SRC Insights: Second Quarter 2009

What is an Excess Balance Account?

by Gail Todd, Credit Officer

On May 20, 2009, the Board of Governors approved an amendment to Regulation D authorizing the establishment of limited-purpose accounts at Federal Reserve Banks for the purpose of maintaining excess reserve balances. Available beginning July 2, 2009, these accounts are known as excess balance accounts (EBAs).

Some institutions may not be aware of what a limited-purpose account is and why the Federal Reserve offers them. An EBA is an account at a Federal Reserve Bank established for the benefit of one or more depository institutions (referred to as participants), which are eligible to earn interest on the account's balance. The EBA is managed by an agent on behalf of the participants. It is anticipated that agents will be institutions that offer correspondent services.

EBAs are intended to allow eligible institutions to earn interest on their excess balances in an account relationship directly with a Federal Reserve Bank without significantly disrupting established business relationships with their correspondents. EBAs permit the correspondent to serve as agent when placing the respondent's excess balances at the Federal Reserve Bank. Balances in the EBA are an asset of the participants in the account, not the agent that manages the account. The Federal Reserve Bank pays interest on the average balance in the EBA over the reserve maintenance period, and the agent disburses that interest to each participant in accordance with the instructions of the participant. Only excess balances may be placed in an EBA; the account balance cannot be used to satisfy reserve balance or contractual clearing balance requirements.

An EBA will be set up by the institution intending to perform the role of EBA agent. The agent must have its own account at a Federal Reserve Bank and must agree to comply with the terms and conditions of operating an EBA. It should be noted that the agent does not have to be eligible to earn interest on its own balance maintained at a Federal Reserve Bank.

Each participant must authorize the agent to manage the EBA on its behalf pursuant to an Excess Balance Account Agreement. Participants in an EBA must be eligible to earn interest on the balance they hold at the Federal Reserve Bank. Each participant can participate in only one EBA, and the EBA may be located in a different District than the participant. The agent will coordinate the execution of agreements and forward all agreements to the Federal Reserve Bank.

If you have any questions regarding these new accounts, please contact Donna Wilson at 215-574-6595 or go to the Federal Reserve Financial Services website External Link .

The views expressed in this article are those of the author and are not necessarily those of this Reserve Bank or the Federal Reserve System.

SRC Insights: Second Quarter 2009

What is an Excess Balance Account?

In This Issue

Contact Us