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FED ER AL RESERVE BANK OF N EW YORK [ Circular No. 8 2 5 3 *] January 6, 1978 J AMENDMENT TO REGULATION D Exemption From Reserve Requirements To A ll Member Banks, and Others Concerned, in the Second Federal Reserve District: The Board of Governors of the Federal Reserve System has amended its Regula tion D, “Reserves of Member Banks,” to exempt from the definition of the term “de posit” a member bank’s borrowings from a member bank headquartered outside the States of the United States or the District of Columbia. The effect of the Board’s ac tion is to exempt such borrowings from the reserve requirements of Regulation D. A copy of the amendment, effective December 23, 1977, is enclosed. Questions regarding the amendment may be directed to our Regulations Division (Tel. No. 212-791-5914). P aul A. V olcker, President. Board of Governors of the Federal Reserve System RESERVES OF MEMBER BANKS AM ENDM ENT TO REGULATION D A G E N C Y : Board of Governors of the Fed eral Reserve System. A C T IO N : Final Rule. S U M M A R Y : This rule amends Regulation D to exempt from the definition of the term deposit a member bank’s borrowings from a member bank whose head office is located out side the United States. E F F E C T IV E D A T E : Immediately [De cember 23, 1977]. FO R F U R T H E R IN F O R M A T IO N , CO N T A C T: Allen L. Raiken, Assistant General Counsel, Legal Division, Board of Governors of the Federal Reserve System, Washington, D.C. 20551 (202/452-3625). S U P P L E M E N T A R Y IN F O R M A T IO N : Section 204.1(f) of Regulation D provides that the term deposit includes a member bank’s lia bility on any promissory note or similar obliga tion (written or oral; issued as a means of ob taining funds to be used in its banking business except any such obligation that is issued to and held for the account of a domestic banking office of another bank. The exemption for interbank borrowings is commonly referred to as the Fed eral funds exemption. A footnote contained in Regulation D provides that a domestic banking office is “any banking office in any State of the United States or the District of Columbia of a bank organized under domestic or foreign law.” Consequently, a member bank’s borrowings from another bank’s banking office in one of the 50 States of the United States or the Dis trict of Columbia are not considered to be de posits and are, therefore, exempt from the re serve requirements imposed by Regulation D and interest rate restrictions of Regulation Q. Member bank borrowings from foreign offices of other banks are subject to a 4 per cent Euro dollar reserve requirement imposed by § 204.5(c) of Regulation D. Such borrowings are not, however, subject to Regulation Q. The interbank borrowing (Federal funds) exemption provided for in Regulation D was adopted, in part, to facilitate reserve adjust ments by member banks. Such borrowings have long been exempt from the Board’s reserve re quirements and interest rate limitations. The exemption also serves, in part, to avoid the maintenance of double reserves by member banks since the member bank selling the funds may already be maintaining reserves against them. Section 19(h) of the Federal Reserve Act (12 U.S.C. § 466) provides that a national bank located in a dependency or insular posses sion of the United States may remain a non member bank if it so desires. However, if such bank becomes a member of the Federal Reserve System, it is subject to all of the provisions of the Act, including the requirement of maintain ing reserves against its deposits. Although a member bank headquartered outside the United States is required to maintain reserves against its deposits pursuant to Regulation D, under the current provisions of Regulation D borrow ings by another member bank from such bank are also subject to reserve requirements. In order to eliminate the possibility of double reserves being held by two separate member banks against such funds, the Board has deter mined that it is appropriate to amend Regula tion D to exempt from deposit treatment, a member bank’s borrowings from a member bank whose main office is located outside the States of the United States and the District of Colum bia. In view of the substantial public benefits that will result immediately from exempting mem ber bank borrowings from member banks head quartered outside the United States, the Board ( o ver ) For this Regulation to be complete, retain: 1) Regulation D pamphlet, effective November 9, 1972. 2) Amendments effective July 12, 1973, November 26, 1973, October 14, 1974, November 10, 1975, and July 26, 1976. 3) Supplement effective December 16, 1976. 4) This slip sheet. [Enc. Cir. No. 8253] PRINTED IN NEW YORK has determined that the notice and public pro cedure provisions of 5 U.S.C. § 553(b) are unnecessary and contrary to the public interest. Since the Board’s action grants an exemption to the provisions of Regulation D, the deferred effectiveness provisions of 5 U.S.C. § 553(d) are inapplicable. Pursuant to section 19(a) of the Federal Re serve Act (12 U.S.C. § 461), effective imme diately, section 204.1 of Regulation D (12 CFR 204.1) is amended to read as follows: SECTION 204.1—D E F IN IT IO N S * * * (f) Deposits as including certain promis sory notes and other obligations. For the purposes of this Part, the term “deposits” also includes a member bank’s liability on any promissory note, acknowledgement of advance, due bill, banker’s acceptance, or similar obligation (written or oral) that is issued or undertaken by a member bank as a means of obtaining funds to be used in its banking business, except any such obligation that: (1) Is issued to (or undertaken with re spect to) and held for the account of (i) a domestic banking office6 of another bank or (ii) an agency of the United States or the Government Development Bank for Puerto Rico; * * * 6Any banking office (i) in any State of the United States or the District of Columbia of a bank organ ized under domestic or foreign law or (ii) of a mem ber bank whose head office is located outside the States of the United States or the District of Columbia pro vided reserves are required to be maintained by such member bank under this P art against the deposit lia bilities of such office.
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