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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 *