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One supportive commenter noted that This same commenter further stated that amend this section if the assessment all Board expenditures must be the investment in the Board would be rate is modified. approved by the Board members, who used to improve market penetration, * * * * * represent the interests of different thereby improving returns to growers Dated: April 6, 2012. regions and countries. Because the and shippers, and offsetting the higher Board is comprised of members from six costs. Additionally, the 2010 David R. Shipman, countries and the Commonwealth of econometric study found that increased Acting Administrator, Agricultural Marketing Puerto Rico, the ability of the Board to spending by the Board provides a large Service. come to a consensus on activities and increase in revenues to importers. [FR Doc. 2012–8825 Filed 4–11–12; 8:45 am] expenditures is valuable to the entire One commenter opposed the BILLING CODE P mango industry. One comment cited the assessment increase, stating that the geographic diversity of the Board as a current assessment provides a negative key reason for its success because a return on investment. Another FEDERAL RESERVE SYSTEM wide variety of viewpoints are commenter also noted that the Board 12 CFR Part 204 represented by the Board members. The should ensure that its investments are fact that the assessment increase is yielding reasonable returns. One [Regulation D; Docket No. R–1433] favored by a majority of Board members commenter further stated that the RIN 7100–AD83 demonstrates the breadth of support for assessment rate needed to sufficiently the increase from throughout the mango fund promotion programs would likely Reserve Requirements of Depository industry. be 20 times the proposed rate of three Institutions: Reserves Simplification Another commenter stated that the quarters of a cent per pound. No proposed assessment increase has been evidence was offered to support this AGENCY: Board of Governors of the discussed with all mango industry claim. According to the 2010 Federal Reserve System. stakeholders, and is favored by econometric study, every $1 currently ACTION: Final rule. organizations in Mexico, Peru, spent by the Board adds an additional Guatemala, Haiti, Ecuador and Brazil. In $7 to mango freight on board revenues. SUMMARY: The Board is amending order to determine whether foreign The Department has considered all of Regulation D, Reserve Requirements of producers would support an assessment Depository Institutions, to simplify the increase, the Board held informational the comments and is not making any changes to the proposed rule. administration of reserve requirements. meetings in each of the countries that The final rule creates a common two- export mangos to the United States. At After consideration of all relevant week maintenance period for all these meetings, Board representatives material presented, the Board’s depository institutions, creates a explained the activities conducted with recommendation, public comments and penalty-free band around reserve assessment funds and received positive other information, it is hereby found balance requirements in place of feedback from attendees on the that this rule, as published in the carryover and routine penalty waivers, proposed assessment increase. Federal Register on May 10, 2011 [76 discontinues as-of adjustments related One of the comments in support of FR 26946], is consistent with and will to deposit report revisions, replaces all the assessment increase was received effectuate the purpose of the Act. other as-of adjustments with direct from a Mexican mango industry List of Subjects in 7 CFR Part 1206 compensation, and eliminates the organization. In addition to their own contractual clearing balance program. comments, several commenters Administrative practice and The amendments are designed to reduce submitted correspondence from foreign procedure, Advertising, Consumer the administrative and operational costs agricultural organizations indicating information, Marketing agreements, associated with reserve requirements for their support for the assessment Mango promotion, Reporting and depository institutions, the Board, and increase. Letters of support were recordkeeping requirements. Federal Reserve Banks. received on behalf of organizations in For the reasons set forth in the Haiti, Peru, Guatemala, Ecuador, and DATES: Effective Date: This rule is preamble, 7 CFR part 1206 is amended effective on July 12, 2012, except that Brazil. as follows: One commenter opposed the effective on January 24, 2013, the following sections are further amended: assessment increase, stating that the PART 1206—MANGO PROMOTION, § 204.2(z), (ff), (gg) and (hh); § 204.5 Board can fulfill its objectives at its RESEARCH, AND INFORMATION current funding level. As the Board (b)(2), (d)(4)(i), and (e); § 204.6 (a) and (b); § 204.10 (b)(1), (b)(3), and (c). stated in its proposal, without an ■ 1. The authority citation for 7 CFR increase in the assessment rate, part 1206 continues to read as follows: FOR FURTHER INFORMATION CONTACT: Kara spending on mango research and Handzlik, Senior Attorney (202) 452– promotion programs would need to be Authority: 7 U.S.C. 7411–7425 and 7 3852, Legal Division, or Margaret Gillis U.S.C. 7401. reduced. As stated previously, the 2010 DeBoer, Assistant Director (202) 452– econometric study concluded that ■ 2. In § 1206.42, paragraph (b) is 3139, or Heather Wiggins, Senior decreased spending on the Board’s revised to read as follows: Financial Analyst (202) 452–3674, programs would correspond to declines Division of Monetary Affairs, or for in mango purchases. § 1206.42 Assessments. questions regarding the Private Sector One commenter opposed the * * * * * Adjustment Factor, Gregory Evans, assessment increase, stating that raising (b) The assessment rate shall be 3⁄4 of Deputy Associate Director (202) 452– the assessment rate would harm mango a cent per pound on all mangos. The 3945, or Brenda Richards, Manager importers already coping with higher assessment rate will be reviewed and (202) 452–2753, Division of Reserve freight rates and poor currency may be modified by the Board with the Bank Operations and Payment Systems; exchange rates. In response, another approval of the Department, after the for users of Telecommunications Device commenter argued that the assessment first referendum is conducted as stated for the Deaf (TDD) only, contact (202) is an investment rather than an expense. in § 1206.71(b). The Department will 263–4869; Board of Governors of the

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Federal Reserve System, 20th and C institutions at a rate or rates determined accounts. The Board most recently Streets NW., Washington, DC 20551. by the Board and not to exceed the addressed this issue in its May 2009 SUPPLEMENTARY INFORMATION: general level of short-term interest Regulation D rulemaking (72 FR 25629, rates.3 The Board amended Regulation D 25631 (May 29, 2009)) when it finalized I. Background in 2008 to allow Reserve Banks to pay amendments to increase from three to Section 19 of the Federal Reserve Act interest on balances maintained to six the permissible monthly number of (Act) 1 authorizes the Board of satisfy reserve balance requirements and transfers or withdrawals from savings Governors of the Federal Reserve excess balances. Both types of balances deposits by check, debit card, or similar System (Board) to impose reserve currently earn interest at the rate of 25 order payable to third parties. As noted requirements on certain deposits and basis points.4 Contractual clearing in the May 2009 rulemaking, the Board other liabilities of depository balances generate earnings credits, as must impose reserve requirements on institutions for the purpose of noted above, but they do not earn transaction accounts and not on other implementing monetary policy. The explicit interest payments.5 types of accounts, such as savings Board’s Regulation D (Reserve II. Request for Public Comment and deposits, pursuant to section 19 of the Requirements of Depository Institutions, 7 Summary of Comments Received Federal Reserve Act. The Board 12 CFR part 204) implements section 19 believes the current numeric limitation of the Act and establishes reserve On October 18, 2011, the Board is necessary for the Board to maintain requirement ratios within the limits requested public comment on proposed the ability to distinguish between mandated by the Act. Under Regulation amendments to Regulation D and on reservable and non-reservable types of D currently, transaction account several issues related to the deposit accounts. balances maintained at each depository methodology used to create the Private institution are subject to reserve Sector Adjustment Factor (76 FR 64250 III. Analysis of Proposed requirement ratios of zero, three, or ten (Oct. 18, 2011)). One comment was Simplifications and Comments percent, depending on the level of received on the Private Sector The Board proposed amendments to transaction accounts at that institution.2 Adjustment Factor; the comment will be Regulation D that would implement the A depository institution satisfies its addressed in a future Federal Register following four simplifications related to reserve requirement by its holdings of notice along with previous comments to the administration of reserve vault cash and, if vault cash is the Board’s proposal to replace the requirements: insufficient to meet the requirement, by current ‘‘correspondent bank model’’ 1. Create a common two-week maintaining balances in an account at a with a model based on publicly traded maintenance period for all depository Federal Reserve Bank (Reserve Bank). firms.6 institutions; An institution may maintain balances The Board received 43 comments in 2. Create a penalty-free band around either in the institution’s own account response to its request for comment on reserve balance requirements in place of at a Reserve Bank or in a pass-through the Regulation D amendments. The using carryover and routine penalty correspondent’s Reserve Bank account. responses consisted of comments from waivers; The amount of balances that an 4 depository institutions, 19 employees 3. Discontinue as-of adjustments institution must maintain if its reserve of financial institutions, 12 financial related to deposit report revisions and requirement is not satisfied by vault institution trade associations, and replace all other as-of adjustments with cash is referred to as the institution’s 8 individuals. Thirteen commenters direct compensation; and reserve balance requirement. An addressed the proposed amendments to 4. Eliminate the contractual clearing institution satisfies its reserve balance Regulation D; 8 of these 13 commenters balance program. requirement on average over a specified also addressed issues not raised by the The Board also proposed to make period of time, referred to as a proposal. Thirty commenters addressed changes to various terms used maintenance period. only issues not raised by the proposal. throughout Regulation D in order to Currently, an institution may also All but one of the 13 commenters on the clarify the meaning, enhance the enter into an agreement with its Reserve proposed Regulation D amendments accuracy, and ensure the consistent Bank under which the institution agrees generally supported the proposal, but application of those terms. These to maintain a specific minimum balance suggested (sometimes conflicting) proposed changes included replacing in its account (referred to as a amendments, provided support the term ‘‘required reserve balance’’ contractual clearing balance). contingent on certain conditions, or with ‘‘balances maintained to satisfy the Contractual clearing balances generate requested that the Board delay the reserve balance requirement,’’ adding a earning credits that the institution can implementation date(s) of one or more definition of ‘‘reserve balance use to offset service charges it incurs of the proposed amendments. These requirement,’’ and making conforming through its use of Federal Reserve comments are discussed in more detail revisions throughout the regulation. priced services. In addition, an below. After consideration of the comments institution may also maintain excess The majority of comments on issues received, the Board is adopting the balances. Excess balances are balances not raised by the proposal concerned amendments to Regulation D maintained by an institution in its limits on the number of certain substantially as proposed, with minor account at a Reserve Bank that are in convenient transfers that may be made technical changes. The Board considers excess of the balances maintained to each month from savings deposit the final amendments to Regulation D satisfy its reserve balance requirement appropriate given the current approach and the contractual clearing balance 3 Emergency Economic Stabilization Act of 2008, to implementing monetary policy. If the requirement (if any). Public Law 110–343, § 128, 122 Stat. 3765 (2008). Federal Reserve changes its monetary 4 Congress amended the Act in 2008 to 12 CFR 204.10(b) (rates of interest paid on policy framework, which includes the authorize the Reserve Banks to pay balances maintained by eligible institutions at Reserve Banks). payment of interest on balances held interest on balances of eligible 5 Earnings credits currently are computed as 80 percent of the rolling 13-week average of the three- 7 The Act requires the Board to impose reserve 1 12 U.S.C. 461. month Treasury bill rate. requirements in a ratio from zero to fourteen 2 12 CFR 204.4(f) (reserve requirement ratios). 6 74 FR 15481 (April 6, 2009). percent on reservable liabilities.

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with Reserve Banks, the entire maintenance period instead of a one- relationship of quarterly reporting framework, including the provisions of week maintenance period. periods to two-week maintenance Regulation D, would be reassessed. As The Board proposed to create a periods will be new. Revised a result of the Board’s adoption of these common two-week maintenance period § 204.5(b)(2) provides that, for quarterly final amendments to Regulation D, for all depository institutions. reporters, each quarterly report will be related Federal Reserve Bank operating Accordingly, the Board proposed to used to calculate the reporter’s reserve circulars and manuals affected by the retain the two-week maintenance period balance requirement for an interval of final amendments to Regulation D will requirement for weekly reporters in either six or seven consecutive two- be updated accordingly. § 204.5(b)(1) of Regulation D, but to week maintenance periods, depending amend § 204.5(b)(2) to include quarterly on when the interval begins and ends. Create a Common Two-Week reporters in the two-week maintenance The interval will begin on the fourth Maintenance Period for All Depository period requirement. As set forth in the Thursday following the end of each Institutions proposal, the common two-week quarterly reporting period if that As noted above, a depository maintenance period would tend to Thursday is the first day of a two-week institution satisfies its reserve balance benefit depository institutions, Reserve maintenance period. If the fourth requirement on average over a period of Banks, and the Board by (1) providing Thursday following the end of a time that is known as a maintenance greater flexibility to depository quarterly reporting period is not the first period. Currently, Regulation D institutions that currently satisfy reserve day of a two-week maintenance period, provides for two types of maintenance balance requirements over a one-week then the interval will begin on the fifth periods: a one-week maintenance period maintenance period; (2) reducing Thursday following the end of the and a two-week maintenance period. unnecessary complexity in the existing quarterly reporting period. The interval The determination of which maintenance period structure; (3) will end on the fourth Wednesday maintenance period applies to an reducing administrative and operational following the end of the subsequent institution depends primarily on the costs for depository institutions that quarterly reporting period if that frequency with which it is required to may otherwise have had to change Wednesday is the last day of a two-week report its deposits to the Federal maintenance periods when deposit maintenance period. If the fourth Reserve. The Board requires depository reporting categories (and therefore Wednesday following the end of the institutions to submit deposit reports at length of maintenance period) changed; subsequent quarterly reporting period is different frequencies depending on the and (4) reducing the operational and not the last day of a two-week amount of their reservable liabilities administrative cost for Reserve Banks maintenance period, then the interval over the previous year. Depository and the Board by eliminating business will conclude on the fifth Wednesday institutions that have reservable processes and controls associated with following the end of the subsequent liabilities above a certain amount maintaining two maintenance periods. quarterly reporting period.8 The Board received 12 comments on (exemption amount) are required to Annual reporters and nonreporters the proposed common two-week submit deposit data either weekly or will continue to receive interest on their maintenance period. Of these average balances maintained with quarterly. Regulation D currently comments, 11 supported the creation of subjects weekly reporters to a two-week Reserve Banks; however, the interest a common two-week maintenance payments will be calculated on the maintenance period and quarterly period, and generally agreed that a reporters to a one-week maintenance average balance maintained over a two- common two-week maintenance period week period at the excess balance rate period. Institutions that have reservable would reduce burden. One commenter liabilities below the exemption amount instead of a one-week period at the expressed concern that annual reporters excess balance rate. either submit deposit reports annually would face increased burden under the or are not required to report at all. common two-week maintenance period Create a Penalty-Free Band Around Annual reporters and nonreporters with if they were required to submit two Reserve Balance Requirements in Place a contractual clearing balance are weeks of data rather than a single day of Carryover and Routine Penalty currently subject to a one-week of data. The proposed common two- Waivers maintenance period. Institutions that week maintenance period, however, As noted above, Regulation D requires have neither reserve requirements nor does not change the frequency or the clearing balance requirements receive a depository institution to satisfy its amount of data an institution must reserve balance requirement on average interest payments at the excess balance report, but rather changes the period of rate because they do not maintain over that depository institution’s time over which an institution would maintenance period. Currently, balances to satisfy reserve balance satisfy its reserve balance requirement requirements. § 204.5(e) of Regulation D permits a (if any). Annual reporters will continue depository institution that has a modest From one year to another, some to be required to report one day’s worth deficiency in its balances maintained to depository institutions switch reporting of data, once a year, and have a reserve satisfy a reserve balance requirement frequency because of changes in the requirement of zero. over a given maintenance period to levels of the institution’s reservable The Board is adopting the common make up that deficiency by holding a liabilities. Specifically, some depository two-week maintenance period as higher level of balances in the institutions may switch from a two- proposed. As noted in the proposal, for subsequent maintenance period. week maintenance period to a one-week depository institutions that report their Correspondingly, § 204.5(e) also permits maintenance period, or vice versa. In deposits weekly, the relationship certain instances, depository between weekly reporting periods and 8 The Board currently provides quarterly reporters institutions that become eligible to shift two-week maintenance periods will be with reserve maintenance calendars that link to a quarterly instead of weekly maintained in § 204.5(b)(1) of quarterly reporting periods to a group of one-week reporting frequency elect to remain at Regulation D. For depository maintenance periods. See http:// www.frbservices.org/centralbank/reservescentral/ the higher reporting frequency in order institutions that report their deposits index.html#rmc. The Board will update these to maintain the flexibility of satisfying quarterly, the quarterly reporting reserve maintenance calendars to reflect the new reserve requirements over a two-week periods will not change, but the rule.

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a depository institution that has a depository institution that maintained of the penalty-free band will roughly modest excess of balances maintained to balances that exceeded the reserve replicate the amount of flexibility satisfy its reserve balance requirement balance requirement, but fell within the currently provided under the carryover over a maintenance period to use that band, would be remunerated at the provision. On average, reserve balance excess by holding a lower level of interest rate paid on balances requirements are just under half of total balances in the next maintenance maintained to satisfy a reserve balance reserve requirements. Therefore, the period. This ‘‘carryover’’ provision (the requirement. Balances that exceeded the flexibility provided by the existing ability to carry an excess or deficiency top of the penalty-free band would be 4 percent carryover provision, when from one maintenance period over to remunerated at the interest rate paid on expressed in terms of reserve balance the next) essentially prevents a Reserve excess balances. A depository requirements, equates to roughly Bank from determining whether a institution that maintained balances 10 percent of the reserve balance depository institution has satisfied its below its reserve balance requirement requirement for a typical depository reserve balance requirement, or is in an would not be assessed a deficiency institution. In addition, the Board excess or deficient position, until the charge unless the balances fell below believes a band constructed in terms of completion of the subsequent the bottom of the penalty-free band. The reserve balance requirements (rather maintenance period. As a result, Board also proposed to remove than reserve requirements) is Reserve Banks must delay the payment § 204.5(e) and amend §§ 204.6(a) and (b) appropriate. Reserve balance of interest and assessment of deficiency to eliminate the application of carryover requirements are more relevant than charges on eligible institutions’ and routine penalty waivers, reserve requirements for implementing balances. Section 204.6(a) currently respectively. Reserve Banks would, monetary policy and controlling the authorizes Reserve Banks to assess however, retain the authority to waive federal funds rate, because reserve deficiency charges against depository charges for deficiencies based on an balance requirements determine the institutions that fail to satisfy their evaluation of the circumstances in each amount of balances depository reserve balance requirements. Section individual case. Finally, the Board institutions are required to maintain in 204.6(b) currently permits Reserve proposed conforming amendments to Reserve Bank accounts. The Board also Banks to waive the imposition of these § 204.10(b)(1) and (b)(3), and (c) to acknowledges that the penalty-free band charges under certain conditions replace ‘‘required reserve balances’’ is applicable only in monetary policy through the use of ‘‘routine penalty with ‘‘balances up to the top of the frameworks where reserve balance waivers.’’ penalty-free band.’’ requirements are non-zero. If in the The Board proposed to create a Six commenters generally supported future all reserve balance requirements penalty-free band around each the Board’s proposal to create a penalty- were zero, which could result from depository institution’s reserve balance free band around each depository either a significant change to the Federal requirement and to eliminate the institution’s reserve balance Reserve’s monetary policy framework or carryover and routine penalty waiver requirement and to eliminate the from depository institutions’ limiting provisions of Regulation D. Specifically, carryover and routine waiver provisions the amount of their reservable liabilities, proposed § 204.2(gg) defined the top of of Regulation D. However, two of the the Board would reassess the penalty- the penalty-free band as an amount commenters that supported this free band and other aspects of the equal to an institution’s reserve balance simplification requested different dollar monetary policy framework accordingly. requirement plus an amount that is the amounts be used to establish the top The Board received four comments on greater of 10 percent of the institution’s and bottom of the penalty-free band. the proposed elimination of the reserve balance requirement or $50,000. One commenter suggested a smaller carryover provision. These commenters Proposed § 204.2(hh) defined the bottom dollar amount equal to the greater of supported the elimination provided that of the penalty-free band as an amount $50,000 or 6 percent of a depository interest is paid soon after a maintenance equal to an institution’s reserve balance institution’s reserve balance period ends on balances maintained to requirement less an amount that is the requirement. This commenter stated satisfy a reserve balance requirement greater of 10 percent of an institution’s that institutions would be provided and excess balances. The Board reserve balance requirement or $50,000. with sufficient flexibility if the band anticipates that the elimination of For pass-through correspondents, the were defined in this manner. The other carryover will allow for faster crediting Board proposed setting the dollar commenter requested the dollar amount of interest payments. amount used to establish the top and be calculated similarly to the current bottom of the penalty-free band at an carryover amount, using the greater of Discontinue as-of Adjustments Related amount that is equal to the greater of 10 $50,000 or 4 percent of a depository to Deposit Report Revisions and Replace percent of the aggregate reserve balance institution’s total reserve requirement All Other as-of Adjustments With Direct requirement of the correspondent (if (as opposed to 10 percent of its reserve Compensation any) and all of its respondents or balance requirement). This commenter As-of Adjustments for Deposit Report $50,000. was concerned that a band based on a Revisions Proposed § 204.2(z) revised the reserve balance requirement may affect definition of ‘‘excess balance’’ to mean the Federal Reserve’s ability to Depository institutions are required to the average balance maintained in a implement monetary policy in the event submit revisions to past deposit reports Reserve Bank account by or on behalf of that all depository institutions’ reserve to correct for reporting errors. Currently, an institution over a reserve balance requirements were zero. when those revisions result in a change maintenance period that exceeds the top The Board is adopting the penalty-free in the depository institution’s reserve of the penalty-free band, and proposed band as proposed, with one technical balance requirement, an as-of § 204.2(ff) defined ‘‘deficiency’’ as the addition, and is eliminating the use of adjustment is used to correct the bottom of the penalty-free band less the carryover and routine penalty waivers depository institution’s level of balances average balance maintained in a Reserve as proposed. The Board is clarifying that maintained. For example, if a reserve Bank account by or on behalf of an in no case will the bottom of the balance requirement for a given period institution over a reserve maintenance penalty-free band be less than zero. The is revised upwards, the as-of adjustment period. Under the proposed structure, a Board believes that the proposed width is used so that the depository institution

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must hold a greater level of balances in Three commenters supported the of ‘‘clearing balance’’ (§ 204.2(v)), a future maintenance period in order to replacement of as-of adjustments with ‘‘clearing balance allowance’’ meet its reserve balance requirement. direct compensation for all as-of (§ 204.2(w)), and ‘‘contractual clearing The Board proposed to eliminate the adjustments other than those related to balance’’ (§ 204.2(x)), along with the use of as-of adjustments for deposit deposit report revisions, provided that removal of any other references to report revisions. The payment of institutions may continue to obtain clearing balances and contractual interest on balances maintained to detailed information on the error that clearing balances elsewhere in satisfy reserve balance requirements occurred and the calculation of the Regulation D. essentially eliminates the need for as-of compensation amount. These Commenters generally supported the adjustments for deposit report revisions, commenters stated that such detailed elimination of the contractual clearing because the interest rate paid effectively information is needed to verify the balance program. However, one removes the implicit tax imposed by error, to reconcile accounts, and to commenter stated that the elimination reserve requirements. The Board allocate charges (or payments) by of the program may increase the received no comments opposing the correspondents to the appropriate possibility of overdrafts in depository elimination of as-of adjustments for respondents. Five commenters institutions’ Reserve Bank accounts if it deposit report revisions and is adopting supported the use of the federal funds was ever the case that the rate paid on this provision as proposed. The Board rate to compensate depository balances held at Reserve Banks is below notes that revisions to deposit reports to institutions for transaction-based errors. the federal funds rate and trading in the correct for reporting errors will still be No alternative compensation rate was federal funds market is more active. required, because these reports are used suggested. This commenter suggested the Board to calculate and publish the monetary The Board is adopting the final rule announce its intent to continue the aggregates. as proposed.10 The Board anticipates payment of interest on such balances at that the Reserve Banks will make the a rate equal to or greater than the federal All As-of Adjustments Other Than appropriate information and funds rate. Those Related to Deposit Report documentation available to depository The Board is adopting the elimination Revisions institutions as may be needed to permit of the contractual clearing balance In addition to use for deposit report institutions to reconcile accounts and program as proposed. The elimination revisions, as-of adjustments are allocate charges or payments. For of the contractual clearing balance currently used for other purposes as example, information will be available program will enhance the Federal well. These purposes include, but are that helps describe the calculation of Reserve’s ability to carry out monetary not limited to, correcting transaction direct compensation entries including policy by eliminating the complexities errors, recovering float, and penalizing the error amount, the start and end date associated with maintaining different an institution for a reserve deficiency in of the error, and identification of the balance requirements for different kinds lieu of assessing monetary charges. An originating service area. The Board also of balances and different kinds and as-of adjustment for a transaction-based anticipates that Reserves Banks will levels of interest rates (explicit and error corrects the average level of provide institutions with contact implicit). The elimination of the balances maintained by the depository information for service areas processing contractual clearing balance program institution to the level that would have direct compensation entries so that will not have any effect on a Reserve resulted had the error not occurred. An inquiries can be addressed. Bank’s ability to require institutions to as-of adjustment to recover float maintain a minimum level of balances compensates the Reserve Bank for the Eliminate the Contractual Clearing in their Reserve Bank accounts in order float that is created by an institution’s Balance Program for Reserve Banks to protect against request to defer check and ACH charges As noted above, a depository overdrafts.12 The Board established the for days in which the institution is institution may voluntarily agree with a rate of interest paid on balances closed. Finally, an as-of adjustment to Reserve Bank to maintain a level of maintained to satisfy reserve balance penalize an institution for a reserve balances in excess of the amount requirements at a level that implements deficiency can be used instead of necessary to satisfy its reserve balance monetary policy and that eliminates the imposing an explicit monetary charge to requirement. The actual amount that a implicit tax imposed by reserve the institution’s Reserve Bank account. depository institution maintains under requirements. The Board will continue The Board proposed replacing as-of such an agreement is known as a to evaluate the appropriate level of adjustments for transaction-based errors clearing balance.11 Reserve Banks do interest rates to achieve these stated with direct compensation (that is, either not pay explicit interest on clearing objectives and will communicate a debit or credit applied to an account balances. Instead, clearing balances changes when necessary. to offset the effect of an error). The generate earnings credits that a Board proposed replacing as-of depository institution may then use to Effective Dates adjustments for recovering float with pay for Reserve Bank priced services. The Board proposed to eliminate the explicit billing charges when float arises The Board proposed to eliminate the contractual clearing balance program from temporary institution closings. contractual clearing balance program. and the use of as-of adjustments no Finally, the Board proposed eliminating The Board proposed to amend earlier than the first quarter of 2012, and the use of as-of adjustments for reserve Regulation D to remove the definitions to implement a common maintenance deficiency penalties and relying solely period and the penalty-free band around on the assessment of explicit deficiency applies if compensation interest rate not otherwise reserve balance requirements no earlier charges. The Board proposed to pay (or determined by agreement or rule). than the third quarter of 2012. Four 10 Consistent with these amendments to commenters stated that the proposed charge) an institution in these situations Regulation D, elsewhere in the Federal Register the 9 at a rate based on the federal funds rate. Board is finalizing conforming changes to the effective date for the elimination of provisions in Regulation J that refer to as-of 9 The federal funds rate is used in other instances adjustments. 12 See Reserve Bank Operating Circulars at of direct compensation by Reserve Banks. See, e.g., 11 12 CFR 204.2(v) (definition of clearing http://www.frbservices.org/regulations/ § 210.32(b)(1)(ii) of Regulation J (federal funds rate balance). operating_circulars.html.

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clearing balances and as-of adjustments potential impact of the proposed rule on institution may choose, however, not to was too aggressive in light of other small entities. The Board did not receive change its internal systems accordingly, regulatory changes, and suggested any comments on the initial regulatory because it could continue to satisfy its implementation of these simplifications flexibility analysis. requirement weekly within the two- no earlier than the beginning of the 1. Statement of the need for, week maintenance period. The final rule third quarter of 2012, 90 days after objectives of, and legal basis for, the will also eliminate the contractual publication of the final rule, or a period final rule. The Board proposed to amend clearing balance program, currently of nine months. Four other commenters Regulation D to simplify the used by approximately 1,775 small requested that the implementation of all administration of reserve requirements. depository institutions. Although the simplifications be delayed for either a Section 19 of the Federal Reserve Act contractual clearing program will be period of nine months or at least until requires the Board to impose reserve eliminated, the Board does not the first quarter of 2013. Additionally, a requirements on certain deposits and anticipate that small depository subset of these commenters requested other liabilities of depository institutions will be negatively affected that the Board provide for a staggered institutions solely for the purposes of because small depository institutions implementation of the simplifications. implementing monetary policy. The will receive explicit interest payments The Board will eliminate the Board’s Regulation D implements on excess balances instead of earnings contractual clearing balance program section 19 of the Act. The Board credits on clearing balances. Small and the use of as-of adjustments earlier believes that the amendments to depository institutions can then use this than it will implement the common Regulation D will reduce the explicit interest to pay for Reserve Bank maintenance period and the penalty-free administrative and operational costs priced services or for other purposes, band. Given that commenters generally associated with reserve requirements for providing them with increased noted that few operational changes depository institutions. flexibility. In addition, the final rule would be necessary to prepare for the 2. Summary of significant issues eliminates the use of as-of adjustments proposed amendments, the Board will raised by public comment on the for deposit revisions. The Board does eliminate the contractual clearing Board’s initial analysis of issues, and a not believe the elimination of as-of balance program on July 12, 2012. Also statement of any changes made as a adjustments for deposit revisions will on this date, as-of adjustments will no result. The Board did not receive any negatively affect small depository longer be created and issuance of direct public comments on the proposed rule institutions because the interest rate compensation will begin. This date is addressing matters relating to the paid on balances maintained to satisfy approximately 90 days after the Board’s initial regulatory flexibility a reserve balance requirement publication of the final rule and is analysis. effectively removes the implicit tax 3. Small entities affected by the final within the time period suggested by imposed by reserve requirements. some commenters as appropriate to rule. The final rule applies to all 5. Identification of duplicative, depository institutions. Pursuant to prepare for the amendments. The Board overlapping, or conflicting Federal regulations issued by the Small will implement the common two-week rules. The Board has not identified any Business Administration (the ‘‘SBA’’) maintenance period, the penalty-free Federal rules that duplicate, overlap, or (13 CFR 121.201), a ‘‘small banking band, and the elimination of carryover conflict with the final rule. In a separate organization’’ includes a depository and routine penalty waivers on January rulemaking, the Board is finalizing institution with $175 million or less in 24, 2013. The Board will provide public amendments to Regulation J to remove total assets. Based on data reported as of notice no later than November 1, 2012, references to as-of adjustments in order December 31, 2011, the Board believes if the January 24, 2013 date will be to conform that regulation to this rule. that there are approximately 10,313 delayed. 6. Significant alternatives to the small depository institutions. Out of proposed rule. The Board designed the IV. Final Regulatory Flexibility these small depository institutions, the reserve simplifications to reduce Analysis Board believes that small institutions administrative and operational burdens The Regulatory Flexibility Act (the affected by the final rule include on depository institutions. Commenters ‘‘RFA’’) (5 U.S.C. 601 et seq.) requires approximately 3,181 small depository did not suggest any alternatives to the agencies either to provide a final institutions that maintain balances to final rule that accomplish that objective. regulatory flexibility analysis with a satisfy reserve balance requirements final rule or to certify that the rule will over a one-week maintenance period; V. Paperwork Reduction Act Analysis not have a significant economic impact approximately 1,775 small depository In accordance with the Paperwork on a substantial number of small institutions with contractual clearing Reduction Act (PRA) of 1995 (44 U.S.C. entities. In accordance with the RFA, balances; and approximately 197 small 3506; 5 CFR part 1320 Appendix A.1), the Board reviewed the final rule, which depository institutions that received at the Board reviewed the final rule under would apply to all depository least one as-of adjustment in 2011. the authority delegated to the Board by institutions. Based on current 4. Recordkeeping, reporting, and other the Office of Management and Budget information, the Board believes that, compliance requirements. Although the (OMB). Although the mandatory data although a significant number of ‘‘small final rule imposes certain compliance collected on the deposits reporting banking organizations’’ will be affected requirements on depository institutions, forms 13 are used by the Federal Reserve by the rule, the rule will not have a the Board believes that the overall effect for administering Regulation D and for significant economic impact on these of the final rule on depository constructing, analyzing, and monitoring small entities because the Board expects institutions, including small depository the amendments to decrease costs for all institutions, will be positive. Under new 13 Report of Transaction Accounts, Other Deposits institutions, including smaller § 204.5(b)(2), small depository and Vault Cash (FR 2900; OMB No. 7100–0087), institutions. The Board prepared an institutions that satisfy their reserve Annual Report of Total Deposits and Reservable initial regulatory flexibility analysis in balance requirement on a one-week Liabilities (FR 2910a; OMB No. 7100–0175), Report of Foreign (Non-U.S.) Currency Deposits (FR 2915; accordance with 5 U.S.C. 603 of the maintenance period (approximately OMB No. 7100–0237), and Allocation of Low RFA in its notice of proposed 3,181) will be subject to a two-week Reserve Tranche and Reservable Liabilities rulemaking and sought comment on the maintenance period. A depository Exemption (FR 2930; OMB No. 7100–0088).

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the monetary and reserve aggregates, institution is required to maintain on introductory text of paragraph (f), to none of the revisions in this rulemaking average over a reserve maintenance read as follows: change the deposits reporting forms. period in an account at a Federal The rule contains no collections of Reserve Bank if vault cash does not fully § 204.4 Computation of required reserves. information under the PRA. See 44 satisfy the depository institution’s * * * * * U.S.C. 3502(3). Accordingly, no reserve requirement imposed by this (d) For institutions that file a report of paperwork burden is associated with the part. deposits weekly, reserve requirements rule. The Board received no comments (ff) Deficiency means the reserve are computed on the basis of the on this analysis. balance requirement less the average institution’s daily average balances of balance maintained in an account at a deposits and Eurocurrency liabilities List of Subjects in 12 CFR Part 204 Federal Reserve Bank by or on behalf of during a 14-day computation period Banks, banking, Federal Reserve an institution over a reserve ending every second Monday. System, Reporting and recordkeeping maintenance period. (e) For institutions that file a report of requirements. * * * * * deposits quarterly, reserve requirements For the reasons stated in the ■ 4. Effective January 24, 2013, § 204.2 are computed on the basis of the preamble, the Board is amending 12 is further amended by: institution’s daily average balances of CFR part 204 as follows: ■ A. Revising paragraphs (z) and (ff); deposits and Eurocurrency liabilities and during the 7-day computation period PART 204—RESERVE ■ B. Adding paragraphs (gg) and (hh). that begins on the third Tuesday of REQUIREMENTS OF DEPOSITORY The additions and revisions read as March, June, September, and December. INSTITUTIONS (REGULATION D) follows: (f) For all depository institutions, Edge and Agreement corporations, and ■ 1. The authority citation for part 204 § 204.2 Definitions. United States branches and agencies of continues to read as follows: * * * * * foreign banks, reserve requirements are Authority: 12 U.S.C. 248(a), 248(c), 461, (z) Excess balance means the average computed by applying the reserve 601, 611, and 3105. balance maintained in an account at a requirement ratios below to net ■ 2. Effective July 12, 2012, § 204.1 Federal Reserve Bank by or on behalf of transaction accounts, nonpersonal time paragraph (b) is revised to read as an institution over a reserve deposits, and Eurocurrency liabilities of follows: maintenance period that exceeds the top the institution during the computation of the penalty-free band. period. § 204.1 Authority, purpose and scope. * * * * * * * * * * * * * * * (ff) Deficiency means the bottom of ■ (b) Purpose. This part relates to the penalty-free band less the average 6. Effective July 12, 2012, § 204.5 is reserve requirements imposed on balance maintained in an account at a amended by revising paragraphs (a)(1), depository institutions for the purpose Federal Reserve Bank by or on behalf of (b), (c), (d), and (e) to read as follows: of facilitating the implementation of an institution over a reserve § 204.5 Maintenance of required reserves. monetary policy by the Federal Reserve maintenance period. System. (gg) Top of the penalty-free band (a)(1) A depository institution, a U.S. branch or agency of a foreign bank, and * * * * * means an amount equal to an an Edge or Agreement corporation shall ■ 3. Effective July 12, 2012, § 204.2 is institution’s reserve balance requirement plus an amount that is the satisfy reserve requirements by amended by: maintaining vault cash and, if vault cash ■ A. Removing and reserving greater of 10 percent of the institution’s reserve balance requirement or $50,000. does not fully satisfy the institution’s paragraphs (v) through (x); reserve requirement, in the form of a ■ B. Revising paragraphs (z) and (bb); The top of the penalty-free band for a balance maintained and pass-through correspondent is an ■ C. Adding paragraphs (ee) and (ff). amount equal to the aggregate reserve (i) In the institution’s account at the The additions and revisions read as balance requirement of the Federal Reserve Bank in the Federal follows: correspondent (if any) and all of its Reserve District in which the institution respondents plus an amount that is the is located, or § 204.2 Definitions. greater of 10 percent of that aggregate (ii) With a pass-through * * * * * reserve balance requirement or $50,000. correspondent in accordance with (z) Excess balance means the average (hh) Bottom of the penalty-free band § 204.5(d). balance maintained in an account at a means an amount equal to an * * * * * Federal Reserve Bank by or on behalf of institution’s reserve balance (b)(1) For institutions that file a report an institution over a reserve requirement less an amount that is the of deposits weekly, the balances maintenance period that exceeds the greater of 10 percent of the institution’s maintained to satisfy reserve balance balance maintained to satisfy a reserve reserve balance requirement or $50,000. requirements shall be maintained balance requirement. The bottom of the penalty-free band for during a 14-day maintenance period * * * * * a pass-through correspondent is an that begins on the third Thursday (bb) Balance maintained to satisfy a amount equal to the aggregate reserve following the end of a given reserve balance requirement means the balance requirement of the computation period. average balance held in an account at a correspondent (if any) and all of its (2) For institutions that file a report of Federal Reserve Bank by or on behalf of respondents less an amount that is the deposits quarterly, the balances an institution over a reserve greater of 10 percent of that aggregate maintained to satisfy reserve balance maintenance period to satisfy a reserve reserve balance requirement or $50,000. requirements shall be maintained balance requirement of this part. In no case will the penalty-free band be during each of the 7-day maintenance * * * * * less than zero. periods during the interval that begins (ee) Reserve balance requirement ■ 5. Effective July 12, 2012, in § 204.4 on the fourth Thursday following the means the balance that a depository revise paragraphs (d) and (e), and the end of the institution’s computation

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period and ends on the fourth a single commingled account of the (2) $50,000. Any carryover not offset Wednesday after the close of the correspondent at the Federal Reserve during the next period may not be institution’s next computation period. Bank in whose District the carried over to subsequent periods. (c) Cash items forwarded to a Federal correspondent is located. Balances ■ 7. Effective January 24, 2013, § 204.5 Reserve Bank for collection and credit maintained in the correspondent’s is further amended by: are not included in an institution’s account are the property of the ■ A. Revising paragraphs (b)(2) and balance maintained to satisfy its reserve correspondent and represent a liability (d)(4)(i); and balance requirement until the expiration of the Reserve Bank solely to the ■ B. Removing paragraph (e). of the time specified in the appropriate correspondent, regardless of whether The additions and revisions read as time schedule established under the funds represent the balances follows: Regulation J, ‘‘Collection of Checks and maintained to satisfy the reserve balance Other Items by Federal Reserve Banks requirement of a respondent. § 204.5 Maintenance of required reserves. and Funds Transfers Through Fedwire’’ (4)(i) A pass-through correspondent * * * * * (12 CFR part 210). If a depository shall be responsible for maintaining (b) * * * institution draws against items before balances to satisfy its own reserve (2) For institutions that file a report of that time, the charge will be made to its balance requirement (if any) and the deposits quarterly, the balances account if the balance is sufficient to reserve balance requirements of all of its maintained to satisfy reserve balance pay it; any resulting deficiency in respondents. A Federal Reserve Bank requirements shall be maintained balances maintained to satisfy the will compare the total reserve balance during an interval of either six or seven institution’s reserve balance requirement to be satisfied by the consecutive 14-day maintenance requirement will be subject to the correspondent with the total balance periods, depending on when the penalties provided by law and to the maintained to satisfy a reserve balance interval begins and ends. The interval deficiency charges provided by this requirement by the correspondent for will begin on the fourth Thursday part. However, the Federal Reserve Bank purposes of determining deficiencies, following the end of each quarterly may, at its discretion, refuse to permit imposing or waiving charges for reporting period if that Thursday is the the withdrawal or other use of credit deficiencies and for other reserve first day of a 14-day maintenance given in an account for any time for maintenance purposes. A charge for a period. If the fourth Thursday following which the Federal Reserve Bank has not deficiency in the correspondent’s the end of a quarterly reporting period received payment in actually and finally account will be imposed by the Reserve is not the first day of a 14-day collected funds. Bank on the correspondent maintaining maintenance period, then the interval (d)(1) A depository institution, a U.S. the account. will begin on the fifth Thursday branch or agency of a foreign bank, or (ii) Each correspondent is required to following the end of the quarterly an Edge or Agreement corporation with maintain detailed records for each of its reporting period. The interval will end a reserve balance requirement on the fourth Wednesday following the (‘‘respondent’’) may select only one respondents that permit Reserve Banks to determine whether the respondent end of the subsequent quarterly pass-through correspondent under this reporting period if that Wednesday is section, unless otherwise permitted by has provided a sufficient funds to the correspondent to satisfy the reserve the last day of a 14-day maintenance the Federal Reserve Bank in whose period. If the fourth Wednesday District the respondent is located. balance requirement of the respondent. The correspondent shall maintain such following the end of the subsequent Eligible pass-through correspondents quarterly reporting period is not the last are Federal Home Loan Banks, the records and make such reports as the Board or Reserve Bank may requires in day of a 14-day maintenance period, National Credit Union Administration then the interval will conclude on the Central Liquidity Facility, and order to ensure the correspondent’s compliance with its responsibilities fifth Wednesday following the end of depository institutions, U.S. branches or the subsequent quarterly reporting agencies of foreign banks, and Edge and under this section and shall make them period. Agreement corporations that maintain available to the Board or Reserve Bank balances to satisfy their own reserve as required. * * * * * balance requirements which may be (iii) The Federal Reserve Bank may (d) * * * zero, in an account at a Federal Reserve terminate any pass-through agreement (4)(i) A pass-through correspondent Bank. In addition, the Board reserves under which the correspondent is shall be responsible for maintaining the right to permit other institutions, on deficient in its recordkeeping or other balances to satisfy its own reserve a case-by-case basis, to serve as pass- responsibilities. balance requirement (if any) and the through correspondents. (iv) Interest paid on supplemental reserve balance requirements of all of its (2) Respondents or correspondents reserves (if such reserves are required respondents. A charge for any may institute, terminate, or change pass- under § 204.7) held by a respondent will deficiency in the correspondent’s through correspondent agreements by be credited to the account maintained account will be imposed by the Reserve providing all documentation required by the correspondent. Bank on the correspondent maintaining for the establishment of the new (e) Any excess or deficiency in an the account. agreement or termination of or change to institution’s balance maintained to * * * * * the existing agreement to the Federal satisfy its reserve balance requirement ■ 8. Effective July 12, 2012, § 204.6 is Reserve Banks involved within the time shall be carried over and applied against amended by revising the section period specified by those Reserve the balance maintained in the next heading and paragraphs (a) and (b), to Banks. maintenance period as specified in this read as follows: (3) Balances maintained to satisfy paragraph. The amount of any such reserve balance requirements of a excess or deficiency that is carried over § 204.6 Charges for deficiencies. correspondent’s respondents shall be shall not exceed the greater of: (a) Deficiencies in a depository maintained along with the balances (1) The amount obtained by institution’s balance maintained to maintained to satisfy a correspondent’s multiplying 0.04 times the depository satisfy its reserve balance requirement reserve balance requirement (if any), in institution’s reserve requirement; or after application of the carryover

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provided in § 204.5(e), are subject to (1) For balances maintained to satisfy Eurodollar deposits, and other similar deficiency charges. Federal Reserve reserve balance requirements, at 1⁄4 instruments. Banks are authorized to assess charges percent; (c) Pass-through balances. A pass- for deficiencies at a rate of 1 percentage * * * * * through correspondent that is an eligible point per year above the primary credit (3) For balances maintained to satisfy institution may pass back to its rate, as provided in § 201.51(a) of this reserve balance requirements, excess respondent interest paid on balances chapter, in effect for borrowings from balances, and term deposits, at any maintained to satisfy a reserve balance the Federal Reserve Bank on the first other rate or rates as determined by the requirement of that respondent. In the day of the calendar month in which the Board from time to time, not to exceed case of balances maintained by a pass- deficiencies occurred. Charges shall be the general level of short-term interest through correspondent that is not an assessed on the basis of daily average rates. For purposes of this paragraph (b), eligible institution, a Reserve Bank shall deficiencies during each maintenance ‘‘short-term interest rates’’ are rates on pay interest only on the balances period. obligations with maturities of no more maintained to satisfy a reserve balance (b) Reserve Banks may waive the than one year, such as the primary requirement of one or more respondents charges for deficiencies except when the credit rate and rates on term federal up to the top of the penalty-free band, deficiency arises out of a depository funds, term repurchase agreements, and the correspondent shall pass back to institution’s gross negligence or conduct commercial paper, term Eurodollar its respondents interest paid on that is inconsistent with the principles deposits, and other similar instruments. balances in the correspondent’s account. and purposes of reserve requirements. (c) Pass-through balances. A pass- * * * * * Decisions by Reserve Banks to waive through correspondent that is an eligible charges are based on an evaluation of By order of the Board of Governors of the institution may pass back to its Federal Reserve System, April 5, 2012. the circumstances in each individual respondent interest paid on balances Robert deV. Frierson, case and the depository institution’s maintained to satisfy a reserve balance Deputy Secretary of the Board. reserve maintenance record. For requirement of that respondent. In the example, a waiver may be appropriate case of balances maintained by a pass- [FR Doc. 2012–8562 Filed 4–11–12; 8:45 am] for a small charge or once during a two- through correspondent that is not an BILLING CODE 6210–01–P year period for a deficiency that does eligible institution, a Reserve Bank shall not exceed a certain percentage of the pay interest only on the balances FEDERAL RESERVE SYSTEM depository institution’s reserve maintained to satisfy a reserve balance requirement. If a depository institution requirement of one or more 12 CFR Part 210 has demonstrated a lack of due regard respondents, and the correspondent for the proper maintenance of balances shall pass back to its respondents [Regulation J; Docket No. R–1434] to satisfy its reserve balance interest paid on balances in the RIN 7100 AD 84 requirement, the Reserve Bank may correspondent’s account. decline to exercise the waiver privilege (d) * * * Collection of Checks and Other Items and assess all charges regardless of (3) Balances maintained in an excess by Federal Reserve Banks and Funds amount or reason for the deficiency. balance account will not satisfy any Transfers Through Fedwire: * * * * * institution’s reserve balance Elimination of ‘‘As-of Adjustments’’ ■ 9. Effective January 24, 2013, § 204.6 requirement. and Other Clarifications is further amended by revising * * * * * AGENCY: paragraphs (a) and (b) to read as follows: (e) * * * Board of Governors of the (2) A term deposit will not satisfy any Federal Reserve System. § 204.6 Charges for deficiencies. institution’s reserve balance ACTION: Final rule. (a) Federal Reserve Banks are requirement. SUMMARY: authorized to assess charges for * * * * * The Board is amending Regulation J (Collection of Checks and deficiencies at a rate of 1 percentage ■ 11. Effective January 24, 2013, Other Items by Federal Reserve Banks point per year above the primary credit § 204.10 is further amended by revising rate, as provided in § 201.51(a) of this and Funds Transfers through Fedwire). paragraphs (b)(1), (b)(3), and (c) to read The final rule eliminates references to chapter, in effect for borrowings from as follows: the Federal Reserve Bank on the first ‘‘as-of adjustments’’ consistent with the day of the calendar month in which the § 204.10 Payment of interest on balances. Board’s final amendments to Regulation deficiencies occurred. Charges shall be * * * * * D to simplify reserves administration; assessed on the basis of daily average (b) * * * clarifies that an institution’s deficiencies during each maintenance (1) For balances up to the top of the Administrative Reserve Bank is deemed period. penalty-free band, at 1⁄4 percent; to have accepted deposit of a check or other item even if the institution sends (b) Reserve Banks may waive the * * * * * charges for deficiencies based on an (3) For balances up to the top of the the item directly to another Federal evaluation of the circumstances in each penalty-free band, excess balances, and Reserve Bank; further clarifies that individual case. term deposits, at any other rate or rates Regulation J continues to apply to a Fedwire funds transfer even if the funds * * * * * as determined by the Board from time transfer also meets the definition of ■ to time, not to exceed the general level 10. Effective July 12, 2012, § 204.10 is ‘‘remittance transfer’’ under the amended by revising paragraphs (b)(1), of short-term interest rates. For purposes of this subsection, ‘‘short-term interest Electronic Fund Transfer Act; and (b)(3), (c), (d)(3) and (e)(2) to read as makes other conforming revisions. follows: rates’’ are rates on obligations with maturities of no more than one year, DATES: This final rule is effective July § 204.10 Payment of interest on balances. such as the primary credit rate and rates 12, 2012. * * * * * on term federal funds, term repurchase FOR FURTHER INFORMATION CONTACT: Kara (b) * * * agreements, commercial paper, term Handzlik, Senior Attorney (202) 452–

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