Shawnee National Bank, a large unit bank located in Kansas city , Missouri, had total resources in early December 1992 of over $1.4 billion ( see Exhibit I). with other weekly reporting institutions subject to the reserve requirements of the Federal Reserve, the balances that Shawnee National is required to maintain as reserves are based on the average of ifs daily transaction deposit account balances during a 14- day computation period. The reserves required by the Fed must be maintained on an average daily basis during a 14- day maintenance period that begins on a Thursday and ends on the second Wednesday thereafter , sometimes called Settlement Wednesday .Because the requirement is as average for the period, bank managers are able to exercise judgment concerning the appropriate level of their reserve balances on a day-to day basis during the maintenance period. At the end of a maintenance period, leeway of up to 4 percent above or below the average total reserve requirement will carry forward into the next maintenance period.
The bank must determine the net daily average reserves that need to be maintained at the Federal Reserve Bank. For a 14-day computation period that ends 3 days before the related maintenance period begins, the bank’s average daily cash balance (vault cash) is compiled. This average cash balance is confirmed on the Fed’s Daily position reports, and is carried forward and applied against the gross avenge reserves required in the corresponding maintenance period.
Since February 1984, the computation period for compiling the transaction account balance ends only 2 days prior to the end of the 14-day maintenance period, giving rise to so-called contemporaneous reserve requirements. At the close of business on Monday of a Settlement week, Shawnee National has only Tuesday and Wednesday to bring into line the daily average reserves held at the Fed with the net required reserve for the maintenance period .Even with a good on –line accounting system, this nearly concurrent requirement can present a considerable challenge for the bank’s money-desk manager Numerous no controllable transactions (e. g net checking transactions initiated directly or indirectly by the bank’s depositors)and controllable transactions(e. g.,Federal funds purchases and sales)affect a bank’s balances at its Federal Reserve Bank each day. Shawnee National must keep track of both its transaction deposits and its net reserve balances throughout each business day, reconciling the average daily amounts with the Fed. The Fed’s reserve requirements in December 1992 were 10 percent for net transaction balances .
Exhibit 2 contains a summary of Shawnee National’s accumulated reserve position for the reserve maintenance period ending Wednesday, December 23, 1992 .The associated computation period for transaction accounts ended Monday, December 21, and for vault cash(as a credit) it ended Monday, December 7.