03-621. Extensions of Credit by Federal Reserve Banks

AGENCY:

Board of Governors of the Federal Reserve System.

ACTION:

Final rule.

SUMMARY:

The Board of Governors is publishing final amendments to Regulation A to reflect its approval of the initial interest rates for extensions of primary and secondary credit. The amendments also correct a typographical error. These amendments supersede the text of one section of the final rule that the Board approved on October 31, 2002, and published in the Federal Register on November 7, 2002. The new primary and secondary credit rates do not indicate a change in the stance of monetary policy.

EFFECTIVE DATE:

January 9, 2003.

FOR FURTHER INFORMATION CONTACT:

Brian Madigan, Deputy Director (202/452-3828) or William Nelson, Senior Economist (202/452-3579), Division of Monetary Affairs; or Stephanie Martin, Assistant General Counsel (202/452-3198) or Adrianne Threatt, Counsel (202/452-3554), Legal Division; for users of Telecommunication Devices for the Deaf (TDD) only, contact 202/263-4869.

SUPPLEMENTARY INFORMATION:

On October 31, 2002, the Board announced that it would eliminate the adjustment and extended credit programs and replace them with new primary and secondary credit programs, effective January 9, 2003 (67 FR 67777, November 7, 2002). Reserve Banks will offer primary credit for very short terms (usually overnight) as a backup source of liquidity to depository institutions that the Reserve Banks deem to be in generally sound financial condition. The Board expects that most depository institutions will qualify for primary credit. Under appropriate circumstances, Reserve Banks may extend secondary credit as a backup source of liquidity to depository institutions that do not qualify for primary credit.

The preamble to the Board's final rule indicated the Board's expectation that the initial interest rate for primary credit would be 100 basis points above the prevailing target federal funds rate of the Federal Open Market Committee (FOMC) and that the initial secondary credit rate would be 50 basis points above the primary credit rate. At the time it published its final rule, the Board did not know what the target federal funds rate would be on January 9, 2003, and thus could not determine the initial primary and secondary credit rates. Section 201.51(a)-(b) of the October 2002 final rule therefore simply described the above-market rates for primary and secondary credit but did not list the actual rates to be in effect on January 9, 2003.

On January 6, 2003, the Federal Reserve Board approved requests by each of the 12 Federal Reserve Banks to establish an initial interest rate for primary credit of 2.25 percent, which is 100 basis points above the current target federal funds rate. The Board also approved requests by the 12 Federal Reserve Banks to establish an initial secondary credit rate of 2.75 percent. These new primary and secondary credit rates will be listed in tables contained at § 201.51(a)-(b). The Board also has amended § 201.51(c) to correct a typographical error in the cross-reference to § 201.4. These amendments supersede the text of § 201.51(a)-(c) that appeared in the Board's October 2002 final rule.

The Board reiterates that the new primary and secondary credit rates simply implement the new, above-market lending programs and do not affect the stance of monetary policy, as indexed by the FOMC's current target of 1.25 percent for the federal funds rate. The Reserve Banks will continue to establish rates on primary, secondary, and seasonal credit at least every two weeks, subject to review and determination of the Board of Governors, through the same procedures that have been used in the past to set the rates on adjustment, extended, and seasonal credit.

Regulatory Flexibility Act Certification

Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 605(b)), the Board certifies that the new primary and secondary credit rates will not have a significant adverse economic impact on a substantial number of small entities because the final rule does not impose any additional requirements on entities affected by the regulation.

Administrative Procedure Act

The Board did not follow the provisions of 5 U.S.C. 553(b) relating to notice and public participation in connection with the adoption of these amendments because the Board for good cause determined that delaying implementation of the new primary and secondary credit rates in order to allow notice and public comment would be impracticable, unnecessary, and contrary to the public interest in fostering price stability and sustainable economic growth. For these same reasons, the Board also has not provided 30 days prior notice of the effective date of the rule under section 553(d).

12 CFR Chapter II

List of Subjects in 12 CFR Part 201

• Banks
• Banking
• Federal Reserve System
• Reporting and recordkeeping

Authority and Issuance

For the reasons set forth in the preamble, the Board is amending 12 CFR chapter II to read as follows:

PART 201—EXTENSIONS OF CREDIT BY FEDERAL RESERVE BANKS (REGULATION A)

1. The authority citation for part 201 continues to read as follows:

Authority: 12 U.S.C. 248(i)-(j), 343 et seq., 347a, 347b, 347c, 348 et seq., 357, 374, 374a, and 461.

2. Section 201.51 (a) through (c) is revised to read as follows:

§ 201.51

Interest rates applicable to credit extended by a Federal Reserve Bank.

(a) Primary credit. The interest rates for primary credit provided to depository institutions under § 201.4(a) are:

Federal Reserve Bank	Rate	Effective
Boston	2.25	January 9, 2003.
New York	2.25	January 9, 2003.
Philadelphia	2.25	January 9, 2003.
Cleveland	2.25	January 9, 2003.
Richmond	2.25	January 9, 2003.
Atlanta	2.25	January 9, 2003.
Chicago	2.25	January 9, 2003.
St. Louis	2.25	January 9, 2003.
Minneapolis	2.25	January 9, 2003.
Kansas City	2.25	January 9, 2003.
Dallas	2.25	January 9, 2003.
San Francisco	2.25	January 9, 2003.

(b) Secondary credit. The interest rates for secondary credit provided to depository institutions under 201.4(b) are:

Federal Reserve Bank	Rate	Effective
Boston	2.75	January 9, 2003.
New York	2.75	January 9, 2003.
Philadelphia	2.75	January 9, 2003.
Cleveland	2.75	January 9, 2003.
Richmond	2.75	January 9, 2003.
Atlanta	2.75	January 9, 2003.
Chicago	2.75	January 9, 2003.
St. Louis	2.75	January 9, 2003.
Minneapolis	2.75	January 9, 2003.
Kansas City	2.75	January 9, 2003.
Dallas	2.75	January 9, 2003.
San Francisco	2.75	January 9, 2003.

(c) Seasonal credit. The rate for seasonal credit extended to depository institutions under § 201.4(c) is a flexible rate that takes into account rates on market sources of funds.

* * * * *

By order of the Board of Governors of the Federal Reserve System, January 8, 2003.

Jennifer J. Johnson,

Secretary of the Board.