[Federal Register Volume 61, Number 252 (Tuesday, December 31, 1996)]
[Rules and Regulations]
[Pages 69020-69026]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-33158]
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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: Final rule.
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SUMMARY: The Board of Governors of the Federal Reserve System is
amending its Regulation D regarding reserve requirements of depository
institutions issued pursuant to section 19 of the Federal Reserve Act
in order to simplify and update it and reduce regulatory burden. The
amendments to modernize Regulation D are 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.
EFFECTIVE DATE: April 1, 1997.
FOR FURTHER INFORMATION CONTACT: Ann Owen, Economist, Division of
Monetary Affairs (202/736-5671); Sue Harris, Economist, Division of
Research and Statistics (202/452-3490); or Rick Heyke, Staff Attorney,
Legal Division (202/452-3688), Board of Governors of the Federal
Reserve System. For the hearing impaired only, Telecommunications
Device for the Deaf (TDD), Dorothea Thompson (202/452-3544), Board of
Governors of the Federal Reserve System, 20th Street and Constitution
Avenue, N.W., Washington, DC 20551.
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 amending 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
[[Page 69021]]
inconsistencies and outmoded and duplicative requirements. The
amendments are designed to reduce regulatory burden and simplify and
update the Regulation.
The Board published a notice of proposed rulemaking in the Federal
Register on June 17, 1996 (61 FR 30545) that solicited comments on the
proposed amendments described below. In general, the amendments deleted
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.
The Board received a total of 22 comments on the proposal. Comments
were received from 9 banking organizations, 8 trade associations, 4
Federal Reserve banks, and one savings bank. Of the comments, 17
generally expressed agreement with the proposal as far as it went.
An issue by issue discussion follows.
Time Deposits
Section 204.2(c)(1) currently 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. The
imposition of an early withdrawal penalty is required under the time
deposit definition only during the first six days after deposit. The
proposal clarified 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 otherwise be
required.
Six commenters supported the proposal to reword footnote 1 in order
to avoid any implication that time deposits generally may not be paid
before maturity without penalty, while three others, without
disagreeing with the proposal, noted that they had no experience of
confusion resulting from the footnote. The final rule adopts the
proposal as proposed.
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, the Board believes that this distinction is no longer
meaningful and proposed to delete it. Three commenters specifically
supported the proposal on the basis that this was an obsolete
distinction. The Board is adopting this proposal as proposed.
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, since 1991, the form for reporting reservable
liabilities (Form FR 2900) has not required 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 significance. The Board therefore
proposed to delete it and footnote 2 to Sec. 204.2(c)(1)(i), which
refers to it.
Three commenters specifically supported this proposal. Another
commenter expressed concern that by eliminating the requirement, the
Board would be unable to distinguish between maturities of time
deposits in the future. If, in the future, the Board should wish to
distinguish between time deposits based on maturity, the Board could
amend Regulation D and/or its reporting forms as appropriate, and could
consider at that time whether an additional early withdrawal penalty
would be warranted for longer-term deposits. Therefore, the Board is
adopting this proposal as proposed.
Eurocurrency Liabilities
The definition of Eurocurrency liabilities in Sec. 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 proposed to delete the exclusion of assets acquired
before October 7, 1979, because the Board believes that the amount of
these assets is immaterial. The Board received no specific comments on
this proposal and is adopting it as proposed.
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 proposed to delete it. Two commenters
expressed support for the proposed deletion. Another commenter, while
noting that the requirement is obsolete, described its elimination as
entirely technical. The Board is adopting this proposal as proposed.
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
proposed to delete it. One commenter specifically supported the Board's
proposed deletion, and the Board is adopting this proposal as proposed.
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
granting this permission to the Federal Reserve Bank that extends the
credit. 12 CFR 201.6(d). The Board
[[Page 69022]]
correspondingly proposed to 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. One commenter specifically
supported this proposal, and the Board is adopting it as proposed.
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 of reserves for such
nonmembers on September 10, 1987, this rule ceased to 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 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
proposed to delete these rules. The Board received three comments
supporting the proposed deletion of Secs. 204.4(a) and (b), and no
comments on its proposed deletion of Sec. 204.4 (d). The Board is
adopting these proposals as proposed.
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 commencing 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. The de novo transition rules precede creation of the
low reserve tranche in 1982. The low reserve tranche cutoff is indexed
to net transaction accounts of all depository institutions; as a
result, the cutoff has increased from $25 million initially to $49.3
million for 1997. Thus, almost 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 has increased
to $4.4 million for 1997.
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 56 depository
institutions are receiving de novo phase-ins, and 52 of them are fully
meeting their reserve requirements with vault cash.) 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
proposed to delete it. In order to avoid disrupting economic
expectations based on the de novo transition rule, however, the Board
proposed to grandfather any institution covered by the de novo
transition rule on the effective date of the amendments for purposes of
determining its required reserves. The Board received two comments
supporting its proposal to delete Sec. 204.4(c) and is adopting this
proposal as proposed. As proposed, the Board will also grandfather any
institution covered by the de novo transition rule on the effective
date of the amendments.
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) covers ``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.
Therefore, the difference between the ``similar'' and ``dissimilar''
merger rules is minimal. In addition, the de novo rules would be
eliminated under the proposal, with the result that all mergers would
be ``similar'' mergers and the ``dissimilar'' merger rule would be
inapplicable. Therefore, the Board proposed to delete the
``dissimilar'' merger transition rule and apply the current ``similar''
merger transition rule to all mergers. The Board received two comments
supporting its proposed deletion of Sec. 204.4(e), and is adopting this
proposal as proposed.
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
proposed to delete the section, and received two comments supporting
its proposal. The Board is adopting this proposal as proposed.
Deposit Definitions
Many commenters also commented on provisions of Regulation D other
than the proposed changes. Nine commenters suggested that the Board
clarify the definition of ``savings deposit,'' and a number of them
also suggested that the Board also rewrite the definitions of ``time
deposit,'' ``demand deposit,'' and/or ``transaction account.'' One
commenter suggested the use of bullet points to distinguish limitations
on transfers from exceptions to such limitations. Two commenters
appended suggested language designed to clarify the definition of
savings account, principally by shortening the sentences.
The Board is publishing concurrently with this notice in the
Federal Register a notice of proposed rulemaking to amend the
definition of ``savings deposit'' in order to clarify it, and to amend
the definition of ``transaction account'' in order to clarify it and
conform it to the amended definition of ``savings account.''
One commenter, a trade association, pointed out that many of the
questions that it receives regarding the savings deposit definition
reflect increased interest in home banking and a consequent desire to
avoid any limitation on transfers effected by means of a home computer.
Another commenter opined that aggregating the different types of
transfers and withdrawals affected by the limitation adds to consumer
confusion and increases the monitoring problem for depository
institutions, and, together with two other commenters, suggested that
the Board eliminate all restrictions on point-of-sale and telephone
transfers.1
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\1\ One of these commenters also suggested that the Board pay
interest on reserve balances or support legislation to that effect.
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[[Page 69023]]
On the issue of transfers by means of home computers, the current
regulation states explicitly that any ``telephonic (including data
transmission) agreement, order, or instruction'' is included in the six
transfers and withdrawals limitation. Therefore home banking transfers
are included in the limitation.
One commenter requested guidance on the requirement for a penalty
of 7 days' simple interest in the event of a withdrawal from a time
deposit within 6 days. In particular, this commenter expressed
confusion in the case of a second withdrawal within 6 days after a
partial withdrawal. In the case of a time deposit account deposited in
one lump sum, the Board regards a partial withdrawal from the time
deposit as a withdrawal of the entire deposit followed by a new deposit
of the balance retained. The regulation therefore provides that a
``time deposit from which partial early withdrawals are permitted must
impose additional early withdrawal penalties of at least seven days'
simple interest on amounts withdrawn within six days after each partial
withdrawal.'' 12 CFR 204.2(c)(1)(i).
The same commenter, in reliance upon a service purporting to
explain the Board's regulations, believed that 7 days' simple interest
must be charged on withdrawals within 6 days of an additional deposit
to the same time deposit. The Board believes that a bank may account
for deposits and withdrawals either in order of deposit (FIFO) or in
inverse order of deposit (LIFO).2 Therefore, the regulation does
not prescribe an accounting policy to be applied to such withdrawals.
However, the Board does expect that a depository institution will be
consistent in its choice of policy in this regard.
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\2\ The Board proposed in 1991 to require LIFO accounting in the
case of multiple credits. See 56 FR 15522, 15526. In response to
comments opposing the proposal, the Board withdrew it.
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Another commenter, a trade association, asked if all demand
deposits should contain the right to require 7 days' notice of
withdrawal pursuant to Sec. 204.2(b)(2). The demand deposits described
in Sec. 204.2(b)(2) are in addition to the demand deposits described in
Sec. 204.2(b)(1), which do not require 7 days' notice of withdrawal.
The demand deposits described in Sec. 204.2(b)(2) are considered demand
deposits despite the fact that they may require 7 days' notice of
withdrawal.
The Board, in light of the comments received, also considered
whether substantive revisions to the definitions of the different types
of deposits could be implemented in an effort to simplify the
regulation further. It concluded that the practical scope for any such
redefinitions is limited. The Board notes that Section 19 of the
Federal Reserve Act establishes separate ranges for required reserve
ratios on transaction accounts and nonpersonal time and savings
deposits, and provides no authority for imposing reserve requirements
on personal time and savings deposits. This statutory requirement for
different reserve treatment of the various types of deposits creates a
need for regulatory definitions to distinguish between the various
types of deposits. Moreover, technological change and financial
innovation have led to a proliferation of types of deposits and
transfer arrangements. Many depository institutions have implemented
so-called ``retail sweep'' programs in order to reduce their reserve
requirements. These programs have already resulted in a substantial
decline in transaction accounts and required reserves. The more
widespread adoption of these programs that is evidently in process
could impair the predictability of overall reserve demand and hence
adversely affect the ability of the Federal Reserve to gauge the supply
of reserves consistent with its intended monetary policy stance. These
developments could eventually suggest changes in the structure of
reserve requirements, potentially including changes in deposit
definitions. Depending on the type of change that might be found
appropriate, such a change could require legislation or be implemented
administratively. The Federal Reserve will continue to monitor closely
developments in the federal funds market for evidence about how lower
levels of required reserves may influence the implementation of
monetary policy and the appropriate structure of reserve requirements.
Under the circumstances, the Board believes that a major revision of
the definitions that serve as the basis for determining the liabilities
against which reserves are required is not appropriate at the present
time.
Other Comments
One commenter suggested that Regulation D contain an explicit cross
reference to the Board Interpretation on multiple savings accounts
treated as transaction accounts (12 CFR 204.133, FRRS 2-286). Another
believed that the Board's notice of August 25, 1992 (57 Federal
Register 38417) discussing several Regulation D issues should be
included in the regulation because of difficulty in obtaining a copy. A
third suggested that Board Interpretations and Staff Opinions related
to Regulation D be streamlined and made consistent with the final rule.
Two others suggested that this guidance be replaced with an official
staff commentary. The Board will consider streamlining its guidance
related to Regulation D or issuing an official staff commentary.
However, the Board believes that specific cross references in the
regulation to selected interpretations could be construed to mean that
the other guidance is of less importance, and therefore the Board
believes that such cross references generally should be avoided.
A Federal Reserve Bank commented that sweeps into and out of retail
savings accounts should be prohibited, because of the economic waste
involved in this form of avoidance of the transaction limitations
otherwise applicable to savings accounts. Alternatively, if the Board
permits these sweep accounts, the applicable limitations should be
spelled out in the regulation. Another commenter and an industry trade
association similarly requested clarification on sweep accounts in the
regulation. Regulation D currently limits transfers from savings
accounts, with certain exceptions, to six per month or monthly
statement cycle. The Board believes that the regulation is clear that
two separate accounts, established by agreement with the depositor, one
of which is a transaction account and the other of which is a savings
account, can be structured so that transfers between the two accounts
can take place provided that no more than six transfers and/or
withdrawals from the savings account will take place in any month or
statement cycle, and so that the savings account will otherwise meet
the qualifications required by Regulation D.
A bank holding company objected to the transfer limitations on
savings accounts, stating that competitive pressures in the market for
business deposits combine with these limitations to make necessary
alternative products such as sweep repurchase agreements, with
consequent additional legal and system support costs that serve no
economic purpose. The commenter suggested that the Board support
possible legislation to remove some of these restrictions. Section 19
of the Federal Reserve Act requires the Board to distinguish
transaction accounts from other accounts, because it requires different
reserve requirements for transaction accounts and other accounts.
(Currently, net transaction accounts in excess of the low reserve
tranche are subject to a 10 percent
[[Page 69024]]
reserve requirement whereas nonpersonal time deposits are subject to a
zero percent reserve requirement and personal time deposits are exempt
from reserve requirements by statute.) The Board has based the
distinction between transaction accounts and other accounts on the
depositor's convenience of access and consequent ability to use savings
deposits for transactional purposes.
Another bank requested additional guidance on sweeps from major
accounts, principally those held by corporations and partnerships. The
commenter has implemented a master repurchase agreement for these
accounts to replace a previous arrangement involving funds secured by
Treasury and federal agency securities, and requested guidance with
respect to agreements and collateral. Regulation D clearly excludes
from the definition of deposit any obligation that ``arises from a
transfer of direct obligations of, or obligations that are fully
guaranteed as to principal and interest by, the United States
government or any agency thereof that the depository institution is
obligated to repurchase.'' 12 CFR 204.2(a)(1)(vii)(B). In order for a
repurchase obligation to qualify under this exclusion and be thus
exempted, in effect, from the requirements of Regulations D and Q, the
transaction generally must meet regulatory requirements for agreements
to repurchase government securities under the Government Securities Act
of 1986 (as amended). See, e.g., 17 CFR parts 403, 404, and 450.
A trade association suggested that the Regulation D definition of
demand deposit should preempt a state law provision applicable to its
members, which defines demand deposit to include any deposit
withdrawable within 30 days. The definition in Regulation D is for the
purpose of calculating reserve requirements (since demand deposits are
included in transaction accounts) and is also employed in Regulation Q.
The Board is not aware of any circumstances under which the state law
impairs the effectiveness of these regulations.
One Federal Reserve bank reported receiving a number of requests
from depository institutions and bank holding companies for the
elimination of member bank pass-through restrictions and of the
requirement that reserves passed through a correspondent be held in the
Federal Reserve district where the respondent is located. The pass-
through restrictions are based on section 19(c) of the Federal Reserve
Act, which states that reserve balances of member banks must be held at
the Federal Reserve bank of which the bank maintaining the balance is a
member, and on operating considerations. The Board will be considering
these issues further in light of the growth in interstate banking
arrangements that span Federal Reserve district lines.
Finally, Sec. 204.3(i)(1)(ii), which specifies procedure for
changes in correspondent-respondent relationships for required reserve
balances, incorrectly refers to Reserve Banks' operating circulars that
do not exist; Sec. 204.3(i)(4)(ii), which assigns to correspondents
responsibility for respondents' required reserve balances, incorrectly
refers to ``penalties'' for reserve deficiencies rather than
``charges''; and Sec. 204.7(a)(1), which discusses charges for reserve
deficiencies, incorrectly refers to ``the 2 percent carryover provided
in Sec. 204.3(h),'' whereas Sec. 204.3(h) provides a carryover of 4
percent or $50,000, whichever is greater. Accordingly, the Board is
replacing ``in its operating circular'' by ``in its discretion,''
replacing ``penalties'' by ``charges'' in Sec. 204.3(i)(4)(ii) and
simplifying Sec. 204.7(a)(1) to refer to ``the carryover provided in
Sec. 204.3(h).'' Similarly, the references to ``penalty-free band'' in
Sec. 204.3(h) are replaced by references to ``charge-free band.''
Final Rule
The Board is adopting the revisions to Regulation D substantially
as proposed. In addition, the Board is correcting the references to
penalties in the sections on correspondent's responsibility and reserve
deficiencies, and clarifying the carryover reference in the section on
reserve deficiencies. No substantive change to these two sections is
intended.
Final Regulatory Flexibility Analysis
The Regulatory Flexibility Act (5 U.S.C. 601-612) requires an
agency to publish a final regulatory flexibility analysis with any
notice of proposed rulemaking. One of the requirements of a final
regulatory flexibility analysis (5 U.S.C. 604(a))--a statement of the
need for, and the objectives of, the rule--is contained in
``Background'' above. The Regulation D amendments being proposed
require no additional reporting or recordkeeping requirements and do
not overlap with other federal rules.
A second requirement for the final regulatory flexibility analysis
is a summary of the issues raised by the public comments in response to
the initial regulatory flexibility analysis that was included in the
notice of proposed rulemaking. The Board received no comments
specifically related to the initial regulatory flexibility analysis,
and the comments it received on the rule are discussed in
``Background'' above.
The third requirement for the final regulatory flexibility analysis
is a description of any significant alternatives to the rule consistent
with the stated objectives of the applicable statutes and designed to
minimize any significant impact of the rule on small entities. The rule
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.
Except for the transition rules relating to dissimilar mergers and
de novo institutions, the amendments are burden-reducing and no
appropriate alternatives to the provisions in the proposal were found
which would further reduce burdens. (The Board considered whether
substantive revisions to the definitions of deposits could be
implemented in an effort to simplify the regulation further, and
concluded that a major revision of the definitions is not appropriate
at present. See ``Background'' above.) The current transition rules for
dissimilar mergers provide a minor temporary potential reduction in
reserve requirements for certain merged institutions. However, no
institution is currently benefitting 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 ($49.3
million for 1997). Partly for this reason, only 56 institutions are
currently receiving de novo phase-in benefits and only 4 of these
institutions are not fully meeting their reserve requirements with
vault cash. 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.
A number of the comments included suggestions with respect to other
provisions of Regulation D that could reduce burdens on all depository
institutions, especially with respect to distinguishing time and
savings deposits from transaction accounts. The
[[Page 69025]]
Board's responses to these comments are set forth under ``Background''
above.
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 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 is contained in the rule.
List of Subjects in 12 CFR Part 204
Banks and banking, Federal Reserve System, Reporting and
recordkeeping requirements.
Authority and Issuance
For the reasons set forth in the preamble, the Board is amending
part 204 of chapter II of title 12 as follows:
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) introductory text, 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'' and 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 5 are redesignated as footnotes 2 through 4,
respectively, and footnote 6 is removed.
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 5 and 6,
respectively.
f. Paragraph (f)(3) is removed and footnote 9 is removed.
g. In paragraph (h)(1)(ii)(A), footnote 10 is redesignated as
footnote 7 and is amended by removing ``(1) that were acquired before
October 7, 1979, or (2)''.
h. In paragraph (h)(2)(ii), footnote 11 is redesignated as footnote
8 and is amended by revising ``Footnote 10'' to read ``footnote 7''.
i. In paragraph (t), footnote 12 is redesignated as footnote 9, and
footnote reference 2 is redesignated as footnote reference 9. The
revisions are as follows:
Sec. 204.2 Definitions.
* * * * *
(f)(1) * * *
(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 it 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. In paragraphs (h)(1) and (h)(2), the words ``required clearing
balance penalty-free band'' are revised to read ``required charge-free
band''.
d. Paragraph (i)(1)(ii) is amended in the last sentence by removing
``in its operating circular'' and adding in its place ``in its
discretion''.
e. Paragraph (i)(4)(ii) is amended by removing ``penalties'' in the
second sentence and ``penalty'' in the third sentence and adding in
their place ``charges'' and ``charge'', respectively.
f. 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
------------------------------------------------------------------------
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
------------------------------------------------------------------------
Sec. 204.7 [Amended]
5. Section 204.7 is amended in paragraph (a)(1) by removing ``after
application of the 2 percent carryover provided in Sec. 204.3(h)'' and
adding in its place ``after application of the carryover provided in
Sec. 204.3(h)''.
6. Section 204.8 is amended as follows:
a. In paragraph (a)(2)(i)(B)(5), footnotes 13 and 14 are
redesignated as footnotes 10 and 11, respectively.
b. In paragraph (a)(3)(v), footnotes 15 and 16 are redesignated as
footnotes 12 and 13, respectively, and revised to read as follows:
Sec. 204.8 International banking facilities.
(a) Definitions. * * *
(3) * * *
(v) * * * \12\ * * * \13\ * * *
---------------------------------------------------------------------------
\12\ See footnote 10.
\13\ See footnote 11.
---------------------------------------------------------------------------
* * * * *
Sec. 204.9 [Amended]
7. Section 204.9 is amended by removing paragraph (b), by
redesignating paragraphs (a)(1) and (a)(2) as paragraphs (a) and (b),
respectively.
[[Page 69026]]
By order of the Board of Governors of the Federal Reserve System,
December 24, 1996.
William W. Wiles,
Secretary of the Board.
[FR Doc. 96-33158 Filed 12-30-96; 8:45 am]
BILLING CODE 6210-01-P