[Federal Register Volume 71, Number 205 (Tuesday, October 24, 2006)]
[Rules and Regulations]
[Pages 62201-62204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-17737]


=======================================================================
-----------------------------------------------------------------------

FEDERAL RESERVE SYSTEM

12 CFR Part 204

[Regulation D; Docket No. R-1268]


Reserve Requirements of Depository Institutions

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Board is amending Regulation D, Reserve Requirements of 
Depository Institutions, to reflect the annual indexing of the reserve 
requirement exemption amount and the low reserve tranche for 2007. The 
Regulation D amendments set the amount of total reservable liabilities 
of each depository institution that is subject to a zero percent 
reserve requirement in 2007 at $8.5 million, up from $7.8 million in 
2006. This amount is known as the reserve requirement exemption amount. 
The Regulation D amendment also sets the amount of net

[[Page 62202]]

transaction accounts at each depository institution that is subject to 
a three percent reserve requirement in 2007 at $45.8 million, down from 
$48.3 million in 2006. This amount is known as the low reserve tranche. 
The adjustments to both of these amounts are derived using statutory 
formulas specified in the Federal Reserve Act.
    The Board is also announcing changes in two other amounts, the 
nonexempt deposit cutoff level and the reduced reporting limit, that 
are used to determine the frequency at which depository institutions 
must submit deposit reports.

DATES: Effective date: November 24, 2006.
    Compliance dates: For depository institutions that report deposit 
data weekly, the new low reserve tranche and reserve requirement 
exemption amount will apply to the fourteen-day reserve computation 
period that begins Tuesday, November 21, 2006, and the corresponding 
fourteen-day reserve maintenance period that begins Thursday, December 
21, 2006. For depository institutions that report deposit data 
quarterly, the new low reserve tranche and reserve requirement 
exemption amount will apply to the seven-day reserve computation period 
that begins Tuesday, December 19, 2006, and the corresponding seven-day 
reserve maintenance period that begins Thursday, January 18, 2007. For 
all depository institutions, these new values of the nonexempt deposit 
cutoff level, the reserve requirement exemption amount, and the reduced 
reporting limit will be used to determine the frequency at which a 
depository institution submits deposit reports effective in either June 
or September 2007.

FOR FURTHER INFORMATION CONTACT: Heatherun Allison, Senior Counsel 
(202/452-3565), Legal Division, or Margaret Gillis, Financial Analyst 
(202/452-3139), Division of Monetary Affairs; for user of 
Telecommunications Device for the Deaf (TDD) only, contact (202/263-
4869); Board of Governors of the Federal Reserve System, 20th and C 
Streets, NW., Washington, DC 20551.

SUPPLEMENTARY INFORMATION: Section 19(b)(2) of the Federal Reserve Act 
(12 U.S.C. 461(b)(2)) requires each depository institution to maintain 
reserves against its transaction accounts and nonpersonal time 
deposits, as prescribed by Board regulations, for the purpose of 
implementing monetary policy. Section 11(a)(2) of the Federal Reserve 
Act (12 U.S.C. 248(a)(2)) authorizes the Board to require reports of 
liabilities and assets from depository institutions to enable the Board 
to conduct monetary policy. The Board's actions with respect to each of 
these provisions are discussed in turn below.

1. Reserve Requirements

    Pursuant to section 19(b) of the Federal Reserve Act (Act), 
transaction account balances maintained at each depository institution 
are subject to reserve requirement ratios of zero, three, or ten 
percent. Section 19(b)(11)(A) of the Act (12 U.S.C. 461(b)(11)(A)) 
provides that a zero percent reserve requirement shall apply at each 
depository institution to total reservable liabilities that do not 
exceed a certain amount, known as the reserve requirement exemption 
amount. Section 19(b)(11)(B) provides that, before December 31 of each 
year, the Board shall issue a regulation adjusting the reserve 
requirement exemption amount for the next calendar year if total 
reservable liabilities held at all depository institutions increase 
from one year to the next. No adjustment is made to the reserve 
requirement exemption amount if total reservable liabilities held at 
all depository institutions should decrease during the applicable time 
period. The Act requires the percentage increase in the reserve 
requirement exemption amount to be 80 percent of the increase in total 
reservable liabilities of all depository institutions over the one-year 
period that ends on the June 30 prior to the adjustment.
    Total reservable liabilities of all depository institutions grew by 
10.4 percent (from $3,361.8 billion to $3,712.7 billion) between June 
30, 2005, and June 30, 2006. Accordingly, the Board is amending 
Regulation D to increase the reserve requirement exemption amount by 
$0.7 million, from $7.8 million for 2006 to $8.5 million for 2007.\1\
---------------------------------------------------------------------------

    \1\ Consistent with Board practice, the low reserve tranche and 
reserve requirement exemption amounts have been rounded to the 
nearest $0.1 million.
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2) of the Act (12 U.S.C. 461(b)(2)), 
transaction account balances maintained at each depository institution 
over the reserve requirement exemption amount and up to a certain 
amount, known as the low reserve tranche, are subject to a three 
percent reserve requirement. Transaction account balances over the low 
reserve tranche are subject to a ten percent reserve requirement. 
Section 19(b)(2) also provides that, before December 31 of each year, 
the Board shall issue a regulation adjusting the low reserve tranche 
for the next calendar year. The Act requires the adjustment in the low 
reserve tranche to be 80 percent of the percentage increase or decrease 
in total transaction accounts of all depository institutions over the 
one-year period that ends on the June 30 prior to the adjustment.
    Currently, the low reserve tranche is $48.3 million. Net 
transaction accounts of all depository institutions declined 6.4 
percent (from $714.9 billion to $669.1 billion) between June 30, 2005 
and June 30, 2006. Accordingly, the Board is amending Regulation D (12 
CFR part 204) to decrease the low reserve tranche for net transaction 
accounts by $2.5 million, from $48.3 million for 2006 to $45.8 million 
for 2007.
    For depository institutions that file deposit reports weekly, the 
new low reserve tranche and reserve requirement exemption amount will 
be effective for the fourteen-day reserve computation period beginning 
Tuesday, November 21, 2006, and for the corresponding fourteen-day 
reserve maintenance period beginning Thursday, December 21, 2006. For 
depository institutions that report quarterly, the new low reserve 
tranche and reserve requirement exemption amount will be effective for 
the seven-day reserve computation period beginning Tuesday, December 
19, 2006, and for the corresponding seven-day reserve maintenance 
period beginning Thursday, January 18, 2007.

2. Deposit Reports

    Section 11(b)(2) of the Federal Reserve Act authorizes the Board to 
require depository institutions to file reports of their liabilities 
and assets as the Board may determine to be necessary or desirable to 
enable it to discharge its responsibility to monitor and control the 
monetary and credit aggregates. The Board screens depository 
institutions each year and assigns them to one of four deposit 
reporting panels (weekly reporters, quarterly reporters, annual 
reporters, or nonreporters). The panel assignment for annual reporters 
is effective in June of the screening year; the panel assignment for 
weekly and quarterly reporters is effective in September of the 
screening year.
    In order to ease reporting burden, the Board permits smaller 
depository institutions to submit deposit reports less frequently than 
larger depository institutions. In the past, the Board used the level 
of a depository institution's total deposits as one of the measures for 
determining the frequency at which a depository institution files 
deposit reports. With the elimination of M3, the Board announced in 
July 2006 that it

[[Page 62203]]

would use a measure of deposits based on M2 instead of total deposits. 
That measure of deposits is the sum of total transaction accounts, 
savings deposits, and small time deposits.\2\
---------------------------------------------------------------------------

    \2\ This measure also includes ineligible acceptances and 
obligations issued by affiliates maturing in less than seven days.
---------------------------------------------------------------------------

    The Board permits depository institutions with net transaction 
accounts above the reserve requirement exemption amount but with a sum 
of total transaction accounts, savings deposits, and small time 
deposits below a specified level (the ``nonexempt deposit cutoff'') to 
report deposit data quarterly. The Board requires certain large 
depository institutions to report weekly regardless of the level of 
their net transaction accounts if the sum of total transaction 
accounts, savings deposits, and small time deposits exceeds a specified 
level (the ``reduced reporting limit''). The nonexempt deposit cutoff 
level and the reduced reporting limit are adjusted annually, by an 
amount equal to 80 percent of the increase, if any, in the sum of total 
transaction accounts, savings deposits, and small time deposits of all 
depository institutions over the one-year period that ends on the June 
30 prior to the adjustment. In the past, the Board has adjusted the 
nonexempt deposit cutoff level and the reduced reporting limit above 
their indexed levels as a part of its triennial review of the reports 
of deposit.
    From June 30, 2005 to June 30, 2006, the sum of total transaction 
accounts, savings deposits, and small time deposits at all depository 
institutions increased 4.8 percent (from $5,598.0 billion to $5,867.1 
billion). Accordingly, the Board is adjusting the nonexempt deposit 
cutoff level to $207.7 million for 2007. The Board is also adjusting 
the reduced reporting limit to $1.163 billion for 2007.\3\
---------------------------------------------------------------------------

    \3\ Consistent with Board practice, the nonexempt deposit cutoff 
level has been rounded to the nearest $0.1 million, and the reduced 
reporting limit has been rounded to the nearest $1 million.
---------------------------------------------------------------------------

    Beginning in September 2007, the boundaries of the four deposit 
reporting panels will be defined as follows. Those depository 
institutions with net transaction accounts over $8.5 million (the 
reserve requirement exemption amount) or with the sum of total 
transaction accounts, savings deposits, and small time deposits greater 
than or equal to $1.163 billion (the reduced reporting limit) are 
subject to detailed reporting, and must file a Report of Transaction 
Accounts, Other Deposits and Vault Cash (FR 2900 report) either weekly 
or quarterly. Of this group, those with the sum of total transaction 
accounts, savings deposits, and small time deposits greater than or 
equal to $207.7 million (the nonexempt deposit cutoff level) are 
required to file the FR 2900 report each week, while those with the sum 
of total transaction accounts, savings deposits, and small time 
deposits less than $207.7 million are required to file the FR 2900 
report each quarter. Those depository institutions with net transaction 
accounts less than or equal to $8.5 million (the reserve requirement 
exemption amount) and with the sum of total transaction accounts, 
savings deposits, and small time deposits less than $1.163 billion (the 
reduced reporting limit) are eligible for reduced reporting, and must 
either file a deposit report annually or not at all. Of this group, 
those with total deposits greater than $8.5 million (but less than 
$1.163 billion) are required to file the Annual Report of Deposits and 
Reservable Liabilities (FR 2910a) report annually, while those with 
total deposits less than or equal to $8.5 million are not required to 
file a deposit report. A depository institution that adjusts reported 
values on its FR 2910a report in order to qualify for reduced reporting 
will be shifted to an FR 2900 reporting panel.
    Notice and Regulatory Flexibility Act. The provisions of 5 U.S.C. 
553(b) relating to notice of proposed rulemaking have not been followed 
in connection with the adoption of these amendments. The amendments 
involve expected, ministerial adjustments prescribed by statute and by 
the Board's policy concerning reporting practices. The adjustments in 
the reserve requirement exemption amount, the low reserve tranche, the 
nonexempt deposit cutoff level, and the reduced reporting limit serve 
to reduce regulatory burdens on depository institutions. Accordingly, 
the Board finds good cause for determining, and so determines, that 
notice in accordance with 5 U.S.C. 553(b) is unnecessary. Consequently, 
the provisions of the Regulatory Flexibility Act, 5 U.S.C. 601, do not 
apply to these amendments.

List of Subjects in 12 CFR Part 204

    Banks, banking, Reporting and recordkeeping requirements.

0
For the reasons set forth in the preamble, the Board is amending 12 CFR 
part 204 as follows:

PART 204--RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS 
(REGULATION D)

0
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.


0
2. Section 204.9 is revised to read as follows:


Sec.  204.9  Reserve requirement ratios.

    The following reserve requirement ratios are prescribed for all 
depository institutions, banking Edge and agreement corporations, and 
United States branches and agencies of foreign banks:

------------------------------------------------------------------------
                Category                       Reserve requirement
------------------------------------------------------------------------
Net transaction accounts:
    $0 to $8.5 million.................  0 percent of amount.
    Over $8.5 million and up to $45.8    3 percent of amount.
     million.
    Over $45.8 million.................  $1,119,000 plus 10 percent of
                                          amount over $45.8 million.
Nonpersonal time deposits..............  0 percent.
Eurocurrency liabilities...............  0 percent.
------------------------------------------------------------------------



[[Page 62204]]

    By order of the Board of Governors of the Federal Reserve 
System, October 18, 2006.
Jennifer J. Johnson,
Secretary of the Board.
 [FR Doc. E6-17737 Filed 10-23-06; 8:45 am]
BILLING CODE 6210-01-P