managing required reserves copyright 2014 by diane scott docking 1

Managing Required Reserves

Copyright 2014 by Diane Scott Docking

1

Reg D – Deposit Reporting Categories

Deposit Reporting Categories, Sept 2014 – Sept 2015

Nonexempt Institutions(Detailed Reporting)

Exempt Institutions(Reduced Reporting)

Net transaction accts > Exemption amount1

ORTotal deposits ≥ Reduced reporting limit2

Net transaction accts ≤ Exemption amount

ANDTotal deposits < Reduced reporting

limit

Total deposits ≥ Nonexempt deposit

cutoff3

Total deposits < Nonexempt deposit

cutoff

Total deposits > Exemption

amount

Total deposits ≤ Exemption

amount

Category 1 Category 2 Category 3 Category 4

• Weekly reports• FR2900

• Quarterly reports• FR2900

• Annual reports• FR2910a each June 30

• No reports

1 Exemption amount = $13.3 million as of 12/24/13 Reg D requirements effective through 12/31/15.html

2 Reduced reporting limit = $1.719 billion as of 12/24/13

3 Nonexempt deposit cutoff = $ 306.7 million as of 12/24/132Copyright 2014 by Diane Scott Docking

http://www.federalreserve.gov/newsevents/press/bcreg/20101026a.htm

http://www.federalreserve.gov/newsevents/press/bcreg/20101026a.htm

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.”Copyright 2014 by Diane Scott Docking 3

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

Copyright 2014 by Diane Scott Docking 4

http://www.federalreserve.gov/boarddocs/reportforms/forms/FR_2900cb20000823_f.pdf

http://www.federalreserve.gov/boarddocs/reportforms/forms/FR_2900cb20000823_f.pdf

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 1st 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 Mon Tues Wed Thurs Fri Sat1 2 3 4 5

6 7 8 9 10 11 1213 14 15 16 17 18 1920 21 22 23 24 25 2627 28 29 30 31 32 3334 35 36 37 38 39 4041 42 43 44 45 46 47

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 filed weekly for days: 1-7#2 filed weekly for days: 8-14

Lagged Reserve Computation Period:Reserve Maintenance Period:

Copyright 2014 by Diane Scott Docking6

Reserve Maintenance and Computation Periods


Sun Mon Tues Wed Thurs Fri SatSept 2014 1 2 3 4 5 6

7 8 9 10 11 12 13

14 15 16 17 18 19 20

21 22 23 24 25 26 27

28 29 30 1 2 3 4

Oct 2014 5 6 7 8 9 10 11

12 13 14 15 16 17 18

19 20 21 22 23 24 25

26 27 28 29 30 31 1

Nov 2014 2 3 4 5 6 7 8

9 10 11 12 13 14 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 RequirementsSec. 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 0 percent of amount.

Over $13.3 million and up to $89.0 million

3 percent of amount

Over $89.0 million $2,271,000 plus 10 percent of amount over $89.0 million.

Nonpersonal time deposits 0 percent.

Eurocurrency liabilities 0 percent

$13.3 million is the exemption amount.

$89.0 million is the amount of the low reserve tranche

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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 Depositand 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.

$ 13.3 0% $ 0.0

Over $13.3 up to $89.0 mill.

$ 75.7 3% $ 2.271

Over $89.0 million $1,261.70 10% $126.170

Total $1,350.70

Gross reserves requirement

$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.


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Example in Appx 13 E: Calculating Reserve Requirement (cont.)

The following information is available:

Copyright 2014 by Diane Scott Docking11

Reserve Balances at Fed During Maintance Period

(in millions)

Reserve Balances for: Closing

Day Date Bal. w / Fed

Thurs. 30-Jul-13 98$

Fri. 31-Jul-13 100

Sat. 01-Aug-13 100

Sun. 02-Aug-13 100

Mon. 03-Aug-13 98

Tues. 04-Aug-13 91

Wed. 05-Aug-13 102

Thurs. 06-Aug-13 101

Fri. 07-Aug-13 99

Sat. 08-Aug-13 99

Sun. 09-Jan-00 99

Mon. 10-Aug-13 107

Tues. 11-Aug-13 154

Wed. 12-Aug-13 129.140

Total 1,477.140

14 = DAB 105.510$

(in millions)

RBR $103.084

Top penalty-free band $113.3924*

Bottom penalty-free band $92.7756**

DAB at Fed during reserve mtnce period

$105.510

Balance maintained to satisfy RBR $105.510

Excess balance $ -

Reserve deficiency amount $ -

*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 5,600

Vault cash 3,552


Example: Calculating Reserve Requirement (cont.)

The following information is available:



(in thousands)



Thurs. 16-Oct-14 25,000$

Fri. 17-Oct-14 22,500

Sat. 18-Oct-14 22,500

Sun. 19-Oct-14 22,500

Mon. 20-Oct-14 14,000

Tues. 21-Oct-14 16,000

Wed. 22-Oct-14 38,000

Thurs. 23-Oct-14 36,320

Fri. 24-Oct-14 28,000

Sat. 25-Oct-14 28,000

Sun. 26-Oct-14 28,000

Mon. 27-Oct-14 32,560

Tues. 28-Oct-14 29,901

Wed. 29-Oct-14

Total 343,281$

14 = DAB to date 24,520.07$

Example: Calculating Reserve Requirement (cont.)

Answer the following questions:1) What is the amount of Net transaction accounts?

2) What is the Gross reserve requirement?

3) What is the Reserve Balance Requirement?

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

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


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Solution to Example: Calculating Reserve Requirement

1) What is the amount of Net transaction accounts?


SECTION 2: NET TRANSACTION ACCOUNTS

FR 2900 Items (1) (2) (3)(in thousands) 14-day

average

A. Grosstransaction

A.3 Total transaction accounts 416,500 accounts

+ = 416,500AA.1Ineligible acceptances and Net

obligations issued by aff iliates 0 transactionmaturing in less than 7 days accounts

_ = 395,755

B.1 Demand balances due from B. Total (If negative,depository institutions in 15,145 deductions set to zero)the U.S.

+ = 20,745

B.2 CIPC 5,600

$395,755,000or$395.755 million

Deductions

Solution to Example: Calculating Reserve Requirement (cont.)

2) What is the Gross reserve requirement?

3) What is the Reserve Balance Requirement?


Type of Depositand 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. $ 13.300 0% $ 0.0

Over $13.3 up to $89.0 mill.

$ 75.700 3% $ 2.271

Over $89.0 million $306.755 10% $30.6755

Total $395.755

Gross reserves requirement

$32.9465

Less vault cash ( 3.5520 )

Reserve Balance Requirement

$29.3945


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

Bank has a reserve deficiency of $1,934,980


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(in thousands)

RBR $29,394.50 Top penalty-free band $32,333.95 Bottom penalty-free band $26,455.05

DAB at Fed during reserve mtnce period $24,520.07

Balance maintained to satisfy RBR $24,520.07 Excess balance $ -Reserve deficiency amount $1,934.98

10% of RBR = $2,939.45 > $50,000


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.

Can use SOLVER or GOAL SEEK in Excel to do this. (See next slide)


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(in thousands)



Thurs. 16-Oct-14 25,000$

Fri. 17-Oct-14 22,500

Sat. 18-Oct-14 22,500

Sun. 19-Oct-14 22,500

Mon. 20-Oct-14 14,000

Tues. 21-Oct-14 16,000

Wed. 22-Oct-14 38,000

Thurs. 23-Oct-14 36,320

Fri. 24-Oct-14 28,000

Sat. 25-Oct-14 28,000

Sun. 26-Oct-14 28,000

Mon. 27-Oct-14 32,560

Tues. 28-Oct-14 29,901

Wed. 29-Oct-14

Total 343,281$

14 = DAB to date 24,520.07$

use solver or goal

Bottom penalty-free band $26,455.05 seek to equate


(in thousands)



Thurs. 16-Oct-14 25,000$

Fri. 17-Oct-14 22,500

Sat. 18-Oct-14 22,500

Sun. 19-Oct-14 22,500

Mon. 20-Oct-14 14,000

Tues. 21-Oct-14 16,000

Wed. 22-Oct-14 38,000

Thurs. 23-Oct-14 36,320

Fri. 24-Oct-14 28,000

Sat. 25-Oct-14 28,000

Sun. 26-Oct-14 28,000

Mon. 27-Oct-14 32,560

Tues. 28-Oct-14 29,901

Wed. 29-Oct-14 27,090

Total 370,371$

14 = DAB to date 26,455.05$

use solver or goal

Bottom penalty-free band $26,455.05 seek to equate

managing required reserves copyright 2014 by diane scott docking 1

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