Changes to Federal Reserve rules for setting Federal Reserve Banks’ primary credit rate charged to depository institutions take effect June 8, the Fed Board said in an announcement late Monday. A notice is slated for publication Wednesday in the Federal Register.
The changes revise the Fed’s Regulation A, which governs extensions of credit by the 12 Federal Reserve Banks. The changes make it possible for the rule to address circumstances in which the Federal Open Market Committee (FOMC) has established a target range for the federal funds rate rather than a single target rate. As revised, Reg A provides that, in a financial emergency, the primary credit rate is the target federal funds rate or, if the FOMC has established a target range for the federal funds rate, a rate corresponding to the top of the target range. (As of May 2, the federal funds rate target is a range from 1.5 to 1.75 percent.)
The primary credit rate is charged for very short-term extensions of credit, typically overnight, by Reserve Banks to depository institutions that they deem to be healthy. As required by the Federal Reserve Act, the rate is set by the Reserve Bank boards subject to review and determination of the Federal Reserve Board.
The Reg A changes also make technical revisions reflecting the expiration of the Term Asset-Backed Securities Loan Facility (TALF). Specifically, they delete the provisions relating to the use of credit ratings for collateral for extensions of credit under TALF. (The Fed notes that on June 30, 2010, the TALF was closed for new loan extensions, and the final outstanding TALF loan was repaid in full in October 2014.)
Extensions of Credit by Federal Reserve Banks (Federal Register notice)