Why did the Board of Governors eliminate transitional adjustments for reserve requirements following a merger or consolidation?
These adjustments were originally intended to phase-in the burden of higher reserve requirements associated with a merger or consolidation. The reserve requirement for the surviving institution is higher because the merged institution receives only one low reserve tranche and one exemption amount, while, prior to the merger, each institution had a low reserve tranche and an exemption amount. Paying interest on required reserve balances is a much more effective method for addressing the higher reserve tax associated with mergers or consolidations because the interest earned essentially eliminates the tax.
