[Federal Register Volume 85, Number 57 (Tuesday, March 24, 2020)]
[Rules and Regulations]
[Pages 16526-16528]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-05805]


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FEDERAL RESERVE SYSTEM

12 CFR Part 204

[Docket No. R-1701; RIN 7100-AF 75]


Regulation D: Reserve Requirements of Depository Institutions

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 Regulation D (Reserve Requirements of 
Depository Institutions) to revise the rate of interest paid on 
balances maintained to satisfy reserve balance requirements (``IORR'') 
and the rate of interest paid on excess balances (``IOER'') maintained 
at Federal Reserve Banks by or on behalf of eligible institutions. The 
final amendments specify that IORR is 0.10 percent and IOER is 0.10 
percent, a 1.00 percentage point decrease from their prior levels. The 
amendments are intended to enhance the role of IORR and IOER in 
maintaining the Federal funds rate in the target range established by 
the Federal Open Market Committee (``FOMC'' or ``Committee'').

DATES: Effective date: The amendments to part 204 (Regulation D) are 
effective March 24, 2020.
    Applicability date: The IORR and IOER rate changes are applicable 
on March 16, 2020.

FOR FURTHER INFORMATION CONTACT: Sophia H. Allison, Senior Special 
Counsel (202-452-3565), Legal Division, or Francis Martinez, Senior 
Financial Institution & Policy Analyst (202-245-4217), or Laura 
Lipscomb, Assistant Director (202-912-7964), Division of Monetary 
Affairs; 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: 

[[Page 16527]]

I. Statutory and Regulatory Background

    For monetary policy purposes, section 19 of the Federal Reserve Act 
(``Act'') imposes reserve requirements on certain types of deposits and 
other liabilities of depository institutions.\1\ Regulation D, which 
implements section 19 of the Act, requires that a depository 
institution meet reserve requirements by holding cash in its vault, or 
if vault cash is insufficient, by maintaining a balance in an account 
at a Federal Reserve Bank (``Reserve Bank'').\2\ Section 19 also 
provides that balances maintained by or on behalf of certain 
institutions in an account at a Reserve Bank may receive earnings to be 
paid by the Reserve Bank at least once each quarter, at a rate or rates 
not to exceed the general level of short-term interest rates.\3\ 
Institutions that are eligible to receive earnings on their balances 
held at Reserve Banks (``eligible institutions'') include depository 
institutions and certain other institutions.\4\ Section 19 also 
provides that the Board may prescribe regulations concerning the 
payment of earnings on balances at a Reserve Bank.\5\ Prior to these 
amendments, Regulation D specified a rate of 1.10 percent for both IORR 
and IOER.\6\
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    \1\ 12 U.S.C. 461(b).
    \2\ 12 CFR 204.5(a)(1).
    \3\ 12 U.S.C. 461(b)(1)(A) & (b)(12)(A).
    \4\ See 12 U.S.C. 461(b)(1)(A) & (b)(12)(C); see also 12 CFR 
204.2(y).
    \5\ See 12 U.S.C. 461(b)(12)(B).
    \6\ See 12 CFR 204.10(b)(5).
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II. Amendments to IORR and IOER

    The Board is amending Sec.  204.10(b)(5) of Regulation D to specify 
that IORR is 0.10 percent and IOER is 0.10 percent. The amendments 
represent a 1.00 percentage point decrease in IORR and IOER. The 
amendments to each rate were associated with a decrease in the target 
range for the federal funds rate, from a target range of 1 to 1\1/4\ 
percent to a target range of 0 to \1/4\ percent, announced by the FOMC 
on March 15, 2020 with an effective date of March 16, 2020. The FOMC's 
press release on the same day as the announcement noted that:

    The coronavirus outbreak has harmed communities and disrupted 
economic activity in many countries, including the United States. 
Global financial conditions have also been significantly affected. 
Available economic data show that the U.S. economy came into this 
challenging period on a strong footing. Information received since 
the Federal Open Market Committee met in January indicates that the 
labor market remained strong through February and economic activity 
rose at a moderate rate. Job gains have been solid, on average, in 
recent months, and the unemployment rate has remained low. Although 
household spending rose at a moderate pace, business fixed 
investment and exports remained weak. More recently, the energy 
sector has come under stress. On a 12-month basis, overall inflation 
and inflation for items other than food and energy are running below 
2 percent. Market-based measures of inflation compensation have 
declined; survey-based measures of longer-term inflation 
expectations are little changed.
    Consistent with its statutory mandate, the Committee seeks to 
foster maximum employment and price stability. The effects of the 
coronavirus will weigh on economic activity in the near term and 
pose risks to the economic outlook. In light of these developments, 
the Committee decided to lower the target range for the federal 
funds rate to 0 to \1/4\ percent. The Committee expects to maintain 
this target range until it is confident that the economy has 
weathered recent events and is on track to achieve its maximum 
employment and price stability goals. This action will help support 
economic activity, strong labor market conditions, and inflation 
returning to the Committee's symmetric 2 percent objective.

    A Federal Reserve Implementation note released simultaneously with 
the announcement stated:

    The Board of Governors of the Federal Reserve System voted 
unanimously to set the interest rate paid on required and excess 
reserve balances at 0.10 percent, effective March 16, 2020.

    As a result, the Board is amending Sec.  204.10(b)(5) of Regulation 
D to change IORR to 0.10 percent and IOER to 0.10 percent.

III. Administrative Procedure Act

    In general, the Administrative Procedure Act (``APA'') \7\ imposes 
three principal requirements when an agency promulgates legislative 
rules (rules made pursuant to Congressionally-delegated authority): (1) 
Publication with adequate notice of a proposed rule; (2) followed by a 
meaningful opportunity for the public to comment on the rule's content; 
and (3) publication of the final rule not less than 30 days before its 
effective date. The APA provides that notice and comment procedures do 
not apply if the agency for good cause finds them to be ``unnecessary, 
impracticable, or contrary to the public interest.'' \8\ Section 553(d) 
of the APA also provides that publication at least 30 days prior to a 
rule's effective date is not required for (1) a substantive rule which 
grants or recognizes an exemption or relieves a restriction; (2) 
interpretive rules and statements of policy; or (3) a rule for which 
the agency finds good cause for shortened notice and publishes its 
reasoning with the rule.\9\
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    \7\ 5 U.S.C. 551 et seq.
    \8\ 5 U.S.C. 553(b)(3)(A).
    \9\ 5 U.S.C. 553(d).
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    The Board has determined that good cause exists for finding that 
the notice, public comment, and delayed effective date provisions of 
the APA are unnecessary, impracticable, or contrary to the public 
interest with respect to these final amendments to Regulation D. The 
rate changes for IORR and IOER that are reflected in the final 
amendments to Regulation D were made with a view towards accommodating 
commerce and business and with regard to their bearing upon the general 
credit situation of the country. Notice and public comment would 
prevent the Board's action from being effective as promptly as 
necessary in the public interest and would not otherwise serve any 
useful purpose. Notice, public comment, and a delayed effective date 
would create uncertainty about the finality and effectiveness of the 
Board's action and undermine the effectiveness of that action. 
Accordingly, the Board has determined that good cause exists to 
dispense with the notice, public comment, and delayed effective date 
procedures of the APA with respect to these final amendments to 
Regulation D.

IV. Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (``RFA'') does not apply to a 
rulemaking where a general notice of proposed rulemaking is not 
required.\10\ As noted previously, the Board has determined that it is 
unnecessary and contrary to the public interest to publish a general 
notice of proposed rulemaking for this final rule. Accordingly, the 
RFA's requirements relating to an initial and final regulatory 
flexibility analysis do not apply.
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    \10\ 5 U.S.C. 603, 604.
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V. Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (``PRA'') of 
1995,\11\ the Board reviewed the final rule under the authority 
delegated to the Board by the Office of Management and Budget. The 
final rule contains no requirements subject to the PRA.
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    \11\ 44 U.S.C. 3506; see 5 CFR part 1320 Appendix A.1.
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List of Subjects in 12 CFR Part 204

    Banks, Banking, Reporting and recordkeeping requirements.

Authority and Issuance

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

[[Page 16528]]

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), 461, 601, 611, and 3105.


0
2. Section 204.10 is amended by revising paragraph (b)(5) to read as 
follows:


Sec.  204.10  Payment of interest on balances.

* * * * *
    (b) * * *
    (5) The rates for IORR and IOER are:

                       Table 1 to Paragraph (b)(5)
------------------------------------------------------------------------
                                                                 Rate
                                                               (percent)
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IORR........................................................        0.10
IOER........................................................        0.10
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* * * * *

    By order of the Board of Governors of the Federal Reserve 
System, March 16, 2020.
Ann Misback,
Secretary of the Board.
[FR Doc. 2020-05805 Filed 3-23-20; 8:45 am]
BILLING CODE 6210-01-P