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JC-9049 FEDERAL RESERVE BOARD STATEMENT FOR THE PRESS For r e l e a s e i n morning p a p e r s , Monday, December 17, 1934. December 15, 1934. REDUCTION IN INTEREST RATE ON TIME AND SAVINGS DEPOSITS The F e d e r a l Reserve Board has reduced from 3% t o 2*|% t h e maximum r a t e of i n t e r e s t t h a t may be p a i d on time and s a v i n g s d e p o s i t s by member banks, and t h e F e d e r a l Deposit I n s u r a n c e Corporat i o n has made a c o r r e s p o n d i n g r e d u c t i o n i n t h e maximum r a t e t h a t may be p a i d by S t a t e banks and t r u s t companies which a r e i n s u r e d by t h e Corporation# February 1, 1935. The new maximum r a t e w i l l become e f f e c t i v e on The r e d u c t i o n i n t h e d e p o s i t r a t e i s i n harmony w i t h the p r e v a i l i n g downward t r e n d i n i n t e r e s t r a t e s , and i s expected t o s u p p o r t t h a t t r e n d , p a r t i c u l a r l y i n regard t o r a t e s on l o n g - t i m e money, which a r e an i m p o r t a n t f a c t o r i n b u s i n e s s r e c o v e r y . The r e d u c t i o n i s i n l i n e w i t h t h e a c t i o n t a k e n by S t a t e banking a u t h o r i t i e s i n s e v e r a l S t a t e s and a l s o w i t h v o l u n t a r y a g r e e ments made by c l e a r i n g house a s s o c i a t i o n s and o t h e r banking g r o u p s . The d e c r e a s e i n r a t e s on time d e p o s i t s should have a t e n d e n c y t o b r i n g about a d e c l i n e i n t h e c o s t t o borrowers and t o encourage dep o s i t o r s t o seek investment f o r t h e i r i d l e f u n d s . A more f a v o r a b l e c a p i t a l market may be expected t o c r e a t e a more f a v o r a b l e mortgage market as w e l l as encourage r e f u n d i n g o p e r a t i o n s and t h e u n d e r t a k i n g -2- X-9049 of new c a p i t a l p r o j e c t s g e n e r a l l y , a development e s s e n t i a l t o recovery# The F e d e r a l Reserve Board's a c t i o n i n t h i s m a t t e r i s i n accordance w i t h t h e duty imposed upon i t by t h e Banking Act of 1933, which p r o v i d e s t h a t 11 The F e d e r a l Reserve Board s h a l l f r o m time t o time l i m i t by r e g u l a t i o n t h e r a t e of i n t e r e s t which may be p a i d by member banks on time d e p o s i t s • " This p r o v i s i o n of t h e law p l a c e s upon the F e d e r a l Reserve Board t h e r e s p o n s i b i l i t y of r a i s i n g or lowering from time t o time t h e maximum r a t e t h a t may be p a i d by member banks on time and s a v i n g s d e p o s i t s i n accordance w i t h p r e v a i l i n g economic c o n d i t i o n s and the r e q u i r e m e n t s of t h e p u b l i c i n t e r e s t . The F e d e r a l Reserve Board's R e g u l a t i o n Q, as amended t o reduce t h e maximum r a t e t o 2 ^ , w i l l appear i n t h e December i s s u e of t h e F e d e r a l Reserve B u l l e t i n . In a d d i t i o n t o t h e amendment r e d u c i n g t h e maximum r a t e of interest to t h e r e g u l a t i o n , as amended, w i l l (l) p e r m i t t h e com- p u t a t i o n of i n t e r e s t on time and savings d e p o s i t s a t a r a t e n o t i n excess of 2jf/o compounded q u a r t e r l y i n s t e a d of (as p r o v i d e d i n t h e old r e g u l a t i o n ) a t a r a t e n o t i n excess of t h e maximum compounded s e m i - a n n u a l l y , (2) enable member banks t o pay i n t e r e s t on time and s a v i n g s d e p o s i t s r e c e i v e d d u r i n g t h e f i r s t f i v e days of any c a l e n d a r month a t t h e maximum r a t e p r e s c r i b e d i n t h e r e g u l a t i o n c a l c u l a t e d from the f i r s t day of t h e month, and ( 3 ) p e r m i t f o r e i g n branches of American banks t o o b t a i n a u t h o r i t y from t h e Board t o pay i n t e r e s t on time and s a v i n g s d e p o s i t s a t r a t e s c o n s i s t e n t with competitive conditions p r e v a i l i n g i n t h e 3l o c a l i t i e s where t h e f o r e i g n branches are s i t u a t e d . X-9049 The a c t i o n of t h e Board does n o t a f f e c t t h e payment of i n t e r e s t by member banks a t a r a t e h i g h e r t h a n t h e maximum i n accordance w i t h t h e . t e r m s of any c o n t r a c t l e g a l l y e n t e r e d i n t o p r i o r t o and i n f o r c e on December 18, 1934.
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