Full text of Federal Reserve Bank of New York Circulars : 7219. Amendment to Regulation Q

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FE D E R A L RESER VE BANK
O F N E W YORK
C i r c u la r N o . 7 2 1 9
A u gu st 2 3 , 1973

AMENDMENT TO REGULATION Q
Early Withdrawal Penalty Applicable to Certain
Changes in Time Deposit Contracts

To A ll Member Banks, and Others Concerned,
in the Second Federal R eserve D istrict:

Following is the text of a statement issued today by
the Board of Governors of the Federal Reserve System:
The Board of Governors of the Federal Reserve System
announced today an amendment to Regulation Q, effective
September 10. Regulation Q deals with the payment of interest
on deposits at Federal Reserve member banks.
This action defines any amendment to a time deposit
contract that results in an increase in the interest rate, or
a change in the maturity of the deposit, as a withdrawal of
funds subject to penalty.
The amendment was proposed by the Board July 2k. It was
adopted after consideration of comment received and following
consultation with the Federal Deposit Insurance Corporation
and the Federal Home Loan Bank Board.
The amendment to Regulation Q would treat any change in
a time deposit contract— generally, certificates of deposit—
that results in an increase in the rate of interest to be paid,
or changes the maturity of the deposit, as a withdrawal before
maturity. The penalty for early withdrawal of deposits would
therefore apply.
The early withdrawal penalty differs according to the date
the time deposit contract was entered into:




For time deposit contracts entered into, or amended or
renewed after July 5, 1973 (when a new schedule of
maximum interest rates on time deposits went into
effect) the penalty is in two parts, (a) a reduction
of the rate of interest paid to the maximum passbook
rate for the entire time the deposit has been held,
and (b) a loss of three months interest.

( Over)

For all other time deposits, the old penalty rule
applies. This states that a bank may pay a time
deposit before maturity only in an emergency where
early withdrawal is necessary to prevent great hard­
ship to the depositor, plus forfeiture of up to
three months accrued, unpaid interest.

A copy of the amendment, effective September 10, 1973,
to Regulation Q will be sent to you shortly.




Alfred Hayes,
P resid en t.