CUNA Regulatory Comment Call

August 4, 1999

Treasury Tax and Loan Program Changes Interest Rate to an Overnight Repurchase Agreement Rate

August 4, 1999

The Department of the Treasury (Treasury) requests comments on a notice of proposed rulemaking to revise its regulation governing the Treasury Tax and Loan (TT&L) program. The revised regulation would change the interest rate Treasury charges on TT&L note balances to an overnight repurchase agreement rate. Treasury must receive, written comments on or before September 28, 1999. Please submit your comments to CUNA by September 21, 1999, by fax at 202/371-8240 or by e-mail to CUNA's Assistant General Counsel Michelle Profit at You may access a copy of the notice on the Internet.


The TT&L program has two separate components: a depositary component through which the Treasury collects Federal tax deposits and payments from business taxpayers for employee withholding and other types of taxes, and an investment component though which the Treasury invests short-term operating balances not needed for immediate cash outlays. More than 1,500 of the TT&L depositaries borrow excess short-term Treasury operating funds by participating in the investment component of the TT&L program.

The interest rate that Treasury charges on a note balance for a TT&L depositary is 25 basis points below the Federal funds rate. The Federal funds rate is the interest rate at which financial institutions exchange balances in their accounts at the Federal Reserve with each other on an overnight, unsecured basis. The TT&L rate was set as an approximation of the rate on overnight repurchase agreements and the two rates have moved roughly in tandem.

Treasury proposes that the Federal Reserve Bank of New York (FRBNY) compile and publish a volume-weighted average overnight repurchase agreement rate. Treasury proposes that the FRBNY compile this rate from data it would obtain from its domestic open market counter parties (the primary dealers) regarding the volume-weighted average overnight rate the primary dealers paid to finance general collateral securities. Treasury requests comments on this proposed methodology (please see questions). In addition, Treasury proposes that the Federal Reserve publish an overnight repurchase agreement rate on a basis similar to that used to publish the Federal funds rate. The Federal funds rate is published weekly.