Reserve Requirements of Depository Institutions; Issue and Cancellation of Federal Reserve Bank Capital Stock, 8009-8018 [E8-2558]

Download as PDF 8009 Proposed Rules Federal Register Vol. 73, No. 29 Tuesday, February 12, 2008 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 Parts 204 and 209 [Regulations D and I; Docket No. R–1307] Reserve Requirements of Depository Institutions; Issue and Cancellation of Federal Reserve Bank Capital Stock Board of Governors of the Federal Reserve System. ACTION: Notice of proposed rulemaking; request for public comment. hsrobinson on PROD1PC76 with PROPOSALS-1 AGENCY: SUMMARY: The Board is publishing for comment proposed amendments to Regulation D (Reserve Requirements of Depository Institutions) and Regulation I (Issue and Cancellation of Federal Reserve Bank Capital Stock). Of these, only two are intended to represent substantive changes from existing law, while the remaining amendments are intended principally as clarifications. The first of the proposed substantive amendments would amend Regulation D to implement Section 603 of the Financial Services Regulatory Relief Act of 2006 by authorizing member banks of the Federal Reserve System to enter into pass-through arrangements. Previously, member banks were statutorily prohibited from passing required reserve balances through a correspondent institution. The second of the proposed substantive amendments would eliminate the provision in the ‘‘savings deposit’’ definition of Regulation D limiting certain kinds of transfers from savings deposits to not more than three per month. As a result, all kinds of transfers and withdrawals from a savings deposit that must be limited in number per month would be subject to the same numeric limitation of not more than six per month. The remaining proposed amendments, intended as clarifications, would reorganize the provisions relating to deposit reporting and the calculation and maintenance of required reserves, clarify the definitions of ‘‘time deposit’’ and ‘‘vault cash,’’ and make other minor editorial changes. VerDate Aug<31>2005 17:05 Feb 11, 2008 Jkt 214001 Comments must be received on or before March 28, 2008. ADDRESSES: You may submit comments, identified by Docket No. R–1307, by any of the following methods: • Agency Web Site: https:// www.federalreserve.gov. Follow the instructions for submitting comments at https://www.federalreserve.gov/ generalinfo/foia/ProposedRegs.cfm. • Federal eRulemaking Portal: https:// 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 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 Sophia Allison, Senior Counsel (202/452–3565), or Kara Handzlik, Attorney (202/452–3852), Legal Division, Seth Carpenter, Assistant Director and Section Chief (202/452–2385), or Margaret Gillis DeBoer, Financial Analyst (202/452– 3139), Division of Monetary Affairs; for users of Telecommunications Device for the Deaf (TDD) only, contact (202/263– 4869); Board of Governors of the Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551. SUPPLEMENTARY INFORMATION: DATES: I. Statutory Background Section 19 of the Federal Reserve Act (the ‘‘Act’’) imposes reserve requirements for monetary policy purposes only on certain types of deposits and other liabilities of depository institutions. Section 19 also authorizes the Board to define by regulation the terms used in the section. PO 00000 Frm 00001 Fmt 4702 Sfmt 4702 Currently, reserve requirement ratios for ‘‘transaction accounts’’ (accounts used to make payments to third parties, such as checking accounts) are graduated between three and ten percent. Reserve requirement ratios for ‘‘nonpersonal time deposits’’ and ‘‘Eurocurrency liabilities’’ are currently zero percent. Although Section 19 expressly defines accounts with certain transfer characteristics as ‘‘transaction accounts,’’ Section 19 also authorizes the Board ‘‘to determine, by regulation or order, that an account or deposit is a transaction account if such account or deposit may be used to provide funds directly or indirectly for the purpose of making payments or transfers to third persons or others.’’ 1 The provisions of Section 19 are implemented by the Board’s Regulation D. Section 11(a)(2) of the Act authorizes the Board to require any depository institution ‘‘to make, at such intervals as the Board may prescribe, such reports of its liabilities and assets as the Board may determine to be necessary or desirable to enable the Board to discharge its responsibility to monitor and control monetary and credit aggregates.’’ 2 These provisions are specifically implemented in the computation and maintenance provisions of Regulation D (12 CFR 204.3). II. Pass-Through Accounts Section 19(c)(1) of the Act provides that depository institutions shall maintain required reserves in the form of a balance maintained for such purposes by a depository institution in an account at a Federal Reserve Bank or in the form of vault cash. Prior to 2006, Section 19(c)(1)(B) of the Act provided that non-member banks could maintain required reserves in an account at a depository institution that itself maintained required reserve balances at a Federal Reserve Bank, known as a ‘‘pass-through account.’’ The Financial Services Regulatory Relief Act of 2006, Public Law 109–351 (Oct. 13, 2006), amended Section 19(c)(1)(B) of the Act to remove the language restricting passthrough arrangements to non-member banks. Accordingly, all depository institutions may if they choose maintain required reserves in a pass-through 1 Section 19(b)(1)(F) of the Federal Reserve Act, 12 U.S.C. 461(b)(1)(F). 2 12 U.S.C. 248(a). E:\FR\FM\12FEP1.SGM 12FEP1 8010 Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules account with a correspondent depository institution. To implement the pass-through provisions of the Financial Services Regulatory Relief Act of 2006, the Board proposes to amend the definition of ‘‘pass-through account’’ in § 204.2(l ) and the rules for pass-through arrangements in § 204.3(i) to remove references limiting such arrangements to non-member banks. III. Transfers From Savings Deposits hsrobinson on PROD1PC76 with PROPOSALS-1 A. Six-Three Distinction The Board has established the criteria for distinguishing between ‘‘transaction accounts’’ and ‘‘savings deposits’’ 3 in Regulation D based on the ease with which the depositor may make transfers (payments to third parties) or withdrawals (payments directly to the depositor) from the account. Generally speaking, the more convenient it is to make withdrawals or transfers from an account, the more likely it is that the account will be used for making payments or transfers to third parties as opposed to holding savings. Accordingly, Regulation D limits the number of certain convenient kinds of transfers or withdrawals that may be made in a single month from an account if that account is to be classified as a ‘‘savings deposit.’’ 4 ‘‘Convenient’’ transfers or withdrawals for this purpose include preauthorized or automatic transfers (such as overdraft protection transfers or arranging to have bill payments deducted directly from the depositor’s savings account), telephonic transfers (made by the depositor telephoning or sending a fax or online instruction to the bank and instructing the transfer to be made), and transfers by check, debit card, or similar order payable to third parties. Regulation D currently limits the number of ‘‘convenient’’ transfers and withdrawals from savings deposits (i.e., preauthorized, automatic, or telephonic transfers or withdrawals) to not more than six per month. Within this overall limit of six, not more than three transfers or withdrawals may be made by check, debit card, or similar order made by the depositor and payable to 3 The Board has by regulation included ‘‘savings deposits’’ held by nonnatural persons (i.e., anyone other than individuals) in the Regulation D definition of ‘‘nonpersonal time deposits.’’ Accordingly, such deposits are subject to a zero percent reserve requirement. Savings deposits held by natural persons (individuals), on the other hand, are not subject to reserve requirements at all. As a practical matter, therefore, ‘‘savings deposits’’ of all kinds are not reservable; the distinction between personal and nonpersonal savings deposits is significant for deposit reporting purposes only. 4 12 CFR 204.2(d)(2) (definition of ‘‘savings deposit’’). VerDate Aug<31>2005 17:05 Feb 11, 2008 Jkt 214001 third parties. Transfers and withdrawals from savings deposits that are less convenient are not limited in number by the ‘‘savings deposit’’ definition in Regulation D. For example, transfers or withdrawals made ‘‘by mail, messenger, automated teller machine, or in person or * * * made by telephone (via check mailed to the depositor)’’ may be made from savings deposits without numerical limit. The distinction between different types of limited transfers or withdrawals from savings deposits may be referred to as the ‘‘six-three distinction’’ (i.e., six convenient transfers or withdrawals, of which up to three may be by check, debit card, or similar order). The sixthree distinction in the Regulation D definition of ‘‘savings deposit’’ is derived from the ‘‘money market deposit account’’ or ‘‘MMDA’’ created by the Garn-St.Germain Depository Institutions Act of 1982 (the ‘‘1982 Act’’). In the 1982 Act, Congress sought to create an account to meet the perceived market need for an interestbearing deposit account that was both directly competitive with money market mutual funds and not the functional equivalent of a reservable transaction account. The definition of ‘‘transaction account’’ in Regulation D at that time included any account from which more than three preauthorized, automatic or telephonic transfers or withdrawals per month were permitted. Congress therefore specified in the 1982 Act that the MMDA was not to be considered a ‘‘transaction account’’ (and, therefore, not subject to reserve requirements) even though it permitted ‘‘three preauthorized or automatic transfers and three third-party transfers’’ per month. The legislative history of the 1982 Act did not clarify whether this authorization was intended to allow ‘‘three preauthorized or automatic transfers’’ and a separate set of ‘‘three third-party transfers.’’ It simply noted that ‘‘third-party transfers’’ were intended to include checks. The existing provisions of Regulation D, however, considered ‘‘preauthorized or automatic’’ transfers to include transfers to third parties as well. To harmonize the legislative history of the 1982 Act with the existing provisions of Regulation D, the MMDA was regulatorily defined to permit a depositor who did not write any checks in a particular month to make up to six preauthorized or automatic transfers per month. In no event, however, would more than three checks per month be permitted. In 1986, the statutory provisions that authorized the MMDA and that PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 exempted the MMDA from the ‘‘transaction account’’ definition expired. In subsequent rulemakings, however, the Board preserved the transfer and withdrawal characteristics of the MMDA in Regulation D by merging the definition of ‘‘MMDA’’ into the definition of ‘‘savings deposit.’’ Thus, any deposit that permitted up to six preauthorized, automatic, or telephonic transfers or withdrawals, including not more than three transfers made by check, debit card, or similar third-party order, was classified under Regulation D as a ‘‘savings deposit.’’ B. Proposed Amendment Eliminating ‘‘Three’’ Limit Depository institutions have identified the six-three distinction in Regulation D as a regulatory burden in various contexts, as distinctions that have historically been drawn between ‘‘six’’ or ‘‘three’’ transfers or withdrawals are overtaken by developments in payments technology. In light of the foregoing, the Board believes it would now be appropriate to amend Regulation D to do away with the sublimit of three that applies to checks and drafts and simply limit all ‘‘convenient’’ transfers to not more than six per month.5 Eliminating the ‘‘sixthree distinction’’ and replacing it with a simpler ‘‘six-per-month’’ rule for all types of ‘‘convenient’’ transfers or withdrawals from savings deposits would reduce some aspects of the current limitations that are burdensome to the private sector and that may interfere with the broader use and acceptance of developing electronic payments technologies. A ‘‘six-per-month’’ rule could result in a slight decrease in aggregate transaction account balances, as those accounts that permit more than three but less than six transfers by check or debit card per month would shift from their current classification as ‘‘transaction accounts’’ to ‘‘savings deposits.’’ The extent of such a decrease, if any, is difficult to predict given the lack of data on the distribution of frequency of withdrawals and transfers from various accounts. The net effects, however, seem unlikely to be large. IV. Other Proposed Amendments A. Harmonization With Existing Usage or Staff Guidance Certain proposed amendments would amend definitions of existing terms to harmonize them with existing usage, practice, or staff guidance. For example, 5 12 CFR 204.2(d)(2) (definition of ‘‘savings deposit’’). E:\FR\FM\12FEP1.SGM 12FEP1 Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules the proposed amendments would add new provisions to the definition of ‘‘vault cash’’ in § 204.2(k) in order to incorporate the substance of numerous staff opinions that explain the circumstances under which vault cash held at ATMs and in other arrangements can qualify as ‘‘vault cash’’ for purposes of meeting reserve requirements. Also, the proposed amendments would also clarify the definition of ‘‘time deposit’’ in § 204.2(c) to incorporate staff guidance that has been issued over the years in response to numerous inquiries about the meaning of ‘‘additional’’ early withdrawal penalties and when such penalties must be imposed. B. Reorganization of Reporting, Computation, and Maintenance Provisions The remaining proposed amendments would reorganize the existing provisions of Regulation D relating to deposit reporting and to the computation and maintenance of required reserves. These proposed amendments would split the existing provisions on these subjects in current § 204.3 into three separate sections. First, the provisions related to submitting reports of deposits would be set forth in proposed § 204.3. Second, the provisions relating to computation of required reserves would be set forth in proposed § 204.4. Third, the provisions relating to maintenance of required reserves would be set forth in proposed § 204.5. In addition, the proposed amendments would move the reserve requirement ratio provisions of current § 204.9 into the proposed separate section relating to computation of required reserves (proposed § 204.4). Finally, the proposed amendments renumber the provisions of the regulation relating to transitional adjustments, emergency reserves, and supplemental reserves in order to reflect the creation of three separate sections out of current § 204.3. hsrobinson on PROD1PC76 with PROPOSALS-1 V. Section-By-Section Analysis Section 204.2(c)(1) Definition of ‘‘Time Deposit’’ The Board proposes to amend the definition of ‘‘time deposit’’ to clarify the application of early withdrawal penalties when there has been more than one partial early withdrawal from a time deposit. Current § 204.2(c)(1) provides that an early withdrawal penalty must be charged on any amount withdrawn from a time deposit ‘‘from within six days after the date of deposit.’’ The definition contemplates that an early withdrawal might be an early withdrawal of the entire deposit VerDate Aug<31>2005 17:05 Feb 11, 2008 Jkt 214001 amount or of a partial withdrawal, that is, a withdrawal of some amount that is not the entire deposit amount. In either case, if part or all of the time deposit is withdrawn within six days after the date of the initial deposit, the specified early withdrawal penalty must be imposed on the amount so withdrawn. The current definition further states that ‘‘[a] time deposit from which partial early withdrawals are permitted must impose additional early withdrawal penalties of at least seven days’ simple interest on amounts withdrawn within six days after each partial withdrawal.’’ This provision has led to numerous inquiries about the meaning of the terms ‘‘additional’’ and ‘‘early’’ in this provision.6 The Board intends to clarify that withdrawals cannot be made more frequently than every seven days from a deposit that is classified as a ‘‘time deposit’’ unless a penalty of at least seven days’’ simple interest is charged on amounts so withdrawn. Accordingly, the Board proposes to amend the definition to remove the references to ‘‘early’’ and ‘‘additional’’ in the second sentence of the definition and to clarify that ‘‘early’’ withdrawals, when made other than in the first six days, are withdrawals that are within six days of the last withdrawal. Section 204.2(d)(2) Definition of ‘‘Savings Deposit’’ As explained in III.A.–III.B., supra, The Board proposes to amend the definition of ‘‘savings deposit’’ to eliminate the provision limiting certain kinds of transfers from savings deposits to not more than three per month. As a result, all kinds of transfers and withdrawals from a savings deposit that must be limited in number per month would be subject to the same numeric limitation of nor more than six per month. Section 204.2(k) Definition of ‘‘Vault Cash’’ The Board proposes to amend the definition of ‘‘vault cash’’ to incorporate the substance of prior written staff guidance on when currency and coin that is not held at a physical location of the depository institution 7 may count as ‘‘vault cash.’’ The proposed 6 E.g., whether two penalties (an ‘‘early withdrawal penalty’’ and an ‘‘additional early withdrawal penalty’’) must be charged on any partial early withdrawal; whether one penalty must be charged on a partial early withdrawal within the first six days of the deposit but two must be charged on subsequent partial early withdrawals; the meaning of ‘‘early withdrawal’’ as applied to a partial withdrawal made some time other than within the first six days, etc. 7 See, e.g., See FRRS ¶ 2–307.2 (rented vault); Staff Opinion of Aug. 9, 1982 (ATMs). PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 8011 amendments divide the definition of ‘‘vault cash’’ into two subsections: one dealing with vault cash ‘‘held at a physical location of the depository institution * * * from which the institution’s depositors may make cash withdrawals;’’ and the other dealing with vault cash ‘‘held at an alternate physical location.’’ The proposed amendments expand primarily the second proposed subsection to incorporate prior guidance. From 1917 to 1959, the Act permitted member banks to satisfy reserve requirements exclusively with balances in their accounts at Federal Reserve Banks. In 1959, Congress amended Section 19 of the Act to provide that the Board, ‘‘under such regulations as it may prescribe, may permit member banks to count all or part of their currency and coin as reserves required under this section.’’ 8 The 1959 legislation was intended ‘‘to remove some generally recognized inequities that now exist in the structure of reserve requirements applicable to member banks * * *.’’ 9 Specifically, the legislative history recognized that currency and coin in a member bank’s vault and a balance in a member bank’s account at a Federal Reserve Bank were ‘‘interchangeable’’ as liabilities of the Reserve Banks.10 For operational reasons, however, ‘‘country banks’’ generally found it necessary to hold more currency and coin in their vaults than did ‘‘reserve city banks’’ or ‘‘central reserve city banks.’’ 11 Between 1959 and 1960, the Board promulgated a series of amendments to Regulation D that phased in the ability of member banks to count all of their currency and coin in satisfying reserve requirements. In 1970, the Board issued an interpretation of Regulation D relating to the eligibility of currency or coin held principally for numismatic value to satisfy member bank reserve requirements.12 The Board was concerned that permitting silver coin to count towards reserve requirements could encourage speculation in silver; specifically, that the banks were holding either for their own accounts with the expectation of earning a premium over face value, or were holding under written or oral agreements with specific customers whereby the customers retained the right to or an option on 8 Act of July 28, 1959 (73 Stat. 263). Rep. No. 86–195, at 1 (1959); H. Rep. No. 86– 403, at 3 (1959). 10 S. Rep. No. 86–195, at 3 (1959); H. Rep. No. 86– 403, at 3 (1959). 11 S. Rep. No. 86–195, at 3 (1959); H. Rep. No. 86– 403, at 3 (1959). 12 Former 12 CFR 204.116 (1979). 9 S. E:\FR\FM\12FEP1.SGM 12FEP1 8012 Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules those coins.13 Accordingly, the Board specified in the 1970 interpretation that in order for a member bank to count currency or coin towards reserve requirements, the member bank must have ‘‘the full and unrestricted right to use [such currency or coin] at any time to meet depositors’ claims * * *.’’ 14 The 1970 interpretation also specified that a bank does not have such a ‘‘full and unrestricted right’’ if the bank is prevented, legally or practically * * * from using the currency or coin at any time to meet customer’s demands.’’ 15 The 1970 interpretation further specified that when assessing arrangements with respect to such currency and coin, ‘‘[a]n agreement between the bank and its customer that the currency or coin is to be regarded as ‘owned’ by the bank for purposes of reserve requirements is not determinative. Whether currency or coin may be counted as reserves depends on the underlying nature of the transaction * * *.’’ 16 The 1980 Regulation D amendments implementing the Monetary Control Act of 1980 introduced the term ‘‘vault cash’’ as a defined term. The 1980 amendments defined ‘‘vault cash’’ to mean ‘‘currency and coin owned and held by a depository institution that may, at any time, be used to satisfy depositors’ claims,’’ incorporating into the new definition the principles of bank ownership and availability at any time to satisfy depositors’ claims from the 1970 interpretation. Subsequent Board guidance and staff opinions provided additional clarification of these requirements. For example, vault cash ‘‘owned and held’’ by the depository institution was further clarified to include the requirements that (A) the depository institution claiming the currency or coin in question as ‘‘vault cash’’ must book the currency or coin as an asset,17 and that (B) no other institution may claim the currency and coin towards satisfying its reserve requirements.18 The ability to use vault cash ‘‘at any time * * * to satisfy depositor’s claims’’ was initially viewed as requiring the currency or coin to be ‘‘immediately’’ available for that purpose to the bank or a branch of the bank.19 For currency and coin to be ‘‘immediately available,’’ subsequent staff opinions specified that it be ‘‘reasonably nearby’’ a physical location (from which depositors may make cash withdrawals) of the institution claiming the vault cash towards satisfying reserve requirements.20 To be ‘‘reasonably nearby,’’ in turn, staff believed that a depository institution customer who demanded cash at the beginning of a banking day should be able to receive that cash in satisfaction of his or her demand before the close of business on the same calendar day. Accordingly, staff opined that a depository institution must be able to recall the currency and coin in question from the remote location by not later than 4 p.m. if the recall is requested by 10 a.m. on the same calendar day for the currency and coin to constitute ‘‘vault cash.’’ Staff guidance further clarified that depository institutions must establish the ability to recall ‘‘vault cash’’ within the specified time frame by having in place a written cash delivery plan (together with written contractual arrangements necessary to implement the plan) that permits recall of the ‘‘vault cash’’ to the depository institution relying solely on ground transportation. The proposed amendments would incorporate all of the foregoing clarifications and requirements into six new subsections applicable to ‘‘vault cash’’ held ‘‘at an alternate physical location’’ of the depository institution claiming the currency or coin in question towards satisfying its reserve requirements.21 Finally, the proposed amendments re-number current § 204.2(k)(2)–(3) to 204.2(k)(3)–(4), to take into account the new proposed §§ 204.2(k)(1)–(2). The substance of those provisions, however, is unchanged by the proposed amendments. Section 204.2(l) Definition of ‘‘Passthrough Account’’ The Board proposes to amend the definition of ‘‘pass-through account’’ to eliminate the language restricting passthrough account arrangements to nonmember banks. The proposed amendments would also move the provisions relating to pass-through accounts currently set forth in § 204.3(i) 20 See hsrobinson on PROD1PC76 with PROPOSALS-1 13 35 14 Id. 15 Id. 16 Id. 17 See, e.g., F.R.R.S. ¶ 2–306.9; Staff Op. of Aug. 9, 1982. 18 See, e.g., F.R.R.S. ¶ 2–307.2; Staff Op. of Aug. 9, 1982. 19 See FRRS ¶ 2–306.9; Staff Opinion of Aug. 9, 1982. VerDate Aug<31>2005 17:05 Feb 11, 2008 FRRS ¶ 2–307.2. proposed amendments do not include the ‘‘legitimate business purpose’’ specification from written staff guidance on vault cash held in alternate physical locations (see, e.g., FRRS ¶ 2– 365.2), The Board believes that full compliance with the other five specifications proposed to be incorporated into the definition should ordinarily suffice to establish the legitimacy of the arrangement. The Board requests comment on whether this specification should be included in the definition of ‘‘vault cash.’’ 21 The FR 18957 (Dec. 15, 1970). Jkt 214001 PO 00000 Frm 00004 Fmt 4702 Sfmt 4702 to a new § 204.5(d), ‘‘Maintenance of Required Reserves,’’ discussed infra. Section 204.2(v) Definition of ‘‘Clearing Balance Allowance’’ The proposed amendments would add a new definition of ‘‘clearing balance allowance’’ to Regulation D. The term replaces the undefined term ‘‘required charge-free band’’ that appears twice in current § 204.3(h) (concerning carryovers of excess reserves or deficiencies in reserves) because that term is no longer used in current practice. The proposed amendments would also move the existing carryover provisions in current § 204.3(h) to a new paragraph (e) under proposed § 204.5, ‘‘Maintenance of Required Reserves,’’ discussed infra. Section 204.2(w) Definition of ‘‘Contractual Clearing Balance’’ The proposed amendments would add a new definition of ‘‘contractual clearing balance’’ to Regulation D. The term replaces the undefined term ‘‘required clearing balance’’ in current § 204.3(h) because the term ‘‘contractual clearing balance’’ is more commonly used and more accurately describes the relationship created thereby. Section 204.3 Reporting and Location Current § 204.3 of Regulation D sets forth the regulatory provisions governing the calculation of required reserves, the maintenance of required reserves, and the submission of reports of deposits (from which required reserves are calculated). The Board proposes to re-organize these provisions into three separate subsections that address these issues in their chronological order: the submission of reports of deposits, the calculation of required reserves based on those reports of deposits, and the subsequent maintenance of required reserves based on the calculation of required reserves. The proposed amendments are not intended to make substantive changes to these provisions, but rather are intended to re-organize them for greater ease of reference and to make minor editorial changes for clarity. The first of the proposed three new paragraphs, proposed § 204.3, incorporates the existing regulatory provisions relating to submission of reports of deposits, including provisions on determining the location of the reporting institution for deposit reporting and reserves maintenance purposes.22 The proposed amendments would also include in this paragraph 22 Current subsections 204.3(a)(1) last sentence, 204.3(a)(2), and 204.3(b)(2). E:\FR\FM\12FEP1.SGM 12FEP1 hsrobinson on PROD1PC76 with PROPOSALS-1 Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules regulatory provisions regarding the allocation of the low reserve tranche among related depository institutions 23 and regarding overdrafts in related transaction accounts 24 because these provisions must be applied in determining the appropriate levels of deposits to report. Proposed § 204.3(a) consists of the text of the first sentence of current § 204.3(a)(2)(i), with two proposed amendments. The first proposed amendment would clarify the authority of the Board or a Federal Reserve Bank to require reports of deposits or any other form or statement from a depository institution relating to reserve requirements. The second proposed amendment would clarify where reports of deposits are to be submitted in light of the account location provisions of the regulation. Proposed § 204.3(b) sets forth without change the text of the second sentence of current § 204.3(a)(2)(i). Proposed § 204.3(c) sets forth without change the text of the third (and last) sentence of current § 204.3(a)(1). Proposed § 204.3(d) sets forth, with one change, the text of current § 204.3(a)(3). The one change would conform the section number reference to the reserve requirement ratios that are currently set forth in § 204.9 but would be moved to proposed § 204.4(f) in the proposed amendments. No changes are proposed to current § 204.3(e), dealing with computation of transaction accounts for deposit reporting purposes. Proposed § 204.3(g) sets forth, with two amendments, the text of current § 204.3(b)(2). The first amendment would provide that a depository institution may be considered to be located at the location specified in the institution’s articles of incorporation or as specified by the institution’s primary regulator. The Board proposes this amendment in light of the fact that an institution may move its head office or primary location from that specified in its charter or organizing certificate, but that the charter or organizing certificate may not reflect that move. In such cases, the move instead may be reflected in the institution’s revised articles of incorporation or otherwise as recognized by the institution’s primary regulator. The second amendment would conform the internal references to §§ 204.3(b)(2)(i) and 204.3(b)(2)(ii) to §§ 204.3(g)(1) and 204.3(g)(2), respectively. 23 Current 24 Current § 204.3(a)(3). § 204.3(e). VerDate Aug<31>2005 17:05 Feb 11, 2008 Jkt 214001 Section 204.4 Computation of Required Reserves The Board proposes to move the provisions relating to computation of required reserves from where they appear in current §§ 204.3(c), 204.3(d), and 204.3(f) to a new separate paragraph, proposed § 204.4, ‘‘Computation of Required Reserves.’’ No substantive changes are intended. Proposed § 204.4(a) sets forth, without change, the text of current § 204.3(f)(1). Proposed § 204.4(b) sets forth, without change, the text of current § 204.3(f)(2). Proposed § 204.4(c) sets forth, without change, the text of current § 204.3(f)(3). Proposed §§ 204.4(d) and 204.4(e) set forth the text of current § 204.3(c)(1) and the first sentence of § 204.3, respectively, with editorial amendments for clarity. Proposed § 204.4(f) sets forth the text of the second sentence of current § 204.3(c)(1), with editorial amendments for clarity. Proposed § 204.4(f) also incorporates, with editorial amendments for clarity, the table of reserve requirements ratios currently set forth in § 204.9 so that all regulatory provisions relating to computation of required reserves are located in the same section. Section 204.5 Maintenance of Required Reserves The Board proposes to move the existing provisions regarding maintenance of required reserves, including the provisions on maintenance of required reserves pursuant to pass-through agreements, to a new § 204.5, ‘‘Maintenance of Required Reserves.’’ No substantive changes are intended. Proposed § 204.5(a)(1) sets forth the text of current § 204.3(b)(1) with various amendments. First, the amendments would delete the reference to ‘‘nonmember institutions’’ in discussing pass-through arrangements. Second, the amendments would update the language (e.g., ‘‘maintain required reserves’’ rather than ‘‘hold reserves’’) for consistency with current usage. Third, the amendments would conform the numeric reference from current § 204.3(i) to proposed § 204.5(d) for the regulatory provisions on pass-through arrangements. Proposed § 204.5(a)(2) sets forth the text of current § 204.3(i)(3)(i) with editorial amendments for clarity. Proposed § 204.5(b)(1) sets forth the text of current § 204.3(c)(2) with editorial amendments for clarity. Proposed § 204.5(b)(2) sets forth the text of the first and third sentences of current § 204.3(d) with editorial amendments for clarity. PO 00000 Frm 00005 Fmt 4702 Sfmt 4702 8013 Proposed § 204.5(c) sets forth the text of current § 204.3(g) with an amendment to conform the name of the Board’s Regulation J (12 CFR Part 210) to the current version of the regulation. Proposed § 204.5(d) sets forth the regulatory provisions for ‘‘pass-through accounts’’ in current § 204.3(i), dividing them into four new paragraphs, proposed §§ 204.5(d)(1) through 204.5(d)(4). Proposed § 204.5(d)(1) sets forth the text from current § 204.3(i)(1)(i) with various amendments. First, the amendments would delete the reference to ‘‘nonmember’’ depository institutions, since pass-through arrangements are no longer statutorily restricted to nonmember depository institutions. Second, the amendments would clarify that depository institutions whose required reserve balances are zero may serve as pass-through correspondents. Third, the amendments conform the internal references to section numbers and make other editorial changes for clarity. Proposed § 204.5(d)(2) sets forth, without change, the text from current § 204.3(i)(1)(ii). Proposed § 204.5(d)(3) sets forth the text of current § 204.3(i)(2), with an amendment to delete the obsolete reference to Reserve Bank permission for alternate account locations. Determination of account location is addressed in current § 204.3(b) (proposed § 204.3(g)). Proposed § 204.5(d)(4) sets forth, in four new subsections, the text of current §§ 204.3(i)(3)(ii)–(v). Proposed § 204.5(d)(4)(A) sets forth the text of current § 204.3(i)(3)(ii) with an amendment deleting the reference to more than one depository institution account at a Federal Reserve Bank. Proposed §§ 204.5(d)(4)(B) and 204.5(d)(4)(C) set forth, without change, the text of current §§ 204.3(i)(3)(iii) and 204.3(i)(3)(iv), respectively. Proposed § 204.5(d)(4)(D) sets forth the text of current § 204.3(i)(3)(v) with an amendment conforming the section number reference to the supplemental reserves provisions of the regulation (current § 204.6, proposed § 204.10). Proposed § 204.5(e) sets forth the text of current § 204.3(h), with amendments deleting obsolete references to ‘‘required clearing balance’’ and to ‘‘required charge-free band.’’ Other editorial amendments are made for clarity. Section 204.6 Charges for Reserve Deficiencies The Board proposes to move the existing provisions regarding charges for reserve deficiencies from current § 204.7 to proposed § 204.6 and to revise the E:\FR\FM\12FEP1.SGM 12FEP1 8014 Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules current caption of the section (from ‘‘Penalties’’ to ‘‘Charges for Reserve Deficiencies’’). The four proposed sections in proposed § 204.6 set forth the text of current § 204.7, deleting provisions describing guidelines for waivers by Reserve Banks of small charges. The Board believes that the deletion of this material is appropriate because it describes only in part the extent of the discretion of the Reserve Banks in this regard and to avoid the implication that Reserve Banks must waive charges in certain of the cases described. Section 204.7 Transitional Adjustments in Mergers The Board proposes to re-designate the provision from current § 204.4 to proposed § 204.7. No other changes to the section are proposed. Section 204.8 Facilities International Banking No changes are proposed to § 204.8. Section 204.9 Requirement Emergency Reserve The Board proposes to re-designate the provision from current § 204.5 to proposed § 204.9. No other changes to the section are proposed. Section 204.10 Requirement Supplemental Reserve The Board proposes to re-designate the provision from current § 204.6 to proposed § 204.10. No other changes to the section are proposed. hsrobinson on PROD1PC76 with PROPOSALS-1 Regulation I Section 209.2(c)(1) Location of Bank—General Rule The Board proposes to amend this provision of Regulation I to conform it to the proposed § 204.3(g) of Regulation D, discussed supra. Specifically, the amendment would provide that a depository institution may be considered to be located at the location specified in the institution’s articles of incorporation or as specified by the institution’s primary regulator. The Board proposes this amendment in light of the fact that an institution may move its head office or primary location from that specified in its charter or organizing certificate, but that the charter or organizing certificate may not reflect that move. In such cases, the move instead may be reflected in the institution’s revised articles of incorporation or otherwise as recognized by the institution’s primary regulator. VI. Form of Comment Letters Comment letters should refer to Docket No. R-ll and, when possible, VerDate Aug<31>2005 17:05 Feb 11, 2008 Jkt 214001 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. VII. 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 stated and effectively organized, and how the Board might make the proposed text easier to understand. VIII. 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 Regulation D and Regulation I. 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 to amend Regulation D and Regulation I in order to conform the regulation to the provisions of the Financial Services Regulatory Relief Act of 2006, to modernize the regulation in light of technological developments, to reduce regulatory burden, and to simplify regulatory compliance. 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 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 amendment to Regulation D is 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 proposal would affect all depository institutions that are currently subject to transaction account reserve requirements. The Board estimates that there are currently approximately 8,195 depository institutions that are subject to transaction account reserve requirements. The Board estimates that approximately 3,800 of these institutions could be considered small entities with assets of $165 million or less. The proposed rule, if adopted, may PO 00000 Frm 00006 Fmt 4702 Sfmt 4702 reduce the level of reservable transaction account balances for all depository institutions because ‘‘savings deposits’’ that previously permitted more than three but less than six ‘‘convenient’’ transfers would be classified as nonreservable ‘‘savings deposits’’ under the proposed rule, but are currently classified as reservable ‘‘transaction accounts.’’ 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. IX. 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. Test of Proposed Revisions Certain conventions have been used to highlight the proposed revisions. New language is shown inside arrows while language that would be deleted is set off with brackets. List of Subjects in 12 CFR Parts 204 and 209 Banks, Banking, Reporting and recordkeeping requirements. For the reasons set forth in the preamble, the Board proposes to amend 12 CFR parts 204 and 209 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. Section 204.2 is amended by revising paragraphs I(1)(i) introductory text, (d)(2), (k) and (l), and adding new paragraphs (v) and (w) to read as follows: § 204.2 Definitions. * * * * * (c) * * * (1) * * * (i) A deposit [that] ﬂfrom whichﬁ the depositor does not have a right and is not permitted to make withdrawals [from] within six days after the date of E:\FR\FM\12FEP1.SGM 12FEP1 Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules hsrobinson on PROD1PC76 with PROPOSALS-1 deposit unless the deposit is subject to an early withdrawal penalty of at least seven days’ simple interest on amounts withdrawn within the first six days after deposit.1 A time deposit from which partial [early] withdrawals are permitted ﬂwithin six days after the date of the last withdrawalﬁ must impose [additional] early withdrawal penalties of at least seven days’ simple interest on amounts ﬂsoﬁ withdrawn [within six days after each partial withdrawal]. If [such additional] early withdrawal penalties are not imposed, the account ceases to be a time deposit. The account may become a savings deposit if it meets the requirements for a saving deposit; otherwise it becomes a transaction account. Time deposit includes funds— * * * * * (d) * * * (2) The term savings deposit also means: A deposit or account, such as an account commonly known as a passbook savings account, a statement savings account, or as a money market deposit account (MMDA), that otherwise meets the requirements of § 204.2(d)(1) and from which, under the terms of the deposit contract or by practice of the depository institution, the depositor is permitted or authorized to make no more than six transfers and withdrawals, or a combination of such 1 A time deposit, or a portion thereof, may be paid during the period when an early withdrawal penalty would otherwise be required under this part without imposing an early withdrawal penalty specified by this part: (a) Where the time deposit is maintained in an individual retirement account established in accordance with 26 U.S.C. 408 and is paid within seven days after establishment of the individual retirement account pursuant to 26 CFR 1.408– 6(d)(4), where it is maintained in a Keogh (H.R. 10) plan, or where it is maintained in a 401(k) plan under 26 U.S.C. 401(k); Provided that the depositor forfeits an amount at least equal to the simple interest earned on the amount withdrawn; (b) Where the depository institution pays all or a portion of a time deposit representing funds contributed to an individual retirement account or a Keogh (H.R. 10) plan established pursuant to 26 U.S.C. 408 or 26 U.S.C. 401 or to a 401(k) plan established pursuant to 26 U.S.C. 401(k) when the individual for whose benefit the account is maintained attains age 591⁄2 or is disabled (as defined in 26 U.S.C. 72(m)(7)) or thereafter; (c) Where the depository institution pays that portion of a time deposit on which federal deposit insurance has been lost as a result of the merger of two or more federally insured banks in which the depositor previously maintained separate time deposits, for a period of one year from the date of the merger; (d) Upon the death of any owner of the time deposit funds; (e) When any owner of the time deposit is determined to be legally incompetent by a court or other administrative body of competent jurisdiction; or (f) Where a time deposit is withdrawn within 10 days after a specified maturity date even though the deposit contract provided for automatic renewal at the maturity date. VerDate Aug<31>2005 17:05 Feb 11, 2008 Jkt 214001 transfers and withdrawals, per calendar month or statement cycle (or similar period) of at least four weeks, to another account (including a transaction account) of the depositor at the same institution or to a third party by means of a preauthorized or automatic transfer, or telephonic (including data transmission) agreement, order or instruction, [and no more than three of the six such transfers may be made] ﬂorﬁ by check, draft, debit card, or similar order made by the depositor and payable to third parties. A preauthorized transfer includes any arrangement by the depository institution to pay a third party from the account of a depositor upon written or oral instruction (including an order received through an automated clearing house (ACH)) or any arrangement by a depository institution to pay a third party from the account of the depositor at a predetermined time or on a fixed schedule. Such an account is not a transaction account by virtue of an arrangement that permits transfers for the purpose of repaying loans and associated expenses at the same depository institution (as originator or servicer) or that permits transfers of funds from this account to another account of the same depositor at the same institution or permits withdrawals (payments directly to the depositor) from the account when such transfers or withdrawals are made by mail, messenger, automated teller machine, or in person or when such withdrawals are made by telephone (via check mailed to the depositor) regardless of the number of such transfers or withdrawals.4 * * * * * (k)(1) Vault cash means United States currency and coin owned and [held] 4 In order to ensure that no more than the permitted number of withdrawals or transfers are made, for an account to come within the [definitions in paragraph (d)(2) of this section,] ﬂdefinition of ‘‘savings deposit,’’ﬁ a depository institution must either: (a) Prevent withdrawals or transfers of funds from this account that are in excess of the limits established by paragraph (d)(2) of this section, or (b) Adopt procedures to monitor those transfers on an ex post basis and contact customers who exceed the established limits on more than occasional basis. For customers who continue to violate those limits after they have been contacted by the depository institution, the depository institution must either close the account and place the funds in another account that the depositor is eligible to maintain or take away the transfer and draft capacities of the account. An account that authorizes withdrawals or transfers in excess of the permitted number is a transaction account regardless of whether the authorized number of transactions are actually made. For accounts described in paragraph (d)(2) of this section, the institution at its option may use, on a consistent basis, either the date on the check, draft, or similar item, or the date the item is paid in applying the limits imposed by that section. PO 00000 Frm 00007 Fmt 4702 Sfmt 4702 8015 ﬂbooked as an assetﬁ by a depository institution that may, at any time, be used to satisfy [depositors’] claims ﬂof that depository institution’s depositors and that meets the requirements of paragraph (k)(2)(i) or (k)(2)(ii) of this sectionﬁ. (2) Vault cash ﬂmust be either: (i) Held at a physical location of the depository institution (including the depository institution’s proprietary ATMs) from which the institution’s depositors may make cash withdrawals; or (ii) Held at an alternate physical location if— (A) The depository institution claiming the currency and coin as vault cash at all times retains full rights of ownership in and to the currency and coin held at the alternate physical location; (B) The depository institution claiming the currency and coin as vault cash at all times books the currency and coin held at the alternate physical location as an asset of the depository institution; (C) No other depository institution claims the currency and coin held at the alternate physical location as vault cash in satisfaction of that other depository institution’s reserve requirements; (D) The currency and coin held at the alternate physical location is reasonably nearby a location of the depository institution claiming the currency and coin as vault cash at which its depositors may make cash withdrawals (an alternate physical location is considered ‘‘reasonably nearby’’ if the depository institution that claims the currency and coin as vault cash can recall the currency and coin from the alternate physical location by 10 a.m. and, relying solely on ground transportation, receive the currency and coin not later than 4 p.m. on the same calendar day at a location of the depository institution at which its depositors may make cash withdrawals); and (E) The depository institution claiming the currency and coin as vault cash has in place a written cash delivery plan, and written contractual arrangements necessary to implement that plan, that demonstrate that the currency and coin can be recalled and received in accordance with the requirements of paragraph (k)(2)(ii)(D) of this section at any time. The depository institution shall provide copies of the written cash delivery plan and written contractual arrangements to the Federal Reserve Bank that holds its account or to the Board upon request. (3) Vault cashﬁ includes United States currency and coin in transit to a E:\FR\FM\12FEP1.SGM 12FEP1 8016 Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules Federal Reserve Bank or a correspondent depository institution for which the reporting depository institution has not yet received credit, and United States currency and coin in transit from a Federal Reserve Bank or a correspondent depository institution when the reporting depository institution’s account at the Federal Reserve or correspondent bank has been charged for such shipment. [(3)] ﬂ(4)ﬁ Silver and gold coin and other currency and coin whose numismatic or bullion value is substantially in excess of face value is not vault cash for purposes of this part. (l) Pass-through account means a balance maintained by a depository institution ﬂwith a correspondent institution under § 204.5(d)ﬁ [a balance maintained by a depository institution that is not a member bank, by a U.S. branch or agency of a foreign bank, or by an Edge or Agreement Corporation, (1) in an institution that maintains required reserve balances at a Federal Reserve Bank, (2) in a Federal Home Loan Bank, (3) in the National Credit Union Administration Central Liquidity Facility, or (4) in an institution that has been authorized by the Board to pass through required reserve balances if the institution, Federal Home Loan Bank, or National Credit Union Administration Central Liquidity Facility maintains the funds in the form of a balance in a Federal Reserve Bank of which it is a member or at which it maintains an account in accordance with rules and regulations of the Board]. * * * * * ﬂ(v) Clearing balance allowance means the greater of $25,000 or two percent of an institution’s contractual clearing balance. (w) Contractual clearing balance means an amount that a depository institution agrees or is required to maintain in its account at a Federal Reserve Bank in addition to balances the depository institution may hold to satisfy its required reserve balance. A depository institution that has a required reserve balance of zero may still hold a contractual clearing balance.ﬁ 3. Amend § 204.3 by revising the heading and paragraphs (a) through (d), (f), and (g) to read as follows: hsrobinson on PROD1PC76 with PROPOSALS-1 § 204.3 Reporting and location. (a) Every depository institution, U.S. branch or agency of a foreign bank, and Edge or Agreement corporation shall file a report of deposits (or any other form or statement that may be required by the Board or by a Federal Reserve Bank) with the Federal Reserve Bank in the Federal Reserve District in which it is VerDate Aug<31>2005 17:05 Feb 11, 2008 Jkt 214001 located, regardless of the manner in which it chooses to maintain required reserve balances. (b) A foreign bank’s U.S. branches and agencies and an Edge or Agreement corporation’s offices operating within the same state and the same Federal Reserve District shall prepare and file a report of deposits on an aggregated basis. (c) For purposes of this part, the obligations of a majority-owned (50 percent or more) U.S. subsidiary (except an Edge or agreement corporation) of a depository institution shall be regarded as obligations of the parent depository institution. (d) A depository institution, a foreign bank, or an Edge or Agreement corporation shall, if possible, assign the low reserve tranche and reserve requirement exemption prescribed in § 204.4(f) to only one office or to a group of offices filing a single aggregated report of deposits. The amount of the reserve requirement exemption allocated to an office or group of offices may not exceed the amount of the low reserve tranche allocated to such office or offices. If the low reserve tranche or reserve requirement exemption cannot be fully utilized by a single office or by a group of offices filing a single report of deposits, the unused portion of the tranche or exemption may be assigned to other offices or groups of offices of the same institution until the amount of the tranche (or net transaction accounts) or exemption (or reservable liabilities) is exhausted. The tranche or exemption may be reallocated each year concurrent with implementation of the indexed tranche and exemption, or, if necessary during the course of the year to avoid underutilization of the tranche or exemption, at the beginning of a reserve computation period.ﬁ * * * * * ﬂ(f) The Board and the Federal Reserve Banks will not hold a passthrough correspondent responsible for guaranteeing the accuracy of the reports of deposits submitted by its respondents. (g)(1) For purposes of this section, a depository institution, a U.S. branch or agency of a foreign bank, or an Edge or Agreement corporation is located in the Federal Reserve District that contains the location specified in the institution’s charter, organizing certificate, license, or articles of incorporation, or as specified by the institution’s primary regulator, or if no such location is specified, the location of its head office, unless otherwise determined by the Board under paragraph (g)(2) of this section. PO 00000 Frm 00008 Fmt 4702 Sfmt 4702 (2) If the location specified in paragraph (g)(1) of this section, in the Board’s judgment, is ambiguous, would impede the ability of the Board or the Federal Reserve Banks to perform their functions under the Federal Reserve Act, or would impede the ability of the institution to operate efficiently, the Board will determine the Federal Reserve District in which the institution is located, after consultation with the institution and the relevant Federal Reserve Banks. The relevant Federal Reserve Banks are the Federal Reserve Bank whose District contains the location specified in paragraph (g)(1) of this section and the Federal Reserve Bank in whose District the institution is proposed to be located. In making this determination, the Board will consider any applicable laws, the business needs of the institution, the location of the institution’s head office, the locations where the institution performs its business, and the locations that would allow the institution, the Board, and the Federal Reserve Banks to perform their functions efficiently and effectively.ﬁ * * * * * 4. Section 204.7 is removed, § 204.4 is redesignated as § 204.7, and a new § 204.4 is added to read as follows: § 204.4 Computation of required reserves. (a) In determining the reserve balance required under this part, the amount of cash items in process of collection and balances subject to immediate withdrawal due from other depository institutions located in the United States (including such amounts due from United States branches and agencies of foreign banks and Edge and agreement corporations) may be deducted from the amount of gross transaction accounts. The amount that may be deducted may not exceed the amount of gross transaction accounts. (b) United States branches and agencies of a foreign bank may not deduct balances due from another United States branch or agency of the same foreign bank, and United States offices of an Edge or Agreement Corporation may not deduct balances due from another United States office of the same Edge Corporation. (c) Balances ‘‘due from other depository institutions’’ do not include balances due from Federal Reserve Banks, pass-through accounts, or balances (payable in dollars or otherwise) due from banking offices located outside the United States. An institution exercising fiduciary powers may not include in balances ‘‘due from other depository institutions’’ amounts of trust funds deposited with other E:\FR\FM\12FEP1.SGM 12FEP1 Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules banks and due to it as a trustee or other fiduciary. (d) For institutions that file a report of deposits weekly, required reserves are computed on the basis of the institution’s daily average balances of deposits and Eurocurrency liabilities during a 14-day computation period ending every second Monday. (e) For institutions that file a report of deposits quarterly, required reserves are computed on the basis of the institution’s daily average balances of deposits and Eurocurrency liabilities during the 7-day computation period that begins on the third Tuesday of March, June, September, and December. (f) For all depository institutions, Edge and agreement corporations, and 8017 United States branches and agencies of foreign banks, required reserves are computed by applying the reserve requirement ratios below to net transaction accounts, nonpersonal time deposits, and Eurocurrency liabilities of the institution during the computation period. Reserve requirement ratio Reservable liability NET TRANSACTION ACCOUNTS: $0 to reserve requirement exemption amount ($9.3 million) ................................................... Over reserve requirement exemption amount ($9.3 million) and up to low reserve tranche ($43.9 million). Over low reserve tranche ($43.9 million) ................................................................................. 0 percent of amount. 3 percent of amount. Nonpersonal time deposits ............................................................................................................. Eurocurrency liabilities .................................................................................................................... $1,038,000 plus 10 percent of amount over $43.9 million. 0 percent. 0 percent. reserve balance to be carried with the Federal Reserve until the expiration of the time specified in the appropriate time schedule established under Regulation J, ‘‘Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers Through Fedwire’’ (12 CFR Part 210). If a depository institution draws against items before that time, the charge will be made to its account if the balance is sufficient to pay it; any resulting impairment of reserve balances will be subject to the penalties provided by law and to the reserve-deficiency charges provided by this part. However, the Federal Reserve Bank may, at its discretion, refuse to permit the withdrawal or other use of credit given in an account for any time for which the Federal Reserve Bank has not received payment in actually and finally collected funds. (d)(1) A depository institution, a U.S. branch or agency of a foreign bank, or an Edge or Agreement corporation required to maintain reserve balances (‘‘respondent’’) may select only one pass-through correspondent institution to pass through its required reserve balances, unless otherwise permitted by Federal Reserve Bank in whose District the respondent is located. Eligible passthrough correspondent institutions are Federal Home Loan Banks, the National Credit Union Administration Central Liquidity Facility, and depository institutions, U.S. branches or agencies of foreign banks, and Edge and Agreement corporations that maintain required reserve balances, which may be zero, at a Federal Reserve Bank. In addition, the Board reserves the right to permit other institutions, on a case-bycase basis, to serve as pass-through correspondents. The correspondent chosen must subsequently pass through the required reserve balances of its respondents directly to a Federal Reserve Bank. The correspondent placing funds with a Federal Reserve Bank on behalf of respondents will be responsible for account maintenance as described in paragraph (d)(4) of this section. (2) Respondents or correspondents may institute, terminate, or change passthrough agreements for the maintenance of required reserve balances by providing all documentation required for the establishment of the new agreement or termination of the existing agreement to the Federal Reserve Banks involved within the time period provided for such a change by those Reserve Banks. (3) A correspondent that passes through required reserve balances of respondents shall maintain such balances, along with the correspondent’s own required reserve balances (if any), in a single commingled account at the Federal Reserve Bank in whose District the correspondent is located. The balances held by the correspondent in an account at a Reserve Bank are the property of the correspondent and represent a liability of the Reserve Bank solely to the correspondent, regardless of whether the funds represent the reserve balances of another institution that have been passed through the correspondent. (4)(i) A pass-through correspondent shall be responsible for assuring the maintenance of the appropriate aggregate level of its respondents’ required reserve balances. A Federal Reserve Bank will compare the total reserve balance required to be maintained with the total actual reserve 5. Section 204.9 is removed, § 204.5 is redesignated as § 204.9, and a new § 204.5 is added to read as follows: hsrobinson on PROD1PC76 with PROPOSALS-1 § 204.5 Maintenance of required reserves. (a)(1) A depository institution, a U.S. branch or agency of a foreign bank, and an Edge or agreement corporation shall maintain required reserves in the form of vault cash and, if vault cash does not fully satisfy the institution’s required reserves, in the form of a balance maintained (i) directly with the Federal Reserve Bank in the Federal Reserve District in which the institution is located, or (ii) with a pass-through correspondent in accordance with § 204.5(d). (2) Each individual institution subject to this part is responsible for satisfying its required reserve balance, if any, either directly with a Federal Reserve Bank or through a pass-through correspondent. (b)(1) For institutions that file a report of deposits weekly, the balances that are required to be maintained with the Federal Reserve shall be maintained during a 14-day maintenance period that begins on the third Thursday following the end of a given computation period. (2) For institutions that file a report of deposits quarterly, the balances that are required to be maintained with the Federal Reserve shall be maintained during each of the 7-day maintenance periods during the interval that begins on the fourth Thursday following the end of the institution’s computation period and ends on the fourth Wednesday after the close of the institution’s next computation period. (c) Cash items forwarded to a Federal Reserve Bank for collection and credit shall not be counted as part of the VerDate Aug<31>2005 17:05 Feb 11, 2008 Jkt 214001 PO 00000 Frm 00009 Fmt 4702 Sfmt 4702 E:\FR\FM\12FEP1.SGM 12FEP1 8018 Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules hsrobinson on PROD1PC76 with PROPOSALS-1 balance held in such account for purposes of determining requiredreserve deficiencies, imposing or waiving charges for deficiencies in required reserves, and for other reserve maintenance purposes. A charge for a deficiency in the aggregate level of the required reserve balance will be imposed by the Reserve Bank on the correspondent maintaining the account. (ii) Each correspondent is required to maintain detailed records for each of its respondents in a manner that permits Reserve Banks to determine whether the respondent has provided a sufficient required reserve balance to the correspondent. A correspondent passing through a respondent’s required reserve balance shall maintain records and make such reports as the Board or Reserve Bank requires in order to ensure the correspondent’s compliance with its responsibilities for the maintenance of a respondent’s reserve balance. Such records shall be available to the Reserve Banks as required. (iii) The Federal Reserve Bank may terminate any pass-through agreement under which the correspondent is deficient in its recordkeeping or other responsibilities. (iv) Interest paid on supplemental reserves (if such reserves are required under § 204.10) held by a respondent will be credited to the account maintained by the correspondent. (e) Any excess or deficiency in an institution’s required reserve balance shall be carried over and applied against the balance maintained in the next maintenance period as specified in this paragraph. The amount of any such excess or deficiency that is carried over shall not exceed the greater of: (1) The amount obtained by multiplying .04 times the sum of depository institution’s required reserves and the depository institution’s contractual clearing balance, if any, and then subtracting from this product the depository institution’s clearing balance allowance, if any; or (2) $50,000, minus the depository institution’s clearing balance allowance, if any. Any carryover not offset during the next period may not be carried over to subsequent periods.ﬂ 6. Section 204.6 is redesignated as § 204.10, and a new § 204.6 is added to read as follows: charges for deficiencies in required reserves at a rate of 1 percentage point per year above the primary credit rate, as provided in § 201.51(a) of this chapter, in effect for borrowings from the Federal Reserve Bank on the first day of the calendar month in which the deficiencies occurred.—Charges shall be assessed on the basis of daily average deficiencies during each maintenance period. Reserve Banks may, as an alternative to levying monetary charges, after consideration of the circumstances involved, permit a depository institution to eliminate deficiencies in its required reserve balance by maintaining additional reserves during subsequent reserve maintenance periods. (b) Reserve Banks may waive the charges for reserve deficiencies except when the deficiency arises out of a depository institution’s gross negligence or conduct that is inconsistent with the principles and purposes of reserve requirements. If a depository institution has demonstrated a lack of due regard for the proper maintenance of required reserves, the Reserve Bank may decline to exercise the waiver privilege and assess all charges regardless of amount or reason for the deficiency. (c) In individual cases, where a federal supervisory authority waives a liquidity requirement, or waives the penalty for failing to satisfy a liquidity requirement, the Reserve Bank in the District where the involved depository institution is located shall waive the reserve requirement imposed under this part for such depository institution when requested by the federal supervisory authority involved. (d) Violations of this part may be subject to assessment of civil money penalties by the Board under authority of Section 19(1) of the Federal Reserve Act (12 U.S.C. 505) as implemented in 12 CFR part 263. In addition, the Board and any other Federal financial institution supervisory authority may enforce this part with respect to depository institutions subject to their jurisdiction under authority conferred by law to undertake cease and desist proceedings.ﬁ ﬂ§ 204.6 Charges for reserve deficiencies. 7. The authority citation for part 209 continues to read as follows: (a) Deficiencies in a depository institution’s required reserve balance, after application of the carryover provided in § 204.5(e) are subject reserve-deficiency charges. Federal Reserve Banks are authorized to assess VerDate Aug<31>2005 17:05 Feb 11, 2008 Jkt 214001 PART 209—ISSUE AND CANCELLATION OF FEDERAL RESERVE BANK CAPITAL STOCK (REGULATION I) Authority: 12 U.S.C. 2222, 248, 282, 286– 288, 321, 323, 327–328, 333, and 466. 8. Section 209.2 is amended by revising paragraph (c)(1) to read as follows: PO 00000 Frm 00010 Fmt 4702 Sfmt 4702 § 209.2 banks. Banks desiring to become member * * * * * (c) * * * (1) General rule. For purposes of this part, a national bank or a state bank is located in the Federal Reserve District that contains the location specified in the bank’s charter or organizing certificate, ﬂor as specified by the institution’s primary regulator,ﬁ or if no such location is specified, the location of its head office, unless otherwise determined by the Board under paragraph (c)(2) of this section. * * * * * By order of the Board of Governors of the Federal Reserve System, February 7, 2008. Jennifer J. Johnson, Secretary of the Board. [FR Doc. E8–2558 Filed 2–11–08; 8:45 am] BILLING CODE 6210–01–P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA–R03–OAR–2007–0185; FRL–8528–2] Approval and Promulgation of Air Quality Implementation Plans; Virginia; Incorporation of On-Board Diagnostic Testing and Other Amendments to the Motor Vehicle Emission Inspection Program for the Northern Virginia Program Area Environmental Protection Agency (EPA). ACTION: Proposed rule. AGENCY: SUMMARY: EPA is proposing to approve three State Implementation Plan (SIP) revisions submitted by the Commonwealth of Virginia. These revisions pertain to the Commonwealth’s motor vehicle inspection and maintenance (I/M) program for the Northern Virginia area, which had previously been SIPapproved by EPA. These revisions incorporate several changes made by the Commonwealth since EPA last approved the I/M program as part of the SIP in 2002. The most significant change to the program is the incorporation of on-board diagnostic computer checks of 1996 and newer model year vehicles as an element of the emission inspection process for the Northern Virginia program area. In addition, Virginia has also made numerous minor changes to the program, including several changes to test procedures and standards, as well as changes to its roadside testing regimen. The I/M program helps to E:\FR\FM\12FEP1.SGM 12FEP1

Agencies

FEDERAL RESERVE SYSTEM

[Federal Register Volume 73, Number 29 (Tuesday, February 12, 2008)]
[Proposed Rules]
[Pages 8009-8018]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-2558]


========================================================================
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. 73, No. 29 / Tuesday, February 12, 2008 / 
Proposed Rules

[[Page 8009]]



FEDERAL RESERVE SYSTEM

12 CFR Parts 204 and 209

[Regulations D and I; Docket No. R-1307]


Reserve Requirements of Depository Institutions; Issue and 
Cancellation of Federal Reserve Bank Capital Stock

AGENCY: Board of Governors of the Federal Reserve System.

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

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

SUMMARY: The Board is publishing for comment proposed amendments to 
Regulation D (Reserve Requirements of Depository Institutions) and 
Regulation I (Issue and Cancellation of Federal Reserve Bank Capital 
Stock). Of these, only two are intended to represent substantive 
changes from existing law, while the remaining amendments are intended 
principally as clarifications. The first of the proposed substantive 
amendments would amend Regulation D to implement Section 603 of the 
Financial Services Regulatory Relief Act of 2006 by authorizing member 
banks of the Federal Reserve System to enter into pass-through 
arrangements. Previously, member banks were statutorily prohibited from 
passing required reserve balances through a correspondent institution. 
The second of the proposed substantive amendments would eliminate the 
provision in the ``savings deposit'' definition of Regulation D 
limiting certain kinds of transfers from savings deposits to not more 
than three per month. As a result, all kinds of transfers and 
withdrawals from a savings deposit that must be limited in number per 
month would be subject to the same numeric limitation of not more than 
six per month. The remaining proposed amendments, intended as 
clarifications, would reorganize the provisions relating to deposit 
reporting and the calculation and maintenance of required reserves, 
clarify the definitions of ``time deposit'' and ``vault cash,'' and 
make other minor editorial changes.

DATES: Comments must be received on or before March 28, 2008.

ADDRESSES: You may submit comments, identified by Docket No. R-1307, by 
any of the following methods:
     Agency Web Site: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm. 
     Federal eRulemaking Portal: https://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 
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 Sophia Allison, Senior 
Counsel (202/452-3565), or Kara Handzlik, Attorney (202/452-3852), 
Legal Division, Seth Carpenter, Assistant Director and Section Chief 
(202/452-2385), or Margaret Gillis DeBoer, Financial Analyst (202/452-
3139), Division of Monetary Affairs; for users of Telecommunications 
Device for the Deaf (TDD) only, contact (202/263-4869); Board of 
Governors of the Federal Reserve System, 20th and C Streets, NW., 
Washington, DC 20551.

SUPPLEMENTARY INFORMATION: 

I. Statutory Background

    Section 19 of the Federal Reserve Act (the ``Act'') imposes reserve 
requirements for monetary policy purposes only on certain types of 
deposits and other liabilities of depository institutions. Section 19 
also authorizes the Board to define by regulation the terms used in the 
section. Currently, reserve requirement ratios for ``transaction 
accounts'' (accounts used to make payments to third parties, such as 
checking accounts) are graduated between three and ten percent. Reserve 
requirement ratios for ``nonpersonal time deposits'' and ``Eurocurrency 
liabilities'' are currently zero percent. Although Section 19 expressly 
defines accounts with certain transfer characteristics as ``transaction 
accounts,'' Section 19 also authorizes the Board ``to determine, by 
regulation or order, that an account or deposit is a transaction 
account if such account or deposit may be used to provide funds 
directly or indirectly for the purpose of making payments or transfers 
to third persons or others.'' \1\ The provisions of Section 19 are 
implemented by the Board's Regulation D.
---------------------------------------------------------------------------

    \1\ Section 19(b)(1)(F) of the Federal Reserve Act, 12 U.S.C. 
461(b)(1)(F).
---------------------------------------------------------------------------

    Section 11(a)(2) of the Act authorizes the Board to require any 
depository institution ``to make, at such intervals as the Board may 
prescribe, such reports of its liabilities and assets as the Board may 
determine to be necessary or desirable to enable the Board to discharge 
its responsibility to monitor and control monetary and credit 
aggregates.'' \2\ These provisions are specifically implemented in the 
computation and maintenance provisions of Regulation D (12 CFR 204.3).
---------------------------------------------------------------------------

    \2\ 12 U.S.C. 248(a).
---------------------------------------------------------------------------

II. Pass-Through Accounts

    Section 19(c)(1) of the Act provides that depository institutions 
shall maintain required reserves in the form of a balance maintained 
for such purposes by a depository institution in an account at a 
Federal Reserve Bank or in the form of vault cash. Prior to 2006, 
Section 19(c)(1)(B) of the Act provided that non-member banks could 
maintain required reserves in an account at a depository institution 
that itself maintained required reserve balances at a Federal Reserve 
Bank, known as a ``pass-through account.'' The Financial Services 
Regulatory Relief Act of 2006, Public Law 109-351 (Oct. 13, 2006), 
amended Section 19(c)(1)(B) of the Act to remove the language 
restricting pass-through arrangements to non-member banks. Accordingly, 
all depository institutions may if they choose maintain required 
reserves in a pass-through

[[Page 8010]]

account with a correspondent depository institution.
    To implement the pass-through provisions of the Financial Services 
Regulatory Relief Act of 2006, the Board proposes to amend the 
definition of ``pass-through account'' in Sec.  204.2(l ) and the rules 
for pass-through arrangements in Sec.  204.3(i) to remove references 
limiting such arrangements to non-member banks.

III. Transfers From Savings Deposits

A. Six-Three Distinction

    The Board has established the criteria for distinguishing between 
``transaction accounts'' and ``savings deposits'' \3\ in Regulation D 
based on the ease with which the depositor may make transfers (payments 
to third parties) or withdrawals (payments directly to the depositor) 
from the account. Generally speaking, the more convenient it is to make 
withdrawals or transfers from an account, the more likely it is that 
the account will be used for making payments or transfers to third 
parties as opposed to holding savings. Accordingly, Regulation D limits 
the number of certain convenient kinds of transfers or withdrawals that 
may be made in a single month from an account if that account is to be 
classified as a ``savings deposit.'' \4\ ``Convenient'' transfers or 
withdrawals for this purpose include preauthorized or automatic 
transfers (such as overdraft protection transfers or arranging to have 
bill payments deducted directly from the depositor's savings account), 
telephonic transfers (made by the depositor telephoning or sending a 
fax or online instruction to the bank and instructing the transfer to 
be made), and transfers by check, debit card, or similar order payable 
to third parties.
---------------------------------------------------------------------------

    \3\ The Board has by regulation included ``savings deposits'' 
held by nonnatural persons (i.e., anyone other than individuals) in 
the Regulation D definition of ``nonpersonal time deposits.'' 
Accordingly, such deposits are subject to a zero percent reserve 
requirement. Savings deposits held by natural persons (individuals), 
on the other hand, are not subject to reserve requirements at all. 
As a practical matter, therefore, ``savings deposits'' of all kinds 
are not reservable; the distinction between personal and nonpersonal 
savings deposits is significant for deposit reporting purposes only.
    \4\ 12 CFR 204.2(d)(2) (definition of ``savings deposit'').
---------------------------------------------------------------------------

    Regulation D currently limits the number of ``convenient'' 
transfers and withdrawals from savings deposits (i.e., preauthorized, 
automatic, or telephonic transfers or withdrawals) to not more than six 
per month. Within this overall limit of six, not more than three 
transfers or withdrawals may be made by check, debit card, or similar 
order made by the depositor and payable to third parties. Transfers and 
withdrawals from savings deposits that are less convenient are not 
limited in number by the ``savings deposit'' definition in Regulation 
D. For example, transfers or withdrawals made ``by mail, messenger, 
automated teller machine, or in person or * * * made by telephone (via 
check mailed to the depositor)'' may be made from savings deposits 
without numerical limit.
    The distinction between different types of limited transfers or 
withdrawals from savings deposits may be referred to as the ``six-three 
distinction'' (i.e., six convenient transfers or withdrawals, of which 
up to three may be by check, debit card, or similar order). The six-
three distinction in the Regulation D definition of ``savings deposit'' 
is derived from the ``money market deposit account'' or ``MMDA'' 
created by the Garn-St.Germain Depository Institutions Act of 1982 (the 
``1982 Act''). In the 1982 Act, Congress sought to create an account to 
meet the perceived market need for an interest-bearing deposit account 
that was both directly competitive with money market mutual funds and 
not the functional equivalent of a reservable transaction account. The 
definition of ``transaction account'' in Regulation D at that time 
included any account from which more than three preauthorized, 
automatic or telephonic transfers or withdrawals per month were 
permitted. Congress therefore specified in the 1982 Act that the MMDA 
was not to be considered a ``transaction account'' (and, therefore, not 
subject to reserve requirements) even though it permitted ``three 
preauthorized or automatic transfers and three third-party transfers'' 
per month.
    The legislative history of the 1982 Act did not clarify whether 
this authorization was intended to allow ``three preauthorized or 
automatic transfers'' and a separate set of ``three third-party 
transfers.'' It simply noted that ``third-party transfers'' were 
intended to include checks. The existing provisions of Regulation D, 
however, considered ``preauthorized or automatic'' transfers to include 
transfers to third parties as well. To harmonize the legislative 
history of the 1982 Act with the existing provisions of Regulation D, 
the MMDA was regulatorily defined to permit a depositor who did not 
write any checks in a particular month to make up to six preauthorized 
or automatic transfers per month. In no event, however, would more than 
three checks per month be permitted.
    In 1986, the statutory provisions that authorized the MMDA and that 
exempted the MMDA from the ``transaction account'' definition expired. 
In subsequent rulemakings, however, the Board preserved the transfer 
and withdrawal characteristics of the MMDA in Regulation D by merging 
the definition of ``MMDA'' into the definition of ``savings deposit.'' 
Thus, any deposit that permitted up to six preauthorized, automatic, or 
telephonic transfers or withdrawals, including not more than three 
transfers made by check, debit card, or similar third-party order, was 
classified under Regulation D as a ``savings deposit.''

B. Proposed Amendment Eliminating ``Three'' Limit

    Depository institutions have identified the six-three distinction 
in Regulation D as a regulatory burden in various contexts, as 
distinctions that have historically been drawn between ``six'' or 
``three'' transfers or withdrawals are overtaken by developments in 
payments technology. In light of the foregoing, the Board believes it 
would now be appropriate to amend Regulation D to do away with the 
sublimit of three that applies to checks and drafts and simply limit 
all ``convenient'' transfers to not more than six per month.\5\ 
Eliminating the ``six-three distinction'' and replacing it with a 
simpler ``six-per-month'' rule for all types of ``convenient'' 
transfers or withdrawals from savings deposits would reduce some 
aspects of the current limitations that are burdensome to the private 
sector and that may interfere with the broader use and acceptance of 
developing electronic payments technologies.
---------------------------------------------------------------------------

    \5\ 12 CFR 204.2(d)(2) (definition of ``savings deposit'').
---------------------------------------------------------------------------

    A ``six-per-month'' rule could result in a slight decrease in 
aggregate transaction account balances, as those accounts that permit 
more than three but less than six transfers by check or debit card per 
month would shift from their current classification as ``transaction 
accounts'' to ``savings deposits.'' The extent of such a decrease, if 
any, is difficult to predict given the lack of data on the distribution 
of frequency of withdrawals and transfers from various accounts. The 
net effects, however, seem unlikely to be large.

IV. Other Proposed Amendments

A. Harmonization With Existing Usage or Staff Guidance

    Certain proposed amendments would amend definitions of existing 
terms to harmonize them with existing usage, practice, or staff 
guidance. For example,

[[Page 8011]]

the proposed amendments would add new provisions to the definition of 
``vault cash'' in Sec.  204.2(k) in order to incorporate the substance 
of numerous staff opinions that explain the circumstances under which 
vault cash held at ATMs and in other arrangements can qualify as 
``vault cash'' for purposes of meeting reserve requirements. Also, the 
proposed amendments would also clarify the definition of ``time 
deposit'' in Sec.  204.2(c) to incorporate staff guidance that has been 
issued over the years in response to numerous inquiries about the 
meaning of ``additional'' early withdrawal penalties and when such 
penalties must be imposed.

B. Reorganization of Reporting, Computation, and Maintenance Provisions

    The remaining proposed amendments would reorganize the existing 
provisions of Regulation D relating to deposit reporting and to the 
computation and maintenance of required reserves. These proposed 
amendments would split the existing provisions on these subjects in 
current Sec.  204.3 into three separate sections. First, the provisions 
related to submitting reports of deposits would be set forth in 
proposed Sec.  204.3. Second, the provisions relating to computation of 
required reserves would be set forth in proposed Sec.  204.4. Third, 
the provisions relating to maintenance of required reserves would be 
set forth in proposed Sec.  204.5. In addition, the proposed amendments 
would move the reserve requirement ratio provisions of current Sec.  
204.9 into the proposed separate section relating to computation of 
required reserves (proposed Sec.  204.4). Finally, the proposed 
amendments re-number the provisions of the regulation relating to 
transitional adjustments, emergency reserves, and supplemental reserves 
in order to reflect the creation of three separate sections out of 
current Sec.  204.3.

V. Section-By-Section Analysis

Section 204.2(c)(1) Definition of ``Time Deposit''

    The Board proposes to amend the definition of ``time deposit'' to 
clarify the application of early withdrawal penalties when there has 
been more than one partial early withdrawal from a time deposit. 
Current Sec.  204.2(c)(1) provides that an early withdrawal penalty 
must be charged on any amount withdrawn from a time deposit ``from 
within six days after the date of deposit.'' The definition 
contemplates that an early withdrawal might be an early withdrawal of 
the entire deposit amount or of a partial withdrawal, that is, a 
withdrawal of some amount that is not the entire deposit amount. In 
either case, if part or all of the time deposit is withdrawn within six 
days after the date of the initial deposit, the specified early 
withdrawal penalty must be imposed on the amount so withdrawn.
    The current definition further states that ``[a] time deposit from 
which partial early withdrawals are permitted must impose additional 
early withdrawal penalties of at least seven days' simple interest on 
amounts withdrawn within six days after each partial withdrawal.'' This 
provision has led to numerous inquiries about the meaning of the terms 
``additional'' and ``early'' in this provision.\6\ The Board intends to 
clarify that withdrawals cannot be made more frequently than every 
seven days from a deposit that is classified as a ``time deposit'' 
unless a penalty of at least seven days'' simple interest is charged on 
amounts so withdrawn. Accordingly, the Board proposes to amend the 
definition to remove the references to ``early'' and ``additional'' in 
the second sentence of the definition and to clarify that ``early'' 
withdrawals, when made other than in the first six days, are 
withdrawals that are within six days of the last withdrawal.
---------------------------------------------------------------------------

    \6\ E.g., whether two penalties (an ``early withdrawal penalty'' 
and an ``additional early withdrawal penalty'') must be charged on 
any partial early withdrawal; whether one penalty must be charged on 
a partial early withdrawal within the first six days of the deposit 
but two must be charged on subsequent partial early withdrawals; the 
meaning of ``early withdrawal'' as applied to a partial withdrawal 
made some time other than within the first six days, etc.
---------------------------------------------------------------------------

Section 204.2(d)(2) Definition of ``Savings Deposit''

    As explained in III.A.-III.B., supra, The Board proposes to amend 
the definition of ``savings deposit'' to eliminate the provision 
limiting certain kinds of transfers from savings deposits to not more 
than three per month. As a result, all kinds of transfers and 
withdrawals from a savings deposit that must be limited in number per 
month would be subject to the same numeric limitation of nor more than 
six per month.

Section 204.2(k) Definition of ``Vault Cash''

    The Board proposes to amend the definition of ``vault cash'' to 
incorporate the substance of prior written staff guidance on when 
currency and coin that is not held at a physical location of the 
depository institution \7\ may count as ``vault cash.'' The proposed 
amendments divide the definition of ``vault cash'' into two 
subsections: one dealing with vault cash ``held at a physical location 
of the depository institution * * * from which the institution's 
depositors may make cash withdrawals;'' and the other dealing with 
vault cash ``held at an alternate physical location.'' The proposed 
amendments expand primarily the second proposed subsection to 
incorporate prior guidance.
---------------------------------------------------------------------------

    \7\ See, e.g., See FRRS ] 2-307.2 (rented vault); Staff Opinion 
of Aug. 9, 1982 (ATMs).
---------------------------------------------------------------------------

    From 1917 to 1959, the Act permitted member banks to satisfy 
reserve requirements exclusively with balances in their accounts at 
Federal Reserve Banks. In 1959, Congress amended Section 19 of the Act 
to provide that the Board, ``under such regulations as it may 
prescribe, may permit member banks to count all or part of their 
currency and coin as reserves required under this section.'' \8\ The 
1959 legislation was intended ``to remove some generally recognized 
inequities that now exist in the structure of reserve requirements 
applicable to member banks * * *.'' \9\ Specifically, the legislative 
history recognized that currency and coin in a member bank's vault and 
a balance in a member bank's account at a Federal Reserve Bank were 
``interchangeable'' as liabilities of the Reserve Banks.\10\ For 
operational reasons, however, ``country banks'' generally found it 
necessary to hold more currency and coin in their vaults than did 
``reserve city banks'' or ``central reserve city banks.'' \11\ Between 
1959 and 1960, the Board promulgated a series of amendments to 
Regulation D that phased in the ability of member banks to count all of 
their currency and coin in satisfying reserve requirements.
---------------------------------------------------------------------------

    \8\ Act of July 28, 1959 (73 Stat. 263).
    \9\ S. Rep. No. 86-195, at 1 (1959); H. Rep. No. 86-403, at 3 
(1959).
    \10\ S. Rep. No. 86-195, at 3 (1959); H. Rep. No. 86-403, at 3 
(1959).
    \11\ S. Rep. No. 86-195, at 3 (1959); H. Rep. No. 86-403, at 3 
(1959).
---------------------------------------------------------------------------

    In 1970, the Board issued an interpretation of Regulation D 
relating to the eligibility of currency or coin held principally for 
numismatic value to satisfy member bank reserve requirements.\12\ The 
Board was concerned that permitting silver coin to count towards 
reserve requirements could encourage speculation in silver; 
specifically, that the banks were holding either for their own accounts 
with the expectation of earning a premium over face value, or were 
holding under written or oral agreements with specific customers 
whereby the customers retained the right to or an option on

[[Page 8012]]

those coins.\13\ Accordingly, the Board specified in the 1970 
interpretation that in order for a member bank to count currency or 
coin towards reserve requirements, the member bank must have ``the full 
and unrestricted right to use [such currency or coin] at any time to 
meet depositors' claims * * *.'' \14\ The 1970 interpretation also 
specified that a bank does not have such a ``full and unrestricted 
right'' if the bank is prevented, legally or practically * * * from 
using the currency or coin at any time to meet customer's demands.'' 
\15\ The 1970 interpretation further specified that when assessing 
arrangements with respect to such currency and coin, ``[a]n agreement 
between the bank and its customer that the currency or coin is to be 
regarded as `owned' by the bank for purposes of reserve requirements is 
not determinative. Whether currency or coin may be counted as reserves 
depends on the underlying nature of the transaction * * *.'' \16\
---------------------------------------------------------------------------

    \12\ Former 12 CFR 204.116 (1979).
    \13\ 35 FR 18957 (Dec. 15, 1970).
    \14\ Id.
    \15\ Id.
    \16\ Id.
---------------------------------------------------------------------------

    The 1980 Regulation D amendments implementing the Monetary Control 
Act of 1980 introduced the term ``vault cash'' as a defined term. The 
1980 amendments defined ``vault cash'' to mean ``currency and coin 
owned and held by a depository institution that may, at any time, be 
used to satisfy depositors' claims,'' incorporating into the new 
definition the principles of bank ownership and availability at any 
time to satisfy depositors' claims from the 1970 interpretation. 
Subsequent Board guidance and staff opinions provided additional 
clarification of these requirements.
    For example, vault cash ``owned and held'' by the depository 
institution was further clarified to include the requirements that (A) 
the depository institution claiming the currency or coin in question as 
``vault cash'' must book the currency or coin as an asset,\17\ and that 
(B) no other institution may claim the currency and coin towards 
satisfying its reserve requirements.\18\ The ability to use vault cash 
``at any time * * * to satisfy depositor's claims'' was initially 
viewed as requiring the currency or coin to be ``immediately'' 
available for that purpose to the bank or a branch of the bank.\19\ For 
currency and coin to be ``immediately available,'' subsequent staff 
opinions specified that it be ``reasonably nearby'' a physical location 
(from which depositors may make cash withdrawals) of the institution 
claiming the vault cash towards satisfying reserve requirements.\20\ To 
be ``reasonably nearby,'' in turn, staff believed that a depository 
institution customer who demanded cash at the beginning of a banking 
day should be able to receive that cash in satisfaction of his or her 
demand before the close of business on the same calendar day. 
Accordingly, staff opined that a depository institution must be able to 
recall the currency and coin in question from the remote location by 
not later than 4 p.m. if the recall is requested by 10 a.m. on the same 
calendar day for the currency and coin to constitute ``vault cash.'' 
Staff guidance further clarified that depository institutions must 
establish the ability to recall ``vault cash'' within the specified 
time frame by having in place a written cash delivery plan (together 
with written contractual arrangements necessary to implement the plan) 
that permits recall of the ``vault cash'' to the depository institution 
relying solely on ground transportation.
---------------------------------------------------------------------------

    \17\ See, e.g., F.R.R.S. ] 2-306.9; Staff Op. of Aug. 9, 1982.
    \18\ See, e.g., F.R.R.S. ] 2-307.2; Staff Op. of Aug. 9, 1982.
    \19\ See FRRS ] 2-306.9; Staff Opinion of Aug. 9, 1982.
    \20\ See FRRS ] 2-307.2.
---------------------------------------------------------------------------

    The proposed amendments would incorporate all of the foregoing 
clarifications and requirements into six new subsections applicable to 
``vault cash'' held ``at an alternate physical location'' of the 
depository institution claiming the currency or coin in question 
towards satisfying its reserve requirements.\21\ Finally, the proposed 
amendments re-number current Sec.  204.2(k)(2)-(3) to 204.2(k)(3)-(4), 
to take into account the new proposed Sec. Sec.  204.2(k)(1)-(2). The 
substance of those provisions, however, is unchanged by the proposed 
amendments.
---------------------------------------------------------------------------

    \21\ The proposed amendments do not include the ``legitimate 
business purpose'' specification from written staff guidance on 
vault cash held in alternate physical locations (see, e.g., FRRS ] 
2-365.2), The Board believes that full compliance with the other 
five specifications proposed to be incorporated into the definition 
should ordinarily suffice to establish the legitimacy of the 
arrangement. The Board requests comment on whether this 
specification should be included in the definition of ``vault 
cash.''
---------------------------------------------------------------------------

Section 204.2(l) Definition of ``Pass-through Account''

    The Board proposes to amend the definition of ``pass-through 
account'' to eliminate the language restricting pass-through account 
arrangements to non-member banks. The proposed amendments would also 
move the provisions relating to pass-through accounts currently set 
forth in Sec.  204.3(i) to a new Sec.  204.5(d), ``Maintenance of 
Required Reserves,'' discussed infra.

Section 204.2(v) Definition of ``Clearing Balance Allowance''

    The proposed amendments would add a new definition of ``clearing 
balance allowance'' to Regulation D. The term replaces the undefined 
term ``required charge-free band'' that appears twice in current Sec.  
204.3(h) (concerning carryovers of excess reserves or deficiencies in 
reserves) because that term is no longer used in current practice. The 
proposed amendments would also move the existing carryover provisions 
in current Sec.  204.3(h) to a new paragraph (e) under proposed Sec.  
204.5, ``Maintenance of Required Reserves,'' discussed infra.

Section 204.2(w) Definition of ``Contractual Clearing Balance''

    The proposed amendments would add a new definition of ``contractual 
clearing balance'' to Regulation D. The term replaces the undefined 
term ``required clearing balance'' in current Sec.  204.3(h) because 
the term ``contractual clearing balance'' is more commonly used and 
more accurately describes the relationship created thereby.

Section 204.3 Reporting and Location

    Current Sec.  204.3 of Regulation D sets forth the regulatory 
provisions governing the calculation of required reserves, the 
maintenance of required reserves, and the submission of reports of 
deposits (from which required reserves are calculated). The Board 
proposes to re-organize these provisions into three separate 
subsections that address these issues in their chronological order: the 
submission of reports of deposits, the calculation of required reserves 
based on those reports of deposits, and the subsequent maintenance of 
required reserves based on the calculation of required reserves. The 
proposed amendments are not intended to make substantive changes to 
these provisions, but rather are intended to re-organize them for 
greater ease of reference and to make minor editorial changes for 
clarity.
    The first of the proposed three new paragraphs, proposed Sec.  
204.3, incorporates the existing regulatory provisions relating to 
submission of reports of deposits, including provisions on determining 
the location of the reporting institution for deposit reporting and 
reserves maintenance purposes.\22\ The proposed amendments would also 
include in this paragraph

[[Page 8013]]

regulatory provisions regarding the allocation of the low reserve 
tranche among related depository institutions \23\ and regarding 
overdrafts in related transaction accounts \24\ because these 
provisions must be applied in determining the appropriate levels of 
deposits to report.
---------------------------------------------------------------------------

    \22\ Current subsections 204.3(a)(1) last sentence, 204.3(a)(2), 
and 204.3(b)(2).
    \23\ Current Sec.  204.3(a)(3).
    \24\ Current Sec.  204.3(e).
---------------------------------------------------------------------------

    Proposed Sec.  204.3(a) consists of the text of the first sentence 
of current Sec.  204.3(a)(2)(i), with two proposed amendments. The 
first proposed amendment would clarify the authority of the Board or a 
Federal Reserve Bank to require reports of deposits or any other form 
or statement from a depository institution relating to reserve 
requirements. The second proposed amendment would clarify where reports 
of deposits are to be submitted in light of the account location 
provisions of the regulation.
    Proposed Sec.  204.3(b) sets forth without change the text of the 
second sentence of current Sec.  204.3(a)(2)(i).
    Proposed Sec.  204.3(c) sets forth without change the text of the 
third (and last) sentence of current Sec.  204.3(a)(1).
    Proposed Sec.  204.3(d) sets forth, with one change, the text of 
current Sec.  204.3(a)(3). The one change would conform the section 
number reference to the reserve requirement ratios that are currently 
set forth in Sec.  204.9 but would be moved to proposed Sec.  204.4(f) 
in the proposed amendments.
    No changes are proposed to current Sec.  204.3(e), dealing with 
computation of transaction accounts for deposit reporting purposes.
    Proposed Sec.  204.3(g) sets forth, with two amendments, the text 
of current Sec.  204.3(b)(2). The first amendment would provide that a 
depository institution may be considered to be located at the location 
specified in the institution's articles of incorporation or as 
specified by the institution's primary regulator. The Board proposes 
this amendment in light of the fact that an institution may move its 
head office or primary location from that specified in its charter or 
organizing certificate, but that the charter or organizing certificate 
may not reflect that move. In such cases, the move instead may be 
reflected in the institution's revised articles of incorporation or 
otherwise as recognized by the institution's primary regulator. The 
second amendment would conform the internal references to Sec. Sec.  
204.3(b)(2)(i) and 204.3(b)(2)(ii) to Sec. Sec.  204.3(g)(1) and 
204.3(g)(2), respectively.

Section 204.4 Computation of Required Reserves

    The Board proposes to move the provisions relating to computation 
of required reserves from where they appear in current Sec. Sec.  
204.3(c), 204.3(d), and 204.3(f) to a new separate paragraph, proposed 
Sec.  204.4, ``Computation of Required Reserves.'' No substantive 
changes are intended.
    Proposed Sec.  204.4(a) sets forth, without change, the text of 
current Sec.  204.3(f)(1).
    Proposed Sec.  204.4(b) sets forth, without change, the text of 
current Sec.  204.3(f)(2).
    Proposed Sec.  204.4(c) sets forth, without change, the text of 
current Sec.  204.3(f)(3).
    Proposed Sec. Sec.  204.4(d) and 204.4(e) set forth the text of 
current Sec.  204.3(c)(1) and the first sentence of Sec.  204.3, 
respectively, with editorial amendments for clarity.
    Proposed Sec.  204.4(f) sets forth the text of the second sentence 
of current Sec.  204.3(c)(1), with editorial amendments for clarity. 
Proposed Sec.  204.4(f) also incorporates, with editorial amendments 
for clarity, the table of reserve requirements ratios currently set 
forth in Sec.  204.9 so that all regulatory provisions relating to 
computation of required reserves are located in the same section.

Section 204.5 Maintenance of Required Reserves

    The Board proposes to move the existing provisions regarding 
maintenance of required reserves, including the provisions on 
maintenance of required reserves pursuant to pass-through agreements, 
to a new Sec.  204.5, ``Maintenance of Required Reserves.'' No 
substantive changes are intended.
    Proposed Sec.  204.5(a)(1) sets forth the text of current Sec.  
204.3(b)(1) with various amendments. First, the amendments would delete 
the reference to ``non-member institutions'' in discussing pass-through 
arrangements. Second, the amendments would update the language (e.g., 
``maintain required reserves'' rather than ``hold reserves'') for 
consistency with current usage. Third, the amendments would conform the 
numeric reference from current Sec.  204.3(i) to proposed Sec.  
204.5(d) for the regulatory provisions on pass-through arrangements.
    Proposed Sec.  204.5(a)(2) sets forth the text of current Sec.  
204.3(i)(3)(i) with editorial amendments for clarity.
    Proposed Sec.  204.5(b)(1) sets forth the text of current Sec.  
204.3(c)(2) with editorial amendments for clarity.
    Proposed Sec.  204.5(b)(2) sets forth the text of the first and 
third sentences of current Sec.  204.3(d) with editorial amendments for 
clarity.
    Proposed Sec.  204.5(c) sets forth the text of current Sec.  
204.3(g) with an amendment to conform the name of the Board's 
Regulation J (12 CFR Part 210) to the current version of the 
regulation.
    Proposed Sec.  204.5(d) sets forth the regulatory provisions for 
``pass-through accounts'' in current Sec.  204.3(i), dividing them into 
four new paragraphs, proposed Sec. Sec.  204.5(d)(1) through 
204.5(d)(4). Proposed Sec.  204.5(d)(1) sets forth the text from 
current Sec.  204.3(i)(1)(i) with various amendments. First, the 
amendments would delete the reference to ``nonmember'' depository 
institutions, since pass-through arrangements are no longer statutorily 
restricted to nonmember depository institutions. Second, the amendments 
would clarify that depository institutions whose required reserve 
balances are zero may serve as pass-through correspondents. Third, the 
amendments conform the internal references to section numbers and make 
other editorial changes for clarity.
    Proposed Sec.  204.5(d)(2) sets forth, without change, the text 
from current Sec.  204.3(i)(1)(ii).
    Proposed Sec.  204.5(d)(3) sets forth the text of current Sec.  
204.3(i)(2), with an amendment to delete the obsolete reference to 
Reserve Bank permission for alternate account locations. Determination 
of account location is addressed in current Sec.  204.3(b) (proposed 
Sec.  204.3(g)).
    Proposed Sec.  204.5(d)(4) sets forth, in four new subsections, the 
text of current Sec. Sec.  204.3(i)(3)(ii)-(v). Proposed Sec.  
204.5(d)(4)(A) sets forth the text of current Sec.  204.3(i)(3)(ii) 
with an amendment deleting the reference to more than one depository 
institution account at a Federal Reserve Bank. Proposed Sec. Sec.  
204.5(d)(4)(B) and 204.5(d)(4)(C) set forth, without change, the text 
of current Sec. Sec.  204.3(i)(3)(iii) and 204.3(i)(3)(iv), 
respectively. Proposed Sec.  204.5(d)(4)(D) sets forth the text of 
current Sec.  204.3(i)(3)(v) with an amendment conforming the section 
number reference to the supplemental reserves provisions of the 
regulation (current Sec.  204.6, proposed Sec.  204.10).
    Proposed Sec.  204.5(e) sets forth the text of current Sec.  
204.3(h), with amendments deleting obsolete references to ``required 
clearing balance'' and to ``required charge-free band.'' Other 
editorial amendments are made for clarity.

Section 204.6 Charges for Reserve Deficiencies

    The Board proposes to move the existing provisions regarding 
charges for reserve deficiencies from current Sec.  204.7 to proposed 
Sec.  204.6 and to revise the

[[Page 8014]]

current caption of the section (from ``Penalties'' to ``Charges for 
Reserve Deficiencies''). The four proposed sections in proposed Sec.  
204.6 set forth the text of current Sec.  204.7, deleting provisions 
describing guidelines for waivers by Reserve Banks of small charges. 
The Board believes that the deletion of this material is appropriate 
because it describes only in part the extent of the discretion of the 
Reserve Banks in this regard and to avoid the implication that Reserve 
Banks must waive charges in certain of the cases described.

Section 204.7 Transitional Adjustments in Mergers

    The Board proposes to re-designate the provision from current Sec.  
204.4 to proposed Sec.  204.7. No other changes to the section are 
proposed.

Section 204.8 International Banking Facilities

    No changes are proposed to Sec.  204.8.

Section 204.9 Emergency Reserve Requirement

    The Board proposes to re-designate the provision from current Sec.  
204.5 to proposed Sec.  204.9. No other changes to the section are 
proposed.

Section 204.10 Supplemental Reserve Requirement

    The Board proposes to re-designate the provision from current Sec.  
204.6 to proposed Sec.  204.10. No other changes to the section are 
proposed.

Regulation I Section 209.2(c)(1) Location of Bank--General Rule

    The Board proposes to amend this provision of Regulation I to 
conform it to the proposed Sec.  204.3(g) of Regulation D, discussed 
supra. Specifically, the amendment would provide that a depository 
institution may be considered to be located at the location specified 
in the institution's articles of incorporation or as specified by the 
institution's primary regulator. The Board proposes this amendment in 
light of the fact that an institution may move its head office or 
primary location from that specified in its charter or organizing 
certificate, but that the charter or organizing certificate may not 
reflect that move. In such cases, the move instead may be reflected in 
the institution's revised articles of incorporation or otherwise as 
recognized by the institution's primary regulator.

VI. Form of Comment Letters

    Comment letters should refer to Docket No. R----- 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.

VII. 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.

VIII. 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 Regulation D and Regulation I. 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 to amend Regulation D and Regulation I in order to conform 
the regulation to the provisions of the Financial Services Regulatory 
Relief Act of 2006, to modernize the regulation in light of 
technological developments, to reduce regulatory burden, and to 
simplify regulatory compliance. 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 
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 amendment to Regulation D is 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 proposal would 
affect all depository institutions that are currently subject to 
transaction account reserve requirements. The Board estimates that 
there are currently approximately 8,195 depository institutions that 
are subject to transaction account reserve requirements. The Board 
estimates that approximately 3,800 of these institutions could be 
considered small entities with assets of $165 million or less. The 
proposed rule, if adopted, may reduce the level of reservable 
transaction account balances for all depository institutions because 
``savings deposits'' that previously permitted more than three but less 
than six ``convenient'' transfers would be classified as nonreservable 
``savings deposits'' under the proposed rule, but are currently 
classified as reservable ``transaction accounts.''
    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.

IX. 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.

Test of Proposed Revisions

    Certain conventions have been used to highlight the proposed 
revisions. New language is shown inside arrows while language that 
would be deleted is set off with brackets.

List of Subjects in 12 CFR Parts 204 and 209

    Banks, Banking, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Board proposes to 
amend 12 CFR parts 204 and 209 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. Section 204.2 is amended by revising paragraphs I(1)(i) 
introductory text, (d)(2), (k) and (l), and adding new paragraphs (v) 
and (w) to read as follows:


Sec.  204.2  Definitions.

* * * * *
    (c) * * *
    (1) * * *
    (i) A deposit [that] [rtrif]from which[ltrif] the depositor does 
not have a right and is not permitted to make withdrawals [from] within 
six days after the date of

[[Page 8015]]

deposit unless the deposit is subject to an early withdrawal penalty of 
at least seven days' simple interest on amounts withdrawn within the 
first six days after deposit.\1\ A time deposit from which partial 
[early] withdrawals are permitted [rtrif]within six days after the date 
of the last withdrawal[ltrif] must impose [additional] early withdrawal 
penalties of at least seven days' simple interest on amounts 
[rtrif]so[ltrif] withdrawn [within six days after each partial 
withdrawal]. If [such additional] early withdrawal penalties are not 
imposed, the account ceases to be a time deposit. The account may 
become a savings deposit if it meets the requirements for a saving 
deposit; otherwise it becomes a transaction account. Time deposit 
includes funds--
---------------------------------------------------------------------------

    \1\ A time deposit, or a portion thereof, may be paid during the 
period when an early withdrawal penalty would otherwise be required 
under this part without imposing an early withdrawal penalty 
specified by this part:
    (a) Where the time deposit is maintained in an individual 
retirement account established in accordance with 26 U.S.C. 408 and 
is paid within seven days after establishment of the individual 
retirement account pursuant to 26 CFR 1.408-6(d)(4), where it is 
maintained in a Keogh (H.R. 10) plan, or where it is maintained in a 
401(k) plan under 26 U.S.C. 401(k); Provided that the depositor 
forfeits an amount at least equal to the simple interest earned on 
the amount withdrawn;
    (b) Where the depository institution pays all or a portion of a 
time deposit representing funds contributed to an individual 
retirement account or a Keogh (H.R. 10) plan established pursuant to 
26 U.S.C. 408 or 26 U.S.C. 401 or to a 401(k) plan established 
pursuant to 26 U.S.C. 401(k) when the individual for whose benefit 
the account is maintained attains age 59\1/2\ or is disabled (as 
defined in 26 U.S.C. 72(m)(7)) or thereafter;
    (c) Where the depository institution pays that portion of a time 
deposit on which federal deposit insurance has been lost as a result 
of the merger of two or more federally insured banks in which the 
depositor previously maintained separate time deposits, for a period 
of one year from the date of the merger;
    (d) Upon the death of any owner of the time deposit funds;
    (e) When any owner of the time deposit is determined to be 
legally incompetent by a court or other administrative body of 
competent jurisdiction; or
    (f) Where a time deposit is withdrawn within 10 days after a 
specified maturity date even though the deposit contract provided 
for automatic renewal at the maturity date.
---------------------------------------------------------------------------

* * * * *
    (d) * * *
    (2) The term savings deposit also means: A deposit or account, such 
as an account commonly known as a passbook savings account, a statement 
savings account, or as a money market deposit account (MMDA), that 
otherwise meets the requirements of Sec.  204.2(d)(1) and from which, 
under the terms of the deposit contract or by practice of the 
depository institution, the depositor is permitted or authorized to 
make no more than six transfers and withdrawals, or a combination of 
such transfers and withdrawals, per calendar month or statement cycle 
(or similar period) of at least four weeks, to another account 
(including a transaction account) of the depositor at the same 
institution or to a third party by means of a preauthorized or 
automatic transfer, or telephonic (including data transmission) 
agreement, order or instruction, [and no more than three of the six 
such transfers may be made] [rtrif]or[ltrif] by check, draft, debit 
card, or similar order made by the depositor and payable to third 
parties. A preauthorized transfer includes any arrangement by the 
depository institution to pay a third party from the account of a 
depositor upon written or oral instruction (including an order received 
through an automated clearing house (ACH)) or any arrangement by a 
depository institution to pay a third party from the account of the 
depositor at a predetermined time or on a fixed schedule. Such an 
account is not a transaction account by virtue of an arrangement that 
permits transfers for the purpose of repaying loans and associated 
expenses at the same depository institution (as originator or servicer) 
or that permits transfers of funds from this account to another account 
of the same depositor at the same institution or permits withdrawals 
(payments directly to the depositor) from the account when such 
transfers or withdrawals are made by mail, messenger, automated teller 
machine, or in person or when such withdrawals are made by telephone 
(via check mailed to the depositor) regardless of the number of such 
transfers or withdrawals.\4\
---------------------------------------------------------------------------

    \4\ In order to ensure that no more than the permitted number of 
withdrawals or transfers are made, for an account to come within the 
[definitions in paragraph (d)(2) of this section,] [rtrif]definition 
of ``savings deposit,''[ltrif] a depository institution must either:
    (a) Prevent withdrawals or transfers of funds from this account 
that are in excess of the limits established by paragraph (d)(2) of 
this section, or
    (b) Adopt procedures to monitor those transfers on an ex post 
basis and contact customers who exceed the established limits on 
more than occasional basis. For customers who continue to violate 
those limits after they have been contacted by the depository 
institution, the depository institution must either close the 
account and place the funds in another account that the depositor is 
eligible to maintain or take away the transfer and draft capacities 
of the account. An account that authorizes withdrawals or transfers 
in excess of the permitted number is a transaction account 
regardless of whether the authorized number of transactions are 
actually made. For accounts described in paragraph (d)(2) of this 
section, the institution at its option may use, on a consistent 
basis, either the date on the check, draft, or similar item, or the 
date the item is paid in applying the limits imposed by that 
section.
---------------------------------------------------------------------------

* * * * *
    (k)(1) Vault cash means United States currency and coin owned and 
[held] [rtrif]booked as an asset[ltrif] by a depository institution 
that may, at any time, be used to satisfy [depositors'] claims 
[rtrif]of that depository institution's depositors and that meets the 
requirements of paragraph (k)(2)(i) or (k)(2)(ii) of this 
section[ltrif].
    (2) Vault cash [rtrif]must be either:
    (i) Held at a physical location of the depository institution 
(including the depository institution's proprietary ATMs) from which 
the institution's depositors may make cash withdrawals; or
    (ii) Held at an alternate physical location if--
    (A) The depository institution claiming the currency and coin as 
vault cash at all times retains full rights of ownership in and to the 
currency and coin held at the alternate physical location;
    (B) The depository institution claiming the currency and coin as 
vault cash at all times books the currency and coin held at the 
alternate physical location as an asset of the depository institution;
    (C) No other depository institution claims the currency and coin 
held at the alternate physical location as vault cash in satisfaction 
of that other depository institution's reserve requirements;
    (D) The currency and coin held at the alternate physical location 
is reasonably nearby a location of the depository institution claiming 
the currency and coin as vault cash at which its depositors may make 
cash withdrawals (an alternate physical location is considered 
``reasonably nearby'' if the depository institution that claims the 
currency and coin as vault cash can recall the currency and coin from 
the alternate physical location by 10 a.m. and, relying solely on 
ground transportation, receive the currency and coin not later than 4 
p.m. on the same calendar day at a location of the depository 
institution at which its depositors may make cash withdrawals); and
    (E) The depository institution claiming the currency and coin as 
vault cash has in place a written cash delivery plan, and written 
contractual arrangements necessary to implement that plan, that 
demonstrate that the currency and coin can be recalled and received in 
accordance with the requirements of paragraph (k)(2)(ii)(D) of this 
section at any time. The depository institution shall provide copies of 
the written cash delivery plan and written contractual arrangements to 
the Federal Reserve Bank that holds its account or to the Board upon 
request.
    (3) Vault cash[ltrif] includes United States currency and coin in 
transit to a

[[Page 8016]]

Federal Reserve Bank or a correspondent depository institution for 
which the reporting depository institution has not yet received credit, 
and United States currency and coin in transit from a Federal Reserve 
Bank or a correspondent depository institution when the reporting 
depository institution's account at the Federal Reserve or 
correspondent bank has been charged for such shipment.
    [(3)] [rtrif](4)[ltrif] Silver and gold coin and other currency and 
coin whose numismatic or bullion value is substantially in excess of 
face value is not vault cash for purposes of this part.
    (l) Pass-through account means a balance maintained by a depository 
institution [rtrif]with a correspondent institution under Sec.  
204.5(d)[ltrif] [a balance maintained by a depository institution that 
is not a member bank, by a U.S. branch or agency of a foreign bank, or 
by an Edge or Agreement Corporation, (1) in an institution that 
maintains required reserve balances at a Federal Reserve Bank, (2) in a 
Federal Home Loan Bank, (3) in the National Credit Union Administration 
Central Liquidity Facility, or (4) in an institution that has been 
authorized by the Board to pass through required reserve balances if 
the institution, Federal Home Loan Bank, or National Credit Union 
Administration Central Liquidity Facility maintains the funds in the 
form of a balance in a Federal Reserve Bank of which it is a member or 
at which it maintains an account in accordance with rules and 
regulations of the Board].
* * * * *
    [rtrif](v) Clearing balance allowance means the greater of $25,000 
or two percent of an institution's contractual clearing balance.
    (w) Contractual clearing balance means an amount that a depository 
institution agrees or is required to maintain in its account at a 
Federal Reserve Bank in addition to balances the depository institution 
may hold to satisfy its required reserve balance. A depository 
institution that has a required reserve balance of zero may still hold 
a contractual clearing balance.[ltrif]
    3. Amend Sec.  204.3 by revising the heading and paragraphs (a) 
through (d), (f), and (g) to read as follows:


Sec.  204.3  Reporting and location.

    (a) Every depository institution, U.S. branch or agency of a 
foreign bank, and Edge or Agreement corporation shall file a report of 
deposits (or any other form or statement that may be required by the 
Board or by a Federal Reserve Bank) with the Federal Reserve Bank in 
the Federal Reserve District in which it is located, regardless of the 
manner in which it chooses to maintain required reserve balances.
    (b) A foreign bank's U.S. branches and agencies and an Edge or 
Agreement corporation's offices operating within the same state and the 
same Federal Reserve District shall prepare and file a report of 
deposits on an aggregated basis.
    (c) For purposes of this part, the obligations of a majority-owned 
(50 percent or more) U.S. subsidiary (except an Edge or agreement 
corporation) of a depository institution shall be regarded as 
obligations of the parent depository institution.
    (d) A depository institution, a foreign bank, or an Edge or 
Agreement corporation shall, if possible, assign the low reserve 
tranche and reserve requirement exemption prescribed in Sec.  204.4(f) 
to only one office or to a group of offices filing a single aggregated 
report of deposits. The amount of the reserve requirement exemption 
allocated to an office or group of offices may not exceed the amount of 
the low reserve tranche allocated to such office or offices. If the low 
reserve tranche or reserve requirement exemption cannot be fully 
utilized by a single office or by a group of offices filing a single 
report of deposits, the unused portion of the tranche or exemption may 
be assigned to other offices or groups of offices of the same 
institution until the amount of the tranche (or net transaction 
accounts) or exemption (or reservable liabilities) is exhausted. The 
tranche or exemption may be reallocated each year concurrent with 
implementation of the indexed tranche and exemption, or, if necessary 
during the course of the year to avoid underutilization of the tranche 
or exemption, at the beginning of a reserve computation period.[ltrif]
* * * * *
    [rtrif](f) The Board and the Federal Reserve Banks will not hold a 
pass-through correspondent responsible for guaranteeing the accuracy of 
the reports of deposits submitted by its respondents.
    (g)(1) For purposes of this section, a depository institution, a 
U.S. branch or agency of a foreign bank, or an Edge or Agreement 
corporation is located in the Federal Reserve District that contains 
the location specified in the institution's charter, organizing 
certificate, license, or articles of incorporation, or as specified by 
the institution's primary regulator, or if no such location is 
specified, the location of its head office, unless otherwise determined 
by the Board under paragraph (g)(2) of this section.
    (2) If the location specified in paragraph (g)(1) of this section, 
in the Board's judgment, is ambiguous, would impede the ability of the 
Board or the Federal Reserve Banks to perform their functions under the 
Federal Reserve Act, or would impede the ability of the institution to 
operate efficiently, the Board will determine the Federal Reserve 
District in which the institution is located, after consultation with 
the institution and the relevant Federal Reserve Banks. The relevant 
Federal Reserve Banks are the Federal Reserve Bank whose District 
contains the location specified in paragraph (g)(1) of this section and 
the Federal Reserve Bank in whose District the institution is proposed 
to be located. In making this determination, the Board will consider 
any applicable laws, the business needs of the institution, the 
location of the institution's head office, the locations where the 
institution performs its business, and the locations that would allow 
the institution, the Board, and the Federal Reserve Banks to perform 
their functions efficiently and effectively.[ltrif]
* * * * *
    4. Section 204.7 is removed, Sec.  204.4 is redesignated as Sec.  
204.7, and a new Sec.  204.4 is added to read as follows:


Sec.  204.4  Computation of required reserves.

    (a) In determining the reserve balance required under this part, 
the amount of cash items in process of collection and balances subject 
to immediate withdrawal due from other depository institutions located 
in the United States (including such amounts due from United States 
branches and agencies of foreign banks and Edge and agreement 
corporations) may be deducted from the amount of gross transaction 
accounts. The amount that may be deducted may not exceed the amount of 
gross transaction accounts.
    (b) United States branches and agencies of a foreign bank may not 
deduct balances due from another United States branch or agency of the 
same foreign bank, and United States offices of an Edge or Agreement 
Corporation may not deduct balances due from another United States 
office of the same Edge Corporation.
    (c) Balances ``due from other depository institutions'' do not 
include balances due from Federal Reserve Banks, pass-through accounts, 
or balances (payable in dollars or otherwise) due from banking offices 
located outside the United States. An institution exercising fiduciary 
powers may not include in balances ``due from other depository 
institutions'' amounts of trust funds deposited with other

[[Page 8017]]

banks and due to it as a trustee or other fiduciary.
    (d) For institutions that file a report of deposits weekly, 
required reserves are computed on the basis of the institution's daily 
average balances of deposits and Eurocurrency liabilities during a 14-
day computation period ending every second Monday.
    (e) For institutions that file a report of deposits quarterly, 
required reserves are computed on the basis of the institution's daily 
average balances of deposits and Eurocurrency liabilities during the 7-
day computation period that begins on the third Tuesday of March, June, 
September, and December.
    (f) For all depository institutions, Edge and agreement 
corporations, and United States branches and agencies of foreign banks, 
required reserves are computed by applying the reserve requirement 
ratios below to net transaction accounts, nonpersonal time deposits, 
and Eurocurrency liabilities of the institution during the computation 
period.

------------------------------------------------------------------------
                                                  Reserve  requirement
             Reservable liability                        ratio
------------------------------------------------------------------------
NET TRANSACTION ACCOUNTS:                      .........................
    $0 to reserve requirement exemption        0 percent of amount.
     amount ($9.3 million).
    Over reserve requirement exemption amount  3 percent of amount.
     ($9.3 million) and up to low reserve
     tranche ($43.9 million).
    Over low reserve tranche ($43.9 million).  $1,038,000 plus 10
                                                percent of amount over
                                                $43.9 million.
Nonpersonal time deposits....................  0 percent.
Eurocurrency liabilities.....................  0 percent.
------------------------------------------------------------------------

    5. Section 204.9 is removed, Sec.  204.5 is redesignated as Sec.  
204.9, and a new Sec.  204.5 is added to read as follo

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