(a) General.
(1) Except as provided in paragraph (c)
of this section, interest on balances maintained at Federal Reserve
Banks by or on behalf of an eligible institution shall be established
by the Board in accordance with this section, at a rate or rates not
to exceed the general level of short-term interest rates.
(2) For purposes of this section,
the amount of a “balance” in an account maintained by
or on behalf of an eligible institution at a Federal Reserve Bank
is determined at the close of the Federal Reserve Bank’s business
day.
(3) For purposes
of this section, “short-term interest rates” are rates
on obligations with maturities of no more than one year, such as the
primary credit rate and rates on term federal funds, term repurchase
agreements, commercial paper, term Eurodollar deposits, and other
similar instruments.
(4) The payment of interest on balances under this section shall
be subject to such other terms and conditions as the Board may prescribe.
(b) Payment of
interest. Interest on balances maintained at Federal Reserve
Banks by or on behalf of an eligible institution is established as
set forth in paragraphs (b)(1) and (2) of this section.
(1) For balances maintained in an eligible
institution’s master account, interest is the amount equal to
the interest on reserve balances rate (IORB rate) on a day multiplied
by the total balances maintained on that day. The IORB rate is 4.9
percent.
(2) For term
deposits, interest is:
(i) The amount equal to the principal
amount of the term deposit multiplied by a rate specified in advance
by the Board, in light of existing short-term market rates, to maintain
the federal funds rate at a level consistent with monetary policy
objectives; or
(ii) The amount equal to the principal
amount of the term deposit multiplied by a rate determined by the
auction through which such term deposits are offered.
(3) For purposes of section
204.10(b), a “master account” is the record maintained
by a Federal Reserve Bank of the debtor-creditor relationship between
the Federal Reserve Bank and a single eligible institution with respect
to deposit balances of the eligible institution that are maintained
with the Federal Reserve Bank. A “master account” is not
a “term deposit,” an “excess balance account,”
a “joint account,” or any deposit account maintained with
a Federal Reserve Bank governed by an agreement that states the account
is not a master account.
(c) Pass-through balances. A pass-through correspondent
that is an eligible institution may pass back to its respondent interest
paid on balances maintained to satisfy a reserve balance requirement
of that respondent. In the case of balances maintained by a pass-through
correspondent that is not an eligible institution, a Reserve Bank
may pay interest only on the balances maintained to satisfy a reserve
balance requirement of one or more respondents up to the top of the
penalty-free band, and the correspondent shall pass back to its respondents
interest paid on balances in the correspondent’s account.
(d) Excess balance accounts.
(1) A Reserve Bank may establish
an excess balance account for eligible institutions under the provisions
of this paragraph (d). Notwithstanding any other provisions of this
part, the balances maintained by eligible institutions in an excess
balance account represent a liability of the Reserve Bank solely to
those participating eligible institutions.
(2) The participating eligible institutions
in an excess balance account shall authorize another institution to act as
agent of the participating institutions for purposes of general account
management, including but not limited to transferring the balances
of participating institutions in and out of the excess balance account.
An excess balance account must be established at the Reserve Bank
where the agent maintains its master account, unless otherwise determined
by the Board. The agent may not commingle its own funds in the excess
balance account.
(3)
Balances maintained in an excess balance account may not be used for
general payments or other activities.
(4) Interest on balances of eligible institutions
maintained in an excess balance account is the amount equal to the
IORB rate in effect on a day multiplied by the total balances maintained
on that day.
(5) A Reserve
Bank may establish additional terms and conditions consistent with
this part with respect to the operation of an excess balance account,
including, but not limited to, terms of and fees for services, conditions
under which an institution may act as agent for an account, restrictions
on the agent with respect to account management, penalties for noncompliance
with this section or any terms and conditions, and account termination.
(e) Term deposits.
(1) A Federal Reserve Bank
may accept term deposits from eligible institutions under the provisions
of this paragraph (e) subject to such terms and conditions as the
Board may establish from time to time, including but not limited to
conditions regarding the maturity of the term deposits being offered,
maximum and minimum amounts that may be maintained by an eligible
institution in a term deposit, the interest rate or rates offered,
early withdrawal of term deposits, pledging term deposits as collateral
and, if term deposits are offered through an auction mechanism, the
size of the offering, maximum and minimum bid amounts, and other relevant
terms.
(2) A term deposit
will not satisfy any institution’s reserve balance requirement.
(3) A term deposit may
not be used for general payments or settlement activities.
(f) Procedure for determination
of rates. The Board anticipates that notice and public participation
with respect to changes in the rate or rates of interest to be paid
under this section will generally be impracticable, unnecessary, contrary
to the public interest, or otherwise not required in the public interest,
and that there will generally be reason and good cause in the public
interest why the effective date should not be deferred for 30 days.
The reason or reasons in such cases are generally expected to include
that such notice, public participation, or deferment of effective
date would prevent the action from becoming effective as promptly
as necessary in the public interest, would permit speculators or others
to reap unfair profits or to interfere with the Board’s actions
taken with a view to accommodating commerce and business and with
regard to their bearing upon the general credit situation of the country,
would provoke other consequences contrary to the public interest,
would not aid the persons affected, or would otherwise serve no useful
purpose.
