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Federal Reserve Bank of Dallas ROB E RT D. McTE ER, JR. DALLAS, TEXAS P R E S ID E N T 75265-5906 AN D C H IE F E X E C U T IV E O F F IC E R December 10, 1997 Notice 97-116 TO: The Chief Executive Officer of each financial institution and others concerned in the Eleventh Federal Reserve District SUBJECT Final Amendment to Regulation Z (Truth in Lending); Amendment to Regulation D (Reserve Requirements of Depository Institutions) DETAILS The Board of Governors of the Federal Reserve System has published revisions to Regulation Z (Truth in Lending). The revisions implement an amendment to the Truth in Lend ing Act contained in the Economic Growth and Regulatory Paperwork Reduction Act of 1996 affecting the disclosure of a 15-year historical example of rates and payments. The amendment applies to variable-rate loans with a term exceeding one year and secured by the consumer’s principal dwelling. The amendment allows creditors to provide a statement that the periodic payment may substantially increase or decrease together with a maximum interest rate and payment based on a $10,000 loan amount, in lieu of having to provide a 15-year historical example of index values. The rule became effective November 21, 1997. Compliance is optional until October 1, 1998. Also, the Board has amended Regulation D (Reserve Requirements o f Depository Institutions) to decrease the amount of transaction accounts subject to a reserve requirement ratio of 3 percent from $49.3 million to $47.8 million. This adjustment is known as the low reserve tranche adjustment. The Board has increased from $4.4 million to $4.7 million the amount of reservable liabilities of each depository institution that is subject to a reserve requirement of zero percent. 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) Additionally, the Board has increased the deposit cutoff levels that are used in con junction with the reservable liabilities exemption to determine the frequency of deposit reporting from $75.0 million to $78.9 million for nonexempt depository institutions and from $48.2 mil lion to $50.7 million for exempt institutions. For depository institutions that report weekly, the low reserve tranche adjustment and the reservable liabilities exemption adjustment will apply to the reserve computation period that begins Tuesday, December 30, 1997, and the corresponding reserve maintenance period that begins Thursday, January 1, 1998. For institutions that report quarterly, the low reserve tranche adjustment and the reservable liabilities exemption adjustment will apply to the reserve computa tion period that begins Tuesday, December 16, 1997, and the corresponding reserve maintenance period that begins Thursday, January 15, 1998. For all depository institutions, the deposit cutoff levels will be used to screen institutions in the second quarter of 1998 to determine the reporting frequency for the 12-month period that begins in September 1998. ATTACHMENTS Copies of the Board’s notices as they appear on pages 63441-47, Vol. 62, No. 230 of the Federal Register dated December 1, 1997, and pages 61620-22, Vol. 62, No. 223 of the Federal Register dated November 19, 1997, are attached. MORE INFORMATION For more information regarding Regulation Z, please contact Eugene Coy at (214) 922-6201. For more information regarding reserve requirements, please contact this Bank’s Reserve and Risk Management Division at (214) 922-5646. Depository institutions in the El Paso territory should contact the Reserve Maintenance Division in the El Paso Office at (915) 521-8212. Depository institutions in the Houston territory should contact the Reserve Mainte nance Division in the Houston Office at (713) 652-1538. Depository institutions in the San Antonio territory should contact the Reserve Maintenance Division in the San Antonio Office at (210) 978-1443. For additional copies of this Bank’s notice, contact the Public Affairs Department at (214) 922-5254. Sincerely yours, 63441 Rules and Regulations Federal Register Vol. 62, No. 230 Monday, December 1, 1997 FEDERAL RESERVE SYSTEM 12 CFR Part 226 [Regulation Z; Docket No. R -0 96 0 ] Truth in Lending Board of Governors of the Federal Reserve System. ACTION: Final rule. AGENCY: SUMMARY: The Board is publishing revisions to Regulation Z. The revisions im plem ent an am endm ent to the Truth in Lending Act contained in the Economic Growth and Regulatory Paperwork Reduction Act of 1996 affecting the disclosure of a fifteen-year historical example of rates and payments. The am endm ent applies to variable-rate loans w ith a term exceeding one year and secured by the consum er’s principal dwelling. The am endm ent allows creditors to provide a statem ent that the periodic paym ent may substantially increase or decrease together w ith a m axim um interest rate and paym ent based on a $10,000 loan am ount, in lieu of having to provide a fifteen-year historical example of index values. DATES: Effective date: This rule is effective November 21, 1997. Com pliance date: Compliance is optional un til October 1,1998. dwelling. The act is im plem ented by the Board’s Regulation Z (12 CFR part 226). The credit transactions covered by TILA and Regulation Z fall into two categories—open- or closed-end credit transactions. Open-end credit is defined as a plan u n der w hich the creditor reasonably contemplates repeated transactions, w hich prescribes the terms of such transactions, and w hich provides for a finance charge that may be com puted from tim e to tim e on the outstanding unpaid balance, for example, credit extended by means of a credit card (§ 226.2(a)(20)). Closed-end credit is defined as any credit arrangement that does not fall w ithin the definition of open-end credit (§ 226.2(a)(10)). A mortgage loan w ith a fixed m aturity date is an example of closed-end credit. II. Regulatory Provisions U nder Regulation Z, the timing and num ber of disclosures required for variable-rate loans vary depending on the term and security for the loan. For all variable-rate loans, disclosures are generally provided once—prior to consummation. However, if the loan exceeds a term of one year and is secured by the consum er’s principal dwelling, creditors are required to provide disclosures at different times— a loan program disclosure w hen an application is received (or w hen a FOR FURTHER INFORMATION CONTACT: nonrefundable fee is paid, w hichever Kyung H. Cho-Miller, Staff Attorney, occurs earlier), transaction-specific Division of Consumer and Community Truth in Lending disclosures prior to Affairs, Board of Governors of the consummation, and disclosures Federal Reserve System, at (202) 4 5 2 subsequent to consum m ation w hen 3667 or 452-2412; for users of Telecommunications Device for the Deaf certain rate or paym ent changes occur. (See Regulation Z, 12 CFR 226.17(b), (TDD) only, contact Diane Jenkins at 18(f), 19, and 20(c).) (202) 452-3544. Disclosures provided at application for a variable-rate mortgage include the SUPPLEMENTARY INFORMATION: Board-prescribed Consum er H andbook I. Background on A djustable Rate Mortgages (or a The purpose of the Truth in Lending comparable substitute) and a loan Act (TILA) (15 U.S.C. 1601 et seq.) is to program disclosure for each variablepromote the informed use of consumer rate program in w hich the consum er has credit by requiring disclosures about its expressed interest. The loan program terms and cost. The act requires disclosure consists of twelve separate creditors to disclose the cost of credit as items, including information such as the a dollar am ount (the finance charge) and identification of the index or formula to as an annual percentage rate (the APR). be used for adjustments and a fifteenUniformity in creditors’ disclosures is year historical example of how changes intended to assist consumers in in the index values or formula used to comparison shopping. The TILA com pute interest rates w ould have requires additional disclosures for loans affected the interest rates and payments secured by a consum er’s home and on a $10,000 loan. On September 30, 1996, the Economic permits consumers to rescind certain Growth and Regulatory Paperwork transactions that involve their principal 63442 Federal Register / Vol. 62, No. 230 / Monday, December 1, 1997 / Rules and Regulations Reduction Act of 1996 (Pub. L. 104-208, 110 Stat. 3009) (1996 amendment) am ended the TILA by providing creditors the option to give a statement that the periodic paym ents may increase or decrease substantially together with the m axim um interest rate and paym ent am ount for a $10,000 loan am ount in lieu of having to give the fifteen-year historical example. The Board issued a proposal in January 1997 (62 FR 5183, Feb. 4, 1997). Sixty-nine comments were received. Based on comments and further analysis, the Board has adopted a final rule that im plem ents the statutory changes. The final rule is discussed in detail in the section-by-section analysis below. III. Section-by-Section Analysis Subpart A — General Section 226.19—Certain Residential Mortgage Transactions 19(b) Certain variable-rate transactions. Section 226.19(b) requires the historical example disclosure for loans exceeding a term of one year that are secured by a consum er’s principal dwelling and in w hich the APR may increase after consum m ation (such as w hen the rate is tied to an index). The 1996 am endm ent refers to “residential mortgage transactions” to identify w hen the alternative disclosure option is available, but does not explicitly limit application of the alternative disclosure to loans that exceed a term of one year. “Residential mortgage transaction” is defined in Regulation Z (§ 226.2(a)(24)) as credit secured by the consum er’s principal dwelling to finance the acquisition or initial construction of that dwelling. U nder this definition, the alternative disclosure option w ould not extend to refinance and secondmortgage transactions. The Board believes that the am endm ent was intended to apply to loans w here the fifteen-year historical example is currently required, nam ely loans that exceed one year and are secured by the consum er’s principal dwelling. Accordingly, the Board proposed to apply the alternative disclosure option to variable-rate loans w ith a term greater than one year and secured by the consum er’s principal dwelling. The majority of commenters strongly supported the Board’s proposal to apply the am endm ent to loans w here the fifteen-year historical example is currently required. Those commenters stated that an interpretation to apply the am endm ent only to “residential mortgage transactions”—prim arily purchase-m oney mortgages—w ould result in increased regulatory burden on creditors by requiring two sets of disclosures. The Board believes that the Congress did not intend to limit the flexibility in the 1996 am endm ent to purchasem oney transactions nor to apply the provision to loans that do not currently require the historical example. The Board believes that the Congress intended to provide this option to all credit transactions secured by the consum er’s principal dwelling, given that the committee report to the 1996 am endm ent broadly states the alternative disclosure option w ould be available to lenders in consum er credit transactions u nd er closed-end plans. Pursuant to its authority under section 105(a) of the TILA, the Board has adopted a final rule that makes the alternative disclosure option available for any close-end credit transactions w here the term exceeds one year and is secured by the consum er’s dwelling. Section 105(a) provides that the Board’s regulations “may contain such classifications, differentiations, or other provisions, and may provide for such adjustm ents and exceptions for any class of transactions, as in the judgment of the Board are necessary or proper to effectuate the purposes of [the TILA], to prevent circum vention or evasion thereof, or to facilitate compliance therew ith.” Paragraph 19(b)(2)(viii) currently sets forth the required historical example based on a $10,000 loan am ount and paragraph 19(b)(2)(x) the required disclosure of the m axim um interest rate and paym ent for a $10,000 loan amount. The proposal revised paragraph 19(b)(2)(viii) to set forth the historical example requirem ents in paragraph 19(b)(2)(viii)(A); and incorporated the substance of paragraph 19(b)(2)(x) on the m axim um interest rate and payment disclosure in paragraph 19(b)(2)(viii)(B). If the creditor chose to disclose the m axim um interest rate and paym ent in lieu of a historical example, a statement that the periodic paym ent may increase or decrease substantially m ust accompany the rate and paym ent amount. The proposal provided that the statem ent requirem ent may be satisfied by providing the disclosure required by paragraph 19(b)(2)(vi) that states, for example, “your m onthly paym ent can increase or decrease substantially based on annual changes in the interest rate.” A question was raised about w hether the proposed wording w ould allow creditors to provide both the historical example and the m axim um interest rate and payment. The Board believes that the 1996 am endm ent allows creditors to substitute the m axim um interest rate and paym ent for the historical example or to provide both disclosures. The commentary to paragraph 19(b)(2)(viii) has been revised accordingly. The commentary to paragraph 19(b)(2)(viii)(B) provides that the statem ent that m ust accompany the m axim um rate and paym ent disclosure is not separately required if a similar disclosure is m ade pursuant to the requirem ent in paragraph 19(b)(2)(vi). Regulation Z currently requires creditors to disclose a m axim um interest rate using the most recent interest rate show n in the historical example. Because creditors are not required to provide the historical example under the 1996 amendments, creditors instead m ust use a “recent” interest rate as determ ined by the Board. The Board proposed to require creditors to calculate the m axim um rate and paym ent based on an initial rate that was in effect w ithin one year of the disclosure. A more frequent basis for updating the index or formula would place greater burden on creditors than currently exists under the regulation, w hereas the Congress intended to reduce burden w ith the alternative. The Board solicited com m ent on w hether there are circumstances in w hich the consum er benefit from updating the initial interest rate more frequently than annually w ould outweigh the compliance burden of producing the disclosures more frequently. The majority of the commenters supported the proposal to base the m axim um rate and paym ent on an interest rate in effect w ithin one year of the disclosure. They believed that this was consistent w ith the current requirem ent regarding revisions to the historical example. Several commenters observed, however, that the proposed language w ould require creditors to update the m axim um rate and paym ent twice a year and suggested adopting one of the timing rules already applicable to variable-rate transactions under § 226.19(b)(2). For example, the timing rules for revising the loan program disclosure in com m ent 19(b)(2)— 5 perm it creditors to update once a year, as soon as reasonably possible after the new index value becomes available. Similarly, comments 19(b)(2)(viii)-3 and -4 allow disclosures to use a margin or discount or prem ium used during the six m onths preceding preparation of the disclosures. Based on these comments and further analysis, the staff has revised the draft rule for determining the initial interest rate that will be used for the m axim um rate and payment disclosure; it defines the initial interest rate as one in effect as of an identified m onth and year for the particular loan program. The final rule eliminates any Federal Register / Vol. 62, No. 230 / Monday, December 1, 1997 / Rules and Regulations requirem ent for creditors to update the m axim um rate and paym ent disclosure more frequently than the loan program disclosure. Commenters asked for clarification on w hether the am ount of a recent discount or prem ium is reflected in the alternative disclosure. Several com menters requested general clarification on how the initial rate was derived. Several commenters also suggested that all references to “the m ost recent rate” be deleted since it implies that creditors m ust continually update the information. Several com menters questioned w hether an explanation of how the consum er may calculate the paym ents for the loan am ount to be borrowed w ould be required absent the historical example. Based on comments and further analysis, the Board believes that the initial and maxim um interest rates and paym ents should reflect any offered discount or prem ium in order to reduce consum er confusion. References to “the m ost recent rate” have been deleted and replaced by “initial interest rate.” A definition of the “initial interest rate” is provided and clarifies that it is based on the index plus margin, adjusted by the am ount of any discount or premium. Since the m axim um rate and paym ent is based on a $10,000 loan am ount, the Board believes that an explanation on how to calculate the paym ents for another loan am ount w ould allow consumers to better understand the relationship of the m axim um rate and paym ent disclosure to their particular transaction w ithout placing undue burden on the creditors. Section 226.19(b)(2)(ix) has been revised to require the explanation u nder either alternative. A p p e n d ix H to Part 226—Closed-end M odel Forms and Clauses The sample clauses and model forms to appendix H— and H -14 have been 1 revised in response to comments. S u p p lem en t I—Official S ta ff Interpretation Revisions have been m ade to the Official Staff Commentary to conform w ith the am endm ents to Regulation Z. IV. Regulatory Flexibility Analysis In accordance w ith section 3(a) of the Regulatory Flexibility Act (5 U.S.C. 603), the Board’s Office of the Secretary has reviewed the am endm ents to Regulation Z. Overall, the am endm ents are not expected to have any significant im pact on sm all entities. The regulatory revisions required to im plem ent the 1996 am endm ent reduce the num ber of disclosures required for variable-rate mortgages and ease compliance by providing creditors w ith the option of disclosing either a fifteen-year historical example or a m axim um paym ent example. V. Paperwork Reduction Act In accordance w ith the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Board has reviewed the final rule u nder the authority delegated to the Board by the Office of Management and Budget. 5 CFR part 1320, A ppendix A.I. The respondents are individuals or businesses that regularly offer or extend consum er credit. The purpose of the TILA and Regulation Z is to promote the informed use of consum er credit by requiring creditors to disclose its terms and cost. Records m ust be retained by creditors for 24 months. The disclosure requirem ents revised by this final rule are found in 12 CFR 226.19 and part 226, appendix H. The Board’s Regulation Z applies to all types of creditors, not just state member banks. For purposes of the Paperwork Reduction Act, however, the Federal Reserve accounts for the paperw ork burden associated with Regulation Z disclosures only for state member banks. The estimates of paperw ork burden for institutions other than state member banks are provided by the federal agency or agencies that supervise those lenders. The final rule is expected to decrease the ongoing annual burden of Regulation Z. There are 1,014 state member banks, making an estimated 5,750 closed-end credit disclosures each year on average, at 6.5 m inutes per disclosure. The proportion of such loans that are mortgages w ith an adjustable rate is estimated to be small. It is estimated that the combined annual burden for state member banks under Regulation Z w ill decrease by approxim ately 10,000 burden hours to an average 6.4 m inutes per disclosure. The Federal Reserve estimates an associated start-up cost of $160 per respondent to replace the fifteen-year historical example w ith the maximum rate and paym ent example. No comments specifically addressing the burden estimate were received. The disclosures m ade by creditors to consumers u nder Regulation Z are mandatory. Since the Federal Reserve does not collect any information, no issue of confidentiality arises. Disclosures relating to specific transactions or accounts are not publicly available. The Federal Reserve m ay not conduct or sponsor, and an organization is not required to respond to, an information collection unless it displays a currently 63443 valid OMB control number. The OMB control num ber for Regulation Z is 7100-0199. The Federal Reserve has a continuing interest in the public’s opinion regarding collections of information. Members of the public may submit comments, at any time, regarding the burden estimate or any other aspect of this collection of information, including suggestions for reducing the burden. Comments may be sent to: Secretary, Board of Governors of the Federal Reserve System, 20th and C Streets, N.W., Washington, DC 20551; and to the Office of Management and Budget, Paperw ork Reduction Project (71000199), W ashington, DC 20503. List o f S u bjects in 12 CFR Part 226 Advertising, Federal Reserve System, Mortgages, Reporting and recordkeeping requirem ents, Truth in lending. For the reasons set forth in the preamble, the Board amends 12 CFR part 226 as follows: PART 226—TRUTH IN LENDING (REGULATION Z) 1. The authority citation for part 226 continues to read as follows: A uthority: 12 U.S.C. 3806; 15 U.S.C. 1604 and 1637(c)(5). 2. Section 226.19 is am ended by: a. Republishing the introductory text of paragraph (b)(2); b. Revising paragraph (b)(2)(viii); c. Revising paragraph (b)(2)(ix); d. Removing paragraph (b)(2)(x); and e. Paragraphs (b)(2)(xi), (b)(2)(xii), and (b)(2)(xiii) are redesignated as paragraphs (b)(2)(x), (b)(2)(xi) and (b)(2)(xii) respectively. The revisions read as follows: § 2 2 6.1 9 Certain residential m ortgage and variable-rate transactions. * * * * * * * (b) Certain variable-rate transactions. * * * * * * (2) A loan program disclosure for each variable-rate program in w hich the consum er expresses an interest. The following disclosures, as applicable, shall be provided: * * * * * (viii) At the option of the creditor, either of the following: (A) A historical example, based on a $10,000 loan amount, illustrating how paym ents and the loan balance w ould have been affected by interest rate changes im plem ented according to the terms of the loan program disclosure. The example shall reflect the most recent 15 years of index values. The example shall reflect all significant loan 63444 Federal Register / Vol. 62, No. 230 / Monday, December 1, 1997 / Rules and Regulations program terms, such as negative amortization, interest rate carryover, interest rate discounts, and interest rate and paym ent limitations, that w ould have been affected by the index movem ent during the period. (B) The m axim um interest rate and paym ent for a $10,000 loan originated at the initial interest rate (index value plus margin, adjusted by the am ount of any discount or premium) in effect as of an identified m onth and year for the loan program disclosure assuming the m axim um periodic increases in rates and paym ents under the program; and the initial interest rate and paym ent for that loan and a statement that the periodic paym ent may increase or decrease substantially depending on changes in the rate. (ix) An explanation of how the consum er may calculate the payments for the loan am ount to be borrowed based on either: (A) The most recent paym ent show n in the historical example in paragraph (b)(2)(viii)(A) of this section; or (B) The initial interest rate used to calculate the m axim um interest rate and paym ent in paragraph (b)(2)(viii)(B) of this section. * * * * * 3. In part 226, A ppendix H is am ended by revising the appendix heading, H-4(C) Variable-Rate Model Clauses, and H -14 Variable-Rate Mortgage Sample to read as follows: Appendix H to Part 226—Closed-end Model Forms and Clauses * * * * * H-4(C]— Variable-Rate M odel Clauses This disclosure describes the features of the adjustable-rate mortgage (ARM) program you are considering. Information on other ARM programs is available upon request. H ow Your Interest Rate and P aym ent Are D eterm ined • Your interest rate will be based on [an index plus a margin] [a formula], • Your payment will be based on the interest rate, loan balance, and loan term. —[The interest rate will be based on (identification of index) plus our margin. Ask for our current interest rate and margin.] —[The interest rate will be based on (identification of formula). Ask us for our current interest rate.] —Information about the index [formula for rate adjustments] is published [can be found]_______________. —[The initial interest rate is not based on the (index) (formula) used to make later adjustments. Ask us for the amount of current interest rate discounts.] H ow Your Interest Rate Can Change • Your interest rate can change (frequency). • [Your interest rate cannot increase or decrease more th a n _____ percentage points at each adjustment.] • Your interest rate cannot increase [or decrease] more th a n _____ percentage points over the term of the loan. H ow Your P aym ent Can Change • Your payment can change (frequency) based on changes in the interest rate. • [Your payment cannot increase more than (amount or percentage) at each adjustment.] • You will be notified in w riting_______ days before the due date of a payment at a new level. This notice will contain information about your interest rates, payment amount, and loan balance. • [You will be notified once each year during which interest rate adjustments, but no payment adjustments, have been made to your loan. This notice will contain Year 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Index <%) Margin (Percentage points) inform ation about your interest rates, paym ent am ount, and loan balance.] • [For example, on a $10,000 [term] loan w ith an initial interest rate o f _______ [(the rate show n in the interest rate colum n below for the year 1 9 ________)] [(in effect (month) (year)], the m axim um am ount that the interest rate can rise un der this program is ________percentage points, t o ________ %, and the m onthly paym ent can rise from a first-year paym ent of $________to a m axim um of $________in t h e __________ year. To see w hat your paym ents w ould be, divide your mortgage am ount by $10,000; then m ultiply the m onthly paym ent by that amount. (For example, the m onthly paym ent for a mortgage am ount of $60,000 w ould be: $60,000 + $10,000 = 6; 6 x _______ = $_______ per month.)] Exam ple The example below shows how your paym ents w ould have changed u nd er this ARM program based on actual changes in the index from 1982 to 1996. This does not necessarily indicate h ow your index will change in the future. The example is based on the following assumptions: A m o u n t.............................................. $10,000 Term .................................................. .................... Change d a t e ...................................... .................... Paym ent adjustm ent ...................... (frequency) Interest adjustm ent ........................ (frequency) [Margin] * ......................................... .................... C a p s ________[periodic interest rate cap] ________[lifetime interest rate cap _______ [payment cap] [Interest rate carryover] [Negative amortization] [Interest rate discount] * * Index.......(identification of index or formula) *T his is a m argin we have used recently, your margin m ay be different. **T his is the am ount of a discount we have pro vided recently; your loan m ay be discounted by a different amount.] Interest Rate (%) Monthly Payment ($) Remaining Balance ($) ........................................................................................ ................................................................................................ .......... ................................................................................................ ................................................................................................ ... ................................................................................................ Note: To see what your payments would have been during that period, divide your mortgage amount by $10,000; then multiply the monthly payment by that amount. (For example, in 1996 the monthly payment for a mortgage amount of $60,000 taken out in 1982 would be: _ $60,000-i-$10,000=6; 6x________________________ =$_ per month.) Federal Register / Vol. 62, No. 230 / Monday, December 1, 1997 / Rules and Regulations * * * * * H -14— Variable-Rate Mortgage Sam ple This disclosure describes the features of the adjustable-rate mortgage (ARM) program you are considering. Information on other ARM programs is available upon request. H ow Your Interest Rate an d P aym ent Are D eterm ined • Your interest rate will be based on an index rate plus a margin. • Your payment will be based on the interest rate, loan balance, and loan term. —The interest rate will be based on the weekly average yield on United States Treasury securities adjusted to a constant maturity of 1 year (your index), plus our margin. Ask us for our current interest rate and margin. —Information about the index rate is published weekly in the Wall Street Journal. • Your interest rate will equal the index rate plus our margin unless your interest rate “caps” limit the amount of change in the interest rate. 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 • You w ill be notified in w riting 25 days before the annual paym ent adjustm ent may be made. This notice w ill contain inform ation about your interest rates, paym ent am ount and loan balance.] H ow Your Interest Rate Can Change • Your interest rate can change yearly. • Your interest rate cannot increase or decrease more than 2 percentage points per year. • Your interest rate cannot increase or decrease more than 5 percentage points over the term of the loan. [Example The example below shows how your paym ents w ould have changed under this ARM program based on actual changes in the index from 1982 to 1996. This does not necessarily indicate how your index w ill change in the future. The example is based on the following assumptions: H ow Your M onthly P aym ent Can Change • Your m onthly paym ent can increase or decrease substantially based on annual changes in the interest rate. • [For example, on a $10,000, 30-year loan w ith an initial interest rate of 12.41 percent in effect in July 1996, the m axim um am ount that the interest rate can rise un der this program is 5 percentage points, to 17.41 percent, and the m onthly paym ent can rise from a first-year paym ent of $106.03 to a m axim um of $145.34 in the fourth year. To see w hat your paym ent is, divide your mortgage am ount by $10,000; then m ultiply the m onthly paym ent by that am ount. (For example, the m onthly paym ent for a mortgage am ount of $60,000 w ould be: $60,000-s-$10,000=6; 6xl06.03=$636.18 per month.) Year (as of 1st week ending in July) Index (%) ................................................................................... ................................................................................................ .................................................................................... ................................................................................................ ............................................................................................ .................................................................................. ............................................................................................ ................................................................................................ ............................................................................................... .......................................................................................... ................................................................................................ ................................................................................................ ....................................................................................... ...................................................................................... ................................................................................................ A m o u n t.............................................. Term .................................................. Payment adjustm ent ...................... Interest adjustm ent ........................ Margin ............................................... $10,000 30 years 1 year 1 year 3 percentage points Caps________ 2 percentage points annual interest rate ________5 percentage points lifetim e interest rate Index________ W eekly average yield on U.S. Treasury securities adjusted to a constant m atu rity of one year. Margin* (percentage points) 14.41 9.78 12.17 7.66 6.36 6.71 7.52 7.97 8.06 6.40 3.96 3.42 5.47 5.53 5.82 63445 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3 Interest Rate (%) 17.41 **15.41 15.17 ’ *13.17 ***12.41 ***12.41 ***12.41 **12.41 ***12.41 ***12.41 ***12.41 ***12.41 ***12.41 ***12.41 ***12.41 Monthly Payment ($) Remaining Balance ($) 145.90 129.81 127.91 112.43 106.73 106.73 106.73 106.73 106.73 106.73 106.73 106.73 106.73 106.73 106.73 9,989.37 9,969.66 9,945.51 9,903.70 9,848.94 9,786.98 9,716.88 9,637.56 9,547.83 9,446.29 9,331.56 9,201.61 9,054.72 8,888.52 8,700.37 T h is is a margin we have used recently; your margin may be different. **This interest rate reflects a 2 percentage point annual interest rate cap. ***This interest rate reflects a 5 percentage point lifetime interest rate cap. Note: To see what your payments would have been during that period, divide your mortgage amount by $10,000; then multiply the monthly payment by that amount. (For example, in 1996 the monthly payment for a mortgage amount of $60,000 taken out in 1982 would be: $60,000-i-$10,000=6; 6x$106.73=$640.38.) • You w ill be notified in writing 25 days before the annual paym ent adjustm ent may be made. This notice w ill contain information about your interest rates, paym ent am ount and loan balance.] c. The heading “Paragraph 19(b)(2)(viii)” is revised to read “Paragraph 19(b)(2)(viii)(A)”. d. A new heading “Paragraph 19(b)(2)(viii)” and a new paragraph 1 is added below the new heading, and both * * * * * are transferred im m ediately preceding 4. In Supplem ent I to Part 226, under “Paragraph 19(b)(2)(viii)(A). ” Section 226.19— Certain R esidential e. The heading “Paragraph Mortgage and Variable-Rate 19(b)(2)(xj” is revised to read Transactions, under paragraph 19(b) “Paragraph 19(b)(2)(viii)(B) ” and the Certain variable-rate transactions, the paragraph heading and text are following am endm ents are made: transferred im m ediately preceding the a. Paragraph 2, under the heading heading “Paragraph 19(b)(2)(ix).” “Paragraph 19(b)(2)”, is revised. b. Paragraph 1, under the heading f. Paragraphs 1 and 2, under the “Paragraph 19(b)(2)(v)”, is revised. heading “Paragraph 19(b)(2)(viii)(B)” are revised and a new paragraph 5 is added. g. Paragraph 1, under the heading “Paragraph 19(b)(2)(ix)” is revised. h. The heading “Paragraph 19(b)(2)(xi)” is revised to read “Paragraph 19(b)(2)(x).” i. The heading “Paragraph 19(b)(2)(xii)” is revised to read “Paragraph 19(b)(2)(xi).” j. The heading “Paragraph 19(b)(2)(xiii)” is revised to read “Paragraph 19(b)(2)(xii).” The revisions and additions read as follows: 63446 Federal Register / Vol. 62, No. 230 / Monday, December 1, 1997 / Rules and Regulations Supplement 1 to Part 226—Official Staff Interpretations * * * * * Section 226.19— Certain Residential Mortgage Transactions. * * * * * 19(b) Certain variable-rate transactions. * * * * * Paragraph 19(b)(2). * * * * * 2. Variable-rate loan program defined, i. Generally, if the identification, the presence or absence, or the exact value of a loan feature must be disclosed under this section, variable-rate loans that differ as to such features constitute separate loan programs. For example, separate loan programs would exist based on differences in any of the following loan features: A. The index or other formula used to calculate interest rate adjustments. B. The rules relating to changes in the index value, interest rate, payments, and loan balance. C. The presence or absence of, and the am ount of, rate or paym ent caps. D. The presence of a dem and feature. E. The possibility of negative amortization. F. The possibility of interest rate carryover. G. The frequency of interest rate and paym ent adjustments. H. The presence of a discount feature. I. In addition, if a loan feature m ust be taken into account in preparing the disclosures required by § 226.19(b)(2)(viii), variable-rate loans that differ as to that feature constitute separate programs under § 226.19(b)(2). ii. If, however, a representative value may be given for a loan feature or the feature need not be disclosed under § 226.19(b)(2), variable-rate loans that differ as to such features do not constitute separate loan programs. For example, separate programs w ould no t exist based on differences in the following loan features: A. The am ount of a discount. B. The amount of a margin. * * * * * Paragraph 19(b)(2)(v). 1. D iscounted a nd prem ium interest rate. In some variable-rate transactions, creditors may set an initial interest rate that is not determ ined by the index or form ula u sed to make later interest rate adjustments. Typically, this initial rate charged to consum ers is low er th a n the rate w ould be if it w ere calculated using the index or formula. However, in some cases the initial rate may be higher. If the initial interest rate w ill be a discount or a prem ium rate, creditors m ust alert the consum er to this fact. For example, if a creditor discounted a consum er’s initial rate, the disclosure might state, “Your initial interest rate is not based on the index used to make later adjustm ents.” (See the com mentary to § 226.17(c)(1) for a further discussion of discounted and prem ium variable-rate transactions.) In addition, the disclosure m ust suggest that consum ers inquire about the am ount that the program is currently discounted. For example, the disclosure might state, “Ask us for the am ount our adjustable rate mortgages are currently discounted.” In a transaction w ith a consum er buydow n or w ith a third-party buydow n that w ill be incorporated in the legal obligation, the creditor should disclose the program as a discounted variable-rate transaction, but need not disclose additional inform ation regarding the buydow n in its program disclosures. (See the com mentary to § 226.19(b)(2)(viii) for a discussion of how to reflect the discount or prem ium in the historical example or the m axim um rate and paym ent disclosure). * * * * * Paragraph 19(b)(2)(viii). 1. H istorical exam ple and initial and m axim um interest rates and paym ents. A creditor may disclose both the historical example and the initial and m axim um interest rates and payments. Paragraph 19(b)(2)(viii)(A). * * * * * Paragraph 19(b)(2)(viii)(B). 1. Initial an d m axim um interest rates and paym ents. The disclosure form m ust state the initial and m axim um interest rates and paym ents for a $10,000 loan originated at an initial interest rate (index value plus margin adjusted by the am ount of any discount or premium) in effect as of an identified m onth and year for the loan program disclosure. (See com m ent 19(b)(2)-5 on revisions to the loan program disclosure.) In calculating the m axim um paym ent under this paragraph, a creditor should assume that the interest rate increases as rapidly as possible under the loan program, and the maxim um paym ent disclosed should reflect the am ortization of the loan during this period. Thus, in a loan w ith 2 percentage point annual (and 5 percentage point overall) interest rate lim itations or “caps,” the m axim um interest rate w ould be 5 percentage points higher than the initial interest rate disclosed. Moreover, the loan w ould not reach the m axim um interest rate until the fourth year because of the 2 percentage po int annual rate lim itations, and the m axim um paym ent disclosed w ould reflect the am ortization of the loan during this period. If the loan program includes a discounted or prem ium initial interest rate, the initial interest rate should be adjusted by the am ount of the discount or prem ium . 2. Term o f the loan. In calculating the initial and m axim um paym ents, the creditor need no t base the disclosures on each term to m aturity or paym ent am ortization offered un der the program. Instead, the creditor may follow the rules set out in com ment 19 (b) (2) (viii) (A)— 5. If a historical example is provided u nder § 226.19(b)(2)(viii)(A), the terms to m aturity or paym ent am ortization used in the historical example m ust be used in calculating the initial and m axim um payment. In addition, creditors m ust state the term or payment amortization used in making the disclosures under this section. * * * * * 5. Periodic p aym ent statem ent. The statem ent that the periodic paym ent may increase or decrease substantially may be satisfied by the disclosure in paragraph 19(b)(2)(vi) if it states for example, “your m onthly paym ent can increase or decrease substantially based on annual changes in the interest rate.” Paragraph 19(b)(2)(ix). 1. Calculation o f paym ents. A creditor is required to include a statem ent on the disclosure form that explains how a consum er may calculate his or her actual m onthly paym ents for a loan am ount other than $10,000. The example should be based u pon the most recent paym ent show n in the historical example or upon the initial interest rate reflected in the m axim um rate and paym ent disclosure. In transactions in w hich the latest paym ent show n in the historical example is not for the latest year of index values show n (such as in a five-year loan), a creditor may provide additional examples based on the initial and m axim um paym ents disclosed u nder § 226.19(b)(2)(viii)(B). The creditor, however, is not required to calculate the consum er’s payments. (See the model clauses in appendix H-4(C).) Paragraph 19(b)(2)(x). * * * * * Paragraph 19(b)(2)(xi). * * * * * Paragraph 19(b)(2)(xii). * * * * * 5. In Supplem ent I to Part 226, under paragraph heading Paragraph 19(b)(2)(viii)(A), all references in paragraphs 3 and 4 to “ § 226.19(b)(2)(viii)” are revised to read “ § 226.19(b)(2)(viii)(A)” . 6. In Supplem ent I to Part 226, under paragraph heading Paragraph 19(b)(2)(viii)(A), in paragraphs 6 and 7 the words “ comment 19(b)(2)(x)” are revised to read “comment 19(b)(2)(viii)(B)” each place they appear. 7. In Supplem ent I to Part 226, under paragraph heading Paragraph 19(b)(2)(viii)(B), in paragraphs 2, 3, and 4 the words “comment 19(b)(2)(viii)” are revised to read “com ment 19(b)(2)(viii)(A)” each place they appear. 8. In Supplem ent I to Part 226, A ppendix H—Closed-End Model Forms and Clauses, Paragraphs 6 and 18, are revised to read as follows: * * * * * Appendix H—Closed-End Model Forms and Clauses * * * * * Federal Register / Vol. 62, No. 230 / Monday, December 1, 1997 / Rules and Regulations 6. M odel H-4(C). This m odel clause illustrates the early disclosures required generally u nd er § 226.19(b). It includes inform ation on how the consum er’s interest rate is determ ined and how it can change over the term of the loan, and explains changes that m ay occur in the borrow er’s m onthly paym ent. It contains an example of how to disclose historical changes in the index or formula values used to com pute interest rates for the preceding 15 years. The m odel clause also illustrates the disclosure of the initial and m axim um interest rates and paym ents based on an initial interest rate (index value plus margin, adjusted by the am ount of any discount or prem ium ) in effect as of an identified m onth and year for the loan program disclosure and illustrates how to provide consum ers w ith a m ethod for calculating the m onthly paym ent for the loan am ount to be borrowed. * * * * * 18. Sam ple H -14. This sam ple disclosure form illustrates the disclosures under § 226.19(b) for a variable-rate transaction secured by the consum er’s principal dwelling w ith a term greater than one year. The sam ple form shows a creditor how to adapt the m odel clauses in A ppendix H-4(C) to the creditor’s own particular variable-rate program. The sam ple disclosure form describes the features of a specific variablerate mortgage program and alerts the consum er to the fact that inform ation on the creditor’s other closed-end variable-rate programs is available up on request. It includes inform ation on how the interest rate is determ ined and how it can change over time. Section 226.19(b)(2)(viii) perm its creditors the option to provide either a historical example or an initial and m axim um interest rates and paym ents disclosure; both are illustrated in the sample disclosure. The historical example explains how the m onthly paym ent can change based on a $10,000 loan am ount, payable in 360 m onthly installm ents, based on historical changes in the values for the w eekly average yield on U.S. Treasury Securities adjusted to a constant m aturity of one year. Index values are m easured for 15 years, as of the first week ending in July. This reflects the requirem ent that the index history be based on values for the same date or period each year in the example. The sample disclosure also illustrates the alternative disclosure under § 226.19(b)(2)(viii)(B) that the initial and the m axim um interest rates and paym ents be show n for a $10,000 loan originated at an initial interest rate of 12.41 percent (which was in effect July 1996) and to have 2 percentage point annual (and 5 percentage point overall) interest rate lim itations or caps. Thus, the m axim um am ount that the interest rate could rise und er this program is 5 percentage points higher than the 12.41 percent initial rate to 17.41 percent, and the m onthly paym ent could rise from $106.03 to a m axim um of $145.34. The loan w ould not reach the m axim um interest rate un til its fourth year because of the 2 percentage point annual rate lim itations, and the m axim um paym ent disclosed reflects the am ortization of the loan during that period. The sample form also illustrates how to provide consum ers w ith a m ethod for calculating their actual m onthly paym ent for a loan am ount other th an $10,000. * * * * * By order of the Board of Governors of the Federal Reserve System, November 21,1997. William W. Wiles, Secretary o f the Board. [FR Doc. 97-31087 Filed 11-28-97; 8:45 am] BILLING CODE 6210-01 - P 63447 61620 Federal Register / Vol. 62, No. 223 / Wednesday, November 19, 1997 / Rules and Regulations FEDERAL RESERVE SYSTEM 12 CFR Part 204 [Regulation D; Docket No. R -0 94 5 ] 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 decrease the am ount of transaction accounts subject to a reserve requirem ent ratio of three percent, as required by section 19(b)(2)(C) of the Federal Reserve Act, from $49.3 m illion to $47.8 m illion of net transaction accounts. This adjustm ent is know n as the low reserve tranche adjustment. The Board is increasing from $4.4 m illion to $4.7 m illion the am ount of reservable liabilities of each depository institution that is subject to a reserve requirem ent of zero percent. This action is required by section 19(b)(ll)(B) of the Federal Reserve Act, and the adjustm ent is know n as the reservable liabilities exem ption adjustment. The Board is also increasing the deposit cutoff levels that are used in conjunction w ith the reservable liabilities exem ption to determine the frequency of deposit reporting from $75.0 million to $78.9 m illion for nonexem pt depository institutions and from $48.2 m illion to $50.7 m illion for exempt institutions. (Nonexempt institutions are those w ith total reservable liabilities exceeding the am ount exem pted from reserve requirem ents ($4.7 million) while exempt institutions are those w ith total reservable liabilities not exceeding the am ount exempted from reserve requirements.) Thus, beginning in September 1998, nonexem pt institutions w ith total deposits of $78.9 m illion or more will be required to report weekly w hile nonexem pt institutions w ith total deposits less than $78.9 m illion may report quarterly, in both cases on form FR 2900. Similarly, exem pt institutions w ith total deposits of $50.7 m illion or more w ill be required to report quarterly on form FR 2910q w hile exempt institutions w ith total deposits less than $50.7 m illion may report annually on form FR 2910a. DATES: E ffective date: December 16, 1997. Com pliance dates: For depository institutions that report weekly, the low reserve tranche adjustm ent and the reservable liabilities exemption adjustm ent w ill apply to the reserve com putation period that begins Tuesday, December 30,1997, and the corresponding reserve maintenance period that begins Thursday, January 1, 1998. For institutions that report quarterly, the low reserve tranche adjustm ent and the reservable liabilities exem ption adjustm ent w ill apply to the reserve com putation period that begins Tuesday, December 16, 1997, and the corresponding reserve maintenance period that begins Thursday, January 15, 1998. For all depository institutions, the deposit cutoff levels w ill be used to screen institutions in the second quarter of 1998 to determine the reporting frequency for the twelve m onth period that begins in September 1998. FOR FURTHER INFORMATION CONTACT: Rick Heyke, Attorney (202/452-3688), Legal Federal Register / Vol. 62, No. 223 / Wednesday, November 19, 1997 / Rules and Regulations 61621 Division, or June O ’Brien, Economist (202/452-3790), Division of M onetary Affairs; for the hearing im paired only, contact Diane Jenkins, Telecommunications Device for the Deaf (TDD)(202/452— 3544); Board of Governors of the Federal Reserve System, 20th and C Streets, N.W., W ashington, 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 m aintain reserves against its transaction accounts and nonpersonal time deposits, as prescribed by Board regulations. The initial reserve requirem ents im posed un der section 19(b)(2) were set at three percent for net transaction accounts of $25 m illion or less and at 12 percent on net transaction accounts above $25 m illion for each depository institution. Effective April 2, 1992, the Board lowered the required reserve ratio applicable to transaction account balances exceeding the low reserve tranche from 12 percent to 10 percent. 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 adjustm ent in the tranche is to be 80 percent of the percentage increase or decrease in net transaction accounts at all depository institutions over the one-year period that ends on the June 30 prior to the adjustment. Currently, the low reserve tranche on net transaction accounts is $49.3 million. Net transaction accounts of all depository institutions decreased by 3.7 percent (from $740.1 billion to $712.8 billion) from June 30, 1996, to June 30, 1997. In accordance w ith section 19(b)(2), the Board is amending Regulation D (12 CFR Part 204) to decrease the low reserve tranche for transaction accounts for 1998 by $1.5 m illion to $47.8 million. Section 19(b)(ll)(A) of the Federal Reserve Act (12 U.S.C. 461 (b)(ll)(B)) provides that $2 m illion of reservable liab ilities1 of each depository institution shall be subject to a zero percent reserve requirement. Each depository institution may, in accordance w ith the rules and regulations of the Board, designate the reservable liabilities to w hich this reserve requirem ent exem ption is to apply. However, if net transaction accounts are designated, only those that 1 Reservable liabilities include transaction accounts, nonpersonal tim e deposits, and Eurocurrency liabilities as defined in section 19(b)(5) of the Federal Reserve Act. The reserve ratio on nonpersonal tim e deposits and Eurocurrency liabilities is zero percent. w ould otherwise be subject to a three percent reserve requirem ent (i.e., net transaction accounts w ithin the low reserve requirem ent tranche) may be so designated. Section 19(b)(ll)(B) of the Federal Reserve Act provides that, before December 31 of each year, the Board shall issue a regulation adjusting for the next calendar year the dollar am ount of reservable liabilities exem pt from reserve requirements. Unlike the adjustm ent for the low reserve tranche on net transaction accounts, w hich adjustm ent can result in a decrease as w ell as an increase, the change in the exem ption am ount is to be m ade only if the total reservable liabilities held at all depository institutions increase from one year to the next. The percentage increase in the exem ption is to be 80 percent of the increase in total reservable liabilities of all depository institutions as of the year ending June 30. Total reservable liabilities of all depository institutions increased by 7.7 percent (from $1,695.1 billion to $1,824.8 billion) from June 30, 1996, to June 30,1997. Consequently, the reservable liabilities exem ption am ount for 1998 under section 19(b)(ll)(B) will be increased by $0'.3 m illion to $4.7 m illion.2 The effect of the application of section 19(b) of the Federal Reserve Act to the change in the total net transaction accounts and the change in the total reservable liabilities from June 30, 1996, to June 30,1997, is to decrease the low reserve tranche to $47.8 million, to apply a zero percent reserve requirem ent on the first $4.7 m illion of transaction accounts, and to apply a three percent reserve requirem ent on the rem ainder of the low reserve tranche. The tranche adjustm ent and the reservable liabilities exemption adjustm ent for weekly reporting institutions will be effective for the reserve com putation period beginning Tuesday, December 30,1997, and for the corresponding reserve maintenance period beginning Thursday, January 1, 1998. For institutions that report quarterly, the tranche adjustm ent and the reservable liabilities exemption adjustm ent w ill be effective for the com putation period beginning Tuesday, December 16, 1997, and for the reserve maintenance period beginning Thursday, January 15, 1998. In addition, all institutions currently submitting form FR 2900 m ust continue to submit reports to the Federal Reserve under current reporting procedures. 2 Consistent w ith Board practice, the tranche and exem ption am ounts have been rounded to the nearest $0.1 m illion. In order to reduce the reporting burden for small institutions, the Board has established deposit reporting cutoff levels to determine deposit reporting frequency. Institutions are screened during the second quarter of each year to determ ine reporting frequency beginning the following September. In July of 1988 the Board set a single cutoff level for all depository institutions of $40 m illion plus an am ount equal to 80 percent of the annual rate of increase of total deposits.3 In August of 1994, the Board replaced the single deposit cutoff level that had applied to both nonexem pt and exempt institutions w ith separate cutoff levels, increasing the cutoff level for nonexem pt institutions, and in September 1997 further increased the cutoff level for nonexem pt institutions. The cutoff level for nonexem pt institutions, w hich determines w hether th ey report (on FR 2900) quarterly or weekly, was thereby raised to $75.0 million. The deposit cutoff level for exempt institutions, w hich determines w hether they report annually (on FR 2910a) or quarterly (on FR 2910q), rem ained at the indexed level of $48.2 million. From June 30, 1996, to June 30, 1997, total deposits increased 6.6 percent, from $4,168.2 billion to $4,442.2 billion. Accordingly, the nonexem pt deposit cutoff level w ill increase by $3.9 million to $78.9 m illion and the exempt deposit cutoff level w ill increase by $2.5 million to $50.7 million. Based on the indexation of the reservable liabilities exemption, the cutoff level for total deposits above w hich reports of deposits m ust be filed w ill rise from $4.4 m illion to $4.7 million. Institutions w ith total deposits below $4.7 million w ill be excused from reporting if their deposits can be estimated from other data sources. The $78.9 m illion cutoff level for weekly versus quarterly FR 2900 reporting for nonexem pt institutions, the $50.7 m illion cutoff level for quarterly FR 2910q versus annual FR 2910a reporting for exempt institutions, and the $4.7 m illion level threshold for reporting w ill be used in the second quarter 1998 deposits report screening process, and the adjustments w ill be m ade w hen the new deposit reporting panels are im plem ented in September 1998. All U.S. branches and agencies of foreign banks and all Edge and agreement corporations, regardless of size, are required to file weekly the 3 “Total deposits” as used in determ ining the cutoff level includes not only gross transaction deposits, savings accounts, and tim e deposits, but also reservable obligations of affiliates, ineligible acceptance liabilities, and n et Eurocurrency liabilities. 61622 Federal Register / Vol. 62, No. 223 / Wednesday, November 19, 1997 / Rules and Regulations Report of Transaction Accounts, Other Deposits and Vault Cash (FR 2900). After the indexations become effective in 1998, all other institutions that have reservable liabilities in excess of the exem ption level of $4.7 million prescribed by section 19(b)(ll) of the Federal Reserve Act (known as “nonexem pt institutions”) and total deposits at least equal to the nonexem pt deposit cutoff level ($78.9 million) will be required to file weekly the Report of Transaction Accounts, Other Deposits and Vault Cash (FR 2900) for the twelve m onth period starting September 1998. However, nonexem pt institutions w ith total deposits less than the nonexem pt deposit cutoff level ($78.9 million), will be able to file the FR 2900 quarterly. Institutions that obtain funds from nonU.S. sources or that have foreign branches or international banking facilities are required to file the Report of Certain Eurocurrency Transactions (FR 2950/2951) at the same frequency as they file the FR 2900. Institutions w ith reservable liabilities at or below the exem ption level ($4.7 million) (known as exempt institutions) w ill be required to file the Quarterly Report of Selected Deposits, Vault Cash, and Reservable Liabilities (FR 2910q) if their total deposits equal or exceed the exempt deposit cutoff level ($50.7 million). Exempt institutions w ith total deposits less than the exempt deposit cutoff level ($50.7 million) but at least equal to the exemption am ount ($4.7 million) w ill be able to file the Annual Report of Total Deposits and Reservable Liabilities (FR 2910a). Institutions that have total deposits less than the exem ption am ount ($4.7 million) are not required to file deposit reports if their deposits can be estimated from other data sources. Finally, the Board m ay require a depository institution to report on a weekly basis, regardless of the cutoff level, if the institution m anipulates its total deposits and other reservable liabilities in order to qualify for quarterly reporting. Similarly, any depository institution that reports quarterly may be required to report weekly and to m aintain appropriate reserve balances w ith its Reserve Bank if, during its com putation period, it understates its usual reservable liabilities or overstates the deductions allow ed in computing required reserve balances. Notice and Public Participation The provisions of 5 U.S.C. 553(b) relating to notice and public participation have not been followed in connection w ith the adoption of these am endm ents because the am endm ents involve expected, ministerial adjustments prescribed by statute and by an interpretative statement reaffirming the Board’s policy concerning reporting practices. Moreover, the low reserve tranche adjustm ent and the reservable liabilities exem ption adjustm ent are required to be effective for the next calendar year even though the data w hich they are required to reflect are only available late in the prior year. In addition, the reservable liabilities exem ption adjustm ent and the increases for reporting purposes in the deposit cutoff levels reduce regulatory burdens on depository institutions, and the low reserve tranche adjustm ent will have a de m in im is effect on depository institutions w ith net transaction accounts exceeding $47.8 million. Accordingly, the Board finds good cause for determining, and so determines, that notice and public participation is unnecessary, impracticable, or contrary to the public interest. The provisions of 5 U.S.C. 553(d) relating to notice of the effective date of a rule have not been followed in connection w ith the adoption of these am endm ents because the low reserve tranche adjustm ent and the reservable liabilities adjustm ent are expected, m inisterial am endm ents prescribed by statute. Moreover, they are required to be effective for the next calendar year even though the data w hich they are required to reflect are only available late in the prior year. In addition, the reservable liabilities adjustm ent and the increase in deposit cutoff levels for reporting purposes relieve a restriction on depository institutions, and the low reserve tranche w ill have a de m inim is effect on depository institutions w ith net transaction accounts exceeding $47.8 million. Accordingly, there is good cause to determine, and the Board so determines, that such notice is im practicable or unnecessary. PART 204— RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS (REGULATION D) 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. 2. Section 204.9 is revised to read as follows: § 204.9 Reserve requirem ent ratios. (a) Reserve percentages. The following reserve ratios are prescribed for all depository institutions, Edge and Agreement corporations, and United States branches and agencies of foreign banks: Category Net transaction ac counts: $0 to $47.8 million over $47.8 million .. Nonpersonal time deposits. Eurocurrency liabil ities. The Board certifies that these am endm ents w ill not have a substantial economic impact on small depository institutions. See “Notice and Public Participation” above. List of Subjects in 12 CFR Part 204 Banks, banking, Reporting and recordkeeping requirements. For the reasons set forth in the preamble, the Board is am ending 12 CFR part 204 as follows: 3 percent of amount. $1,434,000 plus 10 percent of amount over $47.8 million 0 percent. 0 percent. 1Before deducting the adjustment to be made by the paragraph (b) of this section. (b) E xem ption from reserve requirem ents. Each depository institution, Edge or agreement corporation, and U.S. branch or agency of a foreign bank is subject to a zero percent reserve requirem ent on an am ount of its transaction accounts subject to the low reserve tranche in paragraph (a) of this section not in excess of $4.7 m illion determ ined in accordance w ith § 204.3(a)(3). By order of the Board of Governors of the Federal Reserve System, November 13, 1997. William W. Wiles, Secretary o f the Board. [FR Doc. 97-30237 Filed 11-18-97; 8:45 am] BILLING CODE 6210 -01 -P Regulatory Flexibility Analysis Reserve require ment1
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