Federal Register / Vol. 60, No. 44 / Tuesday, March 7, 1995 / Notices 12559

backed securities in the body of

Schedule RC–B, ‘‘Securities,’’ so that

item 4 of Schedule RC–B will include

all mortgage-backed securities. In

addition, the Call Report instructions

will be clarified in response to questions

about the reporting of lines of credit

extended to bank insiders,

participations in pools of residential

mortgages, refundable loan commitment

fees, and stock subscription payments.

Dated: March 1, 1995.

Federal Deposit Insurance Corporation.

Robert E. Feldman,

Acting Executive Secretary.

[FR Doc. 95–5438 Filed 3–6–95; 8:45 am]

BILLING CODE 6714–01–M

FEDERAL RESERVE SYSTEM

[Docket No. R–0806]

Policy Statement on Payments System

Risk; Daylight Overdraft Pricing

AGENCY: Board of Governors of the

Federal Reserve System.

ACTION: Policy statement.

SUMMARY: The Board has approved a

modification of the increase in the fee

charged to depository institutions for

daylight overdrafts incurred in their

accounts at the Reserve Banks that had

been scheduled to take effect on April

13, 1995. As a result of the sizeable

reductions in daylight overdrafts

already achieved, as well as concerns

about the possible effects of further

rapid fee increases, the Board has

approved an increase in the daylight

overdraft fee to an effective daily rate of

15 basis points rather than 20 basis

points. (The 15-basis-point fee equals an

annual rate of 36 basis points, quoted on

the basis of a 360-day year and a 24-

hour day.) The Board will evaluate the

desirability of any further increases in

the daylight overdraft fee, based on the

objectives of the payments system risk

program, two years after the

implementation of the 15-basis-point

fee. Any changes in the fee resulting

from that review will be announced

with a reasonable lead-time for

implementation.

EFFECTIVE DATE: April 13, 1995.

FOR FURTHER INFORMATION CONTACT:

Jeffrey C. Marquardt, Assistant Director

(202/452–2360) or Paul Bettge, Manager

(202/452–3174), Division of Reserve

Bank Operations and Payment Systems,

Board of Governors of the Federal

Reserve System. For the hearing

impaired only: Telecommunications

Device for the Deaf, Dorothea Thompson

(202/452–3544).

SUPPLEMENTARY INFORMATION:

I. Background on the Daylight

Overdraft Fee Policy

The Board’s initial policy statement

aimed at controlling daylight overdrafts,

which became effective in 1986 (50 FR

21120, May 22, 1985), encouraged

depository institutions to establish

voluntary daylight overdraft limits, or

caps, across all large-value payment

systems. The cap levels were

subsequently reduced by the Board,

effective in 1988, in an effort to reduce

further the level of overdrafts (52 FR

29255, August 6, 1987).

While daylight overdrafts associated

with funds transfers appeared to

stabilize somewhat after the

introduction of caps, daylight overdrafts

associated with securities transfers,

which were exempt from the original

caps, continued to grow strongly. The

Board became concerned, however, that

further reductions in cap levels might

seriously disrupt long-established

market practices for settling financial

transactions. Thus, in 1987, the Board

commissioned two studies of the

fundamental issues concerning

payments system risk by a staff task

force and an industry advisory group.

Both groups agreed that the Federal

Reserve’s provision of free daylight

overdraft credit was a subsidy that

encouraged the overuse of such credit

by private institutions. The advisory

group emphasized the flexibility of

daylight overdraft fees as a marketoriented means of allocating daylight

credit to depository institutions that

valued it most highly, while allowing

them to determine the least costly

means of reducing these overdrafts.

The task force identified the following

set of public policy objectives for the

Board’s daylight overdraft program:

• Low direct credit risk to the Federal

Reserve,

• Low direct credit risk to the private

sector,

• Low systemic risk,

• Rapid final payments,

• Low operating expense of making

payments,

• Equitable treatment of all service

providers and users in the payments

system,

• Effective tools for implementing

monetary policy, and

• Low transaction costs in the

Treasury securities market.

The task force recognized that the

pursuit of these objectives might, at

times, result in competing policy goals,

and that policy options would need to

be evaluated on the basis of whether

they achieved an appropriate balance of

the objectives. In particular, a policy

might need to balance considerations of

direct risks to the Federal Reserve, on

the one hand, and systemic risks on the

other.

After completion of the two studies,

the Board sought public comment on

the issues associated with charging fees

for daylight overdrafts, along with a

number of other issues relating to its

payments system risk program. The

Board abolished cross-system net debit

caps, but retained caps on overdrafts in

Federal Reserve accounts, effective in

1991 (55 FR 22087, May 31, 1990). In

1992, the Board announced its intention

to charge fees for daylight overdrafts (57

FR 47084, October 14, 1992). The Board

also announced that the fee would be

phased in so the Board could monitor

the impact of the fee and make

adjustments, if necessary.

The current effective daily fee of 10

basis points was implemented on April

14, 1994. Under the policy adopted in

1992, the fee is scheduled to increase to

20 basis points on April 13, 1995, and

to 25 basis points on April 11, 1996.

(The annual rate charged for daylight

overdrafts is quoted on the basis of a

360-day year and a 24-hour day. The

annual rates are officially quoted as 24,

48, and 60 basis points. The annual rate

is converted to an effective daily rate by

multiplying it by the fraction of the day

that the Fedwire funds transfer system

operates, currently 10 hours out of 24.

This document will refer to the effective

daily rates, because they are commonly

used in public discussions of the

daylight overdraft fee.)

II. Impact of the Initial Daylight

Overdraft Fee

In the aggregate, daylight overdrafts in

Federal Reserve accounts have fallen by

roughly 40 percent in response to the

initial 10-basis-point fee. Significant

reductions in overdrafts occurred

immediately upon implementation of

fees, and the resulting levels of

overdrafts have remained fairly constant

since that time. Peak overdrafts, defined

as the maximum aggregate daylight

overdraft at the end of each minute

during an operating day, have fallen

from $124 billion, on average, during

the six months before implementation of

fees, to $70 billion, on average, from

April 14 through the last reserve

maintenance period in 1994. Over the

same period, aggregate per-minute

average overdrafts, the base measure

upon which fees are assessed, dropped

from $70 billion to $43 billion. These

figures represent reductions of 43

percent and 39 percent respectively, in

aggregate peak and per-minute average

overdrafts.
12560 Federal Register / Vol. 60, No. 44 / Tuesday, March 7, 1995 / Notices

1One exception is a procedural change

implemented in response to daylight overdraft fees

by the Participants Trust Company to permit partial

disbursement of principal and interest payments on

securities held at the depository to its participants

earlier in the day.

The reduction in overdrafts has been

concentrated among a few institutions.

For the six institutions with the largest

daylight overdrafts (per-minute average

overdrafts since April 14, 1994, of at

least $1 billion), average overdrafts have

fallen by $25 billion overall, or 48

percent. This decline represents 97

percent of the total reduction in perminute average overdrafts. In contrast,

44 institutions with overdrafts between

$100 million and $1 billion had

increased overdrafts, on average, with

the implementation of fees. Thus,

daylight overdraft fees appear to have

resulted in a reduction in daylight

overdrafts in the aggregate, as well as a

reallocation of daylight overdrafts

among institutions.

A large portion of the reduction in

overdraft levels observed since April

has been related to securities-transfer

activity on Fedwire. Average securitiesrelated daylight overdrafts in Federal

Reserve accounts have decreased by 47

percent since implementation of

daylight overdraft fees. By contrast,

average Fedwire-funds-related and nonFedwire-related daylight overdrafts

combined have decreased by 26 percent.

III. Impact on the Financial Markets

Government Securities Market

The significant reduction in

overdrafts related to securities-transfer

activity is due primarily to changes in

settlement patterns in the government

securities market, in particular the

overnight repurchase agreement (RP)

market, and to the concentration of

government securities clearing services

among a few institutions—the securities

clearing banks. Typically, securities

dealers finance their inventories of

government securities through overnight

RPs with institutional investors, who

exchange cash for securities and hold

the securities overnight in accounts at

custodian depository institutions. These

securities are usually returned on

Fedwire to the dealers’ clearing banks

by the custodian banks at the opening

of business. Because funds are

simultaneously debited from the

clearing banks’ accounts when the

securities are transferred on Fedwire,

substantial overdrafts are created in the

clearing banks’ accounts at the Federal

Reserve. Overdrafts persist until new

RPs are arranged and settled by

deliveries of securities out of accounts

at the securities clearing banks later in

the day. Before implementation of

daylight overdraft fees, these overdrafts

typically reached a peak at around 11:00

a.m. ET.

The concentration of RP clearing

activity at the securities clearing banks,

along with the substantial associated

daylight overdrafts, led these

institutions to expect sizeable daylight

overdraft charges. As a result, they

developed automated systems to

allocate daylight overdraft charges to the

customers whose RP activity generated

the overdrafts. Thus, strong incentives

were created for securities dealers to

modify RP trading and settlement

practices in order to minimize charges

assessed by the clearing banks.

Since the implementation of daylight

overdraft fees, securities dealers have

accelerated the morning practice of

arranging RPs, as well as the

identification and pricing of the related

RP securities. This practice has

significantly improved the speed with

which securities are delivered to RP

counterparties, thereby shifting funds

back to the clearing banks earlier in the

day and reducing their average

overdrafts at the Reserve Banks. In the

aggregate, securities-related overdrafts

now reach their maximum much earlier

in the morning, at roughly 9:30 a.m. ET,

and the largest overdrafts persist for a

shorter time.

The decrease in securities-related

daylight overdrafts may also be

attributable, in part, to an increase in triparty repurchase agreement activity. In

a tri-party RP, both parties hold

securities through a common securities

custodian, and the transfer of RP

securities is executed on the books of

the custodian rather than on Fedwire.

Tri-party RPs may reduce daylight

overdrafts if funds are also maintained

at the custodian institution and not

returned to investors on Fedwire during

the day. Although no statistics are

available on tri-party RP volume, major

institutions have reported a large

increase in tri-party RPs as a result of

daylight overdraft fees. It should be

noted, however, that steady growth in

tri-party volume had been reported even

before implementation of fees.

Other Markets and Transactions

Daylight overdrafts related to Fedwire

funds transfers are more widely

dispersed across depository institutions,

are generated by settlement practices

associated with a variety of market

activities, and are characterized by a

much different intraday pattern than

those related to securities transfers. The

largest aggregate funds-related

overdrafts occur between the hours of

12:30 p.m. and 4:30 p.m. ET, with the

intraday peak generally occurring at

around 2:30 p.m. This period

corresponds to the current settlement

timing conventions, or ‘‘window,’’ for

federal funds contracts in which

overnight borrowings are repaid in the

morning and the proceeds from new

contracts are received in the afternoon.

In addition, it is during the midafternoon period that other payment

systems, such as securities depositories,

impose the greatest settlement funding

requirements on their members, further

contributing to funds-related overdrafts

in accounts at Reserve Banks.

Because funds-related overdrafts and

associated daylight overdraft charges are

widely dispersed among institutions,

the incentives to change market

conventions or risk disrupting customer

relationships are much smaller in the

funds markets than in the securities

markets.1 As a result, the intraday

patterns of settlements that use the

Fedwire funds transfer service as well as

funds-related overdrafts have remained

largely unchanged. Further, the

aggregate level of funds-related

overdrafts has been reduced only

moderately.

When the Board adopted the daylight

overdraft fee policy in 1992, it identified

a number of measures that institutions

might take to reduce funds-related

overdrafts. These included delays of less

time-critical funds transfers, a shift of

funds transfer activity from Fedwire to

CHIPS, increased netting of funding

contracts, the development of an

intraday funds market, and the use of

time-specific deliveries of funds.

So far, these potential responses

appear to have been implemented only

to a limited degree. First, only four to

five percent of daily Fedwire funds

transfer value has shifted from before

noon to later in the day, with a

negligible impact on transfer volume.

Second, discussions with market

participants indicate that few

institutions have shifted payments from

Fedwire to CHIPS. Third, anecdotal

evidence suggests that institutions have

increased somewhat their use of netting

for overnight federal funds contracts, yet

it is unclear whether the increase is the

result of daylight overdraft fees or other

developments in the funds markets.

Anecdotal evidence also suggests that

institutions have increased their use of

term federal funds contracts, although

market participants suggest this increase

may be related more to interest rate

developments than to daylight overdraft

fees. Finally, neither an intraday market

nor a significant increase in the timespecific delivery of funds has

materialized since the implementation

of daylight overdraft fees.
Federal Register / Vol. 60, No. 44 / Tuesday, March 7, 1995 / Notices 12561

2 In the extreme, delays could ultimately result in

payment ‘‘gridlock’’ as each institution, in order to

avoid daylight overdraft fees, awaits incoming

payments before initiating its own payments.

IV. Fee Options Considered by the

Board

In keeping with its policy of

monitoring the impact of the fee during

the phase-in period and adjusting it, if

necessary, the Board considered three

options for the next phase of the

daylight overdraft fee: increase the fee to

20 basis points as scheduled, leave the

fee at 10 basis points, or increase the fee

to an intermediate level of 15 basis

points for at least two years.

Increase the Fee to 20 Basis Points as

Announced

By most accounts, the implementation

of the initial daylight overdraft fee has

been a success. The 10-basis-point fee

dramatically reduced the aggregate

amount of daylight credit provided by

the Federal Reserve, along with the

associated direct credit risk, with little

disruption in the financial sector. The

fact that such a large reduction in

overdrafts was possible as a result of a

small fee suggests that the economic

inefficiencies created by the provision

of free daylight credit were substantial.

The Board believes that a further

increase in the fee will tend to reduce

or eliminate any remaining subsidies

associated with Federal Reserve

daylight credit and reduce inefficiencies

in the use of such credit.

The Board considered that

implementation of the previously

announced increase in the fee to 20

basis points might prompt institutions

to take additional steps to improve

payment practices and reduce the use of

daylight credit along with associated

credit risks. The Board also believes,

however, that an increase in the fee to

20 basis points at this time could

increase the probability of undesirable

market effects contrary to the objectives

of the Board’s risk-control program.

Perhaps the overriding concern is the

potential for increases in systemic risk.

The Board believes that systemic risk

could increase if the higher fee were to

induce a significant shift of payment

activity from Fedwire, where transfers

are immediately final and credit risk is

absorbed and controlled by the central

bank, to private systems, where

payments are often provisional, risks are

less transparent, and, in some cases,

risks may not be fully controlled.

A significant shift in transfer volume

from Fedwire to CHIPS, for example,

would be more likely to occur with a

higher fee. Such a shift could increase

systemic risk somewhat even though

elaborate risk controls have been

installed on CHIPS. The extent to which

funds transfer volume would shift from

Fedwire to CHIPS, however, is

uncertain. CHIPS has historically been

used primarily to settle international

transactions, yet CHIPS participants

might begin to use CHIPS routinely for

domestic as well as international funds

transfers. In the longer term, CHIPS

potentially could attract additional

members and significantly increase the

scale of its domestic funds transfer

activities.

Industry participants have also

suggested that the automated clearing

house (ACH) system, typically

associated with small-dollar transfers,

could be used to make large-dollar

payments traditionally made on

Fedwire. Such a shift could increase

systemic risk, because credit transfers

made through ACH systems are

provisional payments and real-time risk

controls may be difficult to implement.

Anecdotal evidence suggests that, so far,

there has been a small increase in the

use of the ACH system for large-dollar

payments.

There is also an increased likelihood

that a higher daylight overdraft fee

could prompt a shift in securities

transfer activity from Fedwire to private

securities depositories and the securities

clearing banks. For example, in 1994 the

Participants Trust Company (PTC)

announced an initiative to make certain

mortgage-backed federal agency

securities eligible for its system. Also in

1994, the Depository Trust Company

(DTC) issued a study of the feasibility of

expanding its services to include U.S.

government and federal agency

securities, including mortgage-backed

securities, in its same-day funds

settlement securities system. In

addition, the securities clearing banks

might seek the custodial business of

large institutional investors, who tend to

hold large intraday funds balances, in

order to increase tri-party RP volume

and reduce daylight overdraft charges.

The result of these potential

developments could be an increased

concentration of collateral, clearing, and

deposit risks at private securities

depositories and the clearing banks.

The probability that funds and

securities transfer activity would move

off Fedwire is influenced by both cost

and risk considerations. CHIPS, PTC

and DTC incorporate net debit caps and

collateralization requirements as part of

their risk management systems. As a

result, participants in these systems

would have to weigh the costs of

posting additional collateral to support

additional payment activity against the

costs of incurring daylight overdrafts in

Federal Reserve accounts, as well as

other factors such as settlement speed

and finality. In the case of tri-party RPs,

the large institutional RP counterparties

are likely to be aware of the custodial

risks in tri-party RPs and might demand

a higher return for tri-party RPs as a

result. If so, the premium for these triparty RPs might be more costly to

dealers than daylight overdraft charges.

In addition to possible increases in

systemic risk, a higher daylight

overdraft fee could cause further delays

in Fedwire funds transfers.2

Furthermore, if payment volume moves

to later in the day, there is less time

available for institutions to recover from

unforeseen operational problems and

meet settlement obligations by the end

of the banking day. As noted earlier,

however, there has been only a modest

shift in payments to later in the day

with the 10-basis-point fee, and it

remains unclear at what level the fee

might cause excessive payment delays

or disruptions in the financial sector.

The Board also considered the

potential for detrimental effects on the

government securities market from a 20-

basis-point fee. The Public Securities

Association (PSA) has stated publicly

that all possible low-cost behavioral

changes in the government securities

markets to reduce overdrafts have

already been made. The PSA expects

that increases in costs to securities

dealers from a higher daylight overdraft

fee would ultimately be passed on to the

Treasury in the form of higher

borrowing costs, without any further

reduction in overdrafts.

It should be recognized, however, that

the costs incurred so far by the

securities dealers have largely been

fixed costs to upgrade systems that will

not be incurred again. Furthermore, the

incremental impact of increased costs

that might result from a higher daylight

overdraft fee is quite small relative to

the tick size in the auctions or

secondary market for U.S. Government

and federal agency securities. Also,

Federal Reserve daylight overdraft

charges passed through by the clearing

banks to the dealers would ultimately be

recouped by the Treasury through the

Federal Reserve’s payment to the

Treasury of its net earnings.

Maintain the Fee at 10 Basis Points

The Board considered maintaining the

fee at 10 basis points based on the

significant reductions in daylight

overdrafts that have already occurred

and concerns about undesirable

systemic risks that might result from a

higher fee. The Board decided that if the

fee were not increased, there would be
12562 Federal Register / Vol. 60, No. 44 / Tuesday, March 7, 1995 / Notices

3These policies include those for private largedollar multilateral netting systems and private

delivery-against-payment securities systems (54 FR

26092, 26104, June 21, 1989). In addition, in 1991,

the New York Clearing House adopted changes to

the CHIPS rules designed to enhance the assurances

of settlement through the use of loss sharing and

collateral requirements.

4These procedures are described in the Board’s

policy statement ‘‘The Federal Reserve in the

Payments System,’’ as revised in March 1990. (55

FR 11648, March 29, 1990).

very limited incentives for additional

reductions in daylight overdrafts and

credit risk. Furthermore, the Board was

concerned that the momentum in the

financial markets for the serious review

and improvement of payment and

settlement conventions might be lost if

the fee were not increased.

Increase the Fee to 15 Basis Points for

at Least Two Years

The Board’s decision to increase the

fee to 15 rather than 20 basis points was

based on three primary considerations.

First, as noted above, the response by

depository institutions and securities

dealers to the 10-basis-point fee has

improved RP settlement practices and

has reduced significantly the use of

Federal Reserve securities-related

daylight credit, which before

implementation of daylight overdraft

fees constituted a large and growing

portion of total daylight credit. The

strong response in securities markets

eases the need for sizeable increases in

daylight overdraft fees over the next two

years. Instead, a more limited increase

to 15 basis points would provide

incentives for additional improvements

in securities settlements, while limiting

increases in daylight overdraft charges

borne by securities market participants.

The improvements in settlement

practices might include the use of timespecific deliveries of RP securities and

the greater use of netting contracts

between counterparties, where

appropriate. Allowing two years before

considering additional fee increases will

permit sufficient time for the study of

other potential changes in market

conventions that could help reduce

securities-related daylight overdrafts.

Second, the Board believes that an

increase in the daylight overdraft fee to

15 basis points will provide additional

incentives for participants in funds

markets to evaluate and modify

payment practices that create daylight

overdrafts. As discussed earlier, the

responses in funds markets that the

Board anticipated when it originally

adopted the fee policy have not

occurred to a significant degree. The

uncertainty about the strength of the

market response to daylight overdraft

fees at various fee levels was one of the

reasons that the Board announced that

fees would be phased-in beginning at 10

basis points. The lack of significant

response in the funds markets suggests

that there is still room for improvements

in funding and settlement practices and

reductions in daylight overdrafts.

Improvements in funding practices

might include the greater use of

‘‘rollovers,’’ ‘‘continuing contracts,’’ or

‘‘term contracts’’ for federal funds

transactions, where appropriate.

Further, the Payments Risk Committee,

a committee of representatives from a

selection of large U.S. depository

institutions, has suggested that a higher

fee may prompt the market to study

changes in federal funds and other

settlement timing conventions that

contribute to a large portion of the

aggregate level of daylight overdrafts.

Also, a higher fee may prompt

institutions to take measures to reduce

daylight overdrafts related to customer

payment activity.

Third, the Board believes that

concerns about systemic risk argue for a

more gradual approach to raising

daylight overdraft fees. It is important to

note that the Board has taken a number

of steps to limit systemic risks in the

payments system, including adopting

policies that apply to private-sector

payment networks.3 Most recently, the

Board adopted a revised policy

statement on risks in large-dollar

multilateral netting systems (59 FR

67534, December 29, 1994). This policy

statement applied the Lamfalussy

minimum standards for netting

arrangements to domestic as well as offshore multilateral netting systems that

clear U.S. dollar payments. At the same

time, the Board announced that the staff

would continue to study systemic risks

in small-dollar payment systems, such

as check and ACH clearing systems, as

well as the need for any public policy

changes in this area.

Thus, at this time, a limited increase

in the daylight overdraft fee,

particularly an increase to 15 basis

points instead of 20 basis points, is

likely to create very little incremental

systemic risk in private-sector payment

systems. In case greater concerns

develop regarding systemic risks, the

Board retains the option of reducing

daylight overdraft fees and taking other

appropriate measures to help limit such

risks.

The Board believes that the daylight

overdraft fee program has been an

important part of efforts by both the

Board and the private sector over a

number of years to reduce risk in the

payments system. The fundamental

theory of charging fees has been that

cost-effective behavioral changes to

reduce risks would be taken by

depository institutions and their

customers if modest fees were charged

for daylight credit. Some changes in

payment practices have already taken

place, and additional changes appear to

be possible. Thus, the Board believes a

modest increase in the daylight

overdraft fee at this time will continue

to encourage private-sector efforts to

reduce risks and to improve efficiency

in the nation’s payment and settlement

systems.

V. Competitive Impact Analysis

The Board has established procedures

for assessing the competitive impact of

rule or policy changes that have a

substantial impact on payments system

participants.4 Under these procedures,

the Board will assess whether a change

would have a direct and material

adverse effect on the ability of other

service providers to compete efficiently

with the Federal Reserve in providing

similar services due to differing legal

powers or constraints, or due to a

dominant market position of the Federal

Reserve deriving from such differences.

If no reasonable modifications would

mitigate the adverse competitive effects,

the Board will determine whether the

anticipated benefits are significant

enough to proceed with the change

despite the adverse effects.

As noted in the Board’s 1992

announcement of the daylight overdraft

fee policy, the Board does not believe

that imposition of daylight overdraft

fees adversely affects the ability of

private-sector payments system

participants to compete with the

Reserve Banks in providing payments

services. Private-sector correspondent

banks have the ability to charge for

intraday credit extended to their

customers, either explicitly (as do the

Reserve Banks) or implicitly as part of

overall service fees. The Board stated in

1992 that private-sector payment

systems might benefit from daylight

overdraft fees, if the fee caused

institutions to shift payments from the

Federal Reserve to private systems in

order to avoid daylight overdraft fees.

Although the shift to private systems

might not be as large under a 15-basispoint fee as under a 20-basis-point fee,

the Board believes that the lower fee

might still produce payment shifts, as

discussed in the supplementary

information above, as well as a reduced

cost burden for private-sector payments

system participants.

VI. Administrative Procedure Act

The notice and comment

requirements of the Administrative
Federal Register / Vol. 60, No. 44 / Tuesday, March 7, 1995 / Notices 12563

Procedure Act (‘‘APA’’) do not apply to

matters relating to ‘‘public property,

loans, grants, or contracts.’’ (5 U.S.C.

553(a)(2)) The daylight overdraft fee

relates to ‘‘loans,’’ in that the fee is for

an extension of intraday credit by

Federal Reserve Banks, and ‘‘contracts,’’

in that the fee is part of an agreement

between institutions and the Federal

Reserve Banks for the provision of

Reserve Bank payment services.

Therefore, the APA does not require the

Board to seek notice and comment on

the fee revision.

Additionally, the Board finds for good

cause that notice and comment on the

fee revision is unnecessary, in

accordance with 5 U.S.C. 553(b)(B). The

Board originally adopted a policy, after

notice and comment, to implement an

annual fee of 48 basis points (equivalent

to 20 basis points for a 10-hour Fedwire

day) on April 13, 1995. The Board’s

action today will reduce the previously

announced 1995 fee to an annual rate of

36 basis points (equivalent to 15 basis

points for a 10-hour Fedwire day.)

Because the Board’s action reduces

burden on affected institutions

compared to the previously announced

policy, the Board believes that seeking

additional comment on this action is

unnecessary.

VII. Policy Statement

The Board has adopted the following

change in its policy statement that will

replace paragraphs two and three of part

(I)(B) in its ‘‘Federal Reserve Policy

Statement on Payments System Risk’’

under headings ‘‘I. Federal Reserve

Policy’’ and ‘‘B. Pricing’’:

The overdraft fee is 36 basis points

(annual rate), quoted on the basis of a

24-hour day. To obtain the daily

overdraft fee (annual rate) for the

standard Fedwire operating day, the

quoted 36-basis-point fee is multiplied

by the fraction of a 24-hour day during

which Fedwire is scheduled to operate.

For example, under a 10-hour scheduled

Fedwire operating day, the overdraft fee

equals 15 basis points (36 basis points

multiplied by 10/24). The 36-basis-point

fee is effective April 13, 1995.

The 36-basis-point fee (times an

operating hour fraction) will be in effect

for at least two years. A change in the

length of the scheduled Fedwire

operating day would not change the

effective fee because the fee is applied

to average overdrafts which, in turn,

would be deflated by the change in the

operating day. The Board will evaluate

the desirability of an increase in the

daylight overdraft fee, based on the

objectives of the payments system risk

program, two years after the

implementation of the 36-basis-point

fee. Any changes in the fee resulting

from that review will be announced

with a reasonable lead-time for

implementation.

By order of the Board of Governors of the

Federal Reserve System, March 2, 1995.

William W. Wiles,

Secretary of the Board.

[FR Doc. 95–5530 Filed 3–6–95; 8:45 am]

BILLING CODE 6210–01–P

Brill Bancshares, Inc., et al.;

Formations of; Acquisitions by; and

Mergers of Bank Holding Companies

The companies listed in this notice

have applied for the Board’s approval

under section 3 of the Bank Holding

Company Act (12 U.S.C. 1842) and §

225.14 of the Board’s Regulation Y (12

CFR 225.14) to become a bank holding

company or to acquire a bank or bank

holding company. The factors that are

considered in acting on the applications

are set forth in section 3(c) of the Act

(12 U.S.C. 1842(c)).

Each application is available for

immediate inspection at the Federal

Reserve Bank indicated. Once the

application has been accepted for

processing, it will also be available for

inspection at the offices of the Board of

Governors. Interested persons may

express their views in writing to the

Reserve Bank or to the offices of the

Board of Governors. Any comment on

an application that requests a hearing

must include a statement of why a

written presentation would not suffice

in lieu of a hearing, identifying

specifically any questions of fact that

are in dispute and summarizing the

evidence that would be presented at a

hearing.

Unless otherwise noted, comments

regarding each of these applications

must be received not later than March

31, 1995.

A. Federal Reserve Bank of

Minneapolis (James M. Lyon, Vice

President) 250 Marquette Avenue,

Minneapolis, Minnesota 55480:

1. Brill Bancshares, Inc., Brill,

Wisconsin; to become a bank holding

company by acquiring 80.11 percent of

the voting shares of Brill State Bank,

Brill, Wisconsin.

2. First Community Bank Group, Inc.,

and Todd County Agency, Inc., both of

Hopkins, Minnesota; to acquire a total of

100 percent of the voting shares of

Citizens State Bank of Barrett, Barrett,

Minnesota.

Board of Governors of the Federal Reserve

System, March 1, 1995.

Jennifer J. Johnson,

Deputy Secretary of the Board.

[FR Doc. 95–5488 Filed 3–6–95; 8:45 am]

BILLING CODE 6210–01–F

First Farmers Bancshares, Inc.; Notice

of Application to Engage de novo in

Permissible Nonbanking Activities

The company listed in this notice has

filed an application under § 225.23(a)(1)

of the Board’s Regulation Y (12 CFR

225.23(a)(1)) for the Board’s approval

under section 4(c)(8) of the Bank

Holding Company Act (12 U.S.C.

1843(c)(8)) and § 225.21(a) of Regulation

Y (12 CFR 225.21(a)) to commence or to

engage de novo, either directly or

through a subsidiary, in a nonbanking

activity that is listed in § 225.25 of

Regulation Y as closely related to

banking and permissible for bank

holding companies. Unless otherwise

noted, such activities will be conducted

throughout the United States.

The application is available for

immediate inspection at the Federal

Reserve Bank indicated. Once the

application has been accepted for

processing, it will also be available for

inspection at the offices of the Board of

Governors. Interested persons may

express their views in writing on the

question whether consummation of the

proposal can ‘‘reasonably be expected to

produce benefits to the public, such as

greater convenience, increased

competition, or gains in efficiency, that

outweigh possible adverse effects, such

as undue concentration of resources,

decreased or unfair competition,

conflicts of interests, or unsound

banking practices.’’ Any request for a

hearing on this question must be

accompanied by a statement of the

reasons a written presentation would

not suffice in lieu of a hearing,

identifying specifically any questions of

fact that are in dispute, summarizing the

evidence that would be presented at a

hearing, and indicating how the party

commenting would be aggrieved by

approval of the proposal.

Comments regarding the application

must be received at the Reserve Bank

indicated or the offices of the Board of

Governors not later than March 21,

1995.

A. Federal Reserve Bank of Atlanta

(Zane R. Kelley, Vice President) 104

Marietta Street, N.W., Atlanta, Georgia

30303:

1. First Farmers Bancshares, Inc.,

Portland, Tennessee; to engage de novo

through its subsidiary Tennessee

Business and Industrial Development