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FEDERAL RESERVE BANK
OF NEW YORK
[
Circular No. 9380 "1
October 14, 1982
CONTEMPORANEOUS RESERVE REQUIREMENTS
Effective February 2, 1984
To All Depository Institutions in the Second
Federal Reserve District, and Others Concerned:
Following is the text of a statement issued by the Board of Governors of the Federal Reserve System:
The Federal Reserve Board has announced final approval of a change — from lagged to contemporaneous reserve
requirements,(CRR) — in the way depository institutions maintain reserves.
The change will become effective February 2,1984. At that time, medium sized and larger depository institutions will
begin posting reserves on transaction accounts with a two-day rather than the current two-week accounting delay.
(Transaction accounts include checking, NOW, automatic transfer and share draft accounts.) Reserve requirements on
nontransaction liabilities will be met on a lagged basis, as described below.
The Board acted after consideration of comment received on proposals published in November 1981 and after
extensive staff study during the past several years. The Board decided in principle on June 28, 1982 to adopt contem
poraneous reserve requirements on transaction deposits, but left open for later decision the questions of an effective date
and whether reserve periods for different sets of institutions should be placed on a staggered basis, with half the institutions
settling every other week. The Board has decided against staggering settlement periods.
It is expected that contemporaneous reserve requirements will improve the implementation of monetary policy to a
degree by strengthening the linkage between reserves held by depository institutions and the money supply. The Board
noted that sizable slippages will remain between reserves and money, as short-run flows are inherently volatile.
Under the present lagged reserve system, depository institutions must post their required reserves in any given week
based on their deposit levels two weeks earlier.
The effective date was placed 16 months ahead to give both Reserve Banks and the depository institutions that will
maintain reserves on the new basis time to make the adjustments required in their administrative and data processing
procedures.
As adopted by the Board, the principal features of CRR, set forth below, are for the most part those proposed in
November 1981:
1. Contemporaneous reserve requirements will apply only to institutions reporting their deposits on a weekly basis.
(Certain institutions with $15 million or less in total deposits report deposits and calculate required reserves
quarterly, and certain others, with reservable liabilities under $2 million, will be exempt from reserve requirements
upon enactment of legislation now awaiting the Presidents signature (H.R. 6267)).
2. Reserves will be maintained over two-week periods that will continue to end on a Wednesday.
3. All institutions subject to CRR will settle their reserve accounts on the same day.
4. Required reserves will be computed on the basis of average deposits over a two-week computation period ending
on Monday. Reserves required to be posted against transaction accounts will be maintained in the two-week period
ending on Wednesday, two days after the end of the computation period. The two-day interval provides time for
calculation of required reserves.
5. Required reserves for other liabilities against which reserves must be held — such as certain kinds of time deposits
— will also be computed on the basis of average deposits over a two-week period ending on Monday, but the
reserves required will be posted in the two-week maintenance period beginning 17 days later, on a Thursday.
(OVER)
6. Vault cash eligible to be counted as reserves will be equal to vault cash holdings during the computation period
ending 17 days before the beginning of the maintenance period.
7. To assist depository institutions in implementing CRR the Board adopted transition periods for the carryover of
reserve balance deficiencies or surpluses. During the first six months following the start of CRR, reserve surpluses
or deficiencies that may be carried over into the next reserve period will equal the greater of 3 percent of the daily
average level of required reserves (including required clearing balances) or $25,000. During the next six months,
the permissible carryover will equal the greater of 2Vz percent of daily average required reserves or $25,000.
Thereafter, the carryover is the greater of 2 percent of daily average required reserves or $25,000.
These changes in reserve requirements will be made as amendments to the Board’s Regulation D — Reserve
Requirements of Depository Institutions — to be published in a Federal Register notice and made available by the Reserve
Banks to all depository institutions, and upon request, to others.
The Board approved two other amendments to Regulation D to be spelled out in the forthcoming Federal Register
notice:
— The dates on which non-member depository institutions phase in to the reserve requirements of the Monetary
Control Act over an eight-year period will be moved back one week, so as to avoid falling in the middle of a
reserve maintenance period under the CRR schedule.
— Depository institutions with less than $15 million deposits and that are not subject to CRR will continue to have a
one-week maintenance period, with settlement day on Wednesday. Their computation week each quarter will be
shifted back two days from Wednesday to Monday, to align with the computation period of institutions subject to
CRR.
The attached chart illustrates reserve maintenance under CRR, compared with the present reserve accounting system.
Printed on the following page is the chart referred to in the above statement. In addition, enclosed, for
depository institutions, is the text of the amendments, effective February 2, 1984, to Regulation D. The text will be
published in th q Federal Register, and copies will be made available upon request directed to our Circulars Division
(Tel. No. 212-791-5216). Questions on contemporaneous reserve requirements may be directed to:
Richard J. Gelson, Assistant Vice President (Tel. No. 212-791-8225),
Nancy Bercovici, Manager, Statistics Department (Tel. No. 212-791-8227),
Kathleen A. O ’Neil, Manager, Accounting Department (Tel. No. 212-791-7768),
Paula B. Schwartzberg, Chief, Deposit Reports Division (Tel. No. 212-791-8590).
A
nthony
M . So lo m o n ,
President.
PR E SEN T, AND APPROVED, RESERVE ACCOUNTING
Present Lagged Reserve Accounting System
week 1
week 2
I
T W
week 3
I I
Th F
S
SuM
T W
Th F
I I
S
SuM
T W
I
Th F
S
SuM
T W
1-week mainte
nance period
for all reservable liabilities
and vault cash
1-week computa
tion period for
all reaervable
liabilities and
vault cash_____
Approved CRR Accounting System
T
W *Th F
S
1
1
Su M
T
W
Th F
S
1
1
Su M
T
W
Hi F
S
1
1
Su M
T
W
Th F
week 6
week 5
week 4
week 3
week 2
week 1
1
S
1
1
Su M
T
1
W *Th F
S
SuM
1
T W
1
Th F
S
SuM
2-week computation period for all
reaervable liabilities and vault
cash______________________________
*
*
2-week maintenance period for transactions deposits
*February 2,
1984
2-week maintenance period for nontransactions liabilities and vault
cash
T W
Board of Governors of the Federal Reserve System
RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
AMENDMENTS TO REGULATION D
(effective February 2, 1984)
CONTEMPORANEOUS RESERVE REQUIREMENTS
AGENCY:
Board of Governors of the Federal Reserve System.
ACTION:
F inal
rules.
SUMMARY: The Board of Governors has amended Regulation D— Reserve Requirements
of Depository Institutions (12 CFR Part 204) to modify the manner in
which depository institutions maintain required reserves. The changes
adopted by the Board will introduce contemporaneous reserve requirements
on transaction accounts for medium-size and larger depository institutions
instead of the lagged system now in effect. Under the Board's action,
depository institutions that have total deposits of $15 million or more,
Edge and Agreement corporations, and U.S. branches and agencies of foreign
banks will be required to maintain required reserves on transaction
accounts on a daily average basis for a fourteen-day maintenance period
ending on the first Wednesday after the fourteen-day computation period,
which ends on a Monday. Thus, the reserve maintenance period for transaction
accounts will be lagged by only two days from the end of the reserve
computation period for transaction accounts. The fourteen-day reserve
maintenance period for nonpersonal time deposits and Eurocurrency liabilities
will begin seventeen days after the end of the corresponding fourteenday reserve computation period. Currently, an institution subject to
the new requirement maintains its required reserves on a daily average
basis over a seven-day period ending on a Wednesday two weeks subsequent
to the reserve computation period. To ease the transition to this new
procedure for reserve maintenance, allowable carryover of excesses or
deficiencies in reserve balances will be increased temporarily frcm
2 per cent to 3 per cent but will phase down to 2 per cent over a oneyear period. The Board also has established a minimum carryover amount
of $25,000. The Board believes that shortening the lag between the
computation and maintenance of required reserves on transaction accounts
will enhance the conduct of monetary policy by strengthening the linkage
between the supply of reserves and the money supply.
EFFECTIVE DATE: February 2, 1984. This date is the beginning of the
first reserve maintenance period to which contemporaneous reserve requirements
will apply.
For this Regulation to be complete, retain:
1) Regulation D pamphlet, amended effective December 31, 1981.
2) Amendments effective April 28, 1982, April 29, 1982, and September 1, 1982.
3) This slip sheet.
[Enc. Cir. No. 9380J
-2 -
POR FURTHER INFORMATION CONTACT: Gilbert T. Schwartz, Associate General
Counsel (202/452-3625), or Paul S. Pilecki, Senior Attorney (202/4523281), Legal Division, Board of Governors of the Federal Reserve System,
Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION:
In order to satisfy the reserve requirements
imposed under the current provisions of Regulation D— Reserve Requirements
of Depository Institutions (12 CFR Part 204), depository institutions
that have total deposits of $15 million or more, Edge and Agreement
corporations, and U.S. branches and agencies of foreign banks are required
to maintain reserve balances at Federal Reserve Banks on a daily average
basis over a seven-day reserve maintenance period ending on Wednesday.
The amount of reserves that are required to be maintained during a given
reserve maintenance week are based upon the level of the institution's
daily average deposits during the seven-day reserve computation period
which begins on a Thursday two weeks prior to the beginning of a given
reserve maintenance week.
United States currency and coin held during
the reserve computation period are deducted from the balances that are
required to be maintained at the Reserve Bank during the corresponding
reserve maintenance week.
Depository institutions with total deposits
of less than $15 million generally are subject to a quarterly procedure
for reporting deposits and maintaining reserves.
In connection with a proposal in June 1980 to revise Regulation D
to implement the Monetary Control Act of 1980 (Title I of Pub. L. 96221), the Board requested comment on the issue as to whether reserves
should be maintained on a contemporaneous basis (45 Fed. Reg. 38388) .
When Regulation D was revised in August 1980 (45 Fed. Reg. 56069) ,
the Board stated that it was disposed toward returning to contemporaneous
reserve requirements ("CRR*), if a further investigation of potential
operational difficulties indicated that such a system was practical.
Among the issues to be studied were the feasibility of such a reserve
accounting system for all types of depository institutions, potential
complications arising from pass-through arrangements, and the relation
to reserve carryover.
The Board, after considering these issues, requested
public comment in November 1981 on a proposal that would implement a
procedure of contemporaneous reserve requirements (46 Fed. Reg. 58185).
Under the proposal, the reserve computation period would cover
the fourteen-day period beginning Tuesday and ending on the second Monday
thereafter.
The corresponding reserve maintenance period f°r transaction
accounts would begin on the Thursday immediately after the start of
the reserve computation period and would end on the Wednesday immediately
after the end of the reserve computation period.
For all other reservable
liabilities, such as nonpersonal time deposits and Eurocurrency liabilities,
the corresponding reserve maintenance period would begin seventeen days
after the end of the corresponding reserve computation period.
Reserve
requirements would continue to be computed based upon the daily average
deposits outstanding during the reserve computation period.
Reserve
requirements would be required to be satisfied (1) by the U.S. currency
and coin held by the institution on a daily average basis during the
fourteen-day reserve computation period which begins on a Tuesday, 30
days prior to the beginning of a reserve maintenance period, and (2)
by balances maintained with a Federal Reserve Bank on a daily average
basis during the fourteen-day reserve maintenance period which begins
two days after the beginning of the reserve computation period for transaction
accounts and which begins 30 days after the beginning of the reserve
computation period for all other reservable liabilities.
An institution would continue to be permitted to carry forward
to the following fourteen-day reserve maintenance period excesses or
deficiencies up to 2 per cent of its required reserves.
The proposed
procedure for reserve maintenance would apply to depository institutions
that have total deposits of $15 million or more, all Edge and Agreement
corporations, and all U.S. branches and agencies of foreign banks subject
to reserve requirements under Regulation D.
The Board received approximately 180 comments from the public
on the proposal, primarily from depository institutions and their industry
trade groups.
Those commenting in favor of CRR generally expressed
the view that the benefits of improved monetary control and consequent
improvements in the national economy would override any costs that would
be imposed on depository institutions and the Federal Reserve. Commentators
generally were opposed to CRR on the grounds that it would improve monetary
control only in the short run and that the benefits over a longer period
would be minimal.
Commentators also stated that their view that the
benefits of CRR would not be outweighed by the substantial increases
in oosts, including these related to revisions of depository institutions'
existing procedures for collecting data on deposits, monitoring deposits,
and managing reserves.
However, the range of estimates provided to
the Board for initial and continuing costs varied widely.
With respect to comments on particular elements of the proposal,
such comments generally opposed as being too short a two-day lag between
the end of the reserve computation and maintenance periods, favored
increasing such periods to two weeks or longer as facilitating the management
of reserve positions, and favored expanding the amount of excesses or
deficiencies in reserve balances that may be carried over from one reserve
maintenance period to another.
Other issues were commented upon less
frequently.
These comments indicated that CRR would complicate reserve
balance pass-through procedures, suggested that there would be a need
for liberalization of the Federal Reserve's policy regarding as-of adjustments
to reserve accounts, and favored implementation of CRR on all reservable
liabilities rather than only on transaction accounts in order to reduce
confusion and cost burdens.
After consideration of all of the comments received, the Board
has determined to adopt the procedure of CRR substantially in the form
proposed.
The Board believes that the improvements in monetary control
to be gained by CRR outweigh the costs to depository institutions.
The CRR procedure will become effective in February 1984.
This will
provide depository institutions sufficient time to modify their accounting
-4 -
systerns and procedures to implement CRR.
In addition, in order to assist
depository institutions as they adjust their operations to the new reserve
maintenance procedures, the Board has provided for a temporary increase
in the amount of allowable carryover of excesses or deficiencies of
reserve balances (includng required clearing balances). In this regard,
allowable carryover will be 3 per cent of required reserves for the
first reserve maintenance period under CRR and for all maintenance periods
during the first six months following implementation.
Allowable carryover
will be reduced to 2-1/2 per cent of required reserves over the subsequent
six-month period.
Approximately one year after implementation of CRR,
allowable carryover will return to 2 per cent of required reserves.
In order to assist small depository institutions, the Board has adopted
a minimum carryover amount of $25,000.
Thus, an institution's carryover
will be the larger of the applicable percentage (3, 2-1/2, or 2) or
$25,000.
Under the new procedure, an institution subject to CRR will
be required to maintain a reserve balance at the Federal Reserve (directly
or on a pass-through basis) on a daily average basis during the fourteenday reserve maintenance period beginning Thursday, February 2, 1984,
and ending on Wednesday, February 15, 1984, based upon daily average
transaction accounts held during the fourteen day reserve computation
period beginning Tuesday, January 31, 1984, and ending Monday, February 13,
1984, and upon daily average nonpersonal time deposits, Eurocurrency
liabilities, and other reservable liabilities during the fourteen-day
reserve computation period beginning Tuesday, January 3, 1984, and ending
Monday, January 16, 1984, after deducting the daily average amount of
the institution's currency and coin maintained during the fourteen-day
computation period beginning Tuesday, January 3, 1984, and ending Monday,
January 16, 1984.
An institution subject to CRR holding transaction accounts
or nonpersonal time deposits will continue to file a report of deposits
each week with the Federal Reserve Bank of its District.
Each report
will reflect daily data for transaction accounts and other reservable
liabilities as of the close of business for each day of the Tuesday
through Monday reporting week.
Although the reserve maintenance periods
for transaction accounts and far other reservable liabilities will not
coincide, all weekly reports will reflect data for deposits actually
held during a particular reporting period.
The Board has considered the impact of CRR on small depository
institutions in accordance with section 604 of the Regulatory Flexibility
Act (5 U.S.C. § 604).
The Board has determined that depository institutions
that have total deposits of less than $15 million will continue to report
deposits and maintain reserves on a quarterly basis under the lagged
system now in effect for such smaller institutions.
However, any institution
that elects to follow the standard, rather than the quarterly procedures,
will report deposits and maintain reserves under the contemporaneous
\
-5 procedare.
Institutions that report on a quarterly basis will report
deposits for reserve requirement purposes for one seven-day period each
quarter beginning on a Tuesday and ending on a Monday.
Since the reserve
maintenance period for quarterly reporters has not been modified, such
institutions will continue to settle their reserve accounts every Wednesday.
Documents presenting analyses of alternative procedures for the implementation
of CRR are available through the Board's Freedom of Information Office
(202/452-2407) .
The Board is taking this action in order to enhance the conduct
of monetary policy.
It is anticipated that a shortening of the lag
between the oorapututation and maintenance of required reserves on transaction
accounts will tighten the linkage between the supjply of reserves to
the depository system and the money stock and thereby enhance the effectiveness
of monetary policy.
LIST OF SUBJECTS IN 12 CFR PART 204
Banks, banking; Currency? Federal Reserve System; Penalties?
Reporting requirements.
Pursuant to its authority under sections 19, 25 and 25(a)
of the Federal Reserve Act (12 U.S.C. §§ 461, 601 et seg., 611 et seg.)
and under section 7 of the International Banking Act of 1978 (12 U.S.C.
§ 3105), effective February 2, 1984, the Board amends Regulation D (12
CFR Part 204) as follows:
1.
In section 204.2(h), footnote 1 is amended by deleting
the word "fourth" and inserting in its place the word "second".
2.
In section 204.3, paragraphs
to read as follows:
SECTION 204.3 —
*
(c)
(c), (d), and
(h) are revised
COMPUTATION AND MAINTENANCE
*
*
*
*
Computation of required reserves.
(1)
Required reserves are computed on the basis of dail
average balances of deposits and Eurocurrency liabilities during a fourteenday period ending every second Monday (the "computation period").
Reserve
requirements are computed by applying the ratios prescribed in section 204.9
to the classes of deposits and Eurocurrency liabilities of the institution.
The reserve balance that is required to be maintained with the Federal
Reserve shall be maintained during a fourteen—day period (the "maintenance
period") which begins on a Thursday and ends on the second Wednesday
thereafter.
- 6 -
(2)
maintenance period, based
A reserve balance shall be maintained during a g
(i)
on the daily average net transaction ac
held by the depository institution during the computation period that
began immediately prior to the beginning of the maintenance period;
and
(ii)
on the daily average nonpersonal time de
and daily average Eurocurrency liabilities held by the depository institution
during the computation period that ended seventeen days prior to the
beginning of the maintenance period.
(3)
In determining the reserve balance that is requi
to be maintained with the Federal Reserve, the daily average vault cash
held during the computation period that ended seventeen days prior to
the beginning of the maintenance period is deducted from the amount
of the institution's required reserves.
(d)
Special rule Xor depository institutions that have total
deposits of leas than $15 million.
(1) A depository institution with total deposits of
less than $15 million shall file a report of deposits once each calendar
quarter for a seven-day computation period that begins on the third
Tuesday of a given month during the calendar quarter.
Each Reserve
Bank shall divide the depository institutions in its District that qualify
under this paragraph into three substantially equal groups and assign
each group a different month to report during each calendar quarter.
(2) Required reserves are computed on the basis of the
depository institution's daily average deposit balances during the sevenday computation period.
In determining the reserve balance that a depository
institution is required to maintain with the Federal Reserve, the daily
average vault cash held during the computation period is deducted from
the amount of the institution's required reserves.
The reserve balance
that is required to be maintained with the Federal Reserve shall be
maintained during a corresponding period that begins on the fourth Thursday
following the end of the institution's computation period and ends on
the fourth Wednesday after the close of the institution's next computation
period.
Such reserve balance shall be maintained in the amount required
on a daily average basis during each week of the quarterly reserve maintenance
period.
(3)
* * *
(4)
A depository institution that qualifies under this
paragraph may elect at the beginning of a calendar year to report deposits
on a weekly basis suid maintain reserves during fourteen-day reserve
maintenance periods in accordance with paragraph (c) of this section.
*
*
*
*
*
-7 -
l -T
(h) Carryover of excesses or deficiencies. (1) For a depository
institution computing required reserves under paragraph (c) of this
section, any excess or deficiency in a required reserve balance for
any maintenance period that does not exceed the greater of the percentage
set forth in the schedule below of the institution's required reserves
(including required clearing balances) or $25,000, shall be carried
forward to the next maintenance period.
Percentage applied to
determine allowable
carryover
Reserve maintenance periods
occurring between
February 2, 1984 and August 1, 1984
3
August 2, 1984 and January 30, 1985
2-1/2
January 31, 1985 and forward
2
(2)
For a depository institution reporting deposits
and maintaining required reserves under paragraph (d) of this section,
any excess or deficiency in a required reserve balance for any maintenance
period that does not exceed the greater of 2 per cent of the institution's
required reserves (including required clearing balances) or $25,000,
shall be carried forward to the next maintenance period.
(3)
Any carryover not offset during the next period
may not be carried forward to additional periods.
*
3.
as follows:
*
*
*
*
Section 204.4 is amended by revising the schedule in paragraph
SECTION 204.4 —
*
(a)
*
TRANSITIONAL ADJUSTMENTS
*
*
*
* * *
Reserve maintenance periods
occurring
Percentage that computed
reserves will be reduced
November 13, 1980 to
September 2, 1981
87.5
September 3, 1981 to
September 1, 1982
75
September 2, 1982 to
August 31, 1983
62.5
-8 -
Septeinber 1, 1983 to
September 12, 1984
50
September 13, 1984 to
September 11, 1985
37.5
September 12, 1985 to
September 10, 1986
25
September 11, 1986 to
September 9, 1987
12.5
September 10, 1987 and forward
*
*
*
0
*
*
4.
In the third sentence of section 204.7(a)(1), by deleting
the word "computation" and inserting the word "maintenance" in its place.
By order of the Board of Governors, October 5 , 1982.
(signed) William W. Wiles
William W. Wiles
Secretary of the Board
[SEAL]
@FedFRASER