[Federal Register Volume 76, Number 137 (Monday, July 18, 2011)]
[Rules and Regulations]
[Pages 42015-42020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-17886]
=======================================================================
-----------------------------------------------------------------------
FEDERAL RESERVE SYSTEM
12 CFR Parts 204, 217, and 230
Regulations D, Q, and DD
[Docket No. R-1413]
RIN 7100-AD 72
Prohibition Against Payment of Interest on Demand Deposits
AGENCY: Board of Governors of the Federal Reserve System (Board)
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Board is publishing a final rule repealing Regulation Q,
Prohibition Against Payment of Interest on Demand Deposits, effective
July 21, 2011. Regulation Q was promulgated to implement the statutory
prohibition against payment of interest on demand deposits by
institutions that are member banks of the Federal Reserve System set
forth in Section 19(i) of the Federal Reserve Act (``Act''). Section
627 of the Dodd-Frank Wall Street Reform and Consumer Protection Act
(``Dodd-Frank Act'') repeals Section 19(i) of the Federal Reserve Act
effective July 21, 2011. The final rule implements the Dodd-Frank Act's
repeal of Section 19(i). The final rule also repeals the Board's
published interpretation of Regulation Q and removes references to
Regulation Q found in the Board's other regulations, interpretations,
and commentary.
DATES: Effective Date: July 21, 2011.
FOR FURTHER INFORMATION CONTACT: Sophia H. Allison, Senior Counsel
(202/452-3565), Legal Division, or Joshua S. Louria, Financial Analyst
(202/263-4885), Division of Monetary Affairs; for users of
Telecommunications Device for the Deaf (TDD) only, contact (202/263-
4869); Board of Governors of the Federal Reserve System, 20th and C
Streets, NW., Washington, DC 20551.
SUPPLEMENTARY INFORMATION:
I. Prohibition Against Payment of Interest on Demand Deposits
Section 19(i) of the Federal Reserve Act (``Act'') (12 U.S.C. 371a)
generally provides that no member bank ``shall, directly or indirectly,
by any device whatsoever, pay any interest on any deposit which is
payable on demand. * * *'' Section 19(i) was added to the Act by
Section 11 of the Banking Act of 1933 (48 Stat. 162, 181). Section 324
of the Banking Act of 1935 (49 Stat. 684, 714) amended Section 19(a) of
the Act to authorize the Board, ``for the purposes of this section, to
define the terms `demand deposits', `gross demand deposits,' `deposits
payable on demand' [and] to determine what shall be deemed to be a
payment of interest, and to prescribe such rules and regulations as it
may deem necessary to effectuate the purposes of this section and
prevent evasions thereof. * * *'' The Board promulgated Regulation Q on
August 29, 1933 to implement Section 19(i) of the Act. Section 627 of
the Dodd-Frank Act repeals Section 19(i) of the Act in its entirety,
effective July 21, 2011.
II. Request for Public Comment
On April 14, 2011, the Board published in the Federal Register a
request for comment on its proposal to repeal Regulation Q effective
July 21, 2011 (76 FR 20892, Apr. 14, 2011). In its request for comment,
the Board also sought comment on all aspects of the proposal, and also
sought comment on four specific issues related to the proposal:
1. Does the repeal of Regulation Q have significant implications
for the balance sheets and income of depository institutions? What are
the anticipated effects on bank profits, on the allocation of deposit
liabilities among product offerings, and on the rates offered and fees
assessed on demand deposits, sweep accounts, and compensating balance
arrangements?
2. Does the repeal of Regulation Q have any implications for short-
term funding markets such as the overnight federal funds market and
Eurodollar markets, or for institutions such as institution-only money
market mutual funds that are active investors in short-term funding
markets?
3. Is the repeal of Regulation Q likely to result in strong demand
for interest-bearing demand deposits?
[[Page 42016]]
4. Does the repeal of Regulation Q have any implications for
competitive burden on smaller depository institutions?
The comment period closed on May 16, 2011.
III. Public Comments
a. Summary
The Board received a total of 62 comments on the proposed rule. Of
these, 45 comments were received from 40 banks,\1\ 6 comments were
received from trade associations, 4 comments were received from other
types of entities, and 7 comments were received from individuals. Of
the comments received on the proposed rule, 6 comments were in favor of
the proposed rule, 54 comments were opposed to the proposed rule, and 2
comments neither supported nor opposed the proposed rule but commented
on other aspects of the proposal. A number of commenters specifically
addressed one or more of the four specific questions the Board asked in
the proposed rule separately from their general comments on the
proposed rule.
---------------------------------------------------------------------------
\1\ More than one person from the same institution submitted
comments in some cases.
---------------------------------------------------------------------------
b. Comments in Favor of the Proposed Rule
One financial group expressed support for the proposed rule,
stating that the commenter looked forward to a fair and competitive
market that is no longer manipulated through regulation by lobbyists
for money market funds and large banks. Another commenter, an
individual, opined that the proposal ``repeals an arbitrary and
basically non-functioning rule'' and would ``allow more transparency
and competition in this arena'' that ``will force banks to innovate and
to lower costs.'' This commenter asserted that the repeal would ``lead
to more simplicity in deposit offerings and to less rationale for
current workarounds'' such as NOW accounts.
A trade association commented that the repeal could result in a
more stable source of capital for banks and provide financial
professionals with another competitive investment alternative. This
commenter also opined that taxes on interest paid would increase
revenues for the U.S. Treasury, and asserted that ``there inherently
will be new economic dynamics that must be considered when negotiating
fees and rates.'' This commenter further asserted that this would
``force financial professionals and corporate treasurers to consider
how to effectively rebalance their deposit portfolios in light of the
new products and rates structures,'' and that they would have ``another
option in terms of liquidity.'' This commenter expected demand for
interest-bearing demand deposits to increase after the repeal.
One bank commented in support of the proposal because ``price
controls should not be the subject of government regulation.'' This
commenter suggested that the repeal would enable the bank to compete
for corporate demand deposits without having to sweep them into other
off-balance-sheet investments. Another bank commented favorably on the
repeal, arguing that Regulation Q ``has been pretty much hollowed out
and therefore rendered irrelevant through the years.''
c. Comments Opposed to the Proposed Rule
Most of the comments received opposed the repeal of Regulation Q.
Several commenters indicated that they believe that the repeal would
have ``devastating'' effects on smaller and community banks. Commenters
also indicated that they expect many detrimental effects for
institutions from the repeal, including increased cost of funding, the
addition of increased interest rate risk to institution balance sheets,
increased expenses, decreased net interest margins, decreased earnings,
decreased profits, and the ``potential to place many banks in a
liability sensitive position.'' Commenters also expected detrimental
effects for institutions' customers, including decreased credit
availability, increased costs of credit, and increased fees and costs
of services. A number of commenters argued that the repeal comes at a
time when the banking industry in general, and the community banking
industry in particular, is already stressed and facing challenges to
continued viability and profitability, as well as increased regulatory
burden, particularly with new interchange fee regulations. Some
commenters contended that there is currently little demand for loans,
and that without loan demand the increased cost of funds represented by
paying interest on demand deposits would result in decreased income.
One commenter argued that the payment of interest on balances
maintained in accounts at Federal Reserve Banks is not sufficient to
offset the cost of paying interest on demand deposits.
A number of commenters asserted that the interest-free demand
deposit base is the primary franchise builder for community banks and
the largest source of fixed-rate funding. One commenter argued that
such deposits ``are the lifeblood of community banks'' who lend this
money back into the local market at competitive rates to promote local
lending for housing, consumer lending and small business lending.
Commenters argued that smaller institutions, as they lose their demand
deposit base, would have to access other short-term funding sources,
which would increase costs in those markets. Commenters also argued
that the repeal would increase the concentration of financial assets in
the banking sector as funds move out of investments such as money
market mutual funds into interest-bearing demand deposits, making
nonbank money markets less liquid, less robust, less efficient, and
more expensive. One commenter further argued that the outflow of funds
from money market mutual funds into interest-bearing demand deposits
would damage the commercial paper market, since money market mutual
funds are major purchasers of commercial paper. Another commenter
argued that the repeal would harm the market for municipal bonds,
because community banks would be no longer able to buy fixed-rate bank-
qualified municipal bonds.
Several commenters stated that they expect larger and ``too big to
fail'' banks, which they believe already have a competitive advantage,
to draw commercial demand depositors away from smaller and community
banks with expensive marketing programs and offers of higher interest
rates with which smaller institutions cannot compete. Some commenters
asserted that these customers, once drawn away to larger banks, will
suffer decreases in service levels compared to what they received from
smaller banks because the business model of smaller banks focuses on
relationships and service levels. One commenter asserted that the
repeal of Regulation Q would not enable smaller and community banks to
compete with larger institutions because, according to the commenter,
community banks mostly compete with one another and not with larger
institutions. Other commenters asserted that troubled banks would be
likely to try to ``buy'' demand deposits by offering unsustainably high
interest rates, placing the banking system at risk for more bank
failures and increasing costs to the FDIC's bank insurance fund. One
commenter argued that large banks that are funded with off-balance-
sheet sources in order to avoid FDIC insurance premiums would see the
repeal as a way to ``buy'' domestic deposits, ``robbing'' local
communities of needed capital.
Some commenters asserted that the movement of funds from non-
interest-
[[Page 42017]]
bearing demand deposits into interest-bearing demand deposits would
take such deposits outside of the unlimited FDIC insurance coverage
currently available for non-interest-bearing transaction accounts. One
commenter argued that the unlimited insurance for such accounts created
moral hazard by reducing depositor incentives to monitor institutions
and by encouraging institutions to engage in riskier behavior secure in
the knowledge that their demand depositors will not move. This
commenter argued that the repeal of Regulation Q will increase these
risks because depositors could move freely from interest-bearing to
non-interest-bearing demand deposits in times of stress, thereby
creating effective unlimited insurance on all demand deposits.
Several commenters argued that the effects of the repeal may be
less visible in a low interest rate environment but would be more
pronounced as interest rates begin to rise. Some commenters argued that
the repeal would threaten the viability of many institutions in a
rising rate environment. Another commenter argued that the effect would
be magnified by the combination of rising interest rates and the
expiration of the FDIC's program of unlimited insurance for non-
interest-bearing transaction accounts in 2012.
Some comments opposed to the repeal asserted that the provision
that became Section 627 of the Dodd-Frank Act was inserted into the
bill late in the process, and was not debated or heard in the House or
Senate Committees. A few commenters questioned the stated rationale for
interest on demand deposits as benefitting small businesses. These
commenters asserted that a typical small business maintains on average
about $10,000 in a demand deposit, which even at a two percent interest
rate would still earn the small business only $200 in one year. One of
these commenters asserted that banks would have to increase fees to
make up for the increased cost associated with paying interest on
demand deposits, eroding the $200-per-year figure to approximately $100
per year. This commenter argued that $100 or $200 per year was not
sufficient to permit such businesses to grow or create jobs.
Several commenters argued that the Board should not repeal
Regulation Q, or should delay the effective date of the repeal until
studies of the impact of the repeal, including safety and soundness
effects, could be conducted and considered. Some commenters suggested
that the Board advocate before the Congress for a repeal of Section 627
of the Dodd-Frank Act (the provision that repeals the statutory
prohibition against payment of interest on demand deposits), and some
contended that the Board simply should retain or reinstate Regulation
Q. One commenter, noting that the Board would no longer have statutory
authority to retain Regulation Q after July 21, 2011, asserted that the
Board nevertheless has the authority to issue a policy statement
prohibiting the payment of interest on demand deposits until the
banking agencies studied the safety and soundness implications of the
repeal and determined that it was safe and sound to permit payment of
such interest. Another commenter argued that the repeal of Regulation Q
would create systemic risk and that the Board should use its systemic
risk authority under the Dodd-Frank Act to prevent the repeal from
taking effect. Another commenter suggested a two-stage process,
repealing the regulation in the first phase, and then starting a second
phase of twelve to eighteen months within which the existing
interpretations of Regulation Q would remain in effect to give the FDIC
the opportunity to consider whether to adopt some or all of them.
A few commenters argued that, instead of repealing Regulation Q,
the Board should amend Regulation D to provide for a non-reservable
interest-bearing ``money market deposit account'' that would allow up
to twenty-four preauthorized or automatic transfers per month.
Commenters also asserted that funds moving into interest-bearing demand
deposits from non-reservable deposits such as time deposits, or from
other non-deposit sources would be subject to a reserve requirement of
up to ten percent, which they stated would reduce the availability of
such funds for lending or other investment.
d. Comments Addressing Four Specific Questions Raised in the Proposed
Rule
1. Does the repeal of Regulation Q have significant implications for
the balance sheets and income of depository institutions? What are the
anticipated effects on bank profits, on the allocation of deposit
liabilities among product offerings, and on the rates offered and fees
assessed on demand deposits, sweep accounts, and compensating balance
arrangements?
A financial group commented that the ``playing field will be
leveled between big banks and community banks'' and that the proposed
rule would ``provide an opportunity to pursue large balance commercial
clients that in the past would not consider a smaller institution.''
This group commented that the cost of funds ``will be considerably less
than consumer core deposits,'' and that ``in spite of the
cannibalization of some current deposits'' the net effect would be
beneficial. This commenter also asserted that ``we will no longer have
to pay vendors for sweeps'' and that customers would be able to choose
between receiving earnings credits and direct payments of interest.
This commenter further asserted that there would be no impact on that
institution's fees but that the repeal would enable smaller
institutions to compete with larger institutions for ``large balance
clients'' because previously ``large balance clients'' always had
sufficient earnings credits to offset fees and the large institutions
holding those balances were able to use in-house sweeps programs.
Smaller institutions, according to this commenter, were not able to
price competitively for such programs because of the vendor costs for
sweeps programs, ``the `Too Big To Fail' concept'' and the fact that
earnings credits are not valuable beyond what can be used to pay for
fees.
A trade association commented that the anticipated effects of the
repeal on bank profits, allocation of deposit liabilities, and rates
offered is closely tied to the bank's local market and interest rate
environment. Specifically, this association commented that in small
markets with little competition for deposits, banks may elect neither
to pay interest nor to offer earnings credits following the repeal.
This commenter asserted that many banks in markets with high
competition for deposits believed that the cost difference between
paying direct interest or offering an interest substitute would not be
significant in a low interest rate environment. This commenter asserted
that, in a high interest rate environment, banks will be under
increased pressure to offer interest which would result in higher costs
of funds and decreased net interest margins. This commenter also
asserted that ``the banking industry's best defense against interest
rates spiraling to exceptionally high and unsustainable levels are more
account options, including interest, earnings credits, premiums,
bonuses, and hybrid accounts.'' This commenter further asserted that
the effect of the repeal on correspondent banks should be negligible.
[[Page 42018]]
2. Does the repeal of Regulation Q have any implications for short-term
funding markets such as the overnight federal funds market and
Eurodollar markets, or for institutions such as institution-only money
market mutual funds that are active investors in short-term funding
markets?
A financial group commented that ``[a]ny changes would be limited''
and would have no long-term effects on such markets. This group
commented that off-balance-sheet sweeps would be moved back on balance
sheet and that ``deposits for the first time will actually have market
competition which will be good for the company, good for the bank,
consumers, and overall good for the market.'' This commenter also
asserted that ``[t]he only complainers will be those that monopolize
the business today due to regulation, but they will adjust [by] either
paying more or [downsizing].''
A bank commented that the demand for short-term funding markets
will likely increase, which will increase cost of accessing those
markets which will increase bank borrowing costs and have a negative
impact on profitability.
3. Is the repeal of Regulation Q likely to result in strong demand for
interest-bearing demand deposits?
A financial group commented that the repeal of Regulation Q is
likely to result in strong demand for interest-bearing demand deposits
and that ``this is very good for the bank and the business clients''
and that they expect to see ``significant growth in this product
category in number of accounts and balances.''
4. Does the repeal of Regulation Q have any implications for
competitive burden on smaller depository institutions?
Many of the comments described above discussed the implications of
the repeal of Regulation Q for competitive burden on smaller depository
institutions. A financial group commented that the repeal of Regulation
Q would not have any implications ``to any significant degree'' for
competitive burden on smaller depository institutions and that the
repeal ``provides the best opportunity we have seen in decades to
pursue business clients.'' This commenter asserted that only the
smaller institutions that would be negatively affected by the repeal
``are those very small institutions in non-competitive markets which
have benefitted having no large banks compete for funds.'' A bank
contended that the repeal of Regulation Q will add to the profitability
challenges of smaller institutions that have a better track record of
serving the communities in which they operate than larger institutions
do.
A trade association commented that the repeal would increase
competition for typically high-balance business accounts and that costs
of funds would increase as such accounts become more difficult to
attract and more expensive to retain. This commenter asserted that
troubled financial institutions needing liquidity or deposits will
aggressively market exceptionally high interest rates which may place
community banks at a disadvantage. This commenter also asserted that
the repeal would improve parity between FDIC-insured institutions and
credit unions in a high interest rate environment because credit unions
``pay interest on business checking and are moving aggressively into
the small business-banking niche.'' The commenter further asserted that
the repeal ``may assist banks of all sizes and charter types to attract
funds previously placed outside of the traditional banking system'' and
that this ``reintermediation of corporate money will be more noticeable
when interest rates increase.''
e. Responses to the Public Comments
Many of the comments opposed to the repeal of Regulation Q
suggested implicitly or explicitly that the Board should not repeal
Regulation Q or should delay the repeal of Regulation Q. As stated in
the Board's Notice of Proposed Rulemaking, however, the Board will no
longer have the authority to retain Regulation Q after July 21, 2011.
Accordingly, the Board does not have the discretion to retain the
regulation, nor does the Board have the authority to postpone the
effective date of the repeal beyond July 21, 2011. While the Board may
use its safety and soundness authority to regulate interest paid by the
smaller group of state-chartered member banks (but not all member
banks, as under Regulation Q), the implementation of Section 627 of the
Dodd-Frank Act does not appear to present issues of systemic risk or
safety and soundness. In particular, the ability to pay interest on
demand deposits should enhance clarity in the market for transaction
accounts and potentially eliminate many of the complicated procedures
implemented by depository institutions to pay implicit interest on
demand deposits. Interest-bearing demand deposits could attract funds
from other areas of the financial system and increase the funding
possibilities of the banking sector. Additionally, the repeal of
Regulation Q will become effective during a period of exceptionally low
interest rates. In such an environment, all short-term money market
rates are near zero, suggesting that even for those institutions that
chose to pay interest on demand deposits, the rate paid will likely
also be close to zero. Near-zero money market rates will likely
continue for an extended period, so depository institutions and their
customers should be able to adjust in a gradual and orderly manner to
the new environment.
Similarly, it would be contrary to the purpose of Regulation D to
define ``savings deposit'' to include an account from which up to 24
convenient transfers or withdrawals per month are permitted, as some
commenters requested. The Board is required by Section 19(b) of the Act
to impose reserve requirements on transaction accounts. Section
19(b)(1)(C) of the Act defines ``transaction account'' as a deposit or
account on which the depositor is permitted ``to make withdrawals by
negotiable or transferrable instrument, payment orders of withdrawal,
telephone transfers, or other similar items for the purpose of making
payments or transfers to third persons or others.'' \2\ Section 19 was
intended to distinguish transaction accounts, which are reservable,
from savings deposits, which are not reservable. Allowing 24 convenient
transfers per month would allow such transfers every business day of
the month, and allow a savings deposit to function in a manner
indistinguishable from a transaction account.
---------------------------------------------------------------------------
\2\ 12 U.S.C. 461(b)(1)(C).
---------------------------------------------------------------------------
IV. Final Regulatory Flexibility Analysis
In accordance with Section 3(a) of the Regulatory Flexibility Act,
5 U.S.C. 601 et seq. (RFA), the Board is conducting this final
regulatory flexibility analysis incorporating comments received during
the public comment period. An initial regulatory flexibility analysis
was included in the Board's notice of proposed rulemaking in accordance
with Section 3(a) of the RFA. In its notice of proposed rulemaking, the
Board requested comments on all aspects of the proposal, and
specifically requested comment on whether the repeal of Regulation Q
pursuant to Section 627 of the Dodd-Frank Act would have any
implications for competitive burden on smaller depository institutions.
1. Statement of the need for and the objectives of the final rule.
The Board is repealing Regulation Q, which implements the statutory
prohibition set forth in Section 19(i) of the Act,
[[Page 42019]]
effective July 21, 2011. The repeal implements Section 627 of the Dodd-
Frank Act, which repeals Section 19(i) of the Act effective July 21,
2011. Accordingly, the repeal of Regulation Q effective July 21, 2011,
is mandatory.
2. Summary of significant issues raised by public comments in
response to the Board's IRFA, the Board's assessment of such issues,
and a statement of any changes made as a result of such comments. As
noted in the SUPPLEMENTARY INFORMATION, a majority of commenters
asserted that the final rule would have numerous deleterious effects on
small member banks. As also noted in the Supplementary Information,
however, the legal authority pursuant to which the Board promulgated
Regulation Q will cease to exist on July 21, 2011. Accordingly, the
Board does not have the discretion to retain the regulation beyond July
21, 2011, nor does the Board have the authority to postpone the
effective date of the repeal beyond that date. As further noted in the
SUPPLEMENTARY INFORMATION, the Board does not believe that the final
rule presents issues of systemic risk or safety and soundness
sufficient to warrant action by the Board on those bases. Accordingly,
the Board made no changes in the final rule as a result of the analysis
of the public comments.
3. Description of and estimate of small entities affected by the
final rule. The final rule will affect all national banks and all
state-chartered member banks. Those institutions may choose after July
21, 2011 to pay interest on demand deposits that they hold for their
customers. A financial institution is generally considered ``small'' if
it has assets of $175 million or less.\3\ There are currently
approximately 2,956 member banks (national banks and state-chartered
member banks) that have assets of $175 million or less. These
institutions are not required to offer demand deposits to their
customers or to pay interest on those deposits. The Board expects the
final rule to have a positive impact on all such entities because it
eliminates an obsolete regulatory provision and because it provides
member banks with the option of offering interest-bearing demand
deposits following the repeal of Regulation Q.
---------------------------------------------------------------------------
\3\ U.S. Small Business Administration, Table of Small Business
Size Standards Matched to North American Industry Classification
System Codes, available at http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf.
---------------------------------------------------------------------------
4. Projected reporting, recordkeeping, and other compliance
requirements. The Board believes that the final rule will not have any
impact on reporting, recordkeeping, and other compliance requirements
for member banks.
5. Steps taken to minimize the economic impact on small entities;
significant alternatives. No significant alternatives to the final rule
were suggested that could be accomplished without Congressional action.
Although some commenters suggested that the Board issue a policy
statement delaying the implementation of the statutory repeal, the
Board does not believe that it has the authority to extend the
statutory effective date through a policy statement that would
contravert the clear Congressional intent to repeal the prohibition
against the payment of interest on demand deposits effective July 21,
2011.
V. Paperwork Reduction Act Analysis
In accordance with the Paperwork Reduction Act (PRA) of 1995 (44
U.S.C. 3506; 5 CFR 1320 Appendix A.1), the Board reviewed the final
rule under the authority delegated to the Board by the Office of
Management and Budget (OMB). No collections of information pursuant to
the PRA are contained in the final rule; however, there will be
clarifications to the instructions of several regulatory reporting
requirements. The Board estimates that the clarifications would have a
negligible effect on the burden estimates for the existing regulatory
reporting information collections.
VI. Administrative Procedure Act
The Administrative Procedure Act (``APA'') generally requires
federal agencies to publish a final rule at least 30 days before the
effective date thereof. 5 U.S.C. 553. The APA also provides exceptions
under which an agency may publish a final rule with an effective date
that is less than 30 days from the date of publication of the final
rule. Specifically, the APA provides a substantive rule may be
published on a date that is less than 30 days before its effective date
where the rule ``grants or recognizes an exemption or relieves a
restriction,'' or where the agency finds good cause that is published
in the final rule. 5 U.S.C. 553(d)(2)-(3).
The repeal of Regulation Q implements the repeal of Section 19(i)
of the Federal Reserve Act, effective July 21, 2011, pursuant to
Section 627 of the Dodd-Frank Act. The repeal relieves a restriction by
repealing the prohibition against payment of interest on demand
deposits by member banks. As such, the final rule is exempt under
Section 553(d)(2) of the APA from the requirement of publication not
less than 30 days before the effective date. The Board also finds good
cause under Section 553(d)(3) of the APA for publication of the final
rule on a date that is less than 30 days before the effective date.
Publication of the final rule in this time frame will not impose a
burden on anyone, since all persons subject to Regulation Q have been
on notice since passage of the Dodd-Frank Act nearly a year ago that
Regulation Q would be repealed effective July 21, 2011. In addition,
the Board's request for comment published in the Federal Register on
April 14 provided additional notice, over three months prior to the
effective date, that the rule would be repealed. The Board does not
have the legal authority to extend the effective date beyond July 21,
2011, because the law pursuant to which the Board promulgated the rule
will cease to exist on that date. Accordingly, the Board finds good
cause for not delaying the effective date of the final rule.
List of Subjects
12 CFR Part 204
Banks, Banking, Reporting and recordkeeping requirements.
12 CFR Part 217
Banks, Banking, Reporting and recordkeeping requirements.
12 CFR Part 230
Advertising, Banks, Banking, Consumer protection, Reporting and
recordkeeping requirements, Truth in savings.
For the reasons set forth in the preamble, under the authority of
section 627 of Public Law 111-203, 124 Stat. 1376 (July 21, 2010), the
Board is amending 12 CFR parts 204, 217, and 230 to read as follows:
PART 204--RESERVE REQUIREMENTS OF DEPOSITORY INSTITUTIONS
0
1. The authority citation for part 204 is amended to read as follows:
Authority: 12 U.S.C. 248(a), 248(c), 461, 601, 611, and 3105.
0
2. In Sec. 204.10, paragraph (c) is revised to read as follows:
Sec. 204.10 Payment of interest on balances.
* * * * *
(c) Pass-through balances. A pass-through correspondent that is an
eligible institution may pass back to its respondent interest paid on
balances held on behalf of that respondent. In the case of balances
held by a pass-through correspondent that is not an eligible
institution, a Reserve Bank shall pay interest only on the required
reserve balances held on behalf of one or more
[[Page 42020]]
respondents, and the correspondent shall pass back to its respondents
interest paid on balances in the correspondent's account.
* * * * *
PART 217--PROHIBITION AGAINST PAYMENT OF INTEREST ON DEMAND
DEPOSITS (REGULATION Q)--[REMOVED AND RESERVED]
0
3. Part 217 is removed and reserved.
PART 230--TRUTH IN SAVINGS (REGULATION DD)
0
4. The authority citation for part 230 continues to read as follows:
Authority: 12 U.S.C. 4301 et seq.
Supplement I to Part 230--Official Staff Interpretations
0
5. In Supplement I to Part 230:
0
A. Under Section 230.2--Definitions, paragraph (n) Interest, is
revised.
0
B. Under Section 230.7--Payment of interest, subsection (a)(1)
Permissible methods, the introductory text of paragraph (5) is revised.
The revisions read as follows:
Supplement I to Part 230--Official Staff Interpretations
* * * * *
Section 230.2 Definitions.
* * * * *
(n) Interest
1. Relation to bonuses. Bonuses are not interest for purposes of
this regulation.
* * * * *
Section 230.7 Payment of interest.
(a)(1) Permissible methods
* * * * *
5. Maturity of time accounts. Institutions are not required to
pay interest after time accounts mature. Examples include:
* * * * *
By order of the Board of Governors of the Federal Reserve
System, July 12, 2011.
Jennifer J. Johnson,
Secretary of the Board.
[FR Doc. 2011-17886 Filed 7-15-11; 8:45 am]
BILLING CODE 6210-01-P