WASHINGTON (12/23/15)--The Federal Reserve published a final rule last week amending Regulation D to revise the rate of interest paid on balances maintained to satisfy reserve balance requirements.
The adjustment conforms with last week’s increase in the federal funds rate target range to 0.25% to 0.5% by the Federal Open Market Committee.
Regulation D, which covers reserve requirements of depository institutions, now has a 0.5% rate of interest paid on balances maintained to satisfy reserve balances and a 0.5% rate of interest paid on excess balances maintained at Federal Reserve Banks by or on behalf of eligible institutions.
The new rates are now effective.
CUNA’s CompBlog examined other impacts the Fed’s rate hike could have on credit union lending. The federal funds target rate affects The Wall Street Journal (WSJ) prime rate (aka the U.S. prime rate), which is used by a majority of credit unions as the index for variable-rate loans.
Since most credit unions base their index on the WSJ prime rate, if it increases then a credit union’s variable-rate index will increase. As a result, the rate for variable-rate loans will increase. The Wall Street Journal prime rate has been equal to the federal funds target rate plus 3% since 1994.
The hike affects the following loan types: