Primary, secondary credit extension rates to rise at Fed banks, reflecting overall action

Reg D rates also to rise 25bp

Changes to the Federal Reserve’s Regulation A reflecting an increase in the rate for primary credit to 2.75% at Federal Reserve Banks will be made under a notice filed for publication in the Federal Register, as early as Tuesday. The rate change takes effect upon publication of the notice.

The Fed also is filing a notice to increase the rates paid on “Reg D reserves.”

In its filings Monday, the Fed also noted that the secondary credit rate at each of the banks automatically increased by formula as a result of the primary credit rate action.

The previous primary rate – the rate that each Reserve Bank charges for extensions of primary credit – was 2.5%. The increase reflects the Fed board’s Sept. 26 vote to raise the rate by 25 basis points.

That increase, in turn, was associated with an increase in the target range for the federal funds rate (to 2% to 2.25%) announced by the Fed’s interest rate-setting Federal Open Market Committee (FOMC), also on Sept. 26.

The Fed had previously approved the renewal of the secondary credit rate formula, the primary credit rate plus 50 basis points. Under the formula, the secondary credit rate in effect at each of the 12 Federal Reserve banks increased by 25 basis points due to the primary credit rate action, increasing from 3% to 3.25%. The rate is charged by the banks extensions of secondary credit. The amendments to Regulation A reflect these rate changes, the Fed noted.

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 2.2% and IOER is 2.2%, 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.”

Regulation A: Extensions of credit by Federal Reserve Banks