[Federal Register Volume 62, Number 31 (Friday, February 14, 1997)]
[Rules and Regulations]
[Pages 6860-6861]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3403]


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FEDERAL HOUSING FINANCE BOARD

12 CFR Part 931

[No. 97-3]


Technical Amendment to Definition of Deposits in Banks or Trust 
Companies

AGENCY: Federal Housing Finance Board.

ACTION: Interim final rule with request for comments.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is amending 
the definition of the term ``deposits in banks or trust companies'' to 
expressly include a deposit in, or a sale of federal funds to, a branch 
or agency of a foreign bank located in the United States that is 
subject to the supervision of the Board of Governors of the Federal 
Reserve System (Board of Governors), as an investment eligible to 
fulfill the liquidity requirement imposed on the Federal Home Loan 
Banks (FHLBanks) by section 11(g) of the Federal Home Loan Bank Act 
(Bank Act).

DATES: The interim final rule will become effective on February 14, 
1997. The Finance Board will accept comments on the interim final rule 
in writing on or before March 17, 1997.

ADDRESSES: Mail comments to Elaine L. Baker, Executive Secretary, 
Federal Housing Finance Board, 1777 F Street, NW, Washington, DC 20006. 
Comments will be available for public inspection at this address.

FOR FURTHER INFORMATION CONTACT: Janice A. Kaye, Attorney-Advisor, 
Office of General Counsel, 202/408-2505, or Christine M. Freidel, 
Assistant Director, Financial Management Division, Office of Policy, 
202/408-2976, Federal Housing Finance Board, 1777 F Street, NW, 
Washington, DC 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

    Under section 11(e)(1) of the Bank Act, the FHLBanks have the power 
to accept deposits from their members, other FHLBanks, or 
instrumentalities of the United States. See 12 U.S.C. 1431(e)(1). To 
ensure that each FHLBank has sufficient liquid assets to meet deposit 
withdrawal demands, section 11(g) of the Bank Act imposes a liquidity 
requirement. See id. 1431(g). The liquidity requirement provides that 
each FHLBank must invest, upon such terms and conditions as the Finance 
Board may prescribe, an amount equal to the current deposits the 
FHLBank holds in specified types of assets. Id. Among the assets 
specified in the Bank Act are ``deposits in banks or trust companies.'' 
Id. 1431(g)(2).
    In 1978, the Finance Board's predecessor, the former Federal Home 
Loan Bank Board (FHLBB), defined by regulation the phrase ``deposits in 
banks or trust companies'' to include a deposit in another FHLBank, a 
demand account with a Federal Reserve Bank, or a deposit in a 
depository designated by a FHLBank's board of directors that is a 
member of either the Federal Reserve System (FRS) or the Federal 
Deposit Insurance Corporation (FDIC). See 43 FR 46835, 46836 (Oct. 11, 
1978), codified at 12 CFR 521.5 (superseded). When Congress abolished 
the FHLBB in 1989, see Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989, Pub. L. 101-73, sec. 401, 103 Stat. 183 (Aug. 
9, 1989), the Finance Board transferred the definition, without any 
change in substantive or technical matters, to Sec. 931.5 of its 
regulations. See 54 FR 36757 (Aug. 28, 1989), codified at 12 CFR 931.5. 
This definition remained unchanged until July 3, 1996, when the Finance 
Board adopted a final rule modifying the definition of ``deposits in 
banks or trust companies.'' The final rule was published in the Federal 
Register on August 2, 1996, and became effective on September 3, 1996. 
See 61 FR 40311 (Aug. 2, 1996), codified at 12 CFR 931.5. The final 
rule made clear that the term ``banks'' includes savings associations, 
and included federal funds transactions as eligible to fulfill the 
liquidity requirement imposed on the FHLBanks by section 11(g) of the 
Bank Act. See 12 U.S.C. 1431(g).

II. Analysis of the Interim Final Rule

    In revising the definition of ``deposits in banks or trust 
companies,'' the Finance Board inadvertently omitted as an eligible 
investment deposits in certain U.S. branches and agencies of foreign 
banks. A foreign bank may establish a U.S. branch or agency only with 
the prior approval of the Board of Governors and an appropriate 
licensing authority, i.e., either the Comptroller of the Currency or a 
state banking regulator. U.S. branches and agencies of foreign banks 
are subject to the supervision of the Board of Governors and must meet 
many of the rules and regulations applicable to domestic commercial 
banks.
    U.S. branches of foreign banks principally accept wholesale 
deposits, that is, deposits greater than the $100,000 FDIC insurance 
limit. U.S. agencies of foreign banks typically do not accept deposits, 
although under the laws of some states an agency may have authority to 
do so. Since December 19, 1991, federal banking laws require foreign 
banks located in the United States that accept retail deposits 
(generally, deposits of less than $100,000), to do so only through a 
subsidiary bank the deposits of which are insured by the FDIC. See FDIC 
Improvement Act of 1991, Pub. L. 102-242, Title II, sec. 214(a), 105 
Stat. 2303, codified at 12 U.S.C. 3104(d). Although U.S. branches of 
foreign banks are not subsidiary banks, the statute permits branches 
that had FDIC insurance prior to that date to continue to accept or 
maintain retail deposits. See id. Thus, with the exception of branches 
whose deposits were insured by the FDIC prior to December 19, 1991, 
U.S. branches and agencies of foreign banks do not accept retail 
deposits.
    Under both the current and previous definitions of the term 
``deposits in banks or trust companies,'' FHLBank deposits in the small 
number of U.S. branches the deposits of which are insured by the FDIC, 
are eligible investments for purposes of section 11(g) of the Bank Act 
since the definitions include deposits in FDIC-insured depository 
institutions. See 12 CFR 931.5 (1995 superseded); 12 CFR 931.5 (1996). 
FHLBank deposits in the U.S. branches and agencies whose deposits are 
not insured by the FDIC are not eligible investments. See Id.
    Since all U.S. branches and agencies of foreign banks operate in a 
similar manner regardless of their FDIC-insurance status, and all are 
subject to the same legal requirements and the supervision of the Board 
of Governors, the Finance Board believes that the

[[Page 6861]]

inadvertent distinction made in the definition based on whether the 
institution's deposits are FDIC-insured is neither required nor 
appropriate. In order to eliminate the distinction and treat all U.S. 
branches and agencies of foreign banks equally, the Finance Board is 
amending the definition of ``deposits in banks or trusts'' in 
Sec. 931.5 to include as eligible investments for purposes of section 
11(g) of the Bank Act, FHLBank deposits in any U.S. branch or agency of 
a foreign bank that has legal authority to accept deposits or engage in 
federal funds transactions. To achieve this result, the Finance Board 
has added a new Sec. 931.5(c)(3) that includes expressly a deposit in, 
or federal funds transactions with, a U.S. branch or agency of a 
foreign bank that is subject to the supervision of the Board of 
Governors and is designated by a FHLBank's board of directors. The 
terms ``branch,'' ``agency,'' and ``foreign bank'' have the same 
meaning as in the International Banking Act of 1978, as amended. See 12 
U.S.C. 3101(1), (3), (7).
    The changes made by the interim final rule also are consistent with 
the provisions of federal law that require the treatment of all U.S. 
branches and agencies of foreign banks to be similar to the treatment 
of domestic depository institutions.

III. Notice and Public Participation

    The Finance Board finds that the notice and comment procedure 
required by the Administrative Procedure Act is unnecessary, 
impracticable, and contrary to the public interest in this instance 
because the change made by the interim final rule is technical in 
nature and applies only to the FHLBanks. See 5 U.S.C. 553(b)(3)(B). In 
addition, as explained above, the changes made by the interim final 
rule are necessary to comply with various provisions of federal law. 
Nevertheless, because the Finance Board believes public comments aid in 
effective rulemaking, it will accept written comments on the interim 
final rule on or before March 17, 1997.

IV. Effective Date

    For the reasons stated in part III above, the Finance Board for 
good cause finds that the interim final rule should become effective on 
February 14, 1997. See 5 U.S.C. 553(d)(3).

V. Regulatory Flexibility Act

    The Finance Board is adopting the technical amendment to part 931 
in the form of an interim final rule and not as a proposed rule. 
Therefore, the provisions of the Regulatory Flexibility Act do not 
apply. See 5 U.S.C. 601(2), 603(a).

VI. Paperwork Reduction Act

    No collections of information pursuant to the Paperwork Reduction 
Act of 1995 are contained in this interim final rule. See 44 U.S.C. 
3501, et seq. Consequently, the Finance Board has not submitted any 
information to the Office of Management and Budget for review.

List of Subjects in 12 CFR Part 931

    Banks, banking, Federal home loan banks.

    Accordingly, the Federal Housing Finance Board hereby amends title 
12, chapter IX, part 931 of the Code of Federal Regulations, as 
follows:

PART 931--DEFINITIONS

    1. The authority citation for part 931 continues to read as 
follows:

    Authority: 12 U.S.C. 1422a, 1422b, 1427, and 1431(g).

    2. Section 931.5 is revised to read as follows:


Sec. 931.5  Deposits in banks or trust companies.

    Include:
    (a) A deposit in another Bank;
    (b) A demand account in a Federal Reserve Bank; and
    (c) A deposit in, or a sale of federal funds to:
    (1) An insured depository institution, as defined in section 
2(12)(A) of the Act, that is designated by a Bank's board of directors;
    (2) A trust company that is a member of the Federal Reserve System 
or insured by the Federal Deposit Insurance Corporation, and is 
designated by a Bank's board of directors; or
    (3) A U.S. branch or agency of a foreign bank, as defined in the 
International Banking Act of 1978, as amended (12 U.S.C. 3101 et seq.), 
that is subject to the supervision of the Board of Governors of the 
Federal Reserve System, and is designated by a Bank's board of 
directors.

    By the Board of Directors of the Federal Housing Finance Board
Bruce A. Morrison,
Chairperson.
[FR Doc. 97-3403 Filed 2-13-97; 8:45 am]
BILLING CODE 6725-01-U