Full text of Federal Reserve Bank of New York Circulars : 7304. Proposed Amendments to Regulations D and Q

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FED ER AL RESERVE BANK
OF NEW YORK
r Circular No. 7 3 0 4 ~I
L D ecem ber 24, 1973 J

P R O P O S E D A M E N D M E N T S T O R E G U L A T IO N S D A N D Q
To All Member Banlcs, and Others Concerned,
in the Second Federal Reserve D istrict:

The Board of Governors of the Federal Reserve System has proposed amendments to its
Regulation D, “ Reserves of Member Banks,” and its Regulation Q, “ Interest on D eposits,” to
classify as “ deposits” funds received by member banks through the issuance of due bills that are
uncollateralized, and thereby to extend reserve requirements and interest-rate limitations to
such funds.
Printed below is the text of the proposal. Comments thereon should be submitted by January
18, 1974, and may be sent to our Regulations and Bank Analysis Department.
A lfred H ayes,

President.
(Regs. D , Q )
R E S E R V E S O F M E M B E R B A N K S ; P A Y M E N T O F IN T E R E S T O N D E P O S IT S
D ue B ills as Deposits

The Board of Governors proposes to amend Regula­
tions D and Q to classify as “ deposits”, and thereby
extend reserve requirements and interest rate limita­
tions to funds received by member banks through the
issuance of due bills that are uncollateralized. Such
treatment would apply to due bills issued in connec­
tion with sales of securities where the securities pur­
chased are not delivered to the purchaser at the time
of payment, whether such funds are received from an­
other bank or other customers and regardless of the
method by which such transaction is evidenced or re­
corded— whether by issuance of an instrument, oral
undertaking or understanding, record notation or
other manner. The 1966 amendments to Regulations D
and Q included due bills issued by a member bank
principally as a means of obtaining funds to be used
in its banking business within the definition of “ depos­
its”. Funds received in exchange for due bills issued
in connection with a “ genuine” securities transaction
with respect to which the bank is not in a position to
make same-day delivery against payment, however, are
not now classified as a deposit under Regulations D
and Q. The substantial increase in the use of due bills
since adoption of the 1966 amendments evidences an
apparent need to apply a clearer standard to due bill
transactions and to insure that when used as a means
of obtaining funds, funds so obtained are subject to
the reserve and interest rate provisions of Regulations
D and Q.
The proposed amendments would not apply reserve
requirements and interest rate limitations to due bill
transactions that are fully secured by securities simi­
lar to those that are the subject of the due bill trans­
action and thereby would establish a presumption in
Regulations D and Q that uncollateralized due bills
are issued principally for the purpose of obtaining
funds for the issuing bank.



To aid in the consideration of the matter by the
Board, interested persons are invited to submit rele­
vant data, views, and arguments. Any such material
should be submitted in writing to the Secretary of the
Board of Governors of the Federal Reserve System,
Washington, D. C. 20551, to be received not later than
January 18, 1974. Such material will be made avail­
able for inspection and copying upon request, except
as provided in § 261.6(a) of the Board’s rules regard­
ing availability of information.
To implement its proposal, the Board proposes to
amend sections 204.1(f) of Regulation D (12 CFR
part 204) and 217.1(f) of Regulation Q (12 CFR
217) by adding a new sentence at the end thereof to
read as follows:
SECTION 204.1 — DEFINITIONS
SECTION 217.1 — DEFINITIONS
*
*
*
(f) Deposits as including certain promissory notes
and other obligations.
“ Notwithstanding the foregoing, the term ‘deposit’
includes any liability or undertaking on the part of a
member bank to sell or deliver securities to or pur­
chase securities for the account of any customer, in­
volving the receipt of funds by the member bank or a
debit to an account of such customer before the secu­
rities are delivered, unless such liability or undertak­
ing is fully secured by collateral consisting of secu­
rities similar to and with an aggregate market value
at least equal to that of the securities which are the
subject of the member bank’s liability or undertaking. ”
By order of the Board of Governors, December 13
1973.