Annual Report 2015
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 chapter provides a summary of policy actions in 2015, 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. 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
In this Section:
- Regulation A (Extensions of Credit by Federal Reserve Banks)
- Regulation D (Reserve Requirements of Depository Institutions)
- Regulation H (Membership of State Banking Institutions in the Federal Reserve System)
- Regulations H (Membership of State Banking Institutions in the Federal Reserve System) and Y (Bank Holding Companies and Change in Bank Control)
- Regulation Q (Capital Adequacy of Bank Holding Companies, Savings and Loan Holding Companies, and State Member Banks)
- Regulations Y (Bank Holding Companies and Change in Bank Control) and YY (Enhanced Prudential Standards)
- Regulation II (Debit Card Interchange Fees and Routing)
- Regulation KK (Margin and Capital Requirements for Covered Swap Entities)
Regulation A (Extensions of Credit by Federal Reserve Banks)
On November 30, 2015, the Board approved a final rule (Docket No. R-1476) specifying its policies and procedures for emergency lending under section 13(3) of the Federal Reserve Act, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).1 The Dodd-Frank Act requires the Board, in consultation with the Secretary of the Treasury, to establish emergency lending policies and procedures. The Dodd-Frank Act limits the Board's emergency lending authority to lending through programs and facilities with broad-based eligibility that have been approved by the Secretary of the Treasury, prohibits lending to entities that are insolvent, and imposes certain other limitations. The final rule defines a "broad-based" program or facility as one in which at least five entities would be eligible to participate. The final rule also provides that an emergency lending program or facility must not be designed for the purpose of aiding any number of failing firms, and it broadens the definition of insolvency beyond formal bankruptcy or resolution proceedings. In addition, the final rule requires among other things the interest rate for emergency credit to be set at a premium to the rate that would be the market rate in normal circumstances. The final rule is effective January 1, 2016.
Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.
Regulation D (Reserve Requirements of Depository Institutions)
On June 17, 2015, the Board approved a final rule (Docket No. R-1513) to make technical amendments to the calculation of interest payments on excess balances maintained by or on behalf of depository institutions at Federal Reserve Banks.2 Specifically, the amendments permit interest payments on excess reserves (IOER) to be based on a daily rate rather than on a maintenance period average rate. The amendments are intended to enhance the effectiveness of changes in the IOER rate in moving the federal funds rate into the target range established by the Federal Open Market Committee when changes in those rates do not coincide with the beginning of a maintenance period. The final rule is effective July 23, 2015. (Note: The Board increased the interest rate paid on required and excess reserves on December 16, 2015. See "Policy Statements and Other Actions" later in this section.)
Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.
Regulation H (Membership of State Banking Institutions in the Federal Reserve System)
On June 11, 2015, the Board approved a final rule (Docket No. R-1498), published jointly with the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, National Credit Union Administration, and Farm Credit Administration, regarding loans in areas having special flood hazards.3 The final rule implements amendments to the National Flood Insurance Act made by the Biggert-Waters Flood Insurance Reform Act and the Homeowner Flood Insurance Affordability Act. The final rule requires the escrow of flood insurance payments on residential improved real estate securing a loan. It also incorporates an exemption for certain detached structures from the mandatory requirement to purchase flood insurance. In addition, the final rule implements provisions related to the force placement of flood insurance. The final rule is effective October 1, 2015, except for the escrow provisions, which are effective January 1, 2016.
Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.
Regulations H (Membership of State Banking Institutions in the Federal Reserve System) and Y (Bank Holding Companies and Change in Bank Control)
On April 29, 2015, the Board approved a final rule (Docket No. R-1486) to implement minimum requirements to be applied by states that elect to register and supervise appraisal management companies (AMCs), in accordance with title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as amended by the Dodd-Frank Act.4 An AMC is an entity that provides appraisal management services to lenders or underwriters or other principals in the secondary mortgage markets that include contracting with licensed and certified appraisers to perform appraisal assignments. An AMC that is a subsidiary of an insured depository institution and is regulated by a federal financial institution regulatory agency (that is, a federally regulated AMC) must meet the same minimum requirements as state-regulated AMCs, except for the requirement to register with the state. Although the final rule applies only to those states that elect to register and supervise AMCs pursuant to title XI, nonfederally regulated AMCs generally may not perform appraisal management services related to federally related transactions in states that have not established regulatory structures for AMCs within a 36-month period from the rule's effective date.
The final rule, published jointly with the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, National Credit Union Administration, Consumer Financial Protection Bureau, and Federal Housing Finance Agency, is effective August 10, 2015.
Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.
Regulation Q (Capital Adequacy of Bank Holding Companies, Savings and Loan Holding Companies, and State Member Banks)
On January 26, 2015, the Board approved an interim final rule (Docket No. R-1508) to exclude from the Board's regulatory capital requirements savings and loan holding companies that have total consolidated assets of less than $500 million and that meet certain qualitative requirements of the Board's Small Bank Holding Company Policy Statement (Policy Statement).5 Bank holding companies that have total consolidated assets of less than $500 million and that meet the qualitative requirements of the Policy Statement are already excluded from the Board's regulatory capital requirements. The interim final rule is effective January 30, 2015.
Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.
On June 11, 2015, the Board approved a final rule (Docket No. R-1502), published jointly with the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency, to revise aspects of the regulatory capital framework applicable to large, internationally active banking organizations subject to the advanced approaches risk-based capital rule.6 The advanced approaches rule generally applies to banking organizations with $250 billion or more in total consolidated assets or $10 billion or more in on-balance-sheet foreign exposure. The final rule (1) clarifies the qualification criteria for banking organizations' use of the advanced approaches rule, (2) reduces to zero the capital risk-weight applicable to the exposure of a clearing member banking organization to a central counterparty where the clearing member does not guarantee the performance of the central counterparty to the clearing member client, (3) enhances consistency of the agencies' advanced approaches rule with relevant international standards, and (4) makes other technical updates and corrections. The final rule is effective October 1, 2015.
Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.
On July 20, 2015, the Board approved a final rule (Docket No. R-1505) to implement a risk-based capital surcharge for firms identified as global systemically important bank holding companies, or G-SIBs.7 The final rule establishes the criteria for identifying a G-SIB. It also requires G-SIBs to determine their surcharge under two methods and use the higher of the two surcharges. The first method uses a broad set of categories correlated with systemic importance to determine a firm's surcharge. The second method uses similar categories but incorporates a measure of a firm's reliance on short-term wholesale funding and is calibrated to result in a higher surcharge in most instances. The G-SIB surcharge is phased in beginning on January 1, 2016, and becomes fully effective on January 1, 2019. (Note: On December 31, 2015, the Board approved the 2015 aggregate global indicator amounts for purposes of a calculation required under the final rule.)
Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.
On November 24, 2015, the Board approved a final rule (Docket No. R-1506) amending its regulatory capital framework to clarify how the definition of common equity tier 1 capital applies to ownership interests issued by depository institution holding companies that are structured as limited liability corporations or partnerships.8 The final rule provides examples of how instruments issued by these firms may qualify as regulatory capital. The applicable compliance date with the Board's revised capital framework is extended to July 1, 2016. The final rule also provides temporary exclusions from the regulatory capital framework for savings and loan holding companies that are personal or family trusts and depository institution holding companies that are employee stock ownership plans. The final rule is effective January 1, 2016.
Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.
Regulations Y (Bank Holding Companies and Change in Bank Control) and YY (Enhanced Prudential Standards)
On November 24, 2015, the Board approved a final rule (Docket No. R-1517) to amend its capital plan and stress testing rules.9 For bank holding companies with more than $10 billion but less than $50 billion in total consolidated assets and savings and loan holding companies with total consolidated assets of more than $10 billion, the final rule modifies certain mandatory capital-action assumptions in the stress test rules and delays the application of the company-run stress test requirements to savings and loan holding companies until January 1, 2017. For bank holding companies that have total consolidated assets of $50 billion or more and state member banks that are subject to the Board's advanced approaches capital requirements, the final rule delays the use of the supplementary leverage ratio for one year and indefinitely defers the use of the advanced approaches risk-based capital framework in the capital plan and stress test rules. For bank holding companies that have total consolidated assets of $50 billion or more, the final rule removes the tier 1 common capital ratio requirement and modifies certain mandatory capital-action assumptions. To reflect other recent rulemakings, the final rule also makes other amendments to the capital plan and stress test rules. The final rule is effective January 1, 2016.
Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.
Regulation II (Debit Card Interchange Fees and Routing)
On August 10, 2015, the Board approved a clarification (Docket No. R-1404) to the treatment of transactions-monitoring costs under its Regulation II in response to a court decision. 10 Regulation II implements standards for assessing whether interchange transaction fees for electronic debit transactions are reasonable and proportional to the cost incurred by the issuer, as required by section 920 of the Electronic Fund Transfer Act. Transactions-monitoring costs are costs incurred by the issuer during the authorization process to detect indications of fraud or other anomalies in order to assist in the issuer's decision to authorize or decline the transaction. In March 2014, the U.S. Court of Appeals for the District of Columbia Circuit largely upheld Regulation II against a challenge by merchant groups (NACS v. Board of Governors of the Federal Reserve System). The court, however, held that the Board's treatment of transactions-monitoring costs required further explanation. The Board's clarification states that transactions-monitoring costs are included in the interchange fee standard because these costs are incurred in the course of effecting a particular transaction and are an integral part of the authorization of a specific electronic debit transaction. The Board concluded that it should consider the costs of all activities that are integral to authorization, even if those costs are also incurred for the dual purpose of helping to prevent fraud.
Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo and Powell. Absent and not voting: Governor Brainard.
Regulation KK (Margin and Capital Requirements for Covered Swap Entities)
On October 30, 2015, the Board approved a final rule (Docket No. R-1415) to establish minimum margin requirements for swaps and security-based swaps that are not cleared through a clearinghouse.11 The final rule, issued jointly with the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Farm Credit Administration, and Federal Housing Finance Agency, establishes capital and margin requirements for swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants regulated by one of the agencies, in accordance with the Dodd-Frank Act. The margin requirements mandate the exchange of initial and variation margin for non-cleared swaps and non-cleared security-based swaps between covered swap entities and certain counterparties. The amount of margin will vary based on the relative risk of the non-cleared swap. The requirements are intended to reduce risk, increase transparency, and promote market integrity.
The Board, jointly with the other agencies, also approved an interim final rule with request for comment (Docket No. R-1415) to implement the requirements of title III of the Terrorism Risk Insurance Program Reauthorization Act of 2015, which exempts from the agencies' swap margin rules non-cleared swaps in which a counterparty qualifies for an exemption or exception from clearing under the Dodd-Frank Act. In particular, the interim final rule exempts certain financial institutions with $10 billion or less in total assets and commercial end users that enter into swaps for hedging purposes and that meet the exceptions available to those institutions from the requirement to clear standardized swaps through a clearinghouse. The final rule and interim final rule are effective April 1, 2016.
Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.
Policy Statements and Other Actions
In this Section:
Community Advisory Council
On January 14, 2015, the Board approved the establishment of an advisory council to provide Board members with information, advice, and recommendations on the economic circumstances and financial services needs of consumers and communities, with a particular focus on the concerns of low- and moderate-income populations.12 The 15 members of the newly formed Community Advisory Council (CAC) were selected by the Board through a public nomination process of candidates with expertise in consumer and community development matters. The Board held the first CAC meeting in the fourth quarter of 2015 and will hold meetings semiannually thereafter.
Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.
Small Bank Holding Company Policy Statement
On April 8, 2015, the Board approved a final rule (Docket No. R-1509) amending its Small Bank Holding Company Policy Statement to raise from $500 million to $1 billion the asset threshold to qualify for the policy statement and to expand the scope of companies eligible under the statement to include savings and loan holding companies.13 The policy statement facilitates the transfer of ownership of small community banks and savings associations by allowing their holding companies to operate with higher levels of debt than would normally be permitted. The policy statement contains several conditions and restrictions designed to ensure that the higher levels of debt permitted for the holding companies do not present an undue risk to the safety and soundness of their subsidiary banks. The Board also approved final conforming revisions to Regulation Y (Bank Holding Companies and Change in Bank Control), Regulation LL (Savings and Loan Holding Companies), and Regulation Q (Capital Adequacy of Bank Holding Companies, Savings and Loan Holding Companies, and State Member Banks). The final rule is effective May 15, 2015.
Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.
Interagency Policy Statement Establishing Joint Standards for Assessing the Diversity Policies and Practices of Entities Regulated by the Agencies
On June 3, 2015, the Board approved a final interagency policy statement (Docket No. OP-1465), published jointly with the Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, National Credit Union Administration, Consumer Financial Protection Bureau, and Securities and Exchange Commission, to establish joint standards for assessing the diversity policies and practices of the entities regulated by the agencies.14 The standards are required under section 342 of the Dodd-Frank Act and provide a framework for regulated entities to create and strengthen their diversity policies and practices, including their organizational commitment to diversity, workforce and employment practices, procurement and business practices, and practices to promote transparency of organizational diversity and inclusion within their U.S. operations. The interagency policy statement is effective June 10, 2015.
Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.
Enhancements to Federal Reserve Bank Same-Day ACH Service
On September 22, 2015, the Board approved enhancements to the Federal Reserve Banks' same-day automated clearing house (ACH) service (Docket OP-1515) to require receiving depository financial institutions (RDFIs) to participate in the service and to require originating depository financial institutions to pay a fee to the RDFIs for each same-day ACH forward transaction.15 The enhancements are intended to align the Federal Reserve Banks' same-day ACH service with amendments to NACHA's (formerly National Automated Clearing House Association) ACH operating rules and will facilitate the use of the ACH network for certain time-critical payments, accelerate final settlement, and improve funds availability to payment recipients. The enhancements will be adopted by incorporation of the NACHA amended operating rules into Operating Circular 4, governing the Reserve Banks' ACH service. The changes are effective September 23, 2016.
Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.
Interest on Reserves
On December 16, 2015, the Board approved raising the interest rate paid on required and excess reserve balances from 1/4 percent to 1/2 percent, effective December 17, 2015.16 This action was taken to support the Federal Open Market Committee's decision on December 16 to raise the target range for the federal funds rate by 25 basis points, to 1/4 percent to 1/2 percent.
Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.
Discount Rates for Depository Institutions in 2015
In this Section:
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.
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 2015, the Board approved one change to the primary credit rate, an increase from 3/4 percent to 1 percent, effective December 17, 2015. The Board reached this determination on the primary credit rate recommendations of the Reserve Bank boards of directors in conjunction with the FOMC's decision to raise the target range for the federal funds rate by 25 basis points, to 1/4 percent to 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 2015, the spread was set at 50 basis points. At year-end, the secondary credit rate was 1-1/2 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 0.40 percent.17
Votes on Changes to Discount Rates for Depository Institutions
About every two weeks during 2015, the Board approved proposals by the 12 Reserve Banks to maintain the formulas for computing the secondary and seasonal credit rates. Details on the action by the Board to approve a change to the primary credit rate are provided below.
December 16, 2015. Effective December 17, 2015, the Board approved actions taken by the directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Kansas City, Dallas, and San Francisco to increase the primary credit rate from 3/4 percent to 1 percent. On December 17, 2015, the Board approved an identical action subsequently taken by the directors of the Federal Reserve Bank of Minneapolis, effective immediately.
Voting for this action: Chair Yellen, Vice Chairman Fischer, and Governors Tarullo, Powell, and Brainard.
References
1. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2015-12-18/html/2015-30584.htm. Return to text
2. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2015-06-22/html/2015-15238.htm. Return to text
3. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2015-07-21/html/2015-15956.htm. Return to text
4. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2015-06-09/html/2015-12719.htm. Return to text
5. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2015-02-03/html/2015-02038.htm. Return to text
6. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2015-07-15/html/2015-15748.htm. Return to text
7. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2015-08-14/html/2015-18702.htm. Return to text
8. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2015-12-09/html/2015-31013.htm. Return to text
9. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2015-12-02/html/2015-30471.htm. Return to text
10. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2015-08-14/html/2015-19979.htm. Return to text
11. See Federal Register notices at www.gpo.gov/fdsys/pkg/FR-2015-11-30/html/2015-28671.htm and www.gpo.gov/fdsys/pkg/FR-2015-11-30/html/2015-28670.htm. Return to text
12. See press release at www.federalreserve.gov/newsevents/press/other/20150116a.htm. Return to text
13. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2015-04-15/html/2015-08513.htm. Return to text
14. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2015-06-10/html/2015-14126.htm. Return to text
15. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2015-09-28/html/2015-24551.htm. Return to text
16. See press release at www.federalreserve.gov/newsevents/press/monetary/20151216a1.htm and Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2015-12-22/html/2015-32099.htm. Return to text
17. For current and historical discount rates, see www.frbdiscountwindow.org/
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