Technical Amendment to Definition of Deposits in Banks or Trust Companies

FEDERAL HOUSING FINANCE BOARD

12 CFR Parts 931 and 934

[No. 97-38]

RIN 3069-AA63

Technical Amendment to Definition of Deposits in Banks or Trust

Companies

AGENCY: Federal Housing Finance Board.

ACTION: Final rule.

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SUMMARY: The Federal Housing Finance Board (Finance Board) is amending

the definition of the term ``deposits in banks or trust companies'' to

expressly include a deposit in, or a sale of federal funds to, a branch

or agency of a foreign bank located in the United States that is

subject to the supervision of the Board of Governors of the Federal

Reserve System (Board of Governors), as an investment eligible to

fulfill the liquidity requirement imposed on the Federal Home Loan

Banks (FHLBanks) by section 11(g) of the Federal Home Loan Bank Act

(Bank Act).

EFFECTIVE DATE: The final rule will become effective on May 16, 1997.

FOR FURTHER INFORMATION CONTACT: Janice A. Kaye, Attorney-Advisor,

Office of General Counsel, 202/408-2505, or Julie Paller, Senior

Financial Analyst, Office of Policy, 202/408-2842, Federal Housing

Finance Board, 1777 F Street, N.W., Washington, D.C. 20006.

SUPPLEMENTARY INFORMATION:

I. Statutory and Regulatory Background

Under section 11(e)(1) of the Bank Act, the FHLBanks have the power

to accept deposits from their members, other FHLBanks, or

instrumentalities of the United States. See 12 U.S.C. 1431(e)(1). To

ensure that each FHLBank has sufficient liquid assets to meet deposit

withdrawal demands, section 11(g) of the Bank Act imposes a liquidity

requirement. See id. 1431(g). The liquidity requirement provides that

each FHLBank must invest, upon such terms and conditions as the Finance

Board may prescribe, an amount equal to the current deposits the

FHLBank holds in specified types of as sets. Id. Among the assets

specified in the Bank Act are ``deposits in banks or trust companies.''

Id. 1431(g)(2).

In 1978, the Finance Board's predecessor, the former Federal Home

Loan Bank Board (FHLBB), defined by regulation the phrase ``deposits in

banks or trust companies'' to include a deposit in another FHLBank, a

demand account with a Federal Reserve Bank, or a deposit in a

depository designated by a FHLBank's board of directors that is a

member of either the Federal Reserve System or the Federal Deposit

Insurance Corporation (FDIC).See 43 FR 46835, 46836 (Oct. 11, 1978),

codified at 12 CFR 521.5 (superseded). When Congress abolished the

FHLBB in 1989,see Financial Institutions Reform, Recovery, and

Enforcement Act of 1989, Pub. L. 101-73, sec. 401, 103 Stat. 183 (Aug.

9, 1989), the Finance Board transferred the definition, without any

change in substantive or technical matters, to Sec. 931.5 of its

regulations. See 54 FR 36757 (Aug. 28, 1989), codified at 12 CFR 931.5.

This definition remained unchanged until September 1996, when the

Finance Board adopted a final rule making clear that the term ``banks''

includes savings associations and including federal funds transactions

as eligible to fulfill the liquidity requirement imposed on the

FHLBanks by section 11(g) of the Bank Act. See 61 FR 40311 (Aug. 2,

1996), codified at 12 CFR 931.5. In February 1997, the Finance Board

published for comment an interim final rule, which became effective

upon publication, modifying the definition of ``deposits in banks or

trust companies'' to include a deposit in, or a sale of federal funds

to, a branch or agency of a foreign bank located in the United States

that is subject to the supervision of the Board of Governors. See 62 FR

6860 (Feb. 14, 1997). The 30-day public comment period closed on March

17, 1997.See id. The one comment received in response to the interim

final rule is discussed in Part II of the Supplementary Information.

II. Analysis of Public Comments and the Final Rule

For the reasons set forth in detail in the interim final

rulemaking, the Finance Board believes that all U.S. branches and

agencies of foreign banks should be treated equally, which was not the

case under the prior rule. Accordingly, the Finance Board is adopting

the amendments to the definition of ``deposits in banks or trusts''

made by the interim final rule without substantive change. In addition,

[[Page 26922]]

as part of its ongoing regulatory reorganization, the Finance Board is

redesignating the definition to part 934 of its regulations, which

concerns the operations of the FHLBanks.See 12 CFR part 934.

As amended, the definition of the term ``deposits in banks or

trusts'' includes FHLBank deposits in any U.S. branch or agency of a

foreign bank that has legal authority to accept deposits or engage in

federal funds transactions as eligible investments for purposes of

section 11(g) of the Bank Act. To achieve this result, the Finance

Board has added a new paragraph (c)(3) that includes expressly a

deposit in, or federal funds transactions with, a U.S. branch or agency

of a foreign bank that is subject to the supervision of the Board of

Governors and is designated by a FHLBank's board of directors. The

terms ``branch,'' ``agency,'' and ``foreign bank'' have the same

meaning as in the International Banking Act of 1978, as amended. See 12

U.S.C. 3101 (1), (3), (7).

The commenter urged the Finance Board to encourage the FHLBanks to

place deposits with small, domestic FDIC-insured financial institutions

rather than U.S. branches and agencies of foreign banks in order to

provide these community banks with needed liquidity and to facilitate

the FHLBanks' mission of extending credit for housing in the United

States. Because provisions of federal law require the treatment of all

U.S. branches and agencies of foreign banks to be similar to the

treatment of domestic depository institutions, the Finance Board

believes that the amendment permitting FHLBank deposits in U.S.

branches and agencies of foreign banks is consistent with federal law.

The commenter also suggested that placing deposits in uninsured U.S.

branches and agencies of foreign banks might create additional

unnecessary risk for the FHLBanks. As pointed out in the interim final

rulemaking, a foreign bank may establish a U.S. branch or agency only

with the prior approval of the Board of Governors and an appropriate

licensing authority, i.e., either the Comptroller of the Currency or a

state banking regulator, and such branches and agencies are subject to

the supervision of the Board of Governors and must meet many of the

rules and regulations, including safety and soundness rules and

regulations, applicable to domestic commercial banks. In addition,

because FHLBank deposits generally exceed the $100,000 FDIC deposit

insurance limit, and U.S. branches of foreign banks principally accept

only wholesale deposits, FDIC insurance would be of little benefit, and

the absence thereof would pose little additional risk, to the FHLBanks.

III. Notice and Public Participation

The Finance Board finds that the notice and comment procedure

required by the Administrative Procedure Act is unnecessary,

impracticable, and contrary to the public interest in this instance

because the changes made by the final rule are technical in nature and

apply only to the FHLBanks. See 5 U.S.C. 553(b)(3)(B). In addition, as

explained above, the changes made by the final rule are necessary to

comply with various provisions of federal law.

IV. Effective Date

For the reasons stated in part III above, the Finance Board for

good cause finds that the interim final rule should become effective on

May 16, 1997. See 5 U.S.C. 553(d)(3).

V. Regulatory Flexibility Act

The Finance Board is adopting the technical amendment in the form

of a final rule and not as a proposed rule. Therefore, the provisions

of the Regulatory Flexibility Act do not apply. See 5 U.S.C. 601(2),

603(a).

VI. Paperwork Reduction Act

This final rule does not contain any collections of information

pursuant to the Paperwork Reduction Act of 1995. See 44 U.S.C. 3501, et

seq. Consequently, the Finance Board has not submitted any information

to the Office of Management and Budget for review.

List of Subjects

12 CFR Part 931

Banks, Banking, Federal home loan banks.

12 CFR Part 934

Federal home loan banks, Securities, Surety bonds.

Accordingly, the Federal Housing Finance Board hereby adopts the

interim final rule amending 12 CFR part 931 that was published at 62 FR

6860 on February 14, 1997 as a final rule with the following changes,

and amends 12 CFR part 934 of the Code of Federal Regulations as

follows:

PART 931--DEFINITIONS

1. Revise the authority citation for part 931 to read as follows:

Authority: 12 U.S.C. 1422a and 1422b.

PART 934--OPERATIONS OF THE BANKS

1. Revise the authority citation for part 934 to read as follows:

Authority: 12 U.S.C. 1422a, 1422b, 1431(g), and 1442.

Secs. 934.4 through 934.14 [Redesignated as Secs. 934.5 through

934.15]

2. Redesignate Secs. 934.4 through 934.14 as Secs. 934.5 through

934.15, respectively.

Sec. 931.5 [Redesignated as Sec. 934.4]

3. Redesignate Sec. 931.5 as Sec. 934.4 and revise to read as

follows:

Sec. 934.4 Deposits in banks or trust companies.

For purposes of section 11(g) of the Act, the term ``deposits in

banks or trust companies'' means:

(a) A deposit in another Bank;

(b) A demand account in a Federal Reserve Bank; and

(c) A deposit in, or a sale of federal funds to:

(1) An insured depository institution, as defined in section

2(12)(A) of the Act, that is designated by a Bank's board of directors;

(2) A trust company that is a member of the Federal Reserve System

or insured by the Federal Deposit Insurance Corporation, and is

designated by a Bank's board of directors; or

(3) A U.S. branch or agency of a foreign bank, as defined in the

International Banking Act of 1978, as amended (12 U.S.C. 3101 et seq.),

that is subject to the supervision of the Board of Governors of the

Federal Reserve System, and is designated by a Bank's board of

directors.

By the Board of Directors of the Federal Housing Finance Board.

Bruce A. Morrison,

Chairperson.

[FR Doc. 97-12550 Filed 5-15-97; 8:45 am]

BILLING CODE 6725-01-U