Reserve Requirements of Depository Institutions, 46411-46412 [E6-13235]

Download as PDF 46411 Proposed Rules Federal Register Vol. 71, No. 156 Monday, August 14, 2006 This section of the FEDERAL REGISTER contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules. FEDERAL RESERVE SYSTEM 12 CFR Part 204 [Regulation D; Docket No. R–1262] Reserve Requirements of Depository Institutions Board of Governors of the Federal Reserve System. ACTION: Notice of proposed rulemaking; request for public comment. jlentini on PROD1PC65 with PROPOSAL AGENCY: SUMMARY: The Board proposes to revise its 1980 interpretation of Regulation D (Reserve Requirements of Depository Institutions) setting forth criteria for the ‘‘bankers’ bank’’ exemption from reserve requirements. The interpretation sets forth the standards that the Board uses in applying the statutory and regulatory requirements for the bankers’ banks exemption to specific institutions. The proposed revisions would authorize the Board to determine, on a case by case basis, whether certain entities not already expressly authorized in the interpretation may become customers to a limited extent of bankers’ banks. DATES: Comments must be received by September 13, 2006. ADDRESSES: You may submit comments, identified by Docket No. R–1262, by any of the following methods: • Agency Web Site: http:// www.federalreserve.gov. Follow the instructions for submitting comments at http://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm. • Federal eRulemaking Portal: http:// www.regulations.gov. Follow the instructions for submitting comments. • E-mail: regs.comments@federalreserve.gov. Include the docket number in the subject line of the message. • FAX: (202) 452–3819 or (202) 452– 3102. • Mail: Jennifer J. Johnson, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, NW., Washington, DC 20551. All public comments are available from the Board’s Web site at http:// VerDate Aug<31>2005 17:17 Aug 11, 2006 Jkt 208001 www.federalreserve.gov/generalinfo/ foia/ProposedRegs.cfm as submitted, unless modified for technical reasons. Accordingly, your comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper in Room MP–500 of the Board’s Martin Building (20th and C Streets, NW.) between 9 a.m. and 5 p.m. on weekdays. FOR FURTHER INFORMATION CONTACT: Heatherun Allison, Senior Counsel, (202) 452–3565; or Stephanie Martin, Associate General Counsel, (202) 452– 3198, Legal Division, Board of Governors of the Federal Reserve System, Washington, DC 20551. For users of Telecommunications Device for the Deaf (TDD) only, contact (202) 263– 4869. SUPPLEMENTARY INFORMATION: I. Statutory Background Section 19(b) of the Federal Reserve Act (Act) imposes reserve requirements on certain deposits and other liabilities of depository institutions. 12 U.S.C. 461(b). The Board’s Regulation D, ‘‘Reserve Requirements of Depository Institutions’’ (12 CFR part 204), implements section 19(b). Section 19(b)(9) of the Act, commonly referred to as the ‘‘bankers’ bank exemption,’’ exempts from reserve requirements certain depository institutions that would otherwise be subject to them. Specifically, Section 19(b)(9) provides that reserve requirements ‘‘shall not apply with respect to any financial institution which—(A) Is organized solely to do business with other financial institutions; (B) is owned primarily by the financial institutions with which it does business; and (C) does not do business with the general public.’’ 12 U.S.C. 461(b)(9). Section 19(a) of the Act authorizes the Board to define the terms used in section 19 and to prescribe such regulations as it may deem necessary to effectuate the purposes of the section and to prevent evasions thereof. II. Issuance of Original Interpretation In November 1980, the Board issued an interpretation of Regulation D specifying certain standards to be used in applying these requirements to specific institutions to determine whether they qualify for the bankers’ bank exemption. 12 CFR 204.121 PO 00000 Frm 00001 Fmt 4702 Sfmt 4702 (Interpretation). Under the Interpretation, an institution may be regarded as ‘‘organized solely to do business with other depository institutions even if, as an incidental part to [sic] its activities, it does business to a limited extent with entities other than depository institutions.’’ Id. In addition, a depository institution will be regarded as ‘‘being owned primarily by the institutions with which it does business’’ if ‘‘75 per cent or more of its capital is owned by other depository institutions * * * regardless of the type of depository institution.’’ Id. Finally, the Interpretation states that a depository institution will be regarded as ‘‘not do[ing] business with the general public’’ if the depository institution satisfied two requirements. First, the depository institution must limit the range of customers with which it does business to: Depository institutions; subsidiaries or organizations owned by depository institutions; directors, officers or employees of the same or other depository institutions; individuals whose accounts are required at the request of the institution’s supervisory authority due to the actual or impending failure of another depository institution; share insurance funds; and depository institution trade associations. Second, the depository institution’s loans to or investment in that range of customers (other than depository institutions) cannot exceed 10 percent of total assets, and the extent to which it receives shares or deposits from or issues other liabilities to those same entities (other than depository institutions) cannot exceed 10 percent of total liabilities or net worth. Id. III. Proposed Revisions The Board proposes to amend the Interpretation to authorize the Board to expand the ‘‘range of customers’’ with which a bankers’ bank may permissibly do business. The Board proposes to add to the current list of non-depository institution customers with which bankers’ banks may do business the language ‘‘and such others as the Board may determine on a case by case basis consistent with the purposes of the Act and the bankers’ bank exemption.’’ Such customers would still be subject to the percentage limitations specified in the Interpretation relating to ownership and doing business (i.e., not more than 25 E:\FR\FM\14AUP1.SGM 14AUP1 46412 Federal Register / Vol. 71, No. 156 / Monday, August 14, 2006 / Proposed Rules percent of bankers’ bank capital may be owned by non-depository institution customers and bankers’ bank business with non-depository institution customers may not exceed 10 percent of total assets/liabilities). The Board believes that this amendment is appropriate in order to align the Interpretation more closely with current business and regulatory practices relating to bankers’ banks. The Board has received inquiries concerning whether certain non-depository institution entities not already listed in the Interpretation may permissibly do business with bankers’ banks, and it appears that amending the Interpretation to allow case by case determinations of such inquiries is appropriate at this time. The Board is not proposing at this time to specify any standards under which it would make such case by case determinations in order to provide institutions and the Board with flexibility in making such determinations, in keeping with the purposes of the Act and the bankers’ bank exemption. Specifically, the Board anticipates that such requests would be made only in cases where granting the request would facilitate the conduct of bankers’ banking business. Accordingly, the Board would not generally expect to exercise such authority for the purpose of expanding the range of nondepository institution customers of bankers’ banks to include the general public. The Board expects that, if this amendment is adopted, the Board should over time obtain increased experience with future requests, and based on that experience may find that proposing further amendments (including standards) to the Interpretation are warranted. Comment is solicited on all aspects of the proposal. jlentini on PROD1PC65 with PROPOSAL IV. Form of Comment Letters Comment letters should refer to Docket No. R–1262 and, when possible, should use a standard typeface with a font size of 10 or 12; this will enable the Board to convert text submitted in paper form to machine-readable form through electronic scanning, and will facilitate automated retrieval of comments for review. Comments may be mailed electronically to regs.comments@federalreserve.gov. V. Solicitation of Comments Regarding Use of ‘‘Plain Language’’ Section 722 of the Gramm-LeachBliley Act of 1999 requires the Board to use ‘‘plain language’’ in all proposed and final rules published after January 1, 2000. The Board invites comments on whether the proposed rule is clearly VerDate Aug<31>2005 17:17 Aug 11, 2006 Jkt 208001 stated and effectively organized, and how the Board might make the proposed text easier to understand. VI. Initial Regulatory Flexibility Analysis In accordance with section 3(a) of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.), the Board has reviewed the proposed amendments to the Interpretation of Regulation D. A final regulatory flexibility analysis will be conducted after consideration of comments received during the public comment period. 1. Statement of the objectives of the proposal. The Board is proposing revisions to its Interpretation of Regulation D in order to authorize the Board to determine, on a case by case basis, whether non-depository institutions that are not already listed in the Interpretation may be bankers’ bank customers without the bankers’ bank losing its exemption from reserve requirements. Section 19 of the Act was enacted to impose reserve requirements on certain deposits and other liabilities of depository institutions for monetary policy purposes. Section 19 exempts certain institutions from reserve requirements as ‘‘bankers’’ banks’’ provided that the institutions meet the characteristics specified in the statute. Section 19 also authorizes the Board to promulgate such regulations as it may deem necessary to effectuate the purposes of the section. The Board believes that the proposed revisions to the Interpretation are within the Congress’ broad grant of authority to the Board to adopt provisions that carry out the purposes of section 19 of the Act. 2. Small entities affected by the proposal. The number of small entities affected by this proposal is unknown. The proposal would only affect those entities, regardless of size, that choose to request a Board determination to permit them to do business with nondepository institutions not already specified in the Interpretation while maintaining their bankers’ bank exemption from reserve requirements. 3. Other federal rules. The Board believes that no federal rules duplicate, overlap, or conflict with the proposed revisions to the Interpretation. 4. Significant alternatives to the proposed revisions. The Board welcomes comment on any significant alternatives that would minimize the impact of the proposed rule on small entities. the Board reviewed the proposed rule under the authority delegated to the Board by the Office of Management and Budget (OMB). The proposed rule contains no requirements subject to the PRA. 12 CFR Chapter II List of Subjects in 12 CFR Part 204 Banks, banking, Reporting and recordkeeping requirements. For the reasons set forth in the preamble, the Board is proposing to amend 12 CFR part 204 as follows: PART 204—RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS (REGULATION D) 1. The authority citation for part 204 continues to read as follows: Authority: 12 U.S.C. 248(a), 248(c), 371a, 461, 601, 611, and 3105. 2. The second sentence of paragraph (a)(2)(iii) of § 204.121 is revised to read as follows: § 204.121 Bankers’ banks. (a) * * * (2) * * * (iii) * * * First, the range of customers with which the institution does business must be limited to depository institutions; directors, officers or employees of the same or other depository institutions; individuals whose accounts are acquired at the request of the institution’s supervisory authority due to the actual or impending failure of another depository institution; share insurance funds; depository institution trade associations; and such others as the Board may determine on a case by case basis consistent with the purposes of the Act and the bankers’ bank exemption.* * * * * * * * By order of the Board of Governors of the Federal Reserve System, August 8, 2006. Jennifer J. Johnson, Secretary of the Board. [FR Doc. E6–13235 Filed 8–11–06; 8:45 am] BILLING CODE 6210–01–P VII. Paperwork Reduction Act In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3506; 5 CFR part 1320 Appendix A.1), PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 E:\FR\FM\14AUP1.SGM 14AUP1

Agencies

[Federal Register Volume 71, Number 156 (Monday, August 14, 2006)]
[Proposed Rules]
[Pages 46411-46412]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-13235]


========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

========================================================================


Federal Register / Vol. 71, No. 156 / Monday, August 14, 2006 / 
Proposed Rules

[[Page 46411]]



FEDERAL RESERVE SYSTEM

12 CFR Part 204

[Regulation D; Docket No. R-1262]


Reserve Requirements of Depository Institutions

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Notice of proposed rulemaking; request for public comment.

-----------------------------------------------------------------------

SUMMARY: The Board proposes to revise its 1980 interpretation of 
Regulation D (Reserve Requirements of Depository Institutions) setting 
forth criteria for the ``bankers' bank'' exemption from reserve 
requirements. The interpretation sets forth the standards that the 
Board uses in applying the statutory and regulatory requirements for 
the bankers' banks exemption to specific institutions. The proposed 
revisions would authorize the Board to determine, on a case by case 
basis, whether certain entities not already expressly authorized in the 
interpretation may become customers to a limited extent of bankers' 
banks.

DATES: Comments must be received by September 13, 2006.

ADDRESSES: You may submit comments, identified by Docket No. R-1262, by 
any of the following methods:
     Agency Web Site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     E-mail: regs.comments@federalreserve.gov. Include the 
docket number in the subject line of the message.
     FAX: (202) 452-3819 or (202) 452-3102.
     Mail: Jennifer J. Johnson, Secretary, Board of Governors 
of the Federal Reserve System, 20th Street and Constitution Avenue, 
NW., Washington, DC 20551.
    All public comments are available from the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper in Room MP-500 of the Board's Martin Building (20th and C 
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Heatherun Allison, Senior Counsel, 
(202) 452-3565; or Stephanie Martin, Associate General Counsel, (202) 
452-3198, Legal Division, Board of Governors of the Federal Reserve 
System, Washington, DC 20551. For users of Telecommunications Device 
for the Deaf (TDD) only, contact (202) 263-4869.

SUPPLEMENTARY INFORMATION:

I. Statutory Background

    Section 19(b) of the Federal Reserve Act (Act) imposes reserve 
requirements on certain deposits and other liabilities of depository 
institutions. 12 U.S.C. 461(b). The Board's Regulation D, ``Reserve 
Requirements of Depository Institutions'' (12 CFR part 204), implements 
section 19(b). Section 19(b)(9) of the Act, commonly referred to as the 
``bankers' bank exemption,'' exempts from reserve requirements certain 
depository institutions that would otherwise be subject to them. 
Specifically, Section 19(b)(9) provides that reserve requirements 
``shall not apply with respect to any financial institution which--(A) 
Is organized solely to do business with other financial institutions; 
(B) is owned primarily by the financial institutions with which it does 
business; and (C) does not do business with the general public.'' 12 
U.S.C. 461(b)(9). Section 19(a) of the Act authorizes the Board to 
define the terms used in section 19 and to prescribe such regulations 
as it may deem necessary to effectuate the purposes of the section and 
to prevent evasions thereof.

II. Issuance of Original Interpretation

    In November 1980, the Board issued an interpretation of Regulation 
D specifying certain standards to be used in applying these 
requirements to specific institutions to determine whether they qualify 
for the bankers' bank exemption. 12 CFR 204.121 (Interpretation). Under 
the Interpretation, an institution may be regarded as ``organized 
solely to do business with other depository institutions even if, as an 
incidental part to [sic] its activities, it does business to a limited 
extent with entities other than depository institutions.'' Id. In 
addition, a depository institution will be regarded as ``being owned 
primarily by the institutions with which it does business'' if ``75 per 
cent or more of its capital is owned by other depository institutions * 
* * regardless of the type of depository institution.'' Id.
    Finally, the Interpretation states that a depository institution 
will be regarded as ``not do[ing] business with the general public'' if 
the depository institution satisfied two requirements. First, the 
depository institution must limit the range of customers with which it 
does business to: Depository institutions; subsidiaries or 
organizations owned by depository institutions; directors, officers or 
employees of the same or other depository institutions; individuals 
whose accounts are required at the request of the institution's 
supervisory authority due to the actual or impending failure of another 
depository institution; share insurance funds; and depository 
institution trade associations. Second, the depository institution's 
loans to or investment in that range of customers (other than 
depository institutions) cannot exceed 10 percent of total assets, and 
the extent to which it receives shares or deposits from or issues other 
liabilities to those same entities (other than depository institutions) 
cannot exceed 10 percent of total liabilities or net worth. Id.

III. Proposed Revisions

    The Board proposes to amend the Interpretation to authorize the 
Board to expand the ``range of customers'' with which a bankers' bank 
may permissibly do business. The Board proposes to add to the current 
list of non-depository institution customers with which bankers' banks 
may do business the language ``and such others as the Board may 
determine on a case by case basis consistent with the purposes of the 
Act and the bankers' bank exemption.'' Such customers would still be 
subject to the percentage limitations specified in the Interpretation 
relating to ownership and doing business (i.e., not more than 25

[[Page 46412]]

percent of bankers' bank capital may be owned by non-depository 
institution customers and bankers' bank business with non-depository 
institution customers may not exceed 10 percent of total assets/
liabilities).
    The Board believes that this amendment is appropriate in order to 
align the Interpretation more closely with current business and 
regulatory practices relating to bankers' banks. The Board has received 
inquiries concerning whether certain non-depository institution 
entities not already listed in the Interpretation may permissibly do 
business with bankers' banks, and it appears that amending the 
Interpretation to allow case by case determinations of such inquiries 
is appropriate at this time. The Board is not proposing at this time to 
specify any standards under which it would make such case by case 
determinations in order to provide institutions and the Board with 
flexibility in making such determinations, in keeping with the purposes 
of the Act and the bankers' bank exemption. Specifically, the Board 
anticipates that such requests would be made only in cases where 
granting the request would facilitate the conduct of bankers' banking 
business. Accordingly, the Board would not generally expect to exercise 
such authority for the purpose of expanding the range of non-depository 
institution customers of bankers' banks to include the general public. 
The Board expects that, if this amendment is adopted, the Board should 
over time obtain increased experience with future requests, and based 
on that experience may find that proposing further amendments 
(including standards) to the Interpretation are warranted.
    Comment is solicited on all aspects of the proposal.

IV. Form of Comment Letters

    Comment letters should refer to Docket No. R-1262 and, when 
possible, should use a standard typeface with a font size of 10 or 12; 
this will enable the Board to convert text submitted in paper form to 
machine-readable form through electronic scanning, and will facilitate 
automated retrieval of comments for review. Comments may be mailed 
electronically to regs.comments@federalreserve.gov.

V. Solicitation of Comments Regarding Use of ``Plain Language''

    Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the 
Board to use ``plain language'' in all proposed and final rules 
published after January 1, 2000. The Board invites comments on whether 
the proposed rule is clearly stated and effectively organized, and how 
the Board might make the proposed text easier to understand.

VI. Initial Regulatory Flexibility Analysis

    In accordance with section 3(a) of the Regulatory Flexibility Act 
(RFA) (5 U.S.C. 601 et seq.), the Board has reviewed the proposed 
amendments to the Interpretation of Regulation D. A final regulatory 
flexibility analysis will be conducted after consideration of comments 
received during the public comment period.
    1. Statement of the objectives of the proposal. The Board is 
proposing revisions to its Interpretation of Regulation D in order to 
authorize the Board to determine, on a case by case basis, whether non-
depository institutions that are not already listed in the 
Interpretation may be bankers' bank customers without the bankers' bank 
losing its exemption from reserve requirements. Section 19 of the Act 
was enacted to impose reserve requirements on certain deposits and 
other liabilities of depository institutions for monetary policy 
purposes. Section 19 exempts certain institutions from reserve 
requirements as ``bankers'' banks'' provided that the institutions meet 
the characteristics specified in the statute. Section 19 also 
authorizes the Board to promulgate such regulations as it may deem 
necessary to effectuate the purposes of the section. The Board believes 
that the proposed revisions to the Interpretation are within the 
Congress' broad grant of authority to the Board to adopt provisions 
that carry out the purposes of section 19 of the Act.
    2. Small entities affected by the proposal. The number of small 
entities affected by this proposal is unknown. The proposal would only 
affect those entities, regardless of size, that choose to request a 
Board determination to permit them to do business with non-depository 
institutions not already specified in the Interpretation while 
maintaining their bankers' bank exemption from reserve requirements.
    3. Other federal rules. The Board believes that no federal rules 
duplicate, overlap, or conflict with the proposed revisions to the 
Interpretation.
    4. Significant alternatives to the proposed revisions. The Board 
welcomes comment on any significant alternatives that would minimize 
the impact of the proposed rule on small entities.

VII. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (PRA) of 1995 (44 
U.S.C. 3506; 5 CFR part 1320 Appendix A.1), the Board reviewed the 
proposed rule under the authority delegated to the Board by the Office 
of Management and Budget (OMB). The proposed rule contains no 
requirements subject to the PRA.

12 CFR Chapter II

List of Subjects in 12 CFR Part 204

    Banks, banking, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Board is proposing 
to amend 12 CFR part 204 as follows:

PART 204--RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS 
(REGULATION D)

    1. The authority citation for part 204 continues to read as 
follows:

    Authority: 12 U.S.C. 248(a), 248(c), 371a, 461, 601, 611, and 
3105.

    2. The second sentence of paragraph (a)(2)(iii) of Sec.  204.121 is 
revised to read as follows:


Sec.  204.121  Bankers' banks.

    (a) * * *
    (2) * * *
    (iii) * * * First, the range of customers with which the 
institution does business must be limited to depository institutions; 
directors, officers or employees of the same or other depository 
institutions; individuals whose accounts are acquired at the request of 
the institution's supervisory authority due to the actual or impending 
failure of another depository institution; share insurance funds; 
depository institution trade associations; and such others as the Board 
may determine on a case by case basis consistent with the purposes of 
the Act and the bankers' bank exemption.* * *
* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, August 8, 2006.
Jennifer J. Johnson,
Secretary of the Board.
 [FR Doc. E6-13235 Filed 8-11-06; 8:45 am]
BILLING CODE 6210-01-P