ICBA filed a comment letter with the Federal Reserve in support of an amendment to Regulation D that would lower the rate of interest paid on excess balances for eligible institutions that hold a large proportion of their assets in the form of balances at the Reserve Banks.
Allowing narrowly focused depository institutions to pass through interest obtained from the Reserve Banks without being subjected to the same capital standards and requirements as commercial banks could diminish the availability of funding at a time when attracting deposits is very difficult, ICBA wrote.
ICBA also is concerned that more attractive rates through pass through investment entities could raise the costs for securities dealers, making it more difficult for commercial banks to use the overnight repo market to meet their funding and liquidity needs. The Narrow Bank in Connecticut has requested a master account at the Federal Reserve Bank of New York and is in litigation with the Reserve Bank over the issue.
Read ICBA’s Comment Letter