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federal reserve
Ba n k
DALLAS, TEXAS
of
Dallas
75222
Circular No. 81-206
October 28, 1981
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
Proposed Deregulation of Time Deposits
TO ALL MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Depository Institutions Deregulation Committee (DIDC) re
quests comment on a proposed schedule for deregulating time deposits which
begins by establishing a new three and one half year and over deposit that
could be offered by federally-insured commercial banks, mutual savings banks
and savings and loan associations.
Printed on the following pages are copies of the DIDC's press
release dated October 6, 1981, and the Federal Register notice. Interested
parties are invited to submit their comments concerning the proposed rules to
Steven L. Skancke, Executive Secretary, Depository Institutions Deregulation
Committee, Room 1054, Department of the Treasury, 15th Street and
Pennsylvania Avenue, N.W., Washington, D.C.
20220.
All comments
submitted should include the Docket No. D-0022 and should be received by
November 6, 1981.
Questions regarding this circular should be directed to this Bank's
Legal Department, Ext. 6171.
Additional copies of this circular will be furnished upon request to
the Department of Communications, Financial and Community Affairs of this
Bank, Ext. 6289.
Sincerely yours,
William H. Wallace
First Vice President
B a n k s a n d o th e r s a re e n c o u r a g e d to u s e th e fo llo w in g in c o m in g W A T S n u m b e r s in c o n t a c t in g th is Ban k:
1-800-442-7140 (in tr a s t a te ) a n d 1-800-527-9200 (in te rs ta te ). Fo r c a lls p la c e d lo cally, p l e a s e use 651 plus th e
e x te n s io n re fe rre d to above.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE PRESS RELEASE
COMPTROLLER OF THE CURRENCY
FEDERAL RESERVE BOARD
October 6, 1981
FEDERAL DEPOSIT INSURANCE CORPORATION FEDERAL HOME LOAN BANK BOARD
NATIONAL CREDIT UNION ADMINISTRATION
TREASURY DEPARTMENT
PRESS CONTACT: Robert Levine
202/566-5158
DIDC ASKS FOR COMMENT ON NEW DEREGULATION SCHEDULE
The Depository Institutions Deregulation Committee has
put out for public comment a new proposed schedule for pro
gressively deregulating time deposits starting with a new three
and one half year and over deposit category. This new time
deposit category would have no interest rate ceiling. It would
be offered by federally regulated or insured commercial banks,
mutual savings banks and savings and loan associations. The
minimum denomination would be $250. This new 3-1/2 and over
instrument would become available on February 1, 1982. Its
minimum maturity would be decreased to 2-1/2 years on
February 1, 1982 and by another year for each year thereafter.
Comments must be received by November 6, 1981. Details
on these proposals as filed with the Federal Register are
attached.
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
[12 CFR Part 1204]
(Docket No. D-0022)
NOTICE OP RULEMAKING
Time Deposits of Less Than $100,000 With Original
Maturities of 3-1/2 Years or More
AGENCY:
Depository Institutions Deregulation Committee.
ACTION:
Proposed rulemaking.
SUMMARY: The Depository Institutions Deregulation Committee (the "Committee")
is considering amending its rules to establish a new category of time
deposit that could be offered by federally-insured commercial banks,
mutual savings banks, and pavings and loan associations. The Committee
requests comment on an account that would have the following principal
characteristics:
(1) minimum original maturity of 3-1/2 years or more;
(2) no interest rate limitation; (3) permitting additional deposits
to be made during the first year of the account without extending its
maturity; and (4) a minimum denomination of $250. The Committee also
requests comments on a schedule that would each year reduce the minimum
maturity of this new deposit category by one year, and the creation
of two additional new deposit categories to be effective in 1984 and
1985, respectively.
DATE:
Comments must be received by November 6, 1981.
ADDRESS: Interested parties are invited to submit written data, views,
or arguments concerning the proposed rules to Steven L. Skancke, Executive
Secretary, Depository Institutions Deregulation Committee, Room 1054,
Department of the Treasury, 15th Street and Pennsylvania Avenue, N.W.,
Washington, D.C. 20220. All material submitted should include the Docket
Number D-0022 and will be available for inspection and copying upon
request, except as provided in § 1202.5 of the Committee's Rules Regarding
Availability of Information (12 CFR § 1202.5).
FOR FURTHER INFORMATION CONTACT: Paul S. Pilecki, Senior Attorney,
Board of Governors of the Federal Reserve System (202/452-328i); Allan
Schott, Attorney-Adviser, Treasury Department (202/566-2914); F. Douglas
Birdzell, Counsel, Federal Deposit Insurance Corporation (202/369-4261);
Rebecca Laird, Senior Associate General Counsel, Federal Home Loan Bank
Board (202/377-6446); or David Ansell, Attorney, Office of the Comptroller
of the Currency (202/447-1880).
SUPPLBiENTARY INFORMATION: The Depository Institutions Deregulation
Act of 1980 (Title II of P.L. 96-221; 12 U.S.C. SS 3501 et seg.) ("Act")
was enacted to provide for the orderly phaseout and the ultimate elimination
of the limitations on the maximum rates of interest and dividends that
may be paid on deposit accounts by depository institutions. In adopting
the Act, Congress determined that rate ceilings have: (1) discouraged
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savings; (2) created inequities for depositors; (3) impeded competition
among depository institutions; and (4) not provided an even flow of
funds for hone mortgage lending. The Congress also found that all depositor*#
particularly those with modest savings, are entitled to receive a market
rate-of-return as soon as it is economically feasible for institutions
to pay such rates.
Onder the Act, authority to administer deposit rate ceilings
has been given to the Committee. The Act also provides that the Conmittee
can phase out rate ceilings by any or all of the following methods:
(1)
gradually increase ceilings applicable to all account
categories (however when increasing rates on all existing
accounts, the DIDC may not exceed market rates);
(2)
complete elimination of limitations applicable to particular
account categories;
(3)
creation of new account categories subject to limits
or with limits set at current market rates;
(4)
by any combination of the above methods; and
(5)
by any other method.
In accordance with its responsibilities, the Committee is
requesting public comment on a proposal to meet the objectives of the
Act. The Committee proposes to create a new category of time deposit
that would not be subject to an interest rate ceiling. The new category
(1) would require a minimum maturity of 3-1/2 years or more, (2) would
permit additional deposits to be made during the first year of the life
of the deposit without extending the maturity date of the account, (3)
could be issued in negotiable or nonnegotiable form, (4) could be discounted,
(5) would be issued in a minimum denomination of $250, and (6) would
be subject to an early withdrawal penalty of at least nine months' forfeiture
of interest. In addition, all other provisions of the Committee's rules
and the rules of the other agencies would continue to apply.
The Committee and the agencies have taken actions in the past
that have been regarded as the establishment of new categories pf deposit
accounts. These accounts include 26-week money market time deposits
(MMCs), small saver certificates (SSCs), and the 3-year time deposit
available only to IRA and Keogh Plan depositors. These accounts have
been regarded as new accounts by virtue of particular characteristics
such as maturity, method of determination of ceiling rates, and availability
limited to certain classes of depositors. The Committee believes that
the proposed 3-1/2 year or more time deposit would be a new category
of deposit account for purposes of both the Act and P.L. 94-200.—
1/ P.L. 94-200 provides that the differential between thrift institution
and commercial bank interest rate ceilings on any category of account
in existence on December 10, 1975, cannot be reduced or eliminated without
Congressional approval.
3-
The Conmittee expects that the new 3-1/2-year tine deposits
could be offered by depository institutions on a fixed or variable rate
basis. For variable rate tine deposits, it is expected that the Method
of determining how the rate would fluctuate would be readily ascertainable
and disclosed in writing at the opening of the deposit contract. For
example, the rate could be pegged to the rate based on the yield for
a particular category of U.S. Treasury securities or any other Market
based or independently determined yield.
The Committee also requests comment on a proposed schedule
under which each year the minimum maturity of the new deposit category
would be reduced by one year. Under the schedule, the maturity range
and method of determining the rate ceiling of the small saver certificate
category of time.deposit also would be modified in 1982 and 1983. In
addition, the schedule would establish two new time deposit categories
without a differential in 1984 and 1985, respectively. This schedule
would be as follows:
Applicable Rate Ceiling Fort
Original Maturity Commercial Banks
Effective February 1,
1982 —
(1) 3-1/2 years or more
(2) 2-1/2 years to less
than 3-1/2 years
Effective February 1,
1983 —
(1) 2-1/2 years or more
(2) 1-1/2 years to less
than 2-1/2 years
Effective February 1,
1984 —
(1) 1-1/2 years or more
(2) 6 months to 1-1/2
years (new deposit
category)
MSBs and BfcLs
Mo limit
No limit
Avg. yield for 2-1/2
year Treasury securi
ties less 1/4 point
Avg. yield for 2-1/2
year Treasury securities
Mo limit
No limit
Avg. yield for 1-1/2
year Treasury securi
ties less 1/4 point
Avg. yield for 1-1/2
year Treasury securities
No limit
No limit
26-week Bill rate
26-week Bill rate
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Original Maturity
CommercialBanka
MSBs and SfcLs
Effective February 1,
1985 —
(1) 6 months or more
Mo limit
Mo limit
(2) 14 days to 6 months
(new deposit
category)
Effective February '1,
1986 —
All tine deposits
13-week Bill rate
Mo limit
13-week Bill
rate
No limit
The Committee has considered the potential impact on small
entities of the proposal to establish a new 3-1/2-year time deposit
category and the proposed schedule, as required by the Regulatory Flexibility
Act (5 D.S.C. s 601 et seq.). In this regard, the Committee's action
would not impose any new regulatory burden, or increase any existing
or impose any new reporting or recordkeeping requirements. Consistent
with the Committee's statutory mandate to eliminate deposit interest
rate ceilings, this proposal would enable depository Institutions to
pay interest on certain time deposits with maturities of 3-1/2 years
or more without regard to interest rate limitations. Thus, small entities
that are depositors generally could benefit from the Committee's proposal,
since they would be able to earn higher rates of interest on their time
deposits. Small entities that are depository institutions could have
increased costs as a result of this action, because it is likely that
they will be paying higher interest rates on certain time deposits;
however, their competitive position vis-a-vis nondepository institution
competitors should be enhanced by their ability to offer higher rates
on time deposits. The proposed new deposit category could be offered
by all federally insured commercial banks, mutual savings banks and
savings and loan associations.
In particular, the Committee requests comments on the following
specific aspects of the proposal.
(1)
Maturity. The appropriateness of a minimum maturity
period of 3-1/2 years or more.
Should the minimum maturity on the proposed deposit category
be reduced each year by one year?
(2)
Additional deposits during first year. Is it appropriate
to allow additions to such accounts during the first
year without requiring an extension of the maturity?
Should this be a required feature or should it be optional
for depository institutions?
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(3)
Minimum denomination. Should the proposed instrument
have a minimum denomination of $250, or some other amount?
(4)
Early withdrawal penalty. Should the proposed 3-1/2
year instrument be subject to a minimum early withdrawal
penalty of nine month's forfeiture of interest or the
current six month penalty?
As alternatives for this account, should the minimum
early withdrawal penalty bet
1)
three months' loss of interest for each year or
part thereof of the original maturity of the time
deposit (a 3-1/2 year time deposit would have a
twelve month early withdrawal penalty)} or
2)
three months' loss of interest for each year or
part thereof remaining to maturity of the time deposit?
(5)
Other features. The Committee requests comment on whether
the proposed deposit category should allow negotiable
certificates of deposits, whether issuance of such deposits
on a discount basis should be permitted, or whether any
other or different characteristics should apply to such
accounts.
(6)
New account categories to be introduced in 1984 and 1985.
Should the proposed two new account categories have characteris
tics similar to the proposed 3-1/2 year category?
(7)
Other comments. The Committee also requests comments
on any other aspect of the proposal that is relevant,
including, but not limited to, the effect of the proposed
new deposit category on the competitive position and
safety and soundness of depository institutions and the
effect of the proposal on small entities.
The Committee has determined to shorten the length of the
comment period normally provided to the public so that it can consider
this issue at its meeting tentatively scheduled for December 16, 1981.
Accordingly, all comments must be received by November 6, 1981.
Pursuant to its authority under section 203(a) of the Depository
Institutions Deregulation Act of 1980 (Title XX of P.L. 96-221; 12 U.S.C.
S 3502(a)), the Committee proposes to amend 12 CFR Part 1204:
-
1.
6-
Effective February 1, 1982 by adding a new section 119 that would
read as follows:
SECTION 1204.119 —
Time Deposits of Less Than glOO.OOO With Original
Maturities of 3-1/2 Years or More.
(a) A commercial bank, mutual savings bank, or savings and
loan association may pay interest without limit on any time deposit
of $250 or more with an original maturity of 3-1/2 years or more.
(b) Any time deposit issued pursuant to this section may
provide by contract that additional deposits may be made to the account
for a period of one year from the date that it is established without
extending the original maturity date of the account. Deposits made
to the account more than one year after the date that it is established
shall extend the maturity of the entire account for a period at least
equal to the original term of the account, or such additional deposit
shall be regarded as a separate account.
(c) Where a time deposit issued pursuant to this section
is paid before maturity, a depositor shall forfeit an amount at least
equal to nine months of interest earned, or that could have been earned,
on the amount withdrawn at the nominal (simple interest) rate paid on
the deposit, regardless of the length of time the funds withdrawn have
remained on deposit.
(d) A depository institution may issue time deposits pursuant
to this section with any of the following characteristics!
(1) Such time deposits may be represented by a negotiable
or nonnegotiable instrument, or may be in book-entry form; or
(2)
Such time deposits may be issued on a discount basis.
(e) Effective February 1, 1983, this section is amended by
striking the term "3-1/2 years" wherever it appears and inserting in
its place the term "2-1/2 years".
(f) Effective February 1, 1984, this section is amended by
striking the term "2-1/2 years" wherever it appears and inserting in
its place the term "1-1/2 years".
(g) Effective February 1, 1985, this section is amended by
striking the term "1-1/2 years" wherever it appears and inserting in
its place "6 months".
(h) Effective February 1, 1986, this section is amended by
striking the term "6 months" wherever it appears and inserting in its
place "14 days".
2.
Effective February 1, 1982, section 106 would be amended by adding
a new paragraph (c) as follows:
SECTION 1204.106 —
Time Deposits of Less Than $100,000 With Maturities
of 2-1/2 Years to 4 Years.
*
*
*
*
*
(c)(1) Effective February 1, 1982, this section is amended
by striking the term "2-1/2 years to less than 4 years" wherever it
appears and inserting in its place "2-1/2 years to less than 3-1/2 years".
(2)
Effective February 1, 1983, this section is amended
by striking the term "2-1/2 years to less than 3-1/2 years" wherever
it appears and inserting in its place "1-1/2 years to less than 2-1/2
years".
3.
Effective February 1, 1984, by adding a new section 120 that would
read as follows:
SECTION 1204.120 -- Time Deposits of Less Than $100,000 With Original
Maturities of 6 Months to 1-1/2 Years.
Commercial banks, mutual savings banks, and savings and loan
associations nay pay interest on any time deposit of $250 or more with
an original maturity 6 months or more but less than 1-1/2 years at a
rate not to exceed the rate established and announced (auction average
on a discount basis) for U.S. Treasury bills with maturities of 26 weeks
at the auction held immediately prior to the date of deposit. Rounding
rates to the next higher rate is not permitted. Time deposits issued
under this section shall also be subject to paragraphs (b), (c), and
(d) of section 119. This section shall expire on February 1, 1965.
4.
Effective February 1, 1985, by adding a new section 121 that would
read as follows:
SECTION 1204.121 —
Time Deposits of Less Than $100,000 With Original
Maturities of Less Than 6 Months
Commercial banks, mutual savings banks, and savings and loan
associations may pay interest on any time deposit of $250 or more with
an original maturity of 14 days or more but less than 6 months at a
rate not to exceed the rate established and announced (auction average
on a discount basis) for U.S. Treasury bills with maturities of 13 weeks
at the auction held immediately prior to the date of deposit. Rounding
rates to the next higher rate is not permitted. Time deposits issued
under this section shall also be subject to paragraph (d) of section 119.
By order of the Committee, September 25, 1981.
Steven L. Skancke
Executive Secretary
@FedFRASER