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F E D E R A L R E S E R V E BA N K O F NEW YO RK f Circular No. 5 9 1 3 *1 U December 9, 1966 J Regulations D and Q Amended Revising Definitions of “Time Deposits” and “Savings Deposits” Reserve Requirements Reduced on Christmas and Vacation Club Accounts To All Member Banks, and Others Concerned, in the Second Federal Reserve District: Following is the text of a statement issued yesterday by the Board of Governors of the Federal Reserve System: The Board of Governors of the Federal Reserve System today announced the adoption of amendments to its Regulations D and Q ( “ Reserves of Member B anks” ; “ Payment o f Interest on D eposits” ) designed to sharpen the technical distinctions between “ time deposits” and “ saving deposits.” The amendments, which will become effective January 1, 1967, are substantially the same as those proposed on September 23, 1966. A t present, deposits of individuals or certain nonprofit organizations as to which the depositor is required by the deposit contract to give notice in w riting not less than 30 days before making a withdrawal may be either “ savings deposits” or “ time deposits” (time certificate of deposit or time deposit, open account). Under the regulations as now amended, such a deposit can only be a “ time deposit.” The dis tinguishing feature o f “ savings deposits,” in this respect, will be the reservation by the bank of the right to require 30 d ays’ notice of withdrawal. In practice, banks routinely reserve such a right, although it is rarely exercised. The amendments are also designed to make clear that a deposit payable on a specified date or at the expiration o f a specified period of time after the date of the deposit (sometimes referred to as a “ fixed m atu rity” deposit) does not constitute a “ savings deposit.” In a companion action, the Board announced a reduction, effective January 5, 1967, in the required reserve percentages that must be maintained by memb er banks against Christmas and vacation club accounts. A t present, a member bank is required to maintain reserves at the rate o f 6 per cent against such accounts if its other time deposits (other than savings deposits) exceed $5 million. Effective January 5, the applicable rate fo r Christmas and vacation club accounts will be 4 per cent, which is the rate prescribed fo r savings deposits. The B oard considers that Christmas and vacation club accounts serve the same function as savings deposits and that there is therefore no reason why reserves against them should be any higher than fo r savings deposits. This technical adjustment in reserve require ments will not substantially affect the total o f member bank reserves. Enclosed are copies of the amendments to Regulations D and Q and of the Supplement to Regulation D, giving effect to the Board’s actions. Additional copies of this circular and the enclosures will be furnished upon request. A lfred H ayes, President. RESERVES OF MEMBER BANKS A M EN DM EN T TO R E G U LATIO N D (12 CFR P A R T 204) ISSUED B Y T H E BOARD OF GOVERNORS OF T H E FEDERAL RESERVE SYSTEM Effective January 1, 1967, Part 204 is amended as follow s: ( a) as follow s: Paragraphs ( d) and ( e) of section 204.1 are amended to read S E C T IO N 204.1— D E F IN IT IO N S * * * * # ( d) Tim e deposits, open account.— The term “ time deposit, open account” means a deposit, other than a “ time certificate of deposit,” with respect to which there is in force a written contract with the depositor that neither the whole nor any part o f such deposit may be withdrawn, b y check or otherwise, prior to the date of m aturity, which shall be not less than 30 days after the date of the deposit,2 or prior to the expiration o f the period o f notice which must be given by the depositor in writing not less than 30 days in advance o f withdrawal.3 ( e ) Savings deposits.— The term “ savings deposit” deposit— means a (1) which consists of funds deposited to the credit o f one or more individuals, or of a corporation, association, or other organi zation operated prim arily fo r religious, philanthropic, charitable, educational, fraternal, or other similar purposes and not operated fo r profit ;4 or in which the entire beneficial interest is held by one or more individuals or by such a corporation, association, or other organization; and 2 Deposits, such as Christmas club accounts and vacation club accounts, which are made under written contracts providing that no withdrawal shall be made until a certain number of periodic deposits have been made during a period of not less than 3 months constitute “ time deposits, open account” even though some of the deposits are made within 30 days from the end of the period. 3 A deposit with respect to which the bank merely reserves the right to require notice of not less than 30 days before any withdrawal is made is not a “ time deposit, open account,” within the meaning of the above definition. 4 Deposits in joint accounts of two or more individuals may be classified as savings de posits if they meet the other requirements of the above definition, but deposits of a partnership operated for profit may not be so classified. Deposits to the credit of an individual of funds in which, any beneficial interest is held by a corporation, partnership, association, or other organization operated for profit or not operated primarily for religious, philanthropic, charit able, educational, fraternal, or other similar purposes may not be classified as savings deposits. PR IN T E D I N NEW YO R K ( over ) (2 ) with respect to which the depositor is not required b y the deposit contract but may at any time be required b y the bank to give notice in w riting o f an intended withdrawal not less than 30 days before such withdrawal is made5 and which is not payable on a specified date or at the expiration o f a specified time after the date o f deposit. ( b) Footnotes 5, 6, and 7 in Part 204 are redesignated footnotes 6, 7, and 8, respectively. 5 The exercise by the bank of its right to require such notice shall not cause the deposit to cease to be a savings deposit. PAYMENT OF INTEREST ON DEPOSITS A M EN D M E N T TO R E G U LA TIO N Q (12 CFR PART 217) ISSUED BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Effective January 1, 1967, P art 217 is amended as follow s: (a) Paragraphs (d) and (e) of section 217.1 are amended to read as fo llo w s : S E C T IO N 217.1— D E F IN IT IO N S * * * * * ( d) T im e deposits, open account.— The term “ time deposit, open accou nt’ ’ means a deposit, other than a “ time certificate o f deposit,” with respect to which there is in force a written contract with the depositor that neither the whole nor any part o f such deposit may be withdrawn, b y check or otherwise, prior to the date o f maturity, which shall be not less than 30 days after the date o f the deposit,2 or prior to the expiration o f the period of notice which must be given by the depositor in writing not less than 30 days in advance o f withdrawal.3 ( e ) Savings deposits.— The term “ savings deposit” deposit— means a (1 ) which consists of funds deposited to the credit o f one or more individuals, or of a corporation, association, or other organi zation operated prim arily fo r religious, philanthropic, charitable, educational, fraternal, or other similar purposes and not operated fo r profit ;4 or in which the entire beneficial interest is held by one or more individuals or b y such a corporation, association, or other organization; and (2 ) with respect to which the depositor is not required by the deposit contract but may at any time be required b y the bank to give notice in w riting of an intended withdrawal not less than 30 days before such withdrawal is made5 and which is not payable 2 Deposits, such as Christmas club accounts and vacation club accounts, which are made under written contracts providing that no withdrawal shall be made until a certain number of periodic deposits have been made during a period of not less than 3 months constitute “ time deposits, open account” even though some of the deposits are made within 30 days from the end of the period. 3 A deposit with respect to which the bank merely^ reserves the right to require notice of not less than 30 days before any withdrawal is made is not a “ time deposit, open account,” within the meaning of the above definition. 4 Deposits in joint accounts of two or more individuals may be classified as savings de posits if they meet the other requirements of the above definition, but deposits of a partnership operated for profit may not be so classified. Deposits to the credit of an individual of fund.s in which any beneficial interest is held by a corporation, partnership, association, or other organization operated for profit or not operated primarily for religious, philanthropic, charit able, educational, fraternal, or other similar purposes may not be classified as savings deposits. 5 The exercise by the bank of its right to require such notice shall not cause the deposit to cease to be a savings deposit. P R IN TE D IN NEW YO RK on a specified date or at the expiration o f a specified time after the date o f deposit. ( b ) Section 217.5 is amended to read as fo llo w s : S E C T IO N 217.5— W IT H D R A W A L OF S A V IN G S D E P O S IT S (a) Requirements regarding notice of withdrawal.— Whether or not interest is paid, no member bank shall require or waive notice o f withdrawal as to any amount or percentage of the savings deposit o f any depositor unless it shall similarly require or waive such notice as to the same amount or percentage of the savings deposits o f every other depositor which are subject to the same contractual provisions with respect to notice o f withdrawal. I f a member bank, without requiring notice o f withdrawal, pays interest that has accrued on a savings deposit during the preceding interest period, it shall, upon request and without requiring such notice, pay interest that has accrued during said period on the savings deposits o f every other depositor. No member bank shall change its practice with respect to the requiring or waiving o f notice o f withdrawal o f savings deposits fo r the purpose of discriminating in favor o f or against any depositor or depositors, and no such change o f practice shall be made except pursuant to duly recorded action o f the bank’s board of directors or a properly authorized committee thereof. ( b ) Loans on security of savings deposits.— I f it is not the p ra c tice of a member bank to require notice of withdrawal of savings deposits, no restrictions are imposed by this part upon loans b y such bank to its depositors upon the security o f such deposits. I f it is the practice o f a member bank to require notice of withdrawal of a savings deposit, such bank m ay make loans to a depositor upon the security o f such deposit, but the rate of interest on such loans shall be not less than 2 per cent per annum in excess of the rate o f interest paid on such deposit. ( c ) Manner o f paym ent o f savings deposits.— (1 ) Subject to the provisions o f subparagraph (2 ) o f this paragraph, a member bank may perm it withdrawals to be made from a savings deposit only through paym ent8 to the depositor himself (but not to any other p er son whether or not acting fo r the depositor), except (i) where the deposit is represented by a passbook, to any person presenting the passbook;8 (ii) to an executor, administrator, trustee, or other fiduciary holding the savings deposit as part o f a fiduciary estate, or to a person, other than the bank, holding a general power o f attorney granted b y the depositor; 8 Payment from a savings deposit or presentation of a passbook may be made over the counter, through the mails, or otherwise. (iii) to any person, ineluding the bank, that has extended credit to the depositor on the security o f the savings deposit, where such payment is made in order to enable the creditor to realize upon such secu rity; (iv ) pursuant to the order of a court of competent ju ris diction ; (v ) upon the death o f the depositor, to any person authorized by law to receive the d eposit; or (v i) interest paid to a third person pursuant to written instruction or assignment by the depositor accepted b y the bank, and placed on file therein. (2 ) Notwithstanding the provisions o f subparagraph (1 ) of this paragraph, no withdrawal shall be permitted by a member bank to be made from a savings deposit, through paym ent to the bank itself or through transfer o f credit to a demand or other deposit account o f the same depositor (other than o f interest on the savings deposit) if such payment or transfer is made pursuant to any advertised plan or any agreement, written or oral, (i) which authorizes such payments or transfers of credit to be made as a normal practice in order to cover checks or drafts drawn by the depositor upon the b a n k ; or (ii) which provides that such payments or transfer of credit shall be made at daily, monthly, or other such periodic intervals, except where made to enable the bank, on the depositor’s behalf and pursuant to his written instructions, to effect the payment of instalments of principal, interest, or other charges (includ ing taxes or insurance premiums) due on a real estate loan or mortgage. (3) W here a savings deposit is evidenced by a passbook, every withdrawal made upon presentation of the passbook shall be entered in the passbook at the time o f withdrawal, and every other withdrawal from such a deposit shall be entered in the passbook as soon as prac ticable after the withdrawal is made. ( c) Footnotes 7 and 8 in Part 217 are redesignated footnotes 6 and 7, respectively. SU PPLEM ENT TO R E G U LATIO N D Section 204.5—Supplement ISSUED BY THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Effective as to all member banks at the opening of business on January 5, 1967. (a) Reserve percentages.— Pursuant to the provisions of section 19 o f the Federal Reserve A ct and § 204.2(a) and subject to paragraph (&) o f this section, the B oard o f Governors o f the Federal Reserve System hereby prescribes the follow ing reserve balances which each member bank o f the Federal Reserve System is required to maintain on deposit with the Federal Reserve bank o f its d istrict: (1) I f not in a reserve city— (i) 4 per cent o f (A ) its savings deposits and (B ) its time deposits, open account, that constitute deposits o f individuals, such as Christmas club accounts and vacation club accounts, that are made under written contracts providing that no withdrawal shall be made until a certain number of periodic deposits have been made during a period o f not less than 3 months, plus (ii) 4 per cent o f its other time deposits up to $5 million and 6 per cent of such deposits in excess o f $5 million, plus (iii) 12 per cent o f its net demand deposits. (2 ) I f in a reserve city (except as to any bank located in such a city which is permitted by the Board of Governors o f the Federal Reserve System, pursuant to § 204.2(a) (2 ), to maintain the reserves specified in subparagraph (1) o f this paragraph)— (i) 4 per cent of (A ) its savings deposits and (B ) its time deposits, open account, that constitute deposits o f individuals, such as Christmas club accounts and vacation club accounts, that are made under written contracts providing that no withdrawal shall be made until a certain number of periodic deposits have been made during a period o f not less than 3 months, plus (ii) 4 per cent of its other time deposits up to $5 million and 6 per cent o f such deposits in excess o f $5 million, plus (iii) 16% per cent o f its net demand deposits. (b) Counting o f currency and coin.— The amount o f a member bank’s currency and coin shall be counted as reserves in determining compliance with the reserve requirements o f paragraph (a) of this section. PRIN TE D IN N EW YORK
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