Full text of Federal Reserve Bank of New York Circulars : 6501. Proposed Amendments of Regulations D and Q

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FED E R A L R ESER VE BANK
OF NEW YORK
r Circular No.
L

6 5 01 "I
March 2, 1970
J

Proposed Amendments of Regulations D and Q
To the Member Banks of the Second Federal Reserve District:

Following is the text of a statem ent issued today by the B oard of Governors of the Federal
Reserve System :
The B oard of Governors of the F ederal Reserve System announced today th a t it is considering estab­
lishing a new m inimum denom ination and m atu rity on subordinated notes and debentures th a t are presently
outside the definition of “ deposit” and are being sold by member banks w ithout regard to reserve req u ire­
m ents an d interest rate ceilings. Comments on the proposal should be subm itted to the B oard by A pril 2.
The in ten t of the proposed am endm ents is to distinguish between deposit-type funds and tru e capital
funds.
The proposal would establish a m inim um m atu rity of more th a n five years and a minimum denom ina­
tion of $20,000 on such capital notes and debentures. P resent regulations specify a m inimum m atu rity of
more th an two years b u t do not specify a m inim um denom ination fo r capital notes o r debentures.
U nder the proposal a capital note or debenture would be exem pt from reserve requirem ents (R egula­
tion D ) and interest rate ceilings (R egulation Q) if it (1) has an original m atu rity of more than five years,
(2) is expressly subordinated to the claims of depositors and is unsecured, (3) expressly states th a t it will
not be eligible as collateral fo r a loan by the issuing bank, and (4) is issued in denom inations not less than
$20,000, w ith certain exceptions.

P rin te d below is the text of the proposed amendments. Comments thereon should be submitted
by A pril 2 and may be sent to our Bank Exam inations D epartm ent.
A lf re d H ayes,

President.

[Reg. D; Q]
RESERVES OF MEMBER BANKS; INTEREST ON DEPOSITS
Certain Subordinated Obligations as Deposits
The B oard of Governors is considering changing
present requirem ents for an obligation issued by a
member bank subordinated to the claims of depositors
to be classified by the bank as a non-deposit borrowing
for the purposes of member bank reserve requirem ents
(R egulation D ) and interest rate controls (R egula­
tion Q ).
This would be accomplished by am ending the rele­
v ant portions of section 204.1(f) and section 217.1(f)
to read as follows:
(f)
Deposits as including certain promissory notes
and other obligations. (The term “ deposit” does not
include an obligation th a t)
(3)
is designated as a capital note or capital deben­
tu re and possesses the following characteristics:
(i) has an original m a tu rity of more th an five
y e a rs ;
(ii) is subordinated expressly to the claims of
depositors and is u n secu red ;
(iii) expressly provides th a t it will not be eligible
as collateral for a loan by the issuing b a n k ; and
(iv) is of a denom ination not less th an $20,000,
unless p a rt of an issue of securities sold by means
of a pre-em ptive rights offering, an underw riting,
or other securities m arketing channel not connected
w ith the issuing b a n k ’s regular banking operations
and personnel or those of its affiliates;
b u t this su b p aragraph (3) shall not affect (a) any
in stru m en t issued before M arch 9, 1970, th a t has an



original m atu rity of more th an two years, is unse­
cured, and states expressly th a t it is subordinated to
the claims of depositors, or (b) capital notes or deben­
tures issued, other th an to the general public, by a
national bank w ith the specific approval of the Comp­
troller of the C urrency or by a S tate member bank
w ith the specific approval of its S tate Supervisor
and the B oard of Governors, upon a determ ination in
each case th a t exigent circum stances require the issu­
ance of such capital notes or debentures w ithout re ­
gard to the provisions of this P art.
Recent evidence indicates th a t member banks are
m arketing certain types of subordinated obligations
to acquire deposit-type funds, w ith results th a t the
B oard considers as im pairing the effective application
of regulations w ith respect to deposit interest rates
and reserve requirem ents. The in ten t of the am end­
m ent is to distinguish between deposit-type funds and
tru e capital funds.
To aid in the consideration of this m atter by the
B oard, interested persons are invited to subm it rele­
vant data, views, or argum ents. Any such m aterial
should be subm itted in w riting to the Secretary, B oard
of Governors of the F ederal Reserve System, W ash­
ington, D. C. 20551, to be received not later th an
A pril 2, 1970. U nder the B o a rd ’s Rules R egarding
A vailability of Inform ation (12 C FR P a rt 261), such
m aterials will be made available for inspection and
copying upon request unless the person subm itting
the m aterial asks th a t it be considered confidential.