Fed set to automate non-merger-related adjustments to member banks’ capital stock subscriptions

The Federal Reserve has finalized a rule to automate non-merger-related adjustments to member banks’ subscriptions in order to reserve bank capital stock. 

The move, announced on January 10, is set to have a significant impact on the reduction of annual reporting burdens on banks. 

The Fed has already developed software that allows calculation information to be automatically pulled and member bank’s stock subscription adjusted with each Call Report filed. 

The Fed has also codified existing practices regarding the requirement of surviving member banks application to adjust stock subscriptions prior to merging or consolidating with another bank. 

Regulation I is a requirement enforced by the Federal Reserve, stipulating that any bank joining the Federal Reserve must acquire a certain level of stock in its Federal Reserve Bank. 

Under Section 5, for example, member banks must subscribe to the capital stock of the Reserve Bank within its district in “an amount equal to 6% of the member bank’s capital and surplus”. 

The final rule is set to take effect 30 days after publication in the Federal Register. 

The board initially proposed this movement in April 2021. With no responsive comments on the proposal, it is being finalized with the two technical clarifications relating to the ‘automation of non-merger-related stock adjustments’ and ‘merger-related stock adjustments’.