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federal reserve
Ba n k
DALLAS, TEXAS
of
Dallas
7S222
Circular No. 80-209
November 5, 1980
CATEGORIES OF DEPOSITORS ELIGIBLE TO MAINTAIN NOW ACCOUNTS
TO ALL MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Board of Governors of the Federal Reserve System is making
available information summarizing the categories of depositors eligible to
maintain NOW accounts at member banks beginning December 31, 1980. This
information is included in the Board's press release, information summary, and
attachment printed on the following pages.
Information regarding advertising of NOW accounts and automatic
transfer of funds was included in our Circulars Nos. 80-189, dated October 2,
1980 and 78-143, dated October 12, 1978, respectively.
Questions regarding categories of eligible depositors should be
directed to the Consumer Affairs Section of our Bank Supervision and
Regulations Department, Ext. 6169.
Sincerely yours,
Robert H. Boykin
First Vice President
Banks and others are encouraged to use the fo llo w in g incom ing WATS numbers in c on tacting th is Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). F o r 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)
FEDERAL RESERVE press release
For immediate release
October 20, 1980
In view of the fact that Negotiable Orders of Withdrawal (NOW)
accounts may be offered b y financial institutions in all parts of the nation
beginning December 31, 1980, the staff of the Federal Reserve Board is
making available the attached information sunmarizing the categories of
depositors eligible to maintain NOW accounts at member banks.
In connection wit h t h i s , there are also attached previous
announcements concerning the advertising of N O W accounts and advertising
of plans for the automatic transfer of funds from savings to checking accounts
(ATS accounts).
The following categories of depositors are eligible to hold
N O W accounts at member b a n k s :
individuals
sole proprietors
husband and wife operating unincorporated businesses
local housing authority
residential tenants' security deposits
independent school districts
redevelopment authority
escrow funds (provided entire beneficial interest
is held by individuals or qualifying organizations)
labor unions
trust and other fiduciary accounts (provided entire
beneficial interest is held by individuals or
qualifying organizations)
pension funds
trade associations
Summary of Depositors Eligible to Hold
NOW Accounts at Member Banks
Title III of the Depository Institutions Deregulation and
Monetary Control Act of 1980 (P.L. 96-221) ("Act") authorizes depository
institutions (except credit unions) nationwide effective December 31,
1980,
. . . to permit the owner of a deposit or account
on which interest or dividends are paid to make withdrawals
by negotiable or transferable instruments for the
purpose of making transfers to third parties (section
303 of Title III of P.L. 96-221; 12 U.S.C. § 1832(a)(1))
("NOW accounts” ) 1/.
Section 303 of the Act also provides that a NOW account must consist:
. . . solely of funds in which the entire beneficial
interest is held by one or more individuals or by
an organization which is operated primarily for religious,
philanthropic, charitable, educational, or other
similar purposes and which is not operated for profit.
(Section 303(b) of Title III of P.L. 96-221; 12 U.S.C.
§ 1832(a)(2)).
Under Title II of the Act, the Depository Institutions De
regulation Committee ("DIDC") is authorized to establish an interest
rate ceiling on NOW accounts that is applicable to all depository institu
tions authorized to offer such accounts.
The DIDC has adopted a ceiling
of 5-1/4 per cent cm NOW accounts at all depository institutions effective
December 31, 1980.—
Since the definitional authority of the Board under
section 19 of the Federal Reserve Act was not transferred to the DIDC,
the Board retains the authority to rule on questions concerning the
types of depositors eligible to maintain NOW accounts at member banks.
The Federal Deposit Insurance Corporation and Federal Home Loan Bank
Board retain similar authority for institutions subject to their juris
diction.
Under the statute, N OW accounts are available only to individuals
and to qualifying organizations.
Qualifying organizations must meet
two separate tests of eligibility.
First, they must be operated primarily
for "religious, philanthropic, charitable, educational, or other similar
1/ NOW accounts are currently permitted to be offered by depository
institutions located in New England, New York, and New Jersey only.
2/ 12 C7F.R. § 1204.108.
The current ceiling of 5 per cent applicable
to N OW accounts offered by member banks in New England, New York, and
New Jersey will remain in effect until December'31, 1980.
-2-
purposes;" second, they must not be operated for profit.
This test
is almost identical to the class of entities currently eligible under
Regulation Q to maintain a NOW account in N ew England, New York and
New Jersey.
Regulation Q permits fraternal organizations to maintain
NOW accounts; however, the statute omits fraternal organizations from
the list of eligible NOW depositors.
Since the statutory provisions
were based on Regulation Q, it is believed that the omission of the
term fraternal was unintentional and without significance.
Accordingly,
nonprofit organizations operated primarily for fraternal purposes, such
as social and recreational clubs, will be regarded as within the scope
of the statute consistent with the intent of Congress as to the type
of entities eligible to maintain N O W accounts.
Governmental units,
even though not operated for profit, generally do not qualify to hold
NO W accounts since they are not organizations operated primarily for
a qualifying purpose.
However, independent governmental entities that
are separately constituted, such as school districts, most State university
systems, and local housing and redevelopment authorities, are eligible
to hold NOW accounts since they are operated primarily for a qualifying
purpose.
In addition, funds held in a fiduciary capacity may be classified
as a NOW account so long as an individual (or individuals) or a qualifying
organization has the entire beneficial interest in the funds.
Thus,
a profit-making organization could hold a NOW account as a trustee or
other fiduciary for an entity that is qualified to hold a NOW account
in its own capacity.
With reference to NOW account eligibility, the Federal Reserve
has advised member banks in states where NOW accounts are already available
that the class of depositors eligible to hold NOW accounts under the
Act is virtually identical to the class of depositors eligible to hold
savings deposits without limit (with the exception of governmental units).
In this connection, the interpretations and opinions issued with respect
to the class of depositors eligible to hold savings accounts without
limit are illustrative of the classes of depositors eligible to hold
NOW accounts under the Act and Regulation Q.
A Board interpretation
(1 3105 of the Published Interpretations) regarding specific types of
depositors eligible or ineligible to hold savings accounts, and thus
NOW accounts, is attached for reference (Attachment A).
In addition,
Federal Reserve staff has made the following determinations specifically
regarding NOW account eligibility or ineligibility.
Those generally found eligible to maintain NOW accounts at member banks
include:
individuals
sole proprietors
husband and wife operating unincorporated businesses
local housing authority
residential tenants' security deposits
-3 -
independent school districts
redevelopment authority
escrow funds (provided entire beneficial interest
is held by individuals or qualifying organizations)
labor unions
trust and other fiduciary accounts (provided entire
beneficial interest is held by individuals or qualifying
organizations)
pension funds
trade associations
Those generally found ineligible to maintain NOW accounts at member
banks include:
realty or real estate investment trusts
credit unions
Blue Cross/Blue Shield and similar plans
military exchanges and purchasing cooperatives
hospital districts
State and local governmental units (except those
qualifying above)
partnerships operated for profit
professional corporations
business corporations
trustees in bankruptcy (unless entire beneficial
interest in the bankrupt's funds is held by individuals
or qualifying organizations)
political parties or campaign committees
(Staff intends to present to the Board in the near future
the issue of whether nonprofit hospitals should be permitted to maintain
NOW accounts.)
On September 25, 1960, the Board announced the adoption of
a policy statement concerning advertising by member banks of NOW accounts.
The policy statement reminds member banks that are currently offering
or preparing to offer NOW accounts that all NOW advertisements or solicitations
are subject to the advertising requirements contained in section 217.6
of Regulation Q.
The policy statement is attached for reference (Attach
ment B ) .
It should be noted that the Federal Reserve does permit member
banks to advertise NOW accounts as interest-bearing checking accounts.
Member banks that are offering automatic transfers of funds
frcm savings to checking (ATS accounts) are reminded that such accounts
under section 217.5(c) (2) of Regulation Q and section 302(a) of Title III
of the Act, are available only to individuals (including sole proprietors)
or to accounts in which the entire beneficial interest is held by an
individual or individuals.
Unlike N OW accounts, ATS accounts are not
available to non-profit organizations operated primarily for religious,
philanthropic, charitable, educational or fraternal purposes.
Member
banks also are reminded that the advertising guidelines announced for
ATS accounts on October 5, 1978, remain in force and should be adhered
to in all advertising and promotional materials for ATS accounts.
The
guidelines generally provide that advertisements should indicate that
ATS consists of two separate accounts and that ATS may not be advertised
as an interest-bearing checking account (Attachment C ) . Staff believes
that it is important to continue to distinguish between ATS and NOWs
because reserve requirements on ATS balances are subject to the phasein provisions of the Monetary Control Act, while NOW account balances
outside New England, N ew York, and N ew Jersey are immediately subject
to full reserve requirements.
Attachments
H 3105. Deposits of certain organizations.—The definition o f savings de
posits in Regulation Q, which relates to payment o f interest on deposits, and in
Regulation D, which relates to reserves o f member banks, reads in part as
follows:
“The term 'savings deposit' means a deposit, evidenced by a pass book,
consisting o f funds (i) deposited to the credit o f one or m ore individuals, o r of
a corporation, association o r other organization operated primarily for re
ligious, philanthropic, charitable, educational, fraternal o r other similar pur*
poses and not operated for profit, o r (ii) in which the entire beneficial interest
is held by one o r more individuals or by such a corporation, association or
other organization, • • * ”
It will be noted that under this definition member banks m ay classify deposits
o f one or m ore individuals as savings deposits if the deposits comply in other re*
spects with the regulation; bu t they m ay not classify deposits o f any corporation,
association o r other organization as savings deposits unless (I) such organization
is operated primarily for religious, philanthropic, charitable, educational, fra
ternal or other similar purposes; (2) such organization is n o t operated for profit;
and (3) such deposits comply in other respccts with the requirem ents o f the
regulation.
W ith respect to many organizations such as churches, charity hospital associ
ations, fraternal orders and endowed educational institutions which are not
operated for profit, no questions have arisen since such organizations are
obviously operated for religious, philanthropic, charitablc, educational, fra
ternal or other similar purposes. However, num erous questions have arisen as to
whether deposits o f certain other types o f organizations which are near the
border-line of the definition may be classified by member banks as savings de
posits. The Board has given careful study to these questions and has reached
the conclusion that the types of organizations set forth below may be considered
to be operated primarily for religious, philanthropic, charitablc, educational,
fraternal or other similar purposes and, therefore, that deposits o f such organi
zations may be classified by member banks as savings deposits if the organiza
tions arc not operated for profit and if the deposits otherwise comply with the
requirements o f the definition.
Professional associations, such as bar, medical, and dentists’ associations.
T rade associations, including m anufacturers’ associations, retailers' associ
ations, and chambers o f commerce.
Business m en’s clubs, such as R otary Clubs and Kiwanis Clubs.
Recreational clubs, such as golf and tennis clubs.
Social clubs, such as luncheon clubs and college fraternities.
L abor unions o f the usual type.
Volunteer fire com panies and ladies’ auxiliaries thereof.
Cemetery associations.
School districts.
Police o r firemen's pension o r relief associations (including a special fund
held by a political subdivision to provide pensions for police o r firemen).
American Automobile Association, Retired Officers Association, and other
similar organizations.
T he Board has also reached the conclusion that deposits of the organizations
listed below may not be classified by member banks as savings deposits either
because the organizations are no t operated primarily for religious, philanthropic,
charitable, educational, fraternal or oth er similar purposes o r because they are
operated for profit.
Building and loan associations.
M utual o r cooperative fire or life insurance associations.
Reciprocal o r intcr-insurance associations.
Cooperative marketing associations, such as citrus growers or dairym en’s
cooperative marketing associations.
Credit unions. Federal o r State.
States and municipalities and other political subdivisions thereof (except
school districts) including departments, boards, and commissions o f such
political subdivisions.
Although deposits o f the types of organizations listed immediately above may
no t be classified by m ember banks as savings deposits for the purpose o f paym ent
o f interest or o f com putation o f reserves, attention is invited to the fact that any
o f such organizations may m aintain time deposits with member banks. With
respect to such deposits, which may be either in the form o f time certificates of
deposit o r time deposits open account, mem ber banks may pay interest in ac
cordance with the provisions o f Regulation Q and m aintain reserves in accord
ance with the provisions o f Regulation D relating to time deposits.
T he above lists of organizations which m ay o r m ay not m aintain savings de
posits in member banks are not intended to be complete but merely contain
examples compiled from various cases which have been submitted to the Board.
Any necessary inquiry as to the proper classification o f other organizations for
this purpose should be submitted dircctly to the Federal Reserve Bank o f the
district in which the inquiry arises rather than to the Board. The Federal Reserve
Banks will, in so far as possible, answer such questions in the light o f the illus
trative cases stated above. 1937 B U L L E T IN 1073.
@FedFRASER