asked the Minister for Finance the regulations, if any, made under section 51 (2) of the Central Bank Act, 1942, to require commercial banks to lodge with the Central Bank for clearance all negotiable instruments payable outside the State and lodged for clearance at an office within the State; if the making of such regulations would enable our external reserves to be used more productively; and if such regulations have not been made the reason for this.
Written Answers. - Commercial Banks Operations.
215.
Section 51 (2) of the Central Bank Act, 1942, was repealed by section 5 of the Central Bank Act, 1971; the provisions of that section were, however, substantially restated in section 25 (2) of the 1971 Act. Regulations have never been made by the Central Bank under either section.
Banks have individual agency arrangements with correspondents abroad for the clearance of foreign cheques taken in over the counter. Such clearances form part of the commercial banks' foreign currency cash flow and to the extent that surplus foreign currencies are generated—that is, receipts are in excess of payments—they accrue to official external reserves because the banks' holdings of all foreign currencies (including sterling since 18 December 1978) are strictly limited to working balances and external reserves are centralised in the Central Bank.
I am advised by the Central Bank that there is no evidence to suggest that requiring banks to lodge all negotiable instruments payable outside the State with the Central Bank for clearance would improve on existing arrangements from the point of view of productive management of the external reserves.
216.
asked the Minister for Finance if the Central Bank operates a minimum reserve system to control the credit policies of the commercial banks; if the powers to make regulations under section 50 (1) of the 1942 Central Bank Act to reinforce such a system have been utilised; and if the degree of control at present in operation is satisfactory.
The Central Bank have powers under section 23 of the Central Bank Act, 1971, to require a licensed bank to maintain a specified ratio, or a maximum or a minimum ratio between assets and liabilities. In practice the system of primary and secondary liquidity ratio requirements operated by the bank was introduced by agreement between them and the licensed banks. Primary liquid assets comprise the sum of a bank's holdings of notes and coin and balances with the Central Bank (including reserve bonds and statutory deposits), while secondary liquid assets comprise a bank's holdings of Government paper (including Exchequer Bills and rediscounts); relevant resources comprise the sum of a bank's current and deposit accounts and net external liability (adjusted for any exemptions that have been granted by the Central Bank), less balances with and lending to all other licensed banks within the State. The primary liquidity ratio is the ratio of primary liquid assets to relevant resources. The current minimum prescribed ratio is 13 per cent for Associated Banks, North American Banks, Merchant Banks and Industrial Banks and 10 per cent for the category Other Banks. The secondary liquidity ratio is the ratio of secondary liquid assets to relevant resources; the current minimum prescribed ratio is 30 per cent for Associated Banks and 10 per cent for all other licensed banks.
Section 24 (1) of the Central Bank Act, 1971, provides the same power to make regulations as was contained in section 50 (1) of the Central Bank Act, 1942, which was repealed by the Central Bank Act, 1971. It provides that the bank may, with the consent of the Minister, make regulations to require banks to make non-interest-bearing deposits with the Central Bank if their assets within the State should fall below a specified proportion of their liabilities within the State. The power has not been used to date.
The Central Bank have informed me that they consider the liquidity ratio and other powers available to them are adequate to their needs.