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F ederal Reserve Bank DALLAS, TEXAS of Dallas 75222 C i r c u l a r N o. 7 3 - 1 7 0 J u l y 1 1 , 1973 AMENDMENT AND SUPPLEMENT TO REGULATION Q (Withdrawal Before Maturity and Increased Maximum Rates) To All Member Banks and Others Concerned in the Eleventh Federal Reserve District: On July 5j 1973? the Board of Governors of the Federal Reserve System announced an increase in maximum rates of interest that member banks may pay on passbook savings and other types of consumer deposits, retroactive to July 1, 1973. In addition, the Board amended its rules on the payment of time deposits by member banks prior to maturity, Section 217.Md). Enclosed are copies of the supplement and amendment to Regula tion Q. The following questions have been received from a number of banks since the rate Increases were announced, and the answers are fur nished for your information: QUESTION: Can an existing time or savings deposit be amended to take advantage of the new rates which became effec tive as of July 1, 1973? ANSWER: Yes. The new rates can be made applicable to existing time and savings deposits for the period beginning July 1, 1973. For time deposits, this can be accomplished with no change in the maturity date of the deposit contract. EXAMPLE: A bank issued a $5,000 CD on January 2, 1973? with 1-year maturity and automatic renewal. The original rate was 5 l/2 percent. On August 1, 1973? the bank could amend the CD retroactive to July 1 to pay the new 6 percent rate. Regula tion Q, does not specify the method of amendment which may be used. If the bank elects to use a replacement CD, the new certificate should specify on its face that it replaces a CD dated January 2. This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org) QUESTION: In the example above, is there any way the bank could amend the CD to pay a rate higher than 6 percent, if the customer so requests? ANSWER: Yes. The bank could extend the maturity of the CD to make it eligible for a higher rate category. The rule is that the period of time from the date of extension to the date of the new maturity must be long enough, standing alone, to qualify the CD as eligible for the new rate category. EXAMPLE: Assume the same CD described in the example above. On August 1, 19735 the bank could amend the CD to extend the original 1-year maturity to 2 l/2 years from August 1, 1973. The CD would thereupon mature on February 1, 1976. Since the period from the date of the extension to the new maturity would be 2 l/2 years, the bank could pay 6.5 percent on the CD for the period beginning August 1, 1973. The same result could be obtained by cancelling the old CD and issuing a new CD contain ing the new, longer maturity. Since no funds would be paid to the depositor, an extension of maturity— whether accomplished by amending the existing certificate or issuing a new certificate--does not constitute a withdrawal, and no penalty is required. Yours very truly, P. E. Coldwell, President Enclosure BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM BANK HOLDING COMPANIES AMENDMENT TO REGULATION Q f currently prescribed in § 217.7 for a savings de posit: Provided, That the depositor shall forfeit three months of interest payable at such rate. If, however, the amount withdrawn has remained on Section 217.4 Paym ent o f tim e deposits before deposit for three months or less, all interest shall maturity. be forfeited. Where necessary to comply with the requirements of this paragraph, any interest al * * * ;|: ready paid to or for the account of the depositor (d) P enalty for early w ithdrawals. Where a time shall be deducted from the amount requested to be withdrawn. deposit, or any portion thereof, is paid before maturity, a member bank may pay interest on the * sjs sj: # amount withdrawn at a rate not to exceed that Effective July 5, 1973, section 217.4(d) is amended to read as follows: t For this Regulation to be complete as amended effective July 5, 1973, retain: 1) Printed Regulation pamphlet containing Regulation Q dated January 1, 1971. 2) Supplement effective July 1, 1973. 3) Amendment effective July 5, 1973. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM SUPPLEMENT TO REGULATION Q Effective July 1, 1973 SECTION 217.7 — MAXIMUM RATES OF INTEREST PAYABLE BY MEMBER BANKS ON TIME AND SAVINGS DEPOSITS Pursuant to the provisions of section 19 of the Federal Reserve A ct and § 217.3, the Board of Governors of the Federal Reserve System hereby prescribes the following maximum rates1 of in terest per annum payable by member banks of the Federal Reserve System on time and savings deposits: (a) Single maturity time deposits. (1) Deposits of $100,000 or more. There is no maximum rate of interest presently prescribed on any single maturity time deposit of $100,000 or more. (2) Deposits of less than $100,000. Except as provided in subparagraph (3) of this paragraph, no member bank shall pay interest on any single maturity time deposit of less than $100,000 at a rate in excess of the applicable rate under the following schedule: Maturity M aximum per cent 30 days or more but less than 90 days 5 90 days or more but less than 1 year 5Vi 1 year or more but less than 30 months 6 30 months or more 6 V2 (3 ) Deposits of $1,000 or more with ma turities of 4 years or more. There is no maximum rate of interest presently prescribed on any single maturity time deposit of $1,000 or more with a maturity of 4 years or more. (b) Multiple maturity time deposits. N o mem ber bank shall pay interest on a multiple maturity time deposit at a rate in excess of the applicable rate under the following schedule: Maturity Intervals Maximum per cent 30 days or more but less than 90 days 5 90 days or more but less than 1 year 5Vz 1 year or more but less than 30 months 6 30 months or more 6 V2 (c) Savings deposits. N o member bank shall pay interest at a rate in excess of 5 per cent on any savings deposit. 1 The limitations on 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 the States of the United States and the District of Columbia.
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