Regulation D is a Federal Reserve regulation that establishes reserve requirements for depository institutions and defines how different types of deposit accounts are classified for regulatory and monetary policy purposes. Originally implemented to help the Federal Reserve control the money supply through bank reserve requirements, Regulation D underwent significant changes in 2020 when reserve requirements were reduced to zero and the six-transaction limit on savings accounts was suspended. However, the regulation continues to govern deposit account classification and reporting requirements.
Who It Applies To
- All depository institutions, including commercial banks, savings banks, savings and loan associations, and credit unions
- U.S. branches and agencies of foreign banks
- Edge and Agreement corporations
- Any institution that offers consumer deposit accounts
The regulation affects both federally insured institutions and those eligible to apply for federal deposit insurance.
Key Requirements
Deposit Account Classification
- Transaction Accounts: Include demand deposits, NOW accounts, and ATS accounts that permit unlimited third-party transfers and withdrawals. These accounts were subject to reserve requirements until March 2020.
- Savings Deposits: Accounts that require institutions to reserve the right to require seven days’ written notice for withdrawals and historically limited “convenient” transfers to six per month.
- Time Deposits: Certificates of deposit and other accounts with specific maturity dates, requiring early withdrawal penalties if funds are accessed within six days of deposit.
- Money Market Deposit Accounts (MMDAs): Classified as savings deposits under Regulation D, subject to the same transfer restrictions as traditional savings accounts.
Reserve Requirements (Currently Suspended)
As of March 26, 2020, the Federal Reserve reduced all reserve requirement ratios to zero percent, effectively eliminating the need for banks to hold reserves against deposits. Prior to this change, banks were required to maintain reserves based on:
- Net transaction account balances
- Nonpersonal time deposits (subject to zero percent since the 1990s)
- Eurocurrency liabilities (subject to zero percent since the 1990s)
Reporting Requirements
Institutions must continue to file FR 2900 deposit reports with the Federal Reserve, classifying their deposit liabilities according to Regulation D definitions even though reserve requirements are currently zero.
Practical Impact
- For Consumers: The 2020 changes removed federal restrictions on savings account transactions, though many banks continue to impose their own limits and fees.
- For Banks: Simplified reserve management and eliminated the cost of maintaining required reserves, but institutions must still classify accounts properly for regulatory reporting.
- For Monetary Policy: The Federal Reserve shifted to an “ample reserves” framework, paying interest on excess reserves rather than requiring minimum reserve levels.
Examples
- A customer with a savings account can now make unlimited electronic transfers at institutions that have removed the six-transaction limit, though some banks still charge fees for excessive transactions.
- A bank no longer needs to hold vault cash or deposits at the Federal Reserve to meet reserve requirements, but must still report deposit balances by category.
- A credit union must properly classify member share accounts as either transaction accounts or savings deposits for regulatory reporting purposes.
Compliance Strategies
- Account Agreement Updates: Review and update deposit account agreements to reflect current transaction policies and fee structures, ensuring compliance with consumer protection requirements.
- Monitoring Systems: Maintain systems to track account transactions and identify accounts that may need reclassification based on usage patterns.
- Staff Training: Ensure customer service representatives understand current account limitations and can explain policies to customers.
- Regulatory Reporting: Implement accurate systems for classifying deposits in FR 2900 reports and other regulatory filings.
- Customer Communication: Clearly communicate any transaction limits or fees that remain in place despite regulatory changes.
Penalties for Non-Compliance
- Regulatory sanctions and enforcement actions by federal banking agencies
- Required corrective measures for improper account classification
- Civil money penalties for willful violations
- Reputational harm and increased regulatory scrutiny
Recent Updates and Changes
- March 2020: Federal Reserve reduced all reserve requirements to zero percent as part of monetary policy response to COVID-19
- April 2020: Interim final rule removed the six-transaction limit from the definition of savings deposits
- 2024-2025: Reserve requirement exemption amounts continue to be adjusted annually for inflation, though requirements remain at zero
- Many banks have maintained voluntary transaction limits and fees despite regulatory changes
Future Amendments and Regulatory Trends
- Potential modernization of deposit classification definitions to reflect digital banking innovations
- Possible revision of reporting requirements as the Federal Reserve evaluates the necessity of current deposit reporting
- Continued coordination with other regulations that reference Regulation D definitions
- Assessment of whether reserve requirements may be reintroduced in different economic conditions
Comparison Table: Pre-2020 vs. Current Regulation D
| Feature | Pre-2020 Regulation D | Current Regulation D |
|---|---|---|
| Reserve Requirements | Tiered requirements up to 10% | Zero percent for all deposits |
| Savings Transaction Limit | Six convenient transactions per month | No federal limit (banks may impose own) |
| Account Classification | Required for reserve calculations | Required for reporting only |
| Enforcement | Mandatory transaction monitoring | Optional for institutions |
| Consumer Impact | Strict federal transaction limits | Bank-determined policies |
Challenges for Financial Institutions
- Determining whether to maintain transaction limits and fee structures after regulatory changes
- Updating internal systems and procedures to reflect new regulatory environment
- Communicating policy changes effectively to customers and staff
- Maintaining accurate regulatory reporting while managing simplified reserve requirements
- Balancing customer service improvements with operational and risk management considerations
Regulation D continues to serve important functions in deposit classification and regulatory reporting, even as its primary purpose of implementing monetary policy through reserve requirements has been suspended. Financial institutions must navigate the current environment where federal requirements have been relaxed but operational and competitive considerations may support maintaining some traditional account restrictions.
FAQs
Q: Are banks still required to limit savings account transactions?
A: No, the federal requirement was suspended in April 2020, but individual banks may choose to maintain their own transaction limits and fees.
Q: Do banks still need to hold reserves?
A: No, reserve requirements were reduced to zero percent in March 2020 and remain suspended, though banks still earn interest on reserves held at Federal Reserve Banks.
Q: What is the difference between a transaction account and a savings deposit?
A: Transaction accounts (like checking) allow unlimited transfers and withdrawals, while savings deposits traditionally required institutions to reserve the right to require advance notice for withdrawals.
Q: How are deposits classified for regulatory reporting?
A: Banks must still classify deposits according to Regulation D definitions (transaction accounts, savings deposits, time deposits) for FR 2900 reporting purposes.
Q: Can the Federal Reserve reinstate reserve requirements?
A: Yes, the Federal Reserve retains the authority to impose reserve requirements if needed for monetary policy purposes, though current policy relies on ample reserves and interest payments.