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Circular Letters

Circular Letter 5639

October 12, 2004

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

Attention: Chief Executive Officer and Chief Financial Officer

Subject: REGULATION D: RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS; FINAL RULE

Summary:

The Board of Governors of the Federal Reserve System has announced the amendment of Regulation D to reflect the annual indexing of the low reserve tranche and of the reserve requirement exemption amount for 2005. These amounts are used in the calculation of reserve requirements of depository institutions. The Board also announced the annual indexing of the nonexempt deposit cutoff level and the reduced reporting limit that will be used to determine deposit reporting panels effective September 2005.

All depository institutions must hold a percentage of certain types of deposits as reserves in the form of vault cash, as a deposit in a Federal Reserve Bank, or as a deposit 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). Depository institutions must also regularly submit deposit reports of their deposits and other reservable liabilities.

For net transaction accounts in 2005, the first $7.0 million, up from $6.6 million in 2004, will be exempt from reserve requirements. A 3 percent reserve ratio will be assessed on net transaction accounts over $7.0 million up to and including $47.6 million, up from $45.4 million in 2004. A 10 percent reserve ratio will be assessed on net transaction accounts in excess of $47.6 million.

These annual adjustments, known as the low reserve tranche adjustment and the reserve requirement exemption amount adjustment, are based on growth in net transaction accounts and total reservable liabilities, respectively, at all depository institutions between June 30, 2003, and June 30, 2004.

For depository institutions that report weekly, the low reserve tranche adjustment and the reserve requirement exemption amount adjustment will apply to the 14-day reserve computation period that begins Tuesday, November 23, 2004 and the corresponding 14-day reserve maintenance period that begins Thursday, December 23, 2004.

For depository institutions that report quarterly, the low reserve tranche adjustment and the reserve requirement exemption amount adjustment will apply to the seven-day reserve computation period that begins Tuesday, December 21, 2004, and the corresponding seven-day reserve maintenance period that begins Thursday, January 20, 2005.

The Board also announced increases in two other amounts, the nonexempt deposit cutoff level and the reduced reporting limit, that are used to determine the frequency with which depository institutions must submit deposit reports. The Federal Register notice contains a description of the new boundaries for deposit reporting that will be effective September 2005.

The Federal Register notice, published October 12, 2004, is available here PDF Icon (135 KB, 5 pages).

Date: See the Federal Register notice.

For Further Information: Heatherun Allison, Senior 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, N.W., Washington, DC 20551.