[Code of Federal Regulations]
[Title 12, Volume 2]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 12CFR204.124]

[Page 146]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 204--RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS (REGULATION D)--Table of Contents
 
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 
thereof \1\ 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.
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    \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).

[50 FR 13011, Apr. 2, 1985, as amended at 52 FR 47695, Dec. 16, 1987]