|
[Main Tabs]
[Table of Contents - 7500]
[Index]
[Previous Page]
[Next Page]
[Search]
7500 - FRB Regulations
{{10-31-08 p.7586.06-A}}
§ 204.121 Bankers' banks.
(a)(1) The Federal Reserve Act, as amended by the Monetary Control
Act of 1980 (title I of Pub. L. 96--221), imposes Federal reserve
requirements on depository institutions that maintain transaction
accounts or nonpersonal time deposits. Under
section 19(b)(9), however, a
depository institution is not required to maintain reserves if it:
(i) Is organized solely to do business with other financial
institutions;
(ii) Is owned primarily by the financial institutions with which
it does business; and
(iii) Does not do business with the general public.
Depository institutions that satisfy all of these requirements are
regarded as "bankers' banks."
(2) In its application of these requirements to specific
institutions, the Board will use the following standards:
(i) A depository institution may be regarded as organized solely
to do business with other depository institutions even if, as an
incidental part to its activities, it does business to a limited extent
with entities other than depository institutions. The extent to which
the institution may do business with other entities and continue to be
regarded as a bankers' bank is specified in paragraph (a)(2)(iii) of
this section.
(ii) A depository institution will be regarded as being owned
primarily by the institutions with which it does business if 75 percent
or more of its capital is owned by other depository institutions. The
75 percent or more ownership rule applies regardless of the type of
depository institution.
(iii) A depository institution will not be regarded as doing
business with the general public if it meets two conditions. First, the
range of customers with which the institution does business must be
limited to depository institutions, including subsidiaries or
organizations owned by depository institutions; directors, officers or
employees of the same or other depository institutions; individuals
whose accounts are acquired at the request of the institution's
supervisory authority due to the actual or impending failure of another
depository institution; share insurance funds; depository institution
trade associations; and such others as the Board may determine on a
case-by-case basis consistent with the purposes of the Act and the
bankers' bank exemption. Second, the extent to which the depository
institution makes loans to, or investments in, the above entities
(other than depository institutions) cannot exceed 10 percent of total
assets, and the extent to which it receives deposits (or shares if the
institution does not receive deposits) from or issues other liabilities
to the above entities (other than depository institutions) cannot
exceed 10 percent of total liabilities (or net worth if the institution
does not receive deposits).
If a depository institution is unable to meet all of these
requirements on a continuing basis, it will not be regarded as a
bankers' bank and will be required to satisfy federal reserve
requirements on all of its transaction accounts and nonpersonal time
deposits.
(b)(1) Section 19(c)(1) of the Federal Reserve Act, as amended by
the Monetary Control Act of 1980 (title I of Pub. L. 96-221) provides
that federal reserve requirements may be satisfied by the maintenance
of vault cash or balances in a Federal Reserve bank. Depository
institutions that are not members of the Federal Reserve System may
also satisfy reserve requirements by maintaining a balance in another
depository institution that maintains required reserve balances at a
Federal Reserve bank, in a Federal Home Loan bank, or in the National
Credit Union Administration Central Liquidity Facility if the balances
maintained by such institutions are subsequently passed through to the
Federal Reserve bank.
(2) On August 27, 1980, the Board announced the procedures that
will apply to such pass-through arrangements (45 FR 58099).
Section 204.3(i)(1) provides
that the Board may permit, on a case-by-case basis, depository
institutions that are not themselves required to maintain reserves
("bankers' banks") to act as pass-through correspondents if
certain criteria are satisfied. The Board has determined that a
bankers' bank may act as a pass-through correspondent if it enters into
an agreement with the Federal Reserve to accept
{{4-30-07 p.7586.07}}responsibility for the
maintenance of pass-through reserve accounts in accordance with
Regulation D (12 CFR 204.3(i)) and if the Federal Reserve is satisfied
that the quality of management and financial resources of the
institution are adequate in order to enable the institution to serve as
a pass-through correspondent in accordance with Regulation D.
Satisfaction of these criteria will assure that pass-through
arrangements are maintained properly without additional financial risk
to the Federal Reserve.
(3) In order to determine uniformly the adequacy of managerial
and financial resources, the Board will consult with the federal
supervisor for the type of institution under consideration. Because the
Board does not possess direct experience with supervising depository
institutions other than commercial banks, and does not intend to
involve itself in the direct supervision of such institutions, it will
request the National Credit Union Administration to review requests
from credit unions that qualify as bankers' banks and the Federal
Home Loan Bank Board to review requests from savings and loan
associations that qualify as bankers' banks, regardless of charter or
insurance status. (The Board, itself, will consider requests from all
commercial banks that qualify as bankers' banks.) If the federal
supervisor does not find the institution's managerial or financial
resources to be adequate, the Board will not permit the institution to
act as a pass-through correspondent. In order to assure the continued
adequacy of managerial and financial resources, it is anticipated that
the appropriate federal supervisor will, on a periodic basis,
review and evaluate the managerial and financial resources of the
institution in order to determine whether it should continue to be
permitted to act as a pass-through correspondent. It is anticipated
that, with respect to state chartered institutions, the federal
supervisor may discuss the request with the institute state
supervisor. The Board believes that this procedure will promote
uniformity of treatment for all types of bankers' banks, and provide
consistent advice concerning managerial ability and financial strength
from supervisory authorities that are in a better position to evaluate
these criteria for depository institutions that are not commercial
banks.
(4) Requests for a determination as to whether a depository
institution will be regarded as a bankers' bank for purposes of the
Federal Reserve Act or for permission to act as a pass-through
correspondent may be addressed to the Federal Reserve bank in whose
district the main office of the depository institution is located or to
the Secretary, Board of Governors of the Federal Reserve System,
Washington, D.C. 20551. The Board will act promptly on all requests
received directly or through Federal Reserve banks.
[Codified to 12 C.F.R. § 204.121]
[Section 204.121 added at 45 Fed. Reg. 69879, October 22,
1980, effective November 13, 1980; amended at 56 Fed. Reg. 15495, April
17, 1991, effective April 24, 1991; 72 Fed. Reg. 16990, April 6, 2007,
effective May 7, 2007]
§ 204.122 Secondary market activities of International Banking
Facilities.
(a) Questions have been raised concerning the extent to which
International Banking Facilities may purchase (or sell) IBF-eligible
assets such as loans (including loan participations), securities, CDs,
and bankers' acceptances from (or to) third parties. Under the Board's
regulations, as specified in
§ 204.8 of Regulation D, IBFs
are limited, with respect to making loans and accepting deposits, to
dealing only with certain customers, such as other IBFs and foreign
offices of other organizations, and with the entity establishing the
IBF. In addition, an IBF may extend credit to a nonbank customer only
to finance the borrower's non-U.S. operations and may accept deposits
from a nonbank customer that are used only to support the depositor's
non-U.S. business.
(b) Consistent with the Board's intent, IBFs may purchase
IBF-eligible assets 1
from, or sell such assets to, any domestic or foreign customer provided
that the transactions are at arm's length without recourse. However, an
IBF of a U.S. depository institution may not
{{4-30-07 p.7586.08}}purchase assets from, or sell
such assets to, any U.S. affiliate of the institution establishing the
IBF; an IBF of an Edge or Agreement corporation may not purchase assets
from, or sell assets to, any U.S. affiliate of the Edge or Agreement
corporation or to U.S. branches of the Edge or Agreement corporation or
to U.S. branches of the Edge or Agreement corporation other than the
branch2 establishing the IBF; and an IBF of a U.S. branch or
agency of a foreign bank may not purchase assets from, or sell assets
to any U.S. affiliates of the foreign bank or to any other U.S. branch
or agency of the same foreign bank. 2
(This would not prevent an IBF from purchasing (or selling) assets
directly from (or to) any IBF, including an IBF of an affiliate, or to
the institution establishing the IBF; such purchases from the
institution establishing the IBF would continue to be subject to
Eurocurrency reserve requirements except during the initial four-week
transition period.) Since repurchase agreements are regarded as loans,
transactions involving repurchase agreements are permitted only with
customers who are otherwise eligible to deal with IBFs, as specified in
Regulation D.
(c) In the case of purchases of assets, in order to determine
that the Board's use-of-proceeds requirement has been met, it is
necessary for the IBF (1) to ascertain that the applicable IBF notices
and acknowledgments have been provided, or (2) in the case of loans or
securities, to review the documentation underlying the loan or
security, or accompanying the security (e.g., the prospectus or
offering statement), to determine that the proceeds are being used only
to finance the obligor's operations outside the U.S., or (3) in the
case of loans, to obtain a statement from either the seller or borrower
that the proceeds are being used only to finance operations outside the
U.S., or in the case of securities, to obtain such
[The page following this is 7586.13.]
{{4-30-91 p.7586.13}}a statement from the obligor, or
(4) in the case of bankers' acceptances, to review the underlying
documentation to determine that the proceeds are being used only to
finance the parties' operations outside the United States.
(d) Under the Board's regulations, IBFs are not permitted to issue
negotiable Euro-CDs, bankers' acceptances, or similar instruments.
Accordingly, consistent with the Board's intent in this area, IBFs may
sell such instruments issued by third parties that qualify as
IBF-eligible assets provided that the IBF, its establishing institution
and any affiliate of the institution establishing the IBF do not
endorse, accept, or otherwise guarantee the instrument.
[Codified to 12 C.F.R. § 204.122]
[Section 204.122 added at 46 Fed. Reg. 62812, December 29, 1981,
effective December 16, 1981; amended at 52 Fed. Reg. 47694, December
16, 1987, effective December 31,
1987]
§ 204.123 Sale of federal funds by investment companies or
trusts in which the entire beneficial interest is held exclusively by
depository institutions.
(a) The Federal Reserve Act, as amended by the Monetary Control Act
of 1980 (Title I of Pub. L. 96-221) imposes Federal Reserve
requirements on transaction accounts and nonpersonal time deposits held
by depository institutions. The Board is empowered under the Act to
determine what types of obligations shall be deemed a deposit.
Regulation D--Reserve Requirements of Depository Institutions exempts
from the definition of "deposit" those obligations of a
depository institution that are issued or undertaken and held for the
account of a domestic office of another depository institution
(12 CFR 204.2(a)(1)(vii)(A)(1)).
These exemptions from the definition of "deposit" are known
collectively as the "federal funds" or "interbank"
exemption.
(b) Title IV of the Depository Institutions Deregulation and
Monetary Control Act of 1980 authorizes federal savings and loan
associations to invest in open-ended management investment companies
provided the funds' investment portfolios are limited to the types of
investments that a federal savings and loan association could hold
without limit as to percentage of assets
(12 U.S.C. 1464(c)(1)(Q)). Such
investments include mortgages, U.S. government and agency securities,
securities of states and political subdivisions, sales of federal funds
and deposits held at banks insured by the Federal Deposit Insurance
Corporation. The Federal Credit Union Act authorizes federal credit
unions to aggregate their funds in trusts provided the trust is limited
to such investments that federal credit unions could otherwise make.
Such investments include loans to credit union members, obligations of
the U.S. government or secured by the U.S. government, loans to other
credit unions, shares or accounts held at savings and loan associations
or mutual savings banks insured by FSLIC or FDIC, sales of federal
funds and shares of any central credit union whose investments are
specifically authorized by the board of directors of the federal credit
union making the investment (12 U.S.C. 1757(7)).
(c) The Board has considered whether an investment company or trust
whose entire beneficial interest is held by depository institutions, as
defined in Regulation D, would be eligible for the federal funds
exemption from Reserve requirements and interest rate limitations. The
Board has determined that such investment companies or trusts are
eligible to participate in the federal funds market because, in effect,
they act as mere conduits for the holders of their beneficial interest.
To be regarded by the Board as acting as a conduit and, thus, be
eligible for participation in the federal funds market, an investment
company or trust must meet each of the following conditions:
(1) The entire beneficial interest in the investment company or
trust must be held by depository institutions, as defined in Regulation
D. These institutions presently may participate directly in the federal
funds market. If the entire beneficial interest in the investment
company or trust is held only by depository institutions, the Board
will regard the investment company or trust as a mere conduit for the
holders of its beneficial interest.
(2) The assets of the investment company or trust must be limited
to investments that all of the holders of the beneficial
interest could make directly without limit.
{{4-30-91 p.7586.14}}
(3) Holders of the beneficial interest in the investment company
or trust must not be allowed to make third party payments from their
accounts with the investment company or trust. The Board does not
regard an investment company or trust that offers third party payment
capabilities or other similiar services which actively transform the
nature of the funds passing between the holders of the beneficial
interest and the federal funds market as mere conduits. The Board
expects that the above conditions will be included in materials filed
by an investment company or trust with the appropriate regulatory
agencies.
(d) The Board believes that permitting sales of federal funds by
investment companies or trusts whose beneficial interests are held
exclusively by depository institutions, that invest solely in assets
that the holders of their beneficial interests can otherwise invest in
without limit, and do not provide third party payment capabilities
offer the potential for an increased yield for thrifts. This is
consistent with Congressional intent to provide thrifts with convenient
liquidity vehicles.
[Codified to 12 C.F.R. § 204.123]
[Section 204.123 added at 47 Fed. Reg. 8987, March 3,
1982, effective February 25, 1982; amended at 52 Fed. Reg. 47694,
December 16, 1987, effective December 31,
1987]
§ 204.124 Repurchase agreement involving shares of a money
market mutual fund whose portfolio consists wholly of United States
Treasury and federal agency securities.
(a) The Federal Reserve Act, as amended by the Monetary Control Act
of 1980 (Title I of Pub. L. 96-221) imposes federal reserve
requirements on transaction accounts and nonpersonal time deposits held
by depository institutions. The Board is empowered under the Act to
determine what types of obligations shall be deemed a deposit
(12 U.S.C. 461). Regulation
D--Reserve Requirements of Depository Institutions exempts from the
definition of "deposit" those obligations of a depository
institution that arise from a transfer of direct obligations of, or
obligations that are fully guaranteed as to principal and interest by,
the United States government or any agency thereof that the depository
institution is obligated to repurchase
(12 CFR 204.2(a)(1)(vii)(B)).
(b) The National Bank Act provides that a national bank may
purchase for its own account investment securities under limitations
and restrictions as the Comptroller may prescribe (12 U.S.C. 24,
¶ 7). The statute defines investment securities to mean marketable
obligations evidencing indebtedness of any person in the form of bonds,
notes, and debentures. The Act further limits a national bank's
holdings of any one security to no more than an amount equal to 10
percent of the bank's capital stock and surplus. However, these
limitations do not apply to obligations issued by the United States,
general obligations of any state and certain obligations of federal
agencies. In addition, generally a national bank is not permitted to
purchase for its own account stock of any corporation. These
restrictions also apply to state member banks (12 U.S.C. 335).
(c) The Comptroller of the Currency has permitted national banks to
purchase for their own accounts shares of open-end investment companies
that are purchased and sold at par (i.e., money market mutual funds)
provided the portfolios of such companies consist solely of securities
that a national bank may purchase directly (Banking Bulletin B-83-58).
The Board of Governors has permitted state member banks to purchase, to
the extent permitted under applicable state law, shares of money market
mutual funds ("MMMF") whose portfolios consist solely of
securities that the state member bank may purchase directly (12 CFR
208.123).
(d) The Board has determined that an obligation arising from a
repurchase agreement involving shares of a MMMF whose portfolio
consists wholly of securities of the United States government or any
agency thereof{1}
{1 The term "United States government or any agency
thereof" as used herein shall have the same meaning as in
§ 204.2(a)(1)(vii)(B) of Regulation D,
12 CFR 204.2(a)(1)(vii)(B). }
would not be a "deposit" for purposes of Regulations D and Q. The
Board believes that a repurchase agreement involving shares of such a
MMMF is the functional equivalent of a repurchase agreement directly
involving United States government or agency obligations. A purchaser
of shares of a MMMF
{{4-28-00 p.7586.15}}obtains an interest in a
pro rata portion of the assets that comprise the MMMF's
portfolio. Accordingly, regardless of whether the repurchase agreement
involves United States government or agency obligations directly or
shares in a MMMF whose portfolio consists entirely of United States
government or agency obligations, an equitable and undivided interest
in United States and agency government obligations is being
transferred. Moreover, the Board believes that this interpretation will
further the purpose of the exemption in Regulations D and Q for
repurchase agreements involving United States government or federal
obligations by enhancing the market for such obligations.
[Codified to 12 C.F.R. § 204.124]
[Section 204.124 added at 50 Fed. Reg. 13011, April 2,
1985, effective June 4, 1985; amended at 52 Fed. Reg. 47695, December
16, 1987, effective December 31, 1987]
§ 204.125 Foreign, international, and supranational entities
referred to in §§ 204.2(c)(1)(iv)(E) and 204.8(a)(2)(i)(B)(5).
The entities referred to in section 204.2(c)(1)(E) and
§ 204.8(a)(2)(i)(B)(5) are:
Europe
Bank for International Settlements.
European Atomic Energy Community.
European Coal and Steel Community.
The European Communities.
European Central Bank
European Development Fund.
European Economic Community.
European Free Trade Association.
European Fund.
European Investment Bank.
Latin America
Andean Development Corporation.
Andean Subregional Group.
Caribbean Development Bank.
Caribbean Free Trade Association.
Caribbean Regional Development Agency.
Central American Bank for Economic Integration.
The Central American Institute for Industrial Research and
Technology.
Central American Monetary Stabilization Fund.
East Caribbean Common Market.
Latin American Free Trade Association.
Organization for Central American States.
Permanent Secretariat of the Central American General Treaty of
Economic Integration.
River Plate Basin Commission.
Africa
African Development Bank.
Banque Centrale des Etats de l'Afrique Equatorial et du Cameroun.
Banque Centrale des Etats d'Afrique del'Ouest.
Conseil de l'Entente.
East African Community.
Organisation Commune Africaine et Malagache.
Organization of African Unity.
Union des Etats de l'Afrique Centrale.
Union Douaniere et Economique de l'Afrique Centrale.
Union Douaniere des Etats de l'Afrique de l'Ouest.
Asia
Asia and Pacific Council.
Association of Southeast Asian Nations.
{{4-28-00 p.7586.16}}
Bank of Taiwan.
Korea Exchange Bank.
Middle East
Central Treaty Organization.
Regional Cooperation for Development.
[Codified to 12 C.F.R. § 204.125]
[Section 204.125 (formerly section 217.126) added at 52 Fed. Reg.
47695, December 16, 1987, effective December 31, 1987; amended at 56
Fed. Reg. 15495, April 17, 1991, effective April 24, 1991; 65 Fed. Reg.
12917, March 10, 2000]
§ 204.126 Depository institution participation in "federal
funds" market.
(a) Under
§ 204.2(a)(1)(vii)(A), there
is an exemption from Regulation D for member bank obligations in
nondeposit form to another bank. To assure the effectiveness of the
limitations on persons who sell federal funds to depository
institutions, Regulation D applies to nondocumentary obligations
undertaken by a depository institution to obtain funds for use in its
banking business, as well as to documentary obligations. Under
§ 204.2(a)(1)(vii) of Regulation D, a depository institution's
liability under informal arrangements as well as those formally
embodied in a document are within the coverage of Regulation D.
(b) The exemption in § 204.2(a)(1)(vii)(A) applies to obligations
owed by a depository institution to a domestic office of any entity
listed in that section (the "exempt institutions"). The
"exempt institutions" explicitly include another depository
institution, foreign bank, Edge or Agreement corporation, New York
Investment (article XII) Company, the Export-Import Bank of the United
States, Minbanc Capital Corp., and certain other credit sources. The
term "exempt institutions" also includes subsidiaries of
depository institutions:
(1) That engage in businesses in which their parents are
authorized to engage; or
(2) The stock of which by statute is explicitly eligible for
purchase by national banks.
(c) To assure that this exemption for liabilities to exempt
institutions is not used as a means by which nondepository institutions
may arrange through an exempt institution to "sell" federal funds
to a depository institution, obligations within the exemption must be
issued to an exempt institution for its own account. In view of this
requirement, a depository institution that "purchases" federal
funds should ascertain the character (not necessarily the identity) of
the actual "seller" in order to justify classification of its
liability on the transaction as "federal funds purchased" rather
than as a deposit. Any exempt institution that has given general
assurance to the purchasing depository institution that sales by it of
federal funds ordinarily will be for its own account and thereafter
executes such transactions for the account of others, should disclose
the nature of the actual lender with respect to each such transaction.
If it fails to do so, the depository institution would be deemed by the
Board as indirectly violating section 19 of the Federal Reserve Act and
Regulation D.
[Codified to 12 C.F.R. 204.126]
[Section 204.126 (formerly section 217.137) added at 52 Fed. Reg.
47695, December 16, 1987, effective December 31,
1987]
§ 204.127 Nondepository participation in "federal funds"
market.
(a) The Board has considered whether the use of
"interdepository institution loan participations" ("IDLPs")
which involve participation by third parties other than depository
institutions in federal funds transactions, comes within the exemption
from "deposit" classification for certain obligations owed by a
depository institution to an institution exempt in
§ 204.2(a)(1)(vii)(A) of
Regulation D. An IDLP transaction is one through which
an
{{10-30-92 p.7586.17}}institution that has sold federal
funds to a depository institution, subsequently "sells" or
participates out that obligation to a nondepository third party without
notifying the obligated institution.
(b) The Board's interpretation regarding federal funds transactions
(12 C.F.R 204.126) clarified that a depository institutions's liability
must be issued to an exempt institution described in
§ 204.2(a)(1)(vii)(A) of Regulation D for its own account in order to
come within the nondeposit exemption for interdepository liabilities.
The Board regards transactions which result in third parties gaining
access to the federal funds market as contrary to the exemption
contained in § 204.2(a)(1)(vii)(A) of Regulation D regardless of
whether the nondepository institution third party is a party to the
initial transaction or thereafter becomes a participant in the
transaction through purchase of all or part of the obligation held by
the "selling" depository institution.
(c) The Board regards the notice requirements set out in 12 C.F.R
204.126 as applicable to IDLP-type transactions as described herein so
that a depository institution "selling" federal funds must
provide to the purchaser--
(1) Notice of its intention, at the time of the initial
transaction, to sell or participate out its loan contract to a
nondepository third party, and
(2) Full and prompt notice whenever it (the "selling"
depository institution) subsequently sells or participates out its loan
contract to a non-depository third party.
[Codified to 12 C.F.R. § 204.127]
[Section 204.127 (formerly section 217.138) added at 52 Fed. Reg.
47695, December 16, 1987, effective December 31,
1987]
§ 204.128 Deposits at foreign branches guaranteed by domestic
office of a depository institution.
(a) In accepting deposits at branches abroad, some depository
institutions may enter into agreements from time to time with
depositors that in effect guarantee payment of such deposits in the
United States if the foreign branch is precluded from making payment.
The question has arisen whether such deposits are subject to Regulation
D, and this interpretation is intended as clarification.
(b) Section 19 of the Federal Reserve Act which establishes reserve
requirements does not apply to deposits of a depository institution
"payable only at an office thereof located outside of the States of
the United States and the District of Columbia"
(12 USC 371a;
12 CFR 204.1(c)(5)). The Board
rule in 1918 that the requirements of section 19 as to reserves to be
carried by member banks do not apply to foreign branches (1918
Fed. Res. Bull. 1123). The Board has also defined the phrase
"Any deposit that is payable only at an office located outside the
United States," in § 204.2(t) of Regulation D,
12 C.F.R. 204.2(t).
(c) The Board believes that this exemption from reserve
requirements should be limited to deposits in foreign branches as to
which the depositor is entitled, under his agreement with the
depository institution, to demand payment only outside the United
States, regardless of special circumstances. The exemption is intended
principally to enable foreign branches of U.S. depository institutions
to compete on a more nearly equal basis with banks in foreign countries
in accordance with the laws and regulations of those countries. A
customer who makes a deposit that is payable solely at a foreign branch
of the depository institution assumes whatever risk may exist that the
foreign country in which a branch is located might impose restrictions
on withdrawals. When payment of a deposit in a foreign branch is
guaranteed by a promise of payment at an office in the United States if
not paid at the foreign office, the depositor no longer assumes this
risk but enjoys substantially the same rights as if the deposit had
been made in a U.S. office of the depository institution. To assure the
effectiveness of Regulation D and to prevent evasions thereof, the
Board considers that such guaranteed foreign-branch deposits must be
subject to that regulation.
(d) Accordingly, a deposit in a foreign branch of a depository
institution that is guaranteed by a domestic office is subject to the
reserve requirements of Regulation D the
{{10-30-92 p.7586.18}}same as if the deposit had been
made in the domestic office. This interpretation is not designed in any
respect to prevent the head office of a U.S. bank from repaying
borrowings from, making advances to, or supplying capital funds to its
foreign branches, subject to Eurocurrency liability reserve
requirements.
[Codified to 12 C.F.R. § 204.128]
[Section 204.128 (formerly section 217.146) added at 52 Fed. Reg.
47696, December 16, 1987, effective December 31,
1987]
§ 204.129 [Removed]
[Codified to 12 C.F.R. § 204.129]
[Section 204.129 (formerly section 217.153) added at 52 Fed. Reg.
47696, December 16, 1987, effective December 31, 1987; section 204.129,
removed at 57 Fed. Reg. 40598, September 4,
1992]
§ 204.130 Eligibility for NOW accounts.
(a) Summary. In response to many requests for rulings,
the Board has determined to clarify the types of entities that may
maintain NOW accounts at member banks.
(b) Individuals. (1) Any individual may maintain a NOW
account regardless of the purposes that the funds will serve. Thus,
deposits of an individual used in his or her business including a sole
proprietor or an individual doing business under a trade name is
eligible to maintain a NOW account in the individual's name or in the
"DBA" name. However, other entities organized or operated to make
a profit such as corporations, partnerships, associations, business
trusts, or other organizations may not maintain NOW accounts.
(2) Pension funds, escrow accounts, security deposits, and other
funds held under various agency agreements may also be classified as
NOW accounts if the entire beneficial interest is held by individuals
or other entities eligible to maintain NOW accounts directly. The Board
believes that these accounts are similar in nature to trust accounts
and should be accorded identical treatment. Therefore, such funds may
be regarded as eligible for classification as NOW accounts.
(c) Nonprofit organizations. (1) A nonprofit
organization that is operated primarily for religious, philanthropic,
charitable, educational, political or other similar purposes may
maintain a NOW account. The Board regards the following kinds of
organizations as eligible for NOW accounts under this standard if they
are not operated for profit:
(i) Organizations described in section 501(c)(3) through (13),
and (19) of the Internal Revenue Code (26 U.S.C. (I.R.C. 1954) section
501(c)(3) through (13) and (19));
(ii) Political organizations described in section 527 of the
Internal Revenue Code (26 U.S.C. (I.R.C. 1954) section 527); and
(iii) Homeowners and condominium owners associations described in
section 528 of the Internal Revenue Code (26 U.S.C. (I.R.C. 1954)
section 528), including housing cooperative associations that perform
similar functions.
(2) All organizations that are operated for profit are not
eligible to maintain NOW accounts at depository institutions.
(3) The following types of organizations described in the cited
provisions of the Internal Revenue Code are among those not eligible to
maintain NOW accounts:
(i) Credit unions and other mutual depository institutions
described in section 501(c)(14) of the Internal Revenue Code (26 U.S.C.
(I.R.C. 1954) section 501(c)(14));
(ii) Mutual insurance companies described in section 501(c)(15)
of the Internal Revenue Code (26 U.S.C. (I.R.C. 1954) section
501(c)(15));
(iii) Crop financing organizations described in section
501(c)(16) of the Internal Revenue Code (26 U.S.C. (I.R.C. 1954)
section 501(c)(16));
(iv) Organizations created to function as part of a qualified
group legal services plan described in section 501(c)(20) of the
Internal Revenue Code (26 U.S.C. (I.R.C. 1954) section 501(c)(20));
or
{{10-30-92 p.7586.19}}
(v) Farmers' cooperatives described in section 521 of the
Internal Revenue Code (26 U.S.C. (I.R.C. 1954) section 521).
(d) Governmental units. Governmental units are
generally eligible to maintain NOW accounts at member banks. NOW
accounts may consist of funds in which the entire beneficial interest
is held by the United States, any state of the United States, county,
municipality, or political subdivision thereof, the District of
Columbia, the Commonwealth of Puerto Rico, American Samoa, Guam, any
territory or possession of the United States, or any political
subdivision thereof.
(e) Funds held by a fiduciary. Under current
provisions, funds held in a fiduciary capacity (either by an individual
fiduciary or by a corporate fiduciary such as a bank trust department
or a trustee in bankruptcy), including those awaiting distribution or
investment, may be held in the form of NOW accounts if all of the
beneficiaries are otherwise eligible to maintain NOW accounts. The
Board believes that such a classification should continue since
fiduciaries are required to invest even temporarily idle balances to
the greatest extent feasible in order to responsibly carry out their
fiduciary duties. The availability of NOW accounts provides a
convenient vehicle for providing a short-term return on temporarily
idle trust funds of beneficiaries eligible to maintain accounts in
their own names.
(f) Grandfather provision. In order to avoid unduly
disrupting account relationships, a NOW account established at a member
bank on or before August 31, 1981, that represents funds of a
nonqualifying entity that previously qualified to maintain a NOW
account may continue to be maintained in a NOW account.
[Codified to 12 C.F.R. § 204.130]
[Section 204.130 (formerly section 217.157) added at 52 Fed. Reg.
47697, December 16, 1987, effective December 31,
1987]
§ 204.131 Participation by a depository institution in the
secondary market for its own time deposits.
(a) Background. In 1982, the Board issued an
interpretation concerning the effect of a member bank's purchase of its
own time deposits in the secondary market in order to ensure compliance
with regulatory restrictions on the payment of interest on time
deposits, with the prohibition against payment of interest on demand
deposits, and with regulatory requirements designed to distinguish
between time deposits and demand deposits for federal reserve
requirement purposes (47 FR 37878, Aug. 27, 1982). The interpretation
was designed to ensure that the regulatory early withdrawal penalties
in Regulation Q used to achieve these three purposes were not evaded
through the purchase by a member bank or its affiliate of a time
deposit of the member bank prior to the maturity of the deposit.
(b) Because the expiration of the Depository Institutions
Deregulation Act (Title II of Pub. L. 96--221) on April 1, 1986,
removed the authority to set interest rate ceilings on deposits, one of
the purposes for adopting the interpretation was eliminated. The
removal of the authority to set interest rate ceilings on deposits
required the Board to revise the early withdrawal penalties which were
also used to distinguish between types of deposits for reserve
requirement purposes. Effective April 1, 1986, the Board amended its
Regulation D to incorporate early withdrawal penalties applicable to
all depository institutions for this purpose (51 FR 9629, Mar. 20,
1986). Although the new early withdrawal penalties differ from the
penalties used to enforce interest rate ceilings, secondary market
purchases still effectively shorten the maturities of deposits and may
be used to evade reserve requirements. This interpretation replaces the
prior interpretation and states the application of the new early
withdrawal penalties to purchases by depository institutions and their
affiliates of the depository institution's time deposits. The
interpretation applies only to situations in which the Board's
regulatory penalties apply.
(c) Secondary market purchases under the rule. The
Board has determined that a depository institution purchasing a time
deposit it has issued should be regarded as having paid the time
deposit prior to maturity. The effect of the transaction is that the
depository
{{10-30-92 p.7586.20}}institution has cancelled a
liability as opposed to having acquired an asset for its portfolio.
Thus, the depository institution is required to impose any early
withdrawal penalty required by Regulation D on the party from whom it
purchases the instrument by deducting the amount of the penalty from
the purchase price. The Board recognizes, however, that secondary
market sales of time deposits are often done without regard to the
identity of the original owner of the deposit. Such sales typically
involve a pool of time price based on the aggregate face value and
average rate of return on the deposits. A depository institution
purchasing time deposits from persons other than the person to whom the
deposit was originally issued should be aware of the parties named on
each of the deposits it is purchasing but through failure to inspect
the deposits prior to the purchase may not be aware at the time it
purchases a pool of time deposits that it originally issued one or more
of the deposits in the pool. In such cases, if a purchasing depository
institution does not wish to assess an applicable early withdrawal
penalty, the deposit may be sold immediately in the secondary market as
an alternative to imposing the early withdrawal penalty.
(d) Purchases by affiliates. On a consolidated basis,
if an affiliate (as defined in
§ 204.2(q) of Regulation D) of
a depository institution purchases a CD issued by the depository
institution, the purchase does not reduce their consolidated
liabilities and could be accomplished primarily to assist the
depository institution in avoiding the requirements of the Board's
Regulation D. Because the effect of the early withdrawal penalty rule
could be easily circumvented by purchases of time deposits by
affiliates, such purchases are also regarded as an early withdrawals of
the time deposit, and the purchase should be treated as if the
depository institution made the purchase directly. Thus, the regulatory
requirements for early withdrawal penalties apply to affiliates of a
depository institution as well as to the institution itself.
(e) Depository institution acting as broker. The Board
believes that it is permissible for a depository institution to
facilitate the secondary market for its own time deposits by finding a
purchaser for a time deposit that a customer is trying to sell. In such
instances, the depository institution will not be paying out any of its
own funds, and the depositor does not have a guarantee that the
depository institution will actually be able to find a buyer.
(f) Third-party market-makers. A depository institution
may also establish and advertise arrangements whereby an unaffiliated
third party agrees in advance to purchase time deposits issued by the
institution. The Board would not regard these transactions as
inconsistent with the purposes that the early withdrawal penalty is
intended to serve unless a depository institution pays a fee to the
third party purchaser as compensation for making the purchases or to
remove the risk from purchasing the deposits. In this regard, any
interim financing provided to such a third party by a depository
institution in connection with the institution's secondary market
activity involving the institution's time deposits must be made
substantially on the same terms, including interest rates and
collateral, as those prevailing at the same time for comparable
transactions with other similarly situated persons and may not involve
more than the normal risk of repayment.
(g) Reciprocal arrangements. Finally, while a
depository institution may enter into an arrangement with an
unaffiliated third party wherein the third party agrees to stand ready
to purchase time deposits held by the depository institution's
customers, the Board will regard a reciprocal arrangement with another
depository institution for purchase of each other's time deposits as a
circumvention of the early withdrawal penalty rule and the purposes it
is designed to serve.
[Codified to 12 C.F.R. § 204.131]
[Section 204.131 (formerly section 217.159) added at 52 Fed. Reg.
47697, December 16, 1987, effective December 31,
1987]
§ 204.132 Treatment of Loan Strip Participations.
(a) Effective March 31, 1988, the glossary section of the
instructions for the Report of Condition and Income (FFIEC 031--034;
OMB No. 7100--0036; available from a
{{4-29-94 p.7586.21}}depository institution's primary
federal regulator) ("Call Report") was amended to clarify that
certain short-term loan participation arrangements (sometimes known or
styled as "loan strips" or "strip participations") are
regarded as borrowings rather than sales for Call Report purposes in
certain circumstances. Through this interpretation, the Board is
clarifying that such transactions should be treated as deposits for
purposes of Regulation D.
(b) These transactions involve the sale (or placement) of a
short-term loan by a depository institution that has been made under a
long-term commitment of the depository institution to advance funds.
For example, a 90-day loan made under a five-year revolving line of
credit may be sold to or placed with a third party by the depository
institution originating the loan. The depository institution
originating the loan is obligated to renew the 90-day note itself (by
advancing funds to its customer at the end of the 90-day period) in the
event the original participant does not wish to renew the credit.
Since, under these arrangements, the depository institution is
obligated to make another loan at the end of 90 days (absent any event
of default on the part of the borrower), the depository institution
selling the loan or participation in effect must buy back the loan or
participation at the maturity of the 90-day loan sold to or funded by
the purchaser at the option of the purchaser. Accordingly, these
transactions bear the essential characteristics of a repurchase
agreement and, therefore, are reportable and reservable under
Regulation D.
(c) Because many of these transactions give rise to deposit
liabilities in the form of promissory notes, acknowledgements of
advance or similar obligations (written or oral) as described in
§ 204.2(a)(1)(vii) of Regulation D, the exemptions from the
definition of "deposit" incorporated in that section may apply to
the liability incurred by a depository institution when it offers or
originates a loan strip facility. Thus, for example, loan strips sold
to domestic offices of other depository institutions are exempt from
Regulation D under
§ 204.2(a)(1)(vii)(A)(1)
because they are obligations issued or undertaken and held for the
account of a U.S. office of another depository institution. Similarly,
some of these transactions result in Eurocurrency liabilities and are
reportable and reservable as such.
[Codified to 12 C.F.R. § 204.132]
[Section 204.132 added at 53 Fed. Reg. 24931, July 1, 1988,
effective June 29, 1988]
§ 204.133 Multiple savings deposits treated as a transaction
account.
(a) Authority. Under section 19(a) of the Federal
Reserve Act, the Board is authorized to define the terms used in
section 19, and to prescribe regulations to implement and prevent
evasions of the requirements of that section. Section 19(b) establishes
general reserve requirements on transaction accounts and nonpersonal
time deposits. Under section 19(b)(1)(F), the Board also is authorized
to determine, by regulation or order, that an account or deposit is a
transaction account if such account is used directly or indirectly for
the purpose of making payments to third persons or others. This
interpretation is adopted under these authorities.
(b) Background. Under Regulation D,
12 CFR 204.2(d)(2), the term
"savings deposit" includes a deposit or an account that meets the
requirements of § 204.2(d)(1) and from which, under the terms of the
deposit contract or by practice of the depository institution, the
depositor is permitted or authorized to make up to six transfers or
withdrawals per month or statement cycle of at least four weeks. The
depository institution may authorize up to three of these six transfers
to be made by check, draft, debit card, or similar order drawn by the
depositor and payable to third parties. If more than six transfers (or
more than three third party transfers by check, etc.) are permitted or
authorized per month or statement cycle, the depository institution may
not classify the account as a savings deposit. If the depositor, during
the period, makes more than six transfers or withdrawals (or more then
three third party transfers by check, etc.), the depository institution
may, depending upon the facts and circumstances, be required by
Regulation D (Footnote 5 at § 204.2(d)(2)) to reclassify or close the
account.
(c) Use of multiple savings deposits. Depository
institutions have asked for guidance as to when a depositor may
maintain more than one savings deposit and be permitted to
make
{{4-29-94 p.7586.22}}all the transfers or
withdrawals authorized for savings deposits under Regulation D from
each savings deposit. The Board has determined that, if a depository
institution suggests or otherwise promotes the establishment of or
operation of multiple savings accounts with transfer capabilities in
order to permit transfers and withdrawals in excess of those permitted
by Regulation D for an individual savings account, the accounts
generally should be considered to be transaction accounts. This
determination applies regardless of whether the deposits have entirely
separate account numbers or are subsidiary accounts of a master deposit
account. Multiple savings accounts, however, should not be considered
to be transaction accounts if there is a legitimate purpose, other than
increasing the number of transfers or withdrawals, for opening more
than one savings deposit.
(d) Examples. The distinction between appropriate and
inappropriate uses of multiple accounts is illustrated by the following
examples:
Example 1. (i) X wishes to open an account that
maximizes his interest earnings but also permits X to draw up to ten
checks a month against the account. X's Bank suggests an arrangement
under which X establishes four savings deposits at Bank. Under the
arrangement, X deposits funds in the first account and then draws three
checks against that account. X then instructs Bank to transfer all
funds in excess of the amount of the three checks to the second account
and draws an additional three checks. Funds are continually shifted
between accounts when additional checks are drawn so that no more than
three checks are drawn against each account each month.
(ii) Suggesting the use of four savings accounts in the name of X
in this example is designed solely to permit the customer to exceed the
transfer limitations on savings accounts. Accordingly, the savings
accounts should be classified as transaction accounts.
Example 2. (i) X is trustee of separate trusts for
each of his four children. X's Bank suggests that X, as trustee, open a
savings deposit in a depository institution for each of his four
children in order to ensure an independent accounting of the funds held
by each trust.
(ii) X's Bank's suggestion to use four savings deposits in the
name of X in this example is appropriate, and the third party transfers
from one account should not be considered in determining whether the
transfer and withdrawal limit was exceeded on any other account. X
established a legitimate purpose, the segregation of the trust assets,
for each account separate from the need to make third party transfers.
Furthermore, there is no indication, such as by the direct or indirect
transfer of funds from one account to another, that the accounts are
being used for any purpose other than to make transfers to the
appropriate trust.
Example 3. (i) X opens four savings accounts with
Bank. X regularly draws up to three checks against each account and
transfers funds between the accounts in order to ensure that the checks
on the separate accounts are covered. X's Bank did not suggest or
otherwise promote the arrangement.
(ii) X's Bank may treat the multiple accounts as savings deposits
for Regulation D purposes, even if it discovers that X is using the
accounts to increase the transfer limits applicable to savings accounts
because X's Bank did not suggest or otherwise promote the establishment
of or operation of the arrangement.
[Codified to 12 C.F.R. § 204.133]
[Section 204.133 added at 57 Fed. Reg. 38427, August 25,
1992, effective September 29,
1992]
§ 204.134 Linked time deposits and transaction accounts.
(a) Authority. Under section 19(a) of the Federal
Reserve Act (12 U.S.C. 461(a)), the Board is authorized to define the
terms used in section 19, and to prescribe regulations to implement and
prevent evasions of the requirements of that section.
Section 19(b)(2) establishes
general reserve requirements on transaction accounts and nonpersonal
time deposits. Under section 19(b)(1)(F), the Board also is authorized
to determine, by regulation or order, that an account or deposit is a
transaction account if such account is used directly or indirectly for
the purpose of making payments to third persons or others. This
interpretation is adopted under these authorities.
{{4-29-94 p.7586.23}}
(b) Linked time deposits and transaction accounts. Some
depository institutions are offering or proposing to offer account
arrangements under which a group of participating depositors maintain
transaction accounts and time deposits with a depository institution in
an arrangement under which each depositor may draw checks up to the
aggregate amount held by that depositor in these accounts. Under this
account arrangement, at the end of the day funds over a specified
balance in each depositor's transaction account are swept from the
transaction account into a commingled time deposit. A separate time
deposit is opened on each business day with the balance of deposits
received that day, as well as the proceeds of any time deposit that has
matured that day that are not used to pay checks or withdrawals from
the transaction accounts. The time deposits, which generally have
maturities of seven days, are staggered so that one or more time
deposits mature each business day. Funds are apportioned among the
various time deposits in a manner calculated to minimize the
possibility that the funds available on any given day would be
insufficient to pay all items presented.
(1) The time deposits involved in such an arrangement may be held
directly by the depositor or indirectly through a trust or other
arrangement. The individual depositor's interest in time deposits may
be identifiable, with an agreement by the depositors that balances held
in the arrangement may be used to pay checks drawn by other depositors
participating in the arrangement, or the depositor may have an
undivided interest in a series of time deposits.
(2) Each day funds from the maturing time deposits are available
to pay checks or other charges to the depositor's transaction account.
The depository institution's decision concerning whether to pay checks
drawn on an individual depositor's transaction account is based on the
aggregate amount of funds that the depositor has invested in the
arrangement, including any amount that may be invested in unmatured
time deposits. Only if checks drawn by all participants in the
arrangement exceed the total balance of funds available that day (i.e.
funds from the time deposit that has matured that day as well as any
deposits made to participating accounts during the day) is a time
deposit withdrawn prior to maturity so as to incur an early withdrawal
penalty. The arrangement may be marketed as providing the customer
unlimited access to its funds with a high rate of interest.
(c) Determination. In these arrangements, the aggregate
deposit balances of all participants generally vary by a comparatively
small amount, allowing the time deposits maturing on any day safely to
cover any charges to the depositors' transaction accounts and avoiding
any early withdrawal penalties. Thus, this arrangement substitutes time
deposit balances for transaction accounts balances with no practical
restrictions on the depositors' access to their funds, and serves no
business purpose other than to allow the payment of higher interest
through the avoidance of reserve requirements. As the time deposits may
be used to provide funds indirectly for the purposes of making payments
or transfers to third persons, the Board has determined that the time
deposits should be considered to be transaction accounts for the
purposes of Regulation D.
[Codified to 12 C.F.R. § 204.134]
[Section 204.134 added at 57 Fed. Reg. 38428, August 25, 1992,
effective September 29, 1992]
§ 204.135 Shifting funds between depository institutions to make
use of the low reserve tranche.
(a) Authority. Under section 19(a) of the Federal
Reserve Act (12 U.S.C. 461(a)) the Board is authorized to define terms
used in section 19, and to prescribe regulations to implement and to
prevent evasions of the requirements of that section.
Section 19(b)(2) establishes
general reserve requirements on transaction accounts and nonpersonal
time deposits. In addition to its authority to define terms under
section 19(a), section 19(g) of the Federal Reserve Act also give the
Board the specific authority to define terms relating
{{4-29-94 p.7586.24}}to deductions allowed in reserve
computation, including "balances due from other banks." This
interpretation is adopted under these authorities.
(b) Background. (1) Currently, the Board requires
reserves of zero, three, or ten percent on transaction accounts,
depending upon the amount of transaction deposits in the depository
institution, and of zero percent on nonpersonal time deposits. In
determining its reserve balance under Regulation D, a depository
institution may deduct the balances it maintains in another depository
institution located in the United States if those balances are subject
to immediate withdrawal by the depositing depository institution
(§ 204.3(f)). This deduction
is commonly known as the "due from" deduction. In addition,
Regulation D at § 204.2(a)(1)(vii)(A) exempts from the definition of
"deposit" any liability of a depository institution on a
promissory note or similar obligation that is issued or undertaken and
held for the account of an office located in the United States of
another depository institution. Transactions falling within this
exemption from the definition of "deposit" include federal funds
or "fed funds" transactions.
(2) Under section 19(b)(2) of the Federal Reserve Act
(12 U.S.C. 461(b)(2)), the Board
is required to impose reserves of three percent on total transaction
deposits at or below an amount determined under a formula. Transaction
deposits falling within this amount are in the "low reserve
tranche." Currently the low reserve tranche runs up to $42.2
million. Under section 19(b)(11) of the Federal Reserve Act (12 U.S.C.
461(b)(11)) the Board is also required to impose reserves of zero
percent on reservable liabilities at or below an amount determined
under a formula. Currently that amount is $3.6 million.
(c) Shifting funds between depository institutions. The
Board is aware that certain depository institutions with transaction
account balances in an amount greater than the low reserve tranche have
entered into transactions with affiliated depository institutions that
have transaction account balances below the maximum low reserve tranche
amount. These transactions are intended to lower the transaction
reserves of the larger depository institution and leave the economic
position of the smaller depository institutions unaffected, and have no
apparent purpose other than to reduce required reserves of the larger
institution. The larger depository institution places funds in a demand
deposit at a small domestic depository institution. The larger
depository institution considers those funds to be subject to the
"due from" deduction, and accordingly reduces its transaction
reserves in the amount of the demand deposit. The larger depository
institution then reduces its transaction account reserves by 10 percent
of the deposited amount. The small depository institution, because it
is within the low reserve tranche, must maintain transaction account
reserves of 3 percent on the funds deposited by the larger depository
institution. The small depository institution then transfers all but 3
percent of the funds deposited by the larger depository institution
back to the larger depository institution in a transaction that
qualifies as a "fed funds" transaction. The 3 percent not
transferred to the larger depository institution is the amount of the
larger depository institution's deposit that the small depository
institution must maintain as transaction account reserves. Because the
larger depository institution books this second part of the transaction
as a "fed funds" transaction, the larger depository institution
does not maintain reserves on the funds that it receives back from the
small depository institution. As a consequence, the larger depository
institution has available for its use 97 percent of the amount
transferred to the small depository institution. Had the larger
depository institution not entered into the transaction, it would have
maintained transaction account reserves of 10 percent on that amount,
and would have had only 90 percent of that amount for use in its
business.
(d) Determination. The Board believes that the practice
described above generally is a device to evade the reserves imposed by
Regulation D. Consequently, the Board has determined that, in the
circumstances described above, the larger depository institution
depositing funds in the smaller institution may not take a "due
from" deduction on account of the funds in the demand deposit
account if, and to the extent that, funds flow back to the larger
depository institution from the small depository institution by means
of a transaction that is exempt from transaction account reserve
requirements.
{{4-29-94 p.7586.25}}
[Codified to 12 C.F.R. § 204.135]
[Section 204.135 added at 57 Fed. Reg. 38429, August 25, 1992,
effective September 29, 1992]
§ 204.136 Treatment of trust overdrafts for reserve requirement
reporting purposes.
(a) Authority. Under section 19(a) of the Federal
Reserve Act (12 U.S.C. 461(a)), the Board is authorized to define the
terms used in section 19, and to prescribe regulations to implement and
prevent evasions of the requirements of that section. Section 19(b)
establishes general reserve requirements on transaction accounts and
nonpersonal time deposits. Under section 19(b)(1)(F), the Board also is
authorized to determine, by regulation or order, that an account or
deposit is a transaction account if such account is used directly or
indirectly for the purpose of making payments to third persons or
others. This interpretation is adopted under these authorities.
(b) Netting of trust account balances. (1) Not all
depository institutions have treated overdrafts in trust accounts
administered by a trust department in the same manner when calculating
the balance in a commingled transaction account in the depository
institution for the account of the trust department of the institution.
In some cases, depository institutions carry the aggregate of the
positive balances in the individual trust accounts as the balance on
which reserves are computed for the commingled account. In other cases
depository institutions net positive balances in some trust accounts
against negative balances in other trust accounts, thus reducing the
balance in the commingled account and lowering the reserve
requirements. Except in limited circumstances, negative balances in
individual trust accounts should not be netted against positive
balances in other trust accounts when determining the balance in a
trust department's commingled transaction account maintained in a
depository institution's commercial department. The netting of positive
and negative balances has the effect of reducing the aggregate of a
commingled transaction account reported by the depository institution
to the Federal Reserve and reduces the reserves the institution must
hold against transaction accounts under Regulation D. Unless the
governing trust agreement or state law authorizes the depository
institution, as trustee, to lend money in one trust to another trust,
the negative balances in effect, for purposes of Regulation D,
represent a loan from the depository institution. Consequently,
negative balances in individual trust accounts should not be netted
against positive balances in other individual trust accounts, and the
balance in any transaction account containing commingled trust balances
should reflect positive or zero balances for each individual trust.
(2) For example, where a trust department engages in securities
lending activities for trust accounts, overdrafts might occur because
of the trust department's attempt to "normalize" the effects of
timing delays between the depository institution's receipt of the cash
collateral from the broker and the trust department's posting of the
transaction to the lending trust account. When securities are lent from
a trust customer to a broker that pledges cash as collateral, the
broker usually transfers the cash collateral to the depository
institution on the day that the securities are made available. While
the institution has the use of the funds from the time of the transfer,
the trust department's normal posting procedures may not reflect
receipt of the cash collateral by the individual account until the next
day. On the day that the loan is terminated, the broker returns the
securities to the lending trust account and the trust customer's
account is debited for the amount of the cash collateral that is
returned by the depository institution to the broker. The trust
department, however, often does not liquidate the investment made with
the cash collateral until the day after the loan terminates, a delay
that normally causes a one day overdraft in the trust account.
Regulation D requires that, on the day the loan is terminated, the
depository institution regard the negative balance in the customer's
account as zero for reserve requirement reporting purposes and not net
the overdraft against positive balances in other accounts.
(c) Procedures. In order to meet the requirements of
Regulation D, a depository institution must have procedures to
determine the aggregate of trust department
{{4-29-94 p.7586.26}}transaction account balances for
Regulation D on a daily basis. The procedures must consider only the
positive balances in individual trust accounts without netting negative
balances except in those limited circumstances where loans are legally
permitted from one trust to another, or where offsetting is permitted
pursuant to trust law or written agreement, or where the amount that
caused the overdraft is still available in a settlement, suspense or
other trust account within the trust department and may be used to
offset the overdraft.
[Codified to 12 C.F.R. § 204.136]
[Section 204.136 added at 57 Fed. Reg. 38429, August 25, 1992,
effective September 29, 1992]
[The page following this is 7586.31.]
1 In order for an asset to be eligible to be held by an IBF,
the obligor or issuer of the instrument, or in the case of bankers'
acceptances, the customer and any endorser or acceptor, must be an
IBF-eligible customer. Go Back to Text
2 Branches of Edge or Agreement corporations and agencies and
branches of foreign banks that file a consolidated report for reserve
requirements purposes (FR 2900) are considered to be the establishing
entity of an IBF. Go Back to Text
[Main Tabs]
[Table of Contents - 7500]
[Index]
[Previous Page]
[Next Page]
[Search]
|
