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FE D ER A L R E S E R V E BANK O F NEW YO RK r Cii'cular No. 6 5 7 8 s! July 20, 1970 J I Interpretation of Regulation Q To A ll M ember Banks, and Others Concerned, in the Second Federal Reserve D is tric t: P rin ted below is the text of an interp retatio n of Regulation Q, adopted by the B oard of Gover nors of the Federal Reserve System on Ju ly 14, regarding the application of the reg u latio n ’s Supplement, effective June 24, 1970, to certain short-term deposits. The in terp retatio n will be pub lished shortly in the Federal R egister and in the A ugust 1970 issue of the Federal Reserve B ulletin but is being sent to you now so th a t you m ight have prom pt notice of its content. A lfk e d H ay e s, President. [Reg. Q] P art 217— PAYMENT OF INTEREST ON DEPOSITS Maximum Rate Payable § 217.150 Rate payable when higher rate is payable only on short-term deposits. The B oard of Governors considers th a t the change in the Supplem ent to R egulation Q, effective Ju n e 24, 1970, which perm its the paym ent of interest a t any rate on single m atu rity time deposits of $100,000 or more w ith m aturities of 30 to 89 days (while retaining the existing lim itations on interest rates for such de posits m atu rin g in 90 days or m ore), should be applied as follow s: (a) A member bank may amend the rate paid on a $100,000 certificate w ith an original m atu rity of 30 to 89 days issued before Ju n e 24, 1970, to pay any in te r est ra te for the period subsequent to th a t date. (b) A member bank may not amend the rate paid on a $100,000 certificate with an original m atu rity of 90 days or more to pay interest thereon for any period a t a rate in excess of th a t specified in the Supplem ent for such a deposit w ith the p artic u la r m aturity. Since such a deposit is not a 30 to 89 day deposit— the only kind of deposit free from interest rate control—it is not affected by the change in the regulation. (c) A member bank may extend the m atu rity of a $100,000 certificate which originally provided for a m atu rity of 30 to 89 days, and pay interest at any rate during the extended term , if the new m atu rity is (1) later th an the original m atu rity and (2) 30 to 89 days from the date of the extension. (d) A member bank may not extend the term of a certificate originally issued for 90 days or more and pay interest on the deposit a t a rate in excess of th at applicable to the original deposit, even if the new m atu rity meets the conditions in the preceding p a ra graph. This does not apply, of course, to extension or renewal a t m aturity. (e) A member bank may pay interest a t any rate on a certificate originally issued in an am ount less th an $100,000 to which the depositor adds sufficient fu nds to increase the deposit to $100,000 or more, if an d only if (1) the original m atu rity of the certificate is 30 to 89 days, and (2) the m atu rity date is 30 to 89 days afte r the date of the addition of such funds. (f) Member banks may not make use of contracts fo r fu tu re deposits to perm it a depositor to commit his funds for more th a n 89 days and obtain interest at a rate in excess of th a t applicable to a deposit w ith a longer m aturity. F o r example, a bank and its depositor m ight agree on A ugust 1, 1970 th a t the depositor will deposit, on th a t date and again on October 20 (80 days la te r), $100,000 for 80 days, on which the bank will pay interest a t the rate of 10 per cent. Such an a r rangem ent would be an effort to evade the purposes of the Regulation, which perm its paym ent of rates of in terest w ithout legal restriction only on deposits of 30 to 89 days. The B oard considers th a t the substance of such a transaction would be a deposit for 160 days. ( I f the depositor has an option, by contract or u n d er standing, to w ithdraw funds a t the end of the first 80 days or to leave them on deposit for the second 80 days, the deposit would be subject to the lim itations of the Supplem ent to R egulation Q applicable to m ultiple m atu rity deposits payable a t intervals of less th an 90 days.) The B o a rd ’s view would be the same even though the agreem ents—form al or inform al— were en tered into a t different times, if they were so related as to be, in reality, a single arrangem ent th a t commits the bank and its depositor for 90 days or longer. (12 U .S .C . 2 4 8 (i). In te rp re ts and applies 12 U .S .C . 371b.)
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