Sec. 204.124 Repurchase agreement involving
shares of a money market mutual fund whose portfolio consists wholly of
United States Treasury and Federal agency securities.
(a) The Federal Reserve Act, as amended by the Monetary Control Act
of 1980 (title I of Pub. L. 96-221) imposes Federal reserve requirements
on transaction accounts and nonpersonal time deposits held by depository
institutions. The Board is empowered under the Act to determine what types
of obligations shall be deemed a deposit (12 U.S.C. 461). Regulation D--Reserve
Requirements of Depository Institutions exempts from the definition of
deposit those obligations of a depository institution that arise from a
transfer of direct obligations of, or obligations that are fully guaranteed
as to principal and interest by, the United States government or any agency
thereof that the depository institution is obligated to repurchase (12
CFR 204.2(a)(1)(vii)(B)).
(b) The National Bank Act provides that a national bank may purchase
for its own account investment securities under limitations and restrictions
as the Comptroller may prescribe (12 U.S.C. 24, para. 7). The statute defines
investment securities to mean marketable obligations evidencing indebtedness
of any person in the form of bonds, notes, and debentures. The Act further
limits a national bank's holdings of any one security to no more than an
amount equal to 10 percent of the bank's capital stock and surplus. However,
these limitations do not apply to obligations issued by the United States,
general obligations of any state and certain obligations of Federal agencies.
In addition, generally a national bank is not permitted to purchase for
its own account stock of any corporation. These restrictions also apply
to state member banks (12 U.S.C. 335).
(c) The Comptroller of the Currency has permitted national banks to
purchase for their own accounts shares of open-end investment companies
that are purchased and sold at par (i.e., money market mutual funds) provided
the portfolios of such companies consist solely of securities that a national
bank may purchase directly (Banking Bulletin B-83-58). The Board of Governors
has permitted state member banks to purchase, to the extent permitted under
applicable state law, shares of money market mutual funds (MMMF) whose
portfolios consist solely of securities that the state member bank may
purchase directly (12 CFR 208.123).
(d) The Board has determined that an obligation arising from a repurchase
agreement involving shares of a MMMF whose portfolio consists wholly of
securities of the United States government or any agency thereof1
would not be a deposit for purposes of Regulations D and Q. The Board believes
that a repurchase agreement involving shares of such a MMMF is the functional
equivalent of a repurchase agreement directly involving United States government
or agency obligations. A purchaser of shares of a MMMF obtains an interest
in a pro rata portion of the assets that comprise the MMMF's portfolio.
Accordingly, regardless of whether the repurchase agreement involves United
States government or agency obligations directly or shares in a MMMF whose
portfolio consists entirely of United States government or agency obligations,
an equitable and undivided interest in United States and agency government
obligations is being transferred. Moreover, the Board believes that this
interpretation will further the purpose of the exemption in Regulations
D and Q for repurchase agreements involving United States government or
Federal obligations by enhancing the market for such obligations.
1 The term United States government
or any agency thereof as used herein shall have the same meaning as in
Sec. 204.2(a)(1)(vii)(B) of Regulation D, 12 CFR 204.2(a)(1)(vii)(B).
BankersOnline is a free service made possible by the generous support of our advertisers and sponsors. Advertisers and sponsors are not responsible for site content. Please help us keep BankersOnline FREE to all banking professionals. Support our advertisers and sponsors by clicking through to learn more about their products and services.
Print Friendly!
Email This Article!
Discuss NOW!
