GAO Regulation D Study Looks at Impact on Bank and CU Practices

The Government Accountability Office (GAO) study released on October 18 examines the impact of Regulation D on bank and credit union practices.

Section 19 of the Federal Reserve Act requires depository institutions to maintain reserves against a portion of their transaction accounts solely for the implementation of monetary policy. Regulation D implements section 19, and it also requires institutions to limit certain kinds of transfers and withdrawals from savings deposits to not more than six per month or statement cycle if they wish to avoid having to maintain reserves against these accounts.

Reserve requirements are an implicit tax on banks and credit unions. However, the authority for the Federal Reserve to pay interest on reserves has reduced some of the costs associated with reserve requirements.

GAO found that 12,135 depository institutions were subject to Regulation D’s requirements, as of June 2015. Fifty-two percent were credit unions, while 48 percent were banks.

Eighty-six percent of banks were required to satisfy reserve requirements in contrast to 23 percent of credit unions. Sixty-five percent of banks had net transaction account balances reservable at the 3 percent ratio and 20 percent of banks were reservable at the 10 percent ratio. Of the 23 percent of credit unions that were required to satisfy reserve requirements, the majority (79 percent) had net transaction deposits reservable at the 3 percent ratio.

As part of its study on Regulation D, GAO surveyed 892 depository institutions with a response rate of 71 percent. Below are some of the findings from the report.

GAO found banks were more likely than credit unions to enforce the transaction limit to implement Regulation D’s requirements, with an estimate of 89 percent versus an estimate of 59 percent.

GAO estimated that 63 percent of banks charged fees after the sixth transaction on savings accounts compared to 55 percent of credit unions. For money market accounts, GAO found that 90 percent of banks charged fees after sixth transaction compared with an estimate of 63 percent of credit unions.

Banks tended to report lower fees for savings accounts, with an estimated median of about $2 for banks and an estimated median of about $4 for credit unions. The median fee for money market accounts was about $5 for both banks and credit unions.

GAO found that more credit unions than banks (an estimated 54 percent versus an estimated 6 percent for savings accounts and an estimated 55 percent versus an estimated 4 percent for money market accounts) prohibited the seventh transaction when the six transaction limit was reached.

GAO also noted that banks were more likely to employ retail sweeps program to reduce the amount of reservable net transaction accounts than credit unions. Fifteen percent of banks and 2 percent of credit unions employed retail sweeps program to reduce transaction account reserves.

In addition, the study surveyed banks and credit unions about the biggest challenges associated with monitoring and enforcing the transaction limit with the top challenge getting customers to read Regulation D disclosures.

There is more information in the report. Click on the link below to see more of the results from the survey.

Read the study.