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FEDERAL RESERVE BANK

OF NEW YORK

Circular Mo. 877 1 March 15. 1980

A N T I - I N F L A T I O N P R O G R A M

To All Member Banka

in the Second Federal Reserve District _

On March lU, President Carter announced a "broad program designed to

moderate and reduce inflationary forces in the United States economy. In

addition to fiscal, energy, and other measures, the President, under the terms

of the Credit Control Act of 1969, provided the Federal Reserve Board vith *he authority to exercise special restraints on the growth of certain kinds of

credit. At the same time, the Federal Reserve Board has taken a series of other steps to restrain credit growth, including a 3 percent surcharge on

certain borrowings from the Federal Reserve by member banks with deposits of

$500 million or more.

The Federal Reserve program includes (l) a voluntary Special Credit Restraint Program that applies to financial institutions, (2) a restraint

program requiring special deposits on certain types of consumer credit, (3) a

strengthening of the marginal reserve requirement program on managed liabilities

of member banks, (U) a special deposit requirement on increases in managed

liabilities of nonmember banks, (5) a special deposit requirement on increases in assets of money market mutual funds, and (6) the 3 percent surcharge on

discount window borrowings by large member banks, mentioned above. In addition,

the Federal Reserve Board has imposed interest rate ceilings under Regulation Q on certain debt instruments issued by bank holding companies, in view of the

likely impact of such instruments on deposit flows among depository institutions.

Descriptions of the voluntary Special Credit Restraint Program, the Consumer Credit Restraint Program, and the Managed Liabilities Reserve Require

ments Program, are set forth below. Banks with deposits in excess of $300 million will receive instructions shortly regarding monthly or quarterly reports

authorized by the President for the purpose of monitoring the Special Credit

Restraint Program. Even if your institution is exempt from reporting under that program because its deposits are less than $300 million, examiners will

evaluate your loan portfolio in the context of your expected cooperation.

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The highlights of the programs, as they affect State member banks,as described in more detail in enclosures with this circular, are as follows

Special Credit Restraint Program 1. Banks axe expected to restrain their growth in total loans

to a range of 6 to 9 percent. However, the actual growth for individual

institutions will be appraised in light of their location, past growth patterns, their liquidity and capital positions, and other individual circumstances. Similar restraint should be exercised with respect to commitments.

2. Within this general constraint banks are encouraged to maintain reasonable availability of funds for small businesses, farmers, housing, smaller agriculturally oriented commercial bank correspondents, and thrift institutions.

3. Credit for automobile and home improvement loans should be

treated normally.U. Special restraint should be applied to financing of corporate

takeovers or mergers, of the retirement of corporate stock, of speculative holding of commodities or precious metals, and of extraordinary inventory

accumulation.5 . In establishing the price and non-price terms of bank loans,

no specific guidelines or formulas are suggested. However, as appropriate

and to the extent possible, lending rates and other terms should take account of the special needs of small businesses and farmers.

Consumer Credit Restraint Program 1. The program is designed to slow the expansion of certain

types of consumer credit by requiring that all bank lenders with more than

$2 million of such credit outstanding on March lU maintain a special deposit

at a Federal Reserve Bank equal to 15 percent of the increases in such credit since March lU.

2. Covered consumer credit includes loans extended through credit cards, checking account overdraft credit plans, other forms of revolving credit, all open-end credit, unsecured closed-end credit, or secured credit not extended to purchase the collateral— with the exceptions noted below.

3. Excluded from covered consumer credit are secured loans where the security is purchased with the proceeds of the loan, such as an auto

mobile, a mobile home, furniture or appliance; mortgage loans where the proceeds are used to purchase the home or for home improvements; credit

extended for utility, health or educational services; credit extended under State or Federal government guaranteed loan programs; and savings passbook

leans.U. All banks with $2 million or more of covered credit out

standing on March lU must file a base report by April 1 with the Federal Reserve. This report will state the amount of credit outstanding on March lU or the nearest available figure.

2

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5. Thereafter, covered banks must file a monthly report vith the Federal Reserve on the amount of covered consumer credit outstanding during

the month, based on the daily average amount of covered credit or other available figures. The first of these reports, for the period from March 15

through April 30 is due by May 12. The report for subsequent months is due

by the second Monday of the month after the month covered by the report.

6. The first 15 percent special deposit requirement must be

maintained during the period beginning May 22 and ending June 25 on increases

in outstanding credit during the first reporting period.

Managed Liabilities Reserve Requirements

1. This program is designed to strengthen the marginal reserve requirement first imposed by the Board on October 6, 1979- The changes made

will further restrain extensions of bank credit funded by increases in managed liabilities at member banks and U.S. branches and agencies of foreign banks.

2. The marginal liabilities base for those banks with a base in

excess of $100 million will be reduced by the larger of 7 percent or the amount

of any reduction in a bank’s foreign loans occurring since September 1979.In no case will the base be reduced below $100 million.

3- Each bank with a base in excess of $100 million must report

its outstanding foreign loans for September 13 through September 26, 1979 and for March 6 through March 12, 1980 by March 25, for purposes of recalculating the base.

U. In each reserve maintenance period including the one beginning

April 3, a marginal reserve requirement of 10 percent must be held against

increases in managed liabilities outstanding above the new adjusted base for

each reserve computation period, including the period beginning March 20.

All questions regarding the marginal reserve requirements on

managed liabilities of member banks, Edge corporations, and U.S. branches and agencies of foreign banks, special deposit requirements for non-

member banks (similar to the marginal reserve requirements), and the

Regulation Q amendment should be directed to our Bank Relations Department

(Tel. Nos. 212-791-6600 through 6606, 6071 and 6072). All questions regarding the Special Credit Restraint Program and special deposits on consumer credit and money market mutual funds should be directed to our supervision and regulations area (Tel. Nos. 212-3 -1358, 1359, 3858, 3Q 6U,3865, 3923, and 392 , and 791-6379)* Questions regarding the discount

rate surcharge should be directed to our Credit and Discount Department

(Tel. No. 212-791-61U6).

3

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Following is a list of enclosures that explain more fully the actions taken "by the Board:

— Board's March lU press release regarding the overall program to

moderate inflationary forces.

— Description of Special Credit Restraint Program.

— Text of new Regulation CC establishing a special

deposit requirement on increases in certain types of consumer credit, in money market mutual funds,and in managed liabilities of nonmember banks.

— Text of amendment to Regulation D, "Reserves of

Member Banks," reflecting the changes in reserve requirements on managed liabilities,

— Board's press release regarding amendments to Regulation Q.

— Text of amendments to Regulation Q,"Interest on Deposits,"

imposing interest rate ceilings on certain debt instruments issued by bank holding comoanies,

\

While the Federal Reserve is aware of the burdensome nature of these actions on both you and your customers, we believe that they are necessary to further the process of slowing the pace of inflation that has

become so painful. We also believe that these programs seek to spread the burden of combating inflation equitably among all lenders and as fairly among borrowers as is practical. We are counting on your wholehearted cooperation in the best interests, of our Nation.

THOMAS M. TIMLEN,

First Vice President

k

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FEDERAL RESERVE press release

For imm edia te rel eas e MARCH 14, 1980

The Federal Reserve Board today announced a series of monetary and

credit actions as part of a general government program to help curb inflationary

pressures. The action s are:

1. A voluntary Special Credit Restr aint Program that will apply to ail

domestic commercial banks, bank holding companies, business credit extended by

finance companies, and credit extended to U.S. residents by the U.S. agencies and

branches of foreign banks. The parents and af fili at es o f thos e foreign banks are urged

to cooperate in similarly restricting their lending to U.S. compan ies. Special effort

will be made to maintain credit for farmers and small businessmen.

2. A program of restraint on certa in types of consumer cre dit, including

credit cards, check credit overdraft plans, unsecured personal loans and secured credit

where the p roceeds are not used to finan ce the collat era l. The Board has estab lished a

special deposit requirement of 15 percent for all lenders on increases in covered types

of credit. Automobile credit, credit sp ecifica lly used to finance the purchase of

household goods such as furniture and appliances, home improvement loans and

mortgage credit are not covered by the program.

3. An increase from 8 percen t to 10 percen t in the marginal reserve

requirement on the managed liabilities of large banks that was first imposed last

October 6, and a reduction in the base upon which the reserve requirement is

calculated.

4. Restr aint on the amount of credit raised by large non-mem ber banks

by establish ing a sp ecial depo sit requirement of 10 percent on increa ses in their

managed liabilities.

5. Restra int on the rapid expansion of money market mutual funds by

establishing a special deposit requirement of 15 percent on increases in their total

assets above the level of March 14.

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6. A surcharge on discount borrowings by large banks to discou rage

frequent use of the discount window and to speed bank adjustments in

response to restr aint on bank rese rves . A surcharge of 3 per centa ge

points applies to borrowings by banks with deposits of $500 million or

more for more than one week in a row or more than four weeks in any

calendar quarter. The basic discount rate remains at 13 per cen t.

In making the announcement, the Board said:

"President Carter has announced a broad program of fiscal,

energy, credit and other measures designed to moderate and reduce

inflationary forces in a manner that can also lay the ground work for a

return to stable economic growth.

"Consistent with that objective and with the continuing intent of the Federal Reserve to restrain growth in money and credit during 1980,

the Federal Reserve has at the same time taken certain further actions to

reinforce the effectiveness of the measures announced in October of 1979.These actions include an increase in the marginal reserve requirements on

managed liabilities established on October 6 and a surcharge for large

banks on borrowings through the F ederal R eser ve discount window.

"The President has also provided the Federal Reserve, under the

terms of the Credit Control Act of 1969, with authority to exercise

particular restraint on the growth of certain types of consumer credit

exten ded by banks and othe rs. That restra int will be ach ieved through the

imposition of a requirement for special deposits equivalent to 15 percent of

any expansion of credit provided by credit cards, other forms of unsecured revolving credit, and personal loans.

"One consequence of strong demands for money and credit

generated in part by inflationary forces and expectations has been to bring

heavy pressure on credit and financial markets generally, with varying

impacts on particular secto rs of the econom y. At the same time , restraint

on growth in money and credit must be a fundamental part of the process

of restoring stability . That restraint is, and will continu e to be, based

primarily on control of bank reserves and other traditional instruments of monetary policy. However, the Federal Res erve Board also believes the

effectiveness and speed with which appropriate restraint can be achieved

without disruptive effects on credit markets will be facilitated by a more

formal program of voluntary restraint by important financial intermediaries, developing further the general criteria set forth in earlier

communications to member banks."

Special Credit Restraint Program

In adopting this program, the Board said increases in lending this year

should generally be consistent with the announced growth ranges for money and credit

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*

reported to Congress on February 19. Although growth trends will vary among banks

and regions of the country, growth in bank loans should not generally exceed the upper

part of the range of 6-9 percent indicated for bank credit (that is, loans and

inves tm ents) . Banks whose past lending patterns su gge st rela tive ly slow growth should

expect to confine their growth to the lower portion or even below the range for bank

credit.

The Board said the commercial paper market and finance companies—both

a growing source of business cr ed it- w ill be monitored closely in the program. Since

activity in the commercial paper market is normally covered by bank credit lines,

banks are expected to avoid increases in commitments for credit lines to support such

borrowing out of keeping with normal business need s. Thrift institutio ns and credit

unions will not be covered by the special program in light of the reduced trend in their

asset growth.

No numerical guidelines for particular types of credit are planned but

banks are encouraged particularly:

— To restrain unsecured lending to consu mers , including cred it cards

and other revolving credits. Credit for automobiles, home m ortgage

and home improvement loans should be treated normally in the light

of general market conditions.

— To discourage financing of corpo rate tak eove rs or mergers and the

retirement of corporate stock, except in those limited instances in

which there is a clear justification in terms of production or

economic efficiency commensurate with the size of the loan.

— To avoid financing for purely spe cu lativ e holdings of com m od ities or

precious metals or extraordinary inventory accumulation.

— To maintain ava ilability of funds to small business , farmers

homebuyers and others without access to other forms of financing.

— To restrain the growth in com m itm ents for back-up lines in support

of commercial paper.

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No specific guidelines will be issued on the terms and pricing of bank loans.

However, rates should not be calculated in a manner that reflects the cost of

relatively small amounts of marginal funds subject to the marginal reserve

requiremen t on managed liabilities. The Board also ex pe cts th at banks, as appropriate

and possible, will adjust lending rates and other terms to take account of the special

needs of small business and others.

Lenders covered by the program are asked to supply certain data and

inform ation. The Presiden t, in activ atin g the Cred it Control Act, has provided the

authority to require such reports.

Monthly reports are requested from domestic banks with assets in excess of

$1 billion and for branches and agencies of foreign banks thaft have worldwide assets in

ex ces s of $1 billion. Monthly reports are also requested on the business credit

activities of domestic affil iates of bank holding companies with total assets in excess

of $1 billion. Banks with ass ets be tw een $30 0 million and $1 billion are asked to report

quarterly. Sm aller institution s need not report unless subsequent develop men ts

warrant it.

Foreign banks will be asked to respect the substance and spirit of the

guidelines in their loans to U.S. borrowers or loans designed to support U.5. activity.

A panel of large corporations will be asked to report monthly on their

com m ercial paper issues and their borrowings abroad. Finance comp anies with more

than $1 billion in business loans outstanding will also be asked to report monthly on

their business credit outstanding.

Consumer Credit Restraint

The special deposit requirements of 15 percent on increases in some types

of consumer credit is designed to encourage particular restraint on such credit

exte nsio ns. Methods used by lenders to ach ieve such restraint are a m atter for

determ ination by the individual firms. Increases in covered cred it above the base

date—March 14—will be subject to the special deposit requirement.

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Among lenders subject to the regulation are commercial banks, finance

companies, credit unions, savings and loan associations, mutual savings banks, retail

establishments, gasoline companies and travel and entertainment card companies—in

all instances where there is $2 million or more in covered credit.

Typical examples of credit that is covered are credit cards issued by

financial institutions, retailers and oil companies; overdraft and special check-type

credit plans; unsecured personal loans; loans for which the collateral is already owned

by the borrower; open account and 30-day credit without regard to whether a finance

charge is imposed; credit secured by financial assets when the collateral is not

purchased with the proceeds of the loan.

Examples of consumer credit not covered are:

Secured credit where the security is purchased with the proceeds of the

loan such as an automobile, mobile home, furniture or appliance; mortgage loans where

the proceeds are used to purchase the home or for home improvements; insurance

company policy loans, credit extended for utilities, health or educational services;

credit extended under State or Federal government guaranteed loan programs; and

savings passbook loans.

All creditors with $2 million or more of covered credit outstanding on

March 14 must file a base report by April 1 direc tly with the Federal Re serve or

through the Federal Home Loan Bank Board or the Federal Credit Union

Ad min istration. This report will sta te the amount of cr ed it outstanding on March 14

or a figure for the nearest available date.

Thereafter, these creditors must file a monthly report on the amount of

covered consumer credit outstanding during the month, based on the daily average

amount of covered credit if that data is available, or the amount outstanding on other

appropriate dates approved by the Federal Re ser ve. The firs t report—for the period

from March 15 through April 30—is due by May 12. The report for subsequent months

is due by the second Monday of the following month.

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The first 15 percent deposit requirement must be maintained beginning

May 22 on increases in outstanding credit.

Marginal Reserve Requirement

On October 6, the Board established an 8 percent marginal reserve

requirement on increases in managed liabilities that had been actively used to finance

a rapid expansion in bank cr ed it. The base for this reser ve requirem ent was set at the

larger of $100 million or the average amount of managed liabilities held by a member

bank, an Edge corp oration , or a fam ily of U.5. age nc ies and branches of a foreign bank

as of Septemb er 13 -26. Any incr eas e in managed liab ilities above that base period was

subject to the additional 8 percent reserve requirement.

Managed liabilities include large time deposits ($100,000 or more) with

maturities of less than a year, Eurodollar borrowings, repurchase agreements against

U.S. government and federal agency securities, and federal funds borrowed from a

nonmember institution.

In today's action, the Board increased the reserve requirement to 10

percent and lowered the base by (a) 7 percent or (b) the decrease in a bank's gross

loans to foreigners and gross balances due from foreign offices of other institutions

betw een the base period and the week ending March 12, which ever is gre ater. Inl

addition, the base will be reduced to the extent a bank's foreign loans continue to

de cline . The minimum base amount remains at $100 million.

Nonmember Banks

The special deposit requirement for nonmember banks is designed to

restrain credit expansion in the same manner as the marginal reserve requirement on

the managed liabilities of member banks.

For nonmembers, the base is the two-week period that ended March 12 or

$100 million, which ever is gre ate r. The 10 per cent sp ecia l deposit will be maintained

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a t t h e F e d e r a l R e s e r v e o n i n c r e a s e s in m a n a g e d l ia b i li t ie s a b o v e t h e b a s e a m o u n t . T h e

b a s e w i ll b e r e d u c e d in s u b s e q u e n t p e r i o d s to t h e e x t e n t t h a t a n o n m e m b e r b a nk

r e d u c e s i t s f o r e i g n l o a n s .

M o n e y M a r k e t M u t u a l F u n d s

M o n e y m a r k e t m u t u a l f u n d s an d si m i l a r c r e d i t o r s m u s t m a i n t a i n a s p e c i a l

d e p o s i t w i th t h e F e d e r a l R e s e r v e e q u a l t o 1 5 p e r c e n t o f t h e i n c r e a s e i n t h e i r t o t a l

a s s e t s a f t e r M a r ch 1 4 .

A c o v e r e d f u n d m u s t f i l e b y A p r il 1 a b a s e r e p o r t o f i t s o u t s t a n d i n g a s s e t s

a s o f M a r ch 1 4. T h e r e a f t e r , a m o n t h ly r e p o r t o n t h e d a i ly a v e r a g e a m o u n t o f i t s a s s e t s

m u s t b e f i le d b y t h e 2 1 s t o f t h e m o n t h . F o r e x a m p l e , a r e p o r t o n t h e f i r s t m o n t h ' s

a s s e t s — f r o m M a r c h 1 5 to A p r i l 1 4 — m u s t b e f i le d b y A p r i l 21 a n d t h e s p e c i a l d e p o s i t

r e q u i r e m e n t w i ll b e m a i n t a i n e d b e g i n n i n g M a y 1. A f u n d t h a t r e g i s t e r s a s a n

i n v e s t m e n t c o m p a n y w i th t h e S e c u r i t ie s a nd E x c h a n g e C o m m i ss io n a f t e r M a r ch 14

m u s t f i le a b a s e r e p o r t w i t h in t w o w e e k s a f t e r i t b e g in s o p e r a t i o n s .

D i s co u n t R a t e

In f i x in g t h e s u r c h a r g e f o r l a r g e b a n k b o r r o w i n g , t h e B o a r d a c t e d o n

r e q u e s t s f r om t h e d i r e c t o r s o f a l l 12 F e d e r a l R e s e r v e B a n k s . T h e a c t io n is e f f e c t i v e

M o n d a y . T h e d is c o u n t r a t e i s t h e i n t e r e s t r a t e t h a t m e m b e r b a n k s a r e ch a r g e d w h e n

t h e y b o r r o w fr o m t h e i r d i s t r i c t F e d e r a l R e s e r v e B a n k .

T h e s u r c h a r g e a b o v e t h e b a s i c d i s c o u n t r a t e w o u ld g e n e r a l ly b e r e l a t e d t o

m a r k e t in t e r e s t r a t e s . It is d e s i g n e d to d is c o u r a g e f r e q u e n t u s e o f t h e d i s c o u n t

w i n d o w an d t o e n c o u r a g e b a n k s w i th a c c e s s t o m o n e y m a r k e t s t o a d j u s t t h e i r l oa n s

a nd i n v e s t m e n t s m o r e p r o m p t ly to c h a n g in g m a r k e t c o n d i ti o n s . T h is sh o u ld f a c i l it a t e

t h e a b i li t y o f t h e F e d e r a l R e s e r v e t o a t t a i n l o n g e r -r u n b a n k c r e d i t a n d m o n e y su p p l y

o b j e c t i v e s .

T h e s u r c h a r g e w i l l ap p l y t o b a n k s w i t h m o r e t h a n $ 5 0 0 m i ll io n in d e p o s i t s

o n t h e i r b o r r o w i n g s f o r o rd i n a r y a d j u s t m e n t c r e d i t , w h e n s u c h b o r r o w i n g o c c u r s

s u c c e s s i v e l y in t w o s t a t e m e n t w e e k s or m o r e , or w h e n t h e b o r r o w in g o c c u r s in m o r e

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CORRECTED PAGE

- 8-

t h a n f o u r w e e k s i n a c a l e n d a r q u a r t e r . T h e r e w i ll b e n o o t h e r c h a n g e i n t h e

a d m i n i st r a t io n o f t h e d i sc o u n t w i n d o w w i th r e s p e c t to a d j u s t m e n t c r e d i t . S u ch c r e d i t

w i l l c o n t i n u e t o b e a v a i l a b l e t o m e m b e r b a n k s o n ly o n a s h o r t - te r m b a s is t o a s s i s t

t h e m in m e e t i n g a t e m p o r a r y r e q u i r e m e n t f o r fu n d s or t o p r o v id e a c u s h i o n w h i le

o r d e r l y a d j u s tm e n t s a r e m a d e i n re s p o n s e t o m o r e sust a i ned changes i n a hank

p o s i t i o n .

T h e s u r c h a r g e w i l l n o t a p p l y t o b o r r o w i n g u n d e r t h e s e a s o n a l lo a n p r o g r a m ,

w h i c h w i l l c o n t i n u e a t t h e b a s i c d is c o u n t r a t e , n o r to b o r r o w i n g u n de r t h e e m e r g e n c y

l o a n p r o g r a m .

A t ta c h e d a r e c o p i e s o f th e f o ll o w i n g d o c u m e n ts :

1. T h e S p e c i a l C r e d i t R e s t r a i n t P r o g r a m .

2 . R e g u l a t i o n C C e s t a b l i sh i n g a s p e c i a l d e p o s i t r e q u i r e m e n t o n

i n c r e a s e s i n c e r ta i n t y p e s o f c o n s u m e r c r e d i t .

3 . A n a m e n d m e n t t o R e g u l a t i o n D i n c r e a s i n g t h e m a r g i n a l r e s e r v e

r e q u i r e m e n t on m a n a g e d l i a b i l i t ie s t o 10 p e r c e n t a n d r e d u c in g

t h e b a s e p e r i o d .

4 . A s u b p a r t o f R e g u l a t io n C C e s t a b l i sh i n g a s p e c i a l d e p o s i t

r e q u i r e m e n t fo r n o n m e m b e r b a n k s .

5 . A s u b p a r t o f R e g u l a t io n C C e s t a b l i sh i n g a s p e c i a l d e p o s i t

r e q u i r e m e n t fo r m o n e y m a r k e t m u t u a l fu n d s .

* ■* * - * ■* ■* * + * * • • * - * * * ■* •

Bo ar d' s Ma r c h l U pr es s r e l e as e r e ga r d i ng

t he ov er al l ant i - i nf l at i on pr o gr a m.

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m h h h h i

S p e c i a l C r e d i t R e s t r a i n t P r o g r a m

B ac k gr ou n d

P r e s i d e n t C a r t e r h a s a n n o u n c e d a b r oa d p ro g r a m o f f i s c a l , e n e r g y , c r e d i t ,

a n d o t h e r m e a s u r e s d e s i g n e d t o m o d e r a t e a nd r e d u c e i n f la t i o n a r y f o r c e s i n a m a n n e r

t h a t c a n a l s o l a y th e g r o u n d w o r k fo r a r e t u rn t o s t a b l e e c o n o m i c g r o w t h .

In c o n n e c t i o n w i t h t h o s e a c t i o n s , a nd c o n s i s t e n t w i th t h e c o n t i n u i n g

o b j e c t i v e t o r e s t r a in g r o w t h in m o n e y a n d c r e d i t d u r in g 1 9 8 0 , th e F e d e r a l R e s e r v e h a s

a l s o t a k en c e r t a i n fu r t h e r a c t i o n s t o r e i n f o r c e th e e f f e c t i v e n e s s o f t h e m e a s u r e s

a n n o u n c e d i n O c t o b e r o f 1 9 7 9 . T h e s e a c t i o n s in c l u d e a n i n c r e a s e in t h e m a r g i n a l

r e s e r v e r e q u i r e m e n t s on m a n a g e d l i a b i l it i e s e s t a b l i s h e d o n O c t o b e r 6 a n d t h e

e s t a b l i s h m e n t o f a s u r ch a r g e o n b o r r o w i n g s th r o u g h t h e d i s c o u n t w i n d o w b y la r g e

b an k s .

T h e P r e s i d e n t h a s a ls o a u t h o r i z e d th e F e d e r a l R e s e r v e , u n de r t h e t e r m s o f

t h e C r e d i t C o n t r o l A c t o f 1 96 9 , t o e x e r c i s e p a r t ic u l a r r e s t r a i n t on c e r t a i n t y p e s o f

c r e d i t . T h e B oa rd h a s d e t e r m i n e d t o r e s t r a in t h e g r o w t h o f c e r t a i n t y p e s o f co n s u m e r

c r e d i t t h r o u g h t h e i m p o s i t io n o f a r e q u i r e m e n t f o r s p e c i a l d e p o s i t s e q u i v a l e n t t o 15%

o f a n y e x p a n s i o n o f c o n s u m e r c r e d i t p r o v i d ed b y a n y le n d e r t h r ou g h c r e d i t c a r d s , o t h e r

f o r m s o f u n s e c u r e d r e v o l v i n g c r e d i t , an d p e r s o n a l l o a n s . U n d e r th e a u t h o r i t y o f t h e

C r e d i t G o n t r o l A c t , t h e F e d e r a l R e s e r v e h a s a l s o (a ) a p p l i ed a s p e c i a l d e p o s i t

r e q u i r e m e n t on t h e g r o w t h o f m a n a g e d l i a b i l it i e s o f l a r g e n o n - m e m b e r b a n k s a nd ( b)

i m p o s e d a s p e c i a l d e p o s i t r e q u i r e m e n t o n t h e g r o w t h i n t h e n e t a s s e t s o f m o n e y

m a r k e t m u t u a l fu n d s a n d o t h e r s i m i l a r e n t i t i e s .

O n e c o n s e q u e n c e o f s t r o n g d e m a n d s f o r m o n e y a nd c r e d i t g e n e r a t e d i n p a r t

b y i n f l a t io n a r y f o r c e s a n d e x p e c t a t i o n s h a s b e e n t o b r in g h e a v y p r e s s u r e o n c r e d i t a n d

f i n a n c i a l m a r k e t s g e n e r a l l y , w i t h v a r y in g i m p a c t s on p a r t ic u l a r s e c t o r s o f t h e

e c o n o m y . A t th e sa m e t i m e , r e s t r a i n t o n g r o w t h in m o n e y a nd c r e d i t m u s t b e a

f u n d a m e n t a l p a rt o f t h e p r o c e s s o f r e s t o r in g s t a b i l i t y . T h a t r e s tr a i n t i s , a n d w i ll

c o n t i n u e t o b e , b a s e d p r im a r il y o n c o n t r o l o f b an k r e s e r v e s a n d o t h e r t r a d i t i o n a l

i n s tr u m e n t s o f m o n e t a r y p o li c y . H o w e v e r , th e F e d e r a l R e s e r v e B o ar d a l so b e l i e v e s

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- 2 -

t h e e f f e c t i v e n e s s a n d s p e e d w i t h w h i c h ap p r o p r i a t e r e s t r a i n t c a n b e a c h i e v e d w i th o u t

u n n e c e s s a r i ly d i s r u p t iv e e f f e c t s o n c r e d i t m a r k e t s w i ll b e f a c i l i t a t e d b y a p ro g ra m o f

v o l u n t a r y c r e d i t r e s tr a i n t b y i m p o r t a n t f in a n c i a l i n t e r m e d i a r i e s . T h e p r o gr a m s e t

f o r t h h e r e d e v e l o p s c e r t a i n g e n e r a l c r i t e r i a t o h e l p g u i d e b a n k s a n d o t h e r s i n t h e i r

l e n d in g p o l ic i e s d u r i n g t h e p e r io d a h e a d .

S t a t e m e n t o f P u rp o s e

T h e p u r p o s e o f t h e S p e c i a l C r e d i t R e s t r a i n t P r o g r a m i s to e n c o u r a g e

l e n d e r s a nd b o r r o w e r s , in t h e ir i n d iv i d u a l c r e d i t d e c i s i o n s , t o t a k e s p e c i f i c a c c o u n t o f

t h e o v e r a l l a i m s a n d q u a n t i t a t i v e o b j e c t i v e s o f t h e F e d e r a l R e s e r v e i n r e s t r a i n i n g

g r o w t h in m o n e y an d c r e d i t g e n e r a l l y . T h e g u i d e l i n e s s e t f o r t h a r e c o n s i s t e n t w i t h t h e

c o n t i n u i n g i n t e r e s t o f t h e F e d e r a l R e s e r v e a n d i n d iv i d u a l i n s t i tu t i o n s t o :

— M e e t t h e b a s ic n e e d s o f e s t a b l i s h e d c u s t o m e r s f o r n o r m a l

o p e r a t i o n s , p a r t ic u l a r l y s m a l le r b u s i n e s s e s , f a r m e r s , t h r i f t

i n s t i t u t io n b a nk c u s t o m e r s , a n d a g r i c u l t u r a l l y - o r i e n t e d

c o r r e s p o n d e n t b a n k s , a n d h o m e b u y e r s w i th l im i te d

a l t e r n a t i v e s o u r c e s o f f u n d s.

— A v o i d u s e o f a v a i l a b l e c r e d i t r e s o u r c e s t o su p p o r t

e s s e n t i a l l y s p e c u l a t i v e u s e s o f f u n d s , in c l u d in g v o l u n t a r y

b u i l d u p o f i n v e n t o r i e s b y b u s i n e s s e s b e y o n d o p e r a t i n g

n e e d s , o r t o f in a n c e t r a n s a c t i o n s s u c h a s t a k e o v e r s o r

m e r g e r s t h a t c a n r e s a s o n a b l y b e p o s tp o n e d , t h a t d o n ot

c o n t r i b u t e t o e c o n o m i c e f f i c i e n c y o r p r o d u c t iv i ty , o r m a y

b e f i n a n c e d f r o m o t h e r s o u r c e s o f f u n d s .

— Li m i t o v e ra l l lo a n g ro w th s o tha t a d equ a te pro v is io n is

m a d e f o r l i q u i d i t y a n d a c c e p t a b l e c a p i t a l r a t i o s .

In requ es t i ng co o p era t i o n o f i nd iv i dua l i n s t i tu t i o n a l l enders in a ch i ev i ng the

g e n e r a l o b j e c t i v e s o f t h is p r o g r a m , t h e F e d e r a l R e s e r v e B o a rd i s s t r o n g l y c o n s c i o u s o f

t h e f a c t t h a t s o u nd d e c i s io n s c o n c e r n i n g t h e d i s t r ib u t i o n o f c r e d i t a nd s p e c i f i c l oa n s

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-3-

c a n b e m a d e o n l y b y in d i v id u a l i n s t i t u t i o n s d e a l i n g d i r e c t l y i n f i n a n c i a l m a r k e t s an d

i n t i m a t e l y f a m i li a r w i th th e n e e d s a n d c o n d i t io n s o f p a r t ic u l a r c u s t o m e r s . W e a r e a l so

a w a r e , h o w e v e r , th a t i n e x i s t i n g m a r k e t c i r c u m s t a n c e s , in d i v id u a l i n s t i t u t i o n s m a y b e

u n de r c o m p e t i t i v e p r e ss u r e t o m a k e lo a n s o r c o m m i tm e n t s t h a t , in t h e a g g r e g a t e ,

c a n n o t b e s u s t a i n e d w i th i n ou r o v e r a l l m o n e t a r y a n d c r e d i t o b j e c t i v e s o r t h a t , f o r

p a r t i c u la r i n s t i t u t i o n s , m a y e x c e e d p ru d e n t l i m i t s . B y m o r e c l e a r l y c o n s i d e r i n g

i n d iv i d u a l le n d i n g a n d c o m m i t m e n t d e c i s io n s in t h e l i g h t o f t h e n a t i o n a l o b j e c t i v e s

r e f l e c t e d in th i s p r o g ra m , u n d u e m a r k e t p r e s s u r e s a nd d i s t u r b a n c e s c a n b e a v o i d e d a n d

a v a i la b l e c r e d i t s u p p l i e s b e u se d t o m e e t m o r e u r g e n t r e q u i r e m e n t s .

N a t u r e o f t h e P r o g r a m

C o v e r a g e

T h e S p e c i a l C r e d i t R e s t r a i n t P r o g r a m w i ll b e d i r e c t e d p r i m a r i ly t o w a r d t h e

d o m e s t ic c r e d i t s u p p li ed b y c o m m e r c i a l ba n ks a nd t h e d o m e s t ic b u s in e s s c r e d i t

e x t e n d e d b y f in a n c e c o m p a n i e s . S u r v e i ll a n c e w i l l a l s o b e e x e r c i s e d o v e r b o rr o w i n g in

t h e c o m m e r c i a l p a p e r m a r k e t a nd b o r r o w in g s a b r o a d by U . S . c o r p o r a t i o n s .

W i th r e ga r d t o d o m e s t i c c o m m e r c i a l b a n k s , th e p r o gr a m is d e s i g n e d t o

c o v e r c r e d i t e x t e n d e d t o U . S . r e si d e n t s by b ot h t h e d o m e s t ic a nd o v e r s e a s o f f i c e s o f

s u c h b a nk s . C r e d i t e x t e n d e d t o U . S . r e s i d e n t s by a g e n c i e s an d b r a n c h e s o f f o r e i g n

b a n k s d o m i c il e d in t h e U n i t e d S t a t e s w i l l b e s p e c i f i c a l l y c o v e r e d . A f f i l i a t e s a b r o ad o f

b a n ks o p e r a t i n g in t h e U . S . a r e e x p e c t e d t o r e s p e c t t h e s u b s t a n c e a n d s p i r i t o f t h e

g u i d e l i n e s in t h e i r lo a n s to U . S . b o r r o w e r s o r lo a n s o t h e r w i s e d e s i g n e d t o s u p p o r t U . S .

a c t i v i t y .

In r e c e n t m o n t h s , t h e c o m m e r c i a l p a pe r m a r k e t an d fi n a n c e c o m p a n i e s

h a v e b e e n a g r o w i n g s o u r c e o f b u s i n e s s c r e d i t . In r e c o g n i t i o n o f t h i s t r en d a n d t o

a s s u r e c o m p a r a b l e c o m p e t i t i v e t r e a t m e n t , f in a n c e c o m p a n i e s ( in c lu d i n g s u b s id i a r ie s o f

b a nk h o l d in g c o m p a n i e s ) a r e a s k e d t o f o l l o w t h e g e n e r a l g u i d e l i n e s i n t h e i r b u s i n e s s

l e n d i n g .

I

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A c t i v i t y in t h e c o m m e r c i a l p a p e r m a r k e t is n o r m a l l y c o v e r e d b y b a nk

c r e d i t l i n e s . T h a t p r a c t i c e i s s t r o n g l y e n c o u r a g e d i n t h e i n t e r e s t o f c o n t i n u i n g t o

p r o v i d e a s o un d b a s e to t h a t m a r k e t . B u t th e u s e o f c o m m e r c i a l p a pe r s h o ul d be

r e s t r a i n e d , a n d g r o w t h i n t h e m a r k e t a n d a c t i v i t y o f t h e l a r g e r u s e rs o f t h a t m a r k e t

w i ll b e c l o s e l y m o n i t o r e d . F o r th e i r p a r t , ba n k s a r e e x p e c t e d t o g i v e s p e c i a l a t t e n t i o n

t o a v o id i n g in c r e a s e s i n c o m m i t m e n t s f o r c r e d i t l i n e s f o r p u r p os e s o f s u p p o r t in g

c o m m e r c i a l p a p e r b o r ro w i n g f o r o t h e r t h an n o r m a l b u s i n e ss o p e r a t i n g p u r p o s e s .

T h r i f t i n s t i t u t i o n s a n d c r e d i t u n i o n s a r e n o t s p e c i f i c a l l y c o v e r e d b y t h e

S p e c i a l P r o g ra m in li g h t o f r e c e n t p a t t e r n s i n t h e ir a s s e t g r o w t h .

R e p o r t i n g a r r a n g e m e n t s a r e d e s c ri b e d b e l o w .

Q u a n t it a t iv e G u i d el in e s

T h e F e d e r a l R e s e r v e h a s r e c e n t l y s e t f o r th g r o w t h r a n g e s f o r t h e m o n e t a r y

a g g r e g a t e s f o r 1 9 8 0 a s f o l l o w s :

M IA 3Yz% - 696

M 1B 496 - 6 h%

M2 6% - 9%

M3 6’ /2% - 9 >496

T h e g r o w t h r a n g e s s e t f o r t h f o r M 3 e n c o m p a s s a l m o s t a l l th e r e l a t i v e l y

s h o r t - t e r m l i a b i l i t i e s o f b a n ks a n d o t h e r d e p o s i t o r y i n s t i t u t i o n s . T h a t li a b i l i t y g ro w t h

w a s b r o a d ly e s t i m a t e d t o b e c o n s i s t e n t w i th g r o w t h i n t o t a l b a n k c r e d i t ( lo a n s a n d

i n v e s t m e n t s ) o f 6 - 9 96 . W e a r e a w a r e t h a t in c u r r e n t m a r k e t c i r c u m s t a n c e s , ba n ks m a y

b e r e q u e s t e d t o c a r r y a l a r g e r t h a n n o r m a l s h a r e o f g r o w t h in b u s in e s s a n d c e r t a in

o t h e r t y p e s o f c r e d i t . H o w e v e r , p ru d e n t a t t e n t i o n t o li q u i d i ty an d c a p i t a l p o s i t io n s

w i l l a l s o b e r e q u i r e d , a n d li q u i d i ty o f b a n k s is a lr e a d y s o m e w h a t d e p l e t e d . T a k i n g

t h e s e f a c t o r s i n t o a c c o u n t , g r o w t h i n b a nk lo a n s , c o n s i s t e n t w i th t h e m o n e t a r y g r o w t h

r a n g e s an d m a i n t e n a n c e o f p r u d e n t l i q u i d it y p o s i t i o n s , s h o u ld n o t g e n e r a l ly e x c e e d t h e

u p p er p a r t o f t h e in d ic a t e d r a n g e o f g r o w t h in t o t a l b a nk c r e d i t . Th a t g r o w t h s h o u ld

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-5 -

b e s p r ea d o u t o v e r t i m e i n a n o r d e r l y f a s h i o n , t a k i n g a c c o u n t o f n o r m a l s e a s o n a l

p a t t e r n s .

G r o w t h t r e n d s v a r y a m o n g b a n k s a n d re g i o n s o f t h e c o u n t r y . I n d iv i d u al

i n s t i t u t i o n s w i ll w is h t o a p p r a i s e th e i r o w n p r o s p e c t s a n d p o l i c i e s in t h a t l i g h t . B a n k s

w h o s e p a s t p a t t e r n s s u g g e s t r e l a t i v e l y s l o w g r o w t h , a n d p a r t ic u l a r l y t h o s e s e r v in g

m o r e s l o w l y g r o w i n g a r e a s , sh o u ld e x p e c t t o c o n f i n e g r o w t h t o t h e l o w e r p o r t io n o r

e v e n b e l o w t h e i n d i c a t e d r a n g e f o r b a n k c r e d i t , p a r t i c u l a r ly in i n s t a n c e s w h e r e

l i q u i d i ty or c a p i ta l r a t i o s ar e b e l ow a ve r ag e . M or e r ap i d ly gr ow i n g b an k s sh ou l d a l so

e v a l u a t e t h e i r a b i l i t y t o s u p p o r t s u c h g r o w t h w i t h o u t i m p a i r i n g l i q u i d i t y o r c a p i t a l

r a t i o s .

T h e F e d e r a l R e s e r v e a n d o t h e r f e d e r a l b a nk r e g u l a t o r y a g e n c i e s w i l l

c a r e f u l ly r e v i e w p a t t e rn s o f lo a n s a nd c o m m i t m e n t s a t in s t i tu t i o n s t h a t a r e

e x p e r i e n c i n g g r o w t h i n l e n d in g a t or a b o v e t h e to p o f t h e r a n g e s p e c i f i e d . A c c o u n t

w i l l b e t a k e n o f t h e i r o w n p a s t e x p e r i e n c e a n d r e g i o n a l t r e n d s a s w e l l a s t h e b a n k s'

c a p a c i t y t o f i n a n c e t h e i r l o a n p o r t f o l io s w i t h o u t st r a i n in g c a p i t a l o r l iq u i d i t y .

In c r e ase s in loan s b y b an k s r e su l t i n g i n l ow e r c a p i ta l or li q u i d i ty r a t i o s , p ar t i c u l ar l y

w h e n t h e b a n k r a t io s a r e b e l o w p e e r g r o u p s , w i ll b e e s p e c i a l l y c l o s e l y r e v i e w e d t o

a s s u r e t h e i r p o s i t i o n is n ot w e a k e n e d . In t h a t c o n n e c t i o n , o t h e r r e g u l a t o r y a u t h o r i t i e s

w i l l b e c o n s u l t e d a s a p p r o p r i a t e .

I n d iv i d u a l i n s t i t u t i o n s s h o u ld a d o p t c o m m i t m e n t p o l i c i e s t h a t e n a b l e th e m

t o m a i n t a in a d e q u a t e c o n t r o l o v e r g r o w t h in l o a n t o t a l s a n d t o a s s u r e f u n d s a r e

a v a i l a b l e t o m e e t t h e p r i o r it y n e e d s s p e c i f ie d b e l o w .

Q u a l i t a t iv e G u i d e li n es

T h e B o a rd d o e s n o t i n t en d t o s e t f o r t h n u m e r i c a l g u i d e l i n e s f o r p a r t i c u l a r

t y p e s o f c r e d i t . H o w e v e r , b a n k s a r e e n c o u r a g e d p a r t i c u la r l y :

(1) T o r e s tr a i n u n se c u r e d l e n d i n g to c on su m e r s , in c l u d i n g

c r e d i t ca r d s a n d o t h e r r e v o l v i n g c r e d i t s . C r e d i t fo r a u t o ,

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-6 -

h o m e m o r t g a g e a n d h o m e i m p r o v e m e n t l o a n s s h ou ld n o t b e

s u b j e c t t o e x t r a o r d in a r y r e s t r a in t .

( 2) T o d i s c o u r a g e f in a n c i n g o f c o r p o r a t e t a k e o v e r s o r m e r g e r s

a nd t h e r e t ir e m e n t o f c o r p o r a t e s t o c k , e x c e p t i n th o s e

l i m i t e d i n s t a n c e s i n w h i c h t h e r e i s a c le a r j u s t i f ic a t i o n i n

t e rm s o f p r o d u ct io n o r e c o n o m i c e f f ic i e n c y c o m m e n s u r a te

w i t h t h e s i z e o f t h e l o a n .

( 3 ) T o a v o i d f i n a n c i n g o f p u r e l y s p e c u l a t i v e h o l d i n g s o f

c o m m o d i ti e s or p r e c io u s m e t a l s or e x t ra o r d i n a r y i n v e n t o r y

a c c u m u l a t io n o u t o f k e e p i n g w i t h b u s i n es s o p e r a t in g n e e d s .

W T o m a i n ta i n r e a s o n a b l e a v a i l a b i l it y o f f u nd s t o sm a l l

b u s i n e s s e s , f a r m e r s , a nd o t h e r s w i t h o u t a c c e s s t o o t h e r

f o r m s o f f i n a n c i n g . - .

( 5 ) T o r e s tr a i n t h e g r o w t h in c o m m i t m e n t s f o r b a c k u p l in e s in

s u p p o r t o f c o m m e r c i a l p a p er .

(6) Tom a i n ta i n a d e q u a t e f lo w o f c r e d i t t o s m a l l e r

c o r r e s p o n d e n t b a n k s s e r v i n g a g r i c u l t u r a l a r e a s a n d s m a l l

b u s i n e s s n e e d s an d t h r i f t i n s t i t u t i o n s .

T h e t e r m s a n d p r ic in g o f b a n k l o an s a r e e x p e c t e d t o r e f l e c t t h e g e n e r a l

c i r c u m s t a n c e s o f t h e m a r k e t p l a c e . N o s p e c i f i c g u i d e li n e s o r f o r m u l a s a r e s u g g e s t e d .

H o w e v e r , th e B o a r d d o e s n o t f e e l i t a p p r o p r i a t e t h a t l e n d i n g r a t e s b e c a l c u l a t e d in a

m a n n e r t h a t r e f l e c t s t h e c o s t o f r e l a t i v e l y s m a l l a m o u n t s o f m a r g in a l f u nd s s u b j e c t to

t h e m a r g i n a l r e s e r v e r e q u i r e m e n t s o n m a n a g e d l ia b i l i t ie s . M o r e o v e r , t h e B o a rd

e x p e c t s t h a t b a n k s , a s a p p r o p r i a t e a n d p o s s i b l e , w i ll a d j u s t le n d i n g r a t e s an d o t h e r

t e r m s t o t a k e a c c o u n t o f t h e s p e c i a l n e e d s o f s m a l l b u s in e s s e s , in c lu d i ng f a r m e r s , a nd

o t h e r s .

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-7-

R e p o r t i n g

T h e F e d e r a l R e s e r v e w i l l c l o s e l y m o n i t o r d e v e l o p m e n t s i n a l l s e c t o r s o f t h e

c r e d i t m a r k e t s a nd w i l l a s k th a t c e r t a i n d a t a a n d i n f o r m a t i o n b e s u p p l ie d b y b a n k s a nd

o t h e r s . T h e P r e s i d e n t , in a c t i v a t i n g t h e C r e d i t C o n t r o l A c t o f 1 9 6 9 , h a s p r o v i d e d

aut hor i t y f or r e qu ir ing suc h r e por t s .

In th e c a s e o f d o m e s t i c b a n k s w i t h a s s e t s in e x c e s s o f $ 1 b i l li o n , an d fo r

U . S . b r a n c h e s a nd a g e n c i e s o f f o r e i g n b a n k s t h a t h a v e w o r l d w i d e a s s e t s in e x c e s s o f $ 1

b i l li o n , a m o n t h l y r e p o r t w i l l b e r e q u e s t e d . M o n t h ly r e p o r t s w i ll a l s o b e r e q u e s t e d o n

t h e b u s in e s s c r e d i t a c t i v i t ie s o f d o m e s t ic a f f i l i a t e s o f b a nk h o ld i n g c o m p a n i e s w i th

U . S . f i n a n c i a l a s s e t s i n e x c e s s o f $ 1 b i ll io n . A s w i l l b e n o t e d , t h e b an k r e p o r t s i n c l u d e ,

a p a r t f ro m q u a l it a t iv e i n f o r m a t io n , c e r t a i n d a t a on th e m o v e m e n t s i n br oa d c a t e g o r i e s

o f l o a n s a nd c o m m i tm e n t s , l iq u id a s s e t h o l d i n g s, an d c a p i t a l a c c o u n t s . C e r t a i n d a t a ,

i n c lu d i n g t h a t o n c a p i t a l a n d J l iq u i d i t y , w i ll b e r e q u e s t e d o n a c o n s o l i d a t e d w o r l d w i d e

ba s i s . Banks w i t h l e s s t han $1 b i ll i on but mor e than $30 0 m i l li on in as se t s w i l l r e por t

q u a r t e r l y . S m a l l er in s t i t u t i o n s , w h i l e r e q u e s t e d to o b s e r v e t h e p r o g r a m , w i ll n o t h a v e

s p e c i a l r e p o r t in g r e q u i r e m e n t s u n l e s s w a r r a n t ed b y s u b s e q u e n t d e v e l o p m e n t s .

A g r o u p o f l a r g e c o r p o r a t io n s w i ll b e r e q u e s t e d t o c o m p l e t e a b r i e f

m o n t h ly f o r m a b o u t t h e ir a c t i v i t i e s in t h e c o m m e r c i a l p a p er m a r k e t , in c lu d i n g th e

e x t e n t a n d u s a g e o f " b a ck u p" l in e s o f c r e d i t a t b a n k s a n d t h e i r b o r r o w i n g a b r o a d .

F i n a l l y , f i n a n c e c o m p a n i e s — in c l u d i n g s u b s i d i a r i e s o f b an k h o ld i n g c o m p a n i e s — w i t h

m o r e t h a n $ 1 b i l l i o n i n l o a n s o u t s t a n d i n g t o b u s i n e s s b o r r o w e r s w i l l b e r e q u e s t e d t o

p r o v i d e m o n t h l y r e p o r t s c o n c e r n i n g t h e i r b u s i n e s s l e n d i n g a c t i v i t i e s .

C o n s u l t a t i v e A r r a n g e m e n t s

In in s t a n c e s w a r r a n t e d b y tr e n d s i n l o a n s a nd c o m m i t m e n t s , F e d e r a l

R e s e r v e B a nk o f f i c i a l s i n c o n s u l ta t i o n w i th o t h e r f e d e r a l b a nk r e g u l a t o r y a g e n c i e s ,

w i l l r e v i e w w i t h ind iv idua l banks and o t he r s t h e i r pr ogr e ss in ac h ie v in g and

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- 8 -

m a i n t a in i n g a p p r o p r i a t e r e s t r a in t o n l e n d i n g . In g e n e r a l , s u c h c o n s u l t a t i o n s w i ll be

s o ug ht i f :

( 1) Ba nk o r f i na n ce co m pa ny l end i ng i s o ccu rr i ng a t a pa ce

t h a t a p p e a r s to b e s ig n i f ic a n t l y in e x c e s s o f t h e n a t io n a l

o b j e c t i v e , t a k in g a c c o u n t o f th e l o c a t i o n o r p a s t

e x p e r i e n c e o f t h e b a nk o r o t h e r i n s t i t u t i o n .

( 2) C o m m i tm e n t p o l i c i e s a p p e a r t o s u g g e s t t h e p o s s i b i l it y o f

l a r g e s u b s e q u e n t i n c r e a s e s i n le n d i n g o r e x c e p t i o n a l

e x p a n s io n o f c o m m e r c i a l p a p er b o r r ow i n g .

( 3 ) Ex p l a na t i o ns o f " t a keo v er" o r "s pecu l a t i v e" f i na nc i ng

c o n t a i n e d i n r e g u l a r r e p o r t s r a i s e s i g n i f i c a n t q u e s t i o n s .

( 4) T h e d i s t r ib u t i o n o f c r e d i t a t a n i n s t i tu t i o n g e n e r a l ly

a p p e a r s d i s p r o p o r t i o n a t e i n l i g h t o f t h e q u a l i t a t i v e

g u i d e l i n e s a b o v e .

(5) L i q u i d i ty p o s i ti o n s o r c a p i t a l r a t io s r e f l e c t d e v e l o p i n g

s t r a i n s , p a r t ic u l a r l y in t h e c a s e o f i n s t i t u t i o n s w h o s e r a t io s

a r e b e l o w p e e r g r o u p a v e r a g e s .

In t he c a s e o f no nb a nks , t he F edera l R e s erv e m a y a ls o w i s h t o ho ld

i n f o r m a l d i s c u s s io n s w i t h su c h i n s t i t u t i o n s i f s u c h d i s c u s si o n s s e e m w a r r a n t e d b y

d e v e lo p m e n t s.

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TI TLE 12— BANKS AND BANKI NG

CHAPTER I I — FEDERAL RESERVE SYSTEM

SUBCHAPTER A — BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYTEM

( Docket No, R- 0280)

Par t 229— CREDI T RESTRAI NT

[ Regul at i on CC— Subpar t A]

Consumer Cr edi t

AGENCY: Board of Gover nor s of t he Federal Reser ve Syst em.

ACTI ON: Fi nal Rul e.

SUMMARY: Pursuant to t he Cr edi t Cont r ol Act (12 Q. S. C. §§ 1901- 1909)

as i mpl ement ed by Execut i ve Or der 12201, t he Boar d has adopt ed provi si ons

r equi r i ng cr edi t ors t hat ext end cert ai n t ypes of consumer cr edi t to

mai nt ai n a speci al non- i nt erest bear i ng deposi t wi t h the Feder al Reser ve

equal to 15% of t he amount by whi ch cer t ai n types of t he cr edi t or ' s

out st andi ng consumer cr edi t exceeds t he l ar ger of $2 mi l l i on or t he

amount of such cr edi t out st andi ng on March 14, 1980 (or t he l ast day

or ot her per i od i mmedi at el y pr i or to March 14, 1980 for whi ch dat a are

avai l abl e) . Member s of t he Feder al Home Loan Banks and al l ot her savi ngs

and l oan associ at i ons shal l mai nt ai n the speci al deposi t wi t h the Feder al

Home Loan Banks. Cr edi t uni ons, whet her or not member s of t he Nat i onal

Cr edi t Uni on Admi ni st r at i on' s Cent r al L i qui di t y Faci l i t y, shal l mai nt ai nt he speci al deposi t wi t h the Cent r al Li qui di t y Faci l i t y. The t ypes

of consumer cr edi t cover ed by t hi s r egul at i on i ncl ude cr edi t ext ended

t hrough t he use of cr edi t car ds, unsecur ed consumer l oans, and secur ed

consumer cr edi t wher e t he proceeds are not bei ng used to pur chase t he

col l at er al . Cr edi t extended f or busi ness and agr i cul t ur al pur poses

and cl osed- end consumer cr edi t secur ed by t he col l at eral f i nanced ar e

not subj ect to t he r egul at i on. The pur pose of t hi s act i on i s to hel p

cur b i nf l at i onary pressur es i n t he economy.

EFFECTI VE DATE: Mar ch 14, 1980.

FOR FURTHER I NFORMATI ON CONTACT: Rober t E. Manni on, Deput y Gener alCounsel ; Gi l ber t T. Schwar t z, Assi st ant Gener al Counsel ; or Margar et 1.

Sggi nt on, At t or ney; Legal Di vi si on, Boar d of Gover nors of t he Feder al

Reser ve Syst em, Washi ngt on, D. C. 20551 ( 202/ 452- 3000) .

SUPPLEMENTARY I NFORMATI ON: I n accor dance wi t h t he Cr edi t Cont r ol Act

(12 U. S. C. §§ 1901- 1909) as i mpl emented by Execut i ve Or der 12201,

dat ed March 14, 1980, t he Bear d has adopt ed t hi s r egul at i on to requi r e

cert ai n cr edi t ors t hat ext end cer t ai n t ypes of consumer cr edi t to hol d

a speci al deposi t wi t h the Feder al Reser ve 3anks agai nst i ncr eases i n

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t he amount of t hose t ypes of cr edi t out st andi ng. Cr edi t or s t hat have

l ess t han $2 mi l l i on of consumer cr edi t out st andi ng of t he t ypes covered

by the r egul at i on wi l l not be r equi r ed to mai nt ai n t he speci al deposi t .

The amount of t he speci al depos i t t hat must be hel d wi l l be equal t o

15% of the amount by whi ch cer t ai n t ypes of consumer cr edi t extended

by t he credi t or exceeds t he l ar ger of $2 mi l l i on or t he amount of suchcr edi t out st andi ng as of t he base dat e. For cr edi t ors t hat have dai l y

cr edi t data avai l abl e, t he base dat e i s March 14, 1980 or t he l ast day

bef ore March 14, 1980 f or whi ch such data are avai l abl e. For cr edi t or s

t hat do not have dai l y cr edi t data avai l abl e, t he base dat e i s the

per i od i mmedi at el y pr i or t o Mar ch 14, 1980 f or whi ch cr edi t dat a ar e

avai l abl e.

The r egul at i on wi l l appl y t o (1) al l open- end consumer cr edi t ,whet her secur ed or unsecur ed and (2) cl osed- end consumer cr edi t t hat

i s ei t her unsecur ed or secur ed by col l at er al t hat i s not bei ng pur chased

wi t h t he proceeds of t he cr edi t . Exampl es of open- end consumer cr edi t

a re :

- cr edi t car d pl ans, such as car ds i ssued by f i nanci al

i nst i t ut i ons, retai l ers, and oi l compani es;

- over dr af t and speci al check- t ype credi t pl ans of f er ed by

f i nanci al i ns t i t ut i ons ;

- ot her r evol vi ng credi t pl ans.

Exampl es of c l osed- end consumer cr edi t t hat i s cover ed are:

- unsecur ed personal l oans;

- l oans f or whi ch the col l at eral pr ovi ded i s al r eady owned

by t he bor r ower ;

- open account and 30- day cr edi t wi t hout r egard to whet her

a f i nance char ge i s i mposed, such as t r avel and ent er t ai nment car d pl ans

and ret ai l merchant cr edi t ;

- cr edi t secur ed by f i nanci al asset s, ot her t han savi ngs

deposi t s, when the col l at er al i s not pur chased wi t h the l oan pr oceeds.

Cr edi t extended t hrough the use of cr edi t cards wi l l be pr esumed tobe consumer — t hat i s, non- busi ness — cr edi t unl ess t he cr edi t or

est abl i shes ot her wi se. A cr edi t or al so wi l l be r equi r ed to t r eat as

cover ed consumer cr edi t any such cr edi t t hat i s sol d or ot her wi se t r ans

f er r ed to any non- U. S. of f i ce of t he same or another ent i t y and any

such cr edi t sol d or ot herwi se t r ansf err ed wi t h r ecour se to anot her

ent i t y wherever l ocat ed.

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Sxampl es of consumer cr edi t t hat i s not covered ar e:

- secur ed cr edi t wher e t he col l at er al i s pur chased wi t h the

proceeds of t he l oan, such as aut omobi l e, mobi l e home, and ot her chat t el -

secur ed l oans ( see Uni f or m Commerci al Code § 9- 107, i ncl udi ng Of f i ci al

Comment s 1 and 2) ;

- cr edi t secur ed by f i nanci al asset s when the col l at er al i s

pur chased wi t h the proceeds;

- cr edi t secur ed by savi ngs deposi t s hel d at t he l endi ng

i ns t i t ut i on?

- mor t gage l oans wher e t he pr oceeds are used to pur chase t he

col l at er al or f or home i mpr ovement s or "br i dge" l oans;

- i nsur ance company pol i cy l oans;

- cr edi t extended by pr ovi der s of ut i l i t y, heal t h andeducat i onal ser vi ces;

- cr edi t ext ended under st at e or f eder al gover nment guar ant eed

consumer l oan progr ams, such as s t udent l oans.

Al l cr edi t or s wi t h $2 mi l l i on or more of covered consumer

cr edi t out st andi ng as of t he base dat e ar e r equi r ed to f i l e a base

r epor t on t he amount of such cr edi t out st andi ng wi t h t he Federal Reser ve

Banks by Apr i l 1, 1980. I f dai l y dat a ar e avai l abl e, a cr edi t or shal l

r epor t as i t s base t he act ual amount of cover ed cr edi t out st andi ng on

Mar ch 14, 1980 or t he l ast day bef or e Mar ch 14 for whi ch such dat a ar e

avai l abl e? i f dai l y dat a are not avai l abl e, t he credi t or shal l r eportas i t s base t he amount of such cr edi t out st andi ng dur i ng the l ast per i od

i mmedi at el y bef ore Mar ch 14, 1980, f or whi ch such dat a are avai l abl e.

A base r eport may be al so r equi r ed of cer t ai n cr edi t or s wi t h covered

consumer credi t of l ess than $2 mi l l i on. Al l cr edi t or s wi t h $2 mi l l i on

or more of cover ed consumer cr edi t out st andi ng as of t he base dat e or

anyt i me t her eaf t er on an aver age basi s dur i ng any cal endar mont h shal l

f i l e mont hl y r eport s on the amount of covered consumer cr edi t out st andi ng.

The mont hl y r epor t on t he aver age amount of cover ed consumer cr edi t

out st andi ng dur i ng t he cal endar mont h shal l be f i l ed by the second

Monday of t he f ol l owi ng mont h. For exampl e, a r eport on t he dai l y

average amount of cover ed cr edi t out st andi ng dur i ng May shal l be f i l ed

by J une 9, 1980. The i ni t i al mont hl y r epor t , however , shal l covert he per i od f r om March 15, 1980 t hr ough Apri l 30, 1980 and shal l be f i l edby May 12, 1980.

Based upon t he mont hl y report , a cover ed cr edi t or i s r equi r ed

t o mai nt ai n a speci al non- i nt erest bear i ng deposi t wi t h t he Feder al

Reserve ( or wi t h the Feder al Home Loan Bank or Cent r al Li qui di t y

Faci l i t y) equal to 15% of t he amount by whi ch t he aver age amount of

i t s cover ed credi t exceeds t he r eport ed base or $2 mi l l i on, whi chever

i s gr eat er . The speci al deposi t shal l be mai nt ai ned i n col l ect ed f unds,

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i n t he f or m of U. S. dol l ars, dur i ng t he per i od begi nni ng on t he f our t h

Thur sday of t he mont h f ol l owi ng t he mont h f or whi ch t he l ast r eport

has been f i l ed and endi ng on t he day pr i or to t he f our t h Thursday of

t he next mont h. For exampl e, t he r epor t cover i ng t he mont h of May shal l

be f i l ed by J une 9, 1980, and the speci al deposi t based upon t he May

r eport shal l be hel d begi nni ng J une 26, 1980, and cont i nue thr ough J ul y 23, 1980, at whi ch t i me a speci al deposi t based upqn J une' s r epor t

shal l be r equi r ed. The deposi t based on t he i ni t i al r epor t , f or March 15

t hr ough Apr i l 30, 1980, shal l be mai nt ai ned begi nni ng May 22, 1980 and

endi ng J une 25, 1980. The amount of t he speci al deposi t may not var y

dur i ng each mai nt enance per i od. Feder al Reser ve servi ces, such as check

col l ect i on, wi l l not be made avai l abl e based on mai nt enance of t he

speci al deposi t .

Member s of t he Feder al Home Loan Banks and al l ot her savi ngs

and l oan associ at i ons shal l f i l e repor t s and mai nt ai n the speci al deposi t

wi t h the Federal Home Loan Banks. Cr edi t uni ons, whet her or not member s

of the Nat i onal Cr edi t Uni on Admi ni st r at i on' s Cent r al L i qui di t y Faci l i t y,

shal l f i l e repor t s and mai nt ai n t he speci al deposi t wi t h the Cent r al

Li qui di t y Faci l i t y. Deposi t s mai nt ai ned wi t h the Feder al Home Loan

3anks and the Cent r al Li qui di t y Faci l i t y shal l be passed t hr ough by

t hose ent i t i es to t he Federal Reserve Banks. Al l ot her cover ed cr edi t or s,

i ncl udi ng commer ci al banks, U. S. br anches and agenci es of f orei gn banks,

r et ai l er s, ot her cr edi t car d i ssuer s, and f i nance compani es, ar e r equi r ed

t o f i l e r epor t s and mai nt ai n the speci al deposi t wi t h the Feder al Reser ve

Bank f or the Di st r i ct i n whi ch the r epor t i ng of f i ce of t he cr edi t or

i s l ocat ed.

For purposes of r epor t i ng and det er mi ni ng whet her t he

cr edi t or' s out st andi ng cover ed cr edi t exceeds t he S2 mi l l i on t hr eshol d

dur i ng t he base peri od or t her eaf t er , t he covered cr edi t of al l rJ . S.of f i ces of the same company and di r ect and i ndi r ect U. S. subsi di ar i es

of t he same par ent company shal l be combi ned, and onl y one base and

mont hl y r epor t shal l be f i l ed f or the combi ned or gani zati on. For

exampl e, i f a company has 100 of f i ces t hroughout t he Uni t ed St at es,

i t shoul d combi ne the requi r ed i nf ormat i on f r om each of f i ce, and one

desi gnat ed r eport i ng of f i ce shoul d f i l e one combi ned base or mont hl y

r eport f or t he ent i r e company. The cover ed cr edi t of al l U. S. of f i ces

( such as the br anches, agenci es and subsi di ari es, i ncl udi ng banks) of

t he same f orei gn parent company and al l U. S. of f i ces of t hat f orei gn

par ent ' s non- U. S. subsi di ari es shal l be combi ned and one of f i ce sel ect ed

as t he r eport i ng of f i ce for such of f i ces. A subsi di ary i s a company

t hat i s more t han 50 per cent owned, di r ect l y or i ndi r ect l y, by another.

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These act i ons are bei ng t aken to cur b i nf l at i onar y pr essur es.

Cont i nui ng gr owt h of consumer cr edi t has cont r i but ed t o i nf l at i onar y

f orces by hel pi ng to sust ai n consumer demand f or goods and ser vi ces.

As a consequence of t hi s sust ai ned hi gh l evel of demand, savi ngs i n

t he economy have f al l en to t he l owest l evel si nce t he Korean War.

Rest r ai nt on consumer cr edi t wi l l t end to encour age addi t i onal savi ngs,

whi ch can be channel l ed to product i ve i nvest ment to i ncr ease the suppl yof goods. At t he same t i me, consumer demands f or t he suppl y of goods

avai l abl e wi l l be r est r ai ned. I n bot h of t hese ways, r est r ai nt on

consumer cr edi t wi l l cont r i but e to dampeni ng i nf l at i onar y f or ces. The

par t i cul ar t ypes of cr edi t to whi ch t hese rest r ai nt s wi l l appl y are

t hose gener al l y showi ng undue st r ength i n r ecent mont hs. Thus, aut o

mobi l e credi t , r esi dent i al mor t gage credi t , and cr edi t ext ended to

pur chase t he col l at er al wi l l not be af f ect ed by thi s acti on.

The Boar d bel i eves t hat i t i s I n t he nat i onal i nt er est to

achi eve t he obj ect i ve of cur bi ng i nf l at i on as qui ckl y as possi bl e, and

t hat publ i cat i on of t hi s r ul e f or comment or any del ay i n i t s ef f ect i ve

dat e woul d l ead to rapi d i ncr eases i n ext ensi ons of consumer cr edi tt hat woul d not be subj ect to t he regul at i on and woul d f r ust r at e i t s

pur pose. The Boar d, t her ef or e, f or good cause f i nds t hat f ur t her not i ce,

publ i c pr ocedur e, and def er r al of ef f ect i ve dat e pr ovi si ons of 5 U. S. C.

§ 553(b) wi t h regar d to t hese act i ons ar e i mpr act i cabl e and cont r ary

to the publ i c i nt er est .

Pur suant to i ts aut hor i t y under t he Cr edi t Cont r ol Act (12

U. S. C. §§ 1901- 1909) as i mpl ement ed by Execut i ve Or der 12201, t he Boar d

her eby i ssues t hi s subpar t (12 C. F. R. 229, Subpar t A) ef f ect i ve

Mar ch 14, 1980, as f ol l ows:

SECTI ON 229. 1 - AUTHORI TY, PURPOSE, AND SCOPE

(a) Aut hor i t y. Thi s subpar t i s i ssued by t he Boar d of

Governors of t he Federal Reser ve Syst em pur suant to the Cr edi t Cont r olAct (12 U. S. C. §§ 1901- 1909) as i mpl ement ed by Execut i ve Or der 12201,

dat ed Mar ch 14, 1980.

(b) Pur pose and Scooe. Thi s subpar t i s i ntended t o curb

i nf l at i on generat ed by the ext ensi on of cer t ai n types of consumer cr edi t

i n an excessi ve vol ume and gover ns ext ensi ons of such cr edi t by al l

cover ed credi t or s.

SECTI ON 229. 2 - DEFI NI TI ONS

(a) For t he pur poses of t hi s subpart , t he t erms, "Boar d, "

"credi t , " "credi t or, " "ext ensi on of cr edi t " and "credi t t r ansact i on,

and "l oan, " s hal l have t he meani ngs gi ven them i n t he Cr edi t Cont r ol

Act . I n addi t i on, the f ol l owi ng def i ni t i ons appl y.

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(b) "Base" means t he l arger of $2 mi l l i on or t he amount of

cover ed cr edi t out st andi ng as of t he cl ose of busi ness on t he base dat e.

(c) "Base date" means: f or a cr edi t or t hat has dai l y cr edi t

dat a avai l abl e/ March 14, 1980 or t he l ast day i mmedi at el y bef ore

March 14, 1980 f or whi ch such dat a ar e avai l abl e; f or a cr edi t or t hatdoes not have dai l y cr edi t dat a avai l abl e, t he per i od i mmedi at el y bef ore

March 14, 1980 f or whi ch cr edi t dat a ar e avai l abl e.

(d) " Cl osed- end cr edi t " means al l consumer cr edi t exceptopen- end cr edi t .

(e) "Consumer cr edi t " means cr edi t ext ended i n t he U. S.

pr i mar i l y f or per sonal , f ami l y, or househol d pur poses and does not

i ncl ude credi t f or busi ness or agr i cul t ur al pur poses.

(f) " Covered cr edi t " means consumer cr edi t t hat i s (1) ope

end cr edi t and (2) cl osed- end cr edi t whi ch i s unsecured or i n whi cht he pr oceeds of t he cr edi t ar e not bei ng used to pur chase the col l at er al .

Covered cr edi t t hat i s sol d or ot her wi se t r ansf err ed af t er March 14,

1980 to any of f i ce l ocat ed out si de the U. S. of t he same or anot her

ent i t y shal l r emai n t he cover ed cr edi t of t he t r ansf er or unt i l such

cr edi t i s r epai d. Cover ed cr edi t t hat i s sol d or ot her wi se t r ansf er r ed

on a r ecour se basi s to any U. S. of f i ce of t he same or anot her ent i t y

shal l r emai n t he cover ed cr edi t of t he t r ansf er or ; cover ed cr edi t t hat

i s t r ansf err ed on a non- r ecour se basi s to any U. S. of f i ce of t he same

or anot her ent i t y shal l be t r eat ed as cover ed cr edi t of t he t r ansf er ee.

Covered cr edi t does not i ncl ude i nsurance company pol i cy l oans; cr edi t

ext ended by f eder al , st at e or l ocal government s, or by pr ovi ders of

ut i l i t y, heal t h or educat i on ser vi ces; st at e or f eder al . gover nment

guar ant eed l oans; or l oans secured by savi ngs deposi t s- ^ hel d at t he

l endi ng i nst i t ut i on.

(g) "Cover ed cr edi t or " means any cr edi t or whi ch ext ends

covered cr edi t . For pur poses of det ermi ni ng t he amount of a cr edi t or ' s

out st andi ng cover ed credi t , t he cover ed cr edi t of al l U. S. of f i ces

of (i ) t he same company, {i i ) G. S. subsi di ar i es of t he same parent

company, and ( i i i ) non- U. S. subsi di ar i es of t he same par ent company

shal l be combi ned. A subsi di ar y i s a company t hat i s more t han 50 per

cent owned di r ect l y or i ndi r ect l y by anot her company.

(h) " Open- end cr edi t " means consumer cr edi t ext ended on an

account pur suant to a pl an under whi ch (1) t he cr edi t or may per mi t t he

cust omer to make purchases or obt ai n l oans, f r om t i me to t i me, di r ect l y

f r om the credi t or or i ndi r ect l y by use of a credi t card, check, or ot her

1/ As def i ned i n § 217. 1( e) of t hi s Chapt er ( Regul at i on Q) .

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devi ce/ as t he pl an may pr ovi de; (2) t he cust omer has the pr i vi l ege

of payi ng t he bal ance i n f ul l or i n i nst al ment s; and (3) a f i nance

char ge may be comput ed by the cr edi t or f r om t i me to t i me on an out

st andi ng unpai d bal ance.

(i) "U. S. " means t he f i f t y st at es of t he Uni t ed St at es and

t he Di st r i ct of Col umbi a.

SECTI ON 229. 3 - REPORTS

(a) Each cover ed cr edi t or wi t h $2 mi l l i on or more of cover ed

cr edi t out st andi ng as of t he base dat e, and cer t ai n covered cr edi t or s

as may be requi r ed by t he Boar d, shal l f i l e a base r eport by Apri l 1,

1980. The base r eport shal l st at e the amount of t he cover ed cr edi t or ' s

base. A cr edi t or wi t h a base of $2 mi l l i on or more as i ndi cat ed on

i t s base r epor t , or wi t h covered cr edi t out st andi ng i n excess of

$2 mi l l i on on an aver age basi s dur i ng any cal endar mont h, shal l submi t

mont hl y r epor t s. The i ni t i al mont hl y r epor t shal l be f i l ed by May 12,

1980, f or t he per i od’ Mar ch 15 t hr ough Apr i l 30, 1980; t hereaf t er , t hemont hl y r eport shal l be f i l ed for each f ul l cal endar mont h by t he second

Monday of t he f ol l owi ng mont h. The mont hl y r epor t shal l i ncl ude t he

average amount of cover ed cr edi t out st andi ng dur i ng t he mont h (on a

dai l y average basi s i f such dat a ar e avai l abl e) and t he amount by whi ch

t hat number exceeds t he cr edi t or ' s base.

(b) One base and one mont hl y repor t shal l be f i l ed by a

r epor t i ng of f i ce for al l the of f i ces of a cover ed credi t or . A cover ed

cr edi t or may desi gnat e any of i ts of f i ces as i ts r epor t i ng of f i ce.

(c) Member s of t he Feder al Home Loan Banks and al l ot her

savi ngs and l oan associ at i ons shal l f i l e repor t s wi t h t he Federal HomeLoan Banks. Cr edi t uni ons, whet her or not member s of t he Nat i onal

Cr edi t Uni on Admi ni st r at i on' s Cent r al Li qui di t y Faci l i ty , shal l f i l e

r eport s wi t h the Cent r al L i qui di t y Faci l i t y. Al l other credi t or s shal l

f i l e repor t s wi t h t he Federal Reser ve Bank i n whose Di st r i ct t hei r

r epor t i ng of f i ce i s l ocat ed.

SECTI ON 229. 4 - MAI NTENANCE OF SPECI AL DEPOSI T

(a) Each covered cr edi t or shal l hol d a non- i nt erest beari ng

speci al deposi t equal t o 15 per cent of t he amount by whi ch t he aver ageamount of i t s cover ed cr edi t out st andi ng dur i ng the cal endar mont h

exceeds i t s base. The cor r espondi ng per i od dur i ng whi ch t he speci aldeposi t shal l be mai nt ai ned begi ns on the f our t h Thursday . of t he mont h

f ol l owi ng the cal endar mont h f or whi ch t he r epor t was f i l ed and cont i nues

t hr ough t he Wednesday bef or e t he f our t h Thur sday of t he next mont h.

The speci al deposi t shal l be mai nt ai ned i n col l ect ed f unds i n t he f or m

of U. S. dol l ar s.

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(b) Member s of t he Feder al Home Loan Banks and al l ot her

savi ngs and l oan associ at i ons shal l mai nt ai n the speci al deposi t wi t h

t he Feder al Home Loan Banks. Cr edi t ani ons, whet her or not member s

of the Nat i onal Cr edi t Uni on Admi ni st r at i on' s Cent r al Li qui di t y Faci l i t y,

shal l mai nt ai n the speci al deposi t wi t h the Cent r al Li qui di t y Faci l i t y.

Deposi t s mai nt ai ned wi t h t he Feder al Home Loan Banks and the Cent r al

Li qui di t y Faci l i t y shal l be pl aced wi t h a Feder al Reser ve Bank. Al lot her credi t or s shal l mai nt ai n the speci al deposi t wi t h the Feder al

Reser ve Bank to whi ch the cr edi t or r epor t s.

SECTI ON 229. 5 - PENALTI ES

For each wi l l f ul vi ol at i on of t hi s subpar t , t he Boar d may

assess agai nst any cr edi t or , or of f i cer , di r ect or or empl oyee t her eof

who wi l l f ul l y par t i ci pat es i n the vi ol at i on, a maxi mum ci vi l penal t y

of $1, 000. I n addi t i on, a maxi mum cr i mi nal penal t y of $1, 000 and

i mpri sonment of up to one year may be i mposed f or wi l l f ul vi ol at i on

of t hi s subpar t .

By or der of t he Boar d of Gover nor s of t he Feder al Reserve

Syst em, ef f ect i ve March 14, 1980.

( Si gned) Theodore E. Al l i son

[ SEAL]

Theodor e E. Al l i son

Secr et ary of t he Boar d

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TI TLE 12—BANKS AND BANKI NG


SUBCHAPTER A— BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

(Docket No. R- 0281)

Part 229—CREDI T RESTRAI NT

[ Subpar t B]

Shor t Ter m Fi nanci al I nt er medi ar i es

AGENCY: Board of Gover nor s of the Feder al Reser ve Syst em.

ACTI ON: Fi nal rul e.

SUMMARY: Pursuant t o the Cr edi t Cont r ol Act (12 U. S. C. §§ 1901- 1909)as i mpl ement ed by Execut i ve Or der 12201, t he Board has adopt ed provi si onsr equi r i ng money market f unds and ot her si mi l ar cr edi t ors to mai nt ai na speci al non- i nt erest bear i ng deposi t wi t h the Federal Reser ve equalto 15 per cent of the amount by whi ch the i nvest ment assets of t hesecr edi t ors exceeds thei r i nvest ment asset s on March 14, 1980. Speci alnon- i nt erest bear i ng deposi t s shal l be mai nt ai ned at the Federal Reser veBank of the di st r i ct i n whi ch the credi t or mai nt ai ns i ts pr i nci pal pl aceof busi ness. The pur pose of t hi s act i on i s to cont r ol i nf l at i on byl i mi t i ng the expansi on of shor t - t er m cr edi t of f er ed by such f i nanci al

i nt er medi ar i es.

EFFECTI VE DATE: Mar ch 14, 1980.

FOR FURTHER I NFORMATI ON CONTACT: Gi l ber t T. Schwart z, Assi st ant GeneralCounsel , Lee S. Adams, Seni or At t orney, C. Bai r d Br own, At t orney, orDani el L. Rhoads, At t or ney, Legal Di vi si on, Boar d of Governor s of theFeder al Reser ve Syst em, Washi ngt on, D. C. 20551 (202/ 452-3000) .

SUPPLEMENTARY I NFORMATI ON: I n accor dance wi t h the Cr edi t Cont r ol Act(12 U. S. C. §§ 1901- 1909) as i mpl ement ed by Execut i ve Or der 12201, theBoard has adopt ed thi s Subpar t of i t s Cr edi t Rest r ai nt r egul at i on tor equi r e cr edi t ors, consi st i ng of i nvest ment compani es commonl y r egardedas money mar ket f unds and cer t ai n common t r ust f unds of banks t hat i nvesti n shor t t erm asset s ( short t er m i nvest ment f unds) t o hol d a non- i nt er estbear i ng speci al deposi t wi t h the Federal Reser ve agai nst i ncreases i n

t hei r t ot al assets. The amount of the speci al deposi t t hat must behel d shal l be equal to 15 per cent of the amount by whi ch the* asset s

of the credi t or exceed the amount of such assets i n t he cr edi t or' s port f ol i oon March 14, 1980. The speci al deposi t must be made i n col l ect ed f unds

i n U. S. dol l ar s.

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A credi t or wi l l be cover ed i f i ts i nvest ment por t f ol i o pr i mar i l yconsi st s of shor t - t er m secur i t i es, deposi t s, or ot her i nst r ument s wi t hor i gi nal or r emai ni ng maturi t i es of 13 mont hs or l ess t hr ough whi chi t extends credi t to banks, f ederal , st at e or l ocal gover nment al uni t sor agenci es thereof , any cor porat i on, par t ner shi p or other busi nessent i t y, or any per son. Covered cr edi t or s i ncl ude bot h open and cl osed-

end management compani es and uni t i nvest ment t rust s. A ser i es of sharesor uni t s of a r egi st ered i nvestment company i s a covered credi t or i ft he i nvestment asset s whi ch are i ncl uded i n the val uat i on of the shar esor uni t s i n the seri es pr i mari l y have matur i t i es of l ess t han 13 mont hs.Common tr ust f unds of banks and t r ust compani es are al so i ncl uded unl essal l moneys cont r i but ed to t hem are hel d by the bank or t rust company

i nci dent al l y to the management of ot her t r ust asset s. Col l ect i ve i nvest mentf unds consi st i ng of f unds of r et i r ement , pensi on, or ot her t ax exemptt r usts are not covered.

A cover ed credi t or , ot her than a uni t i nvest ment t rust orser i es of uni t s of such a t rust ( "Non- uni t Cr edi t or ") , t hat possessesasset s on March 14, 1980, shal l f i l e a base report wi t h a Federal Reser veBank by Apr i l 1, 1980. A Non- uni t Cr edi t or t hat acqui r es or hol ds asset s

or t r ust moneys t hat cause i t to become a cover ed cr edi t or af t er March 14,1980, shal l f i l e a base repor t , wi t hi n two weeks af t er i t becomes acover ed credi t or. The base r eport wi l l st at e t he amount of the Nonuni t Cr edi t or ' s cover ed credi t , whi ch i s def i ned as the t ot al amount

of i ts i nvest ment assets and ot her deposi t s pl us accr ued i nt erest , hel das of March 14, 1980, whet her or not i t was a cover ed cr edi t or at t hatt i me. I f the cover ed cr edi t or was not i n exi st ence on March 14, 1980,

i t s base amount i s zero.

Thereaf t er , each Non- uni t Cr edi t or shal l f i l e a report monthl yst ati ng the dai l y aver age amount of i ts net assets dur i ng each r epor t i ngper i od by the 21st day of the mont h i n whi ch the report i ng peri od ends. The r eport i ng per i ods wi l l run f rom the 15t h day of each mont h to the14t h day of the f ol l owi ng mont h. For exampl e, t he f i r st r epor t i ng peri odwi l l run f r omMarch 15 to Apr i l 14, 1980, and the second f r omApr i l 15

t o May 14, 1980. The r eport f or the f i r st r eport i ng peri od must bef i l ed by Apri l 21, 1980, and f or the second by May 21, 1980. Based

upon thi s repor t , a covered credi t or i s r equi r ed to mai nt ai n a speci al

non- i nt erest bear i ng deposi t wi t h the Federal Reserve Bank i n the Di st r i cti n whi ch i t s pr i nci pal pl ace of busi ness i s l ocat ed equal to 15 percent of the amount by whi ch t he report ed aver age of covered cr edi t exceedst he r eport ed base. The speci al deposi t shal l be mai ntai ned dur i ng theper i od begi nni ng on the f i r st Thur sday of the f i r st f ul l cal endar mont h

f ol l owi ng the peri od f or whi ch the r eport was f i l ed and endi ng on theday pr i or to the f i r st Thursday of t he next mont h. For exampl e, the

speci al deposi t based upon the f i r st r epor t shal l be hel d begi nni ngMay 1, 1980 and cont i nue t hrough J une 4, 1980, at whi ch t i me a speci al

deposi t based upon the second r eport shal l be requi red.

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A uni t i nvest ment t r ust or ser i es of uni t s of such a t rust( "Uni t Cr edi t or" ) t hat hol ds i nvest ment assets on March 14, 1980, neednot f i l e r epor t s or mai nt ai n speci al deposi t s, as t hei r asset s are f i xedas of the dat e they are t r ansf er r ed to the t rust and wi l l not i ncreaseaf t er March 14, 1980. A Uni t Cr edi t or t hat i s establ i shed, by the t r ansf er

of i nvest ment assets to the t rust ee, af t er March 14, 1980, must f i l ei mmedi atel y upon acqui si t i on of asset s by t he tr ust , a base report st at i ngt he amount of covered cr edi t hel d by the t rust . Each such Uni t Cr edi t ormust mai ntai n a speci al deposi t equal to 15 per cent of the cover ed

cr edi t i t hol ds. The speci al deposi t must be mai ntai ned dur i ng theper i od begi nni ng wi t h the acqui si t i on of assets by the Uni t Cr edi t or

and endi ng on the day pr i or to t ermi nat i on of the tr ust pursuant tot he terms of the t r ust agr eement . A Uni t Cr edi t or i s onl y r equi r edto f i l e r epor t s and mai nt ai n deposi t s i f, at i ts i ncept i on, i ts asset spr i mar i l y have or i gi nal or r emai ni ng matur i t i es of l ess t han 13 mont hs.A Uni t Cr edi t or whose asset s at i ts i ncept i on had l onger mat ur i t i es,

but whose asset matur i t i es f al l bel ow 13 mont hs as the termi nat i on of

t he t rust appr oaches i s not r equi r ed to r epor t or to mai nt ai n a speci aldeposi t .

For a cover ed credi t or that i s a ser i es of shar es or uni t sof a regi st ered i nvest ment company, r eport s shoul d be f i l ed and deposi t smai ntai ned by the r egi st ered i nvest ment company. I f t he ent i r e i nvest ment

company whi ch i ssues such a ser i es i s a cover ed cr edi t or, t he ent i r ecompany may f i l e a si ngl e r eport and mai ntai n a si ngl e deposi t . Ot her wi sethe i nvest ment company must f i l e a separ ate r eport and mai ntai n a separatedeposi t f or each seri es that i s a cover ed credi t or. Mai nt enance of

a speci al deposi t at a Federal Reser ve Bank does not ent i t l e cover ed

cr edi t or s t o Feder al Reserve servi ces.

Recent st r ong demands f or money and credi t , gener at ed i n partby i nf l at i onar y f orces, have br ought heavy pr essur e on cr edi t and f i nanci almar ket s gener al l y, wi t h var yi ng i mpact s on par t i cul ar sect or s of theeconomy. The cr edi t ors cover ed by t hi s Subpart act as f i nanci al i nt ermedi ari es,accept i ng f unds f r om i nvest or s who desi r e a st abl e, l i qui d, hi gh i ncomei nvest ment , and ext endi ng credi t pr i mar i l y t hr ough the pur chase of moneymarket i nst r ument s. Rapi d expansi on of cr edi t ext ended by t hese cr edi t orshas cont r i but ed to the pr essur es by f aci l i t ati ng borr owi ng i n the mar ket sf or Eur odol l ar s, commerci al paper , banker s accept ances, and ot her shor t -t er m l i qui d i nst r ument s. Mor eover , t he r api d expansi on of such cr edi t or shas t ended to i mpede reasonabl e f l ows of cr edi t to ot her sector s i ncl udi nghousi ng, smal l busi nesses, and f armers. Rest r ai nt on the gr owt h of

money market f unds and si mi l ar cr edi t ors wi l l enabl e f unds t o f l ow i nmore usual measur e t o product i ve uses, and thus cont r i but e t o dampeni ngi nf l at i onar y f orces.

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Regul at i on CC— Subpar t B - 4-

Shor t Ter m F i nanc i al I nt er medi ar i es

These act i ons are bei ng t aken to cur b i nf l at i onar y pressur es. The Board bel i eves t hat i t i s i n the nat i onal i nterest to achi eve thi sobj ect i ve as qui ckl y as possi bl e, and t hat publ i cat i on of t hi s r ul ef or comment or any del ay i n i t s ef f ect i ve date woul d l ead to r api d i ncr easesi n ext ensi ons of credi t t hat woul d not be subj ect to the regul at i on

and woul d f r ust r ate i ts pur pose. The Boar d t her ef ore f i nds f or goodcause t hat f ur t her not i ce, publ i c pr ocedur e, and def er r al of ef f ect i vedate pr ovi si ons of 5 U. S. C. § 553(b) wi t h r egard to these act i ons arei mpr act i cabl e and cont r ary to the publ i c i nt er est .

Pur suant to i t s aut hori t y under t he Cr edi t Cont r ol Act (12U. S. C. §§ 1901- 1909) t he Boar d her eby adopt s Subpart B of i t s Cr edi tRest r ai nt r egul ati on (12 C. F. R. § 229) ef f ect i ve March 14, 1980, asf ol l ows:

SECTION 229.11— AUTHORITY, PURPOSE, AND SCOPE

(a) Aut hor i t y. Thi s Subpart i s i ssued by the Boar d of Governor s

of the Federal Reser ve Syst empur suant to the Cr edi t Cont r ol Act (12U. S. C. §§ 1901 - 1909) , as i mpl ement ed by Execut i ve Order 12201.

(b) Pur pose and Scope. Thi s Subpar t i s i ntended to curbi nf l at i on gener at ed by the extensi on of credi t by cer t ai n of t hose f i nanci ali nt ermedi ar i es whi ch are not subj ect to ei t her the amendment s of l awef f ect ed by Pub. L. 89- 597, as amended, or sect i on 19 of the FederalReser ve Act , as amended (12 U. S. C. §461) , and whi ch are pr i mar i l y engagedi n the extensi on of shor t - t er m credi t , speci f i cal l y money mar ket f unds

and ot her si mi l ar credi t or s.

SECTI ON 229. 12—DEFI NI TI ONS

(a) For the pur poses of t hi s Subpar t , t he t erms "cr edi t , ""cr edi t or , " and "ext ensi on of credi t " shal l have the meani ngs gi vent hem i n the Cr edi t Cont r ol Act. I n addi t i on, the f ol l owi ng def i ni t i onsappl y.

(b) "Base" means t he amount — of covered cr edi t hel d by a

covered cr edi t or as of the cl ose of busi ness on March 14, 1980.

(c) "Cover ed credi t " means any ext ensi on of cr edi t or i gi nat ed

t hr ough the acqui si t i on of a secur i t y, deposi t , or other i nst r ument ,—i ncl udi ng but not l i mi t ed to domest i c and Eur odol l ar cer t i f i cat es ofdeposi t , U. S. Treasury bi l l s, r epur chase agr eement s, commerci al paper ,banker s accept ances, and st at e and l ocal government obl i gat i ons, andany i nt erest accrued t hereon.

1/ Asset s shoul d be val ued for pur poses of t hi s Subpart by the sameprocedur e used by a r egi st ered i nvest ment company to val ue asset s i ncal cul at i ng net shar e or uni t val ue under the I nvestment Company Act

of 1940 and rul es promul gat ed thereunder.

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(d) "Covered cr edi t or" means any cr edi t or (1) t hat i s (A)an i nvest ment company r egi st ered wi t h the Securi t i es and Exchange Commi ss i onunder the I nvest ment Company Act of 1940, (B) any ser i es of shares oruni t s of such a company, or (C) any common tr ust f und or si mi l ar f undmai ntai ned by a bank or t rust company excl usi vel y for the col l ect i ve

i nvest ment and rei nvest ment of moneys cont r i but ed ther eto by the bankor t r ust company i n i t s capaci t y as a t rust ee, unl ess al l moneys cont r i but edt heret o are hel d i nci dent al l y to the management of other t r ust asset s;and (2) whose i nvest ment por t f ol i o consi st s pr i mari l y of secur i t i es,

deposi t s or ot her i nst r ument s, i ncl udi ng but not l i mi t ed to domest i cand Eur odol l ar cer t i f i cat es of deposi t , U. S. Tr easur y bi l l s, r epur chase

agr eement s, commerci al paper , and st at e and l ocal obl i gat i ons wi t h matur i t i es

of 13 mont hs or l ess. - However , a uni t i nvest ment t r ust i s onl y a cover edcredi t or i f i ts i nvestment por t f ol i o consi st s pr i mar i l y of securi t i es,deposi t s, or ot her i nst r ument s wi t h matur i t i es of 13 mont hs or l ess—at the t i me the uni t i nvest ment t r ust acqui r es t hose assets.

(e) "Secur i t y" means any secur i t y as def i ned i n t he Secur i t i esAct of 1933.

(f) "Uni t i nvest ment t rust " means any uni t i nvest ment t r ustas def i ned i n the I nvest ment Company Act of 1940, or a ser i es of uni t sof such a t rust .

SECTI ON 229. 13—REPORTS

(a) Each cover ed cr edi t or except a uni t i nvest ment t r ustshal l f i l e a base r epor t and per i odi c r epor t s. The base r epor t shal lst ate the amount of the covered cr edi t or ' s base and shal l be submi t t edno l at er t han Apr i l 1, 1980, or i n the case of a cover ed cr edi t or t hat

becomes a covered cr edi t or af t er March 14, 1980, wi t hi n t wo weeks ofacqui r i ng or hol di ng asset s or accept i ng tr ust moneys t hat cause i tt o become a cover ed credi t or . Per i odi c repor t s shal l be f i l ed mont hl yf or each per i od runni ng f r om the 15t h day of each cal endar mont h tothe 14t h day of the f ol l owi ng mont h, or i n t he case of a cover ed cr edi t ort hat becomes a cover ed cr edi t or af t er March 14, f or each ful l peri odaf t er i t becomes a covered cr edi t or . These r eport s shal l be submi t t edby the 21st day of the mont h i n whi ch t he repor t i ng per i od ends, and

shal l st ate the amount by whi ch the aver age of t he dai l y amounts ofcover ed cr edi t out st andi ng dur i ng the report ed per i od exceeds t he base.

2/ Thi s i ncl udes var i abl e r at e secur i t i es, deposi t s or other i nst r ument swi t h l onger nomi nal mat ur i t i es but wi t h i nt er est r at es subj ect t o adj ust ment at i nterval s short er t han 13 mont hs.

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(b) A cover ed credi t or t hat i s a uni t i nvest ment t rust est abl i shedaf t er March 14, 1980, shal l f i l e a base report st at i ng the amount of

cover ed credi t i t hol ds. Thi s r epor t shal l be f i l ed i mmedi at el y uponacqui si t i on of i nvest ment asset s by the uni t i nvest ment t rust . Eachsuch cover ed credi t or shal l al so not i f y the appr opr i ate Federal Reserve

Bank t wo weeks bef ore t ermi nat i on of the t rust st at i ng the pr oj ect eddat e of t er mi nat i on of the t rust .

(c) Al l r epor t s shal l be f i l ed wi t h the Federal Reser ve Bank

i n the Di st r i ct wher e the cover ed credi t or has i ts pr i nci pal pl ace ofbusi ness.

SECTION 229.14— MAINTENANCE OF SPECIAL DEPOSIT

(a) Each covered credi t or t hat i s not a uni t i nvest ment t rustshal l mai nt ai n a non- i nt er est bear i ng speci al deposi t equal to 15 percent of the amount by whi ch t he aver age of t he dai l y amounts of i t scovered cr edi t out st andi ng dur i ng each r eport i ng per i od exceeds i ts

base. The"cor r espondi ng per i od dur i ng whi ch t he speci al deposi t shal lbe mai nt ai ned begi ns on the f i r st Thur sday of the f i r st f ul l cal endarmonth f ol l owi ng the peri od f or whi ch the report was f i l ed and ends ont he day pr i or to the f i r st Thur sday of the f ol l owi ng mont h. The speci aldeposi t shal l be mai ntai ned at the Federal Reserve Bank to whi ch thecover ed credi t or r epor t s.

(b) Each covered credi t or t hat i s a uni t i nvestment t rustest abl i shed af t er March 14, 1980, shal l mai ntai n a non- i nt erest bear i ngspeci al deposi t equal to 15 per cent of the covered cr edi t i t hol dsas of the dat e i t acqui r es i nvest ment asset s. Thi s speci al deposi tshal l be mai ntai ned dur i ng the peri od begi nni ng wi t h the day the coveredcr edi t or acqui r es asset s consi st i ng of cover ed credi t and endi ng one

day pr i or to f i nal di st r i but i on of t rust asset s by the Tr ust ee pur suantt o the t erms of the t rust agreement . The speci al deposi t shal l be mai ntai nedat the Federal Reserve Bank to whi ch the cover ed uni t i nvest ment t rustreport s. Upon t wo weeks not i ce, the speci al deposi t wi l l be r et urned

t o the t r ust ee one day pr i or to mat ur i t y or f i nal di st r i but i on pur suant

t o the terms of the t rust agr eement .

(c) Speci al deposi t s shal l be mai nt ai ned i n col l ect ed f undsi n the f orm of U. S. dol l ar s.

SECTI ON 229. 15—PENALTI ES

For each wi l l f ul vi ol at i on of t hi s Subpar t , the Boar d may assess

agai nst any credi t or , or of f i cer , di r ector or empl oyee ther eof who wi l l f ul l y

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par t i ci pat es i n the vi ol at i on, a maxi mum ci vi l penal t y of $1, 000. I naddi t i on, a maxi mumcr i mi nal penal t y of $1, 000 and i mpri sonment of oneyear may be i mposed f or wi l l f ul vi ol at i on of t hi s Subpar t .

Boar d of Governor s of the Federal Reser ve System, ef f ect i ve

Mar ch 14, 1980.

(si gned) Theodore E. Al l i son Theodore E. Al l i son

Secretary of the Boar d

[SEAL]

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SUBCHAPTER A— BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

( Docket No. R- 0232)


[Regulation CC— Subpart C]

Nonmemcer Commer ci al Banks

AGENCY: Board of Gover nor s of t he Federal Reser ve Syst em.

ACTI ON: Fi nal r ul e.

SUMMARY: Pur suant to t he Cr edi t Cont r ol Act (12 U. S. C. §§ 1901 - 1909)

as i mpl ement ed by Execut i ve Or der 12201, t he Boar d has adopt ed pr ovi si ons

r equi r i ng commer ci al banks t hat are not member s of t he Feder al Reserve

Syst em to mai nt ai n a non- i nt er est bear i ng speci al deposi t wi t h the Feder al

Reser ve equal to 10 per cent of t he amount by whi ch t he t ot al of cer t ai n

managed l i abi l i t i es of t hose banks exceeds t he amount of such managed

l i abi l i t i es out st andi ng dur i ng a base per i od. The pur pose of t hi s act i on

i s t o bet t er cont r ol t he expansi on of bank cr edi t and t her eby ser ve

t o dampen i nf l at i onar y f or ces. The managed l i abi l i t i es af f ect ed by

t hi s act i on i ncl ude t he t ot al of (1) t i me deposi t s i n denomi nat i ons

of $100, 000 or mor e wi t h or i gi nal mat uri t i es of l es3 t han one year ;(2) Feder al f unds borr owi ngs wi t h ori gi nal mat ur i t i es of l ess t han one

year f rom Q. S. of f i ces of cer t ai n depos i t or y i ns t i t ut i ons and f rom U. S.

gover nment agenci es; (3) r epur chase agr eement s wi t h or i gi nal mat ur i t i es

of l ess t han one year on U. S. gover nment and agency secur i t i es; and

(4) Eur odol l ar borr owi ngs f rom f or ei gn banki ng of f i ces, asset sal es

to r el at ed f or ei gn of f i ces, and f or ei gn of f i ce l oans to U. S. r esi dent s.

The speci al depos i t r equi r ement wi l l not appl y to bor r owi ngs f r om t he

Uni t ed St at es, pr i nci pal l y i n t he f or m of Tr easur y tax and l oan account

not e bal ances. The 10 per cent s peci al deposi t r equi r ement wi l l appl y

t o the amount by whi ch t he dai l y aver age amount of an i nst i t ut i on' s

t ot al managed l i abi l i t i es dur i ng a deposi t comput at i on per i od exceeds

a base amount cal cul at ed gener al l y as ei t her t he dai l y aver age amountof such l i abi l i t i es out st andi ng dur i ng the base per i od ( Febr uar y 28

t o March 12, 1980) or $100 mi l l i on, whi chever i s great er .

EFFECTI VE DATE: The speci al deposi t r equi r ement i s ef f ect i ve on margi nal

t ot al managed l i abi l i t i es out st andi ng dur i ng t he seven- day comput at i on

peri od begi nni ng March 20, 1980, and each seven day per i od t her eaf t er .

The non- i nt er est bear i ng speci al depos i t f or t he comput at i on per i ods

beginning March 20, 2 7 , and April 3 , 19 0 must be held during the denosit mai nt enance per i od begi nni ng Apr i l ij, 1980. Ther eaf t er the speci al

deposi t must be hel d dur i ng t he seven day mai nt enance per i od begi nni ng

ei ght days af t er t he end of t he cor r espondi ng comput at i on peri od.

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FOR FURTHER I NFORMATI ON CONTACT: Gi l bert T. Schwart z, Ass i st ant GeneralCounsel , C. Bai r d Br own, At t or ney, Paul S. Pi l ecki , At t or ney, or Dani elL. Rhoads, At t orney, Legal Di vi si on, Boar d of Governors of the FederalReser ve Syst em, Washi ngton, D. C. 20551 ( 202/ 452-3000) .

SUPPLEMENTARY I NFORMATI ON: I n accor dance wi t h t he Cr edi t Cont r ol Act(12 U. S. C. 3 1901 - 1909) as i mpl emented by Execut i ve Or der 12201,

t he Boar d has adopt ed t hi s Subpart to r equi r e cert ai n borr ower s consi st i ngof al l commerci al banks t hat are not member s of t he Federal ReserveSyst em t o mai nt ai n a non- i nt erest bear i ng speci al deposi t wi t h the Feder al

Reserve System. Thi s Subpar t does not appl y to Uni t ed States branchesand agenci es of f orei gn banks t hat are subj ect t o the Boar d' s mar gi nalr eserve requi r ement s (12 C. F. R. ^ 204. 5( f ) ) * Ot her Uni t ed St at es br anches

and agenci es of f orei gn banks are covered. The amount of t he speci aldeposi t to be hel d wi l l be equal t o 10 per cent of the amount by whi cht he dai l y aver age total of an i nst i t ut i on' s managed l i abi l i t i es dur i nga deposi t computat i on per i od exceeds a base amount . Gener al l y, an i nst i t ut i on' sbase i s the dai l y aver age amount of t he i nst i t ut i on' s t ot al managedl i abi l i t i es out st andi ng dur i ng the base peri od ( February 28 to Mar ch 12,1980) or $100 mi l l i on, whi chever i s great er . The managed l i abi l i t i eson whi ch t he speci al deposi t r equi r ement wi l l appl y i ncl ude the t ot al

of (1) t i me deposi t s i n denomi nat i ons of $100, 000 or more wi t h or i gi nal

maturi t i es of l ess t han one year ; (2) Federal f unds bor r owi ngs wi t h

or i gi nal mat ur i t i es of l ess than one year f r om U. S. of f i ces of cer t ai ndeposi t ory i nst i t ut i ons and f r omU. S. gover nment agenci es; (3) r epur chase

agr eement s wi t h or i gi nal matur i t i es of l ess t han one year on U. S. governmentand agency secur i t i es; and (4) Eur odol l ar borr owi ngs f r om f orei gn banki ngof f i ces of t he same i nst i t ut i on or of ot her banks, asset sal es to r el at ed

f orei gn of f i ces, and nonmember commerci al bank f orei gn of f i ce l oanst o U. S. r esi dent s.

Ti me Deposi t s of $100, 000 or More

Managed l i abi l i t i es subj ect t o t he speci al deposi t r equi r ement

i ncl ude deposi t s of t he f ol l owi ng t ypes:

(a) Ti me deposi t s of $100, 000 or more wi t h ori gi nal matur i t i es

of l ess t han one year ; and

(b) Ti me deposi t s of $100, 000 or more wi t h or i gi nal matur i t i es

of l ess t han one year r epr esent ed by promi ssory not es,

acknowl edgement s of advance, due bi l l s, or si mi l ar obl i gat i ons ( wr i t t en or oral ) as pr ovi ded i n ^ 204. 1( f ) ofRegul at i on D; and

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(c) Ti me deposi t s of any denomi nat i on wi t h r emai ni ng mat ur i t i esof l ess t han one year r epr esent ed by i nel i gi bl e bankers'accept ances or obl i gat i ons i ssued by a bank' s af f i l i at e

t o the ext ent t hat t he proceeds are suppl i ed to the bankas pr ovi ded i n ^ 204. 1( f ) of Regul at i on D.

Cr edi t bal ances of $100, 000 or more wi t h or i gi nal matur i t i es of 30 daysor more but l ess t han one year wi l l al so be t r eat ed as managed l i abi l i t i essubj ect t o t he speci al deposi t r equi r ement . Ti me deposi t s subj ect to

t he speci al deposi t r equi r ement do not i ncl ude savi ngs deposi t s andChr i st mas cl ub- t ype deposi t s.

Federal Funds and Repur chase Agr eements

Cer t ai n Federal f unds bor r owi ngs and repur chase agr eement sof nonmember commerci al banks are t r eat ed as managed l i abi l i t i es subj ectt o t he speci al deposi t r equi r ement . Under t hi s appr oach, t he amount

of bor r owi ngs wi t h ori gi nal matur i t i es of l ess t han one year f r om agenci es

of t he Uni t ed St at es and ot her nonexempt ent i t i es ( t oget her wi t h othermanaged l i abi l i t i es) t hat exceeds the i nst i t ut i on' s base, wi l l be subj ectt o t he 10 per cent speci al deposi t r equi r ement . The Boar d bel i eves

t hat exempt i ng Feder al f unds bor r owi ngs f rom i nst i t ut i ons whose l i abi l i t i esal r eady are subj ect t o Feder al r eser ve r equi r ement s f r om t he speci aldeposi t r equi r ement i s appr opr i at e to f aci l i t at e t he r eser ve adj ust mentpr ocess.

Borr owi ngs f r om t he Uni t ed St at es gover nment ( pr i nci pal l y

i n t he f orm of Treasury t ax and l oan account note bal ances) , however ,wi l l not be r egar ded as managed l i abi l i t i es subj ect t o t he speci al deposi t

r equi r ement . Borr owi ngs wi t h ori gi nal matur i t i es of l ess t han one year

f r om Federal agenci es and i nst r ument al i t i es such as t he Federal HomeLoan Bank Board and the Feder al Home Loan Banks wi l l be subj ect t o the

speci al deposi t r equi rement .

I n t he past , t he term "bank" has been def i ned by the Boar d

t o i ncl ude commerci al banks, savi ngs banks, savi ngs and l oan associ at i ons,cooper at i ve banks, cr edi t uni ons, t he Expor t - I mpor t Bank, and Mi nbancCapi t al Corpor at i on (see 12 C. F. R. ^ 217. 137) . Bor r owi ngs f r om al l

such nonmember i nst i t ut i ons by non-member commerci al banks wi l l ber egarded as managed l i abi l i t i es subj ect t o t he speci al deposi t r equi rement .

Bor r owi ngs f r om domest i c of f i ces of organi zat i ons t hat arer equi r ed by t he Boar d t o mai ntai n r eser ves wi l l not be r egarded as managed

l i abi l i t i es subj ect to t he speci al deposi t requi r ement . The i nst i t ut i onst hat cur r ent l y are requi r ed to mai ntai n reser ves i ncl ude member banks,

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Edge Cor porat i ons engaged i n t he banki ng busi ness (12 U. S. C. S 615) ,Agreement Cor porat i ons (12 U. S. C. 601- 604a) , operat i ons subsi di ari esof member banks (12 C. F. R. ^ 204. 117), and U. S. branches and agenci esof f orei gn banks wi t h wor l dwi de banki ng assets i n excess of $1 bi l l i on(12 U. S. C. <5 3105) .

Under t he Boar d' s act i on, bor r owi ngs i n the f or m of r epur chaseagr eement s wi t h or i gi nal matur i t i es of l ess t han one year i nvol vi ngU. S. government and agency secur i t i es al so woul d be regarded as managedl i abi l i t i es subj ect t o t he speci al deposi t r equi r ement . Repur chaseagr eement s ent ered i nt o wi t h U. S. of f i ces of member banks or organi zat i onst hat ar e r equi r ed by t he Boar d to mai nt ai n r eser ves wi t h the Feder alReserve Syst em woul d not be regar ded as managed l i abi l i t i es subj ectt o t he speci al deposi t r equi r ement . Repurchase agr eement s ent ered i nt oby nonmember commer ci al banks wi t h nonexempt ent i t i es, such as nonmember banks and nonbank deal ers, wi l l not be subj ect t o t he speci aldeposi t r equi r ement i f such t r ansact i ons are i nt ended t o pr ovi de col l at eralt o nonexempt ent i t i es i n order t o engage i n r epur chase t r ansact i onswi t h t he Federal Reser ve Syst em Open Market Account .

I n or der to cont i nue to f aci l i t at e the acti vi t i es of bankdeal ers i n t he U. S. gover nment and agency secur i t i es market s, and toprovi de compet i t i ve equal i t y bet ween bank and nonbank deal ers, t he amendmentpermi t s nonmember commer ci al banks to deduct t he amount of U. S. gover nmentand agency secur i t i es hel d by t he i nst i t ut i on i n i t s t r adi ng accountf r om t he t otal amount of i t s r epur chase agr eement s ent er ed i nt o i n det ermi ni ngt he amount of i t s r epur chase agreement s subj ect t o t he speci al deposi tr equi r ement . A t r adi ng account r epr esent s the U. S. government and agencysecur i t i es t hat are hel d f or deal er t r ansact i ons—_i. £. , secur i t i es pur chasedwi t h the i nt ent i on t hat t hey wi l l be r esol d rather t han hel d as an i nvest ment . The Board expect s t hat i nst i t ut i ons wi l l not r ecl assi f y U. S. gover nmentand agency secur i t i es hel d i n t hei r i nvest ment or other account s t ot hei r t r adi ng accounts f or t he pur pose of avoi di ng speci al deposi t r equi r ement s.

Managed l i abi l i t i es subj ect to t he 10 per cent speci al deposi tr equi r ement al so wi l l i ncl ude any obl i gat i on t hat ar i ses f r om a bor r owi ngf or one busi ness day f r om a deal er i n secur i t i es whose l i abi l i t i es arenot subj ect to the r eserve requi r ement s of t he Federal Reser ve Act ofpr oceeds of a t r ansf er of deposi t cr edi t i n a Federal Reser ve Bank (orother i mmedi at el y avai l abl e f unds) , r ecei ved by such deal er on the dat eof t he l oan i n connect i on wi t h cl ear ance of secur i t i es t r ansact i ons.

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5

Eur odol l ar s

The Boar d al so has i ncl uded t he Eur odol l ar bor r owi ngs of non-

member commer ci al banks as managed l i abi l i t i es subj ect t o the speci al

deposi t r equi r ement . Consequent l y, t he amount of Eur odol l ar s ( t oget herwi t h ot her managed l i abi l i t i es) of a bank that exceeds t he i nst i t ut i on’ s

base wi l l be subj ect to the 10 per cent speci al deposi t r equi r ement .

Such Eur odol l ar s i ncl ude t he i nst i t ut i on' s dai l y aver age bal ance of

(1) bor r owi ngs wi t h or i gi nal maturi t i es of l ess t han one year f r om f or ei gn

of f i ces of ot her banks and i nst i t ut i ons t hat ar e exempt f r om i nt er est

r at e l i mi t at i ons pur suant t o $ 217. 3( g) of Regul at i on Q? (2) net bal ances

due f r om an i nst i t ut i on' s domest i c of f i ces to i ts f or ei gn of f i ces; (3)

l i abi l i t i es of an i nst i t ut i on' s f or ei gn br anches to the ext ent that

t he br anches hol d asset s ( i ncl udi ng par t i ci pat i ons) acqui r ed f r om i ts

domest i c of f i ces or has cr edi t out st andi ng f r om the bank' s f or ei gn

of f i ces t o U. S. r esi dent s.

Comput at i on and Mai nt enance of Non- I nt er est Bear i ng Speci al Deposi t s

The amount of speci al deposi t s t hat a bank wi l l be r equi r ed

t o mai nt ai n each week wi l l be det er mi ned by the amount by whi ch t he

t ot al of the i nst i t ut i on' s managed l i abi l i t i es dur i ng a cor r espondi ng

seven- day comput at i on peri od exceeds i t s base of managed l i abi l i t i es.

The base amount f or a bank t hat i s a net bor r ower of managed l i abi l i t i es

i s $100 mi l l i on, or t he dai l y average amount of i t s managed l i abi l i t i es

dur i ng t he f our t een- day base per i od endi ng Mar ch 12, 1980, r educed by

an adj ust ment f or t he r educt i on i n i t s f or ei gn l endi ng f r om domest i c

of f i ces, whi chever i s gr eat er . The adj ust ment f or any gi ven comput at i on

per i od i s based on the di f f er ence bet ween the sum of i t s gr oss l oanst o non- Uni t ed St at es r esi dent s and gr oss bal ances due f r om f or ei gn of f i ces

of ot her i nst i t ut i ons, and t he l owest gr oss t ot al of such l endi ng f or

any comput at i on week begi nni ng af t er Mar ch 19, 1980. That di f f er ence

i s t hen rounded down to the l argest l ower mul t i pl e of $2 mi l l i on and

subt r act ed f r om t he dai l y aver age of managed l i abi l i t i es f or t he base

per i od. For exampl e, i f a bank has $125 mi l l i on of average managed

l i abi l i t i es and $40 mi l l i on i n gr oss l endi ng to f or ei gn bor r ower s and

i nst i t ut i ons dur i ng the base per i od, and $35 mi l l i on of gr oss l endi ng

t o f orei gn bor r owers and i nst i t ut i ons dur i ng the week begi nni ng Mar ch 20,

1980, i t s base f or t hat comput at i on week woul d be $125 mi l l i on mi nus $4

mi l l i on 3 $121 mi l l i on ( wher e $4 mi l l i on i s deri ved f r om $40 mi l l i on mi nus $35

mi l l i on = $5 mi l l i on whi ch i s rounded to $4 mi l l i on) . I f i n a l at erweek t he gr oss l endi ng to f orei gn bor r owers and i nst i t ut i ons r i ses to

$45 mi l l i on, t he base r emai ns at $121 mi l l i on. I f i n a l ater week t he

gr oss l endi ng to f or ei gn bor r ower s and i nst i t ut i ons f al l s to $10 mi l l i on,

t he r educt i on woul d be $40 mi l l i on mi nus $10 mi l l i on = $30 mi l l i on ( no

r oundi ng needed) , t hus t he cal ul at ed base woul d be $125 mi l l i on mi nus $30

mi l l i on 3 $95 mi l l i on, but t he r eport ed base amount woul d be $100 mi l l i on,

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whi ch i s a per manent f l oor f or the base amount . The speci al deposi twoul d be 10 per cent of the di f f erence between i t s managed l i abi l i t i esf or the comput at i on week and the $100 mi l l i on base.

Roundi ng the reduct i on i n the base wi l l serve to mi ni mi zethe i mpact of smal l r epayment s or r educt i ons i n t he dai l y average

gr oss l oans t o non- Uni t ed St ates r esi dent s and bal ances due f r om f or ei gnof f i ces of ot her i nst i t ut i ons. The r educt i on i n such l endi ng bel owt he dai l y average for the base per i od endi ng March 12, 1980 wi l l onl yr educe the base i n i ncr ement s of $2 mi l l i on. Thi s appr oach wi l l enabl ei nst i t ut i ons t o r ecei ve or di nary repayment s of f or ei gn l oans wi t hout

bei ng requi r ed to rel end such f unds i mmedi atel y to avoi d a r educt i oni n the base.

For an i nst i t ut i on t hat i s a net l ender of managed l i abi l i t i es( that i s, t he sum of i ts managed l i abi l i t i es i s negat i ve because i tsnet Eur odol l ar l oans t o i ts f or ei gn of f i ces are gr eat er t han the t ot alof i t s l arge t i me deposi t s, Feder al f unds pur chased, r epur chase agr eement s,

and bor r owed Eur odol l ar s) , i ts base wi l l be the al gebr ai c sum of i tsmanaged l i abi l i t i es dur i ng the base per i od endi ng March 12, 1980, and$100 mi l l i on. For exampl e, i f an i nst i t ut i on has negat i ve $150 mi l l i on

of managed l i abi l i t i es dur i ng the base per i od, i t s base wi l l be negat i ve$50 mi l l i on, and speci al deposi t r equi r ement s wi l l appl y to the amountof i t s t ot al managed l i abi l i t i es above t hat amount . I f such an i nst i t ut i onmai nt ai ned a dai l y aver age of t ot al managed l i abi l i t i es dur i ng a comput at i onper i od of negati ve $30 mi l l i on, i t woul d be requi r ed to mai nt ai n the10 per cent speci al deposi t r equi r ement agai nst $20 mi l l i on of managedl i abi l i t i es dur i ng the r eser ve mai nt enance per i od.

The speci al deposi t must be mai ntai ned i n col l ect ed f undsi n the f or m of U. S. dol l ar s. Mai nt enance of a speci al deposi t does

not ent i t l e a nonmember bank to Federal Reserve servi ces.

Rest r ai nt on growt h i n money and cr edi t must be a f undament alpart of t he pr ocess of subdui ng i nf l at i onary f orces. Gr owt h i n bankcr edi t i n r ecent mont hs has been excessi ve. Therefore, the Boar d has

adopt ed thi s speci al deposi t r equi r ement based on managed l i abi l i t i esi ssued by nonmember banks. Thi s r equi r ement wi l l i mpose r est r ai nt ont he sour ces of f unds t hat banks t ypi cal l y have used to f i nance the expansi on

of bank cr edi t . The nonmember bank speci al deposi t r equi r ement compl ement st he addi t i onal r est r ai nt the Boar d has i mposed on si mi l ar l i abi l i t i esof member banks. I n the absence of thi s const r ai nt , nonmember bankscoul d cont i nue to ext end credi t wi t h f ew l i mi t at i ons. Bor r ower s that

coul d not be accommodat ed at a member bank coul d t urn to a nonmemberbank, t her eby under mi ni ng r est r ai nt on bank credi t . Cont ai ni ng thegr owt h of bank credi t f i nanced i n l arge par t by managed l i abi l i t i esat nonmember banks wi l l t hus cont r i but e to dampeni ng i nf l at i onary f orces.

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These act i ons are bei ng t aken t o hel p curb t he expansi on ofbank credi t , t her eby dampeni ng i nf l at i onar y pr essures. The Boar d bel i evest hat i t i s i n t he nat i onal i nt er est to achi eve t hi s obj ect i ve as qui ckl yas possi bl e, and t hat publ i cat i on of t hi s r ul e for comment or any del ayi n i t s ef f ect i ve dat e woul d l ead to r api d i ncreases i n ext ensi ons ofcr edi t t hat woul d not be subj ect t o t he regul at i on and woul d f r ust r ate

i t s purpose. The Boar d t heref ore f i nds for good cause t hat t henot i ce, publ i c pr ocedur e, and def er r al of ef f ect i ve dat e pr ovi si onsof 5 U. S. C. ^ 553(b) wi t h regar d to t hese act i ons are i mpr act i cabl eand cont r ar y to the publ i c i nt erest .

Pur suant to i t s author i t y under t he Cr edi t Cont r ol Act (12U. S. C. *>§ 1901 - 1909) t he Board her eby adopt s Subpart C of i t s r egul at i onr egardi ng Cr edi t Rest rai nt (12 C. F. R. 229) ef f ect i ve Mar ch 14, 1980,1980, as f ol l ows:

SECTI ON 229. 21—AUTHORI TY, PURPOSE, AND SCOPE

(a) Aut hor i t y. Thi s Subpar t i s i ssued by t he Boar d of Governors

of t he Federal Reserve Syst empursuant t o t he Cr edi t Cont r ol Act (12U. S. C. 1901 - 1909), as i mpl ement ed by Execut i ve Or der 12201.

(b) Pur pose and Scope. Thi s Subpart i s i ntended to curbi nf l at i on by cont r ol l i ng the expansi on of credi t extended by commer ci albanks that are not members of t he Federal Reserve Syst em t hat i s suppor t ed

by ext ensi ons of credi t to t hose banks i n t he f orm of managed l i abi l i t i es.

SECTI ON 229. 22— DEFI NI TI ONS

(a) For t he purposes of t hi s Subpar t , t he t erms "cr edi t , "and "ext ensi on of credi t " shal l have t he meani ngs gi ven them i n the

Cr edi t Cont r ol Act . I n addi t i on, t he f ol l owi ng def i ni t i ons appl y.

(b) "Covered bank" means any commer ci al bank t hat i s nota member of t he Federal Reserve Syst em, or r equi r ed to mai ntai n reservesunder the Federal Reserve Act .

(c) "Member bank" means any bank that i s a member of theFeder al Reser ve Syst em.

SECTI ON 229. 23— REPORTS

Each covered bank shal l f i l e wi t h the Federal Reser ve Bankf or the Feder al Reser ve di st r i ct i n whi ch i t s head of f i ce i s l ocat ed

such r eport s as shal l be requi r ed i n connect i on wi t h the mai nt enanceof a speci al deposi t under t hi s Subpar t .

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SECTI ON 229. 24— MAI NTENANCE OF SPECI AL DEPOSI T

(a) Dur i ng t he seven- day deposi t mai nt enance per i od begi nni n

Apr i l 17, 1980, each covered bank shal l mai nt ai n a non- i nt erest bear i ng

speci al deposi t equal t o 10 per cent of t he sura of t he amounts by whi ch

t he dai l y aver age of i ts t ot al managed l i abi l i t i es dur i ng each of t heseven- day comput at i on per i ods begi nni ng Mar ch 20, 27, and Apr i l 3 exceedsi t s managed l i abi l i t i es base as det ermi ned i n accor dance wi t h par agr aDh ( b) .

Dur i ng the seven- day deposi t mai nt enance per i od begi nni ng Apr i l 2k,

1980, and each deposi t mai nt enance per i od thereaf t er , each cover ed bankshal l mai nt ai n a non- i nt erest bear i ng speci al deposi t equal t o 10 percent of t he amount by whi ch the dai l y average of i t s t ot al managed l i abi l i t i es

dur i ng t he seven- day comput at i on per i od endi ng ei ght days pr i or to the

begi nni ng of the cor r espondi ng seven- day deposi t mai ntenance per i odexceeds i t s managed l i abi l i t i es base as det ermi ned i n accor dance wi t h

paragr aph ( b) . A covered bank' s managed l i abi l i t i es ar e t he t ot al of

the f ol l owi ng:

( 1) (A) t i me deposi t s of $100, 000 or more wi t h or i gi nal

mat ur i t i es of l ess t han one year ;

(B) t i me deposi t s of $100, 000 or more wi t h or i gi nal

mat ur i t i es of l ess t han one year r epr esent i ng borr owi ngs i nt he f orm of promi ssor y notes, acknowl edgment s of advance,

due bi l l s, or si mi l ar obl i gat i ons as pr ovi ded i n $ 204. 1( f )of Regul at i on D; and

(C) t i me deposi t s wi t h r emai ni ng matur i t i es of l esst han one year r epr esent ed by i nel i gi bl e banker s' accept ances

or obl i gat i ons i ssued by a bank' s af f i l i at e, as pr ovi ded i n^ 204. 1( f ) of Regul at i on D. However , managed l i abi l i t i es

do not i ncl ude savi ngs deposi t s, or t i me deposi t s, open accountt hat const i t ut e deposi t s of i ndi vi dual s, such as Chr i st mas

cl ub account s and vacat i on cl ub account s t hat are made under

wr i t t en cont r act s provi di ng that no wi t hdr awal shal l be madeunt i l a cer t ai n number of per i odi c deposi t s have been made

dur i ng a per i od of not l ess t han thr ee mont hs;

(2) any obl i gat i on wi t h an or i gi nal mat ur i t y of l ess

t han one year t hat i s i ssued or under t aken as a means of obt ai n

i ng f unds t o be used i n i t s banki ng busi ness i n t he f or m of

a pr omi ssory not e, acknowl edgment of advance, due bi l l , i nel i gi bl e

bankers' accept ance, r epurchase agreement ( except on a U. S.or agency secur i t y) , or si mi l ar obl i gat i on ( wr i t t en or oral )i ssued to and hel d f or the account of a domest i c banki ng of f i ce

or agency- of anot her commerci al bank or t r ust company thati s not r equi r ed to mai ntai n reserves pur suant t o Regul at i on D,a savi ngs bank ( mut ual or st ock) , a bui l di ng or savi ngs and

1/ Any banki ng of f i ce or agency i n any St ate of t he Uni t ed St ates or

the Di st r i ct of Col umbi a of a bank organi zed under domest i c or f or ei an

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l oan associ at i on, a cooperat i ve bank, a credi t uni on, or anagency of t he Uni t ed St at es, t he Expor t - I mpor t Bank of t heUni t ed St at es, Mi nbanc Capi t al Corpor at i on and the Gover nment

Devel opment Bank f or Puer t o Ri co;

(3) any obl i gat i on wi t h an ori gi nal mat ur i t y of l ess

t han one year t hat i s i ssued or under t aken as a means of obt ai ni ng f unds t o be used i n i t s banki ng busi ness i n t he f orm of

a r epur chase agr eement ar i si ng f r om a t r ansf er of di r ect obl i gat i ons of , or obl i gat i ons t hat are f ul l y guar ant eed as to pr i nci pal

and i nt erest by, t he Uni t ed States or any agency thereof t hat

t he i nst i t ut i on i s obl i gat ed to r epur chase except r epur chaseagr eement s i ssued to a domest i c banki ng of f i ce or agency ofa member bank, or other or gani zat i on t hat i s requi r ed to mai ntai n

r eser ves under Regul at i on D pur suant t o the Federal Reser veAct , — t o t he ext ent t hat t he amount of such r epurchase agr eement s

exceeds t he t otal amount of Uni t ed St ates and agency secur i t i es

* hel d by the covered bank i n i t s t r adi ng account ;

(4) any obl i gat i on t hat ar i ses f r om a borr owi ng by acover ed bank f r om a deal er i n securi t i es that i s not a memberbank or ot her organi zat i on t hat i s r equi red to mai nt ai n reser ves

pur suant t o Regul at i on D, f or one busi ness day, of pr oceeds of a t r ansf er of deposi t credi t i n a Federal Reser veBank (or ot her i mmedi atel y avai l abl e f unds) , recei ved by such

deal er on the dat e of t he l oan i n connect i on wi t h cl ear ance

of securi t i es t r ansacti ons;

(5) bor r owi ngs wi t h an or i gi nal matur i t y of l ess t hanone year f r om f or ei gn of f i ces of ot her banks and f r om i nst i t u

t i ons t hat are exempt f r om i nt er est r at e l i mi t at i ons pur suantt o ^ 217. 3( g) of Regul at i on Q;

(6) net bal ances due f r om t he cover ed bank' s domest i c

of f i ces to i t s f or ei gn br anches;

(7) l i abi l i t i es of a f or ei gn br anch of t he cover ed bankt o t he extent t hat t he f orei gn br anch hol ds asset s ( i ncl udi ng

par t i ci pat i ons) acqui r ed f r om t he cover ed bank' s domest i c

of f i ces; and

2/ Edge Corpor at i ons engaged i n banki ng, Agreement Cor porat i ons, operat i onssubsi di ar i es of member banks and U. S. branches and agenci es of f orei gn

banks wi t h wor l dwi de banki ng assets i n excess of $1 bi l l i on.

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(corrected page) .

(8) l i abi l i t i es of a f orei gn br anch of t he cover ed bank

t o t he ext ent t hat i t has credi t out st andi ng f r om i ts f or ei gn

branches to U. S. r esi dent s—7 ( ot her t han asset s acqui r ed and

net bal ances due f r om i ts domest i c of f i ces) . Pr ovi ded, That

t hi s paragr aph does not appl y to cr edi t ext ended (1) i n the

aggregat e amount of $100, 000 or l ess t o any Uni t ed Statesr esi dent , (2) by a f orei gn branch whi ch at no t i me dur i ng

t he comput at i on per i od had cr edi t out st andi ng to Uni t ed St at es

r esi dents exceedi ng $1 mi l l i on, (3) under bi ndi ng commi t ment s

ent ered i nt o bef ore May 17, 1973, or (4) t o an i nst i t ut i on

t hat wi l l be mai ntai ni ng r eserves on such cr edi t under paragraphs (c)

or (f) of sect i on 204. 5 of Regul at i on D or under Regul at i on K.

(b) Managed l i abi l i t i es base. Duri ng t he seven- day deposi t

comput at i on per i od begi nni ng March 20, 1980, and dur i ng each seven- daydeposi t comput at i on per i od t her eaf t er , t he managed l i abi l i t i es baseof a covered bank shal l be det ermi ned as f ol l ows:

(1) For a cover ed bank t hat , on a dai l y average basi s,

i s a net bor r ower of t ot al managed l i abi l i t i es dur i ng t he

f our t een- day base per i od endi ng Mar ch 12, 1980, i t s managed

l i abi l i t i es base shal l be t he dai l y aver age of i ts t ot al managed

l i abi l i t i es dur i ng the base peri od r educed by the amount by

whi ch i t s l owest dai l y average of gr oss l oans t o non- Uni t edSt at es r esi dent s—7 and gr oss bal ances due f r om f or ei gn of f i ces

of ot her i nsti t ut i ons—7 or i nst i t ut i ons t he t i me deposi t s

of whi ch ar e exempt f r om t he rat e l i mi t at i ons of Regul at i on 0pur suant to 217. 3( g) t hereof —7 out st andi ng dur i ng any comput at i on

per i od af t er March 12, 1980, i s l ower t han the dai l y aver age

amount of such l oans and bal ances out st andi ng dur i ng the base

per i od. The amount of t he r educt i on shal l be r ounded downt o t he l ar gest l ower mul t i pl e of $2 mi l l i on.

3/ A Uni t ed St at es resi dent i s: (a) any i ndi vi dual r esi di ng (at the

t i me t he cr edi t i s ext ended) i n any St at e of t he Uni t ed St at es or t he

Di st r i ct of Col umbi a; (b) any cor porat i on, par t ner shi p, associ at i on

or other ent i t y organi zed t her ei n ( "domest i c cor porat i on") ; and (c)

any br anch or of f i ce l ocat ed t her ei n of any other ent i t y wherever organi zed.

Cr edi t ext ended to a f or ei gn branch, of f i ce, subsi di ar y, af f i l i at e or

ot her f or ei gn est abl i shment ( "f orei gn af f i l i at e") cont r ol l ed by one

or more such domest i c cor por at i ons wi l l not be deemed to be cr edi t ext ended

t o a Uni t ed St at es r esi dent i f t he pr oceeds wi l l be used i n i t s f or ei gnbusi ness or t hat of ot her f or ei gn af f i l i at es of the cont r ol l i ng domest i ccor por at i on( s ) .

4/ Any banki ng of f i ce l ocat ed out si de t he St at es of t he Uni t ed St at es

and the Di st r i ct of Col umbi a of a bank organi zed under domest i c or f orei gnl aw.

5/ A f or ei gn cent r al bank, or any i nt er nat i onal or gani zat i on, of whi ch

t he Uni t ed St ates i s a member , such as t he I nternat i onal Bank f or Reconst r uc

t i on and Devel opment ( Wor l d Bank) , I nt ernat i onal Monet ary Fund, I nt er -

Amer i can Devel opment Bank, and other f orei gn i nt er nat i onal , or supr anat i onalent i t i es exempt f r om i nt er est r at e l i mi t at i ons under g 217. 3( g) (3) of

Regul at i on Q (12 C. F. R. g 217. 3( g) ( 3) ) .

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However , i n no event wi l l t he managed l i abi l i t i es base

f or a cover ed bank t hat was a net bor rower of managed l i abi l i t i esdur i ng the f our t een- day base per i od endi ng March 12, 1980,be l ess t han $100 mi l l i on.

(2) For a cover ed bank t hat , on a dai l y average basi s,i s a net l ender of t ot al managed l i abi l i t i es dur i ng the f our t een-day base per i od endi ng March 12, 1980, i t s managed l i abi l i t i es

base shal l be the sum of i t s dai l y aver age negat i ve t ot almanaged l i abi l i t i es and $100 mi l l i on.

(c) The speci al deposi t shal l be mai ntai ned at t he FederalReserve Bank t o whi ch the cover ed bank r eport s. The speci al deposi tmust be mai nt ai ned i n col l ect ed f unds i n t he f or m of U. S. dol l ar s.

SECTI ON 229. 25— PENALTI ES

For each wi l l f ul vi ol at i on of t hi s Par t , t he Boar d may assess

agai nst any credi t or , or of f i cer , di r ect or or empl oyee t her eof who wi l l f ul l ypar t i ci pat es i n t he vi ol at i on, a maxi mum ci vi l penal t y of $1, 000. I n

addi t i on, a maxi mum cr i mi nal penal t y of $1, 000 and i mpr i sonment of oneyear may be i mposed f or wi l l f ul vi ol at i on of t hi s Par t .

Boar d of Governors of t he Federal Reser ve System, ef f ect i veMar ch 14, 1980.

(Si gned) Theodore E. Al l i son

[SEAL]

Theodore E. Al l i sonSecr etary of t he Boar d

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SUBCHAPTER A—BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

[ Regul at i on D]

( Docket No. R- 0278)

Par t 204— RESERVES OF MEMBER BANKS

Mar gi nal Reserve Requi r ement s

AGENCY: Board of Governors of the Federal Reser ve Syst em.

ACTI ON: Fi nal rul e.

SUMMARY: ^ On Oct ober 6, 1979, the Boar d of Gover nors amended Regul at i on D

to est abl i sh a margi nal r eserve requi r ement of 8 per cent on the amountby whi ch the tot al of cer t ai n managed l i abi l i t i es of member banks (andEdge and Agreement Corporat i ons) and Uni t ed States branches and agenci esof f orei gn banks exceeds the amount of an i nst i t ut i on' s base of managedl i abi l i t i es. An i nst i t ut i on' s base was def i ned as the dai l y aver aget ot al of managed l i abi l i t i es out st andi ng dur i ng the peri od Sept ember 13-26, 1979, or $100 mi l l i on, whi chever i s gr eat er. The Boar d has amendedRegul at i on D to i ncr ease the margi nal r eser ve r equi r ement r ati o to 10per cent . The Boar d al so has amended Regul at i on D to reduce an i nst i t ut i on'

managed l i abi l i t i es base by the gr eat er bf 7 per cent or the amountof decr ease i n an i nst i t ut i on' s dai l y aver age gr oss l oans t o non- Uni t edSt at es r esi dent s and gr oss bal ances due f r om f or ei gn of f i ces of ot her

i nst i t ut i ons bet ween the base per i od ( Sept ember 13- 26, 1979) and thest atement week endi ng March 12, 1980. I n the f ut ur e, an i nst i t ut i on' sbase wi l l be r educed f urt her af t er Mar ch 12, 1980, by the amount bywhi ch i t decreases i t s dai l y average gr oss l oans to non- U. S. r esi dent sand gr oss bal ances due f r om f or ei gn of f i ces of ot her i nst i t ut i ons dur i nga st atement week. However, i n no event wi l l t he base of an i nst i t ut i ont hat was a net bor r ower of managed l i abi l i t i es dur i ng the base peri od( Sept ember 13- 26, 1979) be r educed bel ow $100 mi l l i on. The pur poseof thi s acti on is t o cont r ol f ur t her the avai l abi l i t y of bank credi t .

EFFECTI VE DATE: Thi s act i on i s ef f ect i ve f or margi nal r eserves r equi r edto be mai nt ai ned dur i ng the seven- day per i od begi nni ng Apr i l 3, 1980, ,agai nst t ot al managed l i abi l i t i es out st andi ng dur i ng the seven- day

per i od begi nni ng on Mar ch 20, 1980.

FOR FURTHER I NFORMATI ON CONTACT: Gi l ber t T. Schwart z, Ass i st ant GeneralCounsel ( 202/ 452- 3625) , Anthony F. Col e> Seni or At t orney ( 202/ 452- 3612) ,or Paul S. Pi l ecki , At t or ney ( 202/ 452- 3281) , Legal Di vi si on, Boar d ofGovernors of the Federal Reser ve Syst em, Washi ngt on, D. C. 20551.

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SUPPLEMENTARY I NFORMATI ON: On Oct ober 6, 1979, the Boar d of Gover nor samended Regul at i on D (12 CFR Part 204) to i mpose a margi nal r eserve

r equi r ement of 8 per cent on the amount by whi ch t he total managed

l i abi l i t i es of member banks (and Edge and Agreement Corporat i ons) andUni t ed St ates branches and agenci es of f or ei gn banks wi t h tot al wor l d

wi de consol i dat ed bank assets i n excess of $1 bi l l i on exceeds the amountof the i nst i t ut i on' s managed l i abi l i t i es out st andi ng dur i ng the base

per i od ( Sept ember 13- 26, 1979) or $100 mi l l i on, whi chever i s great er(44 Fed. Reg. 60071) . Managed l i abi l i t i es i ncl ude the t ot al of (1)t i me deposi t s i n denomi nat i ons of $100, 000 or more wi t h or i gi nal mat uri t i es of l ess than one year ; (2) Feder al f unds borr owi ngs wi t h or i gi nal mat ur i t i es of l ess t han one year f r om U. S. of f i ces of deposi t oryi nst i t ut i ons not r equi r ed to mai nt ai n Feder al r eser ves and f r omU. S.gover nment agenci es; (3) r epur chase agr eement s wi t h or i gi nal maturi t i esof l ess t han one year on U. S. government and agency securi t i es ent eredi nt o wi t h par t i es ot her t han i nst i t ut i ons requi r ed to mai nt ai n Feder alr eser ves; and (4) Eurodol l ar bor r owi ngs f r om f orei gn banki ng of f i ces,asset sal es to rel at ed f orei gn of f i ces and member bank f orei gn of f i ce

l oans to U. S. r esi dent s. The pur pose of t hi s act i on was to bet t ercont r ol the expansi on of bank credi t , hel p cur b specul at i ve excesses

i n f i nanci al , f orei gn exchange and commodi t y markets and t hereby serve

t o dampen i nf l at i onary for ces.

Under the mar gi nal r eserve program, the amount of margi nalr eserves t hat a member bank, Edge or Agreement Corpor at i on, or a U. S.

br anch or agency f ami l y of a f orei gn bank t hat i s a net borr ower ofmanaged l i abi l i t i es i s requi r ed to mai nt ai n i s det ermi ned by t he amountby whi ch the total of the i nst i t ut i on' s managed l i abi l i t i es dur i ng agi ven seven- day reserve comput at i on per i od exceeds t he dai l y averageamount of managed l i abi l i t i es out st andi ng dur i ng the base peri od or

$100 mi l l i on, whi chever i s great er . For an i nst i t ut i on t hat i s a netl ender of managed l i abi l i t i es (t hat i s, the sum of i ts managed l i abi l i t i es i s negat i ve because i t s net Eur odol l ar l oans to i ts f or ei gn of f i ces are great er t han the t ot al of i ts ot her managed l i abi l i t i es) ,

i t s managed l i abi l i t i es base i s the al gebr ai c sum of i ts managed l i abi l i t i es and $100 mi l l i on.

The Board has determi ned to i ncrease the margi nal r eserver equi r ement r at i o to 10 per cent and al so has det ermi ned to adj ust thebase amount of managed l i abi l i t i es f or i nst i t ut i ons subj ect to themargi nal r eser ve r equi r ement progr am. For r eserve computat i on per i odsbegi nni ng March 20, 1980, i f an i nst i t ut i on was a net bor r ower of man

aged l i abi l i t i es dur i ng the base per i od, i t s base amount wi l l be r educed

by an amount equal to the greater of 7 per cent of i t s curr ent baseor an amount equal to the decr ease i n the sum of i t s dai l y average gr ossl oans t o non- Uni t ed St at es r esi dent s and gr oss bal ances due f r om f orei gnof f i ces of ot her i nst i t ut i ons f r om the base per i od ( Sept ember 13- 26,1979) to t he seven- day st at ement week endi ng Mar ch 12, 1980. For exampl e,

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i f an i nst i t ut i on has a borr owed managed l i abi l i t i es base of $250 mi l

l i on, i t s base woul d be r educed by at l east $17. 5 mi l l i on (7 per centx $250 mi l l i on) . However , i f such i nst i t ut i on' s dai l y aver age of grossl oans t o non- Uni t ed St at es r esi dent s and gr oss bal ances due f r om f or ei gn

of f i ces of ot her i nst i t ut i ons decr eased bet ween the base per i od ( Sept ember 13-26, 1979) and the st at ement week ended Mar ch 12, 1980, by $25 mi l l i on,

t hen the new managed l i abi l i t i es base for such i nst i t ut i on woul d be$225 mi l l i on, si nce the decr ease i n dai l y average of such l oans andbal ances was gr eat er t han 7 per cent . Consequent l y, the margi nal r eser ve rat i o of 10 per cent woul d be appl i ed to the i nst i t ut i on' s managedl i abi l i t i es i n excess of $225 mi l l i on.

The managed l i abi l i t i es base shal l be f urt her r educed i n r e

serve comput at i on per i ods begi nni ng March 20, 1980, by the amount bywhi ch t he i nst i t ut i on' s dai l y aver age of gross l oans to non- Uni t edSt ates r esi dent s and gr oss bal ances due f r om f or ei gn of f i ces of ot heri nst i t ut i ons dur i ng the st at ement week i s l ower t han t he dai l y aver ageamount of such l oans and bal ances duri ng the st atement week endi ng onMarch 12> 1980. I n order to mi ni mi ze the r eser ve i mpact of smal l r epayment s or r educt i ons i n the dai l y average gr oss l oans t o non- Uni t edSt at es r esi dent s and bal ances due f r om f or ei gn of f i ces of ot her i nst i t ut i ons, a f ut ur e reduct i on i n such l oans and bal ances bel ow the dai l y

aver age f or the week endi ng March 12, 1980, wi l l r educe the base onl yi n i ncrement s of $2 mi l l i on. For exampl e, ' i f an i nst i t ut i on r educes

such l oans and bal ances by a dai l y aver age of $12. 5 mi l l i on dur i ng thest at ement week endi ng March 26, 1980, i t s base for t hat week and f utureweeks wi l l be r educed by $12 mi l l i on. Thi s appr oach al so wi l l enabl e

i nst i t ut i ons to r ecei ve ordi nar y r epayment s of f or ei gn l oans wi t hout

bei ng requi r ed to r el end such f unds i mmedi atel y to avoi d i ncr eased

margi nal r eser ves. The base f or an i nst i t ut i on t hat was a net bor r ower

of managed l i abi l i t i es dur i ng the base peri od (Sept ember 13- 26, 1979) ,

wi l l not be r educed bel ow $100 mi l l i on. The base wi l l not change f oran i nst i t ut i on t hat was a net l ender of managed l i abi l i t i es dur i ng the

base per i od. An i nst i t ut i on' s base wi l l not be af f ect ed by an i ncreasei n dai l y aver age gr oss l oans to non- Uni t ed St at es resi dent s. I n addi t i on,el i gi bl e bankers' accept ances not hel d i n the i ssuer ' s own por t f ol i owi l l not be r egar ded as l oans f or pur poses of deter mi ni ng reduct i ons

i n the managed l i abi l i t i es base.

These act i ons are bei ng t aken to moder at e expansi on of bankcredi t , t her eby dampeni ng i nf l at i onar y pr essur es. I n order to achi evet he above st ated obj ect i ves as soon as possi bl e, the Boar d f or good

cause f i nds t hat the not i ce, publ i c pr ocedur e, and def er r al of ef f ect i vedate provi si ons of 5 U. S. C. § 553( b) wi t h r egard to t hese act i ons are

i mpr act i cabl e and cont r ary to the publ i c i nt erest .

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These act i ons are t aken pur suant to the Board' s aut hor i t yunder sect i ons 19, 25 and 25(a) of t he Federal Reser ve Act (12 U. S. C.§§ 461, 601 et seg. ) and under sect i on 7 of the I nternat i onal Banki ngAct of 1978 (12 U. S. C. § 3105) .

Ef f ect i ve Apri l 3, 1980, sect i on 204. 5 of Regul at i on D (12 CFR § 204. 5)i s revi sed as f ol l ows:

§ 204. 5 RESERVE REQUI REMENTS

* * * * *

( f ) Margi nal Reser ve Requi r ement s.

(1) Member banks . A member bank shal l mai ntai n a dai l y average r eser ve bal ance agai nst i t s t i me deposi t s equal to 10 per centof the amount by whi ch the dai l y aver age of i ts t ot al managed l i abi l i t i es

dur i ng the seven- day comput at i on peri od endi ng ei ght days pr i or to thebegi nni ng of the cor r espondi ng seven- day reserve mai nt enance peri odexceeds the member bank' s managed l i abi l i t i es base as det ermi ned i naccordance wi t h subparagr aph (3). A member bank' s managed l i abi l i t i esare the t ot al of the f ol l owi ng: * * *

(2) Uni t ed St ates br anches and agenci es of f orei gn banks.A Uni t ed St ates br anch or agency of a f orei gn bank wi t h tot al wor l dwi deconsol i dated bank assets i n excess of $1 bi l l i on shal l mai nt ai n a dai l yaver age reser ve bal ance agai nst i t s l i abi l i t i es equal to 10 per centof the amount by whi ch the dai l y aver age of i t s t ot al managed l i abi l i t i esdur i ng the seven-day computat i on per i od endi ng ei ght days pr i or to thebegi nni ng of the cor r espondi ng seven- day reser ve mai ntenance peri od

exceeds t he i nst i t ut i on' s managed l i abi l i t i es base as det ermi ned i naccor dance wi t h subpar agr aph (3). I n determi ni ng managed l i abi l i t i esof Uni t ed St at es br anches and agenci es, t he managed l i abi l i t i es of al lUni t ed St at es branches and agenci es of the same f orei gn parent bankand of i t s maj or i t y- owned ( greater t han 50 per cent ) f orei gn banki ngsubsi di ar i es ( the "f ami l y") shal l be consol i dat ed. Asset and l i abi l i t yamount s t hat r epr esent i nt r a- f ami l y t r ansact i ons between Uni t ed St at esbranches and agenci es of the same f ami l y shal l not be i ncl uded i n comput i ng the managed l i abi l i t i es of the f ami l y. Uni t ed St at es br anchesand agenci es of the same f ami l y shal l desi gnate one U. S. of f i ce to bet he r epor t i ng of f i ce for pur poses of f i l i ng consol i dat ed f ami l y r epor t sr equi r ed f or determi nat i on of the f ami l y' s margi nal r eser ve r equi r e

ment s. The r epor t i ng of f i ce shal l f i l e r epor t s and mai nt ai n mar gi nalr eser ves r equi r ed under thi s secti on f or the f ami l y at the Feder alReser ve Bank of the di st r i ct i n whi ch the r epor t i ng of f i ce i s l ocat ed.

The t otal managed l i abi l i t i es of a f ami l y are the t otal of each branch' sand agency' s: * * *

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CORRECTED PAGE

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(3) Managed l i abi l i t i es base. Dur i ng t he seven- day r eser ve

comput at i on per i od begi nni ng March 20, 1980, and dur i ng each seven-dayr eserve comput at i on per i od ther eaf t er , the managed l i abi l i t i es base

of a member bank or a f ami l y of Uni t ed Stat es branches and agenci es

of a f or ei gn bank ( "f ami l y") shal l be det er mi ned as f ol l ows:

(i ) For a member bank or f ami l y t hat, on a dai l y averbasi s, i s a net bor r ower of t ot al managed l i abi l i t i es dur i ng the f our t een-day base peri od endi ng Sept ember 26, 1979, i t s managed l i abi l i t i es base

shal l be the dai l y aver age of i t s tot al managed l i abi l i t i es dur i ng the

base peri od l ess the gr eater of

(A) 7 per cent of t he dai l y aver age of i t s t otalmanaged l i abi l i t i es dur i ng the base per i od;

or

(B) t he amount equal t o t he decr ease i n i t s dai l yaver age gr oss l oans t o non- Uni t ed St at es resi dent s

and gr oss bal ances due f r om f or ei gn of f i cesof other i nsti t ut i ons— or i nsti tuti ons,

the t i me deposi t s of whi ch are exempt f r omthe rat e l i mi t at i ons of Regul ati on Q pur suant

to § 217. 3( g) t her eof — ' bet ween t he f our t een-day base per i od endi ng Sept ember 26, 1979,and the comput at i on peri od endi ng March 12,

1980.

For each comput at i on per i od begi nni ng af t er Mar ch 19, 1980, t he managed

l i abi l i t i es base of a member bank or f ami l y shal l be f ur t her r educeddur i ng the comput at i on per i od by the amount by whi ch l owest dai l y

average of gross l oans t o non- Uni t ed St ates r esi dent s— . and gr ossbal ances due f rom f orei gn of f i ces of ot her i nsti t ut i ons— or i nsti t ut i ons,

t he t i me deposi t s of whi ch are exempt f rom rat e l i mi t at i ons ofRegul at i on Q pur suant to § 217. 3( g) t her eof — • out st andi ng dur i ng any

comput at i on peri od begi nni ng af t er March 19, 1980, i s l ower t han thedai l y aver age amount of such l oans and bal ances outst andi ng dur i ng thecomputat i on per i od endi ng on March 12, 1980. The amount r epr esent i ngsuch di f f erence shal l be r ounded to the next l owest mul t i pl e of $2 mi l l i on.

I n no event wi l l the managed l i abi l i t i es base for an i nst i t ut i ont hat was a net bor r ower of managed l i abi l i t i es dur i ng the f our t een- daybase per i od endi ng September 26, 1979 be l ess t han $100 mi l l i on.

Par t 20U— RESERVES OF MEMBER BANKS

Regul at i on DMargi nal Reserve Requi r ement s

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(i i ) For a member bank or f ami l y t hat , on a dai l y

erage basi s, i s a net l ender of t ot al managed l i abi l i t i es dur i ng thef our t een- day base per i od endi ng September 26, 1979, i t s managed l i a

bi l i t i es base shal l be the sum of i t s dai l y aver age negat i ve total

managed l i abi l i t i es and $100 mi l l i on.

18/ A Uni t ed St at es r esi dent i s: (a) Any i ndi vi dual r esi di ng (at thet i me the cr edi t i s extended) i n any St ate of the Uni t ed St ates or theDi st r i ct of Col umbi a; (b) any cor por at i on, par t ner shi p, associ at i on

or ot her ent i t y or gani zed therei n ( "domest i c cor por at i on") ; and (c)

any br anch or of f i ce l ocat ed t herei n of any ot her ent i t y wher ever or gani zed. Cr edi t ext ended to a f or ei gn branch, of f i ce, subsi di ary,af f i l i at e or ot her f or ei gn est abl i shment ( "f orei gn af f i l i at e") cont rol l edby one or more such domest i c cor por at i ons wi l l not be deemed to be

cr edi t extended to a Uni t ed St ates r esi dent i f t he pr oceeds wi l l beused i n i ts f or ei gn busi ness or t hat of other f or ei gn af f i l i at es of

t he cont r ol l i ng domest i c cor por at i on( s) .

19/ Any banki ng of f i ce l ocated out si de the St ates of the Uni t ed St at esand the Di st r i ct of Col umbi a of a bank or gani zed under domest i c orf orei gn l aw.

20/ A f orei gn cent r al bank, or any i nt er nat i onal organi zat i on of whi chthe Uni t ed States i s a member, such as t he I nternat i onal Bank for Reconst r uct i on and Devel opment ( Wor l d Bank) , I nternat i onal Monetary Fund,I nt er - Amer i can Devel opment Bank, and other f orei gn i nt er nat i onal , or

supr anat i onal ent i t i es exempt f r om i nt er est r at e l i mi t at i ons under

§ 217. 3( g) ( 3) of Regul at i on Q (12 CFR 217. 3( g) ( 3) ) .

By order of the Board of Gover nor s of t he Federal Reserve

Syst em, Mar ch 14, 1980.

(Si gned) Theodore E. Al l i son

Theodore E. Al l i son

Secretary of the Board

[SEAL]

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FEDERAL RESERVE

F or i m m e d i a t e r e l e a s e

press release (

M A R C H 1 4 , 1 9 8 0

The Federal Reser ve Board t oday i mposed i nt er est r at e l i mi t at i ons

on debt i nst r ument s t hat are i ssued by a bank hol di ng company i n denomi na

t i ons of $100, 000 or l ess and wi t h ori gi nal matur i t i es of f our year s or

l ess.

Obl i gat i ons of $10, 000 or mor e wi t h ori gi nal mat ur i t i es bet ween

si x mont hs and 2- 1/ 2 year s— or r edeemabl e i n per i ods of si x mont hs to

2- 1/ 2 years — wi l l be subj ect to the same i nt er est r at e cei l i ngs pai d by

member banks on 26- week money mar ket cer t i f i cat es.

Obl i gat i ons wi t h or i gi nal mat ur i t i es of 2- 1/ 2 to 4 year s— or

r edeemabl e af t er 2- 1/ 2 to 4 years —wi l l be subj ect to the cei l i ng r at e

payabl e on 2- 1/ 2 year var i abl e cei l i ng t i me deposi t s. Obl i gat i ons wi t h

or i gi nal mat ur i t i es of l ess t han 2- 1/ 2 years— or r edeemabl e i n per i ods

of l ess t han 2- 1/ 2 year s— wi l l be subj ect t o t he same r at e l i mi t at i ons

i mposed on member banks.

Act i on i s necessar y at t hi s t i me i n vi ew of t he i mpact such

i nst r ument s ar e l i kel y to have on deposi t f l ows among deposi t ary

i nst i t ut i ons. Thi s act i on does not appl y to commer ci al paper i ssued by

bank hol di ng compani es.

* T E M

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TI TLE 12 BANKS AND BANKI NG


[ Regul at i on Qj

( Docket No R- 027 )

Pact 217 - I NTEREST ON DEPOSI TS

AGENCY: Boar d of Governors of t he Feder al Reser ve Syst em.

ACTI ON: Fi nal Rul e.

SUMMARY: The Boar d of Gover nor s has amended Regul at i on Q (12 CFR Par t 217)

t o i mpose i nt er est r at e l i mi t at i ons on cer t ai n ool i gat i ons i ssued by

a raemoer bank' s parent bank hol di ng company. The amendment wi l l appl y

t o an obl i gat i on wi t h a denomi nat i on of l ess t han $100, QUO i ssued or

guar anteed by a bank noi di ng company, r egardl ess of t he use of the

pr oceeds, wi t h an ori gi nal mat ur i t y of 4 year s or l ess, or r edeemabl e

by t he hol der i n 4 year s or l ess. Ool i gat i ons wi t h or i gi nal mat ur i t i es

of 2- 1/ 2 year s to 4 years , or r edeemabl e i n per i ods of 2- 1/ 2 year s to

4 year s, wi l l be subj ect to the cei l i ng rat e of i nt er est payabl e on

t he 2- 1/ 2 year vanaol e cei l i ng ti me deposi t . Obl i gat i ons i n denomi nat i onsof $10, 000 or more wi t h or i gi nal mat ur i t i es bet ween 26 weeks and 2- 1/ 2

years, or r edeemabl e m per i ous of 26 weeks to 2- 1/ 2 years , wi l l be

subj ect to t he cei l i ng r at e of i nt erest payabl e by member banks on 26-

week money mar ket t i me deposi t s of l ess t han $100, 000. Obl i gat i ons

i n denomi nati ons of l ess t han $10, 000 wi t h or i gi nal matur i t i es of l esst han 2- 1/ 2 years , or t edeemaDl e i n per i ods of l ess t han 2- 1/ 2 year s

wi l l be subj ect to the same i nt er est r at e l i mi t at i ons appl i cabl e tocompar abl e obl i gat i ons of member banKs. The amendment does not appl yt o commer ci al paper i ssued oy a memoer bank' s parent bank noi di ng company.

Thi s act i on i s be ng t aken i n order to f aci l i t at e the or der l y admi ni st r at i onof cur r ent l y pr escri bed i nt er est rate l i mi tat i ons.

EFFECTI VE DATE: Mar cn 14, 1980.

FOR FURTHER I NFORMATI ON CONTACT: Gi l ber t T. Schwar t z, Assi st ant General

Counsel ( 202/ 452- 3625) ; Ant hony F. Col e, Seni or At t or ney ( 202/ 452- 3612)

or Paul S. Pi l ecki . At t orney <202/ 452- 3281) , Legal Di vi si on, Boar d ofGover nors of the Feder al Reser ve Syst em, Washi ngt on. D. C. 20551.

SUPPLEMENTARY I NFORMATI ON: The Board of Gover nor s has amended Regul at i on Q

(12 CFR 217. 1 and 217. 7) t o appl y Regul at i on Q i nterest rate cei l i ngst o cert ai n obl i gat i ons i ssued or guar ant eed, i n whol e or i n par t , as

t o pr i nci pal or i nterest by a member bank' s par ent bank hol di ng company.

The amendment appl i es to any obl i gat i on, r egardl ess of t he use of the

proceeds, i ssued i n a denomi nat i on of l ess t han $100, 000 t hat nas an

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oci gi nal maturi t y of 4 year s or l ess, or t hat i s r edeemabl e by the hol deri n per i ods of 4 year s or l ess. Obl i gat i ons wi t h or i gi nal mat ur i t i es

of 2- 1/ 2 year s to •* years, or r edeemaDl e bet ween 2- 1/ 2 year s and 4 years,

wi l l oe subj ect to t he cei l i ng r at e of i nt er est payabl e on the 2- 1/ 2

year var i abl e cei l i ng t i me deposi t . Obl i gati ons i n denomi nat i ons of

$10, 000 or not e wi t h ori gi nal maturi t i es of 26 weeks to 2- 1/ 2 year s,or r edeemabl e i n per i ods of 26 weeks to 2- 1/ 2 years, wi l l be subj ectto the cei l i ng rat e ot i nterest payabl e by member banks on 26- week money

market t i me deposi t s of l ess than $100, 000. I n addi t i on, obl i gat i ons

i n denomi nat i ons of l ess t han $10, 000 wi t h or i gi nal matur i t i es of l ess

t han 2- 1/ 2 year s, or r edeemabl e i n per i ods of l ess t han 2- 1/ 2 years,

wi l l be subj ect to the i nt er est r at e l i mi t ati ons appl i cabl e to compar abl e

obl i gat i ons of member banks.

Wi t h r espect to obl i gat i ons r edeemabl e at speci f i ed i nt er val sat the hol der ' s opt i on, t he rat e of i nt er est payabl e on such obl i gat i ons

must be adj ust ed at t he begi nni ng of each such i nt erval . The maxi mum

r at e of i nt er est t hat may ce pai d f or the per i od dur i ng the speci f i edr edempt i on i nt erval s wi l l oe det ermi ned by appl yi ng the Regul at i on Q

r ul es i n ef f ect at t he t i me the obl i gat i on was i ssued. For exampl e,

on Mar ch 17, 1980, a par ent bank nol di ng company subj ect to thi s act i on

i ssues an obl i gat i on wi t h redempt i on i nt erval s between 2- 1/ 2 to 4 year s.

The maxi mum r ate of i nt erest t hat may be pai d dur i ng each r edempt i oni nt er val wi l l be determi ned oy the rul e i n ef f ect as of March 17 f or

determi ni ng the cei l i ng rat e of i nt er est payabl e on the 2- 1/ 2 year

var i abl e cei l i ng ti me deposi t . Thi s r ul e pr ovi des t hat a member bankmay pay i nterest at a rat e of 11- 3/ 4 per cent or 75 basi s poi nt s bel ow

the yi el d on 2- 1/ 2 year Treasur y secur i t i es, whi chever i s l ess. Consequent l y,t he maxi mum r at e t hat may be pai d on the obl i gat i on dur i ng the f i r st

r edempt i on i nterval i s 11- 3/ 4 per cent . The maxi mum r ate that may be

pai d aunng s ubsequent r edempt i on i nt erval s wi l l be 11- 3/ 4 per centor 75 basi s poi nts bel ow the yi el d on 2- 1/ 2 year Tr easur y secur i t i es,

whi chever i s l ess. Thi s pr ocedur e f or det ermi ni ng the maxi mum rat e

payabl e dur i ng each r edempt i on i nt er val wi l l appl y even i f the rul e

r el at i ng to the det er mi nat i on of the cei l i ng r at e of i nt er est payabl e

on the 2- 1/ 2 year var i abl e cei l i ng t i me deposi t i s modi f i ed. I f , however ,

t he rul e r el at i ng to the det er mi nati on of the cei l i ng rat e of i nt er est

payabl e on the 2- 1/ 2 year var i abl e cei l i ng ti me deposi t i s modi f i ed,

t he new rul e woul d appl y to bank hol di ng company obl i gat i ons i ssued

on or af t er t he ef f ect i ve date of the new rul e.

The amendment appl i es onl y t o obl i gat i ons r equi r ed to be

r egi st ered wi t h the Secur i t i es and Exchange Commi ss i on under the Secur i t i es

Act of 1933 and, consequent l y, t he amendment does not appl y to commer ci al

paper i ssued by a member bank' s par ent bank hol di ng company. The amendment

appl i es t o cover ed obl i gati ons r egardl ess of the use of t he pr oceeds

— i . e. , even i f t he pr oceeds are not bei ng suppl i ed to the parent bank

hol di ng company' s member bank subsi di ar y or subsi di ar i es. However,i f a bank hol di ng company di r ect l y i ssues obl i gat i ons subj ect to i nt er est

r at e l i mi t ati ons i mposed by the Feder al Deposi t I nsurance Corpor at i on

or the Federal Home Loan Bank Boar d pursuant to P. L. 89- 597, such obl i gat i ons

wi l l not be subj ect to the i nt er est r at e l i mi t at i ons i mposed by t hi sacti on.

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The Board has concl uded t hat r egul at i ons per t ai ni ng to ther at eu t hat may be i >aui on obl i gat i ons i ssued by bank hol di ng compani es

i n denomi nat i ons of l ess t hat $100, 000 wi t h or i gi nal matur i t i es of

4 year s or l ess are necessary at t hi s t i me i n vi ew of t he i mpact thei ssuance of such obl i gat i ons i s l i kel y to have on deposi t f l ews amongdeposi t or y i nst i t ut i ons. Sucn obl i gat i ons t ypi cal l y are i ssued at r at es

subst ant i al l y i n excess of the Regul at i on Q cei l i ng r at es of i nt er est

payabl e by member banks on t une deposi t s of comparabl e mat ur i t i es and

ar e compet i t i ve wi t h consumer deposi t s i ssued by deposi t ory i nst i t ut i ons.

The Boar d bel i eves that sucn obl i gat i ons gener al l y shoul d be subj ectt o the i nterest r at e l i mi t at i ons i mposed upon member banks.

The Boar d' s act i on was t aken af t er consul t at i on wi t h the

Feder al f i nanci al i nst i t ut i on r egul at or y agenci es. I n order t o f aci l i t at e

t he admi ni st r at i on of cur r ent l y pr escr i bed deposi t i nt er est rate l i mi t at i ons,

t he Boar d f i nds that appl i cat i on of the not i ce and publ i c par t i ci pat i on

pr ovi si ons of 5 U. S. C. § 553 to thi s act i on woul d be cont r ar y to the

publ i c i nterest and that good cause exi st s f or maki ng the amendment

ef f ect i ve i mmedi at el y.

Pur suant to i ts aut hori t y under sect i ons 19(a) and (j ) of

t he Feder al Reser ve Act (12 U. S. C. §*j 461 and 371b) , t he Board amends ,

Regul at i on Q (12 CFR 217) , ef f ect i ve Mar ch 14, 1980, as f ol l ows:

1. Sect i on 217. 1 of Regul at i on Q i s amended by addi ng:

§ 217. 1 — DEFI NI TI ONS

* * * * *

(h) Obl i gat i ons i ssued by t he par ent bank hol di ng company

of a member bank. For the pur poses of t hi s Par t , t he "deposi t s" ofa member bank al so i ncl udes an obl i gat i on that i s (1) i ssued i n a denomi nat i on

of l ess than $100, 000; (2) r equi r ed to be r egi st ered wi t h t he Secur i t i es

and Exchange Commi ss i on under the Secur i t i es Act of 1933; (3) i ssuedor guar ant eed i n whol e or i n part as to pr i nci pal or i nt erest by the

member bank' s parent whi ch i s a bank hol di ng company under the Bank

Hol di ng Company Act of 1956, as amended (12 U. S. C. §§ 1841- 1850) ,

r egardl ess of the use of t he pr oceeds; and (4) i ssued wi t h an ori gi nal

mat ur i t y of 4 year s or l ess, or whi ch i s r edeemabl e at i nt erval s of

4 year s or l ess at the opt i on of the hol der. The t er m "deposi t s" does

not i ncl ude t hose obl i gat i ons of a bank hol di ng company t hat ar e subj ect

t o i nt er est r at e l i mi t at i ons i mposed pur suant to P. L. 89- 597.

2. Sect i on 217. 7 of Regul at i on Q i s amended by addi ng:

§ 217. 7 — MAXI MUM RATES OF I NTEREST PAYABLE BY MEMBER BANKS ON TI MEAND SAVI NGS DEPOSI TS

* * * * *

(h) Obl i gat i ons of the par ent bank hol di ng company of a membank. Not wi t hst andi ng the above, i nterest may be pai d on a deposi tas def i ned i n $ xl 7. l ( h) of t hi s Par t at a r at e not to exceed the f ol l owi naschedul e:

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Or i qi nal Matur i t y or Redempt i on Per i od Maxi mum Per Cent

2- 1/ 2 to 4 year s For an obl i gat i on t hat i s not

r edeemabl e pr i or to mat ur i t y, i nt er est

may be pai d at the rat e est aol i sr . ea f or

2- 1/ 2 year vanacl e cei l i ng t i me deposi t s

pur suant to the pr ovi si ons of § 217. 7( g)i n ef f ect at the t i me the obl i gat i on i si ssued. For an obl i gat i on t hat i s

r edeemabl e pr i or to mat ur i t y, t he

maxi mum r ate of i nterest t hat may be

pai d f r om t he dat e of i ssuance unt i l

t he f i r st dat e on whi ch the obl i gat i on

may be r edeemed shal l not exceed the rate

est abl i shed f or 2- 1/ 2 year var i abl e

cei l i ng t i me deposi t s pur suant

t o t he pr ovi si ons of § 217. 7( g) i n ef f ect

at t he ti me the obl i gat i on i s i ssued.

For a successi ve per i od t her eaf t er ,

i nterest may be pai d dur i ng such

per i od unt i l t he next dat e on whi ch the

obl i gat i on may be r edeemed at a r at e

not to exceed t he rat e t hat woul d be i n

ef f ect on the f i r st day of such per i od

f or 2- 1/ 2 year var i abl e cei l i ng ti medeposi t s est abl i shed pur suant to t he

pr ovi si ons of § 217. 7( g) i n ef f ect att he t i me t he obl i gat i on was i ssued.

26 weeks or mor e but l esst han 2- 1/ 2 years ( $10, 000

mi ni mum denomi nat i on requi red)

For an obl i gat i on that i s not r edeemabl epr i or to mat ur i t y, i nt erest may be pai d

at t he r at e est abl i shed f or 26- week moneymarket t i me deposi t s pur suant to the

pr ovi si ons of § 217. 7( f ) i n ef f ect at

t he t i me the obl i gat i on i s i ssued. For

an obl i gat i on t hat i s redeemabl e pr i or

t o mat ur i t y, t he maxi mum r at e of i nt er est

t hat may be pai d f r om t he dat e of

i ssuance unt i l the fi rst dat e

on whi ch t he obl i gat i on may be r edeemed

shal l not exceed the r at e est abl i shed

f or 26- week money mar ket t i me deposi t s

pur suant to t he pr ovi si ons of § 217. 7( f )

i n ef f ect at t he t i me t he obl i gat i on i si ssued. For a successi ve peri od t hereaf t ci nt erest may be pai d dur i ng such peri od

unt i l t he next dat e on whi ch t he

obl i gat i on may be redeemed at a ratenot to exceed the r ate t hat woul d bei n ef f ect on t he f i r st day of such

per i od f or 26- week money mar ket t i me

deposi t s est abl i shed pur suant to

t he pcovi si ons oL 217. 7( C) i n ef f ect

at the t i me t he obl i gat i on was i ssued.

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Or i gi nal Matur i t y or Redempt i on Per i od Maxi mum Per Cent

30 days or more t ut l ess

t han 2- 1/ 2 year s(No mi ni mum denomi nat i on requi r ed)

I nt erest may be pai d at t he cei l i ng

est abl i shed pur suant to the pr ovi si oof § 217. 7( b) i n ef f ect at the t i met he obl i gat i on i s i ssued.

l ess t han 30 days No i nterest may be pai d.

By order of t he Boar d of Governor s, ef f ect i ve Mar ch 14, 1980.

( si gned) Theodor e E. __A11 i son ______

Theodore E. Al l i sonSecr et ary of t he Boar d

( SEAL]

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c

ANTI - I NFLATI ON PROGRAM

To the Addr essee:

Ear l i er t hi s week, t hi s Bank sent you a copy of t he r ecent l y

enact ed Regul at i on CC of t he Boar d of Governor s of t he Federal Reserve

Syst em and of amendment s t o t he Boar d’s Regul at i on D. Encl osed i s a copy

of cor r ect i ons to Subpart B of Regul at i on CC and of t he amendment s to

Regul at i on D. Al so encl osed i s a copy of a cor r ected page of t he Boar d’s

Mar ch 14 pr ess r el ease regar di ng the over al l ant i - i nf l at i on pr ogr am.

Circulars Division

FEDERAL RESERVE BANK OF NEW YORK

nycirc_1980_08771.pdf

Documents

federal reserve program

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federal reserve district

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