Reserve Requirements of Depository Institutions; Issue and Cancellation of Federal Reserve Bank Capital Stock, 25629-25639 [E9-12431]

Download as PDF Federal Register / Vol. 74, No. 102 / Friday, May 29, 2009 / Rules and Regulations (v) Clearing balance means the average balance held in an account at a Federal Reserve Bank by an institution over a reserve maintenance period to satisfy its contractual clearing balance with a Reserve Bank. * * * * * (y) Eligible institution means— (1) Any depository institution as described in § 204.1(c) of this part; (2) Any trust company; (3) Any corporation organized under section 25A of the Federal Reserve Act (12 U.S.C. 611 et seq.) or having an agreement with the Board under section 25 of the Federal Reserve Act (12 U.S.C. 601 et seq.); and (4) Any branch or agency of a foreign bank (as defined in section 1(b) of the International Banking Act of 1978, 12 U.S.C. 3101(b)). (z) Excess balance means the average balance held in an account at a Federal Reserve Bank by or on behalf of an institution over a reserve maintenance period that exceeds the sum of the required reserve balance and any clearing balance. (aa) Excess balance account means an account at a Reserve Bank pursuant to § 204.10(d) of this part that is established by one or more eligible institutions through an agent and in which only excess balances of the participating eligible institutions may at any time be maintained. An excess balance account is not a ‘‘pass-through account’’ for purposes of this part. (bb) Required reserve balance means the average balance held in an account at a Federal Reserve Bank by or on behalf of an institution over a reserve maintenance period to satisfy the reserve requirements of this part. (cc) Targeted federal funds rate means the federal funds rate established from time to time by the Federal Open Market Committee. ■ 3. Revise § 204.10 to read as follows: tjames on PRODPC75 with RULES § 204.10 Payment of interest on balances. (a) Payment of interest. The Federal Reserve Banks shall pay interest on balances maintained at Federal Reserve Banks by or on behalf of an eligible institution as provided in this section and under such other terms and conditions as the Board may prescribe. (b) Rate. Except as provided in paragraph (c) of this section, Federal Reserve Banks shall pay interest at the following rates— (1) For required reserve balances, at 1⁄4 percent; (2) For excess balances, at 1⁄4 percent; or (3) For required reserve balances or excess balances, at any other rate or VerDate Nov<24>2008 15:25 May 28, 2009 Jkt 217001 rates as determined by the Board from time to time. (c) Pass-through balances. A passthrough correspondent that is an eligible institution may pass back to its respondent interest paid on balances held on behalf of that respondent. In the case of balances held by a pass-through correspondent that is not an eligible institution, a Reserve Bank shall pay interest only on the required reserve balances held on behalf of one or more respondents, and the correspondent shall pass back to its respondents interest paid on balances in the correspondent’s account. Any passing back of interest by a correspondent to a respondent under this subsection is not a payment of interest on a demand deposit for purposes of Part 217 of this chapter (Regulation Q). (d) Excess balance accounts. (1) A Reserve Bank may establish an excess balance account for eligible institutions under the provisions of this paragraph (d). Notwithstanding any other provisions of this part, the excess balances of eligible institutions in an excess balance account represent a liability of the Reserve Bank solely to those participating eligible institutions. (2) The participating eligible institutions in an excess balance account shall authorize another institution to act as agent of the participating institutions for purposes of general account management, including but not limited to transferring the excess balances of participating institutions in and out of the excess balance account. An excess balance account must be established at the Reserve Bank where the agent maintains its master account, unless otherwise determined by the Board. The agent may not commingle its own funds in the excess balance account. (3) No required reserve balances or clearing balances may be maintained at any time in an excess balance account, and balances maintained in an excess balance account will not satisfy any institution’s reserve balance requirement or contractual clearing balance. (4) An excess balance account must be used exclusively for the purpose of maintaining the excess balances of participants and may not be used for general payments or other activities. (5) Interest shall be paid on excess balances of eligible institutions maintained in an excess balance account in accordance with paragraph (b)(2) or (b)(3) of this section. (6) A Reserve Bank may establish additional terms and conditions consistent with this part with respect to the operation of an excess balance PO 00000 Frm 00015 Fmt 4700 Sfmt 4700 25629 account, including, but not limited to, terms of and fees for services, conditions under which an institution may act as agent for an account, restrictions on the agent with respect to account management, penalties for noncompliance with this section or any terms and conditions, and account termination. By order of the Board of Governors of the Federal Reserve System, May 22, 2009. Robert deV. Frierson, Deputy Secretary of the Board. [FR Doc. E9–12432 Filed 5–28–09; 8:45 am] BILLING CODE 6210–01–P 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: Final rule. SUMMARY: The Board is amending Regulation D (Reserve Requirements of Depository Institutions) and Regulation I (Issue and Cancellation of Federal Reserve Bank Capital Stock) to make two substantive changes and other clarifying amendments. The first substantive amendment conforms Regulation D to Section 603 of the Financial Services Regulatory Relief Act of 2006 (Pub. L. 109–351, Oct. 13, 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 substantive amendment eliminates the provision in Regulation D’s definition of ‘‘savings deposit’’ that limits certain kinds of transfers from savings deposits to not more than three per month. As a result, all transfers and withdrawals from a savings deposit that are subject to a monthly limit will be subject to the same limit of not more than six per month. The remaining clarifying amendments reorganize the provisions relating to deposit reporting and the calculation and maintenance of required reserves, clarify the definition of ‘‘vault cash,’’ and make other minor editorial changes. DATES: This final rule is effective July 2, 2009. FOR FURTHER INFORMATION CONTACT: Sophia H. Allison, Senior Counsel (202/ E:\FR\FM\29MYR1.SGM 29MYR1 25630 Federal Register / Vol. 74, No. 102 / Friday, May 29, 2009 / Rules and Regulations tjames on PRODPC75 with RULES 452–3565), or Dena L. Milligan, Attorney (202/452–3900), Legal Division, Seth Carpenter, Deputy Associate Director (202/452–2385), or Margaret Gillis DeBoer, Section Chief (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 For monetary policy purposes, section 19 of the Federal Reserve Act (the ‘‘Act’’) imposes reserve requirements on certain types of deposits and other liabilities of depository institutions. Currently, reserve requirement ratios for ‘‘transaction 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 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 Section 19 also authorizes the Board to define, by regulation, the terms used in the section. The Board implements the provisions of section 19 through 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). Section 19(c)(1) of the Act provides that a depository institution’s required reserves shall be either in the form of a balance maintained for such purposes by such 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 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). VerDate Nov<24>2008 15:25 May 28, 2009 Jkt 217001 required reserves in an account at a depository institution that maintained required reserve balances at a Federal Reserve Bank, known as a ‘‘pass-through account.’’ The Financial Services Regulatory Relief Act of 2006 (Pub. L. 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, the Act now permits all depository institutions to maintain required reserves in a pass-through account with a correspondent depository institution. II. Request for Public Comment and Summary of Comments Received The Board requested public comment on proposed changes to Regulations D and I on February 7, 2008 (73 FR 8009 (Feb. 12, 2008)). In response, the Board received 27 comments on the proposal, consisting of comments from nine depository institutions, two financial holding companies on behalf of their depository institution subsidiaries, seven individuals, seven financial institution trade associations, one law firm, and one association of depository institutions. Of these, three commenters supported the proposal in its entirety, while the majority of the other comments received concerned (A) the proposed amendment to the definition of ‘‘savings deposit’’ describing the monthly numeric limits imposed on certain ‘‘convenient’’ types of transfers and withdrawals from savings deposits or (B) the proposed amendments to the definitions of ‘‘time deposit’’ and ‘‘vault cash.’’ Other comments addressed reserve requirements generally and other technical aspects of the proposal. III. Section-by-Section Analysis of Proposal and Comments A. Section 204.2(c) Definition of Time Deposit (1) Background of Proposed Amendment The current definition of ‘‘time deposit’’ in Regulation D 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.’’ 3 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 3 12 PO 00000 CFR 204.2(c)(1). Frm 00016 Fmt 4700 Sfmt 4700 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 language has been subject to numerous inquiries as to the meaning of the terms ‘‘additional’’ and ‘‘early.’’ (2) Proposed Amendment and Comments The Board proposed to amend the definition of ‘‘time deposit’’ to remove the references to ‘‘early’’ and ‘‘additional’’ in the second sentence of the definition and to clarify that ‘‘early’’ withdrawals include withdrawals within six days after deposit as well as withdrawals within six days of the last withdrawal. The Board received two comments on the proposed amendments to the definition of ‘‘time deposit.’’ Both comments expressed concern that the proposed amendments, if adopted, would have the effect of precluding certain depository institutions from continuing to avail themselves of the deposit type referred to as a ‘‘time deposit open account,’’ or ‘‘TDOA.’’ From as early as 1915, ‘‘time deposit open account’’ was a separately defined term within the general category of ‘‘time deposit’’ in Regulation D.4 Board interpretations in later decades described bank trust departments’ use of TDOAs for disposition of certain commingled uninvested trust and agency funds awaiting disbursement or further investment.5 ‘‘Time deposit open account,’’ however, ceased being a separately defined term under the general definition of ‘‘time deposit’’ in 1980. Further, the Board interpretations discussing use of TDOAs by trust departments for trust and agency funds were rescinded in 1987 as having been incorporated into section 204.2(c)(1)(i)(C) of Regulation D.6 Nevertheless, the Board referred to TDOAs by name in subsequent rulemakings as continuing to be viable, at least when used other than as a method of evading reserve requirements.7 4 Federal Reserve Board, Circular No. 6 (Series of 1915) (Jan. 15, 1915). 5 Board Interpretation, 1950 Fed. Res. Bull. 44; Board Interpretation, 1959 Fed. Res. Bull. 1475. 6 52 FR 47689, 47691 (Dec. 16, 1987). Section 204.2(c)(1)(i)(C) states that ‘‘[t]ime deposit includes funds * * * payable only upon written notice that is actually required to be given by the depositor not less than seven days prior to withdrawal * * *’’ 7 57 FR 38417, 38423–24 (Aug. 25, 1992) (declining to adopt ‘‘LIFO’’ rule for withdrawals from time deposits, in part because of potential E:\FR\FM\29MYR1.SGM 29MYR1 Federal Register / Vol. 74, No. 102 / Friday, May 29, 2009 / Rules and Regulations (3) Comment Analysis and Final Rule The Board believes that adopting the proposed amendments would have no effect on the continued use of TDOAs in bona fide arrangements by trust departments for trust and agency funds. The final amendments, however, do not adopt revisions to the definition of ‘‘time deposit’’ that were proposed in the Board’s request for public comment because the only two comments received on the proposed revisions indicated that the proposed revisions would create more confusion than clarity. B. Section 204.2(d) Transfers From Savings Deposits tjames on PRODPC75 with RULES (1) Background of Proposed Amendment The Board’s criteria for distinguishing between ‘‘transaction accounts’’ and ‘‘savings deposits’’ in Regulation D are 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, the more convenient making withdrawals or transfers from an account is, the more likely the account holder will use the account for making payments or transfers to third parties rather than for holding savings. Accordingly, Regulation D limits the number of certain convenient kinds of transfers or withdrawals that an account holder may make in a single month from an account if that account is to be classified as a ‘‘savings deposit.’’ 8 ‘‘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 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 (the ‘‘three’’ negative impact on operation of TDOAs; interpretation prohibiting linked time deposit accounts at 12 CFR 204.134 limited to its terms and does not necessarily apply to TDOA types of accounts operated by trust departments). 8 12 CFR 204.2(d)(2) (definition of ‘‘savings deposit’’). VerDate Nov<24>2008 15:25 May 28, 2009 Jkt 217001 sublimit). Regulation D does not limit less convenient transfers and withdrawals from savings deposits. For example, an account holder may make transfers or withdrawals ‘‘by mail, messenger, automated teller machine, or in person or * * * made by telephone (via check mailed to the depositor)’’ from savings deposits without numerical limit. (2) Proposed Amendment and Comments The Board proposed to amend Regulation D’s definition of ‘‘savings deposit’’ to eliminate the ‘‘three’’ sublimit that applies to checks and drafts and simply limit all ‘‘convenient’’ transfers to not more than six per month. Fourteen commenters supported eliminating the ‘‘three’’ sublimit, eight commenters favored doing away with numeric transfer limits entirely, and five commenters favored raising the monthly numeric limit to some number higher than six. One commenter proposed allowing depository institutions to set their own monthly numeric limits on convenient transfers and withdrawals. One commenter opposed both raising the monthly numeric limit to a higher number and making all kinds of transfers and withdrawals unlimited in number. One commenter stated that eliminating only the ‘‘three’’ sublimit did not go far enough, but made no recommendations as to how the Board could improve the proposal to address that concern. Two commenters requested that, if the proposed amendment becomes final, then the Board should provide a sufficiently delayed effective date (either six months or one year) to allow depository institutions time to modify their systems and customer disclosures. (3) Comment Analysis and Final Amendment The Board has carefully considered the comments received and has adopted the amendment to the definition of ‘‘savings deposit’’ as proposed. The sublimit in the definition of ‘‘money market deposit account’’ began in 1982 with the enactment of the Garn-St Germain Depository Institutions Act and lapsed in 1986. The Board retained the distinction between transactions subject to the overall limit of six and those subject to the sublimit in Regulation D after the Depository Institutions Act lapsed in 1986. Technological advancements, however, have eliminated any rational basis for the distinction. The Board has determined neither to raise the monthly numeric limit on convenient transfers to a number higher PO 00000 Frm 00017 Fmt 4700 Sfmt 4700 25631 than six, nor to eliminate monthly numeric limits on all convenient transfers and withdrawals (including online) from savings deposits generally. Section 19 of the Act requires the Board to impose reserve requirements on transaction accounts and not on other types of accounts. Accordingly, the Board must maintain the capacity to distinguish between transaction accounts and savings deposits. The sixper-month limitation on certain convenient transfers and withdrawals has existed, in one form or another, since 1982. Such types of transfers and withdrawals appear to have become even more convenient since that time due to technological advances, such as the ability to make transfers online, and the increased availability of debit-card transfers at point-of-sale terminals and elsewhere. The greater the number of convenient transfers and withdrawals permitted per month from a ‘‘savings deposit,’’ the greater the difficulty in distinguishing such an account from a transaction account. Therefore, the Board has determined that the final rule will neither increase the number of convenient transfers and withdrawals permitted per month from a savings deposit, nor eliminate such numeric limits entirely (on either online transfers or all convenient transfers and withdrawals). For similar reasons, the Board believes that it would not be appropriate to adopt a rule allowing depository institutions to set their own monthly numeric limits on convenient transfers and withdrawals that account holders may make from savings deposits. Allowing different limits at different depository institutions would erode any definitional distinction between ‘‘transaction accounts’’ and ‘‘savings deposits.’’ Even if some depository institutions were to choose relatively low numeric limits, there likely would be broad variation among depository institutions in the numeric limits selected, creating significant discrepancies between accounts classified as ‘‘savings deposits.’’ In addition, the Board believes that depository institutions would have costavoidance and competitive incentives to set numeric limits as high as possible while still being able to report such deposits as nonreservable ‘‘savings deposits’’ that may bear interest. The Board is obligated by statute to maintain some regulatory distinction between ‘‘transaction accounts’’ and ‘‘savings deposits’’ and to enforce such a distinction with consistency. Accordingly, the Board has determined not to adopt a final rule permitting E:\FR\FM\29MYR1.SGM 29MYR1 25632 Federal Register / Vol. 74, No. 102 / Friday, May 29, 2009 / Rules and Regulations depository institutions to select their own numeric limits on convenient transfers and withdrawals from savings deposits. The Board also believes that selecting a monthly numeric limit to apply to all types of transfers and withdrawals from ‘‘savings deposits,’’ including those types that are currently unlimited in number per month, would not be appropriate. The Act provides that a ‘‘transaction account’’ is one ‘‘on which the depositor or account holder is permitted to make withdrawals by negotiable or transferable instrument, payment orders of withdrawal, telephone transfers, or other similar items for the purpose of making payments or transfers to third persons or others.’’ 9 As such, the statutory definition specifically contemplates the kinds of transfers and withdrawals that are, or are most likely to be, transfers and withdrawals ‘‘for the purpose of making payments or transfers to third persons or others.’’ In contrast, withdrawals made in person or at an ATM are generally payments directly to the depositor, even if the depositor may subsequently provide those same funds to a third person or use them for a payment. Accordingly, the Board has determined that the final rule not impose numeric limits on all types of transfers and withdrawals that may be made from savings deposits, including those that are currently unlimited. Finally, the Board believes that delaying the effective date for the final rule eliminating the ‘‘three’’ sublimit from the definition of ‘‘savings deposit’’ is unnecessary because the final rule is permissive. Under the final rule, depository institutions may classify accounts subject to the ‘‘three’’ sublimit as ‘‘savings deposits’’ as long as necessary. Accordingly, the Board has determined not to delay the final rule’s effective date. legislation 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.11 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.’’ 12 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.13 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 1980 amendments to Regulation D, which implemented the Monetary Control Act of 1980, introduced ‘‘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 1970 interpretation’s principles of bank ownership and availability at any time to satisfy depositors’ claims. Subsequent Board guidance and staff opinions provided additional clarification of these requirements, including clarifying what vault cash is ‘‘owned and held’’ by the depository institution claiming it and the circumstances under which vault cash is ‘‘immediately available.’’ C. Section 204.2(k) ‘‘Vault Cash’’ Definition (2) Proposed Amendment and Comments The Board proposed amending the definition of ‘‘vault cash’’ to incorporate the substance of prior written staff guidance as to when currency and coin that the depository institution does not hold at its physical location may be considered ‘‘vault cash.’’ 16 Specifically, the Board proposed dividing the tjames on PRODPC75 with RULES (1) Background of Proposed Amendment From 1917 to 1959, the Act permitted member banks to satisfy reserve requirements solely 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.’’ 10 The history of the 1959 9 12 U.S.C. 461(b). Act of July 28, 1959 (73 Stat. 263). 10 The VerDate Nov<24>2008 15:25 May 28, 2009 Jkt 217001 11 S. Rep. No. 86–195, at 3 (1959); H. Rep. No. 86– 403, at 3 (1959). 12 Id. 13 Former 12 CFR 204.116 (1979). 14 Id. 15 Id. 16 See, e.g. FRRS ¶ 2–307.2 (rented vault); Staff Opinion of Aug. 9, 1982 (ATMs). PO 00000 Frm 00018 Fmt 4700 Sfmt 4700 definition of ‘‘vault cash’’ into two subsections: one that addresses vault cash ‘‘held at a physical location of the depository institution * * * from which the institution’s depositors may make cash withdrawals,’’ and the other that addresses vault cash ‘‘held at an alternate physical location.’’ The amendments proposed by the Board expanded primarily the second proposed subsection to incorporate prior guidance. (3) Comment Analysis and Final Amendment The Board received two comments on the proposed amendments to the definition of ‘‘vault cash.’’ One commenter expressed support for the proposed amendments, and one commenter opposed the proposed amendments. The commenter opposing the amendments specifically opposed certain provisions relating to when vault cash at alternate physical locations may be considered to be ‘‘immediately available,’’ namely, that (1) the depository institution claiming the currency and coin as ‘‘vault cash’’ must receive it by 4 p.m. on the same day if requested by 10 a.m., and that (2) the depository institution must have a written contract in place for the delivery of the currency and coin claimed as ‘‘vault cash.’’ This commenter stated that 4 p.m. should not be selected as a cut-off hour because some depository institutions conduct business after 4 p.m., and because customers can usually obtain cash through an ATM or at POS (point of sale) terminals after 4 p.m. The commenter proposed an amendment that would require the currency and coin to be received on the same calendar day that it is requested. The commenter also stated that requiring written contractual arrangements for delivery of currency and coin claimed as ‘‘vault cash’’ imposes unnecessary costs on depository institutions because contractual agreements ‘‘will likely never be used’’ and because updating the agreements as offices are opened and closed would be expensive. The commenter proposed ‘‘leav[ing] the particular details of the arrangement up to the institution.’’ The Board believes that the selection of 4 p.m. as a cut-off hour for characterizing currency and coin as ‘‘vault cash’’ under Regulation D is appropriate. The Board believes that the rationale provided for an alternate ‘‘same calendar day’’ rule would not justify such a significant departure from the consistent position taken in numerous Board staff opinions over the years on the issue. Furthermore, such a E:\FR\FM\29MYR1.SGM 29MYR1 Federal Register / Vol. 74, No. 102 / Friday, May 29, 2009 / Rules and Regulations rule would remove any nexus between the characterization of currency and coin as ‘‘vault cash’’ and having such currency and coin ‘‘immediately available,’’ because any such currency and coin received after a closing hour (no matter how late) would not be available to a customer until the next business day. While customers may be able, as a practical matter, to obtain cash from ATMs and from POS terminals at various hours, not all such cash is sought to be characterized as ‘‘vault cash’’ for Regulation D purposes: the 4 p.m. requirement would apply only to currency and coin that an institution counts towards satisfying its reserve requirement. The Board also believes that the rationale provided for eliminating the requirement for written contractual arrangements to be in place for ‘‘vault cash’’ does not justify changing the long-standing position on this issue. As with the 4 p.m. cut-off, the requirement for written contractual arrangements in this context is the position the Board has consistently taken over the years in staff opinions. Moreover, the Board believes it would be difficult, if not impossible, for a depository institution to establish what currency and coin is physically subject to the retrieval plan without written delivery plan to that effect. Likewise, the Board believes that it would be difficult, if not impossible, for the depository institution to establish its ‘‘full and unrestricted right’’ to such currency and coin if it were subject only to an oral understanding for retrieval within the requisite time frame. Accordingly, the Board is adopting the ‘‘vault cash’’ amendments as proposed. tjames on PRODPC75 with RULES D. Section 204.2(l) Definition of ‘‘Passthrough Account’’ The Board proposed to amend the definition of ‘‘pass-through account’’ to eliminate the language restricting passthrough account arrangements to nonmember banks in order to conform the definition to section 19(c)(1)(B) of the Act. The Board also proposed moving the provisions relating to pass-through accounts to paragraph (d) under proposed § 204.5, ‘‘Maintenance of Required Reserves.’’ The Board received five comments in support of the proposed amendments, and is adopting them as proposed. E. Section 204.2(w) Definition of ‘‘Clearing Balance Allowance’’ The Board proposed (1) adding a new definition of ‘‘clearing balance allowance’’ to Regulation D to replace the undefined term ‘‘required chargefree band’’ used in provisions relating to VerDate Nov<24>2008 15:25 May 28, 2009 Jkt 217001 carryovers of excess reserves and deficiencies in reserves and (2) moving the existing carryover provisions to a new paragraph (e) under proposed § 204.5, ‘‘Maintenance of Required Reserves.’’ The Board received no comments on these amendments. The Board is setting forth the definition of ‘‘clearing balance allowance’’ in new § 204.2(w), and moving the carryover provisions to § 204.5, as proposed. F. Section 204.2(x) Definition of ‘‘Contractual Clearing Balance’’ The Board proposed adding a new definition of ‘‘contractual clearing balance’’ to Regulation D to replace the undefined term ‘‘required clearing balance.’’ The Board proposed to define ‘‘contractual clearing balance’’ as ‘‘the 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.’’ Further, the definition specified that ‘‘[a] depository institution that has a required reserve balance of zero may still hold a contractual clearing balance.’’ The Board received no comments on the proposed amendment. The Board is revising the proposed definition of ‘‘contractual clearing balance’’ to provide consistency of usage of terms throughout Regulation D. When the Board proposed the new definition of ‘‘contractual clearing balance,’’ ‘‘required reserve balance’’ was an undefined term. New § 204.2(bb), however, defines ‘‘required reserve balance’’ as ‘‘the average balance held in an account at a Federal Reserve Bank by or on behalf of an institution over a reserve maintenance period to satisfy the reserve requirements of this part.’’ 17 The proposed definition of ‘‘contractual clearing balance’’ contemplated the contractual clearing balance to be in addition to the amount an institution is required to maintain as a balance at a Reserve Bank in order to satisfy its reserve requirements, and not in addition to those balances actually held to satisfy such requirements. Accordingly, the final rule defines ‘‘contractual clearing balance’’ as ‘‘an amount that an institution agrees or is required to maintain in its account at a Federal Reserve Bank in addition to any reserve balance requirement.’’ For similar reasons, the Board is amending the last sentence in the definition of ‘‘contractual clearing balance’’ to read: ‘‘An institution that has a reserve 17 See final rule on payment of interest on balances and excess balance accounts in today’s Federal Register. PO 00000 Frm 00019 Fmt 4700 Sfmt 4700 25633 balance requirement of zero may still have a contractual clearing balance.’’ G. Section 204.3 Reporting and Location (1) Proposed Amendment The Board proposed re-organizing 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) into three separate subsections. The proposed amendments were not intended to make substantive changes to these provisions, but rather to reorganize them for greater ease of reference and to make minor editorial changes for clarity. The Board proposed a new § 204.3(a), consisting of the text of the first sentence of current § 204.3(a)(2)(i) with proposed amendments clarifying (1) 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 and (2) where reports of deposits are to be submitted in light of the account location provisions of the regulation. The Board proposed to relocate the text of the second sentence of current § 204.3(a)(2)(i) (stipulating reporting requirements for a foreign bank’s U.S. branches and agencies and for an Edge or Agreement corporation’s offices operating within the same State and the same Federal Reserve District) to new § 204.3(b). The Board proposed to relocate the text of the third sentence of current § 204.3(a)(1) (obligations of majority-owned U.S. subsidiaries of a depository institution) to new § 204.3(c). The Board proposed to relocate the text, with one technical amendment, of current § 204.3(a)(3) (governing assignment of low reserve tranche and reserve requirement exemption) to new § 204.3(d). The Board proposed amending the text of current § 204.3(a)(3) (new § 204.3(d)) to conform the section number reference to reserve requirement ratios (§ 204.9) to that section’s new section number (§ 204.4(f)). The Board did not propose any changes to current § 204.3(e), which addresses computation of transaction accounts for deposit reporting purposes. The Board proposed to relocate current § 204.3(a)(2)(iii) (correspondent not responsible for guaranteeing the accuracy of reports submitted by respondents) to new § 204.3(f). Finally, the Board proposed to relocate the text of current § 204.3(b)(2) to new § 204.3(g) with two amendments. One amendment would conform E:\FR\FM\29MYR1.SGM 29MYR1 25634 Federal Register / Vol. 74, No. 102 / Friday, May 29, 2009 / Rules and Regulations internal references to other proposed amendments. The other amendment would provide that a depository institution is 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 proposed the second 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. (2) Comments Received The Board received one comment regarding proposed new § 204.3(a), asking that the Board ‘‘be judicious in the information requested’’ from reporting entities because ‘‘the collective burden of myriad reports and other information collections imposed by the bank regulators is enormous.’’ This commenter stated that ‘‘[w]hile the proposed additional text in section 204.3(a) is not objectionable on its face, it nevertheless creates another opportunity for the Federal Reserve System to impose more regulatory burden in a way that evokes the image of ‘death by a thousand cuts.’ ’’ tjames on PRODPC75 with RULES (3) Comment Analysis and Final Rule The Board is keenly aware of the burden imposed by regulatory reporting on depository institutions. The proposed amendment to section 204.3(a) was intended solely to express existing authority. The Board did not propose this amendment as an attempt to increase its authority to require regulatory reports, or to increase the number or extent of regulatory reports currently required. As required by other law, the Board re-evaluates its reporting requirements periodically in order to minimize or eliminate duplicative or otherwise burdensome reports. As also required by other law, the Board carefully evaluates any proposed new reporting requirements to avoid placing unnecessary additional costs on reporting entities. With these principles in mind, the Board is adopting § 204.3(a) as proposed. The Board received no comments on proposed §§ 204.3(b)–(g) and is adopting those amendments as proposed. H. Section 204.4 Computation of Required Reserves The Board proposed moving the provisions relating to computation of VerDate Nov<24>2008 15:25 May 28, 2009 Jkt 217001 required reserves to a new separate paragraph, proposed § 204.4, ‘‘Computation of Required Reserves.’’ For some provisions, the Board proposed minor editorial amendments for clarity; for other provisions, the Board proposed no changes (apart from re-designation as § 204.4). The Board received one comment on these proposed amendments, suggesting that the words ‘‘or agreement corporation’’ should be added to the end of proposed § 204.4(b) (providing that Edge and agreement corporations may not deduct balances due from another U.S. office of ‘‘the same Edge or agreement corporation’’). The Board is adopting a final § 204.4(b) that incorporates this comment as the existing omission of ‘‘or Agreement corporation’’ was unintentional. The Board is also making an editorial change to § 204.4(a) to provide consistent usage of terms throughout Regulation D. The Board received no other comments on these proposed amendments and, apart from adopting the one suggestion proposed by the comment and the editorial change, is adopting the amendments as proposed. I. Section 204.5 Maintenance of Required Reserves The Board proposed moving 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.’’ Specifically, the proposed amendments deleted references to ‘‘non-member institutions’’ in discussing pass-through arrangements, clarified that depository institutions that do not hold required reserve balances may serve as passthrough correspondents, conformed numeric references to other proposed amendments, and made other minor editorial amendments for clarity and to conform language to other proposed amendments and current usage. No substantive changes were intended. The Board received no comments on these proposed amendments and is adopting them as proposed. J. Section 204.6 Charges for Reserve Deficiencies (1) Proposed Amendment The Board proposed moving the existing provisions regarding charges for reserve deficiencies to a new § 204.6, ‘‘Charges for Reserve Deficiencies.’’ The Board also proposed deleting provisions describing guidelines for waivers by Reserve Banks of small or infrequent PO 00000 Frm 00020 Fmt 4700 Sfmt 4700 charges. The Board proposed this deletion because the provision described only in part the extent of the discretion of the Reserve Banks with respect to waivers of deficiency charges. The deletion was intended to avoid the implication that Reserve Banks must waive charges in the circumstances described. (2) Comments Received The Board received two comments on these proposed amendments, both in opposition to the proposal to delete the provisions related to waivers. One commenter stated that it is ‘‘inappropriate to eliminate this policy direction to Reserve Banks without acknowledging that its elimination represents a substantive change’’ from existing policy, which the commenter described as ‘‘sound policy [that] should not be eliminated nor changed.’’ The other commenter stated that the existing provision ‘‘simply incorporates the Reserve Banks’’ guidelines [that outline when waivers may be appropriate] and notes two instances where waivers are available.’’ This commenter also expressed concern that the proposal to delete the waiver provision ‘‘impli[es] that waivers may not be available in the circumstances identified in the current rule,’’ that is, ‘‘when the charge would be small or when the deficiency falls below a predetermined threshold.’’ The commenter stated that these two circumstances ‘‘seem appropriate situations for the Board to exercise its discretion not to impose a charge’’ and that the Board should ‘‘share its reasoning’’ if the Board intends for charges to be automatically imposed in those cases. The commenter urged the Board ‘‘to retain the current examples of when charges will be waived and simply note that they are illustrative.’’ (3) Comment Analysis and Final Rule The intent of the Board’s proposal was to eliminate references to obsolete guidelines and to avoid the implication that Reserve Banks must waive deficiency charges in certain circumstances. The Board did not intend the proposed amendments to be a substantive policy change, as the Reserve Banks retain the same discretion with respect to waivers of deficiency charges under the proposed amendment as under former section 204.7(a)(2). Accordingly, the Board has decided to delete the reference to the obsolete guidelines, as proposed, and to add language to the provision clarifying the discretion of the Reserve Banks with respect to waiver of deficiency charges. The Board is retaining the current examples of when a Reserve Bank may E:\FR\FM\29MYR1.SGM 29MYR1 Federal Register / Vol. 74, No. 102 / Friday, May 29, 2009 / Rules and Regulations waive charges and clarifying that they are illustrative. As proposed, the language relating to charges for reserve deficiencies is moved from § 204.7 to § 204.6. K. Section 204.7 Transitional Adjustments in Mergers The Board proposed re-designating the current provisions regarding transitional adjustments in mergers to a new section, § 204.7. No other changes were proposed. The Board received no comments on these proposed amendments. Since the Board proposed these amendments in February 2008, the Board has made adjustments to its clearing balance policy that discontinued practices related to reserve requirements that were no longer necessary in light of the amendments to Regulation D implementing the payments of interest on balances at Reserve Banks.18 At that time, the Board accordingly removed the provision in Regulation D regarding transitional adjustments in mergers. The Board has decided to retain the changes to its clearing balance policy and has confirmed that removal as part of the final rule on payment of interest on balances at Reserve Banks.19 L. Section 204.8 International Banking Facilities The Board did not propose any changes to § 204.8. M. Section 204.9 Emergency Reserve Requirement The Board proposed re-designating the current provisions related to emergency reserve requirements to a new section, § 204.9. No other changes to the section were proposed. The Board received no comments on these proposed amendments and is adopting them as proposed. tjames on PRODPC75 with RULES N. Section 204.7 Supplemental Reserve Requirement The Board proposed re-designating the current provisions to a new section, § 204.10. No other changes to the section were proposed. The Board received no comments on the proposed amendments. Since the proposal, § 204.10 has been designated ‘‘Payment of interest on balances.’’ The Board, however, has removed the provisions relating to transitional adjustments in mergers that were proposed to be moved to § 204.7. In light of the designation of § 204.10 as ‘‘Payment of interest on balances,’’ the Board is moving the 18 See 73 FR 59482, 59484–85 (Oct. 9, 2008). final rule on payment of interest on balances elsewhere in today’s Federal Register. 19 See VerDate Nov<24>2008 15:25 May 28, 2009 Jkt 217001 provisions previously set forth in section 204.9 to new § 204.7. O. Section 209.2(c)(1) of Regulation I Location of Bank—General Rule The Board proposed amending section 209.2(c)(1) to conform that section to the proposed § 204.3(g) of Regulation D, which the Board has decided to adopt, discussed supra. The Board received no comments on these proposed amendments and is adopting them as proposed. IV. 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 final rules. 12 U.S.C. 1408. The Board has sought to present this amendment in a simple and straightforward manner. The Board received no comments on whether the proposed rule was clearly stated and effectively organized or on how the Board might make the proposed text easier to understand. V. Final Regulatory Flexibility Analysis An initial regulatory flexibility analysis (IRFA) was included in the Board’s proposed rule in accordance with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.). In the IRFA, the Board specifically solicited comment on whether the proposed rule would have a significant economic impact on a substantial number of small entities. The Board received no comments in response to its request. Section 4 of the RFA requires an agency either to provide a final regulatory flexibility analysis with a final rule or to certify that the final rule will not have a significant economic impact on a substantial number of small entities. Banks and other depository institutions are considered ‘‘small’’ if they have less than $165 million in assets. For the reasons stated below, the Board is certifying that the final rule will not have a significant impact on a substantial number of small entities. 1. Statement of the need for and the objectives of the final rule. The Board is publishing final amendments to Regulations D and I to conform the regulations to provisions of the Financial Services Regulatory Relief Act of 2006, to modernize the regulations 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 PO 00000 Frm 00021 Fmt 4700 Sfmt 4700 25635 it may deem necessary to effectuate the purposes of the section. The Board believes that the final rule is within Congress’ broad grant of authority to the Board to adopt provisions that carry out the purposes of section 19 of the Act. 2. Summary of significant issues raised by the public comments in response to the initial regulatory flexibility analysis. The Board received no comments on its initial regulatory flexibility analysis or on whether the proposed rule would have a significant economic impact on a substantial number of small entities. 3. Small entities affected by the final rule. The final rule would affect all depository institutions currently subject to reserve requirements. The Board estimates that approximately 8,195 depository institutions are subject to reserve requirements, of which approximately 3,800 could be considered ‘‘small’’ for purposes of RFA (entities with assets of $165 million or less). 4. Description of projected reporting, recordkeeping and other compliance requirements of the final rule. The final rule does not alter any of the reporting or recordkeeping provisions that already apply to depository institutions. 5. Significant alternatives to the revisions in the final rule. The Board received no comments suggesting significant alternatives to the proposed rule that would minimize the impact of the proposed rule on small entities. There are no significant alternatives to the revisions in the final rule that would minimize the impact on small entities. The final rule does not impose any additional burden on depository institutions, including small entities. Moreover, the final rule relieves depository institutions, including small entities, of any burdens associated with the ‘‘three’’ sublimit on certain convenient transfers from savings deposits, as well as any burdens associated with restricting pass-through account arrangements to non-member banks. Thus, the Board certifies that the final rule will not have a significant economic impact on small entities. VI. Paperwork Reduction Act In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3506; 5 CFR Part 1320 Appendix A.1), the Board reviewed the final rule under the authority delegated to the Board by the Office of Management and Budget. No collections of information pursuant to the Paperwork Reduction Act are contained in the final rule. E:\FR\FM\29MYR1.SGM 29MYR1 25636 Federal Register / Vol. 74, No. 102 / Friday, May 29, 2009 / Rules and Regulations 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 is amending 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. § 204.2 is amended by revising paragraphs (d)(2), (k) and (l), and adding new paragraphs (w) and (x) to read as follows: ■ § 204.2 Definitions. tjames on PRODPC75 with RULES * * * * * (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 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, or 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 VerDate Nov<24>2008 15:25 May 28, 2009 Jkt 217001 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 booked as an asset by a depository institution that may, at any time, be used to satisfy claims of that depository institution’s depositors and that meets the requirements of paragraph (k)(2)(i) or (k)(2)(ii) of this section. (2) Vault cash 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 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 definition of ‘‘savings deposit,’’ 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 is 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 00022 Fmt 4700 Sfmt 4700 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’’ includes United States currency and coin in transit to a 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. (4) 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 with a correspondent institution under § 204.5(d). * * * * * (w) Clearing balance allowance means the greater of $25,000 or two percent of an institution’s contractual clearing balance. (x) Contractual clearing balance means an amount that an institution agrees or is required to maintain in its account at a Federal Reserve Bank in addition to any reserve balance requirement. An institution that has a reserve balance requirement of zero may still have a contractual clearing balance. E:\FR\FM\29MYR1.SGM 29MYR1 Federal Register / Vol. 74, No. 102 / Friday, May 29, 2009 / Rules and Regulations 3. Amend § 204.3 by revising the heading, removing paragraphs (h) and (i), and revising paragraphs (a) through (d), (f), and (g) to read as follows: ■ § 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 § 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. * * * * * (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. ■ 4. A new § 204.4 is added to read as follows: § 204.4 Computation of required reserves. (a) In determining the reserve requirement 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 or Agreement 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 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. tjames on PRODPC75 with RULES Reservable liability Reserve requirement ratio NET TRANSACTION ACCOUNTS: $0 to reserve requirement exemption amount ($10.3 million) ............................................. Over reserve requirement exemption amount ($10.3 million) and up to low reserve tranche ($44.4 million). Over low reserve tranche ($44.4 million) ............................................................................. Nonpersonal time deposits .......................................................................................................... VerDate Nov<24>2008 16:38 May 28, 2009 Jkt 217001 PO 00000 Frm 00023 25637 Fmt 4700 Sfmt 4700 0 percent of amount. 3 percent of amount. $1,023,000 plus 10 percent of amount over $44.4 million. 0 percent. E:\FR\FM\29MYR1.SGM 29MYR1 25638 Federal Register / Vol. 74, No. 102 / Friday, May 29, 2009 / Rules and Regulations Reservable liability Reserve requirement ratio Eurocurrency liabilities ................................................................................................................. § 204.9 ■ [Removed] 5. Section 204.9 is removed. § 204.5 [Redesignated as § 204.9] 6. Section 204.5 is redesignated as § 204.9. ■ 7. New § 204.5 is added to read as follows: ■ tjames on PRODPC75 with RULES § 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 reserve balance requirement, 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 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 VerDate Nov<24>2008 15:25 May 28, 2009 Jkt 217001 0 percent. 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 the Federal Reserve Bank in whose District the respondent is located. Eligible pass-through correspondent institutions are Federal Home Loan Banks, the National Credit Union Administration Central Liquidity Facility, 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-by-case basis, to serve as passthrough 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 PO 00000 Frm 00024 Fmt 4700 Sfmt 4700 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 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 § 204.7) 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 0.04 times the sum of depository institution’s required E:\FR\FM\29MYR1.SGM 29MYR1 Federal Register / Vol. 74, No. 102 / Friday, May 29, 2009 / Rules and Regulations 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. § 204.7 ■ [Removed] 8. Section 204.7 is removed. § 204.6 [Redesignated as § 204.7] 9. Section 204.6 is redesignated as § 204.7. ■ 10. New § 204.6 is added to read as follows: ■ tjames on PRODPC75 with RULES § 204.6 Charges for reserve deficiencies. (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 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. Decisions by Reserve Banks to waive charges are based on an evaluation of the circumstances in each individual case and the depository institution’s reserve maintenance record. For example, a waiver may be appropriate for a small charge or once during a two-year period for a deficiency that does not exceed a certain percentage of the depository institution’s required reserves. 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 VerDate Nov<24>2008 15:25 May 28, 2009 Jkt 217001 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. PART 209—ISSUE AND CANCELLATION OF FEDERAL RESERVE BANK CAPITAL STOCK (REGULATION I) 10. The authority citation for part 209 continues to read as follows: ■ Authority: 12 U.S.C. 2222, 248, 282, 286– 288, 321, 323, 327–328, 333, and 466. 11. § 209.2 is amended by revising paragraph (c)(1) to read as follows: ■ § 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, 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 (c)(2) of this section. * * * * * By order of the Board of Governors of the Federal Reserve System, May 22, 2009. Robert deV. Frierson, Deputy Secretary of the Board. [FR Doc. E9–12431 Filed 5–28–09; 8:45 am] BILLING CODE 6210–01–P PO 00000 Frm 00025 Fmt 4700 Sfmt 4700 25639 FEDERAL DEPOSIT INSURANCE CORPORATION 12 CFR Part 327 RIN 3064–AD35 Special Assessments AGENCY: Federal Deposit Insurance Corporation (FDIC). ACTION: Final rule. SUMMARY: Pursuant to section 7(b)(5) of the Federal Deposit Insurance Act, 12 U.S.C. 1817(b)(5), the FDIC is adopting a final rule to impose a 5 basis point special assessment on each insured depository institution’s assets minus Tier 1 capital as of June 30, 2009. The amount of the special assessment for any institution, however, will not exceed 10 basis points times the institution’s assessment base for the second quarter 2009 risk-based assessment. The special assessment will be collected on September 30, 2009. The final rule also provides that if, after June 30, 2009, the reserve ratio of the Deposit Insurance Fund is estimated to fall to a level that the Board believes would adversely affect public confidence or to a level that shall be close to or below zero at the end of any calendar quarter, the Board, by vote, may impose additional special assessments of up to 5 basis points on all insured depository institutions based on each institution’s total assets minus Tier 1 capital reported on the report of condition for that calendar quarter. Any single additional special assessment will not exceed 10 basis points times the institution’s assessment base for the corresponding quarter’s risk-based assessment. The earliest possible date for imposing any such additional special assessment under the final rule would be September 30, 2009, with collection on December 30, 2009. The latest possible date for imposing any such additional special assessment under the final rule would be December 31, 2009, with collection on March 30, 2010. Authority to impose any additional special assessments under the final rule terminates on January 1, 2010. DATES: Effective Date: June 30, 2009. FOR FURTHER INFORMATION CONTACT: Munsell W. St. Clair, Acting Chief, Fund Analysis and Pricing Section, Division of Insurance and Research, (202) 898– 8967; Christopher Bellotto, Counsel, Legal Division, (202) 898–3801 or Sheikha Kapoor, Senior Attorney, Legal Division, (202) 898–3960; Donna Saulnier, Manager, Assessment Policy Section, Division of Finance (703) 562– 6167. E:\FR\FM\29MYR1.SGM 29MYR1

Agencies

[Federal Register Volume 74, Number 102 (Friday, May 29, 2009)]
[Rules and Regulations]
[Pages 25629-25639]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-12431]


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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: Final rule.

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SUMMARY: The Board is amending Regulation D (Reserve Requirements of 
Depository Institutions) and Regulation I (Issue and Cancellation of 
Federal Reserve Bank Capital Stock) to make two substantive changes and 
other clarifying amendments. The first substantive amendment conforms 
Regulation D to Section 603 of the Financial Services Regulatory Relief 
Act of 2006 (Pub. L. 109-351, Oct. 13, 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 substantive amendment eliminates the provision in Regulation 
D's definition of ``savings deposit'' that limits certain kinds of 
transfers from savings deposits to not more than three per month. As a 
result, all transfers and withdrawals from a savings deposit that are 
subject to a monthly limit will be subject to the same limit of not 
more than six per month. The remaining clarifying amendments reorganize 
the provisions relating to deposit reporting and the calculation and 
maintenance of required reserves, clarify the definition of ``vault 
cash,'' and make other minor editorial changes.

DATES: This final rule is effective July 2, 2009.

FOR FURTHER INFORMATION CONTACT: Sophia H. Allison, Senior Counsel 
(202/

[[Page 25630]]

452-3565), or Dena L. Milligan, Attorney (202/452-3900), Legal 
Division, Seth Carpenter, Deputy Associate Director (202/452-2385), or 
Margaret Gillis DeBoer, Section Chief (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

    For monetary policy purposes, section 19 of the Federal Reserve Act 
(the ``Act'') imposes reserve requirements on certain types of deposits 
and other liabilities of depository institutions. Currently, reserve 
requirement ratios for ``transaction 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 
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\ Section 
19 also authorizes the Board to define, by regulation, the terms used 
in the section. The Board implements the provisions of section 19 
through 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).
---------------------------------------------------------------------------

    Section 19(c)(1) of the Act provides that a depository 
institution's required reserves shall be either in the form of a 
balance maintained for such purposes by such 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 maintained required reserve balances at a Federal 
Reserve Bank, known as a ``pass-through account.'' The Financial 
Services Regulatory Relief Act of 2006 (Pub. L. 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, 
the Act now permits all depository institutions to maintain required 
reserves in a pass-through account with a correspondent depository 
institution.

II. Request for Public Comment and Summary of Comments Received

    The Board requested public comment on proposed changes to 
Regulations D and I on February 7, 2008 (73 FR 8009 (Feb. 12, 2008)). 
In response, the Board received 27 comments on the proposal, consisting 
of comments from nine depository institutions, two financial holding 
companies on behalf of their depository institution subsidiaries, seven 
individuals, seven financial institution trade associations, one law 
firm, and one association of depository institutions. Of these, three 
commenters supported the proposal in its entirety, while the majority 
of the other comments received concerned (A) the proposed amendment to 
the definition of ``savings deposit'' describing the monthly numeric 
limits imposed on certain ``convenient'' types of transfers and 
withdrawals from savings deposits or (B) the proposed amendments to the 
definitions of ``time deposit'' and ``vault cash.'' Other comments 
addressed reserve requirements generally and other technical aspects of 
the proposal.

III. Section-by-Section Analysis of Proposal and Comments

A. Section 204.2(c) Definition of Time Deposit

(1) Background of Proposed Amendment
    The current definition of ``time deposit'' in Regulation D 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.'' \3\ 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 language has been subject to numerous inquiries as 
to the meaning of the terms ``additional'' and ``early.''
---------------------------------------------------------------------------

    \3\ 12 CFR 204.2(c)(1).
---------------------------------------------------------------------------

(2) Proposed Amendment and Comments
    The Board proposed to amend the definition of ``time deposit'' to 
remove the references to ``early'' and ``additional'' in the second 
sentence of the definition and to clarify that ``early'' withdrawals 
include withdrawals within six days after deposit as well as 
withdrawals within six days of the last withdrawal. The Board received 
two comments on the proposed amendments to the definition of ``time 
deposit.'' Both comments expressed concern that the proposed 
amendments, if adopted, would have the effect of precluding certain 
depository institutions from continuing to avail themselves of the 
deposit type referred to as a ``time deposit open account,'' or 
``TDOA.''
    From as early as 1915, ``time deposit open account'' was a 
separately defined term within the general category of ``time deposit'' 
in Regulation D.\4\ Board interpretations in later decades described 
bank trust departments' use of TDOAs for disposition of certain 
commingled uninvested trust and agency funds awaiting disbursement or 
further investment.\5\ ``Time deposit open account,'' however, ceased 
being a separately defined term under the general definition of ``time 
deposit'' in 1980. Further, the Board interpretations discussing use of 
TDOAs by trust departments for trust and agency funds were rescinded in 
1987 as having been incorporated into section 204.2(c)(1)(i)(C) of 
Regulation D.\6\ Nevertheless, the Board referred to TDOAs by name in 
subsequent rulemakings as continuing to be viable, at least when used 
other than as a method of evading reserve requirements.\7\
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    \4\ Federal Reserve Board, Circular No. 6 (Series of 1915) (Jan. 
15, 1915).
    \5\ Board Interpretation, 1950 Fed. Res. Bull. 44; Board 
Interpretation, 1959 Fed. Res. Bull. 1475.
    \6\ 52 FR 47689, 47691 (Dec. 16, 1987). Section 
204.2(c)(1)(i)(C) states that ``[t]ime deposit includes funds * * * 
payable only upon written notice that is actually required to be 
given by the depositor not less than seven days prior to withdrawal 
* * *''
    \7\ 57 FR 38417, 38423-24 (Aug. 25, 1992) (declining to adopt 
``LIFO'' rule for withdrawals from time deposits, in part because of 
potential negative impact on operation of TDOAs; interpretation 
prohibiting linked time deposit accounts at 12 CFR 204.134 limited 
to its terms and does not necessarily apply to TDOA types of 
accounts operated by trust departments).

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[[Page 25631]]

(3) Comment Analysis and Final Rule
    The Board believes that adopting the proposed amendments would have 
no effect on the continued use of TDOAs in bona fide arrangements by 
trust departments for trust and agency funds. The final amendments, 
however, do not adopt revisions to the definition of ``time deposit'' 
that were proposed in the Board's request for public comment because 
the only two comments received on the proposed revisions indicated that 
the proposed revisions would create more confusion than clarity.

B. Section 204.2(d) Transfers From Savings Deposits

(1) Background of Proposed Amendment
    The Board's criteria for distinguishing between ``transaction 
accounts'' and ``savings deposits'' in Regulation D are 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, the more convenient making withdrawals or transfers 
from an account is, the more likely the account holder will use the 
account for making payments or transfers to third parties rather than 
for holding savings. Accordingly, Regulation D limits the number of 
certain convenient kinds of transfers or withdrawals that an account 
holder may make in a single month from an account if that account is to 
be classified as a ``savings deposit.'' \8\ ``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.
---------------------------------------------------------------------------

    \8\ 12 CFR 204.2(d)(2) (definition of ``savings deposit'').
---------------------------------------------------------------------------

    Regulation D currently limits the number of ``convenient'' 
transfers and withdrawals from savings deposits 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 (the ``three'' 
sublimit). Regulation D does not limit less convenient transfers and 
withdrawals from savings deposits. For example, an account holder may 
make transfers or withdrawals ``by mail, messenger, automated teller 
machine, or in person or * * * made by telephone (via check mailed to 
the depositor)'' from savings deposits without numerical limit.
(2) Proposed Amendment and Comments
    The Board proposed to amend Regulation D's definition of ``savings 
deposit'' to eliminate the ``three'' sublimit that applies to checks 
and drafts and simply limit all ``convenient'' transfers to not more 
than six per month. Fourteen commenters supported eliminating the 
``three'' sublimit, eight commenters favored doing away with numeric 
transfer limits entirely, and five commenters favored raising the 
monthly numeric limit to some number higher than six. One commenter 
proposed allowing depository institutions to set their own monthly 
numeric limits on convenient transfers and withdrawals. One commenter 
opposed both raising the monthly numeric limit to a higher number and 
making all kinds of transfers and withdrawals unlimited in number. One 
commenter stated that eliminating only the ``three'' sublimit did not 
go far enough, but made no recommendations as to how the Board could 
improve the proposal to address that concern. Two commenters requested 
that, if the proposed amendment becomes final, then the Board should 
provide a sufficiently delayed effective date (either six months or one 
year) to allow depository institutions time to modify their systems and 
customer disclosures.
(3) Comment Analysis and Final Amendment
    The Board has carefully considered the comments received and has 
adopted the amendment to the definition of ``savings deposit'' as 
proposed. The sublimit in the definition of ``money market deposit 
account'' began in 1982 with the enactment of the Garn-St Germain 
Depository Institutions Act and lapsed in 1986. The Board retained the 
distinction between transactions subject to the overall limit of six 
and those subject to the sublimit in Regulation D after the Depository 
Institutions Act lapsed in 1986. Technological advancements, however, 
have eliminated any rational basis for the distinction.
    The Board has determined neither to raise the monthly numeric limit 
on convenient transfers to a number higher than six, nor to eliminate 
monthly numeric limits on all convenient transfers and withdrawals 
(including online) from savings deposits generally. Section 19 of the 
Act requires the Board to impose reserve requirements on transaction 
accounts and not on other types of accounts. Accordingly, the Board 
must maintain the capacity to distinguish between transaction accounts 
and savings deposits. The six-per-month limitation on certain 
convenient transfers and withdrawals has existed, in one form or 
another, since 1982. Such types of transfers and withdrawals appear to 
have become even more convenient since that time due to technological 
advances, such as the ability to make transfers online, and the 
increased availability of debit-card transfers at point-of-sale 
terminals and elsewhere. The greater the number of convenient transfers 
and withdrawals permitted per month from a ``savings deposit,'' the 
greater the difficulty in distinguishing such an account from a 
transaction account. Therefore, the Board has determined that the final 
rule will neither increase the number of convenient transfers and 
withdrawals permitted per month from a savings deposit, nor eliminate 
such numeric limits entirely (on either online transfers or all 
convenient transfers and withdrawals).
    For similar reasons, the Board believes that it would not be 
appropriate to adopt a rule allowing depository institutions to set 
their own monthly numeric limits on convenient transfers and 
withdrawals that account holders may make from savings deposits. 
Allowing different limits at different depository institutions would 
erode any definitional distinction between ``transaction accounts'' and 
``savings deposits.'' Even if some depository institutions were to 
choose relatively low numeric limits, there likely would be broad 
variation among depository institutions in the numeric limits selected, 
creating significant discrepancies between accounts classified as 
``savings deposits.'' In addition, the Board believes that depository 
institutions would have cost-avoidance and competitive incentives to 
set numeric limits as high as possible while still being able to report 
such deposits as nonreservable ``savings deposits'' that may bear 
interest. The Board is obligated by statute to maintain some regulatory 
distinction between ``transaction accounts'' and ``savings deposits'' 
and to enforce such a distinction with consistency. Accordingly, the 
Board has determined not to adopt a final rule permitting

[[Page 25632]]

depository institutions to select their own numeric limits on 
convenient transfers and withdrawals from savings deposits.
    The Board also believes that selecting a monthly numeric limit to 
apply to all types of transfers and withdrawals from ``savings 
deposits,'' including those types that are currently unlimited in 
number per month, would not be appropriate. The Act provides that a 
``transaction account'' is one ``on which the depositor or account 
holder is permitted to make withdrawals by negotiable or transferable 
instrument, payment orders of withdrawal, telephone transfers, or other 
similar items for the purpose of making payments or transfers to third 
persons or others.'' \9\ As such, the statutory definition specifically 
contemplates the kinds of transfers and withdrawals that are, or are 
most likely to be, transfers and withdrawals ``for the purpose of 
making payments or transfers to third persons or others.'' In contrast, 
withdrawals made in person or at an ATM are generally payments directly 
to the depositor, even if the depositor may subsequently provide those 
same funds to a third person or use them for a payment. Accordingly, 
the Board has determined that the final rule not impose numeric limits 
on all types of transfers and withdrawals that may be made from savings 
deposits, including those that are currently unlimited.
---------------------------------------------------------------------------

    \9\ 12 U.S.C. 461(b).
---------------------------------------------------------------------------

    Finally, the Board believes that delaying the effective date for 
the final rule eliminating the ``three'' sublimit from the definition 
of ``savings deposit'' is unnecessary because the final rule is 
permissive. Under the final rule, depository institutions may classify 
accounts subject to the ``three'' sublimit as ``savings deposits'' as 
long as necessary. Accordingly, the Board has determined not to delay 
the final rule's effective date.

C. Section 204.2(k) ``Vault Cash'' Definition

(1) Background of Proposed Amendment
    From 1917 to 1959, the Act permitted member banks to satisfy 
reserve requirements solely 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.'' \10\ The history of the 1959 
legislation 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.\11\ 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.'' \12\
---------------------------------------------------------------------------

    \10\ The Act of July 28, 1959 (73 Stat. 263).
    \11\ S. Rep. No. 86-195, at 3 (1959); H. Rep. No. 86-403, at 3 
(1959).
    \12\ Id.
---------------------------------------------------------------------------

    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.\13\ 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\
---------------------------------------------------------------------------

    \13\ Former 12 CFR 204.116 (1979).
    \14\ Id.
    \15\ Id.
---------------------------------------------------------------------------

    The 1980 amendments to Regulation D, which implemented the Monetary 
Control Act of 1980, introduced ``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 1970 interpretation's principles of bank ownership and 
availability at any time to satisfy depositors' claims. Subsequent 
Board guidance and staff opinions provided additional clarification of 
these requirements, including clarifying what vault cash is ``owned and 
held'' by the depository institution claiming it and the circumstances 
under which vault cash is ``immediately available.''
(2) Proposed Amendment and Comments
    The Board proposed amending the definition of ``vault cash'' to 
incorporate the substance of prior written staff guidance as to when 
currency and coin that the depository institution does not hold at its 
physical location may be considered ``vault cash.'' \16\ Specifically, 
the Board proposed dividing the definition of ``vault cash'' into two 
subsections: one that addresses vault cash ``held at a physical 
location of the depository institution * * * from which the 
institution's depositors may make cash withdrawals,'' and the other 
that addresses vault cash ``held at an alternate physical location.'' 
The amendments proposed by the Board expanded primarily the second 
proposed subsection to incorporate prior guidance.
---------------------------------------------------------------------------

    \16\ See, e.g. FRRS ] 2-307.2 (rented vault); Staff Opinion of 
Aug. 9, 1982 (ATMs).
---------------------------------------------------------------------------

(3) Comment Analysis and Final Amendment
    The Board received two comments on the proposed amendments to the 
definition of ``vault cash.'' One commenter expressed support for the 
proposed amendments, and one commenter opposed the proposed amendments. 
The commenter opposing the amendments specifically opposed certain 
provisions relating to when vault cash at alternate physical locations 
may be considered to be ``immediately available,'' namely, that (1) the 
depository institution claiming the currency and coin as ``vault cash'' 
must receive it by 4 p.m. on the same day if requested by 10 a.m., and 
that (2) the depository institution must have a written contract in 
place for the delivery of the currency and coin claimed as ``vault 
cash.'' This commenter stated that 4 p.m. should not be selected as a 
cut-off hour because some depository institutions conduct business 
after 4 p.m., and because customers can usually obtain cash through an 
ATM or at POS (point of sale) terminals after 4 p.m. The commenter 
proposed an amendment that would require the currency and coin to be 
received on the same calendar day that it is requested. The commenter 
also stated that requiring written contractual arrangements for 
delivery of currency and coin claimed as ``vault cash'' imposes 
unnecessary costs on depository institutions because contractual 
agreements ``will likely never be used'' and because updating the 
agreements as offices are opened and closed would be expensive. The 
commenter proposed ``leav[ing] the particular details of the 
arrangement up to the institution.''
    The Board believes that the selection of 4 p.m. as a cut-off hour 
for characterizing currency and coin as ``vault cash'' under Regulation 
D is appropriate. The Board believes that the rationale provided for an 
alternate ``same calendar day'' rule would not justify such a 
significant departure from the consistent position taken in numerous 
Board staff opinions over the years on the issue. Furthermore, such a

[[Page 25633]]

rule would remove any nexus between the characterization of currency 
and coin as ``vault cash'' and having such currency and coin 
``immediately available,'' because any such currency and coin received 
after a closing hour (no matter how late) would not be available to a 
customer until the next business day. While customers may be able, as a 
practical matter, to obtain cash from ATMs and from POS terminals at 
various hours, not all such cash is sought to be characterized as 
``vault cash'' for Regulation D purposes: the 4 p.m. requirement would 
apply only to currency and coin that an institution counts towards 
satisfying its reserve requirement.
    The Board also believes that the rationale provided for eliminating 
the requirement for written contractual arrangements to be in place for 
``vault cash'' does not justify changing the long-standing position on 
this issue. As with the 4 p.m. cut-off, the requirement for written 
contractual arrangements in this context is the position the Board has 
consistently taken over the years in staff opinions. Moreover, the 
Board believes it would be difficult, if not impossible, for a 
depository institution to establish what currency and coin is 
physically subject to the retrieval plan without written delivery plan 
to that effect. Likewise, the Board believes that it would be 
difficult, if not impossible, for the depository institution to 
establish its ``full and unrestricted right'' to such currency and coin 
if it were subject only to an oral understanding for retrieval within 
the requisite time frame. Accordingly, the Board is adopting the 
``vault cash'' amendments as proposed.

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

    The Board proposed to amend the definition of ``pass-through 
account'' to eliminate the language restricting pass-through account 
arrangements to non-member banks in order to conform the definition to 
section 19(c)(1)(B) of the Act. The Board also proposed moving the 
provisions relating to pass-through accounts to paragraph (d) under 
proposed Sec.  204.5, ``Maintenance of Required Reserves.'' The Board 
received five comments in support of the proposed amendments, and is 
adopting them as proposed.

E. Section 204.2(w) Definition of ``Clearing Balance Allowance''

    The Board proposed (1) adding a new definition of ``clearing 
balance allowance'' to Regulation D to replace the undefined term 
``required charge-free band'' used in provisions relating to carryovers 
of excess reserves and deficiencies in reserves and (2) moving the 
existing carryover provisions to a new paragraph (e) under proposed 
Sec.  204.5, ``Maintenance of Required Reserves.'' The Board received 
no comments on these amendments. The Board is setting forth the 
definition of ``clearing balance allowance'' in new Sec.  204.2(w), and 
moving the carryover provisions to Sec.  204.5, as proposed.

F. Section 204.2(x) Definition of ``Contractual Clearing Balance''

    The Board proposed adding a new definition of ``contractual 
clearing balance'' to Regulation D to replace the undefined term 
``required clearing balance.'' The Board proposed to define 
``contractual clearing balance'' as ``the 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.'' Further, the 
definition specified that ``[a] depository institution that has a 
required reserve balance of zero may still hold a contractual clearing 
balance.'' The Board received no comments on the proposed amendment.
    The Board is revising the proposed definition of ``contractual 
clearing balance'' to provide consistency of usage of terms throughout 
Regulation D. When the Board proposed the new definition of 
``contractual clearing balance,'' ``required reserve balance'' was an 
undefined term. New Sec.  204.2(bb), however, defines ``required 
reserve balance'' as ``the average balance held in an account at a 
Federal Reserve Bank by or on behalf of an institution over a reserve 
maintenance period to satisfy the reserve requirements of this part.'' 
\17\ The proposed definition of ``contractual clearing balance'' 
contemplated the contractual clearing balance to be in addition to the 
amount an institution is required to maintain as a balance at a Reserve 
Bank in order to satisfy its reserve requirements, and not in addition 
to those balances actually held to satisfy such requirements. 
Accordingly, the final rule defines ``contractual clearing balance'' as 
``an amount that an institution agrees or is required to maintain in 
its account at a Federal Reserve Bank in addition to any reserve 
balance requirement.'' For similar reasons, the Board is amending the 
last sentence in the definition of ``contractual clearing balance'' to 
read: ``An institution that has a reserve balance requirement of zero 
may still have a contractual clearing balance.''
---------------------------------------------------------------------------

    \17\ See final rule on payment of interest on balances and 
excess balance accounts in today's Federal Register.
---------------------------------------------------------------------------

G. Section 204.3 Reporting and Location

(1) Proposed Amendment
    The Board proposed re-organizing 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) into three separate 
subsections. The proposed amendments were not intended to make 
substantive changes to these provisions, but rather to reorganize them 
for greater ease of reference and to make minor editorial changes for 
clarity.
    The Board proposed a new Sec.  204.3(a), consisting of the text of 
the first sentence of current Sec.  204.3(a)(2)(i) with proposed 
amendments clarifying (1) 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 and (2) where reports of deposits are to be submitted in 
light of the account location provisions of the regulation.
    The Board proposed to relocate the text of the second sentence of 
current Sec.  204.3(a)(2)(i) (stipulating reporting requirements for a 
foreign bank's U.S. branches and agencies and for an Edge or Agreement 
corporation's offices operating within the same State and the same 
Federal Reserve District) to new Sec.  204.3(b). The Board proposed to 
relocate the text of the third sentence of current Sec.  204.3(a)(1) 
(obligations of majority-owned U.S. subsidiaries of a depository 
institution) to new Sec.  204.3(c).
    The Board proposed to relocate the text, with one technical 
amendment, of current Sec.  204.3(a)(3) (governing assignment of low 
reserve tranche and reserve requirement exemption) to new Sec.  
204.3(d). The Board proposed amending the text of current Sec.  
204.3(a)(3) (new Sec.  204.3(d)) to conform the section number 
reference to reserve requirement ratios (Sec.  204.9) to that section's 
new section number (Sec.  204.4(f)).
    The Board did not propose any changes to current Sec.  204.3(e), 
which addresses computation of transaction accounts for deposit 
reporting purposes. The Board proposed to relocate current Sec.  
204.3(a)(2)(iii) (correspondent not responsible for guaranteeing the 
accuracy of reports submitted by respondents) to new Sec.  204.3(f).
    Finally, the Board proposed to relocate the text of current Sec.  
204.3(b)(2) to new Sec.  204.3(g) with two amendments. One amendment 
would conform

[[Page 25634]]

internal references to other proposed amendments. The other amendment 
would provide that a depository institution is 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 proposed the second 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.
(2) Comments Received
    The Board received one comment regarding proposed new Sec.  
204.3(a), asking that the Board ``be judicious in the information 
requested'' from reporting entities because ``the collective burden of 
myriad reports and other information collections imposed by the bank 
regulators is enormous.'' This commenter stated that ``[w]hile the 
proposed additional text in section 204.3(a) is not objectionable on 
its face, it nevertheless creates another opportunity for the Federal 
Reserve System to impose more regulatory burden in a way that evokes 
the image of `death by a thousand cuts.' ''
(3) Comment Analysis and Final Rule
    The Board is keenly aware of the burden imposed by regulatory 
reporting on depository institutions. The proposed amendment to section 
204.3(a) was intended solely to express existing authority. The Board 
did not propose this amendment as an attempt to increase its authority 
to require regulatory reports, or to increase the number or extent of 
regulatory reports currently required. As required by other law, the 
Board re-evaluates its reporting requirements periodically in order to 
minimize or eliminate duplicative or otherwise burdensome reports. As 
also required by other law, the Board carefully evaluates any proposed 
new reporting requirements to avoid placing unnecessary additional 
costs on reporting entities. With these principles in mind, the Board 
is adopting Sec.  204.3(a) as proposed.
    The Board received no comments on proposed Sec. Sec.  204.3(b)-(g) 
and is adopting those amendments as proposed.

H. Section 204.4 Computation of Required Reserves

    The Board proposed moving the provisions relating to computation of 
required reserves to a new separate paragraph, proposed Sec.  204.4, 
``Computation of Required Reserves.'' For some provisions, the Board 
proposed minor editorial amendments for clarity; for other provisions, 
the Board proposed no changes (apart from re-designation as Sec.  
204.4). The Board received one comment on these proposed amendments, 
suggesting that the words ``or agreement corporation'' should be added 
to the end of proposed Sec.  204.4(b) (providing that Edge and 
agreement corporations may not deduct balances due from another U.S. 
office of ``the same Edge or agreement corporation''). The Board is 
adopting a final Sec.  204.4(b) that incorporates this comment as the 
existing omission of ``or Agreement corporation'' was unintentional. 
The Board is also making an editorial change to Sec.  204.4(a) to 
provide consistent usage of terms throughout Regulation D. The Board 
received no other comments on these proposed amendments and, apart from 
adopting the one suggestion proposed by the comment and the editorial 
change, is adopting the amendments as proposed.

I. Section 204.5 Maintenance of Required Reserves

    The Board proposed moving 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.'' 
Specifically, the proposed amendments deleted references to ``non-
member institutions'' in discussing pass-through arrangements, 
clarified that depository institutions that do not hold required 
reserve balances may serve as pass-through correspondents, conformed 
numeric references to other proposed amendments, and made other minor 
editorial amendments for clarity and to conform language to other 
proposed amendments and current usage. No substantive changes were 
intended. The Board received no comments on these proposed amendments 
and is adopting them as proposed.

J. Section 204.6 Charges for Reserve Deficiencies

(1) Proposed Amendment
    The Board proposed moving the existing provisions regarding charges 
for reserve deficiencies to a new Sec.  204.6, ``Charges for Reserve 
Deficiencies.'' The Board also proposed deleting provisions describing 
guidelines for waivers by Reserve Banks of small or infrequent charges. 
The Board proposed this deletion because the provision described only 
in part the extent of the discretion of the Reserve Banks with respect 
to waivers of deficiency charges. The deletion was intended to avoid 
the implication that Reserve Banks must waive charges in the 
circumstances described.
(2) Comments Received
    The Board received two comments on these proposed amendments, both 
in opposition to the proposal to delete the provisions related to 
waivers. One commenter stated that it is ``inappropriate to eliminate 
this policy direction to Reserve Banks without acknowledging that its 
elimination represents a substantive change'' from existing policy, 
which the commenter described as ``sound policy [that] should not be 
eliminated nor changed.'' The other commenter stated that the existing 
provision ``simply incorporates the Reserve Banks'' guidelines [that 
outline when waivers may be appropriate] and notes two instances where 
waivers are available.'' This commenter also expressed concern that the 
proposal to delete the waiver provision ``impli[es] that waivers may 
not be available in the circumstances identified in the current rule,'' 
that is, ``when the charge would be small or when the deficiency falls 
below a predetermined threshold.'' The commenter stated that these two 
circumstances ``seem appropriate situations for the Board to exercise 
its discretion not to impose a charge'' and that the Board should 
``share its reasoning'' if the Board intends for charges to be 
automatically imposed in those cases. The commenter urged the Board 
``to retain the current examples of when charges will be waived and 
simply note that they are illustrative.''
(3) Comment Analysis and Final Rule
    The intent of the Board's proposal was to eliminate references to 
obsolete guidelines and to avoid the implication that Reserve Banks 
must waive deficiency charges in certain circumstances. The Board did 
not intend the proposed amendments to be a substantive policy change, 
as the Reserve Banks retain the same discretion with respect to waivers 
of deficiency charges under the proposed amendment as under former 
section 204.7(a)(2). Accordingly, the Board has decided to delete the 
reference to the obsolete guidelines, as proposed, and to add language 
to the provision clarifying the discretion of the Reserve Banks with 
respect to waiver of deficiency charges. The Board is retaining the 
current examples of when a Reserve Bank may

[[Page 25635]]

waive charges and clarifying that they are illustrative. As proposed, 
the language relating to charges for reserve deficiencies is moved from 
Sec.  204.7 to Sec.  204.6.

K. Section 204.7 Transitional Adjustments in Mergers

    The Board proposed re-designating the current provisions regarding 
transitional adjustments in mergers to a new section, Sec.  204.7. No 
other changes were proposed. The Board received no comments on these 
proposed amendments. Since the Board proposed these amendments in 
February 2008, the Board has made adjustments to its clearing balance 
policy that discontinued practices related to reserve requirements that 
were no longer necessary in light of the amendments to Regulation D 
implementing the payments of interest on balances at Reserve Banks.\18\ 
At that time, the Board accordingly removed the provision in Regulation 
D regarding transitional adjustments in mergers. The Board has decided 
to retain the changes to its clearing balance policy and has confirmed 
that removal as part of the final rule on payment of interest on 
balances at Reserve Banks.\19\
---------------------------------------------------------------------------

    \18\ See 73 FR 59482, 59484-85 (Oct. 9, 2008).
    \19\ See final rule on payment of interest on balances elsewhere 
in today's Federal Register.
---------------------------------------------------------------------------

L. Section 204.8 International Banking Facilities

    The Board did not propose any changes to Sec.  204.8.

M. Section 204.9 Emergency Reserve Requirement

    The Board proposed re-designating the current provisions related to 
emergency reserve requirements to a new section, Sec.  204.9. No other 
changes to the section were proposed. The Board received no comments on 
these proposed amendments and is adopting them as proposed.

N. Section 204.7 Supplemental Reserve Requirement

    The Board proposed re-designating the current provisions to a new 
section, Sec.  204.10. No other changes to the section were proposed. 
The Board received no comments on the proposed amendments. Since the 
proposal, Sec.  204.10 has been designated ``Payment of interest on 
balances.'' The Board, however, has removed the provisions relating to 
transitional adjustments in mergers that were proposed to be moved to 
Sec.  204.7. In light of the designation of Sec.  204.10 as ``Payment 
of interest on balances,'' the Board is moving the provisions 
previously set forth in section 204.9 to new Sec.  204.7.

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

    The Board proposed amending section 209.2(c)(1) to conform that 
section to the proposed Sec.  204.3(g) of Regulation D, which the Board 
has decided to adopt, discussed supra. The Board received no comments 
on these proposed amendments and is adopting them as proposed.

IV. 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 final rules. 12 U.S.C. 1408. The 
Board has sought to present this amendment in a simple and 
straightforward manner. The Board received no comments on whether the 
proposed rule was clearly stated and effectively organized or on how 
the Board might make the proposed text easier to understand.

V. Final Regulatory Flexibility Analysis

    An initial regulatory flexibility analysis (IRFA) was included in 
the Board's proposed rule in accordance with the Regulatory Flexibility 
Act (RFA) (5 U.S.C. 601 et seq.). In the IRFA, the Board specifically 
solicited comment on whether the proposed rule would have a significant 
economic impact on a substantial number of small entities. The Board 
received no comments in response to its request. Section 4 of the RFA 
requires an agency either to provide a final regulatory flexibility 
analysis with a final rule or to certify that the final rule will not 
have a significant economic impact on a substantial number of small 
entities. Banks and other depository institutions are considered 
``small'' if they have less than $165 million in assets. For the 
reasons stated below, the Board is certifying that the final rule will 
not have a significant impact on a substantial number of small 
entities.
    1. Statement of the need for and the objectives of the final rule. 
The Board is publishing final amendments to Regulations D and I to 
conform the regulations to provisions of the Financial Services 
Regulatory Relief Act of 2006, to modernize the regulations 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 final rule is within Congress' broad grant of authority to the 
Board to adopt provisions that carry out the purposes of section 19 of 
the Act.
    2. Summary of significant issues raised by the public comments in 
response to the initial regulatory flexibility analysis. The Board 
received no comments on its initial regulatory flexibility analysis or 
on whether the proposed rule would have a significant economic impact 
on a substantial number of small entities.
    3. Small entities affected by the final rule. The final rule would 
affect all depository institutions currently subject to reserve 
requirements. The Board estimates that approximately 8,195 depository 
institutions are subject to reserve requirements, of which 
approximately 3,800 could be considered ``small'' for purposes of RFA 
(entities with assets of $165 million or less).
    4. Description of projected reporting, recordkeeping and other 
compliance requirements of the final rule. The final rule does not 
alter any of the reporting or recordkeeping provisions that already 
apply to depository institutions.
    5. Significant alternatives to the revisions in the final rule. The 
Board received no comments suggesting significant alternatives to the 
proposed rule that would minimize the impact of the proposed rule on 
small entities. There are no significant alternatives to the revisions 
in the final rule that would minimize the impact on small entities.
    The final rule does not impose any additional burden on depository 
institutions, including small entities. Moreover, the final rule 
relieves depository institutions, including small entities, of any 
burdens associated with the ``three'' sublimit on certain convenient 
transfers from savings deposits, as well as any burdens associated with 
restricting pass-through account arrangements to non-member banks. 
Thus, the Board certifies that the final rule will not have a 
significant economic impact on small entities.

VI. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR Part 1320 Appendix A.1), the Board reviewed the final rule 
under the authority delegated to the Board by the Office of Management 
and Budget. No collections of information pursuant to the Paperwork 
Reduction Act are contained in the final rule.

[[Page 25636]]

List of Subjects in 12 CFR Parts 204 and 209

    Banks, Banking, Reporting and recordkeeping requirements.


0
For the reasons set forth in the preamble, the Board is amending 12 CFR 
parts 204 and 209 as follows:

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

0
1. The authority citation for part 204 continues to read as follows:

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


0
2. Sec.  204.2 is amended by revising paragraphs (d)(2), (k) and (l), 
and adding new paragraphs (w) and (x) to read as follows:


Sec.  204.2  Definitions.

* * * * *
    (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, or 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 
definition of ``savings deposit,'' 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 is 
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 
booked as an asset by a depository institution that may, at any time, 
be used to satisfy claims of that depository institution's depositors 
and that meets the requirements of paragraph (k)(2)(i) or (k)(2)(ii) of 
this section.
    (2) Vault cash 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'' includes United States currency and coin in 
transit to a 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.
    (4) 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 with a correspondent institution under Sec.  204.5(d).
* * * * *
    (w) Clearing balance allowance means the greater of $25,000 or two 
percent of an institution's contractual clearing balance.
    (x) Contractual clearing balance means an amount that an 
institution agrees or is required to maintain in its account at a 
Federal Reserve Bank in addition to any reserve balance requirement. An 
institution that has a reserve balance requirement of zero may still 
have a contractual clearing balance.

[[Page 25637]]


0
3. Amend Sec.  204.3 by revising the heading, removing paragraphs (h) 
and (i), and revising 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.
* * * * *
    (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.

0
4. A new Sec.  204.4 is added to read as follows:


Sec.  204.4  Computation of required reserves.

    (a) In determining the reserve requirement 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 or Agreement 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 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.

------------------------------------------------------------------------
           Reservable liability               Reserve requirement ratio
------------------------------------------------------------------------
NET TRANSACTION ACCOUNTS:
    $0 to reserve requirement exemption     0 percent of amount.
     amount ($10.3 million).
    Over reserve requirement exemption      3 percent of amount.
     amount ($10.3 million) and up to low
     reserve tranche ($44.4 million).
    Over low reserve tranche ($44.4         $1,023,000 plus 10 percent
     million).                               of amount over $44.4
                                             million.
Nonpersonal time deposits.................  0 percent.

[[Page 25638]]

 
Eurocurrency liabilities..................  0 percent.
------------------------------------------------------------------------

Sec.  204.9  [Removed]

0
5. Section 204.9 is removed.


Sec.  204.5  [Redesignated as Sec.  204.9]

0
6. Section 204.5 is redesignated as Sec.  204.9.
0
7. New Sec.  204.5 is added to read as follows:


Sec.  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 Sec.  
204.5(d).
    (2) Each individual institution subject to this part is responsible 
for satisfying its reserve balance requirement, 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 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
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