FR2226_20170526_omb

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 (Board), under delegated
authority from the Office of Management and Budget (OMB), proposes to extend for three years,
without revision, the 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 Board’s Payment 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 1,069
hours.
Background and Justification
The model resolutions associated with the Report of Net Debit Cap address the use of
daylight credit pursuant to the Board’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 uncollateralized daylight overdrafts incurred in that account.2 A daylight overdraft
occurs when the intraday balance in a depository institution’s Reserve Bank account becomes
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 (1) zero, (2)
exempt-from-filing, (3) de minimis, and the self-assessed categories, which include (4) average,
(5) above average, and (6) high. All cap categories are granted at the discretion of the Reserve
Banks.
Financially healthy institutions that incur peak daylight overdrafts up to $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,

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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 FR
79109 (December 24, 2008), www.gpo.gov/fdsys/pkg/FR-2008-12-24/pdf/E8-30627.pdf.
3
See 55 FR 22095 (May 31, 1990).

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 Board approved a policy change that allows depository institutions with selfassessed 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 the Federal Reserve Bank’s Account Balances Service 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 Services/Settlement Services application, 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 Board 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.

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The Administrative Reserve Bank is responsible for the administration of Federal Reserve credit, reserves, and
risk-management policies for a given institution or other legal entity.

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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, customer credit policies, operating controls, and contingency procedures. (A selfassessment 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 selfassessment 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. In addition to ensuring
that the institution has explored other alternatives for addressing intraday liquidity problems, the
Administrative Reserve Bank will consult the institution’s primary regulator as well as Reserve
Bank staff 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.
Time Schedule for Information Collection
The PSR policy requires depository institutions to submit their resolutions annually, as of
the date on which the board of directors approved the resolution(s). Institutions file the
resolutions directly with their Administrative Reserve Banks and keep current copies of the
resolutions on file for examiner review. The Reserve Banks enter the net debit cap information

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into an ex post monitoring system and forward the information to the institutions’ primary
supervisors for examination purposes.
Legal Status
The Board’s Legal Division has determined that the FR 2226 is authorized pursuant to
sections 11, 16, and 19 of the Federal Reserve Act (12 U.S.C. 248(i), 248-1, 464). The obligation to
respond is required for the institution to obtain the benefit of an increase in daylight overdraft
capacity beyond the limit afforded by the exempt-from-filing cap. The Board has confirmed that the
disclosure of information collected on the FR 2226 would likely cause substantial harm to the
competitive position of the respondent institution. Therefore, 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 Capital, Assets, Mangement, Earnings, Liquidity, and
Sensitivity (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 February 13, 2017, the Board published a notice in the Federal Register
(82 FR 10480) requesting public comment for 60 days on the extension, without revision, of the
FR 2226. The comment period for this notice expired on April 14, 2017. The Board did not
receive any comments. On May 15, 2017, the Board published a final notice in the Federal
Register (82 FR 22332) and the information collection will be extended as proposed.
Estimate of Respondent Burden
As shown in the following table, the current annual burden for the FR 2226 is estimated
to be 1,069 hours. In 2016, 941 institutions filed the de minimis cap resolution, 125 institutions
filed the self-assessed cap resolution, and three institutions filed the resolution for maximum
daylight overdraft capacity. These reporting requirements represent less than 1 percent of the
total Federal Reserve System paperwork burden.

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Number of
respondents5

FR 2226

Estimated
Estimated
Annual
average hours annual burden
frequency
per response
hours

De minimis cap

941

1

1

941

Self-assessed cap6

125

1

1

125

3

1

1

3

Maximum daylight overdraft
capacity
Total

1,069

The total annual cost to the public for this information collection is estimated to be $58,688.7
Sensitive Questions
This collection of information contains no questions of a sensitive nature, as defined by
OMB guidelines.
Estimate of Cost to the Federal Reserve System
The annual cost to the Federal Reserve System for collecting and processing these data is
negligible. Responses are not automated nor are they transmitted to the Board. There is a
minimal amount of time involved in forwarding information to the institutions’ primary
supervisors.

5

Of these respondents, 460 are estimated to be small entities as defined by the Small Business Administration (i.e.,
entities with less than $550 million in total assets). www.sba.gov/content/table-small-business-size-standards.
6
Self-assessed cap figures do not include those self-assessed cap respondents with maximum daylight overdraft
capacity.
7
Total cost to the public was estimated using the following formula: percent of staff time, multiplied by annual
burden hours, multiplied by hourly rates (30% Office & Administrative Support at $18, 45% Financial Managers at
$67, 15% Lawyers at $67, and 10% Chief Executives at $93). Hourly rates for each occupational group are the
(rounded) mean hourly wages from the Bureau of Labor and Statistics (BLS), Occupational Employment and Wages
May 2016, published March 31, 2017, www.bls.gov/news.release/ocwage.t01.htm. Occupations are defined using
the BLS Occupational Classification System, www.bls.gov/soc/.

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