[Federal Register Volume 72, Number 241 (Monday, December 17, 2007)]
[Rules and Regulations]
[Pages 71202-71203]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-24315]


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FEDERAL RESERVE SYSTEM

12 CFR Part 201

[Regulation A; Docket No. R-1304]


Extensions of Credit by Federal Reserve Banks

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 (Board) 
is amending its Regulation A, effective December 12, 2007, to allow the 
Board to authorize a temporary Term Auction Facility (TAF) under 
section 10B of the Federal Reserve Act. A TAF is a credit facility that 
allows a depository institution to obtain an advance from its local 
Federal Reserve Bank at an interest rate that is determined as the 
result of an auction. A TAF is expected to permit depository 
institutions to obtain credit on a secured basis from the Federal 
Reserve at rates that meet the market demand for credit of relatively 
short terms. The Board is also announcing the immediate authorization 
of a TAF, subject to the terms and conditions specified herein.

DATES: The amendments to part 201 (Regulation A) are effective December 
12, 2007.

FOR FURTHER INFORMATION CONTACT: Scott G. Alvarez, General Counsel 
(202/452-3583); Heatherun Sophia Allison, Senior Counsel (202/452-
3565); for users of Telecommunication Devices for the Deaf (TDD) only, 
contact 202/263-4869.

SUPPLEMENTARY INFORMATION: Section 10B of the Federal Reserve Act (12 
U.S.C. 347b(a)) authorizes any Federal Reserve Bank, under rules and 
regulations prescribed by the Board, to make advances to depository 
institutions that have maturities of not more than four months and that 
are secured to the satisfaction of the Federal Reserve Bank. Under this 
authority, the Board has determined to amend Regulation A, effective 
immediately, to authorize a TAF, subject to such further terms and 
conditions as the Board may specify from time to time in connection 
with the TAF. The interest rate at which credit is extended under a TAF 
will be determined through an auction procedure. A TAF is expected to 
permit depository institutions to obtain credit on a secured basis from 
the Federal Reserve at rates that meet the market demand for credit of 
relatively short terms.
    Final Rule. The final rule provides that advances under a TAF will 
be made only to depository institutions that are in generally sound 
financial condition, are expected to remain in that condition during 
the term of the advance and are eligible to receive advances under 
section 10B of the Federal Reserve Act. The final rule also provides 
that credit extended under a TAF will be granted at the rate based on 
the auction. The final rule further provides that the terms and 
conditions applicable to a TAF will be specified by the Board from time 
to time in connection with the TAF. Those terms and conditions may 
include but are not limited to requirements governing the condition of 
participants, size and duration of the facility, minimum and maximum 
bid amounts, term of advance, use of proceeds, and schedule of auction 
dates. All institutions that seek credit under the TAF agree to be 
bound by the terms and conditions of the TAF as set out in the 
documents issued by the Board governing the TAF. The Board may appoint 
one or more Reserve Banks or others to conduct the auction. The 
amendment to Regulation A authorizing the TAF is being adopted in 
response to current market conditions as discussed below and is 
intended to be a temporary change. Consequently, the final rule 
provides that the TAF will end on such date as set by the Board. In the 
event the Board determines to adopt these changes to Regulation A on a 
permanent basis, the Board expects to seek public comment on the 
changes.
    Immediate Authorization of TAF. The Board has determined 
immediately to

[[Page 71203]]

authorize a TAF. Unless otherwise provided, the TAF will be subject to 
the following terms and conditions. The first auction will take place 
during the week of December 17, 2007, with a second auction occurring 
on or about December 20, 2007. Additional auctions will be held 
beginning in January 2008, until and unless otherwise determined by the 
Board. The amount available at each auction, a minimum bid amount, a 
maximum bid amount, and a minimum bid rate will be announced before 
each auction. The rate determined by the auction will be announced 
after completion of the auction, and will in general be the maximum bid 
rate that allows advances to be extended up to the maximum amount 
allocated for that week's auction. Bidding schedules will be announced 
in advance of each auction.
    The auction will be open to depository institutions that are in 
generally sound financial condition and are expected to remain so 
during the term of the advance. Unless otherwise provided, any eligible 
depository institution that wishes to participate in the TAF may submit 
to the Reserve Bank in whose district the institution is located (local 
Reserve Bank) no more than two bids containing the amount of advances 
it is seeking and its interest rate bids. The auction will be 
administered by an auction agent appointed by the Board.
    All advances to a depository institution made under the TAF will be 
made by its local Reserve Bank and must be secured to the satisfaction 
of the local Reserve Bank. Advances made under the TAF are expected to 
be for a term of at least 28 days, as set at the time of the auction. 
An advance awarded under the TAF is an ``Advance,'' as such term is 
defined in Operating Circular No. 10, as amended and supplemented from 
time to time (OC-10) and shall be governed by OC-10 (including, without 
limitation, provisions relating to interest, the addition or 
substitution of Collateral, repayment of Advances and remedies upon the 
occurrence of an Event of Default), except that no depository 
institution may elect to prepay an advance made under the TAF before 
the stated maturity date. Repayment of an advance prior to stated 
maturity, or change in the terms of the advance, may be required in the 
event that the depository institution does not remain in generally 
sound financial condition during the term of the loan, or as otherwise 
provided by the Reserve Bank or Board in the notices or other 
documentation regarding advances under the TAF. An advance under the 
TAF shall also be subject to the terms and conditions of the TAF as set 
from time to time by the Board. All advances under the TAF are extended 
at the discretion of the local Reserve Bank, and neither the TAF terms 
and conditions nor Regulation A afford any depository institution any 
legal right to bid in the TAF or to receive any advance from any 
Reserve Bank.

Regulatory Flexibility Act Certification

    Pursuant to the Regulatory Flexibility Act (5 U.S.C. 605(b)), the 
Board certifies that the new auction credit facility will not have a 
significantly adverse economic impact on a substantial number of small 
entities because the final rule does not impose any additional 
requirements on entities affected by the regulation.

Administrative Procedure Act

    In accordance with the Administrative Procedure Act (APA), the 
Board has determined that prior notice and opportunity for public 
comment on this amendment to Regulation A is not required. First, 
notice and comment are not required for matters relating to public 
loans.\1\ The TAF implements the System's lending authority. Second, 
the Board believes that good cause supports a finding in this case that 
delay in adopting the amendments to Regulation A would be 
impracticable, unnecessary and contrary to the public interest.\2\ 
Short-term bank funding markets have been strained for some time and 
these pressures have intensified in recent weeks. These developments 
have occurred against the backdrop of considerable tightening in 
overall financial conditions. The current difficulties in bank funding 
markets could contribute to a further deterioration in financial market 
conditions and tightening of credit availability that, in turn, could 
adversely affect prospects for economic growth. In these circumstances, 
the Board believes that any delay in implementing a temporary Term 
Auction Facility to allow for a full public comment period could well 
prove contrary to the public interest.
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    \1\ 5 U.S.C. 553(a)(2).
    \2\ 5 U.S.C. 553(b)(3)(B).
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List of Subjects in 12 CFR Part 201

    Banks, Banking, Federal Reserve System, Reporting and 
recordkeeping.

Authority and Issuance

0
For the reasons set forth in the preamble, the Board is amending 12 CFR 
Chapter II to read as follows:

PART 201--EXTENSIONS OF CREDIT BY FEDERAL RESERVE BANKS (REGULATION 
A)

    1. The authority citation for part 201 continues to read as 
follows:

    Authority: 12 U.S.C. 248(i)-(j), 343 et seq., 347a, 347b, 347c, 
348 et seq., 357, 374, 374a, and 461.


0
2. In Sec.  201.4, a new paragraph (e) is added to read as follows:


Sec.  201.4  Availability and terms of credit.

    (e) Term auction facility. (1) A Federal Reserve Bank may make an 
advance to a depository institution pursuant to an auction conducted 
under this paragraph and at the rate specified in Sec.  201.51(e) if, 
in the judgment of the Reserve Bank, the depository institution is in 
generally sound financial condition and is expected to remain in that 
condition during the term of the advance. An auction under this 
paragraph shall be conducted subject to such conditions, including 
conditions regarding the participants, size and duration of the 
facility, minimum bid amount, maximum bid amount, term of advance, 
minimum bid rate, use of proceeds, and schedule of auction dates, as 
the Board may establish from time to time in connection with the term 
auction facility. The Board may appoint one or more Reserve Banks or 
others to conduct the auction.
    (2) Authorization for the term auction facility established by 
Sec.  201.4(e)(1) shall expire on such date as set by the Board.

0
3. In Sec.  201.51, a new paragraph (e) is added to read as follows:


Sec.  201.51  Interest rates applicable to credit extended by a Federal 
Reserve Bank.

* * * * *
    (e) Term auction facility. The interest rate on advances to 
depository institutions made pursuant to an auction under Sec.  
201.4(e) is the rate at which all bids at that auction may be 
fulfilled, up to the maximum auction amount and subject to any minimum 
bid rate and other conditions as set by the Board.

    By order of the Board of Governors of the Federal Reserve 
System, December 12, 2007.
Jennifer J. Johnson,
Secretary of the Board.
 [FR Doc. E7-24315 Filed 12-14-07; 8:45 am]
BILLING CODE 6210-02-P