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 email@example.com. 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.
QUESTIONS REGARDING THE CURRENT SYSTEM
- Should Treasury use the methodology that it proposes for determining the overnight repurchase agreement rate? If not, what methodology should it use?
- Are depositories likely to change their participation in the investment component of the TT&L program if the interest rate is changed to an overnight repurchase agreement rate? If so, by how much?
- Please comment regarding the extent to which TT&L participants would be interested in obtaining TT&L note balances for a guaranteed term.
Eric Richard General Counsel (202) 508-6742 firstname.lastname@example.org |
Mary Mitchell Dunn SVP & Associate General Counsel (202) 508-6736 email@example.com
Jeffrey Bloch Assistant General Counsel (202) 508-6732 firstname.lastname@example.org
Catherine Orr Senior Regulatory Counsel (202) 508-6743 email@example.com