Topic: Reserve Requirements
-
We are working through an auditing guide for Regulation D, and one of the auditing questions asks: “In instances where a customer maintained multiple transaction accounts with the bank, were overdrafts in one account (pursuant to a bona fide cash management arrangement) netted against balances in other related transaction accounts for reserve requirement purposes?” What is a “bona fide cash management arrangement”?
—
by
While the OCC is not your primary regulator, that agency has published the only guidance (that we are aware of) defining “bona fide cash management arrangement” for purposes of Regulation D: “Generally, a bona fide cash-management arrangement exists and accounts may be netted for reserve purposes when the depository institution and the customer in effect…
-
If a customer is over 59½ years old but under 70½ years old, can we charge an early withdrawal penalty for a certificate of deposit (CD) in an individual retirement account (IRA)?
—
by
Once seven days have passed after your customer first opens the IRA CD account, you may charge an early withdrawal penalty if permitted by your account agreement and disclosures. We are not aware of any IRS regulation that would prohibit you from charging an early withdrawal fee (after seven days have passed) when the CD…
-
Are we required to have a formal Regulation D policy?
—
by
No, we are not aware of any requirement to establish a formal Regulation D policy.
-
When a certificate of deposit (CD) holder dies, are we required to charge an early withdrawal penalty? What if the holder withdraws money for a medical emergency? Should we be documenting every instance of a waived penalty?
—
by
You may waive the early withdrawal penalty required by Regulation D when a CD owner dies or is declared legally incompetent, but you may not waive the required early withdrawal penalty for withdrawals related to a medical emergency. Of course, early withdrawal penalties are required only for withdrawals within the first six days after the…
-
Can a for-profit organization open a NOW account?
—
by
We do not believe a for-profit organization may open a NOW account. However, we believe that you may allow the for-profit organization to open an ordinary interest-bearing account and you should note that the Dodd-Frank Act repealed the prohibition of paying interest on demand deposit accounts. See 76 Fed. Reg. 41392 (July 14, 2011). The Federal…
-
To encourage customers to renew their CDs, we would like to offer some customers a CD that will not impose a withdrawal penalty on one withdrawal during the CD’s term. Do you see any compliance issues?
—
by
We do not see any problem with offering a CD with the option to withdraw one time without a penalty, provided that it would not be an option until six days have passed since opening the account (which would ensure that it fits under the definition of “time deposit” under Regulation D, 12 CFR 204.2(c)).…
-
If a certificate of deposit has matured, but the customer has not decided whether to renew, do we have any obligations as to the account?
—
by
We are not aware of any obligations that the bank has as to the matured CDs. If the customer has not chosen to renew, and the original agreement did not provide for automatic renewals, then the bank has no obligation to renew or pay interest on the deposits. Note that under Regulation D, the bank…
-
Are there any caps on the penalties we can charge on certificates of deposit (CDs)?
—
by
Regulation D sets a minimum withdrawal penalty for accounts that can be considered “time deposits” for reserve requirement purposes: “A time deposit from which partial early withdrawals are permitted must impose additional early withdrawal penalties of at least seven days’ simple interest on amounts withdrawn within six days after each partial withdrawal.” 12 CFR 204.2(c)(1)(i).…
-
Can an LLC open a NOW account?
—
by
We do not believe that an LLC can open a “NOW account,” but you may allow the business to open an ordinary interest-bearing account. The Federal Deposit Insurance Act authorizes NOW accounts (accounts which allow for withdrawals and on which you pay interest) only when “the entire beneficial interest is held by one or more…