Interest rate increase reflected in changes to Reg A for primary credit

Last week’s interest rate changes are reflected in an increase in the primary credit rate of one-quarter percent under amendments to the Federal Reserve’s Regulation A, which are set to take effect Wednesday (June 20).

In filings with the Federal Register, the Fed notes that the amendments to Reg A reflect the .25% rise in the primary credit rate approved by the Federal Reserve Board June 13. The rate is in effect at each of the 12 Federal Reserve Banks, thereby increasing from 2.25% to 2.50% the rate that each Federal Reserve Bank charges for extensions of primary credit, the Fed said.

The secondary credit rate at each reserve bank automatically increased by formula as a result of the credit rate action, the agency notice states.

On June 8, changes to the Fed’s Reg A went into effect, making it possible for the rule to address circumstances in which the Federal Open Market Committee (FOMC) 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.

On June 13, the FOMC voted to increase the target range for the federal funds rate by .25% (from a target range of 1-1/2 to 1-3/4 percent to a target range of 1-3/4 to 2 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 Banks’ boards subject to review and determination of the Federal Reserve Board.

Regulation A: Extensions of Credit by Federal Reserve Banks