42708 Federal Register / Vol. 62, No. 153 / Friday, August 8, 1997 / Proposed Rules

1Edge corporations are organized under section

25A of the Federal Reserve Act (12 U.S.C. 611–631),

and Agreement corporations have an agreement or

undertaking with the Board under section 25 of the

Federal Reserve Act (12 U.S.C. 601–604a). For

purposes of this docket, the term ‘‘Edge

corporation’’ includes Agreement corporations.

Similarly the term ‘‘branch’’ of a foreign bank

includes both branches and agencies.

2The distinguishing characteristics of U.S.

branches of foreign banks do not necessarily apply

to Edge corporations. As a result, the legal,

supervisory, and risk management treatment of

multiple offices of the same Edge corporation

differs from that of multiple U.S. offices of foreign

banks. Unless otherwise noted, the following points

apply mainly to U.S. branches of foreign banks.

Because of the historical parallel regulatory

treatment of these entities, however, the account

structure for U.S. branches of foreign banks applies

to Edge corporations as well.

Committee Meetings

The working group will meet, as

needed, in the Washington, DC, area, or

at other locations agreed upon by the

working group members. Meetings will

be announced in advance, through the

NRC Public Meeting Notice System and,

with some exceptions, will be open for

public observation. Persons attending

working group meetings will be

welcome to provide input to the

working group for its consideration,

either in written form or orally, at times

specified by the working group chair.

Dated at Rockville, Maryland, this 4th day

of August 1997.

For the Nuclear Regulatory Commission.

Donald A. Cool,

Director, Division of Industrial and Medical

Nuclear Safety, Office of Nuclear Material

Safety and Safeguards.

[FR Doc. 97–20974 Filed 8–7–97; 8:45 am]

BILLING CODE 7590–01–P

FEDERAL RESERVE SYSTEM

12 CFR Part 204

[Regulation D; Docket No. R–0980]

Reserve Requirements of Depository

Institutions

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Proposed rule.

SUMMARY: The Board is proposing to

amend its Regulation D, Reserve

Requirements of Depository Institutions,

to allow U.S. branches and agencies of

foreign banks and Edge and Agreement

corporations to choose whether to

aggregate reserves on a nationwide basis

in a single account at one Reserve Bank

or to continue to have separate accounts

on a same-state/same-District basis as

they do today. The amendments would

also update and clarify the pass-through

account rules in Regulation D for all

institutions. These amendments would

facilitate interstate banking and

eliminate certain restrictions applicable

to pass-through accounts.

DATES: Comments must be submitted on

or before September 12, 1997.

ADDRESSES: Comments, which should

refer to Docket No. R–0980, may be

mailed to Mr. William W. Wiles,

Secretary, Board of Governors of the

Federal Reserve System, 20th Street and

Constitution Avenue, N.W.,

Washington, D.C. 20551. Comments

addressed to Mr. Wiles also may be

delivered to the Board’s mail room

between 8:45 a.m. and 5:15 p.m. and to

the security control room outside of

those hours. Both the mail room and the

security control room are accessible

from the courtyard entrance on 20th

Street between Constitution Avenue and

C Street, N.W. Comments may be

inspected in Room MP–500 between

9:00 a.m. and 5:00 p.m.

FOR FURTHER INFORMATION CONTACT:

Oliver Ireland, Associate General

Counsel, (202/452–3625) or Stephanie

Martin, Senior Attorney (202/452–

3198), Legal Division. For the hearing

impaired only, contact Diane Jenkins,

Telecommunications Device for the Deaf

(TDD) (202/452–3544), Board of

Governors of the Federal Reserve

System, 20th and C Streets, N.W.,

Washington, D.C. 20551.

SUPPLEMENTARY INFORMATION: To

facilitate interstate banking, the Federal

Reserve Banks will begin to implement

a new account structure on January 2,

1998, that will provide a single Federal

Reserve account for each domestic

depository institution. This structure

will enable the Federal Reserve Banks to

establish a single debtor-creditor

relationship with each chartered entity,

thereby providing an effective means for

Reserve Banks to carry out their risk

management responsibilities, and will

improve the efficiency of account

management for depository institutions.

To determine the Federal Reserve Bank

where a bank with interstate branches

will hold an account, the Board adopted

amendments to its Regulation D (12 CFR

part 204, Reserve Requirements of

Depository Institutions) and Regulation

I (12 CFR part 209, Issue and

Cancellation of Capital Stock of Federal

Reserve Banks) (62 FR 34613, June 27,

1997). These amendments define a

domestic depository institution’s

location for purposes of Federal Reserve

membership and reserve account

maintenance.

U.S. branches and agencies of the

same foreign bank and Edge and

Agreement corporations 1 of the same

parent bank were not included in the

new single-account structure or in the

final amendments to Regulations D and

I, pending further consideration of legal

and operational issues. The Board is

now proposing amendments to

Regulation D under which the Federal

Reserve Banks will offer a single

account to these institutions on an

optional basis. Under this proposal,

foreign banks and Edge corporations

could choose either to designate one

office to hold a single account at one

Reserve Bank or to continue to have

separate accounts on a same-state/sameDistrict basis as they do today. The

Board is also proposing changes to the

pass-through account rules in

Regulation D to accommodate the

single-account option and to make other

changes applicable to all institutions

that will simplify and clarify the passthrough rules.

The Board believes making a single

account optional rather than required

for families of foreign bank branches is

reasonable in light of certain

operational, legal, and supervisory

differences between U.S. branches and

agencies of foreign banks and domestic

banks.2 For example, certain foreign

banks have historically managed their

U.S. offices as independent entities that

do not necessarily coordinate lending

and investment decisions from a central

office. Further, each office of a foreign

bank family must have a separate

license, either state or federal. The

majority of U.S. offices of foreign banks

are state-licensed and not federally

insured and are thus would be

liquidated separately based on the law

of each licensing state. In addition, U.S.

bank supervisory authorities treat U.S.

branches of foreign banks as

independent units for other purposes,

such as asset maintenance requirements.

As a result of these differences, U.S.

branches of foreign banks may be placed

at a disadvantage if they were required,

in the short term, to adopt a single

account structure.

To ensure stability in account

relationships and to move the foreign

banks and Edge corporations toward the

preferred long-run account structure,

the optional single account, where

possible, would be a one-way election.

That is, once an entity selects a single

account it would not be permitted to

switch back to multiple accounts

without the Board’s approval. The

single account would be available to

U.S. branches of foreign banks and Edge

corporations effective January 2, 1998.
Federal Register / Vol. 62, No. 153 / Friday, August 8, 1997 / Proposed Rules 42709

3The call report instructions are more clear,

stating that, from the perspective of the Federal

Reserve Bank, pass-through balances are treated as

balances due to the correspondent, not to the

respondent.

4However, split reporting (requiring a depository

institution to file supervisory reports with one

Reserve Bank and other reports with another

Reserve Bank) would lead to inefficiencies in other

areas for both the depository institution and the

Continued

Amendments to Regulation D

Eligible Pass-Through Correspondents

Under the International Banking Act

of 1978, branches of foreign banks are

treated as separate banks for reserve

purposes, which implies that each

branch has a separate reserve liability.

Reserves may be held in the form of

vault cash, a balance held directly with

a Federal Reserve Bank, or in a passthrough account. Regulation D allows

foreign bank branches and Edge

corporations to pass their reserves

through an account of another office of

the same institution, subject to the passthrough rules applicable to all

depository institutions.

The Board proposes to expand this

provision to clarify that a foreign bank

or Edge corporation family may choose

any eligible institution as a pass-through

correspondent, such as a domestic

depository institution or a branch of

another foreign bank, in addition to an

office of its own family. Although the

Board believes that these entities will

generally choose one of their own

offices as the pass-through

correspondent, allowing the choice is

comparable to the treatment of domestic

depository institutions under Regulation

D. If a foreign bank chooses to have a

single Federal Reserve account, it would

likely aggregate all of the reserves of its

nationwide branches in that account,

i.e., the account would hold the reserves

of the account-holding branch and

function as a pass-through account for

the reserves of the remaining branches.

Account Maintenance

To accommodate the single account,

the Board is proposing amendments to

the pass-through provisions in

Regulation D. Section 204.3(i)(3)

currently requires a pass-through

correspondent to maintain pass-through

accounts at each Federal Reserve Bank

in whose District the respondent

institutions are located. The Board

proposes to remove the requirement that

pass-through accounts must be held in

the District where the respondent is

located. This proposal would apply to

pass-through accounts for all depository

institutions as well as for foreign bank

branches and Edge corporations.

Regulation D also provides that, when

respondents are located in the same

District as the pass-through

correspondent, the correspondent may

choose to maintain its own reserves and

the passed-through reserves in a single

commingled account or in two separate

accounts. Under the Board’s proposal,

correspondents would hold passthrough balances in a single

commingled account, along with the

pass-through correspondent’s own

reserves (if any) at the Reserve Bank in

whose District the pass-through

correspondent is located. The Board

specifically requests comment on

whether correspondents should

continue to have the option of separate

accounts for their own reserves and the

reserves they hold on a pass-through

basis. The Board believes that separate

accounts are probably not necessary, as

subaccounts could suffice for purposes

of segregating correspondent

transactions.

Regulation D is currently unclear as to

whose money is in the pass-through

account, that is, whether the passthrough account is a Reserve Bank

liability to the pass-through

correspondent or to the respondent.3

The proposed amendments to

§ 204.3(i)(3) would clarify that the

balances held by the pass-through

correspondent are the property of the

correspondent and represent a liability

of the Reserve Bank solely to the

correspondent, regardless of whether

the funds represent the reserve balances

of another office or institution that have

been passed through the correspondent.

These proposed changes regarding

account maintenance would apply to

pass-through accounts for all depository

institutions, in addition to those for

foreign bank branches and Edge

corporations.

Reporting

For those foreign banks or Edge

corporations that choose to have a single

Federal Reserve account, the Board is

soliciting comment on an amendment to

§ 204.3(a)(1) of Regulation D to allow

the family to submit an aggregated

report of deposits for all offices. The

submission of a single aggregated report

would be similar to the current

Regulation D reporting rule, which

requires foreign bank and Edge

corporation offices in the same state and

same Federal Reserve District to

aggregate deposits for purposes of

reserve-related reports. The current

same-state/same District aggregation

provides a convenience for offices that

maintain reserves in the same Federal

Reserve account or pass-through

account by allowing them to submit a

single report to the Reserve Bank that

holds the account. Nationwide

aggregation would extend the same

convenience to foreign banks and Edge

corporations who opt for a single

nationwide account by allowing them to

file a single report. It would be most

consistent with current reporting

arrangements if this single report was

sent to the Reserve Bank that holds the

account with the family’s reserves.

The Board also requests comment on

whether reporting changes are necessary

for all depository institutions that hold

their reserves in pass-through accounts.

Current § 204.3(i)(2) of Regulation D

requires depository institutions to file

reports of deposits with the Reserve

Bank in whose District the institution is

located, regardless of whether the

institution maintains reserves in its own

account or in a pass-through account.

The Reserve Bank notifies the reporting

institution of its reserve requirements

and also notifies the pass-through

correspondent, if one exists. Each

respondent is responsible for reporting;

the pass-through correspondent is not

responsible for reporting errors made by

the respondent, but it is responsible for

maintaining the required reserve

balances in accordance with the reports.

Under the proposed pass-through rules,

a depository institution located in one

Federal Reserve District could hold

reserves in a pass-through account

located in another District. In this

situation, it may be appropriate for that

depository institution’s deposit reports

to ‘‘follow the money,’’ that is, for the

depository institution to send its deposit

report to the Reserve Bank that holds

the account, rather than the Reserve

Bank of the institution’s District.

In addition, the Board requests

comment on whether it is appropriate

for all reports of all institutions

(depository institutions as well as

foreign bank branches and Edge

corporations), including both

supervisory and monetary reports, to go

to the Reserve Bank that holds the

account where that institution’s reserves

are held. On the one hand, requiring

reports to follow the money could

provide an efficient means of

administering reserve requirements

because only one Reserve Bank would

be responsible for determining the

accuracy of the reports and assessing

deficiency penalties. On the other hand,

if the Reserve Bank in whose District the

institution is located is responsible for

supervising the institution, having the

institution submit supervisory reports to

another Reserve Bank could effect the

depth and timeliness of the supervising

Reserve Bank’s knowledge of the

institution’s condition.4 Currently, this
42710 Federal Register / Vol. 62, No. 153 / Friday, August 8, 1997 / Proposed Rules

Federal Reserve. The depository institution would

have to deal with more than one Reserve Bank on

reporting and data editing issues. For the Federal

Reserve, each Reserve Bank collecting data from a

particular depository institution would have to

become knowledgeable about that institution’s

structure, operations, and balance sheet in order to

perform effective data editing and analysis.

5The amount of an institution’s net transaction

accounts in the low reserve tranche ($0 to $49.3

million) carries a lower reserve requirement (3

percent) than the amount above the tranche (which

carries a 10 percent requirement). The first $4.4

million of any institution’s reservable liabilities are

exempt from reserve requirements.

dichotomy would exist only for foreign

bank branches, as the Federal Reserve

Act requires each member bank to hold

reserves directly with the Reserve Bank

of its District and does not permit

member banks to hold reserves through

a pass-through correspondent.

Low Reserve Tranche And Exemption

Amounts

Current Regulation D provides that

foreign bank and Edge corporation

families share one low reserve tranche

and exemption amount among all

related offices.5 Regulation D sets out

separate provisions (§ 204.3 (a)(1) and

(a)(2)) for foreign bank branches and

Edge corporations covering allocation of

the low reserve tranche. The regulation

also contains a separate provision

(§ 204.3(a)(3)) on allocation of the

reserve exemption, which applies to

depository institutions as well as foreign

bank branches and Edge corporations.

Proposed § 204.3(a)(2) would combine

the existing provisions on allocation of

the low reserve tranche and the reserve

exemption among offices of depository

institutions, foreign bank branches, and

Edge corporations. These allocation

rules would continue to apply to offices

of the same institution that report

deposits separately, such as branches of

a foreign bank that choose to continue

filing on a same-state/same-District

basis and depository institutions that

are in transition from a multiple to a

single reporting and account structure.

No allocations would be necessary for

institutions that hold reserves in a

single account.

Location of Institution

As noted above, in June the Board

amended § 204.3(b) to set forth where a

domestic depository institution is

located for purposes of determining the

Federal Reserve Bank where the

institution will maintain its reserve

balances. Specifically, an institution is

considered to be located in the Federal

Reserve District specified in its charter

or organizing certificate, or, if no such

location is specified, the location of its

head office. The Board can make

exceptions to the general rule for a

particular institution after considering

certain criteria. The Board proposes to

apply the same rule to foreign bank

branches and Edge corporations. For

foreign banks and Edge corporations

that choose a single account structure

and pass all reserves through one office,

the location of the office that is the passthrough correspondent would determine

which Reserve Bank holds the account.

Services

Section 204.3(i)(5) contains

provisions regarding the services

available to pass-through

correspondents and respondents. The

Board proposes to remove these

provisions from Regulation D. The terms

of services offered by the Reserve Banks

are covered in Regulation J (12 CFR part

210) and the Reserve Banks’ operating

circulars.

Technical Changes

In addition to the sections discussed

above, the Board is also proposing

editorial and conforming amendments

to §§ 204.3(i) and 204.9(b) of Regulation

D.

Initial Regulatory Flexibility Analysis

The Regulatory Flexibility Act (5

U.S.C. 601–612) requires an agency to

publish an initial regulatory flexibility

analysis with any notice of proposed

rulemaking. Two of the requirements of

an initial regulatory flexibility analysis

(5 U.S.C. 603(b)), a description of the

reasons why action by the agency is

being considered and a statement of the

objectives of, and legal basis for, the

proposed rule, are contained in the

supplementary material above. The

proposed rules require no additional

reporting or recordkeeping requirements

and do not overlap with other federal

rules.

Another requirement for the initial

regulatory flexibility analysis is a

description of and, where feasible, an

estimate of the number of small entities

to which the proposed rule will apply.

The proposal will apply to all

institutions subject to the regulations,

regardless of size. The proposal would

not impose any significant burden on

any institution, but rather would

provide increased flexibility for many

institutions. Approximately 90 foreign

banks and 10 Edge corporations that

currently have multiple Federal Reserve

accounts would have the option of

consolidating their reserves in a single

account under the proposal.

Approximately 36 pass-through

correspondents for domestic depository

institutions would no longer have to

hold pass-through accounts at multiple

Federal Reserve Banks under the

proposal.

Paperwork Reduction Act

In accordance with the Paperwork

Reduction Act of 1995 (44 U.S.C. 3506;

5 CFR 1320 Appendix A.1), the Board

reviewed the proposed revised rule

under the authority delegated to the

Board by the Office of Management and

Budget. The proposed rule contains no

new collections of information and

proposes no substantive changes to the

existing collections of information

pursuant to the Paperwork Reduction

Act. The collection of information

requirements that could be affected by

this proposal are found in 12 CFR 204.

All types of depository institutions file

these information collections, but only a

small subset of respondents, Edge

corporations and U.S. branches of

foreign banks, has the potential to be

affected by the reporting burden

reductions implicit in this proposal.

Edge corporations and U.S. branches

of foreign banks currently file deposits

and Eurocurrency reports (FR 2900 and

FR 2951; OMB No. 7100–0087)

aggregated by each state and Federal

Reserve District in which their offices

are located. If offices of the same

institution are located in more than one

state/District, they must file an

additional report annually (FR 2930;

OMB No. 7100–0088) to allocate the

single low reserve tranche and

exemption they share.

As noted in the sections above, U.S.

branches of the same foreign bank and

Edge corporations of the same parent

bank could choose to establish a single

Federal Reserve account beginning

January 2, 1998. Respondents with a

single account would file one FR 2900

report and one FR 2951 report,

aggregated nationwide, with the Reserve

Bank that holds the account. Since no

allocations are necessary for institutions

that hold reserves in a single account,

these respondents would no longer be

required to file FR 2930. Thus the

proposed changes could reduce FR

2900, FR 2951, and FR 2930 reporting

burden for these U.S. branches of

foreign banks and Edge corporations.

This in turn would reduce at least

somewhat the total burden for the

affected information collections.

The Federal Reserve invites

comments on the effect on reporting

burden of the proposed changes. Copies

of such comments may also be sent to

the Office of Management and Budget,

Paperwork Reduction Project (7100–

0087 and 7100–0088), Washington, DC

20503.
Federal Register / Vol. 62, No. 153 / Friday, August 8, 1997 / Proposed Rules 42711

List of Subjects in 12 CFR Part 204

Banks, banking, Federal Reserve

System, Reporting and recordkeeping

requirements.

For the reasons set out in the

preamble, 12 CFR part 204 is proposed

to be amended as set forth below.

PART 204—RESERVE

REQUIREMENTS OF DEPOSITORY

INSTITUTIONS (REGULATION D)

1. The authority citation for part 204

continues to read as follows:

Authority: 12 U.S.C. 248(a), 248(c), 371a,

461, 601, 611, and 3105.

2. Section 204.3 is amended as

follows:

a. Paragraphs (a)(1) and (a)(2) are

revised and paragraph (a)(3) is removed;

b. In paragraph (b) as revised at 62 FR

34616 effective October 1, 1997, the last

sentence of paragraph (b)(1) is removed

and paragraph (b)(2)(i) is revised; and

c. Paragraph (i) is revised to read as

follows:

§ 204.3 Computation and maintenance.

(a) * * *

(1) United States branches and

agencies of foreign banks; Edge and

Agreement corporations. (i) A foreign

bank’s United States branches and

agencies and an Edge or Agreement

corporation’s offices shall prepare and

file a report of deposits on an aggregated

basis either:

(A) For each group of branches and

agencies, or each group of offices,

operating within the same state and

within the same Federal Reserve

District; or

(B) For all branches and agencies, or

all offices, operating in the United

States.

(ii) A foreign bank or an Edge or

Agreement corporation that elects to

aggregate deposits for all branches and

agencies, or all offices, operating in the

United States may not subsequently

elect to aggregate deposits in another

manner without the Board’s approval.

(2) Allocation of low reserve tranche

and exemption from reserve

requirements. A depository institution,

a foreign bank, or an Edge or Agreement

corporation shall, if possible, assign the

low reserve tranche and reserve

requirement exemption prescribed in

§ 204.9(a) to only one office or to a

group of offices filing a single

aggregated report of deposits. The

amount of the reserve requirement

exemption allocated to an office or

group of offices may not exceed the

amount of the low reserve tranche

allocated to such office or offices. If the

low reserve tranche or reserve

requirement exemption cannot be fully

utilized by a single office or by a group

of offices filing a single report of

deposits, the unused portion of the

tranche or exemption may be assigned

to other offices or groups of offices of

the same institution until the amount of

the tranche (or net transaction accounts)

or exemption (or reservable liabilities) is

exhausted. The tranche or exemption

may be reallocated each year concurrent

with implementation of the indexed

tranche and exemption, or, if necessary

during the course of the year to avoid

underutilization of the tranche or

exemption, at the beginning of a reserve

computation period.

(b) * * *

(2) (i) For purposes of this section, a

depository institution, a U.S. branch or

agency of a foreign bank, or an Edge or

Agreement corporation is located in the

Federal Reserve District that contains

the location specified in the institution’s

charter, organizing certificate, or license

or, if no such location is specified, the

location of its head office, unless

otherwise determined by the Board

under paragraph (b)(2)(ii) of this section.

* * * * *

(i) Pass-through rules—(1) Procedure.

(i) A nonmember depository institution,

a U.S. branch or agency of a foreign

bank, or an Edge or Agreement

corporation required to maintain reserve

balances (respondent) may select only

one institution to pass through its

required reserves. Eligible institutions

through which respondent required

reserve balances may be passed

(correspondents) are Federal Home Loan

Banks, the National Credit Union

Administration Central Liquidity

Facility, and depository institutions,

U.S. branches or agencies of foreign

banks, and Edge and Agreement

corporations that maintain required

reserve balances at a Federal Reserve

office. In addition, the Board reserves

the right to permit other institutions, on

a case-by-case basis, to serve as passthrough correspondents. The

correspondent chosen must

subsequently pass through the required

reserve balances of its respondents

directly to a Federal Reserve Bank. The

correspondent placing funds with a

Federal Reserve Bank on behalf of

respondents will be responsible for

account maintenance as described in

paragraphs (i)(3) and (i)(4) of this

section.

(ii) Respondents or correspondents

may institute, terminate, or change passthrough arrangements for the

maintenance of required reserve

balances by providing all

documentation required for the

establishment of the new arrangement

or termination of the existing

arrangement to the Federal Reserve

Banks involved within the time period

provided for such a change by those

Reserve Banks.

(2) Reports. (i) Every depository

institution that maintains transaction

accounts or nonpersonal time deposits

is required to file its report of deposits

(or any other required form or

statement) with the Federal Reserve

Bank of its District, regardless of the

manner in which it chooses to maintain

required reserve balances.

(ii) The Federal Reserve Bank

receiving such reports shall notify the

reporting depository institution of its

reserve requirements. Where a passthrough arrangement exists, the Reserve

Bank will also notify the pass-through

correspondent of its respondent’s

required reserve balances.

(iii) The Board will not hold a

correspondent responsible for

guaranteeing the accuracy of the reports

of deposits submitted by its respondents

to a Federal Reserve Bank.

(3) Account maintenance. A

correspondent that passes through

required reserve balances of

respondents shall maintain such

balances, along with the

correspondent’s own required reserve

balances (if any), in a single

commingled account at the Federal

Reserve Bank in whose District the

correspondent is located. The balances

held by the correspondent in an account

at a Reserve Bank are the property of the

correspondent and represent a liability

of the Reserve Bank solely to the

correspondent, regardless of whether

the funds represent the reserve balances

of another institution that have been

passed through the correspondent.

(4) Responsibilities of parties. (i) Each

individual depository institution, U.S.

branch or agency of a foreign bank, or

Edge or Agreement corporation is

responsible for maintaining its required

reserve balance either directly with a

Federal Reserve Bank or through a passthrough correspondent.

(ii) A pass-through correspondent

shall be responsible for assuring the

maintenance of the appropriate

aggregate level of its respondents’

required reserve balances. A Federal

Reserve Bank will compare the total

reserve balance required to be

maintained in each account with the

total actual reserve balance held in such

account for purposes of determining

required reserve deficiencies, imposing

or waiving charges for deficiencies in

required reserves, and for other reserve

maintenance purposes. A charge for a

deficiency in the aggregate level of the
42712 Federal Register / Vol. 62, No. 153 / Friday, August 8, 1997 / Proposed Rules

required reserve balance will be

imposed by the Reserve Bank on the

correspondent maintaining the account.

(iii) Each correspondent is required to

maintain detailed records for each of its

respondents in a manner that permits

Federal Reserve Banks to determine

whether the respondent has provided a

sufficient required reserve balance to

the correspondent. A correspondent

passing through a respondent’s reserve

balance shall maintain records and

make such reports as the Board or

Reserve Bank requires in order to insure

the correspondent’s compliance with its

responsibilities for the maintenance of a

respondent’s reserve balance. Such

records shall be available to the Reserve

Banks as required.

(iv) The Federal Reserve Bank may

terminate any pass-through relationship

in which the correspondent is deficient

in its recordkeeping or other

responsibilities.

(v) Interest paid on supplemental

reserves (if such reserves are required

under § 204.6) held by a respondent will

be credited to the account maintained

by the correspondent.

§ 204.9 [Amended]

3. In section 204.9, the reference in

paragraph (b) to ‘‘§ 204.3(a)(3)’’ is

revised to read ‘‘§ 204.3(a)(2)’’.

By order of the Board of Governors of the

Federal Reserve System, August 4, 1997.

William W. Wiles,

Secretary of the Board.

[FR Doc. 97–20957 Filed 8–7–97; 8:45 am]

BILLING CODE 6210–01–P

INTERNATIONAL DEVELOPMENT

COOPERATION AGENCY

Agency for International Development

22 CFR Part 201

[AID Reg. 1]

RIN 0412–AA–34

Rules and Procedures Applicable to

Commodity Transactions Financed by

USAID: Inspection and Price

Provisions

AGENCY: Agency for International

Development, IDCA.

ACTION: Proposed rule.

SUMMARY: The U.S. Agency for

International Development (USAID)

proposes to amend the regulation to

implement the requirement for

preshipment inspection of commodities

and to simplify the current rules on

maximum prices for commodities.

USAID previously employed post-audit

procedures to assure that commodities

and related services financed under its

programs were not over priced by

suppliers. The purpose of preshipment

inspection is to complete the price

review prior to shipment, rather than

after the fact, and when determined

necessary, to complete a physical

inspection of the commodities being

financed. The purpose of the proposed

amendment to the price rules for

commodities is to make it easier for

suppliers to understand and bring it into

line with commercial practices used by

preshipment inspection firms that will

be contracted to carry out the

preshipment inspection program.

DATES: Comment Deadline: October 7,

1997.

ADDRESSES: Send comments to Kathleen

J. O’Hara, Office of Procurement Policy

Division (M/OP/PP), USAID, Room 1600

A, Washington, DC 20523–1435.

FOR FURTHER INFORMATION CONTACT:

Kathleen J. O’Hara, Office of

Procurement, Procurement Policy

Division (M/OP/PP), USAID, Room 1600

A, Washington, DC 20523–1435.

Telephone (703) 875–1534, facsimile

(703) 875–1243.

SUPPLEMENTARY INFORMATION: As part of

USAID’s re-engineering process, a

decision has been taken to revise the

procedure it uses to assure that the

prices paid to suppliers under

transactions financed by Commodity

Import Programs are fair and reasonable.

Currently, this is being done through a

post-audit function within USAID. The

purpose of this proposed amendment is

to implement a preshipment inspection

program which would essentially

replace the post-audit function. The

preshipment inspection services will be

carried out by a private contractor,

under a contract with USAID.

The specific changes being proposed

would add a definition for

‘‘preshipment inspection,’’ amend the

coverage on responsibilities of importers

and suppliers to add requirements

concerning preshipment inspection, add

a new § 201.48 establishing the

requirement for preshipment inspection,

and add the requirement for a ‘‘clean’’

inspection report to the list of

documents that the supplier must

furnish in order to receive payment

from USAID in § 201.52(a).

Preshipment inspection will include a

price review, and USAID proposes to

revise its rules on maximum prices for

commodities to be more in line with the

commercial practices used by the

preshipment inspection firms. The basic

prevailing market price test would be

reformulated; the method for

constructing an allowable price in the

absence of comparable sales in

§ 201.63(e) would be removed since it

does not agree with commercial

practices established between

preshipment inspection firms and the

World Trade Organization; and the

supplier’s comparable export price test

in § 201.63 (c) would also be removed.

Various changes in subpart G, Price

Provisions, implement the new rules.

USAID has determined that this

proposed rule is not a significant

regulatory action under Executive Order

12866. The rule has been reviewed in

accordance with the requirement of the

Regulatory Flexibility Act. USAID has

determined that the proposed rule will

not have a significant economic impact

on a substantial number of small

entities, and, therefore, a Regulatory

Flexibility Analysis is not required. The

additional documentation requirement

will be submitted to OMB for approval

as required by the Paperwork Reduction

Act.

List of Subjects in 22 CFR Part 201

Administrative practice and

procedure, Commodity procurement—

foreign relations.

For the reasons set out in the

preamble, 22 CFR part 201 is proposed

to be amended as follows:

1. The authority citation continues to

read as follows:

Authority: 22 U.S.C. 2381.

2. Section 201.01 is amended to add

a new paragraph (dd) as follows:

§ 201.01 Definition.

* * * * *

(dd) Preshipment inspection means a

review by the designated USAID

contractor of all costs associated with a

transaction and, where applicable, a

physical inspection of the commodity,

including packaging and packing.

3. Section 201.21 is amended by

removing ‘‘and, where appropriate,’’

from the end of paragraph (c); by

removing the period from the end of

paragraph (d) and adding ‘‘; and’’ in its

place; and by adding a new paragraph

(e) as follows:

§ 201.21 Notice to supplier.

* * * * *

(e) The USAID requirement in

§ 201.31(j) for preshipment inspection,

when applicable.

4. Section 201.31 is amended to add

a new paragraph (j) as follows:

§ 201.31 Suppliers of commodities.

* * * * *

(j) Preshipment inspection. As

applicable, the supplier shall be

responsible for coordinating the

preshipment inspection of the