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4000 - Advisory Opinions

Deposits Payable Only In Puerto Rico


January 14, 1994

Jules Bernard, Counsel

This letter responds to your correspondence of December 29, 1993, addressed to former General Counsel Alfred J. T. Byrne, regarding the following arrangement proposed by your client:

The proposed product is a deposit instrument payable solely in Puerto Rico, consisting of a zero-balance or very-low-balance, non-interest-bearing, demand transactional account, and an interest-bearing, nontransactional, seven-day notice account. Funds in the notice account may only be withdrawn by the depositor or transferred to the demand account, in both instances against the express order of the depositor. There are no preauthorized or automatic withdrawals or transfers. Withdrawal orders must be made in person, by mail, or messenger. Transfer orders may take any form, as long as there is same-day written confirmation of telephone and data-transmission orders. Written orders and written confirmations of telephone/data orders may be delivered personally, by messenger, mail, telex or fax.

Please be advised that Part 329 of the FDIC's regulations, 12 C.F.R. Part 329, applies only to deposits payable in the 50 States and the District of Columbia--not to deposits payable only in Puerto Rico. See id. § 329.0. Accordingly, the requirements and prohibitions set forth in Part 329 do not affect the proposed arrangement.

The Federal Reserve's Regulation D, id. Part 204, does apply to some deposits payable in Puerto Rico, however. To be sure, Regulation D says it does not apply to "any deposit that is payable at an office located outside the United States"--i.e., outside the 50 States and the District of Columbia. Id. § 204.1(c)(5); see id. § 204.2(r). But it also specifies that the quoted phrase refers to deposits belonging to nonresidents of the United States, and to deposits of $100,000 or more that belong to residents of the United States. Id. § 204.2(t). Put the other way around, Regulation D applies to a deposit--even if the deposit is payable only in Puerto Rico--if the deposit is less than $100,000 and belongs to a United States resident.

Your client's proposal evidently contemplates that customers--including corporate customers--would be able to make unlimited transfers of funds from interest-bearing deposits by means of instructions communicated electronically. An arrangement of this kind does not appear to be consistent with Regulation D's "six transaction rule." See id. § 204.2(d)(2). Accordingly, the arrangement could cause these interest-bearing deposits to be classified as "demand deposits" for reserve-requirement purposes when the deposits are in amounts under $100,000 and belong to corporations domiciled in the United States. See id. § 204(2)(b)(2).

If you have any further questions about this matter, or if I can help you in any other way, please call me at (202) 898-3731.

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