Final rules reflecting last week’s increase in interest rates by the Federal Reserve Board –increasing the rate for primary credit from Federal Reserve banks (Regulation A), and revising the interest rates paid on balances maintained to satisfy reserve balance requirements and on excess balances maintained at Federal Reserve Banks (Regulation D) – were published Wednesday by the central bank. Both rules are effective Dec. 20.
The Reg A change affects the primary and secondary credit available to depository institutions as a backup source of funding on a short-term basis, usually overnight, the Fed said. The rates are those charged by Federal Reserve banks for extensions of credit under the programs.
On Dec. 13, the Fed Board approved a 25 basis point increase in the primary rate (from 1.75% to 2%) for each of the Reserve banks. The board had previously approved the renewal of the secondary rate formula, which is the primary rate plus 50 bp.
The Fed said the 25 bp increase in the primary credit rate was associated with an increase in the target range for the federal funds rate (from a target range of 1% to 1.25% to a target range of 1.25% to 1.5%) announced by the Federal Open Market Committee, also on Dec. 13.
The Reg D changes, the Fed said, revise the rates of interest paid on balances maintained to satisfy reserve balance requirements (“IORR”) and the rate of interest paid on excess balances (“IOER”) maintained at Reserve Banks by or on behalf of eligible institutions.
According to the Fed, the final amendments specify that IORR is 1.5% and IOER is 1.5%, a 25 bp increase from prior levels. The Fed said the changes are intended “to enhance the role of such rates of interest in moving the Federal funds rate into the target range established by the Federal Open Market Committee.”