[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: 12CFR204.136]

[Page 155-156]
 
                       TITLE 12--BANKS AND BANKING
 
                   CHAPTER II--FEDERAL RESERVE SYSTEM
 
PART 204--RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS (REGULATION D)--Table of Contents
 
Sec. 204.136  Treatment of trust overdrafts for reserve requirement reporting purposes.

    (a) Authority. Under section 19(a) of the Federal Reserve Act (12 
U.S.C. 461(a)), the Board is authorized to define the terms used in 
section 19, and to prescribe regulations to implement and prevent 
evasions of the requirements of that section. Section 19(b) establishes 
general reserve requirements on transaction accounts and nonpersonal 
time deposits. Under section 19(b)(1)(F), the Board also is authorized 
to determine, by regulation or order, that an account or deposit is a 
transaction account if such account is used directly or indirectly for 
the purpose of making payments to third persons or

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others. This interpretation is adopted under these authorities.
    (b) Netting of trust account balances. (1) Not all depository 
institutions have treated overdrafts in trust accounts administered by a 
trust department in the same manner when calculating the balance in a 
commingled transaction account in the depository institution for the 
account of the trust department of the institution. In some cases, 
depository institutions carry the aggregate of the positive balances in 
the individual trust accounts as the balance on which reserves are 
computed for the commingled account. In other cases depository 
institutions net positive balances in some trust accounts against 
negative balances in other trust accounts, thus reducing the balance in 
the commingled account and lowering the reserve requirements. Except in 
limited circumstances, negative balances in individual trust accounts 
should not be netted against positive balances in other trust accounts 
when determining the balance in a trust department's commingled 
transaction account maintained in a depository institution's commercial 
department. The netting of positive and negative balances has the effect 
of reducing the aggregate of a commingled transaction account reported 
by the depository institution to the Federal Reserve and reduces the 
reserves the institution must hold against transaction accounts under 
Regulation D. Unless the governing trust agreement or state law 
authorizes the depository institution, as trustee, to lend money in one 
trust to another trust, the negative balances in effect, for purposes of 
Regulation D, represent a loan from the depository institution. 
Consequently, negative balances in individual trust accounts should not 
be netted against positive balances in other individual trust accounts, 
and the balance in any transaction account containing commingled trust 
balances should reflect positive or zero balances for each individual 
trust.
    (2) For example, where a trust department engages in securities 
lending activities for trust accounts, overdrafts might occur because of 
the trust department's attempt to ``normalize'' the effects of timing 
delays between the depository institution's receipt of the cash 
collateral from the broker and the trust department's posting of the 
transaction to the lending trust account. When securities are lent from 
a trust customer to a broker that pledges cash as collateral, the broker 
usually transfers the cash collateral to the depository institution on 
the day that the securities are made available. While the institution 
has the use of the funds from the time of the transfer, the trust 
department's normal posting procedures may not reflect receipt of the 
cash collateral by the individual account until the next day. On the day 
that the loan is terminated, the broker returns the securities to the 
lending trust account and the trust customer's account is debited for 
the amount of the cash collateral that is returned by the depository 
institution to the broker. The trust department, however, often does not 
liquidate the investment made with the cash collateral until the day 
after the loan terminates, a delay that normally causes a one day 
overdraft in the trust account. Regulation D requires that, on the day 
the loan is terminated, the depository institution regard the negative 
balance in the customer's account as zero for reserve requirement 
reporting purposes and not net the overdraft against positive balances 
in other accounts.
    (c) Procedures. In order to meet the requirements of Regulation D, a 
depository institution must have procedures to determine the aggregate 
of trust department transaction account balances for Regulation D on a 
daily basis. The procedures must consider only the positive balances in 
individual trust accounts without netting negative balances except in 
those limited circumstances where loans are legally permitted from one 
trust to another, or where offsetting is permitted pursuant to trust law 
or written agreement, or where the amount that caused the overdraft is 
still available in a settlement, suspense or other trust account within 
the trust department and may be used to offset the overdraft.

[57 FR 38429, Aug. 25, 1992]

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