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F E D E R A L R E S E R V E BANK
O F NEW YORK
r Circular
L

N o. 3 1 0 5 ~
1
June 2 8 , 1 9 4 6 J

PAYMENT OF INTEREST ON TIME AND SAVINGS DEPOSITS
To All Member Banks in the Second
Federal lie serve District:

This circular contains information regarding the maximum rates of interest which member
banks in the Second Federal Reserve District may lawfully pay on time and savings deposits.

Statutory provisions
1. Section 19 of the Federal Reserve Act (hereinafter referred to as the “ Act” ) pro­
vides generally, among other things, that no member bank shall pay any interest on any deposit
payable on demand, and that the Board of Governors of the Federal Reserve System shall, by
regulation, limit the rate of interest which may be paid by member banks on time and savings
deposits1; and authorizes the Board of Governors to define certain terms used in the Act, to
determine what shall be deemed a payment of interest, and to prescribe rules and regulations
to effectuate the purposes of the section.
Regulation Q
2. Under authority of the provisions of Section 19 of the Act, the Board of Governors
of the Federal Reserve System has issued Regulation Q, entitled “ Payment of Interest on
Deposits” . Reference is made to the Regulation for the definitions of terms used in the Act
and for details as to the prohibition against the payment of interest on deposits payable on
demand and the limitations upon the payment of interest on time and savings deposits.
A copy of this Regulation together with a copy of the most recent Supplement thereto has
been furnished to each member bank in this District.

Supplement to Regulation Q
3. The latest Supplement to Regulation Q, effective January 1, 1936, prescribes the
maximum rates of interest which member banks may pay on time and savings deposits.1 In
the event of any change in these rates, we will promptly notify our member banks of the change.

Member banks limited to maximum rate for State banks
4. Section 24 of the Act provides that the rate of interest on time and savings deposits
which a national banking association may pay shall not exceed the maximum rate authorized
by law to be paid upon such deposits by State banks or trust companies organized under the
laws of the State in which such association is located.
5. Section 3(c) of Regulation Q provides that the maximum rate of interest paid by a
member bank on a time or savings deposit may not exceed either the applicable maximum rate
prescribed in the Supplement to Regulation Q, or the applicable maximum rate authorized by
law to be paid upon such deposit by State banks or trust companies organized under the laws
of the State in which such member bank is located, whichever may be less. Information rela­
tive to the maximum rates of interest currently authorized by law to be paid upon time and
savings deposits by State banks and trust companies organized under the laws of the States
of New York and New Jersey, respectively, is set forth below.

Maximum rate for banks located in the State of New York
6. The Banking Board of the State of New York adopted its General Regulation No. 3,
as revised, on November 8, 1943, continuing in effect the provisions of the regulation con­
i
The foregoing provisions are not applicable to any deposit which is payable only at an office of a member bank located
outside of the States of the United States and the District o f Columbia.




tained in its Resolution No. 200 adopted on June 21, 1935, prescribing 2% per annum,
compounded quarterly, as the maximum rate of interest, accruing after October 1, 1935, which
banks and trust companies organized under the laws of the State of New York might pay on
time or thrift deposits.1 An extract from the Banking Board’s General Regulation No. 3
appears on page 3 of this circular.
7. The Board of Governors of the Federal Reserve System has heretofore stated its view
that the rate of interest, accruing after October 1, 1935 and during the period for which the
regulation contained in Resolution No. 200 of the Banking Board is legally in effect, which a
national bank or other member bank located in the State of New York may lawfully pay on
time or savings deposits may not exceed the rate of 2 % per annum prescribed in such regula­
tion of the Banking Board. However, attention is called to the fact that under the currently
effective Supplement to Regulation Q, member banks are prohibited from paying interest at
a rate in excess of 1 % per annum on time deposits2 (except Postal Savings deposits) having
maturities of less than 90 days or payable upon written notice of less than 90 days.
Maximum rate for hanks located in the State of New Jersey
8. The Commissioner of Banking and Insurance of New Jersey, by his order dated June
15, 1939, has heretofore prescribed 1% per annum, compounded quarterly, as the maximum
rate of interest accruing after July 1, 1939, which banks and trust companies organized under
the laws of the State of New Jersey might pay on any time or savings deposits. A copy of
the text of the Commissioner’s order dated June 15, 1939, appears on page 4 of this circular.

9. The Commissioner of Banking and Insurance, by his order dated June 4, 1946, has
prescribed V/2% per annum, compounded quarterly, as the maximum rate of interest accruing
after July 1, 1946, which any such bank or trust company may pay on any time or savings
deposits; and has continued in effect all provisions, except as to the rate of interest, contained
in his earlier order. A copy of the text of the Commissioner’s order dated June 4, 1946,
appears on page 4 of this circular.
10. The Board of Governors of the Federal Reserve System has stated its view that the
rate of interest accruing after July 1, 1946 and during the period for which the Com­
missioner’s order dated June 4, 1946 is legally in effect, which a national bank or other
member bank located in the State of New Jersey may lawfully pay on time or savings deposits,
may not exceed the rate of 1%% per annum prescribed in such order of the Commissioner.
However, attention is called to the fact that under the currently effective Supplement to
Regulation Q, member banks are prohibited from paying interest at a rate in excess of 1 %
per annum on time deposits2 (except Postal Savings deposits) having maturities of less than
90 days or payable upon written notice of less than 90 days.
Effect of this circular on previous circulars
11. This circular supersedes our letter dated February 13, 1935, entitled “ Maximum
Rates of Interest on Time and Savings Deposits Payable Only at Offices of Member Banks
Located Outside of the United States” ; our Circular No. 1583 dated August 30, 1935, entitled
“ Rate of Interest Lawfully Payable After October 1, 1935 on Time and Savings Deposits by
Member Banks in the State of New York” ; and our Circular No. 1952 dated June 21, 1939,
entitled “ Rate of Interest Lawfully Payable After July 1,1939 on Time and Savings Deposits
by Member Banks in the State of New Jersey” .
Additional copies of this circular may be obtained upon request.
A

llan

S proul,

President.
1 Since the use of the words “ saving” and “ savings” is restricted by statute in the State of New York, the term
“ thrift deposit” is used to describe deposits conforming to the definition of the term “ savings deposit” contained in
Regulation Q.
2 As defined in section 1 of Regulation Q, “ time deposits” means “ time certificates of deposit” and “ time deposits,
open account” .




2

Extract from Regulation No. 3 of the Banking Board of the State of New York
November 8, 1943

GENERAL REGULATION No. 3
"WHEREAS, pursuant to subdivision 1 of Section 14 of the Banking
Law, the Banking Board is authorized to make, alter and amend rules and
regulations to eifectuate the policy declared in Section 10 of said Banking
Law and pursuant to subdivision 1 (h) of said Section 14, the Banking
Board is authorized to prescribe the interest or dividend rate which may
be paid by any banking organization and to prohibit the payment of inter­
est or dividends by any banking organization;

Deposits and Shares—
Payment of Interest
and Dividends

NOW, THEREFORE, BE IT RESOLVED THAT
1. No bank or trust company and no private banker, investment
company, or New York agency of any foreign banking corporation shall
directly or indirectly, by any device whatsoever, pay after December 31,
1934, any interest on any deposit or similar credit balance which is pay­
able on demand; provided that nothing herein contained shall be construed
as prohibiting the payment of interest in accordance with the terms of
any certificate of deposit or other contract entered into in good faith on
or before December 10, 1934, and which was in force on that date; but no
such certificate of deposit or other contract shall be renewed or extended
unless it shall be modified to conform to this regulation and every bank
and trust company and every private banker and New York agency of
any foreign banking corporation shall take such action as may be neces­
sary to conform to this regulation as soon as consistent with its contractual
obligation; provided, however, that this regulation shall not apply to any
deposit made by a mutual savings bank nor to any deposit of public funds
made by or on behalf of any state, county, school district or other sub­
division or municipality so long as the regulations of the Federal Reserve
Board permit the payment of interest on such deposits by member insti­
tutions.
Demand deposits within the meaning of this regulation shall
comprise all deposits payable within thirty days and all funds held by
investment companies in connection with the exercise of the power con­
ferred in subdivision 1 (a) of Section 508 of the Banking Law which are
payable within thirty days. The Superintendent is authorized to construe
this regulation in such a manner as to require the persons and corporations
to which it applies to conform to the requirements imposed upon banks
which are members of the Federal Reserve System with respect to the
non-payment of interest on demand deposits.

Demand
Deposits

2. No bank, trust company or private banker shall pay interest accru­
ing after October 1, 1935, on any time or thrift deposit or any part thereof
at a rate in excess of two per cent per annum compounded quarterly; pro­
vided, however, that a bank, trust company or private banker may pay
interest in accordance with the terms of any certificate of deposit or other
contract which was lawfully entered into in good faith prior to June 26,
1935, and in force on that date and which may not legally be terminated
or modified by such bank, trust company or private banker at its or his
option; but no such certificate of deposit or other contract shall be renewed
or extended unless it be modified to conform with the provisions of this
regulation and all such certificates of deposit or other contracts shall be
terminated or modified to conform with this regulation at the earliest pos­
sible date in accordance with the terms thereof. This regulation shall not
prevent the compounding of interest at other than quarterly intervals,
provided the aggregate amount of interest so compounded shall not ex­
ceed the aggregate amount of interest at two per cent per annum com­
pounded quarterly.

Time and Thrift
Deposits

3. No existing regulation of the Banking Board forbidding the pay­
ment of interest on any deposit or similar credit balance which is payable
on demand, or prescribing a maximum rate of interest payable by banks,
trust companies, and private bankers upon time and thrift deposits, shall
apply to any deposit with any such bank, trust company, or banker which
is payable only at an office thereof located outside of the State of New York.

Time and Thrift
Deposits in
Out-of-State
Offices




3

O rd er, dated Ju n e 15, 1939 o f the C om m issioner o f B an k in g and
In su ra n ce o f the State o f N ew Jersey

TO ALL BANKS:
Pursuant to the power vested in me by the provisions of Revised Statutes App. A :7-8 to App. A :7-15 as amended,
I, Louis A. Reilly, Commissioner of Banking and Insurance of the State of New Jersey, do hereby make the
following order:
1. No bank or trust company shall pay, or undertake or promise to pay, interest or dividends accruing after
July 1, 1939, on any time or savings deposits, as the same are defined in Bulletin # 2 5 , Volume 1, promulgated
July 9, 1936, as supplemented September 30, 1936, and filed in the Department, at a rate in excess of one per cent
per annum compounded quarterly; provided, that any bank or trust company may pay interest in accordance with
the terms of any certificate of deposit or other contract entered into in good faith prior to July 1, 1939, and in force
on that date, and which may not be modified or terminated by such bank, trust company or savings bank, at its
option; but no such certificate of deposit or other contract shall be renewed or extended, unless it be modified to
conform with the provisions of this regulation, and all such certificates of deposit or other contracts shall be termi­
nated, or modified to conform with this regulation at the earliest possible date, in accordance with the terms hereof.
2. No savings bank subject to the provisions of Title 17, Chapter 6 of the Revised Statutes, and no savings bank
organized or subject to the provisions of any special act, including savings banks having shares of capital stock, shall
pay or undertake or promise to pay interest or dividends upon deposits as defined in paragraph 1 of this order, at a
rate in excess of one per cent per annum, compounded quarterly, except to the extent permitted by paragraph 1
hereof; provided, however, that nothing in this regulation contained shall be construed as prohibiting or preventing
such savings bank from dividing the excess of its surplus above twenty-five per centum of its deposits as an extra
dividend to depositors as provided by law; provided further that such distribution of excess surplus to depositors
shall not be made oftener than once every three years; and provided, that no such savings bank shall, after July 1, 1939,
make such division of excess surplus within a period of three years from the date of its last distribution to depositors
of such excess surplus.
3. All orders or regulations heretofore made by the Commissioner of Banking and Insurance defining deposits
and regulating rates of interest thereon are hereby confirmed, and are hereby continued in full force and effect, except
as herein expressly modified.
4. This order is based upon a recommendation contained in a resolution adopted by the Banking Advisory
Board at a meeting held on June 14, 1939 and shall take effect immediately.
IN WITNESS W HEREOF, I have hereunto set my hand and seal of office this fifteenth day of June, 1939.
Yours very truly,
LOUIS A. REILLY,

Commissioner of Banking and Insurance
of New Jersey.
Order, dated June 4, 1946 of the Commissioner of Banking and
Insurance of the State of New Jersey
TO ALL BANKS:
Pursuant to the power vested in me by the provisions of Revised Statutes App. A :7-8 to App. A :7-15 as amended,
I, Lawrence B. Carey, Commissioner of Banking and Insurance of the State of New Jersey, do hereby make the
following order:
No bank or trust company or savings bank, however chartered, shall pay, or undertake or promise to pay, interest
or dividends accruing after July 1, 1946, on any time or savings deposits, as the same are defined in Bulletin 25,
Volume 1, promulgated July 9, 1936, as supplemented September 30,1936, and filed in the Department, in any amount,
or amounts, which in the aggregate are equivalent to a rate in excess of one and one-half per cent per annum com­
pounded quarterly; provided, however, that nothing in this regulation contained shall be construed as prohibiting
or preventing a savings bank from dividing the excess of its surplus above twenty-five per centum of its deposits as
an extra dividend to depositors as provided by law; provided further, that such distribution of excess surplus to
depositors shall not be made oftener than once every three years.
All orders or regulations heretofore made by the Commissioner of Banking and Insurance defining deposits and
regulating rates of interest thereon are hereby confirmed, and are hereby continued in full force and effect, except
as herein expressly modified.
This order is based upon a resolution adopted by the Banking Advisory Board at a meeting held May 7, 1946 and
shall take effect July 1, 1946.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office this fourth day of June, 1946.




(

Yours very truly,
LAWRENCE B. CAREY,

Commissioner of Banking and Insurance
of New Jersey.
4


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102