[Federal Register Volume 62, Number 223 (Wednesday, November 19, 1997)]
[Rules and Regulations]
[Pages 61620-61622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30237]


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FEDERAL RESERVE SYSTEM

12 CFR Part 204

[Regulation D; Docket No. R-0945]


Reserve Requirements of Depository Institutions

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Final rule.

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SUMMARY: The Board is amending Regulation D, Reserve Requirements of 
Depository Institutions, to decrease the amount of transaction accounts 
subject to a reserve requirement ratio of three percent, as required by 
section 19(b)(2)(C) of the Federal Reserve Act, from $49.3 million to 
$47.8 million of net transaction accounts. This adjustment is known as 
the low reserve tranche adjustment. The Board is increasing from $4.4 
million to $4.7 million the amount of reservable liabilities of each 
depository institution that is subject to a reserve requirement of zero 
percent. This action is required by section 19(b)(11)(B) of the Federal 
Reserve Act, and the adjustment is known as the reservable liabilities 
exemption adjustment. The Board is also increasing the deposit cutoff 
levels that are used in conjunction with the reservable liabilities 
exemption to determine the frequency of deposit reporting from $75.0 
million to $78.9 million for nonexempt depository institutions and from 
$48.2 million to $50.7 million for exempt institutions. (Nonexempt 
institutions are those with total reservable liabilities exceeding the 
amount exempted from reserve requirements ($4.7 million) while exempt 
institutions are those with total reservable liabilities not exceeding 
the amount exempted from reserve requirements.) Thus, beginning in 
September 1998, nonexempt institutions with total deposits of $78.9 
million or more will be required to report weekly while nonexempt 
institutions with total deposits less than $78.9 million may report 
quarterly, in both cases on form FR 2900. Similarly, exempt 
institutions with total deposits of $50.7 million or more will be 
required to report quarterly on form FR 2910q while exempt institutions 
with total deposits less than $50.7 million may report annually on form 
FR 2910a.

DATES: Effective date: December 16, 1997.
    Compliance dates: For depository institutions that report weekly, 
the low reserve tranche adjustment and the reservable liabilities 
exemption adjustment will apply to the reserve computation period that 
begins Tuesday, December 30, 1997, and the corresponding reserve 
maintenance period that begins Thursday, January 1, 1998. For 
institutions that report quarterly, the low reserve tranche adjustment 
and the reservable liabilities exemption adjustment will apply to the 
reserve computation period that begins Tuesday, December 16, 1997, and 
the corresponding reserve maintenance period that begins Thursday, 
January 15, 1998. For all depository institutions, the deposit cutoff 
levels will be used to screen institutions in the second quarter of 
1998 to determine the reporting frequency for the twelve month period 
that begins in September 1998.

FOR FURTHER INFORMATION CONTACT: Rick Heyke, Attorney (202/452-3688), 
Legal

[[Page 61621]]

Division, or June O'Brien, Economist (202/452-3790), Division of 
Monetary Affairs; for the hearing impaired only, contact Diane Jenkins, 
Telecommunications Device for the Deaf (TDD)(202/452-3544); Board of 
Governors of the Federal Reserve System, 20th and C Streets, N.W., 
Washington, DC 20551.

SUPPLEMENTARY INFORMATION: Section 19(b)(2) of the Federal Reserve Act 
(12 U.S.C. 461(b)(2)) requires each depository institution to maintain 
reserves against its transaction accounts and nonpersonal time 
deposits, as prescribed by Board regulations. The initial reserve 
requirements imposed under section 19(b)(2) were set at three percent 
for net transaction accounts of $25 million or less and at 12 percent 
on net transaction accounts above $25 million for each depository 
institution. Effective April 2, 1992, the Board lowered the required 
reserve ratio applicable to transaction account balances exceeding the 
low reserve tranche from 12 percent to 10 percent. Section 19(b)(2) 
also provides that, before December 31 of each year, the Board shall 
issue a regulation adjusting the low reserve tranche for the next 
calendar year. The adjustment in the tranche is to be 80 percent of the 
percentage increase or decrease in net transaction accounts at all 
depository institutions over the one-year period that ends on the June 
30 prior to the adjustment.
    Currently, the low reserve tranche on net transaction accounts is 
$49.3 million. Net transaction accounts of all depository institutions 
decreased by 3.7 percent (from $740.1 billion to $712.8 billion) from 
June 30, 1996, to June 30, 1997. In accordance with section 19(b)(2), 
the Board is amending Regulation D (12 CFR Part 204) to decrease the 
low reserve tranche for transaction accounts for 1998 by $1.5 million 
to $47.8 million.
    Section 19(b)(11)(A) of the Federal Reserve Act (12 U.S.C. 461 
(b)(11)(B)) provides that $2 million of reservable liabilities 
1 of each depository institution shall be subject to a zero 
percent reserve requirement. Each depository institution may, in 
accordance with the rules and regulations of the Board, designate the 
reservable liabilities to which this reserve requirement exemption is 
to apply. However, if net transaction accounts are designated, only 
those that would otherwise be subject to a three percent reserve 
requirement (i.e., net transaction accounts within the low reserve 
requirement tranche) may be so designated.
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    \1\ Reservable liabilities include transaction accounts, 
nonpersonal time deposits, and Eurocurrency liabilities as defined 
in section 19(b)(5) of the Federal Reserve Act. The reserve ratio on 
nonpersonal time deposits and Eurocurrency liabilities is zero 
percent.
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    Section 19(b)(11)(B) of the Federal Reserve Act provides that, 
before December 31 of each year, the Board shall issue a regulation 
adjusting for the next calendar year the dollar amount of reservable 
liabilities exempt from reserve requirements. Unlike the adjustment for 
the low reserve tranche on net transaction accounts, which adjustment 
can result in a decrease as well as an increase, the change in the 
exemption amount is to be made only if the total reservable liabilities 
held at all depository institutions increase from one year to the next. 
The percentage increase in the exemption is to be 80 percent of the 
increase in total reservable liabilities of all depository institutions 
as of the year ending June 30. Total reservable liabilities of all 
depository institutions increased by 7.7 percent (from $1,695.1 billion 
to $1,824.8 billion) from June 30, 1996, to June 30, 1997. 
Consequently, the reservable liabilities exemption amount for 1998 
under section 19(b)(11)(B) will be increased by $0.3 million to $4.7 
million.2
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    \2\ Consistent with Board practice, the tranche and exemption 
amounts have been rounded to the nearest $0.1 million.
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    The effect of the application of section 19(b) of the Federal 
Reserve Act to the change in the total net transaction accounts and the 
change in the total reservable liabilities from June 30, 1996, to June 
30, 1997, is to decrease the low reserve tranche to $47.8 million, to 
apply a zero percent reserve requirement on the first $4.7 million of 
transaction accounts, and to apply a three percent reserve requirement 
on the remainder of the low reserve tranche.
    The tranche adjustment and the reservable liabilities exemption 
adjustment for weekly reporting institutions will be effective for the 
reserve computation period beginning Tuesday, December 30, 1997, and 
for the corresponding reserve maintenance period beginning Thursday, 
January 1, 1998. For institutions that report quarterly, the tranche 
adjustment and the reservable liabilities exemption adjustment will be 
effective for the computation period beginning Tuesday, December 16, 
1997, and for the reserve maintenance period beginning Thursday, 
January 15, 1998. In addition, all institutions currently submitting 
form FR 2900 must continue to submit reports to the Federal Reserve 
under current reporting procedures.
    In order to reduce the reporting burden for small institutions, the 
Board has established deposit reporting cutoff levels to determine 
deposit reporting frequency. Institutions are screened during the 
second quarter of each year to determine reporting frequency beginning 
the following September. In July of 1988 the Board set a single cutoff 
level for all depository institutions of $40 million plus an amount 
equal to 80 percent of the annual rate of increase of total 
deposits.3 In August of 1994, the Board replaced the single 
deposit cutoff level that had applied to both nonexempt and exempt 
institutions with separate cutoff levels, increasing the cutoff level 
for nonexempt institutions, and in September 1997 further increased the 
cutoff level for nonexempt institutions. The cutoff level for nonexempt 
institutions, which determines whether they report (on FR 2900) 
quarterly or weekly, was thereby raised to $75.0 million. The deposit 
cutoff level for exempt institutions, which determines whether they 
report annually (on FR 2910a) or quarterly (on FR 2910q), remained at 
the indexed level of $48.2 million.
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    \3\ ``Total deposits'' as used in determining the cutoff level 
includes not only gross transaction deposits, savings accounts, and 
time deposits, but also reservable obligations of affiliates, 
ineligible acceptance liabilities, and net Eurocurrency liabilities.
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    From June 30, 1996, to June 30, 1997, total deposits increased 6.6 
percent, from $4,168.2 billion to $4,442.2 billion.
    Accordingly, the nonexempt deposit cutoff level will increase by 
$3.9 million to $78.9 million and the exempt deposit cutoff level will 
increase by $2.5 million to $50.7 million. Based on the indexation of 
the reservable liabilities exemption, the cutoff level for total 
deposits above which reports of deposits must be filed will rise from 
$4.4 million to $4.7 million. Institutions with total deposits below 
$4.7 million will be excused from reporting if their deposits can be 
estimated from other data sources. The $78.9 million cutoff level for 
weekly versus quarterly FR 2900 reporting for nonexempt institutions, 
the $50.7 million cutoff level for quarterly FR 2910q versus annual FR 
2910a reporting for exempt institutions, and the $4.7 million level 
threshold for reporting will be used in the second quarter 1998 
deposits report screening process, and the adjustments will be made 
when the new deposit reporting panels are implemented in September 
1998.
    All U.S. branches and agencies of foreign banks and all Edge and 
agreement corporations, regardless of size, are required to file weekly 
the

[[Page 61622]]

Report of Transaction Accounts, Other Deposits and Vault Cash (FR 
2900). After the indexations become effective in 1998, all other 
institutions that have reservable liabilities in excess of the 
exemption level of $4.7 million prescribed by section 19(b)(11) of the 
Federal Reserve Act (known as ``nonexempt institutions'') and total 
deposits at least equal to the nonexempt deposit cutoff level ($78.9 
million) will be required to file weekly the Report of Transaction 
Accounts, Other Deposits and Vault Cash (FR 2900) for the twelve month 
period starting September 1998. However, nonexempt institutions with 
total deposits less than the nonexempt deposit cutoff level ($78.9 
million), will be able to file the FR 2900 quarterly. Institutions that 
obtain funds from non-U.S. sources or that have foreign branches or 
international banking facilities are required to file the Report of 
Certain Eurocurrency Transactions (FR 2950/2951) at the same frequency 
as they file the FR 2900.
    Institutions with reservable liabilities at or below the exemption 
level ($4.7 million) (known as exempt institutions) will be required to 
file the Quarterly Report of Selected Deposits, Vault Cash, and 
Reservable Liabilities (FR 2910q) if their total deposits equal or 
exceed the exempt deposit cutoff level ($50.7 million). Exempt 
institutions with total deposits less than the exempt deposit cutoff 
level ($50.7 million) but at least equal to the exemption amount ($4.7 
million) will be able to file the Annual Report of Total Deposits and 
Reservable Liabilities (FR 2910a). Institutions that have total 
deposits less than the exemption amount ($4.7 million) are not required 
to file deposit reports if their deposits can be estimated from other 
data sources.
    Finally, the Board may require a depository institution to report 
on a weekly basis, regardless of the cutoff level, if the institution 
manipulates its total deposits and other reservable liabilities in 
order to qualify for quarterly reporting. Similarly, any depository 
institution that reports quarterly may be required to report weekly and 
to maintain appropriate reserve balances with its Reserve Bank if, 
during its computation period, it understates its usual reservable 
liabilities or overstates the deductions allowed in computing required 
reserve balances.

Notice and Public Participation

    The provisions of 5 U.S.C. 553(b) relating to notice and public 
participation have not been followed in connection with the adoption of 
these amendments because the amendments involve expected, ministerial 
adjustments prescribed by statute and by an interpretative statement 
reaffirming the Board's policy concerning reporting practices. 
Moreover, the low reserve tranche adjustment and the reservable 
liabilities exemption adjustment are required to be effective for the 
next calendar year even though the data which they are required to 
reflect are only available late in the prior year. In addition, the 
reservable liabilities exemption adjustment and the increases for 
reporting purposes in the deposit cutoff levels reduce regulatory 
burdens on depository institutions, and the low reserve tranche 
adjustment will have a de minimis effect on depository institutions 
with net transaction accounts exceeding $47.8 million. Accordingly, the 
Board finds good cause for determining, and so determines, that notice 
and public participation is unnecessary, impracticable, or contrary to 
the public interest.
    The provisions of 5 U.S.C. 553(d) relating to notice of the 
effective date of a rule have not been followed in connection with the 
adoption of these amendments because the low reserve tranche adjustment 
and the reservable liabilities adjustment are expected, ministerial 
amendments prescribed by statute. Moreover, they are required to be 
effective for the next calendar year even though the data which they 
are required to reflect are only available late in the prior year. In 
addition, the reservable liabilities adjustment and the increase in 
deposit cutoff levels for reporting purposes relieve a restriction on 
depository institutions, and the low reserve tranche will have a de 
minimis effect on depository institutions with net transaction accounts 
exceeding $47.8 million. Accordingly, there is good cause to determine, 
and the Board so determines, that such notice is impracticable or 
unnecessary.

Regulatory Flexibility Analysis

    The Board certifies that these amendments will not have a 
substantial economic impact on small depository institutions. See 
``Notice and Public Participation'' above.

List of Subjects in 12 CFR Part 204

    Banks, banking, Reporting and recordkeeping requirements.

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

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

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

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

    2. Section 204.9 is revised to read as follows:


Sec. 204.9  Reserve requirement ratios.

    (a) Reserve percentages. The following reserve ratios are 
prescribed for all depository institutions, Edge and Agreement 
corporations, and United States branches and agencies of foreign banks:

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                 Category                      Reserve requirement \1\  
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Net transaction accounts:                                               
  $0 to $47.8 million.....................  3 percent of amount.        
  over $47.8 million......................  $1,434,000 plus 10 percent  
                                             of amount over $47.8       
                                             million                    
  Nonpersonal time deposits...............  0 percent.                  
  Eurocurrency liabilities................  0 percent.                  
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\1\ Before deducting the adjustment to be made by the paragraph (b) of  
  this section.                                                         

    (b) Exemption from reserve requirements. Each depository 
institution, Edge or agreement corporation, and U.S. branch or agency 
of a foreign bank is subject to a zero percent reserve requirement on 
an amount of its transaction accounts subject to the low reserve 
tranche in paragraph (a) of this section not in excess of $4.7 million 
determined in accordance with Sec. 204.3(a)(3).

    By order of the Board of Governors of the Federal Reserve System, 
November 13, 1997.
William W. Wiles,
Secretary of the Board.
[FR Doc. 97-30237 Filed 11-18-97; 8:45 am]
BILLING CODE 6210-01-P