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F
ederal reserve
Ba
n k of
DALLAS, TEXAS
D
allas
75222
Circular No. 81-236
December 17, 1981
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
Amendment
TO ALL MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Depository Institutions Deregulation C om m ittee (DIDC) has
issued a technical amendment which clarifies that depository institutions may
not round any interest rate to the next higher rate in connection with paying
interest on 26-week money market cer tific a tes (MMCs). The amendment also
clarifies that interest may not be compounded on MMCs during the term of
the deposit and that the optional ceiling rate is determined on the basis of the
average of the four bill rates (auction average on a discount basis) for U.S.
Treasury bills with maturities of 26 weeks established and announced at the
four auctions held immediately prior to the date of the MMC deposit. The
e ffe c tiv e date of the amendment was November 1, 1981.
Printed on the following pages is a copy o f the material as
submitted for publication in the Federal R egister. Questions regarding the
amendment 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, 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 Bank:
1-800-442-7140 (in tr a s t a te ) an d 1-800-527 -920 0 (in te r s ta te ). F o r c a lls p la c e d lo cally, p l e a s e u s e 651 plus the
e x te n s io n referred to above.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
DEPOSITORY
INSTnunCNS DEREGULATION COMMITTEE
12 CFR PART 1204
[Docket No. D-0020]
Ceiling Rates for 26-Week Honey Market Certificates
AGENCY:
Depository Institutions Deregulation Committee
ACTION:
Technical amenctaent to final rule.
SUMMARY: This technical amendment clarifies that depository institutions
may not round any interest rate to the next higher rate in connection with
paying interest on 26-week money market certificates ("MMCs"). Additionally,
this technical amendment clarifies that interest may not be compounded on
MMCs during the term of the deposit and that the optional ceiling rate is
determined on the basis of the average of the four bill rates (auction
average on a discount basis) for U.S. Treasury bills with maturities of 26
weeks established and announced at the four auctions held immediately prior
to the date of the MMC deposit.
EFFECTIVE DATE:
November 1, 1981.
FOR FURTHER INFORMATION CONTACT: Allan Schott, Attorney-Advisor, Treasury
Department (202/566-6798); John Harry Jorgenson, Senior Attorney, Board of
Governors of the Federal Reserve System (202/452-3778); F. Douglas Birdzell,
Counsel, Federal Deposit Insurance Corporation (202/389-4324); Rebecca Laird,
Senior Associate General Counsel, Federal Hone Loan Bank Board
(202/377-6446); or David Ansell, Attorney, Office of the Comptroller of the
Currency (202/447-1880).
SUPPLEMENTARY INFORMATION: On September 22, 1581, tne Comnittee adopted a
final rule, effective November 1, 1981, concerning the maximan interest
payable on MMCs. The rule provides that depository institutions may pay
interest on any nonnegotiable time deposit of $10,000 or more with a maturity
of 26 weeks at a fixed interest rate ceiling indexed to the higher of eitner
(a) the rate for 26-week United States Treasury bills auctioned immediately
prior to the date of deposit, or (b) a moving average of the discount rate
based on the four auction average rates (discount basis) for 26-week U.S.
Treasury bills established and announced at the four auctions held
imnediately prior to the date of deposit. The Comnittee adopted this rule to
provide an alternative method of calculating MMC rate ceilings to enable
depository institutions to be more competitive with money market mutual funds
and other market instruments, especially during a period of declining rates.
2
This a
mendment is intended to clarify the intent of the Committee that
the other rules concerning MMCs remain in effect. Consequently, depository
institutions may not round any interest rate to the next higher rate, and the
prohibition an compounding interest on MMCs during the term of the deposit
also continues. These provisions were omitted inadvertently in the Federal
Register document previously published on this matter. Finally, the rule is
amended to make clear that the optional ceiling rate provided to depository
institutions is based on the average of the four most recent Treasury bill
rates and not on an average of the four most recent MMC ceiling rates
established under this section.
Because this is a technical amendment that clarifies the Committee's
earlier action, the Committee finds that application of the notice and public
participation provisions of 5 U.S.C. S 553 to this action would be contrary
to the public interest, and that good cause exists for making this action
effective November 1, 1981.
Pursuant to its authority under Title II of Public Law 96-221, 94 Stat.
142 (12 U.S.C. 8S 3501 et seg.), to prescribe rules governing the payment of
interest and dividends on deposits of federally insured commerical banks,
savings and loan associations and mutual savings banks, effective November 1,
1981, the Committee amends section 1204.104 of 12 CFR Part 1204 to read as
follows:
PART 1204— INTEREST CN DEPOSITS
8 1204.104— 26-Week Money Market Time Deposits of Less than $100,000.
Commercial banks, mutual savings banks, and savings and loan
associations may pay interest cm any nonnegotiable time deposit of $10,000 or
more, with a maturity of 26 weeks, at a rate not to exceed the ceiling rates
set forth below. The ceiling rate shall be based on the higher of either (1)
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
imnediately prior to the date of deposit ("Bill Rate"), or (2) the average of
the four rates established and announced (auction average on a discount
basis) for U.S. Treasury bills with maturities of 26 weeks at the four
auctions held immediately prior to the date of deposit ("Four-Week Average
Bill Rate"). Rounding any rate to the next higher rate is not permitted, and
interest may not be compounded during the term of this deposit.
Bill Rate or Four-Week
Average Bill Rate
Interest Rate Ceiling
Gorroercial Banks
7.50 per cent or below
7.75 per cent
Above 7.50 per cent
One-quarter of one per
centage point plus the
higher of the Bill Rate
or Four-Week Average Bill
Rate
Mutual Savings Banks and Savings
and loan Associations
7*25 per cent or below
7.75 per cent
Above 7.25 per cent, but below
8.50 per cent
One-half of one per
centage plus the higher
of the Bill Rate or
Four-Week Average Bill
Rate
9 per cent
8.50 per cent or above, but
below 8.75 per cent
One-quarter of m e per
centage point plus the
higher of the Bill Rate
or Four-Week Average Bill
Rate
8.75 per cent or above
By order of the Committee,
October 30, 1981.
Steven L. Skancke
Executive Secretary
@FedFRASER