Speech
ror release on delivery
Expected at 2:30 p*nu (E.S.T#)
January 24, 1979
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Federal Reserve Bank of St. Louis
Proposals to Facilitate the Implementation
of Monetary Policy and to Promote Competitive
Equality Among Depository Institutions
Statement by
G. William Miller
Chairman, Board of Governors of the Federal Reserve System
before the
Committee on Banking, Finance and Urban Affairs
House of Representatives
January 24, 1979
Mr. Chairman, members of the Committee, the nation's
financial system has been undergoing rapid change in recent years,
altering the competitive environment in banking and other financial
markets and complicating the Federal Reservefs ability to implement
monetary policy.
Nonmember depository institutions have been
growing much more rapidly than member banks.
Transactions-type
deposit accounts have become more widespread at thrift institutions.
And, in general, competition among depository institutions and
between those institutions and the open market has become much more
intense.
This competition promotes efficiency in the financial system,
and banks have been re-assessing their costs and operations.
Many,
as a result, have become less willing to bear the high cost of cash
reserve requirements associated with being a member of the Federal
Reserve System.
Thus, there has been a steady—and in recent
years accelerating—decline in the proportion of bank deposits,
especially transaction deposits, subject to Federal reserve requirements.
Moreover, the continued development of new transactions-type
deposits at nonbank depository institutions will further worsen this
situation.
DEVELOPMENTS WEAKEN MONETARY CONTROL
It is essential that the Federal Reserve maintain adequate
control over the monetary aggregates if the nation is to succeed
in its efforts to curb inflation, sustain economic growth, and
maintain the value of the dollar in international exchange markets.
The attrition in deposits subject to reserve requirements set by the
Federal Reserve weakens the linkage between member bank reserves and
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~9 —
the monetary aggregates.
As a larger and larger fraction of
deposits at banks becomes subject to the diverse reserve requirements
set by the 50 states rather than by the Federal Reserve, and as more
transactions balances reside at thrift institutions, the relationship
between the money supply and reserves controlled by the Federal Reserve
will become less and less predictable.
Open market operations, the
basic tool of monetary policy, therefore are becoming less precise
in their application•
Our staff has attempted to assess the extent to which growth
of deposits outside the Federal Reserve System would weaken the
relationship between reserves and money.
Their tentative results
are shown in Chart I, which depicts the greater range of short-run
variability in M-l and M-2, with a given level of bank reserves,
that would develop as the per cent of deposits held outside the Federal
Reserve rises.
As more and more deposits are held outside the System,
this chart suggests that control of money through the reserve base
becomes increasingly uncertain.
USE OF RESERVE REQUIREMENTS HAS BEEN RESTRICTED
With the proportion of banks subject to Federal reserve
requirements declining, the ability of the central bank to use changes
in reserve requirements as a tool of monetary policy has been increasingly undermined.
Changes in reserve ratios not only affect a smaller
proportion of deposits today than in the past, but the Board also
must weigh the potential impact of its actions on the membership
problem—and hence on its ability to maintain monetary control over
the longer run—each time it deliberates on the uses of this tool. Such
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-3concerns inhibit the Board's freedom of action to conduct monetary
policy.
If reserve requirements were applied universally, as is
proposed in H.R. 7, adjustments in reserve ratios to affect the
availability of credit throughout the country, or to influence
banks1 efforts concerning particular types of deposits, may again
become a more viable monetary instrument.
Moreover, while open
market operations in U.S. Government securities provide the Federal
Reserve with a powerful policy instrument, it is possible that
conditions could develop in the future—such as a less active market
for U.S. Government securities in a period of reduced Federal
budgetary deficits—where more flexible adjustment of reserve requirements might be a desirable adjunct in efforts to control the monetary
aggregates.
... AS HAS BEEN THE DISCOUNT WINDOW
The effectiveness of the Federal ReserveTs administration
of the discount window also has been potentially compromised by
recent developments.
Membership attrition and the growth of trans-
actions balances at nonbank depository institutions have resulted
in a shrinking proportion of the financial system having immediate
access to the discount window on a day-to-day basis.
The discount window, as the "lender of last resort,11 provides
the payments system with a basic liquidity backup by assuring member
banks the funds to meet their obligations.
But, if the proportion
of institutions having access to this facility continues to decline,
individual institutions could be forced to make abrupt adjustments
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-4in their lending or portfolio policies, because they could not turn
to the window to cushion temporarily the impacts of restrictive
monetary policies.
Risks that liquidity squeezes would result in bank
failures could also increase.
Thus, the Federal Reserve may find
that its ability to limit growth in money and credit in order to
curb inflation was being unduly impeded because the safety valve
provided by the discount window was gradually losing its effective
coverage.
.. . AND THE PAYMENTS SYSTEM FACES DETERIORATION
The growth of transactions balances at institutions that
do not have access to Federal Reserve clearing services also could
lead to a deterioration of the quality of the nation 1 s payments
system.
Reserve balances held at Federal Reserve Banks are the
foundation of the payments mechanism, because these balances are
used for making payments and settling accounts between banks.
Nonmember deposits at correspondent banks can serve the same purpose,
but as more and more of the deposits used for settlement purposes
are held outside the Federal Reserve, the banking system becomes more
exposed to the risk that such funds might be immobilized if a large
correspondent bank outside the Federal Reserve experienced substantial
operating difficulties or liquidity problems.
A liquidity crisis
affecting such a large clearing bank could have widespread damaging
effects on the banking system as a whole because smaller banks might
become unable to use their clearing balances in the ordinary course
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-5of business.
The Federal Reserve, of course, is not subject to
liquidity risk and therefore serves, as Congress intended, as a
completely safe foundation for the payments mechanism.
In sum, the major functions of the Federal Reserve System—
to conduct monetary policy in the public interest, to provide backup
liquidity and flexibility to the financial system, and to assure a
safe and efficient payments mechanism—all have been undermined by
recent developments.
These developments include, as I've noted
earlier, attrition in Federal Reserve membership and the spreading of
third-party payment powers to nonbank institutions.
DECLINE IN SYSTEM MEMBERSHIP
For more than 25 years there has been a continual decline
in the proportion of commercial banks belonging to the Federal Reserve.
The downward trend in the number of member banks has been accompanied
by a decline in the proportion of bank deposits subject to Federal
reserve requirements, as may be seen from Chart II.
As of
mid-1978, member banks held less than 72 per cent of total commercial
bank deposits, down about 9 percentage points since 1970.
Thus,
more than one-fourth of commercial bank deposits—and over threefifths of all banks—are outside the Federal Reserve System.
DUE TO THE EXCESSIVE COST OF MEMBERSHIP
The basic reason for the decline in membership is the financial
burden that membership entails.
Most nonmember banks and thrift
institutions may hold their required reserves in the form of earning
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-6assets or in the form of deposits (such as correspondent balances)
that would be held in the normal course of business* Member banks,
by contrast, must keep their required reserves entirely in nonearning form.
The cost burden of Federal Reserve membership thus consists
of the earnings that member banks forego because of the extra amount
of non-earning assets that they are required to hold.
Of course,
member banks are provided with services by Reserve Banks, but the
value of these services is insufficient to close the earnings gap
between member and nonmember banks.
The Board staff estimates that the aggregate cost burden
to member banks of Federal Reserve membership exceeds $650 million
annually, based on data for 1977, or about 9 per cent of member bank
profits before income tax.
The burden of membership is not distributed
equally across all sizes of member banks.
According to staff estimates,
shown in the lower panel of Chart III, the relative burden is greatest
for small banks—exceeding 20 per cent of profits for banks with less
than $10 million in deposits..
Further reductions of reserve require-
ments within existing statutory limits would do little to eliminate
the burden for most classes of banks, especially for the smaller banks.
INEQUITY OF COST BURDEN BORNE BY MEMBER BANKS
The current regulatory structure is arbitrary and unfair
because it forces member banks to bear the full burden of reserve
requirements.
Only member banks must maintain sterile reserve
balances, while nonmember banks, which compete with members in the
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-7same markets for loans and deposits, and thrift institutions, which
increasingly are competing in the same markets, do not face similar
requirements.
Thus, members are at a competitive disadvantage
relative to other depository institutions.
Among the major countries
in the free world, only in the United States has this legislated
inequity been imposed on the commercial banking system.
It is no
wonder that member banks continue to withdraw from the Federal
Reserve.
SPREAD OF THIRD-PARTY PAYMENT POWERS
At the same time, the spread of third-party powers to thrift
institutions is further increasing the proportion of transactions
balances outside the control of the Federal Reserve.
Commercial
banks' virtual monopoly on transactions accounts, maintained in the
past because of their ability to offer demand deposits, is being
eroded.
Moreover, recent financial innovations have led to widespread
use of interest-bearing transactions accounts at both nonbank
depository insitutions and commercial banks. These developments have
increased both the costs and competitive pressures on banks, no doubt
compelling members to reevaluate the costs and benefits of membership and thus playing a significant role in membership withdrawals.
The payments innovations since 1970 are well know to this
Committee, and include limited pre-authorized "bill-payer" transfers
as well as telephone transfers from savings accounts at banks and
savings and loan associtions, NOW accounts at practically all
depository institutions in New England, credit union share drafts,
automatic transfers from savings deposits, and the use of electronic
terminals to make immediate transfers to and from savings accounts.
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-8Growth of these transactions-related interest-bearing
deposits has been most dramatic in recent years.
For example, NOW
accounts in New England have grown from practically zero in 1974 to 8
per cent of household deposit balances in mid-1978, as shown in
Chart IV, and one-third of these NOW deposits are at thrift institutions.
The intense competition engendered by the introduction of NOW accounts
has been accompanied by an acceleration of member bank attrition in
New England to a rate well beyond that of the nation, as shown in
Chart V.
This increase in member bank withdrawals is clearly not
just coincidental.
There is no sign that the intense competition will abate.
As shown in Chart VI, savings accounts authorized for automatic
transfer have grown rapidly at commercial banks across the country
since their introduction November 1; and in New York, NOW accounts,
which were authorized November 10 for all depository institutions
in the State, have been increasing vigorously.
In addition, the
Federal Home Loan Bank Board has announced its intention to authorize
savings and loan associations to offer Payment Order Accounts, or
POAs, which are interest-bearing deposits that can serve many of the
same functions as NOWs.
These developments have caused the distinctions among banks
and thrifts with respect to the "moneyness" of their deposits to
become increasingly blurred and have prompted the Federal Reserve
to reevaluate its existing measures of the monetary aggregates and
to consider possible readjustments to reflect the changing
institutional environment.
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The most basic measure of transactions
-9balances, M-l, clearly should include more than just currency and
commercial bank demand deposits.
And, the broader aggregates may be
redefined to emphasize distinctions by type or function of deposit
rather than by the institution in which the deposit is held.
Changing
the money measures to reflect economic reality, including the wider
role played by depository institutions other than member banks in the
monetary system, would be complemented by legislation for universal
reserve requirements,
LEGISLATIVE PROPOSALS POINT IN THE RIGHT DIRECTION
The Monetary Control Act of 1979, H.R. 7 9 introduced by the
Chairman of this Committee, represents a constructive approach to
improving monetary control and reducing the inequities in markets in
which depository institutions are competing.
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This bill proposes universal reserve requirements by
establishing a reasonable set of reserve ratios applicable to all
deposits at commercial banks and to transactions balances at thrift
institutions.
The definition of transactions accounts includes not
only demand deposits, but also the growing number of new thirdparty payments accounts.
Such an approach puts all depository
institutions on an equal competitive basis in the market for transactions deposits and helps assure the continuation of a reserve
structure needed for the efficient conduct of monetary policy.
Under this legislation all commercial banks and thrift
institutions with transactions accounts would have access to the
Federal Reserve discount window.
The Federal Reserve could then
-10act as a "lender of last resort11 to a broader class of depository
institutions and thereby enhance the overall safety and soundness of
the depository system, as well as providing more flexibility to
financial institutions to respond to changing monetary policy. The
bill also gives all depository institutions access to Federal Reserve
services.
With the application of an appropriate pricing schedule for
such services, this action should improve the efficiency of the
payments mechanism which underlies all of the nation's economic
transactions.
But I should emphasize that open access to System
services, desirable as it may be, is only practicable if the
so-called membership problem is resolved, as H.R. 7 does in principle.
Without resolution of the membership problem, open access at an
explicit price set for all institutions would only exacerbate the
problem and lead to even greater reduction in the Federal Reservefs
deposit coverage, since services would be available to nonmembers
without bearing the burden of reserves.
BUT CERTAIN MODIFICATIONS OF H.R. 7 ARE NECESSARY
The various features of E.R. 7 redress much of the growing
competitive inequity among financial institutions and provide a
potentially improved framework for enhancing the implementation of
monetary policy.
However, as drafted, certain provisions of this
legislation compromise the improvement in monetary control that
universal reserve requirements could foster.
First, the exemption from any reserve requirement of the
first $50 million of transactions balances and the first $50 million
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-11of other deposits reduces somewhat from present levels the proportion
of deposits subject to Federal reserve requirements.
More importantly,
though, the rather complex procedure for indexing the exemption would
mean that the proportion of deposits subject to direct Federal Reserve
control could not increase over time.
Hence, the Board believes
that the bill needs to be modified, and it has a proposal which will
both enhance monetary control and preserve for all institutions the
earnings protection of the exemption contained in the bill, without
increasing the cost to the Treasury from that associated with H.R. 7.
PARTICIPATION IN FEDERAL RESERVE EARNINGS FOR EXEMPTED DEPOSITS
The Board1s proposed modification involves establishment of an
"Earnings Participation Account11 at the Federal Reserve to be held
against deposits exempted by H.R. 7 from reserve requirements.
To
reduce the record-keeping burden, small institutions could be excluded
from having to hold this account.
This exclusion could amount to the
first $10 million of transactions deposits at each institution
and
$10 million of other deposits at each commercial bank.
For banks, with respect to all deposits, and for other
depository institutions, with respect to transactions deposits, their
Earnings Participation Account would be held against deposits above
the $10 million exclusion and up to the amount of the $50 million
exemption in H.R. 7.
The size of this Earnings Participation Account
for each deposit category would equal the reserve ratio applicable to
deposits in that category times the amount of deposit liabilities
between $10 million and $50 million.
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To the extent that an
-12institution holds vault cash in excess of its required reserves
on nonexempt deposits, the size of the Earnings Participation Account
would be reduced correspondingly.
This provision reduces the
possibility that institutions would build up their excess reserves,
which would tend to increase the slippage between reserves and
deposits and thereby diminish monetary control.
Chart VII compares the impacts of the Board 1 s proposal
with H.R. 7 and with the current reserve system.
As can be seen
in the upper left-hand panel, the Board's modification has the
advantage of greatly increasing the proportion of commercial bank
transactions deposits covered by an account at the Federal Reserve—
from the present 73 per cent to 94 per cent. This would be
accomplished even though the $10 million exclusion would mean that
45 per cent of all commercial banks, as well as virtually all thrifts,
would not be required to hold any account at the Federal Reserve.
At the same time, as shown in the right-hand upper panel, the number
of banks holding non-earning reserve balances at Federal Reserve
Banks would be as low as under H.R. 7.
The number would be sharply
reduced from the current level of 5,664 to an estimated 656.
Finally, the bottom panel indicates that the effect on bank earnings
would be virtually the same under either H.R. 7 or the bill as
modified by the Board's proposal.
The difference would be that
under our proposal, banks would hold some assets in the form of
the Earnings Participation Account rather than as market investments
or loans.
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-13The return on this account would be equivalent to the
average return on the Federal Reserve's portfolio, which includes
both short- and long-term securities.
Some years this return might
be higher than banks would earn on other assets—which are likely
to be a combination of loans and liquid instruments—and some years
less.
On average, over time, there should be little difference.
I would like to underline the advantage of bringing
transactions-type deposits at thrifts under reserve requirements
in this manner.
It will be several years, at least, before any
significant number of thrift institutions would actually have to
hold non-earning reserves at the Fed.
loan association or credit union
Currently, no savings and
has transactions deposits in
excess of the $50 million exemption.
Only 8 mutual savings banks
have transaction accounts in excess of the exemption5 and each
has vault cash considerably in excess of the reserve requirement
that would apply to such deposits.
Attachment A presents a listing of individual member and
nonmember commercial banks and MSB's similar to that shown on
pages 17 to 65 of the Committee print, Description of the Monetary
Control Bill.
An asterisk in the far right column indicates that
it is a bank added to the list by the Board's proposal—that is,
it has deposits above the excluded level but below the exempted
level.
These added banks would hold an Earnings Participation
Account at the Federal Reserve but they would not hold any nonearning required reserves balance at Reserve Banks because their
deposits are below the exempted level.
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Banks without an asterisk
-14were on the committee list before, and their non-earning
balance is affected exactly the same as in H.R. 7.
reserve
Column 4—entitled
EPA—shows the amount of the Earnings Participation Account each
institution would hold.
If this column is zero, the bank at the
end of 1977 had sufficient vault cash in excess of its required
reserves so that it would have had no Earnings Participation Account.
Thus, the additional institutions brought under Federal
Reserve control would keep the earnings benefit of the exemption
level proposed by H.R, 7, since they would participate in the
Federal Reserve's earnings on the balances that they would be
required to maintain in the Earnings Participation Account.
More-
over, the cost to the Treasury would be no different under the
Board's proposal than under the proposed bill.
Under the Board's
plan, the Federal Reserve would earn additional interest on the
greater amount of balances that would be held at Reserve Banks,
thereby offsetting the cost of the depository institutions'
Earnings Participation Account.
In sum, the Board proposal would have the clear advantage of
expanding significantly the coverage subject to reserve requirements, thereby enhancing the implementation of monetary policy.
At the same time, it would sustain the earnings benefits of the
exemption level for all depository institutions—at no additional
cost to the Treasury.
Finally, exclusion of the first $10 million
of transactions-type deposits and $10 million of other deposits
from the earnings participation requirement would reduce the recordkeeping burden of the proposal, with relatively modest policy impact.
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-15Attachment B provides language for a series of amendments to H.R. 7
that xv'ould implement the Board's proposed modification.
Another modification proposed by the Board concerns affiliated
institutions.
Providing an exemption from required reserves of $100
million in deposits gives an incentive to banks to form new,
affiliated commercial banking entities in lieu of branch offices in
order to avoid the requirement to hold sterile reserves.
A bank as
large as $100 million would already enjoy many of the economies of
scale associated with larger banking operations.
Thus, the cost of
creating new banks would be small relative to the benefit of avoiding
reserve requirements.
To eliminate this potential loophole, the
Board proposes that affiliated commercial banks be limited to a
total exemption equal to the number of such institutions as of
August 1, 1978 times the exemption levels specified in the bill.
Such an amendment to H.R, 7 as it would be applied to the Board's
proposal is presented in Attachment C.
Additional more technical
amendments to clarify reporting requirements and to conform other
provisions of the Federal Reserve Act are also attached for the
Committee's consideration.
Mr. Chairman, 1 want to thank you for the opportunity
to present the Federal Reserve's view on the Monetary Control Act
of 1979 this afternoon0
This bill deals constructively with issues of
crucial importance to the long-run viability of the nation's central
bank and to the health of our financial system.
The problems are
difficult9 but considerable progress has been made in recent months
toward achieving a solution that promotes the public interest.
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-0-
Chart I
Effect of Member Bank Attrition On Short-Run Predictability of Monetary Aggregates
Absolute Range of Unpredictable Variability In Two-month Growth Rales
Percentage points
20
15
10
20
40
Per cent of Bank Deposits Not Subject to Reserve Requirements
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60
80
100
Chart 1
Percentage of U.S. Commercial Banks and
Deposits in the Federal Reserve System
Per cent
90
80
DEPOSITS
70
60
50
BANKS
40
i i i i i i i i i i i i i i i ii
1961
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1965
1969
1973
1977
,
Chart HE
Estimated Burden of Federal Reserve Membership
AGGREGATE BURDEN, 1977
Millions of dollars
300
—
— 200
—
—100
j _l_
1
= rnurni I
i
i
AGGREGATE BURDEN AS PERCENT OF
ESTIMATED 1977 DOMESTIC PRE-TAX EARNINGS
Per cent
30
aunnag
—
20
—
10
—
—
1
0—10
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Lli
hi i In
10—50
50—100
i 111
100—500
1
1 _L_ I
500—1000
Bank size class(total deposits, millions of dollars)
Over 1000
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Ohwi 33
Dtp'Salt 3a !
Per cent
1974
1975
1976
1977
1978
Charts
Percentage of New England Commercial Banks and
Deposits in the Federal Reserve System
Per cent
85
80
75
DEPOSITS
70
65
60
55
50
45
i i i i i i i i i i i i i i i i i
1961
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1963
1965
1967
1969
1971
1973
1975
1977
Chart 32
ATS Accounts Nationwide and NOW Accounts in New York State
Billions of dollars
5
TOTAL
ATS
i
8
i
15
_L
I
22
29
November
•
NOW account authorization not effective until November 10.
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I
1
6
13
20
December
27
10
January
Chart 3ZII
Effects of Proposals on Commercial Banks
Transactions deposits covered
Per cent
Banks holding non-earning
reserve balances at F.R. Banks
100
Per cent
1100
80
80
60
60
40
—
5664
40
20
20
656
656
1 I
Current
H.R. 7
- Current
Modified H.R. 7
Earnings gain from net
reduction in non-earning
balances
H.R. 7
Billions of dollars
Revenue from Earnings
Participation Account
Stp
600
400
200
H.R. 7
Based on December 1977 deposits.
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Modified H.R. 7
Modified H.R. 7
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Attachment A to
Proposals to Facilitate the Implementation
of Monetary Policy and to Promote Competitive
Equality Among Depository Institutions
Statement by
G. William Miller
Chairman, Board of Governors of the Federal Reserve System
before the
Committee on Banking, Finance and Urban Affairs
House of Representatives
January 24, 1979
Attachment A
Benefit to Banks Covered by Modified H.R. 7
Key to Column Headings
(1) TDEP
Total domestic deposits as of the end of 1977.
(2) VLTGSH
Vault cash as of the end of 1977.
(3) 1977 REQBAL
Estimated amount of reserve balances as of the end
of 1977 required by current law to be held at
Federal Reserve Banks (i.e., required reservesminus
vault cash).
(4) NEW EPA
Amount that would have been held in Earnings Participation Account at the end of 1977 under modified
H.R, 7.
(5) NEW REQBAL
New required reserves minus vault cash that would
have been held at the F.R. Banks under modified
H.R. 7o (This amount is the same as under H.R. 7.)
(6) DIF
Reduction in non-earnings required reserve balances
at Federal Reserve Banks that would have been held
under modified H.R. 7. A negative amount represents an increase. (This amount is the same as
under H.R. 7.)
(7) *
A bank covered by^-modified H.R. 7 but not by H.R. 7.
Examples for Member Banks
(A) The table shows that the first bank listed, Albertsville National
Bank, had deposits of $21,933,000 in December 1977. Vault cash
amounted to $366,000, -and required non-earning balances at the
Federal Reserve were $641,000.
Under modified H.R. 7, this bank, as of the end of 1977, would not
have had to hold any non-interest earning balances at the Federal
Reserve because neither its transactions-type deposits nor the
sum of its other deposits was greater than $50 million. Albertsville
National therefore would have sav&d the $641,000 it held in noninterest bearing reserve balances at the Federal Reserve at the
end of 1977. This is the same savings as under H.R. 7.
Since its vault cash is in excess of required reserves (which
would be zero), all vault cash would have been counted in lieu of
the Earnings Participation Account. The Earnings Participation
Account thus would have been zero because its vault cash was greater
than the reserve ratios times the non-excluded deposits (deposits
in excess of $10 million per account category).
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- 2 -
Attachment A
(B) As of December 1977, Birmingham Trust National Bank had domestic
deposits of $828,915,000, vault cash of $6,100,000 and sterile
balances at the Federal Reserve Bank of $39,847,000. Because it
had both transactions deposits and other deposits well in excess
of the $50,000,000 exemptions, Birmingham Trust, under modified
H.R. 7, would have had to meet reserve requirements with all of
its vault cash and reserve balances of $27,342,000. The difference
between the actual 1977 sterile balances and those under modified
H.R. 7 result in a savings of $12,505,000--the same as under H.R. 7.
In this case, no vault cash would have been applied in lieu of the
Earnings Participation Account^because required reserve would have
exceeded the bank's holdings of vault cash. Thus, the Earnings
Participation Account of Birmingham Trust will equal the reserve
ratio on transactions deposits (9.5 per cent) times $40 million
plus the weighted reserve ratio on other deposits times $40 million,
or $5,162,000.
Examples for Nonmember Banks
(A)
The first nonmember bank listed is The Bank of Abbeville, which had
. total deposits, as of the end of 1977, of $23,421,000 and vault cash
of $240,000. Under existing law, no nonmember bank has any Federal
reserve requirements. Under modified H.R. 7, this bank would have
continued to have no Federal reserve requirements because its transactions deposits and other deposits are well below the $50 million
exemption level per account category. The same result would occur
under H.R. 7.
Since vault cash of the Bank of Abbeville would have been in excess of
required reserves (which are zero), all vault cash would have been
counted in lieu of the Earnings Participation Account. Thus, this bank
would have had no Earnings Participation Account because vault cash
was greater than the reserve ratio times the non-excluded deposits.
(B)
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
Central Bank of Birmingham had total deposits of $510,662,000 in
December 1977. Vault cash was $3,050,000, and it had no Federal
reserve requirements. Under the modified H.R. 7, required reserves
would have been covered by its vault cash holdings plus $17,509,000
in sterile reserve balances. This results in a net increase in
nonearnings reserve balances of $17,509,000, the same as under H.R. 7.
In this case, no vault cash would have been applied in lieu of the
Earnings Participation Account because required reserves would
have exceeded the bank's holdings of vault cash* Thus, the Central
Bank of Birmingham would have maintained3 under modified H.R. 7,
an Earnings Participation Account of 9.5 per cent times $40 million
in transaction balances plus the weighted average reserve ratios
on $40 million of other deposits, or $5,459,000.
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
NOTE:
The full listing of Attachment A is 200 pages
long. Only a few representative pages are
provided here. The complete attachment is
available upon request.
MEMBER BANKS
IFIEO H .R* 7
ID
DSB
6010020
60 10040
6010050
6010090
6010100
6010110
6 01018 0
6010200
6010230
6010240
6010255
6010300
60 10308
60l03?0
6010325
6010339
6010360
6010410
6010455
60 1046 0
6010430
6010570
6010 580
6010630
6010660
6010670
6010638
601069 0
601073 5
6010740
6010750
6010825
6010850
6010S30
6010910
6010915
6010970
6010985
6011050
6011090
6011 1 I 5
6011 150
6011 163
6011170
601H30
6011190
NAME
ALBERTVUIE NATL BANK
FIRST NB OF ALEXANDER CITY
ALICEVILlt BK £ TR CO
ANNISTGN NATIONAL BANK
COMMERCIAL NS Of: ANNISTON
FIRST N3 OF ANNISTON
FIRST AL BANK OF ATHENS NA
FIRST No QF AT MORE
AUBJPN NATIONAL BANK
CENTRAL BANK OF AUBURN NA
ALBERTVULE
ALEXANDER CITY
ALICEVILLE
ANNISTON
ANNISTON
ANNISTON
ATHENS
ATMCRE
AUBURN
AUBURN
1ST AL BK OF BALOWIN CTY NA BAY MINETTE
BIRMINGHAM TRUST NAT 8K
BIRMINGHAM
CITY HB OF BIRMINGHAM
BIRMINGHAM
FIPST NB OF BIRMINGHAM
BIRMINGHAM
NATIONAL BANK OF COMMERCE
BIRMINGHAM
SOUTHERN NATIONAL BANK
BIRMINGHAM
NATIONAL BK CF 80AZ
BCAZ
FIRST NATIONAL BANK
BREWTON
FIRST NB OF BUTLER
BUTLER
CENTRAL STATE BANK
CALERA
CAMDEN NATIONAL BANK
CAMDEN
FIRST NAT 8K OF CLANTON
CLANTON
PEOPLES SAVINGS BANK
CLANTON
FIRST NAT BK OF COLUMBIANA
COLUMBIANA
LEETH NAT BK OF CULLMAN
CULLMAN
PARKER BANK AND TRUST CO
CULLMAN
CENTRAL BANK OF ALABAMA NA DECATUR
FIRST NAT BANK OF DECATUR
DECATUR
CITY NATIONAL BANK OF DOTHANOOTHAN
FIRST ALABAMA BK OF OOTHAN DOTHAN
FIRST NAT BK OF DOTHAN
DOTHAN
FIRST N8 OF EUFA'JLA
EUFAULA
FIRST NAT 8K OF BALDWIN CTY FAIRHOPE
FIRST NB OF FAYETTE
F'AYETTE
FIRST NB CF FLORENCE
FLORENCE
SHOALS NAT BK OF FLORENCE
FLORENCE
AMERICAN NB OF GAQSQEN
GAOSDEN
1ST AL BK OF GADSOEN NA
GAOSDEN
FIRST NB OF GREENVILLE
GREENVILLE
FIRST NB OF GUNTERSVILLE
GUNTERSVILLE
MARION COUNTY BANKING CO
HAMILTON
HEADLAND NATIONAL BANK
HEADLAND
AMERICAN NATIONAL BANK
HUNTSVILLE
1ST At BK OF HUNTSVILLE NA HUNTSVULE
HtN[)F.RSON NB OF HUNTSVILLE
HUNTSVILLE
PEOPLES HB OF HUNTSVILLE
HUNTSVILLE
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
TDEP
LOCATION
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
21933
42342
16979
57239
58006
81102
36876
32111
26805
228Q7
23484
828915
109328
1120037
23563
51975
17487
41640
24604
15260
20083
18557
19740
25163
27662
18711
511589
64544
31591
84933
116332
16235
46304
18242
135004
21105
61029
38170
46542
39060
32392
23771
39452
155664
67626
38474
(21
VLTCSH
366
1349
251
700
1039
1814
583
387
320
537
753
6100
1216
14329
531
732
240
373
508
225
259
263
327
284
673
243
7452
996
688
1023
3281
439
619
698
2336
399
1443
785
768
599
534
240
785
381?
1679
1122
1/17/79
(3)
1977
REQBAL
(41
(5)
(6!
NEW
EPA
NEW
DIF
REQBAL
C3)-(5)
641
881
506
1829
1713
2074
1482
1034
875
522
401
39847
4870
58436
658
2045
516
1520
378
406
633
562
64Q
1087
764
713
20913
2833
1035
3209
2301
211
1593
180
4698
503
1787
1165
1441
1212
1398
762
13*23
4962
2072
861
0
0
0
729
267
723
144
0
0
0
0
5162
3314
5363
0
744
0
296
0
0
0
0
0
0
0
0
4944
1268
0
2024
724
0
252
0
3099
0
287
0
0
5
108
0
31
3314
587
0
0
0
0
0
0
0
0
0
0
0
0
27342
0
41691
0
0
0
0
0
0
0
0
0
0
0
0
10465
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
641
881
506
1829
1713
2074
1482
1034
875
522
401
12505
4870
16745
658
2045
516
1520
378
406
633
562
640
1087
764
713
1044 8
2833
1035
3209
2301
211
1593
180
4698
503
1787
1165
1441
1212
1398
762
1323
4962
2072
661
*
*
*
*
*
*
*
•
*
*
*
*
*
*
HBHBm 8/:T;
DSB
6011230
6011240
6011265
60U370
6011330
6011390
6Q11410
6011430
6011437
6011439
6011440
6011448
6011450
6011500
6011510
6011520
6011540
6011542
6011543
6011536
6011620
6011648
6011750
6011770
6011790
6011795
6011800
6011827
6011850
6011880
6011890
6011900
6011910
6011960
6011930
6011990
6012030
6012010
6012130
NAME
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
85 BANKS AFFECTED IN STATE
(I)
LOCATION
FIRST UB OF JACKSONVILLE
JACKSONVILLE
FIRST NAT BANK OF JASPER
JASPER
VALLEY NATIONAL BANK
LANETT
AMERICAN NAT BANK C TRUST COHOBlLE
FIRST NAT SANK OF MOBILE
MOBILE
MERCHANTS NAT BANK OF HOBILEMOBUE
MONROE COUNTY BANK
HONRQEVILLE
ALABAMA NB OF MONTGOMERY
MCNTGOMERY
CENTRAL BANK OF MONTGOMERY MONTGOMERY
EXCHANGE NB OF MONTGOMERY
MONTGOMERY
1ST AL 3K OF MONTGOMERY NA MCNTGOMERY
SOUTHERN SANK NA
MONTGOMERY
UNION BANK AND TRUST COMPANYMCNTGCMERY
CITIZENS BANK
ONECNTA
FARMERS NB OF OPELIKA
OPELIKA
FIRST NAT BANK OF OPELIKA
OPELIKA
FIRST NATIONAL BANK OF OPP OPP
CENTRAL BANK OF OXFORD
OXFORD
FIRST CITY NAT 8K OF OXFORD OXFORD
FIRST ALA BK OF PHENIX CY NAPHENIX CITY
FIRST NAT BANK OF PIEDMONT PIEDMONT
CENTRAL BANK OF MOBILE NA
PRICHARD
FIRST NAT BK OF RUSSELLVILLERUSSELLVILLE
FIRST NATIONAL BANK
SCOTTSBORO
CITY NATIONAL BANK OF SELMA SELMA
FIRST AL BANK OF SELMA NA
SELMA
PEOPLES BANK AND TRUST CO
SELMA
FIRST COLBERT NATIONAL BANK SHEFFIELD
FIRST MAT BANK OF STEVENSON STEVENSON
CITY NAT BANK OF SYLACAUGA SYLACAUGA
FIRST NAT BANK IN SYLACAUGA SYLACAUGA
ISBELL NAT BK OF TALLADEGA TALLADEGA
TALLAOEGA NATIONAL BANK
TALLADEGA
FIRST FARMERS AND MERCHANTS TROY
1ST AL BK OF TUSCALOOSA NA TUSCALOOSA
FIRST NAT 8K OF TUSCALOOSA TUSCALOOSA
FIRST N8 IN TUSCUMBIA
TUSCUMBIA
ALABAMA EXCHANGE BANK
TUSKEGEE
FIRST NAT BK OF WETUMPKA
WETUMPKA
OF
1/17/79
BENEFIT TO BANKS COVERED BY MODIFIED H«ft« ?
51
27
TOEP
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
17983
78291
23227
155471
423921
449267
22291
114393
68865
20118
395276
14543
196100
19859
30744
20000
45651
33220
14647
17787
14478
51594
46242
42024
38509
39779
64526
27883
20099
22031
22119
30963
33854
31083
104494
162516
32733
19077
3 6451
€21
VLTCSH
424
1965
620
3092
8914
6743
344
1872
2151
390
6875
283
2285
269
953
284
421
901
151
475
192
1228
520
671
739
770
1199
482
373
431
377
463
951
764
1986
2589
769
344
563
(31
1977
REQBAL
(4)
(5)
NEW
EPA
NEW
REQBAL
t31-151
393
2904
454
6187
15980
20317
709
4643
2067
439
15234
295
7707
567
506
670
1445
502
411
361
344
871
1639
1427
1029
1020
1921
841
402
611
718
682
853
620
4227
6567
732
609
1079
0
1006
0
4390
5648
5366
0
3211
769
0
5317
0
5119
0
0
0
0
0
0
0
0
0
156
40
0
0
589
0
0
0
0
0
0
0
2404
4733
0
0
0
0
0
0
0
6086
11275
0
0
0
0
7189
0
654
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
393
2904
454
6187
7894
9042
709
4843
2067
439
8045
295
7053
567
506
670
1445
502
411
361
344
871
1639
1427
1029
1020
1921
641
402
611
718
882
853
620
4227
6567
732
609
1079
HAVE NO EARNINGS PARTICIPATION ACCOUNT OR REQUIRED RESERVE BALANCE
HAVE NO REQUREO RESERVE BALANCE
(61
DIF
* •
*
*
*
*
*
NONMEMBER BANKS
FIED H« R« 7
m
OSB
6010010
6010015
6010030
6010065
6010070
6010120
6010123
601C190
6010205
6010229
6010250
6010253
6010295
6C10305
6010310
6010323
6010350
6010370
6010390
6010450
6010520
6010530
6010630
6010693
6010720
6010780
6010805
6010*10
6010820
6010370
6010690
6010920
6010922
6010925
6010930
6010960
6010930
.6010995
6011030
6011055
60110*0
601U10
6011140
60111*3
6011160
6011165
Digitized for FRASER
NAME
BANK CF ABBEVILLE
FIRST BANK OF ALABASTER
ALEXANDER CITY SANK
CITIBANC OF At 4NDALUSIA AL
COMMERCIAL BANK
BANK Cf ARAB
SECURITY BANK AND TRUST CO
BA.%< CF ATMORE
EXCHANGE BANK
AUBURN-BANK £ TRUST CO
BALDWIN CCUNTY BANK
FIRST ALA BK CF MOBILE CTY
BANK CF THE SOUTHEAST
CENTRAL BANK O F BIRMINGHAM
FIRST AL BANK OF BIRMINGHAM
METROBANK
BANK CF BLOUNTSVILLE
SAND MOUNTAIN SANK
BANK CF BREWTON
CHOCTAW BA^K OF BUTLER
CHEROKEE COUNTY -BANK
FARMERS AND MERCHANTS BANK
BANK CF DAOEVlLLE
FIRST STATE BK OF DECATUR
ROBERTSON BANKING CO
ELBA EXCHANGE BANK
CITIZENS BANK
ENTERPRISE BANKING COMPANY
EUFAULA BANK AND TRUST CO
ClTIZENS BANK
ESCAMBIA COUNTY BANK
FARMERS' AND MERCHANTS BANK
SOUTH BALDWIN BANK
FORT PAYNE BANK
FORT DEPOSIT BANK
ALABAMA CITY BANK
EAST GAOSDEN BANK
AMERICAN BANK
CITIZENS BANK
GPEENVILLE BANK
1ST AL BASK OF GUNTERSVlLLE
TRADERS AND FARMERS BANK
CITIZENS BANK OF HARTSELLE
FIRST AL BANK OF HARTSELLE
BANK CF HEFLIN
BANK Of HUNTSVSLIE
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
TDEP
LOCATION
ABBEVILLE
ALABASTER
ALEXAN06R CITY
ANDALUSIA
ANDALUSIA
ARAB
ARA8
ATMORE
ATTALLA
AUBURN
BAY MINETTE
BAYOU LA 8ATRE
BIRMINGHAM
BIRMINGHAM
BIRMINGHAM
BIRMINGHAM
BLOUNTSVILLE
B0A2
BREWTON
BUTLER
CENTRE
CENTRE
OADEVILLE
DECATUR
DEMOPGLIS
ELBA
ENTERPRISE
ENTERPRISE
EUFAULA
FAYETTE
FLCMATON
FOLEY
FOLEY
FORT PAYNE
FCRT DEPOSIT
GAOSDEN
GAOSDEN
GENEVA
GENEVA
GREENVILLE
GUNTERSVILLE
HALEYVILLE
HARTSELLE
HARTSELLE
HEFLIN
HUNTSVILLE
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
23421
15370
19940
29491
40644
17585
16533
32781
16694
14606
24743
18 528
28729
510662
319352
34024
21242
28540
22737
24032
26687
32458
16584
36175
25302
20833
31130
58470
31237
18426
18092
27402
22471
23507
19465
35235
25700
15812
20872
23359
23018
43308
25051
20928
29855
'48563
1/17/79
(2)
VLTCSH
240
'374
340
362
502
282
454
298
267
212
436
383
802
3050
6672
667
304
582
457
333
402
326
282
587
541
212
308
487
278
312
229
387
328
492
306
715
248
282
123
597
345
675
385
502
574
838
13)
1977
REQBAL
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0*
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(4!
NEW
EPA
0
0
0
0
0
0
0
20
0
0
0
0
0
5459
5170
0
0
0
0
0
0
23
0
0
0
0
146
818
29
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(51
NEW
REQBAL
0
0
0
0
0
0
0
0
0
0
0
0
0
17509
3201
0
0
0
0
0
0
0
0
0
0
0
0
0
0
c
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(61
OIF
C3I-C5I
0
*
0
0
0
0
0
0
0
0
0
0
0
•
*
•
*
*
•
•
•
•
•
•
0
-17509
-3201
0
0
•
•
*
0
0
0
0
•
*
•
•
0
*
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
•
•
*
*
•
•
*
•
•
•
•
•
•
*
*
•
*
•
•
•
*
•
•
0
•
N0NMEM8ER BANKS
BENEFIT TO BANKS COVEREO BY MODIFIED
H»ft*
1E0 H
• R. 77
US
OSB
6011220
6011225
6011237
6011270
6011300
6011310
6011350
6011376
6011420
6011460
6011470
6011505
6011550
6011565
6011535
6011590
6011610
6011640
6011649
6011730
6011740
6011780
6011785
6011860
6011920
6011935
6011970
6012080
6012125
NAME
JACKSCN BANK AND TRUST CO
JACKSON
MERCHANTS BANK
JACKSON
CENTRAL BK CF WALKER CTY
JASPER
9ANK OF LEXINGTON
LEXINGTON
MC tflLLAN ANO COMPANY BANKERLIVINGSTON
LUVERNE BANK AND TRUST CO
LUVERNE
MARION BANK AND TRUST CO
MARION
COMMERCIAL GUARANTY BANK
MOBILE
MERCHANTS AND PLANTERS BANK MONTEVALLO
BANK OF MOULTON
MOULTON
CITIZENS BANK
MCULTON
BANK OF EAST ALABAMA
OPELIKA
BANK OF 02ARK
OZARK
PEOPLES BANK
PELL CITY
FCM BANK OF RUSSELL CTY
PHENIX CITY
PHENIX GIRARD BANK
PHENIX CITY
FARMERS AND MERCHANTS BANK
PIEDMONT
BANK OF PRATTVILLE
PRATTVILLE
COOSA VALLEY BANK
RAINBOW CITY
EAST LAUDERDALE BANKING CO ROGERSVILLE
CITIZENS BANK ANO SAVINGS CORUSSELLVILLE
J C JACOBS BANKING CO INC
SCOTTSBORO
CITIZENS BANK AND TRUST CO SELMA
BANK OF SULLIGENT
SULLIGENT
BANK OF TALLASSEE
TALLASSEE
BANK OF THOMASVILLE
THOMASVILLE
TROY BANK AND TRUST COMPANY TROY
VERNON
BANK OF VERNON
CITIZENS BK OF WETUMPKA AL WETUMPKA
OF
12020002
12020007
12020008
12020016
12O2CO22
12020060
75 BANKS AFFECTED IN STATE
ALASKA BANK CF COMMERCE
ALASKA PACIFIC BANK
ALASKA STATEBANK
PEOPLES BANK AND TRUST CO
UNITEO BANK ALASKA
B M BEHRENDS BANK
OF
Digitized for FRASER
http://fraser.stlouisfed.org/
Federal Reserve Bank of St. Louis
TDEP
LOCATION
67
6
ANCHORAGE
ANCHORAGE
ANCHORAGE
ANCHORAGE
ANCHORAGE
JUNEAU
6 BANKS AFFECTED IN STATE
0
6
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
AL
23446
20138
17627
22204
17850
17821
20390
70466
15553
22675
19172
34333
39381
18146
17640
21856
13907
36125
17795
17941
17002
28569
24795
14873
19184
27026
35249
17216
17380
1/17/79
12}
VLTCSH
422
411
682
236
448
241
323
1160
161
675
382
921
673
411
524
674
212
686
243
26 3
345
345
330
308
344
551
579
223
368
(3)
1977
REQ6AL
141
NEW
EPA
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
00
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1125
0
0
0
0
0
0
0
15$
NEW
REQBAL
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
16)
DIF
U5-C5)
0
*
0
0
0
0
0
0
0
0
0
0
•
•
*
*
*
•
*
•
•
•
0
*
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
•
•
•
•
•
•
•
•
*
•
*
•
•
•
•
•
*
0
0
0
0
0
0
*
HAVE NO EARNINGS PARTICIPATION ACCOUNT OR REQUIRED RESERVE BALANCE
HAVE NO REQURED RESERVE BALANCE
AK
AK
AK
AK
AK
AK
125202
43939
115184
38139
37190
36732
2387
270
1793
460
124
352
0
0
0
0
0
0
2763
671
2700
309
411
436
HAVE NO EARNINGS PARTICIPATION ACCOUNT OR REQUIRED RESERVE BALANCE
HAVE NO REQURED RESERVE BALANCE
0
0
0
0
0
0
*
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Federal Reserve Bank of St. Louis
Attachment B-l
Coimnents
These amendments provide an exclusion from reserve requirements
of up to $10 million for transaction deposits of depository institutions
and an exclusion up to $10 million for time and savings deposits of
banks.
An institution's transaction deposits in excess of $10 million
but not more than $50 million, and a bank's total time and savings
deposits in excess of $10 million but not more than $50 million are
exempted from reserve requirements• Reserve requirements will be imposed
on ci depository institution's transaction deposits that exceed $50
million and a commercial bank's total time and savings deposits that
exceed $50 million.
A depository institution will maintain in an Earnings
Participation Account at the Federal Reserve Bank (or passed through
to the Federal Reserve by another institution) an amount resulting
from first, multiplying the appropriate reserve ratios in effect for
each deposit category by the level of the institution's exempted deposits
for each deposit category and, second, deducting from this figure the
amount by which the institution's vault cash exceeds its reserve requirements.
The institution's Earnings Participation Account will earn interest
at a rate equal to the average return earned on the Federal Reserve's
securities portfolio.
B-2
Section 3(a) is amended by striking subparagraph (E) and
inserting in lieu thereof the following:
"(E) A reference to net deposits of any given category
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in any given institution refers to the amount
of reservable deposits of that category maintained
by the institution,"
B-3
Section 3 (a) is further amended by adding after subparagraph
(L) on page 5 the following:
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88
(M) The term ^Category A excluded deposits5* means* with respect
to any depository institution, the amount of its Category A
deposits that does not exceed $10 million.
"(N) The terms "Category B, C and D excluded deposits69 mean with
respect to any bankr the amounts of its Category B, C, and D
deposits that do not exceed $10 million, so long- as the total
of its Category B, C, and D deposits do not exceed $10 million«
If the total Category B, C, and D deposits of the bank exceeds
$10 million* the amount of its Category B # Cs and D deposits
that shall be excluded deposits shall be determined by multiplying
$.10 million by the proportion that the bank's deposits in
the respective categories bear to the total of its deposits
in the three categories,
"(0) The term "Category A exempted deposits'9 means*, with respect
to any depository institution, the amount of its Category
A deposits that are in excess of $10 million but not more
than $50 million.
B-4
"(P) The terms "Category B, C, and D exempted deposits" mean with
respect to any bank, the amount of its Category B, C, and
D deposits that are in excess of $10 million but not more
than $50 million, so long as the total Category B, C, and D
deposits of the bank do not exceed $50 million.
If the total
Category B, C, and D deposits of a bank exceeds $50 million,
the amount of its Category B, C, and D deposits that shall
be exempted deposits shall be determined by multiplying $50
million by the proportion that the bank's deposits in the
respective categories bear to the total of its deposits in
the three categories.
"(Q) The term "reservable deposits" means the Category A, B, C,
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or D deposits of a depository institution that exceed its
total excluded and exempted deposits for each deposit category."
B-5
Section 3(a) is amended by striking paragraphs (2), (3), and
(4) on pages 5, 6, and 7 respectively and inserting in lieu thereof
the following:
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"(2) EARNINGS PARTICIPATION ACCOUNT—A depository institution shall
maintain in an Earnings Participation Account at the Federal
Reserve Bank of which it is a member or at which it maintains
an account a balance determined first, by multiplying the
amount of its Category A, B, C, and D exempted deposits by
the reserve ratios in effect for its Category A, B, C, and
D deposits, respectively, and, second, by deducting therefrom
any amount by which the depository institution's holdings
of vault cash exceeds its reserve requirements on its reservable
deposits.
"(3) PASS THROUGH OF BALANCES—A nonmember institution may maintain
balances at a member or nonmember institution that maintains
reserve balances at a Federal Reserve Bank or at a Federal
Home Loan Bank, but only if such institution or Federal Home
Loan Bank maintains such funds in the form of balances in
a Federal Reserve Bank of which it is a member or at which
it maintains an account.
Such balances shall not be regarded
as deposits of the intermediary institution for purposes of
B-6
determining reserve requirements imposed by this Section and
Federal deposit insurance assessment.
"(4) EARNINGS PARTICIPATION RATE—The Earnings Participation Account
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of a depository institution shall earn interest at -\ rate
equal to the average rate earned on the securities portfolio
of the Federal Reserve System during the calendar quarter
immediately preceding the interest payment date.
The Board
is authorized to adopt rules and regulations relating to the
issuance and administration of Earnings Participation Accounts/
Attachment C
Section 3(a) is further amended by adding the following subparagraph at the end thereof:
91
(R)
In the case of affiliated depository institutions the
total excluded and exempted deposits shall not exceed in the aggregate
for such affiliated groups the product resulting from multiplying the
number of institutions in such affiliated group on August 1, 1978 by
$10 million for each category of excluded deposits and by $40 million
for each category of exempted deposits, provided that no more than $10
million shall be excluded deposits under each deposit category and no
more than $40 million shall be exempted deposits under each deposit
category at any individual depository institution.11
Comment:
This amendment limits the total amount of deposit exclusions
and exemptions for affiliated institutions to the amount of the deposit
exclusion and exemption times the number of affiliated institutions
in existence on August 1, 1978,
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Attachment D
Section 2, paragraph (2), subparagraph (A) is amended to
read as follows:
"(A) directly to the Board in the case of member banks and,
for all deposit liabilities, in the case of other depository institutions
maintaining deposits specified in sections 19(b)(1)(A) through 19(b)(1)(D)
of this Act, and"
Comments
This amendment clarifies that depository institutions with
transactions deposits will file reports on all deposit liabilities
directly with the Board.
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Attachment E-l
Section 3 is amended by adding at the end thereof the following
subsectionss
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"(c) The first paragraph of section 13 of the Federal
Reserve Act (12 U.S.C. 342) is amended as follows:
(1)
by inserting after the words "member banks"
the words "or other depository institutions",
(2)
by inserting after the words "payable upon
presentation" the first and third tiroes they appear,
the words "or other items, including negotiable orders
of withdrawal or share drafts".
(3)
by inserting after the words "payable upon
presentation within its district," the words "or other
items, including negotiable orders of withdrawal or share
drafts".
(4)
by inserting after the words "nonmember bank
or trust company," wherever they appear the words "or
other depository institution".
E-2
(5)
by inserting after the words "nonmembcr bank"
after the second colon the words "or other depository
institution".
(d)
The thirteenth paragraph of section 16 of the Federal
Reserve Act (12 U.S.C. 360) is amended as follows:
(1)
by striking out the words "member banks" wherever
they appear and inserting in lieu thereof "depository
institutions".
(2)
by striking out the words "member bank" wherever
they appear and inserting in lieu thereof "depository
institution".
(3)
by inserting after "checks" wherever it appears
the words "and other items, including negotiable orders
of withdrawal and share drafts".
(e)
The fourteenth paragraph of section 16 of the Federal
Reserve Act (12 U.S.C. 248(o) is amended by striking out "its
member banks" and inserting in lieu thereof "depository institutions14,
Comment;
In order to assure equal treatment for all depository instituions."
these amendements conform various sections of the Federal Reserve Act relating
to clearing facilities by eliminating the distinctions drawn by the Act
between member and nonmember depository institutions.
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Cite this document
G. William Miller (1979, January 23). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_19790124_miller
@misc{wtfs_speech_19790124_miller,
author = {G. William Miller},
title = {Speech},
year = {1979},
month = {Jan},
howpublished = {Speeches, Federal Reserve},
url = {https://whenthefedspeaks.com/doc/speech_19790124_miller},
note = {Retrieved via When the Fed Speaks corpus}
}