Pub. 10 2020-2021 Issue 1

16 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S — H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S www.coloradobankers.org E ffective April 24th, 2020 the Board of Governors of the Federal Reserve System (“Board”) did away with a longstanding, and, in the opinion of some, outdated rule in Regulation D. The Interim Final Rule amended Reg. D by deleting the six convenient transfers and withdrawals restriction that has become synonymous with savings accounts. Additionally, recent guidance has further clarified aspects of the rule change raised by the Interim Final Rule. Because the rule change puts the ball in each depository institution’s court, in terms of whether to continue enforcing transfer restrictions, banks are now left at a crossroads with compliance considerations in proceeding down either path. With the Reg. D restrictions being antiquated for years due to changes in the industry, what precipitated Reg. D’s amendments now? In the Interim Final Rule, the Board noted an “ample reserves regime” monetary policy shift, which led to the Board reducing reserve requirement ratios to zero percent effective March 26, 2020. As a result of the elimination of reserve requirements on all transaction accounts, the Board stated that the distinction between transaction accounts and savings deposit accounts was no longer necessary. Lastly, the Board pointed to disruptions caused by COVID-19, which in turn has caused many depositors to have an urgent need for access to their funds by remote means. Because the Board pointed to recent developments as the bases of the change, as well as its timing amidst the COVID-19 pandemic, has led some to question whether the Reg. D changes are permanent or only temporary in order to provide relief during the current crisis. The Interim Final Rule as currently written did not indicate that these changes are temporary. Additionally, The Federal Reserve Banks (“Banks”) further clarified in a recent FAQ that the Board does not have plans to re-impose transfer limits but may make adjustments to the definition of savings accounts in response to comments received regarding the Interim Final Rule as well as potentially in the future, if warranted. With the question of the Interim Final Rule’s permanency being somewhat clearer, it is worth noting that many changes caused by rule are indeed clearly explained. For example, the rule explains that enforcement of the changes is not mandatory. Instead, it is completely up to each bank whether to suspend enforcement of the six transfer limit and even provides that a temporary suspension is an option. Additionally, the rule allows a certain amount of flexibility in that a bank that suspends enforcement of the transfer limits can either continue to report these accounts as savings deposits or alternatively report them as transaction accounts for purposes of the FR 2900. Further, the rule does not require reclassification or name changes for effected accounts. Because it is up to each bank on whether to suspend enforcement of the six transfer limits, one of the most frequent questions we have received is whether notice is required when suspending enforcement. Neither the Interim Final Rule nor relevant guidance regarding the Reg. D changes have specifically stated notice is required. Additionally, Regulation DD only requires advance notice in certain circumstances, which suspension of transfer limits would not trigger. Even thoughnot specifically requiredby regulation, providingnotice is considered a best practice from a customer relationship and UDAAP perspective when significantly changing the A Solemn Farewell to Reg. D’s Convenient Transfer Restrictions