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8 7 (INTERPRETATION OF BANKING- ACT OF 1933) X-7502 Copies to bo sent to nil Federal Reserve Banks# July 17, 1933. Honorable , Judge, Circuit Court of the City of $ , • Dear Sir: Your letter of Juno 26, 1933, addressed to the Secretary of the Treasury, has been referred to the Federal Reserve Board for reply* You inquire whether, under Section 19 of the Federal Reserve Act as amended by Section 11(b) of the Banking Act of 1933, a member bank of the Federal Reserve System may pay interest on funds deposited to the credit of your Court in various suits or actions at law pending final disposition. Those funds remain on deposit for an indefinite period of time and, presumably, aro payable on demand. As you know, Section 19 of the Federal Reserve Act as amended, forbids a member bank, directly or indirectly, to pay any interest on any deposit which is payable on demand, except in accordance with a contract entered into prior to June 16, 1933 in good faith and in force on that date; and member banks are required to eliminate from such contracts provisions for the payment of interest on deposits payable on demand as soon as possible consistently with their contractual obligations. Deposits of certain kinds arc excepted from the provision of law in question; but deposits to the credit of your Court in suits or actions at law pending final disposition would not appear to come within any of the exceptions mentioned in the statute and the Federal Reserve Board has no authority to make any additional exceptions to the pro Honorable X-7502 hibitien of the law against payment of interest on deposits payable on demand. It appears, therefore, that a member bank is forbidden by law to pay interest on deposits of your Court of the kind mentioned which are payable on demand, except in accordance with a contract entered into in good faith before June 16, 1933 and existing on that date, and such a contract must be modified by the bank as soon as possible to eliminate any provision for the payment of interest. You will note from the statute that member banks may pay interest on time deposits subject to regulations to bo prescribed by the Federal Reserve Board* The Board has not as yet proscribed regula- tions pursuant to this provision of law; but, pending the issuance of such regulations, member banks may continue to pay interest on time deposits in accordance with their usual practice or existing bona fide contracts. A copy of the Banking Act of 1933 is inclosed herewith for your information and your attention is invited to the provisions of Section 11(b) on page 22. Very truly yours, Chester Morrill, Secretary. Inclosure,
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