2Q2020 COVID-19 Related Supplemental Instructions (FFIEC 002)

The Federal Reserve Board (Board), on behalf of the three federal banking agencies, has requested and received emergency approval from the U.S. Office of Management and Budget for certain revisions to the Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks (FFIEC 002), effective as of the June 30, 2020, report date. These revisions resulted from an interim final rule (IFR) adopted by the Board and a notice of proposed rulemaking (NPR) issued by the Federal Deposit Insurance Corporation (FDIC) in response to the impact on the financial markets and the strains on the U.S. economy as a result of the Coronavirus Disease 2019 (COVID-19). The revisions also resulted from certain provisions of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was enacted on March 27, 2020. The IFR and the NPR were published in the Federal Register in April and May 2020.

The revisions include:

1) New items on FFIEC 002 Schedule C, Part I, Loans and Leases, to collect data on eligible loanmodifications under Section 4013, Temporary Relief from Troubled Debt Restructurings, of the2020 CARES Act, with these items collected on a confidential basis (5 U.S.C. § 552(b)(8)).

2) New items on FFIEC 002 Schedule O, Other Data for Deposit Insurance Assessments, to collectdata from FDIC-insured U.S. branches only on:

a. The quarterly average amount of U.S. Small Business Administration (SBA) PaycheckProtection Program (PPP) loans pledged to the Federal Reserve PPP Liquidity Facility(PPPLF); and

b. The quarterly average amount of holdings of assets purchased from money marketmutual funds under the Money Market Mutual Fund Liquidity Facility (MMLF).

The agencies expect the collection of these new Schedule C and Schedule O items to be time-limited.

3) Revisions to the definitions of certain deposits reported on FFIEC 002 Schedule E, DepositLiabilities and Credit Balances, in response to an IFR amending the Board’s Regulation D(12 CFR 204).

The agencies will request public comment on these changes in reporting through the standard Paperwork Reduction Act process at a later date.

For further information on the IFR and the NPR, see the following Federal Register notices: • Assessments, Mitigating the Deposit Insurance Assessment Effect of Participation in the PPP, the

PPPLF, and the MMLF;• Regulation D: Reserve Requirements of Depository Institutions;

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Table of Contents

Topic Page

I. Notice of Proposed Rulemaking for Assessments, Mitigating the Deposit InsuranceAssessment Effect of Participation in the Paycheck Protection Program (PPP), the PPP Liquidity Facility (PPPLF), and the Money Market Mutual Fund Liquidity Facility (MMLF) .....3

II. CARES Act, Section 4013, Temporary Relief from Troubled Debt Restructurings (TDRs) ....3

III. Interim Final Rule for Reserve Requirements of Depository Institutions (Regulation D) ........4

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I. Notice of Proposed Rulemaking, Assessments, Mitigating the Deposit Insurance AssessmentEffect of Participation in the Paycheck Protection Program (PPP), the PPP Liquidity Facility (PPPLF), and the Money Market Mutual Fund Liquidity Facility (MMLF)

Background:

On May 12, 2020, the FDIC approved a notice of proposed rulemaking to mitigate the deposit insurance assessment effect of participation in the PPP, the PPPLF, and the MMLF. The proposed changes would (1) remove the effect of participation in the PPP and PPPLF on various risk measures used to calculatean insured depository institution’s (IDI’s) assessment rate; (2) remove the effect of participation in thePPPLF and MMLF programs on certain adjustments to an IDI’s assessment rate; (3) provide an offset toan IDI’s assessment for the increase to its assessment base attributable to participation in the MMLF andPPPLF; and (4) remove the effect of participation in the PPPLF and MMLF programs when classifyingIDIs as small, large, or highly complex for assessment purposes. The FDIC has proposed an effectivedate by June 30, 2020, and an application date of April 1, 2020, in order to provide assessment reliefstarting with the second quarter of 2020.

Under the proposal, the FDIC, in calculating an IDI’s deposit insurance assessment rate, would exclude PPP loans held by an IDI (including loans pledged to the PPPLF) from its loan portfolio. Also, under the proposal, in calculating an IDI’s deposit insurance assessment rate, the FDIC would exclude PPP loans pledged to the PPPLF from total assets and would exclude borrowings from the Federal Reserve Banks under the PPPLF from total liabilities when calculating an IDI’s deposit insurance assessment rate.

Further, because participation in the PPPLF and MMLF is expected to increase an IDI’s assessment base, the FDIC would provide an offset to an IDI’s total assessment amount attributable to the inclusion of (1) the quarterly average amount of PPP loans pledged to the PPPLF and (2) the quarterly averageamount of holdings of assets purchased under the MMLF in its assessment base.

Accordingly, a PPP loan that has not been pledged as collateral in connection with an extension of credit under the PPPLF and an asset purchased from a money market mutual fund outside the auspices of the MMLF program would continue to be included in the calculation of the IDI’s total assets. Therefore, the FDIC would continue to include the resulting loans and assets in the calculation of an IDI’s deposit insurance assessment amount.

Reporting Needs for Deposit Insurance Assessments

Starting with the June 30, 2020, report date, FDIC-insured U.S. branches would separately report in FFIEC 002 Schedule O, Memorandum item 6, the quarterly average amount of PPP loans pledged to the PPPLF. FDIC-insured U.S. branches would also separately report in Schedule O, Memorandum item 7, the quarterly average amount of holdings of assets purchased under the MMLF. The FDIC would use the data reported in these items to make the proposed modifications to an institution’s deposit insurance assessment.

II. Section 4013, Temporary Relief from Troubled Debt Restructurings (TDRs)

As provided for under the CARES Act, a financial institution may account for an eligible loan modification either under Section 4013 or in accordance with Accounting Standards Codification (ASC) Subtopic 310-40, Receivables–Troubled Debt Restructurings by Creditors. If a loan modification is not eligibleunder Section 4013, or if the institution elects not to account for the loan modification under Section 4013,the financial institution should evaluate whether the modified loan is a TDR under ASC Subtopic 310-40.

To be an eligible loan under Section 4013 (Section 4013 loan), a loan modification must be (1) related to COVID-19; (2) executed on a loan that was not more than 30 days past due as of December 31, 2019; and (3) executed between March 1, 2020, and the earlier of (A) 60 days after the date of termination of the national emergency concerning the COVID-19 outbreak declared by the President on March 13, 2020, under the National Emergencies Act or (B) December 31, 2020.

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Financial institutions accounting for eligible loans under Section 4013 are not required to apply ASC Subtopic 310-40 to the Section 4013 loans for the term of the loan modification. Financial institutions do not have to report Section 4013 loans as TDRs in regulatory reports. However, consistent with the statute, the agencies are collecting information about the volume of loans modified under Section 4013. Financial institutions should report the total number of loans outstanding that have been modified under Section 4013 and the outstanding balance of these loans in FFIEC 002 Schedule C, Part I, Memorandum items 5.a and 5.b, respectively. These two items are being collected on a confidential basis at the individual U.S. branch-and-agency level.

U.S. branches and agencies should continue to follow reporting instructions and U.S. GAAP for Section 4013 loans, including: • Appropriately reporting past due and nonaccrual status; and• Maintaining an appropriate allowance for loan losses in accordance with ASC Subtopic 450-20 or

ASC Subtopic 310-10, or an appropriate allowance for credit losses in accordance with ASC Subtopic326-20, as applicable, if the reporting branch or agency chooses to establish a general allowance forloan losses on an office level.

U.S. branches and agencies are not required to report Section 4013 loans in FFIEC 002 Schedule N, column D, “Restructured and in Compliance with Modified Terms.”

III. Interim Final Rule for Reserve Requirements of Depository Institutions (Regulation D)

On April 28, 2020, the Board published an Interim Final Rule amending its Regulation D (12 CFR 204) to delete the numeric limits on certain kinds of transfers and withdrawals that may be made each month from “savings deposits.” In response to the changes to Regulation D, the definitions of certain deposits reported on FFIEC 002 Schedule E, Deposit Liabilities and Credit Balances, have been revised. The following pages (pages 5 to 12) contain the redlined instructions for these revisions.

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DRAFTstop payment, missing endorsement, post or stale date,or account closed), but which have been charged to thecontrol accounts of the various deposit categories onthe general ledger, should be credited to (added backto) the appropriate deposit control totals and reportedin Schedule RAL, item 1(h) “Other assets.”

TheMonetary Control Act of 1980 and the resultingrevision to Federal Reserve RegulationD, “ReserveRequirements of Depository Institutions,” established,for purposes of federal reserve requirements on depositliabilities, a category of deposits identified as “transac-tion accounts.” The distinction between transactionand nontransaction accounts is discussed in detail inthe Glossary entry for “deposits.” In particular, moneymarket deposit accounts (MMDAs) are regarded assavings deposits and are specifically excluded from the“transaction account” classification.

Summary of Transaction AccountClassifications

(See the Glossary entry for “deposits” for detailed defi-nitions and further information.)

Always regarded as transaction accounts:

(1) Demand deposits.

(2) NOW accounts.

(3) ATS accounts.

(4) Accounts (other than savings deposits) fromwhich payments may be made to third parties bymeans of an automated teller machine (ATM), aremote service unit (RSU), or another electronicdevice, including by debit card.

(5) Accounts (other than savings deposits) that per-mit third party payments through use of checks,drafts, negotiable instruments, or other similarinstruments.

Deposits or accounts that are regarded as transaction

accounts if the following specified conditions exist:

(1) Accounts that otherwise meet the definition ofsavings deposits but that authorize or permit thedepositor to exceed the transfer and withdrawalrules for a savings deposit.

(2) Any deposit or account that otherwise meets thedefinition of a time deposit but that allows with-drawals within the first six days after the date ofdeposit and that does not require an early with-drawal penalty of at least seven days’ simple inter-est on amounts withdrawn within those first sixdays, unless the deposit or account meets the defi-nition of a savings deposit. Any such deposit oraccount that meets the definition of a savingsdeposit shall be reported as a savings deposit, oth-erwise it shall be reported as a demand deposit,which is a transaction account.

(3) The remaining balance of a time deposit fromwhich a partial early withdrawal is made, unlessthe remaining balance either (a) is subject to addi-tional early withdrawal penalties of at least sevendays’ simple interest on amounts withdrawnwithin six days after each partial withdrawal (inwhich case the deposit or account continues to bereported as a time deposit) or (b) is placed in anaccount that meets the definition of a savingsdeposit (in which case the deposit or account shallbe reported as a savings deposit). Otherwise, thedeposit or account shall be reported as a demanddeposit, which is a transaction account.

Not regarded as transaction accounts (unless specified

above):

(1) Savings deposits (including accounts commonlyknown as money market deposit accounts(MMDAs)).

(2) Accounts that permit telephone or preauthorizedtransfers or transfers by ATMs or RSUs to repayloans made or serviced by the same depositoryinstitution.

(3) Accounts that permit telephone or preauthorizedwithdrawals where the proceeds are to be mailedto or picked up by the depositor.

(4) Accounts that permit transfers to other accountsof the depositor at the same institution throughATMs or RSUs.

Column Instructions

Deposits as summarized above are divided into twogeneral categories, “Transaction Accounts” (columnsA and B) and “Nontransaction Accounts” (columnC).

Schedule E

E-3FFIEC 002 September 2008

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DRAFTof Depository Institutions,” establish, for purposes offederal reserve requirements on deposit liabilities, acategory of deposits designated as “transactionaccounts.” All deposits that are not transactionaccounts are “nontransaction accounts.”

(1) Transaction accounts—With the exceptions notedbelow, a “transaction account,” as defined inRegulation D and in these instructions, is adeposit or account from which the depositor oraccount holder is permitted to make transfers orwithdrawals by negotiable or transferable instru-ments, payment orders of withdrawal, telephonetransfers, or other similar devices for the purposeof making payments or transfers to third personsor others or from which the depositor may makethird party payments at an automated tellermachine (ATM), a remote service unit (RSU), oranother electronic device, including by debit card.

Excluded from transaction accounts are savingsdeposits (both money market deposit accounts(MMDAs) and other savings deposits) as definedbelow in the nontransaction account category,even though such deposits permit some third-party transfers. However, an account that other-wise meets the definition of a savings deposit butthat authorizes or permits the depositor to exceedthe transfer limitations specified for that accountshall be reported as a transaction account. (Pleaserefer to the definition of savings deposits for fur-ther detail.)

NOTE:Under the Federal Reserve’s currentRegulation D, no transaction account, regardlessof its other characteristics, is classified either as asavings deposit or as a time deposit. Thus, thosetransaction accounts that are not demanddeposits—NOW accounts, ATS (AutomaticTransfer Service) accounts, and telephone andpreauthorized transfer accounts—are excludedfrom Regulation D time and savings deposits.

Transaction accounts consist of the followingtypes of deposits: (a) demand deposits; (b) NOWaccounts (including accounts previously desig-nated as “Super NOWs”); (c) ATS accounts; and(d) telephone and preauthorized transferaccounts, all as defined below. Interest that is paidby the crediting of transaction accounts is alsoincluded in transaction accounts.

(a) Demand deposits are deposits that are pay-able immediately on demand, or that areissued with an original maturity or requirednotice period of less than seven days, or thatrepresent funds for which the depositoryinstitution does not reserve the right torequire at least seven days’ written notice ofan intended withdrawal. Demand depositsinclude any matured time deposits withoutautomatic renewal provisions, unless thedeposit agreement provides for the funds tobe transferred at maturity to another type ofaccount. Effective July 21, 2011, demanddeposits may be interest-bearing ornoninterest-bearing. Demand deposits donot include: (i) money market depositaccounts (MMDAs) or (ii) NOW accounts,as defined below in this entry.

(b) NOW accounts are interest-bearing deposits(i) on which the depository institution hasreserved the right to require at least sevendays’ written notice prior to withdrawal ortransfer of any funds in the account and(ii) that can be withdrawn or transferred tothird parties by insurance of a negotiable ortransferable instrument. NOW accounts, asauthorized by federal law, are limited toaccounts held by:

(i) Individuals or sole proprietorships;

(ii) Organizations that are operated pri-marily for religious, philanthropic,charitable, educational, or other simi-lar purposes and that are not operatedfor profit. These include organizations,partnerships, corporations, or associa-tions that are not organized for profitand are described in section501(c)(3) through (13) and (19) andsection 528 of the Internal RevenueCode, such as church organizations;professional associations; trade asso-ciations; labor unions; fraternities,sororities and similar social organiza-tions; and non-profit recreationalclubs; or

(iii) Governmental units including the fed-eral government and its agencies and

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DRAFTinstrumentalities; state governments;county and municipal governmentsand their political subdivisions; theDistrict of Columbia; the Common-wealth of Puerto Rico, AmericanSamoa, Guam, and any territory orpossession of the United States andtheir political subdivisions.

Also included are the balances of all NOWaccounts of certain other nonprofit organi-zations that may not fall within the abovedescription but that had established NOWaccounts with the reporting institution priorto September 1, 1981.

NOTE: There are no regulatory require-ments with respect to minimum balances tobe maintained in a NOW account or to theamount of interest that may be paid on aNOW account.

(c) ATS accounts are deposits or accounts ofindividuals or sole proprietorships on whichthe depository institution has reserved theright to require at least seven days’ writtennotice prior to withdrawal or transfer of anyfunds in the account and from which, pursu-ant to written agreement arranged inadvance between the reporting institutionand the depositor, withdrawals may be madeautomatically through payment to thedepository institution itself or throughtransfer of credit to a demand deposit orother account in order to cover checks ordrafts drawn upon the institution or tomaintain a specified balance in, or to makeperiodic transfers to, such other accounts.Some institutions may have entered intoagreements with their customers providingthat in the event the customer should over-draw a demand deposit (checking) or NOWaccount, the institution will transfer fromthat customer’s savings account an amountsufficient to cover the overdraft. The avail-ability of the overdraft protection planwould not in and of itself require that such asavings account be regarded as a transactionaccount provided that the overall transferand withdrawal restrictions of a savings

deposit are not exceeded. Please refer to thedefinition of savings deposit for furtherdetail.

(d) Telephone or preauthorized transfer accountsconsist of deposits or accounts, other thansavings deposits, (1) in which the entirebeneficial interest is held by a party eligibleto hold a NOW account, (2) on which thereporting institution has reserved the rightto require at least seven days’ written noticeprior to withdrawal or transfer of any fundsin the account, and (3) under the terms ofwhich, or by practice of the reporting insti-tution, the depositor is permitted or author-ized to makemore than six withdrawals permonth or statement cycle (or similar period)of at least four weeks for purposes of trans-ferring funds to another account of thedepositor at the same institution (includinga transaction account) or for making pay-ment to a third party by means of preautho-rized transfer, or telephonic (including datatransmission) agreement, order or instruc-tion. An account that permits or authorizesmore than six such withdrawals in a“month” (a calendar month or any periodapproximating a month that is at least fourweeks long, such as a statement cycle) is atransaction account whether or not morethan six such withdrawals actually are madein the “month.” A “preauthorized transfer”includes any arrangement by the reportinginstitution to pay a third party from theaccount of a depositor (1) upon written ororal instruction (including an order receivedthrough an automated clearing house(ACH), or (2) at a predetermined time or ona fixed schedule. Telephone and preautho-rized transfer accounts also include:

(i) Deposits or accounts maintained inconnection with an arrangement thatpermits the depositor to obtain creditdirectly or indirectly through the draw-ing of a negotiable or nonnegotiablecheck, draft, order or instruction orother similar device (including tele-phone or electronic order or instruc-tion) on the issuing institution that can

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DRAFTbe used for the purpose of making pay-ments or transfers to third parties orothers, or to another deposit accountof the depositor.

(ii) The balance of deposits or accountsthat otherwise meet the definition oftime deposits, but from which pay-ments may be made to third parties bymeans of a debit card, an automatedteller machine, remote service unit orother electronic device, regardless ofthe number of payments made.

However, an account is not a transactionaccount merely by virtue of arrangementsthat permit the following types of transferor withdrawals, regardless of the number:

(i) Transfers for the purpose of repayingloans and associated expenses at thesame depository institution (as origi-nator or servicer).

(ii) Transfers of funds from this accountto another account of the same deposi-tor at the same depository institutionwhen made by mail, messenger, auto-mated teller machine, or in person.

(iii) Withdrawals for payment directly tothe depositor when made by mail, mes-senger, automated teller machine, inperson, or by telephone (via checkmailed to the depositor).

(2) Nontransaction accounts—All deposits that arenot transaction accounts (as defined above) arenontransaction accounts. Nontransactionaccounts include: (a) savings deposits ((i) moneymarket deposit accounts (MMDAs) and (ii) othersavings deposits and (b) time deposits ((i) timecertificates of deposit and (ii) time deposits, openaccount). Regulation D no longer distinguishesbetween money market deposit accounts(MMDAs) and other savings deposits. However,these two types of accounts are defined below forpurposes of this report.NOTE:Under the Fed-eral Reserve’s current Regulation D, no transac-tion accounts, regardless of other characteristics,are defined as savings or time deposits. Thus, sav-ings deposits as defined here, under the heading

nontransaction accounts, constitute the entire sav-ings deposit category. Likewise, time deposits, alsodefined here under nontransaction accounts, con-stitute the entire time deposits category.

(a) Savings deposits are deposits with respect towhich the depositor is not required by thedeposit contract but may at any time berequired by the depository institution to givewritten notice of an intended withdrawalnot less than seven days before withdrawal ismade, and that is not payable on a specifieddate or at the expiration of a specified timeafter the date of deposit. The term savingsdeposit also means a deposit or account,such as an account commonly known as apassbook savings account, a statement sav-ings account, or a money market depositaccount (MMDA), that otherwise meets therequirements of the preceding paragraphand from which, under the terms of thedeposit contract or by practice of thedepository institution, the depositor is per-mitted or authorized to make no more thansix transfers and withdrawals, or a combina-tion of such transfers and withdrawals, percalendar month or statement cycle (or simi-lar period) of at least four weeks, to anotheraccount (including a transaction account) ofthe depositor at the same institution or to athird party by means of a preauthorized orautomatic transfer, or telephonic (includingdata transmission) agreement, order, orinstruction; or by check, draft, debit card, orsimilar order made by the depositor andpayable to third parties. Transfers from sav-ings deposits for purposes of covering over-drafts (overdraft protection plans) areincluded under the withdrawal limitsspecified for savings deposits. There are noregulatory restrictions on the followingtypes of transfers or withdrawals from a sav-ings deposit account, regardless of thenumber:

(i) Transfers for the purpose of repayingloans and associated expenses at thesame depository institution (as origi-nator or servicer).

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DRAFT(ii) Transfers of funds from this account

to another account of the same deposi-tor at the same institution when madeby mail, messenger, automated tellermachine, or in person.

(iii) Withdrawals for payment directly tothe depositor when made by mail, mes-senger automated teller machine, inperson, or by telephone (via checkmailed to the depositor).

Further, for a savings deposit account, nominimum balance is required by regulation,there is no regulatory limitation on theamount of interest that may be paid, and nominimummaturity is required (althoughdepository institutions must reserve theright to require at least seven days’ writtennotice prior to withdrawal as stipulatedabove for a savings deposit).

Any depository institution may placerestrictions and requirements on savingsdeposits in addition to those stipulatedabove. In the case of such further restric-tions, the account would still be reported asa savings deposit. On the other hand, anaccount that otherwise meets the definitionof a savings deposit but that authorizes orpermits the depositor to exceed the six-transfer/withdrawal rule shall be reported asa transaction account, as follows:

(i) If the depositor is ineligible to hold aNOW account, such an account is con-sidered a demand deposit.

(ii) If the depositor is eligible to hold aNOW account, the account will beconsidered either a NOW account, atelephone or pre-authorized transferaccount, or an ATS account:

(a) If withdrawals or transfers bycheck, draft, or similar instrumentare permitted or authorized, theaccount is considered a NOWaccount.

(b) If withdrawals or transfers bycheck, draft, or similar instrument

are not permitted or authorized, theaccount is considered either anATS account or a telephone or pre-authorized transfer account.

Regulation D no longer distinguishesbetween money market deposit accounts(MMDAs) and other savings deposits. How-ever, these two types of accounts are definedas follows for purposes of this report.

(i) Money market deposit accounts(MMDAs) are deposits or accountsthat meet the above definition of a sav-ings deposit and that permit up to (butno more than) six allowable transfers tobe made by check, draft, debit card orsimilar order made by the depositorand payable to third parties.

(ii) Other savings deposits are deposits oraccounts that meet the above definitionof a savings deposit but that permit notransfers by check, draft, debit card, orsimilar order made by the depositorand payable to third parties. Other sav-ings deposits are commonly known aspassbook savings or statement savingsaccounts.

Examples illustrating distinctions betweenMMDAs and other savings deposits for pur-poses of this report are provided at the endof this Glossary entry.

(b) Time deposits are deposits that the depositordoes not have a right, and is not permitted,to make withdrawals from within six daysafter the date of deposit unless the deposit issubject to an early withdrawal penalty of atleast seven days’ simple interest on amountswithdrawn within the first six days afterdeposit. A time deposit from which partialearly withdrawals are permitted mustimpose additional early withdrawal penaltiesof at least seven days’ simple interest onamounts withdrawn within six days aftereach partial withdrawal. If such additionalearly withdrawal penalties are not imposed,the account ceases to be a time deposit. Theaccount may become a savings deposit if it

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DRAFT

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DRAFTmeets the requirements for a savings deposit;otherwise it becomes a demand deposit.

NOTE: The above prescribed penalties arethe minimum required by Federal ReserveRegulation D. Institutions may choose torequire penalties for early withdrawal inexcess of the regulatory minimums.

Time deposits take two forms:

(i) Time certificates of deposit (includingrollover certificates of deposit) aredeposits evidenced by a negotiable ornonnegotiable instrument, or a depositin book entry form evidenced by areceipt or similar acknowledgmentissued by the branch or agency, thatprovides, on its face, that the amountof such deposit is payable to the bearer,to any specified person, or to the orderof a specified person, as follows:

(a) on a certain date not less than sevendays after the date of deposit,

(b) at the expiration of a specifiedperiod not less than seven daysafter the date of the deposit, or

(c) upon written notice to the branchor agency which is to be given notless than seven days before the dateof withdrawal.

(ii) Time deposits, open account are depos-its (other than time certificates ofdeposit) for which there is in force awritten contract with the depositorthat neither the whole nor any part ofsuch deposit may be withdrawnprior to:

(a) the date of maturity which shall benot less than seven days after thedate of the deposit, or

(b) the expiration of a specified periodof written notice of not less thanseven days.

These deposits include those clubaccounts, such as Christmas club andvacation club accounts, that are made

under written contracts that providethat no withdrawal shall be made untila certain number of periodic depositshas been made during a period of notless than three months, even thoughsome of the deposits are made withinsix days of the end of such period.

Time deposits do not include the followingcategories of liabilities even if they have anoriginal maturity of seven days or more:

(i) Any deposit or account that otherwisemeets the definition of a time depositbut that allows withdrawals within thefirst six days after deposit and thatdoes not require an early withdrawalpenalty of at least seven days’ simpleinterest on amounts withdrawn withinthose first six days. Such deposits oraccounts that meet the definition of asavings deposit shall be reported assavings deposits; otherwise they shallbe reported as demand deposits.

(ii) The remaining balance of a timedeposit if a partial early withdrawal ismade and the remaining balance is notsubject to additional early withdrawalpenalties of at least seven days’ simpleinterest on amounts withdrawn withinsix days after each partial withdrawal.Such time deposits that meet thedefinition of a savings deposit shall bereported as savings deposits; otherwisethey shall be reported as demanddeposits.

Reporting of Retail Sweep Arrangements AffectingTransaction and Nontransaction Accounts

In an effort to reduce their reserve requirements, somebranches and agencies have established sweep arrange-ments that involve transfers of retail customers’ depos-its between two subaccounts. In a typical arrangement,a branch or agency creates a master account and twosubaccounts: a transaction subaccount (either ademand deposit account or a NOWaccount), which issubject to reserve requirements, and a nontransactionsavings subaccount (a special-purpose moneymarketdeposit account (MMDA)), which is not subject to

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DRAFTreserve requirements. Depending upon the balances inthe two subaccounts on a particular day, the branch oragency will shift funds from the transaction subac-count to theMMDA subaccount or vice versa. Onsome days, the balance in theMMDA subaccount maybe zero. (For purposes of the Federal Reserve’s Regula-tionD, there is no distinction between anMMDAandany other form of savings account in terms of legallyrequired restrictions on transfers.) For purposes of thisreport, the transaction subaccount andMMDA subac-count must be treated separately when a branch oragency reports its quarter-end deposit information inSchedules RAL, E, and O.

(III) Interest-bearing-noninterest-bearing depositdistinction

(1) Interest-bearing deposit accounts consist ofdeposit accounts on which the issuing depositoryinstitution makes any payment to or for theaccount of any depositor as compensation for theuse of funds constituting a deposit. Such com-pensation may be in the form of cash, merchan-dise, or property or as a credit to an account. Aninstitution’s absorption of expenses incident toproviding a normal banking function or its for-bearance from charging a fee in connection withsuch a service is not considered a payment ofinterest.

Deposits with a zero percent interest rate that areissued on a discount basis are to be treated asinterest-bearing. Deposit accounts on which theinterest rate is periodically adjusted in response tochanges in market interest rates and other factorsshould be reported as interest-bearing even if therate has been reduced to zero, provided the inter-est rate on these accounts can be increased asmarket conditions change.

(2) Noninterest-bearing deposit accounts consist ofdeposit accounts on which the issuing depositoryinstitution makes no payment to or for theaccount of any depositor as compensation for theuse of funds constituting a deposit. An institu-tion’s absorption of expenses incident to provid-ing a normal banking function or its forbearancefrom charging a fee in connection with such a ser-vice is not considered a payment of interest.

Noninterest-bearing deposit accounts include(i) matured time deposits that are not automati-cally renewable (unless the deposit agreement pro-vides for the funds to be transferred at maturity toanother type of account) and (ii) deposits with azero percent stated interest rate that are issued atface value.

See also “brokered deposits” and “hypothecateddeposits.”

Examples Illustrating Distinctions BetweenMONEYMARKET DEPOSIT ACCOUNTS(MMDAs) and OTHER SAVINGS DEPOSITS

Example 1

A savings deposit account permits no transfers of anytype to other accounts or to third parties.

Report this account as an other savings deposit.

Example 2

A savings deposit permits up to six, but no more thansix, “preauthorized, automatic, or telephonic” trans-fers to other accounts or to third parties.None of thethird-party paymentsmay bemade by check, draft, orsimilar order (including debit card).

Report this account as an other savings deposit.

Example 3

A savings deposit permits no more than six “preautho-rized, automatic, or telephonic” transfers to otheraccounts or to third parties any or all of whichmay bemade by check, draft, debit card or similar order madeby the depositor and payable to third parties.

Report this account as anMMDA.

Derivative Contracts

Branches and agencies commonly use derivative instru-ments for managing (positioning or hedging) theirexposure to market risk (including interest rate riskand foreign exchange risk), cash flow risk, and otherrisks in their operations and for trading. The account-ing and reporting standards for derivative instruments,including certain derivative instruments embedded inother contracts, and for hedging activities are set forthin ASCTopic 815, Derivatives andHedging (formerly

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