Interest on Deposits; Deposit Insurance Coverage, 41392-41395 [2011-17686]

Download as PDF wreier-aviles on DSKGBLS3C1PROD with RULES 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: VerDate Mar<15>2010 14:53 Jul 13, 2011 Jkt 223001 (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 PO 00000 1 Public Law 111–203, 124 Stat. 1376. Frm 00018 Fmt 4700 Sfmt 4700 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. E:\FR\FM\14JYR1.SGM 14JYR1 Federal Register / Vol. 76, No. 135 / Thursday, July 14, 2011 / Rules and Regulations pertaining to Regulation Q (two commenters). wreier-aviles on DSKGBLS3C1PROD with RULES 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 VerDate Mar<15>2010 14:53 Jul 13, 2011 Jkt 223001 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. PO 00000 Frm 00019 Fmt 4700 Sfmt 4700 41393 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. E:\FR\FM\14JYR1.SGM 14JYR1 41394 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. wreier-aviles on DSKGBLS3C1PROD with RULES 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. VerDate Mar<15>2010 14:53 Jul 13, 2011 Jkt 223001 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. PO 00000 4 12 U.S.C. 4802. Frm 00020 Fmt 4700 Sfmt 4700 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). ■ E:\FR\FM\14JYR1.SGM 14JYR1 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: wreier-aviles on DSKGBLS3C1PROD with RULES § 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. VerDate Mar<15>2010 14:53 Jul 13, 2011 Jkt 223001 (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: PO 00000 Frm 00021 Fmt 4700 Sfmt 4700 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 http:// 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 E:\FR\FM\14JYR1.SGM 14JYR1

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

0
1. Part 329 is removed and reserved.

PART 330--DEPOSIT INSURANCE COVERAGE

0
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]]


0
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.
* * * * *

0
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)''.

0
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)''.

0
6. In Sec.  330.12:
0
a. In the first sentence of paragraph (a) remove ``Sec.  330.1(p)'' and 
add in its place ``Sec.  330.1(q)''.
0
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)''.

0
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)''.

0
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