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FEDERAL RESERVE BANK
O F NEW YORK
Circular No. 7502
l_Novemberl3, 1974 J
REGULATION D
Changes in Reserve Requirements
To A ll M em ber Banks, and Others Concerned,
in the Second Federal Reserve District:
Follow in g is the text o f a statem ent issued today by the B oard o f G overn ors o f the Federal Reserve
System:
The Board o f Governors o f the Federal Reserve System today approved a restructuring o f reserve require
ments that will help meet the seasonal need for bank reserves over the coming weeks.
The Board’s action is also designed to improve the liquidity o f the banking system by encouraging member
banks to seek longer-term time deposits. This will be done by lowering reserve requirements on longer-term time
deposits and increasing reserve requirements on shorter-term time deposits.
The net effect o f the overall restructuring — which includes some reduction in reserve requirements on
demand deposits over $400 million — will be to release about $750 million in reserves to the banking system.
Normally, the Federal Reserve provides a substantial amount o f reserves to accomodate the seasonal
expansion in the demand for money and credit that occurs over this period, particularly during the Christmas
shopping season. This restructuring will provide part o f the needed reserves directly to member banks rather
than through open market operations.
Actions taken by the Board will:
1. Reduce from 5 percent to 3 percent the reserve requirement on all time deposits with an initial maturity
o f four months or longer.
2. Increase from 5 percent to 6 percent the reserve requirement on all time deposits with an initial maturity
o f less than four months. (The first $5 million o f such deposits at each member bank will be subject to a 3
percent reserve requirement).
3. Reduce from 18 percent to 17-1/2 percent the reserve requirement on net demand deposits over $400
million.
4. Remove the remaining marginal reserve requirement o f 3 percent on large certificates o f deposit issued
to mature in less than four months.
All changes will apply to deposits outstanding in the week beginning November 28 and will release reserves
in the week beginning December 12. The net reduction in reserves will be distributed among various size banks
as shown in the following table:
Size o f Bank
Net Reduction in
Required Reserves
(total deposits in million o f dollars)
Under 50
50 — 100
100 — 500
500 and over
*
$240
$135
$140
$245
million
million
million
million
Reserve Requirements on Time Deposits
Reserve requirements on time deposits will be restructured to provide for a higher reserve requirement on
shorter-term time deposits and a lower reserve requirement on longer-term time deposits. The following table
depicts the new reserve structure:
(O ver)
Time and Savings Deposits
Type o f Deposit
Ratio
Savings deposits
Other Time Deposits:
30 -119 days
$5 million and under
Over $5 million
120 days and over
3
3
6
3
This change introduces a maturity breakdown for reserve requirements on “ other time deposits” regardless
o f denomination. Under the system now in effect, member banks are required to maintain a 3 percent reserve
requirement on “ other time deposits” up to $5 million, and a 5 percent reserve requirement on “ other time
deposits” o f more than $5 million.
Reserve Requirements on Demand Deposits
Reserve requirements will be reduced from 18 percent to 17-1/2 percent on net demand deposits over $400
million. This will offset the increase in required reserves that large banks will experience as a result o f changes
in the structure o f reserve requirements on time deposits.
The reduction will also narrow somewhat the gap now existing in reserve requirements for large banks as
shown in the following table:
Net Demand Deposits
Deposits
Old Reserve Requirement
New Reserve Requirement
(in millions o f dollars)
{percent)
(percent)
0 —
8
2
2 - -1 0
1 0 - - 100
100- -4 0 0
Over 400
<
8
10-1/2
12-1/2
13-1/2
17-1/2
10- 1/2
12- 1/2
13-1/2
18
Marginal Reserve Requirement
Removal o f the remaining marginal reserve requirement o f 3 percent affects large certificates o f deposit
($100,000 and over) maturing in less than four months. The Board in September removed the marginal reserve
requirement on large C D ’s with an initial maturity o f four months or longer.
This action was taken in recognition o f the fact that the volume o f large C D ’s has declined in recent weeks
and in view o f the outdated base period used by banks to compute their marginal reserves.
The elimination o f the marginal reserve requirement on large C D ’s means that nonmember banks that
maintained this reserve requirement voluntarily are no longer asked to do so as o f the effective date o f today’s
action.
A marginal reserve requirement (the regular 5 percent plus a supplemental 3 percent) was first announced
by the Board on May 16, 1973. An additional 3 percent marginal reserve was announced on September 7, 1973,
but this was removed by the Board last December. On September 4, 1974, the Board announced removal o f the
3 percent marginal reserve requirement on large C D ’ s with an initial maturity o f four months or longer. Today’s
action will result in removal o f the remaining marginal reserve requirement.
The marginal reserve requirement applied to increases (beyond the amount outstanding in the week ended
May 16, 1973) in the total o f (a) time deposits in denominations o f $100,000 and over, and (b) bank-related
commercial paper and finance bills with a maturity o f 30 days or longer. In no case did the supplemental reserve
apply to banks whose deposits o f this type totaled less than $10 million.
*
*
*
Reserve requirements on borrowings o f Eurodollars by American banks remain at 8 percent. Agencies and
branches o f foreign banks that are maintaining this reserve requirement voluntarily are not affected by today’s
action.
A copy of a revised Supplement to Regulation D, “ Reserves of Member Banks,” of the Board of
Governors, reflecting these changes, will be sent to you shortly.
Alfred Hayes,
P re sid e n t.
@FedFRASER