[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: 12CFR204.128]

[Page 148-149]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 204--RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS (REGULATION D)--Table of Contents
 
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

[[Page 149]]

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.

[52 FR 47696, Dec. 16, 1987]