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X-7880
INTERPRET ATI 01! OF BA1JKING ACT OF 1933
'
(Copies to "be sent to all Federal Reserve Banks)
April 30, 1934
Honorable J. F. T. O'Connor,
Comptroller of the Currency,
Washington, D. C.
Dear Mr. Comptroller:
This refers to Mr. Lyons' letter of March 21,
1934, inclosing a copy of a letter received by you from National
Bank Examiner
, dated March 10, 1934, request-
ing rulings with respect to the proper classification of certain
savings accounts for reserve purposes and for the purpose of
determining whether interest may lawfully be paid thereon.
Mr.
Lyons requests that your office be advised with respect to the
questions presented in the examiner's letter in order that a
suitable reply may be made thereto.
The examiner states in his letter that certain banks
in the northern section of the State of
have established
a rule that no notice is to be required for the withdrawal of any
part or all of the funds placed in their savings departments and
that interest shall be paid thereon at the rate of 3 per cent.
examiner desires to be advised whether such accounts should be
treated as demand deposits against which full reserves should be
carried and whether the banks may lawfully pay interest on such
deposits.
The
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^
Hon. J. F. T. O'Connor - 2
It is the opinion of the Board that the practice of a
1
member bank of paying its savings deposits in whole or in part
without requiring notice of intended withdrawal does not
necessarily affect the classification of such deposits, and
that any such deposit may properly "be classified as a savings
deposit for the purpose of computing reserves or of determining
whether interest may lawfully "be paid thereon, as the case may be,
so long as such deposit conforms to the requirements of a savings
deposit as defined in section II of the Board's Regulation D or
in section V of the Board's Regulation Q,, respectively.
However,
it does not appear from the letter of the examiner whether the
member banks in question have reserved individually the right to
require notice of an intended withdrawal not less than 30 days
before a withdrawal is made, as required by the Board's regulactions, and, if in any case the contract between the depositor and
the member bank does not reserve to such bank the legal right to
require requisite notice of withdrawal, or, if such member bank
may not change its practice without the consent of the other banks
concerned so as to require requisite notice of withdrawal, the
deposit must be treated as a demand deposit for the purpose of
computing reserves and as a deposit payable on demand for the
purpose of determining whether interest may lawfully be paid
thereon.
On the other hand, if the depositors are required, or
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Hon. J. F. T. O'Connor - 3
may at any time be required, to give the requisite notice of intended
withdrawal and the deposits otherwise meet the applicable requirements of the Board's regulations in regard to savings deposits, they
may be treated as savings deposits for the purpose of computing
reserves or of determining whether interest may be paid thereon,
notwithstanding that it is the practice of the member banks to waive
notice with respect to withdrawals of such deposits.
The examiner also desires information with respect to
the proper classification of thrift deposits where the bank's regulations reserve to the bank the right to require notice of not less
than thirty days, but make an express exception permitting the withdrawal of a specified amount of the deposit of each depositor without notice and without any limitation or restriction as to the number
of withdrawals which may be made within any given period.
As in-
dicated in section V, subsection (e) of the Board's Regulation Q,,
interest at a rate not exceeding that prescribed in subsection {<•)
of that section may be paid upon deposits with respect to which
notice of intended withdrawal has not actually been required or
given, provided that such deposits conform to the requirements of
savings deposits as defined in subsection (a) of that section.
As
you know,.one of the essential attributes of a savings deposit is
that the depositor must be required, or may at any time be required,
by the bank to give notice in writing of an intended withdrawal not
less than 30 days before a withdrawal is made.
However, it does not
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Hon. J. F. T. O'Connor - 4
appear that the deposits in question conform to the said requirement with respect to notice of withdrawal.
Since the provisions
of the "bank's regulations reserving to the tank the right to
require notice are made inapplicable to any withdrawal up to a
certain amount and permit a depositor to withdraw all or a part
of such specified amount of his deposit without notice and without
restriction as to the number or frequency of such withdrawals, it
appears that the attempted reservation by the bank of the right
to require notice is ineffective to prevent a depositor from exhausting his account by repeated withdrawals, and, in the circumstances, it is the opinion of the Board that such a deposit is
in fast a deposit payable on demand and that no interest may lawfully be paid thereon.
For similar reasons, it is believed that
such a deposit should be classified as a demand deposit for the
purpose of computing reserves thereon.
The examiner further requests to be advised as to the
effect of a member bank's allowing the withdrawal either of a certain
portion or of a specified percentage of a thrift deposit each 30
days without requiring notice of such withdrawal.
Although payment
by a member bank of a portion or percentage of a savings deposit
without requiring notice of withdrawal does not affect the classification of the deposit, provided that the bank at any time prior
to withdrawal may require the depositor to give written notice of
such intended withdrawal not less than 30 days prior thereto, a
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Hon. J. F. T. O'Connor • 5
like result does not follow in the case where the bank does not
have the legal right -under its contract with the depositor to require such notice.
Accordingly, if a bank permits the withdrawal
without notice of a specified portion or percentage of a savings
deposit and does not have the legal right to require written
notice of not less than 30 days with respect to such withdrawal,
it is the view of the Board that the specified portion or percentage
which may be so withdrawn without notice may not be classified as
a savings deposit for the purpose of computing reserves or of
determining whether interest may be paid thereon.
However, the
balance in the account over and above the specified portion or
percentage which may be withdrawn without notice may be classified
as a savings deposits for such purposes if the depositor is required
or may be required to give the requisite notice prior to withdrawal
of such balance and if the deposit otherwise meets the requirements
of the Board's regulations applicable to savings deposits.
Finally, the examiner desires to be advised as to
the proper classification of thrift deposits in a case where the
bank permits each depositor to withdraw his deposit in full without
notice, but reserves the right to require at least 30 days notice
prior to the withdrawal of any such deposit.
Under the provisions
of section VI of the Federal Reserve Board's Regulation
a member
bank may pay any portion or percentage of the savings deposits of
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Hon. J. P. T. O'Connor - 6
any depositor without requiring notice of withdrawal, if, upon
request and without requiring such notice, it shall pay the same
portion or percentage of the savings deposits of every other
depositor which are subject to the same requirement.
Under this
section of the regulation it is permissible for a member bank to
pay any savings deposit in whole or in part, provided such deposit
is a savings deposit within the meaning of the Board's Regulation
% and the bank complies with the applicable conditions of Section
VI of that regulation.
In addition, if the bank reserves the legal right to
require the requisite notice with respect to the withdrawal of
such a deposit, an account of the kind under discussion which is
a savings account within the meaning of the Board's Regulation D
would remain a savings account notwithstanding the fact that the
bank might permit the withdrawal without notice of funds from
such account in part or in full; and reserves against such an account may properly be computed on that basis.
If, however, notice
of withdrawal is actually required and given, the amount which may
be withdrawn pursuant to such notice must be classified as a demand deposit for reserve purposes beginning thirty days prior to
the date when such deposit, under the terras of the notice, shall
be payable.
Of course, under subsection (e) of Section V of the
<wO'l.
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Hon. J. F. T. O'Connor - 7
*-u<w
Board's Regulation %, interest at a rate not exceeding that
prescribed in subsection (c) of that section may be paid upon
deposits which are savings deposits within the meaning of that
regulation and with respect to which notice of intended withdrawal may have been given to the bank, until the expiration
of the period of such notice.
Apparently, the examiner is doubtful whether a
member bank may pay the entire amount of any savings deposit
without requiring notice of withdrawal.
Under the provisions
of section VI of Regulation Q, a member bank may pay any portion
or percentage of the savings deposit of any depositor without
requiring such notice if, upon request and without requiring such
notice, it shall pay the same portion or percentage of the savings
deposits of each other depositor which are subject to the same
requirement•
Under this section of the regulation, it is permis-
sible for a member bank to pay the entire amount of any savings
deposit provided the bank complies with the condition mentioned
and also with the other applicable conditions of section VI of
that regulation.
Very truly yours,
(Signed) Chester Morrill
Chester Morrill,
Secretary.
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