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FEDERAL RESERVE BANK OF NEW YORK Fiscal Agent of the United States [Circular No. 87971 April 11, 1980 FULL PAYMENT WITH TENDER REQUIRED FOR PURCHASE OF ALL TREASURY SECURITIES BY NON-INSTITUTIONAL INVESTORS T o N o n - I n s titu tio n a l I n v e s to r s W h o P u r c h a s e T re a su ry N o te s o r B o n d s , a n d O th e r s C o n c e rn e d , in th e S e c o n d F e d e ra l R e s e r v e D is tr ic t: The Department of the Treasury has announced a change in the payment procedures relating to the purchase of Treasury notes and bonds by non-institutional investors. Beginning with the 2-year notes to be auctioned later this month, all non-institutional purchasers of notes and bonds will be required to submit fu ll payment of the face amount of the notes or bonds with their tenders for the securities. Non-institutional investors will no longer have the option of submitting a 5 percent deposit with note or bond tenders. The full payment requirement is already in effect for Treasury bill issues. The following is a summary of the Treasury’s announcement of the change in the payment procedures for note and bond issues: Under current operating procedures, non-institutional investors have had the option of submitting a 5 per cent deposit with note and bond tenders. This practice multiplies the processing steps and delays the issuance of the securities because before the security can be issued, the deposit payment must be processed for collection, and the final payment must be collected from the investor, matched with the tender form, and then processed for collection. Under the new procedures, the issuance of securities will be simplified and expedited by discontinuing the deposit option. Since 1977 the number of tenders for Treasury notes and bonds has more than quadrupled. The current pay ment procedures have strained the ability of the Federal Reserve Banks and the Treasury to handle the increased demand while assuring timely collection of full proceeds and issuance of the securities. The increased demand results from the significant increase in the number of non-institutional investors participating in Treasury auctions. Most Treasury bond and note auctions result in a price slightly below par, and each bidder submitting full payment will usually receive a small discount check representing the difference between the full par amount sub mitted and the actual price of the security, as established in the auction process. In cases in which the price is established slightly above par, investors will usually be billed for the additional amount due. Under the new requirement, applications submitted by non-institutional purchasers without full payment will be rejected. Payment may still be made by personal check, or an official bank check, payable on its face to the Federal Reserve Bank of New York. Checks endorsed to this Bank will not be accepted. A personal check for a note or bond purchase does not have to be certified. However, the Treasury continues to require that personal checks submitted in payment for Treasury bill purchases be certified. Inquiries regarding these payment procedures may be addressed to the Government Bond Department at this Bank’s Head Office or to the Collection, Loans, and Fiscal Agency Division at the Buffalo Branch. A new standard form that can be used for submitting tenders for 2-year notes will be sent to you with this Bank’s circular announcing the next 2-year note offering. A n t h o n y M. So l o m o n , President. -3- A - 35. Q: In a clo s e d - e n d loan where are being used to p u r chase se c u r i t y interest obtained fected for the t r a n s a c t i o n credit? A: No. So long as the creditor retains a security inter est, under a p p l i c a b l e State law, the t r a n s action does not involve covered credit. P e r f e c t i o n of a security interest is not required. Q: Is a loan secured by a regular share account at a credit union c o n s i d e r e d covered credit? A: No. A regular share account is regarded as a savings de p o s i t for pur p o s e s of Section 229.2(f) of the r e g u lation . A - 3 7 • Q: Does the e x e m p t i o n for loans secured by savings depos i t s also include loans secured by time deposits? A: No. However, a loan, the proceeds of which are used to p u r chase a m o n e y m a r k e t cert i f i c a t e where the c e r tificate is col l a t e r a l for the loan, is not covered credit (e.g., "loophole" certificates), because the loans p r o ceeds are being used to purchase the c o l l a t eral (see S e c tion 229.2(f)(2)). Q: Is an advance under an open-end a g r e ement covered credit if that advance is c o m p l e t e l y secured by the savings d e p o s i t ac c o u n t of the borrower? A: No. If the a d v ance is c o m p l e t e l y secured by a savings deposit, the last sentence of Section 229.9(f) pr o v i d e s that the loan is not covered credit. How ever, that p o r t i o n of an advance is covered credit to the extent it exceeds the amount of the savings d e p osit serving as the security. For example, a $1,000 a d v ance under an open-end a g r eement which is secured by a savings d e p osit of at least $1,000 is not covered credit, w h ile a $1,000 advance secured by a savings d e p o s i t of $600 w o u l d represent covered credit of $400. A - 39. Q: Does covered credit include bridge loans that are unse cured or secured by the old residence? A - 36. A - 38. the p r o ceeds of the loan the collateral, m u s t the by the creditor be p e r not to involve covered / -4 - A: No. Bridge loans are not regarded as covered credit as they are m ade in c o n j u n c t i o n with, and form an integral part of, a m o r t g a g e loan. Special C r edit R e s t r a i n t P r o g r a m S - 3 . Q: S-4. To wha t p e riod does the l i m i tation on loan g r owth "in 1980" refer? A: It refers to the period December 1980. Q: The reporting forms do not ask for the December 1979 "base period." How will we obtain these base period levels? A: For almost all r espondents subject to the lending c o n straint, d ata for the December 1979 base period are g e n e r a l l y a v a i l a b l e from reports they file regularly with the Federal Reserve or w ith one of the other bank s u p e r v i s o r y agencies. S - 5 . Q: A: S - 6 . Q: S-6 Does "December from December 1979" mea n December 1979 to 31? In order to avoid the d i s t o r t i o n s in base period levels that could arise from c alculating them as of a single day, an average for the m o nth of December should be used to the extent p e r mitted by ava i l a b l e data. For w e e k l y reporting banks, an average of the four W e d n e s days in December 1979 seems appropriate. For b u s i nesses (e.g., finance companies) from w h ich we have been receiving e n d - o f - m o n t h reports, November and December figures should be averaged. For respondents such as nonmember banks, however, December 31 data will have to be used for the base period. Is it essential that reporting of data by bank holding c o m p anies be as of the last W e d n e s d a y of the month, or are data as of the last business day of the month a cceptable?
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