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\ I ‘ FED ER AL RESERVE BANK OF NEW YORK r Circular No. 6960 "1 L June 22, 1972 J AMENDMENTS TO REGULATIONS D AND J Effective Septem ber 21, 1972 To the Chief E xecutive Officers of A ll B anks in the Second Federal Reserve D istrict: F o llo w in g is the te x t o f a sta te m e n t released to d ay by the B o a rd o f G o v e rn o rs o f the F e d e ra l R e se rv e S y ste m : T h e B o a rd of G o v ern o rs of th e F e d e ra l R eserv e S y stem to d ay an n o u n c ed its u n an im o u s ap p ro v al of tw o re g u la to ry ch anges d esig n ed to re s tru c tu re on a m o re eq u itab le b asis th e rese rv e re q u ire m e n ts of m em b er banks, a n d to m o d e rn ize th e n a tio n ’s check collection system . T h e chan ges w ill go in to effect in tw o step s in late S ep te m b er an d ea rly O cto b er. T h e y w ill: — A p p ly th e sam e re se rv e re q u ire m e n ts to m em b er b an k s of like size, re g a rd le ss of a b a n k ’s location (a m e n d in g R e g u la tio n D , g o v e rn in g rese rv e s of m em b er b a n k s ). — R e q u ire all banks, also re g a rd le ss of location, serv ed by th e F e d e ra l R e serv e check collection system (v irtu a lly all of th e n a tio n ’s b a n k s) to p ay — in im m ed iately collectible fu n d s — for checks d raw n on them , th e sam e d ay th e F e d e ra l R e serv e p re se n ts th e checks fo r p ay m en t (a m e n d in g R e g u la tio n J, g o v e rn in g collection of checks a n d o th e r item s by F e d e ra l R eserv e B a n k s ). T h e changes, w hile basically th e sam e as th e p ro p o sals p u b lish ed fo r public co m m en t M a rc h 28, have been m odified in detail an d m e th o d of ap p lica tio n , in th e lig h t of co m m en t received. T h e se m odifications include fu rth e r revisio n s of the re s tru c tu re d rese rv e schedule affecting m em b er b a n k s’ n e t d em an d deposits ra n g in g fro m $10 m illion to $100 m illion, an d te m p o ra ry w aiv ers of p en alties on rese rv e deficiencies a ttrib u ta b le to th e new check collection p ro ce d u re s, o r to th e re s tru c tu rin g of re se rv e req u irem en ts. In m ak in g th e a n n o u n c em en t the B o a rd s a i d : T h e B o a rd received le tte rs d u rin g th e seven-w eek p erio d fo r co m m en t th ro u g h M a y 15 fro m less th a n 5 p e r cen t o f th e n a tio n ’s 13,800 co m m ercial banks. A lth o u g h m any b an k s su g g ested m odifica tio n s in th e o rig in a l p ro p o sals— chiefly to m inim ize effects of th e new check collection p ro ce d u re s upon th e ir fu n d s available for loans a n d in v e stm e n ts— m o st of th em ap p ro v ed of th e p ro g ra m fully o r in principle. T h e co rresp o n d e n ce th e B o a rd received, an d th e special efforts m ade by th e F e d e ra l R eserv e B a n k s d u rin g th e com m en t p erio d to assess th e effects of th e p ro p o sed ch an g es, in d icate th a t a n u m b e r of banks, especially tho se n o t serv ed by m o st F e d e ra l R e serv e offices a n d F e d e ra l R eserv e R eg io n al C heck P ro c e ssin g C e n te rs ( R C P C s ) , w ould be ad v ersely affected. T h e B o a rd has given carefu l atte n tio n to situ atio n s w h ere a b a n k ’s fu n d s available fo r in v estm en t w ould be significantly red u c ed by th e new check collection p ro ced u res. T h e ch an g es in th e reg u latio n s, as now ado p ted , an d th e ea rly ac tiv a tio n of S y ste m -w id e R C P C a rra n g e m e n ts, w ill su b stan tia lly lessen th e effects u p o n investab le fu n d s of m em b er banks. G iven th e n o rm al g ro w th of depo sits, th ese p ro v isio n s sh o u ld m ake it possible fo r m em b er b an k s to a d a p t w ith o u t u n d u e difficulty to th e new check collection p ro ced u res. In th is resp ect, it sh o u ld be n oted th a t th e B o a rd h as fo rm u late d its new rese rv e req u irem en ts in such a w ay th a t th e sm aller th e m em b er b an k , th e m o re its rese rv e re q u ire m e n ts a re red u ced . F o r exam ple, m em b er b an k s in th e up to $2 m illion n et d em an d d ep o sit categ o ry w ould ex p e rien c e a red u c tio n in re q u ire d rese rv e s of 36 p e r cent, w hile m em b er b an k s w ith net d em an d d ep o sits of $4 0 0 m illion an d u p w ould h av e th e ir re q u ire d rese rv e s lo w ered by 9 p e r cent. T h e B o a rd is seeking sim u ltan eo u sly to equalize co m p etitiv e co n d itio n s am o n g b an k s— an d fu rth e r ease a d ju s tm e n t to th e new check collection p ro ce d u re s— by g iv in g h igh p rio rity a tte n tio n to e x te n d in g F e d e ra l R e serv e R C P C clea rin g services a n d eq u alizin g cutoff h o u rs. W ith in th e c o n te x t of im p ro v in g services, th e B o a rd ’s m ost im m ediate an d h ig h e st p rio rity aim is acce le ra tin g the d evelopm ent of R eg io n al C heck P ro c e ssin g C en ters. T h is w ill g re a tly assist th e tra n sitio n to th e new co n d itio n s by a la rg e n u m b e r of b an k s— n o n m em b er as w ell as m em ber. B y m a k in g possible e a rlie r receip t of fu n d s d ue to b an k s d ep o sitin g checks fo r clearance, th ese facilities fo r o v e rn ig h t check g a th e rin g , p ro ce ssin g an d clea rin g w ill fu rth e r offset th e e a rlie r p ay m en t fo r checks re q u ire d by the change in R e g u la tio n J. R eg io n al C heck P ro c e ssin g C e n te rs located a t F e d e ra l R e serv e offices w ill serv e are as as larg e as can be reach ed on an o v e rn ig h t basis. S u ch ex p a n d ed zones of o v e rn ig h t check clearan ce are alre ad y in o p era tio n a t B altim o re, M iam i ( F lo r id a ) , C hicago, K an sa s C ity, O m ah a an d D en v er. C e n te rs a t new locations w ill be established w h ere n eeded to serv e b an k s th a t ca n n o t be reach ed o v ern ig h t fro m p re s en t F e d e ra l R e serv e offices. T h e B o a rd believes th a t the rev isio n s of its reg u la tio n s, as ad o p ted , w ill re su lt in a m o re efficient, m o re com petitive an d p ro d u ctiv e b an k in g system , b e tte r able to ta k e a d v a n ta g e of m o d e rn co m m u n ica tio n s an d ac co u n tin g technology to serv e b u sin ess an d p riv a te d ep o sito rs in a g ro w in g econom y. T h e re g u la to ry changes— a n d the m eth o d to be u sed in im p lem en tin g th em — w ill re su lt in a n et release of rese rv e s of ab o u t $1.5 b illio n : a to tal release of ab o u t $3.5 billion fro m th e re s tru c tu rin g of rese rv e s an d th e w aiv er of penalties, w hich w ill be p a rtia lly a b so rb e d by th e im m ed iate $2 billion red u ctio n in float re su ltin g fro m th e ch ange in R e g u la tio n J. T h is float a rise s o u t of th e p re se n t p ractice w h ereb y so-called “ c o u n try b a n k s” pay fo r checks p re se n te d by th e F e d e ra l R e serv e in fu n d s th a t a re n o t available fo r use u n til th e n e x t b usiness day follow ing p re se n tm e n t of th e checks fo r p ay m en t. A d d itio n a l red u c tio n in float w ill o ccur as tra n sp o rta tio n a rra n g e m e n ts a re im proved. T h e n et release of rese rv e s w ill be accom plished in tw o steps. I t is in te n d ed th a t F e d e ra l R e serv e open m a rk e t o p era tio n s will be ad a p te d as needed, w hen th e am en d m e n ts go in to effect, to n eu tra liz e th e effects on m o n e ta ry policy. E ffects of th e changes on th e rese rv e p o sitio n s of in d iv id u al b an k s w ill v a ry an d th e re will be som e tra n sitio n a l im balances d espite th e m odifications ad o p ted by th e B o ard . T h e B o a rd ex p ects th a t d isco u n t officers a t the R e serv e B an k s w ill be resp o n siv e to re q u e sts of a n y m em b er b an k s te m p o ra rily in need of cre d it to tide them o v er a p erio d of a d ju s tm e n t to th e new check collection basis. Reserve restructuring (Regulation D) T h e B o a rd ’s am en d m e n t re s tru c tu rin g reserv e re q u ire m e n ts on n et d em an d dep o sits w ill m od ern ize th e system of rese rv e s in th e light of b an k in g p a tte rn s th a t have evolved o v er th e last 25 y ears. I t w ill p ro v id e m em b er ban k s of eq u a l size w ith equal reserv e req u irem en ts. U n d e r th e basic re stru c tu rin g , rese rv e re q u ire m e n ts on n et d em an d d ep o sits w ill be b ased on th e am o u n t of such d ep o sits held by a m em b er b an k w ith o u t re g a rd to its location. T h e r e s tru c tu rin g w ill ap p ly th e fol low ing ra tio s to all m em ber b a n k s : Amount of net demanddeposits F ir s t O ver O ver O ver O ver Reserve percentages applicable $2 m illion o r less $2 m illion to $10 m illion $10 m illion to $100 m illion $100 m illion to $400 m illion $400 m illion 8 p e r cent 10 p e r cent 12 p e r cent 13 p e r cen t 1 p e r cen t 7y2 T h e se ratio s w ill becom e effective in tw o step s ju s t p rio r to th e p erio d w h en th e re is a seasonal need fo r rese rv e s in th e b an k in g system . B e g in n in g in th e sta te m e n t w eek of S ep te m b er 21 to S ep te m b er th e first th re e ra tio s— 8 p e r cent, 10 p e r cent an d 12 p e r cen t — w ill ap p ly to n et d em an d d ep o sits of $100 m illion an d less, based on th e av e rag e level of d ep o sits held by th e b an k d u rin g th e w eek en d in g S ep tem b er 13. T h is w ill coincide w ith the S ep te m b er 21 effective d ate fo r th e R e g u la tio n J change. I n ad d itio n , th e 1 p e r cent ra tio th a t now applies to d em an d d ep o sits betw een $1 0 0 m illion an d $400 m illion (fo r p re se n t R e serv e C ity b a n k s) w ill be red u ced to 1 p e r cent as p a r t of th e first step. D u rin g th e s ta te m e n t w eek from S ep te m b er 28 to O cto b e r 4, th is la tte r ra tio w ill be red u c ed to 13 p er cen t based on th e av e rag e level of d eposits held by the b an k d u rin g th e w eek en d in g S ep te m b er 20. 27, 7y2 6l/2 A t p rese n t, m em b er ban k s a re divided in to tw o classes on a g eo g rap h ical basis fo r th e p u rp o se of com p u tin g rese rv e re q u ire m e n ts on d em and deposits. T h e ratio s fo r rese rv e city b an k s— typically th e la rg e r b an k s in th e la rg e r cities— a re c u rre n tly 17 p e r cen t on th e first $5 m illion of d em an d d ep o sits an d l/ 2 p e r cent on d em an d d eposits ex ceed in g $5 m illion. T h e rese rv e ra tio s fo r all o th e r m em b er b an k s__ often called “ c o u n try b a n k s”— a re c u rre n tly 2 l/ 2 p e r cent on th e first $5 m illion of dem an d d ep o sits an d 13 p er cen t on d em an d dep o sits exceed in g $5 m illion. \7 \ A s o rig in a lly p ro p o sed , a ra tio of 13 p er cen t w ould m illion to $400 m illion. T h e B o a rd decided to in clu d e an d em an d dep o sits betw een $10 m illion an d $100 m illion— to float red u c tio n u n d e r th e new check collection ru les th a t have applied to n et d em an d d ep o sits fro m $10 ad d itio n a l ca teg o ry — a 12 p e r cent ra tio fo r net h elp offset th e ab so rp tio n of rese rv e s th ro u g h w ill h ave a sh a rp im pact on b an k s of th is size. T h is p a rtic u la r action w ill release $400 m illion in reserv es, an d of th is am o u n t $250 m illion w ill go to c o u n try b an k s w ith n et d em an d dep o sits of m o re th a n $10 m illion. O n e p a r t of th e rese rv e re s tru c tu rin g w ill ch an g e th e m a n n e r in w hich “ rese rv e city b a n k s” a re d esig n ated. U n d e r th e am en d m en t, a bank is a rese rv e city b an k au to m atically w h en ev er th e av e rag e of its n et d em and dep o sits fo r th e rese rv e p erio d rises above $400 m illion. In a u th o riz in g th e F e d e ra l R eserv e B an k s to g ra n t te m p o ra ry w aiv ers of p en alties on c e rta in d eficien cies in rese rv e s a ttrib u ta b le to the changes in R e g u la tio n s J a n d D , th e B o a rd set th e fo llo w in g g u id e lin e s : — A w aiv er w ill be g ra n te d initially only fo r p en alties on rese rv e deficiencies equal to a re d u c tio n in available fu n d s th a t exceeds tw o p er cent of a m em b er b a n k ’s n et d em an d d eposits. — T h e a m o u n t of deficiency eligible fo r w aiv er of p en alties w ill decrease one p er cen t of n et d em an d deposits fo r each q u a rte r b eg in n in g J a n u a ry 1, 1973. — N o fu rth e r w aiv e rs w ill be g ra n te d u n d e r th is a u th o rity a fte r J u n e 30, 1974. Check collection (Regulation J) T h e B o a rd ad o p ted th e p ro p o sals it m ade in M arch fo r rev isin g its R e g u la tio n J , co v erin g collection of checks by th e F e d e ra l R e serv e S ystem . A t th e sam e tim e, it to o k step s to a tte n u a te a n d m itig ate th e im pact on affected ban k s of fa ste r check collection. C om m ercial b an k s th a t a re m em bers of th e F e d e ra l R e serv e S y stem send to th e F e d e ra l R e serv e fo r collection checks deposited by th e ir cu sto m e rs th a t a re d ra w n fo r th e m ost p a rt on b an k s o u tsid e th e ir local clea rin g system s. T h e F e d e ra l R e serv e p re se n ts th e checks, fo r collection, to th e b an k s a g a in st w hich th ey a re d raw n . N o n m em b er ban k s use F e d e ra l R e serv e collection facilities by sen d in g th e ir checks to th e F e d e ra l R e serv e th ro u g h a m em b er bank. T h e F e d e ra l R e serv e cre d its th e rese rv e acco u n t of m e m b er b an k s w hich send checks to it fo r collection. T h e R e serv e B a n k reco v ers th e am o u n ts it h as cre d ited w h en it collects fro m ban k s w hose cu sto m e rs w ro te th e checks. T h e rev ised check collection reg u la tio n re q u ire s all b an k s to p ay F e d e ra l R e serv e p re se n ts th em fo r pay m en t, an d to m ake th e p ay m en t F e d e ra l R e serv e th a t day, i.e., to pay in im m ed iately available funds. In ex p ected to p ay fo r its checks p rio r to receip t of its cash le tte r fro m rig h t of a ban k to r e tu r n any check on th e follow ing day be affected. fo r in no th e th e ir checks th e sam e d ay th e fu n d s th a t a re available to th e case, h o w ev er, w ould a b an k be R e serv e B an k . N o r w o u ld th e N e a rly all ban k s in th e 12 cities w h ere th e F e d e ra l R e serv e b an k s a re located, a n d th e 25 cities w ith o th e r F e d e ra l R e serv e offices, h ave been on such an im m ed iate p ay m en t basis. P a y m e n t fo r checks by th ese banks an d th e ir cu sto m e rs a re n o t affected by th e new check collection p ro ced u res. T h e y w ill, of co u rse, benefit fro m e a rlie r cre d it fro m b an k s w hose ea rlier p ay m en t is p assed on by th e F e d e ra l R eserv e. In recen t m o n th s, in fu rth e ra n c e of F e d e ra l R eserv e policy aim ed a t m o d ern izin g th e n a tio n ’s p ay m en ts m echanism , th e F e d e ra l R e serv e B an k s have b eg u n estab lish in g R eg io n al C heck P ro c e ssin g C e n te rs ( R C P C s ) to serv e e x p a n d ed “ zones of im m ediate p a y m e n t” aro u n d , as w ell as in, th e ir cities. B a n k s an d th e ir c u s to m e rs in th ese zones also h ave been on an im m ed iate p ay m en ts basis an d th e ir p ay m en t p rac tice s a re th u s no t affected by th e new check collection p ro ced u res. T h e ban k s th a t m ay be ad v ersely affected m o st by th e rev ised check collection p ro ce d u re a re th o se o u t side cities w ith F e d e ra l R e serv e facilities, an d o u tsid e th e im m ed iate p ay m en t a re a s serv ed by th e R C P C s . S u ch banks, w hich w ill go on an im m ediate p ay m en t basis, g en e rate som e 15 p e r cen t of th e d o llar vo lu m e o f all checks, an d ab o u t half of th e 100 m illion checks c u rre n tly w ritte n in th e U n ite d S ta te s each b u sin ess day. W h e th e r o r n o t th e y a re ad v ersely affected d ep en d s up o n th e o ffsettin g a m o u n t of e a rlie r cre d its th ey w ill receive an d red u c tio n of th e ir re q u ire d reserv es. T h e se “ c o u n try ” b an k s h ad prev io u sly paid fo r checks p rese n ted to th em in fu n d s collectible one day o r m o re a fte r p rese n tatio n . T h is p rac tice— ro o ted in tim es of slow er co m m u n icatio n s— m ad e available to such ban k s fo r in v e stm e n t a n av e rag e of a p p ro x im a te ly $2 billion a d ay in fu n d s th a t w ere in th e p ro cess of collection th ro u g h th e F e d e ra l R eserve. T h is $2 billion “ flo at” w ill be elim in ated u n d e r th e new sam ed ay -p a y m en t check collection pro ced u re. T h e new check collection ru les th u s place all b an k s— city an d co u n try , m em b er an d n o n m e m b er__ on the sam e fo oting as re g a rd s check collection by th e F e d e ra l R eserv e. A n u m b e r of th e m e m b er “ c o u n try ” banks not now p ay in g in im m ediately available fu n d s a re m ed iu m to la rg e b an k s, located in th e m an y sizeable cities th a t do no t have F e d e ra l R e serv e offices a n d in su b u rb a n are as a ro u n d F e d e ra l R e serv e cities. In m a k in g im m ediate ra th e r th a n d e fe rre d p ay m en t fo r th e ir checks, b an k s n o t a lre a d y on an im m ed iate pay m en t basis could— in th e absence of o ffsettin g actio n by th e B o a rd — lose in v estab le fu n d s. T h e B o a rd ’s action w ill p ro v id e new ly investable fu n d s re su ltin g fro m th e lo w er rese rv e s th e new re se rv e schedule p e r m its. A n d th e effect of h av in g to pay th e F e d e ra l R e serv e fo r th e ir checks e a rlie r w ill be offset b y e a rlie r cre d it fro m the F e d e ra l R e serv e on checks w ritte n in th e ir favor. W h e re e a rlie r c re d it is g iv en fo r checks due to e ith e r m em b er o r no n m em b er ban k s o p e ra tin g th ro u g h a c o rre sp o n d e n t ban k , th e F e d e ra l R e serv e an ticip ate s th a t c o rre sp o n d e n t b an k s w ill p ass th e e a rlie r c re d it b ack to th e b an k s th ey rep rese n t. D esp ite th ese offsets, som e ban k s w ill n ev e rth eless still have to give u p fu n d s p rev io u sly available to them in th e form of float. T o a tte n u a te a n d m itig ate th e effect of th is re d u c tio n of fu n d s, th e B o a rd h as a u th o riz e d the R e serv e B a n k s to w aive p en alties on c e rta in deficiencies in rese rv e s fo r p erio d s of up to 21 m onths. T h e a m o u n t of fu n d s on w hich p en alties in itially w ill be w aived, a fte r th e new check collection p ro ce d u re goes in to effect, w ill dep en d up o n th e am o u n t of n et loss of fu n d s a b an k ex p erien ces. T h e n et loss of rese rv e s w ill be ( 1 ) the rese rv e red u c tio n d u e to im m ed iate ra th e r th a n d e fe rre d p ay m en t fo r checks th a t ( 2 ) is n o t offset by th e B o a rd ’s new re se rv e re q u ire m e n t stru c tu re o r ( 3 ) by receip t of e a rlie r cre d it fo r checks u n d e r the new check collection ru les. F o r th e few b an k s w hose rese rv e re q u ire m e n ts w o u ld be increased, th e ad d itio n a l rese rv e s re q u ire d w o u ld be ad d ed to calculate th e to ta l loss of reserv es. T h e am o u n t w ill be figured as a p e r ce n t of th e b a n k ’s n et d em and deposits. W h e re a b a n k ’s n et re d u c tio n of fu n d s is less th a n 2 p er cen t of its n et d em an d d ep o sits, no w aiv er of pen alties w ill be g ra n te d . P e n a ltie s w ill be w aiv ed on reserv e deficiencies in excess of 2 p e r cen t of n e t d em an d dep o sits th ro u g h th e re m a in d e r of th is y ear. T h e re a fte r, th e w aiv e r of p en alties w ill be red u ced a t th e b eg in n in g of each q u a rte r on an a m o u n t equal to 1 p er cent of th e b a n k ’s n et d em an d d ep o sits, up to a m ax im u m o f six q u a rte rs. Copies of the am endm ents are enclosed. T he B o ard ’s o rd er on w aiver of penalties fo r deficiencies in reserves is prin ted below. A dditional copies of this circu lar and its enclosures will be fu rn ish ed upon request. A lfred H a y es, President. W a i v e r o f P e n a l t i e s f o r D e f ic ie n c ie s i n R e s e r v e s O n M a rc h 28, 1972, th e B o a rd a n n o u n c ed th a t it w as co n sid erin g am en d in g its R e g u la tio n s D an d J to re s tru c tu re an d red u ce rese rv e re q u ire m e n ts an d to re q u ire ban k s to p ay checks on th e d ay of p re se n tm e n t in im m ediately available funds. A fte r rev ie w in g th e com m ents received, th e B o a rd has d eterm in e d th a t m em b er ban k s th a t w ill be ad v ersely affected to a su b stan tia l degree by ad o p tio n of these p ro p o sals should be p e r m itted a reaso n ab le tim e to a d ju s t to th e effects of th e new reg u la tio n s. B elow is th e te x t o f a le tte r to th e F e d e ra l R e serv e B a n k s se ttin g o u t th is m e a su re : T h e B o a rd re g a rd s it as a p p ro p ria te fo r a R e serv e B a n k to w aive p en alties in som e cases fo r m em b er b an k rese rv e deficiencies th a t re su lt fro m th e im p le m e n tatio n of th e p ro p o sed am en d m e n ts to R e g u la tio n s D an d J , an n o u n c ed on M a rc h 28, 1972. In th o se cases w here th e im p lem en tatio n of th ese changes w ould re su lt in a n et loss of fu n d s (a s co m p u ted by th e R e serv e B a n k ) in an a m o u n t m o re th a n tw o p e r cent of th e m em ber b a n k ’s n et d em an d deposits, it seem s a p p ro p ri ate to w aive c e rta in of th e pen alties fo r rese rv e defi ciencies. F o r the rese rv e perio d s en d in g on o r before Ja n u a ry 1, 1973, it is re g a rd e d as a p p ro p ria te in such cases to wraive p en alties on deficiencies in am o u n ts of th e full loss, less th e tw o p e r cent of n e t d em an d d e posits. F o r each su b seq u en t q u a rte r, an ad d itio n a l one p er cen t of n et d em an d d ep o sits w ould be su b trac te d from th e am o u n t o f deficiencies eligible fo r w aiver, u n til th e a m o u n t of th e w aiv e r is ev en tu ally zero. T h is a u th o rizatio n for w aiv e rs w ill te rm in a te on Tune 30 1974. T h e loss to each m em b er b an k sh o u ld be calculated as the a v e rag e a m o u n t1 of th e b a n k ’s F e d e ra l R eserv e cash le tte r fo r w hich it w o u ld m ak e ea rlier p aym ent, less th e a v e rag e a m o u n t of s a m e -te rrito ry co u n try item s fo r w hich th e b an k w ould receive ea rlie r cred it, o r tw o p er cen t of its n et d em an d dep o sits, w h ich ev er is less, less th e av e rag e red u c tio n in rese rv e req u irem en ts d ue to th e ch an g e in R e g u la tio n D. ( F o r th o se few b an k s w hose rese rv e re q u ire m e n ts w ould be increased, the ch an g e in rese rv e s w ould be ad d e d ra th e r th a n su b tra c te d .) A p p licatio n s fo r w aiv er sh o u ld be su b m itte d by a m em b er b an k p rio r to A u g u st 15, 1972. i The average amount will be calculated over the 4-week period ending on June 28, 1972. However, if an R CPC has been implemented during 1972, the Reserve Bank should choose a 4-week period prior to the date of such implementation. In addition, for purposes of these calculations, the figure for net demand deposits should be the average amount of net demand deposits over that same period. B G oard of overnors of th e F ederal R eserve Sy ste m RESERVES OF M EM BER BANKS A M E N D M E N T S T O R E G U L A T IO N D 1. E ffective Septem ber 21, 1972, sections 204.51 through 204.57 are revoked. 2. Effective Septem ber 21,1972, sections 204.2(a) (2) and (3) are amended to read as follows: S E C T IO N 204.2—C O M P U T A T IO N O F RESERVES (a) A m o u n ts o f re se rv e s to b e m a in ta in e d . * * * (2) A member bank in a reserve city is deemed to have a character of business similar to banks outside of reserve cities whenever it has average net demand deposit balances of $400 million or less for the second computation period preceding the current reserve main tenance period. The Board grants permission to any such bank or banks to maintain for the current period the reserve balances that are in effect for member banks not located in reserve cities. Such permission and any other permission granted by the Board to maintain reduced reserves is automatically suspended for the current reserve maintenance period with respect to any member bank in a reserve city that has average net demand deposit balances of more than $400 million for the second computation period preceding the cu r rent reserve maintenance period. Any such bank shall maintain for the current period the reserve balances in effect for banks located in reserve cities. (3) For the purposes of this P art, each city having a Federal Reserve office is a reserve city. In addition, any city, town, village or other community, whether or not incorporated, is a reserve city for a reserve computation period if it contains a head office of any member bank that had average daily net demand de posit balances of more than $400 million for the second computation period preceding the current reserve main tenance period. 3. Effective during the period from Septem ber 21 to Septem ber 27, 1972, sections 204.5(a) (1 ) (iii) and ( ) (iii) are amendeed to read as follows: 2 S E C T IO N 204.5—R E S E R V E R E Q U IR E M E N T S (a ) R e s e rv e p e rc e n ta g e s . P ursuant to the provi sions of section 19 of the Federal Reserve A ct and §204.2(a ) and subject to paragraph (c ) of this section, the Board of Gove nors of the Federal Reserve System hereby prescribes the following reserve balances that each member bank of the Federal Reserve System is required to maintain on deposit with the Federal R e serve Bank of its d is tric t: 8 * $100 (2) I f in a r e s e rv e c ity (except as to any bank located in such a city that is perm itted by the Board of Governors of the Federal Reserve System, pursuant to §204.2(a) ( ), to maintain the reserves specified in subparagraph ( ) of this p arag rap h )— 2 1 * * * (Hii) $61,260,000 plus \7 y 2 per cent of its net demand deposits in excess of $400 million. 4. E ffective Septem ber 28, 1972, sections 204.5(a) ( ) (iii) «Cnd ( ) (iii) are amended to read as follows: 1 2 S E C T IO N 204.5—R E S E R V E R E Q U IR E M E N T S (a ) R e se rv e p e rc e n ta g e s . Pursuant to the pro visions of section 19 of the Federal Reserve A ct and §204.2(a ) and subject to paragraph (c ) of this sec tion, the Board of Governors of the Federal Reserve System hereby prescribes the following reserve balances that each member bank of the Federal Reserve System is required to maintain on deposit with the Federal Reserve Bank of its d is tric t: (1) I f n o t in a re s e rv e c ity — * 8 * * (iii) (a) per cent of its net demand deposits if its aggregate net demand deposits are million or less, (b) $160,000 plus per cent of its net demand de posits in excess of million if its aggregate net de mand deposits are in excess of million but less than $10 million, (c) $960,000 plus 12 per cent of its net de mand deposits in excess of million if its aggregate net demand deposits are in excess of million but less than million, or (d ) $11,760,000 plus 13 per cent of its net demand deposits in excess of m il lion. 10 $2 $2 $2 $10 $100 $10 $100 (2 ) I f in a re s e rv e c ity (except as to any bank located in such a city that is perm itted by the Board of Governors of the Federal Reserve System, pursuant to §204.2(a ) (2 ), to maintain the reserves specified in subparagraph ( ) of this p ara g rap h )— * (iii) (a) per cent of its net demand deposits if its aggregate net demand deposits are million or less, $10 $100 * $2 $2 $10 1 (1) I f n o t in a re s e rv e c ity — * 10 $2 (b) $160,000 plus per cent of its net demand de posits in excess of million if its aggregate net de mand deposits are in excess of million but less than $10 million, (c) $960,000 plus 12 per cent of its net de mand deposits in excess of million if its aggregate net demand deposits are in excess of million but less than $100 million, o r (d) $11,760,000 plus 13 per cent of its net demand deposits in excess of m il lion, except that in the case of a bank th at was con sidered located in a reserve city prior to September 21, 1972, the reserve percentage shall be 1 6 ^ per cent of its net demand deposits in excess of million. * * (iii) $50,760,000 plus \7 y 2 per cent of its net demand deposits in excess of $400 million. PRINTED IN N EW YORK B oard of G overnors of th e F ederal R eserve System COLLECTION OF CHECKS AND O TH ER ITEM S BY FED ERA L RESERVE BANKS A M E N D M E N T S T O R E G U L A T IO N J Effective September 21, 1972, the Board has amended its Regulation J as follow s: 1. Section 210.9(a) is amended to read: S E C T IO N 210.9—R E M IT T A N C E A N D PA YM ENT (a ) (1) C a sh ite m . A paying bank becomes ac countable for the amount of each cash item received by it from or through a Federal Reserve Bank at the close of the paying bank’s banking day on which the cash item was so received if it retains such item after the close of such banking day, unless, prior to such time, it pays or rem its for the item as herein provided. Paym ent or rem ittance therefor shall be effected on such day of receipt by: (1) debit to an account on the books of a Federal Reserve B ank; or (ii) payment in cash ;-o r (iii) in the discretion of the Federal Reserve Bank, any other form of payment or rem ittan ce: Provided, that the proceeds of any such payment or remittance in any form herein stated shall be available to the Federal Reserve Bank not later than the close of the banking day for such Federal Reserve Bank on the day on which such item was so received by the paying bank. If the banking day on which an item is received by a paying bank is not a banking day for the Federal Reserve Bank from which the item was re ceived, any payment or remittance made hereunder shall be effected on the banking day of both such Federal Reserve Bank and such paying bank next following the day of receipt of such item. 4 (2) N o n c a sh ite m . A Federal Reserve Bank may require the paying bank or collecting bank to which it has presented, sent, or forwarded any noncash item pursuant to §210.7 to pay or remit for such item in cash, but is authorized, in its discretion, to permit such paying bank or collecting bank to author ize or cause payment or remittance therefor to be made by a debit to an account on the books of such Federal Reserve Bank or to pay or rem it therefor in any of the following which is in a form acceptable to such Federal Reserve B a n k : Bank draft, transfer of funds or bank credit, or any other form of payment or remittance authorized by applicable State law. 3 ( ) N o n b a n k p a y o r. A Federal Reserve Bank may require the nonbank payor to which it has pre sented any cash item or noncash item pursuant to §210.7 to pay therefor in cash, but is authorized, in 4 A cash item received by a paying bank shall be deemed to have been received by the bank on its next banking day if the item is received under one of the follow ing circumstances: (1 ) on a day other than a banking day for it, or (2 ) on a banking day for it, but (a ) after its regular banking hours, or (b ) after a “ cut-off hour” established by it in accordance with applicable State law, or (c ) during afternoon or evening periods when it is open for limited functions only. its discretion, to perm it such nonbank payor to pay therefor in any of the following which is in a form acceptable to such Federal Reserve B ank: Cashier’s check, certified check, or other bank draft or obliga tion. 2. Section 210.12(a) is amended to read: S E C T IO N 210.12—R E T U R N O F C A SH IT E M S (a ) A paying bank that receives a cash item from or through a Federal Reserve Bank, otherwise than for immediate payment over the counter, and that pays or remits for such item as provided in §210.9(a) of this P a rt shall have the right to recover any payment or remittance so made if, before it has finally paid the item, it returns the item before midnight of its banking day next following the banking day of receipt or takes such other action to recover such payment or rem it tance within such time and by such means as may be provided by applicable State la w : Provided, that the foregoing provisions shall not extend, nor shall the time herein provided for return be extended by, the time for return of unpaid items fixed by the rules and practices of any clearing house through which the item was presented or fixed by the provisions of any special collection agreem ent pursuant to which it was pre sented. 3. Section 210.13 is amended to re a d : S E C T IO N 210.13—C H A R G E B A C K O F U N P A ID C A S H IT E M S A N D N O N C A S H IT E M S If a Federal Reserve Bank does not receive payment for any cash item in accordance with the provisions of §210.9(a ) , the amount of such item may be charged back to the sender, regardless of whether or not the item itself can be returned. If a Federal Reserve Bank does not receive payment in actually and finally col lected funds for any cash item or noncash item for which it gave credit subject to payment in actually and finally collected funds, the amount of such item shall be charged back to the sender, regardless of w hether or not the item itself can be returned. In the event the amount of the item is charged back, neither the owner or holder of any such item nor the sender shall have the right of recourse upon, interest in, or right of payment from, any reserve balance, clearing account, deposit account, or other funds of the paying bank or of any collecting bank, in the possession of the Federal Reserve Bank. No draft, authorization to charge, or other order, upon any reserve balance, clear ing account, deposit account, or other funds in the possession of a Federal Reserve Bank, issued for the purpose of paying or rem itting for any cash items or noncash items handled under the terms of this P art, will be paid, acted upon, or honored after receipt by such Federal Reserve Bank of notice of suspension or closing of the bank making the payment or remittance for its own or another’s account. 4. Section 210.15 is amended to substitute the term “§210.9” for the term “§210.12” appearing at the end of §210.15. PRINTED IN NEW YORK
@FedFRASER