Managing Required Reserves
Copyright 2014 by Diane Scott Docking
1
Reg D – Deposit Reporting Categories
Deposit Reporting Categories, Sept 2014 – Sept 2015
Nonexempt Institutions
Exempt Institutions
(Detailed Reporting)
(Reduced Reporting)
Net transaction accts > Exemption amount1
OR
Total deposits ≥ Reduced reporting limit2
Net transaction accts ≤ Exemption amount
AND
Total 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
1
Exemption amount = $13.3 million as of 12/24/13
2 Reduced
3
• Quarterly reports
• FR2900
• Annual reports
• FR2910a each
June 30
• No reports
Reg D requirements effective through 12/31/15.html
reporting limit = $1.719 billion as of 12/24/13
Nonexempt deposit cutoff = $ 306.7 million as of 12/24/13
Copyright 2014 by Diane Scott Docking
2
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
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)
Copyright 2014 by Diane Scott Docking
5
Reserve Maintenance and Computation
Periods
Sun
Mon
6
13
20
27
34
41
Tues
7
14
21
28
35
42
Wed
Thurs
1
8
15
22
29
36
43
2
9
16
23
30
37
44
Fri
3
10
17
24
31
38
45
Sat
4
11
18
25
32
39
46
5
12
19
26
33
40
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:
6
Copyright 2014 by Diane Scott Docking
Reserve Maintenance and Computation Periods
Oct 2014
Nov 2014
Sat
Fri
Thurs
Wed
Tues
Mon
Sun
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
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
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Sept 2014
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)
7
Copyright 2014 by Diane Scott Docking
Reg D - Determining Legal Reserves (cont.)

Summary of Reg D Requirements:


No more carry overs.
Two penalty free bands:





If maintained balance at Fed is between bands, then in
compliance
If maintained balance at Fed > Top band, then have an
“excess balance”.


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
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.
Copyright 2014 by Diane Scott Docking
8
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
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
Copyright 2014 by Diane Scott Docking
9
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.
$
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.
Copyright 2014 by Diane Scott Docking
10
Example in Appx 13 E: Calculating Reserve Requirement (cont.)

The following information is available:
Reserve Balances at Fed During Maintance Period
(in m illions)
Reserve Balances for:
Day
Closing
Date
Bal. w / Fed
Thurs.
30-Jul-13 $
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
 14 = DAB
Copyright 2014 by Diane Scott Docking
(in millions)
RBR
$103.084
Top penalty-free band
$113.3924*
Bottom penalty-free band
$92.7756**
98
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
1,477.140
$
105.510
11
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
Copyright 2014 by Diane Scott Docking
12
Example: Calculating Reserve Requirement

(cont.)
The following information is available:
Reserve Balances at Fed During Maintance Period
(in thousands)
Reserve Balances for:
Day
Closing
Date
Bal. w / Fed
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
Copyright 2014 by Diane Scott Docking
Total
$
343,281
 14 = DAB to date
$
24,520.07
13
Example: Calculating Reserve Requirement

(cont.)
Answer the following questions:
1)
2)
3)
4)
5)
What is the amount of Net transaction accounts?
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?
Copyright 2014 by Diane Scott Docking
14
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)
A.3 Total transaction accounts
(1)
14-day
average
(2)
A. Gross
transaction
accounts
416,500
+
AA.1Ineligible acceptances and
obligations issued by affiliates
maturing in less than 7 days
=
416,500
Net
transaction
accounts
0
_
Deductions
B.1 Demand balances due from
depository institutions in
the U.S.
B. Total
deductions
15,145
+
B.2 CIPC
(3)
=
20,745
5,600
Copyright 2014 by Diane Scott Docking
15
=
395,755
(If negative,
set to zero)
$395,755,000
or
$395.755 million
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
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
Copyright 2014 by Diane Scott Docking
$29.3945
16
Solution to Example: Calculating Reserve Requirement (cont.)
4)
As of close of day on Tuesday, October 28, 2014, is the Bank over- or underreserved? By how much?
(in thousands)
RBR
Top penalty-free band
Bottom penalty-free band
$29,394.50
$32,333.95
$26,455.05
DAB at Fed during reserve mtnce period $24,520.07
Balance maintained to satisfy RBR
Excess balance
Reserve deficiency amount
$24,520.07
$ $1,934.98
10% of RBR =
Bank has a reserve deficiency of $1,934,980
Copyright 2014 by Diane Scott Docking
17
$2,939.45 > $50,000
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.
•

Can use SOLVER or GOAL SEEK in Excel to do this. (See
next slide)
Copyright 2014 by Diane Scott Docking
18
Solution to Example: Calculating Reserve Requirement (cont.)
Reserve Balances at Fed During Maintance Period
Reserve Balances at Fed During Maintance Period
(in thousands)
Reserve Balances for:
Day
(in thousands)
Closing
Date
Reserve Balances for:
Bal. w/ Fed
Day
Closing
Date
Bal. w / Fed
Thurs.
16-Oct-14 $
25,000
Thurs.
16-Oct-14 $
25,000
Fri.
17-Oct-14
22,500
Fri.
17-Oct-14
22,500
Sat.
18-Oct-14
22,500
Sat.
18-Oct-14
22,500
Sun.
19-Oct-14
22,500
Sun.
19-Oct-14
22,500
Mon.
20-Oct-14
14,000
Mon.
20-Oct-14
14,000
Tues.
21-Oct-14
16,000
Tues.
21-Oct-14
16,000
Wed.
22-Oct-14
38,000
Wed.
22-Oct-14
38,000
Thurs.
23-Oct-14
36,320
Thurs.
23-Oct-14
36,320
Fri.
24-Oct-14
28,000
Fri.
24-Oct-14
28,000
Sat.
25-Oct-14
28,000
Sat.
25-Oct-14
28,000
Sun.
26-Oct-14
28,000
Sun.
26-Oct-14
28,000
Mon.
27-Oct-14
32,560
Mon.
27-Oct-14
32,560
Tues.
28-Oct-14
29,901
Tues.
28-Oct-14
29,901
Wed.
29-Oct-14
Wed.
29-Oct-14
27,090
Total
$
343,281
 14 = DAB to date $
24,520.07
Total
$
370,371
 14 = DAB to date $
26,455.05
use solver or goal
Bottom penalty-free band
$26,455.05
Copyright 2014 by Diane Scott Docking
seek to equate
use solver or goal
Bottom penalty-free band
$26,455.05
seek to equate
19