[Federal Register Volume 73, Number 197 (Thursday, October 9, 2008)]
[Rules and Regulations]
[Pages 59482-59486]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-24003]


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FEDERAL RESERVE SYSTEM

12 CFR Part 204

[Regulation D; Docket No. R-1334]


Reserve Requirements of Depository Institutions

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Interim final rule; request for public comment.

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SUMMARY: Under authority of section 128 of the Emergency Economic 
Stabilization Act of 2008, the Board is amending Regulation D, Reserve 
Requirements of Depository Institutions, to direct Federal Reserve 
Banks to pay interest on balances held at Reserve Banks to satisfy 
reserve requirements and on balances held in excess of required reserve 
balances and clearing balances. The Board is also making associated 
minor changes to its clearing balance policy and the method for 
recovering float costs.

DATES: Effective date: This interim final rule is effective October 9, 
2008. Comments must be received on or before November 21, 2008.

ADDRESSES: You may submit comments, identified by Docket No. R-1334, by 
any of the following methods:
    Agency Web Site: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
    Federal eRulemaking Portal: http://www.regulations.gov. Follow the 
instructions for submitting comments.
    E-mail: [email protected]. Include the docket number 
in the subject line of the message.
    Fax: (202) 452-3819 or (202) 452-3102.
    Mail: Jennifer J. Johnson, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue, NW., 
Washington, DC 20551.
    All public comments are available from the Board's Web site at 
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as 
submitted, unless modified for technical reasons. Accordingly, your 
comments will not be edited to remove any identifying or contact 
information.
    Public comments may also be viewed electronically or in paper in 
Room MP-500 of the Board's Martin Building (20th and C Streets, NW.) 
between 9 a.m. and 5 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Sophia H. Allison, Senior Counsel 
(202/452-3565), Legal Division, or Margaret Gillis DeBoer, Senior 
Financial Analyst (202/452-3139), Division of Monetary Affairs; for 
information with respect to the clearing balance policy and float 
calculations, Jonathan Mueller, Senior Financial Analyst (202-530-
6291), Division of Reserve Bank Operations and Payment Systems; for 
users 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:

I. Background

    Section 128 of the Emergency Economic Stabilization Act of 2008, 
enacted on October 3, 2008 (the ``2008 Act''), accelerated the 
effective date of the authority for the Federal Reserve Banks to pay 
earnings on balances maintained at the Reserve Banks by or on behalf of 
depository institutions. The 2008 Act made this authority effective on 
October 1, 2008. This authority was originally enacted in Title II of 
the Financial Services Regulatory Relief Act of 2006 (the ``2006 Act'') 
(Pub. L. 109-351, 120 Stat. 1966 (Oct. 13, 2006), with an original 
effective date of October 1, 2011. The 2006 Act provides that such 
earnings must be paid at least once each quarter at a rate not to 
exceed the general level of short-term interest rates. The 2006 Act 
also provides that the Board may prescribe regulations concerning the 
payment of earnings, the distribution of earnings to the depository 
institutions that maintain balances or on whose behalf balances are 
maintained, and the responsibilities of correspondents to distribute 
and credit earnings on balances maintained by the respondent on a pass-
through basis with the correspondent.
    The Board is publishing this interim final rule amending Regulation 
D (Reserve Requirements of Depository Institutions) to direct the 
Federal Reserve Banks to pay interest on balances held at Reserve Banks 
to satisfy reserve requirements (``required reserve balances'') and 
balances held in excess of required reserve balances and clearing 
balances (``excess balances''). Reserve Banks will not pay explicit 
interest on clearing balances (balances that an institution holds to 
satisfy a contractual clearing balance agreement). Clearing balances 
will, however, continue to earn earnings credits under the existing 
clearing balance policy, although the Board has made minor adjustments 
to the calculations of earnings credits and float costs to be recovered 
that are related to reserve requirements. In addition, the Board has 
eliminated transitional adjustments for reserve requirements in the 
event of a merger or consolidation.
    In the past, the absence of interest payments on required reserve 
balances acted as a tax on depository institutions' issuance of 
deposits subject to reserve requirements. To the extent that depository 
institutions could not satisfy reserve requirements with vault cash, 
they were required to hold more balances than they otherwise would in a 
non-interest-bearing account at a Reserve Bank. The absence of interest 
on excess balances has meant that, when reserve supply significantly 
exceeds demand, the federal funds rate can fall to as low as zero.
    The ability to pay interest on balances held at Reserve Banks 
should help promote efficiency and stability in the banking sector. 
Paying interest on excess balances will permit the Federal Reserve to 
expand its balance sheet as necessary to provide sufficient liquidity 
to support financial stability while implementing the monetary policy 
that is appropriate in light of the System's macroeconomic objectives 
of maximum employment and price stability. Paying interest on excess 
balances should also help to establish a lower bound on the federal 
funds rate. Eligible institutions (defined below) will presumably be 
unwilling to lend balances in the funds market at a rate much below 
that paid on excess balances maintained at a Reserve Bank. In addition, 
paying interest on required reserve balances will eliminate much of the 
reserve tax and lessen the incentive for depository institutions to 
engage in reserve avoidance behavior, which absorbs real resources and 
diminishes the efficiency of the banking system.
    In light of the current severe strains in financial markets, the 
amendments to Regulation D will be effective on Thursday, October 9, 
2008. Interest will be calculated beginning with the biweekly reserve 
maintenance period ending October 22, 2008, and the weekly reserve 
maintenance period ending October 15, 2008. Interest payments will 
occur within the existing framework for reserve computation and 
maintenance, which includes reserve averaging, carryover provisions, 
and reserve deficiency charges. For both excess balances and required 
reserve balances, interest will be paid on these

[[Page 59483]]

balances averaged over the reserve maintenance period. This approach is 
consistent with the current reserves framework under which compliance 
with reserve requirements is measured over either a seven-day or a 
fourteen-day reserve maintenance period, depending generally on the 
size of the institution. Interest will be credited to eligible 
institutions 15 days after the close of the maintenance period in order 
to apply reserve carryover provisions. Further details on the interim 
final rule are discussed below. Although the amendments to Regulation D 
are effective on October 9, the Board seeks comments on all aspects of 
this proposal.

II. Discussion

A. Eligible Institutions

    The Act permits Federal Reserve Banks to pay interest on balances 
held by or on behalf of ``depository institutions.'' The Act's 
definition of ``depository institution'' has a broader meaning than the 
definition of that term in section 19(b)(1)(A) of the Federal Reserve 
Act and Regulation D. To avoid confusion, the Board's rule uses the 
term ``eligible institution'' to refer to those institutions included 
in the 2008 Act's broader definition of ``depository institution.'' 
Therefore, the definition of ``eligible institution'' includes the 
depository institutions defined in section 19(b)(1)(A) of the Federal 
Reserve Act, including banks, savings associations, savings banks and 
credit unions that are federally insured or eligible to apply for 
federal insurance. ``Eligible institution'' also includes trust 
companies, Edge and agreement corporations, and U.S. agencies and 
branches of foreign banks. The definition does not include all entities 
for which the Reserve Banks hold accounts, such as entities for which 
the Reserve Banks act as fiscal agents, including Federal Home Loan 
Banks.

B. Rate

    Interest will be paid on average required reserve balances and 
average excess balances maintained over a reserve maintenance period. 
The Board has established the initial rate of interest for required 
reserve balances to be the average targeted federal funds rate over the 
reserve maintenance period less 10 basis points. Setting this rate 
below the targeted federal funds rate reflects the fact that federal 
funds loans are uncollateralized and carry some counterparty risk, 
whereas deposits at the Federal Reserve Banks are free from such risk. 
Therefore, establishing some spread below the funds rate reflects the 
risk-free nature of a deposit at the central bank. The choice of 10 
basis points is approximately equal to the average spread between the 
overnight rate on repurchase agreements secured by general Treasury 
collateral and the overnight rate on federal funds in recent years but 
prior to the onset of the current financial turmoil.
    The Board has established the rate of interest for excess balances 
to be the lowest targeted federal funds rate during the reserve 
maintenance period less 75 basis points. The Board believes the rate on 
excess balances should be set sufficiently low to provide an incentive 
for eligible institutions to trade funds in excess of required reserve 
balances and clearing balances in the federal funds market, but to 
provide a disincentive to trade funds at rates far below the targeted 
federal funds rate. The Board may adjust the formula for the interest 
rate on excess balances in light of experience and evolving market 
conditions. Basing the rate on excess balances on the lowest rate, 
rather than the average rate, for the reserve maintenance period will 
support the funds rate better during periods when the Federal Open 
Market Committee eases monetary policy. If the average targeted rate 
were used, then during a maintenance period in which policy was eased, 
the rate on excess balances might be too close--or even above--the new 
targeted rate.

C. Treatment of Correspondent Balances

    Balances that earn interest. Correspondents provide various 
services to respondent institutions, such as check and cash services. 
Under the Federal Reserve Act and Regulation D, certain respondents may 
also elect to pass their required reserve balances through their 
correspondents to the Federal Reserve Banks for the purposes of 
satisfying reserve requirements, rather than holding balances directly 
with a Reserve Bank. A pass-through correspondent is responsible for 
holding sufficient balances in its account at the Reserve Bank to 
satisfy its own required reserve balance, its own clearing balance (if 
any), and the aggregate required reserve balances of its respondents. 
In addition, certain institutions may act as pass-through 
correspondents under the Federal Reserve Act and Regulation D even 
though they are not themselves ``eligible institutions'' under this 
interim final rule, such as Federal Home Loan Banks.
    Under the interim final rule, the Reserve Banks will pay interest 
on required reserve balances maintained by or on behalf of an eligible 
institution, even if the pass-through correspondent for the eligible 
institution is itself not an eligible institution. In the case of a 
pass-through correspondent that is not an eligible institution, the 
required reserve balances held in the correspondent's account will be 
solely those held to meet its respondent's reserve requirements. Where 
the pass-through correspondent is an eligible institution, the required 
reserve balances in the correspondent's account may include those 
balances held by the correspondent to meet its own reserve requirement, 
if any, as well as those held to meet its respondent's reserve 
requirements.
    The interim final rule also provides that the Reserve Banks will 
pay interest on excess balances held by or on behalf of eligible 
institutions, even if the pass-through correspondent for the eligible 
institution is itself not an eligible institution but has excess 
balances in its account. Without imposing additional reporting or 
accounting requirements, Reserve Banks cannot determine whether all or 
part of the excess balances in a pass-through correspondent's account 
at a Reserve Bank are held on behalf of respondents. In light of this 
problem, and in order to avoid imposing additional reporting or 
accounting burdens, the interim final rule deems all of the excess 
balances held in the account of a pass-through correspondent that is 
not an eligible institution to be held on behalf of that 
correspondent's respondents. Accordingly, all interest received on 
excess balances by such pass-through correspondents are attributable 
solely to the excess balances of their respondents.\1\ This provision 
enables pass-through correspondents and respondents to continue to 
negotiate the structure of their contractual relationships with maximum 
flexibility, including negotiations regarding the appropriate 
distribution of earnings received on behalf of respondent balances.
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    \1\ This provision is similar to others in Regulation D 
regarding the extent to which the Reserve Bank considers balances to 
belong to one institution for purposes of the account relationship, 
even though the funds of more than one institution may be involved. 
Under Regulation D, the balances in the pass-through correspondent's 
account are treated as being the property only of the correspondent 
for purposes of the relationship between the correspondent and the 
Reserve Bank (12 CFR 204.3(i)(2)). This provision means that the 
Reserve Bank's debtor-creditor relationship is solely with the pass-
through correspondent and not with any of the correspondent's 
respondents, even though the funds in the correspondent's account 
may include the passed-through required reserve balances of one or 
more respondents.
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    The Board requests comment on any alternative methods of 
determining whether all or part of the excess

[[Page 59484]]

balances in a pass-through correspondent's account at a Federal Reserve 
Bank are held on behalf of a respondent when the correspondent itself 
is not an eligible institution. For example, would it be feasible for a 
pass-through correspondent to report to the Federal Reserve the amount 
or proportion of its excess balances that are held on behalf of 
respondents? Should the Board require pass-through correspondents to 
certify that all or a specified portion of the excess balances in its 
Reserve Bank account are held on behalf of its respondents? Should the 
Board require all balances held by a pass-through correspondent on 
behalf of its respondent institutions to be held in a segregated 
account separate from the correspondent's other funds? Would a pass-
through correspondent that was not an eligible institution be able to 
track respondent balances such that it could determine what proportion 
of its balances in its Reserve Bank account are held on behalf of its 
respondents? Alternately, would it be reasonable for the Board to 
assume that none of the pass-through correspondent's excess balances 
are held on behalf of a respondent?
    Passing back of interest to respondents. The interim final rule 
provides that a pass-through correspondent may pass back to its 
respondent the interest paid on balances held on behalf of that 
respondent, but it is not required to do so. Permitting, but not 
requiring, the pass-back of interest earnings is consistent with the 
treatment of reserve deficiency charges in Regulation D. The Reserve 
Bank assesses a deficiency charge to the account of the pass-through 
correspondent for any deficiency in its account balances, even if the 
deficiency is attributable to a respondent. It is left to the pass-
through correspondent to determine whether to assess a deficiency 
charge on the respondent, or whether to make any adjustments in other 
aspects of the correspondent-respondent relationship to deal with 
attribution of deficiency and other charges.
    This approach also avoids interfering with existing arrangements 
between pass-through correspondents and respondents for services, 
including sweep arrangements or compensating balance requirements. 
Correspondent banks typically structure their respondent relationships 
in myriad ways, depending on a number of factors, such as services 
provided or balances held. Respondents may adjust the level of balances 
held with a correspondent in response to changes in the rates paid to 
them or other factors. Respondents that are not satisfied with their 
existing arrangements with a correspondent may take steps to 
renegotiate the terms of the relationship or even seek another 
correspondent.
    The Board requests comment on whether it should require, rather 
than permit, pass-through correspondents to pass back to their 
respondents the interest payments on balances held on behalf of those 
respondents. Would that requirement significantly interfere with 
existing correspondent-respondent arrangements? Would pass-through 
correspondents be able to track respondent balances such that they 
could determine how to allocate the interest among their respondents? 
How would the Federal Reserve ensure that all interest belonging to a 
respondent had in fact been passed back?
    Exemption from Regulation Q. Many eligible institutions are subject 
to statutory and regulatory prohibitions against payment of interest on 
demand deposits (see, e.g., 12 U.S.C. 461(i); Regulation Q (Prohibition 
Against Payment of Interest on Demand Deposits), 12 CFR part 217)). The 
2006 Act, however, expressly authorizes the Board to prescribe 
regulations to allow pass-through correspondents to pass interest back 
to respondents. Congress therefore contemplated that pass-through 
correspondents could pass back part or all of the interest received in 
a correspondent's Reserve Bank account to its respondents, even though 
the payment of interest on demand deposit accounts is still otherwise 
prohibited. The interim final rule, therefore, clarifies that when a 
pass-through correspondent passes back to its respondent interest paid 
on balances held on behalf of that respondent, such a payment is not a 
payment of interest on a demand deposit for purposes of Regulation Q.

D. Transitional Adjustments in Mergers

    The Board is eliminating the provisions in Regulation D relating to 
merger-related adjustments to reserve requirements.\2\ These 
provisions, currently set forth in Sec.  204.4 of the regulation, were 
originally intended to phase-in the burden associated with the higher 
reserve requirements that result from a merger or consolidation of 
depository institutions. When two or more separate institutions merge 
or consolidate into a single institution, the surviving institution 
typically has a reserve requirement that is higher than the sum of the 
reserve requirements of the merging institutions. The requirement is 
higher because the merged institution receives only one low reserve 
tranche and one exemption amount, while, prior to the merger, each 
institution had a low reserve tranche and an exemption amount.\3\ 
Section 204.4 of Regulation D permits a phase-in of the higher reserve 
tax associated with a merger or consolidation over seven quarters. 
Interest on required reserve balances offers a much more effective 
method to address the reserve tax associated with mergers or 
consolidations because the interest earned essentially eliminates the 
additional tax. Moreover, the length of the adjustment period is 
sufficiently long that many institutions become part of subsequent 
mergers, resulting in significant complexities in required reserves 
calculations. The Board believes that paying interest on required 
reserve balances effectively negates the need for the complex 
adjustment provisions and therefore has deleted them in the interim 
final rule.
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    \2\ Adjustments associated with mergers completed prior to 
October 9, 2008, will be left in place, but no new adjustments would 
be issued on or after October 9, 2008.
    \3\ The exemption amount is the amount of an institution's 
reservable liabilities that are subject to a zero-percent reserve 
requirement; currently it is set at $10.3 million. The low reserve 
tranche is the amount of an institution's reservable liabilities 
that is subject to the three-percent reserve requirement ratio; 
currently, it is set at 44.4 million.
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E. Clearing Balance Policy Adjustments

    Clearing balances provide a way for depository institutions to hold 
additional balances at the Reserve Banks to meet their clearing needs. 
These balances currently earn implicit interest in the form of earnings 
credits that can be used to cover the cost of Federal Reserve priced 
services. Under the current methodology for pricing Federal Reserve 
services, the level of clearing balances affect both costs and revenues 
for Federal Reserve priced services.
    In light of the revisions to Regulation D, the Board has approved 
two related changes to the method in which earnings credits are 
calculated, along with a similar change to the method in which float 
costs to be recovered are computed. These changes discontinue practices 
related to reserve requirements that are no longer necessary. These 
adjustments previously had been made to ensure that respondents viewed 
balances at the Federal Reserve Banks and balances at a private-sector 
correspondent as equivalent.
    The first earnings credit adjustment, called the ``imputed reserve 
requirement adjustment,'' imputes a marginal reserve requirement ratio 
of 10 percent to the Reserve Banks because a private-sector 
correspondent would be required to

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hold reserves against a respondent's balance. If the correspondent had 
a marginal reserve requirement ratio of 10 percent, then it would grant 
credits to the respondent based on only 90 percent of the respondent's 
balance because it would have to hold the remaining 10 percent in the 
form of non-interest-earning reserves. The Board has eliminated this 
adjustment because the reserves on the respondent's balance would now 
earn interest at the rate on required reserve balances.
    The second earnings credit adjustment, called the ``marginal 
reserve requirement adjustment,'' adjusts for the fact that the 
respondent could deduct the balance held at a correspondent, but not at 
the Reserve Bank, from its reservable liabilities. The reserve 
requirement reduction is equal to the respondent's marginal reserve 
requirement ratio multiplied by the balance at the correspondent. This 
reduction has value to the respondent when it frees up balances that 
can be invested in interest-bearing instruments, such as a federal 
funds loan. The Board has eliminated this adjustment because the 
respondent will now be indifferent between holding balances at the 
Reserve Bank, and earning the rate on required reserves, or maintaining 
the balance at a private-sector correspondent, taking the due from 
deduction, and investing those funds.
    The Board has also eliminated the imputed reserve requirement 
adjustment and adjustment for cash items in the process of collection 
that is applied when measuring float costs to be recovered by Federal 
Reserve priced services. The Reserve Banks will now have to recover 100 
percent of float costs. Previously, floats costs recovered by priced 
services were reduced by 10 percent. The adjustment imputed a reserve 
requirement to the Reserve Bank, but it also allowed the Reserve Banks 
to adjust the imputed required reserves by the adjustment for cash 
items. This approach mirrored that of a private-sector correspondent. 
There is no longer a need to impute a reserve requirement to the 
Reserve Banks because the private-sector correspondent will now earn 
interest on its required reserve balance. As a result, the Reserve 
Banks are no longer entitled to an adjustment for cash items.

Administrative Procedure Act

    In accordance with the Administrative Procedure Act (``APA'') 
section 553(b) (5 U.S.C. 553(b)), the Board finds, for good cause, that 
providing notice and an opportunity for public comment before the 
effective date of this rule would be contrary to the public interest. 
In addition, pursuant to APA section 553(d) (5 U.S.C. 553(d)), the 
Board finds good cause for making this amendment effective without 30 
days advance publication. The Board has adopted this rule in light of, 
and to help address, the continuing unusual and exigent circumstances 
in the financial markets. This rule provides tools for carrying out 
monetary policy more effectively. Thus, the Board believes that any 
delay in implementing the rule would prove contrary to the public 
interest and would be contrary to Congress's intent in accelerating the 
Board's authority to use these new tools to help address current market 
conditions. The Board is requesting comment on all aspects of the rule 
and will make any changes that it considers appropriate or necessary 
after review of any comments received.

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires an agency that is issuing a 
final rule to prepare and make available a regulatory flexibility 
analysis that describes the impact of the final rule on small entities. 
5 U.S.C. 603(a). The Regulatory Flexibility Act provides that an agency 
is not required to prepare and publish a regulatory flexibility 
analysis if the agency certifies that the final rule will not have a 
significant economic impact on a substantial number of small entities. 
5 U.S.C. 605(b).
    Pursuant to section 605(b), the Board certifies that this interim 
final rule will not have a significant economic impact on a substantial 
number of small entities. The rule implements a program for paying 
interest on certain balances held by eligible institutions at the 
Federal Reserve Banks and will benefit small institutions that receive 
such interest. There are no new reporting, recordkeeping, or other 
compliance requirements associated with this rule.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (44 U.S.C. 3506; 5 
CFR part 1320 Appendix A.1), the Board has reviewed the interim final 
rule under authority delegated to the Board by the Office of Management 
and Budget. The rule contains no collections of information pursuant to 
the Paperwork Reduction Act.

Plain Language

    Section 772 of the Gramm-Leach-Bliley Act requires the Board to use 
``plain language'' in all proposed and final rules. In light of this 
requirement, the Board has sought to present the interim final rule in 
a simple and straightforward manner. The Board invites comment on 
whether the Board could take additional steps to make the rule easier 
to understand.

List of Subjects in 12 CFR Part 204

    Banks, banking, Reporting and recordkeeping requirements.

Authority and Issuance

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 204.4 is removed and reserved.


Sec.  204.4  [Reserved]

0
3. Section 204.10 is added to read as follows:


Sec.  204.10  Payment of interest on balances.

    (a) Payment of interest. The Federal Reserve Banks shall pay 
interest on balances maintained at Federal Reserve Banks by or on 
behalf of an eligible institution as provided in this section and under 
such other terms and conditions as the Board may prescribe.
    (b) Rate. Except as provided in paragraph (c) of this section, 
Federal Reserve Banks shall pay interest at the following rates--
    (1) For required reserve balances, at the average targeted federal 
funds rate over the reserve maintenance period less 10 basis points; 
and
    (2) For excess balances, at the lowest targeted federal funds rate 
during the reserve maintenance period less 75 basis points.
    (c) Pass-through balances. Any excess balance held by a pass-
through correspondent that is not an eligible institution is deemed to 
be held on behalf of the pass-through correspondent's respondents. A 
pass-through correspondent may pass back to its respondent interest 
paid on balances held on behalf of that respondent. Such a payment is 
not a payment of interest on a demand deposit for purposes of Part 217 
of this chapter (Regulation Q).
    (d) Definitions. For purposes of this section--
    (1) Clearing balance means the amount that an eligible institution 
holds to satisfy a contractual clearing balance agreement with a 
Federal Reserve Bank, in addition to any required reserve balance.
    (2) Eligible institution means--

[[Page 59486]]

    (i) Any depository institution as described in Sec.  204.1(c) of 
this part;
    (ii) Any trust company;
    (iii) Any corporation organized under section 25A of the Federal 
Reserve Act (12 U.S.C. 611 et seq.) or having an agreement with the 
Board under section 25 of the Federal Reserve Act (12 U.S.C. 601 et 
seq.); and
    (iv) Any branch or agency of a foreign bank (as defined in section 
1(b) of the International Banking Act of 1978, 12 U.S.C. 3101(b)).
    (3) Excess balance means the average balance held in an account at 
a Federal Reserve Bank by or on behalf of an eligible institution over 
a reserve maintenance period that exceeds the sum of the required 
reserve balance and any clearing balance.
    (4) Required reserve balance means the average balance held in an 
account at a Federal Reserve Bank by or on behalf of an eligible 
institution over a reserve maintenance period to satisfy the reserve 
requirements of this part.
    (5) Targeted federal funds rate means the federal funds rate 
established from time to time by the Federal Open Market Committee.

    By order of the Board of Governors of the Federal Reserve 
System, October 6, 2008.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E8-24003 Filed 10-8-08; 8:45 am]
BILLING CODE 6210-01-P