Full text of Federal Reserve Bank of New York Circulars : 8819. Credit Restraint Program

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FEDERAL RESERVE BANK
OF NEW YORK
r

L

Circular No. 8819
May 6, 1980

CREDIT RESTRAINT PROGRAM
Additional Questions and Answers— Eighth Series

To A ll Member Banks, and Others Concerned,
in the Second Federal Reserve D istrict:

Printed below is the eighth series of questions and answers, representing the views of the legal
staffs of the Federal Reserve Bank of New York and of the Board of Governors of the Federal
Reserve System, regarding the Credit Restraint Program. This series of questions and answers
relates to the credit restraint program for short-term financial intermediaries (Subpart B of the
Board’s regulation on Credit Restraint).
Any questions concerning the Credit Restraint Program may be directed to the persons listed
in our Circular No. 8794, dated April 9, 1980.
A n t h o n y M. S o l o m o n ,

President.
Short Term Financial Intermediaries
Subpart B
B-9. Q : Section 222 .1 2 (c) of the revised S ubpart ex ­
cludes from covered credit the proportion of
a covered cred ito r’s extensions of credit th at
represent the holdings of tru stees and other
fiduciaries whose holdings would be eligible
for collective investm ent by a bank provided
they are held incidentally to the m anagem ent
of other tru st assets. W h a t can be considered
to be held incidentally to the m anagem ent of
other tru s t assets?
A : T he pream ble to revised S ubpart B indicates
that, generally, moneys held by a bank or tru st
com pany p u rsu an t to a bona fide tru st purpose
are w ithin the incidental exclusion even
though they m ay tem porarily be invested
largely in a short-term investm ent fund. T he
holdings of any tru st whose income is not con­
sidered to be the c u rre n t income of the g ran to r
under the attrib u tio n rules of the Internal
R evenue Service
(T re a su ry R egulations
§§ 1.671-1.678) are not covered credit under
this rule. T he holdings of a tru st (o th er than
a pension plan whose beneficiary has retired
and is receiving benefits) the income of which
is currently attributable to the g ra n to r are
covered credit if 50% or m ore of its assets
are in a m oney m arket fund o r the short-term
investm ent fund of a bank.
B-10. Q : A re funds held by other types of fiduciaries
excluded from covered credit?
A : Generally, only funds held by a trustee, ex ­
ecutor, adm inistrator, guardian, or a custodian



under the U niform Gifts to M inors A ct are
excluded. H ow ever, holdings of a private
foundation organized as a corporation are ex ­
cluded. Also excluded are funds held by any
tax deferred retirem ent planning vehicle, in­
cluding funds held by a separate account of
an insurance com pany under annuity contracts
which provide for a substantial front or re a r
end sales load or redem ption charge, IR A and
K eogh Plans, and funds held pu rsu an t to sec­
tions 4 0 3 (b ) or 457 of the Internal R evenue
Code, w hether or not these funds would o th er­
wise be eligible for collective investm ent by
a bank. These exem pt funds m ust be deducted
from a covered cred ito r’s base as well as from
its weekly report. A n am ended base report
should be filed if necessary.
B -l 1. Q : W h at m ethods can a money m arket fund use to
determ ine the proportion of its shares, units, or
other interests th at represent exem pt funds of
fiduciaries, for the purpose of weekly reports ?
A : F o r new accounts, a fund m ust determ ine
w hether funds of the shareholder are eligible
for exclusion. T his can be accom plished by
perm itting the purchaser to identify him self as
eligible on his purchase order, provided the
purchase form s clearly set forth the substance
of interpretations as to who is eligible.
F o r existing accounts w ith balances of at
least $100,000, the fund m ust determ ine the
eligibility of the funds of each account holder.
F o r existing accounts w ith balances under
$100,000, the fund may determ ine exem pt
(ov er)

holdings by sampling at least one-tenth of
those accounts.
Funds accepting moneys from bank trust
departments or insurance companies may rely
on the representations of those organizations
as to the proportion of shares they hold that
may be excluded.
B-12. Q : Can a covered creditor choose not to take the
exemption and assume that it has no fiduciary
shareholders for reporting purposes?
A : No. It must determine its proportion of fidu­
ciary shareholders.
B-13. Q :\V hich covered creditors must be aggregated
for reporting purposes?
A : All managed creditors that are series of shares
of a single registered investment company and
are not tax exempt bond funds must be aggre­
gated for reporting and special deposit pur­
poses. All tax exempt managed creditors that
are series of shares of a single investment com­
pany must be aggregated apart from the series
that are not tax exempt. An investment com­
pany that has a series of shares that is a man­
aged creditor, and series that are not, may not
aggregate those series even though the invest­
ment company as a whole is a managed credi­
tor : it must report only the series that are
managed creditors.
A bank trust department must aggregate for
reporting and special deposit purposes all of
its collective investment funds, master notes,
and other collective investment vehicles that




are managed creditors. Separate series of a
unit investment trust are never aggregated;
each series that is a covered creditor must
file a separate report.
B-14. Q : Must a managed creditor that has no special
deposit liability file reports?
A : All managed creditors must file a base report.
A managed creditor whose covered credit is
less than 80% of its base need not file regular
weekly reports. Thereafter, when such a man­
aged creditor’s covered credit exceeds its base,
it should file weekly reports, whether or not
it is required to hold a special deposit, until its
covered credit falls below 80% of its base.
CORRECTION
Question B -l of the “General” questions
regarding short term financial intermediaries
contained an error in the second paragraph.
The corrected question and answer are as
follows:
B-l. Q : What does primarily really mean?
A : For a unit investment trust primarily means
any amount greater than zero percent. A trust
whose investments have initial maturities of
14 months may be 100% invested in assets
with remaining maturities of 13 months for
most of its duration. Therefore, in order to
avoid the special deposit requirement, a unit
investment trust must be fully invested in
longer term assets on its settlement date.

May 6, 1980
To the Addressee:
Enclosed, for those who have complete sets of the rules and regulations
of the Board of Governors of the Federal Reserve System, is a revised table of
contents to those rules and regulations.

The revised contents page includes the

Board's new regulation on Credit Restraint.




Circulars Division
FEDERAL RESERVE BANK OF NEW YORK

CONTENTS
Rules of the Board of Governors of the Federal Reserve Systen
lules
System
Rules Regarding Availability of Information
Rules Regarding Access to and Review of Personal Information in
Systems of Records
Rules Regarding Public Observation of Meetings
Rules Regarding Delegation of Authority
Rules of Organization
Rules of Procedure
Rules of Practice for Hearings

Regulations of the Board of Governors of the Feder al Reserve System
Extensions of Credit by Federal Reserve Banks ................................................ A
Equal Credit O pportunity...................................................................................... B
Home Mortgage Disclosure.................................................................................... C
Reserves of Member B anks.................................................................................... D
Electronic Fund Transfers .................................................................................... E
Securities of Member State B a n k s........................................................................ F
Securities Credit Transactions Rules Governing Borrowers Who Obtain Securities C re d it...................... X
Securities Credit by Persons Other Than Banks, Brokers, or Dealers . . . G
Credit by Brokers and D e a lers.................................................................... T
Credit by Banks for the Purpose of Purchasing
or Carrying Margin Stocks ........................................................................ C
Membership of State Banking Institutions
in the Federal Reserve System ...................................................................... H
Issue and Cancellation of Capital Stock of Federal Reserve B anks.................. I
Collection of Checks and Other Items and Transfer." of F u n d s......................... J
International Banking Operations.......................................................................... K
Management Official Interlocks............................................................................. L
Relations with P'oreign Banks and Bankers.......................................................... N
Loans to Executive Officers, Directors, and Principal Shareholders
of Member B anks.................................................... ....................................... 0
Minimum Security Devices and Procedures for Federal Reserve Banks
and State Member B a n k s......................................... "
................................... P
Interest on D eposits................................................................................................. Q
Relationships with Dealers in Securities Under Section 32 of the
Banking Act of 1933...................................................................................... R
Reimbursement to Financial Institutions for Assembling
or Providing Financial Records.................................................................... S
Loan Guarantees for Defense Production............................................................. V
Bank Holding Companies and Change in Bank Control .................................... Y
Truth in Lending ..................................................................................................... Z
Unfair or Deceptive Acts or Practices.................................................................. AA
Community R einvestm ent...................................................................................... BB
Credit R estraint..............................................................................................(unlettered)

Rules of O rganization and P rocedure of the ( onsumei \dvisory ( ouncil
R ev. 4 /8 0