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federal reserv e

Bank o f Dallas

DALLAS. TEXAS

75222
Circular No. 81-154
July 29, 1981

INTEREST RATE CEILINGS ON DEPOSITS

Phase Out Schedule
TO ALL MEMBER BANKS,
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Depository Institutions Deregulation Committee (DIDC) has
adopted a schedule to phase out federally imposed interest rate ceilings on
deposits under $100,000 at all federally insured commercial banks, mutual
savings banks, and savings and loan associations.
The attached phase-out
schedule is effective beginning August 1, 1981.
To more fully explain the Committee's actions, enclosed are copies
of the Committee's press releases dated June 26, July 8, and July 10, and copies
of four documents submitted for publication in the Federal Register.
In the press release dated July 10 and in the Federal Register
documents dated July 9, the Committee requested public comment on proposals
designed to aid in the phase out of interest rate ceilings on time and savings
deposits. Interested persons are invited to submit comments on these proposals
to Gordon Eastburn, Acting Executive Secretary, Depository Institutions Dereg­
ulation Committee, Room 1054, Department of the Treasury, 15th Street and
Pennsylvania Avenue, N.W., Washington, D.C. 20220.
Comments must be
received by August 10, 1981. When submitting comments, please refer to
Docket No. D-0020, Ceiling Rates for 26-week Money Market Certificates, and
Docket No. D-0021, Adjustment of Interest Rates on Savings Accounts.
Questions concerning this circular and enclosures should be directed
to the Legal Department of this Bank, Extension 6171.
Sincerely yours,

William H. Wallace
First Vice President
Enclosure

Banks and others are encouraged to use the following incoming W AT S numbers in contacting this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the
extension referred to above.

This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)

federal

R eserv e Bank o f Dallas

DALLAS. TEXAS

75222

ERRATA TO CIRCULAR NO. 81-154

1.

The Page
2 following Docket No. D-0021 is Page 2 of the DIDC
Press Release dated June 26.

2.

Pages 3-4 following the DIDC Press Release dated June 26 are Pages
3-4 of DIDC Docket No. D-0020.

3.

The Page
2 following the DIDC Press Release dated June 26 is
page 2 of the DIDC Docket No. D-0021.

Banks and others are encouraged to use the following incoming W A T S numbers in contacting this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls placed locally, please use 651 plus the
extension referred to above.

DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE

[12 C.F.R. Part 1204]
(Docket No. D-0021)
Notice of Proposed Rulemaking
Adjustment of Interest Rates on Savings Accounts

AGENCY:

Depository Institutions Deregulation Committee.

ACTION:

Proposed Rulemaking.

SUMMARY:
The Depository Institutions Deregulation Committee
("Committee") is required to vote, by September 30, 1981, on
increasing the interest rate payable on passbook savings accounts.
The Committee is seeking guidance on whether to increase the
passbook rate and, if so, to what level.
DATES:

Comments should be received on or before August 10, 1981.

ADDRESS:
Interested parties are invited to submit written data,
views, or arguments concerning this matter to Gordon Eastburn,
Acting Executive Secretary, Depository Institutions Deregulation
Committee, Room 1054, Department of the Treasury, 15th Street
and Pennsylvania Avenue, N.W., Washington, D.C. 20220.
All
material submitted should include the Docket Number D-0021.
FOR FURTHER INFORMATION CONTACT:
Allan Schott, Attorney-Advisor,
Department of the Treasury (202) 566-6798; Daniel L. Rhoads,
Attorney, Board of Governors of the Federal Reserve System (202)
452-3711; Rebecca H. Laird, Senior Associate Counsel, Federal
Home Loan Bank Board (202) 377-6446; David Ansell, Attorney,
Office of the Comptroller of Currency (202) 447-1880; Randall J.
Miller, Jr., Acting Director, Office of Policy Analysis, National
Credit Union Administration (202) 357-1090; and F. Douglas
Birdzell, Counsel, or Kathy A. Johnson, Attorney, Federal Deposit
Insurance Corporation (202) 389-4261 or 389-4384.
SUPPLEMENTARY INFORMATION:
Section 205(a) of the Depository
Institutions Deregulation Act of 1980, (12 U.S.C. § 3504(a))
("Act") requires the Committee to vote, by not later than
September 30, 1981, on whether to raise the rates on passbook
savings and similiar accounts by at least one-quarter of one
percentage point.
At its meeting on June 25, 1981, the Committee
decided to seek public comment to guide it in its deliberations.
A proposal put forth at the June 25 meeting was to raise the
rates on passbook savings deposits by five percentage points,
thus increasing the maximum permissible rates payable by commercial
banks and thrift institutions to 10-1/4 percent and 10-1/2 percent,
respectively.
It should be emphasized that this proposal represents
one of many possible options and should not be regarded as repre­
senting a consensus or commitment of the Committee.

- 2 Finally, the Committee decided to submit for public comment
several proposals relating to new short-term instruments and to
ask for public comment on ways to increase ceilings on passbook
accounts.
In conjunction with Secretary Regan assuming the Chairmanship
of the DIDC, the principal offices of the Committee have been
moved from the Federal Reserve Building to the Department of the
Treasury, 15th Street and Pennsylvania Avenue, N.W., Washington,
D.C. 20220.

Attachment

Proposal to Phase Out Interest Rate Ceilings

Step 1 (August 1, 1981)
1.

Remove all rate "ceilings" on all deposits with maturi­
ties of 4 years and over.

2.

Index rate ceilings for 2 1/2 year to 4 year deposits
to the 2 1/2 year Treasury security and retain a
twenty-five basis point differential.
(Treasury rate
for thrifts, Treasury rate - 25 basis points for com­
mercial banks)

Step 2 (August 1, 1982)
1.

Eliminate ceilings on 3

to 4 year deposits.

2.

Index rate ceilings for
2 to 3 year deposits to the
2 year Treasury security and retain differential as
above.

Step 3 (August 1, 1983)
1.

Eliminate ceilings on 2

to 3 year deposits.

2.

Index rate ceilings for
1 to 2 year deposits
1 year Treasury security.

to the

Step 4 (August 1, 1984)
1.

Eliminate ceilings on 1 to 2 year deposits.

2.

Index rate ceilings for all time deposits under 1 year
to comparable Treasury security yields as above.

Step 5 (August 1, 1985)
1.

Eliminate ceilings on all time deposits.

TITLE 12— BANKS AND BANKING
CHAPTER XII— DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
(Docket No. D-0019)
PART 1204— INTEREST ON DEPOSITS
Phaseout o£ Ceiling Rates on All Time Deposits
AGENCY:

Depository Institutions Deregulation Committee.

ACTION:

Final Rules.

.

SUMMARY: The Depository Institutions Deregulation Committee
("Committee”) has established a schedule for the orderly phaseout
and ultimate elimination of interest rate ceilings on all time
deposits at commercial banks and thrift institutions. Under the
schedule, which is effective August 1, 1981, interest rate ceilings
will be completely eliminated according to a step-by-step procedure
based upon the original maturity of new time deposits. Ceilings
will be eliminated first for deposits having an original maturity
of 4 years or more. The minimum maturity for deposits without
any rate ceiling will be reduced by one year during each of the
next four years until, on August 1, 1985, all interest rate ceilings
on all categories of time deposits will be eliminated.
As part
of its phaseout plan, the Committee also removed the existing "cap"
on the ceiling rate for 2-1/2 year or more small saver certificates
("SSCs"), but retained the current ceilings, which are determined by
the average 2-1/2 year yield on U. S. Treasury securities, and
retained the current minimum ceilings. During the phaseout period,
the ceiling rate for new time deposits with certain maturities will
be indexed to the yields for U.S. Treasury securities with comparable
maturities. For those deposits with indexed ceiling rates, a 1/4
percentage point differential in favor of thrifts will be maintained
for the first two years of the phaseout period, but will be removed
entirely for all new deposits issued on or after August 1, 1983,
which are covered by the schedule. The new rules do not change
the terms or rates of any existing time deposits or passbook-type
savings accounts.
EFFECTIVE DATE:

August 1, 1981.

FOR FURTHER INFORMATION CONTACT: F. Douglas Birdzell, Counsel,
Federal Deposit Insurance Corporation (202/389-4261), Paul S.
Pilecki, Senior Attorney, Board of Governors of the Federal Reserve
System (202/452-3281), Allan Schott, Attorney-Advisor, Treasury
Department (202/566-6798), Rebecca Laird, Senior Associate General
Counsel, Federal Home Loan Bank Board (202/377-6446), or David
Ansell, Attorney, Office of the Comptroller of the Currency (202/447­
1880).
SUPPLEMENTARY INFORMATION: On March 31, 1981, the Committee requested
public comment on two proposals to help accomplish the Committee's
statutory objective of an orderly phaseout and ultimate elimination

of interest rate ceilings on all time and savings deposits by April 1,
1986 (See 46 Federal Register 20155). The first proposal was
intended to further deregulation in the short run by removing the
"cap" applicable to interest rate ceilings on 2-1/2 year or more
small saver certificates (SSCs). Under the proposal, an interest
rate ceiling would continue to apply, but the current cap of 11-3/4
percent for commercial banks and 12 percent for mutual savings
banks and savings and loan associations would be eliminated. As
proposed, the ceiling would continue to be determined by the average
2-1/2 year yield on U.S. Treasury securities. The second proposal
was intended to further deregulation in the long term by completely
eliminating the rate ceilings on deposits beginning with those of
longer maturities, or by indexing the interest rate ceilings on
such deposits to a market' rate. The Committee also requested
comments on any other plans for deregulating interest rate limitations.
In response to its request, the Committee received more than
700 written comments from depository institutions, trade associations,
Federal instrumentalities and individuals.
In summary, the comments
varied greatly and produced no consensus on how a deregulation plan
should be structured.
With respect to the proposal to eliminate the cap on SSCs,
slightly more than one-half of the relevant comments opposed the
proposal, with thrifts and their trade groups generally opposed,
and banks and their trade groups generally in favor of the proposal.
Many of the respondents who favored eliminating the caps were of
the view that it would have a positive impact on all depository
institutions by providing a competitive longer-term instrument.
These respondents felt that an uncapped SSC could attract new
deposits, which could be reinvested profitably by depository
institutions.
Those opposing the proposal argued that the circumstances
that originally caused the regulatory agencies to establish the
caps had not changed. Some respondents maintained that removing
the caps would result in a sharp rise in the ceiling rate, would
not increase deposits appreciably, would increase the cost of funds
to institutions and would exacerbate earnings pressures at thrift
institutions.
With regard to the proposal to phaseout interest rate limita­
tions by maturity, approximately 30 percent of those comments
favored the proposed schedule, and about 30 percent opposed any
decontrol. The remaining respondents found the concept of a schedule
acceptable, but were of the view that the proposed schedule was
either too fast (15 percent) or too slow (25 percent). Respondents
favoring no decontrol or a slower pace for decontrol, primarily
thrift Institutions, argued that more time was needed to adjust
asset portfolios. Moreover, they maintained that deregulation
would mean a higher cost of funds and lower earnings at a time
when thrifts were unable to absorb them. Suggestions on how to

"slow" the process of deregulation included delaying the start of
the phaseout period for two or three years and beginning the phaseout
with longer maturity deposits, such as eight years. Those favoring
the proposed schedule or suggesting a faster pace for deregulation,
generally commercial banks, indicated that, while it would be
desirable to allow all institutions time to adjust their asset port­
folios, market events do not permit such a delay in the process of
deregulation. In addition, some respondents suggested that the
schedule should begin with shorter maturity deposits, since they felt
that deposits with a 5-year maturity could not be attracted without
a substantial premium, and complete deregulation should be achieved
before 1986.
With respect to the issue of whether ceiling rates should be
eliminated completely or indexed to some market rate during the
phaseout, the Committee received more than 240 comments, a majority
of which favored indexing. Some of the respondents favoring the
indexing approach maintained that, in the absence of regulated
sceilings, there would be greater potential for irrational, as well
Jas predatory, pricing. Those respondents supporting the complete
elimination of ceilings argued that indexing could be confusing to
depositors, and that a rate ceiling becomes, in effect, the rate
that is offered by depository institutions. In addition, it was
noted that, at the end of the period when ceiling rates were indexed,
the Committee would have to eliminate the ceilings in any case, and
it would be better to start now, gradually, rather than eliminating
them all at once.
The Committee also received a number of suggestions on alter­
native methods of deregulation. These proposals included the
establishment of a short-term deposit instrument that could
improve the competitive position of depository institutions in
competing with instruments offered by non-depository institutions.
After considering all of the comments, the Committee established
a four-year schedule that will result in the complete elimination
of interest rate ceilings on all time deposits. The phaseout plan
adopted by the Committee is as follows:
Step 1 (August 1, 1981)
1.

Eliminate all rate ceilings on all new time deposits
with an original maturity of 4 years or more.

2.

Index rate ceilings for new time deposits with an
original maturity of 2-1/2 years to 4 years to
the average 2-1/2 year yield on U. S. Treasury
securites and retain the 25 basis point dif­
ferential between commercial banks and thrift
institutions. The interest rate ceiling for
thrifts will be the average Treasury yield, and
the rate ceiling for commercial banks-^fill be
the average Treasury yield less 25 basis points.

S tep 2 (August 1 , 1982)

1. Eliminate rate ceilings on all new time deposits
with an original maturity of 3 years or more.
2.

Index rate ceilings for new 2 to 3 year time de­
posits to the average 2 year yield on U. S. Treas­
ury securities and retain the differential, as
described in step 1 above.

Step 3 (August 1, 1983)
1. Eliminate rate ceilings on all new time deposits
with an original maturity of ‘ years or more.
2
2.

Index rate ceilings for new 1 to 2 year time
deposits to the rate for 1 year Treasury secur­
ities without a differential between commercial
banks and thrift institutions.

Step 4 (August 1, 1984)
1.

Eliminate rate ceilings on all new time deposits
with an original maturity of 1 year or more.

2.

Index rate ceilings for new time deposits with a
maturity of less than 1 year to the rate for
13-week Treasury securities without a differ­
ential between commercial banks and thrift insti­
tutions.

Step 5 (August 1, 1985)
1.

Eliminate rate ceilings on all time deposits.

The new rules apply only to new time deposits issued on or
after each of the relevant dates; the rates payable on existing
time and savings deposits are unaffected by the new rules. Moreover
ceiling rates for new time deposits with maturities other than
those specified in the phaseout schedule on each of the relevant
implementation dates will remain unchanged unless specifically acted
upon in the future by the Committee. For example, on August 1, 1981

the maximum interest rate payable on time deposits, (except for
MMCs, governmental units and IRA/Keogh Plans) will be as follows:
Original Maturity

Commercial
Banks

Thrift
Institutions

4 years or more

No Limit

No Limit

2-1/2 - 4 Years

2-1/2 Year Treasury
Yield* less 25 Basis
Points

2-1/2 Year
Treasury Yield*

1 - 2-1/2 Years

6 Percent

6-1/2 Percent

90 days - 1 Year

5-3/4 Percent

6 Percent

14 - 89 days

5-1/4 Percent

No Separate
Account Category

♦On June 22, 1981, the Treasury yield for 2-1/2 year securities was
14.35 percent.
In taking this action, the Committee concluded that the phase­
out plan is necessary to provide meaningful deregulation and to
provide depository institutions and their customers with a specific
schedule so that they may better plan their asset and liability
strategies in anticipation of an environment without interest rate
ceilings. Nonetheless, the Committee emphasized that it would
monitor the phaseout schedule at least annually, in light of economic
conditions and with due regard for the safety and soundness of
depository institutions, and that it would alter the phaseout
schedule, by hastening the phaseout, by deferring implementation
of certain steps, or by taking other action, whenever conditions
indicate that such action is warranted.
As is currently provided, interest may be compounded and
there is no minimum denomination for any time deposit (except for
the $10,000 money market certificates ("MMCs"), which are not
affected immediately by the new rules).
Until August 1, 1984, the
effective date for ceiling rates that are indexed to an average
Treasury yield will be determined as is currently the procedure
for SSCs (See 12 C.P.R. 5 1204.106).
Under the&e procedures, the
average Treasury yield is determined bi-weekly, and the effective
date of the ceiling rate is the first day after the new yield is
announced. For example, the rate for SSCs is established bi-weekly,
normally on Monday, with the ceiling rate effective on Tuesday.
On August 1, 1984, the ceiling rate will be established weekly, as
is currently the procedure for MMCs (See 12 C.F.R. S 1204.104).
The Committee also discussed the adequacy of the existing
early withdrawal penalty with respect to the phaseout plan and
determined to take no action to change that penalty.
Accordingly,
the existing early withdrawal penalty, as well as all other rules
regarding the payment of interest on deposits, will continue to appl
to all time deposits. The Committee emphasized that if the current

-

6

penalty is not adequate to deter early withdrawals from new time
deposits with original maturities of 4 years or more, it would
consider changing the penalty.

,

Finally, with respect to SSCs, the existing minimum ceiling
of 9.25 percent and 9.50 percent for banks and thrifts respec­
tively, will remain unchanged; thus, regardless of how low the
yield for 2-1/2 Treasury securities might be, banks and thrifts
would be able to pay up to those rates for deposits with maturities
between 2 1/2 years and 4 years. However, because the ceiling rate
on SSCs will, in effect, be superseded by the ceiling rate on the
new 2 year deposit category, the SSC rule will expire on August 1,
1982.
The Committee also considered the proposal to phaseout interest
rate ceilings in terms of its impact on small entities, as required
by the Regulatory Flexibility Act (5 U.S.C. S 601, et. seq.). In
this regard, the Committee's action does not impose any new regulatory
burden, or increase any new reporting or record keeping requirements.
Rather, this action eliminates regulatory restrictions on the maximum
interest rate payable for certain time deposits on August 1, 1981,
and eliminates all such limitations by the end of the phaseout
period. Thus, small entities that are depositors generally should
benefit from the Committee's action since they will be able to earn
higher interest on their time deposits. Small entities that are
depository institutions could have increased operating expenses as
a result of this action, because it is likely that they will be
paying higher interest rates on certain time deposits; however,
their competitive position vis-a-vis non-depository institution
competitors should be enhanced by their ability to offer higher
rates on time deposits.
The statute creating the Committee requires the ultimate
elimination of interest rate ceilings on time deposits. The Committee
considered several alternatives to accomplish this objective; an
analysis of these alternatives is available from the Executive
Secretary of the Committee.
In the Committee's view, the plan that
was adopted provides the greatest flexibility for all depository
institutions during the phaseout period, without having a dispro­
portionately adverse impact on any particular size of depository
institution.
Since the Committee's action relieves a restriction, deferral
of the effective date pursuant to 5 U.S.C. 5 553(d) is not necessary.
Furthermore, because of the public nature of the meeting where the
rule was adopted and the press release issued the day following
that meeting, adequate notice of the Committee's action has been
given to the public. Accordingly, the Committee finds that good
cause exists under Section 1201.6 of the DIDC's regulations for
making the effective date less than 30 days from date of publi­
cation in the Federal Register.
Pursuant to its authority under Title II of Public Law 96-221,
94 Stat. 142 (12 U.S.C. S 3501 et. seq.), to prescribe rules governing
the payment of interest and dividends on deposits ofc Federally

insured commercial banks, savings and loan associations, and mutual
savings banks, effective August 1, 1931, the Committee amends Part
1204— 'Interest on Deposits (12 CFR Part 1204) as follows:
1. Section 106 is amended and restated in its entirety to read
as follows:
S1204.106 —

Time Deposits of Less Than $100,000 With Maturities of
2-1/2 Years to Less Than 4 Years.

(a)
A commercial bank may pay interest on any non-negotiable
time deposit with an original maturity of 2-1/2 years to less than
four years at a rate not to exceed the higher of one-quarter of
one per cent below the average 2-1/2 year yield for U.S. Treasury
securities as determined and announced by the U.S. Department of
the Treasury immediately prior to the date of deposit, or 9.25 per­
cent (except as provided in 12 C.F.R S 217.7(g) and in 12 C.F.R.
S 329.6(b)(6)). Such announcement is made by the U.S. Department of
the Treasury every two weeks. The average 2-1/2 year yield will
be rounded by the U.S. Department of the Treasury to the nearest 5
basis points. The rate paid on any such deposit cannot exceed the
ceiling rate in effect on the date of deposit.
(b) A mutual savings bank or savings and loan association
may pay interest on any non-negotiable time deposit with an original
maturity of 2-1/2 years to less than 4 years at a rate not to
exceed the higher of the average 2-1/2 year yield for U.S. Treasury
securities as determined and announced by the U.S. Department of
the Treasury immediately prior to the date of deposit, or 9.5 per
cent. Such announcement is made by the U.S. Department of the
Treasury every two weeks. The average 2-1/2 year yield will be
rounded by the U.S. Department of the Treasury to the nearest 5
basis points. The rate paid on any such deposit cannot exceed the
ceiling rate in effect on the date of deposit.
(c)
2.

This section expires August 1, 1982.
A new section , Section 115, is added to read as follows:

§1204.115 —

Phaseout Schedule of Interest Rate Ceilings by Maturity
for All Time Deposits of Less Than $100t0fl0.

A commercial bank, mutual savings bank or savings and loan
association may pay interest on time deposits of less than $100,000
at rates not to exceed the rates set out below. Where the ceiling
rate for a deposit with an original maturity of more than one
year is indexed to the average yield on Treasury securities, the
applicable rate ceiling is determined and announced every two
weeks by the Department of the Treasury. The effective date for
the rate ceiling is the first day after the day the average yield *
on Treasury securities is announced. The applicable veiling rate
will be rounded to the nearest 5 basis points by thejJD. S. Department
of the Treasury. Where the ceiling rate for a deposit is indexed
to the rate for a particular Treasury security (auction average

-

8

-

on a discount basis), the rate is established and announced each
week ("Bill rate"). The effective date for the rate ceiling
is
the first day after the day the rate is announced. The rate
paid
on all such time deposits cannot exceed the ceiling rate in effect
on the date of deposit.
Original Maturity
(a)

Commercial Banks

Mutual Savings Banks
and Savings and Loan

Effective August 1, 1981
(1) 4 years or more
(2) 2-1/2 years to
less than 4 years

(b)

No limit

No limit

See Section 106 (12 C.F.R. S 1204.106)

Effective August 1, 1982
No limit

(1) 3 years or more
(2) 2 years to
less than
3 years

(c)

No limit

Average yield for
Average yield for 2
2 year Treasury
year Treasury secu­
securities
rities less 1/4 per­
centage point (Average
yield for 2 year U.S.
Treasury securities for
governmental units and
IRA/Keogh depositors)

Effective August 1, 1983
No limit

No limit

Bill rate
(52-week)

Bill rate
(52-week)

(1) 1 year or more

No limit

No limit

(2) less than 1 year

Bill rate
(13-week)

Bill rate
(13-week)

No limit

No limit

(1) 2 years or more
(2) 1 year to less
than 2 years
(d)

(e)

Effective August 1, 1984

Effective August 1, 1985
All time deposits

By Order of the Committee, July 7, 1981.

Gordon Eastburn
Acting Executive Secretary

DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
Washington, D.C. 20220

PRESS RELEASE

July 8, 1981

DIDC Final Rules
The Depository Institutions Deregulation Committee
(DIDC) today released the final rules concerning the scheduled
phaseout of interest rate ceilings on all time deposits at
commercial banks, savings and loan associations and mutual
savings banks. The rules, which become effective August 1,
were adopted at the Committee's public meeting on June 25.
The Committee also released amendments to its regulations:
1.

Delegating certain authority to the Policy
Director of the DIDC regarding requests for
Committee action and for reconsideration of
Committee action.

2.

Changing the principal offices of the DIDC
from the Federal Reserve Building to the
Department of the Treasury, Fifteenth Street
and Pennsylvania Avenue, N.W., Washington,
D.C. 20220.

Attached are the final rules for the phaseout and the
amended regulations.
Attachments

COM PTROLLER O F THE CURRENCY
FEDERAL RESERVE BOARD

FEDERAL DEPOSIT INSURANCE CORPORATION
NATIONAL C RED IT UNION ADMINISTRATION

FEDERAL HOME LOAN BANK BOARD
DEPARTMENT OF THE TREASURY

TITLE 12 — BANKS AND BANKING
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
[12 CPR PART 1200]
Part 1201 — RULES OF ORGANIZATION AND PROCEDURE
Part 1202 — RULES REGARDING AVAILABILITY OF INFORMATION
part 1203 — RULES REGARDING PUBLIC OBSERVATION OF MEETINGS

CHAPTER XII ~

Change of Agency Address and Delegation of Authority
AGENCY:

Depository Institutions Deregulation Committee

ACTION:

Amendment of Final Rules

SUMMARY: The Committee has amended its regulations regarding
organization and procedure, availability of information, and public
observation of meetings to indicate that the principal offices of
the Committee have been moved from the Federal Reserve Building to
the Department of the Treasury, 15th Street and Pennsylvania Avenue,
N.H., Washington, D.C. 20220. The Committee has also delegated
certain authority to the Policy Director of the Committee, and has
established procedures for the review of any action taken pursuant
to such delegation.
EFFECTIVE DATE:

June 25, 1981.

FOR FURTHER INFORMATION CONTACT: Gordon Eastburn, Acting Executive
Secretary, Depository Institutions Deregulation Committee, Room 1054
Department of the Treasury, 15th Street and Pennsylvania Avenue, N.W.,
Washington, D.C. 20220.
SUPPLEMENTARY INFORMATION: On March 26, 1981, the Secretary of
the Treasury was elected Chairman of the Depository Institutions
Deregulation Committee, succeeding the Chairman of the Board of
Governors of the Federal Reserve System in that capacity.
In
conjunction with this change, the principal offices of the Committee
have been moved from the Federal Reserve Building to the Department
of the Treasury, 15th Street and Pennsylvania Avenue, N.W., Washington,
D.C. 20220. The regulations have been amended accordingly.
A new provision has also been added to the existing regulations
delegating authority to the Policy Director of the Committee to act
on requests for Committee action and reconsideration of action already
taken by the Committee. The new provision also provides for the
review of any action taken pursuant to such delegation. The new
provision is Section 1201.7. The existing Section 1201.7 is re­
designated Section 1201.8.
Pursuant to the provisions of Subsection 553(b)(A) of Title 5 of
the United States Code, the Committee has determined that the pro­
visions of Section 553, relating to notice and public participation
and to deferred effective dates, are not applicable and are not
being followed since the amendments are of a procedural nature.

2

-

Sections 1201.3, 1201.7 and subsections 1201.6(b), 1202.4(b),
1203.4(c), 1203.4(d), 1203.6(d), 1203.12(b) of Title 12 of the Code
of Federal Regulations are amended and restated in their entirety;
and Chapter XII of Title 12 of the Code of Federal Regulations is
amended by adding a new Section 1201.8, all to read as follows:
§ 1201.3

Offices.

The principal offices of the Committee are in the Department
of the Treasury, 15th Street and Pennsylvania Avenue, N.W.,
Washington, D. C. 20220. The Committee's regular business hours
are from 9:00 a.m. to 5:30 p.m. Monday through Friday; but such
business hours may be changed from time to time.
§ 1201.6

Procedure For Regulations.
*

*

*

*

*

(b) Public Participation — The usual method of public
participation in the rulemaking process is through the written
submission of data, views, or arguments. They should be sent to
the Executive Secretary of the Committee, The Department of the
Treasury, 15th Street and Pennsylvania Avenue, N.W., Washington,
D.C. 20220. Such material will be made available for inspection
and copying upon request, except as provided in Part 1202 of this
chapter regarding availability of information.
*
S 1201.7

*

*

*

*

Delegation Of Authority.

(a) Policy Director ~ The Policy Director of the Committee
shall have the authority to deny (1) a request for Committee action,
and (2) a request for reconsideration of Committee action.
(b) Review of Action — Any action taken by the Policy
Director pursuant to subsection 1201.7(a) shall be subject to re­
view by the Committee only if such review is requested by a voting
member of the Committee, either on the member's initiative or on
the basis of a petition for review by the person whose request was
denied. Any such petition for review must be received by the
Executive Secretary of the Committee not later than the tenth day
after the date of such denial.
S 1201.8

Amendments.

Except as otherwise provided by law, any of these rules may be
altered, amended, or repealed, or new rules may be adopted at any
meeting of the Committee by a majority vote of the voting members
of the Committee.

3

PART 1202 —
S 1202.4

RULES REGARDING AVAILABILITY OF INFORMATION

Records Available To The Public Upon Request.
*

*

*

*

*

(b)
Obtaining Access to Records — Records of the Committee
subject to this section are available for public inspection or
copying during regular business hours on regular business days at
the office of the Executive Secretary of the Committee/ The Department
of the Treasury, 15th Street and Pennsylvania Avenue, N.W., Washington,
D.C. 20220. Every request for access to such records shall be sub­
mitted in writing to the Executive Secretary of the Committee, The
Department of the Treasury, 15th Street and Pennsylvania Avenue, N.W.
Washington, D.C. 20220. Such request shall state the name and ad­
dress of the person requesting such access, shall clearly indicate
whether such request is an initial request or an appeal from a denial
of information requested pursuant to the Freeedom of Information Act,
and shall describe such records in a manner reasonably sufficient
to permit identifiction without difficulty.
*

PART 1203 —
S 1203.4

*

*

*

*

RULES REGARDING PUBLIC OBSERVATION OF MEETINGS

Meetings Open To Public Observation.
*

*

*

*

*

(c) The agency will maintain a complete electronic recording
adequate to record fully the proceedings of each meeting or portion
of a meeting open to public observation. Cassettes will be available
for listening in the office of the Executive Secretary of the Com­
mittee, and copies may be ordered for $5 per cassette by telephoning
or by writing the office of the Executive Secretary of the Committee,
The Treasury Department, 15th Street and Pennsylvania Avenue, N.W.,
Washington, D.C. 20220.
(d) The agency will maintain mailing lists of names and
addresses of all persons who wish to receive copies of agency
announcements of meetings open to public observation. Requests for
announcements may be made by telephoning or by writing the office
of the Executive Secretary of the Committee, The Treasury Department,
15th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20220.
S 1203.6

Public Announcements Of Meetings.
*

*

*

*

*

4

-

(d)
Public announcements required by this section will be
posted at the office of the Executive Secretary of the Committee,
The Treasury Department, 15th Street and Pennsylvania Avenue, N.W.,
Washington, D.C. 20220, and may be made available by other means or
at other locations as may be desirable.
*

S 1203.12

*

*

*

*

Procedures For Inspection And Obtaining Copies Of
Transcriptions And Minutes.
.
*

*

*

*

*

(b)
Requests for copies of transcripts, recordings or
transcriptions of recordings, or minutes described in § 1203.11(c)
of this Part shall specify the meeting or the portion of the meeting
desired and shall be submitted in writing to the Executive Secretary
of the Committee, The Treasury Department, 15th Street and Pennsylvania
Avenue, N.W., Washington, D.C. 20220. Copies of documents identified
in minutes may be made available to the public upon request under
the provisions of Part 1202 of this Chapter (Rules Regarding
Availability of Information).
By Order of the Committee, June 26, 1981.

Gordon Eastburn
Acting Executive Secretary

DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
Washington, D.C. 20220

PRESS RELEASE

July 10, 1981

Requests for Public Comment

At its meeting on June 25, 1981, the Depository Institutions
Deregulation Committee decided to request public comment on
several proposals to help bring about the orderly phaseout of
interest rate ceilings on time and savings deposits.
The first proposal concerns the method by which the
rate ceiling is established for $10,000 minimum denomination,
money market certificates ("MMCs").
In this regard, the
Committee requested comments on authorizing an additional
method, which would permit depository institutions to offer
higher interest rates when market rates are declining.
The
Committee also proposed that the interest rate ceilings on
MMC's be permitted to "float" with the rate on 26-week Treasury
bills, thus permitting institutions to vary the interest
rate weekly during the term of the deposit.
In addition,
the Committee also requested comments on the concept of
creating a new short-term deposit instrument.
The second proposal concerns increasing the interest
rate payable on passbook-type savings accounts.
The Committee
is required by law to consider this question by September 30,
1981.
Accordingly, the Committee has requested public comment
on whether to make such an increase and, if so, to what level.
The Committee's proposals are attached.
Attachments

COMPTROLLER O F THE CURRENCY
FEDERAL RESERVE BOARD

FEDERAL DEPOSIT INSURANCE CORPORATION
NATIONAL CREDIT UNION ADMINISTRATION

FED ERA L HOME LOAN BANK BOARD
DEPARTMENT OF THE TREASURY

DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE

[12 C.F.R. Part 1204]
(Docket No. D-0020)
Notice of Proposed Rulemaking
Ceiling Rates for 26-week Money Market Certificates

AGENCY:

Depository Institutions Deregulation Committee.

ACTION:

Proposed Rulemaking.

SUMMARY:
The Depository Institutions Deregulation Committe
("Committee") is considering amending its rule relating to the
establishment of interest rate ceilings for $10,000 minimum
denomination money market certificates ("MMCs") (12 C.F.R. §
1204.104).
The Committee requests comments on the following
proposals:
(1) to permit the interest rate ceiling on MMCs to
be determined by the higher of (a) the rate for 26-week U.S.
Treasury bills established immediately prior to the date of
deposit or (b) the average of the rates for 26-week U.S. Treasury
bills for the eight weeks immediately prior to the date of deposit;
and (2) to permit the ceiling rate on an MMC to vary weekly during
the term of the deposit.
The Committee also requests comments on
the creation of a new short-term deposit instrument.
DATES:

Comments must be received by August 10, 1981.

ADDRESS:
Interested parties are invited to submit written data,
views, or arguments concerning the proposed rules to Gordon
Eastburn, Acting Executive Secretary, Depository Institutions
Deregulation Committee, Room 1054, Department of the Treasury,
15th Street and Pennsylvania Avenue, N. W . , Washington, D.C. 20220.
All material submitted should include the Docket Number D-0020
and will be available for inspection and copying upon request,
except as provided in Section 1202.5 of the Committee's Rules
Regarding Availability of Information (12 C.F.R. § 1202.5).
FOR FURTHER INFORMATION CONTACT:
Allan Schott, Attorney-Advisor,
Treasury Department (202/566-6798); Daniel L. Rhoads, Attorney,
Board of Governors of the Federal Reserve System (202/452-3711);
F. Douglas Birdzell, Counsel, Federal Deposit Insurance Corporation
(202/389-4261); Rebecca Laird, Senior Associate Counsel, Federal
Home Loan Bank Board (202/377-6446); or David Ansell, Attorney,
Office of the Comptroller of the Currency (202/447-1880).
SUPPLEMENTAL INFORMATION:
Under current regulations of the Commit­
tee, the maximum interest rate that may be paid on MMCs b y ’Federally
insured depository institutions is indexed to the rate (auction
average on a discount basis) for 26-week U.S. Treasury bills

2

established immediately prior to the date of the deposit ("Bill
rate").l/ Such bills normally are auctioned on Monday and the
interest rate ceiling based on the Bill rate is effective the
following day (12 C.F.R. § 1204.104).
This ceiling rate is
effective through the end of the day on which 26-week U.S.
Treasury bills are next auctioned.
Under the Committee's first proposal, depository institutions
would be permitted to offer MMCs with a fixed interest rate
ceiling indexed to the higher of (1) the rate for 26-week U.S.
Treasury bills established and announced under the existing
procedure, or (2) a moving average of the rates established for
26-week U.S. Treasury bills at the auctions held during the eight
weeks immediately prior to the date of deposit.
The average
Bill rate for the eight week period would be determined weekly
and would be announced simultaneously with the current Bill rate
for 26-week U.S. Treasury bills.
For purposes of determining the
applicable interest rate ceiling for MMCs, the rate schedule
contained in 12 C.F.R. § 1204.104 would continue to be used for
the average Bill rate as well as the single Bill rate.
Depository
institutions could then determine which of the rates should
apply as the ceiling rate for new MMC deposits.
The alternative
methods of calculating tyMC interest ceilings would enable banks
and thrift institutions to be more competitive with money market
mutual funds ("MMMFs") throughout an interest rate cycle.
The
most rapid periods of MMMF growth generally have occured in

1/

Current ceiling rates for MMC's are as follows:
Commercial Banks
Auction Average

Maximum per cent

7.50 per cent or below
Above 7.50 per cent

7.75
Bill rate plus one-quarter
of one per cent

Mutual Savings Banks and Savings
and Loan Associations
7.2 5 per cent or below
Above 7.25 per cent, but below
8.50 per cent
8.50 per cent, but below 8.75
per cent
8.75 per cent or above

7.75
Bill rate plus one-half
of one per cent
9
Bill rate plus one-quarter
of one per cent

DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
Washington, D.C. 20220

PRESS RELEASE

June 26, 1981

June 25th DIDC Meeting

The Depository Institutions Deregulation Committee (DIDC)
at its meeting yesterday adopted a schedule to phase out Federally
imposed interest rate ceilings on deposits under $100,000 at all
Federally insured commercial banks, mutual savings banks and
savings and loan associations.
As the attached schedule indicates,
beginning August 1 interest rate ceilings will be eliminated for
new deposits with a maturity of four years or more (current ceilings
range between 7-1/4 to 8 percent). In addition, the Committee
voted to remove the current rate caps (11.75 percent for commercial
banks and 12 percent for thrifts) on the 2-1/2 year small saver
certificate so the rate can fluctuate with the yield on 2-1/2
year Treasury securities at all levels.
The comparable 2-1/2
year Treasury security rate is currently about 14.4 percent.
Secretary Regan said the Committee would review the phase­
out plan annually.
The Committee elected Paul Volcker, Chairman of the
Federal Reserve Board, to be Vice Chairman of the DIDC.
Peter
J. Wallison, General Counsel for the Department of the Treasury
was elected the General Counsel for the Committee and Gordon
Eastburn, Director of the Office of Capital Markets Policy at
Treasury, was elected the Committee's Acting Executive Secretary
and appointed the Committee's Acting Policy Director.
The Committee voted against a proposal made by Richard Pratt,
Chairman of the Federal Home Loan Bank Board, which would have
permitted thrift institutions to pay 25 basis points more than
commercial banks on the six-month money market certificates at
all interest rate levels.
Currently, thrifts can only offer this
25 basis point differential when the six-month Treasury bill rate
is above 7.25 percent and below 8.75 percent.
The Committee decided to postpone consideration of deregulating
ceilings on IRA and Keogh accounts until the September meeting.
Congress is considering expanding the eligibility of these accounts
to all individuals so the Committee felt that any changes in regula­
tions concerning these accounts should occur after Congress has
acted on the matter.

COM PTROLLER O F THE CURRENCY
FEDERAL RESERVE BOARD

FE D E R A L DEPOSIT INSURANCE CORPORATION
NATIONAL C R E D IT UNION ADMINISTRATION

FE D E R A L HOME LOAN BANK BOARD
DEPA RTM EN T O F THE TREA SURY

- 2 The Committee is interested in receiving responses to the
following questions:
1.

Should the interest rates payable on passbook savings
accounts be increased and, if so, to what level?

2.

Should the rates on ATS (Automatic Transfer Service) and
NOW (Negotiable Order of Withdrawal) accounts also be
adjusted?

3.

What would be the impact of rate adjustments, such as a
five percentage point or lesser increase, with regard
to the earnings and costs to depository institutions?
Responses should address long run, as well as immediate
effects on depository institutions.

4.

Any other comments or observations on this matter that
would provide guidance to the Committee.

In soliciting comments, the Committee is concerned that Congress'
intent to provide equitable treatment for small savers be carried
forth.
However, it is equally concerned that this objective be
achieved with a minimum'of disruption to depository institutions.
The Regulatory Flexibility Act (5 U.S.C. § 601; e t . seq.) requires
the Committee to consider the impact of this action on small
entities.
In this regard, it is the Committee's view that the
proposal would not impose any additional reporting or recordkeeping
requirements.
Furthermore, no alternatives to the proposal were
considered because the Committee is under a statutory mandate to
consider this matter.
Any action taken by the Committee to adjust
the rate on passbook accounts could affect all Federally insured
depository institutions.
An increase in rates could be viewed
as beneficial because it will enhance the capability of small
depository institutions to compete for deposit funds.
However,
there may be some negative impact because of increased costs to
depository institutions.
All

comments should be received by August 10, 1981.

By order of the Committee, July 9,

^L c)iA o -\
l

1981

J

Gordon Eastburn
Acting Executive Secretary

- 3 declining rate environments when the existing assets in a MMMF’s
portfolio allow it to offer a yield that is frequently more
attractive than current market rates.
With the alternative
methods of calculating the MMC rate ceiling, however, depository
institutions could base their MMC rate on an average of past
Treasury bill rates, and thus offer yields more competitive with
MMMFs during periods of declining rates.
In an environment of
rising rates, depository institutions generally have an advantage
since they are offering current market rates while existing MMMF
assets lock them into lower yields for a short period of time.
Since commercial banks and thrift institutions would have the option
of indexing MMC rate ceilings to the current Treasury bill rate,
they would retain this yield advantage during periods of rising
rates.
Since this proposal is simply a modification of an existing
instrument, the Committee expects the shifting of deposits from
lower-cost accounts to be minimized.
The Committee therefore
requests comment on the proposed alternative method of determining
the interest rate ceiling for MMCs and specifically requests
comment on the period of time on which to base the average.
The Committee also requests comments on a proposal to allow
depository institutions to vary the rate of interest paid on
outstanding MMC deposits weekly.
Under current rules, the ceiling
rate of interest paid on an MMC may not be increased during the
26-week period without imposition of an early withdrawal penalty.
The Committee is considering amending its rules to permit depository
institutions to offer a floating rate MMC where the interest
rate ceiling would be allowed to fluctuate weekly during the
term of the deposit.
The ceiling rate would be determined weekly
by the most recently announced rate for 26-week U.S. Treasury
bills.
Accordingly, a depository institution could pay interest
on an MMC at a rate varying weekly, with the result that a depos­
itor could obtain a return on his or her MMC that reflects market
changes.
Additionally, a floating rate MMC would offer flexibility
and the resulting benefits of the instrument may help institutions
attract funds that they would not have attracted otherwise.
The
Committee requests comment on the concept of a floating rate ceiling
on MMCs, and the operational impact that adoption of a such a rule
may have on depository institutions.
Additionally, the Committee requests comment on the creation
of a new short-term time deposit having characteristics similar
to some MMMFs.
Such an account, for example, could have a maturity
of 91 days and bear interest at a rate indexed to the rate (auction
average on a discount basis) for 13-week Treasury bills.
A
minimum denomination requirement for the initial deposit could
be established, and additional deposits with no minimum denomination
requirement could be permitted.
Withdrawals could be permitted
after expiration of perhaps a seven day notice period after the
funds have remained on deposit for the initial maturity period.
Comment is sought on the desirability of permitting depository

- 4 institution's to offer accounts with such characteristics,
including comment on the appropriate method of determining the
interest rate ceiling, minimum denomination requirements for
initial deposits, additional deposits and withdrawals from the
account, and the maturity period for the account.
The Committee does not believe that these proposals will
increase the regulatory burden on depository institutions, but
that these proposals will enhance the ability of depository
institutions, particularly small institutions, to compete
effectively for funds.
In view of the potential benefits that
could be derived from these proposed actions on the part of both
depository institutions and their customers, the Committee has
determined that it is appropriate to provide a thirty-day comment
period on this matter.
Accordingly, comments on these proposals
should be submitted by August 10, 1981.
By order of the Committee, July 9, 1981.

Gordon Eastburn
Acting Executive Secretary

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