[Federal Register Volume 61, Number 245 (Thursday, December 19, 1996)]
[Rules and Regulations]
[Pages 66874-66878]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32169]


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THRIFT DEPOSITOR PROTECTION OVERSIGHT BOARD

12 CFR Part 1511


Resolution Funding Corporation; Book-Entry Procedure

AGENCY: Thrift Depositor Protection Oversight Board.

ACTION: Final rule.

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SUMMARY: The Thrift Depositor Protection Oversight Board is publishing 
final regulations to govern Resolution Funding Corporation book-entry 
securities. This action is being taken in conjunction with similar 
amendments being made by the Department of the Treasury to the 
regulations governing book-entry Treasury securities, and by other 
government-sponsored enterprises (GSEs) for securities that are 
maintained on the book-entry system operated by the Federal Reserve 
Banks. The rules incorporate recent and significant changes in 
commercial law addressing

[[Page 66875]]

the holding of securities in book-entry form through financial 
intermediaries.

EFFECTIVE DATE: January 1, 1997. The incorporation by reference of 
certain publications listed in the regulations is approved by the 
Director of the Federal Register as of January 1, 1997.

FOR FURTHER INFORMATION CONTACT: Van B. Jorstad, Acting Executive 
Director, Thrift Depositor Protection Oversight Board (202) 622-0462, 
or Joan Affleck-Smith, Director, Office of Financial Institutions 
Policy, Department of the Treasury (202) 622-2740.

SUPPLEMENTARY INFORMATION: Most government-sponsored enterprises (GSEs) 
have regulations governing their book-entry securities maintained in 
the Federal Reserve book-entry system that are nearly identical to the 
Treasury regulations governing marketable Treasury securities.1 In 
1989, the Oversight Board adopted regulations for obligations issued by 
the Resolution Funding Corporation 2 which are also modeled on 
Treasury regulations. These regulations provide that the Federal 
Reserve Banks may issue, service and maintain Resolution Funding 
Corporation obligations in book-entry form.3 The regulations also 
set forth book-entry procedures including the transfer, pledge, and 
servicing of book-entry Resolution Funding Corporation obligations.
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    \1\ 31 CFR Part 306, Subpart O.
    \2\ 54 FR 41948 (October 13, 1989).
    \3\ Section 21B(h)(2) of the Federal Home Loan Bank Act, as 
amended (12 U.S.C. 1441b(h)(2)), authorizes the Federal Reserve 
Banks to act as depositaries for or fiscal agents or custodians of 
the Funding Corporation.
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    The current Treasury regulations will be superseded by new 
regulations (the ``TRADES regulations'') 4 that will go into 
effect on January 1, 1997. As explained below, the TRADES regulations 
incorporate recent and significant changes in commercial law addressing 
the holding of securities in book-entry form through financial 
intermediaries.
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    \4\ 61 FR 43626 (August 23, 1996).
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    Some commenters on the TRADES regulations were concerned about 
coordination among Treasury and GSEs that issue book-entry securities. 
The commenters urged simultaneous effectiveness of parallel GSE rules. 
Accordingly, the Thrift Depositor Oversight Board (``Oversight Board'') 
is issuing revised regulations that will be effective January 1, 1997, 
for Resolution Funding Corporation book-entry securities.
    Consistent with the approach in the TRADES regulations, the 
regulations in this Part contain specific provisions that deal with the 
rights and obligations of the Resolution Funding Corporation and the 
Federal Reserve Banks with respect to Resolution Funding Corporation 
securities and the operation of the book-entry system. The regulations 
are also based in large part on Revised Article 8 on Investment 
Securities of the Uniform Commercial Code (``Revised Article 8''). The 
regulations include certain choice of law rules patterned on Revised 
Article 8. In the event the jurisdiction specified under the choice of 
law rules has not adopted Revised Article 8, then the law to be applied 
is Revised Article 8. At the time of the publication of the final 
TRADES rule, 28 states had adopted Revised Article 8.5
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    \5\  California has since also adopted Revised Article 8.
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    Except with respect to matters related to differences between 
Resolution Funding Corporation securities and Treasury 
securities,6 the provisions of these rules are the same as the 
rules that will apply to Treasury securities. The Oversight Board 
intends that the analysis contained in the commentary to the TRADES 
final rule, Appendix B to 31 CFR Part 357, and other interpretations of 
the TRADES regulations published in the Federal Register, are to be 
used in interpreting the regulations in Part 1511.
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    \6\ Resolution Funding Corporation securities are not 
obligations of, or guaranteed as to principal by, the United States. 
See the Offering Circular and Supplements for a more complete 
statement of their terms.
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    The only notable differences between these regulations and the 
TRADES regulations are as follows. First, there is no comparable system 
such as ``TREASURY DIRECT,'' 7 for Resolution Funding Corporation 
securities. Second, in contrast to Treasury securities, no Resolution 
Funding Corporation securities have been issued in registered 
definitive or bearer (paper) form. All outstanding Resolution Funding 
Corporation securities (referred to as ``bonds'' in the offering 
documentation) were issued only in book-entry form and are maintained 
on the book-entry system of the Federal Reserve Banks. Third, there are 
some variations in terminology.
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    \7\  In TREASURY DIRECT, the beneficial owners of Treasury 
securities hold their securities directly, on the books of the 
issuer (in contrast to holding through a financial intermediary).
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Procedural Requirements

    This final rule does not meet the criteria for a ``significant 
regulatory action'' pursuant to Executive Order 12866.
    The Oversight Board is adopting these regulations as a final rule 
effective January 1, 1997. For the following reasons, the Oversight 
Board finds that notice and public procedure and a 30-day delayed 
effective date are unnecessary, impracticable, and contrary to the 
public interest, pursuant to 5 U.S.C. 553(b)(3)(B) and (d)(3). First, 
the rule merely conforms the regulations governing book-entry 
Resolution Funding Corporation securities to the TRADES regulations 
that will govern book-entry Treasury securities. Second, the TRADES 
regulations were published in various forms, as a proposed rule four 
times and as a final rule once. In each instance, the TRADES 
regulations were accompanied by extensive commentary addressing the 
background and rule provisions. Third, the comments on the TRADES 
regulations urged uniformity in substance and effectiveness for 
regulations for GSEs that issue book-entry securities maintained on the 
Federal Reserve book-entry system. Fourth, there are compelling reasons 
for setting the effective date at January 1, 1997, when the TRADES 
regulations and those of the other GSEs will become effective. Having 
the rules become effective at different times for securities that are 
all maintained and transferred on the book-entry system would be 
burdensome and unworkable for market participants.
    As no notice of proposed rulemaking is required, the provisions of 
the Regulatory Flexibility Act do not apply.
    There are no collections of information contained in this final 
rule. Therefore, the Paperwork Reduction Act does not apply.

List of Subjects in 12 CFR Part 1511

    Bonds, Electronic funds transfer, Federal Reserve System, 
Government securities, Incorporation by reference, Securities.

    For the reasons set forth in the preamble, Title 12, Chapter XV, 
Subchapter B, Part 1511 is revised to read as follows:

PART 1511--BOOK-ENTRY PROCEDURE

Sec.
1511.0  Applicability.
1511.1  Definition of terms.
1511.2  Law governing rights and obligations of the Funding 
Corporation and Federal Reserve Banks; rights of any Person against 
the Funding Corporation and the Federal Reserve Banks.
1511.3  Law governing other interests.
1511.4  Creation of Participant's Security Entitlement; security 
interests.
1511.5  Obligations of Funding Corporation; no adverse claims.
1511.6  Authority of Federal Reserve Banks.
1511.7  Liability of the Funding Corporation and Federal Reserve 
Banks.
1511.8  Notice of attachment.


[[Page 66876]]


    Authority: 12 U.S.C. 1441b.


Sec. 1511.0  Applicability.

    The regulations in this part apply to Book-entry Funding 
Corporation Securities.


Sec. 1511.1  Definitions of terms.

    In this part, unless the context indicates otherwise:
    Act means the Federal Home Loan Bank Act as amended (12 U.S.C. 1421 
et seq.).
    Adverse Claim means a claim that a claimant has a property interest 
in a Book-entry Funding Corporation Security and that it is a violation 
of the rights of the claimant for another Person to hold, transfer, or 
deal with the Book-entry Funding Corporation Security.
    Book-entry Funding Corporation Security means a Funding Corporation 
Security in book-entry form that is issued or maintained in the Book-
entry System. Solely for the purposes of this Part, it also means the 
separate interest and principal components of a Book-entry Funding 
Corporation Security if such security has been divided into such 
components as authorized by the Securities Documentation and the 
components are maintained separately on the books of one or more 
Federal Reserve Banks.
    Book-entry System means the automated book-entry system operated by 
the Federal Reserve Banks acting as the fiscal agent for the Funding 
Corporation, on which Book-entry Funding Corporation Securities are 
issued, recorded, transferred and maintained in book-entry form.
    Entitlement Holder means a Person to whose account an interest in a 
Book-entry Funding Corporation Security is credited on the records of a 
Securities Intermediary.
    Federal Reserve Bank or Reserve Bank means a Federal Reserve Bank 
or Branch.
    Federal Reserve Bank Operating Circular means the publication 
issued by each Federal Reserve Bank that sets forth the terms and 
conditions under which the Reserve Bank maintains book-entry Securities 
accounts (including Book-entry Funding Corporation Securities) and 
transfers book-entry Securities (including Book-entry Funding 
Corporation Securities).
    Funding Corporation means the Resolution Funding Corporation 
established pursuant to section 21B(b) of the Act.
    Funding Corporation Security or Security means a Funding 
Corporation bond, note, debenture and similar obligations issued under 
section 21B of the Act.
    Funds Account means a reserve and/or clearing account at a Federal 
Reserve Bank to which debits or credits are posted for transfers 
against payment, book-entry securities transaction fees, or principal 
and interest payments.
    Participant means a Person that maintains a Participant's 
Securities Account with a Federal Reserve Bank.
    Participant's Securities Account means an account in the name of a 
Participant at a Federal Reserve Bank to which Book-entry Funding 
Corporation Securities held for a Participant are or may be credited.
    Person means and includes an individual, corporation, company, 
governmental entity, association, firm, partnership, trust, estate, 
representative, and any other similar organization, but does not mean 
or include the United States, the Funding Corporation, or a Federal 
Reserve Bank.
    Revised Article 8 means Uniform Commercial Code, Revised Article 8, 
Investment Securities (with Conforming and Miscellaneous Amendments to 
Articles 1, 3, 4, 5, 9, and 10) 1994 Official Text. Revised Article 8 
of the Uniform Commercial Code is incorporated by reference in this 
Part pursuant to 5 U.S.C. 552(a) and 1 CFR Part 51. Article 8 was 
adopted by the American Law Institute and the National Conference of 
Commissioners on Uniform State laws and approved by the American Bar 
Association on February 14, 1995. Copies of this publication are 
available from the Executive Office of the American Law Institute, 4025 
Chestnut Street, Philadelphia, PA 19104, and the National Conference of 
Commissioners on Uniform State Laws, 676 North St. Clair Street, Suite 
1700, Chicago, IL 60611. Copies are also available for public 
inspection at the Department of the Treasury Library, Room 5030, main 
Treasury Building, 1500 Pennsylvania Avenue, NW., Washington DC 20220, 
and in the Office of the Federal Register, 800 North Capitol St., NW., 
Suite 700, Washington DC.
    Securities Documentation means the applicable offering circular, 
supplement, or other documents establishing the terms of a Book-entry 
Funding Corporation Security.
    Securities Intermediary means:
    (1) A Person that is registered as a ``clearing agency'' under the 
Federal securities laws; a Federal Reserve Bank; any other Person that 
provides clearance or settlement services with respect to a Book-entry 
Funding Corporation Security that would require it to register as a 
clearing agency under the Federal securities laws but for an exclusion 
or exemption from the registration requirement, if its activities as a 
clearing corporation, including promulgation of rules, are subject to 
regulation by a Federal or State governmental authority; or
    (2) A Person (other than an individual, unless such individual is 
registered as a broker or dealer under the federal securities laws) 
including a bank or broker, that in the ordinary course of its business 
maintains securities accounts for others and is acting in that 
capacity.
    Security Entitlement means the rights and property interest of an 
Entitlement Holder with respect to a Book-entry Funding Corporation 
Security.
    State means any State of the United States, the District of 
Columbia, Puerto Rico, the Virgin Islands, or any other territory or 
possession of the United States.
    Transfer message means an instruction of a Participant to a Federal 
Reserve Bank to effect a transfer of a Book-entry Funding Corporation 
Security, as set forth in Federal Reserve Bank Operating Circulars.


Sec. 1511.2  Law governing rights and obligations of the Funding 
Corporation and Federal Reserve Banks; rights of any Person against the 
Funding Corporation and the Federal Reserve Banks.

    (a) Except as provided in paragraph (b) of this section, the 
following are governed solely by the regulations contained in this part 
1511, the Securities Documentation and Federal Reserve Bank Operating 
Circulars:
    (1) The rights and obligations of the Funding Corporation and the 
Federal Reserve Banks with respect to:
    (i) A Book-entry Funding Corporation Security or Security 
Entitlement; and
    (ii) The operation of the Book-entry System as it applies to 
Funding Corporation Securities; and
    (2) The rights of any Person, including a Participant, against the 
Funding Corporation and the Federal Reserve Banks with respect to:
    (i) A Book-entry Funding Corporation Security or Security 
Entitlement; and
    (ii) The operation of the Book-entry System as it applies to 
Funding Corporation Securities.
    (b) A security interest in a Security Entitlement that is in favor 
of a Federal Reserve Bank from a Participant and that is not recorded 
on the books of a Federal Reserve Bank pursuant to Sec. 1511.4(c)(1), 
is governed by the law (not including the conflict-of-law rules) of the 
jurisdiction where the head office of the Federal Reserve Bank 
maintaining the Participant's Securities Account is located. A security 
interest in a Security Entitlement that is in favor of a Federal

[[Page 66877]]

Reserve Bank from a Person that is not a Participant, and that is not 
recorded on the books of a Federal Reserve Bank pursuant to 
Sec. 1511.4(c)(1), is governed by the law determined in the manner 
specified in Sec. 1511.3.
    (c) If the jurisdiction specified in the first sentence of 
paragraph (b) of this section is a State that has not adopted Revised 
Article 8 (incorporated by reference, see Sec. 1511.1), then the law 
specified in paragraph (b) shall be the law of that State as though 
Revised Article 8 had been adopted by that State.


Sec. 1511.3  Law governing other interests.

    (a) To the extent not inconsistent with the regulations in this 
part, the law (not including the conflict-of-law rules) of a Securities 
Intermediary's jurisdiction governs:
    (1) The acquisition of a Security Entitlement from the Securities 
Intermediary;
    (2) The rights and duties of the Securities Intermediary and 
Entitlement Holder arising out of a Security Entitlement;
    (3) Whether the Securities Intermediary owes any duties to an 
adverse claimant to a Security Entitlement;
    (4) Whether an Adverse Claim can be asserted against a Person who 
acquires a Security Entitlement from the Securities Intermediary or a 
Person who purchases a Security Entitlement or interest therein from an 
Entitlement Holder; and
    (5) Except as otherwise provided in paragraph (c) of this section, 
the perfection, effect of perfection or non-perfection and priority of 
a security interest in a Security Entitlement.
    (b) The following rules determine a ``Securities Intermediary's 
jurisdiction'' for purposes of this section:
    (1) If an agreement between the Securities Intermediary and its 
Entitlement Holder specifies that it is governed by the law of a 
particular jurisdiction, that jurisdiction is the Securities 
Intermediary's jurisdiction.
    (2) If an agreement between the Securities Intermediary and its 
Entitlement Holder does not specify the governing law as provided in 
paragraph (b)(1) of this section, but expressly specifies that the 
securities account is maintained at an office in a particular 
jurisdiction, that jurisdiction is the Securities Intermediary's 
jurisdiction.
    (3) If an agreement between the Securities Intermediary and its 
Entitlement Holder does not specify a jurisdiction as provided in 
paragraph (b)(1) or (b)(2) of this section, the Securities 
Intermediary's jurisdiction is the jurisdiction in which is located the 
office identified in an account statement as the office serving the 
Entitlement Holder's account.
    (4) If an agreement between the Securities Intermediary and its 
Entitlement Holder does not specify a jurisdiction as provided in 
paragraph (b)(1) or (b)(2) of this section and an account statement 
does not identify an office serving the Entitlement Holder's account as 
provided in paragraph (b)(3) of this section, the Securities 
Intermediary's jurisdiction is the jurisdiction in which is located the 
chief executive office of the Securities Intermediary.
    (c) Notwithstanding the general rule in paragraph (a)(5) of this 
section, the law (but not the conflict-of-law rules) of the 
jurisdiction in which the Person creating a security interest is 
located governs whether and how the security interest may be perfected 
automatically or by filing a financing statement.
    (d) If the jurisdiction specified in paragraph (b) of this section 
is a State that has not adopted Revised Article 8 (incorporated by 
reference, see Sec. 1511.1), then the law for the matters specified in 
paragraph (a) of this section shall be the law of that State as though 
Revised Article 8 had been adopted by that State. For purposes of the 
application of the matters specified in paragraph (a) of this section, 
the Federal Reserve Bank maintaining the Securities Account is a 
clearing corporation, and the Participant's interest in a Book-entry 
Funding Corporation Security is a Security Entitlement.


Sec. 1511.4  Creation of Participant's Security Entitlement; security 
interests.

    (a) A Participant's Security Entitlement is created when a Federal 
Reserve Bank indicates by book-entry that a Book-entry Funding 
Corporation Security has been credited to a Participant's Securities 
Account.
    (b) A security interest in a Security Entitlement of a Participant 
in favor of the United States to secure deposits of public money, 
including without limitation deposits to the Treasury tax and loan 
accounts, or other security interest in favor of the United States that 
is required by Federal statute, regulation, or agreement, and that is 
marked on the books of a Federal Reserve Bank is thereby effected and 
perfected, and has priority over any other interest in the securities. 
Where a security interest in favor of the United States in a Security 
Entitlement of a Participant is marked on the books of a Federal 
Reserve Bank, such Reserve Bank may rely, and is protected in relying, 
exclusively on the order of an authorized representative of the United 
States directing the transfer of the security. For purposes of this 
paragraph, an ``authorized representative of the United States'' is the 
official designated in the applicable regulations or agreement to which 
a Federal Reserve Bank is a party, governing the security interest.
    (c)(1) The Funding Corporation and the Federal Reserve Banks have 
no obligation to agree to act on behalf of any Person or to recognize 
the interest of any transferee of a security interest or other limited 
interest in favor of any Person except to the extent of any specific 
requirement of Federal law or regulation or to the extent set forth in 
any specific agreement with the Federal Reserve Bank on whose books the 
interest of the Participant is recorded. To the extent required by such 
law or regulation or set forth in an agreement with a Federal Reserve 
Bank, or the Federal Reserve Bank Operating Circular, a security 
interest in a Security Entitlement that is in favor of a Federal 
Reserve Bank, the Funding Corporation, or a Person may be created and 
perfected by a Federal Reserve Bank marking its books to record the 
security interest. Except as provided in paragraph (b) of this section, 
a security interest in a Security Entitlement marked on the books of a 
Federal Reserve Bank shall have priority over any other interest in the 
securities.
    (2) In addition to the method provided in paragraph (c)(1) of this 
section, a security interest in a Security Entitlement, including a 
security interest in favor of a Federal Reserve Bank, may be perfected 
by any method by which a security interest may be perfected under 
applicable law as described in Sec. 1511.2(b) or Sec. 1511.3. The 
perfection, effect of perfection or non-perfection and priority of a 
security interest are governed by such applicable law. A security 
interest in favor of a Federal Reserve Bank shall be treated as a 
security interest in favor of a clearing corporation in all respects 
under such law, including with respect to the effect of perfection and 
priority of such security interest. A Federal Reserve Bank Operating 
Circular shall be treated as a rule adopted by a clearing corporation 
for such purposes.


Sec. 1511.5  Obligations of Funding Corporation; no adverse claims.

    (a) Except in the case of a security interest in favor of the 
United States or a Federal Reserve Bank or otherwise as provided in 
Sec. 1511.4(c)(1), for the purposes of this part 1511, the Funding 
Corporation and the Federal Reserve Banks shall treat the Participant 
to

[[Page 66878]]

whose Securities Account an interest in a Book-entry Funding 
Corporation Security has been credited as the Person exclusively 
entitled to issue a Transfer Message, to receive interest and other 
payments with respect thereof and otherwise to exercise all the rights 
and powers with respect to such Security, notwithstanding any 
information or notice to the contrary. Neither the Federal Reserve 
Banks nor the Funding Corporation is liable to a Person asserting or 
having an Adverse Claim to a Security Entitlement or to a Book-entry 
Funding Corporation Security in a Participant's Securities Account, 
including any such claim arising as a result of the transfer or 
disposition of a Book-entry Funding Corporation Security by a Federal 
Reserve Bank pursuant to a Transfer Message that the Federal Reserve 
Bank reasonably believes to be genuine.
    (b) The obligation of the Funding Corporation to make payments of 
interest and principal with respect to Book-entry Funding Corporation 
Securities is discharged at the time payment in the appropriate amount 
is made as follows:
    (1) Interest on Book-entry Funding Corporation Securities is either 
credited by a Federal Reserve Bank to a Funds Account maintained at 
such Bank or otherwise paid as directed by the Participant.
    (2) Book-entry Funding Corporation Securities are redeemed in 
accordance with their terms by a Federal Reserve Bank withdrawing the 
securities from the Participant's Securities Account in which they are 
maintained and by either crediting the amount of the redemption 
proceeds, including both principal and interest where applicable, to a 
Funds Account at such Bank or otherwise paying such principal and 
interest, as directed by the Participant. The principal of such 
Securities shall be paid using the proceeds of the noninterest bearing 
instruments maintained by the Funding Corporation for such purpose.


Sec. 1511.6  Authority of Federal Reserve Banks.

    (a) Each Federal Reserve Bank is hereby authorized as fiscal agent 
of the Funding Corporation to perform functions with respect to the 
issuance of Book-entry Funding Corporation Securities offered and sold 
by the Funding Corporation, in accordance with the Securities 
Documentation, and Federal Reserve Bank Operating Circulars; to service 
and maintain Book-entry Funding Corporation Securities in accounts 
established for such purposes; to make payments of principal and 
interest with respect to such Book-entry Funding Corporation Securities 
as directed by the Funding Corporation; to effect transfer of Book-
entry Funding Corporation Securities between Participants' Securities 
Accounts as directed by the Participants; and to perform such other 
duties as fiscal agent as may be requested by the Funding Corporation.
    (b) Each Federal Reserve Bank may issue Operating Circulars not 
inconsistent with this Part, governing the details of its handling of 
Book-entry Funding Corporation Securities, Security Entitlements, and 
the operation of the Book-Entry System under this Part.


Sec. 1511.7  Liability of the Funding Corporation and Federal Reserve 
Banks.

    The Funding Corporation and the Federal Reserve Banks may rely on 
the information provided in a Transfer Message, or other documentation, 
and are not required to verify the information. The Funding Corporation 
and the Federal Reserve Banks shall not be liable for any action taken 
in accordance with the information set out in a Transfer Message, other 
documentation, or evidence submitted in support thereof.


Sec. 1511.8  Notice of attachment.

    The interest of a debtor in a Security Entitlement may be reached 
by a creditor only by legal process upon the Securities Intermediary 
with whom the debtor's securities account is maintained, except where a 
Security Entitlement is maintained in the name of a secured party, in 
which case the debtor's interest may be reached by legal process upon 
the secured party. The regulations in this part do not purport to 
establish whether a Federal Reserve Bank is required to honor an order 
or other notice of attachment in any particular case or class of cases.

    Dated: December 5, 1996.
Van B. Jorstad,
Acting Executive Director.
[FR Doc. 96-32169 Filed 12-18-96; 8:45 am]
BILLING CODE 2221-01-P