[Federal Register Volume 61, Number 117 (Monday, June 17, 1996)]
[Proposed Rules]
[Pages 30545-30548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15120]
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FEDERAL RESERVE SYSTEM
12 CFR Part 204
[Regulation D; Docket No. R-0929]
Reserve Requirements of Depository Institutions
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Board of Governors of the Federal Reserve System is
proposing to amend its Regulation D regarding reserve requirements of
depository institutions issued pursuant to section 19 of the Federal
Reserve Act in order to reduce regulatory burden and simplify and
update requirements. This proposal to modernize Regulation D is in
accordance with the Board's policy of regular review of its regulations
and the Board's review of its regulations under section 303 of the
Riegle Community Development and Regulatory Improvement Act of 1994.
DATES: Comments must be received by August 16, 1996.
ADDRESSES: Comments, which should refer to Docket No. R-0929, may be
mailed to Mr. William W. Wiles, Secretary, Board of Governors of the
Federal Reserve System, 20th Street and Constitution Avenue, N.W.,
Washington, DC 20551. Comments addressed to Mr. Wiles also may be
delivered to the Board's mail room between 8:45 a.m. and 5:15 p.m., and
to the security control room outside of those hours. Both the mail room
and the security control room are accessible from the courtyard
entrance on 20th
[[Page 30546]]
Street between Constitution Avenue and C Street, N.W. Comments may be
inspected in Room MP-500 between 9:00 a.m. and 5:00 p.m. weekdays,
except as provided in Sec. 261.8 of the Board of Governors' Rules
Regarding Availability of Information, 12 CFR 261.8.
FOR FURTHER INFORMATION CONTACT: Brian Reid, Economist, Division of
Monetary Affairs (202/452-3589); Sue Harris, Economist, Division of
Research and Statistics (202/452-3490); or Rick Heyke, Staff Attorney,
Legal Division (202/452-3688). For the hearing impaired only,
Telecommunications Device for the Deaf (TDD), Dorothea Thompson (202/
452-3544).
SUPPLEMENTARY INFORMATION:
Background
As part of its policy of regular review of its regulations, and
consistent with section 303 of the Riegle Community Development and
Regulatory Improvement Act of 1994 (``Riegle Act''), the Board of
Governors of the Federal Reserve System (``Board'') is proposing to
amend its Regulation D regarding reserve requirements of depository
institutions (12 CFR Part 204) issued pursuant to section 19 of the
Federal Reserve Act. Section 303 of the Riegle Act requires each
federal banking agency to review and streamline its regulations and
written policies to improve efficiency, reduce unnecessary costs, and
remove inconsistencies and outmoded and duplicative requirements. The
proposed amendments are designed to reduce regulatory burden and
simplify and update the Regulation.
The principal amendments being proposed are described below. In
general, the amendments delete transitional rules relating to the
expansion of reserve requirements to nonmember depository institutions,
the authorization of NOW accounts nationwide, and other matters that no
longer have a significant effect.
Time Deposits
Section 204.2(c)(1) defines time deposits as deposits from which
the depositor may not make withdrawals within six days after the date
of deposit (or notice of withdrawal) or partial withdrawal unless such
withdrawals are subject to an early withdrawal penalty. Under certain
circumstances specified in footnote 1, a time deposit may be paid
before maturity without imposing the early withdrawal penalty. A time
deposit generally may be paid without penalty from the seventh day
after deposit through maturity, absent partial withdrawals, as the
imposition of an early withdrawal penalty is required under the time
deposit definition only during the first six days after deposit. The
Board proposes to clarify that the footnote is not intended to impose a
prohibition on withdrawals before maturity, but to permit penalty-free
withdrawals under certain circumstances during the period when the
imposition of an early withdrawal penalty otherwise would be required.
Nonpersonal Time Deposits
The definition of nonpersonal time deposit in Sec. 204.2(f)(1)
(iii) and (iv) distinguishes between transferable time deposits
originally issued before October 1, 1980, and those issued on or after
that date. Since the Board believes that most of these deposits have
since matured, this distinction is no longer meaningful and the Board
proposes to delete it.
Section 204.2(f)(3) requires that a nonpersonal time deposit with a
stated maturity or notice period of 1\1/2\ years or more either be
subject to a minimum withdrawal penalty of 30 days' interest (if
withdrawn more than six days but within 1\1/2\ years after the date of
deposit) or be treated as a deposit with an original maturity or notice
period of less than 1\1/2\ years. Since 1991, the reserve requirement
ratio has been set at zero for all time deposits regardless of
maturity. Moreover, the form for reporting reservable liabilities (Form
FR 2900) no longer requires depository institutions to report the
amount of time deposits by category of maturity. The requirement to
treat time deposits not subject to a minimum penalty of 30 days'
interest as having an initial maturity of less than 1\1/2\ years is
thus of no practical impact. The Board therefore proposes to delete it
and footnote 2 to Sec. 204.2(c)(1)(i), which refers to it.
Eurocurrency Liabilities
The definition of Eurocurrency liabilities in section 204.2(h)(1)
includes an amount equal to certain assets that were held by a
depository institution's International Banking Facility or by non-
United States offices of the depository institution or of an affiliated
Edge or agreement corporation and that were acquired from the
depository institution's United States offices on or after October 7,
1979. The Board proposes to delete the exclusion of assets acquired
before October 7, 1979, because it believes that the amount of these
assets is immaterial.
Allocation of Reserve Requirements Exemption
The allocation of the reserve requirements exemption specified in
Sec. 204.3(a)(3)(i) requires that the exemption be allocated first to
net transaction accounts in the form of NOW (and similar) accounts and
second to other transaction accounts. This provision was related to the
phase-in of reserve requirements for nonmember banks and the
authorization of NOW and similar transaction accounts nationwide. Since
the phase-in is now complete and nonmember institutions are subject to
the same reserve requirements as member banks, the provision has ceased
to have any effect, and the Board proposes to delete it.
Deductions Allowed in Computing Reserves
The deduction in Sec. 204.3(f)(1) limits the amount of cash items
in process of collection and balances subject to immediate withdrawal
due from domestic depository institutions that may be subtracted from
an institution's NOW accounts. Amounts in excess of this limit may be
subtracted from other transaction accounts. Since the phase-in of
reserve requirements for nonmember banks is now complete, all types of
transaction accounts are subject to the same reserve requirements.
Therefore, this limitation has ceased to have any effect and the Board
proposes to delete it.
Federal Reserve Credit for Depository Institutions Maintaining Pass-
Through Balances
Section 19(e) of the Federal Reserve Act prohibits member banks
from acting as the medium or agent of a nonmember bank in applying for
or receiving discounts from a Federal Reserve Bank except by permission
of the Board. Regulation A, Extensions of Credit by Federal Reserve
Banks (12 CFR Part 201), was amended in 1993 to delegate authority for
this permission to the Federal Reserve Bank that extends the credit. 12
CFR 201.6(d). The proposal would correspondingly amend
Sec. 204.3(i)(5)(iv) of Regulation D effectively to complete the
delegation of this authority to the Federal Reserve Bank that extends
the credit.
Transition Rules
The regulation currently includes in Sec. 204.4(a) a transition
rule for depository institutions outside of Hawaii that were nonmembers
of the Federal Reserve System on July 1, 1979, and that remained
nonmembers. With the completion of the phase-in on September 10, 1987,
this rule ceased to
[[Page 30547]]
have any effect. Section 204.4(b) contains a transition rule for
depository institutions that were not members between July 1, 1979, and
September 1, 1980, and that subsequently became members; since reserve
requirements for nonmember institutions are fully phased in, this rule
also has ceased to have any effect. Section Sec. 204.4(d) contains a
transition rule for nonmember depository institutions that were engaged
in business in Hawaii on August 1, 1978, and that remained nonmembers;
this rule ceased to have any effect on January 7, 1993. Therefore, the
Board proposes to delete these rules.
Section 204.4(c) sets forth a transition rule for de novo
depository institutions with daily average reservable liabilities of
less than $50 million whereby their reserve requirement is 40 percent
of the reserves otherwise required in maintenance periods during the
first quarter after entering into business, increasing to 100 percent
in maintenance periods during the eighth and succeeding quarters. The
low reserve tranche of a depository institution's net transaction
accounts is currently subject to a reserve requirement of 3 percent, as
compared with 10 percent for its net transaction accounts in excess of
the low reserve tranche. Since 1982, the low reserve tranche cutoff has
been indexed to net transaction accounts of all depository
institutions; as a result, the cutoff has increased from $25 million to
$52 million. Thus, all transaction accounts of de novo depository
institutions that could avail themselves of this transition rule are
now covered by the low reserve tranche. Moreover, beginning in 1982, $2
million of reservable deposits have been subject to a zero percent
reserve requirement; this exemption is indexed to total reservable
liabilities of all depository institutions and is currently $4.3
million.
In addition, a depository institution's vault cash may be used to
meet its reserve requirement. Since de novo depository institutions
generally have relatively low levels of deposits in relation to the
reserve requirement exemption and the low reserve tranche cutoff, most
are able to meet reserve requirements with vault cash and the others
maintain minimal reserve balances. (Currently 18 depository
institutions are receiving de novo phase-ins, and 14 of them are fully
meeting their reserve requirements with vault cash.) Thus, this rule
provides minimal benefits in terms of reducing required reserve
balances of de novo institutions and unnecessarily complicates the
processing of deposit reporting and reserve calculations. Consequently,
the Board proposes to delete it. In order to avoid disrupting economic
expectations based on the de novo transition rule, however, any
institution covered by the de novo transition rule on the effective
date of the amendments will be grandfathered for purposes of
determining its required reserves.
Section 204.4(e) governs transition requirements in cases of
mergers and consolidations. Paragraph (e)(1) covers ``similar''
mergers, where all depository institutions are subject to the same
transition rules, and paragraph (e)(2), ``dissimilar'' mergers, where
the institutions are subject to different transition rules. Currently,
no institution is subject to the ``dissimilar'' merger transition
rules. With the phase-in of reserve requirements for nonmember
institutions, the transition rules (other than the merger and de novo
rules) have become inoperative. Moreover, as discussed above, the de
novo rules no longer have a significant effect in most cases, and the
Board is proposing to delete them. Therefore, the difference between
the ``similar'' and ``dissimilar'' merger rules is minimal, and would
be eliminated under the proposal. As a result, all mergers would be
``similar'' mergers. Therefore, the Board proposes to delete the
``dissimilar'' merger transition rule and apply the current ``similar''
merger transition rule to all mergers.
Reserve Ratios
Section 204.9(b) sets forth the reserve ratios in effect during the
last reserve computation period prior to September 1, 1980, for use in
transition adjustments that are no longer applicable. The Board
proposes to delete the section.
Initial Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5 U.S.C. 601-612) requires an
agency to publish an initial regulatory flexibility analysis with any
notice of proposed rulemaking. Two of the requirements of an initial
regulatory flexibility analysis (5 U.S.C. 603(b))--a description of the
reasons why the agency is considering the action and a statement of the
objectives of, and legal basis for, the proposed rule--are contained in
``Supplementary Information--Background'' above. The Regulation D
amendments being proposed require no additional reporting or
recordkeeping requirements and do not overlap with other federal rules.
Another requirement for the initial regulatory flexibility analysis
is a description of and, where feasible, an estimate of the number of
small entities to which the proposed rule will apply. The proposal will
apply to all depository institutions regardless of size, except that
the transition rule for de novo institutions applies only to
institutions with total transaction accounts, nonpersonal time
deposits, and Eurocurrency liabilities of less than $50 million.
Currently there are 18 institutions subject to the de novo transition
rule.
Except for the transition rules relating to dissimilar mergers and
de novo institutions, the amendments are burden-reducing. The current
transition rules for dissimilar mergers provide a minor temporary
potential reduction in reserve requirements for certain merged
institutions. However, no institutions are currently benefiting from
the dissimilar merger rules. The transition rules for de novo
institutions, which are only applicable to institutions with reservable
liabilities of less than $50 million and provide only a temporary
benefit, have become much less significant with the increase in the
low-reserve tranche cutoff to $52.0 million. Partly for this reason,
only 4 of the 18 institutions currently receiving de novo phase-in
benefits are not fully meeting their reserve requirements with vault
cash. If the de novo transition rule were eliminated, the number of de
novo institutions with required reserves in excess of vault cash would
not change, and the additional required reserves of these 4
institutions would be small. Moreover, in order to avoid disrupting
economic expectations based on the de novo transition rule, any
institution covered by the de novo transition rule on the effective
date of the amendments will be grandfathered for the purpose of
determining its required reserves. Therefore, the Board believes that
the amendments will not have a significant adverse economic impact on a
substantial number of small entities.
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act notice of 1995 (44
U.S.C. Ch. 3506; 5 CFR part 1320, Appendix A.1), the Board has reviewed
the proposed rule under the authority delegated to the Board by the
Office of Management and Budget. No collection of information pursuant
to the Paperwork Reduction Act are contained in the proposed rule.
List of Subjects in 12 CFR Part 204
Banks, banking, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the Board proposes to
amend part 204 of chapter II of title 12 as follows:
[[Page 30548]]
PART 204--RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
(REGULATION D)
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.
2. Section 204.2 is amended as follows:
a. In paragraph (c)(1)(i), the introductory text of footnote 1 is
amended by removing ``before maturity'' and adding in its place,
``during the period when an early withdrawal penalty would otherwise be
required under this part'', removing ``the'' after ``imposing'' adding
in its place, ``an'', removing ``penalties'' and adding in its place
``penalty'', and footnote 2 is removed.
b. In paragraphs (c)(1)(iv)(C), (c)(1)(iv)(E), and (d)(2),
footnotes 3 through 6 are redesignated as footnotes 2 through 5,
respectively.
c. Paragraph (f)(1)(iii) is revised.
d. Paragraph (f)(1)(iv) is removed and paragraph (f)(1)(v) is
redesignated as paragraph (f)(1)(iv).
e. In newly redesignated paragraphs (f)(1)(iv)(C) and
(f)(1)(iv)(E), footnotes 7 and 8 are redesignated as footnotes 6 and 7,
respectively.
f. Paragraph (f)(3) is removed.
g. In paragraph (h)(1)(ii)(A), footnote 10 is redesignated as
footnote 8 and is amended by removing ``(1) that were acquired before
October 7, 1979, or (2)''.
h. In paragraphs (h)(2)(ii) and (t), footnotes 11 and 12 are
redesignated as footnotes 9 and 10, respectively, and newly
redesignated footnote 9 is amended by revising ``Footnote 10'' to read
``footnote 8''. The revisions are as follows:
Sec. 204.2 Definitions.
* * * * *
(f)(1) Nonpersonal time deposit * * *
* * * * *
(iii) A transferable time deposit. A time deposit is transferable
unless it contains a specific statement on the certificate, instrument,
passbook, statement or other form representing the account that is not
transferable. A time deposit that contains a specific statement that it
is not transferable is not regarded as transferable even if the
following transactions can be effected: a pledge as collateral for a
loan, a transaction that occurs due to circumstances arising from
death, incompetency, marriage, divorce, attachment, or otherwise by
operation of law or a transfer on the books or records of the
institution; and
* * * * *
3. Section 204.3 is amended as follows:
a. Paragraph (a)(3)(i) is removed and the paragraph designation
(a)(3)(ii) is removed.
b. Paragraph (f)(1) is revised.
c. Paragraph (i)(5)(iv) is removed.
The revisions are as follows:
Sec. 204.3 Computation and maintenance.
* * * * *
(f) Deductions allowed in computing reserves. (1) In determining
the reserve balance required under this part, the amount of cash items
in process of collection and balances subject to immediate withdrawal
due from other depository institutions located in the United States
(including such amounts due from United States branches and agencies of
foreign banks and Edge and agreement corporations) may be deducted from
the amount of gross transaction accounts. The amount that may be
deducted may not exceed the amount of gross transaction accounts.
* * * * *
4. Section 204.4 is revised to read as follows:
Sec. 204.4 Transitional adjustments in mergers.
In cases of mergers and consolidations of depository institutions,
the amount of reserves that shall be maintained by the surviving
institution shall be reduced by an amount determined by multiplying the
amount by which the required reserves during the computation period
immediately preceding the date of the merger (computed as if the
depository institutions had merged) exceeds the sum of the actual
required reserves of each depository institution during the same
computation period, times the appropriate percentage as specified in
the following schedule:
------------------------------------------------------------------------
Percentage
applied to
difference
Maintenance periods occurring during quarters following to compute
merger or consolidation amount to
be
subtracted
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1........................................................... 87.5
2........................................................... 75.0
3........................................................... 62.5
4........................................................... 50.0
5........................................................... 37.5
6........................................................... 25.0
7........................................................... 12.5
8 and succeeding............................................ 0
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5. Section 204.8 is amended as follows:
a. In paragraph (a)(2)(i)(B)(5), footnotes 13 and 14 are
redesignated as footnotes 11 and 12, respectively.
b. In paragraph (a)(3)(v), footnotes 15 and 16 are redesignated as
footnotes 13 and 14, respectively, and revised to read as follows:
Sec. 204.8 International banking facilities.
(a) Definitions. * * *
* * * * *
(3) International banking facility extension of credit or IBF loan
* * *
* * * * *
(v) * * * \13\ * * * \14\ * * *
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\13\ See footnote 11.
\14\ See footnote 12.
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Sec. 204.9 [Amended]
6. Section 204.9 is amended by removing paragraph (b), by
redesignating paragraph (a)(1) as paragraph (a), and by redesignating
paragraph (a)(2) as paragraph (b).
By order of the Board of Governors of the Federal Reserve
System, June 10, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-15120 Filed 6-14-96; 8:45 am]
BILLING CODE 6210-01-P