Sec. 204.128 Deposits at foreign branches guaranteed
by domestic office of a depository institution.
(a) In accepting deposits at branches abroad, some depository institutions
may enter into agreements from time to time with depositors that in effect
guarantee payment of such deposits in the United States if the foreign
branch is precluded from making payment. The question has arisen whether
such deposits are subject to Regulation D, and this interpretation is intended
as clarification.
(b) Section 19 of the Federal Reserve Act which establishes reserve
requirements does not apply to deposits of a depository institution ``payable
only at an office thereof located outside of the States of the United States
and the District of Columbia'' (12 U.S.C. 371a; 12 CFR 204.1(c)(5)). The
Board rule in 1918 that the requirements of section 19 as to reserves to
be carried by member banks do not apply to foreign branches (1918 Fed.
Res. Bull. 1123). The Board has also defined the phrase Any deposit that
is payable only at an office located outside the United States, in Sec.
204.2(t) of Regulation D, 12 CFR 204.2(t).
(c) The Board believes that this exemption from reserve requirements
should be limited to deposits in foreign branches as to which the depositor
is entitled, under his agreement with the depository institution, to demand
payment only outside the United States, regardless of special circumstances.
The exemption is intended principally to enable foreign branches of U.S.
depository institutions to compete on a more nearly equal basis with banks
in foreign countries in accordance with the laws and regulations of those
countries. A customer who makes a deposit that is payable solely at a foreign
branch of the depository institution assumes whatever risk may exist that
the foreign country in which a branch is located might impose restrictions
on withdrawals. When payment of a deposit in a foreign branch is guaranteed
by a promise of payment at an office in the United States if not paid at
the foreign office, the depositor no longer assumes this risk but enjoys
substantially the same rights as if the deposit had been made in a U.S.
office of the depository institution. To assure the effectiveness of Regulation
D and to prevent evasions thereof, the Board considers that such guaranteed
foreign-branch deposits must be subject to that regulation.
(d) Accordingly, a deposit in a foreign branch of a depository institution
that is guaranteed by a domestic office is subject to the reserve requirements
of Regulation D the same as if the deposit had been made in the domestic
office. This interpretation is not designed in any respect to prevent the
head office of a U.S. bank from repaying borrowings from, making advances
to, or supplying capital funds to its foreign branches, subject to Eurocurrency
liability reserve requirements.
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!
