Federal Reserve Regulation F — Interbank Liabilities
Legal Authority
- 12 U.S.C. § 371b-2 — FDICIA § 308 (Federal Deposit Insurance Corporation Improvement Act of 1991): directed the Federal Reserve to prescribe regulations limiting interbank liabilities to reduce systemic risk to the deposit insurance fund; the statutory basis for Regulation F
- 12 CFR Part 206 (Regulation F) — Federal Reserve regulations implementing FDICIA § 308: requires all FDIC-insured depository institutions to establish written policies and procedures limiting credit exposure to any single correspondent bank; caps interday exposure to adequately capitalized correspondents at 25% of the reporting bank's own regulatory capital
Key Mechanics
Banks routinely hold deposits and credit lines at other banks — through correspondent accounts, fed funds transactions, and payment system settlement. These interbank exposures create systemic risk: if a correspondent bank fails, the banks that had uninsured funds and credit extended to it suffer immediate losses that can cascade. Regulation F requires every FDIC-insured bank to establish written policies capping its credit exposure to any single correspondent. The quantitative limit is 25% of the bank's own regulatory capital for adequately capitalized correspondents; for undercapitalized correspondents, the bank must limit exposure to amounts recoverable within one business day of failure. The Fed may waive the limit for banks that cannot obtain correspondent services on reasonable terms within the 25% cap. Exposure is measured broadly — including uninsured deposits, fed funds sold, securities resale agreements, and other credit — to capture all forms of interbank credit concentration.
Current Rule (2026)
| Parameter | Value |
|---|---|
| Citation | 12 CFR Part 206 |
| Issuing agency | Federal Reserve Board |
| Statutory authority | 12 U.S.C. § 371b-2 (Federal Deposit Insurance Corporation Improvement Act § 308) |
| Last major amendment | 1994 (59 FR 4780 — original implementation of FDICIA § 308) |
What This Rule Does
Banks routinely hold funds and receive credit from other banks — through correspondent banking accounts, payment system settlement, federal funds transactions, and securities clearing. These interbank exposures create systemic risk: if a large correspondent bank fails, the banks that had uninsured deposits and credit lines at that institution can suffer immediate losses that cascade into the broader financial system.
12 CFR Part 206 (Regulation F) requires each FDIC-insured bank to establish written policies and procedures limiting its credit exposure to any single correspondent bank in proportion to the correspondent's financial health. The rule was enacted by the FDICIA in 1991 and implemented by the Federal Reserve to prevent concentration of interbank exposure in failing institutions.
Key Provisions
- § 206.1 — Authority and scope: Regulation F is issued under FDICIA § 308 (12 U.S.C. § 371b-2); applies to all FDIC-insured depository institutions — commercial banks, savings institutions, and insured branches of foreign banks
- § 206.2 — Definitions: "Bank" means any FDIC-insured depository institution; "correspondent" means any bank in which the reporting bank maintains funds, has credit extended, or through which it clears transactions; "exposure" includes uninsured deposits, fed funds sold, securities purchased under resale agreements, and other credit extensions to the correspondent
- § 206.3 — Prudential standards: each bank must establish and maintain written policies and procedures to prevent excessive credit exposure to any individual correspondent; policies must address how the bank will monitor correspondent financial condition, set exposure limits, and respond when a correspondent's condition deteriorates
- § 206.4 — Credit exposure limits: a bank's interday credit exposure to an adequately capitalized correspondent must not exceed 25% of the bank's own regulatory capital; for non-adequately capitalized correspondents, exposure must be limited to the amount that can be recovered within one business day if the correspondent fails
- § 206.5 — Capital levels of correspondents: the 25% limit applies to "adequately capitalized" correspondents (those meeting the minimum capital ratio standards in 12 CFR Part 6/208/325); banks transacting with undercapitalized correspondents must apply more restrictive limits and monitor more frequently
- § 206.6 — Waiver: the Federal Reserve may waive the § 206.4(a) exposure limits for a bank if the bank's primary federal supervisor advises the Board that stricter limits would prevent the bank from obtaining correspondent services under reasonable terms — providing flexibility for banks in thin markets
How It Affects You
If you are a community bank: Your bank almost certainly uses correspondent banks for services it cannot provide in-house — check processing, wire transfers, international wires, securities custody. Regulation F requires you to monitor those correspondents' capital health and cap your uninsured deposits and credit lines with any single correspondent at 25% of your own capital. If your main correspondent is downgraded or placed under enforcement action, you must reduce your exposure or seek a waiver.
If you are a large bank (a correspondent bank): Your customer banks are required to limit their exposure to you. If your capital ratios decline, your respondent banks must cut exposure — potentially triggering deposit outflows and settlement disruptions at precisely the moment your institution is stressed. This pro-cyclical dynamic is a known feature of the interbank market and was evident during the 2008 financial crisis.
If you are a financial regulator: Regulation F creates a first line of defense against correspondent bank runs. By capping the amount any one bank can have at risk in a failing correspondent, it limits the transmission of individual bank failures into systemic stress. Examiners review interbank exposure policies and limit compliance as part of the safety-and-soundness examination cycle.
Statutory Authority
This rule implements:
- 12 U.S.C. § 371b-2 — FDICIA § 308, which directed the Federal Reserve to prescribe regulations limiting interbank liabilities to reduce risks to the insurance fund and the financial system
Recent Rulemakings
Regulation F was implemented in 1994 and has not been substantively amended since. The Federal Reserve's supervisory guidance on interbank exposure has evolved through examination manuals and supervisory letters rather than formal rulemaking. The Basel III liquidity coverage ratio and net stable funding ratio requirements (implemented through 12 CFR Part 249 for large banks) address related interbank funding risks with more granular liquidity metrics.