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Federal Reserve Bank OF DALLAS HELEN E. HOLCOMB FIRST VICE PRESIDENT AND CHIEF OPERATING OFFICER Tll'lv'} 1QQfi J U iy j, DALLAS, TEXAS 75265-5906 LyyO Notice 96-56 TO: The Cashier or Individual Responsible for Managing the Reserve/Clearing Account SUBJECT New Account Structure Under Interstate Branching DETAILS As you know, the Federal Reserve will be implementing a new account structure as of year-end 1997 to support the new interstate branching environment. In anticipation of that new account structure, the Federal Reserve is planning to provide training programs in early 1997. As part of the training program, the Federal Reserve will provide a series of question and answer documents on the new account structure. ATTACHMENT The first of this question and answer series is attached. Please let us know if you have any questions that you would like to see specifically addressed in the documents. MORE INFORMATION For more information, please contact Lyne Carter, (214) 922-5901, at the Dallas Office; Javier Jimenez, (915) 521-8202, at the El Paso Office; Rene Gonzales, (713) 652-1543, at the Houston Office; or Karen Salisbury, (210) 978-1403, at the San Antonio Office. For additional copies of this Bank’ notice, please contact the Public Affairs s Department at (214) 922-5254. Sincerely, For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank of Dallas: Dallas Office (800) 333 -4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) JUNE 3, 1996 Interstate Branching: New Account Structure Questions and Answers 1Q A Introduction ---------------------------------------Effective J a n u a r y 1, 1 9 9 8 , th e Federal Reserve will i m p l e m e n t a flexible n e w a p p r o a c h to p r o v id in g a c c o u n t i n g services. T h i s a p p r o a c h is geared to m e e t th e n ee d s o f d e p o s i t o r y in s t i t u t i o n s f o r c o n s o l i d a t e d a c c o u n t m a n a g e m e n t a n d flexible in f o r m a t i o n as th e y b r a n c h in te r sta te . It also will p r o v id e i m p r o v e d a c c o u n t i n g services for th o se i n s t i t u t i o n s t h a t d o n o t e x p e c t to p a r t i c i p a t e in in te r sta te b r a n c h i n g . 1 he n e w a p p r o a c h facilitate s a c c o u n t m a n a g e m e n t . U n d e r t h e a p p r o a c h , i n s t i t u t i o n s will be p r o v id e d w ith a single (m aster) a c c o u n t at a d e s ig n a t e d Reserve B ank. T h i s a c c o u n t is d e f in e d to be a re c o rd o f financial tr a n s a c t io n s t h a t reflects financial rights a n d o b li g a ti o n s o f a n a c c o u n t h o l d e r a n d t h e Reserve B a n k w ith respect to each o th e r, w h e r e o p e n i n g a n d clo sin g ba la n c e s are d e t e r m i n e d . All cre dits a n d d e b its resu ltin g f ro m th e use o f Federal Reserve services will be b o o k e d to this o n e a c c o u n t at o n e Reserve B a n k for each se p arate ly c h a r te r e d in s t i t u t i o n . All o v e r n i g h t a n d d a y l i g h t c r e d i t will be d is b u r s e d a n d r ep a id t h r o u g h this a c c o u n t , a n d th e Reserve B a n k h o l d i n g th e a c c o u n t will m a n a g e t h e cr e d it risk p o s e d b y t h e use o f services. Reserve a d m i n i s t r a t i o n also will be m a n a g e d t h r o u g h this a c c o u n t . F r o m th e i n s t i t u t i o n ’s pe rsp e c tiv e , t h e n e w a c c o u n t s t r u c t u r e p reserv es a single a c c o u n t m a n a g e m e n t r e la tio n s h i p w i t h th e Federal Reserve, w h ile c o n t i n u i n g to s u p p o r t access to financial services f r o m a n y lo c a tio n . The n e w s t r u c t u r e replicates t h e features a n d flexibility o f a m u l t i p l e a c c o u n t s t r u c t u r e t h r o u g h t h e use o f s u b a c c o u n t s , in w h ic h i n f o r m a t i o n o n f in an c ia l services ca n be seg regated , b u t w h i c h d o n o t reflect actual Reserve B a n k balances. In fact, it is precisely b e c a u s e th e y d o n o t p ro v id e balances, a n d th e re fore d o n o t raise risk a n d a c c o u n t m a n a g e m e n t c o n c e r n s , t h a t these s u b a c c o u n t s u l t i m a t e l y b e c o m e m o r e flexible t h a n m u l t i p l e a c c o u n t s . S u b a c c o u n t s are basically i n f o r m a t i o n su b se ts a n d can be o r g a n iz e d in a n y w'av to m e e t v a r y in g i n f o r m a t i o n nee ds a n d o r g a n iz a t io n a l s tr u c tu re s . T h e fo llo w in g set o f q u e s t i o n s a n d an s w e rs are i n t e n d e d to assist d e p o s i t o r y in s t i t u t i o n s in p r e p a r i n g for th e n e w a c c o u n t s t r u c t u r e . F o r a d d i t i o n a l i n f o r m a t i o n , ple ase c o n t a c t y o u r local Federal Reserve B usin ess D e v e l o p m e n t a c c o u n t represen tative. Federal Reserve System 1 JUNE 3, 1996 Interstate Branching: New Account Structure Questions and Answers I. 1Q A G eneral Issues 1-1 W h e n will t h e n e w a c c o u n t s t r u c t u r e b e available? W ill a tr a i n i n g p r o g r a m b e offered? Answer: Effective January 1, 1998, the Federal Reserve will im plem ent its new account structure. A series o f educational materials and training seminars will be offered to depository institutions starting in early 1997. 1-2 W ill t h e n e w a c c o u n t s t r u c t u r e be ava ila ble to all d e p o s i t o r y in s t i t u t i o n s ( n o t ju s t th o s e w i t h in te r s ta te b ran c h es)? Answer: T h e new account structure is applicable to all depository in stitutio ns eligible to m aintain an account w ith the Federal Reserve1 w ith the exception o f those institutions currently required to have m ultiple accounts p u rsu a n t to regulation (e.g., U.S. branches and agencies o f foreign banks, Edge and agreem ent corporations, and correspondents w ith out-of-D istrict respondents). 1-3 H o w d o e s t h e n e w a c c o u n t s t r u c t u r e relate to b a n k charters? Answer: U n der the new account structure, each separately chartered d epository institution will be provided w ith a single (master) account at a designated Reserve Bank, w ith the exception o f those institutions required to m aintain m ultiple accounts p u rsu a n t to regulation (refer to Q uestion 1-2). Any additional accounts not required pursu ant to regulation will be phased out or can be “restructured” as subaccounts. M ultiple account arrangem ents th at are n o t required to su p p o rt merger-related transition periods (see Q uestion I I I - 1) or that are n o t required pu rsu a n t to regulation m ust be phased o u t by no later than D ecem ber 31, 1998. 1-4 C a n a d e p o s i t o r y i n s t i t u t i o n m a i n t a i n se p a r a te c l e a ri n g a c c o u n t s in a d d i t i o n to its single m a s te r a c c o u n t? Answer: No. U nder the new account structure, there will no longer be a distinction between “clearing accounts” and “reserve accounts.” Reserve balances and clearing balances (to the extent required) will be com m ingled in one m aster account held w ith one Reserve Bank. As such, all “com m ingled” balances m aintained in this one account will be used by an institution to satisfy its reserve requirem ent as well as any clearing balance requirem ent. 1 The Depository Institutions Deregulation and Monetary Control Act o f 1980 (M C A) is the principal statute governing access to Federal Reserve services and, by extension, the types o f institutions eligible to hold a Federal Reserve account. Other relevant statutes!regulations are the Federal Reserve Act, Regulation D and the International Banking Act o f 1978. Federal Reserve System JUNE 3, 1996 Interstate Branching: New Account Structure Questions and Answers 1Q A 1-5 If we are no longer allowed to m aintain clearing accounts, how will earnings credits be generated to pay for the use o f Federal Reserve financial services? Answer: D eposito ry institutions will still be p erm itted , and in some cases required, to m aintain clearing balances in a commingled (master) account w ith reserve balances. If the depository institution is no t b o u n d by required reserves, it may still establish a m aster account for the purpose o f m aintaining clearing balances w ith a Federal Reserve Bank. T h e calculation and application o f earnings credits will no t change under the new account structure. Earnings credits will be calculated based on the level o f clearing balances m aintained in the m aster account and may continue to be used to pay for Federal Reserve financial services. 1-6 Is there a m axim um num ber o f subaccounts a depository institution may own? Are there restrictions per Federal Reserve Office territory or per Federal Reserve District? Answer: T h ere is no plan to restrict the n u m b e r o f subaccounts that a depository in stitution may own. However, this issue may be revisited as experience is gained under the new account structure. Beyond a certain n u m b er o f subaccounts, d epository institutions may find th a t the difficulty in reconciling subaccount inform ation outweighs the benefits o f the additional transaction information. Ind ustry feedback has indicated that ten or fewer subaccounts should be sufficient. 1-7 Will the current three-tier limitation on correspondent/respondent relationships continue to apply under the new account structure? Answer: Yes. T h e current lim itation o f su p p o rtin g up to three tiers o f correspondent/respondent relationships still applies u nder the new account structure. 1-8 C an a subaccount serve to segregate inform ation on respondent activity? Answer: Yes. Inform ation on respondent activity m ay be segregated by “attaching” respondent relationships to subaccounts, as long as the resp ondent does not, in tu rn , act as correspondent for o th er respondents (which w ould result in four tiers o f relationships). 1-9 H ow does the new account structure apply to foreign banking entities? Answer: U.S. branches and agencies o f foreign banks and Edge and agreem ent corporations m ust contin ue to m aintain one account per state in w hich they have a presence. T his requirem ent is being reevaluated in light o f the changing interstate b ranching environm ent. Federal Reserve System 3 \ Interstate Branching: New Account Structure Questions and Answers I - 10 Is the ABA’s proposed ABA R outing Transit N u m b e r Policy consistent w ith the new account structure? Answer: Yes. The ABAs Routing Transit Number Policy is consistent with the new account structure, particularly with respect to the allowable number o f additional presentment points and the use o f multiple numbers for a single presentment point. 1-11 W ill T h o m so n Financial allow non-surviving R T N s to remain active for use as subaccounts, or will T h o m p s o n continue its policy o f requiring non-surviving R T N s to be eliminated? Answer: The ABA’s Routing Transit Number Policy provides the latitude for allowing the RTNs o f non-surviving entities to be used indefinitely to identify subaccounts. II. Accounting Inform ation II-l W ill the statements o f subaccount activity be delivered to any organizational unit identified by the depository institution as being responsible for th a t subaccount? Answer: The entity representing the subaccount can receive a summary or detail o f items processed through its master account. In addition, a subaccount can receive information on any o f their respective respondents as applicable (limited to three tiers— the correspondent, or ultimate settlement point, plus two additional tiers). These statements are formatted the same as the account holder statement, except that subaccount statements only include debit and credit totals, since account balances are not relevant. II-2 W e currently are limited to three destinations for electronic statem ent delivery. W ill this lim it continue to exist? Answer: This limit will be reevaluated based on evolving information requirements in an interstate branching environment. II-3 W e w ould like to sort o u r financial transaction accounting inform ation according to geographic region. I f m ultiple accounts are not available under the new account structure, how will we segregate transaction information? Answer: Subaccounts may be used to segregate financial transactions according to geographic region, business type, or other criteria. Federal Reserve System 4 JUNE 3,'1996 Interstate Branching: New Account Structure Questions and Answers ] q III. Transition Issues III-l F o llo w in g m e rge rs, in s t i t u t i o n s m a y fin d it n ecessary to retain th e n o n - s u r v i v i n g e n t i r y s a c c o u n t for a n in t e r i m p e r i o d w h ile “b a c k -o ffic e ” sy stem s are c o n s o lid a te d . T h i s t e m p o r a r y a c c o u n t a r r a n g e m e n t is n e e d e d p r im a r il y to receive a n d r o u te i n c o m i n g w ire tr an sfe rs to th e p r o p e r D D A sy stem . W i ll these a r r a n g e m e n t s still be m a d e available u n d e r th e n e w a c c o u n t stru ctu re? Answer: Yes. Transitional m ultiple account arrangem ents will be offered for a period o f up to one year to suppo rt organizational and operational restructuring in the afterm ath o f bank mergers, w h e th e r in-state or interstate. To support transition periods, the surviving en tity will be allowed to operate the non-surviving entity’s account as an in d ependent account for a period o f up to one year, subject to a zero or other allocated cap for risk m anagem ent daylight overdraft purposes. T h e 12 m o n th transition period will be triggered by each m erger/acquisition. Transition periods will begin on the effective date of the m erger/acquisition. Alternatively, the surviving in stitution may set the non-survivor up as a subaccount. Federal Reserve System 5 ^