Interest on Deposits; Deposit Insurance Coverage, 41392-41395 [2011-17686]
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41392
Federal Register / Vol. 76, No. 135 / Thursday, July 14, 2011 / Rules and Regulations
organization. The opportunity to settle
disputes by arbitration may in some
cases provide benefits to customers,
including the ability to obtain an
expeditious and final resolution of
disputes without incurring substantial
cost. Each customer must individually
examine the relative merits of
arbitration and consent to this
arbitration agreement must be
voluntary.
By signing this agreement, you: (1)
May be waiving your right to sue in a
court of law; and (2) are agreeing to be
bound by arbitration of any claims or
counterclaims that you or [insert name
of national bank] may submit to
arbitration under this agreement. In the
event a dispute arises, you will be
notified if [insert name of national bank]
intends to submit the dispute to
arbitration.
You need not sign this agreement to
open or maintain a retail forex account
with [insert name of national bank].
(b) Election of forum.
(1) Within 10 business days after
receipt of notice from the retail forex
customer that the customer intends to
submit a claim to arbitration, the
national bank must provide the
customer with a list of persons qualified
in dispute resolution.
(2) The customer must, within 45
days after receipt of such list, notify the
national bank of the person selected.
The customer’s failure to provide such
notice must give the national bank the
right to select a person from the list.
(c) Enforceability. A dispute
settlement procedure may require
parties using the procedure to agree,
under applicable state law, submission
agreement, or otherwise, to be bound by
an award rendered in the procedure if
the agreement to submit the claim or
grievance to the procedure complies
with paragraph (a) of this section or the
agreement to submit the claim or
grievance to the procedure was made
after the claim or grievance arose. Any
award so rendered by the procedure will
be enforceable in accordance with
applicable law.
(d) Time limits for submission of
claims. The dispute settlement
procedure used by the parties may not
include any unreasonably short
limitation period foreclosing submission
of a customer’s claims or grievances or
counterclaims.
(e) Counterclaims. A procedure for the
settlement of a retail forex customer’s
claims or grievances against a national
bank or employee thereof may permit
the submission of a counterclaim in the
procedure by a person against whom a
claim or grievance is brought if the
counterclaim:
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(1) Arises out of the transaction or
occurrence that is the subject of the
retail forex customer’s claim or
grievance; and
(2) Does not require for adjudication
the presence of essential witnesses,
parties, or third persons over which the
settlement process lacks jurisdiction.
§ 48.17
Reservation of authority.
The OCC may modify the disclosure,
recordkeeping, capital and margin,
reporting, business conduct,
documentation, or other standards or
requirements under this part for a
specific retail forex transaction or a
class of retail forex transactions if the
OCC determines that the modification is
consistent with safety and soundness
and the protection of retail forex
customers.
Dated: July 7, 2011.
John Walsh,
Acting Comptroller of the Currency.
[FR Doc. 2011–17514 Filed 7–13–11; 8:45 am]
BILLING CODE 4810–33–P
FEDERAL DEPOSIT INSURANCE
CORPORATION
12 CFR Parts 329 and 330
RIN 3064–AD78
Interest on Deposits; Deposit
Insurance Coverage
Federal Deposit Insurance
Corporation (FDIC).
ACTION: Final rule.
AGENCY:
The FDIC is issuing a final
rule amending its regulations to reflect
section 627 of the Dodd-Frank Wall
Street Reform and Consumer Protection
Act (the DFA),1 repealing the
prohibition against the payment of
interest on demand deposit accounts
effective July 21, 2011.
DATES: The final rule is effective July 21,
2011.
FOR FURTHER INFORMATION CONTACT:
Martin Becker, Senior Consumer Affairs
Specialist, Division of Consumer and
Depositor Protection, (703) 254–2233,
Mark Mellon, Counsel, Legal Division,
(202) 898–3884, Federal Deposit
Insurance Corporation, 550 17th Street,
NW., Washington, DC 20429.
SUPPLEMENTARY INFORMATION:
SUMMARY:
I. Background
Section 627 of the DFA repealed the
statutory prohibition against the
payment of interest on demand
deposits, effective one year from the
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1 Public
Law 111–203, 124 Stat. 1376.
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date of the DFA’s enactment, July 21,
2011. Section 343 of the DFA amended
section 11(a)(1) of the Federal Deposit
Insurance Act, 12 U.S.C. 1821(a)(1), to
provide full insurance coverage for
depository institution noninterestbearing transaction accounts from
December 31, 2010, through December
31, 2012.
In light of the prospective repeal of
the demand deposit interest prohibition,
the FDIC proposed to rescind 12 CFR
part 329, the regulation which
implements that prohibition with
respect to state-chartered, nonmember
(SNM) banks to be effective on the same
date as the statutory repeal, July 21,
2011. 76 FR 21265 (Apr. 15, 2011)
(NPR). At the same time, however, a
regulatory definition of the term
‘‘interest’’ would still be useful in
interpreting the requirements of section
343 of the DFA providing temporary,
unlimited deposit insurance coverage
for noninterest-bearing transaction
accounts. For this reason, in the NPR
the FDIC also proposed to transfer the
definition of ‘‘interest’’ found at 12 CFR
329.1(c) to Part 330, specifically the
definitions section at 12 CFR 330.1. The
FDIC also specifically solicited
comment on whether other parts of Part
329 could also prove useful and
therefore should be moved into Part 330
as well. In addition, the FDIC sought
comment on every other aspect of the
proposed rule.2
II. Comment Summary and Discussion
The FDIC received eight comments on
the NPR. Three were from community
banks, one was from a large depository
institution, two were from depository
institution trade groups, one from a
financial consulting firm, and one was
from a legal representative for a money
market fund.
The chief points were:
1. The FDIC should stop or delay
repeal of the prohibition (four
commenters);
2. Community banks will be harmed
by repeal of the prohibition (four
commenters);
3. The FDIC should add the Part 329
section concerning premiums to Part
330 (three commenters); and
4. The FDIC should adopt or
incorporate all Federal Reserve
interpretations and advisory opinions
2 In counterpart to this rulemaking, the Board of
Governors of the Federal Reserve System (the
Federal Reserve) have issued a notice of proposed
rulemaking to repeal 12 CFR Part 217, Prohibition
Against Payment of Interest on Demand Deposits
(Regulation Q). See 76 Federal Register 20892 (Apr.
14, 2011). Regulation Q implements the prohibition
against the payment of interest on demand deposits
with respect to member banks.
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pertaining to Regulation Q (two
commenters).
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Repeal or Delay Prohibition
Commenters opposed to immediate
implementation of the repeal of the
prohibition made several arguments. All
four commenters stated that repeal
would result in increased deposit
volatility as depository institutions
competed for an increased share of
business deposits by offering
continually higher rates of interest.
Three of the four contended this would
severely affect community banks. One
commenter called for delay until the
safety and soundness consequences of
repeal are understood, arguing that the
FDIC and the Federal Reserve have the
authority to issue a statement of policy
that would prevent interest payments on
deposits. Another commenter
recommended a phase-in with
immediate implementation of the repeal
followed by a twelve- to eighteen-month
grandfather for Federal Reserve
interpretations and advisory opinions
concerning Regulation Q. Another
commenter stated that efforts to repeal
the prohibition should either cease or be
delayed until its impact is understood.
In response to these comments, the
FDIC notes that, as previously observed,
pursuant to section 627 of the DFA, as
of July 21, 2011, the prohibition against
the payment of interest on demand
deposits will be repealed by operation
of statute, as a matter of law.
Harm to Community Banks
As noted previously, several
commenters contended repeal would
result in heightened competition for
deposits. They reasoned that large banks
will offer high rates of interest and lure
away business depositors previously
content to do business with community
banks based on personal services
(relationship deposits). Community
banks would then be pressured to offer
higher rates of interests in order to stay
competitive, further cutting already thin
marginal rates of return. Increased
deposits might also mean added
pressure for depository institutions to
loan these new funds out, possibly
leading to unsafe and unsound lending
and further weakening depository
institutions’ fiscal health.
As potential responses to these
anticipated negative consequences, one
commenter recommended that the FDIC
take a number of steps: (a) The FDIC
should consider issuing a statement of
policy to warn depository institutions
about the need for interest rate risk
management; (b) interest rate risk
should be quantified and an increased
capital charge should be imposed on
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depository institutions with heightened
risk due to repeal of the statutory
prohibition; (c) stress tests should be
performed on depository institutions
before they are allowed to pay interest
on business checking accounts; (d) call
reports should be modified to provide
for the reporting of interest rate risk; and
(e) reserve requirements should be
increased to reduce competition for
deposits.
Another commenter recommended
that the FDIC hold roundtables prior to
the July 21, 2011, repeal date, urged the
FDIC and the Federal Reserve to work
together to clarify issues in connection
with the repeal, and requested that the
FDIC provide more time for compliance
by depository institutions. This
commenter noted that while the FDIC
has no authority to delay or to phase in
the statutory repeal, efforts still need to
be made to provide depository
institutions with clarity. The commenter
noted the need to revise call reports and
thrift financial reports to indicate
interest-bearing demand deposit
accounts. It also noted the need for
clarity with respect to so-called ‘‘hybrid
products,’’ deposit accounts that both
pay interest and offer earnings credits.
A third commenter urged that the
Financial Stability Oversight Council
(the FSOC) should address the systemic
threat which the upcoming repeal poses
to the ‘‘U.S. banking and financial
system and the economy as a whole.’’ 3
After carefully considering these
comments, the FDIC has concluded that
the commenters raise valid concerns
about potential risks arising from the
repeal of the prohibition against paying
interest on demand deposits. Based on
currently available information,
however, there are also potential
benefits which may balance out or
outweigh those risks. While it is true
that depository institutions may incur
added expense by offering interest
payments to accounts where it was
previously unavailable (such as
business checking), they may also save
funds by no longer having to waive
expenses on such accounts (e.g., courier
service), as an inducement to retain
accountholders. Moreover, many
institutions offer products to business
customers that serve as a substitute for
paying interest on demand deposit
accounts. The most notable example is
a repo sweep account in which funds
are swept overnight from a demand
deposit account to a repo account and
swept back to the demand deposit
3 Created by section 111 of the DFA, the FSOC is
charged with identifying threats to the financial
stability of the U.S., promoting market discipline,
and responding to emerging risks to the stability of
the U.S. financial system.
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account the next morning. The
institution pays interest on the funds
while they are in the repo account.
Thus, for some institutions the repeal of
the prohibition against paying interest
on demand deposits will result in the
replacement of indirect payments of
interest on demand deposits with
explicit, direct interest-bearing demand
deposit accounts.
Repeal of the prohibition might
directly benefit community banks by
allowing them to attract more
potentially stable deposits which could
reduce their need for higher-cost, more
volatile funding. This could lower
community banks’ funding costs and
also allow them to plan business growth
more dependably and rigorously.
Interest rates are currently at a historic
low. This should provide depository
institutions with an adjustment period.
If the cost of funds should increase,
depository institutions should have time
to make the necessary adjustments to
protect profits and manage interest rate
risk through measures such as changes
to fee structures and rates to balance out
increased interest expense. With regard
to interest rate risk and potential
liquidity issues, the FDIC and the other
federal banking agencies have already
provided depository institutions with
detailed guidance which those
institutions are expected to follow.
Add Part 329 Section on Premiums to
Part 330
Three commenters stated that the Part
329 section pertaining to premiums
should be added to Part 330 along with
the definition of ‘‘interest.’’ Section
329.103 describes the circumstances
under which a depository institution’s
provision of a premium to a depositor
will not be considered a payment of
interest. It is substantially identical to
section 217.101 in Regulation Q.
Commenters contended that retaining
this section along with the definition of
interest might prove useful in
determining whether an account
qualifies for unlimited insurance
coverage as a noninterest-bearing
transaction account.
In response to these comments, the
FDIC agrees that there would be utility
in importing section 329.103 into Part
330. The FDIC will therefore import
section 329.103 into Part 330 as an
interpretive rule, to be designated as
section 330.101. This step is also
consistent with the FDIC’s decision, as
explained in more detail below, to look
to Regulation Q and Federal Reserve
interpretations of that rule when
construing section 343.
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Federal Register / Vol. 76, No. 135 / Thursday, July 14, 2011 / Rules and Regulations
Retention of Federal Reserve Regulation
Q Staff Opinions and Interpretive
Letters
Two commenters called for retention
of Federal Reserve staff opinions and
interpretive letters concerning
Regulation Q. They stated that these
materials would continue to be useful in
determining whether depository
institutions may continue to rely on
practices established pursuant to these
documents (one example given was
third party payment programs). One
commenter recommended that, as of
July 21, 2011, the materials be retained
for a period of eighteen months or more.
As noted previously, section 217.101
of Regulation Q is substantially
identical to section 329.103. Moreover,
the FDIC, along with other federal
banking agencies, has regularly
interpreted issues arising from the
prohibition against the payment of
interest on demand deposits in the same
manner as the Federal Reserve. In light
of this agency consistency and the
continued potential instrumental value
of agency interpretations regarding this
issue, the FDIC will continue to rely
upon Regulation Q and Federal Reserve
interpretations of that regulation for
purposes of implementing temporary,
unlimited deposit insurance coverage
pursuant to section 343 of the DFA.
III. Final Rule
For the reasons set forth in the
preceding section, the FDIC is issuing
the final rule.
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IV. Regulatory Analysis and Procedure
A. Effective Date
Absent a showing of ‘‘good cause,’’
the Administrative Procedure Act (5
U.S.C. 553(d)(3)) requires a 30-day
delayed effective date before a final rule
may become effective. The FDIC finds
good cause for waiving this requirement
because the final rule simply conforms
the FDIC’s regulations to reflect the
statutory repeal of the prohibition
against the payment of interest on
demand deposit accounts. As discussed,
that statutory repeal becomes effective
July 21, 2011. Delaying the effective
date of the final rule for thirty days
would result in a gap between the
effective date of the statutory repeal and
the effective date of the amendments to
the FDIC’s regulations reflecting that
statutory repeal. Also, the FDIC deems
it unnecessary to provide a delayed
effective date for the final rule because
there are no actions SNM banks must
take to implement the final rule; as
noted, the final rule simply conforms
the FDIC’s regulations to reflect a
statutory change.
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The Riegle Community Development
and Regulatory Improvement Act
provides that any new regulations or
amendments to regulations prescribed
by a Federal banking agency that impose
additional reporting, disclosures, or
other new requirements on insured
depository institutions shall take effect
on the first day of a calendar quarter
which begins on or after the date on
which the regulations are published in
final form, unless the agency
determines, for good cause published
with the rule, that the rule should
become effective before such time.4 The
final rule does not impose any
additional reporting, disclosures, or
other new requirements on insured
depository institutions.
The final rule is therefore effective
upon July 21, 2011, the date when the
statutory prohibition against the
payment of interest on demand deposits
will be repealed under section 627 of
the DFA.
B. Paperwork Reduction Act
No collections of information
pursuant to the Paperwork Reduction
Act (44 U.S.C. Ch. 3501 et seq.) are
contained in the final rule.
C. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA)
requires that each federal agency either
certify that a proposed rule would not,
if adopted in final form, have a
significant economic impact on a
substantial number of small entities or
prepare an initial regulatory flexibility
analysis of the rule and publish the
analysis for comment. For purposes of
the RFA analysis or certification,
financial institutions with total assets of
$175 million or less are considered to be
‘‘small entities.’’ The FDIC hereby
certifies pursuant to 5 U.S.C. 605(b) that
the final rule will not have a significant
economic impact on a substantial
number of small entities. This is
because the FDIC already applies the
Part 329 definition of ‘‘interest’’ and the
interpretive rule on premiums for
purposes of determining whether an
account qualifies for full deposit
insurance coverage as a noninterestbearing transaction account. The FDIC is
only transferring the definition from
Part 329 to Part 330 because the former
regulation will become moot on July 21,
2011, pursuant to section 627 of the
DFA and its repeal of the statutory ban
on the payment of interest on demand
deposits. There will therefore be no
significant economic impact on a
substantial number of small entities as
a result of this change.
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4 12
U.S.C. 4802.
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D. Small Business Regulatory
Enforcement Fairness Act
The Office of Management and Budget
(OMB) has determined that the final
rule is not a ‘‘major rule’’ within the
meaning of the relevant sections of the
Small Business Regulatory Enforcement
Act of 1996 (SBREFA) (5 U.S.C. 801, et
seq.).
As required by SBREFA, the FDIC
will file the appropriate reports with
Congress and the General Accounting
Office so that the final rule may be
reviewed.
E. The Treasury and General
Government Appropriations Act, 1999—
Assessment of Federal Regulations and
Policies on Families
The FDIC has determined that the
final rule will not affect family wellbeing within the meaning of section 654
of the Treasury and General
Government Appropriations Act,
enacted as part of the Omnibus
Consolidated and Emergency
Supplemental Appropriations Act of
1999 (Pub. L. 105–277, 112 Stat. 2681).
F. Plain Language
Section 722 of the Gramm-LeachBliley Act, Public Law 106–102, 113
Stat. 1338, 1471 (Nov. 12, 1999),
requires the federal banking agencies to
use plain language in all proposed and
final rules published after January 1,
2000. No commenter suggested that the
NPR was materially unclear, and the
FDIC believes that the final rule is
substantively similar to the NPR.
List of Subjects
12 CFR Part 329
Banks, Banking, Interest rates.
12 CFR Part 330
Bank deposit insurance, Banks,
Banking, Reporting and recordkeeping
requirements, Savings and loan
associations, Trusts and trustees.
For the reasons set forth in the
preamble, under the authority of section
627 of the Dodd-Frank Wall Street
Reform and Consumer Protection Act,
the FDIC amends chapter III of title 12
of the Code of Federal Regulations as
follows:
PART 329—INTEREST ON DEPOSITS
■
1. Part 329 is removed and reserved.
PART 330—DEPOSIT INSURANCE
COVERAGE
2. The authority citation for part 330
continues to read as follows: 12 U.S.C.
1813(l), 1813(m), 1817(i), 1818(q),
1819(Tenth), 1820(f), 1821(a), 1822(c).
■
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Federal Register / Vol. 76, No. 135 / Thursday, July 14, 2011 / Rules and Regulations
3. In § 330.1, paragraphs (k) through
(r) of § 330.1 are redesignated as
paragraphs (l) through (s) respectively
and new paragraph (k) is added to read
as follows:
■
§ 330.1
Definitions.
*
*
*
*
*
(k) Interest, with respect to a deposit,
means any payment to or for the
account of any depositor as
compensation for the use of funds
constituting a deposit. A bank’s
absorption of expenses incident to
providing a normal banking function or
its forbearance from charging a fee in
connection with such a service is not
considered a payment of interest.
*
*
*
*
*
■ 4. In § 330.6, in the first sentence of
paragraph (b) remove ‘‘§ 330.1(m)’’ and
add in its place ‘‘§ 330.1(n)’’.
■ 5. In § 330.9, in the first sentence of
paragraph (c)(1) remove ‘‘§ 330.1(k)’’
and add in its place ‘‘§ 330.1(l)’’.
■ 6. In § 330.12:
■ a. In the first sentence of paragraph (a)
remove ‘‘§ 330.1(p)’’ and add in its place
‘‘§ 330.1(q)’’.
■ b. In the first sentence of paragraph
(b)(1) remove ‘‘§ 330.1(o)’’ and add in its
place ‘‘§ 330.1(p)’’.
■ 7. In § 330.13, in the first sentence of
paragraph (a) remove ‘‘§ 330.1(l)’’ and
add in its place ‘‘§ 330.1(m)’’. In the last
sentence of paragraph (a) remove
‘‘§ 330.1(q)’’ and add in its place
‘‘§ 330.1(r)’’.
■ 8. In § 330.16, in the first sentence of
paragraph (a) remove ‘‘§ 330.1(r)’’ and
add in its place ‘‘§ 330.1(s)’’.
■ 9. New § 330.101 is added to read as
follows:
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§ 330.101
Premiums.
This interpretive rule describes
certain payments that are not deemed to
be ‘‘interest’’ as defined in § 330.1(k).
(a) Premiums, whether in the form of
merchandise, credit, or cash, given by a
bank to the holder of a deposit will not
be regarded as ‘‘interest’’ as defined in
§ 330.1(k) if:
(1) The premium is given to the
depositor only at the time of the
opening of a new account or an addition
to an existing account;
(2) No more than two premiums per
deposit are given in any twelve-month
interval; and
(3) The value of the premium (in the
case of merchandise, the total cost to the
bank, including shipping, warehousing,
packaging, and handling costs) does not
exceed $10 for a deposit of less than
$5,000 or $20 for a deposit of $5,000 or
more.
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(b) The costs of premiums may not be
averaged.
(c) A bank may not solicit funds for
deposit on the basis that the bank will
divide the funds into several accounts
for the purpose of enabling the bank to
pay the depositor more than two
premiums within a twelve-month
interval on the solicited funds.
(d) The bank must retain sufficient
information for examiners to determine
that the requirements of this section
have been satisfied.
(e) Notwithstanding paragraph (a) of
this section, any premium that is not,
directly or indirectly, related to or
dependent on the balance in a demand
deposit account and the duration of the
account balance shall not be considered
the payment of interest on a demand
deposit account and shall not be subject
to the limitations in paragraph (a) of this
section.
By order of the Board of Directors.
Dated at Washington, DC, this 6th day of
July 2011.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2011–17686 Filed 7–13–11; 8:45 am]
BILLING CODE 6714–01–P
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
14 CFR Part 39
[Docket No. FAA–2010–1024; Directorate
Identifier 2010–NE–34–AD; Amendment 39–
16753; AD 2011–15–06]
RIN 2120–AA64
Airworthiness Directives; General
Electric Company GE90–76B; GE90–
77B; GE90–85B; GE90–90B; and
GE90–94B Turbofan Engines
Federal Aviation
Administration (FAA), DOT.
ACTION: Final rule.
AGENCY:
We are adopting a new
airworthiness directive (AD) for the
products listed above. This AD requires
initial and repetitive fluorescent
penetrant inspections (FPIs) and eddy
current inspections (ECIs) of the highpressure compressor rotor (HPCR) 8–10
stage spool, part numbers (P/Ns)
1844M90G01 and 1844M90G02, for
cracks between the 9–10 stages at each
piece-part exposure. This AD was
prompted by cracks discovered on one
HPCR 8–10 spool between the 9–10
stages in the weld joint. We are issuing
this AD to prevent failure of the HPCR
SUMMARY:
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41395
8–10 stage spool, uncontained engine
failure, and damage to the airplane.
DATES: This AD is effective August 18,
2011.
ADDRESSES: For service information
identified in this AD, contact GE–
Aviation M/D Rm. 285, One Neumann
Way, Cincinnati, OH 45215, phone:
513–552–3272; e-mail:
geae.aoc@ge.com. You may review
copies of the referenced service
information at the FAA, Engine &
Propeller Directorate, 12 New England
Executive Park, Burlington, MA. For
information on the availability of this
material at the FAA, call 781–238–7125.
Examining the AD Docket
You may examine the AD docket on
the Internet at https://
www.regulations.gov; or in person at the
Docket Management Facility 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 address for the
Docket Office (phone: 800–647–5527) is
Document Management Facility, U.S.
Department of Transportation, Docket
Operations, M–30, West Building
Ground Floor, Room W12–140, 1200
New Jersey Avenue SE., Washington,
DC 20590.
FOR FURTHER INFORMATION CONTACT:
Jason Yang, Aerospace Engineer, Engine
Certification Office, FAA, 12 New
England Executive Park, Burlington, MA
01803; phone: 781–238–7747; fax: 781–
238–7199; e-mail: jason.yang@faa.gov.
SUPPLEMENTARY INFORMATION:
Discussion
We issued a notice of proposed
rulemaking (NPRM) to amend 14 CFR
part 39 to include an airworthiness
directive (AD) that would apply to the
specified products. That NPRM
published in the Federal Register on
December 22, 2010 (75 FR 80370). That
NPRM proposed to require initial and
repetitive FPIs and ECIs of the HPCR
8–10 stage spool, P/Ns 1844M90G01
and 1844M90G02, for cracks between
the 9–10 stages, at each piece-part
exposure.
Comments
We gave the public the opportunity to
participate in developing this AD. The
following presents the comments
received on the proposal and the FAA’s
response to each comment.
Request
Two commenters, General Electric
Company and The Boeing Company,
requested that we remove the ‘‘Unsafe
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]]>Agencies
[Federal Register Volume 76, Number 135 (Thursday, July 14, 2011)]
[Rules and Regulations]
[Pages 41392-41395]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-17686]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Parts 329 and 330
RIN 3064-AD78
Interest on Deposits; Deposit Insurance Coverage
AGENCY: Federal Deposit Insurance Corporation (FDIC).
ACTION: Final rule.
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SUMMARY: The FDIC is issuing a final rule amending its regulations to
reflect section 627 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the DFA),\1\ repealing the prohibition against the
payment of interest on demand deposit accounts effective July 21, 2011.
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\1\ Public Law 111-203, 124 Stat. 1376.
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DATES: The final rule is effective July 21, 2011.
FOR FURTHER INFORMATION CONTACT: Martin Becker, Senior Consumer Affairs
Specialist, Division of Consumer and Depositor Protection, (703) 254-
2233, Mark Mellon, Counsel, Legal Division, (202) 898-3884, Federal
Deposit Insurance Corporation, 550 17th Street, NW., Washington, DC
20429.
SUPPLEMENTARY INFORMATION:
I. Background
Section 627 of the DFA repealed the statutory prohibition against
the payment of interest on demand deposits, effective one year from the
date of the DFA's enactment, July 21, 2011. Section 343 of the DFA
amended section 11(a)(1) of the Federal Deposit Insurance Act, 12
U.S.C. 1821(a)(1), to provide full insurance coverage for depository
institution noninterest-bearing transaction accounts from December 31,
2010, through December 31, 2012.
In light of the prospective repeal of the demand deposit interest
prohibition, the FDIC proposed to rescind 12 CFR part 329, the
regulation which implements that prohibition with respect to state-
chartered, nonmember (SNM) banks to be effective on the same date as
the statutory repeal, July 21, 2011. 76 FR 21265 (Apr. 15, 2011) (NPR).
At the same time, however, a regulatory definition of the term
``interest'' would still be useful in interpreting the requirements of
section 343 of the DFA providing temporary, unlimited deposit insurance
coverage for noninterest-bearing transaction accounts. For this reason,
in the NPR the FDIC also proposed to transfer the definition of
``interest'' found at 12 CFR 329.1(c) to Part 330, specifically the
definitions section at 12 CFR 330.1. The FDIC also specifically
solicited comment on whether other parts of Part 329 could also prove
useful and therefore should be moved into Part 330 as well. In
addition, the FDIC sought comment on every other aspect of the proposed
rule.\2\
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\2\ In counterpart to this rulemaking, the Board of Governors of
the Federal Reserve System (the Federal Reserve) have issued a
notice of proposed rulemaking to repeal 12 CFR Part 217, Prohibition
Against Payment of Interest on Demand Deposits (Regulation Q). See
76 Federal Register 20892 (Apr. 14, 2011). Regulation Q implements
the prohibition against the payment of interest on demand deposits
with respect to member banks.
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II. Comment Summary and Discussion
The FDIC received eight comments on the NPR. Three were from
community banks, one was from a large depository institution, two were
from depository institution trade groups, one from a financial
consulting firm, and one was from a legal representative for a money
market fund.
The chief points were:
1. The FDIC should stop or delay repeal of the prohibition (four
commenters);
2. Community banks will be harmed by repeal of the prohibition
(four commenters);
3. The FDIC should add the Part 329 section concerning premiums to
Part 330 (three commenters); and
4. The FDIC should adopt or incorporate all Federal Reserve
interpretations and advisory opinions
[[Page 41393]]
pertaining to Regulation Q (two commenters).
Repeal or Delay Prohibition
Commenters opposed to immediate implementation of the repeal of the
prohibition made several arguments. All four commenters stated that
repeal would result in increased deposit volatility as depository
institutions competed for an increased share of business deposits by
offering continually higher rates of interest. Three of the four
contended this would severely affect community banks. One commenter
called for delay until the safety and soundness consequences of repeal
are understood, arguing that the FDIC and the Federal Reserve have the
authority to issue a statement of policy that would prevent interest
payments on deposits. Another commenter recommended a phase-in with
immediate implementation of the repeal followed by a twelve- to
eighteen-month grandfather for Federal Reserve interpretations and
advisory opinions concerning Regulation Q. Another commenter stated
that efforts to repeal the prohibition should either cease or be
delayed until its impact is understood.
In response to these comments, the FDIC notes that, as previously
observed, pursuant to section 627 of the DFA, as of July 21, 2011, the
prohibition against the payment of interest on demand deposits will be
repealed by operation of statute, as a matter of law.
Harm to Community Banks
As noted previously, several commenters contended repeal would
result in heightened competition for deposits. They reasoned that large
banks will offer high rates of interest and lure away business
depositors previously content to do business with community banks based
on personal services (relationship deposits). Community banks would
then be pressured to offer higher rates of interests in order to stay
competitive, further cutting already thin marginal rates of return.
Increased deposits might also mean added pressure for depository
institutions to loan these new funds out, possibly leading to unsafe
and unsound lending and further weakening depository institutions'
fiscal health.
As potential responses to these anticipated negative consequences,
one commenter recommended that the FDIC take a number of steps: (a) The
FDIC should consider issuing a statement of policy to warn depository
institutions about the need for interest rate risk management; (b)
interest rate risk should be quantified and an increased capital charge
should be imposed on depository institutions with heightened risk due
to repeal of the statutory prohibition; (c) stress tests should be
performed on depository institutions before they are allowed to pay
interest on business checking accounts; (d) call reports should be
modified to provide for the reporting of interest rate risk; and (e)
reserve requirements should be increased to reduce competition for
deposits.
Another commenter recommended that the FDIC hold roundtables prior
to the July 21, 2011, repeal date, urged the FDIC and the Federal
Reserve to work together to clarify issues in connection with the
repeal, and requested that the FDIC provide more time for compliance by
depository institutions. This commenter noted that while the FDIC has
no authority to delay or to phase in the statutory repeal, efforts
still need to be made to provide depository institutions with clarity.
The commenter noted the need to revise call reports and thrift
financial reports to indicate interest-bearing demand deposit accounts.
It also noted the need for clarity with respect to so-called ``hybrid
products,'' deposit accounts that both pay interest and offer earnings
credits.
A third commenter urged that the Financial Stability Oversight
Council (the FSOC) should address the systemic threat which the
upcoming repeal poses to the ``U.S. banking and financial system and
the economy as a whole.'' \3\
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\3\ Created by section 111 of the DFA, the FSOC is charged with
identifying threats to the financial stability of the U.S.,
promoting market discipline, and responding to emerging risks to the
stability of the U.S. financial system.
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After carefully considering these comments, the FDIC has concluded
that the commenters raise valid concerns about potential risks arising
from the repeal of the prohibition against paying interest on demand
deposits. Based on currently available information, however, there are
also potential benefits which may balance out or outweigh those risks.
While it is true that depository institutions may incur added expense
by offering interest payments to accounts where it was previously
unavailable (such as business checking), they may also save funds by no
longer having to waive expenses on such accounts (e.g., courier
service), as an inducement to retain accountholders. Moreover, many
institutions offer products to business customers that serve as a
substitute for paying interest on demand deposit accounts. The most
notable example is a repo sweep account in which funds are swept
overnight from a demand deposit account to a repo account and swept
back to the demand deposit account the next morning. The institution
pays interest on the funds while they are in the repo account. Thus,
for some institutions the repeal of the prohibition against paying
interest on demand deposits will result in the replacement of indirect
payments of interest on demand deposits with explicit, direct interest-
bearing demand deposit accounts.
Repeal of the prohibition might directly benefit community banks by
allowing them to attract more potentially stable deposits which could
reduce their need for higher-cost, more volatile funding. This could
lower community banks' funding costs and also allow them to plan
business growth more dependably and rigorously. Interest rates are
currently at a historic low. This should provide depository
institutions with an adjustment period. If the cost of funds should
increase, depository institutions should have time to make the
necessary adjustments to protect profits and manage interest rate risk
through measures such as changes to fee structures and rates to balance
out increased interest expense. With regard to interest rate risk and
potential liquidity issues, the FDIC and the other federal banking
agencies have already provided depository institutions with detailed
guidance which those institutions are expected to follow.
Add Part 329 Section on Premiums to Part 330
Three commenters stated that the Part 329 section pertaining to
premiums should be added to Part 330 along with the definition of
``interest.'' Section 329.103 describes the circumstances under which a
depository institution's provision of a premium to a depositor will not
be considered a payment of interest. It is substantially identical to
section 217.101 in Regulation Q. Commenters contended that retaining
this section along with the definition of interest might prove useful
in determining whether an account qualifies for unlimited insurance
coverage as a noninterest-bearing transaction account.
In response to these comments, the FDIC agrees that there would be
utility in importing section 329.103 into Part 330. The FDIC will
therefore import section 329.103 into Part 330 as an interpretive rule,
to be designated as section 330.101. This step is also consistent with
the FDIC's decision, as explained in more detail below, to look to
Regulation Q and Federal Reserve interpretations of that rule when
construing section 343.
[[Page 41394]]
Retention of Federal Reserve Regulation Q Staff Opinions and
Interpretive Letters
Two commenters called for retention of Federal Reserve staff
opinions and interpretive letters concerning Regulation Q. They stated
that these materials would continue to be useful in determining whether
depository institutions may continue to rely on practices established
pursuant to these documents (one example given was third party payment
programs). One commenter recommended that, as of July 21, 2011, the
materials be retained for a period of eighteen months or more.
As noted previously, section 217.101 of Regulation Q is
substantially identical to section 329.103. Moreover, the FDIC, along
with other federal banking agencies, has regularly interpreted issues
arising from the prohibition against the payment of interest on demand
deposits in the same manner as the Federal Reserve. In light of this
agency consistency and the continued potential instrumental value of
agency interpretations regarding this issue, the FDIC will continue to
rely upon Regulation Q and Federal Reserve interpretations of that
regulation for purposes of implementing temporary, unlimited deposit
insurance coverage pursuant to section 343 of the DFA.
III. Final Rule
For the reasons set forth in the preceding section, the FDIC is
issuing the final rule.
IV. Regulatory Analysis and Procedure
A. Effective Date
Absent a showing of ``good cause,'' the Administrative Procedure
Act (5 U.S.C. 553(d)(3)) requires a 30-day delayed effective date
before a final rule may become effective. The FDIC finds good cause for
waiving this requirement because the final rule simply conforms the
FDIC's regulations to reflect the statutory repeal of the prohibition
against the payment of interest on demand deposit accounts. As
discussed, that statutory repeal becomes effective July 21, 2011.
Delaying the effective date of the final rule for thirty days would
result in a gap between the effective date of the statutory repeal and
the effective date of the amendments to the FDIC's regulations
reflecting that statutory repeal. Also, the FDIC deems it unnecessary
to provide a delayed effective date for the final rule because there
are no actions SNM banks must take to implement the final rule; as
noted, the final rule simply conforms the FDIC's regulations to reflect
a statutory change.
The Riegle Community Development and Regulatory Improvement Act
provides that any new regulations or amendments to regulations
prescribed by a Federal banking agency that impose additional
reporting, disclosures, or other new requirements on insured depository
institutions shall take effect on the first day of a calendar quarter
which begins on or after the date on which the regulations are
published in final form, unless the agency determines, for good cause
published with the rule, that the rule should become effective before
such time.\4\ The final rule does not impose any additional reporting,
disclosures, or other new requirements on insured depository
institutions.
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\4\ 12 U.S.C. 4802.
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The final rule is therefore effective upon July 21, 2011, the date
when the statutory prohibition against the payment of interest on
demand deposits will be repealed under section 627 of the DFA.
B. Paperwork Reduction Act
No collections of information pursuant to the Paperwork Reduction
Act (44 U.S.C. Ch. 3501 et seq.) are contained in the final rule.
C. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA) requires that each federal
agency either certify that a proposed rule would not, if adopted in
final form, have a significant economic impact on a substantial number
of small entities or prepare an initial regulatory flexibility analysis
of the rule and publish the analysis for comment. For purposes of the
RFA analysis or certification, financial institutions with total assets
of $175 million or less are considered to be ``small entities.'' The
FDIC hereby certifies pursuant to 5 U.S.C. 605(b) that the final rule
will not have a significant economic impact on a substantial number of
small entities. This is because the FDIC already applies the Part 329
definition of ``interest'' and the interpretive rule on premiums for
purposes of determining whether an account qualifies for full deposit
insurance coverage as a noninterest-bearing transaction account. The
FDIC is only transferring the definition from Part 329 to Part 330
because the former regulation will become moot on July 21, 2011,
pursuant to section 627 of the DFA and its repeal of the statutory ban
on the payment of interest on demand deposits. There will therefore be
no significant economic impact on a substantial number of small
entities as a result of this change.
D. Small Business Regulatory Enforcement Fairness Act
The Office of Management and Budget (OMB) has determined that the
final rule is not a ``major rule'' within the meaning of the relevant
sections of the Small Business Regulatory Enforcement Act of 1996
(SBREFA) (5 U.S.C. 801, et seq.).
As required by SBREFA, the FDIC will file the appropriate reports
with Congress and the General Accounting Office so that the final rule
may be reviewed.
E. The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families
The FDIC has determined that the final rule will not affect family
well-being within the meaning of section 654 of the Treasury and
General Government Appropriations Act, enacted as part of the Omnibus
Consolidated and Emergency Supplemental Appropriations Act of 1999
(Pub. L. 105-277, 112 Stat. 2681).
F. Plain Language
Section 722 of the Gramm-Leach-Bliley Act, Public Law 106-102, 113
Stat. 1338, 1471 (Nov. 12, 1999), requires the federal banking agencies
to use plain language in all proposed and final rules published after
January 1, 2000. No commenter suggested that the NPR was materially
unclear, and the FDIC believes that the final rule is substantively
similar to the NPR.
List of Subjects
12 CFR Part 329
Banks, Banking, Interest rates.
12 CFR Part 330
Bank deposit insurance, Banks, Banking, Reporting and recordkeeping
requirements, Savings and loan associations, Trusts and trustees.
For the reasons set forth in the preamble, under the authority of
section 627 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, the FDIC amends chapter III of title 12 of the Code of
Federal Regulations as follows:
PART 329--INTEREST ON DEPOSITS
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1. Part 329 is removed and reserved.
PART 330--DEPOSIT INSURANCE COVERAGE
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2. The authority citation for part 330 continues to read as follows: 12
U.S.C. 1813(l), 1813(m), 1817(i), 1818(q), 1819(Tenth), 1820(f),
1821(a), 1822(c).
[[Page 41395]]
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3. In Sec. 330.1, paragraphs (k) through (r) of Sec. 330.1 are
redesignated as paragraphs (l) through (s) respectively and new
paragraph (k) is added to read as follows:
Sec. 330.1 Definitions.
* * * * *
(k) Interest, with respect to a deposit, means any payment to or
for the account of any depositor as compensation for the use of funds
constituting a deposit. A bank's absorption of expenses incident to
providing a normal banking function or its forbearance from charging a
fee in connection with such a service is not considered a payment of
interest.
* * * * *
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4. In Sec. 330.6, in the first sentence of paragraph (b) remove
``Sec. 330.1(m)'' and add in its place ``Sec. 330.1(n)''.
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5. In Sec. 330.9, in the first sentence of paragraph (c)(1) remove
``Sec. 330.1(k)'' and add in its place ``Sec. 330.1(l)''.
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6. In Sec. 330.12:
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a. In the first sentence of paragraph (a) remove ``Sec. 330.1(p)'' and
add in its place ``Sec. 330.1(q)''.
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b. In the first sentence of paragraph (b)(1) remove ``Sec. 330.1(o)''
and add in its place ``Sec. 330.1(p)''.
0
7. In Sec. 330.13, in the first sentence of paragraph (a) remove
``Sec. 330.1(l)'' and add in its place ``Sec. 330.1(m)''. In the last
sentence of paragraph (a) remove ``Sec. 330.1(q)'' and add in its
place ``Sec. 330.1(r)''.
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8. In Sec. 330.16, in the first sentence of paragraph (a) remove
``Sec. 330.1(r)'' and add in its place ``Sec. 330.1(s)''.
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9. New Sec. 330.101 is added to read as follows:
Sec. 330.101 Premiums.
This interpretive rule describes certain payments that are not
deemed to be ``interest'' as defined in Sec. 330.1(k).
(a) Premiums, whether in the form of merchandise, credit, or cash,
given by a bank to the holder of a deposit will not be regarded as
``interest'' as defined in Sec. 330.1(k) if:
(1) The premium is given to the depositor only at the time of the
opening of a new account or an addition to an existing account;
(2) No more than two premiums per deposit are given in any twelve-
month interval; and
(3) The value of the premium (in the case of merchandise, the total
cost to the bank, including shipping, warehousing, packaging, and
handling costs) does not exceed $10 for a deposit of less than $5,000
or $20 for a deposit of $5,000 or more.
(b) The costs of premiums may not be averaged.
(c) A bank may not solicit funds for deposit on the basis that the
bank will divide the funds into several accounts for the purpose of
enabling the bank to pay the depositor more than two premiums within a
twelve-month interval on the solicited funds.
(d) The bank must retain sufficient information for examiners to
determine that the requirements of this section have been satisfied.
(e) Notwithstanding paragraph (a) of this section, any premium that
is not, directly or indirectly, related to or dependent on the balance
in a demand deposit account and the duration of the account balance
shall not be considered the payment of interest on a demand deposit
account and shall not be subject to the limitations in paragraph (a) of
this section.
By order of the Board of Directors.
Dated at Washington, DC, this 6th day of July 2011.
Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2011-17686 Filed 7-13-11; 8:45 am]
BILLING CODE 6714-01-P
