This section of the FEDERAL REGISTER

contains regulatory documents having general

applicability and legal effect, most of which

are keyed to and codified in the Code of

Federal Regulations, which is published under

50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by

the Superintendent of Documents. Prices of

new books are listed in the first FEDERAL

REGISTER issue of each week.

Rules and Regulations Federal Register

59479 

Vol. 73, No. 197 

Thursday, October 9, 2008 

DEPARTMENT OF AGRICULTURE 

Agricultural Marketing Service 

7 CFR Part 205 

[Docket Number AMS–TM–07–0124; TM–07– 

12FR] 

RIN 0581–AC76 

National Organic Program (NOP), 

Sunset Review (2008) 

AGENCY: Agricultural Marketing Service, 

USDA. 

ACTION: Final rule. 

SUMMARY: This final rule amends the 

U.S. Department of Agriculture’s 

(USDA) National List of Allowed and 

Prohibited Substances (National List) 

regulations to enact recommendations 

submitted to the Secretary of 

Agriculture (Secretary) by the National 

Organic Standards Board (NOSB). The 

amendments addressed in this final rule 

pertain to the continued exemption 

(use) and prohibition of 12 substances 

in organic production and handling. 

Consistent with the recommendations 

from the NOSB, this final rule renews 

11 exemptions and 1 prohibition on the 

National List (along with any restrictive 

annotations) and corrects the Tartaric 

acid listings by adding annotations 

originally recommended to the 

Secretary. 

DATES: Effective Date: This final rule 

becomes effective November 3, 2008. 

FOR FURTHER INFORMATION CONTACT: 

Richard H. Mathews, Chief, Standards 

Development and Review Branch, 

Telephone: (202) 720–3252; Fax: (202) 

205–7808. 

SUPPLEMENTARY INFORMATION: 

I. Background 

The Organic Foods Production Act 

(OFPA), 7 U.S.C. 6501 et seq., 

authorizes the establishment of the 

National List of allowed and prohibited 

substances. The National List identifies 

synthetic substances (synthetics) that 

are exempted (allowed) and 

nonsynthetic substances (nonsynthetics) 

that are prohibited in organic crop and 

livestock production. The National List 

also identifies nonsynthetics and 

synthetics that are exempted for use in 

organic handling. 

The exemptions and prohibitions 

granted under the OFPA are required to 

be reviewed every 5 years by the NOSB. 

The Secretary of Agriculture has 

authority under the OFPA to renew 

such exemptions and prohibitions. If 

they are not reviewed by the NOSB 

within 5 years of their inclusion on the 

National List and renewed by the 

Secretary, their authorized use or 

prohibition expires. This means that 

synthetic substances Copper sulfate, 

Ozone gas, Peracetic acid, and EPA List 

3 Inerts, currently allowed for use in 

organic crop production, will no longer 

be allowed for use after November 3, 

2008. Calcium chloride currently 

prohibited from use in organic crop 

production, except as a foliar spray to 

treat a physiological disorder associated 

with calcium uptake, will be allowed 

after November 3, 2008. This also means 

that Agar-agar, Carrageenan, and 

Tartaric acid, currently allowed for use 

in organic handling, will be prohibited 

after November 3, 2008. Finally, Animal 

enzymes, Calcium sulfate, Glucono 

delta-lactone, and Cellulose, currently 

allowed for use in organic handling, 

will no longer be allowed for use after 

November 4, 2008. 

This final rule reflects 

recommendations submitted to the 

Secretary by the NOSB concerning the 

continued use and prohibition of 12 

substances on the National List in 

organic production and handling. 

Consistent with the recommendations 

from the NOSB, this final rule renews 

11 exemptions and 1 prohibition on the 

National List (along with any restrictive 

annotations) and corrects the Tartaric 

acid listings by adding annotations 

originally recommended to the 

Secretary on November 1, 1995. 

Under the authority of the OFPA, as 

amended, (7 U.S.C. 6501 et seq.), the 

National List can be amended by the 

Secretary based on proposed 

amendments developed by the NOSB. 

Since established, the National List has 

been amended ten times, October 31, 

2003 (68 FR 61987), November 3, 2003 

(68 FR 62215), October 21, 2005 (70 CFR 

61217), June 7, 2006 (71 FR 32803), 

September 11, 2006 (71 FR 53299), June 

27, 2007 (72 FR 35137), October 16, 

2007 (72 FR 58469), December 10, 2007 

(72 FR 69569), December 12, 2007 (72 

FR 70479), and September 18, 2008 (73 

FR 54057). 

II. Overview of Amendments 

The following provides an overview 

of the amendments made to designated 

sections of the National List regulations: 

Renewals 

This final rule renews the 11 

exemptions and 1 prohibition in 7 CFR 

205.601, 205.602, and 205.605 of the 

following substances in organic 

agricultural production and handling 

and amends the USDA’s national 

regulations (7 CFR part 205) to add 

annotations to the Tartaric acid listings 

of § 205.605: 

Section 205.601 Synthetic Substances 

Allowed for Use in Organic Crop 

Production 

(a) As algicide, disinfectants, and 

sanitizer, including irrigation system 

cleaning systems. 

(3) Copper sulfate—for use as an 

algicide in aquatic rice systems, is 

limited to one application per field 

during any 24-month period. 

Application rates are limited to those 

which do not increase baseline soil test 

values for copper over a timeframe 

agreed upon by the producer and 

accredited certifying agent. 

(5) Ozone gas—for use as an irrigation 

system cleaner only. 

(6) Peracetic acid—for use in 

disinfecting equipment, seed, and 

asexually propagated planting material. 

(e) As insecticides (including 

acaricides or mite control). 

(3) Copper Sulfate—for use as tadpole 

shrimp control in aquatic rice 

production, is limited to one application 

per field during any 24-month period. 

Application rates are limited to levels 

which do not increase baseline soil test 

values for copper over a timeframe 

agreed upon by the producer and 

accredited certifying agent. 

(i) As plant disease control. 

(7) Peracetic acid—for use to control 

fire blight bacteria. 

(m) As synthetic inert ingredients as 

classified by the Environmental 

Protection Agency (EPA), for use with 

nonsynthetic substances or synthetic 


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59480 Federal Register / Vol. 73, No. 197 / Thursday, October 9, 2008 / Rules and Regulations 

substances listed in this section and 

used as an active pesticide ingredient in 

accordance with any limitations on the 

use of such substances. 

(2) EPA List 3—Inerts of unknown 

toxicity allowed: 

(ii) Inerts used in passive pheromone 

dispensers. 

Section 205.602 Nonsynthetic 

Substances Prohibited for Use in 

Organic Crop Production 

(c) Calcium chloride, brine process is 

natural and prohibited for use except as 

a foliar spray to treat a physiological 

disorder associated with calcium 

uptake. 

Section 205.605 Nonagricultural 

(Nonorganic) Substances Allowed as 

Ingredients in or on Processed Products 

Labeled as ‘‘Organic’’ or ‘‘Made with 

Organic (Specified Ingredients or Food 

Group(s))’’ 

(a) Nonsynthetics allowed: 

Agar-agar. 

Animal enzymes—(Rennet—animals 

derived; Catalase—bovine liver; Animal 

lipase; Pancreatin; Pepsin; and Trypsin). 

Calcium sulfate—mined. 

Carrageenan. 

Glucono delta-lactone—production by 

the oxidation of D-glucose with bromine 

water is prohibited. 

Tartaric acid—made from grape wine. 

(b) Synthetics allowed: 

Cellulose—for use in regenerative 

casings, as an anti-caking agent (nonchlorine bleached) and filtering aid. 

Tartaric acid—made from malic acid. 

Nonrenewals 

The NOSB determined that the 11 

exemptions and 1 prohibition 

demonstrated a continued need for 

authorization. Comments received on 

the proposed rule (73 FR 40194) 

supported renewal of the 11 exemptions 

and 1 prohibition. Accordingly there are 

no nonrenewals. 

Technical Correction 

This final rule amends § 205.605(a) by 

changing ‘‘Carageenan’’ to 

‘‘Carrageenan’’ to correct the spelling of 

this allowed substance. 

III. Related Documents 

One advanced notice of proposed 

rulemaking with request for comments 

was published in Federal Register 

Notice 72 FR 73667, December 28, 2007, 

to make the public aware that the 

allowances and prohibition among 12 

synthetic and nonsynthetic substances 

in organic production and handling will 

expire, if not reviewed by the NOSB and 

renewed by the Secretary. The proposed 

rule for this final rule was published on 

July 14, 2008 (73 FR 40194). 

IV. Statutory and Regulatory Authority 

The OFPA, as amended (7 U.S.C. 6501 

et. seq.), authorizes the Secretary to 

make amendments to the National List 

based on proposed amendments 

developed by the NOSB. Sections 

6518(k)(2) and 6518(n) of OFPA 

authorize the NOSB to develop 

proposed amendments to the National 

List for submission to the Secretary and 

establish a petition process by which 

persons may petition the NOSB for the 

purpose of having substances evaluated 

for inclusion on or deletion from the 

National List. The National List petition 

process is implemented under § 205.607 

of the NOP regulations. The current 

petition process (72 FR 2167, January 

18, 2007) can be accessed through the 

NOP Web site at http://www.ams.usda.

gov/AMSv1.0/getfile?dDocName=

STELPRDC5048809&acct=nopgeninfo. 

A. Executive Order 12866 

This action has been determined not 

significant for purposes of Executive 

Order 12866, and therefore, has not 

been reviewed by the Office of 

Management and Budget. 

B. Executive Order 12988 

Executive Order 12988 instructs each 

executive agency to adhere to certain 

requirements in the development of new 

and revised regulations in order to avoid 

unduly burdening the court system. 

This final rule is not intended to have 

a retroactive effect. 

States and local jurisdictions are 

preempted under the OFPA from 

creating programs of accreditation for 

private persons or State officials who 

want to become certifying agents of 

organic farms or handling operations. A 

governing State official would have to 

apply to USDA to be accredited as a 

certifying agent, as described in 

§ 2115(b) of the OFPA (7 U.S.C. 

6514(b)). States are also preempted 

under §§ 2104 through 2108 of the 

OFPA (7 U.S.C. 6503 through 6507) 

from creating certification programs to 

certify organic farms or handling 

operations unless the State programs 

have been submitted to, and approved 

by, the Secretary as meeting the 

requirements of the OFPA. 

Pursuant to section 2108(b)(2) of the 

OFPA (7 U.S.C. 6507(b)(2)), a State 

organic certification program may 

contain additional requirements for the 

production and handling of organically 

produced agricultural products that are 

produced in the State and for the 

certification of organic farm and 

handling operations located within the 

State under certain circumstances. Such 

additional requirements must: (a) 

Further the purposes of the OFPA, (b) 

not be inconsistent with the OFPA, (c) 

not be discriminatory toward 

agricultural commodities organically 

produced in other States, and (d) not be 

effective until approved by the 

Secretary. 

Pursuant to section 2120(f) of the 

OFPA (7 U.S.C. 6519(f)), this final rule 

would not alter the authority of the 

Secretary under the Federal Meat 

Inspection Act (21 U.S.C. 601 et seq.), 

the Poultry Products Inspections Act (21 

U.S.C. 451 et seq.), or the Egg Products 

Inspection Act (21 U.S.C. 1031 et seq.), 

concerning meat, poultry, and egg 

products, nor any of the authorities of 

the Secretary of Health and Human 

Services under the Federal Food, Drug 

and Cosmetic Act (21 U.S.C. 301 et 

seq.), nor the authority of the 

Administrator of EPA under the Federal 

Insecticide, Fungicide and Rodenticide 

Act (7 U.S.C. 136 et seq.). 

Section 2121 of the OFPA (7 U.S.C. 

6520) provides for the Secretary to 

establish an expedited administrative 

appeals procedure under which persons 

may appeal an action of the Secretary, 

the applicable governing State official, 

or a certifying agent under this title that 

adversely affects such person or is 

inconsistent with the organic 

certification program established under 

this title. The OFPA also provides that 

the U.S. District Court for the district in 

which a person is located has 

jurisdiction to review the Secretary’s 

decision. 

C. Regulatory Flexibility Act 

The Regulatory Flexibility Act (RFA) 

(5 U.S.C. 601 et seq.) requires agencies 

to consider the economic impact of each 

rule on small entities and evaluate 

alternatives that would accomplish the 

objectives of the rule without unduly 

burdening small entities or erecting 

barriers that would restrict their ability 

to compete in the market The purpose 

is to fit regulatory actions to the scale of 

businesses subject to the action. Section 

605 of the RFA allows an agency to 

certify a rule, in lieu of preparing an 

analysis, if the rulemaking is not 

expected to have a significant economic 

impact on a substantial number of small 

entities. 

Pursuant to the requirements set forth 

in the RFA, the Agricultural Marketing 

Service (AMS) performed an economic 

impact analysis on small entities in the 

final rule published in the Federal 

Register on December 21, 2000 (65 FR 

80548). The AMS has also considered 

the economic impact of this action on 

small entities. The impact on entities 

affected by this final rule would not be 

significant. This action would allow the 


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Federal Register / Vol. 73, No. 197 / Thursday, October 9, 2008 / Rules and Regulations 59481 

continued use of substances currently 

listed for use in organic agricultural 

production and handling. The AMS 

concludes that the economic impact of 

this final rule, if any, would be minimal 

and entirely beneficial to small 

agricultural service firms. Accordingly, 

USDA certifies that this rule will not 

have a significant economic impact on 

a substantial number of small entities. 

Small agricultural service firms, 

which include producers, handlers, and 

accredited certifying agents, have been 

defined by the Small Business 

Administration (SBA) (13 CFR 121.201) 

as those having annual receipts of less 

than $6,500,000 and small agricultural 

producers are defined as those having 

annual receipts of less than $750,000. 

This final rule would have an impact on 

a substantial number of small entities. 

The U.S. organic industry at the end 

of 2001 included nearly 6,949 certified 

organic crop and livestock operations. 

These operations reported certified 

acreage totaling more than 2.09 million 

acres of organic farm production. Data 

on the numbers of certified organic 

handling operations (any operation that 

transforms raw product into processed 

products using organic ingredients) 

were not available at the time of survey 

in 2001; but they were estimated to be 

in the thousands. By the end of 2005, 

the number of U.S. certified organic 

crop, livestock, and handling operations 

totaled about 8,500. Based on 2005 

USDA, Economic Research Service, data 

from USDA-accredited certifying agents, 

U.S. certified organic acreage increased 

to 4 million acres. 

The U.S. sales of organic food and 

beverages have grown from $1 billion in 

1990 to nearly $17 billion in 2006. The 

organic industry is viewed as the fastest 

growing sector of agriculture, currently 

representing nearly 3 percent of overall 

food and beverage sales. Since 1990, 

organic retail sales have historically 

demonstrated a growth rate between 20 

to 24 percent each year including a 22 

percent increase in 2006. 

In addition, USDA has accredited 95 

certifying agents who provide 

certification services to producers and 

handlers. A complete list of names and 

addresses of accredited certifying agents 

may be found on the NOP Web site, at 

http://www.ams.usda.gov/nop. AMS 

believes that most of these entities 

would be considered small entities 

under the criteria established by the 

SBA. 

D. Paperwork Reduction Act 

No additional collection or 

recordkeeping requirements are 

imposed on the public by this final rule. 

Accordingly, OMB clearance is not 

required by section 350(h) of the 

Paperwork Reduction Act of 1995, 44 

U.S.C. 3501, et seq., or OMB’s 

implementing regulation at 5 CFR part 

1320. 

The AMS is committed to compliance 

with the Government Paperwork 

Elimination Act (GPEA), which requires 

Government agencies in general to 

provide the public the option of 

submitting information or transacting 

business electronically to the maximum 

extent possible. 

The AMS is committed to complying 

with the E-Government Act, to promote 

the use of the Internet and other 

information technologies to provide 

increased opportunities for citizen 

access to Government information and 

services, and for other purposes. 

E. Received Comments on Proposed 

Rule AMS–TM–07–0124 

AMS received 13 comments on 

proposed rule AMS–TM–07–0124. 

Twelve of the commenters favored 

renewing the 11 exemptions and 1 

prohibition. The remaining commenter 

did not refer to subjects within the 

scope of this rulemaking. Comments 

were received from consumers, 

handlers, a certifying agent, trade 

associations, an organic association, an 

industry group and ingredient 

manufacturers. Five comments 

indicated blanket support for the 

continued listing of all substances as 

presented in the proposed rule. Some 

commenters specifically supported 

substances that they promote, represent, 

or rely on. Specific support was 

received for the following substances 

(the number in parenthesis represents 

the number of specific support 

comments): Agar-agar (2), animal 

enzymes (1), carrageenan (5), cellulose 

(3), and tartaric acid (1). 

Change Made Based on Comment 

The following change has been made 

based upon a comment received. 

Incorrect annotation for Tartaric acid. 

One commenter noted that the 

annotation for the nonsynthetic form of 

Tartaric acid in the proposed rule was 

inconsistent with the original November 

1, 1995, NOSB recommendation. At the 

May 2008 meeting, the NOSB 

recommended that the Tartaric acid 

listings be corrected to reflect the 

original annotation which had been 

inadvertently excluded from the 

rulemaking. The commenter correctly 

indicated that the NOSB’s original 

recommendation, ‘‘Tartaric acid—made 

from grape wine,’’ was mistakenly listed 

as ‘‘Tartaric acid—made from organic 

grape wine’’ in the proposed rule. We 

have revised the annotation by 

removing the word, ‘‘organic’’ from the 

listing for the nonsynthetic form of 

tartaric acid. 

F. Effective Date 

This final rule reflects 

recommendations submitted to the 

Secretary by the NOSB for the purpose 

of fulfilling the requirements of 7 U.S.C. 

6517(e) of the OFPA. Section 7 U.S.C. 

6517(e) requires the NOSB to review 

each substance on the National List 

within 5 years of its publication. The 

substances being reauthorized for use on 

the National List were initially 

authorized for use or prohibition in 

organic agriculture on November 3, 

2003, and November 4, 2003. Because 

these substances are critical to organic 

production and handling operations, 

producers and handlers should be able 

to continue to use them beyond their 5- 

year expiration dates of November 3, 

2008 and November 4, 2008. 

Accordingly, pursuant to 5 U.S.C. 

553, it is found and determined that 

good cause exists for not postponing the 

effective date of this rule until 30 days 

after publication in the Federal 

Register. This rule shall be effective on 

November 3, 2008. 

List of Subjects in 7 CFR Part 205 

Administrative practice and 

procedure, Agriculture, Animals, 

Archives and records, Imports, Labeling, 

Organically produced products, Plants, 

Reporting and recordkeeping 

requirements, Seals and insignia, Soil 

conservation. 

■ For the reasons set forth in the 

preamble, 7 CFR part 205, Subpart G is 

amended as follows: 

PART 205—NATIONAL ORGANIC 

PROGRAM 

■ 1. The authority citation for 7 CFR 

part 205 continues to read as follows: 

Authority: 7 U.S.C. 6501–6522. 

§ 205.605 [Amended] 

■ 2. In § 205.605, paragraph (a) the word 

‘‘Carageenan’’ is removed and the word 

‘‘Carrageenan’’ is added in its place, and 

the words ‘‘Tartaric acid’’ are removed 

and the words ‘‘Tartaric acid—made 

from grape wine’’ are added in their 

place. 

■ 3. In § 205.605, paragraph (b) the 

words ‘‘Tartaric acid’’ are removed and 

the words ‘‘Tartaric acid—made from 

malic acid’’ are added in their place. 


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59482 Federal Register / Vol. 73, No. 197 / Thursday, October 9, 2008 / Rules and Regulations 

Dated: October 6, 2008. 

Lloyd C. Day, 

Administrator, Agricultural Marketing 

Service. 

[FR Doc. E8–24114 Filed 10–8–08; 8:45 am] 

BILLING CODE 3410–02–P 

FEDERAL RESERVE SYSTEM 

12 CFR Part 204 

[Regulation D; Docket No. R–1334] 

Reserve Requirements of Depository 

Institutions 

AGENCY: Board of Governors of the 

Federal Reserve System. 

ACTION: Interim final rule; request for 

public comment. 

SUMMARY: Under authority of section 

128 of the Emergency Economic 

Stabilization Act of 2008, the Board is 

amending Regulation D, Reserve 

Requirements of Depository Institutions, 

to direct Federal Reserve Banks to pay 

interest on balances held at Reserve 

Banks to satisfy reserve requirements 

and on balances held in excess of 

required reserve balances and clearing 

balances. The Board is also making 

associated minor changes to its clearing 

balance policy and the method for 

recovering float costs. 

DATES: Effective date: This interim final 

rule is effective October 9, 2008. 

Comments must be received on or 

before November 21, 2008. 

ADDRESSES: You may submit comments, 

identified by Docket No. R–1334, by any 

of the following methods: 

Agency Web Site: http:// 

www.federalreserve.gov. Follow the 

instructions for submitting comments at 

http://www.federalreserve.gov/ 

generalinfo/foia/ProposedRegs.cfm. 

Federal eRulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

E-mail: 

regs.comments@federalreserve.gov. 

Include the docket number in the 

subject line of the message. 

Fax: (202) 452–3819 or (202) 452– 

3102. 

Mail: Jennifer J. Johnson, Secretary, 

Board of Governors of the Federal 

Reserve System, 20th Street and 

Constitution Avenue, NW., Washington, 

DC 20551. 

All public comments are available 

from the Board’s Web site at http:// 

www.federalreserve.gov/generalinfo/ 

foia/ProposedRegs.cfm as submitted, 

unless modified for technical reasons. 

Accordingly, your comments will not be 

edited to remove any identifying or 

contact information. 

Public comments may also be viewed 

electronically or in paper in Room 

MP–500 of the Board’s Martin Building 

(20th and C Streets, NW.) between 

9 a.m. and 5 p.m. on weekdays. 

FOR FURTHER INFORMATION CONTACT: 

Sophia H. Allison, Senior Counsel (202/ 

452–3565), Legal Division, or Margaret 

Gillis DeBoer, Senior Financial Analyst 

(202/452–3139), Division of Monetary 

Affairs; for information with respect to 

the clearing balance policy and float 

calculations, Jonathan Mueller, Senior 

Financial Analyst (202–530–6291), 

Division of Reserve Bank Operations 

and Payment Systems; for users of 

Telecommunications Device for the Deaf 

(TDD) only, contact (202/263–4869); 

Board of Governors of the Federal 

Reserve System, 20th and C Streets, 

NW., Washington, DC 20551. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Section 128 of the Emergency 

Economic Stabilization Act of 2008, 

enacted on October 3, 2008 (the ‘‘2008 

Act’’), accelerated the effective date of 

the authority for the Federal Reserve 

Banks to pay earnings on balances 

maintained at the Reserve Banks by or 

on behalf of depository institutions. The 

2008 Act made this authority effective 

on October 1, 2008. This authority was 

originally enacted in Title II of the 

Financial Services Regulatory Relief Act 

of 2006 (the ‘‘2006 Act’’) (Pub. L. 109– 

351, 120 Stat. 1966 (Oct. 13, 2006), with 

an original effective date of October 1, 

2011. The 2006 Act provides that such 

earnings must be paid at least once each 

quarter at a rate not to exceed the 

general level of short-term interest rates. 

The 2006 Act also provides that the 

Board may prescribe regulations 

concerning the payment of earnings, the 

distribution of earnings to the 

depository institutions that maintain 

balances or on whose behalf balances 

are maintained, and the responsibilities 

of correspondents to distribute and 

credit earnings on balances maintained 

by the respondent on a pass-through 

basis with the correspondent. 

The Board is publishing this interim 

final rule amending Regulation D 

(Reserve Requirements of Depository 

Institutions) to direct the Federal 

Reserve Banks to pay interest on 

balances held at Reserve Banks to satisfy 

reserve requirements (‘‘required reserve 

balances’’) and balances held in excess 

of required reserve balances and 

clearing balances (‘‘excess balances’’). 

Reserve Banks will not pay explicit 

interest on clearing balances (balances 

that an institution holds to satisfy a 

contractual clearing balance agreement). 

Clearing balances will, however, 

continue to earn earnings credits under 

the existing clearing balance policy, 

although the Board has made minor 

adjustments to the calculations of 

earnings credits and float costs to be 

recovered that are related to reserve 

requirements. In addition, the Board has 

eliminated transitional adjustments for 

reserve requirements in the event of a 

merger or consolidation. 

In the past, the absence of interest 

payments on required reserve balances 

acted as a tax on depository institutions’ 

issuance of deposits subject to reserve 

requirements. To the extent that 

depository institutions could not satisfy 

reserve requirements with vault cash, 

they were required to hold more 

balances than they otherwise would in 

a non-interest-bearing account at a 

Reserve Bank. The absence of interest 

on excess balances has meant that, 

when reserve supply significantly 

exceeds demand, the federal funds rate 

can fall to as low as zero. 

The ability to pay interest on balances 

held at Reserve Banks should help 

promote efficiency and stability in the 

banking sector. Paying interest on 

excess balances will permit the Federal 

Reserve to expand its balance sheet as 

necessary to provide sufficient liquidity 

to support financial stability while 

implementing the monetary policy that 

is appropriate in light of the System’s 

macroeconomic objectives of maximum 

employment and price stability. Paying 

interest on excess balances should also 

help to establish a lower bound on the 

federal funds rate. Eligible institutions 

(defined below) will presumably be 

unwilling to lend balances in the funds 

market at a rate much below that paid 

on excess balances maintained at a 

Reserve Bank. In addition, paying 

interest on required reserve balances 

will eliminate much of the reserve tax 

and lessen the incentive for depository 

institutions to engage in reserve 

avoidance behavior, which absorbs real 

resources and diminishes the efficiency 

of the banking system. 

In light of the current severe strains in 

financial markets, the amendments to 

Regulation D will be effective on 

Thursday, October 9, 2008. Interest will 

be calculated beginning with the 

biweekly reserve maintenance period 

ending October 22, 2008, and the 

weekly reserve maintenance period 

ending October 15, 2008. Interest 

payments will occur within the existing 

framework for reserve computation and 

maintenance, which includes reserve 

averaging, carryover provisions, and 

reserve deficiency charges. For both 

excess balances and required reserve 

balances, interest will be paid on these 


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