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F ederal r e ser v e Bank o f Dallas DALLAS, TEXAS 75222 C i r c u l a r No. 78-57 May 15, 1978 TREASURY TAX AND LOAN INVESTMENT PROGRAM TO THE CHIEF EXECUTIVE OFFICER, EACH BANK IN THE ELEVENTH FEDERAL RESERVE DISTRICT: Enclosed a r e the final r u l e s , d e p o s i t a r y ' s m an u al, maximum b alan ce form, a n d option form c o v e r in g the new T r e a s u r y T a x a n d Loan Investm ent P r o gram w hic h will be implemented J u l y 6, 1978. Your staff involved in this p r o gra m sh ou ld re v ie w the en clo se d material c lo s e ly , a n d all q u e s tio n s should be d i r e c t e d to th e officer a t the Federal R e s e r v e Bank s e r v i c i n g the a r e a in whic h you a r e located: Dallas Office El Paso B ra n c h Houston B ra n c h San Antonio B ra n c h J a c k A. Joel L. Sammie Thom as C lym er Koonce C. Clay C. Cole Ext. (915) (713) (512) 6340 544-4730 659-4433 224-2141 In o r d e r to allow suffic ie nt p r o c e s s i n g time, the e n closed Election of Option Form sh o uld be completed a n d r e t u r n e d to the Fiscal A g e n cy D epartm ent at the Dallas Office by J u n e 1 . If the form is not r e c e iv e d by the d e a d l in e , y o u r b a n k will be p la c ed in th e Remittance Option. All late forms in dicating the Note Option will be effected th e n e x t r e p o r t i n g cycle b e g i n n i n g A u g u s t 3. S hould y o u r b a n k e le ct th e Note Option u n d e r the new p ro g r a m , the en clo se d form FA-1038, "Maximum Balance Limitation," sh o u ld be completed a nd r e t u r n e d with th e Election of Option Form. Banks w hich s ele c t the Note Option b ut fail to r e t u r n form FA-1038 will h a v e th e ir d e p o s it c e i lin g s set a c c o r d in g to th e ir collate ral p le d g e d . Deposits in e x c e s s of collateral shall be w ith d ra w n without p r i o r notice. N umerous m eetin g s ha ve be en c o nd u cted in the Eleventh D istrict c o n c e r n i n g th e In v e stm e n t P r o g ra m , a n d many q u e s tio n s ha ve b e en r a is e d by b a n k e r s c o n c e r n in g diff e r e n t a p p lic a t io n s . In o r d e r to g iv e all b a n k s the benefit of t h e s e q u e s t i o n s a n d a n s w e r s , a c i r c u l a r le tter will be d i s t r i b u t e d in J u n e o u tlin in g the s u b je c ts c o n c e r n e d . Banks and others are encouraged to use the following incoming W A T S numbers in contacting this Bank: 1-800 -492 -440 3 (intrastate) and 1-8 00-527-4970 (interstate). For calls placed locally, please use 651 plus the extension referred to above. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) - 2 - It sho u ld be noted th a t th e J u l y 6 implementation d a te is effective only if C o n g r e s s has a p p r o p r i a t e d fu n d s to c o v e r th e pa y m e n t of fees for s e r v i c e s r e n d e r e d a s p r o v i d e d in the r e g u l a t i o n s . If C o n g r e s s does not a p p r o p r i a t e fu n d s for fee p a y m e n ts by J u n e 16, 1978, we will notify you of the p o stp o nem en t. S in c e r e ly y o u r s , R obert H . Boykin F ir st Vice P r e s i d e n t E n c lo s u re s DEPARTMENT OF THE TREASURY FISCAL SERVICE BUREAU OF GOVERNMENT FINANCIAL OPERATIONS WASHINGTON, D C 20226 O FFIC E OF THE C O M M ISSIO N ER TREASURY FISCAL REQUIREMENTS MANUAL FOR GUIDANCE OF FEDERAL RESERVE BANKS AND DEPOSITARIES BULLETIN NO. 78-03 RETENTION: Until Further Notice TO FEDERAL RESERVE BANKS, DEPOSITARIES AND OTHERS CONCERNED: 1. PURPOSE These Procedural In stru ctio n s fo r Depositaries supplement the provisions and Loan D epositaries, and 31 CFR 214, and should be read in conjunction with 2. Treasury Tax and Loan o f 31 CFR 203, Treasury Tax Depositaries fo r Federal T axes,. those reg u la tio n s. INTEREST ON NOTE BALANCES This supplements the provisions of 31 CFR 203.9(e) and 203.13 to provide guidelines concerning the computation of i n t e r e s t on note balances as follows: A. The amount o f i n t e r e s t due w ill be determined by applying the weekly i n t e r e s t r a te fa c to r to the average amount o f the note balance for each week o f the reporting cycle. These c a lc u la tio n s will be completed by the Federal Reserve bank on the 20th o f each month (or the p rio r business day i f the 20th i s a non-business day) for tran sac tio n s o f the just-completed reporting cycle. B. The average amount o f the note balance fo r each week w ill be determined by dividing the to ta l o f the d a ily closing note balances by seven (7 ). The weekly period begins on Thursday and ends on the following Wednesday. The balance a t the close o f business on Friday will bec a rrie d forward fo r Saturday and Sunday. For o th er Federal Reserve bank non-business days, the previous business day's balance will be c a rrie d forward as the balance fo r the non-business day. C. The i n t e r e s t will be computed using the following formula: the average Federal funds r a te fo r the corresponding weekly period quoted as a percentage to two decimal places, le s s 25 basis points (1/4 of 1%), x (times) the applicable number o f days fo r which i n t e r e s t is being computed, * (divided by) 360 days. The fin al fa c to r w ill be rounded to f iv e decimal places. The f i f t h number to the rig h t o f the decimal point will be rounded to the next higher number i f the six th number to the r ig h t of the decimal p oint i s 6, 7, , 307 T R A N S M IT T A L L E T T E R NO. -2- • 8, or 9, or to the next lower number i f the six th number to the rig h t of the decimal point is 1, 2, 3, 4, or 5. D. When the average note balance for a week is $25,000 or l e s s , the f i r s t $5,000 will be exempt from the i n te r e s t computation. 3. LATE FEE This supplements the provisions o f 31 CFR 203-10(b)(1 ) ( i i ) to provide guidelines concerning the computation of the l a t e fee as follows: A. The amount o f the l a t e fee will be determined by multiplying the amount o f each l a t e advice of c re d it by the rela te d daily i n te r e s t ra te fa c to r for each day the advice of c r e d i t is l a t e . The d a ily i n t e r e s t r a te fa c to r shall be determined in accordance with the formula sta te d a t Section 2(C) of these procedural in s tru c tio n s . B. Calculation of the amount of l a t e fees due w ill be performed by the Federal Reserve bank on the 20th of each month (or the p rio r business day i f the 20th is a non-business day) for tran sactio n s which occurred during the just-completed reporting cycle. 4. ANALYSIS CREDIT This supplements the provisions o f 31 CFR 2 0 3 .1 0 ( b )( 2 )( ii) to provide guidelines concerning the computation of the analy sis c re d it as follows: A. The Federal Reserve bank will determine fo r each week o f a reporting cycle the average d a ily volume o f the amount of funds in t r a n s i t between the Remittance Option - Class 2 depositary and the Federal Reserve bank which is in excess of one business day. B. The Federal Reserve bank will m ultiply th a t average balance by the i n t e r e s t ra te fa c to r fo r the corresponding week. The weekly i n t e r e s t ra te fa c to r will be determined in accordance with the formula stated a t Section 2(C) o f these procedural in stru c tio n s . -3 - C. The analysis c re d it fo r each week o f the reporting cycle will be to ta le d fo r the reporting cycle. D. Analysis c re d it c alcu la tio n s w ill be performed by the Federal Reserve bank on the 20th o f each month (or the p r io r business day i f the 20th is a non-business day) fo r the just-completed reporting cycle. 5. COMPENSATION TO THE DEPOSITARY This supplements the provisions o f 31 CFR 203.14 and 214.6(b) to provide guidelines concerning the determination o f the amount o f compensation due each depositary and the method o f payment. On the 20th o f each month (or the p r io r business day i f the 20th is a non-business day) the Federal Reserve bank w ill compute the amount o f compensation due to the depositary and Include th a t amount In a monthly statement to be Issued t h a t day. Compensation due Note Option and Remittance Option - Class 1 d e p o sita rie s w ill be computed by m ultiplying the number of Federal tax deposit forms processed by the depositary and received and f u l ly processed by the Internal Revenue serv ice center during a calendar month by the fee of $.50 ( f i f t y c e n ts ) . The amount o f compensation due Remittance Option Class 2 d e p o sita rie s w ill be computed by multiplying the number o f Federal tax deposit forms processed by the depositary and received and f u l ly processed by the Internal Revenue service c en ter during a calendar month by $.50 ( f i f t y cents) and reducing the r e s u l t by the analysis c r e d it described in Section 4 of these procedural in s t r u c t i o n s . I f the t o ta l amount of the analysis c re d it i s g re a te r than the compensation due fo r services rendered, no compensation w ill be paid and no charge w ill be made to the depositary. On the 25th o f each month (or the next business day i f the 25th Is a non-business day) the Federal Reserve bank w ill make payment through a d e p o sita ry 's reserve account or the reserve account o f a member^bank correspondent. Compensation to q u a lifie d agents fo r the issuance o f U.S. Savings Bonds, Series E and the redemption of U.S. Savings Bonds and Notes will be handled sep arately under procedures e stablished by the Bureau of the Public Debt, Department o f the Treasury. -4- The monthly statement will include the following information concerning the compensation to be paid: the number o f Federal tax deposit forms upon which the compensation i s based; the fee f a c t o r ; and, the t o t a l compensation to be p aid. The monthly statement prepared fo r Remittance Option - Class 2 d e p o s i ta r i e s w ill specify the to ta l of the a n a ly s is c r e d i t assessed and the amount of any compensation due to the deposita ry by Treasury a f t e r applying the a n a ly s is c r e d i t . 6. PAYMENTS TO THE TREASURY This supplements the provisions of 31 CFR 203.9(e) and 203.10(b) (1 ) ( 11). Payments by a dep o s ita ry to the Treasury will be c o ll e c te d through the Federal Reserve bank. On the 20th of each month (or the p r i o r business day i f the 20th is a non-business day) the Federal Reserve bank w ill compute payments due the Treasury and in c lu d e information supporting the payments due in the monthly statement to be issued t h a t day. Payments due by a Note Option d e p o s ita ry will be computed as s p e c i f ie d in Section 2 of these procedural i n s t r u c t i o n s ; a Remittance Option - Class 1 d e p o s ita ry , Section 3. On the 25th o f each month (or the next business day i f the 25th i s a non-business day) the Federal Reserve bank w ill e f f e c t the pay ments due the Treasury. The Federal Reserve bank will e f f e c t the pay ments through a d e p o s i t a r y ' s reserve account o r the reserve account o f a member-bank correspondent. 7. DIRECT INVESTMENTS (Reserved f o r f u t u r e u s e .) 8. CLASSIFICATION OF NOTE OPTION DEPOSITARIES This supplements the provisions o f 31 CFR 203 to provide gu id elin es concerning the c l a s s i f i c a t i o n o f d e p o s i t a r i e s . Note Option d e p o s i t a r i e s will be placed in to Classes A, B, or C, depending upon the t o t a l c r e d i t s to the Treasury tax and loan account during the preceding calendar y e a r . The c l a s s i f i c a t i o n c r i t e r i a a p p lic a b le a t the p r e se n t time are based upon the t o t a l c r e d i t s to a d e p o s i ta r y 's tax and loan account during calendar y e a r 1977 and are as follows: -5- 1. Class C - D epositaries which had $80,000,000 or more in c r e d i t s and whose t o t a l d ep o s it l i a b i l i t i e s (both demand and time) exceeded $60,000,000 a t ca le n d a r-y e a r end. 2. Class B - D epositaries which had $7,500,000 or more but l e s s than $80,000,000 in c r e d i t s , and d e p o s i t a r i e s which had $80,000,000 o r more in c r e d i t s but whose t o t a l l i a b i l i t i e s (both demand and time) were $60,000,000 o r l e s s a t calendar-year end. 3. Class A - D epositaries which had l e s s than $7,500,000 in credits. A newly-designated dep o s ita ry will be placed in to Class A i f i t s e l e c t s the Note Option. 9. BASIS FOR DETERMINING REMITTANCE OPTION CATEGORIES This supplements the provisions of 31 CFR 203.10(b) to provide additional g u id e lin e s concerning the subdivision o f Remittance Option d e p o s i ta r i e s . As o f the e f f e c t i v e date o f the tax and loan investment program, Remittance Option d e p o s i t a r i e s w ill be placed in t o Class 1 or Class 2 depending upon the t o t a l c r e d i t s to the Treasury tax and loan account during the preceding calendar y e a r . The c l a s s i f i c a t i o n c r i t e r i a for the Remittance Option C lasses, to be a p p lic a b le as o f the e f f e c t i v e d a te , a re based upon the t o t a l c r e d i t s to a d e p o s i t a r y ' s tax and loan account during calendar y ear 1977 and a re as follows: 1. Class 1 - D epositaries which had $1,500,000 o r more in credits. 2. Class 2 - D epositaries which had le s s than $1,500,000 in credits. A newly-designated d e p o s ita ry will be placed in to Class 2 i f i t s e l e c t s the Remittance Option. 10. REMITTANCE OPTION - CLASS 2 DEPOSIT FLOW This supplements the p rovisio ns of 31 CFR 2 0 3 . 1 0 ( b ) ( 2 ) ( i i i ) . -6 I f a t any time during the year a d e p o sita ry 's r a te o f flow of deposits to i t s tax and loan account during the preceding th ree reporting cycles exceeds, on an annualized b a s is , $3 m illio n , the depositary w ill autom atically be tra n s fe rre d out of Remittance Option Class 2. The Federal Reserve bank w ill issue on or about the 20th o f the month a notice to the depositary advising o f the need fo r the change in sta tu s and requesting the depositary to in d icate whether i t wishes to e le c t the Note Option in lie u of tra n s fe rrin g to the Remittance Option - Class 1. I f the Federal Reserve bank does not receive the d e p o sita ry 's response by the 20th of the following month (or the preceding business day i f the 20th i s a non-business day), the depositary w ill autom atically be considered subject to the provisions applicable to the Remittance Option - Class 1, as of the f i r s t day of the next reporting cycle. 11. CHANGES OF OPTION This supplements the provisions of 31 CFR 203.12 to provide guidelines concerning changes in options by d e p o sita rie s. A depositary may change from one option to another a f t e r providing due notice to the Federal Reserve bank of the d i s t r i c t . A change in option w ill become e ffe c tiv e as of the f i r s t day of the next reporting cycle following re c e ip t of such notice provided t h a t notice is received by the Federal Reserve bank of the d i s t r i c t not l a t e r than the 20th o f month. The depositary is subject to the provisions of the ex istin g option u n til i t receives formal n o tif ic a tio n from the Federal Reserve bank o f the change in o ptions. All changes w ill be e ffe c tiv e as o f the beginning of a reporting cycle. This provision is intended to afford d ep o sita ries the opportunity to change options on an occasional b a s is . Frequent changes of option are not acceptable. The s p e c ific guidelines are as follows: A. When a Note Option depositary wishes to convert to a Remittance Option depositary, the following procedures w ill apply: 1. The depositary will submit to the Federal Reserve bank of i t s d i s t r i c t w ritte n n o tif ic a tio n requesting the change in option by the 2Qth of any month fo r the change to be e ffe c tiv e the next reporting cycle. -7 - 2. The Federal Reserve bank w ill provide the depositary notice of the e ffe c tiv e date of the change in option. 3. On the e ffe c tiv e date o f the change to the Remittance Option, the balance in the note as recorded on the books of the Federal Reserve bank w ill be withdrawn (including a l l funds which have been called fo r payment on a date l a t e r than the e ffe c tiv e date of the change in option but not y e t p a id ). 4. A depositary w ill be placed in Class 1 or Class 2 on the basis o f the to ta l c r e d its to i t s Treasury tax and loan account during the preceding calendar year as specified in Section 9 of these procedural in s tr u c tio n s . 5. All advices of c re d it received by the Federal Reserve bank on and a f t e r the e ffe c tiv e date will be processed in accordance with the provisions of the Remittance Option. B. When a Remittance Option depositary wishes to convert to a Note Option depositary, the following procedures w ill apply: 1. The depositary w ill submit to the Federal Reserve bank of i t s d i s t r i c t w ritten n o tific a tio n requesting the change in option by the 20th of any month fo r the change to be e ffe c tiv e the next reporting cycle. 2. The Federal Reserve bank will provide the depositary notice o f the e ffe c tiv e date of the change in option. 3. On and a f t e r the e ffe c tiv e date of the change to the Note Option, a ll advices of c re d it received by the Federal Reserve bank and dated on or a f t e r the e ffe c tiv e date will be processed in accordance with the provisions of the Note Option. 4. Each advice of c re d it dated p r io r to the e ffe c tiv e d a te , but received a f t e r the e ffe c tiv e date, w ill be subject to the Remittance Option requirements f o r the period of time from the date o f the advice o f c r e d it u n til the e ffe c tiv e date of the change in option. Therefore, i f m assessment of l a t e charges is in order, the charges will be assessed fo r the period of time p r io r to the e ffe c tiv e date of the change in option. The amount of such advices w ill be added to the note account as of the e ffe c tiv e date o f the change in options. -8- 5.The depositary will be placed in the appropriate Class, A, B, or C, based upon the to ta l c re d its to i t s Treasury tax and loan account during the preceding calendar year and prevailin g c la s s if i c a t io n c r i t e r i a specified in Section 8 of these procedural in s tru c tio n s . 12. DATING AND FORWARDING This supplements the provisions of 31 CFR 214.6 to provide guidelines fo r dating and forwarding Federal tax deposits received by d e p o sita rie s a f t e r normal banking hours and on Saturday. I f a depositary on a week day has established a c u to ff time a f t e r which accounting fo r items or deposits of money received are dated as of the d e p o sita ry 's next business day, the following procedures will apply f o r the dating and forwarding of tax deposits: A. I f the c u to ff time i s no e a r l i e r than 2:00 p.m. (local time) the depositary may date the tax deposit as o f the following business day o f the depositary and include the deposit in advices of c r e d i t rem itted to the Federal Reserve bank on t h a t day. B. I f a depositary is able to include a deposit received a f t e r i t s normal c u to f f hour in i t s c u rrent calendar day's remittance to the Federal Reserve bank, i t may date such tax deposit with the c u rren t date and include i t in i t s c u rrent day's advices of c r e d i t . I f a depositary is open on Saturday but uses the following business day as an accounting d a te , the same guidelines apply; i . e . , the tax deposits may be dated with Saturday's date i f the depositary is able to send an advice of c r e d i t forward th a t day. Otherwise, the deposit may be dated as o f the d e p o sita ry 's following business day and included in th a t business day's remittance. In every instance, the date placed on the Treasury Form 2284, Advice o f C red it, and the date placed on each Federal tax deposit form will be the same. 13. INQUIRIES Inquiries concerning operating procedures contained in these procedural in s tru c tio n s should be d irected to the Federal Reserve bank o r branch in whose t e r r i t o r y the depositary is located. -9- Inquiries concerning operating procedures t h a t require c l a r i f i c a t i o n from Treasury should be directed to: Special Financing S ta ff Bureau of Government Financial Operations Department o f the Treasury Treasury Annex No. 1 Washington, D.C. 20226 (Telephone: 202-566-5125) 14. APPENDIX Appendix No. 1 to these procedural in s tru c tio n s provides the s p e c ific dates fo r the reporting cycles through December 1979. D. A. Conmi Appendix No. 1 REPORTING CYCLES - TT&L INVESTMENT PROGRAM JULY - DECEMBER 1978 JANUARY - DECEMBER 1979 Year 1978 Reporting Cycle Nunber and Month Dates of F irs t Week Dates o f Second Week Dates of Third Week Dates of Fourth Week 1 2 3 4 5 6 - JULY AUGUST SEPT. OCT. NOV. DEC. 7/6-12 8/3-9 9/7-13 10/5-11 11/2-8 12/7-13 7/13-19 8/10-16 9/14-20 10/12-18 11/9-15 12/14-20 7/20-26 8/17-23 9/21-27 10/19-25 11/16-22 12/21-27 7/27-8/2 8/24-30 9/28-10/4 10/26-11/1 11/23-29 12/28-1/3/79 1 2 3 4 5 6 7 8 9 10 11 12 - JAN. FEB. MARCH APRIL MAY JUNE JULY AUGUST SEP. OCT. NOV. DEC. 1/4-10 2/1-7 3/1-7 4/5-11 5/3-9 6/7-13 7/5-11 8/2-8 9/6-12 10/4-10 11/1-7 12/6-12 1/11-17 2/8-14 3/8-14 4/12-18 5/10-16 6/14-20 7/12-18 8/9-15 9/13-19 10/11-17 11/8-14 12/13-19 1/18-24 2/15-21 3/15-21 4/19-25 5/17-23 6/21-27 7/19-25 8/16-22 9/20-26 10/18-24 11/15-21 12/20-26 1/25-31 2/22-28 3/22-28 4/26-5/2 5/24-30 6/28-7/4 7/26-8/1 8/23-29 9/27-10/3 10/25-31 11/22-28 12/27-1/2/80 Dates of Fifth Week 8/31-9/6 11/30-12/6 1979 3/29-4/4 5/31-6/6 8/30-9/5 11/29-12/5 INSTRUCTIONS FOR THE ELECTION OF OPTION FORM 1. Tax and loan depositaries wishing to continue to participate in the Treasury tax and loan account system should check the appropriate box for the option selected, i.e., the Note Option O R the Remittance Option. Financial institutions wishing to withdraw from the Treasury tax and loan account system should check the appropriate box, i.e., Termination. Unless it indicates that it wishes to terminate its authority to maintain a Treasury tax and loan account, a depositary which submits an executed Election of Option Form to the Federal Reserve Bank thereby affirms both its intent to be bound by its depositary contracts with the Treasury and its understanding that the terms of those contracts are the provisions of 31 CFR Parts 203 and 214, and any instructions or supplements issued there under, together with any amendments to such regulations, instructions or supplements hereafter made. 2. Form and acccount Treasury Option. N.B.: A designated depositary which does not complete this which continues to credit deposits to its Treasury tax and loan will be deemed to (a) wish to continue its participation in the tdx and loan account system, and (b) have chosen the Remittance (See 31 CFR 203.11(b)). 3. An original and two copies of the Election of Option Form (the face of the Form) should be executed by a depositary. The depositary should retain for its files one copy, and send to the Federal Reserve Bank of the District the original and other copy. After receipt and processing of an executed Form, choosing either the Note Option or the Remittance Option, the Federal Reserve Bank will complete and return to the depositary the notice letter on the obverse of the original of the Form thereby advising the depositary of the effective date of the Option elected. The Federal Reserve Bank will retain the other copy. After receipt and processing of an executed Form choosing Termination, the Federal Reserve Bank will by a separate notice letter notify the depositary of the effective date of the Termination. The Federal Reserve Bank will retain a copy of the notice letter 4. Depositaries electing the Remittance Option will be subdivided into Class 1 and Class 2 depending upon the volume of deposits credited to their Treasury tax and loan accounts during the previous calendar year. Deposi taries which during the prior calendar year processed credits of $1.5 million or more to their tax and loam accounts will be placed in Remittance Option - Class 1. Tax and loan depositaries which during the prior calendar year processed credits to their tax and loan accounts of less than $1.5 million will be placed in Remittance Option - Class 2. (See 31 C FR 203.10). 5. A depositary may change from one option to another after due notice to the Federal Reserve Bank of the District by means of executing a new Election of Option Form. The depositary will be subject to the provisions of the existing option until it receives formal notification from that Federal Reserve Bank that the change has been effected. (See 31 CFR 203.12) . ELECTION OF OPTION TO: The Federal Reserve Bank of ____ ___________________________ # acting as Fiscal Agent of the United States. The undersigned financial institution, a Treasury tax and loan depositary designated in accordance with 31 CFR Part 203, hereby elects, pursuant to 31 CFR Part 203 and as of the effective date of the Treasury tax and loan account investment program, to administer a Treasury tax and loan account under the option checked below, or hereby elects to have its designation revoked. In addition, by the signature affixed below, the undersigned financial institution expressly agrees to function its Treasury tax and loan account in accord with the provisions of 31 CFR Parts 203 and 214, the provisions of any instructions or supple ments issued thereunder, and with any amendments hereafter made to such regulations, instructions or supplements. /~~7 Note Option (under which funds debited to a depositary's Treasury tax and loan account are added by the Treasury to its investment in obligations of the depositary, as evidenced by open-ended interest-bearing notes; (See 31 CFR 203.2(h) and 203.9). OR .—j Remittance Option (under which funds equivalent to the L-J amount of deposits credited by a Treasury tax and loan depositary to its Treasury tax and loan account will be withdrawn by the Federal Reserve Bank of its district immediately upon receipt by the Federal Reserve Bank of the advices of credit supporting such deposits; (See 31 CFR 203.2 (j) and 203.10). OR /~7 Termination (See 31 CFR 203.16(b)). IN WITNESS WHEREOF The undersigned has caused the signature of its officer below-named and its corporate seal, duly attested, to be affixed hereto this ____________________ day of ___________ > 19__ intending to be legally bound hereby. (Name of Financial Institution) * By (Signature) SEAL _____ (Typed Name) (Title) Attestation: I hereby attest that ________________ __________ » the (Typed Name) ___________________ of the said _______________ __ ____ • has (Title) (Name of Financial Institution) full authority to execute this form and fully to bind the said (Name of Financial Institution) (Name of Financial Institution) DATE: (Signature) (Typed Name) (Title) *The officer signing here shall not be the officer signing the Attestation. LETTER FROM THE FEDERAL RESERVE BANK OF THE D IST R IC T NOTIFYING A DEPOSITARY OF THE EFFECTIVE DATE OF THE OPTION SELECTED Date: Dear We have received your "Election of Option" form dated You are hereby notified that effective as of the opening of business on __________________ 1978, your institution will be considered to be administering its Treasury tax and loan account, pursuant to its depositary contracts under 31 CFR Parts 203 and 214, and instructions and supplements issued thereunder, and in accordance with the ________________ Option Class______ 1/(31 CFR part 203._____ 2/) Federal Reserve Bank of Acting as Fiscal Agent of the United States By_ (Signature) (Type d Name) (Title) TO: 1/ Insert either "Note" or "Remittance," as appropriate. If "Remittance" is appropriate, also insert "Class 1" or "Class 2 2/ In se r t e ith e r 9 fo r N o te O p tio n , or 10 fo r R e m itta n c e O p tio n election of option TO: The Federal Reserve Bank of ____________ acting as Fiscal Agent of the United States. The undersigned financial institution, a Treasury tax and loan depositary designated in accordance with 31 CFR Part 203, hereby elects, pursuant to 31 CFR Part 203 and as of the effective date of the Treasury tax and loan account investment program, to administer a Treasury tax and loan account under the option checked below, or hereby elects to have its designation revoked. In addition, by the signature affixed below, the undersigned financial institution expressly agrees to function its Treasury tax and loan account in accord with the provisions of 31 CFR Parts 203 and 214, the provisions of any instructions or supple ments issued thereunder, and with any amendments hereafter made to such regulations, instructions or supplements. /~7 Note Option (under which funds debited to a depositary's Treasury tax and loan account are added by the Treasury to its investment in obligations of the depositary, as evidenced by open-ended interest-bearing notes; (See 31 CFR 203.2(h) and 203.9). OR .—j <— > Remittance Option (under which funds equivalent to the amount of deposits credited by a Treasury tax and loan depositary to its Treasury tax and loan account will be withdrawn by the Federal Reserve Bank of its district immediately upon receipt by the Federal Reserve Bank of the advices of credit supporting such deposits; (See 31 CFR 203.2(j) and 203.10). ' OR /~7 Termination (See 31 CFR 203.16(b)). IN WITNESS WHEREOF The undersigned has caused the signature of its officer below-named and its corporate seal, duly attested, to be affixed hereto this _____________________ day of ____________ .# 19__ intending to be legally bound hereby. (Nome of Financial Institution) « By (Signature) SEAL (Typed Name) (Title) Attestation: I hereby attest t h a t ____________________ _______ * the (Typed Name) _______ _______ of the said_____________________ __ * has (Title) (Name of Financial Institution) full authority to execute this form and fully to bind the said (Name of Financial Institution) (Name of Financial Institution) DATE: (Signature) (Typed Name) ---------------(Title) *The officer signing here shall not be the officer signing the Attestation. LETTER FROM THE FEDERAL RESERVE BANK OF THE D IST R IC T NOTIFYING A DEPOSITARY OF THE EFFECTIVE DATE OF THE OPTION SELECTED Date: Dear We have received your "Election of Option" form dated You are hereby notified that effective as of the opening of business on __________________ 1978, your institution will be considered to be administering its Treasury tax and loan account, pursuant to its depositary contracts under 31 CFR Parts 203 and 214, and instructions and supplements issued thereunder, and in accordance with the ________________ Option Class______ 1/(31 CFR part 203._____ 2/) Federal Reserve Bank of Acting as Fiscal Agent of the United States By_ (Signature) (Typed Name) (Title) TO: 1/ Insert either "Note" or "Remittance," as appropriate. If "Remittance" is appropriate, also insert "Class 1" or "Class 2 2/ In sert e ith e r 9 fo r N o te O p tio n , or 10 fo r R e m itta n c e O p tio n ELECTION OF OPTION TO: The Federal Reserve Bank of _______________________________ acting as Fiscal Agent of the United States. > The undersigned financial institution, a Treasury tax and loan depositary designated in accordance with 31 CFR Part 203, hereby elects, pursuant to 31 CFR Part 203 and as of the effective date of the Treasury tax and loan account investment program, to administer a Treasury tax and loan account under the option checked below, or hereby elects to have its designation revoked. In addition, by the signature affixed below, the undersigned financial institution expressly agrees to function its Treasury tax and loan account in accord with the provisions of 31 CFR Parts 203 and 214, the provisions of any instructions or supple ments issued thereunder, and with any amendments hereafter made to such regulations, instructions or supplements. /~~7 Note Option (under which funds debited to a depositary's Treasury tax and loan account are added by the Treasury to its investment in obligations of the depositary, as evidenced by open-ended interest-bearing notes; (See 31 CFR 203.2(h) and 203.9). OR t— ' Remittance Option (under which funds equivalent to the amount of deposits credited by a Treasury tax and loan depositary to its Treasury tax and loan account will be withdrawn by the Federal Reserve Bank of its district immediately upon receipt by the Federal Reserve Bank of the advices of credit supporting such deposits; (See 31 CFR 203.2 (j) and 203.10). OR /~7 Termination (See 31 CFR 203.16(b)). IN WITNESS WHEREOF The undersigned has caused the signature of its officer below-named and its corporate seal, duly attested, to be affixed hereto this ________________ day of ____________ , 19__ intending to be legally bound hereby. (Name of Financial Institution) By____________________ _ ____________ r- (Signature) SEAL (Typed Name) (Title) Attestation; I hereby attest t h a t __________________ ._______ • the (Typed Name) ____________________ of the said ___________________________ ___ » has (Title) (Name of Financial Institution) full authority to execute this form and fully to bind the said (Name of Financial Institution) (Name of Financial Institution) DATE: (Signature) (Typed Name) ________________ (Title) •The officer signing here shall not be the officer signing the Attestation. LETTER FROM THE FEDERAL RESERVE BANK OF THE D IST R IC T NOTIFYING A DEPOSITARY OF THE EFFECTIVE DATE OF THE OPTION SELECTED Date: Dear We have received your "Election of Option" form dated You are hereby notified that effective as of the opening of business on __________________ 1978, your institution will be considered to be administering its Treasury tax and loan account, pursuant to its depositary contracts under 31 CFR Parts 203 and 214, and instructions and supplements issued thereunder, and in accordance with the ________________ Option Class______ 1/ (31 CFR part 203._____ 2/) Federal Reserve Bank of______ Acting as Fiscal Agent of the United States By_ (Signature) (Typed Name) (Title) TO: 1/ Insert either "Note" or "Remittance," as appropriate. If "Remittance" is appropriate, also insert "Class 1" or "Class 2 2/ In se r t e ith e r 9 fo r N o te O p tio n , or 10 fo r R e m itta n c e O p tio n U. S. G O V E R N M E N T P R IN T IN G O F F I C E : 1978 O - 2 6 4 -2 5 8 DEPARTMENT O F THE TREASURY FISCAL SERVICE O FFICE OF FISCAL ASSISTANT SECRETARY WASHINGTON, D.C. 20220 April 27, 1978 MEMORANDUM TO TREASURY TAX AND LOAN DEPOSITARIES Treasury Tax and Loan Investment Program Enclosed are the final rules implementing the investment authority provisions of Public Law 95-147 of October, 1977. These rules were issued as proposed rules as Part V of the Federal Register of December 9, 1977. A copy of the proposed rules was sent to your institution by the Federal Reserve Bank of your district shortly thereafter. As a result of comments and suggestions received during the proposed rulemaking period, certain changes have been made and are incorporated in these rules. Each of the significant changes are discussed in detail in the preamble. There are also enclosed (1) a copy of the "Procedural Instructions for Treasury Tax and Loan Depositaries," which supplement certain sections of the regulations, and (2) "Election of Option" forms. It would be helpful if, as soon as your institution makes the determination as to which option it will select, you would send a com pleted "Election of Option" form to the Federal Reserve Bank of your district so as to allow adequate time to effect the necessary preliminary arrangements. Your assistance will be appreciated. Should you have questions or comments regarding the revised tax and loan system, you may contact personnel in my office at the Treasury as stated in the preamble of the enclosed rules, or you may contact the Federal Reserve Bank of your district. In a separate letter, each Federal Reserve Bank will provide you with the telephone numbers of the people to contact within the Federal Reserve Bank. Also, the Federal Reserve Bank of your district will provide additional instructions either with this package or at a later date. We hope that your institution will continue to participate in the Treasury Tax and Loan Account System. Deputy Fiscal Assistant Secretary TUESDAY, MAY 2, 1978 PART III DEPARTMENT OF THE TREASURY Fiscal Service TREASURY TAX AND LOAN ACCOUNTS RULES AND REGULATIONS 18960 [4810-40] Title 31—Money and Finance: Treasury CHAPTER II—FISCAL SERVICE; DEPARTMENT OF TREASURY TREASURY TAX AND LOAN ACCOUNTS Final Rule and Interim Rule AGENCY: Fiscal Service, Department of the Treasury. ACTION: Final rule and interim rule. SUMMARY: The Treasury Depart ment is amending its regulations to implement the investment provisions of Pub. L. 95-147 of October 28, 1977. The intent of that law is to permit the Treasury to earn interest by the in vestment of its operating cash bal ances and, at the same time, pay fees for certain services which have not heretofore been compensable. The law and these regulations also make cer tain savings and loan associations and credit unions eligible to participate in the Treasury tax and loan account system. Previously, only incorporated banks and trust companies were eligi ble. The interim regulations contain the standards for review of State-spon sored insurance arrangements. Such review will be made in order to deter mine if particular insurance arrange ments are adequate to justify reduc tion of the amounts of collateral secu rity required of a depositary to secure the balance in its Treasury tax and loan account. EFFECTIVE DATES: The provisions of both the final and interim rules are effective July 6. 1978, provided the Congress has appropriated funds to cover the payment of fees for services rendered as provided in these regula tions. If the Congress does not appro priate funds for fee payments by June 16, 1978, a notice will be published in the F e d e r a l R e g i s t e r postponing the effective date. FOR FURTHER INFORMATION CONTACT: Mr. John Kilcoyne, Assistant Fiscal Assistant Secretary (Banking), Office of the Fiscal Assistant Secre tary, Department of the Treasury, Washington, D.C. 20220, 202-566 2849. Additionally, financial institu tions having questions as to operat ing procedures may direct such ques tions to the Federal Reserve Bank or Branch serving the geographical area in which the institution is locat ed. SUPPLEMENTARY INFORMATION: Notice of proposed rulemaking was published in the F e d e r a l R e g i s t e r on December 9, 1977 (42 FR 62308), (a) to revise regulations: 31 CFR part 203, Special Depositaries of Public Money, and 31 CFR part 214, Depositaries for Federal Taxes; and (b) to amend: 31 CFR part 317, Regulations Governing Agencies for Issue of U.S. Savings Bonds of Series E and U.S. Savings Notes, and 31 CFR part 321, Payments by Banks and Other Financial Institu tions of U.S. Savings Bonds and U.S. Savings Notes (Freedom Shares). A public hearing was held on Janu ary 12, 1978, during which testimony was given by trade associations repre senting banks and savings and loan as sociations and by individual financial institutions. In addition. 106 written responses were received during the comment period which ended on Janu ary 19, 1978. The Treasury wishes to express its appreciation to all who pro vided their views. Many of the comments received are similar in nature and have been grouped into categories by subject matter. The Department’s responses to the substantive public comments re ceived appear below. Numerous minor changes have been made in the regula tions some of which are editorial in nature while others are in response to public comment and will not be dis cussed herein. C o m m e n t s R e c e iv e d a n d T r e a s u r y R espo n ses I. 31 CFR PARTS 203 A N D 214 INTEREST r a t e (a) Rate of interest Section 203.14 of the proposed rules stated that the rate of interest to be used in connection with the Note Option and the Remit tance Option would be a “* * * weight ed average rate of repurchase agree ments with a one-day maturity in U.S. Government securities, which are transacted in a national money market by a sample of money center banks and non-bank primary dealers in Gov ernment securities.” Many respondents took issue with the proposed rate of interest for a wide variety of reasons. The most sig nificant negative factors cited were: (1) the high degree of instability in the spread between the proposed rate and the Federal funds rate, (2) a gen eral uncertainty about the pattern of fluctuations in the proposed rate over time under all money market condi tions, and (3) the general unfamiliar ity of the banking and thrift industry with the proposed rate. Upon reconsideration, the Treasury is of the view that a rate of interest which is equivalent to the Federal funds rate, less a fixed spread of 25 basis points (1/4 of 1 percent), would be a more appropriate rate. A rate of interest based upon this formula satis fies the prerequisites the Treasury had established from its own perspec tive for an earning rate on its invest ments in obligations of depositaries while at the same time introducing the elements of stability and relative cer tainty for depositaries. Accordingly, the proposed §203.14, now § 203.13, has been amended. N o t e .—S e v e ra l o f t h e s e c tio n s o f t h e p r o p o se d 31 C F R p a r t 203 h a v e b e e n r e n u m b e r e d d u e to t h e d e le tio n o f t h e M a x im u m B a la n c e s p ro v isio n s a p p e a r in g a s p ro p o se d § 203.4. (b) Use of a retroactive rate. Several financial institutions recommended that the rate of interest applicable to note balances during a given period of time be based upon a market rate which prevailed during a prior speci fied period. The intent of such recom mendation was that the rate to be ap plied would be known in advance. The adoption of this suggestion would sever the relationship for depo sitaries between the cost of Treasury funds held and the earning value of such funds. At times when money market rates move sharply up or down, while at the same time the amount of note balances moves in the opposite direction, depositaries could sustain substantial losses or gains thereby injecting a highly speculative element which the Treasury and, no doubt, most depositaries could consid er to be undesirable. The Treasury is, therefore, retaining the concept under which the rate of interest on the notes is based upon market rates during the same period. collateral Many comments were received on specific, and general, issues involving the pledge of collateral for Treasury tax and loan account balances an for note balances. These comments have been categorized as follows: (a) Availability of collateral. Several respondents, particularly large money center banks, expressed concern about their capacity to pledge collateral in amounts sufficient to cover balances in their note accounts during periods when Treasury operating cash is at peak levels. At this time the Treasury is not able to quantify the scarcity of collateral and is, therefore, developing additional data to determine the extent of the problem. At the same time, the Treasury is considering what action it can take to expand categories of eligible collateral. Treasury consid erations involve an analysis of what assets financial institutions hold in significant amounts that would meet the basic requirements Treasury feels good collateral should have. If it is de cided eligible collateral should be broadened, an amendment to part 203 will be issued. (b) Need for collateral Two respon dents suggested that the requirements for collateral security be eliminated, and another suggested that collateral FEDERAL REGISTER, VOL. 43, NO. 85— TUESDAY, MAY 2, 1978 18961 RULES AND REGULATIONS requirements be established at less than 100 percent of a depositary’s li ability to the Treasury. Pub. L. 95-147 provides that invest ments by the Treasury in obligations or depositaries maintaining Treasury tax and loan accounts shall be secured by a pledge of collateral acceptable to the Treasury as security for tax and loan accounts. While the statute allows wide discretion to the Secretary as to the particular type of collateral that may be required, the Department is of the opinion that there is substan tial doubt whether, under the present law, the Secretary has the authority to eliminate altogether the require ment that collateral security be pledged. Furthermore, even if there were no such doubt, the Department is of the opinion that a number of other considerations make it unwise to elimi nate or reduce the collateral require ments for Treasury tax and loan ac counts. (c) Conventional mortgages as eligi ble collateral. The suggestion was made to include conventional residen tial mortgages among the categories of collateral eligible to secure tax and loan funds. The Treasury has carefully consid ered this suggestion and has concluded that conventional residential mort gages do not, at this time, meet the standards of liquidity that are re quired of eligible collateral. The sec ondary market for conventional resi dential mortgages is not sufficiently developed to provide the degree of li quidity required. (d) Custodians of collateral. Com ments were received indicating that § 203.16(c) of the proposed regulations is not clear as to what custodian ar rangements will be permitted or that custodian arrangements will be uni form among all the Federal Reserve Districts. The acceptable type of custodian ar rangement involves the designation of a custodian by the Federal Reserve Bank of the District in which the de positary pledging the collateral is lo cated, and the issue by that custodian to the Federal Reserve Bank of a re ceipt indicating that it holds, subject to the order of the Federal Reserve Bank, collateral pledged by the deposi tary. Federal Reserve Banks will be expected to exercise judgment in the approval of custodians and in estab lishing limits on the amounts of collat eral a given custodian may hold. Addi tionally, for those categories of collat eral requiring detailed analysis of at tached documents or resolution of legal questions. Federal Reserve Banks may require that the pledge of such collateral be made directly with the Federal Reserve Bank. Other than for securities involving these judgments, custodian arrangements will be in effect in all Federal Reserve Districts under similar conditions. (e) Federal Home Loan Banks as custodians of collateral Representa tives of the savings and loan industry suggested that regional Federal Home Loan Banks be permitted to act as cus todians of the collateral to be pledged by savings and loan associations. The Treasury favors such an ar rangement, and the Federal Reserve Banks may designate Federal Home Loan Banks as custodians subject to, of course, the development of mutual ly acceptable custodian arrangements. (f) Uniformity among Federal Re serve Banks in accepting eligible col lateral One financial institution asked if all Federal Reserve Banks will accept any of the classes of collateral that are eligible for pledging. The ability of Federal Reserve Banks to accept the various classes of eligible collateral may be limited by such considerations as vault capacity. Because of such limitations, the use of third-party custodian receipts may be fostered wherever appropriate. Also, the Treasury will expect Federal Re serve Banks to work with depositaries in their Districts to reduce the pledge of those types of collateral requiring large amounts of vault space and sub stantial servicing costs when deposi taries have adequate eligible collateral in their portfolios of types with lesser space and servicing requirements. (g) IRS views concerning interest paid deductions under section 265(2) of the Internal Revenue Code for car rying tax exempt municipals pledged to collateralize borrowed funds ( i.e TT&L Note Balance). A number of re spondents indicated that historically, the Internal Revenue Service has at tempted to deny interest-paid deduc tions under section 265(2) of the Inter nal Revenue Code whenever there ap peared to be some relationship be tween the funds borrowed and the car rying of tax exempt obligations. The respondents requested the Treasury (Fiscal Service) to seek a ruling of the Internal Revenue Service to ensure that the election of the note option is not inhibited by a Section 265(2) tax problem. The Fiscal Service has made such a request of the Internal Rev enue Service. The Internal Revenue Service has concluded that section 265(2) of the Internal Revenue Code would not apply to disallow interest deductions in connection with the in vestment by the Treasury in obliga tion of Treasury tax and loan deposi taries notwithstanding the fact that the note accounts are collateralized by tax exempt securities. The Internal Revenue Service is proposing to amend Rev. Proc. 70-20 in a manner consistent with the foregoing. (h) Operations of the TT&L System upon implementation. If at the begin ning of the new program there is still a concern about the over-all adequacy of collateral, the Treasury may use moderation in reducing its balances at Federal Reserve Banks and increasing its investments in obligations of depo sitaries. M A X I M U M BALANCES (a) Maximum note balances. Several suggestions were made to the effect that depositaries should be permitted to set a maximum limitation on their note balances so that any additions to the notes in excess of that limitation would be withdrawn immediately by the Federal Reserve Bank upon re ceipt of advices of credit creating the excess. The Treasury favors the adoption of this suggestion and the Federal R e serve Banks have been asked to alter their administrative procedure to pro vide for the establishment of such maximum balances. The Federal Re serve System has advised that all R e serve Banks will not be able to com plete such changes before the effec tive date of the investment program inasmuch as this capability is a recent change which was introduced during the proposed rulemaking period. As each Reserve Bank completes its changes, it will notify depositaries in its District and give each depositary an opportunity to set a maximim bal ance. It is expected that all Reserve Banks will have completed the neces sary changes within 6 months after the date of publication of the final regulations. (b) Imposition of maximum balances by Federal Reserve Banks. Several re spondents questioned the proposed §203.4, which provides that each Re serve Bank may establish a maximum balance for the tax and loan or note account of any depositary in its Dis trict. The questions were based upon lack of specifics as to the circum stances under which such maximum would be established and the concern that the application of the section woud not be uniform among the Fed eral Reserve Districts. The wording of § 203.4 as proposed was similar to the wording of § 203.3 of existing regulations which have been in effect since 1967. Prior to 1967, the regulations limited a depositary’s maximum balance to a specified per centage of its capital or deposits. Sec tion 203.3 has not been invoked since 1967 and we agree the comparable sec tion of the proposed regulations, § 203.4, should be deleted. Collateral pledged by the depositary limits the funds that a depositary may hold and, as indicated above, depositaries will be permitted to establish self-imposed ceilings on the amount of Treasury funds held. Section 203.4 has, there fore, been eliminated from the final rules. DIRECT I N V E S T M E N T S Several comments were made that the regulations should specifically FEDERAL REGISTER, VOL 43, NO. 85— TUESDAY, MAY 2, 197S RULES AND REGULATIONS 18962 (b) Announce calls earlier in the day. Several respondents suggested that the calls on class “C” depositaries should be announced earlier in the day. It is very unlikely that the proce dures involved in determining the Treasury’s daily cash needs, the time required for consultation with the Federal Reserve’s Open Market Com mittee staff, and the process of com municating the call to class “C” depo sitaries, can be accelerated enough to allow an earlier announcement of a call action. (c) Wednesday calls. Several respon dents suggested that the Wednesday calls on class “C” depositaries be made not later than 10 a.m. The problems involved are the same as those men tioned in (b) above. Treasury recog nizes the particular problems faced by member banks on Wednesdays due to reserve settlement requirements and, to the extent feasible, will, in consulta tion with the Federal Reserve Open Market Committee staff, indicate in advance the probable calls payable on Wednesdays. (d) Effecting withdrawals through reserve accounts. Some respondents questioned the provisions of the rules which require that withdrawals are to CALLS A N D CALL P R O C E D U R E S be effected through the reserve ac (a) Make calls on a regular basis and count of the depositary or the reserve provide advance notice. Several re account of a member bank correspon spondents objected to the proposed dent. Some suggested such alterna § 203.10(c) which states “* * * the tives as the wiring of Federal funds amount of the note will be payable on upon receipt of a call notice. demand without previous notice.” Sug For many years, banks which were gestions were made to the effect that not members of the Federal Reserve the withdrawal of funds be made on a System have been required to arrange regularized basis and that calls be an for the payment of calls on the pay nounced a specified number of days in ment dates specified in the calls by a advance of the date of withdrawal. charge to the reserve account of a Treasury expects that the timing and member bank correspondent so as not amount of the calls against note bal to put the Treasury in the position of ances will evidence a regular pattern, waiting for the funds to be made avail reflecting the intramonthly and able for its use. The Treasury must monthly seasonal patterns to which the Treasury’s cash flows are subject. have the capability of withdrawing Thus, larger percentages of note bal and using its operating cash when it is ances will be called earlier in the needed. Alternatives which require month than later; and, therefore, note communications from the depositary balances will tend to increase in the in order to effect the withdrawal or latter half of most months. It is be place the depositary in the position of lieved that depositaries will, within a controlling the time of release of the relatively short period, recognize a funds are not acceptable. (e) Effecting calls for the withdrawal regular pattern of call actions. As to whether advance notice of of funds from savings and loan associ calls can be provided, it is expected ations through their accounts with that calls against class “A” and class Federal Home Loan Banks. Several re “B ” depositaries will normally be spondents suggested that withdrawal made for definite amounts for pay of funds from savings and loan associ ment on a definite day in the future. ations be made through their accounts However, the Treasury cannot guaran maintained with their respective Fed tee that circumstances will not arise eral Home Loan Banks. If the savings which will require calls for immediate and loan associations and the Federal payment of note balances from class Home Loan Banks can establish a pro “A” and class "B” depositaries in order cedure whereby the Treasury would to adequately fund Treasury balances have as immediate access to funds at Federal Reserve Banks. To the called as would be the case if charges extent feasible, advance notice will be were made to a member bank's ac given of the periods during which the count at a Federal Reserve Bank, then regular pattern of calls might be the Treasury would be agreeable to varied. such a procedure. state which Note Option depositaries would receive funds directly from the Treasury as described in § 203.10(b)(2). The number of depositaries which will receive direct investments will necessarily be limited by the capacity of Federal Reserve Banks to communi cate daily by telephone with each of such depositaries in order to: (1) inform the depositary of the amounts being directly invested with the depo sitary, and (2) to call funds from the depositary to replenish Treasury bal ances at Federal Reserve Banks. Initially, the direct investments will be made only with those Class “C” de positaries willing to participate. Even tually, however, the Treasury may expand the number of participating depositaries to include 100 or so other Note Option depositaries having the largest capacity to receive direct in vestments. Capacity is defined as the amount of collateral the depositary is willing and able to pledge, less its note balance as generated by credits to its tax and loan account. The establish ment of precise procedures for making direct investments is being deferred until the adequacy of collateral has been more clearly determined. NOT E OPTION • Certain characteristics of the Note Option elicited questions or responses as follows: (a) Characterization of the Note Option as a “purchase” of funds from the Treasury (§ 203.2(g) and § 203.10(a) and (b)(2)). Section 203.2(g) of the proposed rules defined the Note Option to mean the “• * * choice avail able to depositaries under which a tax and loan depositary credits deposits to its Treasury Tax and loan account, purchases funds from the Treasury in the amount of such deposits to be evi denced by open-ended interest-bearing notes.” [Emphasis added.] Two trade associations and a number of banking institutions requested that the word “purchases” be replaced by the word “retain” or “retains.” The Treasury is persuaded that the use of the term "purchases” may not have universal application. According ly, proposed § 203.2(g) has been modi fied to describe additions to a deposi tary’s note account as additions to Treasury’s investments in obligations of the depositary. A conforming change has been made to proposed § 203.10(a) and § 203.10(b)(2) (now § 203.9(a) and § 203.9(c)(2)). (b) Elimination of Tax and Loan Ac counts. One respondent suggested that in lieu of requiring funds to be placed in the tax and loan account for one day, depositaries be required to pur chase funds from the Treasury on the day the tax and loan deposits are cred ited so that the “note” is created on that day. The purpose of the sugges tion was to alleviate a potential prob lem under State law for some Statechartered thrift institutions in being able to function the tax and loan ac count. Another element of the sugges tion was that no interest would be due on the note for the day of the deposit. The Treasury feels that the adop tion of the suggestion would not accu rately describe the Treasury/deposi tary relationship, particularly for Re mittance Option depositaries, and that it would not, therefore, be reasonable to adopt the suggestion. DEL I V E R Y R E Q U I R E M E N T S (a) Delivery requirements for Remit tance Option—Class 2 Depositaries (§203.11(b)(2)(i)). One respondent sug gested that the wording of proposed §203.11(b)(2)(i), which permitted a Re mittance Option—Class 2 depositary to “* * * forward its advices of credit to the Federal Reserve Bank of the district via the most expeditious means available” created too strict a standard. The respondent stated that the section implies, for example, that if light aircraft were available, other means such as the U.S. mail would not be acceptable. The Treasury considers the use of the U.S. Postal Service to be an acceptable means of delivery for FEDERAL REGISTER, VOL. 43, NO. 85—TUESDAY, MAY 2, 1978 18963 RULES AND REGULATIONS Remittance Option—Class 2 depositar ies. Accordingly, §203.10(b)(2)(i) of the final rule reads, in part, as follows: “• * * via an available expeditious means, which includes the U.S. Postal Service.” (b) Delivery requirements for Note Option banka. The Treasury inadver tently omitted a subsection entitled “Delivery” from $203.10 of the pro posed rules. Such subsection is includ ed as S203.9(b). The subsequent sub sections are relettered accordingly. (c) Delivery requirements for Remit tance Option—Class 1 depositaries. Many respondents took issue with the delivery requirements for Class 1 de positaries stated at §203.11(b)(l)(i) of the proposed rule. The rule requires a Remittance Option—Class 1 deposi tary to “• * • establish procedures to ensure the delivery of its advices of credit at the Federal Reserve Bank of the District prior to the Federal Re serve Bank’s cut-off time for process ing such credits the next business day after the date of credit. • * •” Some, citing their own experience with the U.S. Postal Service, stated that timely delivery at the Federal Reserve Bank would not be possible if they were to use the mail service. Many of the re spondents suggested as a solution that timeliness be based upon the postmark of the remittance under the theory that if a postmark were timely, no penalty would be assessed. The Treasury had given a great deal of thought to the delivery require ments of the Remittance O p tio n Class 1 depositaries before issuing the proposed rules. It was concluded that in order for the system to function properly, and in order to maintain equity within the system, it was neces sary to limit the interest-free time to one business day. Otherwise, deposi taries electing the Note Option would be required to pay interest as of the first business day after receipt of a de posit while a Remittance O p tio n Class 1 depositary could benefit from two, three or more interest-free days merely by using the mails. If the use of postmarks were permitted, the Note Option would not be selected in num bers to make the tax and loan system work. There are certain options that may be available to depositaries to reason ably assure next day delivery of ad vices of credit to the Federal Reserve Bank of the District. These include the following: (a) At any depositary location where the Federal Reserve Bank delivers checks by courier, depositaries can, at their discretion, arrange with such couriers to deliver advices of credit on their return trips to the Federal Re serve Bank. (b) Federal Reserve Banks of the Districts may, at their discretion, permit Regional Check Processing Centers (RCPC’s) within the Districts to serve as pick-up or trans-shipping points for the tax and loan system. (c) All Federal Reserve Banks will permit Federal Reserve Branches not now serving as points of pick-up for tax and loan account advices of credit to do so under the investment pro gram from Remittance Option—Class 1 depositaries. (d) Any depositary may utilize the services of a correspondent in a Feder al Reserve Bank or Branch city to pre pare advices of credit and deliver such advices to the reserve bank or branch on its behalf. This would involve sup plying the correspondent with blank originals of its advices of credit forms and communicating the amount to be entered by phone or wire. FEES Numerous comments were received concerning the fee of 50 cents for each Federal tax deposit form forwarded by the depositary and processed by the Internal Revenue Service Center cov ering the administration of the Trea sury tax and loan account as well as the handling of Federal tax deposits. The comments are summarized as fol lows: (a) It is unreasonable to base 1978 fees on a survey using 1972-1973 data which have not been adjusted for in flation. (b) No indication has been given of the method used to determine the ini tial fee structure for compensable ser vices. (c) The final regulations should state the criteria for the establish ment of fees and when such fees are to be reviewed to ensure they remain cur rent. Other comments received indicated that the proposed payments are ade quate. The schedule of fee payments is based on the findings presented in a Report of a Study of Tax and Loan Accounts, dated June 1974. The con clusions of that Report are based upon a survey of approximately 600 com mercial banks specifically selected as representative of all depositaries in the Treasury tax and loan system. The fees as determined in that study are being adopted initially because they represent the product of the best and most comprehensive study on the sub ject available at this time. The m eth odology, rationale, and findings of the study are presented in detail in that Report. The findings of the study were publicly disclosed in that a copy of the Report was distributed during July 1974 to each of the tax and loan depositaries at the time. The Treasury recognizes the defi ciencies of that Report and is proceed ing to restudy the Federal tax deposit per item fee as follows: (a) Treasury staff will complete the review now underway of procedures in volved in processing Federal tax de posits in financial institutions and es tablishing one or more models for effi cient handling. The number of model systems will depend on the need to provide different systems for different categories of institutions. For exam ple, it might be necessary to have sig nificantly different procedures for an institution doing business at one loca tion as compared to an institution with branches or offices spread over a wide geographical area. The model systems will be reviewed with trade associations of the several classes of financial institutions func tioning as depositaries in order to (a) determine if there are any reasons why the proposed systems are not workable, and (b) receive any sugges tions for improvement. (b) Once the model systems have been detailed, the Treasury will com mission an independent study to deter mine the cost involved in operating the systems. The goal of the study will be to determine the unit cost for pro cessing Federal tax deposits and to es tablish fees based upon costs and rea sonable profit. If clear, simple guide lines for applying different fees for different institutions can be estab lished, a multiple fee schedule may be created. If not, a unitary fee will be es tablished based upon average costs. (c) The fee schedule established as a result of the study will be reviewed from time to time for appropriate ad justment, taking into consideration changes in the depositaries’ costs and any changes in regulations effecting the procedures followed by depositar ies in processing Federal tax deposits. C O M P E N S A T I O N F O R O T H E R SERVICES P ROVID ED B Y FINANCIAL INST ITUTIONS Several comments were made that the schedule of fees does not cover other types of services that financial institutions provide for the Govern ment. Specific services mentioned in clude the reporting of interest and dividends to the Internal Revenue Ser vice on Form 1099, the cashing of Gov ernment checks, and the custody and sale of food stamps. The Treasury’s analyses and conclusions regarding each of these services, and others not mentioned in the comments received, but performed by commercial banks are discussed in detail in the “Report on a Study of Treasury Tax and Loan Accounts” dated June 1974. POSITIONS O F B A N K I N G R E G U L A T O R S (a) Comptroller of the Currency. Sev eral of the respondents inquired as to whether the note balances retained by national banks under the Note Option will be included in computing the limi tation on bank indebtedness under 12 U.S.C. 82. The Comptroller of the Cur rency has indicated that the notes will not be subject to the aggregate indebt edness limitation of 12 U.S.C. 82. FEDERAL REGISTER, VOL. 43, NO. 85— TUESDAY, MAY 2, 1978 RULES AND REGULATIONS 18964 (b) Federal Reserve Board. Numer ous respondents questioned whether the note balances will be subject to re serve requirements. As indicated in the preamble to the proposed rules, at the present time, regulations of the Board of Governors of the Federal Re serve System and the Federal Deposit Insurance Corporation define “depos its” as including promissory notes and other obligations of banks not specifi cally exempted. The Treasury has been advised that the Board of Gover nors of the Federal Reserve System has taken formal action to exempt notes issued by banks to the Treasury from the definition of deposits. There appears today, or will appear in the next few days, in the F e d e r a l R e g i s ter notice of the Federal Reserve Board's final rulemaking effecting this change. The action of the Board of Governors of the Federal Reserve System exempts notes issued by member banks to the Treasury from the provisions of Regulations D and Q. (c) Federal Deposit Insurance Corpo ration. The Board of Directors of the Federal Deposit Insurance Corpora tion has amended FDIC’s interest rate regulations (12 CFR Part 329) so as to exempt from rate restrictions general ly, an insured nonmember bank’s li ability on its promissory notes that evidence a short-term purchase of funds from the U.S. Treasury. The FDIC’s amendments to its interest rate regulations were published on page 9789 of the F e d e r a l R e g i s t e r of March 10, 1978 (43 FR 9789). re qu ire me nts for designation Several of the respondents com menting on behalf of thrift institu tions took issue with the wording of the proposed § 203.3(b)(l)(ii) which re quired a financial institution to have under its charter and regulations issued by its chartering authority either general or specific authority permitting the maintenance of the tax and loan account as a demand account in order to be eligible for designation. The Department’s paramount con cern is its ability to draw on its operat ing cash accounts as needed to meet disbursing needs. The Treasury con siders it essential for funds on deposit in tax and loan accounts or invested in note accounts to be subject to with drawals which are payable immediate ly (i.e., on demand) without previous notice. Thus Treasury’s basic concern is to be assured that all financial insti tutions, including the thrift institu tions, possess the authority to func tion these accounts under the condi tion stated above. Another respondent indicated that the use of the word “demand account” is imprecise in that several quite dif ferent legal meanings have been at tached to that term. In view of the comments received. § 203.3(b)(l)(ii) is amended to require only "general or specific authority permitting the maintenance of the tax and loan ac count as an account the balance in which is payable on demand without previous notice of intended withdraw al.” Several of the respondents indicated that currently certain State-chartered thrift institutions may not be autho rized under State law to maintain tax and loan accounts. Some of the same respondents further stated that in their opinion the Federal law (Pub. L. 95-147) superseded State law and car ried with it the extension of any au thority necessary for both Federally and State-chartered institutions to be tax and loan depositaries. Neither Pub. L. 95-147 nor its legislative histo ry specifically address the matter of Federal preemption. The question is one which the courts will ultimately have to resolve. Treasury takes no final position on the issue at this time, however, the final rule is premised on no Federal preemption. insurance provisions One respondent representing the credit union industry requested that the regulations expressively describe the standards of review for account in surance to be undertaken by the Sec retary of the Treasury. Accordingly, the Secretary’s regulations concerning the adequacy of insurance arrange ments are issued at 31 CFR Part 226. Such regulations are published here as interim rules in order to avoid delay in implementing the revised Treasury tax and loan program. The Department is of the view that, because the interim regulations set standards for programs of insurance which cover depositaries’ tax and loan accounts, and thereby affect the amounts of collateral which such de positaries are required to pledge to secure public funds in such accounts, they involve a matter relating to “public property” within the meaning of 5 U.S.C. 553(a)(2). In addition, it is believed that the interim regulations involve a matter relating to “con tracts,” as that term is used in 5 U.S.C. 553(a)(2). Each Treasury Tax and Loan Depositary enters into a deposi tary contract as stated at § 203.6 and § 214.4. Consequently, it has been deter mined that the regulations are not subject to the rulemaking require ments, including notice of proposed rulemaking, which are contained in 5 U.S.C. 553. Nevertheless, in accordance with 5 U.S.C. 553, interested persons may submit written comments, sugges tions, data or arguments to Mr. John Kilcoyne, Assistant Fiscal Assistant Secretary (Banking), Office of the Fiscal Assistant Secretary, Depart ment of the Treasury, Washington, D.C. 20220, 202-566-2849. Material thus submitted will be evaluated and acted upon in the same manner as if these interim regulations were a pro posal. However, the interim regula tions shall become effective as speci fied in the “EFFECTIVE DATE” sec tion of this preamble and shall remain in effect until such time as changes are made. T H E A B S O R P T I O N OF F L O A T B Y DEPOSITARIES Several of the respondents com mented upon § 214.6(a)(1) by which de positaries are required to accept from a taxpayer “* * * a check or draft drawn on and to the order of the depo sitary * * That section further states that “* * * A depositary may at its discretion accept a check drawn on another financial institution, but it does so purely on a voluntary basis and absorbs for its own account any float involved.” The substance of such comments was to request the Treasury to make allowances for uncollected funds in the accounts after the first business day after deposit. As a matter of policy, the Treasury does not recognize uncollected funds in the tax and loan system. That policy and the provisions of 31 CFR Part 214 implementing that policy are not new to the regulations in question, but have been in effect for more than 25 years. The Treasury has concluded that the policy of not making allowances for uncollected funds in the tax and loan account system should remain in effect. E X T E N D T H E INTEREST-FREE P ERIOD T O M O R E T H A N O N E BUSINESS D A Y Several respondents suggested for a variety of reasons that interest and late fees not be imposed until the second or third business day after de posit. The Treasury has concluded that any extension of the interest-free period beyond the one business day al ready provided would not be in the best interest of the Federal govern ment or the tax and loan system. T I M I N G O F C H A N G E S IN O P T I O N S The wording of § 203.13 of the pro posed rules and paragraph No. 4 of the Synopsis of the Manual of Instruc tions and Procedures for Treasury Tax and Loan Depositaries is not explicit as to when a requested change in op tions will become effective. According ly, the wording of that section of the Procedural Instructions concerned with changes in options has been re vised to include the following: A d e p o s ita ry m a y c h a n g e f ro m o n e o p tio n to a n o th e r a f t e r d u e n o tic e t o t h e F e d e r a l R e se rv e B a n k o f t h e D is tric t. A c h a n g e in o p tio n w ill b e c o m e e ffe c tiv e a s o f t h e f ir s t d ay o f t h e n e x t r e p o r tin g cy c le fo l lo w in g r e c e ip t o f s u c h n o tic e p ro v id e d t h a t n o tic e is re c e iv e d b y t h e F e d e r a l R e se rv e B a n k o f t h e D is tr ic t n o t l a t e r t h a n t h e 2 0 th o f a n y m o n th . FEDERAL REGISTER, VOL. 43, NO. 85— TUESOAY, MAY 2, 1978 18965 RULES AND REGULATIONS A number of respondents expressed the desire for changes in options to be permitted on a daily or a weekly basis. For reasons of an operational and an administrative nature, all changes in options will be effected only as of the first day of a reporting cycle. T E R M I N A T I O N OF C O N T R A C T NOTICE Proposed § 203.17(b) and § 214.5(b) stated that a depositary may termi nate its contract by submitting a notice, in writing, to the Federal Re serve Bank of the District 30 days before the date of the intended termi nation. Proposed § 203.17(a) and § 214.5(a) stated that the Secretary of the Treasury may terminate the con tract of a Treasury tax and loan depo sitary at any time upon notice to that effect to that depositary. Upon recon sideration, the Treasury is of the view that the 30-day advance notice stated in § 203.17(b) and § 214.5(b) should be deleted. Accordingly, § 203.16(b) and § 214.5(b) do not require a 30-day ad vance notice by the depositary. M A N U A L OF INSTRUCTIONS A N D PROCE DURES FOR T R E A S U R Y T A X A N D L O A N DE POSITARIES Several respondents expressed the desire to review the Manual before it is published in final form. In view of the relatively short time period remaining before the effective date of the investment program, the Treasury is issuing at this time through the Federal Reserve Banks a final version of the “Procedural Instructions for Treasury Tax and Loan Depositaries” (previously re ferred to as “Manual of Instructions and Procedures for Treasury Tax and Loan Depositaries”), with the under standing that the depositaries are free to comment on the provisions of that Procedural Instruction at any time. SUGGESTIO N T O ESTABLISH A N A R R A N G E M E N T W H E R E B Y T H E T A X DEPOSITS O F A R E M I T T A N C E O P T I O N DE PO S I T A R Y ARE ADDED DIRECTLY T O T H E N O T E A C C O U N T O F A C O R R E S P O N D E N T D E POSI TARY One respondent suggested that in view of the potentially large number of depositaries that would be electing the Remittance Option, the Treasury should give consideration to a tri-party arrangement involving (a) the Federal Reserve Bank, (b) a Note Option depo sitary bank serving as a correspondent for the Remittance Option depositary, and (c) the remittance Option deposi tary. Under the suggested arrange ment, the Note Option depositary bank serving as correspondent for the Remittance Option depositary would, in effect, add to its note amounts which otherwise would be withdrawn from the Remittance Option corre spondents. In other words, the Federal Reserve Bank, instead of withdrawing funds representing tax deposits re ceived by a Remittance Option deposi tary would add those amounts to the note of the correspondent bank. The treasury believes the suggestion has merit and may be beneficial in sev eral respects. In particular, it offers an alternative to depositaries wishing to participate as Remittance O p tio n Class 1 depositaries and precluded from doing so because of the pre scribed delivery requirements. The Treasury is actively studying the sug gestion. Adoption of the suggestion would also give the Treasury better control of increases in the Federal R e serve Bank balance which is one of the objectives of the new system. If it is decided to adopt the sugges tion, the decision will be reflected in the F e d e r a l R e g i s t e r . Sufficient lead time will be required to permit pro gramming changes by the Federal Re serve Banks. SEASONAL B O R R O W I N G B Y M E M B E R BANKS O F T H E FEDERA L RE S E R V E S Y S T E M One respondent representing the banking industry suggested that Fed eral Reserve Regulation ‘A’ should in dicate that country banks borrowing seasonally at the discount window may simultaneously “sell” Note Option funds in the Federal funds market. This issue has been referred to the Federal Reserve Board and is under consideration by that Agency. R egulations C overing F ees fo r Is s u i n g a n d R e d e e m i n g S a v i n g s B o n d s II. 31 CFR P ARTS 317 A N D 321 DISC USSION O F M A J O R C O M M E N T S GENERAL STATEMENT Financial institutions and others act as agents for the issue and payment of savings bonds under the provisions of application-agreements they execute and certificates of qualification issued by the Federal Reserve Banks, acting as fiscal agents of the United States, and subject to the applicable regula tions governing such agents. The com pensation to be paid to agents applies solely to the specific issuing and paying functions they perform under the terms of their agreements and the regulations. The regulations that govern issuing agents are set out in Department of the Treasury Circular, Public Debt Series No. 4-67 (31 CFR Part 317). The regulations that govern paying agents are set out in Depart ment of the Treasury Circular No. 750 (31 CFR Part 321). The fee schedules will be incorporated into each of these circulars. SAVINGS B O N D R E M I T T A N C E P R O C E D U R E S 31 CFR, Part 203 contemplates that the interest and penalty provisions of the investment program will apply both to tax and loan deposits repre senting tax receipts and tax and loan deposits representing savings bond sales proceeds. However, as an interim measure, to facilitate implementation of the investment program, remit tances of savings bond sales proceeds by credit to tax and loan accounts will initially be functioned as follows: Note Option depositaries. T h e a m o u n t of credits covering savings bond sales proceeds will be added to notes as of the dates of pro cessing of the credit advices by the Federal Reserve Banks. Remittance Option—Class 1 depositaries. Penalty provisions will not be applied to savings bond sales proceeds remittances. Remittance Option—Class 2 depositaries. For purposes of computing the analysis credit, the a m o u n t of credits covering sav ings bond sales proceeds will be added to the balances in the depositaries’ tax and loan accounts as of the dates of processing by the Federal Reserve Banks. About three months after implemen tation of the investment program, the Treasury will prescribe definitive pro cedures under which credit advices for savings bond sales proceeds will be handled on the same basis as credit advices for tax deposits. Before the de finitive procedures are put into effect, a notice of their effective date will be published in the F e d e r a l R e g i s t e r and depositaries will be notified through the Federal Reserve Bank of the District. A D E Q U A C Y O F FEE S C H E D U L E A number of the organizations com mented that the proposed fees for is suing and redeeming savings bonds were generally too low. Others specifi cally referred to the redemption fee and the over-the-counter issue fee as being too low. Reasons usually given for questioning the fee schedule were that (1) it was based on outdated data and did not consider the impact of in flation on salary and other processing costs, and (2) the compensable activi ties were to narrowly defined and did not consider costs of counseling time, postage, record-keeping, accounting and liability for stock. The fees for over-the-counter issues and for redemptions were based essen tially on a research study conducted in 1974. The fees for payroll issues were based essentially on the alternative costs of such issues by Federal agen cies and Federal Reserve Banks. The issue fees relate strictly to costs associated with obtaining and control ling bond stock and inscribing and de livering bonds to purchasers, exclusive of postage which is paid by the Trea sury. Counseling services relating to sav ings bonds, like counseling on other fi nancial matters, have traditionally been provided to customers by finan cial institutions without compensa tion. These services are viewed essen tially as customer services. Their value to the Savings Bond Program is clear FEDERAL REGISTER, VOL. 43, NO. 85— TUESDAY, MAY 2, 1978 18966 RULES AND REGULATIONS ly recognized and appreciated. Howev er, services outside the issuing and paying agency regulations are not compensable; in addition, there is no practical way of measuring the ser vices provided by individual institu tions as the basis for establishing a standard fee. In response to the comments men tioned above, a review of the fee schedule will be undertaken. It is nec essary, however, to initiate the fee program on the basis of the proposed schedule to avoid further substantial delays in implementation. Funds for the payment of fees must be obtained through the appropriation process, and a funding request based on the original schedule has been submitted to and is under consideration by the Congress. C O M P E N S A T I O N F O R REISSUE TRANSACTIONS Several respondents commented that agents should be compensated for handling reissue cases, which must be forwarded to the Federal Reserve Bank for processing. Servicing applications for reissue is not one of the functions covered by the issuing and paying agent agree ments referred to above. Historically, the Treasury has viewed such services as being within the scope of customer services provided by the institution. This is the principal reason no provi sion has been made to pay a fee for such services. A further reason is the difficulty in administering such a fee, inasmuch as Treasury would have no means of determining how much assis tance, if any, had been provided by a financial institution on a reissue case. COMPENSATION FOR EXCHANGE TRANSACTIONS It was also suggested that agents should be compensated for handling exchanges of Series E for Series H bonds. In these transactins, all of the Series H bonds are issued by Federal Reserve Banks or the Treasury. How ever, the regulations governing such exchanges provide that paying agents may elect to redeem the Series E bonds and send the exchange applica tion (Form PD 3253) to a Federal Re serve Bank for issue of the Series H bonds. If the transaction is handled in this manner, the agent receives a fee for each Series E bond that is re deemed. If the agent does not redeem the bonds, the entire transaction is forwarded to a Federal Reserve Bank and no fee is paid. It is recognized that in a limited number of cases agents are not autho rized to redeem Series E bonds submit ted for exchange because of eviden tiary requirements. A review will be made to determine whether it is feasi ble to amend the regulations to pro vide procedures under which agents might qualify for fees in handling these cases. M I S C E L L A N E O U S PROVISIONS F O R FEE CH A R G E S Other proposals concerning fees in cluded establishing regional fee sched ules; basing fees on the percentage of dollar amounts handled in addition to per item fees; reexamining the fee dif ference between manual and comput erized handling of payroll issues to provide more incentive to automate; and, compensating agents for the ver ification of the issuance of bonds later reported missing. Regional fee schedules would create difficult administrative problems. There appears to be no justification for basing a fee on dollar amounts, as well as item charges. Paying agents incur no risk of liability for erroneous payments if they follow the Treasury’s identification guidelines (Form PD 3900). The spread between the fees for bonds inscribed by computers and by other means recognized a cost differ ential between the two processing methods. This appeared to be equita ble, although it might conceivable op erate as a disincentive to the further automation of payroll issues. Decisions to automate are typically made on the basis of equipment availability, oper ational priorities and considerations of space, personnel and productivity. It is estimated that about half of the pay roll issues by financial institutions are computer-inscribed. The number of issues that would be automated if the 10 cent fee per bond was raised is a matter of conjecture, as many of the payroll accounts are too small to justi fy automation, or the agent may not have access to a computer. In the sub sequent review of the fee schedule, however, this matter will be further considered. The verification by issuing agents of their issuance of bonds reported lost or stolen is limited to bonds not re ceived by owners. Claims cases involv ing loss or theft after receipt are not referred to the issuing agents for ver ification. The number of non-receipt cases is about 10,000 a year. About half of all bonds are issued by finan cial institutions, so the number of re ferrals to an individual agent should be minimal. No fee for this service ap pears to be warranted, but the Trea sury will review its procedures to de termine whether the cases requiring referral to agents can be further re duced. R E V I E W O F FEE S C H E D U L E As mentioned, various respondents expressed the opinion that the Trea sury study made in 1974, on which the fee schedule is largely based, has been outdated by inflation and that the study should be updated or a new study conducted. Various proposals were made con cerning the method to be used in con ducting such a study. It was suggested that a new study consider the fully al located costs of each functional and procedural element of issuing, redeem ing and otherwise handling bonds; that the regulations provide for a peri odic review of the fee schedule and the scope of compensable services; and that the regulations express the stan dards for establishing fees and the cri teria for evaluating readjustments. The Treasury recognizes the desir ability of reexamining the adequacy of the fee schedule and will initiate such a review promptly. The review will in clude a reexamination of some of the proposals discussed elsewhere in this response. Provisions for the regular review of the schedule should be a part of any plan that is developed. It should be recognized, however, that any review will deal primarily with over-the-counter issues and redemp tions. Fees for payroll issues will be governed largely by the alternative costs of such issues by Federal agen cies and Federal Reserve Banks. There is no assurance that savings bond fees can (or should) be based purely on costs. It may be necessary or advisable to establish fees for issuing and redeeming bonds that financial in stitutions would be free to accept or reject. In their comments on the schedule, agents reported costs as high as $2.66 for issuing bonds and $1.50 for redeeming bonds. The issue of a bond purchased for $18.75 does not justify fees of these amounts. Moreover, the question of recompense must be con sidered in the context of the effect on the Savings Bond Program as a whole. The Treasury cannot implement changes in the fee schedule without first seeking Congressional approval through the regular appropriation process. Any changes, including an explana tion of their basis, will be published as revisions of the regulations. CREDITS A N D C H A R G E S T O T A X A N D L O A N ACCOUNTS Two respondents questioned the statement in the regulations that funds would be deposited into the tax and loan accounts in accordance with the instructions of the Federal Re serve Bank of the District. Both felt that instructions should be uniform throughout the country. Another re spondent felt that if funds collected from the issuance of savings bonds are to be placed in interest-bearing tax and loan accounts, funds used to redeem bonds should be disbursed from those accounts. The rules for depositing savings bond sale proceeds in tax and loan ac counts are uniform. Instructions to is suing and paying agents are customar ily issued by the qualifying Federal FEDERAL REGISTER, VOL. 43, NO. 85— TUESDAY, MAY 2, 1978 RULES AND REGULATIONS Reserve Banks, and the practice in cludes such activities as crediting sales proceeds. Except for minor local vari ations, the Instructions Issued by each Reserve Bank are standard. The disbursement of tax and loan funds by depositaries in payment of savings bonds and notes would not be feasible because of the control and ac counting problems such a procedure would create. CHARGES TO CUSTOMERS Questions were also raised about the collection of fees from customers. No fee may be imposed by agents on bondowners for the redemption of bonds or on purchasers for the issue of bonds over-the-counter or through bond-a-month plans. In the case of payroll issues by fi nancial Institutions for customers which operate payroll savings plans, the Department recognizes that the parties have often entered into com pensatory arrangements, particularly when the bond issuance function is an interrelated part of a package of varied financial services, or when the issuing agent must perform preparato ry work prior to inscribing the bonds. The regulations prohibit the accep tance of dual compensation for obtain ing and controlling bond stock and in scribing and delivering bonds. Howev er, the regulations do not prohibit fi nancial institutions from electing to continue compensatory arrangements with customers, in lieu of accepting a fee from the Treasury for bond issu ance functions; nor do they prohibit such institutions from obtaining sup plemental compensation for services not immediately concerned with in scribing and delivering bonds, such as converting data from hard copy to magnetic tape for bond inscription purposes. P A Y M E N T O F FEES One respondent indicated that the regulations did not address the way in which fees will be paid and stated that the reserve account should be used for fee payment, as well as penalty charges. Given the diversity of issuing and paying agents, fees will be paid by checks issued quarterly by the Divi sion of Disbursement, Bureau of Gov ernment Financial Operations, on the basis of data prepared by the Bureau of the Public Debt. Each agent eligible for a fee has been furnished with a pamphlet that explains, among other things, the calculation and payment of fees. In consideration of all of the forego ing, 31 CFR Chapter II is amended as follows: 18967 tax and loan account after the effec tive date of this Part. (d) “Federal funds rate” means the 1. 31 CFR Part 203 (Department Cirweekly Federal funds rate as pub cular No. 92) is revised to read as fol lished in the Federal Reserve Bulletin in Table A-27 entitled ‘‘Interest Rates, lows: Money and Capital Markets”. S u b p art A— G en eral Inform ation (e) ‘‘Federal Reserve Bank of the district” means the Federal Reserve Sec. Bank which services the geographical 203.1 S c o p e o f r e g u la tio n s . area in which the tax and loan deposi 203.2 D e fin itio n s . tary is located. Tax and loan deposi 203.3 D e s ig n a tio n o f fin a n c ia l in s titu tio n s taries located in Puerto Rico, the a s T r e a s u r y t a x a n d lo a n d e p o s ita rie s . 203.4 S o u rc e s o f d e p o s it. Virgin Islands, and the Panama Canal 203.5 D ire c tiv e s re g a r d in g c r e d its (d e p o s Zone are included in the Second Fed its ) to T r e a s u r y t a x a n d lo a n a c c o u n ts . eral Reserve District. 203.6 P a r tie s to t h e C o n tr a c t. (f) “Federal tax deposit form” means 203.7 O b lig a tio n s o f t h e d e p o s ita ry . a preinscribed form supplied to a tax payer by the Treasury Department to S ubpart B— Option* accompany deposits of Federal taxes. 203.8 G e n e r a l r e q u ire m e n t. (g) “Federal taxes” means those 203.9 N o te O p tio n . Federal taxes specified by the Secre 203.10 R e m itta n c e O p tio n . tary of the Treasury or the Secretary’s 203.11 E le c tio n o f o p tio n b y p re v io u sly a u delegate as eligible for payment t h o r iz e d d e p o s ita rie s . through the procedure prescribed in 203.12 C h a n g e o f o p tio n s. this part and Part 214. S u b p art C— In te rs il a n d C om pensation (h) ‘‘Note Option” means that choice available to a tax and loan depositary 203.13 R a te o f In te re s t. under which funds debited to its Trea 203.14 C o m p e n s a tio n f o r se rv ic e s r e n d e r e d . sury tax and loan account are added by the Treasury to its investments in S u b p art D— C ollateral Socurity obligations of the depositary. The 203.15 C o lla te r a l s e c u r ity re q u ire m e n ts . amount of such investments will be evidenced by an open-ended interestS u b p art E— M iicollanooui Provisions bearing note maintained at the Feder 203.16 T e r m in a tio n o f c o n tr a c t. al Reserve Bank of the district. 203.17 I m p le m e n tin g in s tr u c tio n s . (i) “Recognized Insurance Coverage” 203.18 E ffe c tiv e d a te . means the insurance provided by the A u t h o r i t y : S ec. 8, A ct o f S e p t. 24, 1917, Federal Deposit Insurance Corpora C h a p te r 56, 40 S t a t. 291, a s a m e n d e d (31 tion, the Federal Savings and Loan In U .S .C . 771); S ec. 6302(c), I n t e r n a l R e v e n u e surance Corporation, the National C ode o f 1954; a n d S ecs. 1, 2, a n d 3, P u b . L. Credit Union Share Insurance Fund, 95-147, 91 S t a t. 1227 (31 U .S .C . 1038); u n le s s and the insurance provided by insur o th e rw is e n o te d . ance organizations specifically quali Subpart A—General Information fied by the Secretary of the Treasury pursuant to 31 CFR Part 226. § 203.1 Scope of regulations. (j) “Remittance Option” means that The regulations in this part govern choice available to a tax and loan de the designation of Treasury tax and positary under which funds equivalent loan depositaries and their contract to the amount of deposits credited by with the Treasury Department to the depositary to its Treasury tax and maintain and administer separate ac loan account will be withdrawn by the counts to be known as Treasury tax Federal Reserve Bank immediately and loan accounts in which funds rep upon receipt by the Federal Reserve resenting payments for certain United Bank of the advices of credit support States obligations and payments of ing such deposits. Federal taxes are credited. (k) “Reporting cycle” means the time period established for reporting § 203.2 Definitions. and computation purposes. A report ing cycle begins on the first Thursday As used in this part: (a) “Advices of credit” means those of each month and ends on the Treasury forms, which are supplied to Wednesday preceding the first Thurs tax and loan depositaries to be used in day of the following month. (1) “Reserve account” means that ac supporting credits to Treasury tax and count every member of the Federal loan accounts. (b) “Business day” means any day Reserve System maintains at the Fed on which the Federal Reserve Bank of eral Reserve Bank of its district for re serve purposes pursuant to 12 CFR the district is open to the public. (c) “Election of Option form” means Part 204. (m) “Special depositary” means a de a document, preprinted and supplied by the Federal Reserve Bank of each positary that had been designated district, on which a tax and loan depo under the provisions of 31 CFR Part sitary indicates the option under 203 prior to the effective date of this which it will administer its Treasury revision. A depositary thereafter desig PART 203—TREASURY TAX AND LOAN DEPOSITARIES FEDERAL REGISTER, VOL. 43, NO. 85— TUESDAY, MAY 2, 1978 18968 RULES A ND REGULATIONS nated under this Part shall be known as a Treasury tax and loan depositary. §203.3 Designation of financial institu tions as Treasury tax loan depositaries. (a) Previously authorized depositar ies. Every special depositary which, at the close of business on July 5, 1978, was authorized to maintain a Treasury tax and loan account is hereby rede signated as a Treasury tax and loan depositary. The agreements under which they were heretofore autho rized as Special Depositaries of Public Money are continued in effect without further action, but subject to the pro visions of the current Part 203. (b) New designations—(1) Require ments.—(i) Eligible institutions. The following classes of financial institu tions are eligible to be designated as Treasury tax and loan depositaries: (A) Every incorporated bank and trust company in the United States, Puerto Rico, the Virgin Islands, the Panama Canal Zone, and every United States branch of a foreign banking corporation authorized by the State in which it is located to transact commer cial banking business. (B) Every institution insured by the Federal Savings and Loan Insurance Corporation. (C) Every credit union insured by the Administrator of the National Credit Union Administration. (D) Savings and loan, building and loan, homestead associations, and credit unions, created under the laws of any State, the deposits or accounts of which are insured by a State or agency thereof, or by a corporation chartered by a State for the sole pur pose of insuring deposits or accounts of such financial institutions. (ii) Other requirements. In order to meet Treasury requirements for desig nation, each financial institution is re quired to possess under its charter and regulations issued by its chartering au thority either general or specific au thority permitting the maintenance of the tax and loan account as an ac count, the balance in which is payable on demand without previous notice of intended withdrawal. Each financial institution is required to also possess the authority to pledge collateral to secure Treasury tax and loan funds. (2) Application procedures. Any eli gible financial institution seeking des ignation as a Treasury tax and loan depositary and, thereby, the authority to maintain a Treasury tax and loan account shall file with the Federal Re serve Bank of the district an “Offer to Contract and Application” accompa nied by a resolution of its board direc tors authorizing the "Offer to Con tract and Application” (both on f o r m s prescribed and available on request from the Federal Reserve Bank). (3) Designation. Each financial insti tution satisfying the eligibility re quirements and the application proce dures will receive from the Federal Reserve Bank of the district notifica tion of its specific designation as a Treasury tax and loan depositary. A fi nancial institution is not authorized to maintain a Treasury tax and loan ac count until it has been designated as a Treasury tax and loan depositary by the Federal Reserve Bank of the dis trict. § 203.4 Sources o f deposit. A tax and loan depositary shall credit to its Treasury tax and loan ac count payments of such Federal taxes as the Secretary of the Treasury may from time to time by regulation autho rize to be paid through Treasury tax and loan accounts, and may credit to its Treasury tax and loan account funds representing: (a) Payments for United States Sav ings Bonds issued by the tax and loan depositary, in its issuing agent capac ity; (b) Payments for United States Sav ings Bonds subscribed for through the tax and loan depositary on behalf of its customers, but which may be issued only by Federal Reserve Banks and the United States Treasury Depart ment. § 203.5 Directives regarding credits (de posits) to Treasury tax and loan ac counts. (a) Payments for United States Sav ings Bonds shall be credited in accor dance with instructions prescribed by the Federal Reserve Bank of the dis trict. (b) Federal tax payments shall be credited in accordance with Part 214 of this Chapter and any instructions issued pursuant to that Part. § 203.6 Parties to the contract. A financial institution which is des ignated as a Treasury tax and loan de positary enters into a depositary con tract with the Department of the Treasury. The parties to this contract are the Treasury, acting through the Federal Reserve Banks as Fiscal Agents of the United States, and each financial institution designated under § 203.3. The terms of the contract in clude all of the provisions of this part. § 203.7 Obligations o f the depositary. A Treasury tax and loan depositary shall: (a) Administer a Treasury tax and loan account in accordance with this Part and any amendments or supple ments thereto, and instructions issued pursuant thereto, including the Proce dural Instructions for Treasury Tax and Loan Depositaries; (b) Comply with the requirements of section 202 of Executive Order 11246, entitled “Equal Employment Opportu nity” (30 FR 12319) as amended by Ex ecutive Order 11375, entitled “Equal Employment Opportunity Clause,” which is incorporated herein by refer ence, and the regulations issued there under at 41 CFR Chapter 60, as amended. The Secretary of the Trea sury may terminate the contract with a tax and loan depositary for failure to comply with the terms of the contract set forth in this subsection, relating to equal employment opportunity, after following the procedures specified by the U.S. Department of Labor at 41 CFR Part 60-30, as amended. (c) Comply with the requirements of section 503 of the Rehabilitation Act of 1973, 29 U.S.C. 793, and the regula tions issued thereunder at 20 CFR Part 741, which are incorporated herein by reference, requiring Govern ment contractors to take affirmative action to employ qualified handi capped individuals, and (d) Comply with requirements of section 503 of the Veterans Employ ment and Readjustment Act of 1972, 38 U.S.C. 2012, Executive Order 11701, and the regulations issued thereunder at 41 CFR Subpart 1-12.11, which are incorporated herein by reference, for the promotion of employment of dis abled and Vietnam era veterans. Subpart B—Options § 203.8 General requirement. A Treasury tax and loan depositary shall administer its Treasury tax and loan account under either the Note Option or the Remittance Option. § 203.9 Note Option. (a) Additions. The Treasury will invest funds in obligations of deposi taries selecting the Note Option. Such obligations shall be in the form of open-ended notes and additions and reductions will be reflected on the books of the Federal Reserve Bank of the district. A depositary electing the Note Option shall, as of the first busi ness day after crediting deposits to its tax and loan account, debit its tax and loan account in the amount of such deposits and simultaneously credit the note thereby reflecting an increase in like amount in Treasury^ investment in obligations of the depositary. (b) Delivery. A depositary adminis tering its tax and loan account under the Note Option shall forward at the close of business each day its advices of credit for that day to the Federal Reserve Bank of the district via the most expeditious means reasonably available including the U.S. Postal Service in instances where more posi tive delivery systems, in terms of date of delivery, are not being utilized by the depositary for other documents (e.g., checks) being remitted to the Federal Reserve Bank or Branch city. (c) Other Additions. (1) A tax and loan depositary may be given the FEDERAL REGISTER, V O L 43, NO. 85— TUESDAY, MAY 2, 1978 18969 RULES AND REGULATIONS (b) Remittance Option Classes. D e option of adding directly to its note the amounts of payments made by, or positaries electing this option will be through, it for allotments on tenders subdivided into Remittance Option and subscriptions for United States se Class 1 or Class 2 depending upon the curities issued under the Second Liber volume of deposits credited to their ty Bond Act, 40 Stat. 268, as amended tax and loan accounts during the pre when such method of payment is pro vious calendar year, as specified in the vided for under the terms of the Trea Procedural Instructions for Treasury sury's offering circulars. The amounts Tax and Loan Depositaries. Each de of payments shall be added to the positary shall be subject to the provi amount of the note on the dates of sions applicable to the class into which settlement. it is placed. (2) In addition, other funds from the (1) Remittance Option—Class 1 reTreasury’s operating cash may be of Quirements.—(i) Delivery. A Remit fered from time to time to certain tance Option—Class 1 depositary shall Note Option depositaries. Each such establish and maintain procedures to Note Option depositary shall have the ensure timely delivery of its advices of opportunity to decide whether it credit at the Federal Reserve Bank of wishes to receive from the Treasury the district prior to the Federal R e such additional investments in its serve Bank’s cutoff time for processing notes. such credits the next business day (d) Withdrawals. The amount of the after the date of credit. If a deposi note shall be payable on demand with tary, whose volume of credits is higher out previous notice. Calls for pay than the amount specified in the Pro ments on the note will be by direction cedural Instructions for Treasury Tax of the Secretary of the Treasury and Loan Depositaries, does not ar through the Federal Reserve Banks. A range to forward its advices of credit depositary shall arrange for the pay so that they regularly arrive at the ment of calls on the payment dates Federal Reserve Bank prior to the des specified in the calls by a charge to ignated cutoff hour, it should elect the the reserve account of a depositary or Note Option. the reserve account of a member bank (ii) Late fee. If an advice of credit correspondent. does not arrive at the Federal Reserve (e) Interest. A note shall bear inter Bank before the designated cutoff est at the rate specified in § 203.13. hour for receipt of such advices, a late Such interest is payable monthly by a fee in the form of interest at the rate charge to the reserve account of the depositary or through the reserve ac specified at § 203.13 will be assessed count of a member bank correspon for each day’s delay in receipt of such dent. Specific details about the compu advice. Such late fee assessments will tation of the amount of interest due, be effected on a monthly basis the means of payment, payment dates, through a depositary’s reserve account Federal Reserve Bank responsibilities, or the reserve account of a member and other related details are described bank correspondent. Specific details in the Procedural Instructions for and procedures are included in the Procedural Instructions for Treasury Treasury Tax and Loan Depositaries. (f) Maximum Balance. As of the Tax and Loan Depositaries. (2) Remittance Option—Class 2 re date specified by each Federal Reserve Bank, each depositary selecting the quirements.—(i) Delivery. A depositary Note Option may establish a maxi administering its tax and loan account mum balance for its note account by under the Remittance Option—Class 2 providing notice to that effect in writ shall forward its advices of credit to ing to the Federal Reserve Bank of the Federal Reserve Bank of the dis the district. That portion of any trict via an available expeditious advice of credit when posted at the means, which includes the U.S. Postal Federal Reserve Bank which would Service. cause the note balance to exceed the (ii) Analysis credit All tax and loan amount specified by the depositary balances which are in excess of a cur will be automatically withdrawn by rent day’s credits will be subject to an the Federal Reserve Bank. analysis credit, as explained in § 203.14 and the Procedural Instructions for §203.10 Remittance Option. Treasury Tax and Loan Depositaries. (a) Withdrawals. For a depositary se (iii) Excessive flow. A depositary lecting the Remittance Option, funds may continue as a Class 2 depositary if equivalent to the amount of deposits the rate of flow of deposits it accepts credited by a depositary to its Trea does not exceed the limitation pre sury tax and loan account will be with scribed therefor in the Procedural drawn by the Federal Reserve Bank Instructions for Treasury Tax and upon receipt by the Federal Reserve Loan Depositaries. If a depositary’s Bank of the advices of credit support flow exceeds that limitation, it shall ing such deposits. A depositary shall administer its tax and loan account as arrange for the payment of withdraw a R em ittance Option—Class 1, or a als by an immediate charge to its re Note Option depositary. Specific de serve account or the reserve account tails and procedures concerning the of a member bank correspondent. excessive flow of deposits are de scribed in the Procedural Instructions for Treasury Tax and Loan Depositar ies. §203.11 Election of option by previously authori zed depositaries. (a) General A depositary which, as of the clase of business on July 5, 1978, was authorized to maintain a tax and loan account and which wishes to administer a tax and loan account under the Note Option or the Remit tance Option shall file with the Feder al Reserve Bank of the district an Election of Option form signed by an official authorized to act on behalf of the depositary. The depositary will re ceive from the Federal Reserve Bank notice as to the effective date of that election. Until July 6, 1978, each au thorized depositary shall continue to administer its tax and loan account under its authorization prior to that date. (b) Depositaries not filing an Elec tion of Option form, yet accepting tax deposits. A depositary authorized prior to July 6, 1978, to administer a Trea sury tax and loan account, but which has not filed an Election ■ of Option form by that date, or having filed that form, has not received from the Feder al Reserve Bank prior to that date notice as to the effective date of that election shall on and after July 6, 1978, if it continues to credit deposits to the Treasury tax and loan account by entering such credits, be presumed to have assented to all terms and pro visions of this part and to be adminis tering the tax and loan account under the Remittance Option. (c) Inactive depositaries. The au thority of a depositary, authorized prior to July 6, 1978, to administer a Treasury tax and loan account, which depositary has not filed an Election of Option form and whose tax and loan account has had no credits for six months after July 6, 1978, will be re voked automatically. Thereafter, to accept deposits for credit to a Trea sury tax and loan account, the finan cial institution shall seek new designa tion in accordance with § 203.3. § 203.12 Change of options. A depositary is subject to the provi sions of the option it has selected until such time as it provides notice to the Federal Reserve Bank requesting a change in option and receives formal notification from the Federal Reserve Bank of the effective date of the change of option. Specific details re garding changes in option are included in the Procedural Instructions for Treasury Tax and Loan Depositaries. Subpart C—Interest and Compensation § 203.13 Rate of interest. The rate of interest to be used in connection with the Note Option and FEDERAL REGISTER, VOL. 43, NO. 85— TUESDAY, MAY 2, 1978 2 6 4 - 2 5 8 0 - 78 - 2 18970 RULES AND REGULATIONS the Remittance Option will be equal to the Federal funds rate less twentyfive basis points (i.e., Vi of 1 percent). Details about the computation are in cluded in the Procedural Instructions for Treasury Tax and Loan Depositar ies. § 203.14 Compensation for services ren dered. (a) General. Depositaries will not be separately compensated for servicing the tax and loan account, but the bookkeeping costs of maintaining that account are considered in establishing the per-item fee for each Federal tax deposit, as prescribed at § 214.6(b) of this chapter. (b) Remittance Option—Class 2 de positaries. Fees payable to Remittance Option—Class 2 depositaries for Feder al tax deposits will be reduced by an analysis credit representing the value of the balances in tax and loan ac counts in excess of a current day’s credits. Specific details regarding the determination of the amount of com pensation due are discussed in the Pro cedural Instructions for Treasury Tax and Loan Depositaries. Subpart D—Collateral Security § 203.15 Collateral security requirements. (a) Note Option. Prior to crediting deposits to its Treasury tax and loan account, a Note Option depositary shall pledge collateral security in ac cordance with the requirements and valuations of paragraph (d) of this sec tion, to cover 100 percent of the amount of the note balance and the closing balance in its Treasury tax and loan account which exceeds recognized insurance coverage. (b) Remittance Option. Prior to crediting deposits to its Treasury tax and loan account, a Remittance Option depositary shall pledge collat eral security in accordance with the requirements and valuations of para graph (d) of this section in an amount which is sufficient to cover the maxi mum balance in the tax and loan ac count at the close of business each day, less recognized insurance cover age. (c) Deposit of securities. Collateral security required under paragraphs (a) and (b) of this section shall be deposit ed with the Federal Reserve Bank of the district, or with a custodian or cus todians within the United States desig nated by the Federal Reserve Bank, under terms and conditions prescribed by the Federal Reserve Bank. (d) Acceptable securities. Unless oth erwise specified by the Secretary of the Treasury, collateral security pledged under this section may be transferable securities of any of the following classes: (1) Obligations issued or fully in sured or guaranteed by the United States or any U.S. Government agency, and obligations of Govern ment-sponsored corporations which under specific statute may be accepted as security for public funds: At face value. (2) Obligations issued or fully guar anteed by the International Bank for Reconstruction and Development, the Inter-American Development Bank or the Asian Development Bank: At face value. (3) Obligations partially insured or guaranteed by any U.S. Government agency: At a value equal to the amount of the insurance or guaranty. (4) Notes representing loans to stu dents in colleges or vocational schools which are insured either by Federal insurance or by a State agency or pri vate nonprofit institution or organiza tion administering a student loan in surance program in accordance with a formal agreement with the Commis sioner of Education under the provi sions of the Higher Education Act of 1965 or the National Vocational Stu dent Loan Insurance Act of 1965: At face value. (5) Obligations issued by States of the United States: At 90 percent of face value. (6) Obligations of Puerto Rico: At 90 percent of face value. (7) Obligations of counties, cities, and other governmental authorities and instrumentalities which are not in default as to payments on principal or interest: At 80 percent of face value. (8) Obligations of domestic corpora tions which may be purchased by banks as investment securities under the limitations established by Federal bank regulatory agencies: At 80 per cent of face value. (9) Commercial and agricultural paper and bankers’ acceptances ap proved by the Federal Reserve Bank of the district and having a maturity at the time of pledge of not to exceed one year: At 90 percent of face value. (e) Assignment of securities. A tax and loan depositary that pledges secu rities which are not negotiable without its endorsement or assignment may, in lieu of placing its unqualified endorse ment on each security, furnish and ap propriate resolution and irrevocable power of attorney authorizing the Federal Reserve Bank to assign the se curities. The resolution and power of attorney shall conform to such terms and conditions as the Federal Reserve Bank shall prescribe. (b) Termination by the tax and loan depositary. A tax and loan depositary may terminate its depositary contract b y submitting notice to that effect in writing to the Federal Reserve Bank ol’ the district effective at a prospec tive date set forth in the notice. § 203.17 Im p le m e n tin g in s tr u c tio n s . Each Federal Reserve Bank is autho rized to issue implementing instruc tions consistent with this part, which instructions shall be binding upon tax and loan depositaries located in its dis trict. § 203.18 E ffe c tiv e d a te . This revision of this part is effective on July 6, 1978. 2. 31 CFR Part 214 (Department Cir cular No. 1079) is revised to read as follows: PART 214—DEPOSITARIES FOR FEDERAL TAXES S ec. 214.1 S c o p e o f r e g u la tio n s . 214.2 D e fin itio n s . 214.3 D e s ig n a tio n . 214.4 D e p o s ita ry C o n tr a c t. 214.5 T e r m in a tio n o f c o n tr a c t. 214.6 D e p o s its o f F e d e r a l ta x e s w ith d e p o s ita rie s . 214.7 D e p o s its o f F e d e r a l ta x e s w ith F e d e r a l R e se rv e B a n k s. 214.8 A d d itio n a l in s tr u c tio n s . 214.9 E ffe c tiv e d a te . A u t h o r i t y : S ec. 10, 5 6 S t a t. 356, as a m e n d e d (12 U .S .C . 265); sec. 15, 38 S ta t. 265 (12 U .S.C . 391); sec. 8, 40 S ta t . 291, as a m e n d e d (31 U .S .C . 771); sec. 6302(c), I n t e r n a l R e v e n u e C o d e o f 1954, a s a m e n d e d ; secs. 1, 2 a n d 3, P u b . L. 95-147, 91 S t a t. 1227 (31 U .S .C . 1038). §214.1 S c o p e o f r e g u la tio n s . The regulations in this revision of this part govern the designation of fi nancial institutions as depositaries for Federal taxes and the handling of de posits of Federal taxes by such deposi taries and by Federal Reserve Banks. § 214.2 D e fin itio n s . As used in this part: (a) "Depositary” means a depositary for Federal taxes. (b) “Federal Reserve Bank of the district” means the Federal Reserve Bank serving the geographical area in which the financial institution is locat ed. For this purpose, depositaries lo cated in Puerto Rico, the Virgin Is lands and the Panama Canal Zone are Subpart E—Miscellaneous Provisions included in the Second Federal Re serve District. § 203.16 Termination o f contract. (c) "Federal tax deposit form” (a) Termination by the Treasury. means a preinscribed form supplied to The Secretary of the Treasury may a taxpayer by the Treasury Depart terminate the contract of a Treasury ment to accompany deposits of Feder tax and loan depositary at any time al taxes made under the procedure upon notice to that effect to that de prescribed by this part. positary effective at a prospective date (d) "Federal taxes” means those set forth in the notice. Federal taxes specified by the Secre FEDERAL REGISTER, VOL. 43, NO. 85— TUESDAY, MAY 2, 1978 RULES A ND REGULATIONS 18971 (3) Regardless of the form of pay ment, in every instance place in the space provided on the face of each Federal tax deposit form a stamp im pression reflecting the date on which the tax deposit was received by the de positary, by reference to which the timeliness of the tax payment will be determined, and the name and loca tion of the depositary. (4) Credit on the date of receipt all deposits of Federal taxes to the trea sury tax and loan account and admin ister that account pursuant to the pro visions of Part 203 of this Chapter. (5) Forward each day to the Internal Revenue Service Center servicing the geographical area in which the deposi § 214.3 Designation. tary is located, the Federal tax deposit forms for all tax deposits received that (a) Previously designated, depositar day. Each submission of deposit infor ies. (1) The designation of each quali mation shall be on the prescribed fied depositary for Federal taxes Treasury form and in the aggregate which, at the close of business on July amount of the Federal tax deposit 5, 1978, was authorized to maintain a forms. Treasury tax and loan account under (6) Establish, prior to transmittal to the provisions of the former Part 203 the Internal Revenue Service Center, of this chapter is hereby extended. an adequate record of all deposits of The agreements under which they Federal taxes so that it will be able to were heretofore authorized as Special identify deposits in the event tax de Depositaries of Public Money are con posit forms are lost in shipment be tinued in effect without further tween it and the Internal Revenue action, but subject to the provisions of Service Center. For this purpose, a the current Part 203 of this chapter. record shall be made of each deposit (b) New designations.—(1) Eligibil showing as a minimum the date of de ity. Each financial institution desig posit, the taxpayer’s identifying nated as a Treasury tax and loan depo number, and the amount of the depos sitary under the provisions of Part 203 § 214.5 Termination o f contract. it. The depositary’s copies of transmit of this chapter is eligible for designa (a) By Treasury. The Secretary of tal letters may be used to provide the tion as a depositary for Federal taxes. (2) Application for designation. Any the Treasury may terminate the con necessary information if individual de eligible financial institution seeking tract with any depositary at any time posits are listed separately showing designation as a depositary for Federal upon notice to that effect to be effec date, taxpayer’s identifying number, taxes shall file with the Federal Re tive at a prospective date set forth in and amount. (7) Not accept compensation from serve Bank of the district an “Offer to the notice. (b) By depositary. A depositary may taxpayers for accepting deposits of Contract and Application” accompa terminate its depositary contract by nied by a resolution of its Board of Di submitting a notice to that effect, in Federal taxes and handling them as required by this section. rectors authorizing the “Offer to Con to the Federal Reserve Bank (b) Compensation for services. The tract and Application,” both on forms writing, of the district effective at a prospec Treasury will compensate depositaries preinscribed by and available on re tive date set forth in the notice. for Federal taxes at a uniform fee of quest from the Federal Reserve Bank. Any financial institution not already § 214.6 Deposits of Federal taxes with de 50 cents for each Federal tax deposit form forwarded by the depositary and designated as a Treasury tax and loan positaries. processed by the Internal Revenue depositary may make simultaneous ap (a) Deposits with depositaries. A de Service Center. This fee covers the plication with the Federal Reserve Bank for such designation as provided positary shall, through any of its of bookkeeping costs of maintaining the fices that accept deposits: Treasury tax and loan account as well in § 203.3 of this part. (1) Accept from a taxpayer cash, a as the handling of Federal tax depos (3) Designations. Each financial in postal money order drawn to the order stitution satisfying the eligibility re of the depositary, or a check or draft its. Fees payable may be reduced by quirements and the application proce drawn on and to the order of the depo the analysis credits described in dures will receive from the Federal sitary, covering an amount to be de § 203.14 of this chapter. Reserve Bank of the district notifica posited as Federal taxes when accom tion of its specific designation as a de panied by a Federal tax deposit form § 214.7 Deposits of Federal taxes with Federal Reserve Banks. positary for Federal taxes. on which the amount of the deposit A Federal Reserve Bank shall, has been properly entered in the space § 214.4 Depositary Contract. provided. A depositary may at its dis through any of its offices: (a) Accept a tax deposit directly The designation of a depositary cretion accept a check drawn on an under this part creates a contract be other financial Institution, but it does from a taxpayer when such tax depos tween the depositary and the Trea so purely on a voluntary basis and ab it is: sury Department, acting through the sorbs for its own account any float in (1) Mailed or delivered by a taxpayer Federal Reserve Bank as Fiscal Agent volved. located within that Bank’s territorial of the United States. The terms of this (2) When requested to do so by a boundaries: and contract include: (2) In the form of cash, a check taxpayer who makes a deposit of Fed (a) All of the provisions of this part eral taxes in cash over the counter, drawn to the order of that Bank and except § 214.7. issue a counter receipt. considered to be an immediate credit tary of the Treasury or the Secretary’s delegate as eligible for payment through the procedure prescribed by this part. (e) “Immediate credit item” means a check or other payment instrument for which immediate credit is given in accordance with the check collection schedule of the receiving Federal Re serve Bank or Branch of the district. (f) “Qualified depositary for Federal taxes” means a previously designated depositary for Federal taxes that, at the close of business July 5, 1978, was qualified by the Federal Reserve Bank of the district under the provisions of the former Part 214 of this chapter. (b) Any instructions issued pursuant to this part by the Treasury or by Fed eral Reserve Banks as Fiscal Agents of the United States. (c) The provisions prescribed in sec tion 202 of Executive Order 11246, en titled “Equal Employment Opportuni ty” (30 FR 12319) as amended by Ex ecutive Order 11375, entitled “Equal Employment Opportunity Clause.” (d) The requirements of section 503 of the Rehabilitation Act of 1973, 29 U.S.C. 793, and the regulations issued thereunder at 20 CFR Part 741, which are incorporated herein by reference, requiring Government contractors to take affirmative action to employ qualified handicapped individuals, except that depositaries which under this Part receive on an annual basis fee payments of less than $2,500 are exempt from compliance with these regulations. (e) The requirements of section 503 of the Veterans Employment and Re adjustment Act of 1972, 38 U.S.C. 2012, Executive Order 11701, and the regulations issued thereunder at 41 CFR Subpart 1-12.11, which are incor porated herein by reference, for the promotion of employment of disabled and Vietnam era veterans, except that depositaries which under this part re ceive on an annual basis fee payments of less than $10,000 are exempt from compliance with these regulations. FEDERAL REGISTER, VOL. 43, NO. 85—TUESDAY, MAY 2, 1978 18972 RULES A ND REGULATIONS item by that Bank, a postal money order drawn to the order of that Bank, or Treasury bills, as authorized in Part 309 of this Chapter, covering an amount to be deposited as Federal taxes; and, (3) Accompanied by a Federal tax deposit form on which the amount of the tax deposit has been properly en tered in the space provided. (b) When requested to do so by a taxpayer who makes a deposit of Fed eral taxes in cash over the counter, issue a counter receipt. (c) When a deposit of Federal taxes is made in accordance with the re quirements of paragraph (a) of this section, a Bank shall place in the space provided on the face of each Federal tax deposit form accepted di rectly from a taxpayer, a stamp im pression reflecting the name of the Bank and the date on which the tax deposit was received by the Bank so that the timeliness of the Federal tax payment can be determined. However, if such a deposit is mailed to a Bank, it shall be subject to the “Timely mail ing treated as timely filing and paying” clause of section 7502 of the Internal Revenue Code (26 U.S.C. 7502). (d) When a deposit of Federal taxes is not in accordance with the require ments governing form of payment set forth in paragraph (a) of this section, a Bank shall place in the space pro vided on the face of each Federal tax deposit form a stamp impression re flecting th name of the Bank and the date on which the proceeds of the ac companying payment instrument are collected by the Bank. This date shall be used for the purpose of determin ing the timeliness of the Federal tax payment. §214.8 Additional instructions. Federal Reserve Banks are autho rized to issue instructions consistent with these regulations for carrying out the requirements of this part. § 214.9 Effective date. The provisions of this part, as re vised, become effective as of July 6, 1978. of the Treasury or the Federal R e serve Banks concerning the sale, in scription, dating, validation and issue of the bonds, and disposition of the issue records. No issuing agent shall have authority to sell bonds other than as provided in the offering circu lars and the governing regulations.1 (b) Fees. Issuing agents, other than Federal agencies which for the pur pose of this section Include Govern ment corporations and independent es tablishments, will be paid for each sav ings bond issued during a calendar quarter as follows: 70 c e n ts f o r e a c h b o n d iss u e d o n s a le b y a f in a n c ia l i n s titu tio n o n t h e b a sis o f a n a p p li c a tio n re c e iv e d o v e r -th e - c o u n te r o r b y m ail, o r u n d e r a b o n d -a -m o n th p la n : 30 c e n ts f o r e a c h b o n d iss u e d o n s a le b y a f in a n c ia l in s titu tio n u n d e r a p a y r o ll p la n , if t h e b o n d Is in s c rib e d b y a n y m e a n s o t h e r t h a n a c o m p u te r; 10 c e n ts f o r e a c h b o n d iss u e d o n s a le b y a f in a n c ia l in s titu tio n u n d e r a p a y r o ll p la n , if t h e b o n d is In sc rib e d b y c o m p u te r: 10 c e n ts f o r e a c h b o n d iss u e d o n sa le b y a n o n -fin a n c ia l I n s titu tio n ; a n d 5 c e n ts f o r e a c h b o n d re is s u e d to e f fe c t d is tr ib u tio n to a p a r t ic i p a n t in a p e n s io n , r e tir e m e n t, sav in g s, v a c a tio n o r s im ila r p la n . (c) Basis for payment of fees. A fee will be paid for each Series E savings bond issue included in transmittals of registration stubs or magnetic tape to the Bureau of the Public Debt for the account of an eligible agent during each calendar quarter, based on the transfer dates assigned to the trans mittals by a Federal Reserve Bank. (d) No charge to customers. Finan cial institutions accepting fees from the Treasury for issuing savings bonds shall not make any charge to custom ers for the same service. (e) The provisions of this section, as amended, are effective as of July 6, 1978. PART 321—PAYMENTS BY BANKS AND OTHER FINANCIAL INSTITU TIONS OF UNITED STATES SAV INGS BONDS AND UNITED STATES SAVINGS NOTES (FREEDOM SHARES) bursement at the rate of 30 cents for each bond or note paid hereunder which is received by a Federal Reserve Bank and forwarded for the agent’s account to the Department of the Treasury during each calendar quar ter. (b) No charge to oumers. Paying agents shall not make any charge whatever to owners of savings bonds and savings notes in connection with payments hereunder. (c) The provisions of this section, as amended, are effective as of July 6, 1978. 5. 31 CFR Chapter II is revised to add a new Part 226 to read as follows: I n t e r im R ule PART 226—RECOGNITION OF INSUR ANCE COVERING TREASURY TAX AND LOAN DEPOSITARIES S ec. 2 2 6 .1 2 2 6 .2 2 2 6 .3 2 2 6 .4 S co p e. G e n e r a l. A p p lic a tio n —te r m in a tio n . A d e q u a c y o f s e c u rity —h o w c o m p u t ed. 2 2 6 .5 2 2 6 .6 2 2 6 .7 E x a m in a tio n s . F in a n c ia l r e p o rts . E ffe c tiv e d a te . A u t h o r i t y : S ecs. 2 a n d 3 , P u b . L . 9 5 - 1 4 7 . 9 1 S ta t . 1 2 2 7 ( 3 1 U .S .C . 1 0 3 8 ) . § 226.1 Scope. The regulations in this part apply to insurance covering public money of the United States held by banks, sav ings banks, savings and loan associ ations, building and loan associations, homestead associations, or credit unions designated as Treasury tax and loan depositaries under 31 CFR Part 203. Approval of the adequacy of the insurance coverage provided to Trea sury tax and loan funds shall be gov erned by the regulations contained herein, which will be supplemented by guidelines issued by the Treasury and updated from time to time to meet changing conditions in the industry. § 226.2 General. (a) Deposit or account insurance 4. 31 CFR Part 321 (Department Cirprovided by the Federal Deposit Insur cular No. 750, Second Revision) is ance Corporation, the Federal Savings PART 317—REGULATIONS GOVERN amended by revising § 321.5 to read as and Loan Insurance Corporation, and the National Credit Union Share In ING AGENCIES FOR ISSUE OF U.S. follows: surance Fund, is hereby recognized. SAVINGS BONDS OF SERIES E AND Deposits or accounts which are in • • • • • U.S. SAVINGS NOTES sured by a State or agency thereof, or Subpart B—Authority To Act by a corporation chartered by a State 3. 31 CFR Part 317 (Department Cir for the sole purpose of insuring depos cular, Public Debt Series No. 4-67) is § 321.5 Paying agent fees and charges. its or accounts of financial institutions amended by revising § 317.5 to read as (a) Scale or rate and procedures. eligible to be Treasury tax and loan follows: Each paying agent shall receive reim depositaries (hereinafter referred to as Insurance Arrangement), shall be ap § 317.5 Issuance of bonds. proved as provided herein. Such ap 1D e p a r tm e n t o f t h e T r e a s u r y C irc u la rs (a) General. Issuing agents shall N o. 5 3 0 , c u r r e n t re v isio n ( 3 1 C F R P a r t 3 1 5 ) , proval constitutes recognition for the comply with all regulations and a n d N o. 6 5 3 , c u r r e n t re v isio n ( 3 1 C F R P a r t purpose of reducing the amount of col instructions issued by the Department 3 1 6 ) . lateral required of a tax and loan de FEDERAL REGISTER, VOL. 43, NO. 85— TUESDAY, MAY 2, 1978 18973 RULES AND REGULATIONS positary by the amount of recognized vides adequate security or that it is insurance coverage pursuant to 31 not complying with the regulations of this part, the Secretary will notify the CFR 203.15. (b) Generally, these regulations and Insurance Organization of the facts or their associated guidelines require conduct which cause him to make that an organization providing insur such determination, and in those cases ance maintain a corpus of sufficient where the safety of the Government’s value and liquidity, and/or that it funds allows, provide the Insurance have sufficient State borrowing au Organization with an opportunity to thority, in relation to its liabilities and correct the deficiency. When any defi total insured savings (or deposits) to ciency has not been corrected to his provide adequate security to the Gov satisfaction or, where the safety of ernment’s deposits and that adequate Government funds makes immediate monitoring of the financial condition revocation imperative, the Secretary of the insured institutions is conduct will revoke the recognition previously ed. granted. § 226.3 Application—termination. (a) Every Insurance Organization applying for recognition as a qualified insurer of financial institutions desig nated as Treasury tax and loan deposi taries shall address a written request to the Assistant Comptroller for Au diting, Bureau of Government Finan cial Operations, Department of the Treasury, Washington, D.C. 20226, who will notify the applicant of the data which is necessary to make appli cation. If the Secretary of the Trea sury is satisfied that (1) one or more institutions insured by the applicant otherwise meet the Secretary’s re quirements for designation as a Trea sury tax and loan depositary or Feder al tax depositary, (2) the insurance provided by the applicant covers public money of the United States, and (3) the insurance coverage pro vided affords adequate security to the Government’s deposits, the Secretary shall recognize the applicant as a qualified insurer of financial institu tions designated as Treasury tax and loan depositaries. (b) If and when the Secretary of the Treasury determines that a qualified insurance organization's financial con dition is such that it no longer pro §226.4 Adequacy of security—how com puted. (a) In qualifying Insurance Organi zations, the Treasury will use a ratio (equity (net worth) of the insurance organization divided by insured ac counts or deposits) to determine if the security is adequate. The ratio will be computed as determined by the Trea sury, and is required to equal 0.0045 or greater for an Insurance Organization to be recognized (i.e., net worth is re quired to equal 0.45 of 1 percent of in sured accounts or deposits). (b) If, in the judgment of the Secre tary of the Treasury, any of the Insur ance Organization’s assets which cannot be liquidated promptly or are subject to restriction, encumbrance, or discredit, all or part of the value of such assets may be deducted from equity in making the computation. The Secretary of the Treasury may value the assets and liabilities in his discretion. (c) An Insurance Organization’s un qualified borrowing authority from its sponsoring State will be added to its equity in making the computation be cause such authority is equivalent to additional capitalization. An Insurance Organization’s commercial borrowing authority and its reinsurance will be disregarded in making the computa tion, because these are not adequate substitutes for undercapitalization. § 226.5 Examinations. (a) Examinations by State regula tory authorities or audits by CPA firms of Insurance Organizations shall be performed in accordance with, and at intervals prescribed by, State regu latory procedures. Copies of the re ports shall be submitted to the Trea sury. (b) Examinations by State regula tory authorities or audits by CPA firms of insured financial institutions shall be performed in accordance with, and at intervals prescribed by, State regulatory procedures. In addition, an adequate monitoring system shall be employed to detect those institutions with financial problems. §226.6 Financial reports. Financial reports of Insurance Orga nizations shall be submitted to the Treasury at the same intervals they are submitted to State regulatory au thorities. However, they need not be submitted more frequently than quar terly but, as a minimum, shall be sub mitted annually. The Treasury may prescribe the format of such reports. § 226.7 Effective date. The provisions of this part become effective as of July 6, 1978. • • • • • The foregoing revisions and/or amendments are effective as of July 6, 1978. Dated: April 27,1978. P aul H . T aylor, Acting Fiscal Assistant Secretary. [ F R D oc. 78-11814 F ile d 5-1 -7 8 ; 8:45 a m ] FEDERAL REGISTER, V O L 43, NO. 85— TUESDAY, MAY 2, 1978 ‘ F A -1 03 8 A2 (5-78) NCR MAXIMUM BALANCE LIMITATION OPEN-ENDED NOTE OPTION TREASURY TAX AND LOAN ACCOUNT To: Fiscal Agency Dept. Federal Reserve Bank Sitat ion K Dallas, Texas 75222 ____ In accordance with 31 CFR Part 203.9(f) (43 Federal Register 18960 dated May 2 ,1 9 7 8 ), all depositaries selecting the Note Option may establish a maximum balance for its Note Account by providing notice in w nting to the Federal Reserve Bank. Indicated below is the ceiling to be established for this institution. I~1 All deposits in excess o f collateral pledged shall be withdrawn w ithout prior notice. □ All deposits in excess o f $___________________________________________ shall be withdrawn w ithout prior notice. NAM E OF DEPOSITARY LOCATION SIG NATURE & TITLE OF O FFICER FRB USE ONLY EFFECTIVE DATE DISTRIBUTION: WHITE - Federal Reserve Bank's Copy CANARY-Depositary Bank’s Copy