The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
F ederal Reserve Bank o f D allas
DALLAS, TEXAS
75222
Circular No. 83-5
January 17, 1983
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
(Proposed Rulemaking)
TO ALL MEMBER BANKS
AND OTHERS CONCERNED IN THE
ELEVENTH FEDERAL RESERVE DISTRICT:
The Depository Institutions Deregulation C om m ittee (DIDC) has re
quested public comment, by February 1, 1983, on whether it should a cc e le ra te the
deregulation of in terest ra te ceilings on deposits and should simplify other
regulations on existing deposit catagories.
The DIDC has proposed certain rule changes as a result of recen t
statuto ry and regulatory changes which may have an e ffe c t on the mix of
short-term and long-term deposits of depository institutions. Comments should
be directed to Mr. Gordon Eastburn, Acting Executive Secretary, Depository
Institutions Deregulation C om m ittee, Room 1058, D epartm ent of the Treasury,
15th S treet and Pennsylvania Avenue, N.W., Washington, D.C., 20220 and should
re fe r to Docket No. D—0031.
A ttached are copies of the DIDC's press release and the m aterial as
submitted for publication in the Federal R eg ister.
Questions regarding the
m aterial contained in this circular should be directed to this Bank's Legal
Departm ent, Extension 6171.
Additional copies of this circular will be furnished upon request to the
Public Affairs D epartm ent, Extension 6289.
Sincerely yours,
William H. Wallace
First Vice President
Banks and others are encouraged to use the following incoming W A T S 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
PRESS RELEASE
December 2 2 , 1982
Proposed Rules
Today the Depository Institutions Deregulation Committee
(DIDC) released the attached request for comments on proposed
rules discussed at the December 6, 1982 DIDC meeting.
The Committee is requesting comment on whether it should
accelerate the deregulation of interest rate ceilings on time
deposits and/or simplify other regulations on existing time
deposit categories.
Comments must be received by February 1, 1983.
Attachment
COMPTROLLER OF THE CURRENCY
FEDERAL RESERVE BOARD
FEDERAL DEPOSIT INSURANCE CORPORATION
NATIONAL CREDIT UNION ADMINISTRATION
FEDERAL HOME LOAN BANK BOARD
DEPARTMENT OF THE TREASURY
DEPOSITORY INSTITUTIONS DEREGULATION COMMITTEE
[12 CFR Part 1204]
(Docket No. D-0031)
Deregulation of Deposit Rate Ceilings
AGENCY:
Depository Institutions Deregulation Committee.
ACTION:
Proposed rulemaking.
SUMMARY: As a result of the passage of the Garn-St Germain Depository
Institutions Act of 1982, the Depository Institutions Deregulation
Committee ("Committee") is requesting public comment on whether it should
accelerate the deregulation of interest rate ceilings on deposits and
should simplify other regulations on existing deposit categories.
Specifically, the Committee requests comment on whether it should:
(1) remove all interest rate ceilings immediately OR deregulate accounts
with maturities of 91 days or more, except for a minimum early withdrawal
penalty OR eliminate all existing time deposit categories with maturities
of less than 91 days and extend the maximum maturity on the new Money
Market Deposit Account (12 C.F.R. § 1204.122) to 91 days; (2) accelerate
its current schedule for phasing out interest rate ceilings; (3) simplify
the current rate ceiling schedules; (4) simplify interest rate ceilings
and other characteristics on the 26-week money market certificate and the
91-day time deposit to make them more consistent; and (5) simplify and
rationalize other features of account categories, such as minimum
denomination and compounding of interest, to make them more consistent.
DATES:
Comments must be received by February 1, 1983.
ADDRESS:
Interested parties are invited to submit written data, views,
or arguments regarding the proposal 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 D-0031. Such material will be made available for inspection and
copying upon request except as provided in the Committee's Rules
Regarding Availability of Information (12 CFR S 1202.5).
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 Bank Board (202/377-6446); John Harry Jorgenson, Senior
Attorney, Board of Governors of the Federal Reserve System
(202/452-3778); or Elaine Boutilier, Attorney-Adviser, Treasury
Department (202/566-8737).
-
2-
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 se^.) ("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 the DIDA, the Committee is authorized
to phase out interest rate ceilings by any one of a number of methods,
including the elimination of interest rate limitations applicable to
particular categories of accounts, the creation of new account categories
not subject to interest rate limitations, or with interest rate ceilings
set at market rates of interest, or any combination of the above.
The Garn-St Germain Depository Institutions Act of 1982, Pub. L.
97-320 ("Garn-St Germain Act") amended the DIDA and required the
Committee to authorize the new Money Market Deposit Account ("MMDA").
After taking public comment, the Committee on November 15, 1982, did
create such an account to enable institutions to compete with money
market mutual funds, effective December 14, 1982.
(47 Fed. Reg. 53710
November 29, 1982)
Section 326 of the Garn-St Germain Act requires that
the interest rate differential in favor of thrifts be eliminated on or
before January 1, 1984.
In March 1982, the Committee adopted a deregulation schedule
that phases out interest rate ceilings beginning with longer-term time
deposits.
With the deregulation schedule in place, the focus of the
Committee turned to short-term deposit instruments.
Prevailing high
interest rates had caused a continued erosion of low-cost deposits at
banks and thrifts, as depositors sought market rates elsewhere,
particularly through money market mutual funds ("MMFs"). The Committee
addressed this problem by authorizing, effective May 1, 1982, a 91-day
time deposit with a $7,500 minimum denomination indexed to the 91-day
Treasury bill rate, and establishing effective September 1, 1982, a 7- to
31-day deposit account with a $20,000 minimum denomination, also indexed
to the 91-day Treasury bill rate.
On December 6, 1982, the Committee
further deregulated short-term deposits by exempting from interest rate
ceilings NOW accounts with average balances of $2,500 that are subject to
certain of the restrictions that apply to the MMDA to be effective
January 5, 1983.
The Committee also reduced to $2,500 the minimum
denomination on the 7- to 31-day, the 91-day, and the 26-week MMC
categories of deposits, effective January 5, 1983, and eliminated the
indexed ceiling on the 7- to 31-day account, effective on that date.
Because of the effect the statutory and regulatory changes
summarized above may have on the mix of short-term and long-term deposits
of depository institutions, the Committee requests comments on several
proposals pertaining to existing interest rate ceilings and account
3characteristics. The Committee wishes to encourage interested parties to
comment on the effect that these changes may have on earnings and
liquidity.
Even if opposed to any changes or in favor of complete
deregulation of interest rate ceilings, interested parties are requested
to comment on changes that should be made if the Committee does decide to
accelerate the schedule or to amend the short-term deposit ceiling rate
schedules in order to simplify their characteristics and make them more
consistent.
Current Ceiling Rate Structure (see TABLE 1)
Under the current interest rate ceiling structure for deposits
at federally insured commercial banks, savings and loan associations, and
mutual savings banks, most of the interest rate ceilings on traditional,
fixed-rate time deposits are superseded as a practical matter by account
categories with indexed rates or with no rate ceiling. Also, the MMDA
has no interest rate ceiling, and the 7- to 31-day account, effective
January 5, 1983, will also have no interest rate ceiling.
Deposit
categories with maturities of 91 days, 6 months and 2-1/2 to less than
3-1/2 years are available, but such accounts are subject to rate ceilings
tied to an index. Other categories with maturities between 31 days and
3-1/2 years are subject to the fixed-rate ceiling schedule.
With the
exception of the 1-1/2 year IRA/Keogh deposit category (which has a
limited purpose), depository institutions cannot offer ceiling-free
deposits with maturities of between 31 days and 3-1/2 years.
-
4-
TABLE 1
CURRENT TIME DEPOSIT CEILING RATE STRUCTURE!/
Maturity of Account___________ Commercial Banks
_______ S&Ls and MSBs
Fixed Ceilings
14 to 89 days^/
90-day to 1 year.?/
1 to 2-1/2 years
2-1/2 to 4 years!/
4 to 6 yearsl/
6 to 8 yearsl/
8 years and over!/
5-1/4
5-3/4
n.a.
6
6- 1/2
6-3/4
7-1/2
7-3/4
6
6 - 1/2
7-1/4
7-1/2
7-3/A
8
Indexed or Ceiling-Free
1 to 31-day MMDA
No ceiling
No ceiling
7- to 31-day account!/
No ceiling
No ceiling
91-day account^/
Indexed
Indexed
6-month MMCDl/
Indexed; ceiling rate
does not decline
below 7.75 percent
Indexed; ceiling rate
does not decline
below 7.75 percent
18-month IRA/Keogh
Account
No ceiling
No ceiling
2-1/2-year to less
than 3-1/2-year^/
Indexed; ceiling rate
does not decline
below 9.25 percent
Indexed; ceiling rate
does not decline
below 9.50 percent
3-1/2-year or morel/
No ceiling
No ceiling
1. Does not describe all details of current ceiling rates.
2. Partially superseded by indexed accounts.
3. Completely superseded by indexed or ceilingless accounts.
4. Ceiling removed effective January 5, 1983.
5. See TABLE 3 for full detail of the index rate schedule for these accounts.
6. Indexed to average yield for Treasury securities with comparable remaining
maturity. See 12 C.F.R. § 1204.106. Effective April 1, 1983, this category
becomes "1-1/2 year to less than 2-1/2 years."
7. These accounts have characteristics that distinguish them from fixed
ceiling time deposits.
See 12 C.F.R. S 1204.119.
Effective April 1, 1983,
this category becomes ”2-1/2 years or more.”
-
5-
Current Phaseout Schedule (see TABLE 2)
The phaseout schedule adopted by the Committee in March of
1982 established a new deposit category with a maturity of 3-1/2 years
or more and no interest rate ceiling. Institutions were free to offer
the deposit in any denomination but had to at least offer it in a $500
denomination. Dnder the schedule, the maturity of the instrument will
be reduced annually by one year until March 31, 1986, at which time it
will have the minimum maturity for time deposits (currently 14 days).
The gap between short-term and long-term
ceiling-free
deposits will be narrowed somewhat on April 1, 1983, when institutions
will be able to offer ceiling-free deposits with maturities of 2-1/2
years or more.
However, a 31-day to 2-1/2 year gap would remain,
restricting depositors and institutions alike in their selection of
ceiling-free accounts to those with very short, or
with still
relatively long, maturities.
Since rate ceilings were initially
intended to reduce the risks to institutions of offering short-term
interest bearing deposits, and since, in any event, the existence of
indexed rate ceilings in the near-term ceiling structure may induce
institutions to shorten their liability structure
unduly, the
Committee believes it is appropriate to consider removing existing
interest rate ceilings on longer-term deposits (or accelerating their
removal) to allow institutions to offer a range of deposit instruments
distinguished primarily by a negotiated rate and maturity.
This is
especially true since the short-term, ceiling-free accounts may be
attractive enough to draw significant funds from longer-term indexed
accounts.
The flexibility of the management of depository
institutions would also be increased by such an action.
-
6-
TABLE 2
CURRENT INTEREST RATE CEILING DEREGULATION SCHEDULE
INDEXED TIME DEPOSITS
Commercial
Bank Ceiling
Original Maturity
Thrift Ceiling
Effective April 1. 1983
2-1/2 years or morel/
Ceiling eliminated
Ceiling eliminated
1-1/2 years to less
than 2-1/2 year&2/
Thrift rate less .25%.
Average yield for
1-1/2 year Treasury
securities.
Ceiling eliminated
Ceiling eliminated
Ceiling eliminated
Ceiling eliminated
Ceiling eliminated
Ceiling eliminated
Effective April 1, 1984
1-1/2 years or morel/
Effective April 1, 1985
6 months or morel/
Effective March 31, 1986
14 days or morel/
1.
2.
3.
4.
5.
See
See
See
See
See
12
12
12
12
12
C.F.R.
C.F.R.
C.F.R.
C.F.R.
C.F.R.
S
s
s
s
s
1204.119(d).
1204.106(c)(2)
1204.119(e).
1204.119(f).
1204.119(g).
-
7-
COMMENTS ON ELIMINATION OR ACCELERATION OF CEILINGS
Elimination of Rate Ceilings
The Committee requests comment on whether to eliminate the
current rate ceilings (TABLE 1) completely at its next meeting. The
Committee is particularly interested in comments on the projected
effect such an action would have on institutional earnings and deposit
flows. While such an action would effectively eliminate the need for
the various existing deposit categories, such as the 91-day, and the
26-week MMC and the short-term fixed-ceiling deposit categories, it
would not actually eliminate these accounts.
Institutions would
probably want to retain some of these categories because they are
currently popular with consumers.
Eventually, however, the accounts
will probably become obsolete like the longer-term fixed-ceiling time
deposits shown in the top panel of TABLE 1.
Further, while
elimination of the rate ceiling structure would automatically remove
any interest rate differentials on deposit categories in favor of
thrift institutions, the elimination of all differentials must occur
on or before January 1, 1984, under section 326 of the Garn-St Germain
Act. Thus, if the Committee eliminated all existing ceilings at its
next meeting, and assuming a delayed effective date, the elimination
of the thrift differential would be accelerated by no more than nine
months.
An alternative to the removal of the current rate ceiling
structure was suggested to the Committee by the Federal Deposit
Insurance Corporation ("FDIC"). The FDIC suggests that the Committee
completely deregulate all time deposits with original maturities of 91
days or more by removing all interest rate ceilings and other
restrictions (except for an early withdrawal penalty) on such time
deposits. For such time deposits, if funds are withdrawn within the
first 90 days of the deposit, a minimum early withdrawal penalty,
requiring the forfeiture of one-month's interest (not to exceed the
interest earned), would be imposed. This penalty would be necessary
so that these totally deregulated time deposits can not be structured
to provide instant liquidity.
If withdrawal is permitted after the
first 90 days, institutions would be permitted, but not required by
regulation, to impose an early withdrawal penalty. The remaining rate
structure on time deposits with maturities of 31 to 90 days would be
phased out on March 31, 1986.
Alternatively, the Federal Home Loan
Bank Board suggested that all categories of time deposits with
original maturities of 91 days or less be eliminated and that the
maximum maturity of the money market deposit account be extended to 91
days from its current maximum of 31 days. The balance of the ceiling
rate structure would be phased out as currently scheduled (TABLE 2).
Acceleration of Rate Schedule
As mentioned above, the Garn-St Germain Act accelerated the
total elimination of the thrift differential from March 31, 1986, to
-
8-
on or before January 1, 1984 and directed the Committee to create the
ceiling-free MMDA. Consistent with this Congressional acceleration of
the phaseout of limitations on the payment of interest, the Committee
also requests comment on accelerating its current schedule (TABLE 2)
for phasing out ceilings in general in the event the Committee finds
that total deregulation or the removal of ceilings is inappropriate at
this time.
For example, the entire schedule could be advanced one
year so that elimination of all ceilings occurs on April 1, 1985,
instead of March 31, 1986, or the one-year interval in TABLE 2 could
be reduced to six months. The Committee could also accelerate the
removal of ceilings on longer-term deposits while keeping the
short-term portion of the schedule intact.
For example, it could
accelerate deregulation of ceilings on deposits with maturities of
1-1/2 years or more to April 1, 1983, from April 1, 1984, but leave
deregulation of rate ceilings on deposits with maturities of 6 months
to 1-1/2 years until the currently scheduled date of April 1, 1985.
COMMENTS ON SIMPLIFICATION
In addition to requesting comment on deregulation in general,
the Committee also requests comments on how it could simplify current
ceiling rate schedules and current account characteristics.
The
Committee also requests comment on whether it should rescind ceilings
on fixed-rate deposits that have been, or will be, superseded by
indexed or ceiling-free account categories (TABLE 1). The Committee
also requests comment on whether it should promptly extend indexing to
all categories of fixed-rate deposits that have not yet been
superseded by indexed ceilings or by removal of ceilings (TABLE 1).
Ceilings on these newly indexed accounts would be phased out in
accordance with the schedule on TABLE 2.
Short-Term Deposit Rate Schedule (TABLE 3)
The current ceiling rate structure for the 26-week money
market certificate is presented in the top portion of TABLE 3. The
schedule is rather complex in that two alternative index rates are
used— the most recent auction rate on 6-month Treasury bills or an
average of the bill rates at the four most recent auctions— and the
formula for determining the ceiling rate changes at five different
levels of the index rate.
-
9TABLE 3
CURRENT CEILING SCHEDULES FOR SHORT-TERM DEPOSIT ACCOUNTS
Index Ratel/
Commercial
Bank Ceiling
Thrift Ceiling
Differential
26-.week money market certificate
greater than
8.75 percent
index rate + .25
index rate + .25
8.5 to 8.75
index rate + .25
9.0
7.5 to 8.5
index rate + .25
index rate + .50
.25
7.25 to 7.5
7.75
index rate + .50
.25 to 0
less than 7.25
7.75
7.75
0 to .25
0
91-day account
greater than
9.0 percent^/
index rate - .25
index rate
9.0 percent
or below!/
index rate
index rate
7- to 31-day
account!/
no ceiling
no ceiling
.25
1. The index rate for the 26-week
MMC is the higher of the most recent
auction rate (auction average, discount basis) on 6-month Treasury bills or an
average of the four most recent auction rates. The index rate on the 91-day
account is the most recent auction rate (auction average, discount basis) on
3-month Treasury bills.
2. The differential is scheduled to be removed on May 1, 1983. At that time,
all institutions will be able to pay the index rate at all interest rate
levels.
3. The index must be 9.0 percent or
below for four consecutive auctions.
4. At its December 6, 1982 meeting,
the Committee determined that, effective
January 5, 1983, the 7-to 31-day account would become ceiling free.
This
action was taken because the ceiling (indexed to the 91-day Treasury bill
rate) became meaningless with the authorization of the new money market
deposit account, which is ceiling free.
-
10-
The methods of establishing the ceilings on the newer 91-day
account (authorized beginning in May 1982) is less complex than the MMC,
with the formula for determining the ceiling rate at various index rate
levels changing only once, namely, when the 3-month Treasury bill rate
reaches 9.0 percent (middle portion of TABLE 3).
In addition to
different ceiling rate structures, the thrift differential is applied
inconsistently to these accounts.
It is added to the index rate in the
case of the 26-week MMC but is deducted from the index in the case of the
91-day deposit.
Moreover, in the case of the 26-week MMC the
differential is removed if the index rate goes above 8.75 percent and is
removed on the 91-day account when the index rate falls below 9 per
cent. However, the differential on the 91-day account is scheduled to be
eliminated on May 1, 1983, so conforming this feature on these two
accounts solely for the purpose of consistency may be unnecessary.
The different methods of calculating the ceilings on the MMC and
the 91-day instrument have resulted in a confusing, and in some instances
an inconsistent, situation. Therefore, the Committee requests comment on
whether and how this schedule should be revised.
Simplification of Other Account Characteristics (TABLE 4)
Even if the Committee determines to make no changes to the
short-term rate ceiling schedule, other characteristics of the short-term
deposit categories could be made more consistent in order to simplify the
current account structure.
Some of the differences in the short-term
deposit accounts are presented in TABLE 4.
-
11TABLE 4
SELECTED CHARACTERISTICS OF SHORT-TERM DEPOSIT ACCOUNTS
7- to 31
. dav Account
Characteristic
Minimum
denomination
26-week MMC
$2,5001/
$2,5001/
$2,5001/
Loophole loans
permitted
prohibited
prohibited
Index rate
6-month bill
rate or 4-week
average of bill
rates
3-month bill
rate
N.A.
Relation between
index rate and
ceiling rate
presented in
table 1
presented in
table 1
N.A.
Minimum ceiling
7.75%
Compounding
prohibited!/
prohibited!/
Differential
when index rate
is between 7.25
and 8.75%!/
when index rate
is above 9.0%JL/
N.A.
Differential on
IRA/Keogh ac
counts and de
posits of gov
ernmental units
Banks may pay
the thrift rate
for these
deposits
Differential
applies to these
deposits
N.A.
Dec. 31, 19831/
May 1, 1983
-
April 1, 1985
March 31, 1986
-
Scheduled elimi
nation of
differential
Scheduled elimi
nation of ceiling
91-dav account
none
none
unrestricted
1. Effective January 5, 1982.
2. Although compounding is prohibited, a saver--.effectively will
receive
semiannual compounding if the original deposit plus interest is reinvested in
another MMC at maturity.
3. Although compounding is prohibited, a saver effectively will
receive
quarterly compounding if the original deposit plus interest is reinvested in
another 91-day certificate at maturity.
4. The full 25 basis point differential is in effect only when the index rate
is between 7.5 and 8.5 percent.
5. Scheduled to be eliminated May 1, 1983.
6. Prior to the passage of the Garn-St Germain Depository Institutions Act,
this differential was scheduled to be eliminated on April 1, 1985.
-
12-
In view of these complexities, the Committee requests comment on
whether changes should be made to the existing regulations authorizing
these accounts in order to make the regulations less cumbersome and more
uniform. The Committee is particularly interested in comments on (1) the
relation between the index rate and the ceiling rate, (2) the thrift
ceiling rate differential, (3) loophole loans, (4) the use of the
four-week average method of calculating the MMC ceiling, and (5) the
frequency of compounding that is permitted.
The Committee also requests comment on whether it should phase
out minimum denomination requirements.
For example, combining the
phaseout of the minimum denomination on the MMDA and other short-term
accounts with the Committee's current rate deregulation schedule would
have the effect of phasing out passbook and NOW account ceiling rates as
well as the minimum denomination on NOW accounts exempt from rate
ceilings. Ceilings on savings accounts and on NOW accounts not subject
to a minimum denomination requirement are not eliminated until March 31,
1986 under the Committee's current phaseout schedule.
As the minimum
denomination of indexed or ceiling-free, short-term time deposits is
reduced under a phaseout schedule, the ceiling rate on savings and NOW
accounts would become less binding, and more depositors would become
eligible for the higher rate.
For example, the $2,500 minimum
denomination on the MMDA, NOW accounts exempt from rate ceilings, the 7to 31-day account, the 91-day account, and the 26-week MMC could be
reduced $500 or $1,000 at the time of each interest rate ceiling
adjustment.
At the next such adjustment, scheduled for April 1, 1983,
the minimum denomination on such accounts could be reduced to $1,500.
Subsequent periodic reductions would occur until no minimum denomination
would be required on any deposit category.
OUTLINE OF POSSIBLE OPTIONS ON WHICH COMMENT IS REQUESTED
A summary of the options, discussed above, of possible Committee
action is presented in an outline form below.
Elimination of Interest Rate Ceilings
1. Should the Committee eliminate the current
structure (TABLE 1)?
interest rate ceiling
a.
Should the Committee eliminate all remaining
ceilings immediately?
interest rate
b.
Should the Committee adopt the FDIC proposal and remove
interest rate ceilings and all other restrictions on deposits
with original maturities of 91 days or more, except for an
early withdrawal penalty for withdrawals made in the first 90
days of the deposit?
-
13-
c.
Should the Conunittee
the maximum maturity
days and eliminating
deposits and let the
adopt the FHLBB suggestion by extending
on money market deposit accounts to 91
all competing categories of short-term
current schedule apply otherwise?
d.
What other methods of eliminating current ceilings should the
Committee consider?
Acceleration of the Current Rate Phaseout Schedule (TABLE 2)
2. Should the
(TABLE 2)?
Committee
accelerate
the
current
phaseout
schedule
a.
Should the Committee simply advance each date in TABLE 2 by
six months or a year or by some other period?
b.
Should the Committee accelerate the long-term phaseout
schedule (i.e. move up deregulation of deposits with original
maturities of 1-1/2 years or more) but allow the deregulation
schedule for all other time deposits to remain intact (i.e.
91-days to 1 year)?
c.
What other methods of accelerating deregulation should the
Committee consider?
Simplification of Interest Rate Ceilings
3. If the Committee does not eliminate or accelerate the phaseout of
interest rate ceilings in general, should the Committee make changes
to the rate ceiling schedule for any category of time deposits
(TABLE 1)?
a.
Should all indexed accounts (middle of TABLE 1 and TABLE 3)
become ceiling-free when their base rate is at 9 per cent or
below (or at some other base rate) for four consecutive
auctions (or for some other period)?
b.
Should indexed accounts have a minimum ceiling that remains at
9 per cent (or some other rate) if the auction rate is at or
below a rate of 9 per cent?
c.
Should the elimination of the thrift differential be
accelerated from its current statutory elimination on December
31, 1983?
d.
Should the Committee rescind existing rate ceilings on all
fixed-ceiling time deposits that are now, or in the future
will be, superseded by indexed or ceiling-free accounts?
(See
footnotes 2 ( 3 to TABLE 1)
-
e.
14-
Should existing ceilings on fixed-rate accounts (top of
TABLE 1) be eliminated and replaced by appropriate market rate
indexing (bottom of TABLE 1), which would then be subject to
the phaseout schedule (TABLE 2)?
f. What other options
Committee consider?
for
simplifying
ceilings
should
the
Simplification and Rationalization of Interest Rate Ceilings and Other
Characteristics of the 26-week MMC and the 91-day Account
4. If the Committee does not make changes to the rate ceiling schedule
fordeposits in general (No. 3,
above), should it make changes to the
26-week MMC and the 91-day account (TABLE 3)?
a.
Should the Committee remove the interest rate ceilings on the
26-week money market certificate and the 91-day account as it
did for the 7- to 31-day account at its last meeting?
b.
Should the 26-week MMC and the 91-day account become
ceiling-free when the rate on D.S. Treasury bills is at 9 per
cent or below (or at some other rate) for four consecutive
auctions (or for some other period)?
c.
Should the 26-week MMC and the 91-day account have a minimum
ceiling that remains at 9 per cent (or at some other rate) if
the auction rate is below a rate of 9 per cent (or at some
other rate)?
d.
Should the Committee eliminate the 7.75 per
ceiling for the 26-week MMC?
e.
Should the phaseout of the differential on 26-week MMCs,
currently scheduled for December 31, 1983, be accelerated to
May 1, 1983, to conform to the phaseout date for the
differential on the 91-day account?
f.
cent minimum
Should commercial banks be permitted to pay the thrift celling
rate on maturing 26-week MMCs in order to enable them to
compete more effectively for such deposits upon maturity?
g.
Should the Committee rescind the amendment on the 26-week MMC
which permits the ceiling to be the higher of the auction
average or a 4-week average of the auction rates?
h.
What other options concerning changes to the ceiling rates on
these accounts should the Committee consider?
15Simplification of Characteristics of Deposit Categories
5. If the Committee does not make changes to the schedule for
deregulating rates in general, should it make changes to the primary
characteristics of short-term deposits (TABLE 4)?
a.
Should the Committee permit loans to meet the minimum
denomination requirements on all accounts OR should it
prohibit such loans on all accounts?
b.
Should the Committee establish a schedule for
minimum denomination requirements (such as
minimum by $500 or $1,000 on each scheduled
phaseout date) OR should it eliminate such
immediately?
c.
Should the Committee permit compounding on the 26-week MMC and
the 91-day account as is currently permitted on all other
interest-bearing accounts?
d.
Should commercial banks be permitted to pay the ceiling rate
for thrifts on IRA/Keogh and governmental unit deposits?
e.
What other changes to the characteristics of these accounts
should the Committee consider?
phasing out all
reducing the
interest rate
requirements
The Committee wishes to encourage interested parties to comment
on the effect these changes may have on earnings and liquidity. Even if
opposed to any changes or in favor of complete deregulation of interest
rate ceilings, interested parties should comment on specific changes that
they believe should be made if the Committee does decide to accelerate
the schedule or to amend the short-term deposit ceiling rate schedules in
order to simplify and make their characteristics more consistent.
By order of the Committee, December 22, 1982
@FedFRASER