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F E D E R A L R E SER VE B A N K OF N E W YORK rCircular No. 6 6 5 2 ~ 1 L December 11, 1970 -1 COUNTING OF CURRENCY AND COIN AS RESERVES Interpretation of Regulation D, Effective January 7,1971 To All Member Banks, and Others Concerned, in the Second Federal Reserve District: Following is the text of a statement issued December 9 by the Board of Governors of the Fed eral Reserve System : The Board of Governors of the Federal Reserve System today issued an interpretation spelling out the circumstances under which a member bank may count currency and coin as part of its required reserves. The interpretation specifies that a member bank may count as part of its reserves only that currency and coin to which it has a full and unrestricted right to use to meet depositors’ claims. Currency or coin held by a bank under agreements, undertakings or arrangements with customers that effectively deny to the bank the unrestricted use of the currency or coin cannot be counted as reserves within the meaning of the Federal Reserve Act since it is not available, legally or practically, to meet depositors’ claims. In clarifying provisions of the Board’s Regulation D governing the reserves of member banks, the interpretation does not affect the legality of arrangements between a bank and its customers regarding currency and coin. It merely prevents member banks from counting such currency or coin as part of their reserves. In issuing this interpretation, the Board withdrew a proposed regulatory amendment that would have prevented member banks from counting as part of their required reserves any silver coin they held for its bullion or numismatic value. Printed below is the text of the interpretation of Regulation D referred to in the above state ment. Additional copies of this circular will be furnished upon request. A lfred H ayes, President. [Reg. D1 PART 204— RESERVES OF MEMBER BANKS Currency and Coin 1. Effective January 7, 1971, § 204.116 is added to read as follows: § 204.116 C urrency or coin held p rin c ip a lly fo r its num ism atic or bullion value. (a) The Board of Governors has considered the status under Regulation D for purposes of reserve computations of currency and coins held by member banks principally for their numismatic or bullion value. (b) It appears that a number of banks have been counting as part of their reserve requirements silver coins which the banks have acquired and segregated from coins available to meet customers’ demands. In some cases, the coins are held by the bank for its own account with the expectation of earning a pre mium over face value because of the greater numis matic or bullion value of the coins. In other cases, the coins are held by the bank for the account of its customers, under a written or oral agreement, where by the customer retains the right to, or an option on, such coins. (c) When a member bank acquires currency or coin that it has the full and unrestricted right to use at any time to meet depositors’ claims, such currency or coin may be counted as reserves for purposes of (OVER) sa tisfy in g th e b a n k ’s reserve req u irem en ts. T he fa c t th a t a b a n k m ay choose to seg reg ate p a r t of such c u r re n c y or coin does n o t of itse lf d isq u a lify th e cu rre n c y or coin fro m c o u n tin g as reserves. (d ) A b a n k does n o t have “ th e fu ll a n d u n re s tric te d r i g h t ” w ith in th e m ean in g of th e p reced in g p a ra g ra p h if th e b a n k is p re v e n te d , le g a lly o r p ra c ti cally, b y v irtu e of custom er agreem ents, u n d e rta k in g s or a rran g e m en ts, fro m u sin g th e c u rre n c y o r coin a t a n y tim e to m eet c u sto m e rs’ dem ands. S uch custom er agreem ents, u n d e rta k in g s o r a rra n g e m e n ts m ay re la te to th e specific c u rre n c y or coins tr a n s f e r r e d to the b a n k or to c u rre n c y or coin th a t th e b a n k is o r m ay be o b ligated to acq u ire to rep lace th e specific c u rre n c y o r coins so tra n s fe rre d . (e) E x a m p le s of agreem ents, u n d e rta k in g s, o r a r ra n g e m e n ts betw een a b a n k a n d its custom er th a t have come to th e B o a r d ’s a tte n tio n u n d e r w hich th e b an k does n o t have th e f u ll a n d u n re s tric te d r ig h t to use silver coins a t a n y tim e to m eet cu sto m e rs’ dem ands a re : (1) T he b a n k holds th e coins su b je c t to a r e p u r chase ag reem en t o r a n o p tio n b y th e custom er o r his assignee (a b o rro w in g b y th e b a n k of th e coin s). (2) Coins are d ep osited b y th e custom er a n d the b a n k prom ises to resell to th e custom er a sim ilar am o u n t of coins (in effect a b o rro w in g b y th e b a n k of th e coins). (3) T he coins deposited b y th e custom er a re to be seg reg ated a n d re tu r n e d to th e custom er u p o n his re q u e st o r a f te r a c e rta in p e rio d of tim e (a b a ilm e n t). (4) The b a n k issues a certificate of deposit, the consideration fo r w hich is coins, a n d th e b an k sim ul tan eo u sly en te rs in to an ag reem en t to redeem the certificate b y p a y m e n t of th e coins, e ith er th e id en tic a l coins deposited b y the custom er or sim ilar coins (a special d e p o sit). (5 ) C oins are tr a n s fe rre d to th e b an k as co llateral fo r a loan. (f ) A n ag reem ent betw een th e b a n k a n d its cus tom er th a t th e c u rre n c y o r coin is to be re g a rd e d as “ o w n ed ” by th e b an k fo r purp o ses of reserve re q u ire m ents is n o t determ in ativ e. W h e th e r cu rre n c y or coin m ay be counted as reserves depends on th e u n d e rly in g n a tu re of th e tra n sa c tio n in th e lig h t of th e p rin cip le a n d exam ple set fo r th herein. (g ) T his in te rp re ta tio n is n o t in te n d e d to affect the le g a lity of agreem ents, u n d e rta k in g s, or arra n g em en ts betw een th e b a n k a n d its custom ers re g a rd in g c u r ren c y or coin. (Interprets and applies 12 U .S.C. 4 6 1 .) 2. O n J u n e 3, 1970, the B o a rd pu b lish ed fo r com m en t a proposed am endm ent to R eg u latio n D to p re v e n t m em ber banks from c o u n tin g as p a r t of th e ir re q u ire d reserves a n y coin th e y hold p rin c ip a lly fo r its bu llio n o r n u m ism atic value (F e d e ra l R eg ister of J u n e 9, 1970, 35 F .R . 8892). T h a t p roposal is w ith d raw n .
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