Regulation D: Reserve Requirements of Depository Institutions, 16525-16526 [2020-05806]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 85, Number 57 (Tuesday, March 24, 2020)]
[Rules and Regulations]
[Pages 16525-16526]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05806]


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FEDERAL RESERVE SYSTEM

12 CFR Part 204

[Docket No. R-1702; RIN 7100-AF 76]


Regulation D: Reserve Requirements of Depository Institutions

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Interim final rule, request for public comment.

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SUMMARY: The Board of Governors of the Federal Reserve System 
(``Board'') is amending its Regulation D (Reserve Requirements of 
Depository Institutions, 12 CFR part 204) to lower reserve ratios on 
transaction accounts maintained at depository institutions to zero 
percent.

DATES: 
    Effective date: The amendments to part 204 (Regulation D) are 
effective on March 24, 2020.
    Applicability date: The changes to reserve requirement ratios are 
applicable on March 26, 2020.
    Comments: Comments must be received on or before May 26, 2020.

ADDRESSES: You may submit comments, identified by Docket Number R-1702; 
RIN 7100-AF 76, by any of the following methods:
     Agency Website: https://www.federalreserve.gov. Follow the 
instructions for submitting comments at https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Email: [email protected]. Include the 
docket number and RIN in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Ann E. Misback, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551.
    All public comments are available from the Board's website at 
https://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons or to remove 
personally identifiable information at the commenter's request. 
Accordingly, comments will not be edited to remove any identifying or 
contact information. Public comments may also be viewed electronically 
or in paper in Room 146, 1709 New York Avenue NW, Washington, DC 20006, 
between 9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Sophia H. Allison, Senior Special 
Counsel, (202-452-3565), Legal Division, or Matthew Malloy (202-452-
2416), Division of Monetary Affairs, or Heather Wiggins (202-452-3674), 
Division of Monetary Affairs; for users of Telecommunications Device 
for the Deaf (TDD) only, contact 202-263-4869; Board of Governors of 
the Federal Reserve System, 20th and C Streets NW, Washington, DC 
20551.

SUPPLEMENTARY INFORMATION: 

I. Statutory and Regulatory Background

    Section 19 of the Federal Reserve Act (the ``Act'') imposes reserve 
requirements on certain types of deposits and other liabilities of 
depository institutions. Specifically, section 19(b)(2) of the Act (12 
U.S.C. 461(b)(2)) requires each depository institution to maintain 
reserves against its transaction accounts, nonpersonal time deposits, 
and Eurocurrency liabilities, as prescribed by Board regulations, for 
the purpose of implementing monetary policy. Reserve requirements for 
nonpersonal time deposits and Eurocurrency liabilities have been set at 
zero percent since 1990.
    Depository institutions satisfy reserve requirements by maintaining 
cash in their vault or, if vault cash is insufficient, by maintaining a 
balance in an account at a Federal Reserve Bank. The amount that a 
depository institution must maintain is known as the depository 
institution's reserve requirement. See 12 CFR 204.4 (computation of 
reserve requirements). The amount that a depository institution must 
maintain in an account at a Reserve Bank over and above the amount of 
its vault cash is known as the depository institution's reserve balance 
requirement. 12 CFR 204.2(ee) (definition of ``reserve balance 
requirement''). Currently, over 2,500 depository institutions maintain, 
in aggregate, $150 billion in account balances to satisfy reserve 
balance requirements.
    Transaction account balances maintained at each depository 
institution are subject to reserve requirement ratios of zero, three, 
or ten percent. Section 19(b)(11)(A) of the Act (12 U.S.C. 
461(b)(11)(A)) provides that a zero percent reserve requirement shall 
apply at each depository institution to total reservable liabilities 
that do not exceed a certain amount, known as the reserve requirement 
exemption amount. Section 19(b)(2) of the Act (12 U.S.C. 461(b)(2)) 
provides that transaction account balances maintained at each 
depository institution over the reserve requirement exemption amount 
and up to a certain amount, known as the low reserve tranche, are 
subject to a three percent reserve requirement. Transaction account 
balances over the low reserve tranche are subject to a ten percent 
reserve requirement. The reserve requirement exemption amount and the 
low reserve tranche are adjusted annually pursuant to formulas set 
forth in the Act.
    The reserve requirement ratios implemented by the Board pursuant to 
Section 19 of the Act are set forth in Section 204.4(f) of Regulation 
D. Currently, the reserve requirement exemption amount is $16.9 
million, and the low reserve tranche amount is $127.5 million.

II. Discussion

A. Recent Developments

    For many years, reserve requirements played a central role in the 
implementation of monetary policy by creating a stable demand for 
reserves. In January 2019, the FOMC announced its intention to 
implement monetary policy in an ample reserves regime. Reserve 
requirements do not play a significant role in this operating 
framework. In light of the shift to an ample reserves regime, the Board 
has determined to reduce the reserve requirement ratios to zero percent 
effective March 26, 2020. This action eliminates reserve requirements 
for thousands of depository institutions and will help to support 
lending to households and businesses.

III. Request for Comment

    The Board seeks comment on all aspects of this interim final rule.

IV. Administrative Procedure Act

    In accordance with the Administrative Procedure Act (``APA'') 
section 553(b) (5 U.S.C. 553(b)), the Board finds, for good cause, that 
providing notice and an opportunity for public comment before the 
effective date of this rule would be contrary to the public interest. 
In addition, pursuant to APA section 553(d) (5 U.S.C. 553(d)), the 
Board finds good

[[Page 16526]]

cause for making this amendment effective without 30 days advance 
publication. By improving the liquidity position of depository 
institutions subject to reserve requirements, implementation of the 
rule without 30 days advance publication could help alleviate pressures 
in short-term funding markets as well as support depository 
institutions' ability to provide financing to households and 
businesses. The Board believes that any delay in implementing the rule 
would prove contrary to the public interest. The Board is requesting 
comment on all aspects of the rule and will make any changes that it 
considers appropriate or necessary after review of any comments 
received.

V. Regulatory Flexibility Act

    The Regulatory Flexibility Act requires an agency that is issuing a 
final rule to prepare and make available a regulatory flexibility 
analysis that describes the impact of the final rule on small entities. 
5 U.S.C. 603(a). The Regulatory Flexibility Act provides that an agency 
is not required to prepare and publish a regulatory flexibility 
analysis if the agency certifies that the final rule will not have a 
significant economic impact on a substantial number of small entities. 
5 U.S.C. 605(b).
    Pursuant to section 605(b), the Board certifies that this interim 
final rule will not have a significant economic impact on a substantial 
number of small entities. The interim final rule reduces reserve 
requirement ratios for all depository institutions to zero percent. All 
depository institutions, including small depository institutions, will 
benefit from the elimination of reserve requirements. There are no new 
reporting, recordkeeping, or other compliance requirements associated 
with the interim final rule.

VI. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (44 U.S.C. 3506; 5 
CFR 1320 Appendix A.1), the Board has reviewed the interim final rule 
under authority delegated to the Board by the Office of Management and 
Budget. The rule contains no collections of information pursuant to the 
Paperwork Reduction Act.

VII. Plain Language

    Section 772 of the Gramm-Leach-Bliley Act requires the Board to use 
``plain language'' in all proposed and final rules. In light of this 
requirement, the Board has sought to present the interim final rule in 
a simple and straightforward manner. The Board invites comment on 
whether the Board could take additional steps to make the rule easier 
to understand.

List of Subjects in 12 CFR Part 204

    Banks, Banking, Reporting and recordkeeping requirements.

Authority and Issuance

    For the reasons set forth in the preamble, the Board is amending 12 
CFR part 204 as follows:

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

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

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


0
2. In Sec.  204.4, paragraph (f) is revised to read as follows:


Sec.  204.4  Computation of required reserves.

* * * * *
    (f) For all depository institutions, Edge and Agreement 
corporations, and United States branches and agencies of foreign banks, 
required reserves are computed by applying the reserve requirement 
ratios in table 1 to this paragraph (f) to net transaction accounts, 
nonpersonal time deposits, and Eurocurrency liabilities of the 
institution during the computation period.

                        Table 1 to Paragraph (f)
------------------------------------------------------------------------
       Reservable liability                  Reserve requirement
------------------------------------------------------------------------
Net Transaction Accounts:
    $0 to reserve requirement       0 percent of amount.
     exemption amount ($16.9
     million).
    Over reserve requirement        0 percent of amount.
     exemption amount ($16.9
     million) and up to low
     reserve tranche ($127.5
     million).
    Over low reserve tranche        0 percent of amount.
     ($127.5 million).
    Nonpersonal time deposits.....  0 percent.
    Eurocurrency liabilities......  0 percent.
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    By order of the Board of Governors of the Federal Reserve 
System, March 16, 2020.
Ann Misback,
Secretary of the Board.
[FR Doc. 2020-05806 Filed 3-23-20; 8:45 am]
BILLING CODE 6210-01-P