Excess Balance Account Frequently Asked Questions

If your question is not answered by the information provided within these FAQs or the Excess Balance Account page, please contact your Excess Balance Account District Contact.

Background and Eligibility

1. What is an excess balance account?

   An excess balance account is a limited-purpose account at a Federal Reserve Bank established for maintaining the excess balances of one or more institutions (participants) that are eligible to earn interest on balances held at the Federal Reserve Banks. An excess balance account is managed by an agent on behalf of the participants.

2. Why is the Federal Reserve Bank offering excess balance accounts?

   Excess balance accounts 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. Under the current configuration of interest rates, some respondents appear to prefer holding their excess balances in an account at the Federal Reserve Bank, rather than selling them through a correspondent in the federal funds market. When a correspondent holds its respondents’ excess balances in its account at its Federal Reserve Bank (and passes back the interest to its respondents), the correspondent’s assets increase and its regulatory leverage ratio may fall. Excess balance accounts permit the correspondent to serve as agent when placing the respondents’ excess balances at the Federal Reserve Bank. Balances in the excess balance account are an asset of the participants in the account, not the agent that manages the account; therefore, balances in an excess balance account would not be assets of the agent and would not be included in the calculation of the agent’s regulatory leverage ratio.

3. Which institutions may act as agent for an excess balance account?

   An institution that wishes to act as agent for an excess balance account must have a master account at a Federal Reserve Bank. The institution must also have the ability to carry out the responsibilities of an agent and comply with the terms and conditions established by the Federal Reserve Bank with respect to the operation of the excess balance account. An agent for an excess balance account need not be eligible to earn interest on its own balance maintained at a Federal Reserve Bank.

4. Which institutions may be participants in an excess balance account?

   Each participant in an excess balance account must be eligible to earn interest on its balances at a Federal Reserve Bank. Institutions that are eligible to earn interest are depository institutions (banks, savings banks, mutual savings banks, savings associations, and credit unions), branches and agencies of foreign banks, Edge Act and agreement corporations, and trust companies.

5. How does an excess balance account differ from the pass-through correspondent/respondent relationship that a participant may already have with a correspondent?

   The Board’s Regulation D provides that balances in a pass-through correspondent’s account at a Federal Reserve Bank represent a liability of the Federal Reserve Bank to that pass-through correspondent, even though the account may contain funds that are attributable to one or more of the pass-through correspondent’s respondent institutions. Balances in an excess balance account represent a liability of the Federal Reserve Bank to the participants alone, not to the agent. Also, a respondent passes its reserve balance requirement through a correspondent. Balances in an excess balance account cannot be used to satisfy participants' reserve balance requirement.

6. Is participation in an excess balance account required by the Federal Reserve?

   No. Participation in an excess balance account is strictly voluntary.

Roles and Responsibilities

1. What is the Federal Reserve Bank's role with respect to an excess balance account?

   The Federal Reserve Banks have set forth terms and conditions for establishing and operating excess balance accounts, including terms and conditions relating to fees for services, requirements and restrictions for agents, charges for noncompliance, and account termination. From July 23, 2015 forward, the Federal Reserve Banks will calculate and pay interest on the end-of-day aggregate balances held in an excess balance account each day over a two-week reserve maintenance period. The Federal Reserve Banks may, at their discretion, request records pertaining to an excess balance account from the agent that manages it.

2. What are the responsibilities of an agent for an excess balance account?

   The responsibilities of an agent for an excess balance account include: 1) Following participants’ instructions for making deposits to or withdrawals from or otherwise handling balances in the excess balance account; 2) Allocating interest payments to the participants holding excess balances in the excess balance account; 3) Maintaining adequate records to demonstrate the excess balances in the excess balance account attributable to each participant; and 4) Complying with any other terms and conditions for the maintenance and operation of the excess balance account as established by the Federal Reserve Banks.

3. What are the responsibilities of the participants with respect to an excess balance account?

   The responsibilities of a participant in an excess balance account include: 1) Selecting an agent; and 2) Providing instruction to the agent for the handling of the participant’s balances in the account, including instructions about the distribution of interest earned on the balance attributable to the participant, withdrawals from and deposits to the excess balance account, and the timing of such transactions.

4. What are the agent's responsibilities for reporting to the Federal Reserve Bank?

   The responsibilities of an agent include submitting any information relating to the excess balance account to its Federal Reserve Bank upon request, including but not limited to, reports of participant balances in the account and the agent’s procedures for tracking participant balances and crediting interest payments. On an ongoing basis, the agent must provide its Federal Reserve Bank with all amendments to the Excess Balance Account Agreement that make additions to, or deletions from, the list of participants in the excess balance account managed by the agent.

5. Can an institution be a participant in multiple excess balance accounts?

   No. An institution is limited to participating in only one excess balance account at a time.

6. Can an institution act as agent for multiple excess balance accounts?

   No. An agent is limited to acting as agent for only one excess balance account.

7. Must participants in an excess balance account be located in the same Federal Reserve District as the agent?

   No. The agent for the excess balance account may be located in a different Federal Reserve District than the participants in the excess balance account. The participants may also be located in different Federal Reserve Districts from each other.

Procedures for Establishing Excess Balance Accounts

1. Whom should potential participants contact in order to participate in an excess balance account?

   A prospective participant should contact an institution that acts or plans to act as an agent for an excess balance account. The institution contacted may, but need not, be the prospective participant’s correspondent. A prospective participant may also contact its Administrative Reserve Bank's Excess Balance Account District Contact for more information about excess balance accounts.

2. Whom should prospective agents contact in order to serve as an excess balance account agent?

   A prospective agent for an excess balance account should contact its Administrative Reserve Bank’s Excess Balance Account District Contact. The prospective agent should be prepared to provide a list of prospective participants in the excess balance account to its Administrative Reserve Bank. The Administrative Reserve Bank will verify that the agent and each of the participants are eligible to participate in an excess balance account. Upon receiving verification from its Administrative Reserve Bank, the agent may take the necessary steps to establish the excess balance account.

3. After obtaining approval to serve as an agent, what additional steps must an agent and participating institutions take to establish the excess balance account?

   After obtaining approval to serve as agent for an excess balance account, the agent must submit to its Administrative Reserve Bank an executed Excess Balance Account Agreement, including Appendix A of the Excess Balance Account Agreement, for each participant. For detailed instructions on setting up an excess balance account, please visit Excess Balance Account Setup.

4. Must an agent submit a Board Resolution and Official Authorization List to establish an excess balance account?

   No. The Board Resolution and the Official Authorization List that the agent submitted for its own master account will be used for excess balance account authentication.

5. Where should participants submit completed forms?

   Participants must send a completed Appendix A of the Excess Balance Account Agreement to the agent. The agent will then forward the documents for all participants to the Administrative Reserve Bank.

6. What records must the agent maintain?

   The agent must maintain daily records that reflect: 1) All participants in the excess balance account; 2) The total dollar amount of funds in the excess balance account; and 3) The dollar amount attributable to each participant in the excess balance account. (The sum of all participant balances must equal the total dollar amount of funds in the excess balance account.) The agent is also expected to maintain records that identify the accrued interest attributable to the excess balances of each participant and the amount of interest that each participant received.

7. What steps must a participant take to sever its relationship with the excess balance account agent, and in what time frame will the change be executed?

   A participant may revoke its designation of an agent by submitting an executed Appendix B of the Excess Balance Account Agreement to the agent. The revocation will not be effective until the next business day after the duly executed Appendix B is received and accepted by the Federal Reserve Bank.

8. Whom should agents or participants contact with additional questions?

   A prospective agent or participant may contact its Administrative Reserve Bank's Excess Balance Account District Contact.

Interest Earnings Calculations and Payments

1. How will interest earnings for the excess balance account be calculated?

   From July 23, 2015 forward, the Federal Reserve Banks will calculate interest earnings on the aggregate balance in the excess balance account based on the end-of-day aggregate balances held in the account each day over the course of a 14-day maintenance period, beginning on a Thursday and ending on the second Wednesday thereafter. Aggregate balances in the excess balance account will earn interest at the excess balance rate set by the Board of Governors of the Federal Reserve System.

2. Will the Federal Reserve Bank calculate the excess balance account interest payments at a participant level?

   No. All interest will be calculated and paid to the excess balance account based upon the aggregate balance held each day over the maintenance period.

3. Will interest earned on excess balance account balances be credited to the agent’s master account?

   No. Interest earned on the aggregate balance in the excess balance account will be credited directly to the excess balance account.

4. How will interest earnings in the excess balance account be disbursed?

   The Federal Reserve pays interest on the aggregate balance in the excess balance account. A participant in an excess balance account and the agent must agree on the method for disbursing interest attributable to the participant.

5. When will interest payments be credited to an excess balance account?

   Interest will be credited to the excess balance account one business day after the end of a 14-day reserve maintenance period in which the interest was earned.

Excess Balance Account Policies and Procedures

1. Can participants or agents satisfy reserve balance requirements with balances held in an excess balance account?

   No. Balances in an excess balance account cannot be used to satisfy a reserve balance requirement for either a participant or for the agent.

2. To which institution(s) is the Federal Reserve Bank liable for funds in the excess balance account?

   Balances in the excess balance account represent a liability of the Federal Reserve Bank solely to the participants in the excess balance account. Excess account balances do not represent a liability to the agent for the excess balances account.

3. Can an agent for an excess balance account commingle its own funds with those of the participants in the excess balance account?

   No. An agent for an excess balance account is not allowed to commingle any of its own funds in the excess balance account.

4. Can a participant in an excess balance account also have its own master account at a Federal Reserve Bank?

   Yes. A participant in an excess balance account can have its own master account at the Federal Reserve Bank in the District in which it is located.

5. Who can transfer funds in and out of the excess balance account?

   Only the agent can transfer funds (via Fedwire^® Funds) into and out of the excess balance account to and from the agent's master account on behalf of the participants; however, the agent must comply with any instructions from a participant about such transfers.

6. What transactions settle in an excess balance account?

   The Fedwire Funds transactions between the agent's master account and the excess balance account and interest earned on the end-of-day aggregate balances held in the excess balance account each day settle in the excess balance account. Federal Reserve Financial Services charges settle in the master account of the agent for the excess balance account.

7. Can an agent elect to have its excess balance account-related service fees settle in the excess balance account rather than in its master account?

   No. Account-related service fees can only settle in the agent's master account as required by the Excess Balance Account Agreement.

8. What steps should an agent take if it wishes to have different staff members manage the excess balance account than those who are responsible for its master account?

   The excess balance account has an account number that differs from that of the agent’s own master account. The agent will need to have new FedLine^® credentials issued for those individuals managing the excess balance account. The type of credential will depend on how far this separation of duties will be implemented. If the agent only separates accounting functions, the users should be given access to Account Management Information (AMI). If the separation includes the ability to move funds into and out of the account (wire transfers), they will need a Funds Transfer specialist(s) and at least one Funds Transfer Supervisor and, as a result, they will receive a token. To issue these credentials, the Federal Reserve Bank will need new End User Authorization Contact (EUAC) forms (at least two new EUACs will need to be setup under the excess balance account) and Subscriber request forms for each person requiring access.

9. If an agent uses the same staff members to manage the excess balance account as the master account and wire transfer function, does it need to make any changes to its electronic access setup?

   No. Staff will have the same electronic access capabilities with the excess balance account as they do with the existing master account, including wire transfers.

10. Can a participant in an excess balance account view activity in the excess balance account with its FedLine access?

    No. Only the agent for the excess balance account can view activity in the excess balance account.

11. Will the Federal Reserve Bank send agents and participants a statement at the end of each maintenance period indicating its balances maintained in the excess balance account and the interest those balances earned?

    The Federal Reserve Banks will provide this information to the agent for the excess balance account in the same manner as the agent currently receives information related to its master account. The Federal Reserve Banks will not provide this information directly to participants.

12. Are excess balances maintained in excess balance accounts reportable on the Report of Transaction Accounts, Other Deposits, and Vault Cash (FR 2900)?

    Participants should not report balances maintained in an excess balance account on the participant’s Report of Transaction Accounts, Other Deposits, and Vault Cash (FR 2900). Excess balances maintained in an excess balance account represent a liability of a Federal Reserve Bank directly to the participant(s) in the excess balance account, and therefore are considered to be balances due from a Federal Reserve Bank. Balances due from a Federal Reserve Bank are excluded from the FR 2900 report. The agent for the excess balance account also does not include the balance in the excess balance account on its FR 2900 report.

13. Who is responsible for tax reporting to the Internal Revenue Service?

    The agent of the excess balance account must submit any required tax reporting of the interest payments paid to the participants in the excess balance account.

Account Management Practices and Sweeping

1. Who can transfer EBA participant funds in and out of the Excess Balance Account (EBA)?

   Only the EBA agent is authorized to transfer funds into the EBA or to transfer funds out of the EBA.

2. Can an EBA agent sweep some or all participant funds out of the EBA and into the agent’s master account?

   Whether an EBA agent is authorized to sweep EBA participant funds out of the EBA and into the EBA agent’s own master account depends on the individual agreement between an EBA agent and the EBA participant. The EBA Account Agreement between the Reserve Bank, EBA agent and EBA participants does not govern EBA agent sweeping activities between the EBA and the agent’s own master account. The Federal Reserve is not a party to any individual agreements or restrictions between an EBA agent and an EBA participant, nor does the Federal Reserve monitor EBA account activity for consistency with any such individual agreements.

3. Can an EBA participant place restrictions on its agent’s ability to sweep funds out of the EBA and into the agent’s master account?

   Whether an EBA participant may place restrictions on its agent’s ability to sweep funds out of the EBA and into the EBA agent’s own master account depends on the individual agreement between an EBA agent and the EBA participant. The EBA Account Agreement between the Reserve Bank, EBA agent and EBA participants does not govern EBA agent sweeping activities between the EBA and the agent’s own master account. However, an individual agreement between an EBA participant and its EBA agent may, for example, restrict the agent from sweeping the participant’s balance out of the EBA and into the agent’s master account. The Federal Reserve is not a party to any individual agreements or restrictions between an EBA agent and an EBA participant and the Federal Reserve does not monitor EBA account activity for consistency with any such individual agreements.

4. How does an EBA agent process payments on behalf of its participants?

   An EBA may not be used for general payments activities. The EBA Account Agreement between the Reserve Bank, EBA agent and EBA participants does not govern how an EBA agent processes payments on behalf of its participants. An EBA agent and its EBA participants may agree, however, on various arrangements for the EBA agent to process payments on behalf of the EBA participants. For example, an EBA agent and an EBA participant may agree that the EBA agent may transfer some or all of the EBA participant’s funds out of the EBA and into the agent’s master account intraday to enable the EBA agent to process payments for the EBA participant out of the EBA agent’s master account.

5. To whom is the Reserve Bank liable for balances in an EBA account?

   The balance in the EBA represents a deposit liability of the Reserve Bank solely to the EBA participants. The Reserve Bank’s liability is limited to the aggregate balance in the EBA at any given time. The Reserve Bank is not liable to EBA participants for amounts swept out of the EBA and into the agent’s master account.

6. Who is responsible for maintaining records of the amount of each EBA participant’s share in the EBA?

   The EBA agent is responsible for maintaining complete and accurate records of each EBA participant's share in the EBA. These records are not maintained or verified by the Reserve Bank.

7. What happens to the Reserve Bank’s liability to EBA participant(s) when an EBA agent sweeps EBA participant funds out of the EBA and into the EBA agent’s own master account?

   When an EBA agent sweeps EBA participant funds out of the EBA and into the EBA agent’s own master account, the Reserve Bank is no longer liable to the EBA participant for those funds. Once EBA participant funds are swept out of the EBA and into the EBA agent’s own master account, the EBA agent is liable to the EBA participant for those funds.

8. Can an EBA participant and an EBA agent agree to limit the EBA participant’s exposure to its EBA agent?

   Any limitation on an EBA participant’s exposure to its EBA agent would be governed by the individual agreement between an EBA agent and the EBA participant. The EBA Account Agreement between the Reserve Bank, EBA agent and EBA participants does not govern limitations on an EBA participant’s exposure to its EBA agent. An EBA participant should consult with its legal counsel regarding the terms of its agreement with its EBA agent.

9. Can an EBA participant change its EBA agent?

   An EBA participant’s ability to change its EBA agent would be governed by the individual agreement between an EBA agent and the EBA participant. The EBA Account Agreement between the Reserve Bank, EBA agent and EBA participants does not govern the manner in which an EBA participant can change its EBA agent. An EBA participant should consult with its legal counsel regarding the circumstances under which its agreement with its EBA agent would permit the EBA participant to terminate its relationship with its existing EBA agent and change to a new EBA agent.

10. Can an EBA participant open an account directly with its local Reserve Bank instead of participating in an EBA?

    Yes, an EBA participant may open an account directly with its local Reserve Bank instead of participating in an EBA.

11. Which institutions may act as an EBA agent?

    In order for an institution to act as an EBA agent, the institution must have a master account at a Reserve Bank. The institution must also have executed an Excess Balance Account Agreement with the Reserve Bank with whom it maintains its master account and must have the ability to carry out the responsibilities of an EBA agent that are set forth in that agreement.

12. Does an institution’s status as an EBA agent represent an endorsement of the institution by the Federal Reserve?

    No, an institution's status as an EBA agent does not represent an endorsement of the institution by the Federal Reserve.

13. What happens to EBA participant balances that are in an EBA agent’s master account if that EBA agent fails?

    The receiver that is appointed for the EBA agent upon failure would be responsible for determining what happens to EBA participant balances that are in the EBA agent’s master account, consistent with applicable bank failure resolution law and procedures. The Reserve Bank is not liable to EBA participants for amounts swept out of the EBA and into the agent’s master account.

14. What happens to EBA participant balances that are in an EBA if the EBA agent fails?

    If the EBA agent fails, the Reserve Bank will transfer EBA participant balances to the EBA participants.

15. How does the Reserve Bank determine the amount of EBA participant funds that gets transferred from the EBA to the EBA participant if the EBA agent fails?

    If the EBA agent fails, the Reserve Bank will transfer the amount of funds in the EBA that is attributable to that EBA participant as shown in the EBA agent's records as of the day of the EBA agent's failure.

16. How does the Reserve Bank determine where to transfer EBA balances to EBA participants in the case of an EBA agent failure?

    The Reserve Bank will transfer an EBA participant's EBA balances in such a case to an account as instructed by that EBA participant.

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