21846 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

One supportive commenter noted that 

all Board expenditures must be 

approved by the Board members, who 

represent the interests of different 

regions and countries. Because the 

Board is comprised of members from six 

countries and the Commonwealth of 

Puerto Rico, the ability of the Board to 

come to a consensus on activities and 

expenditures is valuable to the entire 

mango industry. One comment cited the 

geographic diversity of the Board as a 

key reason for its success because a 

wide variety of viewpoints are 

represented by the Board members. The 

fact that the assessment increase is 

favored by a majority of Board members 

demonstrates the breadth of support for 

the increase from throughout the mango 

industry. 

Another commenter stated that the 

proposed assessment increase has been 

discussed with all mango industry 

stakeholders, and is favored by 

organizations in Mexico, Peru, 

Guatemala, Haiti, Ecuador and Brazil. In 

order to determine whether foreign 

producers would support an assessment 

increase, the Board held informational 

meetings in each of the countries that 

export mangos to the United States. At 

these meetings, Board representatives 

explained the activities conducted with 

assessment funds and received positive 

feedback from attendees on the 

proposed assessment increase. 

One of the comments in support of 

the assessment increase was received 

from a Mexican mango industry 

organization. In addition to their own 

comments, several commenters 

submitted correspondence from foreign 

agricultural organizations indicating 

their support for the assessment 

increase. Letters of support were 

received on behalf of organizations in 

Haiti, Peru, Guatemala, Ecuador, and 

Brazil. 

One commenter opposed the 

assessment increase, stating that the 

Board can fulfill its objectives at its 

current funding level. As the Board 

stated in its proposal, without an 

increase in the assessment rate, 

spending on mango research and 

promotion programs would need to be 

reduced. As stated previously, the 2010 

econometric study concluded that 

decreased spending on the Board’s 

programs would correspond to declines 

in mango purchases. 

One commenter opposed the 

assessment increase, stating that raising 

the assessment rate would harm mango 

importers already coping with higher 

freight rates and poor currency 

exchange rates. In response, another 

commenter argued that the assessment 

is an investment rather than an expense. 

This same commenter further stated that 

the investment in the Board would be 

used to improve market penetration, 

thereby improving returns to growers 

and shippers, and offsetting the higher 

costs. Additionally, the 2010 

econometric study found that increased 

spending by the Board provides a large 

increase in revenues to importers. 

One commenter opposed the 

assessment increase, stating that the 

current assessment provides a negative 

return on investment. Another 

commenter also noted that the Board 

should ensure that its investments are 

yielding reasonable returns. One 

commenter further stated that the 

assessment rate needed to sufficiently 

fund promotion programs would likely 

be 20 times the proposed rate of three 

quarters of a cent per pound. No 

evidence was offered to support this 

claim. According to the 2010 

econometric study, every $1 currently 

spent by the Board adds an additional 

$7 to mango freight on board revenues. 

The Department has considered all of 

the comments and is not making any 

changes to the proposed rule. 

After consideration of all relevant 

material presented, the Board’s 

recommendation, public comments and 

other information, it is hereby found 

that this rule, as published in the 

Federal Register on May 10, 2011 [76 

FR 26946], is consistent with and will 

effectuate the purpose of the Act. 

List of Subjects in 7 CFR Part 1206 

Administrative practice and 

procedure, Advertising, Consumer 

information, Marketing agreements, 

Mango promotion, Reporting and 

recordkeeping requirements. 

For the reasons set forth in the 

preamble, 7 CFR part 1206 is amended 

as follows: 

PART 1206—MANGO PROMOTION, 

RESEARCH, AND INFORMATION 

■ 1. The authority citation for 7 CFR 

part 1206 continues to read as follows: 

Authority: 7 U.S.C. 7411–7425 and 7 

U.S.C. 7401. 

■ 2. In § 1206.42, paragraph (b) is 

revised to read as follows: 

§ 1206.42 Assessments. 

* * * * * 

(b) The assessment rate shall be 3⁄4 of 

a cent per pound on all mangos. The 

assessment rate will be reviewed and 

may be modified by the Board with the 

approval of the Department, after the 

first referendum is conducted as stated 

in § 1206.71(b). The Department will 

amend this section if the assessment 

rate is modified. 

* * * * * 

Dated: April 6, 2012. 

David R. Shipman, 

Acting Administrator, Agricultural Marketing 

Service. 

[FR Doc. 2012–8825 Filed 4–11–12; 8:45 am] 

BILLING CODE P 

FEDERAL RESERVE SYSTEM 

12 CFR Part 204 

[Regulation D; Docket No. R–1433] 

RIN 7100–AD83 

Reserve Requirements of Depository 

Institutions: Reserves Simplification 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Final rule. 

SUMMARY: The Board is amending 

Regulation D, Reserve Requirements of 

Depository Institutions, to simplify the 

administration of reserve requirements. 

The final rule creates a common twoweek maintenance period for all 

depository institutions, creates a 

penalty-free band around reserve 

balance requirements in place of 

carryover and routine penalty waivers, 

discontinues as-of adjustments related 

to deposit report revisions, replaces all 

other as-of adjustments with direct 

compensation, and eliminates the 

contractual clearing balance program. 

The amendments are designed to reduce 

the administrative and operational costs 

associated with reserve requirements for 

depository institutions, the Board, and 

Federal Reserve Banks. 

DATES: Effective Date: This rule is 

effective on July 12, 2012, except that 

effective on January 24, 2013, the 

following sections are further amended: 

§ 204.2(z), (ff), (gg) and (hh); § 204.5 

(b)(2), (d)(4)(i), and (e); § 204.6 (a) and 

(b); § 204.10 (b)(1), (b)(3), and (c). 

FOR FURTHER INFORMATION CONTACT: Kara 

Handzlik, Senior Attorney (202) 452– 

3852, Legal Division, or Margaret Gillis 

DeBoer, Assistant Director (202) 452– 

3139, or Heather Wiggins, Senior 

Financial Analyst (202) 452–3674, 

Division of Monetary Affairs, or for 

questions regarding the Private Sector 

Adjustment Factor, Gregory Evans, 

Deputy Associate Director (202) 452– 

3945, or Brenda Richards, Manager 

(202) 452–2753, Division of Reserve 

Bank Operations and Payment Systems; 

for users of Telecommunications Device 

for the Deaf (TDD) only, contact (202) 

263–4869; Board of Governors of the 


erowe on DSK2VPTVN1PROD with RULES
Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 21847 

1 12 U.S.C. 461. 

2 12 CFR 204.4(f) (reserve requirement ratios). 

3Emergency Economic Stabilization Act of 2008, 

Public Law 110–343, § 128, 122 Stat. 3765 (2008). 

4 12 CFR 204.10(b) (rates of interest paid on 

balances maintained by eligible institutions at 

Reserve Banks). 

5Earnings credits currently are computed as 80 

percent of the rolling 13-week average of the threemonth Treasury bill rate. 

6 74 FR 15481 (April 6, 2009). 

7The Act requires the Board to impose reserve 

requirements in a ratio from zero to fourteen 

percent on reservable liabilities. 

Federal Reserve System, 20th and C 

Streets NW., Washington, DC 20551. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Section 19 of the Federal Reserve Act 

(Act) 1 authorizes the Board of 

Governors of the Federal Reserve 

System (Board) to impose reserve 

requirements on certain deposits and 

other liabilities of depository 

institutions for the purpose of 

implementing monetary policy. The 

Board’s Regulation D (Reserve 

Requirements of Depository Institutions, 

12 CFR part 204) implements section 19 

of the Act and establishes reserve 

requirement ratios within the limits 

mandated by the Act. Under Regulation 

D currently, transaction account 

balances maintained at each depository 

institution are subject to reserve 

requirement ratios of zero, three, or ten 

percent, depending on the level of 

transaction accounts at that institution.2

A depository institution satisfies its 

reserve requirement by its holdings of 

vault cash and, if vault cash is 

insufficient to meet the requirement, by 

maintaining balances in an account at a 

Federal Reserve Bank (Reserve Bank). 

An institution may maintain balances 

either in the institution’s own account 

at a Reserve Bank or in a pass-through 

correspondent’s Reserve Bank account. 

The amount of balances that an 

institution must maintain if its reserve 

requirement is not satisfied by vault 

cash is referred to as the institution’s 

reserve balance requirement. An 

institution satisfies its reserve balance 

requirement on average over a specified 

period of time, referred to as a 

maintenance period. 

Currently, an institution may also 

enter into an agreement with its Reserve 

Bank under which the institution agrees 

to maintain a specific minimum balance 

in its account (referred to as a 

contractual clearing balance). 

Contractual clearing balances generate 

earning credits that the institution can 

use to offset service charges it incurs 

through its use of Federal Reserve 

priced services. In addition, an 

institution may also maintain excess 

balances. Excess balances are balances 

maintained by an institution in its 

account at a Reserve Bank that are in 

excess of the balances maintained to 

satisfy its reserve balance requirement 

and the contractual clearing balance 

requirement (if any). 

Congress amended the Act in 2008 to 

authorize the Reserve Banks to pay 

interest on balances of eligible 

institutions at a rate or rates determined 

by the Board and not to exceed the 

general level of short-term interest 

rates.3 The Board amended Regulation D 

in 2008 to allow Reserve Banks to pay 

interest on balances maintained to 

satisfy reserve balance requirements and 

excess balances. Both types of balances 

currently earn interest at the rate of 25 

basis points.4 Contractual clearing 

balances generate earnings credits, as 

noted above, but they do not earn 

explicit interest payments.5

II. Request for Public Comment and 

Summary of Comments Received 

On October 18, 2011, the Board 

requested public comment on proposed 

amendments to Regulation D and on 

several issues related to the 

methodology used to create the Private 

Sector Adjustment Factor (76 FR 64250 

(Oct. 18, 2011)). One comment was 

received on the Private Sector 

Adjustment Factor; the comment will be 

addressed in a future Federal Register 

notice along with previous comments to 

the Board’s proposal to replace the 

current ‘‘correspondent bank model’’ 

with a model based on publicly traded 

firms.6

The Board received 43 comments in 

response to its request for comment on 

the Regulation D amendments. The 

responses consisted of comments from 

4 depository institutions, 19 employees 

of financial institutions, 12 financial 

institution trade associations, and 

8 individuals. Thirteen commenters 

addressed the proposed amendments to 

Regulation D; 8 of these 13 commenters 

also addressed issues not raised by the 

proposal. Thirty commenters addressed 

only issues not raised by the proposal. 

All but one of the 13 commenters on the 

proposed Regulation D amendments 

generally supported the proposal, but 

suggested (sometimes conflicting) 

amendments, provided support 

contingent on certain conditions, or 

requested that the Board delay the 

implementation date(s) of one or more 

of the proposed amendments. These 

comments are discussed in more detail 

below. 

The majority of comments on issues 

not raised by the proposal concerned 

limits on the number of certain 

convenient transfers that may be made 

each month from savings deposit 

accounts. The Board most recently 

addressed this issue in its May 2009 

Regulation D rulemaking (72 FR 25629, 

25631 (May 29, 2009)) when it finalized 

amendments to increase from three to 

six the permissible monthly number of 

transfers or withdrawals from savings 

deposits by check, debit card, or similar 

order payable to third parties. As noted 

in the May 2009 rulemaking, the Board 

must impose reserve requirements on 

transaction accounts and not on other 

types of accounts, such as savings 

deposits, pursuant to section 19 of the 

Federal Reserve Act.7 The Board 

believes the current numeric limitation 

is necessary for the Board to maintain 

the ability to distinguish between 

reservable and non-reservable types of 

deposit accounts. 

III. Analysis of Proposed 

Simplifications and Comments 

The Board proposed amendments to 

Regulation D that would implement the 

following four simplifications related to 

the administration of reserve 

requirements: 

1. Create a common two-week 

maintenance period for all depository 

institutions; 

2. Create a penalty-free band around 

reserve balance requirements in place of 

using carryover and routine penalty 

waivers; 

3. Discontinue as-of adjustments 

related to deposit report revisions and 

replace all other as-of adjustments with 

direct compensation; and 

4. Eliminate the contractual clearing 

balance program. 

The Board also proposed to make 

changes to various terms used 

throughout Regulation D in order to 

clarify the meaning, enhance the 

accuracy, and ensure the consistent 

application of those terms. These 

proposed changes included replacing 

the term ‘‘required reserve balance’’ 

with ‘‘balances maintained to satisfy the 

reserve balance requirement,’’ adding a 

definition of ‘‘reserve balance 

requirement,’’ and making conforming 

revisions throughout the regulation. 

After consideration of the comments 

received, the Board is adopting the 

amendments to Regulation D 

substantially as proposed, with minor 

technical changes. The Board considers 

the final amendments to Regulation D 

appropriate given the current approach 

to implementing monetary policy. If the 

Federal Reserve changes its monetary 

policy framework, which includes the 

payment of interest on balances held 


erowe on DSK2VPTVN1PROD with RULES
21848 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

8The Board currently provides quarterly reporters 

with reserve maintenance calendars that link 

quarterly reporting periods to a group of one-week 

maintenance periods. See http:// 

www.frbservices.org/centralbank/reservescentral/ 

index.html#rmc. The Board will update these 

reserve maintenance calendars to reflect the new 

rule. 

with Reserve Banks, the entire 

framework, including the provisions of 

Regulation D, would be reassessed. As 

a result of the Board’s adoption of these 

final amendments to Regulation D, 

related Federal Reserve Bank operating 

circulars and manuals affected by the 

final amendments to Regulation D will 

be updated accordingly. 

Create a Common Two-Week 

Maintenance Period for All Depository 

Institutions 

As noted above, a depository 

institution satisfies its reserve balance 

requirement on average over a period of 

time that is known as a maintenance 

period. Currently, Regulation D 

provides for two types of maintenance 

periods: a one-week maintenance period 

and a two-week maintenance period. 

The determination of which 

maintenance period applies to an 

institution depends primarily on the 

frequency with which it is required to 

report its deposits to the Federal 

Reserve. The Board requires depository 

institutions to submit deposit reports at 

different frequencies depending on the 

amount of their reservable liabilities 

over the previous year. Depository 

institutions that have reservable 

liabilities above a certain amount 

(exemption amount) are required to 

submit deposit data either weekly or 

quarterly. Regulation D currently 

subjects weekly reporters to a two-week 

maintenance period and quarterly 

reporters to a one-week maintenance 

period. Institutions that have reservable 

liabilities below the exemption amount 

either submit deposit reports annually 

or are not required to report at all. 

Annual reporters and nonreporters with 

a contractual clearing balance are 

currently subject to a one-week 

maintenance period. Institutions that 

have neither reserve requirements nor 

clearing balance requirements receive 

interest payments at the excess balance 

rate because they do not maintain 

balances to satisfy reserve balance 

requirements. 

From one year to another, some 

depository institutions switch reporting 

frequency because of changes in the 

levels of the institution’s reservable 

liabilities. Specifically, some depository 

institutions may switch from a twoweek maintenance period to a one-week 

maintenance period, or vice versa. In 

certain instances, depository 

institutions that become eligible to shift 

to a quarterly instead of weekly 

reporting frequency elect to remain at 

the higher reporting frequency in order 

to maintain the flexibility of satisfying 

reserve requirements over a two-week 

maintenance period instead of a oneweek maintenance period. 

The Board proposed to create a 

common two-week maintenance period 

for all depository institutions. 

Accordingly, the Board proposed to 

retain the two-week maintenance period 

requirement for weekly reporters in 

§ 204.5(b)(1) of Regulation D, but to 

amend § 204.5(b)(2) to include quarterly 

reporters in the two-week maintenance 

period requirement. As set forth in the 

proposal, the common two-week 

maintenance period would tend to 

benefit depository institutions, Reserve 

Banks, and the Board by (1) providing 

greater flexibility to depository 

institutions that currently satisfy reserve 

balance requirements over a one-week 

maintenance period; (2) reducing 

unnecessary complexity in the existing 

maintenance period structure; (3) 

reducing administrative and operational 

costs for depository institutions that 

may otherwise have had to change 

maintenance periods when deposit 

reporting categories (and therefore 

length of maintenance period) changed; 

and (4) reducing the operational and 

administrative cost for Reserve Banks 

and the Board by eliminating business 

processes and controls associated with 

maintaining two maintenance periods. 

The Board received 12 comments on 

the proposed common two-week 

maintenance period. Of these 

comments, 11 supported the creation of 

a common two-week maintenance 

period, and generally agreed that a 

common two-week maintenance period 

would reduce burden. One commenter 

expressed concern that annual reporters 

would face increased burden under the 

common two-week maintenance period 

if they were required to submit two 

weeks of data rather than a single day 

of data. The proposed common twoweek maintenance period, however, 

does not change the frequency or the 

amount of data an institution must 

report, but rather changes the period of 

time over which an institution would 

satisfy its reserve balance requirement 

(if any). Annual reporters will continue 

to be required to report one day’s worth 

of data, once a year, and have a reserve 

requirement of zero. 

The Board is adopting the common 

two-week maintenance period as 

proposed. As noted in the proposal, for 

depository institutions that report their 

deposits weekly, the relationship 

between weekly reporting periods and 

two-week maintenance periods will be 

maintained in § 204.5(b)(1) of 

Regulation D. For depository 

institutions that report their deposits 

quarterly, the quarterly reporting 

periods will not change, but the 

relationship of quarterly reporting 

periods to two-week maintenance 

periods will be new. Revised 

§ 204.5(b)(2) provides that, for quarterly 

reporters, each quarterly report will be 

used to calculate the reporter’s reserve 

balance requirement for an interval of 

either six or seven consecutive twoweek maintenance periods, depending 

on when the interval begins and ends. 

The interval will begin on the fourth 

Thursday following the end of each 

quarterly reporting period if that 

Thursday is the first day of a two-week 

maintenance period. If the fourth 

Thursday following the end of a 

quarterly reporting period is not the first 

day of a two-week maintenance period, 

then the interval will begin on the fifth 

Thursday following the end of the 

quarterly reporting period. The interval 

will end on the fourth Wednesday 

following the end of the subsequent 

quarterly reporting period if that 

Wednesday is the last day of a two-week 

maintenance period. If the fourth 

Wednesday following the end of the 

subsequent quarterly reporting period is 

not the last day of a two-week 

maintenance period, then the interval 

will conclude on the fifth Wednesday 

following the end of the subsequent 

quarterly reporting period.8

Annual reporters and nonreporters 

will continue to receive interest on their 

average balances maintained with 

Reserve Banks; however, the interest 

payments will be calculated on the 

average balance maintained over a twoweek period at the excess balance rate 

instead of a one-week period at the 

excess balance rate. 

Create a Penalty-Free Band Around 

Reserve Balance Requirements in Place 

of Carryover and Routine Penalty 

Waivers 

As noted above, Regulation D requires 

a depository institution to satisfy its 

reserve balance requirement on average 

over that depository institution’s 

maintenance period. Currently, 

§ 204.5(e) of Regulation D permits a 

depository institution that has a modest 

deficiency in its balances maintained to 

satisfy a reserve balance requirement 

over a given maintenance period to 

make up that deficiency by holding a 

higher level of balances in the 

subsequent maintenance period. 

Correspondingly, § 204.5(e) also permits 


erowe on DSK2VPTVN1PROD with RULES
Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 21849 

a depository institution that has a 

modest excess of balances maintained to 

satisfy its reserve balance requirement 

over a maintenance period to use that 

excess by holding a lower level of 

balances in the next maintenance 

period. This ‘‘carryover’’ provision (the 

ability to carry an excess or deficiency 

from one maintenance period over to 

the next) essentially prevents a Reserve 

Bank from determining whether a 

depository institution has satisfied its 

reserve balance requirement, or is in an 

excess or deficient position, until the 

completion of the subsequent 

maintenance period. As a result, 

Reserve Banks must delay the payment 

of interest and assessment of deficiency 

charges on eligible institutions’ 

balances. Section 204.6(a) currently 

authorizes Reserve Banks to assess 

deficiency charges against depository 

institutions that fail to satisfy their 

reserve balance requirements. Section 

204.6(b) currently permits Reserve 

Banks to waive the imposition of these 

charges under certain conditions 

through the use of ‘‘routine penalty 

waivers.’’ 

The Board proposed to create a 

penalty-free band around each 

depository institution’s reserve balance 

requirement and to eliminate the 

carryover and routine penalty waiver 

provisions of Regulation D. Specifically, 

proposed § 204.2(gg) defined the top of 

the penalty-free band as an amount 

equal to an institution’s reserve balance 

requirement plus an amount that is the 

greater of 10 percent of the institution’s 

reserve balance requirement or $50,000. 

Proposed § 204.2(hh) defined the bottom 

of the penalty-free band as an amount 

equal to an institution’s reserve balance 

requirement less an amount that is the 

greater of 10 percent of an institution’s 

reserve balance requirement or $50,000. 

For pass-through correspondents, the 

Board proposed setting the dollar 

amount used to establish the top and 

bottom of the penalty-free band at an 

amount that is equal to the greater of 10 

percent of the aggregate reserve balance 

requirement of the correspondent (if 

any) and all of its respondents or 

$50,000. 

Proposed § 204.2(z) revised the 

definition of ‘‘excess balance’’ to mean 

the average balance maintained in a 

Reserve Bank account by or on behalf of 

an institution over a reserve 

maintenance period that exceeds the top 

of the penalty-free band, and proposed 

§ 204.2(ff) defined ‘‘deficiency’’ as the 

bottom of the penalty-free band less the 

average balance maintained in a Reserve 

Bank account by or on behalf of an 

institution over a reserve maintenance 

period. Under the proposed structure, a 

depository institution that maintained 

balances that exceeded the reserve 

balance requirement, but fell within the 

band, would be remunerated at the 

interest rate paid on balances 

maintained to satisfy a reserve balance 

requirement. Balances that exceeded the 

top of the penalty-free band would be 

remunerated at the interest rate paid on 

excess balances. A depository 

institution that maintained balances 

below its reserve balance requirement 

would not be assessed a deficiency 

charge unless the balances fell below 

the bottom of the penalty-free band. The 

Board also proposed to remove 

§ 204.5(e) and amend §§ 204.6(a) and (b) 

to eliminate the application of carryover 

and routine penalty waivers, 

respectively. Reserve Banks would, 

however, retain the authority to waive 

charges for deficiencies based on an 

evaluation of the circumstances in each 

individual case. Finally, the Board 

proposed conforming amendments to 

§ 204.10(b)(1) and (b)(3), and (c) to 

replace ‘‘required reserve balances’’ 

with ‘‘balances up to the top of the 

penalty-free band.’’ 

Six commenters generally supported 

the Board’s proposal to create a penaltyfree band around each depository 

institution’s reserve balance 

requirement and to eliminate the 

carryover and routine waiver provisions 

of Regulation D. However, two of the 

commenters that supported this 

simplification requested different dollar 

amounts be used to establish the top 

and bottom of the penalty-free band. 

One commenter suggested a smaller 

dollar amount equal to the greater of 

$50,000 or 6 percent of a depository 

institution’s reserve balance 

requirement. This commenter stated 

that institutions would be provided 

with sufficient flexibility if the band 

were defined in this manner. The other 

commenter requested the dollar amount 

be calculated similarly to the current 

carryover amount, using the greater of 

$50,000 or 4 percent of a depository 

institution’s total reserve requirement 

(as opposed to 10 percent of its reserve 

balance requirement). This commenter 

was concerned that a band based on a 

reserve balance requirement may affect 

the Federal Reserve’s ability to 

implement monetary policy in the event 

that all depository institutions’ reserve 

balance requirements were zero. 

The Board is adopting the penalty-free 

band as proposed, with one technical 

addition, and is eliminating the use of 

carryover and routine penalty waivers 

as proposed. The Board is clarifying that 

in no case will the bottom of the 

penalty-free band be less than zero. The 

Board believes that the proposed width 

of the penalty-free band will roughly 

replicate the amount of flexibility 

currently provided under the carryover 

provision. On average, reserve balance 

requirements are just under half of total 

reserve requirements. Therefore, the 

flexibility provided by the existing 

4 percent carryover provision, when 

expressed in terms of reserve balance 

requirements, equates to roughly 

10 percent of the reserve balance 

requirement for a typical depository 

institution. In addition, the Board 

believes a band constructed in terms of 

reserve balance requirements (rather 

than reserve requirements) is 

appropriate. Reserve balance 

requirements are more relevant than 

reserve requirements for implementing 

monetary policy and controlling the 

federal funds rate, because reserve 

balance requirements determine the 

amount of balances depository 

institutions are required to maintain in 

Reserve Bank accounts. The Board also 

acknowledges that the penalty-free band 

is applicable only in monetary policy 

frameworks where reserve balance 

requirements are non-zero. If in the 

future all reserve balance requirements 

were zero, which could result from 

either a significant change to the Federal 

Reserve’s monetary policy framework or 

from depository institutions’ limiting 

the amount of their reservable liabilities, 

the Board would reassess the penaltyfree band and other aspects of the 

monetary policy framework accordingly. 

The Board received four comments on 

the proposed elimination of the 

carryover provision. These commenters 

supported the elimination provided that 

interest is paid soon after a maintenance 

period ends on balances maintained to 

satisfy a reserve balance requirement 

and excess balances. The Board 

anticipates that the elimination of 

carryover will allow for faster crediting 

of interest payments. 

Discontinue as-of Adjustments Related 

to Deposit Report Revisions and Replace 

All Other as-of Adjustments With Direct 

Compensation 

As-of Adjustments for Deposit Report 

Revisions 

Depository institutions are required to 

submit revisions to past deposit reports 

to correct for reporting errors. Currently, 

when those revisions result in a change 

in the depository institution’s reserve 

balance requirement, an as-of 

adjustment is used to correct the 

depository institution’s level of balances 

maintained. For example, if a reserve 

balance requirement for a given period 

is revised upwards, the as-of adjustment 

is used so that the depository institution 


erowe on DSK2VPTVN1PROD with RULES
21850 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

9The federal funds rate is used in other instances 

of direct compensation by Reserve Banks. See, e.g., 

§ 210.32(b)(1)(ii) of Regulation J (federal funds rate 

applies if compensation interest rate not otherwise 

determined by agreement or rule). 

10Consistent with these amendments to 

Regulation D, elsewhere in the Federal Register the 

Board is finalizing conforming changes to the 

provisions in Regulation J that refer to as-of 

adjustments. 

11 12 CFR 204.2(v) (definition of clearing 

balance). 

12See Reserve Bank Operating Circulars at 

http://www.frbservices.org/regulations/ 

operating_circulars.html. 

must hold a greater level of balances in 

a future maintenance period in order to 

meet its reserve balance requirement. 

The Board proposed to eliminate the 

use of as-of adjustments for deposit 

report revisions. The payment of 

interest on balances maintained to 

satisfy reserve balance requirements 

essentially eliminates the need for as-of 

adjustments for deposit report revisions, 

because the interest rate paid effectively 

removes the implicit tax imposed by 

reserve requirements. The Board 

received no comments opposing the 

elimination of as-of adjustments for 

deposit report revisions and is adopting 

this provision as proposed. The Board 

notes that revisions to deposit reports to 

correct for reporting errors will still be 

required, because these reports are used 

to calculate and publish the monetary 

aggregates. 

All As-of Adjustments Other Than 

Those Related to Deposit Report 

Revisions 

In addition to use for deposit report 

revisions, as-of adjustments are 

currently used for other purposes as 

well. These purposes include, but are 

not limited to, correcting transaction 

errors, recovering float, and penalizing 

an institution for a reserve deficiency in 

lieu of assessing monetary charges. An 

as-of adjustment for a transaction-based 

error corrects the average level of 

balances maintained by the depository 

institution to the level that would have 

resulted had the error not occurred. An 

as-of adjustment to recover float 

compensates the Reserve Bank for the 

float that is created by an institution’s 

request to defer check and ACH charges 

for days in which the institution is 

closed. Finally, an as-of adjustment to 

penalize an institution for a reserve 

deficiency can be used instead of 

imposing an explicit monetary charge to 

the institution’s Reserve Bank account. 

The Board proposed replacing as-of 

adjustments for transaction-based errors 

with direct compensation (that is, either 

a debit or credit applied to an account 

to offset the effect of an error). The 

Board proposed replacing as-of 

adjustments for recovering float with 

explicit billing charges when float arises 

from temporary institution closings. 

Finally, the Board proposed eliminating 

the use of as-of adjustments for reserve 

deficiency penalties and relying solely 

on the assessment of explicit deficiency 

charges. The Board proposed to pay (or 

charge) an institution in these situations 

at a rate based on the federal funds rate.9

Three commenters supported the 

replacement of as-of adjustments with 

direct compensation for all as-of 

adjustments other than those related to 

deposit report revisions, provided that 

institutions may continue to obtain 

detailed information on the error that 

occurred and the calculation of the 

compensation amount. These 

commenters stated that such detailed 

information is needed to verify the 

error, to reconcile accounts, and to 

allocate charges (or payments) by 

correspondents to the appropriate 

respondents. Five commenters 

supported the use of the federal funds 

rate to compensate depository 

institutions for transaction-based errors. 

No alternative compensation rate was 

suggested. 

The Board is adopting the final rule 

as proposed.10 The Board anticipates 

that the Reserve Banks will make the 

appropriate information and 

documentation available to depository 

institutions as may be needed to permit 

institutions to reconcile accounts and 

allocate charges or payments. For 

example, information will be available 

that helps describe the calculation of 

direct compensation entries including 

the error amount, the start and end date 

of the error, and identification of the 

originating service area. The Board also 

anticipates that Reserves Banks will 

provide institutions with contact 

information for service areas processing 

direct compensation entries so that 

inquiries can be addressed. 

Eliminate the Contractual Clearing 

Balance Program 

As noted above, a depository 

institution may voluntarily agree with a 

Reserve Bank to maintain a level of 

balances in excess of the amount 

necessary to satisfy its reserve balance 

requirement. The actual amount that a 

depository institution maintains under 

such an agreement is known as a 

clearing balance.11 Reserve Banks do 

not pay explicit interest on clearing 

balances. Instead, clearing balances 

generate earnings credits that a 

depository institution may then use to 

pay for Reserve Bank priced services. 

The Board proposed to eliminate the 

contractual clearing balance program. 

The Board proposed to amend 

Regulation D to remove the definitions 

of ‘‘clearing balance’’ (§ 204.2(v)), 

‘‘clearing balance allowance’’ 

(§ 204.2(w)), and ‘‘contractual clearing 

balance’’ (§ 204.2(x)), along with the 

removal of any other references to 

clearing balances and contractual 

clearing balances elsewhere in 

Regulation D. 

Commenters generally supported the 

elimination of the contractual clearing 

balance program. However, one 

commenter stated that the elimination 

of the program may increase the 

possibility of overdrafts in depository 

institutions’ Reserve Bank accounts if it 

was ever the case that the rate paid on 

balances held at Reserve Banks is below 

the federal funds rate and trading in the 

federal funds market is more active. 

This commenter suggested the Board 

announce its intent to continue the 

payment of interest on such balances at 

a rate equal to or greater than the federal 

funds rate. 

The Board is adopting the elimination 

of the contractual clearing balance 

program as proposed. The elimination 

of the contractual clearing balance 

program will enhance the Federal 

Reserve’s ability to carry out monetary 

policy by eliminating the complexities 

associated with maintaining different 

balance requirements for different kinds 

of balances and different kinds and 

levels of interest rates (explicit and 

implicit). The elimination of the 

contractual clearing balance program 

will not have any effect on a Reserve 

Bank’s ability to require institutions to 

maintain a minimum level of balances 

in their Reserve Bank accounts in order 

for Reserve Banks to protect against 

overdrafts.12 The Board established the 

rate of interest paid on balances 

maintained to satisfy reserve balance 

requirements at a level that implements 

monetary policy and that eliminates the 

implicit tax imposed by reserve 

requirements. The Board will continue 

to evaluate the appropriate level of 

interest rates to achieve these stated 

objectives and will communicate 

changes when necessary. 

Effective Dates 

The Board proposed to eliminate the 

contractual clearing balance program 

and the use of as-of adjustments no 

earlier than the first quarter of 2012, and 

to implement a common maintenance 

period and the penalty-free band around 

reserve balance requirements no earlier 

than the third quarter of 2012. Four 

commenters stated that the proposed 

effective date for the elimination of 


erowe on DSK2VPTVN1PROD with RULES
Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 21851 

13Report of Transaction Accounts, Other Deposits 

and Vault Cash (FR 2900; OMB No. 7100–0087), 

Annual Report of Total Deposits and Reservable 

Liabilities (FR 2910a; OMB No. 7100–0175), Report 

of Foreign (Non-U.S.) Currency Deposits (FR 2915; 

OMB No. 7100–0237), and Allocation of Low 

Reserve Tranche and Reservable Liabilities 

Exemption (FR 2930; OMB No. 7100–0088). 

clearing balances and as-of adjustments 

was too aggressive in light of other 

regulatory changes, and suggested 

implementation of these simplifications 

no earlier than the beginning of the 

third quarter of 2012, 90 days after 

publication of the final rule, or a period 

of nine months. Four other commenters 

requested that the implementation of all 

simplifications be delayed for either a 

period of nine months or at least until 

the first quarter of 2013. Additionally, a 

subset of these commenters requested 

that the Board provide for a staggered 

implementation of the simplifications. 

The Board will eliminate the 

contractual clearing balance program 

and the use of as-of adjustments earlier 

than it will implement the common 

maintenance period and the penalty-free 

band. Given that commenters generally 

noted that few operational changes 

would be necessary to prepare for the 

proposed amendments, the Board will 

eliminate the contractual clearing 

balance program on July 12, 2012. Also 

on this date, as-of adjustments will no 

longer be created and issuance of direct 

compensation will begin. This date is 

approximately 90 days after the 

publication of the final rule and is 

within the time period suggested by 

some commenters as appropriate to 

prepare for the amendments. The Board 

will implement the common two-week 

maintenance period, the penalty-free 

band, and the elimination of carryover 

and routine penalty waivers on January 

24, 2013. The Board will provide public 

notice no later than November 1, 2012, 

if the January 24, 2013 date will be 

delayed. 

IV. Final Regulatory Flexibility 

Analysis 

The Regulatory Flexibility Act (the 

‘‘RFA’’) (5 U.S.C. 601 et seq.) requires 

agencies either to provide a final 

regulatory flexibility analysis with a 

final rule or to certify that the rule will 

not have a significant economic impact 

on a substantial number of small 

entities. In accordance with the RFA, 

the Board reviewed the final rule, which 

would apply to all depository 

institutions. Based on current 

information, the Board believes that, 

although a significant number of ‘‘small 

banking organizations’’ will be affected 

by the rule, the rule will not have a 

significant economic impact on these 

small entities because the Board expects 

the amendments to decrease costs for all 

institutions, including smaller 

institutions. The Board prepared an 

initial regulatory flexibility analysis in 

accordance with 5 U.S.C. 603 of the 

RFA in its notice of proposed 

rulemaking and sought comment on the 

potential impact of the proposed rule on 

small entities. The Board did not receive 

any comments on the initial regulatory 

flexibility analysis. 

1. Statement of the need for, 

objectives of, and legal basis for, the 

final rule. The Board proposed to amend 

Regulation D to simplify the 

administration of reserve requirements. 

Section 19 of the Federal Reserve Act 

requires the Board to impose reserve 

requirements on certain deposits and 

other liabilities of depository 

institutions solely for the purposes of 

implementing monetary policy. The 

Board’s Regulation D implements 

section 19 of the Act. The Board 

believes that the amendments to 

Regulation D will reduce the 

administrative and operational costs 

associated with reserve requirements for 

depository institutions. 

2. Summary of significant issues 

raised by public comment on the 

Board’s initial analysis of issues, and a 

statement of any changes made as a 

result. The Board did not receive any 

public comments on the proposed rule 

addressing matters relating to the 

Board’s initial regulatory flexibility 

analysis. 

3. Small entities affected by the final 

rule. The final rule applies to all 

depository institutions. Pursuant to 

regulations issued by the Small 

Business Administration (the ‘‘SBA’’) 

(13 CFR 121.201), a ‘‘small banking 

organization’’ includes a depository 

institution with $175 million or less in 

total assets. Based on data reported as of 

December 31, 2011, the Board believes 

that there are approximately 10,313 

small depository institutions. Out of 

these small depository institutions, the 

Board believes that small institutions 

affected by the final rule include 

approximately 3,181 small depository 

institutions that maintain balances to 

satisfy reserve balance requirements 

over a one-week maintenance period; 

approximately 1,775 small depository 

institutions with contractual clearing 

balances; and approximately 197 small 

depository institutions that received at 

least one as-of adjustment in 2011. 

4. Recordkeeping, reporting, and other 

compliance requirements. Although the 

final rule imposes certain compliance 

requirements on depository institutions, 

the Board believes that the overall effect 

of the final rule on depository 

institutions, including small depository 

institutions, will be positive. Under new 

§ 204.5(b)(2), small depository 

institutions that satisfy their reserve 

balance requirement on a one-week 

maintenance period (approximately 

3,181) will be subject to a two-week 

maintenance period. A depository 

institution may choose, however, not to 

change its internal systems accordingly, 

because it could continue to satisfy its 

requirement weekly within the twoweek maintenance period. The final rule 

will also eliminate the contractual 

clearing balance program, currently 

used by approximately 1,775 small 

depository institutions. Although the 

contractual clearing program will be 

eliminated, the Board does not 

anticipate that small depository 

institutions will be negatively affected 

because small depository institutions 

will receive explicit interest payments 

on excess balances instead of earnings 

credits on clearing balances. Small 

depository institutions can then use this 

explicit interest to pay for Reserve Bank 

priced services or for other purposes, 

providing them with increased 

flexibility. In addition, the final rule 

eliminates the use of as-of adjustments 

for deposit revisions. The Board does 

not believe the elimination of as-of 

adjustments for deposit revisions will 

negatively affect small depository 

institutions because the interest rate 

paid on balances maintained to satisfy 

a reserve balance requirement 

effectively removes the implicit tax 

imposed by reserve requirements. 

5. Identification of duplicative, 

overlapping, or conflicting Federal 

rules. The Board has not identified any 

Federal rules that duplicate, overlap, or 

conflict with the final rule. In a separate 

rulemaking, the Board is finalizing 

amendments to Regulation J to remove 

references to as-of adjustments in order 

to conform that regulation to this rule. 

6. Significant alternatives to the 

proposed rule. The Board designed the 

reserve simplifications to reduce 

administrative and operational burdens 

on depository institutions. Commenters 

did not suggest any alternatives to the 

final rule that accomplish that objective. 

V. Paperwork Reduction Act Analysis 

In accordance with the Paperwork 

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

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

the Board reviewed the final rule under 

the authority delegated to the Board by 

the Office of Management and Budget 

(OMB). Although the mandatory data 

collected on the deposits reporting 

forms 13 are used by the Federal Reserve 

for administering Regulation D and for 

constructing, analyzing, and monitoring 


erowe on DSK2VPTVN1PROD with RULES
21852 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

the monetary and reserve aggregates, 

none of the revisions in this rulemaking 

change the deposits reporting forms. 

The rule contains no collections of 

information under the PRA. See 44 

U.S.C. 3502(3). Accordingly, no 

paperwork burden is associated with the 

rule. The Board received no comments 

on this analysis. 

List of Subjects in 12 CFR Part 204 

Banks, banking, Federal Reserve 

System, Reporting and recordkeeping 

requirements. 

For the reasons stated in the 

preamble, the Board is amending 12 

CFR part 204 as follows: 

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), 461, 

601, 611, and 3105. 

■ 2. Effective July 12, 2012, § 204.1 

paragraph (b) is revised to read as 

follows: 

§ 204.1 Authority, purpose and scope. 

* * * * * 

(b) Purpose. This part relates to 

reserve requirements imposed on 

depository institutions for the purpose 

of facilitating the implementation of 

monetary policy by the Federal Reserve 

System. 

* * * * * 

■ 3. Effective July 12, 2012, § 204.2 is 

amended by: 

■ A. Removing and reserving 

paragraphs (v) through (x); 

■ B. Revising paragraphs (z) and (bb); 

and 

■ C. Adding paragraphs (ee) and (ff). 

The additions and revisions read as 

follows: 

§ 204.2 Definitions. 

* * * * * 

(z) Excess balance means the average 

balance maintained in an account at a 

Federal Reserve Bank by or on behalf of 

an institution over a reserve 

maintenance period that exceeds the 

balance maintained to satisfy a reserve 

balance requirement. 

* * * * * 

(bb) Balance maintained to satisfy a 

reserve balance requirement means the 

average balance held in an account at a 

Federal Reserve Bank by or on behalf of 

an institution over a reserve 

maintenance period to satisfy a reserve 

balance requirement of this part. 

* * * * * 

(ee) Reserve balance requirement 

means the balance that a depository 

institution is required to maintain on 

average over a reserve maintenance 

period in an account at a Federal 

Reserve Bank if vault cash does not fully 

satisfy the depository institution’s 

reserve requirement imposed by this 

part. 

(ff) Deficiency means the reserve 

balance requirement less the average 

balance maintained in an account at a 

Federal Reserve Bank by or on behalf of 

an institution over a reserve 

maintenance period. 

* * * * * 

■ 4. Effective January 24, 2013, § 204.2 

is further amended by: 

■ A. Revising paragraphs (z) and (ff); 

and 

■ B. Adding paragraphs (gg) and (hh). 

The additions and revisions read as 

follows: 

§ 204.2 Definitions. 

* * * * * 

(z) Excess balance means the average 

balance maintained in an account at a 

Federal Reserve Bank by or on behalf of 

an institution over a reserve 

maintenance period that exceeds the top 

of the penalty-free band. 

* * * * * 

(ff) Deficiency means the bottom of 

the penalty-free band less the average 

balance maintained in an account at a 

Federal Reserve Bank by or on behalf of 

an institution over a reserve 

maintenance period. 

(gg) Top of the penalty-free band 

means an amount equal to an 

institution’s reserve balance 

requirement plus an amount that is the 

greater of 10 percent of the institution’s 

reserve balance requirement or $50,000. 

The top of the penalty-free band for a 

pass-through correspondent is an 

amount equal to the aggregate reserve 

balance requirement of the 

correspondent (if any) and all of its 

respondents plus an amount that is the 

greater of 10 percent of that aggregate 

reserve balance requirement or $50,000. 

(hh) Bottom of the penalty-free band 

means an amount equal to an 

institution’s reserve balance 

requirement less an amount that is the 

greater of 10 percent of the institution’s 

reserve balance requirement or $50,000. 

The bottom of the penalty-free band for 

a pass-through correspondent is an 

amount equal to the aggregate reserve 

balance requirement of the 

correspondent (if any) and all of its 

respondents less an amount that is the 

greater of 10 percent of that aggregate 

reserve balance requirement or $50,000. 

In no case will the penalty-free band be 

less than zero. 

■ 5. Effective July 12, 2012, in § 204.4 

revise paragraphs (d) and (e), and the 

introductory text of paragraph (f), to 

read as follows: 

§ 204.4 Computation of required reserves. 

* * * * * 

(d) For institutions that file a report of 

deposits weekly, reserve requirements 

are computed on the basis of the 

institution’s daily average balances of 

deposits and Eurocurrency liabilities 

during a 14-day computation period 

ending every second Monday. 

(e) For institutions that file a report of 

deposits quarterly, reserve requirements 

are computed on the basis of the 

institution’s daily average balances of 

deposits and Eurocurrency liabilities 

during the 7-day computation period 

that begins on the third Tuesday of 

March, June, September, and December. 

(f) For all depository institutions, 

Edge and Agreement corporations, and 

United States branches and agencies of 

foreign banks, reserve requirements are 

computed by applying the reserve 

requirement ratios below to net 

transaction accounts, nonpersonal time 

deposits, and Eurocurrency liabilities of 

the institution during the computation 

period. 

* * * * * 

■ 6. Effective July 12, 2012, § 204.5 is 

amended by revising paragraphs (a)(1), 

(b), (c), (d), and (e) to read as follows: 

§ 204.5 Maintenance of required reserves. 

(a)(1) A depository institution, a U.S. 

branch or agency of a foreign bank, and 

an Edge or Agreement corporation shall 

satisfy reserve requirements by 

maintaining vault cash and, if vault cash 

does not fully satisfy the institution’s 

reserve requirement, in the form of a 

balance maintained 

(i) In the institution’s account at the 

Federal Reserve Bank in the Federal 

Reserve District in which the institution 

is located, or 

(ii) With a pass-through 

correspondent in accordance with 

§ 204.5(d). 

* * * * * 

(b)(1) For institutions that file a report 

of deposits weekly, the balances 

maintained to satisfy reserve balance 

requirements shall be maintained 

during a 14-day maintenance period 

that begins on the third Thursday 

following the end of a given 

computation period. 

(2) For institutions that file a report of 

deposits quarterly, the balances 

maintained to satisfy reserve balance 

requirements shall be maintained 

during each of the 7-day maintenance 

periods during the interval that begins 

on the fourth Thursday following the 

end of the institution’s computation 


erowe on DSK2VPTVN1PROD with RULES
Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 21853 

period and ends on the fourth 

Wednesday after the close of the 

institution’s next computation period. 

(c) Cash items forwarded to a Federal 

Reserve Bank for collection and credit 

are not included in an institution’s 

balance maintained to satisfy its reserve 

balance requirement until the expiration 

of the time specified in the appropriate 

time schedule established under 

Regulation J, ‘‘Collection of Checks and 

Other Items by Federal Reserve Banks 

and Funds Transfers Through Fedwire’’ 

(12 CFR part 210). If a depository 

institution draws against items before 

that time, the charge will be made to its 

account if the balance is sufficient to 

pay it; any resulting deficiency in 

balances maintained to satisfy the 

institution’s reserve balance 

requirement will be subject to the 

penalties provided by law and to the 

deficiency charges provided by this 

part. However, the Federal Reserve Bank 

may, at its discretion, refuse to permit 

the withdrawal or other use of credit 

given in an account for any time for 

which the Federal Reserve Bank has not 

received payment in actually and finally 

collected funds. 

(d)(1) A depository institution, a U.S. 

branch or agency of a foreign bank, or 

an Edge or Agreement corporation with 

a reserve balance requirement 

(‘‘respondent’’) may select only one 

pass-through correspondent under this 

section, unless otherwise permitted by 

the Federal Reserve Bank in whose 

District the respondent is located. 

Eligible pass-through 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 

balances to satisfy their own reserve 

balance requirements which may be 

zero, in an account at a Federal Reserve 

Bank. In addition, the Board reserves 

the right to permit other institutions, on 

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

(2) Respondents or correspondents 

may institute, terminate, or change passthrough correspondent agreements by 

providing all documentation required 

for the establishment of the new 

agreement or termination of or change to 

the existing agreement to the Federal 

Reserve Banks involved within the time 

period specified by those Reserve 

Banks. 

(3) Balances maintained to satisfy 

reserve balance requirements of a 

correspondent’s respondents shall be 

maintained along with the balances 

maintained to satisfy a correspondent’s 

reserve balance requirement (if any), in 

a single commingled account of the 

correspondent at the Federal Reserve 

Bank in whose District the 

correspondent is located. Balances 

maintained in the correspondent’s 

account 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 balances 

maintained to satisfy the reserve balance 

requirement of a respondent. 

(4)(i) A pass-through correspondent 

shall be responsible for maintaining 

balances to satisfy its own reserve 

balance requirement (if any) and the 

reserve balance requirements of all of its 

respondents. A Federal Reserve Bank 

will compare the total reserve balance 

requirement to be satisfied by the 

correspondent with the total balance 

maintained to satisfy a reserve balance 

requirement by the correspondent for 

purposes of determining deficiencies, 

imposing or waiving charges for 

deficiencies and for other reserve 

maintenance purposes. A charge for a 

deficiency in the correspondent’s 

account will be imposed by the Reserve 

Bank on the correspondent maintaining 

the account. 

(ii) Each correspondent is required to 

maintain detailed records for each of its 

respondents that permit Reserve Banks 

to determine whether the respondent 

has provided a sufficient funds to the 

correspondent to satisfy the reserve 

balance requirement of the respondent. 

The correspondent shall maintain such 

records and make such reports as the 

Board or Reserve Bank may requires in 

order to ensure the correspondent’s 

compliance with its responsibilities 

under this section and shall make them 

available to the Board or Reserve Bank 

as required. 

(iii) The Federal Reserve Bank may 

terminate any pass-through agreement 

under which the correspondent is 

deficient in its recordkeeping or other 

responsibilities. 

(iv) Interest paid on supplemental 

reserves (if such reserves are required 

under § 204.7) held by a respondent will 

be credited to the account maintained 

by the correspondent. 

(e) Any excess or deficiency in an 

institution’s balance maintained to 

satisfy its reserve balance requirement 

shall be carried over and applied against 

the balance maintained in the next 

maintenance period as specified in this 

paragraph. The amount of any such 

excess or deficiency that is carried over 

shall not exceed the greater of: 

(1) The amount obtained by 

multiplying 0.04 times the depository 

institution’s reserve requirement; or 

(2) $50,000. Any carryover not offset 

during the next period may not be 

carried over to subsequent periods. 

■ 7. Effective January 24, 2013, § 204.5 

is further amended by: 

■ A. Revising paragraphs (b)(2) and 

(d)(4)(i); and 

■ B. Removing paragraph (e). 

The additions and revisions read as 

follows: 

§ 204.5 Maintenance of required reserves. 

* * * * * 

(b) * * * 

(2) For institutions that file a report of 

deposits quarterly, the balances 

maintained to satisfy reserve balance 

requirements shall be maintained 

during an interval of either six or seven 

consecutive 14-day maintenance 

periods, depending on when the 

interval begins and ends. The interval 

will begin on the fourth Thursday 

following the end of each quarterly 

reporting period if that Thursday is the 

first day of a 14-day maintenance 

period. If the fourth Thursday following 

the end of a quarterly reporting period 

is not the first day of a 14-day 

maintenance period, then the interval 

will begin on the fifth Thursday 

following the end of the quarterly 

reporting period. The interval will end 

on the fourth Wednesday following the 

end of the subsequent quarterly 

reporting period if that Wednesday is 

the last day of a 14-day maintenance 

period. If the fourth Wednesday 

following the end of the subsequent 

quarterly reporting period is not the last 

day of a 14-day maintenance period, 

then the interval will conclude on the 

fifth Wednesday following the end of 

the subsequent quarterly reporting 

period. 

* * * * * 

(d) * * * 

(4)(i) A pass-through correspondent 

shall be responsible for maintaining 

balances to satisfy its own reserve 

balance requirement (if any) and the 

reserve balance requirements of all of its 

respondents. A charge for any 

deficiency in the correspondent’s 

account will be imposed by the Reserve 

Bank on the correspondent maintaining 

the account. 

* * * * * 

■ 8. Effective July 12, 2012, § 204.6 is 

amended by revising the section 

heading and paragraphs (a) and (b), to 

read as follows: 

§ 204.6 Charges for deficiencies. 

(a) Deficiencies in a depository 

institution’s balance maintained to 

satisfy its reserve balance requirement 

after application of the carryover 


erowe on DSK2VPTVN1PROD with RULES
21854 Federal Register / Vol. 77, No. 71 / Thursday, April 12, 2012 / Rules and Regulations 

provided in § 204.5(e), are subject to 

deficiency charges. Federal Reserve 

Banks are authorized to assess charges 

for deficiencies at a rate of 1 percentage 

point per year above the primary credit 

rate, as provided in § 201.51(a) of this 

chapter, in effect for borrowings from 

the Federal Reserve Bank on the first 

day of the calendar month in which the 

deficiencies occurred. Charges shall be 

assessed on the basis of daily average 

deficiencies during each maintenance 

period. 

(b) Reserve Banks may waive the 

charges for deficiencies except when the 

deficiency arises out of a depository 

institution’s gross negligence or conduct 

that is inconsistent with the principles 

and purposes of reserve requirements. 

Decisions by Reserve Banks to waive 

charges are based on an evaluation of 

the circumstances in each individual 

case and the depository institution’s 

reserve maintenance record. For 

example, a waiver may be appropriate 

for a small charge or once during a twoyear period for a deficiency that does 

not exceed a certain percentage of the 

depository institution’s reserve 

requirement. If a depository institution 

has demonstrated a lack of due regard 

for the proper maintenance of balances 

to satisfy its reserve balance 

requirement, the Reserve Bank may 

decline to exercise the waiver privilege 

and assess all charges regardless of 

amount or reason for the deficiency. 

* * * * * 

■ 9. Effective January 24, 2013, § 204.6 

is further amended by revising 

paragraphs (a) and (b) to read as follows: 

§ 204.6 Charges for deficiencies. 

(a) Federal Reserve Banks are 

authorized to assess charges for 

deficiencies at a rate of 1 percentage 

point per year above the primary credit 

rate, as provided in § 201.51(a) of this 

chapter, in effect for borrowings from 

the Federal Reserve Bank on the first 

day of the calendar month in which the 

deficiencies occurred. Charges shall be 

assessed on the basis of daily average 

deficiencies during each maintenance 

period. 

(b) Reserve Banks may waive the 

charges for deficiencies based on an 

evaluation of the circumstances in each 

individual case. 

* * * * * 

■ 10. Effective July 12, 2012, § 204.10 is 

amended by revising paragraphs (b)(1), 

(b)(3), (c), (d)(3) and (e)(2) to read as 

follows: 

§ 204.10 Payment of interest on balances. 

* * * * * 

(b) * * * 

(1) For balances maintained to satisfy 

reserve balance requirements, at 1⁄4

percent; 

* * * * * 

(3) For balances maintained to satisfy 

reserve balance requirements, excess 

balances, and term deposits, at any 

other rate or rates as determined by the 

Board from time to time, not to exceed 

the general level of short-term interest 

rates. For purposes of this paragraph (b), 

‘‘short-term interest rates’’ are rates on 

obligations with maturities of no more 

than one year, such as the primary 

credit rate and rates on term federal 

funds, term repurchase agreements, 

commercial paper, term Eurodollar 

deposits, and other similar instruments. 

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

institution may pass back to its 

respondent interest paid on balances 

maintained to satisfy a reserve balance 

requirement of that respondent. In the 

case of balances maintained by a passthrough correspondent that is not an 

eligible institution, a Reserve Bank shall 

pay interest only on the balances 

maintained to satisfy a reserve balance 

requirement of one or more 

respondents, and the correspondent 

shall pass back to its respondents 

interest paid on balances in the 

correspondent’s account. 

(d) * * * 

(3) Balances maintained in an excess 

balance account will not satisfy any 

institution’s reserve balance 

requirement. 

* * * * * 

(e) * * * 

(2) A term deposit will not satisfy any 

institution’s reserve balance 

requirement. 

* * * * * 

■ 11. Effective January 24, 2013, 

§ 204.10 is further amended by revising 

paragraphs (b)(1), (b)(3), and (c) to read 

as follows: 

§ 204.10 Payment of interest on balances. 

* * * * * 

(b) * * * 

(1) For balances up to the top of the 

penalty-free band, at 1⁄4 percent; 

* * * * * 

(3) For balances up to the top of the 

penalty-free band, excess balances, and 

term deposits, at any other rate or rates 

as determined by the Board from time 

to time, not to exceed the general level 

of short-term interest rates. For purposes 

of this subsection, ‘‘short-term interest 

rates’’ are rates on obligations with 

maturities of no more than one year, 

such as the primary credit rate and rates 

on term federal funds, term repurchase 

agreements, commercial paper, term 

Eurodollar deposits, and other similar 

instruments. 

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

institution may pass back to its 

respondent interest paid on balances 

maintained to satisfy a reserve balance 

requirement of that respondent. In the 

case of balances maintained by a passthrough correspondent that is not an 

eligible institution, a Reserve Bank shall 

pay interest only on the balances 

maintained to satisfy a reserve balance 

requirement of one or more respondents 

up to the top of the penalty-free band, 

and the correspondent shall pass back to 

its respondents interest paid on 

balances in the correspondent’s account. 

* * * * * 

By order of the Board of Governors of the 

Federal Reserve System, April 5, 2012. 

Robert deV. Frierson, 

Deputy Secretary of the Board. 

[FR Doc. 2012–8562 Filed 4–11–12; 8:45 am] 

BILLING CODE 6210–01–P 

FEDERAL RESERVE SYSTEM 

12 CFR Part 210 

[Regulation J; Docket No. R–1434] 

RIN 7100 AD 84 

Collection of Checks and Other Items 

by Federal Reserve Banks and Funds 

Transfers Through Fedwire: 

Elimination of ‘‘As-of Adjustments’’ 

and Other Clarifications 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Final rule. 

SUMMARY: The Board is amending 

Regulation J (Collection of Checks and 

Other Items by Federal Reserve Banks 

and Funds Transfers through Fedwire). 

The final rule eliminates references to 

‘‘as-of adjustments’’ consistent with the 

Board’s final amendments to Regulation 

D to simplify reserves administration; 

clarifies that an institution’s 

Administrative Reserve Bank is deemed 

to have accepted deposit of a check or 

other item even if the institution sends 

the item directly to another Federal 

Reserve Bank; further clarifies that 

Regulation J continues to apply to a 

Fedwire funds transfer even if the funds 

transfer also meets the definition of 

‘‘remittance transfer’’ under the 

Electronic Fund Transfer Act; and 

makes other conforming revisions. 

DATES: This final rule is effective July 

12, 2012. 

FOR FURTHER INFORMATION CONTACT: Kara 

Handzlik, Senior Attorney (202) 452– 


erowe on DSK2VPTVN1PROD with RULES