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FEDERAL RESERVE BANK OF NEW YORK rCircular No. 7 4 6 4 1 L September 20 , 1974 J REGULATION D Amendment and Interpretation on Funds Secured Through Issuance of Uncollateralized Due Bills To All Member Banks, and Others Concerned, In the Second Federal Reserve District: Our Circular No. 7415, dated June 27, 1974, contained the text of a revised proposal by the Board of Governors of the Federal Reserve System to amend its Regulation D, “ Reserves of Mem ber Banks.” That proposal would classify as “ deposits,” under Regulation D, funds received by member banks through the issuance of uncollateralized due bills and thereby extend reserve re quirements to such funds. The Board of Governors has adopted an amendment, effective October 14, 1974, to Regula tion D in substantially the same form as the proposed amendment contained in Circular No. 7415. The Board has also issued an interpretation of Regulation D that describes the types of collater alization and other conditions required to remove due bill transactions from the reserve require ments of that regulation. In submitting the amendment and interpretation for publication in the Federal Register, the Board of Governors made the following statement: By notice published in the Federal Register o f July 1, 1974, (3 9 Federal Register 2 4243) the B oard of G overnors proposed to amend Regulation D to classify as “ deposits,” and thereby subject to reserve re quirements, funds received by member banks from the issuance of due bills in connection with sales of se curities where the securities sold are not delivered to or for the account of the purchaser within three business days from the time o f the purchase and wrhere, for any period thereafter, such due bills are not fully collateralized by securities similar to those that the due bill represents. T he July 1, 1974 proposal reflected the B oa rd ’ s co n sideration of comm ents received on its proposal of D ecem ber 26, 1973 (3 8 Federal Register 3 5 236) to amend both R egulations D and Q to classify uncollateralized due bills as deposits. A fter review and consideration of all comm ents received, pursuant to its authority under §19 o f the Federal R eserve A ct to define the terms used in that section and for the reasons stated in the B o a rd ’s previous notices on this subject, the B oard has ap proved an amendment to Regulation D in substantially the same form as published fo r com m ent on July 1, 1974. Since 1966 due bills that are issued by a member bank principally as a means o f obtaining funds to be used in its banking business have been defined as deposits subject to reserve requirements and interest rate limitations under both Regulations D and Q . T he B o a rd regards the g ood faith effort to make timely delivery o f the underlying security and full disclosure to custom ers that a due bill may be issued in lieu o f the secu rity sought to be purchased as basic elements of bona fide due bill transactions. T his amendment does not alter the regulatory stance adopted in 1966, but adds a provision under R egulation D to define as deposits funds received from the issuance o f due bills in con nection with sales o f securities where the securities sold are not delivered to or for an account o f the purchaser within three business days from the time of purchase and where, for any period thereafter, such due bills are not fully collateralized by securities similar to those that the due bill represents. U nder the amendment, due bill transactions entered into on or after the effective date o f this amend ment, which remain uncollateralized fo r m ore than three business days, are treated as demand deposits under ( o v er ) Regulation D. Deposit treatment applies to such due bill transactions whether funds are received from an other bank or other custom ers and regardless of the method by which such transactions are evidenced or recorded— whether by issuance o f an instrument, oral undertaking or understanding, record notation or other manner. A t the same time, the B oard approved an interpretation (1 2 C F R 204.110) intended to describe the types of collateralization and other conditions required to rem ove due bill transactions from the reserve re quirements o f Regulation D . T he interpretation approved by the B oard indicates that due bills in Treasury issues may be secured by appropriate amounts of any other marketable T reasury issues regardless of m a turities and that due bills in Federal agency securities can be secured by either T reasury or agency issues, again regardless o f maturities. T he B oard stated also that the collateralization requirement may be satisfied by the pooling o f appropriate collateral as well as by piec e-by-piece collateralization using specific Treasury and Federal agency securities. Enclosed are copies of the amendment to, and interpretation of, Regulation D. Additional copies will be furnished upon request. A lfred H a y e s , President.
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