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Financial Services Law Insights and Observations

Federal Reserve Publishes Rules to Simplify Administration of Reserve Requirements

Federal Reserve

Consumer Finance

On April 12, the FRB published two final rules designed to simplify the administration of reserve requirements and reduce administrative and operational costs for depository institutions and the Federal Reserve Banks. The FRB amended Regulation D to (i) create a common two-week maintenance period, (ii) create a penalty-free band around reserve balance requirements in place of using carryover and routine penalty waivers, (iii) discontinue “as-of adjustments” related to deposit report revisions and replace all other such adjustments with direct compensation, and (iv) eliminate the contractual clearing balance program. These changes will be phased in, with the latter two taking effect on July 12, 2012, and the first two taking effect on January 24, 2013.  A second rule amends Regulation J to make it consistent with the Regulation D amendments by eliminating references to “as-of adjustments.” The rule also clarifies the handling of checks sent to the Federal Reserve Banks and the application of funds transfer rules to remittance transfers. These changes will take effect on July 12, 2012. Finally, with these rule changes, the FRB also announced modifications to its overnight overdraft policy, which also will take effect on July 12, 2012.