24384 Federal Register / Vol. 75, No. 86 / Wednesday, May 5, 2010 / Rules and Regulations 

1 74 FR 69301 (Dec. 31, 2009). 

2 ‘‘Eligible institution’’ does not include all 

entities for which the Reserve Banks hold accounts. 

For example, the term does not include entities for 

which the Reserve Banks act as fiscal agents, such 

as Federal Home Loan Banks, Fannie Mae, and 

Freddie Mac. 12 CFR 204.2(y). 

3See 12 U.S.C. 461(b)(12). 

featured speaker, or honored speaker, or 

in any other manner not specifically 

related to fundraising; and 

(B) The publicity includes a clear and 

conspicuous disclaimer that the 

solicitation is not being made by the 

Federal candidate or officeholder. 

(ii) The disclaimer required in 

paragraph (c)(3)(i)(B) of this section 

must meet the requirements in 11 CFR 

110.11(c)(2) if the publicity is written. 

(iii) Where publicity is disseminated 

by non-written means, the disclaimer 

described in paragraph (c)(3)(i)(B) of 

this section is required only if the 

publicity is recorded or follows any 

form of written script or is conducted 

according to a structured or organized 

program. 

(iv) Examples of disclaimers that 

satisfy paragraph (c)(3)(i)(B) of this 

section include, but are not limited to: 

(A) ‘‘[Name of Federal candidate/ 

officeholder] is appearing at this event 

only as a featured speaker. [Federal 

candidate/officeholder] is not asking for 

funds or donations’’; or 

(B) ‘‘All funds solicited in connection 

with this event are by [name of nonFederal candidate or entity], and not by 

[Federal candidate/officeholder].’’ 

(v) A Federal candidate, officeholder, 

or an agent of either may not approve, 

authorize, agree to, or consent to the use 

of the Federal candidate’s or 

officeholder’s name or likeness in 

publicity for a non-Federal fundraising 

event that contains a solicitation of 

funds outside the amount limitations 

and source prohibitions of the Act or 

Levin funds if: 

(A) The Federal candidate or 

officeholder is identified as serving in a 

position specifically related to 

fundraising, such as honorary 

chairperson or member of a host 

committee, or is identified in the 

publicity as extending an invitation to 

the event, even if the communication 

contains a written disclaimer as 

described in paragraph (c)(3)(i)(B) of 

this section; or 

(B) The Federal candidate or 

officeholder signs the communication, 

even if the communication contains a 

written disclaimer as described in 

paragraph (c)(3)(i)(B) of this section. 

(vi) A Federal candidate, officeholder, 

or an agent of either, may not 

disseminate publicity for a non-Federal 

fundraising event that contains a 

solicitation of funds outside the amount 

limitations and source prohibitions of 

the Act or Levin funds by someone 

other than the Federal candidate or 

officeholder. 

Dated: April 30, 2010. 

On behalf of the Commission. 

Matthew S. Petersen, 

Chairman, Federal Election Commission. 

[FR Doc. 2010–10571 Filed 5–4–10; 8:45 am] 

BILLING CODE 6715–01–P 

FEDERAL RESERVE SYSTEM 

12 CFR Part 204 

[Regulation D; Docket No. R–1381] 

Reserve Requirements of Depository 

Institutions Policy on Payment System 

Risk 

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 authorize 

Reserve Banks to offer term deposits. 

Term deposits are intended to facilitate 

the conduct of monetary policy by 

providing a tool for managing the 

aggregate quantity of reserve balances. 

Institutions eligible to receive earnings 

on their balances in accounts at Federal 

Reserve Banks (‘‘eligible institutions’’) 

may hold term deposits and receive 

earnings at a rate that does not exceed 

the general level of short-term interest 

rates. Term deposits are separate and 

distinct from balances maintained in an 

institution’s master account at a Reserve 

Bank (‘‘master account’’) as well as from 

those maintained in an excess balance 

account. Term deposits do not satisfy an 

institution’s required reserve balance or 

contractual clearing balance and do not 

constitute excess balances. Term 

deposits are not available to clear 

payments and may not be used to 

reduce an institution’s daylight or 

overnight overdrafts. The Board is also 

making minor amendments to the 

posting rules for intraday debits and 

credits to master accounts as set forth in 

the Board’s Policy on Payment System 

Risk to address transactions associated 

with term deposits. 

DATES: The amendments are effective on 

June 4, 2010. 

FOR FURTHER INFORMATION CONTACT: 

Sophia H. Allison, Senior Counsel (202) 

452–3565, or Dena L. Milligan, Staff 

Attorney (202) 452–3900), Legal 

Division, or Seth Carpenter, Associate 

Director (202) 452–2385, or Margaret 

Gillis DeBoer, Assistant Director (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. Summary of Proposal 

In order to help the Federal Reserve 

implement monetary policy, on 

December 31, 2009, the Board requested 

public comment on a proposal to amend 

Regulation D to authorize Reserve Banks 

to offer term deposits to eligible 

institutions.1 ‘‘Eligible institution’’ is 

defined in Regulation D and includes 

the depository institutions defined in 

section 19(b)(1)(A) of the Act, including 

banks, savings associations, savings 

banks and credit unions that are 

federally insured or eligible to apply for 

federal insurance. ‘‘Eligible institution’’ 

also includes trust companies, Edge and 

agreement corporations, and U.S. 

agencies and branches of foreign banks.2

Under the proposal, the Reserve Banks 

would accept term deposits subject to 

such terms and conditions as the Board 

may establish from time to time, 

including but not limited to conditions 

regarding the maturity of the term 

deposits being offered, maximum and 

minimum amounts that may be 

maintained by an eligible institution in 

a term deposit, the interest rate or rates 

offered and, if term deposits are offered 

through an auction mechanism, the size 

of the offering, and maximum and 

minimum bid amounts. Term deposits 

would not satisfy required reserve 

balances or contractual clearing 

balances and would not be available for 

general payments or other activities. 

The Board also proposed to amend 

section 204.10(b)(3) of Regulation D to 

reflect the fact that term deposits would 

earn interest, and that like other 

balances maintained at Reserve Banks 

by or on behalf of eligible institutions, 

the interest rate on term deposits could 

not exceed the general level of shortterm interest rates, consistent with the 

limitation in the Federal Reserve Act.3

For purposes of that statutory 

requirement, the Board proposed to 

amend section 204.10(b)(3) to define the 

term ‘‘short-term interest rates’’ as 

including ‘‘the primary credit rate and 

rates on obligations with maturities of 

up to one year in which eligible 

institutions may invest, such as rates on 

term federal funds, term repurchase 

agreements, commercial paper, term 

Eurodollar deposits, and other similar 

rates.’’ 


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II. Summary of Comments 

The Board’s proposal indicated that 

the Federal Reserve could offer term 

deposits in several ways and outlined a 

potential structure for offering term 

deposits through auctions. The Board 

requested comment on all aspects of the 

proposal, and specifically requested 

comment on three topics: 

(1) Whether it is necessary to place 

any limitations on the maximum 

amount of term deposits that an 

institution may hold or on the 

maximum portion of a single offering 

that an institution may win at auction; 

(2) What maturity or maturities would 

eligible institutions recommend as 

appropriate for term deposits, and 

whether more than one maturity should 

be offered; and 

(3) Whether basic terms and 

structures for term deposits other than 

those described in the proposal should 

be considered. 

The Board received twenty-two 

comments on the proposal. Comments 

were received from eight individuals, 

two foreign central banks, four bankers’ 

banks, four commercial banks, and four 

trade associations. 

Many commenters supported term 

deposits as an additional tool for 

draining excess reserves balances to 

support the effective implementation of 

monetary policy and stated that offering 

term deposits would not be disruptive 

to markets. Some commenters believed 

that term deposits would be effective in 

draining excess reserves balances, but 

questioned the underlying policies of 

reducing the availability of federal 

funds and putting upward pressure on 

the cost of borrowing. Additionally, a 

few commenters asked that the Board 

more clearly express the purpose of 

term deposits. A few other commenters 

questioned the effectiveness and 

necessity of term deposits as a monetary 

policy tool. Two commenters suggested 

that if the use of term deposits is 

temporary, the Board’s final rule should 

announce a sunset date for the facility. 

III. Final Rule 

The Board expects term deposits to be 

one of several tools that could be 

employed to drain reserve balances and 

support the effective implementation of 

monetary policy. Term deposits drain 

reserve balances because the funds that 

pay for the term deposits are removed 

from the accounts of participating 

institutions for the life of the term 

deposit. Reducing the quantity of 

reserve balances should tighten the link 

between the interest rate the Federal 

Reserve pays on excess reserve balances 

and other short-term interest rates, 

resulting in improved control in 

implementing monetary policy. 

Authorization of term deposits does not, 

however, preclude the use of other tools 

to drain reserve balances. 

Because of the potential usefulness of 

term deposits in implementing 

monetary policy, the Board has 

determined to adopt the proposed 

amendments to Regulation D with some 

changes to address issues raised by 

commenters and other issues. In doing 

so, the Board has determined not to 

adopt a sunset provision for these 

amendments. Actual offerings of term 

deposits, however, will occur as needed 

based on monetary policy objectives. 

Details about the periods when term 

deposits will be offered will be 

announced periodically in order to 

allow institutions to adjust their use of 

this facility. 

The final rule also adjusts the 

definition of ‘‘short-term interest rates’’ 

in two ways. First, it has been amended 

to clarify that interest rates with 

maturities equal to one year would be 

‘‘short term.’’ Second, it has been 

changed to allow reference to interest 

rates on instruments with the relevant 

maturities but that may not be eligible 

for investment by eligible institutions. 

These changes result in a definition of 

‘‘short-term interest rates’’ that is more 

consistent with market practice and 

understanding of the term. 

The Board is also revising proposed 

section 204.10(e)(1) to clarify that the 

Board may from time to time set 

conditions regarding the early 

withdrawal of term deposits and 

pledging term deposits as collateral. As 

discussed infra, the Board is not at this 

time finalizing those conditions. 

The Board also is revising proposed 

section 204.10(e)(3) to clarify that term 

deposits may not be used for general 

payments or settlement activities. 

IV. Terms and Conditions of Term 

Deposit Offerings 

As explained above, the Board 

requested and received comment on a 

variety of matters related to the 

structure, amount and method for 

offering term deposits. Final 

determination of those matters depends 

largely on related monetary policy 

discussions, including decisions 

regarding the most effective way to 

drain the appropriate level of reserves. 

As a result, the Board has determined to 

finalize the parts of its proposal that 

facilitate the authorization of term 

deposits and to reserve to a later date 

the final decisions regarding the manner 

in which term deposits will be offered 

(for example, by auction, by open offer 

or by some other method) and the 

details of those offerings. 

In making those final decisions as to 

the terms and conditions of term 

deposits, the Board will take into 

account the comments received in this 

process. In order to aid institutions in 

preparing for the availability of term 

deposits, the Board is providing its 

preliminary views on several of those 

matters while reserving final judgment 

on all of these matters in order to adjust 

the decisions to most effectively 

implement the Federal Reserve’s 

monetary policy objectives. For one of 

these matters (role of correspondents), 

however, the Board has made a final 

determination in order to allow 

potential participants to begin now to 

formulate plans and structures for 

participating in term deposits. 

To help eligible institutions to 

become familiar with the term deposit 

process, the Federal Reserve anticipates 

that it will conduct small-value 

offerings of term deposits in the coming 

months. More detailed information 

about these offerings, as well as 

information about how to participate in 

these offerings and term deposit 

offerings generally, will be provided at 

a later date. 

A. Correspondents 

Some commenters expressed concerns 

that the proposal would disadvantage 

private-sector correspondents. These 

commenters argued that private-sector 

correspondent institutions likely would 

be unable to compete with term deposits 

offered by Reserve Banks and that term 

deposits would thus jeopardize existing 

correspondent-respondent relationships. 

These commenters indicated that term 

deposits would likely earn a higher 

interest rate than other similar term 

investments or overnight investments, 

would carry no risk and would be 

available to pledge as collateral for 

discount window advances. 

These commenters proposed that, in 

order to mitigate unintended strain on 

existing correspondent-respondent 

relationships, correspondent 

institutions be permitted to aggregate 

their respondents’ funds and maintain 

those funds in term deposits on behalf 

of their respondents. Commenters also 

proposed that correspondents be 

permitted to bid on term deposits as 

agent for their respondents, even on an 

individual or unaggregated basis. 

According to these commenters, small 

institutions cannot justify the staff 

resources required to participate 

actively in the proposed term deposit 

offerings, and instead could more 

effectively and efficiently participate in 

those offerings by placing funds with a 


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24386 Federal Register / Vol. 75, No. 86 / Wednesday, May 5, 2010 / Rules and Regulations 

4Section 11A(b) lists the services which the 

Board must include in its schedule of fees: 

Currency and coin services; check clearing and 

collection services; wire transfer services; 

automated clearinghouse services; settlement 

services; securities and safekeeping services; 

Federal Reserve float, and ‘‘[a]ny new services 

which the Federal Reserve System offers, including 

but not limited to payment services to effectuate the 

electronic transfer of funds.’’ 12 U.S.C. 248a. 

5See 125 CONG. REC. 525 (1979) (statement of Sen. 

Proxmire). 

6 Monetary Control and the Membership Problem: 

Hearing on H.R. 12706, Before the H. Comm. On 

Fin. Svcs., 95th Cong. 127 (1978) (Federal Reserve 

Board’s Preliminary Proposal). 

7 12 U.S.C. 461(b). 

correspondent acting as aggregator or as 

agent, or both. These commenters 

indicated that allowing correspondents 

to aggregate the funds of smaller 

institutions in a single term deposit 

account would provide an efficient 

mechanism for correspondents to invest 

on behalf of their respondents, would 

allow small institutions to compete for 

term deposits by overcoming a high 

minimum bid amount and aggressive 

bidding on the rates by larger 

institutions. The commenters also 

asserted that allowing correspondents to 

hold term deposits as agents would be 

consistent with the existing provisions 

of Regulation D relating to excess 

balance accounts. Finally, these 

commenters asserted that the offering of 

term deposits was a ‘‘service’’ in direct 

competition with private-sector deposits 

and funds management services, and 

therefore the rates paid should be 

subject to a private-sector adjustment 

factor under section 11A of the Federal 

Reserve Act. 

The Board has carefully considered 

these comments and has determined not 

to authorize the aggregation of funds of 

multiple respondents in a single term 

deposit that is managed by a 

correspondent as agent. However, 

correspondents will be able to facilitate 

respondent participation in term deposit 

offerings, such as by submitting a tender 

on behalf of each respondent that 

authorizes the correspondent to do so. 

Because of operational complexities and 

other accommodations being made to 

enable the participation by small 

institutions, the Board will not allow a 

correspondent to submit as agent a 

single tender for the aggregate quantity 

of term deposits that its respondents 

wish to hold. Correspondents that are 

eligible institutions would be able to 

participate in term deposit offerings for 

their own account. 

As noted above, some commenters 

argued that term deposits were a 

‘‘service’’ in direct competition with 

private-sector correspondent 

institutions, and therefore should be 

subject to a private-sector adjustment 

factor under section 11A of the Federal 

Reserve Act. 

Section 11A of the Act was added by 

the Monetary Control Act of 1980 

(‘‘MCA’’) to promote competitive 

equality between member and 

nonmember banks and to improve the 

efficiency of the nation’s payments 

mechanism by making specific Reserve 

Bank services, known as ‘‘priced 

services,’’ available to all depository 

institutions at a competitive price. 

Section 11A requires the Board to 

establish pricing principles and a 

schedule of fees to cover the specified 

Reserve Bank ‘‘priced services’’ 4 in order 

to enable private-sector service 

providers to compete more effectively 

with Reserve Banks.5 The Federal 

Reserve’s governmental-type functions 

(such as conducting monetary policy) 

were not intended to be included as 

‘‘services’’ covered by MCA’s pricing 

principles.6 As stated in the proposal, 

offering term deposits is a tool to drain 

excess reserves balances and support 

the effective implementation of 

monetary policy. Accordingly, even 

though private-sector correspondents 

may offer some investments that are 

similar in certain respects to term 

deposits, the offering of term deposits is 

not a ‘‘service’’ that is subject to the 

pricing principles of Section 11A of the 

Act. Finally, as noted above, rates on 

term deposits are subject to an 

independent statutory limit: these rates 

may not exceed the general level of 

short-term interest rates.7

B. Maturities of Term Deposits 

The Board also requested comment on 

the appropriate maturity or maturities 

for term deposits, and on whether more 

than one maturity should be offered. 

The Board’s proposal suggested that 

term deposit maturities would not 

exceed one year and likely would be 

between one and six months. The 

proposal also suggested that term 

deposit maturities could be aligned with 

14-day reserve maintenance periods. 

Commenters generally supported 

offering term deposits with multiple 

maturities in order to help institutions 

manage their liquidity positions and 

interest-rate risk, and suggested 

maturities for term deposits ranging 

from 14 days to one year. Two 

commenters suggested that term 

deposits of varying maturities could be 

offered in a single offering, and one 

commenter suggested that term deposits 

of multiple maturities be offered from 

the first auction. One commenter 

suggested that term deposits with 

shorter maturities be offered regularly, 

with less frequent offerings of term 

deposits with six-month maturities. 

Generally, commenters felt that demand 

would be greatest for term deposits with 

maturities less than six months. 

Several commenters supported 

maturities that were multiples of 14 

days to coincide with reserve 

maintenance periods. Many of these 

commenters specifically suggested 

maturities that mirrored the maturities 

of advances under the Federal Reserve’s 

Term Auction Facility (TAF) (those 

maturities have generally been 28 days 

and 84 days), or maturities of U.S. 

Treasury debt offerings or other 

investments similar to term deposits. 

Another commenter suggested that term 

deposit maturities not exceed three 

months (approximately twice the time 

between Federal Open Market 

Committee meetings), because 

institutions could establish reasonable 

interest rate expectations over a threemonth period. 

In recognition of the demand to hold 

term deposits of varying maturities, the 

Board expects that term deposits of 

more than one maturity will be offered 

and that maturities of term deposits 

likely will be six months or less. The 

Board also expects that term deposit 

maturities will be aligned with 14-day 

reserve maintenance periods. Maturities 

will be announced in advance of a term 

deposit offering. 

C. Early Withdrawal 

Some commenters requested that the 

Board reconsider its proposal to prohibit 

early withdrawal of term deposits. Two 

commenters suggested that institutions 

be permitted to make early withdrawals 

of term deposits for a fee; one of these 

commenters suggested that early 

withdrawals be limited to term deposits 

with maturities of 28 days or more. Both 

commenters cited the ability to maintain 

flexibility in the event of changing 

financial circumstances. 

The Board believes that, as stated in 

the proposal, early withdrawal of term 

deposits would weaken the ability of 

term deposits to serve as an effective 

tool for draining reserve balances, and 

therefore would undermine the effective 

implementation of monetary policy. 

Accordingly, the Board expects that 

early withdrawals from term deposits 

will not be permitted. 

D. Offering Mechanism 

The Board’s proposal described a 

potential auction mechanism for 

offering term deposits. The Board 

received several comments (discussed 

below) related specifically to offering 

term deposits through an auction, none 

of which opposed using an auction 

mechanism. The Board expects that an 

auction mechanism may be the most 


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effective way to allocate term deposits 

in a manner that effectively achieves the 

Federal Reserve’s monetary policy 

objectives. Based on monetary policy 

considerations and experience with the 

auction mechanism, the Board may 

consider offering term deposits through 

different mechanisms. 

As stated above, the Board is not at 

this time setting forth definitive terms 

and conditions of term deposit offerings 

(e.g., the maximum interest rate for an 

offering). The Board will take the 

comments received into consideration 

when determining the terms and 

conditions. Many commenters 

expressed a desire for the Federal 

Reserve to communicate in advance the 

terms and conditions of the offerings, as 

well as the purpose and desired 

outcome of the program. The Board 

anticipates announcing the terms and 

conditions of any auction in advance, 

including the quantity of term deposits 

offered and their maturity, any 

minimum and maximum bid amounts, 

and a maximum-allowable bid interest 

rate. 

One commenter suggested that the 

Board provide notice and an 

opportunity to comment prior to 

changing the terms and conditions of 

term deposit offerings. The amendments 

to Regulation D adopted by the Board 

were designed to be sufficiently flexible 

to support various approaches to term 

deposit offerings, including auctions or 

posted-rate term deposit offerings, and 

offerings of varying amounts, maturities, 

and interest rates. This flexibility is 

necessary to enable the Board to adjust 

the terms and conditions based on 

evolving market conditions and 

monetary policy needs. The Board does 

not expect to seek comment in advance 

of changing the terms and conditions of 

term deposit offerings unless those 

changes require amendments to 

Regulation D. 

One commenter suggested that each 

institution be permitted to submit 

multiple bids and proposed a maximum 

of two bids per institution at each 

auction. The Board is considering 

permitting multiple bids per institution 

for term deposits and anticipates that, if 

multiple bids are permitted, there will 

likely be some limit on the number of 

bids an institution may submit. 

E. Interest Rate or Rates Offered 

The Board received a number of 

comments on term deposit interest rates. 

Some commenters supported 

structuring auction bids as fixed-rate 

bids, and others suggested that bids be 

in the form of a spread over a reference 

rate, resulting in a floating rate. 

Commenters supporting a floating rate 

suggested specific reference rates such 

as the target federal funds rate, the rate 

paid on required reserves, the rate paid 

on excess reserves, and the overnight 

indexed swap rate. 

In addition, the Board received 

several comments related to setting the 

maximum interest rate on term deposits. 

One commenter supported maintaining 

flexibility as to the benchmark rates 

considered when setting the maximum 

interest rate. One commenter stated that 

for term deposits of longer maturities, 

the primary credit rate was not 

necessarily an appropriate maximum 

rate; rather, this commenter suggested 

that auctions of term deposits of longer 

maturities have a higher maximum rate, 

where the increase relative to the rates 

on term deposits with shorter maturities 

is consistent with the steepness of the 

yield curve. 

The Board did not receive any 

comments related to determining the 

‘‘general level’’ of short-term interest 

rates. In identifying the ‘‘general level’’ 

of short-term interest rates, the Board 

could look to a specific short-term 

interest rate, or to a range of such rates. 

The ‘‘general level’’ of short-term interest 

rates could include both fixed and 

floating rates and will vary over time in 

accordance with movements in shortterm interest rates. As short-term 

interest rates may move within the 

maturity period of a term deposit, the 

Board will consider the applicable 

‘‘general level’’ for any particular term 

deposit offering to be the general level 

of short-term interest rates at the time 

the rate for that particular offering is 

established. 

In accordance with statutory 

requirements, the maximum interest 

rate for each offering will not exceed the 

general level of short-term interest rates. 

The maximum interest rate for a given 

offering will be announced in advance 

of that offering. The Board expects that 

interest rates on term deposits initially 

will be fixed, although the Board may 

consider floating-rate term deposits 

based on future experience with term 

deposit offerings. 

F. Noncompetitive Tenders 

One commenter suggested allowing 

small institutions to make 

noncompetitive tenders, similar to 

auctions for Treasury securities. The 

Board will consider including a 

noncompetitive tender feature whereby 

small institutions could submit a tender 

outside the competitive bidding process 

for the quantity of term deposits they 

wish to hold and receive the rate 

established by the competitive auction. 

G. Individual Limits on Maximum 

Amount of Deposit 

The Board specifically requested 

comment on whether limitations on the 

amount an eligible institution may 

maintain as term deposits were 

necessary. Many commenters suggested 

placing some limitation on the amount 

of term deposits that a single institution 

can hold. The limitations on an 

institution’s term deposit holdings 

suggested by various commenters 

included restrictions based on (1) A 

percentage of an institution’s capital; (2) 

an institution’s average daily balance in 

its master account over the prior three 

months, and (3) 10 percent of total term 

deposits outstanding. 

Some of these commenters asserted 

that limiting the amount of a single 

offering that any institution can be 

awarded would ensure that small 

depository institutions effectively have 

access to term deposits, foster greater 

participation in the program, and curb 

the ability of a few large institutions to 

dominate term deposit offerings. 

Proposals suggested by these 

commenters included de minimis 

minimum bid amounts, and limits based 

on auction size (e.g., limiting any one 

institution to between 5 percent and 25 

percent of a single auction). Another 

commenter suggested imposing such 

limitations only on the twenty largest 

institutions. 

The Board expects to implement the 

term deposit program in a way that 

promotes equitable access to term 

deposits for institutions of all sizes, 

while most effectively meeting the 

Federal Reserve’s monetary policy 

objectives. Eligible institutions would 

not be required to maintain required 

reserve balances at Reserve Banks in 

order to hold term deposits, nor would 

they need to maintain a master account 

at a Reserve Bank in order to participate 

in term deposit offerings. The Board 

also expects to set minimum bid 

amounts for term deposit offerings low 

enough so as to not be a barrier to 

participation by smaller institutions. 

H. Use as Collateral 

Several commenters raised concerns 

related to the potential availability of 

term deposits to satisfy unexpected 

liquidity needs of the depositor. In 

addition, two commenters suggested 

that term deposits be available to pledge 

as collateral for advances by Federal 

Home Loan Banks so that institutions 

would be able to meet liquidity needs 

through mechanisms other than the 

discount window. One of these 

commenters suggested that term 


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24388 Federal Register / Vol. 75, No. 86 / Wednesday, May 5, 2010 / Rules and Regulations 

8 73 FR 79109 (Dec. 24, 2008). 

9 73 FR 79109, 79114 (Dec. 24, 2008). 

10The Board anticipates implementing the 

Revised PSR Policy in late 2010 or early 2011. The 

Board will announce the specific date at least 90 

days in advance of the implementation date. 74 FR. 

79117 (Dec. 24, 2008). 11Available at http://www.federalreserve.gov/ 

paymentsystems/psr_policy.htm. 

12See n. 10, supra, and accompanying text 

regarding the effective date of other amendments to 

the PSR Policy relating to the ability of term 

deposits to serve as collateral for daylight 

overdrafts. 

deposits be available to pledge as 

collateral for any interbank loan. 

The potential complexity of 

administering pledges (and re-pledges) 

of term deposits as collateral to third 

parties throughout the term of the 

deposit could be substantial. The Board 

expects that institutions will be 

permitted to use their term deposits as 

collateral for discount window advances 

in order to manage unanticipated 

funding needs. This would allow 

institutions to obtain liquidity from the 

Federal Reserve by pledging term 

deposits or to obtain liquidity from 

other sources by substituting term 

deposits for other types of collateral 

pledged to the discount window that 

could then be pledged as collateral to 

secure advances from Federal Home 

Loan Banks and other third parties. 

Accordingly, the Board does not expect 

to permit pledges of term deposits to 

third parties. 

In 2008, the Board announced 

revisions to its Policy on Payment 

System Risk (‘‘Revised PSR Policy’’).8

Under the Revised PSR Policy, 

collateralized daylight overdrafts would 

incur no fee.9 The Board received many 

comments supporting the availability of 

term deposits to collateralize daylight 

overdrafts. The Board expects that term 

deposits will be available to 

collateralize daylight overdrafts under 

the Revised PSR Policy.10

V. Final Amendments to PSR Policy 

Posting Rules 

The Reserve Banks measure 

depository institutions’ intraday 

account balances according to a set of 

posting rules outlined in the Board’s 

Policy on Payment System Risk (PSR 

Policy).11 To reflect the settlement of 

term deposits in the posting rules, the 

Board is amending section II.A. of the 

PSR Policy under the heading 

‘‘Procedures for Measuring Daylight 

Overdrafts’’ as follows (changes 

identified by italics): 

Procedures for Measuring Daylight 

Overdrafts 

Opening Balance (Previous Day’s 

Closing Balance) 

Post at 8:30 a.m. Eastern Time: 

+ Term deposit maturities and 

accrued interest 

Post After the Close of Fedwire Funds 

Service: 

+/¥ All other transactions. These 

transactions include the following: 

Local Federal Reserve Bank checks 

presented after 3 p.m. Eastern Time but 

before 3 p.m. local time; noncash 

collection; currency and coin 

shipments; small-dollar credit 

adjustments; term deposit settlements; 

and all debit adjustments. 

The Board received no comments on 

the proposed amendments to the PSR 

Policy and is adopting them as 

proposed. These amendments to the 

PSR Policy will be effective at the same 

time as the amendments to Regulation 

D.12

VI. Solicitation of Comments Regarding 

use of ‘‘Plain Language’’ 

Section 722 of the Gramm-LeachBliley Act of 1999 (12 U.S.C. 4809) 

requires the Board to use ‘‘plain 

language’’ in all final rules published 

after January 1, 2000. The Board has 

sought to present this final rule in a 

simple and straightforward manner. The 

Board received no comments on 

whether the proposed rule was clearly 

stated and effectively organized, or on 

how the Board might make the text of 

the rule easier to understand. 

VII. Regulatory Flexibility Act 

An initial regulatory flexibility 

analysis (IRFA) was included in the 

Board’s proposed rule in accordance 

with the Regulatory Flexibility Act (5 

U.S.C. 601 et. seq.). In the IRFA, the 

Board specifically solicited comment on 

significant alternatives that would 

minimize the impact of the proposal on 

small entities. The Board’s final 

regulatory flexibility analysis is set forth 

below. For purposes of this analysis, 

banks and other depository institutions 

are considered ‘‘small’’ if they have less 

than $175 million in assets. For the 

reasons stated below, the Board expects 

that the final rule will not have a 

significant economic impact on small 

entities. 

1. Statement of the Need for and the 

Objectives of the Final Rule 

The Board is publishing final 

amendments to Regulation D to 

authorize Reserve Banks to offer 

interest-bearing deposits of specified 

maturities to eligible institutions. Term 

deposits are intended to facilitate the 

conduct of monetary policy by 

providing a tool for managing the 

aggregate quantity of reserve balances. 

Additional discussion of the need for 

and objectives of the final rule is 

contained in the SUPPLEMENTARY

INFORMATION above. 

2. Summary of Significant Issues Raised 

by the Public Comments in Response to 

the Initial Regulatory Flexibility 

Analysis 

Although the Board received no 

comments that were specifically in 

response to the IRFA, the Board 

received comments regarding the 

proposal’s impact on small entities. As 

discussed in the SUPPLEMENTARY

INFORMATION above, some commenters 

expressed concern about small 

institutions’ ability to participate in 

term deposit offerings and to compete 

with larger institutions in the offerings, 

particularly if an auction mechanism 

were used. To address these concerns, 

commenters suggested that minimum 

bid amounts for auctions be set 

sufficiently low to allow smaller 

institutions to participate and suggested 

that noncompetitive tenders be offered 

alongside competitive auctions. Some 

commenters also suggested that there be 

limits on the portions of offerings a 

single institution could be awarded so 

as to prevent larger institutions from 

being awarded an entire offering. 

As discussed above, the Board expects 

to implement term deposits in a way 

that promotes the access of small 

entities to term deposits. 

3. Small Entities Affected by the Final 

Rule 

Participation in term deposit offerings 

would be optional for eligible 

institutions of all sizes. The Board 

estimates that approximately 16,010 

would be eligible to hold term deposits, 

of which approximately 12,267 would 

be considered ‘‘small’’ for purposes of 

the RFA (entities with assets of $175 

million or less). The impact on eligible 

institutions choosing to hold term 

deposits would be positive, because 

term deposits would expand the range 

of investment opportunities available to 

those institutions. 

4. Description of Projected Reporting, 

Recordkeeping and Other Compliance 

Requirements of the Final Rule 

The final rule does not impose any 

new reporting, recordkeeping or 

compliance requirements. 

5. Significant Alternatives to the 

Revisions of the Final Rule 

The Board received no comments 

suggesting significant alternatives to the 

proposed rule that would minimize the 

impact of the rule on small institutions. 

The final rule, like the proposed rule, 

provides the Board with significant 


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Federal Register / Vol. 75, No. 86 / Wednesday, May 5, 2010 / Rules and Regulations 24389 

flexibility to structure the terms and 

conditions for term deposit offerings to 

minimize any adverse effects on small 

institutions. The Board will set terms 

and conditions of term deposit offerings 

that promote the access of small 

institutions to term deposits while still 

maintaining the effectiveness of term 

deposits as a tool to implement 

monetary policy. These steps could 

include those suggested by commenters, 

such as low minimum bid amounts, 

aggregate limits, and noncompetitive 

tenders. 

VIII. Paperwork Reduction Act 

In accordance with the Paperwork 

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

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

Board reviewed the final rule under the 

authority delegated to the Board by the 

Office of Management and Budget 

(OMB). The final rule contains no 

collections of information subject to the 

PRA. 

List of Subjects in 12 CFR Part 204 

Banks, banking, Reporting and 

recordkeeping requirements. 

Authority and Issuance 

■ For the reasons set forth in the 

preamble, the Board is proposing 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 6105. 

■ 2. Amend § 204.2 by adding paragraph 

(dd) to read as follows: 

§ 204.2 Definitions. 

* * * * * 

(dd) Term deposit means those funds 

of an eligible institution that are 

maintained by that institution for a 

specified maturity at a Federal Reserve 

Bank pursuant to section 204.10(e) of 

this part. 

■ 3. Section 204.10 is amended by 

revising paragraph (b)(3) and by adding 

a new paragraph (e) to read as follows: 

§ 204.10 Payment of interest on balances. 

* * * * * 

(b) * * * 

(3) For required reserve balances, 

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. 

* * * * * 

(e) Term deposits. (1) A Federal 

Reserve Bank may accept term deposits 

from eligible institutions under the 

provisions of this paragraph (e) subject 

to such terms and conditions as the 

Board may establish from time to time, 

including but not limited to conditions 

regarding the maturity of the term 

deposits being offered, maximum and 

minimum amounts that may be 

maintained by an eligible institution in 

a term deposit, the interest rate or rates 

offered, early withdrawal of term 

deposits, pledging term deposits as 

collateral and, if term deposits are 

offered through an auction mechanism, 

the size of the offering, maximum and 

minimum bid amounts, and other 

relevant terms. 

(2) A term deposit will not satisfy any 

institution’s required reserve balance or 

contractual clearing balance. 

(3) A term deposit may not be used for 

general payments or settlement 

activities. 

By order of the Board of Governors of the 

Federal Reserve System, April 29, 2010. 

Jennifer J. Johnson, 

Secretary of the Board. 

[FR Doc. 2010–10483 Filed 5–4–10; 8:45 am] 

BILLING CODE 6210–01–P 

DEPARTMENT OF TRANSPORTATION 

Federal Aviation Administration 

14 CFR Part 39 

[Docket No. FAA–2010–0435; Directorate 

Identifier 2010–NM–084–AD; Amendment 

39–16283; AD 2010–10–04] 

RIN 2120–AA64 

Airworthiness Directives; Bombardier, 

Inc. Model DHC–8–400 Series 

Airplanes 

AGENCY: Federal Aviation 

Administration (FAA), Department of 

Transportation (DOT). 

ACTION: Final rule; request for 

comments. 

SUMMARY: We are adopting a new 

airworthiness directive (AD) for the 

products listed above. This AD results 

from mandatory continuing 

airworthiness information (MCAI) 

originated by an aviation authority of 

another country to identify and correct 

an unsafe condition on an aviation 

product. The MCAI describes the unsafe 

condition as: 

Operators of DHC–8 400 Series aeroplanes 

have been reporting chafing of wires in the 

AC wire harnesses located along the lower 

wing shroud on either wing resulting in a 

loss of various system services. Chafed wires 

may lead to arcing, local overheating and AC 

generator failure. The AC generators provide 

power to the anti-icing heaters, including 

pitot/static heater, engine adapter heater, and 

propeller heater. Failure of both AC 

generators would result in the loss of these 

systems and poses a safety concern. 

* * * * * 

Loss of both AC generators could lead 

to unannunciated loss of heat to both 

engine inlets, which could lead to loss 

of power in both engines during icing 

conditions. This AD requires actions 

that are intended to address the unsafe 

condition described in the MCAI. 

DATES: This AD becomes effective May 

20, 2010. 

The Director of the Federal Register 

approved the incorporation by reference 

of certain publications listed in the AD 

as of May 20, 2010. 

We must receive comments on this 

AD by June 21, 2010. 

ADDRESSES: You may send comments by 

any of the following methods: 

• Federal eRulemaking Portal: Go to 

http://www.regulations.gov. Follow the 

instructions for submitting comments. 

• Fax: (202) 493–2251. 

• Mail: U.S. Department of 

Transportation, Docket Operations, M– 

30, West Building Ground Floor, Room 

W12–140, 1200 New Jersey Avenue, SE., 

Washington, DC 20590. 

• Hand Delivery: U.S. Department of 

Transportation, Docket Operations, M– 

30, West Building Ground Floor, Room 

W12–40, 1200 New Jersey Avenue, SE., 

Washington, DC, between 9 a.m. and 5 

p.m., Monday through Friday, except 

Federal holidays. 

Examining the AD Docket 

You may examine the AD docket on 

the Internet at http:// 

www.regulations.gov; or in person at the 

Docket Operations office between 9 a.m. 

and 5 p.m., Monday through Friday, 

except Federal holidays. The AD docket 

contains this AD, the regulatory 

evaluation, any comments received, and 

other information. The street address for 

the Docket Operations office (telephone 

(800) 647–5527) is in the ADDRESSES

section. Comments will be available in 

the AD docket shortly after receipt. 

FOR FURTHER INFORMATION CONTACT: 

Craig Yates, Aerospace Engineer, 

Airframe and Mechanical Systems 

Branch, ANE–171, FAA, New York 

Aircraft Certification Office, 1600 

Stewart Avenue, Suite 410, Westbury, 


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