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F e d e r a l r e s e r v e B a n k o f D a lla s
DALLAS, TEXAS
75222
Circular No. 82-173
D e c e m b er 30, 1982
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
TO ALL MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Depository Institutions Deregulation C om m ittee (DIDC) has re
leased three final rules and one proposed rule as a result of actions at its
Decem ber 6, 1982 meeting.
The DIDC released final rules pertaining to (1) Short-Term Time Deposit
Accounts. (2) NOW Accounts of $2,500 or more, and (3) Money Market Deposit
A ccounts. In addition, the DIDC has requested comments, by February 1, 1983 on a
proposal which would remove the restrictions on the number of transfers of funds for
the Money Market Deposit Accounts held by depositors that are not eligible to
maintain NOW accounts. Comments should be directed to Mr. Gordon Eastburn,
A cting Executive Secretary, Depository Institutions Deregulation C om m ittee, Room
1058, Department of the Treasury, 15th S treet and Pennsylvania Avenue N.W.,
Washington, D.C., 20220 and refer to Docket No. 0030.
Attached are copies of the DIDC's press release and the material as
submitted for publication in the Federal R egister. Questions regarding the material
contained in this circular should be directed to this Bank's Legal Department,
Extension 6171.
Additional copies of this circular will be furnished upon request to the
Department o f Communications, Financial and Community Affairs, Extension 6289.
Sincerely yours,
William H. Wallace
First Vice President
Banks and others are encouraged to use the following incoming W ATS numbers in contacting this Bank:
1-800-442-7140 (intrastate) and 1-800-527-9200 (interstate). For 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)
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
Washington, D.C. 20220
PRESSRELEASE
December 14 f 1982
Pinal Rules and Proposed Rules
Today the Depository Institutions Deregulation Committee
(DIDC) released the attached three final rules and one proposed
rule resulting from actions taken at the December 6, 1982 DIDC
meeting.
The attachments include:
1.
Final amendments to the Money Market Deposit Account
(MMDA) effective December 14, 1982, regarding the
telephone transfers feature and the technical definition
of a "month".
2.
Final rules removing the ceiling on the 7- to 31-day
account and reducing to $ 2 f500 the minimum denomination
on the 7- to 31-day, the 91-day and the six-month
certificates of deposit, effective January 5, 1983.
3.
Final rules regarding the new $2,500 minimum denomi
nation ceiling-free NOW account, effective January 5,
1983.
4.
A request for comments on permitting the MMDA to be
offered to businesses with an unlimited transactions
feature.
,
Within a few days, the DIDC will distribute one other
request for comments regarding proposals to accelerate the
deregulation of deposits at depository institutions.
Attachments
COMPTROLLER OF THE CURRENCY
FEDERAL RESERVE BOARD
FEDERAL DEPOSIT INSURANCE CORPORATION
NATIONAL CREDIT UNION ADMINISTRATION
FEDERAL HOME LOAN BANK BOARD
DEPARTMENT O F THE TREASURY
4
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
12 C.F.R. Part 1204
(Docket No. D-0029)
Short-Term Tine Deposit Accounts
AGENCY:
Depository Institutions Deregulation Committee.
ACTION!
Final Rule.
SUMMARY:
The Depository Institutions Deregulation Committee
("Committee”) has amended its rules to remove the ceiling on the rate
of interest payable on 7- to 31-day time deposits and to lower the
minimum denomination requirement on this account, as well as the
91-day time deposit and 26-week money market time deposit ("MMC"), to
$2,500. The existing minimum denomination requirements on these
deposits are $20,000, $7,500, and $10,000, respectively.
The
Committee's actions were taken to conform the minimum denominations of
these accounts with the Money Market Deposit Account ("MMDA”) and
because the interest rate ceiling on the 7- to 31-day account is not
necessary in light of the establishment of the MMDA, which may be
offered for similar time periods.
EFFECTIVE DATE:
January 5, 1983.
FOR FURTHER INFORMATION CONTACT: Paul S. Pilecki, Senior Attorney,
Board of Governors of the Federal Reserve System (202/452-3281); Alan
Priest, Attorney, Office of the Comptroller of the Currency
(202/447-1880); F. Douglas Birdzell, Counsel, and Joseph A. DiNuzzo,
Attorney, Federal Deposit Insurance Corporation (202/389-4147);
Rebecca Laird, Senior Associate General Counsel, Federal Home Loan
Bank Board (202/377-6446); or Elaine Boutilier, Attorney-Adviser,
Treasury Department (202/566-8737).
List of Subjects in 12 CFR Part 1204:
Banks, banking.
SUPPLEMENTARY INFORMATION: The Depository Institutions Deregulation
Act of 1980 (Title II of P.L. No. 96-221; 12 U.S.C. SS 3501 et seq.)
("DIDA”) was enacted to provide for the orderly phaseout and ultimate
elimination of the limitations on the maximum rates of interest and
dividends that may be paid on deposit accounts by depository
institutions as rapidly as economic conditions warrant. Under DIDA,
the Committee is authorized to phase out interest rate ceilings by any
one of a number of methods including the creation of new account
categories not subject to interest rate limitations or with interest
rate ceilings set at market rates of interest.
Pursuant to this statutory authorization, the Committee's
rules set forth a number of deposit categories bearing market rates of
interest.
Among these are 7- to 31-day time deposits (12 CFR
S 1204.121), 91-day time deposits (12 CFR $ 1204.120) and MMCs (12 CFR
S 1204.104). These accounts have minimum denomination requirements of
5
$20,000, $7,500 and $10,000, respectively, and ceiling rates of
interest on these accounts generally are based on the 91-day D. S.
Treasury bill rate (auction average on a discount basis) for the 7- to
31-day and 91-day accounts, and the 26-week U. S. Treasury bill rate
(auction average on a discount basis) for MMCs.
The Committee has established a new deposit account ("MMDA"),
as required by the Garn-St Germain Depository Institutions Act of
1982, Pub. L. No. 97-320 ("Garn-St Germain Act"). The new deposit
account has the following principal characteristics:
(1) an initial
and average balance requirement of no less than $2,500; (2) a
requirement that depository institutions reserve the right to require
at least seven days' notice prior to withdrawal or transfer of funds;
(3) no interest rate ceiling on deposits which satisfy the initial and
average balance requirements; (4) no more than six preauthorized,
automatic or other third party transfers per month, of which no more
than three can be checks; and (5) availability to all depositors. In
addition, at its December 6, 1982 meeting, the Committee established a
new rule for the payment of interest on NOW accounts that have
balances of not less than $2,500 and are subject to certain of the
restrictions that apply to the MMDA.
Under existing regulations, depository institutions may
guarantee for up to one month the offering rate on MMDAs. Therefore,
institutions can structure the new account to substitute for the
existing 7- to 31-day account, rendering the ceiling
on the latter
account meaningless. Thus, theCommittee has amended its regulations
to remove that ceiling. The interest rate ceiling on this account is
currently suspended because the 91-day bill rate has been below 9 per
cent and under existing regulations is scheduled to be removed on
Nay 1, 1983.
In designing these andother short-term deposit instruments,
the Committee traditionally hasattempted to strike a balance between
enabling institutions to compete effectively with market instruments
and minimizing the potential for shifts from lower-yielding savings
deposits. In addition to establishing fixed maturities, the Committee
has sought to accomplish this objective through large minimum
denomination requirements on the 7- to 31-day, 91-day, and 26-week
accounts. Now that the Committee has implemented Section 327 of the
Garn-St Germain Act by authorizing a money market deposit account with
a minimum denomination of $2,500, the potential for shifts from
lower-yielding savings deposits is reduced in importance in
establishing the terms on short-term deposit instruments. Since the
MMDA dominates the other short-term deposits as a substitute for
savings deposits, altering the minimum denomination on the other
deposit categories is unlikely to result in any significant further
shifting from lower-yielding accounts. Consequently, the Committee
has determined that it is appropriate to reduce to $2,500 the minimum
denomination requirements for the 7- to 31-day account, 91-day
account, and MMC.
6
The provisions of 5 U.S.C. S 553(b) relating to notice and
public participation have not been followed in connection with
adoption of these amendments because such actions involve conforming
amendments to existing regulations that are considered appropriate in
light of the Committee's action in establishing the MMDA and
ceilingless NOtr account. These accounts have, as a practical matter,
rendered the ceiling on the 7- to 31-day account and the minimum
denomination requirements of all three short-term time deposits
meaningless. Thus, the Committee has determined that notice and
public participation is unnecessary in connection with this action.
In addition, the Committee has not deferred the effective date of
these amendments in accordance with 5 U.S.C. S 553(d) since these
actions relieve restrictions.
Pursuant to its authority under Title II of Pub. L. 96-221
(94 Stat. 142; 12 U.S.C. S 3501 et seq.) to prescribe rules governing
the payment of interest and dividends on deposits and accounts of
federally insured commercial banks, savings and loan associations, and
mutual savings banks, the Committee amends Part 1204— Interest on
Deposits, effective January 5, 1983, to read as follows:
1.
read as follows:
By revising the first sentence in section 1204.104 to
SECTION 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 on any nonnegotiable time deposit of
$2,500 or more, with a maturity of 26 weeks, at a rate not to exceed
the ceiling rates set forth below.
*
2.
*
*
*
*
In section 1204.120, by revising paragraph (a) to read as
follows:
SECTION 1204.120— 91-Day Time Deposits of Less
Than $100,000
(a) Commercial banks, mutual savings banks, and savings and loan
associations may pay interest on any negotiable or nonnegotiable
time deposit of $2,500 or more, with a maturity of 91 days, at a rate
not to exceed the ceiling rates set forth below. Rounding any rate
upward is not permitted, and interest may not be compounded during the
term of this deposit.
*
*
*
*
*
7
3.
In section 1204.121, by deleting paragraph (b) and by
redesignating the succeeding paragraphs accordingly, and by revising
the section heading and paragraph (a) to read as follows:
SECTION 1204.121-7- to 31-Day Tine Deposits
of $2,500 or More
(a)
Commercial banks, mutual savings banks, and savings and loan
associations may pay interest at any rate as agreed to by the de
positor on any nonnegotiable time deposit of $2,500 or more, with a
maturity or required notice period of not less than 7 days nor more
than 31 days.
However, a depository institution shall not pay
interest in excess of the ceiling rate for regular savings deposits or
accounts on any day the balance in a time deposit issued under this
section is less than $2,500.
*
*
*
*
*
By order of the Committee, December 14, 1982.
Acting Executive Secretary
8
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
[12 C.F.R. Part 1204]
(Docket No. D-0028)
NOW Accounts of $2,500 or More
AGENCY:
Depository Institutions Deregulation Committee.
ACTION:
Final rule.
SUMMARY:
The Depository Institutions Deregulation Committee
(■Committee”) has established a new rule for the payment of interest on
NOW accounts with a minimum initial and average balance requirement of
$2,500. A depository institution may pay any rate of interest on such
accounts if it meets the following conditions that also apply to the
Money Market Deposit Account (12 CFR S 1204.122) ("MMDA”): (1) an
institution must reserve the right to require seven days' notice pribr to
withdrawal; (2) compliance with the average balance requirement may be
computed over a period no longer than one month; (3) the existing NOW
account ceiling rate (5-1/4 percent) applies to accounts that do not meet
the average balance requirement; (4) an interest rate may not be
guaranteed for longer than one month; and (5) loans are not permitted to
meet the $2,500 initial or average balance requirement. These rules
apply to accounts that are authorized under 12 U.S.C. S 1832(a).
Accordingly, such accounts are available only to individuals, nonprofit
organizations operated primarily for religious, philanthropic,
charitable, educational, fraternal and other similar purposes, and to
governmental units. This action was taken by the Committee in connection
with its responsibility under the Depository Institutions Deregulation
Act to phase out deposit interest rate ceilings as rapidly as economic
conditions warrant.
EFFECTIVE DATE:
January 5, 1983.
FOR FURTHER INFORMATION CONTACT: Paul S. Pilecki, Senior Attorney, Board
of Governors of the Federal Reserve System (202/452-3281); Rebecca Laird,
Senior Associate General Counsel, Federal Home Loan Bank Board
(202/377-6446); Joseph A. DiNuzzo, Attorney, Federal Deposit Insurance
Corporation (202/389-4147); Alan Priest, Attorney, Office of the
Comptroller of the Currency (202/447-1880); or Elaine Boutilier,
Attorney-Adviser, Treasury Department (202/566-8737).
List Of Subjects In 12 CFR Part 1204:
Banks, banking.
SUPPLEMENTARY INFORMATION: The Depository Institutions Deregulation Act
of 1980 (Title II of P.L. 96-221; 12 U.S.C. S 3501 et seq.) ("DIDA") was
g
enacted to provide for the orderly phase out and ultimate elimination of
the limitations on the maximum rates of interest and dividends that may
be paid on deposit accounts by depository institutions as rapidly as
economic conditions warrant. Under DIDA, the Committee is authorized to
phase out interest rate ceilings by any one of a number of methods,
including the elimination of limitations applicable to particular
categories of accounts, the creation of new account categories not
subject to interest rate ceilings or with interest rate ceilings set at
market rates of interest.
The Committee has considered the issue of short-term time
deposits at each of its meetings since June 25, 1961. At that meeting,
the Committee determined to request public comment on the desirability of
authorizing a new* deposit instrument having characteristics similar to
money market mutual funds ("MMFs") (46 Fed. Re£. 36712, July 15, 1981).
Over 400 comments were received in response to the Committee's request.
The Committee considered these comments at its September 22,
1981 meeting and determined to solicit additional public comment (46 Fed.
Reg. 50804, October 15, 1981) on several specific proposals for a
short-term deposit designed to compete with money market instruments that
are available in denominations of less than $100,000. The three specific
proposals were:
(1) a ceilingless, $5,000 minimum denomination account
with a transactions feature; (2) a time deposit with an initial maturity
of 91 days, and a 14-day notice period thereafter, with a ceiling rate
tied to the 13-week Treasury bill rate; and (3) a ceilingless $25,000
minimum denomination 1-day notice account. Comment was requested on
several specific account characteristics as well. On December 16, 1981,
the Committee postponed consideration of the matter until its next
meeting.
At its March 22, 1982 meeting, the Committee considered the
comments received and authorized, effective May 1, 1982, a new category
of time deposit with a minimum denomination of $7,500, a maturity of 91
days, and a fixed interest rate ceiling based on the most recent rate
(auction average on a discount basis) established and announced for U.S.
Treasury bills with maturities of 91 days. At that time, the Committee
recognized that the new deposit category would not be fully competitive
with instruments being offered by non-depository institutions.
Therefore, the Committee directed its staff to continue efforts to design
additional short-term deposit categories to enable depository
institutions to compete more effectively with MMFs.
After consideration of the comments received and the analysis
and discussions from previous meetings, as summarized above, the
Committee determined to authorize, effective September 1, 1982, a new
category of short-term time deposit with the following principal
characteristics:
(1) a minimum denomination of $20,000; (2) a maturity
or required notice period of no less than seven days and no more than 31
days as agreed to by the depositor and the institution; and (3) a ceiling
10
rate for all depository institutions based on the 91-day Treasury bill
rate (auction average on a discount basis) at the most recent auction.
Of all the instruments put forth for comment in October 1981,
the $5,000 minimum denomination transaction account was clearly the most
popular because it was generally perceived to be the most competitive
▼is-a-vis MMFs. Nevertheless, the Committee declined to authorize such
an instrument, principally because of the large increase in the interest
costs of depository institutions— particularly thrifts— that could have
resulted from massive shifting of funds out of low-yielding passbook
accounts. Indeed, the two accounts subsequently created by the Committee
were structured expressly to limit the extent of such shifting. More
recently, at its September meeting the Committee considered petitions by
four state regulatory agencies to permit federally-insured depository
institutions in those states to offer "Super NOW accounts" or similar
accounts. These petitions were denied partly because of the probable
impact on earnings of thrift institutions and the potential for
disruptions in regional flows of funds; the Committee also wanted to
delay action on a selective state-by-stSte basis until after Congress had
authorized expanded asset powers for the thrift institutions, after which
the Committee wanted to consider creating a new account that would be
available nationwide.
Zn October 1982, Congress directed the Committee to establish a
category of account "directly equivalent to and competitive with money
market mutual funds." The Committee established the Money Market Deposit
Account ("MMDA"), effective December 14, 1982, with a $2,500 minimum
balance, no interest rate ceiling and limited transactions capability (47
Fed. Reg. 53710, November 29, 1982).
When the Committee requested comment on the MMDA in October,
numerous respondents expressed a desire to have the option of offering
the account with unlimited transfers and drafts. Many others simply
assumed that institutions would have the choice of limiting third-party
transfers or structuring the account without such limits, recognizing
that the latter option would entail transaction account reserve
requirements. Institutions who favored unlimited transfers cited the
liquidity and access features of MMFs as key ingredients to their
success, and felt that any account intended to compete effectively with
MMFs must allow institutions similar flexibility to provide full
transactions capabilities.
In light of the authorization of the congressionally mandated
MMDA, the Committee believes that it is now appropriate to authorize a
transaction account not subject to a rate ceiling. In this regard, the
MMDA will likely attract a substantial amount of funds from passbook
accounts. Consequently, the Committee believes that the additional
effects on shifts of funds from passbook accounts caused by a market-rate
transaction account will be minimal and that the earnings effects
associated with such an account, therefore, will be diminished
considerably.
11
Accordingly, effective January 5, 1963, the Committee has
established a new rule for the payment of interest on NOW accounts that
are offered with the following features, many of which also have been
established in connection with the MMDA:
(1)
92,500 minimum initial and average balance requirement;
(2)
No interest rate ceiling when the average balance is equal
to or in excess of 92,500;
(3)
The existing NOW account ceiling (5-1/4 percent) applies
when the average balance is less than the minimum average
balance;
(4)
Compliance with the average balance requirement may be
determined over a period of one month;
(5)
Institutions must reserve the right to require a least
seven days' notice prior to withdrawal;
(6)
Loans are not permitted to meet the $2,500 minimum amount;
(7)
Unlimited deposit and withdrawal capability; and
(8)
Availability to depositors currently eligible to maintain
NOW accounts under Federal law.
Minimum balance requirement. The Committee determined to impose
an initial balance requirement of $2,500 on NOW accounts that are exempt
from rate ceilings.
In addition, there will be a minimum balance
requirement of $2,500. Depository institutions are free to establish
higher balance requirements if they wish.
Compliance with minimum balance requirement. As with the MMDA,
a depository institution may determine compliance with the minimum
balance requirement (but not the minimum initial balance requirement) by
using an average daily balance calculated over any computation period it
chooses, such as one day, one week or one month, provided that such a
computation period is no longer than a month. A "month" is defined to be
either a calendar month or statement cycle (or similar period) of at
least 28 days but no longer than 31 days, except that a statement cycle
occasionally may be as long as 35 days.
Thus, for example, an
institution could choose to determine compliance with the minimum balance
requirement through the use of a one-week computation period.
A
depositor will have met the requirement if the average daily balance in
the account during the one week computation period is equal to or above
$2,500. In order to ensure compliance with the account's minimum initial
deposit and balance requirements, the Committee prohibited loans for the
purpose of meeting those requirements.
12
The current ceiling on NOW accounts (5-1/4 per cent) will
continue to apply to NOW accounts that have balances of less than $2,500
and to other NOW accounts that are not subject to the conditions under
which a NOW account nay be offered without regard to a ceiling rate. The
5-1/4 percent NOW account ceiling rate will apply for the entire
computation period in which the average balance in the account is less
than $2,500. For example, an institution which uses an average balance
computed over a seven-day period may pay a depositor a rate not in excess
of 5-1/4 percent for the entire seven-day period if the depositor's
average daily balance during that seven-day period is less than $2,500.
Depending on the computation period chosen and the interest crediting
practices of the institution, the lower rate may have to be imposed on an
ex post basis.
Guarantee of rate. The Committee determined to impose a maximum
limitation of one month (as defined above) on the length of time a
depository institution may commit itself to pay any rate of interest or
commit itself to employ any method of calculation of the rate of interest
on the new account. The Committee also determined to prohibit an
institution from conditioning the rate of interest paid or the method of
calculation of the rate of interest paid on the new account on the length
of time a deposit is maintained, if that length of time is longer than a
month (as defined above). For example, a depository institution may not
obligate itself to pay the 91-day Treasury bill rate for a period of six
months. Nor may a depository institution, in effect, guarantee a
specified or indexed rate of interest for over one month by agreeing to
pay a rate (e.g.« 30%) for one month on the condition that the deposit
will be maintained for over one month (e.£., 180 days).
Reservation of notice. The Committee imposed a requirement that
institutions reserve the right to require at least seven days' prior
notice of withdrawals or transfers from NOW accounts not subject to a
ceiling rate. The Committee determined that if an institution chooses to
exercise its right to require notice, it must apply that requirement
equally to all depositors that maintain accounts subject to the new
interest payment rules.
Additions to the account. The Committee determined to impose no
restrictions on the size or frequency of additions to the new account,
including additions effected by sweeps from other accounts into the new
account.
Transactions and withdrawals. As with existing NOW accounts,
depository institutions may permit withdrawals to be made from
ceiling-free NOW accounts by any means and without limit as to size or
frequency.
Eligible depositors. The class of depositors eligible to
maintain NOW accounts is specified in the Consumer Checking Account
Equity Act of 1980 (12 D.S.C. S 1832(a)), section 706 of the Garn-St
Germain Act (96 Stat. 1540), and regulations of the Federal Reserve Board
13
(12 CFR S 217.157), the Federal Deposit Insurance Corporation (12 CFR
S 329.103) and the Federal Home Loan Bank Board (12 CFR S 532.2). Onder
the Consumer Checking Account Equity Act, NOW accounts may consist 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." The Garn-St Germain Act
extends NOW account eligibility to funds of "the United States, any
State, county municipality or political subdivision thereof, the District
of Columbia, the Commonwealth of Puerto Rico, American Samoa, Guam, any
territory or possession of
the United States, or any political
subdivision thereof." These are the only depositors that are permitted
to have NOW accounts. Deposits in which any beneficial interest is held
by a corporation, partnership, association, or other organization that is
operated for profit or is
not operated primarily for religious,
philanthropic, charitable, educational, fraternal or other similar
purposes, or that is not a governmental unit may not be classified as NOW
accounts.
Reserve requirements. Currently, under the Federal Reserve
Board's Regulation D— Reserve Requirements of Depository Institutions (12
CFR Part 204), all NOW accounts are subject to the same reserve
requirements. In this regard, a depository institution is subject to a
full reserve requirement of 3 percent on the first $26.3 million tranche
of its NOW accounts and to a 12 percent reserve requirement on amounts
above $26.3 million. Depository institutions in the New England states,
New York, and New Jersey are subject to a phase-in of reserve
requirements on such accounts.
Depository institutions will have the option of modifying the
rate of interest paid on existing NOW accounts or of offering a new
account not subject to a rate ceiling. Where the interest rate is
changed on an existing account, other specified conditions applicable to
the MMDA also must be met.
The Committee believes that this action will assist depository
institutions in competing with other financial instruments that offer
market rates of return on short-term investments, such as MMFs. The
ability to offer $2,500 minimum balance NOW accounts not subject to a
rate ceiling should assist depository institutions to attract new funds
by competing with other investment alternatives, help stem deposit
outflows, and enhance the ability of institutions to attract and retain
valuable customer relationships.
The Committee considered the potential effect on small entities
of removing the interest rate ceiling on NOW accounts of $2,500 or more,
as required by the Regulatory Flexibility Act (5 U.S.C. S 603 et seq.).
In this regard, the Committee's action would not impose any new reporting
or recordkeeping requirements.
Small entities that are depositors
generally should benefit from the Committee's action since removing the
14
interest rate ceiling on NOW accounts above $2,500 will provide them a
market rate of return on short-term deposits. The competitive position
of small depository institutions vis-a-vis nondepository competitors
should be enhanced by their ability to offer a more competitive
short-term instrument with unlimited transactions capability at market
rates. The new funds that will be attracted as a result of this action
(or the retention of deposits that might otherwise have left the
institution) could be invested at a positive spread and would therefore
at least partially offset the higher cost associated with the shifting of
low-yielding accounts.
Pursuant to its authority under Title XI of Public Law 96-221
(94 Stat. 142; 12 U.S.C. S 3501 £t seq.) to prescribe rules governing the
payment of interest and dividends on deposits and accounts of federally
insured commercial banks, savings and loan associations, and mutual
savings banks, the Committee amends Part 1204 (Interest on Deposits),
effective January 5, 1982, as follows:
1.
By revising section 108 to read as follows:
SECTION 1204.108 — MAXIMUM BATES OF INTEREST
PAYABLE BY DEPOSITORY INSTITUTIONS ON DEPOSITS
SUBJECT TO NEGOTIABLE ORDERS OF WITHDRAWAL
Commercial banks, savings and loan associations, and mutual
savings banks ("depository institutions”) may pay interest on any deposit
or account subject to negotiable or transferable orders of withdrawal
that is authorized pursuant to 12 U.S.C. S 1832(a)
(a) at a rate not to exceed 5-1/4 percent per annum, or
(b) (1) at any rate on an account subject to the conditions of
this paragraph with an initial balance of no less than $2,500 and an
average deposit balance (as computed in paragraph (b)(2) of this section)
of no less than $2,500. However, for an account with an average balance
of less than $2,500, a depository institution shall not pay interest in
excess of the rate specified in paragraph (a) of this section for the
entire computation period, as described in paragraph (b)(2).
(2) The average balance in paragraph (b)(1) may be calculated
on the basis of the average daily balance over any computation period
selected by an institution which is not longer than one month.
(For
purposes of this paragraph (b), "month" shall mean, at a depository
institution's option, a calendar month or statement cycle. A statement
cycle is normally 28 to 31 days, but may occasionally be as long as 35
days.)
(3) A depository institution may not obligate itself to pay
any interest rate or obligate itself to employ any method of calculation
of an interest rate on this account for a period longer than one month.
15
A depository institution may not condition the interest rate paid upon
the period of time the funds remain on deposit in this account, if that
period is longer than one month.
(4) Depository institutions must reserve the right to require
at least seven days' notice prior to withdrawal or transfer of any funds
in this account. If such a requirement for a notice period is imposed by
a depository institution on one depositor, it must be applied equally to
all other depositors holding an account subject to this paragraph (b) at
the same institution.
(5) A depository institution is not permitted to lend funds
to a depositor to meet the $2,500 balance requirements of this
paragraph (b).
2.
follows:
In section 1204.122, by revising paragraph (a), to read as
SECTION 1204.122 —
MONEY MARKET DEPOSIT ACCOUNT
(a) Commercial banks, mutual savings banks, and savings and
loan associations ("depository institutions") may pay interest at any
rate on a deposit account as described in this section with an initial
balance of no less than $2,500 and an average deposit balance (as
computed in paragraph (b) of this section) of no less than $2,500.
However, for an account with an average balance of less than $2,500, a
depository institution shall not pay interest in excess of the ceiling
rate for NOW accounts (12 CFR S 1204.108(a)) for the entire computation
period, as described in paragraph (b) of this section.
*
*
*
*
*
By order of the Committee, December 14, 1982.
J
Mark Bender
Acting Executive Secretary
16
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
12 C.F.R. Part 1204
[Docket No. D-0026]
Honey Market Deposit Account
AGENCY:
Depository Institutions Deregulation Committee.
ACTION:
Final Rule
SUMMARY: The Depository Institutions Deregulation Committee
("Committee") authorized the Money Market Deposit Account
("MMDA") effective December 14, 1982. See 47 Fed Reg 53710
(November 29, 1982). As originally authorized, theCommittee
restricted the MMDA to a maximum of six preauthorized,
automatic or other third-party transfers per month. The
Committee also determined at that time to permit unlimited
telephone transfers from the MMDA to another account of the
same depositor at the same depository institution. At its
December 6, 1982 meeting, the Committee reconsidered this
question and decided that, in order to reduce the potential
for the MMDA to be a transaction account, telephone transfers
from the MMDA to another account of the same depositor at the
same depository institution will be counted in determining
compliance with the limit of six transfers per month.
In a separate action, the Committee amended the defini
tion of "month," for purposes of determining compliance with
the transaction limitations, the minimum average balance
requirements and the interest rate guarantee limitations. The
new definition provides that a "month” may be (at the deposi
tory institution's option) a calendar month or statement
cycle; with a statement cycle normally being 28 to 31 days,
but occasionally being as long as 35 days. The Committee took
this action because a number of depository institutions indi
cated that they had statement cycles that occasionally
exceeded the 31-day maximum of the Committee's previous rule.
EFFECTIVE DATE:
December 14, 1982.
FOR FURTHER INFORMATION CONTACT: Alan Priest, Attorney,
Office of the Comptroller of the Currency (202/447-1880);
F. Douglas Birdzell, Counsel, and Joseph A. DiNuzzo, Attorney,
Federal Deposit Insurance Corporation (202/389-4147); Rebecca
Laird, Senior Associate General Counsel, Federal Home Loan
17
Bank Board (202/377-6446); Paul S. Pilecki, Senior Attorney,
Board of Governors of the Federal Reserve System
(202/452-3281); or Elaine Boutilier, Attorney-Adviser,
Treasury Department (202/566-8737).
List of Subject in 12 CFR Part 1204:
Banks, banking.
SUPPLEMENTAL INFORMATION: Section 327 of the Garn-St Germain
Depository Institutions Act of 1982, Pub. L. No. 97-320,
directed the Committee to establish a new account (now desig
nated the MMDA) effective December 14, 1982. On October 19,
1982, the Committee published a request for comments regarding
characteristics of the MMDA (47 Fed Reg 45630). That request
noted that, in the staff's view, a telephone transfer from the
MMDA to another account of the same depositor at the same
depository institution should be considered a preauthorized or
automatic transfer for purposes of any numerical restriction
on the number of preauthorized or automatic transfers from the
MMDA. Many of the comments received by the Committee
expressed disagreement with this staff position.
At its November 15, 1982 meeting, the Committee adopted
the MMDA regulation effective December 14, 1982, which
establishes a limit of six preauthorized or automatic trans
fers of funds from an MMDA per month no more than three of
which may be by check or draft drawn by the depositor.
However, the Committee determined that, for purposes of this
numerical limitation, a telephone transfer from the MMDA to
another account of the same depositor at the same institution
would not be considered a preauthorized or automatic transfer.
In its publication of the MMDA regulations, the Committee
noted that it would reconsider this issue at its next meeting
(47 Fed. Reg. 53715).
At its December 6, 1982 meeting, the Committee recon
sidered the telephone transfer issue in the context of two
decisions made at that time. The first was the Committee's
determination, effective January 5, 1983, to establish a new
rule for the payment of interest on NOW accounts with a
minimum balance of $2500. A depository institution may pay
any rate of interest on such accounts that also meet certain
conditions that apply to MMDAs. NOW accounts permit unlimited
transactions (including unlimited telephone transfers), and
eligibility is limited by statute to individuals, certain
nonprofit organizations and governmental entities. The second
relevant decision was the determination to request comments on
amending the MMDA regulation to allow depository institutions
to offer an unlimited transactions version of the MMDA to
18
those customers (primarily for-profit corporations) that are
not eligible to have NOW accounts. The Committee noted that
allowing unlimited telephone transfers from the MMDA to other
accounts of the same depositor at the same depository
institution made it possible to utilize the MMDA much like a
transaction account. This potential use for MMDA funds made
more problematic the Federal Reserve Board's definition and
use of monetary aggregates. The Committee also noted the
Federal Reserve Board's recent decision to impose transaction
account reserves on MMDAs where a depository institution did
not count a telephone transfer as a preauthorized or automatic
transfer for purposes of the six transfers per month
limitation ( See 47 Fed Reg 55207 (December 8, 1982)).
Given the above summarized facts and decisions, the
Committee determined that a telephone transfer from the MMDA
to another account of the same depositor at the same depos
itory institution will be considered a preauthorized or
automatic transfer for purposes of the MMDA regulation's limit
of six transfers per month.
In so doing, the Committee noted that telephone transfers
from the MMDA effecting payment to third parties continue to
be subject to the limit of six transfers per month. However,
the Committee also noted that withdrawals made by telephone
from the MMDA and paid to the depositor are not subject to the
limitation on preauthorized or automatic transfers. In this
regard, unlimited withdrawals are permitted where the deposi
tory institution sends a check to its MMDA customer in
response to a telephonic instruction from that customer.
At its November 15, 1982 meeting, the Committee defined
the term "month" as either (at the depository institution's
option) a calendar month or statement cycle of at least four
weeks, but not longer than 31 days. This definition applied
for purposes of determining compliance requirements stated in
monthly terms, i.e., the six-transaction limitations, the
minimum average balance requirements, and the interest rate
guarantee limitations. A number of institutions brought to
the Committee's attention the fact that the 31-day maximum
creates occasional difficulties for depository institutions
that utilize statement cycles keyed to working days rather
than calendar days. For example, if an institution utilized a
statement cycle that ends on the fourth working day of each
month, the statement cycle covering the August 1982 period
would have been 33 days long; if the statement cycle ended on
the first Tuesday of each month, in August 1982, the statement
cycle would have been 35 days long. Although these "longer"
19
statement cycles occur infrequently, such as two or three
times a y e a r , following the rule would cause institutions to
be in technical violation of the rule or create unnecessary
operational burdens on depository institutions.
In response to this problem, the Committee, in a separate
action, made a technical amendment to the MMDA regulation by
defining a "month” to be either a calendar month or a
statement cycle, with a statement cycle normally being 28-31
days, but occasionally being as long as 35 days. This action
would provide depository institutions with maximum flexibility
in designing MMDAs within their existing operational struc
tures or with minimal adjustments. A depository institution,
at its option, may use either a calendar month or statement
cycle, provided it does so consistently.
As discussed above, the Committee requested and received
public comments on whether telephone transfers from the MMDA
to other accounts of the same customer should be considered
automatic or preauthorized transfers for purposes of the
Committee's MMDA regulations.
In addition, in its November
29, 1982 publication of its MMDA regulations, the Committee
advised that the telephone transfer issue would be recon
sidered at its next meeting. With respect to the new
definition of a month, it is noted that this is a technical
amendment providing greater flexibility to depository
institutions and, as such, relieves a restriction. Because
the MMDA regulations have a statutorily mandated effective
date of December 14, 1982, the Committee's action must be
effective on that date.
In light of the foregoing, good cause
exists for not following the prior notice, opportunity for
comment and deferred effective date provisions of 5 D.S.C.
8 553. In view of the Committee's findings, sections 603 and
604 of the Regulatory Flexibility Act (5 D.S.C. 603 and 604)
are not applicable.
Furthermore, because of the nature of
this action, the Committee finds that good cause exists under
section 1201.6(e) of the Committee's regulations for making
this action effective less than 30 days from the date of
publication in the Federal Register.
Pursuant to its authority under Title II of Pub. L. No.
96-221 (94 Stat. 142? 12 O.S.C. 3501 et seg.) to prescribe
rules governing the payment of interest and dividends on
deposits and accounts of federally insured commercial banks,
savings and loan associations, and mutual savings banks, and
pursuant to the authority granted by Section 327 of the
20
Garn-St Germain Depository Institutions Act of 1982, Pub. L.
No. 97-320 (to be codified at 12 U.S.C. S 3503), the Committee
amends Part 1204 (Interest on Deposits) by revising paragraph
(e)(1) of S 1204.122, effective December 14, 1982, to read as
follows:
8 1204.122 Honey Harket Deposit Account
*
*
*
*
*
(b) The average balance for this account may be calcula
ted on the basis of the average daily balance over any com
putation period selected by an institution, which is not
longer than one month.
(For purposes of this paragraph and
paragraphs (c) and (e) of this section, a "month” shall mean,
at a depository institution's option, either a calendar month
or a statement cycle. A statement cycle is normally 28 to 31
days, but may occasionally be as long as 35 days.)
(e)(1) Depository institutions are not required to limit
the number of transfers of funds from this account to another
account of the same depositor when made by mail, messenger,
automated teller machine or in person. Depository institu
tions are not required to limit the number of withdrawals
(i.e., payments directly to the depositor) from this account
when made by mail, telephone (via check mailed to the depos
itor), messenger, automated teller machine or in person.
Depository institutions must restrict all preauthorized
(including automatic) transfers of funds from this account to
a maximum of six per month. Three of such transfers may be by
check, draft or similar device drawn by the depositor to third
parties. Telephone transfers to third parties or to another
account of the same depositor are regarded as preauthorized
transfers. There is no required minimum denomination for the
transfers allowed by this section.
*
*
*
*
*
By order of the Committee, December 14, 1982.
Acting Executive Secretary
21
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
12 CFR Part 1204
[Docket No. 0030]
Money Market Deposit Account with Unlimited Transfers
For Those Not Eligible to Maintain NOW Accounts
AGENCY:
Depository Institutions Deregulation Committee.
ACTION:
proposed rulemaking.
SUMMARY: The Committee is requesting comment on an amendment to the Money
Market Deposit Account authorized by the Committee, effective December 14,
1982, at 12 CFR S 1204.122, that would remove the restrictions on the number
of transfers of funds for those accounts held by depositors that are not
eligible to maintain NOW accounts.
DATE:
Comments must be received by February 1, 1982.
ADDRESS: Interested parties are invited to submit written data, views, or
arguments concerning the proposed amendment to Gordon Eastburn, Acting
Executive Secretary, Depository Institutions Deregulation Committee, Room
1058, Department of the Treasury, 15th Street and Pennsylvania Avenue, N.W.,
Washington, D.C. 20220. All material submitted should include the Docket
Number 0030 and will be available for inspection and copying upon request,
except as provided in S 1202.5 of the Committee's Rules Regarding Availability
of Information (12 CFR 1202.5).
FOR FURTHER INFORMATION CONTACT:
Alan Priest, Attorney, Office of the
Comptroller of the Currency (202/447-1880); Joseph DiNuzzo, Attorney, Federal
Deposit Insurance Corporation (202/389-4147); Rebecca Laird, Senior Associate
General Counsel, Federal Home Loan Bank Board (202/377-6446); Robert G.
Ballen, Attorney, Board of Governors of the Federal Reserve System
(202/452-3265); or Elaine Boutilier, Attorney-Adviser, Treasury Department
(202/566-8737).
Lists of Subjects in 12 CFR Part 1204: Banks, banking.
SUPPLEMENTARY INFORMATION: The Depository Institutions Deregulation Act of
1980 ("DIDA”) (Title II of Pub. L. 96-221, 12 U.S.C. SS 3501 et seq.)
established the Committee to provide for the orderly phaseout and ultimate
elimination of the limitations on the maximum rates of interest and dividends
that may be paid on deposit accounts by depository institutions as rapidly as
economic conditions warrant. Section 327 of the Garn-St Germain Depository
Institutions Act of 1982 requires the Committee to authorize a new insured
deposit account that "shall be directly equivalent to and competitive with
money market funds."
22
,
The Committee established this new account, the Money Market Deposit
Account ("MMDA") effective December 14, 1982 (12 CFR S 1204.122). The MMDA
is an insured deposit account with the following principal characteristics:
(1) an initial balance and average balance requirement of no less than $2,500;
(2) no minimum maturity; (3) no interest rate ceiling on deposits satisfying
the initial and average balance requirements; and (4) a maximum of six
preauthorized, automatic or third party transfers per month, of which no more
than three can be checks. Any depositor is eligible for the MMDA account.
The Committee subsequently, pursuant to its authority under the DIDA,
established a new rule for the payment of interest on NOW accounts that have a
minimum initial and average balance of $2,500. A depository institution may
pay any rate of interest on such accounts if it also meets certain conditions
that apply to the MMDA (12 CFR S 1204.108(b)). NOW accounts generally are
available only to individuals, certain nonprofit organizations operated
primarily for religious, philanthropic, charitable, educational, or other
similar purposes and governmental units (12 U.S.C. S 1832(a)(2)).
The Committee requests comment on a proposed modification to the MMDA
that would permit commercial banks, mutual savings banks, and savings and loan
associations to offer the MMDA to depositors that are not eligible to maintain
NOW accounts with no restriction as to the number of transfers of funds from
the account.
In this regard, the General Counsel to the Committee has
concluded that the Committee may modify the MMDA to provide for unlimited
transfers for all categories of depositors given that Congress did not
restrict the Committee's authority to add other characteristics that would
make the account "directly equivalent to and competitive with money market
mutual funds” and provided that the account be available to all customers.
The Committee is particularly interested in comments on the impact of this
proposed modification to the MMDA account on: (1) the flow of funds into and
out of, and between accounts within, institutions; (2) the earnings of
institutions; and (3) the funding of institutions in light of the differing
degree of regulation on accounts with different maturities.
The Committee has considered the potential effect on small entities
of the proposal to modify the MMDA, as required by the Regulatory Flexibility
Act (5 U.S.C. 603 et sea.). In this regard, the Committee's action, in and of
itself, would not impose any new reporting or recordkeeping requirements.
Consistent with the Committee's statutory mandate to eliminate deposit
interest rate ceilings, this proposal would enable all depository institutions
to compete more effectively in the marketplace for short-term funds.
Depositors that are not eligible to maintain NOW accounts generally should
benefit from the Committee's proposal, since the new instrument would provide
them with another investment alternative that pays a market rate of return.
If low-yielding deposits shift into the new account, depository institutions
might experience increased costs as a result of this action. However, their
competitive position vis-a-vis nondepository competitors would be enhanced by
their ability to offer a potentially more attractive competitive short-term
instrument at market rates. The new funds attracted (or the retention of
23
deposits that might otherwise have left the institution) could be invested at
a positive spread and would therefore at least partially offset the higher
costs associated with the shifting of low-yielding accounts.
,
By order of the Committee December 14, 1982.
1
Mack Bender
Acting Executive Secretary
@FedFRASER