[Federal Register Volume 62, Number 124 (Friday, June 27, 1997)]
[Rules and Regulations]
[Pages 34613-34617]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-16872]
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FEDERAL RESERVE SYSTEM
12 CFR Parts 204 and 209
[Regulations D and I; Docket No. R-0963]
Reserve Requirements of Depository Institutions and Issue and
Cancellation of Capital Stock of Federal Reserve Banks
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final rule.
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SUMMARY: The Board is amending Regulations D and I, Reserve
Requirements of Depository Institutions and Issue and Cancellation of
Capital Stock of Federal Reserve Banks, respectively, to define the
location of a depository institution for purposes of Federal Reserve
membership and reserve account maintenance. These amendments will
facilitate interstate banking.
[[Page 34614]]
EFFECTIVE DATE: October 1, 1997.
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: Recent statutory changes have eliminated
many barriers to interstate banking.1 Consequently, the
number of depository institutions that operate branches in more than
one Federal Reserve District is expected to increase. On January 2,
1998, the Federal Reserve Banks will begin to implement a new account
structure that will provide a single Federal Reserve account for each
domestic depository institution.
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\1\ See, the Riegle-Neal Interstate Banking and Branching
Efficiency Act, Pub. L. 103-328, 108 Stat. 2338 (1994).
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The advent of interstate banking raises questions as to how certain
provisions of the Federal Reserve Act (FRA) 2 will apply to
banks with interstate branches. Many of these questions are related to
a bank's ``location.'' To date, the Board and the Federal Reserve Banks
generally have interpreted the term ``location,'' as used in the FRA,
to mean the geographic location of a bank, heavily influenced by the
location specified in the bank's charter, or if no charter location is
specified, the location of the bank's head office. This interpretation,
however, may not always be appropriate in an interstate branching
environment, where a bank may have offices in multiple Federal Reserve
Districts and do most of its business in places other than its charter
or head office location. In March 1997, the Board proposed amendments
to its Regulation D (12 CFR part 204, Reserve Requirements of
Depository Institutions) and Regulation I (12 CFR part 209, Issue and
Cancellation of Capital Stock of Federal Reserve Banks) to define
``location'' for purposes of the Federal Reserve membership and reserve
account maintenance (62 FR 11117, March 11, 1997).
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\2\ 12 U.S.C. 221 et seq.
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Background
A member bank, even if it has interstate branches, must be a member
of a particular Federal Reserve Bank. The membership question is
closely related to other location issues such as where reserve accounts
are located and where account entries are posted. Every national bank
is required to become a member and stockholder of the Federal Reserve
Bank of its district (FRA section 2(1)). State banks may apply to the
Board to subscribe to the stock of the Federal Reserve Bank organized
within the district in which the applying bank is located (FRA section
9(1)). These provisions suggest that membership is limited to one
Federal Reserve Bank and that membership is to be determined by the
geographical location of the bank.
A bank must hold reserves at the Federal Reserve Bank of which it
is a member or where it maintains an account (FRA section 19(c)(1)).
Therefore, a nonmember bank would hold its reserve account at the
Reserve Bank where it maintains an account for purposes of check
collection and other payments services. FRA section 13(1) provides that
the nonmember bank may maintain this clearing account with the Federal
Reserve Bank of its district.
Charter or head office location is the status quo under the FRA as
to where a bank is located for membership purposes and nonmember
reserve account purposes. The National Bank Act requires a national
bank's organization certificate to state the place where its operations
of discount and deposit are to be carried on, designating the state,
territory, or district, and the particular county and city, town, or
village (12 U.S.C. 22). State laws may be less specific with respect to
state-chartered banks, and the determination of the bank's location may
not be ascertainable from the bank's charter.
Under a strict interpretation of the charter/head office rule, a
bank could be a member only of the Reserve Bank whose district
encompasses the location specified in its charter or, in the case of a
state bank with no specific charter location, the location of its head
office. For a bank with interstate branches, however, this location
test may not be the appropriate means of determining where the bank is
located for membership or reserve account purposes. An interstate bank
may have its main office or do the bulk of its business somewhere other
than its charter location and may wish to establish a Federal Reserve
Bank relationship closer to its business headquarters. Similarly, a
bank holding company with subsidiary banks in multiple Federal Reserve
Districts that manages those banks as a combined business may wish to
centralize operations in a single district. In addition, the Board and
the Federal Reserve Banks may find it more efficient to administer a
bank's account and perform other functions in a district other than the
district encompassing the charter or head office location.
Board's Proposal
Section 9(1) of the FRA authorizes the Board to prescribe rules and
regulations governing applications by state banks to subscribe to the
stock of the Federal Reserve Bank organized within the district in
which the applying bank is located. Section 2(1) of the FRA requires
national banks to become member banks in accordance with the provisions
of the FRA, and section 11(i) gives the Board general authority to
write rules necessary to perform its duties, functions, and services
under the FRA. Accordingly, the Board proposed to amend Regulation I to
set forth a definition of ``location'' for the purpose of acquiring
Federal Reserve Bank stock. This amendment also would help answer other
member bank location questions related to reserve account maintenance,
supervision, and other issues.
The proposed Regulation I provision stated a general rule that, for
membership purposes, a bank is considered to be located in the Federal
Reserve District specified in the bank's charter or organizing
certificate, or, if no such location is specified, the location of its
head office. The Board could make exceptions to the general rule for a
particular bank after considering certain criteria. Thus, if the bank's
location were uncertain or its location based on its charter,
organizing certificate, or head office differed from the location where
it conducted most of its business, the Board, after consultation with
the relevant Reserve Banks, could designate the appropriate location
for membership purposes. (The relevant Reserve Banks are the Reserve
Bank whose district contains the bank's charter or head office location
and the Reserve Bank in whose district the bank is proposed to be
located.)
One consideration in making this determination would be whether any
other laws would require the bank to have a relationship with a
particular Reserve Bank. For example, Massachusetts and Nebraska laws
provide that state banks may become members of the Boston and Kansas
City Reserve Banks, respectively.3 The Board could also
consider other criteria, such as the business needs of the bank, where
the head office of the bank is located, where the bank does the bulk of
its business, and the location that would allow the bank, the Board,
and the Reserve Banks to perform their
[[Page 34615]]
functions most efficiently and effectively. For example, the Board
might consider the efficiency of bank supervisory functions, account
management, and Federal Reserve monetary policy. Generally, these
amendments would not affect current relationships between banks and
Federal Reserve Banks. A bank that already owns stock in or has an
account at a Federal Reserve Bank may, but need not, seek a Board
determination to change its location. The Board anticipates that the
``location'' issue will arise principally from mergers of existing
banks or other changes in the organization or management of bank
holding companies. Ordinarily, the Board expects that ``location''
decisions would be worked out between the Reserve Banks and the bank.
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\3\ Mass. Gen. L. ch. 167F, section 8 (1996) and Neb. Rev. Stat.
section 8-130 (1996).
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Although the proposed Regulation I amendment would be sufficient to
determine where a member bank's reserve account would be located, the
Board also proposed to amend Regulation D to clarify the location of
nonmember bank reserve accounts. The Board proposed this amendment
under the authority of section 19(c)(1) of the FRA, which provides that
depository institutions must hold reserves subject to such rules and
regulations that the Board may prescribe. The Regulation D amendment is
similar to the Regulation I proposal and would, in effect, assure that
nonmember banks are treated comparably to member banks for account
location purposes.
Regulation D also applies to Edge and agreement corporations and
U.S. branches and agencies of foreign banks. Section 25A of the FRA
requires Edge corporations to carry reserves in the same amounts as the
Board prescribes for member banks and authorizes the Board to write
rules governing the operations of such corporations. Section 25 of the
FRA also authorizes the Board to require agreement corporations to
maintain reserves. Section 7 of the International Banking Act provides
that Federal branches and agencies of foreign banks are subject to the
FRA's reserve requirement provisions (including section 19(c)) as if
they were member banks. That Act also provides that the Board may
impose the same requirements on state-licensed branches and agencies of
foreign banks after consultation and in cooperation with the state bank
supervisory authorities. The Board requested comment on whether it
should apply the same or similar criteria for determining the location
of reserve accounts for U.S. branches and agencies of foreign banks and
Edge and agreement corporations as it does for depository institutions.
Summary of Public Comments
The Board received 12 comments on the proposed amendments from the
following categories of entities:
Federal Reserve Banks.............................................. 4
Bank holding companies............................................. 3
Commercial banks................................................... 2
Trade associations................................................. 2
Credit unions...................................................... 1
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Total............................................................ 12
All of the commenters supported the Board's proposed amendments in
general and agreed that the amendments would provide operational
efficiencies and flexibility that will be necessary in an interstate
banking environment.
Role of Affected Bank
Three commenters asked the Board to clarify that, when making a
location determination, the Board will consult with the affected
depository institution as well as the affected Reserve Banks, as the
decision could have a significant impact on the depository
institution's operations. On a related point, two commenters suggested
that the Board clarify that a depository institution may request a
location determination. The Board had always intended that a location
determination would involve consideration of the views of, and in many
cases would be made at the initiation of, the affected institution. The
Board has modified the final regulatory language to provide that the
Board could make a location determination if it believes such a
determination is necessary to enable the institution operate
efficiently. The final amendments also provide that the Board will
consult with the affected institution, as well as the relevant Reserve
Banks, before making a location determination.
Limited Relocations
One commenter suggested that Board should avoid ``forum-shopping''
by limiting the number of times a bank may change its designated
location and by allowing relocations only when undertaken in good faith
and on a showing of good cause. As frequent relocations would probably
not allow the Board and the Reserve Banks to perform their functions
efficiently and effectively, the Board does not expect to allow
frequent relocations for a single institution.
Multiple Federal Reserve Memberships
One commenter stated that, should the Board consider accommodating
interstate banking and branching by allowing banks to become members of
two or more Reserve Banks, such a proposal would require careful
analysis, further public comment, and perhaps a legislative change. The
Board is not at this time considering allowing multiple Federal Reserve
memberships for a single bank.
Pass-Through Provisions
One commenter encouraged the Board to consider additional
amendments to Regulation D's pass-through provisions related to member
banks and out-of-district correspondents. The Board is in the process
of reviewing the pass-through provisions in light of the Reserve Banks'
single-account structure.
Obtaining Payments Services From Other Reserve Banks
Two commenters asked what effect, if any, the proposed amendments
would have on the ability of a depository institution to obtain
payments and other financial services from a Reserve Bank other than
the Reserve Bank at which it holds an account. The Board has proposed
amendments to Regulation J (12 CFR part 210), governing the collection
and return of checks through Federal Reserve Banks, that would allow an
institution to use the check collection services of any Reserve Bank,
regardless of where the institution maintains an account (62 FR 27547,
May 20, 1997). The Reserve Banks are currently revising their operating
circulars to provide institutions with similar flexibility for all
Federal Reserve services. These amendments to Regulations D and I,
therefore, would not affect the ability of an institution to obtain
services from any Reserve Bank.
One of these commenters also asked whether an institution's account
relationship and supervisory relationship could be with different
Reserve Banks. Absent unusual circumstances, the Board expects that the
most efficient and effective administration of Federal Reserve
functions generally would require the account and supervisory functions
for a particular depository institution to be located at a single
Reserve Bank.
U.S. Branches and Agencies of Foreign Banks; Edge and Agreement
Corporations
The Board received four comments on the treatment of U.S. branches
and agencies of foreign banks and Edge and agreement corporations under
the proposed amendments to Regulation D. All four commenters believed
that it would be logical to determine the location of these entities in
the same manner as for domestic institutions. The commenters also
raised questions related to the number of Federal Reserve
[[Page 34616]]
accounts that a foreign bank family (or Edge or agreement corporation
family) should maintain. The Board is currently reviewing the
appropriate treatment for accounts of these entities for reserve
purposes.
Effective Date
The effective date of the amendments to Regulations D and I is
October 1, 1997. This will allow institutions to request location
determinations three months in advance of the single account
implementation date. Although the Board may make determinations during
this three-month period, these determinations generally would not be
effective until January 2, 1998.
Delegation of Authority
In conjunction with the final amendments discussed above, the Board
is also amending its Rules Regarding the Delegation of Authority (12
CFR part 265) to provide that the Secretary of the Board may determine
an institution's location under Regulation D or Regulation I if the
relevant Federal Reserve Banks and the institution agree on the
specific Reserve Bank in which the institution should hold stock or
with which the institution should maintain a reserve account, and the
agreed-upon location does not raise any significant policy issues. See
Docket R-0973, elsewhere in today's Federal Register.
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,
regardless of size, and represent relatively minor changes to the
existing rules. 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. The amendments will clarify the location of an
institution for Federal Reserve membership and reserve account
maintenance purposes and, in some cases, could reduce economic burden
on affected institutions by allowing them to establish that location
more conveniently.
List of Subjects
12 CFR Part 204
Banks, banking, Federal Reserve System, Reporting and recordkeeping
requirements.
12 CFR Part 209
Banks, banking, Federal Reserve System, Reporting and recordkeeping
requirements, Securities.
For the reasons set out in the preamble, 12 CFR parts 204 and 209
are 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, paragraph (b) is revised to read as follows:
Sec. 204.3 Computation and maintenance.
* * * * *
(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 a pass-through account.
Reserves held in the form of a pass-through account shall be considered
to be a balance maintained with a Federal Reserve Bank.
(2) (i) For purposes of this section, a depository institution is
located in the Federal Reserve District that contains the location
specified in the institution's charter or organizing certificate, 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.
(ii) If the location specified in paragraph (b)(2)(i) of this
section, in the Board's judgment, is ambiguous, would impede the
ability of the Board or the Federal Reserve Banks to perform their
functions under the Federal Reserve Act, or would impede the ability of
the institution to operate efficiently, the Board will determine the
Federal Reserve District in which the institution is located, after
consultation with the institution and the relevant Federal Reserve
Banks. The relevant Federal Reserve Banks are the Federal Reserve Bank
whose District contains the location specified in paragraph (b)(2)(i)
of this section and the Federal Reserve Bank in whose District the
institution is proposed to be located. In making this determination,
the Board will consider any applicable laws, the business needs of the
institution, the location of the institution's head office, the
locations where the institution performs its business, and the
locations that would allow the institution, the Board, and the Federal
Reserve Banks to perform their functions efficiently and effectively.
* * * * *
PART 209--ISSUE AND CANCELLATION OF CAPITAL STOCK OF FEDERAL
RESERVE BANKS (REGULATION I)
3. The authority citation for part 209 continues to read as
follows:
Authority: 12 U.S.C. 248, 321-338, 486, 1814, 1816.
4. A new Sec. 209.15 is added to read as follows:
Sec. 209.15 Location of bank.
(a) General rule. For purposes of this part, a national bank or a
state bank is located in the Federal Reserve District that contains the
location specified in the bank's charter or organizing certificate, or,
if no such location is specified, the location of its head office,
unless otherwise determined by the Board under paragraph (b) of this
section.
(b) Board determination. If the location of a bank as specified in
paragraph (a) of this section, in the Board's judgment, is ambiguous,
would impede the ability of the Board or the Federal Reserve Banks to
perform their functions under the Federal Reserve Act, or would impede
the ability of the bank to operate efficiently, the Board will
determine the Federal Reserve District in which the bank is located,
after consultation with the bank and the relevant Federal Reserve
Banks. The relevant Federal Reserve Banks are the Federal Reserve Bank
whose District contains the location specified in the paragraph (a) of
this section and the Federal Reserve Bank in whose District the bank is
proposed to be located. In making this determination, the Board will
consider any applicable laws, the business needs of the bank, the
location of the bank's head office, the locations where the bank
performs its business, and the locations that would allow the bank, the
Board, and the Federal Reserve Banks to perform their functions
efficiently and effectively.
[[Page 34617]]
By order of the Board of Governors of the Federal Reserve
System, June 23, 1997.
William W. Wiles,
Secretary of the Board.
[FR Doc. 97-16872 Filed 6-26-97; 8:45 am]
BILLING CODE 6210-01-P
