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Record of Policy Actions of the Board of Governors
Regulation D
Reserve Requirements of Depository Institutions
[Docket No. R-1268]
On October 18, 2006, the Board approved amendments to reflect the annual indexing of the low reserve tranche and of the reserve requirement exemption for use in 2007 reserve requirement calculations. The amendments decrease the 3 percent low reserve tranche for net transaction accounts to $45.8 million (from $48.3 million in 2006) and increase the reserve requirement exemption to $8.5 million (from $7.8 million in 2006).
Votes for this action: Chairman Bernanke, Vice Chairman Kohn, and Governors Warsh, Kroszner, and Mishkin. Absent and not voting: Governor Bies.
Regulation E
Electronic Fund Transfers
[Docket No. R-1247]
On August 24, 2006, the Board approved amendments to Regulation E and its official staff commentary to apply the regulation to payroll card accounts established to distribute employee salaries, wages, or other compensation on a recurring basis. The amendments also provide financial institutions with an alternative to sending periodic statements for payroll card accounts if they make account information available to account holders by certain specified means. The amendments are effective July 1, 2007.
Votes for this action: Chairman Bernanke, Vice Chairman Kohn, and Governors Bies, Warsh, and Kroszner.
[Docket No. R-1265]
On November 27, 2006, the Board approved amendments to Regulation E and its official staff commentary to clarify that the requirement to obtain consumer authorization applies to any person who intends to collect electronically a fee for a check or other item that is returned unpaid. The amendments also provide guidance on the regulation's requirements concerning consumer notice when a returned-item fee is collected electronically or a transaction involves an electronic check conversion. The amendments, which are based substantially on an interim final rule approved on August 24, 2006, are effective January 1, 2007; compliance with certain disclosure requirements for returned-item fees collected in connection with point-of-sale transactions is delayed until January 1, 2008.
Votes for this action: Chairman Bernanke, Vice Chairman Kohn, and Governors Bies, Warsh, and Kroszner. Absent and not voting: Governor Mishkin.
Regulation H
Membership of State Banking Institutions in the Federal Reserve System
Regulation Y
Bank Holding Companies and Change in Bank Control
[Docket No. R-1087]
On February 2, 2006, the Board, acting with the other federal bank regulatory agencies, approved amendments to the agencies' market risk rules to reduce the capital requirement for certain securities-borrowing transactions collateralized with cash. The interagency rule, which makes permanent and expands an interim final rule approved in 2000, is effective February 22, 2006.
Votes for this action: Chairman Bernanke, Vice Chairman Ferguson, and Governors Bies, Olson, and Kohn.
Regulation K
International Banking Operations
[Docket No. R-1147]
On March 15, 2006, the Board approved amendments requiring Edge Act and agreement corporations and the U.S. branches, agencies, and representative offices of foreign banks supervised by the Board to establish and maintain procedures that ensure and monitor compliance with the Bank Secrecy Act and related regulations. The amendments are effective April 19, 2006.
Votes for this action: Chairman Bernanke and Governors Bies, Olson, Kohn, Warsh, and Kroszner. Absent and not voting: Vice Chairman Ferguson.
Regulation O
Loans to Executive Officers, Directors, and Principal Shareholders of Member Banks
[Docket No. R-1271]
On December 6, 2006, the Board approved an interim final rule, with request for comment, to implement section 601 of the Financial Services Regulatory Relief Act of 2006 by eliminating certain reporting requirements that have not contributed significantly to effective monitoring or prevention of insider lending abuse. The interim final rule is effective December 11, 2006.
Votes for this action: Chairman Bernanke, Vice Chairman Kohn, and Governors Bies, Warsh, Kroszner, and Mishkin.
Regulation Y
Bank Holding Companies and Change in Bank Control
[Docket No. R-1235]
On February 22, 2006, the Board approved amendments to expand the applicability of its Small Bank Holding Company Policy Statement and related exemptions from its consolidated capital adequacy guidelines on risk-based and leverage measures by increasing the asset-size limitation specified in the policy statement from $150 million to $500 million. The amended policy statement does not apply, however, to bank holding companies with less than $500 million in assets that engage in significant nonbanking or off-balance-sheet activities or have a material amount of debt or equity securities registered with the Securities and Exchange Commission. The amendments also clarify that subordinated debt related to the issuance of trust preferred securities generally would be treated as debt under the policy statement, subject to a five-year transition period. The amendments are effective March 30, 2006.
Votes for this action: Chairman Bernanke, Vice Chairman Ferguson, and Governors Bies, Olson, and Kohn.
Regulation BB
Community Reinvestment
[Docket No. OP-1240]
On March 1, 2006, the Board, acting with the other federal bank regulatory agencies, approved guidance intended to aid implementation of recent changes to the agencies' regulations under the Community Reinvestment Act (CRA). The guidance discusses, among other regulatory topics, (1) the criteria for determining if an area is distressed, is underserved, or has suffered a disaster; (2) the period of time that bank activities in those areas are eligible for consideration in a CRA evaluation; and (3) the standards used by CRA examiners to decide if such activities qualify as "community development." The guidance also explains how the new community development test for intermediate small banks (banks with assets between $250 million and $1 billion) will be applied. The interagency guidance is effective March 10, 2006.
Votes for this action: Chairman Bernanke, Vice Chairman Ferguson, and Governors Bies, Olson, Kohn, and Warsh.
Rules Regarding Equal Opportunity
[Docket No. OP-1264]
On August 1, 2006, the Board approved an interim rule, with request for comment, to extend eligibility for access to confidential supervisory information to certain noncitizen employees. The interim rule is effective August 7, 2006, and also applies to all grants of access made as of that date.
Votes for this action: Chairman Bernanke, Vice Chairman Kohn, and Governors Bies, Warsh, and Kroszner.
Policy Statements and Other Actions
Interagency Advisory on the Unsafe and Unsound Use of Limitation of Liability Provisions in External Audit Engagement Letters
On January 30, 2006, the Board, acting with the other federal financial regulatory agencies, approved an advisory to address safety and soundness concerns associated with agreements by financial institutions that limit the liability of their external auditors. The advisory applies to provisions that (1) indemnify an external auditor against claims made by third parties (including punitive damages); (2) hold harmless or release an external auditor from liability for claims or potential claims that might be asserted by the client financial institution; or (3) limit the remedies available to the client financial institution. Provisions that waive the right of financial institutions to seek punitive damages against their external auditors are not considered unsafe and unsound under the advisory. The interagency advisory is effective for engagement letters executed on or after February 9, 2006.
Votes for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Bies, Olson, and Kohn.
Federal Reserve Currency Recirculation Policy
[Docket No. OP-1164]
On March 17, 2006, the Board revised the Federal Reserve System's cash services policy, with the intention of increasing the recirculation of fit currency by (1) initiating a custodial inventory program to encourage depository institutions to hold $10 and $20 notes in their vaults to meet customer demand and (2) charging a fee to depository institutions that deposit fit $10 or $20 notes at a Reserve Bank and order the same denominations, above a de minimis amount, during the same business week. The custodial inventory program will begin in July 2006, and fee assessments are expected to begin in July 2007.
Votes for this action: Chairman Bernanke and Governors Olson, Kohn, Warsh, and Kroszner. Absent and not voting: Vice Chairman Ferguson and Governor Bies.
Nontraditional Mortgage Product Risks
[Docket No. OP-1246]
On September 27, 2006, the Board, acting with the other federal financial regulatory agencies, approved interagency guidance on underwriting and managing nontraditional mortgage products (loans that allow borrowers to defer payment of principal and in some cases interest) in a safe and sound manner and on clearly disclosing the potential risks of those products.
Votes for this action: Chairman Bernanke, Vice Chairman Kohn, and Governors Bies, Warsh, Kroszner, and Mishkin.
Guidance on Concentrations in Commercial Real Estate Lending, Sound Risk-Management Practices
[Docket No. OP-1248]
On December 6, 2006, the Board, acting with the other federal bank regulatory agencies, approved guidance intended to reinforce sound risk-management practices for institutions that have high and increasing concentrations of commercial real estate loans on their balance sheets. The guidance includes supervisory criteria to assist in identifying institutions that have potentially significant concentrations. The interagency guidance is effective December 12, 2006.
Votes for this action: Chairman Bernanke, Vice Chairman Kohn, and Governors Bies, Warsh, Kroszner, and Mishkin.
Interagency Statement on Sound Practices concerning Elevated Risk Complex Structured Finance Activities
[Docket No. OP-1254]
On December 20, 2006, the Board, acting with the Securities and Exchange Commission and the other federal bank and thrift regulatory agencies, approved a statement that describes internal controls and risk-management procedures to assist financial institutions in identifying, managing, and addressing the heightened legal and reputational risks associated with certain complex structured finance transactions. The interagency statement is effective January 11, 2007.
Votes for this action: Chairman Bernanke, Vice Chairman Kohn, and Governors Bies, Kroszner, and Mishkin. Absent and not voting: Governor Warsh.
Discount Rates in 2006
Under the Federal Reserve Act, boards of directors of the Federal Reserve Banks must establish rates on loans to depository institutions at least every fourteen days, subject to review and determination by the Board of Governors.
Primary Credit
Primary credit is the Federal Reserve's main lending program. Primary credit is made available with minimal administration for very short terms as a backup source of liquidity to depository institutions that, in the judgment of the lending Federal Reserve Bank, are in generally sound financial condition. Primary credit is extended at a rate above the federal funds rate target set by the Federal Open Market Committee (FOMC).
During 2006, the Board approved four increases in the primary credit rate, bringing the rate from 5-1/4 percent to 6-1/4 percent. The Board reached its determinations on the primary credit rate recommendations of the Reserve Bank boards of directors in conjunction with the FOMC's decisions to raise the target federal funds rate from 4-1/4 percent to 5-1/4 percent and related economic and financial developments. Rising energy prices coupled with high levels of resource utilization contributed to heightened inflation pressures over the first half of the year. Those pressures receded over the second half of the year as energy prices dropped and weakness in the housing sector weighed on economic activity. In light of these conditions, the Federal Reserve raised the structure of policy rates at a measured pace in the first half of the year and kept those rates unchanged for the remainder of the year. Monetary policy developments are reviewed more fully in other parts of this report (see the section " Monetary Policy and Economic Developments " and the minutes of FOMC meetings held in 2006 ).
Secondary and Seasonal Credit
Secondary credit is available in appropriate circumstances to depository institutions that do not qualify for primary credit. The secondary credit rate is set at a spread above the primary credit rate. In 2006, the spread was set at 50 basis points.
Seasonal credit is available to smaller depository institutions to meet liquidity needs that arise from regular swings in their loans and deposits. The rate on seasonal credit is calculated every two weeks as an average of selected money-market yields, typically resulting in a rate close to the federal funds rate target.
At year-end, the secondary and seasonal credit rates were 6-3/4 percent and 5.30 percent, respectively.
Votes on Discount Rate Changes
About every two weeks during 2006, the Board approved proposals by the twelve Reserve Banks to maintain the formulas for computing the secondary and seasonal credit rates. Details on the four actions by the Board to approve changes in the primary credit rate are provided below.
January 31, 2006. Effective this date, the Board approved actions taken by the directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Kansas City, Dallas, and San Francisco to raise the rate on discounts and advances under the primary credit program by 1/4 percentage point, to 5-1/2 percent. The same increase was approved for the Federal Reserve Bank of St. Louis, effective February 1, 2006. The Board also approved an identical action subsequently taken by the directors of the Federal Reserve Bank of Minneapolis, effective February 2, 2006.
Votes for this action: Chairman Greenspan, Vice Chairman Ferguson, and Governors Bies, Olson, and Kohn. Votes against this action: None.
March 28, 2006. Effective this date, the Board approved actions taken by the directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, Dallas, and San Francisco to raise the rate on discounts and advances under the primary credit program by 1/4 percentage point, to 5-3/4 percent. The same increase was approved for the Federal Reserve Bank of St. Louis, effective March 29, 2006. The Board also approved an identical action subsequently taken by the directors of the Federal Reserve Bank of Kansas City, effective March 30, 2006.
Votes for this action: Chairman Bernanke and Governors Bies, Olson, Kohn, Warsh, and Kroszner. Votes against this action: None.
May 10, 2006. Effective this date, the Board approved actions taken by the directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, Dallas, and San Francisco to raise the rate on discounts and advances under the primary credit program by 1/4 percentage point, to 6 percent. The same increase was approved for the Federal Reserve Bank of St. Louis, effective May 11, 2006. The Board also approved an identical action subsequently taken by the directors of the Federal Reserve Bank of Kansas City, effective May 11, 2006.
Votes for this action: Chairman Bernanke, Vice Chairman Ferguson, and Governors Bies, Olson, Kohn, Warsh, and Kroszner. Votes against this action: None.
June 29, 2006. Effective this date, the Board approved actions taken by the directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, Minneapolis, and Dallas to raise the rate on discounts and advances under the primary credit program by 1/4 percentage point, to 6-1/4 percent. The same increase was approved for the Federal Reserve Bank of St. Louis, effective June 30, 2006. The Board also approved identical actions subsequently taken by the directors of the Federal Reserve Banks of San Francisco, effective June 29, 2006, and Kansas City, effective July 6, 2006.
Votes for this action: Chairman Bernanke, Vice Chairman Kohn, and Governors Bies, Warsh, and Kroszner. Votes against this action: None.
Note: Full texts of the policy actions are available via the online version of the Annual Report, from the "Reading Rooms" on the Board's FOIA web page and on request from the Board's Freedom of Information Office.