[Federal Register Volume 62, Number 95 (Friday, May 16, 1997)]
[Rules and Regulations]
[Pages 26921-26922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-12550]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Parts 931 and 934

[No. 97-38]
RIN 3069-AA63


Technical Amendment to Definition of Deposits in Banks or Trust 
Companies

AGENCY: Federal Housing Finance Board.

ACTION: Final rule.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is amending 
the definition of the term ``deposits in banks or trust companies'' to 
expressly include a deposit in, or a sale of federal funds to, a branch 
or agency of a foreign bank located in the United States that is 
subject to the supervision of the Board of Governors of the Federal 
Reserve System (Board of Governors), as an investment eligible to 
fulfill the liquidity requirement imposed on the Federal Home Loan 
Banks (FHLBanks) by section 11(g) of the Federal Home Loan Bank Act 
(Bank Act).

EFFECTIVE DATE: The final rule will become effective on May 16, 1997.

FOR FURTHER INFORMATION CONTACT: Janice A. Kaye, Attorney-Advisor, 
Office of General Counsel, 202/408-2505, or Julie Paller, Senior 
Financial Analyst, Office of Policy, 202/408-2842, Federal Housing 
Finance Board, 1777 F Street, N.W., Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

    Under section 11(e)(1) of the Bank Act, the FHLBanks have the power 
to accept deposits from their members, other FHLBanks, or 
instrumentalities of the United States. See 12 U.S.C. 1431(e)(1). To 
ensure that each FHLBank has sufficient liquid assets to meet deposit 
withdrawal demands, section 11(g) of the Bank Act imposes a liquidity 
requirement. See id. 1431(g). The liquidity requirement provides that 
each FHLBank must invest, upon such terms and conditions as the Finance 
Board may prescribe, an amount equal to the current deposits the 
FHLBank holds in specified types of as sets. Id. Among the assets 
specified in the Bank Act are ``deposits in banks or trust companies.'' 
Id. 1431(g)(2).
    In 1978, the Finance Board's predecessor, the former Federal Home 
Loan Bank Board (FHLBB), defined by regulation the phrase ``deposits in 
banks or trust companies'' to include a deposit in another FHLBank, a 
demand account with a Federal Reserve Bank, or a deposit in a 
depository designated by a FHLBank's board of directors that is a 
member of either the Federal Reserve System or the Federal Deposit 
Insurance Corporation (FDIC).See 43 FR 46835, 46836 (Oct. 11, 1978), 
codified at 12 CFR 521.5 (superseded). When Congress abolished the 
FHLBB in 1989,see Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989, Pub. L. 101-73, sec. 401, 103 Stat. 183 (Aug. 
9, 1989), the Finance Board transferred the definition, without any 
change in substantive or technical matters, to Sec. 931.5 of its 
regulations. See 54 FR 36757 (Aug. 28, 1989), codified at 12 CFR 931.5. 
This definition remained unchanged until September 1996, when the 
Finance Board adopted a final rule making clear that the term ``banks'' 
includes savings associations and including federal funds transactions 
as eligible to fulfill the liquidity requirement imposed on the 
FHLBanks by section 11(g) of the Bank Act. See 61 FR 40311 (Aug. 2, 
1996), codified at 12 CFR 931.5. In February 1997, the Finance Board 
published for comment an interim final rule, which became effective 
upon publication, modifying the definition of ``deposits in banks or 
trust companies'' to include a deposit in, or a sale of federal funds 
to, a branch or agency of a foreign bank located in the United States 
that is subject to the supervision of the Board of Governors. See 62 FR 
6860 (Feb. 14, 1997). The 30-day public comment period closed on March 
17, 1997.See id. The one comment received in response to the interim 
final rule is discussed in Part II of the Supplementary Information.

II. Analysis of Public Comments and the Final Rule

    For the reasons set forth in detail in the interim final 
rulemaking, the Finance Board believes that all U.S. branches and 
agencies of foreign banks should be treated equally, which was not the 
case under the prior rule. Accordingly, the Finance Board is adopting 
the amendments to the definition of ``deposits in banks or trusts'' 
made by the interim final rule without substantive change. In addition,

[[Page 26922]]

as part of its ongoing regulatory reorganization, the Finance Board is 
redesignating the definition to part 934 of its regulations, which 
concerns the operations of the FHLBanks.See 12 CFR part 934.
    As amended, the definition of the term ``deposits in banks or 
trusts'' includes FHLBank deposits in any U.S. branch or agency of a 
foreign bank that has legal authority to accept deposits or engage in 
federal funds transactions as eligible investments for purposes of 
section 11(g) of the Bank Act. To achieve this result, the Finance 
Board has added a new paragraph (c)(3) that includes expressly a 
deposit in, or federal funds transactions with, a U.S. branch or agency 
of a foreign bank that is subject to the supervision of the Board of 
Governors and is designated by a FHLBank's board of directors. The 
terms ``branch,'' ``agency,'' and ``foreign bank'' have the same 
meaning as in the International Banking Act of 1978, as amended. See 12 
U.S.C. 3101 (1), (3), (7).
    The commenter urged the Finance Board to encourage the FHLBanks to 
place deposits with small, domestic FDIC-insured financial institutions 
rather than U.S. branches and agencies of foreign banks in order to 
provide these community banks with needed liquidity and to facilitate 
the FHLBanks' mission of extending credit for housing in the United 
States. Because provisions of federal law require the treatment of all 
U.S. branches and agencies of foreign banks to be similar to the 
treatment of domestic depository institutions, the Finance Board 
believes that the amendment permitting FHLBank deposits in U.S. 
branches and agencies of foreign banks is consistent with federal law. 
The commenter also suggested that placing deposits in uninsured U.S. 
branches and agencies of foreign banks might create additional 
unnecessary risk for the FHLBanks. As pointed out in the interim final 
rulemaking, a foreign bank may establish a U.S. branch or agency only 
with the prior approval of the Board of Governors and an appropriate 
licensing authority, i.e., either the Comptroller of the Currency or a 
state banking regulator, and such branches and agencies are subject to 
the supervision of the Board of Governors and must meet many of the 
rules and regulations, including safety and soundness rules and 
regulations, applicable to domestic commercial banks. In addition, 
because FHLBank deposits generally exceed the $100,000 FDIC deposit 
insurance limit, and U.S. branches of foreign banks principally accept 
only wholesale deposits, FDIC insurance would be of little benefit, and 
the absence thereof would pose little additional risk, to the FHLBanks.

III. Notice and Public Participation

    The Finance Board finds that the notice and comment procedure 
required by the Administrative Procedure Act is unnecessary, 
impracticable, and contrary to the public interest in this instance 
because the changes made by the final rule are technical in nature and 
apply only to the FHLBanks. See 5 U.S.C. 553(b)(3)(B). In addition, as 
explained above, the changes made by the final rule are necessary to 
comply with various provisions of federal law.

IV. Effective Date

    For the reasons stated in part III above, the Finance Board for 
good cause finds that the interim final rule should become effective on 
May 16, 1997. See 5 U.S.C. 553(d)(3).

V. Regulatory Flexibility Act

    The Finance Board is adopting the technical amendment in the form 
of a final rule and not as a proposed rule. Therefore, the provisions 
of the Regulatory Flexibility Act do not apply. See 5 U.S.C. 601(2), 
603(a).

VI. Paperwork Reduction Act

    This final rule does not contain any collections of information 
pursuant to the Paperwork Reduction Act of 1995. See 44 U.S.C. 3501, et 
seq. Consequently, the Finance Board has not submitted any information 
to the Office of Management and Budget for review.

List of Subjects

12 CFR Part 931

    Banks, Banking, Federal home loan banks.

12 CFR Part 934

    Federal home loan banks, Securities, Surety bonds.

    Accordingly, the Federal Housing Finance Board hereby adopts the 
interim final rule amending 12 CFR part 931 that was published at 62 FR 
6860 on February 14, 1997 as a final rule with the following changes, 
and amends 12 CFR part 934 of the Code of Federal Regulations as 
follows:

PART 931--DEFINITIONS

    1. Revise the authority citation for part 931 to read as follows:

    Authority: 12 U.S.C. 1422a and 1422b.

PART 934--OPERATIONS OF THE BANKS

    1. Revise the authority citation for part 934 to read as follows:

    Authority: 12 U.S.C. 1422a, 1422b, 1431(g), and 1442.


Secs. 934.4 through 934.14  [Redesignated as Secs. 934.5 through 
934.15]

    2. Redesignate Secs. 934.4 through 934.14 as Secs. 934.5 through 
934.15, respectively.


Sec. 931.5  [Redesignated as Sec. 934.4]

    3. Redesignate Sec. 931.5 as Sec. 934.4 and revise to read as 
follows:


Sec. 934.4  Deposits in banks or trust companies.

    For purposes of section 11(g) of the Act, the term ``deposits in 
banks or trust companies'' means:
    (a) A deposit in another Bank;
    (b) A demand account in a Federal Reserve Bank; and
    (c) A deposit in, or a sale of federal funds to:
    (1) An insured depository institution, as defined in section 
2(12)(A) of the Act, that is designated by a Bank's board of directors;
    (2) A trust company that is a member of the Federal Reserve System 
or insured by the Federal Deposit Insurance Corporation, and is 
designated by a Bank's board of directors; or
    (3) A U.S. branch or agency of a foreign bank, as defined in the 
International Banking Act of 1978, as amended (12 U.S.C. 3101 et seq.), 
that is subject to the supervision of the Board of Governors of the 
Federal Reserve System, and is designated by a Bank's board of 
directors.

    By the Board of Directors of the Federal Housing Finance Board.
Bruce A. Morrison,
Chairperson.
[FR Doc. 97-12550 Filed 5-15-97; 8:45 am]
BILLING CODE 6725-01-U