Guidelines for Evaluating Account and Services Requests, 100495-100496 [2024-29250]

Agencies

• FEDERAL RESERVE SYSTEM

[Federal Register Volume 89, Number 239 (Thursday, December 12, 2024)]
[Notices]
[Pages 100495-100496]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-29250]


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FEDERAL RESERVE SYSTEM

[Docket No. OP-1747]


Guidelines for Evaluating Account and Services Requests

AGENCY: Board of Governors of the Federal Reserve System.

ACTION:  Final guidance.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
has clarified that its Guidelines Covering Access to Accounts and 
Services at Federal Reserve Banks (Guidelines) apply to Excess Balance 
Accounts at the Federal Reserve Banks (Reserve Banks).

DATES: Implementation Date is December 12, 2024.

FOR FURTHER INFORMATION CONTACT: Jason Hinkle, Deputy Associate 
Director (202-258-9873), Division of Reserve Bank Operations and 
Payment Systems, Kristen Payne, Lead Financial Institution and Policy 
Analyst (202-306-9573), Division of Monetary Affairs, or Corinne 
Milliken Van Ness, Senior Counsel (202-641-1605), Legal Division, Board 
of Governors of the Federal Reserve System. For users of text telephone 
systems (TTY) or any TTY-based Telecommunications Relay Services, 
please call 711 from any telephone, anywhere in the United States.

SUPPLEMENTARY INFORMATION:

I. Background on Guidelines

    On August 19, 2022, the Board implemented the Guidelines, which 
consist of six risk-based principles for Reserve Banks to consider when 
evaluating requests for access to Reserve Bank accounts and services 
(accounts and services). The risks considered under the Guidelines 
include various risks to the Reserve Bank, risks to the overall 
payments systems, risks to the stability of the U.S. financial system, 
risks to the overall economy by facilitating activities such as money 
laundering or other illicit activity, and risk of any adverse impact on 
the Federal Reserve's ability to implement monetary policy.
    The Guidelines apply to requests for accounts and services from 
member banks or other entities that meet the definition of depository 
institution under section 19(b) of the Federal Reserve Act (12 U.S.C. 
461(b)(1)(A)), as well as Edge and Agreement Corporations (12 U.S.C. 
601-604a, 611-631), and U.S. branches and agencies of foreign banks (12 
U.S.C. 347d). The Guidelines do not apply to accounts that the Reserve 
Banks provide (i) as depository and fiscal agent for the Treasury and 
certain government-sponsored entities (12 U.S.C. 391, 393-95, 1823, 
1435), (ii) to certain international organizations (22 U.S.C. 285d, 
286d, 290o-3, 290i-5, 290l-3), (iii) to designated financial market 
utilities (12 U.S.C. 5465), (iv) pursuant to the Board's Regulation N 
(12 CFR 214), or (v) pursuant to the Board's Guidelines for Evaluating 
Joint Account Requests.

II. Excess Balance Accounts

    Reserve Banks began to pay interest on balances maintained at the 
Reserve Banks by or on behalf of eligible institutions in October 
2008.\1\ Until July 2021, balances maintained by depository 
institutions at a Reserve Bank were divided into required reserves 
(balances held to satisfy a reserve requirement) and excess reserves 
(balances maintained in excess of required reserves).\2\ Eligible 
institutions that were respondents could maintain excess balances as 
deposits with their correspondent or, alternatively, could instruct 
their correspondent to sweep their deposits into overnight investments 
in the federal funds market.\3\ Correspondents typically preferred the 
latter because it helped to limit the size of their balance sheet and 
boosted their regulatory capital ratios. However, when the market rate 
of interest on federal funds was below the rate paid by Reserve Banks 
on excess balances, respondents had an incentive to shift the 
investment of their surplus funds away from the sales of federal funds 
(through their correspondents) and toward holding those funds directly 
as excess balances with the Reserve Banks, potentially disrupting 
established correspondent-respondent relationships.\4\
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    \1\ The authority to pay interest was originally enacted through 
the Financial Services Regulatory Relief Act of 2006, with an 
effective date of October 1, 2011. The date was moved forward to 
2008 by the Emergency Economic Stabilization Act of 2008.
    \2\ Final Rule, Regulation D, 86 FR 29937 (June 4, 2021); Press 
Release, ``Federal Reserve Board issues final rule amending 
Regulation D with regard to interest on reserve balances'' (June 2, 
2021), https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210602a.htm.
    \3\ In a correspondent-respondent relationship, the 
correspondent bank provides banking services on behalf of the 
respondent bank. This often includes the correspondent bank 
executing payments on behalf of the respondent bank and its 
customers. A respondent bank typically maintains an account with its 
correspondent bank.
    \4\ 74 FR 5628, 5629 (Jan. 30, 2009).
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    The Board authorized the creation of excess balance accounts (EBAs) 
on May 20, 2009, to alleviate these pressures on correspondent-
respondent business relationships associated with an environment in 
which federal funds

[[Page 100496]]

traded at rates persistently below the interest rate on excess 
reserves.\5\ EBAs permit eligible institutions to earn interest on 
their excess balances without disrupting established correspondent-
respondent relationships. An EBA is a limited-purpose account at a 
Federal Reserve Bank managed by an agent and established for 
maintaining the excess balances of one or more institutions 
(participants) that are eligible to earn interest on balances held at a 
Reserve Bank.\6\ The agent does not own the EBA or the balances therein 
and thus the balances held in the EBA are not included in the 
calculation of the agent's regulatory leverage ratio.
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    \5\ Final Rule, Regulation D, 74 FR 25620 (May 29, 2009); Press 
Release, ``Board announces approval of final amendments to 
Regulation D pertaining to transfers from savings deposits and the 
establishment of excess balance accounts at Reserve Banks'' (May 20, 
2009), https://www.federalreserve.gov/newsevents/pressreleases/monetary20090520b.htm.
    \6\ See 12 CFR 204.2(aa) (defining ``excess balance account''); 
12 CFR 204.10(d)(4) (establishing interest payable on excess balance 
accounts). An EBA agent and participant may also be in a separate 
correspondent-respondent relationship, but not necessarily.
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III. Current Scope of the Guidelines

    Currently, the Guidelines do not expressly state that EBA 
arrangements are in the scope of the Guidelines. The Board believes it 
is appropriate to amend the Guidelines to clarify that they apply to 
requests to be an agent for, or a participant in, an EBA. Expressly 
including EBAs in the Guidelines will clarify that the same standard of 
review will be applied to any institution requesting access to accounts 
and services. While EBAs are not used to access Reserve Bank financial 
1254ervicees, they are, in fact, limited-purpose Reserve Bank accounts. 
This clarification, therefore, would prevent depository institutions 
that do not qualify for access to Federal Reserve accounts and services 
under the Guidelines from accessing the Federal Reserve's balance sheet 
through EBAs.

IV. Clarification to Scope of Guidelines

    For the reasons set forth in this document, the Board is amending 
and restating the text in footnote seven to the Guidelines to read as 
follows:
    Unless otherwise expressly excluded under the previous footnote, 
these principles apply to account requests from all institutions, 
including member banks, entities that meet the definition of a 
depository institution under section 19(b) (12 U.S.C. 461(b)(1)(A)), 
Edge and Agreement Corporations (12 U.S.C. 601-604a, 611-631), and U.S. 
branches and agencies of foreign banks (12 U.S.C. 347d), and to 
requests to be an agent or participant in an excess balance account (12 
CFR 204.10(d)).

    By order of the Board of Governors of the Federal Reserve 
System.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2024-29250 Filed 12-11-24; 8:45 am]
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