[Federal Register: August 14, 2006 (Volume 71, Number 156)]
[Proposed Rules]
[Page 46411-46412]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14au06-21]
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Proposed Rules
Federal Register
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This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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[[Page 46411]]
FEDERAL RESERVE SYSTEM
12 CFR Part 204
[Regulation D; Docket No. R-1262]
Reserve Requirements of Depository Institutions
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Notice of proposed rulemaking; request for public comment.
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SUMMARY: The Board proposes to revise its 1980 interpretation of
Regulation D (Reserve Requirements of Depository Institutions) setting
forth criteria for the ``bankers' bank'' exemption from reserve
requirements. The interpretation sets forth the standards that the
Board uses in applying the statutory and regulatory requirements for
the bankers' banks exemption to specific institutions. The proposed
revisions would authorize the Board to determine, on a case by case
basis, whether certain entities not already expressly authorized in the
interpretation may become customers to a limited extent of bankers'
banks.
DATES: Comments must be received by September 13, 2006.
ADDRESSES: You may submit comments, identified by Docket No. R-1262, by
any of the following methods:
Agency Web Site: http://www.federalreserve.gov Follow the instructions for submitting comments at http://www.federalreserve.gov/.
.
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
E-mail: regs.comments@federalreserve.gov. Include the
docket number in the subject line of the message.
FAX: (202) 452-3819 or (202) 452-3102.
Mail: Jennifer J. Johnson, Secretary, Board of Governors
of the Federal Reserve System, 20th Street and Constitution Avenue,
NW., Washington, DC 20551.
All public comments are available from the Board's Web site at
http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as
submitted, unless modified for technical reasons. Accordingly, your
comments will not be edited to remove any identifying or contact
information. Public comments may also be viewed electronically or in
paper in Room MP-500 of the Board's Martin Building (20th and C
Streets, NW.) between 9 a.m. and 5 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT: Heatherun Allison, Senior Counsel,
(202) 452-3565; or Stephanie Martin, Associate General Counsel, (202)
452-3198, Legal Division, Board of Governors of the Federal Reserve
System, Washington, DC 20551. For users of Telecommunications Device
for the Deaf (TDD) only, contact (202) 263-4869.
SUPPLEMENTARY INFORMATION:
I. Statutory Background
Section 19(b) of the Federal Reserve Act (Act) imposes reserve
requirements on certain deposits and other liabilities of depository
institutions. 12 U.S.C. 461(b). The Board's Regulation D, ``Reserve
Requirements of Depository Institutions'' (12 CFR part 204), implements
section 19(b). Section 19(b)(9) of the Act, commonly referred to as the
``bankers' bank exemption,'' exempts from reserve requirements certain
depository institutions that would otherwise be subject to them.
Specifically, Section 19(b)(9) provides that reserve requirements
``shall not apply with respect to any financial institution which--(A)
Is organized solely to do business with other financial institutions;
(B) is owned primarily by the financial institutions with which it does
business; and (C) does not do business with the general public.'' 12
U.S.C. 461(b)(9). Section 19(a) of the Act authorizes the Board to
define the terms used in section 19 and to prescribe such regulations
as it may deem necessary to effectuate the purposes of the section and
to prevent evasions thereof.
II. Issuance of Original Interpretation
In November 1980, the Board issued an interpretation of Regulation
D specifying certain standards to be used in applying these
requirements to specific institutions to determine whether they qualify
for the bankers' bank exemption. 12 CFR 204.121 (Interpretation). Under
the Interpretation, an institution may be regarded as ``organized
solely to do business with other depository institutions even if, as an
incidental part to [sic] its activities, it does business to a limited
extent with entities other than depository institutions.'' Id. In
addition, a depository institution will be regarded as ``being owned
primarily by the institutions with which it does business'' if ``75 per
cent or more of its capital is owned by other depository institutions *
* * regardless of the type of depository institution.'' Id.
Finally, the Interpretation states that a depository institution
will be regarded as ``not do[ing] business with the general public'' if
the depository institution satisfied two requirements. First, the
depository institution must limit the range of customers with which it
does business to: Depository institutions; subsidiaries or
organizations owned by depository institutions; directors, officers or
employees of the same or other depository institutions; individuals
whose accounts are required at the request of the institution's
supervisory authority due to the actual or impending failure of another
depository institution; share insurance funds; and depository
institution trade associations. Second, the depository institution's
loans to or investment in that range of customers (other than
depository institutions) cannot exceed 10 percent of total assets, and
the extent to which it receives shares or deposits from or issues other
liabilities to those same entities (other than depository institutions)
cannot exceed 10 percent of total liabilities or net worth. Id.
III. Proposed Revisions
The Board proposes to amend the Interpretation to authorize the
Board to expand the ``range of customers'' with which a bankers' bank
may permissibly do business. The Board proposes to add to the current
list of non-depository institution customers with which bankers' banks
may do business the language ``and such others as the Board may
determine on a case by case basis consistent with the purposes of the
Act and the bankers' bank exemption.'' Such customers would still be
subject to the percentage limitations specified in the Interpretation
relating to ownership and doing business (i.e., not more than 25
[[Page 46412]]
percent of bankers' bank capital may be owned by non-depository
institution customers and bankers' bank business with non-depository
institution customers may not exceed 10 percent of total assets/
liabilities).
The Board believes that this amendment is appropriate in order to
align the Interpretation more closely with current business and
regulatory practices relating to bankers' banks. The Board has received
inquiries concerning whether certain non-depository institution
entities not already listed in the Interpretation may permissibly do
business with bankers' banks, and it appears that amending the
Interpretation to allow case by case determinations of such inquiries
is appropriate at this time. The Board is not proposing at this time to
specify any standards under which it would make such case by case
determinations in order to provide institutions and the Board with
flexibility in making such determinations, in keeping with the purposes
of the Act and the bankers' bank exemption. Specifically, the Board
anticipates that such requests would be made only in cases where
granting the request would facilitate the conduct of bankers' banking
business. Accordingly, the Board would not generally expect to exercise
such authority for the purpose of expanding the range of non-depository
institution customers of bankers' banks to include the general public.
The Board expects that, if this amendment is adopted, the Board should
over time obtain increased experience with future requests, and based
on that experience may find that proposing further amendments
(including standards) to the Interpretation are warranted.
Comment is solicited on all aspects of the proposal.
IV. Form of Comment Letters
Comment letters should refer to Docket No. R-1262 and, when
possible, should use a standard typeface with a font size of 10 or 12;
this will enable the Board to convert text submitted in paper form to
machine-readable form through electronic scanning, and will facilitate
automated retrieval of comments for review. Comments may be mailed
electronically to regs.comments@federalreserve.gov.
V. Solicitation of Comments Regarding Use of ``Plain Language''
Section 722 of the Gramm-Leach-Bliley Act of 1999 requires the
Board to use ``plain language'' in all proposed and final rules
published after January 1, 2000. The Board invites comments on whether
the proposed rule is clearly stated and effectively organized, and how
the Board might make the proposed text easier to understand.
VI. Initial Regulatory Flexibility Analysis
In accordance with section 3(a) of the Regulatory Flexibility Act
(RFA) (5 U.S.C. 601 et seq.), the Board has reviewed the proposed
amendments to the Interpretation of Regulation D. A final regulatory
flexibility analysis will be conducted after consideration of comments
received during the public comment period.
1. Statement of the objectives of the proposal. The Board is
proposing revisions to its Interpretation of Regulation D in order to
authorize the Board to determine, on a case by case basis, whether non-
depository institutions that are not already listed in the
Interpretation may be bankers' bank customers without the bankers' bank
losing its exemption from reserve requirements. Section 19 of the Act
was enacted to impose reserve requirements on certain deposits and
other liabilities of depository institutions for monetary policy
purposes. Section 19 exempts certain institutions from reserve
requirements as ``bankers'' banks'' provided that the institutions meet
the characteristics specified in the statute. Section 19 also
authorizes the Board to promulgate such regulations as it may deem
necessary to effectuate the purposes of the section. The Board believes
that the proposed revisions to the Interpretation are within the
Congress' broad grant of authority to the Board to adopt provisions
that carry out the purposes of section 19 of the Act.
2. Small entities affected by the proposal. The number of small
entities affected by this proposal is unknown. The proposal would only
affect those entities, regardless of size, that choose to request a
Board determination to permit them to do business with non-depository
institutions not already specified in the Interpretation while
maintaining their bankers' bank exemption from reserve requirements.
3. Other federal rules. The Board believes that no federal rules
duplicate, overlap, or conflict with the proposed revisions to the
Interpretation.
4. Significant alternatives to the proposed revisions. The Board
welcomes comment on any significant alternatives that would minimize
the impact of the proposed rule on small entities.
VII. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. 3506; 5 CFR part 1320 Appendix A.1), the Board reviewed the
proposed rule under the authority delegated to the Board by the Office
of Management and Budget (OMB). The proposed rule contains no
requirements subject to the PRA.
12 CFR Chapter II
List of Subjects in 12 CFR Part 204
Banks, banking, Reporting and recordkeeping requirements.
For the reasons set forth in the preamble, the Board is proposing
to amend 12 CFR part 204 as follows:
PART 204--RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
(REGULATION D)
1. The authority citation for part 204 continues to read as
follows:
Authority: 12 U.S.C. 248(a), 248(c), 371a, 461, 601, 611, and
3105.
2. The second sentence of paragraph (a)(2)(iii) of Sec. 204.121 is
revised to read as follows:
Sec. 204.121 Bankers' banks.
(a) * * *
(2) * * *
(iii) * * * First, the range of customers with which the
institution does business must be limited to depository institutions;
directors, officers or employees of the same or other depository
institutions; individuals whose accounts are acquired at the request of
the institution's supervisory authority due to the actual or impending
failure of another depository institution; share insurance funds;
depository institution trade associations; and such others as the Board
may determine on a case by case basis consistent with the purposes of
the Act and the bankers' bank exemption.* * *
* * * * *
By order of the Board of Governors of the Federal Reserve
System, August 8, 2006.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. E6-13235 Filed 8-11-06; 8:45 am]
BILLING CODE 6210-01-P