Annual Report 2012
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 2012, as implemented through (1) rules and regulations, (2) policy statements and other actions, and (3) discount rates for depository institutions. Policy actions were approved on the date stated by all Board members in office, unless indicated otherwise.1 More information on the actions is available from the "Reading Rooms" on the Board's Freedom of Information (FOI) Act web page or on request from the Board's FOI Office.
For information on Federal Open Market Committee policy actions relating to open market operations, see "Minutes of Federal Open Market Committee Meetings".
Rules and Regulations
In this Section:
- Regulation D (Reserve Requirements of Depository Institutions) and Regulation J (Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers through Fedwire)
- Regulation H (Membership of State Banking Institutions in the Federal Reserve System) and Regulation Y (Bank Holding Companies and Change in Bank Control)
- Regulation M (Consumer Leasing) and Regulation Z (Truth in Lending)
- Regulation HH (Designated Financial Market Utilities)
- Regulation II (Debit Card Interchange Fees and Routing)
- Regulation OO (Securities Holding Companies)
- Regulation YY (Enhanced Prudential Standards)
- Rules of Practice for Hearings
Regulation D (Reserve Requirements of Depository Institutions) and Regulation J (Collection of Checks and Other Items by Federal Reserve Banks and Funds Transfers through Fedwire)
On April 4, 2012, the Board approved final rules (Docket Nos. R-1433 and R-1434) to simplify the administration of reserve requirements; reduce administrative and operational costs for depository institutions, the Board, and Federal Reserve Banks; and clarify certain matters related to the Reserve Banks.2 The amendments to Regulation D create a common two-week maintenance period for all depository institutions, establish a penalty-free band around reserve balance requirements in place of carryover and routine penalty waivers, discontinue certain as-of adjustments and replace others, and eliminate the contractual clearing balance program. Regulation J was amended to remove references to as-of adjustments and clarify other matters, including the handling of checks sent to Federal Reserve Banks. The Regulation D amendments related to the elimination of contractual clearing balances and as-of adjustments are effective July 12, 2012; the other Regulation D amendments are effective January 24, 2013. The Regulation J amendments are effective July 12, 2012.
Voting for this action: Chairman Bernanke, Vice Chair Yellen, and Governors Duke, Tarullo, and Raskin.
On October 25, 2012, the Board approved a final rule (Docket No. R-1433) to delay the effective date of certain Regulation D amendments to simplify the administration of reserve requirements, which were to take effect on January 24, 2013 (specifically, the creation of a common two-week maintenance period and the establishment of a penalty-free band around reserve balance requirements).3 The delay will allow time for further development and testing of automated systems to ensure a smooth transition for affected institutions. The new effective date is June 27, 2013.
Voting for this action: Chairman Bernanke, Vice Chair Yellen, and Governors Duke, Tarullo, Stein, and Powell. Abstaining: Governor Raskin.
Regulation H (Membership of State Banking Institutions in the Federal Reserve System) and Regulation Y (Bank Holding Companies and Change in Bank Control)
On June 7, 2012, the Board approved a final rule (Docket No. R-1401) to revise its market risk capital rule, which requires banking organizations with significant trading activities to adjust their capital requirements to reflect the market risk of those activities.4 The Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency also implemented the revised rule for the institutions they supervise.
The rule implements certain revisions the Basel Committee on Banking Supervision made to the international framework for market risk capital standards between 2005 and 2010. Among other provisions, the final rule better captures positions for which the market risk capital rule is appropriate, reduces procyclicality in market risk capital requirements, enhances the market risk rule's sensitivity to risks that were not adequately captured in the previous version of the rule, and increases transparency through enhanced disclosures. The final rule also replaces credit ratings with alternative standards of creditworthiness, as required by the Dodd-Frank Act Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). The final rule is effective January 1, 2013.
Voting for this action: Chairman Bernanke, Vice Chair Yellen, and Governors Duke, Tarullo, Raskin, Stein, and Powell.
Regulation M (Consumer Leasing) and Regulation Z (Truth in Lending)
On October 25, 2012, the Board approved final rules (Docket Nos. R-1449 and R-1450) to increase the dollar threshold for exempt consumer credit and lease transactions from $51,800 to $53,000, in accordance with the Dodd-Frank Act.5 The final rules were published jointly with the Consumer Financial Protection Bureau (CFPB). The dollar threshold is adjusted annually to reflect the annual percentage increase in the consumer price index. Transactions at or below the threshold are subject to the protections of the regulations. Although the Dodd-Frank Act generally transferred rulemaking authority under the Consumer Leasing Act and the Truth in Lending Act to the CFPB, the Board retains authority to issue rules for certain motor vehicle dealers. The final rules are effective January 1, 2013.
Voting for this action: Chairman Bernanke, Vice Chair Yellen, and Governors Duke, Tarullo, Raskin, Stein, and Powell.
Regulation HH (Designated Financial Market Utilities)
On July 26, 2012, the Board approved a final rule (Docket No. R-1412) to establish risk-management standards for certain financial market utilities (FMUs) designated as systemically important by the Financial Stability Oversight Council.6 The final rule implements provisions of the Dodd-Frank Act that require the Board to establish such standards, as well as standards for determining when an FMU supervised by the Board must provide advance notice to the Board of proposed material changes to its rules, procedures, or operations. FMUs, such as payment systems, central securities depositories, and central counterparties, provide the infrastructure to clear and settle payments and other financial transactions. The final rule is effective September 14, 2012.
Voting for this action: Chairman Bernanke, Vice Chair Yellen, and Governors Duke, Tarullo, Raskin, Stein, and Powell.
Regulation II (Debit Card Interchange Fees and Routing)
On July 26, 2012, the Board approved a final rule (Docket No. R-1404) amending the provisions in Regulation II that govern adjustments to the debit card interchange fee standards to make an allowance for fraud-prevention costs incurred by debit card issuers subject to those standards.7 Under the amendments, an issuer is eligible for an adjustment of no more than 1 cent per transaction (unchanged from the interim final rule), in addition to the interchange transaction fee permitted by Regulation II, if that issuer develops and implements policies and procedures that are reasonably designed to take effective steps to reduce the occurrence of, and costs to all parties from, fraudulent debit card transactions. The final rule simplifies the elements required to be included in an issuer's fraud-prevention policies and procedures. The amendments also require an issuer that receives a fraud-prevention allowance to (1) review its fraud-prevention policies and procedures and their implementation at least annually and (2) update them as necessary in light of their effectiveness, their cost-effectiveness, and changes in the types of fraud and available methods of fraud prevention. The final rule also includes provisions relating to an issuer's notification of its eligibility for a fraud-prevention adjustment and prohibiting adjustments for issuers that are in substantial noncompliance with the Board's fraud-prevention standards. The final rule, which revises provisions already in effect under an interim final rule, is effective October 1, 2012.
Voting for this action: Chairman Bernanke, Vice Chair Yellen, and Governors Duke, Tarullo, Raskin, Stein, and Powell.
Regulation OO (Securities Holding Companies)
On May 25, 2012, the Board approved a final rule (Docket No. R-1430) to implement a provision of the Dodd-Frank Act that permits nonbank companies that own at least one registered securities broker or dealer (securities holding companies, or SHCs) and that are required by a foreign regulator or provision of foreign law to be subject to comprehensive consolidated supervision, but are not currently subject to such supervision, to register with the Board and subject themselves to supervision by the Board (covered SHCs).8 The final rule outlines the requirements that covered SHCs must satisfy to make an effective election for Board supervision. Upon registration, these companies would be supervised as if they were bank holding companies; however, the restrictions on nonbanking activities in section 4 of the Bank Holding Company Act would not apply to them. The final rule is effective July 20, 2012.
Voting for this action: Chairman Bernanke, Vice Chair Yellen, and Governors Duke, Tarullo, and Raskin.
Regulation YY (Enhanced Prudential Standards)
On October 4, 2012, the Board approved final rules (Docket No. R-1438) to implement the Dodd-Frank Act's stress testing requirements for bank holding companies, state member banks, savings and loan holding companies (SLHCs), and nonbank financial companies designated for Board supervision by the Financial Stability Oversight Council.9
The act requires that the Board conduct supervisory stress tests of bank holding companies with total consolidated assets of $50 billion or more and nonbank financial companies supervised by the Board and also requires that these companies conduct semiannual company-run stress tests. In addition, the act requires that other financial companies that are regulated by a primary federal financial regulatory agency and have total consolidated assets of more than $10 billion conduct annual company-run stress tests. The final rules are effective November 15, 2012.
The Board began conducting supervisory stress tests under the final rules in the fall of 2012 for 18 bank holding companies that participated in the 2009 Supervisory Capital Assessment Program and subsequent Comprehensive Capital Analysis and Reviews. Also, these companies and their state member bank subsidiaries began conducting their own Dodd-Frank Act company-run stress tests in the fall of 2012. Other BHCs, state member banks, and SLHCs subject to the stress testing rules are required to comply with the rules beginning in October 2013. Companies with total consolidated assets between $10 billion and $50 billion that begin conducting their first company-run stress test in the fall of 2013 will not have to publicly disclose the results of that first stress test.
Voting for this action: Chairman Bernanke, Vice Chair Yellen, and Governors Duke, Tarullo, Raskin, Stein, and Powell.
Rules of Practice for Hearings
On November 5, 2012, the Board approved an amendment (Docket No. R-1451) to adjust the maximum amount of each statutory civil money penalty within its jurisdiction to account for inflation, as required under the Federal Civil Penalties Inflation Adjustment Act as amended by the Debt Collection Improvement Act.10 The amendment is effective November 16, 2012.
Voting for this action: Chairman Bernanke, Vice Chair Yellen, and Governors Duke, Tarullo, Raskin, Stein, and Powell.
Policy Statements and Other Actions
In this Section:
- Joint Guidance on the Effective Date of Section 716 of the Dodd-Frank Act
- Policy on Payment System Risk
- Clarification of Volcker Rule Conformance Period
- Guidance on Stress Testing for Banking Organizations with Assets over $10 Billion
- Term Asset-Backed Securities Loan Facility
- Revised Methodology for the Private Sector Adjustment Factor
Joint Guidance on the Effective Date of Section 716 of the Dodd-Frank Act
On March 28, 2012, the Board, acting with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, approved joint guidance to clarify that the effective date of section 716 of the Dodd-Frank Act is July 16, 2013.11 Section 716, the so-called swaps pushout provision, generally prohibits certain types of federal assistance to any entity defined to be a swaps entity with respect to any swap, security-based swap, or other activity of the swaps entity. Under section 716, "federal assistance" includes discount window lending or deposit insurance.
Voting for this action: Chairman Bernanke, Vice Chair Yellen, and Governors Duke, Tarullo, and Raskin.
Policy on Payment System Risk
On April 9, 2012, the Board approved technical changes to its Policy on Payment System Risk (Docket No. OP-1440) to conform with procedural changes made by the Department of the Treasury (Treasury) to the redemption of separately sorted savings bonds and to eliminate a reference to the contractual clearing balance program.12 The Board's recent amendments to Regulation D eliminated this program. The policy revisions concerning separately sorted savings bond redemptions are effective April 11, 2012, and those related to the elimination of the contractual clearing balance program are effective July 12, 2012.
Voting for this action: Chairman Bernanke, Vice Chair Yellen, and Governors Duke, Tarullo, and Raskin.
Clarification of Volcker Rule Conformance Period
On April 16, 2012, the Board approved guidance (Docket No. OP-1441) clarifying that an entity covered by section 619 of the Dodd-Frank Act (the so-called Volcker Rule) has the full two-year period provided by statute, until July 21, 2014, to fully conform its activities and investments to the requirements of section 619 and any final implementing regulations, unless that period is extended by the Board.13 The conformance period is intended to give markets and firms an opportunity to adjust to the prohibitions and restrictions on proprietary trading and on hedge fund and private equity fund activities imposed under section 619. (The Board, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Securities and Exchange Commission, and Commodity Futures Trading Commission had previously invited public comments on their proposal to implement the Volcker Rule.)
Voting for this action: Chairman Bernanke, Vice Chair Yellen, and Governors Duke, Tarullo, and Raskin.
Guidance on Stress Testing for Banking Organizations with Assets over $10 Billion
On May 9, 2012, the Board approved supervisory guidance (Docket No. OP-1421) outlining general principles for stress testing practices of banking organizations with total consolidated assets of more than $10 billion.14 The guidance was issued jointly with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.
The guidance highlights the importance of stress testing at banking organizations as an ongoing risk-management practice that supports a banking organization's forward-looking assessment of its risks and better equips it to address a range of adverse outcomes. The guidance outlines general principles for a satisfactory stress testing framework and describes various stress testing approaches and how stress testing should be used at various levels within an organization. The guidance also discusses the importance of stress testing in capital and liquidity planning and the importance of strong internal governance and controls as part of an effective stress testing framework.
The Board approved final rules in October 2012 to implement the Dodd-Frank Act's stress testing requirements. (See Regulation YY.) Banking organizations are expected to follow the principles set forth in the guidance when conducting stress testing pursuant to the Dodd-Frank Act rules or other statutory or regulatory requirements. The guidance is effective July 23, 2012.
Voting for this action: Chairman Bernanke, Vice Chair Yellen, and Governors Duke, Tarullo, and Raskin.
Term Asset-Backed Securities Loan Facility
On June 27, 2012, the Board approved a reduction from $4.3 billion to $1.4 billion in the credit protection provided by Treasury, through its Troubled Asset Relief Program, for the Term Asset-Backed Securities Loan Facility (TALF).15 The TALF program closed on June 30, 2010, with $43 billion in loans outstanding. Most TALF loans have been repaid or have matured, and the program has experienced no losses to date.
Voting for this action: Chairman Bernanke, Vice Chair Yellen, and Governors Duke, Tarullo, Raskin, Stein, and Powell.
Note: On January 15, 2013, the Board approved eliminating Treasury's credit protection for the TALF program. The Board and Treasury agreed that the credit protection was unnecessary because the accumulated fees collected through the program exceeded the amount of TALF loans outstanding, which had declined by then to $556 million.16
Revised Methodology for the Private Sector Adjustment Factor
On October 25, 2012, the Board approved modifications (Docket No. OP-1447) to the methodology for calculating the private sector adjustment factor (PSAF), which is used in setting fees for certain payment services provided to depository institutions.17 The PSAF is an allowance for income taxes and other imputed expenses that would have been paid and profits that would have been earned if the Reserve Banks' priced services were provided by a private business. The Monetary Control Act requires that the Federal Reserve establish fees to recover the costs of providing payment services, including the PSAF, over the long run, to promote competition between the Reserve Banks and private-sector providers of payment services.
Beginning in 2013, the Board will estimate income tax and other imputed costs from the U.S. publicly traded firm market. Previously, the estimated income tax and other imputed costs were derived from top bank holding companies under the correspondent bank model, which relied on clearing balances held at Reserve Banks as a primary component. The Board eliminated the contractual clearing balance program earlier in 2012. (See Regulation D).
Voting for this action: Chairman Bernanke, Vice Chair Yellen, and Governors Duke, Tarullo, Raskin, Stein, and Powell.
Discount Rates for Depository Institutions in 2012
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. Throughout 2012, the primary credit rate was 3/4 percent.
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 2012, the spread was set at 50 basis points; therefore, the secondary credit rate was 1-1/4 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 federal funds rate target. At year-end, the seasonal credit rate was 0.20 percent.18
Votes on Changes to Discount Rates for Depository Institutions
About every two weeks during 2012, the Board approved proposals by the 12 Reserve Banks to maintain the formulas for computing the secondary and seasonal credit rates. In 2012, the Board did not approve any changes in the primary credit rate.
References
1. Governor Powell joined the Board on May 25, and Governor Stein joined the Board on May 30, 2012. Return to text
2. See Federal Register notices at www.gpo.gov/fdsys/pkg/FR-2012-04-12/html/2012-8562.htm and www.gpo.gov/fdsys/pkg/FR-2012-04-12/html/2012-8563.htm. Return to text
3. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2012-11-05/html/2012-26731.htm. Return to text
4. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2012-08-30/html/2012-16759.htm. Return to text
5. See Federal Register notices at www.gpo.gov/fdsys/pkg/FR-2012-11-21/html/2012-27996.htm and www.gpo.gov/fdsys/pkg/FR-2012-11-21/html/2012-27993.htm. Return to text
6. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2012-08-02/html/2012-18762.htm. Return to text
7. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2012-08-03/html/2012-18726.htm Return to text
8. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2012-06-04/html/2012-13311.htm Return to text
9. See Federal Register notices at www.gpo.gov/fdsys/pkg/FR-2012-10-12/html/2012-24987.htm and www.gpo.gov/fdsys/pkg/FR-2012-10-12/html/2012-24988.htm. Return to text
10. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2012-11-16/html/2012-27857.htm. Return to text
11. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2012-05-10/html/2012-11326.htm. Return to text
12. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2012-04-17/html/2012-9211.htm. Return to text
13. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2012-06-08/html/2012-13937.htm. Return to text
14. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2012-05-17/html/2012-11989.htm. Return to text
15. See press release at www.federalreserve.gov/newsevents/press/monetary/20120628a.htm. Return to text
16. See press release at www.federalreserve.gov/newsevents/press/monetary/20130115b.htm. Return to text
17. See Federal Register notice at www.gpo.gov/fdsys/pkg/FR-2012-11-08/html/2012-26918.htm. Return to text
18. For current and historical discount rates, see www.frbdiscountwindow.org/ 
. Return to text