Full text of Federal Reserve Bank of New York Circulars : 9563. Amendments to Regulations Q and D

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FEDERAL RESERVE BANK
OF NEW YORK

[

Circular No. 9563
October 11, 1983

~|

AMENDMENTS TO REGULATIONS Q AND D
— Removal of Interest Rate Ceilings on Time Deposits
— Reserve Requirements on Nonpersonal Time Deposits
— Establishment of Seven-Day Minimum Maturity on Time Deposits
To All Depository Institutions, and Others Concerned,
in the Second Federal Reserve District:

The Board of Governors of the Federal Reserve System has issued technical amendments to its Regulation Q,
“Interest on Deposits, ” effective October 1,1983, in order to conform that regulation to actions taken by the Deposi­
tory Institutions Deregulation Committee (DIDC) eliminating interest rate ceilings on most time deposit accounts.
The following statement was issued by the Board of Governors announcing that action:

The Federal Reserve Board has amended its Regulation Q (Interest on Deposits) effective October 1, 1983 to incorpo­
rate rules relating to the payment of interest on deposits adopted by the Depository Institutions Deregulation Committee.
The DIDC was established by the Depository Institutions Deregulation Act of 1980, which transferred to the
Committee the authority of the Board (and similar authority of the Federal Deposit Insurance Corporation and the Federal
Home Loan Bank Board) to prescribe interest rate ceilings and other rules relating to the payment of interest on deposits.
The technical amendments to Regulation Q effectuate DIDC actions abolishing ceiling interest rates on most time
accounts. The resulting interest rate structure for commercial banks, including member banks, is:

A ccount

All Time Deposits of more than 31 Days
Money Market Deposit Account
Ceiling-Free NOW Accounts
Time Deposits of 7 to 31 Days
Time Deposits of 7 to 31 Days*
Passbook Savings
NOW Accounts

R equired
M inim um D eposit

Interest
R ate C eiling

None
$2,500
$2,500
$2,500
$0 - $2,499
None
$0 - $2,499

None
None
None
None
5-14%
5-14%
5-14%

* Member banks may continue to issue to governmental units time deposits o f less than $2,500 with maturities or required notice periods o f 7 to 31 days,
subject to the previous ceiling of eight percent in effect for such deposits.




(OVER)

The Board also revised its Regulation Q to incorporate DIDC actions effective October 1, 1983 that reduce penalties
for early withdrawals from contracts entered into, renewed or extended on or after October 1, 1983 as follows:
a depositor must forfeit an amount at least equal to the greater of:
— All interest earned on the amount withdrawn during the term of the deposit, or
— All interest that could have been earned on the amount withdrawn in half of the maturity or notice period.

F o r tim e d e p o s its o f 7 to 3 1 d a y s ,

F o r tim e d e p o s its o f b e tw e e n 3 2 d a y s a n d o n e y e a r ,

a depositor must forfeit an amount at least equal to:
— One month’s interest earned, or that could have been earned, on the amount withdrawn at the simple interest
rate being paid on the deposit, however long the funds withdrawn had been on deposit.

F o r a tim e d e p o s it o f m o r e th a n o n e y e a r ,

a depositor must forfeit an amount at least equal to:
— Three months’ interest earned, or that could have been earned, on the amount withdrawn at the simple inter­
est rate being paid on the deposit, however long the funds withdrawn had been on deposit.

Enclosed — for depository institutions in the Second Federal Reserve District and others maintaining sets of the
Board’s regulations — is a new Regulation D pamphlet, as amended effective June 20,1983, together with the text of
regulatory amendments to Regulations D and Q, including the amendments to those regulations announced in our
Circular No. 9561, dated October 4, 1983. Additional copies of these enclosures are available upon request directed
to our Circulars Division.
Also enclosed is the text of a notice issued by the DIDC announcing actions taken at its meeting of
September 30, 1983. These actions, which are effective later this year and in 1984-86, involve an increase in the
interest rate ceiling on savings and on 7-31 day accounts at commercial banks to eliminate the interest rate differential
between commercial banks and thrift institutions, and reductions in minimum denomination requirements.
Questions regarding these regulations may be directed to the following:
Reporting Requirements:

Richard J. Gelson, Vice President (Tel. No. 212-791-8225)
Nancy Bercovici, Manager, Statistics Department (Tel. No. 212-791-8227)
Paula B. Schwartzberg, Chief, Deposit Reports Division (Tel. No. 212-791-8590)
Maintenance Requirements:

Kathleen A. O ’Neil, Manager, Accounting Department (Tel. No. 212-791-5250)
Patricia Hilt-Lupack, Chief, Accounting Control Division (Tel. No. 212-791-7791)
Interpretation of Regulations D and Q:

Joyce E. Motylewski, Assistant Counsel, Legal Department (Tel. No. 212-791-5024)
Ann Calabrese, Chief, Regulations Division (Tel. No. 212-791-5914)




A

nthony

M.

S olom on,

P r e s id e n t.

DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
Washington, D.C. 20220

O c t ober 3, 1983

RES S R E L E A S E

PIDC Actions Taken at the
September 30, 1983 Q u a r t e r l y Meeting
At its September 30,
actions:

1983 meeting the DIDC took the following

1. As required by the G a r n - S t G e r m a i n Act, the DIDC adopted
rules to eliminate the rate dif f e r e n t i a l on pass b o o k savings
accounts and 7- to 31-day time deposits of less than $2,500
effective J a n u a r y 1, 1984.
This will be acco m p l i s h e d by
increasing the rate ceiling at commercial banks on these
deposits from 5-1/4 percent currently to the 5-1/2 percent
ceiling which applies at thrift institutions.
2.
Effective December 1, 1983 the m i n i m u m d e nominations
will be eliminated on those M M D A s , 7- to 31-day ceiling-free
time deposits, and Super NOW accounts that are used for IRA/Keogh
investment purposes.
This will make it e asier for IRA/Keogh
investors to earn a m a rket rate of return on their funds while
they decide on a m o r e permanent investment for retirement
purposes.
3.
The m i n i m u m denomina t i o ns on MMDAs, Super NOWs and
7- to 31-day ceiling-free time deposits will be phased out
in two steps: (a) Effective J a n u a r y 1, 1985 the m i n i m u m
denominations will be reduced to $1,000 on these accounts;
(b) Effective J a n u a r y 1, 1986 the m i n i m u m d e n o m inations on
these accounts will be eliminated altogether.
Therefore,
effective J a n uary 1, 1986 all small savers without excep­
tion will be able to earn a m a r k e t rate of interest on
their savings.
The above actions, combined w i t h removal of all interest
rate ceilings for time d epos i t s with a m a t u r i t y of 32 days
or more, which became effective on Oc t o b e r 1, 1983, means
that the DIDC has come a long way towards fulfilling its
Congressional directive to phase out interest rate ceilings
on deposits.
The next DIDC meet i n g is scheduled for Thursday,
December 15, 1983 at 3:00 p.m. in the Treasury Cash Room.

[Enc, Cir. No. 9563]

COMPTROLLER OF THE CURRENCY
FEDERAL RESERVE BOARD



FEDERAL DEPOSIT INSURANCE CORPORATION
NATIONAL CREDIT UNION ADMINISTRATION

FEDERAL HOME LOAN BANK BOARD
DEPARTMENT OF THE TREASURY

B o a rd o f G o v ern o rs o f th e F ed era l R eserv e S y stem

Regulation D
Reserve Requirements
of Depository Institutions
12 CFR 204; as amended effective June 20, 1983




Any inquiry relating to this regulation should be addressed to the Federal Reserve Bank of the
Federal Reserve District in which the inquiry arises.
September 1983



Contents

Page

Section 204.1—Authority, purpose, and
scope................................................ 1
(a) Authority................................... 1
(b) Purpose .................................... 1
(c) Scope........................................ 1
Section 204.2—Definitions..................... 1
(a) Deposit...................................... 1
(b) Demand deposit.......................... 4
(c) Time deposit .............................. 4
(d) Savings deposit .......................... 5
(e) Transaction account................... 5
(f) Nonpersonal time deposit............ 7
(g) Natural person............................ 7
(h) Eurocurrency liabilities................ 7
(i) Cash items in process of collection. 8
(j) Net transaction accounts............ 9
(k) Vault cash ................................. 9
(/) Pass-through account................. 9
(m) Depository institution................. 9
(n) Member bank............................. 9
(o) Foreign bank.............................. 9
(p) De novo depository institution----10
(q) Affiliate........................................ 10
(r) United States................................10
(s) United States resident....................10
(t) Any deposit that is payable only at
an office located outside the United
States.......................................... 10
Section 204.3—Computation and
maintenance...................................... 10
(a) Maintenance of required reserves.. 10
(b) Form of reserves.......................... 12
(c) Computation of required reserves
for institutions that report on a
weekly basis................................. 12
(d) Computation of required reserves
for institutions that report on a
quarterly basis..............................12
(e) Computation of transaction
accounts...................................... 13
(f) Deductions allowed in computing
reserves........................................ 13
(g) Availability of cash items as
reserves........................................ 13
(h) Carryover of deficiencies................13
(i) Pass-through rules.........................14



Page

Section 204.4—Transitional adjustments.. 16
(a) Nonmembers................................16
(b) Members and former members. . . . 16
(c) Certain nonmembers and branches
and agencies of foreign banks.......17
(d) New members..............................17
(e) De novo institutions..................... 18
(f) Nonmember depository institutions
with offices in Hawaii................... 18
(g) Mergers and consolidations.........19
Section 204.5—Emergency reserve
requirement........................................20
(a) Finding by Board.......................... 20
(b) Term........................................... 20
(c) Reports to Congress.....................20
(d) Reserve requirements................... 20
Section 204.6—Supplemental reserve
requirement........................................ 20
(a) Finding by Board.......................... 20
(b) Term........................................... 21
(c) Earnings participation account ...21
(d) Report to Congress.......................21
(e) Reserve requirements................... 21
Section 204.7—Penalties.......................... 21
(a) Penalties for deficiencies................21
(b) Penalties for violations................. 22
Section 204.8—International banking
facilities ............................................. 22
(a) Definitions...................................22
(b) Acknowledgment of IBF deposits
and extensions of credit................. 23
(c) Exemption from reserve
requirements............................... 23
(d) Establishment of an international
banking facility............................23
(e) Notification to Federal Reserve ... 23
(f) Recordkeeping requirements.......23
Section 204.9—Supplement: Reserve
requirement ratios............................... 23
(a) Reserve percentages .....................23
(b) Reserve ratios in effect during last
computation period prior to
September 1, 1980 ....................... 24
i

Contents
Page

Statutory Provisions
Federal Reserve Act
Section 19............................................25
Section 11(a), (c), and (e).................. 31
Section 25............................................32

u




Page

Section 25(a).......................................32
Depository Institutions Deregulation Act
Section 204(c)..................................... 33
International Banking Act
Section 7 ..............................................33

Regulation D
Reserve Requirements of Depository Institutions
12 CFR 204; revised effective December 24, 1980; as amended effective June 20, 1983

SECTION 204.1—Authority, Purpose
and Scope
(a) Authority. This part* is issued under the
authority of section 19 (12 USC 461 et seq.)
and other provisions of the Federal Reserve
Act and of section 7 of the International
Banking Act of 1978 (12 USC 3105).
(b) Purpose. This part relates to reserves that
depository institutions are required to main­
tain for the purpose of facilitating the imple­
mentation of monetary policy by the Federal
Reserve System.
(c) Scope. (1) The following depository in­
stitutions are required to maintain reserves
in accordance with this part:
(i) Any insured bank as defined in sec­
tion 3 of the Federal Deposit Insurance
Act (12 USC 1813(h)) or any bank that
is eligible to apply to become an insured
bank under section 5 of such act (12
USC 1815);
(ii) Any savings bank or mutual savings
bank as defined in section 3 of the Feder­
al Deposit Insurance Act (12 USC
1813(f), (g));
(iii) Any insured credit union as defined
in section 101 of the Federal Credit Un­
ion Act (12 USC 1752(7)) or any credit
union that is eligible to apply to become
an insured credit union under section 201
of such act (12 USC 1781);
(iv) Any member as defined in section 2
of the Federal Home Loan Bank Act (12
USC 1422(4)); and
(v) Any insured institution as defined in
section 401 of the National Housing Act
(12 USC 1724(a)) or any institution
which is eligible to apply to become an
insured institution under section 403 of
such act (12 USC 1726).
(2) Except as may be otherwise provided
by the Board, a foreign bank’s branch or
agency located in the United States is re•The words “this part,” as used herein, mean Regulation
D (Code of Federal Regulations, title 12, chapter II, part
204).




quired to comply with the provisions of this
part in the same manner and to the same
extent as if the branch or agency were a
member bank, if its parent foreign bank (i)
has total worldwide consolidated bank as­
sets in excess of $1 billion; or (ii) is con­
trolled by a foreign company or by a group
of foreign companies that own or control
foreign banks that in the aggregate have to­
tal worldwide consolidated bank assets in
excess of $1 billion. In addition, any other
foreign bank’s branch located in the United
States that is eligible to apply to become an
insured bank under section 5 of the Federal
Deposit Insurance Act (12 USC 1815) is
required to maintain reserves in accordance
with this part as a nonmember depository
institution.
(3) Except as may be otherwise provided
by the Board, an Edge corporation (12
USC 611 et seq.) or an agreement corpora­
tion (12 USC 601 et seq.) is required to
comply with the provisions of this part in
the same manner and to the same extent as
a member bank.
(4) This part does not apply to any finan­
cial institution that (i) is organized solely
to do business with other financial institu­
tions; (ii) is owned primarily by the finan­
cial institutions with which it does business;
and (iii) does not do business with the gen­
eral public.
(5) The provisions of this part do not ap­
ply to any deposit that is payable only at an
office located outside the United States.
SECTION 204.2—Definitions
For purposes of this part, the following defini­
tions apply unless otherwise specified:
(a) (1) “Deposit" means:
(i) the unpaid balance of money or its
equivalent received or held by a deposito­
ry institution in the usual course of busi­
ness and for which it has given or is obli­
gated to give credit, either conditionally
or unconditionally, to an account, includ-

1

§204.2

ing interest credited, or which is evi­
denced by an instrument on which the
depository institution is primarily liable;
(ii) money received or held by a deposi­
tory institution, or the credit given for
money or its equivalent received or held
by the depository institution in the usual
course of business for a special or specific
purpose, regardless of the legal relation­
ships established thereby, including es­
crow funds, funds held as security for
securities loaned by the depository insti­
tution, funds deposited as advance pay­
ment on subscriptions to United States
government securities, and funds held to
meet its acceptances;
(iii) an outstanding draft, cashier’s
check, money order, or officer’s check
drawn on the depository institution and
issued in the usual course of business for
any purpose, including payment for ser­
vices, dividends, or purchases;
(iv) any due bill or other liability or un­
dertaking on the part of a depository in­
stitution to sell or deliver securities to, or
purchase securities for the account of,
any customer (including another deposi­
tory institution), involving either the
receipt of funds by the depository institu­
tion, regardless of the use of the pro­
ceeds, or a debit to an account of the cus­
tomer before the securities are delivered.
A deposit arises thereafter, if after three
business days from the date of issuance of
the obligation, the depository institution
does not deliver the securities purchased
or does not fully collateralize its obliga­
tion with securities similar to the securi­
ties purchased. A security is similar if it
is of the same type and if it is of compara­
ble maturity to that purchased by the
customer;
(v) any liability of a depository institu­
tion’s affiliate that is not a depository in­
stitution, on any promissory note, ac­
knowledgment of advance, due bill, or
similar obligation (written or oral), with
a maturity of less than four years, to the
extent that the proceeds are used to sup­
ply or to maintain the availability of
funds (other than capital) to the deposi­
tory institution, except any such obliga­
2



Regulation D

tion that, had it been issued directly by
the depository institution, would not con­
stitute a deposit. If an obligation of an
affiliate of a depository institution is
regarded as a deposit and is used to pur­
chase assets from the depository institu­
tion, the maturity of the deposit is deter­
mined by the shorter of the maturity of
the obligation issued or the remaining
maturity of the assets purchased. If the
proceeds from an affiliate’s obligation are
placed in the depository institution in the
form of a reservable deposit, no reserves
need be maintained against the obligation
of the affiliate since reserves are required
to be maintained against the deposit is­
sued by the depository institution. How­
ever, the maturity of the deposit issued to
the affiliate shall be the shorter of the ma­
turity of the affiliate’s obligation or the
maturity of the deposit;
(vi) credit balances;
(vii) any liability of a depository institu­
tion on any promissory note, acknowl­
edgment of advance, banker’s accept­
ance, or similar obligation (written or
oral), including mortgage-backed bonds,
that is issued or undertaken by a deposi­
tory institution as a means of obtaining
funds, except any such obligation that:
(A) is issued or undertaken and held
for the account of:
(1) an office located in the United
States of another depository institu­
tion, foreign bank, Edge or Agree­
ment Corporation, or New York In­
vestment (Article XII) Company;
(2) the United States government
or an agency thereof; or
(3) the Export-Import Bank of the
United States, Minbanc Capital Cor­
poration, the Government Develop­
ment Bank for Puerto Rico, a Feder­
al Reserve Bank, a Federal Home
Loan Bank, or the National Credit
Union Administration Central Li­
quidity Facility;
(B) arises from a transfer of direct ob­
ligations of, or obligations that are ful­
ly guaranteed as to principal and inter­
est by, the United States government
or any agency thereof that the de­

Regulation D

pository institution is obligated to
repurchase;
(C) is not insured by a federal agency,
is subordinated to the claims of deposi­
tors, has a weighted average maturity
of seven years or more, is not subject
to federal interest rate limitations, and
is issued by a depository institution
with the approval of, or under the
rules and regulations of, its primary
federal supervisor;
(D) arises from a borrowing by a de­
pository institution from a dealer in se­
curities, for one business day, of pro­
ceeds of a transfer of deposit credit in a
Federal Reserve Bank or other imme­
diately available funds, (commonly re­
ferred to as “federal funds”), received
by such dealer on the date of the loan
in connection with clearance of securi­
ties transactions; or
(E) arises from the creation, discount
and subsequent sale by a depository in­
stitution of its banker’s acceptance of
the type described in paragraph 7 of
section 13 of the Federal Reserve Act
(12 USC 372); or
(viii) any liability of a depository insti­
tution that arises from the creation after
June 20, 1983, of a bankers acceptance
that is not of the type described in para­
graph 7 of section 13 of the Federal Re­
serve Act (12 U.S.C. 372) except
any such liability held for the account
of an entity specified in section
204.2(a) (l)(vii) (A).
(2) “Deposit” does not include:
(i) trust funds received or held by the
depository institution that it keeps prop­
erly segregated as trust funds and apart
from its general assets or which it depos­
its in another institution to the credit of
itself as trustee or other fiduciary. If trust
funds are deposited with the commercial
department of the depository institution
or otherwise mingled with its general as­
sets, a deposit liability of the institution is
created;
(ii) an obligation that represents a con­
ditional, contingent or endorser’s
liability;
(iii) obligations, the proceeds of which



§204.2

are not used by the depository institution
for purposes of making loans, invest­
ments, or maintaining liquid assets such
as cash or “due from” depository institu­
tions or other similar purposes. An obli­
gation issued for the purpose of raising
funds to purchase business premises,
equipment, supplies, or similar assets is
not a deposit;
(iv) accounts payable;
(v) hypothecated “deposits” created by
payments on an installment loan where
(A) the amounts received are not used
immediately to reduce the unpaid bal­
ance due on the loan until the sum of the
payments equals the entire amount of
loan principal and interest; (B) and
where such amounts are irrevocably as­
signed to the depository institution and
cannot be reached by the borrower or
creditors of the borrower;
(vi) dealer reserve and differential ac­
counts that arise from the financing of
dealer installment accounts receivable,
and which provide that the dealer may
not have access to the funds in the ac­
count until the installment loans are re­
paid, as long as the depository institution
is not actually (as distinguished from
contingently) obligated to make credit or
funds available to the dealer;
(vii) a dividend declared by a depository
institution for the period intervening be­
tween the date of the declaration of the
dividend and the date on which it is paid;
(viii) an obligation representing a “passthrough account,” as defined in this
section;
(ix) an obligation arising from the reten­
tion by the depository institution of no
more than a 10 percent interest in a pool
of conventional one- to four-family mort­
gages that are sold to third parties;
(x) an obligation issued to a state or mu­
nicipal housing authority under a loanto-lender program involving the issuance
of tax exempt bonds and the subsequent
lending of the proceeds to the depository
institution for housing finance purposes;
(xi) shares of a credit union held by the
National Credit Union Administration or
the National Credit Union Administra3

§204.2

tion Central Liquidity Facility under a
statutorily authorized assistance pro­
gram; and
(xii) any liability of a United States
branch or agency of a foreign bank to an­
other United States branch or agency of
the same foreign bank, or the liability of
the United States office of an Edge corpo­
ration to another United States office of
the same Edge corporation.

Regulation D

tory institution on the Federal Reserve or
on another depository institution;
(ii) a deposit or account issued pursuant
to 12 CFR 1204.121, including those
with an original maturity or required no­
tice period of 7 to 13 days;
(iii) a deposit or account issued pursuant
to 12 CFR 1204.122 under which the de­
pository institution reserves the right to
require at least 7 days’ notice of an in­
tended withdrawal before withdrawal is
made, including those with an original
maturity or required notice period of 1 to
13 days; or
(iv) for depository institutions not sub­
ject to the rules of the Depository Institu­
tions Deregulation Committee under 12
USC 3501 et seq.,
(A) a deposit or account issued with
an original maturity or required notice
period of 7 to 13 days if such deposit
or account is nonnegotiable and not
otherwise a transaction account under
section 204.2(e) of this part; or
(B) a deposit or account under which
the depository institution reserves the
right to require at least 7 days’ notice
of an intended withdrawal before with­
drawal is made, including those with
an original maturity or required notice
period of 1 to 13 days, and not other­
wise a transaction account under sec­
tion 204.2(e) of this part.

(b) (1) “Demand deposit” means a deposit
that is payable on demand, or a deposit is­
sued with an original maturity or required
notice period of less than 14 days, or a de­
posit representing funds for which the de­
pository institution does not reserve the
right to require at least 14 days’ written no­
tice of an intended withdrawal. The term
includes all deposits other than time and
savings deposits. Demand deposits may be
in the form of (i) checking accounts; (ii)
certified, cashier’s and officer’s checks (in­
cluding checks issued by the depository in­
stitution in payment of dividends); (iii)
traveler’s checks and money orders that are
primary obligations of the issuing institu­
tion; (iv) checks or drafts drawn by, or on
behalf of, a non-United States office of a de­
pository institution on an account main­
tained at any of the institution’s United
States offices; (v) letters of credit sold for
cash or its equivalent; (vi) withheld taxes,
withheld insurance and other withheld
funds; (vii) time deposits that have ma­ (c) (1) “Time deposit” means (i) a deposit
tured or time deposits upon which the re­
that the depositor does not have a right
quired notice of withdrawal period has ex­
to withdraw for a period of 14 days or
pired and which have not been renewed
more after the date of deposit. “Time de­
(either by action of the depositor or auto­
posit” includes funds:
matically under the terms of the deposit
(A) payable on a specified date not
agreement); and (viii) an obligation to pay
less than 14 days after the date of
on demand or within 14 days a check (or
deposit;
other instrument, device, or arrangement
(B) payable at the expiration of a
for the transfer of funds) drawn on the de­
specified time not less than 14 days af­
pository institution, where the account of
ter the date of deposit;
the institution’s customer already has been
(C) payable upon written notice
debited. The term does not include an obli­
which actually is required to be given
by the depositor not less than 14 days
gation that is a time deposit under section
204.2(c) (l)(ii).
before the date of repayment;
(2) A “demand deposit” does not in­
(D) such as “Christmas club” ac­
counts and “vacation club” accounts,
clude—
that are deposited under written con(i) checks or drafts drawn by the deposi­
4




Regulation D

tracts providing that no withdrawal
shall be made until a certain number of
periodic deposits have been made dur­
ing a period of not less than three
months even though some of the de­
posits may be made within 14 days
from the end of the period; or
(E) that constitute a “savings depos­
it” which is not regarded as a “transac­
tion account;”
(ii) borrowings, regardless of maturity,
represented by a promissory note, an ac­
knowledgment of advance, or similar ob­
ligation described in section 204.2(a)(1)
(vii) that is issued to, or any bankers ac­
ceptance of the depository institution
held by, any office located outside the
United States of another depository insti­
tution or Edge or agreement corporation
organized under the laws of the United
States, to any office located outside the
United States of a foreign bank, or to in­
stitutions whose time deposits are exempt
from interest rate limitations under sec­
tion 217.3(g) of Regulation Q (12 CFR
217.3(g)); and
(iii) a deposit or account issued pursu­
ant to 12 CFR 1204.121, including those
with an original maturity or required no­
tice period of 7 to 13 days; or for deposi­
tory institutions not subject to the rules
of the Depository Institutions Deregula­
tion Committee under 12 USC 3501 et
seq., a deposit or account issued with an
original maturity or required notice peri­
od of 7 to 13 days if such deposit or
account is nonnegotiable and is not oth­
erwise a transaction account under sec­
tion 204.2(e) of this part.
(2) A time deposit may be represented by
a transferable or nontransferable, or a nego­
tiable or nonnegotiable, certificate, instru­
ment, passbook, statement, or otherwise. A
“time deposit” includes share certificates
and certificates of indebtedness issued by
credit unions, and certificate accounts and
notice accounts issued by savings and loan
associations.
(d) (1) “Savings deposit” means a deposit or
account
(i) (A) with respect to which the de­



§204.2

positor is not required by the deposit
contract but may at any time be re­
quired by the depository institution to
give written notice of an intended
withdrawal not less than 14 days be­
fore withdrawal is made, and that is
not payable on a specified date or at
the expiration of a specified time after
the date of deposit; and
(B) for depository institutions subject
to 12 CFR 217 or 12 CFR 329, funds
deposited to the credit of, or in which
any beneficial interest is held by, a cor­
poration, association, partnership or
other organization operated for profit
do not exceed $150,000 per depositor
at the depository institution; or
(ii) issued pursuant to 12 CFR 1204.122
under which the depository institution
reserves the right to require at least 7
days’ notice of an intended withdrawal
before withdrawal is made, or for deposi­
tory institutions not subject to the rules
of the Depository Institutions Deregula­
tion Committee under 12 USC 3501 et
seq., a deposit or account under which
the depository institution reserves the
right to require at least 7 days’ notice of
an intended withdrawal before withdraw­
al is made.
(2) A deposit may continue to be classified
as a savings deposit even if the depository
institution exercises its right to require no­
tice of withdrawal.
(3) A “savings deposit” includes a regular
share account at a credit union and a regu­
lar account at a savings and loan
association.
(4) “Savings deposit” does not include
funds deposited to the credit of the deposi­
tory institution’s own trust department
where the funds involved are utilized to
cover checks or drafts. Such funds are
“transaction accounts.”
(e)(1) “Transaction account” means a de­
posit or account on which the depositor or
account holder is permitted to make with­
drawals by negotiable or transferable in­
strument, payment orders of withdrawal,
telephone transfers, or other similar device
for the purpose of making payments or
5

§ 204.2

transfers to third persons or others. “Trans­
action account” includes:
(1) demand deposits;
(ii) deposits or accounts subject to
check, draft, negotiable order of with­
drawal, share draft, or other similar item;
(iii) savings deposits or accounts in
which withdrawals may be made auto­
matically through payment to the
depository institution itself or through
transfer of credit to a demand deposit or
other account in order to cover checks or
drafts drawn upon the institution or to
maintain a specified balance in, or to
make periodic transfers to, such ac­
counts (automatic transfer accounts);
(iv) deposits or accounts in which pay­
ments may be made to third parties by
means of an automated teller machine,
remote service unit or other electronic
device;
(v) deposits or accounts in which pay­
ments may be made to third parties by
means of a debit card;
(vi) except as provided in subparagraph
(2) , deposits or accounts under the terms
ofwhich, or which by practice of the depos­
itory institution, the depositor is permitted
or authorized to make more than three
withdrawals per month for purposes of
transferring funds to another account or
for making a payment to a third party by
means ofpreauthorized or telephone agree­
ment, order or instruction. An account that
permits or authorizes more than three such
withdrawals in a calendar month, or state­
ment cycle (or similar period) of at least
four weeks, is a “transaction account”
whether or not more than three such with­
drawals actually are made during such pe­
riod. A “preauthorized transfer” includes
any arrangement by the depository institu­
tion to pay a third party from the account of
a depositor upon written or oral instruction
(including an order received through an
automated clearing house (ACH)), or any
arrangement by a depository institution to
pay a third party from the account of the
depositor at a predetermined time or on a
fixed schedule. An account is not a “trans­
action account” under this subparagraph
6



Regulation D

(e)(l)(vi), by virtue of an arrangement
that permits withdrawals for the purpose of
repaying loans and associated expenses at
the same depository institution (as origina­
tor or servicer);
(vii) deposits or accounts maintained in
connection with an arrangement that
permits the depositor to obtain credit di­
rectly or indirectly through the drawing
of a negotiable or nonnegotiable check,
draft, order or instruction or other simi­
lar device (including telephone or elec­
tronic order or instruction) on the issu­
ing institution that can be used for the
purpose of making payments or transfers
to third persons or others, or to a deposit
account of the depositor. Deposits that
are subject to arrangements established
before October 5, 1982, will not be re­
garded as transaction accounts (A) until
the deposit issued in connection with the
line of credit is extended, or matures and
is renewed, or (B) if the deposit issued in
connection with the line of credit ma­
tures and is automatically renewed on or
before December 31, 1982; and
(viii) a deposit or account issued pursu­
ant to 12 CFR 1204.122 (or, for a depos­
itory institution that is not subject to the
rules of the Depository Institutions De­
regulation Committee under 12 USC
3501 et seq., a deposit or account under
which the depository institution reserves
the right to require seven days’ notice of
an intended withdrawal prior to with­
drawal) and under the terms of which, or
which by practice of the depository insti­
tution, the depositor is permitted or au­
thorized to make more than six transfers
per calendar month, or statement cycle
(or similar period) of at least four weeks
to another account of the same depositor
at the same institution, to the institution
itself or to a third party by means of
preauthorized, automatic, or telephone
agreement, order, or instruction or, with­
in these transfers, to draw more than
three checks or drafts per calendar
month or statement cycle (or similar pe­
riod) of at least four weeks. An account
that authorizes transfers in excess of
these limits is a transaction account

Regulation D

§204.2

interest is held by one or more natural
whether or not the depositor actually makes
persons. A time deposit is transferable
any transfers.
(2) Notwithstanding
subparagraphs
unless it contains a specific statement on
the certificate, instrument, passbook,
(l)(ii), ( \ H m , (l)(iv), and (l)(v) of
statement or other form representing the
this paragraph, a “transaction account”
does not include a deposit or account issued
account that it is not transferable. A time
pursuant to 12 CFR 1204.122 (or, for a de­
deposit that contains a specific statement
that it is not transferable is not regarded
pository institution that is not subject to the
as transferable even if the following
rules of the Depository Institutions Deregu­
lation Committee under 12 USC 3501 et
transactions can be effected: a pledge as
collateral for a loan; a transaction that
seq., a deposit or account under which the
occurs due to circumstances arising from
depository institution reserves the right to
require seven days’ notice of an intended
death, incompetency, marriage, divorce,
withdrawal prior to withdrawal) under the
attachment or otherwise by operation of
law or a transfer on the books or records
terms of which the depositor is not permit­
of the institution; and
ted or authorized to make more than six
transfers per calendar month, or statement
(v) a time deposit represented by a
cycle (or similar period) of at least four
promissory note, an acknowledgment of
advance, or a similar obligation described
weeks, to another account of the depositor
at the same institution, to the institution it­
in section 204.2(a)(l)(vii) that is issued
to, or any bankers acceptance of the de­
self, or to a third party by means of preau­
pository institution held by, any office lo­
thorized, automatic or telephone agree­
ment, order, or instruction and no more
cated outside the United States of anoth­
er depository institution or Edge or
than three of such six transfers may be by
agreement corporation organized under
checks or drafts drawn by the depositor.
(f) (1) "Nonpersonal time deposit” means:
the laws of the United States, to any of­
(i) a time deposit, including a savings
fice located outside the United States of a
deposit, that is not a transaction account,
foreign bank, or to institutions whose
representing funds in which any benefi­
time deposits are exempt from interest
cial interest is held by a depositor which
rate limitations under section 217.3(g) of
is not a natural person;
Regulation Q (12 CFR 217.3(g)).
(ii) a time deposit, including a savings
(2) “Nonpersonal time deposit” does not
deposit that is not a transaction account,
include nontransferable time deposits to the
that represents funds deposited to the
credit of or in which the entire beneficial
credit of a depositor that is not a natural
interest is held by an individual pursuant to
person, other than a deposit to the credit
an individual retirement account or Keogh
(H. R. 10) plan under 26 USC (IRC 1954)
of a trustee or other fiduciary if the entire
beneficial interest in the deposit is held by
408, 401, or nontransferable time deposits
one or more natural persons;
held by an employer as part of an unfunded
(iii) a time deposit that is transferable,
deferred-compensation plan established
pursuant to subtitle D of the Revenue Act of
except a time deposit originally issued be­
fore October 1, 1980, to and held by one
1978 (Pub. L. No. 95-600, 92 Stat. 2763).
or more natural persons, including a de­
(g) “Natural person ” means an individual or
posit to the credit of a trustee or other
a sole proprietorship. The term does not
fiduciary if the entire beneficial interest in
mean a corporation owned by an individu­
the deposit is held by one or more natural
al, a partnership or other association.
persons;
(iv) a time deposit that is transferable, (h) “Eurocurrency liabilities” means:
issued on or after October 1, 1980, to and
(1) For a depository institution or an Edge
held by one or more natural persons, in­
or agreement corporation organized under
cluding a deposit to the credit of a trustee
the laws of the United States, the sum, if
or other fiduciary if the entire beneficial
positive, of the following:



7

§204.2

(i) net balances due to its non-United
States offices and its international bank­
ing facilities (“IBFs”) from its United
States offices;
(ii) (A) for a depository institution or­
ganized under the laws of the United
States, assets (including participa­
tions) acquired from its United States
offices and held by its non-United
States offices, by its IBF, or by nonUnited States offices of an affiliated
Edge or agreement corporation;1 or
(B) for an Edge or agreement corpo­
ration, assets (including participa­
tions) acquired from its United States
offices and held by its non-United
States offices, by its IBF, by non-United States offices of its U. S. or foreign
parent institution, or by non-United
States offices of an affiliated Edge or
agreement corporation;1 and
(iii) credit outstanding from its nonUnited States offices to United States res­
idents (other than assets acquired and
net balances due from its United States
offices), except credit extended (A) from
its non-United States offices in the aggre­
gate amount of $100,000 or less to any
United States resident, (B) by a nonUnited States office that at no time dur­
ing the computation period had credit
outstanding to United States residents ex­
ceeding $1 million, (C) to an interna­
tional banking facility, or (D) to an insti­
tution that will be maintaining reserves
on such credit pursuant to this part.
Credit extended from non-United States
offices or from IBFs to a foreign branch,
office, subsidiary, affiliate, or other for­
eign establishment (“foreign affiliate”)
controlled by one or more domestic cor­
porations is not regarded as credit ex­
tended to a United States resident if the
proceeds will be used to finance the oper­
ations outside the United States of the
borrower or of other foreign affiliates of
1 This subparagraph does not apply to assets (1) that
were acquired before October 7, 1979, or (2) that were
acquired by an IBF from its establishing entity before the
end of the fourth reserve computation period after its estab­
lishment. [Note: Effective February 2, 1984, this footnote
is amended by deleting the word “fourth” and inserting in
its place the word “second”.]

8



Regulation D

the controlling domestic corporation(s).
(2) For a United States branch or agency
of a foreign bank, the sum, if positive, of the
following:
(i) net balances due to its foreign bank
(including offices thereof located outside
the United States) and its international
banking facility after deducting an
amount equal to 8 percent of the follow­
ing: the United States branch’s or agen­
cy’s total assets less the sum of (A) cash
items in process of collection; (B) un­
posted debits; (C) demand balances due
from depository institutions organized
under the laws of the United States and
from other foreign banks; (D) balances
due from foreign central banks; and (E)
positive net balances due from its IBF, its
foreign bank, and the foreign bank’s
United States and non-United States of­
fices; and
(ii) assets (including participations) ac­
quired from the United States branch or
agency (other than assets required to be
sold by federal or state supervisory au­
thorities) and held by its foreign bank
(including offices thereof located outside
the United States), by its parent holding
company, by non-United States offices or
an IBF of an affiliated Edge or agreement
corporation, or by its IBFs.1
(i) (1) “Cash item in process o f collection ”
means:
(i) checks in the process of collection,
drawn on a bank or other depository in­
stitution that are payable immediately
upon presentation in the United States,
including checks forwarded to a Federal
Reserve Bank in process of collection and
checks on hand that will be presented for
payment or forwarded for collection on
the following business day;
(ii) government checks drawn on the
Treasury of the United States that are in
the process of collection; and
(iii) such other items in the process of
collection, that are payable immediately
upon presentation in the United States
and that are customarily cleared or col­
lected by depository institutions as cash
items, including:

Regulation D

(A) drafts payable through another
depository institution;
(B) redeemed bonds and coupons;
(C) food coupons and certificates;
(D) postal and other money orders,
and traveler’s checks;
(E) amounts credited to deposit ac­
counts in connection with automated
payment arrangements where such
credits are made one business day pri­
or to the scheduled payment date to
insure that funds are available on the
payment date;
(F) commodity or bill of lading drafts
payable immediately upon presenta­
tion in the United States;
(G) returned items and unposted deb­
its; and
(H) broker security drafts.
(2) “Cash item in process of collection’’
does not include items handled as noncash
collections and credit card sales slips and
drafts.
(j) “Net transaction accounts” means the to­
tal amount of a depository institution’s trans­
action accounts less the deductions allowed
under the provisions of section 204.3.
(k) (1) “Vault cash ” means United States
currency and coin owned and held by a de­
pository institution that may, at any time,
be used to satisfy depostitors’ claims.
(2) “Vault cash” includes United States
currency and coin in transit to a Federal
Reserve Bank or a correspondent deposito­
ry institution for which the reporting de­
pository institution has not yet received
credit, and United States currency and coin
in transit from a Federal Reserve Bank or a
correspondent depository institution when
the reporting depository institution’s ac­
count at the Federal Reserve or correspon­
dent bank has been charged for such
shipment.
(3) Silver and gold coin and other curren­
cy and coin whose numismatic or bullion
value is substantially in excess of face value
is not vault cash for purposes of this part.
(/) “Pass-through account” means a balance
maintained by a depository institution that is
not a member bank, by a U.S. branch or agen­



§204.2

cy of a foreign bank, or by an Edge or agree­
ment corporation, (1) in an institution that
maintains required reserve balances at a Fed­
eral Reserve Bank, (2) in a Federal Home
Loan Bank, (3) in the National Credit Union
Administration Central Liquidity Facility, or
(4) in an institution that has been authorized
by the Board to pass through required reserve
balances if the institution, Federal Home
Loan Bank, or National Credit Union Admin­
istration Central Liquidity Facility maintains
the funds in the form of a balance in a Federal
Reserve Bank of which it is a member or at
which it maintains an account in accordance
with rules and regulations of the Board.
(m) (1) “Depository institution” means-.
(i) any insured bank as defined in sec­
tion 3 of the Federal Deposit Insurance
Act (12 USC 1813(h)) or any bank that
is eligible to apply to become an insured
bank under section 5 of such act (12
USC 1815);
(ii) any savings bank or mutual savings
bank as defined in section 3 of the Feder­
al Deposit Insurance Act (12 USC
1813(0, (g));
(iii) any insured credit union as defined
in section 101 of the Federal Credit Un­
ion Act (12 USC 1752(7)) or any credit
union that is eligible to apply to become
an insured credit union under section 201
of such act (12 USC 1781);
(iv) any member as defined in section 2
of the Federal Home Loan Bank Act (12
USC 1422(4)); and
(v) any insured institution as defined in
section 401 of the National Housing Act
(12 USC 1724(a)) or any institution
which is eligible to apply to become an
insured institution under section 403 of
such act (12 USC 1726).
(2) “Depository institution” does not in­
clude international organizations such as
the World Bank, the Inter-American De­
velopment Bank, and the Asian Develop­
ment Bank.
(n) “Member bank” means a depository in­
stitution that is a member of the Federal Re­
serve System.
(o) “Foreign bank ” means any bank or other
9

§204.2

similar institution organized under the laws of
any country other than the United States or
organized under the laws of Puerto Rico,
Guam, American Samoa, the Virgin Islands,
or other territory or possession of the United
States.
(p) “De novo depository institution ” means a
depository institution that was not engaged in
business on July 1, 1979, and is not the suc­
cessor by merger or consolidation to a deposi­
tory institution that was engaged in business
prior to the date of merger or consolidation.

Regulation D

stock of a depository institution is held by
trustees.
(r) “United States ” means the states of the
United States and the District of Columbia.
(s) “United States resident” means (1) any
individual residing (at the time of the transac­
tion) in the United States; (2) any corpora­
tion, partnership, association or other entity
organized in the United States (“domestic
corporation”); and (3) any branch or office
located in the United States of any entity that
is not organized in the United States.

(t) “Any deposit that is payable only at an of­
(q) “Affiliate ” includes any corporation, as­
fice located outside the United States ” means
sociation, or other organization:
(1) a deposit of a United States resident2 that
(1) of which a depository institution, di­
is in a denomination of $100,000 or more, and
rectly or indirectly, owns or controls either
a majority of the voting shares or more than as to which the depositor is entitled, under the
agreement with the institution, to demand
50 percent of the numbers of shares voted
payment only outside the United States or (2)
for the election of its directors, trustees, or
other persons exercising similar functions at a deposit of a person who is not a United
States resident2 as to which the depositor is
the preceding election, or controls in any
manner the election of a majority of its di­ entitled, under the agreement with the institu­
rectors, trustees, or other persons exercising tion, to demand payment only outside the
United States.
similar functions;
(2) of which control is held, directly or in­
directly, through stock ownership or in any SECTION 204.3—Computation and
other manner, by the shareholders of a de­ Maintenance
pository institution or more than 50 percent
of the number of shares voted for the elec­ (a) Maintenance o f required reserves. A de­
tion of directors of such depository institu­ pository institution, a U.S. branch or agency
tion at the preceding election, or by trustees of a foreign bank, and an Edge or agreement
for the benefit of the shareholders of any corporation shall maintain reserves against its
deposits and Eurocurrency liabilities in ac­
such depository institution;
(3) of which a majority of its directors, cordance with the procedures prescribed in
trustees, or other persons exercising similar this section and section 204.4 and the ratios
functions are directors of any one deposito­ prescribed in section 204.9. Penalties shall be
assessed for deficiencies in required reserves in
ry institution; or
(4) which owns or controls, directly or in­ accordance with the provisions of section
directly, either a majority of the shares of 204.7. Every depository institution, U.S.
capital stock of a depository institution or branch or agency of a foreign bank, and Edge
more than 50 percent of the number of or agreement corporation shall file reports of
shares voted for the election of directors, deposits in accordance with the instructions of
trustees or other persons exercising similar the Board, based on the level of its deposits
functions of a depository institution at the and reservable liabilities consistent with the
preceding election, or controls in any man­
A deposit of a foreign branch, office, subsidiary, affiliate
ner the election of a majority of the direc­ or 2other
foreign establishment (“foreign affiliate”) con­
tors, trustees, or other persons exercising trolled by one or more domestic corporations is not regard­
similar functions of a depository institution, ed as a deposit of a United States resident if the funds serve
a purpose in connection with its foreign or international
or for the benefit of whose shareholders or business
or that of other foreign affiliates of the controlling
members all or substantially all the capital domestic corporation(s).
10



Regulation D

Board’s need for data to carry out its responsi­
bility to monitor and control monetary and
credit aggregates. For purposes of this part,
the obligations of a majority-owned (50 per­
cent or more) U.S. subsidiary (except an
Edge or agreement corporation) of a deposi­
tory institution shall be regarded as obliga­
tions of the parent depository institution.
(1) United States branches and agencies o f
foreign banks.

(i) A foreign bank’s United States
branches and agencies operating within
the same state and within the same Fed­
eral Reserve District shall prepare and
file a report of deposits on an aggregated
basis.
(ii) United States branches and agencies
of the same foreign bank shall, if possible,
assign the low reserve tranche on trans­
action accounts (§ 204.9(a)) to only one
office or to a group of offices filing a sin­
gle aggregated report of deposits. If the
low reserve tranche cannot be fully uti­
lized by a single office or by a group of
offices filing a single report of deposits,
the unused portion of the tranche may be
assigned to other offices of the same for­
eign bank until the amount of the tranche
or net transaction accounts is exhausted.
The foreign bank shall determine this as­
signment subject to the restriction that if
a portion of the tranche is assigned to an
office in a particular state, any unused
portion must first be assigned to other of­
fices located within the same state and
within the same Federal Reserve District,
that is, to other offices included on the
same aggregated report of deposits. If
necessary in order to avoid underutiliza­
tion of the low reserve tranche, the allo­
cation may be changed at the beginning
of a calendar month. Under other cir­
cumstances, the low reserve tranche may
be reallocated at the beginning of a calen­
dar year.
(2) Edge and agreement corporations.
(i) An Edge or agreement corporation’s
offices operating within the same state
and within the same Federal Reserve
District shall prepare and file a report of
deposits on an aggregated basis.
(ii) An Edge or agreement corporation



§204.3

shall, if possible, assign the low
reserve tranche on transaction accounts
(§ 204.9(a)) to only one office or to a
group of offices filing a single aggregated
report of deposits. If the low reserve
tranche cannot be fully utilized by a sin­
gle office or by a group of offices filing a
single report of deposits, the unused por­
tion of the tranche may be assigned to
other offices of the same institution until
the amount of the tranche or net transac­
tion accounts is exhausted. An Edge or
agreement corporation shall determine
this assignment subject to the restriction
that if a portion of the tranche is assigned
to an office in a particular state, any un­
used portion must first be assigned to
other offices located within the same state
and within the same Federal Reserve
District, that is, to other offices included
on the same aggregated report of depos­
its. If necessary in order to avoid under­
utilization of the low reserve tranche, the
allocation may be changed at the begin­
ning of a calendar month. Under other
circumstances, the low reserve tranche
may be reallocated at the beginning of a
calendar year.
(3) Allocation o f exemption from reserve
requirements, (i) In determining the re­
serve requirements of a depository insti­
tution, the exemption provided for in sec­
tion 204.9(a) shall apply in the following
order of priorities: (A) first, to nonper­
sonal time deposits representing deposits
or accounts issued pursuant to 12 CFR
1204.122; (B) second, to net transaction
accounts that are first authorized by fed­
eral law in any state after April 1, 1980;
(C) third, to other net transaction
accounts; and (D) fourth, to other non­
personal time deposits or Eurocurrency
liabilities starting with those with the
highest reserve ratio under section
204.9(a) and then to succeeding lower
reserve ratios.
(ii) A depository institution, United
States branches and agencies of the same
foreign bank, or an Edge or agreement
corporation shall, if possible, assign the
reserve requirement exemption of section
204.9(a) to only one office or to a group
11

§204.3

of offices filing a single aggregated report
of deposits. If the reserve requirement ex­
emption cannot be fully utilized by a sin­
gle office or by a group of offices filing a
single report of deposits, the unused por­
tion of the exemption may be assigned to
other offices of the same institution until
the amount of the exemption or reservable liabilities is exhausted. A depository
institution, foreign bank, or Edge or
agreement corporation shall determine
this assignment subject to the restriction
that if a portion of the exemption is as­
signed to an office in a particular state,
any unused portion must first be assigned
to other offices located within the same
state and within the same Federal Re­
serve District, that is, to other offices in­
cluded on the same aggregated report of
deposits. The exemption may be reallo­
cated at the beginning of a calendar year,
or, if necessary to avoid underutilization
of the exemption, at the beginning of a
calendar month. The amount of the re­
serve requirement exemption allocated to
an office or group of offices may not ex­
ceed the amount of the low reserve
tranche allocated to such office or offices
under this paragraph.
(b) Form o f reserves. Reserves shall be held
in the form of (i) vault cash, (ii) a balance
maintained directly with the Federal Reserve
Bank in the District in which it is located, or
(iii) a pass-through account. Reserves held in
the form of a pass-through account shall be
considered to be a balance maintained with
the Federal Reserve.
(c) Computation o f required reserves for insti­
tutions that report on a weekly basis. * Re­
quired reserves are computed on the basis of
the daily average deposit balances during a
seven-day period ending each Wednesday
(the “computation period”). Reserve require­
ments are computed by applying the ratios
prescribed in section 204.9 to the classes of
deposits and Eurocurrency liabilities of the in­
stitution. In determining the reserve balance
that is required to be maintained with the
Federal Reserve, the average daily vault cash
held during the computation period is deduct­
ed from the amount of the institution’s re­
12



Regulation D

quired reserves. The reserve balance that is re­
quired to be maintained with the Federal
Reserve shall be maintained during a corre­
sponding seven-day period (the “maintenance
period”) which begins on the second Thurs­
day following the end of a given computation
period.
(d) Computation o f required reserves fo r insti­
tutions that report on a quarterly basis. * For a
depository institution that is permitted to re­
port quarterly, required reserves are comput­
ed on the basis of the depository institution’s
daily average deposit balances during a sevenday computation period that begins on the
third Thursday of March, June, September,*1
* Effective February 2, 1984, paragraphs (c) and (d) of
section 204.3 are amended to read as follows:
(c) Computation o f required reserves fo r institutions that
report on a weekly basis.

(1) Required reserves are computed on the basis of dai­
ly average balances of deposits and Eurocurrency liabili­
ties during a 14-day 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 liabili­
ties of the institution. The reserve balance that is re­
quired to be maintained with the Federal Reserve shall
be maintained during a 14-day period (the “maintenance
period”) which begins on a Thursday and ends on the
second Wednesday thereafter.
(2) A reserve balance shall be maintained during a giv­
en maintenance period, based—
(i) on the daily average net transaction accounts 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 deposits
and daily average Eurocurrency liabilities held by the
depository institution during the computation period
that ended 17 days prior to the beginning of the main­
tenance period.
(3) In determining the reserve balance that is required
to be maintained with the Federal Reserve, the daily av­
erage vault cash held during the computation period that
ended 17 days prior to the beginning of the maintenance
period is deducted from the amount of the institution’s
required reserves.
(d) Computation o f required reserves fo r institutions that
report on a quarterly basis. For a depository institution that
is permitted to report quarterly, required reserves are com­
puted on the basis of the depository institution’s daily aver­
age deposit balances during a seven-day computation peri­
od that begins on the third Tuesday of March, June, Sep­
tember, and December. In determining the reserve balance
that such 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 compu­
tation period.

Regulation D

and December. In determining the reserve
balance that such a depository institution is
required to maintain with the Federal Re­
serve, the average daily 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 peri­
od and ends on the third Wednesday after the
close of the institution’s next computation pe­
riod. Such reserve balance shall be maintained
in the amount required on a daily average ba­
sis during each week of the quarterly reserve
maintenance period.
(e) Computation o f transaction accounts.
Overdrafts in demand deposit or other trans­
action accounts are not to be treated as nega­
tive demand deposits or negative transaction
accounts and shall not be netted since over­
drafts are properly reflected on an institution’s
books as assets. However, where a customer
maintains multiple transaction accounts with
a depository institution, overdrafts in one ac­
count pursuant to a bona fide cash manage­
ment arrangement are permitted to be netted
against balances in other related transaction
accounts for reserve requirement purposes.

§204.3

the extent of the proportion that such newly
authorized transaction accounts are of the
institution’s total transaction accounts. The
remaining cash items in process of collec­
tion and balances subject to immediate
withdrawal due from other depository insti­
tutions located in the United States shall be
deducted from the institution’s remaining
transaction accounts.
(2) United States branches and agencies of
a foreign bank may not deduct balances due
from another United States branch or agen­
cy of the same foreign bank, and United
States offices of an Edge or agreement cor­
poration may not deduct balances due from
another United States office of the same
Edge corporation.
(3) Balances “due from other depository
institutions” do not include balances due
from Federal Reserve Banks, pass-through
accounts, or balances (payable in dollars or
otherwise) due from banking offices located
outside the United States. An institution ex­
ercising fiduciary powers may not include
in “balances due from other depository in­
stitutions” amounts of trust funds deposited
with other banks and due to it as a trustee
or other fiduciary.

(g) Availability o f cash items as reserves. Cash
items forwarded to a Federal Reserve Bank
(f) Deductions allowed in computing reserves. for collection and credit shall not be counted
(1) In determining the reserve balance re­ as part of the reserve balance to be carried
quired under this part, the amount of cash with the Federal Reserve until the expiration
items in process of collection and balances of the time specified in the appropriate time
subject to immediate withdrawal due from schedule established under Regulation J,
other depository institutions located in the “Collection of Checks and Other Items and
United States (including such amounts due Transfers of Funds” (12 CFR part 210). If a
from United States branches and agencies depository institution draws against items be­
of foreign banks and Edge and agreement fore that time, the charge will be made to its
corporations) may be deducted from the reserve account if the balance is sufficient to
amount of gross transaction accounts. The pay it; any resulting impairment of reserve
amount that may be deducted may not ex­ balances will be subject to the penalties pro­
ceed the amount of gross transaction ac­ vided by law and by this part. However, the
counts. However, if a depository institution Federal Reserve Bank may, at its discretion,
maintains any transaction accounts that are refuse to permit the withdrawal or other use
first authorized under federal law after of credit given in a reserve account for any
April 1, 1980, it may deduct from these bal­ time for which the Federal Reserve bank has
ances cash items in process of collection not received payment in actually and finally
and balances subject to immediate with­ collected funds.
drawal due from other depository institu­
tions located in the United States only to (h) Carryover o f deficiencies. Any excess or




13

Regulation D

§204.3

deficiency in a required reserve balance for
any maintenance period that does not exceed
2 percent of institution’s required reserves
shall be carried forward to the next mainte­
nance period. Any carryover not offset during
the next period may not be carried forward to
additional periods.!
(i) Pass-through rules.
(1) Procedure.
(i) A nonmember depository institution
required to maintain reserve balances
(“respondent”) may select only one in­
stitution to pass through its required re­
serves. Eligible institutions through
which respondent required reserve bal­
ances may be passed (“correspondents”)
are Federal Home Loan Banks, the Na­
tional Credit Union Administration Cen­
tral Liquidity Facility, and depository in­
stitutions that maintain required reserve
balances at a Federal Reserve office. In
addition, the Board reserves the right to
permit other institutions, on a case-by­
case basis, to serve as pass-through corre­
spondents. The correspondent chosen
must subsequently pass through the re­
quired reserve balances of its respondents
f Effective February 2, 1984, paragraph (h) of section
204.3 is amended to read as follows:
(h) Carryover o f excesses or deficiencies. (1) For a deposi­
tory institution computing required reserves under para­
graph (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.

Reserve maintenance periods
occurring between

February 2, 1984 and August 1,
1984

Percentage applied to
determine allowable
carryover

3

August 2, 1984 and January 30,
1985
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 percent of the institution’s required re­
serves (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.

14




directly to the appropriate Federal Re­
serve office. The correspondent placing
funds with the Federal Reserve on behalf
of respondents will be responsible for re­
serve account maintenance as described
in subparagraphs (3) and (4) below.
(ii) Respondent depository institutions
or pass-through correspondents may in­
stitute, terminate, or change pass­
through arrangements for the mainte­
nance of required reserve balances by
providing all documentation required for
the establishment of the new arrange­
ment and/or termination of the existing
arrangement to the Federal Reserve
Bank in whose territory the respondent is
located. The time period required for
such a change to be effected shall be spec­
ified by each Reserve Bank in its operat­
ing circular.
(iii) U.S. branches and agencies of for­
eign banks and Edge and agreement cor­
porations may (a) act as pass-through
correspondents for any nonmember insti­
tution required to maintain reserves or
(b) pass their own required reserve bal­
ances through correspondents. In accord­
ance with the provision set forth in subparagraph (3) below, the U.S. branches
and agencies of a foreign bank or offices
of an Edge and agreement corporation
filing a single aggregated report of depos­
its may designate any one of the other
U.S. offices of the same institution to
serve as a pass-through correspondent for
all of the offices filing such a single aggre­
gated report of deposits.
(2) Reports.
(i) Every depository institution that
maintains transaction accounts or non­
personal time deposits is required to file
its report of deposits (or any other re­
quired form or statement) directly with
the Federal Reserve Bank of its District,
regardless of the manner in which it
chooses to maintain required reserve
balances.
(ii) The Federal Reserve Bank receiving
such reports shall notify the reporting de­
pository institution of its reserve require­
ments. Where a pass-through arrange­
ment exists, the Reserve Bank will also

Regulation D

notify the correspondent passing respon­
dent reserve balances through to the Fed­
eral Reserve of its respondent’s required
reserve balances.
(iii) The Federal Reserve will not hold a
correspondent responsible for guarantee­
ing the accuracy of the reports of depos­
its submitted by its respondents to their
local Federal Reserve Banks.
(3) Account Maintenance.
(i) A correspondent that passes through
required reserve balances of respondents
whose main offices are located in the
same Federal Reserve territory in which
the main office of the correspondent is lo­
cated shall have the option of maintain­
ing such required reserve balances in one
of two ways: (a) A correspondent may
maintain such balances, along with the
correspondent’s own required reserve
balances, in a single commingled account
at the Federal Reserve Bank office in
whose territory the correspondent’s main
office is located, or (b) A correspondent
may maintain its own required reserve
balance in an account with the Federal
Reserve Bank office in whose territory its
main office is located. The correspondent,
in addition, would maintain in a separate
commingled account the required reserve
balances passed through for respondents
whose main offices are located in the
same Federal Reserve territory as that of
the main office of the correspondent.
(ii) A correspondent that passes
through required reserve balances of re­
spondents whose main offices are located
outside the Federal Reserve territory in
which the main office of the correspon­
dent is located shall maintain such re­
quired reserve balances in a separate
commingled account at each Federal Re­
serve office in whose territory the main
offices of such respondents are located.
(iii) A Reserve Bank may, at its discre­
tion, require a pass-through correspon­
dent to consolidate in a single account
the reserve balances of all of its respon­
dents whose main offices are located in
any territory of that Federal Reserve
District.
(4) Responsibilities o f parties.



§204.3

(i) Each individual depository institu­
tion is responsible for maintaining its re­
quired reserve balance with the Federal
Reserve Bank either directly or through a
pass-through correspondent.
(ii) A pass-through correspondent shall
be responsible for assuring the mainte­
nance of the appropriate aggregate level
of its respondents’ required reserve bal­
ances. A Reserve Bank will compare the
total reserve balance required to be main­
tained in each reserve account with the
total actual reserve balance held in such
reserve account for purposes of determin­
ing required reserve deficiencies, impos­
ing or waiving penalties for deficiencies
in required reserves, and for other reserve
maintenance purposes. A penalty for a
deficiency in the aggregate level of the re­
quired reserve balance will be imposed by
the Reserve Bank on the correspondent
maintaining the account.
(iii) Each correspondent is required to
maintain detailed records for each of its
respondents in a manner that permits Re­
serve Banks to determine whether the
respondent has provided a sufficient re­
quired reserve balance to the correspon­
dent. A correspondent passing through a
respondent’s reserve balance shall main­
tain records and make such reports as the
Federal Reserve System requires in order
to insure the correspondent’s compliance
with its responsibilities for the mainte­
nance of a respondent’s reserve balance.
Such records shall be available to the
Federal Reserve Banks as required.
(iv) The Federal Reserve Bank may ter­
minate any pass-through relationship in
which the correspondent is deficient in its
recordkeeping or other responsibilities.
(v) Interest paid on supplemental re­
serves (if such reserves are required un­
der section 204.6 of this part) held by
respondent(s) will be credited to the
commingled reserve account(s) main­
tained by the correspondent.
(5) Services.
(i) A depository institution maintaining
its reserve balances on a pass-through ba­
sis may obtain available Federal Reserve
System services directly from its local
15

§ 204.3

Federal Reserve office. For this purpose,
the pass-through account in which a re­
spondent’s required reserve balance is
maintained may be used by the respon­
dent for the posting of entries arising
from transactions involving the use of
such Federal Reserve services, if the
posting of these types of transactions has
been authorized by the correspondent
and the Federal Reserve. For example,
access to the wire transfer, securities
transfer, and settlement services that in­
volve charges to the commingled reserve
account at the Reserve Bank will require
authorization from the correspondent
and the Reserve Bank for the type of
transaction that is occurring.
(ii) In addition, in obtaining Federal
Reserve services, respondents maintain­
ing their required reserves on a pass­
through basis may choose to have entries
arising from the use of Federal Reserve
services posted to: (a) with the prior au­
thorization of all parties concerned, the
reserve account maintained by any insti­
tution at a Federal Reserve Bank, or (b)
an account maintained for clearing pur­
poses at a Federal Reserve Bank by the
respondent.
(iii) Accounts at Federal Reserve Banks
consisting only of respondents’ reserve
balances that are passed through by a
correspondent to a Federal Reserve Bank
may be used only for transactions of re­
spondents. A correspondent will not be
permitted to use such pass-through ac­
counts for purposes other than serving its
respondents’ needs.
(iv) A correspondent may not apply for
Federal Reserve credit on behalf of a re­
spondent. Rather, a respondent should
apply directly to its Federal Reserve
Bank for credit. Any Federal Reserve
credit obtained by a respondent may be
credited, at the respondent’s option and
with the approval of the parties con­
cerned, to the reserve account in which
its required reserves are maintained by a
correspondent, to a clearing account
maintained by the respondent, or to any
account to which the respondent is au­
thorized to post entries arising from the
use of in Federal Reserve services.
16



Regulation D

SECTION 204.4—Transitional
Adjustments
The following transitional adjustments for
computing federal reserve requirements shall
apply to all member and nonmember deposi­
tory institutions, except for reserves imposed
under sections 204.5 and 204.6.
(a) Nonmembers. Except as provided below,
the required reserves of a depository institu­
tion that was engaged in business on July 1,
1979, but was not a member of the Federal
Reserve System on or after that date shall be
determined by reducing the amount of re­
quired reserves computed under section 204.3
in accordance with the following schedule:
Reserve m aintenance
periods occurring
between
Novem ber 13, 1980
to September 2, 1981
September 3, 1981
to September 1, 1982
September 2, 1982
to August 31, 1983
September 1, 1983
to September 12, 1984
September 13, 1984
to September 11, 1985
September 12, 1985
to September 10, 1986
September 11, 1986
to September 9, 1987
September 10, 1987
forward

Percentage that
com puted reserves
will be reduced
87.5
75
62.5
50
37.5
25
12.5
0

However, an institution shall not reduce the
amount of required reserves on any category
of deposits or accounts that are first autho­
rized under federal law in any state after April
1, 1980, or on deposits or accounts issued pur­
suant to 12 CFR 1204.122.
(b) Members and former members. The re­
quired reserves of any depository institution
that is a member bank on September 1, 1980,
or withdraws from membership after March
31, 1980, shall be determined as follows:
(1) A depository institution whose re­
quired reserves are higher using the reserve
ratios in effect during a given computation
period (§ 204.9(a)) than its required re­
serves using the reserve ratios in effect on
August 31, 1980 (§ 204.9(b)) (without re­
gard to required reserves on deposits or ac­
counts issued pursuant to 12 CFR
1204.122):

§ 204.4

Regulation D

(i) shall maintain the full amount of re­
quired reserves on deposits or accounts
issued pursuant to 12 CFR 1204.122; and
(ii) shall reduce the amount of its re­
quired reserves on all other deposits com­
puted under section 204.3 by an amount
determined by multiplying the amount
by which required reserves computed un­
der section 204.3 exceed the amount of
required reserves computed using the re­
serve ratios that were in effect on August
31, 1980 (§ 204.9(b)), times the appro­
priate percentage specified below in ac­
cordance with the following schedule:

Reserve m aintenance
periods occurring
between

Percentage
applied to
difference to
com pute am ount
to be subtracted

November 13, 1980
to September 2, 1981

75

September 3, 1981
to September 1, 1982

50

September 2, 1982
to August 31, 1983

25

September 1, 1983
forward

0

(2) A depository institution whose re­
quired reserves are lower using the reserve
ratios in effect during a given computation
period (§ 204.9(a)) than its required re­
serves computed using the reserve ratios in
effect on August 31, 1980 (§ 204.9(b))
(without regard to required reserves on de­
posits or accounts issued pursuant to 12
CFR 1204.122):
(i) shall maintain the full amount of re­
quired reserves on deposits or accounts
issued pursuant to 12 CFR 1204.122; and
(ii) shall increase the amount of its re­
quired reserves on all other deposits com­
puted under section 204.3 by an amount
determined by multiplying the amount
by which required reserves computed us­
ing the reserve ratios that were in effect
on August 31, 1980 (§ 204.9 (b)), ex­
ceed the amount of required reserves
computed under section 204.3, times the
appropriate percentage specified below in
accordance with the following schedule:



Reserve m aintenance
periods occurring
between

Percentage
applied to
difference to
com pute am ount
to be added

Novem ber 13, 1980 and
September 2, 1981

75

September 3, 1981 and
March 3, 1982

62.5

March 4, 1982 and
September 1, 1982

50

September 2, 1982 and
March 2, 1983

37.5

March 3, 1983 and
August 31, 1983

25

September 1, 1983 and
February 1, 1984

12.5

February 2, 1984
and forward

0

(c) Certain former member banks. The re­
quired reserves of any depository institution
that was a member bank on July 1, 1979, and
withdrew from membership during the period
beginning on July 1, 1979, and ending on
March 31, 1980, shall be determined by re­
ducing the amount of required reserves com­
puted under section 204.3 in accordance with
the following schedule:*1
Reserve maintenance
periods occurring
between

Percentage that
com puted reserves
will be reduced

October 28, 1982 and
October 26, 1983

50

October 27, 1983 and
October 24, 1984

33.3

October 25, 1984 and
October 23, 1985

16.7

October 24, 1985
and forward

0

However, an institution shall not reduce the
amount of required reserves on any category
of deposits or accounts that are first autho­
rized under federal law in any state after April
1, 1980, or on deposits or accounts issued pur­
suant to 12 CFR 1204.122.
(d) New members. The required reserves of a
nonmember depository institution that was
engaged in business but was not a member
bank during the period between July 1, 1979
and September 1, 1980, inclusive, and which
becomes a member of the Federal Reserve
System after September 1, 1980, shall be de17

Regulation D

§204.4

termined under paragraph (a) or (c), as ap­
plicable, as if it had remained a nonmember
and adding to this amount an amount deter­
mined by multiplying the difference between
its required reserves computed using the ra­
tios specified in section 204.9(a) and its re­
quired reserves computed as if it had re­
mained a nonmember times the percentage
specified below in accordance with the follow­
ing schedule:
M aintenance periods
occurring during
successive quarters
after becoming
a m em ber bank
1
2
3
4
5
6
7
8 and succeeding

Percentage applied
to difference
to com pute am ount
to be added
12.5
25.0
37.5
50.0
62.5
75.0
87.5
100.0

(e) De novo institutions. (1) The required re­
serves of any depository institution that was
not engaged in business on September 1,
1980, shall be computed under section
204.3 in accordance with the following
schedule:
M aintenance periods
occurring during
successive quarters
after entering
into business

1
2
3
4
5
6
7
8 and succeeding

Percentage o f
reserve requirem ent
to be m aintained
40
45
50
55
65
75
85
100

This paragraph shall also apply to a
United States branch or agency of a foreign
bank if such branch or agency is the foreign
bank’s first office in the United States. Ad­
ditional branches or agencies of such a for­
eign bank shall be entitled only to the re­
maining phase-in available to the initial
office.
(2) Notwithstanding subparagraph (1),
the required reserves of any depository in­
stitution that—
18




(i) was not engaged in business on No­
vember 18, 1981 and
(ii) has $50 million or more in daily av­
erage total transaction accounts, nonper­
sonal time deposits and Eurocurrency lia­
bilities for any computation period after
commencing business
shall be 100 percent of the required reserves
computed under section 204.3 starting with
the maintenance period that begins eight
days after the computation period during
which such institution has daily average to­
tal transaction accounts, nonpersonal time
deposits and Eurocurrency liabilities of $50
million or more.
(f) Nonmember depository institutions with
offices in Hawaii. Any depository institution
that, on August 1, 1978, (i) was engaged in
business as a depository institution in Hawaii,
and (ii) was not a member of the Federal Re­
serve System at any time on or after such date
shall not maintain reserves imposed under this
part against deposits, including deposits or ac­
counts issued pursuant to 12 CFR 1204.122,
held or maintained at its offices located in Ha­
waii until January 2, 1986. Beginning January
2, 1986, the required reserves on deposits held
or maintained at offices located in Hawaii of
such a depository institution shall be deter­
mined by reducing the amount of required re­
serves under section 204.3 in accordance with
the following schedule:
M aintenance periods
occurring between

Percentage that
com puted reserves
will be reduced

January 2
to December 31, 1986

87.5

January 1,1987
to January 6, 1988

75

January 7 ,1 9 8 8
to January 4, 1989

62.5

January 5, 1989
to January 3, 1990

50

January 4, 1990
to January 2, 1991

37.5

January 3,1991
to January 1, 1992

25

January 2 ,1 9 9 2
to January 6, 1993

12.5

January 7 ,1 9 9 3
forward

0

Regulation D

§204.4

However, after January 1, 1986, an institution
shall not reduce the amount of required re­
serves on any deposits or accounts issued pur­
suant to 12 CFR 1204.122.
(g) Mergers and consolidations. The follow­
ing rules concerning transitional adjustments
apply to mergers and consolidations of deposi­
tory institutions:
(1) Where all depository institutions in­
volved in a merger or consolidation are sub­
ject to the same paragraph of the transition­
al adjustment rules contained in paragraphs
(a) through (f) of this section during the
reserve computation period immediately
preceding the merger, the surviving institu­
tion shall continue to compute its transi­
tional adjustment of required reserves un­
der such applicable paragraph, except that
the amount of reserves which shall be main­
tained shall be reduced by an amount deter­
mined by multiplying the amount by which
the required reserves during the computa­
tion period immediately preceding the date
of the merger (computed as if the deposito­
ry institutions had merged) exceed the sum
of the actual required reserves of each de­
pository institution during the same compu­
tation period, times the appropriate per­
centage as specified in the following
schedule:
M aintenance periods
occurring during
quarterly periods
follow ing m erger
1
2
3
4
5
6
7
8 and succeeding

Percentage applied
to difference
to com pute am ount
to be subtracted
87.5
75.0
62.5
50.0
37.5
25.0
12.5
0

(2) (i) Where the depository institutions
involved in a merger or consolidation are
not subject to the same paragraph of the
transitional adjustment rules contained in
paragraphs (a) through (f) of this sec­
tion and such merger or consolidation
occurs—
(A) on or after July 1, 1979, between
a nonmember bank and a bank that



was a member bank on or after July 1,
1979, and the survivor is a nonmember
bank;
(B) on or after March 31, 1980, be­
tween a member bank and a nonmem­
ber bank and the survivor is a member
bank; or
(C) on or after September 1, 1980, be­
tween any other depository institu­
tions,
the required reserves of the surviving in­
stitution shall be computed by allocating
its deposits, Eurocurrency liabilities, oth­
er reservable claims, balances due from
other depository institutions and cash
items in process of collection to each de­
pository institution involved in the merg­
er transaction and applying to such
amounts the transitional adjustment rule
of paragraphs (a) through (f) of this sec­
tion to which each such depository insti­
tution was subject during the reserve
computation period immediately prior to
the merger or consolidation.
(ii) The deposits of the surviving institu­
tion shall be allocated according to the
ratio that daily average total required re­
serves of each depository institution in­
volved in the merger were to the sum of
daily average total required reserves of all
institutions involved in the merger or
consolidation during the reserve compu­
tation period immediately preceding the
date of the merger.
(A) If the merger occurs before No­
vember 6, 1980, such ratio of daily av­
erage total required reserves shall be
computed using the reserve require­
ment ratios in section 204.9(b).
(B) If the merger occurs on or after
November 6, 1980, such ratio of daily
average total required reserves shall be
computed using the reserve require­
ment ratios in section 204.9(a) with­
out regard to the transitional adjust­
ments of this section.
(iii) The low reserve tranche on transac­
tion accounts (section 204.9(a)) shall be
allocated to each institution involved in
the merger or consolidation using the ra­
tio computed in subparagraph (2) (ii)
and the reserve requirement tranches on
19

§204.4

demand deposits (section 204.9(b))
shall be allocated to member bank depos­
its using such ratio of daily average total
required reserves.
(iv) The vault cash of the surviving de­
pository institution also will be allocated
to each institution involved in the merger
or consolidation according to the ratio
that daily average total required reserves
of each depository institution involved in
the merger was to the sum of daily
average total required reserves of all in­
stitutions involved in the merger or con­
solidation during the reserve computa­
tion period immediately preceding the
date of the merger.
(v) The amount of reserves which shall
be maintained shall be reduced by an
amount determined by multiplying the
amount by which the required reserves
during the computation period immedi­
ately preceding the date of the merger
(computed as if the depository institu­
tions had merged) exceed the sum of the
actual required reserves of each deposito­
ry institution during the same computa­
tion period, times the appropriate per­
centage as specified in the following
schedule:

Regulation D

(b) Term. Any action taken under this sec­
tion shall be valid for a period not exceeding
180 days, and may be extended for further pe­
riods of up to 180 days each by affirmative
action of at least five members of the Board
for each extension.
(c) Reports to Congress. The Board shall
transmit promptly to Congress a report of any
exercise of its authority under this paragraph
and the reasons for the exercise of authority.
(d) Reserve requirements. A t present, there
are no emergency reserve requirements im­
posed under this section.

SECTION 204.6—Supplemental Reserve
Requirement

(a) Finding by Board. Upon the affirmative
vote of at least five members of the Board and
after consultation with the Board of Directors
of the Federal Deposit Insurance Corpora­
tion, the Federal Home Loan Bank Board,
and the National Credit Union Administra­
tion Board, the Board may impose a supple­
mental reserve requirement on every deposito­
ry institution of not more than 4 percent of its
M aintenance periods
Percentage applied
occurring during
to difference
total transaction accounts. A supplemental re­
quarterly periods
to com pute am ount
serve requirement may be imposed if:
follow ing m erger
to be subtracted
(1) the sole purpose of the requirement is
1
87.5
to increase the amount of reserves main­
2
75.0
tained to a level essential for the conduct of
3
62.5
monetary policy;
4
50.0
5
37.5
(2) the requirement is not imposed for the
6
25.0
purpose
of reducing the cost burdens result­
7
12.5
8 and succeeding
0
ing from the imposition of basic reserve
requirements;
(3) such requirement is not imposed for
the purpose of increasing the amount of
balances needed for clearing purposes; and
SECTION 204.5—Emergency Reserve
(4) on the date on which supplemental re­
Requirement
serve requirements are imposed, the total
amount of basic reserve requirements is not
(a) Finding by Board. The Board may im­
less than the amount of reserves that would
pose, after consulting with the appropriate
be required on transaction accounts and
committees of Congress, additional reserve re­
nonpersonal time deposits under the initial
quirements on depository institutions at any
reserve ratios established by the Monetary
ratio on any liability upon a finding by at least
Control Act of 1980 (Pub. L. 96-221) in
five members of the Board that extraordinary
effect on September 1, 1980.
circumstances require such action.
20



Regulation D

(b) Term.
(1) If a supplemental reserve requirement
has been imposed for a period of one year
or more, the Board shall review and deter­
mine the need for continued maintenance of
supplemental reserves and shall transmit
annual reports to the Congress regarding
the need for continuing such requirement.
(2) Any supplemental reserve requirement
shall terminate at the close of the first 90day period after the requirement is imposed
during which the average amount of supple­
mental reserves required are less than the
amount of reserves which would be re­
quired if the ratios in effect on September 1,
1980, were applied.
(c) Earnings participation account. A deposi­
tory institution’s supplemental reserve re­
quirement shall be maintained by the Federal
Reserve Banks in an earnings participation ac­
count. Such balances shall receive earnings to
be paid by the Federal Reserve Banks during
each calendar quarter at a rate not to exceed
the rate earned on the securities portfolio of
the Federal Reserve System during the previ­
ous calendar quarter. Additional rules and
regulations may be prescribed by the Board
concerning the payment of earnings on earn­
ings participation accounts by Federal Re­
serve Banks.
(d) Report to Congress. The Board shall
transmit promptly to the Congress a report
stating the basis for exercising its authority to
require a supplemental reserve under this
section.
(e) Reserve requirements. At present, there
are no supplemental reserve requirements im­
posed under this section.

SECTION 204.7—Penalties

(a) Penalties for deficiencies.
(1) Assessment o f Penalties. Deficiencies in
a depository institution’s required reserve
balance, after application of the 2 percent
carryover provided in section 204.3(f) are
subject to penalties. Federal Reserve Banks
are authorized to assess penalties for defi­
ciencies in required reserves at a rate of 2



§204.7

percent per year above the lowest rate in
effect for borrowings from the Federal Re­
serve Bank on the first day of the calendar
month in which the deficiencies occurred.
Penalties shall be assessed on the basis of
daily average deficiencies during each com­
putation period.t Reserve Banks may, as an
alternative to levying monetary penalties,
after consideration of the circumstances in­
volved, permit a depository institution to
eliminate deficiencies in its required reserve
balance by maintaining additional reserves
during subsequent reserve maintenance
periods.
(2) Waivers, (i) Reserve Banks may waive
the penalty for reserve deficiencies except
when the deficiency arises out of a depos­
itory institution’s gross negligence or
conduct that is inconsistent with the
principles and purposes of reserve re­
quirements. Each Reserve Bank has
adopted guidelines that provide for waiv­
ers of small penalties. The guidelines also
provide for waiving the penalty once dur­
ing a two-year period for any deficiency
that does not exceed a certain percentage
of the depository institution’s required
reserves. Decisions by Reserve Banks to
waive penalties in other situations are
based on an evaluation of the circum­
stances in each individual case and the
depository institution’s reserve mainte­
nance record. If a depository institution
has demonstrated a lack of due regard for
the proper maintenance of required re­
serves, the Reserve Bank may decline to
exercise the waiver privilege and assess
all penalties regardless of amount or rea­
son for the deficiency.
(ii) In individual cases, where a federal
supervisory authority waives a liquidity
requirement, or waives the penalty for
failing to satisfy a liquidity requirement,
the Reserve Bank in the District where
the involved depository institution is lo­
cated shall waive the reserve requirement
imposed under this part for such deposi­
tory institution when requested by the
federal supervisory authority involved.
X Effective February 2, 1984, the third sentence of sec­
tion 204.7(a)(1) is amended by deleting the word “compu­
tation” and inserting the word “maintenance” in its place.

21

§204.7

(b) Penalties fo r Violations. Violations of this
part may be subject to assessment of civil
money penalties by the Board under authority
of section 19(1) of the Federal Reserve Act
(12 USC 505) as implemented in 12 CFR
part 263. In addition, the Board and any other
federal financial institution supervisory au­
thority may enforce this part with respect to
depository institutions subject to their juris­
diction under authority conferred by law to
undertake cease and desist proceedings.

SECTION 204.8—International Banking
Facilities

(a) Definitions. For purposes of this part, the
following definitions apply:
(1) “International banking facility ” or
“IBF ” means a set of asset and liability ac­
counts segregated on the books and records
of a depository institution, United States
branch or agency of a foreign bank, or an
Edge or agreement corporation that in­
cludes only international banking facility
time deposits and international banking fa­
cility extensions of credit.
(2) “International banking facility time de­
posit” or “IBF time deposit ” means a depos­
it, placement, borrowing or similar obliga­
tion represented by a promissory note,
acknowledgment of advance, or similar in­
strument that is not issued in negotiable or
bearer form, and
(i) (A) that must remain on deposit at
the IBF at least overnight; and
(B) that is issued to—
(7) any office located outside the
United States of another depository
institution organized under the laws
of the United States or of an Edge or
agreement corporation;
(2) any office located outside the
United States of a foreign bank;
(5) a United States office or a nonUnited States office of the entity es­
tablishing the IBF;
(4) another IBF; or
(5) an institution whose time de­
posits are exempt from interest rate
limitations under section 217.3(g)
22




Regulation D

of Regulation Q (12 CFR
217.3(g)); or
(ii) (A) that is payable—
(7) on a specified date not less than
two business days after the date of
deposit;
(2) upon expiration of a specified
period of time not less than two
business days after the date of de­
posit; or
(2) upon written notice that actual­
ly is required to be given by the de­
positor not less than two business
days prior to the date of withdrawal;
(B) that represents funds deposited to
the credit of a non-United States
resident or a foreign branch, office,
subsidiary, affiliate, or other foreign es­
tablishment (“foreign affiliate”) con­
trolled by one or more domestic corpo­
rations provided that such funds are
used only to support the operations
outside the United States of the deposi­
tor or of its affiliates located outside
the United States; and
(C) that is maintained under an
agreement or arrangement under
which no deposit or withdrawal of less
than $100,000 is permitted, except that
a withdrawal of less than $100,000 is
permitted if such withdrawal closes an
account.
(3) “International banking facility exten­
sion o f credit ” or “IBF loan ” means any
transaction where an IBF supplies funds by
making a loan, or placing funds in a deposit
account. Such transactions may be repre­
sented by a promissory note, security,
acknowledgment of advance, due bill, re­
purchase agreement, or any other form of
credit transaction. Such credit may be ex­
tended only to—
(i) any office located outside the United
States of another depository institution
organized under the laws of the United
States or of an Edge or agreement
corporation;
(ii) any office located outside the United
States of a foreign bank;
(iii) a United States or a non-United
States office of the institution establishing
the IBF;

Regulation D

(iv) another IBF;
(v) an institution whose time deposits
are exempt from interest rate limitations
under section 217.3(g) of Regulation Q
(12 CFR 217.3(g)); or
(vi) a non-United States resident or a
foreign branch, office, subsidiary, affiliate
or other foreign establishment (“foreign
affiliate”) controlled by one or more do­
mestic corporations provided that the
funds are used only to finance the opera­
tions outside the United States of the bor­
rower or of its affiliates located outside
the United States.
(b) Acknowledgment o f use o f IBF deposits
and extensions o f credit. An IBF shall provide
written notice to each of its customers (other
than those specified in section 204.8(a)(2)
(i)(B) and section 204.8(a) (3) (i) through
(v)) at the time a deposit relationship or a
credit relationship is first established that it is
the policy of the Board of Governors of the
Federal Reserve System that deposits received
by international banking facilities may be used
only to support the depositor’s operations out­
side the United States as specified in section
204.8(a)(2)(ii)(B) and that extensions of
credit by IBFs may be used only to finance
operations outside of the United States as
specified in section 204.8(a) (3) (vi). In the
case of loans to or deposits from foreign affili­
ates of U. S. residents, receipt of such notice
must be acknowledged in writing whenever a
deposit or credit relationship is first estab­
lished with the IBF.
(c) Exemption from reserve requirements. An
institution that is subject to the reserve re­
quirements of this part is not required to
maintain reserves against its IBF time depos­
its or IBF loans. Deposit-taking activities of
IBFs are limited to accepting only IBF time
deposits and lending activities of IBFs are re­
stricted to making only IBF loans.
(d) Establishment o f an international bank­
ing facility. A depository institution, an Edge
or agreement corporation or a United States
branch or agency of a foreign bank may estab­
lish an IBF in any location where it is legally
authorized to engage in IBF business. Howev­
er, only one IBF may be established for each
reporting entity that is required to submit
a Report of Transaction Accounts, Other



§204.9

Deposits and Vault Cash (Form F.R. 2900).
(e) Notification to Federal Reserve. At least
14 days prior to the first reserve computation
period that an institution intends to establish
an IBF it shall notify the Federal Reserve
Bank of the District in which it is located of
its intent. Such notification shall include a
statement of intention by the institution that it
will comply with the rules of this part con­
cerning IBFs, including restrictions on sourc­
es and uses of funds, and recordkeeping and
accounting requirements. Failure to comply
with the requirements of this part shall subject
the institution to reserve requirements under
this part and to interest payment limitations
that may be applicable under Regulation Q
(12 CFR part 217) on its IBF time deposits,
or result in the revocation of the institution’s
ability to operate an IBF.
(f) Recordkeeping requirements. A deposito­
ry institution shall segregate on its books and
records the asset and liability accounts of its
IBF and submit reports concerning the opera­
tions of its IBF as required by the Board.

SECTION 204.9—Supplement: Reserve
Requirement Ratios

(a) Reserve percentages. (1) The following
reserve ratios are prescribed for all deposi­
tory institutions, Edge and agreement cor­
porations and United States branches and
agencies of foreign banks:
Category

Reserve requirement

NET TRANSACTION
ACCOUNTS
S0-S26.3 million
Over $26.3 million

3% of amount
$789,000 plus 12%
of amount over
$26.3 million

NONPERSONAL
TIME
DEPOSITS
By original maturity
(or notice period):
less than 2\ years

3%

2\ years or more

0%

EUROCURRENCY
LIABILITIES

3%
23

Regulation D

§204.9

(2) Exemption from reserve requirements.
Each depository institution, Edge or agree­
ment corporation, and U.S. branch or agen­
cy of a foreign bank is subject to a zero
percent reserve requirement on an amount
of its transaction accounts subject to the
low reserve tranche in paragraph (a)(1),
nonpersonal time deposits, or Eurocurrency
liabilities or any combination thereof not in
excess of of $2.1 million determined in ac­
cordance with section 204.3(a)(3) of this
part.
(b) Reserve ratios in effect during last compu­
tation period prior to September 1, 1980.
Category

Reserve requirement

NET DEM AND
DEPOSITS
Deposit tranche:
$0-$2 million

1%

over $2 million$10 million

$140,000 + 9^%
of amount over
$2 million

over $10 million$100 million

$ 9 0 0 ,0 0 0 + ll|%
of amount over
$10 million

over $100 million$400 million

$11,475,000+12|%
of amount over
$100 million

over $400 million

$49,725,000+ 16^%
of amount over
$400 million

SAVINGS DEPOSITS

3%

TIME DEPOSITS
(subject to 3%
minimum specified
by law)
By initial maturity:
less than 180 days
$0-5 million
over $5 million

3%
6%

180 days to four
years

2\%

four years or more

1%

Accounts authorized
pursuant to section 303
of Pub. L. 96-221
offered by member banks
located in states
outside Connecticut,
Maine, Massachusetts,
New Hampshire,
New Jersey, New York,
Rhode Island and
Vermont

12%

Club accounts

3%

24




For purposes of computing the reserves un­
der this part, that would have been required
using the reserve ratios that were in effect on
August 31, 1980, the reserve ratio on time de­
posits of a member bank shall be the average
time deposit ratio of the member bank during
the 14-day period ending August 6, 1980, ex­
cept that the reserve ratio on time deposits of
a nonmember bank that was a member bank
on or after July 1, 1979, but which became a
nonmember bank before March 31, 1980, may
be the average time deposit ratio of the non­
member during the 14-day period ending Au­
gust 27, 1980.

Statutory Provisions

FEDERAL RESERVE ACT
SECTION 19—Bank Reserves

(a) The Board is authorized for the purposes
of this section to define the terms used in this
section, to determine what shall be deemed a
payment of interest, to determine what types
of obligations, whether issued directly by a
member bank or indirectly by an affiliate of a
member bank or by other means, shall be
deemed a deposit, and to prescribe such regu­
lations as it may deem necessary to effectuate
the purposes of this section and to prevent
evasions thereof.
(b) Reserve requirements.
(1) Definitions. The following definitions
and rules apply to this subsection, subsec­
tion (c), section 11A, the first paragraph of
section 13, and the second, thirteenth, and
fourteenth paragraphs of section 16:
(A) The term “depository institution”
means—
(i) any insured bank as defined in sec­
tion 3 of the Federal Deposit Insur­
ance Act or any bank which is eligible
to make application to become an in­
sured bank under section 5 of such
Act;
(ii) any mutual savings bank as de­
fined in section 3 of the Federal Depos­
it Insurance Act or any bank which is
eligible to make application to become
an insured bank under section 5 of
such Act;
(iii) any savings bank as defined in
section 3 of the Federal Deposit Insur­
ance Act or any bank which is eligible
to make application to become an in­
sured bank under section 5 of such
Act;
(iv) any insured credit union as de­
fined in section 101 of the Federal
Credit Union Act or any credit union
which is eligible to make application to
become an insured credit union pursu­
ant to section 201 of such Act;



(v) any member as defined in section
2 of the Federal Home Loan Bank Act;
(vi) any insured institution as defined
in section 401 of the National Housing
Act or any institution which is eligible
to make application to become an in­
sured institution under section 403 of
such Act; and
(vii) for the purpose of section 13 and
the fourteenth paragraph of section 16,
any association or entity which is
wholly owned by or which consists
only of institutions referred to in claus­
es (i) through (vi).
(B) The term “bank” means any in­
sured or noninsured bank, as defined in
section 3 of the Federal Deposit Insur­
ance Act, other than a mutual savings
bank or a savings bank as defined in such
section.
(C) The term “transaction account”
means a deposit or account on which the
depositor or account holder is permitted
to make withdrawals by negotiable or
transferable instrument, payment orders
of withdrawal, telephone transfers, or
other similar items for the purpose of
making payments or transfers to third
persons or others. Such term includes de­
mand deposits, negotiable order of with­
drawal accounts, savings deposits subject
to automatic transfers, and share draft
accounts.
(D) The term “nonpersonal time depos­
its” means a transferable time deposit or
account or a time deposit or account rep­
resenting funds deposited to the credit of,
or in which any beneficial interest is held
by, a depositor who is not a natural
person.
(E) The term “reservable liabilities”
means transaction accounts, nonpersonal
time deposits, and all net balances, loans,
assets and obligations which are, or may
be, subject to reserve requirements under
paragraph (5).
(F) In order to prevent evasions of the
reserve requirements imposed by this
25

Statutory Provisions

subsection, after consultation with the
Board of Directors of the Federal Depos­
it Insurance Corporation, the Federal
Home Loan Bank Board, and the Na­
tional Credit Union Administration
Board, the Board of Governors of the
Federal Reserve System is authorized to
determine, by regulation or order, that an
account or deposit is a transaction ac­
count if such account or deposit may be
used to provide funds directly or indirect­
ly for the purpose of making payments or
transfers to third persons or others.
(2) Reserve requirements. (A) Each de­
pository institution shall maintain re­
serves against its transaction accounts as
the Board may prescribe by regulation
solely for the purpose of implementing
monetary policy—
(i) in the ratio of 3 per centum for
that portion of its total transaction ac­
counts of $25,000,000 or less, subject
to subparagraph (C); and
(ii) in the ratio of 12 per centum, or
in such other ratio as the Board may
prescribe not greater than 14 per cen­
tum and not less than 8 per centum,
for that portion of its total transaction
accounts in excess of $25,000,000, sub­
ject to subparagraph (C).
(B) Each depository institution shall
maintain reserves against its nonpersonal
time deposits in the ratio of 3 per cen­
tum, or in such other ratio not greater
than 9 per centum and not less than zero
per centum as the Board may prescribe
by regulation solely for the purpose of
implementing monetary policy.
(C) Beginning in 1981, not later than
December 31 of each year the Board
shall issue a regulation increasing for the
next succeeding calendar year the dollar
amount which is contained in subpara­
graph (A) or which was last determined
pursuant to this subparagraph for the
purpose of such subparagraph, by an
amount obtained by multiplying such
dollar amount by 80 per centum of the
percentage increase in the total transac­
tion accounts of all depository institu­
tions. The increase in such transaction
accounts shall be determined by subtract­
26




Regulation D

ing the amount of such accounts on June
30 of the preceding calendar year from
the amount of such accounts on June 30
of the calendar year involved. In the case
of any such 12-month period in which
there has been a decrease in the total
transaction accounts of all depository in­
stitutions, the Board shall issue such a
regulation decreasing for the next suc­
ceeding calendar year such dollar
amount by an amount obtained by multi­
plying such dollar amount by 80 per cen­
tum of the percentage decrease in the to­
tal transaction accounts of all depository
institutions. The decrease in such trans­
action accounts shall be determined by
subtracting the amount of such accounts
on June 30 of the calendar year involved
from the amount of such accounts on
June 30 of the previous calendar year.
(D) Any reserve requirement imposed
under this subsection shall be uniformly
applied to all transaction accounts at all
depository institutions. Reserve require­
ments imposed under this subsection
shall be uniformly applied to nonpersonal
time deposits at all depository institu­
tions, except that such requirements may
vary by the maturity of such deposits.
(3) Waiver o f ratio limits in extraordinary
circumstances. Upon a finding by at least 5
members of the Board that extraordinary
circumstances require such action, the
Board, after consultation with the appropri­
ate committees of the Congress, may
impose, with respect to any liability of
depository institutions, reserve require­
ments outside the limitations as to ratios
and as to types of liabilities otherwise pre­
scribed by paragraph (2) for a period not
exceeding 180 days, and for further periods
not exceeding 180 days each by affirmative
action by at least 5 members of the Board in
each instance. The Board shall promptly
transmit to the Congress a report of any
exercise of its authority under this para­
graph and the reasons for such exercise of
authority.
(4) Supplemental reserves. (A) The Board
may, upon the affirmative vote of not less
than 5 members, impose a supplemental
reserve requirement on every depository

Regulation D

institution of not more than 4 per centum
of its total transaction accounts. Such
supplemental reserve requirement may be
imposed only if—
(i) the sole purpose of such require­
ment is to increase the amount of re­
serves maintained to a level essential
for the conduct of monetary policy;
(ii) such requirement is not imposed
for the purpose of reducing the cost
burdens resulting from the imposition
of the reserve requirements pursuant
to paragraph (2);
(iii) such requirement is not imposed
for the purpose of increasing the
amount of balances needed for clearing
purposes; and
(iv) on the date on which the supple­
mental reserve requirement is imposed,
except as provided in paragraph (11),
the total amount of reserves required
pursuant to paragraph (2) is not less
than the amount of reserves that would
be required if the initial ratios specified
in paragraph (2) were in effect.
(B) The Board may require the supple­
mental reserve authorized under subpar­
agraph (A) only after consultation with
the Board of Directors of the Federal De­
posit Insurance Corporation, the Federal
Home Loan Bank Board, and the Na­
tional Credit Union Administration
Board. The Board shall promptly trans­
mit to the Congress a report with respect
to any exercise of its authority to require
supplemental reserves under subpara­
graph (A) and such report shall state the
basis for the determination to exercise
such authority.
(C) The supplemental reserve autho­
rized under subparagraph (A) shall be
maintained by the Federal Reserve banks
in an Earnings Participation Account.
Except as provided in subsection
(c)(l)(A)(ii), such Earnings Participa­
tion Account shall receive earnings to be
paid by the Federal Reserve banks during
each calendar quarter at a rate not more
than the rate earned on the securities
portfolio of the Federal Reserve System
during the previous calendar quarter.
The Board may prescribe rules and regu­



Statutory Provisions

lations concerning the payment of earn­
ings on Earnings Participation Accounts
by Federal Reserve banks under this
paragraph.
(D) If a supplemental reserve under
subparagraph (A) has been required of
depository institutions for a period of one
year or more, the Board shall review and
determine the need for continued mainte­
nance of supplemental reserves and shall
transmit annual reports to the Congress
regarding the need, if any, for continuing
the supplemental reserve.
(E) Any supplemental reserve imposed
under subparagraph (A) shall terminate
at the close of the first 90-day period af­
ter such requirement is imposed during
which the average amount of reserves re­
quired under paragraph (2) are less than
the amount of reserves which would be
required during such period if the initial
ratios specified in paragraph (2) were in
effect.
(5) Reserves related to foreign obligations
or assets. Foreign branches, subsidiaries,
and international banking facilities of non­
member depository institutions shall main­
tain reserves to the same extent required by
the Board of foreign branches, subsidiaries,
and international banking facilities of mem­
ber banks. In addition to any reserves oth­
erwise required to be maintained pursuant
to this subsection, any depository institu­
tion shall maintain reserves in such ratios as
the Board may prescribe against—
(A) net balances owed by domestic of­
fices of such depository institution in the
United States to its directly related for­
eign offices and to foreign offices of nonrelated depository institutions;
(B) loans to United States residents
made by overseas offices of such deposi­
tory institution if such depository institu­
tion has one or more offices in the United
States; and
(C) assets (including participations)
held by foreign offices of a depository in­
stitution in the United States which were
acquired from its domestic offices.
(6) Exemption for certain deposits. The re­
quirements imposed under paragraph (2)
shall not apply to deposits payable only out­
27

Statutory Provisions

side the States of the United States and the
District of Columbia, except that nothing in
this subsection limits the authority of the
Board to impose conditions and require­
ments on member banks under section 25 of
this Act or the authority of the Board under
section 7 of the International Banking Act
of 1978 (12 U.S.C. 3105).
(7) Discount and borrowing. Any deposito­
ry institution in which transaction accounts
or nonpersonal time deposits are held shall
be entitled to the same discount and bor­
rowing privileges as member banks. In the
administration of discount and borrowing
privileges, the Board and the Federal Re­
serve banks shall take into consideration
the special needs of savings and other de­
pository institutions for access to discount
and borrowing facilities consistent with
their long-term asset portfolios and the sen­
sitivity of such institutions to trends in the
national money markets.
(8) Transitional adjustments.
(A) Any depository institution required
to maintain reserves under this subsec­
tion which was engaged in business on
July 1, 1979, but was not a member of
the Federal Reserve System on or after
that date, shall maintain reserves against
its deposits during the first twelve-month
period following the effective date of this
paragraph in amounts equal to oneeighth of those otherwise required by this
subsection, during the second such
twelve-month period in amounts equal to
one-fourth of those otherwise required,
during the third such twelve-month peri­
od in amounts equal to three-eighths of
those otherwise required, during the
fourth twelve-month period in amounts
equal to one-half of those otherwise re­
quired, and during the fifth twelve-month
period in amounts equal to five-eighths of
those otherwise required, during the
sixth twelve-month period in amounts
equal to three-fourths of those otherwise
required, and during the seventh twelvemonth period in amounts equal to seveneighths of those otherwise required. This
subparagraph does not apply to any cate­
gory of deposits or accounts which are
28



Regulation D

first authorized pursuant to Federal law
in any State after April 1, 1980.
(B) With respect to any bank which was
a member of the Federal Reserve System
during the entire period beginning on
July 1, 1979, and ending on the effective
date of the Monetary Control Act of
1980, the amount of required reserves
imposed pursuant to this subsection on
and after the effective date of such Act
that exceeds the amount of reserves
which would have been required of such
bank if the reserve ratios in effect during
the reserve computation period immedi­
ately preceding such effective date were
applied may, at the discretion of the
Board and in accordance with such rules
and regulations as it may adopt, be re­
duced by 75 per centum during the first
year which begins after such effective
date, 50 per centum during the second
year, and 25 per centum during the third
year.
(C) (i) With respect to any bank which
is a member of the Federal Reserve
System on the effective date of the
Monetary Control Act of 1980, the
amount of reserves which would have
been required of such bank if the re­
serve ratios in effect during the reserve
computation period immediately pre­
ceding such effective date were applied
that exceeds the amount of required re­
serves imposed pursuant to this subsec­
tion shall, in accordance with such
rules and regulations as the Board may
adopt, be reduced by 25 per centum
during the first year which begins after
such effective date, 50 per centum dur­
ing the second year, and 75 per centum
during the third year.
(ii) If a bank becomes a member bank
during the four-year period beginning
on the effective date of the Monetary
Control Act of 1980, and if the amount
of reserves which would have been re­
quired of such bank, determined as if
the reserve ratios in effect during the
reserve computation period immedi­
ately preceding such effective date
were applied, and as if such bank had
been a member during such period, ex­

Regulation D

ceeds the amount of reserves required
pursuant to this subsection, the
amount of reserves required to be
maintained by such bank beginning on
the date on which such bank becomes
a member of the Federal Reserve Sys­
tem shall be the amount of reserves
which would have been required of
such bank if it had been a member on
the day before such effective date, ex­
cept that the amount of such excess
shall, in accordance with such rules
and regulations as the Board may
adopt, be reduced by 25 per centum
during the first year which begins after
such effective date, 50 per centum dur­
ing the second year, and 75 per centum
during the third year.
(D) (i) Any bank which was a member
bank on July 1, 1979, and which with­
draws from membership in the Federal
Reserve System during the period be­
ginning on July 1, 1979, and ending on
March 31, 1980, shall maintain re­
serves during the first twelve-month
period beginning on the date of enact­
ment of this clause in amounts equal to
one-half of those otherwise required by
this subsection, during the second such
twelve-month period in amounts equal
to two-thirds of those otherwise re­
quired, and during the third such
twelve-month period in amounts equal
to five-sixths of those otherwise
required.
(ii) Any bank which withdraws from
membership in the Federal Reserve
System after March 31, 1980, shall
maintain reserves in the same amount
as member banks are required to main­
tain under this subsection, pursuant to
subparagraphs (B) and (C)(i).
(E) This subparagraph applies to any
depository institution that, on August 1,
1978, (i) was engaged in business as a
depository institution in a State outside
the continental limits of the United
States, and (ii) was not a member of the
Federal Reserve System at any time on or
after such date. Such a depository institu­
tion shall not be required to maintain re­
serves against its deposits held or main­



Statutory Provisions

tained at its offices located in a State
outside the continental limits of the Unit­
ed States until the first day of the sixth
calendar year which begins after the ef­
fective date of the Monetary Control Act
of 1980. Such a depository institution
shall maintain reserves against its
deposits during the sixth calendar year
which begins after such effective date in
an amount equal to one-eighth of that
otherwise required by paragraph (2),
during the seventh such year in an
amount equal to one-fourth of that other­
wise required, during the eighth such
year in an amount equal to three-eighths
of that otherwise required, during the
ninth such year in an amount equal to
one-half of that otherwise required, dur­
ing the tenth such year in an amount
equal to five-eighths of that otherwise re­
quired, during the eleventh such year in
an amount equal to three-fourths of that
otherwise required, and during the
twelfth such year in an amount equal to
seven-eighths of that otherwise required.
(9) Exemption. This subsection shall not
apply with respect to any financial institu­
tion which—
(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 gener­
al public.
(10) Waivers. In individual cases, where a
Federal supervisory authority waives a li­
quidity requirement, or waives the penalty
for failing to satisfy a liquidity requirement,
the Board shall waive the reserve require­
ment, or waive the penalty for failing to
satisfy a reserve requirement, imposed pur­
suant to this subsection for the depository
institution involved when requested by the
Federal supervisory authority involved.
(11) Additional exemptions. (A)(i) Not­
withstanding the reserve requirement ratios
established under paragraphs (2) and (5)
of this subsection, a reserve ratio of zero per
centum shall apply to any combination of
reservable liabilities, which do not exceed
$2,000,000 (as adjusted under subpara­
29

Statutory Provisions

graph (B)), of each depository institution.
(ii) Each depository institution may
designate, in accordance with such
rules and regulations as the Board
shall prescribe, the types and amounts
of reservable liabilities to which the re­
serve ratio of zero per centum shall ap­
ply, except that transaction accounts
which are designated to be subject to a
reserve ratio of zero per centum shall
be accounts which would otherwise be
subject to a reserve ratio of 3 per cen­
tum under paragraph (2).
(iii) The Board shall minimize the re­
porting necessary to determine wheth­
er depository institutions have total re­
servable liabilities of less than
$2,000,000 (as adjusted under subpar­
agraph (B)). Consistent with the
Board’s responsibility to monitor and
control monetary and credit aggre­
gates, depository institutions which
have reserve requirements under this
subsection equal to zero per centum
shall be subject to less overall report­
ing requirements than depository
institutions which have a reserve
requirement under this subsection that
exceeds zero per centum.
(B) (i) Beginning in 1982, not later
than December 31 of each year, the
Board shall issue a regulation increas­
ing for the next succeeding calendar
year the dollar amount specified in
subparagraph (A), as previously ad­
justed under this subparagraph, by an
amount obtained by multiplying such
dollar amount by 80 per centum of the
percentage increase in the total reserv­
able liabilities of all depository
institutions.
(ii) The increase in total reservable li­
abilities shall be determined by sub­
tracting the amount of total reservable
liabilities on June 30 of the preceding
calendar year from the amount of total
reservable liabilities on June 30 of the
calendar year involved. In the case of
any such twelve-month period in
which there has been a decrease in the
total reservable liabilities of all deposi­
tory institutions, no adjustment shall
30




Regulation D

be made. A decrease in total reservable
liabilities shall be determined by sub­
tracting the amount of total reservable
liabilities on June 30 of the calendar
year involved from the amount of total
reservable liabilities on June 30 of the
previous calendar year.
(c)(l)Reserves held by a depository institu­
tion to meet the requirements imposed pur­
suant to subsection (b) shall, subject to
such rules and regulations as the Board
shall prescribe, be in the form of—
(A) balances maintained for such pur­
poses by such depository institution in
the Federal Reserve bank of which it is a
member or at which it maintains an ac­
count, except that (i) the Board may, by
regulation or order, permit depository in­
stitutions to maintain all or a portion of
their required reserves in the form of
vault cash, except that any portion so
permitted shall be identical for all deposi­
tory institutions, and (ii) vault cash may
be used to satisfy any supplemental re­
serve requirement imposed pursuant to
subsection (b)(4), except that all such
vault cash shall be excluded from any
computation of earnings pursuant to sub­
section (b)(4)(C); and
(B) balances maintained by a depository
institution which is not a member bank
in a depository institution which main­
tains required reserve balances at a Fed­
eral Reserve bank, in a Federal Home
Loan Bank, or in the National Credit
Union Administration Central Liquidity
Facility, if such depository institution,
Federal Home Loan Bank, or National
Credit Union Administration Central Li­
quidity Facility maintains such funds in
the form of balances in a Federal Reserve
bank of which it is a member or at which
it maintains an account. Balances re­
ceived by a depository institution from a
second depository institution and used to
satisfy the reserve requirement imposed
on such second depository institution by
this section shall not be subject to the re­
serve requirements of this section im­
posed on such first depository institution,
and shall not be subject to assessments or

Regulation D

Statutory Provisions

reserves imposed on such first depository in­
stitution pursuant to section 7 of the Federal
Deposit Insurance Act (12 U.S.C. 1817), sec­
tion 404 of the National Housing Act (12
U.S.C. 1727), or section 202 of the Federal
Credit Union Act (12 U.S.C. 1782).
(2) The balances maintained to meet the
reserve requirements of subsection (b) by a
depository institution in a Federal Reserve
bank or passed through a Federal Home
Loan Bank or the National Credit Union
Administration Central Liquidity Facility
or another depository institution to a Fed­
eral Reserve bank may be used to satisfy
liquidity requirements which may be im­
posed under other provisions of Federal or
State law.
[12 USC 461. As amended by acts of June 21, 1917 (40
Stat. 239); Aug. 23, 1935 (49 Stat. 714); Sept. 21, 1966 (80
Stat. 823); Dec. 23, 1969 (83 Stat. 374, 375); Oct. 29, 1974
(88 Stat. 1557); March 31, 1980 (94 Stat. 133, 138); Aug.
13, 1981 (95 Stat. 433); and Oct. 15, 1982 (96 Stat. 1520,
1521, 1522, 1523, 1540).]

*

*

*

*

*

(f) The required balance carried by a mem­
ber bank with a Federal Reserve bank may,
under the regulations and subject to such pen­
alties as may be prescribed by the Board of
Governors of the Federal Reserve System, be
checked against and withdrawn by such mem­
ber bank for the purpose of meeting existing
liabilities.
[12 USC 464. As amended by acts of Aug. 15, 1914 (38
Stat. 691); June 21, 1917 (40 Stat. 239); Aug. 23, 1935 (49
Stat. 704); and July 7, 1942 (56 Stat. 648).]

(g) In estimating the reserve balances re­
quired by this Act, member banks may deduct
from the amount of their gross demand depos­
its the amounts of balances due from other
banks (except Federal Reserve banks and for­
eign banks) and cash items in process of col­
lection payable immediately upon presenta­
tion in the United States, within the meaning
of these terms as defined by the Board of Gov­
ernors of the Federal Reserve System.
[12 USC 465. As amended by acts of Aug. 15, 1914 (38
Stat. 691); June 12, 1917 (40 Stat. 239); and Aug. 23, 1935
(49 Stat. 714).]




SECTION 11 —Powers of the Board of
Governors of the Federal Reserve System

The Board of Governors of the Federal Re­
serve System shall be authorized and
empowered:
(a) (1) To examine at its discretion the ac­
counts, books, and affairs of each Federal
reserve bank and of each member bank and
to require such statements and reports as it
may deem necessary. The said board shall
publish once each week a statement show­
ing the condition of each Federal reserve
bank and a consolidated statement for all
Federal reserve banks. Such statements
shall show in detail the assets and liabilities
of the Federal reserve banks, single and
combined, and shall furnish full informa­
tion regarding the character of the money
held as reserve and the amount, nature, and
maturities of the paper and other invest­
ments owned or held by Federal reserve
banks.
(2) To require any depository institution
specified in this paragraph to make, at such
intervals as the Board may prescribe, such
reports of its liabilities and assets as the
Board may determine to be necessary or de­
sirable to enable the Board to discharge its
responsibility to monitor and control mone­
tary and credit aggregates. Such reports
shall be made (A) directly to the Board in
the case of member banks and in the case of
other depository institutions whose reserve
requirements under section 19 of this Act
exceed zero, and (B) for all other reports to
the Board through the (i) Federal Deposit
Insurance Corporation in the case of in­
sured State nonmember banks, savings
banks, and mutual savings banks, (ii) Na­
tional Credit Union Administration Board
in the case of insured credit unions, (iii)
Federal Home Loan Bank Board in the case
of any institution insured by the Federal
Savings and Loan Insurance Corporation or
which is a member as defined in section 2 of
the Federal Home Loan Bank Act, and (iv)
such State officer or agency as the Board
may designate in the case of any other type
of bank, savings and loan association, or
credit union. The Board shall endeavor to
31

Statutory Provisions

avoid the imposition of unnecessary bur­
dens on reporting institutions and the du­
plication of other reporting requirements.
Except as otherwise required by law, any
data provided to any department, agency,
or instrumentality of the United States pur­
suant to other reporting requirements shall
be made available to the Board. The Board
may classify depository institutions for the
purposes of this paragraph and may impose
different requirements on each such class.

Regulation D

SECTION 25(a)—Banking
Corporations Authorized to Do Foreign
Banking Business

*

*

*

*

*

Each corporation so organized shall have
power, under such rules and regulations as the
Board of Governors of the Federal Reserve
System may prescribe:

(a) To purchase, sell, discount, and negoti­
ate, with or without its indorsement or guar­
*
*
*
*
*
anty, notes, drafts, checks, bills of exchange,
acceptances, including bankers’ acceptances,
(c) To suspend for a period not exceeding cable transfers, and other evidences of indebt­
thirty days, and from time to time to renew edness; to purchase and sell with or without
such suspensions for periods not exceeding fif­ its indorsement or guaranty, securities, in­
teen days, any reserve requirements specified cluding the obligations of the United States or
of any State thereof but not including shares
in this Act.
of stock in any corporation except as herein
*
*
*
*
*
provided; to accept bills or drafts drawn upon
it subject to such limitations and restrictions
(e) To add to the number of cities classified as the Board of Governors of the Federal Re­
as reserve cities under existing law in which serve System may impose; to issue letters of
national banking associations are subject to credit; to purchase and sell coin, bullion, and
the reserve requirements set forth in section exchange; to borrow and to lend money; to
[nineteen] of this Act; or to reclassify existing issue debentures, bonds, and promissory notes
reserve cities or to terminate their designation under such general conditions as to security
and such limitations as the Board of Gover­
as such.
nors of the Federal Reserve System may pre­
[12 USC 248 (a), (c), and (e). As amended by acts of
scribe; to receive deposits outside of the Unit­
June 12, 1945 (59 Stat. 237); July 28, 1959 (73 Stat. 264);
ed States and to receive only such deposits
March 18, 1968 (82 Stat. 50); and March 31, 1980 (94
Stat. 132).]
within the United States as may be incidental
to or for the purpose of carrying out transac­
tions in foreign countries or dependencies or
insular possessions of the United States; and
generally to exercise such powers as are inci­
dental to the powers conferred by this Act or
SECTION 25 —Foreign Branches
as may be usual, in the determination of the
Board of Governors of the Federal Reserve
Any national banking association possessing a System, in connection with the transaction of
capital and surplus of $1,000,000 or more may the business of banking or other financial op­
file application with the Board of Governors erations in the countries, colonies, dependen­
of the Federal Reserve System for permission cies, or possessions in which it shall transact
to exercise, upon such conditions and under business and not inconsistent with the powers
such regulations as may be prescribed by the specifically granted herein. Nothing contained
said board, the following powers:
in this section shall be construed to prohibit
the Board of Governors of the Federal Re­
*
*
*
*
*
serve System, under its power to prescribe
rules and regulations, from limiting the aggre­
[12 USC 601. As amended by acts of Sept. 7, 1916 (39
gate
amount of liabilities of any or all classes
Stat. 755); Sept. 17, 1919 (41 Stat. 285, 286); Aug. 23,
incurred by the corporation and outstanding
1935 (49 Stat. 704); and July 1, 1966 (80 Stat. 241).]
32




Statutory Provisions

Regulation D

at any one time. Whenever a corporation or­
ganized under this section receives deposits in
the United States authorized by this section it
shall carry reserves in such amounts as the
Board of Governors of the Federal Reserve
System may prescribe for member banks of
the Federal Reserve System.
*
*
*
*
*

[12 USC 3503. As amended by acts of Oct. 15, 1982 (96
Stat. 1501) and Jan. 12, 1983 (96 Stat. 2508).]

[12 USC 615. As amended by acts of Aug. 23, 1935 (49
Stat. 704) and Sept. 17, 1978 (92 Stat. 609).]

SECTION 7—Authority of Federal
Reserve System

DEPOSITORY INSTITUTIONS
DEREGULATION ACT OF 1980
SECTION 204— Directive to the
Committee

*

*

*

*

*

(c)(1) The Committee shall issue a regula­
tion authorizing a new deposit account, ef­
fective not later than 60 days after the date
of enactment of this subsection. Such ac­
count shall be directly equivalent to and
competitive with money market mutual
funds registered with the Securities and Ex­
change Commission under the Investment
Company Act of 1940.
(2) No limitation on the maximum rate or
rates of interest payable on deposit accounts
shall apply to the account authorized by
this subsection.
(3) For purposes of section 19(b) of the
Federal Reserve Act, accounts established
pursuant to this subsection which are not
‘transaction accounts’ as defined by the re­
serve requirement regulations of the Board
of Governors of the Federal Reserve Sys­
tem as those regulations existed on August
1, 1982, shall not be subject to transaction
account reserves, even though no minimum
maturity is required, and even though up to
three preauthorized or automatic transfers
and three transfers to third parties are per­
mitted monthly.
(4) The transitional adjustment provisions
in section 19(b)(8) of the Federal Reserve
Act, providing for the phase-in of reserve
requirements, shall not apply to an account
or accounts established pursuant to this
subsection.



INTERNATIONAL BANKING ACT
OF 1978

(a)(1)(A) Except as provided in paragraph
(2) of this subsection, subsections (a),
(b), (c), (d), (0, (g), (i), (j), (k), and
the second sentence of subsection (e) of
section 19 of the Federal Reserve Act
shall apply to every Federal branch and
Federal agency of a foreign bank in the
same manner and to the same extent as if
the Federal branch or Federal agency
were a member bank as that term is de­
fined in section 1 of the Federal Reserve
Act; but the Board either by general or
specific regulation or ruling may waive
the minimum and maximum reserve ra­
tios prescribed under section 19 of the
Federal Reserve Act and may prescribe
any ratio, not more than 22 per centum,
for any obligation of any such Federal
branch or Federal agency that the Board
may deem reasonable and appropriate,
taking into consideration the character of
business conducted by such institutions
and the need to maintain vigorous and
fair competition between and among
such institutions and member banks. The
Board may impose reserve requirements
on Federal branches and Federal agen­
cies in such graduated manner as it
deems reasonable and appropriate.
(B) After consultation and in coopera­
tion with the State bank supervisory au­
thorities, the Board may make applicable
to any State branch or State agency any
requirement made applicable to, or
which the Board has authority to impose
upon, any Federal branch or agency un­
der subparagraph (A) of this paragraph.
(2) A branch or agency shall be subject to
this subsection only if (A) its parent for­
eign bank has total worldwide consolidated
bank assets in excess of $1,000,000,000; (B)
33

Statutory Provisions

its parent foreign bank is controlled by a
foreign company which owns or controls
foreign banks that in the aggregate have to­
tal worldwide consolidated bank assets in
excess of $1,000,000,OCX); or (C) its parent
foreign bank is controlled by a group of for­
eign companies that own or control foreign

34




Regulation D

banks that in the aggregate have total
worldwide consolidated bank assets in ex­
cess of $1,000,000,000.
*
*
*
*
*
[12 u s e 3105.]

FEDERAL RESERVE SYSTEM
REGULATIONS D and Q

[12 CFR Parts 204 and 217]
(Docket No. R-0417)
RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
INTEREST ON DEPOSITS
Definition of Time Deposits

AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Final rules.

SUMMARY:
The Board of Governors has adopted final amendments
to
Regulation D— Reserve
Requirements
of
Depository
Institutions (12 CFR Part 204) and Regulation Q— Interest on
Deposits (12 CFR Part 217) to reduce the minimum maturity of
all time deposits to seven days. Comments from the public were
favorable to adoption of this rule.
The Board's action was
taken in light of recent actions by the Depository Institutions
Deregulation Committee ("DIDC") to authorize the Money Market
Deposit Account ("MMDA") and removing the interest rate ceiling
on time deposits of $2,500 or more with maturities of seven- to
31-days.
EFFECTIVE DATE:

October 1, 1983.

FOR FURTHER INFORMATION CONTACT:
Gilbert T. Schwartz,
Associate General Counsel (202/452-3625) or Paul S. Pilecki,
Senior Counsel (202/452-3281), Legal Division, Board of
Governors of the Federal Reserve System, Washington, D. C.
20551.
SUPPLEMENTARY INFORMATION:
Section 19(a) of the Federal
Reserve Act (12 U.S.C. § 461(a)) authorizes the Board to
determine the types of obligations that constitute deposits.
At present, the Board defines time deposits as deposits or
accounts with a minimum maturity or required notice period of
14 days and deposits with maturities or required notice periods
of seven to 13 days issued pursuant to section 1204.121 of the
rules of the DIDC (12 C.F.R. § 1204.121). Demand deposits are
defined to include any deposit or account with a maturity or
required notice period of less than 14 days or that does not
meet the requirements of the DIDC for accounts issued under 12
C.F.R. § 1204.121.




-2-

On August 24, 1982, the Board requested public comment
on a proposal to reduce the minimum maturity or required notice
period of all time deposits to seven days. The Board requested
comments on the following specific issues:
1.

whether reducing the minimum maturity to seven
days would broaden the market for certificates of
deposit for depository institutions, thereby
improving their competitive position;

2.

whether depository institutions would have more
flexibility to vary the maturity mix of their
liability structures;

3.

potential difficulties for interpreting the
monetary aggregates because of diminished
distinctions between transaction accounts and
time deposits; and

4.

whether such a proposal would erode the liquidity
position of depository institutions were they to
rely more heavily on short-term funds.

The Board received a total of 57 comments on this proposal,
distributed as follows:
45 commercial banks and bank holding
companies, six savings and loan associations, eight Federal
Reserve Banks, two business organizations, one credit union,
and one commercial bank trade association.
Of those
commenting, 79 percent favored the proposal, 18 percent were
opposed to further reducing the minimum maturity of time
deposits, and two comments suggested that the minimum maturity
of time deposits should be reduced further to one day.
Comments in favor of the proposal generally cited
benefits to depository institutions such as an improved
competitive position and providing more flexibility to vary the
maturity mix of their liability structures, while not adversely
affecting depository institution liquidity.
However, those
opposed to the proposal expressed the view that its adoption
would have adverse implications for liquidity by leading to
increases in the mismatch of assets and liabilities of
depository institutions. With respect to the implications for
monetary policy, 75 percent of those addressing the issue
believed that the existence of seven-day time deposits would
not lead to distortions of the monetary aggregates and,
therefore, the conduct of monetary policy would not be impaired.
Since the Board issued its proposal to reduce the
minimum maturity of time deposits, several significant actions
have been taken by the DIDC to facilitate the ability of




-3-

depository institutions to offer short-term deposit accounts.
Effective December 14, 1982, depository institutions were
authorized to offer MMDAs, which have a minimum denomination of
$2,500, no interest rate ceiling, and are subject only to a
reservation of the right of the depository institution to
require seven days' notice prior to withdrawal.
In addition,
effective October 1, 1983, the DIDC removed interest rate
ceilings on all time deposits with maturities of more than 31
days and on time deposits of $2,500 or more with maturities of
seven to 31 days, whether issued in negotiable or nonnegotiable
form. Consequently, in order to enable depository institutions
to offer certificates of deposit with maturities of seven to 13
days, the Board has amended Regulations D and Q to reduce the
minimum maturity of time deposits to seven days.
In addition, the Board has previously determined that
eligible bankers' acceptances (those described in 12 U.S.C. §
372) are not reservable deposits.
The Board has issued a
clarifying amendment to confirm that eligible bankers'
acceptances held by certain foreign organizations are not
deposits.
The impact of this proposal has been considered in
accordance with section 605 of the Regulatory Flexibility Act
(5 U.S.C. § 604; Pub. L. 96-354). This action will provide an
additional tool for small banks to use in competing with larger
institutions for short term, large denomination deposits.
A
seven day minimum maturity could enhance the attractiveness of
CDs issued by small banks which normally do not trade in the
secondary market.
Since this action relieves a restriction and because
this action is necessary to conform the rules of the Board to
those of the DIDC, the Board makes this action effective
October 1, 1983.
List of Subjects in 12 CFR Part 204
Banks, banking; Currency;
Penalties; Reporting requirements.

Federal

Reserve

System;

List of Subjects in 12 CFR Part 217
Advertising;
Foreign banking.

Banks, banking;

Federal Reserve System;

Pursuant to its authority under section 19(a) of the
Federal Reserve Act (12 USC § 461(a)) to define deposits, the
Board amends Regulation D (12 CFR Part 204) and Regulation Q
(12 CFR Part 217), effective October 1, 1983, as follows:




................

.... —

-

-41. In section 204.2 by revising paragraphs (b)(1) and
(2), (c)(1), and (d)(1), and (f)(1)(v) to read as follows:
SECTION 204.2 —
*

*

*

DEFINITIONS
*

*

(b) (1) "Demand deposit" means a deposit that is
payable on demand, or a deposit issued with an original
maturity or required notice period of less than seven days, or
a deposit representing funds for which the depository
institution does not reserve the right to require at least
seven days' written notice of an intended withdrawal. The term
includes all deposits other than time and savings deposits.
Demand deposits may be in the form of (i) * * * (viii) an
obligation to pay on demand or within seven days a check (or
other instrument, device, or arrangement for the transfer of
funds) drawn on the depository institution, where the account
of the institution's customer already has been debited.
The
term does not include an obligation that is a time deposit
under § 204.2(c )(1)(ii).

(2)
A "demand deposit" does not include ch
drafts drawn by the depository institution on the Federal
Reserve or on another depository institution.

(c)
(1) "Time deposit" means (i) a deposit that the
depositor does not have a right to withdraw for a period of
seven days or more after the date of deposit.
"Time deposit"
includes funds:
(A) payable on a specified date not
less than seven days after the date of deposit;
(B) payable at the expiration of a
specified time not less than seven days after the date of
deposit;
(C) payable upon written notice which
actually is required to be given by the depositor not less than
seven days before the date of repayment;
(D) such as "Christmas club" accounts
and "vacation club" accounts, that are deposited under written
contracts providing that no withdrawal shall be made until a
certain number of periodic deposits have been made during a
period of not less than three months even though some of the
deposits may be made within seven days from the end of the
period; or




-5-

(E)
that constitute a "
which is not regarded as a "transaction a c c o u n t a n d
(ii)
borrowings, regardless
represented by a promissory note, an acknowledgment of advance,
or similar obligation described in section 204.2(a)(1)(vii)
that is issued to, or any bankers' acceptance (other than the
type described in 12 USC 372) of the depository institution
held by, any office located outside the United States of
another depository institution or Edge or agreement corporation
organized under the laws of the United States, to any office
located outside the United States of a foreign bank, or to
institutions whose time deposits are exempt from interest rate
limitations under section 217.3(g) of Regulation Q (12 CFR
217.3(g)(e).
*

*

*

*

of

*

(d)(1) "Savings deposit" means a deposit or account

(i)
(A) with respect to which the
is not required by the deposit contract but may at any time be
required by the depository institution to give written notice
of an intended withdrawal not less than seven days before
withdrawal is made, and that is not payable on a specified date
or at the expiration of a specified time after the date of
deposit; and
(B)***
*

*

*

*

*

(f)(1)***

(v) a time deposit represented by a
promissory note, an acknowledgment of advance, or similar
obligation described in section 204.2 (a)(1)(vii) that is
issued to, or any bankers' acceptances (other than the type
described in 12 U.S.C. 372) of the depository institution held
by, any office located outside the United States of another
depository institution or Edge or agreement corporation
organized under the laws of the United States, to any office
located outside the United States of a foreign bank, or to
institutions whose time deposits are exempt from interest rate
limitations under section 217.3(g) of Regulation Q (12 CFR
217.3(g)).




*

★

*

*

*

-6-

2.
Section 217.1 is amended by revising paragraph
(b)(1),
the
initial phrase
in paragraph (e),
and
paragraphs (e)(2), (3), and (4) to read as follows:
SECTION 217.1 —
*

*

*

DEFINITIONS
*

*

(b)(1)
"Time deposit" means (i) a deposit that the
depositor does not have a right to withdraw for a period of
seven days or more after the date of deposit.
"Time deposit"
includes funds:
(A) payable on a specified date not less
than seven days after the date of deposit;
(B) payable at the expiration of a specified
time not less than seven days after the date of deposit;
(C) payable upon written notice which
actually is required to be given by the depositor not less than
seven days before the date of repayment;2/or
(D) such as "Christmas club" accounts and
"vacation club" accounts, that are deposited under written
contracts providing that no withdrawal shall be made until a
certain number of periodic deposits have been made during a
period of not less than seven days from the end of the period;
and
(ii) an "international banking facility
time deposit."
*

*

*

*

*

(e) "Savings deposit" means a deposit —
(1) * * *

(2)
With respect to which the d
not required by the deposit contract but may at any time be
required by the bank to give written notice of an intended
withdrawal not less than seven days before such withdrawal is
made,2/ and that is not payable on a specified

2/ A deposit with respect to which the bank merely reserves
the right to require notice of not less than seven days before
any withdrawal is made is not a "time deposit" within the
meaning of the above definition.
3/

*




*

*

-7date or at the expiration of a specified time after the date of
deposit.
(3)(i) * * *
(ii)
Deposits in which any beneficial
interest is held by a corporation, partnership, association, or
other organization that is operated for profit or is not
operated primarily for religious, philanthropic, charitable,
educational, fraternal or other similar purposes, or that is
not a governmental unit described in subpragraph (i)(C) may not
be classified as deposits subject to negotiable orders of
withdrawal, except as authorized by section 217.7(g).
(4)
"Savings deposit" also means a deposit
pursuant to section 217.7(c)(2)(ii) or section 217.7(g) with
respect to which the member bank reserves the right to require
at least seven days' notice prior to withdrawal or transfer.
*

*

*

*

issued

*

3.
The second sentence of section 217.5(c)(2)
amended by removing "14" and inserting "seven" in its place.
By order of the Board of Governors, October 4, 1983.




(signed) William W. Wiles

William W. Wiles
Secretary of the Board

is

FEDERAL RESERVE SYSTEM
REGULATION D

[12 CFR Part 204]
[Docket No. R-0484]
RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
Reserve Requirements on Nonpersonal Time Deposits

AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Final rule.

SUMMARY:
The
Board of
Governors
has
amended
Regulation D--Reserve Requirements of Depository Institutions
(12 CFR Part 204) to modify the reserve requirements on
nonpersonal time deposits.
Under the amendment, nonpersonal
time deposits with original maturities of 1-1/2 years or more
will be subject to a reserve requirement ratio of zero
percent. Nonpersonal time deposits with original maturities of
less than 1-1/2 years will continue to be subject to a three
percent reserve requirement ratio.
This action was taken to
facilitate the offering by depository institutions of longer
maturity time deposits that are exempt from interest rate
ceilings.
EFFECTIVE DATE:
October 6, 1983.
The first reserve
maintenance period to which the amendment applies commences
October 20, 1983.
FOR FURTHER INFORMATION CONTACT:
Gilbert T. Schwartz,
Associate General Counsel (202/452-3625) or Paul S. Pilecki,
Senior Counsel (202/452-3281), Legal Division, Board of
Governors of the Federal Reserve System, Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION:
The Monetary Control Act of 1980
(Title I of P.L. 96-221; 94 Stat. 132) ("MCA") authorizes the
Board, to prescribe, solely for the purpose of implementing
monetary policy, reserve requirements against nonpersonal time
deposits within a reserve ratio range of zero to nine percent.
The MCA requires the reserve requirement against nonpersonal
time deposits to be applied uniformly to the deposits at all
depository institutions, except that such requirement may vary

>

Ref.
Enc.

Cir.
C ir.




No.
No.

9561
9563

-2-

by deposit maturity. Nonpersonal time deposits are defined by
the MCA as time deposits that are transferable, regardless of
the nature of the holder, and time deposits in which any
beneficial interest is held by a depositor who is not a natural
person.
Nontransferable time deposits in which the entire
beneficial interest is held solely by a natural person are not
subject to reserve requirements.
Regulation D— Reserve Requirements of Depository
Institutions (12 CFR Part 204) currently imposes a three
percent reserve requirement on nonpersonal time deposits with
original maturities or required notice periods of less than
2-1/2 years.
Nonpersonal time deposits with maturities or
required notice periods of 2-1/2 years or more are subject to a
zero percent reserve requirement.
The Depository Institutions Deregulation Committee
("DIDC"), pursuant to its authority under the Depository
Institutions Deregulation Act of 1980 (Title II of Pub.
L. 96-221; 12 U.S.C. § 3501 et seq.), authorized federally
insured commercial banks, mutual savings banks, and savings and
loan associations to offer, effective May 1, 1982, a new
category of ceiling-free time deposit with an original maturity
or required notice period of 3-1/2 years or more.
Such time
deposits may be issued in negotiable or nonnegotiable form at
the option of the issuer to any holder.
Effective April 1,
1983, the minimum maturity of this deposit category was reduced
to 2-1/2 years.
In conjunction with the establishment of this
instrument and its subsequent reduction in maturity, the Board
modified the maturity break for reserve requirements on
nonpersonal time deposits to facilitate the DIDC's objectives
in authorizing this instrument in negotiable form.
In this
regard, a negotiable time deposit was viewed as more attractive
to depositors since it could be sold as an alternative to
incurring an early withdrawal penalty.
Effective October 1, 1983, the DIDC removed interest
rate ceilings on all time deposits with original maturities or
required notice periods of 32 days or more and on all time
deposits of more than $2,500 with original maturities or
required notice periods of seven to 31 days.
To continue to
facilitate the DIDC's objectives, the Board has amended the
reserve requirements on nonpersonal time deposits so that,
after the completion of the transition periods set forth in the
MCA, nonpersonal time deposits with original maturities of
1-1/2 years or more will be subject to a zero percent reserve
requirement ratio and nonpersonal time deposits with original
maturities of less than 1-1/2 years will be subject to a three
percent reserve requirement ratio.
The Board estimates that
the amount of reserves held on nonpersonal time deposits with




-3maturities of 1-1/2 to 2-1/2 years is small, and, thus, this
action will not adversely affect monetary control.
However,
the Board notes that reducing further the nonpersonal time
deposit maturity break could have an adverse effect on monetary
control by eroding the reserve base and loosening the linkage
between reserves and deposits in the money stock.
This action is effective for depository institutions
that report deposits and maintain reserves on a weekly basis
with the reserve computation period beginning October 6, 1983.
The first reserve maintenance period to which this action
applies for these institutions commences October 20, 1983. For
depository institutions that report deposits and maintain
reserves on a quarterly basis, the change in reserve
requirements on nonpersonal time deposits with maturities of
1-1/2 years to 2-1/2 years will commence with the reserve
maintenance period that begins on January 12, 1984, based on
data submitted for the computation period of December 15-21,
1983.
In view of the fact that commercial banks, mutual
savings banks, and savings and loan associations may offer time
deposits with a broad range of maturities not subject to
interest rate ceilings effective October 1, 1983, the Board
finds that application of the notice and public participation
provisions of 5 U.S.C. § 553 to this action would be contrary
to the public interest, and that, since this action relieves a
restriction, good cause exists for making this action effective
October 6, 1983.
List of Subjects in 12 CFR Part 204
Banks, banking,* Currency,
Penalties; Reporting Requirements.

Federal

Reserve

System;

Pursuant to its authority under sections 19, 25, and
25(a) of the Federal Reserve Act (12 U.S.C. §§ 461, 601 et
seq., 611 et seq.) and under section 7 of the International
Banking Act of 1978 (12 U.S.C. § 3105), the Board amends
Regulation D (12 CFR Part 204) effective October 6, 1983, by
revising paragraph (a) of section 204.9 to read as follows;
SECTION 204.9— RESERVE REQUIREMENT RATIOS
(a)(1)
Reserve percentages. The following reserve
ratios are prescribed for all depository institutions, Edge and
Agreement Corporations and United States branches and agencies
of foreign banks;




-4Reserve Requirement

Category
Net Transaction Accounts

3% of amount
$789,000 plus 12% of
amount over $26.3
million

$0 - $26.3 million
Over $26.3 million

Nonpersonal Time Deposits
By original maturity
(or notice period):
less than 1-1/2 years
1-1/2 years or more

3%
0%

Eurocurrency Liabilities
*

3%
*

*

By order of the Board
Reserve System, October 3, 1983.




*

*

f Governors of the Federal

(signed) William W. Wiles

William W. Wiles
Secretary of the Board

FEDERAL RESERVE SYSTEM
REGULATION Q

[12 C.F.R. Part 217]
(Docket No. R-0483)
INTEREST ON DEPOSITS
Technical Amendments

AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Technical amendments.

SUMMARY:
Pursuant to its authority under section 19 of the
Federal Reserve Act, as amended, the Board has amended
Regulation Q -- Interest on Deposits (12 CFR Part 217) to
incorporate rules of the Depository Institutions Deregulation
Committee ("DIDC"), adopted pursuant to the Depository
Institutions Deregulation Act of 1980 (Title II of Pub. L.
96-221).
The amendments to Regulation Q are technical in
nature and conform the Board's rules to those of the DIDC.
EFFECTIVE:

October 1, 1983.

FOR FURTHER INFORMATION CONTACT:
Gilbert T. Schwartz,
Associate General Counsel (202/452-3625), or Paul S. Pilecki,
Senior Counsel (202/452-3281), Legal Division, Board of
Governors of the Federal Reserve System, Washington, D.C. 20551.
SUPPLEMENTARY INFORMATION:
The Depository Institutions
Deregulation Act of 1980 (Title II of Pub. L. 96-221) transfers
to the DIDC the authority conferred by section 19(j) of the
Federal Reserve Act (12 U.S.C. § 371b) upon the Board (and the
similar authorities of the Federal Deposit Insurance
Corporation and the Federal Home Loan Bank Board, which are
contained in other statutes) to establish rules concerning the
payment of interest on deposit accounts.
The Board has amended its Regulation Q to bring it
into conformity with actions taken by the DIDC. The following
table presents the regulatory provisions that have been
affected by the DIDC's actions:

[Enc. Cir. No. 9563]




DIDC Rule

Regulatory Provision Amended

1204.103--Penalty for Early
Withdrawals

217.4(d)

1204.123--Payment of Interest on Time
Deposits Issued on or after
October 1, 1983

217.1(h),
217.7(a),
(b), (d), (h)

1204.121--Seven to 31-Day Time Deposits

217.7(e)

DIDC Rule Repealed

Regulatory Provision
Amended

1204.104--26 Week Money Market
Time Deposits of Less Than

217.6(i)
217.7(f)

4100,000

1204.106--Time Deposits of Less
Than $100,000 with Maturities
of 2-1/2 Years to Less Than 4 Years

217.7(g)

1204.112— Time Deposits of Less Than $100,000

217.7(b)

1204.114— Phaseout of Finders Fees

217.147

1204.116--Tax-Exempt Savings Certificates

217.3(a)
217.7(i)

1204.118— Individual Retirement Accounts
and Keogh (H.R. 10) Plan Deposits of
Less Than $100,000

217.7(e)

1204.119— Time Deposits of Less Than
$100,000 with Original Maturities of
3-1/2 Years or More

217.7(k)

1204.120— 91-Day Time Deposits of Less
Than $100,000.

217.6(i)
217.7(j)

Because of the technical nature of amendments
conforming Regulation Q to actions of the DIDC, the Board finds
that application of the notice and public participation
provisions of 5 U.S.C. § 553 to these actions is unnecessary
and contrary to the public interest, and that good cause exists
for making these actions effective October 1, 1983.




-3 -

List of Subjects in 12 CFR Part 217
Advertising; Banks, banking;
Foreign banking.

Federal Reserve System;

Pursuant to its authority under section 19 of the
Federal Reserve Act (12 U.S.C. §§ 461, 371a, and 371b), the
Board amends Regulation Q (12 CFR Part 217), effective October
1, 1983, as follows:
1.
Section 217.1 is amended in paragraph (b)(1)(ii) by
removing "217.7(1.)" and inserting "217.7(e)" in its place, in
paragraph (e)(4) by removing "217.7(m)" and inserting
"217.7(g)" in its place, and by revising paragraph (h) to read
as follows:
SECTION 217.1— DEFINITIONS
★

★

★

★

*

(h) Obligations issued by the parent bank holding
company of a member bank"
(1) For purposes of this part, the
"deposits" of a member bank also includes an obligation that is
(i) required to be registered with the Securities and Exchange
Commission under the Securities Act of 1933; (ii) issued or
guaranteed in whole or in part as to principal and interest by
the member bank's parent which is a bank holding company under
the Bank Holding Company Act of 1956, as amended (12 U.S.C.
1841-50), regardless of the use of proceeds; and (iii)(A)
issued in a denomination of less than $100,000 and with a
stated maturity, notice period or redemption period of less
than seven days or (B) issued in a denomination of less than
$2,500 and with a stated maturity, notice period, or redemption
period of seven to thirty-one days.
(2)
The term "deposits" does not include those
obligations of a bank holding company that are subject to
interest rate limitations imposed pursuant to Public Law 89-597.
*

*

*

*

*

2.
Section 217.3 is amended in paragraph (f) by removing
"217.7(1.)" and inserting "217.7(e)" in its place and by
revising the second sentence of paragraph (a) to read as
follows:
SECTION 217.3— INTEREST ON TIME AND SAVINGS DEPOSITS
(a) *
*
disregarded
★

★

*

* The effects of compounding of interest may be
in ascertaining the rate of interest paid.

3.
Section 217.4 is amended in paragraph (f) by removing
"217.7 (_!) (2)" and inserting "217.7(e)(2)" in its place, and



-4 -

paragraph (d) by revising subparagraph (l)(iii), by adding a
new subparagraph (l)(iv), and by revising the last sentence of
subparagraph (6) to read as follows:
SECTION 217.4— PAYMENT OF TIME DEPOSITS BEFORE MATURITY
*

(d)

*

*
(1 )

*

*

*

*

*
*

*

*

(iii)
The following minimum early wit
penalty shall apply to time deposit contracts entered into,
renewed, or extended between June 2, 1980, and September 30,
1983, and that have not been renewed or extended on or after
October 1, 1983:
(A)

*

*

*

(D) Notwithstanding subparagraphs (A) and (B), where
a time deposit in an amount of $2,500 to less than $100,000,
with an original maturity of 91 days, or any portion thereof,
is paid before maturity, a depositor shall forfeit an amount
equal to at least all interest earned on the amount withdrawn.
(E)
Notwithstanding subparagraph (A), where a
nonnegotiable time deposit subject to an initial deposit of
$2,500 or more, with an original maturity or required notice
period of seven to 31 days, or any portion thereof, is paid
before maturity, a depositor shall forfeit an amount equal to
at least the greater of
(JL) all interest earned on the amount withdrawn from
the most recent date of deposit, date of maturity, or date on
which notice of withdrawal was given, or
(2^) all interest that could have been earned on the
amount withdrawn during a period equal to one-half the maturity
period or required notice period.

(iv)
The following minimum early withdrawal penal
shall apply to time deposit contracts entered into, renewed, or
extended on or after October 1, 1983:
(A) Where a time deposit with an original maturity or
required notice period of seven to 31 days, or any portion
thereof, is paid before maturity, a depositor shall forfeit an
amount at least equal to the greater of (_1) all interest earned




- c i­

on the amount withdrawn from the most recent of the date of
deposit, date of maturity, or date on which notice of
withdrawal was given, or (2) all interest that could have been
earned on the amount withdrawn during a period equal to
one-half the maturity period or the required notice period.
(B) Where a time deposit with an original maturity or
required notice period of 32 days to one year, or any portion
thereof, is paid before maturity, a depositor shall forfeit an
amount at least equal to one month's interest earned, or that
could have been earned, on the amount withdrawn at the nominal
(simple interest) rate being paid on the deposit, regardless of
the length of time the funds withdrawn have remained on deposit.
(C) Where a time deposit with an original maturity or
required notice period of more than one year, or any portion
thereof, is paid before maturity, the depositor shall forfeit
an amount at least equal to three months' interest earned, or
that could have been earned, on the amount withdrawn at the
nominal (simple) interest rate being paid on the deposit,
regardless of the length of time the funds withdrawn have
remained on deposit.
*

*

*

*

*

(6) *
*
* Except as provided in subparagraphs
(1)(iii)(E) and (l)(iv)(A), when a time deposit is payable only
after notice, for funds on deposit for at least the notice
period, the penalty for early withdrawal shall be imposed for
at least the notice period.
★

*r

*r

★

*

4. Paragraph (c)(1) of section 217.5 is amended by removing
"217.7(m)" and inserting "217.7(g)" in its place.
5.

I

Section 217.6 is amended by removing paragraph (i).

6. Section 217.7 is amended by revising paragraphs (a), (b),
(c), and (d); by removing paragraphs (e), (f), (g), (i), (j)
and (k); by redesignating paragraph (m) as paragraph (g) and
paragraph (h) as paragraph (f); redesignated paragraph (g) is
amended in subparagraph (1) by removing "(m)(2)" in both places
that it appears and by inserting "(g)(2)" in its place, and by
redesignating paragraph (_1) as paragraph (e) and revising it to
read as follows:




-6 -

SECTION 217.7— SUPPLEMENT: MAXIMUM RATES OF INTEREST
PAYABLE BY MEMBER BANKS ON TIME AND SAVINGS DEPOSITS
*

*

*

*

*

(a ) Time deposits of $100,000 or more, or with original
maturities or required notice periods of 32 days or more/ or
IBF time deposits. (1) There Is no maximum rate of interest
presently prescribed on any time deposit of $100,000 or more,
or with an original maturity or required notice period of 32
days or more, or on IBF time deposits issued under section
217.1(1) .
(2)
Except for IBF time deposits, a member bank
permit additional deposits to be made to any time deposit with
an original maturity or required notice period of 32 days or
more at any time prior to its maturity or expiration of notice
period without extending the maturity or required notice period
of the entire balance in the account.
(b) Time deposits with original maturities or required notice
periods of seven to 31 days. No member bank shall pay interest
on any time deposit of less than $2,500 with an original
maturity or required notice period of 31 days or less at a rate
in excess of 5-1/4 percent.
(c)
Savings deposits. (1) Except as provided in paragraph
(g), no member bank shall pay interest at a rate in excess of
5-1/4 percent on any savings deposit.
*

*

*

*

*

(d) Governmental unit time deposits. Except as provided in
paragraphs (a) and (e) and notwithstanding paragraph (b) , no
member bank shall pay interest on any time deposit which
consists of funds deposited to the credit of, or in which the
entire beneficial interest is held by, the United States, any
state of the United States, or any county, municipality, or
political subdivision thereof, the District of Columbia, the
Commonwealth of Puerto Rico, the Virgin Islands, American
Samoa, Guam, or political subdivision thereof in excess of 8
percent.
(e )

Seven- to 31-day time deposits of $2,500 or more.

(1) Notwithstanding paragraph (d), a member bank may
pay interest at any rate as agreed to by the depositor on any
time deposit of $2,500 or more, with a maturity or required




-7-

notice period of not less than seven days nor more than 31
days. However, a member bank shall not pay interest in excess
of the ceiling rate for regular savings deposits or accounts on
any day the balance in a time deposit issued under this
paragraph is less than $2,500.
*

*

*

★

*

(3)
Where all or any part of a time deposit issued
under this paragraph is withdrawn within one business day after
the maturity date of the deposit or the date of expiration of
notice of withdrawal, no early withdrawal penalty is required
to be applied on the amount withdrawn.
*

5.

*

*

*

*

Section 217.147 is revised to read as follows:

SECTION 217.147— PREMIUMS, FINDERS FEES, PREPAYMENT OF INTEREST
AND PAYMENT OF INTEREST IN MERCHANDISE
For regulatory provisions relating to premiums,
finders fees, prepayment of interest and payment of interest in
merchandise refer to 12 C.F.R. 1204.109, 1204.110 and 1204.111.
By order of the Board of Governors, October 3, 1983.




(signed) William W. Wiles

William W. Wiles
Secretary of the Board