Reg D - NIU - College of Business

Transcript Reg D - NIU - College of Business

Managing Required Reserves

Reg D – Deposit Reporting Categories Deposit Reporting Categories, Sept 2014 – Sept 2015

Nonexempt Institutions (Detailed Reporting) Exempt Institutions (Reduced Reporting) Net transaction accts > Exemption amount 1 OR Total deposits ≥ Reduced reporting limit 2 Net transaction accts ≤ Exemption amount AND Total deposits < Reduced reporting limit Total deposits ≥ Nonexempt deposit cutoff 3 Category 1 • Weekly reports • FR2900 Total deposits < Nonexempt deposit cutoff Category 2 • Quarterly reports • FR2900 Total deposits > Exemption amount Category 3 • Annual reports • FR2910a each June 30 Total deposits ≤ Exemption amount Category 4 • No reports 1 Exemption amount = $13.3 million as of 12/24/13 Reg D requirements effective through 12/31/15.html

Reg D - Determining Legal Reserves



Summary of Reg D Requirements

(as of 11/5/13) is effective for maintenance period beginning 1/23/14:  All depository institutions with reservable deposits above

$13.3

million must file FR2900  This dollar cut-off is known as the

“reserve requirement amount.”

 FR2900 must be filed

weekly

(Tues. – Mon.) by all commercial banks with total reservable deposits at or above

$306.7

million.

 This dollar cut-off is known as the

“ . deposit cutoff level.”

Reg D - Determining Legal Reserves

(cont.) 

Summary of Reg D Requirements (cont.):

 The 2 Week “

Reserve .

period” goes from Tuesday to following second Monday (day 1 – 14) for

transaction deposits

and for or

vault cash

  Look at deposit balances during this period on which to base reserve requirements Form FR2900.html

Reg D - Determining Legal Reserves

(cont.) 

Summary of Reg D Requirements (cont.):



“

Reserve

period” is 2 weeks and begins 30 days (on a Thursday) after the 1

Tuesday in the Reserve Computation period (days 31 – 44).



Reserves include: vault cash, balances at Fed (Due from Fed)

Reserve Maintenance and Computation Periods

Sun 6 13 20 27 34 41 Mon 7 14 21 28 35 42 Tues 1 8 15 22 29 36 43 Wed 2 9 16 23 30 37 44 Thurs 3 10 17 24 31 38 45 Fri 4 11 18 25 32 39 46 Sat

Lagged Reserve Computation Period: Used for computing required reserves on transaction deposits and vault cash (Days 1-14) (Use data from FR2900 #1 and #2) FR2900: #1 #2 filed weekly for days: 1-7 filed weekly for days: 8-14 Lagged Reserve Computation Period: Reserve Maintenance Period: Copyright 2014 by Diane Scott Docking 6

5 12 19 26 33 40 47

Reserve Maintenance and Computation Periods

Sept 2014 Sun 7 14 21 Mon 1 Tues 2 Wed 8 15 22 9 16 23 3 10 17 24 Thurs 4 Fri 11 18 25 Oct 2014 Nov 2014 26 2 9 28 5 12 19 29 6 13 20 27 3 10 30 7 14 21 28 4 11 1 8 15 22 29 5 12 2 9 16 23 30 6 13 31 7 14 3 10 17 24 5 Sat 12 19 26 6 13 20 27 4 11 18 25 1 8 15

Lagged Reserve Computation Period: Used for computing required reserves on transaction deposits and vault cash: (Days 1-14: Sept. 16, 2014 - Sept. 29, 2014) Reserve Maintenance Period: Used for computing Federal reserve balance available to meet required reserves (Days 31-44: Oct.16, 2014 - Oct. 29, 2014)

Reg D - Determining Legal Reserves

(cont.) 

Summary of Reg D Requirements:

     No more carry overs.

Two penalty free bands:    Top band = RBR + (maximum of $50,000 or 10% of RBR) Bottom band = RBR – (maximum of $50,000 or 10% of RBR) RBR = Reserve balance requirement If maintained balance at Fed is between bands, then in compliance If maintained balance at Fed > Top band, then have an “excess balance”.

 Fed pays interest on average balance maintained at the Fed.

If maintained balance at Fed < Bottom band, then have an “reserve deficiency amount”.

 Penalty of 1% + primary credit rate on the deficiency amount.

Legal Reserve Requirements

Sec. 204.4 Reserve requirement ratios. (effective 8/20/14) The following reserve requirement ratios are prescribed for all depository institutions, banking Edge and agreement corporations, and United States branches and agencies of foreign banks: Category Reserve Requirement Net transaction accounts: $0 to $13.3 million Over $13.3 million and up to $89.0 million 0 percent of amount.

3 percent of amount Over $89.0 million Nonpersonal time deposits $2,271,000 plus 10 percent of amount over $89.0 million.

0 percent.

Eurocurrency liabilities 0 percent $13.3 million is the exemption amount.

Example in Appx 13 E: Calculating Reserve Requirement CALCULATING RESERVE REQUIREMENTS FOR COMMERCIAL BANKS (Total Net Transaction Deposits = $1,350.70 million) Table in text redone with current regs Type of Deposit and Deposit Interval Average Dollar Amount (in millions) in Computation Period Percentage Reserve Requirement Average Dollar Reserves Required (in millions) in Maintenance Period Net transactions accounts: Exempt up to $13.3 mill.

Over $13.3 up to $89.0 mill.

Over $89.0 million Total Gross reserves requirement $ 13.3

$ 75.7

$1,261.70

$1,350.70

0% 3% 10% $ 0.0

$ 2.271

$126.170

$128.441

Less vault cash ( 25.357 ) Reserve balance requirement (RBR) $103.084

* The first $13.3 million of transactions accounts are exempt from reserve requirements. This cutoff and the 3% reserve requirement cutoff are amended by the Federal Reserve System from time to time. For an update, see http://www.federalreserve.gov/newsevents.htm.

Example in Appx 13 E: Calculating Reserve Requirement (cont.)  The following information is available:

Reserve Balances at Fed During Maintance Period Reserve Balances for: Day

Thurs.

Date

30-Jul-13

(in m illions) Closing Bal. w / Fed

$ 98 Fri.

Sat.

Sun.

Mon.

31-Jul-13 01-Aug-13 02-Aug-13 03-Aug-13 100 100 100 98 Tues.

Wed.

Thurs.

Fri.

Sat.

Sun.

Mon.

Tues.

Wed.

04-Aug-13 05-Aug-13 06-Aug-13 07-Aug-13 08-Aug-13 09-Jan-00 10-Aug-13 11-Aug-13 12-Aug-13 Total  14 = DAB

91 102 101 99 99 99 107 154 129.140

1,477.140

105.510

Copyright 2014 by Diane Scott Docking RBR Top penalty-free band Bottom penalty-free band DAB at Fed during reserve mtnce period Balance maintained to satisfy RBR Excess balance Reserve deficiency amount 11

(in millions)

$103.084

$113.3924* $92.7756** $105.510

$105.510

$ $ *103.084 + (.1 x 103.084) = 103.084 + 10.3084 = $113.3924 **103.084 - (.1 x 103.084) = 103.084 -10.3084 = $92.7756

Example: Calculating Reserve Requirement

 At the close of Business on Tuesday, October 28, 2014, Garden National Bank is concerned if it will meet its legal reserve requirements. The following information is available:  Daily Average Balances during 2-week Reserve

Computation

period from September 16 – 29, 2014 (in thousands): Gross Transaction accounts $416,500 Demand deposits due from U.S. depository institutions 15,145 Cash items in the process of collection Vault cash 5,600 3,552 Copyright 2014 by Diane Scott Docking 12

Example: Calculating Reserve Requirement

(cont.)  The following information is available:

Reserve Balances at Fed During Maintance Period Reserve Balances for: Day Date

Thurs.

Fri.

16-Oct-14 17-Oct-14 Sat.

Sun.

18-Oct-14 19-Oct-14

(in thousands) Closing Bal. w / Fed

$ 25,000 22,500 22,500 22,500 Mon.

Tues.

Wed.

Thurs.

Fri.

Sat.

Sun.

20-Oct-14 21-Oct-14 22-Oct-14 23-Oct-14 24-Oct-14 25-Oct-14 26-Oct-14 14,000 16,000 38,000 36,320 28,000 28,000 28,000 Mon.

Tues.

Wed.

27-Oct-14 28-Oct-14 29-Oct-14 32,560 29,901 Total  14 = DAB to date $ 343,281

$ 24,520.07

Example: Calculating Reserve Requirement

(cont.)  Answer the following questions: 1) What is the amount of Net transaction accounts?

2) 3) 4) 5) What is the Gross reserve requirement?

What is the Reserve Balance Requirement?

As of close of day on Tuesday, October 28, 2014, is the Bank over- or under-reserved? By how much?

If the bank is under-reserved, what must it do to remedy the situation on Wednesday, October 29, 2014 to avoid any penalties?

Solution to Example: Calculating Reserve Requirement 1) What is the amount of Net transaction accounts?

SECTION 2: NET TRANSACTION ACCOUNTS FR 2900 Item s

(in thousands)

(1) 14-day average

A.3 Total transaction accounts AA.1Ineligible acceptances and obligations issued by affiliates maturing in less than 7 days 416,500 + 0

(2)

A. Gross transaction accounts

416,500 Deductions B.1 Demand balances due from depository institutions in the U.S.

B.2 CIPC 15,145 + 5,600 =

_ B. Total deductions

20,745

(3) Net transaction accounts

395,755

Solution to Example: Calculating Reserve Requirement (cont.) 2) 3) What is the Gross reserve requirement?

What is the Reserve Balance Requirement?

Type of Deposit and Deposit Interval Average Dollar Amount (in millions) in Computation Period Percentage Reserve Requirement Net transactions accounts: Exempt up to $13.3 mill.

Over $13.3 up to $89.0 mill.

Over $89.0 million Total Gross reserves requirement Less vault cash Reserve Balance Requirement $ 13.300

$ 75.700

$306.755

$395.755

0% 3% 10% Average Dollar Reserves Required (in millions) in Maintenance Period $ 0.0

$ 2.271

$30.6755

$32.9465

( 3.5520 ) $29.3945

Solution to Example: Calculating Reserve Requirement (cont.) 4) As of close of day on Tuesday, October 28, 2014, is the Bank over- or under reserved? By how much?

(in thousands)

RBR Top penalty-free band Bottom penalty-free band Balance maintained to satisfy RBR Excess balance Reserve deficiency amount $29,394.50 $32,333.95 $26,455.05 DAB at Fed during reserve mtnce period $24,520.07

Solution to Example: Calculating Reserve Requirement (cont.) • • 5) If the bank is under-reserved, what must it do to remedy the situation on Wednesday, November 27,2013 to avoid any penalties?

Bank must borrow enough money on Wednesday to bring the closing balance at the Fed on Wednesday =  , which will give the bank a DAB at the Fed over the 14 –day maintenance period = $26,455.05 (in thousands), the bottom penalty-free band.

Solution to Example: Calculating Reserve Requirement (cont.)

Reserve Balances at Fed During Maintance Period Reserve Balances for: Day Date

Thurs.

Fri.

Sat.

16-Oct-14 17-Oct-14 18-Oct-14

(in thousands) Closing Bal. w/ Fed

$ 25,000 22,500 22,500 Sun.

Mon.

Tues.

Wed.

Thurs.

19-Oct-14 20-Oct-14 21-Oct-14 22-Oct-14 23-Oct-14 22,500 14,000 16,000 38,000 36,320 Fri.

Sat.

Sun.

Mon.

Tues.

24-Oct-14 25-Oct-14 28,000 28,000 26-Oct-14 27-Oct-14 28,000 32,560 28-Oct-14 29,901 Wed.

29-Oct-14 Total  14 = DAB to date $ 343,281

$ 24,520.07

Bottom penalty-free band $26,455.05

use solver or goal seek to equate

Reserve Balances at Fed During Maintance Period Reserve Balances for: Day Date

Thurs.

Fri.

16-Oct-14 17-Oct-14 Sat.

Sun.

Mon.

Tues.

Wed.

Thurs.

Fri.

Sat.

Sun.

Mon.

Tues.

18-Oct-14 19-Oct-14 20-Oct-14 21-Oct-14 22-Oct-14 23-Oct-14 24-Oct-14 25-Oct-14 26-Oct-14 27-Oct-14 28-Oct-14

(in thousands) Closing Bal. w / Fed

$ 25,000 22,500 22,500 22,500 14,000 16,000 38,000 36,320 28,000 28,000 28,000 32,560 29,901 Wed.

29-Oct-14 27,090 Total  14 = DAB to date $ 370,371

$ 26,455.05

Bottom penalty-free band $26,455.05