Final rules following up on 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) – will be published Tuesday, according to a notice filed with the Federal Register.
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.
Last Wednesday (March 21), the Fed Board approved a 25-basis-point increase in the primary rate (from 2% to 2.25%) for each of the Federal 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 1.25% to 1.5% to a target range of 1.5% to 1.75%) announced by the Federal Open Market Committee, also last Wednesday.
The rate changes for primary and secondary credit are applicable on March 22, the Fed said.
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 1.75% and IOER is 1.75%, 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.”
The IORR and IOER rate changes are applicable on March 22, the Fed said.
Regulation A: Extensions of Credit by Federal Reserve Banks
Regulation D: Reserve Requirements of Depository Institutions