[Federal Register Volume 62, Number 61 (Monday, March 31, 1997)]
[Proposed Rules]
[Pages 15297-15300]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-7587]
[[Page 15297]]
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FEDERAL RESERVE SYSTEM
12 CFR Part 209
[Regulation I; Docket No. R-0966]
Issue and Cancellation of Federal Reserve Bank Capital Stock
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Board of Governors of the Federal Reserve System is
proposing to amend its Regulation I regarding the issue and
cancellation of Federal Reserve Bank Capital Stock in order to reduce
regulatory burden and simplify and update requirements. This proposal
to modernize Regulation I is in accordance with the Board's policy of
regular review of its regulations and the Board's review of its
regulations pursuant to section 303 of the Riegle Community Development
and Regulatory Improvement Act of 1994.
DATES: Comments must be received by May 30, 1997.
ADDRESSES: Comments, which should refer to Docket No. R-0966, 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, DC 20551. Comments addressed to Mr. Wiles may also 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. weekdays, except as provided in Sec. 261.8 of the Board's Rules
Regarding the Availability of Information, 12 CFR 261.8.
FOR FURTHER INFORMATION CONTACT: Rick Heyke, Staff Attorney (202/452-
3688), Legal Division, Board of Governors; Elizabeth Tacik, Accountant
(202/452-2303), Division of Reserve Bank Operations and Payment
Systems, Board of Governors; or Anthony Scafide, Manager (215/574-
6546), Wholesale Payments Division, Federal Reserve Bank of
Philadelphia. For the hearing impaired only, Telecommunications Device
for the Deaf (TDD), Dorothea Thompson (202/452-3544).
SUPPLEMENTARY INFORMATION:
Background
As part of its policy of regular review of its regulations, and
consistent with section 303 of the Riegle Community Development and
Regulatory Improvement Act of 1994 (Riegle Act), the Board of Governors
of the Federal Reserve System (Board) is proposing to amend its
Regulation I regarding issue and cancellation of Federal Reserve Bank
capital stock (12 CFR part 209). Section 303 of the Riegle Act requires
each federal banking agency to review and streamline its regulations
and written policies to improve efficiency, reduce unnecessary costs,
and remove inconsistencies and outmoded and duplicative requirements.
The proposed amendments are designed to reduce regulatory burden and
simplify and update the Regulation.
The principal amendments being proposed are described below. In
general, the amendments simplify, modernize, and condense the
Regulation, and reflect the replacement of share certificates by a
book-entry system. The amendments also codify Board and staff
interpretations. Finally, the amendments delete the many references to
specific forms. Many of these references are incorrect because the
forms no longer exist or no longer have the same identification
numbers.
Banks Desiring To Become Member Banks
Proposed Sec. 209.2 combines and condenses existing Secs. 209.1 and
209.2 regarding national and state bank applications. Existing
Sec. 209.1 also specifies the amount of Reserve Bank stock for which
national banks should apply, but the proposal combines all references
to amount in proposed Sec. 209.4 and deletes repetitive explanations.
Proposed Sec. 209.2 also includes a subsection (c) that will specify
the Reserve Bank of which a bank may become a member and that is the
subject of a separate request for comment. See 62 FR 11117.
Cessation of Membership
Proposed Sec. 209.3 combines and simplifies existing Secs. 209.5(b)
(merger of a member bank into a state nonmember bank), 209.6
(conversion of a national bank into a state nonmember bank), 209.7
(insolvency), 209.8 (voluntary liquidation), 209.9(b) (national bank in
the hands of a conservator to be liquidated), 209.10 (closed state
member banks not in liquidation), 209.11 (voluntary withdrawal from
membership by state bank), and 209.12 (involuntary termination of state
bank membership).
The Regulation previously distinguished between insolvency and
voluntary liquidation (where the bank or receiver was required to file
for cancellation of Reserve Bank stock within three months), other
cessation of business by state member banks (where failure by the bank
to file for cancellation within 60 days commenced a process whereby the
Board might order termination of membership), and other cases such as
voluntary withdrawal, merger into a nonmember bank, or conversion of a
national bank into a nonmember state bank (where the regulation imposed
no specific timing requirement for filing an application for
cancellation of Reserve Bank stock). Proposed 209.3(a) provides instead
that all such banks (or receivers) shall file promptly for cancellation
of Reserve Bank stock, failing which the Board may order the membership
of the bank terminated under 209.3(b).
Section 6(2) of the Act (12 U.S.C. 288) provides that the
Comptroller of the Currency may appoint a receiver for a national bank
that has discontinued banking operations for 60 days but has not gone
into liquidation, if the Comptroller deems it advisable. The existing
regulation includes in Sec. 209.9(a) a provision for the appropriate
Reserve Bank to notify the Office of the Comptroller of the Currency in
the event a national bank has ceased business for 60 days but has not
gone into liquidation, together with a statement of reasons why a
receiver should be appointed. The proposal omits this provision. The
appropriate procedures for communication among the Board, the Reserve
Bank, and the Comptroller's office in such a case would depend on the
facts and circumstances of the particular case.
Amounts and Payments
Proposed Sec. 209.4(a) combines in one section the requirement for
amount of total subscription for Reserve Bank stock (other than for a
mutual savings bank) on becoming a member or on a change in capital
stock and surplus. The Federal Reserve Act (the Act) requires member
banks (other than mutual savings banks) to subscribe for Reserve Bank
capital stock in an amount equal to 6 percent of their capital stock
and surplus. Member banks are required to pay in half this amount and
half is subject to call by the Reserve Bank.
Proposed Sec. 209.4(b) defines member bank capital stock and
surplus as capital stock and paid-in surplus. Retained earnings
continue to be generally excluded from this definition, thereby
minimizing member banks' adjustments in their Reserve Bank stock
holdings. The Federal Reserve System experienced approximately 1500
adjustments in Reserve Bank capital stock as a result of changes in
member bank capital stock and surplus in 1992.
[[Page 15298]]
The Board estimates that this number would increase substantially if it
were necessary to adjust for changes in retained earnings of member
banks. Although retained earnings are generally excluded from the
definition, the regulation incorporates previous guidance requiring a
deficit in retained earnings to be subtracted from capital stock and
surplus unless the deficit is relatively small and the appropriate
Reserve Bank is satisfied that it will be extinguished by accumulation
of earnings or formal reduction of surplus, in which case the
adjustment of Reserve Bank stock may be deferred until the end of the
quarter in which the deficit arises.
Section 5 of the Act provides that Federal Reserve Bank stock shall
be adjusted from time to time as member banks increase or decrease
capital stock and surplus. The Act does not specify whether this
adjustment must be done immediately or can be done periodically after a
number of changes in a member bank's capital stock and surplus have
occurred or when such changes become in the aggregate significant.
There is a burden associated with adjusting banks' Reserve Stock
positions to reflect small changes in the banks' capital accounts. The
Board seeks comment on how frequently, or after how much cumulative
dollar or percentage change, member banks should be required to adjust
their Reserve Bank capital stock holdings.
Proposed Sec. 209.4(c) is a condensed version of existing
Sec. 209.4 specifying that mutual savings banks are required to
subscribe for Reserve Bank stock in an amount equal to 0.6 percent of
total deposits rather than 6 percent of capital and surplus. Mutual
savings banks not permitted to hold Reserve Bank stock are required to
maintain a deposit at the Reserve Bank in the same amount pending a
change in state law to permit purchase of the stock.
Proposed Secs. 209.4 (d) and (e) specify that transactions in
Reserve Bank capital stock between member banks and the Reserve Bank
take place at the subscription price plus accrued dividends at the rate
of one-half of one percent per month (provided that the total price
paid on redemption of Reserve Bank stock does not exceed the book value
of such stock). Under section 5 of the Act (12 U.S.C. 287), banks
applying for Reserve Bank capital stock are required to pay the
subscription price plus accrued dividends for such stock. Under
sections 5, 6, and 9(10) of the Act (12 U.S.C. 287, 288 and 328),
Reserve Banks redeeming their capital stock from member banks which are
in voluntary liquidation or which have been declared insolvent and for
which a receiver has been appointed, or from state member banks on
voluntary withdrawal from or involuntary termination of membership, are
required to pay a price equal to the cash subscription price originally
paid plus accrued dividends, but may not pay a price exceeding the book
value of the Reserve Bank stock. The Act is silent on whether accrued
dividends are payable by Reserve Banks in other cases such as merger
into nonmember banks. In cases where the Act requires accrued
dividends, it specifies that they shall accrue at one-half percent per
completed month but is silent on whether dividends should be prorated
to accrue within a month.
In practice, Reserve Banks have included accrued dividends in both
purchases and redemptions, including intra-month accrued dividends, and
the proposal applies the concept of accrued dividends to all
transactions in Reserve Bank capital stock.1 The proposal also
continues the Board's practice of accruing dividends within a month.
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\1\ Under sections 6 and 9(10) of the Act, the Board is under no
obligation to pay unearned accrued dividends on redemption of
Reserve Bank capital stock from insolvent member banks for which a
receiver has been appointed or from state member banks on voluntary
withdrawal from or involuntary termination of membership. See, e.g.,
Board Interpretation of April 17, 1925, X-4322, and related note,
published in Federal Reserve Regulatory Service at 3-500.
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The Board seeks comment on the appropriate method of computing
accrued dividends. Generally the Reserve Banks have accrued intra-month
dividends on the basis of the actual number of days elapsed within a
month divided by the number of actual days in the month. This method
results in different daily accruals depending on the number of days in
the month for which intra-month accrued dividends are calculated. The
Board requests comment on whether adopting another method, such as use
of a standard 30-day month, would simplify the computation.
Proposed Sec. 209.4(e)(2) specifies that in the case of any
cancellation of Reserve Bank stock under Regulation I, the Reserve Bank
may first apply the proceeds to any liability of the member bank to the
Reserve Bank, and pay over the remainder to the bank or receiver as
appropriate. This replaces a similar requirement in existing
Sec. 209.5(b), and clarifies that the principle may apply to partial as
well as total cancellations.
The Share Register
Proposed Sec. 209.5 revises the share register provision of the
Regulation to reflect the modern book-entry and electronic records
systems the Reserve Banks have implemented. This change permits
eliminating the numerous and confusing provisions of the existing
Regulation that deal with the circumstances under which share
certificates may be retained or must be submitted for reissue. For
example, existing Sec. 209.13(a) requires a member bank to surrender
its certificate in the event of a change in name for the Reserve Bank
to issue a new certificate in the new name. Existing Sec. 209.5(a)
includes a lengthy footnote explaining the difference between transfer
of Reserve Bank stock certificates by purchase and by operation of law,
because a new certificate is not required in the case of transfer by
operation of law. Under the proposal, the Reserve Bank in each case
need merely change the name of the stockholder in its records.
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. Two of the requirements of an initial
regulatory flexibility analysis (5 U.S.C. 603(b))--a description of the
reasons why action by the agency is being considered and a statement of
the objectives of, and legal basis for, the proposed rule--are
contained in ``Background'' above. The proposed rules do not overlap
with other federal rules.
Another requirement for the initial regulatory flexibility analysis
is a description of and, where feasible, an estimate of the number of
small entities to which the proposed rule will apply. The proposal will
apply to all member banks regardless of size.
The amendments are burden-reducing. Therefore, the Board believes
that the amendments will not have a significant adverse economic impact
on a substantial number of small entities.
Paperwork Reduction Act
In accordance with the Paperwork Reduction Act notice of 1995 (44
U.S.C. Ch. 3506; 5 CFR Part 1320, Appendix A.1), the Board has reviewed
the rule under the authority delegated to the Board by the Office of
Management and Budget. No collections of information pursuant to the
Paperwork Reduction Act are contained in the proposed rule.
List of Subjects in 12 CFR Part 209
Banks and banking, Federal Reserve System, Reporting and
recordkeeping requirements, Securities.
[[Page 15299]]
Authority and Issuance
For the reasons set forth in the preamble, the Board proposes to
revise part 209 of chapter II of title 12 to read as follows:
PART 209--ISSUE AND CANCELLATION OF FEDERAL RESERVE BANK CAPITAL
STOCK (REGULATION I)
Sec.
209.1 Authority, purpose, and scope.
209.2 Banks desiring to become member banks.
209.3 Cessation of membership.
209.4 Amounts and payments.
209.5 The share register.
Authority: 12 U.S.C. 248, 321-338, 466, 486.
Sec. 209.1 Authority, purpose, and scope.
(a) Authority. This part is issued pursuant to 12 U.S.C. 248, 321-
338, 466, and 486.
(b) Purpose. The purpose of this part is to implement the
provisions of the Federal Reserve Act relating to the issuance and
cancellation of Federal Reserve Bank stock upon becoming or ceasing to
be a member bank, or upon changes in the capital and surplus of a
member bank, of the Federal Reserve System.
(c) Scope. This part applies to member banks of the Federal Reserve
System, to national banks in process of organization, and to state
banks applying for membership. National banks and locally-incorporated
banks located in United States dependencies and possessions are
eligible (with the consent of the Board) but not required to apply for
membership under section 19(h) of the Federal Reserve Act, 12 U.S.C.
466.1
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\1\ If such a bank desires to become a member bank under the
provisions of section 19(h) of the Federal Reserve Act, it should
communicate with the Federal Reserve Bank with which it desires to
do business.
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Sec. 209.2 Banks desiring to become member banks.
(a) Application for stock or deposit. Each national bank in process
of organization, 2 each nonmember state bank converting into a
national bank, and each nonmember state bank applying for membership in
the Federal Reserve System under Regulation H, 12 CFR part 208, shall
file with the Federal Reserve Bank in whose district it is located an
application for stock (or deposit in the case of mutual savings banks
not authorized to purchase Reserve Bank stock 3) in the Reserve
Bank. The bank shall pay for the stock (or deposit) in accordance with
Sec. 209.4.
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\2\ A new national bank organized by the Federal Deposit
Insurance Corporation under section 11(n) of the Federal Deposit
Insurance Act (12 U.S.C. 1821(n)) should not apply until in the
process of issuing stock pursuant to section 11(n)(15) of that act.
Reserve Bank approval of such an application shall not be effective
until the issuance of a certificate by the Comptroller of the
Currency pursuant to section 11(n)(16)of that act.
\3\ A mutual savings bank not authorized to purchase Federal
Reserve Bank stock may apply for membership evidenced initially by a
deposit. [See Sec. 208.4(c) of Regulation H, 12 CFR 208.4(c), and
Secs. 208.3(a)(2) and 208.3(b) of Regulation H as proposed to be
amended and published elsewhere in today's Federal Register.] The
membership of the savings bank shall be terminated if the laws under
which it is organized are not amended to authorize such purchase at
the first session of the legislature after its admission, or if it
fails to purchase such stock within six months after such an
amendment.
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(b) Issuance of stock; acceptance of deposit. Upon authorization to
commence business by the Comptroller of the Currency in the case of a
national bank in organization or upon approval of conversion by the
Comptroller of the Currency in the case of a state nonmember bank
converting to a national bank, and when all applicable requirements
have been complied with in the case of a state bank approved for
membership, the Reserve Bank shall issue the appropriate number of
shares by crediting the bank with the appropriate number of shares on
its books. In the case of a mutual savings bank not authorized to
purchase Reserve Bank shares, the Reserve Bank shall accept the deposit
in place of issuing shares. The bank's membership shall become
effective on the date of such issuance or acceptance.
(c) Location of bank. Placeholder for location of bank.
Sec. 209.3 Cessation of membership.
(a) Application for cancellation. Any bank that desires to withdraw
from membership in a Federal Reserve Bank, voluntarily liquidates or
ceases business, is merged or consolidated into a nonmember bank, or is
involuntarily liquidated by a receiver or conservator or otherwise,
shall promptly file with its Reserve Bank an application for
cancellation of all its Reserve Bank stock (or withdrawal of its
deposit, as the case may be) and payment therefor in accordance with
Sec. 209.4.
(b) Involuntary termination of membership. If an application is not
filed promptly after a cessation of business by a state member bank, a
vote to place a member bank in voluntary liquidation, or the
appointment of a receiver for (or a determination to liquidate the bank
by a conservator of) a member bank, the Board may, after notice and an
opportunity for hearing where required under Section 9(9) of the
Federal Reserve Act (12 U.S.C. 327), order the membership of the bank
terminated and all of its Reserve Bank stock canceled.
(c) Effective date of cancellation. Cancellation in whole of a
bank's Reserve Bank capital stock shall be effective, in the case of:
(1) Voluntary withdrawal from membership by a state bank, as of the
date of such withdrawal;
(2) Merger into, consolidation with, or (for a national bank)
conversion into, a State nonmember bank, as of the effective date of
the merger, consolidation, or conversion; and
(3) Involuntary termination of membership, as of the date the Board
issues the order of termination.
(d) Merger of member banks. Upon a merger or consolidation of
member banks, the surviving bank shall instruct the relevant Reserve
Bank to cancel all the shares previously held by any nonsurviving bank.
To the extent appropriate, proceeds payable under Sec. 209.4 may be
applied to purchase additional shares in the name of the surviving
bank.
(e) Voluntary withdrawal. Any bank withdrawing voluntarily from
membership shall give 6 months written notice, and shall not cause the
withdrawal of more than 25 percent of any Reserve Bank's capital stock
in any calendar year, without waivers of these requirements from the
Board of Governors.
Sec. 209.4 Amounts and payments.
(a) Amount of subscription. The total subscription of a member bank
(other than a mutual savings bank) shall equal six percent of its
capital and surplus. Whenever any member bank (other than a mutual
savings bank) experiences an increase or decrease in capital and
surplus, it shall file with the appropriate Reserve Bank an application
for issue or cancellation of Reserve Bank capital stock in order to
adjust its Reserve Bank capital stock subscription to equal six percent
of the member bank's capital and surplus.
(b) Capital Stock and Surplus defined. Capital stock and surplus of
a member bank at the end of a quarter means the paid-up capital stock
and surplus of the bank, less any deficit in its retained earnings
account, all as shown on the bank's call report as of the end of the
quarter. A Reserve Bank may permit a member bank to disregard a
relatively small deficit in its retained earnings account until the end
of the quarter in which the deficit arises if the Reserve Bank is
satisfied that the deficit will be extinguished by accumulation of
earnings or by a formal reduction of surplus.
[[Page 15300]]
(c) Mutual savings banks. The total subscription of a member bank
that is a mutual savings bank shall equal six-tenths of 1 percent of
its total deposit liabilities as shown on its most recent report of
condition. Whenever any member bank that is a mutual savings bank
experiences an increase or decrease in total deposit liabilities as
shown on its most recent report of condition, it shall file with the
appropriate Reserve Bank an application for issue or cancellation of
Reserve Bank capital stock in order to adjust its Reserve Bank capital
stock subscription to equal six-tenths of one percent of its total
deposit liabilities. A mutual savings bank that is applying for or has
a deposit with the appropriate Reserve Bank in lieu of Reserve Bank
capital stock shall file for acceptance or adjustment of its deposit in
a like manner.
(d) Payment for subscriptions. Upon approval by the Reserve Bank of
an application for capital stock (or for a deposit in lieu thereof),
the applying bank shall pay the Reserve Bank one-half of the
subscription amount plus accrued dividends at the rate of one half of
one percent per month. Upon payment (and in the case of a national
banks in organization or state nonmember bank converting into a
national bank, upon authorization or approval by the Comptroller of the
Currency), the Reserve Bank shall issue the appropriate number of
shares by crediting the bank with the appropriate number of shares on
its books. In the case of a mutual savings bank not authorized to
purchase Reserve Bank stock, the Reserve Bank will accept the deposit
or addition to the deposit in place of issuing shares. The remaining
half of the subscription or additional subscription (including
subscriptions for deposits or additions to deposits) shall be subject
to call by the Board.
(e) Payment for cancellations. (1) Upon approval of an application
for cancellation of Reserve Bank capital stock, the Reserve Bank shall
reduce the bank's shareholding on the Reserve Bank's books by the
number of shares required to be canceled and shall pay therefor a sum
equal to the cash subscription paid on the canceled stock plus accrued
dividends at the rate of one half of one percent per month, such sum
not to exceed the book value of the stock. 4
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\4\ Under sections 6 and 9(10) of the Act, the Board is under
no obligation to pay unearned accrued dividends on redemption of
Reserve Bank capital stock from insolvent member banks for which a
receiver has been appointed or from state member banks on voluntary
withdrawal from or involuntary termination of membership.
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(2) In the case of any cancellation of Reserve Bank stock under
this Part, the Reserve Bank may first apply such sum to any liability
of the bank to the Reserve Bank and pay over the remainder to the bank
(or receiver or conservator, as appropriate).
Sec. 209.5 The share register.
(a) Electronic or written record. A member bank's holding of
Reserve Bank capital stock shall be represented by one (or at the
option of the Reserve Bank, more than one) notation on the Reserve
Bank's books. Such books may be electronic or in writing. Upon any
issue or cancellation of Reserve Bank capital stock, the Reserve Bank
shall record the member bank's new share position in its books (or
eliminate the bank's share position from its books, as the case may
be).
(b) Certification. A Reserve Bank may certify on request as to the
number of shares held by a member bank and purchased before March 28,
1942, or as to the purchase and cancellation dates and prices of shares
cancelled, as the case may be.
By order of the Board of Governors of the Federal Reserve
System, March 20, 1997.
William W. Wiles,
Secretary of the Board.
[FR Doc. 97-7587 Filed 3-28-97; 8:45 am]
BILLING CODE 6210-01-P
