The Federal Reserve Board said Wednesday that it would let banks earn interest on excess reserves and would remove some restrictions on consumer savings account transactions.

Under final amendments approved to Regulation D, banks would be able to put balances that exceed their reserve requirements in accounts at Federal Reserve banks, so the money can earn interest.

Gil Schwartz, a former Fed lawyer and a partner at Schwartz & Ballen LLP, said the amendments would let banks increase their earnings while allowing the central bank to absorb additional reserves from the banking system and pump them back into its various lending programs.

"It's another indication that the Fed is trying to do all it can to make additional resources available to itself and to give greater earnings out there to the banks," Schwartz said. "It helps. I wouldn't call it earth-shattering, but it certainly is a step in the way of increasing bank earnings and making it easier to manage their balances. It helps the Fed by giving them additional resources."

For the banks, "the advantage is they get a higher rate of interest than they otherwise would get if they sold it off into the marketplace or held it at a correspondent bank," he said.

The excess accounts are intended to be a temporary program, beginning July 2 with an end date that will be determined by market conditions.

The Fed said that it was creating the excess accounts to "alleviate pressures on correspondent-respondent business relationships in the current unusual financial market environment, which has led some respondents to prefer holding their excess balances in an account at the Federal Reserve, rather than selling them through a correspondent in the federal funds market."

The amendments will relieve correspondent banks from having to hold its respondents' excess balances in its own account at a Federal Reserve bank, which can adversely affect the correspondent's regulatory leverage ratio, the Fed said.

In October, the Fed said it would only pay interest on balances held by eligible institutions in accounts at Reserve banks. The final rule made a tweak regarding "ineligible" pass-through correspondents, like nonbanks that serve as correspondents but are not eligible to receive interest on the balances they maintain on their own behalf at the Fed. Under the final rule, only required reserve balances at ineligible correspondent's accounts on behalf of its respondents will receive interest, but that interest is required to be passed through to their respondents.

The central bank also announced increased flexibility for consumer savings account rules by letting all six allotted withdrawals and transfers made from savings accounts each month to be made in the form of a check. The previous rule allowed consumers to draw only three checks each month on a savings account.The Fed said that technological advancements had "eliminated any rationale basis for the distinction between transfers."

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