For purposes of reserve calculations the Federal Reserve Act defines "demand" deposits as comprising all deposits payable within 30 days. It defines "time" deposits as comprising all deposits payable after 30 days, all savings accounts and certificates of deposit which are subject to not less than 30 days' notice before payment, and all postal savings deposits. Government deposits other than postal savings deposits are exempt from reserve requirements. (These items are more fully defined by Regulation D of 1917 of the Federal Reserve Board.) In estimating the reserve balances required by law, the net difference between the amount due to other banks and the amount due from them is to be taken as a basis for ascertaining the deposits against which required balances are calculated.
Therefore according to rulings of the Federal Reserve Board on February 11, 1920, demand deposits for reserve calculations consist of: (1) deposits other than United States government deposits and bank deposits payable within 30 days, and (2) the net balance due to banks. The reserve required against the demand deposits is 7, 10, or 13 per cent of the sum of these two items, according to the location of the bank. The net balance due to a bank is ascertained in the following manner: First, are added together these items: the balances due to all banks (including foreign banks) other than the federal reserve bank, deferred credits due to the federal reserve bank, outstanding cashier's, secretary's, or treasurer's checks on the bank itself, and outstanding certified checks. From the total of these items is deducted the total of balances due from banks other than the federal reserve bank and foreign banks, items with the federal reserve bank in process of collection, exchanges for the clearing house, and checks on other banks in the same place as the bank itself. If the aggregate Due from Banks exceeds the aggregate Due to Banks, both amounts are omitted from the calculation. The law does not permit member banks to deduct checks on other banks located in the same place, or exchanges for the clearing house, directly from the gross deposits. The account, Due to Federal Reserve Bank - Deferred Credits, is the one to which items received from the federal reserve bank are credited on the day of receipt if they are to be paid by a charge against the bank's Reserve account; and the account, Due to Federal Reserve Bank - Deferred Credits, will be debited, and the account, Due from the Federal Reserve Bank, Reserve account, will be credited, on the day when these items become a charge against the bank's reserve account on the books of the federal reserve bank. The general theory underlying these calculations is that demand deposits comprise only deposits which are immediately available, and that items on the liability side whose availability is deferred and uncollected items on the resource side of the bank statement should be disregarded.
The time deposits, for purposes of reserve calculations, consist of the sum of the following items:
1. Savings accounts subject to not less than 30 days' notice before payment.
2. Certificates of deposit subject to not less than 30 days' notice before payment.
3. Other Deposits Payable Only After 30 Days.
4. Postal Savings Deposits.
The reserve required against the time deposits is 3 per cent for all banks. For the purpose of calculating reserves the above items must be reported to the federal reserve bank at stated periods - once a week by member banks located in reserve and central reserve cities and twice a month by country banks.
The balance carried by a member bank with its federal reserve bank may, under the regulation of the Federal Reserve Board and subject to such penalties as may be prescribed by the board, be checked against and withdrawn by the member, but no member bank may at any time make new loans or pay any dividends unless and until the total balance required by law is fully restored. The penalty assessed by the reserve bank on its members for impairment of reserves is to charge interest on the deficiency at a rate above the discount rate.