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FEDERAL RESERVE B A N K OF ST. LO U IS J 6 / 3 St . L o u i s 2, M o . V* 7 October 18, 1949. To A ll Member B anks in the Eighth Federal Reserve D istrict: The Board of Governors of th e Federal Reserve System has been reviewing its rules under which the Federal Reserve Banks, in certain circumstances, are perm itted to waive penalties for deficiences in reserves of member banks. The Board of Governors has now authorized the Federal Reserve Banks, a t theii discretion, to waive a penalty on a deficiency in reserves in a given com putation period which is offset by excess reserves in the immediately following period, and to perm it member banks, when a reserve com putation period ends on a non-business day, to include th a t day in the next reserve com putation period. Therefore, the Federal Reserve Bank of St. Louis and its branches have adopted the follow ing rules, effective immediately: Penalties may be assessed or not, in the discretion of the Federal Reserve Bank, in the following cases: 1. When a member bank is deficient in reserves during a reserve computation period, to the extent th a t the deficiency is offset by excess reserves during the immediately following reserve com putation period, provided th a t such defi ciency does not exceed two per cent of the member bank’s required reserves. 2. When a member bank is deficient in reserves during a reserve computation period ending on a non-business day of a member bank, or of its Federal Reserve Bank, to the extent th a t the inclusion of th a t day in the next reserve com puta tion period would reduce or eliminate the deficiency. (If the period in which the deficiency occurs ends with two or more non-business days, they may all be included in the next com putation period.) Your attention is directed to the fact th a t these rules have been adopted with the definite objective of reducing the num ber of occasions on which member banks might otherwise incur deficient reserve penalties, b u t th a t the law contem plates th a t member banks should make rea sonable efforts to hold and maintain the prescribed reserve balances from day to day, making allowance for unforeseen fluctuations in deposits and reserves, even though penalties are assessed on daily average deficiencies over prescribed periods and there is no longer a statutory' prohibi tion against the making of new loans and the paym ent of dividends while reserves are deficient. C H ESTER C. DAVIS, President.
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