Federal Reserve Board's Proposal on the Definition of a Deposit

American Banker, May 16, 1986 | Go to article overview

Federal Reserve Board's Proposal on the Definition of a Deposit


Federal Reserve Board's Proposal on the Definition of a Deposit

FEDERAL RESERVE SYSTEM 12 CFR Part 204 (REGULATION D; Docket No. R-0571) Definition of Deposit

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Request for public comment on proposed rules.

SUMMARY: Pursuant to its authority under section 19 of the Federal Reserve Act, as amended, the board requests comment on proposed amendments to 12 CFR Part 204 (Regulation D--Reserve Requirements of Depository Institutions). After considering several requests for interpretations of Regulation D regarding the reservability of certain types of transactions, particularly sales of assets by depository institutions where the depository institution retains conditional liability for the assets sold and certain transactions with affiliates, the board is proposing these amendments in order to clarify when such transactions give rise to deposits for purposes of the regulation.

Under the proposed amendments, the reservability of such transactions generally would depend upon the nature of the liability of the depository institution. Currently, the board's Regulation D provides that the term "deposit' includes any liability of a depository institution on any promissory note, acknowledgment of advance, bankers' acceptance, or similar obligation (written or oral), including mortgage-backed bonds, that is issued or undertaken as a means of obtaining funds. The regulation currently excludes from this general rule certain of these liabilities, most notably repurchase agreements involving federal government and federal agency securities and certain interbank obligations. The regulation also excludes from the definition of "deposit' an obligation that represents a conditional, contingent or endorser's liability. Under the current regulation, most asset sales in which the depository institution retains some risk of loss are considered deposits, but the regulation is not clear on several technical points. The proposal is intended primarily to clarify the application of reserve requirements to these and related situations.

The proposal would amend the definition of "deposit' specifically to include sales of assets where the depository institution issues or undertakes a liability supporting the assets sold or retains a reversionary interest in these assets, regardless of whether the liability or interest is conditional, unconditional, or contingent or whether the liability covers all or a portion of the assets sold. Transactions in which the depository institution's liability on any particular asset is shared with the purchaser as the loss is realized and is less than 75% of the loss would not give rise to a deposit. Where the depository institution's share of risk is 75% or more of losses realized, the transaction would give rise to a deposit. Generally, transactions in which the depository institution's only liability is to reimburse a third-party guarantor of the assets sold also would not give rise to a deposit under the proposal.

Under the current regulation, obligations of affiliates are reservable when they are used to supply or maintain funds to a depository institution, provided the affiliate's obligation would have been considered a reservable liability if it had been issued by the depository institution itself. The proposal would exclude obligations of affiliates from the definition of deposit if the proceeds of an affiliate's obligation are used to purchase assets from a depository institution without recourse; that is, if the depository institution retains no interest in, or liability for, the assets sold. The proposal would include as a deposit an affiliate's obligation if the depository institution undertakes a liability, conditional or otherwise, to support the affiliate's obligation even if the depository institution does not receive the proceeds of the obligation. In addition, the proposal would amend the definition of "affiliate' to include any organization that a depository institution effectively manages or controls even if it does not meet the formal requisites for ownership or control of the organization. …

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Federal Reserve Board's Proposal on the Definition of a Deposit
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