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Proposed Rules
Federal Register Vol. 86, No. 5
Friday, January 8, 2021

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.

FEDERAL RESERVE SYSTEM
12 CFR Part 204
Docket No. R1737
RIN 7100AG07

Regulation D: Reserve Requirements of Depository Institutions Board of Governors of the Federal Reserve System.
ACTION: Notice of proposed rulemaking, request for public comment.
AGENCY:

The Board of Governors of the Federal Reserve System Board proposes to amend its Regulation D
Reserve Requirements of Depository Institutions to eliminate references to an interest on required reserves rate and to an interest on excess reserves rate and replace them with a reference to a single interest on reserve balances rate. The Board also proposes to simplify 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, and to make other conforming changes.
DATES: Comments must be received on or before March 9, 2021.
ADDRESSES: You may submit comments, identified by Docket Number R1737;
RIN 7100AG07, by any of the following methods:
Agency Website: http
www.federalreserve.gov. Follow the instructions for submitting comments at http www.federalreserve.gov/
generalinfo/foia/ProposedRegs.cfm.
Email: regs.comments@
federalreserve.gov. Include the docket number and RIN in the subject line of the message.
Fax: 202 4523819 or 202 452
3102.
Mail: Ann E. Misback, 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 Boards website at http
www.federalreserve.gov/generalinfo/

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foia/ProposedRegs.cfm as submitted, unless modified for technical reasons or to remove personally identifiable information at the commenters request.
Accordingly, comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper in Room 146, 1709 New York Avenue NW, Washington, DC 20006, between 9:00 a.m. and 5:00 p.m. on weekdays.
FOR FURTHER INFORMATION CONTACT:
Sophia H. Allison, Senior Special Counsel, 2024523565, Legal Division, or Matthew Malloy 202452
2416, Division of Monetary Affairs, or Heather Wiggins 2024523674, Division of Monetary Affairs; for users of Telecommunications Device for the Deaf TDD only, contact 2022634869;
Board of Governors of the Federal Reserve System, 20th and C Streets NW, Washington, DC 20551.
SUPPLEMENTARY INFORMATION:
I. Statutory and Regulatory Background Section 19b2 of the Federal Reserve Act Act 1 requires each depository institution to maintain reserves against its transaction accounts, nonpersonal time deposits, and Eurocurrency liabilities within ratios prescribed by the Board for the purpose of implementing monetary policy.
Reserve requirement ratios for nonpersonal time deposits and Eurocurrency liabilities have been set at zero percent since 1990. Effective March 24, 2020, the Board amended Regulation D to set all reserve requirement ratios for transaction accounts to zero percent, eliminating all reserve requirements.2
Section 19b12 of the Act provides that balances maintained by or on behalf of eligible institutions in accounts at Federal Reserve Banks may receive earnings to be paid by the Reserve Bank at least once each quarter, at a rate or rates not to exceed the general level of short-term interest rates.3 Eligible institutions include depository institutions and certain other institutions as specified in the Act.4
Section 19b12 also provides that the Board may prescribe regulations 1 12

U.S.C. 461b2.
D Reserve Requirements of Depository Institutions Interim Final Rule, 85 FR
16525 March 24, 2020.
3 12 U.S.C. 461 b12A.
4 See 12 U.S.C. 461b1A & b12C; see also 12 CFR 204.2y.
2 Regulation
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concerning the payment of earnings on balances at a Reserve Bank.5
Regulation D currently establishes an interest on required reserves IORR
rate of 0.10 percent and an interest on excess reserves IOER rate of 0.10
percent.6 Regulation D also applies the IORR rate and the IOER rate to balances maintained by or on behalf of eligible institutions based on whether such balances are or are not maintained to satisfy reserve balance requirements.
Specifically, the IORR rate applies to balances that an eligible institution maintains, on average over the maintenance period, that are equal to or lower than the top of the penalty-free band. 7 The top of the penalty-free band is defined as an amount equal to an institutions reserve balance requirement plus an amount that is the greater of 10 percent of the institutions reserve balance requirement or $50,000. 8 A reserve balance requirement is defined as the balance that a depository institution is required to maintain on average over a reserve maintenance period in an account at a Federal Reserve Bank if vault cash does not fully satisfy the depository institutions reserve requirement imposed by this part. 9 Regulation D
applies the IOER rate to balances maintained in excess of the top of the penalty-free band.10
With the setting of transaction account reserve requirement ratios to zero, depository institutions no longer have to maintain balances to satisfy a reserve balance requirement. To account for such changes, the Board is proposing to amend Regulation D in two ways.
First, the proposed amendments would replace references to an IORR rate and an IOER rate with references to a single interest on reserve balances IORB
rate. Second, the proposed amendments would streamline the calculation of interest by multiplying the IORB rate on a day by the balances maintained on that day. The proposed amendments would eliminate the unnecessary distinction between institutions that maintain balances above or below an amount related to reserve requirements.
5 See
12 U.S.C. 461b12B.
CFR 204.10b5.
7 12 CFR 204.10b13.
8 12 CFR 204.2gg.
9 12 CFR 204.2ee.
10 12 CFR 204.2z.
6 12

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