View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

8009

Proposed Rules

Federal Register
Vol. 73, No. 29
Tuesday, February 12, 2008

This section of the FEDERAL REGISTER
contains notices to the public of the proposed
issuance of rules and regulations. The
purpose of these notices is to give interested
persons an opportunity to participate in the
rule making prior to the adoption of the final
rules.

FEDERAL RESERVE SYSTEM
12 CFR Parts 204 and 209
[Regulations D and I; Docket No. R–1307]

Reserve Requirements of Depository
Institutions; Issue and Cancellation of
Federal Reserve Bank Capital Stock
Board of Governors of the
Federal Reserve System.
ACTION: Notice of proposed rulemaking;
request for public comment.

hsrobinson on PROD1PC76 with PROPOSALS-1

AGENCY:

SUMMARY: The Board is publishing for
comment proposed amendments to
Regulation D (Reserve Requirements of
Depository Institutions) and Regulation
I (Issue and Cancellation of Federal
Reserve Bank Capital Stock). Of these,
only two are intended to represent
substantive changes from existing law,
while the remaining amendments are
intended principally as clarifications.
The first of the proposed substantive
amendments would amend Regulation
D to implement Section 603 of the
Financial Services Regulatory Relief Act
of 2006 by authorizing member banks of
the Federal Reserve System to enter into
pass-through arrangements. Previously,
member banks were statutorily
prohibited from passing required
reserve balances through a
correspondent institution. The second
of the proposed substantive
amendments would eliminate the
provision in the ‘‘savings deposit’’
definition of Regulation D limiting
certain kinds of transfers from savings
deposits to not more than three per
month. As a result, all kinds of transfers
and withdrawals from a savings deposit
that must be limited in number per
month would be subject to the same
numeric limitation of not more than six
per month. The remaining proposed
amendments, intended as clarifications,
would reorganize the provisions relating
to deposit reporting and the calculation
and maintenance of required reserves,
clarify the definitions of ‘‘time deposit’’
and ‘‘vault cash,’’ and make other minor
editorial changes.

VerDate Aug<31>2005

17:05 Feb 11, 2008

Jkt 214001

Comments must be received on
or before March 28, 2008.
ADDRESSES: You may submit comments,
identified by Docket No. R–1307, 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:
regs.comments@federalreserve.gov.
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
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:
Heatherun Sophia Allison, Senior
Counsel (202/452–3565), or Kara
Handzlik, Attorney (202/452–3852),
Legal Division, Seth Carpenter,
Assistant Director and Section Chief
(202/452–2385), or Margaret Gillis
DeBoer, Financial Analyst (202/452–
3139), 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:
DATES:

I. Statutory Background
Section 19 of the Federal Reserve Act
(the ‘‘Act’’) imposes reserve
requirements for monetary policy
purposes only on certain types of
deposits and other liabilities of
depository institutions. Section 19 also
authorizes the Board to define by
regulation the terms used in the section.

PO 00000

Frm 00001

Fmt 4702

Sfmt 4702

Currently, reserve requirement ratios for
‘‘transaction accounts’’ (accounts used
to make payments to third parties, such
as checking accounts) are graduated
between three and ten percent. Reserve
requirement ratios for ‘‘nonpersonal
time deposits’’ and ‘‘Eurocurrency
liabilities’’ are currently zero percent.
Although Section 19 expressly defines
accounts with certain transfer
characteristics as ‘‘transaction
accounts,’’ Section 19 also authorizes
the Board ‘‘to determine, by regulation
or order, that an account or deposit is
a transaction account if such account or
deposit may be used to provide funds
directly or indirectly for the purpose of
making payments or transfers to third
persons or others.’’ 1 The provisions of
Section 19 are implemented by the
Board’s Regulation D.
Section 11(a)(2) of the Act authorizes
the Board to require any depository
institution ‘‘to make, at such intervals as
the Board may prescribe, such reports of
its liabilities and assets as the Board
may determine to be necessary or
desirable to enable the Board to
discharge its responsibility to monitor
and control monetary and credit
aggregates.’’ 2 These provisions are
specifically implemented in the
computation and maintenance
provisions of Regulation D (12 CFR
204.3).
II. Pass-Through Accounts
Section 19(c)(1) of the Act provides
that depository institutions shall
maintain required reserves in the form
of a balance maintained for such
purposes by a depository institution in
an account at a Federal Reserve Bank or
in the form of vault cash. Prior to 2006,
Section 19(c)(1)(B) of the Act provided
that non-member banks could maintain
required reserves in an account at a
depository institution that itself
maintained required reserve balances at
a Federal Reserve Bank, known as a
‘‘pass-through account.’’ The Financial
Services Regulatory Relief Act of 2006,
Public Law 109–351 (Oct. 13, 2006),
amended Section 19(c)(1)(B) of the Act
to remove the language restricting passthrough arrangements to non-member
banks. Accordingly, all depository
institutions may if they choose maintain
required reserves in a pass-through
1 Section 19(b)(1)(F) of the Federal Reserve Act,
12 U.S.C. 461(b)(1)(F).
2 12 U.S.C. 248(a).

E:\FR\FM\12FEP1.SGM

12FEP1

8010

Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules

account with a correspondent
depository institution.
To implement the pass-through
provisions of the Financial Services
Regulatory Relief Act of 2006, the Board
proposes to amend the definition of
‘‘pass-through account’’ in § 204.2(l )
and the rules for pass-through
arrangements in § 204.3(i) to remove
references limiting such arrangements to
non-member banks.
III. Transfers From Savings Deposits

hsrobinson on PROD1PC76 with PROPOSALS-1

A. Six-Three Distinction
The Board has established the criteria
for distinguishing between ‘‘transaction
accounts’’ and ‘‘savings deposits’’ 3 in
Regulation D based on the ease with
which the depositor may make transfers
(payments to third parties) or
withdrawals (payments directly to the
depositor) from the account. Generally
speaking, the more convenient it is to
make withdrawals or transfers from an
account, the more likely it is that the
account will be used for making
payments or transfers to third parties as
opposed to holding savings.
Accordingly, Regulation D limits the
number of certain convenient kinds of
transfers or withdrawals that may be
made in a single month from an account
if that account is to be classified as a
‘‘savings deposit.’’ 4 ‘‘Convenient’’
transfers or withdrawals for this
purpose include preauthorized or
automatic transfers (such as overdraft
protection transfers or arranging to have
bill payments deducted directly from
the depositor’s savings account),
telephonic transfers (made by the
depositor telephoning or sending a fax
or online instruction to the bank and
instructing the transfer to be made), and
transfers by check, debit card, or similar
order payable to third parties.
Regulation D currently limits the
number of ‘‘convenient’’ transfers and
withdrawals from savings deposits (i.e.,
preauthorized, automatic, or telephonic
transfers or withdrawals) to not more
than six per month. Within this overall
limit of six, not more than three
transfers or withdrawals may be made
by check, debit card, or similar order
made by the depositor and payable to
3 The Board has by regulation included ‘‘savings
deposits’’ held by nonnatural persons (i.e., anyone
other than individuals) in the Regulation D
definition of ‘‘nonpersonal time deposits.’’
Accordingly, such deposits are subject to a zero
percent reserve requirement. Savings deposits held
by natural persons (individuals), on the other hand,
are not subject to reserve requirements at all. As a
practical matter, therefore, ‘‘savings deposits’’ of all
kinds are not reservable; the distinction between
personal and nonpersonal savings deposits is
significant for deposit reporting purposes only.
4 12 CFR 204.2(d)(2) (definition of ‘‘savings
deposit’’).

VerDate Aug<31>2005

17:05 Feb 11, 2008

Jkt 214001

third parties. Transfers and withdrawals
from savings deposits that are less
convenient are not limited in number by
the ‘‘savings deposit’’ definition in
Regulation D. For example, transfers or
withdrawals made ‘‘by mail, messenger,
automated teller machine, or in person
or * * * made by telephone (via check
mailed to the depositor)’’ may be made
from savings deposits without
numerical limit.
The distinction between different
types of limited transfers or withdrawals
from savings deposits may be referred to
as the ‘‘six-three distinction’’ (i.e., six
convenient transfers or withdrawals, of
which up to three may be by check,
debit card, or similar order). The sixthree distinction in the Regulation D
definition of ‘‘savings deposit’’ is
derived from the ‘‘money market
deposit account’’ or ‘‘MMDA’’ created
by the Garn-St.Germain Depository
Institutions Act of 1982 (the ‘‘1982
Act’’). In the 1982 Act, Congress sought
to create an account to meet the
perceived market need for an interestbearing deposit account that was both
directly competitive with money market
mutual funds and not the functional
equivalent of a reservable transaction
account. The definition of ‘‘transaction
account’’ in Regulation D at that time
included any account from which more
than three preauthorized, automatic or
telephonic transfers or withdrawals per
month were permitted. Congress
therefore specified in the 1982 Act that
the MMDA was not to be considered a
‘‘transaction account’’ (and, therefore,
not subject to reserve requirements)
even though it permitted ‘‘three
preauthorized or automatic transfers
and three third-party transfers’’ per
month.
The legislative history of the 1982 Act
did not clarify whether this
authorization was intended to allow
‘‘three preauthorized or automatic
transfers’’ and a separate set of ‘‘three
third-party transfers.’’ It simply noted
that ‘‘third-party transfers’’ were
intended to include checks. The existing
provisions of Regulation D, however,
considered ‘‘preauthorized or
automatic’’ transfers to include transfers
to third parties as well. To harmonize
the legislative history of the 1982 Act
with the existing provisions of
Regulation D, the MMDA was
regulatorily defined to permit a
depositor who did not write any checks
in a particular month to make up to six
preauthorized or automatic transfers per
month. In no event, however, would
more than three checks per month be
permitted.
In 1986, the statutory provisions that
authorized the MMDA and that

PO 00000

Frm 00002

Fmt 4702

Sfmt 4702

exempted the MMDA from the
‘‘transaction account’’ definition
expired. In subsequent rulemakings,
however, the Board preserved the
transfer and withdrawal characteristics
of the MMDA in Regulation D by
merging the definition of ‘‘MMDA’’ into
the definition of ‘‘savings deposit.’’
Thus, any deposit that permitted up to
six preauthorized, automatic, or
telephonic transfers or withdrawals,
including not more than three transfers
made by check, debit card, or similar
third-party order, was classified under
Regulation D as a ‘‘savings deposit.’’
B. Proposed Amendment Eliminating
‘‘Three’’ Limit
Depository institutions have
identified the six-three distinction in
Regulation D as a regulatory burden in
various contexts, as distinctions that
have historically been drawn between
‘‘six’’ or ‘‘three’’ transfers or
withdrawals are overtaken by
developments in payments technology.
In light of the foregoing, the Board
believes it would now be appropriate to
amend Regulation D to do away with
the sublimit of three that applies to
checks and drafts and simply limit all
‘‘convenient’’ transfers to not more than
six per month.5 Eliminating the ‘‘sixthree distinction’’ and replacing it with
a simpler ‘‘six-per-month’’ rule for all
types of ‘‘convenient’’ transfers or
withdrawals from savings deposits
would reduce some aspects of the
current limitations that are burdensome
to the private sector and that may
interfere with the broader use and
acceptance of developing electronic
payments technologies.
A ‘‘six-per-month’’ rule could result
in a slight decrease in aggregate
transaction account balances, as those
accounts that permit more than three
but less than six transfers by check or
debit card per month would shift from
their current classification as
‘‘transaction accounts’’ to ‘‘savings
deposits.’’ The extent of such a
decrease, if any, is difficult to predict
given the lack of data on the distribution
of frequency of withdrawals and
transfers from various accounts. The net
effects, however, seem unlikely to be
large.
IV. Other Proposed Amendments
A. Harmonization With Existing Usage
or Staff Guidance
Certain proposed amendments would
amend definitions of existing terms to
harmonize them with existing usage,
practice, or staff guidance. For example,
5 12 CFR 204.2(d)(2) (definition of ‘‘savings
deposit’’).

E:\FR\FM\12FEP1.SGM

12FEP1

Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules
the proposed amendments would add
new provisions to the definition of
‘‘vault cash’’ in § 204.2(k) in order to
incorporate the substance of numerous
staff opinions that explain the
circumstances under which vault cash
held at ATMs and in other arrangements
can qualify as ‘‘vault cash’’ for purposes
of meeting reserve requirements. Also,
the proposed amendments would also
clarify the definition of ‘‘time deposit’’
in § 204.2(c) to incorporate staff
guidance that has been issued over the
years in response to numerous inquiries
about the meaning of ‘‘additional’’ early
withdrawal penalties and when such
penalties must be imposed.
B. Reorganization of Reporting,
Computation, and Maintenance
Provisions
The remaining proposed amendments
would reorganize the existing
provisions of Regulation D relating to
deposit reporting and to the
computation and maintenance of
required reserves. These proposed
amendments would split the existing
provisions on these subjects in current
§ 204.3 into three separate sections.
First, the provisions related to
submitting reports of deposits would be
set forth in proposed § 204.3. Second,
the provisions relating to computation
of required reserves would be set forth
in proposed § 204.4. Third, the
provisions relating to maintenance of
required reserves would be set forth in
proposed § 204.5. In addition, the
proposed amendments would move the
reserve requirement ratio provisions of
current § 204.9 into the proposed
separate section relating to computation
of required reserves (proposed § 204.4).
Finally, the proposed amendments renumber the provisions of the regulation
relating to transitional adjustments,
emergency reserves, and supplemental
reserves in order to reflect the creation
of three separate sections out of current
§ 204.3.

hsrobinson on PROD1PC76 with PROPOSALS-1

V. Section-By-Section Analysis
Section 204.2(c)(1) Definition of ‘‘Time
Deposit’’
The Board proposes to amend the
definition of ‘‘time deposit’’ to clarify
the application of early withdrawal
penalties when there has been more
than one partial early withdrawal from
a time deposit. Current § 204.2(c)(1)
provides that an early withdrawal
penalty must be charged on any amount
withdrawn from a time deposit ‘‘from
within six days after the date of
deposit.’’ The definition contemplates
that an early withdrawal might be an
early withdrawal of the entire deposit

VerDate Aug<31>2005

17:05 Feb 11, 2008

Jkt 214001

amount or of a partial withdrawal, that
is, a withdrawal of some amount that is
not the entire deposit amount. In either
case, if part or all of the time deposit is
withdrawn within six days after the date
of the initial deposit, the specified early
withdrawal penalty must be imposed on
the amount so withdrawn.
The current definition further states
that ‘‘[a] time deposit from which partial
early withdrawals are permitted must
impose additional early withdrawal
penalties of at least seven days’ simple
interest on amounts withdrawn within
six days after each partial withdrawal.’’
This provision has led to numerous
inquiries about the meaning of the terms
‘‘additional’’ and ‘‘early’’ in this
provision.6 The Board intends to clarify
that withdrawals cannot be made more
frequently than every seven days from a
deposit that is classified as a ‘‘time
deposit’’ unless a penalty of at least
seven days’’ simple interest is charged
on amounts so withdrawn. Accordingly,
the Board proposes to amend the
definition to remove the references to
‘‘early’’ and ‘‘additional’’ in the second
sentence of the definition and to clarify
that ‘‘early’’ withdrawals, when made
other than in the first six days, are
withdrawals that are within six days of
the last withdrawal.
Section 204.2(d)(2) Definition of
‘‘Savings Deposit’’
As explained in III.A.–III.B., supra,
The Board proposes to amend the
definition of ‘‘savings deposit’’ to
eliminate the provision limiting certain
kinds of transfers from savings deposits
to not more than three per month. As a
result, all kinds of transfers and
withdrawals from a savings deposit that
must be limited in number per month
would be subject to the same numeric
limitation of nor more than six per
month.
Section 204.2(k) Definition of ‘‘Vault
Cash’’
The Board proposes to amend the
definition of ‘‘vault cash’’ to incorporate
the substance of prior written staff
guidance on when currency and coin
that is not held at a physical location of
the depository institution 7 may count as
‘‘vault cash.’’ The proposed
6 E.g., whether two penalties (an ‘‘early
withdrawal penalty’’ and an ‘‘additional early
withdrawal penalty’’) must be charged on any
partial early withdrawal; whether one penalty must
be charged on a partial early withdrawal within the
first six days of the deposit but two must be charged
on subsequent partial early withdrawals; the
meaning of ‘‘early withdrawal’’ as applied to a
partial withdrawal made some time other than
within the first six days, etc.
7 See, e.g., See FRRS ¶ 2–307.2 (rented vault);
Staff Opinion of Aug. 9, 1982 (ATMs).

PO 00000

Frm 00003

Fmt 4702

Sfmt 4702

8011

amendments divide the definition of
‘‘vault cash’’ into two subsections: one
dealing with vault cash ‘‘held at a
physical location of the depository
institution * * * from which the
institution’s depositors may make cash
withdrawals;’’ and the other dealing
with vault cash ‘‘held at an alternate
physical location.’’ The proposed
amendments expand primarily the
second proposed subsection to
incorporate prior guidance.
From 1917 to 1959, the Act permitted
member banks to satisfy reserve
requirements exclusively with balances
in their accounts at Federal Reserve
Banks. In 1959, Congress amended
Section 19 of the Act to provide that the
Board, ‘‘under such regulations as it
may prescribe, may permit member
banks to count all or part of their
currency and coin as reserves required
under this section.’’ 8 The 1959
legislation was intended ‘‘to remove
some generally recognized inequities
that now exist in the structure of reserve
requirements applicable to member
banks * * *.’’ 9 Specifically, the
legislative history recognized that
currency and coin in a member bank’s
vault and a balance in a member bank’s
account at a Federal Reserve Bank were
‘‘interchangeable’’ as liabilities of the
Reserve Banks.10 For operational
reasons, however, ‘‘country banks’’
generally found it necessary to hold
more currency and coin in their vaults
than did ‘‘reserve city banks’’ or
‘‘central reserve city banks.’’ 11 Between
1959 and 1960, the Board promulgated
a series of amendments to Regulation D
that phased in the ability of member
banks to count all of their currency and
coin in satisfying reserve requirements.
In 1970, the Board issued an
interpretation of Regulation D relating to
the eligibility of currency or coin held
principally for numismatic value to
satisfy member bank reserve
requirements.12 The Board was
concerned that permitting silver coin to
count towards reserve requirements
could encourage speculation in silver;
specifically, that the banks were holding
either for their own accounts with the
expectation of earning a premium over
face value, or were holding under
written or oral agreements with specific
customers whereby the customers
retained the right to or an option on
8 Act

of July 28, 1959 (73 Stat. 263).
Rep. No. 86–195, at 1 (1959); H. Rep. No. 86–
403, at 3 (1959).
10 S. Rep. No. 86–195, at 3 (1959); H. Rep. No. 86–
403, at 3 (1959).
11 S. Rep. No. 86–195, at 3 (1959); H. Rep. No. 86–
403, at 3 (1959).
12 Former 12 CFR 204.116 (1979).
9 S.

E:\FR\FM\12FEP1.SGM

12FEP1

8012

Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules

those coins.13 Accordingly, the Board
specified in the 1970 interpretation that
in order for a member bank to count
currency or coin towards reserve
requirements, the member bank must
have ‘‘the full and unrestricted right to
use [such currency or coin] at any time
to meet depositors’ claims * * *.’’ 14
The 1970 interpretation also specified
that a bank does not have such a ‘‘full
and unrestricted right’’ if the bank is
prevented, legally or practically * * *
from using the currency or coin at any
time to meet customer’s demands.’’ 15
The 1970 interpretation further
specified that when assessing
arrangements with respect to such
currency and coin, ‘‘[a]n agreement
between the bank and its customer that
the currency or coin is to be regarded as
‘owned’ by the bank for purposes of
reserve requirements is not
determinative. Whether currency or
coin may be counted as reserves
depends on the underlying nature of the
transaction * * *.’’ 16
The 1980 Regulation D amendments
implementing the Monetary Control Act
of 1980 introduced the term ‘‘vault
cash’’ as a defined term. The 1980
amendments defined ‘‘vault cash’’ to
mean ‘‘currency and coin owned and
held by a depository institution that
may, at any time, be used to satisfy
depositors’ claims,’’ incorporating into
the new definition the principles of
bank ownership and availability at any
time to satisfy depositors’ claims from
the 1970 interpretation. Subsequent
Board guidance and staff opinions
provided additional clarification of
these requirements.
For example, vault cash ‘‘owned and
held’’ by the depository institution was
further clarified to include the
requirements that (A) the depository
institution claiming the currency or coin
in question as ‘‘vault cash’’ must book
the currency or coin as an asset,17 and
that (B) no other institution may claim
the currency and coin towards satisfying
its reserve requirements.18 The ability to
use vault cash ‘‘at any time * * * to
satisfy depositor’s claims’’ was initially
viewed as requiring the currency or coin
to be ‘‘immediately’’ available for that
purpose to the bank or a branch of the
bank.19 For currency and coin to be
‘‘immediately available,’’ subsequent

staff opinions specified that it be
‘‘reasonably nearby’’ a physical location
(from which depositors may make cash
withdrawals) of the institution claiming
the vault cash towards satisfying reserve
requirements.20 To be ‘‘reasonably
nearby,’’ in turn, staff believed that a
depository institution customer who
demanded cash at the beginning of a
banking day should be able to receive
that cash in satisfaction of his or her
demand before the close of business on
the same calendar day. Accordingly,
staff opined that a depository institution
must be able to recall the currency and
coin in question from the remote
location by not later than 4 p.m. if the
recall is requested by 10 a.m. on the
same calendar day for the currency and
coin to constitute ‘‘vault cash.’’ Staff
guidance further clarified that
depository institutions must establish
the ability to recall ‘‘vault cash’’ within
the specified time frame by having in
place a written cash delivery plan
(together with written contractual
arrangements necessary to implement
the plan) that permits recall of the
‘‘vault cash’’ to the depository
institution relying solely on ground
transportation.
The proposed amendments would
incorporate all of the foregoing
clarifications and requirements into six
new subsections applicable to ‘‘vault
cash’’ held ‘‘at an alternate physical
location’’ of the depository institution
claiming the currency or coin in
question towards satisfying its reserve
requirements.21 Finally, the proposed
amendments re-number current
§ 204.2(k)(2)–(3) to 204.2(k)(3)–(4), to
take into account the new proposed
§§ 204.2(k)(1)–(2). The substance of
those provisions, however, is
unchanged by the proposed
amendments.
Section 204.2(l) Definition of ‘‘Passthrough Account’’
The Board proposes to amend the
definition of ‘‘pass-through account’’ to
eliminate the language restricting passthrough account arrangements to nonmember banks. The proposed
amendments would also move the
provisions relating to pass-through
accounts currently set forth in § 204.3(i)
20 See

hsrobinson on PROD1PC76 with PROPOSALS-1

13 35
14 Id.
15 Id.
16 Id.

17 See, e.g., F.R.R.S. ¶ 2–306.9; Staff Op. of Aug.
9, 1982.
18 See, e.g., F.R.R.S. ¶ 2–307.2; Staff Op. of Aug.
9, 1982.
19 See FRRS ¶ 2–306.9; Staff Opinion of Aug. 9,
1982.

VerDate Aug<31>2005

17:05 Feb 11, 2008

FRRS ¶ 2–307.2.
proposed amendments do not include the
‘‘legitimate business purpose’’ specification from
written staff guidance on vault cash held in
alternate physical locations (see, e.g., FRRS ¶ 2–
365.2), The Board believes that full compliance
with the other five specifications proposed to be
incorporated into the definition should ordinarily
suffice to establish the legitimacy of the
arrangement. The Board requests comment on
whether this specification should be included in
the definition of ‘‘vault cash.’’
21 The

FR 18957 (Dec. 15, 1970).

Jkt 214001

PO 00000

Frm 00004

Fmt 4702

Sfmt 4702

to a new § 204.5(d), ‘‘Maintenance of
Required Reserves,’’ discussed infra.
Section 204.2(v) Definition of
‘‘Clearing Balance Allowance’’
The proposed amendments would
add a new definition of ‘‘clearing
balance allowance’’ to Regulation D.
The term replaces the undefined term
‘‘required charge-free band’’ that
appears twice in current § 204.3(h)
(concerning carryovers of excess
reserves or deficiencies in reserves)
because that term is no longer used in
current practice. The proposed
amendments would also move the
existing carryover provisions in current
§ 204.3(h) to a new paragraph (e) under
proposed § 204.5, ‘‘Maintenance of
Required Reserves,’’ discussed infra.
Section 204.2(w) Definition of
‘‘Contractual Clearing Balance’’
The proposed amendments would
add a new definition of ‘‘contractual
clearing balance’’ to Regulation D. The
term replaces the undefined term
‘‘required clearing balance’’ in current
§ 204.3(h) because the term ‘‘contractual
clearing balance’’ is more commonly
used and more accurately describes the
relationship created thereby.
Section 204.3 Reporting and Location
Current § 204.3 of Regulation D sets
forth the regulatory provisions
governing the calculation of required
reserves, the maintenance of required
reserves, and the submission of reports
of deposits (from which required
reserves are calculated). The Board
proposes to re-organize these provisions
into three separate subsections that
address these issues in their
chronological order: the submission of
reports of deposits, the calculation of
required reserves based on those reports
of deposits, and the subsequent
maintenance of required reserves based
on the calculation of required reserves.
The proposed amendments are not
intended to make substantive changes to
these provisions, but rather are intended
to re-organize them for greater ease of
reference and to make minor editorial
changes for clarity.
The first of the proposed three new
paragraphs, proposed § 204.3,
incorporates the existing regulatory
provisions relating to submission of
reports of deposits, including provisions
on determining the location of the
reporting institution for deposit
reporting and reserves maintenance
purposes.22 The proposed amendments
would also include in this paragraph
22 Current subsections 204.3(a)(1) last sentence,
204.3(a)(2), and 204.3(b)(2).

E:\FR\FM\12FEP1.SGM

12FEP1

hsrobinson on PROD1PC76 with PROPOSALS-1

Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules
regulatory provisions regarding the
allocation of the low reserve tranche
among related depository institutions 23
and regarding overdrafts in related
transaction accounts 24 because these
provisions must be applied in
determining the appropriate levels of
deposits to report.
Proposed § 204.3(a) consists of the
text of the first sentence of current
§ 204.3(a)(2)(i), with two proposed
amendments. The first proposed
amendment would clarify the authority
of the Board or a Federal Reserve Bank
to require reports of deposits or any
other form or statement from a
depository institution relating to reserve
requirements. The second proposed
amendment would clarify where reports
of deposits are to be submitted in light
of the account location provisions of the
regulation.
Proposed § 204.3(b) sets forth without
change the text of the second sentence
of current § 204.3(a)(2)(i).
Proposed § 204.3(c) sets forth without
change the text of the third (and last)
sentence of current § 204.3(a)(1).
Proposed § 204.3(d) sets forth, with
one change, the text of current
§ 204.3(a)(3). The one change would
conform the section number reference to
the reserve requirement ratios that are
currently set forth in § 204.9 but would
be moved to proposed § 204.4(f) in the
proposed amendments.
No changes are proposed to current
§ 204.3(e), dealing with computation of
transaction accounts for deposit
reporting purposes.
Proposed § 204.3(g) sets forth, with
two amendments, the text of current
§ 204.3(b)(2). The first amendment
would provide that a depository
institution may be considered to be
located at the location specified in the
institution’s articles of incorporation or
as specified by the institution’s primary
regulator. The Board proposes this
amendment in light of the fact that an
institution may move its head office or
primary location from that specified in
its charter or organizing certificate, but
that the charter or organizing certificate
may not reflect that move. In such cases,
the move instead may be reflected in the
institution’s revised articles of
incorporation or otherwise as
recognized by the institution’s primary
regulator. The second amendment
would conform the internal references
to §§ 204.3(b)(2)(i) and 204.3(b)(2)(ii) to
§§ 204.3(g)(1) and 204.3(g)(2),
respectively.
23 Current
24 Current

§ 204.3(a)(3).
§ 204.3(e).

VerDate Aug<31>2005

17:05 Feb 11, 2008

Jkt 214001

Section 204.4 Computation of
Required Reserves
The Board proposes to move the
provisions relating to computation of
required reserves from where they
appear in current §§ 204.3(c), 204.3(d),
and 204.3(f) to a new separate
paragraph, proposed § 204.4,
‘‘Computation of Required Reserves.’’
No substantive changes are intended.
Proposed § 204.4(a) sets forth, without
change, the text of current § 204.3(f)(1).
Proposed § 204.4(b) sets forth, without
change, the text of current § 204.3(f)(2).
Proposed § 204.4(c) sets forth, without
change, the text of current § 204.3(f)(3).
Proposed §§ 204.4(d) and 204.4(e) set
forth the text of current § 204.3(c)(1) and
the first sentence of § 204.3,
respectively, with editorial amendments
for clarity.
Proposed § 204.4(f) sets forth the text
of the second sentence of current
§ 204.3(c)(1), with editorial amendments
for clarity. Proposed § 204.4(f) also
incorporates, with editorial
amendments for clarity, the table of
reserve requirements ratios currently set
forth in § 204.9 so that all regulatory
provisions relating to computation of
required reserves are located in the
same section.
Section 204.5 Maintenance of
Required Reserves
The Board proposes to move the
existing provisions regarding
maintenance of required reserves,
including the provisions on
maintenance of required reserves
pursuant to pass-through agreements, to
a new § 204.5, ‘‘Maintenance of
Required Reserves.’’ No substantive
changes are intended.
Proposed § 204.5(a)(1) sets forth the
text of current § 204.3(b)(1) with various
amendments. First, the amendments
would delete the reference to ‘‘nonmember institutions’’ in discussing
pass-through arrangements. Second, the
amendments would update the language
(e.g., ‘‘maintain required reserves’’
rather than ‘‘hold reserves’’) for
consistency with current usage. Third,
the amendments would conform the
numeric reference from current
§ 204.3(i) to proposed § 204.5(d) for the
regulatory provisions on pass-through
arrangements.
Proposed § 204.5(a)(2) sets forth the
text of current § 204.3(i)(3)(i) with
editorial amendments for clarity.
Proposed § 204.5(b)(1) sets forth the
text of current § 204.3(c)(2) with
editorial amendments for clarity.
Proposed § 204.5(b)(2) sets forth the
text of the first and third sentences of
current § 204.3(d) with editorial
amendments for clarity.

PO 00000

Frm 00005

Fmt 4702

Sfmt 4702

8013

Proposed § 204.5(c) sets forth the text
of current § 204.3(g) with an amendment
to conform the name of the Board’s
Regulation J (12 CFR Part 210) to the
current version of the regulation.
Proposed § 204.5(d) sets forth the
regulatory provisions for ‘‘pass-through
accounts’’ in current § 204.3(i), dividing
them into four new paragraphs,
proposed §§ 204.5(d)(1) through
204.5(d)(4). Proposed § 204.5(d)(1) sets
forth the text from current
§ 204.3(i)(1)(i) with various
amendments. First, the amendments
would delete the reference to
‘‘nonmember’’ depository institutions,
since pass-through arrangements are no
longer statutorily restricted to
nonmember depository institutions.
Second, the amendments would clarify
that depository institutions whose
required reserve balances are zero may
serve as pass-through correspondents.
Third, the amendments conform the
internal references to section numbers
and make other editorial changes for
clarity.
Proposed § 204.5(d)(2) sets forth,
without change, the text from current
§ 204.3(i)(1)(ii).
Proposed § 204.5(d)(3) sets forth the
text of current § 204.3(i)(2), with an
amendment to delete the obsolete
reference to Reserve Bank permission
for alternate account locations.
Determination of account location is
addressed in current § 204.3(b)
(proposed § 204.3(g)).
Proposed § 204.5(d)(4) sets forth, in
four new subsections, the text of current
§§ 204.3(i)(3)(ii)–(v). Proposed
§ 204.5(d)(4)(A) sets forth the text of
current § 204.3(i)(3)(ii) with an
amendment deleting the reference to
more than one depository institution
account at a Federal Reserve Bank.
Proposed §§ 204.5(d)(4)(B) and
204.5(d)(4)(C) set forth, without change,
the text of current §§ 204.3(i)(3)(iii) and
204.3(i)(3)(iv), respectively. Proposed
§ 204.5(d)(4)(D) sets forth the text of
current § 204.3(i)(3)(v) with an
amendment conforming the section
number reference to the supplemental
reserves provisions of the regulation
(current § 204.6, proposed § 204.10).
Proposed § 204.5(e) sets forth the text
of current § 204.3(h), with amendments
deleting obsolete references to ‘‘required
clearing balance’’ and to ‘‘required
charge-free band.’’ Other editorial
amendments are made for clarity.
Section 204.6 Charges for Reserve
Deficiencies
The Board proposes to move the
existing provisions regarding charges for
reserve deficiencies from current § 204.7
to proposed § 204.6 and to revise the

E:\FR\FM\12FEP1.SGM

12FEP1

8014

Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules

current caption of the section (from
‘‘Penalties’’ to ‘‘Charges for Reserve
Deficiencies’’). The four proposed
sections in proposed § 204.6 set forth
the text of current § 204.7, deleting
provisions describing guidelines for
waivers by Reserve Banks of small
charges. The Board believes that the
deletion of this material is appropriate
because it describes only in part the
extent of the discretion of the Reserve
Banks in this regard and to avoid the
implication that Reserve Banks must
waive charges in certain of the cases
described.
Section 204.7 Transitional
Adjustments in Mergers
The Board proposes to re-designate
the provision from current § 204.4 to
proposed § 204.7. No other changes to
the section are proposed.
Section 204.8
Facilities

International Banking

No changes are proposed to § 204.8.
Section 204.9
Requirement

Emergency Reserve

The Board proposes to re-designate
the provision from current § 204.5 to
proposed § 204.9. No other changes to
the section are proposed.
Section 204.10
Requirement

Supplemental Reserve

The Board proposes to re-designate
the provision from current § 204.6 to
proposed § 204.10. No other changes to
the section are proposed.

hsrobinson on PROD1PC76 with PROPOSALS-1

Regulation I Section 209.2(c)(1)
Location of Bank—General Rule
The Board proposes to amend this
provision of Regulation I to conform it
to the proposed § 204.3(g) of Regulation
D, discussed supra. Specifically, the
amendment would provide that a
depository institution may be
considered to be located at the location
specified in the institution’s articles of
incorporation or as specified by the
institution’s primary regulator. The
Board proposes this amendment in light
of the fact that an institution may move
its head office or primary location from
that specified in its charter or organizing
certificate, but that the charter or
organizing certificate may not reflect
that move. In such cases, the move
instead may be reflected in the
institution’s revised articles of
incorporation or otherwise as
recognized by the institution’s primary
regulator.
VI. Form of Comment Letters
Comment letters should refer to
Docket No. R-ll and, when possible,

VerDate Aug<31>2005

17:05 Feb 11, 2008

Jkt 214001

should use a standard typeface with a
font size of 10 or 12; this will enable the
Board to convert text submitted in paper
form to machine-readable form through
electronic scanning, and will facilitate
automated retrieval of comments for
review. Comments may be mailed
electronically to
regs.comments@federalreserve.gov.
VII. Solicitation of Comments
Regarding Use of ‘‘Plain Language’’
Section 722 of the Gramm-LeachBliley Act of 1999 requires the Board to
use ‘‘plain language’’ in all proposed
and final rules published after January
1, 2000. The Board invites comments on
whether the proposed rule is clearly
stated and effectively organized, and
how the Board might make the proposed
text easier to understand.
VIII. Initial Regulatory Flexibility
Analysis
In accordance with Section 3(a) of the
Regulatory Flexibility Act (RFA) (5
U.S.C. 601, et seq.), the Board has
reviewed the proposed amendments to
Regulation D and Regulation I. A final
regulatory flexibility analysis will be
conducted after consideration of
comments received during the public
comment period.
1. Statement of the objectives of the
proposal. The Board is proposing to
amend Regulation D and Regulation I in
order to conform the regulation to the
provisions of the Financial Services
Regulatory Relief Act of 2006, to
modernize the regulation in light of
technological developments, to reduce
regulatory burden, and to simplify
regulatory compliance. Section 19 of the
Act was enacted to impose reserve
requirements on certain deposits and
other liabilities of depository
institutions for monetary policy
purposes. Section 19 also authorizes the
Board to promulgate such regulations as
it may deem necessary to effectuate the
purposes of the section. The Board
believes that the proposed amendment
to Regulation D is within the Congress’
broad grant of authority to the Board to
adopt provisions that carry out the
purposes of Section 19 of the Act.
2. Small entities affected by the
proposal. The proposal would affect all
depository institutions that are currently
subject to transaction account reserve
requirements. The Board estimates that
there are currently approximately 8,195
depository institutions that are subject
to transaction account reserve
requirements. The Board estimates that
approximately 3,800 of these
institutions could be considered small
entities with assets of $165 million or
less. The proposed rule, if adopted, may

PO 00000

Frm 00006

Fmt 4702

Sfmt 4702

reduce the level of reservable
transaction account balances for all
depository institutions because ‘‘savings
deposits’’ that previously permitted
more than three but less than six
‘‘convenient’’ transfers would be
classified as nonreservable ‘‘savings
deposits’’ under the proposed rule, but
are currently classified as reservable
‘‘transaction accounts.’’
3. Other federal rules. The Board
believes that no federal rules duplicate,
overlap, or conflict with the proposed
revisions to the Interpretation.
4. Significant alternatives to the
proposed revisions. The Board
welcomes comment on any significant
alternatives that would minimize the
impact of the proposed rule on small
entities.
IX. Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act (PRA) of 1995 (44 U.S.C.
3506; 5 CFR part 1320 Appendix A.1),
the Board reviewed the proposed rule
under the authority delegated to the
Board by the Office of Management and
Budget (OMB). The proposed rule
contains no requirements subject to the
PRA.
Test of Proposed Revisions
Certain conventions have been used
to highlight the proposed revisions.
New language is shown inside arrows
while language that would be deleted is
set off with brackets.
List of Subjects in 12 CFR Parts 204 and
209
Banks, Banking, Reporting and
recordkeeping requirements.
For the reasons set forth in the
preamble, the Board proposes to amend
12 CFR parts 204 and 209 as follows:
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 204.2 is amended by
revising paragraphs I(1)(i) introductory
text, (d)(2), (k) and (l), and adding new
paragraphs (v) and (w) to read as
follows:
§ 204.2

Definitions.

*

*
*
*
*
(c) * * *
(1) * * *
(i) A deposit [that] flfrom whichfi
the depositor does not have a right and
is not permitted to make withdrawals
[from] within six days after the date of

E:\FR\FM\12FEP1.SGM

12FEP1

Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules

hsrobinson on PROD1PC76 with PROPOSALS-1

deposit unless the deposit is subject to
an early withdrawal penalty of at least
seven days’ simple interest on amounts
withdrawn within the first six days after
deposit.1 A time deposit from which
partial [early] withdrawals are permitted
flwithin six days after the date of the
last withdrawalfi must impose
[additional] early withdrawal penalties
of at least seven days’ simple interest on
amounts flsofi withdrawn [within six
days after each partial withdrawal]. If
[such additional] early withdrawal
penalties are not imposed, the account
ceases to be a time deposit. The account
may become a savings deposit if it meets
the requirements for a saving deposit;
otherwise it becomes a transaction
account. Time deposit includes funds—
*
*
*
*
*
(d) * * *
(2) The term savings deposit also
means: A deposit or account, such as an
account commonly known as a
passbook savings account, a statement
savings account, or as a money market
deposit account (MMDA), that
otherwise meets the requirements of
§ 204.2(d)(1) and from which, under the
terms of the deposit contract or by
practice of the depository institution,
the depositor is permitted or authorized
to make no more than six transfers and
withdrawals, or a combination of such
1 A time deposit, or a portion thereof, may be paid
during the period when an early withdrawal
penalty would otherwise be required under this
part without imposing an early withdrawal penalty
specified by this part:
(a) Where the time deposit is maintained in an
individual retirement account established in
accordance with 26 U.S.C. 408 and is paid within
seven days after establishment of the individual
retirement account pursuant to 26 CFR 1.408–
6(d)(4), where it is maintained in a Keogh (H.R. 10)
plan, or where it is maintained in a 401(k) plan
under 26 U.S.C. 401(k); Provided that the depositor
forfeits an amount at least equal to the simple
interest earned on the amount withdrawn;
(b) Where the depository institution pays all or
a portion of a time deposit representing funds
contributed to an individual retirement account or
a Keogh (H.R. 10) plan established pursuant to 26
U.S.C. 408 or 26 U.S.C. 401 or to a 401(k) plan
established pursuant to 26 U.S.C. 401(k) when the
individual for whose benefit the account is
maintained attains age 591⁄2 or is disabled (as
defined in 26 U.S.C. 72(m)(7)) or thereafter;
(c) Where the depository institution pays that
portion of a time deposit on which federal deposit
insurance has been lost as a result of the merger of
two or more federally insured banks in which the
depositor previously maintained separate time
deposits, for a period of one year from the date of
the merger;
(d) Upon the death of any owner of the time
deposit funds;
(e) When any owner of the time deposit is
determined to be legally incompetent by a court or
other administrative body of competent
jurisdiction; or
(f) Where a time deposit is withdrawn within 10
days after a specified maturity date even though the
deposit contract provided for automatic renewal at
the maturity date.

VerDate Aug<31>2005

17:05 Feb 11, 2008

Jkt 214001

transfers and withdrawals, per calendar
month or statement cycle (or similar
period) of at least four weeks, to another
account (including a transaction
account) of the depositor at the same
institution or to a third party by means
of a preauthorized or automatic transfer,
or telephonic (including data
transmission) agreement, order or
instruction, [and no more than three of
the six such transfers may be made]
florfi by check, draft, debit card, or
similar order made by the depositor and
payable to third parties. A
preauthorized transfer includes any
arrangement by the depository
institution to pay a third party from the
account of a depositor upon written or
oral instruction (including an order
received through an automated clearing
house (ACH)) or any arrangement by a
depository institution to pay a third
party from the account of the depositor
at a predetermined time or on a fixed
schedule. Such an account is not a
transaction account by virtue of an
arrangement that permits transfers for
the purpose of repaying loans and
associated expenses at the same
depository institution (as originator or
servicer) or that permits transfers of
funds from this account to another
account of the same depositor at the
same institution or permits withdrawals
(payments directly to the depositor)
from the account when such transfers or
withdrawals are made by mail,
messenger, automated teller machine, or
in person or when such withdrawals are
made by telephone (via check mailed to
the depositor) regardless of the number
of such transfers or withdrawals.4
*
*
*
*
*
(k)(1) Vault cash means United States
currency and coin owned and [held]
4 In order to ensure that no more than the
permitted number of withdrawals or transfers are
made, for an account to come within the
[definitions in paragraph (d)(2) of this section,]
fldefinition of ‘‘savings deposit,’’fi a depository
institution must either:
(a) Prevent withdrawals or transfers of funds from
this account that are in excess of the limits
established by paragraph (d)(2) of this section, or
(b) Adopt procedures to monitor those transfers
on an ex post basis and contact customers who
exceed the established limits on more than
occasional basis. For customers who continue to
violate those limits after they have been contacted
by the depository institution, the depository
institution must either close the account and place
the funds in another account that the depositor is
eligible to maintain or take away the transfer and
draft capacities of the account. An account that
authorizes withdrawals or transfers in excess of the
permitted number is a transaction account
regardless of whether the authorized number of
transactions are actually made. For accounts
described in paragraph (d)(2) of this section, the
institution at its option may use, on a consistent
basis, either the date on the check, draft, or similar
item, or the date the item is paid in applying the
limits imposed by that section.

PO 00000

Frm 00007

Fmt 4702

Sfmt 4702

8015

flbooked as an assetfi by a depository
institution that may, at any time, be
used to satisfy [depositors’] claims flof
that depository institution’s depositors
and that meets the requirements of
paragraph (k)(2)(i) or (k)(2)(ii) of this
sectionfi.
(2) Vault cash flmust be either:
(i) Held at a physical location of the
depository institution (including the
depository institution’s proprietary
ATMs) from which the institution’s
depositors may make cash withdrawals;
or
(ii) Held at an alternate physical
location if—
(A) The depository institution
claiming the currency and coin as vault
cash at all times retains full rights of
ownership in and to the currency and
coin held at the alternate physical
location;
(B) The depository institution
claiming the currency and coin as vault
cash at all times books the currency and
coin held at the alternate physical
location as an asset of the depository
institution;
(C) No other depository institution
claims the currency and coin held at the
alternate physical location as vault cash
in satisfaction of that other depository
institution’s reserve requirements;
(D) The currency and coin held at the
alternate physical location is reasonably
nearby a location of the depository
institution claiming the currency and
coin as vault cash at which its
depositors may make cash withdrawals
(an alternate physical location is
considered ‘‘reasonably nearby’’ if the
depository institution that claims the
currency and coin as vault cash can
recall the currency and coin from the
alternate physical location by 10 a.m.
and, relying solely on ground
transportation, receive the currency and
coin not later than 4 p.m. on the same
calendar day at a location of the
depository institution at which its
depositors may make cash withdrawals);
and
(E) The depository institution
claiming the currency and coin as vault
cash has in place a written cash delivery
plan, and written contractual
arrangements necessary to implement
that plan, that demonstrate that the
currency and coin can be recalled and
received in accordance with the
requirements of paragraph (k)(2)(ii)(D)
of this section at any time. The
depository institution shall provide
copies of the written cash delivery plan
and written contractual arrangements to
the Federal Reserve Bank that holds its
account or to the Board upon request.
(3) Vault cashfi includes United
States currency and coin in transit to a

E:\FR\FM\12FEP1.SGM

12FEP1

8016

Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules

Federal Reserve Bank or a
correspondent depository institution for
which the reporting depository
institution has not yet received credit,
and United States currency and coin in
transit from a Federal Reserve Bank or
a correspondent depository institution
when the reporting depository
institution’s account at the Federal
Reserve or correspondent bank has been
charged for such shipment.
[(3)] fl(4)fi Silver and gold coin and
other currency and coin whose
numismatic or bullion value is
substantially in excess of face value is
not vault cash for purposes of this part.
(l) Pass-through account means a
balance maintained by a depository
institution flwith a correspondent
institution under § 204.5(d)fi [a balance
maintained by a depository institution
that is not a member bank, by a U.S.
branch or agency of a foreign bank, or
by an Edge or Agreement Corporation,
(1) in an institution that maintains
required reserve balances at a Federal
Reserve Bank, (2) in a Federal Home
Loan Bank, (3) in the National Credit
Union Administration Central Liquidity
Facility, or (4) in an institution that has
been authorized by the Board to pass
through required reserve balances if the
institution, Federal Home Loan Bank, or
National Credit Union Administration
Central Liquidity Facility maintains the
funds in the form of a balance in a
Federal Reserve Bank of which it is a
member or at which it maintains an
account in accordance with rules and
regulations of the Board].
*
*
*
*
*
fl(v) Clearing balance allowance
means the greater of $25,000 or two
percent of an institution’s contractual
clearing balance.
(w) Contractual clearing balance
means an amount that a depository
institution agrees or is required to
maintain in its account at a Federal
Reserve Bank in addition to balances the
depository institution may hold to
satisfy its required reserve balance. A
depository institution that has a
required reserve balance of zero may
still hold a contractual clearing
balance.fi
3. Amend § 204.3 by revising the
heading and paragraphs (a) through (d),
(f), and (g) to read as follows:
hsrobinson on PROD1PC76 with PROPOSALS-1

§ 204.3

Reporting and location.

(a) Every depository institution, U.S.
branch or agency of a foreign bank, and
Edge or Agreement corporation shall file
a report of deposits (or any other form
or statement that may be required by the
Board or by a Federal Reserve Bank)
with the Federal Reserve Bank in the
Federal Reserve District in which it is

VerDate Aug<31>2005

17:05 Feb 11, 2008

Jkt 214001

located, regardless of the manner in
which it chooses to maintain required
reserve balances.
(b) A foreign bank’s U.S. branches and
agencies and an Edge or Agreement
corporation’s offices operating within
the same state and the same Federal
Reserve District shall prepare and file a
report of deposits on an aggregated
basis.
(c) For purposes of this part, the
obligations of a majority-owned (50
percent or more) U.S. subsidiary (except
an Edge or agreement corporation) of a
depository institution shall be regarded
as obligations of the parent depository
institution.
(d) A depository institution, a foreign
bank, or an Edge or Agreement
corporation shall, if possible, assign the
low reserve tranche and reserve
requirement exemption prescribed in
§ 204.4(f) to only one office or to a group
of offices filing a single aggregated
report of deposits. The amount of the
reserve requirement exemption
allocated to an office or group of offices
may not exceed the amount of the low
reserve tranche allocated to such office
or offices. If the low reserve tranche or
reserve requirement exemption cannot
be fully utilized by a single office or by
a group of offices filing a single report
of deposits, the unused portion of the
tranche or exemption may be assigned
to other offices or groups of offices of
the same institution until the amount of
the tranche (or net transaction accounts)
or exemption (or reservable liabilities) is
exhausted. The tranche or exemption
may be reallocated each year concurrent
with implementation of the indexed
tranche and exemption, or, if necessary
during the course of the year to avoid
underutilization of the tranche or
exemption, at the beginning of a reserve
computation period.fi
*
*
*
*
*
fl(f) The Board and the Federal
Reserve Banks will not hold a passthrough correspondent responsible for
guaranteeing the accuracy of the reports
of deposits submitted by its
respondents.
(g)(1) For purposes of this section, a
depository institution, a U.S. branch or
agency of a foreign bank, or an Edge or
Agreement corporation is located in the
Federal Reserve District that contains
the location specified in the institution’s
charter, organizing certificate, license,
or articles of incorporation, or as
specified by the institution’s primary
regulator, or if no such location is
specified, the location of its head office,
unless otherwise determined by the
Board under paragraph (g)(2) of this
section.

PO 00000

Frm 00008

Fmt 4702

Sfmt 4702

(2) If the location specified in
paragraph (g)(1) of this section, in the
Board’s judgment, is ambiguous, would
impede the ability of the Board or the
Federal Reserve Banks to perform their
functions under the Federal Reserve
Act, or would impede the ability of the
institution to operate efficiently, the
Board will determine the Federal
Reserve District in which the institution
is located, after consultation with the
institution and the relevant Federal
Reserve Banks. The relevant Federal
Reserve Banks are the Federal Reserve
Bank whose District contains the
location specified in paragraph (g)(1) of
this section and the Federal Reserve
Bank in whose District the institution is
proposed to be located. In making this
determination, the Board will consider
any applicable laws, the business needs
of the institution, the location of the
institution’s head office, the locations
where the institution performs its
business, and the locations that would
allow the institution, the Board, and the
Federal Reserve Banks to perform their
functions efficiently and effectively.fi
*
*
*
*
*
4. Section 204.7 is removed, § 204.4 is
redesignated as § 204.7, and a new
§ 204.4 is added to read as follows:
§ 204.4

Computation of required reserves.

(a) In determining the reserve balance
required under this part, the amount of
cash items in process of collection and
balances subject to immediate
withdrawal due from other depository
institutions located in the United States
(including such amounts due from
United States branches and agencies of
foreign banks and Edge and agreement
corporations) may be deducted from the
amount of gross transaction accounts.
The amount that may be deducted may
not exceed the amount of gross
transaction accounts.
(b) United States branches and
agencies of a foreign bank may not
deduct balances due from another
United States branch or agency of the
same foreign bank, and United States
offices of an Edge or Agreement
Corporation may not deduct balances
due from another United States office of
the same Edge Corporation.
(c) Balances ‘‘due from other
depository institutions’’ do not include
balances due from Federal Reserve
Banks, pass-through accounts, or
balances (payable in dollars or
otherwise) due from banking offices
located outside the United States. An
institution exercising fiduciary powers
may not include in balances ‘‘due from
other depository institutions’’ amounts
of trust funds deposited with other

E:\FR\FM\12FEP1.SGM

12FEP1

Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules
banks and due to it as a trustee or other
fiduciary.
(d) For institutions that file a report of
deposits weekly, required reserves are
computed on the basis of the
institution’s daily average balances of
deposits and Eurocurrency liabilities
during a 14-day computation period
ending every second Monday.

(e) For institutions that file a report of
deposits quarterly, required reserves are
computed on the basis of the
institution’s daily average balances of
deposits and Eurocurrency liabilities
during the 7-day computation period
that begins on the third Tuesday of
March, June, September, and December.
(f) For all depository institutions,
Edge and agreement corporations, and

United States branches and agencies of
foreign banks, required reserves are
computed by applying the reserve
requirement ratios below to net
transaction accounts, nonpersonal time
deposits, and Eurocurrency liabilities of
the institution during the computation
period.

Reserve
requirement ratio

Reservable liability
NET TRANSACTION ACCOUNTS:
$0 to reserve requirement exemption amount ($9.3 million) ...................................................
Over reserve requirement exemption amount ($9.3 million) and up to low reserve tranche
($43.9 million).
Over low reserve tranche ($43.9 million) .................................................................................

0 percent of amount.
3 percent of amount.

Nonpersonal time deposits .............................................................................................................
Eurocurrency liabilities ....................................................................................................................

$1,038,000 plus 10 percent of amount over
$43.9 million.
0 percent.
0 percent.

reserve balance to be carried with the
Federal Reserve until the expiration of
the time specified in the appropriate
time schedule established under
Regulation J, ‘‘Collection of Checks and
Other Items by Federal Reserve Banks
and Funds Transfers Through Fedwire’’
(12 CFR Part 210). If a depository
institution draws against items before
that time, the charge will be made to its
account if the balance is sufficient to
pay it; any resulting impairment of
reserve balances will be subject to the
penalties provided by law and to the
reserve-deficiency charges provided by
this part. However, the Federal Reserve
Bank may, at its discretion, refuse to
permit the withdrawal or other use of
credit given in an account for any time
for which the Federal Reserve Bank has
not received payment in actually and
finally collected funds.
(d)(1) A depository institution, a U.S.
branch or agency of a foreign bank, or
an Edge or Agreement corporation
required to maintain reserve balances
(‘‘respondent’’) may select only one
pass-through correspondent institution
to pass through its required reserve
balances, unless otherwise permitted by
Federal Reserve Bank in whose District
the respondent is located. Eligible passthrough correspondent institutions are
Federal Home Loan Banks, the National
Credit Union Administration Central
Liquidity Facility, and depository
institutions, U.S. branches or agencies
of foreign banks, and Edge and
Agreement corporations that maintain
required reserve balances, which may be
zero, at a Federal Reserve Bank. In
addition, the Board reserves the right to
permit other institutions, on a case-bycase basis, to serve as pass-through
correspondents. The correspondent

chosen must subsequently pass through
the required reserve balances of its
respondents directly to a Federal
Reserve Bank. The correspondent
placing funds with a Federal Reserve
Bank on behalf of respondents will be
responsible for account maintenance as
described in paragraph (d)(4) of this
section.
(2) Respondents or correspondents
may institute, terminate, or change passthrough agreements for the maintenance
of required reserve balances by
providing all documentation required
for the establishment of the new
agreement or termination of the existing
agreement to the Federal Reserve Banks
involved within the time period
provided for such a change by those
Reserve Banks.
(3) A correspondent that passes
through required reserve balances of
respondents shall maintain such
balances, along with the
correspondent’s own required reserve
balances (if any), in a single
commingled account at the Federal
Reserve Bank in whose District the
correspondent is located. The balances
held by the correspondent in an account
at a Reserve Bank are the property of the
correspondent and represent a liability
of the Reserve Bank solely to the
correspondent, regardless of whether
the funds represent the reserve balances
of another institution that have been
passed through the correspondent.
(4)(i) A pass-through correspondent
shall be responsible for assuring the
maintenance of the appropriate
aggregate level of its respondents’
required reserve balances. A Federal
Reserve Bank will compare the total
reserve balance required to be
maintained with the total actual reserve

5. Section 204.9 is removed, § 204.5 is
redesignated as § 204.9, and a new
§ 204.5 is added to read as follows:
§ 204.5

hsrobinson on PROD1PC76 with PROPOSALS-1

8017

Maintenance of required reserves.

(a)(1) A depository institution, a U.S.
branch or agency of a foreign bank, and
an Edge or agreement corporation shall
maintain required reserves in the form
of vault cash and, if vault cash does not
fully satisfy the institution’s required
reserves, in the form of a balance
maintained
(i) directly with the Federal Reserve
Bank in the Federal Reserve District in
which the institution is located, or
(ii) with a pass-through correspondent
in accordance with § 204.5(d).
(2) Each individual institution subject
to this part is responsible for satisfying
its required reserve balance, if any,
either directly with a Federal Reserve
Bank or through a pass-through
correspondent.
(b)(1) For institutions that file a report
of deposits weekly, the balances that are
required to be maintained with the
Federal Reserve shall be maintained
during a 14-day maintenance period
that begins on the third Thursday
following the end of a given
computation period.
(2) For institutions that file a report of
deposits quarterly, the balances that are
required to be maintained with the
Federal Reserve shall be maintained
during each of the 7-day maintenance
periods during the interval that begins
on the fourth Thursday following the
end of the institution’s computation
period and ends on the fourth
Wednesday after the close of the
institution’s next computation period.
(c) Cash items forwarded to a Federal
Reserve Bank for collection and credit
shall not be counted as part of the

VerDate Aug<31>2005

17:05 Feb 11, 2008

Jkt 214001

PO 00000

Frm 00009

Fmt 4702

Sfmt 4702

E:\FR\FM\12FEP1.SGM

12FEP1

8018

Federal Register / Vol. 73, No. 29 / Tuesday, February 12, 2008 / Proposed Rules

hsrobinson on PROD1PC76 with PROPOSALS-1

balance held in such account for
purposes of determining requiredreserve deficiencies, imposing or
waiving charges for deficiencies in
required reserves, and for other reserve
maintenance purposes. A charge for a
deficiency in the aggregate level of the
required reserve balance will be
imposed by the Reserve Bank on the
correspondent maintaining the account.
(ii) Each correspondent is required to
maintain detailed records for each of its
respondents in a manner that permits
Reserve Banks to determine whether the
respondent has provided a sufficient
required reserve balance to the
correspondent. A correspondent passing
through a respondent’s required reserve
balance shall maintain records and
make such reports as the Board or
Reserve Bank requires in order to ensure
the correspondent’s compliance with its
responsibilities for the maintenance of a
respondent’s reserve balance. Such
records shall be available to the Reserve
Banks as required.
(iii) The Federal Reserve Bank may
terminate any pass-through agreement
under which the correspondent is
deficient in its recordkeeping or other
responsibilities.
(iv) Interest paid on supplemental
reserves (if such reserves are required
under § 204.10) held by a respondent
will be credited to the account
maintained by the correspondent.
(e) Any excess or deficiency in an
institution’s required reserve balance
shall be carried over and applied against
the balance maintained in the next
maintenance period as specified in this
paragraph. The amount of any such
excess or deficiency that is carried over
shall not exceed the greater of:
(1) The amount obtained by
multiplying .04 times the sum of
depository institution’s required
reserves and the depository institution’s
contractual clearing balance, if any, and
then subtracting from this product the
depository institution’s clearing balance
allowance, if any; or
(2) $50,000, minus the depository
institution’s clearing balance allowance,
if any. Any carryover not offset during
the next period may not be carried over
to subsequent periods.fl
6. Section 204.6 is redesignated as
§ 204.10, and a new § 204.6 is added to
read as follows:
ߤ 204.6 Charges for reserve
deficiencies.

(a) Deficiencies in a depository
institution’s required reserve balance,
after application of the carryover
provided in § 204.5(e) are subject
reserve-deficiency charges. Federal
Reserve Banks are authorized to assess

VerDate Aug<31>2005

17:05 Feb 11, 2008

Jkt 214001

charges for deficiencies in required
reserves at a rate of 1 percentage point
per year above the primary credit rate,
as provided in § 201.51(a) of this
chapter, in effect for borrowings from
the Federal Reserve Bank on the first
day of the calendar month in which the
deficiencies occurred.—Charges shall be
assessed on the basis of daily average
deficiencies during each maintenance
period. Reserve Banks may, as an
alternative to levying monetary charges,
after consideration of the circumstances
involved, permit a depository
institution to eliminate deficiencies in
its required reserve balance by
maintaining additional reserves during
subsequent reserve maintenance
periods.
(b) Reserve Banks may waive the
charges for reserve deficiencies except
when the deficiency arises out of a
depository institution’s gross negligence
or conduct that is inconsistent with the
principles and purposes of reserve
requirements. If a depository institution
has demonstrated a lack of due regard
for the proper maintenance of required
reserves, the Reserve Bank may decline
to exercise the waiver privilege and
assess all charges regardless of amount
or reason for the deficiency.
(c) In individual cases, where a
federal supervisory authority waives a
liquidity requirement, or waives the
penalty for failing to satisfy a liquidity
requirement, the Reserve Bank in the
District where the involved depository
institution is located shall waive the
reserve requirement imposed under this
part for such depository institution
when requested by the federal
supervisory authority involved.
(d) Violations of this part may be
subject to assessment of civil money
penalties by the Board under authority
of Section 19(1) of the Federal Reserve
Act (12 U.S.C. 505) as implemented in
12 CFR part 263. In addition, the Board
and any other Federal financial
institution supervisory authority may
enforce this part with respect to
depository institutions subject to their
jurisdiction under authority conferred
by law to undertake cease and desist
proceedings.fi
PART 209—ISSUE AND
CANCELLATION OF FEDERAL
RESERVE BANK CAPITAL STOCK
(REGULATION I)
7. The authority citation for part 209
continues to read as follows:
Authority: 12 U.S.C. 2222, 248, 282, 286–
288, 321, 323, 327–328, 333, and 466.

8. Section 209.2 is amended by
revising paragraph (c)(1) to read as
follows:

PO 00000

Frm 00010

Fmt 4702

Sfmt 4702

§ 209.2
banks.

Banks desiring to become member

*

*
*
*
*
(c) * * *
(1) General rule. For purposes of this
part, a national bank or a state bank is
located in the Federal Reserve District
that contains the location specified in
the bank’s charter or organizing
certificate, flor as specified by the
institution’s primary regulator,fi or if
no such location is specified, the
location of its head office, unless
otherwise determined by the Board
under paragraph (c)(2) of this section.
*
*
*
*
*
By order of the Board of Governors of the
Federal Reserve System, February 7, 2008.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E8–2558 Filed 2–11–08; 8:45 am]
BILLING CODE 6210–01–P

ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Part 52
[EPA–R03–OAR–2007–0185; FRL–8528–2]

Approval and Promulgation of Air
Quality Implementation Plans; Virginia;
Incorporation of On-Board Diagnostic
Testing and Other Amendments to the
Motor Vehicle Emission Inspection
Program for the Northern Virginia
Program Area
Environmental Protection
Agency (EPA).
ACTION: Proposed rule.
AGENCY:

SUMMARY: EPA is proposing to approve
three State Implementation Plan (SIP)
revisions submitted by the
Commonwealth of Virginia. These
revisions pertain to the
Commonwealth’s motor vehicle
inspection and maintenance (I/M)
program for the Northern Virginia area,
which had previously been SIPapproved by EPA. These revisions
incorporate several changes made by the
Commonwealth since EPA last
approved the I/M program as part of the
SIP in 2002. The most significant
change to the program is the
incorporation of on-board diagnostic
computer checks of 1996 and newer
model year vehicles as an element of the
emission inspection process for the
Northern Virginia program area. In
addition, Virginia has also made
numerous minor changes to the
program, including several changes to
test procedures and standards, as well
as changes to its roadside testing
regimen. The I/M program helps to

E:\FR\FM\12FEP1.SGM

12FEP1