97-29761. Reserve Requirements of Depository Institutions  

  • [Federal Register Volume 62, Number 218 (Wednesday, November 12, 1997)]
    [Proposed Rules]
    [Pages 60671-60672]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 97-29761]
    
    
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    Proposed Rules
                                                    Federal Register
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    This section of the FEDERAL REGISTER contains notices to the public of 
    the proposed issuance of rules and regulations. The purpose of these 
    notices is to give interested persons an opportunity to participate in 
    the rule making prior to the adoption of the final rules.
    
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    Federal Register / Vol. 62, No. 218 / Wednesday, November 12, 1997 / 
    Proposed Rules
    
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    FEDERAL RESERVE SYSTEM
    
    12 CFR Parts 204
    
    [Regulation D; Docket No. R-0988]
    
    
    Reserve Requirements of Depository Institutions
    
    AGENCY: Board of Governors of the Federal Reserve System.
    
    ACTION: Proposed rule.
    
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    SUMMARY: The Board is proposing amendments to Regulation D, Reserve 
    Requirements of Depository Institutions, to move from the current 
    system of contemporaneous reserve maintenance for institutions that are 
    weekly reporters to a system under which reserves are maintained on a 
    lagged basis by such institutions. Under a lagged reserve maintenance 
    system, the reserve maintenance period for a weekly reporter will begin 
    30 days after the beginning of a reserve computation period. Under the 
    current system, the reserve maintenance period begins only two days 
    after the beginning of the computation period.
    
    DATES: Comments must be submitted on or before January 12, 1998.
    
    ADDRESSES: Comments, which should refer to Docket No. R-0988, may be 
    mailed to Mr. William W. Wiles, Secretary, Board of Governors of the 
    Federal Reserve System, 20th Street and Constitution Avenue, N.W., 
    Washington, D.C. 20551. Comments addressed to Mr. Wiles also may be 
    delivered to the Board's mail room between 8:45 a.m. and 5:15 p.m. and 
    to the security control room outside of those hours. Both the mail room 
    and the security control room are accessible from the courtyard 
    entrance on 20th Street between Constitution Avenue and C Street, N.W. 
    Comments may be inspected in Room MP-500 between 9:00 a.m. and 5:00 
    p.m.
    
    FOR FURTHER INFORMATION CONTACT: William Whitesell, Section Chief, 
    Money and Reserves Projections Section, Division of Monetary Affairs 
    (202/452-2967); Oliver Ireland, Associate General Counsel, (202/452-
    3625) or Lawranne Stewart, Senior Attorney (202/452-3513), Legal 
    Division. For the hearing impaired only, contact Diane Jenkins, 
    Telecommunications Device for the Deaf (TDD) (202/452-3544), Board of 
    Governors of the Federal Reserve System, 20th and C Streets, N.W., 
    Washington, D.C. 20551.
    
    SUPPLEMENTARY INFORMATION: In order to satisfy the reserve requirements 
    imposed under Regulation D (Reserve Requirements of Depository 
    Institutions), depository institutions that file detailed deposit 
    reports with the Federal Reserve once a week (``weekly reporters'') are 
    required to maintain reserves against their deposits on a virtually 
    contemporaneous basis.1 Weekly reporters are required to 
    maintain average reserve balances over a 14-day reserve maintenance 
    period that begins only two days after the beginning of the 14-day 
    computation period.2 The requirement for contemporaneous 
    reserve maintenance was implemented in 1984 to enhance the conduct of 
    monetary policy by strengthening the ability of the Board to control 
    M1, the narrowest measure of the money supply, through operations 
    directed at the supply of reserves.3
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        \1\ Weekly reporters include domestic depository institutions 
    with total reservable liabilities greater than the exemption amount 
    provided by the zero-reserve tranche, currently $4.4 million, and 
    total deposits at or above the deposit cut-off established for 
    institutions that are not fully exempt from reserve requirements, 
    currently $75 million. U.S. branches and agencies of foreign banks 
    and Edge and Agreement corporations, regardless of their size, must 
    report weekly.
        Institutions that are not weekly reporters file deposit reports 
    on either a quarterly or annual basis, depending on the size of 
    their total deposits and their total reservable liabilities. This 
    proposal will have no effect on those institutions.
        \2\ In the past, the threshold deposit level for weekly 
    reporters has been indexed to the growth of total deposits and 
    revised annually. As part of the Board's most recent review of the 
    deposit reporting forms, however, the threshold deposit level for 
    weekly reporting of deposits was raised to $75 million, effective as 
    of the reporting week ending September 15, 1997.
        \3\ See 47 FR 44705 (October 12, 1982).
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        Since that time, however, the Federal Reserve's operating 
    procedures have changed and it no longer maintains target ranges for 
    M1. Additionally, the use of contemporaneous reserve maintenance 
    requires depositories and the Federal Reserve to estimate and project 
    the quantity of reserves that will be needed to meet reserve 
    requirements during the current maintenance period. These estimates 
    have become increasingly difficult to formulate with any precision on a 
    timely basis, in part because of the implementation by many depository 
    institutions of retail sweep programs. Such programs have lowered 
    required reserves for institutions that have implemented them and have 
    increased uncertainties regarding the reserve balances depository 
    institutions must hold at the Reserve Banks. For example, for some 
    large institutions, required reserves are sometimes above and sometimes 
    below their holdings of vault cash, with the result that it is 
    difficult to project reliably the extent to which reserves in excess of 
    applied vault cash will be required by these institutions.
        The Board therefore is requesting comment on a proposal to amend 
    Regulation D to return to a system of lagged reserve requirements. 
    Under the proposal, a lag of thirty days (two full maintenance periods) 
    would be introduced between the beginning of a reserve computation 
    period and the beginning of the maintenance period during which 
    reserves for that computation period must be maintained. The reserve 
    maintenance period therefore would not begin until seventeen days after 
    the end of the computation period. The proposal also provides for a 
    two-period lag in the computation of the vault cash to be applied to 
    satisfy reserve requirements.4 Providing a two-period lag 
    for both required reserves and applied vault cash will allow the 
    Federal Reserve, as well as the depository institutions, to calculate 
    the level of required reserve balances before the beginning of the 
    maintenance period. The increased lag also should reduce the level of 
    resources that depository institutions and the Federal Reserve 
    currently must devote to estimating and projecting required reserve 
    balances.
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        \4\ Applied vault cash for an individual institution is equal to 
    the lesser of total vault cash or required reserves.
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        The Board's proposal will not affect the provisions of Regulation D 
    concerning the carryover of excess or deficiencies in a depository 
    institution's reserve account.
        The Board proposes to implement the shift to a lagged reserve 
    requirement in July 1998. The Board believes that the transition to the 
    new system could be
    
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    made most easily after completion of the changeover of software used by 
    the Federal Reserve to process most data flows, currently projected for 
    March 1998, and prior to the annual deposit panel shifts that will take 
    place in September 1998.
    
    Initial Regulatory Flexibility Analysis
    
        The Regulatory Flexibility Act (5 U.S.C. 601-612) requires an 
    agency to publish an initial regulatory flexibility analysis with any 
    notice of proposed rulemaking. An initial regulatory flexibility 
    analysis must include: (1) A description of the reasons why action by 
    the agency is being considered; (2) a statement of the objectives of, 
    and legal basis for, the proposed rule; (3) a description of and, where 
    feasible, an estimate of the number of small entities to which the 
    proposed rule will apply; (4) a description of the projected reporting, 
    recordkeeping, and other compliance requirements of the proposed rule; 
    and (5) an identification, to the extent practicable, of all relevant 
    Federal rules that may duplicate, overlap, or conflict with the 
    proposed rules. 5 U.S.C. 603(b).
        As discussed above, the Board is considering this action to improve 
    the ability of the Federal Reserve to estimate accurately the need for 
    reserves on a timely basis, with the objective of ensuring greater 
    effectiveness of the Federal Reserve's open market operations. Under 
    section 19 of the Federal Reserve Act, the Board is authorized to 
    promulgate rules concerning the maintenance of reserves. 12 U.S.C. 
    461(c). The Board does not believe that there are any Federal rules 
    that duplicate, overlap, or conflict with the proposed rule.
        The proposal will affect only institutions that are weekly deposit 
    reporters, which generally include depository institutions that have 
    total deposits of $75 million or greater, as only these institutions 
    currently are required to maintain reserves on a contemporaneous 
    basis.5 The proposed amendments will not increase reporting 
    or recordkeeping requirements associated with Regulation D for 
    institutions that are weekly reporters, but will significantly simplify 
    compliance with the rule for these institutions. The proposal therefore 
    will not increase regulatory burden on small institutions generally and 
    will reduce regulatory burden for those small institutions that are 
    affected.
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        \5\ While weekly reporters that are Edge or Agreement 
    corporations or U.S. branches or agencies of a foreign bank may have 
    deposits of less than $75 million, the deposits of these entities 
    represent only a portion of the total deposits of the larger 
    organizations to which they belong.
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    List of Subjects in 12 CFR Part 204
    
        Banks, banking, Federal Reserve System, Reporting and recordkeeping 
    requirements.
    
        For the reasons set out in the preamble, the Board proposes to 
    amend part 204 of chapter II of title 12 of the Code of Federal 
    Regulations as follows:
    
    PART 204--RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS 
    (REGULATION D)
    
        1. The authority citation for part 204 continues to read as 
    follows:
    
        Authority: 12 U.S.C. 248(a), 248(c), 371a, 461, 601, 611, and 
    3105.
    
        2. In Sec. 204.3, paragraph (c) is revised to read as follows:
    
    
    Sec. 204.3  Computation and maintenance.
    
    * * * * *
        (c) Computation of required reserves for institutions that report 
    on a weekly basis. (1) Required reserves are computed on the basis of 
    daily average balances of deposits and Eurocurrency liabilities during 
    a 14-day period ending every second Monday (the ``computation 
    period''). Reserve requirements are computed by applying the ratios 
    prescribed in Sec. 204.9 to the classes of deposits and Eurocurrency 
    liabilities of the institution. In determining the reserve balance that 
    is required to be maintained with the Federal Reserve, the average 
    daily vault cash held during the computation period is deducted from 
    the amount of the institution's required reserves.
        (2) The reserve balance that is required to be maintained with the 
    Federal Reserve shall be maintained during a 14-day period (the 
    ``maintenance period'') that begins on the third Thursday following the 
    end of a given computation period.
    * * * * *
        By order of the Board of Governors of the Federal Reserve 
    System, November 6, 1997.
    William W. Wiles,
    Secretary of the Board.
    [FR Doc. 97-29761 Filed 11-10-97; 8:45 am]
    BILLING CODE 6210-01-P
    
    
    

Document Information

Published:
11/12/1997
Department:
Federal Reserve System
Entry Type:
Proposed Rule
Action:
Proposed rule.
Document Number:
97-29761
Dates:
Comments must be submitted on or before January 12, 1998.
Pages:
60671-60672 (2 pages)
Docket Numbers:
Regulation D, Docket No. R-0988
PDF File:
97-29761.pdf
CFR: (1)
12 CFR 204.3