Federal Register / Vol. 76, No. 137 / Monday, July 18, 2011 / Rules and Regulations 42015 

CATTLE AND CALVES 1—Continued 

State/unit 1,000 head Directors 

Total ................................................................................................................................................................... 550 ....................

35. Mid-Atlantic ................................................................................................................................................................ .................... 1 

Maryland ................................................................................................................................................................... 192 ....................

West Virginia ............................................................................................................................................................ 400 ....................

Total ................................................................................................................................................................... 592 ....................

36. Southeast ................................................................................................................................................................... .................... 3 

Alabama .................................................................................................................................................................... 1,253 ....................

Georgia ..................................................................................................................................................................... 1,100 ....................

South Carolina .......................................................................................................................................................... 385 ....................

Total ................................................................................................................................................................... 2,738 ....................

37. Southwest .................................................................................................................................................................. .................... 6 

California ................................................................................................................................................................... 5,283 ....................

Nevada ..................................................................................................................................................................... 450 ....................

Total ................................................................................................................................................................... 5,733 ....................

38. Importer 2 ................................................................................................................................................................... 6,887 7 

1 2008, 2009, and 2010 average of January 1 cattle inventory data. 

2 2007, 2008, and 2009 average of annual import data. 

* * * * * 

Dated: July 12, 2011. 

Rayne Pegg, 

Administrator, Agricultural Marketing 

Service. 

[FR Doc. 2011–17885 Filed 7–15–11; 8:45 am] 

BILLING CODE P 

FEDERAL RESERVE SYSTEM 

12 CFR Parts 204, 217, and 230 

Regulations D, Q, and DD 

[Docket No. R–1413] 

RIN 7100–AD 72 

Prohibition Against Payment of 

Interest on Demand Deposits 

AGENCY: Board of Governors of the 

Federal Reserve System (Board) 

ACTION: Final rule. 

SUMMARY: The Board is publishing a 

final rule repealing Regulation Q, 

Prohibition Against Payment of Interest 

on Demand Deposits, effective July 21, 

2011. Regulation Q was promulgated to 

implement the statutory prohibition 

against payment of interest on demand 

deposits by institutions that are member 

banks of the Federal Reserve System set 

forth in Section 19(i) of the Federal 

Reserve Act (‘‘Act’’). Section 627 of the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act (‘‘Dodd-Frank 

Act’’) repeals Section 19(i) of the 

Federal Reserve Act effective July 21, 

2011. The final rule implements the 

Dodd-Frank Act’s repeal of Section 

19(i). The final rule also repeals the 

Board’s published interpretation of 

Regulation Q and removes references to 

Regulation Q found in the Board’s other 

regulations, interpretations, and 

commentary. 

DATES: Effective Date: July 21, 2011. 

FOR FURTHER INFORMATION CONTACT: 

Sophia H. Allison, Senior Counsel (202/ 

452–3565), Legal Division, or Joshua S. 

Louria, Financial Analyst (202/263– 

4885), 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. Prohibition Against Payment of 

Interest on Demand Deposits 

Section 19(i) of the Federal Reserve 

Act (‘‘Act’’) (12 U.S.C. 371a) generally 

provides that no member bank ‘‘shall, 

directly or indirectly, by any device 

whatsoever, pay any interest on any 

deposit which is payable on demand. 

* * *’’ Section 19(i) was added to the 

Act by Section 11 of the Banking Act of 

1933 (48 Stat. 162, 181). Section 324 of 

the Banking Act of 1935 (49 Stat. 684, 

714) amended Section 19(a) of the Act 

to authorize the Board, ‘‘for the 

purposes of this section, to define the 

terms ‘demand deposits’, ‘gross demand 

deposits,’ ‘deposits payable on demand’ 

[and] to determine what shall be 

deemed to be a payment of interest, and 

to prescribe such rules and regulations 

as it may deem necessary to effectuate 

the purposes of this section and prevent 

evasions thereof. * * *’’ The Board 

promulgated Regulation Q on August 

29, 1933 to implement Section 19(i) of 

the Act. Section 627 of the Dodd-Frank 

Act repeals Section 19(i) of the Act in 

its entirety, effective July 21, 2011. 

II. Request for Public Comment 

On April 14, 2011, the Board 

published in the Federal Register a 

request for comment on its proposal to 

repeal Regulation Q effective July 21, 

2011 (76 FR 20892, Apr. 14, 2011). In 

its request for comment, the Board also 

sought comment on all aspects of the 

proposal, and also sought comment on 

four specific issues related to the 

proposal: 

1. Does the repeal of Regulation Q 

have significant implications for the 

balance sheets and income of depository 

institutions? What are the anticipated 

effects on bank profits, on the allocation 

of deposit liabilities among product 

offerings, and on the rates offered and 

fees assessed on demand deposits, 

sweep accounts, and compensating 

balance arrangements? 

2. Does the repeal of Regulation Q 

have any implications for short-term 

funding markets such as the overnight 

federal funds market and Eurodollar 

markets, or for institutions such as 

institution-only money market mutual 

funds that are active investors in shortterm funding markets? 

3. Is the repeal of Regulation Q likely 

to result in strong demand for interestbearing demand deposits? 

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42016 Federal Register / Vol. 76, No. 137 / Monday, July 18, 2011 / Rules and Regulations 

1More than one person from the same institution 

submitted comments in some cases. 

4. Does the repeal of Regulation Q 

have any implications for competitive 

burden on smaller depository 

institutions? 

The comment period closed on May 

16, 2011. 

III. Public Comments 

a. Summary 

The Board received a total of 62 

comments on the proposed rule. Of 

these, 45 comments were received from 

40 banks,1 6 comments were received 

from trade associations, 4 comments 

were received from other types of 

entities, and 7 comments were received 

from individuals. Of the comments 

received on the proposed rule, 6 

comments were in favor of the proposed 

rule, 54 comments were opposed to the 

proposed rule, and 2 comments neither 

supported nor opposed the proposed 

rule but commented on other aspects of 

the proposal. A number of commenters 

specifically addressed one or more of 

the four specific questions the Board 

asked in the proposed rule separately 

from their general comments on the 

proposed rule. 

b. Comments in Favor of the Proposed 

Rule 

One financial group expressed 

support for the proposed rule, stating 

that the commenter looked forward to a 

fair and competitive market that is no 

longer manipulated through regulation 

by lobbyists for money market funds 

and large banks. Another commenter, an 

individual, opined that the proposal 

‘‘repeals an arbitrary and basically nonfunctioning rule’’ and would ‘‘allow 

more transparency and competition in 

this arena’’ that ‘‘will force banks to 

innovate and to lower costs.’’ This 

commenter asserted that the repeal 

would ‘‘lead to more simplicity in 

deposit offerings and to less rationale 

for current workarounds’’ such as NOW 

accounts. 

A trade association commented that 

the repeal could result in a more stable 

source of capital for banks and provide 

financial professionals with another 

competitive investment alternative. This 

commenter also opined that taxes on 

interest paid would increase revenues 

for the U.S. Treasury, and asserted that 

‘‘there inherently will be new economic 

dynamics that must be considered when 

negotiating fees and rates.’’ This 

commenter further asserted that this 

would ‘‘force financial professionals 

and corporate treasurers to consider 

how to effectively rebalance their 

deposit portfolios in light of the new 

products and rates structures,’’ and that 

they would have ‘‘another option in 

terms of liquidity.’’ This commenter 

expected demand for interest-bearing 

demand deposits to increase after the 

repeal. 

One bank commented in support of 

the proposal because ‘‘price controls 

should not be the subject of government 

regulation.’’ This commenter suggested 

that the repeal would enable the bank to 

compete for corporate demand deposits 

without having to sweep them into 

other off-balance-sheet investments. 

Another bank commented favorably on 

the repeal, arguing that Regulation Q 

‘‘has been pretty much hollowed out 

and therefore rendered irrelevant 

through the years.’’ 

c. Comments Opposed to the Proposed 

Rule 

Most of the comments received 

opposed the repeal of Regulation Q. 

Several commenters indicated that they 

believe that the repeal would have 

‘‘devastating’’ effects on smaller and 

community banks. Commenters also 

indicated that they expect many 

detrimental effects for institutions from 

the repeal, including increased cost of 

funding, the addition of increased 

interest rate risk to institution balance 

sheets, increased expenses, decreased 

net interest margins, decreased earnings, 

decreased profits, and the ‘‘potential to 

place many banks in a liability sensitive 

position.’’ Commenters also expected 

detrimental effects for institutions’ 

customers, including decreased credit 

availability, increased costs of credit, 

and increased fees and costs of services. 

A number of commenters argued that 

the repeal comes at a time when the 

banking industry in general, and the 

community banking industry in 

particular, is already stressed and facing 

challenges to continued viability and 

profitability, as well as increased 

regulatory burden, particularly with 

new interchange fee regulations. Some 

commenters contended that there is 

currently little demand for loans, and 

that without loan demand the increased 

cost of funds represented by paying 

interest on demand deposits would 

result in decreased income. One 

commenter argued that the payment of 

interest on balances maintained in 

accounts at Federal Reserve Banks is not 

sufficient to offset the cost of paying 

interest on demand deposits. 

A number of commenters asserted 

that the interest-free demand deposit 

base is the primary franchise builder for 

community banks and the largest source 

of fixed-rate funding. One commenter 

argued that such deposits ‘‘are the 

lifeblood of community banks’’ who 

lend this money back into the local 

market at competitive rates to promote 

local lending for housing, consumer 

lending and small business lending. 

Commenters argued that smaller 

institutions, as they lose their demand 

deposit base, would have to access other 

short-term funding sources, which 

would increase costs in those markets. 

Commenters also argued that the repeal 

would increase the concentration of 

financial assets in the banking sector as 

funds move out of investments such as 

money market mutual funds into 

interest-bearing demand deposits, 

making nonbank money markets less 

liquid, less robust, less efficient, and 

more expensive. One commenter further 

argued that the outflow of funds from 

money market mutual funds into 

interest-bearing demand deposits would 

damage the commercial paper market, 

since money market mutual funds are 

major purchasers of commercial paper. 

Another commenter argued that the 

repeal would harm the market for 

municipal bonds, because community 

banks would be no longer able to buy 

fixed-rate bank-qualified municipal 

bonds. 

Several commenters stated that they 

expect larger and ‘‘too big to fail’’ banks, 

which they believe already have a 

competitive advantage, to draw 

commercial demand depositors away 

from smaller and community banks 

with expensive marketing programs and 

offers of higher interest rates with which 

smaller institutions cannot compete. 

Some commenters asserted that these 

customers, once drawn away to larger 

banks, will suffer decreases in service 

levels compared to what they received 

from smaller banks because the business 

model of smaller banks focuses on 

relationships and service levels. One 

commenter asserted that the repeal of 

Regulation Q would not enable smaller 

and community banks to compete with 

larger institutions because, according to 

the commenter, community banks 

mostly compete with one another and 

not with larger institutions. Other 

commenters asserted that troubled 

banks would be likely to try to ‘‘buy’’ 

demand deposits by offering 

unsustainably high interest rates, 

placing the banking system at risk for 

more bank failures and increasing costs 

to the FDIC’s bank insurance fund. One 

commenter argued that large banks that 

are funded with off-balance-sheet 

sources in order to avoid FDIC 

insurance premiums would see the 

repeal as a way to ‘‘buy’’ domestic 

deposits, ‘‘robbing’’ local communities 

of needed capital. 

Some commenters asserted that the 

movement of funds from non-interestmstockstill on DSK4VPTVN1PROD with RULES

Federal Register / Vol. 76, No. 137 / Monday, July 18, 2011 / Rules and Regulations 42017 

bearing demand deposits into interestbearing demand deposits would take 

such deposits outside of the unlimited 

FDIC insurance coverage currently 

available for non-interest-bearing 

transaction accounts. One commenter 

argued that the unlimited insurance for 

such accounts created moral hazard by 

reducing depositor incentives to 

monitor institutions and by encouraging 

institutions to engage in riskier behavior 

secure in the knowledge that their 

demand depositors will not move. This 

commenter argued that the repeal of 

Regulation Q will increase these risks 

because depositors could move freely 

from interest-bearing to non-interestbearing demand deposits in times of 

stress, thereby creating effective 

unlimited insurance on all demand 

deposits. 

Several commenters argued that the 

effects of the repeal may be less visible 

in a low interest rate environment but 

would be more pronounced as interest 

rates begin to rise. Some commenters 

argued that the repeal would threaten 

the viability of many institutions in a 

rising rate environment. Another 

commenter argued that the effect would 

be magnified by the combination of 

rising interest rates and the expiration of 

the FDIC’s program of unlimited 

insurance for non-interest-bearing 

transaction accounts in 2012. 

Some comments opposed to the 

repeal asserted that the provision that 

became Section 627 of the Dodd-Frank 

Act was inserted into the bill late in the 

process, and was not debated or heard 

in the House or Senate Committees. A 

few commenters questioned the stated 

rationale for interest on demand 

deposits as benefitting small businesses. 

These commenters asserted that a 

typical small business maintains on 

average about $10,000 in a demand 

deposit, which even at a two percent 

interest rate would still earn the small 

business only $200 in one year. One of 

these commenters asserted that banks 

would have to increase fees to make up 

for the increased cost associated with 

paying interest on demand deposits, 

eroding the $200-per-year figure to 

approximately $100 per year. This 

commenter argued that $100 or $200 per 

year was not sufficient to permit such 

businesses to grow or create jobs. 

Several commenters argued that the 

Board should not repeal Regulation Q, 

or should delay the effective date of the 

repeal until studies of the impact of the 

repeal, including safety and soundness 

effects, could be conducted and 

considered. Some commenters 

suggested that the Board advocate before 

the Congress for a repeal of Section 627 

of the Dodd-Frank Act (the provision 

that repeals the statutory prohibition 

against payment of interest on demand 

deposits), and some contended that the 

Board simply should retain or reinstate 

Regulation Q. One commenter, noting 

that the Board would no longer have 

statutory authority to retain Regulation 

Q after July 21, 2011, asserted that the 

Board nevertheless has the authority to 

issue a policy statement prohibiting the 

payment of interest on demand deposits 

until the banking agencies studied the 

safety and soundness implications of 

the repeal and determined that it was 

safe and sound to permit payment of 

such interest. Another commenter 

argued that the repeal of Regulation Q 

would create systemic risk and that the 

Board should use its systemic risk 

authority under the Dodd-Frank Act to 

prevent the repeal from taking effect. 

Another commenter suggested a twostage process, repealing the regulation 

in the first phase, and then starting a 

second phase of twelve to eighteen 

months within which the existing 

interpretations of Regulation Q would 

remain in effect to give the FDIC the 

opportunity to consider whether to 

adopt some or all of them. 

A few commenters argued that, 

instead of repealing Regulation Q, the 

Board should amend Regulation D to 

provide for a non-reservable interestbearing ‘‘money market deposit 

account’’ that would allow up to 

twenty-four preauthorized or automatic 

transfers per month. Commenters also 

asserted that funds moving into interestbearing demand deposits from nonreservable deposits such as time 

deposits, or from other non-deposit 

sources would be subject to a reserve 

requirement of up to ten percent, which 

they stated would reduce the 

availability of such funds for lending or 

other investment. 

d. Comments Addressing Four Specific 

Questions Raised in the Proposed Rule 

1. Does the repeal of Regulation Q have 

significant implications for the balance 

sheets and income of depository 

institutions? What are the anticipated 

effects on bank profits, on the allocation 

of deposit liabilities among product 

offerings, and on the rates offered and 

fees assessed on demand deposits, 

sweep accounts, and compensating 

balance arrangements? 

A financial group commented that the 

‘‘playing field will be leveled between 

big banks and community banks’’ and 

that the proposed rule would ‘‘provide 

an opportunity to pursue large balance 

commercial clients that in the past 

would not consider a smaller 

institution.’’ This group commented that 

the cost of funds ‘‘will be considerably 

less than consumer core deposits,’’ and 

that ‘‘in spite of the cannibalization of 

some current deposits’’ the net effect 

would be beneficial. This commenter 

also asserted that ‘‘we will no longer 

have to pay vendors for sweeps’’ and 

that customers would be able to choose 

between receiving earnings credits and 

direct payments of interest. This 

commenter further asserted that there 

would be no impact on that institution’s 

fees but that the repeal would enable 

smaller institutions to compete with 

larger institutions for ‘‘large balance 

clients’’ because previously ‘‘large 

balance clients’’ always had sufficient 

earnings credits to offset fees and the 

large institutions holding those balances 

were able to use in-house sweeps 

programs. Smaller institutions, 

according to this commenter, were not 

able to price competitively for such 

programs because of the vendor costs for 

sweeps programs, ‘‘the ‘Too Big To Fail’ 

concept’’ and the fact that earnings 

credits are not valuable beyond what 

can be used to pay for fees. 

A trade association commented that 

the anticipated effects of the repeal on 

bank profits, allocation of deposit 

liabilities, and rates offered is closely 

tied to the bank’s local market and 

interest rate environment. Specifically, 

this association commented that in 

small markets with little competition for 

deposits, banks may elect neither to pay 

interest nor to offer earnings credits 

following the repeal. This commenter 

asserted that many banks in markets 

with high competition for deposits 

believed that the cost difference 

between paying direct interest or 

offering an interest substitute would not 

be significant in a low interest rate 

environment. This commenter asserted 

that, in a high interest rate environment, 

banks will be under increased pressure 

to offer interest which would result in 

higher costs of funds and decreased net 

interest margins. This commenter also 

asserted that ‘‘the banking industry’s 

best defense against interest rates 

spiraling to exceptionally high and 

unsustainable levels are more account 

options, including interest, earnings 

credits, premiums, bonuses, and hybrid 

accounts.’’ This commenter further 

asserted that the effect of the repeal on 

correspondent banks should be 

negligible. 

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42018 Federal Register / Vol. 76, No. 137 / Monday, July 18, 2011 / Rules and Regulations 

2 12 U.S.C. 461(b)(1)(C). 

2. Does the repeal of Regulation Q have 

any implications for short-term funding 

markets such as the overnight federal 

funds market and Eurodollar markets, or 

for institutions such as institution-only 

money market mutual funds that are 

active investors in short-term funding 

markets? 

A financial group commented that 

‘‘[a]ny changes would be limited’’ and 

would have no long-term effects on such 

markets. This group commented that 

off-balance-sheet sweeps would be 

moved back on balance sheet and that 

‘‘deposits for the first time will actually 

have market competition which will be 

good for the company, good for the 

bank, consumers, and overall good for 

the market.’’ This commenter also 

asserted that ‘‘[t]he only complainers 

will be those that monopolize the 

business today due to regulation, but 

they will adjust [by] either paying more 

or [downsizing].’’ 

A bank commented that the demand 

for short-term funding markets will 

likely increase, which will increase cost 

of accessing those markets which will 

increase bank borrowing costs and have 

a negative impact on profitability. 

3. Is the repeal of Regulation Q likely to 

result in strong demand for interestbearing demand deposits? 

A financial group commented that the 

repeal of Regulation Q is likely to result 

in strong demand for interest-bearing 

demand deposits and that ‘‘this is very 

good for the bank and the business 

clients’’ and that they expect to see 

‘‘significant growth in this product 

category in number of accounts and 

balances.’’ 

4. Does the repeal of Regulation Q have 

any implications for competitive burden 

on smaller depository institutions? 

Many of the comments described 

above discussed the implications of the 

repeal of Regulation Q for competitive 

burden on smaller depository 

institutions. A financial group 

commented that the repeal of Regulation 

Q would not have any implications ‘‘to 

any significant degree’’ for competitive 

burden on smaller depository 

institutions and that the repeal 

‘‘provides the best opportunity we have 

seen in decades to pursue business 

clients.’’ This commenter asserted that 

only the smaller institutions that would 

be negatively affected by the repeal ‘‘are 

those very small institutions in noncompetitive markets which have 

benefitted having no large banks 

compete for funds.’’ A bank contended 

that the repeal of Regulation Q will add 

to the profitability challenges of smaller 

institutions that have a better track 

record of serving the communities in 

which they operate than larger 

institutions do. 

A trade association commented that 

the repeal would increase competition 

for typically high-balance business 

accounts and that costs of funds would 

increase as such accounts become more 

difficult to attract and more expensive 

to retain. This commenter asserted that 

troubled financial institutions needing 

liquidity or deposits will aggressively 

market exceptionally high interest rates 

which may place community banks at a 

disadvantage. This commenter also 

asserted that the repeal would improve 

parity between FDIC-insured 

institutions and credit unions in a high 

interest rate environment because credit 

unions ‘‘pay interest on business 

checking and are moving aggressively 

into the small business-banking niche.’’ 

The commenter further asserted that the 

repeal ‘‘may assist banks of all sizes and 

charter types to attract funds previously 

placed outside of the traditional banking 

system’’ and that this ‘‘reintermediation 

of corporate money will be more 

noticeable when interest rates increase.’’ 

e. Responses to the Public Comments 

Many of the comments opposed to the 

repeal of Regulation Q suggested 

implicitly or explicitly that the Board 

should not repeal Regulation Q or 

should delay the repeal of Regulation Q. 

As stated in the Board’s Notice of 

Proposed Rulemaking, however, the 

Board will no longer have the authority 

to retain Regulation Q after July 21, 

2011. Accordingly, the Board does not 

have the discretion to retain the 

regulation, nor does the Board have the 

authority to postpone the effective date 

of the repeal beyond July 21, 2011. 

While the Board may use its safety and 

soundness authority to regulate interest 

paid by the smaller group of statechartered member banks (but not all 

member banks, as under Regulation Q), 

the implementation of Section 627 of 

the Dodd-Frank Act does not appear to 

present issues of systemic risk or safety 

and soundness. In particular, the ability 

to pay interest on demand deposits 

should enhance clarity in the market for 

transaction accounts and potentially 

eliminate many of the complicated 

procedures implemented by depository 

institutions to pay implicit interest on 

demand deposits. Interest-bearing 

demand deposits could attract funds 

from other areas of the financial system 

and increase the funding possibilities of 

the banking sector. Additionally, the 

repeal of Regulation Q will become 

effective during a period of 

exceptionally low interest rates. In such 

an environment, all short-term money 

market rates are near zero, suggesting 

that even for those institutions that 

chose to pay interest on demand 

deposits, the rate paid will likely also be 

close to zero. Near-zero money market 

rates will likely continue for an 

extended period, so depository 

institutions and their customers should 

be able to adjust in a gradual and 

orderly manner to the new environment. 

Similarly, it would be contrary to the 

purpose of Regulation D to define 

‘‘savings deposit’’ to include an account 

from which up to 24 convenient 

transfers or withdrawals per month are 

permitted, as some commenters 

requested. The Board is required by 

Section 19(b) of the Act to impose 

reserve requirements on transaction 

accounts. Section 19(b)(1)(C) of the Act 

defines ‘‘transaction account’’ as a 

deposit or account on which the 

depositor is permitted ‘‘to make 

withdrawals by negotiable or 

transferrable instrument, payment 

orders of withdrawal, telephone 

transfers, or other similar items for the 

purpose of making payments or 

transfers to third persons or others.’’ 2

Section 19 was intended to distinguish 

transaction accounts, which are 

reservable, from savings deposits, which 

are not reservable. Allowing 24 

convenient transfers per month would 

allow such transfers every business day 

of the month, and allow a savings 

deposit to function in a manner 

indistinguishable from a transaction 

account. 

IV. Final Regulatory Flexibility 

Analysis 

In accordance with Section 3(a) of the 

Regulatory Flexibility Act, 5 U.S.C. 601 

et seq. (RFA), the Board is conducting 

this final regulatory flexibility analysis 

incorporating comments received 

during the public comment period. An 

initial regulatory flexibility analysis was 

included in the Board’s notice of 

proposed rulemaking in accordance 

with Section 3(a) of the RFA. In its 

notice of proposed rulemaking, the 

Board requested comments on all 

aspects of the proposal, and specifically 

requested comment on whether the 

repeal of Regulation Q pursuant to 

Section 627 of the Dodd-Frank Act 

would have any implications for 

competitive burden on smaller 

depository institutions. 

1. Statement of the need for and the 

objectives of the final rule. The Board is 

repealing Regulation Q, which 

implements the statutory prohibition set 

forth in Section 19(i) of the Act, 

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Federal Register / Vol. 76, No. 137 / Monday, July 18, 2011 / Rules and Regulations 42019 

3U.S. Small Business Administration, Table of 

Small Business Size Standards Matched to North 

American Industry Classification System Codes, 

available at http://www.sba.gov/sites/default/files/ 

Size_Standards_Table.pdf. 

effective July 21, 2011. The repeal 

implements Section 627 of the DoddFrank Act, which repeals Section 19(i) 

of the Act effective July 21, 2011. 

Accordingly, the repeal of Regulation Q 

effective July 21, 2011, is mandatory. 

2. Summary of significant issues 

raised by public comments in response 

to the Board’s IRFA, the Board’s 

assessment of such issues, and a 

statement of any changes made as a 

result of such comments. As noted in 

the SUPPLEMENTARY INFORMATION, a 

majority of commenters asserted that the 

final rule would have numerous 

deleterious effects on small member 

banks. As also noted in the 

SUPPLEMENTARY INFORMATION, however, 

the legal authority pursuant to which 

the Board promulgated Regulation Q 

will cease to exist on July 21, 2011. 

Accordingly, the Board does not have 

the discretion to retain the regulation 

beyond July 21, 2011, nor does the 

Board have the authority to postpone 

the effective date of the repeal beyond 

that date. As further noted in the 

SUPPLEMENTARY INFORMATION, the Board 

does not believe that the final rule 

presents issues of systemic risk or safety 

and soundness sufficient to warrant 

action by the Board on those bases. 

Accordingly, the Board made no 

changes in the final rule as a result of 

the analysis of the public comments. 

3. Description of and estimate of 

small entities affected by the final rule. 

The final rule will affect all national 

banks and all state-chartered member 

banks. Those institutions may choose 

after July 21, 2011 to pay interest on 

demand deposits that they hold for their 

customers. A financial institution is 

generally considered ‘‘small’’ if it has 

assets of $175 million or less.3 There are 

currently approximately 2,956 member 

banks (national banks and statechartered member banks) that have 

assets of $175 million or less. These 

institutions are not required to offer 

demand deposits to their customers or 

to pay interest on those deposits. The 

Board expects the final rule to have a 

positive impact on all such entities 

because it eliminates an obsolete 

regulatory provision and because it 

provides member banks with the option 

of offering interest-bearing demand 

deposits following the repeal of 

Regulation Q. 

4. Projected reporting, recordkeeping, 

and other compliance requirements. 

The Board believes that the final rule 

will not have any impact on reporting, 

recordkeeping, and other compliance 

requirements for member banks. 

5. Steps taken to minimize the 

economic impact on small entities; 

significant alternatives. No significant 

alternatives to the final rule were 

suggested that could be accomplished 

without Congressional action. Although 

some commenters suggested that the 

Board issue a policy statement delaying 

the implementation of the statutory 

repeal, the Board does not believe that 

it has the authority to extend the 

statutory effective date through a policy 

statement that would contravert the 

clear Congressional intent to repeal the 

prohibition against the payment of 

interest on demand deposits effective 

July 21, 2011. 

V. Paperwork Reduction Act Analysis 

In accordance with the Paperwork 

Reduction Act (PRA) of 1995 (44 U.S.C. 

3506; 5 CFR 1320 Appendix A.1), the 

Board reviewed the final rule under the 

authority delegated to the Board by the 

Office of Management and Budget 

(OMB). No collections of information 

pursuant to the PRA are contained in 

the final rule; however, there will be 

clarifications to the instructions of 

several regulatory reporting 

requirements. The Board estimates that 

the clarifications would have a 

negligible effect on the burden estimates 

for the existing regulatory reporting 

information collections. 

VI. Administrative Procedure Act 

The Administrative Procedure Act 

(‘‘APA’’) generally requires federal 

agencies to publish a final rule at least 

30 days before the effective date thereof. 

5 U.S.C. 553. The APA also provides 

exceptions under which an agency may 

publish a final rule with an effective 

date that is less than 30 days from the 

date of publication of the final rule. 

Specifically, the APA provides a 

substantive rule may be published on a 

date that is less than 30 days before its 

effective date where the rule ‘‘grants or 

recognizes an exemption or relieves a 

restriction,’’ or where the agency finds 

good cause that is published in the final 

rule. 5 U.S.C. 553(d)(2)–(3). 

The repeal of Regulation Q 

implements the repeal of Section 19(i) 

of the Federal Reserve Act, effective July 

21, 2011, pursuant to Section 627 of the 

Dodd-Frank Act. The repeal relieves a 

restriction by repealing the prohibition 

against payment of interest on demand 

deposits by member banks. As such, the 

final rule is exempt under Section 

553(d)(2) of the APA from the 

requirement of publication not less than 

30 days before the effective date. The 

Board also finds good cause under 

Section 553(d)(3) of the APA for 

publication of the final rule on a date 

that is less than 30 days before the 

effective date. Publication of the final 

rule in this time frame will not impose 

a burden on anyone, since all persons 

subject to Regulation Q have been on 

notice since passage of the Dodd-Frank 

Act nearly a year ago that Regulation Q 

would be repealed effective July 21, 

2011. In addition, the Board’s request 

for comment published in the Federal 

Register on April 14 provided 

additional notice, over three months 

prior to the effective date, that the rule 

would be repealed. The Board does not 

have the legal authority to extend the 

effective date beyond July 21, 2011, 

because the law pursuant to which the 

Board promulgated the rule will cease to 

exist on that date. Accordingly, the 

Board finds good cause for not delaying 

the effective date of the final rule. 

List of Subjects 

12 CFR Part 204 

Banks, Banking, Reporting and 

recordkeeping requirements. 

12 CFR Part 217 

Banks, Banking, Reporting and 

recordkeeping requirements. 

12 CFR Part 230 

Advertising, Banks, Banking, 

Consumer protection, Reporting and 

recordkeeping requirements, Truth in 

savings. 

For the reasons set forth in the 

preamble, under the authority of section 

627 of Public Law 111–203, 124 Stat. 

1376 (July 21, 2010), the Board is 

amending 12 CFR parts 204, 217, and 

230 to read as follows: 

PART 204—RESERVE 

REQUIREMENTS OF DEPOSITORY 

INSTITUTIONS 

■ 1. The authority citation for part 204 

is amended to read as follows: 

Authority: 12 U.S.C. 248(a), 248(c), 461, 

601, 611, and 3105. 

■ 2. In § 204.10, paragraph (c) is revised 

to read as follows: 

§ 204.10 Payment of interest on balances. 

* * * * * 

(c) Pass-through balances. A passthrough correspondent that is an eligible 

institution may pass back to its 

respondent interest paid on balances 

held on behalf of that respondent. In the 

case of balances held by a pass-through 

correspondent that is not an eligible 

institution, a Reserve Bank shall pay 

interest only on the required reserve 

balances held on behalf of one or more 

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42020 Federal Register / Vol. 76, No. 137 / Monday, July 18, 2011 / Rules and Regulations 

respondents, and the correspondent 

shall pass back to its respondents 

interest paid on balances in the 

correspondent’s account. 

* * * * * 

PART 217—PROHIBITION AGAINST 

PAYMENT OF INTEREST ON DEMAND 

DEPOSITS (REGULATION Q)— 

[REMOVED AND RESERVED] 

■ 3. Part 217 is removed and reserved. 

PART 230—TRUTH IN SAVINGS 

(REGULATION DD) 

■ 4. The authority citation for part 230 

continues to read as follows: 

Authority: 12 U.S.C. 4301 et seq. 

Supplement I to Part 230—Official Staff 

Interpretations 

■ 5. In Supplement I to Part 230: 

■ A. Under Section 230.2—Definitions, 

paragraph (n) Interest, is revised. 

■ B. Under Section 230.7—Payment of 

interest, subsection (a)(1) Permissible 

methods, the introductory text of 

paragraph (5) is revised. 

The revisions read as follows: 

Supplement I to Part 230—Official Staff 

Interpretations 

* * * * * 

Section 230.2 Definitions. 

* * * * * 

(n) Interest 

1. Relation to bonuses. Bonuses are not 

interest for purposes of this regulation. 

* * * * * 

Section 230.7 Payment of interest. 

(a)(1) Permissible methods 

* * * * * 

5. Maturity of time accounts. Institutions 

are not required to pay interest after time 

accounts mature. Examples include: 

* * * * * 

By order of the Board of Governors of the 

Federal Reserve System, July 12, 2011. 

Jennifer J. Johnson, 

Secretary of the Board. 

[FR Doc. 2011–17886 Filed 7–15–11; 8:45 am] 

BILLING CODE 6210–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 33 

[Docket No. FAA–2010–0398; Amendment 

No. 33–31] 

RIN 2120–AJ62 

Airworthiness Standards; Rotor 

Overspeed Requirements 

AGENCY: Federal Aviation 

Administration (FAA), DOT. 

ACTION: Final rule. 

SUMMARY: This rule will amend the 

aircraft turbine engine rotor overspeed 

type certification standards. This action 

establishes uniform rotor overspeed 

design and test requirements for aircraft 

engines and turbochargers certificated 

by the FAA and the European Aviation 

Safety Agency (EASA). The rule also 

establishes uniform standards for the 

design and testing of engine rotor parts 

in the United States and in Europe, 

eliminating the need to comply with 

two differing sets of requirements. 

DATES: This amendment becomes 

effective September 16, 2011. 

FOR FURTHER INFORMATION CONTACT: For 

technical questions concerning this final 

rule, contact Tim Mouzakis, Engine and 

Propeller Directorate Standards Staff, 

ANE–111, Engine and Propeller 

Directorate, Federal Aviation 

Administration, 12 New England 

Executive Park, Burlington, 

Massachusetts 01803–5299; telephone 

(781) 238–7114; fax (781) 238–7199; email timoleon.mouzakis@.faa.gov. For 

legal questions concerning this final 

rule contact Vincent Bennett, ANE–7, 

Office of Regional Counsel, Federal 

Aviation Administration, 12 New 

England Executive Park, Burlington, 

Massachusetts 01803–5299; telephone 

(781) 238–7044; fax (781) 238–7055; email vincent.bennett@faa.gov. 

SUPPLEMENTARY INFORMATION: 

Authority for This Rulemaking 

The FAA’s authority to issue rules 

regarding aviation safety is found in 

Title 49 of the United States Code. 

Subtitle I, Section 106 describes the 

authority of the FAA Administrator. 

Subtitle VII, Aviation Programs, 

describes in more detail the scope of the 

agency’s authority. 

We are issuing this rulemaking under 

the authority described in Subtitle VII, 

Part A, Subpart III, Section 44701, 

‘‘General requirements.’’ Under that 

section, the FAA is charged with 

promoting safe flight of civil aircraft in 

air commerce by prescribing regulations 

for practices, methods, and procedures 

the Administrator finds necessary for 

safety in air commerce, including 

minimum safety standards for aircraft 

engines. This final rule is within the 

scope of that authority because it 

updates existing regulations for rotor 

overspeed for aircraft turbine engines. 

Background 

Part 33 of Title 14, Code of Federal 

Regulations, prescribes airworthiness 

standards for original and amended type 

certificates for aircraft engines. The 

European Aviation Safety Agency 

(EASA) Certification Specification— 

Engines (CS–E) prescribes 

corresponding airworthiness standards 

to certify aircraft engines in Europe. 

While part 33 and the CS–E are similar, 

they differ in several respects. These 

differences may result in added costs, 

delays, and time required for 

certification. This rule will harmonize 

applicable U.S. and EASA standards 

and clarify existing overspeed 

requirements for aircraft turbine engine 

rotor parts. 

Summary of the NPRM 

The FAA published a notice of 

proposed rulemaking (NPRM) on April 

26, 2010 (75 FR 21523). The proposed 

changes establish a uniform certification 

basis for aircraft turbine engine rotor 

parts between the FAA and EASA. The 

proposal discussed requiring that rotor 

parts be designed with a safety margin 

large enough that the parts have an 

overspeed capability that exceeds the 

engine’s certified operating conditions, 

including overspeed conditions which 

can occur in the event of a failure of 

another engine component and/or 

system malfunction. For failures that 

may result in an overspeed, the proposal 

limited rotor growth to that which 

would not lead to a hazardous condition 

as defined in § 33.75. The comment 

period for the NPRM closed on July 26, 

2010. 

Summary of the Final Rule 

There are minor differences between 

the proposal and this final rule. Sections 

33.27(c) and (g) were changed in 

response to comments and our review of 

the proposal. This rule harmonizes rotor 

overspeed requirements found in part 

33 with EASA CS–E 840, Rotor 

Integrity. 

Summary of Comments 

The FAA received comments from 

Rolls-Royce, General Electric Aviation, 

Turbomeca, Pratt and Whitney, and 

General Aviation Manufacturers 

Association (GAMA). The commenters 

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