Patricia Selvaggi Evelyn Castillo Mario Leon Marc Plotsker · Vario Bank (Paris) Vario Bank (Madrid) Vario Bank (Madrid) Bank Holding Company unrelated Parent Bank related Reporting

1

Patricia SelvaggiEvelyn CastilloMario Leon

Marc Plotsker

June 7, 2001

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Purpose and GeneralInstructions

Patricia Selvaggi

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What is the FR 2900?

• The FR 2900 is a weekly report reflecting daily data(Tuesday through Monday) on which DepositoryInstitutions (DIs) report “sources of funds”.

• Amounts reported on the FR 2900 include

– Deposits held by the DI

– Other funds (borrowings obtained fromnon-exempt entities)

4

The Purpose of the FR 2900

• The FR 2900 has two primary purposes

1) The calculation of money stock (M1, M2, M3, etc.)

2) The calculation of reserve requirements

5

What is Money Stock(or Money Supply)?

• Money supply is the total amount of money inthe economy

• Three basic measures of money

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M1- $1.1 trillion

• Narrowest and most liquid measure ofmoney, comprised of:

– Currency

– Travelers Checks

– Demand deposits

– Other deposits such as ATS and NOW accounts

7

What is Money Stock (or Money Supply)?

M2 - $4.4 trillion

• A broader measure. Includes, in additionto M1:

– Small denomination time deposits (less than$100,000)

– Savings deposits, including MMDAs andnon-institutional money market mutual funds(MMMFs)

8


M3 - $6.1 trillion

• The broadest of the three measures. Includes,in addition to M2

– Large time deposits ($100,000 or more)– Institutional money market mutual funds

(MMMFs)

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M3 - $6.1 trillion

– Overnight repurchase agreements (RPs)

– Overnight Eurodollars

– Term repurchase agreements (RPs); and termEurodollars

10


• The FR 2900 is the primary source of thisinformation and data reported on the FR 2900are used to construct the money stockeach week

• The aggregate data are released eachThursday afternoon to the public

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What are Reserve Requirements?

• Reserve requirements are a percentage of aDI’s deposits (or fractional reserves) thatmust be held either as cash in the “Vaults” ofthe DI or on deposit at the Federal ReserveBank or at a correspondent bank.

• Reserve requirements are one of the toolsused by the Federal Reserve as a means toconduct monetary policy.

12

What are Reserve Requirements?

• Reserves can be added or removed from thebanking system by changing the reserve ratioapplied to reservable deposits.

• Other Monetary Policy tools– System Open Market Operations– Discount Window Lending

13

Who Must Report?

• Any U.S. branch or agency of a foreignbank that

– Has total worldwide consolidated bank assets inexcess of a billion; or

– Is controlled by a foreign company or by a groupof foreign companies that own or control foreignbanks that in the aggregate have total worldwideconsolidated bank assets in excess of a billion

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Consolidation

• U.S. branches and agencies of a foreign banklocated in the same state and within the sameFederal Reserve District are required tosubmit a consolidated report of deposits to theFederal Reserve Bank in the District in whichthey operate (excluding any balances ofthe IBF)

15

Reporting of Edgeand Agreement Corporations

• Deposits of offices of an Edge or agreementcorporation should not be aggregated withU.S. branches and agencies of foreign bankswhen preparing the FR 2900 or FR 2951

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FR 2900/FR 2951 vs FFIEC 002Definitional Differences

• Consolidation of branches and agenciesof the same foreign (direct) parent bank

FR 2900

Branches and Agencies in the same FederalReserve District and state must submit aconsolidated FR 2900 report

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FR 2900/FR 2951 vs FFIEC 002Definitional Differences

• Consolidation of branches and agencies of thesame foreign (direct) parent bank

FFIEC 002

Branches and Agencies in the same Federal ReserveDistrict and state are not required to consolidate, butmay submit a consolidated FFIEC 002 provided

The offices are located in the same city and, insured and uninsured branches are not combined

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Where and When to Submit

• The reporting week is a seven day period thatbegins Tuesday and ends the following Monday.

• The reports are due to the Federal Reserve bythe Wednesday following the Monday as-of-datein the form of a signed hard copy, sent bymessenger, fax, or electronic submission.(Please do not submit the same report by more thanone of these methods).

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Where and When to Submit

• Electronic submissions of these reports isavailable via the Internet

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Close of Business

• The term “close of business” refers tothe cut-off time for posting transactionsto the general ledger for that day.

– The time should be reasonable andapplied consistently

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Close of Business

• Selective posting is prohibited

– A debit or credit cannot be made without theoffsetting transaction being posted; and

– All transactions occurring during the periodof time the books are open must be posted

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Back-valuing vs Misposting

• The FR 2900 should reflect only the actualgeneral ledger balance as of the “close ofbusiness” each day

• Balances should be reflected on the FR 2900based on

– When an institution has actually received or sentfunds and

– Has a liability to make payment to a customer orthird party

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• Balances should be reported as of “closeof business”, regardless of when thetransaction should have occurred.

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• The only time when an institution is allowedto back-value is in the case of a clericalbookkeeping error.

• The FR 2900 and or FR 2951 may be adjustedto more accurately reflect the transaction as itshould have been recorded.

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Back-valuing vs MispostingExamples

Question 1

On day 1, Bank A, NY Branch received $10 milliondollars for the credit of Corporation A. However, dueto a misposting error, Corporation A was credited$1 million. On day 2 the error was discovered.

How should these deposits be reported ?

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Answer

When the error is discovered on day 2, Bank A,NY Branch should revise the $1 million mispostedon day 1 to reflect the $10 million deposit fromCorporation A received on day 1. Thus, $10 millionshould be reported in Line A.1.c on both days.

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Question 2

On day 1, Bank A, NY Branch borrows$5 million from an unrelated foreign Bank B.However, Bank B erroneously sent $15 million.

How should these funds be reported ?

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Answer

On day 1, Bank A, NY Branch reports the $5million borrowing it receives on Line 1 of theFR 2951 as a borrowing from a foreignunrelated bank. The $10 million that Bank Areceives in error should be reported inLine A.1.a as “Due to banks”

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Answer

Bank A, NY Branch should deduct the $10million sent in error from Line A.1.a whenthose funds are returned to Bank B.

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Valuation of Deposits in ForeignCurrency

• Transactions denominated in non-U.S.currency must be valued in U.S. dollars eachreporting week by using one of thefollowing methods:

– The exchange rate prevailing on the Tuesday thatbegins the 7-day reporting week; or

– The exchange rate prevailing on eachcorresponding day of the reporting week.

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Reporting ofDeposits in Foreign Currency

• Once a depository institution chooses tovalue foreign currency transactions byusing either the weekly method or dailymethod, it must use that methodconsistently over time for all FederalReserve reports.

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Reporting ofDeposits in Foreign Currency

• If the depository institution wishes to change itsvaluation procedure from one of these twomethods to the other, the change must be appliedto all Federal Reserve reports and then usedconsistently thereafter.

• The Federal Reserve Bank of New York shouldbe notified of any such change.

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Quarterly Report of Foreign(Non-U.S.) Currency Deposits (FR 2915)

• In addition, FR 2900 respondents offeringforeign currency denominated deposits mustfile the Report of Foreign (Non-U.S.)Currency Deposits (FR 2915)

• This report is filed on a quarterly basis, andincludes weekly averages for selected itemsfrom the FR 2900

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Clemenza Corp.Ltd(Rome)

Clemenza Bank(Munich)

Clemenza Bank(Munich)Vario Bank

(Rome)

Vario Bank(N.Y. Branch)


Vario Bank (L.A. Branch)Vario Bank

(L.A. Branch)

IBFIBF IBFIBFVario Bank

(Paris)Vario Bank

(Paris)

Vario Bank(Madrid)

Vario Bank(Madrid)

Bank HoldingCompany

Parent Bank

Reporting Institution

U.S. Branch

Foreign Branch

Foreign Bank Organizational Chart

Foreign Branch

Affiliated Bank

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Related Institutions

• On the FR 2900 and the FR 2951 relatedinstitutions are defined as

– The foreign (direct) parent bank

– Offices of the same foreign (direct) parent bank

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(Rome)




(L.A. Branch)

IBFIBFIBFIBF

Vario Bank(Paris)

Vario Bank(Paris)

Vario Bank(Madrid)

Vario Bank(Madrid)

Bank HoldingCompany unrelated

Parent Bank related

Reporting Institution U.S. Branch

related

Foreign Branchrelated



Affiliated Bankunrelated

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Reporting of Related Institutions

• Deposits due to or due from U.S. branchesand agencies of the same (direct) parent bankshould be excluded from the FR 2900 andFR 2951

• Deposits due to or due from non-U.S.branches and agencies of the same foreign(direct) parent bank should be excluded fromthe FR 2900, but included on the FR 2951

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(Rome)




(L.A. Branch)

IBFIBFIBFIBF

Vario Bank(Paris)

Vario Bank(Paris)

Vario Bank(Madrid)

Vario Bank(Madrid)


Parent Bank related


related





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Affiliates and Subsidiaries

• Affiliates and subsidiaries of the foreign(direct) parent bank should be treated asunrelated for the purposes of Regulation D

• They should be classified on the FR 2900according to the type of entity (e.g., bankingor nonbanking) and maturity of the deposit

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(Rome)




(L.A. Branch)

IBFIBFIBFIBF

Vario Bank(Paris)

Vario Bank(Paris)

Vario Bank(Madrid)

Vario Bank(Madrid)


Parent Bank related


related





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FR 2900 and the FFIEC 002 Definitional Difference

FR 2900

Deposits of U.S. andnon-U.S. subsidiaries areincluded on theFR 2900 (according toentity and maturity)

FFIEC 002

Deposits of U.S. andnon-U.S. banking subsidiariesare excluded from Schedule Eand included on Schedule M

Non-banking (majorityowned) subsidiaries areinclude both inSchedules E and M, Part III

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Summary

• Purpose of the FR 2900

• FR 2900 Filing Requirements– Who must File

– Consolidation

• Reporting Issues– Back Valuing vs Misposting

– Foreign Currency Valuation

– Related vs Non-related Institutions

– Reporting Differences between the FFIEC 002and the FR 2900 Report

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Patricia Selvaggi

Deposits vs Borrowings

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• A deposit is defined by Regulation D as theunpaid balance of money or its equivalentreceived or held by a depository institution inthe usual course of business.

• In economic terms, deposits and borrowingsare similar. However, they are differenttransactions from a legal and regulatoryperspective.

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• There are two rules of thumb to distinguish aspecific deposit from a borrowing. These are:

– If a transaction is called a deposit it must be treated as a deposit, regardless of the counterparty and the terms of the transaction

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• Whether a transaction may be considered aborrowing depends on the terms of thetransaction. If the document does notspecifically refer to the transaction as aborrowing, it should be recorded on thegeneral ledger as a deposit.

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Primary Obligations

• Primary obligations are funds that maybe required to be reported as:

– Transaction accounts

– Savings deposits

– Time deposits

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Primary Obligations

• There are two factors to consider whendetermining if a transaction or instrument isa “Primary obligation”. These are:

– The nature of the transaction or instrument; and

– The type of entity with which the transactionis entered

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Primary ObligationsExempt and Non-Exempt Entities

• The concept of exempt and non-exempt entityapplies only to primary obligations.

• A “deposit” is reservable regardless ofthe counterparty.

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Primary ObligationsExempt and Non-Exempt Entities

• An exempt entity is an institution that isrequired to maintain reserves; therefore, aprimary obligation due to an exempt entity isnot reservable.

• A non-exempt entity is an institution that isnot required to hold reserves under U.S.banking laws; therefore, the primaryobligation due to this entity is reservable.

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Include as Exempt Entities

• The following are exempt entities

– U.S. commercial banks and trust depositorycompanies and their subsidiaries

– A U.S. branch or agency of a foreign bankorganized under Foreign (non-U.S.) law

– Edge and Agreement corporations

– Industrial banks

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Include as Exempt Entities

– Mutual and stock savings banks, and savingsand loan associations

– Credit unions

• Also include as exempt entities

– Federal Reserve Banks

– U.S. Government and its agencies

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Include as Non-Exempt Entities

• The following are non-exempt entities

– Individuals, partnerships, and corporations(wherever located)

– Securities brokers and dealers, wherever located.(Except when the borrowing has a maturity of oneday, is in immediately available funds, and is inconnection with securities clearance)

– State and local governments in the U.S. and theirpolitical subdivisions

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Include as Non-Exempt Entities

• The following are non-exempt entities

– A bank’s parent holding company if the holdingcompany is not a bank

– A bank’s non-bank subsidiaries

– International Institutions (IBRD, IMF, etc.)

– Non-U.S. banks (related or unrelated)

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Examples of Primary Obligations

• The following are examples of primary obligationsto be included on the FR 2900 or the FR 2951 ifentered into with a non-exempt entity

– Repurchase agreements collateralized withassets other than U.S. government or federalagency securities

– Purchases of federal funds (immediatelyavailable borrowings)

– Promissory notes (acknowledgments of advance)

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Repurchase Agreements

• A repurchase agreement is an arrangementinvolving the sale of a security or other assetunder a prearranged agreement to buy back thatasset at a fixed price

• If repurchase agreements with non-exempt entitiesare not collateralized by U.S. government orfederal agency securities, they are to be reportedon the FR 2900

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FR 2900

Repurchase agreements,

collateralized with assetsother than U.S.Government or FederalAgency securities, arereported as deposits onthe FR 2900

FFIEC 002

Repurchase agreements,

collateralized with assetsother than securities andwith a maturity greaterthan one business day,are reported as borrowingsin Schedule P

FR 2900 and the FFIC 002Definitional Differences

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Federal Funds Purchased

• Federal funds are unsecured borrowings ofimmediately available funds

• Immediately available means funds that canbe used or disposed of on the same businessday that the funds become available

• Fed funds purchased from a non-depositoryinstitution are reportable on the FR 2900

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Promissory Notes/Commercial Paper

• A promissory note, otherwise known as anacknowledgment of advance, is a negotiableinstrument which is evidence of a liability ofa depository institution for funds that havebeen received.

• If the promissory note is issued to anon-exempt entity it should be reported onthe FR 2900 or FR 2951.

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Promissory Notes/Commercial Paper

• Commercial paper is an unsecuredpromissory note.

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Due Bills

• A due bill is an instrument evidencing theobligation of a seller to deliver securities atsome future date.

• If the due bill is not collateralized within3 business days, it becomes reservable on thefourth business day regardless of the purposeof the due bill and to whom it was issued.

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Reporting of Primary Obligations

• Any primary obligation of the reporting institution dueto a non-exempt entity must be reported unless all ofthe following conditions are met

– Is not insured by a federal agency

– Is subordinated to the claims of the depositors

– Has a weighted average maturity of five years or more

– Is issued by a DEPOSITORY INSTITUTION with theapproval of, or under the rules and regulations of, itsprimary federal supervisor

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Guidelines for Reporting Primary Obligations

Is it a deposit?

Is it due to an exempt entity?Is it due to an exempt entity?

Individual, Partnership or Corporation?Individual, Partnership or Corporation?

Is it overnight funds in connection with securities clearance?

Is it overnight funds in connection with securities clearance?

Is it a Repo fully backed by a U.S. Government Security?

Is it a Repo fully backed by a U.S. Government Security?

Include in FR 2900Include in FR 2900 Exclude from FR 2900Exclude from FR 2900

Securities Broker?Securities Broker?

Yes

No Yes

No

Yes

Yes

Yes No

Yes

No

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Borrowings of “Cash Equivalents”

• Borrowings of uncollateralized U.S.Government or Agency security fromnon-exempt entities are reservable

• If securities borrowings are collateralizedwith cash, then the transaction is treated asa repurchase agreement, not a deposit

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Borrowings of “Cash Equivalents”

• For purpose of Regulation D the term deposit isdefined as the unpaid balance or its “equivalent”.Precious metals and U.S. government securitiesare considered the equivalent to money.

• A borrowing of any security whose principal andinterest payments is not fully guaranteed by U.S.Government or Agency securities should bereported as a deposit for purposes ofRegulation D.

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Assets Held OtherThan Currency (Gold Deposits)

• Deposits of precious metals or other equivalentsof money are to be reported on the FR 2900 orFR 2951 in the same manner as other currency(e.g., U.S. dollars)

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Assets Held OtherThan Currency (Gold Deposits)

• For example, deposits and borrowings of goldare considered reservable liabilities. These arereported on either the FR 2900 or FR 2951 onthe appropriate line, depending on the depositoror lender and the maturity.

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Review

True or False

Repurchase agreements backed by U.S.Treasury securities where the counterparty isa non-exempt depository institution arereportable on the FR 2900

False

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Review

Federal funds purchased from which of thefollowing are reported on the FR 2900?

a) Bank of Spain, NY Branchb) Finance Corp.c) ABC Bank N.A.d) World Bank

b) Finance Corp.

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Review

True or False

Commercial paper issued to IBM would not bereported on the FR 2900

False

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Transaction Accounts

Evelyn Castillo

72

Transaction Accounts

• In general, there are two types oftransaction accounts

– Demand deposits

– “Other” transaction accounts (ATS, NOW,

telephone and pre-authorized transfer accounts)

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Demand Deposits

• Demand deposits are defined as

– Deposits which are payable immediately ondemand, or that are issued with an originalmaturity of less than seven days; or

– Deposits for which the depository institution doesnot reserve the right to require seven days writtennotice before an intended withdrawal

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Demand Deposits

– In addition, under the requirements ofRegulation Q, interest cannot be paid ondemand deposits

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Demand Deposits

• Demand deposits include

– Checking accounts

– Outstanding certified, cashier’s, teller’s andofficial checks and drafts

– Outstanding traveler’s checks and moneyorders (unremitted)

– Suspense accounts

76

Demand Deposits

• Demand deposits include

– Funds received in connection with letters of creditsold to customers, including cash collateral accounts

– Escrow accounts that meet the definition of ademand deposit

– “Primary obligations” with original maturities of lessthan seven days entered into with non-exempt entities

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Demand Deposits Due to Depository Institutions (Line A.1.a)

• Include deposits in the form of demanddeposits due to

– U.S. commercial banks

– Non-U.S. depository institutions (includingbanking affiliates and subsidiaries)

– U.S. offices of branches and agencies of otherforeign (non-U.S.) banks, including branches andagencies of foreign official banking institutions

78

Demand DepositsDue to Depository Institutions (Line A.1.a)

• Include deposits in the form of demanddeposits due to:

–U.S. and non-U.S. offices of other U.S. banks andEdge and agreement corporations

–Mutual savings bank

–Savings and loan associations

–Credit unions

79

Demand DepositsDue to U.S. Government (Line A.1.b)

• Include in this item deposit accounts in the formof demand deposits that are designated as federalpublic funds, including U.S. Treasury Tax andLoan accounts

• Federal public funds are funds of the U.S.government and funds the deposit of which issubject to the control and regulation of the U.S.

• Include only deposits held for the credit of theU.S. government

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• Funds credited to Tax and Loan Demand DepositAccounts as of the close of business on previousdays should already have been remitted to FRBor automatically converted into open-endedinterest-bearing notes, depending on the optionselected by the reporting institution.

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• Interest-bearing U.S. Treasury Tax and LoanAccount Note Balances are exempt from reserverequirements and should NOT be reportedas deposits.

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Other Demand Deposits (Line A.1.c)

• Include in this item all other deposits in theform of demand deposits, including

– Demand deposits held for

ä Individuals, partnerships, and corporations

State and local governments and their

political subdivisions

ä Foreign governments (including foreign official

banking institutions), and international institutions

ä U.S. government agencies

83

Cashier’s and Certified Checks

• Cashier’s checks are those checks drawn by thereporting institution on itself

• Certified checks are any business or personalchecks stamped with the paying bank’scertification that:

– The customer’s signature is genuine, and– There are sufficient funds in the account to cover

the check.

84

Teller’s Checks

• Teller’s checks are those checks drawn by thereporting institution on, or payable at orthrough, another depository institution, aFederal Reserve Bank, or a Federal HomeLoan Bank.

85

Teller’s Checks

• Those checks drawn on, or payable at orthrough, another depository institution, on azero-balance account or an account notroutinely maintained with sufficient balancesto cover checks or drafts drawn in the normalcourse of business should be reported inLine A.1.c.

86

Teller’s Checks

• However, those checks drawn on an accountin which the reporting institution routinelymaintains sufficient balances should be:

– excluded from Line A.1.c.

– the amount of the check should be deductedfrom the balances reported in Line B.1.

87

Suspense Accounts

• Unidentified funds received and held insuspense are considered deposits and are tobe reported on the FR 2900.

• These funds should be reported as “Otherdemand deposits” in Line A.1.c

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Suspense Accounts

• If it is known that funds were received for thecredit of a depository institution, but the nameof the depository institution is not known, thefunds should be reported as “Due todepository institutions” in Line A.1.a

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Suspense Accounts

• If it is known that funds were received for thecredit of a non-U.S. branch or agency of yourparent bank, the funds should be reported inLine 2 of the FR 2951

90

Reporting of Overdrafts

• Overdrafts in deposit (due to) accounts

– When a deposit account is overdrawn, thebalance in the account should be raised to zeroand not included as an offset to other demanddeposit accounts

– Instead the overdrawn amount should be regardedas a loan made by the reporting institution andexcluded from this report

91

Reporting of Overdrafts

• Overdrafts in deposit (due to) accounts

– The amount of the overdraft should not benetted against positive balances in thedepositors’ other accounts unless a bona fidecash management function is served

92

Reporting Overdrafts

• Overdrafts in an account maintained at anotherdepository institution (due from)

– When a due from account becomes overdrawn, thebalance should also be raised to zero

– If the account is routinely maintained with sufficientfunds, the overdrawn amount is considered aborrowing and excluded from this report

93

Reporting Overdrafts

• Overdrafts in an account maintained atanother depository institution (due from)

– If the due from account is not routinelymaintained with sufficient funds (e.g., zerobalance account) the overdrawn amount isconsidered a demand deposit and must bereported in other demand in Line A.1.c

94

Review

Bank ABC maintains the following demand deposits.

DDA Account Amount

Corp. A $10,000 Corp. B $15,000 Corp. C ($5,000) Corp. D $20,000

What should be reported on line A.1.c? $45,000

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Bona Fide Cash Management

• A bona fide cash management plan existswhen a depository institution:

– allows a depositor to use the balance in onedeposit account to offset overdrafts inanother deposit account,

– some genuine cash management purpose isserved.

96

Guidelines for Bona FideCash Management Agreements

• Although a written agreement does not have to

be in place to be “bona fide”, the cash

management agreement must have some indication

that the depository institution intends to use two or

more checking accounts in order to control receipts

and disbursements more accurately.

97

Guidelines for Bona Fide Cash Management Agreements

Example 1

Establishing one account for receipts and anotherfor disbursements would be considered bona fide.

Example 2

Establishing one account for payroll and anotheraccount for receipts and disbursements would notbe considered bona fide.

98

Guidelines for Bona FideCash Management Agreements

Positive balances in one type of deposit accountcannot be used to offset balances in another typeof deposit account.

Example 3An overdraft in a demand deposit account cannot becovered by positive balances in an MMDA account

99

Escrow Accounts

• An escrow agreement is a written agreementauthorizing funds to be held by a third party

• The funds are placed with the depository institutionuntil the agreement has been met, at which time theescrow funds are sent to the proper party

• Escrow accounts are reported on the FR 2900according to the terms of the escrow agreement

100

Escrow Accounts

• If when the funds are deposited they may bewithdrawn on demand or are to be disbursedwithin seven days, then this escrow accountis a transaction account.

101

Review

True or False

An escrow account structured to acceptdeposits daily and disburse funds bi-weeklyis a transaction account

True

102

“Other” Transaction Accounts

Evelyn Castillo

103

“Other” Transaction Accounts

• “Other” transaction accounts are

– Deposit accounts, other than savings deposits

– On which the depository institution reserves theright to require seven days written notice prior towithdrawal or transfer of any funds in the account

– Subject to check, draft, negotiable order ofwithdrawal, electronic transfer, or other similar items

– Provided the depositor is eligible to hold aNOW account

104

Difference Between DemandDeposits and Other Transaction Accounts

• Demand deposits differ from “other” transactionaccounts in that

– The depository institution does not reserve the rightto require seven days written notice before anintended withdrawal

– There are no eligibility restrictions on who can holda demand deposit account

– Interest may not be paid on a demand deposit account

105

Negotiable Order of Withdrawal(NOW) Accounts (Line A.2)

• NOW accounts are deposits

– Where the depository institution reserves the right torequire seven days written notice prior to withdrawalor transfer of any funds in the account

– That can be withdrawn or transferred to third partiesby a negotiable or transferable instrument

106

NOW Account Eligibility

• NOW account eligibility is limited to accountsfor which the entire beneficial interest is held by

– Individuals or sole proprietorships

– U.S. governmental units, including the federalgovernment and its agencies and instrumentalitites

– Non-profit organizations, such as churches,professional, and trade associations

107

Deductions FromTransaction Accounts

Mario Leon

108

Demand Balances Due FromDepository Institutions in the U.S.

(Line B.1)

• Consists of all balances subject to immediatewithdrawal that are due from U.S. offices ofdepository institutions

• For purposes of the FR 2900 reporting,immediately available funds are

– Funds that the reporting institution has fullownership of and can invest or dispose of on thesame day the funds are received

109


(Line B.1)

• Balances to be reported should be the amountreflected on the reporting institution’s booksrather than the amount on the books of theother depository institution.

110

Demand Balances Due From Depository Institutions in the U.S.

(Line B.1)

• However, the use of your correspondentbooks is permissible if the following are true

– The transaction actually occurred on the previousday and the balances on the books of yourcorrespondent are accurate

– Both credit and debit entries are reported andthere is no “selective” booking

111


(Line B.1)

– The transaction is segregated from transactionsoccurring the following day

– The reporting treatment is consistent for allregulatory reports

112

Demand Balances Due FromDepository Institutions in the U.S. (Line B.1)

• Include balances due from

– U.S. offices of

ä Commercial banks

ä Banker’s banks

ä Edge and agreement corporations

ä U.S. branches and agencies of foreign (non-U.S.) banks

• The reporting institution may report reciprocaldemand balances with the above institutions on anet-by-institution basis

113


(Line B.1)

• Also include balances due from

– Savings banks

– Credit unions

– Savings and loan associations

However, demand balances with theseinstitutions must be reported on a gross basis

114

Demand Balances Due From Depository Institutions in the U.S.

(Line B.1)

• Exclude balances due from

– Federal Reserve Banks including

ä The reporting institution’s reserve balances held

directly with the Federal Reserve

äThe reporting institution's reserve balances passed

through to the Federal Reserve Bank by a correspondent

ä The reporting institution’s clearing balance maintained

at a Federal Reserve Bank

115


(Line B.1)

Also exclude

– Balances due from other U.S. branches andagencies of the same foreign parent bank

– Any “clearing house” or “next day funds”

– Balances due from any non-U.S. officeof any U.S. depository institution or foreign(non-U.S.) bank

116


(Line B.1)

Also exclude

– Balances due from Federal Home Loan Banks

– Demand deposit balances due from otherdepository institutions that are pledged by thereporting institution and are not immediatelyavailable for withdrawal

117

Demand Balances DueFrom Depository Institutions in the U.S.

(Line B.1)

Also exclude

– Cash Items in the process of collection

However, cash items in process of collection forwhich the reporting institution’s correspondentprovides immediate credit should be reported inthis item

118

Reciprocal Balances

• Reciprocal balances arise when two banksmaintain deposit accounts with each other(i.e., each bank has a “due to” and “due from”balance with the other bank)

119

Reciprocal Balances

Gross Method Due to” banks “Due from” banks

Bank A 3M 5M

Bank B 10M 2M

Bank C 6M 9M

Total 19M 16M

120

Reciprocal Balances

Net Method

“Due to” banks “Due from” banks

Bank A 0 2M

Bank B 8M 0

Bank C 0 3M

Total 8M 5M

121

FR 2900 and the FFIEC 002Definitional Differences

Due from depository institutions (Line B.1)

• Reciprocal Balances

FR 2900

Reported net or grosson the FR 2900.

FFIEC 002

Reported net if a validright of setoff exists.

122



• Overdrafts in due from accounts

FR 2900

Reported as demanddeposits in otherdemand (Line A.1.c)if they are not routine.

FFIEC 002

Reported as borrowingsin Schedule P regardlesswhether routine ornot routine

123



• Pass through reserve balances

FR 2900

Excluded from theFR 2900 if passedthrough to a FederalReserve Bank by acorrespondent

FFIEC 002

Included in Schedule Aeven if passed throughto a Federal Reserve Bankby a correspondent

124

Cash Items in the Process ofCollection (Line B.2)

• A cash item is defined as any instrument forpayment of money immediately on demand

• Include as cash items

– Checks or drafts drawn on another depositoryinstitution, or drawn on the Treasury of theUnited States, that are in the process ofcollection with

äOther depository institutions

ä Federal Reserve Banks

ä Clearing houses

125


• Include as cash items

– Other items that are customarily cleared or collected, such as

ä Redeemed government bonds and coupons

ä Money orders and traveler’s checks

126


• Also include as cash items

– Unposted debits: Cash items on the reportinginstitution that have been “paid” or credited by theinstitution and that have not been charged againstdeposits as of the close of business

Example

A check is presented to a bank for collection and the bank paysthe check without debiting the customer’s account.

127


• Exclude as cash items

– Checks or drafts drawn on foreign banks orforeign institutions

– Funds not received as a result of failedtransactions (e.g., funds, securities, and/or foreigncurrency fails)

– Checks or drafts deposited with its correspondentfor which the reporting institution is givenimmediate credit (reported in Line B.1)

128

FR 2900 and the FFIEC 002 Definitional Differences

• Cash Items in the Process of Collection (Line B.2)

FR 2900

Excludes checksdrawn on a FederalReserve Bank

FFIEC 002

Includes checks drawn on aFederal Reserve Bank onSchedule A, Column A, Item 1

Includes all checks drawn ondepository institutions,regardless of their location

Excludes checksdrawn on a bankoutside the U.S.

129

Savings Deposits

Mario Leon

130

Total Savings Deposits(Line C.1)

• Depository institutions must reserve the rightto require seven days’ written notice beforean intended withdrawal

• These deposits are not payable on a specifieddate or at the expiration of a specified timeafter the date of deposit

131

Terms of a Savings Deposit(Line C.1)

• The depositor is authorized to make no more than sixtransfers and withdrawals, or a combination of suchtransfers and withdrawals per calendar month orstatement cycle of at least four weeks to a third party

• No more than three of the six transfers orwithdrawals can be made by– Check or draft

– Debit card

– Similar order made by the depositor and payable tothird parties

132

Types of Third Party Transfers(Line C.1)

• Third party transfer is a movement of funds

– From a depositor’s account to another account ofthe same depositor at the same institution or,

– From a depositor’s account to a third party at thesame depository institution or,

– From a depositor’s account to a third party atanother depository institution by:

ä Preauthorized or automatic transfer

ä Telephonic transfer

ä Check or draft

133


• A preauthorized transfer is an arrangement by thedepository institution to pay a third party upon writtenor oral instruction by the depositor. This includesorders received

– Through an automated clearing house (ACH) or

– Any arrangement by the reporting institution to payat a predetermined time or on a fixed schedule

134


• A telephonic transfer is when the depositoryinstitution receives an agreement, order, or,instruction to transfer funds in the depositor’saccount either by:

– Telephone

– Fax

– Remote Service Unit (RSU)

135

Third Party Transfers(Line C.1)

• Not considered third party transfers

– Transfers of funds from one account toanother when made by

ä Mail

ä Messenger

ä ATM

ä In person

136

Third Party Transfers(Line C.1)

• Not considered third party transfers

– Withdrawals for payment directly to the depositor

when made by:

ä Mail

ä Messenger

ä ATM

ä In person

ä Telephone (Via check mailed to the depositor)

137

Procedures For Ensuring PermissibleNumber of Transfers (Line C.1)

• To ensure that the permitted number oftransfers or withdrawals do not exceed thelimits a depository institution must either

– Prevent withdrawals or transfers of funds in thisaccount that are in excess of the limits establishedby savings deposits; or

138


– Adopt procedures to monitor those transfers on anex-post basis and contact customers who exceedthe limits established on more than an occasionalbasis for the particular account

139


• For customers who continue to violate theselimits after being contacted, the depositoryinstitution must either

– Close the account and place the funds in anotheraccount that the depositor is eligible to maintain; or

– Take away the account’s transfer anddraft capabilities

140


• If a depository institution does not monitorthird party transfers from a savings deposit,the institution may be required to reclassifythe account as a transaction account forcurrent and previous periods.

141

Include as Savings Deposits(Line C.1)

• The following should be included if they meetthe definition of a savings deposit

– Interest and non-interest bearing savings deposits

– Compensating balances or funds pledged ascollateral for loans

– Escrow deposits

– IRAs, Keogh, Club Accounts

142

Exclude From Savings Deposits(Line C.1)

• The following should be excluded fromsavings deposits


– Interest accrued on savings deposits but not yetcredited to the customer’s account

– Any account with a specified maturity date

143

Time Deposits

Marc Plotsker

144

Agenda

• Total Time Deposits (Line D1)

• Time Deposits >= $100k (Line F1)

• Non-Personal Savings & TDs (Line F2)

• Brokered Deposits

• Guaranteed CDs

• Vault Cash (Line E1)

145

Total Time Deposits (Line D.1)

• The depositor does not have the right and isnot permitted to make withdrawals on thesedeposits that

– Have a maturity date of at least seven days fromthe date of deposit

– Are payable after a specified period of at leastseven days after the date of deposit

– Are payable at least seven days after writtennotice of an intended withdrawal has been given

146

Total Time Deposits(Line D.1)

• If a withdrawal is made less than seven daysafter a deposit, the depositor is

– Penalized at least seven days simple interest onamounts withdrawn within the first six daysafter deposit

– If early withdrawal penalties are not in place thenthe account could be reclassified as a transactionaccount (if it meets the requirements)

147

Include as Time Deposits(Line D.1)

• A depository institution should include astime deposits

– All funds that are payable at the expiration of aspecified time not less than seven days afterdeposit, or

– Payable only upon written notice that is requiredto be given by the depositor not less than sevendays prior to withdrawal, or

148


• A depository institution should include as time deposits

– Time open accounts (maturity greater than seven days)

– Escrow accounts

– Brokered deposits

– IRA, Keogh Plans

– Compensating balances for funds pledged as collateralfor loans

149


• Also include as time deposits

– Liabilities arising from primary obligations thatare issued in original maturities of seven days ormore to non-exempt entities

150

Exclude as Time Deposits(Line D.1)

• A depository institution should exclude any depositthat does not meet the definition of a time depositsuch as

– Matured time deposits even if interest is paid aftermaturity, unless the deposit provides for automaticrenewal at maturity


– Interest accrued on time deposits but not yet paid orcredited to the customer’s account

151

Other Time Deposits

• The following items could also be consideredtime deposits

– Deposit notes

– Bank notes

– Medium term notes

– Primary obligations, such as commercial paperissued to non-exempt entities

152


Time Deposits (Line D1)

• Primary Obligations

FR 2900

Primary obligationswith non-exemptentities and anoriginal maturity ofgreater than sevendays are reported astime deposits.

FFIEC 002

Primary obligations areclassified and reported asborrowings.

153

Summary of Line D1

• Seven days or greater.

• May be issued to personal and/or non-personalentities.

• Penalties for early withdrawal.

• Interest bearing.

• Non-Interest bearing.

• Interest accrued and credited.• Primary obligations issued to non-exempt entities.

154

Large Time Deposits(Line F.1)

A depository institution should report in thisitem all time deposit accounts with balances> $100 thousand.

155

Include as Large Time Deposits(Line F.1)

• A depository institution should include in largetime any deposit already reported as total timewith balances of $100 thousand or more and

– Negotiable and nonnegotiable, certificates of depositsissued in denominations of $100 thousand or more; and

– Time deposits originally issued in denominations of lessthan $100 thousand but because of interest credited orpaid, or additional deposits, have balances of$100 thousand or more

156

Criteria For Determining LargeTime Deposits (Line F.1)

• Time deposits issued on a discount basis should bereported initially on the amount of funds receivedby the reporting institution.

Example

Depository institution receives $96 thousand in exchangefor a CD issued at face value of $100 thousand. This CDshould be regarded as having a denomination less than$100 thousand and excluded from Line F.1.

157

Criteria For Determining LargeTime Deposits (Line F.1)

• The interest earned on these deposits shouldalso be reported as time deposits when creditedto the account.

• A depository institution should not includecombined deposits totaling $100 thousand thatare represented by separate certificates oraccounts, even if held by the same customer.

158

Criteria for Large Time Deposits(Line F.1)

• If the value of foreign currency denominateddeposits falls below $100 thousand (because ofa change in exchange rates) the deposit must stillbe reported as a large time deposit based on theoriginal value.

159

Exclude from Large Time Deposits(Line F.1)

• Time deposits that do not meet the definition of alarge time should be excluded such as

– Matured large time deposits

– Time deposits less than $100 thousand

160

True or False

• True or False:

– A depositor has several time depositsissued in denominations of $30k, $50k, and$20k. Since the total equals $100k, thisactivity should be reported in lines D1, andF1.

161

True or False

• True or False:

False.

This activity should only be reported in lineD1 - Total time. Line F1 should not reflectthis activity since these individual depositsare not equal to or greater than $100k.

162

Non-Personal Savings and TimeDeposits (Line F.2)

• Non-personal savings and time depositsrepresent funds in which the beneficial interestis not held by a natural person

• Natural person means an individual or a soleproprietorship (does not include a corporationowned by an individual, a partnership or otherassociation)

163

Include as Non-Personal Savingsand Time Deposits (Line F.2)

• Include as non-personal savings and time deposits

– Funds deposited to the credit of or in which thebeneficial interest is held by a depositor that is nota natural person

– Brokered deposits if the beneficial interest is held bya non-natural person

– Funds that are transferable whether or not the entirebeneficial interest is held by a natural person

164

Exclude from Non-Personal Savingsand Time Deposits (Line F.2)

• Funds which are not transferable and thatthe entire beneficial interest is held by adepositor who is a natural person

165

Treatment of Brokered Deposits

• What is a brokered deposit?

Funds in the form of deposits that a depositoryinstitution receives from brokers or dealers onbehalf of individual depositors.

166


• For purposes of the FR 2900, brokereddeposits are usually reported as

– Large time deposits with balances> $100 thousand (Line F.1)

– Total non-personal savings and time deposits(Line F.2) unless any of the following are true:

167


• The deposit and beneficial interest is held bya natural person; or

• The depository institution has the followingagreement with the deposit broker:

– The broker maintains records of the owners of allbrokered deposits, and these records are availableto the depository institution;

168


– These records will provide the depositoryinstitution with the amounts of the depositsowned by natural and non-natural persons;

– A breakout of large time deposits;

– The depository institution must have access tothese records; and

– The broker must commit to provide any otherdata needed by Federal or state regulators.

169

Guaranteed CDs

Guaranteed CDs are CDs issued by non-U.S. officesof a foreign bank, and guaranteed payable in the U.S.by a U.S. branch or agency.

Bank ACayman Branch

Bank ACayman Branch

CustomerCayman Branch issues a CD

Bank A NY Branch

Bank A NY Branch

CD is guaranteed payable by N.Y. Branch

170

Guaranteed CDs

• Payment of a deposit in a non-U.S. branch of adepository institution that is guaranteed by a promiseof payment at an office in the U.S. is subject toRegulation D requirements and therefore is includedon the FR 2900

• Since the payment is guaranteed at an office in theU.S., the customer no longer assumes country riskbut enjoys the same rights as if the deposit had beenmade in the U.S.

171

Guaranteed CDs

• These deposits usually have a maturity of sevendays or greater and are over $100 thousand.Therefore these are usually reported inLines D.1, F.1, and F.2. (If issued tonon-personal entities.)

172

Vault Cash

173

Vault Cash(Line E.1)

• Vault cash consists of U.S. coin and currencyowned and held by the reporting institutionthat may be used at any time to satisfydepositors’ claims.

174


• The following are items that should be includedas vault cash

– U.S. coin and currency in transit to a FederalReserve Bank or correspondent bank for whichthe reporting institution has not yet received credit

– U.S. coin and currency in transit from a FederalReserve Bank or correspondent bank for whichthe reporting institution has already been charged

175


• Also included, is vault cash placed on the premisesof another institution provided

– The reporting institutions has full rights of ownershipto obtain the coin and currency immediately in orderto satisfy customer demands

– The institution from which the vault is rented does notinclude that coin and currency as its own vault cash

176


• Exclude the following items from vault cash

– Foreign coin and currency

– Silver or gold coin (bullion) and other currency whereits nominal value exceeds its face value

– Coins and collections held in safekeeping for customers

– Any currency and coin that the reporting institutiondoes not have the full and unrestricted right to useto satisfy depositor’s claims

177

Definitional Differenceson FR 2900 vs the FFIEC 002

Vault Cash

FR 2900

Vault cash includesonly U.S. coin andcurrency

FFIEC 002

Vault cash includesboth U.S. and non-U.S.currency (converted toU.S. dollars)

178

Summary

• Time Deposits– Minimum maturity of seven days

– Early withdrawal penalty must be in place

– Large time deposits

• Guaranteed CDs

• Vault cash (immediately satisfy customers’ demand)

179

Notes

Documents

Patricia Selvaggi Evelyn Castillo Mario Leon Marc Plotsker · Vario Bank (Paris) Vario Bank (Madrid) Vario Bank (Madrid) Bank Holding Company unrelated Parent Bank related Reporting