[Federal Register Volume 62, Number 47 (Tuesday, March 11, 1997)]
[Proposed Rules]
[Pages 11117-11120]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5963]


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FEDERAL RESERVE SYSTEM

12 CFR Parts 204 and 209

[Regulations D and I; Docket No. R-0963]


Reserve Requirements of Depository Institutions and Issue and 
Cancellation of Capital Stock of Federal Reserve Banks

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Proposed rule.

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SUMMARY: The Board is proposing amendments to Regulations D and I, 
Reserve Requirements of Depository Institutions and Issue and 
Cancellation of Capital Stock of Federal Reserve Banks, to define the 
location of a depository institution. The proposed amendments would 
clarify the Federal Reserve District where a depository institution is 
eligible for Federal Reserve membership and the location of a 
depository institution's reserve account. The Board is proposing these 
changes to facilitate interstate banking.

DATES: Comments must be submitted on or before April 18, 1997.

ADDRESSES: Comments, which should refer to Docket No. R-0963, may be 
mailed to Mr. William W. Wiles, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, NW., 
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 Street between Constitution Avenue and C Street, NW. 
Comments may be inspected in Room MP-500 between 9:00 a.m. and 5:00 
p.m.

FOR FURTHER INFORMATION CONTACT: Oliver Ireland, Associate General 
Counsel, (202/452-3625) or Stephanie Martin, Senior Attorney (202/452-
3198), Legal Division. For the hearing impaired only, contact Dorothea 
Thompson, Telecommunications Device for the Deaf (TDD) (202/452-3544), 
Board of Governors of the Federal Reserve System, 20th and C Streets, 
NW., Washington, DC 20551.


[[Page 11118]]


SUPPLEMENTARY INFORMATION: Recent statutory changes have eliminated 
many barriers to interstate banking.1 The advent of interstate 
banking raises questions as to how certain provisions of the Federal 
Reserve Act (FRA) 2 will apply to banks with interstate branches. 
Many of these questions are related to a bank's ``location.'' To date, 
the Board and the Federal Reserve Banks generally have interpreted the 
term ``location,'' as used in the FRA, to mean the geographic location 
of a bank, heavily influenced by the location specified in the bank's 
charter, or if no charter location is specified, the location of the 
bank's head office. This interpretation, however, may not always make 
sense in an interstate branching environment, where a bank may have 
offices in multiple Federal Reserve districts and do most of its 
business in places other than its charter or head office location. The 
Board, therefore, is proposing to amend its Regulation D (12 CFR part 
204, Reserve Requirements of Depository Institutions) and Regulation I 
(12 CFR part 209, Issue and Cancellation of Capital Stock of Federal 
Reserve Banks) to define ``location'' for purposes of the Federal 
Reserve membership and reserve accounts.
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    \1\ See, the Riegle-Neal Interstate Banking and Branching 
Efficiency Act, Pub. L. 103-328, 108 Stat. 2338 (1994).
    \2\ 12 U.S.C. 221 et seq.
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    A member bank with interstate branches must be a member of a 
particular Federal Reserve Bank. The membership question is closely 
related to other location issues such as where reserve accounts are 
located and where account entries are posted. Every national bank is 
required to become a member and stockholder of the Federal Reserve Bank 
of its district (FRA section 2(1)). State banks may apply to the Board 
to subscribe to the stock of the Federal Reserve Bank organized within 
the district in which the applying bank is located (FRA section 9(1)). 
These provisions suggest that membership is limited to one Federal 
Reserve Bank and that membership is to be determined by the 
geographical location of the bank.
    A bank must hold reserves at the Federal Reserve Bank of which it 
is a member or where it maintains an account (FRA section 19(c)(1)). 
Therefore, a nonmember bank would hold its reserve account at the 
Reserve Bank where it maintains an account for purposes of check 
collection and other payments services. FRA section 13(1) provides that 
the nonmember bank may maintain this clearing account with the Federal 
Reserve Bank of its district.
    Charter or head office location is the status quo under the FRA as 
to where a bank is located for membership purposes and nonmember 
reserve account purposes. The National Bank Act requires a national 
bank's organization certificate to state the place where its operations 
of discount and deposit are to be carried on, designating the state, 
territory, or district, and the particular county and city, town, or 
village (12 U.S.C. 22). State laws may be less specific, and the 
determination of the bank's location may not be ascertainable from the 
bank's charter.
    Under a strict interpretation of the charter/head office rule, a 
bank could be a member only of the Reserve Bank whose district 
encompasses the location specified in its charter or, in the case of a 
state bank with no specific charter location, the location of its head 
office. For a bank with interstate branches, however, this location may 
not be the appropriate means of determining where the bank is located 
for membership or reserve account purposes. An interstate bank may have 
its main office or do the bulk of its business somewhere other than its 
charter location and may wish to establish a Federal Reserve Bank 
relationship closer to its business headquarters. Similarly, a bank 
holding company with subsidiary banks in multiple Federal Reserve 
districts that manages those banks as a combined business may wish to 
centralize operations in a single district. In addition, the Board and 
the Federal Reserve Banks may find it more efficient to administer a 
bank's account and perform other functions in a district other than the 
district encompassing the charter or head office location.
    Section 9(1) of the FRA provides that state banks may apply to the 
Board, under such rules and regulations as it may prescribe, for the 
right to subscribe to the stock of the Federal Reserve Bank organized 
within the district in which the applying bank is located. Section 2(1) 
of the FRA requires national banks to become member banks in accordance 
with the provisions of the FRA, and section 11(i) gives the Board 
general authority to write rules necessary to perform its duties, 
functions, and services under the FRA. Accordingly, the Board is 
proposing to amend Regulation I (Issue and Cancellation of Capital 
Stock of Federal Reserve Banks) to set forth a definition of 
``location'' for the purpose of acquiring Federal Reserve Bank stock. 
This proposed amendment on the location of a bank for membership 
purposes also would help answer other member bank location questions 
related to reserve account maintenance, supervision, and other issues.
    The proposed new section to Regulation I would state a general rule 
that, for membership purposes, a bank is considered to be located in 
the Federal Reserve district specified in the bank's charter or, if no 
charter location is specified, the location of its head office. The 
Board could make exceptions to the general rule for a particular bank 
after considering certain criteria. Thus, if the bank's location were 
uncertain or its location based on its charter or head office differed 
from the location where it conducted most of its business, the Board, 
after consultation with the relevant Reserve Banks, could designate the 
appropriate location for membership purposes. (The relevant Reserve 
Banks would be the Reserve Bank whose district contains the bank's 
charter or head office location and the Reserve Bank in whose district 
the bank is proposed to be located.)
    One consideration in making this determination would be whether any 
other laws that would require the bank to have a relationship with a 
particular Reserve Bank. For example, Massachusetts and Nebraska laws 
provide that state banks may become members of the Boston and Kansas 
City Reserve Banks, respectively.3 The Board could also consider 
other criteria, such as the business needs of the bank, where the head 
office of the bank is located, where the bank does the bulk of its 
business, and the location that would allow the bank, the Board, and 
the Reserve Banks to perform their functions most efficiently and 
effectively. For example, the Board might consider the efficiency of 
bank supervisory functions, account management, and Federal Reserve 
monetary policy. Generally, these amendments would not affect current 
relationships between banks and Federal Reserve Banks. A bank that 
already owns stock in or has an account at a Federal Reserve Bank may, 
but need not, seek a Board determination to change its location. The 
Board anticipates that the ``location'' issue will arise principally 
from mergers of existing banks or other changes in the organization or 
management of bank holding companies. Ordinarily, the Board expects 
that ``location'' decisions would be worked out between the Reserve 
Banks and the bank.
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    \3\ Mass. Gen. L. ch. 167F, section 8 (1995) and Neb. Rev. Stat. 
section 8-130 (1995).
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    Although the proposed Regulation I amendment would likely be 
sufficient to determine where a member bank's

[[Page 11119]]

reserve account would be located, the Board is also proposing to amend 
Regulation D (Reserve Requirements of Depository Institutions) to 
clarify the location of nonmember bank reserve accounts. Section 
19(c)(1) of the FRA provides that depository institutions must hold 
reserves subject to such rules and regulations that the Board may 
prescribe. Under this authority, the Board proposes to amend Regulation 
D to define where banks are considered located for reserve account 
purposes. The proposed Regulation D amendment is similar to the 
proposed Regulation I language and would, in effect, assure that 
nonmember banks are treated comparably to member banks for account 
location purposes.
    Regulation D also applies to Edge and agreement corporations and 
branches and agencies of foreign banks. Section 25A of the FRA requires 
Edge corporations to carry reserves in the same amounts as the Board 
prescribes for member banks and authorizes the Board to write rules 
governing the operations of such corporations. Section 25 of the FRA 
also authorizes the Board to require agreement corporations to maintain 
reserves. Section 7 of the International Banking Act provides that 
Federal branches and agencies of foreign banks are subject to the FRA's 
reserve requirement provisions (including section 19(c)) as if they 
were member banks. That Act also provides that the Board may impose the 
same requirements on state branches and agencies of foreign banks after 
consultation and in cooperation with the state bank supervisory 
authorities. The Board's proposed amendments do not address the 
location of reserve accounts for these institutions. The Board requests 
comment on whether it should apply the same or similar criteria for 
determining the location of reserve accounts for U.S. branches and 
agencies of foreign banks and Edge and agreement corporations as it 
does for depository institutions.

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 action by the agency is being considered and a statement of 
the objectives of, and legal basis for, the proposed rule, are 
contained in the supplementary material above. The proposed rules 
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 institutions subject to the regulations, regardless of 
size, but would not impose any significant burden on any institution.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3506; 5 CFR part 1320 Appendix A.1), the Board reviewed the proposed 
rule under the authority delegated to the Board by the Office of 
Management and Budget. Comments on the collections of information 
should be sent to the Office of Management and Budget, Paperwork 
Reduction Project (7100-0042, 7100-0087, 7100-0088, and 7100-0175), 
Washington, DC 20503, with copies of such comments to be sent to Mary 
M. McLaughlin, Chief, Financial Reports Section, Division of Research 
and Statistics, Mail Stop 97, Board of Governors of the Federal Reserve 
System, Washington, DC 20551.
    The collection of information requirements in this proposed 
regulation are found in 12 CFR parts 204 and 209. This information is 
required to evidence compliance with the requirements of the Federal 
Reserve Act. The respondents are for-profit financial institutions, 
including small businesses.
    The Federal Reserve may not conduct or sponsor, and an organization 
is not required to respond to, these information collections unless 
they display a currently valid OMB control number. The OMB control 
numbers are 7100-0042, 7100-0087, 7100-0088, and 7100-0175.
    The proposed amendments are not expected to change the ongoing 
annual burden. The estimated burden per response varies among the 
reports from 15 minutes (for tranche allocation reports) to 3.5 hours 
(for reports of deposits). It is estimated that there are 21,983 
respondents with frequency of response per respondent varying from 
daily to annually. Therefore the total amount of annual burden is 
estimated to be 1,501,479 hours. Based on an hourly cost of $20, the 
annual cost to the public is estimated to be $30,029,580. There is not 
estimated to be any annual cost burden over the annual hour burden.
    Individual responses to all of these data collections except those 
under OMB control number 7100-0042, which are available to the public, 
are considered confidential under section 225(b)(4) of the Freedom of 
Information Act.
    Comments are invited on: a. whether the proposed revised 
collections of information are necessary for the proper performance of 
the Federal Reserve's functions; including whether the information has 
practical utility; b. the accuracy of the Federal Reserve's estimate of 
the burden of the proposed revised information collection, including 
the cost of compliance; c. ways to enhance the quality, utility, and 
clarity of the information to be collected; and d. ways to minimize the 
burden of information collection on respondents, including through the 
use of automated collection techniques or other forms of information 
technology.

List of Subjects

12 CFR Part 204

    Banks, banking, Federal Reserve System, Reporting and recordkeeping 
requirements.

12 CFR Part 209

    Banks, banking, Federal Reserve System, Reporting and recordkeeping 
requirements, Securities.

    For the reasons set out in the preamble, 12 CFR parts 204 and 209 
are proposed to be amended as set forth below.

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. In Sec. 204.3, paragraph (b) is revised to read as follows:


Sec. 204.3  Computation and maintenance.

* * * * *
    (b) Form and location of reserves. (1) A depository institution, a 
U.S. branch or agency of a foreign bank, and an Edge or agreement 
corporation shall hold reserves in the form of vault cash, a balance 
maintained directly with the Federal Reserve Bank in the Federal 
Reserve district in which it is located, or a pass-through account. 
Reserves held in the form of a pass-through account shall be considered 
to be a balance maintained with a Federal Reserve Bank.
    (2) (i) For purposes of this section, a depository institution 
(other than a U.S. branch or agency of a foreign bank) is located in 
the Federal Reserve district that contains the location specified in 
the institution's charter or organizing certificate or, if no such 
location is

[[Page 11120]]

specified, the location of its head office, unless otherwise determined 
by the Board under paragraph (b)(2)(ii) of this section.
    (ii) If the location specified in paragraph (b)(2)(i) of this 
section is, in the Board's judgment, ambiguous or would impede the 
ability of the Board or the Federal Reserve Banks to perform their 
functions under the Federal Reserve Act, the Board will, after 
consultation with the relevant Federal Reserve Banks, determine the 
Federal Reserve district in which the depository institution is 
located. The relevant Federal Reserve Banks are the Federal Reserve 
Bank whose district contains the location specified in paragraph 
(b)(2)(i) of this section and the Federal Reserve Bank in whose 
district the institution is proposed to be located. In making this 
determination, the Board will consider any applicable laws, the 
business needs of the institution, the location of the institution's 
head office, the locations where the institution performs its business, 
and the locations that would allow the institution, the Board, and the 
Federal Reserve Banks to perform their functions efficiently and 
effectively.
* * * * *

PART 209--ISSUE AND CANCELLATION OF CAPITAL STOCK OF FEDERAL 
RESERVE BANKS (REGULATION I)

    3. The authority citation for part 209 continues to read as 
follows:

    Authority: 12 U.S.C. 248, 321-338, 486, 1814, 1816.

    4. A new Sec. 209.15 is added to read as follows:


Sec. 209.15  Location of bank.

    (a) General rule. For purposes of this part, a national bank or a 
state bank is located in the Federal Reserve district that contains the 
location specified in the bank's charter or organizing certificate, or 
if no such location is specified, the location of its head office, 
unless otherwise determined by the Board under paragraph (b) of this 
section.
    (b) Board determination. If the location of a bank as specified in 
paragraph (a) of this section is, in the Board's judgment, ambiguous or 
would impede the ability of the Board or the Federal Reserve Banks to 
perform their functions under the Federal Reserve Act, the Board, after 
consultation with the relevant Federal Reserve Banks, will determine 
the Federal Reserve district in which the bank is located. The relevant 
Federal Reserve Banks are the Federal Reserve Bank whose district 
contains the location specified in paragraph (a) of this section and 
the Federal Reserve Bank in whose district the institution is proposed 
to be located. In making this determination, the Board will consider 
any applicable laws, the business needs of the bank, the location of 
the bank's head office, the locations where the bank performs its 
business, and the locations that would allow the bank, the Board, and 
the Federal Reserve Banks to perform their functions efficiently and 
effectively.

    By order of the Board of Governors of the Federal Reserve 
System, March 5, 1997.
William W. Wiles,
Secretary of the Board.
[FR Doc. 97-5963 Filed 3-10-97; 8:45 am]
BILLING CODE 6210-01-P