[Federal Register Volume 62, Number 214 (Wednesday, November 5, 1997)]
[Rules and Regulations]
[Pages 59775-59779]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-29203]
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Rules and Regulations
Federal Register
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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
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The Code of Federal Regulations is sold by the Superintendent of Documents.
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Federal Register / Vol. 62, No. 214 / Wednesday, November 5, 1997 /
Rules and Regulations
[[Page 59775]]
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FEDERAL RESERVE SYSTEM
12 CFR Part 204
[Regulation D; Docket No. R-0980]
Reserve Requirements of Depository Institutions
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
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SUMMARY: The Board is amending its Regulation D, Reserve Requirements
of Depository Institutions, to allow U.S. branches and agencies of
foreign banks and Edge and Agreement corporations to choose whether to
aggregate reserve balances on a nationwide basis with a single pass-
through correspondent or to continue to maintain reserve balances on a
same-state/same-District basis as they do today. The amendments will
also update and clarify the pass-through rules in Regulation D for all
institutions. These amendments will facilitate interstate banking and
branching and eliminate certain restrictions applicable to pass-through
arrangements.
EFFECTIVE DATE: January 1, 1998.
FOR FURTHER INFORMATION CONTACT: Oliver Ireland, Associate General
Counsel, (202/452-3625) or Stephanie Martin, Senior Attorney (202/452-
3198), 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: To facilitate interstate banking and
branching, the Federal Reserve Banks will begin to implement a new
account structure in January 1998 that will provide a single Federal
Reserve account for each domestic depository institution. This
structure will enable the Federal Reserve Banks to establish a single
debtor-creditor relationship with each chartered entity, thereby
providing an effective means for Reserve Banks to carry out their risk
management responsibilities, and will improve the efficiency of account
management for depository institutions.1 In August 1997, the
Board proposed amendments to its Regulation D (12 CFR Part 204) that
would allow U.S. branches and agencies of the same foreign bank and
Edge and Agreement corporations 2 to hold all of their
required reserve balances in a single account held by a pass-through
correspondent or to continue to have separate accounts on a same-state/
same-District basis as they do today (62 FR 42708, August 8, 1997). The
proposal also would have allowed foreign bank offices and Edge
corporations to choose whether to aggregate their deposit reports on a
nationwide basis or to continue to report on a same-state/same-District
basis.
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\1\ To determine the Federal Reserve Bank at which a bank with
interstate branches will hold an account, the Board adopted rules
earlier this year to define a domestic depository institution's
location for purposes of Federal Reserve membership and reserve
account maintenance (62 FR 34613, June 27, 1997).
\2\ Edge corporations are organized under section 25A of the
Federal Reserve Act (12 U.S.C. 611-631), and Agreement corporations
have an agreement or undertaking with the Board under section 25 of
the Federal Reserve Act (12 U.S.C. 601-604a). For purposes of this
docket, the term ``Edge corporation'' includes Agreement
corporations.
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To permit this choice for foreign bank offices and Edge
corporations, the Board proposed changes to the pass-through rules in
Regulation D, which would liberalize those rules for all domestic
depository institutions as well as for foreign bank offices and Edge
corporations. The Board also requested comment on issues relating to
where all institutions should file their reports of deposit, as well as
other reports.
The Board is adopting a revised version of its proposal. Under the
final rule, foreign bank offices and Edge corporations will have a
choice whether to aggregate required reserve balances on a nationwide
basis through a pass-through arrangement or to maintain separate same-
state/same-District accounts. All institutions, however, including
foreign bank offices and Edge corporations, will continue to file
reports of deposits and other reports with the Federal Reserve Bank in
whose District they are located.
General Comments
The Board received twelve comments on the proposed amendments to
Regulation D, five from Federal Reserve Banks, three from U.S. offices
of foreign banks, two from trade associations, one from a commercial
bank parent of an Edge corporation, and one from a state banking
supervisor. The commenters overwhelmingly supported allowing foreign
bank offices and Edge corporations the option of aggregating their
required reserve balances nationally or locally. The foreign bank
commenters, the Edge corporation parent, and a foreign bank trade
association noted that retaining the option is important to foreign
banks because some offices operate independently and are not equipped
to consolidate reserve balances, while other foreign bank families
could operate more efficiently if reserve balances were maintained at a
central location.
A state banking supervisor expressed concern that the aggregation
of a foreign bank's reserve balances may appear to conflict with the
separate legal status of each branch of the foreign bank and should not
be allowed to affect the responsibilities of each branch to comply with
any requirements under state law. The Board believes that the treatment
of the reserve balances of a foreign bank family under Regulation D
does not change in any way the responsibility of any individual foreign
bank branch or agency to continue to meet any relevant state law
requirements imposed by a state regulator, such as asset pledge,
maintenance, or reserve requirements.
Section-By-Section Analysis
Section 204.3(a) Computation and Maintenance of Required Reserves
Maintenance of required reserves. Section 204.3(a) of Regulation D
requires every depository institution, U.S. branch or agency of a
foreign bank, and Edge or Agreement Corporation to maintain reserves
against its deposits and Eurocurrency liabilities and file reports in
accordance with the ratios and procedures described in the regulation.
The Board proposed no amendments to this provision but, as discussed
below, has removed the reference to filing reports and has consolidated
all reporting provisions in a single paragraph.
[[Page 59776]]
Reporting. Section 204.3(a) also requires foreign bank offices and
Edge corporations located in the same state and same Federal Reserve
District to file a single aggregated report of deposits with the
Federal Reserve Bank in whose District the offices are located. The
Board solicited comment on an amendment to this section to allow a
foreign bank or Edge corporation family to submit an aggregated report
of deposits for all U.S. offices, in the event that those foreign banks
or Edge corporations chose to aggregate required reserve balances in a
single account held by a pass-through correspondent.
The Board also requested comment on whether reporting changes are
necessary for all depository institutions that hold their reserve
balances with pass-through correspondents. Regulation D (former
Sec. 204.3(i)(2), now relocated to Sec. 204.3(a)(2)) requires a
depository institution to file its report of deposits with the Reserve
Bank in whose District the institution is located, regardless of
whether the institution maintains reserve balances in its own account
or with a pass-through correspondent. The Reserve Bank notifies the
reporting institution of its reserve requirements and also notifies the
pass-through correspondent, if one exists. Each respondent is
responsible for reporting; the pass-through correspondent is not
responsible for reporting errors made by the respondent, but it is
responsible for maintaining the required reserve balances in accordance
with the reports. Under the proposed pass-through rules, a depository
institution located in one Federal Reserve District could hold reserve
balances with a pass-through correspondent whose Federal Reserve
account is located in another District. (The Board has adopted this
proposal, as discussed below.) In this situation, the Board noted that
it may be appropriate for that depository institution's deposit reports
to ``follow the money,'' that is, for the depository institution to
send its deposit report to the Reserve Bank that holds the account,
rather than the Reserve Bank of the institution's District. In
addition, the Board requested comment on whether it is appropriate for
all reports of all institutions (depository institutions as well as
foreign bank offices and Edge corporations), including both supervisory
and monetary reports, to go to the Reserve Bank that holds the account
where that institution's reserve balances are held.
Nine of the eleven commenters discussed reporting issues. Five
commenters pointed out practical problems associated with requiring
reports to ``follow the money'' rather than be filed with the
institution's local Reserve Bank. A trade association for foreign banks
stated that, for foreign bank offices that maintained reserve balances
with a single pass-through correspondent account, the effect of
requiring all reports to go to the Reserve Bank that holds the account
is not clear. The commenter was concerned, for example, about how the
Reserve Bank receiving the reports would coordinate with the Reserve
Bank that supervises the local office, as well as the effect the
unified reporting system would have on coordinated supervision between
federal and state regulators. A foreign bank commenter stated that
consolidation of all reports could result in a lack of understanding of
the foreign bank office's condition by its supervising Reserve Bank and
de facto double reporting requirements for the office. A Reserve Bank
noted that allowing aggregate reporting for these foreign bank offices
would make it difficult to verify reports on a timely basis, would
require close coordination between Reserve Banks, and could affect the
accuracy of data on the various separately chartered offices. One bank
trade association, one Edge corporation parent, and two Reserve Banks
supported the proposal to allow foreign bank offices and Edge
corporations to file a single aggregated report of deposits, although
one of those Reserve Banks argued against requiring domestic pass-
through respondents to file deposit reports with their out-of-District
correspondent's Reserve Bank.
The commenters also identified problems with the ``follow the
money'' approach for domestic institutions that hold reserve balances
with a pass-through correspondent. For example, one commenter stated
that, although requiring all reports to go to the Federal Reserve Bank
that holds the correspondent's account could provide an efficient means
of administering reserve requirements, it would also require Reserve
Banks to dedicate resources to analyzing nonlocal banks' structure,
operations, and financial statements. The commenter stated that the
alternative of ``split reporting'' (sending deposit reports to the
account-holding Reserve Bank and all other reports to the local Reserve
Bank) could lead to confusion and inefficiencies and that another
alternative, filing all reports with multiple Reserve Banks, would
place additional burden on depository institutions. Two other
commenters stated that another reason the reporting location should not
be based on the location of a pass-through correspondent is because
pass-through arrangements can change frequently.
Although the Board believes that requiring reports to follow the
money might provide an efficient means of administering reserve
requirements, any potential efficiencies appear to be outweighed by the
practical difficulties involved when deposit (or all) reports are
submitted to a Reserve Bank other than the reporting institution's
local Reserve Bank. If the Reserve Bank in whose District the
institution is located is responsible for supervising the institution,
submitting supervisory reports to another Reserve Bank could affect the
depth and timeliness of the supervising Reserve Bank's knowledge of the
institution's condition. Split reporting would lead to inefficiencies
in other areas for both the institution and the Federal Reserve Banks.
The reporting institution would have to deal with more than one Reserve
Bank on reporting and data editing issues. For the Federal Reserve,
each Reserve Bank collecting data from a particular institution would
have to become knowledgeable about that institution's structure,
operations, and balance sheet in order to perform effective data
editing and analysis.
In light of these problems, the Board is retaining the current
reporting requirements for domestic institutions as well as foreign
bank offices and Edge corporations. The Board has consolidated the
reporting provisions in new Sec. 204.3(a)(2). All reporting
institutions will file deposit and other reports with the Federal
Reserve Bank in whose District the institution is located. Foreign bank
and Edge corporation offices operating in the same state and same
District will file an aggregated report as they do today. The reporting
rule does not affect an institution's ability to pass its reserve
balances through a correspondent, which may be located in the same or
another District. For example, a foreign bank family will be able to
consolidate required reserve balances with a single pass-through
correspondent while still reporting deposits on a same-state same-
District basis.
One commenter asked the Board to clarify that, in the case of Edge
corporations, the reporting aggregation applies to the offices of a
single Edge corporation and not the offices of all Edge corporations
owned by a single parent that operate in the same state and same
District. The provisions of Sec. 204.3(a)(2) on aggregated reporting
apply to all offices of a single Edge corporation operating in the same
state and same District, not to all offices owned by a common parent.
[[Page 59777]]
Low Reserve Tranche and Exemption Amounts. Regulation D provides
that foreign bank and Edge corporation families share one low reserve
tranche and exemption amount among all related offices.3 The
pre-amendment Regulation D set out separate provisions
(Sec. 204.3(a)(1) and (a)(2)) for foreign banks and Edge corporations
covering allocation of the low reserve tranche and contained a separate
provision (Sec. 204.3(a)(3)) on allocation of the reserve exemption,
which applied to depository institutions as well as foreign bank
offices and Edge corporations. The Board proposed a new
Sec. 204.3(a)(2) to combine the existing provisions on allocation of
the low reserve tranche and the reserve exemption among branches of
depository institutions, foreign bank offices, and Edge corporations.
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\3\ The amount of an institution's net transaction accounts in
the low reserve tranche ($0 to $49.3 million) carries a lower
reserve requirement (3 percent) than the amount above the tranche
(which carries a 10 percent requirement). The first $4.4 million of
any institution's reservable liabilities are exempt from reserve
requirements.
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The Board received one comment on this proposed amendment, in favor
of the revision. The Board has adopted the amendment as proposed. Under
the amendment, a depository institution and its branches, foreign bank
families, and offices of an Edge corporation will continue to share one
low reserve tranche and one reserve exemption and can allocate the
tranche and exemption among offices or groups of offices that file
separate deposit reports.4
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\4\ Ordinarily, branches of a domestic depository institution
would not file separate deposit reports unless they are in
transition (for example, after a merger or other consolidation) from
a multiple to a single reporting and account structure.
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Section 204.3(b) Form and Location of Reserves
In June 1997, the Board amended Sec. 204.3(b) to set forth where a
domestic depository institution is located for purposes of determining
the Federal Reserve Bank where the institution will maintain its
reserve balances (see footnote 1). Specifically, an institution is
considered to be located in the Federal Reserve District specified in
its charter or organizing certificate, or, if no such location is
specified, the location of its head office. The Board can make
exceptions to the general rule for a particular institution after
considering certain criteria. The Board proposed to apply the same rule
to foreign bank offices and Edge corporations. For foreign banks and
Edge corporations that pass all reserve balances through a single
correspondent, the location of the pass-through correspondent would
determine which Reserve Bank holds the account. The Board also proposed
to remove the sentence in Sec. 204.3(b)(1) that stated that reserves
that were held on a pass-through basis were considered to be a balance
maintained with a Reserve Bank. This sentence could be read to conflict
with the Board's proposed revisions to the pass-through rules
clarifying that the balances held in the account of the pass-through
correspondent were the property of the correspondent.
The Board received one comment on these provisions, supporting the
proposal. The Board has adopted the proposed amendments and has also
revised the language in Sec. 204.3(b)(1) to clarify that only non-
member institutions may hold reserves with a pass-through
correspondent.5
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\5\ This limitation is set forth in section 19(c)(1) of the
Federal Reserve Act, 12 U.S.C. 461(c).
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Section 204.3(i) Pass-Through Rules
Eligible Pass-Through Correspondents. Former Sec. 204.3(i)(1)
stated that foreign bank offices and Edge corporations could pass their
reserve balances through an account of another office of the same
institution, subject to the pass-through rules applicable to all
depository institutions. This provision could have been interpreted to
preclude these institutions from using an unaffiliated pass-through
correspondent. The Board proposed to clarify that a foreign bank or
Edge corporation family may choose any eligible institution as a pass-
through correspondent, such as a domestic depository institution or a
office of another foreign bank, in addition to an office of its own
family. Although the Board believes that these entities will generally
choose one of their own offices as the pass-through correspondent,
allowing the choice is comparable to the treatment of domestic
depository institutions under Regulation D. The Board received two
comments on this amendment, both in support, and has adopted it as
proposed. The Board has also revised Sec. 204.3(i)(1) to provide that a
Reserve Bank may make exceptions to the requirement that an institution
can choose only one pass-through correspondent. Such an exception may
be necessary, for example, during a transition period after the merger
of two respondents with two different pass-through correspondents.
Account Maintenance. Former Sec. 204.3(i) required a pass-through
correspondent to maintain accounts at each Federal Reserve Bank in
whose District the respondent institutions were located. The Board
proposed to remove the requirement that pass-though reserve balances
must be held in the District where the respondent is located. This
proposal was necessary to enable foreign bank families and Edge
corporations to aggregate their required reserve balances in a single
account held by a pass-through correspondent. The proposed amendment
applied to pass-through arrangements for all domestic depository
institutions as well. The Board received two comments that specifically
discussed this amendment; both supported the change, citing improved
efficiency and removal of impediments to interstate banking. The Board
has adopted the amendment as proposed.
Former Regulation D also provided that, when respondents are
located in the same District as the pass-through correspondent, the
correspondent may choose to maintain its own reserve balances and the
pass-through reserve balances in a single commingled account or in two
separate accounts. Under the Board's proposal, correspondents would
hold pass-through balances in a single commingled account, along with
the pass-through correspondent's own reserve balances (if any) at the
Reserve Bank in whose District the pass-through correspondent is
located. The Board requested comment on whether correspondents should
continue to have the option of separate accounts for their own reserve
balances and the reserve balances they hold on a pass-through basis.
The Board received two comments on this issue, both from Federal
Reserve Banks. One commenter suggested that the Board allow
correspondents to retain the option to have a separate account for
pass-through reserve balances because the Federal Reserve Banks'
subaccount structure does not provide account-holders with a daily
ending balance for each subaccount. The other commenter stated that
there is no need for a correspondent to maintain pass-through reserve
balances in separate account from its own reserve balances and that the
subaccount structure will provide the correspondent with sufficient
information to segregate its own reserve balances from pass-through
balances. The Board continues to believe the subaccount will suffice
for tracking respondent activity and that correspondents will be able
to calculate the ending balance for subaccounts based on the
information they receive. The Board, therefore, has adopted the
proposed provision that a correspondent maintain a single account for
its own reserve balances (if any) and the pass-
[[Page 59778]]
through reserve balances of respondents. The Board has, however, added
a provision to allow a Reserve Bank to make an exception to this rule.
The Board anticipates that a Reserve Bank might permit an exception in
cases where, for example, the correspondent is involved in a merger and
holds a separate transition account at the same or another Reserve
Bank.
Former Regulation D was unclear as to whose money is in the account
that contains the pass-through reserve balances, that is, whether the
account is a Reserve Bank liability to the pass-through correspondent
or to the respondent. 6 The Board proposed amendments to
Sec. 204.3(i) to clarify that the balances held by the pass-through
correspondent are the property of the correspondent and represent a
liability of the Reserve Bank solely to the correspondent, regardless
of whether the funds represent the reserve balances of another office
or institution that have been passed through the correspondent. The
Board received two comments on this proposal, both in favor, and has
adopted the amendment as proposed.
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\6\ The call report instructions are more clear, stating that,
from the perspective of the Federal Reserve Bank, pass-through
balances are treated as balances due to the correspondent, not to
the respondent.
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Services. Former Sec. 204.3(i)(5) contained provisions regarding
the services available to pass-through correspondents and respondents.
The Board proposed to remove these provisions from Regulation D. The
terms of services offered by the Reserve Banks are covered in
Regulation J (12 CFR part 210) and the Reserve Banks' operating
circulars. The Board received one comment on this proposal, in support
of the change. The Board has eliminated this provision, as proposed.
Technical Changes
The Board also proposed editorial and conforming amendments to
Secs. 204.3(i) and 204.9(b) of Regulation D. The Board received no
comments on these changes. Because of the addition of the consolidated
reporting provision in Sec. 204.3(a), the technical amendment to a
cross-reference in Sec. 204.9(b) is no longer necessary. The Board has
adopted the editorial changes to Sec. 204.3(i) as proposed.
Final Regulatory Flexibility Analysis
Two of the three requirements of a final regulatory flexibility
analysis (5 U.S.C. 604), (1) a succinct statement of the need for and
the objectives of the rule and (2) a summary of the issues raised by
the public comments, the agency's assessment of the issues, and a
statement of the changes made in the final rule in response to the
comments, are discussed above. The third requirement of a final
regulatory flexibility analysis is a description of significant
alternatives to the rule that would minimize the rule's economic impact
on small entities and reasons why the alternatives were rejected.
The final amendments will apply to all depository institutions,
U.S. branches and agencies of foreign banks, and Edge and Agreement
corporations, regardless of size, and represent changes to the existing
rules that should reduce burden for those institutions that are part of
a pass-through arrangement for the purpose of maintaining required
reserve balances. The amendments would increase flexibility for those
institutions by eliminating restrictions on where pass-through
correspondents must maintain accounts. The amendments should not have a
negative economic impact on small institutions, and, therefore, there
were no significant alternatives that would have minimized the economic
impact on those institutions.
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act 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. The proposed rule contained no new collections of information
and proposed no substantive changes to existing collections of
information pursuant to the Paperwork Reduction Act. However, one of
the changes in the proposed rule had the potential to reduce reporting
burden for a subset of respondents on existing information collections
by allowing fewer reports. The change would have granted Edge
corporations and U.S. branches and agencies of foreign banks the option
to file single reports of deposits and Eurocurrency data aggregated
nationwide. Currently these respondents file deposits and Eurocurrency
reports aggregated by each state and Federal Reserve District in which
their offices are located.
None of the comments received specifically addressed reporting
burden. However, as discussed earlier in this notice, several
commenters raised problems associated with not filing the reports with
each individual respondent's Federal Reserve District. The Board
believes that these problems outweigh any potential efficiencies
afforded by such changes. The final rule does not contain any of the
proposed elective changes in reporting. Therefore, no collections of
information pursuant to the Paperwork Reduction Act are revised by the
final rule.
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, 12 CFR part 204 is amended
as set forth below.
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, paragraphs (a), (b)(1), (b)(2)(i), and (i) are
revised to read as follows:
Sec. 204.3 Computation and maintenance.
(a) Maintenance and reporting of required reserves. (1)
Maintenance. A depository institution, a U.S. branch or agency of a
foreign bank, and an Edge or Agreement corporation shall maintain
reserves against its deposits and Eurocurrency liabilities in
accordance with the procedures prescribed in this section and
Sec. 204.4 and the ratios prescribed in Sec. 204.9. Reserve-deficiency
charges shall be assessed for deficiencies in required reserves in
accordance with the provisions of Sec. 204.7. For purposes of this
part, the obligations of a majority-owned (50 percent or more) U.S.
subsidiary (except an Edge or Agreement corporation) of a depository
institution shall be regarded as obligations of the parent depository
institution.
(2) Reporting. (i) Every depository institution, U.S. branch or
agency of a foreign bank, and Edge or Agreement corporation shall file
a report of deposits (or any other required form or statement) directly
with the Federal Reserve Bank of its District, regardless of the manner
in which it chooses to maintain required reserve balances. A foreign
bank's U.S. branches and agencies and an Edge or Agreement
corporation's offices operating within the same state and the same
Federal Reserve District shall prepare and file a report of deposits on
an aggregated basis.
(ii) A Federal Reserve Bank shall notify the reporting institution
of its reserve requirements. Where a pass-through arrangement exists,
the Reserve Bank will also notify the pass-through correspondent of its
respondent's required reserve balances.
[[Page 59779]]
(iii) The Board and the Federal Reserve Banks will not hold a pass-
through correspondent responsible for guaranteeing the accuracy of the
reports of deposits submitted by its respondents.
(3) Allocation of low reserve tranche and exemption from reserve
requirements. A depository institution, a foreign bank, or an Edge or
Agreement corporation shall, if possible, assign the low reserve
tranche and reserve requirement exemption prescribed in Sec. 204.9(a)
to only one office or to a group of offices filing a single aggregated
report of deposits. The amount of the reserve requirement exemption
allocated to an office or group of offices may not exceed the amount of
the low reserve tranche allocated to such office or offices. If the low
reserve tranche or reserve requirement exemption cannot be fully
utilized by a single office or by a group of offices filing a single
report of deposits, the unused portion of the tranche or exemption may
be assigned to other offices or groups of offices of the same
institution until the amount of the tranche (or net transaction
accounts) or exemption (or reservable liabilities) is exhausted. The
tranche or exemption may be reallocated each year concurrent with
implementation of the indexed tranche and exemption, or, if necessary
during the course of the year to avoid underutilization of the tranche
or exemption, at the beginning of a reserve computation period.
(b) Form and location of reserves. (1) A depository institution, a
U.S. branch or agency of a foreign bank, and an Edge or Agreement
corporation shall hold reserves in the form of vault cash, a balance
maintained directly with the Federal Reserve Bank in the Federal
Reserve District in which it is located, or, in the case of nonmember
institutions, with a pass-through correspondent in accordance with
Sec. 204.3(i).
(2) (i) For purposes of this section, a depository institution, a
U.S. branch or agency of a foreign bank, or an Edge or Agreement
corporation is located in the Federal Reserve District that contains
the location specified in the institution's charter, organizing
certificate, or license or, if no such location is specified, the
location of its head office, unless otherwise determined by the Board
under paragraph (b)(2)(ii) of this section.
* * * * *
(i) Pass-through rules. (1) Procedure. (i) A nonmember depository
institution, a U.S. branch or agency of a foreign bank, or an Edge or
Agreement corporation required to maintain reserve balances
(respondent) may select only one institution to pass through its
required reserve balances, unless otherwise permitted by Federal
Reserve Bank in whose district the respondent is located. Eligible
institutions through which respondent required reserve balances may be
passed (correspondents) are Federal Home Loan Banks, the National
Credit Union Administration Central Liquidity Facility, and depository
institutions, U.S. branches or agencies of foreign banks, and Edge and
Agreement corporations that maintain required reserve balances at a
Federal Reserve office. In addition, the Board reserves the right to
permit other institutions, on a case-by-case basis, to serve as pass-
through correspondents. The correspondent chosen must subsequently pass
through the required reserve balances of its respondents directly to a
Federal Reserve Bank. The correspondent placing funds with a Federal
Reserve Bank on behalf of respondents will be responsible for account
maintenance as described in paragraphs (i)(2) and (i)(3) of this
section.
(ii) Respondents or correspondents may institute, terminate, or
change pass-through arrangements for the maintenance of required
reserve balances by providing all documentation required for the
establishment of the new arrangement or termination of the existing
arrangement to the Federal Reserve Banks involved within the time
period provided for such a change by those Reserve Banks.
(2) Account maintenance. A correspondent that passes through
required reserve balances of respondents shall maintain such balances,
along with the correspondent's own required reserve balances (if any),
in a single commingled account at the Federal Reserve Bank in whose
District the correspondent is located, unless otherwise permitted by
the Reserve Bank. The balances held by the correspondent in an account
at a Reserve Bank are the property of the correspondent and represent a
liability of the Reserve Bank solely to the correspondent, regardless
of whether the funds represent the reserve balances of another
institution that have been passed through the correspondent.
(3) Responsibilities of parties. (i) Each individual depository
institution, U.S. branch or agency of a foreign bank, or Edge or
Agreement corporation is responsible for maintaining its required
reserve balance either directly with a Federal Reserve Bank or through
a pass-through correspondent.
(ii) A pass-through correspondent shall be responsible for assuring
the maintenance of the appropriate aggregate level of its respondents'
required reserve balances. A Federal Reserve Bank will compare the
total reserve balance required to be maintained in each account with
the total actual reserve balance held in such account for purposes of
determining required reserve deficiencies, imposing or waiving charges
for deficiencies in required reserves, and for other reserve
maintenance purposes. A charge for a deficiency in the aggregate level
of the required reserve balance will be imposed by the Reserve Bank on
the correspondent maintaining the account.
(iii) Each correspondent is required to maintain detailed records
for each of its respondents in a manner that permits Federal Reserve
Banks to determine whether the respondent has provided a sufficient
required reserve balance to the correspondent. A correspondent passing
through a respondent's reserve balance shall maintain records and make
such reports as the Board or Reserve Bank requires in order to insure
the correspondent's compliance with its responsibilities for the
maintenance of a respondent's reserve balance. Such records shall be
available to the Reserve Banks as required.
(iv) The Federal Reserve Bank may terminate any pass-through
relationship in which the correspondent is deficient in its
recordkeeping or other responsibilities.
(v) Interest paid on supplemental reserves (if such reserves are
required under Sec. 204.6) held by a respondent will be credited to the
account maintained by the correspondent.
By order of the Board of Governors of the Federal Reserve
System, October 30, 1997.
William W. Wiles,
Secretary of the Board.
[FR Doc. 97-29203 Filed 11-4-97; 8:45 am]
BILLING CODE 6210-01-P
