Reserve Requirements of Depository Institutions Policy on Payment System Risk, 24384-24389 [2010-10483]
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Federal Register / Vol. 75, No. 86 / Wednesday, May 5, 2010 / Rules and Regulations
featured speaker, or honored speaker, or
in any other manner not specifically
related to fundraising; and
(B) The publicity includes a clear and
conspicuous disclaimer that the
solicitation is not being made by the
Federal candidate or officeholder.
(ii) The disclaimer required in
paragraph (c)(3)(i)(B) of this section
must meet the requirements in 11 CFR
110.11(c)(2) if the publicity is written.
(iii) Where publicity is disseminated
by non-written means, the disclaimer
described in paragraph (c)(3)(i)(B) of
this section is required only if the
publicity is recorded or follows any
form of written script or is conducted
according to a structured or organized
program.
(iv) Examples of disclaimers that
satisfy paragraph (c)(3)(i)(B) of this
section include, but are not limited to:
(A) ‘‘[Name of Federal candidate/
officeholder] is appearing at this event
only as a featured speaker. [Federal
candidate/officeholder] is not asking for
funds or donations’’; or
(B) ‘‘All funds solicited in connection
with this event are by [name of nonFederal candidate or entity], and not by
[Federal candidate/officeholder].’’
(v) A Federal candidate, officeholder,
or an agent of either may not approve,
authorize, agree to, or consent to the use
of the Federal candidate’s or
officeholder’s name or likeness in
publicity for a non-Federal fundraising
event that contains a solicitation of
funds outside the amount limitations
and source prohibitions of the Act or
Levin funds if:
(A) The Federal candidate or
officeholder is identified as serving in a
position specifically related to
fundraising, such as honorary
chairperson or member of a host
committee, or is identified in the
publicity as extending an invitation to
the event, even if the communication
contains a written disclaimer as
described in paragraph (c)(3)(i)(B) of
this section; or
(B) The Federal candidate or
officeholder signs the communication,
even if the communication contains a
written disclaimer as described in
paragraph (c)(3)(i)(B) of this section.
(vi) A Federal candidate, officeholder,
or an agent of either, may not
disseminate publicity for a non-Federal
fundraising event that contains a
solicitation of funds outside the amount
limitations and source prohibitions of
the Act or Levin funds by someone
other than the Federal candidate or
officeholder.
Dated: April 30, 2010.
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On behalf of the Commission.
Matthew S. Petersen,
Chairman, Federal Election Commission.
SUPPLEMENTARY INFORMATION:
[FR Doc. 2010–10571 Filed 5–4–10; 8:45 am]
In order to help the Federal Reserve
implement monetary policy, on
December 31, 2009, the Board requested
public comment on a proposal to amend
Regulation D to authorize Reserve Banks
to offer term deposits to eligible
institutions.1 ‘‘Eligible institution’’ is
defined in Regulation D and includes
the depository institutions defined in
section 19(b)(1)(A) of the Act, including
banks, savings associations, savings
banks and credit unions that are
federally insured or eligible to apply for
federal insurance. ‘‘Eligible institution’’
also includes trust companies, Edge and
agreement corporations, and U.S.
agencies and branches of foreign banks.2
Under the proposal, the Reserve Banks
would accept term deposits subject to
such terms and conditions as the Board
may establish from time to time,
including but not limited to conditions
regarding the maturity of the term
deposits being offered, maximum and
minimum amounts that may be
maintained by an eligible institution in
a term deposit, the interest rate or rates
offered and, if term deposits are offered
through an auction mechanism, the size
of the offering, and maximum and
minimum bid amounts. Term deposits
would not satisfy required reserve
balances or contractual clearing
balances and would not be available for
general payments or other activities.
The Board also proposed to amend
section 204.10(b)(3) of Regulation D to
reflect the fact that term deposits would
earn interest, and that like other
balances maintained at Reserve Banks
by or on behalf of eligible institutions,
the interest rate on term deposits could
not exceed the general level of shortterm interest rates, consistent with the
limitation in the Federal Reserve Act.3
For purposes of that statutory
requirement, the Board proposed to
amend section 204.10(b)(3) to define the
term ‘‘short-term interest rates’’ as
including ‘‘the primary credit rate and
rates on obligations with maturities of
up to one year in which eligible
institutions may invest, such as rates on
term federal funds, term repurchase
agreements, commercial paper, term
Eurodollar deposits, and other similar
rates.’’
BILLING CODE 6715–01–P
FEDERAL RESERVE SYSTEM
12 CFR Part 204
[Regulation D; Docket No. R–1381]
Reserve Requirements of Depository
Institutions Policy on Payment System
Risk
AGENCY: Board of Governors of the
Federal Reserve System.
ACTION: Final rule.
SUMMARY: The Board is amending
Regulation D, Reserve Requirements of
Depository Institutions, to authorize
Reserve Banks to offer term deposits.
Term deposits are intended to facilitate
the conduct of monetary policy by
providing a tool for managing the
aggregate quantity of reserve balances.
Institutions eligible to receive earnings
on their balances in accounts at Federal
Reserve Banks (‘‘eligible institutions’’)
may hold term deposits and receive
earnings at a rate that does not exceed
the general level of short-term interest
rates. Term deposits are separate and
distinct from balances maintained in an
institution’s master account at a Reserve
Bank (‘‘master account’’) as well as from
those maintained in an excess balance
account. Term deposits do not satisfy an
institution’s required reserve balance or
contractual clearing balance and do not
constitute excess balances. Term
deposits are not available to clear
payments and may not be used to
reduce an institution’s daylight or
overnight overdrafts. The Board is also
making minor amendments to the
posting rules for intraday debits and
credits to master accounts as set forth in
the Board’s Policy on Payment System
Risk to address transactions associated
with term deposits.
DATES: The amendments are effective on
June 4, 2010.
FOR FURTHER INFORMATION CONTACT:
Sophia H. Allison, Senior Counsel (202)
452–3565, or Dena L. Milligan, Staff
Attorney (202) 452–3900), Legal
Division, or Seth Carpenter, Associate
Director (202) 452–2385, or Margaret
Gillis DeBoer, Assistant Director (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.
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I. Summary of Proposal
1 74
FR 69301 (Dec. 31, 2009).
institution’’ does not include all
entities for which the Reserve Banks hold accounts.
For example, the term does not include entities for
which the Reserve Banks act as fiscal agents, such
as Federal Home Loan Banks, Fannie Mae, and
Freddie Mac. 12 CFR 204.2(y).
3 See 12 U.S.C. 461(b)(12).
2 ‘‘Eligible
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II. Summary of Comments
The Board’s proposal indicated that
the Federal Reserve could offer term
deposits in several ways and outlined a
potential structure for offering term
deposits through auctions. The Board
requested comment on all aspects of the
proposal, and specifically requested
comment on three topics:
(1) Whether it is necessary to place
any limitations on the maximum
amount of term deposits that an
institution may hold or on the
maximum portion of a single offering
that an institution may win at auction;
(2) What maturity or maturities would
eligible institutions recommend as
appropriate for term deposits, and
whether more than one maturity should
be offered; and
(3) Whether basic terms and
structures for term deposits other than
those described in the proposal should
be considered.
The Board received twenty-two
comments on the proposal. Comments
were received from eight individuals,
two foreign central banks, four bankers’
banks, four commercial banks, and four
trade associations.
Many commenters supported term
deposits as an additional tool for
draining excess reserves balances to
support the effective implementation of
monetary policy and stated that offering
term deposits would not be disruptive
to markets. Some commenters believed
that term deposits would be effective in
draining excess reserves balances, but
questioned the underlying policies of
reducing the availability of federal
funds and putting upward pressure on
the cost of borrowing. Additionally, a
few commenters asked that the Board
more clearly express the purpose of
term deposits. A few other commenters
questioned the effectiveness and
necessity of term deposits as a monetary
policy tool. Two commenters suggested
that if the use of term deposits is
temporary, the Board’s final rule should
announce a sunset date for the facility.
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III. Final Rule
The Board expects term deposits to be
one of several tools that could be
employed to drain reserve balances and
support the effective implementation of
monetary policy. Term deposits drain
reserve balances because the funds that
pay for the term deposits are removed
from the accounts of participating
institutions for the life of the term
deposit. Reducing the quantity of
reserve balances should tighten the link
between the interest rate the Federal
Reserve pays on excess reserve balances
and other short-term interest rates,
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resulting in improved control in
implementing monetary policy.
Authorization of term deposits does not,
however, preclude the use of other tools
to drain reserve balances.
Because of the potential usefulness of
term deposits in implementing
monetary policy, the Board has
determined to adopt the proposed
amendments to Regulation D with some
changes to address issues raised by
commenters and other issues. In doing
so, the Board has determined not to
adopt a sunset provision for these
amendments. Actual offerings of term
deposits, however, will occur as needed
based on monetary policy objectives.
Details about the periods when term
deposits will be offered will be
announced periodically in order to
allow institutions to adjust their use of
this facility.
The final rule also adjusts the
definition of ‘‘short-term interest rates’’
in two ways. First, it has been amended
to clarify that interest rates with
maturities equal to one year would be
‘‘short term.’’ Second, it has been
changed to allow reference to interest
rates on instruments with the relevant
maturities but that may not be eligible
for investment by eligible institutions.
These changes result in a definition of
‘‘short-term interest rates’’ that is more
consistent with market practice and
understanding of the term.
The Board is also revising proposed
section 204.10(e)(1) to clarify that the
Board may from time to time set
conditions regarding the early
withdrawal of term deposits and
pledging term deposits as collateral. As
discussed infra, the Board is not at this
time finalizing those conditions.
The Board also is revising proposed
section 204.10(e)(3) to clarify that term
deposits may not be used for general
payments or settlement activities.
IV. Terms and Conditions of Term
Deposit Offerings
As explained above, the Board
requested and received comment on a
variety of matters related to the
structure, amount and method for
offering term deposits. Final
determination of those matters depends
largely on related monetary policy
discussions, including decisions
regarding the most effective way to
drain the appropriate level of reserves.
As a result, the Board has determined to
finalize the parts of its proposal that
facilitate the authorization of term
deposits and to reserve to a later date
the final decisions regarding the manner
in which term deposits will be offered
(for example, by auction, by open offer
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or by some other method) and the
details of those offerings.
In making those final decisions as to
the terms and conditions of term
deposits, the Board will take into
account the comments received in this
process. In order to aid institutions in
preparing for the availability of term
deposits, the Board is providing its
preliminary views on several of those
matters while reserving final judgment
on all of these matters in order to adjust
the decisions to most effectively
implement the Federal Reserve’s
monetary policy objectives. For one of
these matters (role of correspondents),
however, the Board has made a final
determination in order to allow
potential participants to begin now to
formulate plans and structures for
participating in term deposits.
To help eligible institutions to
become familiar with the term deposit
process, the Federal Reserve anticipates
that it will conduct small-value
offerings of term deposits in the coming
months. More detailed information
about these offerings, as well as
information about how to participate in
these offerings and term deposit
offerings generally, will be provided at
a later date.
A. Correspondents
Some commenters expressed concerns
that the proposal would disadvantage
private-sector correspondents. These
commenters argued that private-sector
correspondent institutions likely would
be unable to compete with term deposits
offered by Reserve Banks and that term
deposits would thus jeopardize existing
correspondent-respondent relationships.
These commenters indicated that term
deposits would likely earn a higher
interest rate than other similar term
investments or overnight investments,
would carry no risk and would be
available to pledge as collateral for
discount window advances.
These commenters proposed that, in
order to mitigate unintended strain on
existing correspondent-respondent
relationships, correspondent
institutions be permitted to aggregate
their respondents’ funds and maintain
those funds in term deposits on behalf
of their respondents. Commenters also
proposed that correspondents be
permitted to bid on term deposits as
agent for their respondents, even on an
individual or unaggregated basis.
According to these commenters, small
institutions cannot justify the staff
resources required to participate
actively in the proposed term deposit
offerings, and instead could more
effectively and efficiently participate in
those offerings by placing funds with a
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correspondent acting as aggregator or as
agent, or both. These commenters
indicated that allowing correspondents
to aggregate the funds of smaller
institutions in a single term deposit
account would provide an efficient
mechanism for correspondents to invest
on behalf of their respondents, would
allow small institutions to compete for
term deposits by overcoming a high
minimum bid amount and aggressive
bidding on the rates by larger
institutions. The commenters also
asserted that allowing correspondents to
hold term deposits as agents would be
consistent with the existing provisions
of Regulation D relating to excess
balance accounts. Finally, these
commenters asserted that the offering of
term deposits was a ‘‘service’’ in direct
competition with private-sector deposits
and funds management services, and
therefore the rates paid should be
subject to a private-sector adjustment
factor under section 11A of the Federal
Reserve Act.
The Board has carefully considered
these comments and has determined not
to authorize the aggregation of funds of
multiple respondents in a single term
deposit that is managed by a
correspondent as agent. However,
correspondents will be able to facilitate
respondent participation in term deposit
offerings, such as by submitting a tender
on behalf of each respondent that
authorizes the correspondent to do so.
Because of operational complexities and
other accommodations being made to
enable the participation by small
institutions, the Board will not allow a
correspondent to submit as agent a
single tender for the aggregate quantity
of term deposits that its respondents
wish to hold. Correspondents that are
eligible institutions would be able to
participate in term deposit offerings for
their own account.
As noted above, some commenters
argued that term deposits were a
‘‘service’’ in direct competition with
private-sector correspondent
institutions, and therefore should be
subject to a private-sector adjustment
factor under section 11A of the Federal
Reserve Act.
Section 11A of the Act was added by
the Monetary Control Act of 1980
(‘‘MCA’’) to promote competitive
equality between member and
nonmember banks and to improve the
efficiency of the nation’s payments
mechanism by making specific Reserve
Bank services, known as ‘‘priced
services,’’ available to all depository
institutions at a competitive price.
Section 11A requires the Board to
establish pricing principles and a
schedule of fees to cover the specified
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Reserve Bank ‘‘priced services’’ 4 in order
to enable private-sector service
providers to compete more effectively
with Reserve Banks.5 The Federal
Reserve’s governmental-type functions
(such as conducting monetary policy)
were not intended to be included as
‘‘services’’ covered by MCA’s pricing
principles.6 As stated in the proposal,
offering term deposits is a tool to drain
excess reserves balances and support
the effective implementation of
monetary policy. Accordingly, even
though private-sector correspondents
may offer some investments that are
similar in certain respects to term
deposits, the offering of term deposits is
not a ‘‘service’’ that is subject to the
pricing principles of Section 11A of the
Act. Finally, as noted above, rates on
term deposits are subject to an
independent statutory limit: these rates
may not exceed the general level of
short-term interest rates.7
B. Maturities of Term Deposits
The Board also requested comment on
the appropriate maturity or maturities
for term deposits, and on whether more
than one maturity should be offered.
The Board’s proposal suggested that
term deposit maturities would not
exceed one year and likely would be
between one and six months. The
proposal also suggested that term
deposit maturities could be aligned with
14-day reserve maintenance periods.
Commenters generally supported
offering term deposits with multiple
maturities in order to help institutions
manage their liquidity positions and
interest-rate risk, and suggested
maturities for term deposits ranging
from 14 days to one year. Two
commenters suggested that term
deposits of varying maturities could be
offered in a single offering, and one
commenter suggested that term deposits
of multiple maturities be offered from
the first auction. One commenter
suggested that term deposits with
shorter maturities be offered regularly,
with less frequent offerings of term
deposits with six-month maturities.
4 Section 11A(b) lists the services which the
Board must include in its schedule of fees:
Currency and coin services; check clearing and
collection services; wire transfer services;
automated clearinghouse services; settlement
services; securities and safekeeping services;
Federal Reserve float, and ‘‘[a]ny new services
which the Federal Reserve System offers, including
but not limited to payment services to effectuate the
electronic transfer of funds.’’ 12 U.S.C. 248a.
5 See 125 CONG. REC. 525 (1979) (statement of Sen.
Proxmire).
6 Monetary Control and the Membership Problem:
Hearing on H.R. 12706, Before the H. Comm. On
Fin. Svcs., 95th Cong. 127 (1978) (Federal Reserve
Board’s Preliminary Proposal).
7 12 U.S.C. 461(b).
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Generally, commenters felt that demand
would be greatest for term deposits with
maturities less than six months.
Several commenters supported
maturities that were multiples of 14
days to coincide with reserve
maintenance periods. Many of these
commenters specifically suggested
maturities that mirrored the maturities
of advances under the Federal Reserve’s
Term Auction Facility (TAF) (those
maturities have generally been 28 days
and 84 days), or maturities of U.S.
Treasury debt offerings or other
investments similar to term deposits.
Another commenter suggested that term
deposit maturities not exceed three
months (approximately twice the time
between Federal Open Market
Committee meetings), because
institutions could establish reasonable
interest rate expectations over a threemonth period.
In recognition of the demand to hold
term deposits of varying maturities, the
Board expects that term deposits of
more than one maturity will be offered
and that maturities of term deposits
likely will be six months or less. The
Board also expects that term deposit
maturities will be aligned with 14-day
reserve maintenance periods. Maturities
will be announced in advance of a term
deposit offering.
C. Early Withdrawal
Some commenters requested that the
Board reconsider its proposal to prohibit
early withdrawal of term deposits. Two
commenters suggested that institutions
be permitted to make early withdrawals
of term deposits for a fee; one of these
commenters suggested that early
withdrawals be limited to term deposits
with maturities of 28 days or more. Both
commenters cited the ability to maintain
flexibility in the event of changing
financial circumstances.
The Board believes that, as stated in
the proposal, early withdrawal of term
deposits would weaken the ability of
term deposits to serve as an effective
tool for draining reserve balances, and
therefore would undermine the effective
implementation of monetary policy.
Accordingly, the Board expects that
early withdrawals from term deposits
will not be permitted.
D. Offering Mechanism
The Board’s proposal described a
potential auction mechanism for
offering term deposits. The Board
received several comments (discussed
below) related specifically to offering
term deposits through an auction, none
of which opposed using an auction
mechanism. The Board expects that an
auction mechanism may be the most
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effective way to allocate term deposits
in a manner that effectively achieves the
Federal Reserve’s monetary policy
objectives. Based on monetary policy
considerations and experience with the
auction mechanism, the Board may
consider offering term deposits through
different mechanisms.
As stated above, the Board is not at
this time setting forth definitive terms
and conditions of term deposit offerings
(e.g., the maximum interest rate for an
offering). The Board will take the
comments received into consideration
when determining the terms and
conditions. Many commenters
expressed a desire for the Federal
Reserve to communicate in advance the
terms and conditions of the offerings, as
well as the purpose and desired
outcome of the program. The Board
anticipates announcing the terms and
conditions of any auction in advance,
including the quantity of term deposits
offered and their maturity, any
minimum and maximum bid amounts,
and a maximum-allowable bid interest
rate.
One commenter suggested that the
Board provide notice and an
opportunity to comment prior to
changing the terms and conditions of
term deposit offerings. The amendments
to Regulation D adopted by the Board
were designed to be sufficiently flexible
to support various approaches to term
deposit offerings, including auctions or
posted-rate term deposit offerings, and
offerings of varying amounts, maturities,
and interest rates. This flexibility is
necessary to enable the Board to adjust
the terms and conditions based on
evolving market conditions and
monetary policy needs. The Board does
not expect to seek comment in advance
of changing the terms and conditions of
term deposit offerings unless those
changes require amendments to
Regulation D.
One commenter suggested that each
institution be permitted to submit
multiple bids and proposed a maximum
of two bids per institution at each
auction. The Board is considering
permitting multiple bids per institution
for term deposits and anticipates that, if
multiple bids are permitted, there will
likely be some limit on the number of
bids an institution may submit.
E. Interest Rate or Rates Offered
The Board received a number of
comments on term deposit interest rates.
Some commenters supported
structuring auction bids as fixed-rate
bids, and others suggested that bids be
in the form of a spread over a reference
rate, resulting in a floating rate.
Commenters supporting a floating rate
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suggested specific reference rates such
as the target federal funds rate, the rate
paid on required reserves, the rate paid
on excess reserves, and the overnight
indexed swap rate.
In addition, the Board received
several comments related to setting the
maximum interest rate on term deposits.
One commenter supported maintaining
flexibility as to the benchmark rates
considered when setting the maximum
interest rate. One commenter stated that
for term deposits of longer maturities,
the primary credit rate was not
necessarily an appropriate maximum
rate; rather, this commenter suggested
that auctions of term deposits of longer
maturities have a higher maximum rate,
where the increase relative to the rates
on term deposits with shorter maturities
is consistent with the steepness of the
yield curve.
The Board did not receive any
comments related to determining the
‘‘general level’’ of short-term interest
rates. In identifying the ‘‘general level’’
of short-term interest rates, the Board
could look to a specific short-term
interest rate, or to a range of such rates.
The ‘‘general level’’ of short-term interest
rates could include both fixed and
floating rates and will vary over time in
accordance with movements in shortterm interest rates. As short-term
interest rates may move within the
maturity period of a term deposit, the
Board will consider the applicable
‘‘general level’’ for any particular term
deposit offering to be the general level
of short-term interest rates at the time
the rate for that particular offering is
established.
In accordance with statutory
requirements, the maximum interest
rate for each offering will not exceed the
general level of short-term interest rates.
The maximum interest rate for a given
offering will be announced in advance
of that offering. The Board expects that
interest rates on term deposits initially
will be fixed, although the Board may
consider floating-rate term deposits
based on future experience with term
deposit offerings.
F. Noncompetitive Tenders
One commenter suggested allowing
small institutions to make
noncompetitive tenders, similar to
auctions for Treasury securities. The
Board will consider including a
noncompetitive tender feature whereby
small institutions could submit a tender
outside the competitive bidding process
for the quantity of term deposits they
wish to hold and receive the rate
established by the competitive auction.
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G. Individual Limits on Maximum
Amount of Deposit
The Board specifically requested
comment on whether limitations on the
amount an eligible institution may
maintain as term deposits were
necessary. Many commenters suggested
placing some limitation on the amount
of term deposits that a single institution
can hold. The limitations on an
institution’s term deposit holdings
suggested by various commenters
included restrictions based on (1) A
percentage of an institution’s capital; (2)
an institution’s average daily balance in
its master account over the prior three
months, and (3) 10 percent of total term
deposits outstanding.
Some of these commenters asserted
that limiting the amount of a single
offering that any institution can be
awarded would ensure that small
depository institutions effectively have
access to term deposits, foster greater
participation in the program, and curb
the ability of a few large institutions to
dominate term deposit offerings.
Proposals suggested by these
commenters included de minimis
minimum bid amounts, and limits based
on auction size (e.g., limiting any one
institution to between 5 percent and 25
percent of a single auction). Another
commenter suggested imposing such
limitations only on the twenty largest
institutions.
The Board expects to implement the
term deposit program in a way that
promotes equitable access to term
deposits for institutions of all sizes,
while most effectively meeting the
Federal Reserve’s monetary policy
objectives. Eligible institutions would
not be required to maintain required
reserve balances at Reserve Banks in
order to hold term deposits, nor would
they need to maintain a master account
at a Reserve Bank in order to participate
in term deposit offerings. The Board
also expects to set minimum bid
amounts for term deposit offerings low
enough so as to not be a barrier to
participation by smaller institutions.
H. Use as Collateral
Several commenters raised concerns
related to the potential availability of
term deposits to satisfy unexpected
liquidity needs of the depositor. In
addition, two commenters suggested
that term deposits be available to pledge
as collateral for advances by Federal
Home Loan Banks so that institutions
would be able to meet liquidity needs
through mechanisms other than the
discount window. One of these
commenters suggested that term
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deposits be available to pledge as
collateral for any interbank loan.
The potential complexity of
administering pledges (and re-pledges)
of term deposits as collateral to third
parties throughout the term of the
deposit could be substantial. The Board
expects that institutions will be
permitted to use their term deposits as
collateral for discount window advances
in order to manage unanticipated
funding needs. This would allow
institutions to obtain liquidity from the
Federal Reserve by pledging term
deposits or to obtain liquidity from
other sources by substituting term
deposits for other types of collateral
pledged to the discount window that
could then be pledged as collateral to
secure advances from Federal Home
Loan Banks and other third parties.
Accordingly, the Board does not expect
to permit pledges of term deposits to
third parties.
In 2008, the Board announced
revisions to its Policy on Payment
System Risk (‘‘Revised PSR Policy’’).8
Under the Revised PSR Policy,
collateralized daylight overdrafts would
incur no fee.9 The Board received many
comments supporting the availability of
term deposits to collateralize daylight
overdrafts. The Board expects that term
deposits will be available to
collateralize daylight overdrafts under
the Revised PSR Policy.10
V. Final Amendments to PSR Policy
Posting Rules
The Reserve Banks measure
depository institutions’ intraday
account balances according to a set of
posting rules outlined in the Board’s
Policy on Payment System Risk (PSR
Policy).11 To reflect the settlement of
term deposits in the posting rules, the
Board is amending section II.A. of the
PSR Policy under the heading
‘‘Procedures for Measuring Daylight
Overdrafts’’ as follows (changes
identified by italics):
Procedures for Measuring Daylight
Overdrafts
Opening Balance (Previous Day’s
Closing Balance)
Post at 8:30 a.m. Eastern Time:
+ Term deposit maturities and
accrued interest
Post After the Close of Fedwire Funds
Service:
erowe on DSK5CLS3C1PROD with RULES
8 73
FR 79109 (Dec. 24, 2008).
9 73 FR 79109, 79114 (Dec. 24, 2008).
10 The Board anticipates implementing the
Revised PSR Policy in late 2010 or early 2011. The
Board will announce the specific date at least 90
days in advance of the implementation date. 74 FR.
79117 (Dec. 24, 2008).
11 Available at https://www.federalreserve.gov/
paymentsystems/psr_policy.htm.
VerDate Mar<15>2010
14:33 May 04, 2010
Jkt 220001
+/¥ All other transactions. These
transactions include the following:
Local Federal Reserve Bank checks
presented after 3 p.m. Eastern Time but
before 3 p.m. local time; noncash
collection; currency and coin
shipments; small-dollar credit
adjustments; term deposit settlements;
and all debit adjustments.
The Board received no comments on
the proposed amendments to the PSR
Policy and is adopting them as
proposed. These amendments to the
PSR Policy will be effective at the same
time as the amendments to Regulation
D.12
VI. Solicitation of Comments Regarding
use of ‘‘Plain Language’’
Section 722 of the Gramm-LeachBliley Act of 1999 (12 U.S.C. 4809)
requires the Board to use ‘‘plain
language’’ in all final rules published
after January 1, 2000. The Board has
sought to present this final rule 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 text of
the rule easier to understand.
VII. Regulatory Flexibility Act
An initial regulatory flexibility
analysis (IRFA) was included in the
Board’s proposed rule in accordance
with the Regulatory Flexibility Act (5
U.S.C. 601 et. seq.). In the IRFA, the
Board specifically solicited comment on
significant alternatives that would
minimize the impact of the proposal on
small entities. The Board’s final
regulatory flexibility analysis is set forth
below. For purposes of this analysis,
banks and other depository institutions
are considered ‘‘small’’ if they have less
than $175 million in assets. For the
reasons stated below, the Board expects
that the final rule will not have a
significant economic impact on small
entities.
1. Statement of the Need for and the
Objectives of the Final Rule
The Board is publishing final
amendments to Regulation D to
authorize Reserve Banks to offer
interest-bearing deposits of specified
maturities to eligible institutions. Term
deposits are intended to facilitate the
conduct of monetary policy by
providing a tool for managing the
aggregate quantity of reserve balances.
Additional discussion of the need for
12 See n. 10, supra, and accompanying text
regarding the effective date of other amendments to
the PSR Policy relating to the ability of term
deposits to serve as collateral for daylight
overdrafts.
PO 00000
Frm 00016
Fmt 4700
Sfmt 4700
and objectives of the final rule is
contained in the SUPPLEMENTARY
INFORMATION above.
2. Summary of Significant Issues Raised
by the Public Comments in Response to
the Initial Regulatory Flexibility
Analysis
Although the Board received no
comments that were specifically in
response to the IRFA, the Board
received comments regarding the
proposal’s impact on small entities. As
discussed in the SUPPLEMENTARY
INFORMATION above, some commenters
expressed concern about small
institutions’ ability to participate in
term deposit offerings and to compete
with larger institutions in the offerings,
particularly if an auction mechanism
were used. To address these concerns,
commenters suggested that minimum
bid amounts for auctions be set
sufficiently low to allow smaller
institutions to participate and suggested
that noncompetitive tenders be offered
alongside competitive auctions. Some
commenters also suggested that there be
limits on the portions of offerings a
single institution could be awarded so
as to prevent larger institutions from
being awarded an entire offering.
As discussed above, the Board expects
to implement term deposits in a way
that promotes the access of small
entities to term deposits.
3. Small Entities Affected by the Final
Rule
Participation in term deposit offerings
would be optional for eligible
institutions of all sizes. The Board
estimates that approximately 16,010
would be eligible to hold term deposits,
of which approximately 12,267 would
be considered ‘‘small’’ for purposes of
the RFA (entities with assets of $175
million or less). The impact on eligible
institutions choosing to hold term
deposits would be positive, because
term deposits would expand the range
of investment opportunities available to
those institutions.
4. Description of Projected Reporting,
Recordkeeping and Other Compliance
Requirements of the Final Rule
The final rule does not impose any
new reporting, recordkeeping or
compliance requirements.
5. Significant Alternatives to the
Revisions of the Final Rule
The Board received no comments
suggesting significant alternatives to the
proposed rule that would minimize the
impact of the rule on small institutions.
The final rule, like the proposed rule,
provides the Board with significant
E:\FR\FM\05MYR1.SGM
05MYR1
Federal Register / Vol. 75, No. 86 / Wednesday, May 5, 2010 / Rules and Regulations
flexibility to structure the terms and
conditions for term deposit offerings to
minimize any adverse effects on small
institutions. The Board will set terms
and conditions of term deposit offerings
that promote the access of small
institutions to term deposits while still
maintaining the effectiveness of term
deposits as a tool to implement
monetary policy. These steps could
include those suggested by commenters,
such as low minimum bid amounts,
aggregate limits, and noncompetitive
tenders.
VIII. Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act (PRA) of 1995 (44 U.S.C.
3506; 5 CFR 1320 Appendix A.1), the
Board reviewed the final rule under the
authority delegated to the Board by the
Office of Management and Budget
(OMB). The final rule contains no
collections of information subject to the
PRA.
List of Subjects in 12 CFR Part 204
Banks, banking, Reporting and
recordkeeping requirements.
Authority and Issuance
For the reasons set forth in the
preamble, the Board is proposing to
amend 12 CFR part 204 as follows:
■
of no more than one year, such as the
primary credit rate and rates on term
federal funds, term repurchase
agreements, commercial paper, term
Eurodollar deposits, and other similar
instruments.
*
*
*
*
*
(e) Term deposits. (1) A Federal
Reserve Bank may accept term deposits
from eligible institutions under the
provisions of this paragraph (e) subject
to such terms and conditions as the
Board may establish from time to time,
including but not limited to conditions
regarding the maturity of the term
deposits being offered, maximum and
minimum amounts that may be
maintained by an eligible institution in
a term deposit, the interest rate or rates
offered, early withdrawal of term
deposits, pledging term deposits as
collateral and, if term deposits are
offered through an auction mechanism,
the size of the offering, maximum and
minimum bid amounts, and other
relevant terms.
(2) A term deposit will not satisfy any
institution’s required reserve balance or
contractual clearing balance.
(3) A term deposit may not be used for
general payments or settlement
activities.
By order of the Board of Governors of the
Federal Reserve System, April 29, 2010.
Jennifer J. Johnson,
Secretary of the Board.
PART 204—RESERVE
REQUIREMENTS OF DEPOSITORY
INSTITUTIONS (REGULATION D)
[FR Doc. 2010–10483 Filed 5–4–10; 8:45 am]
■
1. The authority citation for Part 204
continues to read as follows:
BILLING CODE 6210–01–P
Authority: 12 U.S.C. 248(a), 248(c), 371a,
461, 601, 611, and 6105.
DEPARTMENT OF TRANSPORTATION
2. Amend § 204.2 by adding paragraph
(dd) to read as follows:
Federal Aviation Administration
§ 204.2
[Docket No. FAA–2010–0435; Directorate
Identifier 2010–NM–084–AD; Amendment
39–16283; AD 2010–10–04]
■
Definitions.
*
*
*
*
*
(dd) Term deposit means those funds
of an eligible institution that are
maintained by that institution for a
specified maturity at a Federal Reserve
Bank pursuant to section 204.10(e) of
this part.
■ 3. Section 204.10 is amended by
revising paragraph (b)(3) and by adding
a new paragraph (e) to read as follows:
§ 204.10
Payment of interest on balances.
erowe on DSK5CLS3C1PROD with RULES
*
*
*
*
*
(b) * * *
(3) For required reserve balances,
excess balances, and term deposits, at
any other rate or rates as determined by
the Board from time to time, not to
exceed the general level of short-term
interest rates. For purposes of this
subsection, ‘‘short-term interest rates’’
are rates on obligations with maturities
VerDate Mar<15>2010
14:33 May 04, 2010
Jkt 220001
14 CFR Part 39
RIN 2120–AA64
Airworthiness Directives; Bombardier,
Inc. Model DHC–8–400 Series
Airplanes
AGENCY: Federal Aviation
Administration (FAA), Department of
Transportation (DOT).
ACTION: Final rule; request for
comments.
SUMMARY: We are adopting a new
airworthiness directive (AD) for the
products listed above. This AD results
from mandatory continuing
airworthiness information (MCAI)
originated by an aviation authority of
another country to identify and correct
an unsafe condition on an aviation
PO 00000
Frm 00017
Fmt 4700
Sfmt 4700
24389
product. The MCAI describes the unsafe
condition as:
Operators of DHC–8 400 Series aeroplanes
have been reporting chafing of wires in the
AC wire harnesses located along the lower
wing shroud on either wing resulting in a
loss of various system services. Chafed wires
may lead to arcing, local overheating and AC
generator failure. The AC generators provide
power to the anti-icing heaters, including
pitot/static heater, engine adapter heater, and
propeller heater. Failure of both AC
generators would result in the loss of these
systems and poses a safety concern.
*
*
*
*
*
Loss of both AC generators could lead
to unannunciated loss of heat to both
engine inlets, which could lead to loss
of power in both engines during icing
conditions. This AD requires actions
that are intended to address the unsafe
condition described in the MCAI.
DATES: This AD becomes effective May
20, 2010.
The Director of the Federal Register
approved the incorporation by reference
of certain publications listed in the AD
as of May 20, 2010.
We must receive comments on this
AD by June 21, 2010.
ADDRESSES: You may send comments by
any of the following methods:
• Federal eRulemaking Portal: Go to
https://www.regulations.gov. Follow the
instructions for submitting comments.
• Fax: (202) 493–2251.
• Mail: U.S. Department of
Transportation, Docket Operations, M–
30, West Building Ground Floor, Room
W12–140, 1200 New Jersey Avenue, SE.,
Washington, DC 20590.
• Hand Delivery: U.S. Department of
Transportation, Docket Operations, M–
30, West Building Ground Floor, Room
W12–40, 1200 New Jersey Avenue, SE.,
Washington, DC, between 9 a.m. and 5
p.m., Monday through Friday, except
Federal holidays.
Examining the AD Docket
You may examine the AD docket on
the Internet at https://
www.regulations.gov; or in person at the
Docket Operations office between 9 a.m.
and 5 p.m., Monday through Friday,
except Federal holidays. The AD docket
contains this AD, the regulatory
evaluation, any comments received, and
other information. The street address for
the Docket Operations office (telephone
(800) 647–5527) is in the ADDRESSES
section. Comments will be available in
the AD docket shortly after receipt.
FOR FURTHER INFORMATION CONTACT:
Craig Yates, Aerospace Engineer,
Airframe and Mechanical Systems
Branch, ANE–171, FAA, New York
Aircraft Certification Office, 1600
Stewart Avenue, Suite 410, Westbury,
E:\FR\FM\05MYR1.SGM
05MYR1
Agencies
[Federal Register Volume 75, Number 86 (Wednesday, May 5, 2010)]
[Rules and Regulations]
[Pages 24384-24389]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-10483]
=======================================================================
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
12 CFR Part 204
[Regulation D; Docket No. R-1381]
Reserve Requirements of Depository Institutions Policy on Payment
System Risk
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Board is amending Regulation D, Reserve Requirements of
Depository Institutions, to authorize Reserve Banks to offer term
deposits. Term deposits are intended to facilitate the conduct of
monetary policy by providing a tool for managing the aggregate quantity
of reserve balances. Institutions eligible to receive earnings on their
balances in accounts at Federal Reserve Banks (``eligible
institutions'') may hold term deposits and receive earnings at a rate
that does not exceed the general level of short-term interest rates.
Term deposits are separate and distinct from balances maintained in an
institution's master account at a Reserve Bank (``master account'') as
well as from those maintained in an excess balance account. Term
deposits do not satisfy an institution's required reserve balance or
contractual clearing balance and do not constitute excess balances.
Term deposits are not available to clear payments and may not be used
to reduce an institution's daylight or overnight overdrafts. The Board
is also making minor amendments to the posting rules for intraday
debits and credits to master accounts as set forth in the Board's
Policy on Payment System Risk to address transactions associated with
term deposits.
DATES: The amendments are effective on June 4, 2010.
FOR FURTHER INFORMATION CONTACT: Sophia H. Allison, Senior Counsel
(202) 452-3565, or Dena L. Milligan, Staff Attorney (202) 452-3900),
Legal Division, or Seth Carpenter, Associate Director (202) 452-2385,
or Margaret Gillis DeBoer, Assistant Director (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. Summary of Proposal
In order to help the Federal Reserve implement monetary policy, on
December 31, 2009, the Board requested public comment on a proposal to
amend Regulation D to authorize Reserve Banks to offer term deposits to
eligible institutions.\1\ ``Eligible institution'' is defined in
Regulation D and includes the depository institutions defined in
section 19(b)(1)(A) of the Act, including banks, savings associations,
savings banks and credit unions that are federally insured or eligible
to apply for federal insurance. ``Eligible institution'' also includes
trust companies, Edge and agreement corporations, and U.S. agencies and
branches of foreign banks.\2\ Under the proposal, the Reserve Banks
would accept term deposits subject to such terms and conditions as the
Board may establish from time to time, including but not limited to
conditions regarding the maturity of the term deposits being offered,
maximum and minimum amounts that may be maintained by an eligible
institution in a term deposit, the interest rate or rates offered and,
if term deposits are offered through an auction mechanism, the size of
the offering, and maximum and minimum bid amounts. Term deposits would
not satisfy required reserve balances or contractual clearing balances
and would not be available for general payments or other activities.
---------------------------------------------------------------------------
\1\ 74 FR 69301 (Dec. 31, 2009).
\2\ ``Eligible institution'' does not include all entities for
which the Reserve Banks hold accounts. For example, the term does
not include entities for which the Reserve Banks act as fiscal
agents, such as Federal Home Loan Banks, Fannie Mae, and Freddie
Mac. 12 CFR 204.2(y).
---------------------------------------------------------------------------
The Board also proposed to amend section 204.10(b)(3) of Regulation
D to reflect the fact that term deposits would earn interest, and that
like other balances maintained at Reserve Banks by or on behalf of
eligible institutions, the interest rate on term deposits could not
exceed the general level of short-term interest rates, consistent with
the limitation in the Federal Reserve Act.\3\ For purposes of that
statutory requirement, the Board proposed to amend section 204.10(b)(3)
to define the term ``short-term interest rates'' as including ``the
primary credit rate and rates on obligations with maturities of up to
one year in which eligible institutions may invest, such as rates on
term federal funds, term repurchase agreements, commercial paper, term
Eurodollar deposits, and other similar rates.''
---------------------------------------------------------------------------
\3\ See 12 U.S.C. 461(b)(12).
---------------------------------------------------------------------------
[[Page 24385]]
II. Summary of Comments
The Board's proposal indicated that the Federal Reserve could offer
term deposits in several ways and outlined a potential structure for
offering term deposits through auctions. The Board requested comment on
all aspects of the proposal, and specifically requested comment on
three topics:
(1) Whether it is necessary to place any limitations on the maximum
amount of term deposits that an institution may hold or on the maximum
portion of a single offering that an institution may win at auction;
(2) What maturity or maturities would eligible institutions
recommend as appropriate for term deposits, and whether more than one
maturity should be offered; and
(3) Whether basic terms and structures for term deposits other than
those described in the proposal should be considered.
The Board received twenty-two comments on the proposal. Comments
were received from eight individuals, two foreign central banks, four
bankers' banks, four commercial banks, and four trade associations.
Many commenters supported term deposits as an additional tool for
draining excess reserves balances to support the effective
implementation of monetary policy and stated that offering term
deposits would not be disruptive to markets. Some commenters believed
that term deposits would be effective in draining excess reserves
balances, but questioned the underlying policies of reducing the
availability of federal funds and putting upward pressure on the cost
of borrowing. Additionally, a few commenters asked that the Board more
clearly express the purpose of term deposits. A few other commenters
questioned the effectiveness and necessity of term deposits as a
monetary policy tool. Two commenters suggested that if the use of term
deposits is temporary, the Board's final rule should announce a sunset
date for the facility.
III. Final Rule
The Board expects term deposits to be one of several tools that
could be employed to drain reserve balances and support the effective
implementation of monetary policy. Term deposits drain reserve balances
because the funds that pay for the term deposits are removed from the
accounts of participating institutions for the life of the term
deposit. Reducing the quantity of reserve balances should tighten the
link between the interest rate the Federal Reserve pays on excess
reserve balances and other short-term interest rates, resulting in
improved control in implementing monetary policy. Authorization of term
deposits does not, however, preclude the use of other tools to drain
reserve balances.
Because of the potential usefulness of term deposits in
implementing monetary policy, the Board has determined to adopt the
proposed amendments to Regulation D with some changes to address issues
raised by commenters and other issues. In doing so, the Board has
determined not to adopt a sunset provision for these amendments. Actual
offerings of term deposits, however, will occur as needed based on
monetary policy objectives. Details about the periods when term
deposits will be offered will be announced periodically in order to
allow institutions to adjust their use of this facility.
The final rule also adjusts the definition of ``short-term interest
rates'' in two ways. First, it has been amended to clarify that
interest rates with maturities equal to one year would be ``short
term.'' Second, it has been changed to allow reference to interest
rates on instruments with the relevant maturities but that may not be
eligible for investment by eligible institutions. These changes result
in a definition of ``short-term interest rates'' that is more
consistent with market practice and understanding of the term.
The Board is also revising proposed section 204.10(e)(1) to clarify
that the Board may from time to time set conditions regarding the early
withdrawal of term deposits and pledging term deposits as collateral.
As discussed infra, the Board is not at this time finalizing those
conditions.
The Board also is revising proposed section 204.10(e)(3) to clarify
that term deposits may not be used for general payments or settlement
activities.
IV. Terms and Conditions of Term Deposit Offerings
As explained above, the Board requested and received comment on a
variety of matters related to the structure, amount and method for
offering term deposits. Final determination of those matters depends
largely on related monetary policy discussions, including decisions
regarding the most effective way to drain the appropriate level of
reserves. As a result, the Board has determined to finalize the parts
of its proposal that facilitate the authorization of term deposits and
to reserve to a later date the final decisions regarding the manner in
which term deposits will be offered (for example, by auction, by open
offer or by some other method) and the details of those offerings.
In making those final decisions as to the terms and conditions of
term deposits, the Board will take into account the comments received
in this process. In order to aid institutions in preparing for the
availability of term deposits, the Board is providing its preliminary
views on several of those matters while reserving final judgment on all
of these matters in order to adjust the decisions to most effectively
implement the Federal Reserve's monetary policy objectives. For one of
these matters (role of correspondents), however, the Board has made a
final determination in order to allow potential participants to begin
now to formulate plans and structures for participating in term
deposits.
To help eligible institutions to become familiar with the term
deposit process, the Federal Reserve anticipates that it will conduct
small-value offerings of term deposits in the coming months. More
detailed information about these offerings, as well as information
about how to participate in these offerings and term deposit offerings
generally, will be provided at a later date.
A. Correspondents
Some commenters expressed concerns that the proposal would
disadvantage private-sector correspondents. These commenters argued
that private-sector correspondent institutions likely would be unable
to compete with term deposits offered by Reserve Banks and that term
deposits would thus jeopardize existing correspondent-respondent
relationships. These commenters indicated that term deposits would
likely earn a higher interest rate than other similar term investments
or overnight investments, would carry no risk and would be available to
pledge as collateral for discount window advances.
These commenters proposed that, in order to mitigate unintended
strain on existing correspondent-respondent relationships,
correspondent institutions be permitted to aggregate their respondents'
funds and maintain those funds in term deposits on behalf of their
respondents. Commenters also proposed that correspondents be permitted
to bid on term deposits as agent for their respondents, even on an
individual or unaggregated basis. According to these commenters, small
institutions cannot justify the staff resources required to participate
actively in the proposed term deposit offerings, and instead could more
effectively and efficiently participate in those offerings by placing
funds with a
[[Page 24386]]
correspondent acting as aggregator or as agent, or both. These
commenters indicated that allowing correspondents to aggregate the
funds of smaller institutions in a single term deposit account would
provide an efficient mechanism for correspondents to invest on behalf
of their respondents, would allow small institutions to compete for
term deposits by overcoming a high minimum bid amount and aggressive
bidding on the rates by larger institutions. The commenters also
asserted that allowing correspondents to hold term deposits as agents
would be consistent with the existing provisions of Regulation D
relating to excess balance accounts. Finally, these commenters asserted
that the offering of term deposits was a ``service'' in direct
competition with private-sector deposits and funds management services,
and therefore the rates paid should be subject to a private-sector
adjustment factor under section 11A of the Federal Reserve Act.
The Board has carefully considered these comments and has
determined not to authorize the aggregation of funds of multiple
respondents in a single term deposit that is managed by a correspondent
as agent. However, correspondents will be able to facilitate respondent
participation in term deposit offerings, such as by submitting a tender
on behalf of each respondent that authorizes the correspondent to do
so. Because of operational complexities and other accommodations being
made to enable the participation by small institutions, the Board will
not allow a correspondent to submit as agent a single tender for the
aggregate quantity of term deposits that its respondents wish to hold.
Correspondents that are eligible institutions would be able to
participate in term deposit offerings for their own account.
As noted above, some commenters argued that term deposits were a
``service'' in direct competition with private-sector correspondent
institutions, and therefore should be subject to a private-sector
adjustment factor under section 11A of the Federal Reserve Act.
Section 11A of the Act was added by the Monetary Control Act of
1980 (``MCA'') to promote competitive equality between member and
nonmember banks and to improve the efficiency of the nation's payments
mechanism by making specific Reserve Bank services, known as ``priced
services,'' available to all depository institutions at a competitive
price. Section 11A requires the Board to establish pricing principles
and a schedule of fees to cover the specified Reserve Bank ``priced
services'' \4\ in order to enable private-sector service providers to
compete more effectively with Reserve Banks.\5\ The Federal Reserve's
governmental-type functions (such as conducting monetary policy) were
not intended to be included as ``services'' covered by MCA's pricing
principles.\6\ As stated in the proposal, offering term deposits is a
tool to drain excess reserves balances and support the effective
implementation of monetary policy. Accordingly, even though private-
sector correspondents may offer some investments that are similar in
certain respects to term deposits, the offering of term deposits is not
a ``service'' that is subject to the pricing principles of Section 11A
of the Act. Finally, as noted above, rates on term deposits are subject
to an independent statutory limit: these rates may not exceed the
general level of short-term interest rates.\7\
---------------------------------------------------------------------------
\4\ Section 11A(b) lists the services which the Board must
include in its schedule of fees: Currency and coin services; check
clearing and collection services; wire transfer services; automated
clearinghouse services; settlement services; securities and
safekeeping services; Federal Reserve float, and ``[a]ny new
services which the Federal Reserve System offers, including but not
limited to payment services to effectuate the electronic transfer of
funds.'' 12 U.S.C. 248a.
\5\ See 125 Cong. Rec. 525 (1979) (statement of Sen. Proxmire).
\6\ Monetary Control and the Membership Problem: Hearing on H.R.
12706, Before the H. Comm. On Fin. Svcs., 95th Cong. 127 (1978)
(Federal Reserve Board's Preliminary Proposal).
\7\ 12 U.S.C. 461(b).
---------------------------------------------------------------------------
B. Maturities of Term Deposits
The Board also requested comment on the appropriate maturity or
maturities for term deposits, and on whether more than one maturity
should be offered. The Board's proposal suggested that term deposit
maturities would not exceed one year and likely would be between one
and six months. The proposal also suggested that term deposit
maturities could be aligned with 14-day reserve maintenance periods.
Commenters generally supported offering term deposits with multiple
maturities in order to help institutions manage their liquidity
positions and interest-rate risk, and suggested maturities for term
deposits ranging from 14 days to one year. Two commenters suggested
that term deposits of varying maturities could be offered in a single
offering, and one commenter suggested that term deposits of multiple
maturities be offered from the first auction. One commenter suggested
that term deposits with shorter maturities be offered regularly, with
less frequent offerings of term deposits with six-month maturities.
Generally, commenters felt that demand would be greatest for term
deposits with maturities less than six months.
Several commenters supported maturities that were multiples of 14
days to coincide with reserve maintenance periods. Many of these
commenters specifically suggested maturities that mirrored the
maturities of advances under the Federal Reserve's Term Auction
Facility (TAF) (those maturities have generally been 28 days and 84
days), or maturities of U.S. Treasury debt offerings or other
investments similar to term deposits. Another commenter suggested that
term deposit maturities not exceed three months (approximately twice
the time between Federal Open Market Committee meetings), because
institutions could establish reasonable interest rate expectations over
a three-month period.
In recognition of the demand to hold term deposits of varying
maturities, the Board expects that term deposits of more than one
maturity will be offered and that maturities of term deposits likely
will be six months or less. The Board also expects that term deposit
maturities will be aligned with 14-day reserve maintenance periods.
Maturities will be announced in advance of a term deposit offering.
C. Early Withdrawal
Some commenters requested that the Board reconsider its proposal to
prohibit early withdrawal of term deposits. Two commenters suggested
that institutions be permitted to make early withdrawals of term
deposits for a fee; one of these commenters suggested that early
withdrawals be limited to term deposits with maturities of 28 days or
more. Both commenters cited the ability to maintain flexibility in the
event of changing financial circumstances.
The Board believes that, as stated in the proposal, early
withdrawal of term deposits would weaken the ability of term deposits
to serve as an effective tool for draining reserve balances, and
therefore would undermine the effective implementation of monetary
policy. Accordingly, the Board expects that early withdrawals from term
deposits will not be permitted.
D. Offering Mechanism
The Board's proposal described a potential auction mechanism for
offering term deposits. The Board received several comments (discussed
below) related specifically to offering term deposits through an
auction, none of which opposed using an auction mechanism. The Board
expects that an auction mechanism may be the most
[[Page 24387]]
effective way to allocate term deposits in a manner that effectively
achieves the Federal Reserve's monetary policy objectives. Based on
monetary policy considerations and experience with the auction
mechanism, the Board may consider offering term deposits through
different mechanisms.
As stated above, the Board is not at this time setting forth
definitive terms and conditions of term deposit offerings (e.g., the
maximum interest rate for an offering). The Board will take the
comments received into consideration when determining the terms and
conditions. Many commenters expressed a desire for the Federal Reserve
to communicate in advance the terms and conditions of the offerings, as
well as the purpose and desired outcome of the program. The Board
anticipates announcing the terms and conditions of any auction in
advance, including the quantity of term deposits offered and their
maturity, any minimum and maximum bid amounts, and a maximum-allowable
bid interest rate.
One commenter suggested that the Board provide notice and an
opportunity to comment prior to changing the terms and conditions of
term deposit offerings. The amendments to Regulation D adopted by the
Board were designed to be sufficiently flexible to support various
approaches to term deposit offerings, including auctions or posted-rate
term deposit offerings, and offerings of varying amounts, maturities,
and interest rates. This flexibility is necessary to enable the Board
to adjust the terms and conditions based on evolving market conditions
and monetary policy needs. The Board does not expect to seek comment in
advance of changing the terms and conditions of term deposit offerings
unless those changes require amendments to Regulation D.
One commenter suggested that each institution be permitted to
submit multiple bids and proposed a maximum of two bids per institution
at each auction. The Board is considering permitting multiple bids per
institution for term deposits and anticipates that, if multiple bids
are permitted, there will likely be some limit on the number of bids an
institution may submit.
E. Interest Rate or Rates Offered
The Board received a number of comments on term deposit interest
rates. Some commenters supported structuring auction bids as fixed-rate
bids, and others suggested that bids be in the form of a spread over a
reference rate, resulting in a floating rate. Commenters supporting a
floating rate suggested specific reference rates such as the target
federal funds rate, the rate paid on required reserves, the rate paid
on excess reserves, and the overnight indexed swap rate.
In addition, the Board received several comments related to setting
the maximum interest rate on term deposits. One commenter supported
maintaining flexibility as to the benchmark rates considered when
setting the maximum interest rate. One commenter stated that for term
deposits of longer maturities, the primary credit rate was not
necessarily an appropriate maximum rate; rather, this commenter
suggested that auctions of term deposits of longer maturities have a
higher maximum rate, where the increase relative to the rates on term
deposits with shorter maturities is consistent with the steepness of
the yield curve.
The Board did not receive any comments related to determining the
``general level'' of short-term interest rates. In identifying the
``general level'' of short-term interest rates, the Board could look to
a specific short-term interest rate, or to a range of such rates. The
``general level'' of short-term interest rates could include both fixed
and floating rates and will vary over time in accordance with movements
in short-term interest rates. As short-term interest rates may move
within the maturity period of a term deposit, the Board will consider
the applicable ``general level'' for any particular term deposit
offering to be the general level of short-term interest rates at the
time the rate for that particular offering is established.
In accordance with statutory requirements, the maximum interest
rate for each offering will not exceed the general level of short-term
interest rates. The maximum interest rate for a given offering will be
announced in advance of that offering. The Board expects that interest
rates on term deposits initially will be fixed, although the Board may
consider floating-rate term deposits based on future experience with
term deposit offerings.
F. Noncompetitive Tenders
One commenter suggested allowing small institutions to make
noncompetitive tenders, similar to auctions for Treasury securities.
The Board will consider including a noncompetitive tender feature
whereby small institutions could submit a tender outside the
competitive bidding process for the quantity of term deposits they wish
to hold and receive the rate established by the competitive auction.
G. Individual Limits on Maximum Amount of Deposit
The Board specifically requested comment on whether limitations on
the amount an eligible institution may maintain as term deposits were
necessary. Many commenters suggested placing some limitation on the
amount of term deposits that a single institution can hold. The
limitations on an institution's term deposit holdings suggested by
various commenters included restrictions based on (1) A percentage of
an institution's capital; (2) an institution's average daily balance in
its master account over the prior three months, and (3) 10 percent of
total term deposits outstanding.
Some of these commenters asserted that limiting the amount of a
single offering that any institution can be awarded would ensure that
small depository institutions effectively have access to term deposits,
foster greater participation in the program, and curb the ability of a
few large institutions to dominate term deposit offerings. Proposals
suggested by these commenters included de minimis minimum bid amounts,
and limits based on auction size (e.g., limiting any one institution to
between 5 percent and 25 percent of a single auction). Another
commenter suggested imposing such limitations only on the twenty
largest institutions.
The Board expects to implement the term deposit program in a way
that promotes equitable access to term deposits for institutions of all
sizes, while most effectively meeting the Federal Reserve's monetary
policy objectives. Eligible institutions would not be required to
maintain required reserve balances at Reserve Banks in order to hold
term deposits, nor would they need to maintain a master account at a
Reserve Bank in order to participate in term deposit offerings. The
Board also expects to set minimum bid amounts for term deposit
offerings low enough so as to not be a barrier to participation by
smaller institutions.
H. Use as Collateral
Several commenters raised concerns related to the potential
availability of term deposits to satisfy unexpected liquidity needs of
the depositor. In addition, two commenters suggested that term deposits
be available to pledge as collateral for advances by Federal Home Loan
Banks so that institutions would be able to meet liquidity needs
through mechanisms other than the discount window. One of these
commenters suggested that term
[[Page 24388]]
deposits be available to pledge as collateral for any interbank loan.
The potential complexity of administering pledges (and re-pledges)
of term deposits as collateral to third parties throughout the term of
the deposit could be substantial. The Board expects that institutions
will be permitted to use their term deposits as collateral for discount
window advances in order to manage unanticipated funding needs. This
would allow institutions to obtain liquidity from the Federal Reserve
by pledging term deposits or to obtain liquidity from other sources by
substituting term deposits for other types of collateral pledged to the
discount window that could then be pledged as collateral to secure
advances from Federal Home Loan Banks and other third parties.
Accordingly, the Board does not expect to permit pledges of term
deposits to third parties.
In 2008, the Board announced revisions to its Policy on Payment
System Risk (``Revised PSR Policy'').\8\ Under the Revised PSR Policy,
collateralized daylight overdrafts would incur no fee.\9\ The Board
received many comments supporting the availability of term deposits to
collateralize daylight overdrafts. The Board expects that term deposits
will be available to collateralize daylight overdrafts under the
Revised PSR Policy.\10\
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\8\ 73 FR 79109 (Dec. 24, 2008).
\9\ 73 FR 79109, 79114 (Dec. 24, 2008).
\10\ The Board anticipates implementing the Revised PSR Policy
in late 2010 or early 2011. The Board will announce the specific
date at least 90 days in advance of the implementation date. 74 FR.
79117 (Dec. 24, 2008).
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V. Final Amendments to PSR Policy Posting Rules
The Reserve Banks measure depository institutions' intraday account
balances according to a set of posting rules outlined in the Board's
Policy on Payment System Risk (PSR Policy).\11\ To reflect the
settlement of term deposits in the posting rules, the Board is amending
section II.A. of the PSR Policy under the heading ``Procedures for
Measuring Daylight Overdrafts'' as follows (changes identified by
italics):
---------------------------------------------------------------------------
\11\ Available at https://www.federalreserve.gov/paymentsystems/psr_policy.htm.
---------------------------------------------------------------------------
Procedures for Measuring Daylight Overdrafts
Opening Balance (Previous Day's Closing Balance)
Post at 8:30 a.m. Eastern Time:
+ Term deposit maturities and accrued interest
Post After the Close of Fedwire Funds Service:
+/- All other transactions. These transactions include the
following: Local Federal Reserve Bank checks presented after 3 p.m.
Eastern Time but before 3 p.m. local time; noncash collection; currency
and coin shipments; small-dollar credit adjustments; term deposit
settlements; and all debit adjustments.
The Board received no comments on the proposed amendments to the
PSR Policy and is adopting them as proposed. These amendments to the
PSR Policy will be effective at the same time as the amendments to
Regulation D.\12\
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\12\ See n. 10, supra, and accompanying text regarding the
effective date of other amendments to the PSR Policy relating to the
ability of term deposits to serve as collateral for daylight
overdrafts.
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VI. Solicitation of Comments Regarding use of ``Plain Language''
Section 722 of the Gramm-Leach-Bliley Act of 1999 (12 U.S.C. 4809)
requires the Board to use ``plain language'' in all final rules
published after January 1, 2000. The Board has sought to present this
final rule 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 text of the
rule easier to understand.
VII. Regulatory Flexibility Act
An initial regulatory flexibility analysis (IRFA) was included in
the Board's proposed rule in accordance with the Regulatory Flexibility
Act (5 U.S.C. 601 et. seq.). In the IRFA, the Board specifically
solicited comment on significant alternatives that would minimize the
impact of the proposal on small entities. The Board's final regulatory
flexibility analysis is set forth below. For purposes of this analysis,
banks and other depository institutions are considered ``small'' if
they have less than $175 million in assets. For the reasons stated
below, the Board expects that the final rule will not have a
significant economic impact on small entities.
1. Statement of the Need for and the Objectives of the Final Rule
The Board is publishing final amendments to Regulation D to
authorize Reserve Banks to offer interest-bearing deposits of specified
maturities to eligible institutions. Term deposits are intended to
facilitate the conduct of monetary policy by providing a tool for
managing the aggregate quantity of reserve balances. Additional
discussion of the need for and objectives of the final rule is
contained in the SUPPLEMENTARY INFORMATION above.
2. Summary of Significant Issues Raised by the Public Comments in
Response to the Initial Regulatory Flexibility Analysis
Although the Board received no comments that were specifically in
response to the IRFA, the Board received comments regarding the
proposal's impact on small entities. As discussed in the SUPPLEMENTARY
INFORMATION above, some commenters expressed concern about small
institutions' ability to participate in term deposit offerings and to
compete with larger institutions in the offerings, particularly if an
auction mechanism were used. To address these concerns, commenters
suggested that minimum bid amounts for auctions be set sufficiently low
to allow smaller institutions to participate and suggested that
noncompetitive tenders be offered alongside competitive auctions. Some
commenters also suggested that there be limits on the portions of
offerings a single institution could be awarded so as to prevent larger
institutions from being awarded an entire offering.
As discussed above, the Board expects to implement term deposits in
a way that promotes the access of small entities to term deposits.
3. Small Entities Affected by the Final Rule
Participation in term deposit offerings would be optional for
eligible institutions of all sizes. The Board estimates that
approximately 16,010 would be eligible to hold term deposits, of which
approximately 12,267 would be considered ``small'' for purposes of the
RFA (entities with assets of $175 million or less). The impact on
eligible institutions choosing to hold term deposits would be positive,
because term deposits would expand the range of investment
opportunities available to those institutions.
4. Description of Projected Reporting, Recordkeeping and Other
Compliance Requirements of the Final Rule
The final rule does not impose any new reporting, recordkeeping or
compliance requirements.
5. Significant Alternatives to the Revisions of the Final Rule
The Board received no comments suggesting significant alternatives
to the proposed rule that would minimize the impact of the rule on
small institutions. The final rule, like the proposed rule, provides
the Board with significant
[[Page 24389]]
flexibility to structure the terms and conditions for term deposit
offerings to minimize any adverse effects on small institutions. The
Board will set terms and conditions of term deposit offerings that
promote the access of small institutions to term deposits while still
maintaining the effectiveness of term deposits as a tool to implement
monetary policy. These steps could include those suggested by
commenters, such as low minimum bid amounts, aggregate limits, and
noncompetitive tenders.
VIII. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the final
rule under the authority delegated to the Board by the Office of
Management and Budget (OMB). The final rule contains no collections of
information subject to the PRA.
List of Subjects in 12 CFR Part 204
Banks, banking, Reporting and recordkeeping requirements.
Authority and Issuance
0
For the reasons set forth in the preamble, the Board is proposing to
amend 12 CFR part 204 as follows:
PART 204--RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
(REGULATION D)
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
6105.
0
2. Amend Sec. 204.2 by adding paragraph (dd) to read as follows:
Sec. 204.2 Definitions.
* * * * *
(dd) Term deposit means those funds of an eligible institution that
are maintained by that institution for a specified maturity at a
Federal Reserve Bank pursuant to section 204.10(e) of this part.
0
3. Section 204.10 is amended by revising paragraph (b)(3) and by adding
a new paragraph (e) to read as follows:
Sec. 204.10 Payment of interest on balances.
* * * * *
(b) * * *
(3) For required reserve balances, excess balances, and term
deposits, at any other rate or rates as determined by the Board from
time to time, not to exceed the general level of short-term interest
rates. For purposes of this subsection, ``short-term interest rates''
are rates on obligations with maturities of no more than one year, such
as the primary credit rate and rates on term federal funds, term
repurchase agreements, commercial paper, term Eurodollar deposits, and
other similar instruments.
* * * * *
(e) Term deposits. (1) A Federal Reserve Bank may accept term
deposits from eligible institutions under the provisions of this
paragraph (e) subject to such terms and conditions as the Board may
establish from time to time, including but not limited to conditions
regarding the maturity of the term deposits being offered, maximum and
minimum amounts that may be maintained by an eligible institution in a
term deposit, the interest rate or rates offered, early withdrawal of
term deposits, pledging term deposits as collateral and, if term
deposits are offered through an auction mechanism, the size of the
offering, maximum and minimum bid amounts, and other relevant terms.
(2) A term deposit will not satisfy any institution's required
reserve balance or contractual clearing balance.
(3) A term deposit may not be used for general payments or
settlement activities.
By order of the Board of Governors of the Federal Reserve
System, April 29, 2010.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 2010-10483 Filed 5-4-10; 8:45 am]
BILLING CODE 6210-01-P