from its deposit liabilities is inconsistent with the basis of the provision for cashitem deductions-to avoid situations in which two member banks maintain reserves against the same funds.

(c) The Board considers that it should bring its regulations and interpretations in this area into harmony. Withdrawal of the 1928 ruling would eliminate the incongruity between such ruling and the provisions of § 204.1(g). Most Federal funds transactions are presently handled through entries on the books of the Reserve Banks (and do not involve the issuance of a check), and all such transactions can be handled in that manner. Consequently, withdrawal of the 1928 ruling would have little impact. Also, adopting such course of action seems clearly preferable to modifying § 204.2(b) to prohibit the deduction from gross demand deposits of a certain class of cash items-namely, those received in repayment of a Federal funds transaction.

(d) Accordingly, the 1928 ruling is withdrawn. Hereafter, as provided in § 204.1(g) of Regulation D, "The term 'gross demand deposits' means the sum of all demand deposits, including * ** all outstanding certified and officers' checks".

[Reg. D 35 F.R. 3801, Feb. 27, 1970]

§ 204.114 Prepayment of Interest on Deposits.

For the text of interpretation, see § 217.149 of this subchapter.

[Reg. D 35 F.R. 5081, Mar. 26, 1970; 35 F.R. 8654, June 4, 1970]

§ 204.115 Borrowings by bank affiliates as deposits.

Effective September 17, 1970, the Board of Governors has amended § 204.1(f) to apply the rules governing member bank reserve requirements (Regulation D) to funds received by member banks as the result of issuance of obligations by affiliates of the bank, including obligations commonly described as commercial paper. The following examples illustrate the effect of the amendment:

(a) A corporation that controls a majority of the stock of a member bank establishes and acquires a majority of the stock of another corporation. That corporation proposes to acquire $10 million by the public sale on September 1 of promissory notes in amounts of $100,000 or more with a maturity of 90 days and to use $5 million to acquire, on September 1, interests in loans made by

the bank, $3 million of which will mature in 90 days and $2 million of which will mature in 180 days. Under the amendment to Regulation D, $5 million of the notes will become subject, on September 17, to a 5 percent reserve requirement (assuming the member bank has other time deposits subject to § 204.5(a) of $5 million), which will continue as long as, and to the extent that, funds of the affiliate are used to maintain the availability of funds to the bank.

(b) If, on September 15, the affiliate described in the preceding paragraph sells to a third person $1 million of the 90-day loans, the bank may thereupon reduce its deposits subject to time deposit reserve requirements by $1 million. If, on November 1, $1 million of the affiliate s funds are again used to purchase from the bank notes maturing in 45 days, the bank must add back $1 million to its deposits subject to time deposit reserve requirements, even though the affiliate does not issue additional obligations. (If, between the sale of notes on September 15 and the additional purchase on November 1, the affiliate places the idle funds in a checking account with the bank, the usual demand deposit reserve requirement applies instead, for that period.) If, upon maturity on November 30 of the affiliate's $5 million of obligations, the affiliate extends $1 million thereof for 60 days and $2 million for 90 days, the $1 million is subject to reserves only for 16 days-until the maturity of the 45-day loans-unless additional funds are channeled to the bank or repayments on the loans maturing in that time are deferred. If, on January 1, a portion of the $2 million 180-day loans is prepaid, the amount of such prepayments will reduce the amount of the affiliate's obligations that are subject to reserves, unless additional funds are channeled to the bank.

(c) A corporation that is majoritycontrolled by a company that also majority-controls a member bank proposes to acquire $10 million by the sale of 90day $100,000 promissory notes and use the proceeds to acquire all of the automobile loans of the bank. The bank will thereupon cease to engage in that type of lending. The amendments apply to an affiliate's obligations issued to finance such a reorganization, even though the shift of operations from the bank is on a one-time basis. The funds obtained by the bank may be used by it to expand its remaining lending activities, and the

Board considers that such funds should be subject to reserve requirements at least as long as the affiliate holds the assets acquired from the bank.

[Reg. D 35 F.R. 13512, Aug. 25, 1970]

§ 204.116 Currency or coin held principally for its numismatic or bullion value.

(a) The Board of Governors has considered the status under Regulation D for purposes of reserve computations of currency and coins held by member banks principally for their numismatic or bullion value.

(b) It appears that a number of banks have been counting as part of their reserve requirements silver coins which the banks have acquired and segregated from coins available to meet customers' demands. In some cases, the coins are held by the bank for its own account with the expectation of earning a premium over face value because of the greater numismatic or bullion value of the coins. In other cases, the coins are held by the bank for the account of its customers, under a written or oral agreement, whereby the customer retains the right to, or an option on, such coins.

(c) When a member bank acquires currency or coin that it has the full and unrestricted right to use at any time to meet depositors' claims, such currency or coin may be counted as reserves for purposes of satisfying the bank's reserve requirements. The fact that a bank may choose to segregate part of such currency or coin does not of itself disqualify the currency or coin from counting as reserves.

(d) A bank does not have "the full and unrestricted right" within the meaning of the preceding paragraph if the bank is prevented, legally or practically, by virtue of customer agreements, undertakings, or arrangements, from using the currency or coin at any time to meet customer's demands. Such customer agreements, undertakings, or arrangements may relate to the specific currency or coins transferred to the bank or to currency or coin that the bank is or may be obligated to acquire to replace the specific currency or coins so transferred.

(e) Examples of agreements, undertakings, or arrangements between a bank and its customer that have come to the Board's attention under which the bank

does not have the full and unrestricted right to use silver coins at any time to meet customers' demands are:

(1) The bank holds the coins subject to a repurchase agreement or an option by the customer or his assignee (a borrowing by the bank of the coins).

(2) Coins are deposited by the customer and the bank promises to resell to the customer a similar amount of coins (in effect a borrowing by the bank of the coins).

(3) The coins deposited by the customer are to be segregated and returned to the customer upon his request or after a certain period of time (a bailment).

(4) The bank issues a certificate of deposit, the consideration for which is coins, and the bank simultaneously enters into an agreement to redeem the certificate by payment of the coins, either the identical coins deposited by the customer or similar coins (a special deposit).

(5) Coins are transferred to the bank as collateral for a loan.

(f) An agreement between the bank and its customer that the currency or coin is to be regarded as "owned" by the bank for purposes of reserve requirements is not determinative. Whether currency or coin may be counted as reserves depends on the underlying nature of the transaction in the light of the principle and examples set forth herein.

(g) This interpretation is not intended to affect the legality of agreements, undertakings, or arrangements between the bank and its customers regarding currency or coin.

(Interprets and applies 12 U.S.C. 461.) [Reg. D 35 F.R. 18957, Dec. 15, 1970]

NOTE: The amendment appearing at 35 F.R. 18957 is effective Jan. 7, 1971.

§ 205.1 Statutory requirements.

Section 14 of the Federal Reserve Act reads in part as follows: 1

Every Federal Reserve bank shall have power

(b) To buy and sell, at home or abroad, bonds and notes of the United States, and bills, notes, revenue bonds, and warrants with a maturity from date of purchase of not exceeding six months, issued in anticipation of the collection of taxes or in anticipation of the receipt of assured revenues by any State, county, district, political subdivision, or municipality in the continental United States, including irrigation, drainage and reclamation districts, such purchases to be made in accordance with rules and "egulations prescribed by the Federal Reserve Board.

§ 205.2 Definitions.

Within the meaning of this part: (a) The term "warrant" shall be construed to mean "bills, notes, revenue bond, and warrants with a maturity from date of purchase of not exceeding six months."

(b) The term “municipality” shall be construed to mean "State, county, district, political subdivision, or municipality in the States of the United States and the District of Columbia, including irrigation, drainage, and reclamation districts."

(c) The term "net funded indebtedness" shall be construed to mean the

1 Section 14(b) of the Federal Reserve Act, as amended by 48 Stat. 348, 646, 49 Stat. 706, 56 Stat. 180; 12 U.S.C. 355, reads as follows: "Every Federal Reserve bank shall have power to buy and sell, at home or abroad, bonds and notes of the United States, bonds of the Federal Farm Mortgage Corporation having maturities from date of purchase of not exceeding 6 months, bonds issued under the provisions of subsection (c) of section 4 of the Home Owners' Loan Act of 1933, as amended, and having maturities from date of purchase of not exceeding 6 months, and bills, notes, revenue bonds, and warrants with a maturity from date of purchase of not exceeding 6 months issued in anticipation of the collection of taxes or in anticipation of the receipt of assured revenues by any State, county, district, political subdivision, or municipality in the continental United States, including irrigation, drainage, and reclamation districts, such purchases to be made in accordance with rules and regulations prescribed by the Board of Governors of the Federal Reserve System: Provided, That any bonds, notes, or other obligations which are direct obligations of the United States or which are fully guaranteed by the United States 'as to principal and interest may be bought and sold without regard to maturities but only in the open market."

legal gross indebtedness of the municipality (including the amount of any school district or other bonds which depend for their redemption upon taxes levied upon property within the municipality) less the aggregate of the following items:

(1) The amount of outstanding bonds or other debt obligations made payable from current revenues;

(2) The amount of outstanding bonds issued for the purpose of providing the inhabitants of a municipality with public utilities, such as waterworks, docks, electric plants, transportation facilities, etc.: Provided, That evidence is submitted showing that the income from such utilities is sufficient for maintenance, for payment of interest on such bonds, and for the accumulation of a sinking fund sufficient for their redemption at maturity;

(3) The amount of outstanding improvement bonds, issued under laws which provide for the levying of special assesments against abutting property in amounts sufficient to insure the payment of interest on the bonds and the redemption thereof at maturity: Provided, That such bonds are direct obligations of the municipality and included in the gross indebtedness of the municipality; and

(4) The total of all sinking funds accumulated for the redemption of the gross indebtedness of the municipality, except sinking funds applicable to bonds, described in subparagraphs (1), (2), and (3) of this paragraph.

[Reg. E, effective July 10, 1923, as amended at 24 F.R. 7029, Aug. 29, 1959]

§ 205.3 Class of warrants eligible for purchase.

*{

Any Federal Reserve bank may purchase warrants issued by a muncipality in anticipation of the collection of taxes or in anticipation of the receipt of assured revenues, provided:

(a) They are the general obligations of the entire municipality; it being intended to exclude as ineligible for purchase all such obligations as are payable from "local benefit" and "special assessment" taxes when the municipality at large is not directly or ultimately liable;

(b) They are issued in anticipation of taxes or revenues which are due and payable on or before the date of maturity of such warrants; but the Federal Reserve Board may waive this condition in specific cases. For the purposes of this part taxes shall be considered as due and pay

able on the last day on which they may be paid without penalty;

(c) They are issued by a municipality: (1) Which has been in existence for a period of 10 years;

(2) Which for a period of 10 years previous to the purchase has not defaulted for longer than 15 days in the payment of any part of either principal or interest of any funded debt authorized to be contracted by it;

(3) Whose net funded indebtedness does not exceed 10 percentum of the valuation of its taxable property, to be ascertained by the last preceding valuation of property for the assessment of taxes.

§ 205.4 "Existence" and "nondefault”.

Warrants will be construed to comply with that part of § 205.3 (c) relative to term of existence and nondefault, under the following conditions:

(a) Warrants issued by or in behalf of any municipality which was, subsequent to the issuance of such warrants, consolidated with or merged into an existing political division which meets the requirements of these regulations, will be deemed to be the warrants of such political division: Provided, That such warrants were assumed by such political division under statutes and appropriate proceedings the effect of which is to make such warrants general obligations of such assuming political division and payable, either directly or ultimately, without limitation to a special fund from the proceeds of taxes levied upon all the taxable real and personal property within its territorial limits.

(b) Warrants issued by or in behalf of any municipality which was, subsequent to the issuance of such warrants, wholly succeeded by a newly organized political division whose term of existence, added to that of such original political division or of any other political division so succeeded, is equal to a period of 10 years will be deemed to be warrants of such succeeding political division: Provided, That during such period none of such political divisions shall have defaulted for a period exceeding 15 days in the payment of any part of either principal or interest of any funded debt authorized to be contracted by it: And provided further, That such warrants were assumed by such new political division under statutes and appropriate proceedings the effect of which is to make such warrants general obligations of such as

suming political division and payable, either directly or ultimately, without limitation to a special fund from the proceeds of taxes levied upon all the taxable real and personal property within its territorial limits.

(c) Warrants issued by or in behalf of any municipality which, prior to such issuance, became the successor of one or more, or was formed by the consolidation or merger of two or more, pre-existing political divisions, the term of existence of one or more of which, added to that of such succeeding or consolidated political division, is equal to a period of 10 years, will be deemed to be warrants of a political division which has been in existence for a period of 10 years: Provided, That during such period none of such original, succeeding, or consolidated political divisions shall have defaulted for a period exceeding 15 days in the payment of any part of either principal or interest of any funded debt authorized to be contracted by it.

(a) Except with the approval of the Federal Reserve Board, no Federal Reserve bank shall purchase and hold an amount in excess of 25 percent of the total amount of warrants outstanding at any time and issued in conformity with provisions of section 14(b), quoted in § 205.1 and actually sold by a municipality.

(b) Except with the approval of the Federal Reserve Board, the aggregate amount invested by any Federal Reserve bank in warrants of all kinds shall not exceed at the time of purchase a sum equal to 10 percent of the deposits kept by its member banks with such Federal Reserve bank.

(c) Except with the approval of the Federal Reserve Board, the maximum amount which may be invested at the time of purchase by any Federal Reserve bank in warrants of any single municipality shall be limited to the following percentages of the deposits kept in such Federal Reserve bank by its member banks:

(1) Five percent of such deposits in warrants of a municipality of 50,000 population or over;

(2) Three percent of such deposits in warrants of a municipality of over 30,000 population, but less than 50,000;

(3) One percent of such deposits in warrants of a municipality of over 30,000 population, but less than 50,000;

(4) One percent of such deposits in warrants of a municipality of over 10,000 population, but less than 30,000.

(d) Any Federal Reserve bank may purchase from any of its member banks warrants of any municipality, indorsed by such member bank, with waiver of demand, notice, and protest if such warrants comply with §§ 205.3, 205.5 (b), except that where a period of 10 years is mentioned in § 205.3 (c) a period of 5 years shall be substituted for the purposes of this clause.

§ 205.6 Warrants of small municipalities.

Warrants of a municipality of 10,000 population or less shall be purchased only with the special approval of the Federal Reserve Board.

The population of a municipality shall be determined by the last Federal or State census. Where it can not be exactly determined the Federal Reserve Board will make special rulings. § 205.7

Opinion of counsel.

Sec. 206.46

206.47

206.51

Form for registration of additional class of securities of a bank pursuant to section 12(b) or section 12 (g) of the Securities Exchange Act of 1934 (Form F-10).

Form for statement to be filed pursuant to § 206.4(g) (2) or § 206.5 (1) of Regulation F (Form F-11). Form for proxy statement; statement where management does not solicit proxies (Form F-5). 206.52 Form for statement in election contests (Form F-6).

206.53 Form for statement to be filed pursuant to § 206.5 (m) of Regulation F (Form F-12).

This part is issued by the Board of Governors of the Federal Reserve System (the "Board") pursuant to section 12(i) of the Securities Exchange Act of 1935 (15 U.S.S. 78) (the "Act") and applies to all securities subject to registration pursuant to section 12(b) or section 12(g) of the Act by a bank that is organized under State law and is a member of the Federal Reserve System ("bank”). § 206.2 Definitions.

For the purposes of this part, including all forms and instructions promulgated for use in connection herewith, unless the context otherwise requires:

(a) The terms "exchange," "director," "person," "security," and "equity security" have the meanings given them in section 3(a) of the Act.

(b) The term "affiliate" (whether referred to as an "affiliate" of, or a person "affiliated" with, a specified person) means a person that directly, or indirectly through one or more interme