| Subject: |
Short-term Money Market Funds |
The significant increase in use of Fed funds, "repo" transactions
and large, negotiable certificates of deposit to bolster the
liquidity position and lending capacity of banks has also raised
the level of operating risk to the institutions involved. While
these short-term money market transactions may enhance the efficiency
and productivity of the financial market, their careless or
improper use can seriously threaten the bank's liquidity and
overall soundness. Prudent management principles require careful
cash-flow planning, assessment of all risks and costs and monitoring
of transactions undertaken if "liability management" is to benefit
the bank, its stockholders and the public.
Because of our concern for the safety and soundness of banks
engaging in these transactions, the Bureau will require the
Board of Directors of each state-chartered bank to establish
a formal, written policy to guide its management in these transactions.
For this purpose, short-term money market transaction include
Fed Funds transactions (borrowing and lending), sales and purchases
of securities under agreement to repurchase, issuance of negotiable
certificates of deposit and other similar type transactions.
The policy statement should include:
- Asset Items
- maximum amount of short-term money market asset items
to any one borrower
- maximum aggregate volume of short-term money market
asset items
- criteria for assessing credit-worthiness of institutions
in which investments are made or to whom money is lent
- other guides to enhance the safety, soundness and service
function of the bank
- Liability Items
- intended use of funds acquired
- maximum aggregate volume of liabilities that may be
in the form of short-term money market funds
- maturity range and volume distributions of short-term
money market items
- other guides to enhance the safety, soundness and service
function of the bank
A copy of the policy statement should be submitted to the Bureau
and a copy readily available at the main office of the bank to
facilitate a review of adherence to the policy statements.
It is hoped that this new requirement will strengthen the
market for these funds and assist our institutions in their
service to stockholders, depositors and the public.
| Signed: |
Richard J. Francis, Commissioner |
| |
|
| Dated: |
February 3, 1975 |
|
Printer Friendly
Text Version 
Email Page
