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F ED ER A L R ESER V E BANK O F NEW YORK r Circular No. 6 4 9 4 ~1 L February 24, 1970 J Interpretation of Regulation D To All Member Banks, and Others Concerned, in the Second Federal Reserve District: Printed below is the text of an interpretation of Regulation D, adopted by the Board of Governors of the Federal Reserve System on February 17. The interpretation, which becomes effective April 2, 1970, withdraws a 1928 Board ruling that a check issued by a member bank in repayment of a Federal funds transaction may be excluded from its deposit liabilities. The interpretation will be published shortly in the Federal Register and in the March 1970 issue of the Federal Reserve Bulletin but is being sent to you now so that you might have prompt notice of its content. A lfred H ayes, President. [Reg. D] P art 204— RESERVES OF MEMBER BANKS Officers’ Checks as Deposits Effective A pril 2, 1970, § 204.113 is added to read as follow s: two member banks m aintain reserves against the same funds. § 204.113 Officers’ checks in repaym ent of “ Federal fu n d s ” transactions included as “ gross de mand deposits (c) The B oard considers th a t it should bring its regulations and interpretations in this area into h a r mony. W ithdraw al of the 1928 ruling would elim inate the incongruity between such ruling and the provi sions of § 204.1(g). Most F ederal funds transactions are presently handled through entries on the books of the Reserve Banks (and do not involve the issuance of a check), and all such transactions can be handled in th a t m anner. Consequently, w ithdraw al of the 1928 ruling would have little im pact. Also, adopting such course of action seems clearly preferable to m odifying § 204.2(b) to prohibit the deduction from gross de m and deposits of a certain class of cash items— namely, those received in repaym ent of a F ederal funds transaction. (a) The B oard has reviewed its ru lin g (1928 F e d eral Reserve B ulletin page 656) th a t a cheek issued by a member bank in repaym ent of a F ederal funds transaction may be excluded from its deposit liabilities. (b) Such ru lin g is in effect an exemption from the provisions of § 204.1(g) of R egulation D, which re quires all officers’ checks issued by a member bank to be included in its gross dem and deposits for reserve purposes. Nonetheless, a member bank is perm itted by § 204.2(b) of Regulation D to deduct all “ cash items in process of collection” from its gross dem and de posits, in com puting its reserve requirem ents. P e r m itting the issuing bank to exclude from its deposit liabilities a check issued by it and also perm itting the receiving bank to deduct the item from its deposit lia bilities is inconsistent with the basis of the provision for cash-item deductions—to avoid situations in which (d) Accordingly, the 1928 ruling is w ithdraw n. H ereafter, as provided in § 204.1(g) of R egulation D. “ The term ‘gross dem and deposits’ means the sum of all dem and deposits, including . . . all outstanding cer tified and officers’ cheeks” . (Em phasis added.) (In te rp re ts and applies 12 U.S.C. 461 and 465.)
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