Answer:
A friend of mine, a brillant bank lawyer, once claimed to have a full and complete understanding of Regulation D, for three days. I never believed him and would never make the same claim; Reg D is a maze. My best shot:
Regulation D's primary contribution to everyday banking issues is the tool it gives the FRB to control the supply of money in the United States, reserve requirements (money the bank must hold in cash equivalents).
Regulation D sets up 3 classes of accounts: transaction, savings and time deposits. It sets criteria for each. It also establishes reserve requirements for each. Transaction accounts have the highest reserve requirements. Time deposits have the lowest. If the Fed wants to increase the money supply, it decreases reserve requirements. If it wants to decrease the money supply, it increases reserve requirements.
Obviously, a bank wants to be able to use the highest possible percentage of the funds it holds for active investment; a bank does not make money by hoarding cash. Thus, it must take pains to design its products to fit into specific deposit categories. It must also make certain that customers adhere to restrictions, such as restrictions on activity on savings accounts. If it allows customers to exceed the transaction requirements, it runs the risk that regulators will reclassify all savings deposits as transaction accounts, retroactively. (Major disaster.)
Regulation D's primary contribution to everyday compliance concerns is verifying that products are designed to fit neatly into established categories and to make certain that customer activity does not remove them from those categories.
First published on BankersOnline.com 2/4/02[Editors Note:As of 7/2/09, the separate limit of three per month for checks, POS debit card transactions, etc., has been eliminated, and those transactions are now only subject to the 6/month limit that applies to other restricted transfers and withdrawals.]
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