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F ederal reserve Bank of Dallas

DALLAS, TEXAS

75222

Circular No. 70-172
July 21, 1970

INTERPRETATION ON HIGHER RATES PAYABLE
ON SHORT-TERM TIME DEPOSITS
(Regulation Q)

To All Member Banks
in the Eleventh Federal Reserve District:
The Board of Governors of the Federal Reserve System
has approved an interpretation regarding the treatment of single
maturity time deposits of $100,000 or more with maturities of
30 to 89 days.

You 'will recall that a change in the Supplement

to Regulation Q, effective June 2b, 1970, permits the payment
of interest at any rate on such time deposits.
The interpretation is printed on the reverse side for
your information and future guidance.
Yours very truly,
P. E. Coldwell
President

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

TITLE 12— BANKS A N D BANKING
CHAPTER II— FEDERAL RESERVE SYSTEM
SUBCHAPTER A — BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
[Reg. Q ]

PART 217— PAYMENT OF INTEREST
ON DEPOSITS
Interpretation
SECTION 217.150 RATE PAYABLE W HEN
H IG H E R RATE IS PAYABLE ONLY ON
SHORT-TERM DEPOSITS.
The Board of Governors considers that the
change in the Supplement to Regulation Q, effec­
tive June 24, 1970, which permits the payment
of interest at any rate on single maturity time
deposits of $100,000 or more with maturities of
30 to 89 days (while retaining the existing limita­
tions on interest rates for such deposits maturing
in 90 days or m ore), should be applied as follows:
(a) A member bank may amend the rate paid
on a $100,000 certificate with an original m atu­
rity of 30 to 89 days issued before June 24, 1970,
to pay any interest rate for the period subsequent
to that date.
(b) A member bank may not amend the rate
paid on a $100,000 certificate with an original
maturity of 90 days or more to pay interest thereon
for any period at a rate in excess of that specified
in the Supplement for such a deposit with the
particular maturity. 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 maturity of
a $100,000 certificate which originally provided
for a maturity of 30 to 89 days, and pay interest
at any rate during the extended term, if the new
maturity is (1) later than the original maturity

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 at a rate
in excess of that applicable to the original deposit,
even if the new maturity meets the conditions in
the preceding paragraph. This does not apply, of
course, to extension or renewal at maturity.
(e) A member bank may pay interest at any
rate on a certificate originally issued in an amount
less than $100,000 to which the depositor adds
sufficient funds to increase the deposit to $100,000
or more, if and only if (1) the original maturity
of the certificate is 30 to 89 days, and (2) the
maturity date is 30 to 89 days after the date
of the addition of such funds.
(f) Member banks may not make use of con­
tracts for future deposits to permit a depositor
to commit his funds for more than 89 days and
obtain interest at a rate in excess of that appli­
cable to a deposit with a longer maturity. For
example, a bank and its depositor might agree
on August 1, 1970 that the depositor will deposit,
on that date and again on October 20 (80 days
later), $100,000 for 80 days, on which the bank
will pay interest at the rate of 10 per cent. Such an
arrangement would be an effort to evade the pur­
poses of the regulation, which permits payment
of rates of interest without legal restriction only
on deposits of 30 to 89 days. The Board considers
that the substance of such a transaction would be
a deposit for 160 days. (If the depositor has an
option, by contract or understanding, to withdraw
funds at 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 limitations of the
Supplement to Regulation Q applicable to multiple
maturity deposits payable at intervals of less than
90 days.) The Board’s view would be the same
even though the agreements— formal or informal
— were entered into at different times, if they were
so related as to be, in reality, a single arrange­
ment that commits the bank and its depositor for
90 days or longer.

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