Supporting Statement for the
Report of Net Debit Cap
(FR 2226; OMB No. 7100‑0217)
Summary
The Board of Governors of the Federal Reserve System, under delegated authority from the Office of Management and Budget (OMB), proposes to extend for three years, without revision, the required Report of Net Debit Cap (FR 2226; OMB No. 7100‑0217). Federal Reserve Banks collect these data annually to provide information that is essential for their administration of the Federal Reserve’s Payments System Risk (PSR) policy. The reporting panel includes all financially healthy depository institutions with access to the discount window. The Report of Net Debit Cap comprises three resolutions, which are filed by a depository institution's board of directors depending on its needs. The first resolution is used to establish a de minimis net debit cap and the second resolution is used to establish a self-assessed net debit cap.1 The third resolution is used to establish simultaneously a self-assessed net debit cap and maximum daylight overdraft capacity.
The annual total burden for the FR 2226 is estimated to be 1,298 hours. The PSR policy requires depository institutions to submit their resolutions annually, as of the date of the board of directors approved the resolution(s). Copies of the model resolutions are located in Appendix B of the Payment System Risk (PSR) policy that can be found at
http://www.federalreserve.gov/paymentsystems/psr_relpolicies.htm.
The model resolutions associated with the Report of Net Debit Cap address the use of daylight credit pursuant to the Federal Reserve’s PSR policy. Under the policy, institutions that maintain a Federal Reserve account are assigned or may establish a net debit cap that represents a maximum limit on daylight overdrafts incurred in that account.2 A daylight overdraft occurs when the intraday balance in a depository institution's Reserve Bank account is negative. The net debit cap is calculated by applying a net debit cap multiple to a capital measure (risk‑based capital for a U.S. chartered institution and a U.S. capital equivalency measure for a U.S. branch or agency of a foreign bank).3 An institution’s cap category and its reported capital determine the size of the net debit cap. The six cap categories are zero, exempt-from-filing, de minimis, and the self-assessed categories, which include average, above average, and high. All cap categories are granted at the discretion of the Reserve Banks.
Financially healthy institutions that incur peak daylight overdrafts up to the lesser of $10 million or 20 percent of their risk‑based capital or U.S. capital equivalency measure may be assigned a cap, called an "exempt-from-filing cap," by the Reserve Bank. However, if an institution wishes to increase its daylight overdraft capacity beyond the limits afforded by an exempt-from-filing cap, it must file a board of directors’ resolution with its Administrative Reserve Bank authorizing a higher capacity.4
The de minimis cap category allows institutions to incur peak daylight overdrafts up to a cap of 40 percent of their risk-based capital or U.S. capital equivalency measure. Financially healthy institutions that expect to incur daylight overdrafts in excess of the exempt-from-filing limitations, but less than 40 percent of their capital measure, should file a board of directors resolution with their Administrative Reserve Bank. This category was designed to reduce the burden of performing a self-assessment for those institutions incurring relatively small levels of daylight overdrafts.
Financially healthy institutions that use Federal Reserve intraday credit in amounts that exceed 40 percent of their capital measure must establish a cap through the self-assessment process, which determines whether the risk profile of the institution allows it to obtain a higher cap and whether it should be an average, above average, or high cap.
In 2001, the Federal Reserve Board approved a policy change that allows depository institutions with self-assessed net debit caps to pledge collateral for the purpose of expanding their daylight overdraft capacity beyond their net debit caps. Depository institutions that wish to pledge collateral to expand their daylight overdraft capacity must provide justification for this additional capacity and a board of directors’ resolution approving it. The institution will then be monitored at its net debit cap plus the value of the collateral supporting the expanded capacity up to its Reserve Bank-approved maximum capacity.
The Federal Reserve monitors the compliance of depository institutions with their net debit caps by using an ex post monitoring system. An institution that exceeds its net debit cap may be counseled by its Reserve Bank. If an institution continues to exceed its net debit cap or if it poses an excessive credit risk, the institution's payment activity may be monitored in real time using the Reserve Banks’ Account Balance Monitoring System, where Fedwire funds transfers, net settlement transactions, and ACH credit originations that would cause the institution’s account balance to exceed its net debit cap would be rejected or delayed.
In 2007, the Federal Reserve implemented minor revisions to the way in which the PSR policy is implemented. In an effort to streamline the resolutions filed by institutions eligible for maximum daylight overdraft capacity, two former resolutions were combined into one: resolution 3a, collateralized capacity, and resolution 3b, in-transit securities. These resolutions were replaced by the maximum daylight overdraft capacity resolution that combines the board of directors’ approval of the institution’s self-assessment as well as its maximum daylight overdraft capacity level.
Description of Information Collection
The reporting panel includes all financially healthy depository institutions with access to the discount window that incur daylight overdrafts in their Federal Reserve accounts and wish to establish capacity for daylight overdrafts greater than that afforded by an exempt cap. Depository institutions that are assigned zero net debit caps or exempt net debit caps do not have to file board of directors’ resolutions with their Administrative Reserve Banks. Institutions that apply for and are allowed a de minimis net debit cap or a self-assessed net debit cap must file a board of directors’ resolution. Institutions are required to submit the resolutions at least annually.
A de minimis cap can be adopted by an institution if it limits its daylight overdrafts to 40 percent of its capital measure. In this case, the institution files a de minimis cap resolution, the first model resolution.
Depository institutions seeking capacity for daylight overdrafts greater than that afforded by the exempt or de minimis caps must complete a self-assessment. The self‑assessment takes into consideration a depository institution's creditworthiness, intraday funds management and controls, consumer credit policies, operating controls, and contingency procedures. (A self-assessment is required for average, above average, or high cap categories.) The results of the self-assessment must be reviewed and approved by the institution's board of directors. The directors' approval must be communicated to the Reserve Bank by submission of a board of directors’ resolution, the second model resolution. The Reserve Bank will ensure that the cap resolution is complete and the cap requested is appropriate. The work papers supporting the self-assessment and resolution should be retained by the institution for review by its primary supervisor.
Depository institutions with self-assessed net debit caps that seek additional daylight overdraft capacity must submit to their Administrative Reserve Banks a written business justification to support the request for the additional capacity. In evaluating a depository institution’s request, the Administrative Reserve Bank will review the institution’s daylight overdraft levels, financial condition, and written business justification. The Administrative Reserve Bank will consult the institution’s primary regulator as well as Federal Reserve Bank from the discount window and legal areas. If the Administrative Reserve Bank approves the request, the depository institution will need to file the maximum daylight overdraft capacity resolution, which is resolution three. This resolution combines the board of directors’ approval of the self-assessment and the maximum daylight overdraft capacity amount in order to ease the reporting burden of these institutions.
The PSR policy requires depository institutions to submit their resolutions annually, as of the date on which the board of directors approved the resolutions. Institutions file the resolutions directly with their Administrative Reserve Banks and keep current copies of the resolutions on file for examiner review. Reserve Banks enter the net debit cap information into an ex post monitoring system and forward the information to the institutions' primary supervisors for examination purposes. The information collected on the FR 2226 is not published.
Legal Status
The Federal Reserve Board's Legal Division determined that sections 11, 16, and 19 of the Federal Reserve Act (12 U.S.C. §§248(i), 248-1, 464) authorize the Federal Reserve to require the FR 2226 resolutions. The FR 2226 is exempt from disclosure under exemption (b)(4) of the Freedom of Information Act (FOIA), which exempts from disclosure “trade secrets and commercial or financial information obtained from a person and privileged or confidential.” (5 U.S.C. §552 (b)(4)). In addition, information reported in connection with the second and third resolutions may be protected under Section (b)(8) of FOIA, to the extent that such information is based on the institution’s CAMELS rating, and thus is related to examination reports prepared by, on behalf of, or for the use of an agency responsible for the regulation or supervision of financial institutions (5 U.S.C. §552(b)(8)).
Consultation Outside the Agency
On October 14, 2010, the Federal Reserve published a notice in the Federal Register (75 FR 63181) requesting public comment for 60 days on the extension, without revision, of this information collection. The comment period for this notice expired on December 13, 2010. The Federal Reserve did not receive any comments. On December 28, 2010, the Federal Reserve published a final notice in the Federal Register (75 FR 81606).
This collection of information contains no questions of a sensitive nature, as defined by OMB guidelines.
As shown in the following table, the current annual burden for the FR 2226 is estimated to be 1,298 hours. The Federal Reserve does not anticipate a significant change in the number of institutions filing resolutions. The annual burden of this information collection represents less than 1 percent of the total Federal Reserve System paperwork burden.
|
Number of respondents5 |
Annual frequency |
Estimated average hours per response |
Estimated total annual burden hours |
FR 2226 |
1,298 |
1 |
1 |
1,298 |
|
|
|
|
1,298 |
The total cost to Federal Reserve respondents is estimated to be $54,646.6
Estimate of Cost to the Federal Reserve System
The annual cost to Federal Reserve System for collecting and processing these data will be obtained. Responses are not automated nor are they transmitted to the Federal Reserve Board. There is a minimal amount of time involved in forwarding information to the institutions' primary supervisors.
1 Institutions use these two resolutions to establish a capacity for daylight overdrafts above the lesser of $10 million or 20 percent of the institution’s capital measure. Financially healthy U.S. chartered institutions that rarely incur daylight overdrafts in excess of the lesser of $10 million or 20 percent of the institution’s capital measure do not need to file board of directors resolutions or self-assessments with their Reserve Bank.
2 In December 2008, the Board published its revised Federal Reserve Policy on Payment System Risk. See 73 Fed. Reg. 79109 (December 24, 2008). This policy will be effective in the first quarter of 2011. The revised policy does not include two-week average daylight overdraft capacity, but this change will have no effect on depository institutions’ reporting burden.
3 See 55 Fed. Reg. 22095 (May 31, 1990).
4 The Administrative Reserve Bank is responsible for managing an institution’s account relationship with the Federal Reserve.
5 Of these respondents, 325 are small entities as defined by the Small Business Administration (i.e., entities with less than $175 million in total assets).
6 Total cost to the public was estimated using the following formula: percent of staff time, multiplied by annual burden hours, multiplied by hourly rate (30% Office & Administrative Support @ $16, 45% Financial Managers @ $48, 15% Legal Counsel @ $54, and 10% Chief Executives @ $76). Hourly rate for each occupational group are the median hourly wages (rounded up) from the Bureau of Labor and Statistics (BLS), Occupational Employment and Wages 2008, www.bls.gov/news.release/ocwage.nr0.htm Occupations are defined using the BLS Occupational Classification System, www.bls.gov/soc/
| File Type | application/vnd.openxmlformats-officedocument.wordprocessingml.document |
| File Title | INTERNAL FR |
| Author | John Schmidt |
| File Modified | 0000-00-00 |
| File Created | 2021-02-01 |