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7500 - FRB Regulations



Subpart F—Limitations on Nonbank Banks

§ 225.52 Limitation on overdrafts.

(a)  Definitions. For purposes of this section--

(1)  "Account" means a reserve account, clearing account, or deposit account as defined in the Board's Regulation D (12 CFR 204.2(a)(1)(i)), that is maintained at a Federal Reserve bank or nonbank bank.

(2)  "Cash item" means (i) a check other than a check classified as a noncash item; or (ii) any other item payable on demand and collectible at par that the Federal Reserve bank of the district in which the item is payable is willing to accept as a cash item.

(3)  "Discount window loan" means any credit extended by a Federal Reserve bank to a nonbank bank or industrial bank pursuant to the provisions of the Board's Regulation A (12 CFR Part 201).

(4)  "Industrial bank" means an institution as defined in section 2(c)(2)(H) of the BHC Act (12 U.S.C. 1841(c)(2)(H)).

(5)  "Noncash item" means an item handled by a Reserve bank as a noncash item under the Reserve bank's "Collection of Noncash Items Operating Circular" (e.g., a maturing bankers' acceptance or a maturing security, or a demand item, such as a check, with special instructions or an item that has not been preprinted or post-encoded).

(6)  "Other nonelectronic transactions" include all other transactions not included as funds transfers, book-entry securities transfers, cash items, noncash items, automated clearing house transactions, net settlement entries, and discount window loans (e.g., original issue of securites or redemption of securities).

(7)  An "overdraft" in an account occurs whenever the Federal Reserve bank, nonbank bank, or industrial bank holding an account posts a transaction to the account of the nonbank bank, industrial bank, or affiliate that exceeds the aggregate balance of the accounts of the nonbank bank, industrial bank, or affiliate, as determined by the posting rules set forth in paragraphs (d) and (e) of this section and continues until the aggregate balance of the account is zero or greater.

(8)  "Transfer item" means an item as defined in subpart B of Regulation J(12 CFR 210.25 et seq).

(b)  Restriction on overdrafts.--(1) Affiliates. Neither a nonbank bank nor an industrial bank shall permit any affiliate to incur any overdraft in its account with the nonbank bank or industrial bank.

(2)  Nonbank banks or industrial banks. (i) No nonbank or industrial bank shall incur any overdraft in its account at a Federal Reserve bank on behalf of an affiliate.

(ii)  An overdraft by a nonbank bank or industrial bank in its account at a Federal Reserve bank shall be deemed to be on behalf of an affiliate whenever:

(A)  A nonbank bank or industrial bank holds an account for an affiliate from which third-party payments can be made; and

(B)  When the posting of an affiliate's transaction to the nonbank bank's or industrial bank's account at a Reserve bank creates an overdraft in its account at a Federal Reserve bank or increases the amount of an existing overdraft in its account at a Federal Reserve bank.

(c)  Permissible overdrafts. The following are permissible overdrafts not subject to paragraph (b) of this section:

(1)  Inadvertent error. An overdraft in its account by a nonbank bank or its affiliate, or an industrial bank or its affiliate, that results from an inadvertent computer error or inadvertent accounting error, that was not reasonably forseeable or could not have been prevented through the maintenance of procedures reasonably adopted by the nonbank bank or affiliate to avoid such overdraft; and

(2)  Fully secured primary dealer affiliate overdrafts. (i) An overdraft incurred by an affiliate of a nonbank bank, which affiliate is recognized as a primary dealer by the Federal Reserve Bank of New York, in the affiliate's account at the nonbank bank, or an overdraft incurred by a nonbank bank on behalf of its primary dealer affiliate in the nonbank bank's account at a Federal Reserve bank; provided: the overdraft is fully secured by bonds, notes, or other obligations which are direct obligations of the United States or on which the principal and interest are fully guaranteed by the United States or by securities and obligations eligible for settlement on the Federal Reserve book-entry system.

(ii)  An overdraft by a nonbank bank in its account at a Federal Reserve bank that is on behalf of a primary dealer affiliate is fully secured when that portion of its overdraft at the Federal Reserve bank that corresponds to the transaction posted for an affiliate that caused or increased the nonbank bank's overdraft is fully secured in accordance with paragraph (c)(2)(iii) of this section.

(iii) An overdraft is fully secured under paragraph (c)(2)(i) when the nonbank bank can demonstrate that the overdraft is secured, at all times, by a perfected security interest in specific, identified obligations described in paragraph (c)(2)(i) with a market value that, in the judgment of the Reserve bank holding the nonbank bank's account, is sufficiently in excess of the amount of the overdraft to provide a margin of protection in a volatile market or in the event the securities need to be liquidated quickly.

(d)  Posting by Federal Reserve banks. For purposes of determining the balance of an account under this section, payments and transfers by nonbank banks and industrial banks processed by the Federal Reserve banks shall be considered posted to their accounts at Federal Reserve banks as follows:

(1)  Funds transfers. Transfer items shall be posted:

(i)  To the transferor's account at the time the transfer is actually made by the transferor's Federal Reserve bank; and

(ii)  To the transferee's account at the time the transferee's Reserve bank sends the transfer item or sends or telephones the advice of credit for the item to the transferee, whichever occurs first.

(2)  Book-entry securities transfers against payment. A book-entry securities transfer against payment shall be posted: (i) to the transferor's account at the time the entry is made by the transferor's Reserve bank; and (ii) to the transferee's account at the time the entry is made by the transferee's Reserve bank.

(3)  Discount window loans. Credit for a discount window loan shall be posted to the account of a nonbank bank or industrial bank at the close of business on the day that it is made or such earlier time as may be specifically agreed to by the Federal Reserve bank and the nonbank bank under the terms of the loan. Debit for repayment of a discount window loan shall be posted to the account of the nonbank bank or industrial bank as of the close of business on the day of maturity of the loan or such earlier time as may be agreed to by the Federal Reserve bank and the nonbank bank or required by the Federal Reserve bank under the terms of the loan.

(4)  Other transactions. Total aggregate credits for automated clearing house transfers, cash items, noncash items, net settlement entries, and other nonelectronic transactions shall be posted to the account of the nonbank bank or industrial bank as of the opening of business on settlement day. Total aggregate debits for these transactions and entries shall be posted to the account of a nonbank bank or industrial bank as of the close of business on settlement day.

(e)  Posting by nonbank banks and industrial banks. For purposes of determining the balance of an affiliate's account under this section, payments and transfers through an affiliate's account at a nonbank bank or industrial bank shall be posted as follows:

(1)  Funds transfers. (i) Fedwire transfer items shall be posted:

(A)  To the transferor affiliate's account no later than the time the transfer is actually made by the transferor's Federal Reserve bank; and

(B)  To the transferee affiliate's account no earlier than the time the transferee's Reserve bank sends the transfer item, or sends or telephones the advice of credit for the item to the transferee, whichever occurs first.

(ii)  For funds transfers not sent or received through Federal Reserve banks, debits shall be posted to the transferor affiliate's account not later than the time the nonbank bank or industrial bank becomes obligated on the transfer. Credits shall not be posted to the transferee affiliate's account before the nonbank bank or industrial bank has received actually and finally collected funds for the transfer.

(2)  Book-entry securities transfers against payment. (i) A book-entry securities transfer against payment shall be posted:

(A)  To the transferor affiliate's account not earlier than the time the entry is made by the transferor's Reserve bank; and

(B)  To the transferee affiliate's account not later than the time the entry is made by the transferee's Reserve bank.

(ii)  For book-entry securities transfers against payment that are not sent or received through Federal Reserve banks, entries shall be posted:

(A)  To the buyer-affiliate's account not later than the time the nonbank bank or industrial bank becomes obligated on the transfer; and

(B)  To the seller-affiliate's account not before the nonbank bank or industrial bank has received actually and finally collected funds for the transfer.

(3)  Other transactions.--(i) Credits. Except as otherwise provided in this paragraph, credits for cash items, noncash items, ACH transfers, net settlement entries, and all other nonelectronic transactions shall be posted to an affiliate's account on the day of the transaction (i.e., settlement day for ACH transactions or the day of credit for check transactions), but no earlier than the Federal Reserve bank's opening of business on that day. Credit for cash items that are required by federal or state statute or regulation to be made available to the depositor for withdrawal prior to the posting time set forth in the preceding paragraph shall be posted as of the required availability time.

(ii)  Debits. Debits for cash items, noncash items, ACH transfers, net settlement entries, and all other nonelectronic transactions shall be posted to an affiliate's account on the day of the transaction (e.g., settlement day for ACH transactions or the day of presentment for check transactions), but no later than the Federal Reserve bank's close of business on that day. If a check drawn on an affiliate's account or an ACH debit transfer received by an affiliate is returned timely by the nonbank bank or industrial bank in accordance with applicable law and agreements, no entry need to be posted to the affiliate's account for such item.

[Codified to 12 C.F.R. § 225.52]

[Source: Section 225.52 added at 53 Fed. Reg 37745, September 28, 1988, effective January 1, 1989]


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