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F ed er a l R eserve Ba nk o f D allas DALLAS, TEXAS 75222 C i r c u l a r No. 75-58 May 1, 1975 NOW ACCOUNTS FOR GOVERNMENTAL UNITS TO ALL MEMBER BANKS AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: T h e Board of G o v e rn o rs of the Federal R e s e r v e System has am ended its Regulation Q, " In te re s t on D e p o s its ," to p ro h ib it member b a n k s from is su in g NOW a c c o u n ts (c h e c k - lik e w ith d ra w a ls from i n t e r e s t b e a r i n g s a v in g s accou nts) to gov e rn m e n ta l u n its effective May 16, 1975. Such acco unts e s ta b lis h e d p r i o r to May 16, 1975 may be main tained th r o u g h December 31, 1975. A copy of the a m endm ent to Regulation Q and a copy of the Federal R e g is te r docum ent a r e a ttach ed for y o u r information. Sincerely y o u rs, T . W. P la n t F ir s t Vice P r e s id e n t Attachments This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM INTEREST ON DEPOSITS AMENDMENT TO REGULATION Q 1. Effective M ay 16, 1975, § 217.1(e)(3) is am ended to read as follows: S E C T IO N 2 1 7 .1 — D E FIN IT IO N S . * * * * * (e) Savings D eposits. * * * * * (3) In those states w here banks are per m itted to offer deposits subject to negotiable orders of w ithdrawal, such deposits may be m aintained if such deposits consist of funds deposited to the credit of or in which the entire beneficial interest is held by one or m ore individuals, or of a corporation, associ ation, or other organization operated pri marily for religious, philanthropic, charitable, educational, fraternal, or other similar pur poses, and not operated for profit. Any deposit account subject to negotiable orders of withdraw al established prior to M ay 16, 1975, which consists of funds deposited to the credit of or in which the entire beneficial interest is held by a governm ental unit not qualifying herein may be m aintained through D ecem ber 31, 1975. TITLE 12— BANKS AND BANKING CHAPTER II— FEDERAL RESERVE SYSTEM SUBCHAPTER A— BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM [REG. Q] PART 217— INTEREST ON DEPOSITS NOW Accounts for Governmental Units By notice published in the Federal Register of December 31, 1974 (39 Federal Register 45301), the Board of Governors proposed to amend Regulation Q to prohibit member banks from accepting deposits subject to negotiable order of withdrawal (NOW) from governmental units. The Board has approved an amendment to Regulation Q to prohibit NOW accounts of governmental units effective May 16, 1975. In addition, the Board has determined that NOW accounts established prior to May 16, 1975 by governmental units may be maintained through December 31, 1975. The December 31, 1974 proposal reflected the Board’s consideration of requests that it review its action of November 26, 1974, amending Regulation Q to authorize member banks to accept governmental unit NOW accounts. That action was taken in conjunction with P.L. 93-495 which provides Federal deposit insurance up to $100,000 for time and savings deposits of governmental units. The amendment, effective November 27, 1974, included deposits of governmental units in the definition of the term savings deposits (39 Federal Register 43056) . Because NOW accounts are permitted to be offered on an experimental basis solely in Massachusetts - 2 - and New Hampshire (P.L. 93-100) and are included in the definition of the term savings deposits in Regulation Q, the Board’s amendment also had the effect of authorizing governmental unit NOW accounts in those two States. After review and consideration of all comments received and of all relevant matter presented, pursuant to its authority under § 19 of the Federal Reserve Act (12 U.S.C. 461) to define terms used in that section, the Board has approved an amendment to Regulation Q to prohibit NOW accounts of governmental units effective May 16, 1975. However, govern mental units which, based on the character of their activities, have traditionally been permitted to maintain savings deposits» will continue to be permitted to maintain NOW accounts. This action is taken in light of the potentially disruptive economic effects that authorization at this time of governmental unit NOW accounts could have upon deposit relationships between financial institutions and State and local governments in Massachusetts and New Hampshire. The Board will continue to monitor NOW accounts in these States and may review the permissibility of these accounts for governmental units at some future date.