Reserve Requirements of Depository Institutions, 16987-16990 [E7-6473]
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Federal Register / Vol. 72, No. 66 / Friday, April 6, 2007 / Rules and Regulations
Subpart H—Outside Activities
§ 2635.804
organization is received by the
employee.
[FR Doc. E7–6228 Filed 4–5–07; 8:45 am]
[Amended]
5. Section 2635.804 is amended by
removing the citation ‘‘§ 2636.303(b)(8)’’
in paragraph (c)(1) and adding in its
place the citation ‘‘§ 2636.303(b)(7)’’.
I
PART 2636—LIMITATIONS ON
OUTSIDE EARNED INCOME,
EMPLOYMENT AND AFFILIATIONS
FOR CERTAIN NONCAREER
EMPLOYEES
[Regulation D; Docket No. R–1262]
Reserve Requirements of Depository
Institutions
6. The authority citation for part 2636
continues to read as follows:
Authority: 5 U.S.C. App. (Ethics in
Government Act of 1978); Pub. L. 101–410,
104 Stat. 890, 28 U.S.C. 2461 note (Federal
Civil Penalties Inflation Adjustment Act of
1990), as amended by Sec. 31001, Pub. L.
104–134, 110 Stat. 1321 (Debt Collection
Improvement Act of 1996); E.O. 12674, 54 FR
15159, 3 CFR, 1989 Comp., p. 215, as
modified by E.O. 12731, 55 FR 42547, 3 CFR,
1990 Comp., p. 306.
Subpart A—General Provisions
7. Section 2636.103 is amended by
revising paragraph (a)(2) to read as
follows:
I
Advisory opinions.
(a) * * *
(2) An advisory opinion may not be
obtained for the purpose of establishing
whether a noncareer employee who is
subject to the restrictions in subpart C
of this part may receive compensation
for teaching. An advisory opinion
issued under this section may not be
substituted for the advance written
approval required by § 2636.307 of this
part.
*
*
*
*
*
Subpart C—Outside Earned Income
Limitation and Employment and
Affiliations Restrictions Applicable to
Certain Noncareer Employees
8. Section 2636.303 is amended by:
A. Adding the word ‘‘or’’ following
the semicolon at the end of paragraph
(b)(6);
I B. Removing paragraph (b)(7);
I C. Redesignating paragraph (b)(8) as
new paragraph (b)(7); and
I D. Removing the second sentence of
the undesignated text at the end of
paragraph (c) and revising the last
sentence thereof.
The revision reads as follows:
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I
I
§ 2636.303
Definitions.
*
*
*
*
*
(c) * * *
*
*
*
*
*
* * * Also, compensation or outside
earned income donated to a charitable
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FEDERAL RESERVE SYSTEM
12 CFR Part 204
I
§ 2636.103
BILLING CODE 6345–02–P
Board of Governors of the
Federal Reserve System.
ACTION: Final rule.
AGENCY:
SUMMARY: The Board of Governors is
revising 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
revised interpretation specifies that the
Board may determine, on a case-by-case
basis, whether certain entities not
already expressly listed in the
interpretation may become customers to
a limited extent of bankers’ banks that
remain exempt from reserve
requirements.
DATES:
Effective Date: May 7, 2007.
FOR FURTHER INFORMATION CONTACT:
Heatherun Allison, Senior Counsel,
(202) 452–3565; or Kara Handzlik,
Attorney, (202) 452–3852, 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 for monetary
policy purposes. 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 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
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16987
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). ‘‘Bankers’
banks’’ for purposes of Section 19(b)(9)
of the Act and Regulation D include
bankers’ banks for commercial banks
and thrifts chartered under state or
federal law authorities as well as
corporate credit unions.
II. Issuance of Original Interpretation
In November 1980, the Board issued
an interpretation of Regulation D
specifying certain standards to be used
in determining whether institutions
qualify for the bankers’ bank exemption
from reserve requirements. 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 has 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
On August 14, 2006, the Board
published for comment a proposal to
revise the Interpretation to specify that
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the Board may determine, on a case-bycase basis, whether certain entities not
already expressly listed in the
Interpretation may become customers to
a limited extent of bankers’ banks. (71
FR 46411.) This proposal was issued
pursuant to Section 19(a) of the Act,
which authorizes the Board to define
the terms used in that section and to
prescribe such regulations as it may
deem necessary to effectuate the
purposes of the section and to prevent
evasions thereof.
The Board proposed to amend the
Interpretation by adding to the list of
non-depository institution customers
with which bankers’ banks may do
business and remain exempt from
reserve requirements 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.’’ The proposal would
require that such customers still be
subject to the percentage limitations
specified in the Interpretation relating to
ownership and doing business (i.e., not
more than 25 percent of bankers’ bank
capital may be owned by nondepository institution customers and
bankers’ bank business with nondepository institution customers may
not exceed 10 percent of total assets/
liabilities). The Board did not propose
to specify any standards under which it
would make such case-by-case
determinations. The proposal stated,
however, that the Board would not
expect to exercise the authority under
the proposal to expand the range of
permissible bankers’ bank customers to
include the general public. The proposal
also stated that the Board expects to
obtain more experience over time with
requests for determinations under the
proposal and, based on that experience,
may find that proposing further
amendments to the Interpretation (such
as specifications or standards by which
the Board would make such
determinations) are warranted.
Comment was solicited on all aspects of
the proposal.
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IV. Analysis of Comments
Overview of Comments Received
The Board received seventeen
comments on the proposal. Commenters
included five bankers’ banks (including
corporate credit unions); five
associations or councils representing
bankers’ banks, corporate credit unions,
or community banks; two individuals
not associated with any institution, one
professor, one bank, one credit union,
one financial holding company, and one
bank holding company. Two
commenters fully supported the
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proposal, while eleven commenters
supported the proposal but raised
concerns and/or offered suggestions
about various aspects of the proposal.
Three commenters opposed the
proposal. One commenter did not
address the issue set forth by proposal
but instead commented on a separate
aspect of Regulation D.1
A. Structure of Bankers’ Banks;
Competitive Concerns
A few commenters favored the
flexibility that would be given to the
Board so that the Board could allow
banks to structure their operations
optimally and increase services to the
financial community. Many
commenters, however, were concerned
that the proposal would erode or
eliminate the unique characteristics of a
bankers’ bank. Some of these
commenters stated that adopting the
proposal would increase competition
between bankers’ banks and their bank
customers. These commenters
emphasized that bankers’ banks are not
established to compete with community
banks, but instead established to do
business with community banks.
One commenter stated that the
bankers’ banks should not be permitted
to increase their activities to the point
where the bank clients and shareholders
of bankers’ banks perceive these
activities as directly competing with
their own interest. This commenter
stressed that the term bankers’ bank
should be ‘‘restricted to banks [that]
have chosen to be owned by banks, to
offer services only to other banks and to
embrace the concept of serving only
community banks so that they in turn
can compete effectively with the largest
financial institutions.’’ On the other
hand, two commenters suggested
increasing the extent to which bankers’
banks could do business with nondepository institution customers while
remaining exempt from reserve
requirements. These commenters urged
the Board to increase the percentage
limitations specified in the
Interpretation relating to ownership and
doing business.
The Board believes that adopting the
proposal is not likely to erode the
unique characteristics of bankers’ banks.
The Board cannot under Regulation D
authorize activities that are not
authorized by a bankers’ bank’s
chartering authority; rather, the Board
can determine only whether a bankers’
bank may be exempt from reserve
1 This commenter was concerned with
§ 204.2(d)(2) of Regulation D (12 CFR 204.2(d)(2))
and ‘‘how consumer banking institutions are
interpreting the Regulation to allow them to collect
‘excess transaction fees’ from banking patrons.’’
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requirements.2 Any given bankers’ bank
activity or customer must be authorized
by the bankers’ bank chartering
authority before the Board can consider
whether a bankers’ bank may remain
exempt from reserve requirements while
undertaking such an activity or serving
such a customer. In addition, as stated
in the proposal, the Board does not
anticipate permitting the reserve
exemption to apply to a bankers’ bank
that does business with the general
public.
The Board is not revising the
percentage limitations on the extent to
which bankers’ banks may serve nondepository institution customers while
remaining exempt from reserve
requirements. The Board does not
believe that it is appropriate to increase
those percentage limitations because to
do so would reduce the extent to which
bankers’ banks serve primarily
depository institution customers. Any
new non-depository institution
customers that would be permitted
under the revised Interpretation will
still be subject to the existing percentage
limitations specified in the
Interpretation relating to ownership and
doing business.
Finally, the purpose of reserve
requirements under Section 19 is to
facilitate the conduct of monetary
policy. Accordingly, the Board believes
that exemptions from reserve
requirements are to be narrowly
construed so as not to impede the
effective conduct of monetary policy.
The more a bankers’ bank’s activities
resemble those of a commercial bank or
other depository institution, the less
appropriate the reserve requirement
exemption would be for that bankers’
bank. The Board believes that these
considerations will keep the bankers’
bank exemption from reserve
requirements from undue expansion
under the revised Interpretation.
B. Determination Process
Some commenters raised concerns
about the process by which the Board
would make determinations under the
proposal. Many of these commenters
suggested that the Board publish
requests for determinations and permit
public comment on them. Among the
commenters’ reasons for this request
was so that bankers’ banks chartered by
other authorities could concomitantly
seek authorization of the same activities.
2 For a bankers’ bank that is a state member bank,
the Board would have to approve any change in the
general character of its business or in the scope of
the corporate powers it exercises in accordance
with Section 208.3(d)(2) of Regulation H
(Membership of State Banking Institutions in the
Federal Reserve System, 12 CFR part 208).
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Other commenters urged the Board to
disclose the business reasons giving rise
to requests for determinations as well as
the Board’s reasoning in granting any
such requests. A few commenters asked
that the Board issue its determinations
in the form of an order. These
commenters argued that this would
afford the bankers’ bank industry the
opportunity to learn the ‘‘business
rationale and the business opportunity’’
contained in such requests and orders
until formal guidelines have been
established by the Board.
One commenter asked that the Board
clearly set forth in the revised
Interpretation the standards which will
be used in making its future case-bycase determinations to preclude
arbitrary or capricious determinations.
On the other hand, another commenter
urged the Board to relax standards for
granting such requests and to clarify
whether all entities with which the
bankers’ bank is permitted to do
business under the Interpretation will
qualify as ‘‘financial institutions.’’
One commenter urged the Board to
specify the length of time for making
determinations under the revised
Interpretation, claiming that the
flexibility granted by the proposal could
be offset by overly lengthy
determination time periods. This
commenter also urged the Board to
address the extent to which individual
Federal Reserve Banks will be involved
with the decision making process,
asserting that the individual Reserve
Banks are in the best position to develop
understanding of a company’s risk
profile and management team which is
necessary for making such
determinations.
The Board anticipates that
determinations under the revised
Interpretation will generally be made
public and will include a description of
the determination, the business and
other reasons behind the request, and
the Board’s reasoning in granting (or
denying) the request. Although the
Board does not anticipate publishing
requests for such determinations prior
to the time that the determination is
made, the Board anticipates that all
requests will be handled in a timely
manner and that the input of the
appropriate Federal Reserve Bank or
Banks, if any, will be solicited as part
of that process.
Finally, the Board continues to
believe that publishing more detailed
criteria by which the Board would
review requests under the revised
Interpretation would be premature at
this time. As noted above, the Board
cannot under Regulation D authorize
activities that are not authorized by a
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bankers’ bank’s chartering authority.
The Board cannot predict the kinds of
changes that may or may not occur in
activities or customers that chartering
authorities may permit. Accordingly,
the Board cannot predict the details of
the criteria under which it would
evaluate such activities or customers for
consistency with the Act and the
purposes of the bankers’ bank
exemption. Over time, however, the
Board expects that it may be possible
after further experience with requests
under the Interpretation to articulate
standards or guidelines for the further
exercise of that authority by the Board.
19 of the Act and of the bankers’ bank
exemption, and that the revised
Interpretation clearly states the Board’s
authority and objectives. As also noted
above, the Board does not anticipate
exercising its authority under the
revised Interpretation to expand the
reserves exemption to bankers’ banks
that do business with the general public.
As further noted above, the Board
anticipates that determinations made
under the revised Interpretation will be
publicly available. For these reasons,
the Board does not believe that the
Interpretation poses the risks or
violations suggested by the commenter.
C. Miscellaneous
One commenter supported the
proposal, but asked for clarification of
the ‘‘consistent with the purposes of the
Act and the bankers’ bank exemption’’
language. Another commenter asked the
Board to clarify the phrase ‘‘do business
with’’ as that phrase appears in the Act
and the Interpretation. As noted above,
the Board believes that it cannot predict
the manner in which chartering
authorities may change the permissible
activities and customers of bankers’
banks. Therefore, the Board believes
that it cannot at this time provide
greater specificity in these areas. As also
noted above, however, the Board
expects that it may be able to provide
greater specificity in the future as an
increasing amount of experience with
requests and determinations under the
proposal is obtained.
One commenter supported the
proposal but believed that the Board
inadvertently removed language from
the original Interpretation when issuing
the proposal for comment. The Board
has corrected this inadvertent omission
in the final Interpretation.
Another commenter suggested that
adopting the proposal would make the
regulation less specific and that this
could impair any relief granted to
bankers’ banks by adopting the
proposal. This commenter also stated
that the proposal violates ‘‘Plain
Language’’ provisions of the GrammLeach-Bliley Act (Section 722 of Pub. L.
106–102, 113 Stat. 1338, 1471 (Nov. 12,
1999)). Finally, this commenter argued
that the proposal provides such
expansive authority to the Board that
there can be little Congressional
oversight of the Board’s activities in this
area. As noted above, the Board cannot
itself expand bankers’ bank authority to
serve new kinds of customers and
undertake new lines of activities. As
also noted above, the Board believes
that it can only issue determinations
under the revised Interpretation that are
consistent with the purposes of Section
V. Regulatory Analysis
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A. Regulatory Flexibility Act
In accordance with Section 604 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. For
the reasons set out below, the Board
certifies that the amendments to the
Interpretation will not have a significant
economic impact on a substantial
number of small entities.
1. Statement of the objectives of the
proposal. The Board is revising its
Interpretation of Regulation D in order
to authorize the Board to determine, on
a case-by-case basis, whether nondepository 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 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 the revisions to the
Interpretation are within Congress’
broad grant of authority to the Board to
adopt provisions that carry out the
purposes of section 19 of the Act.
2. Public comments in response to
initial regulatory flexibility analysis.
There were no public comments in
response to the initial regulatory
flexibility analysis.
3. Description and estimate of number
of small entities to which revised
Interpretation will apply. The Board
estimates that there are eleven bankers’
banks qualifying as ‘‘small entities’’ to
which the revised Interpretation could
apply.
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4. Projected reporting, recordkeeping,
and other compliance requirements.
There are no reporting, recordkeeping,
or other compliance requirements
associated with the revised
Interpretation.
5. Minimizing significant economic
impact of the revised Interpretation on
small entities. There were no public
comments that suggested a significant
alternative that would minimize the
impact of the proposal on small entities.
There are eleven bankers’ banks
qualifying as ‘‘small entities’’ under
RFA. The revised Interpretation
provides all bankers’ banks with the
ability to maintain their exemption from
reserve requirements, if any, while
undertaking certain additional bankers’
bank activities or customers as
authorized by their chartering
authorities. No bankers’ bank is required
to seek a determination under the
revised Interpretation. The revised
Interpretation imposes no economic
burdens on bankers’ banks, and instead
only offers the opportunity to bankers’
banks that are exempt from reserve
requirements to maintain the economic
benefits of that exemption under the
specified circumstances. Accordingly,
the Board believes that the revised
Interpretation will not have a significant
impact on a substantial number of small
entities.
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B. Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act (PRA) of 1995 (44 U.S.C.
3506; 5 CFR part 1320 Appendix A.10),
the Board reviewed the proposal under
the authority delegated to the Board by
the Office of Management and Budget
(OMB). The proposal contains no
requirements subject to the PRA.
VI. Plain Language
The Board received one comment on
whether the proposal was in plain
language. This commenter stated that
the Board’s failure to propose standards
for its exercise of authority under the
proposal amounted to a failure to
comply with the ‘‘Plain Language’’
provisions of the Gramm-Leach-Bliley
act. This commenter stated that the
Board should instead say that it
proposes to do whatever it wants given
its view of the purposes of the Act. For
the reasons stated above, the Board
believes that the revised Interpretation
is stated in plain language to the greatest
extent possible at this point in time. As
also stated above, the Board expects to
publish further guidance and standards
as it obtains additional experience in
the future with requests for
determinations under the revised
Interpretation. Accordingly, the Board
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believes that the revised Interpretation
complies with applicable plain language
requirements.
DEPARTMENT OF TRANSPORTATION
List of Subjects in 12 CFR Part 204
14 CFR Part 39
Banks, banking, Reporting and
recordkeeping requirements.
For the reasons set forth in the
preamble, the Board is amending 12
CFR part 204 as follows:
I
PART 204—RESERVE
REQUIREMENTS OF DEPOSITORY
INSTITUTIONS (REGULATION D)
1. The authority citation for part 204
continues to read as follows:
I
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:
I
§ 204.121
Bankers’ banks.
(a) * * *
(2) * * *
(iii) * * * First, the range of
customers with which the institution
does business must be limited to
depository institutions, including
subsidiaries or organizations owned by
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-bycase 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, April 3, 2007.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E7–6473 Filed 4–5–07; 8:45 am]
BILLING CODE 6210–02–P
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Federal Aviation Administration
[Docket No. FAA–2006–25105; Directorate
Identifier 2006–CE–33–AD; Amendment 39–
15016; AD 2007–06–01 R1]
RIN 2120–AA64
Airworthiness Directives; Raytheon
Aircraft Company Beech Models 45
(YT–34), A45 (T–34A, B–45), and D45
(T–34B) Airplanes
Federal Aviation
Administration (FAA), DOT.
ACTION: Final rule; correction.
AGENCY:
SUMMARY: We are clarifying information
contained in Airworthiness Directive
(AD) 2007–06–01, which supersedes AD
62–24–01 and applies to all Raytheon
Aircraft Company (RAC) Beech Models
45 (YT–34), A45 (T–34A, B45), and D45
(T–34B) airplanes. AD 2007–06–01
currently requires you to repetitively
inspect, using the eddy current method,
the front and rear horizontal stabilizer
spars for cracks and replace any cracked
stabilizer. We inadvertently left out the
language in this AD that required
replacement of any horizontal stabilizer
spar found cracked prior to further flight
although the procedures in the
appendix made reference to corrective
action. The replacement information
was contained in the notice of proposed
rulemaking (NPRM). This document
adds this information already proposed
back into the AD. We are issuing this
AD to prevent failure of the front and/
or rear horizontal stabilizer spars caused
by fatigue cracks. This failure could
result in stabilizer separation and loss of
control of the airplane.
DATES: This AD becomes effective on
April 16, 2007.
ADDRESSES: To view the AD docket, go
to the Docket Management Facility, U.S.
Department of Transportation, 400
Seventh Street, SW., Nassif Building,
Room PL–401, Washington, DC 20590–
001 or on the Internet at https://
dms.dot.gov. The docket number is
FAA–2006–25105; Directorate Identifier
2006–CE–33–AD.
FOR FURTHER INFORMATION CONTACT: T.N.
Baktha, Aerospace Engineer, FAA,
Wichita Aircraft Certification Office,
1801 Airport Road, Mid-Continent
Airport, Wichita, Kansas 67209;
telephone: (316) 946–4155; fax: (316)
946–4107.
SUPPLEMENTARY INFORMATION:
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[Federal Register Volume 72, Number 66 (Friday, April 6, 2007)]
[Rules and Regulations]
[Pages 16987-16990]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-6473]
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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: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Board of Governors is revising 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 revised
interpretation specifies that the Board may determine, on a case-by-
case basis, whether certain entities not already expressly listed in
the interpretation may become customers to a limited extent of bankers'
banks that remain exempt from reserve requirements.
DATES: Effective Date: May 7, 2007.
FOR FURTHER INFORMATION CONTACT: Heatherun Allison, Senior Counsel,
(202) 452-3565; or Kara Handzlik, Attorney, (202) 452-3852, 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 for monetary policy purposes. 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 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). ``Bankers'
banks'' for purposes of Section 19(b)(9) of the Act and Regulation D
include bankers' banks for commercial banks and thrifts chartered under
state or federal law authorities as well as corporate credit unions.
II. Issuance of Original Interpretation
In November 1980, the Board issued an interpretation of Regulation
D specifying certain standards to be used in determining whether
institutions qualify for the bankers' bank exemption from reserve
requirements. 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 has 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
On August 14, 2006, the Board published for comment a proposal to
revise the Interpretation to specify that
[[Page 16988]]
the Board may determine, on a case-by-case basis, whether certain
entities not already expressly listed in the Interpretation may become
customers to a limited extent of bankers' banks. (71 FR 46411.) This
proposal was issued pursuant to Section 19(a) of the Act, which
authorizes the Board to define the terms used in that section and to
prescribe such regulations as it may deem necessary to effectuate the
purposes of the section and to prevent evasions thereof.
The Board proposed to amend the Interpretation by adding to the
list of non-depository institution customers with which bankers' banks
may do business and remain exempt from reserve requirements 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.'' The proposal would require that such customers still be
subject to the percentage limitations specified in the Interpretation
relating to ownership and doing business (i.e., not more than 25
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 did not propose to specify any standards under
which it would make such case-by-case determinations. The proposal
stated, however, that the Board would not expect to exercise the
authority under the proposal to expand the range of permissible
bankers' bank customers to include the general public. The proposal
also stated that the Board expects to obtain more experience over time
with requests for determinations under the proposal and, based on that
experience, may find that proposing further amendments to the
Interpretation (such as specifications or standards by which the Board
would make such determinations) are warranted. Comment was solicited on
all aspects of the proposal.
IV. Analysis of Comments
Overview of Comments Received
The Board received seventeen comments on the proposal. Commenters
included five bankers' banks (including corporate credit unions); five
associations or councils representing bankers' banks, corporate credit
unions, or community banks; two individuals not associated with any
institution, one professor, one bank, one credit union, one financial
holding company, and one bank holding company. Two commenters fully
supported the proposal, while eleven commenters supported the proposal
but raised concerns and/or offered suggestions about various aspects of
the proposal. Three commenters opposed the proposal. One commenter did
not address the issue set forth by proposal but instead commented on a
separate aspect of Regulation D.\1\
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\1\ This commenter was concerned with Sec. 204.2(d)(2) of
Regulation D (12 CFR 204.2(d)(2)) and ``how consumer banking
institutions are interpreting the Regulation to allow them to
collect `excess transaction fees' from banking patrons.''
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A. Structure of Bankers' Banks; Competitive Concerns
A few commenters favored the flexibility that would be given to the
Board so that the Board could allow banks to structure their operations
optimally and increase services to the financial community. Many
commenters, however, were concerned that the proposal would erode or
eliminate the unique characteristics of a bankers' bank. Some of these
commenters stated that adopting the proposal would increase competition
between bankers' banks and their bank customers. These commenters
emphasized that bankers' banks are not established to compete with
community banks, but instead established to do business with community
banks.
One commenter stated that the bankers' banks should not be
permitted to increase their activities to the point where the bank
clients and shareholders of bankers' banks perceive these activities as
directly competing with their own interest. This commenter stressed
that the term bankers' bank should be ``restricted to banks [that] have
chosen to be owned by banks, to offer services only to other banks and
to embrace the concept of serving only community banks so that they in
turn can compete effectively with the largest financial institutions.''
On the other hand, two commenters suggested increasing the extent to
which bankers' banks could do business with non-depository institution
customers while remaining exempt from reserve requirements. These
commenters urged the Board to increase the percentage limitations
specified in the Interpretation relating to ownership and doing
business.
The Board believes that adopting the proposal is not likely to
erode the unique characteristics of bankers' banks. The Board cannot
under Regulation D authorize activities that are not authorized by a
bankers' bank's chartering authority; rather, the Board can determine
only whether a bankers' bank may be exempt from reserve
requirements.\2\ Any given bankers' bank activity or customer must be
authorized by the bankers' bank chartering authority before the Board
can consider whether a bankers' bank may remain exempt from reserve
requirements while undertaking such an activity or serving such a
customer. In addition, as stated in the proposal, the Board does not
anticipate permitting the reserve exemption to apply to a bankers' bank
that does business with the general public.
The Board is not revising the percentage limitations on the extent
to which bankers' banks may serve non-depository institution customers
while remaining exempt from reserve requirements. The Board does not
believe that it is appropriate to increase those percentage limitations
because to do so would reduce the extent to which bankers' banks serve
primarily depository institution customers. Any new non-depository
institution customers that would be permitted under the revised
Interpretation will still be subject to the existing percentage
limitations specified in the Interpretation relating to ownership and
doing business.
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\2\ For a bankers' bank that is a state member bank, the Board
would have to approve any change in the general character of its
business or in the scope of the corporate powers it exercises in
accordance with Section 208.3(d)(2) of Regulation H (Membership of
State Banking Institutions in the Federal Reserve System, 12 CFR
part 208).
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Finally, the purpose of reserve requirements under Section 19 is to
facilitate the conduct of monetary policy. Accordingly, the Board
believes that exemptions from reserve requirements are to be narrowly
construed so as not to impede the effective conduct of monetary policy.
The more a bankers' bank's activities resemble those of a commercial
bank or other depository institution, the less appropriate the reserve
requirement exemption would be for that bankers' bank. The Board
believes that these considerations will keep the bankers' bank
exemption from reserve requirements from undue expansion under the
revised Interpretation.
B. Determination Process
Some commenters raised concerns about the process by which the
Board would make determinations under the proposal. Many of these
commenters suggested that the Board publish requests for determinations
and permit public comment on them. Among the commenters' reasons for
this request was so that bankers' banks chartered by other authorities
could concomitantly seek authorization of the same activities.
[[Page 16989]]
Other commenters urged the Board to disclose the business reasons
giving rise to requests for determinations as well as the Board's
reasoning in granting any such requests. A few commenters asked that
the Board issue its determinations in the form of an order. These
commenters argued that this would afford the bankers' bank industry the
opportunity to learn the ``business rationale and the business
opportunity'' contained in such requests and orders until formal
guidelines have been established by the Board.
One commenter asked that the Board clearly set forth in the revised
Interpretation the standards which will be used in making its future
case-by-case determinations to preclude arbitrary or capricious
determinations. On the other hand, another commenter urged the Board to
relax standards for granting such requests and to clarify whether all
entities with which the bankers' bank is permitted to do business under
the Interpretation will qualify as ``financial institutions.''
One commenter urged the Board to specify the length of time for
making determinations under the revised Interpretation, claiming that
the flexibility granted by the proposal could be offset by overly
lengthy determination time periods. This commenter also urged the Board
to address the extent to which individual Federal Reserve Banks will be
involved with the decision making process, asserting that the
individual Reserve Banks are in the best position to develop
understanding of a company's risk profile and management team which is
necessary for making such determinations.
The Board anticipates that determinations under the revised
Interpretation will generally be made public and will include a
description of the determination, the business and other reasons behind
the request, and the Board's reasoning in granting (or denying) the
request. Although the Board does not anticipate publishing requests for
such determinations prior to the time that the determination is made,
the Board anticipates that all requests will be handled in a timely
manner and that the input of the appropriate Federal Reserve Bank or
Banks, if any, will be solicited as part of that process.
Finally, the Board continues to believe that publishing more
detailed criteria by which the Board would review requests under the
revised Interpretation would be premature at this time. As noted above,
the Board cannot under Regulation D authorize activities that are not
authorized by a bankers' bank's chartering authority. The Board cannot
predict the kinds of changes that may or may not occur in activities or
customers that chartering authorities may permit. Accordingly, the
Board cannot predict the details of the criteria under which it would
evaluate such activities or customers for consistency with the Act and
the purposes of the bankers' bank exemption. Over time, however, the
Board expects that it may be possible after further experience with
requests under the Interpretation to articulate standards or guidelines
for the further exercise of that authority by the Board.
C. Miscellaneous
One commenter supported the proposal, but asked for clarification
of the ``consistent with the purposes of the Act and the bankers' bank
exemption'' language. Another commenter asked the Board to clarify the
phrase ``do business with'' as that phrase appears in the Act and the
Interpretation. As noted above, the Board believes that it cannot
predict the manner in which chartering authorities may change the
permissible activities and customers of bankers' banks. Therefore, the
Board believes that it cannot at this time provide greater specificity
in these areas. As also noted above, however, the Board expects that it
may be able to provide greater specificity in the future as an
increasing amount of experience with requests and determinations under
the proposal is obtained.
One commenter supported the proposal but believed that the Board
inadvertently removed language from the original Interpretation when
issuing the proposal for comment. The Board has corrected this
inadvertent omission in the final Interpretation.
Another commenter suggested that adopting the proposal would make
the regulation less specific and that this could impair any relief
granted to bankers' banks by adopting the proposal. This commenter also
stated that the proposal violates ``Plain Language'' provisions of the
Gramm-Leach-Bliley Act (Section 722 of Pub. L. 106-102, 113 Stat. 1338,
1471 (Nov. 12, 1999)). Finally, this commenter argued that the proposal
provides such expansive authority to the Board that there can be little
Congressional oversight of the Board's activities in this area. As
noted above, the Board cannot itself expand bankers' bank authority to
serve new kinds of customers and undertake new lines of activities. As
also noted above, the Board believes that it can only issue
determinations under the revised Interpretation that are consistent
with the purposes of Section 19 of the Act and of the bankers' bank
exemption, and that the revised Interpretation clearly states the
Board's authority and objectives. As also noted above, the Board does
not anticipate exercising its authority under the revised
Interpretation to expand the reserves exemption to bankers' banks that
do business with the general public. As further noted above, the Board
anticipates that determinations made under the revised Interpretation
will be publicly available. For these reasons, the Board does not
believe that the Interpretation poses the risks or violations suggested
by the commenter.
V. Regulatory Analysis
A. Regulatory Flexibility Act
In accordance with Section 604 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. For the reasons set
out below, the Board certifies that the amendments to the
Interpretation will not have a significant economic impact on a
substantial number of small entities.
1. Statement of the objectives of the proposal. The Board is
revising 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 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 the revisions to the Interpretation are
within Congress' broad grant of authority to the Board to adopt
provisions that carry out the purposes of section 19 of the Act.
2. Public comments in response to initial regulatory flexibility
analysis. There were no public comments in response to the initial
regulatory flexibility analysis.
3. Description and estimate of number of small entities to which
revised Interpretation will apply. The Board estimates that there are
eleven bankers' banks qualifying as ``small entities'' to which the
revised Interpretation could apply.
[[Page 16990]]
4. Projected reporting, recordkeeping, and other compliance
requirements. There are no reporting, recordkeeping, or other
compliance requirements associated with the revised Interpretation.
5. Minimizing significant economic impact of the revised
Interpretation on small entities. There were no public comments that
suggested a significant alternative that would minimize the impact of
the proposal on small entities. There are eleven bankers' banks
qualifying as ``small entities'' under RFA. The revised Interpretation
provides all bankers' banks with the ability to maintain their
exemption from reserve requirements, if any, while undertaking certain
additional bankers' bank activities or customers as authorized by their
chartering authorities. No bankers' bank is required to seek a
determination under the revised Interpretation. The revised
Interpretation imposes no economic burdens on bankers' banks, and
instead only offers the opportunity to bankers' banks that are exempt
from reserve requirements to maintain the economic benefits of that
exemption under the specified circumstances. Accordingly, the Board
believes that the revised Interpretation will not have a significant
impact on a substantial number of small entities.
B. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. 3506; 5 CFR part 1320 Appendix A.10), the Board reviewed the
proposal under the authority delegated to the Board by the Office of
Management and Budget (OMB). The proposal contains no requirements
subject to the PRA.
VI. Plain Language
The Board received one comment on whether the proposal was in plain
language. This commenter stated that the Board's failure to propose
standards for its exercise of authority under the proposal amounted to
a failure to comply with the ``Plain Language'' provisions of the
Gramm-Leach-Bliley act. This commenter stated that the Board should
instead say that it proposes to do whatever it wants given its view of
the purposes of the Act. For the reasons stated above, the Board
believes that the revised Interpretation is stated in plain language to
the greatest extent possible at this point in time. As also stated
above, the Board expects to publish further guidance and standards as
it obtains additional experience in the future with requests for
determinations under the revised Interpretation. Accordingly, the Board
believes that the revised Interpretation complies with applicable plain
language requirements.
List of Subjects in 12 CFR Part 204
Banks, banking, Reporting and recordkeeping requirements.
0
For the reasons set forth in the preamble, the Board is amending 12 CFR
part 204 as follows:
PART 204--RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
(REGULATION D)
0
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.
0
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,
including subsidiaries or organizations owned by 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, April 3, 2007.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E7-6473 Filed 4-5-07; 8:45 am]
BILLING CODE 6210-02-P
