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F ederal r es er v e Bank o f Dallas
DALLAS, TE X A S

75222

Circular No. 6 9 -7 6
April 1, 1969

PROPOSED AMENDMENTS TO REGULATION Q

To All Member Banks
in the Eleventh Federal Reserve District:
Attached is a copy of a press release announcing
the issuance by the Board of Governors of the Federal Reserve
System of proposed amendments to Regulation Q with respect to
bank advertising together with a copy of proposed amendments.
Comments on the proposal should be received by the
Board by April 28, 1 9 6 9 *
Yours very truly,
P. E. Coldwell
President

Enclosures (2)

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

For immediate release

March 28, 1969,,

The Board of Governors of the Federal Reserve System today
issued for comment a proposed rule designed to foster greater clarity
in advertisements by member banks of the Interest they pay on deposits.
The proposal would amend Federal Reserve Regulation Q, "Payment of
Interest on D e p o s i t s a n d would implement the authority granted to
the Board by Congress in the Act of September 21, 1968 (P.L. 90-505).
A similar rule is being proposed by the Federal Deposit Insurance
Corporation and by the Federal Home Loan Bank Board with respect to
Institutions under their jurisdictions.
The proposal would establish guidelines for banks in
advertising percentage yields on deposits.

Recent advertisements of

a number of banks referred to the average annual percentage yield on
a deposit if the customer leaves his funds with the bank for many
years.

The average percentage yield over a period of years is higher

than the simple rate of interest because of compounding, and lt
becomes higher the longer the funds are left on deposit.
Under the proposal, any State member or national bank that
advertises the average annual percentage yield on deposits would be
required to include an equally prominent statement of the simple
interest rate and the number of years required to achieve the yield,
together with a reference to the basis for compounding and an
explanatory statement on average annual yield.

It is believed that

the proposal would minimize any confusion or misunderstanding that
might result from advertising average annual percentage yield.

A copy of the proposed amendments in the form submitted for
publication in the Federal Register is attached.

Comments on the pro­

posal should be received by the Board by April 28, 1969,

Attachment

FEDERAL RESERVE SYSTEM
[12 CFR PART 217]
PAYMENT OF INTEREST ON DEPOSITS
Advertising Interest on Deposits

The Board of Governors is considering amending Part 217 (Regu­
lation Q) in the following respects:
1,

The heading of the part would be amended to read as follows:
PART 217 - INTEREST ON DEPOSITS

2,

The last two sentences of § 217,6 would be revoked and the

remainder of that section redesignated as § 217,7.
3,
§ 217.3

Section 217.3(a) and (e) would be amended to read as follows:

Interest on time and savings deposits.
(a)

Maximum rate.

Except as provided in this section, no member

bank shall, directly or indirectly, by any device whatsoever, pay interest
on any time or savings deposit at a rate in excess of such applicable maxi­
mum rate as the Board of Governors of the Federal Reserve System shall
prescribe from time to time in § 217.7.

In ascertaining the rate of inter­

est paid, the effects of compounding of interest may be disregarded.
* * *

(e)

Technical grace periods in computing Interest on certain time

deposits. Where a time deposit matures in 30 days, 90 days, 180 days, 360
days, or even multiples of these periods, or where a time deposit matures
in one month, three months, six months, twelve months, or even multiples of
these periods, member banks may pay interest for such periods at one twelfth
of the maximum rate, one quarter of the maximum rate, one half of the maximum
rate, or at the maximum rate, or even multiples thereof, respectively.

In

2-

the case of any other time deposit no member bank shall pay interest at the
maximum rate based on more days than the number of days the funds are actu­
ally on deposit,
4.

In § 217.3(g) the reference to § 217.6 would be amended to

refer to § 217.7.
5.
§ 217.6

A new § 217.6 would be added to read as follows:

Advertising of interest on deposits.
Every advertisement, announcement, or solicitation relating to the

Interest paid on deposits in member banks shall be governed by the following
rules:
(a) Annual rate of simple interest.
in terms of the annual rate of simple interest.

Interest rates shall be stated
In no case shall a rate be

advertised that is in excess of the applicable maximum rate for the particular
deposit.
(b) Percentage yields based on one year. Where a percentage yield
achieved by compounding interest during one year is advertised, the annual
rate of simple interest shall be stated with equal prominence, together with
a reference to the basis of compounding.

No member bank shall advertise a

percentage yield based on the effect of grace periods permitted in § 217.3.
(c) Percentage yields based on periods in excess of one vear.

No

advertisement shall Include any indication of a total percentage yield, com­
pounded or simple, based on a period in excess of a year, or an average an­
nual percentage yield achieved by compounding during a period in excess of a
year, unless the annual rate of simple Interest and the required number of
years for such advertised yield are stated with equal prominence, together
with a reference to the basis of compounding.

No member bank shall advertise

3

any average annual percentage yield achieved by compounding interest during
a period in excess of a year unless such yield is clearly qualified by the
following language:

"This yield is an average annual yield that will be

attained if the deposit is held until the final indicated maturity and if
interest is not withdrawn until such maturity."
(d) Time or amount requirements.

If an advertised rate is payable

only on deposits that meet time or amount requirements, such requirements
shall be clearly stated.

Where the time requirement for an advertised rate

is in excess of a year, the required number of years for the rate to apply
shall be stated with equal prominence, together with an indication of

any

lower rate or rates that will apply if the deposit is withdrawn at an earlier
maturity.
(e) Profit.

No reference shall be made to "profit".

(f) Advertising must be accurate.

No member bank shall make any

advertisement, announcement, or solicitation relating to the interest paid
on deposits that is inaccurate in any particular or that in any way mis­
represents its deposit contracts.
(g) Solicitation of deposits for banks.

Any person or organization

other than a member bank that solicits deposits for a member bank shall be
bound by the rules contained in this section with respect to any advertise­
ment, announcement, or solicitation relating to such deposits.

No such

person or organization shall advertise a percentage yield on any deposit it
solicits for a member bank that is not authorized to be paid and advertised
by such bank.
6.

Sections 217.104 and 217.145 would be revoked.

-4 -

These proposed amendments are designed to implement the authority
granted to the Board by section 2 of the Act of September 21, 1968 (82 Stat,

856) and would supersede the statement of principles on bank advertising for
funds set forth in the Board's letter to member State banks of December 16,

1966,
The principal purpose of the proposed amendments is to add a new
rule governing advertising of Interest on deposits under which a member bank
that advertises the average annual percentage yield on deposits would be
required to include an equally prominent statement of the simple interest
rate and the number of years required to achieve the yield, together with
a reference to the basis for compounding and an explanatory statement on
average annual yield.

In addition, the proposed amendments would add a rule

making the advertising rules expressly applicable to persons or organizations
who solicit deposits for member banks In their advertisements relating to
such deposits.

The effect of this latter requirement would be to prevent

brokers from advertising percentage yields on deposits solicited for member
banks that are in excess of yields member banks themselves are permitted to
advertise.

T h is n o t ic e i s p u b lish ed pursuant to s e c t io n 553(b ) o f T i t l e 5 ,
U nited S t a t e s Code, and § 2 6 2 .2 (a ) o f the r u le s o f procedure o f th e Board
o f G overnors.
To aid in the consideration of this matter by the Board, interested
persons are invited to submit relevant data, 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 April 2 8 , 1969,

Dated at Washington, D. C., this 28th day of March, 1969.
By order of the Board of Governors.

(Signed)

Robert P. Forrestal

Robert P. Forrestal,
Assistant Secretary,

(SEAL)

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