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FEDERAL RESERVE BANK
OF NEW YORK
r Circular No. 8 9 3 8 -i
L October 23, 1980 J
RESERVE REQUIREM ENTS OF D EPOSITOR Y INSTITUTIONS
Interpretation of Regulation D
To All Deposit dry Institutions
in the Second Federal Reserve District:
The
of
Board
of
its Regulation
Governors
D,
of
the Federal Reserve System has issued an
interpretation
“ Reserve Requirements of Depository Institutions,” to define the term
“ bankers’ banks” and to set forth the criteria under which bankers’ banks may act as pass-through
agents for the reserves of other institutions.
The following is quoted from the Board’s announcement:
The Monetary Control Act of 1980 specifies that bankers’ banks are exempt from Federal reserve re
quirements. In its interpretation the Board ruled that an institution is a bankers’ bank if it satisfies all the
following criteria:
— It is organized solely to do business with other financial institutions. This requirement may be met
even though the institution does a limited amount o f business with customers other than financial institutions.
Those to whom it may lend or from whom it may receive deposits are specified in the interpretation.
— It is owned primarily (75 percent or m ore) by the financial institutions with which it does business.
— It does not do business with the general public except for customers specified in the interpretation.
Loans to others than financial institutions may not exceed 10 percent of its total assets and the deposits it
receives from others than financial institutions may not exceed 10 percent of its total liabilities.
A bankers’ bank may act as a pass-through agent for the reserves of other institutions under the follow
ing conditions:
— If the bankers’ bank enters into an agreement with the Federal Reserve to accept responsibility for
correctly maintaining passed-through reserves.
— The Federal Reserve is satisfied with the quality of the management and financial resources of the
bankers’ bank.
The Board said that to determine the quality of the management and financial resources of a bankers’
bank it will consult with the appropriate Federal supervisor. Since the Board does not intend to involve
itself in the direct supervision of other than commercial banks, it will look to the National Credit Union A d
ministration and the Federal Home Loan Bank Board to review requests from credit unions or savings and loan
associations that wish to qualify as bankers’ banks. Federal Reserve approval will depend upon a finding by
the appropriate Federal supervisor that management and financial resources are adequate.
( over)
Enclosed is a copy of the text of the interpretation. Questions regarding the interpretation or
other matters relating to Regulation D , reserve maintenance, or reporting requirements should be
directed to the following:
Reporting Requirements
(212) 791-7904
(212) 791-6625
(212) 791-5794
Richard J. Gelson, Assistant Vice President
Patricia H. Kuwayama, Manager, Statistics Department
Nancy Bercovici, Chief, Domestic Reports Division
Reserve Maintenance and Pass-Through Procedures
Thomas J. Campbell, Accounting
Jane L. Katz, Chief, Accounting
Patricia Lupack, Assistant Chief,
Robert J. McDonnell, Operations
(212) 791-7769
(212) 791-5250
(212) 791-5241
(716) 849-5022
Officer
Control Division
Accounting Control Division
Officer (Buffalo Branch)
Interpretation of Regulation D
(212) 791-5033
(212) 791-5009
(212) 791-5037
Bradley K. Sabel, Assistant Counsel
Raleigh M. Tozer, Senior Attorney
Joyce E. Motylewski, Attorney
Additional copies of the enclosure may be obtained from the Circulars Division of this Bank.
A
n th o n y
M. S o l o m o n ,
President.
TITLE 12— BANKS AND BANKING
CHAPTER II— FEDERAL RESERVE SYSTEM
SUBCHAPTER A— BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[Regulation D]
(Docket No. R-0328)
Part 204— RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
Interpretation.
SUMMARY: Under the Monetary Control Act of 1980, "bankers' banks" are
exempt from Federal reserve requirements. The Board has determined
that a depository institution will be regarded as a bankers' bank if
it meets certain criteria with regard to its ownership and the extent
to which it does business with entities other than depository institutions.
The Board has also adopted criteria that will be applied in determining
whether to grant requests from bankers' banks to act as a correspondent
for the pass-through of required reserves of other depository institutions.
DATE:
Effective November 13, 1980.
FOR FURTHER INFORMATION CONTACT: Gilbert T. Schwartz, Assistant General
Counsel (202/452-3625), Lee S. Adams, Senior Attorney (202/452-3623),
Paul S. Pilecki, Attorney (202/452-3281), or Myron L. Kwast, Economist
(202/452-2686), or Paul P. Burik, Economist (202/452-2556), Board of
Governors of the Federal Reserve System, Washington, D. C. 20551.
SUPPLEMENTARY INFORMATION: Under section 19 of the Federal Reserve
Act ("Act"), as amended by the Monetary Control Act of 1980 (Title I
of P. L. 96-221) , the Board has adopted the following interpretation,
effective November 13, 1980, with regard to the characteristics a depository
institution must possess in order to qualify for the "bankers' bank"
exemption from reserve requirements contained in § 19(b)(9) of the Act.
The Board also established criteria to be applied to determine whether
a specific bankers' bank is qualified to act as a pass-through correspondent
for nonmember depository institutions that are subject to the Act.
Effective November 13, 1980, pursuant to the Board's authority
under section 19 of the Federal Reserve Act (12 U.S.C. §s 461 et seq.),
Regulation D (12 CFR Part 204) is amended by adding a new section 204.121
as follows:
[Enc. Cir. No. 8938]
■
4
-2-
§ 204.121 Bankers' Banks
(a) (1) The Federal Reserve Act, as amended by the Monetary
Control Act of 1980 (Title I of P. L. 96-221) , imposes Federal reserve
requirements on depository institutions that maintain transaction accounts
or nonpersonal time deposits. Under § 19(b)(9), however, a depository
institution is not required to maintain reserves if it:
(A) is organized solely to do business with other financial
institutions;
(B) is owned primarily by the financial institutions
with which it does business; and
(C)
does not do business with the general public.
Depository institutions that satisfy all of these requirements are regarded
as "bankers' banks."
(2)
In its application of these requirements to specific
institutions, the Board will use the following standards:
(A) A depository institution may be regarded as organized
solely to do business with other depository institutions even
if, as an incidental part to its activities, it does business
to a limited extent with entities other than depository institu
tions. The extent to which the institution may do business
with other entities and continue to be regarded as a bankers'
bank is specified in (C) below.
(B) A depository institution will be regarded as being
owned primarily by the institutions with which it does business
if 75 per cent or more of its capital is owned by other depository
institutions. The 75 per cent or more ownership rule applies
regardless of the type of depository institution.
(C) A depository institution will not be regarded as
doing business with the general public if it meets two conditions.
First, the range of customers with which the institution does
business must be limited to depository institutions, including
subsidiaries or organizations owned by depository institutions;
directors, officers or employees of the same or other depository
institutions; individuals whose accounts are acquired at the
request of the institution's supervisory authority due to
the actual or impending failure of another depository institution;
share insurance funds; and depository institution trade associations.
Second, the extent to which the depository institution makes
loans to, or investments in, the above entities (other than
depository institutions) cannot exceed 10 per cent of total
assets, and the extent to which it receives deposits (or shares
-3 if the institution does not receive deposits) from or issues
other liabilities to the above entities (other than depository
institutions) cannot exceed 10 per cent of total liabilities
(or net worth if the institution does not receive deposits).
If a depository institution is unable to meet all of these
requirements on a continuing basis, it will not be regarded as a bankers'
bank and will be required to satisfy Federal reserve requirements on
all of its transaction accounts and nonpersonal time deposits.
(b)(1) Section 19(c)(1) of the Federal Reserve Act, as amended
by the Monetary Control Act of 1980 (Title I of P. L. 96-221) provides
that Federal reserve requirements may be satisfied by the maintenance
of vault cash or balances in a Federal Reserve Bank. Depository institu
tions that are not members of the Federal Reserve System may also satisfy
reserve requirements by maintaining a balance in another depository
institution that maintains required reserve balances at a Federal Reserve
Bank, in a Federal Home Loan Bank, or in the National Credit Union Administra
tion Central Liquidity Facility if the balances maintained by such institu
tions are subsequently passed through to the Federal Reserve Bank.
(2) On August 27, 1980, the Board announced the procedures
that will apply to such pass-through arrangements (45 Fed. Reg. 58099).
Section 204.3 (i) (1) provides that the Board may permit, on a case-by
case basis, depository institutions that are not themselves required
to maintain reserves ("bankers' banks") to act as pass-through correspondents
if certain criteria are satisfied. The Board has determined that a
bankers’ bank may act as a pass-through correspondent if it enters into
an agreement with the Federal Reserve to accept responsibility for the
maintenance of pass-through reserve accounts in accordance with Regulation D
(12 CFR 204.3(i)) and if the Federal Reserve is satisfied that the quality
of management and financial resources of the institution are adequate
in order to enable the institution to serve as a pass-through correspondent
in accordance with Regulation D. Satisfaction of these criteria will
assure that pass-through arrangements are maintained properly without
additional financial risk to the Federal Reserve.
(3) In order to determine uniformly the adequacy of managerial
and financial resources, the Board will consult with the Federal supervisor
for the type of institution under consideration. Because the Board
does not possess direct experience with supervising depository institutions
other than commercial banks, and does not intend to involve itself in
the direct supervision of such institutions, it will request the National
Credit Union Administration to review requests from credit unions that
qualify as bankers' banks and the Federal Home Loan Bank Board to review
requests from savings and loan associations that qualify as bankers'
banks, regardless of charter or insurance status.
(The Board, itself,
will consider requests from all commercial banks that qualify as bankers'
4-
banks.) If the Federal supervisor does not find the.institution's managerial
or financial resources to be adequate, the Board will not permit the
institution to act as a pass-through correspondent. In order to assure
the continued adequacy of managerial and financial resources, it is
anticipated that the appropriate Federal supervisor will, on a periodic
basis, review and evaluate the managerial and financial resources of
the institution in order to determine whether it should continue to
be permitted to act as a pass-through correspondent. It is anticipated
that, with respect to state chartered institutions, the Federal supervisor
may discuss the request with the institution's State supervisor. The
Board believes that this procedure will promote uniformity of treatment
for all types of bankers' banks, and provide consistent advice concerning
managerial ability and financial strength from supervisory authorities
that are in a better position to evaluate these criteria for depository
institutions that are not commercial banks.
(4)
Requests for a determination as to whether a depositor
institution will be regarded as a bankers' bank for purposes of the
Federal Reserve Act or for permission to act as a pass-through correspondent
may be addressed to the Federal Reserve Bank in whose District the main
office of the depository institution is located or to the Secretary,
Board of Governors of the Federal Reserve System, Washington, D. C.
20551. The Board will act promptly on all requests received directly
or through Federal Reserve Banks.
By order of the Board of Governors of the Federal Reserve
System, October 14, 1980.
(Signed)
Theodore E. Allison
Theodore E. Allison
Secretary of the Board
[SEAL]
@FedFRASER