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Financial Services Law Insights and Observations

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  • Fed amends Reg. D, invites comments on FedNow transfers

    Agency Rule-Making & Guidance

    On June 2, the Federal Reserve Board announced the approval of a final rule amending Regulation D, which eliminates “references to an interest on required reserves” rate and “to an interest on excess reserves” rate and replaces them with a reference to “a single interest on reserve balances” rate. The final rule also simplifies “the formula used to calculate the amount of interest paid on balances maintained by or on behalf of eligible institutions in master accounts at Federal Reserve Banks.” The final rule is effective July 29.

    Earlier, on June 1, the Fed also issued a proposed rule, which would create a new, comprehensive set of rules for governing funds transfers over the FedNow Service. Specifically, the proposed rule would amend Regulation J by establishing a new subpart C to specify terms and conditions for the processing of funds transfers by Reserve Banks. It would also grant Reserve Banks the authority to issue operating circulars for the FedNow Service, and would include, among other things, a requirement that a beneficiary’s bank agree to “make funds available to the beneficiary immediately after it has accepted the payment order.” The Fed is also proposing changes and clarifications to subpart B, which governs the Fedwire Funds Services, “to reflect the fact that the Reserve Banks will be operating a second funds transfer service in addition to the Fedwire Funds Service.” As previously covered by InfoBytes, the Fed intends to implement the FedNow Service—a “round-the-clock real-time payment and settlement service”—through a phased approach with a target launch date sometime in 2023 or 2024. Comments on the proposed rule are due 60 days after publication in the Federal Register.

     

    Agency Rule-Making & Guidance Federal Issues Federal Reserve Payments Payment Systems Regulation D Regulation J Depository Institution

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  • Federal Reserve issues FAQs on recent Regulation D changes

    Federal Issues

    On May 13, the Federal Reserve published updated frequently asked questions (FAQs) regarding savings deposits under the recent changes to Regulation D. On April 23, the Federal Reserve issued an interim final rule amending Regulation D, which we previously covered here. Among other things, the interim rule deleted restrictions on transfers to address financial disruptions related to Covid-19. The FAQs clarify the definition of a savings deposit under the regulation, requirements for reporting savings deposits, reservation rights, and whether amendments to Regulation D impact Regulation CC.   

    Federal Issues Covid-19 Federal Reserve Regulation D

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  • Fed IFR allows unlimited monthly convenient transfers and withdrawals

    Federal Issues

    On April 23, the Fed issued an interim final rule (IFR) which will remove the limit on monthly transfers from “savings deposits” in Regulation D. The IFR revises Regulation D’s definition of a savings deposit so that it no longer includes the monthly convenient transfer limit of six. The IFR permits, but does not require, institutions to suspend enforcement of the six transfer limit. The IFR contains frequently asked questions and answers on the impact it will have on accounts, reporting and funds access. The Federal Register announcement is linked here. Federal Financial Institutions Examination Council reports that may be affected by this IFR will be addressed later. The IFR took effect on April 23, and the Fed will accept comments until June 22.

    Federal Issues Agency Rule-Making & Guidance Federal Reserve SBA Regulation D CARES Act Covid-19

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  • Fed issues final rules related to rate decreases

    Agency Rule-Making & Guidance

    On August 12, the Federal Reserve Board (Fed) published two final rules following its July 31 decision to lower the target range for the federal funds rate to 2 - 2.25 percent. These rules affect the primary and secondary credit available to depository institutions as a short-term backup source of funding, as well as reserve requirements that depository institutions must meet.

    A final rule amending Regulation A (Extensions of Credit by Federal Reserve Banks) was issued to reflect the Fed’s approval of a one-quarter percent decrease, from 3 percent to 2.75 percent. Additionally, because the formula for the secondary credit rate incorporates the primary rate, the secondary credit rate also decreased by one-quarter percentage point, from 3.50 percent to 3.25 percent. The amendments are effective August 12, with rate changes for primary and secondary credit applicable on August 1.

    A second final rule amending Regulation D (Reserve Requirements of Depository Institutions) was issued to reflect approval of a one quarter percent decrease to the rate of interest paid on balances maintained to satisfy reserve balance requirements (IORR), along with the rate of interest paid on excess balances (IOER) maintained at Federal Reserve Banks by or on behalf of eligible institutions. The final rule specifies that both the IORR and the IOER are 2.10 percent. The amendments are effective August 12, with IORR and IOER rate changes applicable on August 1.

    Agency Rule-Making & Guidance Federal Reserve Regulation A Regulation D Bank Compliance

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  • Federal Reserve issues final rules reflecting credit and interest rate increases

    Agency Rule-Making & Guidance

    On January 31, the Federal Reserve Board (Fed) published a final rule amending Regulation A (Extensions of Credit by Federal Reserve Banks) to reflect its December 19 approval of a one-quarter percent increase, from 2.75 percent to 3 percent. Additionally, because the formula for the secondary credit rate incorporates the primary rate, the secondary credit rate also increased by one-quarter percentage point, from 3.25 percent to 3.5 percent. The rate changes took effect on January 31, but were applicable on December 20, 2018.

    The same day, the Fed also issued a final rule amending Regulation D (Reserve Requirements of Depository Institutions) to reflect approval of a 0.20 percentage point increase to the “rate of interest paid on balances maintained to satisfy reserve balance requirements (“IORR”) and the rate of interest paid on excess balances (“IOER”), both now at 2.4 percent, maintained at Federal Reserve Banks by or on behalf of eligible institutions.” The rate changes took effect on January 31, but were applicable on December 20.

    Agency Rule-Making & Guidance Federal Reserve Regulation A Regulation D Federal Register

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  • Federal Reserve sets annual indexing requirements under Regulation D for 2019

    Agency Rule-Making & Guidance

    On October 25, the Federal Reserve Board announced the annual indexing of the reserve requirement exemption amount and the low reserve tranche for 2019 under Regulation D. For 2019, Regulation D is amended to set the reserve requirement exemption amount at $16.3 million (an increase from 2018’s $16 million) and the low reserve tranche at $124.2 million (an increase from 2018’s $122.3 million). The new low reserve tranche and reserve requirement exemption amount will apply to the fourteen-day reserve maintenance period that begins January 17, 2019. The final amendments are effective 30 days after publication in the Federal Register.

    Agency Rule-Making & Guidance Federal Reserve Regulation D Federal Register

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  • Federal Reserve issues final rules reflecting credit and interest rate increases

    Agency Rule-Making & Guidance

    On June 20, the Federal Reserve issued a final rule amending Regulation A (Extensions of Credit by Federal Reserve Banks) to reflect its June 14 approval of a one-quarter percent increase in the primary credit rate at each Federal Reserve Bank. Because the formula for the secondary credit rate references the primary rate, the secondary credit rate also increased by one-quarter percentage point.

    The same day, the Federal Reserve also issued a final rule amending Regulation D (Reserve Requirements of Depository Institutions) to reflect its June 14 approval of a one-quarter percent increase to the “rate of interest paid on balances maintained to satisfy reserve balance requirements (IORR) and the rate of interest paid on excess balances (IOER) maintained at Federal Reserve Banks by or on behalf of eligible institutions.”

    Agency Rule-Making & Guidance Federal Reserve Federal Register Regulation A Regulation D

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  • Federal Reserve Issues Final Rules Reflecting Credit and Interest Rate Increases

    Agency Rule-Making & Guidance

    On December 20, the Federal Reserve Board (Fed) issued a final rule amending Regulation A (Extensions of Credit by Federal Reserve Banks) to reflect its December 13 approval of a one-quarter percent increase in the primary credit rate at each Federal Reserve Bank. Additionally, because the formula for the secondary credit rate references the primary rate, the secondary credit rate also increased by one-quarter percentage point. The rate changes took effect on December 14, and the final rule became effective on December 20.

    The same day, the Fed also issued a final rule amending Regulation D (Reserve Requirements of Depository Institutions) to reflect its December 13 approval of a one-quarter percent increase to the “rate of interest paid on balances maintained to satisfy reserve balance requirements (“IORR”) and the rate of interest paid on excess balances (“IOER”) maintained at Federal Reserve Banks by or on behalf of eligible institutions.” The rate changes took effect on December 14, and the final rule became effective on December 20.

    Agency Rule-Making & Guidance Federal Reserve Regulation A Regulation D Federal Register

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