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241 X-9489 _BANKING A_GT OF 1°35 (Copies to be sent to a"!..l P'ederaL reserve banks) ' Dear Sir: Tl-J..Ls refers to your letter dated January 25, 1956, regarding the question whether a person having a .s.,_.vint:;S de!)osi 1:. in n. m~mh0r bank may leave his pass book wit,h the bank and draw checks against the deposit oR.yabld i,(i th.:i..rd parti;:::s. This practice is not i}errnitted by the definition of the term "savings deoosit" in section l(e) of tht1 Bourd 1 s Regulation Q, which contains the following pro~ision: "Withdrawals are pormitted·in only two·ways, 8ither (i) U}on presentation of tht; pass book, through payment to the person presenting the pass book, or (ii) without presentation of the pass book, through payment to the depositor himself but not to any othoT' J?erson whether or not acting for the dHpositor." Under the above provision' the depositor himself may make withdFawals, without preseatation of the pass book, either in person or through the mails, or .he may draw a check payable to a third party, but in the latter case the pass boo:;; must be presented with the check in order to effect a withdrawal. This provision wns adopt..::d in o:rder to elimino.te certain abuses which had grown up in connection vvi th s~,vings deposits. As you may know, membr3r blmks are forbidden by law to pc.y interest on demand depos"lts or to pay time deposits before maturity, c.;XcDpt in certain unusue.l 242 X-94.8'1 -2circwnst<'lnces. Hmvev8.c. mer:.br-:r its on dcmnnd, provided they .-~·e h~cD!:s me J.-O"''d tted to pn.y S[ vings depos-. v;in tho right to require ttirty dc.ys 1 notice of 1.-vi thdrmvnl, and ctre Gl.Jo c1ermi tted to pay interest on such de;JOSits. In addition, memb.:.c eral Reserve banks n. re~~erve b~'.D.ks are permitted to cnrry rdth the Fed- of only 3 per cent e.guinst savings deposits, although they nro rGquired to cc.rry r<Jsorv.Js of 7, 10, or 13 por cent, depending upon th8 location of thr;: bunk, n.gninst all other deposits which ./ nro puyn.ble on demand. It will be seen from the above that S<'lVings deposits are an exceptionally f!.wored clnss of deposits having special privileges not t grunted to u.ny other cbss. The}:iP. pri vi.leges are its becn.use of the dosire to fmcourage thrift. gr<~nted to such depos- Hovvever, the granting of thj_s favored stc.tus to sc.ving;:; doposi ts l.od to certain abuses by member banks, one of which was tho c:L:1ssific[:tion of E~s ordim~.ry checking accounts savings deposits in order to pc.y interest on such accounts and to · carry tho lower rosorves against thGm. The u.bove-quoted provision regarding withdrawals is designed to eliminate the use of sD.vingG deposits rw ordina":ry checking accounts. The requirement th:J.t the savings pass book must :1ccompany u check payable to a third party is designed to prevent the dr:J.wing of more thR.n one check at o. time ag[linst a srLvings deposit since, as a prnctical matter, the depositor must wnit until his pa.ss book is returned before he can drc.w another check. It is hoped that the above expl.anat:ion of the provision regr:crding withdrawals from savings deposits will rcnswer tho question which you 243 'Z -iJ- hr,ve in mind. The stcunped self-uodresoed envelope incJ osed with your letter is returned herewith. Very truly yours, (Signed) L. P. Bethea L. P. Bethea, Assistant Secrekry. Inclosure J :.--9489
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