Fed Gives Credit Unions Greater Flexibility To Comply With Regulation D

March 19, 2020 at 9:30 am Leave a comment

Since the Federal Reserve announced that it was eliminating transaction account reserve requirements, credit unions have been wondering what impact, if any, this has on their compliance requirements under Regulation D.  This is the regulation which sets limits on the number of account transactions that a member can conduct each month while still allowing credit unions to classify the account as a savings account.  In a nutshell, credit unions must still comply with Regulation D but by eliminating the reserve requirements, credit unions give their members greater access to their savings accounts without being subject to increased reserve requirements. 

Section 19 of the Federal Reserve Act gives the Fed the responsibility of imposing reserve requirements on financial institutions.  Regulation D effectuates this goal by imposing reserve requirements on transaction accounts.  For financial institutions, this means that any account which allows a member to make more than six transactions a month is subject to a reserve requirement.  Under Federal regulations, the higher the value of an institution’s net transaction accounts, the higher its reserve requirements become.  Traditionally, institutions that had between 15.2 million to 110 million in net transaction accounts have been subject to a 3% reserve requirement and those above that threshold must set aside 10% in reserves. 
The Fed’s decision to eliminate the reserve requirements has two important implications for credit unions.  First, it means that the money currently being set aside to meet reserve requirements can be reallocated.  Secondly, credit unions and banks can now allow their members to conduct more than six transactions a month without triggering increased reserve requirements.  With the economy taking so many unexpected turns, this could be useful to members with unanticipated expenses who want to access their savings accounts.
However, here is the tricky part.  All institutions still have to report this information to the Fed.  Some credit unions only have to do this once a year while the largest institutions are subject to weekly reporting requirements.  When making these reports, remember that accounts on which more than six transactions can be conducted must be classified as transaction accounts.  As you can see, Regulation D has not been eliminated, but it has been temporarily defanged.

Entry filed under: Compliance, Regulatory. Tags: , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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