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FEDERAL RESERVE BANK OF N EW YORK r Circular N o. 6 4 8 3 ~l L February 4, 1970 J Interpretation of Regulations D and Q To A ll M ember Banks, and Others Concerned, in the Second Federa l Eeserve D is tric t: Printed below is the text of an interpretation of Regulations D and Q, adopted by the Board of Governors of the Federal Reserve System. The interpretation clarifies the question whether a deposit at a foreign branch of a member bank is subject to reserve requirements (Regulation D) and interest rate limitations (Regulation Q) if payment of such deposit in the United States is guaranteed by the member bank. The interpretation will be published shortly in the Federal Register and Federal Reserve B ulletin but is being sent to you now so that you might have prompt notice of its content. A lfred H ayes, President. [Reg. D; Q] Part 204—RESERVES OF MEMBER BANKS Part 217—INTEREST ON DEPOSITS Deposits in Foreign Branches S EC T IO N 204.112—D E P O S IT S IN F O R E IG N B R A N C H ES G U A RA N TEED BY D O M ESTIC O F F IC E OF M EM B ER BANK (а) In accepting deposits a t branches abroad, some member banks are reported to have entered into agree m ents from tim e to time w ith depositors th a t in effect guarantee paym ent of such deposits in the U nited States if the foreign branch is precluded from m aking paym ent. The question has arisen whether such de posits are subject to P a rts 204 and 217 (Regulations D and Q ), and this in terp retatio n is intended as a clarification. ( б ) Section 19 of the F ederal Reserve Act provides th a t the lim itations prescribed therein on rates of in terest paid on deposits are not applicable to deposits of a member bank ‘‘payable only at an office thereof located outside of the States of the U nited States and the D istrict of Colum bia” (12 U.S.C. 371a). The B oard ruled in 1918 th a t the requirem ents of sec tion 19 as to reserves to be carried by member banks also do not apply to foreign branches (1918 Federal Reserve B u lletin 1123). (c) In the B o a rd ’s judgem ent, the applicability of these exemptions from R egulation Q and Regulation D is lim ited to deposits in foreign branches as to which the depositor is entitled, under his agreem ent w ith the bank, to dem and paym ent only outside the U nited States, regardless of special circum stances. S aid ex em ptions are intended principally to enable foreign branches of U. S. banks to compete on a more nearly equal basis w ith other banks in foreign countries in accordance w ith the laws and regulations of those coun tries. A customer who makes a deposit th a t is payable solely a t a foreign branch assumes w hatever risk may exist th a t the foreign country m ight impose restrictions on w ithdraw als. W hen paym ent of a deposit in a fo r eign branch is guaranteed by a prom ise of paym ent at a banking office in the U nited States if not paid a t the foreign office, the depositor no longer assumes such risk, b u t enjoys substantially the same rights as if the deposit had been made in a U. S. office of the bank. To assure the effectiveness of R egulations D and Q and to prevent evasions thereof, the B oard considers th a t such guaranteed foreign-branch deposits m ust be subject to those Regulations. (d) Accordingly, a deposit in a foreign branch of a member bank th a t is guaranteed by a domestic office is subject to the interest rate lim itations and reserve p e r centages of Regulations Q and D the same as if the deposit had been made in the domestic office. (e) This in terp re tatio n is not designed in any re spect to prevent the head office of a U. S. bank from repaying borrowings from, m aking advances to, or supplying capital funds to its foreign branches.
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