federal register

Friday

July 30, 1999

Part VI

Department of the

Treasury

Fiscal Service

31 CFR Part 203

Payment of Federal Taxes and the

Treasury Tax and Loan Program;

Proposed Rule
41748 Federal Register / Vol. 64, No. 146 / Friday, July 30, 1999 / Proposed Rules

DEPARTMENT OF THE TREASURY

Fiscal Service

31 CFR Part 203

RIN 1510–AA79

Payment of Federal Taxes and the

Treasury Tax and Loan Program

AGENCY: Financial Management Service,

Fiscal Service, Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: The Department of the

Treasury (Treasury), Financial

Management Service (FMS), is

proposing a revision of its regulations

governing the Treasury Tax and Loan

(TT&L) program and specifically a

change to the interest rate Treasury

charges on TT&L note balances,

including funds loaned through the

direct investment and special direct

investment programs. Under the current

rule, the TT&L rate of interest is the

Federal funds rate published weekly by

the Board of Governors of the Federal

Reserve System less 25 basis points.

Treasury is proposing to change the

basis for computing the TT&L rate of

interest to an overnight repurchase

agreement rate in order to better

approximate the market interest rate for

collateralized lending.

Comments are specifically requested

on whether the rule is well organized

and states its requirement clearly. Also,

we welcome suggestions on how to

make the rule easier to understand.

Treasury invites comments on all

aspects of the proposed change in the

regulation.

DATES: Written comments must be

received on or before September 28,

1999.

ADDRESSES: Comments or inquiries may

be mailed to Cynthia L. Johnson,

Director, Cash Management Policy and

Planning Division, Financial

Management Service, Room 420, 401

14th Street, SW, Washington, DC 20227.

Comments also may be submitted

electronically via e-mail to

203.comments@fms.sprint.com or by

filling out the comment form available

on the EFT website at http://

www.fms.treas.gov/eftps. A copy of this

notice is being made available for

downloading from the Financial

Management Service web site at the

following address: http://

www.fms.treas.gov/regs.html.

Comments on the proposed rule will

be available for public inspection at the

Department of the Treasury Library,

Room 5030, 1500 Pennsylvania Avenue,

NW, Washington, DC. Please call (202)

622–0990 to make an appointment.

FOR FURTHER INFORMATION CONTACT:

Mary Bailey, Financial Program

Specialist, at (202) 874–6749; Walt

Henderson, Senior Financial Program

Specialist, at (202) 874–6705; Cynthia L.

Johnson, Director, Cash Management

Policy and Planning Division, at (202)

874–6590; or Ellen Neubaurer, Senior

Attorney, at (202) 874–6680.

SUPPLEMENTARY INFORMATION:

Background on the Treasury Tax and

Loan Program

The Treasury Tax and Loan (TT&L)

program encompasses two separate

components—a depositary component

through which the Treasury collects

Federal tax deposits and payments from

business taxpayers for employee

withholding and other types of taxes,

and an investment component through

which the Treasury invests short-term

operating balances not needed for

immediate cash outlays.

Through the TT&L depositary

component, which comprises nearly

10,500 commercial financial institutions

and Federal Reserve Banks (FRBs), the

Treasury collected almost $1.4 trillion

in Fiscal Year 1998, representing

approximately 80 percent of the total

Federal annual receipts, from

approximately 5 million business

taxpayers.

More than 1,500 of the TT&L

depositaries borrow excess short-term

Treasury operating funds by

participating in the investment

component of the TT&L program.

Through agreements executed under

this Part, participating depositaries

borrow Treasury funds in the form of a

note secured with collateral pledged to

Treasury and pay interest to the

Treasury on these balances. In Fiscal

Year 1998, the Treasury earned $1.2

billion in interest income through the

TT&L investment component.

Treasury Tax and Loan Rate of Interest

The interest rate that the Treasury

charges on a TT&L depositary’s note

balance is the Federal funds rate

[computed on a weighted average

effective basis by the Federal Reserve

Bank of New York (FRBNY)] less 25

basis points (25 hundredths of one

percentage point). The Federal funds

rate is the interest rate at which

financial institutions exchange balances

in their accounts at the Federal Reserve

with each other on an overnight,

unsecured basis.

The current formula was put into

place in 1978. At that time, the

overnight repurchase agreement market

was not mature and a published rate

was not available. Thus, the TT&L rate

of interest was set as an approximation

of an overnight repurchase agreement

rate. When the current formula was put

into place in 1978, it was generally

believed that the Federal funds rate

averaged 25 basis points above the

volume-weighted average interest rate

from overnight repurchase agreements

secured by Treasury securities and

select Agency securities executed by the

FRBNY for its monetary operations. An

overnight repurchase agreement is the

economic equivalent of an overnight

loan collateralized by securities.

Treasury is proposing to change the

TT&L rate of interest to an explicit

overnight repurchase agreement rate.

This change will allow Treasury to

receive the actual interest rate, rather

than a proxy rate, on an economically

similar transaction.

Specifically, Treasury is proposing

that FRBNY, as fiscal agent for the U.S.

Treasury, compile and publish a

volume-weighted average overnight

repurchase agreement rate. We propose

that the FRBNY compile this rate from

data it would obtain from its domestic

open market counter parties (‘‘the

primary dealers’’) regarding the volumeweighted average overnight rate the

primary dealers paid to finance general

collateral securities. The Treasury

requests comments on this proposed

methodology.

Replacing the formula or proxy rate

with an explicit overnight repurchase

agreement rate will provide depositaries

with an easily understandable rate

which will be publicly available.

Historically, these two rates generally

have moved broadly in tandem. From

the inception of the investment program

in 1978 through May 1999 the Federal

funds rate averaged approximately 29

basis points (29 hundredths of one

percentage point) over the overnight

repurchase agreement rate. Since 1990,

however, the average difference between

the two rates has been only

approximately 2 basis points (2

hundredths of one percentage point).

Availability of the Overnight

Repurchase Agreement Rate

It is important that the TT&L rate of

interest be readily available to the

public. The Treasury proposes to

request that the Federal Reserve publish

an overnight repurchase agreement rate

on a basis similar to that used to publish

the Federal funds rate. Thus, financial

institutions that elect to maintain a

TT&L note balance will have a readily

accessible indicator on which to

estimate the cost of funds.
Federal Register / Vol. 64, No. 146 / Friday, July 30, 1999 / Proposed Rules 41749

Section by Section Analysis

Section 203.2—Definitions

Treasury proposes to change the

definition of the ‘‘Treasury Tax and

Loan (TT&L) rate of interest’’ from the

Federal funds rate less 25 basis points

to a volume-weighted average overnight

repurchase agreement rate. Treasury

also proposes to add a definition of

‘‘Overnight Repurchase Agreement

Rate’’. This new term is used in the

redefined ‘‘Treasury Tax and Loan

(TT&L) rate of interest’’. As a result of

this new definition, this section will be

renumbered.

Rulemaking Analysis

Treasury has determined that this

proposed regulation is not a significant

regulatory action as defined in

Executive Order 12866. It is hereby

certified that this rule will not have a

significant economic impact on a

substantial number of small business

entities. The proposed rule does not

require any actions on the part of small

entities. Accordingly, a Regulatory

Flexibility Act analysis is not required.

Request for Comment

The Treasury invites comments on all

aspects of the proposed change in the

Treasury Tax and Loan rate of interest

for calculating interest due to the

Treasury on TT&L note balances. In

particular, the Treasury invites

comments on the potential impact to the

investment component of the TT&L

program—specifically, whether

depositaries are likely to alter their

participation in the program and, if so,

by how much—and on the proposed

methodology for determining the

overnight repurchase agreement rate.

Treasury is also interested in comments

regarding the extent to which TT&L

participants would be interested in

obtaining TT&L note balances for a

guaranteed term.

List of Subjects in 31 CFR Part 203

Banks, Banking, Electronic funds

transfers, Taxes.

Accordingly, it is proposed to amend

31 CFR part 203 as follows:

PART 203—PAYMENT OF FEDERAL

TAXES AND THE TREASURY TAX AND

LOAN PROGRAM

Subpart A—General Information

1. The authority citation for Part 203

continues to read as follows:

Authority: 26 U.S.C. 6302; 31 U.S.C. 321;

31 U.S.C. 323; 31 U.S.C. 3301–3304; 12

U.S.C. 90; 12 U.S.C. 265–266; 12 U.S.C. 332;

12 U.S.C. 391; 12 U.S.C. 1452(d); 12 U.S.C.

1464(k); 12 U.S.C. 1767; 12 U.S.C. 1789a; 12

U.S.C. 2013; 12 U.S.C. 2122; and 12 U.S.C.

3102.

2. Section 203.2 is amended by

deleting paragraph (j), redesignating

paragraphs (k) through (w) as

paragraphs (j) through (v), adding a new

paragraph (w) and revising paragraph

(kk) to read as follows:

Subpart A—General Information.

§ 203.2 Definitions.

* * * * *

(w) Overnight repurchase agreement

rate means the interest rate calculated

by the Federal Reserve Bank of New

York from the volume-weighted average

overnight rate paid to finance general

collateral securities compiled by the

Federal Reserve Bank of New York and

published weekly by the Board of

Governors of the Federal Reserve

System.

* * * * *

(kk) Treasury tax and loan (TT&L)

rate of interest means the overnight

repurchase agreement rate.

Dated: July 26, 1999.

Donald V. Hammond,

Fiscal Assistant Secretary.

[FR Doc. 99–19564 Filed 7–29–99; 8:45 am]

BILLING CODE 4810–35–P