PART 204-RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS

Sec.

204.1 Authority, purpose and scope. 204.2 Definitions.

204.3 Computation and maintenance. 204.4 Transitional adjustments.

204.5 Emergency reserve requirement. 204.6 Supplemental reserve requirement. 204.7 Penalties.

204.8 International banking facilities. 204.9 Reserve requirement ratios. 204.121 Bankers' banks.

204.122 Secondary market activities of international banking facilities.

AUTHORITY: Secs. 19, 25, 25(a) of the Federal Reserve Act (12 U.S.C 461, 601, 611); and sec. 7 of the International Banking Act of 1978 (12 U.S.C 3105).

SOURCE: 45 FR 56018, Aug. 22, 1980, unless 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 seq.) 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 reserves that depository institutions are required to maintain 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 se tion 2 of the Federal Home Loan Ba Act (12 U.S.C. 1422(4)); and

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

(2) Except as may be otherwise pr vided by the Board, a foreign bank branch or agency located in th United States is required to comp with the provisions of this part in th same manner and to the same exte as if the branch or agency were member bank, if its parent foreig bank (i) has total worldwide conso dated bank assets in excess of $1 b lion; or (ii) is controlled by a foreig company or by a group of foreign con panies that own or control foreig banks that in the aggregate have tot worldwide consolidated bank assets excess of $1 billion. In addition, an other foreign bank's branch located i the United States that is eligible apply to become an insured ban under section 5 of the Federal Depos Insurance Act (12 U.S.C. 1815) is r quired to maintain reserves in accor ance with this part as a nonmembe depository institution.

(3) Except as may be otherwise pr vided by the Board, an Edge Corpora tion (12 U.S.C. 611 et seq.) or an Agre ment Corporation (12 U.S.C. 601 seq.) is required to comply with th provisions of this part in the sam manner and to the same extent as member bank.

(4) This part does not apply to an financial institution that (i) is orga nized solely to do business with othe financial institutions; (ii) is owned pr marily by the financial institution with which it does business; and (ii) does not do business with the genera public.

(5) The provisions of this part do no apply to any deposit that is payabl only at an office located outside th United States.

(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 seven years or more, is not subject to Federal interest rate limitations, 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).

(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 commecial 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) Hypothecated "deposits" create by payments on an installment loa where (A) the amounts received a not used immediately to reduce th unpaid balance due on the loan unt the sum of the payments equals th entire amount of loan principal and in terest; (B) and where such amoun are irrevocably assigned to the depos tory institution and cannot be reache by the borrower or creditors of th borrower;

(vi) Dealer reserve and differentia accounts that arise from the financin of dealer installment accounts receiv able, and which provide that th dealer may not have access to th funds in the account until the instal ment loans are repaid, as long as th depository institution is not actuall (as distinguished from contingently obligated to make credit or fund available to the dealer;

(vii) A dividend declared by a deposi tory institution for the period inter vening between the date of the decla ration of the dividend and the date or which it is paid;

(viii) An obligation representing "pass through account," as defined in this section;

(ix) An obligation arising from th retention by the depository institution of no more than a 10 per cent interes in a pool of conventional 1-4 family mortgages that are sold to third par ties;

(x) An obligation issued to a State o municipal housing authority under a loan-to-lender program involving the issuance of tax exempt bonds and the subsequent lending of the proceeds to the depository institution for housing finance purposes;

(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 14 days, or a deposit representing funds for which the depository institution does not reserve the right to require at least 14 days' written notice of an intended withdrawal. The term includes all deposits other than time and savings deposits. 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 required notice of withdrawal 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 14 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. The term does not include an obligation that is a time deposit under section 204.2(c)(1)(ii).

(2) A "demand deposit" does not include checks or drafts drawn by the depository institution on the Federal Reserve or on another depository institution.

(c)(1) "Time deposit" means (i) a deposit that the depositor does not have a right to withdraw for a period of 14 days or more after the date of deposit. "Time deposit" includes funds:

(A) Payable on a specified date not less than 14 days after the date of deposit;

(B) Payable at the expiration of a specified time not less than 14 days after the date of deposit;

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(C) Payable upon written notice which actually is required to be given by the depositor not less than 14 days before the date of repayment;

(D) Such as "Christmas club" ac counts and "vacation club" accounts, that are deposited under written contracts providing that no withdrawal 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 14 days from the end of the period; or

(E) That constitute a “savings depos it" which is not regarded as a “transaction account."

(ii) Borrowings, regardless of maturity, represented by a promissory note, an acknowledgement of advance, or similar obligation described in section 204.2(a)(1)(vii) that is issued to any office located outside the United States of another depository institution or Edge or Agreement Corpora tion organized under the laws of the United States, to any office located outside the United States of a foreign bank, or to institutions whose time deposits are exempt from interest rate limitations under section 217.3(g) of Regulation Q (12 CFR Part 217.3(g)).

(2) A time deposit may be represented by a transferable or nontransferable, or a negotiable or nonnegotiable, certificate, instrument, passbook, statement, or otherwise. A "time deposit" includes share certificates and certificates of indebtedness issued by credit unions, and certificate accounts and notice accounts issued by savings and loan associations.

(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 14 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. A deposit may continue to be classified as a savings deposit even if the depository institution exercises its right to require notice of withdrawal. A "savings deposit" includes a regular share account

at a credit union and a regular account at a savings and loan association.

(2) For depository institutions subject to 12 CFR Part 217 or 12 CFR Part 329, funds deposited to the credit of, or in which any beneficial interest is held by, a corporation, association, partnership or other organization operated for profit may be classified as a savings deposit if such funds do not exceed $150,000 per depositor at the depository institution.

(3) "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 on which the depositor or account holder is permitted to make withdrawals by negotiable or transferable instrument, payment orders of withdrawal, telephone transfers, or other similar device for the purpose of making payments or transfers to third persons or others. "Transaction account" includes:

(1) Demand deposits;

(2) Deposits or accounts subject to check, draft, negotiable order of withdrawal, share draft, or other similar item;

(3) Savings deposits or accounts in 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 accounts (automatic transfer accounts);

(4) Deposits or accounts in which payments may be made to third parties by means of an automated teller machine, remote service unit or other electronic device; and

(5) Deposits or accounts in which payments may be made to third parties by means of a debit card;

(6) Deposits or accounts under the terms of which, or which by practice of the depository institution, the depositor is permitted or authorized to make more than three withdrawals per month for purposes of transfer

ring funds to another account or i making a payment to a third party means of preauthorized or telepho agreement, order or instruction. An: count that permits or authorizes mc than three such withdrawals in a c endar month, or statement cycle ( similar period) of at least four weel is a "transaction account" whether not more than three such withdrawa actually are made during such peric A "preauthorized transfer" includ any arrangement by the depository i stitution to pay a third party from tl account of a depositor upon written oral instruction (including an order r ceived through an automated cleari house (ACH)), or any arrangement a depository institution to pay a thi party from the account of the depos tor at a predetermined time or on fixed schedule. An account is not "transaction account" by virtue of a arrangement that permits withdrawa for the purpose of repaying loans ar associated expenses at the same d pository institution (as originator servicer).

(f)(1) "Nonpersonal time deposi means:

(i) A time deposit, including a sa ings deposit, that is not a transactio account, representing funds in whic any beneficial interest is held by a d positor which is not a natural perso

(ii) A time deposit, including a sa ings deposit that is not a transactio account, that represents funds deposi ed to the credit of a depositor that not a natural person, other than a de posit to the credit of a trustee or othe fiduciary if the entire beneficial inter est in the deposit is held by one o more natural persons;

(iii) A time deposit that is transfer able, except a time deposit originall issued before October 1, 1980, to an held by one or more natural persons including a deposit to the credit of trustee or other fiduciary if the entir beneficial interest in the deposit i held by one or more natural persons;

(iv) A time deposit that is transfer able, issued on or after October 1 1980, to and held by one or more natu ral persons, including a deposit to the credit of a trustee or other fiduciary i the entire beneficial interest is held by one or more natural persons. A time