Topic: Reserve Requirements
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We are considering establishing a new business product that would be a tiered interest-bearing checking account that only allows for internal transfers to and from a business’s operating account. There would be no limit on the number of internal transactions between accounts, but check-writing, ACH credits and debits, and online bill pay would be prohibited for these accounts. Customers would have the option of setting up an automatic sweep between the accounts or manually authorizing transfers through online banking. Will placing transaction limitations on this account subject it to Regulation D’s six-transaction limitation? If the customer sends external payments to these accounts, what return reason code should we use for ACH items, and what are the appropriate return actions for remotely created checks and paper checks?
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We do not believe the account described here would be subject to Regulation D and its six-transaction limit for savings deposits, since your proposed account terms authorize more than six internal transactions. To meet the definition of a “savings deposit” account under Regulation D, the account agreement must reserve the bank’s right to require at…
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It is my understanding that a church can open a NOW account. Can it also open an interest-bearing checking account?
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Yes, a church may open an interest-bearing checking account. We are not aware of any ownership restrictions on interest-bearing checking accounts. Although the former Regulation Q prohibited the payment of interest on demand deposit accounts, this prohibition was repealed by the Dodd-Frank Act in 2011. Also, you are correct that a nonprofit organization that is…
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We would like to offer a money market product and would restrict the number of withdrawals from the account to one per month. Is this permissible? What disclosures would need to be provided?
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Yes, we believe it is permissible to limit withdrawals from a money market account to one per month. Regulation D requires accounts classified as savings accounts to be limited to six transfers and withdrawals per month or statement cycle, but it does not prohibit banks from imposing more restrictive limitations. Your bank’s Truth in Savings…
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We want to offer a “sweep” agreement to some of our commercial customers. The customer would maintain a savings account or money market account and an interest-bearing investment vehicle in the form of a repurchase agreement (a “repo account”). When the savings deposit account balance reaches a certain threshold, we would sweep the excess funds into the repo account. In addition, if the savings deposit fell below a certain threshold, we would sweep funds from the repo account into the savings deposit account. Are these sweep transactions limited to six per month under Regulation D? We would classify the savings accounts as “savings deposits” for reserve requirements purposes but are not sure how to classify the repo accounts, which are reported on the Call Report separately from our transaction/non-transaction accounts.
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Because your institution is classifying the savings or money market accounts as non-transactional savings deposits for reserve requirements purposes, the accounts are limited to no more than six withdrawals per month, among other requirements in Regulation D. Consequently, the preauthorized sweeps from these accounts into the “repo account” would be subject to the six-per-month limitation…
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Is an individual retirement account (IRA) considered a “savings account” under Regulation D?
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If your institution wishes to characterize its IRAs as savings accounts for purposes of your reserve requirements under Regulation D, the IRAs must meet Regulation D’s definition of a “savings deposit.” To meet this definition, your account agreements must reserve the bank’s right to require at least seven days’ prior written notice of a withdrawal,…
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If a customer has money invested in a funeral trust (with the funds invested in a certificate of deposit) and wants to cash it in, can we assess an early withdrawal penalty? The trust beneficiary is still alive, and it is not our practice to waive early withdrawal penalties unless the owner has died. The funeral home that owns the account is saying that we cannot assess a penalty. The CD states on its face that there will be a penalty for early withdrawal, along with the amount of the penalty.
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We believe you may assess an early withdrawal penalty for the certificate of deposit (CD) held for the funeral trust, because the penalty is one of the terms of the CD account. The provisions in the Illinois Funeral or Burial Funds Act (which governs both the funeral home and funeral trust beneficiaries) on which the…
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If we report interest bearing checking accounts as NOW accounts on our Call Report, does Regulation D require us to reserve the right to require seven days’ written notice prior to withdrawals from those accounts?
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Yes, in order for an account to meet the definition of a NOW account under Regulation D, the bank must reserve the right to require at least seven days’ written notice prior to withdrawal or transfer of funds. Consequently, if you have classified an account as a NOW account on your Call Report, your institution…
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Under Regulation D, when a customer exceeds the transaction limit on a savings or money market account, at what point during our 12-month review must we reclassify the account as a transaction account?
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There is no specific deadline for reclassifying time deposit accounts as transaction accounts following a violation of withdrawal or transfer limits. Regulation D requires that a bank contact the customer about account violations prior to reclassification, but does not impose a specific deadline for effecting the reclassification. In a staff opinion issued in 1990, the…
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How many withdrawals from a passbook savings account are you limited to, to be compliant monthly or quarterly? And does the term “withdrawals” include ACH transfers, loan payments, and in-person withdrawals?
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To meet the definition of a “savings deposit” under Regulation D, a passbook savings account must be limited to six withdrawals “per calendar month or statement cycle (or similar period) of at least four weeks.” The term “withdrawals” does include ACH transfers and loan payments for loans outside of your institution. However, in-person withdrawals and…
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Should a bank maintain a deposit reserve account similar to a loan loss reserve, but for debit card losses, kiting, bad checks, etc.?
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No one on the IBA Compliance Advisory Committee had experiences with deposit reserve accounts. However, one committee member did note that her bank had budgeted for debit card losses as part of its annual budgeting process for 2016. This was the first year that the bank budgeted for these losses. The bank does not set…