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F ederal reserve Bank DALLAS. TEXAS of Dallas 75222 Circular No. 73-217 August 23, 1973 AMENDMENT TO REGULATION Q (Penalty applied to amendment of time deposit contracts) To All Banks and Others Concerned in the Eleventh Federal Reserve District: Today the Board of Governors amended its Regulation Q, by adding a new sentence at the end of Section 217.Md) to read as follows: Any amendment of a time deposit contract that results in an increase in the rate of interest paid or in a change in the maturity of the deposit constitutes a payment of the time deposit before maturity. The above amendment is to be effective September 10, 1973. A copy of the Board’s press release is enclosed.. A printed copy of the amendment for insertion into the regulations binder will follow shortly. Very truly yours, P. E. Coldwell, President Enclosure This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) ^ y RESERVE FEDERAL press release ?f^AL Rt^V' For immediate release August 23, 1973 The Board of Governors of the Federal Reserve System announced today an amendment to Regulation Q, effective September 10. Regulation Q, deals with the payment of interest on deposits at Federal Reserve member banks. This action defines any amendment to a time deposit contract that results in an increase in the interest rate, or a change in the maturity of the deposit, as a withdrawal of funds subject to penalty. The amendment was proposed by the Board July 2k. It was adopted after consideration of comment received and following consultation with the Federal Deposit Insurance Corporation and the Federal Home Loan Bank Board. The amendment to Regulation Q, would treat any change in a time deposit contract -- generally, certificates of deposit -- that results in an increase in the rate of interest to be paid, or changes the maturity of the deposit, as a withdrawal before maturity. The penalty for early withdrawal of deposits would therefore apply. The early withdrawal penalty differs according to the date the time deposit contract was entered into: For time deposit contracts entered into, or amended or renewed after July 5, 1973 (when a new schedule of maximum interest rates on time deposits went into effect) the penalty is in two parts, (a) a reduction of the rate of interest paid to the maximum permissible passbook rate for the entire time the deposit has been held, and (b) a loss of three months interest. - 2 - For all other time deposits, the old penalty rule applies. This states that a bank may pay a time deposit before maturity only in an emergency where early withdrawal is necessary to prevent great hardship to the depositor, plus forfeiture of up to three months accrued, unpaid interest.