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F ederal

reserve

Ba n k

DALLAS. TEXA S

of

D allas

75222

C irc u la r No. 79-60
M arch 26, 1979

AM ENDM ENT TO REGULATION Q— INTEREST ON DEPOSITS
M o n ey-M arket C ertificates: P roh ibition of Compounding
and A d v e rtis in g Requirem ents

TO A LL MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE D IS T R IC T :
T h e Board of G overnors of the Federal R eserve System , the
Federal Deposit Insurance C o rp oration, the Federal Home Loan Bank
B oard, and the National C re d it Union A dm inistration have consulted and
determ ined that the follow ing ru le changes became effective M arch 15,
1979:
1.

No member bank o r other financial institution may compound
the interest paid on m oney-m arket certificates of deposit
sold on or a fte r M arch 15, 1979. T h e no compounding ru le
applies only to m oney-m arket CD s. It is not retro activ e and
does not a p p ly to those existin g m oney-m arket certificates
sold p rio r to March 15. When such old certificates a re r e ­
new ed, the no compounding ru le w ill ap p ly to the renew al
instru m ent.

2.

No member bank or other financial institution may ad v ertise
for m oney-m arket funds unless the advertisem ent contains
the p h ras e, "Federal regulations p ro h ib it the compounding
of in terest d u rin g the term of this d e p o s it." Since compound­
ing is perm itted fo r a ll other categories of deposits, the Board
believes that a ll bank advertisem en ts, announcements, solic­
itations, account b ro ch u res, and other lite ra tu re should
c le a rly and conspicuously set fo rth the no compounding ru le
for m oney-m arket instrum ents.

Banks and others are encouraged to use the following incoming WATS numbers in contacting this Bank:
1-800-492-4403 (intrastate) and 1-800-527-4970 (interstate). For calls placed locally, please use 651 plus
the extension referred to above.

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

- 2-

3.

Insured savings and loan in stitu tio n s, savings b an ks, and
c re d it unions w ill lose the 1 /4 point d iffe re n tia l they ro u tin ely
enjoy over banks w henever the m oney-m arket auction rate
(average discount) is 9% o r h ig h e r. Banks and savings and
loans w ill be able to offer the instrum ents at the same competi­
tiv e rate of in te re s t. U n d er the new ru le s , there is no ceiling
established at 9% as some bankers have thought.

O nly the p ro h ib itio n on compounding and the a d v e rtis in g re ­
q uirem ent d ire c tly affect commercial b an ks. T h e m oney-m arket certificate
of deposit was created June 1, 1978, fo r those depositors w ith $10,000 or
more to invest fo r a minimum period of 182 d ays. T h e maximum rate to
be paid on these intrum ents is still set each w eek based upon the discount
rate (auction average) established fo r U .S . T re a s u ry b ills of a 26-w eek
m a tu rity .
Enclosed you w ill fin d a copy of the two amendments fir s t men­
tioned in our C irc u la r No. 7 9-45 , dated M arch 9, 1979. Member banks
and others that m aintain Regulations B inders should file the enclosed
amendments in th e ir b in d e rs . Any questions re g a rd in g Regulation Q
should be d irected to our Consumer A ffa irs Section of the Bank S u p e rv i­
sion and Regulations D epartm ent, E x t. 6171.
A dditional copies of the amendments w ill be fu rn is h ed upon
request to the S e cretary's O ffice of this B ank, E x t. 6267.
S in ce re ly y o u rs ,
R obert H . Boykin
F irs t V ice P resident
Enclosure

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

INTEREST ON DEPOSITS

A M E N D M E N T S T O R E G U L A T IO N

Effective M arch 15, 1979, §§217.6 and 217.7
o f R e g u la tio n Q a re am en d ed b y a d d in g the
following:
S E C T I O N 217.6— A D V E R T I S I N G O F
I N T E R E S T O N D E P O S IT S
*

*

*

*

*

(j) A n y advertisement, announcement, or so­
licitation relating to interest paid by a member
bank on a time deposit o f $10,000 or more with
a maturity o f 26 weeks at a rate not in excess o f
the rate established (auction average on a dis­
count basis) fo r U nited States Treasury bills with
maturities o f six months shall include a clear and
conspicuous notice that Federal regulations pro­
hibit the compounding o f interest during the term
o f the deposit.

Qt

S E C T I O N 217.7— M A X I M U M R A T E S O F
IN T E R E S T P A Y A B L E B Y M E M B E R B A N K S
O N T I M E A N D S A V I N G S D E P O S IT S
*
(f)

V ariable

$100 ,000 .***

*

*
deposits

o f less

than

M em ber banks m ay not compound interest dur­
ing the term o f this deposit.

1 ) P rin ted R egu lation p am ph let as am ended D ece m b er 6, 1978;
3 ) T h is slip sheet.

*

rate time

f F o r this R egu lation to be com p lete as am ended e ffec tiv e M a rc h 15, 1979, retain:
2 ) Supplem ent effective June 1, 1978; and

*

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