Nontransferability LegendQ4. Do NOW account statements need a nontransferability legend?

A. No. NOW accounts are transaction accounts which are reservable even if held by a natural person. Transaction accounts need not have the nontransferable legend on any document.

Q5. Passbook savings accounts opened prior to October 1, 1980 need not have a nontransferability legend placed on them at the time of opening. Does the legend need to be stamped on such accounts if deposits are made after October 1?

A. No. Any personal savings or time deposit account originally issued before October 1 does not have to carry a legend concerning transferability on any document evidencing its existence, even if additional deposits are made to the account or the deposit is automatically renewed after October 1, 1980.

Q6. The legend need not be placed on a time deposit issued before October 1 that is automatically rolled over after that date. If the institution sends a letter to the depositor reminding him of the upcoming rollover, must the letter indicate nontransferability?

A. No. However, if the institution issues a new certificate to the depositor when the old one matures, the term nontransferable must appear on the deposit.

Q7. Can depository institutions stamp the words “nonnegotiable and nonassignable,” rather than “nontransferable,” on time and savings deposits documents?

A. No. It appears that in some jurisdictions transfers may be made that are not considered assignments. Therefore, “nonassignable” may not be used in place of “nontransferable.” The inclusion of other words along with “nontransferable” is permissible so long as the latter term is not conditioned by the other words. “Nonnegotiable” may be added to the legend but may not be used as a substitute for “nontransferable.”

Q8. In order for a deposit issued to a natural person on or after October 1, 1980 to be considered a personal time deposit, where must the legend regarding nontransferability appear?

A.

A legend of nontransferability is not required on any periodic statements where such legend appears on a certificate, passbook, contract or agreement given to the depositor. For any time or savings deposit not evidenced by a certificate or passbook, if a copy of the agreement is not given to the customer, then the nontransferability legend must be on periodic statements sent to the customer. The legend does not have to appear on the following: deposit slips, teller receipts, club account coupons, identification cards, IRS Form 1099, and signature cards and other documents retained by the depository institution as its own records.

Q9. If a time or savings deposit is not evidenced by a certificate or passbook, may the nontransferability legend appear on a disclosure statement given to the depositor by the institution at the time of opening the account?

A. Yes. Under such circumstances the nontransferability legend may appear in a disclosure statement required by federal or state law or regulation that sets forth the terms of the deposit account.

Q10. Personal savings and time accounts for which depositors receive only monthly statements rather than passbooks or certificates of deposit are required to include the legend concerning nontransferability on the periodic statement if no contract, agreement or disclosure statement required by law is given to the depositor carrying the nontransferability legend. Instead of placing the legend on the statement itself, may the legend appear in a separate piece of paper mailed to the depositor along with the monthly statement?

A. No. The nontransferability legend must appear on a document representing the account such as a certificate, passbook, contract, disclosure statement, or periodic statement. A separate piece of paper enclosed with the monthly statement would not be a document representing the account.

Q11. An institution issues a monthly statement to its natural person depositor on which is reported the balance in a transaction account, as well as the balance in a personal savings or time deposit account. Need the statement have the nontransferability legend?

A. Yes. Unless the depositor previously received a copy of the deposit contract or disclosure statement with the legend. If the statement indicates funds held in a personal savings or time deposit account, it must state that such account is nontransferable even though other types of accounts are also listed.

Q12. Are holiday club accounts considered to be transferable if the depository institution has accepted an instruction to send the payment check to a third party?

A. So long as the instruction is received at the time of withdrawal, transmittal of a payment check for a holiday club account to a third party does not constitute a transfer. This is the equivalent of closing a time or savings account and remitting the proceeds to someone other than the depositor. If the instruction were accepted at the opening of the account, then the depositor is presumed to have a transferable deposit.

Q13. Six-month money market certificates are required by Regulation Q to be nonnegotiable. May the nonnegotiability requirement be omitted from such certificates if they state that they are nontransferable?

A. Yes.

Q14. A personal time deposit may be transferred under Regulation D if the depository institution either changes the name of the account holder on its books or issues a replacement deposit instrument with the new owners’ name. If the depository institution takes either of these actions, does this constitute an early withdrawal of a time deposit under Regulation Q?

A. No. Under existing Board interpretations, the sale by a depositor of his other time deposits does not constitute early withdrawal and the depository institution may record that transfer on its books without having to treat the transfer as an early withdrawal. The principal, maturity, and interest rate of the deposit must be unchanged.

Q1. Are savings accounts subject to ACH debits and credits included in the definition of transaction accounts?

A. Under the definition of “transaction account,” (§ 204.2(e)(6)) orders received from an automated clearing house (ACH) to debit an account constitute preauthorized transfers. Such an account must be treated as a transaction account unless the deposit contract limits the number of such debits to three per month and it is the practice of the institution to limit such transfers to no more than three. If credits only may be made to the account, then it is not a transaction account, regardless of the number of credits made per month.

Q2. If a customer has a savings account from which no third party or automatic withdrawals are permissible except for a weekly transfer to the depositor’s club account, is that savings account a transaction account?

A. Yes. The weekly transfer falls within the definition of a preauthorized transfer. If the account were limited to three such transactions per month, then the account would not be treated as a transaction account. In this case, if the deduction were made every two weeks, then the three-transfer-per-month limitation could be met.

Q3. Money market certificate owners are often allowed to have their interest credited periodically by the institution to another account. Does that make the certificate a transaction account?

A. No. The crediting of interest earned on one account to another account is not a transfer from the account on which the interest was earned.

Q4. Is a savings account a transaction account merely because a depositor is permitted to mail a request to an institution to transfer funds to a third party?

A. No. The Board of Governors has always treated letter requests as the functional equivalent to the depositor coming into the banking office; thus, the ability to make transfers from a personal account in response to a letter mail request does not make that account a transaction account. Transfers in response to requests by telephone or other electronic means are not covered by this rule; the capability to make such transfers may cause the account to be a transaction account.

Q5. Does an account which by its terms or pursuant to an agreement permits transfers to a checking, NOW, or share draft account to cover occasional overdrafts fall within the definition of transaction account?

A. A number of institutions have entered into agreements with their customers providing that in the event the customer should overdraw a checking, NOW, or share draft account, the institution will transfer from that customer’s savings account an amount sufficient to cover the overdraft. Under Regulation D, an account, including a regular savings account or regular share account, is considered to be a transaction account, if under its terms, or by practice of the depository institution, the depositor is permitted or authorized to make more than three withdrawals per month for purposes of transferring funds to another account or for making a payment to a third party by means of a preauthorized or telephone agreement, order, or instruction. The availability of the overdraft protection plan that is described above would not in and of itself require that the savings account or share account from which transfers could be made be regarded as a transaction account if no more than three such transfers are permitted or authorized in a calendar month. If, however, more than three transfers from a savings account not otherwise regarded as a transaction account are permitted, or if the plan is promoted as something other than overdraft protection, then the savings account would be regarded as a transaction account and the entire balance in the account would be subject to transaction account reserve requirements.

Q6. Is a savings account a transaction account by virtue of transfers being made into the account by telephone or preauthorized order?

A. No. The fact that transfers are made into an account does not make that account a transaction account.

Q7. If under the terms of a savings account, a depositor appearing at the depository institution is permitted to withdraw funds in the form of a cashier’s or officer’s check, endorse the check and redeposit the funds in an account of another person at the same institution, would such an account be considered a transaction account?

A. No. The ability of depositor to make withdrawals from an account by appearing at the institution in person does not render an account a transaction account regardless of the manner of payment of the withdrawal to the depositor. In this regard, an account would not be a transaction account merely because a depositor appearing in person at the institution can withdraw funds directly in the form of cash, check (even if made payable to a third party), money order, or travelers’ checks. Note, however, that, if a depositor is able to transfer funds from his savings account through an automated teller machine (ATM) or remote service unit (RSU) to another person’s account at the institution, that savings account is a transaction account.

Q8. Many institutions offer their depositors “prestige cards” that allow the depositors to withdraw funds from their savings accounts by filling out a withdrawal slip at another institution. This type of service is also known as “traveler’s convenience.” The institution disbursing the funds sends the withdrawal slip to the depositor’s institution and obtains payment through the collection process. Does this service make the savings account a transaction account?

A. No. The transaction is viewed simply as the depositor making a direct withdrawal from his savings account.

Q9. A depositor with a savings account leaves a supply of deposit slips with the depository institution. The deposit slips are for a checking account held by the depositor at another depository institution. The depositor telephones the institution from time to time and requests that funds be withdrawn from his savings account in the form of a check and that the check, along with the deposit slip, be mailed or delivered to the institution holding his checking account. In some instances the depositor may have standing instructions with the institution to mail or deliver funds at certain intervals. Does this practice make that savings account a transaction account?

A. Yes. The capability of making such telephone or preauthorized transfers could render an account a transaction account since the transfer is made to a third party, i.e. the depository institution at which the checking account is maintained. However, if such transfers were limited to three or less per calendar month (and the account did not otherwise meet the definition of a transaction account) then the account would not be regarded as a transaction account.

Q10. How is a depository institution to treat compensating balances of the United States government kept in Treasury Tax and Loan deposit accounts?

A. If the deposit is subject to immediate withdrawal by the government, then it must be treated as a demand deposit of the government and reserved against as a transaction account. Note balances in TT&L accounts are exempt from reserves and other funds received from the U.S. government in the form of borrowings, rather than deposits, are exempt from reserves.

(A “calendar month” includes any statement cycle or similar period of at least four weeks.)

Q11. If a depository institution permits ACH debits to an account and does not limit the number of such debits by contract to three per calendar month, is the account regarded as a transaction account?

A. Yes. A depository institution must regard an account that may permit in excess of three ACH debits per month as a transaction account even though three or fewer transfers per calendar month actually are being made. Since ACH debits are regarded as preauthorized transfers, they must be limited to three or fewer per calendar month in order for the account not to be regarded as a transaction account.

Q12. Regulation E—Electronic Funds Transfers (12 CFR 205) requires that amendments to certain account agreements cannot be effective unless the customer is given 21 days’ written notice. If a depository institution wants to amend its account agreement to limit the number of preauthorized or telephone transfers to three or less per calendar month and the account is subject to the Regulation E notice requirement, when is the account agreement change effective for Regulation D reserve requirement purposes?

A. For purposes of reserve requirements, an amendment to an account agreement is regarded as effective when sent by the depository institution. Accordingly, an account for which a Regulation E change of terms notice has been sent may be regarded as exempt from the definition of “transaction account” even though more than three transfers could be effected during the interim period until the Regulation E notice becomes effective.

Q13. Is notification to customers required if a depository institution desires to establish a limit on preauthorized and telephone transfers of three per calendar month?

A. As a general matter, the Board has had a long-standing position that customers should be notified in writing of any change in the terms of a deposit account that is adverse to the customer. The necessity of notifying customers of a limit imposed on telephone and preauthorized transfers depends on a number of factors, including other regulatory requirements, such as Regulations E and Q and those imposed under state law. A depository institution that has not explicitly provided in its deposit agreement or other representations the right of its depositors to make withdrawals by telephone may not necessarily have to send notice to its customers that such service will be limited in the future. However, a depository institution that provides by written contract or agreement that telephone or preauthorized orders may be made would be required to notify each customer in writing of the change in terms. This notice, however, may be required by local law and disclosure requirements of other federal and state regulatory requirements, not by Regulation D.

Q14. If under the terms of an account, a depositor is not permitted to make more than three telephone or preauthorized transfers per calendar month, what steps must a depository institution take to prevent more than three transfers? Is a fourth transfer in a calendar month absolutely prohibited?

A. As stated in the Federal Register preamble to Regulation D, “A depository institution is required to establish a system or other procedure to insure that no more than three [telephone or preauthorized] transfers are made during any calendar month from such accounts” (45 Fed. Reg. 56009). The purpose to be served by a monitoring system is to establish that it is not the practice of the depository institution (12 CFR 204.2(e)(6)) to allow more than three telephone or preauthorized transfers, notwithstanding a deposit contract term to that effect. A system under which a depository institution can identify prior to making a requested transfer whether the limit is being adhered to would meet this requirement.

 An institution also is permitted to monitor on an ex post basis its accounts that have limited telephone and preauthorized transfer privileges. Under this procedure, an institution may determine which accounts made more than three transfers in a particular month. If the institution contacts the customer and informs him that the contract terms were violated and/or that the institution has other ac count services available if the customer desires an account for transaction purposes, this would indicate that it is not the practice of the institution to allow more than three transfers. Other factors that would be relevant in determining whether it is the practice of the institution to allow more than three telephone or preauthorized transfers per month under an ex post monitoring system would be the number of accounts that have restricted transfer privileges and the relative number that exceed the established limit.

It also is permissible for an institution to provide by contract that a fourth transfer in a calendar month will constitute an agreement by the customer to accept a new type of deposit account that allows unlimited telephone or preauthorized transfers. In this regard, a change in pricing in the new account may serve as a disincentive to customers making the fourth transfer. At the time the fourth transfer is made and into the future, the account would then be classified as a transaction account. (An institution may not establish an arrangement whereby a transaction account is converted to a nontransaction account because three or less transfers are made in a particular month.)

As an alternative approach to satisfy the three-transfer-per-month rule, institutions may use a procedure of reclassifying as transaction accounts those accounts that incur more than three telephone or preauthorized transfers in a calendar month. Once an account is classified as a transaction account, then it may not revert to nontransaction account status.

[Q15, pertaining to intrafamily allocations of a direct payroll deposit, was removed for obsolescence.]

Q1. Must passbook savings be broken down between personal and nonpersonal?

A. Yes. Savings accounts are treated as a class of time accounts, and therefore savings deposits must be classified as personal or nonpersonal and reported separately.

Q2. Are time deposits of a “personal corporation” considered to be personal time deposits?

A. A time deposit of any corporation, including a corporation owned by one person, is nonpersonal. In order to be a personal time deposit, the entire beneficial interest of a nontransferable time deposit must be held by a natural persons(s) or a sole proprietorship.

Q3. Are time deposits of an estate considered to be personal time deposits?

A. A time deposit held in the name of an estate will be personal or nonpersonal depending on the status of the named beneficiaries of the estate. If all of the beneficiaries are natural persons, the deposit is a personal time deposit. If any beneficiary is not a natural person, the deposit is nonpersonal. Creditors of the estate are not considered beneficiaries of the estate.

Q4. Is an account personal if it is held in the name of an association such as a bowling club or vacation club, or of a monastery or convent?

A. No. Accounts in which any beneficial interest is held by anyone other than a natural person are nonpersonal.

Q5. Are the trust deposits of pension plans, profit-sharing plans, or other similar plans classified as personal or nonpersonal time deposits?

A. The classification of such deposits as personal or nonpersonal depends on the terms of the specific plan underlying the deposit. Such deposits shall be classified as personal only if they are nontransferable and if the entire beneficial interest is held by natural persons. If any beneficial interest is held by other than a natural person, no matter how small the beneficial interest held, the entire deposit shall be classified as nonpersonal.

Q6. Are holiday or vacation club accounts reservable?

A. Club accounts are treated as either time or savings deposits and are either personal or nonpersonal. If the deposit qualifies as a personal time or savings deposit, it is not reservable.

Q7. Are Keogh (or Defined Benefit Keogh) accounts in the name of a partnership excluded from reserve requirements?

A. Yes. Nontransferable time deposits held in Keogh or IRA accounts are presumed to be for the beneficial interest of individuals under section 204.2(f)(2).

Q8. A bearer certificate of deposit issued to a natural person prior to October 1, 1980, is exempt from reserve requirements on nonpersonal time deposits. The institutions have no record of the purchasers of these bearer CDs; a record of the owner is made only at maturity, when the holder obtains the interest on the CD and must record his identity for tax purposes. Is a depository institution required to regard the amount of all bearer CDs issued prior to October 1, 1980 as nonpersonal time deposits if they cannot show that they were issued to natural persons?

A. No. If bearer CDs have fixed maturities, depository institutions are permitted to estimate the distribution of such deposits between personal and nonpersonal by use of reasonable sampling techniques. Estimates may be based on past experience, current redemptions, or other reasonable inquiry.

Q9. Escrow accounts may be treated as personal savings or time accounts if the entire beneficial interest in the funds is held by natural persons. Does this rule apply to tenant security deposits?

A. Yes. If all of the tenants whose security deposits are held in an account by a landlord are natural persons, that account may be treated as personal. If a landlord has both natural person and corporate or organizational tenants, the landlord could be asked to place the security deposits of natural persons in a separate account, and that account could be treated as personal.

Q10. Are time deposits issued to the Bureau of Indian Affairs as custodian for an Indian tribe holding the entire beneficial interest in the funds personal or nonpersonal?

A. Such deposits are nonpersonal since an Indian tribe is considered to be an organization or association.

Definition—Natural PersonsQ11. Because a transfer of a time deposit to an estate upon the death of the owner need not be done with notice to the institution, how can the institution be required to determine whether all of the beneficiaries are natural persons?

A. If such a transfer occurs without notice to the institution, then it need not make the determination. However, if the institution is asked to change the name on the account to that of the estate, then it must make that determination.

Q12. The account of a decedent’s estate is personal only if all of the beneficiaries are natural persons. In many cases, this is impossible to determine. For example, many wills have contingent interests, in which any remainder will go to a charity. Also, many wills give the executor a power of appointment, and it may not be known who the executor will appoint. Also, many institutions do not accept wills on advice of counsel in order to avoid being held liable for not acting in accordance with the will. The same is true in many cases for trusts. How are these cases to be treated?

A. The regulation requires that beneficiaries be natural persons in order to treat the account as personal. Remainder interests and powers of appointment may be ignored. In addition, an institution may reasonably rely on the representation of the executor or trustee that all beneficiaries, with the exception of contingent interests and powers of appointment, are natural persons, so long as the institution does not know and has no reason to know that the contrary is true.

Q13. Many decedents’ estates are in the hands of the public administrator because the person died intestate (i.e., without a will). In such cases, how is the beneficial interest to be determined?

A. In the case of decedents’ estates in the hands of the administrator, the funds usually end up in the hands of natural persons or are escheated to the state. For purposes of convenience, these accounts may all be treated as personal.

Q14. Many trust departments often place funds in a single time or savings account in the commercial department of the institution. May an institution determine the proportion of funds in that account that are allocable to trusts or estates in which the entire beneficial interest is owned by natural persons and regard that amount as a personal deposit? May the institution establish a percentage of the account that is personal and use that percentage each day?

A. No. The trust department may place its funds in two accounts, one personal and one nonpersonal, but the funds in the personal account must be from trusts and estates in which the beneficial interest is held entirely by natural persons, and this may not be determined by estimation or percentages.

Q15. Depository institutions may accept the representations of trustees, executors, and escrow agents that the entire beneficial interest of funds in a time or savings account are natural persons in order to regard the account as personal. Must that representation be made in writing?

A. Yes. However, the representation may simply be noted on the signature card or other instrument evidencing the account that is signed by the trustee, executor or escrow agent.

Q16. A savings or time deposit in the name of a trustee may be treated as personal only if all of the beneficiaries are natural persons. Does this rule apply in the case of Totten trusts?

A. No. Totten trusts are not true trusts covered by this rule. A Totten trust is one in which the owner of the funds states that the account is in the name of himself in trust for another, and the intent of the depositor is simply to make it possible for the other to obtain the funds from the institution upon the depositor’s death. The intent of the depositor is not to give any beneficial interest to the other during the depositor’s lifetime; the depositor has the right to revoke the Totten trust at any time, and the other has no beneficial interest in the funds during that time. Accordingly, a Totten trust in the name of a natural person in trust for an entity that is not a natural person (for example, “Mary Jones in trust for St. Luke’s Church”) is personal, and exempt from reserves, so long as the depositor has the right to revoke the designation. An institution is responsible for determining that accounts in such names are in fact Totten trusts rather than real trusts. If the institution is satisfied that there is no real trust involved in operating such an account, it may treat the account as a Totten trust.

Escrow AccountsQ17. How should escrow accounts be classified on the reports?

A. If there is an agreement between the depositor and the institution requiring the funds to be placed in a specific type of account (demand, savings, or time), the escrow funds must be reported as that type of account. If there is no such agreement, the institution, acting as agent for itself, may place those funds in the type of account the institution deems appropriate.

Q18. Does an institution have to go through its entire mortgage portfolio in order to identify each mortgagor as individual or corporate for the purpose of separating its mortgage escrow account into two accounts, one personal and one nonpersonal?

A. In order to treat an escrow account as a personal savings account, all of the funds in the escrow account must be received from natural persons. Thus, if an institution has both individuals and corporations as mortgagors, the escrow account must be treated as nonpersonal unless a separation into two accounts is made and personal and nonpersonal funds are segregated.

Q19. How is the determination to be made as to whether escrow funds held in a time or savings account, established in connection with a loan extended by the same institution, are personal or nonpersonal deposits?

A. Such escrow accounts are to be identified as either personal or nonpersonal based on the identity of the party who has the beneficial interest in the account, as determined by state law. If the beneficial interest is held entirely by natural persons, the account may be classified as personal.

Q20. How are other escrow accounts determined to be personal or nonpersonal?

A. Other escrow accounts, such as landlord security deposits and earnest money deposits, are identified as personal or nonpersonal deposits on the basis of whether, under state law, the entire beneficial interest in the funds is held by a natural person.

MiscellaneousQ21. A financial administrator for a court holds funds in time deposit accounts on behalf of the court pending the outcome of litigation. In the case of funds awaiting disposition due to litigation, how may a determination of ownership be made?

A. In the case of funds awaiting disposition due to litigation, the institution will need to determine from whom the funds were obtained. That person is treated as having the beneficial interest until final disposition is determined. If that person is a natural person, then the account may be treated as personal.

Q22. Which type of transactions involving mortgage pass-through securities and mortgage loan participations are reservable under Regulation D?

A. If the originating depository institution is obligated to incur more than the first 10 percent of loss associated with a pool of conventional non-federally insured mortgages, then any funds raised through issuance and sale of such securities to nonexempt entities are subject to reserve requirements. This, however, does not apply to normal mortgage loan participation transactions where the buyer and seller of a participation in a mortgage loan or pool of mortgages share all risk of loss on a pro rata basis. In such instances any funds raised through the sale of such participations are not subject to reserve requirements.

Q1. Does the sale of an eligible acceptance under a repurchase agreement create a reservable liability?

A. Yes. Only U.S. government and agency securities may be sold under repurchase agreement to entities other than depository institutions free of reserves.

Q2. Has the determination of the maturity of eligible banker’s acceptances exempt from reserve requirements changed under revised Regulation D?

A. Yes. Formerly any eligible banker’s acceptance having not more than six months’ sight to run would not be exempt from reserve requirements until the remaining maturity was 90 days or less at the time of discount. Under revised Regulation D, all eligible banker’s acceptances described in paragraph 7 of section 13 of the Federal Reserve Act (12 USC 372) having not more than six months’ sight to run are exempt from reserve requirements.

Q1. A depository institution purchases federal funds through a broker (not a depository institution) that is acting as agent for a depository institution. Are the federal funds reserve-free?

A. Yes. Federal funds purchased from a depository institution are not considered to be a deposit under section 204.2(a)(1)(vii)(A)(1). If the broker acts solely as agent, the funds in the example are considered to have been purchased from the depository institution.

Q2. Are borrowings from corporate central credit unions exempt from reserve requirements?

A. Yes. All credit unions, including corporate centrals, are “exempt” entities regardless of whether or not they are required to hold reserves with the Federal Reserve. Thus, borrowings by depository institutions from corporate central unions are not subject to reserve requirements.

Q3. Repurchase agreements on securities guaranteed as to principal and interest by the U.S. government or an agency thereof (RPs) are exempt from reserve requirements, as are direct borrowings from the U.S. government or an agency thereof. Are Ginnie Mae (Government National Mortgage Association), Fannie Mae (Federal National Mortgage Association), Freddie Mac (Federal Home Loan Mortgage Corporation), and Sallie Mae (Student Loan Marketing Association) agencies of the U.S. government?

A. Yes. Sallie Mae is also a government agency for this purpose. In addition, direct borrowings in the form of promissory notes or other similar instruments in the name of the U.S. government or an agency thereof are excluded from the definition of deposits and, thus, are exempt from reserves. Such exemption applies to borrowings that are in the name of departments of the U.S. government such as the Bureau of Indian Affairs. However, liabilities that are booked as deposits by the institution are regarded as deposits because they are not “borrowings.”

Q4. The permissible collateral for outstanding due bills consists of securities of similar type and comparable maturity to the security underlying the due bill. What is considered to be comparable maturity for this purpose?

A. All Treasury bills may be treated as being of comparable maturity to each other because they are issued in original maturities of one year or less. Obligations that have maturities within a range of time that is normally referred to as a common group may be substituted for each other. In this regard, obligations that are referred to as “long term,” for example, may be substituted for each other even though they might have maturities that vary by as much as 10 years. This may be determined by common usage in the market place. Shorter-term securities would have a narrower time range for the purpose of determining comparability of maturity. In determining the maturity comparability of two securities, maturity may be determined on the basis of the time remaining to maturity of a particular obligation.

Q1. Are depository institutions that have zero reserve requirements required to report deposit and other data to the Federal Reserve?

A. Yes. All depository institutions, including bankers’ banks, are required to submit data on Form F.R. 2900 in accordance with Regulation D.

Q2. How are time deposit ratios for old reserve requirements to be calculated for member banks (and former member banks) that are involved in mergers subsequent to August 6, 1980?

A. The time deposit ratios for a combination of member banks (or former member banks) will be calculated as a weighted average of the individual ratios. The weights are to be based on the daily average amount of time deposits for each of the institutions involved over the reserve computation period immediately preceding the merger.

 For example, suppose that two member banks that had total time deposits of $15 million and $35 million and ratios of .0325 and .0340, respectively, merge. The required reserve ratio on time deposits for the merged bank would be (0.0325 × (15/50)) + (0.0340 × (35/50)) = 0.03355.

Q3. What is the definition of total deposits to be used to determine whether quarterly reporters have reached 15 million?

A. Gross deposits, the sum of items 7, 12, and 15 on the F.R. 2900, will be used to determine the continuing eligibility of quarterly reporters as set forth in section 204.3(d)(3).

Q4. Does item 2, “U.S. Government Demand Deposits,” apply only to those institutions that have been designated as Treasury tax and loan depositories?

A. No. Regardless of whether or not an institution has been designated as a depository, any institution that has deposit accounts subject to withdrawal on demand that are due to, or subject to control or regulation by the U.S. government must report such balances in item 2. For example, any institution that withholds federal income taxes, social security taxes, or other federal tax payments from the salaries of its employees must report the unremitted balance of such deposits in item 2. However, TT&L note balances are not to be reported as deposits in this item or elsewhere on the report.

Q5. How should transaction accounts that meet the criteria for more than one type of account be reported on the F.R. 2900?

A. All demand deposit accounts should be classified as demand deposits (items 1, 2, or 3) even if preauthorized or telephone transfers or third party payments through the use of debit cards, ATMs, or RSUs are allowed. Similarly, all NOW accounts or share draft accounts should be classified as NOW/share draft accounts (item 6), even if preauthorized or telephone transfers or third-party payments through the use of debit cards, ATMs, or RSUs are allowed. Savings or time deposit accounts that meet the criteria for ATS accounts should be classified as ATS accounts (item 4), even if telephone or preauthorized transfers or third-party payments through the use of debit cards, ATMs, or RSUs are allowed. Savings or time deposit accounts other than NOW, share draft, and ATS accounts that permit more than three telephone or preauthorized transfers per month or that permit third-party payments through the use of debit cards, ATMs, or RSUs should be reported as telephone or preauthorized transfer accounts (item 5).

Q6. Are time deposits with a current balance of $100,000 or more reported on line 16 of F.R. 2900, or does it include only time deposits with an initial deposit of at least $100,000?

A. All time deposits with balances of $100,000 or more at the time of reporting must be reported on line 16 of F.R. 2900.

Q7. If a corporation presents a credit union with a check drawn on another depository institution for the purpose of depositing in the credit union the corporation employee’s withheld savings from a payroll but does not provide the credit union with a listing showing the distribution of such withheld savings, how should the credit union report this transaction on the F.R. 2900?

A. The credit union should report the liability for the deposited payroll savings in item 3 (Other Demand) of the FR 2900 but this amount may be offset by the deduction for cash items in process of collection during the time required for the check to clear.

 After the check clears, if the distribution listing is still not provided to the credit union or if the credit union does not distribute the lump sum deposit among the appropriate members, the credit union is not entitled to the cash items in process of collection deduction from those funds. The payroll deposit remains in Other Demand and reserves must be held against the deposit until the funds are distributed to the proper members’ accounts.

Q8. Many banks receive payments from other banks with unclear information about to whom the funds should be credited. The practice of many institutions is to credit those funds to a suspense account. The funds remain in that account until the institution determines the party to whom the funds are to be credited or transmitted. This process for each such payment may take several days or weeks. During that time, how must an institution report that suspense account for reserve purposes? Many foreign banks find that 90 percent of payments made to them are to be credited to their parent’s account, and thus most of these funds should have been subject to Eurocurrency, rather than domestic, reserves during that period.

A. Institutions must regard the entire amount of funds in suspense accounts each day as transaction accounts (to be reported as other demand deposits in item 3 of the FR 2900) unless they determine from their past experience that a percentage of such funds usually are to be treated otherwise. For example, if a United States branch of a foreign bank finds that 90 percent of the funds placed in a suspense account normally go to its parent, it may treat 90 percent of its suspense account each day as a balance due to its parent subject to the Eurocurrency reserve requirement and 10 percent as a transaction account.

Q9. The instructions to FR 2900 indicate that a bona fide cash management arrangement must be evidenced by a prior written agreement between the reporting depository institution and the customer authorizing transfers between transaction accounts of the customer. Does this mean that there must actually be a reduction on the books of the institution in order to reduce the balance by the overdraft amount for purposes of reserves?

A. An actual transfer on the books of the institution is not necessarily required. Bona fide cash management purposes can be demonstrated in a number of situations. The fact that a depository institution has the ability to offset an overdraft with funds in another account is sufficient to serve the purposes of Regulation D.

Q10. How are loans in process to be treated for purposes of reporting on the FR 2900?

A. Loans in process arise in at least two different contexts.

 (1) When a depository institution issues a cashier’s check representing mortgage or other loan proceeds and delivers the check to a settlement agent before the loan closing, the cashier’s check represents a demand deposit and the amount of the check is reservable from time of issuance as a transaction account.

 (2) Thrift institutions commonly have a liability “contra” account entitled “loans in process” that represents unadvanced portions of construction loan commitments. Such commitments are contingent liabilities of the depository institution and are not subject to reserves. When a portion of the loan commitment is advanced, a reservable liability would be created if disbursement were made by issuance of an officer’s check or by credit to a deposit account.

Q11. A depository institution (“seller”) sells money orders on consignment from a second depository institution (“issuer”). Funds are not remitted to the issuer until it notifies the seller that the money orders have been received for payment and the funds are then remitted by the seller. How are the funds representing the proceeds of the money order sale to be reported?

A. The money order proceeds are a deposit of the selling institution until remitted to the issuer. If the issuer is a depository institution, then the unremitted amount held by the seller represents a balance due to a depository institution.

Q12. The instructions to FR 2900 for credit unions provides under “Record-keeping”:

“Note: If, according to your standard accounting practices, closing balances for accounts reported on this report are not available on a daily basis, you may report the same closing balance for subsequent days provided that your closing balances for these accounts are updated at least once a week. For example, a credit union that uses a weekly batch system may have closing balances only as of each Friday. In this case, the balances for the preceding Friday should be reported for Thursday of the current computation week; the balances for Friday of the current computation week should be reported not only for Friday but also for the following Saturday, Sunday, Monday, Tuesday, and Wednesday, and for the first Thursday of the next computation period.”

A. Yes. If a depository institution posts its general ledger daily or generates a daily balance sheet, then all amounts reported for reserve requirements purposes on the FR 2900 must be updated daily. However, as indicated above, if it is the accepted accounting practice and standard for a particular segment of the industry to post the general ledger less frequently than daily, then weekly updating is permitted.

Q1. May coin sent by an institution to a coin wrapping servicer and kept there for several days be treated as vault cash?

A. Yes, so long as the institution continues to book the coin as an asset and has the right to obtain possession of the coin immediately to satisfy depositors’ claims.

Q2. May a depository institution sell its excess vault cash to another institution for use in satisfying reserve requirements by means of an overnight trust receipt? The selling institution will continue to hold the currency and coin in its vault.

A. No. Such transactions are regarded as a device to avoid reserve requirements and such temporary “sales” are not regarded as effective for reserve maintenance purposes.

Q3. Are redeemed savings bonds counted as vault cash?

A. No. Vault cash consists of United States currency and coin (except for coin and currency whose numismatic value exceeds face value, such as gold and silver coin) owned and held by the depository institution. However, redeemed savings bonds give rise to a “cash item in process of collection” deduction while in the collection process if shipped for collection on the next business day.

Q4. Coin and currency must be in the possession of the reporting institution, subject to the in-transit exception, in order to be treated as vault cash. Is currency and coin considered to be in an institution’s possession if placed in a vault on the premises of another institution that is rented by the reporting institution?

A. Yes, so long as (1) the reporting institution has full rights of ownership of the coin and currency, (2) the reporting institution has full rights to obtain the coin and currency immediately in order to satisfy customer demands (and accordingly must be reasonably nearby), and (3) the institution from which the vault is rented does not include that coin and currency as its own vault cash.

Pass-ThroughsQ1. If a correspondent is assessed a penalty for a deficiency in reserves maintained that arose because a respondent depository institution was deficient, may the correspondent pass the penalty on to the respondent?

A. Yes. The Reserve Bank will impose the penalty on the correspondent and the correspondent is not prohibited by Federal Reserve rules from passing it on to the respondent, but is not required to.

Q2. Regulation D states that an institution may have only one pass-through correspondent. Does this rule apply to a foreign bank with offices in more than one state?

A. No. If a foreign bank has United States offices that are required to keep reserves at more than one Reserve Bank, each reporting unit is treated separately and may have a different pass-through correspondent.

Q3. May a former member bank that is required to maintain full reserves pass the reserves through a correspondent?

A. Yes. Such a bank may maintain its reserve account directly with the Reserve Bank or it may pass its reserves through a correspondent.

Q1. Are demand balances held by a depository institution with the Federal Home Loan Banks or with the NCUA Central Liquidity Facility to be reported in item 8, “Demand Balances Due from Depository Institution,” on the F.R. 2900?

A. No. Such balances are not eligible for the “due from” deduction since neither the Federal Home Loan Banks nor the NCUA Central Liquidity Facility will hold required reserves on such balances.

Q2. Are “checking-type” accounts that a credit union maintains at a corporate central to be included as a deduction under item 8, “Demand Balances Due from Depository Institutions,” on the F.R. 2900?

A. Only those accounts in the form of demand deposits (i.e., payable on demand) that are due from a corporate central are to be included as a deduction under item 8. If the corporate central reserves the right to require written notice before an intended withdrawal, regardless of whether or not the corporate central actually exercises this right and regardless of how the credit union uses the account, such accounts do not meet the definition of demand deposits and, therefore, may not be included in item 8.

Q3. Is a balance due from another depository institution subject to immediate availability which the state banking authorities count in satisfaction of an institution’s state reserve requirements deductible as a balance due from other banks?

A. Yes. All balances at other depository institutions subject to immediate availability are deductible from gross transaction accounts in arriving at required reserves.

Q4. The actual balance in a reporting institution’s demand account at another institution usually will be greater than the amount shown on the reporting institution’s books in its due from entry. This occurs because the reporting institution will write down the due-from account on its books for checks and drafts that have not yet been paid by the institution holding the account. In reporting the total amount of balances due from depository institutions, must an institution report its book amount, or may it report the amount shown each day at the other institution as balances due to the reporting institution?

A. The reporting institution must use its book amount as balances due from depository institutions for purposes of item 8. The reporting institution will have written down a liability account for the check that it has issued, and, because that liability account is likely to be a reservable deposit account, it has already obtained a reduction in reserves on the transaction. To permit a deduction for that amount would permit an unwarranted double deduction for the amount of the check.

Q5. What is the proper treatment of excess reserves of a depository institution that maintains reserves on a pass-through basis?

A. As noted in the detailed reporting instructions, all reserve balances passed through to the Federal Reserve by a correspondent on behalf of a respondent must be excluded from item 8, “Demand Balances Due from Depository Institutions,” of the respondent’s F.R. 2900, even if a portion of the amount passed through on behalf of the respondent was in excess of the respondent’s required reserves. On the other hand, a respondent may include as a due-from any demand balances that it has at a correspondent that were not passed through by a correspondent to the Federal Reserve.

Q6. An overdraft in an Edge corporation’s demand deposit account at its parent bank is raised to zero for computing reserves and the amount is considered a loan from the parent to the Edge. Is the amount of the loan exempt from reserves?

A. The loan is not reservable to the parent bank. The Edge corporation is permitted to treat the loan as a borrowing from another depository institution (at page 21 of the instructions), and therefore it is not reservable.

Q7. Are excess reserves maintained with a pass-through correspondent in a deposit subject to immediate withdrawal a reservable liability of the correspondent?

A. If the entire amount on deposit with the correspondent is passed through to a Federal Reserve office, then none of it is to be treated as a balance due to banks. Any amount not actually passed through to a Federal Reserve office must be treated as a balance due to banks, and accordingly is reservable.

Q8. Are balances due to bankers’ banks such as Savings Banks Trust Company and balances due to private banks to be reported in item 1.a. of the F.R. 2900?

A. Yes. Savings Banks Trust Company should be treated as a bank. Balances due to private banks that are not depository institutions are to be reported as bank demand accounts in item 1.a. Balances due from Savings Banks Trust Company, but not from private banks, are to be included in item 8.

Q9. What is the proper classification of funds received by a depository institution representing payments for loans that the institution is servicing for others?

A. Funds received by a depository institution in connection with servicing of loans for others represent deposits. Where the loan is owned by another depository institution, such funds represent a balance due to another depository institution until remitted. Loan repayments received by an institution for loans that it owns represent reductions in an asset account and do not give rise to reserves notwithstanding that such payments are carried temporarily in a liability account pending proper posting to the loan accounts.

Q10. What is the proper treatment of a check drawn by a depository institution on a zero balance account at a correspondent?

A. If a credit union, savings and loan association or other depository institution draws checks on a zero balance account at a correspondent bank and remits funds when advised that the checks have been presented, then the amount of the checks represent an amount due to another depository institution. Although Regulation D (12 CFR 204.2(b)(2)) provides that a check or draft drawn by a depository institution on another depository institution are not demand deposits, such rule applies only where the check or draft is drawn against a positive balance at another institution and would properly represent a reduction in an asset account. In the case of checks drawn on a zero balance account, a depository institution is regarded as having issued a reservable liability.

Q1. How are balances due to foreign offices of other depository institutions treated?

A. Borrowings from such offices are treated as nonpersonal time deposits and are reported on the Eurocurrency report form. Balances due to, and borrowings from, an institution’s own foreign branches, whether or not subject to immediate withdrawal, are reported as Eurocurrency liabilities and are reservable net of balances due from those offices. Demand balances and borrowings due to foreign offices of affiliated banks are treated as balances and borrowings due to other banks.

Q2. If a foreign bank parent places funds with its United States branch in a capital account, is that account exempt from Eurocurrency reserves?

A. No. That must be treated as a balance due to parent. The capital equivalency deduction takes the place of capital for reserve requirement purposes.

Q3. There are two de minimis exceptions to the Eurocurrency reserve requirement on loans to United States residents, i.e., the $1 million per branch exception and the $100,000 per borrower exception. How do these exceptions interrelate?

A. Example one: If Mr. Jones, a U.S. resident, has a $50,000 loan at a bank’s Nassau branch and a $90,000 loan at the bank’s London branch and both branches have more than $1 million in loans outstanding to U.S. residents, then the resident exception does not apply since aggregate loans to Mr. Jones exceeds $100,000.

 Example two: In example One, if the London branch had less than $1 million in loans to U.S. residents and the Nassau branch had more than $1 million, only the Nassau branch loans would be subject to reserve requirements. Reservable loans to Mr. Jones would be $50,000 since aggregate credit extended to him by the bank’s foreign branches exceeds $100,000. The London branch loan to Mr. Jones is not reservable, however, because total loans to U.S. residents at that branch do not exceed $1 million.

 Example three: If a bank’s Nassau branch has 12 loans of $90,000 each to twelve different U.S. residents and no other foreign branch has any loans to any of the twelve U.S. residents, then the Nassau branch would have no reportable loans. The branch’s total loans are more than $1 million, but its loan to any one U.S. resident is less than $100,000.

 Example four: In example Three, if one of those U.S. residents had an additional loan at the London branch of $20,000, the Nassau branch must report $90,000 in loans. This is true regardless of whether London has more or less than $1 million in loans. If London has more than $1 million, it must report the $20,000 loan to the resident because in the aggregate the bank’s loan to that resident totals more than $100,000.

Q4. Are direct borrowings from foreign corporations regarded as Eurocurrency liabilities?

A. Direct borrowings from foreign and domestic corporations that are not depository institutions are liabilities subject to reserve requirements but are not Eurocurrency liabilities. They are nonpersonal time deposits if their maturity is 14 days or more. They are demand deposits and reported as transaction accounts if their maturity is less than 14 days. The exemption for federal funds and Eurocurrency borrowings cover borrowings from banks and depository institutions.

Q5. If a foreign bank issues commercial paper in the United States and the bank’s United States branch or agency borrows the proceeds from the bank’s head office, are those funds subject to reserves at the domestic ratios?

A. No. Commercial paper issued in the United States by a foreign bank’s head office is not subject to Federal reserve requirements. However, when the proceeds of the sale are channeled to the United States branch or agency, the proceeds become subject to Eurocurrency reserve requirements as an advance from the foreign bank’s head office.

Q6. Are balances due from a Federal Reserve Bank to be subtracted from total assets in calculating a foreign bank’s United States office’s capital equivalency deduction?

A. No.

Q7. The calculation by foreign banks of their capital equivalency deduction requires that the definition of total assets correspond to the definition on their quarterly call report (FFIEC 002). (However, the amount of total assets will, in many cases, need to be adjusted to take into account the different definitions of “related” institutions on the two reports.) In order to calculate total assets in Schedule A of that report, unearned income on loans is to be subtracted. Many foreign banks do not calculate unearned income on loans each day; rather they calculate it only monthly or quarterly. Must such foreign banks calculate this figure daily?

A. No. Foreign banks may use the most recently available figure on a consistent basis.

Q8. Eurocurrency liabilities include borrowings from “non-United States offices” of the reporting domestic institution. Do “non-United States offices” include foreign offices of a nonbank corporation that is an affiliate of the reporting institution?

A. No. “Non-United States offices” in this context means only foreign offices of the foreign bank operating the U.S. agency or branch. Affiliates are separate corporate entities, and their foreign offices are not foreign offices of the foreign bank itself. Borrowings from foreign offices of affiliated depository institutions are reported together with borrowings from other foreign depository institutions in column 1 of the F.R. 2950. Borrowings from foreign offices of affiliated nonbank corporations are treated as deposits and are subject to domestic reserve requirements as demand or time deposits depending on maturity; if the borrowing is a demand deposit (because the maturity is less than 14 days), then Regulation Q and part 329 of the FDIC’s regulations prohibit the payment of interest on the borrowing.

Q9. A depository institution has separate demand accounts for each of several foreign branches of a single unrelated foreign bank. May amounts due to some of the branches be “netted” against amounts due from other branches for computing amounts due to banks?

A. No, unless the separate accounts of the foreign institution serve a bona fide cash management function and if netting is permitted under the law(s) of the country or countries in which the branches are located.