserves with a two period lag.
This asymmetric treatment of
required reserves and applied vault cash often results in
potentially disruptive movements in required balances,
particularly early in the year.
In the maintenance period
encompassing Christmas and year-end, for example, both vault cash
and required reserves tend to reach their respective seasonal
peaks.
Vault cash applicable for meeting the enlarged reserve
requirements for this period, however, is based on the much
smaller vault cash holdings from November.
As a result, the
required reserve balances needed to meet reserve requirements
tend to peak around year-end.
These balances subsequently drop
precipitously, usually reaching a trough in late January and
early February, when reserve requirements have typically fallen
from their end-of-year crest and the enlarged vault cash holdings
-/ Weekly reporters generally are depository institutions
with total deposits of $44.8 million or more. Required reserves
for weekly reporters are assessed based on daily average balances
for a period beginning on a Tuesday and ending on the second
Monday thereafter. This period is known as the "computation
period." Reserves against the daily average balances for the
computation period must be maintained throughout the "maintenance
period," which begins on the Thursday following the beginning of
the computation period and ends on the second Wednesday
thereafter. See 12 CFR 204.3(c).
4
10521
from year-end become available for use in meeting those
requirements.
This sharp drop in required balances often makes
it more difficult for banks to manage their reserve accounts.
The Board believes that placing required reserves and
the vault cash available for meeting those requirements in closer
proximity would offset some of the volatility in required reserve
balances and help temper the seasonal drop in these balances in
early February without significantly impairing reserve forecasts.
The Board requests comment as to whether a reduction in the lag
in the application of vault cash would improve the ability of
depository institutions to manage their required reserve balances
or whether the proposal would have any adverse effects on their
ability to predict required reserve balances.
The Board also
requests comment as to the costs of implementing a shift in vault
cash application, and whether these costs would be considered
significant in relation to the benefits of the proposed amendment
to the depository institution.
If depository institutions
believe that the costs of implementing a shift are prohibitive so
that the shift should not be implemented, the Board requests
comments as to whether depository institutions will be able to
manage their reserve positions effectively at the newly
implemented level of reserve requirements during the seasonal
lows in required reserve balances in January and February.
5
10521*'
Carryover of excesses or deficiencies.
The Board proposes to Increase the amount of carryover
to the greater of 4 percent of required reserves and clearing
balances-/ or $50,000.
Currently, carryover of reserve
surpluses or deficiencies into the next maintenance period is
permitted up to the greater of 2 percent of the sum of required
reserves and required clearing balances or $25,000.
In either
case, the carryover is reduced by the amount of an institution's
required clearing balance penalty-free band, if applicable.-/
Reductions in reserve requirements have resulted in a decline in
the maximum dollar value of the carryover, reducing the ability
of a depository institution to cushion a given dollar shock to
its reserve position late in maintenance period.
Doubling
maximum carryover permitted should provide depository
institutions with more flexibility in managing their reserve
positions.
Additionally, the Board proposes to amend the language
of the carryover provision to clarify and more accurately reflect
the method used to calculate the maximum carryover permitted.
-/ Required clearing balances are set by agreement between
a depository institution and its Federal Reserve Bank, based on
clearing needs of the depository and its account overdraft
record. Information on clearing balance requirements may be
obtained from a depository institution's local Reserve Bank.
-/ The required clearing balance penalty-free band is
currently equal to the greater of $25,000 or 2 percent of the
depository institution's required clearing balance.
6
10521 1
Regulatory Flexibility Act Analysis:
Pursuant to section 605(b)
of the Regulatory Flexibility Act (Pub. L. No. 96-354, 5 U.S.C.
601 et sea.), the Board certifies that the proposed amendment
will not have a significant economic impact on a substantial
number of small entities.
The Board does not believe that the
proposed amendments would impose any additional reporting or
recordkeeping requirements.
To the extent changes in
recordkeeping procedures may be required by the vault cash
proposal, this will affect only weekly reporters, that is,
depository institutions with total deposits of $44.8 million or
more, and should enable these depository institutions to manage
their required reserves more efficiently.
Smaller institutions,
which report only quarterly, will not be affected by the vault
cash amendment.
List of Subjects in 12 CFR Part 204:
Banks, banking, Currency, Federal Reserve System,
Penalties, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, and pursuant to the
Board's authority under section 19 of the Federal Reserve Act, 12
U.S.C. 461 et sea.. the Board is proposing to amend 12 CFR part
204 as follows:
7
10521
PART 204 —
1.
RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
The authority citation for part 204 continues to read as
follows:
Authority:
Sections 11(a), 11(c), 19, 25, 25(a) of the
Federal Reserve Act (12 U.S.C. 248(a), 248(c), 371a, 371b, 461,
601, 611); section 7 of the International Banking Act of 1978 (12
U.S.C. 3105); and section 411 of the Garn St-Germain Depository
Institutions Act of 1982 (12 U.S.C. 461).
2.
Section 204.3 is amended by revising paragraphs (c)(3) and
(h) to read as follows:
§ 204.3
Computation and maintenance.
*
(c)
*
*
*
*
★
*
*
(3) In determining the reserve balance that is required to be
maintained with the Federal Reserve, the daily average vault cash
held during the computation period that ended 3 days prior to the
beginning of the maintenance period is deducted from the amount
of the institution's required reserves.
*
(h)
*
*
*
*
Carryover of excesses or deficiencies.
Any excess or
deficiency in a depository institution's account that is held
directly or indirectly with a Federal Reserve Bank shall be
carried over and applied to that account in the next maintenance
period as specified in this paragraph.
8
The amount of any such
10521
excess or deficiency that is carried over shall not exceed the
greater of:
(1) the amount obtained by multiplying .04 times the
sum of the depository institution's required reserves
and the depository institution's required clearing
balance, if any, and then subtracting from this product
the depository institution's required clearing balance
penalty-free band, if any; or
(2) $50,000, minus the depository institution's
required clearing balance penalty-free band, if any.
Any carryover not offset during the next period may not be
carried over to subsequent periods.
*
*
*
*
*
By order of the Board of Governors of the Federal
Reserve System, March 2, 1992.
(siqned) William W. Wiles
William W. Wiles
Secretary of the Board
9
10521
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
SUPPLEMENT TO REGULATION D
Reserve Requirement Ratios
Effective A pril 2, 1992 (for weekly reporters, and A pril 16, 1992
for quarterly reporters), pursuant to the B oard’s authority under section
19 o f the Federal Reserve Act, 12 U.S.C. §§ 461 et seq., 12 CFR Part
204 is am ended by revising paragraph (a) (1) of section 204.9 to read
as follows:
SECTION 204.9 — RESERVE R EQ U IR EM EN T RATIOS
(a)(1) Reserve percentages. The following reserve ratios are pre
scribed for all depository institutions, Edge and Agreem ent C orpora
tions, and United States branches and agencies o f foreign banks:
CATEGORY
RESERVE REQ U IREM EN T
Net transaction accounts*
$0 to $42.2 m illio n .............................. 3% of am ount
O ver $42.2 m i ll i o n ...............................$1,266,000
plus 10% of am ount
over $42.2 m illion
Nonpersonal time d ep o sits .................0%
Eurocurrency lia b ilities ..................... 0%
(2)
Exemption from reserve requirements. Each depository institu
tion, Edge or Agreem ent Corporation, and U.S. branch or agency of a
foreign bank is subject to a zero percent reserve requirem ent on an
am ount o f its transaction accounts subject to the low reserve tranche in
paragraph (a)(1) of this section not in excess of $3.6 m illion determ ined
in accordance with section 204.3(a)(3) of this part.
* Dollar amounts do not reflect the adjustment to be made by the next paragraph.
[Enc. Cir. No. 10521]
@FedFRASER