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FEDERAL RESERVE BANK OF N EW YORK r Circular No. 7 4 1 5 U June 2 7 , 1974 ~J J REVISED PROPOSED AMENDMENT TO REGULATION D Funds Secured Through Issuance of Uncollateralized “ Due Bills” To All M em ber Banks, and Others C on cern ed, in the Second Federal R eserve D istrict: Our Circular No. 7304, dated December 24, 1973, contained the text of a proposal by the Board of Governors of the Federal Reserve System to amend its Regulation D, “Reserves of Member Banks,” and its Regulation Q, “Interest on Deposits.” That proposal would classify as “deposits” funds received by member banks through the issuance of uncollateralized “due bills,” and thereby extend reserve require ments and interest rate limitations to such funds. The Board of Governors has revised that proposal, principally by limiting the proposal to Regula tion D. As indicated below, it is felt that the application of Regulation Q interest rate limitations to uncollateralized due bills under the proposal would not add significantly to the effectiveness of the collateralization requirement. Printed below is the text of the revised proposal. Comments thereon should be submitted by July 31, and may be sent to our Regulations and Bank Analysis Department. A lfred H ayes, President. REGULATION D — RESERVES OF MEMBER BANKS Due Bills as Deposits By n otice p u b lish ed in the F ed eral R egister o f Since 1966 du e bills that are issued b y a m em ber D ece m b e r 26, 1973 (3 8 F ederal R egister 3 5 2 3 6 ), the bank p rin cipally as a means o f ob ta in in g funds to b e B oard o f G overnors p rop o se d to am end R egulations used in its banking business have b een defined as D and Q to classify as “ deposits” ( and th ereby extend reserve requirem ents and interest rate lim itations t o ) funds receiv ed b y m em ber banks through issuance o f deposits su b ject to reserve requirem ents and interest d u e bills that are uncollateralized. Pursuant to its authority u nder §19 o f the F ederal R eserve A ct to define the terms u sed in that section and prescribe regulations to effectuate the purposes and prevent eva sions thereof, and for the reasons stated in its notice rate limitations u nder b oth R egulations D and Q. T h e p rop osa l w o u ld not alter the regu latory stance a d op ted in 1966 b u t w o u ld ad d a p rovision u nder R egulation D to define as deposits funds re ceiv ed from the issuance o f du e bills in con n ection w ith sales o f o f D ece m b e r 26, 1973, the B oard p roposes an am end securities w h ere the securities sold are n ot d eliv ered to or fo r an a ccou n t o f the pu rchaser w ithin three business days from the tim e o f purchase an d w here, m ent to R egu lation D w h ich differs from the am en d m ent p rop osed in D ecem b er. T h e present prop osal is in substantially the same form as p reviou sly publish ed, fo r any p e rio d thereafter, such d u e bills are not fu lly collateralized b y securities similar to those that the du e bill represents. In the prop osal, du e bills w h ich but is lim ited to R egu lation D , since u p on further lem ain u ncollateralized fo r m ore than three business o f the effects o f the collateralization days are treated as d em an d deposits u nd er R egu la tion D . c o n s id e r a tio n requirem ent as originally p ro p osed , it was b eliev ed that application o f R egu lation Q interest rate lim ita tions to u ncollateralized du e bills u nder this prop osal D ep osit treatm ent is p ro p o se d to such du e bill w o u ld not ad d significantly to the effectiveness o f the transactions w h eth er fu n ds are receiv ed from another collateralization requirem ent. bank or other custom ers and regardless o f the m ethod (o v e r ) b y w h ich such transactions are e v id e n ce d or re co rd e d fo r in sp ection and co p y in g u p on request, excep t as — w h eth er b y issuance o f an instrum ent, oral u n d er p ro v id e d in §261.6 ( a ) o f the B o a rd s Rules R egarding A vailability o f Inform ation. taking or understanding, re co rd notation or other m anner. T h e B oard has p ro p o se d a th ree-d ay p e rio d o f exem p tion fro m the collateralization requ irem en t in part in recog n ition o f the apparent role o f d u e bills T o im p lem en t its proposal, the B oard proposes to am end section 2 0 4 .1 (f) o f R egulation D (1 2 C F R Part as a clearin g veh icle an d in general as a means o f 2 0 4 ) b y a d d in g a n ew sentence at the en d th ereof to read as fo llo w s: facilita tin g sales o f govern m en t securities. T h e p ro p o se d regulation requires d u e bills to b e S E C T IO N 204.1— D E F IN IT IO N S collateralized b y securities “ sim ilar to” the securities w h ich are su b ject to the m em b er ban k ’s liability if the d u e b ill is to b e exem pt from R egu la tion D . It w o u ld appear that u n d er this p rop osa l d u e bills in T reasury (f) Deposits as including certain promissory notes and other obligations. issues co u ld b e secu red b y app rop riate am ounts o f any oth er m arketable T reasury issues regardless o f # * * m aturities and that du e bills in F ed era l a g en cy secu rities co u ld b e secu red b y either T reasury or agen cy “ In a d dition to the foreg oin g , the term ‘d ep osit’ issues, again regardless o f m aturities, and still rem ain in cludes any liability or undertaking on the part o f exem pt. collateralization a m em ber bank to sell or d eliver securities to, or requ irem en t m ay b e satisfied b y the p o o lin g o f a p p ro purchase securities fo r the a ccou n t o f any custom er (in clu d in g oth er b a n k s), in volvin g the receip t o f funds It also appears that the priate collateral as w e ll as b y p ie c e -b y -p ie c e colla ter alization using sp ecific T reasury and F ed eral a gen cy securities. b y the m em ber bank or a d eb it to an a ccou n t o f such custom er b e fo re the securities are d elivered, unless such securities are d eliv ered to or fo r the accou n t o f T o aid in the con sideration o f the m atter b y the B oard, interested persons are in vited to subm it rel evant data, view s, and argum ents. A n y such m aterial sh ou ld b e su bm itted in w riting to the Secretary o f the B oard o f G overn ors o f the F ederal R eserve System, W a sh in gton , D . C. 20551, to b e re ce iv e d not later than July 31, 1974. Such material w ill b e m a d e available the purchaser w ithin three business days from the date o f purchase or, thereafter, such liability or undertak ing is fu lly secu red b y collateral consisting o f on e or m ore securities ‘sim ilar to’ and with an aggregate market value at least equ al to that o f the securities w h ich are the su b ject o f the m em ber bank’s liability or undertaking.”
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