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FEDERAL RESERVE BOARD STATEMENT FOR THE PRESS For immediate r e l e a s e December 26, 1934. Governor E c c l e s of t h e F e d e r a l Reserve Board today i s s u e d t h e following statement: A m i s a p p r e h e n s i o n has a r i s e n w i t h r e s p e c t to t h e scope of and t h e a u t h o r i t y f o r t h e a c t i o n r e c e n t l y t a k e n by t h e F e d e r a l Reserve Board l i m i t i n g a f t e r F e b r u a r y 1, 1935, 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 t i m e and s a v i n g s d e p o s i t s by member banks t o 3 - 1 / 3 ^ . The m i s u n d e r s t a n d i n g a p p e a r s t o have a r i s e n b e c a u s e t h e s t a t e m e n t announcing t h e B o a r d ' s a c t i o n a l s o c a r r i e d w i t h i t a r e f e r e n c e t o t h e a c t i o n taken by the F e d e r a l Deposit I n s u r a n c e C o r p o r a t i o n r e d u c i n g t h e time d e p o s i t r a t e f o r i n s u r e d non-member banks and t r u s t companies t o 2-1/2fo. The B o a r d ' s s t a t e m e n t c a r r i e d t h i s r e f e r e n c e b e c a u s e t h e r e was abundant r e a s o n f o r b e l i e v i n g t h a t b o t h member banks and t h e i r d e p o s i t o r s would be v i t a l l y concerned by t h e r a t e s of i n t e r e s t which might be p a i d by competing non-member b a n k s . The a c t i o n t a k e n by t h e F e d e r a l Reserve Board i n l i m i t i n g t h e r a t e of i n t e r e s t t h a t banks might pay on d e p o s i t s was t ak en i n a c c o r dance w i t h t h e p r o v i s i o n of t h e Banking Act of 1933 r e q u i r i n g t h e F e d e r a l Reserve Board from time to time t o " 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 . " I t s r e c e n t a c t i o n , l i k e s i m i l a r a c t i o n t a k e n on August 29, 1933, r e l a t e d only to member banks. The F e d e r a l Reserve Board has never assumed t h a t i t had a u t h o r i t y t o r e g u l a t e t h e r a t e of i n t e r e s t r 473 X-9067 ' —— 3 p a i d "by non-member "banks. I t c l e a r l y has no a u t h o r i t y t o do s o . Such j u r i s d i c t i o n a s t h e F e d e r a l G-overnment e x e r c i s e s over t h e non-member i n s u r e d "banks r e s t s w i t h t h e F e d e r a l Deposit I n s u r a n c e C o r p o r a t i o n . On Decem- ber 15 t h e F e d e r a l Reserve Board was a d v i s e d t h a t t h e Board of D i r e c t o r s of t h e F e d e r a l Deposit I n s u r a n c e C o r p o r a t i o n had reduced t h e maximum time d e p o s i t r a t e f o r i n s u r e d non-member banks and t r u s t companies to 3 - 1 / 2 $ . The a c t i o n of t h e F e d e r a l Reserve Board i n r e d u c i n g i n t e r e s t r a t e s f o r member banks and t h e a c t i o n o f t h e F e d e r a l D e p o s i t I n s u r a n c e C o r p o r a t i o n i n r e d u c i n g the i n t e r e s t r a t e s f o r i n s u r e d non-njember banks were t a k e n s e p a r a t e l y , not j o i n t l y . The r e c e n t a c t i o n of t h e F e d e r a l Deposit I n s u r a n c e C o r p o r a t i o n was s i m i l a r i n c h a r a c t e r to t h e a c t i o n i t took on J a n u a r y 1 , 1934, when i t i s s u e d a r e g u l a t i o n l i m i t i n g t o 3$ t h e maximum r a t e of i n t e r e s t which might be p a i d by any non-member bank whose d e p o s i t s were i n s u r e d by that Corporation. I n t h e summer of 1934, i n view of the f a c t t h a t the t r e n d of i n t e r e s t r a t e s had been s t e a d i l y downward, the Board u n d e r t o o k a f u r t h e r review of i n t e r e s t r a t e s i n accordance w i t h t h e d u t y imposed upon i t by t h e Banking Act of 1933. B e f o r e t a k i n g a c t i o n t h e Board communi- c a t e d w i t h a l l t h e F e d e r a l r e s e r v e banks i n o r d e r t o have t h e b e n e f i t X-9067 *•3"" of t h e i r views as to t h e a d v i s a b i l i t y of a f u r t h e r r e d a c t i o n of t h e deposit r a t e . The r e p l i e s r e c e i v e d from t h e r e s e r v e "banks were almost unanimous to t h e e f f e c t t h a t a r e d u c t i o n of d e p o s i t r a t e t o 2 - 1 / 2 $ would "be i n t h e p u b l i c i n t e r e s t . In view of t h e s e r e p l i e s and i t s own independent a n a l y s i s and study of t h e s i t u a t i o n t h e F e d e r a l Reserve Board determined t h a t a f u r t h e r r e d u c t i o n of l / 2 of lff> i n t h e r a t e which might "be p a i d "by member "banks on time d e p o s i t s would "be a d v i s a b l e . I t i s worth n o t i n g i n t h i s connection t h a t t h e maximum r a t e on time d e p o s i t s i n Canada a t t h e p r e s e n t time i s 2 per cent and i n England i t i s 1 / 2 p e r cent i n London and 1 - 1 / 2 p e r cent i n the c o u n t r y .
@FedFRASER