[Federal Register Volume 73, Number 247 (Tuesday, December 23, 2008)]
[Rules and Regulations]
[Pages 78616-78618]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-30471]


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FEDERAL RESERVE SYSTEM

12 CFR Part 204

[Regulation D; Docket No. R-1334]


Reserve Requirements of Depository Institutions

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Interim final rule.

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SUMMARY: The Board is amending Regulation D, Reserve Requirements of 
Depository Institutions, to revise the rate for earnings on required 
reserve balances and excess balances of eligible institutions and to 
provide that the rates may be revised by the Board from time to time.

DATES: The amendments to Regulation D are effective on December 23, 
2008. The applicability date for the revised rates for earnings on 
required reserve balances and excess balances is December 18, 2008.

FOR FURTHER INFORMATION CONTACT: Sophia H. Allison, Senior Counsel 
(202/452-3565), or Dena L. Milligan, Staff

[[Page 78617]]

Attorney (202/452-3900), Legal Division, or Margaret Gillis DeBoer, 
Chief, Monetary and Reserve Analysis Section, (202/452-3139), Division 
of Monetary Affairs; for users of Telecommunications Device for the 
Deaf (TDD) only, contact (202/263-4869); Board of Governors of the 
Federal Reserve System, 20th and C Streets, NW., Washington, DC 20551.

SUPPLEMENTARY INFORMATION:

I. Background

    On October 9, 2008, the Board published in the Federal Register an 
interim final rule amending Regulation D (Reserve Requirements of 
Depository Institutions) to direct the Federal Reserve Banks to pay 
interest on balances held at Reserve Banks to satisfy reserve 
requirements (``required reserve balances'') and balances held at 
Reserve Banks in excess of required reserve balances and clearing 
balances (``excess balances'') (73 FR 59482) (Oct. 9, 2008). At that 
time, the Board announced two formulas by which the amount of earnings 
payable on required reserve balances and excess balances would be 
calculated. For required reserve balances, the Board initially set the 
rate of interest at the average federal funds rate target established 
by the Federal Open Market Committee (``FOMC'') over the reserve 
maintenance period less 10 basis points. For excess balances, the Board 
initially set the rate of interest at the lowest federal funds rate 
target established by the FOMC in effect during the reserve maintenance 
period less 75 basis points. The Board stated that it may adjust the 
formula for the interest rate on excess balances in light of experience 
and evolving market conditions.
    Since that time, the Board has adjusted the formula for the rate of 
interest for excess balances twice (73 FR 65506 (Nov. 4, 2008), 73 FR 
67713 (Nov. 17, 2008)). When the Board adjusted the formula for the 
interest rate for excess balances the second time, the Board also 
adjusted the formula for the rate of interest on required reserve 
balances (73 FR 67713) (Nov. 17, 2008). The formula for the rate of 
interest on required reserve balances currently is equal to the average 
target federal funds rate over the maintenance period, and the formula 
for the rate of interest on excess balances currently is equal to the 
lowest target federal funds rate over the maintenance period.
    In light of weak economic conditions, the FOMC decided, on December 
16, 2008, to specify a target range for the federal funds rate as the 
objective for open market operations, rather than a single target rate. 
As a result, the previous rate formulas for interest on required 
reserve balances and excess balances were no longer workable. The Board 
has accordingly judged that setting the rate on required reserve 
balances and on excess balances at \1/4\ percent (0.25 percent) will 
best support the Federal Reserve's objectives. These revised rates of 
interest will be applicable with the reserve maintenance periods 
beginning on Thursday, December 18, 2008.
    The Board will continue to evaluate the appropriate level of the 
rates of interest for required reserve balances and for excess balances 
in light of evolving market conditions, and will make further 
adjustments as needed. In order to provide needed flexibility in making 
these adjustments to the rates of interest, the Board is amending 
Regulation D to provide that the rates of interest on required reserve 
balances and excess balances may be rates as determined by the Board 
from time to time, rather than the rates stated in revised sections 
204.10(b)(1) and 204.10(b)(2) of Regulation D.

Administrative Procedure Act

    The Board has adopted this rule in light of, and to help address, 
the continuing unusual strains in the financial markets. This rule 
provides tools for carrying out monetary policy more effectively. The 
Board believes that any delay in implementing the rule would be 
contrary to the public interest because any delay would hamper the 
Board's ability to make timely rate adjustments in order to address 
existing credit and liquidity pressures in the financial markets and 
future developments in these markets. Delay in implementing changes to 
the rates of interest payable on required reserve balances and excess 
balances could retard the effective implementation of monetary policy. 
Therefore, in accordance with the Administrative Procedure Act 
(``APA'') section 553(b) (5 U.S.C. 553(b)), the Board finds, for good 
cause, that providing notice and an opportunity for public comment 
before the effective date of this rule would be contrary to the public 
interest. In addition, pursuant to APA section 553(d) (5 U.S.C. 
553(d)), the Board finds good cause for making this amendment effective 
without 30 days advance publication.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (the ``RFA'') requires an agency 
that is issuing a final rule to prepare and make available a regulatory 
flexibility analysis that describes the impact of the final rule on 
small entities. 5 U.S.C. 603(a). The RFA provides that an agency is not 
required to prepare and publish a regulatory flexibility analysis if 
the agency certifies that the final rule will not have a significant 
economic impact on a substantial number of small entities. 5 U.S.C. 
605(b).
    Pursuant to section 605(b) of the RFA, the Board certifies that 
this interim final rule will not have a significant adverse economic 
impact on a substantial number of small entities. The rule continues 
the payment of interest on certain balances held by eligible 
institutions at the Federal Reserve Banks and will benefit all 
institutions, small and large, that receive such interest. There are no 
new reporting, recordkeeping, or other compliance requirements 
associated with this rule.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act (44 U.S.C. 3506; 5 
CFR Part 1320 Appendix A.1), the Board has reviewed the interim final 
rule under authority delegated to the Board by the Office of Management 
and Budget. The rule contains no collections of information pursuant to 
the Paperwork Reduction Act.

List of Subjects in 12 CFR Part 204

    Banks, Banking, Reporting and recordkeeping requirements.

Authority and Issuance

0
For the reasons set forth in the preamble, the Board is amending 12 CFR 
part 204 as follows:

PART 204--RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS 
(REGULATION D)

0
1. The authority citation for part 204 continues to read as follows:

    Authority: 12 U.S.C. 248(a), 248(c), 371a, 461, 601, 611, and 
3105.


0
2. In Sec.  204.10, paragraph (b) is revised to read as follows:


Sec.  204.10  Payment of interest on balances.

* * * * *
    (b) Except as provided in paragraph (c) of this section, Federal 
Reserve Banks shall pay interest at the following rates--
    (1) For required reserve balances, at \1/4\ percent;
    (2) For excess balances, at \1/4\ percent; or
    (3) For required reserve balances or excess balances, at any other 
rate or rates as determined by the Board from time to time.
* * * * *


[[Page 78618]]


    By order of the Board of Governors of the Federal Reserve 
System, December 18, 2008.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E8-30471 Filed 12-22-08; 8:45 am]
BILLING CODE 6210-01-P