[Federal Register Volume 71, Number 25 (Tuesday, February 7, 2006)]
[Notices]
[Pages 6278-6279]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-1547]


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FEDERAL RESERVE SYSTEM

[Docket No. OP--1249]


Rules Relating to Branches of Federal Reserve Banks

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Notice.

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SUMMARY: The Board of Governors has reviewed and revised its Rules 
Relating to Branches of Federal Reserve Banks in light of the existing 
scope of, and other System-wide policies and procedures concerning, 
Federal Reserve branch operations. These revisions are designed to 
enable more efficient governance of Federal Reserve Bank branches and 
to streamline Federal Reserve System policies and procedures regarding 
branches.

DATES: The amendments became effective on January 30, 2006.

FOR FURTHER INFORMATION CONTACT: Adrianne G. Threatt, Counsel (202/452-
3554), Legal Division, Board of Governors of the Federal Reserve 
System, 20th Street and Constitution Avenue, NW., Washington, DC 20551. 
Users of Telecommunication Device for Deaf (TDD) only, call 202/263-
4869.

SUPPLEMENTARY INFORMATION:

Background and Summary of Amendments

    The Federal Reserve Act (Act) states that the Board may permit or 
require any Federal Reserve Bank to establish branches within its 
Federal Reserve District, and that such branches, subject to the rules 
and regulations of the Board, must be operated under a board of 
directors. See 12 U.S.C. 521. The Act also provides that the Board at 
any time may require any Federal Reserve Bank to discontinue a branch, 
which then must be wound up in accordance with the rules and 
regulations of the Board. Id. The Board initially adopted its Rules 
Relating to Branches of Federal Reserve Banks (Branch Rule) in 1940, 
primarily to provide a uniform framework governing the appointment and 
responsibilities of branch directors. The Board most recently amended 
the Branch Rule in 1978 to conform the director-related provisions of 
the rule to the Federal Reserve Reform Act of 1977. See 43-- FR 29189 ( 
July 6, 1978).
    The current revisions to the Branch Rule are designed to bring the 
rule up to date with the current role of Reserve Bank branches within 
the Federal Reserve System and to conform the Branch Rule to the other 
Federal Reserve policies and procedures that affect branches. When the 
Board initially adopted the Branch Rule, most Reserve Bank branches 
generally provided many of the banking services offered by their head 
offices. Today, however, improvements in technology permit the Reserve 
Banks to offer a comparable level of nationwide services with a reduced 
physical presence and at a lower cost. In addition, most decisions that 
affect the operational scope of Reserve Bank branches are handled 
through a coordinated process, set forth in the Federal Reserve 
Administrative Manual (FRAM), that includes involvement by the Board 
and its staff as appropriate. Moreover, the Board recently conducted a 
System-wide review of the general policies that govern all directors 
associated with Federal Reserve Banks, including the directors of 
Federal Reserve branches, and adopted changes to its policies 
concerning branch directors as part of that review. Section 3 of the 
revised Branch Rule reflects that responsibility for management of the 
branches rests largely with the Reserve Bank and not with the board of 
directors of the branch.
    The Board has revised the Branch Rule so that it reflects more 
accurately the current organization of Reserve Bank operations and 
better coordinates with other relevant policies and procedures. 
Highlights of the amendments include the following:
    1. Branch territory and functions. The Board removed provisions of 
the Branch Rule that required Board approval for changes in the 
territory served by a branch and for substantial changes in the 
authority or functions of a branch. Currently, the overall scope of a 
branch's operations does not necessarily correlate to its generally 
assigned territory, and proposed territory and function changes are 
reviewed thoroughly through the above-mentioned procedures set forth in 
the FRAM. The Board has, however, added a sentence stating the Act's 
requirement that a Reserve Bank may neither establish nor discontinue a 
branch without Board approval.
    2. Branch directors. The Board has eliminated the requirement for 
prior Board approval for a Reserve Bank to change the number of 
directors of a branch from seven to five (or vice versa) and has 
liberalized the qualification requirements for branch directors that 
are appointed by the Board. These changes should enable Reserve Banks 
more easily to obtain a board of directors that can serve the needs of 
a particular branch effectively. The Board also has simplified the 
provisions regarding director terms and made the term limit for branch 
directors consistent with that for Reserve Bank directors. The Board 
has deleted the quorum rule that previously applied to meetings of 
branch directors and has replaced a provision requiring branch 
directors to meet at least ten times per year with a rule requiring 
them to meet as set forth in the Reserve Bank by-laws.
    3. Officers, supplemental instructions, and Reserve Bank/branch 
relations generally. The Board has revised and consolidated into a 
single section the previously existing provisions concerning the 
relationship between the branch, the Reserve Bank, and the Board. These 
include (1) a provision stating that the branch directors carry out 
their duties subject to the direction and control of the Reserve Bank 
and subject to the Board's rules, (2) a provision clarifying that the 
Reserve Bank, rather than the branch board of directors, is responsible 
for appointing branch officers and that officers serve at the pleasure 
of the Board, and (3) a provision stating that the Reserve Bank may 
adopt additional instructions or by-laws, consistent with the Branch 
Rule, concerning branch operations. The revisions to these provisions 
are intended to describe more accurately the current organization and 
operation of branches and their role within the Federal Reserve System.

Procedural Considerations

    The Branch Rule is an uncodified rule issued for use within the 
Federal Reserve System pursuant to Section 3 of the Act. See 5 U.S.C. 
521. The Board's amendments relate solely to the internal organization 
and procedures of the Federal Reserve System, particularly the 
operation of Federal Reserve Banks; accordingly, the public notice, 
public comment, and delayed effective date provisions of the 
Administrative Procedure Act do not apply. See 5

[[Page 6279]]

U.S.C. 553(b) and (d). Because public notice and comment are not 
required, the Regulatory Flexibility Act also does not apply to this 
action. See 5 U.S.C. 601 et seq.
    For the reasons stated above, the Board has adopted amendments to 
the Branch Rule, and the amended rule in its entirety reads as follows:

Regulations Relating to Branches of Federal Reserve Banks

Section 1--Branches Generally

    A Reserve Bank may conduct business through a branch that is 
established in accordance with section 3 of the Federal Reserve Act. 
The title of each branch shall include the name of the city or 
metropolitan area in which it is situated and the name of the Federal 
Reserve Bank of which it is a branch, such as ``Detroit Branch of the 
Federal Reserve Bank of Chicago.'' A Reserve Bank may not establish or 
discontinue a branch unless the Board of Governors specifically has 
approved or directed that action.

Section 2--Directors of Branches

    (a) Number of directors. The board of directors of each branch of a 
Federal Reserve Bank shall consist of seven members or five members, as 
may be determined by the Federal Reserve Bank. The Federal Reserve Bank 
shall appoint four members of a seven-member board and three members of 
a five-member board. The Board of Governors shall appoint the remainder 
of the board members.
    (b) Qualifications of directors. (1) Directors shall be selected 
without discrimination on the basis of race, creed, color, sex, or 
national origin.
    (2) The directors appointed by the Federal Reserve Banks shall be 
persons who meet the personal and occupational qualifications of class 
A or B Reserve Bank directors.
    (3) The directors appointed by the Board of Governors shall be 
persons who meet the personal and occupational qualifications of class 
C Reserve Bank directors, except that--
    (i) Board-appointed branch directors may be stockholders in banks 
and bank holding companies and may be advisory directors of a bank or 
bank holding company; and
    (ii) One branch director appointed by the Board may, in extenuating 
circumstances and at the request of a Reserve Bank, be a director (but 
not an officer or employee) of a bank or bank holding company.
    (4) No director of a Federal Reserve Bank shall serve as a director 
of a branch of the Bank during his or her service as a director of the 
Federal Reserve Bank.
    (5) Each director shall be a citizen of the United States and shall 
reside or have a significant occupational interest within the territory 
served by the branch.
    (c) Terms of directors. The term of office of directors shall be 
three years. In order to make practicable an orderly rotation of branch 
directorships, the terms of directors shall be arranged such that--
    (1) Less than a majority of the terms expire in any year;
    (2) If an even number of terms expire in any year, at least one of 
those terms is of a director appointed by the Board of Governors;
    (3) If an odd number of terms expire in any year, a majority of 
those terms are of directors appointed by the Reserve Bank.
    (d) Limitation on years of service. A branch director will not be 
reappointed if he or she has served two full terms each, or if, by the 
end of the new term, the individual would have served as a branch 
director for more than seven years of continuous service. The Board may 
grant exceptions where appropriate, but would expect to do so only in 
limited circumstances.
    (e) Chairman. The Federal Reserve Bank shall provide for the annual 
designation, in such manner as it may prescribe, of one of the members 
of the board of directors of each branch appointed by the Board of 
Governors as the chairman of the board.
    (f) Vacancies. In the event of a vacancy occurring in the board of 
directors of a branch of a Federal Reserve Bank, the appointment to 
fill such vacancy shall be made by the body making the original 
appointment and such appointment shall be for the unexpired term.
    (g) Removal of directors. As provided in section 3 of the Federal 
Reserve Act, directors of branches of Federal Reserve Banks hold office 
at the pleasure of the Board of Governors.
    (h) Meetings. The board of directors of a branch shall meet 
according to the schedule set by the Federal Reserve Bank.
    (i) Fees and allowances. The fees and allowances to be paid to 
directors of the branch for attendance at meetings of the board of 
directors of the branch or any committees of the branch shall be 
subject to the approval of the Board of Governors.

Section 3--Relationship Between Branches and Reserve Banks

    (a) Operation of branches. (1) Supervision of the operations of a 
branch shall be subject to the direction and control of the Federal 
Reserve Bank of the district and rules, regulations, policies, and 
procedures of the Board of Governors.
    (2) The Federal Reserve Bank of the district shall appoint such 
officers for each branch as the Bank from time to time deems necessary.
    (3) All offficers and employees of a branch shall be subject to the 
same employment and compensation policies and procedures that the Board 
of Governors applies to officers and employees, respectively, of a 
Federal Reserve Bank, and all branch officers shall be subject to 
removal by the Board of Governors.
    (b) Supplemental instructions. Each Federal Reserve Bank may issue 
instructions or adopt by-laws, not inconsistent with the law or these 
regulations, containing such further provisions with regard to the 
operation of its branches as it may deem advisable.

    By order of the Board of Governors of the Federal Reserve 
System, January 31, 2006.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E6-1547 Filed 2-6-06; 8:45 am]
BILLING CODE 6210-01-P