Circular Letters

Circular Letter 5605

October 14, 2003

To: All Member Banks and Others Concerned in the Third Federal Reserve District

Attention: Chief Executive Officer and Chief Compliance Officer

Subject: REGULATION D (12 CFR Part 204) - RESERVE REQUIREMENTS - AMENDMENTS AND FINAL RULE

Summary:

The Federal Reserve Board has announced the annual adjustments in the amount of net transaction accounts used in the calculation of reserve requirements and the cutoff level used to determine the detail and frequency of deposit reporting.

All depository institutions must retain a percentage of certain types of deposits in the form of vault cash, or as a deposit in a Federal Reserve Bank, or in a pass-through account at a correspondent institution. Reserve requirements currently are assessed on the depository institution's net transaction accounts (mostly checking accounts).

For net transaction accounts in 2004, the first $6.6 million, up from $6.0 million in 2003, will be exempt from reserve requirements. A 3 percent reserve ratio will be assessed on net transaction accounts over $6.6 million up to and including $45.4 million, up from $42.1 million in 2003. A 10 percent reserve ratio will be applied above $45.4 million. These annual adjustments, known as the low reserve tranche adjustment and the reservable liabilities exemption adjustment, are based on growth in net transaction accounts and total reservable liabilities, respectively, at all depository institutions between June 30, 2002 and June 30, 2003.

For depository institutions that report weekly, the low reserve tranche adjustment and the reservable liabilities exemption adjustment will apply to the reserve computation period that begins Tuesday, November 25, 2003 and the corresponding reserve maintenance period that begins Thursday, December 25, 2003. For institutions that report quarterly, the low reserve tranche adjustment and the reservable liabilities exemption adjustment will apply to the reserve computation period that begins Tuesday, December 16, 2003, and the corresponding seven day reserve maintenance period that begins Thursday, January 15, 2004.

Additionally, the Board increased the deposit cutoff level that is used with the exemption level to determine the frequency and detail of deposit reporting. A description of the new boundaries for deposit reporting that will be effective September 2004 is contained in the Federal Register notice published October 7, 2003, a copy of which is available here PDF Icon (42 KB, 3 pages).

Date: The final rule is effective November 6, 2003.

For Further Information: Heatherun Allison, Counsel (202/452-3565), Legal Division, or Gretchen Weinbach, Senior Economist (202/452-2841), Division of Monetary Affairs; for user of Telecommunications Device for the Deaf (TDD) only, contact (202/872-4984); Board of Governors of the Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551.