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Fe d e r a l R e s e r v e b a n k of Da l l a s DALLAS, TEXA S September 22,1966 AMENDMENT TO REGULATION Q SUPPLEMENT To All Member Banks in the Eleventh Federal Reserve District: The Board of Governors of the Federal Reserve System has taken action to reduce from 514 per cent to 5 per cent the maximum rate that member banks are permitted to pay on time deposits of less than $100,000. The rate reduction becomes effective September 26, 1966. The Board’s action also amends the Regulation Q Supplement to provide that “in calculating the rate of interest paid, the effects of compounding of interest may be disregarded,” and to require an explicit statement of the basis of compounding in every advertisement, etc. relating to the rate paid on a time or savings deposit. Attached is a copy of the amended Supplement to the Regulation, which becomes effective September 26, 1966, and a copy of the Board’s press statement regarding the actions taken. The revised Supplement should be inserted in the ring binder containing the Regulations of the Board of Governors and the Bulletins of this Bank. The Supplement effective July 20, 1966, should be destroyed. 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) FEDERAL RESERVE B A N K OF DALLAS D A LLA S. TEXA S September 22, 1966 AMENDMENT TO REGULATION Q SUPPLEMENT To All Member Banks in the Eleventh Federal Reserve District: There follows the text of a statement released to the press by the Board of Governors of the Federal Reserve System regarding action taken to reduce from 5*4 per cent to 5 per cent the maxi mum rate that member banks are permitted to pay on time deposits of less than $100,000. The rate reduction becomes effec tive at the beginning of business Monday, September 26, 1966. The Board of Governors of the Federal Reserve System reduced to 5 per cent from 5^2 per cent the maximum rate of interest that the System’s member banks may pay on any time deposit under $100,000. The Board’s action, to become effective September 26, 1966, was taken under the new authority granted in the law signed by the President today, providing increased flexibility for establishing ceil ing rates on time deposits and savings accounts at com mercial banks and other depository institutions. The purpose of the Board’s action is to limit further escalation of interest rates paid in competition for con sumer savings. The action will also help to keep the growth of commercial bank credit to a moderate pace. The reduction in maximum rates on time deposits of less than $100,000 does not, by itself, require any change in interest paid on certificates of deposit and other time deposits outstanding on the effective date. If a member bank has agreed to pay a specified rate of interest on such a deposit, without any right to modify its obligation, it may continue to pay the contract rate to maturity. If the deposit is then renewed, the rate of interest may not exceed the new ceiling. The Board’s action does not change the maximum rate payable by member banks on savings accounts, which remains at 4 per cent. The maximum rates payable on multiple-maturity time deposits, which are 4 per cent or 5 per cent, depending on maturity, are also unchanged. The ceiling rate on single-maturity time deposits of over $100,000 remains at the present level of 5^ per cent. (O V E R ) Today’s action is one of a series of measures taken by the Federal Reserve System in recent months to temper the aggressive competition for funds among commercial banks and other financial institutions, and at the same time to assure an orderly and moderate rate of growth in bank credit in order to restrain inflationary pressures. Earlier actions included a lowering of interest rate ceilings on time deposits with multiple maturities, two increases in the reserves that member banks must maintain against some of their time deposits and, more recently, a statement to member banks concerning the need to adopt lending poli cies that will result in slowing the growth of business loans. Attached is the text of the amended Supplement to Regulation Q, “Payment of Interest on Deposits,” imple menting the Board’s action. Yours very truly, Watrous H. Irons President SUPPLEMENT TO REGULATION Q S E C T I O N 217.6 Maximum Rates of Interest Payable on Time and Savings Deposits by Member Banks I s s u e d b y t h e B o a r d oe G o v e r n o r s oe t h e F e d e r a e R e s e r v e E e e e c t iv E S e p t e m b e r S ystem 26, 1966 Pursuant to the provisions of section 19 of the Federal Reserve Act and § 217.3, the Board of Governors of the Federal Reserve System hereby prescribes the following maximum rates1 of interest payable by member banks of the Federal Reserve System on time and savings deposits: (a) Maximum rate of 5^2 percent. — No member bank shall pay interest at a rate in excess of per cent per annum on any time deposit of $100,000 or more, subject, however, to the provisions of ( b) (ii) and (c) (i), below. (b) Maximum rate of 5 per cent. — No member bank shall pay interest at a rate in excess of 5 per cent per annum (i) on any time deposit o f less than $100,000, subject, however, to the provisions of (c) ( i), below, or (ii) on any multiple maturity time deposit that is payable only 90 days or more after the date of deposit or 90 days or more after the last preceding date on which it might have been paid. (c) Maximum rate of 4 per cent. — No member bank shall pay interest at a rate in excess of 4 per cent per annum (i) on any multiple maturity time deposit that is payable less than 90 days after the date of deposit or less than 90 days after the last preceding date on which it might have been paid, or (ii) on any savings deposit. In calculating the rate of interest paid, the effects of compounding of interest may be disregarded. A member bank that elects to compound interest — either at the maximum permissible rate or at a lower rate — shall state the basis of compounding (such as semiannually, quarterly, monthly, weekly, daily, or continuously) in every advertisement, an nouncement, solicitation, and agreement relating to the rate of interest paid on a deposit. 1 The maximum rates of interest payable by member banks of the Federal Reserve System on time and savings deposits as prescribed herein are not applicable to any deposit which is payable only at an office of a member bank located outside of the States of the United States and the District of Columbia.
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