Reg D

Posted By: dkoop

Reg D - 12/12/00 12:46 PM

We all know that when a savings account has repeated excessive transactions an institution must reclassify it as a transaction account. Does it not stand to reason then that if the institution can identify transaction accounts that have transactions repeatedly less than maximum limits set for savings accounts, those transaction accounts can be reclassified as savings?
Posted By: John Burnett

Re: Reg D - 12/12/00 01:57 PM

This may temper your enthusiasm --
If you reclassify the account as a savings account you are converting the account to another account type -- which will trigger a requirement for new account disclosures. Put yourself in the customer's position here, and consider your reaction to this news!

Posted By: dkoop

Re: Reg D - 12/12/00 03:11 PM

I would not be reclassifying the type of account to the customer. The customer would retain all rights and priviledges established when the account was opened, so he would not be adversely affected. In fact, the customer would not be aware of any change. The only change in classification would be from an internal recordkeeping standpoint in relation to my calculation of a reserve requirement.

J.D. Cloud & Co., LLP 120 E. Fourth St. Cincinnati, Ohio 45202

[This message has been edited by dkoop (edited 12-12-2000).]

Posted By: Andy_Z

Re: Reg D - 12/12/00 04:32 PM

Assuming you are doing this for the customers benefit, ensure the contractual rights to make these changes are there (remember the savings account terms are slightly different, 7 day notice of withdrawal as an example)how often would the change be made?

Few transactions this month may not mean few transactions next month. Changing it back and forth wouldn't work. To change it once, you'd have to continually monitor it and be ready to change it back in the event there are several withdrawals that count in the 6.

Without notice to the customers, I would expect many calls when they get a statement that shows interest income. Also, they may have something that is IRS reportable that they didn't anticipate.

For PR, you might notify those low transaction customers and offer them a switch if they want to earn interest.

Andy Zavoina
Opinions stated are not necessarily that of my employer.

[This message has been edited by Andy Z (edited 12-12-2000).]

Posted By: John Burnett

Re: Reg D - 12/12/00 04:38 PM

The Fed has already opined (negatively) on this sort of situation. You are not permitted to switch an account back and forth from savings to transaction based on activity. The customer either has the right to make the transactions or s/he doesn't.
What the Fed has said it would permit is "subaccounting" wherein a customer's transaction account is broken into two parts for reserve accounting purposes only. The customer sees the aggregate of the two accounts. The savings subaccount holds the bulk of the customer's money. When the customer's transaction account goes below a target level ($0 or some higher amount you determine), the savings subaccount is swept by enough to bring the transaction account back to target. If this happens 6 times in a month, on the 6th time, the entire balance of the savings subaccount is swept over and no further transfers are made that month.
Many banks have been successful at lowering their effective reserve requirements (net of vault cash) to almost nothing using this method. Incidentally, the savings side of this earns the same rate of interest as the transaction side (so the entire thing is really transparent to the customer). But you'll need to consider making disclosures to customers if you decide to try something like this.
Contact your Fed for more information.

[This message has been edited by John Burnett (edited 12-12-2000).]