Fed raises transaction account reserve requirement exemption by 3.2% to $16M

The first $16 million in net transaction accounts will be exempt from Federal Reserve Board reserve requirements, up from $15.5 million in 2017 – an increase of about 3.2% — the Fed announced last week, in its annual adjustment of the exemption and reserve ratios.

A 3% reserve ratio will be assessed on net transaction accounts of more than $16 million, up to $122.3 million, the central bank said. That’s up from the $115.1 million mark for the reserve ratio in 2017.

For net transaction accounts in excess of $122.3 million, a 10% reserve ratio will be assessed, the Fed said.

The changes to the reserve requirements and ratios were issued as a final rule; the Fed is seeking comments by Dec. 8.

Under Fed rules, all depository institutions must hold a percentage of certain types of deposits as reserves in the form of vault cash, as a deposit in a Federal Reserve Bank, or as a deposit in a pass-through account at a correspondent institution. The rules outline that reserve requirements are assessed on the institution’s net transaction accounts (mostly checking accounts); the institutions must also regularly submit reports of their deposits and other “reservable liabilities.”

According to the central bank, the annual adjustments are based on growth in total reservable liabilities and net transaction accounts at all depository institutions between June 30, 2016 and June 30, 2017. The adjustments are known as the reserve requirement exemption amount adjustment and the low reserve tranche adjustment, the Fed said.

“The new low reserve tranche and reserve requirement exemption amount will apply to the 14-day reserve maintenance period that begins Jan. 18, 2018,” the agency said in a release. “For depository institutions that report deposit data weekly, this maintenance period corresponds to the 14-day computation period that begins Tuesday, Dec. 19, 2017. For depository institutions that report deposit data quarterly, this maintenance period corresponds to the seven-day computation period that begins Tuesday, Dec. 19, 2017.”

The Fed also announced changes in amounts for the nonexempt deposit cutoff level and the reduced reporting limit, which are used to determine the frequency with which depository institutions must submit deposit reports.

Federal Reserve Board announces annual indexing of reserve requirement exemption amount and of low reserve tranche for 2018