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F ederal R eserv e Bank o f Dallas DALLAS. TEXAS 75222 Circular No. 80-65 April 1, 1980 AMENDMENTS AND SUPPLEMENT TO REGULATION Q TO ALL MEMBER BANKS, BANK HOLDING COMPANIES, AND OTHERS CONCERNED IN THE ELEVENTH FEDERAL RESERVE DISTRICT: E ffectiv e March 14, 1980, the Board adopted an amendment to Regulaton Q concerning interest rate lim its on debt instruments issued by bank holding com panies. Enclosed is a final copy o f all amendments to Regulation Q and a new Supplement dated March 1980 to be inserted into your Regulations Binder. For this R egulation to be com p lete, retain the pamphlet dated D ecem ber 1978, the enclosed Supplement, and the enclosed slip sheet. All previous amendments should be removed and destroyed. Additional copies o f the amendm ents request to the Secretary's O ffice o f this Bank, concerning the regulation may be directed to Section o f the Bank Supervision and Regulations will be furnished upon Ext. 6267. Questions the Consumer Affairs D epartm ent, Ext. 6171. Sincerely yours, Robert H. Boykin First Vice President Enclosures (2) Banks and others are encouraged to use the following incoming W AT S numbers in contacting this Bank: 1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For calls piaced 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) BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM INTEREST ON DEPOSITS A M EN D M E N TS T O R E G U L A T IO N Q + As amended effective M arch 14, 1980 Effective March 15, 1979, section 217.6 is amended as follows: SECTION 217.6—ADVERTISING OF INTEREST ON DEPOSITS * * * * * (j) Any advertisement, announcement, or solici tation relating to interest paid by a member bank on a time deposit of $10,000 or more with a maturity of 26 weeks at a rate not in excess of the rate established (auction average on a discount basis) for United States Treasury bills with matu rities of six months shall include a clear and con spicuous notice that Federal regulations prohibit the compounding of interest during the term of the deposit. Effective July 1, 1979, sections 217.4 and 217.6 are amended as set forth below: SECTION 217.4— PAYM ENT OF TIM E DEPOSITS BEFORE MATURITY * • * • * interest shall be forfeited.11 Where necessary to comply with the requirements of this paragraph, any interest already paid to or for the account of the depositor shall be deducted from the amount requested to be withdrawn. Any amend ment of a time deposit contract that results in an increase in the rate of interest paid or in a reduc tion in the maturity of the deposit constitutes a payment of the time deposit before maturity. A time deposit may be paid before maturity without a forfeiture of interest as prescribed by this para graph in the following circumstances: * * * (e) Disclosure of early withdrawal penalty. At the time a depositor enters into a time deposit contract, with a member bank, the bank shall pro vide a written statement of the effect of the penalty prescribed in paragraph (d) of this section, which shall (1) state clearly that the customer has con tracted to keep his funds on deposit for the stated maturity, and (2) describe fully and clearly how such penalty provisions apply to time deposits in such bank, in the event the bank, notwithstanding (d) Penalty for early withdrawals. Where a time 11 The provisions of this paragraph apply to all deposit with an original maturity of one year or less, or any portion thereof, is paid before m atu time deposit contracts entered into on or after July 1, 1979, and to all existing time deposit contracts that rity, a depositor shall forfeit at least three months are extended or renewed (whether by automatic re of interest on the amount withdrawn at the rate newal or otherwise) on or after such date. All con being paid on the deposit. If the amount withdrawn tracts not subject to the provisions of this paragraph has remained on deposit for less than three shall be subject to the restrictions of §217.4(d) in months, all interest shall be forfeited. Where a effect prior to July 1, 1979, which provided that where a time deposit, or any portion thereof, is paid time deposit with an original maturity of more before maturity, a member bank may pay interest on than one year, or any portion thereof, is paid be the amount withdrawn at a rate not to exceed that fore maturity, a depositor shall forfeit at least six prescribed in §217.7 for a savings deposit and the months interest on the amount withdrawn at the depositor shall forfeit three months of interest pay able at such rate. If, however, the amount withdrawn rate being paid on the deposit. If the amount has has remained on deposit for three months or less, all remained on deposit for less than six months, all interest shall be forfeited. t For this Regulation to be complete as amended March 14, 1980, retain: 1) Regulation pamphlet dated December 1978. 2) Supplement slip sheet dated Match 1980. 3) This slip sheet. (Destroy slip sheet dated August 1979.) MARCH 1980 the contract provisions, permits payment before maturity. Such statements shall be expressly called to the attention of the customer. * * * * * SECTION 217.6— ADVERTISING OF INTEREST ON DEPOSITS * * * * * (e) Penalty for early withdrawals. Any adver tisement, announcement, or solicitation relating to interest paid by a member bank on time deposits shall include d ea r and conspicuous notice that the bank is prohibited from allowing payment of a time deposit before maturity unless substantial interest is forfeited. Such notice may state that, SECTION 217.3— INTEREST ON TIM E AND SAVINGS DEPOSITS (a) Maximum rate. * * * The maximum rate of interest that may be paid by a member bank on an additional deposit to any existing time deposit shall not exceed the maximum rate that may be paid in accordance with § 217.7 on the date the additional deposit is made. * * * * * SECTION 217.4—PAYMENT OF TIM E DEPOSITS BEFORE MATURITY * * * * * (d) Penalty for early withdrawals. Where a time deposit with an original maturity or required no “Substantial interest penalty is required for early tice period of one year or less, or any portion withdrawal.” thereof, is paid before maturity or before the expiration of the required notice period, a deposi Effective August 1, 1979, sections 217.1, 217.3, tor shall forfeit at least three months of interest on the amount withdrawn at the rate being paid and 217.4 are amended as follows: on the deposit. If the amount withdrawn has re mained on deposit for less than three months, all SECTION 217.1—DEFINITIONS interest on the amount withdrawn shall be for * * * * * feited. Where a time deposit with an original (f) Deposits as including certain promissory maturity or required notice period of more than notes and other obligations. For the purposes of one year, or any portion thereof, is paid before this Part, the term “deposits” also includes any maturity or before the expiration of the required member bank’s liability on any promissory note, notice period, a depositor shall forfeit at least six acknowledgment of advance, due bill, or similar months interest on the amount withdrawn at the obligation (written or oral) that is issued or under rate being paid on the deposit. If the amount has taken by a member bank principally as a means of remained on deposit for less than six months, all obtaining funds to be used in its banking business, interest on the amount withdrawn shall be for except any such obligation that: feited.11 Where necessary to comply with the re quirements of this paragraph, any interest already * * * * * (2) Evidences an indebtedness arising from a paid to or for the account of the depositor shall transfer of direct obligations of, or obligations be deducted from the amount requested to be that are fully guaranteed as to principal and inter withdrawn. Any amendment of a time deposit est by, the United States or any agency thereof 11 The provisions of this paragraph apply to all that the bank is obligated to repurchase, and (a) is issued in denominations of SI00,000 or more; or (b) is issued in denominations of less than $100,000, matures in less than 90 days and is not automatically renewable or extended; 54 * * * * * ** A member bank with such obligations issued in denominations of less than 5100,000 with maturities of 90 days or more may continue to issue such obliga tions until August 1, 1982, without regard to this sub paragraph. However, the aggregate amount of such obligations outstanding on a member bank’s books may not exceed the total of such obligations outstand ing on its books on August 1, 1979. time deposit contracts entered into on or after July 1, 1979, and to all existing time deposit contracts that are extended or renewed (whether by automatic re newal or otherwise) on or after such date. The pro visions of this paragraph also may be applied, with the consent of the depositor, to all other time deposit contracts entered into before July 1, 1979. A ll con tracts not subject to the provisions of this paragraph shall be subject to the restrictions o f §217.4(d) in effect prior to July 1, 1979, which provided that where a time deposit, or any portion thereof, is paid before maturity, a member bank may pay interest on the amount withdrawn at a rate not to exceed that prescribed in §217.7 for a savings deposit and the depositor shall forfeit three months of interest pay able at such rate. If, however, the amount withdrawn has remained on deposit for three months or less, all interest shall be forfeited. contract that results in an increase in the rate of interest paid or in a reduction in the maturity of the deposit constitutes a payment of the time deposit before maturity. A time deposit may be paid before maturity without a forfeiture of in terest as prescribed by this paragraph in the fol lowing circumstances: (1) Where a member bank pays all or a portion of a time deposit representing funds contributed to an Individual Retirement Account or a Keogh (H.R. 10) Plan established pursuant to 26 U.S.C. (IRC 1954) §§ 408, 401 when the individual for whose benefit the account is maintained attains age 59‘/2 or is disabled (as defined in 26 U.S.C. (I.R.C. 1954) § 72(m)(7)) or thereafter; or (2) Where a member bank pays that portion of a time deposit on which Federal deposit insurance has been lost as the result of the merger of two or more Federally insured banks in which the depositor previously maintained separate time de posits, for a period of one year from the date of the merger. A time deposit must be paid before maturity without a forfeiture of interest as prescribed by this paragraph in the following circumstances: (1) Where a member bank pays all or a por tion of a time deposit upon the death of any o w ner11* of the time deposit funds; or (2) Where a member bank pays all or a portion of a time deposit when the owner ,la of the time deposit is determined to be legally incompetent by a court or other administrative body of com petent jurisdiction.* * * * * * * * Effective M arch 14. 1980 section 217.1 is amended by adding subparagraph (h) as follows: SECTION 217.1— DEFINITIONS * * * * * (h) O bligations issued by the p aren t bank holding company of a m em ber bank. For the pur poses of this Part, the “ deposits” of a member bank also includes an obligation that is (1) issued in a denomination of less than $100,000: (2) required to be registered with the Securities and Exchange Commission under the Securities Act of 1933; (3) issued or guaranteed in whole or in part as to prin cipal or interest by the member bank’s parent which is a bank holding company under the Bank Holding Company Act of 1956, as amended (12 U.S.C. §§ 1841-1850), regardless of the use of the proceeds; and (4) issued with an original maturity of 4 years or less, or which is redeemable at intervals of 4 years or less at the option of the holder. The term “ deposits” does not include those obligations of a bank holding company that are subject to interest rate limitations imposed pursuant to P.L. 89-597. F o r the p u rp o se s of this provision, an “owner” of time deposit funds is any individual who at the time of his or her death or determination of incom petence has full legal and beneficial title to all or a portion of such funds or, at the time of his or her death or determination of incompetence, has bene ficial title to all or a portion of such funds and full power of disposition and alienation with respect thereto. BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM SUPPLEMENT TO REGULATION Q t As amended effective M arch 14, 1980 SECTION 217.7— MAXIMUM RATES OF INTEREST PAYABLE BY MEMBER BANKS ON TIME AND SAVINGS DEPOSITS ber bank shall pay interest at a rate in excess of 5 per cent on any savings deposit that is subject to negotiable orders of withdrawal, the issuance of which is authorized by Federal law. Pursuant to the provisions of Section 19 of the (d) Governm ental unit tim e deposits o f less Federal Reserve Act and § 217.3 of this Part, the than $100,000. Except as provided in paragraphs Board of Governors of the Federal Reserve System (a), (f). and (g), no member bank shall pay interest hereby prescribes the following maximum rates' of on any time deposit which consists of funds depos interest per annum payable by member banks of the ited to the credit of, or in which the entire benefi Federal Reserve System on time and savings de cial interest is held by, the United States, any State posits: of the United States, or any county, municipality or (a) Time deposits of $100,000 o r m ore. There political subdivision thereof, the District of Co is no maximum rate of interest presently prescribed lumbia. the Commonwealth of Puerto Rico, the on any time deposit of $100,000 or more. Virgin Islands, American Samoa, Guam, or politic (b) Fixed ceiling tim e deposits of less than al subdivision thereof, at a rate in excess of 8 per $100,000. Except as provided in paragraphs (a), cent.2 (d). (e), (f). and (g). no member bank shall pay (e) Individual Retirement Account and Keogh interest on any time deposit at a rate in excess of (H.R. 10) Plan deposits of less than $100,000. the applicable rate under the following schedule: Except as provided in paragraphs (a) and (g), a member bank may pay interest on any time deposit Maturity M a x i m u m per cent with a maturity of three years or more than consists 30 days or more but less 5 '/4 of funds deposited to the credit of. or in which the than 90 days enure beneficial interest is held by, an individual pursuant to an Individual Retirement Account 90 days or more but less 5 3/4 agreement or Keogh (H.R. 10) Plan established than 1 year pursuant to 26 U.S.C. (I.R.C. 1954) §§ 408. 401, 1 year or more but less 6 at a rate not in excess of 8 per cent.2 than 2 V i years (f) 26-week money m arket time deposits of 21/: years or more but 6'A less than $100,000. Except as provided in para less than 4 years graphs (a), (b) and (d), a member bank may pay 4 years or more but 7 Vi interest on any nonnegotiable time deposit of less than 6 years 310,000 or more, with a maturity of 26 weeks, at a rate not to exceed the rate established (auction aver 6 years or more but less IVz age on a discount basis) for United States Treasury than 8 years bills with maturities of 26 weeks issued on or im 8 years or more IVt mediately prior to the date of deposit. Rounding such rate to the next higher rate is not permitted. A (c) Savings deposits. No member bank shall pay member bank may not compound interest during the term of this deposit. A member bank may offer interest at a rate in excess of S'A per cent on any this category of time deposit to all depositors. savings deposit. Provided, however, that no mem However, a member bank may pay interest on any 1 The limitation on rates o f 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. : The ceiling rate on this category is the highest fixed ceiling rate that may be paid on time deposits under $100,000 by any Federally insured com mercial bank, mutual savings bank, or savings and loan association. MARCH 1980 + Destroy any previous Supplements. nonnegotiable time deposit of SI0,000 or more with a maturity of 26 weeks which consists of funds de posited to the credit of. or in which the entire be neficial interest is held by: (1) the United States, any State of the United States, or any county, municipality or political sub division thereof, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, American Samoa, Guam, or political subdivision thereof; or (2) an individual pursuant to an Individual Re tirement Account agreement or Keogh (H.R. 10) Plan established pursuant to 26 U.S.C. (I.R.C. 1954) §§ 408, 401. at a rate not to exceed the ceiling rate payable on the same category of deposit by any Federally insured savings and loan association or mutual savings bank. (g) Time deposits of less than $100,000 with m aturities of 2'/: years or more. Except as pro vided in paragraphs (a), (b), (dr) and (e). a member bank may pay interest on any nonnegotiable time deposit with a maturity of 2Vz years or more that is issued on or after the first day of each month at a rate not to exceed three quarters of one per cent below the average 2Vi year yield for United States Treasury securities as determined and announced by the United States Department of the Treasury three business days prior to the first day of such month. The average 2Vi year yield will be rounded by the United States Department of the Treasury to the nearest 5 basis points. A member bank may offer this category of time deposit to all depositors. However, a member bank may pay interest on any nonnegotiable time deposit with a maturity of 2'/z years or more which consists of funds deposited to the credit of. or in which the entire beneficial in terest is held by: (1) the United States, any State of the United States, or any county, municipality or political sub division thereof, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, American Samoa. Guam, or political subdivision thereof; or (2) an individual pursuant to an Individual Re tirement Account agreement or Keogh (H.R. 10) Plan established pursuant to 26 U.S.C. (I.R.C. 1954) §§ 408.401. at a rate not to exceed the ceiling rate payable on the same category of deposit by any Federally insured savings and loan association or mutual savings bank. (h) O bligations of the p aren t bank holding company of a member bank. Notwithstanding the above, interest may be paid on a deposit as defined in § 217.1(h) of this Part at a rate not to exceed the following schedule: Original Maturity or Redemption Period 2Vi to 4 years 26 weeks or more but less than 2Vi years (£10.000 minimum denomination required) Maximum Per Cent For an obligation that is not redeemable prior to maturity, interest may be paid at the rate established for 2'/; year variable ceiling time deposits pursuant to the provisions of § 217.7(g) in effect at the time the obli gation is issued. For an obligation that is redeemable prior to maturity, the maximum rate of interest that may be paid from the date of issuance until the first date on which the obligation may be redeemed shall not exceed the rate established for 2'/: year variable ceiling time deposits pursuant to the provisions of § 217.7(g) in effect at the time the obligation is issued. For a successive period thereafter, interest may be paid during such period until the next date on which the obligation may be redeemed at a rate not to ex ceed the rate that would be in effect on the first day of such period for 2'/: year variable ceiling time deposits established pursuant to the provisions of § 217.7(g) in effect at the time the obligation was issued. For an obligation that is not redeemable prior to maturity, interest may be paid at the rate established for 26week money market time deposits pursuant to the provisions of § 217.7(f) in effect a; the time the obligation is issued. For an obligation that is redeemable prior to maturity, the maximum rate of interest that may be paid from the date of issuance until the first date on which the obligation may be redeemed shall not exceed the rate established for 26-week money market time deposits pursuant to the provisions of § 217.7(f) in effect at the time the obligation is issued. For a successive period thereafter interest may be paid during such period until the next date on which the obligation may be redeemed at a rate not to ex ceed the rate that would be in effect on the first day of such period for Original Maturity or Redemption Period Maximum Per Cent 26-week money market time deposits established pursuant to the provisions of § 217.7(f) in effect at the time the obligation was issued. 30 days or more but less than 2'/2 years (No mini mum de nomination required) Interest may be paid at the ceilings established pursuant to the provisions of § 217.7(b) in effect at the time the obligation is issued. less than 30 days No interest may be paid.
@FedFRASER