This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

20448 

Vol. 80, No. 73 

Thursday, April 16, 2015 

1 12 CFR 204.5(a)(1). 

2Section 19(b)(1)(A) defines ‘‘depository 

institution’’ as any insured bank as defined in 

section 3 of the Federal Deposit Insurance Act or 

any bank which is eligible to make application to 

become an insured bank under section 5 of such 

Act; any mutual savings bank as defined in section 

3 of the Federal Deposit Insurance Act or any bank 

which is eligible to make application to become an 

insured bank under section 5 of such Act; any 

savings bank as defined in section 3 of the Federal 

Deposit Insurance Act or any bank which is eligible 

to make application to become an insured bank 

under section 5 of such Act; any insured credit 

union as defined in section 101 of the Federal 

Credit Union Act or any credit union which is an 

eligible to make application to become an insured 

credit union pursuant to section 201 of such Act; 

any member as defined in section 2 of the Federal 

Home Loan Bank Act; and any savings association 

(as defined in section 3 of the Federal Deposit 

Insurance Act) which is an insured depository 

institution (as defined in such Act) or is eligible to 

apply to become an insured depository institution 

under the Federal Deposit Insurance Act. See 12 

U.S.C. 461(b)(1)(A). 

3Federal Reserve Act section 19(b)(12)(C), 12 

U.S.C. 461(b)(12)(C), see 12 CFR 204.2(y) (definition 

of ‘‘eligible institution’’). 

4See Federal Reserve Act section 19(b)(12), 12 

U.S.C. 461(b)(12). 

5See § 204.10(b)(1) and (2) of Regulation D, 12 

CFR 204.10(b)(1) and (2). 

6See § 204.2(gg) of Regulation D, 12 CFR 

204.2(gg). 

7See § 204.2(z) of Regulation D, 12 CFR 204.2(z). 

FEDERAL RESERVE SYSTEM 

12 CFR Part 204 

[Docket No. R–1513] 

RIN 7100–AE31 

Regulation D: Reserve Requirements 

for Depository Institutions 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Notice of proposed rulemaking; 

request for public comment. 

SUMMARY: The Board is requesting 

comment on proposed amendments to 

Regulation D (Reserve Requirements of 

Depository Institutions) regarding the 

payment of interest on certain balances 

maintained at Federal Reserve Banks by 

or on behalf of eligible institutions. 

Specifically, the Board proposes to 

amend Regulation D to permit interest 

payments on certain balances to be 

based on a daily rate rather than on a 

maintenance period average rate. The 

proposed amendments should help to 

enhance the role of such rates of interest 

in moving the federal funds rate into the 

target range established by the FOMC, 

particularly on occasions when changes 

in those rates do not coincide with the 

beginning of a maintenance period. 

DATES: Comments must be received by 

May 18, 2015. 

FOR FURTHER INFORMATION CONTACT: 

Sophia H. Allison, Special Counsel 

(202/452–3565), Legal Division, or 

Thomas R. Keating, Financial Analyst 

(202/973–7401), or Jeffrey W. Huther, 

Senior Economist (202/452–3139), 

Division of Monetary Affairs; for users 

of Telecommunications Device for the 

Deaf (TDD) only, contact 202/263–4869; 

Board of Governors of the Federal 

Reserve System, 20th and C Streets 

NW., Washington, DC 20551. 

SUPPLEMENTARY INFORMATION: 

I. Statutory and Regulatory Background 

For monetary policy purposes, section 

19 of the Federal Reserve Act (‘‘the 

Act’’) imposes reserve requirements on 

certain types of deposits and other 

liabilities of depository institutions. 

Regulation D, which implements section 

19 of the Act, requires that a depository 

institution meet reserve requirements by 

holding cash in its vault, or if vault cash 

is insufficient, in the form of a balance 

in an account at a Federal Reserve Bank 

(‘‘Reserve Bank’’).1 Section 19 also 

provides that balances maintained by or 

on behalf of certain institutions in an 

account at a Reserve Bank may receive 

earnings to be paid by the Reserve Bank 

at least once each quarter, at a rate or 

rates not to exceed the general level of 

short-term interest rates. Institutions 

that are eligible to receive earnings on 

their balances held at Reserve Banks 

(‘‘eligible institutions’’) include the 

institutions described in section 

19(b)(1)(A) of the Act 2 and any trust 

company, corporation organized under 

section 25A or having an agreement 

with the Board under section 25, or any 

branch or agency of a foreign bank (as 

defined in section 1(b) of the 

International Banking Act of 1978).3

Section 19 also provides that the Board 

may prescribe regulations concerning 

the payment of earnings to the 

depository institutions that maintain 

balances or on whose behalf balances 

are maintained, and the responsibilities 

of depository institutions, Federal Home 

Loan Banks, and the National Credit 

Union Administration Central Liquidity 

Facility with respect to the crediting 

and distribution of earnings attributable 

to balances maintained in a Federal 

Reserve bank by any such entity on 

behalf of depository institutions.4

Regulation D currently requires 

Reserve Banks to pay interest on 

balances up to the top of the penaltyfree band at a rate of 1⁄4 percent, and on 

excess balances at a rate of 1⁄4 percent.5

Regulation D defines ‘‘top of the 

penalty-free band’’ to mean 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 

$50,000.6 Regulation D defines ‘‘excess 

balances’’ to mean the average balance 

maintained in an account at a Federal 

Reserve Bank by or on behalf of an 

institution over a reserve maintenance 

period (‘‘maintenance period’’) that 

exceeds the top of the penalty-free 

band.7 As such, the balances on which 

interest is currently payable under 

Regulation D are balances that are 

defined as maintenance period average 

balances. 

Currently, interest on balances up to 

the top of the penalty-free band and on 

excess balances of eligible institutions at 

Reserve Banks is, in each case, 

calculated by multiplying the average 

applicable interest rate over the 

maintenance period by the amount that 

the institution maintains, on average, 

over the maintenance period. If the rate 

of interest on excess balances were to 

change at a time other than at the 

beginning of a maintenance period, the 

interest on excess balances would be the 

average interest rate for excess balances 

over the maintenance period multiplied 

by the average excess balances 

maintained over the maintenance 

period. For example, if the interest rate 

on excess balances were to increase in 

the middle of a maintenance period 

from 25 basis points (1⁄4 percent) to 50 

basis points (1⁄2 percent), the interest on 

excess balances for that maintenance 

period would be the average excess 

balances maintained over the 

maintenance period multiplied by the 

average excess balance rate, i.e., 37.5 

basis points. As a result, the full effect 

of the increase in the excess balance rate 


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Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Proposed Rules 20449 

8 I.e., ‘‘interest on required reserves.’’ ‘‘Required 

reserves’’ is a term that historically referred to the 

amount that an institution must maintain on 

average over a maintenance period to satisfy its 

reserve balance requirement. Because Regulation D 

currently provides for a penalty-free band around 

an institution’s reserve balance requirement, an 

institution’s balances up to the top of the penaltyfree band is the current equivalent of what was 

previously meant by ‘‘required reserves.’’ 

9 I.e., ‘‘interest on excess reserves.’’ 

10An excess balance account as an account at a 

Reserve Bank that is established by one or more 

eligible institutions through an agent and in which 

only excess balances of the participating eligible 

institutions may at any time be maintained. An 

excess balance account is not a pass-through 

account for purposes of this part.’’ See Regulation 

D 12 CFR 204.2(aa). 

to 50 basis points may not show through 

to market rates until some number of 

days following the announcement of the 

new rate. 

II. Summary of Proposal 

In General 

The Board proposes to amend 

Regulation D to permit interest 

payments on certain balances to be 

based on a daily rate rather than on a 

maintenance period average rate. The 

proposed amendments would define an 

‘‘IORR8 rate’’ and calculate interest on 

balances maintained up to the top of the 

penalty-free band as the average IORR 

rate over a maintenance period 

multiplied by the average balances 

maintained up to the top of the penaltyfree band over the maintenance period. 

The proposed amendments would also 

define an ‘‘IOER 9 rate’’ and, for 

institutions that maintain balances in 

excess of the top of the penalty-free 

band on average over the maintenance 

period, would calculate interest as daily 

total balances multiplied by the daily 

IOER rate, reduced by an adjustment to 

avoid double payment of interest on 

balances up to the top of the penaltyfree band. The proposed amendments 

would therefore facilitate the 

calculation of interest paid at the IOER 

rate on a daily basis applied to a daily 

balance, while preserving the 

calculation of interest paid at the IORR 

rate as a maintenance period average 

rate applied to a maintenance period 

average balance. The proposed 

amendments should allow the full effect 

of an increase in the IOER rate to show 

through to the daily level of short-term 

market rates when an IOER rate change 

does not coincide with the beginning of 

a maintenance period. 

The proposed amendments would 

make other changes to Regulation D to 

conform certain provisions to current 

practices as well as to improve 

organization and make other 

clarifications. Currently, § 204.10(b)(3) 

of Regulation D provides for payment of 

interest on 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. 

The proposed amendments would 

reflect current practices for term deposit 

offerings by providing that interest on 

term deposits is either the amount equal 

to the principal amount of the term 

deposit multiplied by a rate specified in 

advance, or multiplied by the rate 

determined by a term deposit auction. 

The proposed amendments would also 

make a conforming change to current 

§ 204.10(d), governing ‘‘excess balance 

accounts,’’ 10 to provide for interest on 

such balances to be paid at the IOER 

rate. 

The proposed amendments would 

make other changes to improve the 

organization of the section, including 

placing provisions generally applicable 

to payments of interest together into one 

section (proposed § 204.10(a)). The 

proposed amendments would also add a 

new provision to proposed § 204.10(a) 

specifying that the amount of a balance 

maintained in a Reserve Bank account is 

determined at the close of the Reserve 

Bank’s business day. This provision 

would eliminate potential confusion 

over which balance (e.g., intra-day 

balance or end-of-day balance) would be 

used as the basis for the calculation of 

interest. 

Finally, the proposed amendments 

would delete the provision currently in 

§ 204.10(b) of Regulation D providing 

that interest rates are as determined by 

the Board from time to time. The Board 

proposes to announce future changes to 

the IORR rate or the IOER rate, or to the 

mechanisms for calculating the interest 

on term deposits, through amendments 

to Regulation D. The proposed 

amendments would add § 204.10(f) to 

Regulation D, providing that generally 

no public comment will be sought on 

future changes to such rates or 

mechanisms, and that the effective date 

of such future changes will generally 

not be delayed. 

Following the detailed description of 

the proposal below are numerical 

examples illustrating the key features of 

the proposed amendments in cases 

when the IORR and IOER rates change 

in the middle of the reserve 

maintenance period. 

Detailed Description of Proposal 

1. Proposed Calculation of Interest 

Currently, the amount of interest 

payable on balances maintained at a 

Reserve Bank by or on behalf of an 

eligible institution is equal to the sum 

of IORR and IOER. IORR is currently 

calculated as the arithmetic average of 

the daily IORR rates in effect over a 

maintenance period multiplied by the 

average level of balances up to the top 

of the penalty-free band maintained 

over that maintenance period. IOER is 

currently calculated as the arithmetic 

average of the daily IOER rate in effect 

over a maintenance period multiplied 

by the institution’s average level of 

excess balances maintained over that 

maintenance period. 

As discussed above, the current 

methodology for calculating IOER 

implies that an increase in the IOER rate 

may not immediately show through 

fully to short-term market rates in cases 

when an IOER rate change does not 

coincide with the beginning of a 

maintenance period. To address this 

issue, for institutions that maintain 

balances on average over the 

maintenance period in excess of the top 

of the penalty-free band, the proposed 

amendments to Regulation D would 

implement the IOER rate by multiplying 

the IOER rate in effect each day of the 

maintenance period by the institution’s 

total balances that day, less an 

adjustment to avoid the double payment 

of interest on balances maintained up to 

the top of the penalty-free band. The 

proposed amendments would make no 

changes to the calculation of IORR 

under the current provisions of 

Regulation D—that is, IORR would 

continue to be implemented by 

multiplying the average IORR rate over 

the maintenance period by the average 

level of balances up to the top of the 

penalty-free band maintained over the 

maintenance period. 

The implementation of IOER as set 

forth in the proposed amendments—that 

is, calculating IOER based on the daily 

IOER rate rather than the average of the 

daily rates—should support the 

implementation of monetary policy in 

cases when changes in policy rates are 

implemented in the middle of a 

maintenance period. For example, 

under the proposed amendments, if the 

Board raised the IOER rate from 25 basis 

points to 50 basis points in the middle 

of a maintenance period, eligible 

institutions would likely base their 

asset-liability management decisions on 

the effective IOER rate of 50 basis points 

for the remainder of that maintenance 

period. 

2. Addressing a Special Case: A Floor on 

Interest Payments for Institutions That 

Maintain Balances on Average Over a 

Maintenance Period in Excess of the 

Top of the Penalty-Free Band 

Under the proposed amendments, an 

institution’s daily pattern of balances 

maintained over the maintenance period 


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20450 Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Proposed Rules 

11Specifically, institutions that maintain balances 

that are, on average over the maintenance period, 

in excess of the top of the penalty-free band. 

in a Reserve Bank account would 

determine its IOER. There is a special 

case, however, in which an institution 

that maintained positive excess balances 

on average over a maintenance period 

could end up receiving less in total 

interest payments than if it had held 

balances equal to the top of the penaltyfree band on average over the 

maintenance period. This special case 

would arise only in those maintenance 

periods in which a rate change does not 

coincide with the beginning of a 

maintenance period and the institution 

maintains relatively high levels of total 

balances in its Reserve Bank account on 

days when the IORR rate and the IOER 

rate are lower. 

To address this special case, the 

proposed amendments specify a 

minimum interest payment, or floor, 

applicable to total interest payments for 

any institution that maintains balances 

on average over the maintenance period 

in excess of the top of the penalty-free 

band. Specifically, the proposed 

amendments set the floor for 

institutions maintaining excess 

balances 11 at an amount that would be 

equal to the interest payment that the 

institution would have received if it had 

maintained balances up to the top of its 

penalty-free band on average over the 

maintenance period. Including the 

interest payment floor in the proposed 

amendments for these institutions 

means that any institution that 

maintained balances in excess of the top 

of the penalty-free band on average over 

the maintenance period, but maintained 

balances each day of the period in a 

manner that would cause the special 

case above to apply, would be assured 

that it would receive interest payments 

no lower than the interest payments it 

would have received if it had 

maintained balances up to the top of the 

penalty-free band on average over the 

maintenance period. 

At present and for the foreseeable 

future, the proposed floor is one that 

likely will have little practical 

significance for most institutions or for 

federal funds market activity. Given the 

very large quantities of excess balances 

currently in the banking system, the 

Board believes that there are very few 

institutions for which this special case 

would be relevant. Nonetheless, the 

inclusion of the interest payment floor 

in the proposed amendments avoids 

penalizing an institution that 

maintained positive excess balances on 

average over a maintenance period, but 

nevertheless would receive less in 

interest under the proposed 

methodology than it would if it had 

maintained balances up to the top of the 

penalty-free band. 

3. Proposed Formulas for the 

Calculation of Interest and Examples 

The proposed methodology calculates 

IOER by multiplying the IOER rate in 

effect each day of the maintenance 

period by the institution’s total balances 

that day, less an adjustment to avoid the 

double payment of interest on balances 

maintained up to the top of the penaltyfree band. Under the proposed 

methodology, the formulas used in 

determining interest payments 

distinguish between two basic cases— 

one in which institutions maintain, on 

average over the maintenance period, 

balances in excess of the top of the 

penalty-free band, and a second in 

which the institution maintains, on 

average over the maintenance period, 

balances that are equal to or lower than 

the top of the penalty-free band. In the 

first case, the proposed methodology 

would result in calculating the interest 

on balances in an account at a Reserve 

Bank as follows: 

Where: 

14 = the number of days in a reserve 

maintenance period 

360 = the number of days in the year used 

to annualize interest 

Avg. IORR rate = arithmetic average of the 

daily IORR rates in effect over a 

maintenance period 

BMRBR = average balances maintained to 

satisfy a reserve balance requirement (up 

to the top of the penalty-free band) over 

a maintenance period 

Avg. IOER rate = arithmetic average of the 

daily IOER rates in effect over a 

maintenance period 

Total Balances = daily total balance held 

In the second case, the proposed 

methodology would result in calculating 

the interest as follows: 

The following are examples of the 

application of the key features of the 

proposed amendments to a case where 

the IORR and IOER rates change in the 

middle of a maintenance period. Each of 

the examples assumes: 

• The top of the penalty-free band is 

$100,000; 


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Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Proposed Rules 20451 

• Balances maintained are the same 

for each day of the calendar week of the 

two-week maintenance period. Thus, 

the average daily balance for each week 

is equal to the daily amount of balances 

maintained; 

• The IORR and IOER annual rates 

are set at 0.36 percent in week one and 

at 0.72 percent in week two; and 

• Interest is calculated based on a 

360-day year. 

As a baseline, Example 1 applies the 

current methodology for calculating 

IORR and IOER interest payments for an 

eligible institution that maintains an 

average daily balance of $150,000 

throughout the maintenance period: 

EXAMPLE 1—CURRENT CALCULATION OF IORR AND IOER 

Week Balance IORR Rate IOER Rate 

1 ................................................................................................................................. 150,000 0.0036 0.0036 

2 ................................................................................................................................. 150,000 0.0072 0.0072 

IORR Payment ........................................................................................................... .............................. 21.00 

IOER Payment ........................................................................................................... .............................. 10.50 

In Example 1, the institution 

maintains a balance of $150,000 each 

day of the maintenance period. IORR is 

calculated as the average IORR rate 

(annualized using a 360-day year) over 

the maintenance period (0.54 percent) 

multiplied by average balances up to the 

top of the penalty free band over the 

maintenance period ($100,000) times 

the number of days in the maintenance 

period (14), resulting in an IORR 

payment of $21.00. IOER is similarly 

calculated as the average IOER rate 

(annualized using a 360-day year) over 

the maintenance period (0.54 percent) 

multiplied by average excess balances 

over the maintenance period ($50,000) 

times the number of days in the 

maintenance period (14), resulting in an 

IOER payment of $10.50. The institution 

thus receives $31.50 in total interest 

payments for the two week maintenance 

period. 

EXAMPLE 2—PROPOSED AMENDMENTS: WEEK 1 BALANCES = WEEK 2 BALANCES

Week 1 Balance IORR Rate IEOR Rate 

1 ................................................................................................................................. 150,000 0.0036 0.0036 

2 ................................................................................................................................. 150,000 0.0072 0.0072 

IORR Payment ........................................................................................................... .............................. 21.00 

IOER Payment ........................................................................................................... .............................. 10.50 

In Example 2, the institution again 

maintains a balance of $150,000 each 

day of the maintenance period, but 

interest payments are calculated 

according to Equation (1) under the 

proposed amendments. The calculation 

of IORR is the same as in Example 1: 

The average IORR rate over the 

maintenance period (0.54 percent) 

multiplied by average balances up to the 

top of the penalty free band over the 

maintenance period ($100,000) times 

the number of days in the maintenance 

period (14), resulting in an IORR 

payment of $21.00. However, the 

calculation of IOER is based on the 

application of proposed 

§ 204.10(b)(1)(B)(i) and (ii), where the 

amount of IOER is equal to the IOER 

rate in effect each day multiplied by the 

total balances maintained on that day 

for each day of the maintenance period, 

reduced by the amount specified in 

§ 204.10(b)(1)(B)(ii). The amount of the 

reduction prescribed by proposed 

§ 204.10(b)(1)(B)(ii) is equal to the 

average IOER rate over the maintenance 

period multiplied by the average 

balance up to the top of the penalty-free 

band maintained over the maintenance 

period. The proposed amendments 

described in Example 2 yield a total 

IOER payment of $10.50. Thus, the total 

interest payments in this case are 

exactly the same as in Example 1. For 

any institution that maintains excess 

balances, this is a general result: If 

balances are constant across all days of 

the maintenance period, the proposed 

methodology generates exactly the same 

interest payments as the calculation 

under current provisions of Regulation 

D. 

EXAMPLE 3—PROPOSED AMENDMENTS: WEEK 2 BALANCES EXCEED WEEK 1 BALANCES

Week 1 Balance IORR Rate IOER Rate 

1 ................................................................................................................................. 100,000 0.0036 0.0036 

2 ................................................................................................................................. 200,000 0.0072 0.0072 

IORR Payment ........................................................................................................... .............................. 21.00 

IOER Payment ........................................................................................................... .............................. 14.00 

In Example 3, the eligible institution’s 

maintenance of excess balances during 

the course of the maintenance period is 

tilted toward Week 2, when the higher 

IOER rate is in effect. The calculation 

for IORR under the proposed 

amendments is unchanged from 

Example 1 (current methodology), 

resulting in an IORR payment of $21.00. 

The calculation for IOER under the 

proposed amendments, however, results 

in an IOER payment of $14.00 

calculated as follows: 

IOER = ($100,000 * 0.0036) * 7/360 + 

($200,000 * 0.0072) * 7/360 ¥ (100,000 

* 0.0054) * 14/360 [(Daily Balance Week 

1 * IOER Week 1) + (Daily Balance 

Week 2 * IOER Week 2) ¥ (Avg. 

Required Reserve Balance * Average 

IOER rate)]. 

IOER is higher under the proposed 

amendments as shown in Example 3 

($14.00) than under the current 

provisions of Regulation D as shown in 


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20452 Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Proposed Rules 

Example 1 ($10.50). This illustrates a 

key feature of the proposed 

amendments: when an IOER rate change 

occurs in the middle of a maintenance 

period, eligible institutions immediately 

begin receiving interest on balances in 

excess of the penalty-free band at the 

new IOER rate. In Example 3, the 

eligible institution begins earning the 

higher IOER rate of 0.72 percent as soon 

as the higher IOER rate becomes 

effective in the middle of the 

maintenance period. In contrast, as 

shown in Example 1, the effective IOER 

rate on balances in excess of the 

penalty-free band under the current 

provisions of Regulation D is 0.54 

percent—the average of the IOER rates 

in weeks 1 and 2. In Example 1, the full 

effect of the increase in IOER to 72 basis 

points would not be reflected in interest 

payments until the beginning of a new 

maintenance period. 

EXAMPLE 4—ROLE OF THE FLOOR ON INTEREST PAYMENTS IN PROPOSED METHODOLOGY

Week 1 Balance IORR Rate IOER Rate 

1 ................................................................................................................................. 130,000 0.0036 0.0036 

2 ................................................................................................................................. 80,000 0.0072 0.0072 

IORR Payment ........................................................................................................... .............................. 21.00 

IOER Payment ........................................................................................................... .............................. 0.00 

Memo: IOER Payment (without Floor) ...................................................................... .............................. ¥0.69 

In Examples 2 and 3, the provision in 

the proposed amendments for a floor on 

interest payments did not come into 

play. In Example 4, the institution’s 

average total balances over the period 

are $105,000 (implying only $5,000 in 

excess), and the institution ends up 

holding higher balances during the first 

week of the maintenance period when 

the IOER rate is lower. As shown in the 

Example 4 table above, the institution 

maintains $130,000 in the first week of 

the maintenance period and $80,000 in 

the second week of the maintenance 

period. Calculating IOER under the 

proposed amendments would result in a 

‘‘pre-floor’’ interest payment on excess 

balances of ¥$0.69. The negative 

‘‘interest payment’’ results from the end 

of period adjustment factor in proposed 

§ 204.10(b)(1)(B)(ii). That adjustment 

factor is equal to the average IOER rate 

over the maintenance period multiplied 

by the average balance up to the top of 

the penalty-free band maintained over 

the maintenance period. Since the 

institution held the majority of its 

balances that would receive the daily 

IOER rate when the daily IOER rate was 

below the average IOER rate, the 

adjustment factor in proposed 

§ 204.10(b)(1)(B)(ii) was greater than the 

interest attributable to balances over the 

top of the penalty-free band in proposed 

§ 204.10(b)(1)(B)(i). With the inclusion 

in the proposed amendments of the 

interest payment floor, however, the 

interest payment on excess balances is 

revised upwards to 0 and the eligible 

institution’s total interest payment is 

$21.00—the same as the interest 

payments the institution would have 

earned had it held balances on average 

exactly equal to the top of the penaltyfree band ($100,000) over the 

maintenance period. 

EXAMPLE 5—BALANCES EQUAL TO OR LOWER THAN TOP OF PENALTY-FREE BAND

Week 1 Balance IORR Rate IOER Rate 

1 ................................................................................................................................. 90,000 0.0036 0.0036 

2 ................................................................................................................................. 106,000 0.0072 0.0072 

IORR Payment ........................................................................................................... .............................. 20.58 ..............................

IOER Payment ........................................................................................................... .............................. 0.00 ..............................

The first four examples involve 

eligible institutions that maintained 

balances, on average over the 

maintenance period, in excess of the top 

of their penalty-free bands. Example 5 

involves an eligible institution that 

maintained balances on average over the 

maintenance period equal to $98,000, 

slightly lower than the top of the 

penalty-free band. Under the proposed 

amendments, the interest calculation 

method for institutions that hold 

average balances over the maintenance 

period equal to or lower than the top of 

the penalty-free band would not change 

from the current practice. For these 

institutions, interest would be 

calculated by taking the average IORR 

rate over the maintenance period (0.54 

percent) multiplied by average balances 

up to the top of the penalty free band 

over the maintenance period ($98,000) 

times the number of days in the 

maintenance period (14), resulting in an 

IORR payment of $20.58. The institution 

does not hold balances above the top of 

the penalty-free band and thus would 

not receive an IOER payment nor would 

it benefit from holding larger balances 

on days when the higher IOER rate was 

in effect. 

III. Section by Section Analysis 

Section 204.10(a) General 

The Board proposes to amend 

§ 204.10(a) to incorporate certain 

provisions of current § 204.10(b) and to 

add a new provision describing the 

amount of a ‘‘balance’’ in an account at 

a Reserve Bank for purposes of the 

section. 

Proposed § 204.10(a)(1) incorporates 

part of current § 204.10(b)(3) into 

current § 204.10(a) and provides that, 

except as provided in § 204.10(c), 

interest on balances maintained at 

Reserve Banks by or on behalf of an 

eligible institution is established by the 

Board in accordance with this section, 

at a rate or rates not to exceed the 

general level of short-term interest rates. 

Proposed § 204.10(a)(2) adds a new 

provision to Regulation D specifying 

that the amount of a ‘‘balance’’ in an 

account at a Reserve Bank for purposes 

of § 204.10 is determined at the close of 

the Reserve Bank’s business day. 

Proposed § 204.10(a)(3) moves the 

definition of ‘‘short-term interest rates’’ 

from current § 204.10(b)(3) into 

proposed § 204.10(a)(3). 

Proposed § 204.10(a)(4) moves the 

provision in current § 204.10(a) 

regarding other terms and conditions for 

interest payments as the Board may 

prescribe into proposed § 204.10(a)(4). 


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Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Proposed Rules 20453 

Section 204.10(b) Payment of interest 

Proposed § 204.10(b) relates to 

payments of interest on balances at 

Reserve Banks: excess balances, 

balances up to the top of the penaltyfree band, and term deposits. 

Proposed § 204.10(b)(1) and (2) set 

forth the amount of interest to be paid 

on balances of institutions that, on 

average over the maintenance period, 

maintain balances in excess of the top 

of the penalty-free band. These two 

paragraphs provide for interest at the 

IORR rate, interest at the IOER rate, the 

adjustment to interest at the IOER rate, 

and the minimum interest amount. 

Proposed § 204.10(b)(3) provides that 

interest for institutions that, on average 

over the maintenance period, maintain 

balances that are equal to or lower than 

the top of the penalty-free band is the 

average IORR rate over the maintenance 

period multiplied by the average 

balances maintained over the 

maintenance period. 

Proposed § 204.10(b)(4) provides for 

interest on term deposits. New 

§ 204.10(b)(4)(A) provides for interest on 

term deposits at a rate specified in 

advance by the Board, in light of 

existing short-term market rates, to 

maintain the federal funds rate at a level 

consistent with monetary policy 

objectives. Section 204.10(b)(4)(B) 

provides for interest on term deposits at 

a rate determined by the auction 

through which such term deposits are 

offered. 

Proposed § 204.10(b)(5) specifies the 

IORR rate used in proposed 

§ 204.10(b)(1) and (3), and the IOER rate 

used in proposed § 204.10(b)(1)(B)(i) 

and (ii). 

Section 204.10(c) Pass-Through 

Balances 

Proposed § 204.10(c) sets forth the 

language of current § 204.10(c), with one 

change. In the second sentence of 

proposed § 204.10(c), the word ‘‘shall’’ 

is changed to ‘‘may’’ to conform the 

paragraph with the provisions of 

§ 204.10(b). 

Section 204.10(d) Excess Balance 

Accounts 

Proposed § 204.10(d)(5) revises 

current § 204.10(d)(5) by specifying that 

interest on excess balance accounts is 

the amount equal to the IOER rate in 

effect each day multiplied by the total 

balances maintained on that day for 

each day of the maintenance period. 

Section 204.10(f) Procedure for 

Determination of Rates 

Proposed § 204.10(f) sets forth a 

provision not previously appearing in 

Regulation D governing the procedure 

for determination of rates. Specifically, 

proposed § 204.10(f) provides that the 

Board anticipates that it generally will 

not seek advance notice, public 

comment, or delayed effective dates 

with respect to changes in the rates of 

interest set forth in § 204.10. Proposed 

§ 204.10(f) also specifies the reasons that 

the Board generally expects to apply in 

such cases. 

IV. Form of Comment Letters 

Comment letters should refer to 

Docket No. R–1513 and, when possible, 

should use a standard typeface with a 

font size of 10 or 12; this will enable the 

Board to convert text submitted in paper 

form to machine-readable form through 

electronic scanning, and will facilitate 

automated retrieval of comments for 

review. Comments may be mailed 

electronically to 

regs.comments@federalreserve.gov. 

V. Solicitation of Comments Regarding 

Use of ‘‘Plain Language’’ 

Section 722 of the Gramm-LeachBliley Act of 1999 requires the Board to 

use ‘‘plain language’’ in all proposed 

and final rules published after January 

1, 2000. The Board invites comments on 

whether the proposed rule is clearly 

stated and effectively organized, and 

how the Board might make the proposed 

text easier to understand. 

VI. Initial Regulatory Flexibility 

Analysis 

In accordance with Section 3(a) of the 

Regulatory Flexibility Act (RFA) (5 

U.S.C. 601, et seq.), the Board has 

reviewed the proposed amendments to 

Regulation D. A final regulatory 

flexibility analysis will be conducted 

after consideration of comments 

received during the public comment 

period. 

1. Statement of the objectives of the 

proposal. The Board is proposing to 

amend Regulation D in order to 

facilitate the conduct of monetary 

policy. Section 19 of the Act was 

enacted to impose reserve requirements 

on certain deposits and other liabilities 

of depository institutions for monetary 

policy purposes. The Board proposes to 

amend Regulation D to facilitate the 

transmission of monetary policy 

through the rates of interest paid on 

balances of eligible institutions at 

Reserve Banks. Specifically, the Board 

proposes to amend Regulation D to 

permit interest payments on certain 

balances to be based on a daily rate 

rather than on a maintenance period 

average rate. The proposed amendments 

should help to enhance the role of such 

rates of interest in moving the federal 

funds rate into the target range 

established by the FOMC. 

2. Small entities affected by the 

proposal. The proposal would affect all 

eligible institutions that maintain 

balances to satisfy reserve balance 

requirements or excess balances at a 

Reserve Bank. The Board estimates that 

there are currently approximately 8,725 

eligible institutions that maintain such 

balances. The Board estimates that 

approximately 6,950 of these 

institutions could be considered small 

entities with assets of $550 million or 

less. 

3. Other federal rules. The Board 

believes that no federal rules duplicate, 

overlap, or conflict with the proposed 

amendments. 

4. Significant alternatives to the 

proposed amendments. The proposed 

amendments do not impose any burden 

on depository institutions of any size. 

The proposed amendments relate to 

payment of earnings on balances of 

eligible institutions and do not provide 

for any new or additional reporting or 

other obligations. 

VI. Paperwork Reduction Act 

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 proposed rule 

under the authority delegated to the 

Board by the Office of Management and 

Budget (OMB). The proposed rule 

contains no requirements subject to the 

PRA. 

List of Subjects in 12 CFR Parts 204 

Banks, Banking, Reporting and 

recordkeeping requirements. 

Authority and Issuance 

For the reasons set forth in the 

preamble, the Board proposes to amend 

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), 371a, 

461, 601, 611, and 3105. 

■ 2. Section 204.10 is amended by 

revising paragraphs (a), (b), (c), and 

(d)(5), and adding paragraph (f) to read 

as follows: 

§ 204.10 Payment of interest on balances. 

(a) General. (1) Except as provided in 

paragraph (c) of this section, interest on 

balances maintained at Federal Reserve 

Banks by or on behalf of an eligible 

institution shall be established by the 

Board in accordance with this section, 


tkelley on DSK3SPTVN1PROD with PROPOSALS
20454 Federal Register / Vol. 80, No. 73 / Thursday, April 16, 2015 / Proposed Rules 

at a rate or rates not to exceed the 

general level of short-term interest rates. 

(2) For purposes of this section, the 

amount of a ‘‘balance’’ in an account 

maintained by or on behalf of an eligible 

institution at a Federal Reserve Bank is 

determined at the close of the Federal 

Reserve Bank’s business day. 

(3) For purposes of this section, 

‘‘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. 

(4) The payment of interest on 

balances under this section shall be 

subject to such other terms and 

conditions as the Board may prescribe. 

(b) Payment of interest. Interest on 

balances maintained at Federal Reserve 

Banks by or on behalf of an eligible 

institution is established as set forth in 

paragraphs 

(b)(1) through (4) of this section. The 

rates for IORR and IOER are set forth in 

paragraph (b)(5) of this section. 

(1) For institutions that maintain 

balances that are, on average over the 

maintenance period, in excess of the top 

of the penalty-free band, interest is: 

(A) The amount equal to the average 

IORR rate over the maintenance period 

multiplied by the average balance up to 

the top of the penalty-free band 

maintained over the maintenance 

period; plus 

(B)(i) The amount equal to the IOER 

rate in effect each day multiplied by the 

total balances maintained on that day 

for each day of the maintenance period; 

minus 

(ii) The amount equal to the average 

IOER rate over the maintenance period 

multiplied by the average balance up to 

the top of the penalty-free band 

maintained over the maintenance 

period. 

(2) The interest amount under 

paragraph (b)(1) of this section shall not 

be less than an amount equal to the 

amount specified in paragraph (b)(1)(A) 

of this section. 

(3) For institutions that maintain 

balances that are, on average over the 

maintenance period, equal to or lower 

than the top of the penalty-free band, 

interest is the amount equal to the 

average IORR rate over the maintenance 

period multiplied by the average 

balance maintained over the 

maintenance period. 

(4) For term deposits, interest is: 

(A) The amount equal to the principal 

amount of the term deposit multiplied 

by a rate specified in advance by the 

Board, in light of existing short-term 

market rates, to maintain the federal 

funds rate at a level consistent with 

monetary policy objectives; or 

(B) The amount equal to the principal 

amount of the term deposit multiplied 

by a rate determined by the auction 

through which such term deposits are 

offered. 

(5) The rates for IORR and IOER are: 

Rate Effective 

IORR .................................................................. 1⁄4 percent.

IOER .................................................................. 1⁄4 percent.

(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 may 

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. 

(d) * * * 

* * * * * 

(5) Interest on balances of eligible 

institutions maintained in an excess 

balance account is the amount equal to 

the IOER rate in effect each day 

multiplied by the total balances 

maintained on that day for each day of 

the maintenance period. 

* * * * * 

(f) Procedure for determination of 

rates. The Board anticipates that notice 

and public participation with respect to 

changes in the rate or rates of interest to 

be paid under this section will generally 

be impracticable, unnecessary, contrary 

to the public interest, or otherwise not 

required in the public interest, and that 

there will generally be reason and good 

cause in the public interest why the 

effective date should not be deferred for 

30 days. The reason or reasons in such 

cases are generally expected to include 

that such notice, public participation, or 

deferment of effective date would 

prevent the action from becoming 

effective as promptly as necessary in the 

public interest, would permit 

speculators or others to reap unfair 

profits or to interfere with the Board’s 

actions taken with a view to 

accommodating commerce and business 

and with regard to their bearing upon 

the general credit situation of the 

country, would provoke other 

consequences contrary to the public 

interest, would not aid the persons 

affected, or would otherwise serve no 

useful purpose. 

By order of the Board of Governors of the 

Federal Reserve System, April 13, 2015. 

Michael Lewandowski, 

Associate Secretary of the Board. 

[FR Doc. 2015–08743 Filed 4–15–15; 8:45 am] 

BILLING CODE 6210–01–P 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 1 

[REG–143040–14] 

RIN 1545–BM59 

Reporting for Premium; Basis 

Reporting by Securities Brokers and 

Basis Determination for Debt 

Instruments and Options; Correction 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Correction to a notice of 

proposed rulemaking by cross-reference 

to temporary regulations. 

SUMMARY: This document contains 

corrections to a notice of proposed 

rulemaking by cross-reference to 

temporary regulations (REG–143040–14) 

that was published in the Federal 

Register on Friday, March 13, 2015 (80 

FR 13292). The IRS is issuing temporary 

regulations relating to information 

reporting by brokers for transactions 

involving debt instruments and options. 

DATES: Written or electronic comments 

and requests for a public hearing for the 

notice of proposed rulemaking by crossreference to temporary regulations 

published at 80 FR 13292, March 13, 


tkelley on DSK3SPTVN1PROD with PROPOSALS