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F E D E R A L R ESERVE BANK OF DALLAS
DALLAS, TEXAS

75222

C i r c u l a r No. 76-38
M arch 24, 1976

PROPOSED AMENDMENT TO REGULATION Q
P r e a u t h o r i z e d T r a n s f e r s of F u n d s from
S a v i n g s A c c o u n ts to C o v e r O v e r d r a f t s

TO ALL MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
F o llow ing is t h e t e x t of a s ta t e m e n t i s s u e d o n M a rc h 15, 1976, b y th e B o a rd of
G o v e r n o r s of t h e F e d e r a l R e s e r v e S y ste m :
T h e B o a rd of G o v e r n o r s o f t h e F e d e r a l R e s e r v e S y s te m to d a y p r o p o s e d
fo r c o m m e n t a n a m e n d m e n t to its R e g u l a ti o n Q— I n t e r e s t on D e p o s i t s — to
p e r m i t m e m b e r b a n k s to a g r e e to c o v e r o v e r d r a f t s b y t r a n s f e r i n g f u n d s
from a c u s t o m e r ' s s a v i n g s a c c o u n t .
T h e B o a rd a s k e d f o r co m m en t on its p r o p o s a l t h r o u g h May 14, 1976.
T h e B o a rd p r o p o s e d t h e a u to m a tic o v e r d r a f t p r o t e c t i o n s e r v i c e a s a
logical o u t g r o w t h o f its r e c e n t a u t h o r i z a t i o n of t r a n s f e r s from s a v i n g s
a c c o u n t s u p o n i n s t r u c t i o n s r e c e i v e d from d e p o s i t o r s b y t e l e p h o n e .
U n d e r t h e p r o p o s e d a m e n d m e n t d e p o s i t o r s m a i n ta in in g b o th s a v i n g s
a n d d e m a n d d e p o s i t a c c o u n t s a t a m e m b e r b a n k w o u ld b e p e r m i t t e d :
—

To h a v e s p e c i f i e d a m o u n ts o f f u n d s — in $100 m u l t i p l e s —
a u t o m a t ic a l ly t r a n s f e r r e d from t h e i r s a v i n g s a c c o u n t s to
t h e i r d e m a n d a c c o u n t s in c a s e of a n o v e r d r a f t .

—

To a u t h o r i z e a n a u to m a tic t r a n s f e r of c e r t a i n a m o u n ts
w h e n t h e c u s t o m e r ' s d e m a n d d e p o s i t a c c o u n t falls b elow a
c e r t a i n le v e l.

—

To a u t h o r i z e a t r a n s f e r o u t o f s a v i n g s to t h e b a n k it s e lf
in c a s e o f a n o v e r d r a f t .

T h e B o a r d p r o p o s e d t h a t w h e n a t r a n s f e r is m a d e from a s a v i n g s
a c c o u n t to c o v e r a n o v e r d r a f t in a d e m a n d d e p o s i t a c c o u n t , o r to b r i n g t h e
c u s t o m e r ' s d e m a n d a c c o u n t a b o v e a c e r t a i n le v e l, t h e d e p o s i t o r w o u ld b e
r e q u i r e d to fo rf e it a n a m o u n t e q u i v a l e n t to n o t le s s t h a n 30 d a y s ' i n t e r e s t

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

- 2 -

on t h e a m o u n t o f t h e f u n d s t r a n s f e r r e d . In a d d i t i o n , a s p r e s e n t l y r e q u i r e d ,
b a n k s w o u ld c o n t i n u e to r e s e r v e t h e r i g h t to im p o se 30 d a y s 1 n o tic e p r i o r to
t h e t r a n s f e r of f u n d s from s a v i n g s .
F o llow in g is a n e x a m p le of how t h e p r o p o s e d o v e r d r a f t p r o t e c t i o n s e r v ­
ice w o u ld w o r k , w h e r e t h e r e w a s a r e q u i r e d f o r f e i t u r e of 30 d a y s ' i n t e r e s t ,
a n d a m inim um a u t h o r i z e d t r a n s f e r of $100:
—

C h e c k i n g B a l a n c e — $600; S a v i n g s B a l a n c e — $ 1,000 .

—

S a v i n g s I n t e r e s t R ate 5% s im p l e i n t e r e s t p e r a n n u m .

—

P u r s u a n t to p r e a r r a n g e d a g r e e m e n t , t r a n s f e r s m ay be m a d e
in $100 u n i t s to c o v e r c h e c k s .

—

D ra ft in a m o u n t o f $1,050 d r a w n o n c h e c k i n g a c c o u n t .

—

$500 w o u ld b e t r a n s f e r r e d from s a v i n g s to c h e c k i n g .

—

D e p o s ito r w o u ld f o rf e it 30 d a y s ' i n t e r e s t o n th e $500
t r a n s f e r r e d , $ 2 .0 8 .

C o m m ents o n th e p r o p o s e d a m e n d m e n t s h o u l d b e d i r e c t e d to t h e S e c r e t a r y ,
B o a r d of G o v e r n o r s o f t h e F e d e r a l R e s e r v e S y s t e m , W a s h i n g to n , D . C . 20551, to b e
r e c e i v e d not l a t e r t h a n May 14, 1976.
T h e t e x t of t h e p r o p o s e d a m e n d m e n t is e n c l o s e d .
S in ce rely y o u rs ,
T . W. P la n t
F i r s t V ic e P r e s i d e n t
E n closure

TITLE 12— BAUKS AND BANKING
CHAPTER II— FEDERAL RESERVE SYSTEM
SUBCHAPTER A— BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
[REG. Q]
(Docket No. R-0027)
PART 217— INTEREST ON DEPOSITS
Withdrawals from Savings Deposits

The Board of Governors, pursuant to its authority under
§ 19 of the Federal Reserve Act to define the terms used in that section
and to prescribe rules governing the payment of interest on deposits
(12 U.S.C. 461, 371b), proposes to amend Regulation Q to permit member
banks to transfer funds from customers' savings accounts to customers'
demand deposit or other deposit accounts or directly to the bank itself
where the depositor's demand deposit balance is insufficient to permit
payment of checks or drafts.

Under existing regulations, such transfers

are prohibited, and, therefore, member banks generally return such
items through the check clearing system.

The proposed amendment would

require that transfer of credit be made pursuant to a written agreement
between a member bank and its depositor that authorizes the transfer.
This agreement would require that transfers be made in multiples of
$100 or more and that the depositor forfeit an amount equivalent to
no less than 30 days' interest at the savings rate on the funds transferred.

-2The Board's proposal is made in recognition of the increasing
cost incurred by consumers, banks, merchants, and other businessmen
as a result of checks and drafts returned by banks for insufficient
funds.

Because of the special handling procedures required to process

customer overdrafts, many banks impose a substantial charge to their
customers for checks and drafts that must be returned because of insufficient
funds.

The presence of return items also has a substantial effect

upon the speed and efficiency of the check clearing operations of
the Federal Reserve System.

As a result, the Federal Reserve System

incurs a substantial expense in the handling of these returned checks
and drafts.

The Board's proposed amendment is intended to present

an alternative to the existing practice of returning checks and drafts
drawn on insufficient funds.

The Board believes that the proposed

amendment represents a reasonable accommodation that may be offered
by member banks to their depositors.
As proposed, member banks could agree, in writing, with
depositors that, in the event there are insufficient funds in the
depositor's demand deposit account (or other deposit account)

to cover

checks that have been presented to the bank for payment or in the
event that the balance in the depositor's demand deposit account falls
below a certain specified amount, the bank will transfer funds in
multiples of $100 or more from the depositor's savings account to
the customer's demand deposit account.

This amendment would require

-3 -

that the depositor forfeit an amount equivalent to no less than 30
days' interest on the funds withdrawn and transferred from the savings
account.

The proposed amendment also provides that funds may be transferred

directly to the bank itself from the depositor's savings account to
cover overdrafts.

Member banks would continue to be required to reserve

the right to impose a 30-day notice period on intended withdrawals
of savings deposits as presently required in § 217.1(c) of Regulation Q.
The Board is interested in receiving public comment on whether
some other minimum interest forfeiture would be appropriate and whether
transfers of minimum denominations different from the proposed $100
would be appropriate.
This proposal would not affect existing arrangements whereby
a thrift institution has agreed with its customer to transfer funds
automatically or otherwise to the customer's demand deposit at a com­
mercial bank in accordance with a preauthorized agreement.
Interested persons are invited to submit their views or
arguments.

Any such material should be submitted in writing to the

Secretary, Board of Governors of the Federal Reserve System, Washington,
D.C. 20551, to be received not later than May 14, 1976.
submitted should include the docket number R-0027.

All material

Such material

will be made available for inspection and copying upon request, except
as provided in § 261.6(a) of the
of Information.

Board' 55 Rules Regarding Availability

,4-

Pur suant to its authority under § 19 of the Federal Reserve
Act (12 U.S.C. 461, 371b), the Board of Governors proposes to amend
§ 217.5(c) of Regulation Q (12 CFR 217.5(c)) as follows:
5 217.5— WITHDRAWAL OF SAVINGS DEPOSITS
*

(c)

*

*

*

*

Manner of payment of savings deposits
(2)

Withdrawals may be permitted by a member bank

to be made from a savings deposit, through payment to the bank itself
or through transfer of credit to a demand or other deposit account
of the same depositor pursuant to a written agreement between a member
bank and its depositor that authorizes such payments or transfers
in order to cover checks or drafts drawn by the depositor upon the
bank; provided that such payments or transfers are made in multiples
of no less than $100 and that the depositor shall forfeit an amount
equivalent to no less than 30 days' interest on the amount of funds
withdrawn and transferred from a savings deposit in a manner described
in this subparagraph.
•
*

it

h

*

*

By order of the Board of Governors, March 15, 1976.

(Signed) Theodore E. Allison

Theodore E. Allison
Secretary of the Board

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