An institution’s required reserve balance, after application of vault cash, is the dollar amount that must be held in a reserve account at the Federal Reserve Bank. If an institution is not a member of the Federal Reserve, it may hold its constituents reserves with a correspondent on a pass-through basis.
A pass-through relationship allows a nonmember respondent to hold its required reserve balances with another institution, or correspondent, that maintains a master account with a Reserve Bank. Balances in the correspondent’s master account are the property of the correspondent and are subject to its sole order.
To establish a pass-through relationship, both the correspondent and the respondent institutions must complete a Pass-through Agreement, a copy of which may also be found in Operating Circular 1, Account Relationships. Whenever pass-through arrangements change, new agreements are necessary.
All pass-through agreements are subject to Reserve Bank approval and must be received before the effective reserve maintenance period. The Reserve Bank may terminate any pass-through relationship, in which the correspondent is deficient in its recordkeeping or other responsibilities. For instructions on how institutions can terminate these account relationships, please refer to Section 2.8 in Operating Circular 1.