This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

59775

Vol. 62, No. 214

Wednesday, November 5, 1997

1To determine the Federal Reserve Bank at which

a bank with interstate branches will hold an

account, the Board adopted rules earlier this year

to define a domestic depository institution’s

location for purposes of Federal Reserve

membership and reserve account maintenance (62

FR 34613, June 27, 1997).

2Edge 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.

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: Final rule.

SUMMARY: The Board is amending 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 reserve

balances on a nationwide basis with a

single pass-through correspondent or to

continue to maintain reserve balances

on a same-state/same-District basis as

they do today. The amendments will

also update and clarify the pass-through

rules in Regulation D for all institutions.

These amendments will facilitate

interstate banking and branching and

eliminate certain restrictions applicable

to pass-through arrangements.

EFFECTIVE DATE: January 1, 1998.

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 and

branching, the Federal Reserve Banks

will begin to implement a new account

structure in January 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.1 In August 1997,

the Board proposed amendments to its

Regulation D (12 CFR Part 204) that

would allow U.S. branches and agencies

of the same foreign bank and Edge and

Agreement corporations 2 to hold all of

their required reserve balances in a

single account held by a pass-through

correspondent or to continue to have

separate accounts on a same-state/sameDistrict basis as they do today (62 FR

42708, August 8, 1997). The proposal

also would have allowed foreign bank

offices and Edge corporations to choose

whether to aggregate their deposit

reports on a nationwide basis or to

continue to report on a same-state/sameDistrict basis.

To permit this choice for foreign bank

offices and Edge corporations, the Board

proposed changes to the pass-through

rules in Regulation D, which would

liberalize those rules for all domestic

depository institutions as well as for

foreign bank offices and Edge

corporations. The Board also requested

comment on issues relating to where all

institutions should file their reports of

deposit, as well as other reports.

The Board is adopting a revised

version of its proposal. Under the final

rule, foreign bank offices and Edge

corporations will have a choice whether

to aggregate required reserve balances

on a nationwide basis through a passthrough arrangement or to maintain

separate same-state/same-District

accounts. All institutions, however,

including foreign bank offices and Edge

corporations, will continue to file

reports of deposits and other reports

with the Federal Reserve Bank in whose

District they are located.

General Comments

The Board received twelve comments

on the proposed amendments to

Regulation D, five from Federal Reserve

Banks, three from U.S. offices of foreign

banks, two from trade associations, one

from a commercial bank parent of an

Edge corporation, and one from a state

banking supervisor. The commenters

overwhelmingly supported allowing

foreign bank offices and Edge

corporations the option of aggregating

their required reserve balances

nationally or locally. The foreign bank

commenters, the Edge corporation

parent, and a foreign bank trade

association noted that retaining the

option is important to foreign banks

because some offices operate

independently and are not equipped to

consolidate reserve balances, while

other foreign bank families could

operate more efficiently if reserve

balances were maintained at a central

location.

A state banking supervisor expressed

concern that the aggregation of a foreign

bank’s reserve balances may appear to

conflict with the separate legal status of

each branch of the foreign bank and

should not be allowed to affect the

responsibilities of each branch to

comply with any requirements under

state law. The Board believes that the

treatment of the reserve balances of a

foreign bank family under Regulation D

does not change in any way the

responsibility of any individual foreign

bank branch or agency to continue to

meet any relevant state law

requirements imposed by a state

regulator, such as asset pledge,

maintenance, or reserve requirements.

Section-By-Section Analysis

Section 204.3(a) Computation and

Maintenance of Required Reserves

Maintenance of required reserves.

Section 204.3(a) of Regulation D

requires every depository institution,

U.S. branch or agency of a foreign bank,

and Edge or Agreement Corporation to

maintain reserves against its deposits

and Eurocurrency liabilities and file

reports in accordance with the ratios

and procedures described in the

regulation. The Board proposed no

amendments to this provision but, as

discussed below, has removed the

reference to filing reports and has

consolidated all reporting provisions in

a single paragraph.
59776 Federal Register / Vol. 62, No. 214 / Wednesday, November 5, 1997 / Rules and Regulations

Reporting. Section 204.3(a) also

requires foreign bank offices and Edge

corporations located in the same state

and same Federal Reserve District to file

a single aggregated report of deposits

with the Federal Reserve Bank in whose

District the offices are located. The

Board solicited comment on an

amendment to this section to allow a

foreign bank or Edge corporation family

to submit an aggregated report of

deposits for all U.S. offices, in the event

that those foreign banks or Edge

corporations chose to aggregate required

reserve balances in a single account

held by a pass-through correspondent.

The Board also requested comment on

whether reporting changes are necessary

for all depository institutions that hold

their reserve balances with pass-through

correspondents. Regulation D (former

§ 204.3(i)(2), now relocated to

§ 204.3(a)(2)) requires a depository

institution to file its report of deposits

with the Reserve Bank in whose District

the institution is located, regardless of

whether the institution maintains

reserve balances in its own account or

with a pass-through correspondent. 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

reserve balances with a pass-through

correspondent whose Federal Reserve

account is located in another District.

(The Board has adopted this proposal,

as discussed below.) In this situation,

the Board noted that 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 requested comment on whether it

is appropriate for all reports of all

institutions (depository institutions as

well as foreign bank offices and Edge

corporations), including both

supervisory and monetary reports, to go

to the Reserve Bank that holds the

account where that institution’s reserve

balances are held.

Nine of the eleven commenters

discussed reporting issues. Five

commenters pointed out practical

problems associated with requiring

reports to ‘‘follow the money’’ rather

than be filed with the institution’s local

Reserve Bank. A trade association for

foreign banks stated that, for foreign

bank offices that maintained reserve

balances with a single pass-through

correspondent account, the effect of

requiring all reports to go to the Reserve

Bank that holds the account is not clear.

The commenter was concerned, for

example, about how the Reserve Bank

receiving the reports would coordinate

with the Reserve Bank that supervises

the local office, as well as the effect the

unified reporting system would have on

coordinated supervision between

federal and state regulators. A foreign

bank commenter stated that

consolidation of all reports could result

in a lack of understanding of the foreign

bank office’s condition by its

supervising Reserve Bank and de facto

double reporting requirements for the

office. A Reserve Bank noted that

allowing aggregate reporting for these

foreign bank offices would make it

difficult to verify reports on a timely

basis, would require close coordination

between Reserve Banks, and could affect

the accuracy of data on the various

separately chartered offices. One bank

trade association, one Edge corporation

parent, and two Reserve Banks

supported the proposal to allow foreign

bank offices and Edge corporations to

file a single aggregated report of

deposits, although one of those Reserve

Banks argued against requiring domestic

pass-through respondents to file deposit

reports with their out-of-District

correspondent’s Reserve Bank.

The commenters also identified

problems with the ‘‘follow the money’’

approach for domestic institutions that

hold reserve balances with a passthrough correspondent. For example,

one commenter stated that, although

requiring all reports to go to the Federal

Reserve Bank that holds the

correspondent’s account could provide

an efficient means of administering

reserve requirements, it would also

require Reserve Banks to dedicate

resources to analyzing nonlocal banks’

structure, operations, and financial

statements. The commenter stated that

the alternative of ‘‘split reporting’’

(sending deposit reports to the accountholding Reserve Bank and all other

reports to the local Reserve Bank) could

lead to confusion and inefficiencies and

that another alternative, filing all reports

with multiple Reserve Banks, would

place additional burden on depository

institutions. Two other commenters

stated that another reason the reporting

location should not be based on the

location of a pass-through

correspondent is because pass-through

arrangements can change frequently.

Although the Board believes that

requiring reports to follow the money

might provide an efficient means of

administering reserve requirements, any

potential efficiencies appear to be

outweighed by the practical difficulties

involved when deposit (or all) reports

are submitted to a Reserve Bank other

than the reporting institution’s local

Reserve Bank. If the Reserve Bank in

whose District the institution is located

is responsible for supervising the

institution, submitting supervisory

reports to another Reserve Bank could

affect the depth and timeliness of the

supervising Reserve Bank’s knowledge

of the institution’s condition. Split

reporting would lead to inefficiencies in

other areas for both the institution and

the Federal Reserve Banks. The

reporting 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

institution would have to become

knowledgeable about that institution’s

structure, operations, and balance sheet

in order to perform effective data editing

and analysis.

In light of these problems, the Board

is retaining the current reporting

requirements for domestic institutions

as well as foreign bank offices and Edge

corporations. The Board has

consolidated the reporting provisions in

new § 204.3(a)(2). All reporting

institutions will file deposit and other

reports with the Federal Reserve Bank

in whose District the institution is

located. Foreign bank and Edge

corporation offices operating in the

same state and same District will file an

aggregated report as they do today. The

reporting rule does not affect an

institution’s ability to pass its reserve

balances through a correspondent,

which may be located in the same or

another District. For example, a foreign

bank family will be able to consolidate

required reserve balances with a single

pass-through correspondent while still

reporting deposits on a same-state sameDistrict basis.

One commenter asked the Board to

clarify that, in the case of Edge

corporations, the reporting aggregation

applies to the offices of a single Edge

corporation and not the offices of all

Edge corporations owned by a single

parent that operate in the same state and

same District. The provisions of

§ 204.3(a)(2) on aggregated reporting

apply to all offices of a single Edge

corporation operating in the same state

and same District, not to all offices

owned by a common parent.
Federal Register / Vol. 62, No. 214 / Wednesday, November 5, 1997 / Rules and Regulations 59777

3The 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.

4Ordinarily, branches of a domestic depository

institution would not file separate deposit reports

unless they are in transition (for example, after a

merger or other consolidation) from a multiple to

a single reporting and account structure.

5This limitation is set forth in section 19(c)(1) of

the Federal Reserve Act, 12 U.S.C. 461(c).

Low Reserve Tranche and Exemption

Amounts. Regulation D provides that

foreign bank and Edge corporation

families share one low reserve tranche

and exemption amount among all

related offices.3 The pre-amendment

Regulation D set out separate provisions

(§ 204.3(a)(1) and (a)(2)) for foreign

banks and Edge corporations covering

allocation of the low reserve tranche

and contained a separate provision

(§ 204.3(a)(3)) on allocation of the

reserve exemption, which applied to

depository institutions as well as foreign

bank offices and Edge corporations. The

Board proposed a new § 204.3(a)(2) to

combine the existing provisions on

allocation of the low reserve tranche

and the reserve exemption among

branches of depository institutions,

foreign bank offices, and Edge

corporations.

The Board received one comment on

this proposed amendment, in favor of

the revision. The Board has adopted the

amendment as proposed. Under the

amendment, a depository institution

and its branches, foreign bank families,

and offices of an Edge corporation will

continue to share one low reserve

tranche and one reserve exemption and

can allocate the tranche and exemption

among offices or groups of offices that

file separate deposit reports.4

Section 204.3(b) Form and Location of

Reserves

In June 1997, 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 (see

footnote 1). 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 proposed to

apply the same rule to foreign bank

offices and Edge corporations. For

foreign banks and Edge corporations

that pass all reserve balances through a

single correspondent, the location of the

pass-through correspondent would

determine which Reserve Bank holds

the account. The Board also proposed to

remove the sentence in § 204.3(b)(1) that

stated that reserves that were held on a

pass-through basis were considered to

be a balance maintained with a Reserve

Bank. This sentence could be read to

conflict with the Board’s proposed

revisions to the pass-through rules

clarifying that the balances held in the

account of the pass-through

correspondent were the property of the

correspondent.

The Board received one comment on

these provisions, supporting the

proposal. The Board has adopted the

proposed amendments and has also

revised the language in § 204.3(b)(1) to

clarify that only non-member

institutions may hold reserves with a

pass-through correspondent.5

Section 204.3(i) Pass-Through Rules

Eligible Pass-Through

Correspondents. Former § 204.3(i)(1)

stated that foreign bank offices and Edge

corporations could pass their reserve

balances through an account of another

office of the same institution, subject to

the pass-through rules applicable to all

depository institutions. This provision

could have been interpreted to preclude

these institutions from using an

unaffiliated pass-through

correspondent. The Board proposed 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 office 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. The Board received two comments on

this amendment, both in support, and

has adopted it as proposed. The Board

has also revised § 204.3(i)(1) to provide

that a Reserve Bank may make

exceptions to the requirement that an

institution can choose only one passthrough correspondent. Such an

exception may be necessary, for

example, during a transition period after

the merger of two respondents with two

different pass-through correspondents.

Account Maintenance. Former

§ 204.3(i) required a pass-through

correspondent to maintain accounts at

each Federal Reserve Bank in whose

District the respondent institutions were

located. The Board proposed to remove

the requirement that pass-though

reserve balances must be held in the

District where the respondent is located.

This proposal was necessary to enable

foreign bank families and Edge

corporations to aggregate their required

reserve balances in a single account

held by a pass-through correspondent.

The proposed amendment applied to

pass-through arrangements for all

domestic depository institutions as well.

The Board received two comments that

specifically discussed this amendment;

both supported the change, citing

improved efficiency and removal of

impediments to interstate banking. The

Board has adopted the amendment as

proposed.

Former Regulation D also provided

that, when respondents are located in

the same District as the pass-through

correspondent, the correspondent may

choose to maintain its own reserve

balances and the pass-through reserve

balances 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

reserve balances (if any) at the Reserve

Bank in whose District the pass-through

correspondent is located. The Board

requested comment on whether

correspondents should continue to have

the option of separate accounts for their

own reserve balances and the reserve

balances they hold on a pass-through

basis. The Board received two

comments on this issue, both from

Federal Reserve Banks. One commenter

suggested that the Board allow

correspondents to retain the option to

have a separate account for pass-through

reserve balances because the Federal

Reserve Banks’ subaccount structure

does not provide account-holders with a

daily ending balance for each

subaccount. The other commenter stated

that there is no need for a correspondent

to maintain pass-through reserve

balances in separate account from its

own reserve balances and that the

subaccount structure will provide the

correspondent with sufficient

information to segregate its own reserve

balances from pass-through balances.

The Board continues to believe the

subaccount will suffice for tracking

respondent activity and that

correspondents will be able to calculate

the ending balance for subaccounts

based on the information they receive.

The Board, therefore, has adopted the

proposed provision that a correspondent

maintain a single account for its own

reserve balances (if any) and the pass-
59778 Federal Register / Vol. 62, No. 214 / Wednesday, November 5, 1997 / Rules and Regulations

6The 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.

through reserve balances of

respondents. The Board has, however,

added a provision to allow a Reserve

Bank to make an exception to this rule.

The Board anticipates that a Reserve

Bank might permit an exception in cases

where, for example, the correspondent

is involved in a merger and holds a

separate transition account at the same

or another Reserve Bank.

Former Regulation D was unclear as

to whose money is in the account that

contains the pass-through reserve

balances, that is, whether the account is

a Reserve Bank liability to the passthrough correspondent or to the

respondent. 6 The Board proposed

amendments to § 204.3(i) to 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.

The Board received two comments on

this proposal, both in favor, and has

adopted the amendment as proposed.

Services. Former § 204.3(i)(5)

contained provisions regarding the

services available to pass-through

correspondents and respondents. The

Board proposed 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. The Board received one

comment on this proposal, in support of

the change. The Board has eliminated

this provision, as proposed.

Technical Changes

The Board also proposed editorial and

conforming amendments to §§ 204.3(i)

and 204.9(b) of Regulation D. The Board

received no comments on these changes.

Because of the addition of the

consolidated reporting provision in

§ 204.3(a), the technical amendment to a

cross-reference in § 204.9(b) is no longer

necessary. The Board has adopted the

editorial changes to § 204.3(i) as

proposed.

Final Regulatory Flexibility Analysis

Two of the three requirements of a

final regulatory flexibility analysis (5

U.S.C. 604), (1) a succinct statement of

the need for and the objectives of the

rule and (2) a summary of the issues

raised by the public comments, the

agency’s assessment of the issues, and a

statement of the changes made in the

final rule in response to the comments,

are discussed above. The third

requirement of a final regulatory

flexibility analysis is a description of

significant alternatives to the rule that

would minimize the rule’s economic

impact on small entities and reasons

why the alternatives were rejected.

The final amendments will apply to

all depository institutions, U.S.

branches and agencies of foreign banks,

and Edge and Agreement corporations,

regardless of size, and represent changes

to the existing rules that should reduce

burden for those institutions that are

part of a pass-through arrangement for

the purpose of maintaining required

reserve balances. The amendments

would increase flexibility for those

institutions by eliminating restrictions

on where pass-through correspondents

must maintain accounts. The

amendments should not have a negative

economic impact on small institutions,

and, therefore, there were no significant

alternatives that would have minimized

the economic impact on those

institutions.

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 final rule under the

authority delegated to the Board by the

Office of Management and Budget. The

proposed rule contained no new

collections of information and proposed

no substantive changes to existing

collections of information pursuant to

the Paperwork Reduction Act. However,

one of the changes in the proposed rule

had the potential to reduce reporting

burden for a subset of respondents on

existing information collections by

allowing fewer reports. The change

would have granted Edge corporations

and U.S. branches and agencies of

foreign banks the option to file single

reports of deposits and Eurocurrency

data aggregated nationwide. Currently

these respondents file deposits and

Eurocurrency reports aggregated by each

state and Federal Reserve District in

which their offices are located.

None of the comments received

specifically addressed reporting burden.

However, as discussed earlier in this

notice, several commenters raised

problems associated with not filing the

reports with each individual

respondent’s Federal Reserve District.

The Board believes that these problems

outweigh any potential efficiencies

afforded by such changes. The final rule

does not contain any of the proposed

elective changes in reporting. Therefore,

no collections of information pursuant

to the Paperwork Reduction Act are

revised by the final rule.

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 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. In § 204.3, paragraphs (a), (b)(1),

(b)(2)(i), and (i) are revised to read as

follows:

§ 204.3 Computation and maintenance.

(a) Maintenance and reporting of

required reserves. (1) Maintenance. A

depository institution, a U.S. branch or

agency of a foreign bank, and an Edge

or Agreement corporation shall

maintain reserves against its deposits

and Eurocurrency liabilities in

accordance with the procedures

prescribed in this section and § 204.4

and the ratios prescribed in § 204.9.

Reserve-deficiency charges shall be

assessed for deficiencies in required

reserves in accordance with the

provisions of § 204.7. For purposes of

this part, the obligations of a majorityowned (50 percent or more) U.S.

subsidiary (except an Edge or

Agreement corporation) of a depository

institution shall be regarded as

obligations of the parent depository

institution.

(2) Reporting. (i) Every depository

institution, U.S. branch or agency of a

foreign bank, and Edge or Agreement

corporation shall file a report of

deposits (or any other required form or

statement) directly with the Federal

Reserve Bank of its District, regardless

of the manner in which it chooses to

maintain required reserve balances. A

foreign bank’s U.S. branches and

agencies and an Edge or Agreement

corporation’s offices operating within

the same state and the same Federal

Reserve District shall prepare and file a

report of deposits on an aggregated

basis.

(ii) A Federal Reserve Bank shall

notify the reporting 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.
Federal Register / Vol. 62, No. 214 / Wednesday, November 5, 1997 / Rules and Regulations 59779

(iii) The Board and the Federal

Reserve Banks will not hold a passthrough correspondent responsible for

guaranteeing the accuracy of the reports

of deposits submitted by its

respondents.

(3) 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) Form and location of reserves. (1)

A depository institution, a U.S. branch

or agency of a foreign bank, and an Edge

or Agreement corporation shall hold

reserves in the form of vault cash, a

balance maintained directly with the

Federal Reserve Bank in the Federal

Reserve District in which it is located,

or, in the case of nonmember

institutions, with a pass-through

correspondent in accordance with

§ 204.3(i).

(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 reserve balances, unless

otherwise permitted by Federal Reserve

Bank in whose district the respondent is

located. 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)(2) and (i)(3) 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) 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, unless

otherwise permitted by the Reserve

Bank. 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.

(3) 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

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.

By order of the Board of Governors of the

Federal Reserve System, October 30, 1997.

William W. Wiles,

Secretary of the Board.

[FR Doc. 97–29203 Filed 11–4–97; 8:45 am]

BILLING CODE 6210–01–P

FARM CREDIT ADMINISTRATION

12 CFR Parts 614 and 619

RIN 3052–AB64

Loan Policies and Operations;

Definitions; Loan Underwriting;

Effective Date

AGENCY: Farm Credit Administration.

ACTION: Notice of effective date.

SUMMARY: The Farm Credit

Administration (FCA) published a final

rule under parts 614 and 619 on