Sec. 204.126 Depository institution participation
in "Federal funds" market.
(a) Under Sec. 204.2(a)(1)(vii)(A), there is an exemption from Regulation
D for member bank obligations in nondeposit form to another bank. To assure
the effectiveness of the limitations on persons who sell Federal funds
to depository institutions, Regulation D applies to nondocumentary obligations
undertaken by a depository institution to obtain funds for use in its banking
business, as well as to documentary obligations. Under Sec. 204.2(a)(1)(vii)
of Regulation D, a depository institution's liability under informal arrangements
as well as those formally embodied in a document are within the coverage
of Regulation D.
(b) The exemption in Sec. 204.2(a)(1)(vii)(A) applies to obligations
owed by a depository institution to a domestic office of any entity listed
in that section (the exempt institutions). The exempt institutions explicitly
include another depository institution, foreign bank, Edge or agreement
corporation, New York Investment (article XII) Company, the Export-Import
Bank of the United States, Minbanc Capital Corp., and certain other credit
sources. The term exempt institutions also includes subsidiaries of depository
institutions:
(1) That engage in businesses in which their parents are authorized
to engage; or
(2) The stock of which by statute is explicitly eligible for purchase
by national banks.
(c) To assure that this exemption for liabilities to exempt institutions
is not used as a means by which nondepository institutions may arrange
through an exempt institution to sell Federal funds to a depository institution,
obligations within the exemption must be issued to an exempt institution
for its own account. In view of this requirement, a depository institution
that purchases Federal funds should ascertain the character (not necessarily
the identity) of the actual seller in order to justify classification of
its liability on the transaction as Federal funds purchased rather than
as a deposit. Any exempt institution that has given general assurance to
the purchasing depository institution that sales by it of Federal funds
ordinarily will be for its own account and thereafter executes such transactions
for the account of others, should disclose the nature of the actual lender
with respect to each such transaction. If it fails to do so, the depository
institution would be deemed by the Board as indirectly violating section
19 of the Federal Reserve Act and Regulation D.
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