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FEDERAL RESERVE BANK O F N EW YORK / r Circular No. 7 9 0 6 1 L June 29, 1976 J PROPOSED AMENDMENT TO REGULATION A Liberalization of Seasonal Borrowing Privilege To All Member Banks, and Others Concerned, in the Second Federal Reserve District: Following is the text of a statement issued June 23 by the Board of Governors of the Federal Reserve System: The Board of Governors of the Federal Reserve System today announced proposals to liberalize the condi tions which govern certain borrowing by member banks from the 12 Reserve Banks. The purpose of the change is to help banks, particularly smaller banks, that are subject to significant seasonal loan demand or deposit fluctuations, to meet the financial needs of their communities. The Board will receive comment on the proposal through July 23, 1976. The proposed changes would permit member banks to be eligible for seasonal credit from the Federal Reserve even though they maintain a portion of their liquid assets in the form of Federal funds, so long as such holdings conform to the bank’s normal operating experiences. Heretofore, the discount window was not available to such banks if they chose to hold Federal funds. The proposal also liberalizes the seasonal borrowing privilege in other ways. Presently, a bank qualifies for seasonal borrowing assistance if its need for funds in the peak season exceeds 5 per cent of average total deposits in the preceding year. The new proposal lowers this formula to 4 per cent of the first $100 million, and includes somewhat higher percentages for larger deposits. In computing eligibility for seasonal assistance, the proposal also reduces the minimum period during which the seasonal need must be evident. The new plan would reduce that test from eight to four weeks. The seasonal credit arrangement is not normally available to banks with deposits of $500 million or more. The proposed changes are aimed mainly at assisting smaller member banks, including those that typically maintain liquid balances in the form of Federal funds. Banks in agricultural and other areas which are subject to seasonal peaks in credit demands will be the principal beneficiaries. Printed on the reverse side is the text of the proposed amendment to Regulation A. Comments thereon should be submitted by July 23, and may be sent to our Credit and Discount Department. P aul A. V olcker, President. ( over) (Reg. A) (Docket No. R -0043) PART 201—EXTENSIONS OF CREDIT BY FEDERAL RESERVE BANKS Notice of Proposed Rulemaking Relating to Seasonal Credit T he B oard of G overnors of the F ederal R eserve Sys tem proposes to am end §201.2 ( d ) of R egulation A (E x ten sio n s of Credit by F ederal R eserve B anks) to provide m ore flexible conditions under which mem ber banks w ith well-defined seasonal requirem ents for loan able funds would be perm itted to borrow from F ederal R eserve Banks. T he purpose of the proposed am endm ent is to enable m em ber banks to increase their ability to serve their com m unities by providing them with a re liable source of short-term funds d u rin g periods of in creased loan dem and due to seasonal conditions. T o aid in the consideration of this m atter by the Board, interested persons are invited to subm it relevant data, views, comments, or argum ents. A ny such m aterial should be subm itted in w riting to the Secretary, B oard of G overnors of the Federal Reserve System, W ashing ton, D.C. 20551, to be received not later than July 23, 1976. All m aterial subm itted should include the docket num ber R-0043. Such inform ation will be made available for inspection and copying upon request except as p ro vided in §261.6(a) of the B o ard ’s Rules R egarding Availability of Inform ation (12 C F R 2 6 1 .6 (a )). Federal R eserve credit would be available to a m em ber bank to the extent that the m em ber b ank’s seasonal needs exceed certain established percentages of the bank’s aver age total deposits in the preceding calendar year. R egu lation A currently provides that a m em ber bank m ust provide for that part of its seasonal needs th at equals 5 per cent of its deposits. If the proposed am endm ent is adopted, under percentages to be established by the Board of G overnors, it is expected that a member bank will be required to provide for that p art of its seasonal need that equals 4 per cent of the first $100 million of d e p o sits; 7 per cent of the second $100 million of de posits ; and 10 per cent of any deposits over $200 million. Changes in these percentages will be announced in the Federal Register. Seasonal credit will not norm ally be available to banks with deposits of $500 million or m ore since such banks ordinarily have ready access to national m oney m arkets. T his am endm ent is proposed under the authority of § 4 of the Federal Reserve A ct (12 U .S.C . 301) to p re scribe regulations defining the conditions under which credit may be extended to member banks and §13 of the Federal Reserve A ct (12 U .S.C . 347), which authorizes Federal Reserve Banks to extend credit to member banks. In consideration of the foregoing, the Board p ro poses to am end §201.2(d) of Regulation A (12 C F R 2 0 1 .2 (d )) as follows: In order to provide additional benefits to member banks, the m inim um period d u rin g which the seasonal need for funds m ust persist w ould be reduced from the presently required eight weeks to four weeks. W hile m em ber banks would be encouraged to arrange for sea sonal credit in advance of their needs, the proposed am endm ent does not require such prearrangem ent in ord er to obtain seasonal credit. In utilizing the seasonal credit provisions, m em ber banks w ould be perm itted to modify their credit arrangem ents with F ederal Reserve Banks. N et sales of Federal funds and purchases of liquid assets by a m em ber bank would not be regarded as inap propriate while using seasonal credit as long as the sales and purchases represent the m em ber b ank’s norm al oper ating p attern. A m em ber bank will not be perm itted to borrow from the discount window for the purpose of increasing sales of Federal Funds. S E C T IO N 201.2— G E N E R A L P R IN C IP L E S * * * (d ) Seasonal cred it. F ederal Reserve credit is avail able for longer periods to assist a mem ber bank in meet ing seasonal needs for funds arising from a combination of expected patterns of m ovement in its deposits and loans. Such credit will ordinarily be limited to the am ount by which the m em ber bank’s seasonal needs exceed certain percentages established by the B oard of G overnors of the bank’s average total deposits in the p re ceding calendar year. Credit will be available if the R e serve Bank is satisfied that the member bank’s qualifyingneed for funds is seasonal and will persist for at least four weeks. T o the extent practicable, member banks should arrange in advance for seasonal credit for the full period d uring which such credit is expected to be re quired. In m aking arrangem ents for such credit, a R e serve Bank may agree to extend credit for a period of up to 90 days,1 subject to compliance with applicable re quirem ents of law at the tim e credit is extended. H o w ever, in the event that a member bank’s seasonal needs should persist beyond such period, the Reserve Bank will norm ally be prepared to entertain a request by the m em ber bank for fu rth er credit extensions under the seasonal credit arrangem ent. 1 A s pro v id e d in th e la w a n d in th is P a r t , th e m a t u r i t y of a d v a n c e s to m e m b e r b an k s is li m it ed to 90 d ays , exc ep t as p ro v id e d in § 2 0 1 .3 ( b ) of th is P a r t .
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