What is Regulation I
Regulation I is a regulation set forth by the Federal Reserve. Regulation I stipulates that any bank that becomes a member of the Federal Reserve acquire a certain amount of stock in its Federal Reserve Bank.
BREAKING DOWN Regulation I
Regulation I states the procedures for banks to purchase and redeem Federal Reserve Bank capital stock. The bank cannot use this stock as collateral.
Member banks are required to buy stock that equals at least 6% of their capital and surplus. Reserve Bank stock cannot be transferred to another party and pays dividends every six months. Banks must ensure that the ratio of the stock held to their capital and surplus remains constant at 6% or more at all times, and must pay in three percent of their capital and surplus holdings. Generally, banks must subscribe to, or purchase, capital stock from their District Federal Reserve Bank.
Regulation I Compliance
Regulation I outlines procedures for Federal Reserve member banks to stay in compliance with capital stock subscription requirements, as well as procedures for banks wishing to become Federal Reserve member banks. Reg I addresses both the issuance and cancellation of capital stock in the Federal Reserve bank, how to deal with changes that might occur to a member bank’s capital or surplus, and how banks might enter or leave the Federal Reserve banking system.
Under Reg I, a bank that wants to become a member of the Federal Reserve banking system must file an application for stock with the District Federal Reserve bank in the district where it is located. The regulation also lays out procedures for the cancellation of this stock if the bank should withdraw from or involuntarily or voluntarily end its membership in the Federal Reserve System. Circumstances under which this might occur include the bank going out of business, its merger with a nonmember bank or its liquidation.
Regulation I also outlines the procedure for determining how much Federal Reserve stock a member bank should buy, including procedures for adjusting that amount in accordance with changes to the member bank’s liquid assets. Furthermore, the regulation specifies how dividends are to be assessed, and how records of member banks’ holdings of Federal Reserve Bank capital stock are to be recorded in the Reserve Bank’s books.