[Code of Federal Regulations]
[Title 12, Volume 3, Parts 220 to 299]
[Revised as of January 1, 2001]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR225.52]

[Page 99-102]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 225--BANK HOLDING COMPANIES AND CHANGE IN BANK CONTROL (REGULATION Y)--Table of Contents
 
                 Subpart F--Limitations on Nonbank Banks
 
Sec. 225.52  Limitation on overdrafts.


    (a) Definitions. For purposes of this section--
    (1) Account means a reserve account, clearing account, or deposit 
account as defined in the Board's Regulation D (12 CFR 204.2(a)(1)(i)), 
that is maintained at a Federal Reserve Bank or nonbank bank.
    (2) Cash item means (i) a check other than a check classified as a 
noncash item; or (ii) any other item payable on demand and collectible 
at par that the Federal Reserve Bank of the district in which the item 
is payable is willing to accept as a cash item.
    (3) Discount window loan means any credit extended by a Federal 
Reserve Bank to a nonbank bank or industrial bank pursuant to the 
provisions of the Board's Regulation A (12 CFR part 201).
    (4) Industrial bank means an institution as defined in section 
2(c)(2)(H) of the BHC Act (12 U.S.C. 1841(c)(2)(H)).
    (5) Noncash item means an item handled by a Reserve Bank as a 
noncash item under the Reserve Bank's ``Collection of Noncash Items 
Operating Circular'' (e.g., a maturing bankers' acceptance or a maturing 
security, or a demand item, such as a check, with

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special instructions or an item that has not been preprinted or post-
encoded).
    (6) Other nonelectronic transactions include all other transactions 
not included as funds transfers, book-entry securities transfers, cash 
items, noncash items, automated clearing house transactions, net 
settlement entries, and discount window loans (e.g., original issue of 
securities or redemption of securities).
    (7) An overdraft in an account occurs whenever the Federal Reserve 
Bank, nonbank bank, or industrial bank holding an account posts a 
transaction to the account of the nonbank bank, industrial bank, or 
affiliate that exceeds the aggregate balance of the accounts of the 
nonbank bank, industrial bank, or affiliate, as determined by the 
posting rules set forth in paragraphs (d) and (e) of this section and 
continues until the aggregate balance of the account is zero or greater.
    (8) Transfer item means an item as defined in subpart B of 
Regulation J (12 CFR 210.25 et seq).
    (b) Restriction on overdrafts--(1) Affiliates. Neither a nonbank 
bank nor an industrial bank shall permit any affiliate to incur any 
overdraft in its account with the nonbank bank or industrial bank.
    (2) Nonbank banks or industrial banks. (i) No nonbank bank or 
industrial bank shall incur any overdraft in its account at a Federal 
Reserve Bank on behalf of an affiliate.
    (ii) An overdraft by a nonbank bank or industrial bank in its 
account at a Federal Reserve Bank shall be deemed to be on behalf of an 
affiliate whenever:
    (A) A nonbank bank or industrial bank holds an account for an 
affiliate from which third-party payments can be made; and
    (B) When the posting of an affiliate's transaction to the nonbank 
bank's or industrial bank's account at a Reserve Bank creates an 
overdraft in its account at a Federal Reserve Bank or increases the 
amount of an existing overdraft in its account at a Federal Reserve 
Bank.
    (c) Permissible overdrafts. The following are permissible overdrafts 
not subject to paragraph (b) of this section:
    (1) Inadvertent error. An overdraft in its account by a nonbank bank 
or its affiliate, or an industrial bank or its affiliate, that results 
from an inadvertent computer error or inadvertent accounting error, that 
was not reasonably forseeable or could not have been prevented through 
the maintenance of procedures reasonably adopted by the nonbank bank or 
affiliate to avoid such overdraft; and
    (2) Fully secured primary dealer affiliate overdrafts. (i) An 
overdraft incurred by an affiliate of a nonbank bank, which affiliate is 
recognized as a primary dealer by the Federal Reserve Bank of New York, 
in the affiliate's account at the nonbank bank, or an overdraft incurred 
by a nonbank bank on behalf of its primary dealer affiliate in the 
nonbank bank's account at a Federal Reserve Bank; provided: the 
overdraft is fully secured by bonds, notes, or other obligations which 
are direct obligations of the United States or on which the principal 
and interest are fully guaranteed by the United States or by securities 
and obligations eligible for settlement on the Federal Reserve book-
entry system.
    (ii) An overdraft by a nonbank bank in its account at a Federal 
Reserve Bank that is on behalf of a primary dealer affiliate is fully 
secured when that portion of its overdraft at the Federal Reserve Bank 
that corresponds to the transaction posted for an affiliate that caused 
or increased the nonbank bank's overdraft is fully secured in accordance 
with paragraph (c)(2)(iii) of this section.
    (iii) An overdraft is fully secured under paragraph (c)(2)(i) when 
the nonbank bank can demonstrate that the overdraft is secured, at all 
times, by a perfected security interest in specific, identified 
obligations described in paragraph (c)(2)(i) with a market value that, 
in the judgment of the Reserve Bank holding the nonbank bank's account, 
is sufficiently in excess of the amount of the overdraft to provide a 
margin of protection in a volatile market or in the event the securities 
need to be liquidated quickly.
    (d) Posting by Federal Reserve Banks. For purposes of determining 
the balance of an account under this section, payments and transfers by 
nonbank

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banks and industrial banks processed by the Federal Reserve Banks shall 
be considered posted to their accounts at Federal Reserve Banks as 
follows:
    (1) Funds transfers. Transfer items shall be posted:
    (i) To the transferor's account at the time the transfer is actually 
made by the transferor's Federal Reserve Bank; and
    (ii) To the transferee's account at the time the transferee's 
Reserve Bank sends the transfer item or sends or telephones the advice 
of credit for the item to the transferee, whichever occurs first.
    (2) Book-entry securities transfers against payment. A book-entry 
securities transfer against payment shall be posted: (i) to the 
transferor's account at the time the entry is made by the transferor's 
Reserve Bank; and (ii) to the transferee's account at the time the entry 
is made by the transferee's Reserve Bank.
    (3) Discount window loans. Credit for a discount window loan shall 
be posted to the account of a nonbank bank or industrial bank at the 
close of business on the day that it is made or such earlier time as may 
be specifically agreed to by the Federal Reserve Bank and the nonbank 
bank under the terms of the loan. Debit for repayment of a discount 
window loan shall be posted to the account of the nonbank bank or 
industrial bank as of the close of business on the day of maturity of 
the loan or such earlier time as may be agreed to by the Federal Reserve 
Bank and the nonbank bank or required by the Federal Reserve Bank under 
the terms of the loan.
    (4) Other transactions. Total aggregate credits for automated 
clearing house transfers, cash items, noncash items, net settlement 
entries, and other nonelectronic transactions shall be posted to the 
account of a nonbank bank or industrial bank as of the opening of 
business on settlement day. Total aggregate debits for these 
transactions and entries shall be posted to the account of a nonbank 
bank or industrial bank as of the close of business on settlement day.
    (e) Posting by nonbank banks and industrial banks. For purposes of 
determining the balance of an affiliate's account under this section, 
payments and transfers through an affiliate's account at a nonbank bank 
or industrial bank shall be posted as follows:
    (1) Funds transfers. (i) Fedwire transfer items shall be posted:
    (A) To the transferor affiliate's account no later than the time the 
transfer is actually made by the transferor's Federal Reserve Bank; and
    (B) To the transferee affiliate's account no earlier than the time 
the transferee's Reserve Bank sends the transfer item, or sends or 
telephones the advice of credit for the item to the transferee, 
whichever occurs first.
    (ii) For funds transfers not sent or received through Federal 
Reserve Banks, debits shall be posted to the transferor affiliate's 
account not later than the time the nonbank bank or industrial bank 
becomes obligated on the transfer. Credits shall not be posted to the 
transferee affiliate's account before the nonbank bank or industrial 
bank has received actually and finally collected funds for the transfer.
    (2) Book-entry securities transfers against payment. (i) A book-
entry securities transfer against payment shall be posted:
    (A) To the transferor affiliate's account not earlier than the time 
the entry is made by the transferor's Reserve Bank; and
    (B) To the transferee affiliate's account not later than the time 
the entry is made by the transferee's Reserve Bank.
    (ii) For book-entry securities transfers against payment that are 
not sent or received through Federal Reserve Banks, entries shall be 
posted:
    (A) To the buyer-affiliate's account not later than the time the 
nonbank bank or industrial bank becomes obligated on the transfer; and
    (B) To the seller-affiliate's account not before the nonbank bank or 
industrial bank has received actually and finally collected funds for 
the transfer.
    (3) Other transactions--(i) Credits. Except as otherwise provided in 
this paragraph, credits for cash items, noncash items, ACH transfers, 
net settlement entries, and all other nonelectronic transactions shall 
be posted to an affiliate's account on the day of the transaction (i.e., 
settlement day for

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ACH transactions or the day of credit for check transactions), but no 
earlier than the Federal Reserve Bank's opening of business on that day. 
Credit for cash items that are required by federal or state statute or 
regulation to be made available to the depositor for withdrawal prior to 
the posting time set forth in the preceding paragraph shall be posted as 
of the required availability time.
    (ii) Debits. Debits for cash items, noncash items, ACH transfers, 
net settlement entries, and all other nonelectronic transactions shall 
be posted to an affiliate's account on the day of the transaction (e.g., 
settlement day for ACH transactions or the day of presentment for check 
transactions), but no later than the Federal Reserve Bank's close of 
business on that day. If a check drawn on an affiliate's account or an 
ACH debit transfer received by an affiliate is returned timely by the 
nonbank bank or industrial bank in accordance with applicable law and 
agreements, no entry need to be posted to the affiliate's account for 
such item.

[Reg. Y, 53 FR 37744, Sept. 28, 1988]