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Fe d e r a l Re s e r v e

bank of

Da l l a s

DALLAS, TEXAS

A u g u st 5, 1960

INTERPRETATION RELATIVE TO ABSORPTION OF
EXCHANGE CHARGES AS PAYMENT OF
INTEREST ON DEPOSITS

To All Member Banks in the
Eleventh Federal Reserve District:
Enclosed is a copy of an interpretation by the Board of Gov­
ernors relative to absorption of exchange charges as payment of
interest on deposits. The interpretation will, in due course, be
published in the Federal Register and the Federal Reserve
Bulletin.
This interpretation supersedes all such earlier interpretations
on the subject, including those published in the 1944 Federal
Reserve Bulletin, page BB9, and the 1945 Federal Reserve Bulletin,
page 564.
Member banks are requested to insert this interpretation in
their ring binders containing the Regulations of the Board of
Governors and the Bulletins of this bank.
Yours very truly,
Watrous H. Irons
President

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

S-1756-a
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

ABSORPTION OF EXCHANGE CHARGES AS PAYMENT OF
INTEREST ON DEPOSITS

The Board has had occasion to consider whether certain practices
involving the absorption of exchange charges constitute the payment by
a Federal Reserve member bank of interest on demand deposits in viola­
tion of Regulation Q, Payment of Interest on Deposits, and Section 19 of
the Federal Reserve Act.
One question was whether such absorption would constitute the pay­
ment of interest on demand deposits when the amounts absorbed by a
member bank are claimed to be less than the cost of collecting them from
depositors. Another question was whether a member bank would be pay­
ing interest on demand deposits if it maintained balances with another
bank or banks in return for which such other bank or banks directly or
indirectly would absorb for it exchange charges made by the drawee banks.
Upon a careful review of the subject, the Board has concluded that
both these practices should be deemed to be the payment of interest on
demand deposits in violation of Regulation Q and Section 19 of the Federal
Reserve Act. In other words, the payment of interest includes any direct
or indirect payment or absorption of exchange charges by any device
whatsoever, regardless of whether such payment or absorption is made
directly by a member bank or indirectly through any other bank for a
member bank or a depositor of such member bank. This principle will be
applied hereafter by examiners for the Federal Reserve Banks in their
examinations of State member banks, and the Comptroller of the Cur­
rency has advised that it will be applied by national bank examiners in
their examinations of national banks.
In reaching this conclusion the Board has carefully reexamined
earlier interpretations on the subject, and this interpretation supersedes
all such earlier interpretations, including those published in the 1944
Federal Reserve Bulletin, p. 339, and 1945 Federal Reserve Bulletin, p. 564.

August 4, 1960.

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