Today the Federal Reserve Board announced that it had proposed amendments to Regulation D, which addresses reserve requirements for depository institutions. The proposal would establish a new term deposit facility pursuant to which the Federal Reserve Banks would offer term deposits by auction. The Federal Reserve stated that these "would be one of several tools that the Federal Reserve could employ to drain reserves to support the effective implementation of monetary policy," but emphasized that it is only "one component of a process of prudent planning on the part of the Federal Reserve and has no implications for monetary policy decisions in the near term."
Under the proposal, eligible institutions would be able to hold term deposits and receive earnings at a rate not in excess of general short term interest rates. Term deposits would not satisfy reserve requirements, on which the Federal Reserve already pays interest, and would not be available to clear payments or cover daylight or overnight overdrafts. Public comments on the new proposal will be accepted for 30 days after publication in the Federal Register.