Alert May 04, 2010

FRB Issues Final Rule Amending Regulation D to Authorize Reserve Banks to Offer Term Deposits

The FRB issued a final rule (the “Final Rule”) amending the FRB’s Regulation D to authorize the Federal Reserve Banks to offer terms deposits.  A Notice of Proposed Rulemaking (the “NPR”) regarding these amendments was discussed in the January 5, 2010 Alert.  The Final rule makes a few changes from the NPR to reflect public comment.  Specifically, the FRB in the Final Rule: (1) determines not to adopt a sunset provision for amendments to Regulation D and allows term deposits to be used “as needed based on monetary policy objectives;” (2) changes the definition of “short term interest rates” to make it more consistent with market practices; (3) clarifies that the FRB may set conditions regarding the early withdrawal of term deposits and pledging term deposits as collateral; and (4) clarifies that term deposits may not be used for general payments or settlement activities.  The Final Rule will take effect 30 days after publication in the Federal Register.