Notice2024-29250
Guidelines for Evaluating Account and Services Requests
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 12, 2024
Issuing agencies
Federal Reserve System
Abstract
The Board of Governors of the Federal Reserve System (Board) has clarified that its Guidelines Covering Access to Accounts and Services at Federal Reserve Banks (Guidelines) apply to Excess Balance Accounts at the Federal Reserve Banks (Reserve Banks).
Full Text
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<title>Federal Register, Volume 89 Issue 239 (Thursday, December 12, 2024)</title>
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[Federal Register Volume 89, Number 239 (Thursday, December 12, 2024)]
[Notices]
[Pages 100495-100496]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-29250]
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FEDERAL RESERVE SYSTEM
[Docket No. OP-1747]
Guidelines for Evaluating Account and Services Requests
AGENCY: Board of Governors of the Federal Reserve System.
ACTION: Final guidance.
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SUMMARY: The Board of Governors of the Federal Reserve System (Board)
has clarified that its Guidelines Covering Access to Accounts and
Services at Federal Reserve Banks (Guidelines) apply to Excess Balance
Accounts at the Federal Reserve Banks (Reserve Banks).
DATES: Implementation Date is December 12, 2024.
FOR FURTHER INFORMATION CONTACT: Jason Hinkle, Deputy Associate
Director (202-258-9873), Division of Reserve Bank Operations and
Payment Systems, Kristen Payne, Lead Financial Institution and Policy
Analyst (202-306-9573), Division of Monetary Affairs, or Corinne
Milliken Van Ness, Senior Counsel (202-641-1605), Legal Division, Board
of Governors of the Federal Reserve System. For users of text telephone
systems (TTY) or any TTY-based Telecommunications Relay Services,
please call 711 from any telephone, anywhere in the United States.
SUPPLEMENTARY INFORMATION:
I. Background on Guidelines
On August 19, 2022, the Board implemented the Guidelines, which
consist of six risk-based principles for Reserve Banks to consider when
evaluating requests for access to Reserve Bank accounts and services
(accounts and services). The risks considered under the Guidelines
include various risks to the Reserve Bank, risks to the overall
payments systems, risks to the stability of the U.S. financial system,
risks to the overall economy by facilitating activities such as money
laundering or other illicit activity, and risk of any adverse impact on
the Federal Reserve's ability to implement monetary policy.
The Guidelines apply to requests for accounts and services from
member banks or other entities that meet the definition of depository
institution under section 19(b) of the Federal Reserve Act (12 U.S.C.
461(b)(1)(A)), as well as Edge and Agreement Corporations (12 U.S.C.
601-604a, 611-631), and U.S. branches and agencies of foreign banks (12
U.S.C. 347d). The Guidelines do not apply to accounts that the Reserve
Banks provide (i) as depository and fiscal agent for the Treasury and
certain government-sponsored entities (12 U.S.C. 391, 393-95, 1823,
1435), (ii) to certain international organizations (22 U.S.C. 285d,
286d, 290o-3, 290i-5, 290l-3), (iii) to designated financial market
utilities (12 U.S.C. 5465), (iv) pursuant to the Board's Regulation N
(12 CFR 214), or (v) pursuant to the Board's Guidelines for Evaluating
Joint Account Requests.
II. Excess Balance Accounts
Reserve Banks began to pay interest on balances maintained at the
Reserve Banks by or on behalf of eligible institutions in October
2008.\1\ Until July 2021, balances maintained by depository
institutions at a Reserve Bank were divided into required reserves
(balances held to satisfy a reserve requirement) and excess reserves
(balances maintained in excess of required reserves).\2\ Eligible
institutions that were respondents could maintain excess balances as
deposits with their correspondent or, alternatively, could instruct
their correspondent to sweep their deposits into overnight investments
in the federal funds market.\3\ Correspondents typically preferred the
latter because it helped to limit the size of their balance sheet and
boosted their regulatory capital ratios. However, when the market rate
of interest on federal funds was below the rate paid by Reserve Banks
on excess balances, respondents had an incentive to shift the
investment of their surplus funds away from the sales of federal funds
(through their correspondents) and toward holding those funds directly
as excess balances with the Reserve Banks, potentially disrupting
established correspondent-respondent relationships.\4\
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\1\ The authority to pay interest was originally enacted through
the Financial Services Regulatory Relief Act of 2006, with an
effective date of October 1, 2011. The date was moved forward to
2008 by the Emergency Economic Stabilization Act of 2008.
\2\ Final Rule, Regulation D, 86 FR 29937 (June 4, 2021); Press
Release, ``Federal Reserve Board issues final rule amending
Regulation D with regard to interest on reserve balances'' (June 2,
2021), <a href="https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210602a.htm">https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210602a.htm</a>.
\3\ In a correspondent-respondent relationship, the
correspondent bank provides banking services on behalf of the
respondent bank. This often includes the correspondent bank
executing payments on behalf of the respondent bank and its
customers. A respondent bank typically maintains an account with its
correspondent bank.
\4\ 74 FR 5628, 5629 (Jan. 30, 2009).
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The Board authorized the creation of excess balance accounts (EBAs)
on May 20, 2009, to alleviate these pressures on correspondent-
respondent business relationships associated with an environment in
which federal funds
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traded at rates persistently below the interest rate on excess
reserves.\5\ EBAs permit eligible institutions to earn interest on
their excess balances without disrupting established correspondent-
respondent relationships. An EBA is a limited-purpose account at a
Federal Reserve Bank managed by an agent and established for
maintaining the excess balances of one or more institutions
(participants) that are eligible to earn interest on balances held at a
Reserve Bank.\6\ The agent does not own the EBA or the balances therein
and thus the balances held in the EBA are not included in the
calculation of the agent's regulatory leverage ratio.
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\5\ Final Rule, Regulation D, 74 FR 25620 (May 29, 2009); Press
Release, ``Board announces approval of final amendments to
Regulation D pertaining to transfers from savings deposits and the
establishment of excess balance accounts at Reserve Banks'' (May 20,
2009), <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20090520b.htm">https://www.federalreserve.gov/newsevents/pressreleases/monetary20090520b.htm</a>.
\6\ See 12 CFR 204.2(aa) (defining ``excess balance account'');
12 CFR 204.10(d)(4) (establishing interest payable on excess balance
accounts). An EBA agent and participant may also be in a separate
correspondent-respondent relationship, but not necessarily.
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III. Current Scope of the Guidelines
Currently, the Guidelines do not expressly state that EBA
arrangements are in the scope of the Guidelines. The Board believes it
is appropriate to amend the Guidelines to clarify that they apply to
requests to be an agent for, or a participant in, an EBA. Expressly
including EBAs in the Guidelines will clarify that the same standard of
review will be applied to any institution requesting access to accounts
and services. While EBAs are not used to access Reserve Bank financial
1254ervicees, they are, in fact, limited-purpose Reserve Bank accounts.
This clarification, therefore, would prevent depository institutions
that do not qualify for access to Federal Reserve accounts and services
under the Guidelines from accessing the Federal Reserve's balance sheet
through EBAs.
IV. Clarification to Scope of Guidelines
For the reasons set forth in this document, the Board is amending
and restating the text in footnote seven to the Guidelines to read as
follows:
Unless otherwise expressly excluded under the previous footnote,
these principles apply to account requests from all institutions,
including member banks, entities that meet the definition of a
depository institution under section 19(b) (12 U.S.C. 461(b)(1)(A)),
Edge and Agreement Corporations (12 U.S.C. 601-604a, 611-631), and U.S.
branches and agencies of foreign banks (12 U.S.C. 347d), and to
requests to be an agent or participant in an excess balance account (12
CFR 204.10(d)).
By order of the Board of Governors of the Federal Reserve
System.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2024-29250 Filed 12-11-24; 8:45 am]
BILLING CODE P
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