Record of Policy Actions of the Board of Governors

Policy actions of the Board of Governors are presented pursuant to section 10 of the Federal Reserve Act. That section provides that the Board shall keep a record of all questions of policy determined by the Board and shall include in its annual report to Congress a full account of such actions. This section provides a summary of policy actions in 2018, as implemented through (1) rules and regulations, (2) policy statements and other actions, and (3) discount rates for depository institutions. Policy actions were approved by all Board members in office, unless indicated otherwise.¹ More information on the actions is available from the relevant Federal Register notices or other documents (see links in footnotes) or on request from the Board's Freedom of Information Office.

For information on the Federal Open Market Committee's policy actions relating to open market operations, see section 9, "Minutes of Federal Open Market Committee Meetings."

Rules and Regulations

Regulation A (Extensions of Credit by Federal Reserve Banks)

On April 30, 2018, the Board approved a final rule (Docket No. R-1585) to (1) revise the provisions regarding the establishment of the primary credit rate in a financial emergency to provide that the primary credit rate will be the target federal funds rate or, if the Federal Open Market Committee has established a target range for the federal funds rate, a rate corresponding to the top of the target range; and (2) delete references to the expired Term Asset-Backed Securities Loan Facility (or TALF).² The final rule is effective June 8, 2018.

Regulations H (Membership of State Banking Institutions in the Federal Reserve System) and K (International Banking Operations)

On August 21, 2018, the Board approved an interim final rule and request for comment (Docket No. R-1615), published jointly with the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC), to increase the asset threshold, from $1 billion to $3 billion in total assets, below which certain small insured depository institutions and U.S. branches and agencies of foreign banks may qualify for an extended on-site examination cycle, from 12 to 18 months, in accordance with the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).³ The interim final rule is effective August 29, 2018.

On December 20, 2018, the Board approved a final rule (Docket No. R-1615), published jointly with the FDIC and OCC, to adopt without change the interim final rule establishing an 18-month on-site examination cycle for insured depository institutions and U.S. branches and agencies of foreign banks with total assets of less than $3 billion, consistent with the EGRRCPA.⁴ The final rule is effective January 28, 2019.

Regulation J (Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers through Fedwire)

On November 14, 2018, the Board approved a final rule (Docket No. R-1599) to clarify and simplify certain provisions of the regulation and remove obsolete provisions; align the rights and obligations of sending banks, paying banks, and Federal Reserve Banks with provisions in the Board's 2017 amendments to Regulation CC (Availability of Funds and Collection of Checks) to reflect the virtually all-electronic check collection and return environment; and clarify that financial messaging standards for Fedwire funds transfers, such as the international common format standard ISP 20022, do not confer or connote legal status to the funds transfers.⁵ The final rule is effective January 1, 2019.

Regulation Q (Capital Adequacy of Bank Holding Companies, Savings and Loan Holding Companies, and State Member Banks)

On December 20, 2018, the Board approved a final rule (Docket No. R-1605) to revise its regulatory capital rule to address upcoming changes to credit loss accounting under U.S. generally accepted accounting principles, including banking organizations' implementation of the Current Expected Credit Losses (CECL) methodology.⁶ The final rule would (1) identify which credit loss allowances under CECL are eligible for inclusion in firms' tier 2 capital and (2) provide firms with the option to phase in, over three years, any immediate adverse effects of CECL on regulatory capital. In addition, the rule would direct firms that have adopted CECL to include provisions calculated under CECL in their stress testing projections, starting with the 2020 stress test cycle. The final rule was published jointly with the FDIC and OCC, both of which similarly amended their respective capital rules. The final rule, which also made conforming changes to other Board regulations, is effective April 1, 2019. Banking organizations may choose to early-adopt the final rule as of the first quarter of 2019.

Regulation Y (Bank Holding Companies and Change in Bank Control)

On March 23, 2018, the Board approved a final rule (Docket No. R-1568), published jointly with the FDIC and OCC (together with the Board, "the agencies"), to increase, from $250,000 to $500,000, the dollar threshold at or below which appraisals are not required for commercial real estate transactions under the agencies' appraisal regulations.⁷ Regulated institutions would be required to obtain evaluations for such transactions at or below the threshold, rather than an appraisal. The agencies determined that the higher threshold would reduce regulatory burden without posing a threat to the safety and soundness of financial institutions. The final rule is effective April 9, 2018.

On August 21, 2018, the Board approved an interim final rule and request for comment (Docket No. R-1619) to raise the asset-size threshold, from $1 billion to $3 billion of total consolidated assets, for determining applicability of the Small Bank Holding Company and Savings and Loan Holding Company Policy Statement, in accordance with the EGRRCPA.⁸ The Policy Statement facilitates the transfer of ownership of small community banks by allowing their holding companies to operate with higher levels of debt than would normally be permitted. The interim final rule, which also makes conforming changes to Regulation Q, is effective August 30, 2018.

Regulation CC (Availability of Funds and Collection of Checks)

On September 4, 2018, the Board approved final amendments (Docket No. R-1620) to address disputes between banks on whether a substitute or an electronic check has been altered or was issued with an unauthorized signature, when the original check is not available for inspection.⁹ The final rule is effective January 1, 2019.

Regulation KK (Swaps Margin and Swaps Push-Out)

On September 18, 2018, the Board approved a final rule (Docket No. R-1596) amending its swap margin requirements to conform with recently adopted restrictions on certain qualified financial contracts of systemically important banking organizations (QFC Rules).¹⁰ The rule provides that legacy swaps entered into before the applicable compliance date will not become subject to swap margin requirements if they are amended solely to comply with the requirements of the QFC Rules. The final rule was published jointly with the FDIC, OCC, Farm Credit Administration, and Federal Housing Finance Agency, all of which similarly amended their respective swap margin requirements. The final rule also harmonizes the definition of "Eligible Master Netting Agreement" in the swap margin requirements with recent changes to the definition of "Qualifying Master Netting Agreement" in the capital and liquidity regulations of the Board, OCC, and FDIC by recognizing the restrictions that were adopted by those agencies with respect to the QFC Rules. The final rule is effective November 9, 2018.

Regulation WW (Liquidity Risk Measurement Standards)

On August 21, 2018, the Board approved an interim final rule and request for comment (Docket No. R-1616), published jointly with the FDIC and OCC, to modify its liquidity coverage ratio rule to treat certain eligible municipal obligations as high-quality liquid assets, in accordance with the EGRRCPA.¹¹ The interim final rule is effective August 31, 2018.

Regulation YY (Enhanced Prudential Standards)

On June 14, 2018, the Board approved a final rule (Docket No. R-1534) to establish single-counterparty credit limits for large banking organizations.¹² The final rule implements section 165(e) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which requires the Board to impose limits on the amount of credit exposure a domestic bank holding company that has $250 billion or more in total consolidated assets, including bank holding companies identified as global systemically important banking organizations (G-SIBs) under the Board's capital rules (together, "covered companies"), can have to an unaffiliated counterparty in order to reduce the risks that an individual company's failure or distress might pose to the stability of the U.S. financial system. Under the final rule, a covered company is prohibited from having an aggregate net credit exposure of more than 25 percent of its tier 1 capital to a single unaffiliated counterparty. G-SIBs are subject to an additional restriction—15 percent of tier 1 capital—on their aggregate net credit exposures to another systemically important financial firm. Foreign banking organizations operating in the United States that have $250 billion or more in total global consolidated assets, as well as their intermediate holding companies (IHCs) that have $50 billion or more in total U.S. consolidated assets, would also be subject to credit exposure limits. The scope and application of all the credit exposure limits in the final rule are consistent with the EGRRCPA. The final rule is effective October 5, 2018.

Rules Regarding Delegation of Authority

On February 27, 2018, the Board approved a final rule (Docket No. R-1600) amending its delegation of authority rules to delegate authority to the Secretary of the Board to review and determine appeals of denial of access to Board records under the Freedom of Information Act, the Privacy Act, and the Board's rules regarding access to such records.¹³ The rule would repeal the existing delegation of authority on these matters to any Board member designated by the Chair. The final rule is effective March 6, 2018.

Policy Statements and Other Actions

Policy Statement on Interagency Notification of Formal Enforcement Actions

On April 2, 2018, the Board approved a policy statement (Docket No. OP-1609), published jointly with the FDIC and OCC, to promote notification of, and coordination on, formal enforcement actions among the three agencies at the earliest practicable date.¹⁴ The final policy statement incorporates and reflects current practices and replaces the Federal Financial Institutions Examination Council's rescinded policy statement, "Interagency Coordination of Formal Corrective Action by the Federal Bank Regulatory Agencies." The final policy statement is effective June 12, 2018.

Determination on New Markets Tax Credit Investments as Public Welfare Investments

On June 28, 2018, the Board determined that an investment made by a state member bank in a "qualified community development entity" eligible for the U.S. Department of the Treasury's New Markets Tax Credit program is an investment "designed primarily to promote the public welfare" within the meaning of section 9(23) of the Federal Reserve Act and section 208.22(b)(1)(i) of Regulation H, provided all other statutory and regulatory criteria are met.

Statements on the Impact of the Economic Growth, Regulatory Relief, and Consumer Protection Act

On July 4, 2018, the Board approved two public statements to provide information on regulations and associated reporting requirements that the EGRRCPA immediately affected. Enacted in May 2018, EGRRCPA amended various provisions of banking law to reduce regulatory requirements or provide additional tailoring for certain banking organizations. The first statement describes statutory changes that do not require Board action to have an immediate effect as well as other Board actions that would be consistent with EGRRCPA's provisions.¹⁵ In particular, the statement describes how the Board will not take action to require certain smaller, less complex banking organizations to comply with certain Board regulations, including those relating to stress testing and liquidity. The second statement, issued jointly with the FDIC and OCC, provides similar relief for depository institutions.¹⁶

Customer Identification Program

On August 30, 2018, the Board approved an order, issued jointly with the FDIC, OCC, Financial Crimes Enforcement Network, and National Credit Union Administration, granting an exemption to banks from the requirements in the customer identification program (CIP) rules under the Bank Secrecy Act (BSA) when a bank extends loans to commercial customers to facilitate the purchase of property and casualty insurance.¹⁷ Under the CIP rules, banks are generally required to obtain certain identifying information from a customer at account opening in order to verify the true identity of the customer. The CIP rules permit exemptions from these requirements, provided any exemption is consistent with the purposes of the BSA and safety and soundness. The order is effective September 27, 2018.

Large Financial Institution Rating System

On November 1, 2018, the Board approved a new supervisory rating system for large financial institutions (LFIs) to align with the Federal Reserve's current supervisory programs and practices for these firms.¹⁸ The new rating system applies to (1) bank holding companies and non-insurance, non-commercial savings and loan holding companies (SLHCs) with at least $100 billion in total consolidated assets and (2) U.S. IHCs of foreign banking organizations established under Regulation YY that have at least $50 billion in total consolidated assets. The rating system will assign component ratings for capital planning and positions, liquidity risk management and positions, and governance and controls, and will introduce a new rating scale. Initial LFI ratings will be assigned to institutions under the Large Institution Supervision Coordinating Committee framework beginning in early 2019 and to other LFIs in early 2020. Conforming revisions were also made to Regulations K and LL (Docket No. R-1569), which are effective February 1, 2019.

Application of the RFI/C(D) Rating System to Savings and Loan Holding Companies

On November 1, 2018, the Board approved a notice (Docket No. OP-1631) to apply the RFI/C(D) rating system (the RFI rating system) to SLHCs that are depository in nature.¹⁹ However, SLHCs that are depository in nature and have at least $100 billion in total consolidated assets will be rated under the RFI rating system only until the Board applies its new LFI rating system to them, beginning in early 2020. SLHCs that are depository in nature but have less than $100 billion in total consolidated assets would remain subject to the RFI rating system. The RFI rating system would not apply to SLHCs that meet certain criteria to be considered commercial or insurance SLHCs. Commercial SLHCs and insurance SLHCs would continue to receive "indicative ratings," which describe how the firm would be rated if subject to the RFI rating system. The notice is effective February 1, 2019.

Conversion Triggers in Eligible Long-Term Debt

On December 10, 2018, the Board identified criteria for evaluating whether a proposed internal debt "conversion trigger" of a U.S. intermediate holding company of a foreign global systemically important banking organization (a covered IHC) is consistent with the requirements of the Board's total loss-absorbing capacity (TLAC) regulation, in connection with its approval of the proposed internal debt "conversion triggers" of two covered IHCs.²⁰ Under the TLAC regulation, covered IHCs are required to maintain outstanding a minimum amount of long-term debt that meets certain eligibility factors, beginning on January 1, 2019. In addition, eligible long-term debt issued by a covered IHC to its foreign affiliates must include a conversion trigger, a contractual provision that permits the Board to order the conversion of the debt into equity. The Board also approved a delegation of authority to the General Counsel, in consultation with the Director of the Division of Supervision and Regulation, to approve proposed conversion triggers for other covered IHCs, provided the triggers meet the eligibility criteria and do not raise significant legal, policy, or supervisory issues.

Resolution Plan Guidance

On December 19, 2018, the Board approved final guidance (Docket No. OP-1644), published jointly with the FDIC, for the eight largest, most complex U.S. banking organizations regarding their future resolution plan submissions.²¹ The joint final guidance consolidates prior resolution plan guidance provided to these institutions and describes the two agencies' expectations regarding a number of key vulnerabilities for an orderly resolution under the U.S. Bankruptcy Code. This includes updated expectations regarding payment, clearing, and settlement services and on derivatives and trading activities.

Interest on Reserves

On March 21, 2018, the Board approved raising the interest rate paid on required and excess reserve balances from 1-1/2 percent to 1-3/4 percent, effective March 22, 2018.²² This action was taken to support the Federal Open Market Committee's (FOMC's) decision on March 21 to raise the target range for the federal funds rate by 25 basis points, to a range of 1-1/2 percent to 1-3/4 percent.

On June 13, 2018, the Board approved raising the interest rate paid on required and excess reserve balances from 1-3/4 percent to 1.95 percent, effective June 14, 2018.²³ This action was taken to support the FOMC's decision on June 13 to raise the target range for the federal funds rate by 25 basis points, to a range of 1-3/4 percent to 2 percent. Setting the interest rate paid on required and excess reserve balances 5 basis points below the top of the target range for the federal funds rate was intended to foster trading in the federal funds market at rates well within the FOMC's target range.

On September 26, 2018, the Board approved raising the interest rate paid on required and excess reserve balances from 1.95 percent to 2.20 percent, effective September 27, 2018.²⁴ This action was taken to support the FOMC's decision on September 26 to raise the target range for the federal funds rate by 25 basis points, to a range of 2 percent to 2-1/4 percent.

On December 19, 2018, the Board approved raising the interest rate paid on required and excess reserve balances from 2.20 percent to 2.40 percent, effective December 20, 2018.²⁵ This action was taken to support the FOMC's decision on December 19 to raise the target range for the federal funds rate by 25 basis points, to a range of 2-1/4 percent to 2-1/2 percent. Setting the interest rate paid on required and excess reserve balances 10 basis points below the top of the target range for the federal funds rate was intended to foster trading in the federal funds market at rates well within the FOMC's target range.

Discount Rates for Depository Institutions in 2018

Under the Federal Reserve Act, the boards of directors of the Federal Reserve Banks must establish rates on discount window loans to depository institutions at least every 14 days, subject to review and determination by the Board of Governors. Periodically, the Board considers proposals by the 12 Reserve Banks to establish the primary credit rate and approves proposals to maintain the formulas for computing the secondary and seasonal credit rates.

Primary, Secondary, and Seasonal Credit

Primary credit, the Federal Reserve's main lending program for depository institutions, is extended at the primary credit rate, which is set above the usual level of short-term market interest rates. It is made available, with minimal administration and 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. During 2018, the Board approved four increases in the primary credit rate, bringing the rate from 2 percent to 3 percent. The Board reached these determinations on the primary credit rate recommendations of the Reserve Bank boards of directors. The Board's actions were taken in conjunction with the FOMC's decisions to raise the target range for the federal funds rate by 100 basis points, to 2-1/4 percent to 2-1/2 percent. Monetary policy developments are reviewed more fully in other parts of this report (see section 2, "Monetary Policy and Economic Developments").

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. Throughout 2018, the spread was set at 50 basis points. At year-end, the secondary credit rate was 3-1/2 percent.

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 target range for the federal funds rate. At year-end, the seasonal credit rate was 2.40 percent.²⁶

Votes on Changes to Discount Rates for Depository Institutions

Details on the four actions by the Board to approve increases in the primary credit rate are provided below.

March 21, 2018. Effective March 22, 2018, the Board approved actions taken by the boards of directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, St. Louis, Kansas City, Dallas, and San Francisco to increase the primary credit rate from 2 percent to 2-1/4 percent. On March 22, 2018, the Board approved identical actions subsequently taken by the boards of directors of the Federal Reserve Banks of Chicago and Minneapolis, effective immediately.

June 13, 2018. Effective June 14, 2018, the Board approved actions taken by the boards of directors of the Federal Reserve Banks of Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco to increase the primary credit rate from 2-1/4 percent to 2-1/2 percent. On June 14, 2018, the Board approved an identical action subsequently taken by the board of directors of the Federal Reserve Bank of New York, effective immediately.

September 26, 2018. Effective September 27, 2018, the Board approved actions taken by the boards of directors of the Federal Reserve Banks of Boston, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Kansas City, Dallas, and San Francisco to increase the primary credit rate from 2-1/2 percent to 2-3/4 percent. On September 27, 2018, the Board approved identical actions subsequently taken by the boards of directors of the Federal Reserve Banks of New York and Minneapolis, effective immediately.

December 19, 2018.Effective December 20, 2018, the Board approved actions taken by the boards of directors of the Federal Reserve Banks of Boston, Cleveland, Richmond, Atlanta, Chicago, and San Francisco to increase the primary credit rate from 2-3/4 percent to 3 percent. On December 20, 2018, the Board approved identical actions subsequently taken by the boards of directors of the Federal Reserve Banks of New York, Philadelphia, St. Louis, Minneapolis, Kansas City, and Dallas, effective immediately.

Footnotes

1. Jerome Powell was sworn in as Chair on February 5, and Richard Clarida was sworn in as Vice Chair and a member of the Board on September 17, 2018. Michelle Bowman was sworn in as a member of the Board on November 26, 2018. Return to text

2. See Federal Register notice at https://www.govinfo.gov/content/pkg/FR-2018-05-09/html/2018-09805.htm. Return to text

3. See Federal Register notice at https://www.govinfo.gov/content/pkg/FR-2018-08-29/html/2018-18685.htm. Return to text

4. See Federal Register notice at https://www.govinfo.gov/content/pkg/FR-2018-12-28/html/2018-28267.htm. Return to text

5. See Federal Register notice at https://www.govinfo.gov/content/pkg/FR-2018-11-30/html/2018-25267.htm. Return to text

6. See Federal Register notice at https://www.govinfo.gov/content/pkg/FR-2019-02-14/html/2018-28281.htm. Return to text

7. See Federal Register notice at https://www.govinfo.gov/content/pkg/FR-2018-04-09/html/2018-06960.htm. Return to text

8. See Federal Register notice at https://www.govinfo.gov/content/pkg/FR-2018-08-30/html/2018-18756.htm. Return to text

9. See Federal Register notice at https://www.govinfo.gov/content/pkg/FR-2018-09-17/html/2018-20029.htm. Return to text

10. See Federal Register notice at https://www.govinfo.gov/content/pkg/FR-2018-10-10/html/2018-22021.htm. Return to text

11. See Federal Register notice at https://www.govinfo.gov/content/pkg/FR-2018-08-31/html/2018-18610.htm. Return to text

12. See Federal Register notice at https://www.govinfo.gov/content/pkg/FR-2018-08-06/html/2018-16133.htm. Return to text

13. See Federal Register notice at https://www.govinfo.gov/content/pkg/FR-2018-03-06/html/2018-04385.htm. Return to text