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7500 - FRB Regulations


PART 204—RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS (REGULATION D)

Regulations

Sec.

204.1 Authority, purpose and scope.
204.2 Definitions.
204.3 Reporting and location.
204.4 Computation and required reserves.
204.5 Maintenance of required reserves.
204.6 Charges for reserve deficiencies.
204.7 Supplemental reserve requirement.
204.8 International banking facilities.
204.9 Emergency reserve requirement.
204.10 Payment of interest on balances.

Interpretations

204.121 Bankers' banks.
204.122 Secondary market activities of International Banking Facilities.
204.123 Sale of Federal funds by investment companies or trusts in which the entire beneficial interest is held exclusively by depository institutions.
204.124 Repurchase agreement involving shares of a money market mutual fund whose portfolio consists wholly of United States Treasury and Federal agency securities.
204.125 Foreign, international, and supranational entities referred to in §§ 204.2(C)(I)(iv)(E) and 204.8(a)(2)(i)(B)(5).
204.126 Depository institution participation in ``federal funds'' market.
204.127 Nondepository participation in ``federal funds'' market.
204.128 Deposits at foreign branches guaranteed by domestic office of a depository institution.
204.129 [Removed]
204.130 Eligibility for NOW Accounts.
204.131 Participation by a depository institution in the secondary market for its own time deposits.
204.132 Treatment of loan strip participations.
204.133 Multiple savings deposits treated as a transaction account.
204.134 Linked time deposits and transaction accounts.
204.135 Shifting funds between depository institutions to make use of the low reserve tranche.
204.136 Treatment of trust overdrafts for reserve requirement reporting purposes.

AUTHORITY:  12 U.S.C. 248(a), 248(c), 371a, 461, 601, 611, and 3105.

SOURCE:  The provisions of this Part 204 appear at 45 Fed. Reg. 56009, August 22, 1980, and 58 Fed. Reg. 50512, September 28, 1993, except as otherwise noted.

§ 204.1  Authority, purpose and scope.

(a)  Authority.  This part is issued under the authority of section 19 (12 U.S.C. 461 et sec.) and other provisions of the Federal Reserve Act and of section 7 of the International Banking Act of 1978 (12 U.S.C. 3105).

(b)  Purpose.  This part relates to reserve requirements imposed on depository institutions for the purpose of facilitating the implementation of monetary policy by the Federal Reserve System.

(c)  Scope.  (1)  The following depository institutions are required to maintain reserves in accordance with this part:

(i)  Any insured bank as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(h)) or any bank that is eligible to apply to become an insured bank under section 5 of such Act (12 U.S.C. 1815);

(ii)  Any savings bank or mutual savings bank as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(f), (g));

(iii)  Any insured credit union as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752(7)) or any credit union that is eligible to apply to become an insured credit union under section 201 of such Act (12 U.S.C. 1781);

(iv)  Any member as defined in section 2 of the Federal Home Loan Bank Act (12 U.S.C. 1422(4)); and

(v)  Any insured institution as defined in section 401 of the National Housing Act (12 U.S.C. 1724(a)) or any institution which is eligible to apply to become an insured institution under section 403 of such Act (12 U.S.C. 1726).

(2)  Except as may be otherwise provided by the Board, a foreign bank's branch or agency located in the United States is required 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 assets in excess of $1 billion; or (ii) is controlled by a foreign company or by a group of foreign companies that own or control foreign banks that in the aggregate have total 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 U.S.C. 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 U.S.C. 611 et seq.) or an Agreement Corporation (12 U.S.C. 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 financial institution that (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.

(5)  The provisions of this part do not apply to any deposit that is payable only at an office located outside the United States.

[Codified to 12 C.F.R. § 204.1]

[Section 204.1 amended at 77 Fed. Reg. 21852, April 12, 2012, effective July 12, 2012]

§ 204.2  Definitions.

For purposes of this part, the following definitions apply unless otherwise specified:

(a)(1)  "Deposit" means:

(i)  The unpaid balance of money or its equivalent received or held by a depository institution in the usual course of business and for which it has given or is obligated to give credit, either conditionally or unconditionally, to an account, including interest credited, or which is evidenced by an instrument on which the depository institution is primarily liable;

(ii)  Money received or held by a depository 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 relationship established thereby, including escrow funds, funds held as security for securities loaned by the depository institution, funds deposited as advance payment 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 services, dividends, or purchases;

(iv)  Any due bill or other liability or undertaking on the part of a depository institution to sell or deliver securities to, or purchase securities for the account of, any customer (including another depository institution), involving either the receipt of funds by the depository institution, regardless of the use of the proceeds, or a debit to an account of the customer 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 obligation with securities similar to the securities purchased. A security is similar if it is of the same type and if it is of comparable maturity to that purchased by the customer;

(v)  Any liability of a depository institution's affiliate that is not a depository institution, on any promissory note, acknowledgment of advance, due bill, or similar obligation (written or oral), with a maturity of less than one and one-half years, to the extent that the proceeds are used to supply or to maintain the availability of funds (other than capital) to the depository institution, except any such obligation that, had it been issued directly by the depository institution, would not constitute a deposit. If an obligation of an affiliate of a depository institution is regarded as a deposit and is used to purchase assets from the depository institution, the maturity of the deposit is determined 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 issued by the depository institution. However, the maturity of the deposit issued to the affiliate shall be the shorter of the maturity of the affiliate's obligation or the maturity of the deposit;

(vi)  Credit balances;

(vii)  Any liability of a depository institution on any promissory note, acknowledgment of advance, bankers' acceptance, or similar obligation (written or oral), including mortgage-backed bonds, that is issued or undertaken by a depository 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 institution, foreign bank, Edge or Agreement corporation, or New York Investment (Article XII) Company;

(2)  The United States government or an agency thereof; or

(3)  The Export-Import Bank of the United States, Minbanc Capital Corporation, the Government Development Bank for Puerto Rico, a Federal Reserve bank, a Federal Home Loan bank, or the National Credit Union Administration Central Liquidity Facility;

(B)  Arises 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;

(C)  Is not insured by a federal agency, is subordinated to the claims of depositors, has a weighted average maturity of five years or more, 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 depository institution from a dealer in securities, for one business day, of proceeds of a transfer of deposit credit in a Federal Reserve bank or other immediately available funds (commonly referred to as "federal funds"), received by such dealer on the date of the loan in connection with clearance of securities transactions; or

(E)  Arises from the creation, discount and subsequent sale by a depository institution of its bankers' acceptance of the type described in paragraph 7 of section 13 of the Federal Reserve Act (12 U.S.C. 372);

(viii)  Any liability of a depository institution that arises from the creation after June 20, 1983, of a bankers' acceptance that is not of the type described in paragraph 7 of section 13 of the Federal Reserve Act (12 U.S.C. 372) except any such liability held for the account of an entity specified in § 204.2(a)(1)(vii)(A).

(2)  "Deposit" does not include:

(i)  Trust funds received or held by the depository institution that it keeps properly segregated as trust funds and apart from its general assets or which it deposits 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 assets, a deposit liability of the institution is created;

(ii)  An obligation that represents a conditional, contingent or endorser's liability;

(iii)  Obligations, the proceeds of which are not used by the depository institution for purposes of making loans, investments, or maintaining liquid assets such as cash or "due from" depository institutions or other similar purposes. An obligation issued for the purpose of raising funds to purchase business premises, equipment, supplies, or similar assets is not a deposit;

(iv)  Accounts payable;

(v)--(x)  [Reserved]

(xi)  Shares of a credit union held by the National Credit Union Administration or the National Credit Union Administration Central Liquidity Facility under a statutorily authorized assistance program; and

(xii)  Any liability of a United States branch or agency of a foreign bank to another United States branch or agency of the same foreign bank, or the liability of the United States office of an Edge Corporation to another United States office of the same Edge Corporation.

(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. Demand deposits may be in the form of:

(i)  Checking accounts;

(ii)  Certified, cashier's and officer's checks (including checks issued by the depository institution in payment of dividends);

(iii)  Traveler's checks and money orders that are primary obligations of the issuing institution;

(iv)  Checks or drafts drawn by, or on behalf of, a non-United States office of a depository institution on an account maintained 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 matured or time deposits upon which the contractually required notice of withdrawal as given and the notice period has expired and which have not been renewed (either by action of the depositor or automatically under the terms of the deposit agreement); and

(viii)  An obligation to pay, on demand or within six 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.

(2)  The term demand deposit also means deposits or accounts on which the depository institution has reserved the right to require at least seven days' written notice prior to withdrawal or transfer of any funds in the account and from which the depositor is authorized to make withdrawals or transfers in excess of the withdrawal or transfer limitations specified in § 204.2(d)(2) for such an account and the account is not a NOW account, or an ATS account or other account that meets the criteria specified in either § 204.2(b)(3)(ii) or (iii) below.

(3)   Demand deposit does not include:

(i)  Any account that is a time deposit or a savings deposit under this part;

(ii)  Any deposit or account on which the depository institution has reserved the right to require at least seven days' written notice prior to withdrawal or transfer of any funds in the account and either--

(A)  Is subject to check, draft, negotiable order of withdrawal, share draft, or similar item, such as an account authorized by 12 USC 1832(a) ("NOW Account") and a savings deposit described in § 204.2(d)(2), provided that the depositor is eligible to hold a NOW account; or

(B)  From which the depositor is authorized to make transfers by preauthorized transfer or telephonic (including data transmission) agreement, order or instruction to another account or to a third party, provided that the depositor is eligible to hold a NOW account;

(iii)  Any deposit or account on which the depository institution has reserved the right to require at least seven days' written notice prior to withdrawal or transfer of any funds in the account and from which withdrawals may be made automatically 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 other account, such as accounts authorized by 12 USC 371a (automatic transfer account or ATS account), provided that the depositor is eligible to hold an ATS account;

(iv)  Checks or drafts drawn by the depository institution on the Federal Reserve or on another depository institution; or

(v)  IBF time deposits meeting the requirements of § 204.8(a)(2).

(c)(1)  Time deposit means:

(i)  A deposit that the depositor does not have a right and is not permitted to make withdrawals from within six days after the date of deposit unless the deposit is subject to an early withdrawal penalty of at least seven days' simple interest on amounts withdrawn within the first six days after deposit.1 A time deposit from which partial early withdrawals are permitted must impose additional early withdrawal penalties of at least seven days' simple interest on amounts withdrawn within six days after each partial withdrawal. If such additional early withdrawal penalties are not imposed, the account ceases to be a time deposit. The account may become a savings deposit if it meets the requirements for a saving deposit; otherwise it becomes a transaction account. 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 only upon written notice that is actually required to be given by the depositor not less than seven days prior to withdrawal;

(D)  Held in "club" accounts (such as "Christmas club" accounts and "vacation club" accounts that are not maintained as "savings deposits") that are deposited under written contracts providing that no withdrawals 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 six days from the end of the period; or

(E)  Share certificates and certificates of indebtedness issued by credit unions, and certificate accounts and notice accounts issued by savings and loan associations;

(ii)  A "savings deposit;"

(iii)  An "IBF time deposit" meeting the requirements of § 204.8(a)(2); and

(iv)  Borrowings, regardless of maturity, represented by a promissory note, an acknowledgment of advance, or similar obligation described in § 204.2(a)(1)(vii) that is issued to, or any bankers' acceptance (other than the type described in 12 U.S.C. 372) of the depository institution held by--

(A)  Any office located outside the United States or another depository institution or Edge or agreement corporation organized under the laws of the United States;

(B)  Any office located outside the United States of a foreign bank;

(C)  A foreign national government, or an agency or instrumentality thereof,2 engaged principally in activities which are ordinarily performed in the United States by governmental entities;

(D)  An international entity of which the United States is a member; or

(E)  Any other foreign, international, or supranational entity specifically designated by the Board.3

(2)  A time deposit may be represented by a transferable or nontransferable, or a negotiable or nonnegotiable, certificate, instrument, passbook, or statement, or by book entry or otherwise.

(d)(1)  Savings deposit means a deposit or account with respect to which the depositor 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. The term "savings deposit" includes a regular share account at a credit union and a regular account at a savings and loan association.

(2)  The term "savings deposit" also means: A deposit or account, such as an account commonly known as a passbook savings account, a statement savings account, or as a money market deposit account (MMDA), that otherwise 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 no more than six transfers and withdrawals, or a combination of such transfers and withdrawals, per calendar month or statement cycle (or similar period) of at least four weeks, to another account (including a transaction account) of the depositor at the same institution or to a third party by means of a preauthorized or automatic transfer, or telephonic (including data transmission) agreement, order or instruction, or by check, draft, debit card, or similar order made by the depositor and payable to third parties. A preauthorized transfer includes any arrangement by the depository institution 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. Such an account is not a transaction account by virtue of an arrangement that permits transfers for the purpose of repaying loans and associated expenses at the same depository institution (as originator or servicer) or that permits transfers of funds from this account to another account of the same depositor at the same institution or permits withdrawals (payments directly to the depositor) from the account when such transfers or withdrawals are made by mail, messenger, automated teller machine, or in person or when such withdrawals are made by telephone (via check mailed to the depositor) regardless of the number of such transfers or withdrawals.4

(3)  A deposit may continue to be classified as a savings deposit even if the depository institution exercises its right to require notice of withdrawal.

(4)   Savings deposit does not include funds deposited to the credit of the depository institution's own trust department where the funds involved are utilized to cover checks or drafts. Such funds are "transaction accounts."

(e)   Transaction account means a deposit or account from which the depositor or account holder is permitted to make transfers or withdrawals by negotiable or transferable instrument, payment order of withdrawal, telephone transfer, or other similar device for the purpose of making payments or transfers to third persons or others or from which the depositor may make third party payments at an automated teller machine ("ATM") or a remote service unit, or other electronic device, including by debit card, but the term does not include savings deposits or accounts described in § 204.2(d)(2) even though such accounts permit third party transfers. Transaction account includes:

(1)  Demand deposits;

(2)  Deposits or accounts on which the depository institution has reserved the right to require at least seven days' written notice prior to withdrawal or transfer of any funds in the account and that are subject to check, draft, negotiable order of withdrawal, share draft, or other similar item, except accounts described in § 204.2(d)(2) (savings deposits), but including accounts authorized by 12 USC 1832(a) (NOW accounts).

(3)  Deposits or accounts on which the depository institution has reserved the right to require at least seven days' written notice prior to withdrawal or transfer of any funds in the account and from which withdrawals may be made automatically through payment to the depository institution itself or through transfer or 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 accounts, except accounts described in § 204.2(d)(2), but including accounts authorized by 12 U.S.C. 371a (automatic transfer accounts or ATS accounts).

(4)  Deposits or accounts on which the depository institution has reserved the right to require at least seven days' written notice prior to withdrawal or transfer of any funds in the account and under the terms of which, or by practice of the depository institution, the depositor is permitted or authorized to make more than six withdrawals per month or statement cycle (or similar period) of at least four weeks for purposes of transferring funds to another account of the depositor at the same institution (including "transaction account") or for making payment to a third party by means of a preauthorized transfer, or telephonic (including data transmission) agreement, order or instruction, except accounts described in § 204.2(d)(2). An account that authorizes more than six such withdrawals in a calendar month, or statement cycle (or similar period) of at least four weeks, is a "transaction account" whether or not more than six such transfers are made during such period. A "preauthorized transfer" includes any arrangement by the depository institution 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. Such an account is not a "transaction account" by virtue of an arrangement that permits transfers for the purpose of repaying loans and associated expenses at the same depository institution (as originator or servicer) or that permits transfers of funds from this account to another account of the same depositor at the same institution or permits withdrawals (payments directly to the depositor) from the account when such transfers or withdrawals are made by mail, messenger, automated teller machine or in person or when such withdrawals are made by telephone (via check mailed to the depositor) regardless of the number of such transfers or withdrawals.

(5)  Deposits or accounts maintained in connection with an arrangement that permits the depositor to obtain credit directly or indirectly through the drawing of a negotiable or nonnegotiable check, draft, order or instruction or other similar device (including telephone or electronic order or instruction) on the issuing 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.

(6)  All deposits other than time and savings deposits.

(f)(1)  Nonpersonal time deposit means:

(i)  A time deposit, including an MMDA or any other savings deposit, representing funds in which any beneficial interest is held by a depositor which is not a natural person;

(ii)  A time deposit, including an MMDA or any other savings deposit, that represents funds deposited to the credit of a depositor that is not a natural person, other than a deposit to the credit of a trustee or other fiduciary if the entire beneficial interest in the deposit is held by one or more natural persons;

(iii)  A transferable time deposit. A time deposit is transferable unless it contains a specific statement on the certificate, instrument, passbook, statement or other form representing the account that it is not transferable. A time deposit that contains a specific statement that it is not transferable is not regarded as transferable even if the following transactions can be affected: a pledge as collateral for a loan, a transaction that occurs due to circumstances arising from death, incompetency, marriage, divorce, attachment, or otherwise by operation of law or a transfer on the books or records of the institution; and

(iv)  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' acceptance (other than the type described in 12 U.S.C. 372) of the depository institution held by:

(A)  Any office located outside the United States of another depository institution or Edge or Agreement corporation organized under the laws of the United States;

(B)  Any office located outside the United States of a foreign bank;

(C)  A foreign national government, or an agency or instrumentality thereof,5 engaged principally in activities which are ordinarily performed in the United States by governmental entities;

(D)  An international entity of which the United States is a member; or

(E)  Any other foreign, international, or supranational entity specifically designated by the Board.6

(2)   Nonpersonal time deposit does not include nontransferable time deposits to the credit of or in which the entire beneficial interest is held by an individual pursuant to an individual retirement account or Keogh (H.R. 10) plan under 26 U.S.C. 408, 401, or nontransferable time deposits held by an employer as part of an unfunded deferred-compensation plan established pursuant to subtitle D of the Revenue Act of 1978 (Pub. L. 95--600, 92 Stat. 2763), or a "401(k) plan" under 26 U.S.C. 401(k).

(g)   Natural person means an individual or a sole proprietorship. The term does not mean a corporation owned by an individual, a partnership or other association.

(h)   Eurocurrency liabilities means: (1) For a depository institution or an Edge or Agreement corporation organized under the laws of the United States, the sum, if positive, of the following:

(i)  Net balances due to its non-United States offices and its international banking facilities ("IBFs") from its United States offices;

(ii)(A)  For a depository institution organized under the laws of the United States, assets (including participations) acquired from its United States offices, and held by its non-United States offices, by its IBF, or by non-United States offices of an affiliated Edge or Agreement corporation;7 or

(B)  For an Edge or Agreement corporation, assets (including participations) 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; and

(iii)  Credit outstanding from its non-United States offices to United States residents (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 aggregate amount of $100,000 or less to any United States resident, (B) by a non-United States office that at no time during the computation period had credit outstanding to United States residents exceeding $1 million, (C) to an international banking facility, or (D) to an institution 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 of other foreign establishment ("foreign affiliate") controlled by one or more domestic corporations is not regarded as credit extended to a United States resident if the proceeds will be used to finance the operations outside the United States of the borrower or of other foreign affiliates of 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 following: the United States branch's or agency's total assets less the sum of (A) cash items in process of collection; (B) unposted 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 offices; and

(ii)  Assets (including participations) acquired from the United States branch or agency (other than assets required to be sold by federal or state supervisory authorities) 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.8

(i)(1)  Cash item in process of collection means:

(i)  Checks in the process of collection, drawn on a bank or other depository institution 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 collected by depository institutions as cash items, including:

(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 accounts in connection with automated payment arrangements where such credits are made one business day prior 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 presentation in the United States;

(G)  Returned items and unposted debits; 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 total amount of a depository institution's transaction accounts less the deductions allowed under the provisions of § 204.3.

(k)(1)  Vault cash means United States currency and coin owned and booked as an asset by a depository institution that may, at any time, be used to satisfy claims of that depository institution's depositors and that meets the requirements of paragraph (k)(2)(i) or (k)(2)(ii) of this section.

(2)  Vault cash must be either:

(i)  Held at a physical location of the depository institution (including the depository institution's proprietary ATMs) from which the institution's depositors may make cash withdrawals; or

(ii)  Held at an alternate physical location if--

(A)  The depository institution claiming the currency and coin as vault cash at all times retains full rights of ownership in and to the currency and coin held at the alternate physical location;

(B)  The depository institution claiming the currency and coin as vault cash at all times books the currency and coin held at the alternate physical location as an asset of the depository institution;

(C)  No other depository institution claims the currency and coin held at the alternate physical location as vault cash in satisfaction of that other depository institution's reserve requirements;

(D)  The currency and coin held at the alternate physical location is reasonably nearby a location of the depository institution claiming the currency and coin as vault cash at which its depositors may make cash withdrawals (an alternate physical location is considered "reasonably nearby" if the depository institution that claims the currency and coin as vault cash can recall the currency and coin from the alternate physical location by 10 a.m. and, relying solely on ground transportation, receive the currency and coin not later than 4 p.m. on the same calendar day at a location of the depository institution at which its depositors may make cash withdrawals);

(E)  The depository institution claiming the currency and coin as vault cash has in place a written cash delivery plan and written contractual arrangements necessary to implement that plan that demonstrate that the currency and coin can be recalled and received in accordance with the requirements of paragraph (k)(2)(ii)(D) of this section at any time. The depository institution shall provide copies of the written cash delivery plan and written contractual arrangements to the Federal Reserve Bank that holds its account or to the Board upon request.

(3)  "Vault cash" includes United States currency and coin in transit to a Federal Reserve Bank or a correspondent depository institution for which the reporting depository 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 account at the Federal Reserve or correspondent bank has been charged for such shipment.

(4)  Silver and gold coin and other currency and coin whose numismatic or bullion value is substantially in excess of face value is not vault cash for purposes of this part.

(l)  Pass-through account means a balance maintained by a depository institution with a correspondent institution under § 204.5(d).

(m)(1)   Depository institution means:

(i)  Any insured bank as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(h)) or any bank that is eligible to apply to become an insured bank under section 5 of such Act (12 U.S.C. 1815);

(ii)  Any savings bank or mutual savings bank as defined in section 3 of the Federal Deposit Insurance Act (12 U.S.C. 1813(f), (g));

(iii)  Any insured credit union as defined in section 101 of the Federal Credit Union Act (12 U.S.C. 1752(7)) or any credit union that is eligible to apply to become an insured credit union under section 201 of such Act (12 U.S.C. 1781);

(iv)  Any member as defined in section 2 of the Federal Home Loan Bank Act (12 U.S.C. 1422(4)); and

(v)  Any insured institution as defined in section 401 of the National Housing Act (12 U.S.C. 1724(a)) or any institution which is eligible to apply to become an insured institution under section 403 of such Act (12 U.S.C. 1726).

(2)  Depository institution does not include international organizations such as the World Bank, the Inter-American Development Bank, and the Asian Development Bank.

(n)   Member bank means a depository institution that is a member of the Federal Reserve System.

(o)   Foreign bank means any bank or other 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) [Reserved]

(q)   Affiliate includes any corporation, association, or other organization:

(1)  Of which a depository institution, directly or indirectly, owns or controls either a majority of the voting shares or more than 50 percent of the numbers of shares voted for the election of its directors, trustees, or other persons exercising similar functions at the preceding election, or controls in any manner the election of a majority of its directors, trustees, or other persons exercising similar functions;

(2)  Of which control is held, directly or indirectly, through stock ownership or in any other manner, by the shareholders of a depository institution who own or control either a majority of the shares of such depository institution or more than 50 percent of the number of shares voted for the election of directors of such depository institution at the preceding election, or by trustees for the benefit of the shareholders of any such depository institution;

(3)  Of which a majority of its directors, trustees, or other persons exercising similar functions are directors of any one depository institution; or

(4)  Which owns or controls, directly or indirectly, either a majority of the shares of capital stock of a depository institution or more than 50 percent of the number of shares voted for the election of directors, trustees, or other persons exercising similar functions of a depository institution at the preceding election, or controls in any manner the election of a majority of the directors, trustees, or other persons exercising similar functions of a depository institution, or for the benefit of whose shareholders or members all or substantially all the capital 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 transaction) in the United States; (2) any corporation, 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 office located outside the United States means (1) a deposit of a United States resident9 that is a denomination of $100,000 or more, and as to which the depositor is entitled, under the agreement with the institution, to demand payment only outside the United States or (2) a deposit of a person who is not a United States resident9 as to which the depositor is entitled, under the agreement with the institution, to demand payment only outside the United States.

(u)  Teller's check means a check drawn by a depository institution on another depository institution, a Federal Reserve Bank, or a Federal Home Loan Bank, or payable at or through a depository institution, a Federal Reserve Bank, or a Federal Home Loan Bank, and which the drawing depository institution engages or is obliged to pay upon dishonor.

(v)  Clearing balance means the average balance held in an account at a Federal Reserve Bank by an institution over a reserve maintenance period to satisfy its contractual clearing balance with a Reserve Bank.

(w)  Clearing balance allowance means the greater of $25,000 or two percent of an institution's contractual clearing balance.

(x)  Contractual clearing balance means an amount that an institution agrees or is required to maintain in its account at a Federal Reserve Bank in addition to any reserve balance requirement. An institution that has a reserve balance requirement of zero may still have a contractual clearing balance.

(y)  Eligible institution means--

(1)  Any depository institution as described in § 204.1(c) of this part;

(2)  Any trust company;

(3)  Any corporation organized under section 25A of the Federal Reserve Act (12 U.S.C. 611 et seq.) or having an agreement with the Board under section 25 of the Federal Reserve Act (12 U.S.C. 601 et seq.); and

(4)  Any branch or agency of a foreign bank (as defined in section 1(b) of the International Banking Act of 1978, 12 U.S.C. 3101(b)).

(z)*   Excess balance means the average balance maintained in an account at a Federal Reserve Bank by or on behalf of an institution over a reserve maintenance period that exceeds the top of the penalty-free band.

(aa)  Excess balance account means an account at a Reserve Bank pursuant to § 204.10(d) of this part that is established by one or more eligible institutions through an agent and in which only excess balances of the participating eligible institutions may at any time be maintained. An excess balance account is not a "pass-through account" for purposes of this part.

(bb)**  Balance maintained to satisfy a reserve balance requirement means the average balance held in an account at a Federal Reserve Bank by or on behalf of an institution over a reserve maintenance period to satisfy a reserve balance requirement of this part.

(cc)  Targeted federal funds rate means the federal funds rate established from time to time by the Federal Open Market Committee.

(dd)  Term deposit means those funds of an eligible institution that are maintained by that institution for a specified maturity at a Federal Reserve Bank pursuant to section 204.10(e) of this part.

(ee)***  Reserve balance requirement means the balance that a depository institution is required to maintain on average over a reserve maintenance period in an account at a Federal Reserve Bank if vault cash does not fully satisfy the depository institution's reserve requirement imposed by this part.

(ff)  Deficiency means the bottom of the penalty-free band less the average balance maintained in an account at a Federal Reserve Bank by or on behalf of an institution over a reserve maintenance period.

(gg)  Top of the penalty-free band means an amount equal to an institution's reserve balance requirement plus an amount that is the greater of 10 percent of the institution's reserve balance requirement or $50,000. The top of the penalty-free band for a pass-through correspondent is an amount equal to the aggregate reserve balance requirement of the correspondent (if any) and all of its respondents plus an amount that is the greater of 10 percent of that aggregate reserve balance requirement or $50,000.

(hh)  Bottom of the penalty-free band means an amount equal to an institution's reserve balance requirement less an amount that is the greater of 10 percent of the institution's reserve balance requirement or $50,000. The bottom of the penalty-free band for a pass-through correspondent is an amount equal to the aggregate reserve balance requirement of the correspondent (if any) and all of its respondents less an amount that is the greater of 10 percent of that aggregate reserve balance requirement or $50,000. In no case will the penalty-free band be less than zero.

[Codified to 12 C.F.R. § 204.2]

[Section 204.2 amended at 45 Fed. Reg. 73015, November 4, 1980, effective November 13, 1980; 45 Fed. Reg. 79749, December 2, 1980, effective December 11, 1980; 45 Fed. Reg. 81537, December 11, 1980, effective December 1, 1980; 46 Fed. Reg. 22178, April 16, 1981, effective April 30, 1981; 46 Fed. Reg. 27092, May 18, 1981, effective May 14, 1981; 46 Fed. Reg. 32429, June 23, 1981, effective December 3, 1981; 47 Fed. Reg. 38105, August 30, 1982, effective September 1, 1982; 47 Fed. Reg. 44994, October 13, 1982, effective October 5, 1982; 47 Fed. Reg. 52693, November 23, 1982, effective October 5, 1982; 47 Fed. Reg. 55208, December 8, 1982, effective December 14, 1982; 47 Fed. Reg. 58219, December 30, 1982; 48 Fed. Reg. 224, January 4, 1983, effective January 5, 1983; 48 Fed. Reg. 28973, June 24, 1983, effective June 20, 1983; 48 Fed. Reg. 46263, October 12, 1983, effective October 1, 1983; 51 Fed. Reg. 9632, March 20, 1986, effective April 1, 1986; 52 Fed. Reg. 47694, December 16, 1987, effective December 31, 1987; 55 Fed. Reg. 50541, December 7, 1990, effective December 13, 1990; 56 Fed. Reg. 15494, April 17, 1991, effective April 24, 1991; 57 Fed. Reg. 40598, September 4, 1992; 61 Fed. Reg. 69025, December 31, 1996, effective April 1, 1997; 63 Fed. Reg. 64841, November 24, 1998; 74 Fed. Reg. 25629 and 25636, May 29, 2009, effective July 2, 2009; 77 Fed. Reg. 21852, April 12, 2012, effective July 12, 2012; 77 Fed. Reg. 21852, April 12, 2012, effective June 27, 2013]

§ 204.3  Reporting and location.

(a)  Every depository institution, U.S. branch or agency of a foreign bank, and Edge or Agreement corporation shall file a report of deposits (or any other form or statement that may be required by the Board or by a Federal Reserve Bank) with the Federal Reserve Bank in the Federal Reserve District in which it is located, regardless of the manner in which it chooses to maintain required reserve balances.

(b)  A foreign bank's U.S. branches and agencies and an Edge or Agreement corporation's offices operating within the same State and the same Federal Reserve District shall prepare and file a report of deposits on an aggregated basis.

(c)  For purposes of this part, the obligations of a majority-owned (50 percent or more) U.S. subsidiary (except an Edge or Agreement corporation) of a depository institution shall be regarded as obligations of the parent depository institution.

(d)  A depository institution, a foreign bank, or an Edge or Agreement corporation shall, if possible, assign the low reserve tranche and reserve requirement exemption prescribed in § 204.4(f) to only one office or to a group of offices filing a single aggregated report of deposits. The amount of the reserve requirement exemption allocated to an office or group of offices may not exceed the amount of the low reserve tranche allocated to such office or offices. If the low reserve tranche or reserve requirement exemption cannot be fully utilized by a single office or by a group of offices filing a single report of deposits, the unused portion of the tranche or exemption may be assigned to other offices or groups of offices of the same institution until the amount of the tranche (or net transaction accounts) or exemption (or reservable liabilities) is exhausted. The tranche or exemption may be reallocated each year concurrent with implementation of the indexed tranche and exemption, or, if necessary during the course of the year to avoid underutilization of the tranche or exemption, at the beginning of a reserve computation period.

(e)  Computation of transaction accounts.   Overdrafts in demand deposit or other transaction accounts are not to be treated as negative demand deposits or negative transaction accounts and shall not be netted since overdrafts 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 account pursuant to a bona fide cash management arrangement are permitted to be netted against balances in other related transaction accounts for reserve requirement purposes.

(f)  The Board and the Federal Reserve Banks will not hold a pass-through correspondent responsible for guaranteeing the accuracy of the reports of deposits submitted by its respondents.

(g)(1)  For purposes of this section, a depository institution, a U.S. branch or agency of a foreign bank, or an Edge or Agreement corporation is located in the Federal Reserve District that contains the location specified in the institution's charter, organizing certificate, license, or articles of incorporation, or as specified by the institution's primary regulator, or if no such location is specified, the location of its head office, unless otherwise determined by the Board under paragraph (g)(2) of this section.

(2)  If the location specified in paragraph (g)(1) of this section, in the Board's judgment, is ambiguous, would impede the ability of the Board or the Federal Reserve Banks to perform their functions under the Federal Reserve Act, or would impede the ability of the institution to operate efficiently, the Board will determine the Federal Reserve District in which the institution is located, after consultation with the institution and the relevant Federal Reserve Banks. The relevant Federal Reserve Banks are the Federal Reserve Bank whose District contains the location specified in paragraph (g)(1) of this section and the Federal Reserve Bank in whose District the institution is proposed to be located. In making this determination, the Board will consider any applicable laws, the business needs of the institution, the location of the institution's head office, the locations where the institution performs its business, and the locations that would allow the institution, the Board, and the Federal Reserve Banks to perform their functions efficiently and effectively.

[Codified to 12 C.F.R. § 204.3]

[Section 204.3 amended at 45 Fed. Reg. 58100, September 2, 1980, effective November 13, 1980; 45 Fed. Reg. 73015, November 4, 1980, effective November 13, 1980; 45 Fed. Reg. 81537, December 11, 1980, effective December 1, 1980; 46 Fed. Reg. 10140, February 2, 1981, effective January 15, 1981; 46 Fed. Reg. 32430, June 23, 1981, effective December 3, 1981; 47 Fed. Reg. 14482, April 5, 1982, effective April 28, 1982; 47 Fed. Reg. 44712, October 12, 1982, effective February 2, 1984; 47 Fed. Reg. 55206, December 8, 1982, effective December 9, 1982; 48 Fed. Reg. 2314, January 19, 1983, effective January 13, 1983; 48 Fed. Reg. 17335, April 22, 1983, effective April 28, 1983; 51 Fed. Reg. 9635, March 20, 1986, effective April 1, 1986; 55 Fed. Reg. 50541, December 7, 1990, effective December 13, 1990; 57 Fed. Reg. August 25, 1992, effective September 3, 1992 and November 19, 1992; 61 Fed. Reg. 69025, December 31, 1996, effective April 1, 1997; 62 Fed. Reg. 34616, June 27, 1997, effective October 1, 1997; 63 Fed. Reg. 15071, March 30, 1998, effective July 30, 1998; 74 Fed. Reg. 25637, May 29, 2009, effective July 2, 2009]

§ 204.4  Computation of required reserves.

(a)  In determining the reserve requirement under this part, the amount of cash items in process of collection and balances subject to immediate withdrawal due from other depository institutions located in the United States (including such amounts due from United States branches and agencies of foreign banks and Edge and Agreement corporations) may be deducted from the amount of gross transaction accounts. The amount that may be deducted may not exceed the amount of gross transaction accounts.

(b)  United States branches and agencies of a foreign bank may not deduct balances due from another United States branch or agency of the same foreign bank, and United States offices of an Edge or Agreement Corporation may not deduct balances due from another United States office of the same Edge or Agreement Corporation.

(c)  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 exercising fiduciary powers may not include in balances "due from other depository institutions" amounts of trust funds deposited with other banks and due to it as a trustee or other fiduciary.

(d)*  For institutions that file a report of deposits weekly, reserve requirements are computed on the basis of the institution's daily average balances of deposits and Eurocurrency liabilities during a 14-day computation period ending every second Monday.

(e)  For institutions that file a report of deposits quarterly, reserve requirements are computed on the basis of the institution's daily average balances of deposits and Eurocurrency liabilities during the 7-day computation period that begins on the third Tuesday of March, June, September, and December.

(f)  For all depository institutions, Edge and Agreement corporations, and United States branches and agencies of foreign banks, reserve requirements are computed by applying the reserve requirement ratios below to net transaction accounts, nonpersonal time deposits, and Eurocurrency liabilities of the institution during the computation period.

Reservable liability Reserve requirement
NET TRANSACTION ACCOUNTS:
  $0 to reserve requirement exemption amount     ($10.7 million).  0 percent of amount.
  Over reserve requirement exemption amount     ($10.7 million) and up to low reserve     tranche ($58.8 million). 3 percent of amount.
  Over low reserve tranche ($58.8 million).  $1,443,000 plus 10 percent of amount over $58.8 million.
Nonpersonal time deposits  0 percent.
Eurocurrency liabilities.  0 percent.

[Codified at 12 C.F.R. § 204.4]

[Section 204.4 added at 74 Fed. Reg. 25637, May 29, 2009, effective July 2, 2009; amended at 74 Fed. Reg. 52875, October 15, 2009, effective November 16, 2009; 77 Fed. Reg. 21852, April 12, 2012, effective July 12, 2012]

§ 204.5  Maintenance of required reserves.

(a)(1)  A depository institution, a U.S. branch or agency of a foreign bank, and an Edge or Agreement corporation shall satisfy reserve requirements by maintaining vault cash and, if vault cash does not fully satisfy the institution's reserve requirement, in the form of a balance maintained

(i)  In the institution's account at the Federal Reserve Bank in the Federal Reserve District in which the institution is located, or

(ii)  With a pass-through correspondent in accordance with § 204.5(d).

(2)  Each individual institution subject to this part is responsible for satisfying its reserve balance requirement, if any, either directly with a Federal Reserve Bank or through a pass-through correspondent.

(b)(1)  For institutions that file a report of deposits weekly, the balances maintained to satisfy reserve balance requirements shall be maintained during a 14-day maintenance period that begins on the third Thursday following the end of a given computation period.

(2)  For institutions that file a report of deposits quarterly, the balances maintained to satisfy reserve balance requirements shall be maintained during an interval of either six or seven consecutive 14-day maintenance periods, depending on when the interval begins and ends. The interval will begin on the fourth Thursday following the end of each quarterly reporting period if that Thursday is the first day of a 14-day maintenance period. If the fourth Thursday following the end of a quarterly reporting period is not the first day of a 14-day maintenance period, then the interval will begin on the fifth Thursday following the end of the quarterly reporting period. The interval will end on the fourth Wednesday following the end of the subsequent quarterly reporting period if that Wednesday is the last day of a 14-day maintenance period. If the fourth Wednesday following the end of the subsequent quarterly reporting period is not the last day of a 14-day maintenance period, then the interval will conclude on the fifth Wednesday following the end of the subsequent quarterly reporting period.

(c)  Cash items forwarded to a Federal Reserve Bank for collection and credit are not included in an institution's balance maintained to satisfy its reserve balance requirement until the expiration of the time specified in the appropriate time schedule established under Regulation J, "Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers Through Fedwire'' (12 CFR part 210). If a depository institution draws against items before that time, the charge will be made to its account if the balance is sufficient to pay it; any resulting deficiency in balances maintained to satisfy the institution's reserve balance requirement will be subject to the penalties provided by law and to the deficiency charges provided by this part. However, the Federal Reserve Bank may, at its discretion, refuse to permit the withdrawal or other use of credit given in an account for any time for which the Federal Reserve Bank has not received payment in actually and finally collected funds.

(d)(1)  A depository institution, a U.S. branch or agency of a foreign bank, or an Edge or Agreement corporation with a reserve balance requirement ("respondent'') may select only one pass-through correspondent under this section, unless otherwise permitted by the Federal Reserve Bank in whose District the respondent is located. Eligible pass-through correspondents are Federal Home Loan Banks, the National Credit Union Administration Central Liquidity Facility, and depository institutions, U.S. branches or agencies of foreign banks, and Edge and Agreement corporations that maintain balances to satisfy their own reserve balance requirements which may be zero, in an account at a Federal Reserve Bank. In addition, the Board reserves the right to permit other institutions, on a case-by-case basis, to serve as pass-through correspondents.

(2)  Respondents or correspondents may institute, terminate, or change pass-through correspondent agreements by providing all documentation required for the establishment of the new agreement or termination of or change to the existing agreement to the Federal Reserve Banks involved within the time period specified by those Reserve Banks.

(3)  Balances maintained to satisfy reserve balance requirements of a correspondent's respondents shall be maintained along with the balances maintained to satisfy a correspondent's reserve balance requirement (if any), in a single commingled account of the correspondent at the Federal Reserve Bank in whose District the correspondent is located. Balances maintained in the correspondent's account are the property of the correspondent and represent a liability of the Reserve Bank solely to the correspondent, regardless of whether the funds represent the balances maintained to satisfy the reserve balance requirement of a respondent.

(4)(i)  A pass-through correspondent shall be responsible for maintaining balances to satisfy its own reserve balance requirement (if any) and the reserve balance requirements of all of its respondents. A charge for any deficiency in the correspondent's account will be imposed by the Reserve Bank on the correspondent maintaining the account.

(ii)  Each correspondent is required to maintain detailed records for each of its respondents that permit Reserve Banks to determine whether the respondent has provided a sufficient funds to the correspondent to satisfy the reserve balance requirement of the respondent. The correspondent shall maintain such records and make such reports as the Board or Reserve Bank may requires in order to ensure the correspondent's compliance with its responsibilities under this section and shall make them available to the Board or Reserve Bank as required.

(iii)  The Federal Reserve Bank may terminate any pass-through agreement under which the correspondent is deficient in its recordkeeping or other responsibilities.

(iv)  Interest paid on supplemental reserves (if such reserves are required under § 204.7) held by a respondent will be credited to the account maintained by the correspondent.

(e)  Any excess or deficiency in an institution's balance maintained to satisfy its reserve balance requirement shall be carried over and applied against the balance maintained in the next maintenance period as specified in this paragraph. The amount of any such excess or deficiency that is carried over shall not exceed the greater of:

(1)  The amount obtained by multiplying 0.04 times the depository institution's reserve requirement; or

(2)  $50,000. Any carryover not offset during the next period may not be carried over to subsequent periods.

[Codified at 12 C.F.R. § 204.5]

[Section 204.5 added at 74 Fed. Reg. 25638, May 29, 2009, effective July 2, 2009; amended at 77 Fed. Reg. 21852, April 12, 2012, effective July 12, 2012; 77 Fed. Reg. 21853, April 12, 2012, effective June 27, 2012]

§ 204.6  Charges for reserve deficiencies.

(a)  Deficiencies in a depository institution's balance maintained to satisfy its reserve balance requirement after application of the carryover provided in § 204.5(e), are subject to deficiency charges. Federal Reserve Banks are authorized to assess charges for deficiencies at a rate of 1 percentage point per year above the primary credit rate, as provided in § 201.51(a) of this chapter, in effect for borrowings from the Federal Reserve Bank on the first day of the calendar month in which the deficiencies occurred. Charges shall be assessed on the basis of daily average deficiencies during each maintenance period.

(b)  Reserve Banks may waive the charges for deficiencies except when the deficiency arises out of a depository institution's gross negligence or conduct that is inconsistent with the principles and purposes of reserve requirements. Decisions by Reserve Banks to waive charges are based on an evaluation of the circumstances in each individual case and the depository institution's reserve maintenance record. For example, a waiver may be appropriate for a small charge or once during a two-year period for a deficiency that does not exceed a certain percentage of the depository institution's reserve requirement. If a depository institution has demonstrated a lack of due regard for the proper maintenance of balances to satisfy its reserve balance requirement, the Reserve Bank may decline to exercise the waiver privilege and assess all charges regardless of amount or reason for the deficiency.

(c)  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 located shall waive the reserve requirement imposed under this part for such depository institution when requested by the Federal supervisory authority involved.

(d)  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 U.S.C. 505) as implemented in 12 CFR part 263. In addition, the Board and any other Federal financial institution supervisory authority may enforce this part with respect to depository institutions subject to their jurisdiction under authority conferred by law to undertake cease and desist proceedings.

[Codified at 12 C.F.R. § 204.6]

[Section 204.6 added at 74 Fed. Reg. 25639, May 29, 2009, effective July 2, 2009; amended at 77 Fed. Reg. 21853, April 12, 2012, effective July 12, 2012; 77 Fed. Reg. 21853, April 12, 2012, effective June 27, 2012]

§ 204.7  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 Corporation, the Federal Home Loan Bank Board, and the National Credit Union Administration Board, the Board may impose a supplemental reserve requirement on every depository institution of not more than 4 percent of its total transaction accounts. A supplemental reserve requirement may be imposed if:

(1)  The sole purpose of the requirement is to increase the amount of reserves maintained to a level essential for the conduct of monetary policy;

(2)  The requirement is not imposed for the purpose of reducing the cost burdens resulting 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

(4)  On the date on which supplemental reserve requirements are imposed, the total amount of basic reserve requirements is not less than the amount of reserves that would be required on transaction accounts and nonpersonal time deposits under the initial reserve ratios established by the Monetary Control Act of 1980 (Pub. L. 96-221) in effect on September 1, 1980.

(b)  Term.  (1)  If a supplemental reserve requirement has been imposed for a period of one year or more, the Board shall review and determine 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 90-day period after the requirement is imposed during which the average amount of supplemental reserves required are less than the amount of reserves which would be required if the ratios in effect on September 1, 1980, were applied.

(c)  Earnings Participation Account.  A depository institution's supplemental reserve requirement shall be maintained by the Federal Reserve banks in an Earnings Participation Account. 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 previous calendar quarter. Additional rules and regulations may be prescribed by the Board concerning the payment of earnings on Earnings Participation Accounts by Federal Reserve 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 imposed under this section.

[Codified to 12 C.F.R. § 204.7]

[Section 204.6 amended at 45 Fed. Reg. 81537, December 11, 1980, effective December 1, 1980; redesignated as 204.7 at 74 Fed. Reg. 25639, May 29, 2009, effective July 2, 2009]

§ 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 accounts 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 includes only international banking facility time deposits and international banking facility extensions of credit.

(2)  "International banking facility time deposit" or "IBF time deposit" means a deposit, placement, borrowing or similar obligation represented by a promissory note, acknowledgment of advance, or similar instrument 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

(1)  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;

(3)  A United States office or a non-United States office of the entity establishing the IBF;

(4)  Another IBF; or

(5)  A foreign national government, or an agency or instrumentality thereof,10 engaged principally in activities which are ordinarily performed in the United States by governmental entities; an international entity of which the United States is a member; or any other foreign international or supranational entity specifically designated by the Board;11 or

(ii)(A)  That is payable

(1)  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 deposit; or

(3)  Upon written notice that actually is required to be given by the depositor 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 establishment ("foreign affiliate") controlled by one or more domestic corporations provided that such funds are used only to support the operations outside the United States of the depositor 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 extension of 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 represented by a promissory note, security, acknowledgment of advance, due bill, repurchase agreement, or any other form of credit transaction. Such credit may be extended 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;

(iv)  Another IBF;

(v)  A foreign national government, or an agency or instrumentality thereof,12 engaged principally in activities which are ordinarily performed in the United States by governmental entities; an international entity of which the United States is a member; or any other foreign international or supranational entity specifically designated by the Board;13 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 domestic corporations provided that the funds are used only to finance the operations outside the United States of the borrower or of its affiliates located outside the United States.

(b)  Acknowledgment of use of IBF deposits and extensions of credit.  An IBF shall provide written notice to each of its customers (other than those specified in § 204.8(a)(2)(i)(B) and § 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 outside the United States as specified in § 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 § 204.8(a)(3)(vi). In the case of loans to or deposits from foreign affiliates of U.S. residents, receipt of such notice must be acknowledged in writing whenever a deposit or credit relationship is first established with the IBF.

(c)  Exemption from reserve requirements.  An institution that is subject to the reserve requirements of this part is not required to maintain reserves against its IBF time deposits or IBF loans. Deposit-taking activities of IBFs are limited to accepting only IBF time deposits and lending activities of IBFs are restricted to making only IBF loans.

(d)  Establishment of an international banking facility.  A depository institution, an Edge or Agreement corporation or a United States branch or agency of a foreign bank may establish an IBF in any location where it is legally authorized to engage in IBF business. However, only one IBF may be established for each reporting entity that is required to submit a Report of Transaction Accounts, Other Deposits and Vault Cash (Form FR 2900).

(e)  Notification to Federal Reserve.  At least fourteen 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 concerning IBFs, including restrictions on sources 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 or result in the revocation of the institution's ability to operate an IBF.

(f)  Recordkeeping requirements. A depository institution shall segregate on its books and records the asset and liability accounts of its IBF and submit reports concerning the operations of its IBF as required by the Board.

[Codified to 12 C.F.R. § 204.8]

[Section 204.8 added at 46 Fed. Reg. 32429, June 23, 1981, effective December 3, 1981; amended at 51 Fed. Reg. 9636, March 20, 1986, effective April 1, 1986; 61 Fed. Reg. 69025, December 31, 1996, effective April 1, 1997]

§ 204.9  Emergency reserve requirement.

(a)  Finding by Board.  The Board may impose, after consulting with the appropriate committees of Congress, additional reserve requirements on depository institutions at any ratio on any liability upon a finding by at least five members of the Board that extraordinary circumstances require such action.

(b)  Term.  Any action taken under this section shall be valid for a period not exceeding 180 days, and may be extended for further periods 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.  At present, there are no emergency reserve requirements imposed under this section.

[Codified to 12 C.F.R. § 204.9]

[Section 204.5 redesignated as § 204.9 at 74 Fed. Reg. 25638, May 29, 2009, effective July 2, 2009]

§ 204.10  Payment of interest on balances.

(a)  Payment of interest. The Federal Reserve Bank shall pay interest on balances maintained at Federal Reserve Banks by or on behalf of an eligible institution as provided in this section and under such other terms and conditions as the Board may prescribe.

(b)  Rate. Except as provided in paragraph (c) of this section, Federal Reserve Banks shall pay interest at the following rates--

(1)  For balances up to the top of the penalty-free band, at 1/4 percent;

(2)  For excess balances, at 1/4 percent; or

(3)  For balances up to the top of the penalty-free band, excess balances, and term deposits, at any other rate or rates as determined by the Board from time to time, not to exceed the general level of short-term interest rates. For purposes of this subsection, "short-term interest rates" are rates on obligations with maturities of no more than one year, such as the primary credit rate and rates on term federal funds, term repurchase agreements, commercial paper, term Eurodollar deposits, and other similar instruments.

(c)  Pass-through balances. A pass-through correspondent that is an eligible institution may pass back to its respondent interest paid on balances maintained to satisfy a reserve balance requirement of that respondent. In the case of balances maintained by a pass-through correspondent that is not an eligible institution, a Reserve Bank shall pay interest only on the balances maintained to satisfy a reserve balance requirement of one or more respondents up to the top of the penalty-free band, and the correspondent shall pass back to its respondents interest paid on balances in the correspondent's account.

(d)  Excess balance accounts. (1) A Reserve Bank may establish an excess balance account for eligible institutions under the provisions of this paragraph (d). Notwithstanding any other provisions of this part, the excess balances of eligible institutions in an excess balance account represent a liability of the Reserve Bank solely to those participating eligible institutions.

(2)  The participating eligible institutions in an excess balance account shall authorize another institution to act as agent of the participating institutions for purposes of general account management, including but not limited to transferring the excess balances of participating institutions in and out of the excess balance account. An excess balance account must be established at the Reserve Bank where the agent maintains its master account, unless otherwise determined by the Board. The agent may not commingle its own funds in the excess balance account.

(3)  No required reserve balances or clearing balances may be maintained at any time in an excess balance account, and balances maintained in an excess balance account will not satisfy any institution's reserve balance requirement or contractual clearing balance.

(4)  An excess balance account must be used exclusively for the purpose of maintaining the excess balances of participants and may not be used for general payments or other activities.

(5)  Interest shall be paid on excess balances of eligible institutions maintained in an excess balance account in accordance with paragraph (b)(2) or (b)(3) of this section.

(6)  A Reserve Bank may establish additional terms and conditions consistent with this part with respect to the operation of an excess balance account, including, but not limited to, terms of and fees for services, conditions under which an institution may act as agent for an account, restrictions on the agent with respect to account management, penalties for noncompliance with this section or any terms and conditions, and account termination.

[Codified to 12 C.F.R. § 204.10]

[Section 204.10 added at 73 Fed. Reg. 59485, October 9, 2008; amended at 74 Fed. Reg. 25629, May 29, 2009, effective July 2, 2009; 76 Fed. Reg. 42019, July 18, 2011, effective July 21, 2011; 77 Fed. Reg. 21854, April 12, 2012, effective July 12, 2012; 77 Fed. Reg. 21854, April 12, 2012, effective June 27, 2013]

1 A time deposit, or a portion thereof, may be paid during the period when an early withdrawal penalty would otherwise be required under this part without imposing an early withdrawal penalty specified by this part:
  (a) Where the time deposit is maintained in an individual retirement account established in accordance with 26 U.S.C. 408 and is paid within seven days after establishment of the individual retirement account pursuant to 26 CFR 1.408-6(d)(4), where it is maintained in a Keogh (H.R. 10) plan, or where it is maintained in a "401(k) plan" under 26 U.S.C. 401(k); provided that the depositor forfeits an amount at least equal to the simple interest earned on the amount withdrawn;
  (b) Where the depository institution pays all or a portion of a time deposit representing funds contributed to an individual retirement account or a Keogh (H.R. 10) plan established pursuant to 26 U.S.C. 408 or 26 U.S.C. 401 or to a "401(k) plan" established pursuant to 26 U.S.C. 401(k) when the individual for whose benefit the account is maintained attains age 591/2 or is disabled (as defined in 26 U.S.C. 72(m)(7)) or thereafter;
  (c) Where the depository institution pays that portion of a time deposit on which federal deposit insurance has been lost as a result of the merger of two or more federally insured banks in which the depositor previously maintained separate time deposits, for a period of one year from the date of the merger;
  (d) Upon the death of any owner of the time deposit funds;
  (e) When any owner of the time deposit is determined to be legally incompetent by a court or other administrative body of competent jurisdiction; or
  (f) Where a time deposit is withdrawn within ten days after a specified maturity date even though the deposit contract provided for automatic renewal at the maturity date. Go back to Text

2 Other than states, provinces, municipalities, or other regional or local governmental units or agencies or instrumentalities thereof. Go back to Text

3 The designated entities are specified in 12 CFR 204.125. Go back to Text

4In order to ensure that no more than the permitted number of withdrawals or transfers are made, for an account to come within the definition of "savings deposit," a depository institution must either:   (a)  Prevent withdrawals or transfers of funds from this account that are in excess of the limits established by paragraph (d)(2) of this section, or   (b)  Adopt procedures to monitor those transfers on an ex post basis and contact customers who exceed the established limits on more than occasional basis. For customers who continue to violate those limits after they have been contacted by the depository institution, the depository institution must either close the account and place the funds in another account that the depositor is eligible to maintain or take away the transfer and draft capacities of the account. An account that authorizes withdrawals or transfers in excess of the permitted number is a transaction account regardless of whether the authorized number of transactions is actually made. For accounts described in paragraph (d)(2) of this section, the institution at its option may use, on a consistent basis, either the date on the check, draft, or similar item, or the date the item is paid in applying the limits imposed by that section. Go back to Text

5 Other than states, provinces, municipalities, or other regional or local governmental units or agencies or instrumentalities thereof. Go back to Text

6 The designated entities are specified in 12 CFR 217.126. Go back to Text

7 This subparagraph does not apply to assets that were acquired by an IBF from its establishing entity before the end of the second reserve computation period after its establishment. Go back to Text

8 See footnote 7. Go back to Text

9 A deposit of a foreign branch, office, subsidiary, affiliate or other foreign establishment ("foreign affiliate") controlled by one or more domestic corporations is not regarded as a deposit of a United States resident if the funds serve a purpose in connection with its foreign or international business or that of other foreign affiliates of the controlling domestic corporation(s). Go back to Text

Editor's Note*Text of subsection (z) effective July 12, 2012 until January 24, 2013. **Text of subsection (bb) effective July 12, 2012. ***Text of subsections (ee) and (ff) effective July 12, 2012 until January 24, 2013.
  Editor's Note*Subsections (d) through (f) effective July 12, 2010. Go back to Text

10 Other than states, provinces, municipalities, or other regional or local governmental units or agencies or instrumentalities thereof. Go back to Text

11 The designated entities are specified in 12 CFR 204.125. Go back to Text

12 See footnote 10. Go back to Text

13 See footnote 11. Go back to Text


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